FIRST DIVISION remedy against said defendant.
[G.R. No. 33580. February 6, 1931.]
MAXIMILIANO SANCHO, Plaintiff-Appellant, v. SEVERIANO
LIZARRAGA, Defendant-Appellee. .
SYLLABUS
1. JUDGMENT; APPEAL FROM AN ORDER ON RENDITION OF
ACCOUNTS. In accordance with the doctrine laid down in the case
of Natividad v. Villarica (31 Phil., 172), it is held that an appeal
taken from a decision ordering the rendition of accounts is deemed
premature.
2. PARTNERSHIP; FAILURE OF PARTNER TO PAY THE WHOLE
AMOUNT PROMISED; RESPONSIBILITY. Owing to the defendants
failure to pay to the partnership the whole amount which he bound
himself to pay, he became indebted to it for the remainder, with
interest and any damages occasioned thereby, but the plaintiff did
not thereby acquire the right to demand rescission of the
partnership contract under article 1124 of the Civil Code.
3. ID.; ID.; ID.; STATUTORY CONSTRUCTION. Article 1124 of the
Civil Code cannot be applied to the case in question, because it
refers to the resolution of obligations in general, whereas articles
1681 and 1682 specifically refer to the contract of partnership in
particular. And it is a well known principle that special provisions
prevail over general provisions.
DECISION
ROMUALDEZ, J.:
The plaintiff brought an action for the rescission of a partnership
contract between himself and the defendant, entered into on
October 15, 1920, the reimbursement by the latter of his 50,000
peso investment therein, with interest at 12 per cent per annum
from October 15, 1920, with costs, and any other just and equitable
The defendant denies generally and specifically all the allegations of
the complaint which are incompatible with his special defenses,
cross-complaint and counterclaim, setting up the latter and asking
for the dissolution of the partnership, and the payment to him as its
manager and administrator of P500 monthly from October 15, 1920,
until the final dissolution, with interest, one-half of said amount to
be charged to the plaintiff. He also prays for any other just and
equitable remedy.
The Court of First Instance of Manila, having heard the cause, and
finding it duly proved that the defendant had not contributed all the
capital he had bound himself to invest, and that the plaintiff had
demanded that the defendant liquidate the partnership, declared it
dissolved on account of the expiration of the period for which it was
constituted, and ordered the defendant, as managing partner, to
proceed without delay to liquidate it, submitting to the court the
result of the liquidation together with the accounts and vouchers
within the period of thirty days from receipt of notice of said
judgment, without costs.
The plaintiff appealed from said decision making the following
assignments of error:
"1. In holding that the plaintiff and appellant is not entitled to the
rescission of the partnership contract, Exhibit A, and that article
1124 of the Civil Code is not applicable to the present case.
"2. In failing to order the defendant to return the sum of P50,000 to
the plaintiff with interest from October 15, 1920, until fully paid.
"3. In denying the motion for a new trial."cralaw virtua1aw library
In the brief filed by counsel for the appellee, a preliminary question
is raised purporting to show that this appeal is premature and
therefore will not lie. The point is based on the contention that
inasmuch as the liquidation ordered by the trial court, and the
consequent accounts, have not been made and submitted, the case
cannot be deemed terminated in said court and its ruling is not yet
appealable. In support of this contention counsel cites section 123 of
the Code of Civil Procedure, and the decision of this court in the case
of Natividad v. Villarica (31 Phil., 172).

This contention is well founded. Until the accounts have been

rendered as ordered by the trial court, and until they have been
either approved or disapproved, the litigation involved in this action
cannot be considered as completely decided; and, as it was held in
said case of Natividad v. Villarica, also with reference to an appeal
taken from a decision ordering the rendition of accounts following
the dissolution of a partnership, the appeal in the instant case must
be deemed premature.

But even going into the merits of the case, the affirmation of the
judgment appealed from is inevitable. In view of the lower courts
findings referred to above, which we cannot revise because the parol
evidence has not been forwarded to this court, articles 1681 and
1682 of the Civil Code have been properly applied. Owing to the
defendants failure to pay to the partnership the whole amount
which he bound himself to pay, he became indebted to it for the
remainder, with interest and any damages occasioned thereby, but
the plaintiff did not thereby acquire the right to demand rescission of
the partnership contract according to article 1124 of the Code. This
article cannot be applied to the case in question, because it refers to
the resolution of obligations in general, whereas articles 1681 and
1682 specifically refer to the contract of partnership in particular.
And it is a well known principle that special provisions prevail over
general provisions.

By virtue of the foregoing, this appeal is hereby dismissed, leaving

the decision appealed from in full force, without special
pronouncement of costs. So ordered.
 SECOND DIVISION
[G.R. No. 16318. October 21, 1921. ]
PANG LIM and BENITO GALVEZ, Plaintiffs-Appellees, v. LO
SENG, Defendant-Appellant.
SYLLABUS
1. LANDLORD AND TENANT; TERMINATION OF LEASE BY PURCHASER OF
ESTATE; INCONSISTENT POSITIONS OF LESSEE. A lessee who upon
disposing of his interest in a contract of lease purchases the leased premises
from the landlord, cannot thereafter exercise the right of terminating the
lease which is conceded to purchasers by article 1571 of the Civil Code. As
vendor of the leasehold he is bound to respect the rights of his own vendee
2. FORCIBLE ENTRY AND UNLAWFUL DETAINER; POSSESSION VALID
AGAINST ONE COOWNER VALID AGAINST ALL. A person who is in lawful
possession of a leasehold estate and who has the lawful right to retain
possession as against one of the two owners of the undivided fee cannot be
dispossessed of the premises in an action of unlawful detainer jointly
instituted by such owners. Having lawful possession as against one he is
entitled to retain it as against both.
DECISION
STREET, J. :
For several years prior to June 1, 1916, two of the litigating parties
herein, namely, Lo Seng and Pang Lim, Chinese residents of the City
of Manila, were partners, under the firm name of Lo Seng & Co., in
the business of running a distillery, known as "El Progreso," in the
Municipality of Paombong, in the Province of Bulacan. The land on
which said distillery is located as well as the buildings and
improvements originally used in the business were, at the time to
which reference is now made, the property of another Chinaman,
who resides in Hongkong, named Lo Yao, who, in September, 1911,
leased the same to the firm of Lo Seng & Co. for the term of three
years.
Upon the expiration of this lease a new written contract, in the
making of which Lo Yao was represented by one Lo Shui as attorney
in fact, became effective whereby the lease was extended for fifteen
years. The reason why the contract was made for so long a period of
time appears to have been that the Bureau of Internal Revenue had
required sundry expensive improvements to be made in the
distillery, and it was agreed that these improvements should be
effected at the expense of the lessees. In conformity with this
understanding many thousands of pesos were expended by Lo Seng
& Co., and later by Lo Seng alone, in enlarging and improving the
plant.
Among the provisions contained in said lease we note the following:
"Know all men by these presents:
x x x
"1. That I, Lo Shui, as attorney in fact in charge of the properties of
Mr. Lo Yao of Hongkong, cede by way of lease for fifteen years more
said distillery El Progreso to Messrs. Pang Lim and Lo Seng (doing
business under the firm name of Lo Seng & Co.) , after the
termination of the previous contract, because of the fact that they
are required, by the Bureau of Internal Revenue, to rearrange, alter
and clean up the distillery.
"2. That all the improvements and betterments which they may
introduce, such as machinery, apparatus, tanks, pumps, boilers and
buildings which the business may require, shall be, after the
termination of the fifteen years of lease, for the benefit of Mr. Lo
Yao, my principal, the buildings being considered as improvements.
"3. That the monthly rent of said distillery is P200, as agreed upon
in the previous contract of September 11, 1911, acknowledged
before the notary public D. Vicente Santos; and all modifications and
repairs which may be needed shall be paid for by Messrs. Pang Lim
and Lo Seng.
"We, Pang Lim and Lo Seng, as partners in said distillery El
Progreso, which we are at present conducting, hereby accept this
contract in each and all its parts, said contract to be elective upon
the termination of the contract of September 11, 1911."
Neither the original contract of lease nor the agreement extending
the same was inscribed in the property registry, for the reason that
the estate which is the subject of the lease has never at any time
been so inscribed.
On June 1, 1916, Pang Lim sold all his interest in the distillery to his
partner Lo Seng, thus placing the latter in the position of sole
owner; and on June 28, 1918, Lo Shui, again acting as attorney in
fact of Lo Yao, executed and acknowledged before a notary public a
deed purporting to convey to Pang Lim and another Chinaman
named Benito Galvez, the entire distillery plant including the land
used in connection therewith. As in case of the lease this document
also was never recorded in the registry of property. Thereafter Pang
Lim and Benito Galvez demanded possession from Lo Seng, but the
latter refused to yield; and the present action of unlawful detainer
was thereupon initiated by Pang Lim and Benito Galvez in the court
of the justice of the peace of Paombong to recover possession of the
premises. From the decision of the justice of the peace the case was
appealed to the Court of First Instance, where judgment was
rendered for the plaintiffs; and the defendant thereupon appealed to
the Supreme Court.
The case for the plaintiffs is rested exclusively on the provisions of
article 1571 of the Civil Code, which reads in part as follows:
"ART. 1571. The purchaser of a leased estate shall be entitled to
terminate any lease in force at the time of making the sale, unless
the contrary is stipulated, and subject to the provisions of the
Mortgage Law."
In considering this provision it may be premised that a contract of
lease is personally binding on all who participate in it regardless of
whether it is recorded or not, though of course the unrecorded lease
creates no real charge upon the land to which it relates. The
Mortgage Law was devised for the protection of third parties, or
those who have not participated in the contracts which are by that
law required to be registered; and none of its provisions with
reference to leases interpose any obstacle whatever to the giving of
full effect to the personal obligations incident to such contracts, so
far as concerns the immediate parties thereto. This is rudimentary,
and the law appears to be so understood by all commentators, there
being, so far as we are aware, no authority suggesting the contrary.
Thus, in the commentaries of the authors Galindo and Escosura, on
the Mortgage Law, we find the following pertinent observation: "The
Mortgage Law is enacted in aid of and in respect to third persons
only; it does not affect the relations between the contracting parties,
nor their capacity to contract. Any question affecting the former will
be determined by the dispositions of the special law [i.e., the
Mortgage Law], while any question affecting the latter will be
determined by the general law." (Galindo y Escosura, Comentarios a
la Legislacion Hipotecaria, vol. I, p. 461.)
Although it is thus manifest that, under the Mortgage Law, as
regards the personal obligations expressed therein, the lease in
question was from the beginning, and has remained, binding upon
all the parties thereto among whom is to be numbered Pang Lim,
then a member of the firm of Lo Seng & Co. this does not really
solve the problem now before us, which is, whether the plaintiffs
herein, as purchasers of the estate, are at liberty to terminate the
lease, assuming that it was originally binding upon all parties
participating in it.
Upon this point the plaintiffs are undoubtedly supported, prima
facie, by the letter of article 1571 of the Civil Code; and the position
of the defendant derives no assistance from the mere circumstance
that the lease was admittedly binding as between the parties
thereto.
The words "subject to the provisions of the Mortgage Law,"
contained in article 1571, express a qualification which evidently has
reference to the familiar proposition that recorded instruments are
effective against third persons from the date of registration (Co-
Tiongco v. Co-Guia, 1 Phil., 210); from whence it follows that a
recorded lease must be respected by any purchaser of the estate
whomsoever. But there is nothing in the Mortgage Law which, so far
as we now see, would prevent a purchaser from exercising the
precise power conferred in article 1571 of the Civil Code, namely, of
terminating any lease which is unrecorded; nothing in that law that
can be considered as arresting the force of article 1571 as applied to
the lease now before us.
Article 1549 of the Civil Code has also been cited by the attorneys
for the appellant as supplying authority for the proposition that the
lease in question cannot be terminated by one who, like Pang Lim,
has taken part in the contract. That provision is practically identical
in terms with the first paragraph of article 23 of the Mortgage Law,
being to the effect that unrecorded leases shall be of no effect as
against third persons; and the same observation will suffice to
dispose of it that was made by us above in discussing the Mortgage
Law, namely, that while it recognizes the fact that an unrecorded
lease is binding on all persons who participate therein, this does not
determine the question whether, admitting the lease to be so
binding, it can be terminated by the plaintiffs under article 1571.
Having thus disposed of the considerations which arise in relation
with the Mortgage law, as well as article 1549 of the Civil Code all
of which, as we have seen, are undecisive we are brought to
consider the aspect of the case which seems to us conclusive. This is
found in the circumstance that the plaintiff Pang Lim has occupied a
double role in the transactions which gave rise to this litigation,
namely, first, as one of the lessees; and secondly, as one of the
purchasers now seeking to terminate the lease. These two positions
are essentially antagonistic and incompatible. Every competent
person is by law bound to maintain in all good faith the integrity of
his own obligations; and no less certainly is he bound to respect the
rights of any person whom he has placed in his own shoes as
regards any contract previously entered into by himself.
While yet a partner in the firm of Lo Seng & Co., Pang Lim
participated in the creation of this lease; and when he sold out his
interest in that firm to Lo Seng this operated as a transfer to Lo
Seng of Pang Lims interest in the firm assets, including the lease;
and Pang Lim cannot now be permitted, in the guise of a purchaser
of the estate, to destroy an interest derived from himself, and for
which he has received full value.
The bad faith of the plaintiffs in seeking to deprive the defendant of
this lease is strikingly revealed in the circumstance that prior to the
acquisition of this property Pang Lim had been partner with Lo Seng
and Benito Galvez an employee. Both therefore had been in relations
of confidence with Lo Seng and in that position had acquired
knowledge of the possibilities of the property and possibly an
experience which would have enabled them, in case they had
acquired possession, to exploit the distillery with profit. On account
of his status as partner in the firm of Lo Seng & Co., Pang Lim knew
that the original lease had been extended for fifteen years; and he
knew the extent of valuable improvements that had been made
thereon. Certainly, as observed in the appellants brief, it would be
shocking to the moral sense if the condition of the law were found to
be such that Pang Lim, after profiting by the sale of his interest in a
business, worthless without the lease, could intervene as purchaser
of the property and confiscate for his own benefit the property which
he had sold for a valuable consideration to Lo Seng. The sense of
justice recoils before the mere possibility of such eventuality.
Above all other persons in business relations, partners are required
to exhibit towards each other the highest degree of good faith. In
fact the relation between partners is essentially fiduciary, each being
considered in law, as he is in fact, the confidential agent of the
other. It is therefore accepted as fundamental in equity
jurisprudence that one partner cannot, to the detriment of another,
apply exclusively to his own benefit the results of the knowledge and
information gained in the character of partner. Thus, it has been
held that if one partner obtains in his own name and for his own
benefit the renewal of a lease on property used by the firm, to
commence at a date subsequent to the expiration of the firms lease,
the partner obtaining the renewal is held to be a constructive trustee
for the firm as to such lease. (20 R. C. L., 878-882-) And this rule
has even been applied to a renewal taken in the name of one
partner after the dissolution of the firm and pending its liquidation.
(16 R. C. L., 906; Knapp v. Reed, 88 Neb., 754; 32 L. R. A. [N. S. ],
869; Mitchell v. Reed, 61 N. Y., 123; 19 Am. Rep., 252.)
An additional consideration showing that the position of the plaintiff
Pang Lim in this case is untenable is deducible from articles 1461
and 1474 of the Civil Code, which declare that every person who
sells anything is bound to deliver and warrant the subject-matter of
the sale and is responsible to the vendee for the legal and lawful
possession of the thing sold. The pertinence of these provisions to
the case now under consideration is undeniable, for among the
assets of the partnership which Pang Lim transferred to Lo Seng,
upon selling out his interest in the firm to the latter, was this very
lease; and while it cannot be supposed that the obligation to warrant
recognized in the articles cited would nullify article 1571, if the latter
article had actually conferred on the plaintiffs the right to terminate
this lease, nevertheless said articles (1461, 1474), in relation with
other considerations, reveal the basis of an estoppel which in our
opinion precludes Pang Lim from setting up his interest as purchaser
of the estate to the detriment of Lo Seng.
It will not escape observation that the doctrine thus applied is
analogous to the doctrine recognized in courts of common law under
the head of estoppel by deed, in accordance with which it is held
that if a person, having no title to land, conveys the same to another
by some one or another of the recognized modes of conveyance at
common law, any title afterwards acquired by the vendor will pass to
the purchaser; and the vendor is estopped as against such
purchaser from asserting such after-acquired title. The indenture of
lease, it may be further noted, was recognized as one of the modes
of conveyance :It common law which created this estoppel. (8 R. C.
L. . 1058, 1059.)
From what has been said it is clear that Pang Lim having been a
participant in the contract of lease now in question, is not in a
position to terminate it: and this is a fatal obstacle to the
maintenance of the action of unlawful detainer by him. Moreover, it
is fatal to the maintenance of the action brought jointly Pang Lim
and Benito Galvez. The reason is that in the action of unlawful
detainer, under section 80 of the Code of Civil Procedure, the only
question that can be adjudicated is the right to possession; and in
order to maintain the action, in the form in which it is here
presented, the proof must show that occupants possession is
unlawful, i. e., that he is unlawfully withholding possession after the
determination of the right to hold possession. In the case before us
quite the contrary appears; for, even admitting that Pang Lim and
Benito Galvez have purchased the estate from Lo Yao, the original
landlord, they are, as between themselves, in the position of tenants
in common or owners pro indiviso, according to the proportion of
their respective contribution to the purchase price. But it is well
recognized that one tenant in common cannot maintain a possessory
action against his cotenant, since one is as much entitled to have
possession as the other. The remedy is ordinarily by an action for
partition. (Cornista v. Ticson, 27 Phil., 80.) It follows that as Lo Seng
is vested with the possessory right as against Pang Lim, he cannot
be ousted either by Pang Lim or Benito Galvez. Having lawful
possession as against one cotenant, he is entitled to retain it against
both. Furthermore, it is obvious that partition proceedings could not
be maintained at the instance of Benito Galvez as against Lo Seng,
since partition can only be effected where the partitioners are
cotenants, that is, have an interest of an identical character as
among themselves. (30 Cyc., 178-180.) The practical result is that
both Pang Lim and Benito Galvez are bound to respect Lo Sengs
lease, at least in so far as the present action is concerned.
We have assumed in the course of the preceding discussion that the
deed of sale under which the plaintiffs acquired the rights of Lo Yao,
the owner of the fee, is competent proof in behalf of the plaintiffs. It
is, however, earnestly insisted by the attorney for Lo Seng that this
document, having never been recorded in the property registry,
cannot, under article 389 of the Mortgage Law, be used in court
against him because as to said instrument he is a third party. The
important question thus raised is not absolutely necessary to the
decision of this case, and we are inclined to pass it without decision,
not only because the question does not seem to have been
ventilated in the Court of First Instance but for the further reason
that we have not had the benefit of any written brief in this case in
behalf of the appellees.

The judgment appealed from will be reversed, and the defendant will
be absolved from the complaint. It is so ordered, without express
adjudication as to costs.
 FIRST DIVISION
[G.R. No. 14617. February 18, 1920. ]
R. Y. HANLON, Plaintiff-Appellee, v. JOHN W. HAUSSERMANN
and A. W. BEAM, Defendants-Appellants. GEORGE C. SELLNER,
intervener.
SYLLABUS
1. CONTRACTS; INTERPRETATION; SPECIAL PROVISION CONTROLS
GENERAL PROVISION. It is a rudimentary canon of interpretation
that all parts of a writing should be construed together and a special
provision in a written contract controls the general.
2. ID.; ID.; DISCHARGE OF ONE PARTY AS RESULT OF
NONPERFORMANCE BY OTHER. The obligations of two parties to a
contract were so expressed as to constitute mutual concurrent
conditions, and it was expressly provided that the failure of one to
perform within a stipulated period would discharge the other. Held:
That upon failure of one to perform, the other was wholly discharged
from the contract, not only with reference to the particular party in
default, but also with reference to another contracting party who
was not an immediate party to the engagement in respect to which
the default had occurred.
3. FIDUCIARIES; TERMINATION OF RELATION; RIGHT OF PARTY TO
ACT FOR SELF. After the termination of an agency, partnership, or
joint adventure the party who stood in the fiduciary relation to the
other is free to act in his own interest with respect to the same
subject-matter, provided he has done nothing during the
continuance of the relation to lay a foundation for an undue
advantage to himself To act as fiduciary of another does not
necessarily imply the creation of a permanent disability in the
fiduciary to act for himself in regard to the same subject-matter.
4. ID.; ID.; ID.; CASE AT BAR. Four contracting parties agreed to
promote a joint enterprise for the rehabilitation of a mining plant
which had been destroyed by flood. The engagement of three of the
parties was limited to an undertaking to raise money within a stated
period by subscribing to or selling shares of the mining company.
One of the parties who had undertaken thus to raise money
defaulted, and under the express provisions of the contract the two
other parties to this agreement were discharged. At a later date
these two, who were at the same time stockholders and officials of
the mining company, procured a contract from the mining company
by which they proceeded to restore the mining plant upon their own
account. Held: That they were not compellable to share with their
former associates the profits thus obtained.
5. CONTRACT; RESCISSION; JUDICIAL ACTION. No judicial action
for the rescission of a contract is necessary to terminate the
obligation where the contract itself contains a resolutory provision
by virtue of which the obligation is already extinguished. Nor is a
judicial rescission necessary for the protection of a party occupying a
purely defensive attitude when the contract has not been performed
by either.
6. CORPORATIONS; CONTRACTS; RIGHT OF THIRD PERSON TO
INQUIRE INTO VALIDITY OF CORPORATE CONTRACT. A stranger
to a corporate contract who seeks to recover from one of the
immediate parties to the contract a share of the gains acquired by
the latter thereunder will not be permitted to question the validity of
the contract on the ground of lack of authority in the corporate
officer to execute it.
7. CONTRACTS; DELINQUENCY IN PERFORMANCE AT DATE STATED;
DISCHARGE OF OTHER PARTY. Whether one party to a contract Is
discharged by the failure of the other to comply with a certain
stipulation on or before the time set for performance, must be
determined with reference to the intention of the parties as deduced
from the contract itself, in relation with the circumstances under
which the contract was made.
8. ID.; SPECIFIC PERFORMANCE; WHEN TIME IS OF ESSENCE OF
CONTRACT. Time is said to be of the essence of a contract
whenever the clear intention of the contracting parties appears to be
that performance shall be accomplished on or before a stipulated
date. In such case performance at the date fixed by the party who is
bound to render performance on that date is a condition precedent
to his right to enforce performance as against the other contracting
party.
9. ID.; ID.; ID.; INTENTION OF CONTRACTING PARTIES. It is not
necessary, in order to make time of the essence of a contract, that
the contract should expressly so declare. Words of this import need
not be used. It is sufficient that the intention to this effect should
appear; and there are certain situations wherein it is held, from the
nature of the agreement itself, that time is of the essence of the
contract. Among contracts of this character are those which relate to
sales, or options for the sale of mining properties.
DECISION
STREET, J. :
This action was originally instituted by R. Y. Hanlon to compel the
defendants, John W. Haussermann and A. W. Beam, to account for a
share of the profits gained by them in rehabilitating the plant of the
Benguet Consolidated Mining Company and in particular to compel
them to surrender to the plaintiff 50,000 shares of the stock of said
company, with dividends paid thereon. A few days after the action
was begun G. C. Sellner was permitted to intervene in like interest
with Hanlon and to the same extent. Thereafter the case was
conducted in all respects as if Hanlon and Sellner had been co-
plaintiffs from the beginning. At the hearing judgment was rendered
requiring the defendants to surrender to Hanlon and Sellner
respectively 24,000 shares each of the stock of said company. and
to pay the dividends declared and paid on said stock for the years
1916 and 1917. From this judgment the defendants appealed.
The controlling features of this controversy are disclosed in
documentary evidence, and the other facts necessary to a proper
understanding of the case are stated in the narrative part of the
opinion of the trial judge. As both parties to the appeal agree that
his statement of facts is substantially correct, we adopt his findings
of fact as the basis of our own statement, with such transposition,
omissions, and additions as seen desirable for the easier
comprehension of the case.
The Benguet Consolidated Mining Company is a corporation which
was organized in 1903 with an authorized capital stock of one million
dollars, of the par value of one dollar per share, of which stock
499,000 shares had been issued prior to November 1913, and
501,000 shares then remained in the treasury as unissued stock.
The par value of the shares was changed to one peso per share after
the organization of the corporation.
In the year 1909 the milling plant of said company, situated near
Baguio in the subprovince of Benguet, Philippine Islands upon a
partially developed quartz mine, was badly damaged and partly
destroyed by high water, and in 1911 it was completely destroyed
by like causes. The company was thereafter without working capital,
and without credit, and therefore unable to rebuild the plant.
In October and November 1913, and for a long time prior thereto,
the defendant John W. Haussermann and A. W. Beam were
shareholders in said mining company and members of its board of
directors, and were at said time vice-president and secretary-
treasurer, respectively, of said company.
In October, 1913, the plaintiff R. Y. Hanlon, an experienced mining
engineer, upon the solicitation of the defendant Beam, presented to
the board of directors of the Benguet Consolidated Mining Company
a proposition for the rehabilitation of the company, and asked an
option for thirty days within which to thoroughly examine the
property; which proposition, with certain amendments, was finally
accepted by said company; and thereafter, on November 6, 1913,
within the option period, the terms of that proposition and
acceptance were incorporated in a written contract between the
plaintiff and the company, in which the said company acted by and
through the defendant John YV. Haussermann as vice-President and
the defendant A. W. Beam as secretary. In this contract it appears
that for and in consideration of the issuance and delivery to said
Hanlon or to his order of the 501,000 shares of the unissued capital
stock of said mining company, the said Hanlon undertook, promised,
and agreed to do or cause to be done sufficient development work
on the mining properties of said company to enable the company to
mine and take out not less than sixty tons of ore per day, and to
give an extraction of not less than 85 per cent of the gold content of
the ore; and the terms and conditions upon which said undertaking
was based may be briefly stated as follows: (1) said Hanlon was to
pay into the treasury of the mining company the sum of P75,000 in
cash within six months from that date; (2) upon the payment of said
P75,000 in cash there was to be issued and delivered to said Hanlon
or to his order 250,000 shares of said unissued stock; (3)
prescribing the purposes for which said P75,000 should be disbursed
by said mining company upon the order of said Hanlon; (4)
providing for raising an additional sum of P75,000 by obtaining a
loan in the name of said mining company upon the security of its
properties and assets, such additional indebtedness to be paid and
discharged within eighteen months from date of said agreement; (5)
providing for the payment of the then indebtedness of said mining
company amounting to P13,105.08; (6) providing for the distribution
of the net earnings after the payment of the indebtedness
mentioned in paragraphs 4 and 5; (7) providing that, for the
purpose of securing and guaranteeing the faithful performance of
each and every undertaking in said agreement mentioned to be
fulfilled by said Hanlon, 250,000 of said 501,000 shares should
remain on deposit with said mining company, to be released,
surrendered and delivered to said Hanlon or to his order, as follows:
"151,000 shares to be released, surrendered and delivered to the
said party of the first part, or his order, when said milling plant shall
have been duly completed and the operation thereof commenced;
the balance of said shares, to wit 100,000, shall remain on deposit
with the party of the second part until the above mentioned loan to
be secured by the assets of the company shall have been fully paid
and discharged, in which event said shares shall be released,
surrendered and delivered to the party of the first part, or his
order;" (8) providing that in the event the earnings of the company
should be insufficient to pay all indebtedness within the time
provided in paragraphs 4 and 6, the balance remaining due thereon
was to be paid by said Hanlon, and if he neglected to pay off and
discharge the balance due, then the said mining company was to
have the right and authority to sell and dispose of the 100,000
shares of stock remaining in its possession at public or private sale
at the prevailing market price, or as many of said shares as might
be necessary to fully liquidate and discharge the balance of said
indebtedness remaining unpaid; (9) providing for taking out
insurance by said mining company for the protection of said Hanlon,
to cover the full value of said plant during its erection and after the
completion thereof for a period of not less than eighteen months
after the same shall have been placed in operation.
As was at the time well known to all parties concerned herein the
plaintiff Hanlon was personally without the financial resources
necessary to enable him to contribute P75,000 towards the project
indicated in the contract Exhibit B, above set forth; and in order to
overcome this obstacle he was compelled to seek the assistance of
others. Haussermann and Beam, being cognizant of this necessity,
agreed to find P25,000 of the necessary capital, and for the
remainder the plaintiff relied upon G. C. Sellner, a business man of
the city of Manila, who, upon being approached, agreed to advance
P50,000. A verbal understanding with reference to this matter had
been attained by the four parties to this litigation before the
contract Exhibit B between Hanlon and the mining company had
been formally executed, and this agreement was in fact reduced to
writing and signed on November 5, 1913, one day prior to the
execution of the contract between Hanlon and the mining company.
In this contract of November 5, 1913, (Exhibit A), the four parties,
to wit: Hanlon, Sellner, Haussermann, and Beam, agreed to
collaborate in the flotation of the project outlined in the contract
Exhibit B, and defined the manner in which the necessary capital of
P75,000 was to be raised. As this contract is absolutely vital in the
present litigation its provisions are set out in full:
"Whereas, R. Y. Hanlon has submitted a proposition to the Benguet
Consolidated Mining Co., a copy of which is hereto attached for
reference; and
"Whereas, the Board of Directors of the Benguet Consolidated Mining
Co., has accepted such proposition as amended; and
"Whereas, said parties have agreed to cooperate and assist the said
Hanlon in the flotation of said proposition;
"Now, therefore, this agreement made by and between the
undersigned as follows:
I.
"It is mutually agreed by and between the parties hereto that each
shall do all in his power to float said proposition and make the same
a success.
II.
"It is mutually agreed that said proposition shall be floated in the
following manner, to wit:
"(a) That 301,000 shares of the Benguet Consolidated Mining
Company shall be set aside and offered for sale for the purpose of
raising the sum of P75,000 required to the paid to the Benguet
Consolidated Mining Company in accordance with said proposition.
"(b) That of said sum of P75,000, the said George Sellner agrees
and undertakes to secure and obtain subscriptions for the sum of
P50,000.
"(c) That John W. Haussermann and A. W. Beam undertake and
agree to secure and obtain subscriptions for the sum of P25,000.
"(d) The said Sellner, Haussermann and Beam hereby guarantee
that the subscriptions to be obtained by them as hereinabove stated
shall be fully paid within six (6) months from the date of the
acceptance on the part of the said Hanlon of the option granted by
said company; it being understood and agreed that if for any cause
the said Sellner shall fail to obtain subscriptions and payment
thereof to the amount of P50,000 within the time herein specified,
then and in that event the obligation of the said Haussermann and
Beam shall be discharged; and, on the other hand, if for any cause
said Haussermann and Beam shall fail to obtain subscriptions for the
P5,000 and payment thereof within the time herein mentioned, then
and in that event, the said Sellner shall be released from his
obligation.
"It is mutually understood and agreed that each of the parties
mentioned in this paragraph shall from time to time advise the other
parties as to the number of subscriptions obtained and the amount
of payments thereon. "
III.
"That out of the remaining 200,000 shares of the Benguet
Consolidated Mining Co., to be issued under said proposition each of
said parties hereto, that is to say: George Sellner, John W.
Haussermann, A. W. Beam and R. Y. Hanlon shall be entitled to
receive one-fourth thereof, or 50,000 shares, as compensation for
the services rendered in the flotation of this proposition. "
IV.
"The necessary funds to cover preliminary expenses, such as
expenses to examining the properties of the Benguet Consolidated
Mining Co., freight charges and other charges on ore samples, cost
of testing same, etc., shall be supplied by Messrs. Sellner,
Haussermann and Beam, which said sum shall be reimbursed to said
parties out of the P75,000 fund raised by the sale of the P301,000
shares of stock hereinabove in Paragraph II, Subsection A, hereof,
mentioned.
V.
"Cash for the loan of P5,000 to be made to the Benguet
Consolidated Mining Co., as provided in the proposition of the said
Hanlon, shall be furnished by Messrs. Sellner, Haussermann and
Beam, in equal proportions as needed by the company.
"In witness whereof, the respective parties hereto have hereunto set
their hands at Manila, P. I., this 5th day of November, 1913.
(Sgd.) "R. Y. HANLON,
(Sgd.) "GEORGE C. SELLNER,
(Sgd.) "JOHN W. HAUSSERMANN,
(Sgd.) "A. W. BEAM.
During the period which intervened between the making of the
preliminary verbal agreement and the final execution of this
contract, the plaintiff, Hanlon, at the expenses of the joint adventure
went from Manila to the Benguet Consolidated mining properties,
near Baguio, accompanied by the defendant Beam at the expense of
said mining company, and said Hanlon made a preliminary
investigation and examination of the properties, selected and
surveyed a suitable mill site and took out about half a ton of ore
samples which it had been agreed were to be forwarded to the
United States for tests for use by him in the selection of the
machinery best suited for the treatment of such ore; and said
Hanlon reported to his coadventurers that it was a very feasible
scheme, and that there was enough ore in sight to well repay the
investment of P125,000, which was the sum estimated by said
Hanlon to be necessary to equip the property.
Soon after the contract Exhibits B and A were made the plaintiff
Hanlon departed for the United States, in contemplation of which
event he executed a special power of attorney, on November 10,
1913, constituting and appointing Beam his special agent and
attorney in fact, for and in his name, to do and perform the following
acts:
"To vote at the meetings of any company or companies, and
otherwise to act as my proxy or representative, in respect of any
shares of stock now held, or which may hereafter be acquired by me
therein, and for that purpose to sign and execute any proxy or other
instrument in my name and on my behalf;
"To secure subscriptions in my name for the shares of the Benguet
Consolidated Mining Co., to be issued to me under and by virtue of
an agreement entered into with said company on November 6,
1913, and to enter into the necessary agreements for the sale of
said shares.
"To demand, sue for, and receive all debts, moneys, securities for
money, goods, chattels or other personal property to which I am
now or may hereafter become entitled, or which are now or may
become due, owing or payable to me from any person or persons
whomsoever, and in my name to give effectual receipts and
discharges for the same."
Prior to that time, on May 27, 1913, the plaintiff Hanlon had given
one A. Gnandt of the city of Manila a power of attorney with general
and comprehensive powers, and "with full power of substitution and
revocation;" and thereafter on March 14, 1914, said Gnandt, owing
to his intended departure from the Philippine Islands, executed a
power of attorney in favor of said A. W. Beam, with the same
general powers which had been conferred upon him, and Beam
became Hanlons sole agent in the Philippine Islands. Said original
power of attorney had no special relation to the rehabilitation
proposition, but both the original and the substitute specifically
authorized the attorney in fact:
"To make, sign, execute and deliver any and all contracts,
agreements, receipts and documents of any nature and kind
whatsoever."
After the enumeration of other general and specific powers, Beam
was finally authorized:
"To do any and all things necessary or proper for the due
performance and execution of the foregoing powers." By reference
to the contract of November 5, 1913, (Exhibit A), it will be seen that
301,000 shares of the stock of the Benguet Consolidated Mining
Company were to be used to raise the P75,000 which Hanlon was
bound to supply to the mining company; and the contract
contemplated that these shares should be disposed of at 25
centavos per share. As Sellner had agreed to raise P50,000, it
resulted that 200,000 shares had to be allocated to him; while
Haussermann and Beam had at their disposal 100,000 shares, with
which to raise 25,000. Sellner, Haussermann, and Beam furthermore
guaranteed that the subscriptions to be obtained by them should be
fully paid within six months from the date of the acceptance by
Hanlon of the contract with the mining company, that is, from
November 6, 1913.
In prosecution of the common purpose, Haussermann and Beam
proceeded, after the departure of Hanlon, to procure subscriptions
upon the stock at their disposal, part being subscribed by
themselves severally and part sold upon subscription to outsiders;
and during the next two or three months the block of shares allotted
to them was subscribed. As a consequence of this they were
thereafter prepared to pay in, or to cause to be paid in, the entire
amount which they were obligated to raise. Doubts, however,
presently arose as to the ability of Sellner to obtain subscriptions or
produce the P75,000, which he was obligated to bring in; and as
early as in February of 1914, Beam cabled to Hanlon in America
"Sellner unable to pay. Have you any instructions?" Upon receipt of
this cablegram, Hanlon cabled Sellner to use every effort to raise the
money and also cabled Beam to obtain the money elsewhere if
Sellner could not supply it. Furthermore, in order to be prepared
against the contingency of Sellners ultimate inability to respond,
Hanlon attempted to enlist the interest of capitalists in San Francisco
but in this was unsuccessful. It will be observed that, although by
the exact letter of the contract, Sellner was obligated to obtain
subscriptions for the sum of P50,000, he nevertheless desired to
keep the entire 200,000 shares assigned to him exclusively for
himself, and proceeding on the assumption that he had in effect
underwritten a subscription for the whole block of shares, he made
no effort to obtain subscriptions from anybody else for any part of
these shares. Meanwhile Haussermann and Beam were in touch with
Sellner, urging him to action but without avail, Sellner being in fact
wholly unable to fulfill his undertaking. In this condition of affairs the
period of six months specified in the contracts of November 5 and 6
for the raising of the sum of P75,000 passed.
Thereafter Haussermann and Beam assumed that they were
absolved from the obligations of their contract of November 5, 1913,
with Hanlon and Sellner, and that the mining company was no
longer bound by its contract of November 6, 1913, with Hanlon.
They therefore proceeded, as parties interested in the rehabilitation
of the mining company, to make other arrangements for financing
the project. They found it possible to effectuate this through the
offices of Sendres of the Bank of the Philippine Islands, and in order
to do so, a new contract was made between the mining company
and Beam, with Haussermann as silent partner of the latter,
whereby a bonus of 96,000 shares was conceded to the promoter
instead of the 100,000 shares which would have accrued to
Haussermann and Beam if the Hanlon project had gone through. As
a result of this, the profits of each were reduced by the amount of
2,000 shares below what they might have realized under the Hanlon
contract of November 5. Another feature of the new project was that
some of those who had subscribed to the stock of the mining
company through Beam under the Hanlon project were retained as
stockholders in the new scheme of flotation. Some, however,
dropped out, with the result that Haussermann and Beam were
compelled to increase their subscriptions materially.
As preliminary to the new scheme of financing the corporation, the
board of directors of the mining company, composed of
Haussermann Beam, and Sendres, saw fit at a special meeting on
June 19, 1914, to adopt a resolution declaring the contract of
November 6, 1913, between Hanlon and the company to be
cancelled by reason of the failure of Hanlon to pay in the sum of
P75,000 in cash on or before May 6, 1914.
Immediately after the adoption of this resolution, the new plan for
financing the mining company was unfolded by Mr. Beam to the
Board in a letter, addressed by him to the Directors. In its parts
relating to financial arrangements said letter is as follows:
"MANILA, P. I., June 17, 1914.
"To the DIRECTORS OF THE BENGUET CONSOLIDATED MINING Co.,
"Manila, P. I.
"GENTLEMEN:
"The undersigned hereby applies for an option for 30 days over
501,000 shares of unissued stock of your corporation. . . .
"I have canvassed the local field for capital and am reasonably
assured that the required capital will be available as follows:
"405,000 shares have been subscribed for at 20 and 25 cents per
share, making up a total of P86,000, which sums is payable to the
company in four equal monthly installments commencing July
15,1914. . . Arrangements have been made whereby the Bank of
Philippine Islands will grant the company an overdraft to the extent
of P50,000 thus affording P136,000. . . .
"The balance of the 501,000 shares of unissued stock, or 96,000
shares, are to be issued to my order when the total sum of 86,000
subscribed as above stated shall have been paid to the company.
The said shares are to be placed in the hands of the Bank of the
Philippine Islands in escrow to be held by the said bank and
delivered to my order as soon as the overdraft hereinbefore
mentioned shall be fully paid and liquidated.
"It is further understood that the bank shall have full power and
authority to vote said shares until such time as said overdraft is
repaid to the company.
"For the payment of the overdraft guaranteed by the Bank of the
Philippine Islands, it is understood that the total net earning of the
company shall be used, and the term net earnings shall be
understood to mean the gross value of gold recovered less actual
operation expense.
"Trusting that the foregoing may meet with your approval and
acceptance, I am
"Yours very truly,
(Sgd.) "A. W. BEAM."
Upon motion of Sendres, the proposition of Beam was accepted;
Sendres and Haussermann voting in favor of the same. At the same
special meeting it was moved and seconded and unanimously
carried that a meeting of the shareholders of the company be called
for the purpose of passing upon the action of the directors in
accepting the proposition made by Beam. At this special meeting of
the shareholders, held at 4 :30 p. m., June 29, 1914, there were
310,405 shares of the 499,000 shares of issued stock represented at
the meeting. The stockholders personally present were A. W. Beam,
E. Sendres, and O. M. Shuman; and various other shareholders were
represented by Beam as proxy, and the Bank of the Philippine
Islands was represented by Sendres as proxy. It appears from the
minutes of said special meeting that Beams proposition, which had
been accepted by the board of directors, as above stated, was
submitted to the meeting and after being read was ordered to be
attached to the minutes. After due discussion by the shareholders
present, Shuman moved that the action of the board of directors
accepting Beams proposition be approved, and this motion was duly
seconded and unanimously carried.
The Beam project was carried out, and the mining company was
brought to a dividend-paying basis, paying a quarterly dividend of
five per cent; and at the time of the trial of this case the shares of
stock in the market had risen from twenty centavos to P1.50 or
higher. The defendants about 1916 received 48,000 shares each as
their profits. It is stated in the appellants brief, without denial from
the appellee, that said shares have appreciated subsequently to the
trial below to the value of P2 each. The trial court held that the
plaintiffs, as co-adventurers with the defendants in the project for
the rehabilitation of the mining company, are each entitled to
recover the one-fourth part of the 96,000 shares obtained from the
mining company by the defendants, or 24,000 shares, with
dividends paid, and to be paid beginning with the year 1916. It is
thus apparent that the value of the interest awarded to each of the
plaintiffs is considerably in excess of $25,000 (U. S. currency).
So far as Beams material scheme for the improvement of the
mining property is concerned it followed the same lines and
embodied the same ideas as had been entertained while the Hanlon
project was in course of promotion; and it is contended for the
plaintiffs that there was an unfair appropriation by Beam of the
labors and ideas of Hanlon. This is denied by the defendants, whose
testimony tends to minimize the extent of Hanlons contribution to
the project in labor and ideas. We believe it unnecessary to enter
into the merits of this contention, as in our opinion the solution of
the case must be determined by other considerations.
An examination of the rights of the parties to this litigation must
begin with the interpretation of the contract of November 5, 1913.
Some discussion is indulged in the briefs of counsel upon the
question whether that contract constitutes a partnership among the
four signatories or a mere enterprise upon joint account (cuenta en
partipacion) under the Code of Commerce. This question seems to
us of academy rather than practical importance; for whatever be the
character of the relation thus created, each party was undoubtedly
bound to use good faith towards the other, so long as the relation
subsisted.
In paragraph I of said contract each party obligates himself to do all
in his power to "float" the Hanlon proposition, i. e., as indicated in
the contract of November 6, between Hanlon and the mining
company. This means of course that each was to do what he could
to make that project for the rehabilitation of the mining company a
success. The word flotation, however, points more particularly to the
effort to raise money, since, as all man know, it takes capital to
make any enterprise of this kind go. In paragraph II of the same
contract the manner in which the flotation is to, be effected is
described, namely, that Sellner is to obtain subscriptions for
P50,000 and Haussermann and Beam for P5,000. This involved, as
we have already stated, the allocation of 200,000 shares to Sellner
and 100,000 to Hanlon and Beam.
Now the two paragraphs of the contract to which reference has been
made must be construed together, and it is entirely clear that the
general language used in the first paragraph is limited by that used
in the second paragraph. In other words, though in the first
paragraph the parties agree to help float the project, they are tied
up, in regard to the manner of effecting the flotation, to the method
agreed upon in the second. We can by no means lend our assent to
the proposition that the first paragraph created an obligation,
independent of the provisions of paragraph II, which continued to
subsist after the method of flotation described in paragraph II
became impossible of fulfillment. It is a rudimentary canon of
interpretation that all parts of a writing are to be construed together
(6 R. C. L., p. 837) and that the particular controls the general. (Art.
1288, Civ. Code; 13 C. J., p. 537.)
It seems too plain for argument that so long as that contract was in
force, Sellner did not have any right to intermeddle with the
100,000 shares allotted to Haussermann and Beam. Neither could
the latter dispose of the 200,000 shares allotted to Sellner. Indeed,
Sellner, by reserving to himself all of these 200,000 shares and
sitting tightly, as he did, on this block of stock, made it impossible
for Haussermann, Beam, or anybody else, to raise money by selling
those shares within the period fixed as the limit of his guaranty.
There was absolutely, as everybody knew, no other means to raise
money except by the sale of stock; and when Hanlon cabled-to
Beam in February to obtain the money elsewhere if Sellner could not
supply it, he was directing the impossible, unless Sellner should
release the block of shares assigned to him, which he never did. As
a matter of fact it appears that this quantity of the stock of the
mining company could not then have been sold at 25 cents per
share in the Manila market to anybody; and in the end in order tc
get Sendres and the Bank of the Philippine Islands to take part in
the Beam project 260,000 shares had to go at 20 centavos per
share.
By referring to subsection (d) of paragraph II of the contract of
November 5, 1913, it will be seen that the promises with reference
to the obtaining of subscriptions are mutual concurrent conditions;
and it is expressly declared in the contract that upon the default of
either party the obligation of the other shall be discharged. From
this it is clear that upon the happening of the condition which
occurred in this case, i. e., the default of Sellner to pay to the
mining company on or before May 6, 1914, the sum of money which
he had undertaken to find, Haussermann and Beam were
discharged.
This is a typical case of a resolutory condition under the civil law.
The contract expressly provides that upon the happening of a future
and uncertain negative event, the obligation created by the
agreement shall cease to exist.
"In conditional obligations the acquisition of rights as well as the
extinction of those already acquired shall depend upon the event
constituting the condition." (Civ. Code, art. 1114.)
"If the condition consists in the happening of an event within a fixed
period the obligation shall be extinguished from the time the period
elapses or when it becomes certain that the event will not take
place." (Civ. Code, art. 1117.)
The right of Hanlon to require any further aid or assistance from
these defendants after May 6, 1914, was expressly subordinated to
a resolutory condition, and the contract itself declares in precise
language that the effect of the non-fulfillment of the condition shall
be precisely the same as that which the statute attaches to it the
extinction of the obligation.
In the argument of the plaintiffs at this point a distinction is drawn
between the discharge from the guaranty to raise money at the
stated time and the discharge from the contract as an entirety; and
it is insisted that while the defendants were discharged from liability
to Sellner on their guaranty to have the money forthcoming on May
6, they were not discharged from their liability on the contract,
considered in its broader features, and especially were not
discharged with reference to their obligation to Hanlon. This
argument proceeds on the erroneous assumption that the
defendants were bound to discover some other method of flotation
after the plan prescribed in the contract had become impossible of
fulfillment and to proceed therewith for the benefit of all four of the
parties. Furthermore, this conception of the case is apparently over-
refined and not in harmony with the common-sense view of the
situation as it must have presented itself to the contracting parties
at the time. The obtaining of capital was fundamentally necessary
before the project could be proceeded with; and it was obvious
enough that, if the parties should fail to raise the money, the whole
scheme must collapse like a stock of cards. The provisions relative
to the getting in of capital are the principal features of the contract,
other matters being of subordinate importance. In our opinion the
contracting parties must have understood and intended that
Haussermann and Beam would be discharged from the contract in
its entirety by the failure of Sellner to comply with his obligation.
This is the plainest, simplest, and most obvious meaning of which
the words used are capable and we believe it to be their correct
interpretation. We are not to suppose that either of the signatories
intended for those words to operate as a trap for the others; and
such would certainly be the effect of the provision in question if the
words are to be understood as referring to a discharge from the
guaranty merely, leaving the contract intact in other respects.
It is insisted in behalf of the plaintiffs that Haussermann and Beam,
as well as Sellner, defaulted in the performance of the contract of
November 5, 1913, and that, not having performed their obligation
to obtain subscriptions for the sum of P25,000 and to cause
payment to be made into the companys treasury on or before May
6, 1914, they cannot take advantage of the similar default of
Sellner. This suggestion is irrelevant to the fundamental issue. The
question here is not whether Haussermann and Beam have a right of
action for damages against Sellner. If they were suing him, it would
be pertinent to say that they could not maintain the action because
they themselves had not caused the money to be paid in which they
had agreed to raise. The question here is different, namely, whether
Haussermann and Beam have been discharged from the contract of
November 5, 1913, by the default of Sellner; and this question
must, under the contract, be answered by reference to the acts of
Sellner. Upon this point it is irrelevant to say that the discharge was
mutual as between the two parties and not merely one-sided.
The interpretation which we have placed upon the contract of
November 5, 1913, exerts a decisive influence upon this litigation,
and makes a reversal of the appealed judgment inevitable. There
are, however, certain subordinate features of the case which, as
disposed in the appellees brief, appear to justify the conclusion of
the trial judge; and we deem it desirable to say something with
reference to the questions thus presented.
It will be noted that there is no resolutory provision in the contract
of November 6, 1913, between Hanlon and the mining company,
declaring that said contract would be discharged or abrogated upon
the failure of Hanlon to supply, within the period specified, the
money which he had obligated himself to raise. In other words, time
is not expressly made of the essence of this contract. From this it is
argued for the plaintiffs that this contract remained in force after
May 6, 1914, notwithstanding the failure of Hanlon to supply the
funds which he had agreed to find, and indeed it is insisted upon the
authority of Ocejo, Perez & Co. v. International Banking Corporation
(87 Phil. Rep., 631), that the mining company could not be relieved
from that contract without obtaining a judicial rescission in an action
specially brought for that purpose. The reply to this is two-fold.
In the first place the present action is not based upon the contract
between Hanlon and the mining company; and it is clear that if
Hanlon had sued the mining company, as for example, in an action
seeking to recover damages for breach of its contract with him, he
would have been confronted by the insuperable obstacle that he had
never supplied, nor offered to supply, one penny of the P75,000,
which he had obligated himself to bind, and which was absolutely
necessary to the rehabilitation of the company. The benefits of a
contract are not for him who has failed to comply with its
obligations. It may be admitted that the resolution of the Board of
Directors of the mining company, on June 19, 1914, declaring the
contract of November 6, 1913, with Hanlon to be cancelled,
considered alone, was without legal effect, since one party to a
contract cannot absolve himself from its obligations without the
consent of the other.
With reference to the second point, namely, that a Judicial rescission
was necessary to absolve the mining company from its obligations to
Hanlon under the contract of December 6, 1913, we will say that we
consider the doctrine of Ocejo, Perez & Co. v. International Banking
Corporation (37 Phil. Rep., 631), to be inapplicable. The contract
there in question was one relating to a sale of goods, and it had
been fully performed on the part of the vendor by delivery. This
court held that delivery had the effect of passing title, and that while
the failure of the purchaser to pay the price gave the seller a right to
sue for a rescission of the contract, the failure of the buyer to pay
the purchase price did not ipso facto produce a reversion of title to
the vendor, or authorize him, upon his election to rescind, to treat
the goods as his own property and retake them by writ of replevin.
In the present case the contract between Hanlon and the mining
company was executory as to both parties, and the obligation of the
company to deliver the shares could not arise until Hanlon should
pay or tender payment of the money. The situation is similar to that
which arises every day in business transactions in which the
purchaser of goods upon an executory contract fails to take delivery
and pay the purchase price. The vendor in such case is entitled to
resell the goods. If he is obliged to sell for less than the contract
price, he holds the buyer for the difference; if he sells for as much
as or more than the contract price, the breach of the contract by the
original buyer is damnum absque injuria. But it has never been held
that there is any need of an action of rescission to authorize the
vendor, who is still in possession, to dispose of the property where
the buyer fails to pay the price and take delivery. Of course no
judicial proceeding could be necessary to rescind a contract which,
like that of November 5, 1913, contains a resolutory provision by
virtue of which the obligation is already extinguished.
Much reliance is placed by counsel for the plaintiffs upon certain
American decisions holding that partners, agents, Joint adventurers,
and other persons occupying similar fiduciary relations to one
another, must not be allowed to obtain any undue advantage of
their associates or to retain any profit which others do not share. We
have no criticism to make against this salutary doctrine when
properly applied and would be slow to assume that our civil law
requires any less degree of good faith between parties so
circumstanced than is required by the courts of equity in other
countries. For instance, we feel quite sure that this Court would have
no difficulty in subscribing to the doctrine which is stated in Lind v.
Webber (36 Nev., 623; 50 L. R. A. [N. S. ] 1046), with reference to
joint adventurers as follows:
"We further find that the law is well established that the relation
between joint adventurers is fiduciary in its character and the
utmost good faith is required of the trustee, to whom the deal or
property may be intrusted, and such trustee will be held strictly to
account to his coadventurers, and that he will not be permitted, by
reason of the possession of the property or profits whichever the
case may be to enjoy an unfair advantage, or have any greater
rights in the property by reason of the fact that he is in possession
of the property or profits as trustee, than his co-adventurers are
entitled to. The mere fact that he is intrusted with the rights of his
co-adventurers imposes upon him the sacred duty of guarding their
rights equally with his own, and he is required to account strictly to
his co-adventurers, and, if he is recreant to his trust, any rights they
may be denied are recoverable."
In Flagg v. Mann (9 Fed. Cas., 202; Fed. Case No. 4847), it
appeared that Flagg and Mann had an agreement to purchase a tract
of land on joint account. The court held that where parties are
interested together by mutual agreement, and a purchase is made
agreeably thereto, neither party can exclude the other from what
was intended to be for the common benefit; and any private benefit,
touching the common right, which is secured by either party must
be shared by both. Justice Story, acting as Circuit Justice, said that
the doctrine in question was "a wholesome and equitable principle,
which by declaring the sole purchase to be for the joint benefit,
takes away the temptation to commit a dishonest act, founded in
the desire of obtaining a selfish gain to the injury of a co-contractor,
and thus adds strength to wavering virtue, by making good faith an
essential ingredient in the validity of the purchase. There is not,
therefore, any novelty in the doctrine of Mr. Canchellor Kent,
notwithstanding the suggestion at the bar to the contrary; and it
stands approved equally by ancient and modern authority, by the
positive rule of the Roman Law, the general recognition of
continental Europe, and the actual jurisprudence of England and
America."
We deem it unnecessary to proceed to an elaborate analysis of the
array of cases cited by the appellee as containing applications of the
doctrine above stated. Suffice it to say that, upon examination, such
of these decisions as have reference to joint adventures will be
found to deal with the situation where the associates are not only
joint adventurers but are joint adventurers merely. In the present
case Haussermann and Beam were stockholders and officials in the
mining company from a time long anterior to the beginning of their
relations with Hanlon. They were not merely coadventurers with
Hanlon, but in addition were in a fiduciary relation with the mining
company and its other shareholders, to whom they owed duties as
well as to Hanlon. It does not appear that the defendants acquired
any special knowledge of the mine or of the feasibility of its
reconstruction by reason of their relation with Hanlon which they did
not already have; and they probably were in no better situation as
regards the facts relating to the mine after the failure of the Hanlon
contract than they were before. The fact of their having been
formerly associated with Hanlon certainly did not preclude them
from making use of the information which they possessed as
stockholders and officers of the mining company long before they
came into contact with him.
After the termination of an agency, partnership, or joint adventure,
each of the parties is free to act in his own interest, provided he has
done nothing during the continuance of the relation to lay a
foundation for an undue advantage to himself. To act as agent for
another does not necessarily imply the creation of a permanent
disability in the agent to act for himself in regard to the same
subject-matter; and certainly no case has been called to our
attention in which the equitable doctrine above referred to has been
so applied as to prevent an owner of property from doing what he
pleased with his own after such a contract as that of November 5,
1913, between the parties to this lawsuit had lapsed.
In the present case so far as we can see, the defendants acted in
good faith for the accomplishment of the common purpose and to
the full extent of their obligation during the continuance of their
contract; and if Sellner had not defaulted, or if Hanlon had been able
to produce the necessary capital from some other source, during the
time set for raising the money, the original project would
undoubtedly have proceeded to its consummation. Certainly, no act
of the defendants can be pointed to which prevented or retarded its
realization; and we are of the opinion that, under the circumstances,
nothing more could be required of the defendants than a full and
honest compliance with their contract. As this had been discharged
through the fault of another they can not be held liable upon it.
Certainly, we cannot accede to the proposition that the defendants
by making the contracts in question had discapacitated themselves
and their company for an indefinite period from seeking other means
of financing the companys necessities, save only upon the penalty
of surrendering a share of their ultimate gain to the two adventurers
who are plaintiffs in this action.
The power of attorney which Hanlon left. with Beam upon departing
for America was executed chiefly to enable Haussermann and Beam
to comply with their obligation to raise P25,000 by the sale of
shares. This feature of the power of attorney was manifestly
subordinate to the purpose of the joint agreement of November 5,
1913. Certainly, under that power, Beam could not have disposed of
any of the stock allotted to Sellner; neither was he bound, or even
authorized, after the joint agreement was at an end, to use the
power for Hanlons benefit, even supposing contrary to the proven
fact that purchasers to the necessary extent could have been
found for the shares at 25 centavos per share.
As we have already stated, some of the individuals who originally
subscribed to the Hanlon project were carried as stockholders into
the new project engineered by Beam, being credited with any
payments previously made by them. In other words, the mining
company honored these subscriptions, although the Hanlon project
on which they were based had fallen through. This circumstance
cannot in our opinion alter the fundamental features of the case.
Taken all together these subscriptions were for only a part of the
P25,000 which the defendants had undertaken to raise and were by
no means sufficient to finance the Hanlon project without the
assistance which Sellner had agreed to give. Of course if Beam,
acting as attorney in fact of Hanlon, had obtained a sufficient
number of subscriptions to finance the Hanlon project, and
concealing this fact, had subsequently utilized the same
subscriptions to finance his own scheme, the case would be
different. But the revealed facts do not bear out this imputation.
It should be noted in this connection that the mining company had
approved the subscriptions obtained by Haussermann and Beam and
had, prior to May 6, 1914, accepted part payment of the amount
due upon some of them. It is not at all clear that, under these
circumstances, the company could have repudiated these
subscriptions, even if its officers had desired to do so; and if the
mining company was bound either legally or morally to recognize
them, it cannot be imputed to the defendants as an act of bad faith
that such subscriptions were so recognized.
The trial court held that Haussermann, by reason of his interest in
the Beam project, was disqualified to act as a director of the mining
company upon the resolution accepting that project; and it was
accordingly declared that said resolution was without legal effect.
We are of the opinion that the circumstance referred to could at the
most have had no further effect than to render the contract with
Beam voidable and not void; and the irregularity involved in
Haussermanns participation in that resolution was doubtless cured
by the later ratification of the contract at a meeting of the
stockholders. However this may be, the plaintiffs are not in a
position to question the validity of the contract of the mining
company with Beam since the purpose of the action is to secure a
share in the gains acquired under that contract.
In the course of the preceding discussion we have already noted the
fact that no resolutory provision contemplating the possible failure of
Hanlon to supply the necessary capital within the period of six
months is found in the contract of November 6, 1913, between
Hanlon and the mining company. In other words, time was not
expressly made of the essence of that contract. It should not be too
hastily inferred from this that the mining company continued to be
bound by that contract after Hanlon had defaulted in Procuring the
money which he had obligated himself to supply. Whether that
contract continued to be binding after the date stated is a question
which does not clearly appear to be necessary to the decision of this
case, but the attorneys for Hanlon earnestly insist that said contract
did in fact continue to be binding upon the mining company after
May 6, 1914; and upon this assumption taken in connection with the
power held by Beam as attorney in fact of Hanlon, it is argued that
the right of action of Hanlon is complete, as against Beam and
Haussermann, even without reference to the profit-sharing
agreement of November 5. We consider this contention to be
unsound; and the correctness of our position on this point can, we
think, be clearly demonstrated by considering for a moment the
question whether time was in fact of the essence of the contract of
November 6, 1913, in other words, Was the mining company
discharged by the default of Hanlon in the performance of that
agreement?
Whether a party to a contract is impliedly discharged by the failure
of the other to comply with a certain stipulation on or before the
time set for performance, must be determined with reference to the
intention of the parties as deduced from the contract itself in relation
with the circumstances under which the contract was made.
Upon referring to the contract now in question i. e., the contract
of November 6, 1913 it will be seen that the leading stipulation
following immediately after the general paragraph at the beginning
of the contract, is that which relates to the raising of capital by
Hanlon. It reads as follows:
"1. Said party of the first part agrees to pay into the treasury of the
party of the second part the sum of Seventy-five Thousand Pesos
(P75,000) in cash within six (6) months from the date of this
agreement."
Clearly, all the possibilities and potentialities of the situation with
respect to the rehabilitation of the Benguet mining property,
depended upon the fulfillment of that stipulation; and in fact nearly
all the other subsequent provisions of the contract are concerned in
one way or another with the acts and things that were contemplated
to be done with that money after it should be paid into the
companys treasury. Only in the event of such payment were shares
to be issued to Hanlon, and it was stipulated that the money so to
be paid in should be disbursed to pay the expenses of the very
improvements which Hanlon had agreed to make. There can then be
no doubt that compliance on the part of Hanlon with this stipulation
was viewed by the parties as the pivotal fact in the whole scheme.
Again, it will be recalled that this contract (Exhibit B) between
Hanlon and the mining company was not in fact executed until the
day following that on which the profit-sharing agreement (Exhibit A)
was executed by the four parties to this lawsuit. In other words,
Haussermann and Beam, as officials of the mining company,
refrained from executing the companys contract until Hanlon had
obligated himself by the profit-sharing agreement. Indeed, these
two contracts should really be considered as constituting a single
transaction; and it is obvious enough that the prime motive which
induced Haussermann and Beam to place their signature upon the
contract of November 6 was that they already had the profit-sharing
agreement securely in their hands. Therefore, when the contract of
November 6, between Hanlon and the mining company was signed,
ail the parties who participated therein acted with full knowledge of
the provisions contained in the profit-sharing agreement; and in
particular the minds of all must have been riveted upon the
provisions of paragraph II of the profit-sharing agreement, wherein
is described the manner in which the project to which the parties
were then affixing their signatures should be financially realized
("floated"). In subsection (d) of the same paragraph II, as will be
remembered, are found the words which declare that Haussermann
and Beam would be discharged if Sellner should fail to pay into the
companys treasury on or before the expiration of the prescribed
period the money which he had agreed to raise. Under these
conditions it is apparent enough that the parties to the later contract
treated time as of the essence of the agreement and intended that
the failure of Hanlon to supply the necessary capital within the time
stated should put an end to the whole project. In view of the fact
that an express resolutory provision had been inserted in the profit
sharing agreement, it must have seemed superfluous to insert such
express clause in the later contract. Any extension of time,
therefore, that the mining company might have made after May 6,
1914, with respect to the date of performance by Hanlon would have
been purely a matter of grace, and not demandable by Hanlon as of
absolute right. It is needless to say in this connection that the
default of Sellner was the default of Hanlon.
An examination of the decisions of the American and English courts
reveals a great mass of material devoted to the discussion of the
question whether in a given case time is of the essence of a
contract. As presented in those courts, the question commonly
arises where a contracting party, who has himself failed to comply
with some agreement, tenders performance after the stipulated time
has passed, and upon the refusal of the other party to accept the
delayed performance the delinquent party resorts to the court of
equity to compel the other party to proceed. The equitable doctrine
there recognized as applicable in such situation is that if the
contracting parties have treated time as of the essence of the
contract, the delinquency will not be excused and specific
performance will not be granted; but on the other hand, if it appears
that time has not been made of the essence of the contract, equity
will relieve from the delinquency and specific performance may be
granted, due compensation being made for the damage caused by
the delay. In such cases the courts take account of the difference
between that which is matter of substance and that which is matter
of mere form.
To illustrate: the rule has been firmly established from an early date
in courts of equity that in agreements for the sale of land, time is
not ordinarily of the essence of the contract; that is to say, acts
which one of the parties has stipulated to perform on a given date
may be performed at a later date. Delay in the payment of the
purchase money, for instance, does not necessarily result in the
forfeiture of the rights of the purchaser under the contract, since
mere delay in the payment of money may be compensated by the
allowance of interest. (36 Cyc., 707-708.) In discussing this subject,
Pomeroy says: "Time may be essential; It is so whenever the
intention of the parties is clear that the-performance of its terms
shall be accomplished exactly at the stipulated day. The intention
must then govern. A delay cannot be excused. A performance at the
time is essential; any default will defeat the right to specific
enforcement." (4 Pomeroy Eq. Jur., 3rd ed., sec. 1408.) Again, says
the same writer: "It is well settled that where the parties have so
stipulated as to make the time of payment of the essence of the
contract, within the view of equity as well as of the law, a court of
equity cannot relieve a vendee who has made default. With respect
to this rule there is no doubt; the only difficulty is in determining
when time has thus been made essential. It is also equally certain
that when the contract is made to depend upon a condition
precedent in other words, when no right shall vest until certain
acts have been done, as, for example, until the vendee has paid
certain sums at certain specified times then, also a court of equity
will not relieve the vendee against the forfeiture incurred by a
breach of such condition precedent." (1 Pomeroy Eq. Jur., 3rd ed.,
sec. 455.)
As has been determined in innumerable cases it is not necessary, in
order to make time of the essences of a contract, that the contract
should expressly so declare. Words of this import need not to be
used. It is sufficient that the intention to this effect should appear;
and there are certain situations wherein it is held, from the nature of
the agreement itself, that time is of the essence of the contract.
"Time may be of the essence, without express stipulation that effect,
by implication from the nature of the contract itself, or of the
subject-matter, or of the circumstances under which the contract is
made." (36 Cyc., 709.)
In agreements which are executed in the form of options, time is
always held to be of the essence of the contract; and it is well
recognized that in such contracts acceptance of the option and
payment of the purchase price constitute conditions precedent to
specific enforcement. The same is true generally of all unilateral
contracts. (36 Cyc., 711.) In mercantile contracts for the
manufacture and sale of goods time is also held to be of the essence
of the agreement. (13 C. J., 688.) Likewise, where the subject-
matter of a contract is of speculative or fluctuating value it is held
that the parties must have intended time to be of the essence (13
C. J., 688.) Most conspicuous among all the situations where time is
presumed to be of the essence of a contract from the mere nature of
the subject-matter is that where the contract relates to mining
property. As has been well said by the Supreme Court of the United
States, such property requires, and of all properties perhaps the
most requires, the persons interested in it to be vigilant and active
in asserting their rights. (Waterman v. Banks, 144 U. S., 394; 36 L.
ed., 47g, 483.) Hence it is uniformly held that time is of the essence
of the contract in the case of an option on mining property, or a
contract for the sale thereof, even though there is no express
stipulation to that effect. (27 Cyc., 675). The same idea is clearly
applicable to a contract like that now under consideration which
provides for the rehabilitation of a mining plant with funds to be
supplied by the contractor within a limited period.
Under the doctrine above expounded it is evident that Hanlon would
be entitled to no relief against the mining company in an action of
specific performance, even if he had been prepared and had offered,
after May 6, 1914, to advance the requisite money and proceed with
the performance of the contract. Much less can he be considered
entitled to relief where he has remained in default throughout and
has at no time offered to comply with the obligations incumbent
upon himself.
Our conclusion, upon a careful examination of the whole case, is
that the action cannot be maintained. The judgment is accordingly
reversed and the defendants are absolved from the complaint. No
express pronouncement will be made as to costs of either instance.

