PHILIPPINE NATIONAL BANK, plaintiffappellee,

vs.
SEVERO EUGENIO LO, ET
AL., defendants.
SEVERIO EUGENIO LO, NG KHEY LING
and YEP SENG, appellants.
Jose Lopez Vito for appellants.
Roman Lacson for appellee.

VILLAMOR, J.:

P20,000 in favor of plaintiff bank. (Exhibit

E.) According to this mortgage contract,
the P20,000 loan was to earn 9 per cent
interest per annum.
On April 20, 1920, Yap Seng, Severo
Eugenio Lo, A. Y. Kelam and Ng Khey Ling,
TAI SING & CO.

To your outstanding account (C. O. D.) with us on June

30, 1922

P16,518.
74

Interest on same from June 30, 1922 to December

31,1924, at 9 per cent per annum

3,720.86

On September 29, 1916, the

appellants Severo Eugenio Lo and
Ng Khey Ling, together with J. A. Say
Lian Ping, Ko Tiao Hun, On Yem Ke
Lam and Co Sieng Peng formed a
commercial partnership under the name of
"Tai Sing and Co.," with a capital of
P40,000 contributed by said partners. In
the articles of copartnership, Exhibit A, it
appears that the partnership was to last
for five years from after the date of its
organization, and that its purpose was to
do business in the City of Iloilo, Province of
Iloilo, or in any other part of the Philippine
Islands the partners might desire, under
the name of "Tai Sing & Co.," for the
purchase and sale of merchandise, goods,
and native, as well as Chinese and
Japanese, products, and to carry on such
business and speculations as they might
consider profitable. One of the partners, J.
A. Say Lian Ping was appointed general
manager of the partnership, with the
appointed general manager of the
partnership, with the powers specified in
said articles of copartnership.

Total

the latter represented by M. Pineda

Tayenko, executed a power of attorney in
favor of Sy Tit by virtue of which Sy Tit,
representing "Tai Sing & Co., obtained a
credit of P20,000 from plaintiff bank on
January 7, 1921, executing a chattel
mortgage on certain personal property
belonging to "Tai Sing & Co.
Defendants had been using this
commercial credit in a current account
with the plaintiff bank, from the year
1918, to May 22, 1921, and the debit
balance of this account, with interest to
December 31, 1924, is as follows:
This total is the sum claimed in the
complaint, together with interest on the
P16,518.74 debt, at 9 per cent per annum
from January 1, 1925 until fully paid, with
the costs of the trial.
Defendant Eugenio Lo sets up, as a
general defense, that "Tai Sing & Co. was
not a general partnership, and that the
commercial credit in current account
which "Tai Sing & Co. obtained from the
plaintiff bank had not been authorized by
the board of directors of the company, nor
was the person who subscribed said
contract authorized to make the same,
under the article of copartnership. The
other defendants, Yap Sing and Ng Khey
Ling, answered the complaint denying
each and every one of the allegations
contained therein.

On June 4, 1917, general manager A. Say

Lian Ping executed a power of attorney
(Exhibit C-1) in favor of A. Y. Kelam,
authorizing him to act in his stead as
manager and administrator of "Tai Sing &
Co.," on July 26, 1918, for, and obtained a
loan of P8,000 in current account from the
plaintiff bank. (Exhibit C). As security for
said loan, he mortgaged certain personal
property of "Tai Sing & Co., (Exhibit C.)
This credit was renew several times and
on March 25, 1919, A. Y. Kelam, as
attorney-in-fact of "Tai Sing & Co.,
executed a chattel mortgage in favor of
plaintiff bank as security for a loan of
P20,000 with interest (Exhibit D). This
mortgage was again renewed on April 16,
1920 and A. Y. Kelam, as attorney-in-fact
of "Tai Sing & Co., executed another
chattel mortgage for the said sum of

After the hearing, the court found:

(1) That defendants Eugenio Lo, Ng
Khey Ling and Yap Seng Co., Sieng
Peng indebted to plaintiff Philippine
National Bank in sum of P22,595.26
to July 29, 1926, with a daily

20,
239.00
=====
====

interest of P4.14 on the balance on

account of the partnership "Tai Sing
& Co. for the sum of P16,518.74
until September 9, 1922;

which in addition to interest at 9

per cent per annum from July 29,
1926, amount to P16,595.26, with
a daily interest of P4.14 on the sum
of P16,518.74.

(2) Said defendants are ordered

jointly and severally to pay the
Philippine National Bank the sum of
P22,727.74 up to August 31, 1926,
and from the date, P4.14 daily
interest on the principal; and

VII. The trial court erred in ordering

the defendants appellants to pay
jointly and severally to the
Philippine National Bank the sum of
P22,727.74 up to August 31, 1926,
and interest on P16,518.74 from
that date until fully paid, with the
costs of the action.

(3) The defendants are furthermore

ordered to pay the costs of the
action.1awph!l.net

VIII. The trial court erred in denying

the motion for a new trial filed by
defendants-appellants.

Defendants appealed, making the

following assignments of error:

Appellants admit, and it appears from the

context of Exhibit A, that the defendant
association formed by the defendants is a
general partnership, as defined in article
126 of the Code Commerce. This
partnership was registered in the
mercantile register of the Province of Iloilo.
The only anomaly noted in its organization
is that instead of adopting for their firm
name the names of all of the partners, of
several of them, or only one of them, to be
followed in the last two cases, by the
words "and to be followed in the last two
cases, by the words "and company" the
partners agreed upon "Tai Sing & Co." as
the firm name.

I. The trial court erred in finding

that article 126 of the Code of
Commerce at present in force is
not mandatory.
II. The trial court erred in finding
that the partnership agreement of
"Tai Sing & Co., (Exhibit A), is in
accordance with the requirements
of article 125 of the Code of
Commerce for the organization of a
regular partnership.
III. The trial court erred in not
admitting J. A. Sai Lian Ping's death
in China in November, 1917, as a
proven fact.

In the case of Hung-Man-Yoc, under the

name of Kwong-Wo-Sing vs. Kieng-ChiongSeng, cited by appellants, this court held
that, as the company formed by
defendants had existed in fact, though not
in law due to the fact that it was not
recorded in the register, and having
operated and contracted debts in favor of
the plaintiff, the same must be paid by
someone. This applies more strongly to
the obligations contracted by the
defendants, for they formed a partnership
which was registered in the mercantile
register, and carried on business
contracting debts with the plaintiff bank.
The anomalous adoption of the firm name
above noted does not affect the liability of
the general partners to third parties under
article 127 of the Code of Commerce. And
the Supreme Court so held in the case
of Jo Chung Cang vs. Pacific Commercial
Co., (45 Phil., 142), in which it said that
the object of article 126 of the Code of
Commerce in requiring a general
partnership to transact business under the
name of all its members, of several of
them, or of one only, is to protect the
public from imposition and fraud; and that

IV. The trial court erred in finding

that the death of J. A. Say Lian Ping
cannot extinguish the defendants'
obligation to the plaintiff bank,
because the last debt incurred by
the commercial partnership "Tai
Sing & Co., was that evidence by
Exhibit F, signed by Sy Tit as
attorney-in-fact of the members of
"Tai Sing & Co., by virtue of Exhibit
G.
V. The trial court erred in not
finding that plaintiff bank was not
able to collect its credit from the
goods of "Tai Sing & Co., given as
security therefor through its own
fault and negligence; and that the
action brought by plaintiff is a
manifest violation of article 237 of
the present Code of Commerce.
VI. The trial court erred in finding
that the current account of "Tai
Sing & Co. with plaintiff bank shows
a debit balance of P16,518.74,

the provision of said article 126 is for the

protection of the creditors rather than of
the partners themselves. And
consequently the doctrine was enunciated
that the law must be unlawful and
unenforceable only as between the
partners and at the instance of the
violating party, but not in the sense of
depriving innocent parties of their rights
who may have dealt with the offenders in
ignorance of the latter having violated the
law; and that contracts entered into by
commercial associations defectively
organized are valid when voluntarily
executed by the parties, and the only
question is whether or not they complied
with the agreement. Therefore, the
defendants cannot invoke in their defense
the anomaly in the firm name which they
themselves adopted.

The judgment against the appellants is in

accordance with article 127 of the Code of
Commerce which provides that all the
members of a general partnership, be
they managing partners thereof or not,
shall be personally and solidarily liable
with all their property, for the results of
the transactions made in the name and for
the account of the partnership, under the
signature of the latter, and by a person
authorized to use it.
As to the amount of the interest suffice it
to remember that the credit in current
account sued on in this case as been
renewed by the parties in such a way that
while it appears in the mortgage Exhibit D
executed on March 25, 1919 by the
attorney-in-fact Ou Yong Kelam that the
P20,000 credit would earn 8 per cent
interest annually, yet from that executed
on April 16, 1920, Exhibit E, it appears
that the P20,000 would earn 9 per cent
interest per annum. The credit was
renewed in January, 1921, and in the deed
of pledge, Exhibit F, executed by "Tai Sing
& Co., represented by the attorney-in-fact
Sy Tit, it appears that this security is for
the payment of the sums received by the
partnership, not to exceed P20,000 with
interest and collection fees. There can be
no doubt that the parties agreed upon the
rate of interest fixed in the document
Exhibit E, namely 9 per cent per annum.

As to the alleged death of the manager of

the company, Say Lian Ping, before the
attorney-in-fact Ou Yong Kelam executed
Exhibits C, D and E, the trial court did not
find this fact proven at the hearing. But
even supposing that the court had erred,
such an error would not justify the reversal
of the judgment, for two reasons at least:
(1) Because Ou Yong Kelam was a partner
who contracted in the name of the
partnership, without any objection of the
other partners; and (2) because it appears
in the record that the appellant-partners
Severo Eugenio Lo, Ng Khey Ling and Yap
Seng, appointed Sy Tit as manager, and
he obtained from the plaintiff bank the
credit in current account, the debit
balance of which is sought to be recovered
in this action.

The judgment appealed from is in

accordance with the law, and must
therefore be, as it is hereby, affirmed with
costs against the appellants. So ordered.
G.R. No. L-22493 July 31, 1975

Appellants allege that such of their

property as is not included in the
partnership assets cannot-be seized for
the payment of the debts contracted by
the partnership until after the partnership
property has been exhausted. The court
found that the partnership property
described in the mortgage Exhibit F no
loner existed at the time of the filing of
the herein complaint nor has its existence
been proven, nor was it offered to the
plaintiff for sale. We find no just reason to
reverse this conclusion of the trial court,
and this being so, it follows that article
237 of the Code of Commerce, invoked by
the appellant, can in no way have any
application here.

ISLAND SALES, INC., plaintiff-appellee,

vs.
UNITED PIONEERS GENERAL
CONSTRUCTION COMPANY, ET. AL
defendants. BENJAMIN C.
DACO,defendant-appellant.
Grey, Buenaventura and Santiago for
plaintiff-appellee.
Anacleto D. Badoy, Jr. for defendantappellant.

CONCEPCION JR., J.:

Appellants also assign error to the action

of the trial court in ordering them to pay
plaintiff, jointly and severally, the sums
claimed with 9 per cent interest on
P16,518.74, owing from them.

This is an appeal interposed by the

defendant Benjamin C. Daco from the
decision of the Court of First Instance of
Manila, Branch XVI, in Civil Case No.

50682, the dispositive portion of which

reads:

Subsequently, on motion of the plaintiff,

the complaint was dismissed insofar as
the defendant Romulo B. Lumauig is
concerned. 2

WHEREFORE, the Court

sentences defendant United
Pioneer General
Construction Company to
pay plaintiff the sum of
P7,119.07 with interest at
the rate of 12% per annum
until it is fully paid, plus
attorney's fees which the
Court fixes in the sum of
Eight Hundred Pesos
(P800.00) and costs.

When the case was called for hearing, the

defendants and their counsels failed to
appear notwithstanding the notices sent
to them. Consequently, the trial court
authorized the plaintiff to present its
evidence ex-parte 3 , after which the trial
court rendered the decision appealed
from.
The defendants Benjamin C. Daco and
Noel C. Sim moved to reconsider the
decision claiming that since there are five
(5) general partners, the joint and
subsidiary liability of each partner should
not exceed one-fifth ( 1/ 5 ) of the
obligations of the defendant company. But
the trial court denied the said motion
notwithstanding the conformity of the
plaintiff to limit the liability of the
defendants Daco and Sim to only one-fifth
( 1/ 5 ) of the obligations of the defendant
company. 4Hence, this appeal.

The defendants Benjamin C.

Daco, Daniel A. Guizona,
Noel C. Sim and Augusto
Palisoc are sentenced to pay
the plaintiff in this case with
the understanding that the
judgment against these
individual defendants shall
be enforced only if the
defendant company has no
more leviable properties
with which to satisfy the
judgment against it. .

The only issue for resolution is whether or

not the dismissal of the complaint to favor
one of the general partners of a
partnership increases the joint and
subsidiary liability of each of the
remaining partners for the obligations of
the partnership.

The individual defendants

shall also pay the costs.
On April 22, 1961, the defendant
company, a general partnership duly
registered under the laws of the
Philippines, purchased from the plaintiff a
motor vehicle on the installment basis and
for this purpose executed a promissory
note for P9,440.00, payable in twelve (12)
equal monthly installments of P786.63,
the first installment payable on or before
May 22, 1961 and the subsequent
installments on the 22nd day of every
month thereafter, until fully paid, with the
condition that failure to pay any of said
installments as they fall due would render
the whole unpaid balance immediately
due and demandable.

Article 1816 of the Civil Code provides:

Art. 1816. All partners
including industrial ones,
shall be liable pro rata with
all their property and after
all the partnership assets
have been exhausted, for
the contracts which may be
entered into in the name
and for the account of the
partnership, under its
signature and by a person
authorized to act for the
partnership. However, any
partner may enter into a
separate obligation to
perform a partnership
contract.

Having failed to receive the installment

due on July 22, 1961, the plaintiff sued the
defendant company for the unpaid
balance amounting to P7,119.07.
Benjamin C. Daco, Daniel A. Guizona, Noel
C. Sim, Romulo B. Lumauig, and Augusto
Palisoc were included as co-defendants in
their capacity as general partners of the
defendant company.

In the case of Co-Pitco vs. Yulo (8 Phil.

544) this Court held:
The partnership of Yulo and
Palacios was engaged in the
operation of a sugar estate
in Negros. It was, therefore,

Daniel A. Guizona failed to file an answer

and was consequently declared in
default. 1

a civil partnership as
distinguished from a
mercantile partnership.
Being a civil partnership, by
the express provisions of
articles l698 and 1137 of
the Civil Code, the partners
are not liable each for the
whole debt of the
partnership. The liability
is pro rata and in this case
Pedro Yulo is responsible to
plaintiff for only one-half of
the debt. The fact that the
other partner, Jaime
Palacios, had left the
country cannot increase the
liability of Pedro Yulo.

Insurance Office Ltd., and Springfield

Insurance Co., represented by Kuenzle &
Streiff, Inc., from the judgment of the
Court of First instance of Manila, the
dispositive part of which reads as follows:
Wherefore, judgment is rendered
ordering the defendant insurance
companies to pay to the plantiffs
Salomon Sharruf and Elias Eskenazi
the total amount of P40,000 plus
interest thereon at 8 per cent per
annum from the date of the filing of
the complaint, with the costs of the
trial. The defendants shall pay this
judgment jointly in proportion to
the respective policies issued by
them. The plaintiffs Salomon
Sharruf and Elias Eskenazi shall
recover the judgment share and
share alike, deducting from the
portion of the plaintiff Elias
Eskenazi the sum of P3,000 which
belongs and shall turned over to
the intervenor E. Awad & Co., Inc. It
is so ordered.

In the instant case, there were five (5)

general partners when the promissory
note in question was executed for and in
behalf of the partnership. Since the
liability of the partners is pro rata, the
liability of the appellant Benjamin C. Daco
shall be limited to only one-fifth ( 1/ 5 ) of
the obligations of the defendant company.
The fact that the complaint against the
defendant Romulo B. Lumauig was
dismissed, upon motion of the plaintiff,
does not unmake the said Lumauig as a
general partner in the defendant company.
In so moving to dismiss the complaint, the
plaintiff merely condoned Lumauig's
individual liability to the plaintiff.

In support of their appeal the appellants

assign the following alleged errors as
committed by the court a quo in its
decision in question, to wit:
1. the lower court erred in holding,
that Salomon Sharruf and Elias
Eskenazi had personality to sue,
either as a partnership or
individually, and therefore, an
insurable interest.

WHEREFORE, the appealed decision as

thus clarified is hereby AFFIRMED, without
pronouncement as to costs.

2. The lower court erred in holding,

that the fire that broke out in the
premises at Nos. 299-301 Muelle
de la Industria of this city, occupied
by the alleged plaintiffs, was not of
incendiary origin.

SO ORDERED.
G.R. No. 44119
1937

March 30,

SHARRUF & CO., known also as

SHARRUF & ESKENAZI, SALOMON
SHARRUF and ELIAS
ESKENAZI,plaintiffs-appellees,
vs.
BALOISE FIRE INSURANCE CO., SUN
INSURANCE OFFICE, LTD., and
SPRINGFIELD INSURANCE CO.,
represented by KUENZLE & STREIFF,
INC., defendants-appellants.

3. The lower court erred in holding,

that the "idea of using petroleum in
the fire in question, surged after
the fire for the purpose of making it
appear as a part of the evidence."
4. The lower court erred in holding,
that the claim of loss filed by the
alleged plaintiffs was not
fraudulent, but merely inaccurate,
due to the peculiar circumstances
of the case, such as the loss of
invoices and sales-slips.

Carlos A. Sobral for appellants.

Ramon Diokno for appellee.
VILLA-REAL, J.:

5. The lower court erred in

sentencing the defendants to pay
jointly to the alleged plaintiffs the

This is an appeal taken by the defendant

companies Baloise Fire Insurance Co., Sun

sum of P40,000, with interest

thereon at the rate of 8 per cent
year and costs.

Station, headed by Captain Charles A.

Baker, were the first to arrive at the scene
of the fire, followed by Captain Thomas F.
McIntyre of the Santa Cruz Fire Station,
who arrived at 12.44 o'clock. Having found
the door at No. 301, Muelle de la Industria
Street, where the building was in flames,
locked, the firemen pumped water on the
upper part of the building and later broke
open the door through which they an
entered the premises. They then saw an
inflamed liquid flowing towards the
sidewalk, the flames thereon blazing more
intensely every time water fell on them.
The liquid apparently came from under the
staircase of said floor. They likewise noted
that the entire space occupied by the
staircase was in flames except the
adjoining room. After the fire had been
extinguished, an earthen pot (Exhibit 15)
containing ashes and the residue of a
certain substance, all of which smelled of
petroleum, was found by detective Manalo
near the railing of the stairway of the
second floor. At about 8.30 o'clock that
same morning, detective Irada found
nother earthen pot (Exhibit 16), one-fourth
full of water smelled of petroleum, under
the staircase of the first floor; straw and
excelsior, that also smelled of petroleum,
around said pot, a red rag (Exhibit 18) in
front of the toilet, and a towel which also
smelled of petroleum can, Exhibit 21. On
the following day, September 23, 1933,
photographs were taken of the condition
of the different parts of the building and of
the goods found therein. Said photographs
are: Exhibit 1, showing the interior of the
first floor partially burned, with the
staircase, the doorway, the wooden
partition wall and pieces of wood scattered
on the floor supposed to be from the door
that was demolished; Exhibit 2, showing
about 8 or 9 scorched cases, some closed
and others open; Exhibit 3, showing the
space or hall of the upper floor partially
damaged by the fire at the place occupied
by the staircase, with chairs piled up and
unburnt, pieces of wood and debris
apparently from the cement partition wall
beside the staircase and the attic; Exhibit
4, showing the same space taken from
another angle, with the partition wall of
cement and stone and some broken
railings of the stairways; Exhibit 5,
showing a room with partially burnt
partition wall, with a wardrobe and a table
in the background, another table in the
center, a showcase near the wall with
porcelain and iron articles on top thereof
and fallen and burnt window shutters on
the floor; Exhibit 6, showing an open
unburnt showcase containing necklaces
with limitation stones and other jewelry;
Exhibit 7, showing piled up chairs and

6. The lower court erred in

overruling defendants' motion for
new trial and in failing to dismiss
the case altogether, with costs
against the alleged plaintiffs.
The preponderance of the evidence shows
the existence of the following facts:.
In the months of June and July 1933, the
plaintiffs Salomon Sharruf and Elias
Eskenazi were doing business under the
firm name of Sharruf & Co. As they had
applied to the defendant companies for
insurance of the merchandise they had in
stock, the latter sent their representative
P. E. Schiess to examine and asses it. On
July 25, 1933, the defendant insurance
companies issued insurance policies
Exhibits D, E, and F in the total amount of
P25,000 in the name of Sharruf & Co.
issued an additional policy (Exhibit G) in
the sum of P15,000 in favor of said firm
Sharruf & Co., raising the total amount of
the insurance on said merchandise to
P40,000. On August 26, 1933, the
plaintiffs executed a contract of
partnership between themselves (Exhibit
A) wherein they substituted the name of
Sharruf & Co. with the Sharruf & Eskenazi,
stating that Elias Eskenazi contributed to
the partnership, as his capital, goods
valued at P26,299.94 listed in an
inventory Exhibit B. It was likewise stated
in said contract that Salomon Sharruf
brought to said partnership, as his capital,
goods valued at P24,205.10, appearing in
the inventories Exhibit C and C-1. The
total value of the merchandise contributed
by both partners amounted to P50,505.04.
Part of said merchandise, most of which
were textiles, was sold for P8,000, leaving
goods worth P43,000. In all there were
from 60 to 70 bolts of silk. All the goods,
most of which were aluminum kitchen
utensils, various porcelain and glass
wares, and other articles of stucco, were
contained in about 39 or 40 cases. The
last time the plaintiffs were in the building
was on September 19, 1933, at 4 o'clock
in the afternoon. Up to the month of
September 1933, about 30 or 40 cases of
merchandise belonging to the plaintiffs
were in Robles' garage at No. 1012 Mabini
Street.
At about 12.41 o'clock on the morning of
September 22, 1933, the fire alarm bell
rang in the different fire stations of the
city. The firemen of the San Nicolas Fire

boxes and the burned and destroyed

upper part of the partition wall and attic;
Exhibit 8, presenting a showcase with a
burnt top, containing kitchen utensils,
tableware, dinner pails and other articles;
Exhibit 9, presenting a half-open trunk
with protruding ends of cloth, other pieces
of cloth scattered on the floor, a step of
the staircase and a bench; Exhibit 10,
showing the partially destroyed attic and
wires wound around the beams; Exhibit
11, presenting another view of the same
attic from another angle. On the 27th of
said month and year, the following
photographs were taken: Exhibit 12,
presenting a close-up of the beams and
electric wiring on September 25, 1933,
was of the opinion that the wires wound
around the beam and a nail might have
caused the fire, but he could not assure
whether any of the wires was burned due
to an electrical discharge the passed
through it, or whether or not the fire
started from the lighting system. In the
burned building the plaintiffs kept
petroleum used for cleaning the floor.

