ARTICLE 1773
The operation of the fishpond mentioned in Annex "A" was the purpose of the partnership.
G.R. No. L-24193 June 28, 1968
MAURICIO AGAD, plaintiff-appellant,
vs.
SEVERINO MABATO and MABATO and AGAD COMPANY, defendants-appellees.
Angeles, Maskarino and Associates for plaintiff-appellant.
Victorio S. Advincula for defendants-appellees.
CONCEPCION, C.J.:
In this appeal, taken by plaintiff Mauricio Agad, from an order of dismissal of the Court of First
Instance of Davao, we are called upon to determine the applicability of Article 1773 of our Civil
Code to the contract of partnership on which the complaint herein is based.
Alleging that he and defendant Severino Mabato are — pursuant to a public instrument dated
August 29, 1952, copy of which is attached to the complaint as Annex "A" — partners in a
fishpond business, to the capital of which Agad contributed P1,000, with the right to receive 50%
of the profits; that from 1952 up to and including 1956, Mabato who handled the partnership
funds, had yearly rendered accounts of the operations of the partnership; and that, despite
repeated demands, Mabato had failed and refused to render accounts for the years 1957 to
1963, Agad prayed in his complaint against Mabato and Mabato & Agad Company, filed on June
9, 1964, that judgment be rendered sentencing Mabato to pay him (Agad) the sum of P14,000,
as his share in the profits of the partnership for the period from 1957 to 1963, in addition to
P1,000 as attorney's fees, and ordering the dissolution of the partnership, as well as the winding
up of its affairs by a receiver to be appointed therefor.
In his answer, Mabato admitted the formal allegations of the complaint and denied the existence
of said partnership, upon the ground that the contract therefor had not been perfected, despite
the execution of Annex "A", because Agad had allegedly failed to give his P1,000 contribution to
the partnership capital. Mabato prayed, therefore, that the complaint be dismissed; that Annex
"A" be declared void ab initio; and that Agad be sentenced to pay actual, moral and exemplary
damages, as well as attorney's fees.
Subsequently, Mabato filed a motion to dismiss, upon the ground that the complaint states no
cause of action and that the lower court had no jurisdiction over the subject matter of the case,
because it involves principally the determination of rights over public lands. After due hearing,
the court issued the order appealed from, granting the motion to dismiss the complaint for failure
to state a cause of action. This conclusion was predicated upon the theory that the contract of
partnership, Annex "A", is null and void, pursuant to Art. 1773 of our Civil Code, because an
inventory of the fishpond referred in said instrument had not been attached thereto. A
reconsideration of this order having been denied, Agad brought the matter to us for review by
record on appeal.
Articles 1771 and 1773 of said Code provide:
Art. 1771. A partnership may be constituted in any form, except where immovable
property or real rights are contributed thereto, in which case a public instrument shall
be necessary.
Art. 1773. A contract of partnership is void, whenever immovable property is
contributed thereto, if inventory of said property is not made, signed by the parties;
and attached to the public instrument.
The issue before us hinges on whether or not "immovable property or real rights" have
been contributed to the partnership under consideration. Mabato alleged and the lower court
held that the answer should be in the affirmative, because "it is really inconceivable how a
partnership engaged in the fishpond business could exist without said fishpond property (being)
contributed to the partnership." It should be noted, however, that, as stated in Annex "A" the
partnership was established "to operate a fishpond", not to "engage in a fishpond business".
Moreover, none of the partners contributed either a fishpond or a real right to any fishpond. Their
contributions were limited to the sum of P1,000 each. Indeed, Paragraph 4 of Annex "A"
provides:
That the capital of the said partnership is Two Thousand (P2,000.00) Pesos Philippine
Currency, of which One Thousand (P1,000.00) pesos has been contributed by
Severino Mabato and One Thousand (P1,000.00) Pesos has been contributed by
Mauricio Agad.
xxx xxx xxx
Neither said fishpond nor a real right thereto was contributed to the partnership or became part
of the capital thereof, even if a fishpond or a real right thereto could become part of its assets.
WHEREFORE, we find that said Article 1773 of the Civil Code is not in point and that, the order
appealed from should be, as it is hereby set aside and the case remanded to the lower court for
further proceedings, with the costs of this instance against defendant-appellee, Severino
Mabato. It is so ordered.
G.R. No. 101847 May 27, 1993
LOURDES NAVARRO AND MENARDO NAVARRO, petitioners,
vs.
COURT OF APPEALS, JUDGE BETHEL KATALBAS-MOSCARDON, Presiding Judge, Regional Trial Court of
Bacolod City, Branch 52, Sixth Judicial Region and Spouses OLIVIA V. YANSON AND RICARDO B.
YANSON, respondents.
George L. Howard Law Office for petitioners
Geocadin, Vinco, Guance, Laudenorio & Cario Law Office for private respondents.
MELO, J.:
Assailed and sought to be set aside by the petition before us is the Resolution of the Court of Appeals
dated June 20, 1991 which dismissed the petition for annulment of judgment filed by the Spouses
Lourdes and Menardo Navarro, thusly:
The instant petition for annulment of decision is DISMISSED.
1. Judgments may be annulled only on the ground of extrinsic or collateral fraud, as distinguished from
intrinsic fraud (Canlas vs. Court of Appeals, 164 SCRA 160, 170). No such ground is alleged in the petition.
2. Even if the judgment rendered by the respondent Court were erroneous, it is not necessarily void
(Chereau vs. Fuentebella, 43 Phil. 216). Hence, it cannot be annulled by the proceeding sought to be
commenced by the petitioners.
3. The petitioners' remedy against the judgment enforcement of which is sought to be stopped should
have been appeal.
SO ORDERED. (pp. 24-25, Rollo.)
The antecedent facts of the case are as follows:
On July 23, 1976, herein private respondent Olivia V. Yanson filed a complaint against petitioner Lourdes
Navarro for "Delivery of Personal Properties With Damages". The complaint incorporated an application
for a writ of replevin. The complaint was later docketed as Civil Case No. 716 (12562) of the then Court of
First Instance of Bacolod (Branch 55) and was subsequently amended to include private respondent's
husband, Ricardo B. Yanson, as co-plaintiff, and petitioner's husband, as co-defendant.
On July 27, 1976, then Executive Judge Oscar R. Victoriano (later to be promoted and to retire as
Presiding Justice of the Court of Appeals) approved private respondents' application for a writ of
replevin. The Sheriff's Return of Service dated March 3, 1978 affirmed receipt by private respondents of
all pieces of personal property sought to be recovered from petitioners.
On April 30, 1990, Presiding Judge Bethel Katalbas-Moscardon rendered a decision, disposing as follows :
Accordingly, in the light of the aforegoing findings, all chattels already recovered by plaintiff by virtue of
the Writ of Replevin and as listed in the complaint are hereby sustained to belong to plaintiff being the
owner of these properties; the motor vehicle, particularly that Ford Fiera Jeep registered in and which
had remain in the possession of the defendant is likewise declared to belong to her, however, said
defendant is hereby ordered to reimburse plaintiff the sum of P6,500.00 representing the amount
advanced to pay part of the price therefor; and said defendant is likewise hereby ordered to return to
plaintiff such other equipment[s] as were brought by the latter to and during the operation of their
business as were listed in the complaint and not recovered as yet by virtue of the previous Writ of
Replevin. (p. 12, Rollo.)
Petitioner received a copy of the decision on January 10, 1991 (almost 9 months after its rendition) and
filed on January 16, 1991 a "Motion for Extension of Time To File a Motion for Reconsideration". This
was granted on January 18, 1991. Private respondents filed their opposition, citing the ruling in the case
of Habaluyas Enterprises, Inc. vs. Japson (142 SCRA 208 [1986]) proscribing the filing of any motion for
extension of time to file a motion for a new trial or reconsideration. The trial judge vacated the order
dated January 18, 1991 and declared the decision of April 30, 1990 as final and executory. (Petitioners'
motion for reconsideration was subsequently filed on February 1, 1991 or 22 days after the receipt of
the decision).
On February 4, 1991, the trial court issued a writ of execution (Annex "5", p. 79, Rollo). The Sheriff's
Return of Service (Annex "6", p. 82, Rollo) declared that the writ was "duly served and satisfied". A
receipt for the amount of P6,500.00 issued by Mrs. Lourdes Yanson, co-petitioner in this case, was
likewise submitted by the Sheriff (Annex "7", p. 83, Rollo).
On June 26, 1991, petitioners filed with respondent court a petition for annulment of the trial court's
decision, claiming that the trial judge erred in declaring the non-existence of a partnership, contrary to
the evidence on record.
The appellate court, as aforesaid, outrightly dismissed the petition due to absence of extrinsic or
collateral fraud, observing further that an appeal was the proper remedy.
In the petition before us, petitioners claim that the trial judge ignored evidence that would show that the
parties "clearly intended to form, and (in fact) actually formed a verbal partnership engaged in the
business of Air Freight Service Agency in Bacolod"; and that the decision sustaining the writ of replevin is
void since the properties belonging to the partnership do not actually belong to any of the parties until
the final disposition and winding up of the partnership" (p. 15, Rollo). These issues, however, were
extensively discussed by the trial judge in her 16-page, single-spaced decision.
We agree with respondents that the decision in this case has become final. In fact a writ of execution had
been issued and was promptly satisfied by the payment of P6,500.00 to private respondents.
Having lost their right to appeal, petitioners resorted to annulment proceedings to justify a belated
judicial review of their case. This was, however, correctly thrown out by the Court of Appeals because
petitioners failed to cite extrinsic or collateral fraud to warrant the setting aside of the trial court's
decision. We respect the appellate court's finding in this regard.
Petitioners have come to us in a petition for review. However, the petition is focused solely on factual
issues which can no longer be entertained. Petitioners' arguments are all directed against the decision of
the regional trial court; not a word is said in regard to the appellate's court disposition of their petition
for annulment of judgment. Verily, petitioners keeps on pressing that the idea of a partnership exists on
account of the so-called admissions in judicio. But the factual premises of the trial court were more than
enough to suppress and negate petitioners submissions along this line:
To be resolved by this Court factually involved in the issue of whether there was a partnership that
existed between the parties based on their verbal contention; whether the properties that were
commonly used in the operation of Allied Air Freight belonged to the alleged partnership business; and
the status of the parties in this transaction of alleged partnership. On the other hand, the legal issues
revolves on the dissolution and winding up in case a partnership so existed as well as the issue of
ownership over the properties subject matter of recovery.
As a premise, Article 1767 of the New Civil Code defines the contract of partnership to quote:
Art. 1767. 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 proceeds among themselves.
xxx xxx xxx
Corollary to this definition is the provision in determining whether a partnership exist as so provided
under Article 1769, to wit:
xxx xxx xxx
Furthermore, the Code provides under Article 1771 and 1772 that while a partnership may be
constituted in any form, a public instrument is necessary where immovables or any rights is constituted.
Likewise, if the partnership involves a capitalization of P3,000.00 or more in money or property, the
same must appear in a public instrument which must be recorded in the Office of the Securities and
Exchange Commission. Failure to comply with these requirements shall only affect liability of the
partners to third persons.
In consideration of the above, it is undeniable that both the plaintiff and the defendant-wife made
admission to have entered into an agreement of operating this Allied Air Freight Agency of which the
plaintiff personally constituted with the Manila Office in a sense that the plaintiff did supply the
necessary equipments and money while her brother Atty. Rodolfo Villaflores was the Manager and the
defendant the Cashier. It was also admitted that part of this agreement was an equal sharing of
whatever proceeds realized. Consequently, the plaintiff brought into this transaction certain chattels in
compliance with her obligation. The same has been done by the herein brother and the herein
defendant who started to work in the business. A cursory examination of the evidences presented no
proof that a partnership, whether oral or written had been constituted at the inception of this
transaction. True it is that even up to the filing of this complaint those movables brought by the plaintiff
for the use in the operation of the business remain registered in her name.
While there may have been co-ownership or co-possession of some items and/or any sharing of
proceeds by way of advances received by both plaintiff and the defendant, these are not indicative and
supportive of the existence of any partnership between them. Article 1769 of the New Civil Code is
explicit. Even the books and records retrieved by the Commissioner appointed by the Court did not show
proof of the existence of a partnership as conceptualized by law. Such that if assuming that there were
profits realized in 1975 after the two-year deficits were compensated, this could only be subject to an
equal sharing consonant to the agreement to equally divide any profit realized. However, this Court
cannot overlook the fact that the Audit Report of the appointed Commissioner was not highly reliable in
the sense that it was more of his personal estimate of what is available on hand. Besides, the alleged
profits was a difference found after valuating the assets and not arising from the real operation of the
business. In accounting procedures, strictly, this could not be profit but a net worth.
In view of the above factual findings of the Court it follows inevitably therefore that there being no
partnership that existed, any dissolution, liquidation or winding up is beside the point. The plaintiff
himself had summarily ceased from her contract of agency and it is a personal prerogative to desist. On
the other hand, the assumption by the defendant in negotiating for herself the continuance of the
Agency with the principal in Manila is comparable to plaintiff's. Any account of plaintiff with the principal
as alleged, bore no evidence as no collection was ever demanded of from her. The alleged P20,000.00
assumption specifically, as would have been testified to by the defendant's husband remain a mere
allegation.
As to the properties sought to be recovered, the Court sustains the possession by plaintiff of all
equipments and chattels recovered by virtue of the Writ of Replevin. Considering the other vehicle which
appeared registered in the name of the defendant, and to which even she admitted that part of the
purchase price came from the business claimed mutually operated, although the Court have not as much
considered all entries in the Audit Report as totally reliable to be sustained insofar as the operation of
the business is concerned, nevertheless, with this admission of the defendant and the fact that as borne
out in said Report there has been disbursed and paid for in this vehicle out of the business funds in the
total sum of P6,500.00, it is only fitting and proper that validity of these disbursements must be
sustained as true (Exhs. M-1 to M-3, p. 180, Records). In this connection and taking into account the
earlier agreement that only profits were to be shared equally, the plaintiff must be reimbursed of this
cost if only to allow the defendant continuous possession of the vehicle in question. It is a fundamental
moral, moral and civil injunction that no one shall enrich himself at the expense of another. (pp. 71-
75, Rollo.)
Withal, the appellate court acted properly in dismissing the petition for annulment of judgment, the
issue raised therein having been directly litigated in, and passed upon by, the trial court.
WHEREFORE, the petition is DISMISSED. The Resolution of the Court of Appeals dated June 20, 1991 is
AFFIRMED in all respects.
No special pronouncement is made as to costs.
G.R. No. 134559 December 9, 1999
ANTONIA TORRES assisted by her husband, ANGELO TORRES; and EMETERIA BARING, petitioners,
vs.
COURT OF APPEALS and MANUEL TORRES, respondents.
PANGANIBAN, J.:
Courts may not extricate parties from the necessary consequences of their acts. That the terms of a
contract turn out to be financially disadvantageous to them will not relieve them of their obligations
therein. The lack of an inventory of real property will not ipso facto release the contracting partners from
their respective obligations to each other arising from acts executed in accordance with their agreement.
The Case
The Petition for Review on Certiorari before us assails the March 5, 1998 Decision 1 of the Court of
Appeals 2 (CA) in CA-GR CV No. 42378 and its June 25, 1998 Resolution denying reconsideration. The
assailed Decision affirmed the ruling of the Regional Trial Court (RTC) of Cebu City in Civil Case No. R-
21208, which disposed as follows:
WHEREFORE, for all the foregoing considerations, the Court, finding for the defendant and against the
plaintiffs, orders the dismissal of the plaintiffs complaint. The counterclaims of the defendant are
likewise ordered dismissed. No pronouncement as to costs. 3
The Facts
Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint venture agreement"
with Respondent Manuel Torres for the development of a parcel of land into a subdivision. Pursuant to
the contract, they executed a Deed of Sale covering the said parcel of land in favor of respondent, who
then had it registered in his name. By mortgaging the property, respondent obtained from Equitable
Bank a loan of P40,000 which, under the Joint Venture Agreement, was to be used for the development
of the subdivision. 4 All three of them also agreed to share the proceeds from the sale of the subdivided
lots.
The project did not push through, and the land was subsequently foreclosed by the bank.
According to petitioners, the project failed because of "respondent's lack of funds or means and skills."
They add that respondent used the loan not for the development of the subdivision, but in furtherance
of his own company, Universal Umbrella Company.
On the other hand, respondent alleged that he used the loan to implement the Agreement. With the said
amount, he was able to effect the survey and the subdivision of the lots. He secured the Lapu Lapu City
Council's approval of the subdivision project which he advertised in a local newspaper. He also caused
the construction of roads, curbs and gutters. Likewise, he entered into a contract with an engineering
firm for the building of sixty low-cost housing units and actually even set up a model house on one of the
subdivision lots. He did all of these for a total expense of P85,000.
Respondent claimed that the subdivision project failed, however, because petitioners and their relatives
had separately caused the annotations of adverse claims on the title to the land, which eventually scared
away prospective buyers. Despite his requests, petitioners refused to cause the clearing of the claims,
thereby forcing him to give up on the project. 5
Subsequently, petitioners filed a criminal case for estafa against respondent and his wife, who were
however acquitted. Thereafter, they filed the present civil case which, upon respondent's motion, was
later dismissed by the trial court in an Order dated September 6, 1982. On appeal, however, the
appellate court remanded the case for further proceedings. Thereafter, the RTC issued its assailed
Decision, which, as earlier stated, was affirmed by the CA.
Hence, this Petition. 6
Ruling of the Court of Appeals
In affirming the trial court, the Court of Appeals held that petitioners and respondent had formed a
partnership for the development of the subdivision. Thus, they must bear the loss suffered by the
partnership in the same proportion as their share in the profits stipulated in the contract. Disagreeing
with the trial court's pronouncement that losses as well as profits in a joint venture should be distributed
equally, 7 the CA invoked Article 1797 of the Civil Code which provides:
Art. 1797 — 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.
The CA elucidated further:
In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to
what he may have contributed, but the industrial partner shall not be liable for the losses. As for the
profits, the industrial partner shall receive such share as may be just and equitable under the
circumstances. If besides his services he has contributed capital, he shall also receive a share in the
profits in proportion to his capital.
The Issue
Petitioners impute to the Court of Appeals the following error:
. . . [The] Court of Appeals erred in concluding that the transaction
. . . between the petitioners and respondent was that of a joint venture/partnership, ignoring outright
the provision of Article 1769, and other related provisions of the Civil Code of the Philippines. 8
The Court's Ruling
The Petition is bereft of merit.
Main Issue:
Existence of a Partnership
Petitioners deny having formed a partnership with respondent. They contend that the Joint Venture
Agreement and the earlier Deed of Sale, both of which were the bases of the appellate court's finding of
a partnership, were void.
In the same breath, however, they assert that under those very same contracts, respondent is liable for
his failure to implement the project. Because the agreement entitled them to receive 60 percent of the
proceeds from the sale of the subdivision lots, they pray that respondent pay them damages equivalent
to 60 percent of the value of the property. 9
The pertinent portions of the Joint Venture Agreement read as follows:
KNOW ALL MEN BY THESE PRESENTS:
This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th day of March, 1969, by and
between MR. MANUEL R. TORRES, . . . the FIRST PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS
EMETERIA BARING, . . . the SECOND PARTY:
WITNESSETH:
That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this property located at Lapu-
Lapu City, Island of Mactan, under Lot No. 1368 covering TCT No. T-0184 with a total area of 17,009
square meters, to be sub-divided by the FIRST PARTY;
Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of: TWENTY THOUSAND (P20,000.00)
Pesos, Philippine Currency upon the execution of this contract for the property entrusted by the SECOND
PARTY, for sub-division projects and development purposes;
NOW THEREFORE, for and in consideration of the above covenants and promises herein contained the
respective parties hereto do hereby stipulate and agree as follows:
ONE: That the SECOND PARTY signed an absolute Deed of Sale . . . dated March 5, 1969, in the amount of
TWENTY FIVE THOUSAND FIVE HUNDRED THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine Currency, for
1,700 square meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in favor of the FIRST
PARTY, but the SECOND PARTY did not actually receive the payment.
SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the necessary amount of
TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, for their personal obligations and this
particular amount will serve as an advance payment from the FIRST PARTY for the property mentioned
to be sub-divided and to be deducted from the sales.
THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the interest and the principal
amount involving the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, until the
sub-division project is terminated and ready for sale to any interested parties, and the amount of
TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, will be deducted accordingly.
FOURTH: That all general expense[s] and all cost[s] involved in the sub-division project should be paid by
the FIRST PARTY, exclusively and all the expenses will not be deducted from the sales after the
development of the sub-division project.
FIFTH: That the sales of the sub-divided lots will be divided into SIXTY PERCENTUM 60% for the SECOND
PARTY and FORTY PERCENTUM 40% for the FIRST PARTY, and additional profits or whatever income
deriving from the sales will be divided equally according to the . . . percentage [agreed upon] by both
parties.
SIXTH: That the intended sub-division project of the property involved will start the work and all
improvements upon the adjacent lots will be negotiated in both parties['] favor and all sales shall [be]
decided by both parties.
SEVENTH: That the SECOND PARTIES, should be given an option to get back the property mentioned
provided the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, borrowed by the
SECOND PARTY, will be paid in full to the FIRST PARTY, including all necessary improvements spent by
the FIRST PARTY, and-the FIRST PARTY will be given a grace period to turnover the property mentioned
above.
That this AGREEMENT shall be binding and obligatory to the parties who executed same freely and
voluntarily for the uses and purposes therein stated. 10
A reading of the terms embodied in the Agreement indubitably shows the existence of a partnership
pursuant to Article 1767 of the Civil Code, which provides:
Art. 1767. 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.
Under the above-quoted Agreement, petitioners would contribute property to the partnership in the
form of land which was to be developed into a subdivision; while respondent would give, in addition to
his industry, the amount needed for general expenses and other costs. Furthermore, the income from
the said project would be divided according to the stipulated percentage. Clearly, the contract
manifested the intention of the parties to form a partnership. 11
It should be stressed that the parties implemented the contract. Thus, petitioners transferred the title to
the land to facilitate its use in the name of the respondent. On the other hand, respondent caused the
subject land to be mortgaged, the proceeds of which were used for the survey and the subdivision of the
land. As noted earlier, he developed the roads, the curbs and the gutters of the subdivision and entered
into a contract to construct low-cost housing units on the property.
Respondent's actions clearly belie petitioners' contention that he made no contribution to the
partnership. Under Article 1767 of the Civil Code, a partner may contribute not only money or property,
but also industry.
Petitioners Bound by
Terms of Contract
Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been expressly
stipulated, but also to all necessary consequences thereof, as follows:
Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not
only to the fulfillment of what has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law.
It is undisputed that petitioners are educated and are thus presumed to have understood the terms of
the contract they voluntarily signed. If it was not in consonance with their expectations, they should
have objected to it and insisted on the provisions they wanted.
Courts are not authorized to extricate parties from the necessary consequences of their acts, and the
fact that the contractual stipulations may turn out to be financially disadvantageous will not relieve
parties thereto of their obligations. They cannot now disavow the relationship formed from such
agreement due to their supposed misunderstanding of its terms.
Alleged Nullity of the
Partnership Agreement
Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil Code, which
provides:
Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an
inventory of said property is not made, signed by the parties, and attached to the public instrument.
They contend that since the parties did not make, sign or attach to the public instrument an inventory of
the real property contributed, the partnership is void.
We clarify. First, Article 1773 was intended primarily to protect third persons. Thus, the eminent Arturo
M. Tolentino states that under the aforecited provision which is a complement of Article 1771, 12 "The
execution of a public instrument would be useless if there is no inventory of the property contributed,
because without its designation and description, they cannot be subject to inscription in the Registry of
Property, and their contribution cannot prejudice third persons. This will result in fraud to those who
contract with the partnership in the belief [in] the efficacy of the guaranty in which the immovables may
consist. Thus, the contract is declared void by the law when no such inventory is made." The case at bar
does not involve third parties who may be prejudiced.
Second, petitioners themselves invoke the allegedly void contract as basis for their claim that respondent
should pay them 60 percent of the value of the property. 13 They cannot in one breath deny the contract
and in another recognize it, depending on what momentarily suits their purpose. Parties cannot adopt
inconsistent positions in regard to a contract and courts will not tolerate, much less approve, such
practice.
In short, the alleged nullity of the partnership will not prevent courts from considering the Joint Venture
Agreement an ordinary contract from which the parties' rights and obligations to each other may be
inferred and enforced.
Partnership Agreement Not the Result
of an Earlier Illegal Contract
Petitioners also contend that the Joint Venture Agreement is void under Article 1422 14 of the Civil Code,
because it is the direct result of an earlier illegal contract, which was for the sale of the land without
valid consideration.
This argument is puerile. The Joint Venture Agreement clearly states that the consideration for the sale
was the expectation of profits from the subdivision project. Its first stipulation states that petitioners did
not actually receive payment for the parcel of land sold to respondent. Consideration, more properly
denominated as cause, can take different forms, such as the prestation or promise of a thing or service
by another. 15
In this case, the cause of the contract of sale consisted not in the stated peso value of the land, but in the
expectation of profits from the subdivision project, for which the land was intended to be used. As
explained by the trial court, "the land was in effect given to the partnership as [petitioner's] participation
therein. . . . There was therefore a consideration for the sale, the [petitioners] acting in the expectation
that, should the venture come into fruition, they [would] get sixty percent of the net profits."
Liability of the Parties
Claiming that rerpondent was solely responsible for the failure of the subdivision project, petitioners
maintain that he should be made to pay damages equivalent to 60 percent of the value of the property,
which was their share in the profits under the Joint Venture Agreement.
We are not persuaded. True, the Court of Appeals held that petitioners' acts were not the cause of the
failure of the project. 16 But it also ruled that neither was respondent responsible therefor. 17 In imputing
the blame solely to him, petitioners failed to give any reason why we should disregard the factual
findings of the appellate court relieving him of fault. Verily, factual issues cannot be resolved in a petition
for review under Rule 45, as in this case. Petitioners have not alleged, not to say shown, that their
Petition constitutes one of the exceptions to this doctrine. 18Accordingly, we find no reversible error in
the CA's ruling that petitioners are not entitled to damages.
WHEREFORE, the Perition is hereby DENIED and the challenged Decision AFFIRMED. Costs against
petitioners.
SO ORDERED
G.R. No. 142612. July 29, 2005
OSCAR ANGELES and EMERITA ANGELES, Petitioners,
vs.
THE HON. SECRETARY OF JUSTICE and FELINO MERCADO, Respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for certiorari1 to annul the letter-resolution2 dated 1 February 2000 of the Secretary of
Justice in Resolution No. 155.3 The Secretary of Justice affirmed the resolution4 in I.S. No. 96-939 dated
28 February 1997 rendered by the Provincial Prosecution Office of the Department of Justice in Santa
Cruz, Laguna ("Provincial Prosecution Office"). The Provincial Prosecution Office resolved to dismiss the
complaint for estafa filed by petitioners Oscar and Emerita Angeles ("Angeles spouses") against
respondent Felino Mercado ("Mercado").
Antecedent Facts
On 19 November 1996, the Angeles spouses filed a criminal complaint for estafa under Article 315 of the
Revised Penal Code against Mercado before the Provincial Prosecution Office. Mercado is the brother-in-
law of the Angeles spouses, being married to Emerita Angeles’ sister Laura.
In their affidavits, the Angeles spouses claimed that in November 1992, Mercado convinced them to
enter into a contract of antichresis,5 colloquially known as sanglaang-perde, covering eight parcels of
land ("subject land") planted with fruit-bearing lanzones trees located in Nagcarlan, Laguna and owned
by Juana Suazo. The contract of antichresis was to last for five years with ₱210,000 as consideration. As
the Angeles spouses stay in Manila during weekdays and go to Laguna only on weekends, the parties
agreed that Mercado would administer the lands and complete the necessary paperwork.6
After three years, the Angeles spouses asked for an accounting from Mercado. Mercado explained that
the subject land earned ₱46,210 in 1993, which he used to buy more lanzones trees. Mercado also
reported that the trees bore no fruit in 1994. Mercado gave no accounting for 1995. The Angeles
spouses claim that only after this demand for an accounting did they discover that Mercado had put the
contract of sanglaang-perde over the subject land under Mercado and his spouse’s names.7 The relevant
portions of the contract of sanglaang-perde, signed by Juana Suazo alone, read:
xxx
Na alang-alang sa halagang DALAWANG DAAN AT SAMPUNG LIBONG PISO (₱210,000), salaping gastahin,
na aking tinanggap sa mag[-]asawa nila G. AT GNG. FELINO MERCADO, mga nasa hustong gulang,
Filipino, tumitira at may pahatirang sulat sa Bgy. Maravilla, bayan ng Nagcarlan, lalawigan ng Laguna, ay
aking ipinagbili, iniliwat at isinalin sa naulit na halaga, sa nabanggit na mag[-] asawa nila G. AT GNG.
FELINO MERCADO[,] sa kanila ay magmamana, kahalili at ibang dapat pagliwatan ng kanilang karapatan,
ang lahat na ibubunga ng lahat na puno ng lanzones, hindi kasama ang ibang halaman na napapalooban
nito, ng nabanggit na WALONG (8) Lagay na Lupang Cocal-Lanzonal, sa takdang LIMA (5) NA [sic] TAON,
magpapasimula sa taong 1993, at magtatapos sa taong 1997, kaya’t pagkatapos ng lansonesan sa taong
1997, ang pamomosision at pakikinabang sa lahat na puno ng lanzones sa nabanggit na WALONG (8)
Lagay na Lupang Cocal-Lanzonal ay manunumbalik sa akin, sa akin ay magmamana, kahalili at ibang
dapat pagliwatan ng aking karapatan na ako ay walang ibabalik na ano pa mang halaga, sa mag[-] asawa
nila G. AT GNG. FELINO MERCADO.
Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO ay nagkasundo na ako ay bibigyan nila ng
LIMA (5) na [sic] kaing na lanzones taon-taon sa loob ng LIMA (5) na [sic] taon ng aming kasunduang ito.
Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO ay nagkasundo na silang mag[-]asawa nila
G. AT GNG. FELINO MERCADO ang magpapaalis ng dapo sa puno ng lansones taon-taon [sic] sa loob ng
LIMA (5) [sic] taonng [sic] aming kasunduang ito.8
In his counter-affidavit, Mercado denied the Angeles spouses’ allegations. Mercado claimed that there
exists an industrial partnership, colloquially known as sosyo industrial, between him and his spouse as
industrial partners and the Angeles spouses as the financiers. This industrial partnership had existed
since 1991, before the contract of antichresis over the subject land. As the years passed, Mercado used
his and his spouse’s earnings as part of the capital in the business transactions which he entered into in
behalf of the Angeles spouses. It was their practice to enter into business transactions with other people
under the name of Mercado because the Angeles spouses did not want to be identified as the financiers.
Mercado attached bank receipts showing deposits in behalf of Emerita Angeles and contracts under his
name for the Angeles spouses. Mercado also attached the minutes of the barangay conciliation
proceedings held on 7 September 1996. During the barangay conciliation proceedings, Oscar Angeles
stated that there was a written sosyo industrial agreement: capital would come from the Angeles
spouses while the profit would be divided evenly between Mercado and the Angeles spouses.9
The Ruling of the Provincial Prosecution Office
On 3 January 1997, the Provincial Prosecution Office issued a resolution recommending the filing of
criminal information for estafa against Mercado. This resolution, however, was issued without
Mercado’s counter-affidavit.
Meanwhile, Mercado filed his counter-affidavit on 2 January 1997. On receiving the 3 January 1997
resolution, Mercado moved for its reconsideration. Hence, on 26 February 1997, the Provincial
Prosecution Office issued an amended resolution dismissing the Angeles spouses’ complaint for estafa
against Mercado.
The Provincial Prosecution Office stated thus:
The subject of the complaint hinges on a partnership gone sour. The partnership was initially unsaddled
[with] problems. Management became the source of misunderstanding including the accounting of
profits, which led to further misunderstanding until it was revealed that the contract with the orchard
owner was only with the name of the respondent, without the names of the complainants.
The accusation of "estafa" here lacks enough credible evidentiary support to sustain a prima facie
finding.
Premises considered, it is respectfully recommended that the complaint for estafa be dismissed.
RESPECTFULLY SUBMITTED.10
The Angeles spouses filed a motion for reconsideration, which the Provincial Prosecution Office denied in
a resolution dated 4 August 1997.
