SECOND DIVISION the promissory note in question executed for and in behalf of balance amounting to P7,119.07. Benjamin C.
mounting to P7,119.07. Benjamin C. Daco, Daniel A.
[G.R. No. L-22493. July 31, 1975.]
ISLAND SALES, INC., Plaintiff-Appellee, v. UNITED
PIONEERS GENERAL CONSTRUCTION COMPANY, ET
AL, Defendants. BENJAMIN C. DACO, Defendant-
Appellant.
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 partners
individual share and that appellants share in the obligation
shall not be increased thereby but shall be limited to 1/5 of
the obligation of defendant company.
Decision affirmed as clarified.
SYLLABUS
1. OBLIGATIONS AND CONTRACTS; LIABILITY OF GENERAL
PARTNERS, PRO-RATA; CONDONATION OF INDIVIDUAL
LIABILITY DOES NOT AFFECT THE OTHERS SHARE IN THE
OBLIGATION. Where there was five general partners when
the partnership, and the complaint against one of them was
dismissed upon motion of the plaintiff, the general partners
share in the obligation remains limited to only 1/5 of the
amount due and demandable, their liability being pro-rata.
DECISION
CONCEPCION, JR., J.:
This is an appeal interposed by the defendant Benjamin C.
Daco from the decision of the Court of First Instance of Manila,
Branch XVI, in Civil Case No. 50682, the dispositive portion of
which reads:jgc:chanrobles.com.ph
"WHEREFORE, the Court sentences defendant United Pioneer
General Construction Company to pay plaintiff the sum of
P7,119.07 with interest at the rate of 12% per annum until it
is fully paid, plus attorneys fees which the Court fixes in the
sum of Eight Hundred Pesos (P800.00) and costs.
"The defendants Benjamin C. Daco, Daniel A. Guizona, Noel C.
Sim and Augusto Palisoc are sentenced to pay the plaintiff in
this case with the understanding that the judgment against
these individual defendants shall be enforced only if the
defendant company has no more leviable properties with
which to satisfy the judgment against it.
"The individual defendants shall also pay the costs."cralaw
virtua1aw library
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
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:jgc:chanrobles.com.ph
"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."cralaw virtua1aw library
In the case of Co-Pitco v. Yulo (8 Phil. 544) this Court
held:jgc:chanrobles.com.ph
"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."cralaw virtua1aw library
In the instant case, there were five (5) general partners when
the promissory note in question was executed for and in
behalf of the partnership. Since the liability of the partners is
pro rata, the liability of the appellant Benjamin C. Daco shall
be limited to only one-fifth (1/5) of the obligations of the
defendant company. The fact that the complaint against the
defendant Romulo B. Lumauig was dismissed, upon motion of
the plaintiff, does not unmake the said Lumauig as a general
partner in the defendant company. In so moving to dismiss the
complaint, the plaintiff merely condoned Lumauigs individual
liability to the plaintiff.
WHEREFORE, the appealed decision as thus clarified is hereby
AFFIRMED, without pronouncement as to costs.
SO ORDERED.
G.R. No. L-14832 January 28, 1961
NG CHO CIO ET AL., plaintiffs-appellants,
vs.
NG DIONG, defendant-appellant.
C. N. HODGES, ET AL., defendants-appellees.
BAUTISTA, ANGELO, J.:
This action was begun in the Court of First Instance of Iloilo by
Ng Cho Cio Ng Sian King and Ng Due King to recover their
three-fourths (3/4) pro-indiviso share on seven (7) parcels of
land situated in the City of Iloilo which were sold by Ng Diong
as manager of the commercial firm NG CHIN BENG
HERMANOS in favor of C.N. Hodges. The latter had sold four of
those parcels of land to Jose C. Tayengco and the other three
parcels to Julian Go, and for that reason these two were
included as party defendants. As the original plaintiffs sold
their rights, title and interest in said partnership to Ng Be
Chuat and Ng Feng Tuan, the latter two were allowed to
intervene as plaintiffs. Since Jose C. Tayengco had mortgaged
three of the lands which he purchased from C. N. Hodges in
favor of the Bank of the Philippine Islands, the complaint was
amended so as to include the Bank also as party defendant.
On October 16, 1956, after trial had begun, defendant Ng
Diong died, whereupon his heirs were order to substitute him
parties defendants. Defendants C. N. Hodges, Ng Diong and
Jose C. Tayengco answered the complaint separately setting
up certain special defenses and counterclaims. In substance,
they refuted the allegations set forth in the complaint and
prayed for its dismissal.
The parties submitted a partial Stipulation of facts on many
points covered by the pleadings thus simplifying the trial of
the case while at the same time they introduced additional
evidence in amplification of the fact stipulated, Thereupon,
the trial court, after a thorough evaluation of the evidence,
rendered decision dismissing the complaint with costs.
Plaintiffs interposed the present appeal on purely questions of
law.
The pertinent facts may be briefly stated, as follow On May
23, 1925, Ng Diong, Ng Be Chuat, Ng Feng Tuan Ng Be Kian
Ng Cho Cio, Ng Sian King and Ng Due King entered into a
contract of general co-partnership under the name NG CHIN
BENG HERMANOS. The partnership was to exist for a period of
10 years from May 23, 1925 and Ng Diong was named as
managing partner. On May 10, 1935, the articles of co-
partnership were amended by extending its life to 16 years
more to be counted from May 23, 1925, or up to May 23,
1941.
On January 5, 1938, the partnership obtained from the
National Loan and Investment Board a loan in the amount of
P30,000.00, and to guarantee its payment it executed in its
favor a mortgage on Lots Nos. 236-B, 317-A, 233 and 540 of
the cadastral survey of Iloilo. On the same date, the
partnership also obtained from the same entity another loan
in the amount of P50,000.00 to secure which it also executed
in its favor a mortgage on Lots Nos. 386, 829 and 237 of the
same cadastral survey.
Sometime in 1938, the partnership was declared insolvent
upon petition of its creditors in, Special Proceedings No. 2419
of the Court of First Instance of Iloilo wherein one Crispino
Melocoton was elected as assignee. As a consequence, on
June 21, 1939, the titles to the seven parcels of land
abovementioned were issued in his name as assignee. In due
time, the creditors filed their claims in said proceeding which
totalled P192,901.12.
On August 9, 1940, a majority of the creditors with claims
amounting to P139,704.81, and the partners of the firm,
acting thru counsel, entered into a composition agreement
whereby it was agreed that said creditors would receive 20%
of the amount of their claims in full payment thereof. Prior to
this agreement, however, defendant Julian Go had already
acquired the rights of 24 of the creditors of the insolvent
whose total claims amounted to P139,323.10. Said
composition agreement was approved by the insolvency
court.
On January 30, 1941, the Agricultural and Industrial Bank
which had succeeded the National Loan and Investment Board
assigned its rights and interests in the loans obtained from it
by the partnership in the aggregate amount of P80,000.00 in
favor of C.N. Hodges, together with the right and interest in
the mortgage executed to secure the loans. Since said loans
became due and no payment was forthcoming, Hodges asked
permission from the insolvency court to file a complaint
against the assignee to foreclose he mortgage executed to
secure the same in a separate proceeding, and permission
having been granted, Hodges filed a complaint for that
purpose on May 13, 1941. In his complaint, Hodges prayed
that the assignee be ordered to pay him the sum of
P75,622.90, with interest at 8% per annum thereon from
March 6, 1941, plus P8,000.00 attorney's fees, exclusive of
costs and charges. Meanwhile, war broke out and nothing
appears to have been done in the insolvency proceedings.
The court records were destroyed. However, they were
reconstituted later and given due course.
On August 15, 1945, the partners of the insolvent firm and
Julian Go, who acquired most of the claims of the creditors,
filed a petition with the insolvency court praying at the
insolvency proceedings be closed or terminated cause the
composition agreement the creditors had submitted relative
to the settlement of the claims had already been approved on
October 10, 1940. And on October 6, 1946, the court, acting
favorably on the petition, ordered, closure of the proceedings
directing the assignee to turn and reconvey all the properties
of the partnership back to the latter as required by law. In
accordance with this order of the court, the assignee executed
a deed of reconveyance of the properties to the partnership
on April 2, 1946 and by virtue thereof, the register of deeds
cancelled the titles issued in the name of the assignee and
issued new ones in lieu thereof in the name of the
partnership.
As of said date, April 2, 1946, the indebtedness of the
partnership to C. N. Hodges which was the subject of the
foreclosure proceedings in a separate case was P103,883.34.
In order to pay off the same and raise necessary funds to pay
the other obligations of the partnership, it was deemed proper
and wise by Ng Diong, who continued to be the manager of
the partnership, to sell all its properties mortgaged to Hodges
in order that the excess may be applied to the Payment of
said other obligations, and to that effect Ng Diong executed
on April 2, 1946 a deed of sale thereof in favor of Hodges for
the sum of P124,580.00. Out of this price; the sum of
P103,883.34 was applied to the payment of the debt of the
partnership to Hodges and the balance was paid to the other
creditors of the partnership. On the same date, Hodges
executed another contract giving the partnership the right to
repurchase Lots Nos. 237, 386 and 829 in installments for the
sum of P26,000.00 within three years with interest the rate of
1% Per annum, Payable monthly.
On May 23, 1947, the partnership had not yet paid its
indebtedness to Julian Go in he amount of P24,864.62 under
the composition agreement, nor did it have any money to
repurchase Lots Nos. 237, 386 and 829 and so Ng Diong, in
behalf of the partnership, transferred the right of the latter to
repurchase the same from Hodges to Julian Go in full payment
of the partnership's indebtedness to him. And having Julian Go
exercised the option January 6, 1948, Hodges executed a
deed of sale of the properties in his favor, and pursuant
thereto the register of deeds issued new titles' in his name
covering said lots. On May 29, 1948, Hodges executed
another deed of sale covering Lots Nos. 317-A, 236-B, 233 and
540 for the sum of P119,067.79 in favor of Jose C. Tayengco.
And on August 31, 1948, Tayengco mortgaged said lots,
together with three other lots of his, to the Bank of the
Philippine Islands to secure a loan of P126,000.00 to be used
in the construction of a commercial building on said lots.
Appellants make in their brief six assignments of errors,
which, reduced to bare essentials, may be boiled down to the
following points: (1) the sale made by Ng Diong in behalf of
the partnership NG CHIN BENG HERMANOS of the seven lots
belonging to it in favor of C. N. Hodges on April 2, 1946 is null
and void because at that time said parcels were still in the
custody of the assignee of the insolvency proceedings, or
in custodia legis, and, hence, the same is null and void; (2)
said sale is also null and void "because of the disparity,
irrationality and unreasonableness between the consideration
and the real value of the properties when sold"; and (3) the
lower court erred in not finding that the two deeds of
mortgage executed by he partnership in favor of the National
Loan and Investment Board which were later assigned to C. N.
Hodges can no longer be enforced because the action to
foreclose the same has already prescribed.
Anent the first issue, it would be well to state the following
facts by way of clarification: It should be recalled that on
August 8, 1940 the majority of the creditors of the
partnership, as well as the representatives of the latter,
submitted to the court taking cognizance of the insolvency
proceedings a composition agreement whereby it was agreed
that said creditors would receive 20% of the amount of their
claims in full payment thereof. This agreement was approved
on October 10, 1940 which, in contemplation of law, has the
effect of putting an end to the insolvency proceedings.
However, no further step was taken thereon because of the
outbreak of the war. Later, the record of the case was
reconstituted and the parties on August 15, 1945 filed a
petition with the court praying for the dismissal and closure of
the proceedings in view of the approval of the
aforesaid composition agreement, and acting favorably
thereon, the court on October 6, 1945, issued an order
declaring the proceedings terminated and ordering the
assignee to return and reconvey the properties the
partnership. The actual reconveyance was done by a assignee
on April 2, 1946.
It would, therefore, appear that for legal and practical
purposes the insolvency ended on said date. Since then
partnership became, restored to its status quo. It again
reacquired its personality as such with Ng Diong as its general
manager. From that date on its properties ceased to be in
custodia legis. Such being the case, it is obvious that when Ng
Diong as manager of the partnership sold the seven parcels of
land to C. N. Hodges on April 2, 1946 by virtue of a deed of
sale acknowledged before a notary public on April 6, 1946,
the properties were already was at liberty to do what it may
deem convenient and proper to protect its interest. And acting
accordingly, Ng Diong made the sale in the exercise of the
power granted to him by the partnership in its articles of co-
partnership. We do not, therefore, find anything irregular in
this actuation of Ng Diong.
Since at the time of the sale the life of the partnership had
already expired, the question may be fixed: Who shall wind up
it business affairs? May its manager still execute the sale of its
properties to C. N. Hodges as was done by Ng Diong? The
answer to this question cannot but be in the affirmative
because Ng Diong was still the managing partner of the
partnership and he had the necessary authority to liquidate its
affairs under its articles of co-partnership. And considering
that war had intervened and the affairs of the partnership
were placed under receivership up to October 6, 1945, we are
of the opinion that Ng Diong could still exercise his power as
liquidator when he executed the sale in question in favor of C.
N. Hodges. This is sanctioned by Article 228 of the Code of
Commerce which was the law in force at the time.1
With regard to the second issue, it is contended that the trial
court should have declared the sale of the lots made to C. N.
Hodges null and void "because of the disparity, irrationality
and unreasonableness between the consideration and real
value of the properties when sold." In stressing his point,
counsel contends that the lands in question, which are located
in a commercial section of the City of Iloilo, were frittered
away only for a "pittance of P124,580.00" when, borrowing his
words they could have been sold like hot cakes to any
resident of the city of regular financial standing upon proper
approaches and representations, because at that time those
properties were fairly worth one-half of a million pesos."
This claim may be true, but the same is unsupported.
Appellants have failed to introduce any evidence to show that
they could have secured better offers for the properties if
given a chance to do so and that they advance now is a mere
speculation or conjecture which had no place in our judicial
system. Since every claim must be substantiated by sufficient
evidence, and this appellants have failed to do, their pretense
cannot be entertained.
Neither can we give any value to the claim that the action for
the foreclosure of the mortgage executed by the partnership
in favor of C. N. Hodges has already prescribed not only
because the same is immaterial but because it is an issue that
appellants are raising for the first time in this appeal. Such
issue has never been raised in their pleadings, nor in the trial
court. Verily, this claim has no merit.
With regard to the appeal taken by the heirs of defendant Ng
Diong whose main claim is that the trial court failed to
adjudicate to the partnership the properties which were
bought by Julian Go from C. N. Hodges, suffice it to say that
the same could not be done, firstly, because no such claim
was made by them in their pleadings in the trial court, and,
secondly, because the evidence shows that said properties
were bought by Julian Go by virtue of the option given to him
by the partnership for a valuable consideration in full payment
of the credits assigned to him by a good number of creditors
of said partnership. There is no evidence that he promised to
reconvey the same to the partnership.
WHEREFORE, the decision appealed from is affirmed, with
costs against appellants.
