E. DISSOLUTION AND WINDING UP (ARTICLES 1828 TO 1842) petitioner's unpaid salaries.
petitioner's unpaid salaries. Petitioner was in fact not allowed to work anymore in the Jade
1. BENJAMIN YU vs. NATIONAL LABOR RELATIONS COMMISSION and JADE
MOUNTAIN PRODUCTS COMPANY LIMITED, WILLY CO, RHODORA D. BENDAL, LEA
BENDAL, CHIU SHIAN JENG and CHEN HO-FU
Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble
quarrying and export business operated by a registered partnership with the firm name of
"Jade Mountain Products Company Limited" ("Jade Mountain"). The partnership was
originally organized on 28 June 1984 with Lea Bendal and Rhodora Bendal as general
partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of the Republic of China
(Taiwan), as limited partners. The partnership business consisted of exploiting a marble
deposit found on land owned by the Sps. Ricardo and Guillerma Cruz, situated in Bulacan
Province, under a Memorandum Agreement dated 26 June 1984 with the Cruz spouses. 1 The
partnership had its main office in Makati, Metropolitan Manila.
Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985, as
Assistant General Manager with a monthly salary of P4,000.00. According to petitioner Yu,
however, he actually received only half of his stipulated monthly salary, since he had
accepted the promise of the partners that the balance would be paid when the firm shall
have secured additional operating funds from abroad. Benjamin Yu actually managed the
operations and finances of the business; he had overall supervision of the workers at the
marble quarry in Bulacan and took charge of the preparation of papers relating to the
exportation of the firm's products.
Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea Bendal
and Rhodora Bendal sold and transferred their interests in the partnership to private
respondent Willy Co and to one Emmanuel Zapanta. Mr. Yu Chang, a limited partner, also
sold and transferred his interest in the partnership to Willy Co. Between Mr. Emmanuel
Zapanta and himself, private respondent Willy Co acquired the great bulk of the partnership
interest. The partnership now constituted solely by Willy Co and Emmanuel Zapanta
continued to use the old firm name of Jade Mountain, though they moved the firm's main
office from Makati to Mandaluyong, Metropolitan Manila. A Supplement to the Memorandum
Agreement relating to the operation of the marble quarry was entered into with the Cruz
spouses in February of 1988.2 The actual operations of the business enterprise continued as
before. All the employees of the partnership continued working in the business, all, save
petitioner Benjamin Yu as it turned out.
On 16 November 1987, having learned of the transfer of the firm's main office from Makati to
Mandaluyong, petitioner Benjamin Yu reported to the Mandaluyong office for work and there
met private respondent Willy Co for the first time. Petitioner was informed by Willy Co that
the latter had bought the business from the original partners and that it was for him to
decide whether or not he was responsible for the obligations of the old partnership, including
Mountain business enterprise. His unpaid salaries remained unpaid. 3
On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and recovery of
unpaid salaries accruing from November 1984 to October 1988, moral and exemplary
damages and attorney's fees, against Jade Mountain, Mr. Willy Co and the other private
respondents. The partnership and Willy Co denied petitioner's charges, contending in the
main that Benjamin Yu was never hired as an employee by the present or new partnership. 4
In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that petitioner
had been illegally dismissed. The Labor Arbiter decreed his reinstatement and awarded him
his claim for unpaid salaries, backwages and attorney's fees.5
On appeal, the National Labor Relations Commission ("NLRC") reversed the decision of the
Labor Arbiter and dismissed petitioner's complaint in a Resolution dated 29 November 1990.
The NLRC held that a new partnership consisting of Mr. Willy Co and Mr. Emmanuel Zapanta
had bought the Jade Mountain business, that the new partnership had not retained petitioner
Yu in his original position as Assistant General Manager, and that there was no law requiring
the new partnership to absorb the employees of the old partnership. Benjamin Yu, therefore,
had not been illegally dismissed by the new partnership which had simply declined to retain
him in his former managerial position or any other position. Finally, the NLRC held that
Benjamin Yu's claim for unpaid wages should be asserted against the original members of
the preceding partnership, but these though impleaded had, apparently, not been served
with summons in the proceedings before the Labor Arbiter.6
Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari, asking us to set
aside and annul the Resolution of the NLRC as a product of grave abuse of discretion
amounting to lack or excess of jurisdiction.
The basic contention of petitioner is that the NLRC has overlooked the principle that a
partnership has a juridical personality separate and distinct from that of each of its members.
Such independent legal personality subsists, petitioner claims, notwithstanding changes in
the identities of the partners. Consequently, the employment contract between Benjamin Yu
and the partnership Jade Mountain could not have been affected by changes in the latter's
membership.7
Two (2) main issues are thus posed for our consideration in the case at bar: (1) whether the
partnership which had hired petitioner Yu as Assistant General Manager had been
extinguished and replaced by a new partnerships composed of Willy Co and Emmanuel
Zapanta; and (2) if indeed a new partnership had come into existence, whether petitioner Yu
could nonetheless assert his rights under his employment contract as against the new
partnership.
In respect of the first issue, we agree with the result reached by the NLRC, that is, that the retirement or withdrawal of the partners who had originally owned such 82% interest, was
legal effect of the changes in the membership of the partnership was the dissolution of the enough to constitute a new partnership.
old partnership which had hired petitioner in 1984 and the emergence of a new firm
composed of Willy Co and Emmanuel Zapanta in 1987. The occurrence of events which precipitate the legal consequence of dissolution of a
partnership do not, however, automatically result in the termination of the legal personality
The applicable law in this connection of which the NLRC seemed quite unaware is found of the old partnership. Article 1829 of the Civil Code states that:
in the Civil Code provisions relating to partnerships. Article 1828 of the Civil Code provides as
follows: [o]n dissolution the partnership is not terminated, but continues until the
winding up of partnership affairs is completed.
Art. 1828. The dissolution of a partnership is the change in the relation of
the partners caused by any partner ceasing to be associated in the carrying In the ordinary course of events, the legal personality of the expiring partnership persists for
on as distinguished from the winding up of the business. (Emphasis the limited purpose of winding up and closing of the affairs of the partnership. In the case at
supplied) bar, it is important to underscore the fact that the business of the old partnership was simply
continued by the new partners, without the old partnership undergoing the procedures
Article 1830 of the same Code must also be noted: relating to dissolution and winding up of its business affairs. In other words, the new
partnership simply took over the business enterprise owned by the preceeding partnership,
Art. 1830. Dissolution is caused: and continued using the old name of Jade Mountain Products Company Limited, without
winding up the business affairs of the old partnership, paying off its debts, liquidating and
(1) without violation of the agreement between the partners; distributing its net assets, and then re-assembling the said assets or most of them and
opening a new business enterprise. There were, no doubt, powerful tax considerations which
underlay such an informal approach to business on the part of the retiring and the incoming
xxx xxx xxx
partners. It is not, however, necessary to inquire into such matters.
(b) by the express will of any partner, who
What is important for present purposes is that, under the above described situation, not only
must act in good faith, when no definite
the retiring partners (Rhodora Bendal, et al.) but also the new partnership itself which
term or particular undertaking is specified;
continued the business of the old, dissolved, one, are liable for the debts of the preceding
partnership. In Singson, et al. v. Isabela Saw Mill, et al,8 the Court held that under facts very
xxx xxx xxx similar to those in the case at bar, a withdrawing partner remains liable to a third party
creditor of the old partnership.9 The liability of the new partnership, upon the other hand, in
(2) in contravention of the agreement the set of circumstances obtaining in the case at bar, is established in Article 1840 of the Civil
between the partners, where the Code which reads as follows:
circumstances do not permit a dissolution
under any other provision of this article, by Art. 1840. In the following cases creditors of the dissolved partnership
the express will of any partner at any time; are also creditors of the person or partnership continuing the business :

xxx xxx xxx (1) When any new partner is admitted into an existing partnership, or when
any partner retires and assigns (or the representative of the deceased
(Emphasis supplied) partner assigns) his rights in partnership property to two or more of the
partners, or to one or more of the partners and one or more third persons, if
In the case at bar, just about all of the partners had sold their partnership interests the business is continued without liquidation of the partnership affairs ;
(amounting to 82% of the total partnership interest) to Mr. Willy Co and Emmanuel Zapanta.
The record does not show what happened to the remaining 18% of the original partnership (2) When all but one partner retire and assign (or the representative of a
interest. The acquisition of 82% of the partnership interest by new partners, coupled with the deceased partner assigns) their rights in partnership property to the
remaining partner, who continues the business without liquidation of
partnership affairs, either alone or with others;
(3) When any Partner retires or dies and the business of the dissolved
partnership is continued as set forth in Nos. 1 and 2 of this Article, with the
consent of the retired partners or the representative of the deceased
partner, but without any assignment of his right in partnership property;
(4) When all the partners or their representatives assign their rights in
partnership property to one or more third persons who promise to pay the
debts and who continue the business of the dissolved partnership;
(5) When any partner wrongfully causes a dissolution and remaining partners
continue the business under the provisions of article 1837, second
paragraph, No. 2, either alone or with others, and without liquidation of the
partnership affairs;
(6) When a partner is expelled and the remaining partners continue the
business either alone or with others without liquidation of the partnership
affairs;
The liability of a third person becoming a partner in the partnership
continuing the business, under this article, to the creditors of the dissolved
partnership shall be satisfied out of the partnership property only, unless
there is a stipulation to the contrary.
When the business of a partnership after dissolution is continued under any
conditions set forth in this article the creditors of the retiring or deceased
partner or the representative of the deceased partner, have a prior right to
any claim of the retired partner or the representative of the deceased
partner against the person or partnership continuing the business on account
of the retired or deceased partner's interest in the dissolved partnership or
on account of any consideration promised for such interest or for his right in
partnership property.
Nothing in this article shall be held to modify any right of creditors to set
assignment on the ground of fraud.
xxx xxx xxx
(Emphasis supplied)
Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the new
Jade Mountain which continued the business of the old one without liquidation of the
partnership affairs. Indeed, a creditor of the old Jade Mountain, like petitioner Benjamin Yu in
respect of his claim for unpaid wages, is entitled to priority vis-a-vis any claim of any retired
or previous partner insofar as such retired partner's interest in the dissolved partnership is
concerned. It is not necessary for the Court to determine under which one or mare of the
above six (6) paragraphs, the case at bar would fall, if only because the facts on record are
not detailed with sufficient precision to permit such determination. It is, however, clear to the
Court that under Article 1840 above, Benjamin Yu is entitled to enforce his claim for unpaid
salaries, as well as other claims relating to his employment with the previous partnership,
against the new Jade Mountain.
It is at the same time also evident to the Court that the new partnership was entitled to
appoint and hire a new general or assistant general manager to run the affairs of the
business enterprise take over. An assistant general manager belongs to the most senior
ranks of management and a new partnership is entitled to appoint a top manager of its own
choice and confidence. The non-retention of Benjamin Yu as Assistant General Manager did
not therefore constitute unlawful termination, or termination without just or authorized
cause. We think that the precise authorized cause for termination in the case at bar
was redundancy. 10 The new partnership had its own new General Manager, apparently Mr.
Willy Co, the principal new owner himself, who personally ran the business of Jade Mountain.
Benjamin Yu's old position as Assistant General Manager thus became superfluous or
redundant. 11It follows that petitioner Benjamin Yu is entitled to separation pay at the rate of
one month's pay for each year of service that he had rendered to the old partnership, a
fraction of at least six (6) months being considered as a whole year.
While the new Jade Mountain was entitled to decline to retain petitioner Benjamin Yu in its
employ, we consider that Benjamin Yu was very shabbily treated by the new partnership.
The old partnership certainly benefitted from the services of Benjamin Yu who, as noted,
previously ran the whole marble quarrying, processing and exporting enterprise. His work
constituted value-added to the business itself and therefore, the new partnership similarly
benefitted from the labors of Benjamin Yu. It is worthy of note that the new partnership did
not try to suggest that there was any cause consisting of some blameworthy act or omission
on the part of Mr. Yu which compelled the new partnership to terminate his services.
Nonetheless, the new Jade Mountain did not notify him of the change in ownership of the
business, the relocation of the main office of Jade Mountain from Makati to Mandaluyong and
the assumption by Mr. Willy Co of control of operations. The treatment (including the refusal
to honor his claim for unpaid wages) accorded to Assistant General Manager Benjamin Yu
was so summary and cavalier as to amount to arbitrary, bad faith treatment, for which the
new Jade Mountain may legitimately be required to respond by paying moral damages. This
Court, exercising its discretion and in view of all the circumstances of this case, believes that
an indemnity for moral damages in the amount of P20,000.00 is proper and reasonable.
In addition, we consider that petitioner Benjamin Yu is entitled to interest at the legal rate of
six percent (6%) per annum on the amount of unpaid wages, and of his separation pay,
computed from the date of promulgation of the award of the Labor Arbiter. Finally, because
the new Jade Mountain compelled Benjamin Yu to resort to litigation to protect his rights in
the premises, he is entitled to attorney's fees in the amount of ten percent (10%) of the total
amount due from private respondent Jade Mountain.
WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE COURSE, the
Comment filed by private respondents is treated as their Answer to the Petition for Certiorari,
and the Decision of the NLRC dated 29 November 1990 is hereby NULLIFIED and SET ASIDE.
A new Decision is hereby ENTERED requiring private respondent Jade Mountain Products
Company Limited to pay to petitioner Benjamin Yu the following amounts:
(a) for unpaid wages which, as found by the Labor Arbiter,
shall be computed at the rate of P2,000.00 per month
multiplied by thirty-six (36) months (November 1984 to
December 1987) in the total amount of P72,000.00;
(b) separation pay computed at the rate of P4,000.00
monthly pay multiplied by three (3) years of service or a
total of P12,000.00;
(c) indemnity for moral damages in the amount of
P20,000.00;
(d) six percent (6%) per annum legal interest computed on
items (a) and (b) above, commencing on 26 December 1989
and until fully paid; and
(e) ten percent (10%) attorney's fees on the total amount
due from private respondent Jade Mountain.
Costs against private respondents.
SO ORDERED.
2.
3. DOMINGO BEARNEZA vs. BALBINO DEQUILLA
In the year 1903, Balbino Dequilla, the herein defendant, and Perpetua Bearneza
formed a partnership for the purpose of exploiting a fish pond situated in the barrio of
Talisay, municipality of Barotac Nuevo, Province of Iloilo, Perpetua obligating herself to
contribute to the payment of the expenses of the business, which obligation she made good,
and both agreeing to divide the profits between themselves, which they had been doing until
the death of the said Perpetua in the year 1912.
The deceased left a will in one of the clauses of which she appointed Domingo Bearnez, the
herein plaintiff, as her heir to succeed to all her rights and interests in the fish pond in
question.
Demand having been made upon Balbino Dequilla by Domingo Bearneza for the delivery of
the part of the fish pond belonging to his decedent, Perpetua, and delivery having been
refused, Domingo Bearneza brought this action to recover said part of the fish pond
belonging to his decedent, Perpetua, and delivery having been refused, Domingo Bearneza
brought this action recover said part of the fish pond and one-half of the profits received by
the defendant from the fish pond from the year 1913 to 1919, as damages (the amended
complaint was filed on April 12, 1920), amounting, according to plaintiff, to the sum of
thirteen thousand one hundred pesos (13,100).
In his answer, the defendant denies generally and specifically the allegations of the
complaint, and alleges, as special defense, that "the formation of the supposed partnership
between the plaintiff and the defendant for the exploitation of the aforesaid fish pond was
not carried into effect, on account of the plaintiff having refused to defray the expenses of
reconstruction and exploitation of said fish pond." As another special defense, the defendant
alleges "that in the event that the court should hold the plaintiff to be entitled to the
undivided one-half of the fish pond, claimed in the complaint, the plaintiff's action has
prescribed, the time for bringing the same having elapsed."
Proceedings having been held as usual, the court below rendered judgment, declaring the
plaintiff owner of one-half of the fish pond, which was composed of the portions known as
"Alimango" and "Dalusan," but without awarding him any of the damages claimed by him,
the same not having been proven, in the opinion of the court, and ordering the defendant to
pay the costs.
From this judgment the defendant appeals, making various assignments of error. The
plaintiff did not appeal from that part of the judgment denying his claim for damages; hence
the only question we are called upon to decide is whether or not the plaintiff has any right to
maintain an action for the recovery of one-half of the said fish pond.
The partnership formed by Perpetua Bearneza and Balbino Dequilla, as to the existence of
which the proof contained in the record is conclusive and there is no dispute, was of a civil
nature. It was a particular partnership, as defined in article 1678 of the Civil Code, it having
had for its subject-matter a specified thing, to with, the exploitation of the aforementioned
fish pond. Although, as the trial court says in its decision, the defendant, in his letters to
Perpetua or her husband, makes reference to the fish pond, calling it "our," or "your fish
pond," this reference cannot be held to include the land on which the said fish pond was
built. It has not been proven that Perpetua Bearneza participated in the ownership of said
land, and Exhibits 2 and 3 of the defendant show that he has been paying, as exclusive
owner of the fish pond, the land tax thereon, although in Exhibit X he says that the said land
belongs to the State. The conclusion, therefore, from the evidence is that the land on which
the fish pond was constructed did not constitute a part of the subject- matter of the
aforesaid partnership.
Now, this partnership not having been organized in the form of a mercantile partnership,
and, therefore, the provisions of the Code of Commerce not being applicable thereto (article
1670 of the Civil Code), it was dissolved by the death of Perpetua Bearneza, and falls under
the provisions of article 1700, subsection 3, of the same Code, and not under the exception
established in the last paragraph of said article 1700 of the Civil Code.
Neither can it be maintained that the partnership continued to exist after the death of
Perpetua, inasmuch as it does not appear that any stipulation to that effect has ever been
made by her and the defendant, pursuant to the provisions of article 1704 of the Code last
cited.
The partnership having been dissolved by the death of Perpetua Bearneza, its subsequent
legal status was that of a partnership in liquidation, and the only rights inherited by her
testamentary heir, the herein plaintiff, were those resulting from the said liquidation in favor
of the deceased partner, and nothing more. Before this liquidation is made, which up to the
present has not been effected, it is impossible to determine what rights or interests, if any,
the deceased had, the partnership bond having been dissolved.
There is no sufficient ground for holding that a community of property existed between the
plaintiff and the defendant, it not being known whether the deceased still had any interest in
the partnership property which could have been transmitted by will to the plaintiff. There
being no community of property, article 395 of the Civil Code cited by the plaintiff in support
of his contention can have no application to the case at bar.
Neither can it be said that the partnership continued between the plaintiff and the defendant.
It is true that the latter's act in requiring the heirs of Perpetua to contribute to the payment
of the expenses of exploitation of the aforesaid fishing industry was an attempt to continue
the partnership, but it is also true that neither the said heirs collectively, nor the plaintiff
individually, took any action in response to that requirement, nor made any promise to that
effect, and therefore no new contract of partnership existed.
We find that the plaintiff has not sufficiently shown his right of action.
The judgment appealed from is modified, the same being affirmed insofar as it denies the
plaintiff's claim for damages, and reversed insofar as it declares the said plaintiff owner of
one-half of the fish pond, "Alimango" and "Dalusan," here in dispute.
No special finding as to costs is made. So ordered.
4. URBANO LOTA (Substituted by SOLOMON LOTA in his capacity as Administrator
of the Estate of URBANO LOTA), vs. BENIGNO TOLENTINO, defendant-appellee.
This is an appeal from a resolution of the Court of First Instance of Batangas of May 4, 1949,
worded in full as follows:
On April 6, 1949, counsel for plaintiff filed a motion praying that deceased defendant
be substituted by his heirs, Marta Sadiasa and Efigenia, Resurreccion and Mercedes,
all surnamed Tolentino, as parties defendant in this case. To said motion counsel for
defendant interposed an opposition upon the following grounds:
I. That the nature of the action for accounting and liquidation of the partnership filed
by plaintiff since March 3, 1937, is purely personal in character and, upon the death
of the defendant on November 22, 1939, the claim was already extinguished. II.
Assuming that the action for accounting and liquidation of the partnership is not
purely personal in character and that such claim is not yet extinguished, the case
should now be dismissed in view of the failure of the plaintiff to prosecute his action
for an unreasonable length of time. III. Assuming further that the plaintiff's claim
was not yet extinguished upon the death of the defendant on November 22, 1939,
the rights, if any, sought to be enforced by the plaintiff in the complaint have already
been lost by claches.
The question before the Court therefore is whether the motion for substitution
should be granted and the case allowed to go to trial on the merits, or whether the
defendant's opposition should be sustained and the case dismissed. The following
factual background appears of record:
On March 3, 1937, plaintiff filed an action against defendant to order the latter ( a) to
render an accounting of his management of their partnership, and ( b) to deliver the
plaintiff whatever share he may have in the assets of the partnership after the
liquidation has been approved by the Court.
The partnership above-mentioned was entered into by and between plaintiff and
defendant in the year 1918, whereby they agreed to engage in general business in
the municipality of Alabat, province of Batangas, both to divide the profits and losses
share alike, and defendant to be manager of the partnership. Plaintiff alleges that
from 1918 until 1928 defendant had rendered an annual accounting, but has refused
to do so from 1929 to 1937, hence, plaintiff's complaint.
To plaintiff's complaint, defendant filed an answer, alleging that defendant was the
industrial partner in said partnership; that he rendered a yearly accounting and
liquidation thereof from 1918 to 1932, and that in the latter year, 1932, the
partnership was dissolved and defendant delivered all its properties and assets to the
plaintiff. Hence, defendant prays for the dismissal of plaintiff's complaint.
The plaintiff died in 1938, and on September 28, 1939, he was substituted by the
administrator of his estate, Solomon Lota.
On December 8, 1939, defendant's counsel made a suggestion upon the record that
defendant died on November 26, 1939. On January 9, 1940, the Court gave plaintiff
30 days to amend the complaint by substituting for the deceased defendant the
administrator of his estate or his legal representative.
On January 28, 1941, the Court ordered the dismissal of the case for lack of
prosecution. This order was reconsidered and set aside upon a showing by plaintiff
that on March 28, 1941, he had filed a petition for the issuance of letters of
administration to deceased defendant's surviving spouse, Marta Sadiasa, for the
purpose of substituting her for the deceased defendant, said petition being Special
Proceedings No. 3859 of this Court entitled "Intestate Estate of the late Benigno
Tolentino, Solomon Lota, petitioner." This special proceedings was, however,
dismissed for failure of the administratrix to file a bond and to take her oath.
It will thus be seen that from defendant's death on November 26, 1939, to the
present, or almost ten years, no administrator or legal representative had been
actually substituted to take the place of said defendant. It was only on April 6, 1949,
that plaintiff made another try to substitute said deceased by filing his motion,
referred to in the first paragraph of this resolution, praying that defendant's heirs be
substituted for him as parties defendant.
The following considerations stand in the way of plaintiff's motion for substitution:
1. It being undisputed that defendant was the manager of the partnership formed by
and between him and the plaintiff, and that said defendant died on November 26,
1939, during the pendency of the present for accounting and liquidation against
defendant, the said action should have been discontinued as it could no longer be
maintained against deceased defendant. Under these circumstances, the remedy and
duty of the plaintiff are as set out in the following ruling of the Supreme Court in Po
Yeng Cheo vs. Lim Ka Yam, (44 Phil. 172, 178):
In the first place, it is well settled that when a member of a mercantile partnership
dies, the duty of liquidating its affairs devolves upon the surviving member, or
members of the firm, not upon the legal representative of the deceased partner.
(Wahl vs. Donaldson Sim and Co., 5 Phil., 11; Sugo and Shibata vs. Green, 6 Phil.,
744). And the same rule must be equally applicable to a civil partnership clothed with
the form of the commercial association (ART. 1670, Civil Code;
Lichauco vs. Lichauco, 33 Phil., 350).
If, as it appears of record, plaintiff died prior to defendant's death, the duty to
liquidate devolved upon the legal representative of the plaintiff because it was the
latter who sought to establish a claim against the defendant.
2. If after such liquidation, there should be found money or property due the
partnership from the deceased defendant, a claim therefor should be filed against
the latter's estate in administration. Again, this is the procedure marked out in the
case just cited:
Upon the death of Lim Ka Yam it therefore become the duty of his surviving
associates to take the proper steps to settle the affairs of the firms, and any claim
against him, or his estate, for a sum of money due to the partnership by reason of
any misappropriation of its funds by him or damages resulting from his wrongful acts
as a manager, should be prosecuted against his estate in administration in the
manner pointed out in sections 686 to 701, inclusive, of the Code of Civil Procedure.
Moreover, when it appears, as here, that the property pertaining to Kwong Cheong
Tay, like the shares in the Ya sieng Chyip Konski and Manila Electric Railroad and
Light Company, are in the possession of the deceased partner, the proper step for
the surviving associates to take would be to make application to the court having
charge of the administration to require the administration to surrender such
property. (Po Yeng Cheo vs. Lim Ka Yam, supra.)
This procedure was not also followed in the case at bar because plaintiff, or his legal
representative, did not procure the appointment and qualification of an administrator
of the estate of deceased defendant, altho he had already filed a petition looking
towards such administration. This plaintiff was under a duty to do if he considered
himself a creditor with a legitimate claim enforceable against the estate of deceased
defendant.
3. What plaintiff, or his legal representative, insisted on doing in the present case is
to continue and press his action for accounting and liquidation against the heirs of
 deceased defendant, a procedure which, as above stated, runs counter to that set
out in the Po Yeng Cheo vs. Lim Ka Yam case. But even in this, plaintiff, or his legal
representative, proceeded half-heartedly, because he only filed a petition for the
appointment of an administrator for the estate of deceased defendant, but did not
see to it that administrator filed a bond and qualify as such. Hence, the said petition
for administration was dismissed.
4. Also, conceding, without admitting, that the present action for accounting would
lie against defendant, it is this Court's opinion that such a duty to account died with
the defendant, was extinguished upon his death, and was not shifted upon his heirs.
The heirs of the defendant have never been partners in the partnership formed by
and between plaintiff and defendant, and said heirs are hardly in a position and
hardly called upon to effect an accounting of said partnership.
5. Finally, it will be recalled that the partnership in question was organized in 1918
and dissolved in 1932. The action for accounting was commenced on March 3, 1937.
And the present motion for substitution was filed on April 6, 1949, only. Trial on the
merits at this late date might prove futile and fruitless if no partnership property is
found in the possession of defendant's heirs, let alone the allegation of said
defendant in his answer to the complaint back in 1937 that he had already delivered
all the properties and assets of the partnership to the plaintiff. If the principle of
laches is ever to be applied, it should be applied to this case.
Wherefore, the plaintiff's action for substitution is denied and defendant's prayer for
the dismissal for this case against the plaintiff.
The present appellant is Solomon Lota, in his capacity as administrator of the estate of
Urbano Lota, original plaintiff, who died in l938. The decisive question that arises is whether
or not, after the death of the defendant Benigno Tolentino on November 22, 1939, plaintiff's
action for accounting and liquidation of the partnership formed in l918 between Urbano Lota
and Benigno Tolentino, of which the latter was the industrial and managing partner, may be
continued against the heirs of Benigno Tolentino. This question was decided adversely to the
appellant by the lower court and, in our opinion, correctly. The applicable authority is the
case of Po Yeng Cheo vs. Lim Ka Yam, 44 Phil. 172, in which the following pronouncements
were made:
In the first place, it is well settled that when a member of a mercantile partnership
dies, the duty of liquidating its affairs devolves upon the surviving member, or
members, of the firm, not upon the legal representatives of the deceased partner.
(Wahl vs. Donaldson Sim and Co., 5 Phil., 11; Sugo and Shibata vs. Green, 6 Phil.,
744.) And the same rule must be equally applicable to a civil partnership clothed with
the form of a commercial association (art. 1670, Civil Code: Lichauco vs. Licahuco,
33 Phil., 350). Upon the death of Lim Ka Yam it therefore become the duty of his
surviving associates to take the proper steps to settle the affairs of the firm, and any
claim against him, or his state, for a sum of money due to the partnership by reason
of any misappropriation of its funds by him, or for damages resulting from his
wrongful acts as manager, should be prosecuted against his estate in administration
in the manner pointed out in sections 686 to 701, inclusive, of the Code of Civil
Procedure. Moreover, when it appears, as here, that the property pertaining to
Kwong Cheong Tay, like the shares in the Yut Siong Chyip Konski and Manila Electric
Railroad and Light Company, are in the possession of the partner, the proper step for
the surviving associates to take would be to make application to the court having
charge of the administration to require the administrator to surrender such property.
But in the second place, as already indicated, the proceedings in this cause,
considered in the character of an action for an accounting, were futile; and the court,
abandoning entirely the effort to obtain an accounting, gave judgment against the
administrator upon the supposed liability of his intestate to respond for the plaintiffs
proportionate share of the capital and assets. But of course the action was not
maintenable in this aspect after the death of the defendant; and the motion to
discontinue the action against the administrator should have been granted. (pp. 178-
179.)
Another ground equally decisive against the appellant correctly advanced by the lower
court in dismissing the present action for accounting, is lack of prosecution on the part of the
appellant. It may be fittingly recalled that the action for accounting and liquidation was filed
on March 3, l937. No sooner had the defendant Benigno Tolentino died on November 22,
l939, than said fact was made record by his attorney. On January 9, 1940, the lower court
gave the plaintiff (who had then died and was substituted on September 28, 1939, by the
administrator of his estate, Solomon Lota), 30 days to amend the complaint by substituting
the administrator or legal representative of the deceased defendant Benigno Tolentino. On
January 28, 1941, the lower court dismissed the case for lack of prosecution on the part of
the plaintiff, but the order of dismissal was reconsidered, upon a showing by the plaintiff that
on March 28, 1941, an administration proceeding for the estate of Benigno Tolentino was
instituted by the plaintiff. On August 8, 1941 the lower court issued, at the instance of the
plaintiff, letters of administration to Tolentino's surviving spouse, Marta Sadiasa, who
however failed to qualify. Accordingly, the court dismissed the administration proceeding on
January 3, 1949, for lack of interest. It was only as late as April 6, l949, that the plaintiff filed
the motion to substitute, not even the legal representative of Benigno Tolentino but his heirs.
If the plaintiff was genuinely interested in substituting the proper party, assuming that
plaintiff's action may still be pursued after Tolentino's death, he should have taken timely
measures to have the administratrix appointed on August 8, 1941, qualify or, in case of her
failure or refusal, to procure the appointment of another administrator; because the plaintiff
could have availed himself of section 6, Rule 80, of the Rules of Court, providing that "letters
of administration may be granted to any qualified applicant, though it appears that there are
other competent persons having better right to the administration, if such persons fail to
appear when notified and claim the issuance of letters to themselves." Certainly, inaction for
almost eight years (after the issuance of letters of administration) on the part of the
appellant, sufficiently implies indifference to or desistance from its suit.
The theory of the appellant is that the heirs may properly be substituted for the deceased
Benigno Tolentino, because they are in possession of property allegedly belonging to the
partnership in question, and the appellant seeks the recovery thereof. Apart from the fact
that said allegation seems to refer to cause of action foreign to the claim for accounting and
liquidation against Tolentino, and should have been made in proper pleading to duly
admitted by the lower court, the filing of appellant's motion for substitution more than twelve
years after the institution of the complaint came too late and already called for the
prosecution. It is immaterial that, before the appealed resolution was issued by the lower
court, the appellant attempted to have the deceased defendant had not yet been properly
substituted.
The resolution herein complained of will therefore be as it is hereby affirmed, with costs
against the appellant. So ordered.
5. GOQUILAY vs. SYCIP (108 PHIL 947)
Direct appeal from the decision of the Court of First Instance of Davao (the amount
involved being more than P200,000) dismissing the plaintiffs-appellants' complaint.
From the stipulation of facts of the parties and the evidence on record, it would appear that
on May 29, 1940, Tan Sin An and Antonio C. Goquiolay entered into a general commercial
partnership under the partnership name "Tan Sin An and Antonio C. Goquiolay", for the
purpose of dealing in real estate. The partnership had a capital of P30,000.00, P18,000.00 of
which was contributed by Goquiolay and P12,000.00 by Tan Sin An. The agreement lodged
upon Tan Sin An the sole management of the partnership affairs, stipulating that
"III. The co-partnership shall be composed of said Tan Sin An as sole managing and partner
(sic), and Antonio C. Goquiolay as co-partner.
"VIII. The affairs of the co-partnership shall be managed exclusively by the managing and
partner (sic) or by his authorized agent, and it is expressly stipulated that the managing and
partner (sic) may delegate the entire management of the affairs of the co-partnership by
irrevocable power of attorney to any person, firm or corporation he may select upon such
terms as regards compensation as he may deem proper, and vest in such person, firm or
corporation full power and authority, as the agent of the co-partnership and in his name,
place and stead to do anything for it or on his behalf which he as such managing and partner
(sic) might do or cause to be done.
"IX. The co-partner shall have no voice or participation in the management, of the affairs, of
the co-partnership; but he may examine its accounts once every six (6) months at any time
during ordinary business hours, and in accordance with the provisions of the Code of
Commerce." (Articles of Co-Partnership).
The lifetime of the partnership was fixed at ten (10) years and also that
"In the event of the death of any of the partners at any time before the expiration of said
term, the co-partnership shall not be dissolved but will have to be continued and the
deceased partner shall be represented by his heirs or assigns in said co-partnership" (Art.
XII, Articles of Co-Partnership).
However, the partnership could be dissolved and its affairs liquidated at any time upon
mutual agreement in writing of the partners (Art. XIII, articles of Co-Partner ship).
On May 31, 1940, Antonio Goquiolay executed a general power of attorney to this effect:
"That besides the powers and duties granted the said Tan Sin An by the articles of co-
partnership of said co-partnership "Tan Sin An and Antonio Goquiolay", the said Tan Sin An
should act as my Manager for said co-partnership for the full period of the term for which
said co-partnership was organized or until the whole period that the said capital of
P30,000.00 of the co-partnership should last, to carry on to the best advantage and interest
of the Said co-partnership, to make and execute, sign, seal and deliver for the co-
partnership, and in its name, all bills, bonds, notes, specialties, and trust receipts or other
instruments or documents in writing whatsoever kind or nature which" shall be necessary to
the proper conduction of the said businesses, including the power to mortgage and pledge
real and personal properties, to secure the obligation of the co-partnership, to buy real or
personal properties for cash or upon such terms as he may deem advisable, to sell personal
or real properties, such as lands and buildings of the co-partnership in any manner he may
deem advisable for the best interest of said co-partnership, to borrow money on behalf of the
co-partnership and to issue promissory notes for the repayment thereof, to deposit the fund's
of the co-partnership in any local bank or elsewhere and to draw checks against funds so
deposited * * *.
On May 29, 1940, the plaintiff partnership "Tan Sin An and Goquiolay" purchased the three
(3) parcels of land, known as Lots Nos. 526, 441 and 521 of the Cadastral Survey of Davao,
subject-matter of the instant litigation, assuming the payment of a mortgage obligation of.
P25.000.00, payable to "La Urbana Sociedad Mutua de Construction y Prestamos" for a
period of ten (10) years, with 10% interest per annum. Another 46 parcels were purchased
by Tan Sin An in his individual capacity, and he assumed payment of a mortgage debt
thereon for P35,000.00, with interest. The down payment and the amortization were
advanced by Yutivo and Co., for the account of the purchasers.
On September 25, 1940, the two separate obligations were consolidated in an instrument
executed by the partnership and Tan Sin An, whereby the entire 49 lots were mortgaged in
favor of the "Banco Hipotecario de Filipinas" (as successor to "La Urbana") and the
covenantors bound themselves to pay, jointly and severally, the remaining balance of their
unpaid accounts amounting to P52,282.80 within eight 8 years, with 8% annual interest,
payable in 96 equal monthly installments.
On June 26, 1942, Tan Sin An died, leaving as surviving heirs his widow, Kong Chai Pin, and
four minor children, namely: Tan L. Cheng, Tan L. Hua, Tan C. Chiu and Tan K. Chuan".
Defendant Kong Chai Pin was appointed administratrix of the intestate estate of her
deceased husband.
In the meantime, repeated demands for payment were made by the Banco Hipotecario on
the partnership and on Tan Sin An. In March, 1944, the defendant Sing Yee and Cuan, Co.,
Inc., upon request of defendant Yutivo Sons Hardware Co., paid the remaining balance of the
mortgage debt, and the mortgage was cancelled.
Then in 1946, Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. filed their claims in
the intestate proceedings of Tan Sin An for P62,415.91 and P54,310.13, respectively, as
alleged obligations of the partnership "Tan Sin An and Antonio C. Goquiolay" and Tan Sin An,
for advances, interests and taxes paid in amortizing and discharging their obligations to "La
Urbana" and the "Banco Hipotecario". Disclaiming knowledge of said claims at first, Kong
Chai Pin later admitted the claims in her amended answer and they were accordingly
approved by the Court.
On March 29, 1949, Kong Chai Pin filed a petition with the probate court for authority to sell
all the 49 parcels of land to Washington Z, Sycip and Betty Y. Lee, for the purpose primarily
of settling the aforesaid debts of Tan Sin An and the partnership. Pursuant to a court order of
April 2, 1949, the administratrix executed on April 4,1949, a deed of sale [1] of the 49 parcels
of land to the defendants Washington Sycip and Betty Lee in consideration of P37,000.00 and
of vendees' assuming payment of the claims filed by Yutivo Sons Hardware Co. and Sing Yee
and Cuan Co., Inc. Later, in July, 1949, defendants Sycip and Betty Lee executed in favor of
the Insular Development Co., Inc. a deed of transfer covering the said 49 parcels of land.
Learning about the sale to Sycip and Lee, the surviving partner Antonio Goquiolay filed, on or
about July 25,1949, a petition in the intestate proceedings seeking to set aside the order of
the probate court approving the sale in so far as his interest over the parcels of land sold was
concerned. In its order of December 29, 1949, the probate court annulled the sale executed
by the administratrix with respect to the 60% interest of Antonio Goquiolay over the
properties sold. Kong Chai Pin appealed to the Court of Appeals, which court later certified
the case to us (93 Phil., 413; 49 Off. Gaz. [7] 2307). On June 30, 1953, we rendered decision
setting aside the orders of the probate court complained of and remanding the case for new
trial, due to the non-inclusion of indispensable parties. Thereafter, new pleadings were filed.
The second amended complaint in the case at bar prays, among other things, for the
annulment of the sale in favor of Washington Sycip and Betty Lee, and their subsequent
conveyance in favor of the Insular Development Co., Inc., in so far as the three (3) lots
owned by the plaintiff partnership are concerned. The answer averred the validity of the sale
by Kong Chai Pin as successor partner, in lieu of the late Tan Sin An. After hearing, the
complaint was dismissed by the lower court in its decision dated October 30, 1956; hence,
this appeal taken directly to us by the plaintiffs, as the amount involved is more than
P200,000.00. Plaintiffs-appellants assign as errors that
"I. The lower court erred in holding that Kong Chai Pin became the managing partner of the
partnership upon the death of her husband, Tan Sin An, by virtue of the articles of
Partnership executed between. Tan Sin An and Antonio Goquiolay, and the general power of
attorney granted by Antonio Goquiolay.
II The lower court erred in holding that Kong Chai Pin could act alone as sole managing
partner in view of the minority of the other heirs.
III The lower court erred in holding that Kong Chai Pin was the only heir qualified to act as
managing partner.
IV The lower court erred in holding that Kong Chai Pin had authority to sell the partnership
properties by virtue of the articles of partnership and the general power of attorney granted
to Tan Sin An in order to pay the partnership indebtedness.
V The lower court erred in finding that the partnership did not pay its obligation to the Banco
Hipotecario.
VI The lower court erred in holding that the consent of Antonio Goquiolay was not necessary
to consummate the sale of the partnership properties.
VII The lower court erred in finding that Kong Chai Pin managed the business of the
partnership after the death of her husband, and that Antonio Goquiolay knew it.
VIII The lower court erred in holding that the failure of Antonio Goquiolay to oppose the
management of the partnership by Kong Chai Pin estops him now from attacking the validity
of the sale of the partnership properties.
IX The lower court erred in holding that the buyers of the partnership properties acted in
good faith.
X The lower court erred in holding that the sale was, not fraudulent against the partnership
and Antonio Goquiolay.
XI The lower court erred in holding that the sale was not only necessary but beneficial to the
partnership.
XII The lower court erred in dismissing the complaint and,in ordering Antonio Goquiolay to
pay the costs of suit."
There is merit in the contention that the lower court erred in holding that the widow, Kong
Chai Pin, succeeded her husband, Tan Sin An, in the sole management of the partnership,
upon the latter's death. While, as we previously stated in our narration of facts, the Articles
of Co-Partnership and the power of attorney executed by Antonio Goquiolay conferred upon
Tan Sin An the exclusive management of the business, such power, premised as it is upon
trust and confidence, was a mere personal right that terminated upon Tan's demise. The
provision in the articles stating that "in the event of death of any one of the partners within
the 10-year term of the partnership, the deceased partner shall be represented by his heirs",
could not have referred to the managerial right given to Tan Sin An; more appropriately, it
related to the succession in the proprietary interest of each partner. The covenant that
Antonio Goquiolay shall have no voice or participation in the management of the partnership,
being a limitation upon his right as a general partner, must be held coextensive only with
Tan's right to manage the affairs, the contrary not being clearly apparent.
Upon the other hand, consonant with the articles of co-partnership providing for the
continuation of the firm notwithstanding the death of one of the partners, the heirs of the
deceased, by never repudiating or refusing to be bound under the said provision in the
articles, became individual partners with Antonio Goquiolay upon Tan's demise. The validity
of like clauses in partnership agreements is expressly sanctioned under Article 222 of the
Code of Commerce.[1]
Appellants argue, however, that since the "new" members' liability in the partnership was
limited merely to the value of the share or estate left by the deceased Tan Sin An, they
became no more than limited partners and, as such, were disqualified from the management
of the business under Article 148 of the Code of Commerce. Although ordinarily, this effect
follows from the continuance of the heirs in the partnership, [2] it was not so with respect to
the widow Kong Chai Pin, who, by her affirmative actions, manifested her intent to be bound
by the partnership agreement not only as a limited but as a general partner. Thus, she
managed and retained possession of the partnership properties and was admittedly deriving
income therefrom up to and until the same were sold to Washington Sycip and Betty Lee. In
fact, by executing the deed of sale of the parcels of land in dispute in the name of the
partnership, she was acting no less than as a managing partner. Having thus preferred to act
as such, she could be held liable for the partnership debts and liabilities as a general partner,
beyond what she might have derived only from the estate of her deceased husband. By
allowing her to retain control of the firm's property from 1942 to 1949, plaintiff estopped
himself to deny her legal representation of the partnership, with the power to bind it by
proper contracts.
The question now arises as to whether or not the consent of the other partners was
necessary to perfect the sale of the partnership properties to Washington Sycip and Betty
Lee. The answer is, we believe, in the negative. Strangers dealing with a partnership have
the right to assume, in the absence of restrictive clauses in the co-partnership agreement,
that every general partner has power to bind the partnership, specially those partners acting
with ostensible authority. And so, we held in one case:
"* * * Third persons, like the plaintiff, are not bound in entering into a contract with any of
the two partners, to ascertain whether or not this partner with whom the transaction is made
has the consent of the other partner. The public need not make inquiries as to the
agreements bad between the partners. Its knowledge is enough that it is contracting with the
partnership which is represented by one of the managing partners.
"There is a general presumption that each individual partner is an agent for the firm and that
he has authority to bind the firm in carrying on the partnership transactions/ [Mills vs. Giggle,
112 Pac., 617]
"The presumption is sufficient to permit third persons to hold the firm liable on transactions
entered into by one of the members of the firm acting apparently in its behalf and within the
scope of his authority.' [Le Roy vs. Johnson, 7 U.S. Law, Ed., 391] (George Litton vs. Hill &
Ceron, et al., 67 Phil. 513-514)."
We are not unaware of the provision of Article 129 of the Code of Commerce to the effect
that
"If the management of the general partnership has not been limited by special agreement to
any of the members, all shall have the power to take part in the direction and management
of the common business, and the members present shall come to an agreement for all
contracts or obligations which may concern the association." (Emphasis supplied)
but this obligation is one imposed by law on the partners among themselves, that does not
necessarily affect the validity of the acts of a partner, while acting within the scope of the
ordinary course of business of the partnership, as regards third persons without notice. The
latter may rightfully assume that the contracting partner was duly authorized to contract for
and in behalf of the firm and that, furthermore, he would not ordinarily act to the prejudice
of his co-partners. The regular course of business procedure does not require that each time
a third person contracts with one of the managing partners, he should inquire as to the
latter's authority to do so, or that he should first ascertain whether or not the other partners
had given their consent thereto. In fact, Article 180 of the same Code of Commerce provides
that even if a new obligation was contracted against the express will of one of the managing
partners, "it shall not be annulled for such reason, and it shall produce its effects without
prejudice to the responsibility of the member or members who contracted it, for the damages
they may have caused to the common fund."
Cesar Vivante (2 Tratado de Derecho Mercantil, pp. 114115) points out:
"367. Primera hipotesis. A falta de pactos especiales, la facultad de administrar corresponde
a cada socio personalmente. No hay que esperar ciertamente concordia con tantas cabezas,
y para cuando no vayan de acuerdo, la disciplina del Codigo no ofrece un sistema eficaz que
evite los inconvenientes. Pero, ante el silencio del contrato, debia quiza el legislador privar de
la administracion a uno de los socios en beneficio del otro? Seria una arbitrariedad. Debera
quiza declarar nula la Sociedad que no haya elegido Administrador? El remedio seria peor
que el mal. Deberd, tal vez, pretender que todos los socios concurran en todo acto de la
Sociedad? Pero este concurso de todos habria reducido a la impotencia la administracion,
que es asunto de todos los dias y de todas horas. Hubieran sido disposiciones menos
oportunas que lo adoptado por el Codigo, el cual se confia al espiritu de reciproca confianza
que deberia animar la colaboracion de los socios, y en la ley inflexible de responsabilidad que
implies comunidad en los intereses de los mismos.
En esta hipotesis, cada socio puede ejercer todos los negocios comprendidos en el
contrato social sin dar de ello noticia a los otros, porque cada uno de ellos ejerce la
administracion en la totalidad de sus relaciones, salvo su responsabilidad en el caso de una
administracion culpable. Si debiera dar noticia, el beneficio de su simul^&nia actividad,
frecuentemente distribuida en lugares y en tiempos diferentes, se echaria a perder. Se
objetara el que de esta forma, el derecho de oposicidn de cada uno de los socios puede
quedar frustrado. Pero se puede contestar que este derecho de oposicion concedido por la
ley como un remedio excepcional, debe subordinate al derecho de ejercer el oficio de
Administrador, que el Codigo concede sin limite: 'se presume que los socios se han concedido
reciprocamente la facultad de administrar uno para otro.' Se harfa precipitar esta hipdtesis en
la otra de una administracion colectiva (art. 1.721, Codigo Civil) y se acabaria con pedir el
consentimiento, a lo menos tacito, de todos los socios lo que el Cddigo excluye.........., si se
obligase al socio Administrador a dar noticia previa del negocio a los otros, a fin de que
pudieran oponerse si no consintieran."
Commenting on the same subject, Gay de Montella (Codigo de Comercio, Tomo II, 147-148)
opines:
"Para obligar a las Companias enfrente de terceros (art. 128 del Codigo), no es bastante que
los actos y contratos hayan sido ejecutados por un socio o varios en nombre colectivo, sino
que es preciso el concurso de estos dos elementos, uno, que el socio o socios tengan
reconocida la facultad de administrar la Companla, y otro, que el acto o contrato haya teido
ejecutado en nombre de la Sociedad y usando de su fima social. Asi es que toda obligacidn
contraida bajo la razon social, se presume contraida por la Companfa. Esta presuncion es
impuesta por motivos de necesidad practica. El tercero no puede cada vez que trata con la
Compania, inquirir si realmente el negocio concierne a la Sociedad. La presuncion es juris
tantum y no juris et de jure, de modo que si el gerente suscribe bajo la razon social una
obligacion que no interesa a la Sociedad, este podra rechazar la accion del tercero probando
que el acreedor conocia que la obligacion no tenia ninguna relacion con ella. Si tales actos y
contratos no comportasen la concurrencia de ambos elementos, serfan nulos y podria
decretarse la responteabilidad civil o penal contra sus autores.