The Ruling of the Secretary of Justice
On appeal to the Secretary of Justice, the Angeles spouses emphasized that the document evidencing
the contract of sanglaang-perde with Juana Suazo was executed in the name of the Mercado spouses,
instead of the Angeles spouses. The Angeles spouses allege that this document alone proves Mercado’s
misappropriation of their ₱210,000.
The Secretary of Justice found otherwise. Thus:
Reviewing the records of the case, we are of the opinion that the indictment of [Mercado] for the crime
of estafa cannot be sustained. [The Angeles spouses] failed to show sufficient proof that [Mercado]
deliberately deceived them in the "sanglaang perde" transaction. The document alone, which was in the
name of [Mercado and his spouse], failed to convince us that there was deceit or false representation on
the part of [Mercado] that induced the [Angeles spouses] to part with their money. [Mercado]
satisfactorily explained that the [Angeles spouses] do not want to be revealed as the financiers. Indeed,
it is difficult to believe that the [Angeles spouses] would readily part with their money without holding
on to some document to evidence the receipt of money, or at least to inspect the document involved in
the said transaction. Under the circumstances, we are inclined to believe that [the Angeles spouses]
knew from the very start that the questioned document was not really in their names.
In addition, we are convinced that a partnership truly existed between the [Angeles spouses] and
[Mercado]. The formation of a partnership was clear from the fact that they contributed money to a
common fund and divided the profits among themselves. Records would show that [Mercado] was able
to make deposits for the account of the [Angeles spouses]. These deposits represented their share in the
profits of their business venture. Although the [Angeles spouses] deny the existence of a partnership,
they, however, never disputed that the deposits made by [Mercado] were indeed for their account.
The transcript of notes on the dialogue between the [Angeles spouses] and [Mercado] during the hearing
of their barangay conciliation case reveals that the [Angeles spouses] acknowledged their joint business
ventures with [Mercado] although they assailed the manner by which [Mercado] conducted the business
and handled and distributed the funds. The veracity of this transcript was not raised in issued [sic] by
[the Angeles spouses]. Although the legal formalities for the formation of a partnership were not
adhered to, the partnership relationship of the [Angeles spouses] and [Mercado] is evident in this case.
Consequently, there is no estafa where money is delivered by a partner to his co-partner on the latter’s
representation that the amount shall be applied to the business of their partnership. In case of
misapplication or conversion of the money received, the co-partner’s liability is civil in nature (People v.
Clarin, 7 Phil. 504)
WHEREFORE, the appeal is hereby DISMISSED.11
Hence, this petition.
Issues
The Angeles spouses ask us to consider the following issues:
1. Whether the Secretary of Justice committed grave abuse of discretion amounting to lack of jurisdiction
in dismissing the appeal of the Angeles spouses;
2. Whether a partnership existed between the Angeles spouses and Mercado even without any
documentary proof to sustain its existence;
3. Assuming that there was a partnership, whether there was misappropriation by Mercado of the
proceeds of the lanzones after the Angeles spouses demanded an accounting from him of the income at
the office of the barangay authorities on 7 September 1996, and Mercado failed to do so and also failed
to deliver the proceeds to the Angeles spouses;
4. Whether the Secretary of Justice should order the filing of the information for estafa against
Mercado.12
The Ruling of the Court
The petition has no merit.
Whether the Secretary of Justice Committed
Grave Abuse of Discretion
An act of a court or tribunal may constitute grave abuse of discretion when the same is performed in a
capricious or whimsical exercise of judgment amounting to lack of jurisdiction. The abuse of discretion
must be so patent and gross as to amount to an evasion of positive duty, or to a virtual refusal to
perform a duty enjoined by law, as where the power is exercised in an arbitrary and despotic manner
because of passion or personal hostility.13
The Angeles spouses fail to convince us that the Secretary of Justice committed grave abuse of discretion
when he dismissed their appeal. Moreover, the Angeles spouses committed an error in procedure when
they failed to file a motion for reconsideration of the Secretary of Justice’s resolution. A previous motion
for reconsideration before the filing of a petition for certiorari is necessary unless: (1) the issue raised is
one purely of law; (2) public interest is involved; (3) there is urgency; (4) a question of jurisdiction is
squarely raised before and decided by the lower court; and (5) the order is a patent nullity.14 The Angeles
spouses failed to show that their case falls under any of the exceptions. In fact, this present petition
for certiorari is dismissible for this reason alone.
Whether a Partnership Existed
Between Mercado and the Angeles Spouses
The Angeles spouses allege that they had no partnership with Mercado. The Angeles spouses rely on
Articles 1771 to 1773 of the Civil Code, which state that:
Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights
are contributed thereto, in which case a public instrument shall be necessary.
Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or
property, shall appear in a public instrument, which must be recorded in the Office of the Securities and
Exchange Commission.
Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the
partnership and the members thereof to third persons.
Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an
inventory of said property is not made, signed by the parties, and attached to the public instrument.
The Angeles spouses’ position that there is no partnership because of the lack of a public instrument
indicating the same and a lack of registration with the Securities and Exchange Commission ("SEC") holds
no water. First, the Angeles spouses contributed money to the partnership and not immovable property.
Second, mere failure to register the contract of partnership with the SEC does not invalidate a contract
that has the essential requisites of a partnership. The purpose of registration of the contract of
partnership is to give notice to third parties. Failure to register the contract of partnership does not
affect the liability of the partnership and of the partners to third persons. Neither does such failure to
register affect the partnership’s juridical personality. A partnership may exist even if the partners do not
use the words "partner" or "partnership."
Indeed, the Angeles spouses admit to facts that prove the existence of a partnership: a contract showing
a sosyo industrial or industrial partnership, contribution of money and industry to a common fund, and
division of profits between the Angeles spouses and Mercado.
Whether there was
Misappropriation by Mercado
The Secretary of Justice adequately explained the alleged misappropriation by Mercado: "The document
alone, which was in the name of [Mercado and his spouse], failed to convince us that there was deceit or
false representation on the part of [Mercado] that induced the [Angeles spouses] to part with their
money. [Mercado] satisfactorily explained that the [Angeles spouses] do not want to be revealed as the
financiers."15
Even Branch 26 of the Regional Trial Court of Santa Cruz, Laguna which decided the civil case for
damages, injunction and restraining order filed by the Angeles spouses against Mercado and Leo
Cerayban, stated:
xxx [I]t was the practice to have all the contracts of antichresis of their partnership secured in
[Mercado’s] name as [the Angeles spouses] are apprehensive that, if they come out into the open as
financiers of said contracts, they might be kidnapped by the New People’s Army or their business deals
be questioned by the Bureau of Internal Revenue or worse, their assets and unexplained income be
sequestered, as xxx Oscar Angeles was then working with the government.16
Furthermore, accounting of the proceeds is not a proper subject for the present case.
For these reasons, we hold that the Secretary of Justice did not abuse his discretion in dismissing the
appeal of the Angeles spouses.
WHEREFORE, we AFFIRM the decision of the Secretary of Justice. The present petition for certiorari is
DISMISSED.
SO ORDERED.
G.R. NOS. 166299-300 December 13, 2005
AURELIO K. LITONJUA, JR., Petitioner,
vs.
EDUARDO K. LITONJUA, SR., ROBERT T. YANG, ANGLO PHILS. MARITIME, INC., CINEPLEX, INC., DDM
GARMENTS, INC., EDDIE K. LITONJUA SHIPPING AGENCY, INC., EDDIE K. LITONJUA SHIPPING CO., INC.,
LITONJUA SECURITIES, INC. (formerly E. K. Litonjua Sec), LUNETA THEATER, INC., E & L REALTY,
(formerly E & L INT’L SHIPPING CORP.), FNP CO., INC., HOME ENTERPRISES, INC., BEAUMONT DEV.
REALTY CO., INC., GLOED LAND CORP., EQUITY TRADING CO., INC., 3D CORP., "L" DEV. CORP, LCM
THEATRICAL ENTERPRISES, INC., LITONJUA SHIPPING CO. INC., MACOIL INC., ODEON REALTY CORP.,
SARATOGA REALTY, INC., ACT THEATER INC. (formerly General Theatrical & Film Exchange, INC.),
AVENUE REALTY, INC., AVENUE THEATER, INC. and LVF PHILIPPINES, INC., (Formerly VF
PHILIPPINES),Respondents.
DECISION
GARCIA, J.:
In this petition for review under Rule 45 of the Rules of Court, petitioner Aurelio K. Litonjua, Jr. seeks to
nullify and set aside the Decision of the Court of Appeals (CA) dated March 31, 20041 in consolidated
cases C.A. G.R. Sp. No. 76987 and C.A. G.R. SP. No 78774 and its Resolution dated December 07,
2004,2 denying petitioner’s motion for reconsideration.
The recourse is cast against the following factual backdrop:
Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K. Litonjua, Sr. (Eduardo) are
brothers. The legal dispute between them started when, on December 4, 2002, in the Regional Trial
Court (RTC) at Pasig City, Aurelio filed a suit against his brother Eduardo and herein respondent Robert T.
Yang (Yang) and several corporations for specific performance and accounting. In his
complaint,3 docketed as Civil Case No. 69235 and eventually raffled to Branch 68 of the court,4 Aurelio
alleged that, since June 1973, he and Eduardo are into a joint venture/partnership arrangement in the
Odeon Theater business which had expanded thru investment in Cineplex, Inc., LCM Theatrical
Enterprises, Odeon Realty Corporation (operator of Odeon I and II theatres), Avenue Realty, Inc., owner
of lands and buildings, among other corporations. Yang is described in the complaint as petitioner’s and
Eduardo’s partner in their Odeon Theater investment.5 The same complaint also contained the following
material averments:
3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a joint venture/partnership for the
continuation of their family business and common family funds ….
3.01.1 This joint venture/[partnership] agreement was contained in a memorandum addressed by
Eduardo to his siblings, parents and other relatives. Copy of this memorandum is attached hereto and
made an integral part as Annex "A" and the portion referring to [Aurelio] submarked as Annex "A-1".
3.02 It was then agreed upon between [Aurelio] and Eduardo that in consideration of [Aurelio’s]
retaining his share in the remaining family businesses (mostly, movie theaters, shipping and land
development) and contributing his industry to the continued operation of these businesses, [Aurelio] will
be given P1 Million or 10% equity in all these businesses and those to be subsequently acquired by them
whichever is greater. . . .
4.01 … from 22 June 1973 to about August 2001, or [in] a span of 28 years, [Aurelio] and Eduardo had
accumulated in their joint venture/partnership various assets including but not limited to the corporate
defendants and [their] respective assets.
4.02 In addition . . . the joint venture/partnership … had also acquired [various other assets], but
Eduardo caused to be registered in the names of other parties….
xxx xxx xxx
4.04 The substantial assets of most of the corporate defendants consist of real properties …. A list of
some of these real properties is attached hereto and made an integral part as Annex "B".
xxx xxx xxx
5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo became sour so that [Aurelio]
requested for an accounting and liquidation of his share in the joint venture/partnership [but these
demands for complete accounting and liquidation were not heeded].
xxx xxx xxx
5.05 What is worse, [Aurelio] has reasonable cause to believe that Eduardo and/or the corporate
defendants as well as Bobby [Yang], are transferring . . . various real properties of the corporations
belonging to the joint venture/partnership to other parties in fraud of [Aurelio]. In consequence,
[Aurelio] is therefore causing at this time the annotation on the titles of these real properties… a notice
of lis pendens …. (Emphasis in the original; underscoring and words in bracket added.)
For ease of reference, Annex "A-1" of the complaint, which petitioner asserts to have been meant for
him by his brother Eduardo, pertinently reads:
10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:
You have now your own life to live after having been married. ….
I am trying my best to mold you the way I work so you can follow the pattern …. You will be the only one
left with the company, among us brothers and I will ask you to stay as I want you to run this office every
time I am away. I want you to run it the way I am trying to run it because I will be all alone and I will
depend entirely to you (sic). My sons will not be ready to help me yet until about maybe 15/20 years
from now. Whatever is left in the corporation, I will make sure that you get ONE MILLION PESOS
(P1,000,000.00) or ten percent (10%) equity, whichever is greater. We two will gamble the whole thing
of what I have and what you are entitled to. …. It will be you and me alone on this. If ever I pass away, I
want you to take care of all of this. You keep my share for my two sons are ready take over but give them
the chance to run the company which I have built.
xxx xxx xxx
Because you will need a place to stay, I will arrange to give you first ONE HUNDRED THOUSANDS PESOS:
(P100, 000.00) in cash or asset, like Lt. Artiaga so you can live better there. The rest I will give you in form
of stocks which you can keep. This stock I assure you is good and saleable. I will also gladly give you the
share of Wack-Wack …and Valley Golf … because you have been good. The rest will be in stocks from all
the corporations which I repeat, ten percent (10%) equity. 6
On December 20, 2002, Eduardo and the corporate respondents, as defendants a quo, filed a
joint ANSWER With Compulsory Counterclaim denying under oath the material allegations of the
complaint, more particularly that portion thereof depicting petitioner and Eduardo as having entered
into a contract of partnership. As affirmative defenses, Eduardo, et al., apart from raising a jurisdictional
matter, alleged that the complaint states no cause of action, since no cause of action may be derived
from the actionable document, i.e., Annex "A-1", being void under the terms of Article 1767 in relation
to Article 1773 of the Civil Code, infra. It is further alleged that whatever undertaking Eduardo agreed to
do, if any, under Annex "A-1", are unenforceable under the provisions of the Statute of Frauds.7
For his part, Yang - who was served with summons long after the other defendants submitted their
answer – moved to dismiss on the ground, inter alia, that, as to him, petitioner has no cause of action
and the complaint does not state any.8 Petitioner opposed this motion to dismiss.
On January 10, 2003, Eduardo, et al., filed a Motion to Resolve Affirmative Defenses.9 To this motion,
petitioner interposed an Opposition with ex-Parte Motion to Set the Case for Pre-trial.10
Acting on the separate motions immediately adverted to above, the trial court, in an Omnibus Order
dated March 5, 2003, denied the affirmative defenses and, except for Yang, set the case for pre-trial on
April 10, 2003.11
In another Omnibus Order of April 2, 2003, the same court denied the motion of Eduardo, et al., for
reconsideration12 and Yang’s motion to dismiss. The following then transpired insofar as Yang is
concerned:
1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved the right to seek reconsideration of
the April 2, 2003 Omnibus Order and to pursue his failed motion to dismiss13 to its full resolution.
2. On April 24, 2003, he moved for reconsideration of the Omnibus Order of April 2, 2003, but his motion
was denied in an Order of July 4, 2003.14
3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a petition for certiorari under Rule 65
of the Rules of Court, docketed as CA-G.R. SP No. 78774,15 to nullify the separate orders of the trial
court, the first denying his motion to dismiss the basic complaint and, the second, denying his motion for
reconsideration.
Earlier, Eduardo and the corporate defendants, on the contention that grave abuse of discretion and
injudicious haste attended the issuance of the trial court’s aforementioned Omnibus Orders dated March
5, and April 2, 2003, sought relief from the CA via similar recourse. Their petition for certiorari was
docketed as CA G.R. SP No. 76987.
Per its resolution dated October 2, 2003,16 the CA’s 14th Division ordered the consolidation of CA G.R. SP
No. 78774 with CA G.R. SP No. 76987.
Following the submission by the parties of their respective Memoranda of Authorities, the appellate
court came out with the herein assailed Decision dated March 31, 2004, finding for Eduardo and Yang,
as lead petitioners therein, disposing as follows:
WHEREFORE, judgment is hereby rendered granting the issuance of the writ of certiorari in these
consolidated cases annulling, reversing and setting aside the assailed orders of the court a quo dated
March 5, 2003, April 2, 2003 and July 4, 2003 and the complaint filed by private respondent [now
petitioner Aurelio] against all the petitioners [now herein respondents Eduardo, et al.] with the court a
quo is hereby dismissed.
SO ORDERED.17 (Emphasis in the original; words in bracket added.)
Explaining its case disposition, the appellate court stated, inter alia, that the alleged partnership, as
evidenced by the actionable documents, Annex "A" and "A-1" attached to the complaint, and upon
which petitioner solely predicates his right/s allegedly violated by Eduardo, Yang and the corporate
defendants a quo is "void or legally inexistent".
In time, petitioner moved for reconsideration but his motion was denied by the CA in its equally
assailed Resolution of December 7, 2004.18 .
Hence, petitioner’s present recourse, on the contention that the CA erred:
A. When it ruled that there was no partnership created by the actionable document because this was not
a public instrument and immovable properties were contributed to the partnership.
B. When it ruled that the actionable document did not create a demandable right in favor of petitioner.
C. When it ruled that the complaint stated no cause of action against [respondent] Robert Yang; and
D. When it ruled that petitioner has changed his theory on appeal when all that Petitioner had done was
to support his pleaded cause of action by another legal perspective/argument.
The petition lacks merit.
Petitioner’s demand, as defined in the petitory portion of his complaint in the trial court, is for delivery
or payment to him, as Eduardo’s and Yang’s partner, of his partnership/joint venture share, after an
accounting has been duly conducted of what he deems to be partnership/joint venture property.19
A partnership exists when two or more persons agree to place their money, effects, labor, and skill in
lawful commerce or business, with the understanding that there shall be a proportionate sharing of the
profits and losses between them.20 A contract of partnership is defined by the Civil Code as one where
two or more persons bound themselves to contribute money, property, or industry to a common fund
with the intention of dividing the profits among themselves.21 A joint venture, on the other hand, is
hardly distinguishable from, and may be likened to, a partnership since their elements are similar, i.e.,
community of interests in the business and sharing of profits and losses. Being a form of partnership, a
joint venture is generally governed by the law on partnership.22
The underlying issue that necessarily comes to mind in this proceedings is whether or not petitioner and
respondent Eduardo are partners in the theatre, shipping and realty business, as one claims but which
the other denies. And the issue bearing on the first assigned error relates to the question of what legal
provision is applicable under the premises, petitioner seeking, as it were, to enforce the actionable
document - Annex "A-1" - which he depicts in his complaint to be the contract of partnership/joint
venture between himself and Eduardo. Clearly, then, a look at the legal provisions determinative of the
existence, or defining the formal requisites, of a partnership is indicated. Foremost of these are the
following provisions of the Civil Code:
Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights
are contributed thereto, in which case a public instrument shall be necessary.
Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or
property, shall appear in a public instrument, which must be recorded in the Office of the Securities and
Exchange Commission.
Failure to comply with the requirement of the preceding paragraph shall not affect the liability of the
partnership and the members thereof to third persons.
Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an
inventory of said property is not made, signed by the parties, and attached to the public instrument.
Annex "A-1", on its face, contains typewritten entries, personal in tone, but is unsigned and undated. As
an unsigned document, there can be no quibbling that Annex "A-1" does not meet the public
instrumentation requirements exacted under Article 1771 of the Civil Code. Moreover, being unsigned
and doubtless referring to a partnership involving more than P3,000.00 in money or property, Annex "A-
1" cannot be presented for notarization, let alone registered with the Securities and Exchange
Commission (SEC), as called for under the Article 1772 of the Code. And inasmuch as the inventory
requirement under the succeeding Article 1773 goes into the matter of validity when immovable
property is contributed to the partnership, the next logical point of inquiry turns on the nature of
petitioner’s contribution, if any, to the supposed partnership.
The CA, addressing the foregoing query, correctly stated that petitioner’s contribution consisted of
immovables and real rights. Wrote that court:
A further examination of the allegations in the complaint would show that [petitioner’s] contribution to
the so-called "partnership/joint venture" was his supposed share in the family business that is consisting
of movie theaters, shipping and land development under paragraph 3.02 of the complaint. In other
words, his contribution as a partner in the alleged partnership/joint venture consisted of immovable
properties and real rights. ….23
Significantly enough, petitioner matter-of-factly concurred with the appellate court’s observation that,
prescinding from what he himself alleged in his basic complaint, his contribution to the partnership
consisted of his share in the Litonjua family businesses which owned variable immovable properties.
Petitioner’s assertion in his motion for reconsideration24 of the CA’s decision, that "what was to be
contributed to the business [of the partnership] was [petitioner’s] industry and his share in the family
[theatre and land development] business" leaves no room for speculation as to what petitioner
contributed to the perceived partnership.
Lest it be overlooked, the contract-validating inventory requirement under Article 1773 of the Civil Code
applies as long real property or real rights are initially brought into the partnership. In short, it is really of
no moment which of the partners, or, in this case, who between petitioner and his brother Eduardo,
contributed immovables. In context, the more important consideration is that real property was
contributed, in which case an inventory of the contributed property duly signed by the parties should be
attached to the public instrument, else there is legally no partnership to speak of.
Petitioner, in an obvious bid to evade the application of Article 1773, argues that the immovables in
question were not contributed, but were acquired after the formation of the supposed partnership.
Needless to stress, the Court cannot accord cogency to this specious argument. For, as earlier stated,
petitioner himself admitted contributing his share in the supposed shipping, movie theatres and realty
development family businesses which already owned immovables even before Annex "A-1" was
allegedly executed.
Considering thus the value and nature of petitioner’s alleged contribution to the purported partnership,
the Court, even if so disposed, cannot plausibly extend Annex "A-1" the legal effects that petitioner so
desires and pleads to be given. Annex "A-1", in fine, cannot support the existence of the partnership
sued upon and sought to be enforced. The legal and factual milieu of the case calls for this disposition. A
partnership may be constituted in any form, save when immovable property or real rights are
contributed thereto or when the partnership has a capital of at least ₱3,000.00, in which case a public
instrument shall be necessary.25 And if only to stress what has repeatedly been articulated, an inventory
to be signed by the parties and attached to the public instrument is also indispensable to the validity of
the partnership whenever immovable property is contributed to it.
Given the foregoing perspective, what the appellate court wrote in its assailed Decision26 about the
probative value and legal effect of Annex "A-1" commends itself for concurrence:
Considering that the allegations in the complaint showed that [petitioner] contributed immovable
properties to the alleged partnership, the "Memorandum" (Annex "A" of the complaint) which purports
to establish the said "partnership/joint venture" is NOT a public instrument and there was NO inventory
of the immovable property duly signed by the parties. As such, the said "Memorandum" … is null and
void for purposes of establishing the existence of a valid contract of partnership. Indeed, because of the
failure to comply with the essential formalities of a valid contract, the purported "partnership/joint
venture" is legally inexistent and it produces no effect whatsoever. Necessarily, a void or legally
inexistent contract cannot be the source of any contractual or legal right. Accordingly, the allegations in
the complaint, including the actionable document attached thereto, clearly demonstrates that
[petitioner] has NO valid contractual or legal right which could be violated by the [individual
respondents] herein. As a consequence, [petitioner’s] complaint does NOT state a valid cause of action
because NOT all the essential elements of a cause of action are present. (Underscoring and words in
bracket added.)
Likewise well-taken are the following complementary excerpts from the CA’s equally assailed Resolution
of December 7, 200427 denying petitioner’s motion for reconsideration:
Further, We conclude that despite glaring defects in the allegations in the complaint as well as the
actionable document attached thereto (Rollo, p. 191), the [trial] court did not appreciate and apply the
legal provisions which were brought to its attention by herein [respondents] in the their pleadings. In our
evaluation of [petitioner’s] complaint, the latter alleged inter alia to have contributed immovable
properties to the alleged partnership but the actionable document is not a public document and there
was no inventory of immovable properties signed by the parties. Both the allegations in the complaint
and the actionable documents considered, it is crystal clear that [petitioner] has no valid or legal right
which could be violated by [respondents]. (Words in bracket added.)
Under the second assigned error, it is petitioner’s posture that Annex "A-1", assuming its inefficacy or
nullity as a partnership document, nevertheless created demandable rights in his favor. As petitioner
succinctly puts it in this petition:
43. Contrariwise, this actionable document, especially its above-quoted provisions, established an
actionable contract even though it may not be a partnership. This actionable contract is what is known as
an innominate contract (Civil Code, Article 1307).
44. It may not be a contract of loan, or a mortgage or whatever, but surely the contract does create
rights and obligations of the parties and which rights and obligations may be enforceable and
demandable. Just because the relationship created by the agreement cannot be specifically labeled or
pigeonholed into a category of nominate contract does not mean it is void or unenforceable.
Petitioner has thus thrusted the notion of an innominate contract on this Court - and earlier on the CA
after he experienced a reversal of fortune thereat - as an afterthought. The appellate court, however,
cannot really be faulted for not yielding to petitioner’s dubious stratagem of altering his theory of joint
venture/partnership to an innominate contract. For, at bottom, the appellate court’s certiorari
jurisdiction was circumscribed by what was alleged to have been the order/s issued by the trial court in
grave abuse of discretion. As respondent Yang pointedly observed,28since the parties’ basic position had
been well-defined, that of petitioner being that the actionable document established a partnership/joint
venture, it is on those positions that the appellate court exercised its certiorari jurisdiction. Petitioner’s
act of changing his original theory is an impermissible practice and constitutes, as the CA aptly declared,
an admission of the untenability of such theory in the first place.
[Petitioner] is now humming a different tune . . . . In a sudden twist of stance, he has now contended
that the actionable instrument may be considered an innominate contract. xxx Verily, this now changes
[petitioner’s] theory of the case which is not only prohibited by the Rules but also is an implied
admission that the very theory he himself … has adopted, filed and prosecuted before the respondent
court is erroneous.
Be that as it may . …. We hold that this new theory contravenes [petitioner’s] theory of the actionable
document being a partnership document. If anything, it is so obvious we do have to test the sufficiency
of the cause of action on the basis of partnership law xxx.29 (Emphasis in the original; Words in bracket
added).
But even assuming in gratia argumenti that Annex "A-1" partakes of a perfected innominate contract,
petitioner’s complaint would still be dismissible as against Eduardo and, more so, against Yang. It cannot
be over-emphasized that petitioner points to Eduardo as the author of Annex "A-1". Withal, even on this
consideration alone, petitioner’s claim against Yang is doomed from the very start.
As it were, the only portion of Annex "A-1" which could perhaps be remotely regarded as vesting
petitioner with a right to demand from respondent Eduardo the observance of a determinate conduct,
reads:
xxx You will be the only one left with the company, among us brothers and I will ask you to stay as I want
you to run this office everytime I am away. I want you to run it the way I am trying to run it because I will
be alone and I will depend entirely to you, My sons will not be ready to help me yet until about maybe
15/20 years from now. Whatever is left in the corporation, I will make sure that you get ONE MILLION
PESOS (P1,000,000.00) or ten percent (10%) equity, whichever is greater. (Underscoring added)
It is at once apparent that what respondent Eduardo imposed upon himself under the above passage, if
he indeed wrote Annex "A-1", is a promise which is not to be performed within one year from "contract"
execution on June 22, 1973. Accordingly, the agreement embodied in Annex "A-1" is covered by the
Statute of Frauds and ergounenforceable for non-compliance therewith.30 By force of the statute of
frauds, an agreement that by its terms is not to be performed within a year from the making thereof
shall be unenforceable by action, unless the same, or some note or memorandum thereof, be in writing
and subscribed by the party charged. Corollarily, no action can be proved unless the requirement
exacted by the statute of frauds is complied with.31
Lest it be overlooked, petitioner is the intended beneficiary of the P1 Million or 10% equity of the family
businesses supposedly promised by Eduardo to give in the near future. Any suggestion that the stated
amount or the equity component of the promise was intended to go to a common fund would be to read
something not written in Annex"A-1". Thus, even this angle alone argues against the very idea of a
partnership, the creation of which requires two or more contracting minds mutually agreeing to
contribute money, property or industry to a common fund with the intention of dividing the profits
between or among themselves.32
In sum then, the Court rules, as did the CA, that petitioner’s complaint for specific performance
anchored on an actionable document of partnership which is legally inexistent or void or, at best,
unenforceable does not state a cause of action as against respondent Eduardo and the corporate
defendants. And if no of action can successfully be maintained against respondent Eduardo because no
valid partnership existed between him and petitioner, the Court cannot see its way clear on how the
same action could plausibly prosper against Yang. Surely, Yang could not have become a partner in, or
could not have had any form of business relationship with, an inexistent partnership.
As may be noted, petitioner has not, in his complaint, provide the logical nexus that would tie Yang to
him as his partner. In fact, attendant circumstances would indicate the contrary. Consider:
1. Petitioner asserted in his complaint that his so-called joint venture/partnership with Eduardo was "for
the continuation of their family business and common family funds which were theretofore being mainly
managed by Eduardo." 33 But Yang denies kinship with the Litonjua family and petitioner has not
disputed the disclaimer.
2. In some detail, petitioner mentioned what he had contributed to the joint venture/partnership with
Eduardo and what his share in the businesses will be. No allegation is made whatsoever about what Yang
contributed, if any, let alone his proportional share in the profits. But such allegation cannot, however,
be made because, as aptly observed by the CA, the actionable document did not contain such provision,
let alone mention the name of Yang. How, indeed, could a person be considered a partner when the
document purporting to establish the partnership contract did not even mention his name.
3. Petitioner states in par. 2.01 of the complaint that "[he] and Eduardo are business partners in the
[respondent] corporations," while "Bobby is his and Eduardo’s partner in their Odeon Theater
investment’ (par. 2.03). This means that the partnership between petitioner and Eduardo came first;
Yang became their partner in their Odeon Theater investment thereafter. Several paragraphs later,
however, petitioner would contradict himself by alleging that his "investment and that of Eduardo and
Yang in the Odeon theater business has expanded through a reinvestment of profit income and direct
investments in several corporation including but not limited to [six] corporate respondents" This simply
means that the "Odeon Theatre business" came before the corporate respondents. Significantly enough,
petitioner refers to the corporate respondents as "progeny" of the Odeon Theatre business.34
Needless to stress, petitioner has not sufficiently established in his complaint the legal vinculum whence
he sourced his right to drag Yang into the fray. The Court of Appeals, in its assailed decision, captured
and formulated the legal situation in the following wise:
[Respondent] Yang, … is impleaded because, as alleged in the complaint, he is a "partner" of [Eduardo]
and the [petitioner] in the Odeon Theater Investment which expanded through reinvestments of profits
and direct investments in several corporations, thus:
xxx xxx xxx
Clearly, [petitioner’s] claim against … Yang arose from his alleged partnership with petitioner and the
…respondent. However, there was NO allegation in the complaint which directly alleged how the
supposed contractual relation was created between [petitioner] and …Yang. More importantly, however,
the foregoing ruling of this Court that the purported partnership between [Eduardo] is void and legally
inexistent directly affects said claim against …Yang. Since [petitioner] is trying to establish his claim
against … Yang by linking him to the legally inexistent partnership . . . such attempt had become futile
because there was NOTHING that would contractually connect [petitioner] and … Yang. To establish a
valid cause of action, the complaint should have a statement of fact upon which to connect [respondent]
Yang to the alleged partnership between [petitioner] and respondent [Eduardo], including their alleged
investment in the Odeon Theater. A statement of facts on those matters is pivotal to the complaint as
they would constitute the ultimate facts necessary to establish the elements of a cause of action against
… Yang. 35
Pressing its point, the CA later stated in its resolution denying petitioner’s motion for reconsideration the
following:
xxx Whatever the complaint calls it, it is the actionable document attached to the complaint that is
controlling. Suffice it to state, We have not ignored the actionable document … As a matter of fact, We
emphasized in our decision … that insofar as [Yang] is concerned, he is not even mentioned in the said
actionable document. We are therefore puzzled how a person not mentioned in a document purporting
to establish a partnership could be considered a partner.36 (Words in bracket ours).
The last issue raised by petitioner, referring to whether or not he changed his theory of the case, as
peremptorily determined by the CA, has been discussed at length earlier and need not detain us long.
Suffice it to say that after the CA has ruled that the alleged partnership is inexistent, petitioner took a
different tack. Thus, from a joint venture/partnership theory which he adopted and consistently pursued
in his complaint, petitioner embraced the innominate contract theory. Illustrative of this shift is
petitioner’s statement in par. #8 of his motion for reconsideration of the CA’s decision combined with
what he said in par. # 43 of this petition, as follows:
8. Whether or not the actionable document creates a partnership, joint venture, or whatever, is a legal
matter. What is determinative for purposes of sufficiency of the complainant’s allegations, is whether
the actionable document bears out an actionable contract – be it a partnership, a joint venture or
whatever or some innominate contract … It may be noted that one kind of innominate contract is what is
known as du ut facias (I give that you may do).37
43. Contrariwise, this actionable document, especially its above-quoted provisions, established an
actionable contract even though it may not be a partnership. This actionable contract is what is known as
an innominate contract (Civil Code, Article 1307).38
Springing surprises on the opposing party is offensive to the sporting idea of fair play, justice and due
process; hence, the proscription against a party shifting from one theory at the trial court to a new and
different theory in the appellate court.39 On the same rationale, an issue which was neither averred in
the complaint cannot be raised for the first time on appeal.40 It is not difficult, therefore, to agree with
the CA when it made short shrift of petitioner’s innominate contract theory on the basis of the foregoing
basic reasons.