In the present case, while it is true that at

the beginning the plaintiffs had been
doing business in said name of "Sharruf &
Co.", insuring their business in said name,
and upon executing the contract of
partnership (exhibit A) on August 26,
1933, they changed the title thereof to
"Sharruf & Eskenazi," the membership of
the partnership in question remained
unchanged, the same and only members
of the former, Salomon Sharruf and Elias
Eskenazi, being the ones composing the
latter, and it does not appear that in
changing the title of the partnership they
had the intention of defrauding the herein
defendant insurance companies.
Therefore, under the above-cited doctrine
the responsibility of said defendants to the
plaintiffs by virtue of the respective
insurance policies has not been altered. If
this is true, the plaintiffs have juridical
personality to bring this action.
The second question to be decided is that
raised in the second assignment of alleged
error, which consists in whether or not the
fire which broke out in the building at Nos.
299-301 Muelle de la Industria, occupied
by the plaintiffs, is of incentiary origin.

The first question to be decided in the

present appeal, which is raised in the first
assignment of alleged error, is whether or
not Salomon Sharruf and Elias Eskenazi
had juridical personality to bring this
action, either individually or collectively,
and whether or not they had insurable
interest.

In maintaining the affirmative, the

appellants call attention to the earthen
pots Exhibits 15 and 16, the first found by
detective Manalo beside the railing of the
stairways of the upper floor and the
second found by detective Irada on the
first floor, both containing liquid, ashes
and other residues which smelled of
petroleum; a red rag (Exhibit 18) found by
detective Irada in front of the toilet; the
partially burnt box (Exhibit 20); and the
old can (Exhibit 21) containing garbage.
The fact that the liquid found by the
detectives in the earthen jars smelled of
petroleum, does not constitute conclusive
evidence that they had been used as
containers for petroleum to burn the
house. Said smell could have very well
come the strips of China wood of which
boxes from abroad are made, the resin of
which smells of petroleum, or from the
rags found therein which might have been
used to clean the floor by saturating them
with petroleum. There being petroleum for
cleaning the floor in the building, it is not
strange that when the house caught fire
the petroleum also caught fire, the flames
floating on the water coming out from
under the door from the pumps. There is
neither direct nor strong circumstantial
evidence that the plaintiffs personally or
through their agents placed petroleum in
the building in order to burn it, because it
was locked on the outside and nobody was

As already seen, Salomon Sharruf and

Elias Eskenazi were doing business under
the firm name of Sharruf & Co. in whose
name the insurance policies were issued,
Elias Eskenazi having paid the
corresponding premiums.
In the case of Lim Cuan Sy vs. Northern
Assurance Co. (55 Phil., 248), this court
said:
A policy insuring merchandise
against fire is not invalidated by
the fact that the name of the
insured in the policy is incorrectly
written "Lim Cuan Sy" instead of
"Lim Cuan Sy & Co.", the latter
being the proper legal designation
of the firm, where it appears that
the designation "Lim Cuan Sy" was
commonly used as the name of the
firm in its business dealings and
that the error in the designation of
the insured in the policy was not
due to any fraudulent intent on the
part of the latter and did not
mislead the insurer as to the extent
of the liability assumed.

staying therein. As it cannot be assumed

that the petroleum might have burned by
itself, it is probable that the fire might
have originated from the electric wiring,
although electrical engineer Mora stated
that he could not assure whether any of
the wires was burned due to an electric
discharge passing through it, or whether
or not the fire was caused by the lighting
system.

valued at P3,471.16, were left after the

fire (Exhibit K). According to said plaintiffs,
all the articles, for the alleged loss of
which indemnity is sought, were contained
in about 40 showcases and wardrobes.
According to the testimony of the fire
station chiefs, corrobarated by the
photographs of record, the flames caused
more damage in the upper part of the
rooms than in the lower part thereof;
since, of the ten or eleven cases found
inside the building after the fire, only a
few were partially burned and others
scorched judging from their appearance,
the goods were damaged more by water
than by fire. According to the inventory
made by White & Page, adjusters of the
insurance companies, in the presence of
the plaintiffs themselves and according to
data supplied by the latter, the total value
thereof, aside, from the articles not
included in the inventories Exhibits B, C,
and C-1, assessed at P744.50, amounts to
only P8,077.35. If the plaintiffs' claim that
at time of the fire there were about 40
cases inside the burnt building were true,
a ten or eleven of them were found after
the fire, traces of the thirty or twenty-nine
cases allegedly burnt would be found,
since experience has shown that during
the burning of a building all the cases
deposited therein are not so reduced to
ashes that the least vestige thereof cannot
be found. In the case of Go
Lu vs. Yorkshire Insurance Co. (43 Phil.,
633), this court laid down the following
doctrine:

Upon consideration of all the evidence and

circumstances surrounding the fire, this
court finds no evidence sufficient to
warrant a finding that the plaintiffs are
responsible for the fire.
With respect to the question whether or
not the claim of loss filed by the plaintiffs
is fraudulent, it is alleged by them that the
total value of the textiles contained in
cases deposited inside the building when
the partnership Sharruf & Eskenazi was
formed was P12,000; that of the fancy
jewelry with imitation stones from P15,000
to P17,000, and that of the kitchen
utensils and tableware made of aluminum,
bronze and glass P10,676 (Exhibits B, C,
and C-1). If, as said plaintiffs claim, they
had already sold articles, mostly textiles,
valued at P8,000, a small quantity of cloth
must have been left at the time the fire
occured. In their claim, however, the
textiles allegedly consumed by fire and
damaged by water are assessed by them
at P12,000. The claim of P12,000 is
certainly not attributable to a mere
mistake in estimate and counting because
if they had textiles worth only P12,000
before the fire and they sold goods, mostly
textiles, worth P8,000, surely textiles in
the same amount of P12,000 could not
have been burned and damaged after the
fire. Of the kitchen utensils and tableware
made of aluminum, bronze and glass, of
which, according to the evidence for the
plaintiffs, they had a stock valued at
P10,676 (Exhibit B), there were found after
the fire articles worth only P1,248.80
(Exhibit K). Therefore, utensils valued at
P9,427.20 were lacking. A considerable
amount of kitchen utensils made of
noninflammable and fire-proof material
could not, by the very nature of things
have been totally consumed by the fire. At
most, said articles would have been
damaged, as the rest, and would have left
traces of their existence. The same may
be said of the fancy jewels with imitation
stones, and others of which the fancy
jewels with imitation stones, and others of
which the plaintiffs claim to have had a
stock worth from P15,000 to P17,000 at
the time of the fire, of which only a few

This court will legally presume that

in an ordinary fire fifty bales or
boxes of bolt goods of cloth cannot
be wholly consumed or totally
destroyed, and that in the very
nature of things some trace or
evidence will be left remaining of
their loss or destruction.
The plaintiffs, upon whom devolve the
legal obligation to prove the existence, at
the time of the fire, of the articles and
merchandise for the destruction of which
they claim indemnity from the defendant
companies, have not complied with their
duty because they have failed to prove by
a preponderance of evidence that when
the fire took place there where in the
burnt building articles and merchandise in
the total amount of the insurance policies
or that the textiles and other damaged
and undamaged goods found in the
building after the fire were worth P40,000.
On the contrary, their own witness,
Robles, testified that up to the month of
September, 1933, there were about 39 or

40 cases belonging to the plaintiffs in his

garage on Mabini Street, indicating
thereby that the cases of merchandise
examined by the agent of the insurance
companies on July 25 and August 15,
1933, and for which the insurance policies
were issued, were taken from the burned
building where they were found. So great
is the difference between the amount of
articles insured, which the plaintiffs claim
to have been in the building before the
fire, and the amount thereof shown by the
vestige of the fire to have been therein,
that the most liberal human judgment can
not attribute such difference to a mere
innocent error in estimate or counting but
to a deliberate intent to demand of the
insurance companies payment of an
indemnity for goods not existing at the
time of the fire, thereby constituting the
so-called "fraudulent claim" which, by
express agreement between the insurers
and the insured, is a ground for exemption
of the insurers from civil liability.

can neither logically nor reasonably be

inferred that 40 of said cases were inside
the building when the fire broke out.
Wherefore, the appealed judgment is
reversed, and the defendant companies
are absolved from the complaint which is
dismissed, with costs to the appellees. So
ordered.
.R. No. L-3704 December 12, 1907
LA COMPAIA MARITIMA, plaintiffappellant,
vs.
FRANCISCO MUOZ, ET
AL., defendants-appellees.
Rosado, Sanz and Opisso, for appellant.
Haussermann, Cohn and Williams, for
appellees.

Therefore, as the herein plaintiffsappellees have acted in bad faith in

presenting a fraudulent claim, they are not
entitled to the indemnity claimed by them
by virtue of the insurance policies issued
by the defendant-appellant companies in
their favor.

WILLARD, J.:
The plaintiff brought this action in the
Court of First Instance of Manila against
the partnership of Franciso Muoz & Sons,
and against Francisco Muoz de Bustillo,
Emilio Muoz de Bustillo, and Rafael Naval
to recover the sum of P26,828.30, with
interest and costs. Judgment was rendered
in the court below acquitting Emilio Muoz
de Bustillo and Rafael Naval of the
complaint, and in favor of the plaintiff and
against the defendant partnership,
Francisco Muoz & Sons, and Francisco
Muoz de Bustillo form the sum of
P26,828.30 with interest at the rate of 8
per cent per annum from the 31st day of
March, 1905, and costs. From this
judgment the plaintiff appealed.

For the foregoing considerations, this court

is of the opinion and so holds: (1) that
when the partners of a general
partnership doing business under the firm
name of "Sharruf & Co." obtain insurance
policies issued to said firm and the latter is
afterwards changed to "Sharruf &
Eskenazi", which are the names of the
same and only partners of said firm
"Sharruf & Co.", continuing the same
business, the new firm acquires the rights
of the former under the same policies; (2)
that when the evidence relative to the
cause of a fire and the author thereof is so
vague and doubtful, the insured cannot be
attributed incendiary intervention therein
for the mere fact that he had the keys to
the unoccupied building in his possession;
(3) that a person who presents a claim for
damages caused by fire to articles and
goods not existing at the time of the fire
does so fradulently and his claim is
fraudulent, and (4) that when immediately
after a fire that broke out inside a
completely locked building, lasting
scarcely 27 minutes, only about ten or
eleven partly burned and scorched cases,
some containing textiles and wrapping
paper and others, statutes of saints, have
been found without any trace of the
destruction of other cases by said fire, it

On the 31st day of March, 1905, the

defendants Francisco Muoz, Emilio
Muoz, and Rafael Naval formed on
ordinary general mercantile partnership
under the name of Francisco Muoz &
Sons for the purpose of carrying on the
mercantile business in the Province of
Albay which had formerly been carried on
by Francisco Muoz. Francisco Muoz was
a capitalist partner and Emilio Muoz and
Rafael Naval were industrial partners.
It is said in the decision of the court below
that in the articles of partnership it was
called an ordinary, general mercantile
partnership, but that from the article it
does not appear to be such a partnership.
In the brief of the appellees it is also

claimed that it is not an ordinary, general

commercial partnership. We see nothing in
the case to support either the statement
of the court below in its decision or the
claim of the appellees in their brief. In the
articles of partnership signed by the
partners it is expressly stated that they
have agreed to form, and do form, an
ordinary, general mercantile partnership.
The object of the partnership, as stated in
the fourth paragraph of the articles, is a
purely mercantile one and all the
requirements of the Code of Commerce in
reference to such partnership were
complied with. The articles of partnership
were recorded in the mercantile registry in
the Province of Albay. If it should be held
that the contract made in this case did not
create an ordinary, general mercantile
partnership we do not see how one could
be created.

express consent of the partnership. With

reference to civil partnerships, section
1683 of the Civil Code relates to the same
manner.
It is also said in the brief of the appellees
that Emilio Muoz was entirely excluded
from the management of the business. It
rather should be said that he excluded
himself from such management, for he
signed the articles of partnership by the
terms of which the management was
expressly conferred by him and the others
upon the persons therein named. That
partners in their articles can do this,
admits of no doubt. Article 125 of the
Code of Commerce requires them to state
the partners to whom the management is
intrusted. This right is recognized also in
article 132. In the case of Reyes vs. The
Compania Maritima (3 Phil. Rep., 519) the
articles of association provided that the
directors for the first eight years should be
certain persons named therein. This court
not only held that such provision was valid
but also held that those directors could
not be removed from office during the
eight years, even by a majority vote of all
the stockholders of the company.

The claim of the appellees that Emilio

Muoz contributed nothing to the
partnership, either in property, money, or
industry, can not be sustained. He
contributed as much as did the other
industrial partner, Rafael Naval, the
difference between the two being that
Rafael Naval was entitled by the articles of
agreement to a fixed salary of P2,500 as
long as he was in charge of the branch
office established at Ligao. If he had left
that branch office soon after the
partnership was organized, he would have
been in the same condition then that
Emilio Muoz was from the beginning.
Such a change would have deprived him
of the salary P2,500, but would not have
affected in any way the partnership nor
have produced the effect of relieving him
from liability as a partner. The argument of
the appellees seems to be that, because
no yearly or monthly salary was assigned
to Emilio Muoz, he contributed nothing to
the partnership and received nothing from
it. By the articles themselves he was to
receive at the end of five years one-eighth
of the profits. It can not be said, therefore,
that he received nothing from the
partnership. The fact that the receipt of
this money was postponed for five years is
not important. If the contention of the
appellees were sound, it would result that,
where the articles of partnership provided
for a distribution of profits at the end of
each year, but did not assign any specific
salary to an industrial partner during that
time, he would not be a member of the
partnership. Industrial partners, by signing
the articles, agree to contribute their work
to the partnership and article 138 of the
Code of Commerce prohibits them from
engaging in other work except by the

Emilio Muoz was, therefore, a general

partner, and the important question in the
case is whether, as such general partner,
he is liable to third persons for the
obligations contracted by the partnership,
or whether he relieved from such liability,
either because he is an industrial partner
or because he was so relieved by the
express terms of the articles of
partnership.
Paragraph 12 of the articles of partnership
is as follows:
Twelfth. All profits arising from
mercantile transactions carried on,
as well as such as may be obtained
from the sale of property and other
assets which constitute the
corporate capital, shall be
distributed, on completion of the
term of five years agreed to for the
continuation of the partnership, in
the following manner: Threefourths thereof for the capitalist
partner Francisco Muoz de Bustillo
and one-eighth thereof for the
industrial partner Emilio Muoz de
Bustillo y Carpiso, and the
remaining one-eighth thereof for
the partner Rafael Naval y Garcia.
If, in lieu of profits, losses should
result in the winding up of the
partnership, the same shall be for

10

the sole and exclusive account of

the capitalist partner Francisco
Muoz de Bustillo, without either of
the two industrial partners
participating in such losses.

All the members of the general

copartnership, be they or be they
not managing partners of the
same, are liable personally and in
solidum with all their property for
the results of the transactions
made in the name and for the
account of the partnership, under
the signature of the latter, and by a
person authorized to make use
thereof.

Articles 140 and 141 of the Code of

Commerce are as follows:
ART. 140. Should there not have
been stated in the articles of
copartnership the portion of the
profits to be received by each
partner, said profits shall be
divided pro rata, in accordance
with the interest each one has on
the copartnership, partners who
have not contributed any capital,
but giving their services, receiving
in the distribution the same
amount as the partner who
contributed the smallest capital.

Do the words "all the partners" found in

this article include industrial partners? The
same expression is found in other articles
of the code. In article 129 it is said that, if
the management of the partnership has
not been limited by special act to one of
the partners, all shall have the right to
participate in the management. Does this
mean that the capitalist partners are the
only ones who have that right, or does it
include also industrial partners? Article
132 provides that, when in the articles of
partnership the management has been
intrusted to a particular person, he can not
be deprived of such management, but that
in certain cases the remaining partners
may appoint a comanager. Does the
phrase "remaining partners" include
industrial partners, or is it limited to
capitalist partners, and do industrial
partners have no right to participate in the
selection of the comanager? Article 133
provides that all the partners shall have
the right to examine the books of the
partnership. Under this article are the
capitalist partners the only ones who have
such right? Article 135 provides that the
partners can not use the firm name in
their private business. Does this limitation
apply only to capitalist partners or does it
extend also to industrial partners? Article
222 provides that a general partnership
shall be dissolve by the death of one of
the general partners unless it is otherwise
provided in the articles. Would such a
partnership continue if all the industrial
partners should die? Article 229 provides
that upon a dissolution of a general
partnership it shall be liquidated by the
former managers, but, if all the partners
do not agree to this, a general meeting
shall be called, which shall determine to
whom the settlement of the affairs shall
be intrusted. Does this phrase "all the
partners" include industrial partners, or
are the capitalist partners the only ones
who have a voice in the selection of a
manager during a period of liquidation?
Article 237 provides that the private
property of the general partners shall not
be taken in payment of the obligations of
the partnership until its property has been

ART. 141. Losses shall be charged

in the same proportion among the
partners who have contributed
capital, without including those
who have not, unless by special
agreement the latter have been
constituted as participants therein.
A comparison of these articles with the
twelfth paragraph above quoted will show
that the latter is simply a statement of the
rule laid down in the former. The article do
not, therefore, change the rights of the
industrial partners as they are declared by
the code, and the question may be
reduced to the very simple one namely, Is
an industrial partner in an ordinary,
general mercantile partnership liable to
third persons for the debts and obligations
contracted by the partnership?
In limited partnership the Code of
Commerce recognizes a difference
between general and special partners, but
in a general partnership there is no such
distinction-- all the members are general
partners. The fact that some may be
industrial and some capitalist partners
does not make the members of either of
these classes alone such general partners.
There is nothing in the code which says
that the industrial partners shall be the
only general partners, nor is there
anything which says that the capitalist
partners shall be the only general
partners.
Article 127 of the Code of Commerce is as
follows:

11

exhausted. Does the phrase "the general

partners" include industrial partners?

industrial partners to third persons for the

obligations of the company. If it does, then
it also fixes the liability of the capitalist
partners to the same persons for the same
obligations. If this article says that
industrial partners are not liable for the
debts of the concern, it also says that the
capitalist partners shall be only liable for
such debts in proportion to the amount of
the money which they have contributed to
the partnership; that is to say, that if there
are only two capitalist partners, one of
whom has contributed two-thirds of the
capital and the other one-third, the latter
is liable to a creditor of the company for
only one-third of the debt and the former
for only two-thirds. It is apparent that,
when given this construction, article 141 is
directly in conflict with article 127. It is not
disputed by the appellees that by the
terms of article 127 each one of the
capitalist partners is liable for all of the
debts, regardless of the amount of his
contribution, but the construction which
they put upon article 141 makes such
capitalist partners liable for only a
proportionate part of the debts.

In all of these articles the industrial

partners must be included. It can not have
been intended that, in such a partnership
as the one in question, where there were
two industrial and only one capitalist
partner, the industrial partners should
have no voice in the management of the
business when the articles of partnership
were silent on that subject; that when the
manager appointed mismanages the
business the industrial partners should
have no right to appoint a comanager;
that they should have no right to examine
the books; that they might use the firm
name in their private business; or that
they have no voice in the liquidation of the
business after dissolution. To give a person
who contributed no more than, say, P500,
these rights and to take them away from a
person who contributed his services,
worth, perhaps, infinitely more than P500,
would be discriminate unfairly against
industrial partners.
If the phrase "all the partners" as found in
the articles other than article 127 includes
industrial partners, then article 127 must
include them and they are liable by the
terms thereof for the debts of the firm.

There is no injustice in imposing this

liability upon the industrial partners. They
have a voice in the management of the
business, if no manager has been named
in the articles; they share in the profits
and as to third persons it is no more than
right that they should share in the
obligations. It is admitted that if in this
case there had been a capitalist partner
who had contributed only P100 he would
be liable for this entire debt of P26,000.

But it is said that article 141 expressly

declares to the contrary. It is to be noticed
in the first place that this article does not
say that they shall not be liable for losses.
Article 140 declares how the profits shall
be divided amongthe partners. This article
simply declares how the losses shall be
divided among the partners. The use of
the words se imputaran is significant. The
verb means abonar una partida a alguno
en su cuenta o deducirla de su debito.
Article 141 says nothing about third
persons and nothing about the obligations
of the partnership.

Our construction of the article is that it

relates exclusively to the settlement of the
partnership affairs among the partners
themselves and has nothing to do with the
liability of the partners to third persons;
that each one of the industrial partners is
liable to third persons for the debts of the
firm; that if he has paid such debts out of
his private property during the life of the
partnership, when its affairs are settled he
is entitled to credit for the amount so paid,
and if it results that there is not enough
property in the partnership to pay him,
then the capitalist partners must pay him.
In this particular case that view is
strengthened by the provisions of article
12, above quoted. There it is stated that if,
when the affairs of the partnership are
liquidated that is, at the end of five
years it turns out that there had been
losses instead of gains, then the capitalist
partner, Francisco Muoz, shall pay such
losses that is, pay them to the industrial
partners if they have been compelled to

While in this section the word "losses"

stand's alone, yet in other articles of the
code, where it is clearly intended to
impose the liability to third persons, it is
not considered sufficient, but the word
"obligations" is added. Thus article 148, in
speaking of the liability of limited partners,
uses the phrase las obligaciones y
perdidas. There is the same use of the two
same words in article 153, relating to
anonymous partnership. In article 237 the
word "obligations" is used and not the
word "losses."
The claim of the appellees is that this
article 141 fixes the liability of the

12

disburse their own money in payment of

the debts of the partnership.

General partnership of profits

include all that the partners may
acquire by their by their industry or
work during the continuation of the
partnership.

While this is a commercial partnership and

must be governed therefore by the rules
of the Code of Commerce, yet an
examination of the provisions of the Civil
Code in reference to partnerships may
throw some light upon the question here
to be resolved. Articles 1689 and 1691
contain, in substance, the provisions of
articles 140 and 141 of the Code of
Commerce. It is to be noticed that these
articles are found in section 1 of Chapter II
[Title VIII] of Book IV. That section treats of
the obligations of the partners between
themselves. The liability of the partners as
to third persons is treated in a distinct
section, namely, section 2, comprising
articles from 1697 to 1699.

