faith.
Public respondents viewed his withdrawal to have been "On 19 February 1988, petitioner-appellant wrote respondents-
THIRD DIVISION
[G.R. No. 109248. July 3, 1995.]
GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO,
JR., and BENJAMIN T.
BACORRO, petitioners, vs. HON.COURT OF APPEALS,
SECURITIES AND EXCHANGE COMMISSION and
JOAQUIN L. MISA
SYLLABUS
1. CIVIL LAW; CONTRACTS; PARTNERSHIP AT WILL;
DISSOLUTION, ELUCIDATED. A partnership that does
not fix its term is a partnership at will. That the law firm "Bito,
Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo,"
is indeed such a partnership need not be unduly belabored. The
birth and life of a partnership at will is predicated on the mutual
desire and consentof the partners. The right to choose with
whom a person wishes to associate himself is the very
foundation and essence of that partnership. Its continued
existence is, in turn, dependent on the constancy of that mutual
resolve, along with each partner's capability to give it, and the
absence of a cause for dissolution provided by the law itself.
Verily, any one of the partners may, at his sole pleasure, dictate
a dissolution of the partnership at will. He must,
however, act in good faith, not that the attendance of bad faith
can prevent the dissolution of the partnership but that it can
result in a liability for damages. In passing, neither would the
presenceof a period for its specific duration or the
statement of a particular purpose for its creation prevent the
dissolution of any partnership by an act or will of a partner.
Among partners, mutual agency arises and the
doctrine of delectus personae allows them to have thepower,
although not necessarily the right, to dissolve the partnership.
An unjustified dissolution by the partner can subject him to a
possible action for damages. The dissolution of a partnership is
the change in the relation of the parties caused by any partner
ceasing to be associated in the carrying on, as might be
distinguished from the winding up of, the business. Upon its
dissolution, the partnership continues and its legal personality
is retained until the complete winding up of its business
culminating in its termination. The liquidation of the
assets of the partnership following its dissolution is governed
by various provisions of the Civil Code, however, an
agreement of the partners, like any other contract, is binding
among them and normally takes precedence to the extent
applicable over the Code's general provisions. And here, the
term "retirement" must have been used in the
Articles of Partnership in a generic sense to mean the
dissociation by a partner, inclusive of resignation or
withdrawal, from the partnership that thereby dissolves it.
2. ID.; ID.; ID.; ID.; WITHDRAWAL OF PARTNER; BAD
FAITH, NOT PRESENT. Attorney Misa did not act in bad
spurred by "interpersonal conflict" among the partners. It
would not be right, to let any of the partners remain in the
partnership under such an atmosphere of animosity; certainly,
not against their will. Indeed, for as long as the reason for
withdrawal of a partner is not contrary to the dictates of justice
and fairness, nor for the purpose of unduly visiting harm and
damage upon the partnership, bad faith cannot be said to
characterize the act. Bad faith, in the context here used, is no
different from its normal concept of a conscious and intentional
design to do a wrongful act for a dishonest purpose or moral
obliquity.
DECISION
VITUG, J p:
The instant petition seeks a review of the decision rendered by
the Court of Appeals, dated 26 February 1993, in CA-G. R. SP
No. 24638 and No. 24648 affirming in toto that of the
Securities and Exchange Commission ("SEC") in SEC AC
254. cdasia
The antecedents of the controversy, summarized by respondent
Commission and quoted at length by the appellate courtin its
decision, are hereunder restated.
"The law firm of ROSS, LAWRENCE, SELPH and
CARRASCOSO was duly registered in the Mercantile Registry
on 4 January 1937 and reconstituted with the Securities and
Exchange Commission on 4 August 1948. The SEC records
show that there were several subsequent amendments to the
articles of partnership on 18 September 1958, to change the
firm [name] to ROSS, SELPH and CARRASCOSO; on 6 July
1965 . . . to ROSS, SELPH, SALCEDO, DEL ROSARIO,
BITO & MISA; on 18 April 1972 to SALCEDO, DEL
ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to
SALCEDO, DEL ROSARIO, BITO MISA & LOZADA; on 11
March 1977 to DEL ROSARIO, BITO, MISA & LOZADA; on
7 June 1977 to BITO, MISA & LOZADA; on 19 December
1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano
M. Lozada associated themselves together, as senior partners
with respondents-appellees Gregorio F. Ortega, Tomas O. del
Castillo, Jr., and Benjamin Bacorro, as junior partners.
"On February 17, 1988, petitioner-appellant wrote the
respondents-appellees a letter stating: cdta
'"I am withdrawing and retiring from the firm of Bito, Misa and
Lozada, effective at the end of this month.
I trust that the accountants will be instructed to make the proper
liquidation of my participation in the firm.'
"On the same day, petitioner-appellant wrote respondents-
appellees another letter stating: cdtai
'"Further to my letter to you today, I would like to have a
meeting with all of you with regard to the
mechanics ofliquidation, and more particularly, my interest in
the two floors of this building. I would like to have this
resolved soon because it has to do with my own plans.'
appellees another letter stating:
"The partnership has ceased to be mutually satisfactory of the
working conditions of our employees including the assistant
attorneys. All my efforts to ameliorate the below subsistence
level of the pay scale of our employees have been thwarted by
the other partners. Not only have they refused to give
meaningful increases to the employees, even attorneys, are
dressed down publicly in a loud voice in a manner that
deprived them of their self-respect. The result of such policies
is the formation of the union, including the assistant attorneys.'
"On 30 June 1988, petitioner filed with this Commission's
Securities Investigation and Clearing Department (SICD) a
petition for dissolution and liquidation of partnership, docketed
as SEC Case No. 3384 praying that the Commission:
'"1. Decree the formal dissolution and order the immediate
liquidation of (the partnership of) Bito, Misa & Lozada; cdta
'2. Order the respondents to deliver or pay for petitioner's share
in the partnership assets plus the profits, rent or interest
attributable to the use of his right in the assets of the dissolved
partnership;
'3. Enjoin respondents from using the firm name of Bito, Misa
& Lozada in any of their correspondence, checks and pleadings
and to pay petitioners damages for the use thereof despite the
dissolution of the partnership in the amount of at least
P50,000.00;
'4. Order respondents jointly and severally to pay petitioner
attorney's fees and expense of litigation in such amounts as
may be proven during the trial and which the Commission may
deem just and equitable under the premises but in no case less
than ten (10%) per cent of the value of the
shares of petitioner of P100,00.00; cdta
'5. Order the respondents to pay petitioner moral damages with
the amount of P500,000.00 and exemplary damages in the
amount of P200,000.00.
'Petitioner likewise prayed for such other and further reliefs that
the Commission may deem just and equitable under the
premises.'
"On 13 July 1988, respondents-appellees filed their opposition
to the petition. aisadc
"On 13 July 1988, petitioner filed his Reply to the Opposition.
"On 31 March 1989, the hearing officer rendered a decision
ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa &
Lozada did not dissolve the said law partnership. Accordingly,
the petitioner and respondents are hereby enjoined to abide by
the provisions of the Agreement relative to the matter
governing the liquidation of the shares of any retiring or
withdrawing partner in the partnership interest.'" 1 aisadc
On appeal, the SEC en banc reversed the decision of the
Hearing Officer and held that the withdrawal of Attorney
Joaquin L. Misa had dissolved the partnership of "Bito, Misa &
Lozada." The Commission ruled that, being a partnership at
will, the law firm could be dissolved by any partner at anytime,
such as by his withdrawal therefrom, regardless of good faith or
bad faith, since no partner can be forced to continue in the
partnership against his will. In its decision, dated 17 January
1990, the SEC held:
"WHEREFORE, premises considered the appealed order of 31
March 1989 is hereby REVERSED insofar as it concludes that
the partnership of Bito, Misa & Lozada has not been dissolved.
The case is hereby REMANDED to the Hearing Officer for
determination of the respective rights and obligations of the
parties." 2
The parties sought a reconsideration of the above decision.
Attorney Misa, in addition, asked for an appointment of a
receiver to take over the assets of the dissolved partnership and
to take charge of the winding up of its affairs. On 04 April
1991, respondent SEC issued an order denying reconsideration,
as well as rejecting the petition for receivership, and reiterating
the remand of the case to the Hearing Officer.
The parties filed with the
appellate court separate appeals (docketed CA-G. R. SP No.
24638 and CA-G. R. SP No. 24648). LibLex
During the pendency of the case with the Court of Appeals,
Attorney Jesus Bito and Attorney Mariano Lozada both died
on, respectively, 05 September 1991 and 21 December 1991.
The death of the two partners, as well as the admission of new
partners, in the law firm prompted Attorney Misa to renew his
application for receivership (in CA G. R. SP No. 24648). He
expressed concern over the need to preserve and care for the
partnership assets. The other partners opposed the prayer.
The Court of Appeals, finding no reversible error on the
part of respondent Commission, AFFIRMED in toto the SEC
decision and order appealed from. In fine, the
appellate court held, per its decision of 26 February 1993, (a)
that Atty. Misa's withdrawal from the partnership had changed
the relation of the parties and inevitably caused the
dissolution of the partnership; (b) that such withdrawal was not
in bad faith; (c) that the liquidation should be to the
extent of Attorney Misa's interest or participation in the
partnership which could be computed and paid in the manner
stipulated in the partnership agreement; (d) that the case should
be remanded to the SEC Hearing Officer for the corresponding
determination of the value of Attorney Misa's share in the
partnership assets; and (e) that the appointment of a receiver
was unnecessary as no sufficient proof had been shown to
indicate that the partnership assets were in any such
danger of being lost, removed or materially impaired.
In this petition for review under Rule 45 of the Rules of Court,
petitioners confine themselves to the following issues: cdt
1. Whether or not the Court of Appeals has erred in holding
that the partnership of Bito, Misa & Lozada (now Bito,
Lozada, Ortega & Castillo) is a partnership at will;
2. Whether or not the Court of Appeals has erred in holding
that the withdrawal of private respondent dissolved the
partnership regardless of his good or bad faith; and
3. Whether or not the Court of Appeals has erred in holding
that private respondent's demand for the dissolution ofthe
partnership so that he can get a physical partition of partnership
was not made in bad faith;
to which matters we shall, accordingly, likewise limit
ourselves. cdt
A partnership that does not fix its term is a partnership at will.
That the law firm "Bito, Misa & Lozada," and now "Bito,
Lozada, Ortega and Castillo," is indeed such a partnership need
not be unduly belabored. We quote, with approval, like did the
appellate court, the findings and disquisition of respondent SEC
on this matter, viz:
"The partnership agreement (amended articles of 19 August
1948) does not provide for a specified period or undertaking.
The 'DURATION' clause simply states:
"5. DURATION. The partnership shall continue so long as
mutually satisfactory and upon the death or legal
incapacity of one of the partners, shall be continued by the
surviving partners.'
"The hearing officer however opined that the partnership is one
for a specific undertaking and hence not a partnership at will,
citing paragraph 2 of the Amended Articles of Partnership (19
August 1948): cdt
"2. Purpose. The purpose for which the partnership is formed,
is to act as legal adviser and representativeof any individual,
firm and corporation engaged in commercial, industrial or other
lawful businesses and occupations; to counsel and advise such
persons and entities with respect to their legal and other affairs;
and to appear for and represent their principals and client in all
courts of justice and government departments and offices in the
Philippines, and elsewhere when legally authorized to do so.'
"The 'purpose' of the partnership is not the specific undertaking
referred to in the law. Otherwise, all partnerships, which
necessarily must have a purpose, would all be considered as
partnerships for a definite undertaking. There would therefore
be no need to provide for articles on partnership at will as none
would so exist. Apparently what the law contemplates, is a
specific undertaking or 'project' which has a definite or
definable period of completion." 3
The birth and life of a partnership at will is predicated on the
mutual desire and consent of the partners. The right to choose
with whom a person wishes to associate himself is the very
foundation and essence of that partnership. Its continued
existence is, in turn, dependent on the constancy of that mutual
resolve, along with each partner's capability to give it, and the
absence of a cause for dissolution provided by the law itself.
Verily, any one of the partners may, at his sole pleasure, dictate
a dissolution of the partnership at will. He must,
however, act in good faith, not that the attendance of bad faith
can prevent the dissolution of the partnership 4 but that it can
result in a liability for damages. 5
In passing, neither would the presence of a period for its
specific duration or the statement of a particular purpose for its
creation prevent the dissolution of any partnership by an act or
will of a partner. 6 Among partners, 7 mutual agency arises and
the doctrine of delectus personae allows them to have
the power, although not necessarily the right, to dissolve the
partnership. An unjustified dissolution by the partner can
subject him to a possible action for damages. LLpr
The dissolution of a partnership is the change in the
relation of the parties caused by any partner ceasing to be
associated in the carrying on, as might be distinguished from
the winding up of, the business. 8 Upon its dissolution, the
partnership continues and its legal personality is retained until
the complete winding up of its business culminating in its
termination. 9
The liquidation of the assets of the partnership following its
dissolution is governed by various provisions of the Civil
Code;10 however, an agreement of the partners, like any other
contract, is binding among them and normally takes precedence
to the extent applicable over the Code's general provisions. We
here take note of paragraph 8 of the "Amendment to
Articles ofPartnership" reading thusly:
". . . In the event of the death or retirement of any partner, his
interest in the partnership shall be liquidated and paid in
accordance with the existing agreements and his partnership
participation shall revert to the Senior Partners for allocation as
the Senior Partners may determine; provided, however, that
with respect to the two (2) floors of office condominium which
the partnership is now acquiring, consisting of the 5th and the
6th floors of the Alpap Building, 140 Alfaro Street, Salcedo
Village, Makati, Metro Manila, their true value at the
time of such death of retirement shall be determined by two (2)
independent appraisers, one to be appointed (by the partnership
and the other by the) retiring partner or the heirs of a deceased
partner, as the case may be. In the event of any disagreement
between the said appraisers a third appraiser will be appointed
by them whose decision shall be final. The share of the retiring
or deceased partner in the aforementioned two (2) floor office
condominium shall be determined upon the basis of the
valuation above mentioned which shall be paid monthly within
the first ten (10) days of every month in installments of not less
than P20,000.00 for the Senior Partners, P10,000.00 in the
case of two (2) existing Junior Partners and P5,000.00 in the
case of the new Junior Partner." 11 cdt
The term "retirement" must have been used in the articles, as
we so hold, in a generic sense to mean the dissociation by a
partner, inclusive of resignation or withdrawal, from the evidence to show that the partnership made some profits during
partnership that thereby dissolves it. the periods from July 2,1956 to December 31, 1957 and from
On the third and final issue, we accord due respect to the January 1, 1958 up to September 31, 1959. The profits on two
appellate court and respondent Commission on their common government contracts worth P2,327,335.76 were not
factual finding, i. e., that Attorney Misa did not act in bad faith. speculative. In the instant case, there is no evidence whatsoever
Public respondents viewed his withdrawal to have been spurred that the partnership between the petitioner and the private
by "interpersonal conflict" among the partners. It would not be respondent would have been a profitable venture. In fact, it was
right, we agree, to let any of the partners remain in the a failure doomed from the start. There is therefore no basis for
partnership under such an atmosphere of animosity; certainly, the award of speculative damages in favor of the private
not against their will. 12 Indeed, for as long as the reason for respondent. Furthermore, in the Uy case. only Puzon failed to
withdrawal of a partner is not contrary to the dictates of justice give his full contribution while Uy contributed much more than
and fairness, nor for the purpose of unduly visiting harm and what was expectedof him. In this case, however, there was
damage upon the partnership, bad faith cannot be said to mutual breach. Private respondent failed to give his entire
characterize the act. Bad faith, in the context here used, is no contribution in the amount ofP15,000.00. He contributed only
different from its normal concept of a conscious and intentional P10,000.00. The petitioner likewise failed to give any of the
design to do a wrongful act for a dishonest purpose or moral amount expected of him. He further failed to comply with the
obliquity. agreement to print 95,000 copies of the posters. Instead, he
WHEREFORE, the decision appealed from is AFFIRMED. No printed only 2,000 copies.
pronouncement on costs. cdt 3. ID.; ID.; PROFITS AND LOSSES SHARED BY EACH
SO ORDERED. PARTNER. Being a contract of partnership, each partner
must share in the profits and losses of the venture. That is the
FIRST DIVISION essence of a partnership. And even with an assurance made by
[G.R. No. 59956. October 31, 1984.] one of the partners that they would earn a huge
ISABELO MORAN, JR., petitioner, vs. THE amount of profits in the absence of fraud, the other partner
HON. COURT OF APPEALS and MARIANO E. cannot claim a right to recover the highly speculative profits. It
PECSON, respondents. is rare business venture guaranteed to give 100% profits.
Prospero A. Crescini for petitioner. 4. ID.; OBLIGATIONS AND CONTRACTS;
Britanico, Panganiban, Benitez, Africa and Lingsangan Law INTERPRETATION OF CONTRACTS; OF CONTRACTS;
Office for private respondent. FAILURE OFAGREEMENT TO STATE
SYLLABUS BASIS OF COMMISSION; EFFECT. The partnership
1. CIVIL LAW; PARTNERSHIP; CONTRIBUTIONS; agreement stipulated that the petitioner would give the private
PARTNER IS DEBTOR OF PARTNERSHIP FOR UNPAID respondent a monthly commission of P1,000.00 from April 15,
CONTRIBUTIONS. The rule is, when a partner who has 1971 to December 15, 1971 for a total of eight (8) monthly
undertaken to contribute a sum of money fails to do so, he commissions. The agreement does not state the basis of the
becomes a debtor of the partnership for whatever he may have commission. The payment of the commission could only have
promised to contribute (Art. 1786, Civil Code) and for interests been predicated on relatively extravagant profits. The parties
and damages from the time he should have complied with his could not have intended the giving of a commission in
obligation (Art. 1788, Civil Code). Thus in Uy vs. Puzon (79 spite of loss or failure of the venture. Since the venture was a
SCRA 598), which interpreted Art. 2200 of the Civil failure, the private respondent is not entitled to the P8,000.00
Code of the Philippines, the Court allowed a commission.
total of P200,000.00 compensatory damages in favorof the 5. REMEDIAL LAW; CIVIL PROCEDURE; APPEAL;
appellee because the appellant therein was remiss in his FINDINGS OF FACT OF APPELLATE COURT NOT
obligations as a partner and as prime contractor of the SUBJECT TO REVIEW BY THE SUPREME COURT; CASE
construction projects in question. AT BAR. As a rule, the
2. ID.; ID.; ID.; ID.; AWARD OF DAMAGES FOR NON- findings of facts of the Court of Appeals are final and
PAYMENT OF CONTRIBUTIONS; UY VS. PUZON (79 conclusive and cannot be reviewed on appeal to
SCRA 598) DISTINGUISHED FROM CASE AT BAR. this Court (Amigo v. Teves, 96 Phil. 252), provided they are
The Court awarded compensatory damages in the Uy case borne out by the record or are based on substantial evidence
because there was a finding that the "constructing business is a (Alsua-Betts v. Court of Appeals, 92 SCRA 332). However, this
profitable one and that the UP construction company derived rule admits of certain exceptions. Thus, in Carolina Industries
some profits from its contractors in the construction of roads Inc. vs. CMS stock Brokerage Inc., et al., (97 SCRA 734), we
and bridges despite its deficient capital." Besides, there was held that this Court retains the power to review and rectify the
findings of fact of the Court of Appeals when (1) the
conclusion is a finding grounded entirely on speculation.
surmises and conjectures; (2) when the inference made is
manifestly mistaken, absurd and impossible: (3) where there is
grave abuse of discretion: 4) when the judgment is based on a
misapprehension of facts; and (5) when the court, in making its
findings went beyond the issues of the case and the same are
contrary to the admissions of both the appellant and the
appellee The respondent court erred when it concluded that the
project never left the ground because the project did take place.
Only it failed. It was the private respondent himself who
presented a copy of the book entitled "Voice of the Veterans" in
the lower court as Exhibit "L". Therefore, it would be error to
state that the project never took place and on this basis decree
the return of the private respondent's investments. As already
mentioned. there are risks in any business venture and the
failure of the undertaking cannot entirely be blamed on the
managing partner alone, specially if the latter exercised his best
business Judgment. which seems to be true in this case.
DECISION
GUTIERREZ, JR., J p:
This is a petition for review on certiorari of the decision of the
respondent Court of Appeals which ordered petitioner
Isabelo Moran,Jr. to pay damages to respondent Mariano E.
Pecson.
As found by the respondent Court of Appeals, the undisputed
facts indicate that:
xxx xxx xxx
" . . . on February 22, 1971 Pecson and Moran entered into an
agreement whereby both would contribute P15,000 each for the
purpose of printing 95,000 posters (featuring the delegates to
the 1971 Constitutional Convention), with Moran actually
supervising the work; that Pecson would receive a
commission of P1,000 a month starting on April 15, 1971 up to
December 15, 1971; that on December 15, 1971, a
liquidation of the accounts in the distribution and
printing of the 95,000 posters would be made; that Pecson
gave Moran P10,000 for which the latter issued a receipt; that
only a few posters were printed; that on or about May 28,
1971, Moran executed in favor of Pecson a promissory note in
the amount of P20,000 payable in two equal installments
(P10,000 payable on or before June 15, 1971 and P10,000
payable on or before June 30, 1971), the whole sum becoming
due upon default in the payment of the first installment on the
date due, complete with the costs of collection."
Private respondent Pecson filed with the Court of First
Instance of Manila an action for the recovery of a
sum of money and alleged in his complaint three (3)
causes of action, namely: (1) on the alleged partnership
agreement, the return of his contribution ofP10,000.00,
payment of his share in the profits that the partnership would
have earned, and, payment of unpaid commission; (2) on the
alleged promissory note, payment of the sum of P20,000.00;
and, (3) moral and exemplary damages and attorney's fees.
After the trial, the Court of First Instance held that:
"From the evidence presented it is clear in the
mind of the court that by virtue of the partnership agreement
entered into by the parties plaintiff and defendant the
plaintiff did contribute P10,000.00, and another
sum of P7,000.00 for the Voice of the Veteran or Delegate
Magazine. Of the expected 95,000 copies of the posters, the
defendant was able to print 2,000 copies only all of which,
however, were sold at P5.00 each. Nothing more was done after
this and it can be said that the venture did not really get off the
ground. On the other hand, the plaintiff failed to give his full
contribution of P15,000.00. Thus, each party is entitled to
rescind the contract which right is implied in reciprocal
obligations under Article 1385 of the Civil Code whereunder
'rescission creates the obligation to return the things which
were the object of the contract . . .
"WHEREFORE, the court hereby renders judgment ordering
defendant Isabelo C. Moran, Jr. to return to plaintiff Mariano E.
Pecson the sum of P17,000.00, with interest at the legal rate
from the filing of the complaint on June 19, 1972, and the
costs ofthe suit.
"For insufficiency of evidence, the counterclaim is hereby
dismissed."
From this decision, both parties appealed to the
respondent Court of Appeals. The latter likewise rendered a
decision against the petitioner. The dispositive portion of the
decision reads: LLpr
"PREMISES CONSIDERED, the decision appealed from is
hereby SET ASIDE, and a new one is hereby rendered,
ordering defendant-appellant Isabelo C. Moran, Jr. to pay
plaintiff-appellant Mariano E. Pecson:
"(a) Forty-seven thousand five hundred (P47,500) (the amount
that could have accrued to Pecson under their agreement);
"(b) Eight thousand (P8,000), (the commission for eight
months);
"(c) Seven thousand (P7,000) (as a return of Pecson's
investment for the Veteran's Project);
"(d) Legal interest on (a), (b) and (c) from the date the
complaint was filed (up to the time payment is made)".
The petitioner contends that the
respondent Court of Appeals decided questions of substance in
a way not in accord with law and with Supreme Court decisions
when it committed the following errors:
I "5. That upon the termination of the partnership on December
THE HONORABLE COURT OF APPEALS GRIEVOUSLY
ERRED IN HOLDING PETITIONER ISABELO
C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E.
PECSON IN THE SUM OF P47,500 AS THE SUPPOSED
EXPECTED PROFITS DUE HIM.
II
THE HONORABLE COURT OF APPEALS GRIEVOUSLY
ERRED IN HOLDING PETITIONER ISABELO
C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E.
PECSON IN THE SUM OF P8,000, AS SUPPOSED
COMMISSION IN THE PARTNERSHIP ARISING
OUT OF PECSON'S INVESTMENT.
III
THE HONORABLE COURT OF APPEALS GRIEVOUSLY
ERRED IN HOLDING PETITIONER ISABELO
C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E.
PECSON IN THE SUM OF P7,000 AS A SUPPOSED
RETURN OF INVESTMENT IN A MAGAZINE VENTURE.
IV
ASSUMING WITHOUT ADMITTING THAT PETITIONER
IS AT ALL LIABLE FOR ANY AMOUNT, THE
HONORABLE COURT OFAPPEALS DID NOT EVEN
OFFSET PAYMENTS ADMITTEDLY RECEIVED BY
PECSON FROM MORAN.
V The profits on two government contracts worth P2,327,335.76
THE HONORABLE COURT OF APPEALS GRIEVOUSLY
ERRED IN NOT GRANTING THE PETITIONER'S
COMPULSORY COUNTERCLAIM FOR DAMAGES.
The first question raised in this petition refers to the
award of P47,500.00 as the private respondent's share in the
unrealized profitsof the partnership. The petitioner contends
that the award is highly speculative. The petitioner maintains
that the respondent courtdid not take into account the great
risks involved in the business undertaking.
We agree with the petitioner that the award of speculative
damages has no basis in fact and law.
There is no dispute over the nature of the agreement between
the petitioner and the private respondent. It is a
contract ofpartnership. The latter in his complaint alleged that
he was induced by the petitioner to enter into a partnership with
him under the following terms and conditions: LLjur
"1. That the partnership will print colored posters of the
delegates to the Constitutional Convention;
"2. That they will invest the amount of Fifteen Thousand Pesos
(P15,000.00) each;
"3. That they will print Ninety Five Thousand (95,000)
copies of the said posters;
"4. That plaintiff will receive a commission of one Thousand
Pesos (P1,000.00) a month starting April 15, 1971 up to
December 15, 1971;
15, 1971, a liquidation of the account pertaining to the
distribution and printing of the said 95,000 posters shall be
made."
The petitioner on the other hand admitted in his answer the
existence of the partnership.
The rule is, when a partner who has undertaken to contribute a
sum of money fails to do so, he becomes a debtor of the
partnership for whatever he may have promised to contribute
(Art. 1786, Civil Code) and for interests and damages from the
time he should have complied with his obligation (Art. 1788,
Civil Code). Thus in Uy v. Puzon (19 SCRA 598), which
interpreted Art. 2200 of the Civil Code of the Philippines, we
allowed a total of P200,000.00 compensatory damages in
favor of the appellee because the appellant therein was remiss
in his obligations as a partner and as prime contractor of the
construction projects in question. This case was decided on a
particular set of facts. We awarded compensatory damages in
the Uy case because there was a finding that the "constructing
business is a profitable one and that the UP construction
company derived some profits from its contractors in the
construction of roads and bridges despite its deficient capital."
Besides, there was evidence to show that the partnership made
some profits during the periods from July 2, 1956 to December
31, 1957 and from January 1, 1958 up to September 30, 1959.
were not speculative. In the instant case, there is no evidence
whatsoever that the partnership between the petitioner and the
private respondent would have been a profitable venture. In
fact, it was a failure doomed from the start. There is therefore
no basis for the award of speculative damages in favor of the
private respondent.
Furthermore, in the Uy case, only Puzon failed to give his full
contribution while Uy contributed much more than what was
expectedof him. In this case, however, there was mutual breach.
Private respondent failed to give his entire contribution in the
amount ofP15,000.00. He contributed only P10,000.00. The
petitioner likewise failed to give any of the amount
expected of him. He further failed to comply with the
agreement to print 95,000 copies of the posters. Instead, he
printed only 2,000 copies.
Article 1797 of the Civil Code provides:
"The losses and profits shall be distributed in conformity with
the agreement. If only the share of each partner in the profits
has been agreed upon, the share of each in the losses shall be in
the same proportion."
Being a contract of partnership, each partner must share in the
profits and losses of the venture. That is the essence of a
partnership. And even with an assurance made by one of the
partners that they would earn a huge amount of profits, in the
absenceof fraud, the other partner cannot claim a right to
recover the highly speculative profits. It is a rare business
venture guaranteed to give 100% profits. In this case, on an
investment of P15,000.00, the respondent was supposed to earn
a guaranteed P1,000.00 a month for eight months and around
P142,500.00 on 95,000 posters costing P2.00 each but
2,000 of which were sold at P5.00 each. The fantastic
nature of expected profits is obvious. We have to take various
factors into account. The failure of the Commission on
Elections to proclaim all the 320 candidates of the
Constitutional Convention on time was a major factor. The
petitioner used his best business judgment and felt that it would
be a losing venture to go on with the printing of the agreed
95,000 copies of the posters. Hidden risks in any business
venture have to be considered. LLpr
It does not follow however that the private respondent is not
entitled to recover any amount from the petitioner. The records
show that the private respondent gave P10,000.00 to the
petitioner. The latter used this amount for the printing of 2,000
posters at a costof P2.00 per poster or a total printing
cost of P4,000.00. The records further show that the 2,000
copies were sold at P5.00 each. The gross income therefore was
P10,000.00. Deducting the printing costs of P4,000.00 from the
gross income of P10,000.00 and with no evidence on the
cost of distribution, the net profits amount to only P6,000.00.
This net profit of P6,000.00 should be divided between the
petitioner and the private respondent. And since only P4,000.00
was used by the petitioner in printing the 2,000 copies, the
remaining P6,000.00 should therefore be returned to the private
respondent.
Relative to the second alleged error, the petitioner submits that
the award of P8,000.00 as Pecson's supposed commission has
no justifiable basis in law.
Again, we agree with the petitioner.
The partnership agreement stipulated that the petitioner would
give the private respondent a monthly
commission of P1,000.00 from April 15, 1971 to December 15,
1971 for a total of eight (8) monthly commissions. The
agreement does not state the basis of the commission. The
payment of the commission could only have been predicated on
relatively extravagant profits. The parties could not have
intended the giving of a commission inspite of loss or
failure of the venture. Since the venture was a failure, the
private respondent is not entitled to the P8,000.00 commission.
Anent the third assigned error, the petitioner maintains that the
respondent Court of Appeals erred in holding him liable to the
private respondent in the sum of P7,000.00 as a supposed
return of investment in a magazine venture.
In awarding P7,000.00 to the private respondent as his
supposed return of investment in the "Voice of the Veterans"
magazine venture, the respondent court ruled that:
xxx xxx xxx
" . . . Moran admittedly signed the promissory note of P20,000
in favor of Pecson. Moran does not question the due
execution ofsaid note. Must Moran therefore pay the
amount of P20,000? The evidence indicates that the P20,000
was assigned by Moranto cover the following:
"(a) 7,000 the amount of the PNB check given by Pecson
to Moran representing Pecson's investment in Moran's other
project (the publication and printing of the 'Voice of the
Veterans');
"(b) P10,000 to cover the return of Pecson's contribution in
the project of the Posters;
"(c) P3,000 representing Pecson's commission for three
months (April, May, June, 1971).
Of said P20,000 Moran has to pay P7,000 (as a
return of Pecson's investment for the Veterans' project, for this
project never left the ground) . . . "
As a rule, the findings of facts of the Court of Appeals are final
and conclusive and cannot be reviewed on appeal to
this Court(Amigo v. Teves, 96 Phil. 262), provided they are
borne out by the record or are based on substantial evidence
(Alsua-Betts v. Courtof Appeals, 92 SCRA 332). However, this
rule admits of certain exceptions. Thus, in Carolina Industries
Inc. v. CMS Stock Brokerage, Inc., et al., (97 SCRA 734), we
held that this Court retains the power to review and rectify the
findings of fact of the Courtof Appeals when (1) the conclusion
is a finding grounded entirely on speculation, surmises and
conjectures; (2) when the inference made is manifestly
mistaken, absurd and impossible; (3) where there is grave
abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; and (5) when the court, in making its
findings, went beyond the issues of the case and the same are
contrary to the admissions of both the appellant and the
appellee.
In this case, there is misapprehension of facts. The
evidence of the private respondent himself shows that his
investment in the "Voice of Veterans" project amounted to only
P3,000.00. The remaining P4,000.00 was the amount of profit
that the private respondent expected to receive.
The records show the following exhibits
"E Xerox copy of PNB Manager's Check No. 234265 dated
March 22, 1971 in favor of defendant. Defendant admitted the
authenticity of this check and of his receipt of the proceeds
thereof (t.s.n., pp. 3-4, Nov. 29, 1972). This exhibit is being
offered for the purpose of showing plaintiff's capital investment
in the printing of the 'Voice of the Veterans' for which he was
promised a fixed profit of P8,000. This
investment of P6,000.00 and the promised profit of P8,000 are
covered by defendant's promissory note for P14,000 dated
March 31, 1971 marked by defendant as Exhibit 2 (t.s.n., pp.
20-21, Nov. 29, 1972), and by plaintiff as Exhibit P. Later,
defendant returned P3,000.00 of the P6,000.00 investment
thereby proportionately reducing the promised profit to P4,000.
With the balance of P3,000 (capital) and 14,000 (promised
profit), defendant signed and executed the promissory note for
P7,000 marked Exhibit 3 for the defendant and Exhibit M for
plaintiff. Of this P7,000, defendant paid P4,000 representing
full return of the capital investment and P1,000 partial
payment of the promised profit. The P3,000 balance of the
promised profit was made part consideration of the P20,000
promissory note (t.s.n., pp. 22-24, Nov. 29, 1972). It is,
therefore, being presented to show the consideration for the
P20,000 promissory note.
"F Xerox copy of PNB Manager's check dated May 29,
1971 for P7,000 in favor of defendant. The authenticity of the
check and his receipt of the proceeds thereof were admitted by
the defendant (t.s.n., pp. 3-4, Nov. 29, 1972). This P7,000 is
part consideration, and in cash, of the P20,000 promissory note
(t.s.n., p. 25, Nov. 29, 1972), and it is being presented to show
the consideration for the P20,000 note and the existence and
validity of the obligation.
xxx xxx xxx
"L Book entitled 'Voice of the Veterans' which is being
offered for the purpose of showing the subject matter of the
other partnership agreement and in which plaintiff invested the
P6,000 (Exhibit E) which, together with the promised
profit of P8,000 made up for the consideration of the P14,000
promissory note (Exhibit 2; Exhibit P). As explained in
connection with Exhibit E, the P3,000 balance of the promised
profit was later made part consideration of the P20,000
promissory note.
"M Promissory note for P7,000 dated March 30, 1971. This
is also defendant's Exhibit E. This document is being offered
for the purpose of further showing the transaction as explained
in connection with Exhibits E and L.
"N Receipt of plaintiff dated March 30, 1971 for the
return of his P3,000 out of his capital investment of P6,000
(Exh. E) in the P14,000 promissory note (Exh. 2; P). This is
also defendant's Exhibit 4. This document is being offered in
support of plaintiff's explanation in connection with Exhibits E,
L, and M to show the transaction mentioned therein.
xxx xxx xxx
"P Promissory note for P14,000.00. This is also defendant's
Exhibit 2. It is being offered for the purpose of showing the
transaction as explained in connection with Exhibits E, L, M,
and N above."
Explaining the above-quoted exhibits, respondent Pecson
testified that:
"Q During the pre-trial of this case, Mr. Pecson, the defendant
presented a promissory note in the amount of P14,000.00 which
has been marked as Exhibit 2. Do you know this promissory
note?
"A Yes, sir.
"Q What is this promissory note, in connection with your
transaction with the defendant?
"A This promissory note is for the printing of the 'Voice of the
Veterans'.
"Q What is this 'Voice of the Veterans', Mr. Pecson?
"A It is a book."
(T.S.N., p. 19, Nov. 29, 1972)
"Q And what does the amount of P14,000.00 indicated in the
promissory note, Exhibit 2, represent?
"A It represents the P6,000.00 cash which I gave to Mr. Moran,
as evidenced by the Philippine National Bank Manager's check
and the P8,000.00 profit assured me by Mr. Moran which I will
derive from the printing of this 'Voice of the Veterans' book.
"Q You said that the P6,000.00 of this P14,000.00 is covered by
a Manager's check. I show you Exhibit E, is this the Manager's
check that you mentioned?
"A Yes, sir.
"Q What happened to this promissory note of P14,000.00
which you said represented P6,000.00 of your investment and
P8,000.00 promised profits?
"A Latter, Mr. Moran returned to me P3,000.00 which
represented one-half (1/2) of the P6,000.00 capital I gave to
him.
"Q As a consequence of the return by Mr. Moran of one-half
(1/2) of the P6,000.00 capital you gave to him, what happened
to the promised profit of P8,000.00?
"A It was reduced to one-half (1/2) which is P4,000,00.
"Q Was there any document executed by Mr. Moran in
connection with the Balance of P3,000.00 of your capital
investment and the P4,000.00 promised profits?
"A Yes, sir, he executed a promissory note.
"Q I show you a promissory note in the amount of P7,000.00
dated March 30, 1971 which for purposes of identification I
request the same to be marked as Exhibit M . . .
Court
Mark it as Exhibit M.
"Q (continuing) is this the promissory note which you said was
executed by Mr. Moran in connection with your transaction
regarding the printing of the 'Voice of the Veterans'?
"A Yes, sir.(T.S.N., pp. 20-22, Nov. 29, 1972).
"Q What happened to this promissory note executed by
Mr. Moran, Mr. Pecson?
"A Mr. Moran paid me P4,000.00 out of the P7,000.00 as
shown by the promissory note.
"Q Was there a receipt issued by you covering this
payment of P4,000.00 in favor of Mr. Moran?
"A Yes, sir."
(T.S.N., p. 23, Nov. 29, 1972).
"Q You stated that Mr. Moran paid the amount of P4,000.00 on
account of the P7,000.00 covered by the promissory note,
Exhibit M. What does this P4,000.00 covered by Exhibit N
represent?
"A This P4,000.00 represents the P3,000.00 which he has
returned of my P6,000.00 capital investment and the P1,000.00
represents partial payment of the P4,000.00 profit that was
promised to me by Mr. Moran.
"Q And what happened to the balance of P3,000.00 under the
promissory note, Exhibit M?
"A The balance of P3,000.00 and the rest of the profit was
applied as part of the consideration of the promissory
note ofP20,000.00."
(T.S.N., pp. 23-24, Nov. 29, 1972).
The respondent court erred when it concluded that the project
never left the ground because the project did take place. Only it
failed. It was the private respondent himself who presented a
copy of the book entitled "Voice of the Veterans" in the
lower court as Exhibit "L". Therefore, it would be error to state
that the project never took place and on this basis decree the
return of the private respondent's investment. LLjur
As already mentioned, there are risks in any business venture
and the failure of the undertaking cannot entirely be blamed on
the managing partner alone, specially if the latter exercised his
best business judgment, which seems to be true in this case.
In view of the foregoing, there is no reason to pass upon the
fourth and fifth assignments of errors raised by the petitioner.
We likewise find no valid basis for the grant of the
counterclaim.
WHEREFORE, the petition is GRANTED. The decision of the
respondent Court of Appeals (now Intermediate
Appellate Court) is hereby SET ASIDE and a new one is
rendered ordering the petitioner Isabelo Moran, Jr., to pay
private respondent Mariano Pecson SIX THOUSAND
(P6,000.00) PESOS representing the amount of the private
respondent's contribution to the partnership but which remained
unused; and THREE THOUSAND (P3,000.00) PESOS
representing one-half (1/2) of the net profits gained by the
partnership in the sale of the two thousand (2,000) copies of the
posters, with interests at the legal rate on both amounts from
the date the complaint was filed until full payment is made.
SO ORDERED.
SECOND DIVISION
[G.R. No. L-19819. October 26, 1977.]
WILLIAM UY, plaintiff-appellee, vs. BARTOLOME PUZO
N, substituted by FRANCO PUZON, defendant-appellant.
R.P. Sarandi for appellant.
Jose L. Uy & Andres P. Salvador for appellee.
DECISION
CONCEPCION, JR., J p:
Appeal from the decision of the Court of First Instance of
Manila, dissolving the "U.P. Construction Company" and
ordering the defendant Bartolome Puzon to pay the plaintiff the
amounts of: (1) P115,102.13, with legal interest thereon from
the date of the filing of the complaint until fully paid, (2)
P200,000.00, as plaintiff's share in the unrealized profits of the
"U.P. Construction Company" and (3) P5,000.00, as and for
attorney's fees.
It is of record that the defendant Bartolome Puzon had a
contract with the Republic of the Philippines for the
construction of the Ganyangan-Bato Section of the Pagadian-
Zamboanga City Road, province of Zamboanga del Sur 1 and
of five (5) bridges in the Malangas-Ganyangan Road. 2 Finding
difficulty in accomplishing both projects,
Bartolome Puzon sought the financial assistance of the
plaintiff, William Uy. As an inducement, Puzon proposed the
creation of a partnership between them which would be the
subcontractor of the projects and the profits to be divided
equally between them. William Uy inspected the projects in
question and, expecting to derive considerable profits
therefrom, agreed to the proposition, thus resulting in the
formation of the "U.P. Construction Company" 3 which was
subsequently engaged as sub-contractor of the construction
projects. 4
The partners agreed that the capital of the partnership would be
P100,000.00 of which each partner shall contribute the amount
of P50,000.00 in cash. 5 But, as heretofore stated, Puzon was
short of cash and he promised to contribute his share in the
partnership capital as soon as his application for a loan with the
Philippine National Bank in the amount of P150,000.00 shall
have been approved. However, before his loan application
could be acted upon, he had to clear his collaterals of its
incumbrances first. For this purpose, on October 24, 1956,
William Uy gave Bartolome Puzon the amount of P10,000.00
as advance contribution of his share in the partnership to be
organized between them under the firm name U.P.
CONSTRUCTION COMPANY which amount mentioned
above will be used by Puzon to pay his obligations with the
Philippine National Bank to effect the release of his mortgages
with the said Bank. 6 On October 29, 1956, William Uy again
gave Puzon the amount of P30,000.00 as his partial
contribution to the proposed partnership and which the
said Puzon was to use in payment of his obligation to the
Rehabilitation Finance Corporation. 7Puzon promised
William Uy that the amount of P150,000.00 would be given to
the partnership to be applied thusly: P40,000.00, as
reimbursement of the capital contribution of William Uy which
the said Uy had advanced to clear the title of Puzon's property;
P50,000.00, as Puzon's contribution to the partnership; and the
balance of P60,000.00 as Puzon's personal loan to the
partnership.8
Although the partnership agreement was signed by the parties
on January 18, 1957, 9 work on the projects was started by the
partnership on October 1, 1956 in view of the insistence of the
Bureau of Public Highways to complete the project right
away. 10Since Puzon was busy with his other projects,
William Uy was entrusted with the management of the projects
and whatever expense the latter might incur, would be
considered as part of his contribution. 11 At the end of
December, 1957, William Uy had contributed to the partnership
the amount of P115,453.39, including his capital. 12
The loan of Puzon was approved by the Philippine National
Bank in November, 1956 and he gave to William Uy the
amount of P60,000.00. Of this amount, P40,000.00 was for the
reimbursement of Uy's contribution to the partnership which
was used to clear the title to Puzon's property, and the
P20,000.00 as Puzon's contribution to the partnership
capital. 13
To guarantee the repayment of the above-mentioned loan,
Bartolome Puzon, without the knowledge and consent of
William Uy, 14assigned to the Philippine National Bank all the
payments to be received on account of the contracts with the
Bureau of Public Highways for the construction of the afore-
mentioned projects. 15 By virtue of said assignment, the
Bureau of Public Highways paid the money due on the partial
accomplishments on the government projects in question to the
Philippine National Bank which, in turn, applied portions of it
in payment of Puzon's loan. Of the amount of P1,047,181.07,
released by the Bureau of Public Highways in payment of the
partial work completed by the partnership on the projects, the
amount of P332,539.60 was applied in payment ofPuzon's loan
and only the amount of P27,820.80 was deposited in the
partnership funds, 16 which, for all practical purposes, was also
under Puzon's account since Puzon was the custodian of the
common funds. LLphil
As time passed and the financial demands of the projects
increased, William Uy, who supervised the said projects, found
difficulty in obtaining the necessary funds with which to pursue
the construction projects. William Uy correspondingly called
on BartolomePuzon to comply with his obligations under the
terms of their partnership agreement and to place, at lest, his
capital contribution at the disposal of the partnership. Despite
several promises, Puzon, however, failed to do so. 17 Realizing
that his verbal demands were to no avail,
William Uy consequently wrote Bartolome Puzon formal letters
of demand, 18 to which Puzon replied that he is unable to put
in additional capital to continue with the projects. 19
Failing to reach an agreement with William Uy,
Bartolome Puzon, as prime contractor of the construction
projects, wrote the sub-contractor, U.P. Construction Company,
on November 20, 1957, advising the partnership, of which he is
also a partner, that unless they presented an immediate solution
and capacity to prosecute the work effectively, he would be
constrained to consider the sub-contract terminated and,
thereafter, to assume all responsibilities in the construction of
the projects in accordance with his original contract with the
Bureau of Public Highways. 20 On November 27, 1957,
Bartolome Puzon again wrote the U.P. Construction Company
finally terminating their sub-contract agreement as of
December 1, 1957. 21
Thereafter, William Uy was not allowed to hold office in the
U.P. Construction Company and his authority to deal with the
Bureau of Public Highways in behalf of the partnership was
revoked by Bartolome Puzon who continued with the
construction projects alone.22
On May 20, 1958, William Uy, claiming that
Bartolome Puzon had violated the terms of their partnership
agreement, instituted an action in court, seeking, inter alia, the
dissolution of the partnership and payment of damages.
Answering, Bartolome Puzon denied that he violated the terms
of their agreement claiming that it was the plaintiff,
William Uy, who violated the terms thereof. He, likewise,
prayed for the dissolution of the partnership and for the
payment by the plaintiff of his share in the losses suffered by
the partnership.
After appropriate proceedings, the trial court found that the
defendant, contrary to the terms of their partnership agreement,
failed to contribute his share in the capital of the partnership;
applied partnership funds to his personal use; ousted the
plaintiff from the management of the firm; and caused the
failure of the partnership to realize the expected profits of at
least P400,000.00. As a consequence, the trial court dismissed
the defendant's counterclaim and ordered the dissolution of the
partnership. The trial court further ordered the defendant to pay
the plaintiff the sum of P320,103.13.
Hence, the instant appeal by the defendant Bartolome Puzon.
During the pendency of the appeal before this Court, the said
Bartolome Puzon died, and was substituted by Franco Puzon.
The appellant makes in his brief nineteen (19) assignment of
errors, involving questions of fact, which relates to the
following points:
(1) That the appellant is not guilty of breach of contract; and
(2) That the amounts of money the appellant has been ordered
to pay the appellee is not supported by the evidence and the
law.
After going over the record, we find no reason for rejecting the
findings of fact below, justifying the reversal of the decision
appealed from.
The findings of the trial court that the appellant failed to
contribute his share in the capital of the partnership is clearly
incontrovertible, The record shows that after the appellant's
loan in the amount of P150,000.00 was approved by the
Philippine National Bank in November, 1956, he gave the
amount of P60,000.00 to the appellee who was then managing
the construction projects. Of this amount, P40,000.00 was to be
applied as reimbursement of the appellee's contribution to the
partnership which was used to clear the title to the appellant's
property, and the balance of P20,000.00, as Puzon's
contribution to the partnership. 23Thereafter, the appellant
failed to make any further contributions to the partnership
funds as shown in his letters to the appellee wherein he
confessed his inability to put in additional capital to continue
with the projects. 24
Parenthetically, the claim of the appellant that the appellee is
equally guilty of not contributing his share in the partnership
capital inasmuch as the amount of P40,000.00, allegedly given
to him in October, 1956 as partial contribution of the appellee
is merely a personal loan of the appellant which he had paid to
the appellee, is plainly untenable. The terms of the receipts
signed by the appellant are clear and unequivocal that the sums
of money given by the appellee are appellee's partial
contributions to the partnership capital. Thus, in the receipt for
P10,000.00 dated October 24, 1956, 25 the appellant
stated: cdphil
"Received from Mr. William Uy the sum of TEN THOUSAND
PESOS (P10,000.00) in Check No. 423285 Equitable Banking
Corporation, dated October 24, 1965, as advance contribution
of the share of said William Uy in the partnership to be
organized between us under the firm name U.P.
CONSTRUCTION COMPANY which amount mentioned above
will be used by the undersigned to pay his obligations with the
Philippine National Bank to effect the release of his mortgages
with the said bank." (Emphasis ours)
In the receipt for the amount of P30,000.00 dated October 29,
1956, 26 the appellant also said:
"Received from William Uy the sum of THIRTY THOUSAND
PESOS (P30,000.00) in Check No. SC42387, of the Equitable
Banking Corporation, as partial contribution of the share of the
said William Uy to the U.P. CONSTRUCTION COMPANY for
which the undersigned will use the said amount in the payment
of his obligation to the Rehabilitation Finance Corporation."
(Emphasis ours)
The findings of the trial court that the appellant misapplied
partnership funds is, likewise, sustained by competent
evidence. It is of record that the appellant assigned to the
Philippine National Bank all the payments to be received on
account of the contracts with the Bureau of Public Highways
for the construction of the aforementioned projects to guarantee
the repayment of the appellant's personal loan with the said
bank. 27 By virtue of the said assignment, the Bureau of Public
Highways paid the money due on the partial accomplishments
on the construction projects in question to the Philippine
National Bank who, in turn, applied portions of it in payment of
the appellant's loan. 28
The appellant claims, however, that the said assignment was
made with the consent of the appellee and that the assignment
did not prejudice the partnership as it was reimbursed by the
appellant.
But, the appellee categorically stated that the assignment to the
Philippine National Bank was made without his prior
knowledge and consent and that when he learned of said
assignment, he called the attention of the appellant who assured
him that the assignment was only temporary as he would
transfer the loan to the Rehabilitation Finance Corporation
within three (3) months time. 29
The question of whom to believe being a matter largely
dependent on the trier's discretion, the findings of the trial
court, who had the better opportunity to examine and appraise
the factual issue, certainly deserve respect.
That the assignment to the Philippine National Bank is
prejudicial to the partnership cannot be denied. The record
shows that during the period from March, 1957 to September,
1959, the appellant Bartolome Puzon received from the Bureau
of Public Highways, in payment of the work accomplished on
the construction projects, the amount of P1,047,181.01, which
amount rightfully and legally belongs to the partnership by
virtue of the subcontract agreements between the appellant and
the U.P. Construction Company. In view of the assignment
made by Puzon to the Philippine National Bank, the latter
withheld and applied the amount of P332,539.60 in payment of
the appellant's personal loan with the said bank. The balance
was deposited in Puzon's current account and only the amount
of P27,820.80 was deposited in the current account of the
partnership. 30 For sure, if the appellant gave to the partnership
all that were earned and due it under the sub-contract
agreements, the money would have been used as a safe reserve
for the discharge of all obligations of the firm and the
partnership would have been able to successfully and profitably
prosecute the projects it sub-contracted.
When did the appellant make the reimbursement claimed by
him?
For the same period, the appellant actually disbursed for the
partnership, in connection with the construction projects, the
amount of P952,839.77. 31 Since the appellant received from
the Bureau of Public Highways the sum of P1,047,181.01, the
appellant has a deficit balance of P94,342.24. The appellant,
therefore, did not make complete restitution.
The findings of the trial court that the appellee has been ousted
from the management of the partnership is also based upon
persuasive evidence. The appellee testified that after he had
demanded from the appellant payment of the latter's
contribution to the partnership capital, the said appellant did not
allow him to hold office in the U.P. Construction Company and
his authority to deal with the Bureau of Public Highways was
revoked by the appellant. 32
As the record stands, We cannot say, therefore, that the decision
of the trial court is not sustained by the evidence of record as to
warrant its reversal.
Since the defendant-appellant was at fault, the trial court
properly ordered him to reimburse the plaintiff-appellee
whatever amount the latter had invested in or spent for the
partnership on account of the construction projects.
How much did the appellee spend in the construction projects
in question?
It appears that a though the partnership agreement stated that
the capital of the partnership is P100,000.00 of which each
partner shall contribute to the partnership the amount of
P50,000.00 in cash, 33 the partners of the U.P. Construction
Company did not contribute their agreed share in the
capitalization of the enterprise in lump sums of P50,000.00
each. Aside from the initial amount of P40,000.00 put up by the
appellee in October, 1956, 34 the partners' investments took the
form of cash advances covering expenses of the construction
projects as they were incurred. Since the determination of the
amount of the disbursements which each of the partners had
made for the construction projects required an examination of
various books of account, the trial court appointed two
commissioners, designated by the parties, "to examine the
books of account of the defendant regarding the U.P.
Construction Company and his personal account with particular
reference to the Public Works contract for the construction of
the Ganyangan-Bato Section, Pagadian-Zamboanga City Road
and five (5) Bridges in Manlangas-Ganyangan Road, including
the payments received by defendant from the Bureau of Public
Highways by virtue of the two projects above mentioned, the
disbursements or disposition made by defendant of the portion
thereof released to him by the Philippine National Bank and in
whose account these funds are deposited." 35
In due time, the commissioners so appointed, 36 submitted
their report 37 wherein they indicated the items wherein they
are in agreement, as well as their points of disagreement. LLjur
In the commissioners' report, the appellee's advances are listed
under Credits; the money received from the firm, under Debits;
and the resulting monthly investment standings of the partners,
under Balances. The commissioners are agreed that at the end
of December, 1957, the appellee had a balance of
P8,242.39. 38 It is in their respective adjustments of the capital
account of the appellee that the commissioners had disagreed.
Mr. Ablaza, designated by the appellant, would want to charge
the appellee with the sum of P24,239.48, representing the
checks issued by the appellant, 39 and encashed by the appellee
or his brother, Uy Han so that the appellee would owe the
partnership the amount of P15,997.09.
Mr. Tayag, designated by the appellee, upon the other hand,
would credit the appellee the following additional amounts:
(1) 7,497.80 items omitted from the books of the partnership
but recognized and charged to Miscellaneous Expenses by Mr.
Ablaza;
(2) P65,103.77 payrolls paid by the appellee in the amount
of P128,103.77 less payroll remittances from the appellant in
the amount of P63,000.00; and
(3) P26,027.04 other expenses incurred by the appellee at
the construction site.
With respect to the amount of P24,239.48, claimed by the
appellant, we are hereunder adopting the findings of the trial
court which we find to be in accord with the evidence:
"To enhance defendant's theory that he should be credited with
P24,239.48, he presented checks allegedly given to plaintiff
and the latter's brother, Uy Han, marked as Exhibits 2 to 11.
However, defendant admitted that said checks were not entered
nor recorded in their hooks of account, as expenses for and in
behalf of the partnership or its affairs. On the other
hand, Uy Han testified that some of the checks he received
were exchange for cash, while others were used in the purchase
of spare parts requisitioned by defendant. This testimony was
not refuted to the satisfaction of the Court, considering that
Han's explanation thereof is the more plausible, because if they
were employed in the prosecution of the partnership projects,
the corresponding disbursements would have certainly been
recorded in its books, which is not the case. Taking into account
that defendant is the custodian of the books of account, his
failure to so enter therein the alleged disbursements,
accentuates the falsity of his claim on this point." 40
Besides, as further noted by the trial court, the report of
Commissioner Ablaza is unreliable in view of his proclivity to
favor the appellant and because of the inaccurate accounting
procedure adopted by him in auditing the books of account of
the partnership, unlike Mr. Tayag's report which inspires faith
and credence. 41
As explained by Mr. Tayag, the amount of P7,497.80
represented expenses paid by the appellee out of his personal
funds which had not been entered in the books of the
partnership but which had been recognized and conceded to by
the auditor designated by the appellant who included the said
amount under "Miscellaneous Expenses." 42
The explanation of Mr. Tayag on the inclusion of the amount of
P65,103.77 is likewise clear and convincing. 43
As for the sum of P26,027.04, the same represents the expenses
which the appellee paid in connection with the projects and not
entered in the books of the partnership since all vouchers and
receipts were sent to the Manila office which were under the
control of the appellant. However, a list of these expenses are
incorporated in Exhibits ZZ, ZZ-1 to ZZ-4.
In resume, the appellee's credit balance would be as follows:
Undisputed balance as of Dec. 1957 P8,242.30
Add: Items omitted from the books but
recognized and charged to Miscellaneous
Expenses by Mr. Ablaza 7,497.80
release the payrolls to me. I checked over the list of
Mr. Uy with the payrolls. I found out that the amount
corresponding to each employee in his list tally with those in
the payrolls. But the payrolls most of them were not in total. So
there was no way of knowing the total amount in the payrolls. I
believe there is reasonable proof that those were the payrolls
that were paid by Mr.Uy. That is the reason why I included in
my Exhibit A the amount of P128,103.77.
"Q Do you have the list of the persons to whom payments were
made by Mr. Uy which you said was given to you prior to your
seeing the payrolls in the U.P. Construction Company's office
and confronting it with the said payrolls which you found that
they tally?
"A Yes, sir, I have the list given to me by Mr. Uy which shows appellee, who was in charge of the projects in the field,
here 'Summary payrolls for the month of October 1956 to contributed in a large measure to the failure of the partnership
January 1957' already signed. (Witness handing to counsel for to realize such profits by his field management.
the plaintiff the said list). This argument must be overruled in the light of the law and
"ATTY. SALVADOR: evidence on the matter. Under Article 2200 of the Civil Code,
Consisting of nine pages, which for purposes of identification, indemnification for damages shall comprehend not only the
we request that the same be marked as Exhibits YY, YY-1 to value of the loss suffered, but also that of the profits which the
YY-8. obligee failed to obtain. In other, words lucrum cessans is also
"COURT: a basis for indemnification.
Let them be so marked. Has the appellee failed to make profits because of appellant's
"ATTY. SALVADOR: breach of contract?
"Q Now, in your adjustment Mr. Tayag under the capital There is no doubt that the contracting business is a profitable
account of Mr. Uy, Exhibit A-Tayag, there is a deduction from one and that the U.P. Construction Company derived some
said amount of P128,103.77, representing payrolls paid by him profits from its sub-contracts in the construction of the road and
in the amount of P63,000.00, what does this amount represent? bridges projects despite its deficient working capital and the
"A As I have said the amount charged to salaries and wages in juggling of its funds by the appellant.
the books of Mr. Puzon were the remittances to Zamboanga Contrary to the appellant's claim, the partnership showed some
Office intended for the payment of the laborers. The amount of profits during the period from July 2, 1956 to December 31,
P63,000.00 as mentioned by me in schedule 2, were the same 1957. If the Profit and Loss Statement 45 showed a net loss of
remittances which I deducted from the total of these payrolls. I P134,019.43, this was primarily due to the confusing
deducted this amount of P63,000.00 from the P128,000.00 plus accounting method employed by the auditor who intermixed
resulting only in the amount of P65,103.77 which is the net the cash and accrual method of accounting and the erroneous
credit carried to the account of Mr. Uy." (pp. 165-169, tsn). inclusion of certain items, like personal expenses of the
Add: Payrolls paid by the appellee P128,103.77 appellant and alleged extraordinary losses due to an accidental
Less: Payroll remittances received 63,000.00 65,103.77 plane crash, in the operating expenses of the partnership.
Add: Other expenses incurred at the Corrected, the Profit and Loss Statement would indicate a net
site (Exhs, ZZ, ZZ-1 to ZZ-4) 26,027.04 profit of P41,611.28.
TOTAL P106,871.00 For the period from January 1, 1958 to September 30, 1959, the
At the trial, the appellee presented a claim for the amounts of partnership admittedly made a net profit of P52,943.89. 46
P3,917.39 and P4,665.00 which he also advanced for the Besides, as We have heretofore pointed out, the appellant
construction projects but which were not included in the received from the Bureau of Public Highways, in payment of
Commissioner's Report. 44 the construction projects in question, the amount of
Appellee's total investments in the partnership would, therefore, P1,047,181.01 47 and disbursed the amount of
be: P952,839.77, 48 leaving an unaccounted balance of
Appellee's total credits P106,871.00 P94,342.24. Obviously, this amount is also part of the profits of
Add: unrecorded balances for the month the partnership.
of Dec. 1957 (Exhs. KKK, KKK-1 to During the trial of this case, it was discovered that the appellant
KKK-19, KKK-22) 3,917.39 bad money and credits receivable from the projects in question,
Add: Payments to Muoz, as sub-contractor in the custody of the Bureau of Public Highways, in the amount
of five (5) Bridges (p. 264-tsn; of P128,669.75, representing the 10% retention of said
Exhs. KKK-20, KKK-21) 4,665.00 projects. 49After the trial of this case, it was shown that the
Total Investments P115,453.39 total retentions deducted from the appellant amounted to
Regarding the award of P200,000.00 as his share in the P145,358.00. 50 Surely, these retained amounts also form part
unrealized profits of the partnership, the appellant contends that of the profits of the partnership. LLphil
the findings of the trial court that the amount of P400,000.00 as Had the appellant not been remiss in his obligations as partner
reasonable profits of the partnership venture is without any and as prime contractor of the construction projects in question
basis and is not supported by the evidence. The appellant as he was bound to perform pursuant to the partnership and
maintains that the lower court, in making its determination, did sub-contract agreements, and considering the fact that the total
not take into consideration the great risks involved in business contract amount of these two projects is P2,327,335.76, it is
operations involving as it does the completion of the projects reasonable to expect that the partnership would have earned
within a definite period of time, in the face of adverse and often much more than the P334,255.61. We have hereinabove
unpredictable circumstances, as well as the fact that the indicated. The award, therefore, made by the trial court of the
amount of P200,000.00, as compensatory damages, is not
speculative, but based on reasonable estimate.
WHEREFORE, finding no error in the decision appealed from,
the said decision is hereby affirmed with costs against the
appellant, it being understood that the liability mentioned
herein shall be borne by the estate of the deceased
Bartolome Puzon, represented in this instance by the
administrator thereof, Franco Puzon.
SO ORDERED.
SECOND DIVISION
[G.R. No. L-31684. June 28, 1973.]
EVANGELISTA & CO., DOMINGO C. EVANGELISTA,
JR., CONCHITA B. NAVARRO and LEONARDA
ATIENZAABAD SANTOS, petitioners, vs. ESTRELLA AB
AD SANTOS, respondent.
Leonardo Abola for petitioners.
Baizas, Alberto & Associates for respondent.