Petitioner’s protestation that his act of introducing the concept of innominate contract was not a case of
changing theories but of supporting his pleaded cause of action – that of the existence of a partnership -
by another legal perspective/argument, strikes the Court as a strained attempt to rationalize an
untenable position. Paragraph 12 of his motion for reconsideration of the CA’s decision virtually
relegates partnership as a fall-back theory. Two paragraphs later, in the same notion, petitioner faults
the appellate court for reading, with myopic eyes, the actionable document solely as establishing a
partnership/joint venture. Verily, the cited paragraphs are a study of a party hedging on whether or not
to pursue the original cause of action or altogether abandoning the same, thus:
12. Incidentally, assuming that the actionable document created a partnership between [respondent]
Eduardo, Sr. and [petitioner], no immovables were contributed to this partnership. xxx
14. All told, the Decision takes off from a false premise that the actionable document attached to the
complaint does not establish a contractual relationship between [petitioner] and … Eduardo, Sr. and
Roberto T Yang simply because his document does not create a partnership or a joint venture. This is … a
myopic reading of the actionable document.
Per the Court’s own count, petitioner used in his complaint the mixed words "joint venture/partnership"
nineteen (19) times and the term "partner" four (4) times. He made reference to the "law of joint
venture/partnership [being applicable] to the business relationship … between [him], Eduardo and Bobby
[Yang]" and to his "rights in all specific properties of their joint venture/partnership". Given this
consideration, petitioner’s right of action against respondents Eduardo and Yang doubtless pivots on the
existence of the partnership between the three of them, as purportedly evidenced by the undated and
unsigned Annex "A-1". A void Annex "A-1", as an actionable document of partnership, would strip
petitioner of a cause of action under the premises. A complaint for delivery and accounting of
partnership property based on such void or legally non-existent actionable document is dismissible for
failure to state of action. So, in gist, said the Court of Appeals. The Court agrees.
WHEREFORE, the instant petition is DENIED and the impugned Decision and Resolution of the Court of
Appeals AFFIRMED.
ARTICLE 1797
G.R. No. 183374 June 29, 2010
MARSMAN DRYSDALE LAND, INC., Petitioner,
vs.
PHILIPPINE GEOANALYTICS, INC. AND GOTESCO PROPERTIES, INC., Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 183376
GOTESCO PROPERTIES, INC., Petitioner,
vs.
MARSMAN DRYSDALE LAND, INC. AND PHILIPPINE GEOANALYTICS, INC., Respondents.
DECISION
CARPIO MORALES, J.:
On February 12, 1997, Marsman Drysdale Land, Inc. (Marsman Drysdale) and Gotesco Properties, Inc.
(Gotesco) entered into a Joint Venture Agreement (JVA) for the construction and development of an
office building on a land owned by Marsman Drysdale in Makati City.1
The JVA contained the following pertinent provisions:
SECTION 4. CAPITAL OF THE JV
It is the desire of the Parties herein to implement this Agreement by investing in the PROJECT on a FIFTY
(50%) PERCENT- FIFTY (50%) PERCENT basis.
4.1. Contribution of [Marsman Drysdale]-[Marsman Drysdale] shall contribute the Property.
The total appraised value of the Property is PESOS: FOUR HUNDRED TWENTY MILLION
(P420,000,000.00).
For this purpose, [Marsman Drysdale] shall deliver the Property in a buildable condition within ninety
(90) days from signing of this Agreement barring any unforeseen circumstances over which [Marsman
Drysdale] has no control. Buildable condition shall mean that the old building/structure which stands on
the Property is demolished and taken to ground level.
4.2. Contribution of [Gotesco]- [Gotesco] shall contribute the amount of PESOS: FOUR HUNDRED
TWENTY MILLION (P420,000,000.00) in cash which shall be payable as follows:
4.2.1. The amount of PESOS: FIFTY MILLION (P50,000,000.00) upon signing of this Agreement.
4.2.2. The balance of PESOS: THREE HUNDRED SEVENTY MILLION (P370,000,000.00) shall be paid based
on progress billings, relative to the development and construction of the Building, but shall in no case
exceed ten (10) months from delivery of the Property in a Buildable condition as defined in section 4.1.
A joint account shall be opened and maintained by both Parties for handling of said balance, among
other Project concerns.
4.3. Funding and Financing
4.3.1 Construction funding for the Project shall be obtained from the cash contribution of [Gotesco].
4.3.2 Subsequent funding shall be obtained from the pre-selling of units in the Building or, when
necessary, from loans from various banks or financial institutions. [Gotesco] shall arrange the required
funding from such banks or financial institutions, under such terms and conditions which will provide
financing rates favorable to the Parties.
4.3.3 [Marsman Drysdale] shall not be obligated to fund the Project as its contribution is limited to the
Property.
4.3.4 If the cost of the Project exceeds the cash contribution of [Gotesco], the proceeds obtained from
the pre-selling of units and proceeds from loans, the Parties shall agree on other sources and terms of
funding such excess as soon as practicable.
4.3.5 x x x x.
4.3.6 x x x x.
4.3.7 x x x x.
4.3.8 All funds advanced by a Party (or by third parties in substitution for advances from a Party) shall be
repaid by the JV.
4.3.9 If any Party agrees to make an advance to the Project but fails to do so (in whole or in part) the
other party may advance the shortfall and the Party in default shall indemnify the Party making the
substitute advance on demand for all of its losses, costs and expenses incurred in so doing. (emphasis
supplied; underscoring in the original)
Via Technical Services Contract (TSC) dated July 14, 1997,2 the joint venture engaged the services of
Philippine Geoanalytics, Inc. (PGI) to provide subsurface soil exploration, laboratory testing, seismic
study and geotechnical engineering for the project. PGI, was, however, able to drill only four of five
boreholes needed to conduct its subsurface soil exploration and laboratory testing, justifying its failure
to drill the remaining borehole to the failure on the part of the joint venture partners to clear the area
where the drilling was to be made.3 PGI was able to complete its seismic study though.
PGI then billed the joint venture on November 24, 1997 for ₱284,553.50 representing the cost of partial
subsurface soil exploration; and on January 15, 1998 for ₱250,800 representing the cost of the
completed seismic study.4
Despite repeated demands from PGI,5 the joint venture failed to pay its obligations.
Meanwhile, due to unfavorable economic conditions at the time, the joint venture was cut short and the
planned building project was eventually shelved.6
PGI subsequently filed on November 11, 1999 a complaint for collection of sum of money and damages
at the Regional Trial Court (RTC) of Quezon City against Marsman Drysdale and Gotesco.
In its Answer with Counterclaim and Cross-claim, Marsman Drysdale passed the responsibility of paying
PGI to Gotesco which, under the JVA, was solely liable for the monetary expenses of the project.7
Gotesco, on the other hand, countered that PGI has no cause of action against it as PGI had yet to
complete the services enumerated in the contract; and that Marsman Drysdale failed to clear the
property of debris which prevented PGI from completing its work.8
By Decision of June 2, 2004,9 Branch 226 of the Quezon City RTC rendered judgment in favor of PGI,
disposing as follows:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of plaintiff [PGI].
The defendants [Gotesco] and [Marsman Drysdale] are ordered to pay plaintiff, jointly:
(1) the sum of P535,353.50 with legal interest from the date of this decision until fully paid;
(2) the sum of P200,000.00 as exemplary damages;
(3) the sum of P200,000.00 as and for attorney’s fees; and
(4) costs of suit.
The cross-claim of defendant [Marsman Drysdale] against defendant [Gotesco] is hereby GRANTED as
follows:
a) Defendant [Gotesco] is ordered to reimburse co-defendant [Marsman Drysdale] in the amount of
P535,353.[50] in accordance with the [JVA].
b) Defendant [Gotesco] is further ordered to pay co-defendant [Marsman Drysdale] the sum of
P100,000.00 as and for attorney’s fees.
SO ORDERED. (underscoring in the original; emphasis supplied)
Marsman Drysdale moved for partial reconsideration, contending that it should not have been held
jointly liable with Gotesco on PGI’s claim as well as on the awards of exemplary damages and attorney’s
fees. The motion was, by Resolution of October 28, 2005, denied.
Both Marsman Drysdale and Gotesco appealed to the Court of Appeals which, by Decision of January 28,
2008,10affirmed with modification the decision of the trial court. Thus the appellate court disposed:
WHEREFORE, premises considered, the instant appeal is PARTLY GRANTED. The assailed Decision dated
June 2, 2004 and the Resolution dated October 28, 2005 of the RTC of Quezon City, Branch 226, in Civil
Case No. Q99-39248 are hereby AFFIRMED with MODIFICATION deleting the award of exemplary
damages in favor of [PGI] and the P100,000.00 attorney’s fees in favor of [Marsman Drysdale] and
ordering defendant-appellant [Gotesco] to REIMBURSE [Marsman Drysdale] 50% of the aggregate sum
due [PGI], instead of the lump sum P535,353.00 awarded by the RTC. The rest of the Decision stands.
SO ORDERED. (capitalization and emphasis in the original; underscoring supplied)
In partly affirming the trial court’s decision, the appellate court ratiocinated that notwithstanding the
terms of the JVA, the joint venture cannot avoid payment of PGI’s claim since "[the JVA] could not affect
third persons like [PGI] because of the basic civil law principle of relativity of contracts which provides
that contracts can only bind the parties who entered into it, and it cannot favor or prejudice a third
person, even if he is aware of such contract and has acted with knowledge thereof."11
Their motions for partial reconsideration having been denied,12 Marsman Drysdale and Gotesco filed
separate petitions for review with the Court which were docketed as G.R. Nos. 183374 and 183376,
respectively. By Resolution of September 8, 2008, the Court consolidated the petitions.
In G.R. No. 183374, Marsman Drysdale imputes error on the appellate court in
A. …ADJUDGING [MARSMAN DRYSDALE] WITH JOINT LIABILITY AFTER CONCEDING THAT [GOTESCO]
SHOULD ULTIMATELY BE SOLELY LIABLE TO [PGI].
B. …AWARDING ATTORNEY’S FEES IN FAVOR OF [PGI]…
C. …IGNORING THE FACT THAT [PGI] DID NOT COMPLY WITH THE REQUIREMENT OF "SATISFACTORY
PERFORMANCE" OF ITS PRESTATION WHICH, PURSUANT TO THE TECHNICAL SERVICES CONTRACT, IS THE
CONDITION SINE QUA NON TO COMPENSATION.
D. …DISREGARDING CLEAR EVIDENCE SHOWING [MARSMAN DRYSDALE’S] ENTITLEMENT TO AN AWARD
OF ATTORNEY’S FEES.13
On the other hand, in G.R. No. 183376, Gotesco peddles that the appellate court committed error when
it
…ORDERED [GOTESCO] TO PAY P535,353.50 AS COST OF THE WORK PERFORMED BY [PGI] AND
P100,000.00 [AS] ATTORNEY’S FEES …[AND] TO REIMBURSE [MARSMAN DRYSDALE] 50% OF P535,353.50
AND PAY [MARSMAN DRYSDALE] P100,000.00 AS ATTORNEY’S FEES. 14
On the issue of whether PGI was indeed entitled to the payment of services it rendered, the Court sees
no imperative to re-examine the congruent findings of the trial and appellate courts thereon.
Undoubtedly, the exercise involves an examination of facts which is normally beyond the ambit of the
Court’s functions under a petition for review, for it is well-settled that this Court is not a trier of facts.
While this judicial tenet admits of exceptions, such as when the findings of facts of the appellate court
are contrary to those of the trial court’s, or when the judgment is based on a misapprehension of facts,
or when the findings of facts are contradicted by the evidence on record,15these extenuating grounds
find no application in the present petitions.
At all events, the Court is convinced that PGI had more than sufficiently established its claims against the
joint venture. In fact, Marsman Drysdale had long recognized PGI’s contractual claims when it (PGI)
received a Certificate of Payment16 from the joint venture’s project manager17 which was endorsed to
Gotesco for processing and payment.18
The core issue to be resolved then is which between joint venturers Marsman Drysdale and Gotesco
bears the liability to pay PGI its unpaid claims.
To Marsman Drysdale, it is Gotesco since, under the JVA, construction funding for the project was to be
obtained from Gotesco’s cash contribution, as its (Marsman Drysdale’s) participation in the venture was
limited to the land.
Gotesco maintains, however, that it has no liability to pay PGI since it was due to the fault of Marsman
Drysdale that PGI was unable to complete its undertaking.
The Court finds Marsman Drysdale and Gotesco jointly liable to PGI.
PGI executed a technical service contract with the joint venture and was never a party to the JVA. While
the JVA clearly spelled out, inter alia, the capital contributions of Marsman Drysdale (land) and Gotesco
(cash) as well as the funding and financing mechanism for the project, the same cannot be used to
defeat the lawful claim of PGI against the two joint venturers-partners.
The TSC clearly listed the joint venturers Marsman Drysdale and Gotesco as the beneficial owner of the
project,19and all billing invoices indicated the consortium therein as the client.
As the appellate court held, Articles 1207 and 1208 of the Civil Code, which respectively read:
Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the same
obligation does not imply that each one of the former has a right to demand, or that each one of the
latter is bound to render, entire compliance with the prestations.1avvphi1 There is a solidary liability
only when the obligation expressly so states, or when the law or nature of the obligation requires
solidarity.
Art. 1208. If from the law, or the nature or the wording of the obligations to which the preceding article
refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many
equal shares as there are creditors or debtors, the credits or debts being considered distinct from one
another, subject to the Rules of Court governing the multiplicity of suits. (emphasis and underscoring
supplied),
presume that the obligation owing to PGI is joint between Marsman Drysdale and Gotesco.
The only time that the JVA may be made to apply in the present petitions is when the liability of the joint
venturers to each other would set in.
A joint venture being a form of partnership, it is to be governed by the laws on partnership.20 Article
1797 of the Civil Code provides:
Art. 1797. 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.
In the absence of stipulation, the share of each in the profits and losses shall be in proportion to what he
may have contributed, but the industrial partner shall not be liable for the losses. As for the profits, the
industrial partner shall receive such share as may be just and equitable under the circumstances. If
besides his services he has contributed capital, he shall also receive a share in the profits in proportion to
his capital. (emphasis and underscoring supplied)
In the JVA, Marsman Drysdale and Gotesco agreed on a 50-50 ratio on the proceeds of the
project.21 They did not provide for the splitting of losses, however. Applying the above-quoted provision
of Article 1797 then, the same ratio applies in splitting the ₱535,353.50 obligation-loss of the joint
venture.
The appellate court’s decision must be modified, however. Marsman Drysdale and Gotesco being jointly
liable, there is no need for Gotesco to reimburse Marsman Drysdale for "50% of the aggregate sum due"
to PGI.
Allowing Marsman Drysdale to recover from Gotesco what it paid to PGI would not only be contrary to
the law on partnership on division of losses but would partake of a clear case of unjust enrichment at
Gotesco’s expense. The grant by the lower courts of Marsman Drysdale cross-claim against Gotesco was
thus erroneous.
Marsman Drysdale’s supplication for the award of attorney’s fees in its favor must be denied. It cannot
claim that it was compelled to litigate or that the civil action or proceeding against it was clearly
unfounded, for the JVA provided that, in the event a party advances funds for the project, the joint
venture shall repay the advancing party. 22
Marsman Drysdale was thus not precluded from advancing funds to pay for PGI’s contracted services to
abate any legal action against the joint venture itself. It was in fact hardline insistence on Gotesco having
sole responsibility to pay for the obligation, despite the fact that PGI’s services redounded to the benefit
of the joint venture, that spawned the legal action against it and Gotesco.
Finally, an interest of 12% per annum on the outstanding obligation must be imposed from the time of
demand23 as the delay in payment makes the obligation one of forbearance of money, conformably with
this Court’s ruling in Eastern Shipping Lines, Inc. v. Court of Appeals.24 Marsman Drysdale and Gotesco
should bear legal interest on their respective obligations.
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are AFFIRMED with
MODIFICATION in that the order for Gotesco to reimburse Marsman Drysdale is DELETED, and interest of
12% per annum on the respective obligations of Marsman Drysdale and Gotesco is imposed, computed
from the last demand or on January 5, 1999 up to the finality of the Decision.
If the adjudged amount and the interest remain unpaid thereafter, the interest rate shall be 12% per
annum computed from the time the judgment becomes final and executory until it is fully satisfied. The
appealed decision is, in all other respects, affirmed.
Costs against petitioners Marsman Drysdale and Gotesco.
G.R. No. 154486 December 1, 2010
FEDERICO JARANTILLA, JR., Petitioner,
vs.
ANTONIETA JARANTILLA, BUENAVENTURA REMOTIGUE, substituted by CYNTHIA REMOTIGUE,
DOROTEO JARANTILLA and TOMAS JARANTILLA, Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
This petition for review on certiorari1 seeks to modify the Decision2 of the Court of Appeals dated July 30,
2002 in CA-G.R. CV No. 40887, which set aside the Decision3 dated December 18, 1992 of the Regional
Trial Court (RTC) of Quezon City, Branch 98 in Civil Case No. Q-50464.
The pertinent facts are as follows:
The spouses Andres Jarantilla and Felisa Jaleco were survived by eight children: Federico, Delfin,
Benjamin, Conchita, Rosita, Pacita, Rafael and Antonieta.4 Petitioner Federico Jarantilla, Jr. is the
grandchild of the late Jarantilla spouses by their son Federico Jarantilla, Sr. and his wife Leda
Jamili.5 Petitioner also has two other brothers: Doroteo and Tomas Jarantilla.
Petitioner was one of the defendants in the complaint before the RTC while Antonieta Jarantilla, his
aunt, was the plaintiff therein. His co-respondents before he joined his aunt Antonieta in her complaint,
were his late aunt Conchita Jarantilla’s husband Buenaventura Remotigue, who died during the
pendency of the case, his cousin Cynthia Remotigue, the adopted daughter of Conchita Jarantilla and
Buenaventura Remotigue, and his brothers Doroteo and Tomas Jarantilla.6
In 1948, the Jarantilla heirs extrajudicially partitioned amongst themselves the real properties of their
deceased parents.7 With the exception of the real property adjudicated to Pacita Jarantilla, the heirs also
agreed to allot the produce of the said real properties for the years 1947-1949 for the studies of Rafael
and Antonieta Jarantilla.8
In the same year, the spouses Rosita Jarantilla and Vivencio Deocampo entered into an agreement with
the spouses Buenaventura Remotigue and Conchita Jarantilla to provide mutual assistance to each other
by way of financial support to any commercial and agricultural activity on a joint business arrangement.
This business relationship proved to be successful as they were able to establish a manufacturing and
trading business, acquire real properties, and construct buildings, among other things.9 This partnership
ended in 1973 when the parties, in an "Agreement,"10 voluntarily agreed to completely dissolve their
"joint business relationship/arrangement."11
On April 29, 1957, the spouses Buenaventura and Conchita Remotigue executed a document wherein
they acknowledged that while registered only in Buenaventura Remotigue’s name, they were not the
only owners of the capital of the businesses Manila Athletic Supply (712 Raon Street, Manila), Remotigue
Trading (Calle Real, Iloilo City) and Remotigue Trading (Cotabato City). In this same "Acknowledgement
of Participating Capital," they stated the participating capital of their co-owners as of the year 1952, with
Antonieta Jarantilla’s stated as eight thousand pesos (₱8,000.00) and Federico Jarantilla, Jr.’s as five
thousand pesos (₱5,000.00).12
The present case stems from the amended complaint13 dated April 22, 1987 filed by Antonieta Jarantilla
against Buenaventura Remotigue, Cynthia Remotigue, Federico Jarantilla, Jr., Doroteo Jarantilla and
Tomas Jarantilla, for the accounting of the assets and income of the co-ownership, for its partition and
the delivery of her share corresponding to eight percent (8%), and for damages. Antonieta claimed that
in 1946, she had entered into an agreement with Conchita and Buenaventura Remotigue, Rafael
Jarantilla, and Rosita and Vivencio Deocampo to engage in business. Antonieta alleged that the initial
contribution of property and money came from the heirs’ inheritance, and her subsequent annual
investment of seven thousand five hundred pesos (₱7,500.00) as additional capital came from the
proceeds of her farm. Antonieta also alleged that from 1946-1969, she had helped in the management of
the business they co-owned without receiving any salary. Her salary was supposedly rolled back into the
business as additional investments in her behalf. Antonieta further claimed co-ownership of certain
properties14 (the subject real properties) in the name of the defendants since the only way the
defendants could have purchased these properties were through the partnership as they had no other
source of income.
The respondents, including petitioner herein, in their Answer,15 denied having formed a partnership with
Antonieta in 1946. They claimed that she was in no position to do so as she was still in school at that
time. In fact, the proceeds of the lands they partitioned were devoted to her studies. They also averred
that while she may have helped in the businesses that her older sister Conchita had formed with
Buenaventura Remotigue, she was paid her due salary. They did not deny the existence and validity of
the "Acknowledgement of Participating Capital" and in fact used this as evidence to support their claim
that Antonieta’s 8% share was limited to the businesses enumerated therein. With regard to Antonieta’s
claim in their other corporations and businesses, the respondents said these should also be limited to
the number of her shares as specified in the respective articles of incorporation. The respondents denied
using the partnership’s income to purchase the subject real properties and said that the certificates of
title should be binding on her.16
During the course of the trial at the RTC, petitioner Federico Jarantilla, Jr., who was one of the original
defendants, entered into a compromise agreement17 with Antonieta Jarantilla wherein he supported
Antonieta’s claims and asserted that he too was entitled to six percent (6%) of the supposed partnership
in the same manner as Antonieta was. He prayed for a favorable judgment in this wise:
Defendant Federico Jarantilla, Jr., hereby joins in plaintiff’s prayer for an accounting from the other
defendants, and the partition of the properties of the co-ownership and the delivery to the plaintiff and
to defendant Federico Jarantilla, Jr. of their rightful share of the assets and properties in the co-
ownership.181avvphi1
The RTC, in an Order19 dated March 25, 1992, approved the Joint Motion to Approve Compromise
Agreement20and on December 18, 1992, decided in favor of Antonieta, to wit:
WHEREFORE, premises above-considered, the Court renders judgment in favor of the plaintiff Antonieta
Jarantilla and against defendants Cynthia Remotigue, Doroteo Jarantilla and Tomas Jarantilla ordering
the latter:
1. to deliver to the plaintiff her 8% share or its equivalent amount on the real properties covered by TCT
Nos. 35655, 338398, 338399 & 335395, all of the Registry of Deeds of Quezon City; TCT Nos.
(18303)23341, 142882 & 490007(4615), all of the Registry of Deeds of Rizal; and TCT No. T-6309 of the
Registry of Deeds of Cotabato based on their present market value;
2. to deliver to the plaintiff her 8% share or its equivalent amount on the Remotigue Agro-Industrial
Corporation, Manila Athletic Supply, Inc., MAS Rubber Products, Inc. and Buendia Recapping Corporation
based on the shares of stocks present book value;
3. to account for the assets and income of the co-ownership and deliver to plaintiff her rightful share
thereof equivalent to 8%;
4. to pay plaintiff, jointly and severally, the sum of ₱50,000.00 as moral damages;
5. to pay, jointly and severally, the sum of ₱50,000.00 as attorney’s fees; and
6. to pay, jointly and severally, the costs of the suit.21
Both the petitioner and the respondents appealed this decision to the Court of Appeals. The petitioner
claimed that the RTC "erred in not rendering a complete judgment and ordering the partition of the co-
ownership and giving to [him] six per centum (6%) of the properties."22
While the Court of Appeals agreed to some of the RTC’s factual findings, it also established that
Antonieta Jarantilla was not part of the partnership formed in 1946, and that her 8% share was limited to
the businesses enumerated in the Acknowledgement of Participating Capital. On July 30, 2002, the Court
of Appeals rendered the herein challenged decision setting aside the RTC’s decision, as follows:
WHEREFORE, the decision of the trial court, dated 18 December 1992 is SET ASIDE and a new one is
hereby entered ordering that:
(1) after accounting, plaintiff Antonieta Jarantilla be given her share of 8% in the assets and profits of
Manila Athletic Supply, Remotigue Trading in Iloilo City and Remotigue Trading in Cotabato City;
(2) after accounting, defendant Federico Jarantilla, Jr. be given his share of 6% of the assets and profits of
the above-mentioned enterprises; and, holding that
(3) plaintiff Antonieta Jarantilla is a stockholder in the following corporations to the extent stated in their
Articles of Incorporation:
(a) Rural Bank of Barotac Nuevo, Inc.;
(b) MAS Rubber Products, Inc.;
(c) Manila Athletic Supply, Inc.; and
(d) B. Remotigue Agro-Industrial Development Corp.
(4) No costs.23
The respondents, on August 20, 2002, filed a Motion for Partial Reconsideration but the Court of Appeals
denied this in a Resolution24 dated March 21, 2003.
Antonieta Jarantilla filed before this Court her own petition for review on certiorari25 dated September
16, 2002, assailing the Court of Appeals’ decision on "similar grounds and similar assignments of errors
as this present case"26 but it was dismissed on November 20, 2002 for failure to file the appeal within the
reglementary period of fifteen (15) days in accordance with Section 2, Rule 45 of the Rules of Court.27
Petitioner filed before us this petition for review on the sole ground that:
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN NOT RULING THAT PETITIONER FEDERICO
JARANTILLA, JR. IS ENTITLED TO A SIX PER CENTUM (6%) SHARE OF THE OWNERSHIP OF THE REAL
PROPERTIES ACQUIRED BY THE OTHER DEFENDANTS USING COMMON FUNDS FROM THE BUSINESSES
WHERE HE HAD OWNED SUCH SHARE.28
Petitioner asserts that he was in a partnership with the Remotigue spouses, the Deocampo spouses,
Rosita Jarantilla, Rafael Jarantilla, Antonieta Jarantilla and Quintin Vismanos, as evidenced by the
Acknowledgement of Participating Capital the Remotigue spouses executed in 1957. He contends that
from this partnership, several other corporations and businesses were established and several real
properties were acquired. In this petition, he is essentially asking for his 6% share in the subject real
properties. He is relying on the Acknowledgement of Participating Capital, on his own testimony, and
Antonieta Jarantilla’s testimony to support this contention.
The core issue is whether or not the partnership subject of the Acknowledgement of Participating Capital
funded the subject real properties. In other words, what is the petitioner’s right over these real
properties?
It is a settled rule that in a petition for review on certiorari under Rule 45 of the Rules of Civil Procedure,
only questions of law may be raised by the parties and passed upon by this Court.29
A question of law arises when there is doubt as to what the law is on a certain state of facts, while there
is a question of fact when the doubt arises as to the truth or falsity of the alleged facts. For a question to
be one of law, the same must not involve an examination of the probative value of the evidence
presented by the litigants or any of them. The resolution of the issue must rest solely on what the law
provides on the given set of circumstances. Once it is clear that the issue invites a review of the evidence
presented, the question posed is one of fact. Thus, the test of whether a question is one of law or of fact
is not the appellation given to such question by the party raising the same; rather, it is whether the
appellate court can determine the issue raised without reviewing or evaluating the evidence, in which
case, it is a question of law; otherwise it is a question of fact.30
Since the Court of Appeals did not fully adopt the factual findings of the RTC, this Court, in resolving the
questions of law that are now in issue, shall look into the facts only in so far as the two courts a quo
differed in their appreciation thereof.
The RTC found that an unregistered partnership existed since 1946 which was affirmed in the 1957
document, the "Acknowledgement of Participating Capital." The RTC used this as its basis for giving
Antonieta Jarantilla an 8% share in the three businesses listed therein and in the other businesses and
real properties of the respondents as they had supposedly acquired these through funds from the
partnership.31
The Court of Appeals, on the other hand, agreed with the RTC as to Antonieta’s 8% share in the business
enumerated in the Acknowledgement of Participating Capital, but not as to her share in the other
corporations and real properties. The Court of Appeals ruled that Antonieta’s claim of 8% is based on the
"Acknowledgement of Participating Capital," a duly notarized document which was specific as to the
subject of its coverage. Hence, there was no reason to pattern her share in the other corporations from
her share in the partnership’s businesses. The Court of Appeals also said that her claim in the
respondents’ real properties was more "precarious" as these were all covered by certificates of title
which served as the best evidence as to all the matters contained therein.32 Since petitioner’s claim was
essentially the same as Antonieta’s, the Court of Appeals also ruled that petitioner be given his 6% share
in the same businesses listed in the Acknowledgement of Participating Capital.
Factual findings of the trial court, when confirmed by the Court of Appeals, are final and conclusive
except in the following cases: (1) when the inference made is manifestly mistaken, absurd or impossible;
(2) when there is a grave abuse of discretion; (3) when the finding is grounded entirely on speculations,
surmises or conjectures; (4) when the judgment of the Court of Appeals is based on misapprehension of
facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in making its findings,
went beyond the issues of the case and the same is contrary to the admissions of both appellant and
appellee; (7) when the findings of the Court of Appeals are contrary to those of the trial court; (8) when
the findings of fact are conclusions without citation of specific evidence on which they are based; (9)
when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties and
which, if properly considered, would justify a different conclusion; and (10) when the findings of fact of
the Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on
record.33
In this case, we find no error in the ruling of the Court of Appeals.
Both the petitioner and Antonieta Jarantilla characterize their relationship with the respondents as a co-
ownership, but in the same breath, assert that a verbal partnership was formed in 1946 and was
affirmed in the 1957 Acknowledgement of Participating Capital.
There is a co-ownership when an undivided thing or right belongs to different persons.34 It is a
partnership 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.35 The Court, in Pascual v. The
Commissioner of Internal Revenue,36 quoted the concurring opinion of Mr. Justice Angelo Bautista in
Evangelista v. The Collector of Internal Revenue37 to further elucidate on the distinctions between a co-
ownership and a partnership, to wit:
I wish however to make the following observation: Article 1769 of the new Civil Code lays down the rule
for determining when a transaction should be deemed a partnership or a co-ownership. Said article
paragraphs 2 and 3, provides;
(2) Co-ownership or co-possession does not itself establish a partnership, whether such co-owners or co-
possessors do or do not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons
sharing them have a joint or common right or interest in any property from which the returns are
derived;
From the above it appears that the fact that those who agree to form a co- ownership share or do not
share any profits made by the use of the property held in common does not convert their venture into a
partnership. Or the sharing of the gross returns does not of itself establish a partnership whether or not
the persons sharing therein have a joint or common right or interest in the property. This only means
that, aside from the circumstance of profit, the presence of other elements constituting partnership is
necessary, such as the clear intent to form a partnership, the existence of a juridical personality different
from that of the individual partners, and the freedom to transfer or assign any interest in the property by
one with the consent of the others.
It is evident that an isolated transaction whereby two or more persons contribute funds to buy certain
real estate for profit in the absence of other circumstances showing a contrary intention cannot be
considered a partnership.
Persons who contribute property or funds for a common enterprise and agree to share the gross returns
of that enterprise in proportion to their contribution, but who severally retain the title to their respective
contribution, are not thereby rendered partners. They have no common stock or capital, and no
community of interest as principal proprietors in the business itself which the proceeds derived.
A joint purchase of land, by two, does not constitute a co-partnership in respect thereto; nor does an
agreement to share the profits and losses on the sale of land create a partnership; the parties are only
tenants in common.
Where plaintiff, his brother, and another agreed to become owners of a single tract of realty, holding as
tenants in common, and to divide the profits of disposing of it, the brother and the other not being
entitled to share in plaintiff’s commission, no partnership existed as between the three parties, whatever
their relation may have been as to third parties.
In order to constitute a partnership inter sese there must be: (a) An intent to form the same; (b) generally
participating in both profits and losses; (c) and such a community of interest, as far as third persons are
concerned as enables each party to make contract, manage the business, and dispose of the whole
property. x x x.