En el caso que tales actos o contratos hayan sido tacitamente aprobados por la Compania, o
contabilizados en sus libros, si el acto o contrato ha sido convalidado sin protesta y se trata
de acto o contrato que ha producido beneficio social, tendria plena validez, aun cuando le
faltase algunos o ambos de aquellos requisitos antes senalados.
Cuando los Estatutos o la escritura social no contienen ninguna clausula relativa al
nombramiento o designacion de uno o mas de un socio para administrar la Companfa (art.
129 del Codigo) todos tienen por un igual el derecho de concurir a la decision y manejo de
los negocios comunes. * * *"
Although the partnership under consideration is a commercial partnership and, therefore, to
be governed by the Code of Commerce, the provisions of the old Civil Code may give us
some light on the right of one partner to bind the partnership. States Art. 1695 thereof:
"Should no agreement have been made with respect to the form of management, the
following rules shall be observed:
1. All the partners shall be considered agents, and whatever any one of them may do
individually shall bind, the partnership; but each one may oppose any act of the
others before it has become legally binding."
The records fail to disclose that appellant Goquiolay made any opposition to the sale of the
partnership realty to Washington Z. Sycip and Betty Lee; on the contrary, it appears that he
(Goquiolay) only interposed his objections after the deed of conveyance was executed and
approved by the probate court, and, consequently, his opposition came too late to be
effective.
Appellants assail the correctness of the amounts paid for the account of the partnership as
found by the trial court. This question, however, need not be resolved here, as in the deed of
conveyance executed by Kong Chai Pin, the purchasers Washington Sycip and Betty Lee
assumed, as part consideration of the purchase, the full claims of the two creditors, Sing Yee
and Cuan Co., Inc. and Yutivo Sons Hardware Co.
Appellants also question the validity of the sale covering the entire firm realty, on the ground
that it, in effect, threw the partnership into dissolution, which requires consent of all the
partners. This view is untenable. That the partnership was left without the real property it
originally had will not work its dissolution, since the firm was not organized to exploit these
precise lots but to engage in buying and selling real estate, and "in general real estate
agency and brokerage business". Incidentally, it is to be noted that the payment of the
solidary obligation of both the partnership and the late Tan Sin An, leaves open the question
of accounting and contribution between the co-debtors, that should be ventilated separately.
Lastly, appellants point out that the sale of the partnership properties was only a fraudulent
device by the appellees, with the connivance of Kong Chai Pin, to ease out Antonio Goquiolay
from the partnership. The "devise", according to the appellants, started way back sometime
in 1945, when one Yu Khe Thai sounded out Antonio Goquiolay on the possibility of selling
his share in the partnership; and upon his refusal to sell, was followed by the filing of the
claims of Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. in the intestate estate
proceedings of Tan Sin An. As creditors of Tan Sin An and the plaintiff partnership (whose
liability was alleged to be joint and several), Yutivo Sons Hardware Co. and Sing Yee and
Guan Co., Inc. had every right to file their claims in the intestate proceedings. The denial of
the claims at first by Kong Chai Pin (for lack of sufficient knowledge) negatives any
conspiracy on her part in the alleged fraudulent scheme, even if she subsequently decided to
admit their validity after studying the claims and finding it best to admit the same. It may not
be amiss to remark that the probate court approved the questioned claims.
There is complete failure of proof, moreover, that the price for which the properties were
sold was unreasonably low, or in any way unfair, since appellants presented no' evidence of
the market value of the lots as of the time of their sale to appellees Sycip and Lee. The
alleged value of P31,056,58 in May of 1955 is no proof of the market value in 1949, specially
because in the interval, the new owners appear to have converted the land into a
subdivision, which they could not do without opening roads and otherwise improving the
property at their own expense. Upon the other hand, Kong Chai Pin hardly had any choice
but to execute the questioned sale, as it appears that the partnership had neither cash nor
other properties with which to pay its obligations. Anyway, we cannot consider seriously the
inferences freely indulged in by the appellants as allegedly indicating fraud in the questioned
transactions, leading to the conveyance of the lots in dispute to the appellee Insular
Development Co., Inc.
Wherefore, finding no reversible error in the appealed judgment, we affirm the same, with
costs against appellant Antonio doquiolay.
6. ANTONIO C. GOQUIOLAY, ET AL., plaintiffs-appellants, vs. WASHINGTON Z. SYCIP,
ET AL., defendants-appellees.
The matter now pending is the appellant's motion for reconsideration of our main decision,
wherein we have upheld the validity of the sale of the lands owned by the partnership
Goquiolay & Tan Sin An, made in 1949 by the widow of the managing partner, Tan Sin An
(Executed in her dual capacity as Administratrix of the husband's estate and as partner in lieu
of the husband), in favor of the buyers Washington Sycip and Betty Lee for the following
consideration:
Cash paid P37,000.00
Debts assumed by purchaser:
To Yutivo 62,415.91
To Sing Yee Cuan & Co., 54,310.13
TOTAL P153,726.04
Appellant Goquiolay, in his motion for reconsideration, insist that, contrary to our holding,
Kong Chai Pin, widow of the deceased partner Tan Sin An, never became more than
a limited partner, incapacitated by law to manage the affairs of partnership; that the
testimony of her witness Young and Lim belies that she took over the administration of the
partnership property; and that, in any event, the sale should be set aside because it was
executed with the intent to defraud appellant of his share in the properties sold.
Three things must be always held in mind in the discussion of this motion to reconsider,
being basic and beyond controversy:
(a) That we are dealing here with the transfer of partnership property by one partner, acting
in behalf of the firm, to a stranger. There is no question between partners inter se, and this
aspect to the case was expressly reserved in the main decision of 26 July 1960;
(b) That partnership was expressly organized: "to engage in real estate business, either
by buying and selling real estate". The Articles of co-partnership, in fact, expressly provided
that:
IV. The object and purpose of the copartnership are as follows:
1. To engage in real estate business, either by buying and selling real estates; to
subdivide real estates into lots for the purpose of leasing and selling them.;
(c) That the properties sold were not part of the contributed capital (which was in cash) but
land precisely acquired to be sold, although subject to a mortgage in favor of the original
owners, from whom the partnership had acquired them.
With these points firmly in mind, let us turn to the points insisted upon by appellant.
It is first averred that there is "not one iota of evidence" that Kong Chai Pin managed and
retained possession of the partnership properties. Suffice it to point out that appellant
Goquiolay himself admitted that
... Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai Pin continue to
manage the properties (as) she had no other means of income. Then I said, because
I wanted to help Mrs. Kong Chai Pin, she could just do it and besides I am not
interested in agricultural lands. I allowed her to take care of the properties in order
to help her and because I believe in God and wanted to help her.
Q So the answer to my question is you did not take any steps?
A I did not.
Q And this conversation which you had with Mrs. Yu Eng Lai was few
months after 1945?
A In the year 1945. (Emphasis supplied).
The appellant subsequently ratified this testimony in his deposition of 30 June 1956, pages 8-
9, wherein he stated:
that plantation was being occupied at that time by the widow, Mrs. Tan Sin An, and
of course they are receiving quiet a lot benefit from the plantation.
Discarding the self-serving expressions, these admissions of Goquiolay are certainly entitled
to greater weight than those of Hernando Young and Rufino Lim, having been made against
the party's own interest.
Moreover, the appellant's reference to the testimony of Hernando Young, that the witness
found the properties "abandoned and undeveloped", omits to mention that said part of the
testimony started with the question:
Now, you said that about 1942 or 1943 you returned to Davao. Did you meet Mrs.
Kong Chai Pin there in Davao at that time?
Similarly, the testimony of Rufino Lim, to the effect that the properties of the partnership
were undeveloped, and the family of the widow (Kong Chai Pin) did not receive any income
from the partnership properties, was given in answer to the question:
According to Mr. Goquiolay, during the Japanese occupation Tan Sin an and his
family lived on the plantation of the partnership and derived their subsistence from
that plantation. What can you say to that? (Dep. 19 July 1956, p. 8).
And also
What can you say as to the development of these other properties of the partnership
which you saw during the occupation? (Dep. p. 13, Emphasis supplied).
to which witness gave the following answer:
I saw the properties in Mamay still undeveloped. The third property which is in
Tigato is about eleven (11) hectares and planted with abaca seedlings planted by Mr.
Sin An. When I went there with Hernando Young we saw all the abaca
destroyed. The place was occupied by the Japanese Army. They planted camotes
and vegetables to feed the Japanese Army. Of course they never paid any money to
Tan Sin An or his family. (Dep., Lim, pp. 13-14. Emphasis supplied).
Plainly, both Young and Lim's testimonies do not belie, or contradict, Goquiolay's admission
that he told Mr. Yu Eng Lai that the widow "could just do it" (i.e., continue to manage the
properties). Witnesses Lim and Young referred to the period of Japanese occupation; but
Goquiolay's authority was, in fact, given to the widow in 1945, after the occupation.
Again, the disputed sale by the widow took place in 1949. That Kong Chai Pin carried out no
acts of management during the Japanese occupation (1942-1944) does not mean that she
did not do so from 1945 to 1949.
We thus find that Goquiolay did not merely rely on reports from Lim and Young; he actually
manifested his willingness that the widow should manage the partnership properties.
Whether or not she complied with this authority is a question between her and the appellant,
and is not here involved. But the authority was given, and she did have it when she made
the questioned sale, because it was never revoked.
It is argued that the authority given by Goquiolay to the widow Kong Chai Pin was only
to manage the property, and that it did not include the power to alienate, citing Article 1713
of the Civil Code of 1889. What this argument overlooks is that the widow was not a mere
agent, because she had become a partner upon her husband's death, as expressly provided
by the articles of copartnership. Even more, granting that by succession to her husband, Tan
Sin An, the widow only became a limited partner, Goquiolay's authorization to manage the
partnership property was proof that he considered and recognized her as general partner , at
least since 1945. The reason is plain: Under the law (Article 148, last paragraph, Code of
Commerce), appellant could not empower the widow, if she were only a limited partner, to
administer the properties of the firm, even as a mere agent:
Limited partners may not perform any act of administration with respect to the
interests of the copartnership, not even in the capacity of agents of the managing
partners. (Emphasis supplied).
By seeking authority to manage partnership property, Tan Sin An's widow showed that she
desired to be considered a general partner. By authorizing the widow to manage partnership
property (which a limited partner could not be authorized to do), Goquiolay recognized her as
such partner, and is now in estoppel to deny her position as a general partner, with authority
to administer and alienate partnership property.
Besides, as we pointed out in our main decision, the heir ordinarily (and we did not say
"necessarily") becomes a limited partner for his own protection, because he would normally
prefer to avoid any liability in excess of the value of the estate inherited so as not to
jeopardize his personal assets. But this statutory limitation of responsibility being designed to
protect the heir, the latter may disregard it and instead elect to become a collective or
general partner, with all the rights and privileges of one, and answering for the debts of the
firm not only with the inheritance but also with the heir's personal fortune. This choice
pertains exclusively to the heir, and does not require the assent of the surviving partner.
It must be remember that the articles of co-partnership here involved expressly stipulated
that:
In the event of the death of any of the partners at any time before the expiration of
said term, the co-partnership shall not be dissolved but will have to be continued and
the deceased partner shall be represented by his heirs or assigns in said co-
partnership (Art. XII, Articles of Co-Partnership).
The Articles did not provide that the heirs of the deceased would be merely limited partners;
on the contrary, they expressly stipulated that in case of death of either partner " the co-
partnership ... will have to be continued " with the heirs or assigns. It certainly could not be
continued if it were to be converted from a general partnership into a limited partnership,
since the difference between the two kinds of associations is fundamental; and specially
because the conversion into a limited association would have the heirs of the deceased
partner without a share in the management. Hence, the contractual stipulation does actually
contemplate that the heirs would become general partners rather than limited ones.
Of course, the stipulation would not bind the heirs of the deceased partner should they
refuse to assume personal and unlimited responsibility for the obligations of the firm. The
heirs, in other words, can not be compelled to become general partners against their wishes.
But because they are not so compellable, it does not legitimately follow that they may not
voluntarily choose to become general partners, waiving the protective mantle of the general
laws of succession. And in the latter event, it is pointless to discuss the legality of any
conversion of a limited partner into a general one. The heir never was a limited partner, but
chose to be, and became, a general partner right at the start.
It is immaterial that the heir's name was not included in the firm name, since no conversion
of status is involved, and the articles of co-partnership expressly contemplated the admission
of the partner's heirs into the partnership.
It must never be overlooked that this case involved the rights acquired by strangers, and
does not deal with the rights existing between partners Goquiolay and the widow of Tan Sin
An. The issues between the partners inter sewere expressly reserved in our main decision.
Now, in determining what kind of partner the widow of partner Tan Sin an Had elected to
become, strangers had to be guided by her conduct and actuations and those of appellant
Goquiolay. Knowing that by law a limited partner is barred from managing the partnership
business or property, third parties (like the purchasers) who found the widow possessing and
managing the firm property with the acquiescence (or at least without apparent opposition)
of the surviving partners were perfectly justified in assuming that she had become a general
partner, and, therefore, in negotiating with her as such a partner, having authority to act for,
and in behalf of the firm. This belief, be it noted, was shared even by the probate court that
approved the sale by the widow of the real property standing in the partnership name. That
belief was fostered by the very inaction of appellant Goquiolay. Note that for seven long
years, from partner Tan Sin An's death in 1942 to the sale in 1949, there was more than
ample time for Goquiolay to take up the management of these properties, or at least
ascertain how its affairs stood. For seven years Goquiolay could have asserted his alleged
rights, and by suitable notice in the commercial registry could have warned strangers that
they must deal with him alone, as sole general partner. But he did nothing of the sort,
because he was not interested (supra), and he did not even take steps to pay, or settle the
firm debts that were overdue since before the outbreak of the last war. He did not even take
steps, after Tan Sin An died, to cancel, or modify, the provisions of the partnership articles
that he (Goquiolay) would have no intervention in the management of the partnership.
This laches certainly contributed to confirm the view that the widow of Tan Sin An had, or
was given, authority to manage and deal with the firm's properties apart from the
presumption that a general partner dealing with partnership property has to requisite
authority from his co-partners (Litton vs. Hill and Ceron, et al., 67 Phil. 513; quoted in our
main decision, p. 11).
The stipulation in the articles of partnership that any of the two managing partners
may contract and sign in the name of the partnership with the consent of the other,
undoubtedly creates on obligation between the two partners, which consists in
asking the other's consent before contracting for the partnership. This obligation of
course is not imposed upon a third person who contracts with the partnership.
Neither it is necessary for the third person to ascertain if the managing partner with
whom he contracts has previously obtained the consent of the other. A third person
may and has a right to presume that the partner with whom he contracts has, in the
ordinary and natural course of business, the consent of his copartner; for otherwise
he would not enter into the contract. The third person would naturally not presume
that the partner with whom he enters into the transaction is violating the articles of
partnership, but on the contrary is acting in accordance therewith. And this finds
support in the legal presumption that the ordinary course of business has been
followed (No. 18, section 334, Code of Civil Procedure), and that the law has been
obeyed (No. 31, section 334). This last presumption is equally applicable to contracts
which have the force of law between the parties. (Litton vs. Hill & Ceron, et al., 67
Phil. 409, 516). (Emphasis supplied.)
It is next urged that the widow, even as a partner, had no authority to sell the real estate of
the firm. This argument is lamentably superficial because it fails to differentiate between real
estate acquired and held as stock-in-trade and real estate held merely as business
site (Vivante's "taller o banco social") for the partnership. Where the partnership business is
to deal in merchandise and goods, i.e., movable property, the sale of its real property
(immovables) is not within the ordinary powers of a partner, because it is not in line with the
normal business of the firm. But where the express and avowed purpose of the partnership is
to buy and sell real estate (as in the present case), the immovables thus acquired by the firm
from part of its stock-in-trade, and the sale thereof is in pursuance of partnership purposes,
hence within the ordinary powers of the partner. This distinction is supported by the opinion
of Gay de Montella1 , in the very passage quoted in the appellant's motion for
reconsideration:
La enajenacion puede entrar en las facultades del gerante, cuando es conforme a los
fines sociales. Pero esta facultad de enajenar limitada a las ventas conforme a los
fines sociales, viene limitada a los objetos de comercio o a los productos de la fabrica
para explotacion de los cuales se ha constituido la Sociedad. Ocurrira una cosa
parecida cuando el objeto de la Sociedad fuese la compra y venta de inmuebles, en
cuyo caso el gerente estaria facultado para otorgar las ventas que fuere necesario .
(Montella) (Emphasis supplied).
The same rule obtains in American law.
In Rosen vs. Rosen, 212 N.Y. Supp. 405, 406, it was held:
a partnership to deal in real estate may be created and either partner has the legal
right to sell the firm real estate.
In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:
And hence, when the partnership business is to deal in real estate, one partner has ample
power, as a general agent of the firm, to enter into an executory contract for the sale of real
estate.
And in Revelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St. Rep. 83:
If the several partners engaged in the business of buying and selling real estate can
not bind the firm by purchases or sales of such property made in the regular course
of business, then they are incapable of exercising the essential rights and powers of
general partners and their association is not really a partnership at all, but a several
agency.
Since the sale by the widow was in conformity with the express objective of the partnership,
"to engage ... in buying and selling real estate" (Art. IV, No. 1 Articles of Copartnership), it
can not be maintained that the sale was made in excess of her power as general partner.
Considerable stress is laid by appellant in the ruling of the Supreme Court of Ohio
in McGrath, et al., vs. Cowen, et al., 49 N.E., 338. But the facts of that case are vastly
different from the one before us. In the McGrath case, the Court expressly found that:
The firm was then, and for some time had been, insolvent, in the sense that its
property was insufficient to pay its debts, though it still had good credit, and was
actively engaged in the prosecution of its business. On that day, which was Saturday,
the plaintiff caused to be prepared, ready for execution, the four chattel mortgages
in question, which cover all the tangible property then belonging to the
firm, including the counters, shelving, and other furnishings and fixtures necessary
for, and used in carrying on, its business, and signed the same in this form: "In
witness whereof, the said Cowen & McGrath, a firm, and Owen McGrath, surviving
partner, of said firm, and Owen McCrath, individually, have hereunto set their hands,
this 20th day of May, A.D. 1893. Cowen & Mcgrath, by Owen McGrath. Owen
McGrath, Surviving partner of Cowen & McGrath. Owen McGrath." At the same time,
the plaintiff had prepared, ready for filing, the petition for the dissolution of the
partnership and appointment of a receiver which he subsequently filed, as
hereinafter stated. On the day the mortgages were signed, they were placed in the
hands of the mortgagees, which was the first intimation to them that there was any
intention to make them. At the time none of the claims secured by the mortgages
were due, except, it may be, a small part of one of them, and none of the
creditors to whom the mortgages were made had requested security, or were
pressing for the payment of their debts. ... The mortgages appear to be without a
sufficient condition of defiance, and contain a stipulation authorizing the mortgagees
to take immediate possession of the property, which they did as soon as the
mortgages were filed through the attorney who then represented them, as well as
the plaintiff; and the stores were at once closed, and possession delivered by them
to the receiver appointed upon the filing of the petition. The avowed purposes of the
plaintiff, in the course pursued by him, was to terminate the partnership, place its
properly beyond the control of the firm, and insure the preference of the
mortgagees, all of which was known to them at the time; .... (Cas cit., p. 343,
Emphasis supplied).
It is natural that form these facts the Supreme Court of Ohio should draw the conclusion that
the conveyances were made with intent to terminate the partnership, and that they were not
within the powers of McGrath as a partner. But there is no similarity between those acts and
the sale by the widow of Tan Sin An. In the McGrath case, the sale included even the fixtures
used in the business; in our case, the lands sold were those acquired to be sold. In the
McGrath case, none of the creditors were pressing for payment; in our case, the creditors
had been unpaid for more than seven years, and their claims had been approved by the
probate court for payment. In the McGrath case, the partnership received nothing beyond
the discharge of its debts; in the present case, not only were its debts assumed by the
buyers, but the latter paid, in addition, P37,000.00 in cash to the widow, to the profit of the
partnership. Clearly, the McGrath ruling is not applicable.
We will now turn to the question of fraud. No direct evidence of it exists; but appellant point
out, as indicia thereof, the allegedly low price paid for the property, and the relationship
between the buyers, the creditors of the partnership, and the widow of Tan Sin An.
First, as to the price: As already noted, this property was actually sold for a total of
P153,726.04, of which P37,000.00 was in cash, and the rest in partnership debts assumed by
the purchaser. These debts (62,415.91 to Yutivo, and P54,310.13 to Sing Ye Cuan & Co.) are
not questioned; they were approved by the court, and its approval is now final. The claims
were, in fact, for the balance on the original purchase price of the land sold (sue first to La
Urbana, later to the Banco Hipotecario) plus accrued interests and taxes, redeemed by the
two creditors-claimants. To show that the price was inadquate, appellant relies on the
testimony of the realtor Mata, who is 1955, six years after the sale in question, asserted that
the land was worth P312,000.00. Taking into account the continued rise of real estate values
since liberation, and the fact that the sale in question was practically a forced sale because
the partnership had no other means to pay its legitimate debts, this evidence certainly does
not show such "gross inadequacy" as to justify recission of the sale. If at the time of the sale
(1949) the price of P153,726.04 was really low, how is it that appellant was not able to raise
the amount, even if the creditor's representative, Yu Khe Thai, had already warned him four
years before (1945) that the creditors wanted their money back, as they were justly entitled
to?
It is argued that the land could have been mortgaged to raise the sum needed to discharge
the debts. But the lands were already mortgaged, and had been mortgaged since 1940, first
to La Urbana, and then to the Banco Hipotecario. Was it reasonable to expect that other
persons would loan money to the partnership when it was unable even to pay the taxes on
the property, and the interest on the principal since 1940? If it had been possible to find
lenders willing to take a chance on such a bad financial record, would not Goquiolay have
taken advantage of it? But the fact is clear on the record that since liberation until 1949
Goquiolay never lifted a finger to discharge the debts of the partnership. Is he entitled now
to cry fraud after the debts were discharged with no help from him.
With regard to the relationship between the parties, suffice it to say that the Supreme Court
has ruled that relationship alone is not a badge of fraud (Oria Hnos. vs. McMicking, 21 Phil.
243; also Hermandad del Smo. Nombre de Jesus vs. Sanchez, 40 Off. Gaz., 1685). There is
no evidence that the original buyers, Washington Sycip and Betty Lee, were without
independent means to purchase the property. That the Yutivos should be willing to extend
credit to them, and not to appellant, is neither illegal nor immoral; at the very least, these
buyers did not have a record of inveterate defaults like the partnership "Tan Sin An &
Goquiolay".
Appellant seeks to create the impression that he was the victim of a conspiracy between the
Yutivo firm and their component members. But no proof is adduced. If he was such a victim,
he could have easily defeated the conspirators by raising money and paying off the firm's
debts between 1945 and 1949; but he did not; he did not even care to look for a purchaser
of the partnership assets. Were it true that the conspiracy to defraud him arose (as he
claims) because of his refusal to sell the lands when in 1945 Yu Khe Thai asked him to do so,
it is certainly strange that the conspirators should wait 4 years, until 1949, to have the sale
effected by the widow of Tan Sin An, and that the sale should have been routed through the
probate court taking cognizance of Tan Sin An's estate, all of which increased the risk that
the supposed fraud should be detected.
Neither was there any anomaly in the filing of the claims of Yutivo and Sing Yee Cuan & Co.,
(as subrogees of the Banco Hipotecario) in proceedings for the settlement of the estate of
Tan Sin An. This for two reasons: First, Tan Sin An and the partnership "Tan Sin An &
Goquiolay" were solidary (Joint and several)debtors (Exhibits "N", mortgage to the Banco
Hipotecario), and Rule 87, section 6 is the effect that:
Where the obligation of the decedent is joint and several with another debtor, the
claim shall be filed against the decedent as if he were the only debtor, without
prejudice to the right of the estate to recover contribution from the other debtor.
(Emphasis supplied).
Secondly, the solidary obligation was guaranteed by a mortgage on the properties of the
partnership and those of Tan Sim An personally, and a mortgage is indivisible, in the sense
that each and every parcel under mortgage answers for the totality of the debt (Civ. Code of
1889, Article 1860; New Civil Code, Art. 2089).
A final and conclusive consideration: The fraud charged not being one used to obtain a
party's consent to a contract (i.e., not being deceit or dolus in contrahendo), if there is fraud
at al, it can only be a fraud of creditors that gives rise to a rescission of the offending
contract. But by express provision of law (Article 1294, Civil Code of 1889; Article 1383, New
Civil Code) "the action for rescission is subsidiary; it can not be instituted except when the
party suffering damage has no other legal means to obtain reparation for the same". Since
there is no allegation, or evidence, that Goquiolay can not obtain reparation from the widow
and heirs of Tan Sin An, the present suit to rescind the sale in question is not maintainable,
even if the fraud charged actually did exist.
PREMISES CONSIDERED, the motion for reconsideration is denied.
Separate Opinions
BAUTISTA ANGELO, J., dissenting:
This is an appeal from a decision of the Court of First Instance of Davao dismissing the
complaint filed by Antonio C. Goquiolay, et al., seeking to annul the sale made Z. Sycip and
Betty Y. Lee on the ground that it was executed without proper authority and under
fraudulent circumstances. In a decision rendered on July 26, 1960 we affirmed this decision
although on grounds different from those on which the latter is predicted. The case is once
more before us on a motion for reconsideration filed by appellants raising both questions of
fact and of law.
On May 29, 1940, Tan Sin An and Antonio C. Goquiolay executed in Davao City a commercial
partnership for a period of ten years with a capital of P30,000.00 of which Goquiolay
contributed P18,000.00 representing 60% while Tan Sin An P12,000.00 representing 40%.
The business of the partnership was to engage in buying real estate properties for
subdivision, resale and lease. The partnership was duly registered, and among the conditions
agreed upon in the partnership agreement which are material to this case are: (1) that Tan
Sin An would be the exclusive managing partner, and (2) in the event of the death of any of
the partners the partnership would continue, the deceased to be represented by his heirs. On
May 31, 1940, Goquiolay executed a general power of attorney in favor of Tan Sin An
appointing the latter manager of the partnership and conferring upon him the usual powers
of management.
On May 29, 1940, the partnership acquired three parcels of land known as Lots Nos. 526,
441 and 521 of the cadastral survey of Davao, the only assets of the partnership, with the
capital orginally invested, financing the balance of the purchase price with a mortgage in
favor of "La Urbana Sociedad Mutua de Construccion Prestamos" in the amount of
P25,000.00, payable in ten years. On the same date, Tan Sin An, in his individual capacity,
acquired 46 parcels of land executing a mortgage thereon in favor of the same company for
the sum of P35,000.00. On September 25, 1940, these two mortgage obligations were
consolidated and transferred to the Banco Hipotecario de Filipinas and as a result Tan Sin An,
in his individual capacity, and the partnership bound themselves to pay jointly and severally
the total amount of P52,282.80, with 8% annual interest thereon within a period of eight
years mortgaging in favor of said entity the 3 parcels of land belonging to the partnership
and the 46 parcels of land belonging individually to Tan Sin An.
Tan Sin An died on June 26, 1942 and was survived by his widow, defendant Kong Chai Pin,
and four children, all of whom are minors of tender age. On March 18, 1944, Kong Chai Pin,
was appointed administratrix of the intestate estate of Tan Sin An. And on the same date,
Sing, Yee and Cuan Co., Inc. paid to the Banco Hipotecario the remaining unpaid balance of
the mortgage obligation of the partnership amounting to P46,116.75 in Japanese currency.
Sometimes in 1945, after the liberation of Manila, Yu Khe Thai, president and general
manager of Yutivo Sons Hardware Co. and Sing, Yee and Cuan Co., Inc., called for Goquiolay
and the two had a conference in the office of the former during which he offered to buy the
interest of Goquiolay in the partnership. In 1948, Kong Chai Pin, the widow, sent her counsel,
Atty. Dominador Zuo, to ask Goquiolay to execute in her favor a power of attorney.
Goquiolay refused both to sell his interest in the partnership as well as to execute the power
of attorney.
Having failed to get Goquiolay to sell his share in the partnership, Yutivo Sons Hardware Co.
and Sing, Yee and Cuan Co., Inc. filed in November, 1946 a claim each in the intestate
proceedings of Tan Sin An for the sum of P84,705.48 and P66,529.91, respectively, alleging
that they represent obligations of both Tan Sin An and the partnership. After first denying
any knowledge of the claims, Kong Chai Pin, as administratrix, admitted later without
qualification the two claims in an amended answer she filed on February 28, 1947. The
admission was predicted on the ground that she and the creditors were closely related by
blood, affinity and business ties. In due course, these two claims were approved by the
court.
On March 29, 1949, more than two years after the approval of the claims, Kong Chai Pin filed
a petition in the probate court to sell all the properties of the partnership as well as some of
the conjugal properties left by Tan Sin An for the purpose of paying the claims. Following
approval by the court of the petition for authority to sell, Kong Chai Pin, in her capacity as
administratrix, and presuming to act as managing partner of the partnership, executed on
April 4, 1949 a deed of sale of the properties owned by Tan Sin An and by the partnership in
favor of Betty Y. Lee and Washington Z. Sycip in consideration of the payment to Kong Chai
Pin of the sum of P37,000.00, and the assumption by the buyers of the claims filed by Yutivo
& Sons Hardware Co. and Sing, Yee and Cuan Co., Inc. in whose favor the buyers executed a
mortgage on the properties purchased. Betty Y. Lee and Washington Z. Zycip subsequently
executed a deed of sale of the same properties in favor of their co-defendant Insular
Development Company, Inc. It should be noted that these transactions took place without
the knowledge of Goquiolay and it is admitted that Betty Lee and Washington Z. Sycip
bought the properties on behalf of the ultimate buyer, the Insular Development Company,
Inc., with money given by the latter.
Upon learning of the sale of the partnership properties, Goquiolay filed on July 25, 1949 in
the intestate proceedings a petition to set aside the order of the court approving the sale.
The court granted the petition. While the order was pending appeal in the Supreme Court,
Goquiolay filed the present case on January 15, 1953 seeking to nullify the sale as stated in
the early part of this decision. In the meantime, the Supreme Court remanded the original
case to the probate court for rehearing due to lack of necessary parties.
The plaintiffs in their complaint challenged the authority of Kong Chai Pin to sell the
partnership properties on the ground that she had no authority to sell because even granting
that she became a partner upon the death of Tan Sin An the power of attorney granted in
favor of the latter expired after his death.
Defendants, on the other hand, defended the validity of the sale on the theory that she
succeeded to all the rights and prerogatives of Tan Sin an as managing partner.
The trial court sustained the validity of the sale on the ground that under the provisions of
the articles of partnership allowing the heirs of the deceased partner to represent him in the
partnership after his death Kong Chai Pin became a managing partner, this being the
capacity held by Tan Sin an when he died.
In the decision rendered by this Court on July 26, 1960, we affirmed this decision but on
different grounds, among which the salient points are: (1) the power of attorney given by
Goquiloay to Tan Sin An as manager of the partnership expired after his death; (2) his widow
Kong Chai Pin did not inherit the management of the partnership, it being a personal right;
(3) as a general rule, the heirs of a deceased general partner come into the partnership in
the capacity only of limited partners; (4) Kong Chai Pin, however, became a general partner
because she exercised certain alleged acts of management; and (5) the sale being necessary
to pay the obligations of the partnership properties without the consent of Goquiolay under
the principle of estoppel the buyers having the right to rely on her acts of management and
to believe her to be in fact the managing partner.
Considering that some of the above findings of fact and conclusions of law are without legal
or factual basis, appellants have in due course filed a motion for reconsideration which
because of the importance of the issues therein raised has been the subject of mature
deliberation.
In support of said motion, appellants advanced the following arguments:
1. If the conclusion of the Court is that heirs as a general rule enter the partnership
as limited partners only, therefore Kong Chai Pin, who must necessarily have entered
the partnership as a limited partner originally, could have not chosen to be a general
partner by exercising the alleged acts of management, because under Article 148 of
the Code of Commerce a limited partner cannot intervene in the management of the
partnership, even if given a power of attorney by the general partners. An Act
prohibited by law cannot given rise to any right and is void under the express
provisions of the Civil Code.
2. The buyers were not strangers to Kong Chai Pin, all of them being members of the
Yu (Yutivo) family, the rest, members of the law firm which handles the Yutivo
interests and handled the papers of sale. They did not rely on the alleged acts of
management they believed (this was the opinion of their lawyers) that Kong Chai
Pin succeeded her husband as a managing partner and it was on this theory alone
that they submitted the case in the lower court.
3. The alleged acts of management were denied and repudiated by the very
witnesses presented by the defendants themselves.
The arguments advanced by appellants are in our opinion well-taken and furnish sufficient to
reconsider our decision if we want to do justice to Antonio C. Goquiolay. And to justify this
conclusion, it is enough that we lay stress on the following points: (1) there is no sufficient
factual basis to conclude that Kong Chai Pin executed acts of management to give her the
character of general manager of the partnership, or to serve as basis for estoppel that may
benefit the purchasers of the partnership properties; (92) the alleged acts of management,
even if proven, could not give Kong Chai Pin the character of general manager for the same
contrary to law and well-known authorities; (3) even if Kong Chai Pin acted as general
manager she had no authority to sell the partnership properties as to make it legal and valid;
and (4) Kong Chai Pin had no necessity to sell the properties to pay the obligation of the
partnership and if she did so it was merely to favor the purchasers who were close relatives
to the prejudice of Goquiolay.
1. This point is pivotal for if Kong Chai Pin did not execute the acts of management imputed
to her our ruling cannot be sustained. In making our aforesaid ruling we apparently gave
particular importance to the fact that it was Goquiolay himself who tried to prove the acts of
management. Appellants, however, have emphasized the fact, and with reason, the appellees
themselves are the ones who denied and refuted the so-called acts of management imputed
to Kong Chai Pin. To have a clear view of this factual situation, it becomes necessary that we
analyze the evidence of record.
Plaintiff Goquiolay, it is intimated, testified on cross-examination that he had a conversation
with one Hernando Young in Manila in the year 1945 who informed him that Kong Chai Pin
"was attending to the properties and deriving some income therefrom and she had no other
means of livelihood except those properties and some rentals derived from the properties."
He went on to say by way of remark that she could continue doing this because he wanted
to help her. One point that he emphasized was that he was "no interested in agricultural
lands."
On the other hand, defendants presented Hernando Young, the same person referred to by
Goquiolay, who was a close friend of the family of Kong Chai Pin, for the purpose of denying
the testimony of Goquiolay. Young testified that in 1945 he was still in Davao, and insisted
no less than six times during his testimony that he was not in Manila in 1945, the year when
he allegedly gave the information to Goquiolay, stating that he arrived in Manila for the first
time in 1947. He testified further that he had visited the partnership properties during the
period covered by the alleged information given by him to Goquiolay and that he found them
"abandoned and underdeveloped," and that Kong Chai Pin was not deriving any income from
them.
The other witness for the defendants, Rufino Lim, also testified that he had seen the
partnership properties and corroborated the testimony of Hernando Young in all respects:
"the properties in Mamay were underdeveloped, the shacks were destroyed in Tigato, and
the family of Kong Chai Pin did not receive my income from the partnership properties." He
specifically rebutted the testimony of Goquiolay, in his deposition given on June 30, 1956
that Kong Chai Pin and her family were living in the partnership properties, and stated that
the "family never actually lived in the properties of the partnership even before the war or
after the war."
It is unquestionable that Goquiolay was merely repeating an information given to him by a
third person, Hernando Young he stressed this point twice. A careful analysis of the
substance of Goquiolay's testimony will show that he merely had no objection to allowing
Kong Chai Pin to continue attending to the properties in order to give her some means of
livelihood, because, according to the information given him by Hernando Young, which he
assumed to be true, Kong Chai Pin had no other means of livelihood. But certainly he made it
very clear that he did not allow her to manage the partnership when he explained his reason
for refusing to sign a general power of attorney for Kong Chai Pin which her counsel, Atty.
Zuo, brought with him to his house in 1948. He said:
... Then Mr. Yu Eng Lai told me that he brought with him Atty. Zuo and he asked
me if I could execute a general power of attorney for Mrs. Kong Chai Pin. Then I told
Atty. Zuo what is the use of executing a general power of attorney for Mrs. Kong
 Chai Pin when Mrs. Kong Chai Pin had already got that plantation for agricultural
purposes, I said for agricultural purposes she can use that plantation ... (T.S.N. p. 9,
Hearing on May 5, 1955).
It must be noted that in his testimony Goquiolay was categorically stating his opposition to
the management of the partnership by Kong Chai Pin and carefully made the distinction that
his conformity was for her to attend to the partnership properties in order to give her merely
a means of livelihood. It should be stated that the period covered by the testimony refers to
the period of occupation when living condition was difficult and precarious. And Atty. Zuo, it
should also be stated, did not deny the statement of Goquiolay.
It can therefore be seen that the question as to whether Kong Chai Pin exercised certain acts
of management of the partnership properties is highly controverted. The most that we can
say is that the alleged acts are doubtful more so when they are disputed by the defendants
themselves who later became the purchasers of the properties, and yet these alleged acts, if
at all, only refer to management of the properties and not to management of the
partnership, which are two different things.
In resume, we may conclude that the sale of the partnership properties by Kong Chai Pin
cannot be upheld on the ground of estoppel, first, because the alleged acts of management
have not been clearly proven; second, because the record clearly shows that the defendants,
or the buyers, were not misled nor did they rely on the acts of management, but instead they
acted solely on the opinion of their counsel, Atty. Quisumbing, to the effect that she
succeeded her husband in the partnership as managing partner by operation of law; and
third, because the defendants are themselves estopped to invoke a defense which they tried
to dispute and repudiate.
2. Assuming arguendo that the acts of management imputed to Kong Chai Pin are true, could
such acts give as we have concluded in our decision?
Our answer is in the negative because it is contrary to law and precedents. Garrigues, a well-
known commentator, is clearly of the opinion that mere acceptance of the inheritance does
not maked the heir of a general partner a general partner himself. He emphasized that
heir must declare that he is entering the partnership as a general partner unless the
deceased partner has made it an express condition in his will that the heir accepts the
condition of entering the partnership as a prerequisite of inheritance, in which case
acceptance of the inheritance is enough.1But here Tan Sin An died intestate.
Now, could Kong Chai Pin be deemed to have declared her intention to become a general
partner by exercising acts of management? We believe not, for, in consonance with our
ruling that as a general rule the heirs of a deceased partner succeed as limited partners only
by operation of law, it is obvious that the heirs, upon entering the partnership, must make a
declaration of his characters, otherwise he should be deemed as having succeeded as limited
partner by the mere acceptance of the inheritance. And here Kong Chai Pin did not make
such declaration. Being then a limited partner upon the death of Tan Sin An by operation of
law, the peremptory prohibition contained in Article 148 2 of the Code of Commerce became
binding upon her and as a result she could not change her status by violating its provisions
not only under the general principle that prohibited acts cannot produce any legal effect, but
also because under the provisions of Article 1473 of the same Code she was precluded from
acquiring more rights than those pertaining to her as a limited partner. The alleged acts of
management, therefore, did not give Kong Chai Pin the character of general manager to
authorized her to bind the partnership.
Assuming also arguendo that the alleged acts of management imputed to Kong Chai Pin gave
her the character of a general partner, could she sell the partnership properties without
authority from the other partners?
Our answer is also in the negative in the light of the provisions of the articles of partnership
and the pertinent provisions of the Code of Commerce and the Civil Code. Thus, Article 129
of the Code of Commerce says:
If the management of the general partnership has not been limited by special
agreement to any of the members, all shall have the power to take part in the
direction and management of the common business, and the members present shall
come to an agreement for all contracts or obligations which may concern the
association.
And the pertinent portions of the articles of partnership provides:
VII. The affairs of the co-partnership shall be managed exclusively by the managing
partner or by his authorized agent, and it is expressly stipulated that the managing
partner may delegate the entire management of the affairs of the co-partnership by
irrevocable power of attorney to any person, firm or corporation he may select, upon
such terms as regards compensation as he may deem proper, and vest in such
person, firm or corporation full power and authority, as the agent of the co-
partnership and in his name, place and stead to do anything for it or on his behalf
which he as such managing partner might do or cause to be done. (Page 23, Record
on Appeal).
It would thus be seen that the powers of the managing partner are not defined either under
the provisions of the Code of Commerce or in the articles of partnership, a situation which,
under Article 2 of the same Code, renders applicable herein the provisions of the Civil Code.
And since, according to well-known authorities, the relationship between a managing partner
and the partnership is substantially the same as that of the agent and his principal, 4the
extent of the power of Kong Chai Pin must, therefore, be determined under the general
principles governing agency. And, on this point, the law says that an agency created in
general terms includes only acts of administrations, but with regard to the power to
compromise, sell mortgage, and other acts of strict ownership, an express power of attorney
is required.5 Here Kong Chai Pin did not have such power when she sold the properties of the
partnership.
Of course, there is authority to the effect that a managing partner, even without express
power of attorney may perform acts affecting ownership if the same are necessary to
promote or accomplish a declared object of the partnership, but here the transaction is not
for this purpose. It was effected not to promote any avowed object of the
partnership.6 Rather, the sale was affected to pay an obligation of the partnership by selling
its real properties which Kong Chai Pin could not do without express authority. The
authorities supporting this view are overwhelming.
La enajenacion puede entrar en las facultades del gerente, cuando es conforme a los
fines sociales. Pero esta facultad de enajenar limitada a las ventas conforme a los
fines sociales, viene limitada a los objetos de comercio, o a los productos de la
fabrica para explotacion de los cauale se ha constituido la Sociedad. Ocurrira una
cosa parecida cuando el objeto de la Sociedad fuese la compra y venta de inmuebles,
en cuyo caso el gerente estaria facultado para otorgar las ventas que fuere
necesario. Por el contrario el generente no tiene attribuciones para vender las
instalaciones del comercio, ni la fabrica, ni las maquinarias, vehiculos de transporte,
etc. que forman parte de la explotacion social. En todos estas casos, equalmente que
sisse tratase de la venta de una marca o procedimiento mecanico o quimico,
etc., siendo actos de disposicion, seria necesario contar con la conformidad expresa
de todos los socios. (R. Gay de Montella, id., pp. 223-224; Emphasis supplied).
Los poderes de los Administradores no tienen ante el silencio del contrato otros
limites que los sealados por el objeto de la Sociedad y, por consiguiente, pueden
llevar a cabo todas las operaciones que sirven para aquel ejercicio, incluso
cambiando repetidas veces los propios acuerdos segun el interest convenido de la
Sociedad. Pueden contratar y despedir a los empleados. tomar en arriendo
almacenes y tiendas; expedir cambiales, girarlas, avalarlas, dar en prenda o en
hipoteca los bienes de la sociedad y adquirir inmuebles destinados a su explotacion o
al empleo, estable de sus capitales. Pero no podran ejecutar los actos que esten en
contradiccion con la explotacion que les fue confiada; no podran cambiar el objeto , el
domicilio, la razon social; fundir a la Sociedad en otro; ceder la accion, y por tanto, el
uso de la firma social a otro, renunciar definitivamente el ejercicio de uno de otro
ramo comercio que se les haya confiado y enajenar o pignorar el taller o el banco
social, excepto que la venta o pignoracion tengan por el objeto procurar los medios
necesarios para la continuacion de la empresa social. (Cesar Vivante, Tratado de
Derecho Mercantil, pp. 124-125, Vol. II, 1a. ed.; Emphasis supplied).
The act of one partner, to bind the firm, must be necessary for the carrying one of
its business. If all that can be said of it was that it was convenient, or that it
facilitated the transaction of the business of the firm, that is not sufficient, in the
absence of evidence of sanction by other partners. Nor, it, seems, will necessity itself
be sufficient if it be an extraordinary necessity. What is necessary for carrying on the
business of the firm under ordinary circumstances and in the usual way, is the test.
Lindl. Partn. Sec. 126. While, within this rule, one member of a partnership may, in
the usual and ordinary course of its business, make a valid sale or pledge, by way of
mortgage or otherwise, of all or part of its effects intended for sale, to a bona
fide purchaser of mortgagee, without the consent of the other members of the
firm, it is not within the scope of his implied authority to make a final disposition of al
of its effects, including those employed as the means of carrying on its business, the
object and effect of which is to immediately terminate the partnership, and place its
property beyond its control. Such a disposition, instead of being within the scope of
the partnership business, or in the usual and ordinary way of carrying it on, is
necessarily subversive of the object of the partnership, and contrary to the presumed
intention of the partnership in its formation. (McGrath, et al. vs. Cowen, et al., 49
N.E., 338, 343; Emphasis supplied).
Since Kong Chai Pin sold the partnership properties not in line with the business of the
partnership but to pay its obligation without first obtaining the consent of the other partners
the sale is invalid in excess of her authority.
4. Finally, the sale under consideration was effected in a suspicious manner as may be
gleaned from the following circumstances:
(a) The properties subject of the instant sale which consist of three parcels of land situated in
the City of Davao have an area of 200 hectares more or less, or 2,000,000 square meters.
These properties were purchased by the partnership for purposes of subdivision. According to
realtor Mata, who testified in court, these properties could command at the time he testified
a value of not less than P312,000.00, and according to Dalton Chen, manager of the firm
which took over the administration, since the date of sale no improvement was ever made
thereon precisely because of this litigation. And yet, for said properties, aside from the sum
of P37,000.00 which was paid for the properties of the deceased and the partnership, only
the paltry sum of P66,529.91 was paid as a consideration therefor, of which the sum of
P46,116.75 was even paid in Japanese currency.
(b) Considering the area of the properties Kong Chai Pin had no valid reason to sell them if
her purpose was only to pay the partnership obligation. She could have negotiated a loan if
she wanted to pay it by placing the properties as security, but preferred to sell them even at
such low price because of her close relationship with the purchasers and creditors who
conveniently organized a partnership to exploit them, as may be seen from the following
relationship of their pedigree:
 KONG CHAI PIN, the administratrix, was a grandaughter of Jose P. Yutivo, founder of
the defendant Yutivo Sons Hardware Co. YUTIVO SONS HARDWARE CO. and SING,
YEE & CUAN CO., INC., alleged creditors, are owned by the heirs of Jose P. Yutivo
(Sing, Yee & Cuan are the three children of Jose). YU KHE THAI is a grandson of the
same Jose P. Yutivo, and president of the two alleged creditors. He is the
acknowledged head of the Yu families. WASHINGTON Z. SYCIP, one of the original
buyers, is married to Ana Yu, a daughter of Yu Khe Thai. BETTY Y. LEE, the other
original buyer is also a daughter of Yu Khe Thai. The INSULAR DEVELOPMENT CO.,
the ultimate buyer, was organized for the specific purpose of buying the partnership
properties. Its incorporators were: Ana Yu and Betty Y. Lee, Attys. Quisumbing and
Salazar, the lawyers who studied the papers of the sale and have been counsel for
the Yutivo interests; Dalton Chen, a brother-in-law of Yu Khe Thai and an executive
of Sing, Yee & Cuan Co; Lillian Yu, daughter of Yu Eng Poh, an executive of Yutivo
Sons Hardware, and Simeon Daguiwag, a trusted employee of the Yutivos.