DECISION
MAKALINTAL, Actg., C .J p:
On October 9, 1954 a co-partnership was formed under the
name of "Evangelista & Co." On June 7, 1955 the Articles of
Co-partnership were amended so as to include herein
respondent, Estrella Abad Santos, as industrial partner, with
herein petitioners Domingo C. Evangelista, Jr., Leonarda
Atienza Abad Santos and Conchita P. Navarro, the original
capitalist partners, remaining in that capacity, with a
contribution of P17,500 each. The amended Articles
provided, inter alia, that "the contribution of
Estrella AbadSantos consists of her industry being an industrial
partner;" and that the profits and losses "shall be divided and
distributed among the partners .. in the proportion of 70% for
the first three partners, Domingo C. Evangelista, Jr., Conchita
P. Navarro and Leonarda Atienza Abad Santos to be divided
among them equally; and 30% for the fourth partner,
Estrella Abad Santos."
On December 17, 1963 herein respondent filed suit against the
three other partners in the Court of First Instance of Manila,
alleging that the partnership, which was also made a party-
defendant, had been paying dividends to the partners except to
her; and that notwithstanding her demands the defendants had
refused and continued to refuse to let her examine the
partnership books or to give her information regarding the
partnership affairs or to pay her any share in the dividends
declared by the partnership. She therefore prayed that the
defendants be ordered to render an accounting to her of the
partnership business and to pay her corresponding share in the
partnership profits after such accounting, plus attorney's fees
and costs.
The defendants, in their answer, denied ever having declared
dividends or distributed profits of the partnership; denied
likewise that the plaintiff ever demanded that she be allowed to
examine the partnership books; and by way of affirmative
defense alleged that the amended Articles of Co-partnership did
not express the true agreement of the parties, which was that
the plaintiff was not an industrial partner; that she did not in
fact contribute industry to the partnership; and that her share of
30% was to be based on the profits which might be realized by
the partnership only until full payment of the loan which it had
obtained in December, 1955 from the Rehabilitation Finance
Corporation in the sum of P30,000, for which the plaintiff had
signed a promissory note as co-maker and mortgaged her
property as security.
The parties are in agreement that the main issue in this case is
"whether the plaintiff-appellee (respondent here) is an
industrial partner as claimed by her or merely a profit sharer
entitled to 30% of the net profits that may be realized by the
partnership from June 7, 1955 until the mortgage loan from the
Rehabilitation Finance Corporation shall be fully paid, as
claimed by appellants (herein petitioners)." On that issue the
Court of First Instance found for the plaintiff and rendered
judgment "declaring her an industrial partner of Evangelista &
Co., ordering the defendants to render an accounting of the
business operations of the (said) partnership . . . from June 7,
1955; to pay the plaintiff such amounts as may be due as her
share in the partnership profits and/or dividends after such an
accounting has been properly made; to pay plaintiff attorney's
fees in the sum of P2,000.00 and the costs of this suit."
The defendants appealed to the Court of Appeals, which
thereafter affirmed the judgment of the court a quo.
In the petition before Us the petitioners have assigned the
following errors:
"I. The Court of Appeals erred in finding that the respondent is
an industrial partner of Evangelista & Co., notwithstanding the
admitted fact that since 1954 and until after the promulgation of
the decision of the appellate court the said respondent was one
of the judges of the City Court of Manila, and despite its
finding that respondent has been paid for services allegedly
contributed by her to the partnership. In this connection the
Court of Appeals erred:
(A) In finding that the 'amended Articles of Co-partnership,'
Exhibit 'A' is conclusive evidence that respondent was in fact
made an industrial partner of Evangelista & Co.
(B) In not finding that a portion of respondent's testimony
quoted in the decision proves that said respondent did not hind
herself to contribute her industry, and she could not, and in fact
did not, because she was one of the judges of the City Court of
Manila since 1954.
(C) In finding that respondent did in fact contribute her
industry, despite the appellate court's own finding that she has
been paid for the services allegedly rendered by her, as well as
for the loans of money made by her to the partnership.
"II. The lower court erred in not finding that in any event the
respondent was lawfully excluded from, and deprived of, her
alleged share, interest and participation, as an alleged industrial
partner, in the partnership Evangelista & Co., and in its profits
or net income.
"III. The Court of Appeals erred in affirming in toto the
decision of the trial court whereby respondent was declared an
industrial partner of petitioner partnership, and petitioners were
ordered to render an accounting of the business operation of the
partnership from June 7, 1955, and to pay the respondent her
alleged share in the net profits of the partnership plus the sum
of P2,000.00 as attorney's fees and the costs of the suit, instead
of dismissing respondent's complaint, with costs, against the
respondent."
It is quite obvious that the questions raised in the first assigned
error refer to the facts as found by the Court of Appeals. The
evidence presented by the parties as the trial in support of their
respective positions on the issue of whether or not the
respondent was an industrial partner was thoroughly analyzed
by the Court of Appeals on its decision, to the extent of
reproducing verbatimtherein the lengthy testimony of the
witnesses.
It is not the function of the Supreme Court to analyze or weigh
such evidence all over again, its jurisdiction being limited to
reviewing errors of law that might have been committed by the
lower court. It should be observed, in this regard, that the Court
of Appeals did not hold that the Articles of Co-partnership,
identified in the record as Exhibit "A", was conclusive evidence
that the respondent was an industrial partner of the said
company, but considered it together with other factors,
consisting of both testimonial and documentary evidences, in
arriving at the factual conclusion expressed in the decision.
The findings of the Court of Appeals on the various points
raised in the first assignment of error are hereunder reproduced
if only to demonstrate that the same were made after a thorough
analysis of the evidence, and hence are beyond this Court's
power of review.
"The aforequoted findings of the lower Court are assailed under
Appellants' first assigned error, wherein it is pointed out that
'Appellee's documentary evidence does not conclusively prove
that appellee was in fact admitted by appellants as industrial
partner of Evangelista & Co.' and that 'The grounds relied upon
by the lower Court are untenable' (Pages 21 and 26, Appellant's
Brief).
"The first point refers to Exhibits A, B, C, K, K-1, J, N, and S,
appellants' complaint being that 'In finding that the appellee is
an industrial partner of appellant Evangelista & Co., herein
referred to as the partnership the lower court relied mainly
on the appellee's documentary evidence, entirely disregarding
facts and circumstances established by appellants' evidence
which contradict the said finding' (Page 21, Appellants' Brief).
The lower court could not have done otherwise but rely on the
exhibits just mentioned, first, because appellants have admitted
their genuineness and due execution hence they were admitted
without objection by the lower court when appellee rested her
case and, secondly, the said exhibits indubitably show that
appellee is an industrial partner of appellant company.
Appellants are virtually estopped from attempting to detract
from the probative force of the said exhibits because they all
bear the imprint of their knowledge and consent, and there is no
credible showing that they ever protested against or opposed
their contents prior to the filing of their answer to appellee's
complaint. As a matter of fact, all that appellant Evangelista,
Jr., would have us believe as against the cumulative force of
appellee's aforesaid documentary evidence is that appellee's
Exhibit 'A', as confirmed and corroborated by the other exhibits
already mentioned, does not express the true intent and
agreement of the parties thereto, the real understanding
between them being that appellee would be merely a profit
sharer entitled to 30% of the net profits that may be realized
between the partners from June 7, 1955 until the mortgage loan
of P30,000.00 to be obtained from the RFC shall have been
fully paid. This version,. however, is discredited not only by the
aforesaid documentary evidence brought forward by appellee,
but also by the fact that from June 7, 1955 up to the filing of
their answer to the complaint on February 8, 1964 or a
period of over eight (8) years appellants did nothing to
correct the alleged false agreement of the parties contained in
Exhibit 'A'. It is thus reasonable to suppose that, had appellee
not filed the present action, appellants would not have
advanced this obvious afterthought that Exhibit 'A' does not
express the true intent and agreement of the parties thereto.
"At pages 32-33 of appellants' brief, they also make much of
the argument that 'there is an overriding fact which proves that
the parties to the Amended Articles of Partnership, Exhibit 'A',
did not contemplate to make the appellee Estrella Abad Santos,
an industrial partner of Evangelista & Co. It is an admitted fact
that since before the execution of the amended articles of
partnership, Exhibit 'A', the appellee Estrella Abad Santos has
been, and up to the present time still is, one of the judges of the
City Court of Manila, devoting all her time to the performance
of the duties of her public office. This fact proves beyond
peradventure that it was never contemplated between the
parties, for she could not lawfully contribute her full time and
industry which is the obligation of an industrial partner
pursuant to Art. 1789 of the Civil Code."
The Court of Appeals then proceeded to consider appellee's
testimony on this point, quoting it in the decision, and then
concluded as follows:
"One cannot read appellee's testimony just quoted without
gaining the very definite impression that, even as she was and
still is a Judge of the City Court of Manila, she has rendered
services for appellants without which they would not have had
the wherewithal to operate the business for which appellant
company was organized. Article 1767 of the New Civil Code
which provides that 'By 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,' does not specify the kind of industry
that a partner may thus contribute, hence the said services may
legitimately be considered as appellee's contribution to the
common fund. Another article of the same Code relied upon by
appellants reads:
'ART. 1789. An industrial partner cannot engage in business for
himself, unless the partnership expressly permits him to do so;
and if he should do so, the capitalist partners may either
exclude him from the firm or avail themselves of the benefits
which he may have obtained in violation of this provision, with
a right to damages in either case.'
It is not disputed that the prohibition against an industrial
partner engaging in business for himself seeks to prevent any
conflict of interest between the industrial partner and the
partnership, and to insure faithful compliance by said partner
with his prestation. There is no pretense, however, even on the
part of appellants that appellee is engaged in any business
antagonistic to that of appellant company, since being a Judge
of one of the branches of the City Court of Manila can hardly
be characterized as a business. That appellee has faithfully
complied with her prestation with respect to appellants is
clearly shown by the fact that it was only after the filing of the
complaint in this case and the answer thereto that appellants
exercised their right of exclusion under the codal article just
mentioned by alleging in their Supplemental Answer dated July
29, 1964 or after around nine (9) years from June 7, 1955
'That subsequent to the filing of defendants' answer to the
complaint, the defendants reached an agreement whereby the
herein plaintiff has been excluded from, and deprived of, her
alleged share, interest or participation, as an alleged industrial
partner, in the defendant partnership and/or in its net profits or
income, on the ground that plaintiff has never contributed her
industry to the partnership, and instead she has been and still is
a judge of the City Court (formerly Municipal Court) of the
City of Manila, devoting her time to the performance of her
duties as such judge and enjoying the privileges and
emoluments appertaining to the said office, aside from teaching
in law school in Manila, without the express consent of the
herein defendants' (Record On Appeal, pp. 24-25). Having
always known appellee as a City Judge even before she joined
appellant company on June 7, 1955 as an industrial partner,
why did it take appellants so many years before excluding her
from said company as per aforequoted allegations? And 'how
can they reconcile such exclusion with their main theory that
appellee has never been such a partner because 'The real
agreement evidenced by Exhibit 'A' was to grant the appellee a
share of 30% of the net profits which the appellant partnership
may realize from June 7, 1955, until the mortgage loan of
P30,000.00 obtained from the Rehabilitation Finance
Corporation shall have been fully paid.' (Appellants Brief, p.
38).
"What has gone before persuades us to hold with the lower
Court that appellee is an industrial partner of appellant
company, with the right to demand for a formal accounting and
to receive her share in the net profit that may result from such
an accounting, to which right appellants take exception under
their second assigned error. Our said holding is based on the
following article of the New Civil Code:
'ART. 1299. Any partner shall have the right to a formal
account as to partnership affairs:
(1) If he is wrongfully excluded from the partnership business
or possession of its property by his co-partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807;
(4) Whenever other circumstances render it just and
reasonable."
We find no reason in this case to depart from the rule which
limits this Court's appellate jurisdiction to reviewing only
errors of law, accepting as conclusive the factual findings of the
lower court upon its own assessment of the evidence.
The judgment appealed from is affirmed, with costs.
THIRD DIVISION
[G.R. No. 183374. June 29, 2010.]
MARSMAN DRYSDALE LAND,
INC., petitioner, vs. PHILIPPINE GEOANALYTICS, INC.
AND GOTESCO PROPERTIES, INC., respondents.
[G.R. No. 183376. June 29, 2010.]
GOTESCO PROPERTIES,
INC., petitioner, vs. MARSMAN DRYSDALE LAND, INC.
AND PHILIPPINEGEOANALYTICS, INC., respondents.
DECISION
CARPIO MORALES, J p:
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 MarsmanDrysdale 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. IcTEAD
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. . . .
4.3.6. . . .
4.3.7. . . .
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 PhilippineGeoanalytics, 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. aATEDS
PGI then billed the joint venture on November 24, 1997 for
P284,553.50 representing the cost of partial subsurface soil
exploration; and on January 15, 1998 for P250,800 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. cCSTHA
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
herebyAFFIRMED 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 ICASEH
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
[MARSMANDRYSDALE] 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, 15 these 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 manager 17 which
was endorsed to Gotesco for processing and
payment. 18 STcADa
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, 19 and all
billing invoices indicated the consortium therein as the
client. HCIaDT
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. 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 P535,353.50 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. THCSEA
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 demand 23 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.
SO ORDERED.
FIRST DIVISION
[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 p:
This petition for review on certiorari 1 seeks to modify the
Decision 2 of the Court of Appeals dated July 30, 2002 in CA-
G.R. CV No. 40887, which set aside the Decision 3 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. 7With
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 DHATcE
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 (P8,000.00) and
Federico Jarantilla, Jr.'s as five thousand pesos (P5,000.00). 12
The present case stems from the amended complaint 13 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 (P7,500.00) 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
properties 14 (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 agreement 17 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. 18 acCETD
The RTC, in an Order 19 dated March 25, 1992, approved the
Joint Motion to Approve Compromise Agreement 20 and 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 P50,000.00
as moral damages;
5. to pay, jointly and severally, the sum of P50,000.00 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 wasnot 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 caDTSE
(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
Resolution 24 dated March 21, 2003.
Antonieta Jarantilla filed before this Court her own petition for
review on certiorari 25 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
FEDERICOJARANTILLA, 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 TCDHaE
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 Revenue 37 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; CAIaDT
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
Buenaventura Remotigue (TWENTY-FIVE
and the other not being entitled to share in plaintiff's
commission, no partnership existed as between THOUSAND) 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. . . . .
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. SDTIaE
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:
P25,000.
nchita Jarantilla de Remotigue (TWENTY-FIVE
OUSAND)
encio Deocampo (FIFTEEN THOUSAND)
ita J. Deocampo (FIFTEEN THOUSAND)
onieta Jarantilla (EIGHT THOUSAND)
ael Jarantilla (SIX THOUSAND)
erico Jarantilla, Jr. (FIVE THOUSAND)
ntin Vismanos (TWO THOUSAND)
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 REMOTIGUE 40
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: aEHASI
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
25,000.00
enumerated in the Acknowledgement of Participating
Capital.
In Villareal v. Ramirez, 41 the Court held that since a
15,000.00
partnership is a separate juridical entity, the shares to be paid
15,000.00
out to the partners is necessarily limited only to its total
resources, to wit:
8,000.00
Since it is the partnership, as a separate and distinct entity, that
6,000.00
must refund the shares of the partners, the amount to be
5,000.00
refunded is necessarily limited to its total resources. In other
words, it can only pay out what it has in its coffers, which
2,000.00
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, 44this
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 HTAIcD
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
assumingarguendo 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. 49This 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. 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." 55aAcDSC
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. . . . .
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.
SO ORDERED.
FIRST DIVISION
[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
JETHMAL RAMNANI, petitioners, vs. THE
HONORABLECOURT OF APPEALS, ORTIGAS & CO.,
LTD. PARTNERSHIP, and OVERSEAS HOLDING CO.,
LTD.,respondents.
Quasha, Asperilla, Ancheta, Pea and Nolasco for petitioners
in G.R. No. 85496.
Salonga, Andres, Hernandez & Allado for petitioners in G.R.
No. 85494.
Rama Law Office for petitioners in G.R. No. 85494, in
collaboration with Salonga, Andres, Hernandez & Allado.
Eulogio R. Rodriguez for Ortigas & Co., Ltd.
SYLLABUS
1. REMEDIAL LAW; EVIDENCE; ENTRUSTING MONEY
AND VALUABLES WITHOUT RECEIPT TO CLOSE
FAMILY MEMBERS, NOT UNUSUAL. 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.
2. ID.; CIVIL PROCEDURE; DEFAULT; FAILURE TO FILE
COMMENT OR ANSWER. Overseas was impleaded as
respondent in the cases and required to file comment or answer
to the different pleadings filed by petitioner. 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 null and void.
3. CIVIL LAW; MORTGAGE; NULLITY OF MORTGAGE
SHOWN BY CIRCUMSTANCES IN CASE AT BAR. 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. 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. 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.
4. ID.; AGENCY;
NOTICE OF REVOCATION OF POWER OF ATTORNEY IN
NEWSPAPER, SUFFICIENT WARNING TO THIRD PARTY.
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. A publication of said notice was
made in the April 2, 1971 issue of The Manila Times for the
information of the general public. Such notice of revocation in
a newspaper of general circulation is sufficient warning to third
persons including Ortigas. A notice of revocation was also
registered with the Securities and Exchange Commission on
March 29, 1971.
5. ID.; ID.; ID.; THIRD PARTY'S FAULT RENDERS HIM
GUILTY TO PRINCIPAL. Indeed in the letter of Choithram
to Ishwarof 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. Despite said notices, Ortigas nevertheless
acceded to the representationof 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.
6. ID.; TRUST; IMPLIED TRUST; CREATED WHERE
THERE WAS FRAUDULENT TRANSFER OF PROPERTY.
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.
7. REMEDIAL LAW; PROVISIONAL REMEDY;
PRELIMINARY INJUNCTION; ISSUANCE. The motion
to dissolve the writ ofpreliminary 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 plaintiff's rights respecting
the subject of the action, and tending to render the judgment
ineffectual."
8. ID.; ID.; ID.; PURPOSE. The purpose of the provisional
remedy of preliminary injunction is to preserve the status
quo ofthe 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 suit, and not to obstruct the
administration of justice or prejudice the adverse party. 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.
9. ID.; ID.; ATTACHMENT; WARRANTED WHERE THERE
IS AN INTENT TO DEFRAUD CREDITORS; CASE AT
BAR. 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 ofthe litigation disclose a scheme to defraud spouses
Ishwar so they may not be able to recover at all, given a
judgment in their favor, thus requiring the issuance of the
writ of attachment in this instance.
10. COMMERCIAL LAW; CORPORATION LAW;
INDUSTRIAL PARTY WHILE GUILTY OF FRAUDULENT
SCHEME SHARES EQUALLY WITH CAPITALIST
PARTNER; CASE AT BAR. 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.
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. 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.
11. CIVIL LAW; DAMAGES; AWARD OF MORAL &
EXEMPLARY DAMAGES IN CASE AT BAR. 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.
DECISION
GANCAYCO, J p:
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. 2 Per 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. LibLex
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, 1971 4 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 ofthe 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 Choitram 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,
NirmlaV. 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 Deedsof Rizal, prevailing at the time of the
satisfaction of the judgment but in no case shall such damages
be less than the value ofsaid properties as appraised by Asian
Appraisal, Inc. in its Appraisal Report dated August 1985 question where the cause of action of private respondents is SHOULD READ THE NOTICE AS ACTUALLY
(Exhibits T to T-14, inclusive). prcd recovery of a sum of money. PUBLISHED;
2. All rental incomes paid or ought to be paid for the use and ARGUMENTS C) IN HOLDING IN SAID AMENDED DECISION THAT
occupancy of the properties in question and all improvements I ORTIGAS COULD NOT BE HELD LIABLE JOINTLY AND
thereon consisting of buildings, and to be computed as follows: THE COURT OF APPEALS ACTED IN GRAVE SEVERALLY WITH THE DEFENDANTS-APPELLEES
a) On Building C occupied by Eppie's Creation and Jethmal ABUSE OF ITS DISCRETION IN MAKING A FACTUAL CHOITHRAM, MOTI AND NIRMLA RAMNANI, AS
Industries from 1967 to 1973, inclusive, based on the 1967 to FINDING THAT PRIVATE RESPONDENT ISHWAR ORTIGAS RELIED ON THE WORD OF CHOITHRAM
1973 monthly rentals paid by Eppie's Creation; REMITTED THE AMOUNT OF US$150,000.00 TO THAT ALL ALONG HE WAS ACTING FOR AND IN
b) Also on Building C above, occupied by Jethmal Industries PETITIONER CHOITHRAM IN THE BEHALF OFHIS BROTHER ISHWAR WHEN IT
and Lavine from 1974 to 1978, the rental incomes based on ABSENCE OF PROOF OF SUCH REMITTANCE. TRANSFERRED THE RIGHTS OF THE LATTER TO
then rates prevailing as shown under Exhibit 'P'; and from 1979 II NIRMLA V. RAMNANI; LibLex
to 1981, based on then prevailing rates as indicated under THE COURT OF APPEALS ACTED WITH GRAVE D) IN IGNORING THE EVIDENCE DULY PRESENTED
Exhibit 'Q'; ABUSE OF DISCRETION AND MANIFEST PARTIALITY AND ADMITTED DURING THE TRIAL THAT ORTIGAS
c) On Building A occupied by Transworld Knitting Mills from IN DISREGARDING THE TRIAL COURT'S FINDINGS WAS PROPERLY NOTIFIED OF THE
1972 to 1978, the rental incomes based upon then prevailing BASED ON THE DIRECT DOCUMENTARY AND NOTICE OF REVOCATION OF THE GENERAL
rates shown under Exhibit 'P', and from 1979 to 1981, based on TESTIMONIAL EVIDENCE PRESENTED BY POWER OFATTORNEY GIVEN TO CHOITHRAM,
prevailing rates per Exhibit 'Q'; CHOITHRAM IN THE TRIAL COURT ESTABLISHING EVIDENCED BY THE PUBLICATION IN THE MANILA
d) On the two-Bays Buildings occupied by Sigma-Mariwasa THAT THE PROPERTIES WERE PURCHASED WITH TIMES ISSUE OF APRIL 2, 1971 (EXH. F) WHICH
from 1972 to 1978, the rentals based on the Lease Contract, PERSONAL FUNDS OF PETITIONER CHOITHRAM AND CONSTITUTES NOTICE TO THE WHOLE WORLD; THE
Exhibit 'P', and from 1979 to 1980, the rentals based on the NOT WITH MONEY ALLEGEDLY REMITTED BY RECEIPT OF THE NOTICE OFSUCH REVOCATION
Lease Contract, Exhibit 'Q', RESPONDENT ISHWAR. WHICH WAS SENT TO ORTIGAS ON MAY 22, 1971 BY
and thereafter commencing 1982, to account for and turn over III ATTY. MARIANO P. MARCOS AND RECEIVED BY
the rental incomes paid or ought to be paid for the use and THE COURT OF APPEALS ACTED IN ORTIGAS ON MAY 24, 1971 (EXH. G) AND THE
occupancy of the properties and all improvements totalling EXCESS OF JURISDICTION IN AWARDING DAMAGES FILING OF THE NOTICE WITH THE SECURITIES AND
10,048 sq. m., based on the rate per square meter prevailing in BASED ON THE VALUE OFTHE PROPERTIES AND THE EXCHANGE COMMISSION ON MARCH 29, 1971 (EXH.
1981 as indicated annually cumulative up to 1984. Then, FRUITS OF THE IMPROVEMENTS THEREON." 9 H);
commencing 1985 and up to the satisfaction of the judgment, Similarly, spouses Ishwar filed a petition for review of said E) IN DISCARDING ITS FINDINGS CONTAINED IN ITS
rentals shall be computed at ten percent (10%) annually of the amended decision of the appellate court exculpating DECISION OF 14 MARCH 1988 (ANNEX B) THAT
fair market values of the properties as appraised by the Asian Ortigas of liability based on the following assigned errors ORTIGAS WAS DULY NOTIFIED OF THE
Appraisal, Inc. in August 1985 (Exhibits T to T-14, inclusive.) "I REVOCATION OF THE
3. Moral damages in the sum of P200,000.00; THE RESPONDENT POWER OF ATTORNEY OF CHOITHRAM, HENCE
4. Exemplary damages in the sum of P100,000.00; HONORABLE COURT OF APPEALS COMMITTED ORTIGAS ACTED IN BAD FAITH IN EXECUTING THE
5. Attorney's fees equivalent to 10% of the award herein made; GRAVE ERROR AND HAS DECIDED A DEED OF SALE TO THE PROPERTIES IN QUESTION IN
6. Legal interest on the total amount awarded computed from QUESTIONOF SUBSTANCE NOT IN ACCORD WITH LAW FAVOR OF NIRMLA V. RAMNANI;
first demand in 1967 and until the full amount is paid and AND/OR WITH APPLICABLE DECISIONS OF THIS
satisfied;. HONORABLE COURT F) IN SUSTAINING RESPONDENT ORTIGAS VACUOUS
and A) IN PROMULGATING THE QUESTIONED AMENDED REHASHED ARGUMENTS IN ITS MOTION FOR
7. The cost of suit." 7 DECISION (ANNEX 'A') RELIEVING RESPONDENT RECONSIDERATION THAT IT WOULD NOT GAIN ONE
Acting on a motion for reconsideration filed by Choithram, et ORTIGAS FROM LIABILITY AND DISMISSING CENTAVO MORE FROM CHOITHRAM FOR THE
al. and Ortigas, the appellate court promulgated an amended PETITIONERS' AMENDED COMPLAINT IN CIVIL CASE SALE OFSAID LOTS AND THE SUBSEQUENT
decision on October 17, 1988 granting the motion for NO. 534-P, AS AGAINST SAID RESPONDENT ORTIGAS; TRANSFER OF THE SAME TO THE LATTER'S
reconsideration of Ortigas by affirming the dismissal of the B) IN HOLDING IN SAID AMENDED DECISION THAT AT DAUGHTER-IN-LAW, AND THAT IT WAS IN GOOD
case by the lower court as against Ortigas but denying the ANY RATE NO ONE EVER TESTIFIED THAT ORTIGAS FAITH WHEN IT TRANSFERRED ISHWAR'S RIGHTS TO
motion for reconsideration of Choithram, et al. 8 WAS A SUBSCRIBER TO THE MANILA TIMES THE LOTS IN QUESTION.
Choithram, et al. thereafter filed a petition for review of said PUBLICATION OR THAT ANY OF ITS OFFICERS READ II
judgment of the appellate court alleging the following THE NOTICE AS PUBLISHED IN THE MANILA TIMES, THE RESPONDENT
grounds: LLpr THEREBY ERRONEOUSLY CONCLUDING THAT FOR HONORABLE COURT OF APPEALS HAS SO FAR
"1. The Court of Appeals gravely abused its discretion in RESPONDENT ORTIGAS TO BE CONSTRUCTIVELY DEPARTED FROM THE ACCEPTED AND USUAL
making a factual finding not supported by and contrary to the BOUND BY THE PUBLISHED NOTICE OF REVOCATION, COURSE OF JUDICIAL PROCEEDING WHEN IT HELD IN
evidence presented at the Trial Court. ORTIGAS AND/OR ANY OF ITS OFFICERS MUST BE A THE QUESTIONED AMENDED DECISION OF 17
2. The Court of Appeals acted in excess of jurisdiction in SUBSCRIBER AND/OR THAT ANY OF ITS OFFICERS NOVEMBER 1988 (ANNEX A) THAT RESPONDENT
awarding damages based on the value of the real properties in 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 OFCHOITHRAM 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. cdphil
Another crucial issue is the claim of Choithram that because he
was then a British citizen, as a temporary arrangement, he
arranged the purchase of the properties in the name of Ishwar
who was an American citizen and who was then qualified to
purchase property in the Philippines under the then Parity
Amendment. The trial court believed this account but it was
debunked by the appellate court.
As to the issue of whether of not spouses Ishwar actually sent
US$150,000.00 to Choithram precisely to be used in the real
estate business, the trial court made the following disquisition
Bank (TSN of May 2, 1984, pp. 9-10). 11
"After a careful, considered and conscientious
examination of the evidence adduced in the case at bar, plaintiff
Ishwar JethmalRamnani's main evidence, which centers on the
alleged payment by sending through registered mail from New
York two (2) US$ drafts of $85,000.00 and $65,000.00 in the
latter part of 1965 (TSN 28 Feb. 1984, p. 10-11). The
sending of these moneys were before the execution of that
General Power of Attorney, which was dated in New York, on
January 24, 1966. Because ofthese alleged
remittances of US$150,000.00 and the subsequent
acquisition of the properties in question, plaintiffs averred that
they constituted a trust in favor of defendant Choithram
Jethmal Ramnani. This Court can be in full agreement if the
plaintiffs were only able to prove preponderantly these
remittances. The entire record of this case is bereft of even a
shred of proof to that effect. It is completely barren. His
uncorroborated testimony that he remitted these amounts in the
'later part of 1965' does not engender enough faith and
credence. Inadequacy of details of such remittance on the two
(2) US dollar drafts in such big amounts is completely not
positive, credible, probable and entirely not in accord with
human experience. This is a classic situation, plaintiffs not
exhibiting any commercial document or any document and/or
paper as regard to these alleged remittances. Plaintiff
Ishwar Ramnani is not an ordinary businessman in the strict
sense of the word. Remember his main business is based in
New York, and he should know better how to send these
alleged remittances. Worst, plaintiffs did not present even a
scum of proof, that defendant Choithram Ramnani received the
alleged two US dollar drafts. Significantly, he does not know
even the bank where these two (2) US dollar drafts were
purchased. Indeed, plaintiff Ishwar Ramnani's lone testimony is
unworthy of faith and credit and, therefore, deserves scant
consideration, and since the plaintiffs' theory is built or based
on such testimony, their cause of action collapses or falls with
it. LLpr
Further, the rate of exchange that time in 1966 was P4.00 to
$1.00. The alleged two US dollar drafts amounted to
$150,000.00 or about P600,000.00. Assuming the cash
price of the two (2) lots was only P530,000.00 (ALTHOUGH
he said: 'Based on my knowledge I have no evidence,' when
asked if he even knows the cash price of the two lots). If he
were really the true and bonafide investor and purchaser for
profit as he asserted, he could have paid the price in full in cash
directly and obtained the title in his name and not thru
'Contracts To Sell' in installments paying interest and thru an
attorney-in-fact (TSN of May 2, 1984, pp. 10-11) and, again,
plaintiff Ishwar Ramnani told this Court that he does not know
whether or not his late father-in-law borrowed the two US
dollar drafts from the Swiss Bank or whether or not his late
father-in-law had any debit memo from the Swiss
On the other hand, the appellate court, in giving credence to the
version of Ishwar, had this to say
"While it is true, that generally the findings of fact of the
trial court are binding upon the appellate courts, said rule
admits ofexceptions such as when (1) the conclusion is a
finding grounded entirely on speculations, surmises and
conjectures; (2) when the inferences made is manifestly
mistaken, absurd and impossible; (3) when there is grave
abuse of discretion; (4) when the judgment is based on a
misapprehension of facts and when the court, in making its
findings, went beyond the issues of the case and the same are
contrary to the admissions of both appellant and appellee
(Ramos vs. Court of Appeals, 63 SCRA 33; Philippine
American Life Assurance Co. vs. Santamaria, 31 SCRA 798;
Aldaba vs. Court of Appeals, 24 SCRA 189).
The evidence on record shows that the trial court acted under a
misapprehension of facts and the inferences made on the
evidence palpably a mistake.
The trial court's observation that 'the entire records of the case
is bereft of even a shred of proof' that plaintiffs-appellants have
remitted to defendant-appellee Choithram Ramnani the
amount of US$150,000 00 for investment in real estate in the
Philippines, is not borne by the evidence on record and shows
the trial court's misapprehension of the facts if not a complete
disregard of the evidence, both documentary and testimonial.
Plaintiff-appellant Ishwar Jethmal Ramnani testifying in his
own behalf, declared that during the latter part of 1965, he sent
the amount of US$150,000 .00 to his brother Choithram in two
bank drafts of US$65,000.00 and US$85,000.00 for the
purpose ofinvesting the same in real estate in the Philippines.
His testimony is as follows:
'ATTY. MARAPAO:
Mr. Witness, you said that your attorney-in-fact paid in your
behalf. Can you tell this Honorable Court where your attorney-
in-fact got the money to pay this property?
'ATTY. CRUZ:
Wait. It is now clear it becomes incompetent or hearsay.
'COURT:
Witness can answer.
'A I paid through my attorney-in-fact. I am the one who gave
him the money.
'ATTY. MARAPAO:
'Q You gave him the money?
'A That's right.
'Q How much money did you give him?
'A US$150,000.00.
'Q How was it given then?
'A Through Bank drafts. US$65,000.00 and US$85,000.00
bank drafts. The total amount which is $150,000.00 (TSN, 28
February 1984, p. 10; emphasis supplied.)
xxx xxx xxx
'ATTY. CRUZ:
'Q The two bank drafts which you sent I assume you bought
that from some banks in New York?
'A No, sir.
'Q But there is no question those two bank drafts were for the
purpose of paying down payment and installment of the two
parcels of land?
'A Down payment, installment and to put up the building.
'Q I thought you said that the buildings were constructed . . .
subject to our continuing objection from rentals of first
building.
'ATTY. MARAPAO:
Your Honor, that is misleading.
'COURT;
Witness (may) answer.
'A Yes, the first building was immediately put up after the
purchase of the two parcels of land that was in 1966 and the
funds were used for the construction of the building from the
US$150,000.00 (TSN, 7 March 1984, page 14, emphasis
supplied.)
xxx xxx xxx
'Q These two bank drafts which you mentioned and the use for
it you sent them by registered mail, did you send them from
New York?
'A That is right.
'Q And the two bank drafts which were put in the registered
mail, the registered mail was addressed to 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. Mulchaudoni
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 ofreceipt 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
amount ofUS$150,000.00 to his brother, Choithram, which the
'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 our 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 JethmalRamnani.
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
ownershipof Ishwar over the disputed property and the trust
relationship between the latter as principal and Choithram as
attorney-in-factof Ishwar.
All of these facts indicate that if plaintiff-appellant Ishwar had
not earlier sent the U5$150,000.00 to his brother, Choithram,
there would be no purpose for him to execute a
power of attorney appointing his brothers as his attorney-in-fact
in buying real estate in the Philippines. Cdpr
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 ofproof' 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
I should not be writing you this, but because my conscience is
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. ISWAR 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 favour 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. LibLex
(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.
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 I 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 have 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 ofattorney 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. LLjur
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 piecesof property,
Choithram who now belatedly claims 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 ofa
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 ofjudicial
cognizance.' (Daggers vs. Van Dyek, 37 M.J. Eq. 130,
132). prcd
Another factor that can be counted against the temporary
arrangement excuse is that upon the revocation on February 4,
1971of 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 ofany 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 ofIshwar. 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 ofthe 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 this 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 ofassuring 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 to foist his 'temporary arrangement' scheme as a
defense before this court. Being in delicto, he does not have
any right whatsoever from 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 ofIshwar (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 knowledgeof the
revocation of the Power of Attorney. Cdpr
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 his
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 ofmuch 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 (Navalrai's) was occupying the apartment on
top of the factory with his family rent free except the
amount of P1,000.00 a month to pay for taxes on said
properties (tsn, p. 17, S. Oct. 3, 1985).
Inherent contradictions also marked Navalrai's testimony.
While the latter was very meticulous in keeping a receipt for
the P10,000.00 that he paid Ishwar as settlement in Jethmal
Industries, yet in the alleged payment of P100,000.00 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 Courtfinds 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. 16When 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 price 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 oftheirs 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. LLpr
When Ishwar asked for an accounting in 1970 and revoked the
general power of attorney in 1971, Choithram had a total
change ofheart. 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 JethmalRamnani, Nirmla Ramnani and Moti
G. Ramnani have fraudulently executed a simulated
mortgage of the properties subject ofthis 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 amount of $3 Million for which it was mortgaged is much more
bond of P100,000.00 to answer for any damages said
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 ofPreliminary 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 ofthe 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 ofrespondent
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 P100,000.00
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. 22On 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 Lading, 23 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. LexLib
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 null and void.
This purported mortgage of the subject properties in litigation
appears to be fraudulent and simulated. The stated
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 manifestationof 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 ofChoithram, 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 all
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 ofrevocation was
also registered with the Securities and Exchange Commission
on March 29, 1971. 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: llcd
"7. Defendant Choithram Ramnani, in evident bad faith and
despite due notice of the revocation of the General
Power ofAttorney, 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 ofdefendants' fraudulent act, suffered actual damages by
way of lost rental on the property which defendants
(ChoithramRamnani, 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 ofthe 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 plaintiff'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 Courtmay 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 suit, 36 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; prLL
(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, thus 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. 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'; LLpr
"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
surnamedRamnani in favor of respondent Overseas Holding,
Co. Ltd. (in G.R. No. 85496) for the amount of $3M is hereby
declared null and void. The Register of Deeds of Pasig, Rizal,
is directed to cancel the annotation of said 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 shall 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.
SO ORDERED.
FIRST DIVISION
[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.
SYLLABUS
1. PARTNERSHIP; LIABILITY OF MEMBERS FOR DEBTS
OF CIVIL PARTNERSHIP While a member of a civil
partnership is not liable in solidum (solidariamente) with his
fellows for its entire indebtedness, he is liable with them for his
aliquot part thereof (mancomunadamente). (Arts. 1698, 1137,
Civ. Code.)
2. ID; AUTHORITY OF MEMBER TO CONTRACT IN
BEHALF OF FIRM. Several members of a civil partnership
executed a document authorizing one of the members to buy
two automobile trucks in the name and representation of the
firm. The partner holding this authority effected the purchase
and signed the name of the partnership to the purchase money
notes and added his own name as an individual, thereby
assuming, as to himself, joint and several liability with the firm.
Held: That the partners who emitted the authority were not
liable on the note, as the document in question contained no
authority to bind them personally and in fact the notes did not
purport to do so; but they were liable in their capacity as
partners.
DECISION
STREET, J p:
In the year 1913, the individuals named as defendants in this
action formed a civil partnership, called "La Protectora," for the
purpose of engaging in the business of transporting passenger
and freight at Laoag, Ilocos Norte. In order to provide the
enterprise with means of transportation, Marcelo Barba, acting
a manager, came to Manila and upon June 23, 1913, negotiated
the purchase of two automobile trucks from the plaintiff, E.
M. Bachrach, for the agreed price of P16,500. He paid the sum
of 3,000 in cash, and for the balance executed promissory notes
representing the deferred payments. These notes provided for
the payment of interest from June 23, 1913, the date of the
notes, at the rate of 10 per cent per annum . Provision was also
made in the notes for the payment of 25 per cent of the amount
due if it should be necessary to place the notes in the hands of
an attorney collection. Three of these notes, for the sum of
P3,375 each, have been made the subject of the present action,
and are exhibited with the complaint in the cause. One was
signed by Marcelo Barba in the following manner:
"P. P. La Protectora
By Marcelo Barba
Marcelo Barba."
The other two notes are signed in the same way with the word
"By" omitted before the name of Marcelo Barba in the second
line of the signature. It is obvious that in thus signing the notes
Marcelo Barba intended to bind both the partnership and
himself. In the body of the note the word "I" (yo) instead of
"we" (nosotros) is used before the words "promise to pay"
(prometemos) used in the printed form. It is plain that the
singular pronoun here has all the force of the plural.
As preliminary to the purchase of these trucks, the defendants
Nicolas Segundo, Antonio Adiarte, Ignacio Flores and Modesto
Serrano, upon June 12, 1913, executed in due form a document
in which they declared that they were members of the firm
"La Protectora" and that they had granted to its president full
authority "in the name and representation of said partnership to
contract for the purchase of two automobiles" (en nombre y
representacion de mencionada sociedad contratante la compra
de dos automoviles). This document was apparently executed in
obedience to the requirements of subsection 2 article 1697 of
the Civil Code, for the purpose of evidencing the authority of
Marcelo Barba to bind the partnership by the purchase. The
document in question was delivered by him to Bachrach at the
time the automobiles were purchased.
From time to time after this purchase was made, Marcelo Barba
purchased of the plaintiff various automobile effects and
accessories to be used in the business of "La Protectora". Upon
May 21, 1914, the indebtedness resulting from these additional
purchases amounted to the sum of P2,916.57
In May, 1914, the plaintiff foreclosed a chattel mortgage which
he had retained on the trucks in order to secure the purchase
price. The amount realized from this sale was P1,000. This was
credited upon the notes, but a considerable sum still remained
unpaid. To recover this balance, together with the sum due for
the additional purchases, the present action was instituted in the
Court of First Instance of the city of Manila, upon May 29,
1914, against "La Protectora" and the five individuals Marcelo
Barba, Nicolas Segundo, Antonio Adiarte, Ignacio Flores, and
Modesto Serrano. No question has been made as to the
propriety of impleading "La Protectora" as if it were a legal
entity. At the hearing, judgment was rendered against all of the
defendant. From this judgment no appeal was taken in behalf
either of "La Protectora" or Marcelo Barba; and their liability is
not here under consideration. The four individuals who signed
the document to which reference has been made, authorizing
Barba to purchase the two trucks have, however, appealed and
assigned errors. The question here to be determined is whether
or not these individuals are liable for the firm debts and if so to
what extent.
The amount of the indebtedness owing to the plaintiff is not
dispute, as the principal of the debt is agreed to be P7,037. Of
this amount it must now be assumed, in view of the finding of
the trial court, from which no appeal has been taken by the
plaintiff, that the unpaid balance of the notes amount to P4,121
while the remainer (P2,916) represents the amount due for
automobile supplies and accessories.
The business conducted under the name of "La Protectora" was
evidently that of a civil partnership; and the liability of the
partners to this association must be determined under the
provisions of the Civil Code. The authority of Marcelo Barba to
bind the partnership, in the purchase of the trucks, is fully
established by the document executed by the four appellants
upon June 12, 1913. The transactions by which Barba secured
these trucks was in conformity with the tenor of this document.
The promissory notes constitute the obligation exclusively of
"La Protectora" and of Marcelo Barba; and they do not in any
sense constitute an obligation directly binding on the four
appellants. Their liability is based on the fact that they are
members of the civil partnership and as such are liable for its
debts. It is true that article 1698 of the Civil Code declares that
a member of a civil partnership is not liable
in solidum (solidariamente) with his fellow for its entire
indebtedness; but it results from this article, in connection with
article 1137 of the Civil Code, that each is liable with the others
(mancomunadamente) for his aliquot part of such indebtedness.
And so it has been held by this court. (Co-Pitco 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 clause says that no member
of the partnership can bind the others by a personal act if they
have not given him authority to do so. We think that the
document referred to was intended merely as an authority to
enable Barba to bind the partnership and that the parties to that
instrument did not intend thereby to confer upon Barba an
authority to bind them personally. It is obvious that the contract
which Barba in fact executed in pursuance of that authority did
not by its terms profess to bind the appellants personally at all,
but only the partnership and himself. It follows that the four
appellants cannot be held to have been personally obligated by
that instrument; but, to have already seen, their liability rests
upon the general principles underlying partnership liability.
As to so much of the indebtedness as is based upon the claim
for automobiles supplies and accessories, it is obvious that the
document of June 12, 1913, affords no authority for holding the
appellants liable. Their liability upon this account is, however,
no less obvious than upon the debt incurred by the purchase of
the trucks; and such liability is derived from the fact that the
debt was lawfully incurred in the prosecution of the partnership
enterprise.
There is not proof in the record showing what agreement, if
any, was made with regard to the form of management. Under
these circumstances it is declared in article 1695 of the Civil
Code that all the partners are considered agents of the
partnership. Barba therefore must be held to have had authority
to incur these expense. But in addition to this he is shown to
have been in fact the president or manager, and there can be no
doubt that he had actual authority to incur this obligation.
From what has been said it results that the appellants are
severally liable for their respective shares of the entire
indebtedness found to be due; and the Court of First Instance
committed no error in giving judgment against them. The
amount for which judgment should be entered is P7,037, to
which shall be added (1) interest at 10 per cent per annum from
June 23, 1913, to be calculated upon the sum of P4.121; (2)
interest at 6 per cent per annum from July 21, 1915, to be
calculated upon the sum of P2,961; (3) the further sum of
P1,030.25, this being the amount stipulated to be paid by way
of 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.
Let judgment be entered accordingly, without any express
finding of costs of this instance. So ordered.
SECOND DIVISION
[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.
SYNOPSIS
Plaintiff sued the spouses Lim Tanhu and Dy Ochay. Later, she
amended the complaint to include as defendants Lim Teck
Chuan, the spouses Alfonso Ng Sua and Co Oyo, and their son
Eng Chong Leonardo. Claiming to be the widow of Po Chuan,
a partner in the Glory Commercial Co., plaintiff charged the six
defendants with having conspired in misappropriating for their
own benefits the profits and assets of said partnership. In a
single answer with counterclaim, defendants denied plaintiff's
allegation and claimed that she was only a common-law wife of
the deceased and that she had already executed a quitclaim.
For failure to appear on the date set for pre-trial, both
the Tanhu and the Ng Sua spouses were all declared in default;
and their motion to lift the default order on the ground that they
were not notified was denied. On October 19, 1974, when
plaintiff's first witness was up for re-cross examination, she
moved "to drop" the case against the non-defaulted defendants,
namely, Lim Teck Chuan, and Eng Chong Leonardo. The
motion, which was set for hearing, 3 days later, or on October
21, was granted by the court. Simultaneously, the Court in a
separate order motu propio deputized the branch clerk of court
to receive on November 20, 1974 plaintiff's ex parte evidence
against the defaulted defendants since the case against the non-
defaulted defendants had already been dismissed. But the ex-
parte reception actually took place on October 28, 1974,
because on that date plaintiff with her witnesses appeared in
court and asked to be allowed to present her evidence, which
was granted.
The non-defaulted defendants' motion to reconsider the
dismissed order was denied. On December 20, 1974, the Court
rendered judgment. Thereafter, all the defendants moved to
quash the order of October 28, 1974, but later, without waiting
for the trial court's resolution, the non-defaulted defendants
went to the Court of Appeals on a petition of certiorari, to
annul the orders of October 21, 1974, October 28, 1974, and
the decision of December 20, 1974. The Court of Appeals
dismissed the petition as being premature, the motion to quash
not having been resolved yet by the trial court.
On the other hand, the defaulted defendants, before the
perfection of their appeal, filed the present petition with this
Court, their counsel manifesting in the court below that they
had abandoned their motion to quash. Hence, the trial court
declared the motion to quash abandoned and that the resolution
for execution pending appeal would be resolved after
the certiorari and prohibition petition shall have been resolved.
The Supreme Court held that the impugned decision is legally
anomalous, predicated as it is on two fatal malactuations of the
respondent court, namely: (1) the dismissal of the complaint
against the non-defaulted defendants; and (2) the ex
parte reception of evidence of the plaintiff by the Clerk of
Court, the subsequent using of the same as basis for its
judgment and the rendition of such judgment. The order of
dismissal cannot be sanctioned because (1) there was no timely
notice of the motion therefor to the non-defaulted defendants,
aside from there being no notice at all to the defaulted
defendants; (2) the common answer of defendants, including
the non-defaulted, contained a compulsory counterclaim
incapable of being determined in an independent action; and (3)
the immediate effect of such dismissal was the removal of the
two non-defaulted defendants as parties, and inasmuch as they
are both indispensable parties in the case, the trial court
consequently lost the sine qua non of the exercise of judicial
power.
The Supreme Court was faced with a legal pare-dilemma; to
annul the dismissal would prejudice the rights of the non-
defaulted defendants whom the Supreme Court have not heard
and who event plaintiff would not wish to have anything
anymore to do with the case; on the other hand, to include the
petitioners (the defaulted defendants) in the dismissal would
naturally set at naught the efforts of plaintiff's efforts to
establish her case thru means sanctioned by respondent court.
All things considered, the court held that as between the two
possible alternatives, since the situation was brought out by
plaintiff's procedural maneuvers, it would only be fair,
equitable and proper to rule that the order of dismissal of
October 21, 1974 is in law a dismissal of the whole case of the
plaintiff, including as to petitioner (the defaulted defendants).
Consequently, all proceedings held by respondent court
subsequent thereto including and principally its decision of
December 20, 1974 were declared illegal and were set aside.
SYLLABUS
1. CIVIL PROCEDURE RULES OF PROCEDURE MAY
NOT BE MISUSED OR ABUSED AS INSTRUMENTS TO
DENY SUBSTANTIAL JUSTICE. A review of the record
of this case immediately discloses that here is another
demonstrative instance of how some members of the bar,
availing of their proficiency in invoking the letter of the rules
without regard to their real spirit and intent, succeed in
inducing courts to act contrary to the dictates of justice and
equity, and, in some instance, to wittingly or unwittingly abet
unfair advantage by ironically camouflaging their actuations as
earnest efforts to satisfy the public clamor for speedy
disposition of litigations, forgetting all the while that the plain
injunction of Section 2 of Rule 1 is that the "rules shall be
liberally construed in order to promote their object and to assist
the parties in obtaining " not only 'speedy' but more
imperatively, "just . . . and inexpensive determination of every
action and proceeding."
2. ID.; MOTION TO LIFT ORDER OR DEFAULT; WHEN
FORMAL VERIFICATION NOT REQUIRED. Where the
motion to lift order of default, co-signed by the party and her
counsel, is over the jurat of the notary public before whom she
took her oath, it is error for the trial court to hold that "the oath
appearing at the bottom of the motion is not the one
contemplated by the rules (Sec. 3. Rule 18), or to hold that it is
not even a verification (Sec. 6, Rule 7). The rules, as
interpreted by the Supreme Court, require a separate affidavit
of merit only in those instances where the motion is not over
the oath of the party concerned, considering that what the cited
provision literally requires is no more than a motion under oath.
Stated otherwise, when a motion to lift an order of default
contains the reason for the failure to answer as well as the facts
constituting the prospective defense of the defendant and it is
sworn to by said defendant, neither a formal verification nor a
separate affidavit of merit is necessary.
3. ID.; MOTION TO LIFT ORDER OF DEFAULT, NOT AN
ADMISSION OF SERVICE OF SUMMONS. It is error for
the trial court to hold that a motion to lift a default order "is an
admission that there is a valid service of summons" and that
said motion could not amount to a challenge against the
jurisdiction of the court over the person of the defendant. Such
a rationalization is patently specious and reveals an evident
failure to grasp the import of the legal concepts involved. A
motion to lift an order of default on the ground that service of
summons and is in essence verily an attack against the
jurisdiction of the court over the person of the defendant, no
less than it if were worded in a manner specifically embodying
such a direct challenge.
4. ID.; MOTIONS; THREE DAYS NOTICE REQUIREMENT.
Three days at least must intervene between the date of
service of notice and the date set for the hearing, "otherwise the
court may not validly act on a motion." Thus, where the motion
was set for hearing on Monday, October 21, whereas one
counsel was personally served with notice only on Saturday,
October 19, and the other counsel was notified by registered
mail which was posted only that same Saturday, the notices
were held to be short of the three-day requirement of Section 4,
Rule 15.
5. JUDGES; DUTY OF JUDGES TO SEE THAT NO PARTY
IS DEPRIVED OF RIGHT TO BE HEARD. The Supreme
Court cannot but express its vehement condemnation of any
judicial actuation that unduly deprives any party of the right to
be heard without clear and specific warrant under the terms of
existing rule or binding jurisprudence. Extreme care must be
the instant reaction of every judge when confronted with a
situation involving risks that the proceedings may not be fair
and square to all parties concerned. Indeed, a keen sense of
fairness, equity and justice that constantly looks for consistency
between the letter of the adjective rules and these basic
principles must be possessed by every judge, if substance is to
prevail, as it must, over from in our courts. Literal observance
of the rules, when it is conducive to unfair and undue advantage
on the party of any litigant before it, is unworthy of any court
of justice and equity. Withal, only those rules of procedure
informed with and founded on public policy deserve obedience
in accord with their unequivocal language or words.
6. CIVIL PROCEDURE; COUNTERCLAIM; NATURE OF
COMPULSORY COUNTERCLAIM. A counterclaim is
compulsory if it arises out of or is necessarily connected with
the occurrence that is the subject matter of the plaintiff's claim
(Sec. 4, Rule 9 ). Thus where plaintiff alleged that, being the
widow of deceased, she is entitled to demand accounting of and
to receive the share of her alleged husband as partner of
defendants and defendant denied the truth of said allegations,
maintaining in their counterclaim that plaintiff knew of the
falsity of said allegations even before she filed the complaint,
she had admitted in a quitclaim her common-law relationship
with deceased and that she had already quitclaimed her rights,
which quitclaim was, however, executed, according to
respondent herself in her amended complaint, through fraud,
and that having filed the complaint knowing that the allegations
thereof are false and baseless, she has caused them to suffer
damages, it was held that with such allegations, defendants'
counterclaim is compulsory, not only because the same
evidence to sustain it will also refute the cause or causes of
action alleged in plaintiff's complaint, but also because from its
very nature, it is obvious that the same cannot "remain pending
for independent adjudication by the court." (Sec. 2, Rule 17)
7. ID.; ID.; MOTION TO DISMISS; PLAINTIFF'S ACTION
MAY NOT BE DISMISSED IF COMPULSORY
COUNTERCLAIM IS PLEADED. Rule 17, Sec. 2 provides
that "if a counterclaim has been pleaded by a defendant prior to
the service upon him of the plaintiff's motion to dismiss, the
motion shall not be dismissed against the defendant's objection
unless the counterclaim can "remain pending for independent
adjudication by the court."
8. ID.; PARTIES; MOTION TO DISMISS; ACTION MAY
NOT BE DISMISSED AS REGARD INDISPENSABLE
PARTIES. Where plaintiff's complaint charged the six
defendants with having actually taken part in a conspiracy to
misappropriate, conceal and convert to their own benefit the
profits and assets of a partnership to be extend that they have
allegedly organized a corporation with what they had illegally
gotten from the partnership, no judgment finding the existence
of the alleged conspiracy or holding the capital of the
corporation to be the money of the partnership is legally
possible without the presence of all defendants. Hence, it was
error for the court to grant plaintiff's motion to dismiss the case
as against the non-defaulted defendants, since all the
defendants, defaulted and non-defaulted, are indispensable
parties.
9. ID.; ID.; ACTIONS; JOINDER OF INDISPENSABLE
PARTIES. Whenever it appears to the court in the course of
a proceeding that an indispensable party has not been joined, it
is the duty of the court to stop the trial and to order the
inclusion of such party or the dismissal of the case. Such an
order is unavoidable, for the "general rule with reference to the
making of parties in a civil action requires the joinder of all
necessary parties under any and all conditions, the presence of
those latter being a sine qua non of the existence of judicial
power." It is precisely "when an indispensable party is not
before the court that the action should be dismissed. The
absence of an indispensable party renders all subsequent
actuations of the court null and void, for want of authority to
act, not only as to the absent parties but even as to those
present.
10. ID.; ID.; ID.; MISJOINDER OR NON-JOINDER OF
PARTIES; DROPPING OF PARTIES. Rule 3, Sec. 11 does
not comprehend whimsical and irrational dropping or adding of
parties in a complaint. What it really contemplates is erroneous
or mistaken non-joinder and misjoinder of parties. No one is
free to join anybody in a complaint in court only to drop him
unceremoniously later at the pleasure of the plaintiff. The rule
presupposes that the original inclusion had been made in the
honest conviction that it was proper and the subsequent
dropping is requested because it has turned out that such
inclusion was a mistake. And this is the reason why the rule
ordains that the dropping be "on such terms as are just" just
to all the other parties.
11. ID.; ID.; ID.; DROPPING THE CASE AGAINST NON-
DEFAULTED DEFENDANTS. In a complaint against six
defendants, where after four of them had been declared in
default, for failure to appear at pre-trial, and at the stage when
plaintiff's first witness was up for cross-examination, plaintiff
without any relevant explanation asked the court to drop the
non-defaulted defendants, it was error for the court over the
objection of the non-defaulted defendants to grant such motion
without inquiring for the reasons or directing the granting of
some form of compensation for the trouble undergone by the
defendants in answering the complaint, preparing for or
proceeding partially to trial, hiring counsel and making
corresponding expenses in the premises. The Court should have
considered that the outright dropping of there non-defaulted
defendants over their objection would certainly be unjust not
only to the defaulted defendants who would certainly be unjust
not only to the defaulted defendants who would in
consequence, be entirely defenseless, but also to the non-
defaulted defendants themselves who would naturally
correspondingly suffer from the eventual judgment against their
co-defendants. In such case, the court should pay heed to the
mandate that such dropping must be "on such terms as are just"
meaning to all concerned with its legal and factual effects.
12. LEGAL ETHICS; DUTY OF COUNSEL TO ACT WITH
CANDOR. Those appearing as counsel are admonished that
a pleading which is deceptive and lacking in candor, has no
place in any court, much less in the Supreme Court. Parties and
counsel would be well advised to avoid such attempts to
befuddle the issues as invariably they will be exposed for what
they are, certainly unethical and degrading to the dignity of the
law profession. Moreover, almost always they only betray the
inherent weakness of the cause of the party resorting to them.
13. CIVIL PROCEDURE; DEFAULT SHOULD NOT BE
TAKEN FOR GRANTED. The concept of default as a
procedural device should not be taken for granted as being that
a simple expedient of disallowing the offending party to take
part in the proceedings so that after his adversary shall have
presented his evidence, judgment may be rendered in favor of
such opponent, with hardly any chance of said judgment being
reversed or modified.
14. ID.; ID.; JUDGMENT ON DEFAULT SHALL NOT BE
DIFFERENT FROM THAT PRAYED FOR. Rule 18 of the
Rules of Court concerned solely with default resulting from
failure of the defendant or defendants to answer within the
reglementary period. Referring to the simplest form of default,
that is, where there is only one defendant in the action and he
fails to answer on time, Section 1 of the Rule provides that
upon "proof of such failure, (the court shall) declare the
defendant in default. Thereupon the court shall proceed to
receive the plaintiff's evidence and render judgment granting
him such relief as the complaint and the facts proven may
warrant." This last claim is clarified by Section 5 which says
that "a judgment entered against a party in default shall not
exceed the amount or be different in kind from that prayed for."
15. ID.; ID.; NATURE OF DEFAULT, EXPLAINED.
Contrary to the immediate notion that can be drawn from their
language the provision of Rule 18 on the subject of default are
not to be understood as meaning that default or the failure of
the defendant to answer should be "interpreted as an admission
by the said defendant that the plaintiff's causes of action find
support in the law or that plaintiff is entitled to the relief prayed
for." Being declared in default does not constitute a waiver of
rights except that of being heard and of presenting evidence in
trial. In other words, a defaulted defendant is not actually
thrown out of court. While in a sense it may be said that by
defaulting he leaves himself at the mercy of the court, the rules
see to it that any judgment against him must be in accordance
with law. The evidence to support 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.
16. ID.; ID.; ID.; DELEGATING TO CLERKS OF COURTS
RECEPTION OF EVIDENCE IN CASES OF DEFAULT
SHOULD BE STOPPED. The present widespread practice
of trial judges of delegating to their clerks of court the
reception of plaintiff's evidence when the defendant is in
default is wrong in principle and orientation. It has no basis in
any rule. When a defendant allows himself to be declared in
default he relies on the faith that the court would take care that
his rights are not unduly prejudiced. He has a right to presume
that the law and the rules will still be observed. The
proceedings are held in his forced absence, and it is but fair that
the plaintiff should not be allowed to take advantage of the
situation to win by foul or illegal means or with inherently
incompetent evidence. In such instances, there is need for more
attention from the court, which only the judge himself can
provide. The clerk of court would not be in a position much
less have the authority to act in the premises in the manner
demanded by the rules of fair play and as contemplated in law,
considering this comparatively limited area of discretion and
his presumably inferior preparations for the functions of a
judge. Besides the default of the defendant is no excuse for the
court to renounce the opportunity to closely observe the
demeanor and conduct of the witnesses of the plaintiff, the
better to appreciate their truthfulness and credibility. The
Supreme Court therefore declares as a matter of judicial policy
that there being no imperative reason for judges to do
otherwise, the practice should be discontinued.
17. ID.; ID.; ID.; ENOUGH OPPORTUNITY SHOULD BE
LEFT OPEN FOR POSSIBLE LIFTING OF DEFAULT
ORDER. It is preferable as a matter of practice to leave
enough opportunity open for possible lifting of the order of
default before proceeding with the reception of the plaintiff's
evidence and the rendition of the decision. "A judgment by
default may amount to positive and considerable injustice to the
defendant; and the possibility of such serious consequences
necessitates a careful and liberal examination of the grounds
upon which the defendant may seek to set it aside." The
expression in Section 1 of Rule 18 which says that "thereupon
the court shall proceed to receive the 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.
18. ID.; ID.; ID.; EFFECT WHEN SOME ANSWER AND
OTHERS DO NOT. In all instance where a common cause
of action is alleged against several defendants, some of whom
answer and others do not, the latter to those in default acquire a
vested right not only to own the defense interposed in the
answer of their co-defendants not in default but also to expect a
result of the litigation totally common with them in kind and in
amount whether favorable or unfavorable. The substantive
unity of the plaintiff's cause against all defendants is carried
through to its adjective phase as ineluctably demanded by the
homogeneity and indivisibility of justice itself.
19. ID.; ID.; ID.; WHERE A SINGLE CAUSE OF ACTION IS
ASSERTED BY DEFENDANTS, DISMISSAL OF ACTION
AS TO NON-DEFAULTED DEFENDANTS RESULTS IN
DISMISSAL ALSO AS TO DEFAULTED DEFENDANTS.
Since the singleness of the cause of action also inevitably
implies that all the defendants are indispensable parties, the
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 Section 4 of
Rule 18, it is to be assumed that when any defendant allows
himself to be declared in default knowing that his co-defendant
has already answered he does no trusting in the assurance
implicit in the rule that his default is in essence a mere
formality and deprives him of no more than the right to take
part in the trial and that the court would deem anything done by
or for the answering defendant as done by or for him. The
presumption is that otherwise he would not have seen to it that
he would not be in default. Of course, he has to suffer the
consequences of whatever the answering defendant may do or
fail to do, regardless of possible adverse consequences, but if
the complaint has to be dismissed insofar as the answering
defendant is concerned, it becomes his inalienable right that the
same be dismissed also as to him.