The common ownership of property does not itself create a partnership between the owners, though
they may use it for the purpose of making gains; and they may, without becoming partners, agree among
themselves as to the management, and use of such property and the application of the proceeds
therefrom.38 (Citations omitted.)
Under Article 1767 of the Civil Code, there are two essential elements in a contract of partnership: (a) an
agreement to contribute money, property or industry to a common fund; and (b) intent to divide the
profits among the contracting parties. The first element is undoubtedly present in the case at bar, for,
admittedly, all the parties in this case have agreed to, and did, contribute money and property to a
common fund. Hence, the issue narrows down to their intent in acting as they did.39 It is not denied that
all the parties in this case have agreed to contribute capital to a common fund to be able to later on
share its profits. They have admitted this fact, agreed to its veracity, and even submitted one common
documentary evidence to prove such partnership - the Acknowledgement of Participating Capital.
As this case revolves around the legal effects of the Acknowledgement of Participating Capital, it would
be instructive to examine the pertinent portions of this document:
ACKNOWLEDGEMENT OF
PARTICIPATING CAPITAL
KNOW ALL MEN BY THESE PRESENTS:
That we, the spouses Buenaventura Remotigue and Conchita Jarantilla de Remotigue, both of legal age,
Filipinos and residents of Loyola Heights, Quezon City, P.I. hereby state:
That the Manila Athletic Supply at 712 Raon, Manila, the Remotigue Trading of Calle Real, Iloilo City and
the Remotigue Trading, Cotabato Branch, Cotabato, P.I., all dealing in athletic goods and equipments,
and general merchandise are recorded in their respective books with Buenaventura Remotigue as the
registered owner and are being operated by them as such:
That they are not the only owners of the capital of the three establishments and their participation in the
capital of the three establishments together with the other co-owners as of the year 1952 are stated as
follows:
1. Buenaventura Remotigue (TWENTY-FIVE THOUSAND)₱25,000.00
2. Conchita Jarantilla de Remotigue (TWENTY-FIVE THOUSAND)… 25,000.00
3. Vicencio Deocampo (FIFTEEN THOUSAND)…… 15,000.00
4. Rosita J. Deocampo (FIFTEEN THOUSAND)….... 15,000.00
5. Antonieta Jarantilla (EIGHT THOUSAND)……….. 8,000.00
6. Rafael Jarantilla (SIX THOUSAND)…………….. ... 6,000.00
7. Federico Jarantilla, Jr. (FIVE THOUSAND)……….. 5,000.00
8. Quintin Vismanos (TWO THOUSAND)…………... 2,000.00
That aside from the persons mentioned in the next preceding paragraph, no other person has any
interest in the above-mentioned three establishments.
IN WITNESS WHEREOF, they sign this instrument in the City of Manila, P.I., this 29th day of April, 1957.
[Sgd.]
BUENAVENTURA REMOTIGUE
[Sgd.]
CONCHITA JARANTILLA DE REMOTIGUE40
The Acknowledgement of Participating Capital is a duly notarized document voluntarily executed by
Conchita Jarantilla-Remotigue and Buenaventura Remotigue in 1957. Petitioner does not dispute its
contents and is actually relying on it to prove his participation in the partnership. Article 1797 of the Civil
Code provides:
Art. 1797. 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.
In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to
what he may have contributed, but the industrial partner shall not be liable for the losses. As for the
profits, the industrial partner shall receive such share as may be just and equitable under the
circumstances. If besides his services he has contributed capital, he shall also receive a share in the
profits in proportion to his capital. (Emphases supplied.)
It is clear from the foregoing that a partner is entitled only to his share as agreed upon, or in the absence
of any such stipulations, then to his share in proportion to his contribution to the partnership. The
petitioner himself claims his share to be 6%, as stated in the Acknowledgement of Participating Capital.
However, petitioner fails to realize that this document specifically enumerated the businesses covered
by the partnership: Manila Athletic Supply, Remotigue Trading in Iloilo City and Remotigue Trading in
Cotabato City. Since there was a clear agreement that the capital the partners contributed went to the
three businesses, then there is no reason to deviate from such agreement and go beyond the
stipulations in the document. Therefore, the Court of Appeals did not err in limiting petitioner’s share to
the assets of the businesses enumerated in the Acknowledgement of Participating Capital.
In Villareal v. Ramirez,41 the Court held that since a partnership is a separate juridical entity, the shares to
be paid out to the partners is necessarily limited only to its total resources, to wit:
Since it is the partnership, as a separate and distinct entity, that must refund the shares of the partners,
the amount to be refunded is necessarily limited to its total resources. In other words, it can only pay out
what it has in its coffers, which consists of all its assets. However, before the partners can be paid their
shares, the creditors of the partnership must first be compensated. After all the creditors have been
paid, whatever is left of the partnership assets becomes available for the payment of the partners’
shares.42
There is no evidence that the subject real properties were assets of the partnership referred to in the
Acknowledgement of Participating Capital.
The petitioner further asserts that he is entitled to respondents’ properties based on the concept of
trust. He claims that since the subject real properties were purchased using funds of the partnership,
wherein he has a 6% share, then "law and equity mandates that he should be considered as a co-owner
of those properties in such proportion."43 In Pigao v. Rabanillo,44 this Court explained the concept of
trusts, to wit:
Express trusts are created by the intention of the trustor or of the parties, while implied trusts come into
being by operation of law, either through implication of an intention to create a trust as a matter of law
or through the imposition of the trust irrespective of, and even contrary to, any such intention. In turn,
implied trusts are either resulting or constructive trusts. Resulting trusts are based on the equitable
doctrine that valuable consideration and not legal title determines the equitable title or interest and are
presumed always to have been contemplated by the parties. They arise from the nature or
circumstances of the consideration involved in a transaction whereby one person thereby becomes
invested with legal title but is obligated in equity to hold his legal title for the benefit of another.45
On proving the existence of a trust, this Court held that:
Respondent has presented only bare assertions that a trust was created. Noting the need to prove the
existence of a trust, this Court has held thus:
"As a rule, the burden of proving the existence of a trust is on the party asserting its existence, and such
proof must be clear and satisfactorily show the existence of the trust and its elements. While implied
trusts may be proved by oral evidence, the evidence must be trustworthy and received by the courts
with extreme caution, and should not be made to rest on loose, equivocal or indefinite declarations.
Trustworthy evidence is required because oral evidence can easily be fabricated." 46
The petitioner has failed to prove that there exists a trust over the subject real properties. Aside from his
bare allegations, he has failed to show that the respondents used the partnership’s money to purchase
the said properties. Even assuming arguendo that some partnership income was used to acquire these
properties, the petitioner should have successfully shown that these funds came from his share in the
partnership profits. After all, by his own admission, and as stated in the Acknowledgement of
Participating Capital, he owned a mere 6% equity in the partnership.
In essence, the petitioner is claiming his 6% share in the subject real properties, by relying on his own
self-serving testimony and the equally biased testimony of Antonieta Jarantilla. Petitioner has not
presented evidence, other than these unsubstantiated testimonies, to prove that the respondents did
not have the means to fund their other businesses and real properties without the partnership’s income.
On the other hand, the respondents have not only, by testimonial evidence, proven their case against
the petitioner, but have also presented sufficient documentary evidence to substantiate their claims,
allegations and defenses. They presented preponderant proof on how they acquired and funded such
properties in addition to tax receipts and tax declarations.47 It has been held that "while tax declarations
and realty tax receipts do not conclusively prove ownership, they may constitute strong evidence of
ownership when accompanied by possession for a period sufficient for prescription."48 Moreover, it is a
rule in this jurisdiction that testimonial evidence cannot prevail over documentary evidence.49 This Court
had on several occasions, expressed our disapproval on using mere self-serving testimonies to support
one’s claim. In Ocampo v. Ocampo,50 a case on partition of a co-ownership, we held that:
Petitioners assert that their claim of co-ownership of the property was sufficiently proved by their
witnesses -- Luisa Ocampo-Llorin and Melita Ocampo. We disagree. Their testimonies cannot prevail over
the array of documents presented by Belen. A claim of ownership cannot be based simply on the
testimonies of witnesses; much less on those of interested parties, self-serving as they are.51
It is true that a certificate of title is merely an evidence of ownership or title over the particular property
described therein. Registration in the Torrens system does not create or vest title as registration is not a
mode of acquiring ownership; hence, this cannot deprive an aggrieved party of a remedy in
law.52 However, petitioner asserts ownership over portions of the subject real properties on the strength
of his own admissions and on the testimony of Antonieta Jarantilla.1avvphi1 As held by this Court in
Republic of the Philippines v. Orfinada, Sr.53:
Indeed, a Torrens title is generally conclusive evidence of ownership of the land referred to therein, and
a strong presumption exists that a Torrens title was regularly issued and valid. A Torrens title is
incontrovertible against any informacion possessoria, of other title existing prior to the issuance thereof
not annotated on the Torrens title. Moreover, persons dealing with property covered by a Torrens
certificate of title are not required to go beyond what appears on its face.54
As we have settled that this action never really was for partition of a co-ownership, to permit petitioner’s
claim on these properties is to allow a collateral, indirect attack on respondents’ admitted titles. In the
words of the Court of Appeals, "such evidence cannot overpower the conclusiveness of these certificates
of title, more so since plaintiff’s [petitioner’s] claims amount to a collateral attack, which is prohibited
under Section 48 of Presidential Decree No. 1529, the Property Registration Decree."55
SEC. 48. Certificate not subject to collateral attack. – A certificate of title shall not be subject to collateral
attack. It cannot be altered, modified, or cancelled except in a direct proceeding in accordance with law.
This Court has deemed an action or proceeding to be "an attack on a title when its objective is to nullify
the title, thereby challenging the judgment pursuant to which the title was decreed."56 In Aguilar v.
Alfaro,57 this Court further distinguished between a direct and an indirect or collateral attack, as follows:
A collateral attack transpires when, in another action to obtain a different relief and as an incident to the
present action, an attack is made against the judgment granting the title. This manner of attack is to be
distinguished from a direct attack against a judgment granting the title, through an action whose main
objective is to annul, set aside, or enjoin the enforcement of such judgment if not yet implemented, or to
seek recovery if the property titled under the judgment had been disposed of. x x x.
Petitioner’s only piece of documentary evidence is the Acknowledgement of Participating Capital, which
as discussed above, failed to prove that the real properties he is claiming co-ownership of were acquired
out of the proceeds of the businesses covered by such document. Therefore, petitioner’s theory has no
factual or legal leg to stand on.
WHEREFORE, the Petition is hereby DENIED and the Decision of the Court of Appeals in CA-G.R. CV No.
40887, dated July 30, 2002 is AFFIRMED.
G.R. No. 85494 May 7, 1991
CHOITHRAM JETHMAL RAMNANI AND/OR NIRMLA V. RAMNANI and MOTI G. RAMNANI, petitioners,
vs.
COURT OF APPEALS, SPOUSES ISHWAR JETHMAL RAMNANI, SONYA JETHMAL RAMNANI and
OVERSEAS HOLDING CO., LTD., respondents.
G.R. No. 85496 May 7, 1991
SPOUSES ISHWAR JETHMAL RAMNANI AND SONYA JET RAMNANI, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, ORTIGAS & CO., LTD. PARTNERSHIP, and OVERSEAS HOLDING
CO., LTD., respondents.
Quasha, Asperilla Ancheta, Peña and Nolasco for petitioners Ishwar Jethmal Ramnani & Sonya Ramnani.
Salonga, Andres, Hernandez & Allado for Choithram Jethmal Ramnani, Nirmla Ramnani & Moti Ramnani.
Rama Law Office for private respondents in collaboration with Salonga, Andres, Hernandez & Allado.
Eulogio R. Rodriguez for Ortigas & Co., Ltd.
GANCAYCO, J.:
This case involves the bitter quarrel of two brothers over two (2) parcels of land and its improvements
now worth a fortune. The bone of contention is the apparently conflicting factual findings of the trial
court and the appellate court, the resolution of which will materially affect the result of the contest.
The following facts are not disputed.
Ishwar, Choithram and Navalrai, all surnamed Jethmal Ramnani, are brothers of the full blood. Ishwar
and his spouse Sonya had their main business based in New York. Realizing the difficulty of managing
their investments in the Philippines they executed a general power of attorney on January 24, 1966
appointing Navalrai and Choithram as attorneys-in-fact, empowering them to manage and conduct their
business concern in the Philippines.1
On February 1, 1966 and on May 16, 1966, Choithram, in his capacity as aforesaid attorney-in-fact of
Ishwar, entered into two agreements for the purchase of two parcels of land located in Barrio Ugong,
Pasig, Rizal, from Ortigas & Company, Ltd. Partnership (Ortigas for short) with a total area of
approximately 10,048 square meters.2Per agreement, Choithram paid the down payment and
installments on the lot with his personal checks. A building was constructed thereon by Choithram in
1966 and this was occupied and rented by Jethmal Industries and a wardrobe shop called Eppie's
Creation. Three other buildings were built thereon by Choithram through a loan of P100,000.00 obtained
from the Merchants Bank as well as the income derived from the first building. The buildings were leased
out by Choithram as attorney-in-fact of Ishwar. Two of these buildings were later burned.
Sometime in 1970 Ishwar asked Choithram to account for the income and expenses relative to these
properties during the period 1967 to 1970. Choithram failed and refused to render such accounting. As a
consequence, on February 4, 1971, Ishwar revoked the general power of attorney. Choithram and
Ortigas were duly notified of such revocation on April 1, 1971 and May 24, 1971, respectively.3 Said
notice was also registered with the Securities and Exchange Commission on March 29, 19714 and was
published in the April 2, 1971 issue of The Manila Times for the information of the general public.5
Nevertheless, Choithram as such attorney-in-fact of Ishwar, transferred all rights and interests of Ishwar
and Sonya in favor of his daughter-in-law, Nirmla Ramnani, on February 19, 1973. Her husband is Moti,
son of Choithram. Upon complete payment of the lots, Ortigas executed the corresponding deeds of sale
in favor of Nirmla.6 Transfer Certificates of Title Nos. 403150 and 403152 of the Register of Deeds of Rizal
were issued in her favor.
Thus, on October 6, 1982, Ishwar and Sonya (spouses Ishwar for short) filed a complaint in the Court of
First Instance of Rizal against Choithram and/or spouses Nirmla and Moti (Choithram et al. for brevity)
and Ortigas for reconveyance of said properties or payment of its value and damages. An amended
complaint for damages was thereafter filed by said spouses.
After the issues were joined and the trial on the merits, a decision was rendered by the trial court on
December 3, 1985 dismissing the complaint and counterclaim. A motion for reconsideration thereof filed
by spouses Ishwar was denied on March 3, 1986.
An appeal therefrom was interposed by spouses Ishwar to the Court of Appeals wherein in due course a
decision was promulgated on March 14, 1988, the dispositive part of which reads as follows:
WHEREFORE, judgment is hereby rendered reversing and setting aside the appealed decision of the
lower court dated December 3, 1985 and the Order dated March 3, 1986 which denied plaintiffs-
appellants' Motion for Reconsideration from aforesaid decision. A new decision is hereby rendered
sentencing defendants- appellees Choithram Jethmal Ramnani, Nirmla V. Ramnani, Moti C. Ramnani, and
Ortigas and Company Limited Partnership to pay, jointly and severally, plaintiffs-appellants the following:
1. Actual or compensatory damages to the extent of the fair market value of the properties in question
and all improvements thereon covered by Transfer Certificate of Title No. 403150 and Transfer
Certificate of Title No. 403152 of the Registry of Deeds of Rizal, prevailing at the time of the satisfaction
of the judgment but in no case shall such damages be less than the value of said properties as appraised
by Asian Appraisal, Inc. in its Appraisal Report dated August 1985 (Exhibits T to T-14, inclusive).
2. All rental incomes paid or ought to be paid for the use and occupancy of the properties in question
and all improvements thereon consisting of buildings, and to be computed as follows:
a) On Building C occupied by Eppie's Creation and Jethmal Industries from 1967 to 1973, inclusive, based
on the 1967 to 1973 monthly rentals paid by Eppie's Creation;
b) Also on Building C above, occupied by Jethmal Industries and Lavine from 1974 to 1978, the rental
incomes based on then rates prevailing as shown under Exhibit "P"; and from 1979 to 1981, based on
then prevailing rates as indicated under Exhibit "Q";
c) On Building A occupied by Transworld Knitting Mills from 1972 to 1978, the rental incomes based
upon then prevailing rates shown under Exhibit "P", and from 1979 to 1981, based on prevailing rates
per Exhibit "Q";
d) On the two Bays Buildings occupied by Sigma-Mariwasa from 1972 to 1978, the rentals based on the
Lease Contract, Exhibit "P", and from 1979 to 1980, the rentals based on the Lease Contract, Exhibit "Q",
and thereafter commencing 1982, to account for and turn over the rental incomes paid or ought to be
paid for the use and occupancy of the properties and all improvements totalling 10,048 sq. m based on
the rate per square meter prevailing in 1981 as indicated annually cumulative up to 1984. Then,
commencing 1985 and up to the satisfaction of the judgment, rentals shall be computed at ten percent
(10%) annually of the fair market values of the properties as appraised by the Asian Appraisal, Inc. in
August 1985 (Exhibits T to T-14, inclusive.)
3. Moral damages in the sum of P200,000.00;
4. Exemplary damages in the sum of P100,000.00;
5. Attorney's fees equivalent to 10% of the award herein made;
6. Legal interest on the total amount awarded computed from first demand in 1967 and until the full
amount is paid and satisfied; and
7. The cost of suit.7
Acting on a motion for reconsideration filed by Choithram, et al. and Ortigas, the appellate court
promulgated an amended decision on October 17, 1988 granting the motion for reconsideration of
Ortigas by affirming the dismissal of the case by the lower court as against Ortigas but denying the
motion for reconsideration of Choithram, et al.8
Choithram, et al. thereafter filed a petition for review of said judgment of the appellate court alleging
the following grounds:
1. The Court of Appeals gravely abused its discretion in making a factual finding not supported by and
contrary, to the evidence presented at the Trial Court.
2. The Court of Appeals acted in excess of jurisdiction in awarding damages based on the value of the
real properties in question where the cause of action of private respondents is recovery of a sum of
money.
ARGUMENTS
I II
THE COURT OF APPEALS ACTED IN GRAVE ABUSE OF ITS DISCRETION IN MAKING A FACTUAL FINDING
THAT PRIVATE RESPONDENT ISHWAR REMITTED THE AMOUNT OF US $150,000.00 TO PETITIONER
CHOITHRAM IN THE ABSENCE OF PROOF OF SUCH REMITTANCE.
II
THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND MANIFEST PARTIALITY IN
DISREGARDING THE TRIAL COURTS FINDINGS BASED ON THE DIRECT DOCUMENTARY AND TESTIMONIAL
EVIDENCE PRESENTED BY CHOITHRAM IN THE TRIAL COURT ESTABLISHING THAT THE PROPERTIES WERE
PURCHASED WITH PERSONAL FUNDS OF PETITIONER CHOITHRAM AND NOT WITH MONEY ALLEGEDLY
REMITTED BY RESPONDENT ISHWAR.
III
THE COURT OF APPEALS ACTED IN EXCESS OF JURISDICTION IN AWARDING DAMAGES BASED ON THE
VALUE OF THE PROPERTIES AND THE FRUITS OF THE IMPROVEMENTS THEREON.9
Similarly, spouses Ishwar filed a petition for review of said amended decision of the appellate court
exculpating Ortigas of liability based on the following assigned errors
I
THE RESPONDENT HONORABLE COURT OF APPEALS COMMITTED GRAVE ERROR AND HAS DECIDED A
QUESTION OF SUBSTANCE NOT IN ACCORD WITH LAW AND/OR WITH APPLICABLE DECISIONS OF THIS
HONORABLE COURT—
A) IN PROMULGATING THE QUESTIONED AMENDED DECISION (ANNEX "A") RELIEVING RESPONDENT
ORTIGAS FROM LIABILITY AND DISMISSING PETITIONERS' AMENDED COMPLAINT IN CIVIL CASE NO. 534-
P, AS AGAINST SAID RESPONDENT ORTIGAS;
B) IN HOLDING IN SAID AMENDED DECISION THAT AT ANY RATE NO ONE EVER TESTIFIED THAT ORTIGAS
WAS A SUBSCRIBER TO THE MANILA TIMES PUBLICATION OR THAT ANY OF ITS OFFICERS READ THE
NOTICE AS PUBLISHED IN THE MANILA TIMES, THEREBY ERRONEOUSLY CONCLUDING THAT FOR
RESPONDENT ORTIGAS TO BE CONSTRUCTIVELY BOUND BY THE PUBLISHED NOTICE OF REVOCATION,
ORTIGAS AND/OR ANY OF ITS OFFICERS MUST BE A SUBSCRIBER AND/OR THAT ANY OF ITS OFFICERS
SHOULD READ THE NOTICE AS ACTUALLY PUBLISHED;
C) IN HOLDING IN SAID AMENDED DECISION THAT ORTIGAS COULD NOT BE HELD LIABLE JOINTLY AND
SEVERALLY WITH THE DEFENDANTS-APPELLEES CHOITHRAM, MOTI AND NIRMLA RAMNANI, AS ORTIGAS
RELIED ON THE WORD OF CHOITHRAM THAT ALL ALONG HE WAS ACTING FOR AND IN BEHALF OF HIS
BROTHER ISHWAR WHEN IT TRANSFERRED THE RIGHTS OF THE LATTER TO NIRMLA V. RAMNANI;
D) IN IGNORING THE EVIDENCE DULY PRESENTED AND ADMITTED DURING THE TRIAL THAT ORTIGAS
WAS PROPERLY NOTIFIED OF THE NOTICE OF REVOCATION OF THE GENERAL POWER OF ATTORNEY
GIVEN TO CHOITHRAM, EVIDENCED BY THE PUBLICATION IN THE MANILA TIMES ISSUE OF APRIL 2, 1971
(EXH. F) WHICH CONSTITUTES NOTICE TO THE WHOLE WORLD; THE RECEIPT OF THE NOTICE OF SUCH
REVOCATION WHICH WAS SENT TO ORTIGAS ON MAY 22, 1971 BY ATTY. MARIANO P. MARCOS AND
RECEIVED BY ORTIGAS ON MAY 24, 1971 (EXH. G) AND THE FILING OF THE NOTICE WITH THE SECURITIES
AND EXCHANGE COMMISSION ON MARCH 29,1971 (EXH. H);
E) IN DISCARDING ITS FINDINGS CONTAINED IN ITS DECISION OF 14 MARCH 1988 (ANNEX B) THAT
ORTIGAS WAS DULY NOTIFIED OF THE REVOCATION OF THE POWER OF ATTORNEY OF CHOITHRAM,
HENCE ORTIGAS ACTED IN BAD FAITH IN EXECUTING THE DEED OF SALE TO THE PROPERTIES IN
QUESTION IN FAVOR OF NIRMLA V. RAMNANI;
F) IN SUSTAINING RESPONDENT ORTIGAS VACUOUS REHASHED ARGUMENTS IN ITS MOTION FOR
RECONSIDERATION THAT IT WOULD NOT GAIN ONE CENTAVO MORE FROM CHOITHRAM FOR THE SALE
OF SAID LOTS AND THE SUBSEQUENT TRANSFER OF THE SAME TO THE MATTER'S DAUGHTER-IN-LAW,
AND THAT IT WAS IN GOOD FAITH WHEN IT TRANSFERRED ISHWAR'S RIGHTS TO THE LOTS IN QUESTION.
THE RESPONDENT HONORABLE COURT OF APPEALS HAS SO FAR DEPARTED FROM THE ACCEPTED AND
USUAL COURSE OF JUDICIAL PROCEEDING WHEN IT HELD IN THE QUESTIONED AMENDED DECISION OF
17 NOVEMBER 1988 (ANNEX A) THAT RESPONDENT ORTIGAS & CO., LTD., IS NOT JOINTLY AND
SEVERALLY LIABLE WITH DEFENDANTS-APPELLEES CHOITHRAM, MOTI AND NIRMLA RAMNANI IN SPITE
OF ITS ORIGINAL DECISION OF 14 MARCH 1988 THAT ORTIGAS WAS DULY NOTIFIED OF THE
REVOCATION OF THE POWER OF ATTORNEY OF CHOITHRAM RAMNANI.10
The center of controversy is the testimony of Ishwar that during the latter part of 1965, he sent the
amount of US $150,000.00 to Choithram in two bank drafts of US$65,000.00 and US$85,000.00 for the
purpose of investing the same in real estate in the Philippines. The trial court considered this lone
testimony unworthy of faith and credit. On the other hand, the appellate court found that the trial court
misapprehended the facts in complete disregard of the evidence, documentary and testimonial.
Another crucial issue is the claim of Choithram that because he was then a British citizen, as a temporary The trial court's observation that "the entire records of the case is bereft of even a shred of proof" that
arrangement, he arranged the purchase of the properties in the name of Ishwar who was an American plaintiff-appellants have remitted to defendant-appellee Choithram Ramnani the amount of US $
citizen and who was then qualified to purchase property in the Philippines under the then Parity 150,000.00 for investment in real estate in the Philippines, is not borne by the evidence on record and
Amendment. The trial court believed this account but it was debunked by the appellate court. shows the trial court's misapprehension of the facts if not a complete disregard of the evidence, both
As to the issue of whether of not spouses Ishwar actually sent US$150,000.00 to Choithram precisely to documentary and testimonial.
be used in the real estate business, the trial court made the following disquisition — Plaintiff-appellant Ishwar Jethmal Ramnani testifying in his own behalf, declared that during the latter
After a careful, considered and conscientious examination of the evidence adduced in the case at bar, part of 1965, he sent the amount of US $150,000.00 to his brother Choithram in two bank drafts of US
plaintiff Ishwar Jethmal Ramanani's main evidence, which centers on the alleged payment by sending $65,000.00 and US $85,000.00 for the purpose of investing the same in real estate in the Philippines. His
through registered mail from New York two (2) US$ drafts of $85,000.00 and $65,000.00 in the latter testimony is as follows:
part of 1965 (TSN 28 Feb. 1984, p. 10-11). The sending of these moneys were before the execution of ATTY. MARAPAO:
that General Power of Attorney, which was dated in New York, on January 24, 1966. Because of these Mr. Witness, you said that your attorney-in-fact paid in your behalf. Can you tell this Honorable Court
alleged remittances of US $150,000.00 and the subsequent acquisition of the properties in question, where your attorney-in-fact got the money to pay this property?
plaintiffs averred that they constituted a trust in favor of defendant Choithram Jethmal Ramnani. This ATTY. CRUZ:
Court can be in full agreement if the plaintiffs were only able to prove preponderantly these Wait. It is now clear it becomes incompetent or hearsay.
remittances. The entire record of this case is bereft of even a shred of proof to that effect. It is COURT:
completely barren. His uncorroborated testimony that he remitted these amounts in the "later part of Witness can answer.
1965" does not engender enough faith and credence. Inadequacy of details of such remittance on the A I paid through my attorney-in-fact. I am the one who gave him the money.
two (2) US dollar drafts in such big amounts is completely not positive, credible, probable and entirely ATTY. MARAPAO:
not in accord with human experience. This is a classic situation, plaintiffs not exhibiting any commercial Q You gave him the money?
document or any document and/or paper as regard to these alleged remittances. Plaintiff Ishwar A That's right.
Ramnani is not an ordinary businessman in the strict sense of the word. Remember his main business is Q How much money did you give him?
based in New York, and he should know better how to send these alleged remittances. Worst, plaintiffs A US $ 150,000.00.
did not present even a scum of proof, that defendant Choithram Ramnani received the alleged two US Q How was it given then?
dollar drafts. Significantly, he does not know even the bank where these two (2) US dollar drafts were A Through Bank drafts. US $65,000.00 and US $85,000.00 bank drafts. The total amount which is $
purchased. Indeed, plaintiff Ishwar Ramnani's lone testimony is unworthy of faith and credit and, 150,000.00 (TSN, 28 February 1984, p. 10; Emphasis supplied.)
therefore, deserves scant consideration, and since the plaintiffs' theory is built or based on such xxx xxx xxx
testimony, their cause of action collapses or falls with it. ATTY. CRUZ:
Further, the rate of exchange that time in 1966 was P4.00 to $1.00. The alleged two US dollar drafts Q The two bank drafts which you sent I assume you bought that from some banks in New York?
amounted to $150,000.00 or about P600,000.00. Assuming the cash price of the two (2) lots was only A No, sir.
P530,000.00 (ALTHOUGH he said: "Based on my knowledge I have no evidence," when asked if he even Q But there is no question those two bank drafts were for the purpose of paying down payment and
knows the cash price of the two lots). If he were really the true and bonafide investor and purchaser for installment of the two parcels of land?
profit as he asserted, he could have paid the price in full in cash directly and obtained the title in his A Down payment, installment and to put up the building.
name and not thru "Contracts To Sell" in installments paying interest and thru an attorney-in fact (TSN of Q I thought you said that the buildings were constructed . . . subject to our continuing objection from
May 2, 1984, pp. 10-11) and, again, plaintiff Ishwar Ramnani told this Court that he does not know rentals of first building?
whether or not his late father-in-law borrowed the two US dollar drafts from the Swiss Bank or whether ATTY. MARAPAO:
or not his late father-in-law had any debit memo from the Swiss Bank (TSN of May 2, 1984, pp. 9-10).11 Your Honor, that is misleading.
On the other hand, the appellate court, in giving credence to the version of Ishwar, had this to say — COURT;
While it is true, that generally the findings of fact of the trial court are binding upon the appellate courts, Witness (may) answer.
said rule admits of exceptions such as when (1) the conclusion is a finding grounded entirely on A Yes, the first building was immediately put up after the purchase of the two parcels of land that was in
speculations, surmises and conjectures; (2) when the inferences made is manifestly mistaken, absurd 1966 and the finds were used for the construction of the building from the US $150,000.00 (TSN, 7
and impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a March 1984, page 14; Emphasis supplied.)
misapprehension of facts and when the court, in making its findings, went beyond the issues of the case xxx xxx xxx
and the same are contrary to the admissions of both appellant and appellee (Ramos vs. Court of Appeals, Q These two bank drafts which you mentioned and the use for it you sent them by registered mail, did
63 SCRA 33; Philippine American Life Assurance Co. vs. Santamaria, 31 SCRA 798; Aldaba vs. Court of you send them from New Your?
Appeals, 24 SCRA 189). A That is right.
The evidence on record shows that the t court acted under a misapprehension of facts and the Q And the two bank drafts which were put in the registered mail, the registered mail was addressed to
inferences made on the evidence palpably a mistake. whom?
A Choithram Ramnani. (TSN, 7 March 1984, pp. 14-15).
On cross-examination, the witness reiterated the remittance of the money to his brother Choithram,
which was sent to him by his father-in-law, Rochiram L. Mulchandoni from Switzerland, a man of
immense wealth, which even defendants-appellees' witness Navalrai Ramnani admits to be so (tsn., p.
16, S. Oct. 13, 1985). Thus, on cross-examination, Ishwar testified as follows:
Q How did you receive these two bank drafts from the bank the name of which you cannot remember?
A I got it from my father-in-law.
Q From where did your father- in-law sent these two bank drafts?
A From Switzerland.
Q He was in Switzerland.
A Probably, they sent out these two drafts from Switzerland.
(TSN, 7 March 1984, pp. 16-17; Emphasis supplied.)
This positive and affirmative testimony of plaintiff-appellant that he sent the two (2) bank drafts totalling
US $ 150,000.00 to his brother, is proof of said remittance. Such positive testimony has greater probative
force than defendant-appellee's denial of receipt of said bank drafts, for a witness who testifies
affirmatively that something did happen should be believed for it is unlikely that a witness will
remember what never happened (Underhill's Cr. Guidance, 5th Ed., Vol. 1, pp. 10-11).
That is not all. Shortly thereafter, plaintiff-appellant Ishwar Ramnani executed a General Power of
Attorney (Exhibit "A") dated January 24, 1966 appointing his brothers, defendants-appellees Navalrai and
Choithram as attorney-in-fact empowering the latter to conduct and manage plaintiffs-
appellants' business affairs in the Philippines and specifically—
No. 14. To acquire, purchase for us, real estates and improvements for the purpose of real estate
business anywhere in the Philippines and to develop, subdivide, improve and to resell to buying public
(individual, firm or corporation); to enter in any contract of sale in oar behalf and to enter mortgages
between the vendees and the herein grantors that may be needed to finance the real estate business
being undertaken.