FIRST DIVISION
[G.R. No. 59956. October 31, 1984.]
ISABELO MORAN, JR., Petitioner, v. THE HON. COURT OF
APPEALS and MARIANO E. PECSON, Respondents.
SYLLABUS
1. CIVIL LAW; PARTNERSHIP; CONTRIBUTIONS; PARTNER IS
DEBTOR OF PARTNERSHIP FOR UNPAID CONTRIBUTIONS. The
rule is, when a partner who has undertaken to contribute a sum of
money fails to do so, he becomes a debtor of the partnership for
whatever he may have promised to contribute (Art. 1786, Civil
Code) and for interests and damages from the time he should have
complied with his obligation (Art. 1788, Civil Code). Thus in Uy v.
Puzon (79 SCRA 598), which interpreted Art. 2200 of the Civil Code
of the Philippines, the Court allowed a total of P200,000.00
compensatory damages in favor of the appellee because the
appellant therein was remiss in his obligations as a partner and as
prime contractor of the construction projects in question.
2. ID.; ID.; ID.; ID.; AWARD OF DAMAGES FOR NON-PAYMENT OF
CONTRIBUTIONS; UY VS. PUZON (79 SCRA 598) DISTINGUISHED
FROM CASE AT BAR. The Court awarded compensatory damages
in the Uy case because there was a finding that the "constructing
business is a profitable one and that the UP construction company
derived some profits from its contractors in the construction of roads
and bridges despite its deficient capital." Besides, there was
evidence to show that the partnership made some profits during the
periods from July 2,1956 to December 31, 1957 and from January 1,
1958 up to September 31, 1959. The profits on two government
contracts worth P2,327,335.76 were not speculative. In the instant
case, there is no evidence whatsoever that the partnership between
the petitioner and the private respondent would have been a
profitable venture. In fact, it was a failure doomed from the start.
There is therefore no basis for the award of speculative damages in
favor of the private Respondent. Furthermore, in the Uy case. only
Puzon failed to give his full contribution while Uy contributed much
more than what was expected of him. In this case, however, there
was mutual breach. Private respondent failed to give his entire
contribution in the amount of P15,000.00. He contributed only
P10,000.00. The petitioner likewise failed to give any of the amount
expected of him. He further failed to comply with the agreement to
print 95,000 copies of the posters. Instead, he printed only 2,000
copies.
3. ID.; ID.; PROFITS AND LOSSES SHARED BY EACH PARTNER.
Being a contract of partnership, each partner must share in the
profits and losses of the venture. That is the essence of a
partnership. And even with an assurance made by one of the
partners that they would earn a huge amount of profits in the
absence of fraud, the other partner cannot claim a right to recover
the highly speculative profits. It is rare business venture guaranteed
to give 100% profits.
4. ID.; OBLIGATIONS AND CONTRACTS; INTERPRETATION OF
CONTRACTS; OF CONTRACTS; FAILURE OF AGREEMENT TO STATE
BASIS OF COMMISSION; EFFECT. The partnership agreement
stipulated that the petitioner would give the private respondent a
monthly commission of P1,000.00 from April 15, 1971 to December
15, 1971 for a total of eight (8) monthly commissions. The
agreement does not state the basis of the commission. The payment
of the commission could only have been predicated on relatively
extravagant profits. The parties could not have intended the giving
of a commission in spite of loss or failure of the venture. Since the
venture was a failure, the private respondent is not entitled to the
P8,000.00 commission.
5. REMEDIAL LAW; CIVIL PROCEDURE; APPEAL; FINDINGS OF FACT
OF APPELLATE COURT NOT SUBJECT TO REVIEW BY THE SUPREME
COURT; CASE AT BAR. As a rule, the findings of facts of the Court
of Appeals are final and conclusive and cannot be reviewed on
appeal to this Court (Amigo v. Teves, 96 Phil. 252), provided they
are borne out by the record or are based on substantial evidence
(Alsua-Betts v. Court of Appeals, 92 SCRA 332). However, this rule
admits of certain exceptions. Thus, in Carolina Industries Inc. v.
CMS stock Brokerage Inc., Et Al., (97 SCRA 734), we held that this
Court retains the power to review and rectify the findings of fact of
the Court of Appeals when (1) the conclusion is a finding grounded
entirely on speculation. surmises and conjectures; (2) when the
inference made is manifestly mistaken, absurd and impossible: (3)
where there is grave abuse of discretion: 4) when the judgment is
based on a misapprehension of facts; and (5) when the court, in
making its findings went beyond the issues of the case and the same
are contrary to the admissions of both the appellant and the
appellee The respondent court erred when it concluded that the
project never left the ground because the project did take place.
Only it failed. It was the private respondent himself who presented a
copy of the book entitled "Voice of the Veterans" in the lower court
as Exhibit "L." Therefore, it would be error to state that the project
never took place and on this basis decree the return of the private
respondents investments. As already mentioned. there are risks in
any business venture and the failure of the undertaking cannot
entirely be blamed on the managing partner alone, specially if the
latter exercised his best business Judgment. which seems to be true
in this case.
DECISION
GUTIERREZ, JR., J.:
This is a petition for review on certiorari of the decision of the
respondent Court of Appeals which ordered petitioner Isabelo Moran,
Jr. to pay damages to respondent Mariano E. Pecson.
As found by the respondent Court of Appeals, the undisputed facts
indicate that:
x x x can be said that the venture did not really get off the ground. On the
". . . on February 22, 1971 Pecson and Moran entered into an
agreement whereby both would contribute P15,000 each for the
purpose of printing 95,000 posters (featuring the delegates to the
1971 Constitutional Convention), with Moran actually supervising the
work; that Pecson would receive a commission of P1,000 a month
starting on April 15, 1971 up to December 15, 1971; that on
December 15, 1971, a liquidation of the accounts in the distribution
and printing of the 95,000 posters would be made; that Pecson gave
Moran P10,000 for which the latter issued a receipt; that only a few
posters were printed; that on or about May 28, 1971, Moran
executed in favor of Pecson a promissory note in the amount of
P20,000 payable in two equal installments (P10,000 payable on or
before June 15, 1971 and P10,000 payable on or before June 30,
1971), the whole sum becoming due upon default in the payment of
the first installment on the date due, complete with the costs of
collection."
Private respondent Pecson filed with the Court of First Instance of
Manila an action for the recovery of a sum of money and alleged in
his complaint three (3) causes of action, namely: (1) on the alleged
partnership agreement, the return of his contribution of P10,000.00,
payment of his share in the profits that the partnership would have
earned, and, payment of unpaid commission; (2) on the alleged
promissory note, payment of the sum of P20,000.00; and, (3) moral
and exemplary damages and attorneys fees.
After the trial, the Court of First Instance held that:
"From the evidence presented it is clear in the mind of the court that
by virtue of the partnership agreement entered into by the parties
plaintiff and defendant the plaintiff did contribute P10,000.00, and
another sum of P7,000.00 for the Voice of the Veteran or Delegate
Magazine. Of the expected 95,000 copies of the posters, the
defendant was able to print 2,000 copies only all of which, however,
were sold at P5.00 each. Nothing more was done after this and it
other hand, the plaintiff failed to give his full contribution of
P15,000.00. Thus, each party is entitled to rescind the contract
which right is implied in reciprocal obligations under Article 1385 of
the Civil Code whereunder rescission creates the obligation to return
the things which were the object of the contract . . .
"WHEREFORE, the court hereby renders judgment ordering
defendant Isabelo C. Moran, Jr. to return to plaintiff Mariano E.
Pecson the sum of P17,000.00, with interest at the legal rate from
the filing of the complaint on June 19, 1972, and the costs of the
suit.
"For insufficiency of evidence, the counterclaim is hereby dismissed."
From this decision, both parties appealed to the respondent Court of
Appeals. The latter likewise rendered a decision against the
petitioner. The dispositive portion of the decision reads:
"PREMISES CONSIDERED, the decision appealed from is hereby SET
ASIDE, and a new one is hereby rendered, ordering defendant-
appellant Isabelo C. Moran, Jr. to pay plaintiff-appellant Mariano E.
Pecson:
"(a) Forty-seven thousand five hundred (P47,500) (the amount that
could have accrued to Pecson under their agreement);
"(b) Eight thousand (P8,000), (the commission for eight months);
"(c) Seven thousand (P7,000) (as a return of Pecsons investment
for the Veterans Project);
"(d) Legal interest on (a), (b) and (c) from the date the complaint
was filed (up to the time payment is made)."
The petitioner contends that the respondent Court of Appeals
decided questions of substance in a way not in accord with law and
with Supreme Court decisions when it committed the following
errors:
I
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN
HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE SUM OF P47,500 AS THE
SUPPOSED EXPECTED PROFITS DUE HIM.
II
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN
HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE SUM OF P8,000, AS
SUPPOSED COMMISSION IN THE PARTNERSHIP ARISING OUT OF
PECSONS INVESTMENT.
III
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN
HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE SUM OF P7,000 AS A
SUPPOSED RETURN OF INVESTMENT IN A MAGAZINE VENTURE.
IV
ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL
LIABLE FOR ANY AMOUNT, THE HONORABLE COURT OF APPEALS
DID NOT EVEN OFFSET PAYMENTS ADMITTEDLY RECEIVED BY
PECSON FROM MORAN.
V
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT
GRANTING THE PETITIONERS COMPULSORY COUNTERCLAIM FOR
DAMAGES.
The first question raised in this petition refers to the award of
P47,500.00 as the private respondents share in the unrealized
profits of the partnership. The petitioner contends that the award is
highly speculative. The petitioner maintains that the respondent
court did not take into account the great risks involved in the
business undertaking.
We agree with the petitioner that the award of speculative damages
has no basis in fact and law.
There is no dispute over the nature of the agreement between the
petitioner and the private Respondent. It is a contract of
partnership. The latter in his complaint alleged that he was induced
by the petitioner to enter into a partnership with him under the
following terms and conditions:
"1. That the partnership will print colored posters of the delegates to
the Constitutional Convention;
"2. That they will invest the amount of Fifteen Thousand Pesos
(P15,000.00) each;
"3. That they will print Ninety Five Thousand (95,000) copies of the
said posters;
"4. That plaintiff will receive a commission of one Thousand Pesos
(P1,000.00) a month starting April 15, 1971 up to December 15,
1971;
"5. That upon the termination of the partnership on December 15,
1971, a liquidation of the account pertaining to the distribution and
printing of the said 95,000 posters shall be made."
The petitioner on the other hand admitted in his answer the
existence of the partnership.
The rule is, when a partner who has undertaken to contribute a sum
of money fails to do so, he becomes a debtor of the partnership for
whatever he may have promised to contribute (Art. 1786, Civil
Code) and for interests and damages from the time he should have
complied with his obligation (Art. 1788, Civil Code). Thus in Uy v.
Puzon (19 SCRA 598), which interpreted Art. 2200 of the Civil Code
of the Philippines, we allowed a total of P200,000.00 compensatory
damages in favor of the appellee because the appellant therein was
remiss in his obligations as a partner and as prime contractor of the
construction projects in question. This case was decided on a
particular set of facts. We awarded compensatory damages in the Uy
case because there was a finding that the "constructing business is a
profitable one and that the UP construction company derived some
profits from its contractors in the construction of roads and bridges
despite its deficient capital." Besides, there was evidence to show
that the partnership made some profits during the periods from July
2, 1956 to December 31, 1957 and from January 1, 1958 up to
September 30, 1959. The profits on two government contracts worth
P2,327,335.76 were not speculative. In the instant case, there is no
evidence whatsoever that the partnership between the petitioner
and the private respondent would have been a profitable venture. In
fact, it was a failure doomed from the start. There is therefore no
basis for the award of speculative damages in favor of the
private Respondent.
Furthermore, in the Uy case, only Puzon failed to give his full
contribution while Uy contributed much more than what was
expected of him. In this case, however, there was mutual breach.
Private respondent failed to give his entire contribution in the
amount of P15,000.00. He contributed only P10,000.00. The
petitioner likewise failed to give any of the amount expected of him.
He further failed to comply with the agreement to print 95,000
copies of the posters. Instead, he printed only 2,000 copies.
Article 1797 of the Civil Code provides:
"The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been
agreed upon, the share of each in the losses shall be in the same
proportion."
Being a contract of partnership, each partner must share in the
profits and losses of the venture. That is the essence of a
partnership. And even with an assurance made by one of the
partners that they would earn a huge amount of profits, in the
absence of fraud, the other partner cannot claim a right to recover
the highly speculative profits. It is a rare business venture
guaranteed to give 100% profits. In this case, on an investment of
P15,000.00, the respondent was supposed to earn a guaranteed
P1,000.00 a month for eight months and around P142,500.00 on
95,000 posters costing P2.00 each but 2,000 of which were sold at
P5.00 each. The fantastic nature of expected profits is obvious. We
have to take various factors into account. The failure of the
Commission on Elections to proclaim all the 320 candidates of the
Constitutional Convention on time was a major factor. The petitioner
used his best business judgment and felt that it would be a losing
venture to go on with the printing of the agreed 95,000 copies of the
posters. Hidden risks in any business venture have to be considered.
It does not follow however that the private respondent is not entitled
to recover any amount from the petitioner. The records show that
the private respondent gave P10,000.00 to the petitioner. The latter
used this amount for the printing of 2,000 posters at a cost of P2.00
per poster or a total printing cost of P4,000.00. The records further
show that the 2,000 copies were sold at P5.00 each. The gross
income therefore was P10,000.00. Deducting the printing costs of
P4,000.00 from the gross income of P10,000.00 and with no
evidence on the cost of distribution, the net profits amount to only
P6,000.00. This net profit of P6,000.00 should be divided between
the petitioner and the private Respondent. And since only P4,000.00
was used by the petitioner in printing the 2,000 copies, the
remaining P6,000.00 should therefore be returned to the
private Respondent.
Relative to the second alleged error, the petitioner submits that the
award of P8,000.00 as Pecsons supposed commission has no
justifiable basis in law.
Again, we agree with the petitioner.
The partnership agreement stipulated that the petitioner would give
the private respondent a monthly commission of P1,000.00 from
April 15, 1971 to December 15, 1971 for a total of eight (8) monthly
commissions. The agreement does not state the basis of the
commission. The payment of the commission could only have been
predicated on relatively extravagant profits. The parties could not
have intended the giving of a commission inspite of loss or failure of
the venture. Since the venture was a failure, the private respondent
is not entitled to the P8,000.00 commission.
Anent the third assigned error, the petitioner maintains that the
respondent Court of Appeals erred in holding him liable to the
private respondent in the sum of P7,000.00 as a supposed return of
investment in a magazine venture.
In awarding P7,000.00 to the private respondent as his supposed
return of investment in the "Voice of the Veterans" magazine
venture, the respondent court ruled that:
x x x
". . . Moran admittedly signed the promissory note of P20,000 in
favor of Pecson. Moran does not question the due execution of said
note. Must Moran therefore pay the amount of P20,000? The
evidence indicates that the P20,000 was assigned by Moran to cover
the following:
"(a) 7,000 the amount of the PNB check given by Pecson to
Moran representing Pecsons investment in Morans other project
(the publication and printing of the Voice of the Veterans);
"(b) P10,000 to cover the return of Pecsons contribution in the
project of the Posters;
"(c) P3,000 representing Pecsons commission for three months
(April, May, June, 1971).

Of said P20,000 Moran has to pay P7,000 (as a return of Pecsons
investment for the Veterans project, for this project never left the
ground) . . ."
As a rule, the findings of facts of the Court of Appeals are final and
conclusive and cannot be reviewed on appeal to this Court (Amigo v.
Teves, 96 Phil. 262), provided they are borne out by the record or
are based on substantial evidence (Alsua-Betts v. Court of Appeals,
92 SCRA 332). However, this rule admits of certain exceptions.
Thus, in Carolina Industries Inc. v. CMS Stock Brokerage, Inc., Et
Al., (97 SCRA 734), we held that this Court retains the power to
review and rectify the findings of fact of the Court of Appeals when
(1) the conclusion is a finding grounded entirely on speculation,
surmises and conjectures; (2) when the inference made is
manifestly mistaken, absurd and impossible; (3) where there is
grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; and (5) when the court, in making its
findings, went beyond the issues of the case and the same are
contrary to the admissions of both the appellant and the appellee.
In this case, there is misapprehension of facts. The evidence of the
private respondent himself shows that his investment in the "Voice
of Veterans" project amounted to only P3,000.00. The remaining
P4,000.00 was the amount of profit that the private respondent
expected to receive.
The records show the following exhibits
"E Xerox copy of PNB Managers Check No. 234265 dated March
22, 1971 in favor of defendant. Defendant admitted the authenticity
of this check and of his receipt of the proceeds thereof (t.s.n., pp. 3-
4, Nov. 29, 1972). This exhibit is being offered for the purpose of
showing plaintiffs capital investment in the printing of the Voice of
the Veterans for which he was promised a fixed profit of P8,000.
This investment of P6,000.00 and the promised profit of P8,000 are
covered by defendants promissory note for P14,000 dated March
31, 1971 marked by defendant as Exhibit 2 (t.s.n., pp. 20-21, Nov.
29, 1972), and by plaintiff as Exhibit P. Later, defendant returned
P3,000.00 of the P6,000.00 investment thereby proportionately
reducing the promised profit to P4,000. With the balance of P3,000
(capital) and 14,000 (promised profit), defendant signed and
executed the promissory note for P7,000 marked Exhibit 3 for the
defendant and Exhibit M for plaintiff. Of this P7,000, defendant paid
P4,000 representing full return of the capital investment and P1,000
partial payment of the promised profit. The P3,000 balance of the
promised profit was made part consideration of the P20,000
promissory note (t.s.n., pp. 22-24, Nov. 29, 1972). It is, therefore,
being presented to show the consideration for the P20,000
promissory note.
"F Xerox copy of PNB Managers check dated May 29, 1971 for
P7,000 in favor of defendant. The authenticity of the check and his
receipt of the proceeds thereof were admitted by the defendant
(t.s.n., pp. 3-4, Nov. 29, 1972). This P7,000 is part consideration,
and in cash, of the P20,000 promissory note (t.s.n., p. 25, Nov. 29,
1972), and it is being presented to show the consideration for the
P20,000 note and the existence and validity of the obligation.
x x x
"L Book entitled Voice of the Veterans which is being offered for
the purpose of showing the subject matter of the other partnership
agreement and in which plaintiff invested the P6,000 (Exhibit E)
which, together with the promised profit of P8,000 made up for the
consideration of the P14,000 promissory note (Exhibit 2; Exhibit P).
As explained in connection with Exhibit E, the P3,000 balance of the
promised profit was later made part consideration of the P20,000
promissory note.
"M Promissory note for P7,000 dated March 30, 1971. This is also
defendants Exhibit E. This document is being offered for the
purpose of further showing the transaction as explained in
connection with Exhibits E and L.
"N Receipt of plaintiff dated March 30, 1971 for the return of his
P3,000 out of his capital investment of P6,000 (Exh. E) in the
P14,000 promissory note (Exh. 2; P). This is also defendants Exhibit
4. This document is being offered in support of plaintiffs explanation
in connection with Exhibits E, L, and M to show the transaction
mentioned therein.
x x x Managers check. I show you Exhibit E, is this the Managers check
"P Promissory note for P14,000.00. This is also defendants
Exhibit 2. It is being offered for the purpose of showing the
transaction as explained in connection with Exhibits E, L, M, and N
above."
Explaining the above-quoted exhibits, respondent Pecson testified
that:
"Q During the pre-trial of this case, Mr. Pecson, the defendant
presented a promissory note in the amount of P14,000.00 which has
been marked as Exhibit 2. Do you know this promissory note?
"A Yes, sir.
"Q What is this promissory note, in connection with your transaction
with the defendant?
"A This promissory note is for the printing of the Voice of the
Veterans.
"Q What is this Voice of the Veterans, Mr. Pecson?
"A It is a book."
(T.S.N., p. 19, Nov. 29, 1972)
"Q And what does the amount of P14,000.00 indicated in the
promissory note, Exhibit 2, represent?
"A It represents the P6,000.00 cash which I gave to Mr. Moran, as
evidenced by the Philippine National Bank Managers check and the
P8,000.00 profit assured me by Mr. Moran which I will derive from
the printing of this Voice of the Veterans book.
"Q You said that the P6,000.00 of this P14,000.00 is covered by a
that you mentioned?
"A Yes, sir.
"Q What happened to this promissory note of P14,000.00 which you
said represented P6,000.00 of your investment and P8,000.00
promised profits?
"A Latter, Mr. Moran returned to me P3,000.00 which represented
one-half (1/2) of the P6,000.00 capital I gave to him.
"Q As a consequence of the return by Mr. Moran of one-half (1/2) of
the P6,000.00 capital you gave to him, what happened to the
promised profit of P8,000.00?
"A It was reduced to one-half (1/2) which is P4,000,00.
"Q Was there any document executed by Mr. Moran in connection
with the Balance of P3,000.00 of your capital investment and the
P4,000.00 promised profits?
"A Yes, sir, he executed a promissory note.
"Q I show you a promissory note in the amount of P7,000.00 dated
March 30, 1971 which for purposes of identification I request the
same to be marked as Exhibit M . . .
Court
Mark it as Exhibit M.
"Q (continuing) is this the promissory note which you said was
executed by Mr. Moran in connection with your transaction regarding
the printing of the Voice of the Veterans?
"A Yes, sir.(T.S.N., pp. 20-22, Nov. 29, 1972).
"Q What happened to this promissory note executed by Mr. Moran,
Mr. Pecson?
"A Mr. Moran paid me P4,000.00 out of the P7,000.00 as shown by
the promissory note.
"Q Was there a receipt issued by you covering this payment of
P4,000.00 in favor of Mr. Moran?
"A Yes, sir."
(T.S.N., p. 23, Nov. 29, 1972).
"Q You stated that Mr. Moran paid the amount of P4,000.00 on
account of the P7,000.00 covered by the promissory note, Exhibit M.
What does this P4,000.00 covered by Exhibit N represent?
"A This P4,000.00 represents the P3,000.00 which he has returned
of my P6,000.00 capital investment and the P1,000.00 represents
partial payment of the P4,000.00 profit that was promised to me by
Mr. Moran.
"Q And what happened to the balance of P3,000.00 under the
promissory note, Exhibit M?
"A The balance of P3,000.00 and the rest of the profit was applied as
part of the consideration of the promissory note of P20,000.00."
(T.S.N., pp. 23-24, Nov. 29, 1972).
The respondent court erred when it concluded that the project never
left the ground because the project did take place. Only it failed. It
was the private respondent himself who presented a copy of the
book entitled "Voice of the Veterans" in the lower court as Exhibit
"L." Therefore, it would be error to state that the project never took
place and on this basis decree the return of the private respondents
investment.
As already mentioned, there are risks in any business venture and
the failure of the undertaking cannot entirely be blamed on the
managing partner alone, specially if the latter exercised his best
business judgment, which seems to be true in this case.
In view of the foregoing, there is no reason to pass upon the fourth
and fifth assignments of errors raised by the petitioner. We likewise
find no valid basis for the grant of the counterclaim.
WHEREFORE, the petition is GRANTED. The decision of the
respondent Court of Appeals (now Intermediate Appellate Court) is
hereby SET ASIDE and a new one is rendered ordering the petitioner
Isabelo Moran, Jr., to pay private respondent Mariano Pecson SIX
THOUSAND (P6,000.00) PESOS representing the amount of the
private respondents contribution to the partnership but which
remained unused; and THREE THOUSAND (P3,000.00) PESOS
representing one-half (1/2) of the net profits gained by the
partnership in the sale of the two thousand (2,000) copies of the
posters, with interests at the legal rate on both amounts from the
date the complaint was filed until full payment is made.
SO ORDERED.
 THIRD DIVISION
[G.R. No. 84197. July 28, 1989.]
PIONEER INSURANCE & URETY CORPORATION, Petitioner, v.
THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY
EQUIPMENT, INC., (BORMAHECO), CONSTANCIO M. MAGLANA
and JACOB S. LIM, Respondents.
[G.R. No. 84157. July 28, 1989.]
JACOB S. LIM, Petitioner, v. COURT OF APPEALS, PIONEER
INSURANCE AND SURETY CORPORATION, BORDER
MACHINERY and HEAVY EQUIPMENT CO., INC., FRANCISCO
and MODESTO CERVANTES and CONSTANCIO
MAGLANA, Respondents.
SYLLABUS
1. CIVIL LAW; DAMAGES; INSURANCE; AN INSURER IS
SURROGATED TO THE RIGHTS OF THE INSURED AGAINST THE
WRONGDOER UPON RECEIPT OF THE INDEMNITY. The petitioners
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. Under the provisions of Article
2207 of the Civil Code if a property is insured and the owner
receives the indemnity from the insurer, 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. (PAL v. Heald Lumber Co., 101 Phil. 1031; Manila
Mahogany Manufacturing Corporation v. Court of Appeals, 154 SCRA
650 [1987]
2. REMEDIAL LAW; ACTIONS; PARTIES; ONLY THE REISURER OF
THE INSURER ACTING AS AN ATTORNEY-IN-FACT OF THE
REINSURER CAN COLLECT AGAINST THE INDEMNITY AGREEMENT.
The appellate court did not commit a reversible error in
dismissing the petitioners 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.
3. ID.; EVIDENCE; FINDINGS OF FACT OF THE TRIAL COURT
UPHELD ON APPEAL. We find the trial courts findings on the
matter replete with evidence to substantiate its finding that the
counter-indemnitors are not liable to the petitioner. 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, New Civil Code)
4. CIVIL LAW; CONTRACTS; A DE FACTO PARTNERSHIP IS CREATED
WHERE PERSONS ASSOCIATE THEMSELVES BUT FAILED TO FORM A
CORPORATION. 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).
5. ID.; ID.; ID.; DOCTRINE NOT APPLICABLE WHERE THERE WAS
REALLY NO INVENTION TO FORM A CORPORATION; PARTIES NEED
NOT SHARE IN LOSSES; CASE AT BAR. 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. Applying 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.
DECISION
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 in G.R. No. 84197)
against all defendants (respondents in G.R. No. 84197) was
dismissed but in all other respects the trial courts decision was
affirmed.
The dispositive portion of the trial courts decision reads as follows:
"WHEREFORE, judgment is rendered against defendant Jacob S. Lim
requiring him 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 attorneys fees from July
2, 1966, until full payment is made; plus P70,000.00 moral and
exemplary damages.
"It is found in the records that the cross party plaintiffs incurred
additional miscellaneous expenses aside from P151,000.00, 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 P184,878.74 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 cross-complaints until the amount
is fully paid; plus moral and exemplary damages in the amount of
P50,000.00 for each of the two Cervanteses.
"Furthermore, he is required to pay P20,000.00 to Bormaheco and
the Cervanteses, and another P20,000.00 to Constancio B. Maglana
as attorneys fees.
x x x
"WHEREFORE, in view of all above, the complaint of plaintiff Pioneer
against defendants Bormaheco, the 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 attorneys fees and the amount of P4,379.21, per
year from 1966 with legal rate of interest up to the time it is paid.
"Furthermore, the plaintiff is required to pay Constancio B. Maglana
the amount of P20,000.00 as attorneys 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.
"No damage is decided against Malayan Insurance Company, Inc.,
the third-party 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 counter-claim for or
against anybody is declared by this Court." (Rollo G.R. No. 24197,
pp. 15-16)
In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in
the airline business as owner-operator of Southern Air Lines (SAL) a
single proprietorship.
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) DC-3A 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.
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.
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.
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 latters 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 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.
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 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.
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 Pioneers complaint against all other
defendants.
As stated earlier, the appellate court modified the trial courts
decision in that the plaintiffs complaint against all the defendants
was dismissed. In all other respects the trial courts 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 TO RECOVER THE AMOUNT
FROM HEREIN PRIVATE RESPONDENTS AS DEFENDANTS IN THE
TRIAL COURT. (Rollo G.R. No. 84197, p. 10)
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.
"Plaintiff Pioneers 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 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.
Germana, 1 NW 2d 424; Weber v. City of Cheye, 97 P. 2d 667, 669,
quoting 47 C.V. 35).
"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 Lims 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)." (Rollo-84197, pp. 24-25).
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.
The records belie the petitioners contention that the issue on the
reinsurance money was never raised by the parties.
A cursory reading of the trial courts lengthy decision shows that two
of the issues threshed out were:
x x x is disclosed in the complaint.
"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).
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 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.
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
"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 the party
who would be benefited or injured by the judgment or is the party
entitled to the avails of the suit.
"This Court has held in various cases that an attorney-in-fact is not
a real party in interest, that there is no law permitting an action to
be brought by an attorney-in-fact. Arroyo v. Granada and Gentero,
18 Phil. Rep. 484; Luchauco v. Limjuco and Gonzalo, 19 Phil. Rep.
12; Filipinas Industrial Corporation v. San Diego G.R. No. L-22347,
1968, 23 SCRA 706, 710-714."
"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. 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 petitioners 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.
"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:
"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."
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]):
"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).
It is clear from the records that Pioneer sued in its own name and
not as an attorney-in-fact of the reinsurer.
Accordingly, the appellate court did not commit a reversible error in
dismissing the petitioners 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 courts 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:
"Apart from the foregoing proposition, the indemnity agreement
ceased to be valid and effective after the execution of the chattel
mortgage.
"Testimonies of defendants Francisco Cervantes and Modesto
Cervantes.
"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:
"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."
"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.
"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.
Independently of the preceding proposition Pioneers 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.
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.
The operation of the foregoing provision cannot be escaped from
through the contention that Pioneer 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. L-27862, 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, extinguished the original obligations
thru novations, thus discharging the indemnitors.
"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 . . . of each succeeding three months
and the last of which shall be due and payable 26th May 1967."
"However, at the trial of this case, Pioneer produced a memorandum
executed by SAL, or Lim and JDA, modifying the maturity dates of
the obligations, as follows:
"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."
"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).
Pioneers 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 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.
"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 of
time referred to herein, (New Civil Code)."
"Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. Vl, pp. 562-563, M.F.
Stevenson & Co., Ltd., v. Climacom Et. Al. (C.A.) 36 O.G. 1571.
"Pioneers 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 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.
"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
reimbursement from his co-debtors if such payment is made after
the obligation has prescribed or became illegal."
"These defendants are entitled to recover damages and attorneys
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. 363-369, Rollo of G.R. No. 84157).
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:
"1. What legal rules govern the relationship among co-investors
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)."
These questions are premised on the petitioners 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 courts findings ordering him to reimburse
certain amounts given by the respondents to the petitioner as their
contributions to the intended corporation, to wit:
"However, defendant Lim should be held liable to pay his co-
defendants cross-claims in the total amount of P184,878.74 as
correctly found by the trial court, with the interest from the filing of
the cross-claims until the amount is fully paid. Defendants 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 P151,000.00 from defendants Bormaheco and Maglana
representing the latters participation in the ownership of the subject
airplanes and spare parts (Exhibit 58). In addition, the cross-party
plaintiffs incurred additional expenses, hence, the total sum of
P184,878.74."
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 a 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 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). (Emphasis supplied).
In the instant case, it is to be noted that the petitioner was declared
non-suited for his failure to appear during the pre-trial 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 airplanes and
spare parts. The record shows that defendant Maglana gave
P75,000.00 to petitioner Jacob Lim thru the Cervanteses.
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 cross-claim:
". . . that sometime in early 1965, Jacob Lim proposed to Francisco
Cervantes and Maglana to expand his airline business. Lim was to
procure two DC-3s 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).
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 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 P178,997.14 as evidenced by a
statement of accounts, the latter ignored, omitted and refused to
comply with them." (Record on Appeal, pp. 341-342).
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.
WHEREFORE, the instant petitions are DISMISSED. The questioned
decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
 FIRST DIVISION
[G.R. No. L-11624. January 21, 1918. ]
E. M. BACHRACH, Plaintiff-Appellee, v. "LA PROTECTORA" ET
AL., Defendants-Appellants.
SYLLABUS
1. PARTNERSHIP; LIABILITY OF MEMBERS FOR DEBTS OF CIVIL
PARTNERSHIP While a member of a civil partnership is not liable
in solidum (solidariamente) with his fellows for its entire
indebtedness, he is liable with them for his aliquot part thereof
(mancomunadamente). (Arts. 1698, 1137, Civ. Code.)
2. ID; AUTHORITY OF MEMBER TO CONTRACT IN BEHALF OF FIRM.
Several members of a civil partnership executed a document
authorizing one of the members to buy two automobile trucks in the
name and representation of the firm. The partner holding this
authority effected the purchase and signed the name of the
partnership to the purchase money notes and added his own name
as an individual, thereby assuming, as to himself, joint and several
liability with the firm. Held: That the partners who emitted the
authority were not liable on the note, as the document in question
contained no authority to bind them personally and in fact the notes
did not purport to do so; but they were liable in their capacity as
partners.
DECISION
STREET, J. :
In the year 1913, the individuals named as defendants in this action
formed a civil partnership, called "La Protectora," for the purpose of
engaging in the business of transporting passenger and freight at
Laoag, Ilocos Norte. In order to provide the enterprise with means of
transportation, Marcelo Barba, acting a manager, came to Manila
and upon June 23, 1913, negotiated the purchase of two automobile
trucks from the plaintiff, E. M. Bachrach, for the agreed price of
P16,500. He paid the sum of 3,000 in cash, and for the balance
executed promissory notes representing the deferred payments.
These notes provided for the payment of interest from June 23,
1913, the date of the notes, at the rate of 10 per cent per annum .
Provision was also made in the notes for the payment of 25 per cent
of the amount due if it should be necessary to place the notes in the
hands of an attorney collection. Three of these notes, for the sum of
P3,375 each, have been made the subject of the present action, and
are exhibited with the complaint in the cause. One was signed by
Marcelo Barba in the following manner:
"P. P. La Protectora
By Marcelo Barba
Marcelo Barba."
The other two notes are signed in the same way with the word "By"
omitted before the name of Marcelo Barba in the second line of the
signature. It is obvious that in thus signing the notes Marcelo Barba
intended to bind both the partnership and himself. In the body of
the note the word "I" (yo) instead of "we" (nosotros) is used before
the words "promise to pay" (prometemos) used in the printed form.
It is plain that the singular pronoun here has all the force of the
plural.
As preliminary to the purchase of these trucks, the defendants
Nicolas Segundo, Antonio Adiarte, Ignacio Flores and Modesto
Serrano, upon June 12, 1913, executed in due form a document in
which they declared that they were members of the firm "La
Protectora" and that they had granted to its president full authority
"in the name and representation of said partnership to contract for
the purchase of two automobiles" (en nombre y representacion de
mencionada sociedad contratante la compra de dos automoviles).
This document was apparently executed in obedience to the
requirements of subsection 2 article 1697 of the Civil Code, for the
purpose of evidencing the authority of Marcelo Barba to bind the
partnership by the purchase. The document in question was
delivered by him to Bachrach at the time the automobiles were
purchased.
From time to time after this purchase was made, Marcelo Barba
purchased of the plaintiff various automobile effects and accessories
to be used in the business of "La Protectora." Upon May 21, 1914,
the indebtedness resulting from these additional purchases
amounted to the sum of P2,916.57
In May, 1914, the plaintiff foreclosed a chattel mortgage which he
had retained on the trucks in order to secure the purchase price. The
amount realized from this sale was P1,000. This was credited upon
the notes, but a considerable sum still remained unpaid. To recover
this balance, together with the sum due for the additional purchases,
the present action was instituted in the Court of First Instance of the
city of Manila, upon May 29, 1914, against "La Protectora" and the
five individuals Marcelo Barba, Nicolas Segundo, Antonio Adiarte,
Ignacio Flores, and Modesto Serrano. No question has been made as
to the propriety of impleading "La Protectora" as if it were a legal
entity. At the hearing, judgment was rendered against all of the
defendant. From this judgment no appeal was taken in behalf either
of "La Protectora" or Marcelo Barba; and their liability is not here
under consideration. The four individuals who signed the document
to which reference has been made, authorizing Barba to purchase
the two trucks have, however, appealed and assigned errors. The
question here to be determined is whether or not these individuals
are liable for the firm debts and if so to what extent.
The amount of the indebtedness owing to the plaintiff is not dispute,
as the principal of the debt is agreed to be P7,037. Of this amount it
must now be assumed, in view of the finding of the trial court, from
which no appeal has been taken by the plaintiff, that the unpaid
balance of the notes amount to P4,121 while the remainer (P2,916)
represents the amount due for automobile supplies and accessories.
The business conducted under the name of "La Protectora" was
evidently that of a civil partnership; and the liability of the partners
to this association must be determined under the provisions of the
Civil Code. The authority of Marcelo Barba to bind the partnership, in
the purchase of the trucks, is fully established by the document
executed by the four appellants upon June 12, 1913. The
transactions by which Barba secured these trucks was in conformity
with the tenor of this document. The promissory notes constitute the
obligation exclusively of "La Protectora" and of Marcelo Barba; and
they do not in any sense constitute an obligation directly binding on
the four appellants. Their liability is based on the fact that they are
members of the civil partnership and as such are liable for its debts.
It is true that article 1698 of the Civil Code declares that a member
of a civil partnership is not liable in solidum (solidariamente) with his
fellow for its entire indebtedness; but it results from this article, in
connection with article 1137 of the Civil Code, that each is liable
with the others (mancomunadamente) for his aliquot part of such
indebtedness. And so it has been held by this court. (Co-Pitco v.
Yulo, 8 Phil. Rep., 544.)
The Court of First Instance seems to have founded its judgment
against the appellants in part upon the idea that the document
executed by them constituted an authority for Marcelo Barba to bind
them personally, as contemplated in the second clause of article
1698 of the Civil Code. That clause says that no member of the
partnership can bind the others by a personal act if they have not
given him authority to do so. We think that the document referred to
was intended merely as an authority to enable Barba to bind the
partnership and that the parties to that instrument did not intend
thereby to confer upon Barba an authority to bind them personally.
It is obvious that the contract which Barba in fact executed in
pursuance of that authority did not by its terms profess to bind the
appellants personally at all, but only the partnership and himself. It
follows that the four appellants cannot be held to have been
personally obligated by that instrument; but, to have already seen,
their liability rests upon the general principles underlying partnership
liability.
As to so much of the indebtedness as is based upon the claim for
automobiles supplies and accessories, it is obvious that the
document of June 12, 1913, affords no authority for holding the
appellants liable. Their liability upon this account is, however, no
less obvious than upon the debt incurred by the purchase of the
trucks; and such liability is derived from the fact that the debt was
lawfully incurred in the prosecution of the partnership enterprise.