20. ID.; ID.; ID.; WHERE ALL DEFENDANTS ARE
INDISPENSABLE PARTIES; DISMISSAL AS TO
ANSWERING DEFENDANTS RESULT IN DISMISSAL AS
TO DEFAULTED DEFENDANTS. Where all the
defendants are indispensable parties, for which reason the
absence of any of them in the case would result in the court
losing its competency to act validly, any compromise that the
plaintiff might wish to make with any of them must, as a matter
of correct procedure, have to wait until after the rendition of the
judgment, at which state the plaintiff may then treat the matter
for its execution and the satisfaction of his claim as variably as
he might please. Accordingly, where all defendants are
indispensable parties, some of whom answer and others do not,
the dismissal of the complaint against the answering or non-
defaulted defendants should result also in the dismissal thereof
as to the defaulted defendants. And it does not matter that the
dismissal is upon the evidence presented by the plaintiff or
upon the latter's mere resistance, for in both contingencies, the
lack of sufficient legal basis must be the cause. The integrity of
the common cause of action against all defendants and the
indispensability of all of them in the proceedings do not permit
any possibility of waiver of the plaintiff's right only as to one or
some of them, without including all of them, and, so, as a rule,
withdraw must be deemed to be confession of weakness as to
all.
21. ID.; ID.; FAILURE TO APPEAR AT PRE-TRIAL.
Where all defendants already joined genuine issued with the
plaintiff, and four of such defendants failed to appear at the pre-
trial but their absence could be attributable to the fact that they
might not have considered it necessary anymore to be present
since their respective children with whom they have common
cause could take care of their defenses as well and anything
that could be done by them at such pre-trial could have be done
for them by their children, especially because in the light of the
pleadings before the court, the prospects of a compromise must
have appeared to the rather remote, under such circumstances,
to declare them immediately and irrevocably in default was not
an absolute necessity. Practical consideration and reason of
equity should have moved the court to be more understanding
in dealing with the situation. After all, declaring them in default
did not impair their right to a common fate with their children.
22. ID.; ID.; DEFAULTED DEFENDANT ENTITLED TO
NOTICE OF SUBSTANTIALLY AMENDED PLEADING.
Section 9, Rule 13, provides that even after a defendant has
been declared in default, he shall be entitled to notice of all
further proceedings regardless of whether the order of defaults
is set aside or not, and a party in default who has filed such a
motion to set aside must still be served with all "substantially
amended or supplemental pleadings."
23. ID.; ID.; ID.; FORM OF MOTION TO LIFT ORDER OF
DEFAULT. Where issues have already been joined,
evidence partially offered already at the pre-trial and more of it
at the actual trial which had already begun with the first witness
of the plaintiff undergoing re-cross-examination, it would be
requiring the obvious to pretend that there was still need for an
oath or a verification as to merits of the defense of defaulted
defendants (who were declared in default not for failure to
answer but for failure to appear at pre-trial), asserted in their
motion to reconsider their default. And where it appears,
moreover, that the defaulted defendants being the parents of the
non-defaulted defendants, must have assumed that their
presence at the pre-trial was superfluous, particularly because
the cause of action against them as well as their own defense
are common, under these circumstances, the form of the motion
by which the defaults was sought to be lifted is secondary and
the requirements of Section 8, Rule 18 need not be strictly
complied with, unlike in cases of default of failure to answer.
Hence, for purposes of revival of their right to notice under
Section 9 of Rule 13, the defaulted defendants' motion for
reconsideration may be considered to be substance legally
adequate regardless of whether or not it was under oath.
24. ID.; ID.; ID.; MOTION TO DROP ANSWERING
DEFENDANT FROM COMPLAINT SUBSTANTIALLY
AMENDS COMPLAINT. A motion to drop non-defaulted
defendants from plaintiff's complaint virtually amends the
complaint, and such amendment is substantial, for with the
elimination thereby of said defendants, allegedly solidarily
liable with their codefendants, it had the effect of increasing
proportionately that which each of the remaining defendants,
would have to answer for jointly and severally. Accordingly,
notice to the defaulted defendants of plaintiff's motion is legally
indispensable under Rule 13, Sec. 9. Consequently, the court
had no authority to act on the motion to dismiss, without the
requisite three-day notice, pursuant to Sec. 6, Rule 15, for the
Rules of Court clearly provide that no motion shall be acted
upon by the Court without the proof of service of notice
thereof, together with a copy of the motion and other papers
accompanying it, to all parties concerned at least three days
before the hearing thereof, stating the time and place for the
hearing of the motion (Rule 26, Section 4, 5 and 6, Rules of
Court, Now Sec. 15, New Rules). When the motion does not
comply with this requirement, it is not a motion. It presents no
question which the court could decide. And the court acquires
no jurisdiction to consider it.
25. CERTIORARI; WHERE APPEAL IS NOT AN
ADEQUATE REMEDY; CERTIORARI MAYBE RESORTED
TO. The essential purpose of certiorari is to keep the
proceedings in lower judicial courts and tribunals within legal
bounds, so that due process and the rule of law may prevail at
all time and arbitrariness, whimsicality and unfairness which
justice abhors may immediately be stamped out before graver
injury, juridical and otherwise, ensues. While generally those
objectives may well be attained in an ordinary appeal, it is
undoubtedly the better rule to allow the special remedy of
certiorari at the option of the party adversely affected, when the
irregularity committed by the trial court is so grave and so far
reaching in its consequences that the long and cumbersome
procedure of appeal will only further aggravate the situation of
the aggrieved party because other untoward actuations are
likely to materialize as natural consequences of those already
perpetrated. Otherwise, certiorari would have no reason at all
for being.
26. ID.; ID.; SUPREME COURT MAY EXERCISE
INHERENT POWER OF SUPERVISION OVER JUDICIAL
ACTION. The Supreme Court will exercise its inherent
power of supervision over all kinds of judicial actions of the
court, where it appears that the stakes are high, and where not
only is the subject matter considerably substantial, but there is
the more important aspect that not only the spirit and intent of
the rules but even the basic rudiments of fair play have been
disregarded. For the court to leave unrestrained the obvious
tendency of the proceedings would be nothing short of
wittingly condoning inequity and injustice resulting from
erroneous construction and unwarranted application of
procedural rules.
27. ID.; DEFAULT; SUPREME COURT WILL NOT
SANCTION PROCEDURAL MANEUVERS THAT WILL
DEPRIVE OTHER PARTY OF RIGHT TO BE HEARD.
The idea of "dropping" the non-defaulted defendants with the
end in view of completely incapacitating their co-defendants
from making any defense, without considering that all of them
are indispensable parties to a common cause of action to which
they have countered with a common defense readily connotes
an intent to secure a one-sided decision, even improperly. Such
procedural maneuver resorted to by plaintiff in securing the
decision in her favor was ill-conceived. It was characterized by
that which every principle of law and equity disdains taking
advantage of the rules of procedure in order to unduly deprive
the other party of full opportunity to defend his cause. And
when in this connection, the obvious weakness of plaintiff's
evidence is taken into account, one easily understands why
such tactics had to be availed of. The Supreme Court cannot
directly and inequity in the application of procedural rules,
particularly when the propriety of reliance thereon is not
beyond controversy.
28. ID.; PARTIES; PARTY SHOULD NOT BE ALLOWED
TO BENEFIT FROM HER FRUSTRATED OBJECTIVE TO
SECURE A ONE-SIDED DECISION. Where all the
malactuations of the trial court are traceable to the initiative of
the plaintiff and/or her counsel, she cannot complain that she is
being made to unjustifiably suffer the consequences of the
erroneous orders of the trial court. It is only fair that she should
not be allowed, to benefit from her own frustrated objective of
securing a one-sided decision.
29. ID.; ID.; SUPREME COURT NEED NOT REMANDS
CASE FOR FURTHER PROCEEDINGS IF ENOUGH BASIS
EXIST TO RESOLVE CLAIM. Where the Supreme Court
in a petition for certiorari has set aside the order of dismissal of
the respondent court, it may resolve the plaintiffs' claim on the
merits instead of merely returning the case for a resumption of
trial, if upon closer study of the pleading and the decision of the
trial court and other circumstances extant in the record before
the Supreme Court there is enough basis to rule on the
plaintiffs' claim and if the remand would only lead to more
legal applications.
30. CIVIL PROCEDURE; PRE-TRIAL; PURPOSE OF.
The fundamental purpose of pre-trial, aside from affording the
parties every opportunity to compromise or settle their
differences, is for the court to be apprised of the unsettled
issued between the parties and of their respective evidence
relative thereto, to the end that it may take corresponding
measures that would abbreviate the trial as much as possible
and the judge may be able to ascertain the fact with the least
observance of technical rules. In other words. whatever is said
or done by the parties or their counsel at pre-trial serves to put
the judge on notice of their respective basic position, in order
that in appropriate cases he may, if necessary in the interest of
justice and a more accurate determination of the facts, make
inquiries about or require clarifications of matters taken up at
the pre-trial, before finally resolving any issue of fact or law. In
brief, the pre-trial constitutes part and parcel of the
proceedings, and hence, matters dealt with therein may not
disregarded in the process of decision making. Otherwise, the
real essence of compulsory pre-trial would be insignificant and
worthless.
31. MARRIAGE; EVIDENCE OF. Under Article 55 of the
Civil Code, the declaration of the contracting parties that they
take each other as husband and wife "shall be set forth in an
instrument" signed by the parties as well as by their witnesses
and the person solemnizing the marriage. Accordingly, the
primary evidence of a marriage must be an authentic copy of
the marriage contract.
32. ID.; ID.; WHEN SECONDARY EVIDENCE MAY BE
AVAILED OF. While a marriage may also be proved by
other competent evidence, the absence of the contract must first
be satisfactorily explained. The certification of the person who
allegedly solemnized a marriage is not admissible evidence of
such marriage unless proof or loss of the contract or of any
other satisfactory reason for its non-production is first
presented to the court.
33. ID.; ID.; ID.; CERTIFICATION OF BISHOP WHO DID
NOT TESTIFY IS HEARSAY. The purported certification
issued by a bishop of the church where the alleged marriage
took place is not competent evidence, in the absence of a
showing as to the unavailability of the marriage contract; and,
as to the authenticity of the signature of the signature of said
certified, the jurat allegedly signed by a second assistant
provincial fiscal is not authorized by law, since it is not part of
the functions of his office. Besides, inasmuch as the bishop did
not testify, the same is hearsay.
34. ID.; ID.; TESTIMONY OF ALLEGED WIDOW AS TO
MARRIAGE IS SELF-SERVING EVIDENCE. The
testimony of plaintiff to the effect that she was married to the
deceased in a church as well as that of her witness, allegedly a
foster son of deceased whom she had reared since his birth and
with whom she has been living are both self-serving and of
very little evidentiary value, it having been disclosed at the trial
that plaintiff had already assigned all her rights in the case to
said witness, thereby making the latter the real party in interest
and therefore naturally as biased as plaintiff herself. Besides, it
appears admitted that the witness was less than eight years old
at the time of the alleged marriage, thus making it extremely
doubtful if he could have been sufficiently aware of such event
as to be competent to testify about it.
35. ID.; ID.; WEIGHT AND SUFFICIENCY OF EVIDENCE.
Where against the evidence of the plaintiff concerning her
marriage to deceased, consisting of a certification by the bishop
of the church where the marriage allegedly took place and her
self-serving testimony, two documents belying the pretended
marriage were presented namely the income tax return of the
deceased indicating a person other than plaintiff as his wife,
and the quitclaim wherein plaintiff stated that she had been
living with the deceased without benefit of marriage and that
she was his "common-law." it was held that these two
documents are far more reliable than the evidence of plaintiff
put together.
36. ID.; ID.; ID.; ADMISSION AGAINST INTEREST.
Where the existence of the quitclaim (containing the admission
by plaintiff of her common-law relationship only with the
deceased and of her having renounced for valuable
consideration whatever claim she might have against the
defendants), has been duly established at the pre-trial without
any circumstances to detract from its legal import, the Court
should have held that plaintiff was bound by her admission
therein that she was the common-law wife only of deceased,
and what is more, that she had already renounced her claim.
37. PARTNERSHIP; TRANSFER OF PARTNERSHIP
PROPERTY AFTER DISSOLUTION OF PARTNERSHIP.
Where it appears that most of the properties supposed to have
been acquired by defendants with funds of the partnership
appear to have been transferred in their names long after the
partnership had been automatically dissolved as a result of the
death of a partner, defendants have no obligation to account to
anyone for such acquisitions in the absence of clear proof that
they had violated the trust of the deceased partner during the
existence of the partnership.
38. ID.; BOOKS OF ACCOUNTS; JUDGES NOT
GENERALLY QUALIFIED TO READ STATEMENTS OF
ACCOUNTS AND DRAW CONCLUSION FROM THEM.
It is unusual for a judge to delve into financial statement and
books of a partnership without the aid of any accountant or
without the same being explained by any witness who had
prepared them or who has knowledge of the entries therein. To
do so might result in inconsistencies and inaccuracies in the
conclusions the judge may make out of them. Unless the judge
is a certified public accountant, he is hardly qualified to read
such statements and books and draw any definite conclusion
therefrom, without risk of erring and committing an injustice.
Under such circumstances, the Supreme Court is not prepared
to permit anyone to predicate any claim or right from the trial
court's unaided exercise of accounting knowledge.
39. ID.; LIQUIDATION; NO SPECIFIC AMOUNT CAN BE
DISTRIBUTED UNLESS PARTNERSHIP IS FIRST
LIQUIDATED. In the absence of a finding that a new
corporation was organized after the death of the partner
(Plaintiff's alleged husband) with capital from the funds of the
partnership, or finding as to how some of the defendants who
just happen to be the wives of the surviving partners could in
any way be accountable to plaintiffs, it was error for the trial
court to order defendants to deliver or pay jointly and severally
to the plaintiff 1/3 of the supposed cash belonging to the
partnership and in the same breath sentence defendants to
partition and give 1/3 of the properties enumerated in the
dispositive portion of the decision, which seemingly are the
very properties allegedly purchased from the funds of the
partnership would naturally include the amounts defendants
have to account for. And if there has not yet been any
liquidation of the partnership, so that said partnership would
have the status of a partnership in liquidation, the only right
plaintiff could have would be to what might result after much
liquidation to belong to the deceased partner (her alleged
husband) and before this is finished, it is impossible to
determine, what rights or interest, if any the deceased had. In
other words, no specific amounts or properties may be
adjudicated to the heir or legal representative of the deceased
partner without the liquidation being first terminated.
DECISION
BARREDO, J p :
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 plaintiff's evidence
and subsequently rendered judgment by default against the
defaulted defendants, with the particularities that notice of the
motion to dismiss was not duly served on any of the
defendants, who had alleged a compulsory counterclaim against
plaintiff in their joint answer, and the judgment so rendered
granted reliefs not prayed for in the complaint, and (2)
probition to enjoin further proceedings relative to the motion
for immediate execution of the said judgment.
Originally, this litigation was a complaint filed on February 9,
1971 by respondent Tan Put only against the spouses-
petitioners Antonio Lim Tanhu and Dy Ochay. Subsequently, in
an amended complaint dated September 26, 1972, their
son Lim Teck Chuan and the other spouses-petitioners Alfonso
Leonardo Ng Sua and Co Oyo and their son Eng Chong
Leonardo were included as defendants. In said amended
complaint, respondent Tan alleged that she "is the widow of Tee
Hoon Lim Po Chuan, who was a partner in the commercial
partnership, Glory Commercial Company . . . with
Antonio Lim Tanhu and Alfonso Ng Sua"; that "defendant
Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck
Chuan, and Eng Chong Leonardo, through fraud and
machination, took actual and active management of the
partnership and although Tee Hoon Lim Po Chuan was the
manager of Glory Commercial Company, defendants managed
to use the funds of the partnership to purchase lands and
buildings in the cities of Cebu, Lapulapu, Mandaue, and the
municipalities of Talisay and Minglanilla, some of which were
hidden, but the description of those already discovered were as
follows: (list of properties) . . . ;" and that:
"13. (A)fter the death of Tee Hoon Lim Po Chuan, the
defendants, without liquidation, continued the business of
Glory Commercial Company, by purportedly organizing a
corporation known as the Glory Commercial Company,
Incorporated, with paid up capital in the sum of P125,000.00,
which money and other assets of the said Glory Commercial
Company, Incorporated are actually the assets of the defunct
Glory Commercial Company partnership, of which the plaintiff
has a share equivalent to one third (1/3) thereof;
"14. (P)laintiff, on several occasions after the death of her
husband, has asked defendants of the above-mentioned
properties and for the liquidation of the business of the defunct
partnership, including investments on real estate in Hong Kong,
but defendants kept on promising to liquidate said properties
and just told plaintiff to
"15. (S)ometime in the month of November, 1967, defendants,
particularly Antonio Lim Tanhu, by means of fraud deceit, and
misrepresentations did then and there, induce and convince the
plaintiff to execute a quitclaim of all her rights and interests, in
the assets of the partnership of Glory Commercial Company,
which quitclaim is null and void, executed through fraud and
without any legal effect. The original of said quitclaim is in the
possession of the adverse party, defendant Antonio Lim Tanhu;
"16. (A)s a matter of fact, after the execution of said quitclaim,
defendant Antonio Lim Tanhu offered to pay the plaintiff the
amount of P65,000.00 within a period of one (1) month, for
which plaintiff was made to sign a receipt for the amount of
P65,000 00 although no such amount was given, and plaintiff
was not even given a copy of said document:
"17. (T)hereafter, in the year 1968-69, the defendants who had
earlier promised to liquidate the aforesaid properties and assets
in favor, among others of plaintiff and until the middle of the
year 1970 when the plaintiff formally demanded from the
defendants the accounting of real and personal properties of the
Glory Commercial Company, defendants refused and stated
that they would not give the share of the plaintiff." (Pp. 36-37,
Record.).
She prayed as follows:
"WHEREFORE, it is most respectfully prayed that judgment be
rendered:
a) Ordering the defendants to render an accounting of the real
and personal properties of the Glory Commercial Company
including those registered in the names of the defendants and
other persons, which properties are located in the Philippines
and in Hong Kong;
b) Ordering the defendants to deliver to the plaintiff after
accounting, one third (1/3) of the total value of all the
properties which is approximately P5,000,000.00 representing
the just share of the plaintiff;
c) Ordering the defendants to pay the attorney of the plaintiff
the sum of Two Hundred Fifty Thousand Pesos (P250,000.00)
by way of 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 includes necessary
and indispensable defendants without whom no final
determination can be had in the action and in order that
complete relief is to be accorded as between those already
parties.
Considering that the amendments sought to be introduced do
not change the main causes of action in the original complaint
and the reliefs demanded and to allow amendments is the rule,
and to refuse them the exception and in order that the real
question between the parties may be properly and justly
threshed out in a single proceeding to avoid multiplicity of
actions." (Page 40, Record.)
In a single answer with counterclaim, over the signature of their
common counsel, defendants denied specifically not only the
allegation that respondent Tan is the widow of Tee Hoon
because, according to them, his legitimate wife was Ang Siok
Tin, still living and with whom he had four (4) legitimate
children, a twin born in 1942, and two others born in 1949 and
1965, all presently residing in Hongkong, but also all the
allegations of fraud and conversion quoted above, the truth
being, according to them, that proper liquidation had been
regularly made of the business of the partnership and Tee Hoon
used to receive his just share until his death, as a result of
which the partnership was dissolved and what corresponded to
him were all given to his wife and children. To quote the
pertinent portions of said answer:
"AND BY WAY OF SPECIAL AND AFFIRMATIVE
DEFENSES,
defendants hereby incorporate all facts averred and alleged in
the answer, and further most respectfully declare:
1. That in the event that plaintiff is filing the present complaint
as an heir of Tee Hoon Lim Po Chuan, then, she has no legal
capacity to sue as such, considering that the legitimate wife,
namely: Ang Siok Tin, together with their children are still
alive. Under Sec. 1, (d), Rule 16 of the Revised Rules of Court,
lack of legal capacity to sue is one of the grounds for a motion
to dismiss and so defendants prays that a preliminary hearing
be conducted as provided for in Sec. 5, of the same rule;
2. That in the alternative case or event that plaintiff is filing the
present case under Art. 144 of the Civil Code, then, her claim
or demand has been paid, waived abandoned or otherwise
extinguished as evidenced by the 'quitclaim' Annex 'A' hereof,
the ground cited is another ground for a motion to dismiss (Sec.
1, (h), Rule 16) and hence defendants pray that a preliminary
hearing be made in connection therewith pursuant to Section 5
of the aforementioned rule;
3. That Tee Hoon Lim Po Chuan was legally married to Ang
Siok Tin and were blessed with the following children, to wit:
Ching Siong Lim and Ching Hing Lim (twins) born on
February 16, 1942; Lim Shing Ping born on March 3, 1949
andLim Eng Lu born on June 25, 1965 and presently residing
in Hongkong;
4. That even before the death of Tee Hoon Lim Po Chuan, the
plaintiff was no longer his common law wife and even though
she was not entitled to anything left by Tee Hoon Lim Po
Chuan, yet, out of the kindness and generosity on the part of
the defendants, particularly Antonio Lim Tanhu, who, was
inspiring to be monk and in fact he is now a monk, plaintiff was
given a substantial amount evidenced by the 'quitclaim' (Annex
'A');
5. That the defendants have acquired properties out of their
own personal fund and certainly not from the funds belonging
to the partnership, just as Tee Hoon Lim Po Chuan had
acquired properties out of his personal fund and which are now
in the possession of the widow and neither the defendants nor
the partnership have anything to do about said properties;
6. That it would have been impossible to buy properties from
funds belonging to the partnership without the other partners
knowing about it considering that the amount taken allegedly is
quite big and with such big amount withdrawn the partnership
would have been insolvent;
7. That plaintiff and Tee Hoon Lim Po Chuan were not blessed
with children who would have been lawfully entitled to succeed
to the properties left by the latter together with the widow and
legitimate children;
8. That despite the fact that plaintiff knew that she was no
longer entitled to anything of the shares of the late Tee
Hoon Lim Po Chuan, yet, this suit was filed against the
defendant who have to interpose the following
C O U N T E R C LAI M
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 have this
order lifted thru a motion for reconsideration, but the effort
failed when the court denied it. Thereafter, the trial started, but
at the stage thereof where the first witness of the plaintiff by the
name of Antonio Nuez, who testified that he is her adopted
son, was up for re-cross-examination, said plaintiff
unexpectedly filed on October 19, 1974 the following simple
and unreasoned
"MOTION TO DROP DEFENDANTS LIM TECK
CHUAN AND ENG CHONG LEONARDO
"COMES now plaintiff, through her undersigned counsel, unto
the Honorable Court most respectfully moves to drop from the
complaint the defendants Lim Teck Chuan and Eng Chong
Leonardo and to consider the case dismissed insofar as said
defendants Lim Teck Chuan and Eng Chong Leonardo are
concerned.
WHEREFORE, it is most respectfully prayed of the Honorable
Court to drop from the complaint the defendants LimTeck
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 plaintiffs evidence ex-parte be set on
November 20, 1974, at 8:30 A.M. before the Branch Clerk of
Court who is deputized for the purpose, to swear in witnesses
and to submit her report within ten (10) days thereafter. Notify
the plaintiff.
SO ORDERED.
Cebu City, Philippines, October 21, 1974." (Page 52, Record.)
But, in connection with this last order, the scheduled ex-
parte reception of evidence did not take place on November 20,
1974, for on October 28, 1974, upon verbal motion of plaintiff,
the court issued the following self-explanatory order:
"Acting favorably on the motion of the plaintiff dated October
18, 1974, the Court deputized the Branch Clerk of Court to
receive the evidence of the plaintiff ex-parte to be made on
November 20, 1974. However, on October 28, 1974, the
plaintiff, together with her witnesses, appeared in court and
asked, thru counsel, that she be allowed to present her
evidence.
Considering the time and expenses incurred by the plaintiff in
bringing her witnesses to the court, the Branch Clerk of Court
is hereby authorized to receive immediately the evidence of the
plaintiff ex-parte.
SO ORDERED.
Cebu City, Philippines, October 28, 1974." (Page 53, Record.)
Upon learning of these orders, on October 23, 1973, the
defendant Lim Teck Cheng, thru counsel, Atty. Sitoy, filed a
motion for reconsideration thereof, and on November 1, 1974,
defendant Eng Chong Leonardo, thru counsel Atty. Alcudia,
filed also his own motion for reconsideration and clarification
of the same orders. These motions were denied in an order
dated December 6, 1974 but received by the movants only on
December 23, 1974. Meanwhile, respondent court rendered the
impugned decision on December 20, 1974. It does not appear
when the parties were served copies of this decision.
Subsequently, on January 6, 1975, all the defendants, thru
counsel, filed a motion to quash the order of October 28, 1974.
Without waiting however for the resolution thereof, on January
13, 1974, Lim Teck Chuan and Eng Chong Leonardo went to
the Court of Appeals with a petition for certiorari seeking the
annulment of the above-mentioned orders of October 21, 1974
and October 28, 1974 and decision of December 20, 1974. By
resolution of January 24, 1975, the Court of Appeals dismissed
said petition, holding that its filing was premature, considering
that the motion to quash the order of October 28, 1974 was still
unresolved by the trial court. This holding was reiterated in the
subsequent resolution of February 5, 1975 denying the motion
for reconsideration of the previous dismissal.
On the other hand, on January 20, 1975, the other defendants,
petitioners herein, filed their notice of appeal, appeal bond and
motion for extension to file their record on appeal, which was
granted, the extension to expire after fifteen (15) days from
January 26 and 27, 1975, for defendants Lim Tanhu and Ng
Suas, respectively. But on February 7, 1975, before the
perfection of their appeal, petitioners filed the present petition
with this Court. And with the evident intent to make their
procedural position clear, counsel for defendants, Atty. Manuel
Zosa, filed with respondent court a manifestation dated
February 14, 1975 stating that "when the non-defaulted
defendants Eng Chong Leonardo and Lim Teck Chuan filed
their petition in the Court of Appeals, they in effect abandoned
their motion to quash the order of October 28, 1974," and that
similarly "when Antonio Lim Tanhu, Dy Ochay, Alfonso
Leonardo Ng Sua and Co Oyo, filed their petition
for certiorari and prohibition . . . in the Supreme Court, they
likewise abandoned their motion to quash." This manifestation
was acted upon by respondent court together with plaintiff's
motion for execution pending appeal in its order of the same
date February 14, 1975 thiswise:
"ORDER
When these incidents, the motion to quash the order of October
28, 1974 and the motion for execution pending appeal were
called for hearing today, counsel for the defendants-movants
submitted their manifestation inviting the attention of this
Court that by their filing for certiorari and prohibition with
preliminary injunction in the Court of Appeals which was
dismissed and later the defaulted defendants filed with the
Supreme Court certiorari with prohibition they in effect
abandoned their motion to quash.
IN VIEW HEREOF, the motion to quash is ordered
ABANDONED. The resolution of the motion for execution
pending appeal shall be resolved after the petition for certiorari
and prohibition shall have been resolved by the Supreme Court.
SO ORDERED.
Cebu City, Philippines, February 14, 1975." (Page 216,
Record.)
Upon these premises, it is the position of petitioners that
respondent court acted illegally, in violation of the rules or with
grave abuse of discretion in acting on 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, such notice was timely served on the
non-defaulted defendantsLim Teck Chuan and Eng Chong
Leonardo and no notice at all was ever sent to the other
defendants, herein petitioners, and more so, in actually ordering
the dismissal of the case by its order of October 21, 1974 and at
the same time setting the case for further hearing as against the
defaulted defendants, herein petitioners, actually hearing the
same ex-parte and thereafter rendering the decision of
December 20, 1974 granting respondent Tan even reliefs not
prayed for in the complaint. According to the petitioners, to
begin with, there was compulsory counterclaim in the common
answer of the defendants the nature of which is such that it
cannot be decided in an independent action and as to which the
attention of respondent court was duly called in the motions for
reconsideration. Besides, and more importantly, under Section
4 of Rule 18, respondent court had no authority to divide the
case before it by dismissing the same as against the non-
defaulted defendants and thereafter proceeding to hear it ex-
parte and subsequently rendering judgment against the
defaulted defendants, considering that in their view, under the
said provision of the rules, when a common cause of action is
alleged against several defendants, the default of any of them is
a mere formality by which those defaulted are not allowed to
take part in the proceedings, but otherwise, all the defendants,
defaulted and not defaulted, are supposed to have but a
common fate, win or lose. In other words, petitioners posit that
in such a situation, there can only be one common judgment for
or against all the defendants, the non-defaulted and the
defaulted. Thus, petitioners contend that the order of dismissal
of October 21, 1974 should be considered also as the final
judgment insofar as they are concerned, or, in the alternative, it
should be set aside together with all the proceedings and
decision held and rendered subsequent thereto, and that the trial
be resumed as of said date, with the defendants Lim Teck
Chuan and Eng Chong Leonardo being allowed to defend the
case for all the defendants.
On the other hand, private respondent maintains the contrary
view that inasmuch as petitioners had been properly declared in
default, they have no personality nor interest to question the
dismissal of the case as against their non-defaulted co-
defendants and should suffer the consequences of their own
default. Respondent further contends, and this is the only
position discussed in the memorandum submitted by her
counsel, that since petitioners have already made or at least
started to make their appeal, as they are in fact entitled to
appeal, this special civil action has no reason for being.
Additionally, she invokes the point of prematurity upheld by
the Court of Appeals in regard to the above-mentioned petition
therein of the non-defaulted defendants Lim Teck Chuan and
Eng Chong Leonardo. Finally, she argues that in any event, the
errors attributed to respondent court are errors of judgment and
may be reviewed only in an appeal.
After careful scrutiny of all the above-related proceedings, in
the court below and mature deliberation, the Court has arrived
at the conclusion that petitioners should be granted relief, if
only to stress emphatically once more that the rules of
procedure may not be misused and abused as instruments for
the denial of substantial justice. A review of the record of this
case immediately discloses that here is another demonstrative
instance of how some members of the bar, availing of their
proficiency in invoking the letter of the rules without regard to
their real spirit and intent, succeed in inducing courts to act
contrary to the dictates of justice and equity, and, in some
instances, to wittingly or unwittingly abet unfair advantage by
ironically camouflaging their actuations as earnest efforts to
satisfy the public clamor for speedy disposition of litigations
forgetting all the while that the plain injunction of Section 2 of
Rule 1 is that the "rules shall be liberally construed in order to
promote their object and to assist the parties in obtaining" not
only 'speedy' but more imperatively, "just . . . and inexpensive
determination of every action and proceeding." We cannot
simply pass over the impression that the procedural maneuvers
and tactics revealed in the records of the case at bar were
deliberately planned with the calculated end in view of
depriving petitioners and their co-defendants below of every
opportunity to properly defend themselves against a claim of
more than substantial character, considering the millions of
pesos worth of properties involved as found by respondent
judge himself in the impugned decision, a claim that appears, in
the light of the allegations of the answer and the documents
already brought to the attention of the court at the pre-trial, to
be rather dubious. What is most regrettable is that apparently,
all of these alarming circumstances have escaped respondent
judge who did not seem to have hesitated in acting favorably on
the motions of the plaintiff conducive to the deplorable
objective just mentioned, and which motions, at the very least,
appeared to be of highly controversial merit, considering that
their obvious tendency and immediate result would be to
convert the proceedings into a one-sided affair, a situation that
should be readily condemnable and intolerable to any court of
justice.
Indeed, a seeming disposition on the part of respondent court to
lean more on the contentions of private respondent may be
discerned from the manner it resolved the attempts of
defendants Dy Ochay and Antonio Lim Tanhu to have the
earlier order of default against them lifted. Notwithstanding
that Dy 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 (Sec. 3, Rule 18) of the rules.
It is not even a verification. (Sec. 6, Rule 7.) What the rule
requires as interpreted by the Supreme Court is that the motion
must have to be accompanied by an affidavit of merits that the
defendant has a meritorious defense, thereby ignoring the very
simple legal point that the ruling of the Supreme Court in Ong
Peng 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 game
"contentious" defense as that of her husband was invoked by
her.
Such tenuous, if not altogether erroneous reasonings and
manifest inconsistency in the legal postures in the orders in
question can hardly convince Us that the matters here in issue
were accorded due and proper consideration by respondent
court. In fact, under the circumstances herein obtaining, it
seems appropriate to stress that, having in view the rather
substantial value of the subject matter involved together with
the obviously contentious character of 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 further ignores or is inconsistent with a number of known
The first thing that has struck the Court upon reviewing the
record is the seeming alacrity with which the motion to dismiss
the case against non-defaulted defendants Lim Teck Chuan and
Eng Chong Leonardo was disposed of, which definitely ought
not to have been the case. The trial was proceeding with the
testimony of the first witness of plaintiff and he was still under
re-cross-examination. Undoubtedly, the motion to dismiss at
that stage and in the light of the declaration of default against
the rest of the defendants was a well calculated surprise move,
obviously designed to secure utmost advantage of the situation,
regardless of its apparent unfairness. To say that it must have
been entirely unexpected by all the defendants, defaulted and
non-defaulted, is merely to rightly assume that the parties in a
judicial proceeding can never be the victims of any procedural
waylaying, as long as lawyers and judges are imbued with the
requisite sense of equity and justice.
But the situation here was aggravated by the indisputable fact
that the adverse parties who were entitled to be notified of such
unanticipated dismissal motion did not get due notice thereof.
Certainly, the non-defaulted defendants had the right to the
three-day prior notice required by Section 4 of Rule 15. How
could they have bad such indispensable notice when the motion
was set for hearing on Monday, October 21, 1974, whereas the
counsel for Lim Teck Chuan, Atty. Sitoy, was personally served
with the notice only on Saturday, October 19, 1974 and the
counsel for Eng Chong Leonardo, Atty. Alcudia, was notified
by registered mail which was posted only that same Saturday,
October 19, 1974? According to Chief Justice Moran, "three
days at least must intervene between the date of service of
notice and the date set for the hearing, otherwise the court may
not validly act on the motion." (Comments on the Rules of
Court by Moran, Vol. 1, 1970 ed. p. 474.) Such is the correct
construction of Section 4 of Rule 15. And in the instant case,
there can be no question that the notices to the non-defaulted
defendants were short of the requirement of said provision.
We can understand the over-anxiety of counsel for plaintiff, but
what is incomprehensible is the seeming inattention of
respondent judge to the explicit mandate of the pertinent rule,
not to speak of the imperatives of fairness, considering he
should have realized the far-reaching implications, specially
from the point of view he subsequently adopted, albeit
erroneously, of his favorably acting on it. Actually, he was
aware of said consequences, for simultaneously with his order
of dismissal, he immediately set the case for the ex-parte
hearing of the evidence against the defaulted defendants,
which, incidentally, from the tenor of his order which We have
quoted above, appears to have been done by him motu propio.
As a matter of fact, plaintiff's motion also quoted above did not
pray for it.
Withal, respondent court's twin actions of October 21, 1974
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
the docketing fees for the filing thereof had not been paid by
defendants.
Indeed, that said counterclaim is compulsory needs no extended
elaboration. As may be noted in the allegations thereof
aforequoted, it arose out of or is necessarily connected with the
occurrence that is the subject matter of the 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 opportunely notified of the motion therefor, but
the record shows clearly that at least
defendant Lim immediately brought the matter of their
compulsory counterclaim to the attention of the trial court in
his motion for reconsideration of October 23, 1974, even as the
counsel for the other defendant, Leonardo, predicated his
motion on other grounds. In its order of December 6, 1974,
however, respondent court not only upheld the plaintiff's
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. I, 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 be noted from the order of respondent court quoted
earlier, which resolved the motions for reconsideration of the
dismissal order filed by the non-defaulted defendants, His
Honor rationalized his position thus:
"It is the rule that it is the absolute prerogative of the plaintiff to
choose, the theory upon which he predicates his right of action,
or the parties he desires to sue, without dictation or imposition
by the court or the adverse party. If he makes a mistake in the
choice of his right of action, or in that of the parties against
whom he seeks to enforce it, that is his own concern as he alone
suffers therefrom. The plaintiff cannot be compelled to choose
his defendants. He may not, at his own expense, be forced to
implead anyone who, under the adverse 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. (Vano 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 62-63, 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,
1984 cites none. From all appearances, plaintiff just decided to
ask for it, without any relevant explanation at all. Usually, the
court in granting such a motion inquires for the reasons and in
the appropriate instances directs the granting of some form of
compensation for the trouble undergone by the defendant in
answering the complaint, preparing for or proceeding partially
to trial, hiring counsel and making corresponding expenses in
the premises. Nothing of these, appears in the order in question.
Most importantly, His Honor ought to have considered that the
outright dropping of the non-defaulted defendants Lim and
Leonardo, over their objection at that, would certainly be unjust
not only to the petitioners, their own parents, who would in
consequence be entirely defenseless, but also to Lim and
Leonardo themselves who would naturally correspondingly
suffer from the eventual judgment against their parents.
Respondent court paid no heed at all to the mandate that such
dropping must be on such terms as are just" meaning to all
concerned with its legal and factual effects.
Thus, it is quite plain that respondent court erred in issuing its
order of dismissal of October 21, 1974 as well as its order of
December 6, 1974 denying reconsideration of such dismissal.
As We make this ruling, We are not oblivious of the
circumstance that defendants Lim and Leonardo are not parties
herein. But such consideration is inconsequential. The fate of
the case of petitioners is inseparably tied up with said order of
dismissal, if only because the order of ex-parte hearing of
October 21, 1974 which directly affects and prejudices said
petitioners is predicated thereon. Necessarily, therefore, We
have to pass on the legality of said order, if We are to decide the
case of herein petitioners properly and fairly.
The attitude of the non-defaulted defendants of no longer
pursuing further their questioning of the dismissal is from
another point of view understandable. On the one hand, should
they insist on being defendants when plaintiff herself has
already release from her claims? On the other hand, as far as
their respective parents-co-defendants are concerned, they must
have realized that they (their parents) could even be benefited
by such dismissal because they could question whether or not
plaintiff can still prosecute her case against them after she had
secured the order of dismissal in question. And it is in
connection with this last point that the true and correct concept
of default becomes relevant.
At this juncture, it may also be stated that the decision of the
Court of Appeals of January 24, 1975 in G. R. No. SP-03066
dismissing the petition for certiorari of non-defaulted
defendants Lim and Leonardo impugning the order of dismissal
of October 21, 1974, has no bearing at all in this case, not only
because that dismissal was premised by the appellate court on
its holding that the said petition was premature inasmuch as the
trial court had not yet resolved the motion of the defendants of
October 28, 1974 praying that said disputed order be quashed,
but principally because herein petitioners were not parties in
that proceeding and cannot, therefore, be bound by its result. In
particular, We deem it warranted to draw the attention of
private 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 they will be
exposed for what they are, certainly unethical and degrading to
the dignity of the law profession. Moreover, almost always they
only betray the inherent weakness of the cause of the party
resorting to them.
2 who has been declared in default may likewise appeal from the
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 Ill. 328;
Ken v. Leopold, 21 Ill. A. 163; Chicago, etc. Electric R. Co. v.
Krempel, 116 Ill. A. 253.).
Being declared in default does not constitute a waiver of rights
except that of being heard and of presenting evidence in the
trial court. According to Section 2, "except as provided in
Section 9 of Rule 13, a party declared in default shall not be
entitled to notice of subsequent proceedings, nor to take part in
the trial." That provision referred to reads: "No service of
papers other than substantially amended pleadings and final
orders or judgments shall be necessary on a party in default
unless he files a motion to set aside the order of default, in
which event he shall be entitled to notice of all further
proceedings regardless of whether the order of default is set
aside or not." And pursuant to Section 2 of Rule 41, "a party
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 others
make default. When a complaint states a common cause of
action against several defendants, some of whom answer, and
the others fail to do so, the court shall try the case against all
upon the answers thus filed and render judgment upon the
evidence presented. The same procedure applies when a
common cause of action is pleaded in a counterclaim, cross-
claim and third-party claim."
Very aptly does Chief Justice Moran elucidate on this provision
and the controlling jurisprudence explanatory thereof this wise:
"Where a complaint states a common cause of action against
several defendants and some appear to defend the case on the
merits while others make default, the defense interposed by
those who appear to litigate the case inures to the benefit of
those who fall to appear, and if the court finds that a good
defense has been made, all of the defendants must be absolved.
In other words, the answer filed by one or some of the
defendants inures to the benefit of all the others, even those
who have not seasonably filed their answer. (Bueno v. Ortiz, L-
22978, June 27, 1968, 23 SCRA 1151.) The proper mode of
proceeding where a complaint states a common cause of action
against several defendants, and one of them makes default, is
simply to enter a formal default order against him, and proceed
with the cause upon the answers of the others. The defaulting
defendant merely loses his standing in court, he not being
entitled to the service of notice in the cause, nor to appear in the
suit in any way. He cannot adduce evidence; nor can he be
heard at the final hearing, (Lim. Toco v. Go Fay, 80 Phil. 166.)
although he may appeal the judgment rendered against him on
the merits. (Rule 41, sec. 2.) If the case is finally decided in the
plaintiff's favor, a final decree is then entered against all the
defendants; but if the suit should be decided against the
plaintiff, the action will be dismissed as to all the defendants
alike. (Velez v. Ramas, 40 Phil. 787-792; Frow v. de la Vega, 15
Wal. 552, 21 L. Ed. 60.) In other words the judgment will affect
the defaulting defendants either favorably or adversely.
(Castro v. Pea, 80 Phil. 488.)
Defaulting defendant may ask execution if judgment is in his
favor, (Castro v. Pea, supra.)" (Moran, Rules of Court, Vol. 1,
pp. 538-539.)
In Castro vs. Pea, 80 Phil. 488, one of the numerous cases
cited by Moran, this Court elaborated on the construction of the
same rule when it sanctioned the execution, upon motion and
for the benefit of the defendant in default, of a judgment which
was adverse to the plaintiff. The Court held:
"As above stated, Emilia Matanguihan, by her counsel, also
was a movant in the petition for execution Annex 1. Did she
have a right to be such, having been declared in default? In
Frow vs. De la Vega, supra, cited as authority in Velez vs.
Ramas, supra, the Supreme Court of the United States adopted
as ground for its own decision the following ruling of the New
York Court of Errors in Clason vs. Morris, 10 Jons., 524:
'It would be unreasonable to hold that because one defendant
had made default, the plaintiff should have a decree even
against him, where the court is satisfied from the proofs offered
by the other, that in fact the plaintiff is not entitled to a decree.'
(21 Law, ed., 61.)
The reason is simple: justice has to be consistent. The
complaint stating a common cause of action against several
defendants, the complainant's rights or lack of them in
the controversy have to be the same, and not different, as
against all the defendant's although one or some make default
and the other or others appear, join issue, and enter into trial.
For instance, in the case of Clason vs. Morris above cited, the
New York Court of Errors in effect held that in such a case if
the plaintiff is not entitled to a decree, he will not be entitled to
it, not only as against the defendant appearing and resisting his
action but also as against the one who made default. In the case
at bar, the cause of action in the plaintiff's complaint was
common against the Mayor of Manila, Emilia Matanguihan,
and the other defendants in Civil Case No. 1318 of the lower
court. The Court of First Instance in its judgment found and
held upon the evidence adduced by the plaintiff and the
defendant mayor that as between said plaintiff and defendant
Matanguihan the latter was the one legally entitled to occupy
the stalls; and it decreed, among other things, that said plaintiff
immediately vacate them. Paraphrasing the New York Court of
Errors, it would be unreasonable to hold now that because
Matanguihan had made default, the said plaintiff should be
declared, as against her, legally entitled to the occupancy of the
stalls, or to remain therein, although the Court of First Instance
was so firmly satisfied, from the proofs offered by the other
defendant, that the same plaintiff was not entitled to such
occupancy that it peremptorily ordered her to vacate the stalls.
If in the cases of Clason vs. Morris, supra, Frow vs. De la Vega,
supra, and Velez vs. Ramas, supra, the decrees entered inured to
the benefit of the defaulting defendants, there is no reason why
that entered in said case No. 1318 should not be held also to
have inured to the benefit of the defaulting defendant
Matanguihan. Indeed, the doctrine in said three cases plainly
implies that there is nothing in the law governing default which
would prohibit the court from rendering judgment favorable to
the defaulting defendant in such cases. If it inured to her
benefit, its stands to reason that she had a right to claim that
benefit, for it would not be a benefit if the supposed beneficiary
were barred from claiming it; and if the benefit necessitated the
execution of the decree, she must he possessed of the right to
ask for the execution thereof as she did when she, by counsel,
participated in the petition for execution Annex 1.
Section 7 of Rule 35 would seem to afford a solid support to
the above considerations. It provides that when a complaint
states a common cause of action against several defendants,
some of whom answer, and the others make default, 'the court
shall try the case against all upon the answer thus filed and
render judgment upon the evidence presented by the parties in
court'. It is obvious that under this provision the case is tried
jointly not only against the defendants answering but also
against those defaulting, and the trial is held upon the answer
filed by the former; and the judgment, if adverse, will prejudice
the defaulting defendants no less than those who answer. In
other words, the defaulting defendants are held bound by the
answer filed by their co-defendants and by the judgment which
the court may render against all of them. By the same token,
and by all rules of equity and fair play, if the judgment should
happen to be favorable, totally or partially, to the answering
defendants, it must correspondingly benefit the defaulting ones,
for it would not be just to let the judgment produce effects as to
the defaulting defendants only when adverse to them and not
when favorable."
In Bueno 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 he noted, however, that in entering the area in question
and seeking to prevent Patanao from continuing his logging
operations therein, the PC was merely executing an order of the
Director of Forestry and acting as his agent. 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 co-
defendant has already answered, he does so trusting in the
assurance implicit in the rule that his default is in essence a
mere formality that deprives him of no more than the right to
take part in the trial and that the court would deem anything
done by or for the answering defendant as done by or for him.
The presumption is that otherwise he would not have seen to it
that he would not be in default. Of course, he has to suffer the
consequences of whatever the answering defendant may do or
fail to do, regardless of possible adverse consequences, but if
the complaint has to be dismissed in so far as the answering
defendant is concerned, it becomes his inalienable right that the
same be dismissed also as to him. It does not matter that the
dismissal is upon the evidence presented by the plaintiff or
upon the 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 137 that
petitioners' motion for reconsideration was in substance legally
adequate, regardless of whether or not it was under oath.
In any event, the dropping of the defendants Lim and Leonardo
from plaintiff's amended complaint was virtually a second
amendment of plaintiff's 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 wittingly condoning inequity and injustice resulting from
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
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-partereception 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 bold that on the
basis of its own recitals, the decision in question cannot stand
close scrutiny. What is more, the very considerations contained
therein reveal convincingly the inherent weakness of the cause
of the plaintiff. To be sure, We have been giving serious
thought to the idea of merely returning this case for a
resumption of trial by setting aside the order of dismissal of
October 21, 1974, with all its attendant difficulties on account
of its adverse effects on parties who have not been heard, but
upon closer study of the pleadings and the decision and other
circumstances extant in the record before Us, We are now
persuaded that such a course of action would only lead to more
legal complications incident to attempts on the part of the
parties concerned to desperately squeeze themselves out of a
bad situation. Anyway, We feel confident that by and large,
there is enough basis here and now for Us to rule out the claim
of the plaintiff.
Even a mere superficial reading of the decision would
immediately reveal that it is littered on its face with
deficiencies and imperfections which would have had no reason
for being were there less haste and more circumspection in
rendering the same. Recklessness in jumping to unwarranted
conclusions, both factual and legal, is at once evident in its
findings relative precisely to the main bases themselves of the
reliefs granted. It is apparent therein that no effort has been
made to avoid glaring inconsistencies. Where references are
made to codal provisions and jurisprudence, inaccuracy and
inapplicability are at once manifest. It hardly commends itself
as a deliberate and consciencious adjudication of a litigation
which, considering the substantial value of the subject matter it
involves and the unprecedented procedure that was followed by
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 (LimTanhu, for short) and Alfonso
Leonardo Ng Sua (Ng Sua, for short) as co-partners; that after
the death of her husband on March 11, 1966 she is entitled to
share not only in the capital and profits of the partnership but
also in the other assets, both real and personal, acquired by the
partnership with funds of the latter during its lifetime."
Relatedly, in the latter part of the decision, the findings are to
the following effect:
"That the herein plaintiff Tan Put and her late husband Po
Chuan were married at the Philippine Independent Church of
Cebu City on December 20, 1949; that Po Chuan died on
March 11, 1966; that the plaintiff and the late Po Chuan were
childless but the former has a foster son Antonio Nuez whom
she has reared since his birth with whom she lives up to the
present; that prior to the marriage of the plaintiff to Po Chuan
the latter was already managing the partnership Glory
Commercial Co. then engaged in a little business in hardware at
Manalili St., Cebu City; that prior to and just after the marriage
of the plaintiff to Po Chuan she was engaged in the drugstore
business; that not long after her marriage, upon the suggestion
of Po Chuan, the plaintiff sold her drugstore for P125,000.00
which amount she gave to her husband in the presence of
defendant Lim Tanhu and was invested to the partnership Glory
Commercial Co. sometime in 1950; that after the investment of
the above-stated amount in the partnership its business
flourished and it embarked in the import business and also
engaged in the wholesale and retail trade of cement and GI
sheets and under huge profits;
xxx xxx xxx
"That the late Po Chuan was the one who actively managed the
business of the partnership Glory Commercial Co.; he was the
one who made the final decisions and approved the
appointments of new personnel who were taken in by the
partnership; that the late Po Chuan and
defendants Lim Tanhu and Ng Sua are brothers, the latter two
(2) being the elder brothers of the former; that
defendants Lim Tanhu and Ng Sua are both naturalized Filipino
citizens whereas the late Po Chuan until the time of his death
was a Chinese citizen; that the three (3) brothers were partners
in the Glory Commercial Co. but Po Chuan was practically the
owner of the partnership having the controlling interest; that
defendants Lim Tanhu and Ng Sua were partners in name but
they were mere employees of Po Chuan; . . . ." (Pp. 89-91,
Record.)
How did His Honor arrive at these conclusions? To start with, it
is not clear in the decision whether or not in making its findings
of fact the court took into account the allegations in the
pleadings of the parties and whatever might have transpired at
the pre-trial. All that We can gather in this respect is that
references are made therein to pre-trial exhibits and to Annex A
of the answer of the defendants to plaintiff's amended
complaint. Indeed, it was incumbent upon the court to consider
not only the evidence formally offered at the trial but also the
admissions, expressed or implied, in the pleadings, as well as
whatever might have been placed before it or brought to its
attention during the pre-trial. In this connection, it is to be
regretted that none of the parties has thought it proper to give
Us an idea of what took place at the pre-trial of the present case
and what are contained in the pre-trial order, if any was issued
pursuant to Section 4 of Rule 20.
The fundamental purpose of pre-trial, aside from affording the
parties every opportunity to compromise or settle their
differences, is for the court to be apprised of the unsettled
issues between the parties and of their respective evidence
relative thereto, to the end that it may take corresponding
measures that would abbreviate the trial as much as possible
and the judge may be able to ascertain the facts with the least
observance of technical rules. In other words, whatever is said
or done by the parties or their counsel at the pre-trial serves to
put the judge on notice of their respective basic positions, in
order that in appropriate cases he may, if necessary in the
interest of justice and a more accurate determination of the
facts, make inquiries about or require clarifications of matters
taken up at the pre-trial, before finally resolving any issue of
fact or of law. In brief, the pre-trial constitutes part and parcel
of the proceedings, and hence, matters dealt with therein may
not be disregarded in the process of decision making.
Otherwise, the real essence of compulsory pre-trial would be
insignificant and worthless.
Now, applying these postulates to the findings of respondent
court just quoted, it will be observed that the court's conclusion
about the supposed marriage of plaintiff to the deceased Tee
Hoon Lim Po Chuan is contrary to the weight of the evidence
brought before it during the trial and the pre-trial.
Under Article 55 of the Civil Code, the declaration of the
contracting parties that they take each other as husband and
wife "shall be set forth in an instrument" signed by the parties
as well as by their witnesses and the person solemnizing the
marriage. Accordingly, the primary evidence of a marriage
must be an authentic copy of the marriage contract. While a
marriage may also be proved by other competent evidence, the
absence of the contract must first be satisfactorily explained.
Surely, the certification of the person who allegedly solemnized
a marriage is not admissible evidence of such marriage unless
proof of loss of the contract or of any other satisfactory reason
for its non-production is first presented to the court. In the case
at bar, the purported certification issued by a Mons. Jose M.
Recoleto, Bishop, Philippine Independent Church, Cebu City, is
not, therefore, competent evidence, there being absolutely no
showing as to unavailability of the marriage contract and,
indeed, as to the authenticity of the signature of said certifier,
the jurat allegedly signed by a second assistant provincial fiscal
not being authorized by law, since it is not part of the functions
of his office. Besides, inasmuch as the bishop did not testify,
the same is hearsay.
As regards the testimony of plaintiff herself on the same point
and that of her witness Antonio Nuez, there can be no question
that they are both self-serving and of very little evidentiary
value, it having been disclosed at the trial that plaintiff has
already assigned all her rights in this case to said Nuez,
thereby making him the real party in interest here and,
therefore, naturally as biased as herself. Besides, in the portion
of the testimony of Nuez copied in Annex C of petitioner's
memorandum, it appears admitted that he was born only on
March 25, 1942, which means that he was less than eight years
old at the supposed time of the alleged marriage. If for this
reason alone, it is extremely doubtful if he could have been
sufficiently aware of such event as to be competent to testify
about it.
Incidentally, another Annex C of the same memorandum
purports to be the certificate of birth of one Antonio T. Uy
supposed to have been born on March 23, 1937 at Centro
Misamis, Misamis Occidental, the son of one Uy Bien, father,
and Tan Put, mother. Significantly, respondents have not made
any adverse comment on this document. It is more likely,
therefore, that the witness is really the son of plaintiff by her
husband Uy Kim Beng. But she testified she was childless. So
which is which? In any event, if on the strength of this
document, Nuez is actually the legitimate son of Tan Put and
not her adopted son, he would have been but 13 years old in
1949, the year of her alleged marriage to Po Chuan, and even
then, considering such age, his testimony in regard thereto
would still be suspect.
Now, as against such flimsy evidence of plaintiff, the court had
before it, two documents of great weight belying the pretended
marriage. We refer to (1) Exhibit LL, the income tax return of
the deceased Tee Hoon Lim Po Chuan indicating that the name
of his wife was Ang Siok Tin and (2) the quitclaim, Annex A of
the answer, wherein plaintiff Tan Put stated that she had been
living with the deceased without benefit of marriage and that
she was his "common-law wife". Surely, these two documents
are far more reliable than all the evidence of the plaintiff put
together.
Of course, Exhibit LL is what might be termed as pre-trial
evidence. But it is evidence offered to the judge himself, not to
the clerk of court, and should have at least moved him to ask
plaintiff to explain if not rebut it before jumping to the
conclusion regarding her alleged marriage to the deceased, Po
Chuan. And in regard to the quitclaim containing the admission
of a common-law relationship only, it is to be observed that His
Honor found that "defendants Lim Tanhu and Ng Sua had the
plaintiff execute a quitclaim on November 29, 1967 (Annex
"A", Answer) where they gave plaintiff the amount of P25,000
as her share in the capital and profits of the business of Glory
Commercial Co. which was engaged in the hardware business",
without making mention of any evidence of fraud and
misrepresentation in its execution, thereby indicating either that
no evidence to prove that allegation of the plaintiff had been
presented by her or that whatever evidence was actually offered
did not produce persuasion upon the court. Stated differently,
since the existence of the quitclaim has been duly established
without any circumstance to detract from its legal import, the
court should have held that plaintiff was bound by her
admission therein that she was the common-law wife only of
Po Chuan and what is more, that she had already renounced for
valuable consideration whatever claim she might have relative
to the partnership Glory Commercial Co.
And when it is borne in mind that in addition to all these
considerations, there are mentioned and discussed in the
memorandum of petitioners (1) the certification of the Local
Civil Registrar of Cebu City and (2) a similar certification of
the Apostolic Prefect of the Philippine Independent Church,
Parish of Sto. Nino, Cebu City, that their respective official
records corresponding to December 1949 to December 1950 do
not show any marriage between Tee Hoon Lim Po Chuan and
Tan Put, neither of which certifications have been impugned by
respondent until now, it stands to reason that 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 I, Miss Tan Ki Eng Alias Tan Put, have
lived with Mr. Lim Po Chuan alias Tee Hoon since 1949 but it
recently occurs that we are incompatible with each other and
are not in the position to keep living together permanently.
With the mutual concurrence, we decided to terminate the
existing relationship of common law-marriage and promised
not to interfere each 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 plaintiffs
relation to the deceased was that of a common-law wife but that
they had settled their property interests with the payment to her
of P40,000.
In the light of all these circumstances, We find no alternative
but to hold that plaintiff Tan 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 compounded in the judgment which allows
these "partners in name" and "partners-employees" or
employees who had no means of livelihood and who must not
have contributed any capital in the business, "as Po Chuan was
practically the owner of the partnership having the controlling
interest", 1/3 each of the huge assets and profits of the
partnership. Incidentally, it may be observed at this juncture
that the decision has made Po Chuan play the inconsistent role
of being "practically the owner" but at the same time getting his
capital from the P125,000 given to him by plaintiff and from
which capital the business allegedly "flourished."
Anent the allegation of plaintiff that the properties shown by
her exhibits to be in the names of defendants Lim Tanhu and
Ng Sua were bought by them with partnership funds, His
Honor confirmed the same by finding and holding that "it is
likewise clear that real properties together with the
improvements in the names of defendants Lim Tanhu and Ng
Sua were acquired with partnership funds as these defendants
were only partners-employees of deceased Po Chuan in the
Glory Commercial Co. until the time of his death on March 11,
1966." (p. 30, id.) It is Our considered view, however, that this
conclusion of His Honor is based on nothing but pure
unwarranted conjecture. Nowhere is it shown in the decision
how said defendants could have extracted money from the
partnership in the fraudulent and illegal manner pretended by
plaintiff. Neither in the testimony of Nuez nor in that of
plaintiff, as these are summarized in the decision, can there be
found any single act of extraction of partnership funds
committed by any of said defendants. That the partnership
might have grown into a multi-million enterprise and that the
properties described in the exhibits enumerated in the decision
are not in the names of Po Chuan, who was Chinese, but of the
defendants who are Filipinos, do not necessarily prove that Po
Chuan had not gotten his share of the profits of the business or
that the properties in the names of the defendants were bought
with money of the partnership. In this connection, it is
decisively important to consider that on the basis of the
concordant and mutually cumulative testimonies of plaintiff
and Nuez, respondent court found very explicitly that, and We
reiterate:
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. 90-91,
Record.)
If Po Chuan was in control of the affairs and the running of the
partnership, how could the defendants have defrauded him of
such huge amounts as plaintiff had made his Honor believe?
Upon the other hand, since Po Chuan was in control of the
affairs of the partnership, the more logical inference is that if
defendants had obtained any portion of the funds of the
partnership for themselves, it must have been with the
knowledge and consent of Po Chuan, for which reason no
accounting could be demanded from them therefor, considering
that Article 1807 of the Civil Code refers only to what is taken
by a partner without the consent of the other partner or partners.
Incidentally again, this theory about Po Chuan having been
actively managing the partnership up to his death is a
substantial deviation from the allegation in the amended
complaint to the effect that "defendants Antonio Lim Tanhu,
Alfonso Leonardo Ng Sua, Lim Teck Chuan and Eng Chong
Leonardo, through fraud and machination, took actual and
active management of the partnership and although Tee
Hoon Lim Po Chuan was the manager of Glory Commercial
Co., defendants managed to use the funds of the partnership to
purchase lands and buildings etc. (Par. 4, p. 2 of amended
complaint, Annex B of petition) and should not have been
permitted to be proven by the hearing officer, who naturally did
not know any better.
Moreover, it is very significant that according to the very tax
declarations and land titles listed in the decision, most if not all
of the properties supposed to have been acquired by the
defendants Lim Tanhu and Ng Sua with funds of the
partnership appear to have been transferred to their names only
in 1969 or later, that is, long after the partnership had been
automatically dissolved as a result of the death of Po Chuan.
Accordingly, defendants have no obligation to account to
anyone for such acquisitions in the absence of clear proof that
they had violated the trust of Po Chuan during the existence of
the partnership. (See Hanlon vs. Hansserman and Beam, 40
Phil. 796.)
There are other particulars which should have caused His
Honor to readily disbelieve plaintiffs' pretensions. Nuez
testified that "for about 18 years he was in charge of the GI
sheets and sometimes attended to the imported items of the
business of Glory Commercial Co." Counting 18 years back
from 1965 or 1966 would take Us to 1947 or 1948. Since
according to Exhibit LL, the baptismal certificate produced by
the same witness as his birth certificate, shows he was born in
March, 1942, how could he have started managing Glory
Commercial Co. in 1949 when he must have been barely six or
seven years old? It should not have escaped His Honor's
attention that the photographs showing the premises of
Philippine Metal Industries after its organization "a year or two
after the establishment of Cebu Can Factory in 1957 or 1958"
must have been taken after 1959. How could Nuez have been
only 13 years old then as claimed by him to have been his age
in those photographs when according to his "birth certificate",
he was born in 1942? His Honor should not have overlooked
that according to the same witness, defendant Ng Sua was lying
in Bantayan until he was directed to return to Cebu after the
fishing business thereat floundered, whereas all that the witness
knew about defendant Lim Teck 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 L, the decision.)
The decision is rather emphatic in that Lim Tanhu and Ng Sua
had no known income except their salaries. Actually, it is not
stated, however, from what evidence such conclusion was
derived in so far as Ng Sua is concerned. On the other hand,
with respect to LimTanhu, the decision itself states that
according to Exhibit NN-Pre-trial, in the supposed income tax
return of Lim Tanhu for 1964, he had an income of P4,800 as
salary from Philippine Metal Industries alone and had a total
assessable net income of P23,920.77 that year for which he
paid a tax of P4,656.00. (p. 14. Annex L, id.) And per Exhibit
GG-Pre-trial, in the year, he had a net income of P32,000 for
which he paid a tax of P3,512.40. (id.) As early as 1962, "his
fishing business in Madridejos, Cebu was making money, and
he reported "a net gain from operation (in) the amount of
P865.64" (id., per Exhibit VV-Pre-trial.) From what then did
his Honor gather the conclusion that all the properties
registered in his name have come from funds malversed from
the partnership?