Pursuant thereto, on February 1, 1966 and May 16, 1966, Choithram Jethmal Ramnani entered into
Agreements (Exhibits "B' and "C") with the other defendant. Ortigas and Company, Ltd., for the purchase
of two (2) parcels of land situated at Barrio Ugong, Pasig, Rizal, with said defendant-appellee signing the
Agreements in his capacity as Attorney-in-fact of Ishwar Jethmal Ramnani.
Again, on January 5, 1972, almost seven (7) years after Ishwar sent the US $ 150,000.00 in 1965,
Choithram Ramnani, as attorney-in fact of Ishwar entered into a Contract of Lease with Sigma-Mariwasa
(Exhibit "P") thereby re-affirming the ownership of Ishwar over the disputed property and the trust
relationship between the latter as principal and Choithram as attorney-in-fact of Ishwar.
All of these facts indicate that if plaintiff-appellant Ishwar had not earlier sent the US $ 150,000.00 to his
brother, Choithram, there would be no purpose for him to execute a power of attorney appointing his
brothers as s attorney-in-fact in buying real estate in the Philippines.
As against Choithram's denial that he did not receive the US $150,000.00 remitted by Ishwar and that
the Power of Attorney, as well as the Agreements entered into with Ortigas & Co., were only temporary
arrangements, Ishwar's testimony that he did send the bank drafts to Choithram and was received by the
latter, is the more credible version since it is natural, reasonable and probable. It is in accord with the
common experience, knowledge and observation of ordinary men (Gardner vs. Wentors 18 Iowa 533).
And in determining where the superior weight of the evidence on the issues involved lies, the court may
consider the probability or improbability of the testimony of the witness (Sec. 1, Rule 133, Rules of
Court).
Contrary, therefore, to the trial court's sweeping observation that 'the entire records of the case is bereft
of even a shred of proof that Choithram received the alleged bank drafts amounting to US $ 150,000.00,
we have not only testimonial evidence but also documentary and circumstantial evidence proving said
remittance of the money and the fiduciary relationship between the former and Ishwar.12
The Court agrees. The environmental circumstances of this case buttress the claim of Ishwar that he did
entrust the amount of US $ 150,000.00 to his brother, Choithram, which the latter invested in the real
property business subject of this litigation in his capacity as attorney-in-fact of Ishwar.
True it is that there is no receipt whatever in the possession of Ishwar to evidence the same, but it is not
unusual among brothers and close family members to entrust money and valuables to each other
without any formalities or receipt due to the special relationship of trust between them.
And another proof thereof is the fact that Ishwar, out of frustration when Choithram failed to account
for the realty business despite his demands, revoked the general power of attorney he extended to
Choithram and Navalrai. Thereafter, Choithram wrote a letter to Ishwar pleading that the power of
attorney be renewed or another authority to the same effect be extended, which reads as follows:
June 25,1971
MR. ISHWAR JETHMAL
NEW YORK
(1) Send power of Atty. immediately, because the case has been postponed for two weeks. The same
way as it has been send before in favor of both names. Send it immediately otherwise everything will be
lost unnecessarily, and then it will take us in litigation. Now that we have gone ahead with a case and
would like to end it immediately otherwise squatters will take the entire land. Therefore, send it
immediately.
(2) Ortigas also has sued us because we are holding the installments, because they have refused to give a
rebate of P5.00 per meter which they have to give us as per contract. They have filed the law suit that
since we have not paid the installment they should get back the land. The hearing of this case is in the
month of July. Therefore, please send the power immediately. In one case DADA (Elder Brother) will
represent and in another one, I shall.
(3) In case if you do not want to give power then make one letter in favor of Dada and the other one in
my favor showing that in any litigation we can represent you and your wife, and whatever the court
decide it will be acceptable by me. You can ask any lawyer, he will be able to prepare these letters. After
that you can have these letters ratify before P.I. Consulate. It should be dated April 15, 1971.
(4) Try to send the power because it will be more useful. Make it in any manner whatever way you have
confident in it. But please send it immediately.
You have cancelled the power. Therefore, you have lost your reputation everywhere. What can I further
write you about it. I have told everybody that due to certain reasons I have written you to do this that is
why you have done this. This way your reputation have been kept intact. Otherwise if I want to do
something about it, I can show you that inspite of the power you have cancelled you can not do anything.
You can keep this letter because my conscience is clear. I do not have anything in my mind.
I should not be writing you this, but because my conscience is clear do you know that if I had predated
papers what could you have done? Or do you know that I have many paper signed by you and if had done
anything or do then what can you do about it? It is not necessary to write further about this. It does not
matter if you have cancelled the power. At that time if I had predated and done something about it what
could you have done? You do not know me. I am not after money. I can earn money anytime. It has been
ten months since I have not received a single penny for expenses from Dada (elder brother). Why there
are no expenses? We can not draw a single penny from knitting (factory). Well I am not going to write
you further, nor there is any need for it. This much I am writing you because of the way you have
conducted yourself. But remember, whenever I hale the money I will not keep it myself Right now I have
not got anything at all.
I am not going to write any further.
Keep your business clean with Naru. Otherwise he will discontinue because he likes to keep his business
very clean.13
The said letter was in Sindhi language. It was translated to English by the First Secretary of the Embassy
of Pakistan, which translation was verified correct by the Chairman, Department of Sindhi, University of
Karachi.14
From the foregoing letter what could be gleaned is that—
1. Choithram asked for the issuance of another power of attorney in their favor so they can continue to
represent Ishwar as Ortigas has sued them for unpaid installments. It also appears therefrom that
Ortigas learned of the revocation of the power of attorney so the request to issue another.
2. Choithram reassured Ishwar to have confidence in him as he was not after money, and that he was
not interested in Ishwar's money.
3. To demonstrate that he can be relied upon, he said that he could have ante-dated the sales
agreement of the Ortigas lots before the issuance of the powers of attorney and acquired the same in his
name, if he wanted to, but he did not do so.
4. He said he had not received a single penny for expenses from Dada (their elder brother Navalrai).
Thus, confirming that if he was not given money by Ishwar to buy the Ortigas lots, he could not have
consummated the sale.
5. It is important to note that in said letter Choithram never claimed ownership of the property in
question. He affirmed the fact that he bought the same as mere agent and in behalf of Ishwar. Neither
did he mention the alleged temporary arrangement whereby Ishwar, being an American citizen, shall
appear to be the buyer of the said property, but that after Choithram acquires Philippine citizenship, its
ownership shall be transferred to Choithram.
This brings us to this temporary arrangement theory of Choithram.
The appellate court disposed of this matter in this wise
Choithram's claim that he purchased the two parcels of land for himself in 1966 but placed it in the name
of his younger brother, Ishwar, who is an American citizen, as a temporary arrangement,' because as a
British subject he is disqualified under the 1935 Constitution to acquire real property in the Philippines,
which is not so with respect to American citizens in view of the Ordinance Appended to the Constitution
granting them parity rights, there is nothing in the records showing that Ishwar ever agreed to such a
temporary arrangement.
During the entire period from 1965, when the US $ 150,000. 00 was transmitted to Choithram, and until
Ishwar filed a complaint against him in 1982, or over 16 years, Choithram never mentioned of a
temporary arrangement nor can he present any memorandum or writing evidencing such temporary
arrangement, prompting plaintiff-appellant to observe:
The properties in question which are located in a prime industrial site in Ugong, Pasig, Metro Manila
have a present fair market value of no less than P22,364,000.00 (Exhibits T to T-14, inclusive), and yet for
such valuable pieces of property, Choithram who now belatedly that he purchased the same for himself
did not document in writing or in a memorandum the alleged temporary arrangement with Ishwar' (pp.
4-41, Appellant's Brief).
Such verbal allegation of a temporary arrangement is simply improbable and inconsistent. It has
repeatedly been held that important contracts made without evidence are highly improbable.
The improbability of such temporary arrangement is brought to fore when we consider that Choithram
has a son (Haresh Jethmal Ramnani) who is an American citizen under whose name the properties in
question could be registered, both during the time the contracts to sell were executed and at the time
absolute title over the same was to be delivered. At the time the Agreements were entered into with
defendant Ortigas & Co. in 1966, Haresh, was already 18 years old and consequently, Choithram could
have executed the deeds in trust for his minor son. But, he did not do this. Three (3) years, thereafter, or
in 1968 after Haresh had attained the age of 21, Choithram should have terminated the temporary
arrangement with Ishwar, which according to him would be effective only pending the acquisition of
citizenship papers. Again, he did not do anything.
Evidence to be believed, said Vice Chancellor Van Fleet of New Jersey, must not only proceed from the
mouth of a credible witness, but it must be credible in itself—such as the common experience and
observation of mankind can approve as probable under the circumstances. We have no test of the truth
of human testimony, except its conformity to our knowledge, observation and experience. Whatever is
repugnant to these belongs to the miraculous and is outside of judicial cognizance. (Daggers vs. Van Dyek
37 M.J. Eq. 130, 132).
Another factor that can be counted against the temporary arrangement excuse is that upon the
revocation on February 4, 1971 of the Power of attorney dated January 24, 1966 in favor of Navalrai and
Choithram by Ishwar, Choithram wrote (tsn, p. 21, S. July 19, 1985) a letter dated June 25, 1971 (Exhibits
R, R-1, R-2 and R-3) imploring Ishwar to execute a new power of attorney in their favor. That if he did not
want to give power, then Ishwar could make a letter in favor of Dada and another in his favor so that in
any litigation involving the properties in question, both of them could represent Ishwar and his wife.
Choithram tried to convince Ishwar to issue the power of attorney in whatever manner he may want. In
said letter no mention was made at all of any temporary arrangement.
On the contrary, said letter recognize(s) the existence of principal and attorney-in-fact relationship
between Ishwar and himself. Choithram wrote: . . . do you know that if I had predated papers what could
you have done? Or do you know that I have many papers signed by you and if I had done anything or do
then what can you do about it?' Choithram was saying that he could have repudiated the trust and ran
away with the properties of Ishwar by predating documents and Ishwar would be entirely helpless. He
was bitter as a result of Ishwar's revocation of the power of attorney but no mention was made of any
temporary arrangement or a claim of ownership over the properties in question nor was he able to
present any memorandum or document to prove the existence of such temporary arrangement.
Choithram is also estopped in pais or by deed from claiming an interest over the properties in question
adverse to that of Ishwar. Section 3(a) of Rule 131 of the Rules of Court states that whenever a party has,
by his own declaration, act, or omission intentionally and deliberately led another to believe a particular
thing true and act upon such belief, he cannot in any litigation arising out of such declaration, act or
omission be permitted to falsify it.' While estoppel by deed is a bar which precludes a party to a deed
and his privies from asserting as against the other and his privies any right of title in derogation of the
deed, or from denying the truth of any material fact asserted in it (31 C.J.S. 195; 19 Am. Jur. 603).
Thus, defendants-appellees are not permitted to repudiate their admissions and representations or to
assert any right or title in derogation of the deeds or from denying the truth of any material fact asserted
in the (1) power of attorney dated January 24, 1966 (Exhibit A); (2) the Agreements of February 1, 1966
and May 16, 1966 (Exhibits B and C); and (3) the Contract of Lease dated January 5, 1972 (Exhibit P).
. . . The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and
justice, and its purpose is to forbid one to speak against his own act, representations, or commitments to
the injury of one to whom they were directed and who reasonably relied thereon. The doctrine of
estoppel springs from equitable principles and the equities in the case. It is designed to aid the law in the
administration of justice where without its aid injustice might result. It has been applied by court
wherever and whenever special circumstances of a case so demands' (Philippine National Bank vs. Court
of Appeals, 94 SCRA 357, 368 [1979]).
It was only after the services of counsel has been obtained that Choithram alleged for the first time in his
Answer that the General Power of attorney (Annex A) with the Contracts to Sell (Annexes B and C) were
made only for the sole purpose of assuring defendants' acquisition and ownership of the lots described
thereon in due time under the law; that said instruments do not reflect the true intention of the parties
(par. 2, Answer dated May 30, 1983), seventeen (17) long years from the time he received the money
transmitted to him by his brother, Ishwar.
Moreover, Choithram's 'temporary arrangement,' by which he claimed purchasing the two (2) parcels in
question in 1966 and placing them in the name of Ishwar who is an American citizen, to circumvent the
disqualification provision of aliens acquiring real properties in the Philippines under the 1935 Philippine
Constitution, as Choithram was then a British subject, show a palpable disregard of the law of the land
and to sustain the supposed "temporary arrangement" with Ishwar would be sanctioning the
perpetration of an illegal act and culpable violation of the Constitution.
Defendants-appellees likewise violated the Anti-Dummy Law (Commonwealth Act 108, as amended),
which provides in Section 1 thereof that:
In all cases in which any constitutional or legal provision requires Philippine or any other specific
citizenship as a requisite for the exercise or enjoyment of a right, franchise or privilege, . . . any alien or
foreigner profiting thereby, shall be punished . . . by imprisonment . . . and of a fine of not less than the
value of the right, franchise or privileges, which is enjoyed or acquired in violation of the provisions
hereof . . .
Having come to court with unclean hands, Choithram must not be permitted foist his 'temporary
arrangement' scheme as a defense before this court. Being in delicto, he does not have any right
whatsoever being shielded from his own wrong-doing, which is not so with respect to Ishwar, who was
not a party to such an arrangement.
The falsity of Choithram's defense is further aggravated by the material inconsistencies and
contradictions in his testimony. While on January 23, 1985 he testified that he purchased the land in
question on his own behalf (tsn, p. 4, S. Jan. 23, 1985), in the July 18, 1985 hearing, forgetting probably
what he stated before, Choithram testified that he was only an attorney-in-fact of Ishwar (tsn, p. 5, S.
July 18, 1985). Also in the hearing of January 23, 1985, Choithram declared that nobody rented the
building that was constructed on the parcels of land in question (tsn, pp. 5 and 6), only to admit in the
hearing of October 30, 1985, that he was in fact renting the building for P12,000. 00 per annum (tsn, p.
3). Again, in the hearing of July 19, 1985, Choithram testified that he had no knowledge of the revocation
of the Power of Attorney (tsn, pp. 20- 21), only to backtrack when confronted with the letter of June 25,
1971 (Exhibits R to R-3), which he admitted to be in "his own writing," indicating knowledge of the
revocation of the Power of Attorney.
These inconsistencies are not minor but go into the entire credibility of the testimony of Choithram and
the rule is that contradictions on a very crucial point by a witness, renders s testimony incredible People
vs. Rafallo, 80 Phil. 22). Not only this the doctrine of falsus in uno, falsus in omnibus is fully applicable as
far as the testimony of Choithram is concerned. The cardinal rule, which has served in all ages, and has
been applied to all conditions of men, is that a witness willfully falsifying the truth in one particular,
when upon oath, ought never to be believed upon the strength of his own testimony, whatever he may
assert (U.S. vs. Osgood 27 Feb. Case No. 15971-a, p. 364); Gonzales vs. Mauricio, 52 Phil, 728), for what
ground of judicial relief can there be left when the party has shown such gross insensibility to the
difference between right and wrong, between truth and falsehood? (The Santisima Trinidad, 7 Wheat,
283, 5 U.S. [L. ed.] 454).
True, that Choithram's testimony finds corroboration from the testimony of his brother, Navalrai, but the
same would not be of much help to Choithram. Not only is Navalrai an interested and biased witness,
having admitted his close relationship with Choithram and that whenever he or Choithram had
problems, they ran to each other (tsn, pp. 17-18, S. Sept. 20, 1985), Navalrai has a pecuniary interest in
the success of Choithram in the case in question. Both he and Choithram are business partners in
Jethmal and Sons and/or Jethmal Industries, wherein he owns 60% of the company and Choithram, 40%
(p. 62, Appellant's Brief). Since the acquisition of the properties in question in 1966, Navalrai was
occupying 1,200 square meters thereof as a factory site plus the fact that his son (Navalrais) was
occupying the apartment on top of the factory with his family rent free except the amount of P l,000.00 a
month to pay for taxes on said properties (tsn, p. 17, S. Oct. 3, 1985).
Inherent contradictions also marked Navalrai testimony. "While the latter was very meticulous in
keeping a receipt for the P 10,000.00 that he paid Ishwar as settlement in Jethmal Industries, yet in the
alleged payment of P 100,000.00 to Ishwar, no receipt or voucher was ever issued by him (tsn, p. 17, S.
Oct. 3, 1983).15
We concur.
The foregoing findings of facts of the Court of Appeals which are supported by the evidence is conclusive
on this Court. The Court finds that Ishwar entrusted US$150,000.00 to Choithram in 1965 for investment
in the realty business. Soon thereafter, a general power of attorney was executed by Ishwar in favor of
both Navalrai and Choithram. If it is true that the purpose only is to enable Choithram to purchase realty
temporarily in the name of Ishwar, why the inclusion of their elder brother Navalrai as an attorney-in-
fact?
Then, acting as attorney-in-fact of Ishwar, Choithram purchased two parcels of land located in Barrio
Ugong Pasig, Rizal, from Ortigas in 1966. With the balance of the money of Ishwar, Choithram erected a
building on said lot. Subsequently, with a loan obtained from a bank and the income of the said property,
Choithram constructed three other buildings thereon. He managed the business and collected the
rentals. Due to their relationship of confidence it was only in 1970 when Ishwar demanded for an
accounting from Choithram. And even as Ishwar revoked the general power of attorney on February 4,
1971, of which Choithram was duly notified, Choithram wrote to Ishwar on June 25, 1971 requesting that
he execute a new power of attorney in their favor.16 When Ishwar did not respond thereto, Choithram
nevertheless proceeded as such attorney-in-fact to assign all the rights and interest of Ishwar to his
daughter-in-law Nirmla in 1973 without the knowledge and consent of Ishwar. Ortigas in turn executed
the corresponding deeds of sale in favor of Nirmla after full payment of the purchase accomplice of the
lots.
In the prefatory statement of their petition, Choithram pictured Ishwar to be so motivated by greed and
ungratefulness, who squandered the family business in New York, who had to turn to his wife for
support, accustomed to living in ostentation and who resorted to blackmail in filing several criminal and
civil suits against them. These statements find no support and should be stricken from the records.
Indeed, they are irrelevant to the proceeding.
Moreover, assuming Ishwar is of such a low character as Choithram proposes to make this Court to
believe, why is it that of all persons, under his temporary arrangement theory, Choithram opted to
entrust the purchase of valuable real estate and built four buildings thereon all in the name of Ishwar? Is
it not an unconscious emergence of the truth that this otherwise wayward brother of theirs was on the
contrary able to raise enough capital through the generosity of his father-in-law for the purchase of the
very properties in question? As the appellate court aptly observed if truly this temporary arrangement
story is the only motivation, why Ishwar of all people? Why not the own son of Choithram, Haresh who is
also an American citizen and who was already 18 years old at the time of purchase in 1966? The Court
agrees with the observation that this theory is an afterthought which surfaced only when Choithram,
Nirmla and Moti filed their answer.
When Ishwar asked for an accounting in 1970 and revoked the general power of attorney in 1971,
Choithram had a total change of heart. He decided to claim the property as his. He caused the transfer of
the rights and interest of Ishwar to Nirmla. On his representation, Ortigas executed the deeds of sale of
the properties in favor of Nirmla. Choithram obviously surmised Ishwar cannot stake a valid claim over
the property by so doing.
Clearly, this transfer to Nirmla is fictitious and, as admitted by Choithram, was intended only to place the
property in her name until Choithram acquires Philippine citizenship.17 What appears certain is that it
appears to be a scheme of Choithram to place the property beyond the reach of Ishwar should he
successfully claim the same. Thus, it must be struck down.
Worse still, on September 27, 1990 spouses Ishwar filed an urgent motion for the issuance of a writ of
preliminary attachment and to require Choithram, et al. to submit certain documents, inviting the
attention of this Court to the following:
a) Donation by Choithram of his 2,500 shares of stock in General Garments Corporation in favor of his
children on December 29, 1989;18
b) Sale on August 2, 1990 by Choithram of his 100 shares in Biflex (Phils.), Inc., in favor of his
children;19 and
c) Mortgage on June 20, 1989 by Nirmla through her attorney-in-fact, Choithram, of the properties
subject of this litigation, for the amount of $3 Million in favor of Overseas Holding, Co. Ltd., (Overseas for
brevity), a corporation which appears to be organized and existing under and by virtue of the laws of
Cayman Islands, with a capital of only $100.00 divided into 100 shares of $1.00 each, and with address at
P.O. Box 1790, Grand Cayman, Cayman Islands.20
An opposition thereto was filed by Choithram, et al. but no documents were produced. A manifestation
and reply to the opposition was filed by spouses Ishwar.
All these acts of Choithram, et al. appear to be fraudulent attempts to remove these properties to the
detriment of spouses Ishwar should the latter prevail in this litigation.
On December 10, 1990 the court issued a resolution that substantially reads as follows:
Considering the allegations of petitioners Ishwar Jethmal Ramnani and Sonya Ramnani that respondents
Choithram Jethmal Ramnani, Nirmla Ramnani and Moti G. Ramnani have fraudulently executed a
simulated mortgage of the properties subject of this litigation dated June 20, 1989, in favor of Overseas
Holding Co., Ltd. which appears to be a corporation organized in Cayman Islands, for the amount of $
3,000,000.00, which is much more than the value of the properties in litigation; that said alleged
mortgagee appears to be a "shell" corporation with a capital of only $100.00; and that this alleged
transaction appears to be intended to defraud petitioners Ishwar and Sonya Jethmal Ramnani of any
favorable judgment that this Court may render in this case;
Wherefore the Court Resolved to issue a writ of preliminary injunction enjoining and prohibiting said
respondents Choithram Jethmal Ramnani, Nirmla V. Ramnani, Moti G. Ramnani and the Overseas
Holding Co., Ltd. from encumbering, selling or otherwise disposing of the properties and improvements
subject of this litigation until further orders of the Court. Petitioners Ishwar and Sonya Jethmal Ramnani
are hereby required to post a bond of P 100,000.00 to answer for any damages d respondents may suffer
by way of this injunction if the Court finally decides the said petitioners are not entitled thereto.
The Overseas Holding Co., Ltd. with address at P.O. Box 1790 Grand Cayman, Cayman Islands, is hereby
IMPLEADED as a respondent in these cases, and is hereby required to SUBMIT its comment on the
Urgent Motion for the Issuance of a Writ of Preliminary Attachment and Motion for Production of
Documents, the Manifestation and the Reply to the Opposition filed by said petitioners, within Sixty (60)
days after service by publication on it in accordance with the provisions of Section 17, Rule 14 of the
Rules of Court, at the expense of petitioners Ishwar and Sonya Jethmal Ramnani.
Let copies of this resolution be served on the Register of Deeds of Pasig, Rizal, and the Provincial
Assessor of Pasig, Rizal, both in Metro Manila, for its annotation on the transfer Certificates of Titles Nos.
403150 and 403152 registered in the name of respondent Nirmla V. Ramnani, and on the tax
declarations of the said properties and its improvements subject of this litigation.21
The required injunction bond in the amount of P 100,000.00 was filed by the spouses Ishwar which was
approved by the Court. The above resolution of the Court was published in the Manila Bulletin issue of
December 17, 1990 at the expense of said spouses.22 On December 19, 1990 the said resolution and
petition for review with annexes in G.R. Nos. 85494 and 85496 were transmitted to respondent
Overseas, Grand Cayman Islands at its address c/o Cayman Overseas Trust Co. Ltd., through the United
Parcel Services Bill of Lading23 and it was actually delivered to said company on January 23, 1991.24
On January 22, 1991, Choithram, et al., filed a motion to dissolve the writ of preliminary injunction
alleging that there is no basis therefor as in the amended complaint what is sought is actual damages
and not a reconveyance of the property, that there is no reason for its issuance, and that acts already
executed cannot be enjoined. They also offered to file a counterbond to dissolve the writ.
A comment/opposition thereto was filed by spouses Ishwar that there is basis for the injunction as the
alleged mortgage of the property is simulated and the other donations of the shares of Choithram to his
children are fraudulent schemes to negate any judgment the Court may render for petitioners.
No comment or answer was filed by Overseas despite due notice, thus it is and must be considered to be
in default and to have lost the right to contest the representations of spouses Ishwar to declare the
aforesaid alleged mortgage nun and void.
This purported mortgage of the subject properties in litigation appears to be fraudulent and simulated.
The stated amount of $3 Million for which it was mortgaged is much more than the value of the
mortgaged properties and its improvements. The alleged mortgagee-company (Overseas) was organized
only on June 26,1989 but the mortgage was executed much earlier, on June 20, 1989, that is six (6) days
before Overseas was organized. Overseas is a "shelf" company worth only $100.00.25 In the
manifestation of spouses Ishwar dated April 1, 1991, the Court was informed that this matter was
brought to the attention of the Central Bank (CB) for investigation, and that in a letter of March 20, 1991,
the CB informed counsel for spouses Ishwar that said alleged foreign loan of Choithram, et al. from
Overseas has not been previously approved/registered with the CB.26
Obviously, this is another ploy of Choithram, et al. to place these properties beyond the reach of spouses
Ishwar should they obtain a favorable judgment in this case. The Court finds and so declares that this
alleged mortgage should be as it is hereby declared null and void.
All these contemporaneous and subsequent acts of Choithram, et al., betray the weakness of their cause
so they had to take an steps, even as the case was already pending in Court, to render ineffective any
judgment that may be rendered against them.
The problem is compounded in that respondent Ortigas is caught in the web of this bitter fight. It had all
the time been dealing with Choithram as attorney-in-fact of Ishwar. However, evidence had been
adduced that notice in writing had been served not only on Choithram, but also on Ortigas, of the
revocation of Choithram's power of attorney by Ishwar's lawyer, on May 24, 1971.27 A publication of said
notice was made in the April 2, 1971 issue of The Manila Times for the information of the general
public.28 Such notice of revocation in a newspaper of general circulation is sufficient warning to third
persons including Ortigas.29 A notice of revocation was also registered with the Securities and Exchange
Commission on March 29, 1 971.30
Indeed in the letter of Choithram to Ishwar of June 25, 1971, Choithram was pleading that Ishwar
execute another power of attorney to be shown to Ortigas who apparently learned of the revocation of
Choithram's power of attorney.31 Despite said notices, Ortigas nevertheless acceded to the
representation of Choithram, as alleged attorney-in-fact of Ishwar, to assign the rights of petitioner
Ishwar to Nirmla. While the primary blame should be laid at the doorstep of Choithram, Ortigas is not
entirely without fault. It should have required Choithram to secure another power of attorney from
Ishwar. For recklessly believing the pretension of Choithram that his power of attorney was still good, it
must, therefore, share in the latter's liability to Ishwar.
In the original complaint, the spouses Ishwar asked for a reconveyance of the properties and/or payment
of its present value and damages.32 In the amended complaint they asked, among others, for actual
damages of not less than the present value of the real properties in litigation, moral and exemplary
damages, attorneys fees, costs of the suit and further prayed for "such other reliefs as may be deemed
just and equitable in the premises .33 The amended complaint contain the following positive allegations:
7. Defendant Choithram Ramnani, in evident bad faith and despite due notice of the revocation of the
General Power of Attorney, Annex 'D" hereof, caused the transfer of the rights over the said parcels of
land to his daughter-in-law, defendant Nirmla Ramnani in connivance with defendant Ortigas & Co., the
latter having agreed to the said transfer despite receiving a letter from plaintiffs' lawyer informing them
of the said revocation; copy of the letter is hereto attached and made an integral part hereof as Annex
"H";
8. Defendant Nirmla Ramnani having acquired the aforesaid property by fraud is, by force of law,
considered a trustee of an implied trust for the benefit of plaintiff and is obliged to return the same to the
latter:
9. Several efforts were made to settle the matter within the family but defendants (Choithram Ramnani,
Nirmla Ramnani and Moti Ramnani) refused and up to now fail and still refuse to cooperate and respond
to the same; thus, the present case;
10. In addition to having been deprived of their rights over the properties (described in par. 3 hereof),
plaintiffs, by reason of defendants' fraudulent act, suffered actual damages by way of lost rental on the
property which defendants (Choithram Ramnani, Nirmla Ramnani and Moti Ramnani have collected for
themselves;34
In said amended complaint, spouses Ishwar, among others, pray for payment of actual damages in an
amount no less than the value of the properties in litigation instead of a reconveyance as sought in the
original complaint. Apparently they opted not to insist on a reconveyance as they are American citizens
as alleged in the amended complaint.
The allegations of the amended complaint above reproduced clearly spelled out that the transfer of the
property to Nirmla was fraudulent and that it should be considered to be held in trust by Nirmla for
spouses Ishwar. As above-discussed, this allegation is well-taken and the transfer of the property to
Nirmla should be considered to have created an implied trust by Nirmla as trustee of the property for the
benefit of spouses Ishwar.35
The motion to dissolve the writ of preliminary injunction filed by Choithram, et al. should be denied. Its
issuance by this Court is proper and warranted under the circumstances of the case. Under Section 3(c)
Rule 58 of the Rules of Court, a writ of preliminary injunction may be granted at any time after
commencement of the action and before judgment when it is established:
(c) that the defendant is doing, threatens, or is about to do, or is procuring or suffering to be done, some
act probably in violation of plaintiffs's rights respecting the subject of the action, and tending to render
the judgment ineffectual.
As above extensively discussed, Choithram, et al. have committed and threaten to commit further acts of
disposition of the properties in litigation as well as the other assets of Choithram, apparently designed to
render ineffective any judgment the Court may render favorable to spouses Ishwar.
The purpose of the provisional remedy of preliminary injunction is to preserve the status quo of the
things subject of the litigation and to protect the rights of the spouses Ishwar respecting the subject of
the action during the pendency of the Suit36 and not to obstruct the administration of justice or prejudice
the adverse party.37 In this case for damages, should Choithram, et al. continue to commit acts of
disposition of the properties subject of the litigation, an award of damages to spouses Ishwar would
thereby be rendered ineffectual and meaningless.38
Consequently, if only to protect the interest of spouses Ishwar, the Court hereby finds and holds that the
motion for the issuance of a writ of preliminary attachment filed by spouses Ishwar should be granted
covering the properties subject of this litigation.
Section 1, Rule 57 of the Rules of Court provides that at the commencement of an action or at any time
thereafter, the plaintiff or any proper party may have the property of the adverse party attached as
security for the satisfaction of any judgment that may be recovered, in, among others, the following
cases:
(d) In an action against a party who has been guilty of a fraud in contracting the debt or incurring the
obligation upon which the action is brought, or in concealing or disposing of the property for the taking,
detention or conversion of which the action is brought;
(e) In an action against a party who has removed or disposed of his property, or is about to do so, with
intent to defraud his creditors; . . .
Verily, the acts of Choithram, et al. of disposing the properties subject of the litigation disclose a scheme
to defraud spouses Ishwar so they may not be able to recover at all given a judgment in their favor, the
requiring the issuance of the writ of attachment in this instance.
Nevertheless, under the peculiar circumstances of this case and despite the fact that Choithram, et al.,
have committed acts which demonstrate their bad faith and scheme to defraud spouses Ishwar and
Sonya of their rightful share in the properties in litigation, the Court cannot ignore the fact that
Choithram must have been motivated by a strong conviction that as the industrial partner in the
acquisition of said assets he has as much claim to said properties as Ishwar, the capitalist partner in the
joint venture.
The scenario is clear. Spouses Ishwar supplied the capital of $150,000.00 for the business.1âwphi1 They
entrusted the money to Choithram to invest in a profitable business venture in the Philippines. For this
purpose they appointed Choithram as their attorney-in-fact.
Choithram in turn decided to invest in the real estate business. He bought the two (2) parcels of land in
question from Ortigas as attorney-in-fact of Ishwar- Instead of paying for the lots in cash, he paid in
installments and used the balance of the capital entrusted to him, plus a loan, to build two buildings.
Although the buildings were burned later, Choithram was able to build two other buildings on the
property. He rented them out and collected the rentals. Through the industry and genius of Choithram,
Ishwar's property was developed and improved into what it is now—a valuable asset worth millions of
pesos. As of the last estimate in 1985, while the case was pending before the trial court, the market
value of the properties is no less than P22,304,000.00.39 It should be worth much more today.