Personal or real property which

each of the partners may possess
at the time of the celebration of the
agreement shall continue to be
their private property, the usufruct
only passing to the partnership.
It might very well happen in partnership of
this kind that no one of the partners would
have any private property and that if they
did the usufruct thereof would be
inconsiderable.
Having in mind these different cases which
may arise in the practice, that
construction of the law should be avoided
which would enable two persons, each
with a large amount of private property, to
form and carry on a partnership and, upon
the bankruptcy of the latter, to say to its
creditors that they contributed no capital
to the company but only their services,
and that their private property is not,
therefore, liable for its debts.

If industrial partners in commercial

partnerships are not responsible to third
persons for the debts of the firm, then
industrial partners in civil partnerships are
not. Waiving the question as to whether
there can be a commercial partnership
composed entirely of industrial partners, it
seems clear that there can be such civil
partnership, for article 1678 of the Civil
Code provides as follows:

But little light is thrown upon this question

by the authorities. No judgment of the
supreme court of Spain has been called to
our attention, and we have been able to
find none which refers in any way to this
question. There is, therefore, no authority
from the tribunal for saying that an
industrial partner is not liable to third
persons for the debts of the partnership.

A particular partnership has for its

object specified things only, their
use of profits, or a specified
undertaking, or the exercise of a
profession or art.
It might very easily happen, therefor, that
a civil partnership could be composed
entirely of industrial partners. If it were,
according to the claim of the appellees,
there would be no personal responsibility
whatever for the debts of the partnership.
Creditors could rely only upon the property
which the partnership had, which in the
case of a partnership organized for the
practice of any art or profession would be
practically nothing. In the case of Agustin
vs. Inocencio, 1 just decided by this
court, it was alleged in the complaint,
and admitted by the answer

In a work published by Lorenzo Benito in

1889 (Lecciones de derecho mercantil) it
is said that industrial partners are not
liable for debts. The author, at page 127,
divides general partnership into ordinary
and irregular. The irregular partnership are
those which include one or more industrial
partners. It may be said in passing that his
views can not apply to this case because
the articles of partnership directly state
that it is an ordinary partnership and do
not state that it is an irregular one. But his
view of the law seems to be derived from
something other than the Code of
Commerce now in force. He says:

That is partnership has been

formed without articles of
association or capital other than
the personal work of each one of
the partners, whose profits are to
be equally divided among
themselves.

. . . but it has not been very

fortunate in sketching the
characters of a regular collective
partnership (since it says nothing
conclusive in reference to the
irregular partnership) . . . . (p. 127.)

Article 1675 of the Civil Code is as follows:

13

And again:

kinds of partners, one with unlimited

responsibility and the other with limited
responsibility, but adopting his view as to
industrial partners, it should be said that
there are three kinds of partners, one with
unlimited responsibility, another with
limited responsibility, and the third, the
industrial partner, with no responsibility at
all. In Estasen's recent publication on
mercantile partnerships (Tratado de las
Sociedades Mercantiles) he quotes from
the work of Benito, but we do not
understand that he commits himself to the
doctrines therein laid down. In fact, in his
former treatise, Instituciones de Derecho
Mercantil (vol. 3, pp. 1-99), we find
nothing which recognizes the existence of
these irregular general partnerships, or
the exemption from the liability to third
persons of the industrial partners. He says
in his latter work (p. 186) that according to
Dr. Benito the irregular general partner
originated from the desire of the
partnership to associate with itself some
old clerk or employee as a reward for his
services and the interest which he had
shown in the affairs of the partnership,
giving him in place of a fixed salary a
proportionate part of the profits of the
business. Article 269 of the Code of
Commerce of 1829 relates to this subject
and apparently provides that such
partners shall not be liable for debts. If
this article was the basis for Dr. Benito's
view, it can be so no longer, for it does not
appear in the present code. We held in the
case of Fortis vs. Gutirrez Hermanos (6
Phil. Rep., 100) that a mere agreement of
that kind does not make the employee a
partner.

This article would not need to be

commented upon were it not
because the writer entirely
overlooked the fact that there
might exist industrial partners who
did not contribute with capital in
money, credits, or goods, which
partners generally participate in
the profits but not in the losses,
and whose position must also be
determined in the articles of
copartnership. (p. 128.)
And again: lawphil.net
The only defect that can be pointed
out in this article is the fact that it
has been forgotten that in
collective partnerships there are
industrial partners who, not being
jointly liable for the obligations of
the copartnership, should not
include their names in that of the
firm. (p. 129.)
As a logical result of his theory he says
that an industrial partner has no right to
participate in the administration of the
partnership and that his name can not
appear in the firm name. In this last
respect his view is opposed to that of
Manresa, who says (Commentaries on the
Spanish Civil Code, vol. 11, p. 330):
It only remains to us to state that a
partner who contributes his
industry to the concern can also
confer upon it the name or the
corporate name under which such
industry should be carried on. In
this case, so long as the
copartnership lasts, it can enjoy
the credit, reputation, and name or
corporate name under which such
industry is carried on; but upon
dissolution thereof the aforesaid
name or corporate name pertains
to the partner who contributed the
same, and he alone is entitled to
use it, because such a name or
style is an accessory to the work of
industrial partner, and upon
recovering his work or his industry
he also recovers his name or the
style under which he exercised his
activity. It has thus been decided
by the French court of cassation in
a decision dated June 6, 1859.

An examination of the works of Manresa

and Sanchez Roman on the Civil Code, and
of Blanco's Mercantile Law, will shows that
no one of these mentions in any way the
irregular general partnership spoken of by
Dr. Benito, nor is there anything found in
any one of these commentaries which in
any way indicates that an industrial
partner is not liable to third persons for
the debts of the partnership. An
examination of the French law will also
show that no distinction of that kind is
therein anywhere made and nothing can
be found therein which indicates that the
industrial partners are not liable for the
debts of the partnership. (FuzierHerman, Repertoire de Droit Francais, vol.
34, pp. 256, 361, 510, and 512.)
Our conclusion is upon this branch of the
case that neither on principle nor on
authority can the industrial partner be

In speaking of limited partnerships Benito

says (p. 144) that here are found two

14

relieved from liability to third persons for

the debts of the partnership.

When the plaintiff was first employed on

the 9th of January, 1907, this steam
laundry was owned and operated by
Freeman and Pierce. Pierce, on the 18th of
January, 1907, sold all of his right, title,
and interest in the said laundry to
Whitcomb, who, together with Freeman,
then became the owners of this laundry
and continued to operate the same as
long as the plaintiff was employed.

It is apparently claimed by the appellee in

his brief that one action can not be
maintained against the partnership and
the individual partners, this claim being
based upon the provisions of article 237 of
the Code of Commerce which provides
that the private property of the partners
shall not be taken until the partnership
property has been exhausted. But this
article furnishes to argument in support of
the appellee's claim. An action can be
maintained against the partnership and
partners, but the judgment should
recognize the rights of the individual
partners which are secured by said article
237.lawphil.net

The trial court found that the balance due

the plaintiff for services performed
amounted to the sum of P752. This finding
is fully supported by the evidence of
record.
Counsel for the appellant Whitcomb now
insists

The judgment of the court below is

reversed and judgment is ordered against
all of the defendants for the sum of
P26,828.30, with interest thereon at the
rate of 8 per cent per annum since the
31st day of March, 1905, and for the cost
of this action. Execution of such judgment
shall not issue against the private property
of the defendants Francisco Muoz, Emilio
Muoz, or Rafael Naval until the property
of the defendant Francisco Muoz & Sons
is exhausted. No costs will be allowed to
their party in this court. So ordered.
G.R. No. L-6252
1911

1. That the court erred in giving, jointly

and severally, a judgment against
Freeman and Whitcomb for any sum
whatever; and
2. That the court erred in holding the
appellant Whitcomb liable.
It appears from the record that Whitcomb
never knew the plaintiff, never had
anything to do with personally, and that
the plaintiff's contract was with Freeman,
the managing partner of the laundry. It
further appears from the record that
Pierce, after he sold his interest in this
laundry to Whitcomb, continued to look
after Whitcomb's interest by authority of
the latter.

January 28,

GEORGE O. DIETRICH, plaintiff-appellee,

vs.
O.K. FREEMAN, JAMES L. PIERCE, and
BURTON WHITCOMB, defendants.
BURTON WHITCOMB, appellant.

Articles 17 and 119 of the Code of

Commerce provide:
Art. 17. The record in the
commercial registry shall be
optional for private merchants and
compulsory for associations
established in accordance with this
code or with special laws, and for
vessels.

O'Brien and De Witt for appellant.

W. L. Wright for appellee.
TRENT, J.:
This action was brought against O.K.
Freeman, James L. Pierce, and Burton
Whitcomb, as owners and operators of the
Manila Steam Laundry, to recover the sum
of P952 alleged to be the balance due the
plaintiff for services performed during the
period from January 9, 1907, to December
31, 1908. Judgment was rendered in favor
of the plaintiff and against Freeman and
Whitcomb, jointly and severally, for the
sum of P752, with interest at the rate of 6
per cent per annum from the 27th day of
August, 1909, and the costs of the cause.
The complaint as to Pierce was dismissed,
Whitcomb alone appealing.

Art. 119 Every commercial

association before beginning
business shall be obliged to record
its establishment, agreements, and
conditions in a public instrument,
which shall be presented for record
in the commercial registry, in
accordance with the provisions of
article 17.
Additional instrument which modify
or alter in any manner whatsoever
the original contracts of the

15

association are subject to the same

formalities, in accordance with the
provisions of article 25.

In a partnership of cuentas en
participacion, under the provisions of
article 242 of the Code of Commerce,
those who contract with the person in
whose name the business of such a
partnership was conducted shall have only
the right of action against such person and
not against other persons interested. So
this case is easily distinguished from the
case at bar, in that the one did not have
the corporate name while the other was
known as the Manila Steam Laundry.

Partners can not make private

agreements, but all must appear in
the articles of copartnership.
In the organization of this partnership by
Freeman and Whitcomb the above
provisions of law were not complied with;
that is, no formal partnership was ever
entered into by them, notwithstanding the
fact that they were engaged in the
operation of this laundry.

The plaintiff was employed by and

performed services for the Manila Steam
Laundry and was not employed by nor did
he perform services for Freeman alone.
The public did not deal with Freeman and
Whitcomb personally, but with the Manila
Steam Laundry. These two partners were
doing business under this name and, as
we have said, it was not a commercial
partnership. Therefore, by the express
provisions of articles 1698 and 1137 of the
Civil Code the partners are not liable
individually for the entire amount due the
plaintiff. The liability is pro rata and in this
case the appellant is responsible to the
plaintiff for only one-half of the debt.

The purpose for which this partnership

was entered into by Freeman and
Whitcomb show clearly that such
partnership was not a commercial one;
hence the provisions of the Civil Code and
not the Code of Commerce must govern in
determining the liability of the partners.
(Manresa, vol. 1, p. 184; Aramburo, Civil
Capacity, 407, 432; Prautch vs.
Hernandez, 1 Phil. Rep., 705; and Co
Pitco vs. Yulo, 8 Phil. Rep., 544.)
In support of the second assignment of
error our attention has been called to the
cases of Hung-Man-Yoc vs. Kieng-ChiongSeng (6 Phil. Rep., 498); Ang Quian Cieg
vs. Te Chico (12 Phil. Rep., 533); Bourns
vs. Carman (7 Phil. Rep., 117). In the first
of these cases the partnership was a
mercantile one, as it was engaged in the
importation of goods for sale at a profit.
This was also true in the second case. In
neither of these cases were the provisions
of articles 17 and 119 of the Code of
Commerce complied with. Those
partnerships, although commercial, were
not organized in accordance with the
provisions of the Code of Commerce as
expressed in those articles. In determining
the liability of the partners in these cases
the court, after making the finding of
facts, was governed by the provisions of
article 120 of the Commercial Code. In the
last case cited the partnership was one
of cuentas en participacion. "A
partnership," quoting from the syllabus in
this case, "constituted in such a manner
that its existence was only known to those
who had an interest in the same, there
being no mutual agreement between the
partners, and without a corporate name
indicating to the public in some way that
there were other people besides the one
who ostensibly managed and conducted
the business, is exactly the accidental
partnership of cuentas en
participacion defined in article 239 of the
Code of Commerce."

For these reasons the judgment of the

court below is reversed and judgment
entered in favor of the plaintiff and against
the defendant Whitcomb for the sum of
P376, with interest as fixed by the court
below. No costs will be allowed either
party in this court.
A motion was filed on the 22nd of August,
1910, by O'Brien and De Witt, asking this
court to strike from the record certain
allegations in the printed brief of counsel
for the appellee. These allegations are as
follows: "Does the receipt bear the
earmarks of newly discovered evidence?
Or of newly manufactured evidence?"
These questions were directed against
O'Brien, one of the counsel for appellant in
this case, and were intended to have the
court believe that O'Brien had
manufactured the receipt referred to.
There is nothing in this record which
shows that O'Brien did falsify or
manufacture the receipt. These questions
are clearly impertinent. It is our duty to
keep our records clean and free from such
unwarranted statements. It is, therefore,
ordered that the same be stricken from
the record. So ordered.
G.R. No. 70403 July 7, 1989
SANTIAGO SYJUCO, INC., petitioner,
vs.

16

HON. JOSE P. CASTRO, AS PRESIDING

JUDGE OF THE REGIONAL TRIAL
COURT OF THE NATIONAL CAPITAL
JUDICIAL REGION, BRANCH LXXXV,
QUEZON CITY, THE CITY SHERIFF OF
THE CITY OF MANILA, THE CITY
REGISTER OF DEEDS OF THE CITY OF
MANILA, EUGENIO LIM, ARAMIS LIM,
MARIO LIM, PAULINO LIM, LORENZO
LIM, NILA LIM and/ or THE
PARTNERSHIP OF THE HEIRS OF HUGO
LIM and ATTORNEY PATERNO P.
CANLAS, respondents.

Lims from Syjuco, so that as of May 8,

1967, the aggregate of the loans stood at
P2,460,000.00, exclusive of interest, and
the security had been augmented by
bringing into the mortgage other property,
also registered as owned pro indiviso by
the Lims under two titles: TCT Nos. 75416
and 75418 of the Manila Registry.
There is no dispute about these facts, nor
about the additional circumstance that as
stipulated in the mortgage deed the
obligation matured on November 8, 1967;
that the Lims failed to pay it despite
demands therefor; that Syjuco
consequently caused extra-judicial
proceedings for the foreclosure of the
mortgage to be commenced by the Sheriff
of Manila; and that the latter scheduled
the auction sale of the mortgaged
property on December 27, 1968. 1 The
attempt to foreclose triggered off a legal
battle that has dragged on for more than
twenty years now, fought through five (5)
cases in the trial courts, 2 two (2) in the
Court of Appeals, 3 and three (3) more in
this Court, 4 with the end only now in
sight.

Doroteo B. Daguna and Felix D. Carao for

petitioner.
Paterno Canlas for private respondents.

NARVASA, J.:
This case may well serve as a textbook
example of how judicial processes,
designed to promote the swift and
efficient disposition of disputes at law, can
be so grossly abused and manipulated as
to produce precisely the opposite result;
how they can be utilized by parties with
small scruples to forestall for an
unconscionably long time so essentially
simple a matter as making the security
given for a just debt answer for its
payment.

1. CIVIL CASE
NO. 75180,
CFI MANILA,
BR.5; CA-G.R.
NO. 00242-R;
G.R. NO. L34683

The records of the present proceedings

and of two other cases already decided by
this Court expose how indeed the routine
procedure of an extrajudicial foreclosure
came by dint of brazen forum shopping
and other devious maneuvering to grow
into a veritable thicket of litigation from
which the mortgagee has been trying to
extricate itself for the last twenty years.

To stop the foreclosure, the Lims

through Atty. Marcial G. Mendiola, who was
later joined by Atty. Raul Correa filed
Civil Case No. 75180 on December
24,1968 in the Court of First Instance of
Manila (Branch 5). In their complaint they
alleged that their mortgage was void,
being usurious for stipulating interest of
23% on top of 11 % that they had been
required to pay as "kickback." An order
restraining the auction sale was issued
two days later, on December 26,1968,
premised inter alia on the Lims' express
waiver of "their rights to the notice and republication of the notice of sale which
may be conducted at some future date." 5

Back in November 1964, Eugenio Lim, for

and in his own behalf and as attorney-infact of his mother, the widow Maria
Moreno (now deceased) and of his brother
Lorenzo, together with his other brothers,
Aramis, Mario and Paulino, and his sister,
Nila, all hereinafter collectively called the
Lims, borrowed from petitioner Santiago
Syjuco, Inc. (hereinafter, Syjuco only) the
sum of P800,000.00. The loan was given
on the security of a first mortgage on
property registered in the names of said
borrowers as owners in common under
Transfer Certificates of Title Numbered
75413 and 75415 of the Registry of Deeds
of Manila. Thereafter additional loans on
the same security were obtained by the

On November 25,1970, the Court of First

Instance (then presided over by Judge
Conrado M. Vasquez 6 rendered judgment
finding that usury tained the mortgage
without, however, rendering it void,
declaring the amount due to be only
Pl,136,235.00 and allowing the foreclosure
to proceed for satisfaction of the
obligation reckoned at only said amount . 7

17

Syjuco moved for new trial to enable it to

present additional evidence to overthrow
the finding of usury, and the Court ordered
the case reopened for that purpose. The
Lims tried to negate that order of
reopening in the Court of Appeals, the
proceedings being docketed as CA-G.R.
No. 00242-R. They failed. The Court of
Appeals upheld the Trial Court. The Lims
then sought to nullify this action of the
Appellate Court; towards that end, they
filed with this Court a petition
for certiorari and prohibition, docketed as
G.R. No. L-34683. But here, too, they
failed; their petition was dismissed. 8

The Lims came to this Court seeking

reversal of the appellate Court's decision.
However, their petition for review-filed in
their behalf by Canlas, and Atty. Pio R.
Marcos, and docketed as G.R. No. L-45752was denied for lack of merit in a minute
resolution dated August 5, 1977. The Lims'
motion for reconsideration was denied and
entry of judgment was made on
September 24,1977. 13 Here the matter
should have ended; it marked only the
beginning of Syjuco's travails.
3. CIVIL CASE
NO.112762,
CFI MANILA
BRANCH 9

Thereafter, and on the basis of the

additional evidence adduced by Syjuco on
remand of the case from this Court, the
Trial Court promulgated an amended
decision on August 16, 1972, reversing its
previous holding that usury had flawed the
Lims' loan obligation. It declared that the
principal of said obligation indeed
amounted to P2,460,000.00, exclusive of
interest at the rate of 12% per annum
from November 8, 1967, and, that
obligation being already due, the
defendants (Syjuco and the Sheriff of
Manila) could proceed with the
extrajudicial foreclosure of the mortgage
given to secure its satisfaction. 9

Syjuco then resumed its efforts to proceed

with the foreclosure. It caused the auction
sale of the mortgaged property to be
scheduled on December 20, 1977, only to
be frustrated again by another action filed
by the Lims on December 19, 1977,
docketed as Civil Case No. 112762 of the
Court of First Instance of Manila. 14 The
action sought to stop the sale on the
ground that the notice of foreclosure had
not been republished; this,
notwithstanding that as earlier stressed,
the restraining order of December 26,
1968 issued in Civil Case No 75180
explicitly declared itself to be predicated
on the Lims' waiver of "their rights to the
notice and republication of the notice of
sale which may be conducted at some
future date." 15 An order restraining the
sale issued in the case, although the
petition for preliminary injunction was
subsequently denied. A supplemental
complaint was also filed by the Lims
seeking recovery of some Pl million in
damages allegedly suffered by reason of
said lack of republication. 16

2. APPEAL
FROM CIVIL
CASE NO.
75180; CAG.R. NO.
51752; G.R.
NO. L-45752
On September 9, 1972, Atty. Paterno R.
Canlas entered his appearance in Civil
Case No. 75180 as counsel for the Lims in
collaboration with Atty. Raul Correa, and
on the same date appealed to the Court of
Appeals from the amended decision of
August 16, 1972. 10 In that appeal, which
was docketed as CA G.R. No. 51752,
Messrs. Canlas and Correa prayed that the
loans be declared usurious; that the
principal of the loans be found to be in the
total amount of Pl,269,505.00 only, and
the interest thereon fixed at only 6% per
annum from the filing of the complaint;
and that the mortgage be also pronounced
void ab initio. 11

4. CIVIL CASE
NO. 75180
That very same claim that there had
been no republication of the notice of
sale, which was the foundation of the
Lims' action in Civil Case No. 112762 as
aforesaid was made by the Lims the
basis of an urgent motion filed on
December 15, 1977 in Civil Case No.
75180, in which, as earlier narrated, the
judgement authorizing the foreclosure had
been affirmed by both the Court of
Appeals and this Court, and had become
final and executory. And that motion
sought exactly the same remedy prayed
for in Civil Case No. 112762 (filed by the
Lims four [4] days later, on December 19,
1977), i.e., the prevention of the auction

The appeal met with no success. In a

decision promulgated on October 25,1976,
the Court of Appeals affirmed in toto the
Trial Court's amended decision. 12

18

sale. The Court -- Branch 5, then presided

over by Judge Jose H. Tecson granted
the restraining order on December 19,
1977, 17 the very same day that the Lims
commenced Civil Case No. 112762 in the
same Court and in which subsequent
action they asked for and obtained a
similar restraining order.

5. G.R. No. L56014

Finally, on January 28, 1981, Syjuco
betook itself to this Court, presumably no
longer disposed to await Judge Tecson's
pleasure or the Lims' convenience. It filed
a petition for certiorari and prohibition,
docketed as G.R. No. L-56014, alleging
that in Civil Case No. 75180, Judge Tecson
had gravely abused discretion in:

The Lims' counsel thus brought about the

anomalous situation of two (2) restraining
orders directed against the same auction
sale, based on the same ground, issued by
different courts having cognizance of two
(2) separate proceedings instituted for
identical objectives. This situation lasted
for all of three (3) years, despite the
republication of the notice of sale caused
by Syjuco in January, 1978 in an effort to
end all dispute about the matter, and
despite Judge Tecson's having been made
aware of Civil Case No. 112762. It should
have been apparent to Judge Tecson that
there was nothing more to be done in Civil
Case No. 75180 except to enforce the
judgment, already final and executory,
authorizing the extrajudicial foreclosure of
the mortgage, a judgment sanctioned, to
repeat, by both the Court of Appeals and
the Supreme Court; that there was in truth
no need for another publication of the
notice since the Lims had precisely waived
such republication, this waiver having
been the condition under which they had
earlier obtained an order restraining the
first scheduled sale; that, in any event, the
republication effected by Syjuco had
removed the only asserted impediment to
the holding of the same; and that, finally,
the Lims were acting in bad faith: they
were maintaining proceedings in two (2)
different courts for essentially the same
relief. 18 Incredibly, not only did Judge
Tecson refuse to allow the holding of the
auction sale, as was the only just and
lawful course indicated by the
circumstances, 19 he authorized the Lims
to sell the mortgaged property in a private
sale, 20 with the evident intention that the
proceeds of the sale, which he directed to
be deposited in court, would be divided
between Syjuco and the Lims; this, in line
with the patently specious theory
advocated by the Lims' counsel that the
bond flied by them for the postponement
of the sale, set at P6 million by the Court
(later increased by P 3 million) had
superseded and caused novation of the
mortgage. 21 The case lay fallow for a
year, certain other, incidents arising and
remaining unresolved on account of
numerous postponements.