There is not proof in the record showing what agreement, if any,

was made with regard to the form of management. Under these
circumstances it is declared in article 1695 of the Civil Code that all
the partners are considered agents of the partnership. Barba
therefore must be held to have had authority to incur these
expense. But in addition to this he is shown to have been in fact the
president or manager, and there can be no doubt that he had actual
authority to incur this obligation.

From what has been said it results that the appellants are severally
liable for their respective shares of the entire indebtedness found to
be due; and the Court of First Instance committed no error in giving
judgment against them. The amount for which judgment should be
entered is P7,037, to which shall be added (1) interest at 10 per
cent per annum from June 23, 1913, to be calculated upon the sum
of P4.121; (2) interest at 6 per cent per annum from July 21, 1915,
to be calculated upon the sum of P2,961; (3) the further sum of
P1,030.25, this being the amount stipulated to be paid by way of
attorneys fees. However, it should be noted that any property
pertaining to "La Protectora" should first be applied to this
indebtedness pursuant to the judgment already entered in this case
in the court below; and each of the four appellants shall be liable
only for the one-fifth part of the remainder unpaid.

Let judgment be entered accordingly, without any express finding of

costs of this instance. So ordered.
 FIRST DIVISION
[G.R. No. L-5840. September 17, 1910. ]
THE UNITED STATES, Plaintiff-Appellee, v. EUSEBIO
CLARIN, Defendant-Appellant.
SYLLABUS
1. PARTNERSHIP; ACT NOT CONSTITUTING "ESTAFA." The failure
on the part of the industrial partners to return to the capitalist
partner the capital brought into the partnership by the latter is not
an act constituting the crime of estafa, as defined in No. 5 of article
535 of the Penal Code.
DECISION
ARELLANO, C.J. :
Pedro Larin delivered to Pedro Tarug P172, in order that the latter,
in company with Eusebio Clarin and Carlos de Guzman, might buy
and sell mangoes, and, believing that he could make some money in
this business, the said Larin made an agreement with the three men
by which the profits were to be divided equally between him and
them.
Pedro Tarug, Eusebio Clarin, and Carlos de Guzman did in fact trade
in mangoes and obtained P203 from the business, but did not
comply with the terms of the contract by delivering to Larin his half
of the profits; neither did they render him any account of the
capital.
Larin charged them with the crime of estafa, but the provincial fiscal
filed an information only against Eusebio Clarin in which he accused
him of appropriating to himself not only the P172 but also the share
of the profits that belonged to Larin, amounting to P15.50.
Pedro Tarug and Carlos de Guzman appeared in the case as
witnesses and assumed that the facts presented concerned the
defendant and themselves together.
The trial court, that of First Instance of Pampanga, sentenced the
defendant, Eusebio Clarin, to six months arresto mayor, to suffer
the accessory penalties, and to return to Pedro Larin P172, besides
P30.50 as his share of the profits, or to subsidiary imprisonment in
case of insolvency, and to pay the costs. The defendant appealed,
and in deciding his appeal we arrive at the following conclusions:
When two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of
dividing the profits among themselves, a contract is formed which is
called partnership. (Art. 1665, Civil Code.)
When Larin put the P172 into the partnership which he formed with
Tarug, Clarin, and Guzman, he invested his capital in the risks or
benefits of the business of the purchase and sale of mangoes, and,
even though he had reserved the capital and conveyed only the
usufruct of his money, it would not devolve upon one of his three
partners to return his capital to him, but upon the partnership of
which he himself formed part, if it were to be done by one of the
three specifically, it would be Tarug, who, according to the evidence,
was the person who received the money directly from Larin.
The P172 having been received by the partnership, the business
commenced and profits accrued, the action that lies with the partner
who furnished the capital for the recovery of his money is not a
criminal action for estafa, but a civil one arising from the partnership
contract for a liquidation of the partnership and a levy on its assets
if there should be any.
No. 5 of article 535 of the Penal Code, according to which those are
guilty of estafa "who, to the prejudice of another, shall appropriate
or misapply any money, goods, or any kind of personal property
which they may have received as a deposit on commission for
administration or in any other producing the obligation to deliver or
return the same," (as, for example, in commodatum, precarium, and
other unilateral contracts which require the return of the same thing
received) does not include money received for a partnership;
otherwise the result would be that, if the partnership, instead of
obtaining profits, suffered losses, as it could not be held liable civilly
for the share of the capitalist partner who reserved the ownership of
the money brought in by him, it would have to answer to the charge
of estafa, for which it would be sufficient to argue that the
partnership had received the money under obligation to return it.

We therefore freely acquit Eusebio Clarin, with the costs de oficio.

The complaint for estafa is dismissed without prejudice to the
institution of a civil action.
 EN BANC
[G.R. No. 45624. April 25, 1939.]
GEORGE LITTON, Petitioner-Appellant, v. HILL & CERON, ET
AL., Respondents-Appellees.
SYLLABUS
1. COMMERCIAL LAW; DISSOLUTION OF A COMMERCIAL
ASSOCIATION; EFFECT UPON A THIRD PERSON. Under article 226
of the Code of Commerce, the dissolution of a commercial
association shall not cause any prejudice to third parties until it has
been recorded in the commercial registry. The Supreme Court of
Spain held that the dissolution of a partnership by the will of the
partners which is not registered in the commercial registry, does not
prejudice third persons.
2. ID.; ID.; RIGHT OF THIRD PERSON TO PRESUME THAT PARTNER
WITH WHOM HE CONTRACTS HAS CONSENT OF COPARTNER. The
stipulation in the articles of partnership that any of the two
managing partners may contract and sign in the name of the
partnership with the consent of the other, undoubtedly creates an
obligation between the two partners, which consists in asking the
others consent before contracting for the partnership. This
obligation of course is not imposed upon a third person who
contracts with the partnership. Neither is it necessary for the third
person to ascertain if the managing partner with whom he contracts
has previously obtained the consent of the other. A third person may
and has a right to presume that the partner with whom he contracts
has, in the ordinary and natural course of business, the consent of
his copartner; for otherwise he would not enter into the contract.
The third person would naturally not presume that the partner with
whom he enters into the transaction is violating the articles of
partnership but, on the contrary, is acting in accordance therewith.
And this finds support in the legal presumption that the ordinary
course of business has been followed (No. 18, section 334, Code of
Civil Procedure), and that the law has been obeyed (No. 31, section
334). This last presumption is equally applicable to contracts which
have the force of law between the parties. Unless the contrary is
shown, namely, that one of the partners did not consent to his
copartner entering into a contract with a third person, and that the
latter with knowledge thereof entered into said contract, the
aforesaid presumption with all its force and legal effects should be
taken into account. There is nothing in the case at bar which
destroys this presumption.
3. ID.; PROHIBITION AGAINST BROKERS TO BUY AND SELL SHARES
ON THEIR OWN ACCOUNT. The order of the Bureau of Commerce
of December 7, 1933, prohibits brokers from buying and selling
shares on their own account. The second paragraph of the articles of
partnership of Hill & Ceron reads in part: "Second: That the purpose
or object for which this copartnership is organized is to engage in
the business of brokerage in general, such as stock and bond
brokers, real brokers, investment security brokers, shipping brokers,
and other activities pertaining to the business of brokers in general."
The kind of business in which the partnership Hill & Ceron is to
engage being thus determined, none of the two partners, under
article 130 of the Code of Commerce, may legally engage in the
business of brokerage in general as stock brokers, security brokers
and other activities pertaining to the business of the partnership. C.
therefore, could not have entered into the contract of sale of shares
with L as a private individual, but as a managing partner of Hill &
Ceron.
4. ID.; CONTRACT WITH THIRD PERSON IN GOOD FAITH AGAINST
THE WILL OF ONE OF MANAGING PARTNERS. Under article 130 of
the Code of Commerce, when, not only without the consent but
against the will of any of the managing partners, a contract is
entered into with a third person who acts in good faith, and the
transaction is of the kind of business in which the partnership is
engaged, as in the present case, said contract shall not be annulled,
without prejudice to the liability of the guilty partner. The reason or
purpose behind these legal provisions is no other than to protect a
third person who contracts with one of the managing partners of the
partnership, thus avoiding fraud and deceit to which he may easily
fall a victim without this protection which the Code of Commerce
wisely provides.
DECISION
CONCEPCION, J.:
This is a petition to review on certiorari the decision of the Court of
Appeals in a case originating from the Court of First Instance of
Manila wherein the herein petitioner George Litton was the plaintiff
and the respondents Hill & Ceron, Robert Hill Carlos Ceron and
Visayan Surety Insurance Corporation were defendants. The facts
are as follows: On February 14, 1934, the plaintiff sold and delivered
to Carlos Ceron, who is one of the managing partners of Hill &
Ceron, a certain number of mining claims, and by virtue of said
transaction, the defendant Carlos Ceron delivered to the plaintiff a
document reading as follows:
"Feb. 14, 1934
"Received from Mr. George Litton share certificates Nos. 4428, 4429
and 6699 for 5,000, 5,000 and 7,000 shares respectively total
17,000 shares of Big Wedge Mining Company, which we have sold at
P0.11 (eleven centavos) per share or P1,870.00 less 1/2 per cent
brokerage.
"HILL & CERON
"By: (Sgd.) CARLOS CERON"
Ceron paid to the plaintiff the sum of P1,150 leaving an unpaid
balance of P720, and unable to collect this sum either from Hill &
Ceron or from its surety Visayan Surety & Insurance Corporation,
Litton filed a complaint in the Court of First Instance of Manila
against the said defendants for the recovery of the said balance. The
court, after trial, ordered Carlos Ceron personally to pay the amount
claimed and absolved the partnership Hill & Ceron, Robert Hill and
the Visayan Surety & Insurance Corporation. On appeal to the Court
of Appeals, the latter affirmed the decision of the court on May 29,
1937, having reached the conclusion that Ceron did not intend to
represent and did not act for the firm Hill & Ceron in the transaction
involved in this litigation.
Accepting, as we cannot but accept, the conclusion arrived at by the
Court of Appeals as to the question of fact just mentioned, namely,
that Ceron individually entered into the transaction with the plaintiff,
but in view, however, of certain undisputed facts and of certain
regulations and provisions of the Code of Commerce, we reach the
conclusion that the transaction made by Ceron with the plaintiff
should be understood in law as effected by Hill & Ceron and binding
upon it.
In the first place, it is an admitted fact by Robert Hill when he
testified at the trial that he and Ceron, during the partnership, bad
the same power to buy and sell; that in said partnership Hill as well
as Ceron made the transaction as partners in equal parts; that on
the date of the transaction, February 14, 1934, the partnership
between Hill and Ceron was in existence. After this date, or on
February 19th, Hill & Ceron sold shares of the Big Wedge; and when
the transaction was entered into with Litton, it was neither published
in the newspapers nor stated in the commercial registry that the
partnership Hill & Ceron had been dissolved.
Hill testified that a few days before February 14th he had a
conversation with the plaintiff in the course of which he-advised the
latter not to deliver shares for sale or on commission to Ceron
because the partnership was about to be dissolved; but what
importance can be attached to said advice if the partnership was not
in fact dissolved on February 14th, the date when the transaction
with Ceron took place?
Under article 226 of the Code of Commerce, the dissolution of a
commercial association shall not cause any prejudice to third parties
until it has been recorded in the commercial registry. (See also
Cardell v. Maeru, 14 Phil., 368.) The Supreme Court of Spain held
that the dissolution of a partnership by the will of the partners which
is not registered in the commercial registry, does not prejudice third
persons. (Opinion of March 23,1885.)
Aside from the aforecited legal provisions, the order of the Bureau of
Commerce of December 7, 1933, prohibits brokers from buying and
selling shares on their own account. Said order reads:
"The stock and/or bond broker is, therefore, merely an agent or an
intermediary, and as such, shall not be allowed . . .
"(c) To buy or to sell shares of stock or bonds on his own account for
purposes of speculation and/or for manipulating the market,
irrespective of whether the purchase or sale is made from or to a
private individual, broker or brokerage firm."
In its decision the Court of Appeals states:
"But there is stronger objection to the plaintiffs attempt to make the
firm responsible to him. According to the articles of copartnership of
Hill & Ceron, filed in the Bureau of Commerce:
"Sixth. That the management of the business affairs of the
copartnership shall be entrusted to both copartners who shall jointly
administered the business affairs, transactions and activities of the
copartnership, shall jointly open a current account or any other kind
of account in any bank or banks, shall jointly sign all checks for the
withdrawal of funds and shall jointly or singly sign, in the latter case,
with the consent of the other partner. . ."
"Under this stipulation, a written contract of the firm can only be
signed by one of the partners if the other partner consented.
Without the consent of one partner, the other cannot bind the firm
by a written contract. Now, assuming for the moment that Ceron
attempted to represent the firm in this contract with the plaintiff
(the plaintiff conceded that the firm name was not mentioned at that
time), the latter has failed to prove that Hill had consented to such
contract."
It follows from the sixth paragraph of the article of partnership of
Hill & Ceron above quoted that the management of the business of
the partnership has been entrusted to both partners thereof, but we
dissent from the view of the Court of Appeals that for one of the
partners to bind the partnership the consent of the other is
necessary. Third persons, like the plaintiff, are not bound in entering
into a contract with any of the two partners, to ascertain made has
the consent of the partner. The public need to make inquiries as to
the agreements had between the partners. Its knowledge is enough
that it is contracting with the partnership which is represented by
one of the managing partners.
"There is a general presumption that each individual partner is an
authorized agent for the firm and that he has authority to bind the
firm in carrying on the partnership transactions." (Mills v. Riggle,
112 Pac., 617.)
"The presumption is sufficient to permit third persons to hold the
firm liable on transactions entered into by one of members of the
firm acting apparently in its behalf and within the scope of his
authority." (Le Roy v. Johnson, 7 U. S. [Law. ed. ], 391.)
The second paragraph of the articles of partnership of Hill & Ceron
reads in part:
"Second: That the purpose or object for which this copartnership is
organized is to engage in the business of brokerage in general, such
as stock and bond brokers, real brokers, investment security
brokers, shipping brokers, and other activities pertaining to the
business of brokers in general."
The kind of business in which the partnership Hill & Ceron is to
engage being thus determined, none of the two partners, under
article 130 of the Code of Commerce, may legally engage in the
business of broKerage in general as stock brokers, security brokers
and other activities pertaining to the business of the partnership.
Ceron, therefore, could not have entered into the contract of sale of
shares with Litton as a private individual, but as a managing partner
of Hill & Ceron.
The respondent argues in its brief that even admitting that one of
the partners could not, in his individual capacity, engage in a
transaction similar to that in which the partnership is engaged
without binding the latter, nevertheless there is no law which
prohibits a partner in the stock brokerage business for engaging in
other transactions different from those of the partnership, as it
happens in the present case, because the transaction made by
Ceron is a mere personal loan, and this argument, so it is said, is
corroborated by the Court of Appeals. We do not find this alleged
corroboration because the only finding of fact made by the Court of
Appeals is to the effect that the transaction made by Ceron with the
plaintiff was in his individual capacity.
The appealed decision is reversed and the defendants are ordered to
pay to the plaintiff, jointly and severally, the sum of P720, with legal
interest, from the date of the filing of the complaint, minus the
commission of one-half per cent (%) from the original price of
P1,870, with the costs to the respondents. So ordered.
Avancea, C.J., Villa-Real, Imperial, Diaz, Laurel and Moran, JJ.,
concur.
RESOLUTION
July 13, 1939 - CONCEPCION, J.:
A motion has been presented in this case by Robert Hill, one of the
defendants sentenced in our decision to pay to the plaintiff the
amount claimed in his complaint. It is asked that we reconsider our
decision, the said defendant insisting that the appellant had not
established that Carlos Ceron, another of the defendants, had the
consent of his copartner, the movant, to enter with the appellant
into the contract whose breach gave rise to the complaint. It is
argued that, it being stipulated in the articles of partnership that Hill
and Ceron, only partners of the firm Hill & Ceron, would, as
managers, have the management of the business of the partnership,
and that either may contract and sign for the partnership ,with the
consent of the other; the articles of partnership having been, so it is
said, recorded in the commercial registry, the appellant could not
ignore the fact that the consent of the movant was necessary for the
validity of the contract which he had with the other partner and
defendant, Ceron, and there being no evidence that said consent
had been obtained, the complaint to compel compliance with the
said contract had to be, as it must be in fact, a procedural failure.
Although this question has already been considered and settled in
our decision, we nevertheless take cognizance of the motion in order
to enlarge upon our views on the matter.
The stipulation in the articles of partnership that any of the two
managing partners may contract and sign in the name of the
partnership with the consent of the other, undoubtedly creates an
obligation between the two partners, which consists in asking the
others consent before contracting for the partnership. This
obligation of course is not imposed upon a third person who
contracts with the partnership. Neither is it necessary for the third
person to ascertain if the managing partner with whom he contracts
has previously obtained the consent of the other. A third person may
and has a right to presume that the partner with whom he contracts
has, in the ordinary and natural course of business, the consent of
his copartner; for otherwise he would not enter into the contract.
The third person would naturally not presume that the partner with
whom he enters into the transaction is violating the articles of
partnership but, on the contrary, is acting in accordance therewith.
And this finds support in the legal presumption that the ordinary
course of business has been followed (No. 18, section 334, Code of
Civil Procedure), and that the law has been obeyed (No. 31, section
334). This last presumption is equally applicable to contracts which
have the force of law between the parties.
Wherefore, unless the contrary is shown, namely, that one of the
partners did not consent to his copartner entering into a contract
with a third person, and that the latter with knowledge thereof
entered into said contract, the aforesaid presumption with all its
force and legal effects should be taken into account.
There is nothing in the case at bar which destroys this presumption;
the only thing appearing in the findings of fact of the Court of
Appeals is that the plaintiff "has failed to prove that Hill had
consented to such contract." According to this, it seems that the
Court of Appeals is of the opinion that the two partners should give
their consent to the contract and that the plaintiff should prove it.
The clause of the articles of partnership should not be thus
understood, for it means that one of the two partners should have
the consent of the other to contract for the partnership, which is
different; because it is possible that one of the partners may not see
any prospect in a transaction, but he may nevertheless consent to
the realization thereof by his copartner in reliance upon his skill and
ability or otherwise. And here we have to hold once again that it is
not the plaintiff who, under the articles of partnership, should obtain
and prove the consent of Hill, but the latters partner, Ceron, should
he file a complaint against the partnership for compliance with the
contract; but in the present case, it is a third person, the plaintiff,
who asks for it. While the said presumption stands, the plaintiff has
nothing to prove.
Passing now to another aspect of the case, had Ceron in any way
stated to the appellant at the time of the execution of the contract,
or if it could be inferred by his conduct, that he had the consent of
Hill, and should it turn out later that he did not have such consent,
this alone would not annul the contract judging from the provisions
of article 130 of the Code of Commerce reading as follows:
"No new obligation shall be contracted against the will of one of the
managing partners, should he have expressly stated it; but if,
however, it should be contracted it shall not be annulled for this
reason, and shall have its effects without prejudice to the liability of
the partner or partners who contracted it to reimburse the firm for
any loss occasioned by reason thereof." (Emphasis ours.)
Under the aforequoted provisions, when, not only without the
consent but against the will of any of the managing partners, a
contract is entered into with a third person who acts in good faith,
and the transaction is of the kind of business in which the
partnership is engaged, as in the present case, said contract shall
not be annulled, without prejudice to the liability of the guilty
partner.
The reason or purpose behind these legal provisions is no other than
to protect a third person who contracts with one of the managing
partners of the partnership, thus avoiding fraud and deceit to which
he may easily fall a victim without this protection which the Code of
Commerce wisely provides.
If we are to interpret the articles of partnership in question by
holding that it is the obligation of the third person to inquire whether
the managing copartner of the one with whom he contracts has
given his consent to said contract, which is practically casting upon
him the obligation to get such consent, this interpretation would, in
similar cases, separate to hinder effectively the transactions, a thing
not desirable and contrary to the nature of business which requires
promptness and dispatch on the basis of good faith and honesty
which are always presumed.
In view of the foregoing, and sustaining the other views expressed
in the decision, the motion is denied. So ordered.
 SECOND DIVISION
[G.R. No. 22442. August 1, 1924. ]
ANTONIO PARDO, Petitioner, v. THE HERCULES LUMBER CO.,
INC., and IGNACIO FERRER, Respondents.
SYLLABUS
1. CORPORATIONS; STOCKHOLDERS RIGHT TO INSPECT RECORDS;
UNREASONABLE RESTRICTION BY DIRECTORS ON RIGHT OF
INSPECTION. A resolution of the board of directors of a
corporation limiting the right of stockholders to inspect its records to
a period of ten days shortly prior to the annual stockholders
meeting is an unreasonable restriction on the right of inspection may
be exercised at reasonable hours on business days throughout the
year, and not merely during an arbitrary period of a few days chosen
by the directors.
DECISION
STREET, J. :
The petitioner, Antonio Pardo ,a stockholder in the Hercules Lumber
Company, Inc., one of the respondents herein, seeks by this original
proceeding in the Supreme Court to obtain a writ of mandamus to
compel the respondents to permit the plaintiff and his duly
authorized agent and representative to examine the records and
business transactions of said company. To this petition the
respondents interposed an answer, in which, after admitting certain
allegations of the petition, the respondents set forth the facts upon
which they mainly rely as a defense to the petition. To this answer
the petitioner in turn interposed a demurrer, and the cause is now
before us for determination of the issue thus presented.
It is inferentially, if not directly admitted that the petitioner is in fact
a stockholder in the Hercules Lumber Company, Inc., and that the
respondent, Ignacio Ferrer, as acting secretary of the said company,
has refused to permit the petitioner or his agent to inspect the
records and business transactions of the said Hercules Lumber
Company, Inc., at times desired by the petitioner. No serious
question is of course made as to the right of the petitioner, by
himself or proper representative, to exercise the right of inspection
conferred by section 51 of Act No. 1459. Said provision was under
the consideration of this court in the case of Philpotts v. Philippine
Manufacturing Co. and Berry (40 Phil., 471), where we held that the
right of examination there conceded to the stockholder may be
exercised either by a stockholder in person or by any duly
authorized agent or representative.
The main ground upon which the defense appears to be rested has
reference to the time, or times, within which the right of inspection
may be exercised. In this connection the answer asserts that in
article 10 of the By-laws of the respondent corporation its is
declared that "Every shareholder may examine the books of the
company and other documents pertaining to the same upon the
days which the board of directors shall annually fix." It is further
averred that at the directors meeting of the respondent corporation
held on February 16, 1924, the board passed a resolution to the
following effect:
"The board also resolved to call the usual general (meeting of
shareholders) for March 30 of the present year, with notice to the
shareholders that the books of the company are at their disposition
from the 15th to 25th of the same month for examination, in
appropriate hours."
The contention for the respondent is that this resolution of the board
constitutes a lawful restriction on the right conferred by statute; and
it is insisted that as the petitioner has not availed himself of the
permission to inspect the books and transactions of the company
within the ten days thus defined, his right to inspection and
examination is lost, at least for this year.
We are entirely unable to concur in this contention. The general right
given by the statute may not be lawfully abridged to the extent
attempted in this resolution. It may be admitted that the officials in demurrer is, therefore, sustained; and the writ of mandamus will
charge of a corporation may deny inspection when sought at unusual issue as prayed, with costs against the respondents. So ordered.
hours or under other improper conditions; but neither the executive
officers nor the board of directors have the power to deprive a
stockholder of the right altogether. A by-law unduly restricting the
right of inspection is undoubtedly invalid. Authorities to this effect
are too numerous and direct to require extended comment. (14 C.J.,
859; 7 R.C.L., 325; 4 Thompson on Corporations, 2d ed., sec. 4517;
Harkness v. Guthrie, 27 Utah, 248; 107 Am. St., Rep., 664, 681.)
Under a statute similar to our own it has been held that the
statutory right of inspection is not affected by the adoption by the
board of directors of a resolution providing for the closing of transfer
books thirty days before an election. (State v. St. Louis Railroad Co.,
29 Mo. Ap., 301.)

It will be noted that our statute declares that the right of inspection
can be exercised "at reasonable hours." This means at reasonable
hours on business days throughout the year, and not merely during
some arbitrary period of a few days chosen by the directors.

In addition to relying upon the by-law, to which reference is above

made, the answer of the respondents calls in question the motive
which is supposed to prompt the petitioner to make inspection; and
in this connection it is alleged that the information which the
petitioner seeks is desired for ulterior purposes in connection with a
competitive firm with which the petitioner is alleged to be
connected. It is also insisted that one of the purposes of the
petitioner is to obtain evidence preparatory to the institution of an
action which he means to bring against the corporation by reason of
a contract of employment which once existed between the
corporation and himself. These suggestions are entirely apart from
the issue, as, generally speaking, the motive of the shareholder
exercising the right is immaterial (7 R.C.L., 327.)