We have a situation where two brothers engaged in a business venture. One furnished the capital, the
other contributed his industry and talent. Justice and equity dictate that the two share equally the fruit
of their joint investment and efforts. Perhaps this Solomonic solution may pave the way towards their
reconciliation. Both would stand to gain. No one would end up the loser. After all, blood is thicker than
water.
However, the Court cannot just close its eyes to the devious machinations and schemes that Choithram
employed in attempting to dispose of, if not dissipate, the properties to deprive spouses Ishwar of any
possible means to recover any award the Court may grant in their favor. Since Choithram, et al. acted
with evident bad faith and malice, they should pay moral and exemplary damages as well as attorney's
fees to spouses Ishwar.
WHEREFORE, the petition in G.R. No. 85494 is DENIED, while the petition in G.R. No. 85496 is hereby
given due course and GRANTED. The judgment of the Court of Appeals dated October 18, 1988 is hereby
modified as follows:
1. Dividing equally between respondents spouses Ishwar, on the one hand, and petitioner Choithram
Ramnani, on the other, (in G.R. No. 85494) the two parcels of land subject of this litigation, including all
the improvements thereon, presently covered by transfer Certificates of Title Nos. 403150 and 403152 of
the Registry of Deeds, as well as the rental income of the property from 1967 to the present.
2. Petitioner Choithram Jethmal Ramnani, Nirmla V. Ramnani, Moti C. Ramnani and respondent Ortigas
and Company, Limited Partnership (in G.R. No. 85496) are ordered solidarily to pay in cash the value of
said one-half (1/2) share in the said land and improvements pertaining to respondents spouses Ishwar
and Sonya at their fair market value at the time of the satisfaction of this judgment but in no case less
than their value as appraised by the Asian Appraisal, Inc. in its Appraisal Report dated August 1985
(Exhibits T to T-14, inclusive).
3. Petitioners Choithram, Nirmla and Moti Ramnani and respondent Ortigas & Co., Ltd. Partnership shall
also be jointly and severally liable to pay to said respondents spouses Ishwar and Sonya Ramnani one-
half (1/2) of the total rental income of said properties and improvements from 1967 up to the date of
satisfaction of the judgment to be computed as follows:
a. On Building C occupied by Eppie's Creation and Jethmal Industries from 1967 to 1973, inclusive, based
on the 1967 to 1973 monthly rentals paid by Eppie's Creation;
b. Also on Building C above, occupied by Jethmal Industries and Lavine from 1974 to 1978, the rental
incomes based on then rates prevailing as shown under Exhibit "P"; and from 1979 to 1981, based on
then prevailing rates as indicated under Exhibit "Q";
c. On Building A occupied by Transworld Knitting Mills from 1972 to 1978, the rental incomes based upon
then prevailing rates shown under Exhibit "P", and from 1979 to 1981, based on prevailing rates per
Exhibit "Q";
d. On the two Bays Buildings occupied by Sigma-Mariwasa from 1972 to 1978, the rentals based on the
Lease Contract, Exhibit "P", and from 1979 to 1980, the rentals based on the Lease Contract, Exhibit "Q".
and thereafter commencing 1982, to account for and turn over the rental incomes paid or ought to be
paid for the use and occupancy of the properties and all improvements totalling 10,048 sq. m., based on
the rate per square meter prevailing in 1981 as indicated annually cumulative up to 1984. Then,
commencing 1985 and up to the satisfaction of the judgment, rentals shall be computed at ten percent
(10%) annually of the fair market values of the properties as appraised by the Asian Appraisals, Inc. in
August 1985. (Exhibits T to T-14, inclusive.)
4. To determine the market value of the properties at the time of the satisfaction of this judgment and
the total rental incomes thereof, the trial court is hereby directed to hold a hearing with deliberate
dispatch for this purpose only and to have the judgment immediately executed after such determination.
5. Petitioners Choithram, Nirmla and Moti, all surnamed Ramnani, are also jointly and severally liable to
pay respondents Ishwar and Sonya Ramnani the amount of P500,000.00 as moral damages, P200,000.00
as exemplary damages and attorney's fees equal to 10% of the total award. to said respondents spouses.
6. The motion to dissolve the writ of preliminary injunction dated December 10, 1990 filed by petitioners
Choithram, Nirmla and Moti, all surnamed Ramnani, is hereby DENIED and the said injunction is hereby
made permanent. Let a writ of attachment be issued and levied against the properties and
improvements subject of this litigation to secure the payment of the above awards to spouses Ishwar
and Sonya.
7. The mortgage constituted on the subject property dated June 20, 1989 by petitioners Choithram and
Nirmla, both surnamed Ramnani in favor of respondent Overseas Holding, Co. Ltd. (in G.R. No. 85496) for
the amount of $3-M is hereby declared null and void. The Register of Deeds of Pasig, Rizal, is directed to
cancel the annotation of d mortgage on the titles of the properties in question.
8. Should respondent Ortigas Co., Ltd. Partnership pay the awards to Ishwar and Sonya Ramnani under
this judgment, it shall be entitled to reimbursement from petitioners Choithram, Nirmla and Moti, all
surnamed Ramnani.
9. The above awards shag bear legal rate of interest of six percent (6%) per annum from the time this
judgment becomes final until they are fully paid by petitioners Choithram Ramnani, Nirmla V. Ramnani,
Moti C. Ramnani and Ortigas, Co., Ltd. Partnership. Said petitioners Choithram, et al. and respondent
Ortigas shall also pay the costs.
ARTICLE 1803
G.R. No. L-11624 January 21, 1918
E. M. BACHRACH, plaintiff-appellee,
vs.
"LA PROTECTORA", ET AL., defendants-appellants.
Vicente Foz for appellants.
A. J. Burke for appellee.
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 passengers and freight at Laoag,
Ilocos Norte. In order to provide the enterprise with means of transportation, Marcelo Barba, acting as
manager, came to Manila and upon June 23, 1913, negotiated the purchase of two automobile trucks
from the plaintiff, E. M. Bachrach, for the agree 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 for collection. Three of these notes,
for the sum of P3,375 each, have been made the subject of the present action, and there 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 la mencionada sociedad contratante la compra de dos
automoviles). This document was apparently executed in obedience to the requirements of subsection 2
of 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 unpaid. To
recover this balance, together with the sum due for 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 defendants. 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 indebtedness owing to the plaintiff is not in 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 amounts to P4,121,
while the remainder (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 transaction 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 fellows 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 vs. 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 cause 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, as we 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 automobile 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 no proof in the record showing what the 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 expenses. 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 attorney's 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.
ARTICLE 1809
G.R. No. L-40098 August 29, 1975
ANTONIO LIM TANHU, DY OCHAY, ALFONSO LEONARDO NG SUA and CO OYO, petitioners,
vs.
HON. JOSE R. RAMOLETE as Presiding Judge, Branch III, CFI, Cebu and TAN PUT, respondents.
Zosa, Zosa, Castillo, Alcudia & Koh for petitioners.
Fidel Manalo and Florido & Associates for respondents.
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 totalling
allegedly about P15 million pesos filed with a common cause of action against six defendants, in which
after declaring four of the said defendants herein petitioners, in default and while the trial as against the
two defendants not declared in default was in progress, said court granted plaintiff's motion to dismiss
the case in so far as the non-defaulted defendants were concerned and thereafter proceeded to hear ex-
parte the rest of the plaintiffs evidence and subsequently rendered judgment by default against the
defaulted defendants, with the particularities that notice of the motion to dismiss was not duly served
on any of the defendants, who had alleged a compulsory counterclaim against plaintiff in their joint
answer, and the judgment so rendered granted reliefs not prayed for in the complaint, and (2)
prohibition to enjoin further proceedings relative to the motion for immediate execution of the said
judgment.
Originally, this litigation was a complaint filed on February 9, 1971 by respondent Tan Put only against
the spouses-petitioners Antonio Lim Tanhu and Dy Ochay. Subsequently, in an amended complaint dated
September 26, 1972, their son Lim Teck Chuan and the other spouses-petitioners Alfonso Leonardo Ng
Sua and Co Oyo and their son Eng Chong Leonardo were included as defendants. In said amended
complaint, respondent Tan alleged that she "is the widow of Tee Hoon Lim Po Chuan, who was a partner
in the commercial partnership, Glory Commercial Company ... with Antonio Lim Tanhu and Alfonso Ng
Sua that "defendant Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan, and Eng Chong
Leonardo, through fraud and machination, took actual and active management of the partnership and
although Tee Hoon Lim Po Chuan was the manager of Glory Commercial Company, defendants managed
to use the funds of the partnership to purchase lands and building's in the cities of Cebu, Lapulapu,
Mandaue, and the municipalities of Talisay and Minglanilla, some of which were hidden, but the
description of those already discovered were as follows: (list of properties) ...;" and that:
13. (A)fter the death of Tee Hoon Lim Po Chuan, the defendants, without liquidation continued the
business of Glory Commercial Company by purportedly organizing a corporation known as the Glory
Commercial Company, Incorporated, with paid up capital in the sum of P125,000.00, which money and
other assets of the said Glory Commercial Company, Incorporated are actually the assets of the defunct
Glory Commercial Company partnership, of which the plaintiff has a share equivalent to one third (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, Antonio Lim Tanhu, by means of fraud
deceit and misrepresentations did then and there, induce and convince the plaintiff to execute a quitclaim
of all her rights and interests, in the assets of the partnership of Glory Commercial Company, which is null
and void, executed through fraud and without any legal effect. The original of said quitclaim is in the
possession of the adverse party defendant Antonio Lim Tanhu.
16. (A)s a matter of fact, after the execution of said quitclaim, defendant Antonio Lim Tanhu offered to
pay the plaintiff the amount P65,000.00 within a period of one (1) month, for which plaintiff was made to
sign a receipt for the amount of P65,000.00 although no such amount was given and plaintiff was not
even given a copy of said document;
17. (T)hereafter, in the year 1968-69, the defendants who had earlier promised to liquidate the aforesaid
properties and assets in favor among others of plaintiff and until the middle of the year 1970 when the
plaintiff formally demanded from the defendants the accounting of real and personal properties of the
Glory Commercial Company, defendants refused and stated that they would not give the share of the
plaintiff. (Pp. 36-37, Record.)
She prayed as follows:
WHEREFORE, it is most respectfully prayed that judgment be rendered:
a) Ordering the defendants to render an accounting of the real and personal properties of the Glory
Commercial Company including those registered in the names of the defendants and other persons,
which properties are located in the Philippines and in Hong Kong;
b) Ordering the defendants to deliver to the plaintiff after accounting, one third (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 attorney's fees and damages in the sum of One Million Pesos
(P1,000,000.00).
This Honorable Court is prayed for other remedies and reliefs consistent with law and equity and order
the defendants to pay the costs. (Page 38, Record.)
The admission of said amended complaint was opposed by defendants upon the ground that there were
material modifications of the causes of action previously alleged, but respondent judge nevertheless
allowed the amendment reasoning that:
The present action is for accounting of real and personal properties as well as for the recovery of the
same with damages.
An objective consideration of pars. 13 and 15 of the amended complaint pointed out by the defendants
to sustain their opposition will show that the allegations of facts therein are merely to amplify material
averments constituting the cause of action in the original complaint. It likewise include necessary and
indispensable defendants without whom no final determination can be had in the action and in order that
complete relief is to be accorded as between those already parties.
Considering that the amendments sought to be introduced do not change the main causes of action in
the original complaint and the reliefs demanded and to allow amendments is the rule, and to refuse
them the exception and in order that the real question between the parties may be properly and justly
threshed out in a single proceeding to avoid multiplicity of actions. (Page 40, Record.)
In a single answer with counterclaim, over the signature of their common counsel, defendants denied
specifically not only the allegation that respondent Tan is the widow of Tee Hoon because, according to
them, his legitimate wife was Ang Siok Tin still living and with whom he had four (4) legitimate children, a
twin born in 1942, and two others born in 1949 and 1965, all presently residing in Hongkong, but also all
the allegations of fraud and conversion quoted above, the truth being, according to them, that proper
liquidation had been regularly made of the business of the partnership and Tee Hoon used to receive his
just share until his death, as a result of which the partnership was dissolved and what corresponded to
him were all given to his wife and children. To quote the pertinent portions of said answer:
AND BY WAY OF SPECIAL AND AFFIRMATIVE DEFENSES,
defendants hereby incorporate all facts averred and alleged in the answer, and further most respectfully
declare:
1. That in the event that plaintiff is filing the present complaint as an heir of Tee Hoon Lim Po Chuan,
then, she has no legal capacity to sue as such, considering that the legitimate wife, namely: Ang Siok Tin,
together with their children are still alive. Under Sec. 1, (d), Rule 16 of the Revised Rules of Court, lack of
legal capacity to sue is one of the grounds for a motion to dismiss and so defendants prays that a
preliminary hearing be conducted as provided for in Sec. 5, of the same rule;
2. That in the alternative case or event that plaintiff is filing the present case under Art. 144 of the Civil
Code, then, her claim or demand has been paid, waived abandoned or otherwise extinguished as
evidenced by the 'quitclaim' Annex 'A' hereof, the ground cited is another ground for a motion to dismiss
(Sec. 1, (h), Rule 16) and hence defendants pray that a preliminary hearing be made in connection
therewith pursuant to Section 5 of the aforementioned rule;
3. That Tee Hoon Lim Po Chuan was legally married to Ang Siok Tin and were blessed with the following
children, to wit: Ching Siong Lim and Ching Hing Lim (twins) born on February 16, 1942; Lim Shing Ping
born on March 3, 1949 and Lim Eng Lu born on June 25, 1965 and presently residing in Hongkong;
4. That even before the death of Tee Hoon Lim Po Chuan, the plaintiff was no longer his common law
wife and even though she was not entitled to anything left by Tee Hoon Lim Po Chuan, yet, out of the
kindness and generosity on the part of the defendants, particularly Antonio Lain Tanhu, who, was
inspiring to be monk and in fact he is now a monk, plaintiff was given a substantial amount evidenced by
the 'quitclaim' (Annex 'A');
5. That the defendants have acquired properties out of their own personal fund and certainly not from
the funds belonging to the partnership, just as Tee Hoon Lim Po Chuan had acquired properties out of his
personal fund and which are now in the possession of the widow and neither the defendants nor the
partnership have anything to do about said properties;
6. That it would have been impossible to buy properties from funds belonging to the partnership without
the other partners knowing about it considering that the amount taken allegedly is quite big and with
such big amount withdrawn the partnership would have been insolvent;
7. That plaintiff and Tee Hoon Lim Po Chuan were not blessed with children who would have been
lawfully entitled to succeed to the properties left by the latter together with the widow and legitimate
children;
8. That despite the fact that plaintiff knew that she was no longer entitled to anything of the shares of
the late Tee Hoon Lim Po Chuan, yet, this suit was filed against the defendant who have to interpose the
following —
COUNTERCLAIM
A. That the defendants hereby reproduced, by way of reference, all the allegations and foregoing
averments as part of this counterclaim; .
B. That plaintiff knew and was aware she was merely the common-law wife of Tee Hoon Lim Po Chuan
and that the lawful and legal is still living, together with the legitimate children, and yet she deliberately
suppressed this fact, thus showing her bad faith and is therefore liable for exemplary damages in an
amount which the Honorable Court may determine in the exercise of its sound judicial discretion. In the
event that plaintiff is married to Tee Hoon Lim Po Chuan, then, her marriage is bigamous and should
suffer the consequences thereof;
C. That plaintiff was aware and had knowledge about the 'quitclaim', even though she was not entitled to
it, and yet she falsely claimed that defendants refused even to see her and for filing this unfounded,
baseless, futile and puerile complaint, defendants suffered mental anguish and torture conservatively
estimated to be not less than P3,000.00;
D. That in order to defend their rights in court, defendants were constrained to engage the services of
the undersigned counsel, obligating themselves to pay P500,000.00 as attorney's fees;
E. That by way of litigation expenses during the time that this case will be before this Honorable Court
and until the same will be finally terminated and adjudicated, defendants will have to spend at least
P5,000.00. (Pp. 44-47. Record.)
After unsuccessfully trying to show that this counterclaim is merely permissive and should be dismissed
for non-payment of the corresponding filing fee, and after being overruled by the court, in due time,
plaintiff answered the same, denying its material allegations.
On February 3, 1973, however, the date set for the pre-trial, both of the two defendants-spouses the Lim
Tanhus and Ng Suas, did not appear, for which reason, upon motion of plaintiff dated February 16, 1973,
in an order of March 12, 1973, they were all "declared in DEFAULT as of February 3, 1973 when they
failed to appear at the pre-trial." They sought to hive this order lifted thru a motion for reconsideration,
but the effort failed when the court denied it. Thereafter, the trial started, but at the stage thereof
where the first witness of the plaintiff by the name of Antonio Nuñez 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.
Let the hearing of the plaintiff's evidence ex-parte be set on November 20, 1974, at 8:30 A.M. before the
Branch Clerk of Court who is deputized for the purpose, to swear in witnesses and to submit her report
within ten (10) days thereafter. Notify the plaintiff.
SO ORDERED.
Cebu City, Philippines, October 21, 1974. (Page 52, Record.)
But, in connection with this last order, the scheduled ex-parte reception of evidence did not take place
on November 20, 1974, for on October 28, 1974, upon verbal motion of plaintiff, the court issued the
following self-explanatory order: .
Acting favorably on the motion of the plaintiff dated October 18, 1974, the Court deputized the Branch
Clerk of Court to receive the evidence of the plaintiff ex-parte to be made on November 20, 1974.
However, on October 28, 1974, the plaintiff, together with her witnesses, appeared in court and asked,
thru counsel, that she be allowed to present her evidence.
Considering the time and expenses incurred by the plaintiff in bringing her witnesses to the court, the
Branch Clerk of Court is hereby authorized to receive immediately the evidence of the plaintiff ex-parte.
SO ORDERED.
Cebu City, Philippines, October 28, 1974. (Page 53. Record.)
Upon learning of these orders on October 23, 1973, the defendant Lim Teck Cheng, thru 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 this
wise:
ORDER
When these incidents, the motion to quash the order of October 28, 1974 and the motion for execution
pending appeal were called for hearing today, counsel for the defendants-movants submitted their
manifestation inviting the attention of this Court that by their filing for certiorari and prohibition with
preliminary injunction in the Court of Appeals which was dismissed and later the defaulted defendants
filed with the Supreme Court certiorari with prohibition they in effect abandoned their motion to quash.
IN VIEW HEREOF, the motion to quash is ordered ABANDONED. The resolution of the motion for
execution pending appeal shall be resolved after the petition for certiorari and prohibition shall have
been resolved by the Supreme Court.
SO ORDERED.
Cebu City, Philippines, February 14, 1975. (Page 216, Record.)
Upon these premises, it is the position of petitioners that respondent court acted illegally, in violation of
the rules or with grave abuse of discretion in acting on respondent's motion to dismiss of October 18,
1974 without previously ascertaining whether or not due notice thereof had been served on the adverse
parties, as, in fact, no such notice was timely served on the non-defaulted defendants Lim Teck Chuan
and Eng Chong Leonardo and no notice at all was ever sent to the other defendants, herein petitioners,
and more so, in actually ordering the dismissal of the case by its order of October 21, 1974 and at the
same time setting the case for further hearing as against the defaulted defendants, herein petitioners,
actually hearing the same ex-parte and thereafter rendering the decision of December 20, 1974 granting
respondent Tan even reliefs not prayed for in the complaint. According to the petitioners, to begin with,
there was compulsory counterclaim in the common answer of the defendants the nature of which is
such that it cannot be decided in an independent action and as to which the attention of respondent
court was duly called in the motions for reconsideration. Besides, and more importantly, under Section 4
of Rule 18, respondent court had no authority to divide the case before it by dismissing the same as
against the non-defaulted defendants and thereafter proceeding to hear it ex-parte and subsequently
rendering judgment against the defaulted defendants, considering that in their view, under the said
provision of the rules, when a common cause of action is alleged against several defendants, the default
of any of them is a mere formality by which those defaulted are not allowed to take part in the
proceedings, but otherwise, all the defendants, defaulted and not defaulted, are supposed to have but a
common fate, win or lose. In other words, petitioners posit that in such a situation, there can only be
one common judgment for or against all the defendant, the non-defaulted and the defaulted. Thus,
petitioners contend that the order of dismissal of October 21, 1974 should be considered also as the final
judgment insofar as they are concerned, or, in the alternative, it should be set aside together with all the
proceedings and decision held and rendered subsequent thereto, and that the trial be resumed as of said
date, with the defendants Lim Teck Chuan and Eng Chong Leonardo being allowed to defend the case for
all the defendants.
On the other hand, private respondent maintains the contrary view that inasmuch as petitioners had
been properly declared in default, they have no personality nor interest to question the dismissal of the
case as against their non-defaulted co-defendants and should suffer the consequences of their own
default. Respondent further contends, and this is the only position discussed in the memorandum
submitted by her counsel, that since petitioners have already made or at least started to make their
appeal, as they are in fact entitled to appeal, this special civil action has no reason for being. Additionally,
she invokes the point of prematurity upheld by the Court of Appeals in regard to the above-mentioned
petition therein of the non-defaulted defendants Lim Teck Chuan and Eng Chong Leonardo. Finally, she
argues that in any event, the errors attributed to respondent court are errors of judgment and may be
reviewed only in an appeal.
After careful scrutiny of all the above-related proceedings, in the court below and mature deliberation,
the Court has arrived at the conclusion that petitioners should be granted relief, if only to stress
emphatically once more that the rules of procedure may not be misused and abused as instruments for
the denial of substantial justice. A review of the record of this case immediately discloses that here is
another demonstrative instance of how some members of the bar, availing of their proficiency in
invoking the letter of the rules without regard to their real spirit and intent, succeed in inducing courts to
act contrary to the dictates of justice and equity, and, in some instances, to wittingly or unwittingly abet
unfair advantage by ironically camouflaging their actuations as earnest efforts to satisfy the public
clamor for speedy disposition of litigations, forgetting all the while that the plain injunction of Section 2
of Rule 1 is that the "rules shall be liberally construed in order to promote their object and to assist the
parties in obtaining not only 'speedy' but more imperatively, "just ... and inexpensive determination of
every action and proceeding." We cannot simply pass over the impression that the procedural
maneuvers and tactics revealed in the records of the case at bar were deliberately planned with the
calculated end in view of depriving petitioners and their co-defendants below of every opportunity to
properly defend themselves against a claim of more than substantial character, considering the millions
of pesos worth of properties involved as found by respondent judge himself in the impugned decision, a
claim that appears, in the light of the allegations of the answer and the documents already brought to
the attention of the court at the pre-trial, to be rather dubious. What is most regrettable is that
apparently, all of these alarming circumstances have escaped respondent judge who did not seem to
have hesitated in acting favorably on the motions of the plaintiff conducive to the deplorable objective
just mentioned, and which motions, at the very least, appeared to be 'of highly controversial' merit,
considering that their obvious tendency and immediate result would be to convert the proceedings into
a one-sided affair, a situation that should be readily condemnable and intolerable to any court of justice.
Indeed, a seeming disposition on the part of respondent court to lean more on the contentions of private
respondent may be discerned from the manner it resolved the attempts of defendants Dy Ochay and
Antonio Lim Tanhu to have the earlier order of default against them lifted. Notwithstanding that Dy
Ochay's motion of October 8, 1971, co-signed by her with their counsel, Atty. Jovencio Enjambre (Annex
2 of respondent answer herein) was over the jurat of the notary public before whom she took her oath,
in the order of November 2, 1971, (Annex 3 id.) it was held that "the oath appearing at the bottom of the
motion is not the one contemplated by the abovequoted pertinent provision (See. 3, Rule 18) of the
rules. It is not even a verification. (See. 6, Rule 7.) What the rule requires as interpreted by the Supreme
Court is that the motion must have to be accompanied by an affidavit of merits that the defendant has a
meritorious defense, thereby ignoring the very simple legal point that the ruling of the Supreme Court
in Ong Peng vs. Custodio, 1 SCRA 781, relied upon by His Honor, under which a separate affidavit of merit
is required refers obviously to instances where the motion is not over oath of the party concerned,
considering that what the cited provision literally requires is no more than a "motion under oath." Stated
otherwise, when a motion to lift an order of default contains the reasons for the failure to answer as well
as the facts constituting the prospective defense of the defendant and it is sworn to by said defendant,
neither a formal verification nor a separate affidavit of merit is necessary.
What is worse, the same order further held that the motion to lift the order of default "is an admission
that there was a valid service of summons" and that said motion could not amount to a challenge against
the jurisdiction of the court over the person of the defendant. Such a rationalization is patently specious
and reveals an evident failure to grasp the import of the legal concepts involved. A motion to lift an
order of default on the ground that service of summons has not been made in accordance with the rules
is in order and is in essence verily an attack against the jurisdiction of the court over the person of the
defendant, no less than if it were worded in a manner specifically embodying such a direct challenge.
And then, in the order of February 14, 1972 (Annex 6, id.) lifting at last the order of default as against
defendant Lim Tanhu, His Honor posited that said defendant "has a defense (quitclaim) which renders
the claim of the plaintiff contentious." We have read defendants' motion for reconsideration of
November 25, 1971 (Annex 5, id.), but We cannot find in it any reference to a "quitclaim". Rather, the
allegation of a quitclaim is in the amended complaint (Pars. 15-16, Annex B of the petition herein) in
which plaintiff maintains that her signature thereto was secured through fraud and deceit. In truth, the
motion for reconsideration just mentioned, Annex 5, merely reiterated the allegation in Dy Ochay's
earlier motion of October 8, 1971, Annex 2, to set aside the order of default, that plaintiff Tan could be
but the common law wife only of Tee Hoon, since his legitimate wife was still alive, which allegation, His
Honor held in the order of November 2, 1971, Annex 3, to be "not good and meritorious defense". To
top it all, whereas, as already stated, the order of February 19, 1972, Annex 6, lifted the default against
Lim Tanhu because of the additional consideration that "he has a defense (quitclaim) which renders the
claim of the plaintiff contentious," the default of Dy Ochay was maintained notwithstanding that exactly
the same "contentions" defense as that of her husband was invoked by her.
Such tenuous, if not altogether erroneous reasonings and manifest inconsistency in the legal postures in
the orders in question can hardly convince Us that the matters here in issue were accorded due and
proper consideration by respondent court. In fact, under the circumstances herein obtaining, it seems
appropriate to stress that, having in view the rather substantial value of the subject matter involved
together with the obviously contentious character of plaintiff's claim, which is discernible even on the
face of the complaint itself, utmost care should have been taken to avoid the slightest suspicion of
improper motivations on the part of anyone concerned. Upon the considerations hereunder to follow,
the Court expresses its grave concern that much has to be done to dispel the impression that herein
petitioners and their co-defendants are being railroaded out of their rights and properties without due
process of law, on the strength of procedural technicalities adroitly planned by counsel and seemingly
unnoticed and undetected by respondent court, whose orders, gauged by their tenor and the citations of
supposedly pertinent provisions and jurisprudence made therein, cannot be said to have proceeded
from utter lack of juridical knowledgeability and competence.
–1–
The first thing that has struck the Court upon reviewing the record is the seeming alacrity with which the
motion to dismiss the case against non-defaulted defendants Lim Teck Chuan and Eng Chong Leonardo
was disposed of, which definitely ought not to have been the case. The trial was proceeding with the
testimony of the first witness of plaintiff and he was still under re-cross-examination. Undoubtedly, the
motion to dismiss at that stage and in the light of the declaration of default against the rest of the
defendants was a well calculated surprise move, obviously designed to secure utmost advantage of the
situation, regardless of its apparent unfairness. To say that it must have been entirely unexpected by all
the defendants, defaulted and non-defaulted , is merely to rightly assume that the parties in a judicial
proceeding can never be the victims of any procedural waylaying as long as lawyers and judges are
imbued with the requisite sense of equity and justice.
But the situation here was aggravated by the indisputable fact that the adverse parties who were
entitled to be notified of such unanticipated dismissal motion did not get due notice thereof. Certainly,
the non-defaulted defendants had the right to the three-day prior notice required by Section 4 of Rule
15. How could they have had such indispensable notice when the motion was set for hearing on
Monday, October 21, 1974, whereas the counsel for Lim Teck Chuan, Atty. Sitoy was personally served
with the notice only on Saturday, October 19, 1974 and the counsel for Eng Chong Leonardo, Atty.
Alcudia, was notified by registered mail which was posted only that same Saturday, October 19, 1974?
According to Chief Justice Moran, "three days at least must intervene between the date of service of
notice and the date set for the hearing, otherwise the court may not validly act on the motion."
(Comments on the Rules of Court by Moran, Vol. 1, 1970 ed. p. 474.) Such is the correct construction of
Section 4 of Rule 15. And in the instant case, there can be no question that the notices to the non-
defaulted defendants were short of the requirement of said provision.
We can understand the over-anxiety of counsel for plaintiff, but what is incomprehensible is the seeming
inattention of respondent judge to the explicit mandate of the pertinent rule, not to speak of the
imperatives of fairness, considering he should have realized the far-reaching implications, specially from
the point of view he subsequently adopted, albeit erroneously, of his favorably acting on it. Actually, he
was aware of said consequences, for simultaneously with his order of dismissal, he immediately set the
case for the ex-parte hearing of the evidence against the defaulted defendants, which, incidentally, from
the tenor of his order which We have quoted above, appears to have been done by him motu propio As
a matter of fact, plaintiff's motion also quoted above did not pray for it.
Withal, respondent court's twin actions of October 21, 1974 further ignores or is inconsistent with a
number of known juridical principles concerning defaults, which We will here take occasion to reiterate
and further elucidate on, if only to avoid a repetition of the unfortunate errors committed in this case.
Perhaps some of these principles have not been amply projected and elaborated before, and such
paucity of elucidation could be the reason why respondent judge must have acted as he did. Still, the
Court cannot but express its vehement condemnation of any judicial actuation that unduly deprives any
party of the right to be heard without clear and specific warrant under the terms of existing rules or
binding jurisprudence. Extreme care must be the instant reaction of every judge when confronted with a
situation involving risks that the proceedings may not be fair and square to all the parties concerned.
Indeed, a keen sense of fairness, equity and justice that constantly looks for consistency between the
letter of the adjective rules and these basic principles must be possessed by every judge, If substance is
to prevail, as it must, over form in our courts. Literal observance of the rules, when it is conducive to
unfair and undue advantage on the part of any litigant before it, is unworthy of any court of justice and
equity. Withal, only those rules and procedure informed, with and founded on public policy deserve
obedience in accord with their unequivocal language or words..
Before proceeding to the discussion of the default aspects of this case, however, it should not be amiss
to advert first to the patent incorrectness, apparent on the face of the record, of the aforementioned
order of dismissal of October 21, 1974 of the case below as regards non-defaulted defendants Lim and
Leonardo. While it is true that said defendants are not petitioners herein, the Court deems it necessary
for a full view of the outrageous procedural strategy conceived by respondent's counsel and sanctioned
by respondent court to also make reference to the very evident fact that in ordering said dismissal
respondent court disregarded completely the existence of defendant's counterclaim which it had itself
earlier held if indirectly, to be compulsory in nature when it refused to dismiss the same on the ground
alleged by respondent Tan that he docketing fees for the filing thereof had not been paid by defendants.
Indeed, that said counterclaim is compulsory needs no extended elaboration. As may be noted in the
allegations hereof aforequoted, it arose out of or is necessarily connected with the occurrence that is the
subject matter of the plaintiff's claim, (Section 4, Rule 9) namely, plaintiff's allegedly being the widow of
the deceased Tee Hoon entitled, as such, to demand accounting of and to receive the share of her
alleged late husband as partner of defendants Antonio Lim Tanhu and Alfonso Leonardo Ng Sua in Glory
Commercial Company, the truth of which allegations all the defendants have denied. Defendants
maintain in their counterclaim that plaintiff knew of the falsity of said allegations even before she filed
her complaint, for she had in fact admitted her common-law relationship with said deceased in a
document she had jointly executed with him by way of agreement to terminate their illegitimate
relationship, for which she received P40,000 from the deceased, and with respect to her pretended
share in the capital and profits in the partnership, it is also defendants' posture that she had already
quitclaimed, with the assistance of able counsel, whatever rights if any she had thereto in November,
1967, for the sum of P25,000 duly receipted by her, which quitclaim was, however, executed, according
to respondent herself in her amended complaint, through fraud. And having filed her complaint
knowing, according to defendants, as she ought to have known, that the material allegations thereof are
false and baseless, she has caused them to suffer damages. Undoubtedly, with such allegations,
defendants' counterclaim is compulsory, not only because the same evidence to sustain it will also refute
the cause or causes of action alleged in plaintiff's complaint, (Moran, supra p. 352) but also because from
its very nature, it is obvious that the same cannot "remain pending for independent adjudication by the
court." (Section 2, Rule 17.)