(1) unreasonably delaying

the foreclosure of the
mortgage;
(2) entertaining the Lims'
motion to discharge said
mortgage grounded on the
theory that it had been
superseded and novated by
the Lims' act of filing the
bond required by Judge
Tecson in connection with
the postponement of the
foreclosure sale, and
unreasonably delaying
resolution of the issue; and
(3) authorizing the Lims to
negotiate and consummate
the private sale of the
mortgaged property and
motu proprio extending the
period granted the Lims for
the purpose, in disregard of
the final and executory
judgment rendered in the
case.
By judgment rendered on
September 21, 1982, after
due proceedings, this
Court 22 issued the writ
prayed for and nullified the
orders and actuations of
Judge Tecson in Civil Case
No. 75180. The judgment
declared that:
(1) the republication by
Syjuco of the notice of
foreclosure sale rendered
the complaint in Civil Case
No. 112762 moot and
academic; hence, said case
could not operate to bar the
sale;
(2) the Lims' bonds (of P 6
million and P 3 million),
having by the terms thereof
been given to guarantee

19

payment of damages to
Syjuco and the Sheriff of
Manila resulting from the
suspension of the auction
sale, could not in any sense
and from any aspect have
the effect of superseding
the mortgage or novating it;

in the Property Registry as owners pro

indiviso, in fact no longer belonged to
them at that time, having been earlier
deeded over by them to the partnership,
"Heirs of Hugo Lim", more precisely, on
March 30, 1959, hence, said mortgage
was void because executed by them
without authority from the partnership.

(3) in fact, the bonds had

become worthless when, as
shown by the record, the
bondsman's authority to
transact non-life insurance
business in the Philippines
was not renewed, for cause,
as of July 1, 1981.

The complaint was signed by a lawyer

other than Atty. Canlas, but the records
disclose that Atty. Canlas took over as
counsel as of November 4,1982. The case,
docketed as Civil Case No. Q-39295, was
assigned to Branch 35 of the Quezon City
Regional Trial Court, then presided over by
Judge Jose P. Castro.

The decision consequently decreed that

the Sheriff of Manila should proceed with
the mortgage sale, there being no further
impediment thereto. 23

Judge Castro issued a restraining order on

October 15, 1982. Then, Sheriff Perfecto
G. Dalangin submitted a return of
summons to the effect that on December
6, 1982 he

Notice of the decision was served on the

Lims, through Atty. Canlas, on October 2,
1982. A motion for reconsideration was
filed, 24 but the same was denied with
finality for lack of merit and entry of final
judgment was made on March 22,1983. 25

.. served personally and left

a copy of summons
together with a copy of
Complaint and its annexes x
x upon defendant's office
formerly at 313 Quirino
Ave., Paranaque, MetroManila and now at 407 Dona
Felisa Syjuco Building,
Remedios St., corner Taft
Avenue, Manila, through the
Manager, a person of
sufficient age and discretion
duly authorized to receive
service of such nature, but
who refused to accept
service and signed receipt
thereof. 26

6. THE
SECRET
ACTION CIVIL
CASE NO. Q36845 OF THE
REGIONAL
TRIAL COURT,
QUEZON
CITY, JUDGE
JOSE P.
CASTRO,
PRESIDING

A vaguer return will be hard to find. It is

impossible to discern from it where
precisely the summons was served,
whether at Quirino Avenue, Paranaque, or
Taft Avenue, Manila; and it is inexplicable
that the name of the person that the
sheriff had been able to identify as the
manager is not stated, the latter being
described merely as "a person of sufficient
age and discretion." In any event, as it
was to claim later, Syjuco asserts that it
was never so served with summons, or
with any other notice, pleading, or motion
relative to the case, for that matter.

Twelve (12) days after the Lims were

served, as above mentioned, with notice
of this Court's judgment in G.R. No. 56014,
or on October 14,1982, they caused the
filing with the Regional Trial Court of
Quezon City of still another action, the
third, also designed, like the first two, to
preclude enforcement of the mortgage
held by Syjuco.
This time the complaint was presented,
not in their individual names, but in the
name of a partnership of which they
themselves were the only partners: "Heirs
of Hugo Lim." The complaint advocated
the theory that the mortgage which they,
together with their mother, had
individually constituted (and thereafter
amended during the period from 1964 to
1967) over lands standing in their names

On February 10, 1983, Atty. Canlas filed an

ex-parte motion to declare Syjuco in
default. The order of default issued the
next day, also directing the plaintiff
partnership to present evidence ex parte
within three (3) days. On February 22,

20

1983, judgment by default was rendered,

declaring void the mortgage in question
because executed by the Lims without
authority from the partnership which was
and had been since March 30,1959 the
exclusive owner of the mortgaged
property, and making permanent an
injunction against the foreclosure sale that
had issued on January 14,1983. 27 Service
of notice of the default judgment was,
according to the return of the same Sheriff
Perfecto Dalangin, effected on the
following day, February 23, 1983. His
return is a virtual copy of his earlier one
regarding service of summons: it also
states the place of service as the
defendant's office, either at its former
location, 313 Quirino Avenue, Paranaque,
or at the later address, 407 Dona Felisa,
Syjuco Building, Taft Avenue, Manila; and it
also fails to identify the person on whom
service was made, describing him only as
"the clerk or person in charge" of the
office. 28

It is significant that the judgment by

default rendered by Judge Castro in Civil
Case No. Q-36485 was not asserted as
additional ground to support the cause of
action. Be this as it may, a restraining
order was issued on July 20,1983 in said
Civil Case No. 83-9018. 29
b. CIVIL CASE NO. Q-32924, RTC QUEZON
CITY
What the outcome of this case, No. 8319018, is not clear. What is certain is (1)
that the auction sale was re-scheduled for
September 20, 1983, (2) that it was
aborted because the Lims managed to
obtain still another restraining order in
another case commenced by their lawyer,
Atty. Canlas: Civil Case No. Q-32924 of the
Court of First Instance of Quezon City,
grounded on the proposition that the
publication of the notice of sale was
defective; and (3) that the action was
dismissed by the Regional Trial Court on
February 3, 1984. 30

Unaccountably, and contrary to what

might be expected from the rapidity with
which it was decided-twelve (12) days
from February 10, 1983, when the motion
to declare defendant Syjuco in default was
filed-the case was afterwards allowed by
Atty. Canlas to remain dormant for
seventeen (17) months. He made no effort
to have the judgment executed, or to avail
of it in other actions instituted by him
against Syjuco. The judgment was not to
be invoked until sometime in or after July,
1984, again to stop the extrajudicial
mortgage sale scheduled at or about that
time at the instance of Syjuco, as shall
presently be recounted.

No other salient details about these two

(2) cases are available in the voluminous
records before the Court, except that it
was Atty. Canlas who had filed them. He
admits having done so unequivocally:
"Thus, the undersigned counsel filed
injunction cases in Civil Case No. 83-19018
and Civil Case No. 39294, Regional Trial
Courts of Manila and Quezon City. ... " 31
7. REACTIVATION
OF CIVIL CASE
NO. Q-36485,
RTC, Q
QUEZON
CITY, BRANCH
XXXV

7. Other Actions in the

Interim:
a. CIVIL CASE No. 83-19018, RTC MANILA

Upon the dismissal of Civil Case No.

39294, Syjuco once more resumed its
efforts to effect the mortgage sale which
had already been stymied for more than
fifteen (15) years. At its instance, the
sheriff once again set a date for the
auction sale. But on the date of the sale, a
letter of Atty. Canlas was handed to the
sheriff drawing attention to the permanent
injunction of the sale embodied in the
judgment by default rendered by Judge
Castro in Civil Case No. Q36485. 32 Syjuco lost no time in inquiring
about Civil Case No. Q-36485, and was
very quickly made aware of the judgment
by default therein promulgated and the
antecedent events leading thereto. It was
also made known that on July 9, 1984,
Judge Castro had ordered execution of the

While the Lims, through their partnership

("Heirs of Hugo Lim"), were prosecuting
their action in the sala of Judge Castro, as
above narrated, Syjuco once again tried to
proceed with the foreclosure after entry of
judgment had been made in G.R. No.
56014 on March 22, 1983. It scheduled the
auction sale on July 30, 1983. But once
again it was frustrated. Another obstacle
was put up by the Lims and their counsel,
Atty. Canlas. This was Civil Case No. 8319018 of the Manila Regional Trial Court.
The case was filed to stop the sale on the
theory that what was sought to be realized
from the sale was much in excess of the
judgment in Civil Case No. 75180, and that
there was absence of the requisite notice.

21

judgment; that Judge Castro had on July

16, 1984 granted Atty. Canlas' motion to
declare cancelled the titles to the Lims'
mortgaged properties and as nun and void
the annotation of the mortgage and its
amendments on said titles, and to direct
the Register of Deeds of Manila to issue
new titles, in lieu of the old, in the name of
the partnership, "Heirs of Hugo Lim." 33

PROCEEDING
AT BAR
For the third time Syjuco is now before this
Court on the same matter. It filed on April
3, 1985 the instant petition for certiorari,
prohibition and mandamus. It prays in its
petition that the default judgment
rendered against it by Judge Castro in said
Civil Case No. Q-36485 be annulled on the
ground of lack of service of summons, res
judicata and laches, and failure of the
complaint to state a cause of action; that
the sheriff be commanded to proceed with
the foreclosure of the mortgage on the
property covered by Transfer Certificates
of Title Numbered 75413, 75415, 75416
and 75418 of the Manila Registry; and that
the respondents the Lims, Judge Castro,
the Sheriff and the Register of Deeds of
Manila, the partnership known as "Heirs of
Hugo Lim," and Atty. Paterno R. Canlas,
counsel for-the Lims and their partnershipbe perpetually enjoined from taking any
further steps to prevent the foreclosure.

On July 17,1984, Syjuco filed in said Civil

Case No. Q-36485 a motion for
reconsideration of the decision and for
dismissal of the action, alleging that it had
never been served with summons; that
granting arguendo that service had
somehow been made, it had never
received notice of the decision and
therefore the same had not and could not
have become final; and that the action
should be dismissed on the ground of bar
by prior judgment premised on the final
decisions of the Supreme Court in G.R. No.
L-45752 and G.R. No. 56014.
Two other motions by Syjuco quickly
followed. The first, dated July 20, 1984,
prayed for abatement of Judge Castro's
order decreeing the issuance of new
certificates of title over the mortgaged
lands in the name of the plaintiff
partnership. 34 The second, filed on July
24, 1984, was a supplement to the motion
to dismiss earlier filed, asserting another
ground for the dismissal of the action, i.e.,
failure to state a cause of action, it
appearing that the mortgaged property
remained registered in the names of the
individual members of the Lim family
notwithstanding that the property had
supposedly been conveyed to the plaintiff
partnership long before the execution of
the mortgage and its amendments,-and
that even assuming ownership of the
property by the partnership, the mortgage
executed by all the partners was valid and
binding under Articles 1811 and 1819 of
the Civil Code. 35

The comment filed for the respondents by

Atty. Canlas in substance alleged that (a)
Syjuco was validly served with summons
in Civil Case No. Q-36485, hence, that the
decision rendered by default therein was
also valid and, having been also duly
served on said petitioner, became final by
operation of law after the lapse of the
reglementary appeal period; (b) finality of
said decision removed the case from the
jurisdiction of the trial court, which was
powerless to entertain and act on the
motion for reconsideration and motion to
dismiss; (c) the petition was in effect an
action to annul a judgment, a proceeding
within the original jurisdiction of the Court
of Appeals; (d) the plea of res judicata
came too late because raised after the
decision had already become final;
moreover, no Identity of parties existed
between the cases invoked, on the one
hand, and Civil Case No. Q-36485, on the
other, the parties in the former being the
Lims in their personal capacities and in the
latter, the Lim Partnership, a separate and
distinct juridical entity; and the pleaded
causes of action being different, usury in
the earlier cases and authority of the
parties to encumber partnership property
in the case under review; (e) the plea of
laches also came too late, not having been
invoked in the lower court; and (f) the
property involved constituted assets of the
Lim partnership, being registered as such
with the Securities and Exchange
Commission. 36

The motions having been opposed in due

course by the plaintiff partnership, they
remained pending until January 31, 1985
when Syjuco moved for their immediate
resolution. Syjuco now claims that Judge
Castro never acted on the motions. The
latter however states that that he did
issue an order on February 22, 1985
declaring that he had lost jurisdiction to
act thereon because, petitio principii, his
decision had already become final and
executory.
8. G.R.NO.L70403; THE

22

On his own behalf Atty. Canlas submitted

that he had no knowledge of the
institution of Civil Case No. Q-36485
(though he admitted being collaborating
counsel in said case); that he did not
represent the Lims in all their cases
against Syjuco, having been counsel for
the former only since 1977, not for the last
seventeen years as claimed by Syjuco;
and that he had no duty to inform
opposing counsel of the pendency of Civil
Case No. Q-36485. 37

and its foreclosure. That result, the

records also show, had itself been nine (9)
years in coming, Civil Case No. 75180
having been instituted in December 1968
and, after trial and judgment, gone
through the Court of Appeals (in CA-G.R.
No. 00242-R) and this Court (in G.R. No.
34683), both at the instance of the Lims,
on the question of reopening before the
amended decision could be issued.
Unwilling, however, to concede defeat, the
Lims moved (in Civil Case No. 75180) to
stop the foreclosure sale on the ground of
lack of republication. On December
19,1977 they obtained a restraining order
in said case, but this notwithstanding, on
the very same date they filed another
action (Civil Case No. 117262) in a
different branch of the same Court of First
Instance of Manila to enjoin the
foreclosure sale on the same ground of
alleged lack of republication. At about this
time, Syjuco republished the notice of sale
in order, as it was later to manifest, to end
all further dispute.

Respondent Judge Castro also filed a

comment 38 disclaiming knowledge of
previous controversies regarding the
mortgaged property. He asserted that
Syjuco had been properly declared in
default for having failed to answer the
complaint despite service of summons
upon it, and that his decision in said case
which was also properly served on Syjuco
became final when it was not timely
appealed, after which he lost jurisdiction
to entertain the motion for reconsideration
and motion to dismiss. He also denied
having failed to act on said motions,
adverting to an alleged order of February
22, 1985 where he declared his lack of
jurisdiction to act thereon.

That move met with no success. The Lims

managed to persuade the judge in Civil
Case No. 75180, notwithstanding his
conviction that the amended decision in
said case had already become final, not
only to halt the foreclosure sale but also to
authorize said respondents to dispose of
the mortgaged property at a private sale
upon posting a bond of P6,000,000.00
(later increased by P3,000,000.00) to
guarantee payment of Syjuco's mortgage
credit. This gave the Lims a convenient
excuse for further suspension of the
foreclosure sale by introducing a new
wrinkle into their contentions-that the
bond superseded the mortgage which
should, they claimed, therefore be
discharged instead of foreclosed.

The respondent Register of Deeds for his

part presented a comment wherein he
stated that by virtue of an order of
execution in Civil Case No. Q-36485, he
had cancelled TCTs Nos. 75413, 75415,
75416 and 75418 of his Registry and
prepared new certificates of title in lieu
thereof, but that cancellation had been
held in abeyance for lack of certain
registration requirements and by reason
also of the motion of Syjuco's Atty.
Formoso to hold in abeyance enforcement
of the trial court's order of July 16, 1984 as
well as of the temporary restraining order
subsequently issued by the Court. 39

Thus from the final months of 1977 until

the end of 1980, a period of three years,
Syjuco found itself fighting a legal battle
on two fronts: in the already finally
decided Civil Case No. 75180 and in Civil
Case No. 117262, upon the single issue of
alleged lack of republication, an issue
already mooted by the Lims' earlier waiver
of republication as a condition for the
issuance of the original restraining order
of December 26,1968 in Civil Case No.
75180, not to mention the fact that said
petitioner had also tried to put an end to it
by actually republishing the notice of sale.

It is time to write finis to this unedifying

narrative which is notable chiefly for the
deception, deviousness and trickery which
have marked the private respondents'
thus far successful attempts to avoid the
payment of a just obligation. The record of
the present proceeding and the other
records already referred to, which the
Court has examined at length, make it
clear that the dispute should have been
laid to rest more than eleven years ago,
with entry of judgment of this Court (on
September 24, 1977) in G.R. No. L-45752
sealing the fate of the Lims' appeal
against the amended decision in Civil Case
No. 75180 where they had originally
questioned the validity of the mortgage

With the advent of 1981, its pleas for early

resolution having apparently fallen on deaf
ears, Syjuco went to this Court (in G.R. No.

23

L-56014) from which, on September 21,

1982, it obtained the decision already
referred to holding, in fine, that there
existed no further impediment to the
foreclosure sale and that the sheriff could
proceed with the same.

previous flurry of activity, except in the

context of a plan to rush the case to
judgment and then divert Syjuco's
attention to the Lims' moves in other
directions so as to prevent discovery of
the existence of the case until it was too
late.

Said decision, instead of deterring further

attempts to derail the foreclosure,
apparently gave the signal for the
clandestine filing this time by the
Partnership of the Heirs of Hugo Lim -on
October 14,1982 of Civil Case No. Q36485, the subject of the present petition,
which for the first time asserted the claim
that the mortgaged property had been
contributed to the plaintiff partnership
long before the execution of the Syjuco's
mortgage in order to defeat the
foreclosure.

The Court cannot but condemn in the

strongest terms this trifling with the
judicial process which degrades the
administration of justice, mocks, subverts
and misuses that process for purely
dilatory purposes, thus tending to bring it
into disrepute, and seriously erodes public
confidence in the will and competence of
the courts to dispense swift justice.
Upon the facts, the only defense to the
foreclosure that could possibly have
merited the full-blown trial and appeal
proceedings it actually went through was
that of alleged usury pleaded in Civil Case
No. 75180 and finally decided against the
respondent Lims in G.R. No. L-45752 in
September 1977. The other issues of
failure to republish and discharge of
mortgage by guarantee set up in
succeeding actions were sham issues,
questions without substance raised only
for purposes of delay by the private
respondents, in which they succeeded
only too well. The claim urged in this latest
case: that the mortgaged property had
been contributed to the respondent
partnership and was already property of
said partnership when the individual Lims
unauthorizedly mortgaged it to Syjuco, is
of no better stripe, and this, too, is clear
from the undisputed facts and the legal
conclusions to be drawn therefrom.

Syjuco now maintains that it had no actual

knowledge of the existence and pendency
of Civil Case No. Q-36485 until confronted,
in the manner already adverted to, with
the fait accompli of a "final" judgment with
permanent injunction therein, and nothing
in the record disabuses the Court about
the truth of this disclaimer. Indeed,
considering what had transpired up to that
denouement, it becomes quite evident
that actuations of the Lims and their
lawyer had been geared to keeping Syjuco
in the dark about said case. Their filing of
two other cases also seeking to enjoin the
foreclosure sale (Civil Case No. 83-19018,
Regional Trial Court of Manila in July 1983,
and Civil Case No. Q-32924, Regional Trial
Court of Quezon City in September of the
same year) after said sale had already
been permanently enjoined by default
judgment in Civil Case No. Q-36485,
appears in retrospect to be nothing but a
brace of feints calculated to keep Syjuco in
that state of ignorance and to lull any
apprehensions it mat may have harbored
about encountering further surprises from
any other quarter.

The record shows that the respondent

partnership is composed exclusively of the
individual Lims in whose name all the
cases herein referred to, with the sole
exception of Civil Case No. Q-36485, were
brought and prosecuted, their contribution
to the partnership consisting chiefly, if not
solely, of the property subject of the
Syjuco mortgage. It is also a fact that
despite its having been contributed to the
partnership, allegedly on March 30, 1959,
the property was never registered with the
Register of Deeds in the name of the
partnership, but to this date remains
registered in the names of the Lims as
owners in common. The original mortgage
deed of November 14,1964 was executed
by the Lims as such owners, as were all
subsequent amendments of the mortgage.
There can be no dispute that in those
circumstances, the respondent partnership
was chargeable with knowledge of the

Further credence is lent to this appraisal

by the unusually rapid movement of Civil
Case No. Q-36485 itself in its earlier
stages, which saw the motion to declare
Syjuco in default filed, an order of default
issued, evidence ex parte for the plaintiffs
received and judgment by default
rendered, all within the brief span of
twelve days, February 10-22, 1983. Notice
of said judgment was "served" on
February 23, 1983, the day after it was
handed down, only to be followed by an
unaccountable lull of well over a year
before it was ordered executed on July 9,
1984 unaccountable, considering that

24

mortgage from the moment of its

execution. The legal fiction of a separate
juridical personality and existence will not
shield it from the conclusion of having
such knowledge which naturally and
irresistibly flows from the undenied facts.
It would violate all precepts of reason,
ordinary experience and common sense to
propose that a partnership, as commonly
known to all the partners or of acts in
which all of the latter, without exception,
have taken part, where such matters or
acts affect property claimed as its own by
said partnership.

it will operate as an
estoppel. This doctrine rests
on the principle that if one
maintains silence, when in
conscience he ought to
speak, equity will debar him
from speaking when in
conscience he ought to
remain silent. He who
remains silent when he
ought to speak cannot be
heard to speak when he
should be silent. 40
And more to the point:

If, therefore, the respondent partnership

was inescapably chargeable with
knowledge of the mortgage executed by
all the partners thereof, its silence and
failure to impugn said mortgage within a
reasonable time, let alone a space of more
than seventeen years, brought into play
the doctrine of estoppel to preclude any
attempt to avoid the mortgage as
allegedly unauthorized.

A property owner who

knowingly permits another
to sell or encumber the
property, without disclosing
his title or objecting to the
transaction, is estopped to
set up his title or interest as
against a person who has
been thereby misled to his
injury.