We are of the opinion that, upon the allegations of the petition and
the admissions of the answer, the petitioner is entitled to relief. The
 SECOND DIVISION
[G.R. No. L-40098. August 29, 1975.]
ANTONIO LIM TANHU, DY OCHAY, ALFONSO LEONARDO NG
SUA and CO OYO, Petitioners, v. HON. JOSE R. RAMOLETE, as
Presiding Judge, Branch III, CFI, Cebu and TAN PUT,
Respondents.
SYNOPSIS
Plaintiff sued the spouses Lim Tanhu and Dy Ochay. Later, she
amended the complaint to include as defendants Lim Teck Chuan,
the spouses Alfonso Ng Sua and Co Oyo, and their son Eng Chong
Leonardo. Claiming to be the widow of Po Chuan, a partner in the
Glory Commercial Co., plaintiff charged the six defendants with
having conspired in misappropriating for their own benefits the
profits and assets of said partnership. In a single answer with
counterclaim, defendants denied plaintiffs allegation and claimed
that she was only a common-law wife of the deceased and that she
had already executed a quitclaim.
For failure to appear on the date set for pre-trial, both the Tanhu
and the Ng Sua spouses were all declared in default; and their
motion to lift the default order on the ground that they were not
notified was denied. On October 19, 1974, when plaintiffs first
witness was up for re-cross examination, she moved "to drop" the
case against the non-defaulted defendants, namely, Lim Teck
Chuan, and Eng Chong Leonardo. The motion, which was set for
hearing, 3 days later, or on October 21, was granted by the court.
Simultaneously, the Court in a separate order motu propio deputized
the branch clerk of court to receive on November 20, 1974 plaintiffs
ex parte evidence against the defaulted defendants since the case
against the non-defaulted defendants had already been dismissed.
But the ex-parte reception actually took place on October 28, 1974,
because on that date plaintiff with her witnesses appeared in court
and asked to be allowed to present her evidence, which was
granted.
The non-defaulted defendants motion to reconsider the dismissed
order was denied. On December 20, 1974, the Court rendered
judgment. Thereafter, all the defendants moved to quash the order
of October 28, 1974, but later, without waiting for the trial courts
resolution, the non-defaulted defendants went to the Court of
Appeals on a petition of certiorari, to annul the orders of October 21,
1974, October 28, 1974, and the decision of December 20, 1974.
The Court of Appeals dismissed the petition as being premature, the
motion to quash not having been resolved yet by the trial court.
On the other hand, the defaulted defendants, before the perfection
of their appeal, filed the present petition with this Court, their
counsel manifesting in the court below that they had abandoned
their motion to quash. Hence, the trial court declared the motion to
quash abandoned and that the resolution for execution pending
appeal would be resolved after the certiorari and prohibition petition
shall have been resolved.
The Supreme Court held that the impugned decision is legally
anomalous, predicated as it is on two fatal malactuations of the
respondent court, namely: (1) the dismissal of the complaint against
the non-defaulted defendants; and (2) the ex parte reception of
evidence of the plaintiff by the Clerk of Court, the subsequent using
of the same as basis for its judgment and the rendition of such
judgment. The order of dismissal cannot be sanctioned because (1)
there was no timely notice of the motion therefor to the non-
defaulted defendants, aside from there being no notice at all to the
defaulted defendants; (2) the common answer of defendants,
including the non-defaulted, contained a compulsory counterclaim
incapable of being determined in an independent action; and (3) the
immediate effect of such dismissal was the removal of the two non-
defaulted defendants as parties, and inasmuch as they are both
indispensable parties in the case, the trial court consequently lost
the sine qua non of the exercise of judicial power.
The Supreme Court was faced with a legal pare-dilemma; to annul
the dismissal would prejudice the rights of the non-defaulted
defendants whom the Supreme Court have not heard and who event
plaintiff would not wish to have anything anymore to do with the
case; on the other hand, to include the petitioners (the defaulted
defendants) in the dismissal would naturally set at naught the
efforts of plaintiffs efforts to establish her case thru means
sanctioned by respondent court.
All things considered, the court held that as between the two
possible alternatives, since the situation was brought out by
plaintiffs procedural maneuvers, it would only be fair, equitable and
proper to rule that the order of dismissal of October 21, 1974 is in
law a dismissal of the whole case of the plaintiff, including as to
petitioner (the defaulted defendants). Consequently, all proceedings
held by respondent court subsequent thereto including and
principally its decision of December 20, 1974 were declared illegal
and were set aside.
SYLLABUS
1. CIVIL PROCEDURE RULES OF PROCEDURE MAY NOT BE MISUSED
OR ABUSED AS INSTRUMENTS TO DENY SUBSTANTIAL JUSTICE.
A review of the record of this case immediately discloses that here is
another demonstrative instance of how some members of the bar,
availing of their proficiency in invoking the letter of the rules without
regard to their real spirit and intent, succeed in inducing courts to
act contrary to the dictates of justice and equity, and, in some
instance, to wittingly or unwittingly abet unfair advantage by
ironically camouflaging their actuations as earnest efforts to satisfy
the public clamor for speedy disposition of litigations, forgetting all
the while that the plain injunction of Section 2 of Rule 1 is that the
"rules shall be liberally construed in order to promote their object
and to assist the parties in obtaining" not only speedy but more
imperatively, "just . . . and inexpensive determination of every
action and proceeding."cralaw virtua1aw library
2. ID.; MOTION TO LIFT ORDER OR DEFAULT; WHEN FORMAL
VERIFICATION NOT REQUIRED. Where the motion to lift order of
default, co-signed by the party and her counsel, is over the jurat of
the notary public before whom she took her oath, it is error for the
trial court to hold that "the oath appearing at the bottom of the
motion is not the one contemplated by the rules (Sec. 3. Rule 18),
or to hold that it is not even a verification (Sec. 6, Rule 7). The
rules, as interpreted by the Supreme Court, require a separate
affidavit of merit only in those instances where the motion is not
over the oath of the party concerned, considering that what the
cited provision literally requires is no more than a motion under
oath. Stated otherwise, when a motion to lift an order of default
contains the reason for the failure to answer as well as the facts
constituting the prospective defense of the defendant and it is sworn
to by said defendant, neither a formal verification nor a separate
affidavit of merit is necessary.
3. ID.; MOTION TO LIFT ORDER OF DEFAULT, NOT AN ADMISSION
OF SERVICE OF SUMMONS. It is error for the trial court to hold
that a motion to lift a default order "is an admission that there is a
valid service of summons" and that said motion could not amount to
a challenge against the jurisdiction of the court over the person of
the defendant. Such a rationalization is patently specious and
reveals an evident failure to grasp the import of the legal concepts
involved. A motion to lift an order of default on the ground that
service of summons and is in essence verily an attack against the
jurisdiction of the court over the person of the defendant, no less
than it if were worded in a manner specifically embodying such a
direct challenge.
4. ID.; MOTIONS; THREE DAYS NOTICE REQUIREMENT. Three
days at least must intervene between the date of service of notice
and the date set for the hearing, "otherwise the court may not
validly act on a motion." Thus, where the motion was set for hearing
on Monday, October 21, whereas one counsel was personally served
with notice only on Saturday, October 19, and the other counsel was
notified by registered mail which was posted only that same
Saturday, the notices were held to be short of the three-day
requirement of Section 4, Rule 15.
5. JUDGES; DUTY OF JUDGES TO SEE THAT NO PARTY IS DEPRIVED
OF RIGHT TO BE HEARD. The Supreme Court cannot but express
its vehement condemnation of any judicial actuation that unduly
deprives any party of the right to be heard without clear and specific
warrant under the terms of existing rule or binding jurisprudence.
Extreme care must be the instant reaction of every judge when
confronted with a situation involving risks that the proceedings may
not be fair and square to all parties concerned. Indeed, a keen sense
of fairness, equity and justice that constantly looks for consistency
between the letter of the adjective rules and these basic principles
must be possessed by every judge, if substance is to prevail, as it
must, over from in our courts. Literal observance of the rules, when
it is conducive to unfair and undue advantage on the party of any
litigant before it, is unworthy of any court of justice and equity.
Withal, only those rules of procedure informed with and founded on
public policy deserve obedience in accord with their unequivocal
language or words.
6. CIVIL PROCEDURE; COUNTERCLAIM; NATURE OF COMPULSORY
COUNTERCLAIM. A counterclaim is compulsory if it arises out of
or is necessarily connected with the occurrence that is the subject
matter of the plaintiffs claim (Sec. 4, Rule 9). Thus where plaintiff
alleged that, being the widow of deceased, she is entitled to demand
accounting of and to receive the share of her alleged husband as
partner of defendants and defendant denied the truth of said
allegations, maintaining in their counterclaim that plaintiff knew of
the falsity of said allegations even before she filed the complaint,
she had admitted in a quitclaim her common-law relationship with
deceased and that she had already quitclaimed her rights, which
quitclaim was, however, executed, according to respondent herself
in her amended complaint, through fraud, and that having filed the
complaint knowing that the allegations thereof are false and
baseless, she has caused them to suffer damages, it was held that
with such allegations, defendants counterclaim is compulsory, not
only because the same evidence to sustain it will also refute the
cause or causes of action alleged in plaintiffs complaint, but also
because from its very nature, it is obvious that the same cannot
"remain pending for independent adjudication by the court." (Sec. 2,
Rule 17)
7. ID.; ID.; MOTION TO DISMISS; PLAINTIFFS ACTION MAY NOT BE
DISMISSED IF COMPULSORY COUNTERCLAIM IS PLEADED. Rule
17, Sec. 2 provides that "if a counterclaim has been pleaded by a
defendant prior to the service upon him of the plaintiffs motion to
dismiss, the motion shall not be dismissed against the defendants
objection unless the counterclaim can "remain pending for
independent adjudication by the court."cralaw virtua1aw library
8. ID.; PARTIES; MOTION TO DISMISS; ACTION MAY NOT BE
DISMISSED AS REGARD INDISPENSABLE PARTIES. Where
plaintiffs complaint charged the six defendants with having actually
taken part in a conspiracy to misappropriate, conceal and convert to
their own benefit the profits and assets of a partnership to be extend
that they have allegedly organized a corporation with what they had
illegally gotten from the partnership, no judgment finding the
existence of the alleged conspiracy or holding the capital of the
corporation to be the money of the partnership is legally possible
without the presence of all defendants. Hence, it was error for the
court to grant plaintiffs motion to dismiss the case as against the
non-defaulted defendants, since all the defendants, defaulted and
non-defaulted, are indispensable parties.
9. ID.; ID.; ACTIONS; JOINDER OF INDISPENSABLE PARTIES.
Whenever it appears to the court in the course of a proceeding that
an indispensable party has not been joined, it is the duty of the
court to stop the trial and to order the inclusion of such party or the
dismissal of the case. Such an order is unavoidable, for the "general
rule with reference to the making of parties in a civil action requires
the joinder of all necessary parties under any and all conditions, the
presence of those latter being a sine qua non of the existence of
judicial power." It is precisely "when an indispensable party is not
before the court that the action should be dismissed. The absence of
an indispensable party renders all subsequent actuations of the
court null and void, for want of authority to act, not only as to the
absent parties but even as to those present.
10. ID.; ID.; ID.; MISJOINDER OR NON-JOINDER OF PARTIES;
DROPPING OF PARTIES. Rule 3, Sec. 11 does not comprehend
whimsical and irrational dropping or adding of parties in a complaint.
What it really contemplates is erroneous or mistaken non-joinder
and misjoinder of parties. No one is free to join anybody in a
complaint in court only to drop him unceremoniously later at the
pleasure of the plaintiff. The rule presupposes that the original
inclusion had been made in the honest conviction that it was proper
and the subsequent dropping is requested because it has turned out
that such inclusion was a mistake. And this is the reason why the
rule ordains that the dropping be "on such terms as are just" just
to all the other parties.
11. ID.; ID.; ID.; DROPPING THE CASE AGAINST NON-DEFAULTED
DEFENDANTS. In a complaint against six defendants, where after
four of them had been declared in default, for failure to appear at
pre-trial, and at the stage when plaintiffs first witness was up for
cross-examination, plaintiff without any relevant explanation asked
the court to drop the non-defaulted defendants, it was error for the
court over the objection of the non-defaulted defendants to grant
such motion without inquiring for the reasons or directing the
granting of some form of compensation for the trouble undergone by
the defendants in answering the complaint, preparing for or
proceeding partially to trial, hiring counsel and making
corresponding expenses in the premises. The Court should have
considered that the outright dropping of there non-defaulted
defendants over their objection would certainly be unjust not only to
the defaulted defendants who would certainly be unjust not only to
the defaulted defendants who would in consequence, be entirely
defenseless, but also to the non-defaulted defendants themselves
who would naturally correspondingly suffer from the eventual
judgment against their co-defendants. In such case, the court
should pay heed to the mandate that such dropping must be "on
such terms as are just" meaning to all concerned with its legal
and factual effects.
12. LEGAL ETHICS; DUTY OF COUNSEL TO ACT WITH CANDOR.
Those appearing as counsel are admonished that a pleading which is
deceptive and lacking in candor, has no place in any court, much
less in the Supreme Court. Parties and counsel would be well
advised to avoid such attempts to befuddle the issues as invariably
they will be exposed for what they are, certainly unethical and
degrading to the dignity of the law profession. Moreover, almost
always they only betray the inherent weakness of the cause of the
party resorting to them.
13. CIVIL PROCEDURE; DEFAULT SHOULD NOT BE TAKEN FOR
GRANTED. The concept of default as a procedural device should
not be taken for granted as being that a simple expedient of
disallowing the offending party to take part in the proceedings so
that after his adversary shall have presented his evidence, judgment
may be rendered in favor of such opponent, with hardly any chance
of said judgment being reversed or modified.
14. ID.; ID.; JUDGMENT ON DEFAULT SHALL NOT BE DIFFERENT
FROM THAT PRAYED FOR. Rule 18 of the Rules of Court concerned
solely with default resulting from failure of the defendant or
defendants to answer within the reglementary period. Referring to
the simplest form of default, that is, where there is only one
defendant in the action and he fails to answer on time, Section 1 of
the Rule provides that upon "proof of such failure, (the court shall)
declare the defendant in default. Thereupon the court shall proceed
to receive the plaintiffs evidence and render judgment granting him
such relief as the complaint and the facts proven may warrant." This
last claim is clarified by Section 5 which says that "a judgment
entered against a party in default shall not exceed the amount or be
different in kind from that prayed for."cralaw virtua1aw library
15. ID.; ID.; NATURE OF DEFAULT, EXPLAINED. Contrary to the
immediate notion that can be drawn from their language the
provision of Rule 18 on the subject of default are not to be
understood as meaning that default or the failure of the defendant
to answer should be "interpreted as an admission by the said
defendant that the plaintiffs causes of action find support in the law
or that plaintiff is entitled to the relief prayed for." Being declared in
default does not constitute a waiver of rights except that of being
heard and of presenting evidence in trial. In other words, a
defaulted defendant is not actually thrown out of court. While in a
sense it may be said that by defaulting he leaves himself at the
mercy of the court, the rules see to it that any judgment against him
must be in accordance with law. The evidence to support plaintiffs
cause is, of course, presented in his absence, but the Court is not
supposed to admit that which is basically incompetent. Although the
defendant would not be in a position to object, elementary justice
requires that only legal evidence should be considered against him.
If the evidence presented should not be sufficient to justify a
judgment for the plaintiff, the complaint must be dismissed. And if
an unfavorable judgment should be justifiable, it cannot exceed in
amount or be different in kind from what is prayed for in the
complaint.
16. ID.; ID.; ID.; DELEGATING TO CLERKS OF COURTS RECEPTION
OF EVIDENCE IN CASES OF DEFAULT SHOULD BE STOPPED. The
present widespread practice of trial judges of delegating to their
clerks of court the reception of plaintiffs evidence when the
defendant is in default is wrong in principle and orientation. It has
no basis in any rule. When a defendant allows himself to be declared
in default he relies on the faith that the court would take care that
his rights are not unduly prejudiced. He has a right to presume that
the law and the rules will still be observed. The proceedings are held
in his forced absence, and it is but fair that the plaintiff should not
be allowed to take advantage of the situation to win by foul or illegal
means or with inherently incompetent evidence. In such instances,
there is need for more attention from the court, which only the
judge himself can provide. The clerk of court would not be in a
position much less have the authority to act in the premises in the
manner demanded by the rules of fair play and as contemplated in
law, considering this comparatively limited area of discretion and his
presumably inferior preparations for the functions of a judge.
Besides the default of the defendant is no excuse for the court to
renounce the opportunity to closely observe the demeanor and
conduct of the witnesses of the plaintiff, the better to appreciate
their truthfulness and credibility. The Supreme Court therefore
declares as a matter of judicial policy that there being no imperative
reason for judges to do otherwise, the practice should be
discontinued.
17. ID.; ID.; ID.; ENOUGH OPPORTUNITY SHOULD BE LEFT OPEN
FOR POSSIBLE LIFTING OF DEFAULT ORDER. It is preferable as a
matter of practice to leave enough opportunity open for possible
lifting of the order of default before proceeding with the reception of
the plaintiffs evidence and the rendition of the decision. "A
judgment by default may amount to positive and considerable
injustice to the defendant; and the possibility of such serious
consequences necessitates a careful and liberal examination of the
grounds upon which the defendant may seek to set it aside." The
expression in Section 1 of Rule 18 which says that "thereupon the
court shall proceed to receive the plaintiffs evidence, etc., is not to
be taken literally. The gain in time and dispatch should the court
immediately try the case on the very day of or shortly after the
declaration of default is far outweighed by the inconvenience and
complications involved in having to undo everything already done in
the event the defendant should justify his omission to answer on
time.
18. ID.; ID.; ID.; EFFECT WHEN SOME ANSWER AND OTHERS DO
NOT. In all instance where a common cause of action is alleged
against several defendants, some of whom answer and others do
not, the latter to those in default acquire a vested right not only to
own the defense interposed in the answer of their co-defendants not
in default but also to expect a result of the litigation totally common
with them in kind and in amount whether favorable or unfavorable.
The substantive unity of the plaintiffs cause against all defendants is
carried through to its adjective phase as ineluctably demanded by
the homogeneity and indivisibility of justice itself.
19. ID.; ID.; ID.; WHERE A SINGLE CAUSE OF ACTION IS
ASSERTED BY DEFENDANTS, DISMISSAL OF ACTION AS TO NON-
DEFAULTED DEFENDANTS RESULTS IN DISMISSAL ALSO AS TO
DEFAULTED DEFENDANTS. Since the singleness of the cause of
action also inevitably implies that all the defendants are
indispensable parties, the courts power to act is integral and cannot
be split such that it cannot relieve any of them and at the same time
render judgment against the rest. Considering the tenor of Section 4
of Rule 18, it is to be assumed that when any defendant allows
himself to be declared in default knowing that his co-defendant has
already answered he does no trusting in the assurance implicit in the
rule that his default is in essence a mere formality and deprives him
of no more than the right to take part in the trial and that the court
would deem anything done by or for the answering defendant as
done by or for him. The presumption is that otherwise he would not
have seen to it that he would not be in default. Of course, he has to
suffer the consequences of whatever the answering defendant may
do or fail to do, regardless of possible adverse consequences, but if
the complaint has to be dismissed insofar as the answering
defendant is concerned, it becomes his inalienable right that the
same be dismissed also as to him.
20. ID.; ID.; ID.; WHERE ALL DEFENDANTS ARE INDISPENSABLE
PARTIES; DISMISSAL AS TO ANSWERING DEFENDANTS RESULT IN
DISMISSAL AS TO DEFAULTED DEFENDANTS. Where all the
defendants are indispensable parties, for which reason the absence
of any of them in the case would result in the court losing its
competency to act validly, any compromise that the plaintiff might
wish to make with any of them must, as a matter of correct
procedure, have to wait until after the rendition of the judgment, at
which state the plaintiff may then treat the matter for its execution
and the satisfaction of his claim as variably as he might please.
Accordingly, where all defendants are indispensable parties, some of
whom answer and others do not, the dismissal of the complaint
against the answering or non-defaulted defendants should result
also in the dismissal thereof as to the defaulted defendants. And it
does not matter that the dismissal is upon the evidence presented
by the plaintiff or upon the latters mere resistance, for in both
contingencies, the lack of sufficient legal basis must be the cause.
The integrity of the common cause of action against all defendants
and the indispensability of all of them in the proceedings do not
permit any possibility of waiver of the plaintiffs right only as to one
or some of them, without including all of them, and, so, as a rule,
withdraw must be deemed to be confession of weakness as to all.
21. ID.; ID.; FAILURE TO APPEAR AT PRE-TRIAL. Where all
defendants already joined genuine issued with the plaintiff, and four
of such defendants failed to appear at the pre-trial but their absence
could be attributable to the fact that they might not have considered
it necessary anymore to be present since their respective children
with whom they have common cause could take care of their
defenses as well and anything that could be done by them at such
pre-trial could have be done for them by their children, especially
because in the light of the pleadings before the court, the prospects
of a compromise must have appeared to the rather remote, under
such circumstances, to declare them immediately and irrevocably in
default was not an absolute necessity. Practical consideration and
reason of equity should have moved the court to be more
understanding in dealing with the situation. After all, declaring them
in default did not impair their right to a common fate with their
children.
22. ID.; ID.; DEFAULTED DEFENDANT ENTITLED TO NOTICE OF
SUBSTANTIALLY AMENDED PLEADING. Section 9, Rule 13,
provides that even after a defendant has been declared in default,
he shall be entitled to notice of all further proceedings regardless of
whether the order of defaults is set aside or not, and a party in
default who has filed such a motion to set aside must still be served
with all "substantially amended or supplemental pleadings."cralaw
virtua1aw library
23. ID.; ID.; ID.; FORM OF MOTION TO LIFT ORDER OF DEFAULT.
Where issues have already been joined, evidence partially offered
already at the pre-trial and more of it at the actual trial which had
already begun with the first witness of the plaintiff undergoing re-
cross-examination, it would be requiring the obvious to pretend that
there was still need for an oath or a verification as to merits of the
defense of defaulted defendants (who were declared in default not
for failure to answer but for failure to appear at pre-trial), asserted
in their motion to reconsider their default. And where it appears,
moreover, that the defaulted defendants being the parents of the
non-defaulted defendants, must have assumed that their presence
at the pre-trial was superfluous, particularly because the cause of
action against them as well as their own defense are common, under
these circumstances, the form of the motion by which the defaults
was sought to be lifted is secondary and the requirements of Section
8, Rule 18 need not be strictly complied with, unlike in cases of
default of failure to answer. Hence, for purposes of revival of their
right to notice under Section 9 of Rule 13, the defaulted defendants
motion for reconsideration may be considered to be substance
legally adequate regardless of whether or not it was under oath.
24. ID.; ID.; ID.; MOTION TO DROP ANSWERING DEFENDANT FROM
COMPLAINT SUBSTANTIALLY AMENDS COMPLAINT. A motion to
drop non-defaulted defendants from plaintiffs complaint virtually
amends the complaint, and such amendment is substantial, for with
the elimination thereby of said defendants, allegedly solidarily liable
with their codefendants, it had the effect of increasing
proportionately that which each of the remaining defendants, would
have to answer for jointly and severally. Accordingly, notice to the
defaulted defendants of plaintiffs motion is legally indispensable
under Rule 13, Sec. 9. Consequently, the court had no authority to
act on the motion to dismiss, without the requisite three-day notice,
pursuant to Sec. 6, Rule 15, for the Rules of Court clearly provide
that no motion shall be acted upon by the Court without the proof of
service of notice thereof, together with a copy of the motion and
other papers accompanying it, to all parties concerned at least three
days before the hearing thereof, stating the time and place for the
hearing of the motion (Rule 26, Section 4, 5 and 6, Rules of Court,
Now Sec. 15, New Rules). When the motion does not comply with
this requirement, it is not a motion. It presents no question which
the court could decide. And the court acquires no jurisdiction to
consider it.
25. CERTIORARI; WHERE APPEAL IS NOT AN ADEQUATE REMEDY;
CERTIORARI MAYBE RESORTED TO. The essential purpose
of certiorari is to keep the proceedings in lower judicial courts and
tribunals within legal bounds, so that due process and the rule of law
may prevail at all time and arbitrariness, whimsicality and unfairness
which justice abhors may immediately be stamped out before graver
injury, juridical and otherwise, ensues. While generally those
objectives may well be attained in an ordinary appeal, it is
undoubtedly the better rule to allow the special remedy
of certiorari at the option of the party adversely affected, when the
irregularity committed by the trial court is so grave and so far
reaching in its consequences that the long and cumbersome
procedure of appeal will only further aggravate the situation of the
aggrieved party because other untoward actuations are likely to
materialize as natural consequences of those already perpetrated.
Otherwise, certiorari would have no reason at all for being.
26. ID.; ID.; SUPREME COURT MAY EXERCISE INHERENT POWER OF
SUPERVISION OVER JUDICIAL ACTION. The Supreme Court will
exercise its inherent power of supervision over all kinds of judicial
actions of the court, where it appears that the stakes are high, and
where not only is the subject matter considerably substantial, but
there is the more important aspect that not only the spirit and intent
of the rules but even the basic rudiments of fair play have been
disregarded. For the court to leave unrestrained the obvious
tendency of the proceedings would be nothing short of wittingly
condoning inequity and injustice resulting from erroneous
construction and unwarranted application of procedural rules.
27. ID.; DEFAULT; SUPREME COURT WILL NOT SANCTION
PROCEDURAL MANEUVERS THAT WILL DEPRIVE OTHER PARTY OF
RIGHT TO BE HEARD. The idea of "dropping" the non-defaulted
defendants with the end in view of completely incapacitating their
co-defendants from making any defense, without considering that all
of them are indispensable parties to a common cause of action to
which they have countered with a common defense readily connotes
an intent to secure a one-sided decision, even improperly. Such
procedural maneuver resorted to by plaintiff in securing the decision
in her favor was ill-conceived. It was characterized by that which
every principle of law and equity disdains taking advantage of the
rules of procedure in order to unduly deprive the other party of full
opportunity to defend his cause. And when in this connection, the
obvious weakness of plaintiffs evidence is taken into account, one
easily understands why such tactics had to be availed of. The
Supreme Court cannot directly and inequity in the application of
procedural rules, particularly when the propriety of reliance thereon
is not beyond controversy.
28. ID.; PARTIES; PARTY SHOULD NOT BE ALLOWED TO BENEFIT
FROM HER FRUSTRATED OBJECTIVE TO SECURE A ONE-SIDED
DECISION. Where all the malactuations of the trial court are
traceable to the initiative of the plaintiff and/or her counsel, she
cannot complain that she is being made to unjustifiably suffer the
consequences of the erroneous orders of the trial court. It is only
fair that she should not be allowed, to benefit from her own
frustrated objective of securing a one-sided decision.
29. ID.; ID.; SUPREME COURT NEED NOT REMANDS CASE FOR
FURTHER PROCEEDINGS IF ENOUGH BASIS EXIST TO RESOLVE
CLAIM. Where the Supreme Court in a petition for certiorari has
set aside the order of dismissal of the respondent court, it may
resolve the plaintiffs claim on the merits instead of merely returning
the case for a resumption of trial, if upon closer study of the
pleading and the decision of the trial court and other circumstances
extant in the record before the Supreme Court there is enough basis
to rule on the plaintiffs claim and if the remand would only lead to
more legal applications.
30. CIVIL PROCEDURE; PRE-TRIAL; PURPOSE OF. The
fundamental purpose of pre-trial, aside from affording the parties
every opportunity to compromise or settle their differences, is for
the court to be apprised of the unsettled issued between the parties
and of their respective evidence relative thereto, to the end that it
may take corresponding measures that would abbreviate the trial as
much as possible and the judge may be able to ascertain the fact
with the least observance of technical rules. In other words.
whatever is said or done by the parties or their counsel at pre-trial
serves to put the judge on notice of their respective basic position,
in order that in appropriate cases he may, if necessary in the
interest of justice and a more accurate determination of the facts,
make inquiries about or require clarifications of matters taken up at
the pre-trial, before finally resolving any issue of fact or law. In
brief, the pre-trial constitutes part and parcel of the proceedings,
and hence, matters dealt with therein may not disregarded in the
process of decision making. Otherwise, the real essence of
compulsory pre-trial would be insignificant and worthless.
31. MARRIAGE; EVIDENCE OF. Under Article 55 of the Civil Code,
the declaration of the contracting parties that they take each other
as husband and wife "shall be set forth in an instrument" signed by
the parties as well as by their witnesses and the person solemnizing
the marriage. Accordingly, the primary evidence of a marriage must
be an authentic copy of the marriage contract.
32. ID.; ID.; WHEN SECONDARY EVIDENCE MAY BE AVAILED OF.
While a marriage may also be proved by other competent evidence,
the absence of the contract must first be satisfactorily explained.
The certification of the person who allegedly solemnized a marriage
is not admissible evidence of such marriage unless proof or loss of
the contract or of any other satisfactory reason for its non-
production is first presented to the court.
33. ID.; ID.; ID.; CERTIFICATION OF BISHOP WHO DID NOT
TESTIFY IS HEARSAY. The purported certification issued by a
bishop of the church where the alleged marriage took place is not
competent evidence, in the absence of a showing as to the
unavailability of the marriage contract; and, as to the authenticity of
the signature of the signature of said certified, the jurat allegedly
signed by a second assistant provincial fiscal is not authorized by
law, since it is not part of the functions of his office. Besides,
inasmuch as the bishop did not testify, the same is hearsay.
34. ID.; ID.; TESTIMONY OF ALLEGED WIDOW AS TO MARRIAGE IS
SELF-SERVING EVIDENCE. The testimony of plaintiff to the effect
that she was married to the deceased in a church as well as that of
her witness, allegedly a foster son of deceased whom she had reared
since his birth and with whom she has been living are both self-
serving and of very little evidentiary value, it having been disclosed
at the trial that plaintiff had already assigned all her rights in the
case to said witness, thereby making the latter the real party in
interest and therefore naturally as biased as plaintiff herself.
Besides, it appears admitted that the witness was less than eight
years old at the time of the alleged marriage, thus making it
extremely doubtful if he could have been sufficiently aware of such
event as to be competent to testify about it.
35. ID.; ID.; WEIGHT AND SUFFICIENCY OF EVIDENCE. Where
against the evidence of the plaintiff concerning her marriage to
deceased, consisting of a certification by the bishop of the church
where the marriage allegedly took place and her self-serving
testimony, two documents belying the pretended marriage were
presented namely the income tax return of the deceased indicating a
person other than plaintiff as his wife, and the quitclaim wherein
plaintiff stated that she had been living with the deceased without
benefit of marriage and that she was his "common-law." it was held
that these two documents are far more reliable than the evidence of
plaintiff put together.
36. ID.; ID.; ID.; ADMISSION AGAINST INTEREST. Where the
existence of the quitclaim (containing the admission by plaintiff of
her common-law relationship only with the deceased and of her
having renounced for valuable consideration whatever claim she
might have against the defendants), has been duly established at
the pre-trial without any circumstances to detract from its legal
import, the Court should have held that plaintiff was bound by her
admission therein that she was the common-law wife only of
deceased, and what is more, that she had already renounced her
claim.
37. PARTNERSHIP; TRANSFER OF PARTNERSHIP PROPERTY AFTER
DISSOLUTION OF PARTNERSHIP. Where it appears that most of
the properties supposed to have been acquired by defendants with
funds of the partnership appear to have been transferred in their
names long after the partnership had been automatically dissolved
as a result of the death of a partner, defendants have no obligation
to account to anyone for such acquisitions in the absence of clear
proof that they had violated the trust of the deceased partner during
the existence of the partnership.
38. ID.; BOOKS OF ACCOUNTS; JUDGES NOT GENERALLY
QUALIFIED TO READ STATEMENTS OF ACCOUNTS AND DRAW
CONCLUSION FROM THEM. It is unusual for a judge to delve into
financial statement and books of a partnership without the aid of
any accountant or without the same being explained by any witness
who had prepared them or who has knowledge of the entries
therein. To do so might result in inconsistencies and inaccuracies in
the conclusions the judge may make out of them. Unless the judge
is a certified public accountant, he is hardly qualified to read such
statements and books and draw any definite conclusion therefrom,
without risk of erring and committing an injustice. Under such
circumstances, the Supreme Court is not prepared to permit anyone
to predicate any claim or right from the trial courts unaided exercise
of accounting knowledge.
39. ID.; LIQUIDATION; NO SPECIFIC AMOUNT CAN BE
DISTRIBUTED UNLESS PARTNERSHIP IS FIRST LIQUIDATED. In
the absence of a finding that a new corporation was organized after
the death of the partner (Plaintiffs alleged husband) with capital
from the funds of the partnership, or finding as to how some of the
defendants who just happen to be the wives of the surviving
partners could in any way be accountable to plaintiffs, it was error
for the trial court to order defendants to deliver or pay jointly and
severally to the plaintiff 1/3 of the supposed cash belonging to the
partnership and in the same breath sentence defendants to partition
and give 1/3 of the properties enumerated in the dispositive portion
of the decision, which seemingly are the very properties allegedly
purchased from the funds of the partnership would naturally include
the amounts defendants have to account for. And if there has not
yet been any liquidation of the partnership, so that said partnership
would have the status of a partnership in liquidation, the only right
plaintiff could have would be to what might result after much
liquidation to belong to the deceased partner (her alleged husband)
and before this is finished, it is impossible to determine, what rights
or interest, if any the deceased had. In other words, no specific
amounts or properties may be adjudicated to the heir or legal
representative of the deceased partner without the liquidation being
first terminated.
DECISION
BARREDO, J.:
Petition for (1) certiorari to annul and set aside certain actuations of
respondent Court of First Instance of Cebu Branch III in its Civil
Case No. 12328, an action for accounting of properties and money
totaling allegedly about P15 million pesos filed with a common cause
of action against six defendants, in which after declaring four of the
said defendants herein petitioners, in default and while the trial as
against the two defendants not declared in default was in progress,
said court granted plaintiffs motion to dismiss the case in so far as
the non-defaulted defendants were concerned and thereafter
proceeded to hear ex-parte the rest of the plaintiffs evidence and
subsequently rendered judgment by default against the defaulted
defendants, with the particularities that notice of the motion to
dismiss was not duly served on any of the defendants, who had
alleged a compulsory counterclaim against plaintiff in their joint
answer, and the judgment so rendered granted reliefs not prayed for
in the complaint, and (2) probition to enjoin further proceedings
relative to the motion for immediate execution of the said judgment.
Originally, this litigation was a complaint filed on February 9, 1971
by respondent Tan Put only against the spouses-petitioners Antonio
Lim Tanhu and Dy Ochay. Subsequently, in an amended complaint
dated September 26, 1972, their son Lim Teck Chuan and the other
spouses-petitioners Alfonso Leonardo Ng Sua and Co Oyo and their
son Eng Chong Leonardo were included as defendants. In said
amended complaint, respondent Tan alleged that she "is the widow
of Tee Hoon Lim Po Chuan, who was a partner in the commercial
partnership, Glory Commercial Company . . . with Antonio Lim
Tanhu and Alfonso Ng Sua" ; that "defendant Antonio Lim Tanhu,
Alfonso Leonardo Ng Sua, Lim Teck Chuan, and Eng Chong
Leonardo, through fraud and machination, took actual and active
management of the partnership and although Tee Hoon Lim Po
Chuan was the manager of Glory Commercial Company, defendants
managed to use the funds of the partnership to purchase lands and
buildings in the cities of Cebu, Lapulapu, Mandaue, and the
municipalities of Talisay and Minglanilla, some of which were hidden,
but the description of those already discovered were as follows: (list
of properties) . . .;" and that:
"13. (A)fter the death of Tee Hoon Lim Po Chuan, the defendants,
without liquidation, continued the business of Glory Commercial
Company, by purportedly organizing a corporation known as the
Glory Commercial Company, Incorporated, with paid up capital in
the sum of P125,000.00, which money and other assets of the said
Glory Commercial Company, Incorporated are actually the assets of
the defunct Glory Commercial Company partnership, of which the
plaintiff has a share equivalent to one third (1/3) thereof;
"14. (P)laintiff, on several occasions after the death of her husband,
has asked defendants of the above-mentioned properties and for the
liquidation of the business of the defunct partnership, including
investments on real estate in Hong Kong, but defendants kept on
promising to liquidate said properties and just told plaintiff to
"15. (S)ometime in the month of November, 1967, Defendants,
particularly Antonio Lim Tanhu, by means of fraud deceit, and
misrepresentations did then and there, induce and convince the
plaintiff to execute a quitclaim of all her rights and interests, in the
assets of the partnership of Glory Commercial Company, which
quitclaim is null and void, executed through fraud and without any
legal effect. The original of said quitclaim is in the possession of the
adverse party, defendant Antonio Lim Tanhu;
"16. (A)s a matter of fact, after the execution of said quitclaim,
defendant Antonio Lim Tanhu offered to pay the plaintiff the amount
of P65,000.00 within a period of one (1) month, for which plaintiff
was made to sign a receipt for the amount of P65,000 00 although
no such amount was given, and plaintiff was not even given a copy
of said document:
"17. (T)hereafter, in the year 1968-69, the defendants who had
earlier promised to liquidate the aforesaid properties and assets in
favor, among others of plaintiff and until the middle of the year
1970 when the plaintiff formally demanded from the defendants the
accounting of real and personal properties of the Glory Commercial
Company, defendants refused and stated that they would not give
the share of the plaintiff." (Pp. 36-37, Record.).
She prayed as follows:
"WHEREFORE, it is most respectfully prayed that judgment be
rendered:
a) Ordering the defendants to render an accounting of the real and
personal properties of the Glory Commercial Company including
those registered in the names of the defendants and other persons,
which properties are located in the Philippines and in Hong Kong;
b) Ordering the defendants to deliver to the plaintiff after
accounting, one third (1/3) of the total value of all the properties
which is approximately P5,000,000.00 representing the just share of
the plaintiff;
c) Ordering the defendants to pay the attorney of the plaintiff the
sum of Two Hundred Fifty Thousand Pesos (P250,000.00) by way of
attorneys fees and damages in the sum of One Million Pesos
(P1,000.000.00).
"This Honorable Court is prayed for other remedies and reliefs
consistent with law and equity and order the defendants to pay the
costs." (Page 38, Record.)
The admission of said amended complaint was opposed by
defendants upon the ground that there were material modifications
of the causes of action previously alleged, but respondent judge
nevertheless allowed the amendment reasoning that:
"The present action is for accounting of real and personal properties
as well as for the recovery of the same with damages.
An objective consideration of pars. 13 and 15 of the amended
complaint pointed out by the defendants to sustain their opposition
will show that the allegations of facts therein are merely to amplify
material averments constituting the cause of action in the original
complaint. It likewise includes necessary and indispensable
defendants without whom no final determination can be had in the
action and in order that complete relief is to be accorded as between
those already parties.
Considering that the amendments sought to be introduced do not
change the main causes of action in the original complaint and the
reliefs demanded and to allow amendments is the rule, and to refuse
them the exception and in order that the real question between the
parties may be properly and justly threshed out in a single
proceeding to avoid multiplicity of actions." (Page 40, Record.)
In a single answer with counterclaim, over the signature of their
common counsel, defendants denied specifically not only the
allegation that respondent Tan is the widow of Tee Hoon because,
according to them, his legitimate wife was Ang Siok Tin, still living
and with whom he had four (4) legitimate children, a twin born in
1942, and two others born in 1949 and 1965, all presently residing
in Hongkong, but also all the allegations of fraud and conversion
quoted above, the truth being, according to them, that proper
liquidation had been regularly made of the business of the
partnership and Tee Hoon used to receive his just share until his
death, as a result of which the partnership was dissolved and what
corresponded to him were all given to his wife and children. To
quote the pertinent portions of said answer:
"AND BY WAY OF SPECIAL AND AFFIRMATIVE DEFENSES,
defendants hereby incorporate all facts averred and alleged in the
answer, and further most respectfully declare:
1. That in the event that plaintiff is filing the present complaint as an
heir of Tee Hoon Lim Po Chuan, then, she has no legal capacity to
sue as such, considering that the legitimate wife, namely: Ang Siok
Tin, together with their children are still alive. Under Sec. 1, (d),
Rule 16 of the Revised Rules of Court, lack of legal capacity to sue is
one of the grounds for a motion to dismiss and so defendants prays
that a preliminary hearing be conducted as provided for in Sec. 5, of
the same rule;
2. That in the alternative case or event that plaintiff is filing the
present case under Art. 144 of the Civil Code, then, her claim or
demand has been paid, waived abandoned or otherwise extinguished
as evidenced by the quitclaim Annex A hereof, the ground cited is
another ground for a motion to dismiss (Sec. 1, (h), Rule 16) and
hence defendants pray that a preliminary hearing be made in
connection therewith pursuant to Section 5 of the aforementioned
rule;
3. That Tee Hoon Lim Po Chuan was legally married to Ang Siok Tin
and were blessed with the following children, to wit: Ching Siong Lim
and Ching Hing Lim (twins) born on February 16, 1942; Lim Shing
Ping born on March 3, 1949 and Lim Eng Lu born on June 25, 1965
and presently residing in Hongkong;
4. That even before the death of Tee Hoon Lim Po Chuan, the
plaintiff was no longer his common law wife and even though she
was not entitled to anything left by Tee Hoon Lim Po Chuan, yet, out
of the kindness and generosity on the part of the defendants,
particularly Antonio Lim Tanhu, who, was inspiring to be monk and
in fact he is now a monk, plaintiff was given a substantial amount
evidenced by the quitclaim (Annex A);
5. That the defendants have acquired properties out of their own
personal fund and certainly not from the funds belonging to the
partnership, just as Tee Hoon Lim Po Chuan had acquired properties
out of his personal fund and which are now in the possession of the
widow and neither the defendants nor the partnership have anything
to do about said properties;
6. That it would have been impossible to buy properties from funds
belonging to the partnership without the other partners knowing
about it considering that the amount taken allegedly is quite big and
with such big amount withdrawn the partnership would have been
insolvent;
7. That plaintiff and Tee Hoon Lim Po Chuan were not blessed with
children who would have been lawfully entitled to succeed to the
properties left by the latter together with the widow and legitimate
children;
8. That despite the fact that plaintiff knew that she was no longer
entitled to anything of the shares of the late Tee Hoon Lim Po
Chuan, yet, this suit was filed against the defendant who have to
interpose the following
COUNTERCLAIM
A. That the defendants hereby reproduced, by way of reference, all
the allegations and foregoing averments as part of this
counterclaim;
B. That plaintiff knew and was aware she was merely the common-
law wife of Tee Hoon Lim Po Chuan and that the lawful and legal is
still living, together with the legitimate children, and yet she
deliberately suppressed this fact, thus showing her bad faith and is
therefore liable for exemplary damages in an amount which the
Honorable Court may determine in the exercise of its sound judicial
discretion. In the event that plaintiff is married to Tee Hoon Lim Po
Chuan, then, her marriage is bigamous and should suffer the
consequences thereof;
C. That plaintiff was aware and had knowledge about the quitclaim,
even though she was not entitled to it, and yet she falsely claimed
that defendants refused even to see her and for filing this
unfounded, baseless, futile and puerile complaint, defendants
suffered mental anguish and torture conservatively estimated to be
not less than P3,000.00;
D. That in order to defend their rights in court, defendants were
constrained to engage the services of the undersigned counsel,
obligating themselves to pay P500,000.00 as attorneys fees;
E. That by way of litigation expenses during the time that this case
will be before this Honorable Court and until the same will be finally
terminated and adjudicated, defendants will have to spend at least
P5,000.00." (Pp. 44-47. Record.)
After unsuccessfully trying to show that this counterclaim is merely
permissive and should be dismissed for non-payment of the
corresponding filing fee, and after being overruled by the court, in
due time, plaintiff answered the same, denying its material
allegations.
On February 3, 1973, however, the date set for the pre-trial, both of
the two defendants-spouses, the Lim Tanhus and Ng Suas, did not
appear, for which reason, upon motion of plaintiff dated February
16, 1973, in an order of March 12, 1973, they were all "declared in
DEFAULT as of February 3, 1973 when they failed to appear at the
pre-trial." They sought to have this order lifted thru a motion for
reconsideration, but the effort failed when the court denied it.
Thereafter, the trial started, but at the stage thereof where the first
witness of the plaintiff by the name of Antonio Nuez, who testified
that he is her adopted son, was up for re-cross-examination, said
plaintiff unexpectedly filed on October 19, 1974 the following simple
and unreasoned
"MOTION TO DROP DEFENDANTS LIM TECK
CHUAN AND ENG CHONG LEONARDO
"COMES now plaintiff, through her undersigned counsel, unto the
Honorable Court most respectfully moves to drop from the complaint
the defendants Lim Teck Chuan and Eng Chong Leonardo and to
consider the case dismissed insofar as said defendants Lim Teck
Chuan and Eng Chong Leonardo are concerned.
WHEREFORE, it is most respectfully prayed of the Honorable Court
to drop from the complaint the defendants Lim Teck Chuan and Eng
Chong Leonardo and to dismiss the case against them without
pronouncement as to costs." (Page 50, Record.)
which she set for hearing on December 21, 1974. According to
petitioners, none of the defendants declared in default were notified
of said motion, in violation of Section 9 of Rule 13, since they had
asked for the lifting of the order of default, albeit unsuccessfully, and
as regards the defendants not declared in default, the setting of the
hearing of said motion on October 21, 1974 infringed the three-day
requirement of Section 4 of Rule 15, inasmuch as Atty. Adelino Sitoy
of Lim Teck Chuan was served with a copy of the motion personally
only on October 19, 1974, while Atty. Benjamin Alcudia of Eng
Chong Leonardo was served by registered mail sent only on the
same date.
Evidently without even verifying the notices of service, just as
simply as plaintiff had couched her motion, and also without any
legal grounds stated, respondent court granted the prayer of the
above motion thus:
"ORDER
Acting on the motion of the plaintiff praying for the dismissal of the
complaint as against defendants Lim Teck Chuan and Eng Chong
Leonardo.
The same is hereby GRANTED. The complaint as against defendant
Lim Teck Chuan and Eng Chong Leonardo is hereby ordered
DISMISSED without pronouncement as to costs."
Simultaneously, the following order was also issued:
"Considering that defendants Antonio Lim Tanhu and his spouse Dy
Ochay as well as defendants Alfonso Ng Sua and his spouse Co Oyo
have been declared in default for failure to appear during the pre-
trial and as to the other defendants the complaint had already been
ordered dismissed as against them:chanrob1es virtual 1aw library
Let the hearing of the plaintiffs evidence ex-parte be set on
November 20, 1974, at 8:30 A.M. before the Branch Clerk of Court
who is deputized for the purpose, to swear in witnesses and to
submit her report within ten (10) days thereafter. Notify the
plaintiff.
SO ORDERED.
Cebu City, Philippines, October 21, 1974." (Page 52, Record.)
But, in connection with this last order, the scheduled ex-parte
reception of evidence did not take place on November 20, 1974, for
on October 28, 1974, upon verbal motion of plaintiff, the court
issued the following self-explanatory order:
"Acting favorably on the motion of the plaintiff dated October 18,
1974, the Court deputized the Branch Clerk of Court to receive the
evidence of the plaintiff ex-parte to be made on November 20, 1974.
However, on October 28, 1974, the plaintiff, together with her
witnesses, appeared in court and asked, thru counsel, that she be
allowed to present her evidence.
Considering the time and expenses incurred by the plaintiff in
bringing her witnesses to the court, the Branch Clerk of Court is
hereby authorized to receive immediately the evidence of the
plaintiff ex-parte.
SO ORDERED.
Cebu City, Philippines, October 28, 1974." (Page 53, Record.)
Upon learning of these orders, on October 23, 1973, the defendant
Lim Teck Cheng, thru counsel, Atty. Sitoy, filed a motion for
reconsideration thereof, and on November 1, 1974, defendant Eng
Chong Leonardo, thru counsel Atty. Alcudia, filed also his own
motion for reconsideration and clarification of the same orders.
These motions were denied in an order dated December 6, 1974 but
received by the movants only on December 23, 1974. Meanwhile,
respondent court rendered the impugned decision on December 20,
1974. It does not appear when the parties were served copies of this
decision.
Subsequently, on January 6, 1975, all the defendants, thru counsel,
filed a motion to quash the order of October 28, 1974. Without
waiting however for the resolution thereof, on January 13, 1974, Lim
Teck Chuan and Eng Chong Leonardo went to the Court of Appeals
with a petition for certiorari seeking the annulment of the above-
mentioned orders of October 21, 1974 and October 28, 1974 and
decision of December 20, 1974. By resolution of January 24, 1975,
the Court of Appeals dismissed said petition, holding that its filing
was premature, considering that the motion to quash the order of
October 28, 1974 was still unresolved by the trial court. This holding
was reiterated in the subsequent resolution of February 5, 1975
denying the motion for reconsideration of the previous dismissal.
On the other hand, on January 20, 1975, the other defendants,
petitioners herein, filed their notice of appeal, appeal bond and
motion for extension to file their record on appeal, which was
granted, the extension to expire after fifteen (15) days from January
26 and 27, 1975, for defendants Lim Tanhu and Ng Suas,
respectively. But on February 7, 1975, before the perfection of their
appeal, petitioners filed the present petition with this Court. And
with the evident intent to make their procedural position clear,
counsel for defendants, Atty. Manuel Zosa, filed with respondent
court a manifestation dated February 14, 1975 stating that "when
the non-defaulted defendants Eng Chong Leonardo and Lim Teck
Chuan filed their petition in the Court of Appeals, they in effect
abandoned their motion to quash the order of October 28, 1974,"
and that similarly "when Antonio Lim Tanhu, Dy Ochay, Alfonso
Leonardo Ng Sua and Co Oyo, filed their petition for certiorari and
prohibition . . . in the Supreme Court, they likewise abandoned their
motion to quash." This manifestation was acted upon by respondent
court together with plaintiffs motion for execution pending appeal in
its order of the same date February 14, 1975 thiswise:
"ORDER
When these incidents, the motion to quash the order of October 28,
1974 and the motion for execution pending appeal were called for
hearing today, counsel for the defendants-movants submitted their
manifestation inviting the attention of this Court that by their filing
for certiorari and prohibition with preliminary injunction in the Court
of Appeals which was dismissed and later the defaulted defendants
filed with the Supreme Court certiorari with prohibition they in effect
abandoned their motion to quash.
IN VIEW HEREOF, the motion to quash is ordered ABANDONED. The
resolution of the motion for execution pending appeal shall be
resolved after the petition for certiorari and prohibition shall have
been resolved by the Supreme Court.
SO ORDERED.
Cebu City, Philippines, February 14, 1975." (Page 216, Record.)
Upon these premises, it is the position of petitioners that respondent
court acted illegally, in violation of the rules or with grave abuse of
discretion in acting on respondents motion to dismiss of October 18,
1974 without previously ascertaining whether or not due notice
thereof had been served on the adverse parties, as, in fact, such
notice was timely served on the non-defaulted defendants Lim Teck
Chuan and Eng Chong Leonardo and no notice at all was ever sent
to the other defendants, herein petitioners, and more so, in actually
ordering the dismissal of the case by its order of October 21, 1974
and at the same time setting the case for further hearing as against
the defaulted defendants, herein petitioners, actually hearing the
same ex-parte and thereafter rendering the decision of December
20, 1974 granting respondent Tan even reliefs not prayed for in the
complaint. According to the petitioners, to begin with, there was
compulsory counterclaim in the common answer of the defendants
the nature of which is such that it cannot be decided in an
independent action and as to which the attention of respondent
court was duly called in the motions for reconsideration. Besides,
and more importantly, under Section 4 of Rule 18, respondent court
had no authority to divide the case before it by dismissing the same
as against the non-defaulted defendants and thereafter proceeding
to hear it ex-parte and subsequently rendering judgment against the
defaulted defendants, considering that in their view, under the said
provision of the rules, when a common cause of action is alleged
against several defendants, the default of any of them is a mere
formality by which those defaulted are not allowed to take part in
the proceedings, but otherwise, all the defendants, defaulted and
not defaulted, are supposed to have but a common fate, win or lose.
In other words, petitioners posit that in such a situation, there can
only be one common judgment for or against all the defendants, the
non-defaulted and the defaulted. Thus, petitioners contend that the
order of dismissal of October 21, 1974 should be considered also as
the final judgment insofar as they are concerned, or, in the
alternative, it should be set aside together with all the proceedings
and decision held and rendered subsequent thereto, and that the
trial be resumed as of said date, with the defendants Lim Teck
Chuan and Eng Chong Leonardo being allowed to defend the case for
all the defendants.
On the other hand, private respondent maintains the contrary view
that inasmuch as petitioners had been properly declared in default,
they have no personality nor interest to question the dismissal of the
case as against their non-defaulted co-defendants and should suffer
the consequences of their own default. Respondent further contends,
and this is the only position discussed in the memorandum
submitted by her counsel, that since petitioners have already made
or at least started to make their appeal, as they are in fact entitled
to appeal, this special civil action has no reason for being.
Additionally, she invokes the point of prematurity upheld by the
Court of Appeals in regard to the above-mentioned petition therein
of the non-defaulted defendants Lim Teck Chuan and Eng Chong
Leonardo. Finally, she argues that in any event, the errors attributed
to respondent court are errors of judgment and may be reviewed
only in an appeal.
After careful scrutiny of all the above-related proceedings, in the
court below and mature deliberation, the Court has arrived at the
conclusion that petitioners should be granted relief, if only to stress
emphatically once more that the rules of procedure may not be
misused and abused as instruments for the denial of substantial
justice. A review of the record of this case immediately discloses
that here is another demonstrative instance of how some members
of the bar, availing of their proficiency in invoking the letter of the
rules without regard to their real spirit and intent, succeed in
inducing courts to act contrary to the dictates of justice and equity,
and, in some instances, to wittingly or unwittingly abet unfair
advantage by ironically camouflaging their actuations as earnest
efforts to satisfy the public clamor for speedy disposition of
litigations forgetting all the while that the plain injunction of Section
2 of Rule 1 is that the "rules shall be liberally construed in order to
promote their object and to assist the parties in obtaining" not only
speedy but more imperatively, "just . . . and inexpensive
determination of every action and proceeding." We cannot simply
pass over the impression that the procedural maneuvers and tactics
revealed in the records of the case at bar were deliberately planned
with the calculated end in view of depriving petitioners and their co-
defendants below of every opportunity to properly defend
themselves against a claim of more than substantial character,
considering the millions of pesos worth of properties involved as
found by respondent judge himself in the impugned decision, a claim
that appears, in the light of the allegations of the answer and the
documents already brought to the attention of the court at the pre-
trial, to be rather dubious. What is most regrettable is that
apparently, all of these alarming circumstances have escaped
respondent judge who did not seem to have hesitated in acting
favorably on the motions of the plaintiff conducive to the deplorable
objective just mentioned, and which motions, at the very least,
appeared to be of highly controversial merit, considering that their
obvious tendency and immediate result would be to convert the
proceedings into a one-sided affair, a situation that should be readily
condemnable and intolerable to any court of justice.
Indeed, a seeming disposition on the part of respondent court to
lean more on the contentions of private respondent may be
discerned from the manner it resolved the attempts of defendants
Dy Ochay and Antonio Lim Tanhu to have the earlier order of default
against them lifted. Notwithstanding that Dy Ochays motion of
October 8, 1971, co-signed by her with their counsel, Atty. Jovencio
Enjambre, (Annex 2 of respondent answer herein) was over the
jurat of the notary public before whom she took her oath in the
order of November 2, 1971, (Annex 3 id.) it was held that "the oath
appearing at the bottom of the motion is not the one contemplated
by the abovequoted pertinent provision (Sec. 3, Rule 18) of the
rules. It is not even a verification. (Sec. 6, Rule 7.) What the rule
requires as interpreted by the Supreme Court is that the motion
must have to be accompanied by an affidavit of merits that the
defendant has a meritorious defense, thereby ignoring the very
simple legal point that the ruling of the Supreme Court in Ong Peng
v. Custodio, 1 SCRA 781, relied upon by His Honor, under which a
separate affidavit of merit is required refers obviously to instances
where the motion is not over oath of the party concerned,
considering that what the cited provision literally requires is no more
than a "motion under oath." Stated otherwise, when a motion to lift
an order of default contains the reasons for the failure to answer as
well as the facts constituting the prospective defense of the
defendant and it is sworn to by said defendant, neither a formal
verification nor a separate affidavit of merit is necessary.
What is worse, the same order further held that the motion to lift
the order of default "is an admission that there was a valid service of
summons" and that said motion could not amount to a challenge
against the jurisdiction of the court over the person of the
defendant. Such a rationalization is patently specious and reveals an
evident failure to grasp the import of the legal concepts involved. A
motion to lift an order of default on the ground that service of
summons has not been made in accordance with the rules is in order
and is in essence verily an attack against the jurisdiction of the court
over the person of the defendant, no less than if it were worded in a
manner specifically embodying such a direct challenge.
And then, in the order of February 14, 1972 (Annex 6, id.) lifting at
last the order of default as against defendant Lim Tanhu, His Honor
posited that said defendant "has a defense (quitclaim) which renders
the claim of the plaintiff contentious." We have read defendants
motion for reconsideration of November 25, 1971 (Annex 5, id.), but
We cannot find in it any reference to a "quitclaim." Rather, the
allegation of a quitclaim is in the amended complaint (Pars. 15-16,
Annex B of the petition herein) in which plaintiff maintains that her
signature thereto was secured through fraud and deceit. In truth,
the motion for reconsideration just mentioned, Annex 5, merely
reiterated the allegation in Dy Ochays earlier motion of October 8,
1971, Annex 2, to set aside the order of default, that plaintiff Tan
could be but the common law wife only of Tee Hoon, since his
legitimate wife was still alive, which allegation, His Honor held in the
order of November 2, 1971, Annex 3, to be "not good and
meritorious defense." To top it all, whereas, as already stated, the
order of February 19, 1972, Annex 6, lifted the default against Lim
Tanhu because of the additional consideration that "he has a
defense (quitclaim) which renders the claim of the plaintiff
contentious", the default of Dy Ochay was maintained
notwithstanding that exactly the game "contentious" defense as that
of her husband was invoked by her.
Such tenuous, if not altogether erroneous reasonings and manifest
inconsistency in the legal postures in the orders in question can
hardly convince Us that the matters here in issue were accorded due
and proper consideration by respondent court. In fact, under the
circumstances herein obtaining, it seems appropriate to stress that,
having in view the rather substantial value of the subject matter
involved together with the obviously contentious character of
plaintiffs claim, which is discernible even on the face of the
complaint itself, utmost care should have been taken to avoid the
slightest suspicion of improper motivations on the part of anyone
concerned. Upon the considerations hereunder to follow, the Court
expresses its grave concern that much has to be done to dispel the
impression that herein petitioners and their co-defendants are being
railroaded out of their rights and properties without due process of
law, on the strength of procedural technicalities adroitly planned by
counsel and seemingly unnoticed and undetected by respondent
court, whose orders, gauged by their tenor and the citations of
supposedly pertinent provisions and jurisprudence made therein,
cannot be said to have proceeded from utter lack of juridical
knowledgeability and competence.
1
The first thing that has struck the Court upon reviewing the record is
the seeming alacrity with which the motion to dismiss the case
against non-defaulted defendants Lim Teck Chuan and Eng Chong
Leonardo was disposed of, which definitely ought not to have been
the case. The trial was proceeding with the testimony of the first
witness of plaintiff and he was still under re-cross-examination.
Undoubtedly, the motion to dismiss at that stage and in the light of
the declaration of default against the rest of the defendants was a
well calculated surprise move, obviously designed to secure utmost
advantage of the situation, regardless of its apparent unfairness. To
say that it must have been entirely unexpected by all the
defendants, defaulted and non-defaulted, is merely to rightly
assume that the parties in a judicial proceeding can never be the
victims of any procedural waylaying, as long as lawyers and judges
are imbued with the requisite sense of equity and justice.
But the situation here was aggravated by the indisputable fact that
the adverse parties who were entitled to be notified of such
unanticipated dismissal motion did not get due notice thereof.
Certainly, the non-defaulted defendants had the right to the three-
day prior notice required by Section 4 of Rule 15. How could they
have bad such indispensable notice when the motion was set for
hearing on Monday, October 21, 1974, whereas the counsel for Lim
Teck Chuan, Atty. Sitoy, was personally served with the notice only
on Saturday, October 19, 1974 and the counsel for Eng Chong
Leonardo, Atty. Alcudia, was notified by registered mail which was
posted only that same Saturday, October 19, 1974? According to
Chief Justice Moran, "three days at least must intervene between the
date of service of notice and the date set for the hearing, otherwise
the court may not validly act on the motion." (Comments on the
Rules of Court by Moran, Vol. 1, 1970 ed. p. 474.) Such is the
correct construction of Section 4 of Rule 15. And in the instant case,
there can be no question that the notices to the non-defaulted
defendants were short of the requirement of said provision.
We can understand the over-anxiety of counsel for plaintiff, but what
is incomprehensible is the seeming inattention of respondent judge
to the explicit mandate of the pertinent rule, not to speak of the
imperatives of fairness, considering he should have realized the far-
reaching implications, specially from the point of view he
subsequently adopted, albeit erroneously, of his favorably acting on
it. Actually, he was aware of said consequences, for simultaneously
with his order of dismissal, he immediately set the case for the ex-
parte hearing of the evidence against the defaulted defendants,
which, incidentally, from the tenor of his order which We have
quoted above, appears to have been done by him motu propio. As a
matter of fact, plaintiffs motion also quoted above did not pray for
it.
Withal, respondent courts twin actions of October 21, 1974 further
ignores or is inconsistent with a number of known juridical principles
concerning defaults, which We will here take occasion to reiterate
and further elucidate on, if only to avoid a repetition of the
unfortunate errors committed in this case. Perhaps some of these
principles have not been amply projected and elaborated before, and
such paucity of elucidation could be the reason why respondent
judge must have acted as he did. Still, the Court cannot but express
its vehement condemnation of any judicial actuation that unduly
deprives any party of the right to be heard without clear and specific
warrant under the terms of existing rules or binding jurisprudence.
Extreme care must be the instant reaction of every judge when
confronted with a situation involving risks that the proceedings may
not be fair and square to all the parties concerned. Indeed, a keen
sense of fairness, equity and justice that constantly looks for
consistency between the letter of the adjective rules and these basic
principles must be possessed by every judge, If substance is to
prevail, as it must, over form in our courts. Literal observance of the
rules, when it is conducive to unfair and undue advantage on the
part of any litigant before it, is unworthy of any court of justice and
equity. Withal, only those rules and procedure informed with and
founded on public policy deserve obedience in accord with their
unequivocal language or words.
Before proceeding to the discussion of the default aspects of this
case, however, it should not be amiss to advert first to the patent
incorrectness, apparent on the face of the record, of the
aforementioned order of dismissal of October 21, 1974 of the case
below as regards non-defaulted defendants Lim and Leonardo. While
it is true that said defendants are not petitioners herein, the Court
deems it necessary for a full view of the outrageous procedural
strategy conceived by respondents counsel and sanctioned by
respondent court to also make reference to the very evident fact
that in ordering said dismissal respondent court disregarded
completely the existence of defendants counterclaim which it had
itself earlier held, if indirectly, to be compulsory in nature when it
refused to dismiss the same on the ground alleged by respondent
Tan that the docketing fees for the filing thereof had not been paid
by defendants.
Indeed, that said counterclaim is compulsory needs no extended
elaboration. As may be noted in the allegations thereof aforequoted,
it arose out of or is necessarily connected with the occurrence that is
the subject matter of the plaintiffs claim, (Section 4, Rule 9)
namely, plaintiffs allegedly being the widow of the deceased Tee
Hoon entitled, as such, to demand accounting of and to receive the
share of her alleged late husband as partner of defendants Antonio
Lim Tanhu and Alfonso Leonardo Ng Sua in Glory Commercial
Company, the truth of which allegations all the defendants have
denied. Defendants maintain in their counterclaim that plaintiff knew
