SINGSONG VS.

ISABELA SAWMILL
FACTS:
Isabela Sawmill was a partnership formed by defendants Leon Garibay, Margarita Saldejano and
Timoteo Tubungbanua. The partneship acquired a lot of debts from purchasing materials and
from delivering short of what the purchaser had paid. Later on, Isabela Sawmill was dissolved and
as a result of such dissolution, Leon Garibay and Timoteo Tubungbanua became the successorsin-interest to said partnership and have bound themselves for the obligations of the partneship to
its creditors. To secure the performance of their obligations, defendants Garibay, Tubungbanua
and Saldejano constituted an instrument entitled "Assignment of Rights with Chattel Mortgage"
over the rights of Saldejano in the partnershio in favor of her partners. Thereafter, Garibay and
Tubungbanua did not divide the assets and properties of the "Isabela Sawmill" between them, but
they continued the business of said partnership under the same firm name "Isabela Sawmill".
Later on, a judicial foreclosure of the mortgaged properties was held by the sheriff in favor of
Saldejano. Upon issuance of a certificate of sale as a result of such foreclosure, Saldejano
thereafter executed a deed of sale in favor of the Pan Oriental Lumber Company transferring to
the latter for the sum of P45,000.00 the trucks, tractors, machinery, and other things that she had
purchashed at a public auction. Thereafter, a suit was instituted by the creditors of the partnership
for the annulment of the chattel mortgage alleging that they have been deprived of their rights
since they did not know about the dissolution of the partnership.
ISSUE: WON the creditors can annul the chattel mortgage.
HELD: The contention of the appellant that the appleees cannot bring an action to annul the
chattel mortgage of the propertiesof the partnership executed by Leon Garibay and Timoteo
Tubungbanua in favor of Margarita G. Saldajeno has no merit.
As a rule, a contract cannot be assailed by one who is not a party thereto. However, when a
contract prejudices the rights of a third person, he may file an action to annul the contract.
This Court has held that a person, who is not a party obliged principally or subsidiarily under a
contract, may exercise an action for nullity of the contract if he is prejudiced in his rights with
respect to one of the contracting parties, and can show detriment which would positively result to
him from the contract in which he has no intervention.
The plaintiffs-appellees were prejudiced in their rights by the execution of the chattel mortgage
over the properties of the partnership "Isabela Sawmill" in favor of Margarita G. Saldajeno by the
remaining partners, Leon Garibay and Timoteo Tubungbanua. Hence, said appelees have a right
to file the action to nullify the chattel mortgage in question.
Prejudice to the creditors:

1.
2.

3.

No publication of the foreclosure.

The appellant, Margrita G. Saldajeno, cannot complain. She is partly to blame for not
insisting on the liquidaiton of the assets of the partnership. She even agreed to let Leon
Garibay and Timoteo Tubungbanua continue doing the business of the partnership "Isabela
Sawmill" by entering into the memorandum-agreement with them.
Although it may be presumed that Margarita G. Saldajeno had acted in good faith, the
appellees also acted in good faith in extending credit to the partnership. Where one of two
innocent persons must suffer, that person who gave occasion for the damages to be caused
must bear the consequences. Had Margarita G. Saldajeno not entered into the
memorandum-agreement allowing Leon Garibay and Timoteo Tubungbanua to continue
doing the business of the aprtnership, the applees would not have been misled into thinking
that they were still dealing with the partnership "Isabela Sawmill".

CADWALLADER & CO. VS. SMITH

FACTS:
Pacific Export Lumber Company (PELC) shipped its cedar files to defendant Henry W. Peabody &
Company for the latter to sell at $15 each. After the arrival of the steamer, Peabody and Company
wrote the agent of the PELC at Shanghai that for lack of a demand the piles would have to be sold
at considerably less than $15 apiece. Whereupon the companys agent directed them to make the
best possible offer for the piles, in response to which they telegraphed him an offer of $12 apiece.
It was accepted by Henry in consequence of which the he paid the PELC the amount of $6,972.
It afterwards appeared that Peabody & Company had entered into negotiations with the Insular
Purchasing Agent for the sale for the piles at $20 a piece, resulting in the sale to the Government
of 213 piles at $19 each. More of them were afterwards sold to the Government at the same
figure and the remainder to other parties at carrying prices, the whole realizing to the defendants
$10,417.66, which is $3,445.66 more than the original selling price of $6,972 which Henry paid to
PELC. Thus it is clear that at the time when the agents were buying from their principal these piles
at $12 a piece on the strength of their representation that no better price was obtainable, they had
already sold a substantial part of them at $19. PELC then obtained an annulment of the sale to
Henry for the amount of the remaining cedars which Henry purchased plus the value of its
commission.
ISSUE: WON PELC can annul the sale because of fraud.
HELD:
YES.
It is plaint that in concealing from their principal the negotiations with the Government, resulting in
a sale of the piles at 19 apiece and in misrepresenting the condition of the market, the agents

committed a breach of duty from which they should benefit. The contract of sale to themselves
thereby induced was founded on their fraud and was subject to annulment by the aggrieved party.
(Civil Code, articles 1265 and 1269.) Upon annulment the parties should be restored to their
original position by mutual restitution. (Article 1303 and 1306.) Therefore the defendants are not
entitled to retain their commission realized upon the piles included under the contract so annulled.
In respect of the 213 piles, which at the time of the making of this contract they had already sold
under the original agency, their commission should be allowed.

August 2 - communicated lack of demand

August 4 - Sale of 213 piles to government for $19 apiece
August 5 - offer by PELC to sell at $12 apiece
August 6 - offer accepted by Henry (CONTRACT PERFECTED)