Paras, C.J., Bengzon, Labrador, Concepcion, Reyes, J.B.L.
Barrera, Gutierrez David, Paredes and Dizon, JJ.,concur.
Padilla, J., toG.R. No. L-10040 January 31, 1916
EUGENIA LICHAUCO, ET AL., plaintiffs-appellants,
vs.
FAUSTINO LICHAUCO, defendant-appellant.
Haussermann, Cohn and Fisher for plaintiffs.
Gibbs, McDonough and Blanco for defendant.
CARSON, J.:
This action was brought by two of the partners of an
enterprise of which the defendant was manager (gestor), to
secure an accounting of its affairs, and the payment to the
plaintiffs of their respective shares of capital and profits.
The defendant admitted the allegations of the complaint as to
the organization of the enterprise and the participation of the
plaintiffs therein, but he contended that the plaintiffs could
not maintain this action under the terms of the written
contract by virtue of which the enterprise was organized. This
contention having been overruled, an account of the affairs of
the enterprise was submitted, and the parties having been
given an opportunity to offer evidence for and against certain
dispute items of the account, judgment was rendered for the
balance shown to be due the plaintiffs, after allowing some of
these disputed items and disallowing the rest. To this
judgment, both plaintiffs and defendant excepted, and the
record is now before us on their respective bills of exceptions.
In October, 1901, a notarial instrument was executed in
Manila, by the terms of which a partnership was duly
organized for the purpose of carrying on a rice-cleaning
business at Dagupan, and for the purchase and sale of "palay"
and rice. The articles of association, which were not recorded
in the mercantile registry, contain, among others, the
following provisions:
2. The association will be named F. Lichauco
Hermanos and will be domiciled in the center of its
operations, that is, in the pueblo of Dagupan,
Province of Pangasinan.
3. The association cannot be dissolved except by the
consent and agreement of two-thirds of its partners
and in the event of the death of any of the latter, the
heirs of the deceased, if they be minors or otherwise
incapacitated, shall be represented in the association
by their legal representatives or if two-thirds of the
surviving partners agree thereto, the participation of
the deceased partner may be liquidated.
4. The management and direction of the association
shall be in charged of Don Faustino Lichauco y
Santos, who shall be domiciled in this city of Manila,
with ample powers to direct and manage the
business; to carry out all manner of purchases and
sales of "palay," rice, chattels, machinery and
whatsoever may be necessary and proper for the
business of the association; to make all contracts of
every kind related to said business, either orally, in
private documents or in public instruments, as he
deems fit; to appoint subordinates and other
employees such as may be necessary; and finally to
perform whatever acts and things he may deem
suitable to the interest of the association; and to
appear before the courts of justice and other
authorities and public offices in such matters as may
concern the association and to appoint agents for
those matters to which he cannot attend personally.
The articles disclose that the capital invested in the enterprise
was fixed at P100,000, of which amount P60,000 was
contributed by the defendant and his brothers in the form of
machinery in a mill at Dagupan and the good will of the
milling business formerly conducted at the place, the balance
of the capital being contributed by the plaintiffs and others in
cash, in the following proportions: Eugenia Lichauco, P13,000;
Catalino Arevalo, P8,000; Mariano Nable Jose, P5,000; Tomas
Roux, P4,000; Julita Lichauco, P10,000.
The business thus organized was carried on until May, 1904,
when it was found to be unprofitable and discontinued by the
defendant manager (gestor); and thereafter, the machinery of
the rice mil was dismantled by his orders, and offered for sale.
No accounting ever was made to his associates by the
defendant until this action was instituted in October, 1912,
although it appears that in the year 1905, Mariano Limjap,
one of the participants in the venture, demanded a rendition
of accounts; and that Eugenia Lichauco, one of the plaintiffs in
this action, made repeated unsuccessful demands for the
return of her share of the capital invested in the enterprise.
And yet it further appears that during all that time the
defendant manager of the defunct enterprise had in his
possession not less than P20,000, the cash balance on hand,
over and above all claims of indebtedness after suspending
operations in 1904; and that since that time he received or
should have received substantial sums of money from the sale
of the machinery of the dismantled mill.
There is evidence in the record tending to show that the
defendant informed some of his associates, about the year
1906 or 1907, that the whole enterprise was bankrupt; and it
appears that some months prior to the institution of this
action, he rendered upon demand of counsel, a so-called
account showing a balance to the credit of the enterprise of
only P643.64; although at the trial, some six months
afterwards, he expressly admitted the existence of a cash
balance of some P23,131.53, and the amount by the trial
judge as due by him on account of the venture was
P29,549.99. The defendant explained that the account
rendered to counsel for the plaintiffs showing a balance of
P634.64 was mailed by one of his employees without his
knowledge, and that it was a stupid blunder which he greatly
regretted; and it would seem that his statement as to the
bankruptcy of the enterprise were not intended to be
understood as an assertion that there was no balance due the
partners, but merely that the enterprise had not paid, and
that the losses of operation had exceeded the profits.
Giving the defendant the benefit of the doubt, we are inclined
to accept these explanations of these incidents, as it is hardly
possible that he could have hoped to escape indefinitely the
necessity of accounting for his management of the enterprise,
and thus permanently retain in his own possession the
substantial balance due to his associates. But it is to be
observed that, viewed for many standpoint, these statements,
made and rendered by the defendant as to the affairs of the
association, taken together with the other evidence in the
record, leave no room for doubt that from the time he
concluded the operations of the business in 1904 until the
date of the institution of this action in 1912 he made no
attempt to account to his associates or to turn over to them
the amount due them on a proper accounting.
The assignments of error made by counsel for the defendant,
as appellant, are as follows:
Error No. 1. The trial court erred in rendering
judgment in favor of the plaintiffs and against the
defendant for any sum, without first decreeing a
dissolution of the association and final liquidation of
its assets in accordance with paragraph 10 of the
articles of association, and because such judgment is
not within the issues joined.
Error No. 2. The trial court erred in charging the
defendant with P5,500, the price of certain boilers
and machinery sold to one Marciano Rivera by
Crisanto Lichauco, which amount never came into
the possession of defendant.
Error No. 3. The trial court erred in disallowing the
credit of P60.36, taken by defendant for that amount
expended in an attempt to make good the sale and
delivery to Marciano Rivera of the boilers and
machinery mentioned in the second assignment of
error.
Error No. 4. The court erred in charging the
defendant with the P1,820, covered by stipulation of
December 10, 1913, for the reason that the
defendant's liability under that stipulation can only
accrue on the final dissolution and liquidation of the
association.
Error No. 5. The court erred in rendering judgment
against the defendant for the costs of the action.
The assignments of error made by refusing to condemn the
defendant to the payment of interest at the legal rate from
May 30, 1904, to date of payment.
Error No. 1 The court erred in refusing to condemn
the defendant to the payment of interest at the legal
rate of 6 per cent upon the credit balance of the joint
venture from May 30, 1904, to date of payment.
Error No. 2. The court erred in refusing to allow
interest at the legal rate of 6 per cent upon the sum
of P1,147.44 from May 30, 1904, to date of payment,
said credit balance of the joint venture was unduly
diminished by error in the conversion of gold
currency.
Error No. 3. The court erred in refusing to allow the
joint venture account the sum of P17, 746, being the
value of 3,736 cavanes of rice at P4.75 per cavan, for
which the defendant has wholly failed to account.
Error No. 4. The court erred in declining to allow
the joint venture account the sum of P8,943.98 as
interest upon said last-mentioned sum at the legal
rate.
Error No. 5. The court erred in declining to allow
the joint venture account the sum of P564.34, as
interest at the legal rate upon the sum of P5,500, for
which the defendant has failed and refused to
account.
Error No. 6. The court erred in declining to credit
the joint venture account with the sum of P2,498.46
as the amount due said account from Mariano Nable
Jose, together with interest thereon at the legal rate,
amounting to P1,259.22.
We shall first examine the contentions of counsel for the
defendant in support of his principal assignment of error, as a
ruling in this regard is necessary to the proper disposition of
all the other assignments of error by both plaintiffs and
defendant.
Counsel for defendant says in his brief:
It is our contention, and we believe it to be
unanswerable, that the dissolution and liquidation,
either in whole or in part, of the association is
absolutely prohibited by paragraph 10 of the articles
of association, except by and with the conformity and
agreement of two-thirds of the partners, and that as
a consequence thereof the court, without allegations
or proof of compliance with that paragraph and
without making the other partners parties to the
action, had no power to decree a distribution either
in whole or in part of the capital or assets of the
association.
It certainly cannot be seriously contended that part
of the capital and assets of this association can be
lawfully returned to and distributed between the
plaintiffs who constitute one-fifth of the total number
of partners, as required by paragraph 10 of the
articles of association.
 It is elementary that no lawful liquidation and
distribution of capital and assets of any company or
association can ever take place except upon
dissolution thereof.
These contentions of counsels for the defendant take no
account of the provisions of both the Civil and Commercial
Codes for the dissolution and liquidation of the different
classes of partnerships and mercantile associations upon the
occurrence of certain contingencies not within the control of
the partners. The provisions of paragraph 10 of the articles of
partnership prohibiting the dissolution of the association
under review, except by the consent and agreement of two-
thirds of its partners, denied the right to a less number of the
partners to effect a dissolution of the partnership through
judicial intervention or otherwise; but in no wise limited or
restricted the rights of the individual partners in the event the
dissolution of the association was effected, not by any act of
theirs, but by the express mandate of statutory law. It would
be absurd and unreasonable to hold that such an association
could never be dissolved and liquidated without the consent
and agreement of two-thirds of its partners notwithstanding
that it had lost all its capital, or had become bankrupt, or that
the enterprise for which it had been organized had been
concluded or utterly abandoned.
Chapter 3 of Title VIII [Book IV,] of the Civil Code prescribes
the means by which partnership (sociedades) as defined in
that code, may be terminated. The first article of that chapter
is as follows:
1700. Partnership is extinguished:
(1) When the term for which it was constituted
expires.
(2) When the thing is lost, or the business for which it
was constituted ends.
(3) By the natural death, civil interdiction, or
insolvency of any of the partners, and in the case
provided for in article 1699.
(4) By the will of any of the partners, subject to the
provisions of articles 1705 and 1707.
Partnerships, to which article 1670 refers, are
excepted from the provisions of Nos. 3 and 4 of this
article, in the cases in which they should exist,
according to the Code of Commerce.
1670. Civil partnerships, on account of the objects for
which they are destined, may adopt all the forms
accepted by the Code of Commerce. In this case, the
provisions of the same shall be applicable, in so far
as they are not in conflict with those of the present
Code.
Articles 221 and 222 of the Code of Commerce are as follows:
221. Associations of any kind whatsoever shall be
completely dissolved for the following reasons:
(1) The termination of the period fixed in the articles
of association of the conclusion of the enterprise
which constitutes its purpose.
(2) The entire loss of the capital.
(3) The failure of the association.
222. General and limited copartnerships shall
furthermore be totally dissolved for the following
reasons:
(1) The death of one of the general partners if the
articles of copartnership do not contain an express
agreement that the heirs of deceased partner are to
continue in the copartnership, or an agreement to
the effect that said copartnership will continue
between the surviving partners.
(2) The insanity of a managing partner or any other
cause which renders him incapable of administering
his property.
(3) The failure of any of the general partners.
It cannot be doubted that under these provisions of law the
association of which the defendant was nominated manager
(gestor) was totally dissolved in the year 1904, when the rice
mill for the operation of which it was organized was
dismantled, the machinery offered for sale and the whole
enterprise concluded and abandoned.
Upon the dissolution of the association in 1904 it became the
duty of the defendant to liquidate its affairs and account to his
associates for their respective shares in the capital invested
this not merely from the very nature of his relation to the
enterprise and of his duties to those associated with him as
partners, but also by the express mandate of the law. The
association having been dissolved by the termination and
abandonment of the enterprise for which it was organized, he
owed this duty to liquidate and account to all and to each of
his associates, and upon his failure to perform that duty, all or
any of them had a clear legal right to compel him to fulfill it.
Each of his associates had a perfect right to demand for
himself a full, complete and satisfactory accounting, and in
the event that he conceived himself aggrieved in this regard,
to institute the appropriate judicial proceedings to secure
relief. Doubtless, in order to avoid a multiplicity of actions, the
defendant in such an action could require all the associates to
be made parties, but the right of an individual member of the
association to recover his share in the enterprise and to assert
his individual claim for redress, wholly independent of the
action or attitudes of his associates, could be in no wise
affected thereby. The other associates would be proper, but
not necessary, parties to an action of this kind; and when, as
in the case at bar, the defendant proceeds to trial without
objection on the express ground that all the associates in the
enterprise have not been made parties to the action, he
cannot thereafter be heard to raise such an objection for the
purpose of challenging any judgment which may be rendered
therein.
Although the enterprise was organized in the year 1901 for
the purpose of conducting mercantile operations, including
the buying and selling of "palay" and rice, the articles of
partnership or association were not registered in the
mercantile registry in accordance with the provisions of
articles 17 and 119 of the Commercial Code. It was therefore
a mere unregistered commercial partnership, and the
association never became in the legal sense a juridical
person, nor did it attain the dignity, rights or privileges
accorded the different classes of compaias
mercantiles (mercantile partnerships), discussed in Title 1 of
Book 2 of the Commercial Code. Still, under the provisions of
the above-cited article 1670 of the Civil Code, if it be found
that the association is clothed with the forms of any of the
commercial association or partnerships recognized in the
Commercial Code, the provisions of that code, in so far as
they are not in conflict with those of the Civil Code, may be
relied upon in an attempt to define the legal relations of the
association and its members. Though the unregistered articles
of partnership gave the association a form of organization
closely assimilated to that of a regular "compaia en
comandita," as prescribed in the Commercial Code, except
that the name designated in the articles did not include the
words "y compaia" (and company) and the additional words
"sociedad en comandita," it appears to have been organized
and conducted in substantially the manner and form
prescribed for "cuentas en participacion" (joint accounts) in
articles 239-243 of that Code.
The plaintiffs alleged in their complaint and the defendant
admitted in his answer that the contract was one of a
"sociedad de cuentas en participacion" (joint account
partnership) of which the defendant was gestor (manager). In
his brief on appeal, however, counsel for defendant intimates
that under article 241 of the Commercial Code, the adoption
in the articles of partnership of a firm name deprived the
parties of the rights and privileges secured to those interested
in cuentas en participacion under the provisions of the
Commercial Code.
But whatever effect the inclusion or omission of a firm name
in the articles of partnership may have had as to third persons
dealing with the partnership, we are of opinion that as
between the associates themselves, their mutual rights,
duties and obligations may properly be determined upon the
authority of article 1670 of the Civil Code by the provisions of
the Commercial Code touching partnerships, the form of
which in all other respects, the partners have adopted in their
articles of partnership.
The duty of the defendant to liquidate the affairs of the
enterprise and to account to his associates promptly upon the
dissolution of the association in the year 1904 is expressly
prescribed in the Commercial Code, whether we regard the
association, so far as it affects the mutual rights and
obligations of the partners, as clothed with the forms of a
"sociedad de cuentas en participacion" (joint account
partnership) or a "sociedad en comindata."