The principles of equitable estoppel,

sometimes called estoppel in pais, are
made part of our law by Art. 1432 of the
Civil Code. Coming under this class is
estoppel by silence, which obtains here
and as to which it has been held that:

xxx
An owner of real property
who stands by and sees a
third person selling or
mortgaging it under claim of
title without asserting his
own title or giving the
purchaser or mortgagee any
notice thereof is estopped,
as against such purchaser
or mortgagee, afterward to
assert his title; and,
although title does not pass
under these circumstances,
a conveyance will be
decreed by a court of equity.
Especially is the rule
applicable where the party
against whom the estoppel
is claimed, in addition to
standing by, takes part in
malting the sale or
mortgage. 41

... an estoppel may arise

from silence as well as from
words. 'Estoppel by silence'
arises where a person, who
by force of circumstances is
under a duty to another to
speak, refrains from doing
so and thereby leads the
other to believe in the
existence of a state of facts
in reliance on which he acts
to his prejudice. Silence
may support an estoppel
whether the failure to speak
is intentional or negligent.
Inaction or silence may
under some circumstances
amount to a
misrepresentation and
concealment of the facts, so
as to raise an equitable
estoppel. When the silence
is of such a character and
under such circumstances
that it would become a
fraud on the other party to
permit the party who has
kept silent to deny what his
silence has induced the
other to believe and act on,

More specifically, the

concept to which that
species of estoppel which
results from the nondisclosure of an estate or
interest in real property has
ordinarily been referred is
fraud, actual or
constructive. ... Although
fraud is not an essential
element of the original
conduct working the

25

estoppel, it may with

perfect property be said
that it would be fraudulent
for the party to repudiate
his conduct, and to assert a
right or claim in
contravention thereof. 42

it and were being prosecuted by the entire

membership of the partnership, and
therefore, the partnership was in actuality,
the real party in interest. In fact,
consistently with the Lims' theory, they
should be regarded, in all the actions
presented by them, as having sued for
vindication, not of their individual rights
over the property mortgaged, but those of
the partnership. There is thus no reason to
distinguish between the Lims, as
individuals, and the partnership itself,
since the former constituted the entire
membership of the latter. In other words,
despite the concealment of the existence
of the partnership, for all intents and
purposes and consistently with the Lims'
own theory, it was that partnership which
was the real party in interest in all the
actions; it was actually represented in said
actions by all the individual members
thereof, and consequently, those
members' acts, declarations and
omissions cannot be deemed to be simply
the individual acts of said members, but in
fact and in law, those of the partnership.

Equally or even more preclusive of the

respondent partnership's claim to the
mortgaged property is the last paragraph
of Article 1819 of the Civil Code, which
contemplates a situation duplicating the
circumstances that attended the execution
of the mortgage in favor of Syjuco and
therefore applies foursquare thereto:
Where the title to real
property is in the names of
all the partners a
conveyance executed by all
the partners passes all their
rights in such property.
The term "conveyance" used in said
provision, which is taken from Section 10
of the American Uniform Partnership Act,
includes a mortgage.

What was done by the Lims or by the

partnership of which they were the only
members-was to split their cause of action
in violation of the well known rule that
only one suit may be instituted for a single
cause of action. 44 The right sought to be
enforced by them in all their actions was,
at bottom, to strike down the mortgage
constituted in favor of Syjuco, a right
which, in their view, resulted from several
circumstances, namely that the mortgage
was constituted over property belonging
to the partnership without the latter's
authority; that the principal obligation
thereby secured was usurious; that the
publication of the notice of foreclosure
sale was fatally defective, circumstances
which had already taken place at the time
of the institution of the actions. They
instituted four (4) actions for the same
purpose on one ground or the other,
making each ground the subject of a
separate action. Upon these premises,
application of the sanction indicated by
law is caned for, i.e., the judgment on the
merits in any one is available as a bar in
the others. 45

Interpreting Sec. 10 of the

Uniform Partnership Act, it
has been held that the right
to mortgage is included in
the right to convey. This is
different from the rule in
agency that a special power
to sell excludes the power
to mortgage (Art. 1879). 43
As indisputable as the propositions and
principles just stated is that the cause of
action in Civil Case No. Q-36485 is barred
by prior judgment. The right subsumed in
that cause is the negation of the
mortgage, postulated on the claim that
the parcels of land mortgaged by the Lims
to Syjuco did not in truth belong to them
but to the partnership. Assuming this to be
so, the right could have been asserted at
the time that the Lims instituted their first
action on December 24, 1968 in the
Manila Court of First Instance, Civil Case
No. 75180, or when they filed their
subsequent actions: Civil Case No.
112762, on December 19, 1977; Civil Case
No. 83-19018, in 1983, and Civil Case No.
Q-39294, also in 1983. The claim could
have been set up by the Lims, as
members composing the partnership,
"Heirs of Hugo Lim." It could very well
have been put forth by the partnership
itself, as co-plaintiff in the corresponding
complaints, considering that the actions
involved property supposedly belonging to

The first judgment-rendered in Civil Case

No. 75180 and affirmed by both the Court
of Appeals (CA-G.R. No. 51752) and this
Court (G.R. No. L-45752) should therefore
have barred all the others, all the
requisites of res judicata being present.
The judgment was a final and executory
judgment; it had been rendered by a
competent court; and there was, between

26

the first and subsequent cases, not only

identity of subject-matter and of cause of
action, but also of parties. As already
pointed out, the plaintiffs in the first four
(4) actions, the Lims, were representing
exactly the same claims as those of the
partnership, the plaintiff in the fifth and
last action, of which partnership they were
the only members, and there was hence
no substantial difference as regards the
parties plaintiff in all the actions. Under
the doctrine of res judicata, the judgment
in the first was and should have been
regarded as conclusive in all other, actions
not only "with respect to the matter
directly adjudged," but also "as to any
other matter that could have been raised
in relation thereto. " 46 It being
indisputable that the matter of the
partnership's being the owner of the
mortgaged properties "could have been
raised in relation" to those expressly made
issuable in the first action, it follows that
that matter could not be re-litigated in the
last action, the fifth.

summons shall be made in

writing by the server and
shall set forth the manner,
place and date of service;
shall specify any papers
which have been served
with the process and the
name of the person who
received the same; and
shall be sworn to when
made by a person other
than a sheriff or his
deputy. 48
In the case of Delta Motor Sales
Corporation vs. Mangosing 49 it was held
that:"
(a) strict compliance with the mode of
service is necessary to confer jurisdiction
of the court over a corporation. The officer
upon whom service is made must be one
who is named in the statute; otherwise the
service is insufficient. So, where the
statute requires that in the case of a
domestic corporation summons should be
served on 'the president or head of the
corporation, secretary, treasurer, cashier
or managing agent thereof, service of
summons on the secretary's wife did not
confer jurisdiction over the corporation in
the foreclosure proceeding against it.
Hence, the decree of foreclosure and the
deficiency judgment were void and should
be vacated (Reader vs. District Court, 94
Pacific 2nd 858).

Though confronted with the facts thus

precluding the respondent partnership's
claim to the property under both the
principle of estoppel and the provisions of
Article 1819, last paragraph, of the Civil
Code, as well as the familiar doctrine of
res judicata, the respondent Judge refused
to act on Syjuco's motions on the ground
that he no longer had jurisdiction to do so
because they were filed after judgment by
default against Syjuco, which failed to
answer the complaint despite valid service
of summons, had been rendered and
become final. The sheriffs return, however,
creates grave doubts about the
correctness of the Judge's basic premise
that summons had been validly served on
Syjuco. For one thing, the return 47 is
unspecific about where service was
effected. No safe conclusion about the
place of service can be made from its
reference to a former and a present office
of Syjuco in widely separate locations,
with nothing to indicate whether service
was effected at one address or the other,
or even at both. A more serious defect is
the failure to name the person served who
is, with equal ambiguity, identified only as
"the Manager" of the defendant
corporation (petitioner herein). Since the
sheriffs return constitutes primary
evidence of the manner and incidents of
personal service of a summons, the Rules
are quite specific about what such a
document should contain:

The purpose is to render it

reasonably certain that the
corporation will receive
prompt and proper notice in
an action against it or to
insure that the summons be
served on a representative
so integrated with the
corporation that such
person will know what to do
with the legal papers served
on him. In other words, 'to
bring home to the
corporation notice of the
filing of the action'. (35 A
C.J.S. 288 citing Jenkins vs.
Lykes Bros. S.S. Co., 48 F.
Supp. 848; MacCarthy vs.
Langston, D.C. Fla., 23
F.R.D. 249).
The liberal construction rule
cannot be invoked and
utilized as a substitute for
the plain legal requirements
as to the manner in which
summons should be served

SEC. 20. Proof of service.

The proof of service of a

27

on a domestic corporation
(U.S. vs. Mollenhauer
Laboratories, Inc., 267 Fed.
Rep. 2nd 260).'

What has been said makes unnecessary

any further proceedings in the Court
below, which might otherwise be indicated
by the consideration that two of the
postulates of petitioner's unresolved
motions which the Court considers equally
as decisive as res judicata, to wit: estoppel
by silence and Article 1819, last
paragraph, of the Civil Code, do not
constitute grounds for a motion to dismiss
under rule 16, of the Rules of Court. Such
a step would only cause further delay. And
delay has been the bane of petitioner's
cause, defying through all these years all
its efforts to collect on a just debt.

The rule cannot be any less exacting as

regards adherence to the requirements of
proof of service, it being usually by such
proof that sufficiency of compliance with
the prescribed mode of service is
measured. Here the only proof of service
of summons is the questioned sheriff's
return which, as already pointed out, is not
only vague and unspecific as to the place
of service, but also neglects to Identify by
name the recipient of the summons as
required by Rule 20, Section 14, of the
Rules of Court. Where the sheriffs return is
defective the presumption of regularity in
the performance of official functions will
not lie. 50 The defective sheriffs return thus
being insufficient and incompetent to
prove that summons was served in the
manner prescribed for service upon
corporations, there is no alternative to
affirming the petitioner's claim that it had
not been validly summoned in Civil Case
No. Q-36485. It goes without saying that
lacking such valid service, the Trial Court
did not acquire jurisdiction over the
petitioner Syjuco, rendering null and void
all subsequent proceedings and issuances
in the action from the order of default up
to and including the judgment by default
and the order for its execution. 51

The undenied and undisputable facts

make it perfectly clear that the claim to
the mortgaged property belatedly and in
apparent bad faith pressed by the
respondent partnership is foreclosed by
both law and equity. Further proceedings
will not make this any clearer than it
already is. The Court is clothed with ample
authority, in such a case, to call a halt to
all further proceedings and pronounce
judgment on the basis of what is already
manifestly of record.
So much for the merits; the consequences
that should attend the inexcusable and
indefensible conduct of the respondents
Lims, the respondent partnership and their
counsel, Atty. Paterno R. Canlas, should
now be addressed. That the Lims and their
partnership acted in bad faith and with
intent to defraud is manifest in the record
of their actuations, presenting as they did,
piecemeal and in one case after another,
defenses to the foreclosure or claims in
derogation thereof that were available to
them from the very beginning
actuations that were to stave off the
liquidation of an undenied debt for more
than twenty years and culminated in the
clandestine filing and prosecution of the
action subject of the present petition.

The respondents' contention that the

petition is in effect an action to annul a
judgment which is within the exclusive
original jurisdiction of the Court of
Appeals 52 has already been answered
in Matanguihan vs. Tengco 53 where, by
declaring that an action for annulment of
judgment is not a plain, speedy and
adequate remedy, this Court in effect
affirmed that certiorari is an appropriate
remedy against judgments or proceedings
alleged to have been rendered or had
without valid service of summons. 54

What has happened here, it bears

repeating, is nothing less than an abuse of
process, a trifling with the courts and with
the rights of access thereto, for which Atty.
Canlas must share responsibility equally
with his clients. The latter could not have
succeeded so well in obstructing the
course of justice without his aid and
advice and his tireless espousal of their
claims and pretensions made in the
various cases chronicled here. That the
cause to which he lent his advocacy was
less than just or worthy could not have
escaped him, if not at the start of his
engagement, in the years that followed
when with his willing assistance, if not

Respondent Judge Castro begged the

question when, instead of resolving on the
merits the issue of the invalidity of his
default judgment and of the proceedings
leading thereto because of absence of
valid service of summons on the
defendant, which had been expressly
raised in the defendant's motion for
reconsideration, he simply refused to do
so on the excuse that he had lost
jurisdiction over the case. This refusal
was, in the premises, a grave abuse of
judicial discretion which must be rectified.

28

instigation, it was shuttled from one forum

to another after each setback. This Court
merely stated what is obvious and cannot
be gainsaid when, inSurigao Mineral
Reservation Board vs. Cloribel, 55 it held
that a party's lawyer of record has control
of the proceedings and that '(w)hatever
steps his client takes should be within his
knowledge and responsibility."

though damages are not expressly prayed

for, under the general prayer of the
petition for "such other reliefs as may be
just and equitable under the premises,"
and the action being not only of certiorari
and prohibition, but also of mandamus-in
which the payment of "damages sustained
by the petitioner by reason of the wrongful
acts of the defendant' is expressly
authorized.59

In Prudential Bank vs. Castro, 56 strikingly

similar actuations in a case, which are
described in the following paragraph taken
from this Court's decision therein:

There is no question in the Court's mind

that such interests as may have
accumulated on the mortgage loan will not
offset the prejudice visited upon the
petitioner by the excruciatingly long delay
in the satisfaction of said debt that the
private respondents have engineered and
fomented.

Respondents' foregoing
actuations reveal an 'unholy
alliance' between them and
a clear indication of
partiality for the party
represented by the other to
the detriment of the
objective dispensation of
justice. Writs of Attachment
and Execution were issued
and implemented with
lightning speed; the case
itself was railroaded to a
swift conclusion through a
similar judgment;
astronomical sums were
awarded as damages and
attorney's fees; and topping
it all, the right to appeal was
foreclosed by clever
maneuvers," and which, the
Court found, followed a
pattern of conduct in other
cases of which judicial
notice was taken, were
deemed sufficient cause for
disbarment.

These very same considerations dictate

the imposition of exemplary damages in
accordance with Art. 2229 of the Civil
Code.
WHEREFORE, so that complete justice may
be dispensed here and, as far as
consistent with that end, all the matters
and incidents with which these
proceedings are concerned may be
brought to a swift conclusion:
(1) the assailed judgment
by default in Civil Case
No.Q-36485, the writ of
execution and all other
orders issued in
implementation thereof, and
all proceedings in the case
leading to said judgment
after the filing of the
complaint are DECLARED
null and void and are hereby
SET ASIDE; and the
complaint in said case is
DISMISSED for being barred
by prior judgment and
estoppel, and for lack of
merit;

Atty. Canlas even tried to mislead this

Court by claiming that he became the
Lims' lawyer only in 1977, 57 when the
record indubitably shows that he has
represented them since September 9,
1972 when he first appeared for them to
prosecute their appeal in Civil Case No.
75180. 58 He has also quite impenitently
disclaimed a duty to inform opposing
counsel in Civil Case No. Q-39294 of the
existence of Civil Case No. Q-36485, as
plaintiffs' counsel in both actions, even
while the former, which involved the same
mortgage, was already being litigated
when the latter was filed, although in the
circumstances such disclosure was
required by the ethics of his profession, if
not indeed by his lawyer's oath.

(2) the City Sheriff of Manila

is ORDERED, upon receipt of
this Decision, to schedule
forthwith and thereafter
conduct with all due
dispatch the sale at public
auction of the mortgaged
property in question for the
satisfaction of the mortgage
debt of the respondents
Lims to petitioner, in the
principal amount of
P2,460,000.00 as found in
the amended decision in

A clear case also exists for awarding at

least nominal damages to petitioner,

29

Civil Case No. 75180 of the

Court of First Instance of
Manila, interests thereon at
the rate of twelve (12%)
percent per annum from
November 8, 1967 until the
date of sale, plus such other
and additional sums for
commissions, expenses,
fees, etc. as may be lawfully
chargeable in extrajudicial
foreclosure and sale
proceedings;

Auto Supply, a commercial guard who

while in line of duty, was skilled by
criminal hands. His widow Ciriaca Vda. de
Balderama and minor children Genara,
Carlos and Leogardo, all surnamed
Balderama, in due time filed a claim for
compensation with the Workmen's
Compensation Commission, which was
granted in an award worded as follows:
WHEREFORE, the order of the
referee under consideration should
be, as it is hereby, affirmed and
respondents Benito Liwanag and
Maria Liwanag Reyes, ordered.

(3) the private respondents,

their successors and
assigns, are PERPETUALLY
ENJOINED from taking any
action whatsoever to
obstruct, delay or prevent
said auction sale;

1. To pay jointly and severally the

amount of three thousand Four
Hundred Ninety Four and 40/100
(P3,494.40) Pesos to the claimants
in lump sum; and

(4) the private respondents

(the Lims, the Partnership of
the Heirs of Hugo Lim and
Atty. Paterno R. Canlas) are
sentenced, jointly and
severally, to pay the
petitioner P25,000.00 as
nominal damages and
P100,000.00 as exemplary
damages, as well as treble
costs; and

To pay to the Workmen's

Compensation Funds the sum of
P4.00 (including P5.00 for this
review) as fees, pursuant to
Section 55 of the Act.
In appealing the case to this Tribunal,
appellants do not question the right of
appellees to compensation nor the
amount awarded. They only claim that,
under the Workmen's Compensation Act,
the compensation is divisible, hence the
commission erred in ordering appellants to
pay jointly and severally the amount
awarded. They argue that there is nothing
in the compensation Act which provides
that the obligation of an employer arising
from compensable injury or death of an
employee should be solidary obligation,
the same should have been specifically
provided, and that, in absence of such
clear provision, the responsibility of
appellants should not be solidary but
merely joint.

(5) let this matter be

referred to the Integrated
Bar of the Philippines for
investigation, report, and
recommendation insofar as
the conduct of Atty. Canlas
as counsel in this case and
in the other cases
hereinabove referred to is
concerned.
SO ORDERED.
G.R. No. L-12164

May 22, 1959

At first blush appellants' contention would

seem to be well, for ordinarily, the liability
of the partners in a partnership is not
solidary; but the law governing the liability
of partners is not applicable to the case at
bar wherein a claim for compensation by
dependents of an employee who died in
line of duty is involved. And although the
Workmen's Compensation Act does not
contain any provision expressly declaring
solidary obligation of business partners
like the herein appellants, there are other
provisions of law from which it could be
gathered that their liability must be
solidary. Arts. 1711 and 1712 of the new
Civil Code provide:

BENITO LIWANAG and MARIA

LIWANAG REYES, petitioners-appellants,
vs.
WORKMEN'S COMPENSATION
COMMISSION, ET AL., respondentsappellees.
J. de Guia for appellants.
Estanislao R. Bayot for appellees.
ENDENCIA, J.:
Appellants Benito Liwanag and Maria
Liwanag Reyes are co-owners of Liwanag

30

ART. 1711. Owners of enterprises

and other employers are obliged to
pay compensation for the death of
or injuries to their laborers,
workmen, mechanics or other
employees, even though the event
may have been purely accidental
or entirely due to a fortuitous
cause, if the death or personal
injury arose out of and in the
course of the employment. . . . .

states, or when the law or the

nature of the obligation
requires solidarity.
Since the Workmen's Compensation Act
was enacted to give full protection to the
employee, reason demands that the
nature of the obligation of the employers
to pay compensation to the heirs of their
employee who died in line of duty, should
be solidary; otherwise, the purpose of the
law could not be attained.

ART. 1712. If the death or injury is

due to the negligence of a fellowworker, the latter and the employer
shall be solidarily liable for
compensation. . . . .

Wherefore, finding no error in the award

appealed from, the same is hereby
affirmed, with costs against appellants.
G.R. No. 84197 July 28, 1989

And section 2 of the Workmen's

Compensation Act, as amended reads in
part as follows:

PIONEER INSURANCE & SURETY

CORPORATION, petitioner,
vs.
THE HON. COURT OF APPEALS,
BORDER MACHINERY & HEAVY
EQUIPMENT, INC., (BORMAHECO),
CONSTANCIO M. MAGLANA and JACOB
S. LIM, respondents.

. . . The right to compensation as

provided in this Act shall not be
defeated or impaired on the ground
that the death, injury or disease
was due to the negligence of a
fellow servant or employee,
without prejudice to the right of the
employer to proceed against the
negligence party.

G.R. No. 84157 July 28, 1989

JACOB S. LIM, petitioner,
vs.
COURT OF APPEALS, PIONEER
INSURANCE AND SURETY
CORPORATION, BORDER MACHINERY
and HEAVY EQUIPMENT CO., INC,,
FRANCISCO and MODESTO
CERVANTES and CONSTANCIO
MAGLANA,respondents.

The provisions of the new Civil Code above

quoted taken together with those of
Section 2 of the Workmen's Compensation
Act, reasonably indicate that in
compensation cases, the liability of
business partners, like appellants, should
be solidary; otherwise, the right of the
employee may be defeated, or at least
crippled. If the responsibility of appellants
were to be merely joint and solidary, and
one of them happens to be insolvent, the
amount awarded to the appellees would
only be partially satisfied, which is
evidently contrary to the intent and
purposes of the Act. In the previous cases
we have already held that the Workmen's
Compensation Act should be construed
fairly, reasonably and liberally in favor of
and for the benefit of the employee and
his dependents; that all doubts as to the
right of compensation resolved in his
favor; and that it should be interpreted to
promote its purpose. Accordingly, the
present controversy should be decided in
favor of the appellees.

Eriberto D. Ignacio for Pioneer Insurance &

Surety Corporation.
Sycip, Salazar, Hernandez & Gatmaitan for
Jacob S. Lim.
Renato J. Robles for BORMAHECO, Inc. and
Cervanteses.
Leonardo B. Lucena for Constancio
Maglana.

GUTIERREZ, JR., J.:

The subject matter of these consolidated
petitions is the decision of the Court of
Appeals in CA-G.R. CV No. 66195 which
modified the decision of the then Court of
First Instance of Manila in Civil Case No.
66135. The plaintiffs complaint (petitioner

Moreover, Art. 1207 of the new Civil Code

provides:
. . . . There is solidary liability only
when the obligation expressly so

31

in G.R. No. 84197) against all defendants

(respondents in G.R. No. 84197) was
dismissed but in all other respects the trial
court's decision was affirmed.

Cervanteses and Constancio

B. Maglana, is dismissed.
Instead, plaintiff is required
to indemnify the defendants
Bormaheco and the
Cervanteses the amount of
P20,000.00 as attorney's
fees and the amount of
P4,379.21, per year from
1966 with legal rate of
interest up to the time it is
paid.

The dispositive portion of the trial court's

decision reads as follows:
WHEREFORE, judgment is
rendered against defendant
Jacob S. Lim requiring Lim to
pay plaintiff the amount of
P311,056.02, with interest
at the rate of 12% per
annum compounded
monthly; plus 15% of the
amount awarded to plaintiff
as attorney's fees from July
2,1966, until full payment is
made; plus P70,000.00
moral and exemplary
damages.