The provision of the rules just cited specifically enjoins that "(i)f a counterclaim has been pleaded by a
defendant prior to the service upon him of the plaintiff's motion to dismiss, the action shall not be
dismissed against the defendant's objection unless the counterclaim can remain pending for
independent adjudication by the court." Defendants Lim and Leonardo had no opportunity to object to
the motion to dismiss before the order granting the same was issued, for the simple reason that they
were not opportunity notified of the motion therefor, but the record shows clearly that at least
defendant Lim immediately brought the matter of their compulsory counterclaim to the attention of the
trial court in his motion for reconsideration of October 23, 1974, even as the counsel for the other
defendant, Leonardo, predicated his motion on other grounds. In its order of December 6, 1974,
however, respondent court not only upheld the plaintiffs supposed absolute right to choose her
adversaries but also held that the counterclaim is not compulsory, thereby virtually making unexplained
and inexplicable 180-degree turnabout in that respect.
There is another equally fundamental consideration why the motion to dismiss should not have been
granted. As the plaintiff's complaint has been framed, all the six defendants are charged with having
actually taken part in a conspiracy to misappropriate, conceal and convert to their own benefit the
profits, properties and all other assets of the partnership Glory Commercial Company, to the extent that
they have allegedly organized a corporation, Glory Commercial Company, Inc. with what they had
illegally gotten from the partnership. Upon such allegations, no judgment finding the existence of the
alleged conspiracy or holding the capital of the corporation to be the money of the partnership is legally
possible without the presence of all the defendants. The non-defaulted defendants are alleged to be
stockholders of the corporation and any decision depriving the same of all its assets cannot but prejudice
the interests of said defendants. Accordingly, upon these premises, and even prescinding from the other
reasons to be discussed anon it is clear that all the six defendants below, defaulted and non-defaulted,
are indispensable parties. Respondents could do no less than grant that they are so on page 23 of their
answer. Such being the case, the questioned order of dismissal is exactly the opposite of what ought to
have been done. Whenever it appears to the court in the course of a proceeding that an indispensable
party has not been joined, it is the duty of the court to stop the trial and to order the inclusion of such
party. (The Revised Rules of Court, Annotated & Commented by Senator Vicente J. Francisco, Vol. 1, p.
271, 1973 ed. See also Cortez vs. Avila, 101 Phil. 705.) Such an order is unavoidable, for the "general rule
with reference to the making of parties in a civil action requires the joinder of all necessary parties
wherever possible, and the joinder of all indispensable parties under any and all conditions, the presence
of those latter being a sine qua non of the exercise of judicial power." (Borlasa vs. Polistico, 47 Phil. 345,
at p. 347.) It is precisely " when an indispensable party is not before the court (that) the action should be
dismissed." (People v. Rodriguez, 106 Phil. 325, at p. 327.) The absence of an indispensable party renders
all subsequent actuations of the court null and void, for want of authority to act, not only as to the
absent parties but even as to those present. In short, what respondent court did here was exactly the
reverse of what the law ordains — it eliminated those who by law should precisely be joined.
As may he noted from the order of respondent court quoted earlier, which resolved the motions for
reconsideration of the dismissal order filed by the non-defaulted defendants, His Honor rationalized his
position thus:
It is the rule that it is the absolute prerogative of the plaintiff to choose, the theory upon which he
predicates his right of action, or the parties he desires to sue, without dictation or imposition by the
court or the adverse party. If he makes a mistake in the choice of his right of action, or in that of the
parties against whom he seeks to enforce it, that is his own concern as he alone suffers therefrom. The
plaintiff cannot be compelled to choose his defendants, He may not, at his own expense, be forced to
implead anyone who, under the adverse party's theory, is to answer for defendant's liability. Neither
may the Court compel him to furnish the means by which defendant may avoid or mitigate their liability.
(Vaño vs. Alo, 95 Phil. 495-496.)
This being the rule this court cannot compel the plaintiff to continue prosecuting her cause of action
against the defendants-movants if in the course of the trial she believes she can enforce it against the
remaining defendants subject only to the limitation provided in Section 2, Rule 17 of the Rules of Court.
... (Pages 6263, Record.)
Noticeably, His Honor has employed the same equivocal terminology as in plaintiff's motion of October
18, 1974 by referring to the action he had taken as being "dismissal of the complaint against them or
their being dropped therefrom", without perceiving that the reason for the evidently intentional
ambiguity is transparent. The apparent idea is to rely on the theory that under Section 11 of Rule 3,
parties may be dropped by the court upon motion of any party at any stage of the action, hence "it is the
absolute right prerogative of the plaintiff to 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
plaintiff's motion of October 18, 1974 was not predicated on Section 2 of Rule 17 but more on Section 11
of Rule 3. But the truth is that nothing can be more incorrect. To start with, the latter rule does not
comprehend whimsical and irrational dropping or adding of parties in a complaint. What it really
contemplates is erroneous or mistaken non-joinder and misjoinder of parties. No one is free to join
anybody in a complaint in court only to drop him unceremoniously later at the pleasure of the plaintiff.
The rule presupposes that the original inclusion had been made in the honest conviction that it was
proper and the subsequent dropping is requested because it has turned out that such inclusion was a
mistake. And this is the reason why the rule ordains that the dropping be "on such terms as are just" —
just to all the other parties. In the case at bar, there is nothing in the record to legally justify the dropping
of the non-defaulted defendants, Lim and Leonardo. The motion of October 18, 1974 cites none. From all
appearances, plaintiff just decided to ask for it, without any relevant explanation at all. Usually, the court
in granting such a motion inquires for the reasons and in the appropriate instances directs the granting
of some form of compensation for the trouble undergone by the defendant in answering the complaint,
preparing for or proceeding partially to trial, hiring counsel and making corresponding expenses in the
premises. Nothing of these, appears in the order in question. Most importantly, His Honor ought to have
considered that the outright dropping of the non-defaulted defendants Lim and Leonardo, over their
objection at that, would certainly be unjust not only to the petitioners, their own parents, who would in
consequence be entirely defenseless, but also to Lim and Leonardo themselves who would naturally
correspondingly suffer from the eventual judgment against their parents. Respondent court paid no
heed at all to the mandate that such dropping must be on such terms as are just" — meaning to all
concerned with its legal and factual effects.
Thus, it is quite plain that respondent court erred in issuing its order of dismissal of October 21, 1974 as
well as its order of December 6, 1974 denying reconsideration of such dismissal. As We make this ruling,
We are not oblivious of the circumstance that defendants Lim and Leonardo are not parties herein. But
such consideration is inconsequential. The fate of the case of petitioners is inseparably tied up with said
order of dismissal, if only because the order of ex-parte hearing of October 21, 1974 which directly
affects and prejudices said petitioners is predicated thereon. Necessarily, therefore, We have to pass on
the legality of said order, if We are to decide the case of herein petitioners properly and fairly.
The attitude of the non-defaulted defendants of no longer pursuing further their questioning of the
dismissal is from another point of view understandable. On the one hand, why should they insist on
being defendants when plaintiff herself has already release from her claims? On the other hand, as far as
their respective parents-co-defendants are concerned, they must have realized that they (their parents)
could even be benefited by such dismissal because they could question whether or not plaintiff can still
prosecute her case against them after she had secured the order of dismissal in question. And it is in
connection with this last point that the true and correct concept of default becomes relevant.
At this juncture, it may also be stated that the decision of the Court of Appeals of January 24, 1975 in G.
R. No. SP-03066 dismissing the petition for certiorari of non-defaulted defendants Lim and Leonardo
impugning the order of dismissal of October 21, 1974, has no bearing at all in this case, not only because
that dismissal was premised by the appellate court on its holding that the said petition was premature
inasmuch as the trial court had not yet resolved the motion of the defendants of October 28, 1974
praying that said disputed order be quashed, but principally because herein petitioners were not parties
in that proceeding and cannot, therefore, be bound by its result. In particular, We deem it warranted to
draw the attention of private respondent's counsel to his allegations in paragraphs XI to XIV of his
answer, which relate to said decision of the Court of Appeals and which have the clear tendency to make
it appear to the Court that the appeals court had upheld the legality and validity of the actuations of the
trial court being questioned, when as a matter of indisputable fact, the dismissal of the petition was
based solely and exclusively on its being premature without in any manner delving into its merits. The
Court must and does admonish counsel that such manner of pleading, being deceptive and lacking in
candor, has no place in any court, much less in the Supreme Court, and if We are adopting a passive
attitude in the premises, it is due only to the fact that this is counsel's first offense. But similar conduct
on his part in the future will definitely be dealt with more severely. Parties and counsel would be well
advised to avoid such attempts to befuddle the issues as invariably then will be exposed for what they
are, certainly unethical and degrading to the dignity of the law profession. Moreover, almost always they
only betray the inherent weakness of the cause of the party resorting to them.
–2–
Coming now to the matter itself of default, it is quite apparent that the impugned orders must have
proceeded from inadequate apprehension of the fundamental precepts governing such procedure under
the Rules of Court. It is time indeed that the concept of this procedural device were fully understood by
the bench and bar, instead of being merely taken for granted as being that of a simple expedient of not
allowing the offending party to take part in the proceedings, so that after his adversary shall have
presented his evidence, judgment may be rendered in favor of such opponent, with hardly any chance of
said judgment being reversed or modified.
The Rules of Court contain a separate rule on the subject of default, Rule 18. But said rule is concerned
solely with default resulting from failure of the defendant or defendants to answer within the
reglementary period. Referring to the simplest form of default, that is, where there is only one
defendant in the action and he fails to answer on time, Section 1 of the rule provides that upon "proof of
such failure, (the court shall) declare the defendant in default. Thereupon the court shall proceed to
receive the plaintiff's evidence and render judgment granting him such relief as the complaint and the
facts proven may warrant." This last clause is clarified by Section 5 which says that "a judgment entered
against a party in default shall not exceed the amount or be different in kind from that prayed for."
Unequivocal, in the literal sense, as these provisions are, they do not readily convey the full import of
what they contemplate. To begin with, contrary to the immediate notion that can be drawn from their
language, these provisions are not to be understood as meaning that default or the failure of the
defendant to answer should be "interpreted as an admission by the said defendant that the plaintiff's
cause of action find support in the law or that plaintiff is entitled to the relief prayed for." (Moran, supra,
p. 535 citing Macondary & Co. v. Eustaquio, 64 Phil. 466, citing with approval Chaffin v. McFadden, 41
Ark. 42; Johnson v. Pierce, 12 Ark. 599; Mayden v. Johnson, 59 Ga. 105; People v. Rust, 292 111. 328; Ken
v. Leopold 21 111. A. 163; Chicago, etc. Electric R. Co. v. Krempel 116 111. A. 253.)
Being declared in default does not constitute a waiver of rights except that of being heard and of
presenting evidence in the trial court. According to Section 2, "except as provided in Section 9 of Rule 13,
a party declared in default shall not be entitled to notice of subsequent proceedings, nor to take part in
the trial." That provision referred to reads: "No service of papers other than substantially amended
pleadings and final orders or judgments shall be necessary on a party in default unless he files a motion
to set aside the order of default, in which event he shall be entitled to notice of all further proceedings
regardless of whether the order of default is set aside or not." And pursuant to Section 2 of Rule 41, "a
party who has been declared in default may likewise appeal from the judgment rendered against him as
contrary to the evidence or to the law, even if no petition for relief to set aside the order of default has
been presented by him in accordance with Rule 38.".
In other words, a defaulted defendant is not actually thrown out of court. While in a sense it 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 plaintiff's cause is, of course,
presented in his absence, but the court is not supposed to admit that which is basically incompetent.
Although the defendant would not be in a position to object, elementary justice requires that, only legal
evidence should be considered against him. If the evidence presented should not be sufficient to justify a
judgment for the plaintiff, the complaint must be dismissed. And if an unfavorable judgment should be
justifiable, it cannot exceed in amount or be different in kind from what is prayed for in the complaint.
Incidentally, these considerations argue against the present widespread practice of trial judges, as was
done by His Honor in this case, of delegating to their clerks of court the reception of the plaintiff's
evidence when the defendant is in default. Such a Practice is wrong in principle and orientation. It has no
basis in any rule. When a defendant allows himself to be declared in default, he relies on the faith that
the court would take care that his rights are not unduly prejudiced. He has a right to presume that the
law and the rules will still be observed. The proceedings are held in his forced absence, and it is but fair
that the plaintiff should not be allowed to take advantage of the situation to win by foul or illegal means
or with inherently incompetent evidence. Thus, in such instances, there is need for more attention from
the court, which only the judge himself can provide. The clerk of court would not be in a position much
less have the authority to act in the premises in the manner demanded by the rules of fair play and as
contemplated in the law, considering his comparably limited area of discretion and his presumably
inferior preparation for the functions of a judge. Besides, the default of the defendant is no excuse for
the court to renounce the opportunity to closely observe the demeanor and conduct of the witnesses of
the plaintiff, the better to appreciate their truthfulness and credibility. We therefore declare as a matter
of judicial policy that there being no imperative reason for judges to do otherwise, the practice should be
discontinued.
Another matter of practice worthy of mention at this point is that it is preferable to leave enough
opportunity open for possible lifting of the order of default before proceeding with the reception of the
plaintiff's evidence and the rendition of the decision. "A judgment by default may amount to a positive
and considerable injustice to the defendant; and the possibility of such serious consequences
necessitates a careful and liberal examination of the grounds upon which the defendant may seek to set
it aside." (Moran, supra p. 534, citing Coombs vs. Santos, 24 Phil. 446; 449-450.) The expression,
therefore, in Section 1 of Rule 18 aforequoted which says that "thereupon the court shall proceed to
receive the plaintiff's evidence etc." is not to be taken literally. The gain in time and dispatch should the
court immediately try the case on the very day of or shortly after the declaration of default is far
outweighed by the inconvenience and complications involved in having to undo everything already done
in the event the defendant should justify his omission to answer on time.
The foregoing observations, as may be noted, refer to instances where the only defendant or all the
defendants, there being several, are declared in default. There are additional rules embodying more
considerations of justice and equity in cases where there are several defendants against whom a
common cause of action is averred and not all of them answer opportunely or are in default, particularly
in reference to the power of the court to render judgment in such situations. Thus, in addition to the
limitation of Section 5 that the judgment by default should not be more in amount nor different in kind
from the reliefs specifically sought by plaintiff in his complaint, Section 4 restricts the authority of the
court in rendering judgment in the situations just mentioned as follows:
Sec. 4. Judgment when some defendants answer, and other make difficult. — When a complaint states a
common cause of action against several defendant some of whom answer, and the others fail to do so,
the court shall try the case against all upon the answer thus filed and render judgment upon the evidence
presented. The same proceeding applies when a common cause of action is pleaded in a counterclaim,
cross-claim and third-party claim.
Very aptly does Chief Justice Moran elucidate on this provision and the controlling jurisprudence
explanatory thereof this wise:
Where a complaint states a common cause of action against several defendants and some appear to
defend the case on the merits while others make default, the defense interposed by those who appear
to litigate the case inures to the benefit of those who fail to appear, and if the court finds that a good
defense has been made, all of the defendants must be absolved. In other words, the answer filed by one
or some of the defendants inures to the benefit of all the others, even those who have not seasonably
filed their answer. (Bueno v. Ortiz, L-22978, June 27, 1968, 23 SCRA 1151.) The proper mode of
proceeding where a complaint states a common cause of action against several defendants, and one of
them makes default, is simply to enter a formal default order against him, and proceed with the cause
upon the answers of the others. The defaulting defendant merely loses his standing in court, he not
being entitled to the service of notice in the cause, nor to appear in the suit in any way. He cannot
adduce evidence; nor can he be heard at the final hearing, (Lim Toco v. Go Fay, 80 Phil. 166.) although he
may appeal the judgment rendered against him on the merits. (Rule 41, sec. 2.) If the case is finally
decided in the plaintiff's favor, a final decree is then entered against all the defendants; but if the suit
should be decided against the plaintiff, the action will be dismissed as to all the defendants alike. (Velez
v. Ramas, 40 Phil. 787-792; Frow v. de la Vega, 15 Wal. 552,21 L. Ed. 60.) In other words the judgment
will affect the defaulting defendants either favorably or adversely. (Castro v. Peña, 80 Phil. 488.)
Defaulting defendant may ask execution if judgment is in his favor. (Castro v. Peña, supra.) (Moran, Rules
of Court, Vol. 1, pp. 538-539.)
In Castro vs. Peña, 80 Phil. 488, one of the numerous cases cited by Moran, this Court elaborated on the
construction of the same rule when it sanctioned the execution, upon motion and for the benefit of the
defendant in default, of a judgment which was adverse to the plaintiff. The Court held:
As above stated, Emilia Matanguihan, by her counsel, also was a movant in the petition for execution
Annex 1. Did she have a right to be such, having been declared in default? In Frow vs. De la Vega, supra,
cited as authority in Velez vs. Ramas, supra, the Supreme Court of the United States adopted as ground
for its own decision the following ruling of the New York Court of Errors in Clason vs. Morris, 10 Jons.,
524:
It would be unreasonable to hold that because one defendant had made default, the plaintiff should
have a decree even against him, where the court is satisfied from the proofs offered by the other, that in
fact the plaintiff is not entitled to a decree. (21 Law, ed., 61.)
The reason is simple: justice has to be consistent. The complaint stating a common cause of action
against several defendants, the complainant's rights — or lack of them — in the controversy have to be
the same, and not different, as against all the defendant's although one or some make default and the
other or others appear, join issue, and enter into trial. For instance, in the case of Clason vs.
Morris above cited, the New York Court of Errors in effect held that in such a case if the plaintiff is not
entitled to a decree, he will not be entitled to it, not only as against the defendant appearing and
resisting his action but also as against the one who made default. In the case at bar, the cause of action
in the plaintiff's complaint was common against the Mayor of Manila, Emilia Matanguihan, and the other
defendants in Civil Case No. 1318 of the lower court. The Court of First Instance in its judgment found
and held upon the evidence adduced by the plaintiff and the defendant mayor that as between said
plaintiff and defendant Matanguihan the latter was the one legally entitled to occupy the stalls; and it
decreed, among other things, that said plaintiff immediately vacate them. Paraphrasing the New York
Court of Errors, it would be unreasonable to hold now that because Matanguihan had made default, the
said plaintiff should be declared, as against her, legally entitled to the occupancy of the stalls, or to
remain therein, although the Court of First Instance was so firmly satisfied, from the proofs offered by
the other defendant, that the same plaintiff was not entitled to such occupancy that it peremptorily
ordered her to vacate the stalls. If in the cases of Clason vs. Morris, supra, Frow vs. De la Vega, supra,
and Velez vs. Ramas, supra the decrees entered inured to the benefit of the defaulting defendants, there
is no reason why that entered in said case No. 1318 should not be held also to have inured to the benefit
of the defaulting defendant Matanguihan and the doctrine in said three cases plainly implies that there is
nothing in the law governing default which would prohibit the court from rendering judgment favorable
to the defaulting defendant in such cases. If it inured to her benefit, it stands to reason that she had a
right to claim that benefit, for it would not be a benefit if the supposed beneficiary were barred from
claiming it; and if the benefit necessitated the execution of the decree, she must be possessed of the
right to ask for the execution thereof as she did when she, by counsel, participated in the petition for
execution Annex 1.
Section 7 of Rule 35 would seem to afford a solid support to the above considerations. It provides that
when a complaint states a common cause of action against several defendants, some of whom answer,
and the others make default, 'the court shall try the case against all upon the answer thus filed and
render judgment upon the evidence presented by the parties in court'. It is obvious that under this
provision the case is tried jointly not only against the defendants answering but also against those
defaulting, and the trial is held upon the answer filed by the former; and the judgment, if adverse, will
prejudice the defaulting defendants no less than those who answer. In other words, the defaulting
defendants are held bound by the answer filed by their co-defendants and by the judgment which the
court may render against all of them. By the same token, and by all rules of equity and fair play, if the
judgment should happen to be favorable, totally or partially, to the answering defendants, it must
correspondingly benefit the defaulting ones, for it would not be just to let the judgment produce effects
as to the defaulting defendants only when adverse to them and not when favorable.
In Bueno vs. Ortiz, 23 SCRA 1151, the Court applied the provision under discussion in the following
words:
In answer to the charge that respondent Judge had committed a grave abuse of discretion in rendering a
default judgment against the PC, respondents allege that, not having filed its answer within the
reglementary period, the PC was in default, so that it was proper for Patanao to forthwith present his
evidence and for respondent Judge to render said judgment. It should be noted, however, that in
entering the area in question and seeking to prevent Patanao from continuing his logging operations
therein, the PC was merely executing an order of the Director of Forestry and acting as his agent.
Patanao's cause of action against the other respondents in Case No. 190, namely, the Director of
Forestry, the District Forester of Agusan, the Forest Officer of Bayugan, Agusan, and the Secretary of
Agriculture and Natural Resources. Pursuant to Rule 18, Section 4, of the Rules of Court, 'when a
complaint states a common cause of action against several defendants some of whom answer and the
others fail to do so, the court shall try the case against all upon the answer thus filed (by some) and
render judgment upon the evidence presented.' In other words, the answer filed by one or some of the
defendants inures to the benefit of all the others, even those who have not seasonably filed their
answer.
Indeed, since the petition in Case No. 190 sets forth a common cause of action against all of the
respondents therein, a decision in favor of one of them would necessarily favor the others. In fact, the
main issue, in said case, is whether Patanao has a timber license to undertake logging operations in the
disputed area. It is not possible to decide such issue in the negative, insofar as the Director of Forestry,
and to settle it otherwise, as regards the PC, which is merely acting as agent of the Director of Forestry,
and is, therefore, his alter ego, with respect to the disputed forest area.
Stated differently, in all instances where a common cause of action is alleged against several defendants,
some of whom answer and the others do not, the latter or those in default acquire a vested right not
only to own the defense interposed in the answer of their co- defendant or co-defendants not in default
but also to expect a result of the litigation totally common with them in kind and in amount whether
favorable or unfavorable. The substantive unity of the plaintiff's cause against all the defendants is
carried through to its adjective phase as ineluctably demanded by the homogeneity and indivisibility of
justice itself. Indeed, since the singleness of the cause of action also inevitably implies that all the
defendants are indispensable parties, the court's power to act is integral and cannot be split such that it
cannot relieve any of them and at the same time render judgment against the rest. Considering the tenor
of the section in question, it is to be assumed that when any defendant allows himself to be declared in
default knowing that his defendant has already answered, he does so trusting in the assurance implicit in
the rule that his default is in essence a mere formality that deprives him of no more than the right to
take part in the trial and that the court would deem anything done by or for the answering defendant as
done by or for him. The presumption is that otherwise he would not -have seen to that he would not be
in default. Of course, he has to suffer the consequences of whatever the answering defendant may do or
fail to do, regardless of possible adverse consequences, but if the complaint has to be dismissed in so far
as the answering defendant is concerned it becomes his inalienable right that the same be dismissed also
as to him. It does not matter that the dismissal is upon the evidence presented by the plaintiff or upon
the latter's mere desistance, for in both contingencies, the lack of sufficient legal basis must be the
cause. The integrity of the common cause of action against all the defendants and the indispensability of
all of them in the proceedings do not permit any possibility of waiver of the plaintiff's right only as to one
or some of them, without including all of them, and so, as a rule, withdrawal must be deemed to be a
confession of weakness as to all. This is not only elementary justice; it also precludes the concomitant
hazard that plaintiff might resort to the kind of procedural strategem practiced by private respondent
herein that resulted in totally depriving petitioners of every opportunity to defend themselves against
her claims which, after all, as will be seen later in this opinion, the record does not show to be
invulnerable, both in their factual and legal aspects, taking into consideration the tenor of the pleadings
and the probative value of the competent evidence which were before the trial court when it rendered
its assailed decision where all the defendants are indispensable parties, for which reason the absence of
any of them in the case would result in the court losing its competency to act validly, any compromise
that the plaintiff might wish to make with any of them must, as a matter of correct procedure, have to
await until after the rendition of the judgment, at which stage the plaintiff may then treat the matter of
its execution and the satisfaction of his claim as variably as he might please. Accordingly, in the case now
before Us together with the dismissal of the complaint against the non-defaulted defendants, the court
should have ordered also the dismissal thereof as to petitioners.
Indeed, there is more reason to apply here the principle of unity and indivisibility of the action just
discussed because all the defendants here have already joined genuine issues with plaintiff. Their default
was only at the pre-trial. And as to such absence of petitioners at the pre-trial, the same could be
attributed to the fact that they might not have considered it necessary anymore to be present, since
their respective children Lim and Leonardo, with whom they have common defenses, could take care of
their defenses as well. Anything that might have had to be done by them at such pre-trial could have
been done for them by their children, at least initially, specially because in the light of the pleadings
before the court, the prospects of a compromise must have appeared to be rather remote. Such attitude
of petitioners is neither uncommon nor totally unjustified. Under the circumstances, to declare them
immediately and irrevocably in default was not an absolute necessity. Practical considerations and
reasons of equity should have moved respondent court to be more understanding in dealing with the
situation. After all, declaring them in default as respondent court did not impair their right to a common
fate with their children.
–3–
Another issue to be resolved in this case is the question of whether or not herein petitioners were
entitled to notice of plaintiff's motion to drop their co-defendants Lim and Leonardo, considering that
petitioners had been previously declared in default. In this connection, the decisive consideration is that
according to the applicable rule, Section 9, Rule 13, already quoted above, (1) even after a defendant has
been declared in default, provided he "files a motion to set aside the order of default, — he shall be
entitled to notice of all further proceedings regardless of whether the order of default is set aside or not"
and (2) a party in default who has not filed such a motion to set aside must still be served with all
"substantially amended or supplemented pleadings." In the instant case, it cannot be denied that
petitioners had all filed their motion for reconsideration of the order declaring them in default.
Respondents' own answer to the petition therein makes reference to the order of April 3, 1973, Annex 8
of said answer, which denied said motion for reconsideration. On page 3 of petitioners' memorandum
herein this motion is referred to as "a motion to set aside the order of default." But as We have not been
favored by the parties with a copy of the said motion, We do not even know the excuse given for
petitioners' failure to appear at the pre-trial, and We cannot, therefore, determine whether or not the
motion complied with the requirements of Section 3 of Rule 18 which We have held to be controlling in
cases of default for failure to answer on time. (The Philippine-British Co. Inc. etc. et al. vs. The Hon.
Walfrido de los Angeles etc. et al., 63 SCRA 50.)
We do not, however, have here, as earlier noted, a case of default for failure to answer but one for
failure to appear at the pre-trial. We reiterate, in the situation now before Us, issues have already been
joined. In fact, evidence had been partially offered already at the pre-trial and more of it at the actual
trial which had already begun with the first witness of the plaintiff undergoing re-cross-examination.
With these facts in mind and considering that issues had already been joined even as regards the
defaulted defendants, it would be requiring the obvious to pretend that there was still need for an oath
or a verification as to the merits of the defense of the defaulted defendants in their motion to reconsider
their default. Inasmuch as none of the parties had asked for a summary judgment there can be no
question that the issues joined were genuine, and consequently, the reason for requiring such oath or
verification no longer holds. Besides, it may also be reiterated that being the parents of the non-
defaulted defendants, petitioners must have assumed that their presence was superfluous, particularly
because the cause of action against them as well as their own defenses are common. Under these
circumstances, the form of the motion by which the default was sought to be lifted is secondary and the
requirements of Section 3 of Rule 18 need not be strictly complied with, unlike in cases of default for
failure to answer. We can thus hold as We do hold for the purposes of the revival of their right to notice
under Section 9 of Rule 13, that petitioner's motion for reconsideration was in substance legally
adequate regardless of whether or not it was under oath.
In any event, the dropping of the defendants Lim and Leonardo from plaintiff's amended complaint was
virtually a second amendment of plaintiffs complaint. And there can be no doubt that such amendment
was substantial, for with the elimination thereby of two defendants allegedly solidarily liable with their
co-defendants, herein petitioners, it had the effect of increasing proportionally what each of the
remaining defendants, the said petitioners, would have to answer for jointly and severally. Accordingly,
notice to petitioners of the plaintiff's motion of October 18, 1974 was legally indispensable under the
rule above-quoted. Consequently, respondent court had no authority to act on the motion, to dismiss,
pursuant to Section 6 of Rule 15, for according to Senator Francisco, "(t) he Rules of Court clearly provide
that no motion shall be acted upon by the Court without the proof of service of notice thereof, together
with a copy of the motion and other papers accompanying it, to all parties concerned at least three days
before the hearing thereof, stating the time and place for the hearing of the motion. (Rule 26, section 4,
5 and 6, Rules of Court (now Sec. 15, new Rules). When the motion does not comply with this
requirement, it is not a motion. It presents no question which the court could decide. And the Court
acquires no jurisdiction to consider it. (Roman Catholic Bishop of Lipa vs. Municipality of Unisan 44 Phil.,
866; Manakil vs. Revilla, 42 Phil., 81.) (Laserna vs. Javier, et al., CA-G.R. No. 7885, April 22, 1955; 21 L.J.
36, citing Roman Catholic Bishop of Lipa vs. Municipality of Unisan 44 Phil., 866; Manakil vs. Revilla, 42
Phil., 81.) (Francisco. The Revised Rules of Court in the Philippines, pp. 861-862.) Thus, We see again,
from a different angle, why respondent court's order of dismissal of October 21, 1974 is fatally
ineffective.
–4–
The foregoing considerations notwithstanding, it is respondents' position that certiorari is not the proper
remedy of petitioners. It is contended that inasmuch as said petitioners have in fact made their appeal
already by filing the required notice of appeal and appeal bond and a motion for extension to file their
record on appeal, which motion was granted by respondent court, their only recourse is to prosecute
that appeal. Additionally, it is also maintained that since petitioners have expressly withdrawn their
motion to quash of January 4, 1975 impugning the order of October 28, 1974, they have lost their right
to assail by certiorari the actuations of respondent court now being questioned, respondent court not
having been given the opportunity to correct any possible error it might have committed.
We do not agree. As already shown in the foregoing discussion, the proceedings in the court below have
gone so far out of hand that prompt action is needed to restore order in the entangled situation created
by the series of plainly illegal orders it had issued. The essential purpose of certiorari is to keep the
proceedings in lower judicial courts and tribunals within legal bounds, so that due process and the rule of
law may prevail at all times and arbitrariness, whimsicality and unfairness which justice abhors may
immediately be stamped out before graver injury, juridical and otherwise, ensues. While generally these
objectives may well be attained in an ordinary appeal, it is undoubtedly the better rule to allow the
special remedy of certiorari at the option of the party adversely affected, when the irregularity
committed by the trial court is so grave and so far reaching in its consequences that the long and
cumbersome procedure of appeal will only further aggravate the situation of the aggrieved party
because other untoward actuations are likely to materialize as natural consequences of those already
perpetrated. If the law were otherwise, certiorari would have no reason at all for being.
No elaborate discussion is needed to show the urgent need for corrective measures in the case at bar.
Verily, this is one case that calls for the exercise of the Supreme Court's inherent power of supervision
over all kinds of judicial actions of lower courts. Private respondent's procedural technique designed to
disable petitioners to defend themselves against her claim which appears on the face of the record itself
to be at least highly controversial seems to have so fascinated respondent court that none would be
surprised should her pending motion for immediate execution of the impugned judgment receive similar
ready sanction as her previous motions which turned the proceedings into a one-sided affair. The stakes
here are high. Not only is the subject matter considerably substantial; there is the more important aspect
that not only the spirit and intent of the rules but even the basic rudiments of fair play have been
disregarded. For the Court to leave unrestrained the obvious tendency of the proceedings below would
be nothing short of wittingly condoning inequity and injustice resulting from erroneous construction and
unwarranted application of procedural rules.
–5–
The sum and total of all the foregoing disquisitions is that the decision here in question is 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 vs. Polistico, supra. This is not to mention anymore the irregular delegation to the clerk of
court of the function of receiving plaintiff's evidence. And as regards the ex-parte reception of plaintiff's
evidence and subsequent rendition of the judgment by default based thereon, We have seen that it was
violative of the right of the petitioners, under the applicable rules and principles on default, to a
common and single fate with their non-defaulted co-defendants. And We are not yet referring, as We
shall do this anon to the numerous reversible errors in the decision itself.