Article 243 of the Code of Commerce prescribes with
reference to "cuentas en participacion" (joint accounts) that:
243. The liquidation shall be effected by the
manager, and after the transactions have been
concluded he shall render a proper account of its
results.
Articles 229 and 230 of the same Code are as follows:
229. In general or limited copartnerships, should
there be no opposition on the part of any of the
partners, the persons who managed the common
funds shall continue in charge of the liquidation; but
should all the partners not agree thereto a general
meeting shall be called without delay, and the
decision adopted at the same shall be enforced with
regard to the appointment of liquidators from among
the members of the association or not, as well as in
all that refers to the form and proceedings of the
liquidation and the management of the common
funds.
230. Under the penalty of removal the liquidators
shall
(1) Draw up and communicate to the members,
within the period of twenty days, an inventory of the
common property, with a balance of the association
in liquidation according to its books.
(2) Communicate in the same manner to the
members every month the condition of the
liquidation.
We conclude that an express statutory obligation imposed
upon the defendant an imperative obligation to proceed
without delay to the liquidation of the association in the year
1904 and the further duty to account to his associates for the
result of that liquidation. While he appears to have gone
forward with the liquidation far enough to collect all the cash
resources of the association into his own hands, how utterly
failed neglected to account therefor to his associates or to
make any attempt so to do, and we are of opinion that the
plaintiffs were clearly entitled to bring this action to compel
an accounting, and the payment of their respective shares of
the capital invested, together with damages resulting from
the failure of the defendant to perform the duty expressly
imposed upon him by statute. The damages arising from the
failure to account consisted of the loss of the use of the
money to which they would have been entitled upon a proper
accounting, from the date at which it should have been turned
over by the defendant until it is actually paid by him, that is to
say, interest on that amount at the rate of six per centum per
annum until paid.
What has been said disposes adversely of the contentions of
the defendant in support of his assignments of errors Nos. 1
and 5; and sustains the contentions of the plaintiffs in their
assignments of errors Nos. 1 and 2, to the extent that interest
at the rate of six per centum per annum should have been
allowed upon the credit balance of the enterprise from May
30, 1904, the date when it should have been distributed
among his associates by the defendant had he performed his
statutory duty in that regard. This balance (including the item
mentioned in plaintiff's assignment of error No. 2) we fix at
P23, 131.53, adopting as a basis for our finding in this regard,
the findings and conclusions of the trial judge, and
disregarding the possibility that had defendant accounted
promptly to his associates, interest might not have been
chargeable on some of the smaller items in included in the
account until some little time after the date just mentioned.
As to the other assignments of error it must suffice to say that
we have carefully examined the record and have arrived at
the following conclusions:
With relation to the item of account referred to in defendant's
assignment of error No. 2 and plaintiff's assignment No. 5, we
hold that the defendant's account was properly charged by
the trial judge with the sum of P5,500, the purchase price of
certain machinery sold by him and for which, under all the
circumstances, he must account, together with interest at the
rate of six per centum per annum from January 8, 1912, the
date of sale to Marciano Rivera.
With relation to the items mentioned in plaintiff's assignments
of errors Nos. 3 and 4, we hold that the trial judge properly
declines to charge the defendant's account with the amounts
mentioned therein, the evidence of record not being sufficient
to establish his liability therefor as manager or gestor of the
enterprise.
With relation to the matter referred to in plaintiff's assignment
of error number 6 and defendant's assignment No. 4, we are
of opinion that the trial judge properly disposed of the issues
between the parties in this regard, as they were submitted to
him and as they are disclosed by the record brought here on
appeal.
We find no merit in defendant's assignment of error numbered
3.
Twenty days hereafter let judgment be entered reversing the
judgment of the lower court, without special condemnation of
the costs in this instance, and directing the return of the
record to the trial court, wherein judgment will be entered in
accordance herewith, and ten days thereafter let the record
be remanded in confirmity therewith. So ordered.
Arellano, C.J., Torres and Trent, JJ., concur.
ok no part.
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.
description of those already discovered were as follows: (list
of properties) ...;" and that:
BARREDO, J.:
Petition for (1) certiorari to annul and set aside certain
actuations of respondent Court of First Instance of Cebu
Branch III in its Civil Case No. 12328, an action for accounting
of properties and money totalling allegedly about P15 million
pesos filed with a common cause of action against six
defendants, in which after declaring four of the said
defendants herein petitioners, in default and while the trial as
against the two defendants not declared in default was in
progress, said court granted plaintiff's motion to dismiss the
case in so far as the non-defaulted defendants were
concerned and thereafter proceeded to hear ex-parte the rest
of the plaintiffs evidence and subsequently rendered
judgment by default against the defaulted defendants, with
the particularities that notice of the motion to dismiss was not
duly served on any of the defendants, who had alleged a
compulsory counterclaim against plaintiff in their joint answer,
and the judgment so rendered granted reliefs not prayed for
in the complaint, and (2) prohibition to enjoin further
proceedings relative to the motion for immediate execution of
the said judgment.
Originally, this litigation was a complaint filed on February 9,
1971 by respondent Tan Put only against the spouses-
petitioners Antonio Lim Tanhu and Dy Ochay. Subsequently, in
an amended complaint dated September 26, 1972, their son
Lim Teck Chuan and the other spouses-petitioners Alfonso
Leonardo Ng Sua and Co Oyo and their son Eng Chong
Leonardo were included as defendants. In said amended
complaint, respondent Tan alleged that she "is the widow of
Tee Hoon Lim Po Chuan, who was a partner in the commercial
partnership, Glory Commercial Company ... with Antonio Lim
Tanhu and Alfonso Ng Sua that "defendant Antonio Lim Tanhu,
Alfonso Leonardo Ng Sua, Lim Teck Chuan, and Eng Chong
Leonardo, through fraud and machination, took actual and
active management of the partnership and although Tee Hoon
Lim Po Chuan was the manager of Glory Commercial
Company, defendants managed to use the funds of the
partnership to purchase lands and building's in the cities of
Cebu, Lapulapu, Mandaue, and the municipalities of Talisay
and Minglanilla, some of which were hidden, but the
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 (/ 3) thereof;
14. (P)laintiff, on several occasions after the
death of her husband, has asked defendants
of the above-mentioned properties and for
the liquidation of the business of the
defunct partnership, including investments
on real estate in Hong Kong, but defendants
kept on promising to liquidate said
properties and just told plaintiff to
15. (S)ometime in the month of November,
1967, defendants, Antonio Lim Tanhu, by
means of fraud deceit and
misrepresentations did then and there,
induce and convince the plaintiff to execute
a quitclaim of all her rights and interests, in
the assets of the partnership of Glory
Commercial Company, which is null and
void, executed through fraud and without
any legal effect. The original of said
quitclaim is in the possession of the adverse
party defendant Antonio Lim Tanhu.
16. (A)s a matter of fact, after the execution
of said quitclaim, defendant Antonio Lim
Tanhu offered to pay the plaintiff the
amount P65,000.00 within a period of one
(1) month, for which plaintiff was made to
sign a receipt for the amount of P65,000.00
although no such amount was given and
plaintiff was not even given a copy of said
document;
17. (T)hereafter, in the year 1968-69, the
defendants who had earlier promised to
liquidate the aforesaid properties and
assets in favor among others of plaintiff and
until the middle of the year 1970 when the
plaintiff formally demanded from the
defendants the accounting of real and
personal properties of the Glory Commercial
Company, defendants refused and stated
that they would not give the share of the
plaintiff. (Pp. 36-37, Record.)
She prayed as follows:
WHEREFORE, it is most respectfully prayed
that judgment be rendered:
a) Ordering the defendants to render an
accounting of the real and personal
properties of the Glory Commercial
Company including those registered in the
names of the defendants and other persons,
which properties are located in the
Philippines and in Hong Kong;
b) Ordering the defendants to deliver to the
plaintiff after accounting, one third (/ 3) of
the total value of all the properties which is
approximately P5,000,000.00 representing
the just share of the plaintiff;
c) Ordering the defendants to pay the
attorney of the plaintiff the sum of Two
Hundred Fifty Thousand Pesos (P250,000.00)
by way of attorney's fees and damages in
the sum of One Million Pesos
(P1,000,000.00).
This Honorable Court is prayed for other
remedies and reliefs consistent with law and
equity and order the defendants to pay the
costs. (Page 38, Record.)
The admission of said amended complaint was opposed by
defendants upon the ground that there were material
modifications of the causes of action previously alleged, but
respondent judge nevertheless allowed the amendment
reasoning that:
The present action is for accounting of real
and personal properties as well as for the
recovery of the same with damages.
An objective consideration of pars. 13 and
15 of the amended complaint pointed out by
the defendants to sustain their opposition
will show that the allegations of facts
therein are merely to amplify material
averments constituting the cause of action
in the original complaint. It likewise include
necessary and indispensable defendants
without whom no final determination can be
had in the action and in order that complete
relief is to be accorded as between those
already parties.
Considering that the amendments sought to
be introduced do not change the main
causes of action in the original complaint
and the reliefs demanded and to allow
amendments is the rule, and to refuse them
the exception and in order that the real
question between the parties may be
properly and justly threshed out in a single
proceeding to avoid multiplicity of actions.
(Page 40, Record.)
In a single answer with counterclaim, over the signature of
their common counsel, defendants denied specifically not only
the allegation that respondent Tan is the widow of Tee Hoon
because, according to them, his legitimate wife was Ang Siok
Tin still living and with whom he had four (4) legitimate
children, a twin born in 1942, and two others born in 1949 and
1965, all presently residing in Hongkong, but also all the
allegations of fraud and conversion quoted above, the truth
being, according to them, that proper liquidation had been
regularly made of the business of the partnership and Tee
Hoon used to receive his just share until his death, as a result
of which the partnership was dissolved and what
corresponded to him were all given to his wife and children. To
quote the pertinent portions of said answer:
AND BY WAY OF SPECIAL AND AFFIRMATIVE
DEFENSES,
defendants hereby incorporate all facts
averred and alleged in the answer, and
further most respectfully declare:
1. That in the event that plaintiff is filing the
present complaint as an heir of Tee Hoon
Lim Po Chuan, then, she has no legal
capacity to sue as such, considering that the
legitimate wife, namely: Ang Siok Tin,
together with their children are still alive.
Under Sec. 1, (d), Rule 16 of the Revised
Rules of Court, lack of legal capacity to sue
is one of the grounds for a motion to dismiss
and so defendants prays that a preliminary
hearing be conducted as provided for in Sec.
5, of the same rule;
2. That in the alternative case or event that
plaintiff is filing the present case under Art.
144 of the Civil Code, then, her claim or
demand has been paid, waived abandoned
or otherwise extinguished as evidenced by
the 'quitclaim' Annex 'A' hereof, the ground
cited is another ground for a motion to
dismiss (Sec. 1, (h), Rule 16) and hence
defendants pray that a preliminary hearing
be made in connection therewith pursuant
to Section 5 of the aforementioned rule;
3. That Tee Hoon Lim Po Chuan was legally
married to Ang Siok Tin and were blessed
with the following children, to wit: Ching
Siong Lim and Ching Hing Lim (twins) born
on February 16, 1942; Lim Shing Ping born
on March 3, 1949 and Lim Eng Lu born on
June 25, 1965 and presently residing in
Hongkong;
4. That even before the death of Tee Hoon
Lim Po Chuan, the plaintiff was no longer his
common law wife and even though she was
not entitled to anything left by Tee Hoon Lim
Po Chuan, yet, out of the kindness and
generosity on the part of the defendants,
particularly Antonio Lain Tanhu, who, was
inspiring to be monk and in fact he is now a
monk, plaintiff was given a substantial
amount evidenced by the 'quitclaim' (Annex
'A');
5. That the defendants have acquired
properties out of their own personal fund
and certainly not from the funds belonging
to the partnership, just as Tee Hoon Lim Po
Chuan had acquired properties out of his
personal fund and which are now in the
possession of the widow and neither the
defendants nor the partnership have
anything to do about said properties;
6. That it would have been impossible to
buy properties from funds belonging to the
partnership without the other partners
knowing about it considering that the
amount taken allegedly is quite big and with
such big amount withdrawn the partnership
would have been insolvent;
7. That plaintiff and Tee Hoon Lim Po Chuan
were not blessed with children who would
have been lawfully entitled to succeed to
the properties left by the latter together
with the widow and legitimate children;
8. That despite the fact that plaintiff knew
that she was no longer entitled to anything
of the shares of the late Tee Hoon Lim Po
Chuan, yet, this suit was filed against the
defendant who have to interpose the
following
COUNTERCLAIM
A. That the defendants hereby reproduced,
by way of reference, all the allegations and
foregoing averments as part of this
counterclaim; .
B. That plaintiff knew and was aware she
was merely the common-law wife of Tee
Hoon Lim Po Chuan and that the lawful and
legal is still living, together with the
legitimate children, and yet she deliberately
suppressed this fact, thus showing her bad
faith and is therefore liable for exemplary
damages in an amount which the Honorable
Court may determine in the exercise of its
sound judicial discretion. In the event that
plaintiff is married to Tee Hoon Lim Po
Chuan, then, her marriage is bigamous and
should suffer the consequences thereof;
C. That plaintiff was aware and had
knowledge about the 'quitclaim', even
though she was not entitled to it, and yet
she falsely claimed that defendants refused
even to see her and for filing this
unfounded, baseless, futile and puerile
complaint, defendants suffered mental
anguish and torture conservatively
estimated to be not less than P3,000.00;
D. That in order to defend their rights in
court, defendants were constrained to
engage the services of the undersigned
counsel, obligating themselves to pay
P500,000.00 as attorney's fees;
E. That by way of litigation expenses during
the time that this case will be before this
Honorable Court and until the same will be
finally terminated and adjudicated,
defendants will have to spend at least
P5,000.00. (Pp. 44-47. Record.)
After unsuccessfully trying to show that this counterclaim is
merely permissive and should be dismissed for non-payment
of the corresponding filing fee, and after being overruled by
the court, in due time, plaintiff answered the same, denying
its material allegations.
On February 3, 1973, however, the date set for the pre-trial,
both of the two defendants-spouses the Lim Tanhus and Ng
Suas, did not appear, for which reason, upon motion of
plaintiff dated February 16, 1973, in an order of March 12,
1973, they were all "declared in DEFAULT as of February 3,
1973 when they failed to appear at the pre-trial." They sought
to hive this order lifted thru a motion for reconsideration, but
the effort failed when the court denied it. Thereafter, the trial
started, but at the stage thereof where the first witness of the
plaintiff by the name of Antonio Nuez who testified that he is
her adopted son, was up for re-cross-examination, said
plaintiff unexpectedly filed on October 19, 1974 the following
simple and unreasoned
MOTION TO DROP DEFENDANTS LIM TECK
CHUAN AND ENG CHONG LEONARDO
COMES now plaintiff, through her
undersigned counsel, unto the Honorable
Court most respectfully moves to drop from
the complaint the defendants Lim Teck
Chuan and Eng Chong Leonardo and to
consider the case dismissed insofar as said
defendants Lim Teck Chuan and Eng Chong
Leonardo are concerned.