Furthermore, the plaintiff is

required to pay Constancio
B. Maglana the amount of
P20,000.00 as attorney's
fees and costs.
No moral or exemplary
damages is awarded against
plaintiff for this action was
filed in good faith. The fact
that the properties of the
Bormaheco and the
Cervanteses were attached
and that they were required
to file a counterbond in
order to dissolve the
attachment, is not an act of
bad faith. When a man tries
to protect his rights, he
should not be saddled with
moral or exemplary
damages. Furthermore, the
rights exercised were
provided for in the Rules of
Court, and it was the court
that ordered it, in the
exercise of its discretion.

It is found in the records

that the cross party
plaintiffs incurred additional
miscellaneous expenses
aside from
Pl51,000.00,,making a total
of P184,878.74. Defendant
Jacob S. Lim is further
required to pay cross party
plaintiff, Bormaheco, the
Cervanteses one-half and
Maglana the other half, the
amount of Pl84,878.74 with
interest from the filing of
the cross-complaints until
the amount is fully paid;
plus moral and exemplary
damages in the amount of
P184,878.84 with interest
from the filing of the crosscomplaints until the amount
is fully paid; plus moral and
exemplary damages in the
amount of P50,000.00 for
each of the two
Cervanteses.

No damage is decided
against Malayan Insurance
Company, Inc., the thirdparty defendant, for it only
secured the attachment
prayed for by the plaintiff
Pioneer. If an insurance
company would be liable for
damages in performing an
act which is clearly within
its power and which is the
reason for its being, then
nobody would engage in the
insurance business. No
further claim or counterclaim for or against anybody
is declared by this Court.
(Rollo - G.R. No. 24197, pp.
15-16)

Furthermore, he is required
to pay P20,000.00 to
Bormaheco and the
Cervanteses, and another
P20,000.00 to Constancio B.
Maglana as attorney's fees.
xxx xxx xxx
WHEREFORE, in view of all
above, the complaint of
plaintiff Pioneer against
defendants Bormaheco, the

In 1965, Jacob S. Lim (petitioner in G.R.

No. 84157) was engaged in the airline

32

business as owner-operator of Southern

Air Lines (SAL) a single proprietorship.

City of Manila and with the Civil

Aeronautics Administration pursuant to
the Chattel Mortgage Law and the Civil
Aeronautics Law (Republic Act No. 776),
respectively.

On May 17, 1965, at Tokyo, Japan, Japan

Domestic Airlines (JDA) and Lim entered
into and executed a sales contract (Exhibit
A) for the sale and purchase of two (2) DC3A Type aircrafts and one (1) set of
necessary spare parts for the total agreed
price of US $109,000.00 to be paid in
installments. One DC-3 Aircraft with
Registry No. PIC-718, arrived in Manila on
June 7,1965 while the other aircraft,
arrived in Manila on July 18,1965.

Lim defaulted on his subsequent

installment payments prompting JDA to
request payments from the surety. Pioneer
paid a total sum of P298,626.12.
Pioneer then filed a petition for the
extrajudicial foreclosure of the said chattel
mortgage before the Sheriff of Davao City.
The Cervanteses and Maglana, however,
filed a third party claim alleging that they
are co-owners of the aircrafts,

On May 22, 1965, Pioneer Insurance and

Surety Corporation (Pioneer, petitioner in
G.R. No. 84197) as surety executed and
issued its Surety Bond No. 6639 (Exhibit C)
in favor of JDA, in behalf of its principal,
Lim, for the balance price of the aircrafts
and spare parts.

On July 19, 1966, Pioneer filed an action

for judicial foreclosure with an application
for a writ of preliminary attachment
against Lim and respondents, the
Cervanteses, Bormaheco and Maglana.

It appears that Border Machinery and

Heavy Equipment Company, Inc.
(Bormaheco), Francisco and Modesto
Cervantes (Cervanteses) and Constancio
Maglana (respondents in both petitions)
contributed some funds used in the
purchase of the above aircrafts and spare
parts. The funds were supposed to be their
contributions to a new corporation
proposed by Lim to expand his airline
business. They executed two (2) separate
indemnity agreements (Exhibits D-1 and
D-2) in favor of Pioneer, one signed by
Maglana and the other jointly signed by
Lim for SAL, Bormaheco and the
Cervanteses. The indemnity agreements
stipulated that the indemnitors principally
agree and bind themselves jointly and
severally to indemnify and hold and save
harmless Pioneer from and against any/all
damages, losses, costs, damages, taxes,
penalties, charges and expenses of
whatever kind and nature which Pioneer
may incur in consequence of having
become surety upon the bond/note and to
pay, reimburse and make good to Pioneer,
its successors and assigns, all sums and
amounts of money which it or its
representatives should or may pay or
cause to be paid or become liable to pay
on them of whatever kind and nature.

In their Answers, Maglana, Bormaheco and

the Cervanteses filed cross-claims against
Lim alleging that they were not privies to
the contracts signed by Lim and, by way
of counterclaim, sought for damages for
being exposed to litigation and for
recovery of the sums of money they
advanced to Lim for the purchase of the
aircrafts in question.
After trial on the merits, a decision was
rendered holding Lim liable to pay Pioneer
but dismissed Pioneer's complaint against
all other defendants.
As stated earlier, the appellate court
modified the trial court's decision in that
the plaintiffs complaint against all the
defendants was dismissed. In all other
respects the trial court's decision was
affirmed.
We first resolve G.R. No. 84197.
Petitioner Pioneer Insurance and Surety
Corporation avers that:
RESPONDENT COURT OF
APPEALS GRIEVOUSLY
ERRED WHEN IT DISMISSED
THE APPEAL OF PETITIONER
ON THE SOLE GROUND
THAT PETITIONER HAD
ALREADY COLLECTED THE
PROCEEDS OF THE
REINSURANCE ON ITS BOND
IN FAVOR OF THE JDA AND
THAT IT CANNOT
REPRESENT A REINSURER

On June 10, 1965, Lim doing business

under the name and style of SAL executed
in favor of Pioneer as deed of chattel
mortgage as security for the latter's
suretyship in favor of the former. It was
stipulated therein that Lim transfer and
convey to the surety the two aircrafts. The
deed (Exhibit D) was duly registered with
the Office of the Register of Deeds of the

33

TO RECOVER THE AMOUNT

FROM HEREIN PRIVATE
RESPONDENTS AS
DEFENDANTS IN THE TRIAL
COURT. (Rollo - G. R. No.
84197, p. 10)

present substantial interest

as distinguished from a
mere expectancy or a
future, contingent,
subordinate or
consequential interest
(Garcia v. David, 67 Phil. 27;
Oglleaby v. Springfield
Marine Bank, 52 N.E. 2d
1600, 385 III, 414; Flowers
v. Germans, 1 NW 2d 424;
Weber v. City of Cheye, 97 P.
2d 667, 669, quoting 47 C.V.
35).

The petitioner questions the following

findings of the appellate court:
We find no merit in plaintiffs
appeal. It is undisputed that
plaintiff Pioneer had
reinsured its risk of liability
under the surety bond in
favor of JDA and
subsequently collected the
proceeds of such
reinsurance in the sum of
P295,000.00. Defendants'
alleged obligation to Pioneer
amounts to P295,000.00,
hence, plaintiffs instant
action for the recovery of
the amount of P298,666.28
from defendants will no
longer prosper. Plaintiff
Pioneer is not the real party
in interest to institute the
instant action as it does not
stand to be benefited or
injured by the judgment.

Based on the foregoing

premises, plaintiff Pioneer
cannot be considered as the
real party in interest as it
has already been paid by
the reinsurer the sum of
P295,000.00 the bulk of
defendants' alleged
obligation to Pioneer.
In addition to the said
proceeds of the reinsurance
received by plaintiff Pioneer
from its reinsurer, the
former was able to foreclose
extra-judicially one of the
subject airplanes and its
spare engine, realizing the
total amount of P37,050.00
from the sale of the
mortgaged chattels. Adding
the sum of P37,050.00, to
the proceeds of the
reinsurance amounting to
P295,000.00, it is patent
that plaintiff has been
overpaid in the amount of
P33,383.72 considering that
the total amount it had paid
to JDA totals to only
P298,666.28. To allow
plaintiff Pioneer to recover
from defendants the
amount in excess of
P298,666.28 would be
tantamount to unjust
enrichment as it has already
been paid by the
reinsurance company of the
amount plaintiff has paid to
JDA as surety of defendant
Lim vis-a-vis defendant
Lim's liability to JDA. Well
settled is the rule that no
person should unjustly
enrich himself at the
expense of another (Article
22, New Civil Code). (Rollo84197, pp. 24-25).

Plaintiff Pioneer's contention

that it is representing the
reinsurer to recover the
amount from defendants,
hence, it instituted the
action is utterly devoid of
merit. Plaintiff did not even
present any evidence that it
is the attorney-in-fact of the
reinsurance company,
authorized to institute an
action for and in behalf of
the latter. To qualify a
person to be a real party in
interest in whose name an
action must be prosecuted,
he must appear to be the
present real owner of the
right sought to be enforced
(Moran, Vol. I, Comments on
the Rules of Court, 1979 ed.,
p. 155). It has been held
that the real party in
interest is the party who
would be benefited or
injured by the judgment or
the party entitled to the
avails of the suit (Salonga v.
Warner Barnes & Co., Ltd.,
88 Phil. 125, 131). By real
party in interest is meant a

34

The petitioner contends that-(1) it is at a

loss where respondent court based its
finding that petitioner was paid by its
reinsurer in the aforesaid amount, as this
matter has never been raised by any of
the parties herein both in their answers in
the court below and in their respective
briefs with respondent court; (Rollo, p. 11)
(2) even assuming hypothetically that it
was paid by its reinsurer, still none of the
respondents had any interest in the
matter since the reinsurance is strictly
between the petitioner and the re-insurer
pursuant to section 91 of the Insurance
Code; (3) pursuant to the indemnity
agreements, the petitioner is entitled to
recover from respondents Bormaheco and
Maglana; and (4) the principle of unjust
enrichment is not applicable considering
that whatever amount he would recover
from the co-indemnitor will be paid to the
reinsurer.

its alleged liability to JDA

under the said surety bond,
it is plain that on this score
it no longer has any right to
collect to the extent of the
said amount.
On the question of why it is
Pioneer, instead of the
reinsurance (sic), that is
suing defendants for the
amount paid to it by the
reinsurers, notwithstanding
that the cause of action
pertains to the latter,
Pioneer says: The reinsurers
opted instead that the
Pioneer Insurance & Surety
Corporation shall pursue
alone the case.. . . . Pioneer
Insurance & Surety
Corporation is representing
the reinsurers to recover the
amount.' In other words,
insofar as the amount paid
to it by the reinsurers
Pioneer is suing defendants
as their attorney-in-fact.

The records belie the petitioner's

contention that the issue on the
reinsurance money was never raised by
the parties.
A cursory reading of the trial court's
lengthy decision shows that two of the
issues threshed out were:

But in the first place, there

is not the slightest
indication in the complaint
that Pioneer is suing as
attorney-in- fact of the
reinsurers for any amount.
Lastly, and most important
of all, Pioneer has no right
to institute and maintain in
its own name an action for
the benefit of the reinsurers.
It is well-settled that an
action brought by an
attorney-in-fact in his own
name instead of that of the
principal will not prosper,
and this is so even where
the name of the principal is
disclosed in the complaint.

xxx xxx xxx

1. Has Pioneer a cause of
action against defendants
with respect to so much of
its obligations to JDA as has
been paid with reinsurance
money?
2. If the answer to the
preceding question is in the
negative, has Pioneer still
any claim against
defendants, considering the
amount it has realized from
the sale of the mortgaged
properties? (Record on
Appeal, p. 359, Annex B of
G.R. No. 84157).

Section 2 of
Rule 3 of the
Old Rules of
Court
provides that
'Every action
must be
prosecuted in
the name of
the real party
in interest.'
This provision
is mandatory.
The real party
in interest is

In resolving these issues, the trial court

made the following findings:
It appearing that Pioneer
reinsured its risk of liability
under the surety bond it had
executed in favor of JDA,
collected the proceeds of
such reinsurance in the sum
of P295,000, and paid with
the said amount the bulk of

35

the party who

would be
benefitted or
injured by the
judgment or
is the party
entitled to the
avails of the
suit.

Therefore, Pioneer has no

more claim against
defendants. (Record on
Appeal, pp. 360-363).
The payment to the petitioner made by
the reinsurers was not disputed in the
appellate court. Considering this admitted
payment, the only issue that cropped up
was the effect of payment made by the
reinsurers to the petitioner. Therefore, the
petitioner's argument that the
respondents had no interest in the
reinsurance contract as this is strictly
between the petitioner as insured and the
reinsuring company pursuant to Section
91 (should be Section 98) of the Insurance
Code has no basis.

This Court has

held in
various cases
that an
attorney-infact is not a
real party in
interest, that
there is no
law
permitting an
action to be
brought by an
attorney-infact. Arroyo v.
Granada and
Gentero, 18
Phil. Rep.
484;
Luchauco v.
Limjuco and
Gonzalo, 19
Phil. Rep. 12;
Filipinos
Industrial
Corporation v.
San Diego
G.R. No. L22347,1968,
23 SCRA 706,
710-714.

In general a reinsurer, on
payment of a loss acquires
the same rights by
subrogation as are acquired
in similar cases where the
original insurer pays a loss
(Universal Ins. Co. v. Old
Time Molasses Co. C.C.A.
La., 46 F 2nd 925).
The rules of practice in
actions on original
insurance policies are in
general applicable to
actions or contracts of
reinsurance. (Delaware, Ins.
Co. v. Pennsylvania Fire Ins.
Co., 55 S.E. 330,126 GA.
380, 7 Ann. Con. 1134).
Hence the applicable law is Article 2207 of
the new Civil Code, to wit:

The total amount paid by

Pioneer to JDA is
P299,666.29. Since Pioneer
has collected P295,000.00
from the reinsurers, the
uninsured portion of what it
paid to JDA is the difference
between the two amounts,
or P3,666.28. This is the
amount for which Pioneer
may sue defendants,
assuming that the
indemnity agreement is still
valid and effective. But
since the amount realized
from the sale of the
mortgaged chattels are
P35,000.00 for one of the
airplanes and P2,050.00 for
a spare engine, or a total of
P37,050.00, Pioneer is still
overpaid by P33,383.72.

Art. 2207. If the plaintiffs

property has been insured,
and he has received
indemnity from the
insurance company for the
injury or loss arising out of
the wrong or breach of
contract complained of, the
insurance company shall be
subrogated to the rights of
the insured against the
wrongdoer or the person
who has violated the
contract. If the amount paid
by the insurance company
does not fully cover the
injury or loss, the aggrieved
party shall be entitled to
recover the deficiency from
the person causing the loss
or injury.

36

Interpreting the aforesaid provision, we

ruled in the case of Phil. Air Lines, Inc. v.
Heald Lumber Co. (101 Phil. 1031 [1957])
which we subsequently applied in Manila
Mahogany Manufacturing Corporation v.
Court of Appeals(154 SCRA 650 [1987]):

execution of the chattel

mortgage.
Testimonies of defendants
Francisco Cervantes and
Modesto Cervantes.

Note that if a property is

insured and the owner
receives the indemnity from
the insurer, it is provided in
said article that the insurer
is deemed subrogated to
the rights of the insured
against the wrongdoer and
if the amount paid by the
insurer does not fully cover
the loss, then the aggrieved
party is the one entitled to
recover the
deficiency. Evidently, under
this legal provision, the real
party in interest with regard
to the portion of the
indemnity paid is the
insurer and not the insured.
(Emphasis supplied).

Pioneer Insurance, knowing

the value of the aircrafts
and the spare parts
involved, agreed to issue
the bond provided that the
same would be mortgaged
to it, but this was not
possible because the planes
were still in Japan and could
not be mortgaged here in
the Philippines. As soon as
the aircrafts were brought to
the Philippines, they would
be mortgaged to Pioneer
Insurance to cover the
bond, and this indemnity
agreement would be
cancelled.
The following is averred
under oath by Pioneer in the
original complaint:

It is clear from the records that Pioneer

sued in its own name and not as an
attorney-in-fact of the reinsurer.

The various
conflicting
claims over
the
mortgaged
properties
have impaired
and rendered
insufficient
the security
under the
chattel
mortgage and
there is thus
no other
sufficient
security for
the claim
sought to be
enforced by
this action.

Accordingly, the appellate court did not

commit a reversible error in dismissing the
petitioner's complaint as against the
respondents for the reason that the
petitioner was not the real party in interest
in the complaint and, therefore, has no
cause of action against the respondents.
Nevertheless, the petitioner argues that
the appeal as regards the counter
indemnitors should not have been
dismissed on the premise that the
evidence on record shows that it is
entitled to recover from the counter
indemnitors. It does not, however, cite any
grounds except its allegation that
respondent "Maglanas defense and
evidence are certainly incredible" (p. 12,
Rollo) to back up its contention.
On the other hand, we find the trial court's
findings on the matter replete with
evidence to substantiate its finding that
the counter-indemnitors are not liable to
the petitioner. The trial court stated:

This is judicial admission

and aside from the chattel
mortgage there is no other
security for the claim sought
to be enforced by this
action, which necessarily
means that the indemnity
agreement had ceased to
have any force and effect at
the time this action was
instituted. Sec 2, Rule 129,
Revised Rules of Court.

Apart from the foregoing

proposition, the indemnity
agreement ceased to be
valid and effective after the

37

Prescinding from the

foregoing, Pioneer, having
foreclosed the chattel
mortgage on the planes and
spare parts, no longer has
any further action against
the defendants as
indemnitors to recover any
unpaid balance of the price.
The indemnity agreement
was ipso jure extinguished
upon the foreclosure of the
chattel mortgage. These
defendants, as indemnitors,
would be entitled to be
subrogated to the right of
Pioneer should they make
payments to the latter.
Articles 2067 and 2080 of
the New Civil Code of the
Philippines.

is not the vendor but JDA.

The reason is that Pioneer is
actually exercising the
rights of JDA as vendor,
having subrogated it in such
rights. Nor may the
application of the provision
be validly opposed on the
ground that these
defendants and defendant
Maglana are not the vendee
but indemnitors. Pascual, et
al. v. Universal Motors
Corporation, G.R. No. L27862, Nov. 20,1974, 61
SCRA 124.
The restructuring of the
obligations of SAL or Lim,
thru the change of their
maturity dates discharged
these defendants from any
liability as alleged
indemnitors. The change of
the maturity dates of the
obligations of Lim, or SAL
extinguish the original
obligations thru novations
thus discharging the
indemnitors.

Independently of the
preceding proposition
Pioneer's election of the
remedy of foreclosure
precludes any further action
to recover any unpaid
balance of the price.
SAL or Lim, having failed to
pay the second to the eight
and last installments to JDA
and Pioneer as surety
having made of the
payments to JDA, the
alternative remedies open
to Pioneer were as provided
in Article 1484 of the New
Civil Code, known as the
Recto Law.

The principal
hereof shall
be paid in
eight equal
successive
three months
interval
installments,
the first of
which shall be
due and
payable 25
August 1965,
the remainder
of which ...
shall be due
and payable
on the 26th
day x x x of
each
succeeding
three months
and the last
of which shall
be due and
payable 26th
May 1967.

Pioneer exercised the

remedy of foreclosure of the
chattel mortgage both by
extrajudicial foreclosure and
the instant suit. Such being
the case, as provided by the
aforementioned provisions,
Pioneer shall have no
further action against the
purchaser to recover any
unpaid balance and any
agreement to the contrary
is void.' Cruz, et al. v.
Filipinas Investment &
Finance Corp. No. L- 24772,
May 27,1968, 23 SCRA 791,
795-6.

However, at the trial of this

case, Pioneer produced a
memorandum executed by
SAL or Lim and JDA,
modifying the maturity

The operation of the

foregoing provision cannot
be escaped from through
the contention that Pioneer

38

dates of the obligations, as

follows:

the corresponding
documents in the form of a
written notice to as well as
written conformity of these
defendants, and there are
no such document. The
consequence of this was the
extinguishment of the
obligations and of the surety
bond secured by the
indemnity agreement which
was thereby also
extinguished. Applicable by
analogy are the rulings of
the Supreme Court in the
case of Kabankalan Sugar
Co. v. Pacheco, 55 Phil. 553,
563, and the case of Asiatic
Petroleum Co. v. Hizon
David, 45 Phil. 532, 538.

The principal
hereof shall
be paid in
eight equal
successive
three month
interval
installments
the first of
which shall be
due and
payable 4
September
1965, the
remainder of
which ... shall
be due and
payable on
the 4th day ...
of each
succeeding
months and
the last of
which shall be
due and
payable 4th
June 1967.

Art. 2079. An
extension
granted to
the debtor by
the creditor
without the
consent of the
guarantor
extinguishes
the guaranty
The mere
failure on the
part of the
creditor to
demand
payment after
the debt has
become due
does not of
itself
constitute any
extension
time referred
to herein,
(New Civil
Code).'

Not only that, Pioneer also

produced eight purported
promissory notes bearing
maturity dates different
from that fixed in the
aforesaid memorandum; the
due date of the first
installment appears as
October 15, 1965, and those
of the rest of the
installments, the 15th of
each succeeding three
months, that of the last
installment being July 15,
1967.
These restructuring of the
obligations with regard to
their maturity dates,
effected twice, were done
without the knowledge,
much less, would have it
believed that these
defendants Maglana (sic).
Pioneer's official Numeriano
Carbonel would have it
believed that these
defendants and defendant
Maglana knew of and
consented to the
modification of the
obligations. But if that were
so, there would have been

Manresa, 4th ed., Vol. 12,

pp. 316-317, Vol. VI, pp.
562-563, M.F. Stevenson &
Co., Ltd., v. Climacom et al.
(C.A.) 36 O.G. 1571.
Pioneer's liability as surety
to JDA had already
prescribed when Pioneer
paid the same.
Consequently, Pioneer has
no more cause of action to
recover from these
defendants, as supposed
indemnitors, what it has
paid to JDA. By virtue of an

39

express stipulation in the

surety bond, the failure of
JDA to present its claim to
Pioneer within ten days from
default of Lim or SAL on
every installment, released
Pioneer from liability from
the claim.

l. What legal rules govern

the relationship among coinvestors whose agreement
was to do business through
the corporate vehicle but
who failed to incorporate
the entity in which they had
chosen to invest? How are
the losses to be treated in
situations where their
contributions to the
intended 'corporation' were
invested not through the
corporate form? This
Petition presents these
fundamental questions
which we believe were
resolved erroneously by the
Court of Appeals ('CA').
(Rollo, p. 6).

Therefore, Pioneer is not

entitled to exact
reimbursement from these
defendants thru the
indemnity.
Art. 1318.
Payment by a
solidary
debtor shall
not entitle
him to
reimburseme
nt from his
co-debtors if
such payment
is made after
the obligation
has
prescribed or
became
illegal.