(c) Lastly, even since Tan Sin An died in 1942 the creditors, who were close relatives of Kong
Chai Pin, have already conceived the idea of possessing the lands for purposes of
subdivision, excluding Goquilolay from their plan, and this is evident from the following
sequence of events;lawphil.net
Tan Sin An died in 1942 and intestate proceedings were opened in 1944. In 1946,
the creditors of the partnership filed their claim against the partnership in the
intestate proceedings. The creditors studied ways and means of liquidating the
obligation of the partnership, leading to the formation of the defendant Insular
Development Co., composed of members of the Yutivo family and the counsel of
record of the defendants, which subsequently bought the properties of the
partnership and assumed the obligation of the latter in favor of the creditors of the
partnership, Yutivo Sons Hardware and Sing, Yee & Cuan, also of the Yutivo family.
The buyers took time to study the commercial potentialities of the partnership
properties and their lawyers carefully studied the document and other papers
involved in the transaction. All these steps led finally to the sale of the three
partnership properties.
UPON THE STRENGTH OF THE FOREGOING CONSIDERATIONS, I vote to grant the motion
for reconsideration.
7. NG CHO CIO ET AL., vs. NG DIONG, .C. N. HODGES, ET AL.,
This action was begun in the Court of First Instance of Iloilo by Ng Cho Cio Ng Sian
King and Ng Due King to recover their three-fourths (3/4) pro-indiviso share on seven (7)
parcels of land situated in the City of Iloilo which were sold by Ng Diong as manager of the
commercial firm NG CHIN BENG HERMANOS in favor of C.N. Hodges. The latter had sold four
of those parcels of land to Jose C. Tayengco and the other three parcels to Julian Go, and for
that reason these two were included as party defendants. As the original plaintiffs sold their
rights, title and interest in said partnership to Ng Be Chuat and Ng Feng Tuan, the latter two
were allowed to intervene as plaintiffs. Since Jose C. Tayengco had mortgaged three of the
lands which he purchased from C. N. Hodges in favor of the Bank of the Philippine Islands,
the complaint was amended so as to include the Bank also as party defendant.
On October 16, 1956, after trial had begun, defendant Ng Diong died, whereupon his heirs
were order to substitute him parties defendants. Defendants C. N. Hodges, Ng Diong and
Jose C. Tayengco answered the complaint separately setting up certain special defenses and
counterclaims. In substance, they refuted the allegations set forth in the complaint and
prayed for its dismissal.
The parties submitted a partial Stipulation of facts on many points covered by the pleadings
thus simplifying the trial of the case while at the same time they introduced additional
evidence in amplification of the fact stipulated, Thereupon, the trial court, after a thorough
evaluation of the evidence, rendered decision dismissing the complaint with costs. Plaintiffs
interposed the present appeal on purely questions of law.
The pertinent facts may be briefly stated, as follow On May 23, 1925, Ng Diong, Ng Be
Chuat, Ng Feng Tuan Ng Be Kian Ng Cho Cio, Ng Sian King and Ng Due King entered into a
contract of general co-partnership under the name NG CHIN BENG HERMANOS. The
partnership was to exist for a period of 10 years from May 23, 1925 and Ng Diong was
named as managing partner. On May 10, 1935, the articles of co-partnership were amended
by extending its life to 16 years more to be counted from May 23, 1925, or up to May 23,
1941.
On January 5, 1938, the partnership obtained from the National Loan and Investment Board
a loan in the amount of P30,000.00, and to guarantee its payment it executed in its favor a
mortgage on Lots Nos. 236-B, 317-A, 233 and 540 of the cadastral survey of Iloilo. On the
same date, the partnership also obtained from the same entity another loan in the amount of
P50,000.00 to secure which it also executed in its favor a mortgage on Lots Nos. 386, 829
and 237 of the same cadastral survey.
Sometime in 1938, the partnership was declared insolvent upon petition of its creditors in,
Special Proceedings No. 2419 of the Court of First Instance of Iloilo wherein one Crispino
Melocoton was elected as assignee. As a consequence, on June 21, 1939, the titles to the
seven parcels of land abovementioned were issued in his name as assignee. In due time, the
creditors filed their claims in said proceeding which totalled P192,901.12.
On August 9, 1940, a majority of the creditors with claims amounting to P139,704.81, and
the partners of the firm, acting thru counsel, entered into a composition agreement whereby
it was agreed that said creditors would receive 20% of the amount of their claims in full
payment thereof. Prior to this agreement, however, defendant Julian Go had already
acquired the rights of 24 of the creditors of the insolvent whose total claims amounted to
P139,323.10. Said composition agreement was approved by the insolvency court.
On January 30, 1941, the Agricultural and Industrial Bank which had succeeded the National
Loan and Investment Board assigned its rights and interests in the loans obtained from it by
the partnership in the aggregate amount of P80,000.00 in favor of C.N. Hodges, together
with the right and interest in the mortgage executed to secure the loans. Since said loans
became due and no payment was forthcoming, Hodges asked permission from the insolvency
court to file a complaint against the assignee to foreclose he mortgage executed to secure
the same in a separate proceeding, and permission having been granted, Hodges filed a
complaint for that purpose on May 13, 1941. In his complaint, Hodges prayed that the
assignee be ordered to pay him the sum of P75,622.90, with interest at 8% per annum
thereon from March 6, 1941, plus P8,000.00 attorney's fees, exclusive of costs and charges.
Meanwhile, war broke out and nothing appears to have been done in the insolvency
proceedings. The court records were destroyed. However, they were reconstituted later and
given due course.
On August 15, 1945, the partners of the insolvent firm and Julian Go, who acquired most of
the claims of the creditors, filed a petition with the insolvency court praying at the insolvency
proceedings be closed or terminated cause the composition agreement the creditors had
submitted relative to the settlement of the claims had already been approved on October 10,
1940. And on October 6, 1946, the court, acting favorably on the petition, ordered, closure of
the proceedings directing the assignee to turn and reconvey all the properties of the
partnership back to the latter as required by law. In accordance with this order of the court,
the assignee executed a deed of reconveyance of the properties to the partnership on April
2, 1946 and by virtue thereof, the register of deeds cancelled the titles issued in the name of
the assignee and issued new ones in lieu thereof in the name of the partnership.
As of said date, April 2, 1946, the indebtedness of the partnership to C. N. Hodges which was
the subject of the foreclosure proceedings in a separate case was P103,883.34. In order to
pay off the same and raise necessary funds to pay the other obligations of the partnership, it
was deemed proper and wise by Ng Diong, who continued to be the manager of the
partnership, to sell all its properties mortgaged to Hodges in order that the excess may be
applied to the Payment of said other obligations, and to that effect Ng Diong executed on
April 2, 1946 a deed of sale thereof in favor of Hodges for the sum of P124,580.00. Out of
this price; the sum of P103,883.34 was applied to the payment of the debt of the partnership
to Hodges and the balance was paid to the other creditors of the partnership. On the same
date, Hodges executed another contract giving the partnership the right to repurchase Lots
Nos. 237, 386 and 829 in installments for the sum of P26,000.00 within three years with
interest the rate of 1% Per annum, Payable monthly.
On May 23, 1947, the partnership had not yet paid its indebtedness to Julian Go in he
amount of P24,864.62 under the composition agreement, nor did it have any money to
repurchase Lots Nos. 237, 386 and 829 and so Ng Diong, in behalf of the partnership,
transferred the right of the latter to repurchase the same from Hodges to Julian Go in full
payment of the partnership's indebtedness to him. And having Julian Go exercised the option
January 6, 1948, Hodges executed a deed of sale of the properties in his favor, and pursuant
thereto the register of deeds issued new titles' in his name covering said lots. On May 29,
1948, Hodges executed another deed of sale covering Lots Nos. 317-A, 236-B, 233 and 540
for the sum of P119,067.79 in favor of Jose C. Tayengco. And on August 31, 1948, Tayengco
mortgaged said lots, together with three other lots of his, to the Bank of the Philippine
Islands to secure a loan of P126,000.00 to be used in the construction of a commercial
building on said lots.
Appellants make in their brief six assignments of errors, which, reduced to bare essentials,
may be boiled down to the following points: (1) the sale made by Ng Diong in behalf of the
partnership NG CHIN BENG HERMANOS of the seven lots belonging to it in favor of C. N.
Hodges on April 2, 1946 is null and void because at that time said parcels were still in the
custody of the assignee of the insolvency proceedings, or in custodia legis, and, hence, the
same is null and void; (2) said sale is also null and void "because of the disparity, irrationality
and unreasonableness between the consideration and the real value of the properties when
sold"; and (3) the lower court erred in not finding that the two deeds of mortgage executed
by he partnership in favor of the National Loan and Investment Board which were later
assigned to C. N. Hodges can no longer be enforced because the action to foreclose the
same has already prescribed.
Anent the first issue, it would be well to state the following facts by way of clarification: It
should be recalled that on August 8, 1940 the majority of the creditors of the partnership, as
well as the representatives of the latter, submitted to the court taking cognizance of the
insolvency proceedings a composition agreement whereby it was agreed that said creditors
would receive 20% of the amount of their claims in full payment thereof. This agreement
was approved on October 10, 1940 which, in contemplation of law, has the effect of putting
an end to the insolvency proceedings. However, no further step was taken thereon because
of the outbreak of the war. Later, the record of the case was reconstituted and the parties on
August 15, 1945 filed a petition with the court praying for the dismissal and closure of the
proceedings in view of the approval of the aforesaid composition agreement, and acting
favorably thereon, the court on October 6, 1945, issued an order declaring the proceedings
terminated and ordering the assignee to return and reconvey the properties the partnership.
The actual reconveyance was done by a assignee on April 2, 1946.
It would, therefore, appear that for legal and practical purposes the insolvency ended on said
date. Since then partnership became, restored to its status quo. It again reacquired its
personality as such with Ng Diong as its general manager. From that date on its properties
ceased to be in custodia legis. Such being the case, it is obvious that when Ng Diong as
manager of the partnership sold the seven parcels of land to C. N. Hodges on April 2, 1946
by virtue of a deed of sale acknowledged before a notary public on April 6, 1946, the
properties were already was at liberty to do what it may deem convenient and proper to
protect its interest. And acting accordingly, Ng Diong made the sale in the exercise of the
power granted to him by the partnership in its articles of co-partnership. We do not, WHEREFORE, the decision appealed from is affirmed, with costs against appellants.
therefore, find anything irregular in this actuation of Ng Diong.
8. EUGENIA LICHAUCO, ET AL., vs. FAUSTINO LICHAUCO
Since at the time of the sale the life of the partnership had already expired, the question may
be fixed: Who shall wind up it business affairs? May its manager still execute the sale of its This action was brought by two of the partners of an enterprise of which the
properties to C. N. Hodges as was done by Ng Diong? The answer to this question cannot defendant was manager (gestor), to secure an accounting of its affairs, and the payment to
but be in the affirmative because Ng Diong was still the managing partner of the partnership the plaintiffs of their respective shares of capital and profits.
and he had the necessary authority to liquidate its affairs under its articles of co-partnership.
And considering that war had intervened and the affairs of the partnership were placed under
The defendant admitted the allegations of the complaint as to the organization of the
receivership up to October 6, 1945, we are of the opinion that Ng Diong could still exercise
enterprise and the participation of the plaintiffs therein, but he contended that the plaintiffs
his power as liquidator when he executed the sale in question in favor of C. N. Hodges. This
could not maintain this action under the terms of the written contract by virtue of which the
is sanctioned by Article 228 of the Code of Commerce which was the law in force at the
enterprise was organized. This contention having been overruled, an account of the affairs of
time.1
the enterprise was submitted, and the parties having been given an opportunity to offer
evidence for and against certain dispute items of the account, judgment was rendered for the
With regard to the second issue, it is contended that the trial court should have declared the balance shown to be due the plaintiffs, after allowing some of these disputed items and
sale of the lots made to C. N. Hodges null and void "because of the disparity, irrationality and disallowing the rest. To this judgment, both plaintiffs and defendant excepted, and the
unreasonableness between the consideration and real value of the properties when sold." In record is now before us on their respective bills of exceptions.
stressing his point, counsel contends that the lands in question, which are located in a
commercial section of the City of Iloilo, were frittered away only for a "pittance of
In October, 1901, a notarial instrument was executed in Manila, by the terms of which a
P124,580.00" when, borrowing his words they could have been sold like hot cakes to any
partnership was duly organized for the purpose of carrying on a rice-cleaning business at
resident of the city of regular financial standing upon proper approaches and representations,
Dagupan, and for the purchase and sale of "palay" and rice. The articles of association, which
because at that time those properties were fairly worth one-half of a million pesos."
were not recorded in the mercantile registry, contain, among others, the following provisions:
This claim may be true, but the same is unsupported. Appellants have failed to introduce any
2. The association will be named F. Lichauco Hermanos and will be domiciled in the
evidence to show that they could have secured better offers for the properties if given a
center of its operations, that is, in the pueblo of Dagupan, Province of Pangasinan.
chance to do so and that they advance now is a mere speculation or conjecture which had no
place in our judicial system. Since every claim must be substantiated by sufficient evidence,
and this appellants have failed to do, their pretense cannot be entertained. 3. The association cannot be dissolved except by the consent and agreement of two-
thirds of its partners and in the event of the death of any of the latter, the heirs of
the deceased, if they be minors or otherwise incapacitated, shall be represented in
Neither can we give any value to the claim that the action for the foreclosure of the
the association by their legal representatives or if two-thirds of the surviving partners
mortgage executed by the partnership in favor of C. N. Hodges has already prescribed not
agree thereto, the participation of the deceased partner may be liquidated.
only because the same is immaterial but because it is an issue that appellants are raising for
the first time in this appeal. Such issue has never been raised in their pleadings, nor in the
trial court. Verily, this claim has no merit. 4. The management and direction of the association shall be in charged of Don
Faustino Lichauco y Santos, who shall be domiciled in this city of Manila, with ample
powers to direct and manage the business; to carry out all manner of purchases and
With regard to the appeal taken by the heirs of defendant Ng Diong whose main claim is that
sales of "palay," rice, chattels, machinery and whatsoever may be necessary and
the trial court failed to adjudicate to the partnership the properties which were bought by
proper for the business of the association; to make all contracts of every kind related
Julian Go from C. N. Hodges, suffice it to say that the same could not be done, firstly,
to said business, either orally, in private documents or in public instruments, as he
because no such claim was made by them in their pleadings in the trial court, and, secondly,
deems fit; to appoint subordinates and other employees such as may be necessary;
because the evidence shows that said properties were bought by Julian Go by virtue of the
and finally to perform whatever acts and things he may deem suitable to the interest
option given to him by the partnership for a valuable consideration in full payment of the
of the association; and to appear before the courts of justice and other authorities
credits assigned to him by a good number of creditors of said partnership. There is no
and public offices in such matters as may concern the association and to appoint
evidence that he promised to reconvey the same to the partnership.
agents for those matters to which he cannot attend personally.
The articles disclose that the capital invested in the enterprise was fixed at P100,000, of
which amount P60,000 was contributed by the defendant and his brothers in the form of
machinery in a mill at Dagupan and the good will of the milling business formerly conducted
at the place, the balance of the capital being contributed by the plaintiffs and others in cash,
in the following proportions: Eugenia Lichauco, P13,000; Catalino Arevalo, P8,000; Mariano
Nable Jose, P5,000; Tomas Roux, P4,000; Julita Lichauco, P10,000.
The business thus organized was carried on until May, 1904, when it was found to be
unprofitable and discontinued by the defendant manager ( gestor); and thereafter, the
machinery of the rice mil was dismantled by his orders, and offered for sale. No accounting
ever was made to his associates by the defendant until this action was instituted in October,
1912, although it appears that in the year 1905, Mariano Limjap, one of the participants in
the venture, demanded a rendition of accounts; and that Eugenia Lichauco, one of the
plaintiffs in this action, made repeated unsuccessful demands for the return of her share of
the capital invested in the enterprise. And yet it further appears that during all that time the
defendant manager of the defunct enterprise had in his possession not less than P20,000,
the cash balance on hand, over and above all claims of indebtedness after suspending
operations in 1904; and that since that time he received or should have received substantial
sums of money from the sale of the machinery of the dismantled mill.
There is evidence in the record tending to show that the defendant informed some of his
associates, about the year 1906 or 1907, that the whole enterprise was bankrupt; and it
appears that some months prior to the institution of this action, he rendered upon demand of
counsel, a so-called account showing a balance to the credit of the enterprise of only
P643.64; although at the trial, some six months afterwards, he expressly admitted the
existence of a cash balance of some P23,131.53, and the amount by the trial judge as due by
him on account of the venture was P29,549.99. The defendant explained that the account
rendered to counsel for the plaintiffs showing a balance of P634.64 was mailed by one of his
employees without his knowledge, and that it was a stupid blunder which he greatly
regretted; and it would seem that his statement as to the bankruptcy of the enterprise were
not intended to be understood as an assertion that there was no balance due the partners,
but merely that the enterprise had not paid, and that the losses of operation had exceeded
the profits.
Giving the defendant the benefit of the doubt, we are inclined to accept these explanations
of these incidents, as it is hardly possible that he could have hoped to escape indefinitely the
necessity of accounting for his management of the enterprise, and thus permanently retain in
his own possession the substantial balance due to his associates. But it is to be observed
that, viewed for many standpoint, these statements, made and rendered by the defendant as
to the affairs of the association, taken together with the other evidence in the record, leave
no room for doubt that from the time he concluded the operations of the business in 1904
until the date of the institution of this action in 1912 he made no attempt to account to his
associates or to turn over to them the amount due them on a proper accounting.
The assignments of error made by counsel for the defendant, as appellant, are as follows:
Error No. 1. The trial court erred in rendering judgment in favor of the plaintiffs
and against the defendant for any sum, without first decreeing a dissolution of the
association and final liquidation of its assets in accordance with paragraph 10 of the
articles of association, and because such judgment is not within the issues joined.
Error No. 2. The trial court erred in charging the defendant with P5,500, the price
of certain boilers and machinery sold to one Marciano Rivera by Crisanto Lichauco,
which amount never came into the possession of defendant.
Error No. 3. The trial court erred in disallowing the credit of P60.36, taken by
defendant for that amount expended in an attempt to make good the sale and
delivery to Marciano Rivera of the boilers and machinery mentioned in the second
assignment of error.
Error No. 4. The court erred in charging the defendant with the P1,820, covered
by stipulation of December 10, 1913, for the reason that the defendant's liability
under that stipulation can only accrue on the final dissolution and liquidation of the
association.
Error No. 5. The court erred in rendering judgment against the defendant for the
costs of the action.
The assignments of error made by refusing to condemn the defendant to the payment of
interest at the legal rate from May 30, 1904, to date of payment.
Error No. 1 The court erred in refusing to condemn the defendant to the payment
of interest at the legal rate of 6 per cent upon the credit balance of the joint venture
from May 30, 1904, to date of payment.
Error No. 2. The court erred in refusing to allow interest at the legal rate of 6 per
cent upon the sum of P1,147.44 from May 30, 1904, to date of payment, said credit
balance of the joint venture was unduly diminished by error in the conversion of gold
currency.
Error No. 3. The court erred in refusing to allow the joint venture account the sum
of P17, 746, being the value of 3,736 cavanes of rice at P4.75 per cavan, for which
the defendant has wholly failed to account.
Error No. 4. The court erred in declining to allow the joint venture account the
sum of P8,943.98 as interest upon said last-mentioned sum at the legal rate.
 Error No. 5. The court erred in declining to allow the joint venture account the
sum of P564.34, as interest at the legal rate upon the sum of P5,500, for which the
defendant has failed and refused to account.
Error No. 6. The court erred in declining to credit the joint venture account with
the sum of P2,498.46 as the amount due said account from Mariano Nable Jose,
together with interest thereon at the legal rate, amounting to P1,259.22.
We shall first examine the contentions of counsel for the defendant in support of his principal
assignment of error, as a ruling in this regard is necessary to the proper disposition of all the
other assignments of error by both plaintiffs and defendant.
Counsel for defendant says in his brief:
It is our contention, and we believe it to be unanswerable, that the dissolution and
liquidation, either in whole or in part, of the association is absolutely prohibited by
paragraph 10 of the articles of association, except by and with the conformity and
agreement of two-thirds of the partners, and that as a consequence thereof the
court, without allegations or proof of compliance with that paragraph and without
making the other partners parties to the action, had no power to decree a
distribution either in whole or in part of the capital or assets of the association.
It certainly cannot be seriously contended that part of the capital and assets of this
association can be lawfully returned to and distributed between the plaintiffs who
constitute one-fifth of the total number of partners, as required by paragraph 10 of
the articles of association.
It is elementary that no lawful liquidation and distribution of capital and assets of any
company or association can ever take place except upon dissolution thereof.
These contentions of counsels for the defendant take no account of the provisions of both
the Civil and Commercial Codes for the dissolution and liquidation of the different classes of
partnerships and mercantile associations upon the occurrence of certain contingencies not
within the control of the partners. The provisions of paragraph 10 of the articles of
partnership prohibiting the dissolution of the association under review, except by the consent
and agreement of two-thirds of its partners, denied the right to a less number of the partners
to effect a dissolution of the partnership through judicial intervention or otherwise; but in no
wise limited or restricted the rights of the individual partners in the event the dissolution of
the association was effected, not by any act of theirs, but by the express mandate of
statutory law. It would be absurd and unreasonable to hold that such an association could
never be dissolved and liquidated without the consent and agreement of two-thirds of its
partners notwithstanding that it had lost all its capital, or had become bankrupt, or that the
enterprise for which it had been organized had been concluded or utterly abandoned.
Chapter 3 of Title VIII [Book IV,] of the Civil Code prescribes the means by which partnership
(sociedades) as defined in that code, may be terminated. The first article of that chapter is as
follows:
1700. Partnership is extinguished:
(1) When the term for which it was constituted expires.
(2) When the thing is lost, or the business for which it was constituted ends.
(3) By the natural death, civil interdiction, or insolvency of any of the partners, and
in the case provided for in article 1699.
(4) By the will of any of the partners, subject to the provisions of articles 1705 and
1707.
Partnerships, to which article 1670 refers, are excepted from the provisions of Nos. 3
and 4 of this article, in the cases in which they should exist, according to the Code of
Commerce.
1670. Civil partnerships, on account of the objects for which they are destined, may
adopt all the forms accepted by the Code of Commerce. In this case, the provisions
of the same shall be applicable, in so far as they are not in conflict with those of the
present Code.
Articles 221 and 222 of the Code of Commerce are as follows:
221. Associations of any kind whatsoever shall be completely dissolved for the
following reasons:
(1) The termination of the period fixed in the articles of association of the conclusion
of the enterprise which constitutes its purpose.
(2) The entire loss of the capital.
(3) The failure of the association.
222. General and limited copartnerships shall furthermore be totally dissolved for the
following reasons:
(1) The death of one of the general partners if the articles of copartnership do not
contain an express agreement that the heirs of deceased partner are to continue in
 the copartnership, or an agreement to the effect that said copartnership will continue
between the surviving partners.
(2) The insanity of a managing partner or any other cause which renders him
incapable of administering his property.
(3) The failure of any of the general partners.
It cannot be doubted that under these provisions of law the association of which the
defendant was nominated manager (gestor) was totally dissolved in the year 1904, when the
rice mill for the operation of which it was organized was dismantled, the machinery offered
for sale and the whole enterprise concluded and abandoned.
Upon the dissolution of the association in 1904 it became the duty of the defendant to
liquidate its affairs and account to his associates for their respective shares in the capital
invested this not merely from the very nature of his relation to the enterprise and of his
duties to those associated with him as partners, but also by the express mandate of the law.
The association having been dissolved by the termination and abandonment of the enterprise
for which it was organized, he owed this duty to liquidate and account to all and to each of
his associates, and upon his failure to perform that duty, all or any of them had a clear legal
right to compel him to fulfill it. Each of his associates had a perfect right to demand for
himself a full, complete and satisfactory accounting, and in the event that he conceived
himself aggrieved in this regard, to institute the appropriate judicial proceedings to secure
relief. Doubtless, in order to avoid a multiplicity of actions, the defendant in such an action
could require all the associates to be made parties, but the right of an individual member of
the association to recover his share in the enterprise and to assert his individual claim for
redress, wholly independent of the action or attitudes of his associates, could be in no wise
affected thereby. The other associates would be proper, but not necessary, parties to an
action of this kind; and when, as in the case at bar, the defendant proceeds to trial without
objection on the express ground that all the associates in the enterprise have not been made
parties to the action, he cannot thereafter be heard to raise such an objection for the
purpose of challenging any judgment which may be rendered therein.
Although the enterprise was organized in the year 1901 for the purpose of conducting
mercantile operations, including the buying and selling of "palay" and rice, the articles of
partnership or association were not registered in the mercantile registry in accordance with
the provisions of articles 17 and 119 of the Commercial Code. It was therefore a mere
unregistered commercial partnership, and the association never became in the legal sense a
juridical person, nor did it attain the dignity, rights or privileges accorded the different classes
of compaias mercantiles (mercantile partnerships), discussed in Title 1 of Book 2 of the
Commercial Code. Still, under the provisions of the above-cited article 1670 of the Civil Code,
if it be found that the association is clothed with the forms of any of the commercial
association or partnerships recognized in the Commercial Code, the provisions of that code,
in so far as they are not in conflict with those of the Civil Code, may be relied upon in an
attempt to define the legal relations of the association and its members. Though the
unregistered articles of partnership gave the association a form of organization closely
assimilated to that of a regular "compaia en comandita," as prescribed in the Commercial
Code, except that the name designated in the articles did not include the words "y compaia"
(and company) and the additional words "sociedad en comandita," it appears to have been
organized and conducted in substantially the manner and form prescribed for "cuentas en
participacion" (joint accounts) in articles 239-243 of that Code.
The plaintiffs alleged in their complaint and the defendant admitted in his answer that the
contract was one of a "sociedad de cuentas en participacion" (joint account partnership) of
which the defendant was gestor (manager). In his brief on appeal, however, counsel for
defendant intimates that under article 241 of the Commercial Code, the adoption in the
articles of partnership of a firm name deprived the parties of the rights and privileges
secured to those interested in cuentas en participacion under the provisions of the
Commercial Code.
But whatever effect the inclusion or omission of a firm name in the articles of partnership
may have had as to third persons dealing with the partnership, we are of opinion that as
between the associates themselves, their mutual rights, duties and obligations may properly
be determined upon the authority of article 1670 of the Civil Code by the provisions of the
Commercial Code touching partnerships, the form of which in all other respects, the partners
have adopted in their articles of partnership.
The duty of the defendant to liquidate the affairs of the enterprise and to account to his
associates promptly upon the dissolution of the association in the year 1904 is expressly
prescribed in the Commercial Code, whether we regard the association, so far as it affects
the mutual rights and obligations of the partners, as clothed with the forms of a "sociedad de
cuentas en participacion" (joint account partnership) or a "sociedad en comindata."
Article 243 of the Code of Commerce prescribes with reference to "cuentas en participacion"
(joint accounts) that:
243. The liquidation shall be effected by the manager, and after the transactions
have been concluded he shall render a proper account of its results.
Articles 229 and 230 of the same Code are as follows:
229. In general or limited copartnerships, should there be no opposition on the part
of any of the partners, the persons who managed the common funds shall continue
in charge of the liquidation; but should all the partners not agree thereto a general
meeting shall be called without delay, and the decision adopted at the same shall be
enforced with regard to the appointment of liquidators from among the members of
 the association or not, as well as in all that refers to the form and proceedings of the
liquidation and the management of the common funds.
230. Under the penalty of removal the liquidators shall
(1) Draw up and communicate to the members, within the period of twenty days, an
inventory of the common property, with a balance of the association in liquidation
according to its books.
(2) Communicate in the same manner to the members every month the condition of
the liquidation.
We conclude that an express statutory obligation imposed upon the defendant an imperative
obligation to proceed without delay to the liquidation of the association in the year 1904 and
the further duty to account to his associates for the result of that liquidation. While he
appears to have gone forward with the liquidation far enough to collect all the cash resources
of the association into his own hands, how utterly failed neglected to account therefor to his
associates or to make any attempt so to do, and we are of opinion that the plaintiffs were
clearly entitled to bring this action to compel an accounting, and the payment of their
respective shares of the capital invested, together with damages resulting from the failure of
the defendant to perform the duty expressly imposed upon him by statute. The damages
arising from the failure to account consisted of the loss of the use of the money to which
they would have been entitled upon a proper accounting, from the date at which it should
have been turned over by the defendant until it is actually paid by him, that is to say, interest
on that amount at the rate of six per centum per annum until paid.
What has been said disposes adversely of the contentions of the defendant in support of his
assignments of errors Nos. 1 and 5; and sustains the contentions of the plaintiffs in their
assignments of errors Nos. 1 and 2, to the extent that interest at the rate of six per centum
per annum should have been allowed upon the credit balance of the enterprise from May 30,
1904, the date when it should have been distributed among his associates by the defendant
had he performed his statutory duty in that regard. This balance (including the item
mentioned in plaintiff's assignment of error No. 2) we fix at P23, 131.53, adopting as a basis
for our finding in this regard, the findings and conclusions of the trial judge, and disregarding
the possibility that had defendant accounted promptly to his associates, interest might not
have been chargeable on some of the smaller items in included in the account until some
little time after the date just mentioned.
As to the other assignments of error it must suffice to say that we have carefully examined
the record and have arrived at the following conclusions:
With relation to the item of account referred to in defendant's assignment of error No . 2 and
plaintiff's assignment No. 5, we hold that the defendant's account was properly charged by
the trial judge with the sum of P5,500, the purchase price of certain machinery sold by him
and for which, under all the circumstances, he must account, together with interest at the
rate of six per centum per annum from January 8, 1912, the date of sale to Marciano Rivera.
With relation to the items mentioned in plaintiff's assignments of errors Nos. 3 and 4, we
hold that the trial judge properly declines to charge the defendant's account with the
amounts mentioned therein, the evidence of record not being sufficient to establish his
liability therefor as manager or gestor of the enterprise.
With relation to the matter referred to in plaintiff's assignment of error number 6 and
defendant's assignment No. 4, we are of opinion that the trial judge properly disposed of the
issues between the parties in this regard, as they were submitted to him and as they are
disclosed by the record brought here on appeal.
We find no merit in defendant's assignment of error numbered 3.
Twenty days hereafter let judgment be entered reversing the judgment of the lower court,
without special condemnation of the costs in this instance, and directing the return of the
record to the trial court, wherein judgment will be entered in accordance herewith, and ten
days thereafter let the record be remanded in confirmity therewith. So ordered.
_______________________________________________________________
9. JOSUE SONCUYA vs. CARMEN DE LUNA
On September 11, 1936, plaintiff Josue Soncuya filed with the Court of First Instance
of Manila and amended complaint against Carmen de Luna in her own name and as co-
administratrix of the intestate estate, of Librada Avelino, in which, upon the facts therein
alleged, he prayed that defendant be sentenced to pay him the sum of P700,432 as damages
and costs.
To the aforesaid amended complaint defendant Carmen de Luna interposed a demurrer
based on the following grounds: (1) That the complaint does not contain facts sufficient to
constitute a cause of action; and (2) that the complaint is ambiguous, unintelligible and
vague.
Trial on the demurrer having been held and the parties heard, the court found the same well-
founded and sustained it, ordering the plaintiff to amend his complaint within a period of ten
days from receipt of notice of the order.
Plaintiff having manifested that he would prefer not to amend his amended complaint, the
attorney for the defendant, Carmen de Luna, filed a motion praying that the amended
complaint be dismissed with costs against the plaintiff. Said motion was granted by The
Court of First Instance of Manila which ordered the dismissal of the aforesaid amended
complaint, with costs against the plaintiff.
From this order of dismissal, the appellant took an appeal, assigning twenty alleged errors
committed by the lower court in its order referred to.
The demurrer interposed by defendant to the amended complaint filed by plaintiff having
been sustained on the grounds that the facts alleged in said complaint are not sufficient to
constitute a cause of action and that the complaint is ambiguous, unintelligible and vague,
the only questions which may be raised and considered in the present appeal are those
which refer to said grounds.
In the amended complaint it is prayed that defendant Carmen de Luna be sentenced to pay
plaintiff damages in the sum of P700,432 as a result of the administration, said to be
fraudulent, of he partnership, "Centro Escolar de Seoritas", of which plaintiff, defendant and
the deceased Librada Avelino were members. For the purpose of adjudicating to plaintiff
damages which he alleges to have suffered as a partner by reason of the supposed
fraudulent management of he partnership referred to, it is first necessary that a liquidation of
the business thereof be made to the end that the profits and losses may be known and the
causes of the latter and the responsibility of the defendant as well as the damages which
each partner may have suffered, may be determined. It is not alleged in the complaint that
such a liquidation has been effected nor is it prayed that it be made. Consequently, there is
no reason or cause for plaintiff to institute the action for damages which he claims from the
managing partner Carmen de Luna (Po Yeng Cheo vs. Lim Ka Yam, 44 Phil., 172).
Having reached the conclusion that the facts alleged in the complaint are not sufficient to
constitute a cause of action on the part of plaintiff as member of the partnership "Centro
Escolar de Seoritas" to collect damages from defendant as managing partner thereof,
without a previous liquidation, we do not deem it necessary to discuss the remaining
question of whether or not the complaint is ambiguous, unintelligible and vague.
In view of the foregoing considerations, we are of the opinion and so hold that for a partner
to be able to claim from another partner who manages the general copartnership, damages
allegedly suffered by him by reason of the fraudulent administration of the latter, a previous
liquidation of said partnership is necessary.
Wherefore, finding no error in the order appealed from the same is affirmed in all its parts,
with costs against the appellant. So ordered.
10. MANUEL G. SINGSONG, JOSE BELZUNCE, AGUSTIN E. TONSAY, JOSE L.
ESPINOS, BACOLOD SOUTHERN LUMBER YARD, and OPPEN, ESTEBAN, INC.,
vs.ISABELA SAWMILL, MARGARITA G. SALDAJENO and her husband CECILIO
SALDAJENO LEON GARIBAY, TIMOTEO TUBUNGBANUA, and THE PROVINCIAL
SHERIFF OF NEGROS OCCIDENTAL, MARGARITA G. SALDAJENO and her husband
CECILIO SALDAJENO
This is an appeal to the Court of Appeals from the judgment of the Court of First Instance of
Negros Occidental in Civil Cage No. 5343, entitled " Manuel G. Singson, et all vs. Isabela
Sawmill, et al.,", the dispositive portion of which reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS, it is hereby held. (1) that
the contract, Appendix "F", of the Partial Stipulation of Facts, Exh. "A", has
not created a chattel mortgage lien on the machineries and other chattels
mentioned therein, all of which are property of the defendant partnership
"Isabela Sawmill", (2) that the plaintiffs, as creditors of the defendant
partnership, have a preferred right over the assets of the said partnership
and over the proceeds of their sale at public auction, superior to the right of
the defendant Margarita G. Saldajeno, as creditor of the partners Leon
Garibay and Timoteo Tubungbanua; (3) that the defendant Isabela Sawmill'
is indebted to the plaintiff Oppen, Esteban, Inc. in the amount of P1,288.89,
with legal interest thereon from the filing of the complaint on June 5, 1959;
(4) that the same defendant is indebted to the plaintiff Manuel G. Singsong
in the total amount of P5,723.50, with interest thereon at the rate of 1 %
per month from May 6, 1959, (the date of the statements of account, Exhs.
"L" and "M"), and 25% of the total indebtedness at the time of payment, for
attorneys' fees, both interest and attorneys fees being stipulated in Exhs. "I"
to "17", inclusive; (5) that the same defendant is indebted to the plaintiff
Agustin E. Tonsay in the amount of P933.73, with legal interest thereon from
the filing of the complaint on June 5, 1959; (6) that the same defendant is
indebted to the plaintiff Jose L. Espinos in the amount of P1,579.44, with
legal interest thereon from the filing of the complaint on June 5, 1959; (7)
that the same defendant is indebted to the plaintiff Bacolod Southern
Lumber Yard in the amount of Pl,048.78, with legal interest thereon from the
filing of the complaint on June 5, 1959; (8) that the same defendant is
indebted to the plaintiff Jose Belzunce in the amount of P2,052.10, with legal
interest thereon from the filing of the complaint on June 5. 1959; (9) that
the defendant Margarita G. Saldajeno, having purchased at public auction
the assets of the defendant partnership over which the plaintiffs have a
preferred right, and having sold said assets for P 45,000.00, is bound to pay
to each of the plaintiffs the respective amounts for which the defendant
partnership is held indebted to, them, as above indicated and she is hereby
ordered to pay the said amounts, plus attorneys fees equivalent to 25% of
the judgment in favor of the plaintiff Manuel G. Singson, as stipulated in
Exhs. "I" "to I-17", inclusive, and 20% of the respective judgments in favor
of the other plaintiffs, pursuant to. Art. 2208, pars. (5) and (11), of the Civil
Code of the Philippines; (10) The defendants Leon Garibay and Timoteo
Tibungbanua are hereby ordered to pay to the plaintiffs the respective
 amounts adjudged in their favor in the event that said plaintiffs cannot
recover them from the defendant Margarita G. Saldajeno and the surety on
the bond that she has filed for the lifting of the injunction ordered by this
court upon the commencement of this case.
The cross-claim cf the defendant Margarita G. Saldajeno against the
defendants Leon Garibay arid Timoteo Tubungbanua is hereby discussed
Margarita G. Saldajeno shall pay the costs.
SO ORDERED.1
In a resolution promulgated on February 3, 1967, the Court of Appeals certified the records
of this case to the Supreme Court "considering that the resolution of this appeal involves
purely questions or question of law over which this Court has no jurisdiction ...2
On June 5. 1959, Manuel G. Singsong, Jose Belzunce, Agustin E. Tonsay, Jose L. Espinos,
Bacolod Southern Lumber Yard, and Oppen, Esteban, Inc. filed in the Court of first Instance
of Negros Occidental, Branch I, against "Isabela Sawmill", Margarita G. Saldajeno and her
husband Cecilio Saldajeno, Leon Garibay, Timoteo Tubungbanua and the Provincial Sheriff of
Negros Occidental a complaint the prayer of which reads:
WHEREFORE, the plaintiffs respectfully pray:
(1) That a writ of preliminary injunction be issued restraining the defendant
Provincial Sheriff of Negros Occidental from proceeding with the sales at
public auction that he advertised in two notices issued by him on May 18,
1959 in connection with Civil Case No. 5223 of this Honorable Court, until
further orders of this Court; and to make said injunction permanent after
hearing on the merits:
(2) That after hearing, the defendant partnership be ordered; to pay to the
plaintiff Manuel G. Singson the sum of P3,723.50 plus 1% monthly interest
thereon and 25% attorney's fees, and costs; to pay to the plaintiff
JoseBelzunce the sum of P2,052.10, plus 6% annual interest thereon and
25% for attorney's fees, and costs;to pay to the plaintiff Agustin E. Tonsay
the sum of P993.73 plus 6% annual interest thereon and 25% attorney's
fees, and costs; to pay to the plaintiff Bacolod Southern Lumber Yard the
sum of P1,048.78, plus 6% annual interest thereon and 25% attorney's fees,
and costs; and to pay to the plaintiff Oppen, Esteban, Inc. the sum of
P1,350.89, plus 6% annual interest thereon and 25% attorney's fees and
costs:
(3) That the so-called Chattel Mortgage executed by the defendant Leon
Garibay and Timoteo Tubungbanua in favor of the defendant Margarita G.
Saldajeno on May 26, 1958 be declared null and void being in fraud of
creditors of the defendant partnership and without valuable consideration
insofar as the said defendant is concerned:
(4) That the Honorable Court order the sale of public auction of the assets of
the defendnat partnership in case the latter fails to pay the judgment that
the plaintiffs may recover in the action, with instructions that the proceeds of
the sale b e applied in payment of said judgment before any part of saod
proceeds is paid to the defendant Margarita G. Saldajeno;
(5) That the defendant Leon Garibay, Timoteo Tubungbanua, and Margarita
G. Saldajeno be declared jointly liable to the plaintifs for whatever deficiency
may remain unpaid after the proceeds of the sale of the assets of the
defendnt partnership are supplied in payment of the judgment that said
plaintiffs may recover in this action;
(6) The plaintiffs further pray for all other remedies to which the Honorable
Court will find them entitled to, with costs to the defendants.
Bacolod City, June 4, 1959.3
The action was docketed as Civil Case No. 5343 of said court.
In their amended answer, the defendants Margarita G. Saldajeno and her husband, Cecilio
Saldajeno, alleged the following special and affirmative defenses:
xxx xxx xxx
2. That the defendant Isabela Sawmill has been dissolved by virtue of an
action entitled "In the matter of: Dissolution of Isabela Sawmill as
partnership, etc. Margarita G. Saldajeno et al. vs. Isabela Sawmill, et al. , Civil
Case No. 4787, Court of First Instance of Negros Occidental;
3. That as a result of the said dissolution and the decision of the Court of
First Instance of Negros Occidental in the aforesaid case, the other
defendants herein Messrs. Leon Garibay and Timoteo Tubungbanua became
the successors-in-interest to the said defunct partnership and have bound
themselves to answere for any and all obligations of the defunct partnership
to its creditors and third persons;
4. That to secure the performance of the obligations of the other defendants
Leon Garibay and Timoteo Tubungbanua to the answering defendant herein,
the former have constituted a chattel mortgage over the properties
mentioned in the annexes to that instrument entitled "Assignment of Rights
with Chattel Mortgage" entered into on May 26, 1968 and duly registered in
the Register of Deeds of Negros Occidental on the same date:
5. That all the plaintiffs herein, with the exceptionof the plaintiff Oppen,
Esteban, Inc. are creditors of Messrs. Leon Garibay and Timoteo
Tubungbanua and not of the defunct Isabela Sawmill and as such they have
no cause of action against answering defendant herein and the defendant
Isabela Sawmill;
6. That all the plaintiffs herein, except for the plaintiff Oppen, Esteban, Inc.
granted cash advances, gasoline, crude oil, motor oil, grease, rice and nipa
to the defendants Leon Garibay and Timoteo Tubungbanua with the
knowledge and notice that the Isabela Sawmill as a former partnership of
defendants Margarita G. Isabela Sawmill as a former partnership of
defendants Margarita G. Saldajeno, Leon Garibay and Timoteo
Tubungbanua, has already been dissolved;
7. That this Honorable Court has no jurisdictionover the claims of the
plaintiffs Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos, and the
Bacolod Southern Lumber Yard, it appearing that the amounts sought to be
recovered by them in this action is less than P2,000.00 each, exclusive of
interests;
8. That in so far as the claims of these alleged creditors plaintiffs are
concerned, there is a misjoinder of parties because this is not a class suit,
and therefore this Honorable Court cannot take jurisdictionof the claims for
payment;
9. That the claims of plaintiffs-creditors, except Oppen, Esteban, Inc. go
beyond the limit mentioned inthe statute of frauds, Art. 1403 of the Civil
Code, and are therefor unenforceable, even assuming that there were such
credits and claims;
10. That this Honorable Court has no jurisdiction in this case for it is well
settled in law and in jurisprudence that a court of first instance has no power
or jurisdiction to annul judgments or decrees of a coordinate court because
other function devolves upon the proper appellate court; (Lacuna, et al. vs.
Ofilada, et al., G.R. No. L-13548, September 30, 1959; Cabigao vs. del
Rosario, 44 Phil. 182; PNB vs. Javellana, 49 O.G. No. 1, p.124), as it appears
from the complaint in this case to annul the decision of this same court, but
of another branch (Branch II, Judge Querubin presiding).4
Said defendants interposed a cross-claim against the defendsants Leon Garibay and Timoteo
Tubungbanua praying "that in the event that judgment be rendered ordering defendant cross
claimant to pay to the plaintiffs the amount claimed in the latter's complaint, that the cross
claimant whatever amount is paid by the latter to the plaintiff in accordance to the said
judgment. ...5
After trial, judgment was rendered in favor of the plaintiffs and against the defendants.
The defendants, Margarita G. Saldajeno and her husband Cecilio Saldajeno, appealed to the
Court of Appeals assigning the following errors:
I
THE COURT A QUO ERRED IN ASSUMING JURISDICTION OVER THE CASE.
II
THE COURT A QUO ERRED IN HOLDING THAT THE ISSUE WITH
REFERENCE TO THE WITHDRAWAL OF DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO FROM THE PARTNERSHIP "SABELA SAWMILL"
WAS WHETHER OR NOT SUCH WITHDRAWAL CAUSED THE "COMPLETE
DISAPPEARANCE" OR "EXTINCTION" OF SAID PARTNERSHIP.
III
THE COURT A QUO ERRED IN OT HOLDING THAT THE WITHDRAWAL OF
DEFENDANT-APPELLANT MARGARITA G. SALDAJENO AS A PARTNER
THEREIN DISSOLVED THE PARTNERSHIP "ISABELA SAWMILL" (FORMED ON
JAN. 30, 1951 AMONG LEON GARIBAY, TIMOTEO TUBUNGBANUA AND SAID
MARGARITA G. SALDAJENO).
IV
THE COURT A QUO ERRED IN ISSUING THE WRIT OF PRELIMINARY
INJUNCTION.
V
THE COURT A QUO ERRED IN HOLDING THAT THE CHATTEL MORTGAGE
DATED MAY 26, 1958, WHICH CONSTITUTED THE JUDGMENT IN CIVIL
CASE NO. 4797 AND WHICH WAS FORECLOSED IN CIVIL CASE NO. 5223
(BOTH OF THE COURT OF FIRST INSTANCE OF NEGROS OCCIDENTAL) WAS
NULL AND VOID.
VI
THE COURT A QUO ERRED IN HOLDING THAT THE CHATTLES ACQUIRED
BY DEFENDANT-APPELLANT MARGARITA G. SALDAJENO IN THE
FORECLOSURE SALE IN CIVIL CASE NO. 5223 CONSTITUTED 'ALL THE
ASSETS OF THE DEFENDNAT PARTNERSHIP.
VII
THE COURT A QUO ERRED IN HOLDING THAT DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO BECAME PRIMARILY LIABLE TO THE
PLAINTFFS-APPELLEES FOR HAVING ACQUIRED THE MORTGAGED
CHATTLES IN THE FORECLOSURE SALE CONDUCTED IN CONNECTION
WITH CIVIL CASE NO. 5223.
VIII
THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO LIABLE FOR THE OBLIGATIONS OF MESSRS.
LEON GARIBAY AND TIMOTEO TUBUNGBANUA, INCURRED BY THE LATTER
AS PARTNERS IN THE NEW 'ISABELA SAWMILL', AFTER THE DISSOLUTION
OF THE OLD PARTNERSHIP IN WHICH SAID MARGARITA G. SALDAJENO
WAS A PARTNER.
IX
THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO LIABLE TO THE PLAINTIFFS-APPELLEES FOR
ATTORNEY'S FEES.
X
THE COURT A QUO ERRED IN NOT DISMISSING THE COMPLAINT OF THE
PLAINTIFFS-APPELLEES.
XI
THE COURT A QUO ERRED IN DISMISSING THE CROSS-CLAIM OF
DEFENDANT-APPELLANT MARGARITA G. SALDAJENO AGAINST CROSS-
DEFENDANTS LEON GARIBAY AND TIMOTEO TUBUNGBANUA.6
The facts, as found by the trial court, are:
At the commencement of the hearing of the case on the merits the plaintiffs
and the defendant Cecilio and Margarita g. Saldajeno submittee a Partial
Stipulation of Facts that was marked as Exh. "A". Said stipulation reads as
folows:
1. That on January 30, 1951 the defendants Leon Garibay,
Margarita G. Saldejeno, and Timoteo Tubungbanua entered
into a Contract of Partnership under the firm name "Isabela
Sawmill", a copy of which is hereto attached Appendix "A".