It is to be noted, however, that the above-indicated two fundamental flaws in respondent court's
actuations do not call for a common corrective remedy. We cannot simply rule that all the impugned
proceedings are null and void and should be set aside, without being faced with the insurmountable
obstacle that by so doing We would be reviewing the case as against the two non-defaulted defendants
who are not before Us not being parties hereto. Upon the other hand, for Us to hold that the order of
dismissal should be allowed to stand, as contended by respondents themselves who insist that the same
is already final, not only because the period for its finality has long passed but also because allegedly,
albeit not very accurately, said 'non-defaulted defendants unsuccessfully tried to have it set aside by the
Court of Appeals whose decision on their petition is also already final, We would have to disregard
whatever evidence had been presented by the plaintiff against them and, of course, the findings of
respondent court based thereon which, as the assailed decision shows, are adverse to them. In other
words, whichever of the two apparent remedies the Court chooses, it would necessarily entail some kind
of possible juridical imperfection. Speaking of their respective practical or pragmatic effects, to annul the
dismissal would inevitably prejudice the rights of the non-defaulted defendants whom We have not
heard and who even respondents would not wish to have anything anymore to do with the case. On the
other hand, to include petitioners in the dismissal would naturally set at naught every effort private
respondent has made to establish or prove her case thru means sanctioned by respondent court. In
short, We are confronted with a legal para-dilemma. But one thing is certain — this difficult situations
has been brought about by none other than private respondent who has quite cynically resorted to
procedural maneuvers without realizing that the technicalities of the adjective law, even when
apparently accurate from the literal point of view, cannot prevail over the imperatives of the substantive
law and of equity that always underlie them and which have to be inevitably considered in the
construction of the pertinent procedural rules.
All things considered, after careful and mature deliberation, the Court has arrived at the conclusion that
as between the two possible alternatives just stated, it would only be fair, equitable and proper to
uphold the position of petitioners. In other words, We rule that the order of dismissal of October 21,
1974 is in law a dismissal of the whole case of the plaintiff, including as to petitioners herein.
Consequently, all proceedings held by respondent court subsequent thereto including and principally its
decision of December 20, 1974 are illegal and should be set aside.
This conclusion is fully justified by the following considerations of equity:
1. It is very clear to Us that the procedural maneuver resorted to by private respondent in securing the
decision in her favor was ill-conceived. It was characterized by that which every principle of law and
equity disdains — taking unfair advantage of the rules of procedure in order to unduly deprive the other
party of full opportunity to defend his cause. The idea of "dropping" the non-defaulted defendants with
the end in view of completely incapacitating their co-defendants from making any defense, without
considering that all of them are indispensable parties to a common cause of action to which they have
countered with a common defense readily connotes an intent to secure a one-sided decision, even
improperly. And when, in this connection, the obvious weakness of plaintiff's evidence is taken into
account, one easily understands why such tactics had to be availed of. We cannot directly or indirectly
give Our assent to the commission of unfairness and inequity in the application of the rules of procedure,
particularly when the propriety of reliance thereon is not beyond controversy.
2. The theories of remedial law pursued by private respondents, although approved by His Honor, run
counter to such basic principles in the rules on default and such elementary rules on dismissal of actions
and notice of motions that no trial court should be unaware of or should be mistaken in applying. We are
at a loss as to why His Honor failed to see through counsel's inequitous strategy, when the provisions (1)
on the three-day rule on notice of motions, Section 4 of Rule 15, (2) against dismissal of actions on
motion of plaintiff when there is a compulsory counterclaim, Section 2, Rule 17, (3) against permitting
the absence of indispensable parties, Section 7, Rule 3, (4) on service of papers upon defendants in
default when there are substantial amendments to pleadings, Section 9, Rule 13, and (5) on the unity
and integrity of the fate of defendants in default with those not in default where the cause of action
against them and their own defenses are common, Section 4, Rule 18, are so plain and the jurisprudence
declaratory of their intent and proper construction are so readily comprehensible that any error as to
their application would be unusual in any competent trial court.
3. After all, all the malactuations of respondent court are traceable to the initiative of private respondent
and/or her counsel. She cannot, therefore, complain that she is being made to unjustifiably suffer the
consequences of what We have found to be erroneous orders of respondent court. It is only fair that she
should not be allowed to benefit from her own frustrated objective of securing a one-sided decision.
4. More importantly, We do not hesitate to hold that on the basis of its own recitals, the decision in
question cannot stand close scrutiny. What is more, the very considerations contained therein reveal
convincingly the inherent weakness of the cause of the plaintiff. To be sure, We have been giving serious
thought to the idea of merely returning this case for a resumption of trial by setting aside the order of
dismissal of October 21, 1974, with all its attendant difficulties on account of its adverse effects on
parties who have not been heard, but upon closer study of the pleadings and the decision and other
circumstances extant in the record before Us, We are now persuaded that such a course of action would
only lead to more legal complications incident to attempts on the part of the parties concerned to
desperately squeeze themselves out of a bad situation. Anyway, We feel confident that by and large,
there is enough basis here and now for Us to rule out the claim of the plaintiff.
Even a mere superficial reading of the decision would immediately reveal that it is littered on its face
with deficiencies and imperfections which would have had no reason for being were there less haste and
more circumspection in rendering the same. Recklessness in jumping to unwarranted conclusions, both
factual and legal, is at once evident in its findings relative precisely to the main bases themselves of the
reliefs granted. It is apparent therein that no effort has been made to avoid glaring inconsistencies.
Where references are made to codal provisions and jurisprudence, inaccuracy and inapplicability are at
once manifest. It hardly commends itself as a deliberate and consciencious adjudication of a litigation
which, considering the substantial value of the subject matter it involves and the unprecedented
procedure that was followed by respondent's counsel, calls for greater attention and skill than the
general run of cases would.
Inter alia, the following features of the decision make it highly improbable that if We took another
course of action, private respondent would still be able to make out any case against petitioners, not to
speak of their co-defendants who have already been exonerated by respondent herself thru her motion
to dismiss:
1. According to His Honor's own statement of plaintiff's case, "she is the widow of the late Tee Hoon Po
Chuan (Po Chuan, for short) who was then one of the partners in the commercial partnership, Glory
Commercial Co. with defendants Antonio Lim Tanhu (Lim Tanhu, for short) and Alfonso Leonardo Ng Sua
(Ng Sua, for short) as co-partners; that after the death of her husband on March 11, 1966 she is entitled
to share not only in the capital and profits of the partnership but also in the other assets, both real and
personal, acquired by the partnership with funds of the latter during its lifetime."
Relatedly, in the latter part of the decision, the findings are to the following effect: .
That the herein plaintiff Tan Put and her late husband Po Chuan married at the Philippine Independent
Church of Cebu City on December, 20, 1949; that Po Chuan died on March 11, 1966; that the plaintiff
and the late Po Chuan were childless but the former has a foster son Antonio Nuñez whom she has
reared since his birth with whom she lives up to the present; that prior to the marriage of the plaintiff to
Po Chuan the latter was already managing the partnership Glory Commercial Co. then engaged in a little
business in hardware at Manalili St., Cebu City; that prior to and just after the marriage of the plaintiff to
Po Chuan she was engaged in the drugstore business; that not long after her marriage, upon the
suggestion of Po Chuan the plaintiff sold her drugstore for P125,000.00 which amount she gave to her
husband in the presence of defendant Lim Tanhu and was invested in the partnership Glory Commercial
Co. sometime in 1950; that after the investment of the above-stated amount in the partnership its
business flourished and it embarked in the import business and also engaged in the wholesale and retail
trade of cement and GI sheets and under huge profits;
xxx xxx xxx
That the late Po Chuan was the one who actively managed the business of the partnership Glory
Commercial Co. he was the one who made the final decisions and approved the appointments of new
personnel who were taken in by the partnership; that the late Po Chuan and defendants Lim Tanhu and
Ng Sua are brothers, the latter two (2) being the elder brothers of the former; that defendants Lim
Tanhu and Ng Sua are both naturalized Filipino citizens whereas the late Po Chuan until the time of his
death was a Chinese citizen; that the three (3) brothers were partners in the Glory Commercial Co. but
Po Chuan was practically the owner of the partnership having the controlling interest; that defendants
Lim Tanhu and Ng Sua were partners in name but they were mere employees of Po Chuan .... (Pp. 89-91,
Record.)
How did His Honor arrive at these conclusions? To start with, it is not clear in the decision whether or not
in making its findings of fact the court took into account the allegations in the pleadings of the parties
and whatever might have transpired at the pre-trial. All that We can gather in this respect is that
references are made therein to pre-trial exhibits and to Annex A of the answer of the defendants to
plaintiff's amended complaint. Indeed, it was incumbent upon the court to consider not only the
evidence formally offered at the trial but also the admissions, expressed or implied, in the pleadings, as
well as whatever might have been placed before it or brought to its attention during the pre-trial. In this
connection, it is to be regretted that none of the parties has thought it proper to give Us an idea of what
took place at the pre-trial of the present case and what are contained in the pre-trial order, if any was
issued pursuant to Section 4 of Rule 20.
The fundamental purpose of pre-trial, aside from affording the parties every opportunity to compromise
or settle their differences, is for the court to be apprised of the unsettled issues between the parties and
of their respective evidence relative thereto, to the end that it may take corresponding measures that
would abbreviate the trial as much as possible and the judge may be able to ascertain the facts with the
least observance of technical rules. In other words whatever is said or done by the parties or their
counsel at the pre- trial serves to put the judge on notice of their respective basic positions, in order that
in appropriate cases he may, if necessary in the interest of justice and a more accurate determination of
the facts, make inquiries about or require clarifications of matters taken up at the pre-trial, before finally
resolving any issue of fact or of law. In brief, the pre-trial constitutes part and parcel of the proceedings,
and hence, matters dealt with therein may not be disregarded in the process of decision making.
Otherwise, the real essence of compulsory pre-trial would be insignificant and worthless.
Now, applying these postulates to the findings of respondent court just quoted, it will be observed that
the court's conclusion about the supposed marriage of plaintiff to the deceased Tee Hoon Lim Po Chuan
is contrary to the weight of the evidence brought before it during the trial and the pre-trial.
Under Article 55 of the Civil Code, the declaration of the contracting parties that they take each other as
husband and wife "shall be set forth in an instrument" signed by the parties as well as by their witnesses
and the person solemnizing the marriage. Accordingly, the primary evidence of a marriage must be an
authentic copy of the marriage contract. While a marriage may also be proved by other competent
evidence, the absence of the contract must first be satisfactorily explained. Surely, the certification of
the person who allegedly solemnized a marriage is not admissible evidence of such marriage unless
proof of loss of the contract or of any other satisfactory reason for its non-production is first presented
to the court. In the case at bar, the purported certification issued by a Mons. Jose M. Recoleto, Bishop,
Philippine Independent Church, Cebu City, is not, therefore, competent evidence, there being absolutely
no showing as to unavailability of the marriage contract and, indeed, as to the authenticity of the
signature of said certifier, the jurat allegedly signed by a second assistant provincial fiscal not being
authorized by law, since it is not part of the functions of his office. Besides, inasmuch as the bishop did
not testify, the same is hearsay.
As regards the testimony of plaintiff herself on the same point and that of her witness Antonio Nuñez,
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 Nuñez,
thereby making him the real party in interest here and, therefore, naturally as biased as herself. Besides,
in the portion of the testimony of Nuñez copied in Annex C of petitioner's memorandum, it appears
admitted that he was born only on March 25, 1942, which means that he was less than eight years old at
the supposed time of the alleged marriage. If for this reason alone, it is extremely doubtful if he could
have been sufficiently aware of such event as to be competent to testify about it.
Incidentally, another Annex C of the same memorandum purports to be the certificate of birth of one
Antonio T. Uy supposed to have been born on March 23, 1937 at Centro Misamis, Misamis Occidental,
the son of one Uy Bien, father, and Tan Put, mother. Significantly, respondents have not made any
adverse comment on this document. It is more likely, therefore, that the witness is really the son of
plaintiff by her husband Uy Kim Beng. But she testified she was childless. So which is which? In any
event, if on the strength of this document, Nuñez is actually the legitimate son of Tan Put and not her
adopted son, he would have been but 13 years old in 1949, the year of her alleged marriage to Po Chuan,
and even then, considering such age, his testimony in regard thereto would still be suspect.
Now, as against such flimsy evidence of plaintiff, the court had before it, two documents of great weight
belying the pretended marriage. We refer to (1) Exhibit LL, the income tax return of the deceased Tee
Hoon Lim Po Chuan indicating that the name of his wife was Ang Sick Tin and (2) the quitclaim, Annex A
of the answer, wherein plaintiff Tan Put stated that she had been living with the deceased without
benefit of marriage and that she was his "common-law wife". Surely, these two documents are far more
reliable than all the evidence of the plaintiff put together.
Of course, Exhibit LL is what might be termed as pre-trial evidence. But it is evidence offered to the judge
himself, not to the clerk of court, and should have at least moved him to ask plaintiff to explain if not
rebut it before jumping to the conclusion regarding her alleged marriage to the deceased, Po Chuan. And
in regard to the quitclaim containing the admission of a common-law relationship only, it is to be
observed that His Honor found that "defendants Lim Tanhu and Ng Sua had the plaintiff execute a
quitclaim on November 29, 1967 (Annex "A", Answer) where they gave plaintiff the amount of P25,000
as her share in the capital and profits of the business of Glory Commercial Co. which was engaged in the
hardware business", without making mention of any evidence of fraud and misrepresentation in its
execution, thereby indicating either that no evidence to prove that allegation of the plaintiff had been
presented by her or that whatever evidence was actually offered did not produce persuasion upon the
court. Stated differently, since the existence of the quitclaim has been duly established without any
circumstance to detract from its legal import, the court should have held that plaintiff was bound by her
admission therein that she was the common-law wife only of Po Chuan and what is more, that she had
already renounced for valuable consideration whatever claim she might have relative to the partnership
Glory Commercial Co.
And when it is borne in mind that in addition to all these considerations, there are mentioned and
discussed in the memorandum of petitioners (1) the certification of the Local Civil Registrar of Cebu City
and (2) a similar certification of the Apostolic Prefect of the Philippine Independent Church, Parish of Sto.
Niño, Cebu City, that their respective official records corresponding to December 1949 to December
1950 do not show any marriage between Tee Hoon Lim Po Chuan and Tan Put, neither of which
certifications have been impugned by respondent until now, it stands to reason that plaintiff's claim of
marriage is really unfounded. Withal, there is still another document, also mentioned and discussed in
the same memorandum and unimpugned by respondents, a written agreement executed in Chinese, but
purportedly translated into English by the Chinese Consul of Cebu, between Tan Put and Tee Hoon Lim
Po Chuan to the following effect:
CONSULATE OF THE REPUBLIC OF CHINA Cebu City, Philippines
TRANSLATION
This is to certify that 1, Miss Tan Ki Eng Alias Tan Put, have lived with Mr. Lim Po Chuan alias TeeHoon
since 1949 but it recently occurs that we are incompatible with each other and are not in the position to
keep living together permanently. With the mutual concurrence, we decided to terminate the existing
relationship of common law-marriage and promised not to interfere each other's affairs from now on.
The Forty Thousand Pesos (P40,000.00) has been given to me by Mr. Lim Po Chuan for my subsistence.
Witnesses:
Mr. Lim Beng Guan Mr. Huang Sing Se
Signed on the 10 day of the 7th month of the 54th year of the Republic of China (corresponding to the
year 1965).
(SGD) TAN KI ENG
Verified from the records. JORGE TABAR (Pp. 283-284, Record.)
Indeed, not only does this document prove that plaintiff's relation to the deceased was that of a
common-law wife but that they had settled their property interests with the payment to her of P40,000.
In the light of all these circumstances, We find no alternative but to hold that plaintiff Tan Put's
allegation that she is the widow of Tee Hoon Lim Po Chuan has not been satisfactorily established and
that, on the contrary, the evidence on record convincingly shows that her relation with said deceased
was that of a common-law wife and furthermore, that all her claims against the company and its
surviving partners as well as those against the estate of the deceased have already been settled and
paid. We take judicial notice of the fact that the respective counsel who assisted the parties in the
quitclaim, Attys. H. Hermosisima and Natalio Castillo, are members in good standing of the Philippine
Bar, with the particularity that the latter has been a member of the Cabinet and of the House of
Representatives of the Philippines, hence, absent any credible proof that they had allowed themselves to
be parties to a fraudulent document His Honor did right in recognizing its existence, albeit erring in not
giving due legal significance to its contents.
2. If, as We have seen, plaintiff's evidence of her alleged status as legitimate wife of Po Chuan is not only
unconvincing but has been actually overcome by the more competent and weighty evidence in favor of
the defendants, her attempt to substantiate her main cause of action that defendants Lim Tanhu and Ng
Sua have defrauded the partnership Glory Commercial Co. and converted its properties to themselves is
even more dismal. From the very evidence summarized by His Honor in the decision in question, it is
clear that not an iota of reliable proof exists of such alleged misdeeds.
Of course, the existence of the partnership has not been denied, it is actually admitted impliedly in
defendants' affirmative defense that Po Chuan's share had already been duly settled with and paid to
both the plaintiff and his legitimate family. But the evidence as to the actual participation of the
defendants Lim Tanhu and Ng Sua in the operation of the business that could have enabled them to
make the extractions of funds alleged by plaintiff is at best confusing and at certain points manifestly
inconsistent.
In her amended complaint, plaintiff repeatedly alleged that as widow of Po Chuan she is entitled to
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 Honor's statement of the case as well as his findings
and judgment are all to that same effect. But what did she actually try to prove at the ex- parte hearing?
According to the decision, plaintiff had shown that she had money of her own when she "married" Po
Chuan and "that prior to and just after the marriage of the plaintiff to Po Chuan, she was engaged in the
drugstore business; that not long after her marriage, upon the suggestion of Po Chuan, the plaintiff sold
her drugstore for P125,000 which amount she gave to her husband in the presence of Tanhu and was
invested in the partnership Glory Commercial Co. sometime in 1950; that after the investment of the
above-stated amount in the partnership, its business flourished and it embarked in the import business
and also engaged in the wholesale and retail trade of cement and GI sheets and under (sic) huge profits."
(pp. 25-26, Annex L, petition.)
To begin with, this theory of her having contributed of P125,000 to the capital of the partnership by
reason of which the business flourished and amassed all the millions referred to in the decision has not
been alleged in the complaint, and inasmuch as what was being rendered was a judgment by default,
such theory should not have been allowed to be the subject of any evidence. But inasmuch as it was the
clerk of court who received the evidence, it is understandable that he failed to observe the rule. Then, on
the other hand, if it was her capital that made the partnership flourish, why would she claim to be
entitled to only to 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 comfounded in the judgment which allows
these "partners in name" and "partners-employees" or employees who had no means of livelihood and
who must not have contributed any capital in the business, "as Po Chuan was practically the owner of
the partnership having the controlling interest", 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 Nuñez 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 Nuñez, respondent court found very explicitly that, and We reiterate:
xxx xxx xxx
That the late Po Chuan was the one who actively managed the business of the partnership Glory
Commercial Co. he was the one who made the final decisions and approved the appointments of new
Personnel who were taken in by the partnership; that the late Po Chuan and defendants Lim Tanhu and
Ng Sua are brothers, the latter to (2) being the elder brothers of the former; that defendants Lim Tanhu
and Ng Sua are both naturalized Filipino citizens whereas the late Po Chuan until the time of his death
was a Chinese citizen; that the three (3) brothers were partners in the Glory Commercial Co. but Po
Chuan was practically the owner of the partnership having the controlling interest; that defendants Lim
Tanhu and Ng Sua were partners in name but they were mere employees of Po Chuan; .... (Pp. 90-91,
Record.)
If Po Chuan was in control of the affairs and the running of the partnership, how could the defendants
have defrauded him of such huge amounts as plaintiff had made his Honor believe? Upon the other
hand, since Po Chuan was in control of the affairs of the partnership, the more logical inference is that if
defendants had obtained any portion of the funds of the partnership for themselves, it must have been
with the knowledge and consent of Po Chuan, for which reason no accounting could be demanded from
them therefor, considering that Article 1807 of the Civil Code refers only to what is taken by a partner
without the consent of the other partner or partners. Incidentally again, this theory about Po Chuan
having been actively managing the partnership up to his death is a substantial deviation from the
allegation in the amended complaint to the effect that "defendants Antonio Lim Tanhu, Alfonso
Leonardo Ng Sua, Lim Teck Chuan and Eng Chong Leonardo, through fraud and machination, took actual
and active management of the partnership and although Tee Hoon Lim Po Chuan was the manager of
Glory Commercial Co., defendants managed to use the funds of the partnership to purchase lands and
buildings etc. (Par. 4, p. 2 of amended complaint, Annex B of petition) and should not have been
permitted to be proven by the hearing officer, who naturally did not know any better.
Moreover, it is very significant that according to the very tax declarations and land titles listed in the
decision, most if not all of the properties supposed to have been acquired by the defendants Lim Tanhu
and Ng Sua with funds of the partnership appear to have been transferred to their names only in 1969 or
later, that is, long after the partnership had been automatically dissolved as a result of the death of Po
Chuan. Accordingly, defendants have no obligation to account to anyone for such acquisitions in the
absence of clear proof that they had violated the trust of Po Chuan during the existence of the
partnership. (See Hanlon vs. Hansserman and. Beam, 40 Phil. 796.)
There are other particulars which should have caused His Honor to readily disbelieve plaintiffs'
pretensions. Nuñez testified that "for about 18 years he was in charge of the GI sheets and sometimes
attended to the imported items of the business of Glory Commercial Co." Counting 18 years back from
1965 or 1966 would take Us to 1947 or 1948. Since according to Exhibit LL, the baptismal certificate
produced by the same witness as his birth certificate, shows he was born in March, 1942, how could he
have started managing Glory Commercial Co. in 1949 when he must have been barely six or seven years
old? It should not have escaped His Honor's attention that the photographs showing the premises of
Philippine Metal Industries after its organization "a year or two after the establishment of Cebu Can
Factory in 1957 or 1958" must have been taken after 1959. How could Nuñez have been only 13 years
old then as claimed by him to have been his age in those photographs when according to his "birth
certificate", he was born in 1942? His Honor should not have overlooked that according to the same
witness, defendant Ng Sua was living in Bantayan until he was directed to return to Cebu after the fishing
business thereat floundered, whereas all that the witness knew about defendant Lim Teck Chuan's
arrival from Hongkong and the expenditure of partnership money for him were only told to him allegedly
by Po Chuan, which testimonies are veritably exculpatory as to Ng Sua and hearsay as to Lim Teck Chuan.
Neither should His Honor have failed to note that according to plaintiff herself, "Lim Tanhu was
employed by her husband although he did not go there always being a mere employee of Glory
Commercial Co." (p. 22, Annex the decision.)
The decision is rather emphatic in that Lim Tanhu and Ng Sua had no known income except their salaries.
Actually, it is not stated, however, from what evidence such conclusion was derived in so far as Ng Sua is
concerned. On the other hand, with respect to Lim Tanhu, the decision itself states that according to
Exhibit NN-Pre trial, in the supposed income tax return of Lim Tanhu for 1964, he had an income of
P4,800 as salary from Philippine Metal Industries alone and had a total assess sable net income of
P23,920.77 that year for which he paid a tax of P4,656.00. (p. 14. Annex L, id.) And per Exhibit GG-
Pretrial in the year, he had a net income of P32,000 for which be paid a tax of P3,512.40. (id.) As early as
1962, "his fishing business in Madridejos Cebu was making money, and he reported "a net gain from
operation (in) the amount of P865.64" (id., per Exhibit VV-Pre-trial.) From what then did his Honor gather
the conclusion that all the properties registered in his name have come from funds malversed from the
partnership?
It is rather unusual that His Honor delved into financial statements and books of Glory Commercial Co.
without the aid of any accountant or without the same being explained by any witness who had
prepared them or who has knowledge of the entries therein. This must be the reason why there are
apparent inconsistencies and inaccuracies in the conclusions His Honor made out of them. In Exhibit SS-
Pre-trial, the reported total assets of the company amounted to P2,328,460.27 as of December, 1965,
and yet, Exhibit TT-Pre-trial, according to His Honor, showed that the total value of goods available as of
the same date was P11,166,327.62. On the other hand, per Exhibit XX-Pre-trial, the supposed balance
sheet of the company for 1966, "the value of inventoried merchandise, both local and imported", as
found by His Honor, was P584,034.38. Again, as of December 31, 1966, the value of the company's goods
available for sale was P5,524,050.87, per Exhibit YY and YY-Pre-trial. Then, per Exhibit II-3-Pre-trial, the
supposed Book of Account, whatever that is, of the company showed its "cash analysis" was
P12,223,182.55. We do not hesitate to make the observation that His Honor, unless he is a certified
public accountant, was hardly qualified to read such exhibits and draw any definite conclusions
therefrom, without risk of erring and committing an injustice. In any event, there is no comprehensible
explanation in the decision of the conclusion of His Honor that there were P12,223,182.55 cash money
defendants have to account for, particularly when it can be very clearly seen in Exhibits 11-4, 11-4- A, 11-
5 and 11-6-Pre-trial, Glory Commercial Co. had accounts payable as of December 31, 1965 in the amount
of P4,801,321.17. (p. 15, id.) Under the circumstances, We are not prepared to permit anyone to
predicate any claim or right from respondent court's unaided exercise of accounting knowledge.
Additionally, We note that the decision has not made any finding regarding the allegation in the
amended complaint that a corporation denominated Glory Commercial Co., Inc. was organized after the
death of Po Chuan with capital from the funds of the partnership. We note also that there is absolutely
no finding made as to how the defendants Dy Ochay and Co Oyo could in any way be accountable to
plaintiff, just because they happen to be the wives of Lim Tanhu and Ng Sua, respectively. We further
note that while His Honor has ordered defendants to deliver or pay jointly and severally to the plaintiff
P4,074,394.18 or 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 ¹/3share of
the properties enumerated in the dispositive portion of the decision, which seemingly are the very
properties allegedly purchased from the funds of the partnership which would naturally include the
P12,223,182.55 defendants have to account for. Besides, assuming there has not yet been any
liquidation of the partnership, contrary to the allegation of the defendants, then Glory Commercial Co.
would have the status of a partnership in liquidation and the only right plaintiff could have would be to
what might result after such liquidation to belong to the deceased partner, and before this is finished, it
is impossible to determine, what rights or interests, if any, the deceased had (Bearneza vs. Dequilla 43
Phil. 237). In other words, no specific amounts or properties may be adjudicated to the heir or legal
representative of the deceased partner without the liquidation being first terminated.
Indeed, only time and the fear that this decision would be much more extended than it is already
prevent us from further pointing out the inexplicable deficiencies and imperfections of the decision in
question. After all, what have been discussed should be more than sufficient to support Our conclusion
that not only must said decision be set aside but also that the action of the plaintiff must be totally
dismissed, and, were it not seemingly futile and productive of other legal complications, that plaintiff is
liable on defendants' counterclaims. Resolution of the other issues raised by the parties albeit important
and perhaps pivotal has likewise become superfluous.
IN VIEW OF ALL THE FOREGOING, the petition is granted. All proceedings held in respondent court in its
Civil Case No. 12328 subsequent to the order of dismissal of October 21, 1974 are hereby annulled and
set aside, particularly the ex-parte proceedings against petitioners and the decision on December 20,
1974. Respondent court is hereby ordered to enter an order extending the effects of its order of
dismissal of the action dated October 21, 1974 to herein petitioners Antonio Lim Tanhu, Dy Ochay,
Alfonso Leonardo Ng Sua and Co Oyo. And respondent court is hereby permanently enjoined from taking
any further action in said civil case gave and except as herein indicated. Costs against private
respondent.
G.R. No. 70926 January 31, 1989
DAN FUE LEUNG, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU, respondents.
John L. Uy for petitioner.
Edgardo F. Sundiam for private respondent.
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 the 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 respondents') 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 latter's 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 petitioner's 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 Corporation's 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 attorney's 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 attorney's fees
and costs of suit. (p. 150, Rollo)
The petitioner appealed the trial court's amended decision to the then Intermediate Appellate Court.
The questioned decision was further modified by the appellate court. The dispositive portion of the
appellate court's 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 court's decision.
The dispositive portion of the resolution reads:
WHEREFORE, the dispositive portion of the amended judgment of the court a quo reading as follows:
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 attorney's 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:
xxx xxx xxx
2. That on or about the latter (sic) of September, 1955, defendant sought the financial assistance of
plaintiff in operating the defendant's 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
court's 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 such financial assistance, plaintiff (private respondent) would be 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 petitioner's 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 July 13, 1978, no written
demands were ever made by private respondent.
The petitioner's 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 action
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.'
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
respondent's 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 court's 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, you stated that among your duties was that you were in charge of the custody of the
cashier's 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.
xxx xxx xxx
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)
xxx xxx xxx
COURT:
Any cross?
ATTY. UY (counsel for defendant):
No cross-examination, Your Honor. (T.S.N. p. 65, November 15, 1978). (Rollo, pp. 127-128)
The statements of the cashier were not rebutted. Not only did the petitioner's 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 petitioner's 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 defendant's 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 defendant's 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 defendant's 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 petitioner's 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 respondent's 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 petitioner's 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:
xxx xxx xxx
(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;
xxx xxx xxx
(6) Other circumstances render a dissolution equitable.
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.
G.R. No. 126334 November 23, 2001
EMILIO EMNACE, petitioner,
vs.
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.
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 Divinagracia's withdrawal from the partnership.1 Among the assets
to be distributed were five (5) fishing boats, six (6) vehicles, two (2) parcels of land located at Sto. Niño
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 Tabanao's untimely demise in 1994,
petitioner failed to submit to Tabanao's heirs any statement of assets and liabilities of the partnership,
and to render an accounting of the partnership's finances. Petitioner also reneged on his promise to turn
over to Tabanao's heirs the deceased's 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.2
Consequently, Tabanao' s heirs, respondents herein, filed against petitioner an action for accounting,
payment of shares, division of assets and damages.3 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. Attorney's 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.4
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.5 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
petitioner's 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 aright 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.6
The following day, respondents filed an amended complaint,7 incorporating the additional prayer that
petitioner be ordered to "sell all (the partnership's) 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,8arguing 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,9 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,10 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,11 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,12 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 petitioner's 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 court's 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 decedent's 1/3 share in the partnership' s assets. While they ask for an accounting of
the partnership' s 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 partnership' s 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.1âwphi1.nêt
We do not agree. The trial court does not have to employ guesswork in ascertaining the estimated value
of the partnership's 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.13 While it is true that the exact value of the partnership's
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.14 It is
thus imperative for respondents to pay the corresponding docket fees in order that the trial court may
acquire jurisdiction over the action.15
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."17 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 petitioner's 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.18
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 by the courts based on evidence presented, falls squarely under the
third paragraph of said Section 5(a), which provides:
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. (Underscoring
ours)
In Pilipinas Shell Petroleum Corporation v. Court of Appeals,19 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."20 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 partnership's total
assets to be worth Thirty Million Pesos (P30,000,000.00), in a letter21 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 alien.
In the oft-quoted case of Sun Insurance Office, Ltd. v. Hon. Maximiano Asuncion,22 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.23
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.24
In the recent case of National Steel Corp. v. Court of Appeals,25 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. (Underscoring 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.26
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.27 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.,28 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 petitioner's compliance with, the contract that the partners executed to formalize the
partnership's dissolution, as well as to implement the liquidation and partition of the partnership's
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.29 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.31 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. Petitioner's 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 Tabanao' s 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.32
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.33Moreover, respondents became owners of their respective
hereditary shares from the moment Vicente Tabanao died.34
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.35 From the moment of his death, his rights as a partner and to demand
fulfillment of petitioner's obligations as outlined in their dissolution agreement were transmitted to
respondents. They, therefore, had the capacity to sue and seek the court's 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 petitioner's 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 partnership's business. Prescription of the said right starts to run only upon the
dissolution of the partnership when the final accounting is done.38
Contrary to petitioner's 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 partnership's 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 petitioner's motions to
dismiss. Likewise, the Court of Appeals did not commit reversible error in upholding the trial court's
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.1âwphi1.nêt
SO ORDERED.