of the falsity of said allegations even before she filed her complaint,
for she had in fact admitted her common-law relationship with said
deceased in a document she had jointly executed with him by way of
agreement to terminate their illegitimate relationship, for which she
received P40,000 from the deceased, and with respect to her
pretended share in the capital and profits in the partnership, it is
also defendants posture that she had already quitclaimed, with the
assistance of able counsel, whatever rights if any she had thereto in
November, 1967, for the sum of P25,000 duly receipted by her,
which quitclaim was, however, executed, according to respondent
herself in her amended complaint, through fraud. And having filed
her complaint knowing, according to defendants, as she ought to
have known, that the material allegations thereof are false and
baseless, she has caused them to suffer damages. Undoubtedly,
with such allegations, defendants counterclaim is compulsory, not
only because the same evidence to sustain it will also refute the
cause or causes of action alleged in plaintiffs complaint, (Moran,
supra p. 352) but also because from its very nature, it is obvious
that the same cannot "remain pending for independent adjudication
by the court." (Section 2, Rule 17.)
The provision of the rules just cited specifically enjoins that" (i)f a
counterclaim has been pleaded by a defendant prior to the service
upon him of the plaintiffs motion to dismiss, the action shall not be
dismissed against the defendants objection unless the counterclaim
can remain pending for independent adjudication by the court."
Defendants Lim and Leonardo had no opportunity to object to the
motion to dismiss before the order granting the same was issued,
for the simple reason that they were not opportunely notified of the
motion therefor, but the record shows clearly that at least defendant
Lim immediately brought the matter of their compulsory
counterclaim to the attention of the trial court in his motion for
reconsideration of October 23, 1974, even as the counsel for the
other defendant, Leonardo, predicated his motion on other grounds.
In its order of December 6, 1974, however, respondent court not
only upheld the plaintiffs supposed absolute right to choose her
adversaries but also held that the counterclaim is not compulsory,
thereby virtually making unexplained and inexplicable 180-degree
turnabout in that respect.
There is another equally fundamental consideration why the motion
to dismiss should not have been granted. As the plaintiffs complaint
has been framed, all the six defendants are charged with having
actually taken part in a conspiracy to misappropriate, conceal and
convert to their own benefit the profits, properties and all other
assets of the partnership Glory Commercial Company, to the extent
that they have allegedly organized a corporation, Glory Commercial
Company, Inc. with what they had illegally gotten from the
partnership. Upon such allegations, no judgment finding the
existence of the alleged conspiracy or holding the capital of the
corporation to be the money of the partnership is legally possible
without the presence of all the defendants. The non-defaulted
defendants are alleged to be stockholders of the corporation and any
decision depriving the same of all its assets cannot but prejudice the
interests of said defendants. Accordingly, upon these premises, and
even prescinding from the other reasons to be discussed anon, it is
clear that all the six defendants below, defaulted and non-defaulted,
are indispensable parties. Respondents could do no less than grant
that they are so on page 23 of their answer. Such being the case,
the questioned order of dismissal is exactly the opposite of what
ought to have been done. Whenever it appears to the court in the
course of a proceeding that an indispensable party has not been
joined, it is the duty of the court to stop the trial and to order the
inclusion of such party. (The Revised Rules of Court, Annotated &
Commented by Senator Vicente J. Francisco, Vol. I, p. 271, 1973
ed.; See also Cortez v. Avila, 101 Phil. 705.) Such an order is
unavoidable, for the "general rule with reference to the making of
parties in a civil action requires the joinder of all necessary parties
wherever possible, and the joinder of all indispensable parties under
any and all conditions, the presence of those latter being a sine qua
non of the exercise of judicial power." (Borlasa v. Polistico, 47 Phil.
345, at p. 347.) It is precisely "when an indispensable party is not
before the court (that) the action should be dismissed." (People v.
Rodriguez, 106 Phil. 325, at p. 327.) The absence of an
indispensable party renders all subsequent actuations of the court
null and void, for want of authority to act, not only as to the absent
parties but even as to those present. In short, what respondent
court did here was exactly the reverse of what the law ordains it
eliminated those who by law should precisely be joined.
As may be noted from the order of respondent court quoted earlier,
which resolved the motions for reconsideration of the dismissal order
filed by the non-defaulted defendants, His Honor rationalized his
position thus:
"It is the rule that it is the absolute prerogative of the plaintiff to
choose, the theory upon which he predicates his right of action, or
the parties he desires to sue, without dictation or imposition by the
court or the adverse party. If he makes a mistake in the choice of
his right of action, or in that of the parties against whom he seeks to
enforce it, that is his own concern as he alone suffers therefrom. The
plaintiff cannot be compelled to choose his defendants. He may not,
at his own expense, be forced to implead anyone who, under the
adverse partys theory, is to answer for defendants liability. Neither
may the Court compel him to furnish the means by which defendant
may avoid or mitigate their liability. (Vano v. Alo, 95 Phil. 495-496.)
This being the rule this court cannot compel the plaintiff to continue
prosecuting her cause of action against the defendants-movants if in
the course of the trial she believes she can enforce it against the
remaining defendants subject only to the limitation provided in
Section 2, Rule 17 of the Rules of Court. . . ." (Pages 62-63,
Record.)
Noticeably, His Honor has employed the same equivocal terminology
as in plaintiffs motion of October 18, 1974 by referring to the action
he had taken as being "dismissal of the complaint against them or
their being dropped therefrom", without perceiving that the reason
for the evidently intentional ambiguity is transparent. The apparent,
idea is to rely on the theory that under Section 11 of Rule 3, parties
may be dropped by the court upon motion of any party at any stage
of the action, hence "it is the absolute right prerogative of the
plaintiff to choose the parties he desires to sue, without dictation
or imposition by the court or the adverse party." In other words, the
ambivalent pose is suggested that plaintiffs motion of October 18,
1974 was not predicated on Section 2 of Rule 17 but more on
Section 11 of Rule 3. But the truth is that nothing can be more
incorrect. To start with, the latter rule does not comprehend
whimsical and irrational dropping or adding of parties in a complaint.
What it really contemplates is erroneous or mistaken non-joinder
and misjoinder of parties. No one is free to join anybody in a
complaint in court only to drop him unceremoniously later at the
pleasure of the plaintiff. The rule presupposes that the original
inclusion had been made in the honest conviction that it was proper
and the subsequent dropping is requested because it has turned out
that such inclusion was a mistake. And this is the reason why the
rule ordains that the dropping be "on such terms as are just" just
to all the other parties. In the case at bar, there is nothing in the
record to legally justify the dropping of the non-defaulted
defendants, Lim and Leonardo. The motion of October 18, 1984 cites
none. From all appearances, plaintiff just decided to ask for it,
without any relevant explanation at all. Usually, the court in granting
such a motion inquires for the reasons and in the appropriate
instances directs the granting of some form of compensation for the
trouble undergone by the defendant in answering the complaint,
preparing for or proceeding partially to trial, hiring counsel and
making corresponding expenses in the premises. Nothing of these,
appears in the order in question. Most importantly, His Honor ought
to have considered that the outright dropping of the non-defaulted
defendants Lim and Leonardo, over their objection at that, would
certainly be unjust not only to the petitioners, their own parents,
who would in consequence be entirely defenseless, but also to Lim
and Leonardo themselves who would naturally correspondingly
suffer from the eventual judgment against their parents. Respondent
court paid no heed at all to the mandate that such dropping must be
on such terms as are just" meaning to all concerned with its legal
and factual effects.
Thus, it is quite plain that respondent court erred in issuing its order
of dismissal of October 21, 1974 as well as its order of December 6,
1974 denying reconsideration of such dismissal. As We make this
ruling, We are not oblivious of the circumstance that defendants Lim
and Leonardo are not parties herein. But such consideration is
inconsequential. The fate of the case of petitioners is inseparably
tied up with said order of dismissal, if only because the order of ex-
parte hearing of October 21, 1974 which directly affects and
prejudices said petitioners is predicated thereon. Necessarily,
therefore, We have to pass on the legality of said order, if We are to
decide the case of herein petitioners properly and fairly.
The attitude of the non-defaulted defendants of no longer pursuing
further their questioning of the dismissal is from another point of
view understandable. On the one hand, should they insist on being
defendants when plaintiff herself has already release from her
claims? On the other hand, as far as their respective parents-co-
defendants are concerned, they must have realized that they (their
parents) could even be benefited by such dismissal because they
could question whether or not plaintiff can still prosecute her case
against them after she had secured the order of dismissal in
question. And it is in connection with this last point that the true and
correct concept of default becomes relevant.
At this juncture, it may also be stated that the decision of the Court
of Appeals of January 24, 1975 in G. R. No. SP-03066 dismissing the
petition for certiorari of non-defaulted defendants Lim and Leonardo
impugning the order of dismissal of October 21, 1974, has no
bearing at all in this case, not only because that dismissal was
premised by the appellate court on its holding that the said petition
was premature inasmuch as the trial court had not yet resolved the
motion of the defendants of October 28, 1974 praying that said
disputed order be quashed, but principally because herein
petitioners were not parties in that proceeding and cannot,
therefore, be bound by its result. In particular, We deem it
warranted to draw the attention of private respondents counsel to
his allegations in paragraphs XI to XIV of his answer, which relate to
said decision of the Court of Appeals and which have the clear
tendency to make it appear to the Court that the appeals court had
upheld the legality and validity of the actuations of the trial court
being questioned, when as a matter of indisputable fact, the
dismissal of the petition was based solely and exclusively on its
being premature without in any manner delving into its merits. The
Court must and does admonish counsel that such manner of
pleading, being deceptive and lacking in candor, has no place in any
court, much less in the Supreme Court, and if We are adopting a
passive attitude in the premises, it is due only to the fact that this is
counsels first offense. But similar conduct on his part in the future
will definitely be dealt with more severely. Parties and counsel would
be well advised to avoid such attempts to befuddle the issues as
invariably they will be exposed for what they are, certainly unethical
and degrading to the dignity of the law profession. Moreover, almost
always they only betray the inherent weakness of the cause of the
party resorting to them.
2 Mayden v. Johnson, 59 Ga. 105; People v. Rust, 292 Ill. 328; Ken v.
Coming now to the matter itself of default, it is quite apparent that
the impugned orders must have proceeded from inadequate
apprehension of the fundamental precepts governing such procedure
under the Rules of Court. It is time indeed that the concept of this
procedural device were fully understood by the bench and bar,
instead of being merely taken for granted as being that of a simple
expedient of not allowing the offending party to take part in the
proceedings, so that after his adversary shall have presented his
evidence, judgment may be rendered in favor of such opponent,
with hardly any chance of said judgment being reversed or modified.
The Rules of Court contain a separate rule on the subject of default,
Rule 18. But said rule is concerned solely with default resulting from
failure of the defendant or defendants to answer within the
reglementary period. Referring to the simplest form of default, that
is, where there is only one defendant in the action and he fails to
answer on time, Section 1 of the rule provides that upon "proof of
such failure, (the court shall) declare the defendant in default.
Thereupon the court shall proceed to receive the plaintiffs evidence
and render judgment granting him such relief as the complaint and
the facts proven may warrant." This last clause is clarified by Section
5 which says that "a judgment entered against a party in default
shall not exceed the amount or be different in kind from that prayed
for."
Unequivocal, in the literal sense, as these provisions are, they do
not readily convey the full import of what they contemplate. To
begin with, contrary to the immediate notion that can be drawn from
their language, these provisions are not to be understood as
meaning that default or the failure of the defendant to answer
should be "interpreted as an admission by the said defendant that
the plaintiffs cause of action find support in the law or that plaintiff
is entitled to the relief prayed for." (Moran, supra, p. 535 citing
Macondary & Co. v. Eustaquio, 64 Phil. 466, citing with approval
Chaffin v. McFadden, 41 Ark. 42; Johnson v. Pierce, 12 Ark. 599;
Leopold, 21 Ill. A. 163; Chicago, etc. Electric R. Co. v. Krempel, 116
Ill. A. 253.).
Being declared in default does not constitute a waiver of rights
except that of being heard and of presenting evidence in the trial
court. According to Section 2, "except as provided in Section 9 of
Rule 13, a party declared in default shall not be entitled to notice of
subsequent proceedings, nor to take part in the trial." That provision
referred to reads: "No service of papers other than substantially
amended pleadings and final orders or judgments shall be necessary
on a party in default unless he files a motion to set aside the order
of default, in which event he shall be entitled to notice of all further
proceedings regardless of whether the order of default is set aside or
not." And pursuant to Section 2 of Rule 41, "a party who has been
declared in default may likewise appeal from the judgment rendered
against him as contrary to the evidence or to the law, even if no
petition for relief to set aside the order of default has been
presented by him in accordance with Rule 38."
In other words, a defaulted defendant is not actually thrown out of
court. While in a sense it may be said that by defaulting he leaves
himself at the mercy of the court, the rules see to it that any
judgment against him must be in accordance with law. The evidence
to support the plaintiffs cause is, of course, presented in his
absence, but the court is not supposed to admit that which is
basically incompetent. Although the defendant would not be in a
position to object, elementary justice requires that only legal
evidence should be considered against him. If the evidence
presented should not be sufficient to justify a judgment for the
plaintiff, the complaint must be dismissed. And if an unfavorable
judgment should be justifiable, it cannot exceed in amount or be
different in kind from what is prayed for in the complaint.
Incidentally, these considerations argue against the present
widespread practice of trial judges, as was done by His Honor in this
case, of delegating to their clerks of court the reception of the
plaintiffs evidence when the defendant is in default. Such a practice
is wrong in principle and orientation. It has no basis in any rule.
When a defendant allows himself to be declared in default, he relies
on the faith that the court would take care that his rights are not
unduly prejudiced He has a right to presume that the law and the
rules will still be observed. The proceedings are held in his forced
absence, and it is but fair that the plaintiff should not be allowed to
take advantage of the situation to win by foul or illegal means or
with inherently incompetent evidence. Thus, in such instances, there
is need for more attention from the court, which only the judge
himself can provide. The clerk of court would not be in a position
much less have the authority to act in the premises in the manner
demanded by the rules of fair play and as contemplated in the law,
considering his comparably limited area of discretion and his
presumably inferior preparation for the functions of a judge.
Besides, the default of the defendant is no excuse for the court to
renounce the opportunity to closely observe the demeanor and
conduct of the witnesses of the plaintiff, the better to appreciate
their truthfulness and credibility. We therefore declare as a matter of
judicial policy that there being no imperative reason for judges to do
otherwise, the practice should be discontinued.
Another matter of practice worthy of mention at this point is that it
is preferable to leave enough opportunity open for possible lifting of
the order of default before proceeding with the reception of the
plaintiffs evidence and the rendition of the decision. "A judgment by
default may amount to a positive and considerable injustice to the
defendant; and the possibility of such serious consequences
necessitates a careful and liberal examination of the grounds upon
which the defendant may seek to set it aside." (Moran, supra p. 534,
citing Coombs v. Santos, 24 Phil. 446; 449-450.) The expression,
therefore, in Section 1 of Rule 18 aforequoted which says that
"thereupon the court shall proceed to receive the plaintiffs evidence
etc." is not to be taken literally. The gain in time and dispatch
should the court immediately try the case on the very day of or
shortly after the declaration of default is far outweighed by the
inconvenience and complications involved in having to undo
everything already done in the event the defendant should justify his
omission to answer on time.
The foregoing observations, as may be noted, refer to instances
where the only defendant or all the defendants, there being several,
are declared in default. There are additional rules embodying more
considerations of justice and equity in cases where there are several
defendants against whom a common cause of action is averred and
not all of them answer opportunely or are in default, particularly in
reference to the power of the court to render judgment in such
situations. Thus, in addition to the limitation of Section 5 that the
judgment by default should not be more in amount nor different in
kind from the reliefs specifically sought by plaintiff in his complaint,
Section 4 restricts the authority of the court in rendering judgment
in the situations just mentioned as follows:
"Sec. 4. Judgment when some defendants answer, and others make
default. When a complaint states a common cause of action
against several defendants, some of whom answer, and the others
fail to do so, the court shall try the case against all upon the
answers thus filed and render judgment upon the evidence
presented. The same procedure applies when a common cause of
action is pleaded in a counterclaim, cross-claim and third-party
claim."
Very aptly does Chief Justice Moran elucidate on this provision and
the controlling jurisprudence explanatory thereof this wise:
"Where a complaint states a common cause of action against several
defendants and some appear to defend the case on the merits while
others make default, the defense interposed by those who appear to
litigate the case inures to the benefit of those who fall to appear,
and if the court finds that a good defense has been made, all of the
defendants must be absolved. In other words, the answer filed by
one or some of the defendants inures to the benefit of all the others,
even those who have not seasonably filed their answer. (Bueno v.
Ortiz, L-22978, June 27, 1968, 23 SCRA 1151.) The proper mode of
proceeding where a complaint states a common cause of action
against several defendants, and one of them makes default, is
simply to enter a formal default order against him, and proceed with
the cause upon the answers of the others. The defaulting defendant
merely loses his standing in court, he not being entitled to the
service of notice in the cause, nor to appear in the suit in any way.
He cannot adduce evidence; nor can he be heard at the final
hearing, (Lim. Toco v. Go Fay, 80 Phil. 166.) although he may
appeal the judgment rendered against him on the merits. (Rule 41,
sec. 2.) If the case is finally decided in the plaintiffs favor, a final
decree is then entered against all the defendants; but if the suit
should be decided against the plaintiff, the action will be dismissed
as to all the defendants alike. (Velez v. Ramas, 40 Phil. 787-792;
Frow v. de la Vega, 15 Wal. 552, 21 L. Ed. 60.) In other words the
judgment will affect the defaulting defendants either favorably or
adversely. (Castro v. Pea, 80 Phil. 488.)
Defaulting defendant may ask execution if judgment is in his favor,
(Castro v. Pea, supra.)" (Moran, Rules of Court, Vol. 1, pp. 538-
539.)
In Castro v. Pea, 80 Phil. 488, one of the numerous cases cited by
Moran, this Court elaborated on the construction of the same rule
when it sanctioned the execution, upon motion and for the benefit of
the defendant in default, of a judgment which was adverse to the
plaintiff. The Court held:
"As above stated, Emilia Matanguihan, by her counsel, also was a
movant in the petition for execution Annex 1. Did she have a right to
be such, having been declared in default? In Frow v. De la Vega,
supra, cited as authority in Velez v. Ramas, supra, the Supreme
Court of the United States adopted as ground for its own decision
the following ruling of the New York Court of Errors in Clason v.
Morris, 10 Jons., 524:
It would be unreasonable to hold that because one defendant had
made default, the plaintiff should have a decree even against him,
where the court is satisfied from the proofs offered by the other,
that in fact the plaintiff is not entitled to a decree. (21 Law, ed.,
61.)
The reason is simple: justice has to be consistent. The complaint
stating a common cause of action against several defendants, the
complainants rights or lack of them in the controversy have to
be the same, and not different, as against all the defendants
although one or some make default and the other or others appear,
join issue, and enter into trial. For instance, in the case of Clason v.
Morris above cited, the New York Court of Errors in effect held that
in such a case if the plaintiff is not entitled to a decree, he will not
be entitled to it, not only as against the defendant appearing and
resisting his action but also as against the one who made default. In
the case at bar, the cause of action in the plaintiffs complaint was
common against the Mayor of Manila, Emilia Matanguihan, and the
other defendants in Civil Case No. 1318 of the lower court. The
Court of First Instance in its judgment found and held upon the
evidence adduced by the plaintiff and the defendant mayor that as
between said plaintiff and defendant Matanguihan the latter was the
one legally entitled to occupy the stalls; and it decreed, among other
things, that said plaintiff immediately vacate them. Paraphrasing the
New York Court of Errors, it would be unreasonable to hold now that
because Matanguihan had made default, the said plaintiff should be
declared, as against her, legally entitled to the occupancy of the
stalls, or to remain therein, although the Court of First Instance was
so firmly satisfied, from the proofs offered by the other defendant,
that the same plaintiff was not entitled to such occupancy that it
peremptorily ordered her to vacate the stalls. If in the cases of
Clason v. Morris, supra, Frow v. De la Vega, supra, and Velez v.
Ramas, supra, the decrees entered inured to the benefit of the
defaulting defendants, there is no reason why that entered in said
case No. 1318 should not be held also to have inured to the benefit
of the defaulting defendant Matanguihan. Indeed, the doctrine in
said three cases plainly implies that there is nothing in the law
governing default which would prohibit the court from rendering
judgment favorable to the defaulting defendant in such cases. If it
inured to her benefit, its stands to reason that she had a right to
claim that benefit, for it would not be a benefit if the supposed
beneficiary were barred from claiming it; and if the benefit
necessitated the execution of the decree, she must he possessed of
the right to ask for the execution thereof as she did when she, by
counsel, participated in the petition for execution Annex 1.
Section 7 of Rule 35 would seem to afford a solid support to the
above considerations. It provides that when a complaint states a
common cause of action against several defendants, some of whom
answer, and the others make default, the court shall try the case
against all upon the answer thus filed and render judgment upon the
evidence presented by the parties in court. It is obvious that under
this provision the case is tried jointly not only against the
defendants answering but also against those defaulting, and the trial
is held upon the answer filed by the former; and the judgment, if
adverse, will prejudice the defaulting defendants no less than those
who answer. In other words, the defaulting defendants are held
bound by the answer filed by their co-defendants and by the
judgment which the court may render against all of them. By the
same token, and by all rules of equity and fair play, if the judgment
should happen to be favorable, totally or partially, to the answering
defendants, it must correspondingly benefit the defaulting ones, for
it would not be just to let the judgment produce effects as to the
defaulting defendants only when adverse to them and not when
favorable."
In Bueno v. Ortiz, 23 SCRA 1151, the Court applied the provision
under discussion in the following words:
"In answer to the charge that respondent Judge had committed a
grave abuse of discretion in rendering a default judgment against
the PC, respondents allege that, not having filed its answer within
the reglementary period, the PC was in default, so that it was proper
for Patanao to forthwith present his evidence and for respondent
Judge to render said judgment. It should he noted, however, that in
entering the area in question and seeking to prevent Patanao from
continuing his logging operations therein, the PC was merely
executing an order of the Director of Forestry and acting as his
agent. Patanaos cause of action against the other respondents in
Case No. 190, namely, the Director of Forestry, the District Forester
of Agusan, the Forest Officer of Bayugan, Agusan, and the Secretary
of Agriculture and Natural Resources. Pursuant to Rule 18, Section
4, of the Rules of Court, when a complaint states a common cause
of action against several defendants some of whom answer and the
others fail to do so, the court shall try the case against all upon the
answer thus filed (by some) and render judgment upon the evidence
presented. In other words, the answer filed by one or some of the
defendants inures to the benefit of all the others, even those who
have not seasonably filed their answer.
"Indeed, since the petition in Case No. 190 sets forth a common
cause of action against all of the respondents therein, a decision in
favor of one of them would necessarily favor the others. In fact, the
main issue, in said case, is whether Patanao has a timber license to
undertake logging operations in the disputed area. It is not possible
to decide such issue in the negative, insofar as the Director of
Forestry, and to settle it otherwise, as regards the PC, which is
merely acting as agent of the Director of Forestry, and is, therefore,
his alter ego, with respect to the disputed forest area."
Stated differently, in all instances where a common cause of action
is alleged against several defendants, some of whom answer and the
others do not, the latter or those in default acquire a vested right
not only to own the defense interposed in the answer of their co-
defendant or co-defendants not in default but also to expect a result
of the litigation totally common with them in kind and in amount
whether favorable or unfavorable. The substantive unity of the
plaintiffs cause against all the defendants is carried through to its
adjective phase as ineluctably demanded by the homogeneity and
indivisibility of justice itself. Indeed, since the singleness of the
cause of action also inevitably implies that all the defendants are
indispensable parties, the courts power to act is integral and cannot
be split such that it cannot relieve any of them and at the same time
render judgment against the rest. Considering the tenor of the
section in question, it is to be assumed that when any defendant
allows himself to be declared in default knowing that his co-
defendant has already answered, he does so trusting in the
assurance implicit in the rule that his default is in essence a mere
formality that deprives him of no more than the right to take part in
the trial and that the court would deem anything done by or for the
answering defendant as done by or for him. The presumption is that
otherwise he would not have seen to it that he would not be in
default. Of course, he has to suffer the consequences of whatever
the answering defendant may do or fail to do, regardless of possible
adverse consequences, but if the complaint has to be dismissed in
so far as the answering defendant is concerned, it becomes his
inalienable right that the same be dismissed also as to him. It does
not matter that the dismissal is upon the evidence presented by the
plaintiff or upon the latters mere desistance, for in both
contingencies, the lack of sufficient legal basis must be the cause.
The integrity of the common cause of action against all the
defendants and the indispensability of all of them in the proceedings
do not permit any possibility of waiver of the plaintiffs right only as
to one or some of them, without including all of them, and so, as a
rule, withdrawal must be deemed to be a confession of weakness as
to all. This is not only elementary justice; it also precludes the
concomitant hazard that plaintiff might resort to the kind of
procedural strategem practiced by private respondent herein that
resulted in totally depriving petitioners of every opportunity to
defend themselves against her claims which, after all, as will be
seen later in this opinion, the record does not show to be
invulnerable, both in their factual and legal aspects, taking into
consideration the tenor of the pleadings and the probative value of
the competent evidence which were before the trial court when it
rendered its assailed decision. Where all the defendants are
indispensable parties, for which reason the absence of any of them
in the case would result in the court losing its competency to act
validly, any compromise that the plaintiff might wish to make with
any of them must, as a matter of correct procedure, have to await
until after the rendition of the judgment, at which stage the plaintiff
may then treat the matter of its execution and the satisfaction of his
claim as variably as he might please. Accordingly, in the case now
before Us together with the dismissal of the complaint against the
non-defaulted defendants, the court should have ordered also the
dismissal thereof as to petitioners.
Indeed, there is more reason to apply here the principle of unity and
indivisibility of the action just discussed because all the defendants
here have already joined genuine issues with plaintiff. Their default
was only at the pre-trial. And as to such absence of petitioners at
the pre-trial, the same could be attributed to the fact that they
might not have considered it necessary anymore to be present,
since their respective children Lim and Leonardo, with whom they
have common defenses, could take care of their defenses as well.
Anything that might have had to be done by them at such pre-trial
could have been done for them by their children, at least initially,
specially because in the light of the pleadings before the court, the
prospects of a compromise must have appeared to be rather
remote. Such attitude of petitioners is neither uncommon nor totally
unjustified. Under the circumstances, to declare them immediately
and irrevocably in default was not an absolute necessity. Practical
considerations and reasons of equity should have moved respondent
court to be more understanding in dealing with the situation. After
all, declaring them in default as respondent court did not impair
their right to a common fate with their children.
3
Another issue to be resolved in this case is the question of whether
or not herein petitioners were entitled to notice of plaintiffs motion
to drop their co-defendants Lim and Leonardo, considering that
petitioners had been previously declared in default. In this
connection, the decisive consideration is that according to the
applicable rule, Section 9, Rule 13, already quoted above, (1) even
after a defendant has been declared in default, provided he "files a
motion to set aside the order of default, he shall be entitled to
notice of all further proceedings regardless of whether the order of
default is set aside or not" and (2) a party in default who has not
filed such a motion to set aside must still be served with all
"substantially amended or supplemented pleadings." In the instant
case, it cannot be denied that petitioners had all filed their motion
for reconsideration of the order declaring them in default.
Respondents own answer to the petition therein makes reference to
the order of April 3, 1973, Annex 8 of said answer, which denied
said motion for reconsideration. On page 3 of petitioners
memorandum herein this motion is referred to as "a motion to set
aside the order of default." But as We have not been favored by the
parties with a copy of the said motion, We do not even know the
excuse given for petitioners failure to appear at the pre-trial, and
We cannot, therefore, determine whether or not the motion
complied with the requirements of Section 3 of Rule 18 which We
have held to be controlling in cases of default for failure to answer
on time. (The Philippine-British Co. Inc. etc. Et. Al. v. The Hon.
Walfrido de los Angeles etc. Et. Al., 63 SCRA 50.)
We do not, however, have here, as earlier noted, a case of default
for failure to answer but one for failure to appear at the pre-trial. We
reiterate, in the situation now before Us, issues have already been
joined. In fact, evidence had been partially offered already at the
pre-trial and more of it at the actual trial which had already begun
with the first witness of the plaintiff undergoing re-cross-
examination. With these facts in mind and considering that issues
had already been joined even as regards the defaulted defendants, it
would be requiring the obvious to pretend that there was still need
for an oath or a verification as to the merits of the defense of the
defaulted defendants in their motion to reconsider their default.
Inasmuch as none of the parties had asked for a summary judgment
there can be no question that the issues joined were genuine, and
consequently, the reason for requiring such oath or verification no
longer holds. Besides, it may also be reiterated that being the
parents of the non-defaulted defendants, petitioners must have
assumed that their presence was superfluous, particularly because
the cause of action against them as well as their own defenses are
common. Under these circumstances, the form of the motion by
which the default was sought to be lifted is secondary and the
requirements of Section 3 of Rule 18 need not be strictly complied
with, unlike in cases of default for failure to answer. We can thus
hold as We do hold for the purposes of the revival of their right to
notice under Section 9 of Rule 137 that petitioners motion for
reconsideration was in substance legally adequate, regardless of
whether or not it was under oath.
In any event, the dropping of the defendants Lim and Leonardo from
plaintiffs amended complaint was virtually a second amendment of
plaintiffs complaint. And there can be no doubt that such
amendment was substantial, for with the elimination thereby of two
defendants allegedly solidarily liable with their co-defendants, herein
petitioners, it had the effect of increasing proportionally what each
of the remaining defendants, the said petitioners, would have to
answer for jointly and severally. Accordingly, notice to petitioners of
the plaintiffs motion of October 18, 1974 was legally indispensable
under the rule above-quoted. Consequently, respondent court had
no authority to act on the motion, to dismiss, pursuant to Section 6
of Rule 15, for according to Senator Francisco, (t)he Rules of Court
clearly provide that no motion shall be acted upon by the Court
without the proof of service of notice thereof, together with a copy
of the motion and other papers accompanying it, to all parties
concerned at least three days before the hearing thereof, stating the
time and place for the hearing of the motion. (Rule 26, section 4, 5
and 6, Rules of Court (now Sec. 15, new Rules). When the motion
does not comply with this requirement, it is not a motion. It
presents no question which the court could decide. And the Court
acquires no jurisdiction to consider it. (Roman Catholic Bishop of
Lipa v. Municipality of Unisan, 44 Phil., 866; Manakil v. Revilla, 42
Phil., 81.) (Laserna v. Javier, Et Al., CA-G.R. No. 7885, April 22,
1955; 21 L.J. 36, citing Roman Catholic Bishop of Lipa v.
Municipality of Unisan, 44 Phil., 866; Manakil v. Revilla, 42 Phil.,
81.) (Francisco. The Revised Rules of Court in the Philippines, pp.
861-862.) Thus, We see again, from a different angle, why
respondent courts order of dismissal of October 21, 1974 is fatally
ineffective.
4 corrective measures in the case at bar. Verily, this is one case that
The foregoing considerations notwithstanding, it is respondents
position that certiorari is not the proper remedy of petitioners. It is
contended that inasmuch as said petitioners have in fact made their
appeal already by filing the required notice of appeal and appeal
bond and a motion for extension to file their record on appeal, which
motion was granted by respondent court, their only recourse is to
prosecute that appeal. Additionally, it is also maintained that since
petitioners have expressly withdrawn their motion to quash of
January 4, 1975 impugning the order of October 28, 1974, they
have lost their right to assail by certiorari the actuations of
respondent court now being questioned, respondent court not
having been given the opportunity to correct any possible error it
might have committed.
We do not agree. As already shown in the foregoing discussion, the
proceedings in the court below have gone so far out of hand that
prompt action is needed to restore order in the entangled situation
created by the series of plainly illegal orders it had issued. The
essential purpose of certiorari is to keep the proceedings in lower
judicial courts and tribunals within legal bounds, so that due process
and the rule of law may prevail at all times and arbitrariness,
whimsicality and unfairness which justice abhors may immediately
be stamped out before graver injury, juridical and otherwise,
ensues. While generally these objectives may well be attained in an
ordinary appeal, it is undoubtedly the better rule to allow the special
remedy of certiorari at the option of the party adversely affected,
when the irregularity committed by the trial court is so grave and so
far reaching in its consequences that the long and cumbersome
procedure of appeal will only further aggravate the situation of the
aggrieved party because other untoward actuations are likely to
materialize as natural consequences of those already perpetrated. If
the law were otherwise, certiorari would have no reason at all for
being.
No elaborate discussion is needed to show the urgent need for
calls for the exercise of the Supreme Courts inherent power of
supervision over all kinds of judicial actions of lower courts. Private
respondents procedural technique designed to disable petitioners to
defend themselves against her claim which appears on the face of
the record itself to be at least highly controversial seems to have so
fascinated respondent court that none would be surprised should her
pending motion for immediate execution of the impugned judgment
receive similar ready sanction as her previous motions which turned
the proceedings into a one-sided affair. The stakes here are high.
Not only is the subject matter considerably substantial; there is the
more important aspect that not only the spirit and intent of the rules
but even the basic rudiments of fair play have been disregarded. For
the Court to leave unrestrained the obvious tendency of the
proceedings below would be nothing short of wittingly condoning
inequity and injustice resulting from erroneous construction and
unwarranted application of procedural rules.
5
The sum and total of all the foregoing disquisitions is that the
decision here in question is legally anomalous. It is predicated on
two fatal malactuations of respondent court, namely (1) the
dismissal of the complaint against the non-defaulted defendants Lim
and Leonardo and (2) the ex-parte reception of the evidence of the
plaintiff by the clerk of court, the subsequent using of the same as
basis for its judgment and the rendition of such judgment.
For at least three reasons which We have already fully discussed
above, the order of dismissal of October 21, 1974 is unworthy of Our
sanction: (1) there was no timely notice of the motion therefor to
the non-defaulted defendants, aside from there being no notice at all
to herein petitioners; (2) the common answer of the defendants,
including the non-defaulted, contained a compulsory counterclaim
incapable of being determined in an independent action; and (3) the
immediate effect of such dismissal was the removal of the two non-
defaulted defendants as parties, and inasmuch as they are both
indispensable parties in the case, the court consequently lost the
"sine qua non of the exercise of judicial power", per Borlasa v.
Polistico, supra. This is not to mention anymore the irregular
delegation to the clerk of court of the function of receiving plaintiffs
evidence. And as regards the ex-parte reception of plaintiffs
evidence and subsequent rendition of the judgment by default based
thereon, We have seen that it was violative of the right of the
petitioners, under the applicable rules and principles on default, to a
common and single fate with their non-defaulted co-defendants. And
We are not yet referring, as We shall do this anon, to the numerous
reversible errors in the decision itself.
It is to be noted, however, that the above-indicated two
fundamental flaws in respondent courts actuations do not call for a
common corrective remedy. We cannot simply rule that all the
impugned proceedings are null and void and should be set aside,
without being faced with the insurmountable obstacle that by so
doing We would be reviewing the case as against the two non-
defaulted defendants who are not before Us not being parties
hereto. Upon the other hand, for Us to hold that the order of
dismissal should be allowed to stand, as contended by respondents
themselves who insist that the same is already final, not only
because the period for its finality has long passed but also because
allegedly, albeit not very accurately, said non-defaulted defendants
unsuccessfully tried to have it set aside by the Court of Appeals
whose decision on their petition is also already final, We would have
to disregard whatever evidence had been presented by the plaintiff
against them and, of course, the findings of respondent court based
thereon which, as the assailed decision shows, are adverse to them.
In other words, whichever of the two apparent remedies the Court
chooses, it would necessarily entail some kind of possible juridical
imperfection. Speaking of their respective practical or pragmatic
effects, to annul the dismissal would inevitably prejudice the rights
of the non-defaulted defendants whom We have not heard and who
even respondents would not wish to have anything anymore to do
with the case. On the other hand, to include petitioners in the
dismissal would naturally set at naught every effort private
respondent has made to establish or prove her case thru means
sanctioned by respondent court. In short, We are confronted with a
legal para-dilemma. But one thing is certain this difficult
situations has been brought about by none other than private
respondent who has quite cynically resorted to procedural
maneuvers without realizing that the technicalities of the adjective
law, even when apparently accurate from the literal point of view,
cannot prevail over the imperatives of the substantive law and of
equity that always underlie them and which have to be inevitably
considered in the construction of the pertinent procedural rules.
All things considered, after careful and mature deliberation, the
Court has arrived at the conclusion that as between the two possible
alternatives just stated, it would only be fair, equitable and proper to
uphold the position of petitioners. In other words, We rule that the
order of dismissal of October 21, 1974 is in law a dismissal of the
whole case of the plaintiff, including as to petitioners herein.
Consequently, all proceedings held by respondent court subsequent
thereto including and principally its decision of December 20, 1974
are illegal and should be set aside.
This conclusion is fully justified by the following considerations of
equity:
1. It is very clear to Us that the procedural maneuver resorted to by
private respondent in securing the decision in her favor was ill-
conceived. It was characterized by that which every principle of law
and equity disdains taking unfair advantage of the rules of
procedure in order to unduly deprive the other party of full
opportunity to defend his cause. The idea of "dropping" the non-
defaulted defendants with the end in view of completely
incapacitating their co-defendants from making any defense, without
considering that all of them are indispensable parties to a common
cause of action to which they have countered with a common
defense readily connotes an intent to secure a one-sided decision,
even improperly. And when, in this connection, the obvious
weakness of plaintiffs evidence is taken into account, one easily
understands why such tactics had to be availed of We cannot
directly or indirectly give Our assent to the commission of unfairness
and inequity in the application of the rules of procedure, particularly
when the propriety of reliance thereon is not beyond controversy.
2. The theories of remedial law pursued by private respondents,
although approved by His Honor, run counter to such basic principles
in the rules on default and such elementary rules on dismissal of
actions and notice of motions that no trial court should be unaware
of or should be mistaken in applying. We are at a loss as to why His
Honor failed to see through counsels inequitous strategy, when the
provisions (1) on, the three-day rule on notice of motions, Section 4
of Rule 15, (2) against dismissal of actions on motion of plaintiff
when there is a compulsory counterclaim, Section 2, Rule 17, (3)
against permitting the absence of indispensable parties, Section 7,
Rule 3, (4) on service of papers upon defendants in default when
there are substantial amendments to pleadings, Section 9, Rule 13,
and (5) on the unity and integrity of the fate of defendants in default
with those not in default where the cause of action against them and
their own defenses are common, Section 4, Rule 18, are so plain and
the jurisprudence declaratory of their intent and proper construction
are so readily comprehensible that any error as to their application
would be unusual in any competent trial court.
3. After all, all the malactuations of respondent court are traceable
to the initiative of private respondent and/or her counsel. She
cannot, therefore, complain that she is being made to unjustifiably
suffer the consequences of what We have found to be erroneous
orders of respondent court. It is only fair that she should not be
allowed to benefit from her own frustrated objective of securing a
one-sided decision.
4. More importantly, We do not hesitate to bold that on the basis of
its own recitals, the decision in question cannot stand close scrutiny.
What is more, the very considerations contained therein reveal
convincingly the inherent weakness of the cause of the plaintiff. To
be sure, We have been giving serious thought to the idea of merely
returning this case for a resumption of trial by setting aside the
order of dismissal of October 21, 1974, with all its attendant
difficulties on account of its adverse effects on parties who have not
been heard, but upon closer study of the pleadings and the decision
and other circumstances extant in the record before Us, We are now
persuaded that such a course of action would only lead to more legal
complications incident to attempts on the part of the parties
concerned to desperately squeeze themselves out of a bad situation.
Anyway, We feel confident that by and large, there is enough basis
here and now for Us to rule out the claim of the plaintiff.
Even a mere superficial reading of the decision would immediately
reveal that it is littered on its face with deficiencies and
imperfections which would have had no reason for being were there
less haste and more circumspection in rendering the same.
Recklessness in jumping to unwarranted conclusions, both factual
and legal, is at once evident in its findings relative precisely to the
main bases themselves of the reliefs granted. It is apparent therein
that no effort has been made to avoid glaring inconsistencies. Where
references are made to codal provisions and jurisprudence,
inaccuracy and inapplicability are at once manifest. It hardly
commends itself as a deliberate and consciencious adjudication of a
litigation which, considering the substantial value of the subject
matter it involves and the unprecedented procedure that was
followed by respondents counsel, calls for greater attention and skill
than the general run of cases would.
Inter alia, the following features of the decision make it highly
improbable that if We took another course of action, private
respondent would still be able to make out any case against
petitioners, not to speak of their co-defendants who have already
been exonerated by respondent herself thru her motion to
dismiss:chanrob1es virtual 1aw library
1. According to His Honors own statement of plaintiffs case, "she is
the widow of the late Tee Hoon Po Chuan (Po Chuan, for short) who
was then one of the partners in the commercial partnership, Glory
Commercial Co . . . with defendants Antonio Lim Tanhu (Lim Tanhu,
for short) and Alfonso Leonardo Ng Sua (Ng Sua, for short) as co-
partners; that after the death of her husband on March 11, 1966 she
is entitled to share not only in the capital and profits of the
partnership but also in the other assets, both real and personal,
acquired by the partnership with funds of the latter during its
lifetime."
Relatedly, in the latter part of the decision, the findings are to the
following effect:
"That the herein plaintiff Tan Put and her late husband Po Chuan
were married at the Philippine Independent Church of Cebu City on
December 20, 1949; that Po Chuan died on March 11, 1966; that
the plaintiff and the late Po Chuan were childless but the former has
a foster son Antonio Nuez whom she has reared since his birth with
whom she lives up to the present; that prior to the marriage of the
plaintiff to Po Chuan the latter was already managing the
partnership Glory Commercial Co. then engaged in a little business
in hardware at Manalili St., Cebu City; that prior to and just after the
marriage of the plaintiff to Po Chuan she was engaged in the
drugstore business; that not long after her marriage, upon the
suggestion of Po Chuan, the plaintiff sold her drugstore for
P125,000.00 which amount she gave to her husband in the presence
of defendant Lim Tanhu and was invested to the partnership Glory
Commercial Co. sometime in 1950; that after the investment of the
above-stated amount in the partnership its business flourished and it
embarked in the import business and also engaged in the wholesale
and retail trade of cement and GI sheets and under huge profits;
x x x trial as much as possible and the judge may be able to ascertain the
"That the late Po Chuan was the one who actively managed the
business of the partnership Glory Commercial Co.; he was the one
who made the final decisions and approved the appointments of new
personnel who were taken in by the partnership; that the late Po
Chuan and defendants Lim Tanhu and Ng Sua are brothers, the
latter two (2) being the elder brothers of the former; that
defendants Lim Tanhu and Ng Sua are both naturalized Filipino
citizens whereas the late Po Chuan until the time of his death was a
Chinese citizen; that the three (3) brothers were partners in the
Glory Commercial Co. but Po Chuan was practically the owner of the
partnership having the controlling interest; that defendants Lim
Tanhu and Ng Sua were partners in name but they were mere
employees of Po Chuan; . . . ." (Pp. 89-91, Record.)
How did His Honor arrive at these conclusions? To start with, it is
not clear in the decision whether or not in making its findings of fact
the court took into account the allegations in the pleadings of the
parties and whatever might have transpired at the pre-trial. All that
We can gather in this respect is that references are made therein to
pre-trial exhibits and to Annex A of the answer of the defendants to
plaintiffs amended complaint. Indeed, it was incumbent upon the
court to consider not only the evidence formally offered at the trial
but also the admissions, expressed or implied, in the pleadings, as
well as whatever might have been placed before it or brought to its
attention during the pre-trial. In this connection, it is to be regretted
that none of the parties has thought it proper to give Us an idea of
what took place at the pre-trial of the present case and what are
contained in the pre-trial order, if any was issued pursuant to
Section 4 of Rule 20.
The fundamental purpose of pre-trial, aside from affording the
parties every opportunity to compromise or settle their differences,
is for the court to be apprised of the unsettled issues between the
parties and of their respective evidence relative thereto, to the end
that it may take corresponding measures that would abbreviate the
facts with the least observance of technical rules. In other words,
whatever is said or done by the parties or their counsel at the pre-
trial serves to put the judge on notice of their respective basic
positions, in order that in appropriate cases he may, if necessary in
the interest of justice and a more accurate determination of the
facts, make inquiries about or require clarifications of matters taken
up at the pre-trial, before finally resolving any issue of fact or of law.
In brief, the pre-trial constitutes part and parcel of the proceedings,
and hence, matters dealt with therein may not be disregarded in the
process of decision making. Otherwise, the real essence of
compulsory pre-trial would be insignificant and worthless.
Now, applying these postulates to the findings of respondent court
just quoted, it will be observed that the courts conclusion about the
supposed marriage of plaintiff to the deceased Tee Hoon Lim Po
Chuan is contrary to the weight of the evidence brought before it
during the trial and the pre-trial.
Under Article 55 of the Civil Code, the declaration of the contracting
parties that they take each other as husband and wife "shall be set
forth in an instrument" signed by the parties as well as by their
witnesses and the person solemnizing the marriage. Accordingly, the
primary evidence of a marriage must be an authentic copy of the
marriage contract. While a marriage may also be proved by other
competent evidence, the absence of the contract must first be
satisfactorily explained. Surely, the certification of the person who
allegedly solemnized a marriage is not admissible evidence of such
marriage unless proof of loss of the contract or of any other
satisfactory reason for its non-production is first presented to the
court. In the case at bar, the purported certification issued by a
Mons. Jose M. Recoleto, Bishop, Philippine Independent Church,
Cebu City, is not, therefore, competent evidence, there being
absolutely no showing as to unavailability of the marriage contract
and, indeed, as to the authenticity of the signature of said certifier,
the jurat allegedly signed by a second assistant provincial fiscal not
being authorized by law, since it is not part of the functions of his
office. Besides, inasmuch as the bishop did not testify, the same is
hearsay.
As regards the testimony of plaintiff herself on the same point and
that of her witness Antonio Nuez, there can be no question that
they are both self-serving and of very little evidentiary value, it
having been disclosed at the trial that plaintiff has already assigned
all her rights in this case to said Nuez, thereby making him the real
party in interest here and, therefore, naturally as biased as herself.
Besides, in the portion of the testimony of Nuez copied in Annex C
of petitioners memorandum, it appears admitted that he was born
only on March 25, 1942, which means that he was less than eight
years old at the supposed time of the alleged marriage. If for this
reason alone, it is extremely doubtful if he could have been
sufficiently aware of such event as to be competent to testify about
it.
Incidentally, another Annex C of the same memorandum purports to
be the certificate of birth of one Antonio T. Uy supposed to have
been born on March 23, 1937 at Centro Misamis, Misamis
Occidental, the son of one Uy Bien, father, and Tan Put, mother.
Significantly, respondents have not made any adverse comment on
this document. It is more likely, therefore, that the witness is really
the son of plaintiff by her husband Uy Kim Beng. But she testified
she was childless. So which is which? In any event, if on the
strength of this document, Nuez is actually the legitimate son of
Tan Put and not her adopted son, he would have been but 13 years
old in 1949, the year of her alleged marriage to Po Chuan, and even
then, considering such age, his testimony in regard thereto would
still be suspect.
Now, as against such flimsy evidence of plaintiff, the court had
before it, two documents of great weight belying the pretended
marriage. We refer to (1) Exhibit LL, the income tax return of the
deceased Tee Hoon Lim Po Chuan indicating that the name of his
wife was Ang Siok Tin and (2) the quitclaim, Annex A of the answer,
wherein plaintiff Tan Put stated that she had been living with the
deceased without benefit of marriage and that she was his
"common-law wife." Surely, these two documents are far more
reliable than all the evidence of the plaintiff put together.
Of course, Exhibit LL is what might be termed as pre-trial evidence.
But it is evidence offered to the judge himself, not to the clerk of
court, and should have at least moved him to ask plaintiff to explain
if not rebut it before jumping to the conclusion regarding her alleged
marriage to the deceased, Po Chuan. And in regard to the quitclaim
containing the admission of a common-law relationship only, it is to
be observed that His Honor found that "defendants Lim Tanhu and
Ng Sua had the plaintiff execute a quitclaim on November 29, 1967
(Annex "A", Answer) where they gave plaintiff the amount of
P25,000 as her share in the capital and profits of the business of
Glory Commercial Co. which was engaged in the hardware
business", without making mention of any evidence of fraud and
misrepresentation in its execution, thereby indicating either that no
evidence to prove that allegation of the plaintiff had been presented
by her or that whatever evidence was actually offered did not
produce persuasion upon the court. Stated differently, since the
existence of the quitclaim has been duly established without any
circumstance to detract from its legal import, the court should have
held that plaintiff was bound by her admission therein that she was
the common-law wife only of Po Chuan and what is more, that she
had already renounced for valuable consideration whatever claim
she might have relative to the partnership Glory Commercial Co.
And when it is borne in mind that in addition to all these
considerations, there are mentioned and discussed in the
memorandum of petitioners (1) the certification of the Local Civil
Registrar of Cebu City and (2) a similar certification of the Apostolic
Prefect of the Philippine Independent Church, Parish of Sto. Nino,
Cebu City, that their respective official records corresponding to
December 1949 to December 1950 do not show any marriage
between Tee Hoon Lim Po Chuan and Tan Put, neither of which
certifications have been impugned by respondent until now, it stands
to reason that plaintiffs claim of marriage is really unfounded.
Withal, there is still another document, also mentioned and
discussed in the same memorandum and unimpugned by
respondents, a written agreement executed in Chinese, but
purportedly translated into English by the Chinese Consul of Cebu,
between Tan Put and Tee Hoon Lim Po Chuan to the following effect:
"CONSULATE OF THE REPUBLIC OF CHINA
Cebu City, Philippines
TRANSLATION
This is to certify that I, Miss Tan Ki Eng Alias Tan Put, have lived
with Mr. Lim Po Chuan alias Tee Hoon since 1949 but it recently
occurs that we are incompatible with each other and are not in the
position to keep living together permanently. With the mutual
concurrence, we decided to terminate the existing relationship of
common law-marriage and promised not to interfere each others
affairs from now on. The Forty Thousand Pesos (P40,000.00) has
been given to me by Mr. Lim Po Chuan for my subsistence.
Witnesses:
Mr. Lim Beng Guan
Mr. Huang Sing Se
Signed on the 10 day of the 7th month of the 54th year of the
Republic of China (corresponding to the year 1965).
(SGD) TAN KI ENG
Verified from the records.
JORGE TABAR"
(Pp. 283-284, Record.)
Indeed, not only does this document prove that plaintiffs relation to
the deceased was that of a common-law wife but that they had
settled their property interests with the payment to her of P40,000.
In the light of all these circumstances, We find no alternative but to
hold that plaintiff Tan Puts allegation that she is the widow of Tee
Hoon Lim Po Chuan has not been satisfactorily established and that,
on the contrary, the evidence on record convincingly shows that her
relation with said deceased was that of a common-law wife and
furthermore, that all her claims against the company and its
surviving partners as well as those against the estate of the
deceased have already been settled and paid. We take judicial notice
of the fact that the respective counsel who assisted the parties in
the quitclaim, Attys. H. Hermosisima and Natalio Castillo, are
members in good standing of the Philippine Bar, with the
particularity that the latter has been a member of the Cabinet and of
the House of Representatives of the Philippines, hence, absent any
credible proof that they had allowed themselves to be parties to a
fraudulent document His Honor did right in recognizing its existence,
albeit erring in not giving due legal significance to its contents.
2. If, as We have seen, plaintiffs evidence of her alleged status as
legitimate wife of Po Chuan is not only unconvincing but has been
actually overcome by the more competent and weighty evidence in
favor of the defendants, her attempt to substantiate her main cause
of action that defendants Lim Tanhu and Ng Sua have defrauded the
partnership Glory Commercial Co. and converted its properties to
themselves is even more dismal. From the very evidence
summarized by His Honor in the decision in question, it is clear that
not an iota of reliable proof exists of such alleged misdeeds.
Of course, the existence of the partnership has not been denied, it is
actually admitted impliedly in defendants affirmative defense that
Po Chuans share had already been duly settled with and paid to
both the plaintiff and his legitimate family. But the evidence as to
the actual participation of the defendants Lim Tanhu and Ng Sua in
the operation of the business that could have enabled them to make
the extractions of funds alleged by plaintiff is at best confusing and
at certain points manifestly inconsistent.
In her amended complaint, plaintiff repeatedly alleged that as widow
of Po Chuan she is entitled to 1/3 share of the assets and properties
of the partnership. In fact, her prayer in said complaint is, among
others, for the delivery to her of such 1/3 share. His Honors
statement of the case as well as his findings and judgment are all to
that same effect. But what did she actually try to prove at the ex-
parte hearing?
According to the decision, plaintiff had shown that she had money of
her own when she "married" Po Chuan and "that prior to and just
after the marriage of the plaintiff to Po Chuan, she was engaged in
the drugstore business; that not long after her marriage, upon the
suggestion of Po Chuan, the plaintiff sold her drugstore for P125,000
which amount she gave to her husband in the presence of Tanhu
and was invested in the partnership Glory Commercial Co. sometime
in 1950; that after the investment of the above-stated amount in
the partnership, its business flourished and it embarked in the
import business and also engaged in the wholesale and retail trade
of cement and GI sheets and under (sic) huge profits." (pp. 25-26,
Annex L, petition.)
To begin with, this theory of her having contributed of P125,000 to
the capital of the partnership by reason of which the business
flourished and amassed all the millions referred to in the decision
has not been alleged in the complaint, and inasmuch as what was
being rendered was a judgment by default, such theory should not
have been allowed to be the subject of any evidence. But inasmuch
as it was the clerk of court who received the evidence, it is
understandable that he failed to observe the rule. Then, on the other
hand, if it was her capital that made the partnership flourish, why
would she claim to be entitled to only to 1/3 of its assets and
profits? Under her theory found proven by respondent court, she
was actually the owner of everything, particularly because His Honor
also found "that defendants Lim Tanhu and Ng Sua were partners in
the name but they were employees of Po Chuan; that defendants
Lim Tanhu and Ng Sua had no means of livelihood at the time of
their employment with the Glory Commercial Co. under the
management of the late Po Chuan except their salaries therefrom; .
. ." (p. 27, id.) Why then does she claim only 1/3 share? Is this an
indication of her generosity towards defendants or of a concocted
cause of action existing only in her confused imagination
engendered by the death of her common-law husband with whom
she had settled her common-law claim for recompense of her
services as common-law wife for less than what she must have
known would go to his legitimate wife and children?
Actually, as may be noted from the decision itself, the trial court was
confused as to the participation of defendants Lim Tanhu and Ng
Sua in Glory Commercial Co. At one point, they were deemed
partners, at another point mere employees and then elsewhere as
partners-employees, a newly found concept, to be sure, in the law
on partnership. And the confusion is worse compounded in the
judgment which allows these "partners in name" and "partners-
employees" or employees who had no means of livelihood and who
must not have contributed any capital in the business, "as Po Chuan
was practically the owner of the partnership having the controlling
interest", 1/3 each of the huge assets and profits of the partnership.
Incidentally, it may be observed at this juncture that the decision
has made Po Chuan play the inconsistent role of being "practically
the owner" but at the same time getting his capital from the
P125,000 given to him by plaintiff and from which capital the
business allegedly "flourished."
Anent the allegation of plaintiff that the properties shown by her
exhibits to be in the names of defendants Lim Tanhu and Ng Sua
were bought by them with partnership funds, His Honor confirmed
the same by finding and holding that "it is likewise clear that real
properties together with the improvements in the names of
defendants Lim Tanhu and Ng Sua were acquired with partnership
funds as these defendants were only partners-employees of
deceased Po Chuan in the Glory Commercial Co. until the time of his
death on March 11, 1966." (p. 30, id.) It is Our considered view,
however, that this conclusion of His Honor is based on nothing but
pure unwarranted conjecture. Nowhere is it shown in the decision
how said defendants could have extracted money from the
partnership in the fraudulent and illegal manner pretended by
plaintiff. Neither in the testimony of Nuez nor in that of plaintiff, as
these are summarized in the decision, can there be found any single
act of extraction of partnership funds committed by any of said
defendants. That the partnership might have grown into a multi-
million enterprise and that the properties described in the exhibits
enumerated in the decision are not in the names of Po Chuan, who
was Chinese, but of the defendants who are Filipinos, do not
necessarily prove that Po Chuan had not gotten his share of the
profits of the business or that the properties in the names of the
defendants were bought with money of the partnership. In this
connection, it is decisively important to consider that on the basis of
the concordant and mutually cumulative testimonies of plaintiff and
Nuez, respondent court found very explicitly that, and We
reiterate:
x x x
"That the late Po Chuan was the one who actively managed the
business of the partnership Glory Commercial Co.; he was the one
who made the final decisions and approved the appointments of new
personnel who were taken in by the partnership; that the late Po
Chuan and defendants Lim Tanhu and Ng Sua are brothers, the
latter two (2) being the elder brothers of the former; that
defendants Lim Tanhu and Ng Sua are both naturalized Filipino
citizens whereas the late Po Chuan until the time of his death was a
Chinese citizen; that the three (3) brothers were partners in the
Glory Commercial Co. but Po Chuan was practically the owner of the
partnership having the controlling interest; that defendants Lim
Tanhu and Ng Sua were partners in name but they were mere
employees of Po Chuan; . . . ." (Pp. 90-91, Record.)
If Po Chuan was in control of the affairs and the running of the
partnership, how could the defendants have defrauded him of such
huge amounts as plaintiff had made his Honor believe? Upon the
other hand, since Po Chuan was in control of the affairs of the
partnership, the more logical inference is that if defendants had
obtained any portion of the funds of the partnership for themselves,
it must have been with the knowledge and consent of Po Chuan, for
which reason no accounting could be demanded from them therefor,
considering that Article 1807 of the Civil Code refers only to what is
taken by a partner without the consent of the other partner or
partners. Incidentally again, this theory about Po Chuan having been
actively managing the partnership up to his death is a substantial
deviation from the allegation in the amended complaint to the effect
that "defendants Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim
Teck Chuan and Eng Chong Leonardo, through fraud and
machination, took actual and active management of the partnership
and although Tee Hoon Lim Po Chuan was the manager of Glory
Commercial Co., defendants managed to use the funds of the
partnership to purchase lands and buildings etc. (Par. 4, p. 2 of
amended complaint, Annex B of petition) and should not have been
permitted to be proven by the hearing officer, who naturally did not
know any better.
Moreover, it is very significant that according to the very tax
declarations and land titles listed in the decision, most if not all of
the properties supposed to have been acquired by the defendants
Lim Tanhu and Ng Sua with funds of the partnership appear to have
been transferred to their names only in 1969 or later, that is, long
after the partnership had been automatically dissolved as a result of
the death of Po Chuan. Accordingly, defendants have no obligation
to account to anyone for such acquisitions in the absence of clear
proof that they had violated the trust of Po Chuan during the
existence of the partnership. (See Hanlon v. Hansserman and Beam,
40 Phil. 796.)
There are other particulars which should have caused His Honor to
readily disbelieve plaintiffs pretensions. Nuez testified that "for
about 18 years he was in charge of the GI sheets and sometimes
attended to the imported items of the business of Glory Commercial
Co." Counting 18 years back from 1965 or 1966 would take Us to
1947 or 1948. Since according to Exhibit LL, the baptismal certificate
produced by the same witness as his birth certificate, shows he was
born in March, 1942, how could he have started managing Glory
Commercial Co. in 1949 when he must have been barely six or
seven years old? It should not have escaped His Honors attention
that the photographs showing the premises of Philippine Metal
Industries after its organization "a year or two after the
establishment of Cebu Can Factory in 1957 or 1958" must have
been taken after 1959. How could Nuez have been only 13 years
old then as claimed by him to have been his age in those
photographs when according to his "birth certificate", he was born in
1942? His Honor should not have overlooked that according to the
same witness, defendant Ng Sua was lying in Bantayan until he was
directed to return to Cebu after the fishing business thereat
floundered, whereas all that the witness knew about defendant Lim
Teck Chuans arrival from Hongkong and the expenditure of
partnership money for him were only told to him allegedly by Po
Chuan, which testimonies are veritably exculpatory as to Ng Sua and
hearsay as to Lim Teck Chuan. Neither should His Honor have failed
to note that according to plaintiff herself, "Lim Tanhu was employed
by her husband although he did not go there always being a mere