It is rather unusual that His Honor delved into financial
statements and books of Glory Commercial Co. without the aid
of any accountant or without the same being explained by any
witness who had prepared them or who has knowledge of the
entries therein. This must be the reason why there are apparent
inconsistencies and inaccuracies in the conclusions His Honor
made out of them. In Exhibit SS-Pre-trial, the reported total
assets of the company amounted to P2,328,460.27 as of
December, 1965, and yet, Exhibit TT-Pre-trial, according to His
Honor, showed that the total value of goods available as of the
same date was P11,166,327.62. On the other hand, per Exhibit
XX-Pre-trial, the supposed balance sheet of the company for
1966, "the value of inventoried merchandise, both local and
imported", as found by His Honor, was P584,034.38. Again, as
of December 31, 1966, the value of the company's goods
available for sale was P5,524,050.87, per Exhibit YY and YY-
1-Pre-trial. Then, per Exhibit II-3-Pre-trial, the supposed Book
of Account, whatever that is, of the company showed its "cash
analysis" was P12,223,182.55. We do not hesitate to make the
observation that His Honor, unless he is a certified public
accountant, was hardly qualified to read such exhibits and draw
any definite conclusions therefrom, without risk of erring and
committing an injustice. In any event, there is no
comprehensible explanation in the decision of the conclusion of
His Honor that there were P12,223,182.55 cash money
defendants have to account for, particularly when it can be very
clearly seen in Exhibits II-4, II-4-A, II-5 and II-6-Pre-trial,
Glory Commercial Co. had accounts payable as of December
31, 1965 in the amount of P4,801,321.17. (p. 15, id.) Under the
circumstances, We are not prepared to permit anyone to
predicate any claim or right from respondent 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 1/3 share of the properties enumerated in the dispositive
portion of the decision, which seemingly are the very properties
allegedly purchased from the funds of the partnership which
would naturally include the P12,223,182.55 defendants have to
account for. Besides, assuming there has not yet been any
liquidation of the partnership, contrary to the allegation of the
defendants, then Glory Commercial Co. would have the status
of a partnership in liquidation and the only right plaintiff could part of the partners to divide the profits among themselves
have would be to what might result after such liquidation to (Article 1767, Civil Code; Yulo v. Yang Chiao Cheng, 106 Phil.
belong to the deceased partner, and before this is finished, it is 110)
impossible to determine, what rights or interests, if any, the 3. ID.; ID.; ID.; OBLIGATIONS OF PARTNERS; RIGHT TO
deceased had (Bearneza vs. Deqoilla, 43 Phil. 237). In other DEMAND AN ACCOUNTING EXISTS AS LONG AS
words, no specific amounts or properties may be adjudicated to PARTNERSHIP EXISTS; PRESCRIPTION BEGINS TO RUN
the heir or legal representative of the deceased partner without ONLY UPON DISSOLUTION OF PARTNERSHIP WHEN
the liquidation being first terminated. FINAL ACCOUNTING IS DONE. Regarding the
Indeed, only time and the fear that this decision would be much prescriptive period within which the private respondent may
more extended than it is already prevent us from further demand an accounting, Articles 1806, 1807, and 1809 show
pointing out the inexplicable deficiencies and imperfections of that the right to demand an accounting exists as long as the
the decision in question. After all, what have been discussed partnership exists. Prescription begins to run only upon the
should be more than sufficient to support Our conclusion that dissolution of the partnership when the final accounting is
not only must said decision be set aside but also that the action done.
of the plaintiff must be totally dismissed, and, were it not 4. ID.; ID.; ID.; DISSOLUTION AND WINDING UP;
seemingly futile and productive of other legal complications, LIQUIDATION AND WINDING UP OF PARTNERSHIP
that plaintiff is liable on defendants' counterclaims. Resolution AFFAIRS, RETURN OF CAPITAL AND OTHER
of the other issues raised by the parties albeit important and INCIDENTS OF DISSOLUTION PROPER BECAUSE
perhaps pivotal has likewise become superfluous. CONTINUATION OF PARTNERSHIP HAS BECOME
IN VIEW OF ALL THE FOREGOING, the petition is granted. INEQUITABLE. There shall be a liquidation and winding
All proceedings held in respondent court in its Civil Case No. up of partnership affairs, return of capital, and other incidents
12328 subsequent to the order of dismissal of October 21, 1974 of dissolution because the continuation of the partnership has
are hereby annulled and set aside, particularly the ex- become inequitable.
parte proceedings against petitioners and the decision of DECISION
December 20, 1974. Respondent court is hereby ordered to GUTIERREZ, JR., J p:
enter an order extending the effects of its order of dismissal of The petitioner asks for the reversal of the decision of the
the action dated October 21, 1974 to herein petitioners then Intermediate Appellate Court in AC-G.R. No. CV-00881
Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and which affirmed the decision of the then Court of First Instance
Co Oyo. And respondent court is hereby permanently enjoined of Manila, Branch II in Civil Case No. 116725 declaring
from taking any further action in said civil case save and except private respondentLeung Yiu a partner of petitioner
as herein indicated. Costs against private respondent. 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.
THIRD DIVISION This case originated from a complaint filed by
[G.R. No. 70926. January 31, 1989.] respondent Leung Yiu with the then Court of First Instance of
DAN FUE LEUNG, petitioner, vs. HON. INTERMEDIATE Manila, Branch II to recover the sum equivalent to twenty-two
APPELLATE COURT and LEUNG YIU, respondents. percent (22%) of the annual profits derived from the operation
John L. Uy for petitioner. of Sun Wah Panciteria since October, 1955 from petitioner
Edgardo F. Sundiam for private respondent. Dan Fue Leung.
SYLLABUS The Sun Wah Panciteria, a restaurant, located at Florentino
1. REMEDIAL LAW; CIVIL PROCEDURE; ACTIONS; Torres Street, Sta. Cruz, Manila, was established sometime in
CAUSE OF ACTION; NATURE OF ACTION IS October, 1955. It was registered as a single proprietorship and
DETERMINED BY THE FACTS CONSTITUTING THE its licenses and permits were issued to and in favor of petitioner
CAUSE OF ACTION. The well-settled doctrine is that the ". Dan FueLeung as the sole proprietor. Respondent Leung Yiu
. . nature of the action filed in court is determined by the facts adduced evidence during the trial of the case to show that Sun
alleged in the complaint as constituting the cause of action." Wah Panciteria was actually a partnership and that he was one
(De Tavera v. Philippine Tuberculosis Society, Inc., 113 SCRA of the partners having contributed P4,000.00 to its initial
243; Alger Electric, Inc. v. Court of Appeals, 135 SCRA 37). establishment.
2. CIVIL LAW; SPECIAL CONTRACTS; PARTNERSHIP; The private respondent's evidence is summarized as follows:
REQUISITES. The requisites of a partnership which are About the time the Sun Wah Panciteria started to become
1) two or more persons bind themselves to contribute money, operational, the private respondent gave P4,000.00 as his
property, or industry to a common fund; and 2) intention on the 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's) presence. Witnesses So Sia and
Antonio Ah Heng corroborated the private respondent's
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 respondent's 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. llcd
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 respondent's
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 plaintiff's. 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. Cdpr
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. llcd
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 respondent's 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 assistancetherein. 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. LLphil
The records show that the PC Crime Laboratory upon orders of
the lower court examined the signatures in the two receipts
issued separately by the petitioner to the private respondent and
So Sia (Exhibits "A" and "D") and compared the signatures on
them with the signatures of the petitioner on the various pay
envelopes (Exhibits "H", "H-1" to "H-24") of Antonio Ah Heng
and Maria Wong, employees of the restaurant. After the usual
examination conducted on the questioned documents, the PC
Crime Laboratory submitted its findings (Exhibit J) attesting
that the signatures appearing in both receipts (Exhibits "A" and
"D") were the signatures of the petitioner.
The records also show that when the pay envelopes (Exhibits
"H", "H-1" to "H-24") were presented by the private respondent
for marking as exhibits, the petitioner did not interpose any
objection. Neither did the petitioner file an opposition to the
motion of the private respondent to have these exhibits together
with the two receipts examined by the PC Crime Laboratory
despite due notice to him. Likewise, no explanation has been
offered for his silence nor was any hint of objection registered
for that purpose.
Under these circumstances, we find no reason why Exhibit "J"
should be rejected or ignored. The records sufficiently establish
that there was a partnership.
The petitioner raises the issue of prescription. He argues: The
Hon. Respondent Intermediate Appellate Court gravely erred in
not resolving the issue of prescription in favor of petitioner.
The alleged receipt is dated October 1, 1955 and the complaint
was filed only on July 13, 1978 or after the lapse of twenty-two
(22) years, nine (9) months and twelve (12) days. From
October 1, 1955 to duly 13, 1978, no written demands were
ever made by private respondent.
The 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 section accrues:
"(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment."
in relation to Article 1155 thereof which provides:
"Art. 1155. The prescription of actions is interrupted when they
are filed before the court, when there is a written extra-judicial
demand by the creditor, and when there is any written
acknowledgment of the debt by the debtor."
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. LexLib
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, yon 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
thanP10,000.00. 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. (TSN. 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: Cdpr
"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
respondentcourt 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 petitioner's 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. LLpr
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.
FIRST DIVISION
[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.
Mirano Mirano & Associates for petitioner.
Ivan M. Solidum, Jr. for private respondents.
SYNOPSIS
Petitioner Emilio Emnace, Vicente Tabanao and Jacinto
Divinagracia were partners in a business known as Ma. Nelma
Fishing Industry. In 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. When petitioner failed to comply with the
terms of the agreement and also 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, respondents,
Tabanao's heirs, filed an action for accounting,
payment ofshares, division of assets and damages against
petitioner. Petitioner filed a motion to dismiss the complaint
and argued that the trialcourt did not acquire jurisdiction over
the action because the prescribed docket fee was not paid
considering the huge amount involved in the claim. The
trial court, however, 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.
Petitioner questioned the order of dismissal through a petition
for certiorari before the Court of Appeals. The
appellate court rendered the assailed decision dismissing the
petition forcertiorari, upon a finding that no grave
abuse of discretion amounting to lack or excess of jurisdiction
was committed by the trialcourt in issuing the questioned
orders denying petitioner's motions to dismiss. Hence, the
present petition.
The Supreme Court remanded the case to the court of origin.
According to the Court, 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). Respondents cannot claim that they are
unable to make an estimate and avoid paying the initial docket
fees by conveniently omitting the said amount in their amended
complaint. The estimated partnership's total assets 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. Accordingly, the
trialcourt was ordered to 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. The other issues pointed out by
petitioner were likewise dismissed for lack of merit.
SYLLABUS
1. REMEDIAL LAW; RULES OF COURT; LEGAL FEES;
PAYMENT OF DOCKET FEES; VALUE OF THE SUBJECT
ASSETS OR AMOUNT DEMANDED IN CASE AT BAR IS
PECUNIARILY DETERMINABLE. 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. 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. It is thus
imperative for respondents to pay the corresponding docket
fees in order that the trial court may acquire jurisdiction over
the action.
2. ID.; ID.; ID.; ID.; INITIAL AMOUNT OF DOCKET FEES
BASED ON THE ESTIMATED AMOUNT OF THE CLAIM
MUST BE PAID SIMULTANEOUS WITH THE
FILING OF THE COMPLAINT; CASE AT BAR. 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. In Pilipinas Shell Petroleum
Corporation v. Court of Appeals, this Court pronounced that
the above-quoted provision "clearly contemplates an initial
payment of the filing fees corresponding to the estimated
amount of the claim subject to adjustment as to what later may
be proved." Moreover, we reiterated therein the principle that
the payment of filing fees cannot be made contingent or
dependent on the result of the case. Thus, an initial
payment of the docket fees based on an estimated amount must
be paid simultaneous with the filing of the complaint.
Otherwise, the court would stand to lose the filing fees should
the judgment later turn out to be adverse to any claim of the
respondent heirs.
3. ID.; ID.; ID.; ID.; CASE AT BAR; ESTIMATE OF THE
PARTNERSHIP'S TOTAL ASSETS CAN BE MADE THE
BASIS OFTHE INITIAL DOCKET FEES. 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 letter addressed to petitioner. Respondents cannot now say
that they are unable to make an estimate, for the said letter and
the admissions therein form part of the records of this case.
They cannot avoid paying the initial docket fees by
conveniently omitting the said amount in their amended
complaint. This estimate can be made the basis for the initial
docket fees that respondents should pay. Even if it were later
established that the amount proved was less or more than the
amount alleged or estimated, Rule 141, Section 5(a) of the
Rules of Court specifically provides that the court may refund
the excess or exact additional fees should the initial payment be
insufficient. It is clear that it is only the difference between the
amount finally awarded and the fees paid upon filing of this
complaint that is subject to adjustment and which may be
subjected to a lien.
4. ID.; ID.; ID.; ID.; LIBERAL APPLICATION OF THE
RULE ALLOWS THE PLAINTIFF TO PAY THE PROPER
DOCKET FEES WITHIN A REASONABLE TIME BEFORE
THE EXPIRATION OF THE APPLICABLE PRESCRIPTIVE
OR REGLEMENTARY PERIOD. The trial court erred in
not dismissing the complaint outright despite their failure to
pay the proper docket fees. Nevertheless, as in other procedural
rules, it may be liberally construed in certain cases if only to
secure a just and speedy disposition of an action. While the rule
is that the payment of the docket fee in the proper amount
should be adhered to, there are certain exceptions which must
be strictly construed. In recent rulings, this Court has relaxed
the strict adherence to the Manchesterdoctrine, allowing the
plaintiff to pay the proper docket fees within a reasonable time
before the expiration of the applicable prescriptive or
reglementary period. 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. TSEHcA
5. ID.; CIVIL PROCEDURE; VENUE OF ACTIONS;
PROPERLY LAID IN CASE AT BAR; 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. 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 ofthe 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. 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. Besides, venue has nothing to do with
jurisdiction for venue touches more upon the substance or
merits of the case. As it is, venue in this case was properly laid
and the trial court correctly ruled so.
6. ID.; ID.; A PRIOR SETTLEMENT OF THE ESTATE, OR
EVEN THE APPOINTMENT OF AN EXECUTRIX OR AN
ADMINISTRATRIX IS NOT NECESSARY FOR
ANY OF THE HEIRS TO ACQUIRE LEGAL CAPACITY TO
SUE; AS SUCCESSORS WHO STEPPED INTO THE
SHOES OF THE DECEDENT UPON HIS DEATH,
RESPONDENTS CAN COMMENCE ANY ACTION
ORIGINALLY PERTAINING TO THE DECEDENT; CASE
AT BAR. Petitioner asserts that the surviving
spouse of Vicente Tabanao has no legal capacity to sue since
she was never appointed as administratrix or executrix ofhis
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 ofVicente 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. Whatever claims and rights
Vicente Tabanao had against the partnership and petitioner
were transmitted to respondents by operation of law, more
particularly by succession, which is a mode of acquisition by
virtue of which the property, rights and obligations to the
extent of the value of the inheritance of a person are
transmitted. Moreover, respondents became owners of their
respective hereditary shares from the moment Vicente Tabanao
died. A prior settlement of the estate, or even the
appointment of Salvacion Tabanao as executrix or
administratrix, is not necessary for any of the heirs to acquire
legal capacity to sue. As successors who stepped into the
shoes oftheir decedent upon his death, they can commence any
action originally pertaining to the decedent. From the
moment of his death, his rights as a partner and to demand
fulfillment of 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.
7. CIVIL LAW; PRESCRIPTION OF ACTIONS; A
PARTNERSHIP CONTINUES TO EXIST UNTIL IT
COMPLETES ITS WINDING UP PROCESS INCLUDING
THE PARTITIONING AND DISTRIBUTION OF THE NET
PARTNERSHIP ASSETS TO THE PARTNERS;
PRESCRIPTION STARTS TO RUN ONLY UPON
DISSOLUTION OF THE PARTNERSHIP WHEN THE
FINAL ACCOUNTING IS DONE. Petitioner contends that
the trial court should have dismissed the complaint on the
ground ofprescription, arguing that respondents' action
prescribed four (4) years after it accrued in 1986. The
trial court and the Court ofAppeals 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. 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. 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.cHaICD
8. ID.; ID.; ID.; CASE AT BAR; ACTION IS NOT BARRED
BY PRESCRIPTION SINCE NO ACCOUNTING HAS YET
BEEN MADE ON THE PARTNERSHIP'S BUSINESS AND
ASSETS. 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.
DECISION
YNARES-SANTIAGO, J p:
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. 1Among the assets to be
distributed were five (5) fishing boats, six (6) vehicles, two (2)
parcels of land located at Sto. Nio and Talisay, Negros
Occidental, and cash deposits in the local branches of the
Bank of the Philippine Islands and Prudential Bank.
Throughout the existence of the partnership, and even after
Vicente 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 ofassets 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 Courtmay
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 a right to sue in their own names, in
view of the provision of Article 777 of the Civil Code, which
states that the rights to the succession are transmitted from the
moment of the death of the decedent. 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, 8 arguing that the trial court did not acquire
jurisdiction over the case due to the plaintiffs' failure to pay the
proper docket fees. Further, in a supplement to his motion to
dismiss,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 thecourt 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 ofthe 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.
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 trialcourt 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 ofrespondents. 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 be 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,
thedifference of fee shall be refunded or paid as the case may
be. (Italics 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 ofcases. 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 letter 21 addressed to petitioner.
Respondents cannot now say that they are unable to make an
estimate, for the said letter and the admissions therein form
part of the records of this case. They cannot avoid paying the
initial docket fees by conveniently omitting the said amount in
their amended complaint. This estimate can be made the basis
for the initial docket fees that respondents should pay. Even if it
were later established that the amount proved was less or more
than the amount alleged or estimated, Rule 141, Section
5(a) of the Rules of Court specifically provides that
the court may refund the excess or exact additional fees should
the initial payment be insufficient. It is clear that it is only the
difference between the amount finally awarded and the fees
paid upon filing of this complaint that is subject to adjustment
and which may be subjected to a lien.
In the oft-quoted case of Sun Insurance Office, Ltd. v. Hon.
Maximiano Asuncion, 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 ofjurisdiction 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.
(Italics 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 remwhere 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
momentof 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. 33 Moreover, respondents became
owners oftheir 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 ofAppeals 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 ofthe merits and substantial
issues of this controversy is now long overdue and must
proceed without further delay. HAaECD
WHEREFORE, in view of all the foregoing, the instant petition
is DENIED for lack of merit, and the case is REMANDED to
the Regional Trial Court of Cadiz City, Branch 60, which is
ORDERED to determine the proper docket fee based on the
estimated amount that plaintiffs therein seek to collect, and
direct said plaintiffs to pay the same within a reasonable time,
provided the applicable prescriptive or reglementary period has
not yet expired. Thereafter, the trial court is ORDERED to
conduct the appropriate proceedings in Civil Case No. 416-C.
Costs against petitioner.
SO ORDERED.
SECOND DIVISION
[G.R. No. 153788. November 27, 2009.]
ROGER V. NAVARRO, petitioner, vs. HON. JOSE
L. ESCOBIDO, Presiding Judge, RTC Branch 37, Cagayan
de Oro City, and KAREN T. GO, doing business under the
name KARGO ENTERPRISES, respondents.
DECISION
BRION, J p:
This is a petition for review on certiorari 1 that seeks to set
aside the Court of Appeals (CA) Decision 2 dated October 16,
2001 and Resolution 3 dated May 29, 2002 in CA-G.R. SP. No.
64701. These CA rulings affirmed the July 26, 2000 4 and
March 7, 2001 5 orders of the Regional Trial Court (RTC),
Misamis Oriental, Cagayan de Oro City, denying petitioner
Roger V. Navarro's(Navarro) motion to dismiss.
BACKGROUND FACTS
On September 12, 1998, respondent Karen T. Go filed two
complaints, docketed as Civil Case Nos. 98-599 (first
complaint) 6 and 98-598 (second complaint), 7 before the RTC
for replevin and/or sum of money with damages
against Navarro. In these complaints, Karen Go prayed that the
RTC issue writs of replevin for the seizure of two (2) motor
vehicles in Navarro's possession.
The first complaint stated:
1. That plaintiff KAREN T. GO is a Filipino, of legal age,
married to GLENN O. GO, a resident of Cagayan de Oro City
anddoing business under the trade name KARGO
ENTERPRISES, an entity duly registered and existing under
and by virtue of the laws of the Republic of the Philippines,
which has its business address at Bulua, Cagayan de Oro City;
that defendant ROGER NAVARRO is a Filipino, of legal age, a
resident of 62 Dolores Street, Nazareth, Cagayan de Oro City,
where he may be served with summons and other processes of
the Honorable Court; that defendant "JOHN DOE" whose real
name and address are at present unknown to plaintiff is hereby
joined as party defendant as he may be the person in whose
possession and custody the personal property subject matter of
this suit may be found if the same is not in the possession of
defendant ROGERNAVARRO;
2. That KARGO ENTERPRISES is in the business of, among
others, buying and selling motor vehicles, including hauling
trucks and other heavy equipment; SEHACI
3. That for the cause of action against defendant
ROGER NAVARRO, it is hereby stated that on August 8, 1997,
the said defendant leased [from] plaintiff a certain motor
vehicle which is more particularly described as follows
Make/Type FUSO WITH MOUNTED CRANE
Serial No. FK416K-51680
Motor No. 6D15-338735
Plate No. GHK-378
as evidenced by a LEASE AGREEMENT WITH OPTION
TO PURCHASE entered into by and between KARGO
ENTERPRISES, then represented by its Manager, the
aforementioned GLENN O. GO, and defendant
ROGER NAVARRO . . .; that in accordance with the provisions
of the above LEASE AGREEMENT WITH OPTION TO
PURCHASE, defendant ROGER NAVARRO delivered unto
plaintiff six (6) post-dated checks each in the amount of
SIXTY-SIX THOUSAND THREE HUNDRED THIRTY-
THREE & 33/100 PESOS (P66,333.33) which were
supposedly in payment of the agreed rentals; that when
the fifth and sixth checks, i.e., PHILIPPINE BANK OF
COMMUNICATIONS-CAGAYAN DE ORO BRANCH
CHECKS NOS. 017112 and 017113, respectively dated
January 8, 1998 and February 8, 1998, were presented for
payment and/or credit, the same were dishonored and/or
returned by the drawee bank for the common reason that the
current deposit account against which the said checks were
issued did not have sufficient funds to cover the amounts
thereof; that the total amount of the two (2) checks, i.e., the
sum of ONE HUNDRED THIRTY-TWO THOUSAND SIX
HUNDRED SIXTY-SIX & 66/100 PESOS (P132,666.66)
therefore represents the principal liability of defendant
ROGER NAVARRO unto plaintiff on the basis of the
provisions of the above LEASE AGREEMENT WITH RIGHT
TO PURCHASE; that demands, written and oral, were made
of defendant ROGER NAVARRO to pay the amount of ONE
HUNDRED THIRTY-TWO THOUSAND SIX HUNDRED
SIXTY-SIX & 66/100 PESOS (P132,666.66), or to return the
subject motor vehicle as also provided for in the LEASE
AGREEMENT WITH RIGHT TO PURCHASE, but said
demands were, and still are, in vain to the great damage and
injury of herein plaintiff; . . .
4. That the aforedescribed motor vehicle has not been the
subject of any tax assessment and/or fine pursuant to law, or
seized under an execution or an attachment as against herein
plaintiff;
xxx xxx xxx
8. That plaintiff hereby respectfully applies for an order of the
Honorable Court for the immediate delivery of the above-
described motor vehicle from defendants unto plaintiff pending
the final determination of this case on the merits and, for that
purpose, there is attached hereto an affidavit duly executed and
bond double the value of the personal property subject matter
hereof to answer for damages and costs which defendants may
suffer in the event that the order for replevin prayed for may be
found out to having not been properly issued.
The second complaint contained essentially the same
allegations as the first complaint, except that the Lease
Agreement with Option to Purchase involved is dated October
1, 1997 and the motor vehicle leased is described as follows:
Make/Type FUSO WITH MOUNTED CRANE
Serial No. FK416K-510528
Motor No. 6D14-423403
The second complaint also alleged that Navarro delivered three
post-dated checks, each for the amount of P100,000.00, to
Karen Go in payment of the agreed rentals; however, the third
check was dishonored when presented for payment. 8 SAHIDc
On October 12, 1998 9 and October 14, 1998, 10 the RTC
issued writs of replevin for both cases; as a result, the Sheriff
seized the two vehicles and delivered them to the possession of
Karen Go.
In his Answers, Navarro alleged as a special affirmative
defense that the two complaints stated no cause of action,
since Karen Go was not a party to the Lease Agreements with
Option to Purchase (collectively, the lease agreements) the
actionable documents on which the complaints were based.
On Navarro's motion, both cases were duly consolidated on
December 13, 1999.
In its May 8, 2000 order, the RTC dismissed the case on the
ground that the complaints did not state a cause of action.
In response to the motion for reconsideration Karen Go filed
dated May 26, 2000, 11 the RTC issued another order dated
July 26, 2000 setting aside the order of dismissal. Acting on the
presumption that Glenn Go's leasing business is a conjugal
property, the RTC held that Karen Go had sufficient interest in
his leasing business to file the action against Navarro.
However, the RTC held that Karen Go should have included
her husband, Glenn Go, in the complaint based on Section 4,
Rule 3 of the Rules of Court (Rules). 12 Thus, the lower court
ordered Karen Go to file a motion for the inclusion of Glenn
Go as co-plaintiff.
When the RTC denied Navarro's motion for reconsideration on
March 7, 2001, Navarro filed a petition for certiorari with the
CA, essentially contending that the RTC committed grave
abuse of discretion when it reconsidered the dismissal of the
case and directed Karen Go to amend her complaints by
including her husband Glenn Go as co-plaintiff. According
to Navarro, a complaint which failed to state a cause of action
could not be converted into one with a cause of action by mere
amendment or supplemental pleading.
On October 16, 2001, the CA denied Navarro's petition and
affirmed the RTC's order. 13 The CA also denied Navarro's
motion for reconsideration in its resolution of May 29,
2002, 14 leading to the filing of the present petition.
THE PETITION
Navarro alleges that even if the lease agreements were in the
name of Kargo Enterprises, since it did not have the requisite
juridical personality to sue, the actual parties to the agreement
are himself and Glenn Go. Since it was Karen Go who filed the
complaints and not Glenn Go, she was not a real party-in-
interest and the complaints failed to state a cause of action.
Navarro posits that the RTC erred when it ordered the
amendment of the complaint to include Glenn Go as a co-
plaintiff, instead of dismissing the complaint outright because a
complaint which does not state a cause of action cannot be
converted into one with a cause of action by a mere amendment
or a supplemental pleading. In effect, the lower court created a
cause of action for Karen Go when there was none at the time
she filed the complaints.
Even worse, according to Navarro, the inclusion of Glenn Go
as co-plaintiff drastically changed the theory of the complaints,
to his great prejudice. Navarro claims that the lower court
gravely abused its discretion when it assumed that the leased
vehicles are part of the conjugal property of Glenn and Karen
Go. Since Karen Go is the registered owner of Kargo
Enterprises, the vehicles subject of the complaint are her
paraphernal properties and the RTC gravely erred when it
ordered the inclusion of Glenn Go as a co-plaintiff.
Navarro likewise faults the lower court for setting the trial of
the case in the same order that required Karen Go to amend her
complaints, claiming that by issuing this order, the trial court
violated Rule 10 of the Rules.
Even assuming the complaints stated a cause of action against
him, Navarro maintains that the complaints were premature
because no prior demand was made on him to comply with the
provisions of the lease agreements before the complaints for
replevin were filed.
Lastly, Navarro posits that since the two writs of replevin were
issued based on flawed complaints, the vehicles were illegally
seized from his possession and should be returned to him
immediately.
Karen Go, on the other hand, claims that it is misleading
for Navarro to state that she has no real interest in the subject of
the complaint, even if the lease agreements were signed only by
her husband, Glenn Go; she is the owner of Kargo Enterprises
and Glenn Go signed the lease agreements merely as the
manager of Kargo Enterprises. Moreover, Karen Go maintains
thatNavarro's insistence that Kargo Enterprises is Karen Go's
paraphernal property is without basis. Based on the law and
jurisprudence on the matter, all property acquired during the
marriage is presumed to be conjugal property. Finally, Karen
Go insists that her complaints sufficiently established a cause
of action against Navarro. Thus, when the RTC ordered her to
include her husband as co-plaintiff, this was merely to comply
with the rule that spouses should sue jointly, and was not meant
to cure the complaints' lack of cause of action.
THE COURT'S RULING
We find the petition devoid of merit.
Karen Go is the real party-in-interest
The 1997 Rules of Civil Procedure requires that every action
must be prosecuted or defended in the name of the real party-
in-interest, i.e., the party who stands to be benefited or injured
by the judgment in the suit, or the party entitled to the avails of
the suit. 15
Interestingly, although Navarro admits that Karen Go is the
registered owner of the business name Kargo Enterprises, he
still insists that Karen Go is not a real party-in-interest in the
case. According to Navarro, while the lease contracts were in
Kargo Enterprises' name, this was merely a trade name without
a juridical personality, so the actual parties to the lease
agreements were Navarro and Glenn Go, to the exclusion of
Karen Go.
As a corollary, Navarro contends that the RTC acted with grave
abuse of discretion when it ordered the inclusion of Glenn Go
as co-plaintiff, since this in effect created a cause of action for
the complaints when in truth, there was none.
We do not find Navarro's arguments persuasive.
The central factor in appreciating the issues presented in this
case is the business name Kargo Enterprises. The name appears
in the title of the Complaint where the plaintiff was identified
as "KAREN T. GO doing business under the name KARGO
ENTERPRISES", and this identification was repeated in the
first paragraph of the Complaint. Paragraph 2 defined the
business KARGO ENTERPRISES undertakes. Paragraph 3
continued with the allegation that the defendant "leased from
plaintiff a certain motor vehicle" that was thereafter described.
Significantly, the Complaint specifies and attaches as its
integral part the Lease Agreement that underlies the transaction
between the plaintiff and the defendant. Again, the name
KARGO ENTERPRISES entered the picture as this Lease
Agreement provides:
This agreement, made and entered into by and
between: AHDaET
GLENN O. GO, of legal age, married, with post office address
at . . ., herein referred to as the LESSOR-
SELLER; representing KARGO ENTERPRISES as its
Manager,
xxx xxx xxx
thus, expressly pointing to KARGO ENTERPRISES as the
principal that Glenn O. Go represented. In other words, by the
express terms of this Lease Agreement, Glenn Go did sign the
agreement only as the manager of Kargo Enterprises and the
latter is clearly the real party to the lease agreements.
As Navarro correctly points out, Kargo Enterprises is a sole
proprietorship, which is neither a natural person, nor a juridical
person, as defined by Article 44 of the Civil Code:
Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities for public
interest or purpose, created by law; their personality begins as
soon as they have been constituted according to law;
(3) Corporations, partnerships and associations for private
interest or purpose to which the law grants a juridical
personality, separate and distinct from that of each shareholder,
partner or member.
Thus, pursuant to Section 1, Rule 3 of the Rules, 16 Kargo
Enterprises cannot be a party to a civil action. This legal reality
leads to the question: who then is the proper party to file an
action based on a contract in the name of Kargo Enterprises?
We faced a similar question in Juasing Hardware v.
Mendoza, 17 where we said:
Finally, there is no law authorizing sole proprietorships like
petitioner to bring suit in court. The law merely recognizes the
existence of a sole proprietorship as a form of business
organization conducted for profit by a single individual, and
requires the proprietor or owner thereof to secure licenses and
permits, register the business name, and pay taxes to the
national government. It does not vest juridical or legal
personality upon the sole proprietorship nor empower it to file
or defend an action in court.
Thus, the complaint in the court below should have been filed
in the name of the owner of Juasing Hardware. The
allegation in the body of the complaint would show that
the suit is brought by such person as proprietor or owner of
the business conducted under the name and style Juasing
Hardware. The descriptive words "doing business as Juasing
Hardware" may be added to the title of the case, as is
customarily done. 18 [Emphasis supplied.]
This conclusion should be read in relation with Section 2, Rule
3 of the Rules, which states: DECSIT
SEC. 2. Parties in interest. A real party in interest is the
party who stands to be benefited or injured by the judgment in
the suit, or the party entitled to the avails of the suit. Unless
otherwise authorized by law or these Rules, every action must
be prosecuted or defended in the name of the real party in
interest.
As the registered owner of Kargo Enterprises, Karen Go is the
party who will directly benefit from or be injured by a
judgment in this case. Thus, contrary to Navarro's contention,
Karen Go is the real party-in-interest, and it is legally incorrect
to say that her Complaint does not state a cause of action
because her name did not appear in the Lease Agreement that
her husband signed in behalf of Kargo Enterprises. Whether
Glenn Go can legally sign the Lease Agreement in his capacity
as a manager of Kargo Enterprises, a sole proprietorship, is a
question we do not decide, as this is a matter for the trial court
to consider in a trial on the merits.
Glenn Go's Role in the Case
We find it significant that the business name Kargo Enterprises
is in the name of Karen T. Go, 19 who described herself in the
Complaints to be "a Filipino, of legal age, married to GLENN
O. GO, a resident of Cagayan de Oro City, and doing business
under the trade name KARGO ENTERPRISES". 20 That Glenn
Go and Karen Go are married to each other is a fact never
brought in issue in the case. Thus, the business name KARGO
ENTERPRISES is registered in the name of a married
woman, a fact material to the side issue of whether Kargo
Enterprises and its properties are paraphernal or conjugal
properties. To restate the parties' positions, Navarro alleges that
Kargo Enterprises is Karen Go's paraphernal property,
emphasizing the fact that the business is registered solely in
Karen Go's name. On the other hand, Karen Go contends that
while the business is registered in her name, it is in fact part of
their conjugal property.
The registration of the trade name in the name of one person
a woman does not necessarily lead to the conclusion that the
trade name as a property is hers alone, particularly when the
woman is married. By law, all property acquired during the
marriage, whether the acquisition appears to have been made,
contracted or registered in the name of one or both spouses, is
presumed to be conjugal unless the contrary is proved. 21 Our
examination of the records of the case does not show any proof
that Kargo Enterprises and the properties or contracts in its
name are conjugal. If at all, only the bare allegation
of Navarro to this effect exists in the records of the case. As we
emphasized in Castro v. Miat: 22
Petitioners also overlook Article 160 of the New Civil Code. It
provides that "all property of the marriage is presumed to be
conjugal partnership, unless it be prove[n] that it pertains
exclusively to the husband or to the wife". This article does not
require proof that the property was acquired with funds of
the partnership. The presumption applies even when the
manner in which the property was acquired does not
appear. 23 [Emphasis supplied.]
Thus, for purposes solely of this case and of resolving the issue
of whether Kargo Enterprises as a sole proprietorship is
conjugal or paraphernal property, we hold that it is conjugal
property.
Article 124 of the Family Code, on the administration of the
conjugal property, provides:
Art. 124. The administration and enjoyment of the conjugal
partnership property shall belong to both spouses jointly. In
case of disagreement, the husband's decision shall prevail,
subject to recourse to the court by the wife for proper remedy,
which must be availed of within five years from the date of the
contract implementing such decision. ESTDcC
xxx xxx xxx
This provision, by its terms, allows either Karen or Glenn Go to
speak and act with authority in managing their conjugal
property, i.e., Kargo Enterprises. No need exists, therefore, for
one to obtain the consent of the other before performing an act
of administration or any act that does not dispose of or
encumber their conjugal property.
Under Article 108 of the Family Code, the conjugal partnership
is governed by the rules on the contract of partnership in all that
is not in conflict with what is expressly determined in this
Chapter or by the spouses in their marriage settlements. In
other words, the property relations of the husband and wife
shall be governed primarily by Chapter 4 on Conjugal
Partnership of Gains of the Family Code and, suppletorily, by
the spouses' marriage settlement and by the rules on partnership
under the Civil Code. In the absence of any evidence of a
marriage settlement between the spouses Go, we look at the
Civil Code provision on partnership for guidance.
A rule on partnership applicable to the spouses' circumstances
is Article 1811 of the Civil Code, which states:
Art. 1811. A partner is a co-owner with the other partners of
specific partnership property.
The incidents of this co-ownership are such that:
(1) A partner, subject to the provisions of this Title and to any
agreement between the partners, has an equal right with his
partners to possess specific partnership property for
partnership purposes; . . .
Under this provision, Glenn and Karen Go are effectively co-
owners of Kargo Enterprises and the properties registered under
this name; hence, both have an equal right to seek possession of
these properties. Applying Article 484 of the Civil Code, which
states that "in default of contracts, or special provisions, co-
ownership shall be governed by the provisions of this Title", we
find further support in Article 487 of the Civil Code that allows
any of the co-owners to bring an action in ejectment with
respect to the co-owned property.
While ejectment is normally associated with actions involving
real property, we find that this rule can be applied to the
circumstances of the present case, following our ruling
in Carandang v. Heirs of De Guzman. 24 In this case, one
spouse filed an action for the recovery of credit, a personal
property considered conjugal property, without including the
other spouse in the action. In resolving the issue of whether the
other spouse was required to be included as a co-plaintiff in the
action for the recovery of the credit, we said:
Milagros de Guzman, being presumed to be a co-owner of the
credits allegedly extended to the spouses Carandang, seems to
be either an indispensable or a necessary party. If she is an
indispensable party, dismissal would be proper. If she is merely
a necessary party, dismissal is not warranted, whether or not
there was an order for her inclusion in the complaint pursuant
to Section 9, Rule 3.
Article 108 of the Family Code provides:
Art. 108. The conjugal partnership shall be governed by the
rules on the contract of partnership in all that is not in conflict
with what is expressly determined in this Chapter or by the
spouses in their marriage settlements. CDcaSA
This provision is practically the same as the Civil Code
provision it superseded:
Art. 147. The conjugal partnership shall be governed by the
rules on the contract of partnership in all that is not in conflict
with what is expressly determined in this Chapter.
In this connection, Article 1811 of the Civil Code provides that
"[a] partner is a co-owner with the other partners of specific
partnership property". Taken with the presumption of the
conjugal nature of the funds used to finance the four checks
used to pay for petitioners' stock subscriptions, and with the
presumption that the credits themselves are part of conjugal
funds, Article 1811 makes Quirino and Milagros de Guzman
co-owners of the alleged credit.
Being co-owners of the alleged credit, Quirino and Milagros de
Guzman may separately bring an action for the recovery
thereof. In the fairly recent cases of Baloloy v.
Hular and Adlawan v. Adlawan, we held that, in a co-
ownership, co-owners may bring actions for the recovery of
co-owned property without the necessity of joining all the
other co-owners as co-plaintiffs because the suit is
presumed to have been filed for the benefit of his co-owners.
In the latter case and in that of De Guiav. Court of Appeals, we
also held that Article 487 of the Civil Code, which provides
that any of the co-owners may bring an action for
ejectment, covers all kinds of action for the recovery of
possession.
In sum, in suits to recover properties, all co-owners are real
parties in interest. However, pursuant to Article 487 of the Civil
Code and relevant jurisprudence, any one of them may bring an
action, any kind of action, for the recovery of co-owned
properties. Therefore, only one of the co-owners, namely the
co-owner who filed the suit for the recovery of the co-owned
property, is an indispensable party thereto. The other co-
owners are not indispensable parties. They are not even
necessary parties, for a complete relief can be accorded in the
suit even without their participation, since the suit is presumed
to have been filed for the benefit of all co-
owners. 25 [Emphasis supplied.]
Under this ruling, either of the spouses Go may bring an action
against Navarro to recover possession of the Kargo Enterprises-
leased vehicles which they co-own. This conclusion is
consistent with Article 124 of the Family Code, supporting as it
does the position that either spouse may act on behalf of the
conjugal partnership, so long as they do not dispose of or
encumber the property in question without the other spouse's
consent.
On this basis, we hold that since Glenn Go is not strictly an
indispensable party in the action to recover possession of the
leased vehicles, he only needs to be impleaded as a pro-
forma party to the suit, based on Section 4, Rule 4 of the Rules,
which states:
Section 4. Spouses as parties. Husband and wife shall sue or
be sued jointly, except as provided by law.
Non-joinder of indispensable parties
not ground to dismiss action
Even assuming that Glenn Go is an indispensable party to the
action, we have held in a number of cases 26 that the
misjoinder or non-joinder of indispensable parties in a
complaint is not a ground for dismissal of action. As we stated
inMacababbad v. Masirag: 27
Rule 3, Section 11 of the Rules of Court provides that neither
misjoinder nor nonjoinder of parties is a ground for the
dismissal of an action, thus:
Sec. 11. Misjoinder and non-joinder of parties. Neither
misjoinder nor non-joinder of parties is ground for dismissal of
an action. Parties may be dropped or added by order of the
court on motion of any party or on its own initiative at any
stage of the action and on such terms as are just. Any claim
against a misjoined party may be severed and proceeded with
separately. TAHIED
In Domingo v. Scheer, this Court held that the proper remedy
when a party is left out is to implead the indispensable party at
any stage of the action. The court, either motu proprio or upon
the motion of a party, may order the inclusion of the
indispensable party or give the plaintiff opportunity to amend
his complaint in order to include indispensable parties. If the
plaintiff to whom the order to include the indispensable party is
directed refuses to comply with the order of the court, the
complaint may be dismissed upon motion of the defendant or
upon the court's own motion. Only upon unjustified failure or
refusal to obey the order to include or to amend is the action
dismissed.
In these lights, the RTC Order of July 26, 2000 requiring
plaintiff Karen Go to join her husband as a party plaintiff is
fully in order.
Demand not required prior
to filing of replevin action
In arguing that prior demand is required before an action for a
writ of replevin is filed, Navarro apparently likens a replevin
action to an unlawful detainer.
For a writ of replevin to issue, all that the applicant must do is
to file an affidavit and bond, pursuant to Section 2, Rule 60 of
the Rules, which states:
Sec. 2. Affidavit and bond.
The applicant must show by his own affidavit or that of some
other person who personally knows the facts:
(a) That the applicant is the owner of the property claimed,
particularly describing it, or is entitled to the
possessionthereof;
(b) That the property is wrongfully detained by the adverse
party, alleging the cause of detention thereof according to the
best of his knowledge, information, and belief;
(c) That the property has not been distrained or taken for a tax
assessment or a fine pursuant to law, or seized under a writ of
execution or preliminary attachment, or otherwise placed
under custodia legis, or if so seized, that it is exempt from such
seizure or custody; and
(d) The actual market value of the property.
The applicant must also give a bond, executed to the adverse
party in double the value of the property as stated in the
affidavit aforementioned, for the return of the property to the
adverse party if such return be adjudged, and for the payment to
the adverse party of such sum as he may recover from the
applicant in the action.
We see nothing in these provisions which requires the applicant
to make a prior demand on the possessor of the property before
he can file an action for a writ of replevin. Thus, prior demand
is not a condition precedent to an action for a writ of replevin.
More importantly, Navarro is no longer in the position to claim
that a prior demand is necessary, as he has already admitted in
his Answers that he had received the letters that Karen Go sent
him, demanding that he either pay his unpaid obligations or
return the leased motor vehicles. Navarro's position that a
demand is necessary and has not been made is therefore totally
unmeritorious. acCITS
WHEREFORE, premises considered, we DENY the petition
for review for lack of merit. Costs against petitioner
Roger V.Navarro.
SO ORDERED.
EN BANC
[G.R. No. 45662. April 26, 1939.]
ENRIQUE CLEMENTE, plaintiff-appellee, vs.
DIONISIO GALVAN, defendant-appellee. JOSE
ECHEVARRIA,intervenor-appellant.
Engracio F. Clemea and Celedonio Bernardo for appellant.
Vicente Bengzon for defendant and appellee.
No appearance for other party.
SYLLABUS
1. POSSESSION; CONSTRICTIVE POSSESSION. From
the facts stated in the decision of the court. it is clear that
plaintiff could not obtain possession of the machines in
question. The constructive possession deducible from the fact
that he had control of the keys to the place where the machines
were found (Ylaya Street Nos. 705-707), as they had been
delivered to him by the receiver, does not help him any because
the lower court suspended the effects of the order whereby the
keys were delivered to him a few days after its issuance; and
thereafter revolved it entirely in the appealed decision.
2. ID.; ACTUAL POSSESSION. Furthermore, when he
attempted to take material possession of the machines, the
defendant did not allow him to do so. Consequently, if he did
not have material possession of the said machines, he could not
in any manner mortgage them. While it is true that the deed of
mortgage Exhibit B was annotated in the registry of property, it
is no less true that the machines to which it refers are not the
same as those in question because the latter are on Ylaya Street
Nos. 705-707 and the former are on Singalong Street N o.
1163.
3. ID.; PRIVATE DOCUMENT DOES NOT CHANGE
TERMS OF A PUBLIC DOCUMENT. It can not be said
that Exhibit B-1 allegedly a supplementary contract between
the plaintiff and the intervenor, shows that the machines
referred to in the deed of mortgage are the same as those which
are in dispute and which are found on Ylaya Street, for the
reason that said exhibit being merely a private document, the
same cannot vary or alter the terms of a public document which
is Exhibit B or the deed of mortgage.
DECISION
DIAZ, J p:
The intervenor Jose Echevarria having lost in the Court of First
Instance of Manila which rendered judgment against him, the
pertinent portion of which reads: "and with respect to the
complaint of the intervenor, the mortgage executed in his favor
by plaintiff is declared null and void, and said complaint in
intervention. as well as the counterclaim filed by the defendant
against the intervenor, is dismissed, without pronouncement as
to costs," he appealed to this court on the ground that,
according to him, the lower court committed the errors assigned
in his brief as follows:
"I. The court a quo erred in finding in the appealed decision
that plaintiff was unable to take possession of the machines
subject of the deed of mortgage Exhibit B either before or after
the execution thereof.
"II. The court a quo likewise erred in deciding the present case
against the intervenor-appellant, on the ground, among others,
that 'plaintiff has not adduced any evidence nor has he testified
to show that the machines mortgaged by him to the intervenor
have ever belonged to him, notwithstanding that said intervenor
is his close relative.'
"III. The lower court also erred in declaring null and void the
mortgage executed by plaintiff in favor of the intervenor and,
thereby, dismissing the complaint in intervention.
"IV. The lower court lastly erred in ordering the receiver J. D.
Mencarini to deliver to the defendant the aforesaid machines
upon petition of the plaintiff."
In order to have a clear idea of the question, it is proper to state
the facts bearing on the case as they appear in the decision and
judgment of the lower court and in the documents which
constitute all the evidence adduced by the parties during the
trial.
On June 6, 1931, plaintiff and defendant organized a civil
partnership which they named "Galvan y Compaia" to engage
in the manufacture and sale of paper and other stationery. They
agreed to invest therein a capital of P100,000, but as a matter of
fact they did not cover more than one-fifth thereof, each
contributing P10,000. Hardly a y ear after such organization,
the plaintiff commenced the present case in the above-
mentioned court to ask for the dissolution of the partnership
and to compel defendant to whom the management thereof was
entrusted to submit an accounting of his administration and to
deliver to him his share as such partner. In his answer defendant
expressed his conformity to the dissolution of the partnership
and the liquidation of its affairs; but by way of counterclaim he
asked that, having covered a deficit incurred by the partnership
amounting to P4,000 with his own money, plaintiff reimburse
him of one-half of said sum. On petition of the plaintiff a
receiver and liquidator to take charge of the properties and
business of the partnership while the same was not yet
definitely dissolved, was appointed, the person chosen being
Juan D. Mencarini. The latter was already discharging the
duties of his office when the court, by virtue of a petitionex
parte of the plaintiff, issued the order of May 24, 1933,
requiring said receiver to deliver to him (plaintiff) certain
machines which were then at Nos. 705-707 Ylaya Street,
Manila, but authorizing him to charge their value of P4,500
against the portion which may eventually be due to said
plaintiff. To comply with said order. the receiver delivered to
plaintiff the keys to the place where the machines were found,
which was the same place where defendant had his home; but
before he could take actual possession of said machines, upon
the strong opposition of defendant, the court, on motion of the
latter, suspended the effects of its order of May 24, 1933. In the
meantime the judgments rendered in cases Nos. 42794 and
43070 entitled "Philippine Education Co., Inc. vs.
Enrique Clemente" for the recovery of a sum of money, and
"Jose Echevarria vs. Enrique Clemente", also for the recovery
of a sum of money, respectively, were made executory; and in
order to avoid the attachment and subsequent sale of the
machines by the sheriff for the satisfaction from the proceeds
thereof of the judgments rendered in the two cases aforecited,
plaintiff agreed with the intervenor, who is his nephew, to
execute, as he in fact executed in favor of the latter, a deed of
mortgage Exhibit B encumbering the machines described in
said deed in which it is stated that "they are situated on
Singalong Street No. 1163", which is a place entirely different
from the house Nos. 705 and 707 on Ylaya Street hereinbefore
mentioned. The one year agreed upon in the deed of mortgage
for the fulfillment by the plaintiff of the obligation he had
contracted with the intervenor, having expired, the latter
commenced case No. 49629 to collect his mortgage credit. The
intervenor, as plaintiff in the said case, obtained judgment in
his favor because the defendant did not interpose any defense
or objection, and, moreover, admitted being really indebted to
the intervenor in the amount set forth in the deed of mortgage
Exhibit B. The machines which the intervenor said were
mortgaged to him were then in fact in custodia legis, as they
were under the control of the receiver and liquidator Juan D.
Mencarini. It was, therefore, useless for the intervenor to attach
the same in view of the receiver's opposition; and the question
having been brought to court, it decided that nothing could be
done because the receiver was not a party to the case which the
intervenor instituted to collect his aforesaid credit. (Civil case.
No. 49629.) The question ended thus because the intervenor did
not take any other step until he thought of joining in this case as
intervenor.
1. From the foregoing facts, it is clear that plaintiff could not
obtain possession of the machines in question. The constructive
possession deducible from the fact that he had the keys to the
place where the machines were found (Ylaya Street Nos. 705-
707), as they had been delivered to him by the receiver, does
not help him any because the lower court suspended the effects
of the order whereby the keys were delivered to him a few days
after its issuance; and thereafter revoked it entirely in the
appealed decision. Furthermore, when he attempted to take
actual possession of the machines, the defendant did not allow
him to do so. Consequently, if he did not have actual possession
of the machines, he could not in any manner mortgage them,
for while it is true that the oft-mentioned deed of mortgage
Exhibit B was annotated in the registry of property, it is no less
true that the machines to which it refers are not the same as
those in question because the latter are on Ylaya Street Nos.
705-707 and the former are on Singalong Street No. 1163. It
can not be said that Exhibit B-1, allegedly a supplementary
contract between the plaintiff and the intervenor, shows that the
machines referred to in the deed of mortgage are the same as
those in dispute and which are found on Ylaya Street because
said exhibit being merely a private document, the same cannot
vary or alter the terms of a public document which is Exhibit B
or the deed of mortgage.
2. The second error attributed to the lower court is baseless.
The evidence of record shows that the machines in contention
originally belonged to the defendant and from him were
transferred to the partnership Galvan y Compaia. This being
the case, said machines belong to the partnership and not to
him, and shall belong to it until partition is effected according
to the result thereof after the liquidation.
3. The last two errors attributed by the appellant to the lower
court have already been disposed of by the considerations
above set forth. They are as baseless as the previous ones.
In view of all the foregoing, the judgment appealed from is
affirmed, with costs against the appellant. So ordered.
THIRD DIVISION
[G.R. No. 144214. July 14, 2003.]
LUZVIMINDA J. VILLAREAL,
DIOGENES VILLAREAL and CARMELITO
JOSE, petitioners, vs. DONALDO EFREN C. RAMIREZ and
Spouses CESAR G. RAMIREZ JR. and CARMELITA
C. RAMIREZ, respondents.
Abello Concepcion Regala & Cruz for petitioners.
Ricafrente Sanvicente & Cacho Law Firm for respondents.
SYNOPSIS
Petitioners Luzviminda Villareal, Carmelito Jose and Jesus Jose
formed a partnership with a capital of P750,000 for the
operation of a restaurant and catering business under the name
"Aquarius Food House and Catering Services." Respondents
Donaldo Efren C.Ramirez joined as a partner in the business on
September 5, 1984. His capital contribution of P250,000 was
paid by his parents, co-respondents Cesar and
Carmelita Ramirez. Jesus Jose withdrew from the partnership
in January 1987 and his capital contribution of P250,000 was
refunded to him in cash by agreement of the partners. In the
same month, without prior knowledge of respondents,
petitioners closed down the restaurant, allegedly because of
increased rental. The restaurant furniture and equipment were
deposited in the respondents' house for storage. Thereafter,
respondent spouses wrote petitioners, saying that they were no
longer interested in continuing their partnership or in reopening
the restaurant, and that they were accepting the latter's offer to
return their capital contribution. Respondent
Carmelita Ramirez wrote another letter informing petitioners of
the deterioration of the restaurant furniture and equipment
stored in their house. She also reiterated the request for the
return of their one-third share in the equity of the partnership.
The repeated oral and written requests were, however, left
unheeded. Before the Regional Trial Court (RTC) of Makati,
Branch 59, respondents subsequently filed a Complaint for the
collection of a sum of money from petitioners. The trial court
ruled that the parties had voluntarily entered into a partnership,
which could be dissolved at any time. Petitioners clearly
intended to dissolve it when they stopped operating the
restaurant. Hence, the trial court rendered judgment in favor of
respondents and against the petitioners ordering the latter to
pay jointly and severally respondents for actual damages in the
amount of P250,000.00, attorney's fees and the costs of suit."
On appeal, the Court of Appeals held that, although
respondents had no right to demand the return of their capital
contribution, the partnership was nonetheless dissolved when
petitioners lost interest in continuing the restaurant business
with them. Because petitioners never gave a proper accounting
of the partnership accounts for liquidation purposes, and
because no sufficient evidence was presented to show financial
losses, the appellate court computed their liability and rendered
judgment ordering petitioners jointly and severally to pay and
reimburse to respondents the amount of P253,114.00. Hence,
the present petition.
The Supreme Court set aside the assailed Decision and
Resolution of the Court of Appeals. The Court held that
respondents have no right to demand from petitioners the return
of their equity share. Except as managers of the partnership,
petitioners did not personally hold its equity or assets. "The
partnership has a juridical personality separate and distinct
from that of each of the partners." Since the capital was
contributed to the partnership, not to petitioners, it is the
partnership that must refund the equity of the retiring partners.
In the present case, the exact amount of refund equivalent to
respondents' one-third share in the partnership cannot be
determined until all the partnership assets will have been
liquidated in other words, sold and converted to cash and
all partnership creditors, if any, paid. The appellate court's
computation of the amount to be refunded to respondents as
their share was thus erroneous. The appellate court was under
the misapprehension that the total capital contribution was
equivalent to the gross assets to be distributed to the partners at
the time of the dissolution of the partnership. The Court cannot
sustain the underlying idea that the capital contribution at the
beginning of the partnership remains intact, unimpaired and
available for distribution or return to the partners. Such idea is
speculative, conjectural and totally without factual or legal
support.
SYLLABUS
1. CIVIL LAW; PARTNERSHIP; IT IS THE PARTNERSHIP
THAT MUST REFUND THE EQUITY CONTRIBUTION OF
THE PARTNERS. We hold that respondents have no right to
demand from petitioners the return of their equity share. Except
as managers of the partnership, petitioners did not personally
hold its equity or assets. "The partnership has a juridical
personality separate and distinct from that of each of the
partners." Since the capital was contributed to the partnership,
not to petitioners, it is the partnership that must refund the
equity of the retiring partners.
2. ID.; ID.; REFUND OF SHARES OF PARTNERS IS
LIMITED TO TOTAL AMOUNT OF THE PARTNERSHIP
RESOURCES. 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.
Evidently, in the present case, the exact amount of refund
equivalent to respondents' one-third share in the partnership
cannot be determined until all the partnership assets will have
been liquidated in other words, sold and converted to cash
and all partnership creditors, if any, paid. The CA's
computation of the amount to be refunded to respondents as
their share was thus erroneous. CSaIAc
3. ID.; ID.; THE IDEA THAT THE CAPITAL
CONTRIBUTION AT THE BEGINNING OF THE
PARTNERSHIP REMAINS INTACT, UNIMPAIRED AND
AVAILABLE FOR DISTRIBUTION OR RETURN TO THE
PARTNERS IS SPECULATIVE, CONJECTURAL AND
TOTALLY WITHOUT FACTUAL OR LEGAL SUPPORT.
It seems that the appellate court was under the misapprehension
that the total capital contribution was equivalent to the gross
assets to be distributed to the partners at the time of the
dissolution of the partnership. We cannot sustain the underlying
idea that the capital contribution at the beginning of the
partnership remains intact, unimpaired and available for
distribution or return to the partners. Such idea is speculative,
conjectural and totally without factual or legal support.
4. ID.; ID.; IN THE PURSUIT OF PARTNERSHIP
BUSINESS, ITS CAPITAL IS EITHER INCREASED BY
PROFITS EARNED OR DECREASED BY LOSSES
SUSTAINED; IT DOES NOT REMAIN STATIC AND
UNAFFECTED BY CHANGING FORTUNES OF THE
BUSINESS. Generally, in the pursuit of a partnership
business, its capital is either increased by profits earned or
decreased by losses sustained. It does not remain static and
unaffected by the changing fortunes of the business. In the
present case, the financial statements presented before the trial
court showed that the business had made meager profits.
However, notable therefrom is the omission of any provision
for the depreciation of the furniture and the equipment. The
amortization of the goodwill (initially valued at P500,000) is
not reflected either. Properly taking these non-cash items into
account will show that the partnership was actually sustaining
substantial losses, which consequently decreased the capital of
the partnership. Both the trial and the appellate courts in fact
recognized the decrease of the partnership assets to almost nil,
but the latter failed to recognize the consequent corresponding
decrease of the capital.
DECISION
PANGANIBAN, J p:
A share in a partnership can be returned only after the
completion of the latter's dissolution, liquidation and winding
up of the business.
The Case
The Petition for Review on Certiorari before us challenges the
March 23, 2000 Decision 1 and the July 26, 2000
Resolution 2 of the Court of Appeals 3 (CA) in CA-GR CV No.
41026. The assailed Decision disposed as follows:
"WHEREFORE, foregoing premises considered, the Decision
dated July 21, 1992 rendered by the Regional Trial Court,
Branch 148, Makati City is hereby SET ASIDE and
NULLIFIED and in lieu thereof a new decision is rendered
ordering the [petitioners] jointly and severally to pay and
reimburse to [respondents] the amount of P253,114.00. No
pronouncement as to costs." 4
Reconsideration was denied in the impugned Resolution.
The Facts
On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and
Jesus Jose formed a partnership with a capital of P750,000 for
the operation of a restaurant and catering business under the
name "Aquarius Food House and Catering
Services." 5 Villareal was appointed general manager and
Carmelito Jose, operations manager.
Respondent Donaldo Efren C. Ramirez joined as a partner in
the business on September 5, 1984. His capital contribution of
P250,000 was paid by his parents, Respondents Cesar and
Carmelita Ramirez. 6
After Jesus Jose withdrew from the partnership in January
1987, his capital contribution of P250,000 was refunded to him
in cash by agreement of the partners. 7
In the same month, without prior knowledge of respondents,
petitioners closed down the restaurant, allegedly because of
increased rental. The restaurant furniture and equipment were
deposited in the respondents' house for storage. 8
On March 1, 1987, respondent spouses wrote petitioners,
saying that they were no longer interested in continuing their
partnership or in reopening the restaurant, and that they were
accepting the latter's offer to return their capital contribution. 9
On October 13, 1987, Carmelita Ramirez wrote another letter
informing petitioners of the deterioration of the restaurant
furniture and equipment stored in their house. She also
reiterated the request for the return of their one-third share in
the equity of the partnership. The repeated oral and written
requests were, however, left unheeded. 10
Before the Regional Trial Court (RTC) of Makati, Branch 59,
respondents subsequently filed a Complaint 11 dated November
10, 1987, for the collection of a sum of money from petitioners.
In their Answer, petitioners contended that respondents had
expressed a desire to withdraw from the partnership and had
called for its dissolution under Articles 1830 and 1831 of the
Civil Code; that respondents had been paid, upon the turnover
to them of furniture and equipment worth over P400,000; and
that the latter had no right to demand a return of their equity
because their share, together with the rest of the capital of the
partnership, had been spent as a result of irreversible business
losses. 12
In their Reply, respondents alleged that they did not know of
any loan encumbrance on the restaurant. According to them, if
such allegation were true, then the loans incurred by petitioners
should be regarded as purely personal and, as such, not
chargeable to the partnership. The former further averred that
they had not received any regular report or accounting from the
latter, who had solely managed the business. Respondents also
alleged that they expected the equipment and the furniture
stored in their house to be removed by petitioners as soon as
the latter found a better location for the restaurant. 13
Respondents filed an Urgent Motion for Leave to Sell or
Otherwise Dispose of Restaurant Furniture and
Equipment 14 on July 8, 1988. The furniture and the equipment
stored in their house were inventoried and appraised at
P29,000. 15 The display freezer was sold for P5,000 and the
proceeds were paid to them. 16
After trial, the RTC 17 ruled that the parties had voluntarily
entered into a partnership, which could be dissolved at any
time. Petitioners clearly intended to dissolve it when they
stopped operating the restaurant. Hence, the trial court, in its
July 21, 1992 Decision, held them liable as follows: 18
"WHEREFORE, judgment is hereby rendered in favor of
[respondents] and against the [petitioners] ordering the
[petitioners] to pay jointly and severally the following:
(a) Actual damages in the amount of P250,000.00
(b) Attorney's fee in the amount of P30,000.00
(c) Costs of suit."
The CA Ruling
The CA held that, although respondents had no right to demand
the return of their capital contribution, the partnership was
nonetheless dissolved when petitioners lost interest in
continuing the restaurant business with them. Because
petitioners never gave a proper accounting of the partnership
accounts for liquidation purposes, and because no sufficient
evidence was presented to show financial losses, the CA
computed their liability as follows:
"Consequently, since what has been proven is only the
outstanding obligation of the partnership in the amount of
P240,658.00, although contracted by the partnership before
[respondents'] have joined the partnership but in accordance
with Article 1826 of the New Civil Code, they are liable which
must have to be deducted from the remaining capitalization of
the said partnership which is in the amount of P1,000,000.00
resulting in the amount of P759,342.00, and in order to get the
share of [respondents], this amount of P759,342.00 must be
divided into three (3) shares or in the amount of P253,114.00
for each share and which is the only amount which [petitioner]
will return to [respondents'] representing the contribution to the
partnership minus the outstanding debt thereof." 19
Hence, this Petition. 20
Issues
In their Memorandum, 21 petitioners submit the following
issues for our consideration:
"9.1. Whether the Honorable Court of Appeals' decision
ordering the distribution of the capital contribution, instead of
the net capital after the dissolution and liquidation of a
partnership, thereby treating the capital contribution like a loan,
is in accordance with law and jurisprudence;
"9.2. Whether the Honorable Court of Appeals' decision
ordering the petitioners to jointly and severally pay and
reimburse the amount of [P]253,114.00 is supported by the
evidence on record; and
"9.3. Whether the Honorable Court of Appeals was correct in
making [n]o pronouncement as to costs." 22
On closer scrutiny, the issues are as follows: (1) whether
petitioners are liable to respondents for the latter's share in the
partnership; (2) whether the CA's computation of P253,114 as
respondents' share is correct; and (3) whether the CA was
likewise correct in not assessing costs.