2. That on February 3, 1956 the plaintiff Oppen, Esteban,
Inc. sold a Motor Truck and two Tractors to the partnership
Isabela Sawmill for the sum of P20,500.00. In order to pay
the said purcahse price, the said partnership agreed to make
arrangements with the International Harvester Company at
Bacolod City so that the latter would sell farm machinery to
Oppen, Esteban, Inc. with the understanding that the price
was to be paid by the partnership. A copy of the
corresponding contract of sle is attached hereto as Appendix
"B".
3. That through the method of payment stipulated in the
contract marked as Appendix "B" herein, the International
Harvester Company has been paid a total of P19,211.11,
leaving an unpaid balance of P1,288.89 as shown in the
statements hereto attached as Appendices "C", "C-1", and
"C-2".
4. That on April 25, 1958 Civil Case No. 4797 was filed by
the spouses Cecilio Saldajeno and Margarita G. Saldajeno
against the Isabela Sawmill, Leon Garibay, and Timoteo
Tubungbanua, a copy of which Complaint is attached as
Appendix 'D'.
5. That on April 27, 1958 the defendants LeonGaribay,
Timoteo Tubungbanua and Margarita G. Saldajeno entered
into a "Memorandum Agreement", a copy of which is hereto
attached as Appendix 'E' in Civil Case 4797 of the Court of
First Instance of Negros Occidental.
6. That on May 26, 1958 the defendants Leon Garibay,
Timoteo Tubungbanua and Margarita G. Saldajeno executed
a document entitled "Assignment of Rights with Chattel
Mortgage", a copy of which documents and its Annexes "A"
to "A-5" forming a part of the record of the above mentioned
Civil Case No. 4797, which deed was referred to in the
Decision of the Court ofFirst Instance of Negros Occidental
in Civil Case No. 4797 dated May 29, 1958, a copy of which
is hereto attached as Appendix "F" and "F-1" respectively.
7. That thereafter the defendants Leon Garibay and Timoteo
Tubungbanua did not divide the assets and properties of the
"Isabela Sawmill" between them, but they continued the
business of said partnership under the same firm name
"Isabela Sawmill".
8. That on May 18, 1959 the Provincial Sheriff of Negros
Occidental published two (2) notices that he would sell at
public auction on June 5, 1959 at Isabela, Negros Occidental
certain trucks, tractors, machinery, officeequipment and
other things that were involved in Civil Case No. 5223 of the
Court of First Instance of Negros Occidental, entitled
"Margarita G. Saldajeno vs. Leon Garibay, et al." See
Appendices "G" and "G-1".
9. That on October 15, 1969 the Provincial Sheriff of Negros
Occidental executed a Certificate ofSale in favor of the
defendant Margarita G. Saldajeno, as a result of the sale
conducted by him on October 14 and 15, 1959 for the
enforcement of the judgment rendered in Civil Case No.
5223 of the Court of First Instance of Negros Occidental, a
certified copy of which certificte of sale is hereto attached as
Appendix "H".
10. That on October 20, 1959 the defendant Margarita G.
Saldajeno executed a deed of sale in favor of the Pan
Oriental Lumber Company transfering to the latter for the
sum of P45,000.00 the trucks, tractors, machinery, and
other things that she had purchashed at a public auction
referred to in the foregoing paragraph, a certified true copy
of which Deed of Sale is hereto attached as Appendix "I".
11. The plaintiffs and the defendants Cecilio Saldajeno and
Margarita G. Saldajeno reserve the right to present
additional evidence at the hearing of this case.
Forming parts of the above copied stipulation are documents that were
marked as Appendices "A", "B", "C", "C-1", "C-2", "D", "E", "F", "F-1", "G",
"G-1", "H", and "I".
The plaintiffs and the defendants Cecilio and Margarita G. Saldajeno
presented additional evidence, mostly documentary, while the cross-
defendants did not present any evidence. The case hardly involves quetions
of fact at all, but only questions of law.
The fact that the defendnat 'Isabela Sawmill' is indebted to theplaintiff
Oppen, Esteban, Inc. in the amount of P1,288.89 as the unpaid balance of
an obligation of P20,500.00 contracted on February 3, 10956 is expressly
admitted in paragraph 2 and 3 of the Stipulation, Exh. "A" and its Appendices
"B", "C", "C-1", and "C-2".
The plaintiff Agustin E. Tonssay proved by his own testimony and his Exhs.
"B" to"G" that from October 6, 1958 to November 8, 1958 he advanced a
total of P4,200.00 to the defendant 'Isabela Sawmill'. Agaist the said
advances said defendant delivered to Tonsay P3,266.27 worth of lumber,
leavng an unpaid balance of P933.73, which balance was confirmed on May
15, 1959 by the defendant Leon Garibay, as Manager of the defendant
partnership.
The plaintiff Manuel G. Singsong proved by his own testimony and by his
Exhs. "J" to "L" that from May 25, 1988 to January 13, 1959 he sold on
credit to the defendnat "Isabela Sawmill" rice and bran, on account of which
business transaction there remains an unpaid balance of P3,580.50. The
same plaintiff also proved that the partnership ownes him the sum of
P143.00 for nipa shingles bought from him on credit and unpaid for.
The plaintiff Jose L. Espinos proved through the testimony of his witness
Cayetano Palmares and his Exhs. "N" to "O-3" that he owns the "Guia
Lumber Yard", that on October 11, 1958 said lumber yard advanced the sum
of P2,500.00 to the defendant "Isabela Sawmill", that against the said cash
advance, the defendant partnership delivered to Guia Lumber Yard P920.56
worth of lumber, leaving an outstanding balance of P1,579.44.
 The plaintiff Bacolod Southern Lumber Yard proved through the testimony of
the witness Cayetano Palmares an its Exhs. "P" to "Q-1" that on October 11,
1958 said plaintiff advanced the sum of P1,500.00 to the defendsant 'Isabela
Sawmill', that against the said cash advance, the defendant partnership
delivered to the said plaintiff on November 19, 1958 P377.72 worth of
lumber, and P73.54 worth of lumber on January 27, 1959, leaving an
outstanding balance of P1,048.78.
The plaintiff Jose Balzunce proved through the testimony of Leon Garibay
whom he called as his witness, and through the Exhs. "R" to "E" that from
September 14, 1958 to November 27, 1958 he sold to the defedant "Isabela
Sawmill" gasoline, motor fuel, and lubricating oils, and that on account of
said transactions, the defendant partnersip ownes him an unpaid balance of
P2,052.10.
Appendix "H" of the stipulation Exh. "A" shows that on October 13 and 14,
1959 the Provincial Sheriff sold to the defendant Margrita G. Saldajeno for
P38,040.00 the assets of the defendsant "Isabela Sawmill" which the
defendants Leon G. Garibay and Timoteo Tubungbanua had mortgaged to
her, and said purchase price was applied to the judgment that she has
obtained against he said mortgagors in Civil Case No. 5223 of this Court.
Appendix "I" of the same stipulation Exh. "A" shows that on October 20,
1959 the defendant Margarita G. Saldajeno sold to the PAN ORIENTAL
LUMBER COMPANY for P45,000.00 part of the said properties that she had
bought at public aucton one week before.
xxx xxx xxx7
It is contended by the appellants that the Court of First Instance of Negros Occidental had no
jurisdiction over Civil Case No. 5343 because the plaintiffs Oppen, Esteban, Inc., Agustin R.
Tonsay, Jose L. Espinos and the Bacolod Southern Lumber Yard sought to collect sums of
moeny, the biggest amount of which was less than P2,000.00 and, therefore, within the
jurisdiction of the municipal court.
This contention is devoid of merit because all the plaintiffs also asked for the nullity of the
assignment of right with chattel mortgage entered into by and between Margarita G.
Saldajeno and her former partners Leon Garibay and Timoteo Tubungbanua. This cause of
action is not capable of pecuniary estimation and falls under the jurisdiction of the Court of
First Instnace. Where the basic issue is something more than the right to recover a sum of
money and where the money claim is purely incidental to or a consequence of the principal
relief sought, the action is as a case where the subject of the litigation is not capable of
pecuniary estimation and is cognizable exclusively by the Court of First Instance.
The jurisdiction of all courts in the Philippines, in so far as the authority thereof depends
upon the nature of litigation, is defined in the amended Judiciary Act, pursuant to which
courts of first instance shall have exclusive original jurisdiction over any case the subject
matter of which is not capable of pecuniary estimation. An action for the annulment of a
judgment and an order of a court of justice belongs to th category. 8
In determining whether an action is one the subject matter of which is not capable of
pecuniary estimation this Court has adopted the criterion of first ascertaining the nature of
the principal action or remedy sought. If it is primarily for the recovery of a sum of money,
the cliam is considered capable of pecuniary estimation, and whether jurisdiciton is in the
municipal courts or in the courts of first instance would depend on the amount of the claim.
However, where the basic issue is something other than the right to recover a sum of money,
where the money claim is purely incidental to, or a consequence of, the principal relief
sought, this Court has considered such actions as cases where the subject ogf the litigation
may not be estimated in terms of money, and are cognizable exclusively by courts of first
instance.
In Andres Lapitan vs. SCANDIA, Inc., et al.,9 this Court held:
Actions for specific performance of contracts have been expressly
prounounced to be exclusively cognizable by courts of first instance: De
Jesus vs. Judge Garcia, L-26816, February 28, 1967; Manufacturers'
Distributors, Inc. vs. Yu Siu Liong, L-21285, April 29, 1966. And no cogent
reason appears, and none is here advanced by the parties, why an actin for
rescission (or resolution) should be differently treated, a "rescission" being a
counterpart, so to speak, of "specific performance'. In both cases, the court
would certainly have to undertake an investigation into facts that would
justify one act of the other. No award for damages may be had in an action
for resicssion without first conducting an inquiry into matters which would
justify the setting aside of a contract, in the same manner that courts of first
instance would have to make findings of fact and law in actions not capable
of pecuniary estimnation espressly held to be so by this Court, arising from
issues like those arised in Arroz v. Alojado, et al., L-22153, March 31, 1967
(the legality or illegality of the conveyance sought for and the determination
of the validity of the money deposit made); De Ursua v. Pelayo, L-13285,
April 18, 1950 (validity of a judgment); Bunayog v. Tunas, L-12707,
December 23, 1959 (validity of a mortgage); Baito v. Sarmiento, L-13105,
August 25, 1960 (the relations of the parties, the right to support created by
the relation, etc., in actions for support); De Rivera, et al. v. Halili, L-15159,
September 30, 1963 (the validity or nullity of documents upon which claims
are predicated). Issues of the same nature may be raised by a party against
whom an action for rescission has been brought, or by the plaintiff himself.
It is, therefore, difficult to see why a prayer for damages in an action for
rescission should be taken as the basis for concluding such action for
 resiccison should be taken as the basis for concluding such action as one
cpable of pecuniary estimation - a prayer which must be included in the main
action if plaintiff is to be compensated for what he may have suffered as a
result of the breach committed by defendant, and not later on precluded
from recovering damages by the rule against splitting a cause of action and
discouraging multiplicitly of suits.
The foregoing doctrine was reiterated in The Good Development Corporation vs.
Tutaan, 10 where this Court held:
On the issue of which court has jurisdiction, the case of SENO vs. Pastolante,
et al., is in point. It was ruled therein that although the purposes of an
action is to recover an amount plus interest which comes within the original
jurisidction of the Justice of the Peace Court, yet when said action involves
the foreclosure of a chattel mortgage covering personal properties valued at
more than P2,000, (now P10,000.00) the action should be instituted before
the Court of First Instance.
In the instanct, case, the action is to recover the amount of P1,520.00 plus
interest and costs, and involves the foreclosure of a chattel mortgage of
personal properties valued at P15,340.00, so that it is clearly within the
competence of the respondent court to try and resolve.
In the light of the foregoing recent rulings, the Court of First Instance of Negros Occidental
did no err in exercising jurisidction over Civil Case No. 5343.
The appellants also contend that the chattel mortgage may no longer be annulled because it
had been judicially approved in Civil Case No. 4797 of the Court of First Instance of Negros
Occidental and said chattel mortgage had been ordered foreclosed in Civil Case No. 5223 of
the same court.
On the question of whether a court may nullify a final judgment of another court of co-equal,
concurrent and coordinate jusridiction, this Court originally ruled that:
A court has no power to interfere with the judgments or decrees of a court
of concurrent or coordinate jurisdiction having equal power to grant the relief
sought by the injunction.
The various branches of the Court of First Instance of Manila are in a sense
coordinate courts and cannot be allowed to interfere with each others'
judgments or decrees. 11
The foregoing doctrine was reiterated in a 1953 case 12
where this Court said:
The rule which prohibits a Judge from intertering with the actuations of the
Judge of another branch of the same court is not infringed when the Judge
who modifies or annuls the order isued by the other Judge acts in the same
case and belongs to the same court (Eleazar vs. Zandueta, 48 Phil. 193. But
the rule is infringed when the Judge of a branch of the court issues a writ of
preliminary injunction in a case to enjoint the sheriff from carrying out an
order by execution issued in another case by the Judge of another branch of
the same court. (Cabigao and Izquierdo vs. Del Rosario et al., 44 Phil. 182).
This ruling was maintained in 1967. In Mas vs. Dumaraog, 13 the judgment sought to be
annulled was rendered by the Court of First Instance of Iloilo and the action for annullment
was filed with the Court of First Instance of Antique, both courts belonging to the same
Judicial District. This Court held that:
The power to open, modify or vacant a judgment is not only possessed by
but restricted to the court in which the judgment was rendered.
The reason of this Court was:
Pursuant to the policy of judicial stability, the judgment of a court of
competent jurisdiction may not be interfered with by any court concurrrent
jurisdiction.
Again, in 1967 this Court ruled that the jurisdiction to annul a judgement of a branch of the
court of First Instance belongs solely to the very same branch which rendered the
judgement. 14
Two years later, the same doctrine was laid down in the Sterling Investment case. 15
In December 1971, however, this court re-examined and reversed its earlier doctrine on the
matter. In Dupla v. Court of Appeals, 16 this Tribunal, speaking through Mr. Justice Villamor
declared:
... the underlying philosophy expressed in the Dumara-og case, the policy of
judicial stability, to the end that the judgment of a court of competent
jurisdiction may not be interfered with by any court of concurrent jurisdiction
may not be interfered with by any court of concurrent jurisdiciton, this Court
feels that this is as good an occasion as any to re-examine the doctrine laid
down ...
In an action to annul the judgment of a court, the plaintiff's cause of action
springs from the alleged nullity of the judgment based on one ground or
another, particularly fraud, which fact affords the plaintiff a right to judicial
 interference in his behalf. In such a suit the cause of action is entirely
different from that in the actgion which grave rise to the judgment sought to
be annulled, for a direct attack against a final and executory judgment is not
a incidental to, but is the main object of the proceeding. The cause of action
in the two cases being distinct and separate from each other, there is no
plausible reason why the venue of the action to annul the judgment should
necessarily follow the venue of the previous action ...
The present doctrine which postulate that one court or one branch of a court
may not annul the judgment of another court or branch, not only opens the
door to a violation of Section 2 of Rule 4, (of the Rules of Court) but also
limit the opportunity for the application of said rule.
Our conclusion must therefore be that a court of first instance or a branch
thereof has the authority and jurisdiction to take cognizance of, and to act
in, suit to annul final and executory judgment or order rendered by another
court of first instance or by another branch of the same court...
In February 1974 this Court reiterated the ruling in the Dulap case.17
In the light of the latest ruling of the Supreme Court, there is no doubt that one branch of
the Court of First Instance of Negros Occidental can take cognizance of an action to nullify a
final judgment of the other two branches of the same court.
It is true that the dissolution of a partnership is caused by any partner ceasing to be
associated in the carrying on of the business. 18 However, on dissolution, the partnershop is
not terminated but continuous until the winding up to the business. 19
The remaining partners did not terminate the business of the partnership "Isabela Sawmill".
Instead of winding up the business of the partnership, they continued the business still in the
name of said partnership. It is expressly stipulated in the memorandum-agreement that the
remaining partners had constituted themselves as the partnership entity, the "Isabela
Sawmill". 20
There was no liquidation of the assets of the partnership. The remaining partners, Leon
Garibay and Timoteo Tubungbanua, continued doing the business of the partnership in the
name of "Isabela Sawmill". They used the properties of said partnership.
The properties mortgaged to Margarita G. Saldajeno by the remaining partners, Leon Garibay
and Timoteo Tubungbanua, belonged to the partnership "Isabela Sawmill." The appellant,
Margarita G. Saldajeno, was correctly held liable by the trial court because she purchased at
public auction the properties of the partnership which were mortgaged to her.
It does not appear that the withdrawal of Margarita G. Saldajeno from the partnership was
published in the newspapers. The appellees and the public in general had a right to expect
that whatever, credit they extended to Leon Garibay and Timoteo Tubungbanua doing the
business in the name of the partnership "Isabela Sawmill" could be enforced against the
proeprties of said partnership. The judicial foreclosure of the chattel mortgage executed in
favor of Margarita G. Saldajeno did not relieve her from liability to the creditors of the
partnership.
The appellant, margrita G. Saldajeno, cannot complain. She is partly to blame for not
insisting on the liquidaiton of the assets of the partnership. She even agreed to let Leon
Garibay and Timoteo Tubungbanua continue doing the business of the partnership "Isabela
Sawmill" by entering into the memorandum-agreement with them.
Although it may be presumed that Margarita G. Saldajeno had action in good faith, the
appellees aslo acted in good faith in extending credit to the partnership. Where one of two
innocent persons must suffer, that person who gave occasion for the damages to be caused
must bear the consequences. Had Margarita G. Saldajeno not entered into the memorandum-
agreement allowing Leon Garibay and Timoteo Tubungbanua to continue doing the business
of the aprtnership, the applees would not have been misled into thinking that they were still
dealing with the partnership "Isabela Sawmill". Under the facts, it is of no moment that
technically speaking the partnership "Isabela Sawmill" was dissolved by the withdrawal
therefrom of Margarita G. Saldajeno. The partnership was not terminated and it continued
doping business through the two remaining partners.
The contention of the appellant that the appleees cannot bring an action to annul the chattel
mortgage of the propertiesof the partnership executed by Leon Garibay and Timoteo
Tubungbanua in favor of Margarita G. Saldajeno has no merit.
As a rule, a contract cannot be assailed by one who is not a party thereto. However, when a
contract prejudices the rights of a third person, he may file an action to annul the contract.
This Court has held that a person, who is not a party obliged principally or subsidiarily under
a contract, may exercised an action for nullity of the contract if he is prejudiced in his rights
with respect to one of the contracting parties, and can show detriment which would
positively result to him from the contract in which he has no intervention. 21
The plaintiffs-appellees were prejudiced in their rights by the execution of the chattel
mortgage over the properties of the partnership "Isabela Sawmill" in favopr of Margarita G.
Saldajeno by the remaining partners, Leon Garibay and Timoteo Tubungbanua. Hence, said
appelees have a right to file the action to nullify the chattel mortgage in question.
The portion of the decision appealed from ordering the appellants to pay attorney's fees to
the plaintiffs-appellees cannot be sustained. There is no showing that the appellants
displayed a wanton disregard of the rights of the plaintiffs. Indeed, the appellants believed in
good faith, albeit erroneously, that they are not liable to pay the claims.
The defendants-appellants have a right to be reimbursed whatever amounts they shall pay
the appellees by their co-defendants Leon Garibay and Timoteo Tubungbanua. In the
memorandum-agreement, Leon Garibay and Timoteo Tubungbaun undertook to release
Margarita G. Saldajeno from any obligation of "Isabela Sawmill" to third persons. 22
WHEREFORE, the decision appealed from is hereby affirmed with the elimination of the
portion ordering appellants to pay attorney's fees and with the modification that the
defendsants, Leon Garibay and Timoteo Tubungbanua, should reimburse the defendants-
appellants, Margarita G. Saldajeno and her husband Cecilio Saldajeno, whatever they shall
pay to the plaintiffs-appellees, without pronouncement as to costs.
SO ORDERED.
11. PO YENG CHEO vs. LIM KA YAM
By the amended complaint in this action, the present plaintiff, Po Yeng Cheo, alleged
sole owner of a business formerly conducted in the City of Manila under the style of Kwong
Cheong, as managing partner in said business and to recover from him its properties and
assets. The defendant having died during the pendency of the cause in the court below and
the death suggested of record, his administrator, one Lim Yock Tock, was required to appear
and make defense.
In a decision dated July 1, 1921, the Honorable C. A. Imperial, presiding in the court below,
found that the plaintiff was entitled to an accounting from Lim Ka Yam, the original
defendant, as manager of the business already reffered to, and he accordingly required Lim
Yock Tock, as administrator, to present a liquidation of said business within a stated time.
This order bore no substantial fruit, for the reason that Lim Yock Tock personally knew
nothing about the aforesaid business (which had ceased operation more than ten years
previously) and was apparently unable to find any books or documents that could shed any
real light on its transaction. However, he did submit to the court a paper written by Lim Ka
Yam in life purporting to give, with vague and uncertain details, a history of the formation of
the Kwong Cheong Tay and some account of its disruption and cessation from business in
1910. To this narrative was appended a statement of assets and liabilities, purporting to
show that after the business was liquidate, it was actually debtor to Lim Ka Yam to the
extent of several thousand pesos. Appreciating the worthlessness of this so-called statement,
and all parties apparently realizing that nothing more was likely to be discovered by further
insisting on an accounting, the court proceeded, on December 27, 1921, to render final
judgment in favor of the plaintiff.
The decision made on this occasion takes as its basis the fact stated by the court in its earlier
decision of July 1, 1921, which may be briefly set fourth as follows:lawphil.net
The plaintiff, Po Yeng Cheo, is the sole heir of one Po Gui Yao, deceased, and as such Po
Yeng Cheo inherited the interest left by Po Gui Yao in a business conducted in Manila under
the style of Kwong Cheong Tay. This business had been in existence in Manila for many
years prior to 1903, as a mercantile partnership, with a capitalization of P160,000, engaged
in the import and export trade; and after the death of Po Gui Yao the following seven
persons were interested therein as partners in the amounts set opposite their respective
names, to wit: Po Yeng Cheo, P60,000; Chua Chi Yek, P50,000; Lim Ka Yam, P10,000; Lee
Kom Chuen, P10,000; Ley Wing Kwong, P10,000; Chan Liong Chao, P10,000; Lee Ho Yuen,
P10,000. The manager of Kwong Cheong Tay, for many years prior of its complete cessation
from business in 1910, was Lim Ka Yam, the original defendant herein.
Among the properties pertaining to Kwong Cheong Tay and consisting part of its assets were
ten shares of a total par value of P10,000 in an enterprise conducted under the name of Yut
Siong Chyip Konski and certain shares to the among of P1,000 in the Manila Electric Railroad
and Light Company, of Manila.
In the year 1910 (exact date unstated) Kwong Cheong Tay ceased to do business, owing
principally to the fact that the plaintiff ceased at that time to transmit merchandise from
Hongkong, where he then resided. Lim Ka Yam appears at no time to have submitted to the
partners any formal liquidation of the business, though repeated demands to that effect have
been made upon him by the plaintiff.
In view of the facts above stated, the trial judge rendered judgment in favor of the plaintiff,
Po Yeng Cheo, to recover of the defendant Lim Yock Tock, as administrator of Lim Ka Yam,
the sum of sixty thousand pesos (P60,000), constituting the interest of the plaintiff in the
capital of Kwong Cheong Tay, plus the plaintiff's proportional interest in shares of the Yut
Siong Chyip Konski and Manila Electric Railroad and Light Company, estimated at P11,000,
together with the costs. From this judgment the defendant appealed.
In beginning our comment on the case, it is to be observed that this court finds itself strictly
circumscribed so far as our power of review is concerned, to the facts found by the trial
judge, for the plaintiff did not appeal from the decision of the court below in so far as it was
unfavorable to him, and the defendant, as appellant, has not caused a great part of the oral
testimony to be brought up. It results, as stated, that we must accept the facts as found by
the trial judge; and our review must be limited to the error, or errors, if any, which may be
apparent upon the face of the appealed decision, in relation with the pleadings of record.
Proceeding then to consider the appealed decision in relation with the facts therein stated
and other facts appearing in the orders and proceedings in the cause, it is quite apparent
that the judgment cannot be sustained. In the first place, it was erroneous in any event to
give judgment in favor of the plaintiff to the extent of his share of the capital of Kwong
Cheong Tay. The managing partner of a mercantile enterprise is not a debtor to the
shareholders for the capital embarked by them in the business; and he can only be made
liable for the capital when, upon liquidation of the business, there are found to be assets in
his hands applicable to capital account. That the sum of one hundred and sixty thousand
pesos (P160,000) was embarked in this business many years ago reveals nothing as to the
condition of the capital account at the time the concern ceased to do business; and even
supposing--as the court possibly did--that the capital was intact in 1908, this would not prove
it was intact in 1910 when the business ceased to be a going concern; for in that precise
interval of time the capital may have been diminished or dissipated from causes in no wise
chargeable to the negligence or misfeasance of the manager.
Again, so far as appears from the appealed decision, the only property pertaining to Kwong
Cheong Tay at the time this action was brought consisted of shares in the two concerns
already mentioned of the total par value of P11,000. Of course, if these shares had been sold
and converted into money, the proceeds, if not needed to pay debts, would have been
distributable among the various persons in interest, that is, among the various shareholders,
in their respective proportions. But under the circumstances revealed in this case, it was
erroneous to give judgment in favor of the plaintiff for his aliquot part of the par value of said
shares. It is elementary that one partner, suing alone, cannot recover of the managing
partner the value of such partner's individual interest; and a liquidation of the business is an
essential prerequisite. It is true that in Lichauco vs. Lichauco (33 Phil., 350), this court
permitted one partner to recover of the manager the plaintiff's aliquot part of the proceeds of
the business, then long since closed; but in that case the affairs of the defunct concern had
been actually liquidate by the manager to the extent that he had apparently converted all its
properties into money and had pocketed the same--which was admitted;--and nothing
remained to be done except to compel him to pay over the money to the persons in interest.
In the present case, the shares referred to--constituting the only assets of Kwong Cheong
Tay--have not been converted into ready money and doubtless still remain in the name of
Kwong Cheong Tay as owner. Under these circumstances it is impossible to sustain a
judgment in favor of the plaintiff for his aliquot part of the par value of said shares, which
would be equivalent to allowing one of several coowners to recover from another, without
process of division, a part of an undivided property.
Another condition will be noted as present in this case which in our opinion is fatal to the
maintenance of the appealed judgment. This is that, after the death of the original
defendant, Lim Ka Yam, the trial court allowed the action to proceed against Lim Yock Tock,
as his administrator, and entered judgment for a sum of money against said administrator as
the accounting party,--notwithstanding the insistence of the attorneys for the latter that the
action should be discontinued in the form in which it was then being prosecuted. The error of
the trial court in so doing can be readily demonstrated from more than one point of view.
In the first place, it is well settled that when a member of a mercantile partnership dies, the
duty of liquidating its affair devolves upon the surviving member, or members, of the firm,
not upon the legal representative of the deceased partner. (Wahl vs. Donaldson Sim & Co., 5
Phil., 11; Sugo and Shibata vs. Green, 6 Phil., 744) And the same rule must be equally
applicable to a civil partnership clothed with the form of a commercial association (art. 1670,
Civil Code; Lichauco vs. Lichauco, 33 Phil., 350) Upon the death of Lim Ka Yam it therefore
became the duty of his surviving associates to take the proper steps to settle the affairs of
the firm, and any claim against him, or his estate, for a sum of money due to the partnership
by reason of any misappropriation of its funds by him, or for damages resulting from his
wrongful acts as manager, should be prosecuted against his estate in administration in the
manner pointed out in sections 686 to 701, inclusive, of the Code of Civil Procedure.
Moreover, when it appears, as here, that the property pertaining to Kwong Cheong Tay, like
the shares in the Yut Siong Chyip Konski and the Manila Electric Railroad and Light Company,
are in the possession of the deceased partner, the proper step for the surviving associates to
take would be to make application to the court having charge to the administration to require
the administrator to surrender such property.
But, in the second place, as already indicated, the proceedings in this cause, considered in
the character of an action for an accounting, were futile; and the court, abandoning entirely
the effort to obtain an accounting, gave judgment against the administrator upon the
supposed liability of his intestate to respond for the plaintiff's proportionate share of the
capital and assets. But of course the action was not maintainable in this aspect after the
death of the defendant; and the motion to discontinue the action as against the administrator
should have been granted.
The judgment must be reversed, and the defendant will be absolved from the complaint; but
it will be understood that this order is without prejudice to any proceeding which may be
undertaken by the proper person or persons in interest to settle the affairs of Kwong Cheong
Tay and in connection therewith to recover from the administrator of Lim Ka Yam the shares
in the two concerns mentioned above. No special pronouncement will be made as to costs of
either. So ordered.
12. LAGUNA TRANSPORTATION CO., INC. vs. SOCIAL SECURITY SYSTEM
On January 24, 1958, petitioner Laguna Transportation Co., Inc. filed with the Court of First
Instance of Laguna petition praying that an order be issued by the court declaring that it is
not bound to register as a member of respondent Social Security System and, therefore, not
obliged to pay to the latter the contributions required under the Social Security Act. 1 To this
petition, respondent filed its answer on February 11, 1958 praying for its dismissal due to
petitioner's failure to exhaust administrative remedies, and for a declaration that petitioner is
covered by said Act, since the latter's business has been in operation for at least 2 years prior
to September 1, 1957.
On February 11, 1958, respondent filed a motion for preliminary hearing on its defense that
petitioner failed to exhaust administrative remedies. When the case was called for
preliminary hearing, it was postponed by agreement of the parties. Subsequently, it was set
Gonzalo Mercado 66 shares 6,600.00 1,822.49
for trial. On the date of the trial, the parties agreed to present, in lieu of any other evidence,
a stipulation of facts, which they did on May 27, 1958, as follows: Artemio Mercado 94 shares 9,400.00 2,565.90

1. That petitioner is a domestic corporation duly organized and existing under the
laws of the Philippines, with principal place of business at Bian, Laguna;
2. That respondent is an agency created under Republic Act No. 1161, as amended
by Republic Act No. 1792, with the principal place of business at the new GSIS Bldg.,
corner Arroceros and Concepcion Streets, Manila, where it may be served with
summons;
3. That respondent has served notice upon the petitioner requiring it to register as
member of the System and to remit the premiums due from all the employees of the
petitioner and the contribution of the latter to the System beginning the month of
September, 1957;
4. That sometime in 1949, the Bian Transportation Co., a corporation duly
registered with the Securities and Exchange Commission, sold part of the lines and
equipment it operates to Gonzalo Mercado, Artemio Mercado, Florentino Mata and
Dominador Vera Cruz;
5. That after the sale, the said vendees formed an unregistered partnership under
the name of Laguna Transportation Company which continued to operate the lines
and equipment bought from the Bian Transportation Company, in addition to new
lines which it was able to secure from the Public Service Commission;
6. That the original partners forming the Laguna Transportation Company, with the
addition of two new members, organized a corporation known as the Laguna
Transportation Company, Inc., which was registered with the Securities and
Exchange Commission on June 20, 1956, and which corporation is the plaintiff now
in this case;
7. That the incorporators of the Laguna Transportation Company, Inc., and their
corresponding shares are as follows:
Name No. of Shares Amount Amount Paid
Subscribed
Dominador Cruz 333 shares P33,300.00 P9,160.81
Maura Mendoza 333 shares 33,300.00 9,160.81
Florentino Mata 110 shares 11,000.00 3,021.54
Sabina Borja 64 shares 6,400.00 1,750.00
1,000 shares P100,000.00 P27,481.55
8. That the corporation continued the same transportation business of the
unregistered partnership;
9. That the plaintiff filed on August 30, 1957 an Employee's Data Record . . . and a
supplemental Information Sheet . . .;
10. That prior to November 11, 1957, plaintiff requested for exemption from
coverage by the System on the ground that it started operation only on June 20,
1956, when it was registered with the Securities and Exchange Commission but on
November 11, 1957, the Social Security System notified plaintiff that it was covered;
11. On November 14, 1957, plaintiff through counsel sent a letter to the Social
Security System contesting the claim of the System that plaintiff was covered, . . .
12. On November 27, 1957, Carlos Sanchez, Manager of the Production Department
of the respondent System for and in behalf of the Acting Administrator, informed
plaintiff that plaintiff's business has been in actual operation for at least two years, . .
.
On the basis of the foregoing stipulation of facts, the court, on August 15, 1958, rendered a
decision the dispositive part of which reads:
Wherefore, the Court is of the opinion and so declares that the petitioner was an
employer engaged in business as common carrier which had been in operation for at
least two years prior to the enactment of Republic Act No. 1161, as amended by
Republic Act 1792 and by virtue thereof, it was subject to compulsory coverage
under said law. . . .
From this decision, petitioner appealed directly to us, raising purely questions of law.
Petitioner claims that the lower court erred in holding that it is an employer engaged in
business as a common carrier which had been in operation for at least 2 years prior to the
enactment of the Social Security Act and, therefore, subject to compulsory coverage
thereunder.
Section 9 of the Social Security Act, in part, provides:
SEC. 9 Compulsory Coverage. Coverage in the System shall be compulsory upon
all employees between the ages of sixteen and sixty years, inclusive, if they have
been for at least six months in the service of an employer who is a member of the
System. Provided, That the Commission may not compel any employer to become a
member of the System unless he shall have been in operation for at least two years .
. . . (Italics supplied.).
It is not disputed that the Laguna Transportation Company, an unregistered partnership
composed of Gonzalo Mercado, Artemio Mercado, Florentina Mata, and Dominador Vera Cruz,
commenced the operation of its business as a common carrier on April 1, 1949. These 4
original partners, with 2 others (Maura Mendoza and Sabina Borja) later converted the
partnership into a corporate entity, by registering its articles of incorporation with the
Securities and Exchange Commission on June 20, 1956. The firm name "Laguna
Transportation Company" was not altered, except with the addition of the word "Inc." to
indicate that petitioner was duly incorporated under existing laws. The corporation continued
the same transportation business of the unregistered partnership, using the same lines and
equipment. There was, in effect, only a change in the form of the organization of the entity
engaged in the business of transportation of passengers. Hence, said entity as an employer
engaged in business, was already in operation for at least 3 years prior to the enactment of
the Social Security Act on June 18, 1954 and for at least two years prior to the passage of
the amendatory act on June 21, 1957. Petitioner argues that, since it was registered as a
corporation with the Securities and Exchange Commission only on June 20, 1956, it must be
considered to have been in operation only on said date. While it is true that a corporation
once formed is conferred a juridical personality separate and district from the persons
composing it, it is but a legal fiction introduced for purposes of convenience and to subserve
the ends of justice. The concept cannot be extended to a point beyond its reasons and
policy, and when invoked in support of an end subversive of this policy, will be disregarded
by the courts. (13 Am. Jur. 160.)
If any general rule can be laid down, in the present state of authority, it is that a
corporation will be looked upon as a legal entity as a general rule, and until sufficient
reason to the contrary appears; but, when the motion of legal entity is used to
defeat public convenience, justify wrong, protect fraud, or defend crime, the law will
regard the corporation as an association of persons. (1 Fletcher Cyclopedia
Corporations [Perm. Ed.] 135-136; U.S. Milwaukee Refrigeration Transit Co., 142
Fed. 247, cited in Koppel Philippines, Inc. vs. Yatco, 43 Off. Gaz., 4604.)
To adopt petitioner's argument would defeat, rather than promote, the ends for which the
Social Security Act was enacted. An employer could easily circumvent the statute by simply
changing his form of organization every other year, and then claim exemption from
contribution to the System as required, on the theory that, as a new entity, it has not been in
operation for a period of at least 2 years. the door to fraudulent circumvention of the statute
would, thereby, be opened.
Moreover, petitioner admitted that as an employer engaged in the business of a common
carrier, its operation commenced on April 1, 1949 while it was a partnership and continued
by the corporation upon its formation on June 20, 1956. Unlike in the conveyance made by
the Bian Transportation Company to the partners Gonzalo Mercado, Artemio Mercado,
Florentino Mata, and Dominador Vera Cruz, no mention whatsoever is made either in the
pleadings or in the stipulation of facts that the lines and equipment of the unregistered
partnership had been sold and transferred to the corporation, petitioner herein. This
omission, to our mind, clearly indicates that there was, in fact, no transfer of interest, but a
mere change in the form of the organization of the employer engaged in the transportation
business, i.e., from an unregistered partnership to that of a corporation. As a rule, courts will
look to the substance and not to the form.(Colonial Trust Co. vs. Montolo Eric Works, 172
Fed. 310; Metropolitan Holding Co. vs. Snyder, 79 F. 2d 263, 103 A.L.R. 612; Arnold vs.
Willits, et al., 44 Phil., 634; 1 Fletcher Cyclopedia Corporations [Perm. Ed.] 139-140.)
Finally, the weight of authority supports the view that where a corporation was formed by,
and consisted of members of a partnership whose business and property was conveyed and
transferred to the corporation for the purpose of continuing its business, in payment for
which corporate capital stock was issued, such corporation is presumed to have assumed
partnership debts, and is prima facie liable therefor. (Stowell vs. Garden City News Corps., 57
P. 2d 12; Chicago Smelting & Refining Corp. vs. Sullivan, 246 IU, App. 538; Ball vs. Bross.,
83 June 19, N.Y. Supp. 692.) The reason for the rule is that the members of the partnership
may be said to have simply put on a new coat, or taken on a corporate cloak, and the
corporation is a mere continuation of the partnership. (8 Fletcher Cyclopedia Corporations
[Perm. Ed.] 402-411.)
Wherefore, finding no error in the judgment of the court a quo, the same is hereby affirmed,
with costs against petitioner-appellant. So ordered.
13. SERGIO V. SISON vs. HELEN J. MCQUAID
On March 28, 1951, plaintiff brought an action in the Court of First Instance of Manila against
defendant, alleging that during the year 1938 the latter borrowed from him various sums of
money, aggregating P2,210, to enable her to pay her obligation to the Bureau of Forestry
and to add to her capital in her lumber business, receipt of the amounts advanced being
acknowledged in a document, Exhibit A, executed by her on November 10, 1938 and
attached to the complaint; that as defendant was not able to pay the loan in 1938, as she
had promised, she proposed to take in plaintiff as a partner in her lumber business, plaintiff
to contribute to the partnership the said sum of P2,210 due him from defendant in addition
to his personal services; that plaintiff agreed to defendant's proposal and, as a result, there
was formed between them, under the provisions of the Civil Code, a partnership in which
they were to share alike in the income or profits of the business, each to get one-half
thereof; that in accordance with said contract, plaintiff, together with defendant, rendered
services to the partnership without compensation from June 15, 1938 to December, 1941;
that before the last World War, the partnership sold to the United States Army 230,000 board
feet of lumber for P13,800, for the collection of which sum defendant, as manager of the
partnership, filed the corresponding claim with the said army after the war; that the claim
was "finally" approved and the full amount paid the complaint does not say when but
defendant has persistently refused to deliver one-half of it, or P6,900, to plaintiff
notwithstanding repeated demands, investing the whole sum of P13,800 for her own benefit.
Plaintiff, therefore, prays for judgment declaring the existence of the alleged partnership and
requiring the defendant to pay him the said sum of P6,900, in addition to damages and
costs.
Notified of the action, defendant filed a motion to dismiss on the grounds that plaintiff's
action had already prescribed, that plaintiff's claim was not provable under the Statute of
Frauds, and that the complaint stated no cause of action. Sustaining the first ground, the
court dismissed the case, whereupon, plaintiff appealed to the Court of Appeals; but that
court has certified the case here on the ground that the appeal involved only questions of
law.
It is not clear from the allegations of the complaint just when plaintiff's cause of action
accrued. Consequently, it cannot be determined with certainty whether that action has
already prescribed or not. Such being the case, the defense of prescription can not be
sustained on a mere motion to dismiss based on what appears on the face of the complaint.
But though the reason given for the order of dismissal be untenable, we find that the said
order should be upheld on the ground that the complaint states no cause of action, which is
also one of the grounds on which defendant's motion to dismiss was based. Plaintiff seeks to
recover from defendant one-half of the purchase price of lumber sold by the partnership to
the United States Army. But his complaint does not show why he should be entitled to the
sum he claims. It does not allege that there has been a liquidation of the partnership
business and the said sum has been found to be due him as his share of the profits. The
proceeds from the sale of a certain amount of lumber cannot be considered profits until costs
and expenses have been deducted. Moreover, the profits of the business cannot be
determined by taking into account the result of one particular transaction instead of all the
transactions had. Hence, the need for a general liquidation before a member of a partnership
may claim a specific sum as his share of the profits.
In view of the foregoing, the order of dismissal is affirmed, but on the ground that the
complaint states no cause of action and without prejudice to the filing of an action for
accounting or liquidation should that be what plaintiff really wants. Without costs in this
instance.1awphil.net
14. ILDEFONSO DE LA ROSA, administrator of the intestate estate of the deceased
Go-Lio vs.ENRIQUE ORTEGA GO-COTAY
During the Spanish regime the Chinamen Go-Lio and Vicente Go-Sengco formed a society for
the purchase and sale of articles of commerce, and for this purpose they opened a store in
the town of San Isidro, Nueva Ecija. Later Go-Lio went to China. Vicenyte Go-Sengco died
and his son Enrique Ortega Go-Cotay took charge of the businesses. Go-Lio died in China in
October, 1916, leaving a widow and three children, one of whom came to the Philippines and
filed a petition for the appointment of Ildefonso de la Rosa as administrator of the intestate
estate of his deceased father, which petition was granted by the Court of First Instance of
Nueva Ecija. Ildefonso de la Rosa, in his capacity as administrator of the intestate estate of
the deceased Go-Lio, requested Enrique Go-Cotay to wind up the business and to deliver to
him the portion corresponding to the deceased Go-Lio. Enrique Ortega Go-Cotay denied the
petition, alleging that the business was his exclusively. In view of this denial, Ildefonso de la
Rosa, as administratorm, on July 2, 1918, filed with the Court of First Instance of Nueva Ecija
a complaint against Enrique Ortega Co-Cotay in which he prayed that the defendant be
sentenced to deliver to the plaintiff one-half of all the property of the partnership formed by
Go-lIo and Vicente Go-Sengco, with costs against the defendant, and that the said plaintiff be
appointed receiver for the property of the said partnership.
Defendant, in answering the complaint, denied each and every allegation thereof, and as a
special defense alleged that more than ten years had elapsed before the filing of the
complaint, and prayed that he be absolved therefrom, with costs against the plaintiff.
On August 3, 1918, the Court of First Instance of Nueva Ecija appointed Justo Cabo-Chan,
Francisco T. Tantengco and Go-Tiao, as commissioners to make an inventory, liquidate and
determine the one-half belonging to the plaintiff of all the property of the store in question.
On August 9, 1918, in order to prevent Justo Cabo-Chan from assuming the office of
receiver, pursuant to the order of the court dated August 3, 1918, the defendant filed a bond
in the sum of P10,000.
Under the date of November 15, 1920, the said commissioners submitted to the court their
report, showing the net profits of the business between the period from 1913 to 1917, which
amounted to the total sum of P25,038.70 and consisted of the following items:
Profits for the year 1913........................ P2,979.00
 Profits for the year 1914........................ 3,046.94
Profits for the year 1915........................ 4,103.07
Profits for the year 1916........................ 4,735.00
Profits for the year 1917........................ 10,174.69
Total........................................................... 25.038.70
In view of the appeal taken by defendant the parties on December 7, 1921, entered into an
agreement whereby they agreed to suspend the liquidation ordered by the court until the
appeal to the Supreme Court was decided, and whereby the defenadnt was authorized to
continue in the possession of the property in litigation, upon the giving of a bond in the
amount of P25,000, and cancelling the former bond for P10,000.
This court in deciding case R. G. No. 18919, on October 5, 1922, 1 held that the appeal was
premature and ordered that the record be remanded to the court of origin with instruction to
enter a final order in accordance with the liquidation made by the commissioners.
The record having been remanded and two of the commissioners having filed their
resignations, the copurt below appointed again Justo Cabo-Chan suggested by the defendant
and Cua POco suggested by the plaintiff, as commissioners, who submitted two reports, one
prepared by commissioners Tantengco and Cua Poco, and the other by commissioners Justo
Cabo-Chan. The former stated in their report that they had examined the books for the years
1919 to 1922, for the reason, they said, that they appeared "to have been prepared by some
person in a careful way at a certain time." The later commissioner examined all books and
stated in his report that the business had suffered a net loss amounting to the sum of
P89,099.22.
After trial and the parties having introduced all their evidence, the lower court, by order of
December 13, 1924, disapproved the report of the commissioners Tantengco and Cua Poco,
but approved, with slight modifications, the report of commissioner Cabo-Chan, holding that
the result of the liquidation showed liabilities to the amiount of P89,690.45 in view of which
plaintiff had nothing to recover from defendant, as there was no profit to divide.
From this decision the plaintiff has appealed in due time and form making the following
assignment of errors: (1) The lower court erred in holding that the books were authentic,
and in not holding that they were false books exhibited by the defendant about alleged
operations in the years 1918 et seq. which show enormous debts and imaginary losses of the
business; (2) the lower court erred in giving full credit to the testimony of commissioner
Justo Cabo-Chan; (3) the lower court erred in holding that the partnership had incurred debts
and suffered losses, as shown in the report of Justo Cabo-Cahn from 1918 on; (4) the lower
court erred in not holding that the share of the plaintiff, as his capital and profits until the
end of 1917, is equivalent to the sum of twenty-seven thousand seven hundred fifty-five
pesos and forty-seven centavos (P27,755.47). Philippine currency, plus an annual quota of at
least two thousand five hundred three pesos and eighty-seven centavos (P2,503.87),
Philippime currency, as his portion of the profits since the beginning of 1918 until the delivery
to the palintiff of his share in the partnership; (5) the court below erred in not ordering the
prosecuting attorney to commence an investigation as to the falsified books of accounts that
the defendant had exhibited for proper criminal proceeding.
From the evidence it appears that the partnership capital was P4,779.39, and the net profits
until the year 1915 amounted to P5,551.40. Because some books of account had been
destroyed by white ants (anay), the liquidation of the business of the partnership for the
period from 1906 to 1912 could not be made. But knowing the net profit for the period
between 1904 and 1905, which is P5,551.40, and findng the average of the profits for each
of these years, which is P2,775.70; and knowing the net profit for the year 1913, which is
P2,979, we can find the average between the net profit for 1905, namely, P2,979. Said
average is the sum of P2,877.35, which may be considered as the average of the net annual
profits for the period between 1906 an 1912, which in seven years make a total of
P20,141.45. The assets of the partnership, as well as the value of its property, could not be
determined when making the liquidation because there was no inventory and for this reason
it was not possible to determine the capital of the partnership. The plaintiff, however, seems
to be agreeable to considering the initial partnership capital as the capital at the time of the
winding up of the business.
August 3, 1918, defendant assumed complete responsibility for the business by objecting to
the appointment of a receiver as prayed for by plaintiff, and giving a bond therefor. Until that
date his acts were those of a managing partner, binding against the partnership; but
thereafter his acts were those of a receiver whose authority is contained in section 175 of the
Code of Civil Procedure.
A receiver has no right to carry on and conduct a business unless he is authorized or directed
by the court to do some, and such authority is not derived from an order of appointment to
take and preserve the property (34 Cyc., 283; 23 R. C. L., 73). It does not appear that the
defendant as a receiver was authorized by the court to continue the business of the
partnership in liquidation. This being so, he is personally liable for the losses that the
business amy have sustained. (34 Cyc., 296.) The partnership must not, therefore, be liable
for the acts of the defendant in connection with the management of the business until
August 3, 1918, the date when he ceased to be a member and manager in order to become
receiver.
As to the first semester of 1918, during which time the defendant had seen managing the
business of the partnership as a member and manager, taking into account that the profits
had been on the increase, said profits having reached the amount of P10,174.69 in the year
1917, it would not be an exaggeration to estimate that the profits for 1918 would have been
at least the same as the profits of 1917; so that for the first half of 1918, the profit would be
P5,087.34.