employee of Glory Commercial Co." (p. 22, Annex L, the decision.)
The decision is rather emphatic in that Lim Tanhu and Ng Sua had
no known income except their salaries. Actually, it is not stated,
however, from what evidence such conclusion was derived in so far
as Ng Sua is concerned. On the other hand, with respect to Lim
Tanhu, the decision itself states that according to Exhibit NN-Pre-
trial, in the supposed income tax return of Lim Tanhu for 1964, he
had an income of P4,800 as salary from Philippine Metal Industries
alone and had a total assessable net income of P23,920.77 that year
for which he paid a tax of P4,656.00. (p. 14. Annex L, id.) And per
Exhibit GG-Pre-trial, in the year, he had a net income of P32,000 for
which he paid a tax of P3,512.40. (id.) As early as 1962, "his fishing
business in Madridejos, Cebu was making money, and he reported
"a net gain from operation (in) the amount of P865.64" (id., per
Exhibit VV-Pre-trial.) From what then did his Honor gather the
conclusion that all the properties registered in his name have come
from funds malversed from the partnership?
It is rather unusual that His Honor delved into financial statements
and books of Glory Commercial Co. without the aid of any
accountant or without the same being explained by any witness who
had prepared them or who has knowledge of the entries therein.
This must be the reason why there are apparent inconsistencies and
inaccuracies in the conclusions His Honor made out of them. In
Exhibit SS-Pre-trial, the reported total assets of the company
amounted to P2,328,460.27 as of December, 1965, and yet, Exhibit
TT-Pre-trial, according to His Honor, showed that the total value of
goods available as of the same date was P11,166,327.62. On the
other hand, per Exhibit XX-Pre-trial, the supposed balance sheet of
the company for 1966, "the value of inventoried merchandise, both
local and imported", as found by His Honor, was P584,034.38.
Again, as of December 31, 1966, the value of the companys goods
available for sale was P5,524,050.87, per Exhibit YY and YY-1-Pre-
trial. Then, per Exhibit II-3-Pre-trial, the supposed Book of Account,
whatever that is, of the company showed its "cash analysis" was
P12,223,182.55. We do not hesitate to make the observation that
His Honor, unless he is a certified public accountant, was hardly
qualified to read such exhibits and draw any definite conclusions
therefrom, without risk of erring and committing an injustice. In any
event, there is no comprehensible explanation in the decision of the
conclusion of His Honor that there were P12,223,182.55 cash money
defendants have to account for, particularly when it can be very
clearly seen in Exhibits II-4, II-4-A, II-5 and II-6-Pre-trial, Glory
Commercial Co. had accounts payable as of December 31, 1965 in
the amount of P4,801,321.17. (p. 15, id.) Under the circumstances,
We are not prepared to permit anyone to predicate any claim or
right from respondent courts unaided exercise of accounting
knowledge.
Additionally, We note that the decision has not made any finding
regarding the allegation in the amended complaint that a
corporation denominated Glory Commercial Co., Inc. was organized
after the death of Po Chuan with capital from the funds of the
partnership. We note also that there is absolutely no finding made
as to how the defendants Dy Ochay and Co Oyo could in any way be
accountable to plaintiff, just because they happen to be the wives of
Lim Tanhu and Ng Sua, respectively. We further note that while His
Honor has ordered defendants to deliver or pay jointly and severally
to the plaintiff P4,074,394.18 or 1/3 of the P12,223,182.55, the
supposed cash belonging to the partnership as of December 31,
1965, in the same breath, they have also been sentenced to
partition and give 1/3 share of the properties enumerated in the
dispositive portion of the decision, which seemingly are the very
properties allegedly purchased from the funds of the partnership
which would naturally include the P12,223,182.55 defendants have
to account for. Besides, assuming there has not yet been any
liquidation of the partnership, contrary to the allegation of the
defendants, then Glory Commercial Co. would have the status of a
partnership in liquidation and the only right plaintiff could have
would be to what might result after such liquidation to belong to the
deceased partner, and before this is finished, it is impossible to
determine, what rights or interests, if any, the deceased had
(Bearneza v. Deqoilla, 43 Phil. 237). In other words, no specific
amounts or properties may be adjudicated to the heir or legal
representative of the deceased partner without the liquidation being
first terminated.
Indeed, only time and the fear that this decision would be much
more extended than it is already prevent us from further pointing
out the inexplicable deficiencies and imperfections of the decision in
question. After all, what have been discussed should be more than
sufficient to support Our conclusion that not only must said decision
be set aside but also that the action of the plaintiff must be totally
dismissed, and, were it not seemingly futile and productive of other
legal complications, that plaintiff is liable on defendants
counterclaims. Resolution of the other issues raised by the parties
albeit important and perhaps pivotal has likewise become
superfluous.
IN VIEW OF ALL THE FOREGOING, the petition is granted. All
proceedings held in respondent court in its Civil Case No. 12328
subsequent to the order of dismissal of October 21, 1974 are hereby
annulled and set aside, particularly the ex-parte proceedings against
petitioners and the decision of December 20, 1974. Respondent
court is hereby ordered to enter an order extending the effects of its
order of dismissal of the action dated October 21, 1974 to herein
petitioners Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua
and Co Oyo. And respondent court is hereby permanently enjoined
from taking any further action in said civil case save and except as
herein indicated. Costs against private Respondent.
 THIRD DIVISION
[G.R. No. 70926. January 31, 1989.]
DAN FUE LEUNG, Petitioner, v. HON. INTERMEDIATE
APPELLATE COURT and LEUNG YIU,Respondents.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE; ACTIONS; CAUSE OF
ACTION; NATURE OF ACTION IS DETERMINED BY THE FACTS
CONSTITUTING THE CAUSE OF ACTION. The well-settled doctrine
is that the." . . nature of the action filed in court is determined by
the facts alleged in the complaint as constituting the cause of
action." (De Tavera v. Philippine Tuberculosis Society, Inc., 113
SCRA 243; Alger Electric, Inc. v. Court of Appeals, 135 SCRA 37).
2. CIVIL LAW; SPECIAL CONTRACTS; PARTNERSHIP; REQUISITES.
The requisites of a partnership which are 1) two or more
persons bind themselves to contribute money, property, or industry
to a common fund; and 2) intention on the part of the partners to
divide the profits among themselves (Article 1767, Civil Code; Yulo
v. Yang Chiao Cheng, 106 Phil. 110)
3. ID.; ID.; ID.; OBLIGATIONS OF PARTNERS; RIGHT TO DEMAND
AN ACCOUNTING EXISTS AS LONG AS PARTNERSHIP EXISTS;
PRESCRIPTION BEGINS TO RUN ONLY UPON DISSOLUTION OF
PARTNERSHIP WHEN FINAL ACCOUNTING IS DONE. Regarding
the prescriptive period within which the private respondent may
demand an accounting, Articles 1806, 1807, and 1809 show that the
right to demand an accounting exists as long as the partnership
exists. Prescription begins to run only upon the dissolution of the
partnership when the final accounting is done.
4. ID.; ID.; ID.; DISSOLUTION AND WINDING UP; LIQUIDATION
AND WINDING UP OF PARTNERSHIP AFFAIRS, RETURN OF CAPITAL
AND OTHER INCIDENTS OF DISSOLUTION PROPER BECAUSE
CONTINUATION OF PARTNERSHIP HAS BECOME INEQUITABLE.
There shall be a liquidation and winding up of partnership affairs,
return of capital, and other incidents of dissolution because the
continuation of the partnership has become inequitable.
DECISION
GUTIERREZ, JR., J.:
The petitioner asks for the reversal of the decision of the then
Intermediate Appellate Court in AC-G.R. No. CV-00881 which
affirmed the decision of the then Court of First Instance of Manila,
Branch II in Civil Case No. 116725 declaring private respondent
Leung Yiu a partner of petitioner Dan Fue Leung in the business of
Sun Wah Panciteria and ordering the petitioner to pay to the private
respondent his share in the annual profits of the said restaurant.
This case originated from a complaint filed by respondent Leung Yiu
with the then Court of First Instance of Manila, Branch II to recover
the sum equivalent to twenty-two percent (22%) of the annual
profits derived from the operation of Sun Wah Panciteria since
October, 1955 from petitioner Dan Fue Leung.
The Sun Wah Panciteria, a restaurant, located at Florentino Torres
Street, Sta. Cruz, Manila, was established sometime in October,
1955. It was registered as a single proprietorship and its licenses
and permits were issued to and in favor of petitioner Dan Fue Leung
as the sole proprietor. Respondent Leung Yiu adduced evidence
during the trial of the case to show that Sun Wah Panciteria was
actually a partnership and that he was one of tile partners having
contributed P4,000.00 to its initial establishment.
The private respondents evidence is summarized as follows:
About the time the Sun Wah Panciteria started to become
operational, the private respondent gave P4,000.00 as his
contribution to the partnership. This is evidenced by a receipt
identified as Exhibit "A" wherein the petitioner acknowledged his
acceptance of the P4,000.00 by affixing his signature thereto. The
receipt was written in Chinese characters so that the trial court
commissioned an interpreter in the person of Ms. Florence Yap to
translate its contents into English. Florence Yap issued a certification
and testified that the translation to the best of her knowledge and
belief was correct. The private respondent identified the signature on
the receipt as that of the petitioner (Exhibit A-3) because it was
affixed by the latter in his (private respondentss) presence.
Witnesses So Sia and Antonio Ah Heng corroborated the private
respondents testimony to the effect that they were both present
when the receipt (Exhibit "A") was signed by the petitioner. So Sia
further testified that he himself received from the petitioner a similar
receipt (Exhibit D) evidencing delivery of his own investment in
another amount of P4,000.00. An examination was conducted by the
PC Crime Laboratory on orders of the trial court granting the private
respondents motion for examination of certain documentary
exhibits. The signatures in Exhibits "A" and "D" when compared to
the signature of the petitioner appearing in the pay envelopes of
employees of the restaurant, namely Ah Heng and Maria Wong
(Exhibits H, H-1 to H-24) showed that the signatures in the two
receipts were indeed the signatures of the petitioner.
Furthermore, the private respondent received from the petitioner the
amount of P12,000.00 covered by the latters Equitable Banking
Corporation Check No. 13389470-B from the profits of the operation
of the restaurant for the year 1974. Witness Teodulo Diaz, Chief of
the Savings Department of the China Banking Corporation testified
that said check (Exhibit B) was deposited by and duly credited to the
private respondents savings account with the bank after it was
cleared by the drawee bank, the Equitable Banking Corporation.
Another witness Elvira Rana of the Equitable Banking Corporation
testified that the check in question was in fact and in truth drawn by
the petitioner and debited against his own account in said bank. This
fact was clearly shown and indicated in the petitioners statement of
account after the check (Exhibit B) was duly cleared. Rana further
testified that upon clearance of the check and pursuant to normal
banking procedure, said check was returned to the petitioner as the
maker thereof.
The petitioner denied having received from the private respondent
the amount of P4,000.00. He contested and impugned the
genuineness of the receipt (Exhibit D). His evidence is summarized
as follows:
The petitioner did not receive any contribution at the time he started
the Sun Wah Panciteria. He used his savings from his salaries as an
employee at Camp Stotsenberg in Clark Field and later as waiter at
the Toho Restaurant amounting to a little more than P2,000.00 as
capital in establishing Sun Wah Panciteria. To bolster his contention
that he was the sole owner of the restaurant, the petitioner
presented various government licenses and permits showing the Sun
Wah Panciteria was and still is a single proprietorship solely owned
and operated by himself alone. Fue Leung also flatly denied having
issued to the private respondent the receipt (Exhibit G) and the
Equitable Banking Corporations Check No. 13389470 B in the
amount of P12,000.00 (Exhibit B).
As between the conflicting evidence of the parties, the trial court
gave credence to that of the plaintiffs. Hence, the court ruled in
favor of the private Respondent. The dispositive portion of the
decision reads:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff
and against the defendant, ordering the latter to deliver and pay to
the former, the sum equivalent to 22% of the annual profit derived
from the operation of Sun Wah Panciteria from October, 1955, until
fully paid, and attorneys fees in the amount of P5,000.00 and cost
of suit." (p. 125, Rollo)
The private respondent filed a verified motion for reconsideration in
the nature of a motion for new trial and, as supplement to the said
motion, he requested that the decision rendered should include the
net profit of the Sun Wah Panciteria which was not specified in the
decision, and allow private respondent to adduce evidence so that
the said decision will be comprehensively adequate and thus put an
end to further litigation.
The motion was granted over the objections of the petitioner. After
hearing, the trial court rendered an amended decision, the
dispositive portion of which reads:
"FOR ALL THE FOREGOING CONSIDERATIONS, the motion for
reconsideration filed by the plaintiff, which was granted earlier by
the Court, is hereby reiterated and the decision rendered by this
Court on September 30, 1980, is hereby amended. The dispositive
portion of said decision should read now as follows:
"WHEREFORE, judgment is hereby rendered, ordering the plaintiff
(sic) and against the defendant, ordering the latter to pay the
former the sum equivalent to 22% of the net profit of P8,000.00 per
day from the time of judicial demand, until fully paid, plus the sum
of P5,000.00 as and for attorneys fees and costs of suit." (p. 150,
Rollo)
The petitioner appealed the trial courts amended decision to the
then Intermediate Appellate Court. The questioned decision was
further modified by the appellate court. The dispositive portion of
the appellate courts decision reads:
"WHEREFORE, the decision appealed from is modified, the
dispositive portion thereof reading as follows:
"1. Ordering the defendant to pay the plaintiff by way of temperate
damages 22% of the net profit of P2,000.00 a day from judicial
demand to May 15, 1971;
"2. Similarly, the sum equivalent to 22% of the net profit of
P8,000.00 a day from May 16, 1971 to August 30, 1975;
"3. And thereafter until fully paid the sum equivalent to 22% of the
net profit of P8,000.00 a day.
"Except as modified, the decision of the court a quo is affirmed in all
other respects. (p. 102, Rollo)
Later, the appellate court, in a resolution, modified its decision and
affirmed the lower courts decision. The dispositive portion of the
resolution reads:
"WHEREFORE, the dispositive portion of the amended judgment of
the court a quo reading as follows:chanrob1es virtual 1aw library
WHEREFORE, judgment is rendered in favor of the plaintiff and
against the defendant, ordering the latter to pay to the former the
sum equivalent to 22% of the net profit of P8,000.00 per day from
the time of judicial demand, until fully paid, plus the sum of
P5,000.00 as and for attorneys fees and costs of suit.
is hereby retained in full and affirmed in toto it being understood
that the date of judicial demand is July 13, 1978." (pp. 105-106,
Rollo).
In the same resolution, the motion for reconsideration filed by
petitioner was denied.
Both the trial court and the appellate court found that the private
respondent is a partner of the petitioner in the setting up and
operations of the panciteria. While the dispositive portions merely
ordered the payment of the respondents share, there is no question
from the factual findings that the respondent invested in the
business as a partner. Hence, the two courts declared that the
private petitioner is entitled to a share of the annual profits of the
restaurant. The petitioner, however, claims that this factual finding
is erroneous. Thus, the petitioner argues: "The complaint avers that
private respondent extended financial assistance to herein
petitioner at the time of the establishment of the Sun Wah
Panciteria, in return of which private respondent allegedly will
receive a share in the profits of the restaurant. The same complaint
did not claim that private respondent is a partner of the business. It
was, therefore, a serious error for the lower court and the Hon.
Intermediate Appellate Court to grant a relief not called for by the
complaint. It was also error for the Hon. Intermediate Appellate
Court to interpret or construe financial assistance to mean the
contribution of capital by a partner to a partnership;" (p. 75, Rollo)
The pertinent portions of the complaint state:chanrob1es virtual 1aw
library
x x x such financial assistance, plaintiff (private respondent) would be
"2. That on or about the latter (sic) of September, 1955, defendant
sought the financial assistance of plaintiff in operating the
defendants eatery known as Sun Wah Panciteria, located in the
given address of defendant; as a return for such financial assistance.
plaintiff would be entitled to twenty-two percentum (22%) of the
annual profit derived from the operation of the said panciteria;
"3. That on October 1, 1955, plaintiff delivered to the defendant the
sum of four thousand pesos (P4,000.00), Philippine Currency, of
which copy for the receipt of such amount, duly acknowledged by
the defendant is attached hereto as Annex "A", and form an integral
part hereof;" (p. 11, Rollo)
In essence, the private respondent alleged that when Sun Wah
Panciteria was established, he gave P4,000.00 to the petitioner with
the understanding that he would be entitled to twenty-two percent
(22%) of the annual profit derived from the operation of the said
panciteria. These allegations, which were proved, make the private
respondent and the petitioner partners in the establishment of Sun
Wah Panciteria because Article 1767 of the Civil Code provides that
"By the contract of partnership two or more persons bind
themselves to contribute money, property or industry to a common
fund, with the intention of dividing the profits among themselves."
Therefore, the lower courts did not err in construing the complaint
as one wherein the private respondent asserted his rights as partner
of the petitioner in the establishment of the Sun Wah Panciteria,
notwithstanding the use of the term financial assistance therein. We
agree with the appellate courts observation to the effect that." . .
given its ordinary meaning, financial assistance is the giving out of
money to another without the expectation of any returns therefrom.
It connotes an ex gratia dole out in favor of someone driven into a
state of destitution. But this circumstance under which the
P4,000.00 was given to the petitioner does not obtain in this case."
(p. 99, Rollo) The complaint explicitly stated that "as a return for
entitled to twenty-two percentum (22%) of the annual profit derived
from the operation of the said panciteria." (p. 107, Rollo) The well-
settled doctrine is that the." . . nature of the action filed in court is
determined by the facts alleged in the complaint as constituting the
cause of action." (De Tavera v. Philippine Tuberculosis Society, Inc.,
113 SCRA 243; Alger Electric, Inc. v. Court of Appeals, 135 SCRA
37).
The appellate court did not err in declaring that the main issue in the
instant case was whether or not the private respondent is a partner
of the petitioner in the establishment of Sun Wah Panciteria.
The petitioner also contends that the respondent court gravely erred
in giving probative value to the PC Crime Laboratory Report (Exhibit
"J") on the ground that the alleged standards or specimens used by
the PC Crime Laboratory in arriving at the conclusion were never
testified to by any witness nor has any witness identified the
handwriting in the standards or specimens belonging to the
petitioner. The supposed standards or specimens of handwriting
were marked as Exhibits "H", "H-1" to "H-24" and admitted as
evidence for the private respondent over the vigorous objection of
the petitioners counsel.
The records show that the PC Crime Laboratory upon orders of the
lower court examined the signatures in the two receipts issued
separately by the petitioner to the private respondent and So Sia
(Exhibits "A" and "D") and compared the signatures on them with
the signatures of the petitioner on the various pay envelopes
(Exhibits "H", "H-1" to "H-24") of Antonio Ah Heng and Maria Wong,
employees of the restaurant. After the usual examination conducted
on the questioned documents, the PC Crime Laboratory submitted
its findings (Exhibit J) attesting that the signatures appearing in both
receipts (Exhibits "A" and "D") were the signatures of the petitioner.
The records also show that when the pay envelopes (Exhibits "H",
"H-1" to "H-24") were presented by the private respondent for
marking as exhibits, the petitioner did not interpose any objection.
Neither did the petitioner file an opposition to the motion of the
private respondent to have these exhibits together with the two
receipts examined by the PC Crime Laboratory despite due notice to
him. Likewise, no explanation has been offered for his silence nor
was any hint of objection registered for that purpose.
Under these circumstances, we find no reason why Exhibit "J" should
be rejected or ignored. The records sufficiently establish that there
was a partnership.
The petitioner raises the issue of prescription. He argues: The Hon.
Respondent Intermediate Appellate Court gravely erred in not
resolving the issue of prescription in favor of petitioner. The alleged
receipt is dated October 1, 1955 and the complaint was filed only on
July 13, 1978 or after the lapse of twenty-two (22) years, nine (9)
months and twelve (12) days. From October 1, 1955 to duly 13,
1978, no written demands were ever made by private Respondent.
The petitioners argument is based on Article 1144 of the Civil Code
which provides:
Art. 1144. The following actions must be brought within ten years
from the time the right of section accrues:
"(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment."
in relation to Article 1155 thereof which provides:
"Art. 1155. The prescription of actions is interrupted when they are
filed before the court, when there is a written extra-judicial demand
by the creditor, and when there is any written acknowledgment of
the debt by the debtor."cralaw virtua1aw library
The argument is not well-taken.
The private respondent is a partner of the petitioner in Sun Wah
Panciteria. The requisites of a partnership which are 1) two or
more persons bind themselves to contribute money, property, or
industry to a common fund; and 2) intention on the part of the
partners to divide the profits among themselves (Article 1767, Civil
Code; Yulo v. Yang Chiao Cheng, 106 Phil. 110) have been
established. As stated by the respondent, a partner shares not only
in profits but also in the losses of the firm. If excellent relations exist
among the partners at the start of business and all the partners are
more interested in seeing the firm grow rather than get immediate
returns, a deferment of sharing in the profits is perfectly plausible. It
would be incorrect to state that if a partner does not assert his
rights anytime within ten years from the start of operations, such
rights are irretrievably lost. The private respondents cause of action
is premised upon the failure of the petitioner to give him the agreed
profits in the operation of Sun Wah Panciteria. In effect the private
respondent was asking for an accounting of his interests in the
partnership.
It is Article 1842 of the Civil Code in conjunction with Articles 1144
and 1155 which is applicable. Article 1842 states:
"The right to an account of his interest shall accrue to any partner,
or his legal representative as against the winding up partners or the
surviving partners or the person or partnership continuing the
business, at the date of dissolution, in the absence or any
agreement to the contrary."
Regarding the prescriptive period within which the private
respondent may demand an accounting, Articles 1806, 1807, and
1809 show that the right to demand an accounting exists as long as
the partnership exists. Prescription begins to run only upon the
dissolution of the partnership when the final accounting is done.
Finally, the petitioner assails the appellate courts monetary awards
in favor of the private respondent for being excessive and
unconscionable and above the claim of private respondent as
embodied in his complaint and testimonial evidence presented by
said private respondent to support his claim in the complaint.
Apart from his own testimony and allegations, the private
respondent presented the cashier of Sun Wah Panciteria, a certain
Mrs. Sarah L. Licup, to testify on the income of the restaurant.
Mrs. Licup stated:
"ATTY. HIPOLITO (direct examination to Mrs. Licup).
"Q Mrs. Witness, yon stated that among your duties was that you
were in charge of the custody of the cashiers box, of the money,
being the cashier, is that correct?
"A Yes, sir.
"Q So that every time there is a customer who pays, you were the
one who accepted the money and you gave the change, if any, is
that correct?
"A Yes.
"Q Now, after 11:30 (P.M.) which is the closing time as you said,
what do you do with the money?
"A We balance it with the manager, Mr. Dan Fue Leung.
"ATTY. HIPOLITO:
I see.
"Q So, in other words, after your job, you huddle or confer together?
"A Yes, count it all. I total it. We sum it up.
"Q Now, Mrs. Witness, in an average day, more or less, will you
please tell us, how much is the gross income of the restaurant?
"A For regular days, I received around P7,000.00 a day during my
shift alone and during pay days I receive more than P10,000.00.
That is excluding the catering outside the place.
"Q What about the catering service, will you please tell the
Honorable Court how many times a week were there catering
services?
"A Sometimes three times a month; sometimes two times a month
or more.
x x x
"Q Now more or less, do you know the cost of the catering service?
"A Yes, because I am the one who receives the payment also of the
catering.
"Q How much is that?
"A That ranges from two thousand to six thousand pesos, sir.
"Q Per service?
"A Per service, Per catering.
"Q So in other words, Mrs. witness, for your shift alone in a single
day from 3:30 P.M. to 11:30 P.M. in the evening the restaurant
grosses an income of P7,000.00 in a regular day?
"A Yes.
"Q And ten thousand pesos during pay day?
"A Yes.(TSN, pp. 53 to 59, inclusive, November 15, 1978).
x x x
"COURT: Any cross?
"ATTY. UY (counsel for defendant):
No cross-examination, Your Honor. (TSN. p. 65, November 15,
1978)." (Rollo, pp. 127-128)
The statements of the cashier were not rebutted. Not only did the
petitioners counsel waive the cross-examination on the matter of
income but he failed to comply with his promise to produce pertinent
records. When a subpoena duces tecum was issued to the petitioner
for the production of their records of sale, his counsel voluntarily
offered to bring them to court. He asked for sufficient time
prompting the court to cancel all hearings for January, 1981 and
reset them to the later part of the following month. The petitioners
counsel never produced any books, prompting the trial court to
state:
"Counsel for the defendant admitted that the sales of Sun Wah were
registered or recorded in the daily sales book, ledgers, journals and
for this purpose, employed a bookkeeper. This inspired the Court to
ask counsel for the defendant to bring said records and counsel for
the defendant promised to bring those that were available.
Seemingly, that was the reason why this case dragged for quite
sometime. To bemuddle the issue, defendant instead of presenting
the books where the same, etc. were recorded, presented witnesses
who claimed to have supplied chicken, meat, shrimps, egg and other
poultry products which, however, did not show the gross sales nor
does it prove that the same is the best evidence. This Court gave
warning to the defendants counsel that if he failed to produce the
books, the same will be considered a waiver on the part of the
defendant to produce the said books inimitably showing decisive
records on the income of the eatery pursuant to the Rules of Court
(Sec. 5(e) Rule 131). "Evidence willfully suppressed would be
adverse if produced." (Rollo, p. 145)
The records show that the trial court went out of its way to accord
due process to the petitioner.
"The defendant was given all the chance to present all conceivable
witnesses, after the plaintiff has rested his case on February 25,
1981, however, after presenting several witnesses, counsel for
defendant promised that he will present the defendant as his last
witness. Notably there were several postponement asked by counsel
for the defendant and the last one was on October 1, 1981 when he
asked that this case be postponed for 45 days because said
defendant was then in Hongkong and he (defendant) will be back
after said period. The Court acting with great concern and
understanding reset the hearing to November 17, 1981. On said
date, the counsel for the defendant who again failed to present the
defendant asked for another postponement, this time to November
24, 1981 in order to give said defendant another judicial
magnanimity and substantial due process. It was however a
condition in the order granting the postponement to said date that if
the defendant cannot be presented, counsel is deemed to have
waived the presentation of said witness and will submit his case for
decision.
"On November 24, 1981, there being a typhoon prevailing in Manila
said date was declared a partial non-working holiday, so much so,
the hearing was reset to December 7 and 22, 1981. On December 7,
1981, on motion of defendants counsel, the same was again reset
to December 22, 1981 as previously scheduled which hearing was
understood as intransferable in character. Again on December 22,
1981, the defendants counsel asked for postponement on the
ground that the defendant was sick. The Court, after much tolerance
and judicial magnanimity, denied said motion and ordered that the
case be submitted for resolution based on the evidence on record
and gave the parties 30 days from December 23, 1981, within which
to file their simultaneous memoranda." (Rollo, pp. 148-150)
The restaurant is located at No. 747 Florentino Torres, Sta. Cruz,
Manila in front of the Republic Supermarket. It is near the corner of
Claro M. Recto Street. According to the trial court, it is in the heart
of Chinatown where people who buy and sell jewelries,
businessmen, brokers, manager, bank employees, and people from
all walks of life converge and patronize Sun Wah.
There is more than substantial evidence to support the factual
findings of the trial court and the appellate court. If the respondent
court awarded damages only from judicial demand in 1978 and not
from the opening of the restaurant in 1955, it is because of the
petitioners contentions that all profits were being plowed back into
the expansion of the business. There is no basis in the records to
sustain the petitioners contention that the damages awarded are
excessive. Even if the Court is minded to modify the factual findings
of both the trial court and the appellate court, it cannot refer to any
portion of the records for such modification. There is no basis in the
records for this Court to change or set aside the factual findings of
the trial court and the appellate court. The petitioner was given
every opportunity to refute or rebut the respondents submissions
but, after promising to do so, it deliberately failed to present its
books and other evidence.
The resolution of the Intermediate Appellate Court ordering the
payment of the petitioners obligation shows that the same
continues until fully paid. The question now arises as to whether or
not the payment of a share of profits shall continue into the future
with no fixed ending date.
Considering the facts of this case, the Court may decree a
dissolution of the partnership under Article 1831 of the Civil Code
which, in part, provides:
"Art. 1831. On application by or for a partner the court shall decree
a dissolution whenever:
x x x
"(3) A partner has been guilty of such conduct as tends to affect
prejudicially the carrying on of the business;
"(4) A partner willfully or persistently commits a breach of the
partnership agreement, or otherwise so conducts himself in matters
relating to the partnership business that it is not reasonably
practicable to carry on the business in partnership with him;
x x x
"(6) Other circumstances render a dissolution equitable."cralaw
virtua1aw library
There shall be a liquidation and winding up of partnership affairs,
return of capital, and other incidents of dissolution because the
continuation of the partnership has become inequitable.
WHEREFORE, the petition for review is hereby DISMISSED for lack of
merit. The decision of the respondent court is AFFIRMED with a
MODIFICATION that as indicated above, the partnership of the
parties is ordered dissolved.
SO ORDERED.
 FIRST DIVISION
[G.R. No. 126334. November 23, 2001.]
EMILIO EMNACE, Petitioner, v. COURT OF APPEALS, ESTATE
OF VICENTE TABANAO, SHERWIN TABANAO, VICENTE
WILLIAM TABANAO, JANETTE TABANAO DEPOSOY, VICENTA
MAY TABANAO VARELA, ROSELA TABANAO and VINCENT
TABANAO, Respondents.
DECISION
YNARES-SANTIAGO, J.:
Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divinagracia
were partners in a business concern known as Ma. Nelma Fishing
Industry. Sometime in January of 1986, they decided to dissolve
their partnership and executed an agreement of partition and
distribution of the partnership properties among them, consequent
to Jacinto Divinagracias withdrawal from the partnership. Among
the assets to be distributed were five (5) fishing boats, six (6)
vehicles, two (2) parcels of land located at Sto. Nio and Talisay,
Negros Occidental, and cash deposits in the local branches of the
Bank of the Philippine Islands and Prudential Bank.
Throughout the existence of the partnership, and even after Vicente
Tabanaos untimely demise in 1994, petitioner failed to submit to
Tabanaos heirs any statement of assets and liabilities of the
partnership, and to render an accounting of the partnerships
finances. Petitioner also reneged on his promise to turn over to
Tabanaos heirs the deceaseds 1/3 share in the total assets of the
partnership, amounting to P30,000,000.00, or the sum of
P10,000,000.00, despite formal demand for payment thereof.
Consequently, Tabanaos heirs, respondents herein, filed against
petitioner an action for accounting, payment of shares, division of
assets and damages. In their complaint, respondents prayed as
follows:
1. Defendant be ordered to render the proper accounting of all the
assets and liabilities of the partnership at bar; and
2. After due notice and hearing defendant be ordered to
pay/remit/deliver/surrender/yield to the plaintiffs the following:
A. No less than One Third (1/3) of the assets, properties, dividends,
cash, land(s), fishing vessels, trucks, motor vehicles, and other
forms and substance of treasures which belong and/or should
belong, had accrued and/or must accrue to the partnership;
B. No less than Two Hundred Thousand Pesos (P200,000.00) as
moral damages;
C. Attorneys fees equivalent to Thirty Percent (30%) of the entire
share/amount/award which the Honorable Court may resolve the
plaintiffs as entitled to plus P1,000.00 for every appearance in court.
Petitioner filed a motion to dismiss the complaint on the grounds of
improper venue, lack of jurisdiction over the nature of the action or
suit, and lack of capacity of the estate of Tabanao to sue. On August
30, 1994, the trial court denied the motion to dismiss. It held that
venue was properly laid because, while realties were involved, the
action was directed against a particular person on the basis of his
personal liability; hence, the action is not only a personal action but
also an action in personam. As regards petitioners argument of lack
of jurisdiction over the action because the prescribed docket fee was
not paid considering the huge amount involved in the claim, the trial
court noted that a request for accounting was made in order that the
exact value of the partnership may be ascertained and, thus, the
correct docket fee may be paid. Finally, the trial court held that the
heirs of Tabanao had a right to sue in their own names, in view of
the provision of Article 777 of the Civil Code, which states that the
rights to the succession are transmitted from the moment of the
death of the decedent.
The following day, respondents filed an amended complaint,
incorporating the additional prayer that petitioner be ordered to "sell
all (the partnerships) assets and thereafter
pay/remit/deliver/surrender/yield to the plaintiffs" their
corresponding share in the proceeds thereof. In due time, petitioner
filed a manifestation and motion to dismiss, arguing that the trial
court did not acquire jurisdiction over the case due to the plaintiffs
failure to pay the proper docket fees. Further, in a supplement to his
motion to dismiss, petitioner also raised prescription as an additional
ground warranting the outright dismissal of the complaint.
On June 15, 1995, the trial court issued an Order, denying the
motion to dismiss inasmuch as the grounds raised therein were
basically the same as the earlier motion to dismiss which has been
denied. Anent the issue of prescription, the trial court ruled that
prescription begins to run only upon the dissolution of the
partnership when the final accounting is done. Hence, prescription
has not set in the absence of a final accounting. Moreover, an action
based on a written contract prescribes in ten years from the time the
right of action accrues.
Petitioner filed a petition for certiorari before the Court of Appeals,
raising the following issues:
I. Whether or not respondent Judge acted without jurisdiction or
with grave abuse of discretion in taking cognizance of a case despite
the failure to pay the required docket fee;
II. Whether or not respondent Judge acted without jurisdiction or
with grave abuse of discretion in insisting to try the case which
involve (sic) a parcel of land situated outside of its territorial
jurisdiction;
III. Whether or not respondent Judge acted without jurisdiction or
with grave abuse of discretion in allowing the estate of the deceased
to appear as party plaintiff, when there is no intestate case and filed
by one who was never appointed by the court as administratrix of
the estates; and
IV. Whether or not respondent Judge acted without jurisdiction or
with grave abuse of discretion in not dismissing the case on the
ground of prescription.
On August 8, 1996, the Court of Appeals rendered the assailed
decision, dismissing the petition for certiorari, upon a finding that no
grave abuse of discretion amounting to lack or excess of jurisdiction
was committed by the trial court in issuing the questioned orders
denying petitioners motions to dismiss.
Not satisfied, petitioner filed the instant petition for review, raising
the same issues resolved by the Court of Appeals, namely:
I. Failure to pay the proper docket fee;
II. Parcel of land subject of the case pending before the trial court is
outside the said courts territorial jurisdiction;
III. Lack of capacity to sue on the part of plaintiff heirs of Vicente
Tabanao; and
IV. Prescription of the plaintiff heirs cause of action.
It can be readily seen that respondents primary and ultimate
objective in instituting the action below was to recover the
decedents 1/3 share in the partnerships assets. While they ask for
an accounting of the partnerships assets and finances, what they
are actually asking is for the trial court to compel petitioner to pay
and turn over their share, or the equivalent value thereof, from the
proceeds of the sale of the partnership assets. They also assert that
until and unless a proper accounting is done, the exact value of the
partnerships assets, as well as their corresponding share therein,
cannot be ascertained. Consequently, they feel justified in not
having paid the commensurate docket fee as required by the Rules
of Court.
We do not agree. The trial court does not have to employ guesswork
in ascertaining the estimated value of the partnerships assets, for
respondents themselves voluntarily pegged the worth thereof at
Thirty Million Pesos (P30,000,000.00). Hence, this case is one which
is really not beyond pecuniary estimation, but rather partakes of the
nature of a simple collection case where the value of the subject
assets or amount demanded is pecuniarily determinable. While it is
true that the exact value of the partnerships total assets cannot be
shown with certainty at the time of filing, respondents can and must
ascertain, through informed and practical estimation, the amount
they expect to collect from the partnership, particularly from
petitioner, in order to determine the proper amount of docket and
other fees. It is thus imperative for respondents to pay the
corresponding docket fees in order that the trial court may acquire
jurisdiction over the action.
Nevertheless, unlike in the case of Manchester Development Corp. v.
Court of Appeals, 16 where there was clearly an effort to defraud the
government in avoiding to pay the correct docket fees, we see no
attempt to cheat the courts on the part of respondents. In fact, the
lower courts have noted their expressed desire to remit to the court
"any payable balance or lien on whatever award which the
Honorable Court may grant them in this case should there be any
deficiency in the payment of the docket fees to be computed by the
Clerk of Court." There is evident willingness to pay, and the fact that
the docket fee paid so far is inadequate is not an indication that they
are trying to avoid paying the required amount, but may simply be
due to an inability to pay at the time of filing. This consideration
may have moved the trial court and the Court of Appeals to declare
that the unpaid docket fees shall be considered a lien on the
judgment award.
Petitioner, however, argues that the trial court and the Court of
Appeals erred in condoning the non-payment of the proper legal fees
and in allowing the same to become a lien on the monetary or
property judgment that may be rendered in favor of respondents.
There is merit in petitioners assertion. The third paragraph of
Section 16, Rule 141 of the Rules of Court states that:
The legal fees shall be a lien on the monetary or property judgment
in favor of the pauper-litigant.
Respondents cannot invoke the above provision in their favor
because it specifically applies to pauper-litigants. Nowhere in the
records does it appear that respondents are litigating as paupers,
and as such are exempted from the payment of court fees.
The rule applicable to the case at bar is Section 5(a) of Rule 141 of
the Rules of Court, which defines the two kinds of claims as: (1)
those which are immediately ascertainable; and (2) those which
cannot be immediately ascertained as to the exact amount. This
second class of claims, where the exact amount still has to be finally
determined be the courts based on evidence presented, falls
squarely under the third paragraph of said Section 5(a), which
provides:chanrob1es virtual 1aw library
In case the value of the property or estate or the sum claimed is less
or more in accordance with the appraisal of the court, the difference
of fee shall be refunded or paid as the case may be. (Emphasis ours)
In Pilipinas Shell Petroleum Corporation v. Court of Appeals, this
Court pronounced that the above-quoted provision "clearly
contemplates an initial payment of the filing fees corresponding to
the estimated amount of the claim subject to adjustment as to what
later may be proved." Moreover, we reiterated therein the principle
that the payment of filing fees cannot be made contingent or
dependent on the result of the case. Thus, an initial payment of the
docket fees based on an estimated amount must be paid
simultaneous with the filing of the complaint. Otherwise, the court
would stand to lose the filing fees should the judgment later turn out
to be adverse to any claim of the respondent heirs.
The matter of payment of docket fees is not a mere triviality. These
fees are necessary to defray court expenses in the handling of
cases. Consequently, in order to avoid tremendous losses to the
judiciary, and to the government as well, the payment of docket
fees cannot be made dependent on the outcome of the case, except
when the claimant is a pauper-litigant.
Applied to the instant case, respondents have a specific claim 1/3
of the value of all the partnership assets but they did not allege a
specific amount. They did, however, estimate the partnerships total
assets to be worth Thirty Million Pesos (P30,000,000.00), in a letter
addressed to petitioner. Respondents cannot now say that they are
unable to make an estimate, for the said letter and the admissions
therein form part of the records of this case. They cannot avoid
paying the initial docket fees by conveniently omitting the said
amount in their amended complaint. This estimate can be made the
basis for the initial docket fees that respondents should pay. Even if
it were later established that the amount proved was less or more
than the amount alleged or estimated, Rule 141, Section 5(a) of the
Rules of Court specifically provides that the court may refund the
excess or exact additional fees should the initial payment be
insufficient. It is clear that it is only the difference between the
amount finally awarded and the fees paid upon filing of this
complaint that is subject to adjustment and which may be subjected
to a lien.
In the oft-quoted case of Sun Insurance Office, Ltd. v. Hon.
Maximiano Asuncion, this Court held that when the specific claim
"has been left for the determination by the court, the additional
filing fee therefor shall constitute a lien on the judgment and it shall
be the responsibility of the Clerk of Court or his duly authorized
deputy to enforce said lien and assess and collect the additional
fee." Clearly, the rules and jurisprudence contemplate the initial
payment of filing and docket fees based on the estimated claims of
the plaintiff, and it is only when there is a deficiency that a lien may
be constituted on the judgment award until such additional fee is
collected.
Based on the foregoing, the trial court erred in not dismissing the
complaint outright despite their failure to pay the proper docket
fees. Nevertheless, as in other procedural rules, it may be liberally
construed in certain cases if only to secure a just and speedy
disposition of an action. While the rule is that the payment of the
docket fee in the proper amount should be adhered to, there are
certain exceptions which must be strictly construed.
In recent rulings, this Court has relaxed the strict adherence to the
Manchester doctrine, allowing the plaintiff to pay the proper docket
fees within a reasonable time before the expiration of the applicable
prescriptive or reglementary period.
In the recent case of National Steel Corp. v. Court of Appeals, this
Court held that:
The court acquires jurisdiction over the action if the filing of the
initiatory pleading is accompanied by the payment of the requisite
fees, or, if the fees are not paid at the time of the filing of the
pleading, as of the time of full payment of the fees within such
reasonable time as the court may grant, unless, of course,
prescription has set in the meantime.
It does not follow, however, that the trial court should have
dismissed the complaint for failure of private respondent to pay the
correct amount of docket fees. Although the payment of the proper
docket fees is a jurisdictional requirement, the trial court may allow
the plaintiff in an action to pay the same within a reasonable time
before the expiration of the applicable prescriptive or reglementary
period. If the plaintiff fails to comply within this requirement, the
defendant should timely raise the issue of jurisdiction or else he
would be considered in estoppel. In the latter case, the balance
between the appropriate docket fees and the amount actually paid
by the plaintiff will be considered a lien or any award he may obtain
in his favor. (Emphasis ours)
Accordingly, the trial court in the case at bar should determine the
proper docket fee based on the estimated amount that respondents
seek to collect from petitioner, and direct them to pay the same
within a reasonable time, provided the applicable prescriptive or
reglementary period has not yet expired. Failure to comply
therewith, and upon motion by petitioner, the immediate dismissal
of the complaint shall issue on jurisdictional grounds.
On the matter of improper venue, we find no error on the part of the
trial court and the Court of Appeals in holding that the case below is
a personal action which, under the Rules, may be commenced and
tried where the defendant resides or may be found, or where the
plaintiffs reside, at the election of the latter.
Petitioner, however, insists that venue was improperly laid since the
action is a real action involving a parcel of land that is located
outside the territorial jurisdiction of the court a quo. This contention
is not well-taken. The records indubitably show that respondents are
asking that the assets of the partnership be accounted for, sold and
distributed according to the agreement of the partners. The fact that
two of the assets of the partnership are parcels of land does not
materially change the nature of the action. It is an action in
personam because it is an action against a person,
namely, Petitioner, on the basis of his personal liability. It is not an
action in rem where the action is against the thing itself instead of
against the person. Furthermore, there is no showing that the
parcels of land involved in this case are being disputed. In fact, it is
only incidental that part of the assets of the partnership under
liquidation happen to be parcels of land.
The time-tested case of Claridades v. Mercader, Et Al., settled this
issue thus:
The fact that plaintiff prays for the sale of the assets of the
partnership, including the fishpond in question, did not change the
nature or character of the action, such sale being merely a
necessary incident of the liquidation of the partnership, which should
precede and/or is part of its process of dissolution.
The action filed by respondents not only seeks redress against
petitioner. It also seeks the enforcement of, and petitioners
compliance with, the contract that the partners executed to
formalize the partnerships dissolution, as well as to implement the
liquidation and partition of the partnerships assets. Clearly, it is a
personal action that, in effect, claims a debt from petitioner and
seeks the performance of a personal duty on his part. In fine,
respondents complaint seeking the liquidation and partition of the
assets of the partnership with damages is a personal action which
may be filed in the proper court where any of the parties reside. 30
Besides, venue has nothing to do with jurisdiction for venue touches
more upon the substance or merits of the case. As it is, venue in
this case was properly laid and the trial court correctly ruled so.
On the third issue, petitioner asserts that the surviving spouse of
Vicente Tabanao has no legal capacity to sue since she was never
appointed as administratrix or executrix of his estate. Petitioners
objection in this regard is misplaced. The surviving spouse does not
need to be appointed as executrix or administratrix of the estate
before she can file the action. She and her children are complainants
in their own right as successors of Vicente Tabanao. From the very
moment of Vicente Tabanaos death, his rights insofar as the
partnership was concerned were transmitted to his heirs, for rights
to the succession are transmitted from the moment of death of the
decedent.
Whatever claims and rights Vicente Tabanao had against the
partnership and petitioner were transmitted to respondents by
operation of law, more particularly by succession, which is a mode of
acquisition by virtue of which the property, rights and obligations to
the extent of the value of the inheritance of a person are
transmitted. Moreover, respondents became owners of their
respective hereditary shares from the moment Vicente Tabanao
died.
A prior settlement of the estate, or even the appointment of
Salvacion Tabanao as executrix or administratrix, is not necessary
for any of the heirs to acquire legal capacity to sue. As successors
who stepped into the shoes of their decedent upon his death, they
can commence any action originally pertaining to the decedent.
From the moment of his death, his rights as a partner and to
demand fulfillment of petitioners obligations as outlined in their
dissolution agreement were transmitted to respondents. They,
therefore, had the capacity to sue and seek the courts intervention
to compel petitioner to fulfill his obligations.
Finally, petitioner contends that the trial court should have
dismissed the complaint on the ground of prescription, arguing that
respondents action prescribed four (4) years after it accrued in
1986. The trial court and the Court of Appeals gave scant
consideration to petitioners hollow arguments, and rightly so.
The three (3) final stages of a partnership are: (1) dissolution; (2)
winding-up; and (3) termination. 36 The partnership, although
dissolved, continues to exist and its legal personality is retained, at
which time it completes the winding up of its affairs, including the
partitioning and distribution of the net partnership assets to the
partners. 37 For as long as the partnership exists, any of the
partners may demand an accounting of the partnerships business.
Prescription of the said right starts to run only upon the dissolution
of the partnership when the final accounting is done.
Contrary to petitioners protestations that respondents right to
inquire into the business affairs of the partnership accrued in 1986,
prescribing four (4) years thereafter, prescription had not even
begun to run in the absence of a final accounting. Article 1842 of the
Civil Code provides:
The right to an account of his interest shall accrue to any partner, or
his legal representative as against the winding up partners or the
surviving partners or the person or partnership continuing the
business, at the date of dissolution, in the absence of any
agreement to the contrary.
Applied in relation to Articles 1807 and 1809, which also deal with
the duty to account, the above-cited provision states that the right
to demand an accounting accrues at the date of dissolution in the
absence of any agreement to the contrary. When a final accounting
is made, it is only then that prescription begins to run. In the case at
bar, no final accounting has been made, and that is precisely what
respondents are seeking in their action before the trial court, since
petitioner has failed or refused to render an accounting of the
partnerships business and assets. Hence, the said action is not
barred by prescription.
In fine, the trial court neither erred nor abused its discretion when it
denied petitioners motions to dismiss. Likewise, the Court of
Appeals did not commit reversible error in upholding the trial courts
orders. Precious time has been lost just to settle this preliminary
issue, with petitioner resurrecting the very same arguments from
the trial court all the way up to the Supreme Court. The litigation of
the merits and substantial issues of this controversy is now long
overdue and must proceed without further delay.
WHEREFORE, in view of all the foregoing, the instant petition is
DENIED for lack of merit, and the case is REMANDED to the Regional
Trial Court of Cadiz City, Branch 60, which is ORDERED to determine
the proper docket fee based on the estimated amount that plaintiffs
therein seek to collect, and direct said plaintiffs to pay the same
within a reasonable time, provided the applicable prescriptive or
reglementary period has not yet expired. Thereafter, the trial court
is ORDERED to conduct the appropriate proceedings in Civil Case No.
416-C.
Costs against petitioner.
SO ORDERED.
 EN BANC
[G.R. No. X92-1. July 30, 1979.]
PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM
NAME "SYCIP, SALAZAR, FELICIANO, HERNANDEZ &
CASTILLO." LUCIANO E. SALAZAR, FLORENTINO P,
FELICIANO, BENILDO G. HERNANDEZ. GREGORIO R.
CASTILLO. ALBERTO P. SAN JUAN, JUAN C. REYES, JR.,
ANDRES G. GATMAITAN, JUSTINO H. CACANINDIN, NOEL A.
LAMAN, ETHELWOLDO E. FERNANDEZ, ANGELITO C. IMPERIO,
EDUARDO R. CENIZA, TRISTAN A. CATINDIG, ANCHETA K.
TAN, and ALICE V. PESIGAN, petitioners.
IN THE MATTER OF THE PETITION FOR AUTHORITY TO
CONTINUE USE OF THE FIRM NAME "OZAETA, ROMULO, DE
LEON, MABANTA & REYES." RICARDO J. ROMULO, BENJAMIN
M. DE LEON, ROMAN MABANTA, JR., JOSE MA. REYES, JESUS
S. J. SAYOC, EDUARDO DE LOS ANGELES, and JOSE F.
BUENAVENTURA, petitioners.
RESOLUTION
MELENCIO-HERRERA, J.:
Two separate Petitions were filed before this Court 1) by the
surviving partners of Atty. Alexander Sycip, who died on May 5,
1975, and 2) by the surviving partners of Atty. Herminio Ozaeta,
who died on February 14, 1976, praying that they be allowed to
continue using, in the names of their firms, the names of partners
who had passed away. In the Courts Resolution of September 2,
1976, both Petitions were ordered consolidated.
Petitioners base their petitions on the following arguments:
1. Under the law, a partnership is not prohibited from continuing its
business under a firm name which includes the name of a deceased
partner; in fact, Article 1840 of the Civil Code explicitly sanctions the
practice when it provides in the last paragraph that:
"The use by the person or partnership continuing the business of the
partnership name, or the name of a deceased partner as part
thereof, shall not of itself make the individual property of the
deceased partner liable for any debts contracted by such person or
partnership."
2. In regulating other professions, such as accountancy and
engineering, the legislature has authorized the adoption of firm
names without any restriction as to the use, in such firm name, of
the name of a deceased partner; the legislative authorization given
to those engaged in the practice of accountancy a profession
requiring the same degree of trust and confidence in respect of
clients as that implicit in the relationship of attorney and client to
acquire and use a trade name, strongly indicates that there is no
fundamental policy that is offended by the continued use by a firm
of professionals of a firm name which includes the name of a
deceased partner, at least where such firm name has acquired the
characteristics of a "trade name."
3. The Canons of Professional Ethics are not transgressed by the
continued use of the name of a deceased partner in the firm name of
a law partnership because Canon 33 of the Canons of Professional
Ethics adopted by the American Bar Association declares that:
". . . The continued use of the name of a deceased or former partner
when permissible by local custom, is not unethical, but care should
be taken that no imposition or deception is practiced through this
use. . . ."
4. There is no possibility of imposition or deception because the
deaths of their respective deceased partners were well-publicized in
all newspapers of general circulation for several days; the
stationeries now being used by them carry new letterheads
indicating the years when their respective deceased partners were
connected with the firm; petitioners will notify all leading national
and international law directories of the fact of their respective
deceased partners deaths.
5. No local custom prohibits the continued use of a deceased
partners name in a professional firms name; there is no custom or
usage in the Philippines, or at least in the Greater Manila Area,
which recognizes that the name of a law firm necessarily identifies
the individual members of the firm.
6. The continued use of a deceased partners name in the firm name
of law partnerships has been consistently allowed by U.S. Courts and
is an accepted practice in the legal profession of most countries in
the world.
The question involved in these Petitions first came under
consideration by this Court in 1953 when a law firm in Cebu (the
Dean case) continued its practice of including in its firm name that
of a deceased partner, C.D. Johnston. The matter was resolved with
this Court advising the firm to desist from including in their firm
designation the name of C. D. Johnston, "who has long been dead."
The same issue was raised before this Court in 1958 as an incident
in G. R. No. L-11964, entitled Register of Deeds of Manila v. China
Banking Corporation. The law firm of Perkins & Ponce Enrile moved
to intervene as amicus curiae. Before acting thereon, the Court, in a
Resolution of April 15, 1957, stated that it "would like to be
informed why the name of Perkins is still being used although Atty.
E. A. Perkins is already dead." In a Manifestation dated May 21,
1957, the law firm of Perkins and Ponce Enrile, raising substantially
the same arguments as those now being raised by petitioners,
prayed that the continued use of the firm name "Perkins & Ponce
Enrile" be held proper.
On June 16, 1958, this Court resolved:
"After carefully considering the reasons given by Attorneys Alfonso
Ponce Enrile and Associates for their continued use of the name of
the deceased E. G. Perkins, the Court found no reason to depart
from the policy it adopted in June 1953 when it required Attorneys
Alfred P. Deen and Eddy A. Deen of Cebu City to desist from
including in their firm designation, the name of C. D. Johnston,
deceased. The Court believes that, in view of the personal and
confidential nature of the relations between attorney and client and
the high standards demanded in the canons of professional ethics,
no practice should be allowed which even in a remote degree could
give rise to the possibility of deception. Said attorneys are
accordingly advised to drop the name "PERKINS" from their firm
name."
Petitioners herein now seek a re-examination of the policy thus far
enunciated by the Court.
The Court finds no sufficient reason to depart from the rulings thus
laid down.
A. Inasmuch as "Sycip, Salazar, Feliciano, Hernandez and Castillo"
and "Ozaeta, Romulo, De Leon, Mabanta and Reyes" are
partnerships, the use in their partnership names of the names of
deceased partners will run counter to Article 1815 of the Civil Code
which provides:
"Art. 1815. Every partnership shall operate under a firm name,
which may or may not include the name of one or more of the
partners.
"Those who, not being members of the partnership include their
names in the firm name, shall be subject to the liability of a
partner."
It is clearly tacit in the above provision that names in a firm name of
a partnership must either be those of living partners and, in the case
of non-partners, should be living persons who can be subjected to
liability. In fact, Article 1825 of the Civil Code prohibits a third
person from including his name in the firm name under pain of
assuming the liability of a partner. The heirs of a deceased partner
in a law firm cannot be held liable as the old members to the
creditors of a firm particularly where they are non-lawyers. Thus,
Canon 34 of the Canons of Professional Ethics "prohibits all
agreement for the payment to the widow and heirs of a deceased
lawyer of a percentage, either gross or net, of the fees received
from the future business of the deceased lawyers clients, both
because the recipients of such division are not lawyers and because
such payments will not represent service or responsibility on the
part of the recipient." Accordingly, neither the widow nor the heirs
can be held liable for transactions entered into after the death of
their lawyer-predecessor. There being no benefits accruing, there
can be no corresponding liability.
Prescinding the law, there could be practical objections to allowing
the use by law firms of the names of deceased partners. The public
relations value of the use of an old firm name can tend to create
undue advantages and disadvantages in the practice of the
profession. An able lawyer without connections will have to make a
name for himself starting from scratch. Another able lawyer, who
can join an old firm, can initially ride on that old firms reputation
established by deceased partners.
B. In regards to the last paragraph of Article 1840 of the Civil Code
cited by petitioners, supra, the first factor to consider is that it is
within Chapter 3 of Title IX of the Code entitled "Dissolution and
Winding Up." The Article primarily deals with the exemption from
liability in cases of a dissolved partnership, of the individual property
of the deceased partner for debts contracted by the person or
partnership which continues the business using the partnership
name or the name of the deceased partner as part thereof. What the
law contemplates therein is a hold-over situation preparatory to
formal reorganization.
Secondly, Article 1840 treats more of a commercial partnership with
a good will to protect rather than of a professional partnership, with
no saleable good will but whose reputation depends on the personal
qualifications of its individual members. Thus, it has been held that a
saleable goodwill can exist only in a commercial partnership and
cannot arise in a professional partnership consisting of lawyers.
"As a general rule, upon the dissolution of a commercial partnership
the succeeding partners or parties have the right to carry on the
business under the old name, in the absence of a stipulation
forbidding it, (s)ince the name of a commercial partnership is a
partnership asset inseparable from the good will of the firm . . .."
(60 Am Jur 2d, s 204, p. 115) (Emphasis supplied)
On the other hand,
". . . a professional partnership the reputation of which depends on
the individual skill of the members, such as partnerships of
attorneys or physicians, has no good will to be distributed us a firm
asset on its dissolution, however intrinsically valuable such skill and
reputation may be, especially where there is no provision in the
partnership agreement relating to good will as an asset. . . ." (ibid, s
203, p. 115) (Emphasis supplied).
C. A partnership for the practice of law cannot be likened to
partnerships formed by other professionals or for business. For one
thing, the law on accountancy specifically allows the use of a trade
name in connection with the practice of accountancy.
"A partnership for the practice of law is not a legal entity. It is a
mere relationship or association for a particular purpose. . . . It is
not a partnership formed for the purpose of carrying on trade or
business or of holding property." Thus, it has been stated that "the
use of a nom de plume, assumed or trade name in law practice is
improper."
"The usual reason given for different standards of conduct being
applicable to the practice of law from those pertaining to business is
that the law is a profession. . . .
"Dean Pound, in his recently published contribution to the Survey of
the Legal Profession, (The Lawyer from Antiquity to Modern Times,
p. 5) defines a profession as a group of men pursuing a learned art
as a common calling in the spirit of public service, no less a public
service because it may incidentally be a means of livelihood.
x x x or allows the continued use of a deceased or former partners name
"Primary characteristics which distinguish the legal profession from
business are:
1. A duty of public service, of which the emolument is a by-product,
and in which one may attain the highest eminence without making
much money.
2. A relation as an officer of court to the administration of justice
involving thorough sincerity, integrity, and reliability.
3. A relation to clients in the highest degree fiduciary.
4. A relation to colleagues at the bar characterized by candor,
fairness, and unwillingness to resort to current business methods of
advertising and encroachment on their practice, or dealing directly
with their clients."
"The right to practice law is not a natural or constitutional right but
is in the nature of a privilege or franchise. It is limited to persons of
good moral character with special qualifications duly ascertained and
certified. The right does not only presuppose in its possessor
integrity, legal standing and attainment, but also the exercise of a
special privilege, highly personal and partaking of the nature of a
public trust."
D. Petitioners cited Canon 33 of the Canons of Professional Ethics of
the American Bar Association in support of their petitions.
It is true that Canon 33 does not consider as unethical the continued
use of the name of a deceased or former partner in the firm name of
a law partnership when such a practice is permissible by local
custom but the Canon warns that care should be taken that no
imposition or deception is practiced through this use.
It must be conceded that in the Philippines, no local custom permits
in the firm names of law partnerships. Firm names, under our
custom, identify the more active and/or more senior members or
partners of the law firm. A glimpse at the history of the firms of
petitioners and of other law firms in this country would show how
their firm names have evolved and changed from time to time as the
composition of the partnership changed.
"The continued use of a firm name after the death of one or more of
the partners designated by it is proper only where sustained by local
custom and not where by custom this purports to identify the active
members. . . .
"There would seem to be a question, under the working of the
Canon, as to the propriety of adding the name of a new partner and
at the same time retaining that of a deceased partner who was
never a partner with the new one." (H.S. Drinker, op. cit., supra, at
pp. 207-208) (Emphasis supplied)
The possibility of deception upon the public, real or consequential,
where the name of a deceased partner continues to be used cannot
be ruled out. A person in search of legal counsel might be guided by
the familiar ring of a distinguished name appearing in a firm title.
E. Petitioners argue that U.S. Courts have consistently avowed the
continued use of a deceased partners name in the firm name of law
partnerships. But that is so because it is sanctioned by custom.
In the case of Mendelsohn v. Equitable Life Assurance Society (33
N.Y.S. 2d 733) which petitioners Salazar, Et. Al. quoted in their
memorandum, the New York Supreme Court sustained the use of
the firm name Alexander & Green even if none of the present ten
partners of the firm bears either name because the practice was
sanctioned by custom and did not offend any statutory provision or
legislative policy and was adopted by agreement of the parties The
Court stated therein:
"The practice sought to be proscribed has the sanction of custom
and offends no statutory provision or legislative policy. Canon 33 of
the Canons of Professional Ethics of both the American Bar
Association and the New York State Bar Association provides in part
as follows: The continued use of the name of a deceased or former
partner, when permissible by local custom is not unethical, but care
should be taken that no imposition or deception is practiced through
this use. There is no question as to local custom. Many firms in the
city use the names of deceased members with the approval of other
attorneys, bar associations and the courts. The Appellate Division of
the First Department has considered the matter and reached the
conclusion that such practice should not be prohibited. (Emphasis
supplied)
x x x of public service. A trade . . .aims primarily at personal gain; a
"Neither the Partnership Law nor the Penal Law prohibits the
practice in question. The use of the firm name herein is also
sustainable by reason of agreement between the partners."
Not so in this jurisdiction where there is no local custom that
sanctions the practice. Custom has been defined as a rule of conduct
formed by repetition of acts, uniformly observed (practiced) as a
social rule, legally binding and obligatory. Courts take no judicial
notice of custom. A custom must be proved as a fact, according to
the rules of evidence. A local custom as a source of right cannot be
considered by a court of justice unless such custom is properly
established by competent evidence like any other fact. We find such
proof of the existence of a local custom. and of the elements
requisite to constitute the same, wanting herein. Merely because
something is done as a matter of practice does not mean that Courts
can rely on the same for purposes of adjudication as a juridical
custom. Juridical custom must be differentiated from social custom.
The former can supplement statutory law or be applied in the
absence of such statute. Not so with the latter.
Moreover, judicial decisions applying or interpreting the laws form
part of the legal system. When the Supreme Court in the Deen and
Perkins cases issued its Resolutions directing lawyers to desist from
including the names of deceased partners in their firm designation, it
laid down a legal rule against which no custom or practice to the
contrary, even if proven, can prevail. This is not to speak of our civil
law which clearly ordains that a partnership is dissolved by the death
of any partner. Customs which are contrary to law, public order or
public policy shall not be countenanced.
The practice of law is intimately and peculiarly related to the
administration of justice and should not be considered like an
ordinary "money-making trade."
". . . It is of the essence of a profession that it is practiced in a spirit
profession at the exercise of powers beneficial to mankind. If, as in
the era of wide free opportunity, we think of free competitive self
assertion as the highest good, lawyer and grocer and farmer may
seem to be freely competing with their fellows in their calling in
order each to acquire as much of the worlds good as he may within
the limits allowed him by law. But the member of a profession does
not regard himself as in competition with his professional brethren.
He is not bartering his services as is the artisan nor exchanging the
products of his skill and learning as the farmer sells wheat or corn.
There should be no such thing as a lawyers or physicians strike. The
best service of the professional man is often rendered for no
equivalent or for a trifling equivalent and it is his pride to do what he
does in a way worthy of his profession even if done with no
expectation of reward. This spirit of public service in which the
profession of law is and ought to be exercised is a prerequisite of
sound administration of justice according to law. The other two
elements of a profession, namely, organization and pursuit of a
learned art have their justification in that they secure and maintain
that spirit."