These questions are premised on the

petitioner's theory that as a result of the
failure of respondents Bormaheco,
Spouses Cervantes, Constancio Maglana
and petitioner Lim to incorporate, a de
facto partnership among them was
created, and that as a consequence of
such relationship all must share in the
losses and/or gains of the venture in
proportion to their contribution. The
petitioner, therefore, questions the
appellate court's findings ordering him to
reimburse certain amounts given by the
respondents to the petitioner as their
contributions to the intended corporation,
to wit:

These defendants are

entitled to recover damages
and attorney's fees from
Pioneer and its surety by
reason of the filing of the
instant case against them
and the attachment and
garnishment of their
properties. The instant
action is clearly unfounded
insofar as plaintiff drags
these defendants and
defendant Maglana.'
(Record on Appeal, pp. 363369, Rollo of G.R. No.
84157).

However, defendant Lim

should be held liable to pay
his co-defendants' crossclaims in the total amount
of P184,878.74 as correctly
found by the trial court, with
interest from the filing of
the cross-complaints until
the amount is fully paid.
Defendant Lim should pay
one-half of the said amount
to Bormaheco and the
Cervanteses and the other
one-half to defendant
Maglana. It is established in
the records that defendant
Lim had duly received the
amount of Pl51,000.00 from
defendants Bormaheco and
Maglana representing the
latter's participation in the
ownership of the subject
airplanes and spare parts
(Exhibit 58). In addition, the
cross-party plaintiffs
incurred additional

We find no cogent reason to reverse or

modify these findings.
Hence, it is our conclusion that the
petition in G.R. No. 84197 is not
meritorious.
We now discuss the merits of G.R. No.
84157.
Petitioner Jacob S. Lim poses the following
issues:

40

expenses, hence, the total

sum of P 184,878.74.

distributed among them in

proportion to the value of
the property contributed by
each (Shorb v. Beaudry, 56
Cal. 446). However, such a
relation does not
necessarily exist, for
ordinarily persons cannot
be made to assume the
relation of partners, as
between themselves, when
their purpose is that no
partnership shall
exist (London Assur. Corp. v.
Drennen, Minn., 6 S.Ct. 442,
116 U.S. 461, 472, 29 L.Ed.
688), and it should be
implied only when
necessary to do justice
between the parties; thus,
one who takes no part
except to subscribe for
stock in a proposed
corporation which is never
legally formed does not
become a partner with
other subscribers who
engage in business under
the name of the pretended
corporation, so as to be
liable as such in an action
for settlement of the
alleged partnership and
contribution (Ward v.
Brigham, 127 Mass. 24). A
partnership relation
between certain
stockholders and other
stockholders, who were also
directors, will not be implied
in the absence of an
agreement, so as to make
the former liable to
contribute for payment of
debts illegally contracted by
the latter (Heald v. Owen,
44 N.W. 210, 79 Iowa 23).
(Corpus Juris Secundum,
Vol. 68, p. 464). (Italics
supplied).

We first state the principles.

While it has been held that
as between themselves the
rights of the stockholders in
a defectively incorporated
association should be
governed by the supposed
charter and the laws of the
state relating thereto and
not by the rules governing
partners (Cannon v. Brush
Electric Co., 54 A. 121, 96
Md. 446, 94 Am. S.R. 584),
it is ordinarily held that
persons who attempt, but
fail, to form a corporation
and who carry on business
under the corporate name
occupy the position of
partners inter se (Lynch v.
Perryman, 119 P. 229, 29
Okl. 615, Ann. Cas. 1913A
1065). Thus, where persons
associate themselves
together under articles to
purchase property to carry
on a business, and their
organization is so defective
as to come short of creating
a corporation within the
statute, they become in
legal effect partners inter
se, and their rights as
members of the company to
the property acquired by
the company will be
recognized (Smith v.
Schoodoc Pond Packing Co.,
84 A. 268,109 Me. 555;
Whipple v. Parker, 29 Mich.
369). So, where certain
persons associated
themselves as a corporation
for the development of land
for irrigation purposes, and
each conveyed land to the
corporation, and two of
them contracted to pay a
third the difference in the
proportionate value of the
land conveyed by him, and
no stock was ever issued in
the corporation, it was
treated as a trustee for the
associates in an action
between them for an
accounting, and its capital
stock was treated as
partnership assets, sold,
and the proceeds

In the instant case, it is to be noted that

the petitioner was declared non-suited for
his failure to appear during the pretrial
despite notification. In his answer, the
petitioner denied having received any
amount from respondents Bormaheco, the
Cervanteses and Maglana. The trial court
and the appellate court, however, found
through Exhibit 58, that the petitioner
received the amount of P151,000.00
representing the participation of
Bormaheco and Atty. Constancio B.
Maglana in the ownership of the subject

41

airplanes and spare parts. The record

shows that defendant Maglana gave
P75,000.00 to petitioner Jacob Lim thru
the Cervanteses.

considered as their lawful

contribution and
participation in the
proposed corporation to be
known as SAL.
Arrangements and
negotiations were
undertaken by defendant
Lim. Down payments were
advanced by defendants
Bormaheco and the
Cervanteses and Constancio
Maglana (Exh. E- 1).
Contrary to the agreement
among the defendants,
defendant Lim in
connivance with the
plaintiff, signed and
executed the alleged chattel
mortgage and surety bond
agreement in his personal
capacity as the alleged
proprietor of the SAL. The
answering defendants
learned for the first time of
this trickery and
misrepresentation of the
other, Jacob Lim, when the
herein plaintiff chattel
mortgage (sic) allegedly
executed by defendant Lim,
thereby forcing them to file
an adverse claim in the
form of third party claim.
Notwithstanding repeated
oral demands made by
defendants Bormaheco and
Cervanteses, to defendant
Lim, to surrender the
possession of the two
planes and their accessories
and or return the amount
advanced by the former
amounting to an aggregate
sum of P 178,997.14 as
evidenced by a statement of
accounts, the latter ignored,
omitted and refused to
comply with them. (Record
on Appeal, pp. 341-342).

It is therefore clear that the petitioner

never had the intention to form a
corporation with the respondents despite
his representations to them. This gives
credence to the cross-claims of the
respondents to the effect that they were
induced and lured by the petitioner to
make contributions to a proposed
corporation which was never formed
because the petitioner reneged on their
agreement. Maglana alleged in his crossclaim:
... that sometime in early
1965, Jacob Lim proposed to
Francisco Cervantes and
Maglana to expand his
airline business. Lim was to
procure two DC-3's from
Japan and secure the
necessary certificates of
public convenience and
necessity as well as the
required permits for the
operation thereof. Maglana
sometime in May 1965,
gave Cervantes his share of
P75,000.00 for delivery to
Lim which Cervantes did
and Lim acknowledged
receipt thereof. Cervantes,
likewise, delivered his share
of the undertaking. Lim in
an undertaking sometime
on or about August 9,1965,
promised to incorporate his
airline in accordance with
their agreement and
proceeded to acquire the
planes on his own account.
Since then up to the filing of
this answer, Lim has
refused, failed and still
refuses to set up the
corporation or return the
money of Maglana. (Record
on Appeal, pp. 337-338).

Applying therefore the principles of law

earlier cited to the facts of the case,
necessarily, no de facto partnership was
created among the parties which would
entitle the petitioner to a reimbursement
of the supposed losses of the proposed
corporation. The record shows that the
petitioner was acting on his own and not
in behalf of his other would-be
incorporators in transacting the sale of the
airplanes and spare parts.

while respondents Bormaheco and the

Cervanteses alleged in their answer,
counterclaim, cross-claim and third party
complaint:
Sometime in April 1965,
defendant Lim lured and
induced the answering
defendants to purchase two
airplanes and spare parts
from Japan which the latter

42

WHEREFORE, the instant petitions are

DISMISSED. The questioned decision of the
Court of Appeals is AFFIRMED.

After various hearings and the taking of

considerable testimony, the referee, on
February 18, 1926, rendered a report to
the court in which he made the following
recommendations:

SO ORDERED.
G.R. No. L-29182
1928

That the insolvent deliver to the assignee:

October 24,

(a) The sum of P56,000 more or

less that the "encargado" of the
insolvent's business, Chan Chiao
Wa, had delivered to her on the
18th of April, 1925, which amount
was in fact, on the 19th day of
April, 1925, about P56,102.65.

LEONCIA VIUDA DE CHAN DIACO

(alias LAO LIONG NAW) appellee,
vs.
JOSE S. Y. PENG, assignee, appellant.
C. A. Sobral for appellant.
Amador Constantino for appellee.

OSTRAND, J.:

(b) The accounts receivable as of

June 19, 1925, or that is to say, two
months after the insolvent took
charge of her store, amounting to
P40,000.

This is an appeal from a decision of the

Court of First Instance of Manila dismissing
an insolvency proceeding.

(c) The amount taken for her own

use and out of the business on June
8, 1925, to wit, P2,000.

It appears from the record that on June 13,

1925, the San Miguel Brewery, Porta
Pueco & Co., and Ruiz & Rementaria S. en
C. instituted insolvency proceedings
against Leoncia Vda. de Chan Diaco
(alias Lao Liong Naw), alleged to be the
owner of a grocery store on Calle Nueva,
Binondo, known as the store of "La Viuda
de G. G. Chan Diaco."

(d) Another P2,000 that on June 5,

1925, and being already insolvent,
the widow of Chan Diaco had taken
from the China Banking corporation
for her personal use.
(e) The following account
books: 1awph!l.net
Libros de Acreedores
Extranjeros.
Libros de Acreedores
Chinos.
Libros de Deudores de
Manila.
Libros de Deudores de
Provincias.
Libros de Entrada y salida
de efectos y mercancias
para Manila y Provincias.
Libro Diario de Caja.
Libro de Sueldos de
Empleados.
Libros de Balances e
Inventarios.
Libro mayor de 1924 y
1925.

In their petition for the declaration of the

insolvency, the above-mentioned firms
alleged, among other things, that Leoncia
was indebted to them in the sum of
P26,234.47, which debt was incurred
within thirty days prior to the filing of said
petition. It further appears that other
creditors have filed claims against the
estate to the amount of P50,000.
The petition for the declaration of
insolvency was set down for hearing on
June 25, 1925. Leoncia did not appear at
the hearing, notwithstanding the fact that
she was duly notified, and the court
declared her insolvent and ordered the
sheriff to take possession of her property,
the visible part of which at that time
consisting of some merchandise,
afterwards sold at public auction for
P3,300. Judge Simplicio del Rosario, in an
order dated September 12, 11925,
appointed Ricardo Summers, the clerk of
the Court of First Instance of Manila,
referee, authorizing him to take further
evidence in regard to the questions of fact
raised by the motions of August 5th and
19th.

The report was approved by Judge del

Rosario on April 14, 1926, and the
merchants Cua Ico, Chan Keep, and Simon
A. Chan Bona were ordered to show cause
why they should not return that alleged
merchandise to the value of P20,000,
alleged to have been delivered to them by
Leoncia, together with P5,000 in cash
alleged to have been received from her by

43

the merchant Chua Ico between the 8th

and 11th days of June, 1925.

who were mere coolies, to come to the

Philippines under the status of merchants.
He, therefore, recommended that the
motion of the insolvent to dismiss the
proceedings against her be denied.

On April 22, 1926, the attorney for the

insolvent filed her exception to the report
of the referee, which had already been
approved on April 14, and on July 23,
1926, the court rendered a decision,
reaffirming its order of April 14, and
ordered the insolvent to deliver to the
assignee the sum of P56,000, more or
less. alleged to have been in her
possession on April 19, 1925. The court
further ordered her to surrender the books
of accounts mentioned in the referee's
report together with the accounts
receivable amounting to P40,000 and the
sums withdrawn by her from her current
account with the China Banking
Corporation a few days prior to the
declaration of insolvency; and directed the
assignee to file actions against the
merchants Cua Ico, Chan Keep, and Simon
A. Chan Bona for the return by them of the
sum of P5,000 in cash, plus the
merchandise valued at P20,000 delivered
to them by the insolvent in fraud of her
creditors.

The report was assigned for hearing on

May 21, 1927. Judge Del Rosario was then
absent on leave and the matter was,
therefore, submitted to Judge Francisco
Zandueta, who had been temporarily
assigned to take the place of Judge Del
Rosario, and on June 6, 1927, a decision
was rendered disapproving the report of
the referee. The court, therefore, affirmed
the suspension of the decision of Judge
Del Rosario, and on June 23, 1926,
dismissed the insolvency proceedings, and
ordered the assignee to return to the
sheriff all the property of the insolvent
which he, the sheriff, might have in his
possession. The decision further provided
for leave to the petitioners to file a new
petition in insolvency against the
partnership Lao Liong Naw & Co. if they so
desired. A motion for reconsideration was
presented by the assignee but was denied
by the court in an order of July 1, 1927.
the assignee, thereupon, appealed to this
court and presents the following
assignments of error:

On August 4, 1926, attorney for the

insolvent filed a motion asking the court to
dismiss the proceedings against her on
the ground that they should have been
brought against the partnership "Lao Liong
Naw & Co.," of which she was only a
member. The alleged partnership was
evidenced by an agreement dated July 22,
1922, and from which it appeared that on
that date Lao Liong Naw (Leoncia), Chan
Chiaco Wa, Cua Yuk, Chan Bun Suy, Cahn
Bun Le, and Juan Maquitan Chan had
formed a partnership with a capital of
P21,000, of which only P4,000 was
contributed by Leoncia.

1. The lower court erred in

disapproving the report of the
referee dated February 28, 1927.
2. The lower court erred in
dismissing the petition for the
involuntary insolvency of the
merchant Leoncia Vda. de Chan
Diaco (alias Lao Liong Naw or
Niew).
3. The lower court erred in ordering
the filing of a new petition of
insolvency against the fictitious
partnership Lao Liong Niew & Co.
and the delivery to the sheriff of all
the property of the insolvency.

In view of the aforesaid motion Judge Del

Rosario on August 7, 1926, suspended for
the time being the effects of the decision
of July 23, 1926, and set the motion down
for hearing on the 14th of August, 1926.
His Honor again appointed Summers as
referee.

In our opinion, all of the assignments of

error are well taken. The evidence
appearing in the record fully supports the
findings of the referee and his report
should have been approved by the court
below.

After several hearings in which various

witnesses were examined and documents
presented on behalf of both sides, the
referee, on February 28, 1927, rendered a
second report, in which he found as facts
that the alleged partnership between the
insolvent and some of her relatives and
employees was only a fictitious
organization created for the purpose of
deceiving the Bureau of Customs and
enable some of the aforesaid relatives,

As to the second and third assignments of

error it is to be observed that conceding
for the sake of the argument that the
debts in question were incurred by the
alleged partnership, it clearly appears
from the record that said partnership, as

44

such, has no visible assets that, therefore,

the partners individually must, jointly and
severally, respond for its debts (Code of
Commerce, art. 127). As the appellee is
one of the partners and admits that she is
insolvent, we can see no reason for the
dismissal of the proceedings against her. It
is further to be noted that both the
partnership and the separate partners
thereof may be joined in the same action,
though the private property of the latter
cannot be taken in payment of the
partnership debts until the common
property of the concern is exhausted
(Comapnia Maritima vs. Munoz, 9 Phil.,
326) and, under this rule, it seems clear
that the alleged partnership here in
question may, if necessary, be included in
the case by amendments to the
insolvency petition.

Plaintiff for many years was a partner of

the commercial firm of Pardo y Robles
Hermanos. In the articles of copartnership
to withdraw from the partnership and the
remaining partners desired to continue the
partnership, the withdrawing partners
must give notice in writing, and the firm
would have three years in which to pay his
share or interest therein.
In compliance with this provision, on
October 1,1927, the herein plaintiffappellee gave notice to the partnership, as
well as to all the individual members
thereof, of his desire to separate
therefrom.
On January 28, 1930, plaintiff's share or
interest in the firm was liquidated and
found to be P80,000 and the method of
payment was agreed upon as set forth in
Exhibit B. Later, the form of payment was
changed as shown by Exhibit E. Payments
not having been made, this suit was duly
brought, and after trial it was given for
plaintiff, and defendants bring this appeal.

We also call attention to the fact that the

evidence clearly shows that the business,
alleged to have been that of the
partnership, was carried on under the
name "Leoncia Vda. de Chan Diaco" or "La
Vda. de G. G. Chan Diaco," both of which
are names of the appellee, and we think it
can be safely held that a partnership may
be adjudged bankrupt in the name of an
ostensible partner, when such name is the
name under which the partnership did
business.

It is claimed that the settlement of January

28, 1930, was not a final settlement but
was contingent upon securing a loan. This
is based upon the fact that the managing
partner was authorized at the same
meeting where the share of plaintiff was
determined, to negotiate a loan if
possible: But the value of plaintiff's
interest in the partnership was not
contingent upon whether the loan was
secured or not. The securing of the loan
might have made it easier for the
partnership to liquidate the share of the
retiring partner, but his rights as of that
date were not contingent upon the future
action of the partnership. Nor would he
have to wait three years after the
settlement then made before he was
entitled to payment, which would mean an
amendment to the articles of
incorporation that a partner could not
enforce liquidation of his account for six
years. His right of action accrued as
provided for in the contract. Nor is Exhibit
E invalid because one of the defendants
signed it "Salvo mi opinion". Nor would
such a statement relieve the signer from
his responsibility, which had become fixed
on January 28, 1930.

The decision appealed from is hereby

reversed, the reports and
recommendations of the referee are
approved, the order for the dismissal of
the case is set aside, and the decision of
Judge Simplicio Del Rosario dated July 23,
1926, will remain in full force and effect.
No costs will be allowed. So ordered.
G.R. No. L-38765
1934

February 12,

LUIS MA. ROBLES, plaintiff-appellee,

vs.
PARDO Y ROBLES HERMANOS,
ANTONIA CECILIO VIUDA DE PARDO,
MANUEL PARDO, ANTONIA L. PARDO,
and CONCEPCION ROBLES DE
COSTOSA, this latter represented by
her attorney in fact, Antonio
Carrascoso, defendants-appellants.
J. Ezequiel Espinas for appellants.
Ramirez and Ortigas for appellantadministrator F. Romero.
Manly and Reyes and L. D. Lockwood for
appellee.

It is also contended on the part of

defendants that plaintiff was not entitled
to recover until all the debts and
obligations of the partnership had been
paid off. The remaining partners have little
right to advance such a contention. If
there was a withdrawal with the intent to

HULL, J.:

45

defraud any existing creditors, another

question would be presented, but no such
allegation is here made. Certainly, a
withdrawing partner is not liable for debts
and obligations of the partnership after he
has ceased to be a member of the
partnership and has only the position of a
creditor.

MANUEL ORMACHEA TIN-CONGCO,

deceased, represented by the
Chinaman Tiu Tusay, judicial
administrator of his estate, plaintiffappellee,
vs.
SANTIAGO TRILLANA, defendantappellant.

Certain of the defendants claim that the

proceedings must be set aside as Manuel
Pardo, now deceased, represented not
only himself and the company of which he
was general manager, but other
defendants. It now appears that Manuel
Pardo was authorized to practice in Spain
but had never been admitted to practice
in this country. Of course he had a right to
represent himself and probably his right to
represent the partnership while he was
managing director would not be
questioned.

A. Velarde, and E. Paguia for appellant.

T. L. McGirr for appellee.
TORRES, J.:
On the 15th of January, 1904, Manuel
Ormachea Tin-Congco, a Chinaman,
presented an amended complaint against
Santiago Trillana, alleging that the plaintiff
Ormachea and Luis Vizmanos Ong Queco
were engaged in business in the pueblos
of Hagonoy, Malolos, and other places in
the Province of Bulacan, and that in the
course thereof the defendant purchased
from them merchandise to the value of
4,000 pesos, local currency; that two
years prior to that date, a little more or
less, the partnership was dissolved and
the business was divided up between the
partners, all accounts and debts of the
defendant were alloted to the plaintiff, and
became the individual property of
Ormachea Tin-Congco; the indebtedness is
proven by the documents signed by the
defendant or his agents in favor of
Ormachea or of Vizmanos Ong Queco or
their agent named Lawa in charge of the
business, The documents of indebtedness
are inserted in the complaint and duly
numbered. They aggregate 135
documents, some of which are written in
Tagalog with corresponding translations;
that the legal interest on the said 4,000
pesos is 1,500 pesos which makes the
total debt amount to 5,500 pesos, and the
same has not been paid by the defendant.
Therefore, the plaintiff prays that
judgment be entered ordering the
defendant, Santiago Trillana, to pay the
said 5,500 pesos with costs.

As to the other defendants who at this late

date are questioning his right to represent
them in court, it must be noted that they
were all duly served, that their interests
were identical, that they were related one
to the other and virtually lived together,
and it is inconceivable that Manuel Pardo
represented them without their knowledge
and consent. If he did not, they were in
such flagrant default that they have no
right to complain of the proceedings. Had
the facts been known, plaintiff or the court
could have objected to Manuel Pardo's
representing the other defendants,
although it is very probable under the
circumstances of the entire case that the
court upon motion might have approved of
his appearance in this one proceedings as
an act of professional courtesy to a
member of the bar of a friendly country.
The present contention of some of the
defendants that they at all times had a
right to have served on them individually
a copy of all motions and decisions of the
trial court, is entirely without foundation.
They received summons and they had a
right to appear in court if they saw fit.
They did appear in court in a possibly
irregular way, but they cannot take
advantage of their own action to defeat or
thwart the legal rights of plaintiff-appellee.

The defendant filed a written answer on

November 15, 1904, setting forth: That he
admitted the first statement of the
complaint, but had no knowledge as to the
second as it appears therein; that he did
not admit the same, nor the other
allegations in the complaint in the sense in
which they are set out; that as a special
defense, the defendant alleges that he
had already settled his accounts and
obligations contracted in the business to
which the complaint refers, by means of
periodical payments in tuba or the liquor
of the nipa palm, and that if any accounts

The judgment appealed from is therefore

affirmed with costs against appellants. So
ordered.
G.R. No. L-4776
1909

March 18,

46

are still pending, the same should, owing

to their character and the manner in which
they were constituted, be paid in kind and
not in money as the plaintiff claims in his
complaint, and should be paid at the time
and under the circumstances which, as is
customary in Hagonoy, such class of
obligations are settled; he therefore asked
the court below to enter judgment
absolving the defendant of the complaint,
with the costs against the plaintiff.

recommendation of the defendant, and for

account of a third person; that vale No. 1
does not state the year, and No. 135 bears
no date at all, therefore, they do not
constitute sufficient proof to justify the
condemnatory judgment with respect to
the amount which they represent because
the time when said respective obligations
were contracted is not determined; that
the vales which are date previously
to vale No. 98 are invalidated by the note
of general liquidation between the creditor
Manuel Ormachea, and the debtor
Santiago Trillana written on the back of
the said vale No. 98 in Chinese characters
and explained by the witness Jose R. Lopez
Lawa, and, notwithstanding said
liquidation, the said vales are reputed as
unpaid; and finally, that if the debt is
payable in tuba, unless it is shown and it
does not so appear that the defendant
refused to pay it in that manner or has
failed to comply with his obligations, there
is no reason to compel him to pay,
therefore he should not be ordered to do
so, much less to pay the costs.