In conclusion we have the following profits of the business of this partnership now in
liquidation, to wit:
Capital of partnership........................... P4,779.39
Profits until 1905.................................. 5,551.40
Profits 1906-1912................................ 20,141.45
Profits 1913-1917................................ 25,038.70
Profits first semester 1918............... 5,087.34
Total....................................................... 60,598.28
One-half of this total, that is, P30,299.14 pertains to the plaintiff as administrator of the
intestate estate of Go-Lio.
In view of the foregoing, we are of the opinion that the case must be, as is hereby, decided
by the reversing the judgment appealed from, and sentencing the defendant to pay the
plaintiff the sum of P30,299.14 with legal interest at the rate of 6 per cent per annum from
July 1, 1918, until fully paid, with costs. So ordered.
15. GREGORIO MAGDUSA, ET AL. vs. GERUNDIO ALBARAN, ET AL.,
Appeal from a decision of the Court of Appeals (G.R. No. 24248-R) reversing a judgment of
the Court of First Instance of Bohol and ordering appellant Gregorio Magdusa to pay to
appellees, by way of refund of their shares as partners, the following amounts: Gerundio
Albaran, P8,979.10; Pascual Albaran, P5,394.78; Zosimo Albaran, P1,979.28; and Telesforo
Bebero, P3,020.27; plus legal interests from the filing of the complaint, and costs.
The Court of Appeals found that appellant and appellees, together with various other
persons, had verbally formed a partnership de facto, for the sale of general merchandise in
Surigao, Surigao, to which appellant contributed P2,000 as capital, and the others
contributed their labor, under the condition that out of the net profits of the business 25%
would be added to the original capital, and the remaining 75% would be divided among the
members in proportion to the length of service of each. Sometime in 1953 and 1954, the
appellees expressed their desire to withdraw from the partnership, and appellant thereupon
made a computation to determine the value of the partners' shares to that date. The results
of the computation were embodied in the document Exhibit "C", drawn in the handwriting of
appellant. Appellees thereafter made demands upon appellant for payment, but appellant
having refused, they filed the initial complaint in the court below. Appellant defended by
denying any partnership with appellees, whom he claimed to be mere employees of his.
The Court of First Instance of Bohol refused to give credence to Exhibit "C", and dismissed
the complaint on the ground that the other were indispensable parties but hid not been
impleaded. Upon appeal, the Court of Appeals reversed, with the result noted at the start of
this opinion.
Gregorio Magdusa then petitioned for a review of the decision, and we gave it due
course.1wph1.t
The main argument of appellant is that the appellees' action can not be entertained, because
in the distribution of all or part of a partnership's assets, all the partners have no interest and
are indispensable parties without whose intervention no decree of distribution can be validly
entered. This argument was considered and answered by the Court of Appeals in the
following words:
We now come to the last issue involved. While finding that some amounts are due
the plaintiffs, the lower court withheld an award in their favor, reasoning that a
judgment ordering the defendant to pay might affect the rights of other partners
who were not made parties in this case. The reason cited by the lower court does
not constitute a legal impediment to a judgment for the plaintiffs in this case. This is
not an action for a dissolution of a partnership and winding up of its affairs or
liquidation of its assets in which the interest of other partners who are not brought
into the case may be affected. The action of the plaintiffs is one for the recovery of a
sum of money with Gregorio Magdusa as the principal defendant. The partnership,
with Gregorio Magdusa as managing partner, was brought into the case as an
alternative defendant only. Plaintiffs' action was based on the allegation,
substantiated in evidence, that Gregorio Magdusa, having taken delivery of their
shares, failed and refused and still fails and refuses to pay them their claims. The
liability, therefore, is personal to Gregorio Magdusa, and the judgment should be
against his sole interest, not against the partnership's although the judgment
creditors may satisfy the judgment against the interest of Gregorio Magdusa in the
partnership subject to the condition imposed by Article 1814 of the Civil Code.
We do not find the preceding reasoning tenable. A partner's share can not be returned
without first dissolving and liquidating the partnership (Po Yeng Cheo vs. Lim Ka Yam, 44
Phil. 177), for the return is dependent on the discharge of the creditors, whose claims enjoy
preference over those of the partners; and it is self-evident that all members of the
partnership are interested in his assets and business, and are entitled to be heard in the
matter of the firm's liquidation and the distribution of its property. The liquidation Exhibit "C"
is not signed by the other members of the partnership besides appellees and appellant; it
does not appear that they have approved, authorized, or ratified the same, and, therefore, it
is not binding upon them. At the very least, they are entitled to be heard upon its
correctness.
In addition, unless a proper accounting and liquidation of the partnership affairs is first had,
the capital shares of the appellees, as retiring partners, can not be repaid, for the firm's
outside creditors have preference over the assets of the enterprise (Civ. Code, Art. 1839),
and the firm's property can not be diminished to their prejudice. Finally, the appellant can
not be held liable in his personal capacity for the payment of partners' shares for he does not
hold them except as manager of, or trustee for, the partnership. It is the latter that must
refund their shares to the retiring partners. Since not all the members of the partnership
have been impleaded, no judgment for refund can be rendered, and the action should have
been dismissed.
IN VIEW OF THE FOREGOING, the decision of the Court of Appeals is reversed and the
action ordered dismissed, without prejudice to a proper proceeding for the dissolution and
liquidation of the common enterprise. Costs against appellees.
16. ANTONIO LIM TANHU, DY OCHAY, ALFONSO LEONARDO NG SUA and CO
OYO, petitioners, vs.HON. JOSE R. RAMOLETE as Presiding Judge, Branch III, CFI,
Cebu and TAN PUT, respondents.
Petition for (1) certiorari to annul and set aside certain actuations of respondent Court of
First Instance of Cebu Branch III in its Civil Case No. 12328, an action for accounting of
properties and money totalling allegedly about P15 million pesos filed with a common cause
of action against six defendants, in which after declaring four of the said defendants herein
petitioners, in default and while the trial as against the two defendants not declared in
default was in progress, said court granted plaintiff's motion to dismiss the case in so far as
the non-defaulted defendants were concerned and thereafter proceeded to hear ex-parte the
rest of the plaintiffs evidence and subsequently rendered judgment by default against the
defaulted defendants, with the particularities that notice of the motion to dismiss was not
duly served on any of the defendants, who had alleged a compulsory counterclaim against
plaintiff in their joint answer, and the judgment so rendered granted reliefs not prayed for in
the complaint, and (2) prohibition to enjoin further proceedings relative to the motion for
immediate execution of the said judgment.
Originally, this litigation was a complaint filed on February 9, 1971 by respondent Tan Put
only against the spouses-petitioners Antonio Lim Tanhu and Dy Ochay. Subsequently, in an
amended complaint dated September 26, 1972, their son Lim Teck Chuan and the other
spouses-petitioners Alfonso Leonardo Ng Sua and Co Oyo and their son Eng Chong Leonardo
were included as defendants. In said amended complaint, respondent Tan alleged that she
"is the widow of Tee Hoon Lim Po Chuan, who was a partner in the commercial partnership,
Glory Commercial Company ... with Antonio Lim Tanhu and Alfonso Ng Sua that "defendant
Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan, and Eng Chong Leonardo,
through fraud and machination, took actual and active management of the partnership and
although Tee Hoon Lim Po Chuan was the manager of Glory Commercial Company,
defendants managed to use the funds of the partnership to purchase lands and building's in
the cities of Cebu, Lapulapu, Mandaue, and the municipalities of Talisay and Minglanilla,
some of which were hidden, but the description of those already discovered were as follows:
(list of properties) ...;" and that:
13. (A)fter the death of Tee Hoon Lim Po Chuan, the defendants, without
liquidation continued the business of Glory Commercial Company by
purportedly organizing a corporation known as the Glory Commercial
Company, Incorporated, with paid up capital in the sum of P125,000.00,
which money and other assets of the said Glory Commercial Company,
Incorporated are actually the assets of the defunct Glory Commercial
Company partnership, of which the plaintiff has a share equivalent to one
third (/3 ) thereof;
14. (P)laintiff, on several occasions after the death of her husband, has
asked defendants of the above-mentioned properties and for the liquidation
of the business of the defunct partnership, including investments on real
estate in Hong Kong, but defendants kept on promising to liquidate said
properties and just told plaintiff to
15. (S)ometime in the month of November, 1967, defendants, Antonio Lim
Tanhu, by means of fraud deceit and misrepresentations did then and there,
induce and convince the plaintiff to execute a quitclaim of all her rights and
interests, in the assets of the partnership of Glory Commercial Company,
which is null and void, executed through fraud and without any legal effect.
The original of said quitclaim is in the possession of the adverse party
defendant Antonio Lim Tanhu.
16. (A)s a matter of fact, after the execution of said quitclaim, defendant
Antonio Lim Tanhu offered to pay the plaintiff the amount P65,000.00 within
a period of one (1) month, for which plaintiff was made to sign a receipt for
the amount of P65,000.00 although no such amount was given and plaintiff
was not even given a copy of said document;
17. (T)hereafter, in the year 1968-69, the defendants who had earlier
promised to liquidate the aforesaid properties and assets in favor among
others of plaintiff and until the middle of the year 1970 when the plaintiff
formally demanded from the defendants the accounting of real and personal
properties of the Glory Commercial Company, defendants refused and stated
that they would not give the share of the plaintiff. (Pp. 36-37, Record.)
 She prayed as follows:
WHEREFORE, it is most respectfully prayed that judgment be rendered:
a) Ordering the defendants to render an accounting of the real and personal
properties of the Glory Commercial Company including those registered in
the names of the defendants and other persons, which properties are located
in the Philippines and in Hong Kong;
b) Ordering the defendants to deliver to the plaintiff after accounting, one
third (/3 ) of the total value of all the properties which is approximately
P5,000,000.00 representing the just share of the plaintiff;
c) Ordering the defendants to pay the attorney of the plaintiff the sum of
Two Hundred Fifty Thousand Pesos (P250,000.00) by way of attorney's fees
and damages in the sum of One Million Pesos (P1,000,000.00).
This Honorable Court is prayed for other remedies and reliefs consistent with
law and equity and order the defendants to pay the costs. (Page 38,
Record.)
The admission of said amended complaint was opposed by defendants upon the ground that
there were material modifications of the causes of action previously alleged, but respondent
judge nevertheless allowed the amendment reasoning that:
The present action is for accounting of real and personal properties as well
as for the recovery of the same with damages.
An objective consideration of pars. 13 and 15 of the amended complaint
pointed out by the defendants to sustain their opposition will show that the
allegations of facts therein are merely to amplify material averments
constituting the cause of action in the original complaint. It likewise include
necessary and indispensable defendants without whom no final
determination can be had in the action and in order that complete relief is to
be accorded as between those already parties.
Considering that the amendments sought to be introduced do not change
the main causes of action in the original complaint and the reliefs demanded
and to allow amendments is the rule, and to refuse them the exception and
in order that the real question between the parties may be properly and
justly threshed out in a single proceeding to avoid multiplicity of actions.
(Page 40, Record.)
In a single answer with counterclaim, over the signature of their common counsel,
defendants denied specifically not only the allegation that respondent Tan is the widow of
Tee Hoon because, according to them, his legitimate wife was Ang Siok Tin still living and
with whom he had four (4) legitimate children, a twin born in 1942, and two others born in
1949 and 1965, all presently residing in Hongkong, but also all the allegations of fraud and
conversion quoted above, the truth being, according to them, that proper liquidation had
been regularly made of the business of the partnership and Tee Hoon used to receive his just
share until his death, as a result of which the partnership was dissolved and what
corresponded to him were all given to his wife and children. To quote the pertinent portions
of said answer:
AND BY WAY OF SPECIAL AND AFFIRMATIVE DEFENSES,
defendants hereby incorporate all facts averred and alleged in the answer,
and further most respectfully declare:
1. That in the event that plaintiff is filing the present complaint as an heir of
Tee Hoon Lim Po Chuan, then, she has no legal capacity to sue as such,
considering that the legitimate wife, namely: Ang Siok Tin, together with
their children are still alive. Under Sec. 1, (d), Rule 16 of the Revised Rules
of Court, lack of legal capacity to sue is one of the grounds for a motion to
dismiss and so defendants prays that a preliminary hearing be conducted as
provided for in Sec. 5, of the same rule;
2. That in the alternative case or event that plaintiff is filing the present case
under Art. 144 of the Civil Code, then, her claim or demand has been paid,
waived abandoned or otherwise extinguished as evidenced by the 'quitclaim'
Annex 'A' hereof, the ground cited is another ground for a motion to dismiss
(Sec. 1, (h), Rule 16) and hence defendants pray that a preliminary hearing
be made in connection therewith pursuant to Section 5 of the
aforementioned rule;
3. That Tee Hoon Lim Po Chuan was legally married to Ang Siok Tin and
were blessed with the following children, to wit: Ching Siong Lim and Ching
Hing Lim (twins) born on February 16, 1942; Lim Shing Ping born on March
3, 1949 and Lim Eng Lu born on June 25, 1965 and presently residing in
Hongkong;
4. That even before the death of Tee Hoon Lim Po Chuan, the plaintiff was
no longer his common law wife and even though she was not entitled to
anything left by Tee Hoon Lim Po Chuan, yet, out of the kindness and
generosity on the part of the defendants, particularly Antonio Lain Tanhu,
who, was inspiring to be monk and in fact he is now a monk, plaintiff was
given a substantial amount evidenced by the 'quitclaim' (Annex 'A');
5. That the defendants have acquired properties out of their own personal
fund and certainly not from the funds belonging to the partnership, just as
Tee Hoon Lim Po Chuan had acquired properties out of his personal fund and
which are now in the possession of the widow and neither the defendants
nor the partnership have anything to do about said properties;
6. That it would have been impossible to buy properties from funds
belonging to the partnership without the other partners knowing about it
considering that the amount taken allegedly is quite big and with such big
amount withdrawn the partnership would have been insolvent;
7. That plaintiff and Tee Hoon Lim Po Chuan were not blessed with children
who would have been lawfully entitled to succeed to the properties left by
the latter together with the widow and legitimate children;
8. That despite the fact that plaintiff knew that she was no longer entitled to
anything of the shares of the late Tee Hoon Lim Po Chuan, yet, this suit was
filed against the defendant who have to interpose the following
COUNTERCLAIM
A. That the defendants hereby reproduced, by way of reference, all the
allegations and foregoing averments as part of this counterclaim; .
B. That plaintiff knew and was aware she was merely the common-law wife
of Tee Hoon Lim Po Chuan and that the lawful and legal is still living,
together with the legitimate children, and yet she deliberately suppressed
this fact, thus showing her bad faith and is therefore liable for exemplary
damages in an amount which the Honorable Court may determine in the
exercise of its sound judicial discretion. In the event that plaintiff is married
to Tee Hoon Lim Po Chuan, then, her marriage is bigamous and should
suffer the consequences thereof;
C. That plaintiff was aware and had knowledge about the 'quitclaim', even
though she was not entitled to it, and yet she falsely claimed that defendants
refused even to see her and for filing this unfounded, baseless, futile and
puerile complaint, defendants suffered mental anguish and torture
conservatively estimated to be not less than P3,000.00;
D. That in order to defend their rights in court, defendants were constrained
to engage the services of the undersigned counsel, obligating themselves to
pay P500,000.00 as attorney's fees;
E. That by way of litigation expenses during the time that this case will be
before this Honorable Court and until the same will be finally terminated and
adjudicated, defendants will have to spend at least P5,000.00. (Pp. 44-47.
Record.)
After unsuccessfully trying to show that this counterclaim is merely permissive and should be
dismissed for non-payment of the corresponding filing fee, and after being overruled by the
court, in due time, plaintiff answered the same, denying its material allegations.
On February 3, 1973, however, the date set for the pre-trial, both of the two defendants-
spouses the Lim Tanhus and Ng Suas, did not appear, for which reason, upon motion of
plaintiff dated February 16, 1973, in an order of March 12, 1973, they were all "declared in
DEFAULT as of February 3, 1973 when they failed to appear at the pre-trial." They sought to
hive this order lifted thru a motion for reconsideration, but the effort failed when the court
denied it. Thereafter, the trial started, but at the stage thereof where the first witness of the
plaintiff by the name of Antonio Nuez who testified that he is her adopted son, was up for
re-cross-examination, said plaintiff unexpectedly filed on October 19, 1974 the following
simple and unreasoned
MOTION TO DROP DEFENDANTS LIM TECK
CHUAN AND ENG CHONG LEONARDO
COMES now plaintiff, through her undersigned counsel, unto the Honorable
Court most respectfully moves to drop from the complaint the defendants
Lim Teck Chuan and Eng Chong Leonardo and to consider the case
dismissed insofar as said defendants Lim Teck Chuan and Eng Chong
Leonardo are concerned.
WHEREFORE, it is most respectfully prayed of the Honorable Court to drop
from the complaint the defendants Lim Teck Chuan and Eng Chong Leonardo
and to dismiss the case against them without pronouncement as to costs.
(Page 50, Record.)
which she set for hearing on December 21, 1974. According to petitioners,
none of the defendants declared in default were notified of said motion, in
violation of Section 9 of Rule 13, since they had asked for the lifting of the
order of default, albeit unsuccessfully, and as regards the defendants not
declared in default, the setting of the hearing of said motion on October 21,
1974 infringed the three-day requirement of Section 4 of Rule 15, inasmuch
 as Atty. Adelino Sitoy of Lim Teck Chuan was served with a copy of the
motion personally only on October 19, 1974, while Atty. Benjamin Alcudia of
Eng Chong Leonardo was served by registered mail sent only on the same
date.
Evidently without even verifying the notices of service, just as simply as
plaintiff had couched her motion, and also without any legal grounds stated,
respondent court granted the prayer of the above motion thus:
ORDER
Acting on the motion of the plaintiff praying for the dismissal of the
complaint as against defendants Lim Teck Chuan and Eng Chong Leonardo.
counsel, Atty. Sitoy, filed a motion for reconsideration thereof, and on November 1, 1974,
The same is hereby GRANTED. The complaint as against defendant Lim Teck
Chuan and Eng Chong Leonardo is hereby ordered DISMISSED without
pronouncement as to costs.
Simultaneously, the following order was also issued:
Considering that defendants Antonio Lim Tanhu and his spouse Dy Ochay as
well as defendants Alfonso Ng Sua and his spouse Co Oyo have been
declared in default for failure to appear during the pre-trial and as to the
other defendants the complaint had already been ordered dismissed as
against them.
Let the hearing of the plaintiff's evidence ex-parte be set on November 20,
1974, at 8:30 A.M. before the Branch Clerk of Court who is deputized for the
purpose, to swear in witnesses and to submit her report within ten (10) days
thereafter. Notify the plaintiff.
SO ORDERED.
Cebu City, Philippines, October 21, 1974. (Page 52, Record.)
But, in connection with this last order, the scheduled ex-parte reception of evidence did not
take place on November 20, 1974, for on October 28, 1974, upon verbal motion of plaintiff,
the court issued the following self-explanatory order: .
Acting favorably on the motion of the plaintiff dated October 18, 1974, the
Court deputized the Branch Clerk of Court to receive the evidence of the
plaintiff ex-parte to be made on November 20, 1974. However, on October
28, 1974, the plaintiff, together with her witnesses, appeared in court and
asked, thru counsel, that she be allowed to present her evidence.
Considering the time and expenses incurred by the plaintiff in bringing her
witnesses to the court, the Branch Clerk of Court is hereby authorized to
receive immediately the evidence of the plaintiff ex-parte.
SO ORDERED.
Cebu City, Philippines, October 28, 1974. (Page 53. Record.)
Upon learning of these orders on October 23, 1973, the defendant Lim Teck Cheng, thru
defendant Eng Chong Leonardo, thru counsel Atty. Alcudia, filed also his own motion for
reconsideration and clarification of the same orders. These motions were denied in an order
dated December 6, 1974 but received by the movants only on December 23, 1974.
Meanwhile, respondent court rendered the impugned decision on December 20, 1974. It
does not appear when the parties were served copies of this decision.
Subsequently, on January 6, 1975, all the defendants, thru counsel, filed a motion to quash
the order of October 28, 1974. Without waiting however for the resolution thereof, on
January 13, 1974, Lim Teck Chuan and Eng Chong Leonardo went to the Court of Appeals
with a petition for certiorari seeking the annulment of the above-mentioned orders of
October 21, 1974 and October 28, 1974 and decision of December 20, 1974. By resolution of
January 24, 1975, the Court of Appeals dismissed said petition, holding that its filing was
premature, considering that the motion to quash the order of October 28, 1974 was still
unresolved by the trial court. This holding was reiterated in the subsequent resolution of
February 5, 1975 denying the motion for reconsideration of the previous dismissal.
On the other hand, on January 20, 1975, the other defendants, petitioners herein, filed their
notice of appeal, appeal bond and motion for extension to file their record on appeal, which
was granted, the extension to expire after fifteen (15) days from January 26 and 27, 1975,
for defendants Lim Tanhu and Ng Suas, respectively. But on February 7, 1975, before the
perfection of their appeal, petitioners filed the present petition with this Court. And with the
evident intent to make their procedural position clear, counsel for defendants, Atty. Manuel
Zosa, filed with respondent court a manifestation dated February 14, 1975 stating that "when
the non-defaulted defendants Eng Chong Leonardo and Lim Teck Chuan filed their petition in
the Court of Appeals, they in effect abandoned their motion to quash the order of October
28, 1974," and that similarly "when Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua
and Co Oyo, filed their petition for certiorari and prohibition ... in the Supreme Court, they
likewise abandoned their motion to quash." This manifestation was acted upon by
respondent court together with plaintiffs motion for execution pending appeal in its order of
the same date February 14, 1975 this wise:
ORDER
When these incidents, the motion to quash the order of October 28, 1974
and the motion for execution pending appeal were called for hearing today,
counsel for the defendants-movants submitted their manifestation inviting
the attention of this Court that by their filing for certiorari and prohibition
with preliminary injunction in the Court of Appeals which was dismissed and
later the defaulted defendants filed with the Supreme Court certiorari with
prohibition they in effect abandoned their motion to quash.
IN VIEW HEREOF, the motion to quash is ordered ABANDONED. The
resolution of the motion for execution pending appeal shall be resolved after
the petition for certiorari and prohibition shall have been resolved by the
Supreme Court.
SO ORDERED.
Cebu City, Philippines, February 14, 1975. (Page 216, Record.)
Upon these premises, it is the position of petitioners that respondent court acted illegally, in
violation of the rules or with grave abuse of discretion in acting on respondent's motion to
dismiss of October 18, 1974 without previously ascertaining whether or not due notice
thereof had been served on the adverse parties, as, in fact, no such notice was timely served
on the non-defaulted defendants Lim Teck Chuan and Eng Chong Leonardo and no notice at
all was ever sent to the other defendants, herein petitioners, and more so, in actually
ordering the dismissal of the case by its order of October 21, 1974 and at the same time
setting the case for further hearing as against the defaulted defendants, herein petitioners,
actually hearing the same ex-parte and thereafter rendering the decision of December 20,
1974 granting respondent Tan even reliefs not prayed for in the complaint. According to the
petitioners, to begin with, there was compulsory counterclaim in the common answer of the
defendants the nature of which is such that it cannot be decided in an independent action
and as to which the attention of respondent court was duly called in the motions for
reconsideration. Besides, and more importantly, under Section 4 of Rule 18, respondent court
had no authority to divide the case before it by dismissing the same as against the non-
defaulted defendants and thereafter proceeding to hear it ex-parte and subsequently
rendering judgment against the defaulted defendants, considering that in their view, under
the said provision of the rules, when a common cause of action is alleged against several
defendants, the default of any of them is a mere formality by which those defaulted are not
allowed to take part in the proceedings, but otherwise, all the defendants, defaulted and not
defaulted, are supposed to have but a common fate, win or lose. In other words, petitioners
posit that in such a situation, there can only be one common judgment for or against all the
defendant, the non-defaulted and the defaulted. Thus, petitioners contend that the order of
dismissal of October 21, 1974 should be considered also as the final judgment insofar as they
are concerned, or, in the alternative, it should be set aside together with all the proceedings
and decision held and rendered subsequent thereto, and that the trial be resumed as of said
date, with the defendants Lim Teck Chuan and Eng Chong Leonardo being allowed to defend
the case for all the defendants.
On the other hand, private respondent maintains the contrary view that inasmuch as
petitioners had been properly declared in default, they have no personality nor interest to
question the dismissal of the case as against their non-defaulted co-defendants and should
suffer the consequences of their own default. Respondent further contends, and this is the
only position discussed in the memorandum submitted by her counsel, that since petitioners
have already made or at least started to make their appeal, as they are in fact entitled to
appeal, this special civil action has no reason for being. Additionally, she invokes the point of
prematurity upheld by the Court of Appeals in regard to the above-mentioned petition therein
of the non-defaulted defendants Lim Teck Chuan and Eng Chong Leonardo. Finally, she
argues that in any event, the errors attributed to respondent court are errors of judgment
and may be reviewed only in an appeal.
After careful scrutiny of all the above-related proceedings, in the court below and mature
deliberation, the Court has arrived at the conclusion that petitioners should be granted relief,
if only to stress emphatically once more that the rules of procedure may not be misused and
abused as instruments for the denial of substantial justice. A review of the record of this case
immediately discloses that here is another demonstrative instance of how some members of
the bar, availing of their proficiency in invoking the letter of the rules without regard to their
real spirit and intent, succeed in inducing courts to act contrary to the dictates of justice and
equity, and, in some instances, to wittingly or unwittingly abet unfair advantage by ironically
camouflaging their actuations as earnest efforts to satisfy the public clamor for speedy
disposition of litigations, forgetting all the while that the plain injunction of Section 2 of Rule
1 is that the "rules shall be liberally construed in order to promote their object and to assist
the parties in obtaining not only 'speedy' but more imperatively, "just ... and inexpensive
determination of every action and proceeding." We cannot simply pass over the impression
that the procedural maneuvers and tactics revealed in the records of the case at bar were
deliberately planned with the calculated end in view of depriving petitioners and their co-
defendants below of every opportunity to properly defend themselves against a claim of
more than substantial character, considering the millions of pesos worth of properties
involved as found by respondent judge himself in the impugned decision, a claim that
appears, in the light of the allegations of the answer and the documents already brought to
the attention of the court at the pre-trial, to be rather dubious. What is most regrettable is
that apparently, all of these alarming circumstances have escaped respondent judge who did
not seem to have hesitated in acting favorably on the motions of the plaintiff conducive to
the deplorable objective just mentioned, and which motions, at the very least, appeared to
be 'of highly controversial' merit, considering that their obvious tendency and immediate
result would be to convert the proceedings into a one-sided affair, a situation that should be
readily condemnable and intolerable to any court of justice.
Indeed, a seeming disposition on the part of respondent court to lean more on the
contentions of private respondent may be discerned from the manner it resolved the
attempts of defendants Dy Ochay and Antonio Lim Tanhu to have the earlier order of default
against them lifted. Notwithstanding that Dy Ochay's motion of October 8, 1971, co-signed
by her with their counsel, Atty. Jovencio Enjambre (Annex 2 of respondent answer herein)
was over the jurat of the notary public before whom she took her oath, in the order of
November 2, 1971, (Annex 3 id.) it was held that "the oath appearing at the bottom of the
motion is not the one contemplated by the abovequoted pertinent provision (See. 3, Rule 18)
of the rules. It is not even a verification. (See. 6, Rule 7.) What the rule requires as
interpreted by the Supreme Court is that the motion must have to be accompanied by an
affidavit of merits that the defendant has a meritorious defense, thereby ignoring the very
simple legal point that the ruling of the Supreme Court in Ong Peng vs. Custodio, 1 SCRA
781, relied upon by His Honor, under which a separate affidavit of merit is required refers
obviously to instances where the motion is not over oath of the party concerned, considering
that what the cited provision literally requires is no more than a "motion under oath." Stated
otherwise, when a motion to lift an order of default contains the reasons for the failure to
answer as well as the facts constituting the prospective defense of the defendant and it is
sworn to by said defendant, neither a formal verification nor a separate affidavit of merit is
necessary.
What is worse, the same order further held that the motion to lift the order of default "is an
admission that there was a valid service of summons" and that said motion could not amount
to a challenge against the jurisdiction of the court over the person of the defendant. Such a
rationalization is patently specious and reveals an evident failure to grasp the import of the
legal concepts involved. A motion to lift an order of default on the ground that service of
summons has not been made in accordance with the rules is in order and is in essence verily
an attack against the jurisdiction of the court over the person of the defendant, no less than
if it were worded in a manner specifically embodying such a direct challenge.
And then, in the order of February 14, 1972 (Annex 6, id.) lifting at last the order of default
as against defendant Lim Tanhu, His Honor posited that said defendant "has a defense
(quitclaim) which renders the claim of the plaintiff contentious." We have read defendants'
motion for reconsideration of November 25, 1971 (Annex 5, id.), but We cannot find in it any
reference to a "quitclaim". Rather, the allegation of a quitclaim is in the amended complaint
(Pars. 15-16, Annex B of the petition herein) in which plaintiff maintains that her signature
thereto was secured through fraud and deceit. In truth, the motion for reconsideration just
mentioned, Annex 5, merely reiterated the allegation in Dy Ochay's earlier motion of October
8, 1971, Annex 2, to set aside the order of default, that plaintiff Tan could be but the
common law wife only of Tee Hoon, since his legitimate wife was still alive, which allegation,
His Honor held in the order of November 2, 1971, Annex 3, to be "not good and meritorious
defense". To top it all, whereas, as already stated, the order of February 19, 1972, Annex 6,
lifted the default against Lim Tanhu because of the additional consideration that "he has a
defense (quitclaim) which renders the claim of the plaintiff contentious," the default of Dy
Ochay was maintained notwithstanding that exactly the same "contentions" defense as that
of her husband was invoked by her.
Such tenuous, if not altogether erroneous reasonings and manifest inconsistency in the legal
postures in the orders in question can hardly convince Us that the matters here in issue were
accorded due and proper consideration by respondent court. In fact, under the circumstances
herein obtaining, it seems appropriate to stress that, having in view the rather substantial
value of the subject matter involved together with the obviously contentious character of
plaintiff's claim, which is discernible even on the face of the complaint itself, utmost care
should have been taken to avoid the slightest suspicion of improper motivations on the part
of anyone concerned. Upon the considerations hereunder to follow, the Court expresses its
grave concern that much has to be done to dispel the impression that herein petitioners and
their co-defendants are being railroaded out of their rights and properties without due
process of law, on the strength of procedural technicalities adroitly planned by counsel and
seemingly unnoticed and undetected by respondent court, whose orders, gauged by their
tenor and the citations of supposedly pertinent provisions and jurisprudence made therein,
cannot be said to have proceeded from utter lack of juridical knowledgeability and
competence.
1
The first thing that has struck the Court upon reviewing the record is the seeming alacrity
with which the motion to dismiss the case against non-defaulted defendants Lim Teck Chuan
and Eng Chong Leonardo was disposed of, which definitely ought not to have been the case.
The trial was proceeding with the testimony of the first witness of plaintiff and he was still
under re-cross-examination. Undoubtedly, the motion to dismiss at that stage and in the light
of the declaration of default against the rest of the defendants was a well calculated surprise
move, obviously designed to secure utmost advantage of the situation, regardless of its
apparent unfairness. To say that it must have been entirely unexpected by all the
defendants, defaulted and non-defaulted , is merely to rightly assume that the parties in a
judicial proceeding can never be the victims of any procedural waylaying as long as lawyers
and judges are imbued with the requisite sense of equity and justice.
But the situation here was aggravated by the indisputable fact that the adverse parties who
were entitled to be notified of such unanticipated dismissal motion did not get due notice
thereof. Certainly, the non-defaulted defendants had the right to the three-day prior notice
required by Section 4 of Rule 15. How could they have had such indispensable notice when
the motion was set for hearing on Monday, October 21, 1974, whereas the counsel for Lim
Teck Chuan, Atty. Sitoy was personally served with the notice only on Saturday, October 19,
1974 and the counsel for Eng Chong Leonardo, Atty. Alcudia, was notified by registered mail
which was posted only that same Saturday, October 19, 1974? According to Chief Justice
Moran, "three days at least must intervene between the date of service of notice and the
date set for the hearing, otherwise the court may not validly act on the motion." (Comments
on the Rules of Court by Moran, Vol. 1, 1970 ed. p. 474.) Such is the correct construction of
Section 4 of Rule 15. And in the instant case, there can be no question that the notices to the
non-defaulted defendants were short of the requirement of said provision.
We can understand the over-anxiety of counsel for plaintiff, but what is incomprehensible is
the seeming inattention of respondent judge to the explicit mandate of the pertinent rule, not
to speak of the imperatives of fairness, considering he should have realized the far-reaching
implications, specially from the point of view he subsequently adopted, albeit erroneously, of
his favorably acting on it. Actually, he was aware of said consequences, for simultaneously
with his order of dismissal, he immediately set the case for the ex-parte hearing of the
evidence against the defaulted defendants, which, incidentally, from the tenor of his order
which We have quoted above, appears to have been done by him motu propio As a matter of
fact, plaintiff's motion also quoted above did not pray for it.
Withal, respondent court's twin actions of October 21, 1974 further ignores or is inconsistent
with a number of known juridical principles concerning defaults, which We will here take
occasion to reiterate and further elucidate on, if only to avoid a repetition of the unfortunate
errors committed in this case. Perhaps some of these principles have not been amply
projected and elaborated before, and such paucity of elucidation could be the reason why
respondent judge must have acted as he did. Still, the Court cannot but express its vehement
condemnation of any judicial actuation that unduly deprives any party of the right to be
heard without clear and specific warrant under the terms of existing rules or binding
jurisprudence. Extreme care must be the instant reaction of every judge when confronted
with a situation involving risks that the proceedings may not be fair and square to all the
parties concerned. Indeed, a keen sense of fairness, equity and justice that constantly looks
for consistency between the letter of the adjective rules and these basic principles must be
possessed by every judge, If substance is to prevail, as it must, over form in our courts.
Literal observance of the rules, when it is conducive to unfair and undue advantage on the
part of any litigant before it, is unworthy of any court of justice and equity. Withal, only those
rules and procedure informed, with and founded on public policy deserve obedience in accord
with their unequivocal language or words..
Before proceeding to the discussion of the default aspects of this case, however, it should
not be amiss to advert first to the patent incorrectness, apparent on the face of the record,
of the aforementioned order of dismissal of October 21, 1974 of the case below as regards
non-defaulted defendants Lim and Leonardo. While it is true that said defendants are not
petitioners herein, the Court deems it necessary for a full view of the outrageous procedural
strategy conceived by respondent's counsel and sanctioned by respondent court to also make
reference to the very evident fact that in ordering said dismissal respondent court
disregarded completely the existence of defendant's counterclaim which it had itself earlier
held if indirectly, to be compulsory in nature when it refused to dismiss the same on the
ground alleged by respondent Tan that he docketing fees for the filing thereof had not been
paid by defendants.
Indeed, that said counterclaim is compulsory needs no extended elaboration. As may be
noted in the allegations hereof aforequoted, it arose out of or is necessarily connected with
the occurrence that is the subject matter of the plaintiff's claim, (Section 4, Rule 9) namely,
plaintiff's allegedly being the widow of the deceased Tee Hoon entitled, as such, to demand
accounting of and to receive the share of her alleged late husband as partner of defendants
Antonio Lim Tanhu and Alfonso Leonardo Ng Sua in Glory Commercial Company, the truth of
which allegations all the defendants have denied. Defendants maintain in their counterclaim
that plaintiff knew of the falsity of said allegations even before she filed her complaint, for
she had in fact admitted her common-law relationship with said deceased in a document she
had jointly executed with him by way of agreement to terminate their illegitimate
relationship, for which she received P40,000 from the deceased, and with respect to her
pretended share in the capital and profits in the partnership, it is also defendants' posture
that she had already quitclaimed, with the assistance of able counsel, whatever rights if any
she had thereto in November, 1967, for the sum of P25,000 duly receipted by her, which
quitclaim was, however, executed, according to respondent herself in her amended
complaint, through fraud. And having filed her complaint knowing, according to defendants,
as she ought to have known, that the material allegations thereof are false and baseless, she
has caused them to suffer damages. Undoubtedly, with such allegations, defendants'
counterclaim is compulsory, not only because the same evidence to sustain it will also refute
the cause or causes of action alleged in plaintiff's complaint, (Moran, supra p. 352) but also
because from its very nature, it is obvious that the same cannot "remain pending for
independent adjudication by the court." (Section 2, Rule 17.)
The provision of the rules just cited specifically enjoins that "(i)f a counterclaim has been
pleaded by a defendant prior to the service upon him of the plaintiff's motion to dismiss, the
action shall not be dismissed against the defendant's objection unless the counterclaim can
remain pending for independent adjudication by the court." Defendants Lim and Leonardo
had no opportunity to object to the motion to dismiss before the order granting the same
was issued, for the simple reason that they were not opportunity notified of the motion
therefor, but the record shows clearly that at least defendant Lim immediately brought the
matter of their compulsory counterclaim to the attention of the trial court in his motion for
reconsideration of October 23, 1974, even as the counsel for the other defendant, Leonardo,
predicated his motion on other grounds. In its order of December 6, 1974, however,
respondent court not only upheld the plaintiffs supposed absolute right to choose her
adversaries but also held that the counterclaim is not compulsory, thereby virtually making
unexplained and inexplicable 180-degree turnabout in that respect.
There is another equally fundamental consideration why the motion to dismiss should not
have been granted. As the plaintiff's complaint has been framed, all the six defendants are
charged with having actually taken part in a conspiracy to misappropriate, conceal and
convert to their own benefit the profits, properties and all other assets of the partnership
Glory Commercial Company, to the extent that they have allegedly organized a corporation,
Glory Commercial Company, Inc. with what they had illegally gotten from the partnership.
Upon such allegations, no judgment finding the existence of the alleged conspiracy or holding
the capital of the corporation to be the money of the partnership is legally possible without
the presence of all the defendants. The non-defaulted defendants are alleged to be
stockholders of the corporation and any decision depriving the same of all its assets cannot
but prejudice the interests of said defendants. Accordingly, upon these premises, and even
prescinding from the other reasons to be discussed anon it is clear that all the six defendants
below, defaulted and non-defaulted, are indispensable parties. Respondents could do no less
than grant that they are so on page 23 of their answer. Such being the case, the questioned
order of dismissal is exactly the opposite of what ought to have been done. Whenever it
appears to the court in the course of a proceeding that an indispensable party has not been
joined, it is the duty of the court to stop the trial and to order the inclusion of such party.
(The Revised Rules of Court, Annotated & Commented by Senator Vicente J. Francisco, Vol.
1, p. 271, 1973 ed. See also Cortez vs. Avila, 101 Phil. 705.) Such an order is unavoidable,
for the "general rule with reference to the making of parties in a civil action requires the
joinder of all necessary parties wherever possible, and the joinder of all indispensable parties
under any and all conditions, the presence of those latter being a sine qua non of the
exercise of judicial power." (Borlasa vs. Polistico, 47 Phil. 345, at p. 347.) It is precisely "
when an indispensable party is not before the court (that) the action should be dismissed."
(People v. Rodriguez, 106 Phil. 325, at p. 327.) The absence of an indispensable party
renders all subsequent actuations of the court null and void, for want of authority to act, not
only as to the absent parties but even as to those present. In short, what respondent court
did here was exactly the reverse of what the law ordains it eliminated those who by law
should precisely be joined.
As may he noted from the order of respondent court quoted earlier, which resolved the
motions for reconsideration of the dismissal order filed by the non-defaulted defendants, His
Honor rationalized his position thus:
It is the rule that it is the absolute prerogative of the plaintiff to choose, the
theory upon which he predicates his right of action, or the parties he desires
to sue, without dictation or imposition by the court or the adverse party. If
he makes a mistake in the choice of his right of action, or in that of the
parties against whom he seeks to enforce it, that is his own concern as he
alone suffers therefrom. The plaintiff cannot be compelled to choose his
defendants, He may not, at his own expense, be forced to implead anyone
who, under the adverse party's theory, is to answer for defendant's liability.
Neither may the Court compel him to furnish the means by which defendant
may avoid or mitigate their liability. (Vao vs. Alo, 95 Phil. 495-496.)
This being the rule this court cannot compel the plaintiff to continue
prosecuting her cause of action against the defendants-movants if in the
course of the trial she believes she can enforce it against the remaining
defendants subject only to the limitation provided in Section 2, Rule 17 of
the Rules of Court. ... (Pages 6263, Record.)
Noticeably, His Honor has employed the same equivocal terminology as in plaintiff's motion
of October 18, 1974 by referring to the action he had taken as being "dismissal of the
complaint against them or their being dropped therefrom", without perceiving that the
reason for the evidently intentional ambiguity is transparent. The apparent idea is to rely on
the theory that under Section 11 of Rule 3, parties may be dropped by the court upon motion
of any party at any stage of the action, hence "it is the absolute right prerogative of the
plaintiff to choosethe parties he desires to sue, without dictation or imposition by the court
or the adverse party." In other words, the ambivalent pose is suggested that plaintiff's
motion of October 18, 1974 was not predicated on Section 2 of Rule 17 but more on Section
11 of Rule 3. But the truth is that nothing can be more incorrect. To start with, the latter rule
does not comprehend whimsical and irrational dropping or adding of parties in a complaint.
What it really contemplates is erroneous or mistaken non-joinder and misjoinder of parties.
No one is free to join anybody in a complaint in court only to drop him unceremoniously later
at the pleasure of the plaintiff. The rule presupposes that the original inclusion had been
made in the honest conviction that it was proper and the subsequent dropping is requested
because it has turned out that such inclusion was a mistake. And this is the reason why the
rule ordains that the dropping be "on such terms as are just" just to all the other parties.
In the case at bar, there is nothing in the record to legally justify the dropping of the non-
defaulted defendants, Lim and Leonardo. The motion of October 18, 1974 cites none. From
all appearances, plaintiff just decided to ask for it, without any relevant explanation at all.
Usually, the court in granting such a motion inquires for the reasons and in the appropriate
instances directs the granting of some form of compensation for the trouble undergone by
the defendant in answering the complaint, preparing for or proceeding partially to trial, hiring
counsel and making corresponding expenses in the premises. Nothing of these, appears in
the order in question. Most importantly, His Honor ought to have considered that the outright
dropping of the non-defaulted defendants Lim and Leonardo, over their objection at that,
would certainly be unjust not only to the petitioners, their own parents, who would in
consequence be entirely defenseless, but also to Lim and Leonardo themselves who would
naturally correspondingly suffer from the eventual judgment against their parents.
Respondent court paid no heed at all to the mandate that such dropping must be on such
terms as are just" meaning to all concerned with its legal and factual effects.
Thus, it is quite plain that respondent court erred in issuing its order of dismissal of October
21, 1974 as well as its order of December 6, 1974 denying reconsideration of such dismissal.
As We make this ruling, We are not oblivious of the circumstance that defendants Lim and
Leonardo are not parties herein. But such consideration is inconsequential. The fate of the
case of petitioners is inseparably tied up with said order of dismissal, if only because the
order of ex-parte hearing of October 21, 1974 which directly affects and prejudices said
petitioners is predicated thereon. Necessarily, therefore, We have to pass on the legality of
said order, if We are to decide the case of herein petitioners properly and fairly.
The attitude of the non-defaulted defendants of no longer pursuing further their questioning
of the dismissal is from another point of view understandable. On the one hand, why should
they insist on being defendants when plaintiff herself has already release from her claims?
On the other hand, as far as their respective parents-co-defendants are concerned, they
must have realized that they (their parents) could even be benefited by such dismissal
because they could question whether or not plaintiff can still prosecute her case against them
after she had secured the order of dismissal in question. And it is in connection with this last
point that the true and correct concept of default becomes relevant.
At this juncture, it may also be stated that the decision of the Court of Appeals of January
24, 1975 in G. R. No. SP-03066 dismissing the petition for certiorari of non-defaulted
defendants Lim and Leonardo impugning the order of dismissal of October 21, 1974, has no
bearing at all in this case, not only because that dismissal was premised by the appellate
court on its holding that the said petition was premature inasmuch as the trial court had not
yet resolved the motion of the defendants of October 28, 1974 praying that said disputed
order be quashed, but principally because herein petitioners were not parties in that
proceeding and cannot, therefore, be bound by its result. In particular, We deem it
warranted to draw the attention of private respondent's counsel to his allegations in
paragraphs XI to XIV of his answer, which relate to said decision of the Court of Appeals and
which have the clear tendency to make it appear to the Court that the appeals court had
upheld the legality and validity of the actuations of the trial court being questioned, when as
a matter of indisputable fact, the dismissal of the petition was based solely and exclusively on
its being premature without in any manner delving into its merits. The Court must and does
admonish counsel that such manner of pleading, being deceptive and lacking in candor, has
no place in any court, much less in the Supreme Court, and if We are adopting a passive
attitude in the premises, it is due only to the fact that this is counsel's first offense. But
similar conduct on his part in the future will definitely be dealt with more severely. Parties
and counsel would be well advised to avoid such attempts to befuddle the issues as
invariably then will be exposed for what they are, certainly unethical and degrading to the
dignity of the law profession. Moreover, almost always they only betray the inherent
weakness of the cause of the party resorting to them.
2 may be said that by defaulting he leaves himself at the mercy of the court, the rules see to it
Coming now to the matter itself of default, it is quite apparent that the impugned orders
must have proceeded from inadequate apprehension of the fundamental precepts governing
such procedure under the Rules of Court. It is time indeed that the concept of this procedural
device were fully understood by the bench and bar, instead of being merely taken for
granted as being that of a simple expedient of not allowing the offending party to take part
in the proceedings, so that after his adversary shall have presented his evidence, judgment
may be rendered in favor of such opponent, with hardly any chance of said judgment being
reversed or modified.
The Rules of Court contain a separate rule on the subject of default, Rule 18. But said rule is
concerned solely with default resulting from failure of the defendant or defendants to answer
within the reglementary period. Referring to the simplest form of default, that is, where there
is only one defendant in the action and he fails to answer on time, Section 1 of the rule
provides that upon "proof of such failure, (the court shall) declare the defendant in default.
Thereupon the court shall proceed to receive the plaintiff's evidence and render judgment
granting him such relief as the complaint and the facts proven may warrant." This last clause
is clarified by Section 5 which says that "a judgment entered against a party in default shall
not exceed the amount or be different in kind from that prayed for."
Unequivocal, in the literal sense, as these provisions are, they do not readily convey the full
import of what they contemplate. To begin with, contrary to the immediate notion that can
be drawn from their language, these provisions are not to be understood as meaning that
default or the failure of the defendant to answer should be "interpreted as an admission by
the said defendant that the plaintiff's cause of action find support in the law or that plaintiff
is entitled to the relief prayed for." (Moran, supra, p. 535 citing Macondary & Co. v.
Eustaquio, 64 Phil. 466, citing with approval Chaffin v. McFadden, 41 Ark. 42; Johnson v.
Pierce, 12 Ark. 599; Mayden v. Johnson, 59 Ga. 105; People v. Rust, 292 111. 328; Ken v.
Leopold 21 111. A. 163; Chicago, etc. Electric R. Co. v. Krempel 116 111. A. 253.)
Being declared in default does not constitute a waiver of rights except that of being heard
and of presenting evidence in the trial court. According to Section 2, "except as provided in
Section 9 of Rule 13, a party declared in default shall not be entitled to notice of subsequent
proceedings, nor to take part in the trial." That provision referred to reads: "No service of
papers other than substantially amended pleadings and final orders or judgments shall be
necessary on a party in default unless he files a motion to set aside the order of default, in
which event he shall be entitled to notice of all further proceedings regardless of whether the
order of default is set aside or not." And pursuant to Section 2 of Rule 41, "a party who has
been declared in default may likewise appeal from the judgment rendered against him as
contrary to the evidence or to the law, even if no petition for relief to set aside the order of
default has been presented by him in accordance with Rule 38.".