In fine, petitioners desire to preserve the identity of their firms in

the eyes of the public must bow to legal and ethical impediments.

ACCORDINGLY, the petitions filed herein are denied and petitioners

advised to drop the names "SYCIP" and "OZAETA" from their
respective firm names. Those names may, however, be included in
the listing of individuals who have been partners in their firms
indicating the years during which they served as such.

SO ORDERED.
 SECOND DIVISION
[G.R. No. L-11840. July 26, 1960.]
ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN
AN and ANTONIO C. GOQUIOLAY",Plaintiffs-Appellants, v.
WASHINGTON Z. SYCIP, ET AL., Defendants-Appellees.
SYLLABUS
1. PARTNERSHIP; MANAGEMENT, RIGHT OF EXCLUSIVE; PERSONAL
RIGHT; TERMINATION UPON MANAGER-PARTNERS DEATH. The
right of exclusive management conferred upon Tan Sin An, being
premised upon trust and confidence, was a mere personal right that
terminated upon Tans demise.
2. ARTICLES OF CO-PARTNERSHIP; RIGHT OF HEIRS TO REPRESENT
DECEASED PARTNER; MANAGERIAL RIGHT; PROPRIETARY
INTEREST. The provision in the Articles of Co-Partnership stating
that "in the event of death of any one of the partners within the 10-
year term of the partnership, the deceased partner shall be
represented by his heirs", could not have referred to the managerial
right given to Tan Sin An; more appropriately, it relates to the
succession in the proprietary interest of each partner.
3. ID.; ID.; EFFECT OF HEIRS FAILURE TO REPUDIATE; HEIRS
BECOME INDIVIDUAL PARTNERS; MINORITY OF HEIRS.
Consonant with the articles of co-partnership providing for the
continuation of the firm notwithstanding the death of one of the
partners, the heirs of the deceased, by never repudiating or refusing
to be bound under the said provision in the articles, became
individual partners with Antonio Goquiolay upon Tans demise.
Minority of the heirs is not a bar to the application of that clause in
the articles of co-partnership. Heirs liability in the partnership being
limited to the value of their importance, they become no more than
limited partners, when they manifest their intent to be bound as
general partners.
4. ID.; SALE OF PARTNERSHIP PROPERTIES; CONSENT OF ALL
PARTNERS UNNECESSARY; STRANGERS DEALING WITH
PARTNERSHIPS; POWER TO BIND PARTNERSHIP. As to whether
or not the consent of the other partners was necessary to perfect
the sale of the partnership properties, the Court believes that it is
not. Strangers dealing with a partnership have the right to assume,
in the absence of restrictive clauses in the co- partnership
agreement, that every general partner has power to bind the
partnership.
5. ID.; ID.; ESTOPPEL. By allowing defendant Kong Chai Pin to
retain control of the partnership properties from 1942 to 1949,
plaintiff Goquiolay estopped himself from denying her (Kong Chai
Pins) legal representation of the partnership, with the power to bind
it by proper contracts.
6. PARTNERSHIP; GENERAL PARTNER BY ESTOPPEL; WIDOW OF
MANAGING PARTNER AUTHORIZED BY OTHER PARTNER TO MANAGE
PARTNERSHIP. By authorizing the widow of the managing partner
to manage partnership property (which a limited partner could not
be authorized to do), the other general partner recognized her as a
general partner, and is now in estoppel to deny her position as a
general partner, with authority to administer and alienate
partnership property.
7. ID.; HEIR OF PARTNER, STATUS ORDINARILY AS LIMITED
PARTNER BUT MAY WAIVE IT AND BECOME AS GENERAL PARTNER.
Although the heir of a partner ordinarily becomes a limited
partner for his own protection, yet the heir may disregard it and
instead elect to become a collective or general partner, with all the
rights and obligations of one. This choice pertains exclusively to the
heir, and does not require the assent of the surviving partner.
8. ID.; PRESUMPTIONS; AUTHORITY OF PARTNER TO DEAL WITH
PROPERTY. A third person has the right to presume that a general
partner dealing with partnership property has the requisite authority
from his co-partners.
9. ID.; PROPERTY OF PARTNERSHIP; SALE OF IMMOVABLES, WHEN
CONSIDERED WITHIN THE ORDINARY POWERS OF A GENERAL
PARTNER. Where the express and avowed purpose of the
partnership is to buy and sell real estate (as in the present case),
the immovables thus acquired by the firm form part of its stock-in-
trade, and the sale thereof is in pursuance of partnership purposes,
hence within the ordinary powers of the partner.
10. ID.; SALE OF PARTNERSHIP PROPERTY; ACTION FOR
RESCISSION ON GROUND OF FRAUD; NO INADEQUACY OF PRICE;
CASE AT BAR. Appellants claim that the price was inadequate,
relies on the testimony of a realtor, who in 1955, six years after the
sale in the question, asserted that the land was by then worth
double the price for which it was sold. But taking into account the
continued rise of real estate values since liberation, and the fact that
the sale in question was practically a forced sale because the
partnership has no other means to pay the legitimate debts, this
evidence certainly does not show such "gross inadequacy" as to
justify the rescission of the sale.
11. ID.; ID.; ID.; RELATIONSHIP ALONE IN NO BADGE OF FRAUD.
The Supreme court has ruled that relationship alone is not a
badge of fraud (Oria Hnos. v. McMicking, 21 Phil., 243; Hermandad
de Smo. Nombre de Jesus v. Sanchez, 40 Official Gazette 1685).
12. ID.; ID.; ID.; FRAUD OF CREDITORS DISTINGUISHED FROM
FRAUD TO OBTAIN CONSENT. Fraud used to obtain a partys
consent to a contract (deceit or dolus in contrahendo) is different
from fraud of creditors that gives rise to a rescission of contract.
13. ID.; ID.; ID.; SUBSIDIARY NATURE; ALLEGATION OF NO OTHER
MEANS TO OBTAIN REPARATION, NECESSARY. The action for
rescission is subsidiary; it can not be instituted except when the
party suffering damage has no other legal means to obtain
reparation for the same. hence, if there is no allegation or evidence
that the plaintiff can not obtain reparation from the widow and heirs
of the deceased partner, the suit to rescind the sale in question s not
maintainable, even if the fraud charged actually did exist.
DECISION
REYES, J.B.L., J.:
Direct appeal from the decision of the Court of First Instance of
Davao (the amount involved being more than P200,000) dismissing
the plaintiffs-appellants complaint.
From the stipulation of facts of the parties and the evidence on
record, it would appear that on May 29, 1940, Tan Sin An and
Antonio C. Goquiolay entered into a general commercial partnership
under the partnership name "Tan Sin An and Antonio C. Goquiolay",
for the purpose of dealing in real estate. The partnership had a
capital of P30,000.00, P18,000.00 of which was contributed by
Goquiolay and P12,000.00 by Tan Sin An. The agreement lodged
upon Tan Sin An the sole management of the partnership affairs,
stipulating that
"III. The co-partnership shall be composed of said Tan Sin An as
sole managing and partner (sic), and Antonio C. Goquiolay as co-
partner.
"VIII. The affairs of the co-partnership shall be managed exclusively
by the managing and partner (sic) or by his authorized agent, and it
is expressly stipulated that the managing and partner (sic) may
delegate the entire management of the affairs of the co- partnership
by irrevocable power of attorney to any person, firm or corporation
he may select upon such terms as regards compensation as he may
deem proper, and vest in such person, firm or corporation full power
and authority, as the agent of the co-partnership and in his name,
place and stead to do anything for it or on his behalf which he as
such managing and partner (sic) might do or cause to be done.
"IX. The co-partner shall have no voice or participation in the
management of the affairs of the co-partnership; but he may
examine its accounts once every six (6) months at any time during
ordinary business hours, and in accordance with the provisions of
the Code of Commerce." (Articles of Co-Partnership).
The lifetime of the partnership was fixed at ten (10) years and also
that
"In the event of the death of any of the partners at any time before
the expiration of said term, the co-partnership shall not be dissolved
but will have to be continued and the deceased partner shall be
represented by his heirs or assigns in said co-partnership" (Art. XII,
Articles of Co-Partnership).
However, the partnership could be dissolved and its affairs liquidated
at any time upon mutual agreement in writing of the partners (Art.
XIII, articles of Co-Partnership).
On May 31, 1940, Antonio Goquiolay executed a general power of
attorney to this effect:
"That besides the powers and duties granted the said Tan Sin An by
the articles of co-partnership of said co-partnership "Tan Sin An and
Antonio Goquiolay", the said Tan Sin An should act as my Manager
for said co-partnership for the full period of the term for which said
co-partnership was organized or until the whole period that the said
capital of P30,000.00 of the co-partnership should last, to carry on
to the best advantage and interest of the said co-partnership, to
make and execute, sign, seal and deliver for the co-partnership, and
in its name, all bills, bonds, notes, specialties, and trust receipts or
other instruments or documents in writing whatsoever kind or
nature which shall be necessary to the proper conduction of the said
businesses, including the power to mortgage and pledge real and
personal properties, to secure the obligation of the co-partnership,
to buy real or personal properties for cash or upon such terms as he
may deem advisable, to sell personal or real properties, such as
lands and buildings of the co-partnership in any manner he may
deem advisable for the best interest of said co-partnership, to
borrow money on behalf of the co-partnership and to issue
promissory notes for the repayment thereof, to deposit the funds of
the co-partnership in any local bank or elsewhere and to draw
checks against funds so deposited . . .
On May 29, 1940, the plaintiff partnership "Tan Sin An and
Goquiolay" purchased the three (3) parcels of land, known as Lots
Nos. 526, 441 and 521 of the Cadastral Survey of Davao, subject-
matter of the instant litigation, assuming the payment of a mortgage
obligation of P25,000.00, payable to "La Urbana Sociedad Mutua de
Construccin y Prestamos" for a period of ten (10) years, with 10%
interest per annum. Another 46 parcels were purchased by Tan Sin
An in his individual capacity, and he assumed payment of a
mortgage debt thereon for P35,000.00, with interest. The down
payment and the amortization were advanced by Yutivo and Co., for
the account of the purchasers.
On September 25, 1940, the two separate obligations were
consolidated in an instrument executed by the partnership and Tan
Sin An, whereby the entire 49 lots were mortgaged in favor of the
"Banco Hipotecario de Filipinas" (as successor to "La Urbana") and
the covenantors bound themselves to pay, jointly and severally, the
remaining balance of their unpaid accounts amounting to
P52,282.80 within eight 8 years, with 8% annual interest, payable in
96 equal monthly installments.
On June 26, 1942, Tan Sin An died, leaving as surviving heirs his
widow, Kong Chai Pin, and four minor children, namely: Tan L.
Cheng, Tan L. Hua, Tan C. Chiu and Tan K. Chuan. Defendant Kong
Chai Pin was appointed administratrix of the intestate estate of her
deceased husband.
In the meantime, repeated demands for payment were made by the
Banco Hipotecario on the partnership and on Tan Sin An. In March,
1944, the defendant Sing Yee and Cuan, Co., Inc., upon request of
defendant Yutivo Sons Hardware Co., paid the remaining balance of
the mortgage debt, and the mortgage was cancelled.
Then in 1946, Yutivo Sons Hardware Co. and Sing Yee and Cuan
Co., Inc. filed their claims in the intestate proceedings of Tan Sin An
for P62,415.91 and P54,310.13, respectively, as alleged obligations
of the partnership "Tan Sin An and Antonio C. Goquiolay" and Tan
Sin An, for advances, interests and taxes paid in amortizing and
discharging their obligations to "La Urbana" and the "Banco
Hipotecario." Disclaiming knowledge of said claims at first, Kong
Chai Pin later admitted the claims in her amended answer and they
were accordingly approved by the Court.
On March 29, 1949, Kong Chai Pin filed a petition with the probate
court for authority to sell all the 49 parcels of land to Washington Z,
Sycip and Betty Y. Lee, for the purpose primarily of settling the
aforesaid debts of Tan Sin An and the partnership. Pursuant to a
court order of April 2, 1949, the administratrix executed on April 4,
1949, a deed of sale 1 of the 49 parcels of land to the defendants
Washington Sycip and Betty Lee in consideration of P37,000.00 and
of vendees assuming payment of the claims filed by Yutivo Sons
Hardware Co. and Sing Yee and Cuan Co., Inc. Later, in July, 1949,
defendants Sycip and Betty Lee executed in favor of the Insular
Development Co., Inc. a deed of transfer covering the said 49
parcels of land.
Learning about the sale to Sycip and Lee, the surviving partner
Antonio Goquiolay filed, on or about July 25, 1949, a petition in the
intestate proceedings seeking to set aside the order of the probate
court approving the sale in so far as his interest over the parcels of
land sold was concerned. In its order of December 29, 1949, the
probate court annulled the sale executed by the administratrix with
respect to the 60% interest of Antonio Goquiolay over the properties
sold. King Chai Pin appealed to the Court of Appeals, which court
later certified the case to us (93 Phil., 413; 49 Off. Gaz. [7] 2307).
On June 30, 1953, we rendered decision setting aside the orders of
the probate court complained of and remanding the case for new
trial, due to the non-inclusion of indispensable parties. Thereafter,
new pleadings were filed.
The second amended complaint in the case at bar prays, among
other things, for the annulment of the sale in favor of Washington
Sycip and Betty Lee, and their subsequent conveyance in favor of
the Insular Development Co., Inc., in so far as the three (3) lots
owned by the plaintiff partnership are concerned. The answer
averred the validity of the sale by Kong Chai Pin as successor
partner, in lieu of the late Tan Sin An. After hearing, the complaint
was dismissed by the lower court in its decision dated October 30,
1956; hence, this appeal taken directly to us by the plaintiffs, as the
amount involved is more than P200,000.00. Plaintiffs-appellants
assign as errors that
"I. The lower court erred in holding that Kong Chai Pin became
the managing partner of the partnership upon the death of her
husband, Tan Sin An, by virtue of the articles of Partnership
executed between the Tan Sin An and Antonio Goquiolay, and the
general power of attorney granted by Antonio Goquiolay.
II The lower court erred in holding that Kong Chai Pin could act
alone as sole managing partner in view of the minority of the other
heirs.
III The lower court erred in holding that Kong Chai Pin was the
only heir qualified to act as managing partner.
IV The lower court erred in holding that Kong Chai Pin had
authority to sell the partnership properties by virtue of the articles of
partnership and the general power of attorney granted to Tan Sin An
in order to pay the partnership indebtedness.
V The lower court erred in finding that the partnership did not pay
its obligation to the Banco Hipotecario.
VI The lower court erred in holding that the consent of Antonio
Goquiolay was not necessary to consummate the sale of the
partnership properties.
VII The lower court erred in finding that Kong Chai Pin managed
the business of the partnership after the death of her husband, and
that Antonio Goquiolay knew it.
VIII The lower court erred in holding that the failure of Antonio
Goquiolay to oppose the management of the partnership by Kong
Chai Pin estops him now from attacking the validity of the sale of the
partnership properties.
IX The lower court erred in holding that the buyers of the
partnership properties acted in good faith.
X The lower court erred in holding that the sale was not
fraudulent against the partnership and Antonio Goquiolay.
XI The lower court erred in holding that the sale was not only
necessary but beneficial to the partnership.
XII The lower court erred in dismissing the complaint and in
ordering Antonio Goquiolay to pay the costs of suit."
There is merit in the contention that the lower court erred in holding
that the widow, Kong Chai Pin, succeeded her husband, Tan Sin An,
in the sole management of the partnership, upon the latters death.
While, as we previously stated in our narration of facts, the Articles
of Co-Partnership and the power of attorney executed by Antonio
Goquiolay conferred upon Tan Sin An the exclusive management of
the business, such power, premised as it is upon trust and
confidence, was a mere personal right that terminated upon Tans
demise. The provision in the articles stating that "in the event of
death of any one of the partners within the 10-year term of the
partnership, the deceased partner shall be represented by his heirs",
could not have referred to the managerial right given to Tan Sin An;
more appropriately, it related to the succession in the proprietary
interest of each partner. The covenant that Antonio Goquiolay shall
have no voice or participation in the management of the partnership,
being a limitation upon his right as a general partner, must be held
coextensive only with Tans right to manage the affairs, the contrary
not being clearly apparent.
Upon the other hand, consonant with the articles of co- partnership
providing for the continuation of the firm notwithstanding the death
of one of the partners, the heirs of the deceased, by never
repudiating or refusing to be bound under the said provision in the
articles, became individual partners with Antonio Goquiolay upon
Tans demise. The validity of like clauses in partnership agreements
is expressly sanctioned under Article 222 of the Code of Commerce.
Minority of the heirs is not a bar to the application of that clause in
the articles of co-partnership (2 Vivante, Tratado de Derecho
Mercantil, 493; Planiol, Traite Elementaire de Droit Civil, English
translation by the Louisiana State Law Institute, Vol. 2, Pt. 2, p.
177).
Appellants argue, however, that since the "new" members liability in
the partnership was limited merely to the value of the share or
estate left by the deceased Tan Sin An, they became no more than
limited partners and, as such, were disqualified from the
management of the business under Article 148 of the Code of
Commerce. Although ordinarily, this effect follows from the
continuance of the heirs in the partnership, it was not so with
respect to the widow Kong Chai Pin, who, by her affirmative actions,
manifested her intent to be bound by the partnership agreement not
only as a limited but as a general partner. Thus, she managed and
retained possession of the partnership properties and was
admittedly deriving income therefrom up to and until the same were
sold to Washington Sycip and Betty Lee. In fact, by executing the
deed of sale of the parcels of land in dispute in the name of the
partnership, she was acting no less than as a managing partner.
Having thus preferred to act as such, she could be held liable for the
partnership debts and liabilities as a general partner, beyond what
she might have derived only from the estate of her deceased
husband. By allowing her to retain control of the firms property
from 1942 to 1949, plaintiff estopped himself to deny her legal
representation of the partnership, with the power to bind it by
proper contracts.
The question now arises as to whether or not the consent of the
other partners was necessary to perfect the sale of the partnership
properties to Washington Sycip and Betty Lee. The answer is, we
believe, in the negative. Strangers dealing with a partnership have
the right to assume, in the absence of restrictive clauses in the co-
partnership agreement, that every general partner has power to
bind the partnership, specially those partners acting with ostensible
authority. And so, we held in one case:
". . . Third persons, like the plaintiff, are not bound in entering into a
contract with any of the two partners, to ascertain whether or not
this partner with whom the transaction is made has the consent of
the other partner. The public need not make inquiries as to the
agreements had between the partners. Its knowledge is enough that
it is contracting with the partnership which is represented by one of
the managing partners.
There is a general presumption that each individual partner is an
agent for the firm and that he has authority to bind the firm in
carrying on the partnership transactions. [Mills v. Riggle, 112 Pac.,
617]
The presumption is sufficient to permit third persons to hold the
firm liable on transactions entered into by one of the members of
the firm acting apparently in its behalf and within the scope of his
authority. [Le Roy v. Johnson, 7 U.S. Law, Ed., 391](George Litton
v. Hill & Ceron, Et Al., 67 Phil., 513-514)."cralaw virtua1aw library
We are not unaware of the provision of Article 129 of the Code of
Commerce to the effect that
"If the management of the general partnership has not been limited
by special agreement to any of the members, all shall have the
power to take part in the direction and management of the common
business, and the members present shall come to an agreement for
all contracts or obligations which may concern the association."
(Emphasis supplied)
but this obligation is one imposed by law on the partners among
themselves, that does not necessarily affect the validity of the acts
of a partner, while acting within the scope of the ordinary course of
business of the partnership, as regards third persons without notice.
The latter may rightfully assume that the contracting partner was
duly authorized to contract for and in behalf of the firm and that,
furthermore, he would not ordinarily act to the prejudice of his co-
partners. The regular course of business procedure does not require
that each time a third person contracts with one of the managing
partners, he should inquire as to the latters authority to do so, or
that he should first ascertain whether or not the other partners had
given their consent thereto. In fact, Article 130 of the same Code of
Commerce provides that even if a new obligation was contracted
against the express will of one of the managing partners, "it shall
not be annulled for such reason, and it shall produce its effects
without prejudice to the responsibility of the member or members
who contracted it, for the damages they may have caused to the
common fund."
Cesar Vivante (2 Tratado de Derecho Mercantil, pp. 114-115) points
out:
"367. Primera hipotesis. A falta de factos especiales, la facultad
de administrar corresponde a cada socio personalmente. No hay que
esperar ciertamente concordia con tantas cabezas, y para cuando no
vayan de acuerdo, la disciplina del Cdigo no ofrece un sistema
eficaz que evite los inconvenientes. Pero, ante el silencio del
contrato, debia quiza el legislador privar de la administracin a uno
de los socios en beneficio del otro? Seria una arbitrariedad. Debera
quiza declarar nula la Sociedad que no haya elegido Administrador?
El remedio seria peor que el mal. Debera, tal vez, pretender que
todos los socios concurran en todo acto de la Sociedad? Pero este
concurso de todos habria reducido a la impotencia la administracin,
que es asunto de todos los dias y de todas horas. Hubieran sido
disposiciones menos oportunas que lo adoptado por el Cdigo, el
cual se confia al espiritu de reciproca confianza que deberia animar
la colaboracin de los socios, y en la ley inflexible de responsabilidad
que implica comunidad en los intereses de los mismos.
En esta hiptesis, cada socio puede ejercer todos los negocios
comprendidos en el contrato social sin dar de ello noticia a los otros,
porque cada uno de ellos ejerce la administracin en la totalidad de
sus relaciones, salvo su responsabilidad en el caso de una
administracin culpable. Si debiera dar noticia, el beneficio de su
simultania actividad, frecuentemente distribuida en lugares y en
tiempos diferentes, se echaria a perder. Se objetara el que de esta
forma, el derecho de oposicin de cada uno de los socios puede
quedar frustrado. Pero se puede contestar que este derecho de
oposicin concedido por la ley como un remedio excepcional, debe
subordinarse al derecho de ejercer el oficio de Administrador, que el
Cdigo concede sin limite: se presume que los socios se han
concedido reciprocamente la facultad de administrar uno para otro.
Se haria precipitar esta hiptesis en la otra de una administracin
colectiva (art. 1.721, Cdigo Civil) y se acabaria con pedir el
consentimiento, a lo menos tacito, de todos los socios lo que el
Cdigo excluye . . ., si se obligase al socio Administrador a dar
noticia previa del negocio a los otros, a fin de que pudieran oponerse
si no consintieran."cralaw virtua1aw library
Commenting on the same subject, Gay de Montella (Cdigo de
Comercio, Tomo II, 147-148) opines:
"Para obligar a las Compaias enfrente de terceros (art. 128 del
Cdigo), no es bastante que los actos y contratos hayan sido
ejecutados por un socio o varios en nombre colectivo, sino que es
preciso el concurso de estos dos elementos, uno, que el socio o
socios tengan reconocida la facultad de administrar la Compaia, y
otro, que el acto o contrato haya sido ejecutado en nombre de la
Sociedad y usando de su firma social. Asi es que toda obligacin
contraida bajo la razon social, se presume contraida por la
Compaia. Esta presuncion es impuesta por motivos de necesidad
practica. El tercero no puede cada vez que trata con la Compaia,
inquirir si realmente el negocio concierne a la Sociedad. La
presuncion es juris tantum y no juris et de jure, de modo que si el
gerente suscribe bajo la razn social una obligacin que no interesa
a la Sociedad, ste podra rechazar la accin del tercero probando
que el acreedor conocia que la obligacin no tenia ninguna relacin
con ella. Si tales actos y contratos no comportasen la concurrencia
de ambos elementos, serian nulos y podria decretarse la
responsabilidad civil o penal contra sus autores.
En el caso que tales actos o contratos hayan sido tacitamente
aprobados por la Compaia, o contabilizados en sus libros, si el acto
o contrato ha sido convalidado sin protesta y se trata de acto o
contrato que ha producido beneficio social, tendria plena validez,
aun cuando le faltase algunos o ambos de aquellos requisitos antes
sealados.
Cuando los Estatutos o la escritura social no contienen ninguna
clausula relativa al nombramiento o designacin de uno o mas de un
socio para administrar la Compaia (art. 129 del Cdigo) todos
tienen por un igual el derecho de concurir a la decisin y manejo de
los negocios comunes . . ."
Although the partnership under consideration is a commercial
partnership and, therefore, to be governed by the Code of
Commerce, the provisions of the old Civil Code may give us some
light on the right of one partner to bind the partnership. States Art.
1695 thereof:
"Should no agreement have been made with respect to the form of
management, the following rules shall be observed:
1. All the partners shall be considered agents, and whatever any one
of them may do individually shall bind the partnership; but each one
may oppose any act of the others before it has become legally
binding."
The records fail to disclose that appellant Goquiolay made any
opposition to the sale of the partnership realty to Washington Z.
Sycip and Betty Lee; on the contrary, it appears that he (Goquiolay)
only interposed his objections after the deed of conveyance was
executed and approved by the probate court, and, consequently, his
opposition came too late to be effective.
Appellants assail the correctness of the amounts paid for the
account of the partnership as found by the trial court. This question,
however, need not be resolved here, as in the deed of conveyance
executed by Kong Chai Pin, the purchasers Washington Sycip and
Betty Lee assumed, as part consideration of the purchase, the full
claims of the two creditors, Sing Yee and Cuan Co., Inc. and Yutivo
Sons Hardware Co.
Appellants also question the validity of the sale covering the entire
firm realty, on the ground that it, in effect, threw the partnership
into dissolution, which requires consent of all the partners. This view
is untenable. That the partnership was left without the real property
it originally had will not work its dissolution, since the firm was not
organized to exploit these precise lots but to engage in buying and
selling real estate, and "in general real estate agency and brokerage
business." Incidentally, it is to be noted that the payment of the
solidary obligation of both the partnership and the late Tan Sin An,
leaves open the question of accounting and contribution between the
co-debtors, that should be ventilated separately.
Lastly, appellants point out that the sale of the partnership
properties was only a fraudulent device by the appellees, with the
connivance of Kong Chai Pin, to ease out Antonio Goquiolay from the
partnership. The "devise", according to the appellants, started way
back sometime in 1945, when one Yu Khe Thai sounded out Antonio
Goquiolay on the possibility of selling his share in the partnership;
and upon his refusal to sell, was followed by the filing of the claims
of Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. in the
intestate estate proceedings of Tan Sin An. As creditors of Tan Sin
An and the plaintiff partnership (whose liability was alleged to be
joint and several), Yutivo Sons Hardware Co. and Sing Yee and Cuan
Co., Inc. had every right to file their claims in the intestate
proceedings. The denial of the claims at first by Kong Chai Pin (for
lack of sufficient knowledge) negatives any conspiracy on her part in
the alleged fraudulent scheme, even if she subsequently decided to
admit their validity after studying the claims and finding it best to
admit the same. It may not be amiss to remark that the probate
court approved the questioned claims.
There is complete failure of proof, moreover, that the price for which
the properties were sold was unreasonably low, or in any way unfair,
since appellants presented no evidence of the market value of the
lots as of the time of their sale to appellees Sycip and Lee. The
alleged value of P31,056.58 in May of 1955 is no proof of the market
value in 1949, specially because in the interval, the new owners
appear to have converted the land into a subdivision, which they
could not do without opening roads and otherwise improving the
property at their own expense. Upon the other hand, Kong Chai Pin
hardly had any choice but to execute the questioned sale, as it
appears that the partnership had neither cash nor other properties
with which to pay its obligations. Anyway, we cannot consider
seriously the inferences freely indulged in by the appellants as
allegedly indicating fraud in the questioned transactions, leading to
the conveyance of the lots in dispute to the appellee Insular
Development Co., Inc.
Wherefore, finding no reversible error in the appealed judgment, we
affirm the same, with costs against appellant Antonio Goquiolay.
 SECOND DIVISION
[G.R. No. L-22493. July 31, 1975.]
ISLAND SALES, INC., Plaintiff-Appellee, v. UNITED PIONEERS
GENERAL CONSTRUCTION COMPANY, ET AL, Defendants.
BENJAMIN C. DACO, Defendant-Appellant.
SYNOPSIS
The defendant company, a general partnership, purchased from
Island Sales, Inc. a motor vehicle, executing for that purpose a
promissory note for the entire price, payable in twelve monthly
installments. Having failed to receive the third installment, Island
Sales sued the company, including its general partners as co-
defendants. On motion of plaintiff, the complaint was later dismissed
insofar as one of the partners was concerned. After trial, judgment
was entered sentencing the defendant to pay the sum due, with
interest, and expressly stating that the four of the five partners
would pay in case the company has no properties with which to
satisfy judgment. One of the partners appealed claiming that the
liability of each partner should not exceed 1/5 of the obligation due
inasmuch as there are five partners in the company.
The Supreme Court ruled that under Art. 1816 of the Civil Code, the
liability of partners shall be pro-rata; that the dismissal of the
complaint to favor one of the general partners results in the
condonation of the debt of that partners individual share and that
appellants share in the obligation shall not be increased thereby but
shall be limited to 1/5 of the obligation of defendant company.
Decision affirmed as clarified.
SYLLABUS
1. OBLIGATIONS AND CONTRACTS; LIABILITY OF GENERAL
PARTNERS, PRO-RATA; CONDONATION OF INDIVIDUAL LIABILITY
DOES NOT AFFECT THE OTHERS SHARE IN THE OBLIGATION.
Where there was five general partners when the promissory note in
question executed for and in behalf of the partnership, and the
complaint against one of them was dismissed upon motion of the
plaintiff, the general partners share in the obligation remains limited
to only 1/5 of the amount due and demandable, their liability being
pro-rata.
DECISION
CONCEPCION, JR., J.:
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:
"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
attorneys fees which the Court fixes in the sum of Eight Hundred
Pesos (P800.00) and costs.
"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 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.
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.
Daniel A. Guizona failed to file an answer and was consequently
declared in default.
Subsequently, on motion of the plaintiff, the complaint was
dismissed insofar as the defendant Romulo B. Lumauig is concerned.
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, 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. Hence, this appeal.
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.
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."
In the case of Co-Pitco v. 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, a civil partnership as
distinguished from a mercantile partnership. Being a civil
partnership, by the express provisions of articles 1698 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."
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 Lumauigs individual
liability to the plaintiff.
WHEREFORE, the appealed decision as thus clarified is hereby
AFFIRMED, without pronouncement as to costs.
SO ORDERED.
 EN BANC
[G.R. No. L-12164. May 22, 1959.]
BENITO LIWANAG and MARIA LIWANAG REYES, Petitioners-
Appellants, v. WORKMENS COMPENSATION COMMISSION, ET
AL., Respondents-Appellees.
SYLLABUS
1. WORKMENS COMPENSATION; SOLIDARY LIABILITY OF
BUSINESS PARTNERS. Although the Workmens Compensation
Act does not contain any provision expressly declaring that the
obligation of business partners arising from compensable injury or
death of an employee should be solidary, however, 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 and
Section 2 of the Workmens Compensation Act, reasonably indicate
that in compensation cases, the liability of business partners should
be solidary. If the responsibility of the partners were to be merely
joint and not solidary, and one of them happens to be insolvent, the
amount awarded to the dependent of the deceased employee would
only be partially satisfied, which is evidently contrary to the intent
and purpose of the law to give full protection to the employee.
2. STATUTORY CONSTRUCTION; LIBERAL CONSTRUCTION OF
WORKMENS COMPENSATION LAWS. Workmens Compensation
laws should be construed fairly, reasonably and liberally in favor of
and for the benefit of the employee and his dependents. All doubts
as to right of compensation should be resolved in his favor, and the
law should be interpreted to promote its purpose.
DECISION
ENDENCIA, J.:
Appellants Benito Liwanag and Maria Liwanag Reyes are co-owners
of Liwanag Auto Supply, a commercial establishment located at 349
Dimasalang, Sampaloc, Manila. They employed Roque Balderama as
security guard who, while in line of duty, was killed 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 Workmens 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:
"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
"To pay to the Workmens 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, appellant do not question the
right of appellees to compensation nor the amount awarded. They
only claim that, under the Workmens 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 int he compensation Act which provides
that the obligation of an employer arising from compensable injury
or death of an employee should be solidary; that if the legislative
intent in enacting the law is to impose solidary obligation, the same
should have been specifically provided, and that, in the absence of
such clear provision, the responsibility of appellants should not be
solidary but merely joint.
At first blush, appellants contention would seem to be well taken,
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 Workmens 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:
"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. . . . ."
"ART. 1712. If the death or injury is due to the negligence of a
fellow-worker, the latter and the employer shall be solidarily liable
for compensation. . . . ."
benefit of the employee and his dependents; that all doubts as to
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.
Moreover, Art. 1207 of the new Civil Code provides:
". . . . There is solidary liability only when the obligation expressly so
states, or when the law or the nature of the obligation requires
solidarity."
Since the Workmens 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.

And Section 2 of the Workmens Compensation Act, as amended, Wherefore, finding no error in the award appealed from, the same is
reads in part as follows: hereby affirmed, with costs against appellants.

". . . . 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
negligent party."cralaw virtua1aw library