WHEREFORE, it is most respectfully prayed
of the Honorable Court to drop from the
complaint the defendants Lim Teck Chuan
and Eng Chong Leonardo and to dismiss the
 case against them without pronouncement
as to costs. (Page 50, Record.)
which she set for hearing on December 21,
1974. According to petitioners, none of the
defendants declared in default were notified
of said motion, in violation of Section 9 of
Rule 13, since they had asked for the lifting
of the order of default, albeit unsuccessfully,
and as regards the defendants not declared
in default, the setting of the hearing of said
motion on October 21, 1974 infringed the
three-day requirement of Section 4 of Rule
15, inasmuch as Atty. Adelino Sitoy of Lim
Teck Chuan was served with a copy of the
motion personally only on October 19, 1974,
while Atty. Benjamin Alcudia of Eng Chong
Leonardo was served by registered mail
sent only on the same date.
Evidently without even verifying the notices
of service, just as simply as plaintiff had
couched her motion, and also without any
legal grounds stated, respondent court
granted the prayer of the above motion
thus:
ORDER
Acting on the motion of the plaintiff praying
for the dismissal of the complaint as against
defendants Lim Teck Chuan and Eng Chong
Leonardo.
The same is hereby GRANTED. The
complaint as against defendant Lim Teck
Chuan and Eng Chong Leonardo is hereby
ordered DISMISSED without pronouncement
as to costs.
Simultaneously, the following order was also issued:
Considering that defendants Antonio Lim
Tanhu and his spouse Dy Ochay as well as
defendants Alfonso Ng Sua and his spouse
Co Oyo have been declared in default for
failure to appear during the pre-trial and as
to the other defendants the complaint had
already been ordered dismissed as against
them.
Let the hearing of the plaintiff's
evidence ex-parte be set on November 20,
1974, at 8:30 A.M. before the Branch Clerk
of Court who is deputized for the purpose, to
swear in witnesses and to submit her report
within ten (10) days thereafter. Notify the
plaintiff.
SO ORDERED.
Cebu City, Philippines, October 21, 1974.
(Page 52, Record.)
But, in connection with this last order, the scheduled ex-parte
reception of evidence did not take place on November 20,
1974, for on October 28, 1974, upon verbal motion of plaintiff,
the court issued the following self-explanatory order: .
Acting favorably on the motion of the
plaintiff dated October 18, 1974, the Court
deputized the Branch Clerk of Court to
receive the evidence of the plaintiff ex-
parte to be made on November 20, 1974.
However, on October 28, 1974, the plaintiff,
together with her witnesses, appeared in
court and asked, thru counsel, that she be
allowed to present her evidence.
Considering the time and expenses incurred
by the plaintiff in bringing her witnesses to
the court, the Branch Clerk of Court is
hereby authorized to receive immediately
the evidence of the plaintiff ex-parte.
SO ORDERED.
Cebu City, Philippines, October 28, 1974.
(Page 53. Record.)
Upon learning of these orders on October 23, 1973, the
defendant Lim Teck Cheng, thru counsel, Atty. Sitoy, filed a
motion for reconsideration thereof, and on November 1, 1974,
defendant Eng Chong Leonardo, thru counsel Atty. Alcudia,
filed also his own motion for reconsideration and clarification
of the same orders. These motions were denied in an order
dated December 6, 1974 but received by the movants only on
December 23, 1974. Meanwhile, respondent court rendered
the impugned decision on December 20, 1974. It does not
appear when the parties were served copies of this decision.
Subsequently, on January 6, 1975, all the defendants, thru
counsel, filed a motion to quash the order of October 28,
1974. Without waiting however for the resolution thereof, on
January 13, 1974, Lim Teck Chuan and Eng Chong Leonardo
went to the Court of Appeals with a petition for certiorari
seeking the annulment of the above-mentioned orders of
October 21, 1974 and October 28, 1974 and decision of
December 20, 1974. By resolution of January 24, 1975, the
Court of Appeals dismissed said petition, holding that its filing
was premature, considering that the motion to quash the
order of October 28, 1974 was still unresolved by the trial
court. This holding was reiterated in the subsequent resolution
of February 5, 1975 denying the motion for reconsideration of
the previous dismissal.
On the other hand, on January 20, 1975, the other defendants,
petitioners herein, filed their notice of appeal, appeal bond
and motion for extension to file their record on appeal, which
was granted, the extension to expire after fifteen (15) days
from January 26 and 27, 1975, for defendants Lim Tanhu and
Ng Suas, respectively. But on February 7, 1975, before the
perfection of their appeal, petitioners filed the present petition
with this Court. And with the evident intent to make their
procedural position clear, counsel for defendants, Atty. Manuel
Zosa, filed with respondent court a manifestation dated
February 14, 1975 stating that "when the non-defaulted
defendants Eng Chong Leonardo and Lim Teck Chuan filed
their petition in the Court of Appeals, they in effect
abandoned their motion to quash the order of October 28,
1974," and that similarly "when Antonio Lim Tanhu, Dy Ochay,
Alfonso Leonardo Ng Sua and Co Oyo, filed their petition
for certiorari and prohibition ... in the Supreme Court, they
likewise abandoned their motion to quash." This manifestation
was acted upon by respondent court together with plaintiffs
motion for execution pending appeal in its order of the same
date February 14, 1975 this wise:
ORDER
When these incidents, the motion to quash
the order of October 28, 1974 and the
motion for execution pending appeal were
called for hearing today, counsel for the
defendants-movants submitted their
manifestation inviting the attention of this
Court that by their filing for certiorari and
prohibition with preliminary injunction in the
Court of Appeals which was dismissed and
later the defaulted defendants filed with the
Supreme Court certiorari with prohibition
they in effect abandoned their motion to
quash.
IN VIEW HEREOF, the motion to quash is
ordered ABANDONED. The resolution of the
motion for execution pending appeal shall
be resolved after the petition for certiorari
and prohibition shall have been resolved by
the Supreme Court.
SO ORDERED.
Cebu City, Philippines, February 14, 1975.
(Page 216, Record.)
Upon these premises, it is the position of petitioners that
respondent court acted illegally, in violation of the rules or
with grave abuse of discretion in acting on respondent's
motion to dismiss of October 18, 1974 without previously
ascertaining whether or not due notice thereof had been
served on the adverse parties, as, in fact, no such notice was
timely served on the non-defaulted defendants Lim Teck
Chuan and Eng Chong Leonardo and no notice at all was ever
sent to the other defendants, herein petitioners, and more so,
in actually ordering the dismissal of the case by its order of
October 21, 1974 and at the same time setting the case for
further hearing as against the defaulted defendants, herein
petitioners, actually hearing the same ex-parte and thereafter
rendering the decision of December 20, 1974 granting
respondent Tan even reliefs not prayed for in the complaint.
According to the petitioners, to begin with, there was
compulsory counterclaim in the common answer of the
defendants the nature of which is such that it cannot be
decided in an independent action and as to which the
attention of respondent court was duly called in the motions
for reconsideration. Besides, and more importantly, under
Section 4 of Rule 18, respondent court had no authority to
divide the case before it by dismissing the same as against
the non-defaulted defendants and thereafter proceeding to
hear it ex-parte and subsequently rendering judgment against
the defaulted defendants, considering that in their view,
under the said provision of the rules, when a common cause
of action is alleged against several defendants, the default of
any of them is a mere formality by which those defaulted are
not allowed to take part in the proceedings, but otherwise, all
the defendants, defaulted and not defaulted, are supposed to
have but a common fate, win or lose. In other words,
petitioners posit that in such a situation, there can only be
one common judgment for or against all the defendant, the
non-defaulted and the defaulted. Thus, petitioners contend
that the order of dismissal of October 21, 1974 should be
considered also as the final judgment insofar as they are
concerned, or, in the alternative, it should be set aside
together with all the proceedings and decision held and
rendered subsequent thereto, and that the trial be resumed as
of said date, with the defendants Lim Teck Chuan and Eng
Chong Leonardo being allowed to defend the case for all the
defendants.
On the other hand, private respondent maintains the contrary
view that inasmuch as petitioners had been properly declared
in default, they have no personality nor interest to question
the dismissal of the case as against their non-defaulted co-
defendants and should suffer the consequences of their own
default. Respondent further contends, and this is the only
position discussed in the memorandum submitted by her
counsel, that since petitioners have already made or at least
started to make their appeal, as they are in fact entitled to
appeal, this special civil action has no reason for being.
Additionally, she invokes the point of prematurity upheld by
the Court of Appeals in regard to the above-mentioned
petition therein of the non-defaulted defendants Lim Teck
Chuan and Eng Chong Leonardo. Finally, she argues that in
any event, the errors attributed to respondent court are errors
of judgment and may be reviewed only in an appeal.
After careful scrutiny of all the above-related proceedings, in
the court below and mature deliberation, the Court has
arrived at the conclusion that petitioners should be granted
relief, if only to stress emphatically once more that the rules
of procedure may not be misused and abused as instruments
for the denial of substantial justice. A review of the record of
this case immediately discloses that here is another
demonstrative instance of how some members of the bar,
availing of their proficiency in invoking the letter of the rules
without regard to their real spirit and intent, succeed in
inducing courts to act contrary to the dictates of justice and
equity, and, in some instances, to wittingly or unwittingly abet
unfair advantage by ironically camouflaging their actuations
as earnest efforts to satisfy the public clamor for speedy
disposition of litigations, forgetting all the while that the plain
injunction of Section 2 of Rule 1 is that the "rules shall be
liberally construed in order to promote their object and to
assist the parties in obtaining not only 'speedy' but more
imperatively, "just ... and inexpensive determination of every
action and proceeding." We cannot simply pass over the
impression that the procedural maneuvers and tactics
revealed in the records of the case at bar were deliberately
planned with the calculated end in view of depriving
petitioners and their co-defendants below of every
opportunity to properly defend themselves against a claim of
more than substantial character, considering the millions of
pesos worth of properties involved as found by respondent
judge himself in the impugned decision, a claim that appears,
in the light of the allegations of the answer and the
documents already brought to the attention of the court at the
pre-trial, to be rather dubious. What is most regrettable is that
apparently, all of these alarming circumstances have escaped
respondent judge who did not seem to have hesitated in
acting favorably on the motions of the plaintiff conducive to
the deplorable objective just mentioned, and which motions,
at the very least, appeared to be 'of highly controversial'
merit, considering that their obvious tendency and immediate
result would be to convert the proceedings into a one-sided
affair, a situation that should be readily condemnable and
intolerable to any court of justice.
Indeed, a seeming disposition on the part of respondent court
to lean more on the contentions of private respondent may be
discerned from the manner it resolved the attempts of
defendants Dy Ochay and Antonio Lim Tanhu to have the
earlier order of default against them lifted. Notwithstanding
that Dy Ochay's motion of October 8, 1971, co-signed by her
with their counsel, Atty. Jovencio Enjambre (Annex 2 of
respondent answer herein) was over the jurat of the notary
public before whom she took her oath, in the order of
November 2, 1971, (Annex 3 id.) it was held that "the oath
appearing at the bottom of the motion is not the one
contemplated by the abovequoted pertinent provision (See. 3,
Rule 18) of the rules. It is not even a verification. (See. 6, Rule
7.) What the rule requires as interpreted by the Supreme
Court is that the motion must have to be accompanied by an
affidavit of merits that the defendant has a meritorious
defense, thereby ignoring the very simple legal point that the
ruling of the Supreme Court in Ong Peng vs. Custodio, 1 SCRA
781, relied upon by His Honor, under which a separate
affidavit of merit is required refers obviously to instances
where the motion is not over oath of the party concerned,
considering that what the cited provision literally requires is
no more than a "motion under oath." Stated otherwise, when
a motion to lift an order of default contains the reasons for the
failure to answer as well as the facts constituting the
prospective defense of the defendant and it is sworn to by
said defendant, neither a formal verification nor a separate
affidavit of merit is necessary.
What is worse, the same order further held that the motion to
lift the order of default "is an admission that there was a valid
service of summons" and that said motion could not amount
to a challenge against the jurisdiction of the court over the
person of the defendant. Such a rationalization is patently
specious and reveals an evident failure to grasp the import of
the legal concepts involved. A motion to lift an order of default
on the ground that service of summons has not been made in
accordance with the rules is in order and is in essence verily
an attack against the jurisdiction of the court over the person
of the defendant, no less than if it were worded in a manner
specifically embodying such a direct challenge.
And then, in the order of February 14, 1972 (Annex 6, id.)
lifting at last the order of default as against defendant Lim
Tanhu, His Honor posited that said defendant "has a defense
(quitclaim) which renders the claim of the plaintiff
contentious." We have read defendants' motion for
reconsideration of November 25, 1971 (Annex 5, id.), but We
cannot find in it any reference to a "quitclaim". Rather, the
allegation of a quitclaim is in the amended complaint (Pars.
15-16, Annex B of the petition herein) in which plaintiff
maintains that her signature thereto was secured through
fraud and deceit. In truth, the motion for reconsideration just
mentioned, Annex 5, merely reiterated the allegation in Dy
Ochay's earlier motion of October 8, 1971, Annex 2, to set
aside the order of default, that plaintiff Tan could be but the
common law wife only of Tee Hoon, since his legitimate wife
was still alive, which allegation, His Honor held in the order of
November 2, 1971, Annex 3, to be "not good and meritorious
defense". To top it all, whereas, as already stated, the order of
February 19, 1972, Annex 6, lifted the default against Lim
Tanhu because of the additional consideration that "he has a
defense (quitclaim) which renders the claim of the plaintiff
contentious," the default of Dy Ochay was maintained
notwithstanding that exactly the same "contentions" defense
as that of her husband was invoked by her.
Such tenuous, if not altogether erroneous reasonings and
manifest inconsistency in the legal postures in the orders in
question can hardly convince Us that the matters here in issue
were accorded due and proper consideration by respondent
court. In fact, under the circumstances herein obtaining, it
seems appropriate to stress that, having in view the rather
substantial value of the subject matter involved together with
the obviously contentious character of plaintiff's claim, which
is discernible even on the face of the complaint itself, utmost
care should have been taken to avoid the slightest suspicion
of improper motivations on the part of anyone concerned.
Upon the considerations hereunder to follow, the Court
expresses its grave concern that much has to be done to
dispel the impression that herein petitioners and their co-
defendants are being railroaded out of their rights and
properties without due process of law, on the strength of
procedural technicalities adroitly planned by counsel and
seemingly unnoticed and undetected by respondent court,
whose orders, gauged by their tenor and the citations of
supposedly pertinent provisions and jurisprudence made
therein, cannot be said to have proceeded from utter lack of
juridical knowledgeability and competence.