In other words, a defaulted defendant is not actually thrown out of court. While in a sense it
that any judgment against him must be in accordance with law. The evidence to support the
plaintiff's cause is, of course, presented in his absence, but the court is not supposed to
admit that which is basically incompetent. Although the defendant would not be in a position
to object, elementary justice requires that, only legal evidence should be considered against
him. If the evidence presented should not be sufficient to justify a judgment for the plaintiff,
the complaint must be dismissed. And if an unfavorable judgment should be justifiable, it
cannot exceed in amount or be different in kind from what is prayed for in the complaint.
Incidentally, these considerations argue against the present widespread practice of trial
judges, as was done by His Honor in this case, of delegating to their clerks of court the
reception of the plaintiff's evidence when the defendant is in default. Such a Practice is
wrong in principle and orientation. It has no basis in any rule. When a defendant allows
himself to be declared in default, he relies on the faith that the court would take care that his
rights are not unduly prejudiced. He has a right to presume that the law and the rules will
still be observed. The proceedings are held in his forced absence, and it is but fair that the
plaintiff should not be allowed to take advantage of the situation to win by foul or illegal
means or with inherently incompetent evidence. Thus, in such instances, there is need for
more attention from the court, which only the judge himself can provide. The clerk of court
would not be in a position much less have the authority to act in the premises in the manner
demanded by the rules of fair play and as contemplated in the law, considering his
comparably limited area of discretion and his presumably inferior preparation for the
functions of a judge. Besides, the default of the defendant is no excuse for the court to
renounce the opportunity to closely observe the demeanor and conduct of the witnesses of
the plaintiff, the better to appreciate their truthfulness and credibility. We therefore declare
as a matter of judicial policy that there being no imperative reason for judges to do
otherwise, the practice should be discontinued.
Another matter of practice worthy of mention at this point is that it is preferable to leave
enough opportunity open for possible lifting of the order of default before proceeding with
the reception of the plaintiff's evidence and the rendition of the decision. "A judgment by
default may amount to a positive and considerable injustice to the defendant; and the
possibility of such serious consequences necessitates a careful and liberal examination of the
grounds upon which the defendant may seek to set it aside." (Moran, supra p. 534, citing
Coombs vs. Santos, 24 Phil. 446; 449-450.) The expression, therefore, in Section 1 of Rule
18 aforequoted which says that "thereupon the court shall proceed to receive the plaintiff's
evidence etc." is not to be taken literally. The gain in time and dispatch should the court
immediately try the case on the very day of or shortly after the declaration of default is far
outweighed by the inconvenience and complications involved in having to undo everything
already done in the event the defendant should justify his omission to answer on time.
The foregoing observations, as may be noted, refer to instances where the only defendant or
all the defendants, there being several, are declared in default. There are additional rules
embodying more considerations of justice and equity in cases where there are several
defendants against whom a common cause of action is averred and not all of them answer
opportunely or are in default, particularly in reference to the power of the court to render
judgment in such situations. Thus, in addition to the limitation of Section 5 that the judgment
by default should not be more in amount nor different in kind from the reliefs specifically
sought by plaintiff in his complaint, Section 4 restricts the authority of the court in rendering
judgment in the situations just mentioned as follows:
Sec. 4. Judgment when some defendants answer, and other make difficult.
When a complaint states a common cause of action against several
defendant some of whom answer, and the others fail to do so, the court
shall try the case against all upon the answer thus filed and render judgment
upon the evidence presented. The same proceeding applies when a common
cause of action is pleaded in a counterclaim, cross-claim and third-party
claim.
Very aptly does Chief Justice Moran elucidate on this provision and the controlling
jurisprudence explanatory thereof this wise:
Where a complaint states a common cause of action against several
defendants and some appear to defend the case on the merits while others
make default, the defense interposed by those who appear to litigate the
case inures to the benefit of those who fail to appear, and if the court finds
that a good defense has been made, all of the defendants must be absolved.
In other words, the answer filed by one or some of the defendants inures to
the benefit of all the others, even those who have not seasonably filed their
answer. (Bueno v. Ortiz, L-22978, June 27, 1968, 23 SCRA 1151.) The
proper mode of proceeding where a complaint states a common cause of
action against several defendants, and one of them makes default, is simply
to enter a formal default order against him, and proceed with the cause
upon the answers of the others. The defaulting defendant merely loses his
standing in court, he not being entitled to the service of notice in the cause,
nor to appear in the suit in any way. He cannot adduce evidence; nor can he
be heard at the final hearing, (Lim Toco v. Go Fay, 80 Phil. 166.) although he
may appeal the judgment rendered against him on the merits. (Rule 41, sec.
2.) If the case is finally decided in the plaintiff's favor, a final decree is then
entered against all the defendants; but if the suit should be decided against
the plaintiff, the action will be dismissed as to all the defendants alike. (Velez
v. Ramas, 40 Phil. 787-792; Frow v. de la Vega, 15 Wal. 552,21 L. Ed. 60.)
In other words the judgment will affect the defaulting defendants either
favorably or adversely. (Castro v. Pea, 80 Phil. 488.)
Defaulting defendant may ask execution if judgment is in his favor. (Castro
v. Pea, supra.) (Moran, Rules of Court, Vol. 1, pp. 538-539.)
In Castro vs. Pea, 80 Phil. 488, one of the numerous cases cited by Moran,
this Court elaborated on the construction of the same rule when it
sanctioned the execution, upon motion and for the benefit of the defendant
in default, of a judgment which was adverse to the plaintiff. The Court held:
As above stated, Emilia Matanguihan, by her counsel, also was a movant in
the petition for execution Annex 1. Did she have a right to be such, having
been declared in default? In Frow vs. De la Vega, supra, cited as authority
in Velez vs. Ramas, supra, the Supreme Court of the United States adopted
as ground for its own decision the following ruling of the New York Court of
Errors in Clason vs. Morris, 10 Jons., 524:
It would be unreasonable to hold that because one defendant had made
default, the plaintiff should have a decree even against him, where the court
is satisfied from the proofs offered by the other, that in fact the plaintiff is
not entitled to a decree. (21 Law, ed., 61.)
The reason is simple: justice has to be consistent. The complaint stating a
common cause of action against several defendants, the complainant's rights
or lack of them in the controversy have to be the same, and not
different, as against all the defendant's although one or some make default
and the other or others appear, join issue, and enter into trial. For instance,
in the case of Clason vs. Morris above cited, the New York Court of Errors in
effect held that in such a case if the plaintiff is not entitled to a decree, he
will not be entitled to it, not only as against the defendant appearing and
resisting his action but also as against the one who made default. In the
case at bar, the cause of action in the plaintiff's complaint was common
against the Mayor of Manila, Emilia Matanguihan, and the other defendants
in Civil Case No. 1318 of the lower court. The Court of First Instance in its
judgment found and held upon the evidence adduced by the plaintiff and the
defendant mayor that as between said plaintiff and defendant Matanguihan
the latter was the one legally entitled to occupy the stalls; and it decreed,
among other things, that said plaintiff immediately vacate them.
Paraphrasing the New York Court of Errors, it would be unreasonable to hold
now that because Matanguihan had made default, the said plaintiff should be
declared, as against her, legally entitled to the occupancy of the stalls, or to
remain therein, although the Court of First Instance was so firmly satisfied,
from the proofs offered by the other defendant, that the same plaintiff was
not entitled to such occupancy that it peremptorily ordered her to vacate the
stalls. If in the cases of Clason vs. Morris, supra, Frow vs. De la Vega, supra,
and Velez vs. Ramas, supra the decrees entered inured to the benefit of the
defaulting defendants, there is no reason why that entered in said case No.
1318 should not be held also to have inured to the benefit of the defaulting
defendant Matanguihan and the doctrine in said three cases plainly implies
that there is nothing in the law governing default which would prohibit the
court from rendering judgment favorable to the defaulting defendant in such
cases. If it inured to her benefit, it stands to reason that she had a right to
claim that benefit, for it would not be a benefit if the supposed beneficiary
were barred from claiming it; and if the benefit necessitated the execution of
the decree, she must be possessed of the right to ask for the execution
thereof as she did when she, by counsel, participated in the petition for
execution Annex 1.
Section 7 of Rule 35 would seem to afford a solid support to the above
considerations. It provides that when a complaint states a common cause of
action against several defendants, some of whom answer, and the others
make default, 'the court shall try the case against all upon the answer thus
filed and render judgment upon the evidence presented by the parties in
court'. It is obvious that under this provision the case is tried jointly not only
against the defendants answering but also against those defaulting, and the
trial is held upon the answer filed by the former; and the judgment, if
adverse, will prejudice the defaulting defendants no less than those who
answer. In other words, the defaulting defendants are held bound by the
answer filed by their co-defendants and by the judgment which the court
may render against all of them. By the same token, and by all rules of equity
and fair play, if the judgment should happen to be favorable, totally or
partially, to the answering defendants, it must correspondingly benefit the
defaulting ones, for it would not be just to let the judgment produce effects
as to the defaulting defendants only when adverse to them and not when
favorable.
In Bueno vs. Ortiz, 23 SCRA 1151, the Court applied the provision under discussion in the
following words:
In answer to the charge that respondent Judge had committed a grave
abuse of discretion in rendering a default judgment against the PC,
respondents allege that, not having filed its answer within the reglementary
period, the PC was in default, so that it was proper for Patanao to forthwith
present his evidence and for respondent Judge to render said judgment. It
should be noted, however, that in entering the area in question and seeking
to prevent Patanao from continuing his logging operations therein, the PC
was merely executing an order of the Director of Forestry and acting as his
agent. Patanao's cause of action against the other respondents in Case No.
190, namely, the Director of Forestry, the District Forester of Agusan, the
Forest Officer of Bayugan, Agusan, and the Secretary of Agriculture and
Natural Resources. Pursuant to Rule 18, Section 4, of the Rules of Court,
'when a complaint states a common cause of action against several
defendants some of whom answer and the others fail to do so, the court
shall try the case against all upon the answer thus filed (by some) and
render judgment upon the evidence presented.' In other words, the answer
filed by one or some of the defendants inures to the benefit of all the others,
even those who have not seasonably filed their answer.
Indeed, since the petition in Case No. 190 sets forth a common cause of
action against all of the respondents therein, a decision in favor of one of
them would necessarily favor the others. In fact, the main issue, in said
case, is whether Patanao has a timber license to undertake logging
operations in the disputed area. It is not possible to decide such issue in the
negative, insofar as the Director of Forestry, and to settle it otherwise, as
regards the PC, which is merely acting as agent of the Director of Forestry,
and is, therefore, his alter ego, with respect to the disputed forest area.
Stated differently, in all instances where a common cause of action is alleged against several
defendants, some of whom answer and the others do not, the latter or those in default
acquire a vested right not only to own the defense interposed in the answer of their co-
defendant or co-defendants not in default but also to expect a result of the litigation totally
common with them in kind and in amount whether favorable or unfavorable. The substantive
unity of the plaintiff's cause against all the defendants is carried through to its adjective
phase as ineluctably demanded by the homogeneity and indivisibility of justice itself. Indeed,
since the singleness of the cause of action also inevitably implies that all the defendants are
indispensable parties, the court's power to act is integral and cannot be split such that it
cannot relieve any of them and at the same time render judgment against the rest.
Considering the tenor of the section in question, it is to be assumed that when any defendant
allows himself to be declared in default knowing that his defendant has already answered, he
does so trusting in the assurance implicit in the rule that his default is in essence a mere
formality that deprives him of no more than the right to take part in the trial and that the
court would deem anything done by or for the answering defendant as done by or for him.
The presumption is that otherwise he would not -have seen to that he would not be in
default. Of course, he has to suffer the consequences of whatever the answering defendant
may do or fail to do, regardless of possible adverse consequences, but if the complaint has to
be dismissed in so far as the answering defendant is concerned it becomes his inalienable
right that the same be dismissed also as to him. It does not matter that the dismissal is upon
the evidence presented by the plaintiff or upon the latter's mere desistance, for in both
contingencies, the lack of sufficient legal basis must be the cause. The integrity of the
common cause of action against all the defendants and the indispensability of all of them in
the proceedings do not permit any possibility of waiver of the plaintiff's right only as to one
or some of them, without including all of them, and so, as a rule, withdrawal must be
deemed to be a confession of weakness as to all. This is not only elementary justice; it also
precludes the concomitant hazard that plaintiff might resort to the kind of procedural
strategem practiced by private respondent herein that resulted in totally depriving petitioners
of every opportunity to defend themselves against her claims which, after all, as will be seen
later in this opinion, the record does not show to be invulnerable, both in their factual and
legal aspects, taking into consideration the tenor of the pleadings and the probative value of
the competent evidence which were before the trial court when it rendered its assailed
decision where all the defendants are indispensable parties, for which reason the absence of
any of them in the case would result in the court losing its competency to act validly, any
compromise that the plaintiff might wish to make with any of them must, as a matter of
correct procedure, have to await until after the rendition of the judgment, at which stage the
plaintiff may then treat the matter of its execution and the satisfaction of his claim as
variably as he might please. Accordingly, in the case now before Us together with the
dismissal of the complaint against the non-defaulted defendants, the court should have
ordered also the dismissal thereof as to petitioners.
Indeed, there is more reason to apply here the principle of unity and indivisibility of the
action just discussed because all the defendants here have already joined genuine issues
with plaintiff. Their default was only at the pre-trial. And as to such absence of petitioners at
the pre-trial, the same could be attributed to the fact that they might not have considered it
necessary anymore to be present, since their respective children Lim and Leonardo, with
whom they have common defenses, could take care of their defenses as well. Anything that
might have had to be done by them at such pre-trial could have been done for them by their
children, at least initially, specially because in the light of the pleadings before the court, the
prospects of a compromise must have appeared to be rather remote. Such attitude of
petitioners is neither uncommon nor totally unjustified. Under the circumstances, to declare
them immediately and irrevocably in default was not an absolute necessity. Practical
considerations and reasons of equity should have moved respondent court to be more
understanding in dealing with the situation. After all, declaring them in default as respondent
court did not impair their right to a common fate with their children.
3
Another issue to be resolved in this case is the question of whether or not herein petitioners
were entitled to notice of plaintiff's motion to drop their co-defendants Lim and Leonardo,
considering that petitioners had been previously declared in default. In this connection, the
decisive consideration is that according to the applicable rule, Section 9, Rule 13, already
quoted above, (1) even after a defendant has been declared in default, provided he "files a
motion to set aside the order of default, he shall be entitled to notice of all further
proceedings regardless of whether the order of default is set aside or not" and (2) a party in
default who has not filed such a motion to set aside must still be served with all
"substantially amended or supplemented pleadings." In the instant case, it cannot be denied
that petitioners had all filed their motion for reconsideration of the order declaring them in
default. Respondents' own answer to the petition therein makes reference to the order of
April 3, 1973, Annex 8 of said answer, which denied said motion for reconsideration. On page
3 of petitioners' memorandum herein this motion is referred to as "a motion to set aside the
order of default." But as We have not been favored by the parties with a copy of the said
motion, We do not even know the excuse given for petitioners' failure to appear at the pre-
trial, and We cannot, therefore, determine whether or not the motion complied with the
requirements of Section 3 of Rule 18 which We have held to be controlling in cases of default
for failure to answer on time. (The Philippine-British Co. Inc. etc. et al. vs. The Hon. Walfrido
de los Angeles etc. et al., 63 SCRA 50.)
We do not, however, have here, as earlier noted, a case of default for failure to answer but
one for failure to appear at the pre-trial. We reiterate, in the situation now before Us, issues
have already been joined. In fact, evidence had been partially offered already at the pre-trial
and more of it at the actual trial which had already begun with the first witness of the
plaintiff undergoing re-cross-examination. With these facts in mind and considering that
issues had already been joined even as regards the defaulted defendants, it would be
requiring the obvious to pretend that there was still need for an oath or a verification as to
the merits of the defense of the defaulted defendants in their motion to reconsider their
default. Inasmuch as none of the parties had asked for a summary judgment there can be no
question that the issues joined were genuine, and consequently, the reason for requiring
such oath or verification no longer holds. Besides, it may also be reiterated that being the
parents of the non-defaulted defendants, petitioners must have assumed that their presence
was superfluous, particularly because the cause of action against them as well as their own
defenses are common. Under these circumstances, the form of the motion by which the
default was sought to be lifted is secondary and the requirements of Section 3 of Rule 18
need not be strictly complied with, unlike in cases of default for failure to answer. We can
thus hold as We do hold for the purposes of the revival of their right to notice under Section
9 of Rule 13, that petitioner's motion for reconsideration was in substance legally adequate
regardless of whether or not it was under oath.
In any event, the dropping of the defendants Lim and Leonardo from plaintiff's amended
complaint was virtually a second amendment of plaintiffs complaint. And there can be no
doubt that such amendment was substantial, for with the elimination thereby of two
defendants allegedly solidarily liable with their co-defendants, herein petitioners, it had the
effect of increasing proportionally what each of the remaining defendants, the said
petitioners, would have to answer for jointly and severally. Accordingly, notice to petitioners
of the plaintiff's motion of October 18, 1974 was legally indispensable under the rule above-
quoted. Consequently, respondent court had no authority to act on the motion, to dismiss,
pursuant to Section 6 of Rule 15, for according to Senator Francisco, "(t) he Rules of Court
clearly provide that no motion shall be acted upon by the Court without the proof of service
of notice thereof, together with a copy of the motion and other papers accompanying it, to
all parties concerned at least three days before the hearing thereof, stating the time and
place for the hearing of the motion. (Rule 26, section 4, 5 and 6, Rules of Court (now Sec.
15, new Rules). When the motion does not comply with this requirement, it is not a motion.
It presents no question which the court could decide. And the Court acquires no jurisdiction
to consider it. (Roman Catholic Bishop of Lipa vs. Municipality of Unisan 44 Phil., 866;
Manakil vs. Revilla, 42 Phil., 81.) (Laserna vs. Javier, et al., CA-G.R. No. 7885, April 22, 1955;
21 L.J. 36, citing Roman Catholic Bishop of Lipa vs. Municipality of Unisan 44 Phil., 866;
Manakil vs. Revilla, 42 Phil., 81.) (Francisco. The Revised Rules of Court in the Philippines,
pp. 861-862.) Thus, We see again, from a different angle, why respondent court's order of
dismissal of October 21, 1974 is fatally ineffective.
4 legally anomalous. It is predicated on two fatal malactuations of respondent court namely (1)
The foregoing considerations notwithstanding, it is respondents' position that certiorari is not
the proper remedy of petitioners. It is contended that inasmuch as said petitioners have in
fact made their appeal already by filing the required notice of appeal and appeal bond and a
motion for extension to file their record on appeal, which motion was granted by respondent
court, their only recourse is to prosecute that appeal. Additionally, it is also maintained that
since petitioners have expressly withdrawn their motion to quash of January 4, 1975
impugning the order of October 28, 1974, they have lost their right to assail by certiorari the
actuations of respondent court now being questioned, respondent court not having been
given the opportunity to correct any possible error it might have committed.
We do not agree. As already shown in the foregoing discussion, the proceedings in the court
below have gone so far out of hand that prompt action is needed to restore order in the
entangled situation created by the series of plainly illegal orders it had issued. The essential
purpose of certiorari is to keep the proceedings in lower judicial courts and tribunals within
legal bounds, so that due process and the rule of law may prevail at all times and
arbitrariness, whimsicality and unfairness which justice abhors may immediately be stamped
out before graver injury, juridical and otherwise, ensues. While generally these objectives
may well be attained in an ordinary appeal, it is undoubtedly the better rule to allow the
special remedy of certiorari at the option of the party adversely affected, when the
irregularity committed by the trial court is so grave and so far reaching in its consequences
that the long and cumbersome procedure of appeal will only further aggravate the situation
of the aggrieved party because other untoward actuations are likely to materialize as natural
consequences of those already perpetrated. If the law were otherwise, certiorari would have
no reason at all for being.
No elaborate discussion is needed to show the urgent need for corrective measures in the
case at bar. Verily, this is one case that calls for the exercise of the Supreme Court's inherent
power of supervision over all kinds of judicial actions of lower courts. Private respondent's
procedural technique designed to disable petitioners to defend themselves against her claim
which appears on the face of the record itself to be at least highly controversial seems to
have so fascinated respondent court that none would be surprised should her pending
motion for immediate execution of the impugned judgment receive similar ready sanction as
her previous motions which turned the proceedings into a one-sided affair. The stakes here
are high. Not only is the subject matter considerably substantial; there is the more important
aspect that not only the spirit and intent of the rules but even the basic rudiments of fair play
have been disregarded. For the Court to leave unrestrained the obvious tendency of the
proceedings below would be nothing short of wittingly condoning inequity and injustice
resulting from erroneous construction and unwarranted application of procedural rules.
5
The sum and total of all the foregoing disquisitions is that the decision here in question is
the dismissal of the complaint against the non-defaulted defendants Lim and Leonardo and
(2) the ex-parte reception of the evidence of the plaintiff by the clerk of court, the
subsequent using of the same as basis for its judgment and the rendition of such judgment.
For at least three reasons which We have already fully discussed above, the order of
dismissal of October 21, 1974 is unworthy of Our sanction: (1) there was no timely notice of
the motion therefor to the non-defaulted defendants, aside from there being no notice at all
to herein petitioners; (2) the common answer of the defendants, including the non-defaulted,
contained a compulsory counterclaim incapable of being determined in an independent
action; and (3) the immediate effect of such dismissal was the removal of the two non-
defaulted defendants as parties, and inasmuch as they are both indispensable parties in the
case, the court consequently lost the" sine qua non of the exercise of judicial power",
per Borlasa vs. Polistico, supra. This is not to mention anymore the irregular delegation to
the clerk of court of the function of receiving plaintiff's evidence. And as regards the ex-parte
reception of plaintiff's evidence and subsequent rendition of the judgment by default based
thereon, We have seen that it was violative of the right of the petitioners, under the
applicable rules and principles on default, to a common and single fate with their non-
defaulted co-defendants. And We are not yet referring, as We shall do this anon to the
numerous reversible errors in the decision itself.
It is to be noted, however, that the above-indicated two fundamental flaws in respondent
court's actuations do not call for a common corrective remedy. We cannot simply rule that all
the impugned proceedings are null and void and should be set aside, without being faced
with the insurmountable obstacle that by so doing We would be reviewing the case as
against the two non-defaulted defendants who are not before Us not being parties hereto.
Upon the other hand, for Us to hold that the order of dismissal should be allowed to stand,
as contended by respondents themselves who insist that the same is already final, not only
because the period for its finality has long passed but also because allegedly, albeit not very
accurately, said 'non-defaulted defendants unsuccessfully tried to have it set aside by the
Court of Appeals whose decision on their petition is also already final, We would have to
disregard whatever evidence had been presented by the plaintiff against them and, of
course, the findings of respondent court based thereon which, as the assailed decision
shows, are adverse to them. In other words, whichever of the two apparent remedies the
Court chooses, it would necessarily entail some kind of possible juridical imperfection.
Speaking of their respective practical or pragmatic effects, to annul the dismissal would
inevitably prejudice the rights of the non-defaulted defendants whom We have not heard and
who even respondents would not wish to have anything anymore to do with the case. On the
other hand, to include petitioners in the dismissal would naturally set at naught every effort
private respondent has made to establish or prove her case thru means sanctioned by
respondent court. In short, We are confronted with a legal para-dilemma. But one thing is
certain this difficult situations has been brought about by none other than private
respondent who has quite cynically resorted to procedural maneuvers without realizing that
the technicalities of the adjective law, even when apparently accurate from the literal point of
view, cannot prevail over the imperatives of the substantive law and of equity that always
underlie them and which have to be inevitably considered in the construction of the pertinent
procedural rules.
All things considered, after careful and mature deliberation, the Court has arrived at the
conclusion that as between the two possible alternatives just stated, it would only be fair,
equitable and proper to uphold the position of petitioners. In other words, We rule that the
order of dismissal of October 21, 1974 is in law a dismissal of the whole case of the plaintiff,
including as to petitioners herein. Consequently, all proceedings held by respondent court
subsequent thereto including and principally its decision of December 20, 1974 are illegal and
should be set aside.
This conclusion is fully justified by the following considerations of equity:
1. It is very clear to Us that the procedural maneuver resorted to by private respondent in
securing the decision in her favor was ill-conceived. It was characterized by that which every
principle of law and equity disdains taking unfair advantage of the rules of procedure in
order to unduly deprive the other party of full opportunity to defend his cause. The idea of
"dropping" the non-defaulted defendants with the end in view of completely incapacitating
their co-defendants from making any defense, without considering that all of them are
indispensable parties to a common cause of action to which they have countered with a
common defense readily connotes an intent to secure a one-sided decision, even improperly.
And when, in this connection, the obvious weakness of plaintiff's evidence is taken into
account, one easily understands why such tactics had to be availed of. We cannot directly or
indirectly give Our assent to the commission of unfairness and inequity in the application of
the rules of procedure, particularly when the propriety of reliance thereon is not beyond
controversy.
2. The theories of remedial law pursued by private respondents, although approved by His
Honor, run counter to such basic principles in the rules on default and such elementary rules
on dismissal of actions and notice of motions that no trial court should be unaware of or
should be mistaken in applying. We are at a loss as to why His Honor failed to see through
counsel's inequitous strategy, when the provisions (1) on the three-day rule on notice of
motions, Section 4 of Rule 15, (2) against dismissal of actions on motion of plaintiff when
there is a compulsory counterclaim, Section 2, Rule 17, (3) against permitting the absence of
indispensable parties, Section 7, Rule 3, (4) on service of papers upon defendants in default
when there are substantial amendments to pleadings, Section 9, Rule 13, and (5) on the
unity and integrity of the fate of defendants in default with those not in default where the
cause of action against them and their own defenses are common, Section 4, Rule 18, are so
plain and the jurisprudence declaratory of their intent and proper construction are so readily
comprehensible that any error as to their application would be unusual in any competent trial
court.
3. After all, all the malactuations of respondent court are traceable to the initiative of private
respondent and/or her counsel. She cannot, therefore, complain that she is being made to
unjustifiably suffer the consequences of what We have found to be erroneous orders of
respondent court. It is only fair that she should not be allowed to benefit from her own
frustrated objective of securing a one-sided decision.
4. More importantly, We do not hesitate to hold that on the basis of its own recitals, the
decision in question cannot stand close scrutiny. What is more, the very considerations
contained therein reveal convincingly the inherent weakness of the cause of the plaintiff. To
be sure, We have been giving serious thought to the idea of merely returning this case for a
resumption of trial by setting aside the order of dismissal of October 21, 1974, with all its
attendant difficulties on account of its adverse effects on parties who have not been heard,
but upon closer study of the pleadings and the decision and other circumstances extant in
the record before Us, We are now persuaded that such a course of action would only lead to
more legal complications incident to attempts on the part of the parties concerned to
desperately squeeze themselves out of a bad situation. Anyway, We feel confident that by
and large, there is enough basis here and now for Us to rule out the claim of the plaintiff.
Even a mere superficial reading of the decision would immediately reveal that it is littered on
its face with deficiencies and imperfections which would have had no reason for being were
there less haste and more circumspection in rendering the same. Recklessness in jumping to
unwarranted conclusions, both factual and legal, is at once evident in its findings relative
precisely to the main bases themselves of the reliefs granted. It is apparent therein that no
effort has been made to avoid glaring inconsistencies. Where references are made to codal
provisions and jurisprudence, inaccuracy and inapplicability are at once manifest. It hardly
commends itself as a deliberate and consciencious adjudication of a litigation which,
considering the substantial value of the subject matter it involves and the unprecedented
procedure that was followed by respondent's counsel, calls for greater attention and skill
than the general run of cases would.
Inter alia, the following features of the decision make it highly improbable that if We took
another course of action, private respondent would still be able to make out any case against
petitioners, not to speak of their co-defendants who have already been exonerated by
respondent herself thru her motion to dismiss:
1. According to His Honor's own statement of plaintiff's case, "she is the widow of the late
Tee Hoon Po Chuan (Po Chuan, for short) who was then one of the partners in the
commercial partnership, Glory Commercial Co. with defendants Antonio Lim Tanhu (Lim
Tanhu, for short) and Alfonso Leonardo Ng Sua (Ng Sua, for short) as co-partners; that after
the death of her husband on March 11, 1966 she is entitled to share not only in the capital
and profits of the partnership but also in the other assets, both real and personal, acquired
by the partnership with funds of the latter during its lifetime."
Relatedly, in the latter part of the decision, the findings are to the following effect: .
That the herein plaintiff Tan Put and her late husband Po Chuan married at
the Philippine Independent Church of Cebu City on December, 20, 1949; that
Po Chuan died on March 11, 1966; that the plaintiff and the late Po Chuan
were childless but the former has a foster son Antonio Nuez whom she has
reared since his birth with whom she lives up to the present; that prior to the
marriage of the plaintiff to Po Chuan the latter was already managing the
partnership Glory Commercial Co. then engaged in a little business in
hardware at Manalili St., Cebu City; that prior to and just after the marriage
of the plaintiff to Po Chuan she was engaged in the drugstore business; that
not long after her marriage, upon the suggestion of Po Chuan the plaintiff
sold her drugstore for P125,000.00 which amount she gave to her husband
in the presence of defendant Lim Tanhu and was invested in the partnership
Glory Commercial Co. sometime in 1950; that after the investment of the
above-stated amount in the partnership its business flourished and it
embarked in the import business and also engaged in the wholesale and
retail trade of cement and GI sheets and under huge profits;
xxx xxx xxx
That the late Po Chuan was the one who actively managed the business of
the partnership Glory Commercial Co. he was the one who made the final
decisions and approved the appointments of new personnel who were taken
in by the partnership; that the late Po Chuan and defendants Lim Tanhu and
Ng Sua are brothers, the latter two (2) being the elder brothers of the
former; that defendants Lim Tanhu and Ng Sua are both naturalized Filipino
citizens whereas the late Po Chuan until the time of his death was a Chinese
citizen; that the three (3) brothers were partners in the Glory Commercial
Co. but Po Chuan was practically the owner of the partnership having the
controlling interest; that defendants Lim Tanhu and Ng Sua were partners in
name but they were mere employees of Po Chuan .... (Pp. 89-91, Record.)
How did His Honor arrive at these conclusions? To start with, it is not clear in the decision
whether or not in making its findings of fact the court took into account the allegations in the
pleadings of the parties and whatever might have transpired at the pre-trial. All that We can
gather in this respect is that references are made therein to pre-trial exhibits and to Annex A
of the answer of the defendants to plaintiff's amended complaint. Indeed, it was incumbent
upon the court to consider not only the evidence formally offered at the trial but also the
admissions, expressed or implied, in the pleadings, as well as whatever might have been
placed before it or brought to its attention during the pre-trial. In this connection, it is to be
regretted that none of the parties has thought it proper to give Us an idea of what took place
at the pre-trial of the present case and what are contained in the pre-trial order, if any was
issued pursuant to Section 4 of Rule 20.
The fundamental purpose of pre-trial, aside from affording the parties every opportunity to
compromise or settle their differences, is for the court to be apprised of the unsettled issues
between the parties and of their respective evidence relative thereto, to the end that it may
take corresponding measures that would abbreviate the trial as much as possible and the
judge may be able to ascertain the facts with the least observance of technical rules. In other
words whatever is said or done by the parties or their counsel at the pre- trial serves to put
the judge on notice of their respective basic positions, in order that in appropriate cases he
may, if necessary in the interest of justice and a more accurate determination of the facts,
make inquiries about or require clarifications of matters taken up at the pre-trial, before
finally resolving any issue of fact or of law. In brief, the pre-trial constitutes part and parcel
of the proceedings, and hence, matters dealt with therein may not be disregarded in the
process of decision making. Otherwise, the real essence of compulsory pre-trial would be
insignificant and worthless.
Now, applying these postulates to the findings of respondent court just quoted, it will be
observed that the court's conclusion about the supposed marriage of plaintiff to the deceased
Tee Hoon Lim Po Chuan is contrary to the weight of the evidence brought before it during
the trial and the pre-trial.
Under Article 55 of the Civil Code, the declaration of the contracting parties that they take
each other as husband and wife "shall be set forth in an instrument" signed by the parties as
well as by their witnesses and the person solemnizing the marriage. Accordingly, the primary
evidence of a marriage must be an authentic copy of the marriage contract. While a marriage
may also be proved by other competent evidence, the absence of the contract must first be
satisfactorily explained. Surely, the certification of the person who allegedly solemnized a
marriage is not admissible evidence of such marriage unless proof of loss of the contract or
of any other satisfactory reason for its non-production is first presented to the court. In the
case at bar, the purported certification issued by a Mons. Jose M. Recoleto, Bishop, Philippine
Independent Church, Cebu City, is not, therefore, competent evidence, there being
absolutely no showing as to unavailability of the marriage contract and, indeed, as to the
authenticity of the signature of said certifier, the jurat allegedly signed by a second assistant
provincial fiscal not being authorized by law, since it is not part of the functions of his office.
Besides, inasmuch as the bishop did not testify, the same is hearsay.
As regards the testimony of plaintiff herself on the same point and that of her witness
Antonio Nuez, there can be no question that they are both self-serving and of very little
evidentiary value, it having been disclosed at the trial that plaintiff has already assigned all
her rights in this case to said Nuez, thereby making him the real party in interest here and,
therefore, naturally as biased as herself. Besides, in the portion of the testimony of Nuez
copied in Annex C of petitioner's memorandum, it appears admitted that he was born only on
March 25, 1942, which means that he was less than eight years old at the supposed time of
the alleged marriage. If for this reason alone, it is extremely doubtful if he could have been
sufficiently aware of such event as to be competent to testify about it.
Incidentally, another Annex C of the same memorandum purports to be the certificate of
birth of one Antonio T. Uy supposed to have been born on March 23, 1937 at Centro
Misamis, Misamis Occidental, the son of one Uy Bien, father, and Tan Put, mother.
Significantly, respondents have not made any adverse comment on this document. It is more
likely, therefore, that the witness is really the son of plaintiff by her husband Uy Kim Beng.
But she testified she was childless. So which is which? In any event, if on the strength of this
document, Nuez is actually the legitimate son of Tan Put and not her adopted son, he would
have been but 13 years old in 1949, the year of her alleged marriage to Po Chuan, and even
then, considering such age, his testimony in regard thereto would still be suspect.
Now, as against such flimsy evidence of plaintiff, the court had before it, two documents of
great weight belying the pretended marriage. We refer to (1) Exhibit LL, the income tax
return of the deceased Tee Hoon Lim Po Chuan indicating that the name of his wife was Ang
Sick Tin and (2) the quitclaim, Annex A of the answer, wherein plaintiff Tan Put stated that
she had been living with the deceased without benefit of marriage and that she was his
"common-law wife". Surely, these two documents are far more reliable than all the evidence
of the plaintiff put together.
Of course, Exhibit LL is what might be termed as pre-trial evidence. But it is evidence offered
to the judge himself, not to the clerk of court, and should have at least moved him to ask
plaintiff to explain if not rebut it before jumping to the conclusion regarding her alleged
marriage to the deceased, Po Chuan. And in regard to the quitclaim containing the admission
of a common-law relationship only, it is to be observed that His Honor found that
"defendants Lim Tanhu and Ng Sua had the plaintiff execute a quitclaim on November 29,
1967 (Annex "A", Answer) where they gave plaintiff the amount of P25,000 as her share in
the capital and profits of the business of Glory Commercial Co. which was engaged in the
hardware business", without making mention of any evidence of fraud and misrepresentation
in its execution, thereby indicating either that no evidence to prove that allegation of the
plaintiff had been presented by her or that whatever evidence was actually offered did not
produce persuasion upon the court. Stated differently, since the existence of the quitclaim
has been duly established without any circumstance to detract from its legal import, the
court should have held that plaintiff was bound by her admission therein that she was the
common-law wife only of Po Chuan and what is more, that she had already renounced for
valuable consideration whatever claim she might have relative to the partnership Glory
Commercial Co.
And when it is borne in mind that in addition to all these considerations, there are mentioned
and discussed in the memorandum of petitioners (1) the certification of the Local Civil
Registrar of Cebu City and (2) a similar certification of the Apostolic Prefect of the Philippine
Independent Church, Parish of Sto. Nio, Cebu City, that their respective official records
corresponding to December 1949 to December 1950 do not show any marriage between Tee
Hoon Lim Po Chuan and Tan Put, neither of which certifications have been impugned by
respondent until now, it stands to reason that plaintiff's claim of marriage is really
unfounded. Withal, there is still another document, also mentioned and discussed in the
same memorandum and unimpugned by respondents, a written agreement executed in
Chinese, but purportedly translated into English by the Chinese Consul of Cebu, between Tan
Put and Tee Hoon Lim Po Chuan to the following effect:
CONSULATE OF THE REPUBLIC OF CHINA Cebu City, Philippines
TRANSLATION
 This is to certify that 1, Miss Tan Ki Eng Alias Tan Put, have lived with Mr.
Lim Po Chuan alias TeeHoon since 1949 but it recently occurs that we are
incompatible with each other and are not in the position to keep living
together permanently. With the mutual concurrence, we decided to
terminate the existing relationship of common law-marriage and promised
not to interfere each other's affairs from now on. The Forty Thousand Pesos
(P40,000.00) has been given to me by Mr. Lim Po Chuan for my subsistence.
Witnesses:
Mr. Lim Beng Guan Mr. Huang Sing Se
Signed on the 10 day of the 7th month of the 54th year of the Republic of
China (corresponding to the year 1965).
(SGD) TAN KI ENG
Verified from the records. JORGE TABAR (Pp. 283-284, Record.)
Indeed, not only does this document prove that plaintiff's relation to the deceased was that
of a common-law wife but that they had settled their property interests with the payment to
her of P40,000.
In the light of all these circumstances, We find no alternative but to hold that plaintiff Tan
Put's allegation that she is the widow of Tee Hoon Lim Po Chuan has not been satisfactorily
established and that, on the contrary, the evidence on record convincingly shows that her
relation with said deceased was that of a common-law wife and furthermore, that all her
claims against the company and its surviving partners as well as those against the estate of
the deceased have already been settled and paid. We take judicial notice of the fact that the
respective counsel who assisted the parties in the quitclaim, Attys. H. Hermosisima and
Natalio Castillo, are members in good standing of the Philippine Bar, with the particularity
that the latter has been a member of the Cabinet and of the House of Representatives of the
Philippines, hence, absent any credible proof that they had allowed themselves to be parties
to a fraudulent document His Honor did right in recognizing its existence, albeit erring in not
giving due legal significance to its contents.
2. If, as We have seen, plaintiff's evidence of her alleged status as legitimate wife of Po
Chuan is not only unconvincing but has been actually overcome by the more competent and
weighty evidence in favor of the defendants, her attempt to substantiate her main cause of
action that defendants Lim Tanhu and Ng Sua have defrauded the partnership Glory
Commercial Co. and converted its properties to themselves is even more dismal. From the
very evidence summarized by His Honor in the decision in question, it is clear that not an iota
of reliable proof exists of such alleged misdeeds.
Of course, the existence of the partnership has not been denied, it is actually admitted
impliedly in defendants' affirmative defense that Po Chuan's share had already been duly
settled with and paid to both the plaintiff and his legitimate family. But the evidence as to the
actual participation of the defendants Lim Tanhu and Ng Sua in the operation of the business
that could have enabled them to make the extractions of funds alleged by plaintiff is at best
confusing and at certain points manifestly inconsistent.
In her amended complaint, plaintiff repeatedly alleged that as widow of Po Chuan she is
entitled to /3 share of the assets and properties of the partnership. In fact, her prayer in
said complaint is, among others, for the delivery to her of such / 3 share. His Honor's
statement of the case as well as his findings and judgment are all to that same effect. But
what did she actually try to prove at the ex- parte hearing?
According to the decision, plaintiff had shown that she had money of her own when she
"married" Po Chuan and "that prior to and just after the marriage of the plaintiff to Po
Chuan, she was engaged in the drugstore business; that not long after her marriage, upon
the suggestion of Po Chuan, the plaintiff sold her drugstore for P125,000 which amount she
gave to her husband in the presence of Tanhu and was invested in the partnership Glory
Commercial Co. sometime in 1950; that after the investment of the above-stated amount in
the partnership, its business flourished and it embarked in the import business and also
engaged in the wholesale and retail trade of cement and GI sheets and under (sic) huge
profits." (pp. 25-26, Annex L, petition.)
To begin with, this theory of her having contributed of P125,000 to the capital of the
partnership by reason of which the business flourished and amassed all the millions referred
to in the decision has not been alleged in the complaint, and inasmuch as what was being
rendered was a judgment by default, such theory should not have been allowed to be the
subject of any evidence. But inasmuch as it was the clerk of court who received the
evidence, it is understandable that he failed to observe the rule. Then, on the other hand, if
it was her capital that made the partnership flourish, why would she claim to be entitled to
only to /3 of its assets and profits? Under her theory found proven by respondent court, she
was actually the owner of everything, particularly because His Honor also found "that
defendants Lim Tanhu and Ng Sua were partners in the name but they were employees of Po
Chuan that defendants Lim Tanhu and Ng Sua had no means of livelihood at the time of their
employment with the Glory Commercial Co. under the management of the late Po Chuan
except their salaries therefrom; ..." (p. 27, id.) Why then does she claim only /3 share? Is
this an indication of her generosity towards defendants or of a concocted cause of action
existing only in her confused imagination engendered by the death of her common-law
husband with whom she had settled her common-law claim for recompense of her services
as common law wife for less than what she must have known would go to his legitimate wife
and children?
Actually, as may be noted from the decision itself, the trial court was confused as to the
participation of defendants Lim Tanhu and Ng Sua in Glory Commercial Co. At one point,
they were deemed partners, at another point mere employees and then elsewhere as
partners-employees, a newly found concept, to be sure, in the law on partnership. And the
confusion is worse comfounded in the judgment which allows these "partners in name" and
"partners-employees" or employees who had no means of livelihood and who must not have
contributed any capital in the business, "as Po Chuan was practically the owner of the
partnership having the controlling interest", /3 each of the huge assets and profits of the
partnership. Incidentally, it may be observed at this juncture that the decision has made Po
Chuan play the inconsistent role of being "practically the owner" but at the same time getting
his capital from the P125,000 given to him by plaintiff and from which capital the business
allegedly "flourished."
Anent the allegation of plaintiff that the properties shown by her exhibits to be in the names
of defendants Lim Tanhu and Ng Sua were bought by them with partnership funds, His
Honor confirmed the same by finding and holding that "it is likewise clear that real properties
together with the improvements in the names of defendants Lim Tanhu and Ng Sua were
acquired with partnership funds as these defendants were only partners-employees of
deceased Po Chuan in the Glory Commercial Co. until the time of his death on March 11,
1966." (p. 30, id.) It Is Our considered view, however, that this conclusion of His Honor is
based on nothing but pure unwarranted conjecture. Nowhere is it shown in the decision how
said defendants could have extracted money from the partnership in the fraudulent and
illegal manner pretended by plaintiff. Neither in the testimony of Nuez nor in that of
plaintiff, as these are summarized in the decision, can there be found any single act of
extraction of partnership funds committed by any of said defendants. That the partnership
might have grown into a multi-million enterprise and that the properties described in the
exhibits enumerated in the decision are not in the names of Po Chuan, who was Chinese, but
of the defendants who are Filipinos, do not necessarily prove that Po Chuan had not gotten
his share of the profits of the business or that the properties in the names of the defendants
were bought with money of the partnership. In this connection, it is decisively important to
consider that on the basis of the concordant and mutually cumulative testimonies of plaintiff
and Nuez, respondent court found very explicitly that, and We reiterate:
xxx xxx xxx
That the late Po Chuan was the one who actively managed the business of
the partnership Glory Commercial Co. he was the one who made the final
decisions and approved the appointments of new Personnel who were taken
in by the partnership; that the late Po Chuan and defendants Lim Tanhu and
Ng Sua are brothers, the latter to (2) being the elder brothers of the former;
that defendants Lim Tanhu and Ng Sua are both naturalized Filipino citizens
whereas the late Po Chuan until the time of his death was a Chinese citizen;
that the three (3) brothers were partners in the Glory Commercial Co. but Po
Chuan was practically the owner of the partnership having the controlling
interest; that defendants Lim Tanhu and Ng Sua were partners in name but
they were mere employees of Po Chuan; .... (Pp. 90-91, Record.)
If Po Chuan was in control of the affairs and the running of the partnership, how could the
defendants have defrauded him of such huge amounts as plaintiff had made his Honor
believe? Upon the other hand, since Po Chuan was in control of the affairs of the partnership,
the more logical inference is that if defendants had obtained any portion of the funds of the
partnership for themselves, it must have been with the knowledge and consent of Po Chuan,
for which reason no accounting could be demanded from them therefor, considering that
Article 1807 of the Civil Code refers only to what is taken by a partner without the consent of
the other partner or partners. Incidentally again, this theory about Po Chuan having been
actively managing the partnership up to his death is a substantial deviation from the
allegation in the amended complaint to the effect that "defendants Antonio Lim Tanhu,
Alfonso Leonardo Ng Sua, Lim Teck Chuan and Eng Chong Leonardo, through fraud and
machination, took actual and active management of the partnership and although Tee Hoon
Lim Po Chuan was the manager of Glory Commercial Co., defendants managed to use the
funds of the partnership to purchase lands and buildings etc. (Par. 4, p. 2 of amended
complaint, Annex B of petition) and should not have been permitted to be proven by the
hearing officer, who naturally did not know any better.
Moreover, it is very significant that according to the very tax declarations and land titles
listed in the decision, most if not all of the properties supposed to have been acquired by the
defendants Lim Tanhu and Ng Sua with funds of the partnership appear to have been
transferred to their names only in 1969 or later, that is, long after the partnership had been
automatically dissolved as a result of the death of Po Chuan. Accordingly, defendants have
no obligation to account to anyone for such acquisitions in the absence of clear proof that
they had violated the trust of Po Chuan during the existence of the partnership. (See Hanlon
vs. Hansserman and. Beam, 40 Phil. 796.)
There are other particulars which should have caused His Honor to readily disbelieve
plaintiffs' pretensions. Nuez testified that "for about 18 years he was in charge of the GI
sheets and sometimes attended to the imported items of the business of Glory Commercial
Co." Counting 18 years back from 1965 or 1966 would take Us to 1947 or 1948. Since
according to Exhibit LL, the baptismal certificate produced by the same witness as his birth
certificate, shows he was born in March, 1942, how could he have started managing Glory
Commercial Co. in 1949 when he must have been barely six or seven years old? It should not
have escaped His Honor's attention that the photographs showing the premises of Philippine
Metal Industries after its organization "a year or two after the establishment of Cebu Can
Factory in 1957 or 1958" must have been taken after 1959. How could Nuez have been only
13 years old then as claimed by him to have been his age in those photographs when
according to his "birth certificate", he was born in 1942? His Honor should not have
overlooked that according to the same witness, defendant Ng Sua was living in Bantayan
until he was directed to return to Cebu after the fishing business thereat floundered, whereas
all that the witness knew about defendant Lim Teck Chuan's arrival from Hongkong and the
expenditure of partnership money for him were only told to him allegedly by Po Chuan, which
testimonies are veritably exculpatory as to Ng Sua and hearsay as to Lim Teck Chuan.
Neither should His Honor have failed to note that according to plaintiff herself, "Lim Tanhu
was employed by her husband although he did not go there always being a mere employee
of Glory Commercial Co." (p. 22, Annex the decision.)