After hearing the evidence presented by

the parties, the trial judge, on February
27, 1907, rendered judgment ordering the
defendant, Santiago Trillana, to pay to the
Chinaman Florentino Tiu Tusay, the judicial
administrator of the estate of the
deceased plaintiff, Ormachea Tin-Congco,
the sum of P2,832.22, in tuba, under the
same conditions stipulated between the
debtor and the copartnership for the
working of the distillery of Luis Vizmanos
and the late Chinaman Manuel Ormachea,
with costs.
The representative of the defendant
excepted to the above judgment, and
announced his intention to appeal by
means of a bill of exceptions; and by a
writing dated March 22, 1907, he prayed
the lower court to revoke or amend its
former decision of the 27th of February,
and to order a new trial as the evidence
adduced at the hearing was not sufficient
to justify said decision, because
the vale No. 88 is subscribed by another
person who is not the defendant, and for
said reason its value can not be
demanded from him; that vales numbered
31, 87, 91, 93, 94, 96, and 97 are in the
same condition; that the vales Nos. 5, 6, 7,
32, 33, 35, 40, 41, 44, 48, 54, 63, 104,
105, 127, 132, and 133 offered by the
plaintiff in evidence and signed by the
defendant, clearly express on whose
account they were issued, and for said
reason the obligations contained in
said vales are not those of the defendant,
Santiago Trillana, and can not stand as
evidence against him; that the vales Nos.
109, 112, 113, 115, 116, 118, 12, and 15
by themselves do not prove, nor can they
prove that the amount of money which
they represent should form part of the
defendant's debt, because it does not
appear that there was ever a lawful
transfer, cession or indorsement made
between the person in whose favor they
are made out and the so-called creditor,
nor between said person and the
successor of the said entity, that is to say,
the representative of the plaintiff;
that vale No. 113 is made out as a mere

At the hearing, the trial judge, on the 7th

of May, 1907, overruled the motion to
modify his former decision as far as it
referred to the amount of the
indebtedness found against the defendant
and the said judgment was modified by
adding the provision that the defendant
should make payment in tuba which he
should deliver at the plaintiff's distillery in
the town of Hagonoy within the term of six
months, but that, if said term should
expire without such payment, whatever
might be the cause, he should be obliged
to pay his debt in cash.
The defendant requested a decision in his
motion for a new trial in which he
contended that the evidence was not
sufficient to justify the judgment of
February 27, and on the 12th of November
the court below held that, by its order of
May 7, last, the motion for a new trial was
denied, and said denial was reproduced as
explanation of the ruling of May 7. The
defendant excepted to the foregoing
decision and presented the corresponding
amended bill of exceptions; when
approving the bill of exceptions, the court
below ordered the suspension of the
execution providing that the defendant
furnish bond in the sum of P4,000.
As Manuel Ormachea Tin-Congco claimed
from Santiago Trillana the payment of the
sum which, as capital and interest
thereon, he owed the former for amounts
in cash and in goods which he took from

47

the creditor and his partner, Luis Vizmanos

Ong Queco, as shown by the
135 vales which are attached to the
complaint and which were admitted as
authentic by the defendant, with the
exception of eight of them signed by the
other persons, aggregating P173, the
court below, in view of the evidence,
found that the debt which could be
claimed from the defendant, after
deducting the said P173, amounted only
to P2,832.22 4/8.

amount was still pending payment, it

should be paid not in money but in tuba,
at such time and under such
circumstances as are customary in the
town of Hagonoy. In evidence of this, while
testifying under oath, he introduced the
following document marked "A" which
appears at folio 248:
I, Jose R. Lopez (Lawa), a Christian
Chinese, do hereby declare that D.
Santiago Trillana has no
outstanding debt whatever with the
distillery situated in the barrio of
San Sebastian in this town, which
in past times was under my
management. What I have stated is
the truth. Hagonoy, November
19, 1903. Jose R. Lopez.

The record shows that the amounts

advanced to the debtor, Santiago Trillana,
and to the others by means of the
said vales, and most of which were
addressed to Lopez Lawa, and some to
other persons, were delivered by the said
Lopez Lawa who, from the years 1894 or
by 1895 to 1901, was the manager of the
distillery situated in the barrio of San
Sebastian, municipality of Hagonoy,
Bulacan, and owned in partnership by
Ormachea and Vizmanos, but the money
furnished by the manager to Trillana and
to the others on account of the tuba or
liquor of the nipapalm which the
defendant had engaged to supply to said
distillery belonged to the two owners of
the same, not to the manager, Jose Lopez
Lawa.

The debtor explained how and in what

manner he obtained the foregoing
document from Lawa, and stated: That in
November, 1903, he received a letter from
Mr. McGirr, the plaintiff's attorney,
requesting him to settle his account with
Lawa, for which reason he called on the
latter and asked him whether he still owed
him anything on account of the distillery in
San Sebastian; Lawa replied that he no
longer owed anything; thereupon the
requested Lawa to issue the said
document, and under Lawa's direction the
debtor wrote out the document, and the
former, upon being informed of its
contents, signed it; for said reason the
witness believed that he no longer owed
anything.

It has also been fully proven that, when in

June or July, 1901, the aforesaid Ormachea
Tin-Congco and Vizmanos Ong Queco
withdrew from the business, Lawa ceased
to act as manager of the distillery, and
then, among other things that belonged to
the two partners, they divided between
them the credits that they held against
third persons, those that stood against
Santiago Trillana as evidenced by the said
135 vales, having gone to Manuel
Ormachea Tin-Congco. This is affirmed by
Luis Vizmanos Ong Queco, Syo Bunchad,
by Jose R. Lopez Lawa himself, and, as
stipulated between the parties, by Tiu
Langco, a Chinaman who was at the time
employed as mixer in said distillery. It
should be noted that, while this litigation
was pending, the plaintiff, Manuel
Ormachea, died, and Florentino Tiu Tusay
was appointed administrator of his estate;
letters of administration in favor of the
latter were issued on the 9th of October,
1905. (Folio 56.)

However, Lopez Lawa affirms that he gave

the said document marked as Exhibit A" to
the debtor, Santiago Trillana, because the
latter was indebted to him but to Manuel
Ormachea, to whom the credits standing
against Trillana were transferred when
Ormachea withdrew from the abovementioned partnership with Vizmanos Ong
Queco. When drawing up the preinserted
document, it was not his intention to annul
and set aside the vales which represented
the indebtedness of the defendant,
Trillana.
If the business jointly carried on by
Ormachea and Vizmanos was dissolved,
and its transactions ceased in 1901 Jose
Lopez Lawa, who managed the distillery
on behalf of the owners of the same, also
ceased to act as such manager in said
year, and for said reason the document
Exhibit A, which he issued to the debtor on
the 19th of November, 1903, two years
after ceasing to be manager, can not
serve to relieve the debtor from paying

As has been seen, the defendant stated

that he had already paid his accounts and
obligations contracted in favor of the said
Ormachea and Vizmanos by means of
periodical deliveries of tuba or liquor of
the nipa palm, and alleged that, if any

48

what he owed by virtue of the documents

or vales that he had issued in order to
obtain money from the owners of the said
distillery; that is to say, as agreed upon by
them, the right to recover the debts of the
defendant still belonged to Ormachea
when the business was dissolved, as Lawa
was not authorized by Ormachea to
deliver to the debtor an acquittance
releasing him from the obligations that he
had contracted, to the prejudice of the real
creditor, the only person entitled to
condone a debt in the event of waiving the
right to recover the same.

two years to act in the administration and

management thereof, he was not
authorized to sign the document marked
"A," made out by the debtor, by which the
credit of Ormachea should be considered
as settled, and the obligation contracted
by Santiago Trillana, as shown by
the vales which appear in the record,
extinguished.
Since the vales existed, and were in the
possession of the creditor, it was because
the amounts they called for had not
presumed to have been fulfilled when the
proofs of its existence have been returned
to the debtor. (Sec. 334, par. 8, Code of
Civil Procedure.) Seeing that the amounts
stated in the vales acknowledged by the
debtor were advanced to him in part
payment of the price of certain quantities
of tuba or liquor of the nipa palm which he
had contracted to deliver at the distillery,
and as long as he is able to comply with
these stipulations within a reasonable
time, the defendant can not be compelled
to pay his debt in cash. The amounts
stated in the valeswere advanced under
the condition that the same would be paid
or satisfied with the value of
the tuba received by the distillery;
therefore, the decision of the court below,
which moreover appears to have been
acquiesced in by the appellee for the
reason that it was undoubtedly so
stipulated, is in accordance with the law.
(Art. 1278, Civil Code.)

If the document marked "A" had been

issued by Jose Lopez Lawa while still at the
head of the business of the distillery, as
representative of the owners thereof, the
aforesaid Ormachea and Vizmanos, prior
to their withdrawal from business, perhaps
it might have served as a foundation for
the debtor to allege that his obligations
evidenced by said vales had been settled,
although, if such was the case, the
said vales should have been returned to
him by Lawa, or by the owners of the
distillery; but, as the document was made
out and issued two years afterwards,
without a previous payment of the
amounts secured on the said vales, when
the business no longer existed, when the
owners had entirely withdrawn from it,
and when Lawa, who then acted as
manager of the distillery, had no express
authority to issue such a document, with
the further circumstance of its being
written in Spanish, a language with which
the Chinaman who signed it was probably
not well acquainted and the fact that it
was written by the defendant, Santiago
Trillana himself; it is not proper nor lawful
to admit the said document as possessing
a force and effect that would fully exempt
the defendant from the payment of his
obligation, and with greater reason if it is
considered that it has not been shown that
Lawa was authorized to liquidate
accounts, or issue an acquittance
releasing the debtor from the payment of
his debt. (Arts. 1714 and 1719, Civil
Code.)

In view of the forgoing, and accepting the

conclusions contained in the judgment of
February 27, 1907, appealed from, it is our
opinion that the same should be affirmed,
and we hereby affirm it, with the addition
made in the order of May 7 of the same
year, with the costs against the appellant.
So ordered.
MACDONALD vs. NATIONA CITY BANK
OF NEW YORK
L-7991 | may 21, 1956 | Paras | Pet
for Review by Certiorari
Petitioners: Paul MacDonald et al.
Respondent: National City Bank of
New York

Article 1162 of said code reads:

Quick Summary:
Facts: Stasikinocey is a partnership
formed by da Costa, Gorcey, Kusik and
Gavino. It was denied registration by the
SEC due to a confusion between the
partnership and Cardinal Rattan. Cardinal
Rattan is the business name or style used
by Stasikinocey. Da Costa and Gorcey are
the general partners of Cardinal Rattan.
Moreover, Da Costa is the managing

Payment must be made to the

person in whose favor an obligation
is constituted, or to another
authorized to receive it in his
name.
After the close of the business of the
distillery owned by Ormachea and
Vizmanos, and after Lawa had ceased for

49

partner of Cardinal Rattan. Stasikinocey

had an overdaft account with Nationa City
Bank, which was later converted into an
ordinary loan due the partnerships failure
in paying its obligation. The ordinary loan
was secured by a chattel mortgage over 3
vehicles. During the subsistence of the
loan, the vehicles were sold to MacDonald
and later on, MacDonald sold 2 of the 3
vehicles to Gonzales. The bank brought an
action for recovery of its credit and
foreclosure of the chattel mortgage upon
learning of these transactions.
Held: While an unregistered commercial
partnership has no juridical personality,
nevertheless, where two or more persons
attempt to create a partnership failing to
comply with all the legal formalities, the
law considers them as partners and the
association is a partnership in so far as it
is a favorable to third persons, by reason
of the equitable principle of estoppel.
Where a partnership not duly organized
has been recognized as such in its
dealings with certain persons, it shall be
considered as partnership by estoppel
and the persons dealing with it are
estopped from denying its partnership
existence.

Facts:
Stasikinocey is a partnership formed
by Alan Gorcey, Louis Da Costa Jr.,
William Kusik and Emma Badong
Gavino.
It was denied registration in the SEC
due to the confusion between this
partnership
and
the
business
Cardinal Rattan, which is treated as a
co-partnership where Gorcey and Da
Costa are the general partners. It
appears that Cardinal Rattan is
merely the business name or style
used
by
the
partnership,
Stasikinocey.
Prior to June 3, 1949 - Stasikinocey
had an overdraft account with the
National City Bank of New York, a
foreign banking association duly
licensed to do business in the
Philippines.
June 3, 1949 - said overdraft account
has a P6,134.92 balance. Due to the
failure of Stasikinocey to make the
required payment, said balance was
converted into an ordinary loan for
which a promissory joint note, nonnegotiable was executed on the
same day by Da Costa for and in the
name of Cardinal Rattan, himself and
Gorcey.
June 7, 1949 - said promissory note
was secured by a chattel mortgage
executed by Da Costa, general

50

partner for and in the name of

Stasikinocey. Said mortgage was
constituted over the following:
1. Fargo truck with motor No. T-118202839, Serial No. 81410206 and
with plate No. T-7333 (1949)
2. Plymouth
Sedan
automobile
motor No. T-5638876, Serial No.
11872718 and with plate No.
10372
3. Fargo Pick-Up FKI-16, with motor
No. T-112800032, Serial No.
8869225 and with plate No. T7222 (1949)
The mortgage deed was duly
registered with the Office of the
Register of Deeds Pasig, Rizal. It has
the following stipulations:
1. mortgagor shall not sell or
otherwise dispose of the said
chattels without the mortgagees
written consent
2. mortgagee may foreclose the
mortgage at any time, after
breach of any condition thereof,
the mortgagor waiving the 30day notice of foreclosure
June 7, 1949 - Gorcey and Da Costa
executed an agreement purporting to
convey and transfer all their rights,
title and participation in Stasikinocey
to
Shaeffer,
allegedly
in
consideration of the cancellation of
an indebtedness of P25,000 owed by
them and Stasikinocey to the latter.
Said agreement is said to be in
violation of the Bulk Sales Law.
June 24, 1949 - during the
subsistence of the loan and chattel
mortgage, Stasikinocey,, through
Gorcey and Da Costa transferred to
MacDonald the Fargo truck and
Plymouth sedan
June 28, 1949 - Shaeffer sold the
Fargo pick-up to MacDonald
July 19, 1944 [what the case stated
but I guess it should be 1949] - Paul
MacDonald sold the Fargo truck and
Plymouth
sedan
to
Benjamin
Gonzales
When the National City Bank learned
of these transactions, it filed an
action against Stasikinocey, Da
Costa, Gorcey, MacDonald and
Gonzales to recover its credit and to
foreclose the chattel mortgage.
CFI: annulled the sale of the vehicles
to Gonzales; ordered Da Costa and
Gorcey to pay the Bank jointly and
severally
P6,132.92
with
legal
interest; ordered Gonzales to deliver
the vehicles to the Bank for sale at
public auction if Da Costa and Gorcey
fails to pay; ordered Da Costa,

Gorcey and MacDonald to pay the

Bank jointly and severally any
deficiency that remains unpaid
should the proceeds of the auction
sale be insufficient
MacDonald and Gonzales appealed
to the CA.
CA: modified the CFI decision by
ruling that MacDonald is not jointly
and severally liable with Gorcey and
Da Costa to pay any deficiency
Issue:
WON the partnership, Stasikinocey is
estopped from asserting that it does not
have juridical personality since it is an
unregistered
commercial
partnership
[YES]
Ratio:
While an unregistered commercial
partnership
has
no
juridical
personality, nevertheless, where two
or more persons attempt to create a
partnership failing to comply with all
the legal formalities, the law
considers them as partners and the
association is a partnership in so far
as it is a favorable to third persons,
by reason of the equitable principle
of estoppel.
Da Costa and Gorcey cannot deny
that they are partners of the
partnership Stasikinocey, because in
all their transactions with the
National City Bank they represented
themselves as such. McDonald
cannot disclaim knowledge of the
partnership Stasikinocey because he
dealt with said entity in purchasing
two of the vehicles in question
through Gorcey and Da Costa. The
sale of the vehicles to MacDonald
being void, the sale to Gonzales is
also void since a buyer cannot have
a better right than the seller.
As was held in Behn Meyer & Co. vs.
Rosatzin, where a partnership not
duly organized has been recognized
as such in its dealings with certain
persons, it shall be considered as
partnership by estoppel and the
persons dealing with it are estopped
from
denying
its
partnership
existence.
If the law recognizes a defectively
organized partnership as de facto as
far as third persons are concerned,
for purposes of its de facto existence
it should have such attribute of a
partnership as domicile.

therefore the presumption of its due

execution which cannot be easily
destroyed by the biased testimony of
the one who executed it.
The interested version of Da Costa
that the affidavit of good faith
appearing in the chattel mortgage
was executed in Quezon City before
a notary public for and in the City of
Manila was correctly rejected by the
trial court and the Court of Appeals.
In view of the conclusion that
Stasikinocey
is
a
de
facto
partnership, and Da Costa appears
as a co-manager in the letter of
Gorcey to the National City Bank and
in the promissory note executed by
Da Costa, and that even the partners
considered him as such1, the
partner who executed the chattel
mortgage in question must be
deemed to be so fully authorized.
Section 6 of the Chattel Mortgage
Law
provides
that
when
a
partnership is a party to the
mortgage, the affidavit may be made
and subscribed by one member
thereof.
In this case the affidavit was
executed and subscribed by Da
Costa, not only as a partner but as a
managing partner.
Dispositive: CA decision affirmed.

G.R. No. L-37160

1933

March 2,

E. WALCH, assignee of the insolvent

estate of Lim Hai Tao (alias Guan
Hoo), plaintiff-appellant,
vs.
LIM CHAI SENG, defendant-appellee.
Harvey and O'Brien for appellant.
Juan T. Santos and Arsenio Solidum for
appellee.
HULL, J.:
On December 26, 1923, a limited
copartnership was formed between Lim
Hai Tao and the defendant Lim Chay Seng
under the firm name of Lim Hai Tao, S. en
C., and doing business under the Chinese
name of Guan Hoo, which partnership was
duly registered in the Bureau of
Commerce and Industry on January 2,

On the Validity of the Chattel

Mortgage
The chattel mortgage is in the form
required by law, and there is

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That we as the majority partners hereby

agree to appoint Louis da Costa co-managing
partner of Alan W. Gorcey, duly approved
managing partner of the said firm

1924. According to its articles the general

partner was Lim Hai Tao with a capital of
P20,000 and the limited partner was Lim
Chai Seng with a capital of P40,000,
thereby making the sum of P60,000 as the
capital of the partnership. The term of the
partnership was for an indefinite period,
but it could be dissolved by agreement of
those parties. Lim Hai Tao was the
manager of the business and Lim Chay
Seng had no intervention in its
management with the exception of his
right to examine the books of the
partnership during the days of January of
each year.

On June 14, 1930, an insolvency

proceeding was instituted in the Court of
First Instance of Manila by his creditors
named Menzi & Co., Inc., Otto Gmur, Inc.,
and Pacific Commercial Co., all of whom
were duly represented by Attorney Simeon
R. Cruz, against Lim Hai Tao, "doing
business individually under the name and
style of Guan Hoo & Co." Lim Hai Tao was
duly adjudged insolvent by the court and
plaintiff, E. Walch, was elected by the
creditors as assignee of the insolvent
estate. Plaintiff herein, in his aforesaid
capacity as assignee of the insolvent
estate of Lim Hai Tao (alias Guan Hoo), has
sued the defendant Lim Chay Seng for the
purpose of recovering from him the sum of
P24,191.81 which was part of the money
paid to him by Liong Kee Ho for his
participation in the business of the
partnership Lim Hai Tao, S. en C.
(alias Guan Hoo). Plaintiff predicates his
case on the theory that the payment of
the aforesaid sum to Lim Chay Seng was
in fraud of the creditors of both the
partnership and Lim Hai Tao. To this
complaint, the defendant Lim Chay Seng
interposed several defenses.

According to the balance sheet of the

partnership for the year ending December
31, 1929, which was made on January 5,
1930 and duly signed by Lim Hai Tao, its
assets amounted to P130,723.14 after
reducing 45 per cent from its collectible
credits, while its obligations totalled
P94,435.43. In pursuance with the same
balance sheet, the participation of Lim
Chay Seng in the capital of the partnership
was P24,191.81 while his credit against
the partnership was P6,937.46.

After trial in the Court of First Instance of

Manila judgment was rendered in favor of
defendant. Plaintiff duly excepted, moved
for new trial, and upon said motion being
denied excepted and perfected this
appeal.

At the beginning of January, 1930, one

Liong Kee Ho proposed to buy Lim Chay
Seng's participation in the business of the
partnership. So on January 6, 1930, a
written agreement was entered into by
and between Lim Hai Tao and Lim Chay
Seng by virtue of which the latter retired
and separated from the partnership
effective on the same date, which
agreement was likewise duly filed for
registry in the Bureau of Commerce and
Industry on January 9, 1930. Before the
execution of this agreement of separation,
Liong Kee Ho delivered to Lim Hai Tao the
sum of P31,129.27 to be paid to Lim Chay
Seng as purchase price of his participation
in the business of the partnership. This
transaction appears in the books of the
partnership as a loan, but this
circumstance was explained by Lim Chay
Seng in that at the time of the delivery of
the money to Lim Hai Tao by Liong Kee Ho,
the deed of separation had not yet
formally executed. But when said deed
was made, the aforesaid sum of
P31,129.27 was paid to Lim Chay Seng on
the same day, January 6, 1930. Of this
amount, P24,191.81 corresponded to the
participation of Lim Chay Seng in the
partnership capital and P6,937.36 to his
credit against the partnership. This
transaction likewise appears in the books
of the partnership.

The principal defenses relied upon by

appellee are the facts that the
copartnership has never been declared
insolvent, that the transactions of the
present creditors were actually with the
individual Lim Hai Tao instead of with the
copartnership, and that as the money
which the defendant received was paid in
by a third party for defendant's interest in
the copartnership the assets of the
copartnership suffered no diminution and
therefore the creditors of the firm were not
injuriously affected by that transaction.
The trial court based its decision on the
first and second grounds. The second
ground is more a question of fact than of
law and a proper exposition of the
question would require a lengthy opinion.
No matter what conclusion we might reach
on the second defense, we are convinced
that recovery can not be had in view of
the first and third defenses abovementioned. The judgment appealed from
is therefore affirmed with costs against the
appellant. So ordered.

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