This Court's Ruling
The Petition has merit.
First Issue:
Share in Partnership
Both the trial and the appellate courts found that a partnership
had indeed existed, and that it was dissolved on March 1, 1987.
They found that the dissolution took place when respondents
informed petitioners of the intention to discontinue it because
of the former's dissatisfaction with, and loss of trust in, the
latter's management of the partnership affairs. These findings
were amply supported by the evidence on record. Respondents
consequently demanded from petitioners the return of their one-
third equity in the partnership.
We hold that respondents have no right to demand from
petitioners the return of their equity share. Except as managers
of the partnership, petitioners did not personally hold its equity
or assets. "The partnership has a juridical personality separate
and distinct from that of each of the partners." 23 Since the
capital was contributed to the partnership, not to petitioners, it
is the partnership that must refund the equity of the retiring
partners. 24
Second Issue:
What Must Be Returned?
Since it is the partnership, as a separate and distinct entity, that
must refund the shares of the partners, the amount to be
refunded is necessarily limited to its total resources. In other
words, it can only pay out what it has in its coffers, which
consists of all its assets. However, before the partners can be
paid their shares, the creditors of the partnership must first be
compensated. 25 After all the creditors have been paid,
whatever is left of the partnership assets becomes available for
the payment of the partners' shares.
Evidently, in the present case, the exact amount of refund
equivalent to respondents' one-third share in the partnership
cannot be determined until all the partnership assets will have
been liquidated in other words, sold and converted to cash
and all partnership creditors, if any, paid. The CA's
computation of the amount to be refunded to respondents as
their share was thus erroneous.
First, it seems that the appellate court was under the
misapprehension that the total capital contribution was
equivalent to the gross assets to be distributed to the partners at
the time of the dissolution of the partnership. We cannot sustain
the underlying idea that the capital contribution at the
beginning of the partnership remains intact, unimpaired and
available for distribution or return to the partners. Such idea is
speculative, conjectural and totally without factual or legal
support.
Generally, in the pursuit of a partnership business, its capital is
either increased by profits earned or decreased by losses
sustained. It does not remain static and unaffected by the
changing fortunes of the business. In the present case, the
financial statements presented before the trial court showed that
the business had made meager profits. 26 However, notable
therefrom is the omission of any provision for the
depreciation 27 of the furniture and the equipment. The
amortization of the goodwill 28 (initially valued at P500,000) is
not reflected either. Properly taking these non-cash items into
account will show that the partnership was actually sustaining
substantial losses, which consequently decreased the capital of
the partnership. Both the trial and the appellate courts in fact
recognized the decrease of the partnership assets to almost nil,
but the latter failed to recognize the consequent corresponding
decrease of the capital.
Second, the CA's finding that the partnership had an
outstanding obligation in the amount of P240,658 was not
supported by evidence. We sustain the contrary finding of the
RTC, which had rejected the contention that the obligation
belonged to the partnership for the following reason:
". . . [E]vidence on record failed to show the exact loan owed
by the partnership to its creditors. The balance sheet (Exh. '4')
does not reveal the total loan. The Agreement (Exh. 'A') par. 6
shows an outstanding obligation of P240,055.00 which the
partnership owes to different creditors, while the Certification
issued by Mercator Finance (Exh. '8') shows that it was Sps.
Diogenes P. Villareal and Luzviminda J. Villareal, the former
being the nominal party defendant in the instant case, who
obtained a loan of P355,000.00 on Oct. 1983, when the original
partnership was not yet formed."
Third, the CA failed to reduce the capitalization by P250,000,
which was the amount paid by the partnership to Jesus Jose
when he withdrew from the partnership.
Because of the above-mentioned transactions, the partnership
capital was actually reduced. When petitioners and respondents
ventured into business together, they should have prepared for
the fact that their investment would either grow or shrink. In
the present case, the investment of respondents substantially
dwindled. The original amount of P250,000 which they had
invested could no longer be returned to them, because one third
of the partnership properties at the time of dissolution did not
amount to that much.
It is a long established doctrine that the law does not relieve
parties from the effects of unwise, foolish or disastrous
contracts they have entered into with all the required
formalities and with full awareness of what they were doing.
Courts have no power to relieve them from obligations they
have voluntarily assumed, simply because their contracts turn
out to be disastrous deals or unwise investments. 29
Petitioners further argue that respondents acted negligently by
permitting the partnership assets in their custody to deteriorate
to the point of being almost worthless. Supposedly, the latter
should have liquidated these sole tangible assets of the
partnership and considered the proceeds as payment of their net
capital. Hence, petitioners argue that the turnover of the
remaining partnership assets to respondents was precisely the
manner of liquidating the partnership and fully settling the
latter's share in the partnership.
We disagree. The delivery of the store furniture and equipment
to private respondents was for the purpose of storage. They
were unaware that the restaurant would no longer be reopened
by petitioners. Hence, the former cannot be faulted for not
disposing of the stored items to recover their capital
investment.
Third Issue:
Costs
Section 1, Rule 142, provides:
"SECTION 1. Costs ordinarily follow results of suit. Unless
otherwise provided in these rules, costs shall be allowed to the
prevailing party as a matter of course, but the court shall have
power, for special reasons, to adjudge that either party shall pay
the costs of an action, or that the same be divided, as may be
equitable. No costs shall be allowed against the Republic of the
Philippines unless otherwise provided by law."
Although, as a rule, costs are adjudged against the losing party,
courts have discretion, "for special reasons," to decree
otherwise. When a lower court is reversed, the higher court
normally does not award costs, because the losing party relied
on the lower court's judgment which is presumed to have been
issued in good faith, even if found later on to be erroneous.
Unless shown to be patently capricious, the award shall not be
disturbed by a reviewing tribunal.
WHEREFORE, the Petition is GRANTED, and the assailed
Decision and Resolution SET ASIDE. This disposition is
without prejudice to proper proceedings for the accounting, the
liquidation and the distribution of the remaining partnership
assets, if any. No pronouncement as to costs. HDIaST
SO ORDERED.
SECOND DIVISION
[G.R. No. 178782. September 21, 2011.]
JOSEFINA P. REALUBIT, petitioner, vs. PROSENCIO
D. JASO and EDEN G. JASO, respondents.
DECISION
PEREZ, J p:
The validity as well as the consequences of an assignment of
rights in a joint venture are at issue in this petition for review
filed pursuant to Rule 45 of the 1997 Rules of Civil
Procedure, 1 assailing the 30 April 2007 Decision 2 rendered
by the Court of Appeals' (CA) then Twelfth Division in CA-
G.R. CV No. 73861, 3 the dispositive portion of which states:
WHEREFORE, the Decision appealed from is SET ASIDE and
we order the dissolution of the joint venture between
defendant-appellant Josefina Realubit and Francis Eric Amaury
Biondo and the subsequent conduct of accounting, liquidation
of assets and division of shares of the joint venture business.
Let a copy hereof and the records of the case be remanded to
the trial court for appropriate proceedings. 4
The Facts
On 17 March 1994, petitioner Josefina Realubit (Josefina)
entered into a Joint Venture Agreement with Francis Eric
Amaury Biondo (Biondo), a French national, for the operation
of an ice manufacturing business. With Josefina as the
industrial partner and Biondo as the capitalist partner, the
parties agreed that they would each receive 40% of the net
profit, with the remaining 20% to be used for the payment of
the ice making machine which was purchased for the
business. 5 For and in consideration of the sum of P500,000.00,
however, Biondo subsequently executed a Deed of
Assignment dated 27 June 1997, transferring all his rights and
interests in the business in favor of respondent
Eden Jaso (Eden), the wife of respondent ProsencioJaso. 6 With
Biondo's eventual departure from the country, the
Spouses Jaso caused their lawyer to send Josefina a letter dated
19 February 1998, apprising her of their acquisition of said
Frenchman's share in the business and formally demanding an
accounting and inventory thereof as well as the remittance of
their portion of its profits. 7 HESIcT
Faulting Josefina with unjustified failure to heed their demand,
the Spouses Jaso commenced the instant suit with the filing of
their 3 August 1998 Complaint against Josefina, her husband,
Ike Realubit (Ike), and their alleged dummies, for specific
performance, accounting, examination, audit and inventory of
assets and properties, dissolution of the joint venture,
appointment of a receiver and damages. Docketed as Civil Case
No. 98-0331 before respondent Branch 257 of the Regional
Trial Court (RTC) of Paraaque City, said complaint alleged,
among other matters, that the Spouses Realubit had no gainful
occupation or business prior to their joint venture with Biondo;
that with the income of the business which earned not less than
P3,000.00 per day, they were, however, able to acquire the two-
storey building as well as the land on which the joint venture's
ice plant stands, another building which they used as their
office and/or residence and six (6) delivery vans; and, that aside
from appropriating for themselves the income of the business,
the Spouses Realubit have fraudulently concealed the funds and
assets thereof thru their relatives, associates or dummies. 8
Served with summons, the Spouses Realubit filed their Answer
dated 21 October 1998, specifically denying the material
allegations of the foregoing complaint. Claiming that they have
been engaged in the tube ice trading business under a single
proprietorship even before their dealings with Biondo, the
Spouses Realubit, in turn, averred that their said business
partner had left the country in May 1997 and could not have
executed the Deed of Assignment which bears a signature
markedly different from that which he affixed on their Joint
Venture Agreement; that they refused the Spouses Jaso's
demand in view of the dubious circumstances surrounding their
acquisition of Biondo's share in the business which was
established at Don Antonio Heights, Commonwealth Avenue,
Quezon City; that said business had already stopped operations
on 13 January 1996 when its plant shut down after its power
supply was disconnected by MERALCO for non-payment of
utility bills; and, that it was their own tube ice trading business
which had been moved to 66-C Cenacle Drive, Sanville
Subdivision, Project 6, Quezon City that the
Spouses Jaso mistook for the ice manufacturing business
established in partnership with Biondo. 9
The issues thus joined and the mandatory pre-trial conference
subsequently terminated, the RTC went on to try the case on its
merits and, thereafter, to render its Decision dated 17
September 2001, discounting the existence of sufficient
evidence from which the income, assets and the supposed
dissolution of the joint venture can be adequately reckoned.
Upon the finding, however, that the Spouses Jaso had been
nevertheless subrogated to Biondo's rights in the business in
view of their valid acquisition of the latter's share as capitalist
partner, 10 the RTC disposed of the case in the following wise:
WHEREFORE, defendants are ordered to submit to plaintiffs a
complete accounting and inventory of the assets and liabilities
of the joint venture from its inception to the present, to allow
plaintiffs access to the books and accounting records of the
joint venture, to deliver to plaintiffs their share in the profits, if
any, and to pay the plaintiffs the amount of P20,000. for moral
damages. The claims for exemplary damages and attorney's
fees are denied for lack of basis. 11 TECIHD
On appeal before the CA, the foregoing decision was set aside
in the herein assailed Decision dated 30 April 2007, upon the
following findings and conclusions: (a) the
Spouses Jaso validly acquired Biondo's share in the business
which had been transferred to and continued its operations at
66-C Cenacle Drive, Sanville Subdivision, Project 6, Quezon
City and not dissolved as claimed by the Spouses Realubit; (b)
absent showing of Josefina's knowledge and consent to the
transfer of Biondo's share, Eden cannot be considered as a
partner in the business, pursuant to Article 1813 of the Civil
Code of the Philippines; (c) while entitled to Biondo's share in
the profits of the business, Eden cannot, however, interfere with
the management of the partnership, require information or
account of its transactions and inspect its books; (d) the
partnership should first be dissolved before Eden can seek an
accounting of its transactions and demand Biondo's share in the
business; and, (e) the evidence adduced before the RTC do not
support the award of moral damages in favor of the
Spouses Jaso. 12
The Spouses Realubit's motion for reconsideration of the
foregoing decision was denied for lack of merit in the CA's 28
June 2007 Resolution, 13 hence, this petition.
The Issues
The Spouses Realubit urge the reversal of the assailed decision
upon the negative of the following issues, to wit:
A. WHETHER OR NOT THERE WAS A VALID
ASSIGNMENT OF RIGHTS TO THE JOINT VENTURE.
B. WHETHER THE COURT MAY ORDER PETITIONER
[JOSEFINA REALUBIT] AS PARTNER IN THE JOINT
VENTURE TO RENDER [A]N ACCOUNTING TO ONE
WHO IS NOT A PARTNER IN SAID JOINT VENTURE.
C. WHETHER PRIVATE RESPONDENTS
[SPOUSES JASO] HAVE ANY RIGHT IN THE JOINT
VENTURE AND IN THE SEPARATE ICE BUSINESS OF
PETITIONER[S]. 14
The Court's Ruling
We find the petition bereft of merit.
The Spouses Realubit argue that, in upholding its validity, both
the RTC and the CA inordinately gave premium to the
notarization of the 27 June 1997 Deed of Assignment executed
by Biondo in favor of the Spouses Jaso. Calling attention to the
latter's failure to present before the RTC said assignor or, at the
very least, the witnesses to said document, the
SpousesRealubit maintain that the testimony of Rolando Diaz,
the Notary Public before whom the same was acknowledged,
did not suffice to establish its authenticity and/or validity. They
insist that notarization did not automatically and conclusively
confer validity on said deed, since it is still entirely possible
that Biondo did not execute said deed or, for that matter, appear
before said notary public. 15 The dearth of merit in the
Spouses Realubit's position is, however, immediately evident
from the settled rule that documents acknowledged before
notaries public are public documents which are admissible in
evidence without necessity of preliminary proof as to their
authenticity and due execution. 16 caHCSD
It cannot be gainsaid that, as a public document, the Deed of
Assignment Biondo executed in favor of Eden not only enjoys a
presumption of regularity 17 but is also considered prima
facie evidence of the facts therein stated. 18 A party assailing
the authenticity and due execution of a notarized document is,
consequently, required to present evidence that is clear,
convincing and more than merely preponderant. 19 In view of
the Spouses Realubit's failure to discharge this onus, we find
that both the RTC and the CA correctly upheld the authenticity
and validity of said Deed of Assignment upon the combined
strength of the above-discussed disputable presumptions and
the testimonies elicited from Eden 20 and Notary Public
Rolando Diaz. 21 As for the Spouses' Realubit's bare assertion
that Biondo's signature on the same document appears to be
forged, suffice it to say that, like fraud, 22 forgery is never
presumed and must likewise be proved by clear and convincing
evidence by the party alleging the same. 23 Aside from not
being borne out by a comparison of Biondo's signatures on
the Joint Venture Agreement 24 and theDeed of
Assignment, 25 said forgery is, moreover debunked by Biondo's
duly authenticated certification dated 17 November 1998,
confirming the transfer of his interest in the business in favor of
Eden. 26
Generally understood to mean an organization formed for some
temporary purpose, a joint venture is likened to a particular
partnership or one which "has for its object determinate things,
their use or fruits, or a specific undertaking, or the exercise of a
profession or vocation." 27 The rule is settled that joint
ventures are governed by the law on partnerships 28 which are,
in turn, based on mutual agency or delectus
personae. 29 Insofar as a partner's conveyance of the entirety of
his interest in the partnership is concerned, Article 1813 of
the Civil Code provides as follows:
Art. 1813. A conveyance by a partner of his whole interest in
the partnership does not itself dissolve the partnership, or, as
against the other partners in the absence of agreement, entitle
the assignee, during the continuance of the partnership, to
interfere in the management or administration of the
partnership business or affairs, or to require any information or
account of partnership transactions, or to inspect the
partnership books; but it merely entitles the assignee to receive
in accordance with his contracts the profits to which the
assigning partners would otherwise be entitled. However, in
case of fraud in the management of the partnership, the
assignee may avail himself of the usual remedies.
In the case of a dissolution of the partnership, the assignee is
entitled to receive his assignor's interest and may require an
account from the date only of the last account agreed to by all
the partners.
From the foregoing provision, it is evident that "(t)he transfer
by a partner of his partnership interest does not make the
assignee of such interest a partner of the firm, nor entitle the
assignee to interfere in the management of the partnership
business or to receive anything except the assignee's profits.
The assignment does not purport to transfer an interest in the
partnership, but only a future contingent right to a portion of
the ultimate residue as the assignor may become entitled to
receive by virtue of his proportionate interest in the
capital." 30 Since a partner's interest in the partnership includes
his share in the profits, 31 we find that the CA committed no
reversible error in ruling that the Spouses Jaso are entitled to
Biondo's share in the profits, despite Juanita's lack of consent to
the assignment of said Frenchman's interest in the joint venture.
Although Eden did not, moreover, become a partner as a
consequence of the assignment and/or acquire the right to
require an accounting of the partnership business, the CA
correctly granted her prayer for dissolution of the joint venture
conformably with the right granted to the purchaser of a
partner's interest under Article 1831 of the Civil
Code. 32 aTEHCc
Considering that they involve questions of fact, neither are we
inclined to hospitably entertain the Spouses Realubit's
insistence on the supposed fact that Josefina's joint venture with
Biondo had already been dissolved and that the ice
manufacturing business at 66-C Cenacle Drive, Sanville
Subdivision, Project 6, Quezon City was merely a continuation
of the same business they previously operated under a single
proprietorship. It is well-entrenched doctrine that questions of
fact are not proper subjects of appeal by certiorari under Rule
45 of the Rules of Court as this mode of appeal is confined to
questions of law.33 Upon the principle that this Court is not a
trier of facts, we are not duty bound to examine the evidence
introduced by the parties below to determine if the trial and the
appellate courts correctly assessed and evaluated the evidence
on record. 34Absent showing that the factual findings
complained of are devoid of support by the evidence on record
or the assailed judgment is based on misapprehension of facts,
the Court will limit itself to reviewing only errors of law. 35
Based on the evidence on record, moreover, both the
RTC 36 and the CA 37 ruled out the dissolution of the joint
venture and concluded that the ice manufacturing business at
the aforesaid address was the same one established by Juanita
and Biondo. As a rule, findings of fact of the CA are binding
and conclusive upon this Court, 38 and will not be reviewed or
disturbed on appeal 39 unless the case falls under any of the
following recognized exceptions: (1) when the conclusion is a
finding grounded entirely on speculation, surmises and
conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) where there is a grave
abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are
conflicting; (6) when the CA, 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 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 facts set forth
in the petition as well as in the petitioners' main and reply
briefs are not disputed by the respondents; and, (10) when the
findings of fact of the CA are premised on the supposed
absence of evidence and contradicted by the evidence on
record. 40Unfortunately for the Spouses Realubit's cause, not
one of the foregoing exceptions applies to the case.
WHEREFORE, the petition is DENIED for lack of merit and
the assailed CA Decision dated 30 April 2007 is,
accordingly,AFFIRMED in toto.
SO ORDERED.
EN BANC
[G.R. No. X92-1. July 30, 1979.]
PETITION FOR AUTHORITY TO CONTINUE USE OF
THE FIRM NAME "SYCIP, SALAZAR, FELICIANO,
HERNANDEZ & CASTILLO." LUCIANO E. SALAZAR,
FLORENTINO P, FELICIANO, BENILDO G.
HERNANDEZ. GREGORIO R. CASTILLO. ALBERTO P.
SAN JUAN, JUAN C. REYES, JR., ANDRES G.
GATMAITAN, JUSTINO H. CACANINDIN, NOEL A.
LAMAN, ETHELWOLDO E. FERNANDEZ, ANGELITO
C. IMPERIO, EDUARDO R. CENIZA, TRISTAN A.
CATINDIG, ANCHETA K. TAN, and ALICE V.
PESIGAN, petitioners.
IN THE MATTER OF THE PETITION FOR AUTHORIT
Y TO CONTINUE USE OF THE FIRM NAME "OZAETA
,ROMULO, DE LEON, MABANTA & REYES."
RICARDO J. ROMULO, BENJAMIN M. DE LEON,
ROMAN MABANTA, JR., JOSE MA. REYES, JESUS S. J.
SAYOC, EDUARDO DE LOS ANGELES, and JOSE F.
BUENAVENTURA, petitioners.
RESOLUTION
MELENCIO-HERRERA, J p:
Two separate Petitions were filed before this Court 1)
by the surviving partners of Atty. Alexander Sycip, who died on
May 5, 1975, and 2) by the surviving partners of Atty.
Herminio Ozaeta, who died on February 14, 1976, praying that
they be allowed to continueusing, in the names of their
firms, the names of partners who had passed
away. In the Court's Resolution of September 2, 1976, both law firm necessarily identifies the individual "Art. 1815. Every partnership shall operate under a firm name,
Petitions were ordered consolidated. prLL members of the firm. 7 which may or may not include the name of one or
Petitioners base their petitions on the following arguments: 6. The continued use of a deceased more ofthe partners.
1. Under the law, a partnership is not prohibited from partner's name in the firm name of law partnerships has been "Those who, not being members of the partnership include their
continuing its business under a firm name which consistently allowed by U.S. Courts and is an accepted names in the firm name, shall be subject to the liability of a
includes the name of a deceased partner; in fact, Article practice in the legal profession of most countries in the world. 8 partner."
1840 of the Civil Code explicitly sanctions the practice when it The question involved in these Petitions first came under It is clearly tacit in the above provision that
provides in the last paragraph that: consideration by this Court in 1953 when a law firm in Cebu names in a firm name of a partnership must either be
"The use by the person or partnership (the Dean case) continued its those of living partners and, in thecase of non-partners, should
continuing the business of the partnership name, practice of including in its firm name that of a deceased partner, be living persons who can be subjected to liability. In fact,
or the name of a deceased partner as part thereof, shall C.D. Johnston. The matter was resolved with this Court Article 1825 of the Civil Code prohibits a third person from
not of itself make the individual property of the deceased advising the firm to desist from including his name in the firm name under
partner liable for any debts contracted by such person or including in their firm designation the name of C. D. Johnston, pain of assuming the liability of a partner. The heirs of a
partnership." 1 "who has long been dead." deceased partner in a law firm cannot be held liable as the old
2. In regulating other professions, such as accountancy and The same issue was raised before this Court in 1958 as an members to the creditors of a firm particularly where they are
engineering, the legislature has incident in G. R. No. L-11964, entitled non-lawyers. Thus, Canon 34 of the Canons of Professional
authorized the adoption of firmnames without any restriction Register of Deeds of Manila vs. China Banking Ethics "prohibits all agreement for the payment to the widow
as to the use, in such firm name, of the name of a deceased Corporation. The law firm of Perkins & Ponce Enrile and heirs of a deceased lawyer of a percentage, either gross or
partner; 2 the legislative authorization given to those moved to intervene as amicus curiae. Before acting net, of the fees received from the future
engaged in the practice of accountancy a profession thereon, theCourt, in a Resolution of April 15, 1957, stated that business of the deceased lawyer's clients, both
requiring the same degree of trust and it "would like to be informed why the name of Perkins is still because the recipients of such division are not lawyers and
confidence in respectof clients as that being used although Atty. E. A. Perkins is already dead." In a because such payments will not represent service or
implicit in the relationship of attorney and client to acquire Manifestation dated May 21, 1957, the law firm of Perkins and responsibility onthe part of the recipient." Accordingly,
and use a trade name, strongly indicates that there is no Ponce Enrile, raising substantially the same arguments as those neither the widow nor the heirs can be held
fundamental policy that is offended by the continued use by now being raised by petitioners, prayed liable for transactions entered into after the deathof their
a firm of professionals of a firm name which that the continued use of the firm name "Perkins & Ponce lawyer-predecessor. There being no benefits accruing, there can
includes the name of a deceased partner, at least where Enrile" be held proper. be no corresponding liability. LLpr
such firm name has acquired the characteristics of a On June 16, 1958, this Court resolved: Prescinding the law, there could be practical
"trade name." 3 "After carefully considering the reasons given by Attorneys objections to allowing the use by law
3. The Canons of Professional Ethics are not transgressed Alfonso Ponce Enrile and Associates for their firms of the names of deceased partners. Thepublic relations
by the continued use of the name of a deceased continued use of thename of the deceased E. G. value of the use of an old firm name can tend to create undue
partner in the firmname of a law partnership because Canon Perkins, the Court found no reason to depart from the policy it advantages and disadvantages in the practice of theprofession.
33 of the Canons of Professional Ethics adopted adopted in June 1953 when it required Attorneys Alfred P. Deen An able lawyer without connections will have to make
by the American Bar Association declares that: and Eddy A. Deen of Cebu City to desist from a name for himself starting from scratch. Another able lawyer,
". . . The continued use of the name of a deceased or former including in their firm designation, the name ofC. D. Johnston, who can join an old firm, can initially ride on that old firm's
partner when permissible by local custom, is not unethical, but deceased. The Court believes that, in view of the personal and reputation established by deceased partners.
care should be taken that no imposition or deception is confidential nature of the relations between attorney and client B. In regards to the last paragraph of Article 1840 of the Civil
practiced through this use. . . ." 4 and the high standards demanded in the canons of professional Code cited by petitioners, supra, the first factor to consider is
4. There is no possibility of imposition or deception ethics, no practice should be allowed which even in a remote that it is within Chapter 3 of Title IX of the Code entitled
because the deaths of their respective deceased partners were degree could give rise to the possibility of deception. Said "Dissolution and Winding Up." The Article primarily deals
well-publicized in all newspapers of general attorneys are accordingly advised to drop the name"PERKINS" with the exemption from liability in cases of a dissolved
circulation for several days; the stationeries now being used by from their firm name." partnership, of the individual property of the deceased
them carry new letterheads indicating the years when their Petitioners herein now seek a re-examination of the policy thus partner for debts contracted by the person or partnership which
respective deceased partners were connected with the firm; far enunciated by the Court. continues the business using the partnership name or the name
petitioners will notify all leading national and international law The Court finds no sufficient reason to depart from the rulings of the deceased partner as part thereof. What thelaw
directories of the fact of their respective deceased partners' thus laid down. contemplates therein is a hold-over situation
deaths. 5 A. Inasmuch as "Sycip, Salazar, Feliciano, Hernandez and preparatory to formal reorganization.
5. No local custom prohibits the continued use of a deceased Castillo" and "Ozaeta, Romulo, De Leon, Mabanta and Reyes" Secondly, Article 1840 treats more of a commercial partnership
partner's name in a professional firm's name; 6 there is no are partnerships, the use in their partnership with a good will to protect rather
custom or usage in the Philippines, or at least in the Greater names of the names of deceased partners will run than of a professionalpartnership, with no saleable good will
Manila Area, which recognizes that the name of a counter to Article 1815 of the Civil Code which provides: but whose reputation depends on the personal
qualifications of its individual members. Thus, it has been held
that a saleable goodwill can exist only in a commercial 4. A relation to colleagues at the bar characterized by candor, sustained the use of the firm name Alexander & Green even if
partnership and cannot arise in a professional partnership fairness, and unwillingness to resort to current business none of the present ten partners of the firm bears
consisting oflawyers. 9 methods of advertising and encroachment on their practice, or either name because the practice was sanctioned by custom and
"As a general rule, upon the dissolution of a commercial dealing directly with their clients." 13 did not offend any statutory provision or legislative policy and
partnership the succeeding partners or parties "The right to practice law is not a natural or constitutional right was adopted by agreement of the parties The Court stated
have the right to carry on the business but is in the nature of a privilege or franchise. 14 It is therein:
under the old name, in the absence of a stipulation forbidding limited topersons of good moral character with special "The practice sought to be
it, (s)ince the name of a commercial partnership is a partnership qualifications duly ascertained and certified. 15 The right does proscribed has the sanction of custom and offends no statutory
asset inseparable from the good will of the firm . . .." (60 Am not only presuppose inits possessor integrity, legal standing and provision or legislative policy. Canon
Jur 2d, s 204, p. 115) (Emphasis supplied) attainment, but also the exercise of a special privilege, highly 33 of the Canons of Professional Ethics of both the American
On the other hand, personal and partaking ofthe nature of a public trust." 16 Bar Association and the New York State Bar Association
". . . a professional partnership the reputation of which depends D. Petitioners cited Canon 33 of the Canons of Professional providesin part as follows: 'The continued use of the name of a
on the individual skill of the members, such as Ethics of the American Bar Association 17 in support of their deceased or former partner, when permissible by local custom
partnerships ofattorneys or physicians, has no good will to be petitions. is not unethical, but care should be taken that no imposition or
distributed us a firm asset on its dissolution, however It is true that Canon 33 does not consider as deception is practiced through this use.' There is no question
intrinsically valuable such skill and reputation may be, unethical the continued use of the name of a deceased or as tolocal custom. Many
especially where there is no provision in the partnership former partner in the firmname of a law partnership when such firms in the city use the names of deceased members
agreement relating to good will as an asset. . . ." (ibid, s 203, p. a practice is permissible by local custom but the Canon warns with the approval of other attorneys, bar associations
115) (Emphasis supplied). that care should be taken that no imposition or deception is and the courts. The Appellate Division of the First Department
practiced through this use. has considered the matter and reached the conclusion that such
C. A partnership for the practice of law cannot be It must be conceded that in the Philippines, no local practice should not be prohibited. (Emphasis supplied)
likened to partnerships formed by other professionals custom permits or allows the continued use of a deceased or xxx xxx xxx
or for business. For one thing, the law on accountancy former partner'sname in the firm names of law "Neither the Partnership Law nor the Penal Law
specifically allows the use of a trade name in connection partnerships. Firm names, under our custom, identify the more prohibits the practice in question. The use of the firm name her
with the practice of accountancy. 10 active and/or more senior members or partners of the law firm. ein is also sustainable by reason of agreement
"A partnership for the practice of law is not a legal entity. It is a A glimpse at the history of the firms of petitioners and of other between the partners." 18
mere relationship or association for a particular purpose. . . . It law firms in this country would show how their firm names Not so in this jurisdiction where there is no local custom that
is not a partnership formed for the purpose of carrying on trade have evolved and changed from time to time sanctions the practice. Custom has been defined as a
or business or of holding property." 11 Thus, it has been stated as the composition of the partnership changed. rule of conduct formed by repetition of acts, uniformly
that "theuse of a nom de plume, assumed or trade name in law "The continued use of a firm name after the death of one or observed (practiced) as a social rule, legally binding and
practice is improper." 12 more of the partners designated by it is proper only where obligatory. 19 Courts take no judicial notice of custom. A
"The usual reason given for different standards of conduct sustained by local custom and not where by custom this custom must be proved as a fact,
being applicable to the practice of law from those purports to identify the active members. . . . according to the rules of evidence. 20 A local custom as a
pertaining tobusiness is that the law is a 'profession.' . . . "There would seem to be a question, source of right cannot be considered by a court of justice unless
"Dean Pound, in his recently published under the working of the Canon, such custom is properly established by competent evidence like
contribution to the Survey of the Legal Profession, as to the propriety of adding the name of a new partner and any other fact. 21We find such proof of the existence of a local
(The Lawyer from Antiquity toModern Times, p. 5) defines a at the same time retaining that of a deceased partner who was custom. and of the elements requisite to constitute the same,
profession as 'a group of men pursuing a learned art as a never a partner with the new one." (H.S. Drinker, op. cit., wanting herein. Merely because something is done as
common calling in the spirit of public service, no less a supra, at pp. 207-208) (Emphasis supplied) a matter of practice does not mean that Courts can rely
public service because it may incidentally be a The possibility of deception upon the public, real or on the same for purposes of adjudication as a juridical custom.
means of livelihood.' consequential, where the name of a deceased partner Juridical custom must be differentiated from social
xxx xxx xxx continues to be used cannot be ruled out. A custom. The former can supplement statutory law or be
"Primary characteristics which distinguish the legal profession person in search of legal counsel might be guided applied in the absence of such statute. Not so with the latter.
from business are: by the familiar ring of a Moreover, judicial decisions applying or interpreting the laws
1. A duty of public service, of which the emolument is a by- distinguished name appearing in afirm title. form part of the legal system. 22 When the Supreme
product, and in which one may attain the highest eminence E. Petitioners argue that U.S. Courts have consistently Court in the Deen and Perkins cases issued its Resolutions
without making much money. avowed the continued use of a deceased directing lawyers to desist from
2. A relation as an partner's name in the firmname of law partnerships. But that is including the names of deceased
'officer of court' to the administration of justice involving so because it is sanctioned by custom. partners in their firmdesignation, it laid down a legal rule
thorough sincerity, integrity, and reliability. In the case of Mendelsohn v. Equitable Life Assurance against which no custom or practice to the contrary, even if
3. A relation to clients in the highest degree fiduciary. Society (33 N.Y.S. 2d 733) which petitioners Salazar, et al. proven, can prevail. This is not tospeak of our civil law which
quoted in their memorandum, the New York Supreme Court clearly ordains that a partnership is dissolved
by the death of any partner. 23 Customs which are Quisumbing, the senior partner, the late Ramon Quisumbing, and Ozaeta and to benefit from the goodwill
contrary to law, public order or public policy shall not be being the father-in-law of theundersigned, and the most junior attached to the names ofthose respected and esteemed law
countenanced. 24 partner then, Norberto J. Quisumbing, being his brother-in- practitioners. That is a legitimate motivation.
The practice of law is intimately and peculiarly law. For the record, the undersigned The retention of their names is not illegal per se. That practice
related to the administration of justice and should not be wishes to invite the attention of all concerned, and not was followed before the war by the law firm of James Ross.
considered like an ordinary "money-making trade." only of petitioners, to the last sentence of the opinion of Justice Notwithstanding the death of Judge
". . . It is of the essence of a profession that it is practiced in a Ameurfina Melencio-Herrera: 'Those names [Sycip Ross the founder of the law firm of Ross, Lawrence, Selph and
spirit of public service. 'A trade' . . . 'aims primarily at personal and Ozaeta] may, however, be Carrascoso, his name was retained in the firm name with an
gain; a profession at the exercise of powers included in the listing of individuals who have been indication of the year when he died. No one complained
beneficial to mankind.' If, as in the era of wide free opportunity, partnersin their firms indicating the years during which they that the retention of the name of Judge
we think of free competitive self assertion as the highest good, served as such." It represents a happy compromise. Ross in the firm name was illegal or unethical.
lawyer and grocer and farmer may seem to be freely competing FIRST DIVISION
with their fellowsin their calling in order each to acquire as Separate Opinions [G.R. No. 19892. September 6, 1923.]
much of the world's good as he may within the limits allowed AQUINO, J., dissenting: TECK SEING & CO., LTD., petitioner-
him by law. But themember of a profession does not regard I dissent. The fourteen members of the law firm, Sycip, Salazar, appellee. SANTIAGO JO CHUNG CANG ET
himself as in competition with his professional brethren. He is Feliciano, Hernandez & Castillo, in their petition of June 10, AL., partners, vs. PACIFICCOMMERCIAL COMPANY ET
not bartering his services as is the artisan nor 1975, AL., creditors-appellants.
exchanging the products of his skill and learning as the farmer prayed for authority to continue the use of that firm name, Del Rosario & Del Rosario and Block, Johnston &
sells wheat or corn. There should be no such thing as a lawyers notwithstanding the death of Attorney Alexander Sycip on May Greenbaum for appellants.
or physicians' strike. The best service of the professional man is 5, 1975 (May he rest in peace). He F. V. Arias for appellees Jo Ibec and Go Tayco.
often rendered for no equivalent or fora trifling equivalent and was the founder of the firm which was originally known No appearance for petitioner and appellee.
it is his pride to do what he does in a way worthy of his as the Sycip Law Office. Jose A. Espiritu and Felipe Ysmael as amici curiae.
profession even if done with no expectation ofreward. This On the other hand, the seven surviving SYLLABUS
spirit of public service in which the profession of law is and partners of the law firm, Ozaeta, Romulo, De Leon, Mabanta & 1.MERCANTILE LAW; CONTRACTS; PARTNERSHIP;
ought to be exercised is a prerequisite of sound Reyes, in their petition ofAugust 13, 1976, prayed that they be INSTANT CASE. Held: That the mercantile establishment
administration of justice according to law. The other two allowed to continue using the said firm name notwithstanding t which operated under the name of Teck Seing & Co., Ltd., and
elements of a profession, namely, organization and pursuit of a he death of two partners, former Justice Roman Ozaeta and his which was constituted by the document set forth in the
learned art have their justification in that they secure and son, Herminio, on May 1, 1972 and February 14, 1976, decision, is not a corporation, nor a cuenta en participacion
maintain that spirit." 25 respectively. (joint account association), nor a sociedad anonima, nor a
In fine, petitioners' desire to preserve the identity of their They alleged that the said law firm was a sociedad en comandita (limited partnership), nor a de
firms in the eyes of the public must bow to legal and ethical continuation of the Ozaeta Law Office which was facto commercial association, but is a general partnership.
impediments. established in 1957 by Justice Ozaetaand his son and that, 2.ID.; ID.; ID.; LIMITED PARTNERSHIP. Those who seek
ACCORDINGLY, the petitions filed herein are denied and as to the said law firm, the name Ozaeta has acquired an to avail themselves of the protection of laws permitting the
petitioners advised to drop the names "SYCIP" and "OZAETA" institutional and secondary connotation. creation of limited partnership must show a substantially full
from their respective firm names. Those names may, however, Article 1840 of the Civil Code, which compliance with such laws. A limited partnership that has not
be included in the listing of individuals who have been speaks of the use by the partnership of the name of a deceased complied with the law of its creation is not considered a limited
partners in their firms indicating the years during which they partner as part of thepartnership name, is partnership at all, but a general partnership in which all the
served as such. prLL cited to justify the petitions. Also invoked is the canon members are liable.
SO ORDERED. that the continued use by a law firm of the name of a deceased 3.ID.; ID.; ID. To establish a limited partnership, there must
Teehankee, Concepcion Jr., Santos, Fernandez, partner, "when permissible by local custom, is not unethical" as be, at least, one general partner and the name of the least one of
Guerrero and De Castro, JJ., concur. long as "no imposition or deception is practiced through the general partners in the firm name. (Code of Commerce,
Fernando, C.J, and Abad-Santos, J., took no part. this use" (Canon 33 of the Canons of Legal Ethics). arts. 122 [2], 146, 148.)
C E R T I F I CAT I O N I am of the opinion that the petition may be granted 4.ID.; ID.; ID.; DEFECTS IN THE ORGANIZATION; FIRM
FERNANDO, C.J. p: with the condition that it be NAME; ARTICLE 126 OF THE CODE OF COMMERCE,
The petitions are denied, as there are only four indicated in the letterheads of the two firms (as thecase may be) CONSTRUED. Article 126 of the Code of Commerce
votes for granting them, seven of the .Justices that Alexander Sycip, former Justice Ozaeta and requires the general copartnership to transact business under the
being of the contrary view, as explained in the plurality Herminio Ozaeta are dead or the period when they served as name of all its members, or of several of them, or of one only.
opinion of Justice Ameurfina Melencio-Herrera. It is partners should be stated therein. The object of the article is manifestly to protect the public
out of delicadeza that the undersigned did not Obviously, the purpose of the two against imposition and fraud.
participate in the disposition of these petitions, as the law firms in continuing the use of the names of their deceased 5.ID.; ID.; ID,; ID.; ID.; ID. Article 126 of the Code of
office of Sycip, Salazar, Feliciano, Hernandez and Castillo founders is to retain the clients who had customarily Commerce was intended more for the protection of the
started with thepartnership of Quisumbing, Sycip, and sought the legal services of Attorneys Sycip creditors than of the partners themselves. A distinction can be
drawn between the right of the alleged partnership to institute
action when failing to live up to the provision of the law, or
even the rights of the partners as among themselves, and the
right of a third person to hold responsible a general partnership
which merely lacks a firm name, in order to make it a
partnership de jure. the law should be construed as rendering
contracts made in violation of it unlawful and unenforceable at
the instance of the offending party only, but not as designed to
take away the rights of innocent parties who may have dealt
with the offenders in ignorance of their having violated the law.
6.ID.; ID., ID.; ID.; ID.; ID. The civil law and the common
law alike point to a difference between the rights of the partners
who have failed to comply with the law and the rights of third
persons who have dealt with the partnership.
7.ID.; ID.; ID.; ID.; ID.; ID. According to the Spanish civil
law, defects in the organization cannot effect relations with
third persons. Contracts entered into
by commercial associations defectively organized are valid
when they are voluntarily executed by the parties, if the only
controversy relates to whether or not they complied with the
agreement.
8.ID.; ID.; ID.; ID.; ID.; ID.; FAILURE OF REGISTRY,
EFFECT. While the failure to register in
the commercialregistry, necessarily precludes the members
from enforcing rights acquired by them against third persons,
such failure cannot prejudice the rights of third persons.
(Decisions of the supreme court of Spain of December 6, 1887,
January 25, 1888, November 10, 1890, and January 26, 1900.)
9.ID.; ID.; ID.; ID.; ID.; ID.; DECISION IN HUNG-MAN-
YOC vs. KIENG-CHIONG-SENG, DISTINGUISHED.
There is a marked difference between the facts of the case of
Hung-Man-Yoc vs. Kieng-Chiong-Seng ([1906], 6 Phil., 498),
and the facts of the instant case.
10.ID.; ID.; ID.; ID.; ID.; ID,; TEST OF PARTNERSHIP.
The legal intention deducible from the acts of the parties
controls in determining the existence of a partnership. If they
intend to do a thing which in law constitutes a partnership, they
are partners, although their purpose was to avoid the creation of
such relation.
11.ID.; ID.; ID.; ID.; ID.; ID.; BANKRUPTCY AND
INSOLVENCY; LIABILITY OF PARTNERSHIP AND
PARTNERS. If a firm be insolvent, the creditors may
proceed both against the firm against the solvent partner or
partners, first exhausting the assets of the firm before seizing
the property of the partners.
DECISION
MALCOLM, J p:
Following the presentation of an application to be adjudged an
insolvent by the "Sociedad Mercantile, Teck Seing & Co.,
Ltd.," the creditor, the Pacific Commercial Company, Pinol &
Company, Riu Hermanos, and W. H. Anderson & Company,
filed a motion in which the Court was prayed to enter an order:
"(A) Declaring the individual partners as described in
paragraph 5 parties to this proceeding; (B) to require each of
said partners to file an inventory of his property in the manner
required by section 51 of Act No. 1956; and (C) that each of
said partners be adjudicated insolvent debtors in this
proceeding." The trial judge first granted the motion, but,
subsequently, on opposition being renewed, denied it. it is from
this last order that an appeal was taken in accordance with
section 82 of the Insolvency Law.
There has been laid before us for consideration and decision a
question of some importance and of some intricacy. The issue
in the case relates to a determination of the nature of the
mercantile establishment which operated under the name into,
and analyze, the document constituting Teck Seing & Co., Ltd.
It reads:
"ESCRITURA DE SOCIEDAD MERCANTILE LIMITADA
"Sepan todos por la presente:
"Que nosotros, Santiago Jo Chung Cang, mayor de edad,
comerciante, vecino y residente del municipio de Tabogon,
Provincia de Cebu, Islas Filipinas, Go Tayco, mayor de edad,
comerciante, vecino y residente del municipio de Cebu,
Provincia de Cebu, Islas Filipinas, Yap Gueco, mayor de edad,
comerciante, vecino y residente del municipio y Provincia de
Cebu, Islas Filipinas, Lim Yogsing, mayor de edad,
comerciante, vecino y residente del municipio de Cebu,
Provincia de Cebu, Islas Filipinas, y Jo Ybec, mayor de edad,
comerciante, vecino y residente del municipio de Jagna,
Provincia de Bohol, Islas Filipinas, hacemos constar por la
presente, que constituimos y formamos una sociedad
Mercantile limitada, bajo la leyes vigentes en las Islas Filipinas,
y para ser registrada de acuerdo con los reglamentos vigentes
del Codigo de Comercio en Filipinas.
"Que la razon social se denominara "Teck Seing & Co., Ltd," y
tendra su domicilio principal en la Calle Magallanes No. 94, de
la Ciudad de Cebu, Provincia de Cebu, Islas Filipinas.
"Que el capital socia sera de treinta mil pesos (P30,000)
moneda legal de las Islas Filipinas, dividido en cinco acciones
de a P6,000 como sigue:
Santiago Jo Chung Cang P6,000.00
Go TAYCO 6,000.00
Yap Guenco 6,000.00
Jo Ybec 6,000.00
Lim Yogsing 6,000.00
Total 30,000.00
"Que la duracion de la sociedad sera la de seis anos a contar de
la fecha de esta escritura, pudiendo prorrogarse este tiempo a
discrecion unanime de todos los accionistas.
"El objeto de la sociedad sera la compra y venta de mercaderias
en general.
"El administrator o administradores de la sociedad podran,
previa conformidad de los accionistas, establecer cuantas
sucursales o establecimietos considere necesarios para facilitar
sus negocious y el mayor desarrollo del comercio a que se
dedica la sociedadm verificando todas las operaciones que
crean convenientes para el fomento de su capital.
"Las ganacias perdiad que resultaren durante cada ano
comercial, se distribuiran proporcionalmente entre los
accionistas, de acuerdo con el capital apotado por cada uno de
los mismos.
"Las ganancias que resultaren en cads ano comercial, si
resultaren algunas ganancias, no podran ser retiradas por los
accionistas hasta dentro del termino de tres anos a contar de la
fecha del primer balance anual de negocio, quendando por tanto
estas ganancias en reserva, para ampliar el capital aportado por
los accionistas y ampliar portanto la esfera de accion
emprendida por la misma sociedad. Al pasar o expirar el
termino de tres anos, cada accionista podra retirar o depositar
en poder de la sociedad, las ganancias que le debieran
corresponder durante dicho termino de tres anos.
"Que los accionistas no podran extraer ni disponer en ningun
tiempo cualesquirea cantidad o cantidades de la sociedad, que
haya sido aportadoo por los mismo, para atender sus gastos
particulares ni aun pagando redito alguno sobre la cantidad que
intenten disponer o extraer de dicha sociedad.
"El accionista Sr. Lim Yogsing tendra a su cargo, en union del
Sr. Vicente Jocson Jo, la administracion de la Compania,
quienes podran usar indisstintamente la firma social, quedando
por consiquiente authorizados ambos para hacer en nombre de
ella toda clase de operaciones, negocios y especulaciones
mercantiles, practicando judicial y extrajudicialmente cuantos
actos se requieran para el bien de la sociedad, nombrar
procuradores o abogados para reclamaciones y cobro de
creditors y proponer ante los tribunales las demandas,
convenios, transacciones y excepciones procedentes. En caso
de ausencia, enfermedad o cualquier otro impedimento del
accionista administrador Sr. Lim Yogsing, este podra conferir
poder general o especial al accionista que crea conveniente para
que en union del administrador auxiliar Sr. Vicente Jocson Jo,
pudieran ambos administrar convenientemente los negocious de
la sociedad. Que los administradores podran tener los
empleados necesarios para el mejor manejo de los negocios de
la sociedad, y fijaran los sueldos que debieran percibir dichos
empleados por servicios rendidos a la sociedad.
"Que ambos administradores podran disponer de mil
doscientos pesos (1,200) moneda filipina, anualmente, para sus
gastos particulares, siendo dicha cantidad de P1,200 la que
corresponde a cada uno de dichos administradores, como
emolumentos o salarios que se les asigna a cada uno, por sus
trabajos en la administracioon de la sociedad. Entendiendose,
que, los accionistas podran disponer cada fin de ano la
gratificacion que se concedera a cada administrador, si los
negocios del ano fueran boyantes y justifiquen la concesion de
una grtificacion especial, aparte del salario aqui dispuesto y
especificado.
"Que pasado el termino de seis aos, y es de la conveniencia de
los accionistas la continuacion del negocio de esta sociedad,
dicho termino sera prorrogado por igual numero de anos, sin
necesidad del otorgamiento de ulteriores escrituras, quedando
la presente en vigor hasta el termino dispuesto por todos los
accionistas.
"Que las diferencias que pudieran suscitarse entre los
accionistas, bien sea por razon de lo estipulado en esta
escritura, ya por actos en el curso y direccion de los negocios
en ella comprendidos, se procurara arreglar entre los mis-mos
amistosa y extrajudicialmente, y si no se consiguiere un arreglo
de este modo, dichos accionistas nombraran un arbitro, cuya
resolucion estan todos obligados y por la presente se
comprometen y se obligan a acatarla en todas sus partes,
renunciando ulteriores recursos.
"En cuyos terminos dejamos formalizada esta escritura de
sociedad Mercantile limitada, y prometemos cumplirla fiel y
estrictamente segun los pactos que hemos establecido.
"En testimonio de todo lo cual, firmamos en la Ciudad de
Cebu, Provincia de Cebu, Islas Filipinas, hoy 31 de octubre de
mil novecientos diez y nueve.
(Fdos.)"LIM YOGSING
"JO YBEC POR HO SENG SIAN
"SANTIAGO JO CHUNG CANG
"GO TAYCO
"YAP GUECO
Firmed en presencia de:
(Fdos.)"ATALINO LEYSON
"JULIO DIAZ
"ESTADOS UNIDOS DE AMERICA
"ISLA FILIPINAS
"PROVINCIA DE CEBU
"En el Municipio de Cebu, de la Provincia antes mencionada, I.
F.., hoy 31 de octubre de 1919, A. D., ante mi, Notario Publico
que subscribe, comparecieron personalmente
Santiago Jo Ching Cang, go Tayco, Yapp Guenco, Lim Yogsing
y Ybec, representado este ultimo por Ho Seng Sian, segun
authorizacion hecha en telegrama de fecha 27 de septiembre de
1919 que se me ha presentado en este mismo acto, de quienes
doy fe de que les conozco por ser las mismas personas que
otorgaron el preinserto documento, ratificando ante mi su
contenido y manifestando ser el mismo un acto de su libre y
voluntario otorgamiento. El Sr. Santiago Jo Chung me exhibio
su cedula personal expedida en Cebu, Cebu, I. F. el dia 19 de
septiembre de 1919 bajo el No. H77742, Go Tayco tambien me
exhibio la suya expedida en Cebu, Cebu, I. F., el dia 9 de
octubre de 1919 bajo el No. G2042490, Yap Guenco tambien
me exhibio la suya expedida en Cebu, Cebu, I. F. el dia 20 de
enero de 1919 bajo el No. F1452296, Lim Yogsing tambien me
exhibio la suya expedia en Cebu, Cebu, I. F., el dia 26 de
febrero de 1919 bajo el No. F1455662, y Ho Seng Sian
representante de Jo Ybec, me exhibo su cedula personal
expedida en Cebu, Cebu, I. F. el dia 4 de febrero expedida en
Cebu, Cebu, I. F. el dia 4 de febrero de 1919 bajo el No.
F1453733.
"Ante mi,
(Fdo.)"F.V. ARIAS
"Notario publico
"Hasta el 1. o de enero de 1920
"Asiento No. 157
Pagina No. 95 de mi
Registro Notarial
Serie 1919
Libro 2. o.
"Presentado a las diez y cuarentay tres minutos de la manana de
hoy, segun el asiento No. 125, pagina 9 del Tomo 1. o del Libro
Diario. Cebu, 11 de febrero de 1920.
(Fdo)"QUIRICO ABETO
"Registrador Mercantile Ex-officio
[SELLO]
"Inscrito el documento que precede al folio 84 hoja No. 188,
inscripcion 1. a del Tomo 3. o del Libro Registro de Sociedades
Mercantiles. Cebu, 11 de febrero de 1920. Honorarios treinta
pesos con cincuenta centavos. Art.197, Ley No. 2711, Codigo
Administrativo.
(Fdo)"QUIRICO ABETO
"Registrador Mercantile Ex-Officio"
[SELLO]
Proceeding by process of elimination, it is self-evident that
Teck Seing & Co., Ltd., is not a corporation. Neither is it
contended by any one that Teck Seing & Co., Ltd., is the
accidental partnership denominated cuenta en
participacion (joint account association).
Counsel for the petitioner and appellee described his client in
one place in his opposition to the motion of the creditors,
as"una verdadera sociedad anonima" (a true sociedad
anonima). The provisions of the Code of Commerce relating
to sociedades anonimas were, however, repealed by section
191 of the Corporation Law (Act No. 1459), with the
exceptions that sociedades anomimas lawfully organized at the
time of the passage of the Corporation Law were recognized,
which is not our case.
The document providing for the partnership contract purported
to form "una sociedad mercantile limitada," and counsel of the
petitioner's first contention was that Teck SEing & Co., Ltd.
was not "sociedad regular colectiva, ni siquiera comanditaria,
sino una sociedad mercantile limitada." Let us see if the
partnership contract created a "sociedad en comandita," or, as it
known in English, and will hereafter be spoken of, "a limited
partnership."
To establish a limited partnership there must be, at least one
general partner and the name of at least one of the general
partners must appear in the firm name. (Code of Commerce,
Arts. 122 [2], 146, 148.) But neither of these requirements have
been fulfilled. The general rule is, that those who seek to avail
themselves of the protection of laws permitting the creation of
limited partnerships must show a substantially full compliance
with such laws. A limited partnership that has not complied
with the law of its creation is not considered a limited
partnership at all, but a general partnership in which all the
members are liable. (Mechem, Elements of Partnership, p. 412;
Gilmore, Partnership, pp. 499,595; 20 R. C. L., 1064.)
The contention of the creditors and appellants is that the
partnership contract established a general partnership.
Article 125 of the Code of Commerce provides that the articles
of general copartnership must state the names, surnames, and
domiciles of the partners; the firm name; the names, and
surnames of the partners to whom the management of the firm
and the use of its signature is intrusted; the capital which each
partner contributes in cash, credits, or the basis on which their
appraisement is to be made; the duration of the copartnership;
and the amounts which, in a proper case, are to be given to each
managing partner annually for his private expenses, while the
succeeding article of the Code provides that the general
copartnership must transact business under the name of all its
members, of several of them, or of done only. Turning to the
document before us, it will be noted that all of the requirements
of the Code have been met, with the sole exception of the
relating to the sole exception of that relating to the composition
of the firm name. We leave consideration of this phase of the
case for later discussion.
The remaining possibility is the revised contention of counsel
for the petitioners to the effect that Teck Seing & Co., Ltd.
is"una sociedad mercantile 'de facto' solamante" (only a de
facto commercial association), and that the decision of the
Supreme Court in the case of Hung-Man-Yoc vs. Kieng-
Chiong-Seng [1906], is controlling. It was this argument which
convinced the trial judge, who gave effect to his understanding
of the case last cited and which here must be given serious
attention.
The decision in Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra,
discloses that the firm Kieng-Chiong-Seng was not organized
by means of any public document; that the partnership had not
recorded in the mercantile registry; and that Kieng-Chiong-
Seng was not proven to be the firm name, but rather the
designation of the partnership. The conclusion then was, that
the partnership in question was merely de facto and that,
therefore, giving effect to the provisions of article 120 of the
Code of Commerce, the right of action was against the persons
in charge of the management of the association.
Laying the facts of the case of Hung-Man-Yoc vs. Kieng-
Chiong-Seng, supra, side by side with the facts before us, a
marked difference is at once disclosed. In the cited case, the
organization of the partnership was not evidenced by any
public document; here, it is by a public document. In the cited
case, the partnership naturally could not present a public
instrument for record in the mercantile registry; here, the
contract of partnership has been duly registered. But the two
cases are similar in that the firm name failed to include the
name of any of the partners.
We come then to the ultimate question, which is, whether we
should follow the decision in Hung-man-Yoc vs. Kieng-
Chiong-Seng, supra, or whether we should differentiate the two
cases, holding Teck Seing & Co., Ltd., a general copartnership,
notwithstanding the failure of the firm name to include the
name of one of the partners. Let us now notice this decisive
point this decisive point in the case.
Article 119 of the Code of Commerce requires
every commercial association before beginning its business to
state its articles, agreements, and conditions in a public
instrument, which shall be presented for record in the
mercantile registry. Article 120, next following, provides that
the persons in charge of the management of the association who
violate the provisions of the foregoing article shall be
responsible in solidum to the persons not members of the
association with whom they may have transacted business in
the name of the association. Applied to the facts before us, it
would seem that Teck Seing & Co., Ltd. has fulfilled the
provisions of article 119. Moreover, to permit the creditors only
to look to the person in charge of the management of the
association, the partner Lim Yogsing, would not prove very
helpful to them.
What is said in article 126 of the Code of Commerce relating to
the general copartnership transacting business under the name
of all its members or of several of them or of one only, is
wisely included in our commercial law. It would appear,
however, that this provision was inserted more for the
protection of the creditors than of the partners themselves. A
distinction could well be drawn between the right of the alleged
partnership to institute action when failing to live up to the
provisions of the law, or even the rights of the partners as
among themselves, and the right of a third person to hold
responsible a general copartnership which merely lacks a legal
firm in order to make it a partnership de jure.
The civil law and the common law alike seem to point to a
difference between the rights of the partners who have failed to
comply with the law and the rights of third persons who have
dealt with the partnership.
The supreme court of Spain has repeatedly held that
notwithstanding the obligation of the members to register the
articles of association in the commercial registry, agreements
containing all the essential requisites are valid as between the
contracting parties, whatever the form adopted, and that, while
the failure to register in the commercial registry necessarily
precludes the members from enforcing rights acquired by them
against third persons, such failure cannot prejudice the rights of
third person. (See decisions of December 6, 1887, January 25,
1888, November 10, 1890, and January 26, 1900.) The same
reasoning would be applicable to the formal requisite pertaining
to the firm name.
The common law is to the same effect. The State of Michian
had a statute prohibiting the transaction of business under an
assumed name or any other than the real name of the individual
conducting the same, unless such person shall file with the
county clerk a certificate setting forth the name under which the
business is to be conducted and the real name of each of the
partners, with their residences and post-office addresses, and
making a violation thereof a misdemeanor. The Supreme Court
of Michigan said:
"The one object of the act is manifestly to protect the public
against imposition and fraud, prohibiting persons from
concealing their identity by doing business under an assumed
name, making it unlawful to use that their real names in
transacting business without a public record of who they are,
available for use in courts, and to punish those who violate the
prohibition. the object of this act is not limited to facilitating
the collection of debts, or the protection of those giving credit
to person doing business under an assumed name. It is not
unilateral in its application. It applies to debtor and creditor,
contractor and contractee, alike. Parties doing business with
those acting under an assumed name, Whether they buy or sell,
have a right, under the law, to know who they are, and who to
hold responsible, in case the question of damages for failure to
perform or breach of warranty should arise.
"The general rule is well settled that, where statutes enacted to
protect the public against fraud or imposition, or to safeguard
the public health or morals, contain a prohibition and impose a
penalty, all contract in violation thereof are void. . . .
"As this act involves purely business transactions, and affects
only money interests, we think it should be construed as
rendering contracts made in violation of it unlawful and
unenforceable at the instance of the offending party only, but
not as designed to take away the right of innocent parties who
may have dealt with the offenders in ignorance of their having
violated the statute." (Cashin vs. Pilter [1912], 168 Mich., 386;
Ann. Cas. [1913-C], 697.)
The early decision of our Supreme Court in the case of Prautch,
Scholes & Co. vs. Hernandez ([1903], 1 Phil., 705), contains
the following pertinent observations:
"Another case may be supposed. A partnership is organized
for commercial purposes. It fails to comply with the
requirement of article 119, A creditor sues the partnership for a
debt contracted by it, claiming to hold the partners severally.
They answer that their failure to comply with the Code of
Commerce makes them a civil partnership and that they are in
accordance with article 1698 of the Civil Code only
liable jointly. to allow such liberty of action would be to permit
the parties by a violation of the code to escape a liability which
the law has seen fit to impose upon persons who
organized commercialpartnership; 'Because it would be
contrary to all legal principles that the nonperformance of a
duty should redound to the benefit of the person in default
either intentional or unintentional.' (Mercantile Law, Eixala,
fourth ed., p. 145.)" (See also Lichauco vs. Lichauco [1916], 33
Phil., 350, 360.)
Dr. Jose de Echavarri y Vivanco, in his Codigo de Comercio,
includes the following comment after articles 121 and 126 of
the Code:
"From the decision cited in this and in the previous comments,
the following is deduced : 1st Defects in the organization
cannot affect relations with third persons. 2d. Member who
contract with other persons before the association is lawfully
organized are liable to these persons. 3d. The intention to form
an association is necessary, so that if the intention of mutual
participation in the profits and losses in a particular business is
proved, and there are no articles of association, there is no
association. 4th. An association, the article of which have not
been registered, is valid in favor of third persons. 5th. The
private pact or agreement to form a commercial association is
governed not by the commercial law but by the civil law. 6th.
Secret stipulations expressed in a public instrument, but not
inserted in the articles of association, do not affect third person,
but are binding on the parties themselves. 7th. An agreement
made in a public instrument, other than the articles of
association, by means of which one of the partners guarantees
to another certain profits or secures him from losses, is valid
between them, without affecting the association. 8th. Contracts
entered into by commercial associations defectively organized
are valid when they are voluntarily executed by the parties, if
the only controversy relates to whether or not they complied
with the agreement.
xxx xxx xxx
"The name of the collective merchant is called firm name. By
this name, the new being is distinguished from others, its
sphere of action fixed, and the juridical personality better
determined, without constituting an exclusive character of the
general partnership to such an extent as to serve the purpose of
giving a definition of said kind of a mercantile partnership, as
is the case in our Code.
"Having in mind that these partnership are prevailingly of a
personal character, article 126 says that they must transact
business under the name of all its members, of some of them or
of one only, the words 'and company' to be added in the latter
two cases.
"It is rendered impossible for the general partnership to adopt a
firm name appropriate to its commercial object; the law wants
to link, and does link, the solidary and unlimited responsibility
of the member of this partnership with the formation of its
name, and imposes a limitation upon personal liberty in its
selection, not only by prescribing the requisites, but also by
prohibiting persons not members of the company from
including their names in its firm name under penalty of civil
solidary responsibility.
"Of course, the form required by the Code for the adoption of
the firm name does not prevent the addition thereto of any other
title connected with the commercial purpose of the association.
The reader may see our commentaries on the mercantile
registry about the business names and firm names of
associations, but it is proper to establish here that, while the
business name may be alienated by any of the means admitted
by the law, it seems impossible to separate the firm names of
general partnerships from the juridical entity for the creation of
which it was formed." (Vol. 2, pp. 197, 213.)
On the question of whether the fact that the dirm name "Teck
Seing & Co., Ltd." does not contain the name of all or any of
the partners as prescribed by the Code of Commerce prevents
the creation of a general partnership, Professor Jose A. Espiritu,
as amicus curiae, states:
"My opinion is that such a fact alone cannot and will not be a
sufficient cause of preventing the information of a general
partnership, especially if the other requisites are present and the
requisites regarding registration of the articles of association in
the Commercial Registry has been complied with, as in present
case. I do not believe that the adoption of a wrong name is a
material fact to be taken into consideration in this case; first,
because the mere fact that a person uses a name not his own
does not prevent him being bound in a contract or an obligation
he voluntarily entered into; second, because such a requirement
of the law is merely a formal and not necessarily an essential
one to the existence of the partnership, and as long as the name
to use it, the acts and contracts done and entered into under
such a name bind the firm to third persons; and third, because
the failure of the partners herein to adopt the correct name
prescribed by law cannot shield them from their personal
liabilities, as neither law nor equity will permit them to utilize
their own mistake in order to put the blame on third persons,
and much less, on the firm creditors in order to avoid their
personal responsibility."