The provisions of the new Civil Code above quoted taken together
with those of Section 2 of the Workmens 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 not 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 previous case we
have already held that the Workmens Compensation Act should be
construed fairly, reasonably and liberally in favor of and for the
 FIRST DIVISION
[G.R. No. L-39780. November 11, 1985.]
ELMO MUASQUE, Petitioner, v. COURT OF APPEALS,
CELESTINO GALAN, TROPICAL COMMERCIAL COMPANY and
RAMON PONS, Respondents.
DECISION
GUTIERREZ, JR., J.:
In this petition for certiorari, the petitioner seeks to annul and set
aside the decision of the Court of Appeals affirming the existence of
a partnership between petitioner and one of the respondents,
Celestino Galan and holding both of them liable to the two
intervenors which extended credit to their partnership. The
petitioner wants to be excluded from the liabilities of the
partnership.
Petitioner Elmo Muasque filed a complaint for payment of sum of
money and damages against respondents Celestino Galan, Tropical
Commercial, Co., Inc. (Tropical) and Ramon Pons, alleging that the
petitioner entered into a contract with respondent Tropical through
its Cebu Branch Manager Pons for remodelling a portion of its
building without exchanging or expecting any consideration from
Galan although the latter was casually named as partner in the
contract; that by virtue of his having introduced the petitioner to the
employing company (Tropical), Galan would receive some kind of
compensation in the form of some percentages or commission; that
Tropical, under the terms of the contract, agreed to give petitioner
the amount of P7,000.00 soon after the construction began and
thereafter the amount of P6,000.00 every fifteen (15) days during
the construction to make a total sum of P25,000.00; that on January
9, 1967, Tropical and/or Pons delivered a check for P7,000.00 not to
the plaintiff but to a stranger to the contract, Galan, who succeeded
in getting petitioners indorsement on the same check persuading
the latter that the same be deposited in a joint account; that on
January 26, 1967, when the second check for P6,000.00 was due,
petitioner refused to indorse said check presented to him by Galan
but through later manipulations, respondent Pons succeeded in
changing the payees name from Elmo Muasque to Galan and
Associates, thus enabling Galan to cash the same at the Cebu
Branch of the Philippine Commercial and Industrial Bank (PCIB)
placing the petitioner in great financial difficulty in his construction
business and subjecting him to demands of creditors to pay for
construction materials, the payment of which should have been
made from the P13,000.00 received by Galan; that petitioner
undertook the construction at his own expense completing it prior to
the March 16, 1967 deadline; that because of the unauthorized
disbursement by respondents Tropical and Pons of the sum of
P13,000.00 to Galan, petitioner demanded that said amount be paid
to him by respondents under the terms of the written contract
between the petitioner and respondent company.
The respondents answered the complaint by denying some and
admitting some of the material averments and setting up
counterclaims.
During the pre-trial conference, the petitioners and respondents
agreed that the issues to be resolved are:chanrob1es virtual 1aw
library
(1) Whether or not there existed a partnership between Celestino
Galan and Elmo Muasque; and
(2) Whether or not there existed a justifiable cause on the part of
respondent Tropical to disburse money to respondent Galan.
The business firms Cebu Southern Hardware Company and Blue
Diamond Glass Palace were allowed to intervene, both having legal
interest in the matter in litigation.
After trial, the court rendered judgment, the dispositive portion of
which states:
"IN VIEW WHEREOF, Judgment is hereby rendered:
"(1) ordering plaintiff Muasque and defendant Galan to pay jointly
and severally the intervenors Cebu and Southern Hardware
Company and Blue Diamond Glass Palace the amount of P6,229.34
and P2,213.51, respectively;
"(2) absolving the defendants Tropical Commercial Company and
Ramon Pons from any liability.
"No damages awarded whatsoever."
The petitioner and intervenor Cebu Southern Company and its
proprietor, Tan Siu filed motions for reconsideration.
On January 15, 1971, the trial court issued another order amending
its judgment to make it read as follows:
"IN VIEW WHEREOF, Judgment is hereby rendered:
"(1) ordering plaintiff Muasqez and defendant Galan to pay jointly
and severally the intervenors Cebu Southern Hardware Company
and Blue Diamond Glass Palace the amount of P6,229.34 and
P2,213.51, respectively,
"(2) ordering plaintiff and defendant Galan to pay Intervenor Cebu
Southern Hardware Company and Tan Siu jointly and severally
interest at 12% per annum of the sum of P3,229.34 until the
amount is fully paid;
"(3) ordering plaintiff and defendant Galan to pay P500.00
representing attorneys fees jointly and severally to Intervenor Cebu
Southern Hardware Company;
"(4) absolving the defendants Tropical Commercial Company and
Ramon Pons from any liability.
"No damages awarded whatsoever."
On appeal, the Court of Appeals affirmed the judgment of the trial
court with the sole modification that the liability imposed in the
dispositive part of the decision on the credit of Cebu Southern
Hardware and Blue Diamond Glass Palace was changed from "jointly
and severally" to "jointly."
Not satisfied, Mr. Muasque filed this petition.
The present controversy began when petitioner Muasque in behalf
of the partnership of "Galan and Muasque" as Contractor entered
into a written contract with respondent Tropical for remodelling the
respondents Cebu branch building. A total amount of P25,000.00
was to be paid under the contract for the entire services of the
Contractor. The terms of payment were as follows: thirty percent
(30%) of the whole amount upon the signing of the contract and the
balance thereof divided into three equal installments at the rate of
Six Thousand Pesos (P6,000.00) every fifteen (15) working days.
The first payent made by respondent Tropical was in the form of a
check for P7,000.00 in the name of the petitioner. Petitioner,
however, indorsed the check in favor of respondent Galan to enable
the latter to deposit it in the bank and pay for the materials and
labor used in the project.
Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00
for his personal use so that when the second check in the amount of
P6,000.00 came and Galan asked the petitioner to indorse it again,
the petitioner refused.
The check was withheld from the petitioner. Since Galan informed
the Cebu branch of Tropical that there was a "misunderstanding"
between him and petitioner, respondent Tropical changed the name
of the payee in the second check from Muasque to "Galan and
Associates" which was the duly registered name of the partnership
between Galan and petitioner and under which name a permit to do
construction business was issued by the mayor of Cebu City. This
enabled Galan to encash the second check.
Meanwhile, as alleged by the petitioner, the construction continued
through his sole efforts. He stated that he borrowed some
P12,000.00 from his friend, Mr. Espina and although the expenses
had reached the amount of P29,000.00 because of the failure of
Galan to pay what was partly due the laborers and partly due for the
materials, the construction work was finished ahead of schedule with
the total expenditure reaching P34,000.00.
The two remaining checks, each in the amount of P6,000.00, were
subsequently given to the petitioner alone with the last check being
given pursuant to a court order.
As stated earlier, the petitioner filed a complaint for payment of sum
of money and damages against the respondents, seeking to recover
the following: the amounts covered by the first and second checks
which fell into the hands of respondent Galan, the additional
expenses that the petitioner incurred in the construction, moral and
exemplary damages, and attorneys fees.
Both the trial and appellate courts not only absolved respondents
Tropical and its Cebu Manager, Pons, from any liability but they also
held the petitioner together with respondent Galan, liable to the
intervenors Cebu Southern Hardware Company and Blue Diamond
Glass Palace for the credit which the intervenors extended to the
partnership of petitioner and Galan.
In this petition, the legal questions raised by the petitioner are as
follows: (1) Whether or not the appellate court erred in holding that
a partnership existed between petitioner and respondent Galan. (2)
Assuming that there was such a partnership, whether or not the
court erred in not finding Galan guilty of malversing the P13,000.00
covered by the first and second checks and therefore, accountable to
the petitioner for the said amount; and (3) Whether or not the court
committed grave abuse of discretion in holding that the payment
made by Tropical through its manager Pons to Galan was "good
payment."
Petitioner contends that the appellate court erred in holding that he
and respondent Galan were partners, the truth being that Galan was
a sham and a perfidious partner who misappropriated the amount of
P13,000.00 due to the petitioner. Petitioner also contends that the
appellate court committed grave abuse of discretion in holding that
the payment made by Tropical to Galan was "good" payment when
the same gave occasion for the latter to misappropriate the
proceeds of such payment.
The contentions are without merit.
The records will show that the petitioner entered into a contract with
Tropical for the renovation of the latters building on behalf of the
partnership of "Galan and Muasque." This is readily seen in the first
paragraph of the contract where it states:
"This agreement made this 20th day of December in the year 1966
by Galan and Muasque hereinafter called the Contractor, and
Tropical Commercial Co., Inc., hereinafter called the owner do
hereby for and in consideration agree on the following: . . ."
There is nothing in the records to indicate that the partnership
organized by the two men was not a genuine one. If there was a
falling out or misunderstanding between the partners, such does not
convert the partnership into a sham organization.
Likewise, when Muasque received the first payment of Tropical in
the amount of P7,000.00 with a check made out in his name, he
indorsed the check in favor of Galan. Respondent Tropical therefore,
had every right to presume that the petitioner and Galan were true
partners. If they were not partners as petitioner claims, then he has
only himself to blame for making the relationship appear otherwise,
not only to Tropical but to their other creditors as well. The
payments made to the partnership were, therefore, valid payments.
In the case of Singsong v. Isabela Sawmill (88 SCRA 643), we ruled:
"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."
No error was committed by the appellate court in holding that the
payment made by Tropical to Galan was a good payment which
binds both Galan and the petitioner. Since the two were partners
when the debts were incurred, they are also both liable to third
persons who extended credit to their partnership. In the case of
George Litton v. Hill and Ceron, Et Al., (67 Phil. 513, 514), we ruled:
"There is a general presumption that each individual partner is an
authorized agent for the firm and that he has authority to bind the
firm in carrying on the partnership transactions." (Mills v. Riggle,
112 Pac., 617).
"The presumption is sufficient to permit third persons to hold the
firm liable on transactions entered into by one of members of the
firm acting apparently in its behalf and within the scope of his
authority." (Le Roy v. Johnson, 7 U.S. (Law. ed.), 391.).
Petitioner also maintains that the appellate court committed grave
abuse of discretion in not holding Galan liable for the amounts which
he "malversed" to the prejudice of the petitioner. He adds that
although this was not one of the issues agreed upon by the parties
during the pre-trial, he, nevertheless, alleged the same in his
amended complaint which was duly admitted by the court.
When the petitioner amended his complaint, it was only for the
purpose of impleading Ramon Pons in his personal capacity.
Although the petitioner made allegations as to the alleged
malversations of Galan, these were the same allegations in his
original complaint. The malversation by one partner was not an
issue actually raised in the amended complaint but the alleged
connivance of Pons with Galan as a means to serve the latters
personal purposes.
The petitioner, therefore, should be bound by the delimitation of the
issues during the pre-trial because he himself agreed to the same.
In Permanent Concrete Products, Inc. v. Teodoro, (26 SCRA 336),
we ruled:
x x x
". . . The appellant is bound by the delimitation of the issues
contained in the trial courts order issued on the very day the pre-
trial conference was held. Such an order controls the subsequent
course of the action, unless modified before trial to prevent manifest
injustice. In the case at bar, modification of the pre-trial order was
never sought at the instance of any party."cralaw virtua1aw library
Petitioner could have asked at least for a modification of the issues if
he really wanted to include the determination of Galans personal
liability to their partnership but he chose not to do so, as he
vehemently denied the existence of the partnership, At any rate, the
issue raised in this petition is the contention of Muasque that the
amounts payable to the intervenors should be shouldered
exclusively by Galan. We note that the petitioner is not solely
burdened by the obligations of their ill-starred partnership. The
records show that there is an existing judgment against respondent
Galan, holding him liable for the total amount of P7,000,00 in favor
of Eden Hardware which extended credit to the partnership aside
from the P2,000.00 he already paid to Universal Lumber.
We, however, take exception to the ruling of the appellate court that
the trial courts ordering petitioner and Galan to pay the credits of
Blue Diamond and Cebu Southern Hardware "jointly and severally" is
plain error since the liability of partners under the law to third
persons for contracts executed in connection with partnership
business is only pro rata under Art. 1816, of the Civil Code.
While it is true that under Article 1816 of the Civil Code, "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 the name
and for the account of the partnership, under its signature and by a
person authorized to act for the partnership. . . .", this provision
should be construed together with Article 1824 which provides that:
"All partners are liable solidarily with the partnership for everything
chargeable to the partnership under Articles 1822 and 1823." In
short, while the liability of the partners are merely joint in
transactions entered into by the partnership, a third person who
transacted with said partnership can hold the partners solidarily
liable for the whole obligation if the case of the third person falls
under Articles 1822 or 1823.chanrobles law library : red
Articles 1822 and 1823 of the Civil Code provide:
"Art. 1822. Where, by any wrongful act or omission of any partner
acting in the ordinary course of the business of the partnership or
with the authority of his co-partners, loss or injury is caused to any
person, not being a partner in the partnership or any penalty is
incurred, the partnership is liable therefor to the same extent as the
partner so acting or omitting to act."
"Art. 1823. The partnership is bound to make good the loss:
"(1) Where one partner acting within the scope of his apparent
authority receives money or property of a third person and
misapplies it; and
"(2) Where the partnership in the course of its business receives
money or property of a third person and the money or property so
received is misapplied by any partner while it is in the custody of the
partnership."
The obligation is solidary because the law protects him, who in good
faith relied upon the authority of a partner, whether such authority
is real or apparent. That is why under Article 1824 of the Civil Code
all partners, whether innocent or guilty, as well as the legal entity
which is the partnership, are solidarily liable.
In the case at bar the respondent Tropical had every reason to
believe that a partnership existed between the petitioner and Galan
and no fault or error can be imputed against it for making payments
to "Galan and Associates" and delivering the same to Galan because
as far as it was concerned, Galan was a true partner with real
authority to transact on behalf of the partnership with which it was
dealing. This is even more true in the cases of Cebu Southern
Hardware and Blue Diamond Glass Palace who supplied materials on
credit to the partnership. Thus, it is but fair that the consequences
of any wrongful act committed by any of the partners therein should
be answered solidarily by all the partners and the partnership as a
whole.
However, as between the partners Muasque and Galan, justice also
dictates that Muasque be reimbursed by Galan for the payments
made by the former representing the liability of their partnership to
herein intervenors, as it was satisfactorily established that Galan
acted in bad faith in his dealings with Muasque as a partner.
WHEREFORE, the decision appealed from is hereby AFFIRMED with
the MODIFICATION that the liability of petitioner and respondent
Galan to intervenors Blue Diamond Glass and Cebu Southern
Hardware is declared to be joint and solidary. Petitioner may recover
from respondent Galan any amount that he pays, in his capacity as
a partner, to the above intervenors.
SO ORDERED.
 EN BANC
[G.R. No. 8576. February 11, 1915. ]
VARGAS & COMPANY, Plaintiff-Appellee, v. CHAN HANG CHIU
ET AL., Defendants-Appellants.
SYLLABUS
1. PARTNERSHIP; ACTIONS BY OR AGAINST. A partnership, duly
organized and registered under the laws of the Philippine Islands, is
a legal entity capable of suing and of being sued in the company
name.
2. ID.; ID.; PARTIES. In bringing an action against such a
company it is not necessary to make the partners composing said
company parties defendant.
3. ID.; ID.; SERVICE OF PROCESS. The service of summons on
such a company is made in pursuance of paragraph 1, section. 396
of the Code of Civil Procedure by delivering a copy thereof to the
president or other head of the corporation, secretary cashier, or
managing agent thereof.
4. ID.; ID.; ID.; RETURN OF SHERIFF AS EVIDENCE. The
certificate of service by the sheriff is prima facie evidence of the
facts set out in such certificate; and where such certificate shows
that service of summons in an action against a partnership duly
organized and registered under the laws of the Philippine Islands
was made by serving a copy thereof on a person therein named and
described as the managing agent of the company, it is prima facie
evidence of the fact that the person on whom the summons was
served was in fact the managing agent of the company.
5. ID.; ID.; ID.; ID. To overcome the presumption arising from
the sheriffs certificate the evidence must be clear and convincing.
6. JUSTICE OF THE PEACE; JUDGMENT; PRESUMPTION OF
VALIDITY. A judgment rendered by a justices court is presumed
to be a valid and enforceable judgment where the record discloses
that all of the steps necessary to confer jurisdiction on the court
have been taken and that the court had jurisdiction of the subject
matter.
DECISION
MORELAND, J. :
This is an action brought to set aside a judgment of the justices
court of Manila on the ground that the plaintiff here, the defendant
in the action in which the judgment was secured, was not served
with summons and that, therefore, the justices court acquired no
jurisdiction to render the judgment and that the same is null and
void. Judgment was entered in favor of plaintiff declaring the
judgment in controversy void and setting it aside. This appeal is
from that judgment.
It appears from the record that the plaintiff is a mercantile
association duly organized under the laws of the Philippine Islands
and presumably registered as required by law. On the 19th day of
August, 1911, an action was begun by Chan Hang Chiu against the
plaintiff in this case to recover a sum of money. The summons and
complaint were placed in the hands of the sheriff, who certified that
on the 19th day of August, 1911, he served the same on Vargas &
Co. by delivering to and leaving with one Jose Macapinlac personally
true copies thereof, he being the managing agent of said Vargas &
Co. at the time of such service. On July 2, 1912, the justices court
rendered judgment against Vargas & Co. for the sum of P372.28.
Thereafter execution was duly issued and the property of Vargas &
Co. levied on for the payment thereof. Thereupon Vargas & Co. paid
the amount of the judgment and costs under protest, with notice
that it would sue to recover the amount paid. The execution was
returned satisfied and there the matter rested until the present
action was brought.
The contention of plaintiff is, and that contention is supported by the
decision of the court below, that Vargas & Co. being a partnership, it
is necessary, in bringing an action against it, to serve the summons
on all of the partners, delivering to each one of them personally a
copy thereof; and that the summons in this case having been served
on the managing agent of the company only, the service was of no
effect as against the company and the members thereof and the
judgment entered by virtue of such a service was void.
Plaintiff also contends, and this contention is likewise supported by
the court below, that, even admitting that service on the managing
agent of the plaintiff, is sufficient service, as a matter of fact no
service was really made on the managing agent of the company but,
rather, on an employee or salesman of the company, who had no
powers of management or supervision and who was not competent
to receive service on behalf of the company within the provisions of
section 396 of the Code of Civil Procedure.
We are of the opinion that neither of these contentions can be
sustained. As to the first, we may say that it has been the universal
practice in the Philippine Islands since American occupation, and was
the practice prior to that time, to treat companies of the class to
which the plaintiff belongs as legal or juridical entities and to permit
them to sue and be sued in the name of the company, the summons
being served solely on the managing agent or other official of the
company specified by the section of the Code of Civil Procedure
referred to. This very action is an illustration of the practice in vogue
in the Philippine Islands. The plaintiff brings this action in the
company name and not in the name of the members of the firm.
Actions against companies of the class to which plaintiff belongs are
brought, according to the uninterrupted practice, against such
companies in their company names and not against the individual
partners constituting the firm. In the States, in which the individual
members of the firm must be separately served with process, the
rule also prevails that they must be parties to the action, either
plaintiffs or defendants, and that the action cannot be brought in the
name of or against the company itself. This follows naturally for the
reason that, if it is necessary to serve the partners individually they
are entitled to be heard individually in the action and they must,
therefore, be made parties thereto so that they can be heard. It
would be idle to serve process on individual members of a
partnership if the litigation were to be conducted in the name of the
partnership itself and by the duly constituted officials of the
partnership exclusively.
From what has been said it is apparent that the plaintiff in this
action is acting contrary to its own contention by bringing the action
in the name of the company. If it be necessary that all of the
members of that company be served with process, then the action
should be brought in the individual names of the partners and not in
the name of the company itself.
Article 35 of the Civil Code provides:
"The following are judicial persons:
"1. The corporations, associations, and institutions of public interest
recognized by law.
"2. The associations of private interest, be they civil, commercial, or
industrial, to which the law grants proper personality, independent
of that of each member thereof."
Article 38 provides: "Judicial persons may acquire and possess
property of all kinds, as well as contract obligations and institute
civil or criminal actions in accordance with the laws and rules of their
establishment."
Article 116 of the Code of Commerce provides in part:
"After a commercial association has been established, it shall have
legal representation in all its acts and contracts."
These provisions have been the foundation of the practice followed
without interruption for many years that associations of the class to
which plaintiff belongs have an independent and separate legal
entity sufficient to permit them to sue and be sued in the company
name and to be served with process through the chief officer or
managing agent thereof or any other official of the company
specified by law.
As to the second contention, we may say that the presumption is
that a judgment rendered by a justices court is a valid and
enforceable judgment where the record discloses that all of the
steps necessary to confer jurisdiction on the court have been taken.
In the case before us it affirmatively appears that the service of
process was made on the person the sheriff certified was the
managing agent of the defendant company. The sheriffs certificate
serves as prima facie evidence of the existence of the facts stated
therein The record, therefore, discloses, so far as the fact of service
is concerned, that it was duly made on the managing agent of the
company as required by section 396, paragraph 1, of the Code of
Civil Procedure. In attacking the judgment on the ground that
service was not made on the managing agent of the company, it is
incumbent on the plaintiff to overcome the presumption arising from
the sheriffs certificate before the attack will succeed. Endeavoring to
overcome the presumption referred to, plaintiff offered as a witness
one Tomas 0. Segovia, an employee of the plaintiff company. He
testified that he was a bookkeeper and that as such he was well
acquainted with the business of the company and that the person
Macapinlac referred to in the sheriffs certificate as managing agent
of the plaintiff company was an agent for the sale of plows, of which
the plaintiff company was a manufacturer; and that he had no other
relations with the company than that stated. During the course of
the examination this question was put to and answer elicited from
this witness:
"How do you know that they were not summoned, or that they did
not know of this case brought before the justice of the peace of the
city of Manila?
"I being the bookkeeper and the general attorney-in-fact to Vargas
& Co., in Iloilo, ought to know whether they have been notified or
summoned, but I only knew about it when the sheriff appeared in
our office to make the levy."
This is the only witness who testified in the case. It does not appear
when he became the bookkeeper of the company, or that he was in
such a position that he could know or did know personally the acts
of the company and its relations to Macapinlac. He does not testify
of his own knowledge to the essential facts necessary to controvert
the statements contained in the sheriffs certificate of service. His
testimony is rather negative than positive, it being at all times
possible, in spite of his evidence, indeed, in strict accord therewith,
that Vargas & Co., of which the witness was neither official nor
manager, could have appointed a managing agent for the company
or could have removed him without the personal knowledge of the
witness. The witness had no personal knowledge of the relation
between the company and Macapinlac. He never saw the contract
existing between them. He did not hear the agreement between
them nor did he know of his own knowledge what the relations
between the company and Macapinlac were. His testimony besides
being negative in character has in it many of the elements of
hearsay and is not at all satisfactory. It would have been very easy
to present one of the members of the company, or all of them, who
engaged Macapinlac, who know the relations between him and the
company, to testify as to what those relations were and to deny, if
that were the fact, that Macapinlac was such an agent or official of
the company as is within the purview of section 396 above referred
to. The facts stated in the certificate of the sheriff will not be
considered as overcome and rebutted except on clear evidence
showing the contrary. The evidence of the bookkeeper, who is the
only witness for the company, is not satisfactory in any sense and is
quite insufficient to overcome the presumption established by the
sheriffs certificate.
In view of these considerations it is not necessary to consider the
question presented by the payment by the plaintiff company of the
judgment.
The judgment appealed from is reversed and the complaint
dismissed on the merits, without costs in this instance. So ordered.
 FIRST DIVISION
[G.R. No. L-55397. February 29, 1988.]
TAI TONG CHUACHE & CO., Petitioner, v. THE INSURANCE
COMMISSION and TRAVELLERS MULTI-INDEMNITY
CORPORATION, Respondents.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE; BURDEN OF PROOF; EACH
PARTY MUST PROVE HIS OWN AFFIRMATIVE ALLEGATION BY
PREPONDERANCE OF EVIDENCE. It is a well known postulate that
the case of a party is constituted by his own affirmative allegations.
Under Section 1, Rule 131 each party must prove his own
affirmative allegations by the amount of evidence required by law
which in civil cases as in the present case is preponderance of
evidence. The party, whether plaintiff or defendant, who asserts the
affirmative of the issue has the burden of presenting at the trial such
amount of evidence as required by law to obtain a favorable
judgment. Thus, petitioner who is claiming a right over the
insurance must prove its case. Likewise, respondent insurance
company to avoid liability under the policy by setting up an
affirmative defense of lack of insurable interest on the part of the
petitioner must prove its own affirmative allegations.
2. ID.; ID.; ID.; CREDITOR IN POSSESSION OF DOCUMENT OF
CREDIT NEED NOT PROVE NON-PAYMENT FOR IT IS PRESUMED.
It has been held in a long line of cases that when the creditor is in
possession of the document of credit, he need not prove non-
payment for it is presumed. The validity of the insurance policy
taken by petitioner was not assailed by private Respondent.
Moreover, petitioners claim that the loan extended to the Palomos
has not yet been paid was corroborated by Azucena Palomo who
testified that they are still indebted to herein petitioner.
3. ID.; CIVIL ACTIONS; MUST BE BROUGHT IN THE NAME OF THE
REAL PARTY IN INTEREST; PARTNERSHIP MAY SUE AND BE SUED IN
THE NAME OF ITS DULY AUTHORIZED REPRESENTATIVE. Citing
Rule 3, Sec. 2 respondent pointed out that the action must be
brought in the name of the real party in interest. We agree.
However, it should be borne in mind that petitioner being a
partnership may sue and be sued in its name or by its duly
authorized representative. The fact that Arsenio Lopez Chua is the
representative of petitioner is not questioned. Petitioners
declaration that Arsenio Lopez Chua acts as the managing partner of
the partnership was corroborated by respondent insurance company.
Thus Chua as the managing partner of the partnership may execute
all acts of administration including the right to sue debtors of the
partnership in case of their failure to pay their obligations when it
became due and demandable. Or at the very least, Chua being a
partner of petitioner Tai Tong Chuache & Company is an agent of the
partnership. Being an agent, it is understood that he acted for and in
behalf of the firm. Public respondents allegation that the civil case
filed by Arsenio Chua was in his capacity as personal creditor of
spouses Palomo has no basis.
4. MERCANTILE LAW; FIRE INSURANCE; TERMS AND CONDITIONS
OF A VALID POLICY CONTRACT BINDING UPON INSURANCE
COMPANY. The respondent insurance company having issued a
policy in favor of herein petitioner which policy was of legal force
and effect at the time of the fire, it is bound by its terms and
conditions. Upon its failure to prove the allegation of lack of
insurable interest on the part of the petitioner, respondent insurance
company is and must be held liable.
DECISION
GANCAYCO, J.:
This petition for review on certiorari seeks the reversal of the
decision of the Insurance Commission in IC Case #367 1 dismissing
the complaint 2 for recovery of the alleged unpaid balance of the
proceeds of the Fire Insurance Policies issued by herein respondent
insurance company in favor of petitioner-intervenor.
The facts of the case as found by respondent Insurance Commission MIRO/ Zenith Building P50,000 P17,610.93
are as follows:
F-02500 Insurance Corp.
"Complainants acquired from a certain Rolando Gonzales a parcel of
land and a building located at San Rafael Village, Davao City. F-84590 Phil. Household 70,000 24,655.31
Complainants assumed the mortgage of the building in favor of
S.S.S., which building was insured with respondent S.S.S. British Assco. Co. Inc. FFF & F5 50,000 39,186.10
Accredited Group of Insurers for P25,000.00.
Policy No. Company Risk Insures Pays
On April 19, 1975, Azucena Palomo obtained a loan from Tai Tong
Chuache, Inc. in the amount of P100,000.00. To secure the payment FIC-15381 SSS Accredited
of the loan, a mortgage was executed over the land and the building
in favor of Tai Tong Chuache & Co. (Exhibit "1" and "1-A"). On April Group of Insurers Building P25.000 P8.805.47
25, 1975, Arsenio Chua, representative of Thai Tong Chuache & Co.
insured the latters interest with Travellers Multi-Indemnity Totals P195,000 P90,257.81
Corporation for P100,000.00 (P70,000.00 for the building and
P30,000.00 for the contents thereof) (Exhibit "A-a," contents We are showing hereunder another apportionment of the loss which
thereof) (Exhibit "A-a"). includes the Travellers Multi-indemnity policy for reference purposes.

On June 11, 1975, Pedro Palomo secured a Fire Insurance Policy No. Policy No. Company Risk Insures Pays
F-02500 (Exhibit "A"), covering the building for P50,000.00 with
respondent Zenith Insurance Corporation. On July 16, 1975, another MIRO/ Zenith
Fire Insurance Policy No. 8459 (Exhibit "B") was procured from
respondent Philippine British Assurance Company, covering the F-02500 Insurance Corp. Building P50,000 11,877.14
same building for P50,000,00 and the contents thereof for F-84590 Phil. British Assco. Co.
P70,000.00. I-Building 70,000 16,628.00
II-Building
On July 31, 1975, the building and the contents were totally razed
by fire. FFF & P.E. 50,000 24,918.79

Adjustment Standard Corporation submitted a report as follow. PVC-15181 SSS Accredited

x x x
Group of Insurers Building 25,000 5,938.50
. . . Thus the apportioned share of each company is as follows:
F-599 DV Insurers I-Ref 30,000 14,467.31
Policy No. Company Risk Insures Pays
Multi II-Building 70.000 16.628.00
Totals P295,000 P90,257.81
Based on the computation of the loss, including the Travellers Multi-
Indemnity, Respondents, Zenith Insurance, Phil. British Assurance
and S.S.S. Accredited Group of Insurers, paid their corresponding
shares of the loss. Complainants were paid the following:
P41,546.79 by Philippine British Assurance Co., P11,877.14 by
Zenith Insurance Corporation, and P5,936.57 by S.S.S. Group of
Accredited Insurers (Par. 6. Amended Complaint). Demand was
made from respondent Travellers Multi-Indemnity for its share in the
loss but the same was refused. Hence, complainants demanded from
the other three (3) respondents the balance of each share in the loss
based on the computation of the Adjustment Standards Report
excluding Travellers Multi-Indemnity in the amount of P30,894.31
(P5,732.79 Zenith Insurance: P22,294.62, Phil. British: and
P2,866.90, SSS Accredited) but the same was refused, hence, this
action.
In their answers, Philippine British Assurance and Zenith Insurance
Corporation admitted the material allegations in the complaint, but
denied liability on the ground that the claim of the complainants had
already been waived, extinguished or paid. Both companies set up
counterclaim in the total amount of P91,546.79.
Instead of filing an answer, SSS Accredited Group of Insurers
informed the Commission in its letter of July 22, 1977 that the
herein claim of complainants for the balance had been paid in the
amount of P5,938.57 in full, based on the Adjustment Standards
Corporation Report of September 22, 1975.
Travellers Insurance, on its part, admitted the issuance of the Policy
No. 599 DV and alleged as its special and affirmative defenses the
following, to wit: that Fire Policy No. 599 DV, covering the furniture
and building of complainants was secured by a certain Arsenio Chua,
mortgage creditor, for the purpose of protecting his mortgage credit
against the complainants; that the said policy was issued in the
name of Azucena Palomo, only to indicate that she owns the insured
premises; that the policy contains an endorsement in favor of
Arsenio Chua as his mortgage interest may appear to indicate that
insured was Arsenio Chua and the complainants; that the premiums
due on said fire policy was paid by Arsenio Chua; that respondent
Travellers is not liable to pay complainants.
On May 31, 1977, Tai Tong Chuache & Co. filed a complaint in
intervention claiming the proceeds of the fire Insurance Policy No. F-
559 DV, issued by respondent Travellers Multi-Indemnity.
Travellers Insurance, in answer to the complaint in intervention,
alleged that the Intervenor is not entitled to indemnity under its Fire
Insurance Policy for lack of insurable interest before the loss of the
insured premises and that the complainants, spouses Pedro and
Azucena Palomo, had already paid in full their mortgage
indebtedness to the intervenor."
As adverted to above respondent Insurance Commission dismissed
spouses Palomos complaint on the ground that the insurance policy
subject of the complaint was taken out by Tai Tong Chuache &
Company, petitioner herein, for its own interest only as mortgagee
of the insured property and thus complainant as mortgagors of the
insured property have no right of action against herein Respondent.
It likewise dismissed petitioners complaint in intervention in the
following words:
"We move on the issue of liability of respondent Travellers Multi-
Indemnity to the Intervenor-mortgagee. The complainant testified
that she was still indebted to Intervenor in the amount of
P1000,000.00. Such allegation has not however, been sufficiently
proven by documentary evidence. The certification (Exhibit `E-e)
issued by the Court of First Instance of Davao, Branch 11, indicate
that the complainant was Antonio Lopez Chua and not Tai Tong
Chuache & Company."
From the above decision, only intervenor Tai Tong Chuache filed a
motion for reconsideration but it was likewise denied hence, the
present petition.
It is the contention of the petitioner that respondent Insurance
Commission decided an issue not raised in the pleadings of the
parties in that it ruled that a certain Arsenio Lopez Chua is the one
entitled to the insurance proceeds and not Tai Tong Chuache &
Company.
This Court cannot fault petitioner for the above erroneous
interpretation of the decision appealed from considering the manner
it was written. 5 As correctly pointed out by respondent insurance
commission in their comment, the decision did not pronounce that it
was Arsenio Lopez Chua who has insurable interest over the insured
property. Perusal of the decision reveals however that it readily
absolved respondent insurance company from liability on the basis
of the commissioners conclusion that at the time of the occurrence
of the peril insured against petitioner as mortgagee had no more
insurable interest over the insured property. It was based on the
inference that the credit secured by the mortgaged property was
already paid by the Palomos before the said property was gutted
down by fire. The foregoing conclusion was arrived at on the basis of
the certification issued by the then Court of First Instance of Davao,
Branch II that in a certain civil action against the Palomos, Antonio
Lopez Chua stands as the complainant and not petitioner Tai Tong
Chuache & Company.
We find the petition to be impressed with merit. It is a well known
postulate that the case of a party is constituted by his own
affirmative allegations. Under Section 1, Rule 131 6 each party must
prove his own affirmative allegations by the amount of evidence
required by law which in civil cases as in the present case is
preponderance of evidence. The party, whether plaintiff or
defendant, who asserts the affirmative of the issue has the burden
of presenting at the trial such amount of evidence as required by law
to obtain a favorable judgment. 7 Thus, petitioner who is claiming a
right over the insurance must prove its case. Likewise, respondent
insurance company to avoid liability under the policy by setting up
an affirmative defense of lack of insurable interest on the part of the
petitioner must prove its own affirmative allegations.
It will be recalled that respondent insurance company did not assail
the validity of the insurance policy taken out by petitioner over the
mortgaged property. Neither did it deny that the said property was
totally razed by fire within the period covered by the insurance.
Respondent, as mentioned earlier advanced an affirmative defense
of lack of insurable interest on the part of the petitioner alleging that
before the occurrence of the peril insured against the Palomos had
already paid their credit due the petitioner. Respondent having
admitted the material allegations in the complaint, has the burden of
proof to show that petitioner has no insurable interest over the
insured property at the time the contingency took place. Upon that
point, there is a failure of proof. Respondent, it will be noted,
exerted no effort to present any evidence to substantiate its claim,
while petitioner did. For said respondents failure, the decision must
be adverse to it.
However, as adverted to earlier, respondent Insurance Commission
absolved respondent insurance company from liability on the basis
of the certification issued by the then Court of First Instance of
Davao, Branch II, that in a certain civil action against the Palomos,
Arsenio Lopez Chua stands as the complainant and not Tai Tong
Chuache. From said evidence respondent commission inferred that
the credit extended by herein petitioner to the Palomos secured by
the insured property must have been paid Such is a glaring error
which this Court cannot sanction. Respondent Commissions findings
are based upon a mere inference.
The record of the case shows that the petitioner to support its claim
for the insurance proceeds offered as evidence the contract of
mortgage (Exh. 1) which has not been cancelled nor released. It has
been held in a long line of cases that when the creditor is in
possession of the document of credit, he need not prove non-
payment for it is presumed. 8 The validity of the insurance policy
taken by petitioner was not assailed by private Respondent.
Moreover, petitioners claim that the loan extended to the Palomos
has not yet been paid was corroborated by Azucena Palomo who
testified that they are still indebted to herein petitioner. 9
Public respondent argues however, that if the civil case really P100,000.00. Costs against said private Respondent.
stemmed from the loan granted to Azucena Palomo by petitioner the SO ORDERED.
same should have been brought by Tai Tong Chuache or by its
representative in its own behalf. From the above premise
respondent concluded that the obligation secured by the insured
property must have been paid.

The premise is correct but the conclusion is wrong. Citing Rule 3,

Sec. 2 10 respondent pointed out that the action must be brought in
the name of the real party in interest. We agree. However, it should
be borne in mind that petitioner being a partnership may sue and be
sued in its name or by its duly authorized representative. The fact
that Arsenio Lopez Chua is the representative of petitioner is not
questioned. Petitioners declaration that Arsenio Lopez Chua acts as
the managing partner of the partnership was corroborated by
respondent insurance company. 11 Thus Chua as the managing
partner of the partnership may execute all acts of administration 12
including the right to sue debtors of the partnership in case of their
failure to pay their obligations when it became due and demandable.
Or at the very least, Chua being a partner of petitioner Tai Tong
Chuache & Company is an agent of the partnership. Being an agent,
it is understood that he acted for and in behalf of the firm. 13 Public
respondents allegation that the civil case filed by Arsenio Chua was
in his capacity as personal creditor of spouses Palomo has no basis.

The respondent insurance company having issued a policy in favor of

herein petitioner which policy was of legal force and effect at the
time of the fire, it is bound by its terms and conditions. Upon its
failure to prove the allegation of lack of insurable interest on the
part of the petitioner, respondent insurance company is and must be
held liable.

IN VIEW OF THE FOREGOING, the decision appealed from is hereby

SET ASIDE and ANOTHER judgment is rendered ordering private
respondent Travellers Multi-Indemnity Corporation to pay petitioner
the face value of Insurance Policy No. 599-DV in the amount of
 EN BANC
[G.R. No. 18703. August 28, 1922. ]
INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA & CO., S. en
C., Appellee, v. PACIFIC COMMERCIAL CO., ASIATIC
PETROLEUM CO., and INTERNATIONAL BANKING
CORPORATION, Petitioners-Appellants.
SYLLABUS
INVOLUNTARY INSOLVENCY; LIMITED PARTNERSHIP; ACT OF
BANKRUPTCY; SOLVENCY OF PARTNERS. In the Philippines a
limited partnership duly organized in accordance with law has a
personality distinct from that of its members; and if it commits an
act of bankruptcy, such as that of failing for more than thirty days to
pay debts amounting to P1,000 or more, it may be adjudged
insolvent on the petition of three of its creditors although its
members may not be insolvent.
DECISION
ROMUALDEZ, J. :
The record of this proceeding having been transmitted to this court
by virtue of an appeal taken herein, a motion was presented by the
appellants praying this court that this case be considered purely a
moot question now, for the reason that subsequent to the decision
appealed from, the partnership Campos Rueda & Co., voluntarily
filed an application for a judicial decree adjudging itself insolvent,
which is just what the herein petitioners and appellants tried to
obtain from the lower court in this proceeding.
The motion now before us must be, and is hereby, denied even
under the facts stated by the appellants in their motion aforesaid.
The question raised in this case is not a purely moot one: the fact
that a man was insolvent on a certain day does not justify an
inference that he was some time prior thereto.
"Proof that a man was insolvent on a certain day does not justify an
inference that he was on a day some time prior thereto. Many
contingencies, such as unwise investments, losing contracts,
misfortune, or accident, might happen to reduce a person from a
state of solvency within a short space of time." (Kimball v. Dresser,
98 Me., 519; 57 Atl. Rep., 767)
A decree of insolvency begins to operate on the date it is issued. It
is one thing to adjudge Campos Rueda & Co. insolvent in December,
1921, as prayed for in this case and another to declare it insolvent
in July, 1922, stated in the motion.
Turning to the merits of this appeal, we find that this limited
partnership was, and is indebted to the appellants in various sums
amounting to not less than P1,000, payable in the Philippines, which
were not paid more than thirty days prior to the date of the filing by
the petitioners of the application for involuntary insolvency now
before us. These facts were sufficiency established by the evidence.
The trial court denied the petition on the ground that it was not
proven, nor alleged, that the members of the aforesaid firm were
insolvent at the time the application was filed; and that as said
partners are personally and solidarily liable for the consequences of
the transactions of the partnership, it cannot be adjudged insolvent
so long as the partners are not alleged and proven to be insolvent.
From this judgment the petitioners appeal to this court, on the
ground that this finding of the lower court is erroneous.
The fundamental question that presents itself for decision is whether
or not a limited partnership, such as the appellee, which has failed
to pay its obligations with three creditors for more than thirty days,
may be held to have committed an act of insolvency, and thereby be
adjudged insolvent against its will.
Unlike the common law, the Philippine statues consider a limited
partnership as a juridical entity for all intents and purposes, which
personality is recognized in all its acts and contracts (art. 116, Code
of Commerce). This being so and the juridical personality of a
limited partnership being different from that of its members, it must,
on general principle, answer for, and suffer, the subject of rights and
obligations. If, as in the instant case, the limited partnership of
Campos Rueda & Co. failed to pay its obligations with three creditors
for a period of more than thirty days, which failure constitutes,
under our Insolvency Law, one of the acts of bankrupt upon which
an adjudication of involuntary insolvency can be predicated, this
partnership must suffer the consequences of such a failure, and
must be adjudged insolvent. We are not unmindful of the fact that
some courts of the United States have held that partnership may not
be adjudged insolvent in an involuntary insolvency proceeding
unless all of its members are insolvent, while others have
maintained a contrary view. But it must be borne in mind that under
the American common law, partnership have no juridical personality
independent from that of its members; and if now they have such
personality for the purposes of the insolvency law, it is only by
virtue of a general law enacted by the Congress of the United States
on July 1, 1898, section 5, paragraph (h), of which reads thus:
"In the event of one or more but not all of the members of a
partnership being adjudge bankrupt, the partnership property shall
not be administered in bankruptcy, unless by consent of the partner
or partners not adjudges bankrupt; shall settle the partnership
business as expeditiously as its nature will permit, and account for
the interest of the partner or partners adjudge bankrupt."cralaw
virtua1aw library
The general consideration that these partnership had juridical
personality and the limitations prescribed in subsection (h) above
set forth gave rise to the conflict noted in American decisions, as
stated in the case of In re Samuels (215 Fed., 845). which
mentioned the two apparently conflicting doctrines, citing one from
In re Bertenshaw (157 Fed., 363), and the other from Francis v.
McNeal (186 Fed., 481).
But there being in our insolvency law no such provision as that
contained in section 5 of said Act of Congress of July 1, 1898, nor
any rule similar thereto, and the juridical personality of limited
partnerships being recognized by our statutes from their formation
in all their acts and contracts the decisions of American courts on
this point can have no application in this jurisdiction, nor do we see
any reason why these partnerships cannot be adjudges bankrupt
irrespective of the solvency or insolvency of their members,
provided the partnership has, as such, committed some of the acts
of insolvency provided in our law. Under this view it is unnecessary
to discuss the other points raised by the parties, although in the
particular case under consideration it can be added that the liability
of the limited partners for the obligations and losses of the
partnership is limited to the amounts paid or promised to be paid
into the common fund except when a limited partner should have
included his name or consented to its inclusion in the firm name
(arts. 147 and 148, Code of Commerce).
Therefore, it having been proven that the partnership Campos Rueda
& Co. failed for more than thirty days to pay its obligations to the
petitioners, the Pacific Commercial Co., the Asiatic Petroleum Co.,
and the International Banking Corporation, the case comes under
paragraph 11 of section 20 of Act No. 1956, and consequently the
petitioners have the right to a judicial decree declaring the
involuntary insolvency of said partnership.
Wherefore, the judgment appealed from is reversed, and it is
adjudged that the limited partnership Campos Rueda & Co. is, and
was on December 28, 1921, liable for having failed for more than
thirty days to meet its obligations with the three petitioners herein,
and it is ordered that this proceeding be remanded to the Court of
First Instance of Manila with instruction to said court to issue the
proper decrees under section 24 of Act No. 1956, and proceed
therewith until its final disposition.
It is so ordered without special findings as to costs.

SECOND DIVISION
[G.R. No. 10695. December 15, 1916. ]
TEODORO DE LOS REYES, Plaintiff-Appellee, v. VICENTE
LUKBAN and ESPIRIDION BORJA, Defendants. VICENTE
LUKBAN, Appellant.
SYLLABUS
1. ACTION FOR DEBT; PARTIES; PARTNERSHIP. The creditor, who
has not succeeded judicially in recovering a debt owing him by a
general copartnership, on account of its insolvency, has a right to
sue the partners there of in the manner provided by article 127 of
the Code of Commerce, inasmuch as each and all of the copartners
are personally and severally liable with all their property for the
result 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.
2. ID.; ATTACHMENT. The attachment of the property, a condition
required by article 237 of the same Code, before proceeding against
the private property of the copartners, is considered to have been
effected when, by the return of the sheriff of the levy of a writ of
execution, it appears that the dissolved debtor copartnership has
absolutely no assets of its own, and when the partner, subsequently
individually sued, is unable to prove that the partnership of which he
was a member actually has other property.
3. ID.; DEFENSE; "RES ADJUDICATA." Although as between an
action prosecuted against a copartnership for the recovery of a
credit and an action brought against the partners personally to
recover the unpaid balance of the said credit there be perfect
identity as to the cause of action and the thing claimed, yet if the
parties defendant are different and their capacity as such also, as
when the first action is brought against the debtor partnership, and
the second, individually, against those who were partners thereof,
this second action can not be claimed to be res judicata by virtue of
the judgment rendered in the first action, pursuant to the provisions
of article 1252 of the Civil Code and section 307 of the Code of Civil
Procedure.
DECISION
TORRES, J. :
On December 5, 1913, Teodoro de los Reyes brought suit in the
Court of First Instance of this city against Vicente Lukban and
Espiridion Borja, to recover from them individually the sum of P853,
the balance of a debt of P1,086.65 owing for merchandise bought on
credit in October and November, 1904, by the firm Lukban & Borja,
from the plaintiffs ship supply store, named La Industria.
In case No. 3759, prosecuted in the said court by the creditor Reyes
against the said firm of Lukban & Borja, the latter was ordered by a
final judgment of October 19, 1905, to pay the said sum of
P1,086.65, together with the interest thereon, amounting to a total
of P1,102.95, in addition to the costs, P6.24.
One of the partner, Espiridion Borja, paid P522.69 on account of the
debt. There still remains to be paid P610.21, and this sum, together
with the costs and legal interest thereon from July 14, 195, to the
date of the complaint, December 5, 1913, aggregates the total sum
of P894.17. The plaintiff prayed the court to order the defendants
jointly or severally to pay him, the plaintiff, this last mentioned
amount, together with the legal interest thereon from the date of
the complaint, and the costs.
After due summons the defendants appeared, and one of them,
Espiridion Borja, in answer to the complaint entered a general and
specific denial of each and all of the allegations therein contained,
and, as a special defense, alleged that it was res judicata and that
the plaintiffs action, if it existed, had already prescribed.
The other defendant, Vicente Lukban, in his amended answer set
forth (1) that he denied generally and specifically each and all of the
facts alleged in each and all of the paragraphs of the complaint; (2)
that the issues raised by the complaint had already been decided in
case No. 10908, in which the firm of Lukban & Borja was acquitted,
without costs; (3) that the defendant Lukban was merely an
industrial partner in the firm of Lukban & Borja was acquitted,
without costs; (3) that the defendant Lukban & Borja, Espiridion
Borja being the partner thereof who furnished the capital; (4) that
the assets of the firm of Lukban & Borja had not been exhausted (by
attachment), wherefore the present action is premature; and (5)
that the plaintiff Reyes action, as regards this defendant Lukban,
has prescribed.
At the trial of the case the parties made the following stipulation:
"1. That on July 15, 1905, the herein plaintiff Teodoro de los Reyes
brought suit against the firm of Lukban & Borja to recover the sum
of P1,086.65 owing for merchandise bought on credit in the months
of October and November, 1904, from the ship supply store known
by the name of La Industria. The said suit was heard before the
Honorable John C. Sweeney, on October 9, 1905, on which date the
said judge sentenced the defendant firm to pay the sum of
P1,086.65, Philippine currency, with legal interest thereon from July
14, 1905, to the date of the judgment, amounting to P16.30,
Philippine currency, and costs amounting to P46.24. It does not
appear that this obligation was set forth in writing. All the preceding
has been taken from the record of that court in case No. 3759, De
los Reyes v. Lukban & Borja.
"2. On August 19, 1913, the same plaintiff Teodoro de los Reyes
brought suit against Lukban & Borja to recover the sum of P853,
alleging for this purpose that the defendant Espiridion Borja paid
P522.69 on account of the sum of P186.65 allowed in the judgment
referred to in the preceding paragraph, there remaining unpaid
P610.21 of the principal debt, to which is added the legal interest
thereon from January 1, 1906, to the date of the commencement of
the said suit, thus forming the total sum above stated of P853. After
hearing the case, the Honorable Judge Del Rosario, on November
20, 1913, rendered judgment absolving the firm of Lukban & Borja
from the complaint without special finding as to costs. All the facts
related in this paragraph appear in case No. 10908 of this court.
"3. That several years ago and seven months after its organization,
or, more specifically, on April 13, 1909, the firm o Lukban & Borja
was lawfully dissolved, as stated by Borja; and that the five years
from the 13th of the same month of the year 1904, stipulated for its
duration, had elapsed. (Judgment in case No. 10908.) The articles of
incorporation of the firm of Lukban & Borja are found in the attached
document, which, for its identification, is marked as Exhibit A of this
agreement.
"4. That the assets of the firm of Lukban & Borja had not been
exhausted (by attachment) for the reason that the plaintiff did not
know what property belonged to it.
"5. Vicente Lukban and Espiridion Borja, notwithstanding that they
alleged themselves to be copartners of the firm of Lukban & Borja,
represented by Borja."cralaw virtua1aw library
After hearing the evidence, the curt rendered judgment on
November 25, 1914, sentencing the defendants Vicente Lukban and
Espiridion Borja jointly and severally to pay to the plaintiff Teodoro
de los Reyes the sum of P60.20, together with the legal interest
thereon from December 17, 1913, and the costs. To this judgment
Lukban excepted, announced his intention to file the proper bill of
exceptions and moved for a new trial on the grounds that the
evidence did not justify the decision and that the latter was contrary
to law. By an order of December 0, the motion for a new trial was
overruled and an exception was entered by this defendant-appellant.
The other defendant, Espiridion Borja, made no exception to the said
ruling so the judgment became final with respect to him.
The subject matter of this suit is an acknowledged debt held to be
owing by a judicial pronouncement contained in a judgment
rendered in case No. 3759, prosecuted by the creditor was unable to
collect it in its entirety but recovered only a part Borja. In order to
demonstrate the propriety of the judgment appealed from, rendered
against the parties who were the partners of the said firm, we shall
confine ourselves in this decision to the four errors assigned to the
said judgment by the defendant Lukban, inasmuch as the other
defendant Borja acquiesced in the said judgment and the same
became final as to him. These errors are the following:
"1. In not holding that the action brought against this defendant is
improper, inasmuch as prior to its prosecution no attachment was
levied on the assets of the said partnership.
"2. In not holding that the action brought against this appellee
[defendant] has not been proven.
"3. In not holding that the present is not a true case of res judicata.
"4. In not holding that the appellees action has prescribed in so far
as it concerns this Appellant."
With respect to the first assignment of error, the contents of the writ
and the return of the execution of the final judgment rendered in the
said case No. 3759 show that the dissolved partnership of Lukban &
borja had absolutely no property whatever of its own. Had any
property whatever of the said partnership still remained, the
defendant Lukban would have pointed it out in order to avoid being
obliged to pay in solidum all the balance of the sum which the firm
was sentenced to pay by the said final judgment of October 19,
1905. He did not do so be cause the firm of Lukban & Borja no
longer had any kind of property or credits, as shown by the
document setting forth the agreement made by and between several
creditors of the said firm, a third party named Ramon Tinsay and the
former partner of the firm Lukban & Borja owed four creditors,
among them the plaintiff De los Reyes, the total sum of P10,165.01
and these creditors with some difficulty succeeded in collecting the
sum of P5,000 through a transaction with the said Ramon Tinsay
who paid this last amount for the account of the partner Espiridion
Borja. It appears that the latter paid to the creditor De los Reyes the
aforementioned sum of P522.69, account of the firms debt to
Teodoro de los Reyes, a debt which was recognized in the said
judgment of October 19, 1905. The attachment, or recourse to the
property, the lack of which proceeding was complained of, is a
proceeding that was resorted to when attempt was made to execute
the final judgment rendered against the partnership of Lukban &
Borja, which proceeding gave negative results; therefore, if the
requirement of article 237 of the Code of Commerce must be
complied with by the creditor it is evident that it has already been
done for the defendant Lukban was unable to show that the
partnership to which he belonged actually possessed any more
assets.
With respect to the second assignment of error, if Teodoro de los
Reyes is entitled to collect individually from the partners Lukban and
Borja the amount of the debt that the dissolved partnership owed at
the time of its dissolution, it is unquestionable that such a right has
given rise to the corresponding right of action to demand the
payment of the debt from the partners individually, or from each of
them, by the insolvency of the partnership, inasmuch as they are
personally and severally liable with all their property for the results
of the operations of the partnership which they conducted.
Article 127 of the Code of Commerce provides:
"All the members of the general copartnership, be they or be they
not managing partners of the same, are personally and severally
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 make use
thereof."
With regard to the third assignment of error. Although the action
brought in case No. 10908 by the creditor Teodoro de los Reyes
against the partnership Lukban & Borja be not different from that
brought in the present case No. 11296, and although it be deemed
to have arisen out of the right of the plaintiff-creditor to collect his
credit, yet the first time it was brought against the partnership,
whereas in the present case it was brought individually against those
who were the members of that partnership. The action against
Vicente Lukban and Espiridion Borja individually can not be
demurred to on the ground of res judicata by the judgment of
acquittal entered in case No. 10908.
Article 1252 of the Civil Code provides:
partnership of Lukban & Borja, the creditor in the exercise of his
rights has brought the proper action against those who were the
members of that firm for the recovery of the unpaid balance of his
credit, and he filed his complaint within the period fixed by the law
of procedure and the defendants cannot allege that it is now res
judicata.
For the foregoing reasons the judgment appealed from is affirmed
with the costs of this instance against the Appellant. So ordered.

"In order that the presumption of the res adjudicata may be valid in
another suit, it is necessary that, between the case decided by the
sentence and that in which the same is invoked, there be the most
perfect identity between the things, causes, and persons of the
litigants, and their capacity as such."

There may be perfect identity between the causes of action and the
things demanded in case No. 10908, wherein the said partnership
was absolved from the complaint, and in the present case No.
11296; it is, however, undeniable that the parties defendant are not
the same nor is their capacity as such. In the first case it was the
partnership that was sued, while in the present case it is Lukban and
Borja individually, as former members of that dissolved partnership,
who are sued jointly and severally. Therefore, pursuant to the
above-cited article of the Civil Code, the provisions of which
harmonize with those of section 307 of the Civil section 307 of the
Code of Civil Procedure, the former judgment can not be set up as
res judicata in the present action.

As regards the last assignment of error, alleging prescription of

action, suffice it to say that from October 19, 195, to December 5,
1913, even without counting the interruption caused by the action
brought on August 8th of this latter year, the ten year period fixed
by section 43 of the Code of Civil Procedure has not elapsed. In view
of the negative results of the proceeding had by the sheriff in
levying execution of the final judgment rendered against the
 FIRST DIVISION
[G.R. No. 29182. October 24, 1928.]
LEONCIA VIUDA DE CHAN DIACO (alias LAO LIONG
NAW), Appellee, v. JOSE S. Y. PENG, assignee, Appellant.
SYLLABUS
1. PARTNERSHIPS; INSOLVENCY; LIABILITY OF THE PARTNERS.
Where a partnership, as such, has no visible assets, the partners
individually must, jointly and severally, respond for its debts (Code
of Commerce, art. 127).
2. ID.; ID.; ID.; PARTNERSHIP AND SEPARATE PARTNERS JOINED
IN THE SAME ACTION. Both the partnership and the separate
partners thereof may be joined in the same action, though the
private property of the partners cannot be taken in payment of the
partnership debts until the common property of the concern is
exhausted.
3. ID.; ID.; PARTNERSHIP ADJUDGED BANKRUPT IN NAME OF
OSTENSIBLE PARTNER. 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.
DECISION
OSTRAND, J.:
This is an appeal from a decision of the Court of First Instance of
Manila dismissing an insolvency proceeding.
It appears from the record that on June 13, 1925, the San Miguel
Brewery, Porta Pueo & Co., and Ruiz & Rementeria 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."
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, 1925,
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.
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:
"That the insolvent deliver to the assignee:
"(a) The sum of P56,000 more or less that the encargado of the
insolvents 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.
"(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.
"(c) The amount taken for her own use and out of the business on
June 8, 1925, to wit, P2,000.
"(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:
"Libros de Acreedores Extranjeros.
"Libros de Acreedores Chinos.
"Libros de Deudores de Manila.
"Libros de Deudores de Provincias.
"Libros de entrada y salida de efctos 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."
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 to the
assignee 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 the merchant Cua Ico between
the 8th and 11th days of June, 1925.
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 former 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
referees 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.
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, Chan 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.
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.
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, 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.
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 of July 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:
"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."cralaw virtua1aw library
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 (Compaia Maritima v. Muoz, 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.
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.
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.

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.

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, it clearly appears from the
record that said partnership, as such, has no visible assets and 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
 FIRST DIVISION
[G.R. No. 26937. October 5, 1927.]
PHILIPPINE NATIONAL BANK, Plaintiff-Appellee, v. SEVERO
EUGENIO LO ET AL., Defendants. SEVERO EUGENIO LO, NG
KHEY LING and YEP SENG, Appellants.
SYLLABUS
1. ASSOCIATIONS; GENERAL PARTNERSHIPS; LIABILITY. The
anomalous adoption of a firm name by the defendant partners
cannot be set up by them as a defense so as to evade a liability
contracted by them, inasmuch as such anomaly does not affect the
liability of the general partners to third persons under article 127 of
the Code of Commerce. (See Hung-Man-Yoc v. Kieng- Chiong-Seng,
6 Phil., 498.)
2. ID.; ID.; ID. 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. The provision of said
article 126 is for the protection of the creditors rather than of the
partners themselves. The doctrine formerly enunciated by this court
is that the law must be construed as rendering contracts made in
violation of it, unlawful and unenforceable only as between the
partners and at the instance of the infringer, but not in the sense of
depriving innocent parties of their rights, who may have dealt with
the guilty parties in ignorance of the latters having violated the law;
and that contracts entered into by mercantile associations
defectively organized are valid when voluntarily executed by the
parties and the only question is whether or not they complied with
the agreement. (Jo Chung Cang v. Pacific Commercial Co., 46 Phil.,
142.)
3. ID.; ID.; ID. Appellants contention that such parts of their
property as are not included in the partnership assets cannot be
levied upon for the payment of the partnership obligations, except
after the partnership property has been exhausted is untenable, for
the partnership property described in the mortgage no longer
existed at the time of the filing of the herein complaint, nor has its
existence been proved, nor was it offered to the plaintiff for sale.
Hence article 237 of the Code of Commerce invoked by the
appellants can in no way be applicable to this case.
4. ID.; ID.; ID. All the members of a general partnership, be they
managing partners of the same 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. (Sec. 127, Code of Commerce.)
DECISION
VILLAMOR, J.:
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 & 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 and 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 powers specified in said
articles of copartnership.
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, 19~8, A. Y. Kelam, acting under such power of
attorney, applied 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 renewed 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 P20,000 in
favor of the plaintiff bank. (Exhibit E.) Ac- cording 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, 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:
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
_________
Total 20,239.60
========
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 articles of copartnership.
The other defendants, Yap Sing and Ng Khey Ling, answered the
complaint denying each and every one of the allegations contained
therein.
After the hearing, the court found:
(1) That defendants Severo Eugenio Lo, Ng Khey Ling and Yap Seng
& Co., Sieng Peng are indebted to plaintiff Philippine National Bank
in the sum of P22,595.26 to July 29, 1926. with a daily 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;
(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 that date, P4.14 daily interest on the principal; and
(3) The defendants are furthermore ordered to pay the costs of the
action.
Defendants appealed, making the following assignments of error:
"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 Pings death
in China in November, 1917, as a proven fact.
"IV. The trial court erred in finding that the death of J. A. Sai 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 evidenced 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,
which in addition to interest at 9 per cent per annum from July 29,
1926, amounts to P16,595.26, with a daily interest of P4.14 on the
sum of P16,518.74.
"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.
"VIII. The trial court erred in denying the motion for a new trial filed
by defendants-appellants.
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 of 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 company," the partners agreed upon "Tai
Sing & Co." the firm name.
In the case of Hung-Man-Yoc, under the name of Kwong-Wo-Sing v.
Kieng-Chiong-Seng (6 Phil., 498), 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 v. 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 the
pro- vision 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 construed as
rendering contracts made in violation of it 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.
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.
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 longer 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
appellants, can in no way have any application here.
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.
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.

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.

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 has been renewed by