1 specially from the point of view he subsequently adopted,
The first thing that has struck the Court upon reviewing the
record is the seeming alacrity with which the motion to
dismiss the case against non-defaulted defendants Lim Teck
Chuan and Eng Chong Leonardo was disposed of, which
definitely ought not to have been the case. The trial was
proceeding with the testimony of the first witness of plaintiff
and he was still under re-cross-examination. Undoubtedly, the
motion to dismiss at that stage and in the light of the
declaration of default against the rest of the defendants was a
well calculated surprise move, obviously designed to secure
utmost advantage of the situation, regardless of its apparent
unfairness. To say that it must have been entirely unexpected
by all the defendants, defaulted and non-defaulted , is merely
to rightly assume that the parties in a judicial proceeding can
never be the victims of any procedural waylaying as long as
lawyers and judges are imbued with the requisite sense of
equity and justice.
But the situation here was aggravated by the indisputable fact
that the adverse parties who were entitled to be notified of
such unanticipated dismissal motion did not get due notice
thereof. Certainly, the non-defaulted defendants had the right
to the three-day prior notice required by Section 4 of Rule 15.
How could they have had such indispensable notice when the
motion was set for hearing on Monday, October 21, 1974,
whereas the counsel for Lim Teck Chuan, Atty. Sitoy was
personally served with the notice only on Saturday, October
19, 1974 and the counsel for Eng Chong Leonardo, Atty.
Alcudia, was notified by registered mail which was posted only
that same Saturday, October 19, 1974? According to Chief
Justice Moran, "three days at least must intervene between
the date of service of notice and the date set for the hearing,
otherwise the court may not validly act on the motion."
(Comments on the Rules of Court by Moran, Vol. 1, 1970 ed. p.
474.) Such is the correct construction of Section 4 of Rule 15.
And in the instant case, there can be no question that the
notices to the non-defaulted defendants were short of the
requirement of said provision.
We can understand the over-anxiety of counsel for plaintiff,
but what is incomprehensible is the seeming inattention of
respondent judge to the explicit mandate of the pertinent
rule, not to speak of the imperatives of fairness, considering
he should have realized the far-reaching implications,
albeit erroneously, of his favorably acting on it. Actually, he
was aware of said consequences, for simultaneously with his
order of dismissal, he immediately set the case for the ex-
parte hearing of the evidence against the defaulted
defendants, which, incidentally, from the tenor of his order
which We have quoted above, appears to have been done by
him motu propio As a matter of fact, plaintiff's motion also
quoted above did not pray for it.
Withal, respondent court's twin actions of October 21, 1974
further ignores or is inconsistent with a number of known
juridical principles concerning defaults, which We will here
take occasion to reiterate and further elucidate on, if only to
avoid a repetition of the unfortunate errors committed in this
case. Perhaps some of these principles have not been amply
projected and elaborated before, and such paucity of
elucidation could be the reason why respondent judge must
have acted as he did. Still, the Court cannot but express its
vehement condemnation of any judicial actuation that unduly
deprives any party of the right to be heard without clear and
specific warrant under the terms of existing rules or binding
jurisprudence. Extreme care must be the instant reaction of
every judge when confronted with a situation involving risks
that the proceedings may not be fair and square to all the
parties concerned. Indeed, a keen sense of fairness, equity
and justice that constantly looks for consistency between the
letter of the adjective rules and these basic principles must be
possessed by every judge, If substance is to prevail, as it
must, over form in our courts. Literal observance of the rules,
when it is conducive to unfair and undue advantage on the
part of any litigant before it, is unworthy of any court of
justice and equity. Withal, only those rules and procedure
informed, with and founded on public policy deserve
obedience in accord with their unequivocal language or
words..
Before proceeding to the discussion of the default aspects of
this case, however, it should not be amiss to advert first to the
patent incorrectness, apparent on the face of the record, of
the aforementioned order of dismissal of October 21, 1974 of
the case below as regards non-defaulted defendants Lim and
Leonardo. While it is true that said defendants are not
petitioners herein, the Court deems it necessary for a full view
of the outrageous procedural strategy conceived by
respondent's counsel and sanctioned by respondent court to
also make reference to the very evident fact that in ordering
said dismissal respondent court disregarded completely the
existence of defendant's counterclaim which it had itself
earlier held if indirectly, to be compulsory in nature when it
refused to dismiss the same on the ground alleged by
respondent Tan that he docketing fees for the filing thereof
had not been paid by defendants.
Indeed, that said counterclaim is compulsory needs no
extended elaboration. As may be noted in the allegations
hereof aforequoted, it arose out of or is necessarily connected
with the occurrence that is the subject matter of the plaintiff's
claim, (Section 4, Rule 9) namely, plaintiff's allegedly being
the widow of the deceased Tee Hoon entitled, as such, to
demand accounting of and to receive the share of her alleged
late husband as partner of defendants Antonio Lim Tanhu and
Alfonso Leonardo Ng Sua in Glory Commercial Company, the
truth of which allegations all the defendants have denied.
Defendants maintain in their counterclaim that plaintiff knew
of the falsity of said allegations even before she filed her
complaint, for she had in fact admitted her common-law
relationship with said deceased in a document she had jointly
executed with him by way of agreement to terminate their
illegitimate relationship, for which she received P40,000 from
the deceased, and with respect to her pretended share in the
capital and profits in the partnership, it is also defendants'
posture that she had already quitclaimed, with the assistance
of able counsel, whatever rights if any she had thereto in
November, 1967, for the sum of P25,000 duly receipted by
her, which quitclaim was, however, executed, according to
respondent herself in her amended complaint, through fraud.
And having filed her complaint knowing, according to
defendants, as she ought to have known, that the material
allegations thereof are false and baseless, she has caused
them to suffer damages. Undoubtedly, with such allegations,
defendants' counterclaim is compulsory, not only because the
same evidence to sustain it will also refute the cause or
causes of action alleged in plaintiff's complaint,
(Moran, supra p. 352) but also because from its very nature, it
is obvious that the same cannot "remain pending for
independent adjudication by the court." (Section 2, Rule 17.)
The provision of the rules just cited specifically enjoins that
"(i)f a counterclaim has been pleaded by a defendant prior to
the service upon him of the plaintiff's motion to dismiss, the
action shall not be dismissed against the defendant's
objection unless the counterclaim can remain pending for
independent adjudication by the court." Defendants Lim and
Leonardo had no opportunity to object to the motion to
dismiss before the order granting the same was issued, for
the simple reason that they were not opportunity notified of
the motion therefor, but the record shows clearly that at least
defendant Lim immediately brought the matter of their
compulsory counterclaim to the attention of the trial court in
his motion for reconsideration of October 23, 1974, even as
the counsel for the other defendant, Leonardo, predicated his
motion on other grounds. In its order of December 6, 1974,
however, respondent court not only upheld the plaintiffs
supposed absolute right to choose her adversaries but also
held that the counterclaim is not compulsory, thereby virtually
making unexplained and inexplicable 180-degree turnabout in
that respect.
There is another equally fundamental consideration why the
motion to dismiss should not have been granted. As the
plaintiff's complaint has been framed, all the six defendants
are charged with having actually taken part in a conspiracy to
misappropriate, conceal and convert to their own benefit the
profits, properties and all other assets of the partnership Glory
Commercial Company, to the extent that they have allegedly
organized a corporation, Glory Commercial Company, Inc. with
what they had illegally gotten from the partnership. Upon
such allegations, no judgment finding the existence of the
alleged conspiracy or holding the capital of the corporation to
be the money of the partnership is legally possible without the
presence of all the defendants. The non-defaulted defendants
are alleged to be stockholders of the corporation and any
decision depriving the same of all its assets cannot but
prejudice the interests of said defendants. Accordingly, upon
these premises, and even prescinding from the other reasons
to be discussed anon it is clear that all the six defendants
below, defaulted and non-defaulted, are indispensable parties.
Respondents could do no less than grant that they are so on
page 23 of their answer. Such being the case, the questioned
order of dismissal is exactly the opposite of what ought to
have been done. Whenever it appears to the court in the
course of a proceeding that an indispensable party has not
been joined, it is the duty of the court to stop the trial and to
order the inclusion of such party. (The Revised Rules of Court,
Annotated & Commented by Senator Vicente J. Francisco, Vol.
1, p. 271, 1973 ed. See also Cortez vs. Avila, 101 Phil. 705.)
Such an order is unavoidable, for the "general rule with
reference to the making of parties in a civil action requires the
joinder of all necessary parties wherever possible, and the
joinder of all indispensable parties under any and all
conditions, the presence of those latter being a sine qua
non of the exercise of judicial power." (Borlasa vs. Polistico, 47
Phil. 345, at p. 347.) It is precisely " when an indispensable
party is not before the court (that) the action should be
dismissed." (People v. Rodriguez, 106 Phil. 325, at p. 327.) The
absence of an indispensable party renders all subsequent
actuations of the court null and void, for want of authority to
act, not only as to the absent parties but even as to those
present. In short, what respondent court did here was exactly
the reverse of what the law ordains it eliminated those who
by law should precisely be joined.
As may he noted from the order of respondent court quoted
earlier, which resolved the motions for reconsideration of the
dismissal order filed by the non-defaulted defendants, His
Honor rationalized his position thus:
It is the rule that it is the absolute
prerogative of the plaintiff to choose, the
theory upon which he predicates his right of
action, or the parties he desires to sue,
without dictation or imposition by the court
or the adverse party. If he makes a mistake
in the choice of his right of action, or in that
of the parties against whom he seeks to
enforce it, that is his own concern as he
alone suffers therefrom. The plaintiff cannot
be compelled to choose his defendants, He
may not, at his own expense, be forced to
implead anyone who, under the adverse
party's theory, is to answer for defendant's
liability. Neither may the Court compel him
to furnish the means by which defendant
may avoid or mitigate their liability. (Vao
vs. Alo, 95 Phil. 495-496.)
This being the rule this court cannot compel
the plaintiff to continue prosecuting her
cause of action against the defendants-
movants if in the course of the trial she
believes she can enforce it against the
remaining defendants subject only to the
limitation provided in Section 2, Rule 17 of
the Rules of Court. ... (Pages 6263, Record.)
Noticeably, His Honor has employed the same equivocal
terminology as in plaintiff's motion of October 18, 1974 by
referring to the action he had taken as being "dismissal of the
complaint against them or their being dropped therefrom",
without perceiving that the reason for the evidently
intentional ambiguity is transparent. The apparent idea is to
rely on the theory that under Section 11 of Rule 3, parties
may be dropped by the court upon motion of any party at any
stage of the action, hence "it is the absolute right prerogative
of the plaintiff to choosethe parties he desires to sue,
without dictation or imposition by the court or the adverse
party." In other words, the ambivalent pose is suggested that
plaintiff's motion of October 18, 1974 was not predicated on
Section 2 of Rule 17 but more on Section 11 of Rule 3. But the
truth is that nothing can be more incorrect. To start with, the
latter rule does not comprehend whimsical and irrational
dropping or adding of parties in a complaint. What it really
contemplates is erroneous or mistaken non-joinder and
misjoinder of parties. No one is free to join anybody in a
complaint in court only to drop him unceremoniously later at
the pleasure of the plaintiff. The rule presupposes that the
original inclusion had been made in the honest conviction that
it was proper and the subsequent dropping is requested
because it has turned out that such inclusion was a mistake.
And this is the reason why the rule ordains that the dropping
be "on such terms as are just" just to all the other parties.
In the case at bar, there is nothing in the record to legally
justify the dropping of the non-defaulted defendants, Lim and
Leonardo. The motion of October 18, 1974 cites none. From all
appearances, plaintiff just decided to ask for it, without any
relevant explanation at all. Usually, the court in granting such
a motion inquires for the reasons and in the appropriate
instances directs the granting of some form of compensation
for the trouble undergone by the defendant in answering the
complaint, preparing for or proceeding partially to trial, hiring
counsel and making corresponding expenses in the premises.
Nothing of these, appears in the order in question. Most
importantly, His Honor ought to have considered that the
outright dropping of the non-defaulted defendants Lim and
Leonardo, over their objection at that, would certainly be
unjust not only to the petitioners, their own parents, who
would in consequence be entirely defenseless, but also to Lim
and Leonardo themselves who would naturally
correspondingly suffer from the eventual judgment against
their parents. Respondent court paid no heed at all to the
mandate that such dropping must be on such terms as are
just" meaning to all concerned with its legal and factual
effects.
Thus, it is quite plain that respondent court erred in issuing its
order of dismissal of October 21, 1974 as well as its order of
December 6, 1974 denying reconsideration of such dismissal.
As We make this ruling, We are not oblivious of the
circumstance that defendants Lim and Leonardo are not
parties herein. But such consideration is inconsequential. The
fate of the case of petitioners is inseparably tied up with said
order of dismissal, if only because the order of ex-
parte hearing of October 21, 1974 which directly affects and
prejudices said petitioners is predicated thereon. Necessarily,
therefore, We have to pass on the legality of said order, if We
are to decide the case of herein petitioners properly and fairly.
The attitude of the non-defaulted defendants of no longer
pursuing further their questioning of the dismissal is from
another point of view understandable. On the one hand, why
should they insist on being defendants when plaintiff herself
has already release from her claims? On the other hand, as far
as their respective parents-co-defendants are concerned, they
must have realized that they (their parents) could even be
benefited by such dismissal because they could question
whether or not plaintiff can still prosecute her case against
them after she had secured the order of dismissal in question.
And it is in connection with this last point that the true and
correct concept of default becomes relevant.
At this juncture, it may also be stated that the decision of the
Court of Appeals of January 24, 1975 in G. R. No. SP-03066
dismissing the petition for certiorari of non-defaulted
defendants Lim and Leonardo impugning the order of
dismissal of October 21, 1974, has no bearing at all in this
case, not only because that dismissal was premised by the
appellate court on its holding that the said petition was
premature inasmuch as the trial court had not yet resolved
the motion of the defendants of October 28, 1974 praying that
said disputed order be quashed, but principally because
herein petitioners were not parties in that proceeding and
cannot, therefore, be bound by its result. In particular, We
deem it warranted to draw the attention of private
respondent's counsel to his allegations in paragraphs XI to XIV
of his answer, which relate to said decision of the Court of
Appeals and which have the clear tendency to make it appear
to the Court that the appeals court had upheld the legality
and validity of the actuations of the trial court being
questioned, when as a matter of indisputable fact, the
dismissal of the petition was based solely and exclusively on
its being premature without in any manner delving into its
merits. The Court must and does admonish counsel that such
manner of pleading, being deceptive and lacking in candor,
has no place in any court, much less in the Supreme Court,
and if We are adopting a passive attitude in the premises, it is
due only to the fact that this is counsel's first offense. But
similar conduct on his part in the future will definitely be dealt
with more severely. Parties and counsel would be well advised
to avoid such attempts to befuddle the issues as invariably
then will be exposed for what they are, certainly unethical and
degrading to the dignity of the law profession. Moreover,
almost always they only betray the inherent weakness of the
cause of the party resorting to them.