The legal intention deducible from the acts of the parties
controls in determining the existence of a partnership. If they
intend to do a thing which in law constitute a partnership, they
are partners, although their purpose was to avoid the creation of
such relation. Here, the intention of the persons making up
Teck Seing & Co., Ltd. was to establish a partnership which
they erroneously denominated a limited partnership. If this was
their purpose, all subterfuges resorted to in order to evade
liability for possible losses, while assuming their enjoyment of
the advantages to be derived from the relation must be
disregarded. The partners who have their identity under a
designation distinct from that of any of the members of the firm
should be penalized, and not the creditors who presumably
have dealt with the partnership in good faith.
Article 127 and 237 of the Code of Commerce make all the
member of the general copartnership liable personally and in
solidum with all their property for the results of the transaction
made in the name and for the account of the partnership.
Section 51 of the Insolvency Law, likewise, makes all the
property of the partnership and also all the separate property of
each of the partners liable. In other words, if a firm be
insolvent, but one or more partners thereof are solvent, the
creditors may proceed both against the firm and against the
solvent partner or partners, first exhausting the assets of the
firm before seizing the property of the partners. (Brandenburg
on Bankruptcy, sec. 108; De los Reyes vs. Lukban and Borja
[1916], 35 Phil., 757; Involuntary Insolvency of Campos Rueda
& Co. vs. Pacific Commercial Co. [1922], 44 Phil., 916)
We reach the conclusion that the contract of partnership in the
document hereinbefore quoted established a general partnership
or, to be more exact, a partnership as this word is used in
the Insolvency Law.
Wherefore, the order appealed from is reversed, and the record
shall be returned to the court of origin for further proceedings
pursuant to the motion presented by the creditors, in conformity
with the provision of the Insolvency Law. Without special
finding as to the costs in this instance, it is so ordered.
SECOND DIVISION
[G.R. No. L-22493. July 31, 1975.]
ISLAND SALES, INC., plaintiff-appellee, vs. UNITED
PIONEERS GENERAL CONSTRUCTION COMPANY,
ET AL, defendants. BENJAMIN C. DACO, defendant-
appellant.
Grey, Buenaventura & Santiago for plaintiff-appellee.
Anacleto D. Badoy, Jr. for defendant-appellant.
SYNOPSIS
The defendant company, a general partnership, purchased from
Island Sales, Inc. a motor vehicle, executing for that purpose a
promissory note for the entire price, payable in twelve monthly
installments. Having failed to receive the third installment,
Island Sales sued the company, including its general partners as
co-defendants. On motion of plaintiff, the complaint was later
dismissed insofar as one of the partners was concerned. After
trial, judgment was entered sentencing the defendant to pay the
sum due, with interest, and expressly stating that the four of the
five partners would pay in case the company has no properties
with which to satisfy judgment. One of the partners appealed
claiming that the liability of each partner should not exceed 1/5
of the obligation due inasmuch as there are five partners in the
company.
The Supreme Court ruled that under Art. 1816 of the Civil
Code, the liability of partners shall be pro-rata; that the
dismissal of the complaint to favor one of the general partners
results in the condonation of the debt of that partner's
individual share and that appellant's share in the obligation
shall not be increased thereby but shall be limited to 1/5 of the
obligation of defendant company.
Decision affirmed as clarified.
SYLLABUS
1. OBLIGATIONS AND CONTRACTS; LIABILITY OF
GENERAL PARTNERS, PRO-RATA; CONDONATION OF
INDIVIDUAL LIABILITY DOES NOT AFFECT THE
OTHER'S SHARE IN THE OBLIGATION. Where there
was five general partners when the promissory note in question
executed for and in behalf of the partnership, and the complaint
against one of them was dismissed upon motion of the plaintiff,
the general partner's share in the obligation remains limited to
only 1/5 of the amount due and demandable, their liability
being pro-rata.
DECISION
CONCEPCION, JR., J p:
This is an appeal interposed by the defendant Benjamin C.
Daco from the decision of the Court of First Instance of
Manila, Branch XVI, in Civil Case No. 50682, the dispositive
portion of which reads:
"WHEREFORE, the Court sentences defendant United Pioneer
General Construction Company to pay plaintiff the sum of
P7,119.07 with interest at the rate of 12% per annum until it is
fully paid, plus attorney's fees which the Court fixes in the sum
of Eight Hundred Pesos (P800.00) and costs.
"The defendants Benjamin C. Daco, Daniel A. Guizona, Noel
C. Sim and Augusto Palisoc are sentenced to pay the plaintiff in
this case with the understanding that the judgment against these
individual defendants shall be enforced only if the defendant
company has no more leviable properties with which to satisfy
the judgment against it.
"The individual defendants shall also pay the costs."
On April 22, 1961, the defendant company a general
partnership duly registered under the laws of the Philippines,
purchased from the plaintiff a motor vehicle on the installment
basis and for this purpose executed a promissory note for
P9,440.00, payable in twelve (12) equal monthly installments
of P786.63, the first installment payable on or before May 22,
1961 and the subsequent installments on the 22nd day of every
month thereafter, until fully paid, with the condition that failure
to pay any of said installments as they fall due would render the
whole unpaid balance immediately due and demandable.
Having failed to receive the installment due on July 22, 1961,
the plaintiff sued the defendant company for the unpaid balance
amounting to P7,119.07. Benjamin C. Daco, Daniel A.
Guizona, Noel C. Sim, Romulo B. Lumauig, and Augusto
Palisoc were included as co-defendants in their capacity as
general partners of the defendant company.
Daniel A. Guizona failed to file an answer and was
consequently declared in default. 1
Subsequently, on motion of the plaintiff, the complaint was
dismissed insofar as the defendant Romulo B. Lumauig is
concerned. 2
When the case was called for hearing, the defendants and their
counsels failed to appear notwithstanding the notices sent to
them. Consequently, the trial court authorized the plaintiff to
present its evidence ex-parte 3 , after which the trial court
rendered the decision appealed from.
The defendants Benjamin C. Daco and Noel C. Sim moved to
reconsider the decision claiming that since there are five (5)
general partners, the joint and subsidiary liability of each
partner should not exceed one-fifth (1/5) of the obligations of
the defendant company. But the trial court denied the said
motion notwithstanding the conformity of the plaintiff to limit
the liability of the defendants Daco and Sim to only one-fifth
(1/5) of the obligations of the defendant company 4 . Hence,
this appeal.
The only issue for resolution is whether or not the dismissal of
the complaint to favor one of the general partners of a
partnership increases the joint and subsidiary liability of each
of the remaining partners for the obligations of the partnership.
Article 1816 of the Civil Code provides:
"Art. 1816. All partners including industrial ones, shall be
liable pro rata with all their property and after all the
partnership assets have been exhausted, for the contracts which
may be entered into in the name and for the account of the
partnership. under its signature and by a person authorized to
act for the partnership. However, any partner may enter into a
separate obligation to perform a partnership contract."
In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held:
"The partnership of Yulo and Palacios was engaged in the
operation of a sugar estate in Negros. It was, therefore, a civil
partnership as distinguished from a mercantile partnership.
Being a civil partnership, by the express provisions of articles
1698 and 1137 of the Civil Code, the partners are not liable
each for the whole debt of the partnership. The liability is pro
rata and in this case Pedro Yulo is responsible to plaintiff for
only one-half of the debt. The fact that the other partner, Jaime
Palacios, had left the country cannot increase the liability of
Pedro Yulo."
In the instant case, there were five (5) general partners when
the promissory note in question was executed for and in behalf
of the partnership. Since the liability of the partners is pro
rata, the liability of the appellant Benjamin C. Daco shall be
limited to only one-fifth (1/5) of the obligations of the
defendant company. The fact that the complaint against the
defendant Romulo B. Lumauig was dismissed, upon motion of
the plaintiff, does not unmake the said Lumauig as a general
partner in the defendant company. In so moving to dismiss the
complaint, the plaintiff merely condoned Lumauig's individual
liability to the plaintiff.
WHEREFORE, the appealed decision as thus clarified is
hereby AFFIRMED, without pronouncement as to costs.
SO ORDERED.
FIRST DIVISION
[G.R. No. L-39780. November 11, 1985.]
ELMO MUASQUE, petitioner, vs. COURT OF APPEALS
, CELESTINO GALAN, TROPICAL COMMERCIAL
COMPANY and RAMON PONS, respondents.
John T. Borromeo for petitioner.
Juan D. Astete for respondent C. Galan.
Paul Gornes for respondent R. Pons.
Viu Montecillo for respondent Tropical.
Paterno P. Natinga for Intervenor Blue Diamond Glass Palace.
DECISION
GUTIERREZ, JR., J p:
In this petition for certiorari, the petitioner seeks to annul and
set aside the decision of the Court of Appeals affirming the
existenceof a partnership between petitioner and one of the
respondents, Celestino Galan and holding both of them liable to
the two intervenors which extended credit to their partnership.
The petitioner wants to be excluded from the liabilities of the
partnership.
Petitioner Elmo Muasque filed a complaint for
payment of sum of money and damages against respondents
Celestino Galan, Tropical Commercial, Co., Inc. (Tropical) and
Ramon Pons, alleging that the petitioner entered into a contract
with respondent Tropical through its Cebu Branch Manager
Pons for remodelling a portion of its building without
exchanging or expecting any consideration from Galan
although the latter was casually named as partner in the
contract; that by virtue of his having introduced the petitioner
to the employing company (Tropical), Galan would receive
some kind of compensation in the form of some percentages or
commission; that Tropical, under the terms of the contract,
agreed to give petitioner the amount of P7,000.00 soon after the
construction began and thereafter the amount of P6,000.00
every fifteen (15) days during the construction to make a total
sum of P25,000.00; that on January 9, 1967, Tropical and/or
Pons delivered a check for P7,000.00 not to the plaintiff but to
a stranger to the contract, Galan, who succeeded in getting
petitioner's indorsement on the same check persuading the
latter that the same be deposited in a joint account; that on
January 26, 1967, when the second check for P6,000.00 was
due, petitioner refused to indorse said check presented to him
by Galan but through later manipulations, respondent Pons
succeeded in changing the payee's name from
Elmo Muasque to Galan and Associates, thus enabling Galan
to cash the same at the Cebu Branch of the Philippine
Commercial and Industrial Bank (PCIB) placing the petitioner
in great financial difficulty in his construction business and
subjecting him to demands of creditors to pay for construction
materials, the payment of which should have been made from
the P13,000.00 received by Galan; that petitioner undertook the
construction at his own expense completing it prior to the
March 16, 1967 deadline; that because of the unauthorized
disbursement by respondents Tropical and Pons of the
sum of P13,000.00 to Galan, petitioner demanded that said
amount be paid to him by respondents under the terms of the
written contract between the petitioner and respondent
company. prcd
The respondents answered the complaint by denying some and
admitting some of the material averments and setting up
counterclaims.
During the pre-trial conference, the petitioners and respondents
agreed that the issues to be resolved are:
(1) Whether or not there existed a partnership between
Celestino Galan and Elmo Muasque; and
(2) Whether or not there existed a justifiable cause on the
part of respondent Tropical to disburse money to respondent
Galan.
The business firms Cebu Southern Hardware Company and
Blue Diamond Glass Palace were allowed to intervene, both
having legal interest in the matter in litigation.
After trial, the court rendered judgment, the dispositive
portion of which states:
"IN VIEW WHEREOF, Judgment is hereby rendered:.
"(1) ordering plaintiff Muasque and defendant Galan to pay
jointly and severally the intervenors Cebu and Southern
Hardware Company and Blue Diamond Glass Palace the
amount of P6,229.34 and P2,213.51, respectively;
"(2) absolving the defendants Tropical Commercial Company
and Ramon Pons from any liability.
"No damages awarded whatsoever."
The petitioner and intervenor Cebu Southern Company and its
proprietor, Tan Siu filed motions for reconsideration.
On January 15, 1971, the trial court issued another order
amending its judgment to make it read as follows:.
"IN VIEW WHEREOF, Judgment is hereby rendered:.
"(1) ordering plaintiff Muasqez and defendant Galan to pay
jointly and severally the intervenors Cebu Southern Hardware
Company and Blue Diamond Glass Palace the
amount of P6,229.34 and P2,213.51, respectively,
"(2) ordering plaintiff and defendant Galan to pay Intervenor
Cebu Southern Hardware Company and Tan Siu jointly and
severally interest at 12% per annum of the sum of P3,229.34
until the amount is fully paid;
"(3) ordering plaintiff and defendant Galan to pay P500.00
representing attorney's fees jointly and severally to Intervenor
Cebu Southern Hardware Company;
"(4) absolving the defendants Tropical Commercial Company
and Ramon Pons from any liability.
"No damages awarded whatsoever."
On appeal, the Court of Appeals affirmed the judgment of the
trial court with the sole modification that the liability imposed
in the dispositive part of the decision on the credit of Cebu
Southern Hardware and Blue Diamond Glass Palace was
changed from "jointly and severally" to "jointly."
Not satisfied, Mr. Muasque filed this petition.
The present controversy began when petitioner Muasque in
behalf of the partnership of "Galan and Muasque" as
Contractor entered into a written contract with respondent
Tropical for remodelling the respondent's Cebu branch
building. A total amount ofP25,000.00 was to be paid under the
contract for the entire services of the Contractor. The
terms of payment were as follows: thirty percent (30%) of the
whole amount upon the signing of the contract and the balance
thereof divided into three equal installments at the rate of Six
Thousand Pesos (P6,000.00) every fifteen (15) working
days. LLjur
The first payment made by respondent Tropical was in the
form of a check for P7,000.00 in the name of the petitioner.
Petitioner, however, indorsed the check in favor of respondent
Galan to enable the latter to deposit it in the bank and pay for
the materials and labor used in the project.
Petitioner alleged that Galan spent P6,183.37 out of the
P7,000.00 for his personal use so that when the second check in
the amount of P6,000.00 came and Galan asked the petitioner
to indorse it again, the petitioner refused.
The check was withheld from the petitioner. Since Galan
informed the Cebu branch of Tropical that there was a
"misunderstanding" between him and petitioner, respondent
Tropical changed the name of the payee in the second check
from Muasque to "Galan and Associates" which was the duly
registered name of the partnership between Galan and
petitioner and under which name a permit to do construction
business was issued by the mayor of Cebu City. This enabled
Galan to encash the second check.
Meanwhile, as alleged by the petitioner, the construction
continued through his sole efforts. He stated that he borrowed
some P12,000.00 from his friend, Mr. Espina and although the
expenses had reached the amount of P29,000.00 because of the
failure ofGalan to pay what was partly due the laborers and
partly due for the materials, the construction work was finished
ahead ofschedule with the total expenditure reaching
P34,000.00.
The two remaining checks, each in the amount of P6,000.00,
were subsequently given to the petitioner alone with the last
check being given pursuant to a court order.
As stated earlier, the petitioner filed a complaint for
payment of sum of money and damages against the
respondents, seeking to recover the following: the amounts
covered by the first and second checks which fell into the
hands of respondent Galan, the additional expenses that the
petitioner incurred in the construction, moral and exemplary
damages, and attorney's fees.
Both the trial and appellate courts not only absolved
respondents Tropical and its Cebu Manager, Pons, from any
liability but they also held the petitioner together with
respondent Galan, liable to the intervenors Cebu Southern
Hardware Company and Blue Diamond Glass Palace for the
credit which the intervenors extended to the
partnership of petitioner and Galan.
In this petition, the legal questions raised by the petitioner are
as follows: (1) Whether or not the appellate court erred in
holding that a partnership existed between petitioner and
respondent Galan. (2) Assuming that there was such a
partnership, whether or not thecourt erred in not finding Galan
guilty of malversing the P13,000.00 covered by the first and
second checks and therefore, accountable to the petitioner for
the said amount; and (3) Whether or not the court committed
grave abuse of discretion in holding that the payment made by
Tropical through its manager Pons to Galan was "good
payment."
Petitioner contends that the appellate court erred in holding that
he and respondent Galan were partners, the truth being that
Galan was a sham and a perfidious partner who
misappropriated the amount of P13,000.00 due to the petitioner.
Petitioner also contends that the appellate court committed
grave abuse of discretion in holding that the payment made by
Tropical to Galan was "good" payment when the same gave
occasion for the latter to misappropriate the proceeds of such
payment.
The contentions are without merit.
The records will show that the petitioner entered into a contract
with Tropical for the renovation of the latter's building on
behalf ofthe partnership of "Galan and Muasque." This is
readily seen in the first paragraph of the contract where it
states: LLphil
"This agreement made this 20th day of December in the year
1966 by Galan and Muasque hereinafter called the Contractor,
and Tropical Commercial Co., Inc., hereinafter called the owner
do hereby for and in consideration agree on the
following: . . . ."
There is nothing in the records to indicate that the partnership
organized by the two men was not a genuine one. If there was a
falling out or misunderstanding between the partners, such does
not convert the partnership into a sham organization.
Likewise, when Muasque received the first
payment of Tropical in the amount of P7,000.00 with a check
made out in his name, he indorsed the check in favor of Galan.
Respondent Tropical therefore, had every right to presume that
the petitioner and Galan were true partners. If they were not
partners as petitioner claims, then he has only himself to blame
for making the relationship appear otherwise, not only to
Tropical but to their other creditors as well. The payments
made to the partnership were, therefore, valid payments.
In the case of Singsong v. Isabela Sawmill (88 SCRA 643), we
ruled:
"Although it may be presumed that Margarita G. Saldajeno had
acted in good faith, the appellees also acted in good faith in
extending credit to the partnership. Where one of two innocent
persons must suffer, that person who gave occasion for the
damages to be caused must bear the consequences."
No error was committed by the appellate court in holding that
the payment made by Tropical to Galan was a good payment
which binds both Galan and the petitioner. Since the two were
partners when the debts were incurred, they are also both liable
to third persons who extended credit to their partnership. In the
case of George Litton v. Hill and Ceron, et al., (67 Phil. 513,
514), we ruled:
"There is a general presumption that each individual partner is
an authorized agent for the firm and that he has authority to
bind the firm in carrying on the partnership transactions."
(Mills vs. Riggle, 112 Pac., 617).
"The presumption is sufficient to permit third persons to hold
the firm liable on transactions entered into by
one of members ofthe firm acting apparently in its behalf and
within the scope of his authority." (Le Roy vs. Johnson, 7 U.S.
(Law. ed.), 391.).
Petitioner also maintains that the appellate court committed
grave abuse of discretion in not holding Galan liable for the
amounts which he "malversed" to the prejudice of the
petitioner. He adds that although this was not one of the issues
agreed upon by the parties during the pre-trial, he, nevertheless,
alleged the same in his amended complaint which was duly
admitted by the court. Cdpr
When the petitioner amended his complaint, it was only for the
purpose of impleading Ramon Pons in his personal capacity.
Although the petitioner made allegations as to the alleged
malversations of Galan, these were the same allegations in his
original complaint. The malversation by one partner was not an
issue actually raised in the amended complaint but the alleged
connivanceof Pons with Galan as a means to serve the latter's
personal purposes.
The petitioner, therefore, should be bound by the
delimitation of the issues during the pre-trial because he
himself agreed to the same. In Permanent Concrete Products,
Inc. v. Teodoro, (26 SCRA 336), we ruled:.
xxx xxx xxx
". . . The appellant is bound by the delimitation of the issues
contained in the trial court's order issued on the very day the
pre-trial conference was held. Such an order controls the
subsequent course of the action, unless modified before trial to
prevent manifest injustice. In the case at bar,
modification of the pre-trial order was never sought at the
instance of any party."
Petitioner could have asked at least for a modification of the
issues if he really wanted to include the
determination of Galan's personal liability to their partnership
but he chose not to do so, as he vehemently denied the
existence of the partnership, At any rate, the issue raised in this
petition is the contention of Muasque that the amounts
payable to the intervenors should be shouldered exclusively by
Galan. We note that the petitioner is not solely burdened by the
obligations of their ill-starred partnership. The records show
that there is an existing judgment against respondent Galan,
holding him liable for the total amount of P7,000,00 in
favor of Eden Hardware which extended credit to the
partnership aside from the P2,000.00 he already paid to
Universal Lumber.
We, however, take exception to the ruling of the
appellate court that the trial court's ordering petitioner and
Galan to pay the creditsof Blue Diamond and Cebu Southern
Hardware "jointly and severally" is plain error since the
liability of partners under the law to third persons for contracts
executed in connection with partnership business is only pro
rata under Art. 1816, of the Civil Code.
While it is true that under Article 1816 of the Civil Code, "All
partners, including industrial ones, shall be liable pro rata with
all their property and after all the partnership assets have been
exhausted, for the contracts which may be entered into the
name and for the account of the partnership, under its signature
and by a person authorized to act for the partnership. . . .", this
provision should be construed together with Article 1824 which
provides that: "All partners are liable solidarily with the
partnership for everything chargeable to the partnership under
Articles 1822 and 1823." In short, while the liability of the
partners are merely joint in transactions entered into by the
partnership, a third person who transacted with said partnership
can hold the partners solidarily liable for the whole obligation
if the case of the third person falls under Articles 1822 or
1823. LLpr
Articles 1822 and 1823 of the Civil Code provide:
"Art. 1822. Where, by any wrongful act or omission of any
partner acting in the ordinary course of the business of the
partnership or with the authority of his co-partners, loss or
injury is caused to any person, not being a partner in the
partnership or any penalty is incurred, the partnership is liable
therefor to the same extent as the partner so acting or omitting
to act."
"Art. 1823. The partnership is bound to make good the loss:
"(1) Where one partner acting within the scope of his apparent
authority receives money or property of a third person and
misapplies it; and
"(2) Where the partnership in the course of its business receives
money or property of a third person and the money or property
so received is misapplied by any partner while it is in the
custody of the partnership."
The obligation is solidary because the law protects him, who in
good faith relied upon the authority of a partner, whether such
authority is real or apparent. That is why under Article
1824 of the Civil Code all partners, whether innocent or guilty,
as well as the legal entity which is the partnership, are
solidarily liable.
In the case at bar the respondent Tropical had every reason to
believe that a partnership existed between the petitioner and
Galan and no fault or error can be imputed against it for making
payments to "Galan and Associates" and delivering the same to
Galan because as far as it was concerned, Galan was a true
partner with real authority to transact on behalf of the
partnership with which it was dealing. This is even more true in
the cases of Cebu Southern Hardware and Blue Diamond Glass
Palace who supplied materials on credit to the partnership.
Thus, it is but fair that the consequences of any
wrongful act committed by any of the partners therein should
be answered solidarily by all the partners and the partnership as
a whole.
However, as between the partners Muasque and Galan, justice
also dictates that Muasque be reimbursed by Galan for the
payments made by the former representing the liability of their
partnership to herein intervenors, as it was satisfactorily
established that Galan acted in bad faith in his dealings
with Muasque as a partner. cdrep
WHEREFORE, the decision appealed from is hereby
AFFIRMED with the MODIFICATION that the
liability of petitioner and respondent Galan to intervenors Blue
Diamond Glass and Cebu Southern Hardware is declared to be
joint and solidary. Petitioner may recover from respondent
Galan any amount that he pays, in his capacity as a partner, to
the above intervenors.
SO ORDERED.
FIRST DIVISION
[G.R. No. 26937. October 5, 1927.]
PHILIPPINE NATIONAL BANK, plaintiff-appellee, vs. SE
VERO EUGENIO LO ET
AL., defendants. SEVEROEUGENIO LO, NG KHEY LING
and YEP SENG, appellants.
Jose Lopez Vito for appellants.
Roman Lacson for appellee.
SYLLABUS
1. ASSOCIATIONS; GENERAL PARTNERSHIPS;
LIABILITY. The anomalous adoption of a firm name by the
defendant partners cannot be set up by them as a defense so as
to evade a liability contracted by them, inasmuch as such
anomaly does not affect the liability of the general partners to
third persons under article 127 of the Code of Commerce.
(See Hung-Man-Yocvs. Kieng- Chiong-Seng, 6 Phil., 498.)
2. ID.; ID.; ID. The object of article 126 of the Code of
Commerce in requiring a general partnership to transact
business under the name of all its members, of several of them,
or of one only, is to protect the public from imposition and
fraud. The provision of said article 126 is for the protection of
the creditors rather than of the partners themselves. The
doctrine formerly enunciated by this court is that the law must
be construed as rendering contracts made in violation of it,
unlawful and unenforceable only as between the partners and at
the instance of the infringer, but not in the sense of depriving
innocent parties of their rights, who may have dealt with the
guilty parties in ignorance of the latter's having violated the
law; and that contracts entered into by mercantile associations
defectively organized are valid when voluntarily executed by
the parties and the only question is whether or not they
complied with the agreement. (Jo Chung Cang vs. Pacific
Commercial Co., 46 Phil., 142.)
3. ID.; ID.; ID. Appellants' contention that such parts of their
property as are not included in the partnership assets cannot be
levied upon for the payment of the partnership obligations,
except after the partnership property has been exhausted is
untenable, for the partnership property described in the
mortgage no longer existed at the time of the filing of the
herein complaint, nor has its existence been proved, nor was it
offered to the plaintiff for sale. Hence article 237 of the Code of
Commerce invoked by the appellants can in no way be
applicable to this case.
4. ID.; ID.; ID. All the members of a general partnership, be
they managing partners of the same or not, shall be personally
and solidarily liable with all their property for the results of the
transactions made in the name and for the account of the
partnership, under the signature of the latter and by a person
authorized to use it. (Sec. 127, Code of Commerce.)
DECISION
VILLAMOR, J. p
On September 29, 1916, the appellants Severo Eugenio Lo and
Ng Khey Ling, together with J. A. Say Lian Ping, Ko Tiao Hun,
On Yem Ke Lam and Co Sieng Peng formed a commercial
partnership under the name of "Tai Sing & Co.," with a capital
of P40,000 contributed by said partners. In the articles of
copartnership, Exhibit A, it appears that the partnership was to
last for five years from and after the date of its organization,
and that its purpose was to do business in the City of Iloilo,
Province of Iloilo, or in any other part of the Philippine Islands
the partners might desire, under the name of "Tai Sing & Co.,"
for the purchase and sale of merchandise, goods, and native, as
well as Chinese and Japanese, products, and to carry on such
business and speculations as they might consider profitable.
One of the partners, J. A. Say Lian Ping was appointed general
manager of the partnership, with the powers specified in said
articles of copartnership.
On June 4, 1917, general manager A. Say Lian Ping executed a
power of attorney (Exhibit C-1) in favor of A. Y. Kelam,
authorizing him to act in his stead as manager and administrator
of "Tai Sing & Co." On July 26, 19~8, A. Y. Kelam, acting
under such power of attorney, applied for, and obtained a loan
of P8,000 in current account from the plaintiff bank (Exhibit
C). As security for said loan, he mortgaged certain personal
property of Tai Sing & Co. (Exhibit C.)
This credit was renewed several times and on March 25, 1919,
A. Y. Kelam, as attorney-in-fact of Tai Sing & Co., executed a
chattel mortgage in favor of plaintiff bank as security for a loan
of P20,000 with interest (Exhibit D). This mortgage was again
renewed on April 16, 1920, and A. Y. Kelam, as attorney-in-fact
of Tai Sing & Co., executed another chattel mortgage for the
said sum of P20,000 in favor of the plaintiff bank. (Exhibit E.)
Ac- cording to this mortgage contract, the P20,000 loan was to
earn 9 per cent interest per annum.
On April 20, 1920, Yap Seng, Severo Eugenio Lo, A. Y. Kelam
and Ng Khey Ling, the latter represented by M. Pineda
Tayenko, executed a power of attorney in favor of Sy Tit by
virtue of which Sy Tit, representing Tai Sing & Co. obtained a
credit of P20,000 from plaintiff bank on January 7, 1921,
executing a chattel mortgage on certain personal property
belonging to Tai Sing & Co.
Defendants had been using this commercial credit in a current
account with the plaintiff bank, from the year 1918 to May 22,
1921, and the debit balance of this account, with interest to
December 31, 1924, is as follows:
TAI SING & CO.
To your outstanding account (C. O. D.) with us on June
30, 1922 P16,518.74
Interest on same from June 30, 1922 to December 31,1924,
at 9 per cent per annum 3,720.86
_________
Total 20,239.60
========
This total is the sum claimed in the complaint, together with
interest on the P16,518.74 debt, at 9 per cent per annum from
January 1, 1925 until fully paid, with the costs of the trial.
Defendant Eugenio Lo sets up, as a general defense, that Tai
Sing & Co., was not a general partnership, and that the
commercial credit in current account which Tai Sing & Co.
obtained from the plaintiff bank had not been authorized by the
board of directors of the company, nor was the person who
subscribed said contract authorized to make the same, under the
articles of copartnership. The other defendants, Yap Sing and
Ng Khey Ling, answered the complaint denying each and every
one of the allegations contained therein.
After the hearing, the court found:
(1) That defendants Severo Eugenio Lo, Ng Khey Ling and Yap
Seng & Co., Sieng Peng are indebted to
plaintiff PhilippineNational Bank in the sum of P22,595.26 to
July 29, 1926. with a daily interest of P4.14 on the balance on
account of the partnership Tai Sing & Co. for the sum of
P16,518.74 until September 9, 1922;
(2) Said defendants are ordered jointly and severally to pay
the Philippine National Bank the sum of P22,727.74 up to
August 31, 1926, and from that date, P4.14 daily interest on the
principal; and
(3) The defendants are furthermore ordered to pay the costs of
the action.
Defendants appealed, making the following assignments of
error:
"I. The trial court erred in finding that article 126 of the Code
of Commerce at present in force is not mandatory.
"II. The trial court erred in finding that the partnership
agreement of Tai Sing & Co. (Exhibit A), is in accordance with
the requirements of article 125 of the Code of Commerce for
the organization of a regular partnership.
"III. The trial court erred in not admitting J. A. Sai Lian Ping's
death in China in November, 1917, as a proven fact.
"IV. The trial court erred in finding that the death of J. A. Sai
Lian Ping cannot extinguish the defendants' obligation to the
plaintiff bank, because the last debt incurred by the commercial
partnership Tai Sing & Co. was that evidenced by Exhibit F,
signed by Sy Tit as attorney-in-fact of the members of Tai Sing
& Co., by virtue of Exhibit G.
"V. The trial court erred in not finding that plaintiff bank was
not able to collect its credit from the goods of Tai Sing & Co.
given as security therefor through its own fault and negligence;
and that the action brought by plaintiff is a manifest violation
of article 237 of the present Code of Commerce.
"VI. The trial court erred in finding that the current account of
Tai Sing & Co. with plaintiff bank shows a debit balance of
P16,518.74, which in addition to interest at 9 per cent per
annum from July 29, 1926, amounts to P16,595.26, with a daily
interest of P4.14 on the sum of P16,518.74.
"VII. The trial court erred in ordering the defendants-appellants
to pay jointly and severally to the Philippine NationalBank the
sum of P22,727.74 up to August 31, 1926, and interest on
P16,518.74 from that date until fully paid, with the costs of the
action.
"VIII. The trial court erred in denying the motion for a new trial
filed by defendants-appellants.''
Appellants admit, and it appears from the context of Exhibit A,
that the defendant association formed by the defendants is a
general partnership, as defined in article 126 of the Code of
Commerce. This partnership was registered in the mercantile
register of the Province of Iloilo. The only anomaly noted in its
organization is that instead of adopting for their firm name the
names of all of the partners, of several of them, or only one of
them, to be followed in the last two cases, by the words "and
company," the partners agreed upon "Tai Sing & Co." the firm
name.
In the case of Hung-Man-Yoc, under the name of Kwong-Wo-
Sing vs. Kieng-Chiong-Seng (6 Phil., 498), cited by appellants,
this court held that, as the company formed by defendants had
existed in fact, though not in law due to the fact that it was not
recorded in the register, and having operated and contracted
debts in favor of the plaintiff, the same must be paid by
someone. This applies more strongly to the obligations
contracted by the defendants, for they formed a partnership
which was registered in the mercantile register, and carried on
business contracting debts with the plaintiff bank. The
anomalous adoption of the firm name above noted does not
affect the liability of the general partners to third parties under
article 127 of the Code of Commerce. And the Supreme Court
so held in the case of Jo Chung Cang vs. Pacific Commercial
Co. (45 Phil., 142), in which it said that the object of article 126
of the Code of Commerce in requiring a general partnership to
transact business under the name of all its members, of several
of them, or of one only, is to protect the public from imposition
and fraud; and that the pro- vision of said article 126 is for the
protection of the creditors rather than of the partners
themselves. And consequently the doctrine was enunciated that
the law must be construed as rendering contracts made in
violation of it unlawful and unenforceable only as between the
partners and at the instance of the violating party, but not in the
sense of depriving innocent parties of their rights who may
have dealt with the offenders in ignorance of the latter having
violated the law; and that contracts entered into by commercial
associations defectively organized are valid when voluntarily
executed by the parties, and the only question is whether or not
they complied with the agreement. Therefore, the defendants
cannot invoke in their defense the anomaly in the firm name
which they themselves adopted.
As to the alleged death of the manager of the company, Say
Lian Ping, before the attorney-in-fact Ou Yong Kelam executed
Exhibits C, D and E, the trial court did not find this fact proven
at the hearing. But even supposing that the court had erred,
such an error would not justify the reversal of the judgment, for
two reasons at least: (1) Because Ou Yong Kelam was a partner
who contracted in the name of the partnership, without any
objection of the other partners; and (2) because it appears in the
record that the appellant-partners Severo Eugenio Lo, Ng Khey
Ling and Yap Seng, appointed Sy Tit as manager, and he
obtained from the plaintiff bank the credit in current account,
the debit balance of which is sought to be recovered in this
action.
Appellants allege that such of their property as is not included
in the partnership assets cannot-be seized for the payment of
the debts contracted by the partnership until after the
partnership property has been exhausted. The court found that
the partnership property described in the mortgage Exhibit F no
longer existed at the time of the filing of the herein complaint
nor has its existence been proven, nor was it offered to the
plaintiff for sale. We find no just reason to reverse this
conclusion of the trial court, and this being so, it follows that
article 237 of the Code of Commerce, invoked by the
appellants, can in no way have any application here.
Appellants also assign error to the action of the trial court in
ordering them to pay plaintiff, jointly and severally, the sums
claimed with 9 per cent interest on P16,518.74, owing from
them.
The judgment against the appellants is in accordance with
article 127 of the Code of Commerce which provides that all
the members of a general partnership, be they managing
partners thereof or not, shall be personally and solidarily liable
with all their property, for the results of the transactions made
in the name and for the account of the partnership, under the
signature of the latter, and by a person authorized to use it.
As to the amount of the interest suffice it to remember that the
credit in current account sued on in this case has been renewed
by the parties in such a way that while it appears in the
mortgage Exhibit D executed on March 25, 1919 by the
attorney-in-fact Ou Yong Kelam, that the P20,000 credit would
earn 8 per cent interest annually, yet from that executed on
April 16, 1920, Exhibit E, it appears that the P20,000 would
earn 9 per cent interest per annum. The credit was renewed in
January, 1921, and in the deed of pledge, Exhibit F, executed by
"Tai Sing & Co." represented by the attorney-in-fact Sy Tit, it
appears that this security is for the payment of the sums
received by the partnership, not to exceed P20,000 with interest
and collection fees. There can be no doubt that the parties
agreed upon the rate of interest fixed in the document Exhibit
E, namely, 9 per cent per annum.
The judgment appealed from is in accordance with the law, and
must therefore be, as it is hereby, affirmed with costs against
the appellants. So ordered.
THIRD DIVISION
[G.R. No. 175885. February 13, 2009.]
ZENAIDA G. MENDOZA, petitioner, vs. ENGR.
EDUARDO PAULE, ENGR. ALEXANDER COLOMA and
NATIONAL IRRIGATION ADMINISTRATION (NIA
MUOZ, NUEVA ECIJA), respondents.
[G.R. No. 176271. February 13, 2009.]
MANUEL DELA CRUZ, petitioner, vs. ENGR. EDUARDO
M. PAULE, ENGR. ALEXANDER COLOMA and
NATIONAL IRRIGATION ADMINISTRATION (NIA
MUOZ, NUEVA ECIJA), respondents.
DECISION
YNARES-SANTIAGO, J p:
These consolidated petitions assail the August 28, 2006
Decision 1 of the Court of Appeals in CA-G.R. CV No. 80819
dismissing the complaint in Civil Case No. 18-SD
(2000), 2 and its December 11, 2006 Resolution 3 denying the
herein petitioners' motion for reconsideration. ACETIa
Engineer Eduardo M. Paule (PAULE) is the proprietor of
E.M. Paule Construction and Trading (EMPCT). On May 24,
1999, PAULE executed a special power of attorney (SPA)
authorizing Zenaida G. Mendoza (MENDOZA) to participate
in the pre-qualification and bidding of a National Irrigation
Administration (NIA) project and to represent him in all
transactions related thereto, to wit:
1. To represent E.M. PAULE CONSTRUCTION & TRADING
of which I (PAULE) am the General Manager in all my
business transactions with National Irrigation Authority,
Muoz, Nueva Ecija.
2. To participate in the bidding, to secure bid bonds and other
documents pre-requisite in the bidding of Casicnan Multi-
Purpose Irrigation and Power Plant (CMIPPL 04-99), National
Irrigation Authority, Muoz, Nueva Ecija.
3. To receive and collect payment in check in behalf of
E.M. PAULE CONSTRUCTION & TRADING.
4. To do and perform such acts and things that may be
necessary and/or required to make the herein authority
effective. 4
On September 29, 1999, EMPCT, through MENDOZA,
participated in the bidding of the NIA-Casecnan Multi-Purpose
Irrigation and Power Project (NIA-CMIPP) and was awarded
Packages A-10 and B-11 of the NIA-CMIPP Schedule A. On
November 16, 1999, MENDOZA received the Notice of Award
which was signed by Engineer Alexander M. Coloma
(COLOMA), then Acting Project Manager for the NIA-CMIPP.
Packages A-10 and B-11 involved the construction of a road
system, canal structures and drainage box culverts with a
project cost of P5,613,591.69.
When Manuel de la Cruz (CRUZ) learned that MENDOZA is
in need of heavy equipment for use in the NIA project, he met
up with MENDOZA in Bayuga, Muoz, Nueva Ecija, in an
apartment where the latter was holding office under an EMPCT
signboard. A series of meetings followed in said EMPCT office
among CRUZ, MENDOZA and PAULE. CAIaDT
On December 2 and 20, 1999, MENDOZA and CRUZ signed
two Job Orders/Agreements 5 for the lease of the latter's heavy
equipment (dump trucks for hauling purposes) to EMPCT.
On April 27, 2000, PAULE revoked 6 the SPA he previously
issued in favor of MENDOZA; consequently, NIA refused to
make payment to MENDOZA on her billings. CRUZ,
therefore, could not be paid for the rent of the equipment. Upon
advice ofMENDOZA, CRUZ addressed his demands for
payment of lease rentals directly to NIA but the latter refused to
acknowledge the same and informed CRUZ that it would be
remitting payment only to EMPCT as the winning contractor
for the project.
In a letter dated April 5, 2000, CRUZ demanded
from MENDOZA and/or EMPCT payment of the outstanding
rentals which amounted to P726,000.00 as of March 31, 2000.
On June 30, 2000, CRUZ filed Civil Case No. 18-SD (2000)
with Branch 37 of the Regional Trial Court of Nueva Ecija, for
collection of sum of money with damages and a prayer for the
issuance of a writ of preliminary injunction against PAULE,
COLOMA and the NIA. PAULE in turn filed a third-party
complaint against MENDOZA, who filed her answer thereto,
with a cross-claim against PAULE.
MENDOZA alleged in her cross-claim that because
of PAULE's "whimsical revocation" of the SPA, she was barred
from collecting payments from NIA, thus resulting in her
inability to fund her checks which she had issued to suppliers
of materials, equipment and labor for the project. She claimed
that estafa and B.P. Blg. 22 cases were filed against her; that
she could no longer finance her children's education; that she
was evicted from her home; that her vehicle was foreclosed
upon; and that her reputation was destroyed, thus entitling her
to actual and moral damages in the respective amounts of P3
million and P1 million.DAaHET
Meanwhile, on August 23, 2000, PAULE again
constituted MENDOZA as his attorney-in-fact
1. To represent me (PAULE), in my capacity as General
Manager of the E.M. PAULE CONSTRUCTION AND
TRADING, in all meetings, conferences and transactions
exclusively for the construction of the projects known as
Package A-10 of Schedule A and Package No. B-11 Schedule
B, which are 38.61% and 63.18% finished as of June 21, 2000,
per attached Accomplishment Reports . . .;
2. To implement, execute, administer and supervise the said
projects in whatever stage they are in as of to date, to collect
checks and other payments due on said projects and act as the
Project Manager for E.M. PAULE CONSTRUCTION AND
TRADING;
3. To do and perform such acts and things that may be
necessary and required to make the herein power and authority
effective. 7
At the pre-trial conference, the other parties were declared as in
default and CRUZ was allowed to present his evidence ex
parte. Among the witnesses he presented was MENDOZA,
who was impleaded as defendant in PAULE's third-party
complaint.
On March 6, 2003, MENDOZA filed a motion to declare third-
party plaintiff PAULE non-suited with prayer that she be
allowed to present her evidence ex parte.
However, without resolving MENDOZA's motion to
declare PAULE non-suited, and without granting her the
opportunity to present her evidence ex parte, the trial court
rendered its decision dated August 7, 2003, the dispositive
portion of which states, as follows:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff as follows:
1. Ordering defendant Paule to pay the plaintiff the sum of
P726,000.00 by way of actual damages or compensation for the
services rendered by him; AIHaCc
2. Ordering defendant Paule to pay plaintiff the sum of
P500,000.00 by way of moral damages;
3. Ordering defendant Paule to pay plaintiff the sum of
P50,000.00 by way of reasonable attorney's fees;
4. Ordering defendant Paule to pay the costs of suit; and
5. Ordering defendant National Irrigation Administration (NIA)
to withhold the balance still due from it to
defendantPaule/E.M. Paule Construction and Trading under
NIA-CMIPP Contract Package A-10 and to pay plaintiff
therefrom to the extent of defendant Paule's liability herein
adjudged.
SO ORDERED. 8
In holding PAULE liable, the trial court found
that MENDOZA was duly constituted as EMPCT's agent for
purposes of the NIA project and that MENDOZA validly
contracted with CRUZ for the rental of heavy equipment that
was to be used therefor. It found unavailing PAULE's assertion
that MENDOZA merely borrowed and used his contractor's
license in exchange for a consideration of 3% of the aggregate
amount of the project. The trial court held that through the
SPAs he executed, PAULEclothed MENDOZA with apparent
authority and held her out to the public as his agent; as
principal, PAULE must comply with the obligations
which MENDOZA contracted within the scope of her authority
and for his benefit. Furthermore, PAULE knew of the
transactions which MENDOZA entered into since at various
times when she and CRUZ met at the EMPCT
office, PAULE was present and offered no objections. The trial
court declared that it would be unfair to allow PAULE to enrich
himself and disown his acts at the expense of CRUZ.
PAULE and MENDOZA both appealed the trial court's
decision to the Court of Appeals.
PAULE claimed that he did not receive a copy of the order of
default; that it was improper for MENDOZA, as third-party
defendant, to have taken the stand as plaintiff CRUZ's witness;
and that the trial court erred in finding that an agency was
created between him and MENDOZA, and that he was liable as
principal thereunder.
On the other hand, MENDOZA argued that the trial court erred
in deciding the case without affording her the opportunity to
present evidence on her cross-claim against PAULE; that, as a
result, her cross-claim against PAULE was not resolved,
leaving her unable to collect the amounts of P3,018,864.04,
P500,000.00, and P839,450.88 which allegedly represent the
unpaid costs of the project and the amount PAULE received in
excess of payments made by NIA.
On August 28, 2006, the Court of Appeals rendered the assailed
Decision which dismissed CRUZ's complaint, as well
asMENDOZA's appeal. The appellate court held that the SPAs
issued in MENDOZA's favor did not grant the latter the
authority to enter into contract with CRUZ for hauling services;
the SPAs limit MENDOZA's authority to only represent
EMPCT in its business transactions with NIA, to participate in
the bidding of the project, to receive and collect payment in
behalf of EMPCT, and to perform such acts as may be
necessary and/or required to make the said authority effective.
Thus, the engagement of CRUZ's hauling services was done
beyond the scope of MENDOZA's authority. CSTEHI
As for CRUZ, the Court of Appeals held that he knew the limits
of MENDOZA's authority under the SPAs yet he still
transacted with her. Citing Manila Memorial Park Cemetery,
Inc. v. Linsangan, 9 the appellate court declared that the
principal (PAULE) may not be bound by the acts of the agent
(MENDOZA) where the third person (CRUZ) transacting with
the agent knew that the latter was acting beyond the scope of
her power or authority under the agency.
With respect to MENDOZA's appeal, the Court of Appeals held
that when the trial court rendered judgment, not only did it rule
on the plaintiff's complaint; in effect, it resolved the third-party
complaint as well; 10 that the trial court correctly dismissed the
cross-claim and did not unduly ignore or disregard it;
that MENDOZA may not claim, on appeal, the amounts of
P3,018,864.04, P500,000.00, and P839,450.88 which allegedly
represent the unpaid costs of the project and the
amount PAULE received in excess of payments made by NIA,
as these are not covered by her cross-claim in the court a
quo, which seeks reimbursement only of the amounts of P3
million and P1 million, respectively, for actual damages (debts
to suppliers, laborers, lessors of heavy equipment, lost personal
property) and moral damages she claims she suffered as a result
of PAULE's revocation of the SPAs; and that the revocation of
the SPAs is a prerogative that is allowed to PAULE under
Article 1920 11 of the Civil Code.
CRUZ and MENDOZA's motions for reconsideration were
denied; hence, these consolidated petitions:
G.R. No. 175885 (MENDOZA PETITION)
a) The Court of Appeals erred in sustaining the trial court's
failure to resolve her motion praying that PAULE be declared
non-suited on his third-party complaint, as well as her motion
seeking that she be allowed to present evidence ex parte on her
cross-claim;
b) The Court of Appeals erred when it sanctioned the trial
court's failure to resolve her cross-claim against PAULE; and,
c) The Court of Appeals erred in its application of Article 1920
of the Civil Code, and in adjudging that MENDOZA had no
right to claim actual damages from PAULE for debts incurred
on account of the SPAs issued to her. HATEDC
G.R. No. 176271 (CRUZ PETITION)
CRUZ argues that the decision of the Court of Appeals is
contrary to the provisions of law on agency, and conflicts with
the Resolution of the Court in G.R. No. 173275, which
affirmed the Court of Appeals' decision in CA-G.R. CV No.
81175, finding the existence of an agency relation and
where PAULE was declared as MENDOZA's principal under
the subject SPAs and, thus, liable for obligations (unpaid
construction materials, fuel and heavy equipment rentals)
incurred by the latter for the purpose of implementing and
carrying out the NIA project awarded to EMPCT.
CRUZ argues that MENDOZA was acting within the scope of
her authority when she hired his services as hauler of debris
because the NIA project (both Packages A-10 and B-11 of the
NIA-CMIPP) consisted of construction of canal structures,
which involved the clearing and disposal of waste, acts that are
necessary and incidental to PAULE's obligation under the NIA
project; and that the decision in a civil case involving the same
SPAs, where PAULE was found liable as MENDOZA's
principal already became final and executory; that in Civil Case
No. 90-SD filed by MENDOZA against PAULE, 12 the latter
was adjudged liable to the former for unpaid rentals of heavy
equipment and for construction materials
which MENDOZA obtained for use in the subject NIA project.
On September 15, 2003, judgment was rendered in said civil
case against PAULE, to wit:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff (MENDOZA) and against the defendant (PAULE) as
follows:
1. Ordering defendant Paule to pay plaintiff the sum of
P138,304.00 representing the obligation incurred by the
plaintiff with LGH Construction;
2. Ordering defendant Paule to pay plaintiff the sum of
P200,000.00 representing the balance of the obligation incurred
by the plaintiff with Artemio Alejandrino;
3. Ordering defendant Paule to pay plaintiff the sum of
P520,000.00 by way of moral damages, and further sum of
P100,000.00 by way of exemplary damages; aIcHSC
4. Ordering defendant Paule to pay plaintiff the sum of
P25,000.00 as for attorney's fees; and
5. To pay the cost of suit. 13
PAULE appealed 14 the above decision, but it was dismissed
by the Court of Appeals in a Decision 15 which reads, in part:
As to the finding of the trial court that the principle of agency is
applicable in this case, this Court agrees therewith. It must be
emphasized that appellant (PAULE) authorized appellee
(MENDOZA) to perform any and all acts necessary to make
the business transaction of EMPCT with NIA effective.
Needless to state, said business transaction pertained to the
construction of canal structures which necessitated the
utilization of construction materials and equipments. Having
given said authority, appellant cannot be allowed to turn its
back on the transactions entered into by appellee in behalf of
EMPCT.
The amount of moral damages and attorney's fees awarded by
the trial court being justifiable and commensurate to the
damage suffered by appellee, this Court shall not disturb the
same. It is well-settled that the award of damages as well as
attorney's fees lies upon the discretion of the court in the
context of the facts and circumstances of each case.
WHEREFORE, the appeal is DISMISSED and the appealed
Decision is AFFIRMED.
SO ORDERED. 16
PAULE filed a petition to this Court docketed as G.R. No.
173275 but it was denied with finality on September 13, 2006.
MENDOZA, for her part, claims that she has a right to be heard
on her cause of action as stated in her cross-claim
againstPAULE; that the trial court's failure to resolve the cross-
claim was a violation of her constitutional right to be apprised
of the facts or the law on which the trial court's decision is
based; that PAULE may not revoke her appointment as
attorney-in-fact for and in behalf of EMPCT because, as
manager of their partnership in the NIA project, she was
obligated to collect from NIA the funds to be used for the
payment of suppliers and contractors with whom she had
earlier contracted for labor, materials and equipment.TSCIEa
PAULE, on the other hand, argues in his Comment
that MENDOZA's authority under the SPAs was for the limited
purpose of securing the NIA project; that MENDOZA was not
authorized to contract with other parties with regard to the
works and services required for the project, such as CRUZ's
hauling services; that MENDOZA acted beyond her authority
in contracting with CRUZ, and PAULE, as principal, should
not be made civilly liable to CRUZ under the SPAs; and
that MENDOZA has no cause of action against him for actual
and moral damages since the latter exceeded her authority
under the agency.
We grant the consolidated petitions.
Records show that PAULE (or, more appropriately, EMPCT)
and MENDOZA had entered into a partnership in regard to the
NIA project. PAULE's contribution thereto is his contractor's
license and expertise, while MENDOZA would provide and
secure the needed funds for labor, materials and services; deal
with the suppliers and sub-contractors; and in general and
together withPAULE, oversee the effective implementation of
the project. For this, PAULE would receive as his share
three per cent (3%) of the project cost while the rest of the
profits shall go to MENDOZA. PAULE admits to this
arrangement in all his pleadings. 17
Although the SPAs limit MENDOZA's authority to such acts as
representing EMPCT in its business transactions with NIA,
participating in the bidding of the project, receiving and
collecting payment in behalf of EMPCT, and performing other
acts in furtherance thereof, the evidence shows that
when MENDOZA and CRUZ met and discussed (at the
EMPCT office in Bayuga, Muoz, Nueva Ecija) the lease of the
latter's heavy equipment for use in the project, PAULE was
present and interposed no objection to MENDOZA's
actuations. In his pleadings, PAULE does not even deny this.
Quite the contrary, MENDOZA's actions were in accord with
what she and PAULE originally agreed upon, as to division of
labor and delineation of functions within their partnership.
Under the Civil Code, every partner is an agent of the
partnership for the purpose of its business; 18 each one may
separately execute all acts of administration, unless a
specification of their respective duties has been agreed upon, or
else it is stipulated that any one of them shall not act without
the consent of all the others. 19 At any rate, PAULE does not
have any valid cause for opposition because his only role in the
partnership is to provide his contractor's license and expertise,
while the sourcing of funds, materials, labor and equipment has
been relegated to MENDOZA.
Moreover, it does not speak well for PAULE that he
reinstated MENDOZA as his attorney-in-fact, this time with
broader powers to implement, execute, administer and
supervise the NIA project, to collect checks and other payments
due on said project, and act as the Project Manager for EMPCT,
even after CRUZ has already filed his complaint. Despite
knowledge that he was already being sued on the SPAs, he
proceeded to execute another in MENDOZA's favor, and even
granted her broader powers of administration than in those
being sued upon. If he truly believed
that MENDOZA exceeded her authority with respect to the
initial SPA, then he would not have issued another SPA. If he
thought that his trust had been violated, then he should not have
executed another SPA in favor of MENDOZA, much less grant
her broader authority.
Given the present factual milieu, CRUZ has a cause of action
against PAULE and MENDOZA. Thus, the Court of Appeals
erred in dismissing CRUZ's complaint on a finding of exceeded
agency. Besides, that PAULE could be held liable under the
SPAs for transactions entered into by MENDOZA with
laborers, suppliers of materials and services for use in the NIA
project, has been settled with finality in G.R. No. 173275. What
has been adjudged in said case as regards the SPAs should be
made to apply to the instant case. Although the said case
involves different parties and transactions, it finally disposed of
the matter regarding the SPAs specifically their effect as
among PAULE, MENDOZA and third parties with
whom MENDOZA had contracted with by virtue of the SPAs
a disposition that should apply to CRUZ as well. If a
particular point or question is in issue in the second action, and
the judgment will depend on the determination of that
particular point or question, a former judgment between the
same parties or their privies will be final and conclusive in the
second if that same point or question was in issue and
adjudicated in the first suit. Identity of cause of action is not
required but merely identity of issues. 20 IECAaD
There was no valid reason for PAULE to revoke MENDOZA's
SPAs. Since MENDOZA took care of the funding and sourcing
of labor, materials and equipment for the project, it is only
logical that she controls the finances, which means that the
SPAs issued to her were necessary for the proper performance
of her role in the partnership, and to discharge the obligations
she had already contracted prior to revocation. Without the
SPAs, she could not collect from NIA, because as far as it is
concerned, EMPCT and not the PAULE-
MENDOZA partnership is the entity it had contracted with.
Without these payments from NIA, there would be no source of
funds to complete the project and to pay off obligations
incurred. As MENDOZA correctly argues, an agency cannot be
revoked if a bilateral contract depends upon it, or if it is the
means of fulfilling an obligation already contracted, or if a
partner is appointed manager of a partnership in the contract of
partnership and his removal from the management is
unjustifiable. 21
PAULE's revocation of the SPAs was done in evident bad faith.
Admitting all throughout that his only entitlement in the
partnership with MENDOZA is his 3% royalty for the use of
his contractor's license, he knew that the rest of the amounts
collected from NIA was owing to MENDOZA and suppliers of
materials and services, as well as the laborers. Yet, he
deliberately revoked MENDOZA's authority such that the latter
could no longer collect from NIA the amounts necessary to
proceed with the project and settle outstanding obligations.
From the way he conducted himself, PAULE committed a
willful and deliberate breach of his contractual duty to his
partner and those with whom the partnership had contracted.
Thus, PAULE should be made liable for moral
damages. TEcADS
Bad faith does not simply connote bad judgment or negligence;
it imputes a dishonest purpose or some moral obliquity and
conscious doing of a wrong; a breach of a sworn duty through
some motive or intent or ill-will; it partakes of the nature of
fraud (Spiegel v. Beacon Participation, 8 NE 2nd Series, 895,
1007). It contemplates a state of mind affirmatively operating
with furtive design or some motive of self-interest or ill will for
ulterior purposes (Air France v. Carrascoso, 18 SCRA 155,
166-167). Evident bad faith connotes a manifest deliberate
intent on the part of the accused to do wrong or cause
damage. 22
Moreover, PAULE should be made civilly liable for
abandoning the partnership, leaving MENDOZA to fend for her
own, and for unduly revoking her authority to collect payments
from NIA, payments which were necessary for the settlement
of obligations contracted for and already owing to laborers and
suppliers of materials and equipment like CRUZ, not to
mention the agreed profits to be derived from the venture that
are owing to MENDOZA by reason of their partnership
agreement. Thus, the trial court erred in disregarding and
dismissing MENDOZA's cross-claim which is properly a
counterclaim, since it is a claim made by her as defendant in a
third-party complaint against PAULE, just as the appellate
court erred in sustaining it on the justification that PAULE's
revocation of the SPAs was within the bounds of his discretion
under Article 1920 of the Civil Code.
Where the defendant has interposed a counterclaim (whether
compulsory or permissive) or is seeking affirmative relief by a
cross-complaint, the plaintiff cannot dismiss the action so as to
affect the right of the defendant in his counterclaim or prayer
for affirmative relief. The reason for that exception is clear.
When the answer sets up an independent action against the
plaintiff, it then becomes an action by the defendant against the
plaintiff, and, of course, the plaintiff has no right to ask for a
dismissal of the defendant's action. The present rule embodied
in Sections 2 and 3 of Rule 17 of the 1997 Rules of Civil
Procedure ordains a more equitable disposition of the
counterclaims by ensuring that any judgment thereon is based
on the merit of the counterclaim itself and not on the survival
of the main complaint. Certainly, if the counterclaim is
palpably without merit or suffers jurisdictional flaws which
stand independent of the complaint, the trial court is not
precluded from dismissing it under the amended rules, provided
that the judgment or order dismissing the counterclaim is
premised on those defects. At the same time, if the
counterclaim is justified, the amended rules now unequivocally
protect such counterclaim from peremptory dismissal by reason
of the dismissal of the complaint. 23 HAaDTE
Notwithstanding the immutable character of PAULE's liability
to MENDOZA, however, the exact amount thereof is yet to be
determined by the trial court, after receiving evidence for and
in behalf of MENDOZA on her counterclaim, which must be
considered pending and unresolved.
WHEREFORE, the petitions are GRANTED. The August 28,
2006 Decision of the Court of Appeals in CA-G.R. CV No.
80819 dismissing the complaint in Civil Case No. 18-SD
(2000) and its December 11, 2006 Resolution denying the
motion for reconsideration are REVERSED and SET ASIDE.
The August 7, 2003 Decision of the Regional Trial Court of
Nueva Ecija, Branch 37 in Civil Case No. 18-SD (2000)
finding PAULE liable is REINSTATED, with the
MODIFICATION that the trial court is ORDERED to receive
evidence on the counterclaim of petitioner Zenaida
G. Mendoza.
SO ORDERED.
SECOND DIVISION
[G.R. No. L-11840. July 26, 1960.]
ANTONIO C. GOQUIOLAY and THE PARTNERSHIP
"TAN SIN AN and ANTONIO
C. GOQUIOLAY", plaintiffs-appellants, vs. WASHINGTON
Z. SYCIP, ET AL., defendants-appellees.
Jose C. Colayco, Manuel O. Chan and Padilla Law Offices for
appellants.
Sycip, Quisumbing, Salazar & Associates for appellees.
SYLLABUS
1. PARTNERSHIP; MANAGEMENT, RIGHT OF
EXCLUSIVE; PERSONAL RIGHT; TERMINATION UPON
MANAGER-PARTNER'S DEATH. The right of exclusive
management conferred upon Tan Sin An, being premised upon
trust and confidence, was a mere personal right that terminated
upon Tan's demise.
2. ARTICLES OF CO-PARTNERSHIP; RIGHT OF HEIRS TO
REPRESENT DECEASED PARTNER; MANAGERIAL
RIGHT; PROPRIETARY INTEREST. The provision in the
Articles of Co-Partnership stating that "in the event of death of
any one of the partners within the 10-year term of the
partnership, the deceased partner shall be represented by his
heirs", could not have referred to the managerial right given to
Tan Sin An; more appropriately, it relates to the succession in
the proprietary interest of each partner.
3. ID.; ID.; EFFECT OF HEIRS' FAILURE TO REPUDIATE;
HEIRS BECOME INDIVIDUAL PARTNERS; MINORITY
OF HEIRS. Consonant with the articles of co-partnership
providing for the continuation of the firm notwithstanding the
death of one of the partners, the heirs of the deceased, by never
repudiating or refusing to be bound under the said provision in
the articles, became individual partners with
Antonio Goquiolay upon Tan's demise. Minority of the heirs is
not a bar to the application of that clause in the articles of co-
partnership. Heirs liability in the partnership being limited to
the value of their importance, they become no more than
limited partners, when they manifest their intent to be bound as
general partners.
4. ID.; SALE OF PARTNERSHIP PROPERTIES; CONSENT
OF ALL PARTNERS UNNECESSARY; STRANGERS
DEALING WITH PARTNERSHIPS; POWER TO BIND
PARTNERSHIP. As to whether or not the consent of the
other partners was necessary to perfect the sale of the
partnership properties, the Court believes that it is not.
Strangers dealing with a partnership have the right to assume,
in the absence of restrictive clauses in the co- partnership
agreement, that every general partner has power to bind the
partnership.
5. ID.; ID.; ESTOPPEL. By allowing defendant Kong Chai
Pin to retain control of the partnership properties from 1942 to
1949, plaintiff Goquiolay estopped himself from denying her
(Kong Chai Pin's) legal representation of the partnership, with
the power to bind it by proper contracts.
6. PARTNERSHIP; GENERAL PARTNER BY ESTOPPEL;
WIDOW OF MANAGING PARTNER AUTHORIZED BY
OTHER PARTNER TO MANAGE PARTNERSHIP. By
authorizing the widow of the managing partner to manage
partnership property (which a limited partner could not be
authorized to do), the other general partner recognized her as a
general partner, and is now in estoppel to deny her position as a
general partner, with authority to administer and alienate
partnership property.
7. ID.; HEIR OF PARTNER, STATUS ORDINARILY AS
LIMITED PARTNER BUT MAY WAIVE IT AND BECOME
AS GENERAL PARTNER. Although the heir of a partner
ordinarily becomes a limited partner for his own protection, yet
the heir may disregard it and instead elect to become a
collective or general partner, with all the rights and obligations
of one. This choice pertains exclusively to the heir, and does
not require the assent of the surviving partner.
8. ID.; PRESUMPTIONS; AUTHORITY OF PARTNER TO
DEAL WITH PROPERTY. A third person has the right to
presume that a general partner dealing with partnership
property has the requisite authority from his co-partners.
9. ID.; PROPERTY OF PARTNERSHIP; SALE OF
IMMOVABLES, WHEN CONSIDERED WITHIN THE
ORDINARY POWERS OF A GENERAL PARTNER.