The decision is rather emphatic in that Lim Tanhu and Ng Sua had no known income except
their salaries. Actually, it is not stated, however, from what evidence such conclusion was
derived in so far as Ng Sua is concerned. On the other hand, with respect to Lim Tanhu, the
decision itself states that according to Exhibit NN-Pre trial, in the supposed income tax return
of Lim Tanhu for 1964, he had an income of P4,800 as salary from Philippine Metal Industries
alone and had a total assess sable net income of P23,920.77 that year for which he paid a
tax of P4,656.00. (p. 14. Annex L, id.) And per Exhibit GG-Pretrial in the year, he had a net
income of P32,000 for which be paid a tax of P3,512.40. ( id.) As early as 1962, "his fishing
business in Madridejos Cebu was making money, and he reported "a net gain from operation
(in) the amount of P865.64" (id., per Exhibit VV-Pre-trial.) From what then did his Honor
gather the conclusion that all the properties registered in his name have come from funds
malversed from the partnership?
It is rather unusual that His Honor delved into financial statements and books of Glory
Commercial Co. without the aid of any accountant or without the same being explained by
any witness who had prepared them or who has knowledge of the entries therein. This must
be the reason why there are apparent inconsistencies and inaccuracies in the conclusions His
Honor made out of them. In Exhibit SS-Pre-trial, the reported total assets of the company
amounted to P2,328,460.27 as of December, 1965, and yet, Exhibit TT-Pre-trial, according to
His Honor, showed that the total value of goods available as of the same date was
P11,166,327.62. On the other hand, per Exhibit XX-Pre-trial, the supposed balance sheet of
the company for 1966, "the value of inventoried merchandise, both local and imported", as
found by His Honor, was P584,034.38. Again, as of December 31, 1966, the value of the
company's goods available for sale was P5,524,050.87, per Exhibit YY and YY-Pre-trial. Then,
per Exhibit II-3-Pre-trial, the supposed Book of Account, whatever that is, of the company
showed its "cash analysis" was P12,223,182.55. We do not hesitate to make the observation
that His Honor, unless he is a certified public accountant, was hardly qualified to read such
exhibits and draw any definite conclusions therefrom, without risk of erring and committing
an injustice. In any event, there is no comprehensible explanation in the decision of the
conclusion of His Honor that there were P12,223,182.55 cash money defendants have to
account for, particularly when it can be very clearly seen in Exhibits 11-4, 11-4- A, 11-5 and
11-6-Pre-trial, Glory Commercial Co. had accounts payable as of December 31, 1965 in the
amount of P4,801,321.17. (p. 15, id.) Under the circumstances, We are not prepared to
permit anyone to predicate any claim or right from respondent court's unaided exercise of
accounting knowledge.
Additionally, We note that the decision has not made any finding regarding the allegation in
the amended complaint that a corporation denominated Glory Commercial Co., Inc. was
organized after the death of Po Chuan with capital from the funds of the partnership. We
note also that there is absolutely no finding made as to how the defendants Dy Ochay and
Co Oyo could in any way be accountable to plaintiff, just because they happen to be the
wives of Lim Tanhu and Ng Sua, respectively. We further note that while His Honor has
ordered defendants to deliver or pay jointly and severally to the plaintiff P4,074,394.18 or
/3 of the P12,223,182.55, the supposed cash belonging to the partnership as of December
31, 1965, in the same breath, they have also been sentenced to partition and give /3share
of the properties enumerated in the dispositive portion of the decision, which seemingly are
the very properties allegedly purchased from the funds of the partnership which would
naturally include the P12,223,182.55 defendants have to account for. Besides, assuming
there has not yet been any liquidation of the partnership, contrary to the allegation of the
defendants, then Glory Commercial Co. would have the status of a partnership in liquidation
and the only right plaintiff could have would be to what might result after such liquidation to
belong to the deceased partner, and before this is finished, it is impossible to determine,
what rights or interests, if any, the deceased had (Bearneza vs. Dequilla 43 Phil. 237). In
other words, no specific amounts or properties may be adjudicated to the heir or legal
representative of the deceased partner without the liquidation being first terminated.
Indeed, only time and the fear that this decision would be much more extended than it is
already prevent us from further pointing out the inexplicable deficiencies and imperfections
of the decision in question. After all, what have been discussed should be more than
sufficient to support Our conclusion that not only must said decision be set aside but also
that the action of the plaintiff must be totally dismissed, and, were it not seemingly futile and
productive of other legal complications, that plaintiff is liable on defendants' counterclaims.
Resolution of the other issues raised by the parties albeit important and perhaps pivotal has
likewise become superfluous.
IN VIEW OF ALL THE FOREGOING, the petition is granted. All proceedings held in respondent
court in its Civil Case No. 12328 subsequent to the order of dismissal of October 21, 1974 are
hereby annulled and set aside, particularly the ex-parte proceedings against petitioners and
the decision on December 20, 1974. Respondent court is hereby ordered to enter an order
extending the effects of its order of dismissal of the action dated October 21, 1974 to herein
petitioners Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and Co Oyo. And
respondent court is hereby permanently enjoined from taking any further action in said civil
case gave and except as herein indicated. Costs against private respondent.
17. CRISTOBAL BONNEVIE, ET AL., plaintiffs-appellants, vs.JAIME
HERNANDEZ, defendant-appellee.
This is an action for the recovery of the sum of P115,312.50, with interests, as
plaintiffs' alleged share in the profits of a partnership.
It appears that prior to January, 1947, plaintiffs with other associates formed a syndicate or
secret partnership for the purpose of acquiring the plants, franchises and other properties of
the Manila Electric Co. hereinafter called the Meralco in the provinces of Camarines Sur,
Albay, and Sorsogon, with the idea of continuing that company's business in that region. No
formal articles were drawn for it was the purpose of the members to incorporate once the
deal had been consummated. But in the meantime they elected Pedro Serranzana and David
Serrano general manager and secretary-treasurer, respectively, of the partnership.
Negotiation for the purchase was commenced, but as it made no headway, defendant was
taken in as a member of the partnership so that he could push the deal through, and to that
end he was given the necessary power of attorney. Using partnership funds, defendant was
able to buy the Meralco properties for P122,000, paying P40,000 upon the signing of the
deed of sale and agreeing to pay the balance in two equal installments, that is, P41,000 on
or before July 31, 1947, and another P41,000 on or before January 31, 1948, with interest at
6 per cent per annum and with a penalty clause which reads:
(6) That in case the VENDEE fails to make the payment or payments of the balance
due or any part thereof as herein provided, this contract shall, at the option of the
VENDOR, be annuled and, in such an event, all payments made by the VENDEE to
the VENDOR by virtue of this contract shall be forfeited and retained by the VENDOR
in full satisfaction as the liquidated damages sustained by said VENDOR; and the said
VENDOR shall have the right to forthwith reenter and take possession of the
premises, properties and rights which are the subject-matter of this contract.
Although defendant was the one named vendee in the deed of sale, there is no question that
the transaction was in penalty made for the partnership so that the latter assumed control of
the business the day following the sale.
About the latter half of the following month the members of the partnership proceeded with
the formation of the proposed corporation, apportioning among themselves its shares of
stock in proportion to their respective contributions to the capital of the partnership and their
individual efforts in bringing about the acquisition of the Meralco properties. But before the
incorporation papers could be perfected, several partners, not satisfied with the way matters
were being run and fearful that the venture might prove a failure because the business was
not going well and there was a possibility of their being assessed more than their original
investments when the time came to meet the two installments of the unpaid purchase price
due the Meralco, expressed their desire to withdraw from the partnership and get back the
money they had invested therein. In accordance with this wish, one of them, Judge Jaime
Reyes, in a meeting held on April 10, 1947, to consider various matters connected with the
business, presented a resolution to the effect that those partners who did not want to remain
in the association should be allowed to withdraw and get back their contributions. The
resolution was approved, with the herein plaintiffs voting affirmatively, and on that same day
plaintiffs and Judge Reyes withdrew from the partnership, and, as admitted by both parties,
the partnership was then dissolved. In accordance with the terms of the resolution, the
withdrawing partners were, on the following day, reimbursed their respective contributions to
the partnership fund.
Following the dissolution of the partnership, the members who preferred to remain in the
business went ahead with the formation of the corporation, taking in new associates as
stockholders. And defendant, on his part, in fulfillment of his trust, made a formal
assignment of the Meralco properties to the treasurer of the corporation, giving them a book
value of P365,000, in return for which the corporation issued, to the various subscribers to its
capital stock, shares of stock of the total face value of P225,000 and assumed the obligation
of paying what was still due the Meralco on the purchase price. The new corporation was
named "Bicol Electric Company."
Though business was losing during the first year, that is, in 1947, the corporation, thanks to
a loan obtained from the RFC later prospered and made money. Then trouble began for one
of its big stockholders, the defendant herein.
Two years from their withdrawal from the partnership, when the corporate business was
already in a prosperous condition, plaintiffs brought the present suit against Jaime
Hernandez, claiming a share in the profit the latter is supposed to have made from the
assignment of the Meralco properties to the corporation, estimated by plaintiffs to be
P225,000 and their share of it to be P115,312.50.
Defendant's answer denies that he has made any profit out of the assignment in question
and alleges that in any event plaintiffs, after their withdrawal from the partnership, ceased to
have any further interest in the subsequent transactions of the remaining members.
After trial the lower court found that the partnership had not realized any profit out of the
assignment of the Meralco properties to the corporation and that, even supposing that profit
had really been made, defendant would not be the one to answer to plaintiffs for their share
thereof, because he did not receive the consideration for the assignment, which according to
the court, consisted of the subscriptions of various persons to the capital stock of the
corporation. The court therefore dismissed the complaint with costs against the plaintiffs.
From this decision plaintiffs appealed. The case comes within our jurisdiction because of the
amount involved.
We find no merit in the appeal.
In the first place, the profit alleged to have been realized from the assignment of the Meralco
properties to the new corporation, the Bicol Electric Company, is more apparent than real. It
is true that the value set for those properties in the deed of assignment was P365,000 when
the acquisition price was only P122,000. But one should not jump to the conclusion that a
profit, consisting of the difference between the two sums was really made out of the
transaction, for the assignment was not made for cash but in payment for subscriptions to
shares of stock in the assignee, and while those shares had a total face value of P225,000,
this is not necessarily their real worth. Needless to say, the real value of the shares of stock
of a corporation depends upon the value of its assets over and above its liabilities. It does
not appear that the Bicol Electric Company had any assets other than those acquired from
the Meralco, and according to the evidence the company, aside from owing the Meralco,
P82,000 was, in the language of the court below, actually "in the red."
In the second place, assuming that the assignment actually brought profit to the partnership,
it is hard to see how defendant could be made to answer for plaintiffs' alleged share thereof.
As stated in the decision below, defendant did not receive the consideration for the
assignment for, as already stated, the assignment was made in payment for subscriptions of
various persons to the capital stock of the new corporation. Plaintiffs, in order to give color of
legality to their claim against defendant, maintain that the latter should be held liable for
damages caused to them, consisting of the loss of their share of the profits, due to
defendant's failure properly to perform his duty as a liquidator of the dissolved partnership,
this on the theory that as managing partner of the partnership, it was defendant's duty to
liquidate its affairs upon its dissolutions. But it does not appear that plaintiffs have ever
asked for a liquidation, and as will presently be explained no liquidation was called for
because when plaintiffs withdrew from the partnership the understanding was that after they
had been reimbursed their investment, they were no longer to have any further interest in
the partnership or its assets and liabilities. Moreover, the stipulation of facts made at the
hearing does not bear out the claim that defendant was the managing partner of the
partnership, for if there appears that the partnership had its general manager in the person
of Pedro Serranzana, who upon the formation of the new corporation also became its vice-
president and general manager.
As a general rule, when a partner retires from the firm, he is entitled to the payment of what
may be due him after a liquidation. But certainly no liquidation is necessary where there is
already a settlement or an agreement as to what the retiring partner shall receive. In the
instant case, it appears that a settlement was agreed upon on the very day the partnership
was dissolved. For when plaintiffs and Judge Jaime Reyes withdrew from the partnership on
that day they did so as agreed to by all the partners, subject to the only condition that they
were to be repaid their contributions or investments within three days from said date. And
this condition was fulfilled when on the following day they were reimbursed the respective
amounts due them pursuant to the agreement.
There is evidence that the partnership was at that time operating its business at a loss and
that the partnership did not have necessary funds to meet its obligation to Meralco for the
balance of the purchase price. And in that connection it should be recalled that nonpayment
of that obligation would result in the partnership losing its entire investment because of the
penalty clause in the deed of sale. Because of these circumstances there is every reason to
believe that plaintiffs together with Judge Jaime Reyes, withdrew from the partnership for
fear that they might lose their entire investment should they choose to remain in the
partnership which then faced the danger of losing its entire assets. As testified to by Judge
Reyes, one of the withdrawing partners, it was clearly understood that upon their withdrawal
and return to them of their investment they would have nothing more to do with the
association. It must, therefore, have been the intention or understanding of the parties that
the withdrawing partners were relinquishing all their rights and interest in the partnership
upon the return to them of their investment. That Judge Reyes did not join the plaintiffs in
this action is a clear indication that such was really the understanding. Judge Reyes has
testified that when he was invited to join in the present claim he refused because he did not
want to be a "sin verguenza." And, indeed, if the agreement was that the withdrawing
partners were still to have participation in the subsequent transactions of the partnership so
that they would have a share not only in the profits but also in the losses, it is not likely that
their investment would have been returned to them.
It is, therefore, our conclusion that the acceptance by the withdrawing partners, including
the plaintiffs, of their investment in the instant case was understood and intended by all the
parties as a final settlement of whatever rights or claim the withdrawing partners might have
in the dissolved partnership. Such being the case they are now precluded from claiming any
share in the alleged profits, should there be any, at the time of the dissolution.
In view of the foregoing, we find plaintiffs' claim against defendant to be without legal basis
so that the judgment of dismissal rendered by the court below should be, as it is hereby,
affirmed, with costs against the appellants.
18. GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T.
BACORRO, petitioners, vs.HON. COURT OF APPEALS, SECURITIES AND EXCHANGE
COMMISSION and JOAQUIN L. MISA, respondents.
The instant petition seeks a review of the decision rendered by the Court of Appeals, dated
26 February 1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in toto that of the
Securities and Exchange Commission ("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by respondent Commission and quoted at
length by the appellate court in its decision, are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in
the Mercantile Registry on 4 January 1937 and reconstituted with the Securities and
Exchange Commission on 4 August 1948. The SEC records show that there were
several subsequent amendments to the articles of partnership on 18 September
1958, to change the firm [name] to ROSS, SELPH and CARRASCOSO; on 6 July 1965
. . . to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA; on 18 April 1972 to
SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO,
DEL ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to DEL ROSARIO, BITO,
MISA & LOZADA; on 7 June 1977 to BITO, MISA & LOZADA; on 19 December 1980,
[Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada associated
themselves together, as senior partners with respondents-appellees Gregorio F.
Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.
On February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter
stating:
I am withdrawing and retiring from the firm of Bito, Misa and
Lozada, effective at the end of this month.
"I trust that the accountants will be instructed to make the proper
liquidation of my participation in the firm."
On the same day, petitioner-appellant wrote respondents-appellees another letter
stating:
"Further to my letter to you today, I would like to have a meeting
with all of you with regard to the mechanics of liquidation, and more
particularly, my interest in the two floors of this building. I would like
to have this resolved soon because it has to do with my own plans."
On 19 February 1988, petitioner-appellant wrote respondents-appellees another
letter stating:
"The partnership has ceased to be mutually satisfactory because of
the working conditions of our employees including the assistant
attorneys. All my efforts to ameliorate the below subsistence level of
the pay scale of our employees have been thwarted by the other
partners. Not only have they refused to give meaningful increases to
the employees, even attorneys, are dressed down publicly in a loud
voice in a manner that deprived them of their self-respect. The result
of such policies is the formation of the union, including the assistant
attorneys."
On 30 June 1988, petitioner filed with this Commission's Securities Investigation and
Clearing Department (SICD) a petition for dissolution and liquidation of partnership,
docketed as SEC Case No. 3384 praying that the Commission:
"1. Decree the formal dissolution and order the immediate liquidation
of (the partnership of) Bito, Misa & Lozada;
"2. Order the respondents to deliver or pay for petitioner's share in
the partnership assets plus the profits, rent or interest attributable to
the use of his right in the assets of the dissolved partnership;
"3. Enjoin respondents from using the firm name of Bito, Misa &
Lozada in any of their correspondence, checks and pleadings and to
pay petitioners damages for the use thereof despite the dissolution
of the partnership in the amount of at least P50,000.00;
"4. Order respondents jointly and severally to pay petitioner
attorney's fees and expense of litigation in such amounts as maybe
proven during the trial and which the Commission may deem just
and equitable under the premises but in no case less than ten (10%)
per cent of the value of the shares of petitioner or P100,000.00;
"5. Order the respondents to pay petitioner moral damages with the
amount of P500,000.00 and exemplary damages in the amount of
P200,000.00.
"Petitioner likewise prayed for such other and further reliefs that the
Commission may deem just and equitable under the premises."
On 13 July 1988, respondents-appellees filed their opposition to the petition.
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did
not dissolve the said law partnership. Accordingly, the petitioner and
respondents are hereby enjoined to abide by the provisions of the
Agreement relative to the matter governing the liquidation of the
shares of any retiring or withdrawing partner in the partnership
interest."1
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the
withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa &
Lozada." The Commission ruled that, being a partnership at will, the law firm could be
dissolved by any partner at anytime, such as by his withdrawal therefrom, regardless of good
faith or bad faith, since no partner can be forced to continue in the partnership against his
will. In its decision, dated 17 January 1990, the SEC held:
WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby
REVERSED insofar as it concludes that the partnership of Bito, Misa & Lozada has not
been dissolved. The case is hereby REMANDED to the Hearing Officer for
determination of the respective rights and obligations of the parties.2
The parties sought a reconsideration of the above decision. Attorney Misa, in addition, asked
for an appointment of a receiver to take over the assets of the dissolved partnership and to
take charge of the winding up of its affairs. On 4 April 1991, respondent SEC issued an order
denying reconsideration, as well as rejecting the petition for receivership, and reiterating the
remand of the case to the Hearing Officer.
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No. 24638
and CA-G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney
Mariano Lozada both died on, respectively, 05 September 1991 and 21 December 1991. The
death of the two partners, as well as the admission of new partners, in the law firm
prompted Attorney Misa to renew his application for receivership (in CA G.R. SP No. 24648).
He expressed concern over the need to preserve and care for the partnership assets. The
other partners opposed the prayer.
The Court of Appeals, finding no reversible error on the part of respondent Commission,
AFFIRMED in toto the SEC decision and order appealed from. In fine, the appellate court
held, per its decision of 26 February 1993, (a) that Atty. Misa's withdrawal from the
partnership had changed the relation of the parties and inevitably caused the dissolution of
the partnership; (b) that such withdrawal was not in bad faith; (c) that the liquidation should
be to the extent of Attorney Misa's interest or participation in the partnership which could be
computed and paid in the manner stipulated in the partnership agreement; (d) that the case
should be remanded to the SEC Hearing Officer for the corresponding determination of the
value of Attorney Misa's share in the partnership assets; and (e) that the appointment of a
receiver was unnecessary as no sufficient proof had been shown to indicate that the
partnership assets were in any such danger of being lost, removed or materially impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners confine themselves
to the following issues:
1. Whether or not the Court of Appeals has erred in holding that the partnership of
Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at will;
2. Whether or not the Court of Appeals has erred in holding that the withdrawal of
private respondent dissolved the partnership regardless of his good or bad faith; and
3. Whether or not the Court of Appeals has erred in holding that private respondent's
demand for the dissolution of the partnership so that he can get a physical partition
of partnership was not made in bad faith;
to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa
& Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a partnership need
not be unduly belabored. We quote, with approval, like did the appellate court, the findings
and disquisition of respondent SEC on this matter; viz:
The partnership agreement (amended articles of 19 August 1948) does not provide
for a specified period or undertaking. The "DURATION" clause simply states:
"5. DURATION. The partnership shall continue so long as mutually
satisfactory and upon the death or legal incapacity of one of the
partners, shall be continued by the surviving partners."
The hearing officer however opined that the partnership is one for a specific
undertaking and hence not a partnership at will, citing paragraph 2 of the Amended
Articles of Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is formed, is to
act as legal adviser and representative of any individual, firm and
corporation engaged in commercial, industrial or other lawful
businesses and occupations; to counsel and advise such persons and
entities with respect to their legal and other affairs; and to appear
for and represent their principals and client in all courts of justice
and government departments and offices in the Philippines, and
elsewhere when legally authorized to do so."
The "purpose" of the partnership is not the specific undertaking referred to in the
law. Otherwise, all partnerships, which necessarily must have a purpose, would all be
considered as partnerships for a definite undertaking. There would therefore be no
need to provide for articles on partnership at will as none would so exist. Apparently
what the law contemplates, is a specific undertaking or "project" which has a definite
or definable period of completion.3
The birth and life of a partnership at will is predicated on the mutual desire and consent of
the partners. The right to choose with whom a person wishes to associate himself is the very
foundation and essence of that partnership. Its continued existence is, in turn, dependent on
the constancy of that mutual resolve, along with each partner's capability to give it, and the
absence of a cause for dissolution provided by the law itself. Verily, any one of the partners
may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, however,
act in good faith, not that the attendance of bad faith can prevent the dissolution of the
partnership4 but that it can result in a liability for damages.5
In passing, neither would the presence of a period for its specific duration or the statement
of a particular purpose for its creation prevent the dissolution of any partnership by an act or
will of a partner.6 Among partners,7 mutual agency arises and the doctrine of delectus
personae allows them to have the power, although not necessarily theright, to dissolve the
partnership. An unjustified dissolution by the partner can subject him to a possible action for
damages.
The dissolution of a partnership is the change in the relation of the parties caused by any
partner ceasing to be associated in the carrying on, as might be distinguished from the
winding up of, the business.8 Upon its dissolution, the partnership continues and its legal
personality is retained until the complete winding up of its business culminating in its
termination.9
The liquidation of the assets of the partnership following its dissolution is governed by
various provisions of the Civil Code; 10 however, an agreement of the partners, like any other
contract, is binding among them and normally takes precedence to the extent applicable over
the Code's general provisions. We here take note of paragraph 8 of the "Amendment to
Articles of Partnership" reading thusly:
. . . In the event of the death or retirement of any partner, his interest in the
partnership shall be liquidated and paid in accordance with the existing agreements
and his partnership participation shall revert to the Senior Partners for allocation as
the Senior Partners may determine; provided, however, that with respect to the two
(2) floors of office condominium which the partnership is now acquiring, consisting of
the 5th and the 6th floors of the Alpap Building, 140 Alfaro Street, Salcedo Village,
Makati, Metro Manila, their true value at the time of such death or retirement shall
be determined by two (2) independent appraisers, one to be appointed (by the
partnership and the other by the) retiring partner or the heirs of a deceased partner,
as the case may be. In the event of any disagreement between the said appraisers a
third appraiser will be appointed by them whose decision shall be final. The share of
the retiring or deceased partner in the aforementioned two (2) floor office
condominium shall be determined upon the basis of the valuation above mentioned
which shall be paid monthly within the first ten (10) days of every month in
installments of not less than P20,000.00 for the Senior Partners, P10,000.00 in the
case of two (2) existing Junior Partners and P5,000.00 in the case of the new Junior
Partner. 11
The term "retirement" must have been used in the articles, as we so hold, in a generic sense
to mean the dissociation by a partner, inclusive of resignation or withdrawal, from the
partnership that thereby dissolves it.
On the third and final issue, we accord due respect to the appellate court and respondent
Commission on their common factual finding, i.e., that Attorney Misa did not act in bad faith.
Public respondents viewed his withdrawal to have been spurred by "interpersonal conflict"
among the partners. It would not be right, we agree, to let any of the partners remain in the
partnership under such an atmosphere of animosity; certainly, not against their
will. 12 Indeed, for as long as the reason for withdrawal of a partner is not contrary to the
dictates of justice and fairness, nor for the purpose of unduly visiting harm and damage upon
the partnership, bad faith cannot be said to characterize the act. Bad faith, in the context
here used, is no different from its normal concept of a conscious and intentional design to do
a wrongful act for a dishonest purpose or moral obliquity.
WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.
SO ORDERED.
19. IRMA IDOS, petitioner, vs.COURT OF APPEALS and PEOPLE OF THE
PHILIPPINES, respondents.
Before this Court is the petition for review of the Decision of respondent Court of
Appeals 1 dismissing petitioner's appeal in CA-G.R. CR No. 11960; and affirming her
conviction as well as the sentence imposed on her by the Regional Trial Court of Malolos,
Bulacan, in Criminal Case No. 1395-M-88 2 as follows:
WHEREFORE . . . the (c)ourt finds the accused Irma Idos guilty beyond
reasonable doubt and is hereby sentenced to suffer the penalty of
imprisonment of six (6) months and to pay a fine of P135,000.00 and to pay
private complainant Eddie Alarilla the amount of the check in question of
P135,000.00 at 12% interest from the time of the filing of the (i)nformation
(August 10, 1988) until said amount has been fully paid.
Elevated from the Third Division3 of this Court, the case was accepted for resolution en
banc on the initial impression that here, a constitutional question might be involved. 4 It was
opined that petitioner's sentence, particularly six months' imprisonment, might be in violation
of the constitutional guarantee against imprisonment for non-payment of a debt.5
A careful consideration of the issues presented in the petition as well as the comments
thereon and the findings of fact by the courts below in the light of applicable laws and
precedents convinces us, however, that the constitutional dimension need not be reached in
order to resolve those issues adequately. For, as herein discussed, the merits of the petition
could be determined without delving into aspects of the cited constitutional guarantee vis-a-
visprovisions of the Bouncing Checks Law (Batas Pambansa Blg. 22). There being no
necessity therefor, we lay aside discussions of the constitutional challenge to said law in
deciding this petition.
The petitioner herein, Irma L. Idos, is a businesswoman engaged in leather tanning. Her
accuser for violation of B.P. 22 is her erstwhile supplier and business partner, the
complainant below, Eddie Alarilla.
As narrated by the Court of Appeals, the background of this case is as follows:
The complainant Eddie Alarilla supplied chemicals and rawhide to the
accused-appellant Irma L. Idos for use in the latter's business of
manufacturing leather. In 1985, he joined the accused-appellant's business
and formed with her a partnership under the style "Tagumpay
Manufacturing," with offices in Bulacan and Cebu City.
However, the partnership was short lived. In January, 1986 the parties
agreed to terminate their partnership. Upon liquidation of the business the
partnership had as of May 1986 receivables and stocks worth P1,800,000.00.
The complainant's share of the assets was P900,000.00 to pay for which the
accused-appellant issued the following postdated checks, all drawn against
Metrobank Branch in Mandaue, Cebu:
CHECK NO. DATE AMOUNT
1) 103110295 8-15-86 P135,828.87
2) 103110294 P135,828.87
3) 103115490 9-30-86 P135,828.87
4) 103115491 10-30-86 P126,656.01
The complainant was able to encash the first, second, and fourth checks, but
the third check (Exh. A) which is the subject of this case, was dishonored on
October 14, 1986 for insufficiency of funds. The complainant demanded
payment from the accused-appellant but the latter failed to pay. Accordingly,
on December 18, 1986, through counsel, he made a formal demand for
payment. (Exh. B) In a letter dated January 2, 1987, the accused-appellant
denied liability. She claimed that the check had been given upon demand of
complainant in May 1986 only as "assurance" of his share in the assets of
the partnership and that it was not supposed to be deposited until the stocks
had been sold.
Complainant then filed his complaint in the Office of the Provincial Fiscal of
Bulacan which on August 22, 1988 filed an information for violation of BP
Blg. 22 against accused-appellant.
Complainant danied that the checks issued to him by accused-appellant were
subject to the disposition of the stocks and the collection of receivables of
the business. But the accused-appellant insisted that the complainant had
known that the checks were to be funded from the proceeds of the sale of
the stocks and the collection of receivables. She claimed that the
complainant himself asked for the checks because he did not want to
continue in the tannery business and had no use for a share of the stocks.
(TSN, p. 7, April 14, 1991; id., pp. 8-9, Nov. 13, 1989; id., pp. 12, 16, 20,
Feb. 14, 1990; id, p. 14, June 4, 1990).
On February 15, 1992, the trial court rendered judgment finding the
accused-appellant guilty of the crime charged. The accused-appellant's
motion for annulment of the decision and for reconsideration was denied by
the trial court in its order dated April 12, 1991.6
Herein respondent court thereafter affirmed on appeal the decision of the trial court.
Petitioner timely moved for a reconsideration, but this was subsequently denied by
respondent court in its Resolution7 dated June 11, 1993. Petitioner has now appealed to us
by way of a petition for certiorari under Rule 45 of the Rules of Court.
During the pendency of this petition, this Court by a resolutions8 dated August 30, 1993, took
note of the compromise agreement executed between the parties, regarding the civil aspect
of the case, as manifested by petitioner in a Motion to Render Judgment based on
Compromise Agreement9 filed on August 5, 1993. After submission of the Comment 10 by the
Solicitor General, and the Reply11 by petitioner, this case was deemed submitted for decision.
Contending that the Court of Appeals erred in its affirmance of the trial court's decision,
petitioner cites the following reasons to justify the review of her case:
1. The Honorable Court of Appeals has decided against the
innocence of the accused based on mere probabilities which,
on the contrary, should have warranted her acquittal on
reasonable doubt. Even then, the conclusion of the trial
court is contrary to the evidence on record, including private
complainant's judicial admission that there was no
consideration for the check.
2 The Honorable Court of Appeals has confused and merged
into one the legal concepts of dissolution, liquidation and
termination of a partnership and on the basis of such
misconception of the law, disregarded the fact of absence of
consideration of the check and convicted the accused.
3 While this appeal was pending, the parties submitted for
the approval of the Honorable Court a compromise
agreement on the civil liability. The accused humbly submits
that this supervening event, which by its terms puts to rest
any doubt the Court of Appeals had entertained against the
 defense of lack of consideration, should have a legal effect
favorable to the accused, considering that the dishonored
check constitutes a private transaction between partners
which does not involve the public interest, and considering
further that the offense is not one involving moral turpitude.
4 The Honorable Court of Appeals failed to appreciate the
fact that the accused had warned private complainant that
the check was not sufficiently funded, which should have
exonerated the accused pursuant to the ruling in the recent
case of Magno vs. Court of Appeals, 210 SCRA 471, which
calls for a more flexible and less rigid application of the
Bouncing Checks law.12
For a thorough consideration of the merits of petitioner's appeal, we find pertinent and
decisive the following issues:
1. Whether respondent court erred in holding that the subject check was issued by petitioner
to apply on account or for value, that is, as part of the consideration of a "buy-out" of said
complainant's interest in the partnership, and not merely as a commitment on petitioner's
part to return the investment share of complainant, along with any profit pertaining to said
share, in the partnership.
2. Whether the respondent court erred in concluding that petitioner issued the subject check
knowing at the time of issue that she did not have sufficient funds in or credit with the
drawee bank and without communicating this fact of insufficiency of funds to the
complainant.
Both inquiries boil down into one ultimate issue: Did the respondent court err in affirming the
trial court's judgment that she violated Batas Pambansa Blg. 22?
Considering that penal statutes are strictly construed against the state and liberally in favor
of the accused, it bears stressing that for an act to be punishable under the B.P. 22, it "must
come clearly within both the spirit and the letter of the statue. 13 Otherwise, the act has to
be declared outside the law's ambit and a plea of innocence by the accused must be
sustained.
The relevant provisions of B.P. 22 state that:
Sec. 1. Checks without sufficient funds. Any person who makes or draws
and issues any check to apply on account or for value, knowing at the time
of issue that he does not have sufficient funds in or credit with the drawee
bank for the payment of such check in full upon its presentment , which
check is subsequently dishonored by the drawee bank for insufficiency of
funds or credit or would have been dishonored for the same reason had not
the drawer, without any valid reason, ordered the bank to stop payment,
shall be punished by imprisonment of not less than thirty days but not more
than one (1) year or by a fine of not less than but not more than double the
amount of the check which fine shall in no case exceed Two hundred
thousand pesos, or both such fine and imprisonment at the discretion of the
court.
The same penalty shall be imposed upon any person who having sufficient
funds in or credit with the drawee bank when he makes or draws and issues
a check, shall fail to keep sufficient funds or to maintain a credit or to cover
the full amount of the check if presented within a period of ninety (90) days
from the date appearing thereon, for which reason it is dishonored by the
drawee bank.
Where the check is drawn by a corporation, company or entity, the person or
persons who actually signed the check in behalf of such drawer shall be
liable under this Act.
Sec. 2. Evidence of knowledge of insufficient funds. The making, drawing
and issuance of a check payment of which is refused by the drawee because
of insufficient funds in or credit with such bank, when presented within
ninety (90) days from the date of the check, shall be prima facie evidence of
knowledge of such insufficiency of funds or credit unless such maker or
drawer pays the holder thereof the amount due thereon or makes
arrangements for payment in full by the drawee of such check within five (5)
banking days after receiving notice that such check has not been paid by the
drawee. (Emphasis supplied)
As decided by this Court, the elements of the offense penalized under B.P. 22, are as follows:
"(1) the making, drawing and issuance of any check to apply to account or for value; (2) the
knowledge of the maker, drawer or issuer that at the time of issue he does not have
sufficient funds in or credit with the drawee bank for the payment of such check in full upon
its presentment; and (3) subsequent dishonor of the check by the drawee bank for
insufficiency of funds or credit or dishonor for the same reason had not the drawer, without
any valid cause, ordered the bank to stop payment. 14
In the present case, with regard to the first issue, evidence on record would show that the
subject check was to be funded from receivables to be collected and goods to be sold by the
partnership, and only when such collection and sale were realized. 15 Thus, there is sufficient
basis for the assertion that the petitioner issued the subject check (Metrobank Check No.
103115490 dated October 30, 1986, in the amount of P135,828.87) to evidence only
complainant's share or interest in the partnership, or at best, to show her commitment that
when receivables are collected and goods are sold, she would give to private complainant the
net amount due him representing his interest in the partnership. It did not involve a debt of
or any account due and payable by the petitioner.
Two facts stand out. Firstly, three of four checks were properly encashed by complainant;
only one (the third) was not. But eventually even this one was redeemed by petitioner.
Secondly, even private complainant admitted that there was no consideration whatsoever for
the issuance of the check, whose funding was dependent on future sales of goods and
receipts of payment of account receivables.
Now, it could not be denied that though the parties petitioner and complainant had
agreed to dissolve the partnership, such ageement did not automatically put an end to the
partnership, since they still had to sell the goods on hand and collect the receivables from
debtors. In short, they were still in the process of "winding up" the affairs of the partnership,
when the check in question was issued.
Under the Civil Code, the three final stages of a partnership are (1) dissolution; (2) winding-
up; and (3) termination. These stages are distinguished, to wit:
(1) Dissolution Defined
Dissolution is the change in the relation of
the partners caused by any partner ceasing
to be associated in the carrying on of the
business (Art. 1828). It is that point of time
the time the partners cease to carry on the
business tonether. (Citation omitted).
(2) Winding Up Defined
Winding up is the process of settling
business affairs of dissolution.
(NOTE: Examples of winding up: the paying
of previous obligations; the collecting of
assets previously demandable; even new
business if needed to wind up, as the
contracting with a demolition company for
the demolition of the garage used in a "used
car" partnership.)
(3) Termination Defined
Termination is the point in time after all the partnership affairs have been wound
up. 16 [Citation omitted] (Emphasis supplied).
These final stages in the life of a partnership are recognized under the Civil Code that
explicitly declares that upon dissolution, the partnership is not terminated, to wit:
Art 1828. The dissolution of a partnership is the change in the relation of the
partners caused by any partner ceasing to be associated in the carrying on
as distinguished from the winding up of the business.
Art. 1829. On dissolution the partnership is not terminated, but continues
until the winding up of partnership affairs is completed. (Emphasis supplied.)
The best evidence of the existence of the partnership, which was not yet terminated (though
in the winding up stage), were the unsold goods and uncollected receivables, which were
presented to the trial court. Since the partnership has not been terminated, the petitioner
and private complainant remained as co-partners. The check was thus issued by the
petitioner to complainant, as would a partner to another, and not as payment from a debtor
to a creditor.
The more tenable view, one in favor of the accused, is that the check was issued merely to
evidence the complainant's share in the partnership property, or to assure the latter that he
would receive in time his due share therein. The alternative view that the check was in
consideration of a "buy out" is but a theory, favorable to the complainant, but lacking
support in the record; and must necessarily be discarded.
For there is nothing on record which even slightly suggest that petitioner ever became
interested in acquiring, much less keeping, the shares of the complainant. What is very clear
therefrom is that the petitioner exerted her best efforts to sell the remaining goods and to
collect the receivables of the partnership, in order to come up with the amount necessary to
satisfy the value of complainant's interest in the partnership at the dissolution thereof. To go
by accepted custom of the trade, we are more inclined to the view that the subject check
was issued merely to evidence complainant's interest in the partnership. Thus, we are
persuaded that the check was not intended to apply on account or for value; rather it should
be deemed as having been drawn without consideration at the time of issue.
Absent the first element of the offense penalized under B.P. 22, which is "the making,
drawing and issuance of any check to apply on account or for value", petitioner's issuance of
the subject check was not an act contemplated in nor made punishable by said statute.
As to the second issue, the Solicitor General contends that under the Bouncing Checks Law,
the elements of deceit and damage are not essential or required to constitute a violation
thereof. In his view, the only essential element is the knowledge on the part of the maker or
drawer of the check of the insufficiency of his/her funds at the time of the issuance of said
check.
The Bouncing Checks Law makes the mere act of issuing a bad or worthless check a special
offense punishable by law. "Malice or intent in issuing the worthless check is immaterial, the
offense being malum
prohibitum," 17 so goes the argument for the public respondents.
But of course this could not be an absolute proposition without descending to absurdity. For
if a check were issued by a kidnap victim to a kidnapper for ransom, it would be absurd to
hold the drawer liable under B.P. 22, if the check is dishonored and unpaid. That would go
against public policy and common sense.
Public respondents further contend that "since petitioner issued the check in favor of
complainant. Alarilla and when notified that it was returned for insufficiency of funds, failed
to make good the check, then petitioner is liable for violation of B.P. 22. 18 Again, this matter
could not be all that simple. For while "the maker's knowledge of the insufficiency of funds is
legally presumed from the dishonor of his checks for insufficiency of funds, 19 this
presumption is rebuttable.
In the instant case, there is only a prima facie presumption which did not preclude the
presentation of contrary evidence.20 In fact, such contrary evidence on two points could be
gleaned from the record concerning (1) lack of actual knowledge of insufficiency of funds;
and (2) lack of adequate notice of dishonor.
Noteworthy for the defense, knowledge of insufficiency of funds or credit in the drawee bank
for the payment of a check upon its presentment is an essential element of the offense. 21 It
must be proved, particularly where the prima facie presumption of the existence of this
element has been rebutted. The prima facie presumption arising from the fact of drawing,
issuing or making a check, the payment of which was subsequently refused for insufficiency
of funds is, moreover, not sufficient proof of guilt by the issuer.
In the case of Nieva v. Court of Appeals,22 it was held that the subsequent dishonor of the
subject check issued by accused merely engendered the prima facie presumption that she
knew of the insufficiency of funds, but did not render the accused automatically guilty under
B.P. 22.23
The prosecution has a duty to prove all the elements of the crime, including
the acts that give rise to the prima facie presumption; petitioner, on the
other hand, has a right to rebut the prima faciepresumption. Therefore, if
such knowledge of insufficiency of funds is proven to be actually absent or
non-existent, the accused should not be held liable for the offense defined
under the first paragraph of Section 1 of B.P. 22. Although the offense
charged is a malum prohibitum, the prosecution is not thereby excused from
its responsibility of proving beyond reasonable doubt all the elements of the
offense, one of which is knowledge of the insufficiency of funds.
Sec. 1 of B.P. 22 specifically requires that the person in making, drawing or issuing the
check, be shown that he knows at the time of issue, that he does not have sufficient funds in
or credit with the drawee bank for the payment of such check in full upon its presentment.
In the case at bar, as earlier discussed, petitioner issued the check merely to evidence the
proportionate share of complainant in the partnership assets upon its dissolution. Payment of
that share in the partnership was conditioned on the subsequent realization of profits from
the unsold goods and collection of the receivables of the firm. This condition must be
satisfied or complied with before the complainant can actually "encash" the check. The
reason for the condition is that petitioner has no independent means to satisfy or discharge
the complainant's share, other than by the future sale and collection of the partnership
assets. Thus, prior to the selling of the goods and collecting of the receivables, the
complainant could not, as of yet, demand his proportionate share in the business. This
situation would hold true until after the winding up, and subsequent termination of the
partnership. For only then, when the goods were already sold and receivables paid that cash
money could be availed of by the erstwhile partners.
Complainant did not present any evidence that petitioner signed and issued four checks
actually knowing that funds therefor would be insufficient at the time complainant would
present them to the drawee bank. For it was uncertain at the time of issuance of the checks
whether the unsold goods would have been sold, or whether the receivables would have
been collected by the time the checks would be encashed. As it turned out, three were fully
funded when presented to the bank; the remaining one was settled only later on.
Since petitioner issued these four checks without actual knowledge of the insufficiency of
funds, she could not be held liable under B.P. 22 when one was not honored right away. For
it is basic doctrine that penal statutes such as B.P. 22 "must be construed with such
strictness as to carefully safeguard the rights of the defendant . . ."24 The element of
knowledge of insufficiency of funds has to be proved by the prosecution; absent said proof,
petitioner could not be held criminally liable under that law. Moreover, the presumption
of prima facie knowledge of such insufficiency in this case was actually rebutted by
petitioner's evidence.
Further, we find that the prosecution also failed to prove adequate notice of dishonor of the
subject check on petitioner's part, thus precluding any finding of prima facie evidence of
knowledge of insufficiency of funds. There is no proof that notice of dishonor was actually
sent by the complainant or by the drawee bank to the petitioner. On this point, the record is
bereft of evidence to the contrary.
But in fact, while the subject check initially bounced, it was later made good by petitioner. In
addition, the terms of the parties' compromise agreement, entered into during the pendency
of this case, effectively invalidates the allegation of failure to pay or to make arrangement for
the payment of the check in full. Verily, said compromise agreement constitutes an
arrangement for the payment in full of the subject check.
The absence of notice of dishonor is crucial in the present case. As held by this Court in prior
cases:
Because no notice of dishonor was actually sent to and received by the
petitioner, the prima faciepresumption that she knew about the insufficiency
of funds cannot apply. Section 2 of B.P. 22 clearly provides that this
presumption arises not from the mere fact of drawing, making and issuing a
bum check; there must also be a showing that, within five banking days from
receipt of the notice of dishonor, such maker or drawer failed to pay the
holder of the check the amount due thereon or to make arrangement for its
payment in full by the drawee of such check. 25 [Emphasis supplied.]
The absence of a notice of dishonor necessarily deprives an accused an
opportunity to preclude a criminal prosecution. Accordingly, procedural due
process clearly enjoins that a notice of dishonor be actually served on
petitioner. Petitioner has a right to demand and the basic postulates of
fairness require that the notice of dishonor be actually sent to and
received by her to afford her the opportunity to avert prosecution under
B.P. 26
Further, what militates strongly against public respondents' stand is the fact that petitioner
repeatedly notified the complainant of the insufficiency of funds. Instructive is the following
pronouncement of this Court in Magno v. Court of Appeals:
Furthermore, the element of "knowing at the time of issue that he does not
have sufficient funds in or credit with the drawee bank for the payment of
such check in full upon its presentment, which check is subsequently
dishonored by the drawee bank for insufficiency of funds or credit or would
have been dishonored for the same reason . . ." is inversely applied in this
case. From the very beginning. petitioner never hid the fact that he did not
have the funds with which to put up the warranty deposit and as a matter of
fact, he openly intimated this to the vital conduit of the transaction, Joey
Gomez, to whom petitioner was introduced by Mrs. Teng. It would have
been different if this predicament was not communicated to all the parties he
dealt with regarding the lease agreement the financing or which was covered
by L.S. Finance Management. " 27
In the instant case, petitioner intimated to private complainant the possibility that funds
might be insufficient to cover the subject check, due to the fact that the partnership's goods
were yet to be sold and receivables yet to be collected.
As Magno had well observed:
For all intents and purposes, the law was devised to safeguard the interest of
the banking system and the legitimate public checking account user. It did
not intend to shelter or favor nor encourage users of the system to enrich
themselves through manipulations and circumvention of the noble purpose
and objective of the law. Least should it be used also as a means of
jeopardizing honest-to-goodness transactions with some color of "get-rich"
scheme to the prejudice of well-meaning businessmen who are the pillars of
society.
xxx xxx xxx
Thus, it behooves upon a court of law that in applying the punishment
imposed upon the accused, the objective of retribution of a wronged society,
should be directed against the "actual and potential wrongdoers". In the
instant case, there is no doubt that petitioner's four (4) checks were used to
collateralize an accommodation, and not to cover the receipt of an actual
"account or credit for value" as this was absent, and therefore petitioner
should not be punished for mere issuance of the checks in question.
Following the aforecited theory, in petitioner's stead the "potential
wrongdoer," whose operation could be a menace to society, should not be
glorified by convicting the petitioner. 28
Under the circumstances obtaining in this case, we find the petitioner to have issued the
check in good faith, with every intention of abiding by her commitment to return, as soon as
able, the investments of complainant in the partnership. Evidently, petitioner issued the
check with benign considerations in mind, and not for the purpose of committing fraud,
deceit, or violating public policy.
To recapitulate, we find the petition impressed with merit. Petitioner may not be held liable
for violation of B.P. 22 for the following reasons: (1) the subject check was not made, drawn
and issued by petitioner in exchange for value received as to qualify it as a check on account
or for value; (2) there is no sufficient basis to conclude that petitioner, at the time of issue of
the check, had actual knowledge of the insufficiency of funds; and (3) there was no notice of
dishonor of said check actually served on petitioner, thereby depriving her of the opportunity
to pay or make arrangements for the payment of the check, to avoid criminal prosecution.
Having resolved the foregoing principal issues, and finding the petition meritorious, we no
longer need to pass upon the validity and legality or necessity of the purported compromise
agreement on civil liability between the petitioner and the complainant.
WHEREFORE, the instant petition is hereby GRANTED AND THE PETITIONER ACQUITTED.
The Decision of the respondent Court of Appeals in CA-G.R. CR No. 11960 is hereby
REVERSED and the Decision of Regional Trial Court in Criminal Case No. 1395-M-88 is hereby
SET ASIDE.
NO COSTS.
SO ORDERED.
20. FILIPINA Y. SY, petitioner, vs.THE HONORABLE COURT OF APPEALS, THE
HONORABLE REGIONAL TRIAL COURT, SAN FERNANDO, PAMPANGA, BRANCH
XLI, and FERNANDO SY, respondents.
For review is the decision1 dated May 21, 1996 of the Court of Appeals in CA-G.R. CV No.
44144, which affirmedthe decision2 of the Regional Trial Court of San Fernando, Pampanga,
denying the petition3 for declaration of absolute nullity of marriage of the spouses Filipina Sy
and Fernando Sy.
Petitioner Filipina Y. Sy and private respondent Fernando Sy contracted marriage on
November 15, 1973 at the Church of Our Lady of Lourdes in Quezon City. 4 Both were then
22 years old. Their union was blessed with two children, Frederick and Farrah Sheryll who
were born on July 8, 1975 and February 14, 1978, respectively. 5
The spouses first established their residence in Singalong, Manila, then in Apalit, Pampanga,
and later at San Matias, Sto. Tomas, Pampanga. They operated a lumber and hardware
business in Sto. Tomas, Pampanga.6
On September 15, 1983, Fernando left their conjugal dwelling. Since then, the spouses lived
separately, and their two children were in the custody of their mother. However, their son
Frederick transferred to his father's residence at Masangkay, Tondo, Manila on May 15, 1988,
and from then on, lived with his father.7
On February 11, 1987, Filipina filed a petition for legal separation, docketed as Civil Case No.