2 with inherently incompetent evidence. Thus, in such
Coming now to the matter itself of default, it is quite apparent
that the impugned orders must have proceeded from
inadequate apprehension of the fundamental precepts
governing such procedure under the Rules of Court. It is time
indeed that the concept of this procedural device were fully
understood by the bench and bar, instead of being merely
taken for granted as being that of a simple expedient of not
allowing the offending party to take part in the proceedings,
so that after his adversary shall have presented his evidence,
judgment may be rendered in favor of such opponent, with
hardly any chance of said judgment being reversed or
modified.
The Rules of Court contain a separate rule on the subject of
default, Rule 18. But said rule is concerned solely with default
resulting from failure of the defendant or defendants to
answer within the reglementary period. Referring to the
simplest form of default, that is, where there is only one
defendant in the action and he fails to answer on time,
Section 1 of the rule provides that upon "proof of such failure,
(the court shall) declare the defendant in default. Thereupon
the court shall proceed to receive the plaintiff's evidence and
render judgment granting him such relief as the complaint
and the facts proven may warrant." This last clause is clarified
by Section 5 which says that "a judgment entered against a
party in default shall not exceed the amount or be different in
kind from that prayed for."
Unequivocal, in the literal sense, as these provisions are, they
do not readily convey the full import of what they
contemplate. To begin with, contrary to the immediate notion
that can be drawn from their language, these provisions are
not to be understood as meaning that default or the failure of
the defendant to answer should be "interpreted as an
admission by the said defendant that the plaintiff's cause of
action find support in the law or that plaintiff is entitled to the
relief prayed for." (Moran, supra, p. 535 citing Macondary &
Co. v. Eustaquio, 64 Phil. 466, citing with approval Chaffin v.
McFadden, 41 Ark. 42; Johnson v. Pierce, 12 Ark. 599; Mayden
v. Johnson, 59 Ga. 105; People v. Rust, 292 111. 328; Ken v.
Leopold 21 111. A. 163; Chicago, etc. Electric R. Co. v.
Krempel 116 111. A. 253.)
Being declared in default does not constitute a waiver of
rights except that of being heard and of presenting evidence
in the trial court. According to Section 2, "except as provided
in Section 9 of Rule 13, a party declared in default shall not be
entitled to notice of subsequent proceedings, nor to take part
in the trial." That provision referred to reads: "No service of
papers other than substantially amended pleadings and final
orders or judgments shall be necessary on a party in default
unless he files a motion to set aside the order of default, in
which event he shall be entitled to notice of all further
proceedings regardless of whether the order of default is set
aside or not." And pursuant to Section 2 of Rule 41, "a party
who has been declared in default may likewise appeal from
the judgment rendered against him as contrary to the
evidence or to the law, even if no petition for relief to set
aside the order of default has been presented by him in
accordance with Rule 38.".
In other words, a defaulted defendant is not actually thrown
out of court. While in a sense it may be said that by defaulting
he leaves himself at the mercy of the court, the rules see to it
that any judgment against him must be in accordance with
law. The evidence to support the plaintiff's cause is, of course,
presented in his absence, but the court is not supposed to
admit that which is basically incompetent. Although the
defendant would not be in a position to object, elementary
justice requires that, only legal evidence should be considered
against him. If the evidence presented should not be sufficient
to justify a judgment for the plaintiff, the complaint must be
dismissed. And if an unfavorable judgment should be
justifiable, it cannot exceed in amount or be different in kind
from what is prayed for in the complaint.
Incidentally, these considerations argue against the present
widespread practice of trial judges, as was done by His Honor
in this case, of delegating to their clerks of court the reception
of the plaintiff's evidence when the defendant is in default.
Such a Practice is wrong in principle and orientation. It has no
basis in any rule. When a defendant allows himself to be
declared in default, he relies on the faith that the court would
take care that his rights are not unduly prejudiced. He has a
right to presume that the law and the rules will still be
observed. The proceedings are held in his forced absence, and
it is but fair that the plaintiff should not be allowed to take
advantage of the situation to win by foul or illegal means or
instances, there is need for more attention from the court,
which only the judge himself can provide. The clerk of court
would not be in a position much less have the authority to act
in the premises in the manner demanded by the rules of fair
play and as contemplated in the law, considering his
comparably limited area of discretion and his presumably
inferior preparation for the functions of a judge. Besides, the
default of the defendant is no excuse for the court to
renounce the opportunity to closely observe the demeanor
and conduct of the witnesses of the plaintiff, the better to
appreciate their truthfulness and credibility. We therefore
declare as a matter of judicial policy that there being no
imperative reason for judges to do otherwise, the practice
should be discontinued.
Another matter of practice worthy of mention at this point is
that it is preferable to leave enough opportunity open for
possible lifting of the order of default before proceeding with
the reception of the plaintiff's evidence and the rendition of
the decision. "A judgment by default may amount to a
positive and considerable injustice to the defendant; and the
possibility of such serious consequences necessitates a
careful and liberal examination of the grounds upon which the
defendant may seek to set it aside." (Moran, supra p. 534,
citing Coombs vs. Santos, 24 Phil. 446; 449-450.) The
expression, therefore, in Section 1 of Rule 18 aforequoted
which says that "thereupon the court shall proceed to receive
the plaintiff's evidence etc." is not to be taken literally. The
gain in time and dispatch should the court immediately try the
case on the very day of or shortly after the declaration of
default is far outweighed by the inconvenience and
complications involved in having to undo everything already
done in the event the defendant should justify his omission to
answer on time.
The foregoing observations, as may be noted, refer to
instances where the only defendant or all the defendants,
there being several, are declared in default. There are
additional rules embodying more considerations of justice and
equity in cases where there are several defendants against
whom a common cause of action is averred and not all of
them answer opportunely or are in default, particularly in
reference to the power of the court to render judgment in
such situations. Thus, in addition to the limitation of Section 5
that the judgment by default should not be more in amount
nor different in kind from the reliefs specifically sought by
plaintiff in his complaint, Section 4 restricts the authority of
the court in rendering judgment in the situations just
mentioned as follows:
Sec. 4. Judgment when some defendants
answer, and other make difficult. When a
complaint states a common cause of action
against several defendant some of whom
answer, and the others fail to do so, the
court shall try the case against all upon the
answer thus filed and render judgment upon
the evidence presented. The same
proceeding applies when a common cause
of action is pleaded in a counterclaim,
cross-claim and third-party claim.
Very aptly does Chief Justice Moran elucidate on this provision
and the controlling jurisprudence explanatory thereof this
wise:
Where a complaint states a common cause
of action against several defendants and
some appear to defend the case on the
merits while others make default, the
defense interposed by those who appear to
litigate the case inures to the benefit of
those who fail to appear, and if the court
finds that a good defense has been made,
all of the defendants must be absolved. In
other words, the answer filed by one or
some of the defendants inures to the benefit
of all the others, even those who have not
seasonably filed their answer. (Bueno v.
Ortiz, L-22978, June 27, 1968, 23 SCRA
1151.) The proper mode of proceeding
where a complaint states a common cause
of action against several defendants, and
one of them makes default, is simply to
enter a formal default order against him,
and proceed with the cause upon the
answers of the others. The defaulting
defendant merely loses his standing in
court, he not being entitled to the service of
notice in the cause, nor to appear in the suit
in any way. He cannot adduce evidence; nor
can he be heard at the final hearing, (Lim
Toco v. Go Fay, 80 Phil. 166.) although he
may appeal the judgment rendered against
him on the merits. (Rule 41, sec. 2.) If the
case is finally decided in the plaintiff's favor,
a final decree is then entered against all the
defendants; but if the suit should be decided
against the plaintiff, the action will be
dismissed as to all the defendants alike.
(Velez v. Ramas, 40 Phil. 787-792; Frow v. de
la Vega, 15 Wal. 552,21 L. Ed. 60.) In other
words the judgment will affect the
defaulting defendants either favorably or
adversely. (Castro v. 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 and the doctrine in said three
cases plainly implies that there is nothing in
the law governing default which would
prohibit the court from rendering judgment
favorable to the defaulting defendant in
such cases. If it inured to her benefit, it
stands to reason that she had a right to
claim that benefit, for it would not be a
benefit if the supposed beneficiary were
barred from claiming it; and if the benefit
necessitated the execution of the decree,
she must be possessed of the right to ask
for the execution thereof as she did when
she, by counsel, participated in the petition
for execution Annex 1.
Section 7 of Rule 35 would seem to afford a
solid support to the above considerations. It
provides that when a complaint states a
common cause of action against several
defendants, some of whom answer, and the
others make default, 'the court shall try the
case against all upon the answer thus filed
and render judgment upon the evidence
presented by the parties in court'. It is
obvious that under this provision the case is
tried jointly not only against the defendants
answering but also against those defaulting,
and the trial is held upon the answer filed by
the former; and the judgment, if adverse,
will prejudice the defaulting defendants no
less than those who answer. In other words,
the defaulting defendants are held bound by
the answer filed by their co-defendants and
by the judgment which the court may
render against all of them. By the same
token, and by all rules of equity and fair
play, if the judgment should happen to be
favorable, totally or partially, to the
answering defendants, it must
correspondingly benefit the defaulting ones,
for it would not be just to let the judgment
produce effects as to the defaulting
defendants only when adverse to them and
not when favorable.
In Bueno vs. Ortiz, 23 SCRA 1151, the Court applied the
provision under discussion in the following words:
In answer to the charge that respondent
Judge had committed a grave abuse of
discretion in rendering a default judgment
against the PC, respondents allege that, not
having filed its answer within the
reglementary period, the PC was in default,
so that it was proper for Patanao to
forthwith present his evidence and for
respondent Judge to render said judgment.
It should be noted, however, that in entering
the area in question and seeking to prevent
Patanao from continuing his logging
operations therein, the PC was merely
executing an order of the Director of
Forestry and acting as his agent. Patanao's
cause of action against the other
respondents in Case No. 190, namely, the
Director of Forestry, the District Forester of
Agusan, the Forest Officer of Bayugan,
Agusan, and the Secretary of Agriculture
and Natural Resources. Pursuant to Rule 18,
Section 4, of the Rules of Court, 'when a
complaint states a common cause of action
against several defendants some of whom
answer and the others fail to do so, the
court shall try the case against all upon the
answer thus filed (by some) and render
judgment upon the evidence presented.' In
other words, the answer filed by one or
some of the defendants inures to the benefit
of all the others, even those who have not
seasonably filed their answer.
Indeed, since the petition in Case No. 190
sets forth a common cause of action against
all of the respondents therein, a decision in
favor of one of them would necessarily favor
the others. In fact, the main issue, in said
case, is whether Patanao has a timber
license to undertake logging operations in
the disputed area. It is not possible to
decide such issue in the negative, insofar as
the Director of Forestry, and to settle it
otherwise, as regards the PC, which is
merely acting as agent of the Director of
Forestry, and is, therefore, his alter ego,
with respect to the disputed forest area.
Stated differently, in all instances where a common cause of
action is alleged against several defendants, some of whom
answer and the others do not, the latter or those in default
acquire a vested right not only to own the defense interposed
in the answer of their co- defendant or co-defendants not in
default but also to expect a result of the litigation totally
common with them in kind and in amount whether favorable
or unfavorable. The substantive unity of the plaintiff's cause
against all the defendants is carried through to its adjective
phase as ineluctably demanded by the homogeneity and
indivisibility of justice itself. Indeed, since the singleness of
the cause of action also inevitably implies that all the
defendants are indispensable parties, the court's power to act
is integral and cannot be split such that it cannot relieve any
of them and at the same time render judgment against the
rest. Considering the tenor of the section in question, it is to
be assumed that when any defendant allows himself to be
declared in default knowing that his defendant has already
answered, he does so trusting in the assurance implicit in the
rule that his default is in essence a mere formality that
deprives him of no more than the right to take part in the trial
and that the court would deem anything done by or for the
answering defendant as done by or for him. The presumption
is that otherwise he would not -have seen to that he would not
be in default. Of course, he has to suffer the consequences of
whatever the answering defendant may do or fail to do,
regardless of possible adverse consequences, but if the
complaint has to be dismissed in so far as the answering
defendant is concerned it becomes his inalienable right that
the same be dismissed also as to him. It does not matter that
the dismissal is upon the evidence presented by the plaintiff
or upon the latter's mere desistance, for in both
contingencies, the lack of sufficient legal basis must be the
cause. The integrity of the common cause of action against all
the defendants and the indispensability of all of them in the
proceedings do not permit any possibility of waiver of the
plaintiff's right only as to one or some of them, without
including all of them, and so, as a rule, withdrawal must be
deemed to be a confession of weakness as to all. This is not
only elementary justice; it also precludes the concomitant
hazard that plaintiff might resort to the kind of procedural
strategem practiced by private respondent herein that
resulted in totally depriving petitioners of every opportunity to
defend themselves against her claims which, after all, as will
be seen later in this opinion, the record does not show to be
invulnerable, both in their factual and legal aspects, taking
into consideration the tenor of the pleadings and the
probative value of the competent evidence which were before
the trial court when it rendered its assailed decision where all
the defendants are indispensable parties, for which reason the
absence of any of them in the case would result in the court
losing its competency to act validly, any compromise that the
plaintiff might wish to make with any of them must, as a
matter of correct procedure, have to await until after the
rendition of the judgment, at which stage the plaintiff may
then treat the matter of its execution and the satisfaction of
his claim as variably as he might please. Accordingly, in the
case now before Us together with the dismissal of the
complaint against the non-defaulted defendants, the court
should have ordered also the dismissal thereof as to
petitioners.
Indeed, there is more reason to apply here the principle of
unity and indivisibility of the action just discussed because all
the defendants here have already joined genuine issues with
plaintiff. Their default was only at the pre-trial. And as to such
absence of petitioners at the pre-trial, the same could be
attributed to the fact that they might not have considered it
necessary anymore to be present, since their respective
children Lim and Leonardo, with whom they have common
defenses, could take care of their defenses as well. Anything
that might have had to be done by them at such pre-trial
could have been done for them by their children, at least
initially, specially because in the light of the pleadings before
the court, the prospects of a compromise must have appeared
to be rather remote. Such attitude of petitioners is neither
uncommon nor totally unjustified. Under the circumstances, to
declare them immediately and irrevocably in default was not
an absolute necessity. Practical considerations and reasons of
equity should have moved respondent court to be more
understanding in dealing with the situation. After all, declaring
them in default as respondent court did not impair their right
to a common fate with their children.
3 joined were genuine, and consequently, the reason for
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
requiring such oath or verification no longer holds. Besides, it
may also be reiterated that being the parents of the non-
defaulted defendants, petitioners must have assumed that
their presence was superfluous, particularly because the
cause of action against them as well as their own defenses
are common. Under these circumstances, the form of the
motion by which the default was sought to be lifted is
secondary and the requirements of Section 3 of Rule 18 need
not be strictly complied with, unlike in cases of default for
failure to answer. We can thus hold as We do hold for the
purposes of the revival of their right to notice under Section 9
of Rule 13, that petitioner's motion for reconsideration was in
substance legally adequate regardless of whether or not it
was under oath.