Where the express and avowed purpose of the partnership is to
buy and sell real estate (as in the present case), the immovables
thus acquired by the firm form part of its stock-in-trade, and the
sale thereof is in pursuance of partnership purposes, hence
within the ordinary powers of the partner.
10. ID.; SALE OF PARTNERSHIP PROPERTY; ACTION
FOR RESCISSION ON GROUND OF FRAUD; NO
INADEQUACY OF PRICE; CASE AT BAR. Appellant's
claim that the price was inadequate, relies on the testimony of a
realtor, who in 1955, six years after the sale in the question,
asserted that the land was by then worth double the price for
which it was sold. But taking into account the continued rise of
real estate values since liberation, and the fact that the sale in
question was practically a forced sale because the partnership
has no other means to pay the legitimate debts, this evidence
certainly does not show such "gross inadequacy" as to justify
the rescission of the sale.
11. ID.; ID.; ID.; RELATIONSHIP ALONE IN NO BADGE
OF FRAUD. The Supreme court has ruled that relationship
alone is not a badge of fraud (Oria Hnos. vs. McMicking, 21
Phil., 243; Hermandad de Smo. Nombre de Jesus vs. Sanchez,
40 Official Gazette 1685).
12. ID.; ID.; ID.; FRAUD OF CREDITORS
DISTINGUISHED FROM FRAUD TO OBTAIN CONSENT.
Fraud used to obtain a party's consent to a contract (deceit or
dolus in contrahendo) is different from fraud of creditors that
gives rise to a rescission of contract.
13. ID.; ID.; ID.; SUBSIDIARY NATURE; ALLEGATION OF
NO OTHER MEANS TO OBTAIN REPARATION,
NECESSARY. The action for rescission is subsidiary; it can
not be instituted except when the party suffering damage has no
other legal means to obtain reparation for the same. hence, if
there is no allegation or evidence that the plaintiff can not
obtain reparation from the widow and heirs of the deceased
partner, the suit to rescind the sale in question s not
maintainable, even if the fraud charged actually did exist.
DECISION
REYES, J.B.L. J p:
Direct appeal from the decision of the Court of First Instance of
Davao (the amount involved being more than P200,000)
dismissing the plaintiffs-appellants' complaint.
From the stipulation of facts of the parties and the evidence on
record, it would appear that on May 29, 1940, Tan Sin An and
Antonio C. Goquiolay entered into a general commercial
partnership under the partnership name "Tan Sin An and
Antonio C.Goquiolay", for the purpose of dealing in real estate.
The partnership had a capital of P30,000.00, P18,000.00 of
which was contributed by Goquiolay and P12,000.00 by Tan
Sin An. The agreement lodged upon Tan Sin An the sole
management of the partnership affairs, stipulating that
"III. The co-partnership shall be composed of said Tan Sin
An as sole managing and partner (sic), and Antonio
C.Goquiolay as co-partner.
"VIII. The affairs of the co-partnership shall be managed
exclusively by the managing and partner (sic) or by his
authorized agent, and it is expressly stipulated that the
managing and partner (sic) may delegate the entire
management of the affairs of the co- partnership by irrevocable
power of attorney to any person, firm or corporation he may
select upon such terms as regards compensation as he may
deem proper, and vest in such person, firm or corporation full
power and authority, as the agent of the co-partnership and in
his name, place and stead to do anything for it or on his behalf
which he as such managing and partner (sic) might do or cause
to be done.
"IX. The co-partner shall have no voice or participation in the
management of the affairs of the co-partnership; but he may
examine its accounts once every six (6) months at any time
during ordinary business hours, and in accordance with the
provisions of the Code of Commerce." (Articles of Co-
Partnership).
The lifetime of the partnership was fixed at ten (10) years and
also that
"In the event of the death of any of the partners at any time
before the expiration of said term, the co-partnership shall not
be dissolved but will have to be continued and the deceased
partner shall be represented by his heirs or assigns in said co-
partnership" (Art. XII, Articles of Co-Partnership).
However, the partnership could be dissolved and its affairs
liquidated at any time upon mutual agreement in writing of the
partners (Art. XIII, articles of Co-Partnership).
On May 31, 1940, Antonio Goquiolay executed a general
power of attorney to this effect:
"That besides the powers and duties granted the said Tan Sin
An by the articles of co-partnership of said co-partnership
"Tan Sin An and Antonio Goquiolay", the said Tan Sin An
should act as my Manager for said co-partnership for the full
period of the term for which said co-partnership was organized
or until the whole period that the said capital of P30,000.00 of
the co-partnership should last, to carry on to the best
advantage and interest of the said co-partnership, to make and
execute, sign, seal and deliver for the co-partnership, and in its
name, all bills, bonds, notes, specialties, and trust receipts or
other instruments or documents in writing whatsoever kind or
nature which shall be necessary to the proper conduction of the
said businesses, including the power to mortgage and pledge
real and personal properties, to secure the obligation of the co-
partnership, to buy real or personal properties for cash or
upon such terms as he may deem advisable, to sell personal or
real properties, such as lands and buildings of the co-
partnership in any manner he may deem advisable for the best
interest of said co-partnership, to borrow money on behalf of
the co-partnership and to issue promissory notes for the
repayment thereof, to deposit the funds of the co-partnership in
any local bank or elsewhere and to draw checks against funds
so deposited . . .
On May 29, 1940, the plaintiff partnership "Tan Sin An
and Goquiolay" purchased the three (3) parcels of land, known
as Lots Nos. 526, 441 and 521 of the Cadastral Survey of
Davao, subject-matter of the instant litigation, assuming the
payment of a mortgage obligation of P25,000.00, payable to
"La Urbana Sociedad Mutua de Construccin y Prestamos" for
a period of ten (10) years, with 10% interest per annum.
Another 46 parcels were purchased by Tan Sin An in his
individual capacity, and he assumed payment of a mortgage
debt thereon for P35,000.00, with interest. The down payment
and the amortization were advanced by Yutivo and Co., for the
account of the purchasers.
On September 25, 1940, the two separate obligations were
consolidated in an instrument executed by the partnership and
Tan Sin An, whereby the entire 49 lots were mortgaged in favor
of the "Banco Hipotecario de Filipinas" (as successor to "La
Urbana") and the covenantors bound themselves to pay, jointly
and severally, the remaining balance of their unpaid accounts
amounting to P52,282.80 within eight 8 years, with 8% annual
interest, payable in 96 equal monthly installments.
On June 26, 1942, Tan Sin An died, leaving as surviving heirs
his widow, Kong Chai Pin, and four minor children, namely:
Tan L. Cheng, Tan L. Hua, Tan C. Chiu and Tan K. Chuan.
Defendant Kong Chai Pin was appointed administratrix of the
intestate estate of her deceased husband.
In the meantime, repeated demands for payment were made by
the Banco Hipotecario on the partnership and on Tan Sin An. In
March, 1944, the defendant Sing Yee and Cuan, Co., Inc., upon
request of defendant Yutivo Sons Hardware Co., paid the
remaining balance of the mortgage debt, and the mortgage was
cancelled.
Then in 1946, Yutivo Sons Hardware Co. and Sing Yee and
Cuan Co., Inc. filed their claims in the intestate proceedings of
Tan Sin An for P62,415.91 and P54,310.13, respectively, as
alleged obligations of the partnership "Tan Sin An and Antonio
C.Goquiolay" and Tan Sin An, for advances, interests and taxes
paid in amortizing and discharging their obligations to "La
Urbana" and the "Banco Hipotecario". Disclaiming knowledge
of said claims at first, Kong Chai Pin later admitted the claims
in her amended answer and they were accordingly approved by
the Court.
On March 29, 1949, Kong Chai Pin filed a petition with the
probate court for authority to sell all the 49 parcels of land to
Washington Z, Sycip and Betty Y. Lee, for the purpose
primarily of settling the aforesaid debts of Tan Sin An and the
partnership. Pursuant to a court order of April 2, 1949, the
administratrix executed on April 4, 1949, a deed of sale 1 of the
49 parcels of land to the defendants Washington Sycip and
Betty Lee in consideration of P37,000.00 and of vendees'
assuming payment of the claims filed by Yutivo Sons Hardware
Co. and Sing Yee and Cuan Co., Inc. Later, in July, 1949,
defendants Sycip and Betty Lee executed in favor of the Insular
Development Co., Inc. a deed of transfer covering the said 49
parcels of land.
Learning about the sale to Sycip and Lee, the surviving partner
Antonio Goquiolay filed, on or about July 25, 1949, a petition
in the intestate proceedings seeking to set aside the order of the
probate court approving the sale in so far as his interest over the
parcels of land sold was concerned. In its order of December
29, 1949, the probate court annulled the sale executed by the
administratrix with respect to the 60% interest of
Antonio Goquiolay over the properties sold. King Chai Pin
appealed to the Court of Appeals, which court later certified the
case to us (93 Phil., 413; 49 Off. Gaz. [7] 2307). On June 30,
1953, we rendered decision setting aside the orders of the
probate court complained of and remanding the case for new
trial, due to the non-inclusion of indispensable parties.
Thereafter, new pleadings were filed.
The second amended complaint in the case at bar prays, among
other things, for the annulment of the sale in favor of
Washington Sycip and Betty Lee, and their subsequent
conveyance in favor of the Insular Development Co., Inc., in so
far as the three (3) lots owned by the plaintiff partnership are
concerned. The answer averred the validity of the sale by Kong
Chai Pin as successor partner, in lieu of the late Tan Sin An.
After hearing, the complaint was dismissed by the lower court
in its decision dated October 30, 1956; hence, this appeal taken
directly to us by the plaintiffs, as the amount involved is more
than P200,000.00. Plaintiffs-appellants assign as errors that
"I. The lower court erred in holding that Kong Chai Pin
became the managing partner of the partnership upon the death
of her husband, Tan Sin An, by virtue of the articles of
Partnership executed between the Tan Sin An and
AntonioGoquiolay, and the general power of attorney granted
by Antonio Goquiolay.
II The lower court erred in holding that Kong Chai Pin could
act alone as sole managing partner in view of the minority of
the other heirs.
III The lower court erred in holding that Kong Chai Pin was
the only heir qualified to act as managing partner.
IV The lower court erred in holding that Kong Chai Pin had
authority to sell the partnership properties by virtue of the
articles of partnership and the general power of attorney
granted to Tan Sin An in order to pay the partnership
indebtedness.
V The lower court erred in finding that the partnership did
not pay its obligation to the Banco Hipotecario.
VI The lower court erred in holding that the consent of
Antonio Goquiolay was not necessary to consummate the sale
of the partnership properties.
VII The lower court erred in finding that Kong Chai Pin
managed the business of the partnership after the death of her
husband, and that Antonio Goquiolay knew it.
VIII The lower court erred in holding that the failure of
Antonio Goquiolay to oppose the management of the
partnership by Kong Chai Pin estops him now from attacking
the validity of the sale of the partnership properties.
IX The lower court erred in holding that the buyers of the
partnership properties acted in good faith.
X The lower court erred in holding that the sale was not
fraudulent against the partnership and Antonio Goquiolay.
XI The lower court erred in holding that the sale was not
only necessary but beneficial to the partnership.
XII The lower court erred in dismissing the complaint and in
ordering Antonio Goquiolay to pay the costs of suit."
There is merit in the contention that the lower court erred in
holding that the widow, Kong Chai Pin, succeeded her husband,
Tan Sin An, in the sole management of the partnership, upon
the latter's death. While, as we previously stated in our
narration of facts, the Articles of Co-Partnership and the power
of attorney executed by Antonio Goquiolay conferred upon Tan
Sin An the exclusive management of the business, such power,
premised as it is upon trust and confidence, was a mere
personal right that terminated upon Tan's demise. The provision
in the articles stating that "in the event of death of any one of
the partners within the 10-year term of the partnership, the
deceased partner shall be represented by his heirs", could not
have referred to the managerial right given to Tan Sin An; more
appropriately, it related to the succession in the proprietary
interest of each partner. The covenant that
Antonio Goquiolay shall have no voice or participation in the
management of the partnership, being a limitation upon his
right as a general partner, must be held coextensive only with
Tan's right to manage the affairs, the contrary not being clearly
apparent.
Upon the other hand, consonant with the articles of co-
partnership providing for the continuation of the firm
notwithstanding the death of one of the partners, the heirs of
the deceased, by never repudiating or refusing to be bound
under the said provision in the articles, became individual
partners with Antonio Goquiolay upon Tan's demise. The
validity of like clauses in partnership agreements is expressly
sanctioned under Article 222 of the Code of Commerce. 1
Minority of the heirs is not a bar to the application of that
clause in the articles of co-partnership (2 Vivante, Tratado de
Derecho Mercantil, 493; Planiol, Traite Elementaire de Droit
Civil, English translation by the Louisiana State Law Institute,
Vol. 2, Pt. 2, p. 177).
Appellants argue, however, that since the "new" members'
liability in the partnership was limited merely to the value of
the share or estate left by the deceased Tan Sin An, they became
no more than limited partners and, as such, were disqualified
from the management of the business under Article 148 of the
Code of Commerce. Although ordinarily, this effect follows
from the continuance of the heirs in the partnership, 2 it was
not so with respect to the widow Kong Chai Pin, who, by her
affirmative actions, manifested her intent to be bound by the
partnership agreement not only as a limited but as a general
partner. Thus, she managed and retained possession of the
partnership properties and was admittedly deriving income
therefrom up to and until the same were sold to
Washington Sycip and Betty Lee. In fact, by executing the deed
of sale of the parcels of land in dispute in the name of the
partnership, she was acting no less than as a managing partner.
Having thus preferred to act as such, she could be held liable
for the partnership debts and liabilities as a general partner,
beyond what she might have derived only from the estate of her
deceased husband. By allowing her to retain control of the
firm's property from 1942 to 1949, plaintiff estopped himself to
deny her legal representation of the partnership, with the power
to bind it by proper contracts.
The question now arises as to whether or not the consent of the
other partners was necessary to perfect the sale of the
partnership properties to Washington Sycip and Betty Lee. The
answer is, we believe, in the negative. Strangers dealing with a
partnership have the right to assume, in the absence of
restrictive clauses in the co-partnership agreement, that every
general partner has power to bind the partnership, specially
those partners acting with ostensible authority. And so, we held
in one case:
". . . Third persons, like the plaintiff, are not bound in entering
into a contract with any of the two partners, to ascertain
whether or not this partner with whom the transaction is made
has the consent of the other partner. The public need not make
inquiries as to the agreements had between the partners. Its
knowledge is enough that it is contracting with the partnership
which is represented by one of the managing partners.
'There is a general presumption that each individual partner is
an agent for the firm and that he has authority to bind the firm
in carrying on the partnership transactions.' [Mills vs. Riggle,
112 Pac., 617]
'The presumption is sufficient to permit third persons to hold
the firm liable on transactions entered into by one of the
members of the firm acting apparently in its behalf and within
the scope of his authority.' [Le Roy vs. Johnson, 7 U.S. Law,
Ed., 391](George Litton vs. Hill & Ceron, et al., 67 Phil., 513-
514)."
We are not unaware of the provision of Article 129 of the Code
of Commerce to the effect that
"If the management of the general partnership has not been
limited by special agreement to any of the members, all shall
have the power to take part in the direction and management of
the common business, and the members present shall come to
an agreement for all contracts or obligations which may
concern the association." (Emphasis supplied)
but this obligation is one imposed by law on the partners
among themselves, that does not necessarily affect the validity
of the acts of a partner, while acting within the scope of the
ordinary course of business of the partnership, as regards third
persons without notice. The latter may rightfully assume that
the contracting partner was duly authorized to contract for and
in behalf of the firm and that, furthermore, he would not
ordinarily act to the prejudice of his co- partners. The regular
course of business procedure does not require that each time a
third person contracts with one of the managing partners, he
should inquire as to the latter's authority to do so, or that he
should first ascertain whether or not the other partners had
given their consent thereto. In fact, Article 130 of the same
Code of Commerce provides that even if a new obligation was
contracted against the express will of one of the managing
partners, "it shall not be annulled for such reason, and it shall
produce its effects without prejudice to the responsibility of the
member or members who contracted it, for the damages they
may have caused to the common fund."
Cesar Vivante (2 Tratado de Derecho Mercantil, pp. 114-115)
points out:
"367. Primera hipotesis. A falta de factos especiales, la
facultad de administrar corresponde a cada socio
personalmente. No hay que esperar ciertamente concordia con
tantas cabezas, y para cuando no vayan de acuerdo, la
disciplina del Cdigo no ofrece un sistema eficaz que evite los
inconvenientes. Pero, ante el silencio del contrato, debia quiz
el legislador privar de la administracin a uno de los socios en
beneficio del otro? Sera una arbitrariedad. Deber quiz
declarar nula la Sociedad que no haya elegido Administrador?
El remedio sera peor que el mal. Deber, tal vez, pretender que
todos los socios concurran en todo acto de la Sociedad? Pero
este concurso de todos habra reducido a la impotencia la
administracin, que es asunto de todos los das y de todas
horas. Hubieran sido disposiciones menos oportunas que lo
adoptado por el Cdigo, el cual se confa al espiritu de
reciproca confianza que debera animar la colaboracin de los
socios, y en la ley inflexible de responsabilidad que implica
comunidad en los intereses de los mismos.
En esta hiptesis, cada socio puede ejercer todos los negocios
comprendidos en el contrato social sin dar de ello noticia a los
otros, porque cada uno de ellos ejerce la administracin en la
totalidad de sus relaciones, salvo su responsabilidad en el caso
de una administracin culpable. Si debiera dar noticia, el
beneficio de su simultnia actividad, frecuentemente distribuda
en lugares y en tiempos diferentes, se echara a perder. Se
objetar el que de esta forma, el derecho de oposicin de cada
uno de los socios puede quedar frustrado. Pero se puede
contestar que este derecho de oposicin concedido por la ley
como un remedio excepcional, debe subordinarse al derecho de
ejercer el oficio de Administrador, que el Cdigo concede sin
lmite: 'se presume que los socios se han concedido
recprocamente la facultad de administrar uno para otro.' Se
hara precipitar esta hiptesis en la otra de una administracin
colectiva (art. 1.721, Cdigo Cvil) y se acabara con pedir el
consentimiento, a lo menos tcito, de todos los socios lo que
el Cdigo excluye . . ., si se obligase al socio Administrador a
dar noticia previa del negocio a los otros, a fin de que pudieran
oponerse si no consintieran."
Commenting on the same subject, Gay de Montell (Cdigo de
Comercio, Tomo II, 147-148) opines:
"Para obligar a las Compaas enfrente de terceros (art. 128 del
Cdigo), no es bastante que los actos y contratos hayan sido
ejecutados por un socio o varios en nombre colectivo, sino que
es preciso el concurso de estos dos elementos, uno, que el socio
o socios tengan reconocida la facultad de administrar la
Compaa, y otro, que el acto o contrato haya sido ejecutado en
nombre de la Sociedad y usando de su firma social. Asi es que
toda obligacin contraida bajo la razon social, se presume
contraida por la Compaa. Esta presuncion es impuesta por
motivos de necesidad practica. El tercero no puede cada vez
que trata con la Compaa, inquirir si realmente el negocio
concierne a la Sociedad. La presuncion es juris tantum y no
juris et de jure, de modo que s el gerente suscribe bajo la razn
social una obligacin que no interesa a la Sociedad, ste podr
rechazar la accin del tercero probando que el acreedor conoca
que la obligacin no tena ninguna relacin con ella. Si tales
actos y contratos no comportasen la concurrencia de ambos
elementos, seran nulos y podra decretarse la responsabilidad
civil o penal contra sus autores.
En el caso que tales actos o contratos hayan sido tcitamente
aprobados por la Compaa, o contabilizados en sus libros, si el
acto o contrato ha sido convalidado sin protesta y se trata de
acto o contrato que ha producido beneficio social, tendra plena
validez, aun cuando le faltase algunos o ambos de aquellos
requistos antes sealados.
Cuando los Estatutos o la escritura social no contienen ninguna
clusula relativa al nombramiento o designacin de uno o mas
de un socio para administrar la Compaa (art. 129 del Cdigo) Sons Hardware Co. and Sing Yee and Cuan Co., Inc. had every
todos tienen por un igual el derecho de concurir a la decisin y
manejo de los negocios comunes . . ."
Although the partnership under consideration is a commercial
partnership and, therefore, to be governed by the Code of
Commerce, the provisions of the old Civil Code may give us
some light on the right of one partner to bind the partnership.
States Art. 1695 thereof:
"Should no agreement have been made with respect to the form
of management, the following rules shall be observed:
1. All the partners shall be considered agents, and whatever any
one of them may do individually shall bind the partnership; but
each one may oppose any act of the others before it has become
legally binding."
The records fail to disclose that appellant Goquiolay made any
opposition to the sale of the partnership realty to Washington
Z. Sycip and Betty Lee; on the contrary, it appears that he
(Goquiolay) only interposed his objections after the deed of
conveyance was executed and approved by the probate court,
and, consequently, his opposition came too late to be effective.
Appellants assail the correctness of the amounts paid for the
account of the partnership as found by the trial court. This
question, however, need not be resolved here, as in the deed of
conveyance executed by Kong Chai Pin, the purchasers
Washington Sycip and Betty Lee assumed, as part
consideration of the purchase, the full claims of the two
creditors, Sing Yee and Cuan Co., Inc. and Yutivo Sons
Hardware Co.
Appellants also question the validity of the sale covering the
entire firm realty, on the ground that it, in effect, threw the
partnership into dissolution, which requires consent of all the
partners. This view is untenable. That the partnership was left
without the real property it originally had will not work its
dissolution, since the firm was not organized to exploit these
precise lots but to engage in buying and selling real estate, and
"in general real estate agency and brokerage business".
Incidentally, it is to be noted that the payment of the solidary
obligation of both the partnership and the late Tan Sin An,
leaves open the question of accounting and contribution
between the co-debtors, that should be ventilated separately.
Lastly, appellants point out that the sale of the partnership
properties was only a fraudulent device by the appellees, with
the connivance of Kong Chai Pin, to ease out
Antonio Goquiolay from the partnership. The "devise",
according to the appellants, started way back sometime in
1945, when one Yu Khe Thai sounded out
Antonio Goquiolay on the possibility of selling his share in the
partnership; and upon his refusal to sell, was followed by the
filing of the claims of Yutivo Sons Hardware Co. and Sing Yee
and Cuan Co., Inc. in the intestate estate proceedings of Tan Sin
An. As creditors of Tan Sin An and the plaintiff partnership
(whose liability was alleged to be joint and several), Yutivo
right to file their claims in the intestate proceedings. The denial
of the claims at first by Kong Chai Pin (for lack of sufficient
knowledge) negatives any conspiracy on her part in the alleged
fraudulent scheme, even if she subsequently decided to admit
their validity after studying the claims and finding it best to
admit the same. It may not be amiss to remark that the probate
court approved the questioned claims.
There is complete failure of proof, moreover, that the price for
which the properties were sold was unreasonably low, or in any
way unfair, since appellants presented no evidence of the
market value of the lots as of the time of their sale to
appelleesSycip and Lee. The alleged value of P31,056.58 in
May of 1955 is no proof of the market value in 1949, specially
because in the interval, the new owners appear to have
converted the land into a subdivision, which they could not do
without opening roads and otherwise improving the property at
their own expense. Upon the other hand, Kong Chai Pin hardly
had any choice but to execute the questioned sale, as it appears
that the partnership had neither cash nor other properties with
which to pay its obligations. Anyway, we cannot consider
seriously the inferences freely indulged in by the appellants as
allegedly indicating fraud in the questioned transactions,
leading to the conveyance of the lots in dispute to the appellee
Insular Development Co., Inc.
Wherefore, finding no reversible error in the appealed
judgment, we affirm the same, with costs against appellant
AntonioGoquiolay.
Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion,
Endencia, Barrera and Gutierrez David, JJ., concur.
RESOLUTION
December 10, 1963
REYES, J.B.L., J p:
The matter now pending is the appellant's motion for
reconsideration of our main decision, wherein we have upheld
the validity of the sale of the lands owned by the
partnership Goquiolay & Tan Sin An, made in 1949 by the
widow of the managing partner, Tan Sin An (executed in her
dual capacity of Administratrix of her husband's estate and as
partner, in lieu of the husband), in favor of buyers
Washington Sycip and Betty Lee for the following
consideration:
Cash paid P37,000.00
Debts assumed by purchaser:
To Yutivo 62,415.91
To Sing Yee Cuan & Co. 54,310.13
__________
TOTAL P153,726.04
Appellant Goquiolay, in his motion for reconsideration, insists
that, contrary to our holding, Kong Chai Pin, widow of the
deceased partner Tan Sin An, never became more than
a limited partner, incapacitated by law to manage the affairs of
the partnership; that the testimony of her witnesses Young and
Lim belies that she took over administration of the partnership
property; and that, in any event, the sale should be set aside
because it was executed with the intent to defraud appellant of
his share in the properties sold.
Three things must be always held in mind in the discussion of
this motion to reconsider, being basic and beyond controversy:
(a) That we are dealing here with the transfer of partnership
property by one partner, acting in behalf of the firm, to
astranger. There is no question between partners inter se, and
this aspect of the case was expressly reserved in the main
decision of 26 July 1960;
(b) That the partnership was expressly organized "to engage in
real estate business, either by buying and selling real estate".
The Articles of co-partnership, in fact, expressly provided that:
"IV. The object and purpose of the co-partnership are as
follows:
1. To engage in real estate business, either by buying and
selling real estates; to subdivide real estates into lots for the
purpose of leasing and selling them.";
(c) That the properties sold were not part of the contributed
capital (which was in cash) but land precisely acquired to be
sold, although subject to a mortgage in favor of the original
owners, from whom the partnership had acquired them.
With these points firmly in mind, let us turn to the points
insisted upon by appellant.
It is first averred that there is "not one iota of evidence" that
Kong Chai Pin managed and retained possession of the
partnership properties. Suffice it to point out that
appellant Goquiolay himself admitted that
". . . Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai
Pin continue to manage the properties (as) she had no other
means of income. Then I said, because I wanted to help Mrs.
Kong Chai Pin, she could just do it and besides I am not
interested in agricultural lands. I allowed her to take care of the
properties in order to help her and because I believe in God and
I wanted to help her."
Q. So the answer to my question is you did not take any steps?
A. I did not.
Q. And this conversation which you had with Mrs. Yu Eng Lai
was few months after 1945?
A. In the year 1945." (Emphasis supplied)
The appellant subsequently ratified this testimony in his
deposition of 30 June 1956, page 8-9, wherein he stated:
"that plantation was being occupied at that time by the widow,
Mrs. Tan Sin An, and of course they are receiving quite a lot of
benefit from that plantation."
Discarding the self-serving expressions, these admissions
of Goquiolay are certainly entitled to greater weight than those
of Hernando Young and Rufino Lim, having been made against
the party's own interest.
Moreover, the appellant's reference to the testimony of
Hernando Young, that the witness found the properties
"abandoned and undeveloped", omits to mention that said part
of the testimony started with the question:
"Now, you said that about 1942 or 1943 you returned to Davao.
Did you meet Mrs. Kong Chai Pin there in Davao at that time?
Similarly, the testimony of Rufino Lim, to the effect that the
properties of the partnership were undeveloped, and the family
of the widow (Kong Chai Pin) did not receive any income from
the partnership properties, was given in answer to the question:
"According to Mr. Goquiolay, during the Japanese
occupation Tan Sin An and his family lived on the plantation of
the partnership and derived their subsistence from that
plantation. What can you say to that?" (Dep. 19 July 1956, p. 8)
And also
"What can you say as to the development of these other
properties of the partnership which you saw during the
occupation?" (Dep., p. 13, Emphasis supplied)
to which witness gave the following answer:
I saw the properties in Mamay still undeveloped. The third
property which is in Tigatto is about eleven (11) hectares and
planted with abaca seedlings planted by Mr. Sin An. When I
went there with Hernando Young we saw all the abaca
destroyed. The place was occupied by the Japanese Army. They
planted camotes and vegetables to feed the Japanese Army. Of
course they never paid any money to Tan Sin An or his family."
(Dep., Lim, pp. 13-14. (Emphasis supplied)
Plainly, Both Young and Lim's testimonies do not belie, or
contradict, Goquiolay's admission that he told Mr. Yu Eng Lai
that the widow "could just do it" (i. e., continue to manage the
properties). Witnesses Lim and Young referred to the period
ofJapanese occupation; but Goquiolay's authority was, in fact,
given to the widow in 1945, after the occupation.
Again, the disputed sale by the widow took place in 1949. That
Kong Chai Pin carried out no acts of management during the
Japanese occupation (1942-1944) does not mean that she did
not do so from 1945 to 1949.
We thus find that Goquiolay did not merely rely on reports
from Lim and Young; he actually manifested his willingness
that the widow should manage the partnership properties.
Whether or not she complied with this authority is a question
between her and the appellant, and is not here involved. But the
authority was given, and she did have it when she made the
questioned sale, because it was never revoked.
It is argued that the authority given by Goquiolay to the widow
Kong Chai Pin was only to manage the property, and that it did
not include the power to alienate, citing Article 1713 of the
Civil Code of 1889. What this argument overlooks is that the
widow was not a mere agent, because she had become a partner
upon her husband's death, as expressly provided by the articles
of co-partnership. Even more, granting that by succession to
her husband, Tan Sin An, the widow only became
a limitedpartner, Goquiolay's authorization to manage the
partnership property was proof that he considered and
recognized her as general partner, at least since 1945. The
reason is plain: Under the law (Article 148, last paragraph,
Code of Commerce), appellant could not empower the widow,
if she were only a limited partner, to administer the properties
of the firm, even as a mere agent:
"Limited partners may not perform any act of administration
with respect to the interests of the co-partnership, not even in
the capacity of agents of the managing partners." (Emphasis
supplied)
By seeking authority to manage partnership property, Tan Sin
An's widow showed that she desired to be considered
ageneral partner. By authorizing the widow to manage
partnership property (which a limited partner could not be
authorized to do),Goquiolay recognized her as such partner,
and is now in estoppel to deny her position as a general partner,
with authority to administer and alienate partnership property.
Besides, as we pointed out in our main decision, the
heir ordinarily (and we did not say "necessarily") becomes a
limited partner for his own protection, because he would
normally prefer to avoid any liability in excess of the value of
the estate inherited so as not to jeopardize his personal assets.
But this statutory limitation of responsibility being designed to
protect the heir, the latter may disregard it and instead elect to
become a collective or general partner, with all the rights and
privileges of one, and answering for the debts of the firm not
only with the inheritance but also with the heir's personal
fortune. This choice pertains exclusively to the heir, and does
not require the assent of the surviving partner.
It must be remembered that the articles of co-partnership here
involved expressly stipulated that:
"In the event of the death of any of the partners at any time
before the expiration of said term, the co-partnership shall not
be dissolved but will have to be continued and the deceased
partner shall be represented by his heirs or assigns in said co-
partnership" (Art. XII, Articles of Co-Partnership).
The Articles did not provide that the heirs of the deceased
would be merely limited partner; on the contrary, they expressly
stipulated that in case of death of either partner "the co-
partnership . . . will have to be continued" with the heirs or
assigns. It certainly could not be continued if it were to be
converted from a general partnership into a limited partnership,
since the difference between the two kinds of associations is
fundamental; and specially because the conversion into a
limited association would leave the heirs of the deceased
partner without a share in the management. Hence, the
contractual stipulation does actually contemplate that the heirs
would become general partners rather than limited ones.
Of course, the stipulation would not bind the heirs of the
deceased partner should they refuse to assume personal and
unlimited responsibility for the obligations of the firm. The
heirs, in other words, can not be compelled to become general
partners against their wishes. But because they are not so
compellable, it does not legitimately follow that they may not
voluntarily choose to become general partners, waiving the
protective mantle of the general laws of succession. And in the
latter event, it is pointless to discuss the legality of any
conversion of a limited partner into a general one. The heir
never was a limited partner, but chose to be, and became, a
general partner right at the start.
It is immaterial that the heir's name was not included in the
firm name, since no conversion of status is involved, and the
articles of co-partnership expressly contemplated the admission
of the partner's heirs into the partnership.
It must never be overlooked that this case involves the rights
acquired by strangers, and does not deal with the rights arising
between partners Goquiolay and the widow of Tan Sin An. The
issues between the partners inter se were expressly reserved in
our main decision. Now, in determining what kind of partner
the widow of partner Tan Sin An had elected to become,
strangers had to be guided by her conduct and actuations and
those of appellant Goquiolay. Knowing that by law a limited
partner is barred from managing the partnership business or
property, third parties (like the purchasers) who found the
widow possessing and managing the firm property with the
acquiescence (or at least without apparent opposition) of the
surviving partners were perfectly justified in assuming that she
had become a general partner, and, therefore, in negotiating
with her as such a partner, having authority to act for, and in
behalf of, the firm. This belief, be it noted, was shared even by
the probate court that approved the sale by the widow of the
real property standing in the partnership name. That belief was
fostered by the very inaction of appellant Goquiolay. Note that
for seven long years, from partner Tan Sin An's death in 1942
to the sale in 1949, there was more than ample time
for Goquiolay to take up the management of these properties,
or at least ascertain how its affairs stood. For seven
years Goquiolay could have asserted his alleged rights, and by
suitable notice in the commercial registry could have warned
strangers that they must deal with him alone, as sole general
partner. But he did nothing of the sort, because he was not
interested (supra), and he did not even take steps to pay, or
settle, the firm debts that were overdue since before the
outbreak of the last war. He did not even take steps, after Tan
Sin An died, to cancel, or modify, the provisions of the
partnership articles that he (Goquiolay) would have no
intervention in the management of the partnership.
This laches certainly contributed to confirm the view that the
widow of Tan Sin An had, or was given, authority to manage
and deal with the firm's properties, apart from the presumption
that a general partner dealing with partnership property has the
requisite authority from his co-partners (Litton vs. Hill and
Cern, et al., 67 Phil., 513; quoted in our main decision, p. 11).
"The stipulation in the articles of partnership that any of the
two managing partners may contract and sign in the name of
the partnership with the consent of the other, undoubtedly
creates an obligation between the two partners, which consists
in asking the other's consent before contracting for the
partnership. This obligation of course is not imposed upon a
third personwho contracts with the partnership. Neither is it
necessary for the third person to ascertain if the managing
partner with whom he contracts has previously obtained the
consent of the other. A third person may and has a right to
presume that the partner with whom he contracts has, in the
ordinary and natural course of business, the consent of his co-
partner; for otherwise he would not enter into the contract. The
third person would naturally not presume that the partner with
whom he enters into the transaction is violating the articles of
partnership, but on the contrary, is acting in accordance
therewith. And this finds support in the legal presumption that
the ordinary course of business has been followed (No. 18,
section 334, Code of Civil Procedure), and that the law has
been obeyed (No. 31, section 334). This last presumption is
equally applicable to contracts which have the force of law
between the parties." (Litton vs. Hill & Cern, et al., 67 Phil.,
509, 516) (Emphasis supplied)
It is next urged that the widow, even as a partner, had no
authority to sell the real estate of the firm. This argument is
lamentably superficial because it fails to differentiate between
real estate acquired and held as stock-in-trade and real state
held merely as business site (Vivante's "taller banco social")
for the partnership. Where the partnership business is to deal in
merchandise and goods, i.e., movable property, the sale of its
real property (immovables) is not within the ordinary powers of
a partner, because it is not in line with the normal business of
the firm. But where the express and avowed purpose of the
partnership is to buy and sell real estate (as in the present case),
the immovables thus acquired by the firm form part of its
stock-in-trade, and the sale thereof is in pursuance of
partnership purposes, hence within the ordinary powers of the
partner. This distinction is supported by the opinion of Gay de
Montella 1 , in the very passage quoted in the appellant's
motion for reconsideration:
"La enajenacin puede entrar en las facultades del gerente:
cuando es conforme a los fines sociles. Pero esta facultad de
enajenar limitada a las ventas conforme a los fines sociles,
viene limitada a los objetos de comecio a los productos de la
fabrica para explotacin de los cuales se ha constituido la
Sociedad. Ocurrira una cosa parecida cuando el objeto de la
Sociedad fuese la compra y venta de inmuebles, en cuyo
caso el gerente estara facultado para otorgar las ventas que
fuere necesario." (Montella) (Emphasis supplied)
The same rule obtains in American law.
In Rosen vs. Rosen, 212 N. Y. Supp. 405, 406, it was held:
"a partnership to deal in real estate may be created and either
partner has the legal right to sell the firm real estate"
In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:
"And hence, when the partnership business is to deal in real
estate, one partner has ample power, as a general agent of the
firm, to enter into an executory contract for the sale of real
estate."
And in Rovelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am.
St., Rep. 83:
"If the several partners engaged in the business of buying and
selling real estate can not bind the firm by purchases or sales of
such property made in the regular course of business, then they
are incapable of exercising the essential rights and powers of
general partners and their association is not really a partnership
at all, but a several agency."
Since the sale by the widow was in conformity with the express
objective of the partnership, "to engage . . . in buying and
selling real estate" (Art. IV, No. 1, Articles of Copartnership), it
can not be maintained that the sale was made in excess of her
powers as general partner.
Considerable stress is laid by appellant in the ruling of the
Supreme Court of Ohio in McGrath, et al., vs. Cowen, et al., 49
N. E., 338. But the facts of that case are vastly different from
the one before us. In the McGrath case, the Court expressly
found that:
"The firm was then, and for some time had been, insolvent, in
the sense that its property was insufficient to pay its debts,
though it still had good credit, and was actively engaged in the
prosecution of its business. On that day, which was Saturday,
the plaintiff caused to be prepared, ready for execution, the four
chattel mortgages in question, which cover all the tangible
property then belonging to the firm, including the counters,
shelving, and other furnishings and fixtures necessary
for, and used in carrying on, its business, and signed the same
in this form: "In witness whereof, the said Cowen & McGrath,
a firm, and Owen McGrath, surviving partner of said firm, and
Owen McGrath, individually, have hereunto set their hands,
this 20th day of May, A. D. 1893. Cowen & McGrath, by Owen
McGrath. Owen McGrath, Surviving partner of Cowen &
McGrath. Owen McGrath" At the same time, the plaintiff had
prepared, ready for filing, the petition for the dissolution of the
partnership and appointment of a receiver, which he
subsequently filed, as hereinafter stated. On the day the
mortgages were signed, they were placed in the hands of the
mortgagees, which was the first intimation to them that there
was any intention to make then. At that time none of the claims
secured by the mortgages were due, except, it may be, a small
part of one of them, and none of the creditors to whom the
mortgages were made had requested security, or were pressing
for the payment of their debts . . . The mortgages appear to be
without a sufficient condition of defeasance, and contain a
stipulation authorizing the mortgagees to take immediate
possession of the property, which they did as soon as the
mortgages were filed, through the attorney who then
represented them, as well as the plaintiff; and the stores were at
once closed, and possession delivered by them to the
receiverappointed upon the filing of the petition. The avowed
purpose of the plaintiff in the course pursued by him, was to
terminate the partnership, place its property beyond the control
of the firm, and insure the preference of the mortgages, all of
which was known to them at the time; . . ." (Cas cit., p. 343,
Italics supplied)
It is natural that from these facts the Supreme Court of Ohio
should draw the conclusion that conveyances were made with
intent to terminate the partnership, and that they were not
within the powers of McGrath as partner. But there is no
similarity between those acts and the sale by the widow of Tan
Sin An. In the McGrath case, the sale included even the fixtures
used in the business, in our case, the lands sold were those
acquired to be sold. In the McGrath case, none of the creditors
were pressing for payment; in our case, the creditors had been
unpaid for more than seven years, and their claims had been
approved by the probate court for payment. In the McGrath
case, the partnership received nothing beyond the discharge of
its debts; in the present case, not only were its debts assumed
by the buyers, but the latter paid, in addition, P37,000.00 in
cash to the widow, to the profit of the partnership. Clearly, the
McGrath ruling is not applicable.
We will now turn to the question of fraud. No direct evidence
of it exists; but appellant points out, as indicia thereof, the
allegedly low price paid for the property, and the relationship
between the buyers, the creditors of the partnership, and the
widow of Tan Sin An.
First, as to the price: As already noted, this property was
actually sold for a total of P153,726.04, of which P37,000.00
was in cash, and the rest in partnership debts assumed by the
purchaser. These debts (P62,415.91 to Yutivo, and P54,310.13
to Sing Yee Cuan & Co.) are not questioned; they were
approved by the Court, and its approval is now final. The
claims were, in fact, for the balance on the original purchase
price of the land sold (due first to La Urbana, later to the Banco
Hipotecario) plus accrued interests and taxes, redeemed by the
two creditors-claimants. To show that the price was inadequate,
appellant relies on the testimony of the realtor Mata, who in
1955, six years after the sale in question, asserted that the land
was worth P312,000.00. Taking into account the continued rise
of real estate values since liberation, and the fact that the sale in
question was practically a forced sale because the partnership
had no other means to pay its legitimate debts, this evidence
certainly does not show such "gross inadequacy" as to justify
rescission of the sale. If at the time of the sale (1949) the price
of P153,726.04 was really low, how is it that appellant was not
able to raise the amount, even if the creditor's representative,
Yu Khe Thai, had already warned him four years before (1945)
that the creditors wanted their money back, as they were justly
entitled to?
It is argued that the land could have been mortgaged to raise the
sum needed to discharge the debts. But the lands were already
mortgaged, and had been mortgaged since 1940, first to La
Urbana, and then to the Banco Hipotecario. Was it reasonable
to expect that other persons would loan money to the
partnership when it was unable even to pay the taxes on the
property, and the interest on the principal since 1940? If it had
been possible to find lenders willing to take a chance on such a
bad financial record, would not Goquiolay have taken
advantage of it? But the fact is clear on the record that since
liberation until 1949 Goquiolay never lifted a finger to
discharge the debts of the partnership. Is he entitled now to cry
fraud after the debts were discharged with no help from him?
With regard to the relationship between the parties, suffice it to
say that the Supreme Court has ruled that relationship alone is
not a badge of fraud (Oria Hnos. vs. McMicking, 21 Phil., 243;
also Hermandad de Smo. Nombre de Jesus vs. Sanchez, 40 Off.
Gaz., 1685). There is no evidence that the original buyers,
Washington Sycip and Betty Lee, were without independent
means to purchase the property. That the Yutivos should be
willing to extend credit to them, and not to appellant, is neither
illegal nor immoral; at the very least, these buyers did not have
a record of inveterate defaults like the partnership "Tan Sin An
&Goquiolay".
Appellant seeks to create the impression that he was the victim
of a conspiracy between the Yutivo firm and their component
members. But no proof is adduced. If he was such a victim, he
could have easily defeated the conspirators by raising money
and paying off the firm's debts between 1945 and 1949; but he
did not; he did not even care to look for a purchaser of the
partnership assets. Were it true that the conspiracy to defraud
him arose (as he claims) because of his refusal to sell the lands
when in 1945 Yu Khe Thai asked him to do so, it is certainly
strange that the conspirators should wait 4 years, until 1949, to
have the sale effected by the widow of Tan Sin An, and that the
sale should have been routed through the probate court taking
cognizance of Tan Sin An's estate, all of which increased the
risk that the supposed fraud should be detected.
Neither was there any anomaly in the filing of the claims of
Yutivo and Sing Yee Cuan & Co., (as subrogees of the Banco
Hipotecario) in proceedings for the settlement of the estate of
Tan Sin An. This for two reasons: First, Tan Sin An and the
partnership "Tan Sin An & Goquiolay" were solidary (joint and
several) debtors (Exhibit "N" mortgage to the Banco
Hipotecario), and Rule 87, section 6, is to the effect that:
"Where the obligation of the decedent is joint and several with
another debtor, the claim shall be filed against thedecedent as if
he were the only debtor, without prejudice to the right of the
estate to recover contribution from the other debtor." (Emphasis
supplied)
Secondly, the solidary obligation was guaranteed by a mortgage
on the properties of the partnership and those of Tan Sin An
personally, and a mortagage in indivisible, in the sense that
each and every parcel under mortgage answers for the totality
of the debt (Civ. Code of 1889, Article 1860; New Civil Code,
Art. 2089).
A final and conclusive consideration. The fraud charged not
being one used to obtain a party's consent to a contract (i.e., not
being deceit or dolus in contrahendo), if there is fraud at all, it
can only be a fraud of creditors that gives rise to a rescission of
the offending contract. But by express provision of law (Article
1294, Civil Code of 1889; Article 1383, New Civil Code), "the
action for rescission is subsidiary; it can not be instituted except
when the party suffering damage has no other legal means to
obtain reparation for the same". Since there is no allegation, or
evidence, that Goquiolay can not obtain reparation from the
widow and heirs of Tan Sin An, the present suit to rescind the
sale in question is not maintenable, even if the fraud charged
actually did exist.
Premises considered, the motion for reconsideration is denied.
Bengzon, C.J., Padilla, Concepcion, Barrera and Dizon,
JJ., concur.
Separate Opinions
BAUTISTA ANGELO, J., dissenting:
This is an appeal from a decision of the Court of First Instance
of Davao dismissing the complaint filed by Antonio
C.Goquiolay, et al., seeking to annul the sale made by Kong
Chai Pin of three parcels of land to Washington Z. Sycip and
Betty Y. Lee on the ground that it was executed without proper
authority and under fraudulent circumstances. In a decision
rendered on July 26, 1960, we affirmed this decision although
on grounds different from those on which the latter is
predicated. The case is once more before us on a motion for
reconsideration filed by appellants raising both questions of
fact and of law.
On May 29, 1940, Tan Sin An and Antonio
C. Goquiolay executed in Davao City a commercial partnership
for a period of ten years with a capital of P30,000.00 of
which Goquiolay contributed P18,000.00 representing 60%
while Tan Sin An P12,000.00 representing 40%. The business
of the partnership was to engage in buying real estate properties
for subdivision, resale and lease. The partnership was duly
registered, and among the conditions agreed upon in the
partnership agreement which are material to this case are: (1)
that Tan Sin An would be the exclusive managing partner, and
(2) in the event of the death of any of the partners the
partnership would continue, the deceased to be represented by
his heirs. On May 31, 1940,Goquiolay executed a general
power of attorney in favor of Tan Sin An appointing the latter
manager of the partnership and conferring upon him the usual
powers of management.
On May 29, 1940, the partnership acquired three parcels of land
known as Lots Nos. 526, 441 and 521 of the cadastral survey of
Davao, the only assets of the partnership, with the capital
originally invested, financing the balance of the purchase price
with a mortgage in favor of "La Urbana Sociedad Mutua de
Construccin Prestamos" in the amount of P25,000.00 payable
in ten years. On the same date, Tan Sin An, in his individual
capacity, acquired 46 parcels of land executing a mortgage
thereon in favor of the same company for the sum of
P35,000.00. On September 25, 1940, these two mortgage
obligations were consolidated and transferred to the Banco
Hipotecario de Filipinas and as a result Tan Sin An, in his
individual capacity, and the partnership bound themselves to
pay jointly and severally the total amount of P52,282.80, with
8% annual interest thereon within the period of eight years
mortgaging in favor of said entity the 3 parcels of land
belonging to the partnership to Tan Sin An.
Tan Sin An died on June 26, 1942 and was survived by his
widow, defendant Kong Chai Pin, and four children, all of
whom are minors of tender age. On March 18, 1944, Kong
Chai Pin was appointed administratrix of the intestate estate of
Tan Sin An. And on the same date, Sing, Yee and Cuan Co.,
Inc. paid to the Banco Hipotecario the remaining unpaid
balance of the mortgage obligation of the partnership
amounting to P46,116.75 in Japanese currency.
Sometime in 1945, after the liberation of Manila, Yu Khe Thai,
president and general manager of Yutivo Sons Hardware Co.
and Sing, Yee and Cuan Co., Inc., called for Goquiolay and the
two had a conference in the office of the former during which
he offered to buy the interest of Goquiolay in the partnership.
In 1948, Kong Chai Pin, the widow, sent her counsel, Atty.
Dominador Zuo, to ask Goquiolay to execute in her favor a
power of attorney. Goquiolay refused both to sell his interest in
the partnership as well as to execute the power of attorney.
Having failed to get Goquiolay to sell his share in the
partnership, Yutivo Sons Hardware Co., and Sing, Yee and
Cuan Co., Inc. filed in November, 1946 a claim each in the
intestate proceedings of Tan Sin An for the sum of P84,705.48
and P66,529.91, respectively, alleging that they represent
obligations of both Tan Sin An and the partnership. After first
denying any knowledge of the claims, Kong Chai Pin, as
administratrix, admitted later without qualification the two
claims in an amended answer she file on February 28, 1947.
The admission was predicated on the ground that she and the
creditors were closely related by blood, affinity and business
ties. In due course, these two claims were approved by the
court.
On March 29, 1949, more than two years after the approval of
the claims, Kong Chai Pin filed a petition in the probate court
to sell all the properties of the partnership as well as some of
the conjugal properties left by Tan Sin An for the purpose of
paying the claims. Following approval by the court of the
petition for authority to sell, Kong Chai Pin, in her capacity as
administratrix, and presuming to act as managing partner of the
partnership, executed on April 4, 1949 a deed of sale of the
properties owned by Tan Sin An and by the partnership in favor
of Betty Y. Lee and Washington Z. Sycip in consideration of the
payment to Kong Chai Pin of the sum of P37,000.00, and the
assumption by the buyers of the claims filed by Yutivo Sons
Hardware Co. and Sing, Yee and Cuan Co., Inc. in whose favor
the buyers executed a mortgage on the properties purchased.
Betty Y. Lee and Washington Z. Sycip subsequently executed a
deed of sale of the same properties in favor of their co-
defendant Insular Development Company, Inc. It should be
noted that these transactions took place without the knowledge
of Goquiolayand it is admitted that Betty Y. Lee and
Washington Z. Sycip bought the properties on behalf of the
ultimate buyer, the Insular Development Company, Inc., with
money given by the latter.
Upon learning of the sale of the partnership
properties, Goquiolay filed on July 25, 1949 in the intestate
proceedings a petition to set aside the order of the court
approving the sale. The court granted the petition. While the
order was pending appeal in the Supreme
Court, Goquiolay filed the present case on January 15, 1953
seeking to nullify the sale as stated in the early part of this
decision. In the meantime, the Supreme Court remanded the
original case to the probate court for rehearing due to lack of
necessary parties.
The plaintiffs in their complaint challenged the authority of
Kong Chai Pin to sell the partnership properties on the ground
that she had no authority to sell because even granting that she
became a partner upon the death of Tan Sin An the power of
attorney granted in favor of the latter expired after his death.
Defendants, on the other hand, defended the validity of the sale
on the theory that she succeeded to all the rights and
prerogatives of Tan Sin An as managing partner.
The trial court sustained the validity of the sale on the ground
that under the provisions of the articles of partnership allowing
the heirs of the deceased partner to represent him in the
partnership after his death Kong Chai Pin became a managing
partner, this being the capacity held by Tan Sin An when he
died.
In the decision rendered by this Court on July 26, 1960, we
affirmed this decision but on different grounds, among which
the salient points are: (1) the power of attorney given
by Goquiolay to Tan Sin An as manager of the partnership
expired after his death; (2) his widow Kong Chai Pin did not
inherit the management of the partnership, it being a personal
right; (3) as a general rule, the heirs of a deceased general
partner come into the partnership in the capacity only of limited
partners; (4) Kong Chai Pin, however, became a general partner
because she exercised certain alleged acts of management; and
(5) the sale being necessary to pay the obligations of the
partnership, she was therefore authorized to sell the partnership
properties without the consent of Goquiolay under the principle
of estoppel, the buyers having the right to rely on her acts of
management and to believe her to be in fact the managing
partner.
Considering that some of the above findings of fact and
conclusions of law are without legal or factual basis, appellants
have in due course filed a motion for reconsideration which
because of the importance of the issues therein raised has been
the subject of mature deliberation.
In support of said motion, appellants advanced the following
arguments:
1. If the conclusion of the Court is that heirs as a general rule
enter the partnership as limited partners only, therefore Kong
Chai Pin, who must necessarily have entered the partnership as
a limited partner originally, could have not chosen to be a
general partner by exercising the alleged acts of management,
because under Article 148 of the Code of Commerce a limited
partner cannot intervene in the management of the partnership,
even if given a power of attorney by the general partners. An
Act prohibited by law cannot give rise to any right and is void
under the express provisions of the Civil Code.
2. The buyers were not strangers to Kong Chai Pin, all of them
being members of the Yu (Yutivo) family, the rest, members of
the law firm which handles the Yutivo interests and handled the
papers of sale. They did not rely on the alleged acts of
management they believed (this was the opinion of their
lawyers) that Kong Chai Pin succeeded her husband as a
managing partner and it was on this theory alone that they
submitted the case in the lower court.
3. The alleged acts of management were denied and
repudiated by the very witnesses presented by the defendants
themselves.
The arguments advanced by appellants are in our opinion well-
taken and furnish sufficient basis to reconsider our decision if
we want to do justice to Antonio C. Goquiolay. And to justify
this conclusion, it is enough that we lay stress on the following
points: (1) there is no sufficient factual basis to conclude that
Kong Chai Pin executed acts of management to give her the
character of general manager of the partnership, or to serve as
basis for estoppel that may benefit the purchasers of the
partnership properties; (2) the alleged acts of management,
even if proven, could not give Kong Chai Pin the character of
general manager for the same is contrary to law and well-
known authorities; (3) even if Kong Chai Pin acted as general
manager she had no authority to sell the partnership properties
as to make it legal and valid; and (4) Kong Chai Pin had no
necessity to sell the properties to pay the obligation of the
partnership and if she did so it was merely to favor the
purchasers who were close relatives to the prejudice
of Goquiolay.
1. This point is pivotal for if Kong Chai Pin did not execute the
acts of management imputed to her our ruling cannot be
sustained. In making our aforesaid ruling we apparently gave
particular importance to the fact that it was Goquiolay himself
who tried to prove the acts of management. Appellants,
however, have emphasized the fact, and with reason, that
the appellees themselves are the ones who denied and refuted
the so-called acts of management imputed to Kong Chai Pin. to
have a clear view of this factual situation, it becomes necessary
that we analyze the evidence of record.
Plaintiff Goquiolay, it is intimated, testified on cross-
examination that he had a conversion with one Hernando
Young in Manila in the year 1945 who informed him that Kong
Chai Pin "was attending to the properties and deriving some
income therefrom and she had no other means of livelihood
except those properties and some rentals derived from the
properties." He went on to say by way of remark that she could
continue doing this because he wanted to help her. On point
that he emphasized was that he was "not interested in
agricultural lands."
On the other hand, defendants presented Hernando Young, the
same person referred to by Goquiolay, who was a close friend
of the family of Kong Chai Pin, for the purpose of denying the
testimony of Goquiolay. Young testified that in 1945 he was
still in Davao, and insisted no less than six times during his
testimony that he was not in Manila in 1945, the year when he
allegedly gave the information to Goquiolay, stating that he
arrived in Manila for the first time in 1947. He testified further
that he had visited the partnership properties during the period
covered by the alleged information given by him
to Goquiolay and that he found them "abandoned and
underdeveloped," and that Kong Chai Pin was not deriving any
income from them.
The other witness for the defendants, Rufino Lim, also testified
that he had seen the partnership properties and corroborated the
testimony of Hernando Young in all respects: "the properties in
Mamay were underdeveloped, the shacks were destroyed in
Tigato, and the family of Kong Chai Pin did not receive any
income from the partnership properties." He specifically
rebutted the testimony of Goquiolay in his deposition given on
June 30, 1956 that Kong Chai Pin and her family were living in
the partnership properties and stated that the 'family never
actually lived in the properties of the partnership even before
the war or after the war."
It is unquestionable that Goquiolay was merely repeating an
information given to him by a third person, Hernando Young -
he stressed this point twice. A careful analysis of the substance
of Goquiolay's testimony will show that he merely had no
objection to allowing Kong Chai Pin to continue attending to
the properties in order to give her some means of livelihood,
because, according to the information given him by Hernando
Young, which he assumed to be true, Kong Chai Pin had no
other means of livelihood. But certainly he made it very clear
that he did not allow her to manage the partnership when he
explained his reason for refusing to sign a general power of
attorney for Kong Chai Pin which her counsel, Atty. Zuo,
brought with him to his house in 1948. He said:
". . . Then Mr. Yu Eng Lai told me that he brought with him
Atty. Zuo and he asked me if I could execute a general power
of attorney for Mrs. Kong Chai Pin. Then I told Atty. Zuo
what is the use of executing a general power of attorney for
Mrs. Kong Chai Pin when Mrs. Kong Chai Pin had already got
that plantation for agricultural purposes, I said for agricultural
purposes she can use that plantation . . ." (T.s.n., p. 9, Hearing
on May 5, 1955)
It must be noted that in his testimony Goquiolay was
categorically stating his opposition to the management of the
partnership by Kong Chai Pin and carefully made the
distinction that his conformity was for her to attend to the
partnership properties in order to give her merely a means of
livelihood. It should be stated that the period covered by the
testimony refers to the period of occupation when living
condition was difficult and precarious. And Atty. Zuo, it
should also be stated, did not deny the statement of Goquiolay.
It can therefore be seen that the question as to whether Kong
Chai Pin exercised certain acts of management of the
partnership properties is highly controverted. The most that we
can say is that the alleged acts are doubtful more so when they
are disputed by the defendants themselves who later became
the purchasers of the properties, and yet these alleged acts, if at
all, only refer to management of the properties and not to
management of the partnership, which are two different things.
In resume, we may conclude that the sale of the partnership
properties by Kong Chai Pin cannot be upheld on the ground of
estoppel, first, because the alleged acts of management have
not been clearly proven; second, because the record clearly
shows that the defendants, or the buyers, were not misled nor
did they rely on the acts of management, but instead they acted
solely on the opinion of their counsel, Atty. Quisumbing, to the
effect that she succeeded her husband in the partnership as
managing partner by operation of law; and third, because the
defendants are themselves estopped to invoke a defense which
they tried to dispute and repudiate.
2. Assuming arguendo that the acts of management imputed to
Kong Chai Pin are true, could such acts give her the character
of general manager of the partnership as we have concluded in
our decision?
Our answer is in the negative because it is contrary to law and
precedents. Garrigues, a well-known commentator, is clearly of
the opinion that mere acceptance of the inheritance does not
make the heir of a general partner a general partner himself. He
emphasized that the heir must declare that he is entering the
partnership as a general partner unless the deceased partner has
made it an express condition in his will that the heir accepts the
condition of entering the partnership as a prerequisite of
inheritance, in which case acceptance of the inheritance is
enough. 1 But here Tan Sin An died intestate.
Now, could Kong Chai Pin be deemed to have declared her
intention to become general partner by exercising acts of
management? We believe not, for, in consonance with our
ruling that as a general rule the heirs of a deceased partner
succeed as limited partners only by operation of law, it is
obvious that the heir, upon entering the partnership, must make
a declaration of his character, otherwise he should be deemed
as having succeeded as limited partner by the mere acceptance
of inheritance. And here Kong Chai Pin did not make such
declaration. Being then a limited partner upon the death of Tan
Sin An by operation of law, the peremptory prohibition
contained in Article 148 2 of the Code of Commerce became
binding upon her and as a result she could not change her status
by violating its provisions not only under the general principle
that prohibited acts cannot produce any legal effect, but also
because under the provisions of Article 147 3 of the same Code
she was precluded from acquiring more rights than those
pertaining to her as a limited partner. The alleged acts of
management, therefore, did not give Kong Chai Pin the
character of general manager to authorize her to bind the
partnership.
Assuming also arguendo that the alleged acts of management
imputed to Kong Chai Pin gave her the character of a general
partner, could she sell the partnership properties without
authority from the other partners?
Our answer is also in the negative in the light of the provisions
of the articles of partnership and the pertinent provisions of the
Code of Commerce and the Civil Code. Thus, Article 129 of
the Code of Commerce says:
"If the management of the general partnership has not been
limited by special agreement to any of the members, all shall
have the power to take part in the direction and management of
the common business, and the members present shall come to
an agreement for all contracts or obligations which may
concern the association."
And the pertinent portions of the Articles of partnership
provides:
"VII. The affairs of the co-partnership shall be managed
exclusively by the managing partner or by his authorized agent,
and it is expressly stipulated that the managing partner may
delegate the entire management of the affairs of the co-
partnership by irrevocable power of attorney to any person,
firm or corporation he may select, upon such terms as regards
compensation as he may deem proper, and vest in such person,
firm or corporation full power and authority, as the agent of the
co-partnership and in his name, place and stead to do anything
for it or on his behalf which he as such managing partner might
do or cause to be done." (Page 23, Record on Appeal)
It would thus be seen that the powers of the managing partner
are not defined either under the provisions of the Code of
Commerce or in the articles of partnership, a situation which,
under Article 2 of the same Code, renders applicable herein the
provisions of the Civil Code. And since, according to well-
known authorities, the relationship between a managing partner
and the partnership is substantially the same as that of the agent
and his principal, 4 the extent of the power of Kong Chai Pin
must, therefore, be determined under the general principles
governing agency. And, on this point, the law says that an
agency created in general terms includes only acts of
administration, but with regard to the power to compromise,
sell, mortgage, and other acts of strict ownership, an express
power of attorney is required. 5 Here Kong Chai Pin did not
have such power when she sold the properties of the
partnership.
Of course, there is authority to the effect that a managing
partner, even without express power of attorney, may perform
acts affecting ownership if the same are necessary to promote
or accomplish a declared object of the partnership, but here the
transaction is not for this purpose. It was effected not to
promote any avowed object of the partnership. 6 Rather, the
sale was effected to pay an obligation of the partnership by
selling its real properties which Kong Chai Pin could not do
without express authority. The authorities supporting this view
are overwhelming.