7900 before the Regional Trial Court of San Fernando, Pampanga. Later, upon motion of
petitioner, the action was later amended to a petition for separation of property on the
grounds that her husband abandoned her without just cause; that they have been living
separately for more than one year; and that they voluntarily entered into a Memorandum of
Agreement dated September 29, 1983, containing the rules that would govern the dissolution
of their conjugal partnership.8 Judgment was rendered dissolving their conjugal partnership
of gains and approving a regime of separation of properties based on the Memorandum of
Agreement executed by the spouses.9 The trial court also granted custody of the children to
Filipina. 10
In May 1988, Filipina filed a criminal action for attempted parricide against her husband,
docketed as Criminal Case No. 88-68006, before the Regional Trial Court of Manila. Filipina
testified that in the afternoon of May 15, 1988, she went to the dental clinic at Masangkay,
Tondo, Manila, owned by her husband but operated by his mistress, to fetch her son and
bring him to San Fernando, Pampanga. While she was talking to her son, the boy ignored her
and continued playing with the family computer. Filipina got mad, took the computer away
from her son, and started spanking him. At that instance, Fernando pulled Filipina away from
their son, and punched her in the different parts of her body. Filipina also claimed that her
husband started choking her when she fell on the floor, and released her only when he
thought she was dead. Filipina suffered from hematoma and contusions on different parts of
her body as a result of the blows inflicted by her husband, evidenced by a Medical Certificate
issued by a certain Dr. James Ferraren. She said it was not the first time Fernando
maltreated her. 11
The Regional Trial Court of Manila, however, in its decision 12 dated April 26, 1990, convicted
Fernando only of the lesser crime of slight physical injuries, and sentenced him to 20 days
imprisonment.
Petitioner later filed a new action for legal separation against private respondent, docketed as
Civil Case No. 8273, on the following grounds: (1) repeated physical violence; (2) sexual
infidelity; (3) attempt by respondent against her life; and (4) abandonment of her by her
husband without justifiable cause for more than one year. The Regional Trial Court of San
Fernando, Pampanga, in its decision 13 dated December 4, 1991, granted the petition on the
grounds of repeated physical violence and sexual infidelity, and issued a decree of legal
separation. It awarded custody of their daughter Farrah Sheryll to petitioner, and their son
Frederick to respondent.
On August 4, 1992, Filipina filed a petition 14 for the declaration of absolute nullity of her
marriage to Fernando on the ground of psychological incapacity. She points out that the final
judgment rendered by the Regional Trial Court in her favor, in her petitions for separation of
property and legal separation, and Fernando's infliction of physical violence on her which led
to the conviction of her husband for slight physical injuries are symptoms of psychological
incapacity. She also cites as manifestations of her husband's psychological incapacity the
following: (1) habitual alcoholism; (2) refusal to live with her without fault on her part,
choosing to live with his mistress instead; and (3) refusal to have sex with her, performing
the marital act only to satisfy himself. Moreover, Filipina alleges that such psychological
incapacity of her husband existed from the time of the celebration of their marriage and
became manifest thereafter. 15
The Regional Trial Court of San Fernando, Pampanga, in its decision 16 dated December 9,
1993, denied the petition of Filipina Sy for the declaration of absolute nullity of her marriage
to Fernando. It stated that the alleged acts of the respondent, as cited by petitioner, do not
constitute psychological incapacity which may warrant the declaration of absolute nullity of
their marriage.
Petitioner appealed to the Court of Appeals which affirmed the decision of the trial court. In
the decision 17 of the Court of Appeals dated May 21, 1996, it ruled that the testimony of
petitioner concerning respondent's purported psychological incapacity falls short of the
quantum of evidence required to nullify a marriage celebrated with all the formal and
essential requisites of law. Moreover, the Court of Appeals held that petitioner failed to show
that the alleged psychological incapacity of respondent had existed at the time of the
celebration of their marriage in 1973. It reiterated the finding of the trial court that the
couple's marital problems surfaced only in 1983, or almost ten years from the date of the
celebration of their marriage. And prior to their separation in 1983, they were living together
harmoniously. Thus, the Court of Appeals affirmed the judgment of the lower court which it
found to be in accordance with law and the evidence on record. 18
Petitioner filed a motion for reconsideration, 19
which the Court of Appeals denied in its
resolution dated November 21, 1996. 20
Hence, this appeal by certiorari 21
wherein petitioner now raises the following issues:
1. WHETHER OR NOT THE HONORABLE COURT OF APPEALS MANIFESTLY
OVERLOOKED THE FACT THAT ON THE DATE OF THE CELEBRATION OF THE
PARTIES' MARRIAGE ON NOVEMBER 15, 1973, NOT DISPUTED BY RESPONDENT
FERNANDO, THERE WAS NO MARRIAGE LICENSE THERETO;
2. WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED
MISAPPREHENSION OF FACTS BY STATING THAT THE GROUNDS RELIED UPON BY
APPELLANT [herein petitioner] DO NOT CONSTITUTE PSYCHOLOGICAL INCAPACITY
AS WOULD JUSTIFY NULLIFICATION OF HER MARRIAGE TO APPELLEE [herein
respondent];
3. WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED
MISAPPREHENSION OF FACTS BY STATING THAT APPELLANT FAILED TO SHOW
THAT THE ALLEGED UNDESIRABLE ACTUATIONS OF APPELLEE HAD EXISTED OR
WERE PRESENT AT THE TIME THEIR MARRIAGE WAS CELEBRATED IN 1973;
4. WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED GRAVE
ABUSE OF DISCRETION IN AFFIRMING THE ERRONEOUS RULING OF THE LOWER
COURT THAT THERE IS A REDEEMING ATTITUDE SHOWN TO THE COURT BY
RESPONDENT FERNANDO WITH RESPECT TO HIS CHILDREN AND ALSO BELIEVES
THAT RECONCILIATION BETWEEN THE PARTIES IS NOT A REMOTE POSSIBILITY
WHICH IS ERRONEOUS; AND
5. WHETHER OR NOT THE CASE OF SANTOS V. COURT OF APPEALS (240 SCRA 20)
IS APPLICABLE HERETO. 22
In sum, two issues are to be resolved:
1. Whether or not the marriage between petitioner and private respondent is void from the
beginning for lack of a marriage license at the time of the ceremony; and
2. Whether or not private respondent is psychologically incapacitated at the time of said
marriage celebration to warrant a declaration of its absolute nullity.
Petitioner, for the first time, raises the issue of the marriage being void for lack of a valid
marriage license at the time of its celebration. It appears that, according to her, the date of
the actual celebration of their marriage and the date of issuance of their marriage certificate
and marriage license are different and incongruous.
Although we have repeatedly ruled that litigants cannot raise an issue for the first time on
appeal, as this would contravene the basic rules of fair play and justice, 23 in a number of
instances, we have relaxed observance of procedural rules, noting that technicalities are not
ends in themselves but exist to protect and promote substantive rights of litigants. We said
that certain rules ought not to be applied with severity and rigidity if by so doing, the very
reason for their existence would be defeated. 24 Hence, when substantial justice plainly
requires, exempting a particular case from the operation of technicalities should not be
subject to cavil. 25 In our view, the case at bar requires that we address the issue of the
validity of the marriage between Filipina and Fernando which petitioner claims is void from
the beginning for lack of a marriage license, in order to arrive at a just resolution of a deeply
seated and violent conflict between the parties. Note, however, that here the pertinent facts
are not disputed; and what is required now is a declaration of their effects according to
existing law.
Petitioner states that though she did not categorically state in her petition for annulment of
marriage before the trial court that the incongruity in the dates of the marriage license and
the celebration of the marriage itself would lead to the conclusion that her marriage to
Fernando was void from the beginning, she points out that these critical dates were
contained in the documents she submitted before the court. The date of issue of the
marriage license and marriage certificate, September 17, 1974, is contained in their marriage
contract which was attached as Annex "A" in her petition for declaration of absolute nullity of
marriage before the trial court, and thereafter marked as Exhibit "A" in the course of the
trial. 26 The date of celebration of their marriage at Our Lady of Lourdes, Sta. Teresita Parish,
on November 15, 1973, is admitted both by petitioner and private respondent, as stated in
paragraph three of petitioner's petition for the declaration of absolute nullity of marriage
before the trial court, and private respondent's answer admitting it. 27 This fact was also
affirmed by petitioner, in open court, on January 22, 1993, during her direct
examination, 28 as follows:
ATTY. RAZON: In the last hearing, you said that you were married on November 15,
1973?
FILIPINA SY: Yes, Sir.
November 15, 1973, also appears as the date of marriage of the parents in both their son's
and daughter's birth certificates, which are also attached as Annexes "B" and "C" in the
petition for declaration of absolute nullity of marriage before the trial court, and thereafter
marked as Exhibits "B" and "C" in the course of the trial. 29 These pieces of evidence on
record plainly and indubitably show that on the day of the marriage ceremony, there was no
marriage license. A marriage license is a formal requirement; its absence renders the
marriage void ab initio. In addition, the marriage contract shows that the marriage license,
numbered 6237519, was issued in Carmona, Cavite, yet, neither petitioner nor private
respondent ever resided in Carmona. 30
Carefully reviewing the documents and the pleadings on record, we find that indeed
petitioner did not expressly state in her petition before the trial court that there was
incongruity between the date of the actual celebration of their marriage and the date of the
issuance of their marriage license. From the documents she presented, the marriage license
was issued on September 17, 1974, almost one year after the ceremony took place on
November 15, 1973. The ineluctable conclusion is that the marriage was indeed contracted
without a marriage license. Nowhere do we find private respondent denying these dates on
record. Article 80 of the Civil Code 31 is clearly applicable in this case. There being no claim of
an exceptional character, the purported marriage between petitioner and private respondent
could not be classified among those enumerated in Articles 72-79 32 of the Civil Code. We
thus conclude that under Article 80 of the Civil Code, the marriage between petitioner and
private respondent is void from the beginning.
We note that their marriage certificate and marriage license are only photocopies. So are the
birth certificates of their son Frederick and daughter Farrah Sheryll. Nevertheless, these
documents were marked as Exhibits during the course of the trial below, which shows that
these have been examined and admitted by the trial court, with no objections having been
made as to their authenticity and due execution. Likewise, no objection was interposed to
petitioner's testimony in open court when she affirmed that the date of the actual celebration
of their marriage was on November 15, 1973. We are of the view, therefore, that having
been admitted in evidence, with the adverse party failing to timely object thereto, these
documents are deemed sufficient proof of the facts contained therein. 33
The remaining issue on the psychological incapacity of private respondent need no longer
detain us. It is mooted by our conclusion that the marriage of petitioner to respondent is
void ab initio for lack of a marriage license at the time their marriage was solemnized.
WHEREFORE, the petition is GRANTED. The Decision of the Regional Trial Court of San
Fernando, Pampanga, dated December 9, 1993 as well as the Decision promulgated on May
21, 1996 by the Court of Appeals and its Resolution dated November 21, 1996 in CA-G.R. No.
44144 are set aside. The marriage celebrated on November 15, 1973 between petitioner
Filipina Yap and private respondent Fernando Sy is hereby declared void ab initio for lack of a
marriage license at the time of celebration. No pronouncement as to costs.
SO ORDERED.
21. LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners, vs. LAMBERTO T.
CHUA, respondent.
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court of the
Decision[1] of the Court of Appeals dated January 31, 2000 in the case entitled Lamberto T.
Chua vs.
Lilibeth Sunga Chan and Cecilia Sunga and of the Resolution dated May 23, 2000
denying the motion for reconsideration of herein petitioners Lilibeth Sunga Chan and Cecilia
Sunga (hereafter collectively referred to as petitioners).
The pertinent facts of this case are as follows:
On June 22, 1992, Lamberto T. Chua (hereafter respondent) filed a complaint against
Lilibeth Sunga Chan (hereafter petitioner Lilibeth) and Cecilia Sunga (hereafter petitioner
Cecilia), daughter and wife, respectively of the deceased Jacinto L. Sunga (hereafter Jacinto),
for Winding Up of Partnership Affairs, Accounting, Appraisal and Recovery of Shares and
Damages with Writ of Preliminary Attachment with the Regional Trial Court, Branch 11,
Sindangan, Zamboanga del Norte.
Respondent alleged that in 1977, he verbally entered into a partnership with Jacinto in
the distribution of Shellane Liquefied Petroleum Gas (LPG) in Manila. For business
convenience, respondent and Jacinto allegedly agreed to register the business name of their
partnership, SHELLITE GAS APPLIANCE CENTER (hereafter Shellite), under the name of
Jacinto as a sole proprietorship. Respondent allegedly delivered his initial capital contribution
of P100,000.00 to Jacinto while the latter in turn produced P100,000.00 as his counterpart
contribution, with the intention that the profits would be equally divided between them. The
partnership allegedly had Jacinto as manager, assisted by Josephine Sy (hereafter
Josephine), a sister of the wife of respondent, Erlinda Sy. As compensation, Jacinto would
receive a managers fee or remuneration of 10% of the gross profit and Josephine would
receive 10% of the net profits, in addition to her wages and other remuneration from the
business.
 Allegedly, from the time that Shellite opened for business on July 8, 1977, its business
operation went quite well and was profitable. Respondent claimed that he could attest to the
success of their business because of the volume of orders and deliveries of filled Shellane
cylinder tanks supplied by Pilipinas Shell Petroleum Corporation. While Jacinto furnished
respondent with the merchandise inventories, balance sheets and net worth of Shellite from
1977 to 1989, respondent however suspected that the amount indicated in these documents
were understated and undervalued by Jacinto and Josephine for their own selfish reasons
and for tax avoidance.
Upon Jacintos death in the later part of 1989, his surviving wife, petitioner Cecilia and
particularly his daughter, petitioner Lilibeth, took over the operations, control, custody,
disposition and management of Shellite without respondents consent.
Despite respondents repeated demands upon petitioners for accounting, inventory,
appraisal, winding up and restitution of his net shares in the partnership, petitioners failed to
comply. Petitioner Lilibeth allegedly continued the operations of Shellite, converting to her
own use and advantage its properties.
On March 31, 1991, respondent claimed that after petitioner Lilibeth ran out of alibis
and reasons to evade respondents demands, she disbursed out of the partnership funds the
amount of P200,000.00 and partially paid the same to respondent. Petitioner Lilibeth
allegedly informed respondent that the P200,000.00 represented partial payment of the
latters share in the partnership, with a promise that the former would make the complete
inventory and winding up of the properties of the business establishment. Despite such
commitment, petitioners allegedly failed to comply with their duty to account, and continued
to benefit from the assets and income of Shellite to the damage and prejudice of respondent.
On December 19, 1992, petitioners filed a Motion to Dismiss on the ground that the
Securities and Exchange Commission (SEC) in Manila, not the Regional Trial Court in
Zambaonga del Norte had jurisdiction over the action. Respondent opposed the motion to
dismiss.
On January 12, 1993, the trial court finding the complaint sufficient in form and
substance denied the motion to dismiss.
On January 30, 1993, petitioners filed their Answer with Compulsory Counterclaims,
contending that they are not liable for partnership shares, unreceived income/profits,
interests, damages and attorneys fees, that respondent does not have a cause of action
against them, and that the trial court has no jurisdiction over the nature of the action, the
SEC being the agency that has original and exclusive jurisdiction over the case. As
counterclaim, petitioner sought attorneys fees and expenses of litigation.
On August 2, 1993, petitioner filed a second Motion to Dismiss this time on the ground
that the claim for winding up of partnership affairs, accounting and recovery of shares in
partnership affairs, accounting and recovery of shares in partnership assets /properties
should be dismissed and prosecuted against the estate of deceased Jacinto in a probate or
intestate proceeding.
On August 16, 1993, the trial court denied the second motion to dismiss for lack of
merit.
On November 26, 1993, petitioners filed their Petition for Certiorari, Prohibition and
Mandamus with the Court of Appeals docketed as CA-G.R. SP No. 32499 questioning the
denial of the motion to dismiss.
On November 29, 1993, petitioners filed with the trial court a Motion to Suspend Pre-
trial Conference.
On December 13, 1993, the trial court granted the motion to suspend pre-trial
conference.
On November 15, 1994, the Court of Appeals denied the petition for lack of merit.
On January 16, 1995, this Court denied the petition for review on certiorari filed by
petitioner, as petitioners failed to show that a reversible error was committed by the
appellate court."[2]
On February 20, 1995, entry of judgment was made by the Clerk of Court and the case
was remanded to the trial court on April 26, 1995.
On September 25, 1995, the trial court terminated the pre-trial conference and set the
hearing of the case on January 17, 1996. Respondent presented his evidence while
petitioners were considered to have waived their right to present evidence for their failure to
attend the scheduled date for reception of evidence despite notice.
On October 7, 1997, the trial court rendered its Decision ruling for respondent. The
dispositive portion of the Decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendants, as follows:
(1) DIRECTING them to render an accounting in acceptable form under accounting
procedures and standards of the properties, assets, income and profits of the Shellite Gas
Appliance Center since the time of death of Jacinto L. Sunga, from whom they continued the
business operations including all businesses derived from the Shellite Gas Appliance Center;
submit an inventory, and appraisal of all these properties, assets, income, profits, etc. to the
Court and to plaintiff for approval or disapproval;
(2) ORDERING them to return and restitute to the partnership any and all properties, assets,
income and profits they misapplied and converted to their own use and advantage that
legally pertain to the plaintiff and account for the properties mentioned in pars. A and B on
pages 4-5 of this petition as basis;
(3) DIRECTING them to restitute and pay to the plaintiff shares and interest of the plaintiff in
the partnership of the listed properties, assets and good will (sic) in schedules A, B and C, on
pages 4-5 of the petition;
(4) ORDERING them to pay the plaintiff earned but unreceived income and profits from the
partnership from 1988 to may 30, 1992, when the plaintiff learned of the closure of the store
the sum of P35,000.00 per month, with legal rate of interest until fully paid;
(5) ORDERING them to wind up the affairs of the partnership and terminate its business
activities pursuant to law, after delivering to the plaintiff all the interest, shares, participation
and equity in the partnership, or the value thereof in money or moneys worth, if the
properties are not physically divisible;
(6) FINDING them especially Lilibeth Sunga-Chan guilty of breach of trust and in bad faith
and hold them liable to the plaintiff the sum of P50,000.00 as moral and exemplary
damages; and,
(7) DIRECTING them to reimburse and pay the sum of P25,000.00 as attorneys (sic) and
P25,00.00 as litigation expenses.
NO special pronouncements as to COSTS.
SO ORDERED.[3]
On October 28, 1997, petitioners filed a Notice of Appeal with the trial court, appealing
the case to the Court of Appeals.
On January 31, 2000, the Court of Appeals dismissed the appeal. The dispositive portion
of the Decision reads:
WHEREFORE, the instant appeal is dismissed. The appealed decision is AFFIRMED in all
respects.[4]
On May 23, 2000, the Court of Appeals denied the motion for reconsideration filed by
petitioner.
Hence, this petition wherein petitioner relies upon the following grounds:
1. The Court of Appeals erred in making a legal conclusion that there existed a
partnership between respondent Lamberto T. Chua and the late Jacinto L.
Sunga upon the latters invitation and offer and that upon his death the
partnership assets and business were taken over by petitioners.
2. The Court of Appeals erred in making the legal conclusion that laches and/or
prescription did not apply in the instant case.
3. The Court of Appeals erred in making the legal conclusion that there was
competent and credible evidence to warrant the finding of a partnership, and
assuming arguendo that indeed there was a partnership, the finding of highly
exaggerated amounts or values in the partnership assets and profits.[5]
Petitioners question the correctness of the finding of the trial court and the Court of
Appeals that a partnership existed between respondent and Jacinto from 1977 until Jacintos
death. In the absence of any written document to show such partnership between
respondent and Jacinto, petitioners argue that these courts were proscribed from hearing the
testimonies of respondent and his witness, Josephine, to prove the alleged partnership three
years after Jacintos death. To support this argument, petitioners invoke the Dead Mans
Statute or Survivorship Rule under Section 23, Rule 130 of the Rules of Court that provides:
SEC. 23. Disqualification by reason of death or insanity of adverse party.-- Parties or
assignors of parties to a case, or persons in whose behalf a case is prosecuted, against an
executor or administrator or other representative of a deceased person, or against a person
of unsound mind, upon a claim or demand against the estate of such deceased person, or
against such person of unsound mind, cannot testify as to any matter of fact occurring
before the death of such deceased person or before such person became of unsound mind.
Petitioners thus implore this Court to rule that the testimonies of respondent and his alter
ego, Josephine, should not have been admitted to prove certain claims against a deceased
person (Jacinto), now represented by petitioners.
We are not persuaded.
A partnership may be constituted in any form, except where immovable property or real
rights are contributed thereto, in which case a public instrument shall be necessary. [6] Hence,
based on the intention of the parties, as gathered from the facts and ascertained from their
language and conduct, a verbal contract of partnership may arise. [7] The essential points that
must be proven to show that a partnership was agreed upon are (1) mutual contribution to a
common stock, and (2) a joint interest in the profits. [8] Understandably so, in view of the
absence of a written contract of partnership between respondent and Jacinto, respondent
resorted to the introduction of documentary and testimonial evidence to prove said
partnership. The crucial issue to settle then is whether or not the Dead Mans Statute applies
to this case so as to render inadmissible respondents testimony and that of his witness,
Josephine.
The Dead Mans Statute provides that if one party to the alleged transaction is precluded
from testifying by death, insanity, or other mental disabilities, the surviving party is not
entitled to the undue advantage of giving his own uncontradicted and unexplained account of
the transaction.[9] But before this rule can be successfully invoked to bar the introduction of
testimonial evidence, it is necessary that:
 1. The witness is a party or assignor of a party to a case or persons in whose
behalf a case is prosecuted.
2. The action is against an executor or administrator or other representative of a
deceased person or a person of unsound mind;
3. The subject-matter of the action is a claim or demand against the estate of such
deceased person or against person of unsound mind;
4. His testimony refers to any matter of fact which occurred before the death of
such deceased person or before such person became of unsound mind.[10]
Two reasons forestall the application of the Dead Mans Statute to this case.
First, petitioners filed a compulsory counterclaim[11] against respondent in their answer
before the trial court, and with the filing of their counterclaim, petitioners themselves
effectively removed this case from the ambit of the Dead Mans Statute. [12] Well entrenched is
the rule that when it is the executor or administrator or representatives of the estate that
sets up the counterclaim, the plaintiff, herein respondent, may testify to occurrences before
the death of the deceased to defeat the counterclaim. [13] Moreover, as defendant in the
counterclaim, respondent is not disqualified from testifying as to matters of fact occurring
before the death of the deceased, said action not having been brought against but by the
estate or representatives of the deceased.[14]
Second, the testimony of Josephine is not covered by the Dead Mans Statute for the
simple reason that she is not a party or assignor of a party to a case or persons in whose
behalf a case is prosecuted.Records show that respondent offered the testimony of Josephine
to establish the existence of the partnership between respondent and Jacinto. Petitioners
insistence that Josephine is the alter ego of respondent does not make her an assignor
because the term assignor of a party means assignor of a cause of action which has arisen,
and not the assignor of a right assigned before any cause of action has arisen.[15] Plainly
then, Josephine is merely a witness of respondent, the latter being the party plaintiff.
We are not convinced by petitioners allegation that Josephines testimony lacks probative
value because she was allegedly coerced by respondent, her brother-in-law, to testify in his
favor. Josephine merely declared in court that she was requested by respondent to testify
and that if she were not requested to do so she would not have testified. We fail to see how
we can conclude from this candid admission that Josephines testimony is involuntary when
she did not in any way categorically say that she was forced to be a witness of
respondent. Also, the fact that Josephine is the sister of the wife of respondent does not
diminish the value of her testimony since relationship per se, without more, does not affect
the credibility of witnesses.[16]
Petitioners reliance alone on the Dead Mans Statute to defeat respondents claim cannot
prevail over the factual findings of the trial court and the Court of Appeals that a partnership
was established between respondent and Jacinto. Based not only on the testimonial
evidence, but the documentary evidence as well, the trial court and the Court of Appeals
considered the evidence for respondent as sufficient to prove the formation of a partnership,
albeit an informal one.
Notably, petitioners did not present any evidence in their favor during trial. By the
weight of judicial precedents, a factual matter like the finding of the existence of a
partnership between respondent and Jacinto cannot be inquired into by this Court on
review.[17] This Court can no longer be tasked to go over the proofs presented by the parties
and analyze, assess and weigh them to ascertain if the trial court and the appellate court
were correct in according superior credit to this or that piece of evidence of one party or the
other.[18] It must be also pointed out that petitioners failed to attend the presentation of
evidence of respondent. Petitioners cannot now turn to this Court to question the
admissibility and authenticity of the documentary evidence of respondent when petitioners
failed to object to the admissibility of the evidence at the time that such evidence was
offered.[19]
With regard to petitioners insistence that laches and/or prescription should have
extinguished respondents claim, we agree with the trial court and the Court of Appeals that
the action for accounting filed by respondent three (3) years after Jacintos death was well
within the prescribed period. The Civil Code provides that an action to enforce an oral
contract prescribes in six (6) years[20] while the right to demand an accounting for a partners
interest as against the person continuing the business accrues at the date of dissolution, in
the absence of any contrary agreement.[21] Considering that the death of a partner results in
the dissolution of the partnership[22], in this case, it was after Jacintos death that respondent
as the surviving partner had the right to an account of his interest as against petitioners. It
bears stressing that while Jacintos death dissolved the partnership, the dissolution did not
immediately terminate the partnership. The Civil Code[23] expressly provides that upon
dissolution, the partnership continues and its legal personality is retained until the complete
winding up of its business, culminating in its termination.[24]
In a desperate bid to cast doubt on the validity of the oral partnership between
respondent and Jacinto, petitioners maintain that said partnership that had an initial capital
of P200,000.00 should have been registered with the Securities and Exchange Commission
(SEC) since registration is mandated by the Civil Code. True, Article 1772 of the Civil Code
requires that partnerships with a capital of P3,000.00 or more must register with the SEC,
however, this registration requirement is not mandatory. Article 1768 of the Civil
Code[25] explicitly provides that the partnership retains its juridical personality even if it fails
to register. The failure to register the contract of partnership does not invalidate the same as
among the partners, so long as the contract has the essential requisites, because the main
purpose of registration is to give notice to third parties, and it can be assumed that the
members themselves knew of the contents of their contract. [26] In the case at bar, non-
compliance with this directory provision of the law will not invalidate the partnership
considering that the totality of the evidence proves that respondent and Jacinto indeed
forged the partnership in question.
WHEREFORE, in view of the foregoing, the petition is DENIED and the appealed
decision is AFFIRMED.
 SO ORDERED.
22.
23. JOSE MACHUCA, plaintiff-appellee, vs.CHUIDIAN, BUENAVENTURA & partnership, . . . the assignee, being expressly empowered to do in his own name, and as a
CO., defendants-appellants.
Most of the allegations of the complaint were admitted by the defendant at the hearing, and
the judgment of the court below is based on the state of facts appearing from such
admissions, no evidence having been taken.
The defendants are a regular general partnership, organized in Manila, December 29, 1882,
as a continuation of a prior partnership of the same name. The original partners constituting
the partnership of 1882 were D. Telesforo Chuidian, Doa Raymunda Chuidian, Doa
Candelaria Chuidian, and D. Mariano Buenaventura. The capital was fixed in the partnership
agreement at 16,000 pesos, of which the first three partners named contributed 50,000
pesos each, and the last named 10,000 pesos, and it was stipulated that the liability of the
partners should be "limited to the amounts brought in by them to form the partnership
stock."
In addition to the amounts contributed by the partners to the capital, it appears from the
partnership agreement that each one of them had advanced money to the preexisting
partnership, which advances were assumed or accounts-current aggregated something over
665,000 pesos, of which sum about 569,000 pesos represented the advances from the
Chuidians and the balance that balance that from D. Mariano Buenaventura.
Doa Raymunda Chuidian retired from the partnership November 4, 1885. On January 1,
1888, the partnership went into liquidation, and it does not appear that the liquidation had
been terminated when this action was brought.
Down to the time the partnership went into liquidation the accounts-current of D. Telesforo
Chuidian and Doa Candelaria Chuidian had been diminished in an amount aggregating
about 288,000 pesos, while that of D. Mariano Buenaventura had been increased about
51,000 pesos. During the period from the commencement of the liquidation down to January
1, 1896, the account-current of each of the Chuidians had been still further decreased, while
that of D. Mariano Buenaventura had been still further increased.
On January 1, 1894, D. Mariano Buenaventura died, his estate passing by will to his children,
among whom was D. Vicente Buenaventura. Upon the partition of the estate the amount of
the interest of D. Vicente Buenaventura in his father's account-current and in the capital was
ascertained and recorded in the books of the firm.
On December 15, 1898, D. Vicente Buenaventura executed a public instrument in which for a
valuable consideration he "assigns to D. Jose Gervasio Garcia . . . a 25 per cent share in all
that may be obtained by whatever right in whatever form from the liquidation of the
partnership of Chuidian, Buenaventura & Co., in the part pertaining to him in said
part owner, by virtue of this assignment in the assets of the partnership, whatever things
may be necessary for the purpose of accelerating the liquidation, and of obtaining on
judicially or extrajudicially the payment of the deposits account-current pertaining to the
assignor, it being understood that D. Jose Gervasio Garcia is to receive the 25 per cent
assigned to him, in the same form in which it may be obtained from said partnership,
whether in cash, credits, goods, movables or immovables, and on the date when Messrs.
Chuidian, Buenaventura & Co., in liquidation, shall have effected the operations necessary in
order to satisfy the credits and the share in the partnership capital hereinbefore mentioned."
The plaintiff claims under Garcia by virtue of a subsequent assignment, which has been
notified to the liquidator of the partnership.
The liquidator of the partnership having declined to record in the books of the partnership
the plaintiff's claim under the assignment as a credit due from the concern to him this action
is brought to compel such record to be made, and the plaintiff further asks that he be
adjudicated to be a creditor of the partnership in an amount equal to 25 per cent of D.
Vicente Buenaventura's share in his father's account-current, as ascertained when the record
was made in the books of the partnership upon the partition of the latters estate, with
interest, less the liability to which the plaintiff is subject by reason of his share in the capital;
that the necessary liquidation being first had, the partnership pay to the plaintiff the balance
which may be found to be due him; and that if the partnership has no funds with which to
discharge this obligation an adjudication of bankruptcy be made. He also asks to recover the
damages caused by reason of the failure of the liquidator to record his credit in the books of
partnership.
The judgment of the court below goes beyond the relief asked by the plaintiff in the
complaint, the plaintiff being held entitled not only to have the credit assigned him recorded
in the books of the partnership but also to receive forthwith 25 per cent of an amount
representing the share of D. Vicente Buenaventura in the account-current at the time of the
partition of his father's estate, with interest, the payment of the 25 percent of
Buenaventura's share in the capital to be postponed till the termination of the liquidation.
This point has not, however, been taken by counsel, and we have therefore considered the
case upon its merits.
The underlying question in the case relates to the construction of clause 19 of the
partnership agreement, by which it was stipulated that "upon the dissolution of the company,
the pending obligations in favor of outside parties should be satisfied, the funds of the
minors Jose and Francisco Chuidian [it does not appear what their interest in the partnership
was or when or how it was acquired] should be taken out, and afterwards the resulting
balance of the account-current of each one of those who had put in money (imponentes)
should be paid."
Our construction of this clause is that it establishes a a basis for the final adjustment of the
affairs of the partnership; that that basis is that the liabilities to noncompartners are to be
first discharged; that the claims of the Chuidian minors are to be next satisfied; and that
what is due to the respective partners on account of their advances to the firm is to be paid
last of all, leaving the ultimate residue, of course, if there be any, to be distributed, among
the partners in the proportions in which they may be entitled thereto.
Although in a sense the partners, being at the same time creditors, were "outside parties," it
is clear that a distinction is made in this clause between creditors who were partners and
creditors who were not partners, and that the expression "outside parties" refers to the latter
class. And the words "pending obligations," we think, clearly comprehend outstanding
obligations of every kind in favor of such outside parties, and do not refer merely, as claimed
by counsel for the plaintiff, to the completion of mercantile operations unfinished at the time
of the dissolution of the partnership, such as consignments of goods and the like. As respects
the claims of the Chuidian minors, the suggestion of counsel is that the clause in question
means that their accounts are to be adjusted before those of the partners but not paid first.
Such a provision would have been of no practical utility, and the language used that the
funds should be "taken out" (se dedujeran) does not admit of such a construction.
Such being the basis upon which by agreement of the partners the assets of the partnership
are to be applied to the discharge of the various classes of the firm's liabilities, it follows that
D. Vicente Buenaventura, whose rights are those of his father, is in no case entitled to
receive any part of the assets until the creditors who are nonpartners and the Chuidian
minors are paid. Whatever rights he had either as creditor or partner, he could only transfer
subject to this condition. And it is clear, from the language of the instrument under which the
plaintiff claims, that this conditional interest was all that D. Vicente Buenaventura ever
intended to transfer. By that instrument he undertakes to assign to Garcia not a present
interest in the assets of the partnership but an interest in whatever "may be obtained from
the liquidation of the partnership," which Garcia is to receive "in the same form in which it
may be obtained from said partnership," and "on the date when Messrs. Chuidian,
Buenaventura & Co., in liquidation, shall have effected the operations necessary in order to
satisfy" the claims of D. Vicente Buenaventura.
Upon this interpretation of the assignment, it becomes unnecessary to inquire whether article
143 of the Code of Commerce, prohibiting a partner from transferring his interest in the
partnership without the consent of the other partners, applies to partnerships in liquidation,
as contended by the defendant. The assignment by its terms is not to take effect until all the
liabilities of the partnership have been discharged and nothing remains to be done except to
distribute the assets, if there should be any, among the partners. Meanwhile the assignor,
Buenaventura, is to continue in the enjoyment of the rights and is to remain subject to the
liabilities of a partner as though no assignment had been made. In other words, the
assignment does not purport to transfer an interest in the partnership, but only a future
contingent right to 25 per cent of such portion of the ultimate residue of the partnership
property as the assignor may become entitled to receive by virtue of his proportionate
interest in the capital.
There is nothing in the case to show either that the nonpartner creditors of the partnership
have been paid or that the claims of the Chuidian minors have been satisfied. Such rights as
the plaintiff has acquired against the partnership under the assignment still remain,
therefore, subject to the condition which attached to them in their origin, a condition wholly
uncertain of realization, since it may be that the entire assets of the partnership will be
exhausted in the payment of the creditors entitled to preference under the partnership
agreement, thus extinguishing the plaintiff's right to receive anything from the liquidation.
It is contended by the plaintiff that, as the partnership was without authority to enter upon
new mercantile operations after the liquidation commenced, the increase in D. Mariano
Buenaventura's account-current during that period was the result of a void transaction, and
that therefore the plaintiff is entitled to withdraw at once the proportion of such increase to
which he is entitled under the assignment. With reference to this contention, it is sufficient to
say that it nowhere appears in the case that the increase in D. Mariano Buenaventura's
account-current during the period of liquidation was the result of new advances to the firm,
and the figures would appear to indicate that it resulted from the accumulation of interest.
Counsel for the plaintiff have discussed at length in their brief the meaning of the clause in
the partnership agreement limiting the liability of the partners to the amounts respectively
brought into the partnership by them, and the effect of this stipulation upon their rights as
creditors of the firm. These are questions which relate to the final adjustment of the affairs
of the firm, the distribution of the assets remaining after all liabilities have been discharged,
or, on the other hand, the apportionment of the losses if the assets should not be sufficient
to meet the liabilities. They are in no way involved in the determination of the present case.
The plaintiff having acquired no rights under the assignment which are now enforceable
against the defendant, this action can not be maintained. The liquidator of the defendant
having been notified of the assignment, the plaintiff will be entitled to receive from the assets
of the partnership, if any remain, at the termination of the liquidation, 25 per cent of D.
Vicente's resulting interest, both as partner and creditor. The judgment in this case should
not affect the plaintiff's right to bring another action against the partnership when the affairs
of the same are finally wound up. The proper judgment will be that the action be dismissed.
The judgment of the court below is reversed and the case is remanded to that court with
directions to enter a judgment of dismissal. So ordered.
24. LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO
JOSE, petitioners, vs. DONALDO EFREN C. RAMIREZ and Spouses CESAR G.
RAMIREZ JR. and CARMELITA C. RAMIREZ, respondents.
PANGANIBAN, J.:
A share in a partnership can be returned only after the completion of the latters
dissolution, liquidation and winding up of the business.
The Case
The Petition for Review on Certiorari before us challenges the March 23, 2000
Decision[1] and the July 26, 2000 Resolution[2] of the Court of Appeals[3] (CA) in CA-GR CV
No. 41026.The assailed Decision disposed as follows:
WHEREFORE, foregoing premises considered, the Decision dated July 21, 1992 rendered by
the Regional Trial Court, Branch 148, Makati City is hereby SET ASIDE and NULLIFIED and in
lieu thereof a new decision is rendered ordering the [petitioners] jointly and severally to pay
and reimburse to [respondents] the amount of P253,114.00. No pronouncement as to
costs.[4]
Reconsideration was denied in the impugned Resolution.
The Facts
On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus Jose formed a
partnership with a capital of P750,000 for the operation of a restaurant and catering business
under the name Aquarius Food House and Catering Services.[5] Villareal was appointed
general manager and Carmelito Jose, operations manager.
Respondent Donaldo Efren C. Ramirez joined as a partner in the business on September
5, 1984. His capital contribution of P250,000 was paid by his parents, Respondents Cesar and
Carmelita Ramirez.[6]
After Jesus Jose withdrew from the partnership in January 1987, his capital contribution
of P250,000 was refunded to him in cash by agreement of the partners. [7]
In the same month, without prior knowledge of respondents, petitioners closed down
the restaurant, allegedly because of increased rental. The restaurant furniture and equipment
were deposited in the respondents house for storage.[8]
On March 1, 1987, respondent spouses wrote petitioners, saying that they were no
longer interested in continuing their partnership or in reopening the restaurant, and that they
were accepting the latters offer to return their capital contribution. [9]
On October 13, 1987, Carmelita Ramirez wrote another letter informing petitioners of
the deterioration of the restaurant furniture and equipment stored in their house. She also
reiterated the request for the return of their one-third share in the equity of the
partnership. The repeated oral and written requests were, however, left unheeded. [10]
Before the Regional Trial Court (RTC) of Makati, Branch 59, respondents subsequently
filed a Complaint[11] dated November 10, 1987, for the collection of a sum of money from
petitioners.
In their Answer, petitioners contended that respondents had expressed a desire to
withdraw from the partnership and had called for its dissolution under Articles 1830 and 1831
of the Civil Code; that respondents had been paid, upon the turnover to them of furniture
and equipment worth over P400,000; and that the latter had no right to demand a return of
their equity because their share, together with the rest of the capital of the partnership, had
been spent as a result of irreversible business losses.[12]
In their Reply, respondents alleged that they did not know of any loan encumbrance on
the restaurant. According to them, if such allegation were true, then the loans incurred by
petitioners should be regarded as purely personal and, as such, not chargeable to the
partnership. The former further averred that they had not received any regular report or
accounting from the latter, who had solely managed the business. Respondents also alleged
that they expected the equipment and the furniture stored in their house to be removed by
petitioners as soon as the latter found a better location for the restaurant. [13]
Respondents filed an Urgent Motion for Leave to Sell or Otherwise Dispose of
Restaurant Furniture and Equipment[14] on July 8, 1988. The furniture and the equipment
stored in their house were inventoried and appraised at P29,000.[15] The display freezer was
sold for P5,000 and the proceeds were paid to them.[16]
After trial, the RTC[17] ruled that the parties had voluntarily entered into a partnership,
which could be dissolved at any time. Petitioners clearly intended to dissolve it when they
stopped operating the restaurant. Hence, the trial court, in its July 21, 1992 Decision, held
them liable as follows:[18]
WHEREFORE, judgment is hereby rendered in favor of [respondents] and against the
[petitioners] ordering the [petitioners] to pay jointly and severally the following:
(a) Actual damages in the amount of P250,000.00
(b) Attorneys fee in the amount of P30,000.00
(c) Costs of suit.
The CA Ruling
 The CA held that, although respondents had no right to demand the return of their
capital contribution, the partnership was nonetheless dissolved when petitioners lost interest
in continuing the restaurant business with them. Because petitioners never gave a proper
accounting of the partnership accounts for liquidation purposes, and because no sufficient
evidence was presented to show financial losses, the CA computed their liability as follows:
Consequently, since what has been proven is only the outstanding obligation of the
partnership in the amount of P240,658.00, although contracted by the partnership before
[respondents] have joined the partnership but in accordance with Article 1826 of the New
Civil Code, they are liable which must have to be deducted from the remaining capitalization
of the said partnership which is in the amount of P1,000,000.00 resulting in the amount
of P759,342.00, and in order to get the share of [respondents], this amount of P759,342.00
must be divided into three (3) shares or in the amount of P253,114.00 for each share and
which is the only amount which [petitioner] will return to [respondents] representing the
contribution to the partnership minus the outstanding debt thereof. [19]
Hence, this Petition. [20]
Issues
In their Memorandum,[21] petitioners submit the following issues for our consideration:
9.1. Whether the Honorable Court of Appeals decision ordering the distribution of the capital
contribution, instead of the net capital after the dissolution and liquidation of a partnership,
thereby treating the capital contribution like a loan, is in accordance with law and
jurisprudence;
9.2. Whether the Honorable Court of Appeals decision ordering the petitioners to jointly and
severally pay and reimburse the amount of [P]253,114.00 is supported by the evidence on
record; and
9.3. Whether the Honorable Court of Appeals was correct in making [n]o pronouncement as
to costs.[22]
On closer scrutiny, the issues are as follows: (1) whether petitioners are liable to
respondents for the latters share in the partnership; (2) whether the CAs computation
of P253,114 as respondents share is correct; and (3) whether the CA was likewise correct in
not assessing costs.
This Courts Ruling
The Petition has merit.
First Issue:
Share in Partnership
Both the trial and the appellate courts found that a partnership had indeed existed, and
that it was dissolved on March 1, 1987. They found that the dissolution took place when
respondents informed petitioners of the intention to discontinue it because of the formers
dissatisfaction with, and loss of trust in, the latters management of the partnership
affairs. These findings were amply supported by the evidence on record. Respondents
consequently demanded from petitioners the return of their one-third equity in the
partnership.
We hold that respondents have no right to demand from petitioners the return of their
equity share. Except as managers of the partnership, petitioners did not personally hold its
equity or assets. The partnership has a juridical personality separate and distinct from that of
each of the partners.[23] Since the capital was contributed to the partnership, not to
petitioners, it is the partnership that must refund the equity of the retiring partners.[24]
Second Issue:
What Must Be Returned?
Since it is the partnership, as a separate and distinct entity, that must refund the shares
of the partners, the amount to be refunded is necessarily limited to its total resources. In
other words, it can only pay out what it has in its coffers, which consists of all its
assets. However, before the partners can be paid their shares, the creditors of the
partnership must first be compensated.[25] After all the creditors have been paid, whatever is
left of the partnership assets becomes available for the payment of the partners shares.
Evidently, in the present case, the exact amount of refund equivalent to respondents
one-third share in the partnership cannot be determined until all the partnership assets will
have been liquidated -- in other words, sold and converted to cash -- and all partnership
creditors, if any, paid. The CAs computation of the amount to be refunded to respondents as
their share was thus erroneous.
First, it seems that the appellate court was under the misapprehension that the total
capital contribution was equivalent to the gross assets to be distributed to the partners at the
time of the dissolution of the partnership. We cannot sustain the underlying idea that the
capital contribution at the beginning of the partnership remains intact, unimpaired and
available for distribution or return to the partners. Such idea is speculative, conjectural and
totally without factual or legal support.
 Generally, in the pursuit of a partnership business, its capital is either increased by
profits earned or decreased by losses sustained. It does not remain static and unaffected by
the changing fortunes of the business. In the present case, the financial statements
presented before the trial court showed that the business had made meager
profits.[26] However, notable therefrom is the omission of any provision for the
depreciation[27] of the furniture and the equipment. The amortization of the
goodwill[28] (initially valued at P500,000) is not reflected either.Properly taking these non-
cash items into account will show that the partnership was actually sustaining substantial
losses, which consequently decreased the capital of the partnership.Both the trial and the
appellate courts in fact recognized the decrease of the partnership assets to almost nil, but
the latter failed to recognize the consequent corresponding decrease of the capital.
Second, the CAs finding that the partnership had an outstanding obligation in the
amount of P240,658 was not supported by evidence. We sustain the contrary finding of the
RTC, which had rejected the contention that the obligation belonged to the partnership for
the following reason:
x x x [E]vidence on record failed to show the exact loan owed by the partnership to its
creditors. The balance sheet (Exh. 4) does not reveal the total loan. The Agreement (Exh. A)
par. 6 shows an outstanding obligation of P240,055.00 which the partnership owes to
different creditors, while the Certification issued by Mercator Finance (Exh. 8) shows that it
was Sps. Diogenes P. Villareal and Luzviminda J. Villareal, the former being the nominal party
defendant in the instant case, who obtained a loan of P355,000.00 on Oct. 1983, when the
original partnership was not yet formed.
Third, the CA failed to reduce the capitalization by P250,000, which was the amount
paid by the partnership to Jesus Jose when he withdrew from the partnership.
Because of the above-mentioned transactions, the partnership capital was actually
reduced. When petitioners and respondents ventured into business together, they should
have prepared for the fact that their investment would either grow or shrink. In the present
case, the investment of respondents substantially dwindled. The original amount of P250,000
which they had invested could no longer be returned to them, because one third of the
partnership properties at the time of dissolution did not amount to that much.
It is a long established doctrine that the law does not relieve parties from the effects of
unwise, foolish or disastrous contracts they have entered into with all the required formalities
and with full awareness of what they were doing. Courts have no power to relieve them from
obligations they have voluntarily assumed, simply because their contracts turn out to be
disastrous deals or unwise investments.[29]
Petitioners further argue that respondents acted negligently by permitting the
partnership assets in their custody to deteriorate to the point of being almost
worthless. Supposedly, the latter should have liquidated these sole tangible assets of the
partnership and considered the proceeds as payment of their net capital. Hence, petitioners
argue that the turnover of the remaining partnership assets to respondents was precisely the
manner of liquidating the partnership and fully settling the latters share in the partnership.
We disagree. The delivery of the store furniture and equipment to private respondents
was for the purpose of storage. They were unaware that the restaurant would no longer be
reopened by petitioners. Hence, the former cannot be faulted for not disposing of the stored
items to recover their capital investment.
Third Issue:
Costs
Section 1, Rule 142, provides:
SECTION 1. Costs ordinarily follow results of suit. Unless otherwise provided in these rules,
costs shall be allowed to the prevailing party as a matter of course, but the court shall have
power, for special reasons, to adjudge that either party shall pay the costs of an action, or
that the same be divided, as may be equitable. No costs shall be allowed against the
Republic of the Philippines unless otherwise provided by law.
Although, as a rule, costs are adjudged against the losing party, courts have discretion,
for special reasons, to decree otherwise. When a lower court is reversed, the higher court
normally does not award costs, because the losing party relied on the lower courts judgment
which is presumed to have been issued in good faith, even if found later on to be
erroneous.Unless shown to be patently capricious, the award shall not be disturbed by a
reviewing tribunal.
WHEREFORE, the Petition is GRANTED, and the assailed Decision and Resolution SET
ASIDE. This disposition is without prejudice to proper proceedings for the accounting, the
liquidation and the distribution of the remaining partnership assets, if any. No
pronouncement as to costs.
SO ORDERED.