In any event, the dropping of the defendants Lim and
Leonardo from plaintiff's amended complaint was virtually a
second amendment of plaintiffs complaint. And there can be
no doubt that such amendment was substantial, for with the
elimination thereby of two defendants allegedly solidarily
liable with their co-defendants, herein petitioners, it had the
effect of increasing proportionally what each of the remaining
defendants, the said petitioners, would have to answer for
jointly and severally. Accordingly, notice to petitioners of the
plaintiff's motion of October 18, 1974 was legally
indispensable under the rule above-quoted. Consequently,
respondent court had no authority to act on the motion, to
dismiss, pursuant to Section 6 of Rule 15, for according to
Senator Francisco, "(t) he Rules of Court clearly provide that
no motion shall be acted upon by the Court without the proof
of service of notice thereof, together with a copy of the
motion and other papers accompanying it, to all parties
concerned at least three days before the hearing thereof,
stating the time and place for the hearing of the motion. (Rule
26, section 4, 5 and 6, Rules of Court (now Sec. 15, new
Rules). When the motion does not comply with this
requirement, it is not a motion. It presents no question which
the court could decide. And the Court acquires no jurisdiction
to consider it. (Roman Catholic Bishop of Lipa vs. Municipality
of Unisan 44 Phil., 866; Manakil vs. Revilla, 42 Phil., 81.)
(Laserna vs. Javier, et al., CA-G.R. No. 7885, April 22, 1955; 21
L.J. 36, citing Roman Catholic Bishop of Lipa vs. Municipality of
Unisan 44 Phil., 866; Manakil vs. Revilla, 42 Phil., 81.)
(Francisco. The Revised Rules of Court in the Philippines, pp.
861-862.) Thus, We see again, from a different angle, why
respondent court's order of dismissal of October 21, 1974 is
fatally ineffective.
4 which appears on the face of the record itself to be at least
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
highly controversial seems to have so fascinated respondent
court that none would be surprised should her pending motion
for immediate execution of the impugned judgment receive
similar ready sanction as her previous motions which turned
the proceedings into a one-sided affair. The stakes here are
high. Not only is the subject matter considerably substantial;
there is the more important aspect that not only the spirit and
intent of the rules but even the basic rudiments of fair play
have been disregarded. For the Court to leave unrestrained
the obvious tendency of the proceedings below would be
nothing short of wittingly condoning inequity and injustice
resulting from erroneous construction and unwarranted
application of procedural rules.
5
The sum and total of all the foregoing disquisitions is that the
decision here in question is legally anomalous. It is predicated
on two fatal malactuations of respondent court namely (1) the
dismissal of the complaint against the non-defaulted
defendants Lim and Leonardo and (2) the ex-parte reception
of the evidence of the plaintiff by the clerk of court, the
subsequent using of the same as basis for its judgment and
the rendition of such judgment.
For at least three reasons which We have already fully
discussed above, the order of dismissal of October 21, 1974 is
unworthy of Our sanction: (1) there was no timely notice of
the motion therefor to the non-defaulted defendants, aside
from there being no notice at all to herein petitioners; (2) the
common answer of the defendants, including the non-
defaulted, contained a compulsory counterclaim incapable of
being determined in an independent action; and (3) the
immediate effect of such dismissal was the removal of the two
non-defaulted defendants as parties, and inasmuch as they
are both indispensable parties in the case, the court
consequently lost the" sine qua non of the exercise of judicial
power", per Borlasa vs. Polistico, supra. This is not to mention
anymore the irregular delegation to the clerk of court of the
function of receiving plaintiff's evidence. And as regards the
ex-parte reception of plaintiff's evidence and subsequent
rendition of the judgment by default based thereon, We have
seen that it was violative of the right of the petitioners, under
the applicable rules and principles on default, to a common
and single fate with their non-defaulted co-defendants. And
We are not yet referring, as We shall do this anon to the
numerous reversible errors in the decision itself.
It is to be noted, however, that the above-indicated two
fundamental flaws in respondent court's actuations do not call
for a common corrective remedy. We cannot simply rule that
all the impugned proceedings are null and void and should be
set aside, without being faced with the insurmountable
obstacle that by so doing We would be reviewing the case as
against the two non-defaulted defendants who are not before
Us not being parties hereto. Upon the other hand, for Us to
hold that the order of dismissal should be allowed to stand, as
contended by respondents themselves who insist that the
same is already final, not only because the period for its
finality has long passed but also because allegedly, albeit not
very accurately, said 'non-defaulted defendants
unsuccessfully tried to have it set aside by the Court of
Appeals whose decision on their petition is also already final,
We would have to disregard whatever evidence had been
presented by the plaintiff against them and, of course, the
findings of respondent court based thereon which, as the
assailed decision shows, are adverse to them. In other words,
whichever of the two apparent remedies the Court chooses, it
would necessarily entail some kind of possible juridical
imperfection. Speaking of their respective practical or
pragmatic effects, to annul the dismissal would inevitably
prejudice the rights of the non-defaulted defendants whom
We have not heard and who even respondents would not wish
to have anything anymore to do with the case. On the other
hand, to include petitioners in the dismissal would naturally
set at naught every effort private respondent has made to
establish or prove her case thru means sanctioned by
respondent court. In short, We are confronted with a legal
para-dilemma. But one thing is certain this difficult
situations has been brought about by none other than private
respondent who has quite cynically resorted to procedural
maneuvers without realizing that the technicalities of the
adjective law, even when apparently accurate from the literal
point of view, cannot prevail over the imperatives of the
substantive law and of equity that always underlie them and
which have to be inevitably considered in the construction of
the pertinent procedural rules.
All things considered, after careful and mature deliberation,
the Court has arrived at the conclusion that as between the
two possible alternatives just stated, it would only be fair,
equitable and proper to uphold the position of petitioners. In
other words, We rule that the order of dismissal of October 21,
1974 is in law a dismissal of the whole case of the plaintiff,
including as to petitioners herein. Consequently, all
proceedings held by respondent court subsequent thereto
including and principally its decision of December 20, 1974
are illegal and should be set aside.
This conclusion is fully justified by the following considerations
of equity:
1. It is very clear to Us that the procedural maneuver resorted
to by private respondent in securing the decision in her favor
was ill-conceived. It was characterized by that which every
principle of law and equity disdains taking unfair advantage
of the rules of procedure in order to unduly deprive the other
party of full opportunity to defend his cause. The idea of
"dropping" the non-defaulted defendants with the end in view
of completely incapacitating their co-defendants from making
any defense, without considering that all of them are
indispensable parties to a common cause of action to which
they have countered with a common defense readily connotes
an intent to secure a one-sided decision, even improperly. And
when, in this connection, the obvious weakness of plaintiff's
evidence is taken into account, one easily understands why
such tactics had to be availed of. We cannot directly or
indirectly give Our assent to the commission of unfairness and
inequity in the application of the rules of procedure,
particularly when the propriety of reliance thereon is not
beyond controversy.
2. The theories of remedial law pursued by private
the claim of the plaintiff.
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.
1. According to His Honor's own statement of plaintiff's case,
4. More importantly, We do not hesitate to hold that on the
basis of its own recitals, the decision in question cannot stand
close scrutiny. What is more, the very considerations
contained therein reveal convincingly the inherent weakness
of the cause of the plaintiff. To be sure, We have been giving
serious thought to the idea of merely returning this case for a
resumption of trial by setting aside the order of dismissal of
October 21, 1974, with all its attendant difficulties on account
of its adverse effects on parties who have not been heard, but
upon closer study of the pleadings and the decision and other
circumstances extant in the record before Us, We are now
persuaded that such a course of action would only lead to
more legal complications incident to attempts on the part of
the parties concerned to desperately squeeze themselves out
of a bad situation. Anyway, We feel confident that by and
large, there is enough basis here and now for Us to rule out
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:
"she is the widow of the late Tee Hoon Po Chuan (Po Chuan,
for short) who was then one of the partners in the commercial
partnership, Glory Commercial Co. with defendants Antonio
Lim Tanhu (Lim Tanhu, for short) and Alfonso Leonardo Ng Sua
(Ng Sua, for short) as co-partners; that after the death of her
husband on March 11, 1966 she is entitled to share not only in
the capital and profits of the partnership but also in the other
assets, both real and personal, acquired by the partnership
with funds of the latter during its lifetime."
Relatedly, in the latter part of the decision, the findings are to
the following effect: .
That the herein plaintiff Tan Put and her late
husband Po Chuan married at the Philippine
Independent Church of Cebu City on
December, 20, 1949; that Po Chuan died on
March 11, 1966; that the plaintiff and the
late Po Chuan were childless but the former
has a foster son Antonio 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 in
the partnership Glory Commercial Co.
sometime in 1950; that after the investment
of the above-stated amount in the
partnership its business flourished and it
embarked in the import business and also
engaged in the wholesale and retail trade of
cement and GI sheets and under huge
profits;
xxx xxx xxx
That the late Po Chuan was the one who
actively managed the business of the
partnership Glory Commercial Co. he was
the one who made the final decisions and
approved the appointments of new
personnel who were taken in by the
partnership; that the late Po Chuan and
defendants Lim Tanhu and Ng Sua are
brothers, the latter two (2) being the elder
brothers of the former; that defendants Lim
Tanhu and Ng Sua are both naturalized
Filipino citizens whereas the late Po Chuan
until the time of his death was a Chinese
citizen; that the three (3) brothers were
partners in the Glory Commercial Co. but Po
Chuan was practically the owner of the
partnership having the controlling interest;
that defendants Lim Tanhu and Ng Sua were
partners in name but they were mere
employees of Po Chuan .... (Pp. 89-91,
trial.
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-
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 Sick Tin and (2) the quitclaim,
Annex A of the answer, wherein plaintiff Tan Put stated that
she had been living with the deceased without benefit of
marriage and that she was his "common-law wife". Surely,
these two documents are far more reliable than all the
evidence of the plaintiff put together.
Of course, Exhibit LL is what might be termed as pre-trial
evidence. But it is evidence offered to the judge himself, not
to the clerk of court, and should have at least moved him to
ask plaintiff to explain if not rebut it before jumping to the
conclusion regarding her alleged marriage to the deceased, Po
Chuan. And in regard to the quitclaim containing the
admission of a common-law relationship only, it is to be
observed that His Honor found that "defendants Lim Tanhu
and Ng Sua had the plaintiff execute a quitclaim on November
29, 1967 (Annex "A", Answer) where they gave plaintiff the
amount of P25,000 as her share in the capital and profits of
the business of Glory Commercial Co. which was engaged in
the hardware business", without making mention of any
evidence of fraud and misrepresentation in its execution,
thereby indicating either that no evidence to prove that
allegation of the plaintiff had been presented by her or that
whatever evidence was actually offered did not produce
persuasion upon the court. Stated differently, since the
existence of the quitclaim has been duly established without
any circumstance to detract from its legal import, the court
should have held that plaintiff was bound by her admission
therein that she was the common-law wife only of Po Chuan
and what is more, that she had already renounced for
valuable consideration whatever claim she might have
relative to the partnership Glory Commercial Co.
And when it is borne in mind that in addition to all these
considerations, there are mentioned and discussed in the
memorandum of petitioners (1) the certification of the Local
Civil Registrar of Cebu City and (2) a similar certification of the
Apostolic Prefect of the Philippine Independent Church, Parish
of Sto. Nio, Cebu City, that their respective official records
corresponding to December 1949 to December 1950 do not
show any marriage between Tee Hoon Lim Po Chuan and Tan
Put, neither of which certifications have been impugned by
respondent until now, it stands to reason that plaintiff's claim
of marriage is really unfounded. Withal, there is still another
document, also mentioned and discussed in the same
memorandum and unimpugned by respondents, a written
agreement executed in Chinese, but purportedly translated
into English by the Chinese Consul of Cebu, between Tan Put
and Tee Hoon Lim Po Chuan to the following effect:
CONSULATE OF THE REPUBLIC OF CHINA
Cebu City, Philippines
TRANSLATION
This is to certify that 1, Miss Tan Ki Eng Alias
Tan Put, have lived with Mr. Lim Po Chuan
alias TeeHoon since 1949 but it recently
occurs that we are incompatible with each
other and are not in the position to keep
living together permanently. With the
mutual concurrence, we decided to
terminate the existing relationship of
common law-marriage and promised not to
interfere each other's affairs from now on.
The Forty Thousand Pesos (P40,000.00) has
been given to me by Mr. Lim Po Chuan for
my subsistence.
Witnesses:
Mr. Lim Beng Guan Mr. Huang Sing Se
Signed on the 10 day of the 7th month of
the 54th year of the Republic of China
(corresponding to the year 1965).
(SGD) TAN KI ENG
Verified from the records. JORGE TABAR (Pp.
283-284, Record.)
Indeed, not only does this document prove that plaintiff's
relation to the deceased was that of a common-law wife but
that they had settled their property interests with the
payment to her of P40,000.
In the light of all these circumstances, We find no alternative
but to hold that plaintiff Tan Put's allegation that she is the
widow of Tee Hoon Lim Po Chuan has not been satisfactorily
established and that, on the contrary, the evidence on record
convincingly shows that her relation with said deceased was
that of a common-law wife and furthermore, that all her
claims against the company and its surviving partners as well
as those against the estate of the deceased have already
been settled and paid. We take judicial notice of the fact that
the respective counsel who assisted the parties in the
quitclaim, Attys. H. Hermosisima and Natalio Castillo, are
members in good standing of the Philippine Bar, with the
particularity that the latter has been a member of the Cabinet
and of the House of Representatives of the Philippines, hence,
absent any credible proof that they had allowed themselves to
be parties to a fraudulent document His Honor did right in
recognizing its existence, albeit erring in not giving due legal
significance to its contents.
2. If, as We have seen, plaintiff's evidence of her alleged
status as legitimate wife of Po Chuan is not only unconvincing
but has been actually overcome by the more competent and
weighty evidence in favor of the defendants, her attempt to
substantiate her main cause of action that defendants Lim
Tanhu and Ng Sua have defrauded the partnership Glory
Commercial Co. and converted its properties to themselves is
even more dismal. From the very evidence summarized by His
Honor in the decision in question, it is clear that not an iota of
reliable proof exists of such alleged misdeeds.
Of course, the existence of the partnership has not been
denied, it is actually admitted impliedly in defendants'
affirmative defense that Po Chuan's share had already been
duly settled with and paid to both the plaintiff and his
legitimate family. But the evidence as to the actual
participation of the defendants Lim Tanhu and Ng Sua in the
operation of the business that could have enabled them to
make the extractions of funds alleged by plaintiff is at best
confusing and at certain points manifestly inconsistent.
In her amended complaint, plaintiff repeatedly alleged that as
widow of Po Chuan she is entitled to / 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
/ 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 / 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 / 3 share? Is this an indication of her generosity
towards defendants or of a concocted cause of action existing
only in her confused imagination engendered by the death of
her common-law husband with whom she had settled her
common-law claim for recompense of her services as common
law wife for less than what she must have known would go to
his legitimate wife and children?