"La enajenacin puede entrar en las facultades del
gerente, cuando es conforme a los fines sociales. Pero esta
facultad de enajenar limitada a las ventas conforme a los fines
sociales, viene limitada a los objetos de comercio, o los
productos de la fbrica para explotacin de los cuales se ha
consttuido la Sociedad. Ocurrira una cosa parecida cuando el
objeto de la Sociedad fuese la compra y venta de inmuebles, en
cuyo caso el gerente estaria facultado para otorgar las ventas
que fuere necesario. Por el contrario, el gerente no tiene
atribuciones para vender las instalaciones del comercio ni la
fbrica, ni las maquinarias, vehculos de transporte, etc., que
forman parte de la explotacin social. En todos estas casos,
gualmente que si tratase de la venta de una marca o
procedimiento mecnico o quimico, etc., siendo actos de
disposicin seria necesario contar con la conformidad expresa
de todos los socios." (R. Gay de Montella, id., pp. 223-224,
Italics supplied)
"Los poderes de los Administradores no tienen ante el silencio
del contrato otros limites que los sealados por el objeto de la
Sociedad y, por consiguiente, pueden llevar a cabo todas las
operaciones que sirven para aquel ejercicio, incluso cambiando
repetidas veces los propios acuerdos segn el inters convenido
de la Sociedad. Pueden contratar y despedir a los empleados,
tomar en arriendo almacenes y tiendas, expedir cambiales,
girarlas, avalarlas, dar en prenda o en hipoteca los bienes de la
sociedad y adquirir inmuebles destinados a su explotacin o al
empleo estable de sus capitales. Pero no podrn ejecutar los
actos que estn en contradiccin con la explotacin que les fue
confiada no podran cambiar el objeto, el domicilio la razn
social; fundir a la Sociedad en otra; ceder la accin, y por tanto,
el uso de la firma social a otro renunciar definitivamente el
ejercicio de uno de otro ramo comercio que se les haya
confiado y enajenar o pignorar el taller o el banco social
excepto que la venta o piqnoracion tengan por el objeto
procurar los medios necesarios para la continuacin de la
empresa social." (Cesar Vivante, Tratado de Derecho
Mercantil, pp. 124-125, Vol. II, la. ed.; Italics supplied).
"The act of one partner to bind the firm, must be necessary for
the carrying on of its business. If all that can be said of it was
that it was convenient, or that it facilitated the transaction of the
business of the firm, that is not sufficient, in the absence of
evidence of sanction by other partners. Nor, it seems, will
necessity itself be sufficient if it be an extraordinary necessity.
What is necessary for carrying on the business of the firm
under ordinary circumstances and in the usual way, is the test.
Lindl. Partn. Sec. 126. While, within this rule, one member of a
partnership may, in the usual and ordinary course of its
business, make a valid sale or pledge, by way of mortgage or
otherwise, of all or part of its effects intended for sale, to a
bona fide purchaser or mortgagee, without the consent of the
other members of the firm, it is not within the scope of his
implied authority to make a final disposition of all of its effects,
including those employed as the means of carrying on its
business, the object and effect of which is to immediately
terminate the partnership, and place its property beyond its
control. Such a disposition, instead of being within the scope of
the partnership business, or in the usual and ordinary way of
carrying it on, is necessarily subversive of the object of the
partnership, and contrary to the presumed intention of the
partnership in its formation." (McGrath, et al. vs. Cowen, et al.,
49 N.F. 338, 343; Italics supplied)
Since Kong Chai Pin sold the partnership properties not in line
with the business of the partnership but to pay its obligation
without first obtaining the consent of the other partners, the sale
is invalid being in excess of her authority.
4. Finally, the sale under consideration was effected in a
suspicious manner as may be gleaned from the following
circumstances:
(a) The properties subject of the instant sale which consist of
three parcels of land situated in the City of Davao have an area
of 200 hectares more or less, or 2,000,000 square meters. These
properties were purchased by the partnership for purposes of
subdivision. According to realtor Mata, who testified in court,
these properties could command at the time he testified a value
of not less than P312,000.00, and according to Dalton Chen,
manager of the firm which took over the administration, since
the date of sale no improvement was ever made thereon
precisely because of this litigation. And yet, for said properties,
aside from the sum of P37,000.00 which was paid for the
properties of the deceased and the partnership, only the paltry
sum of P66,529.91 was paid as a consideration therefor, of
which the sum of P46,116.75 was even paid in Japanese
currency.
(b) Considering the area of the properties Kong Chai Pin had
no valid reason to sell them if her purpose was only to pay the
partnership's obligation. She could have negotiated a loan if she
wanted to pay it by placing the properties as security, but
preferred to sell them even at such low prices because of her
close relationship with the purchasers and creditors who
conveniently organized a partnership to exploit them, as may be
seen from the following relationship of their pedigree:
KONG CHAI PIN, the administratrix, was a granddaughter of
Jose P. Yutivo, founder of the defendant Yutivo Sons Hardware
Co. YUTIVO SONS HARDWARE CO, and SIN YEE CUAN
CO, INC., alleged creditors, are owned by the heirs of Jose P.
Yutivo (Sing, Yee & Cuan are the three children of Jose). YU
KHE THAI is a grandson of the same Jose P. Yutivo, and
president of the two alleged creditors. He is the acknowledged
head of the Yu families. WASHINGTON Z. SYCIP, one of the
original buyers, 'is married to Ana Yu, a daughter of Yu Khe
Thai, BETTY Y. LEE, the other original buyer is also a
daughter of Yu Khe Thai. The INSULAR DEVELOPMENT
CO., the ultimate buyer, was organized for the specific purpose
of buying the partnership properties. Its incorporators were:
Ana Yu and Betty V. Lee, Atty. Quisumbing and Salazar the
lawyers who studied the papers of sale and have been counsel
for the Yutivo interests; Dalton Chen a brother-in-law of Yu
Khe Thai and an executive of Sing Yee & Cuan Co; Lillian Yu,
daughter of Yu Eng Poh, an executive of Yutivo Sons
Hardware, and Simeon Daguiwag, a trusted employee of the
Yutivos.
(c) Lastly, even since Tan Sin An died in 1942 the creditors,
who were close relatives of Kong Chai Pin, have already
conceived the idea of possessing the lands for purposes of
subdivision, excluding Goquiolay from their plan, and this is
evident from the following sequence of events:
Tan Sin An died in 1942 and intestate proceedings were opened
in 1944. In 1946, the creditors of the partnership filed their
claim against the partnership in the intestate proceedings. The
creditors studied ways and means of liquidating the obligation
of the partnership, leading to the formation of the defendant
Insular Development Co., composed of members of the Yutivo
family and the counsel of record of the defendants, which
subsequently bought the properties of the partnership and
assumed the obligation of the latter in favor of the creditors of
the partnership, Yutivo Sons Hardware and Sing, Yee & Cuan,
also of the Yutivo family. The buyers took time to study the
commercial potentialities of the partnership properties and their
lawyers carefully studied the document and other papers
involved in the transaction. All these steps led finally to the sale
of the three partnership properties.
Upon the strength of the foregoing considerations, I vote to
grant motion for reconsideration.
Labrador, Paredes and Makalintal, JJ., concur.
FIRST DIVISION
[G.R. No. 70403. July 7, 1989.]
SANTIAGO SYJUCO, INC., petitioner, vs. HON. JOSE
P. CASTRO, AS PRESIDING JUDGE OF THE
REGIONAL TRIAL COURT OF THE NATIONAL
CAPITAL JUDICIAL REGION, BRANCH LXXXV,
QUEZON CITY, THE CITY SHERIFF OF THE CITY OF
MANILA, THE CITY REGISTER OF DEEDS OF THE
CITY OF MANILA, EUGENIO LIM, ARAMIS LIM,
MARIO LIM, PAULINO LIM, LORENZO LIM, NILA
LIM and/or THE PARTNERSHIP OF THE HEIRS OF
HUGO LIM and ATTORNEY PATERNO P.
CANLAS, respondents.
Doroteo B. Daguna and Felix D. Carao for petitioner.
Paterno Canlas for private respondents.
SYLLABUS
1. REMEDIAL LAW; SUPREME COURT; SANCTIONS
AGAINST TRIFLING WITH JUDICIAL PROCESSES; CASE
AT BAR. The Court cannot but condemn in the strongest
terms this trifling with the judicial process which degrades the
administration of justice, mocks, subverts and misuses that
process for purely dilatory purposes, thus tending to bring it
into disrepute, and seriously erodes public confidence in the
will and competence of the courts to dispense swift justice. The
Lims and their partnership acted in bad faith and with intent to
defraud is manifest in the record of their actuations, presenting
as they did, piecemeal and in one case after another, defenses to
the foreclosure or claims in derogation thereof that were
available to them from the very beginning actuations that
were to stave off the liquidation of an undenied debt for more
than twenty years and culminated in the clandestine filing and
prosecution of the action subject of the present petition. The
private respondents (the Lims, the Partnership of the Heirs of
Hugo Lim and Atty. Paterno R. Canlas) are sentenced, jointly
and severally, to pay the petitioner P25,000.00 as nominal
damages and P100,000.00 as exemplary damages, as well as
treble costs.
2. ID.; ACTION JURIDICAL PERSONALITY; LEGAL
FICTION OF SEPARATE JURIDICAL PERSONALITY AND
EXISTENCE, NOT A SHIELD FROM KNOWLEDGE
WHICH NATURALLY AND IRRESISTIBLY FLOWS FROM
UNDENIED FACTS; CASE AT BAR. The respondent
partnership is composed exclusively of the individual Lims in
whose name all the cases herein referred to, with the sole
exception of Civil Case No. Q-36485, were brought and
prosecuted, their contribution to the partnership consisting
chiefly, if not solely, of the property subject of
the Syjuco mortgage. It is also a fact that despite its having
been contributed to the partnership, allegedly on March 30,
1959, the property was never registered with the Register of
Deeds in the name of the partnership, but to this date remains
registered in the names of the Lims as owners in common. The
original mortgage deed of November 14, 1964 was executed by
the Lims as such owners, as were all subsequent amendments
of the mortgage. There can be no dispute that in those
circumstances, the respondent partnership was chargeable with
knowledge of the mortgage from the moment of its execution.
The legal fiction of a separate juridical personality and
existence will not shield it from the conclusion of having such
knowledge which naturally and irresistibly flows from the
undenied facts. It would violate all precepts of reason, ordinary
experience and common sense to propose that a partnership, as
such, cannot be held accountable with knowledge of matters
commonly known to all the partners or of acts in which all of
the latter, without exception, have taken part, where such
matters or acts affect property claimed as its own by said
partnership.
3. CIVIL LAW; ESTOPPEL; FAILURE TO IMPUGN
MORTGAGE FOR MORE THAN SEVENTEEN YEARS.
If, therefore, the respondent partnership was inescapably
chargeable with knowledge of the mortgage executed by all the
partners thereof, its silence and failure to impugn said mortgage
within a reasonable time, let alone a space of more than
seventeen years, brought into play the doctrine of estoppel to
preclude any attempt to avoid the mortgage as allegedly
unauthorized.
4. ID.; ID.; ESTOPPEL BY SILENCE. ". . . an estoppel may
arise from silence as well as from words. 'Estoppel by silence'
arises where a person, who by force of circumstances is under a
duty to another to speak, refrains from doing so and thereby
leads the other to believe in the existence of a state of facts in
reliance on which he acts to his prejudice. Silence may support
an estoppel whether the failure to speak is intentional or
negligent.
5. ID.; OBLIGATIONS & CONTRACTS; PARTNERSHIP;
ACTS OF ALL THE INDIVIDUAL MEMBERS ARE
CONSIDERED ACTS OF THE PARTNERSHIP. Despite
the concealment of the existence of the partnership, for all
intents and purposes and consistently with the Lims' own
theory, it was that partnership which was the real party in
interest in all the actions; it was actually represented in said
actions by all the individual members thereof, and
consequently, those members' acts, declarations and omissions
cannot be deemed to be simply the individual acts of said
members, but in fact and in law, those of the partnership.
6. REMEDIAL LAW; ACTIONS; SPLITTING OF CAUSES
OF ACTION; MANIFEST IN CASE AT BAR. What was
done by the Lims or by the partnership of which they were
the only members was to split their cause of action in
violation of the well known rule that only one suit may be
instituted for a single cause of action. The right sought to be
enforced by them in all their actions was, at bottom, to strike
down the mortgage constituted in favor of Syjuco, a right
which, in their view, resulted from several circumstances,
namely that the mortgage was constituted over property
belonging to the partnership without the latter's authority; that
the principal obligation thereby secured was usurious; that the
publication of the notice of foreclosure sale was fatally
defective, circumstances which had already taken place at the
time of the institution of the actions. They instituted four (4)
actions for the same purpose on one ground or the other,
making each ground the subject of a separate action. Upon
these premises, application of the sanction indicated by law is
called for, i.e., the judgment on the merits in any one is
available as a bar in the others.
7. ID.; ID.; RES JUDICATA; REQUISITES PRESENT IN
CASE AT BAR. The first judgment rendered in Civil
Case No. 75180 and affirmed by both the Court of Appeals
(CA-G.R. No. 51752) and this Court (G.R. No. L-45752)
should therefore have barred all the others, all the requisites
of res judicata being present. The judgment was a final and
executory judgment; it had been rendered by a competent court;
and there was, between the first and subsequent cases, not only
identity of subject-matter and of cause of action, but also of
parties.
8. ID.; ID.; ID.; JUDGMENT IN THE FIRST CASE,
REGARDED AS CONCLUSIVE IN ALL OTHER ACTIONS
AS TO ANY MATTER THAT COULD HAVE BEEN RAISED
IN RELATION THERETO. Under the doctrine of res
judicata, the judgment in the first was and should have been
regarded as conclusive in all other actions not only "with
respect to the matter directly adjudged," but also "as to any
other matter that could have been raised in relation thereto."
9. ID.; ID.; SERVICE OF SUMMONS; STRICT
COMPLIANCE, ENJOINED; PURPOSE. In the case
of Delta Motor Sales Corporation vs. Mangosing 49 it was held
that: "(a) strict compliance with the mode of service is
necessary to confer jurisdiction of the court over a corporation.
The officer upon whom service is made must be one who is
named in the statute; otherwise the service is insufficient. "The
purpose is to render it reasonably certain that the corporation
will receive prompt and proper notice in an action against it or
to insure that the summons be served on a representative so
integrated with the corporation that such person will know what
to do with the legal papers served on him. In other words, 'to
bring home to the corporation notice of the filing of the action'.
(35 A C.J.S. 288 citing Jenkins vs. Lykes Bros. S.S. Co., 48 F.
Supp. 848; MacCarthy vs. Langston, D.C. Fla., 23 F.R.D. 249).
10. ID.; EVIDENCE; BURDEN OF PROOF AND
PRESUMPTIONS; PRESUMPTION OF REGULARITY IN
THE PERFORMANCE OF OFFICIAL FUNCTIONS WILL
NOT LIE WHERE THERE IS DEFECTIVE SERVICE OF
SUMMONS. Where the sheriff's return is defective the
presumption of regularity in the performance of official
functions will not lie.
11. ID.; ACTIONS; SERVICE OF SUMMONS; DEFECTIVE
RETURN SERVICE OF SUMMON DOES NOT VEST
COURT WITH JURISDICTION; CASE AT BAR. The
defective sheriff's return thus being insufficient and
incompetent to prove that summons was served in the manner
prescribed for service upon corporations, there is no alternative
to affirming the petitioner's claim that it had not been validly
summoned in Civil Case No. Q-36485. It goes without saying
that lacking such valid service, the Trial Court did not acquire
jurisdiction over the petitioner Syjuco, rendering null and void
all subsequent proceedings and issuances in the action from the
order of default up to and including the judgment by default
and the order for its execution.
12. ID.; SPECIAL CIVIL ACTION; CERTIORARI;
APPROPRIATE REMEDY AGAINST JUDGMENT
RENDERED WITHOUT VALID SERVICE OF SUMMONS.
In Matanguihan vs. Tengco where, by declaring that an
action for annulment of judgment is not a plain, speedy and
adequate remedy, this Court in effect affirmed that certiorari is
an appropriate remedy against judgments or proceedings
alleged to have been rendered or had without valid service of
summons.
13. ID.; ID.; ID.; FAILURE TO RESOLVE ISSUE ON THE
MERITS GROUNDED ON ABSENCE OF VALID SERVICE
OF SUMMONS, A GRAVE ABUSE OF DISCRETION.
Respondent Judge Castro begged the question when, instead of
resolving on the merits the issue of the invalidity of his default
judgment and of the proceedings leading thereto because of
absence of valid service of summons on the defendant, which
had been expressly raised in the defendant's motion for
reconsideration, he simply refused to do so on the excuse that
he had lost jurisdiction over the case. This refusal was, in the
premises, a grave abuse of judicial discretion which must be
rectified.
14. ID.; ID.; MOTION TO DISMISS; ESTOPPEL BY
SILENCE AND CONVEYANCE OF PROPERTY BY THE
PARTIES, GROUNDS. Estoppel by silence and Article
1819, last paragraph, of the Civil Code, do not constitute
grounds for motion to dismiss under Rule 16 of the Rules of
Court.
15. LEGAL ETHICS; ATTORNEY-CLIENT RELATIONSHIP;
WHATEVER STEPS A CLIENT TAKES SHOULD BE
WITHIN THE KNOWLEDGE AND RESPONSIBILITY OF
COUNSEL. In Surigao Mineral Reservation Board vs.
Cloribel, it held that a party's lawyer of record has control of
the proceedings and that "(w)hatever steps his client takes
should be within his knowledge and responsibility."
DECISION
NARVASA, J p:
This case may well serve as a textbook example of how judicial
processes, designed to promote the swift and efficient
disposition of disputes at law, can be so grossly abused and
manipulated as to produce precisely the opposite result; how
they can be utilized by parties with small scruples to forestall
for an unconscionably long time so essentially simple a matter
as making the security given for a just debt answer for its
payment.
The records of the present proceedings and of two other cases
already decided by this Court expose how indeed the routine
procedure of an extrajudicial foreclosure came by dint of
brazen forum shopping and other devious maneuvering to
grow into a veritable thicket of litigation from which the
mortgagee has been trying to extricate itself for the last twenty
years.
Back in November 1964, Eugenio Lim, for and in his own
behalf and as attorney-in-fact of his mother, the widow Maria
Moreno (now deceased) and of his brother Lorenzo, together
with his other brothers, Aramis, Mario and Paulino, and his
sister, Nila, all hereinafter collectively called the Lims,
borrowed from petitioner Santiago Syjuco, Inc.
(hereinafter, Syjuco only) the sum of P800,000.00. The loan
was given on the security of a first mortgage on property
registered in the names of said borrowers as owners in common
under Transfer Certificates of Title Numbered 75413 and 75415
of the Registry of Deeds of Manila. Thereafter additional loans
on the same security were obtained by the Lims from Syjuco,
so that as of May 8, 1967, the aggregate of the loans stood at
P2,460,000.00, exclusive of interest, and the security had been
augmented by bringing into the mortgage other property, also
registered as owned pro indiviso by the Lims under two titles:
TCT Nos. 75416 and 75418 of the Manila Registry.
There is no dispute about these facts, nor about the additional
circumstance that as stipulated in the mortgage deed the
obligation matured on November 8, 1967; that the Lims failed
to pay it despite demands therefor; that Syjuco consequently
caused extra-judicial proceedings for the foreclosure of the
mortgage to be commenced by the Sheriff of Manila; and that
the latter scheduled the auction sale of the mortgaged property
on December 27,1968. 1 The attempt to foreclose triggered off
a legal battle that has dragged on for more than twenty years
now, fought through five (5) cases in the trial courts, 2 two (2)
in the Court of Appeals, 3 and three (3) more in this
Court, 4 with the end only now in sight.
1. CIVIL CASE NO. 75180, CFI MANILA, BR. 5; CA-G.R. NO.
00242-R; G.R. NO. L-34683
To stop the foreclosure, the Lims through Atty. Marcial G.
Mendiola, who was later joined by Atty. Raul Correa filed
Civil Case No. 75180 On December 24, 1968 in the Court of
First Instance of Manila (Branch 5). In their complaint they
alleged that their mortgage was void, being usurious for
stipulating interest of 23% on top of 11% that they had been
required to pay as "kickback." An order restraining the auction
sale was issued two days later, on December 26, 1968,
premised inter alia on the Lims' express waiver of "their rights
to the notice and re-publication of the notice of sale which may
be conducted at some future date." 5
On November 25, 1970, the Court of First Instance (then
presided over by Judge Conrado M. Vasquez 6 ) rendered
judgment finding that usury tainted the mortgage without,
however, rendering it void, declaring the amount due to be only
P1,136,235.00 and allowing the foreclosure to proceed for
satisfaction of the obligation reckoned at only said amount. 7
Syjuco moved for new trial to enable it to present additional
evidence to overthrow the finding of usury, and the Court
ordered the case reopened for that purpose. The Lims tried to
negate that order of reopening in the Court of Appeals, the
proceedings being docketed as CA-G.R. No. 00242-R. They
failed. The Court of Appeals upheld the Trial Court. The Lims
then sought to nullify this action of the Appellate Court;
towards that end, they filed with this Court a petition
for certiorari and prohibition, docketed as G.R. No. L-34683.
But here, too, they failed; their petition was dismissed. 8
Thereafter, and on the basis of the additional evidence adduced
by Syjuco on remand of the case from this Court, the Trial
Court promulgated an amended decision on August 16, 1972,
reversing its previous holding that usury had flawed the Lims'
loan obligation. It declared that the principal of said obligation
indeed amounted to P2,460,000.00, exclusive of interest at the
rate of 12% per annum from November 8, 1967, and, that
obligation being already due, the defendants (Syjuco and the
Sheriff of Manila) could proceed with the extrajudicial
foreclosure of the mortgage given to secure its satisfaction. 9
2. APPEAL FROM CIVIL CASE NO. 75180; CA-G.R. NO.
51752; G.R. NO. L-45752
On September 9, 1972, Atty. Paterno R. Canlas entered his
appearance in Civil Case No. 75180 as counsel for the Lims in
collaboration with Atty. Raul Correa, and on the same date
appealed to the Court of Appeals from the amended decision of
August 16, 1972. 10 In that appeal, which was docketed as CA-
G.R. No. 51752, Messrs. Canlas and Correa prayed that the
loans be declared usurious; that the principal of the loans be
found to be in the total amount of P1,269,505.00 only, and the
interest thereon fixed at only 6% per annum from the filing of
the complaint; and that the mortgage be also pronounced
void ab initio. 11
The appeal met with no success. In a decision promulgated on
October 25, 1976, the Court of Appeals affirmed in toto the
Trial Court's amended decision. 12
The Lims came to this Court seeking reversal of the appellate
Court's decision. However, their petition for review filed in
their behalf by Canlas, and Atty. Pio R. Marcos, and docketed
as G.R. No. L-45752 was denied for lack of merit in a
minute resolution dated August 5, 1977. The Lims' motion for
reconsideration was denied and entry of judgment was made on
September 24, 1977. 13Here the matter should have ended; it
marked only the beginning of Syjuco's travails.
3. CIVIL CASE NO. 112762, CFI MANILA BRANCH 9
Syjuco then resumed its efforts to proceed with the foreclosure.
It caused the auction sale of the mortgaged property to be
scheduled on December 20, 1977, only to be frustrated again by
another action filed by the Lims on December 19, 1977,
docketed as Civil Case No. 112762 of the Court of First
Instance of Manila. 14 The action sought to stop the sale on the
ground that the notice of foreclosure had not been republished;
this, notwithstanding that as earlier stressed, the restraining
order of December 26, 1968 issued in Civil Case No 75180
explicitly declared itself to be predicated on the Lims' waiver of
"their rights to the notice and republication of the notice of sale
which may be conducted at some future date." 15 An order
restraining the sale issued in the case, although the petition for
preliminary injunction was subsequently denied. A
supplemental complaint was also filed by the Lims seeking
recovery of some P1 million in damages allegedly suffered by
reason of said lack of republication. 16
4. CIVIL CASE NO. 75180
That very same claim that there had been no republication
of the notice of sale, which was the foundation of the Lims'
action in Civil Case No. 112762 as aforesaid was made by
the Lims the basis of an urgent motion filed on December 15,
1977 in Civil Case No. 75180, in which, as earlier narrated, the
judgment authorizing the foreclosure had been affirmed by both
the Court of Appeals and this Court, and had become final and
executory. And that motion sought exactly the same remedy
prayed for in Civil Case No. 112762 (filed by the Lims four [4]
days later, on December 19,1977), i.e., the prevention of the
auction sale. The Court Branch 5, then presided over by
Judge Jose H. Tecson granted the restraining order on
December 19, 1977, 17 the very same day that the Lims
commenced Civil Case No. 112762 in the same Court and in
which subsequent action they asked for and obtained a similar
restraining order.
The Lims' counsel thus brought about the anomalous situation
of two (2) restraining orders directed against the same auction
sale, based on the same ground, issued by different courts
having cognizance of two (2) separate proceedings instituted
for identical objectives. This situation lasted for all of three (3)
years, despite the republication of the notice of sale caused
by Syjuco in January, 1978 in an effort to end all dispute about
the matter, and despite Judge Tecson's having been made aware
of Civil Case No. 112762. It should have been apparent to
Judge Tecson that there was nothing more to be done in Civil
Case No. 75180 except to enforce the judgment, already final
and executory, authorizing the extrajudicial foreclosure of the
mortgage, a judgment sanctioned, to repeat, by both the Court
of Appeals and the Supreme Court; that there was in truth no
need for another publication of the notice since the Lims had
precisely waived such republication, this waiver having been
the condition under which they had earlier obtained an order
restraining the first scheduled sale; that, in any event, the
republication effected by Syjuco had removed the only asserted
impediment to the holding of the same; and that, finally, the
Lims were acting in bad faith: they were maintaining
proceedings in two (2) different courts for essentially the same
relief. 18 Incredibly, not only did Judge Tecson refuse to allow
the holding of the auction sale, as was the only just and lawful
course indicated by the circumstances, 19 he authorized the
Lims to sell the mortgaged property in a private sale, 20 with
the evident intention that the proceeds of the sale, which he
directed to be deposited in court, would be divided
between Syjuco and the Lims; this, in line with the patently
specious theory advocated by the Lims' counsel that the bond
filed by them for the postponement of the sale, set at P6 million
by the Court (later increased by P3 million) had superseded and
caused novation of the mortgage. 21 The case lay fallow for a
year, certain other incidents arising and remaining unresolved
on account of numerous postponements.
5. G.R. No. L-56014
Finally, on January 28, 1981, Syjuco betook itself to this Court,
presumably no longer disposed to await Judge Tecson's
pleasure or the Lims' convenience. It filed a petition
for certiorari and prohibition, docketed as G.R. No. L-56014,
alleging that in Civil Case No. 75180, Judge Tecson had
gravely abused discretion in:
(1) unreasonably delaying the foreclosure of the mortgage;
(2) entertaining the Lims' motion to discharge said mortgage
grounded on the theory that it had been superseded and novated
by the Lims' act of filing the bond required by Judge Tecson in
connection with the postponement of the foreclosure sale, and
unreasonably delaying resolution of the issue; and
(3) authorizing the Lims to negotiate and consummate the
private sale of the mortgaged property and motu
proprio extending the period granted the Lims for the purpose,
in disregard of the final and executory judgment rendered in the
case.
By judgment rendered on September 21, 1982, after due
proceedings, this Court 22 issued the writ prayed for and
nullified the orders and actuations of Judge Tecson in Civil
Case No. 75180. The judgment declared that:
(1) the republication by Syjuco of the notice of foreclosure sale
rendered the complaint in Civil Case No. 112762 moot and
academic; hence, said case could not operate to bar the sale;
(2) the Lims' bonds (of P6 million and P3 million), having by
the terms thereof been given to guarantee payment of damages
toSyjuco and the Sheriff of Manila resulting from the
suspension of the auction sale, could not in any sense and from
any aspect have the effect of superseding the mortgage or
novating it;
(3) in fact, the bonds had become worthless when, as shown by
the record, the bondsman's authority to transact non-life
insurance business in the Philippines was not renewed, for
cause, as of July 1, 1981.
The decision consequently decreed that the Sheriff of Manila
should proceed with the mortgage sale, there being no further
impediment thereto. 23
Notice of the decision was served on the Lims, through Atty.
Canlas, on October 2, 1982. A motion for reconsideration was
filed, 24but the same was denied with finality for lack of merit
and entry of final judgment was made on March 22, 1983. 25
6. THE SECRET ACTION: CIVIL CASE NO. Q-36845 OF
THE REGIONAL TRIAL COURT, QUEZON CITY, JUDGE
JOSE P.CASTRO, PRESIDING
Twelve (12) days after the Lims were served, as above
mentioned, with notice of this Court's judgment in G.R. No.
56014, or on October 14, 1982, they caused the filing with the
Regional Trial Court of Quezon City of still another action, the
third, also designed, like the first two, to preclude enforcement
of the mortgage held by Syjuco.
This time the complaint was presented, not in their individual
names, but in the name of a partnership of which they
themselves were the only partners: "Heirs of Hugo Lim." The
complaint advocated the theory that the mortgage which they,
together with their mother, had individually constituted (and
thereafter amended during the period from 1964 to 1967) over
lands standing in their names in the Property Registry as
owners pro indiviso, in fact no longer belonged to them at that
time, having been earlier deeded over by them to the
partnership, "Heirs of Hugo Lim," more precisely, on March
30, 1959, hence, said mortgage was void because executed by
them without authority from the partnership.
The complaint was signed by a lawyer other than Atty. Canlas,
but the records disclose that Atty. Canlas took over as counsel
as of November 4, 1982. The case, docketed as Civil Case No.
Q-39295, was assigned to Branch 35 of the Quezon City
Regional Trial Court, then presided over by Judge Jose
P. Castro.
Judge Castro issued a restraining order on October 15, 1982.
Then, Sheriff Perfecto G. Dalangin submitted a return of
summons to the effect that on December 6, 1982 he
". . . served personally and left a copy of summons together
with a copy of Complaint and its annexes . . . upon defendant's
office formerly at 313 Quirino Ave., Paraaque, Metro-Manila
and now at 407 Doa Felisa Syjuco Building, Remedios St.,
corner Taft Avenue, Manila, through the Manager, a person of
sufficient age and discretion, duly authorized to receive service
of such nature, but who refused to accept service and signed
receipt thereof." 26
A vaguer return will be hard to find. It is impossible to discern
from it where precisely the summons was served, whether at
Quirino Avenue, Paraaque, or Taft Avenue, Manila; and it is
inexplicable that the name of the person that the sheriff had
been able to identify as the manager is not stated, the latter
being described merely as "a person of sufficient age and
discretion." In any event, as it was to claim later, Syjuco asserts
that it was never so served with summons, or with any other
notice, pleading, or motion relative to the case, for that matter.
On February 10, 1983, Atty. Canlas filed an ex parte motion to
declare Syjuco in default. The order of default issued the next
day, also directing the plaintiff partnership to present
evidence ex parte within three (3) days. On February 22, 1983,
judgment by default was rendered, declaring void the mortgage
in question because executed by the Lims without authority
from the partnership which was and had been since March 30,
1959 the exclusive owner of the mortgaged property, and
making permanent an injunction against the foreclosure sale
that had issued on January 14, 1983. 27 Service of notice of the
default judgment was, according to the return of the same
Sheriff Perfecto Dalangin, effected on the following day,
February 23, 1983. His return is a virtual copy of his earlier one
regarding service of summons: it also states the place of service
as the defendant's office, either at its former location, 313
Quirino Avenue, Paraaque, or at the later address, 407 Doa
Felisa, Syjuco Building, Taft Avenue, Manila; and it also fails
to identify the person on whom service was made, describing
him only as "the clerk or person in charge" of the office. 28
Unaccountably, and contrary to what might be expected from
the rapidity with which it was decided twelve (12) days
from February 10, 1983, when the motion to declare
defendant Syjuco in default was filed the case was
afterwards allowed by Atty. Canlas to remain dormant for
seventeen (17) months. He made no effort to have the judgment
executed, or to avail of it in other actions instituted by him
against Syjuco. The judgment was not to be invoked until
sometime in or after July, 1984, again to stop the extrajudicial
mortgage sale scheduled at or about that time at the instance
of Syjuco, as shall presently be recounted.
7. Other Actions in the Interim:
a. CIVIL CASE NO. 83-19018, RTC MANILA
While the Lims, through their partnership ("Heirs of Hugo
Lim"), were prosecuting their action in the sala of
Judge Castro, as above narrated, Syjuco once again tried to
proceed with the foreclosure after entry of judgment had been
made in G.R. No. 56014 on March 22, 1983. It scheduled the
auction sale on July 30, 1983. But once again it was frustrated.
Another obstacle was put up by the Lims and their counsel,
Atty. Canlas. This was Civil Case No. 83-19018 of the Manila
Regional Trial Court. The case was filed to stop the sale on the
theory that what was sought to be realized from the sale was
much in excess of the judgment in Civil Case No. 75180, and
that there was absence of the requisite notice. It is significant
that the judgment by default rendered by Judge Castro in Civil
Case No. Q-36485 was not asserted as additional ground to
support the cause of action. Be this as it may, a restraining
order was issued on July 20,1983 in said Civil Case No. 83-
19018. 29
b. CIVIL CASE NO. Q-32924, RTC QUEZON CITY
What the outcome of this case, No. 83-19018, is not clear.
What is certain is (1) that the auction sale was re-scheduled for
September 20, 1983, (2) that it was aborted because the Lims
managed to obtain still another restraining order in another case
commenced by their lawyer, Atty. Canlas: Civil Case No. Q-
32924 of the Court of First Instance of Quezon City, grounded
on the proposition that the publication of the notice of sale was
defective; and (3) that the action was dismissed by the Regional
Trial Court on February 3, 1984. 30
No other salient details about these two (2) cases are available
in the voluminous records before the Court, except that it was
Atty. Canlas who had filed them. He admits having done so
unequivocally: "Thus, the undersigned counsel filed injunction
cases in Civil Case No. 83-19018 and Civil Case No.
39294, Regional Trial Courts of Manila and Quezon City. . .
" 31
7. REACTIVATION OF CIVIL CASE NO. Q-36485, RTC,
QUEZON CITY, BRANCH XXXV
Upon the dismissal of Civil Case No. 39294, Syjuco once more
resumed its efforts to effect the mortgage sale which had
already been stymied for more than fifteen (15) years. At its
instance, the sheriff once again set a date for the auction sale.
But on the date of the sale, a letter of Atty. Canlas was handed
to the sheriff drawing attention to the permanent injunction of
the sale embodied in the judgment by default rendered by
Judge Castro in Civil Case No. Q-36485. 32 Syjuco lost no
time in inquiring about Civil Case No. Q-36485, and was very
quickly made aware of the judgment by default therein
promulgated and the antecedent events leading thereto. It was
also made known that on July 9, 1984, Judge Castro had
ordered execution of the judgment; that Judge Castro had on
July 16, 1984 granted Atty. Canlas' motion to declare cancelled
the titles to the Lims' mortgaged properties and as null and void
the annotation of the mortgage and its amendments on said
titles, and to direct the Register of Deeds of Manila to issue
new titles, in lieu of the old, in the name of the partnership,
"Heirs of Hugo Lim." 33
On July 17, 1984, Syjuco filed in said Civil Case No. Q-36485
a motion for reconsideration of the decision and for dismissal
of the action, alleging that it had never been served with
summons; that granting arguendo that service had somehow
been made, it had never received notice of the decision and
therefore the same had not and could not have become final;
and that the action should be dismissed on the ground of bar by
prior judgment premised on the final decisions of the Supreme
Court in G.R. No. L-45752 and G.R. No. 56014.
Two other motions by Syjuco quickly followed. The first, dated
July 20, 1984, prayed for abatement of Judge Castro's order
decreeing the issuance of new certificates of title over the
mortgaged lands in the name of the plaintiff
partnership. 34 The second, filed on July 24, 1984, was a
supplement to the motion to dismiss earlier filed, asserting
another ground for the dismissal of the action, i.e., failure to
state a cause of action, it appearing that the mortgaged property
remained registered in the names of the individual members of
the Lim family notwithstanding that the property had
supposedly been conveyed to the plaintiff partnership long
before the execution of the mortgage and its amendments,
and that even assuming ownership of the property by the
partnership, the mortgage executed by all the partners was valid
and binding under Articles 1811 and 1819 of the Civil Code. 35
The motions having been opposed in due course by the plaintiff
partnership, they remained pending until January 31, 1985
whenSyjuco moved for their immediate resolution. Syjuco now
claims that Judge Castro never acted on the motions. The latter
however states that he did issue an order on February 22, 1985
declaring that he had lost jurisdiction to act thereon
because, petitio principii, his decision had already become final
and executory.
8. G.R. NO. L-70403; THE PROCEEDING AT BAR
For the third time Syjuco is now before this Court on the same
matter. It filed on April 3, 1985 the instant petition
for certiorari, prohibition and mandamus. It prays in its petition
that the default judgment rendered against it by Judge Castro in
said Civil Case No. Q-36485 be annulled on the ground of lack
of service of summons, res judicata and laches, and failure of
the complaint to state a cause of action; that the sheriff be
commanded to proceed with the foreclosure of the mortgage on
the property covered by Transfer Certificates of Title
Numbered 75413, 75415, 75416 and 75418 of the Manila
Registry; and that the respondents the Lims, Judge Castro,
the Sheriff and the Register of Deeds of Manila, the partnership
known as "Heirs of Hugo Lim," and Atty. Paterno R. Canlas,
counsel for the Lims and their partnership be perpetually
enjoined from taking any further steps to prevent the
foreclosure.
The comment filed for the respondents by Atty. Canlas in
substance alleged that (a) Syjuco was validly served with
summons in Civil Case No. Q-36485, hence, that the decision
rendered by default therein was also valid and, having been
also duly served on said petitioner, became final by operation
of law after the lapse of the reglementary appeal period; (b)
finality of said decision removed the case from the jurisdiction
of the trial court, which was powerless to entertain and act on
the motion for reconsideration and motion to dismiss; (c) the
petition was in effect an action to annul a judgment, a
proceeding within the original jurisdiction of the Court of
Appeals; (d) the plea of res judicata came too late because
raised after the decision had already become final; moreover,
no identity of parties existed between the cases invoked, on the
one hand, and Civil Case No. Q-36485, on the other, the parties
in the former being the Lims in their personal capacities and in
the latter, the Lim Partnership, a separate and distinct juridical
entity; and the pleaded causes of action being different, usury
in the earlier cases and authority of the parties to encumber
partnership property in the case under review; (e) the plea of
laches also came too late, not having been invoked in the lower
court; and (f) the property involved constituted assets of the
Lim partnership, being registered as such with the Securities
and Exchange Commission.36
On his own behalf Atty. Canlas submitted that he had no
knowledge of the institution of Civil Case No. Q-36485
(though he admitted being collaborating counsel in said case);
that he did not represent the Lims in all their cases
against Syjuco, having been counsel for the former only since
1977, not for the last seventeen years as claimed by Syjuco; and
that he had no duty to inform opposing counsel of the pendency
of Civil Case No. Q-36485. 37
Respondent Judge Castro also filed a comment 38 disclaiming
knowledge of previous controversies regarding the mortgaged
property. He asserted that Syjuco had been properly declared in
default for having failed to answer the complaint despite
service of summons upon it, and that his decision in said case
which was also properly served on Syjuco became final when it
was not timely appealed, after which he lost jurisdiction to
entertain the motion for reconsideration and motion to dismiss.
He also denied having failed to act on said motions, adverting
to an alleged order of February 22, 1985 where he declared his
lack of jurisdiction to act thereon.
The respondent Register of Deeds for his part presented a
comment wherein he stated that by virtue of an order of
execution in Civil Case No. Q-36485, he had cancelled TCT's
Nos. 75413, 75415, 75416 and 75418 of his Registry and
prepared new certificates of title in lieu thereof, but that
cancellation had been held in abeyance for lack of certain
registration requirements and by reason also of the motion
of Syjuco's Atty. Formoso to hold in abeyance enforcement of
the trial court's order of July 16, 1984 as well as of the
temporary restraining order subsequently issued by the
Court. 39
It is time to write finis to this unedifying narrative which is
notable chiefly for the deception, deviousness and trickery
which have marked the private respondents' thus far successful
attempts to avoid the payment of a just obligation. The record
of the present proceeding and the other records already referred
to, which the Court has examined at length, make it clear that
the dispute should have been laid to rest more than eleven years
ago, with entry of judgment of this Court (on September 24,
1977) in G.R. No. L-45752 sealing the fate of the Lims' appeal
against the amended decision in Civil Case No. 75180 where
they had originally questioned the validity of the mortgage and
its foreclosure. That result, the records also show, had itself
been nine (9) years in coming, Civil Case No. 75180 having
been instituted in December 1968 and, after trial and judgment,
gone through the Court of Appeals (in CA-G.R. No. 00242-R)
and this Court (in G.R. No. 34683), both at the instance of the
Lims, on the question of reopening before the amended decision
could be issued.
Unwilling, however, to concede defeat, the Lims moved (in
Civil Case No. 75180) to stop the foreclosure sale on the
ground of lack of republication. On December 19, 1977 they
obtained a restraining order in said case, but this
notwithstanding, on the very same date they filed another
action (Civil Case No. 117262) in a different branch of the
same Court of First Instance of Manila to enjoin the foreclosure
sale on the same ground of alleged lack of republication. At
about this time, Syjuco republished the notice of sale in order,
as it was later to manifest, to end all further dispute.
That move met with no success. The Lims managed to
persuade the judge in Civil Case No. 75180, notwithstanding
his conviction that the amended decision in said case had
already become final, not only to halt the foreclosure sale but
also to authorize said respondents to dispose of the mortgaged
property at a private sale upon posting a bond of P6,000,000.00
(later increased by P3,000,000.00) to guarantee payment
of Syjuco's mortgage credit. This gave the Lims a convenient
excuse for further suspension of the foreclosure sale by
introducing a new wrinkle into their contentions - that the bond
superseded the mortgage which should, they claimed, therefore
be discharged instead of foreclosed.
Thus from the final months of 1977 until the end of 1980, a
period of three years, Syjuco found itself fighting a legal battle
on two fronts: in the already finally decided Civil Case No.
75180 and in Civil Case No. 117262, upon the single issue of
alleged lack of republication, an issue already mooted by the
Lims' earlier waiver of republication as a condition for the
issuance of the original restraining order of December 26, 1968
in Civil Case No. 75180, not to mention the fact that said
petitioner had also tried to put an end to it by actually
republishing the notice of sale.
With the advent of 1981, its pleas for early resolution having
apparently fallen on deaf ears, Syjuco went to this Court (in
G.R. No. L-56014) from which, on September 21, 1982, it
obtained the decision already referred to holding, in fine, that
there existed no further impediment to the foreclosure sale and
that the sheriff could proceed with the same.
Said decision, instead of deterring further attempts to derail the
foreclosure, apparently gave the signal for the clandestine filing
this time by the Partnership of the Heirs of Hugo Lim on
October 14, 1982 of Civil Case No. Q-36485, the subject of the
present petition, which for the first time asserted the claim that
the mortgaged property had been contributed to the plaintiff
partnership long before the execution of the Syjuco's mortgage
in order to defeat the foreclosure.
Syjuco now maintains that it had no actual knowledge of the
existence and pendency of Civil Case No. Q-36485 until
confronted, in the manner already adverted to, with the fait
accompli of a "final" judgment with permanent injunction
therein, and nothing in the record disabuses the Court about the
truth of this disclaimer. Indeed, considering what had transpired
up to that denouement, it becomes quite evident that actuations
of the Lims and their lawyer had been geared to
keeping Syjuco in the dark about said case. Their filing of two
other cases also seeking to enjoin the foreclosure sale (Civil
Case No. 83-19018, Regional Trial Court of Manila in July
1983, and Civil Case No. Q-32924, Regional Trial Court of
Quezon City in September of the same year) after said sale had
already been permanently enjoined by default judgment in Civil
Case No. Q-36485, appears in retrospect to be nothing but a
brace of feints calculated to keep Syjuco in that state of
ignorance and to lull any apprehensions it may have harbored
about encountering further surprises from any other quarter.
Further credence is lent to this appraisal by the unusually rapid
movement of Civil Case No. Q-36485 itself in its earlier stages;
which saw the motion to declare Syjuco in default filed, an
order of default issued, evidence ex parte for the plaintiffs
received and judgment by default rendered, all within the brief
span of twelve days, February 10-22, 1983. Notice of said
judgment was "served" on February 23, 1983, the day after it
was handed down, only to be followed by an unaccountable lull
of well over a year before it was ordered executed on July 9,
1984 unaccountable, considering that previous flurry of
activity, except in the context of a plan to rush the case to
judgment and then divert Syjuco's attention to the Lims' moves
in other directions so as to prevent discovery of the existence of
the case until it was too late.
The Court cannot but condemn in the strongest terms this
trifling with the judicial process which degrades the
administration of justice, mocks, subverts and misuses that
process for purely dilatory purposes, thus tending to bring it
into disrepute, and seriously erodes public confidence in the
will and competence of the courts to dispense swift justice.
Upon the facts, the only defense to the foreclosure that could
possibly have merited the full-blown trial and appeal
proceedings it actually went through was that of alleged usury
pleaded in Civil Case No. 75180 and finally decided against the
respondent Lims in G.R. No. L-45752 in September 1977. The
other issues of failure to republish and discharge of mortgage
by guarantee set up in succeeding actions were sham issues,
questions without substance raised only for purposes of delay
by the private respondents, in which they succeeded only too
well. The claim urged in this latest case: that the mortgaged
property had been contributed to the respondent partnership and
was already property of said partnership when the individual
Lims unauthorizedly mortgaged it toSyjuco, is of no better
stripe, and this, too, is clear from the undisputed facts and the
legal conclusions to be drawn therefrom.
The record shows that the respondent partnership is
composed exclusively of the individual Lims in whose name all
the cases herein referred to, with the sole exception of Civil
Case No. Q-36485, were brought and prosecuted, their
contribution to the partnership consisting chiefly, if not solely,
of the property subject of the Syjuco mortgage. It is also a fact
that despite its having been contributed to the partnership,
allegedly on March 30, 1959, the property was never registered
with the Register of Deeds in the name of the partnership, but
to this date remains registered in the names of the Lims as
owners in common. The original mortgage deed of November
14, 1964 was executed by the Lims as such owners, as were all
subsequent amendments of the mortgage. There can be no
dispute that in those circumstances, the respondent partnership
was chargeable with knowledge of the mortgage from the
moment of its execution. The legal fiction of a separate
juridical personality and existence will not shield it from the
conclusion of having such knowledge which naturally and
irresistibly flows from the undenied facts. It would violate all
precepts of reason, ordinary experience and common sense to
propose that a partnership, as such, cannot be held accountable
with knowledge of matters commonly known to all the partners
or of acts in which all of the latter, without exception, have
taken part, where such matters or acts affect property claimed
as its own by said partnership.
If, therefore, the respondent partnership was inescapably
chargeable with knowledge of the mortgage executed by all the
partners thereof, its silence and failure to impugn said mortgage
within a reasonable time, let alone a space of more than
seventeen years, brought into play the doctrine of estoppel to
preclude any attempt to avoid the mortgage as allegedly
unauthorized.
The principles of equitable estoppel, sometimes called
estoppel in pais, are made part of our law by Art. 1432 of the
Civil Code. Coming under this class is estoppel by silence,
which obtains here and as to which it has been held that:
". . . an estoppel may arise from silence as well as from words.
'Estoppel by silence' arises where a person, who by force of
circumstances is under a duty to another to speak, refrains from
doing so and thereby leads the other to believe in the existence
of a state of facts in reliance on which he acts to his prejudice.
Silence may support an estoppel whether the failure to speak is
intentional or negligent.
"Inaction or silence may under some circumstances amount to a
misrepresentation and concealment of the facts, so as to raise
an equitable estoppel. When the silence is of such a character
and under such circumstances that it would become a fraud on
the other party to permit the party who has kept silent to deny
what his silence has induced the other to believe and act on, it
will operate as an estoppel. This doctrine rests on the principle
that if one maintains silence, when in conscience he ought to
speak, equity will debar him from speaking when in conscience
he ought to remain silent. He who remains silent when he ought
to speak cannot be heard to speak when he should be silent." 40
And more to the point:
"A property owner who knowingly permits another to sell or
encumber the property, without disclosing his title or objecting
to the transaction, is estopped to set up his title or interest as
against a person who has been thereby misled to his injury.
xxx xxx xxx
"An owner of real property who stands by and sees a third
person selling or mortgaging it under claim of title without
asserting his own title or giving the purchaser or mortgagee any
notice thereof is estopped, as against such purchaser or
mortgagee, afterward to assert his title; and, although title does
not pass under these circumstances, a conveyance will be
decreed by a court of equity. Especially is the rule applicable
where the party against whom the estoppel is claimed, in
addition to standing by, takes part in making the sale or
mortgage." 41
"More specifically, the concept to which that species of
estoppel which results from the nondisclosure of an estate or
interest in real property has ordinarily been referred is fraud,
actual or constructive . . . Although fraud is not an essential
element of the original conduct working the estoppel, it may
with perfect property be said that it would be fraudulent for the
party to repudiate his conduct, and to assert a right or claim in
contravention thereof." 42
Equally or even more preclusive of the respondent partnership's
claim to the mortgaged property is the last paragraph of Article
1819 of the Civil Code, which contemplates a situation
duplicating the circumstances that attended the execution of the
mortgage in favor of Syjuco and therefore applies foursquare
thereto:
"Where the title to real property is in the names of all the
partners a conveyance executed by all the partners passes all
their rights in such property."
The term "conveyance" used in said provision, which is taken
from Section 10 of the American Uniform Partnership Act,
includes a mortgage.
"Interpreting Sec. 10 of the Uniform Partnership Act, it has
been held that the right to mortgage is included in the right to
convey. This is different from the rule in agency that a special
power to sell excludes the power to mortgage (Art. 1879)." 43
As indisputable as the propositions and principles just stated is
that the cause of action in Civil Case No. Q-36485 is barred by
prior judgment. The right subsumed in that cause is the
negation of the mortgage, postulated on the claim that the
parcels of land mortgaged by the Lims to Syjuco did not in
truth belong to them but to the partnership. Assuming this to be
so, the right could have been asserted at the time that the Lims
instituted their first action on December 24,1968 in the Manila
Court of First Instance, Civil Case No. 75180, or when they
filed their subsequent actions: Civil Case No. 112762, on
December 19, 1977; Civil Case No. 83-19018, in 1983, and
Civil Case No. Q-39294, also in 1983. The claim could have
been set up by the Lims, as members composing the
partnership, "Heirs of Hugo Lim." It could very well have been
put forth by the partnership itself, as co-plaintiff in the
corresponding complaints, considering that the actions involved
property supposedly belonging to it and were being prosecuted
by the entire membership of the partnership, and therefore, the
partnership was in actuality, the real party in interest. In fact,
consistently with the Lims' theory, they should be regarded, in
all the actions presented by them, as having sued for
vindication, not of their individual rights over the property
mortgaged, but those of the partnership. There is thus no reason
to distinguish between the Lims, as individuals, and the
partnership itself, since the former constituted the entire
membership of the latter. In other words, despite the
concealment of the existence of the partnership, for all intents
and purposes and consistently with the Lims' own theory, it was
that partnership which was the real party in interest in all the
actions; it was actually represented in said actions by all the
individual members thereof, and consequently, those members'
acts, declarations and omissions cannot be deemed to be simply
the individual acts of said members, but in fact and in law,
those of the partnership.
What was done by the Lims or by the partnership of which
they were the only members was to split their cause of
action in violation of the well known rule that only one suit
may be instituted for a single cause of action. 44 The right
sought to be enforced by them in all their actions was, at
bottom, to strike down the mortgage constituted in favor
of Syjuco, a right which, in their view, resulted from several
circumstances, namely that the mortgage was constituted over
property belonging to the partnership without the latter's
authority; that the principal obligation thereby secured was
usurious; that the publication of the notice of foreclosure sale
was fatally defective, circumstances which had already taken
place at the time of the institution of the actions. They instituted
four (4) actions for the same purpose on one ground or the
other, making each ground the subject of a separate action.
Upon these premises, application of the sanction indicated by
law is called for, i.e., the judgment on the merits in any one is
available as a bar in the others. 45
The first judgment rendered in Civil Case No. 75180 and
affirmed by both the Court of Appeals (CA-G.R. No. 51752)
and this Court (G.R. No. L-45752) should therefore have
barred all the others, all the requisites of res judicata being
present. The judgment was a final and executory judgment; it
had been rendered by a competent court; and there was,
between the first and subsequent cases, not only identity of
subject-matter and of cause of action, but also of parties. As
already pointed out, the plaintiffs in the first four (4) actions,
the Lims, were representing exactly the same claims as those of
the partnership, the plaintiff in the fifth and last action, of
which partnership they were the only members, and there was
hence no substantial difference as regards the parties plaintiff in
all the actions. Under the doctrine of res judicata, the judgment
in the first was and should have been regarded as conclusive in
all other actions not only "with respect to the matter directly
adjudged," but also "as to any other matter that could have been
raised in relation thereto." 46 It being indisputable that the
matter of the partnership's being the owner of the mortgaged
properties "could have been raised in relation" to those
expressly made issuable in the first action, it follows that matter
could not be re-litigated in the last action, the fifth.
Though confronted with the facts thus precluding the
respondent partnership's claim to the property under both the
principle of estoppel and the provisions of Article 1819, last
paragraph, of the Civil Code, as well as the familiar doctrine
of res judicata, the respondent Judge refused to act on Syjuco's
motions on the ground that he no longer had jurisdiction to do
so because they were filed after judgment by default
against Syjuco, which failed to answer the complaint despite
valid service of summons, had been rendered and become final.
The sheriff's return, however, creates grave doubts about the
correctness of the Judge's basic premise that summons had been
validly served on Syjuco. For one thing, the return 47 is
unspecific about where service was effected. No safe
conclusion about the place of service can be made from its
reference to a former and a present office of Syjuco in widely
separate locations, with nothing to indicate whether service was
effected at one address or the other, or even at both. A more
serious defect is the failure to name the person served who is,
with equal ambiguity, identified only as "the Manager" of the
defendant corporation (petitioner herein). Since the sheriff's
return constitutes primary evidence of the manner and incidents
of personal service of a summons, the Rules are quite specific
about what such a document should contain:
"SEC. 20. Proof of service. The proof of service of a
summons shall be made in writing by the server and shall set
forth the manner, place and date of service; shall specify any
papers which have been served with the process and the name
of the person who received the same; and shall be sworn to
when made by a person other than a sheriff or his deputy." 48
In the case of Delta Motor Sales Corporation vs.
Mangosing 49 it was held that:
"(a) strict compliance with the mode of service is necessary to
confer jurisdiction of the court over a corporation. The officer
upon whom service is made must be one who is named in the
statute; otherwise the service is insufficient. So, where the
statute requires that in the case of a domestic corporation
summons should be served on `the president or head of the
corporation, secretary, treasurer, cashier or managing agent
thereof', service of summons on the secretary's wife did not
confer jurisdiction over the corporation in the foreclosure
proceeding against it. Hence, the decree of foreclosure and the
deficiency judgment were void and should be vacated
(Reader vs. District Court, 94 Pacific 2nd 858).
"The purpose is to render it reasonably certain that the
corporation will receive prompt and proper notice in an action
against it or to insure that the summons be served on a
representative so integrated with the corporation that such
person will know what to do with the legal papers served on
him. In other words, `to bring home to the corporation notice of
the filing of the action'. (35 A C.J.S. 288 citing Jenkins vs.
Lykes Bros. S.S. Co., 48 F. Supp. 848; MacCarthy vs.
Langston, D.C. Fla., 23 F.R.D. 249).
"The liberal construction rule cannot be invoked and utilized as
a substitute for the plain legal requirements as to the manner in
which summons should be served on a domestic corporation
(U.S. vs. Mollenhauer Laboratories, Inc., 267 Fed. Rep. 2nd
260)."
The rule cannot be any less exacting as regards adherence to
the requirements of proof of service, it being usually by such
proof that sufficiency of compliance with the prescribed mode
of service is measured. Here the only proof of service of
summons is the questioned sheriff's return which, as already
pointed out, is not only vague and unspecific as to the place of
service, but also neglects to identify by name the recipient of
the summons as required by Rule 20, Section 14, of the Rules
of Court. Where the sheriff's return is defective the presumption
of regularity in the performance of official functions will not
lie. 50 The defective sheriff's return thus being insufficient and
incompetent to prove that summons was served in the manner
prescribed for service upon corporations, there is no alternative
to affirming the petitioner's claim that it had not been validly
summoned in Civil Case No. Q-36485. It goes without saying
that lacking such valid service, the Trial Court did not acquire
jurisdiction over the petitioner Syjuco, rendering null and void
all subsequent proceedings and issuances in the action from the
order of default up to and including the judgment by default
and the order for its execution. 51
The respondents' contention that the petition is in effect an
action to annul a judgment which is within the exclusive
original jurisdiction of the Court of Appeals 52 has already
been answered in Matanguihan vs. Tengco 53 where, by
declaring that an action for annulment of judgment is not a
plain, speedy and adequate remedy, this Court in effect
affirmed that certiorari is an appropriate remedy against
judgments or proceedings alleged to have been rendered or had
without valid service of summons. 54
Respondent Judge Castro begged the question when, instead of
resolving on the merits the issue of the invalidity of his default
judgment and of the proceedings leading thereto because of
absence of valid service of summons on the defendant, which
had been expressly raised in the defendant's motion for
reconsideration, he simply refused to do so on the excuse that
he had lost jurisdiction over the case. This refusal was, in the
premises, a grave abuse of judicial discretion which must be
rectified.
What has been said makes unnecessary any further proceedings
in the Court below, which might otherwise be indicated by the
consideration that two of the postulates of petitioner's
unresolved motions which the Court considers equally as
decisive as res judicata, to wit: estoppel by silence and Article
1819, last paragraph, of the Civil Code, do not constitute
grounds for a motion to dismiss under rule 16, of the Rules of
Court. Such a step would only cause further delay. And delay
has been the bane of petitioner's cause, defying through all
these years all its efforts to collect on a just debt.
The undenied and undisputable facts make it perfectly clear
that the claim to the mortgaged property belatedly and in
apparent bad faith pressed by the respondent partnership is
foreclosed by both law and equity. Further proceedings will not
make this any clearer than it already is. The Court is clothed
with ample authority, in such a case, to call a halt to all further
proceedings and pronounce judgment on the basis of what is
already manifestly of record.
So much for the merits; the consequences that should attend the
inexcusable and indefensible conduct of the respondents Lims,
the respondent partnership and their counsel, Atty. Paterno R.
Canlas, should now be addressed. That the Lims and their
partnership acted in bad faith and with intent to defraud is
manifest in the record of their actuations, presenting as they
did, piecemeal and in one case after another, defenses to the
foreclosure or claims in derogation thereof that were available
to them from the very beginning actuations that were to
stave off the liquidation of an undenied debt for more than
twenty years and culminated in the clandestine filing and
prosecution of the action subject of the present petition.
What has happened here, it bears repeating, is nothing less than
an abuse of process, a trifling with the courts and with the
rights of access thereto, for which Atty. Canlas must share
responsibility equally with his clients. The latter could not have
succeeded so well in obstructing the course of justice without
his aid and advice and his tireless espousal of their claims and
pretensions made in the various cases chronicled here. That the
cause to which he lent his advocacy was less than just or
worthy could not have escaped him, if not at the start of his
engagement, in the years that followed when with his willing
assistance, if not instigation, it was shuttled from one forum to
another after each setback. This Court merely stated what is
obvious and cannot be gainsaid when, in Surigao Mineral
Reservation Board vs. Cloribel, 55 it held that a party's lawyer
of record has control of the proceedings and that "(w)hatever
steps his client takes should be within his knowledge and
responsibility."
In Prudential Bank vs. Castro, 56 strikingly similar actuations
in a case, which are described in the following paragraph
taken from this Court's decision therein:
"Respondents' foregoing actuations reveal an 'unholy alliance'
between them and a clear indication of partiality for the party
represented by the other to the detriment of the objective
dispensation of justice. Writs of Attachment and Execution
were issued and implemented with lightning speed; the case
itself was railroaded to a swift conclusion through a similar
judgment; astronomical sums were awarded as damages and
attorney's fees; and topping it all, the right to appeal was
foreclosed by clever maneuvers," and which, the Court found,
followed a pattern of conduct in other cases of which judicial
notice was taken, were deemed sufficient cause for disbarment.
Atty. Canlas even tried to mislead this Court by claiming that
he became the Lims' lawyer only in 1977, 57 when the record
indubitably shows that he has represented them since
September 9, 1972 when he first appeared for them to
prosecute their appeal in Civil Case No. 75180. 58 He has also
quite impenitently disclaimed a duty to inform opposing
counsel in Civil Case No. Q-39294 of the existence of Civil
Case No. Q-36485, as plaintiffs' counsel in both actions, even
while the former, which involved the same mortgage, was
already being litigated when the latter was filed, although in the
circumstances such disclosure was required by the ethics of his
profession, if not indeed by his lawyer's oath.
A clear case also exists for awarding at least nominal damages
to petitioner, though damages are not expressly prayed for,
under the general prayer of the petition for "such other reliefs
as may be just and equitable under the premises," and the
action being not only of certiorari and prohibition, but also
of mandamus in which the payment of "damages sustained
by the petitioner by reason of the wrongful acts of the
defendant" is expressly authorized. 59
There is no question in the Court's mind that such interests as
may have accumulated on the mortgage loan will not offset the
prejudice visited upon the petitioner by the excruciatingly long
delay in the satisfaction of said debt that the private
respondents have engineered and fomented.
These very same considerations dictate the imposition of
exemplary damages in accordance with Art. 2229 of the Civil
Code.
WHEREFORE, so that complete justice may be dispensed here
and, as far as consistent with that end, all the matters and
incidents with which these proceedings are concerned may be
brought to a swift conclusion:
(1) the assailed judgment by default in Civil Case No. Q-
36485, the writ of execution and all other orders issued in
implementation thereof, and all proceedings in the case leading
to said judgment after the filing of the complaint are
DECLARED null and void and are hereby SET ASIDE; and the
complaint in said case is DISMISSED for being barred by prior
judgment and estoppel, and for lack of merit;
(2) the City Sheriff of Manila is ORDERED, upon receipt of
this Decision, to schedule forthwith and thereafter conduct with
all due dispatch the sale at public auction of the mortgaged
property in question for the satisfaction of the mortgage debt of
the respondents Lims to petitioner, in the principal amount of
P2,460,000.00 as found in the amended decision in Civil Case
No. 75180 of the Court of First Instance of Manila, interests
thereon at the rate of twelve (12%) percent per annum from
November 8, 1967 until the date of sale, plus such other and
additional sums for commissions, expenses, fees, etc. as may be
lawfully chargeable in extrajudicial foreclosure and sale
proceedings;
(3) the private respondents, their successors and assigns, are
PERPETUALLY ENJOINED from taking any action
whatsoever to obstruct, delay or prevent said auction sale;
(4) the private respondents (the Lims, the Partnership of the
Heirs of Hugo Lim and Atty. Paterno R. Canlas) are sentenced,
jointly and severally, to pay the petitioner P25,000.00 as
nominal damages and P100,000.00 as exemplary damages, as
well as treble costs; and
(5) let this matter be referred to the Integrated Bar of the
Philippines for investigation, report, and recommendation
insofar as the conduct of Atty. Canlas as counsel in this case
and in the other cases hereinabove referred to is concerned.
SO ORDERED.