Actually, as may be noted from the decision itself, the trial
court was confused as to the participation of defendants Lim
Tanhu and Ng Sua in Glory Commercial Co. At one point, they
were deemed partners, at another point mere employees and
then elsewhere as partners-employees, a newly found
concept, to be sure, in the law on partnership. And the
confusion is worse comfounded in the judgment which allows
these "partners in name" and "partners-employees" or
employees who had no means of livelihood and who must not
have contributed any capital in the business, "as Po Chuan
was practically the owner of the partnership having the
controlling interest", / 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 to (2) being the elder
brothers of the former; that defendants Lim
Tanhu and Ng Sua are both naturalized
Filipino citizens whereas the late Po Chuan
until the time of his death was a Chinese
citizen; that the three (3) brothers were
partners in the Glory Commercial Co. but Po
Chuan was practically the owner of the
partnership having the controlling interest;
that defendants Lim Tanhu and Ng Sua were
partners in name but they were mere
employees of Po Chuan; .... (Pp. 90-91,
Record.)
If Po Chuan was in control of the affairs and the running of the
partnership, how could the defendants have defrauded him of
such huge amounts as plaintiff had made his Honor believe?
Upon the other hand, since Po Chuan was in control of the
affairs of the partnership, the more logical inference is that if
defendants had obtained any portion of the funds of the
partnership for themselves, it must have been with the
knowledge and consent of Po Chuan, for which reason no
accounting could be demanded from them therefor,
considering that Article 1807 of the Civil Code refers only to
what is taken by a partner without the consent of the other
partner or partners. Incidentally again, this theory about Po
Chuan having been actively managing the partnership up to
his death is a substantial deviation from the allegation in the
amended complaint to the effect that "defendants Antonio
Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan and Eng
Chong Leonardo, through fraud and machination, took actual
and active management of the partnership and although Tee
Hoon Lim Po Chuan was the manager of Glory Commercial
Co., defendants managed to use the funds of the partnership
to purchase lands and buildings etc. (Par. 4, p. 2 of amended
complaint, Annex B of petition) and should not have been
permitted to be proven by the hearing officer, who naturally
did not know any better.
Moreover, it is very significant that according to the very tax
declarations and land titles listed in the decision, most if not
all of the properties supposed to have been acquired by the
defendants Lim Tanhu and Ng Sua with funds of the
partnership appear to have been transferred to their names
only in 1969 or later, that is, long after the partnership had
been automatically dissolved as a result of the death of Po
Chuan. Accordingly, defendants have no obligation to account
to anyone for such acquisitions in the absence of clear proof
that they had violated the trust of Po Chuan during the
existence of the partnership. (See Hanlon vs. Hansserman
and. Beam, 40 Phil. 796.)
There are other particulars which should have caused His
Honor to readily disbelieve plaintiffs' pretensions. 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 living in Bantayan until he was directed to return to
Cebu after the fishing business thereat floundered, whereas
all that the witness knew about defendant Lim Teck Chuan's
arrival from Hongkong and the expenditure of partnership
money for him were only told to him allegedly by Po Chuan,
which testimonies are veritably exculpatory as to Ng Sua and
hearsay as to Lim Teck Chuan. Neither should His Honor have
failed to note that according to plaintiff herself, "Lim Tanhu
was employed by her husband although he did not go there
always being a mere employee of Glory Commercial Co." (p.
22, Annex the decision.)
The decision is rather emphatic in that Lim Tanhu and Ng Sua
had no known income except their salaries. Actually, it is not
stated, however, from what evidence such conclusion was
derived in so far as Ng Sua is concerned. On the other hand,
with respect to Lim Tanhu, the decision itself states that
according to Exhibit NN-Pre trial, in the supposed income tax
return of Lim Tanhu for 1964, he had an income of P4,800 as
salary from Philippine Metal Industries alone and had a total
assess sable net income of P23,920.77 that year for which he
paid a tax of P4,656.00. (p. 14. Annex L, id.) And per Exhibit
GG-Pretrial in the year, he had a net income of P32,000 for
which be paid a tax of P3,512.40. (id.) As early as 1962, "his
fishing business in Madridejos Cebu was making money, and
he reported "a net gain from operation (in) the amount of
P865.64" (id., per Exhibit VV-Pre-trial.) From what then did his
Honor gather the conclusion that all the properties registered
in his name have come from funds malversed from the
partnership?
It is rather unusual that His Honor delved into financial
statements and books of Glory Commercial Co. without the
aid of any accountant or without the same being explained by
any witness who had prepared them or who has knowledge of
the entries therein. This must be the reason why there are
apparent inconsistencies and inaccuracies in the conclusions
His Honor made out of them. In Exhibit SS-Pre-trial, the
reported total assets of the company amounted to
P2,328,460.27 as of December, 1965, and yet, Exhibit TT-Pre-
trial, according to His Honor, showed that the total value of
goods available as of the same date was P11,166,327.62. On
the other hand, per Exhibit XX-Pre-trial, the supposed balance
sheet of the company for 1966, "the value of inventoried
merchandise, both local and imported", as found by His
Honor, was P584,034.38. Again, as of December 31, 1966, the
value of the company's goods available for sale was
P5,524,050.87, per Exhibit YY and YY-Pre-trial. Then, per
Exhibit II-3-Pre-trial, the supposed Book of Account, whatever
that is, of the company showed its "cash analysis" was
P12,223,182.55. We do not hesitate to make the observation
that His Honor, unless he is a certified public accountant, was
hardly qualified to read such exhibits and draw any definite
conclusions therefrom, without risk of erring and committing
an injustice. In any event, there is no comprehensible
explanation in the decision of the conclusion of His Honor that
there were P12,223,182.55 cash money defendants have to
account for, particularly when it can be very clearly seen in
Exhibits 11-4, 11-4- A, 11-5 and 11-6-Pre-trial, Glory
Commercial Co. had accounts payable as of December 31,
1965 in the amount of P4,801,321.17. (p. 15, id.) Under the
circumstances, We are not prepared to permit anyone to
predicate any claim or right from respondent court's unaided
exercise of accounting knowledge.
Additionally, We note that the decision has not made any
finding regarding the allegation in the amended complaint
that a corporation denominated Glory Commercial Co., Inc.
was organized after the death of Po Chuan with capital from
the funds of the partnership. We note also that there is
absolutely no finding made as to how the defendants Dy
Ochay and Co Oyo could in any way be accountable to
plaintiff, just because they happen to be the wives of Lim
Tanhu and Ng Sua, respectively. We further note that while His
Honor has ordered defendants to deliver or pay jointly and
severally to the plaintiff P4,074,394.18 or / 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 / 3 share
of the properties enumerated in the dispositive portion of the
decision, which seemingly are the very properties allegedly
purchased from the funds of the partnership which would
naturally include the P12,223,182.55 defendants have to
account for. Besides, assuming there has not yet been any
liquidation of the partnership, contrary to the allegation of the
defendants, then Glory Commercial Co. would have the status
of a partnership in liquidation and the only right plaintiff could
have would be to what might result after such liquidation to
belong to the deceased partner, and before this is finished, it
is impossible to determine, what rights or interests, if any, the
deceased had (Bearneza vs. Dequilla 43 Phil. 237). In other
words, no specific amounts or properties may be adjudicated
to the heir or legal representative of the deceased partner
without the liquidation being first terminated.
Indeed, only time and the fear that this decision would be
much more extended than it is already prevent us from
further pointing out the inexplicable deficiencies and
imperfections of the decision in question. After all, what have
been discussed should be more than sufficient to support Our
conclusion that not only must said decision be set aside but
also that the action of the plaintiff must be totally dismissed,
and, were it not seemingly futile and productive of other legal
complications, that plaintiff is liable on defendants'
counterclaims. Resolution of the other issues raised by the
parties albeit important and perhaps pivotal has likewise
become superfluous.
IN VIEW OF ALL THE FOREGOING, the petition is granted. All
proceedings held in respondent court in its Civil Case No.
12328 subsequent to the order of dismissal of October 21,
1974 are hereby annulled and set aside, particularly the ex-
parte proceedings against petitioners and the decision on
December 20, 1974. Respondent court is hereby ordered to
enter an order extending the effects of its order of dismissal of
the action dated October 21, 1974 to herein petitioners
Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and
Co Oyo. And respondent court is hereby permanently enjoined
from taking any further action in said civil case gave and
except as herein indicated. Costs against private respondent.
Makalintal, C.J., Fernando, Aquino and Concepcion Jr., JJ.,
concur.
LIM TANHU v. HON. JOSE R. RAMOLETE
G.R. No. L-40098; August 29, 1975
Ponente: J. Barredo
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.
FACTS:
ISSUE:
Tan alleged that she is the widow of Tee Hoon Lim Po Chuan,
Whether Tan has a right over the liquidated properties of the
who was a partner in the commercial partnership, Glory
partnership
Commercial Company with Antonio Lim Tanhu and Alfonso Ng
Sua".
HELD:
Defendant Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim
No, Tan has no right over the liquidated properties of the
Teck Chuan, and Eng Chong Leonardo, through fraud and
partnership
machination, took actual and active management of the
partnership and although Tee Hoon Lim Po Chuan was the
The Supreme Court held that there is no alternative but to
manager of Glory Commercial Company, defendants managed
hold that plaintiff Tan Put's allegation that she is the widow of
to use the funds of the partnership to purchase lands and
Tee Hoon Lim Po Chuan has not been satisfactorily established
buildings in the cities of Cebu, Lapulapu, Mandaue, and the
and that, on the contrary, the evidence on record convincingly
municipalities of Talisay and Minglanilla.
shows that her relation with said deceased was that of a
common-law wife.
She alleged in her complaint that after the death of Tee Hoon
Moreover, the Supreme Court said that the lower courts
Lim Po Chuan, the defendants, without liquidation, continued
committed an error by awarding 1/3 of the partnership
the business of Glory Commercial Company, by purportedly
properties to Tan because there has been no liquidation
organizing a corporation known as the Glory Commercial
proceedings yet. And if there has not yet been any liquidation
Company, Incorporated and sometime in the month of
of the partnership, the only right plaintiff could have would be
November, 1967, defendants, particularly Antonio Lim Tanhu,
to what might result after much liquidation to belong to the
by means of fraud deceit, and misrepresentations did then
deceased partner (her alleged husband) and before this is
and there, induce and convince her to execute a quitclaim of
finished, it is impossible to determine, what rights or interest,
all her rights and interests, in the assets of the partnership of
if any the deceased had.
Glory Commercial Company.
In other words, no specific amounts or properties may be
adjudicated to the heir or legal representative of the deceased
Thereafter, in the year 1968-69, the defendants who had
partner without the liquidation being first terminated.
earlier promised to liquidate the aforesaid properties and
G.R. No. L-5837 May 31, 1954
assets in favor, among others of plaintiff and until the middle
of the year 1970 when the plaintiff formally demanded from
CRISTOBAL BONNEVIE, ET AL., plaintiffs-appellants,
vs.
JAIME HERNANDEZ, defendant-appellee.
Ojeda and Vilgera for appellants.
Cea and Zurbano for appellee.
REYES, J.:
This is an action for the recovery of the sum of P115,312.50,
with interests, as plaintiffs' alleged share in the profits of a
partnership.
It appears that prior to January, 1947, plaintiffs with other
associates formed a syndicate or secret partnership for the
purpose of acquiring the plants, franchises and other
properties of the Manila Electric Co. hereinafter called the
Meralco in the provinces of Camarines Sur, Albay, and
Sorsogon, with the idea of continuing that company's business
in that region. No formal articles were drawn for it was the
purpose of the members to incorporate once the deal had
been consummated. But in the meantime they elected Pedro
Serranzana and David Serrano general manager and
secretary-treasurer, respectively, of the partnership.
Negotiation for the purchase was commenced, but as it made
no headway, defendant was taken in as a member of the
partnership so that he could push the deal through, and to
that end he was given the necessary power of attorney. Using
partnership funds, defendant was able to buy the Meralco
properties for P122,000, paying P40,000 upon the signing of
the deed of sale and agreeing to pay the balance in two equal
installments, that is, P41,000 on or before July 31, 1947, and
another P41,000 on or before January 31, 1948, with interest
at 6 per cent per annum and with a penalty clause which
reads:
(6) That in case the VENDEE fails to make the
payment or payments of the balance due or any part
thereof as herein provided, this contract shall, at the
option of the VENDOR, be annuled and, in such an
event, all payments made by the VENDEE to the
VENDOR by virtue of this contract shall be forfeited
and retained by the VENDOR in full satisfaction as
the liquidated damages sustained by said VENDOR;
and the said VENDOR shall have the right to
forthwith reenter and take possession of the
premises, properties and rights which are the
subject-matter of this contract.
Although defendant was the one named vendee in the deed of
sale, there is no question that the transaction was in penalty
made for the partnership so that the latter assumed control of
the business the day following the sale.
About the latter half of the following month the members of
the partnership proceeded with the formation of the proposed
corporation, apportioning among themselves its shares of
stock in proportion to their respective contributions to the
capital of the partnership and their individual efforts in
bringing about the acquisition of the Meralco properties. But
before the incorporation papers could be perfected, several
partners, not satisfied with the way matters were being run
and fearful that the venture might prove a failure because the
business was not going well and there was a possibility of
their being assessed more than their original investments
when the time came to meet the two installments of the
unpaid purchase price due the Meralco, expressed their desire
to withdraw from the partnership and get back the money
they had invested therein. In accordance with this wish, one of
them, Judge Jaime Reyes, in a meeting held on April 10, 1947,
to consider various matters connected with the business,
presented a resolution to the effect that those partners who
did not want to remain in the association should be allowed to
withdraw and get back their contributions. The resolution was
approved, with the herein plaintiffs voting affirmatively, and
on that same day plaintiffs and Judge Reyes withdrew from
the partnership, and, as admitted by both parties, the
partnership was then dissolved. In accordance with the terms
of the resolution, the withdrawing partners were, on the
following day, reimbursed their respective contributions to the
partnership fund.
Following the dissolution of the partnership, the members who
preferred to remain in the business went ahead with the
formation of the corporation, taking in new associates as
stockholders. And defendant, on his part, in fulfillment of his
trust, made a formal assignment of the Meralco properties to
the treasurer of the corporation, giving them a book value of
P365,000, in return for which the corporation issued, to the
various subscribers to its capital stock, shares of stock of the
total face value of P225,000 and assumed the obligation of
paying what was still due the Meralco on the purchase price.
The new corporation was named "Bicol Electric Company."
Though business was losing during the first year, that is, in
1947, the corporation, thanks to a loan obtained from the RFC
later prospered and made money. Then trouble began for one
of its big stockholders, the defendant herein.
Two years from their withdrawal from the partnership, when
the corporate business was already in a prosperous condition,
plaintiffs brought the present suit against Jaime Hernandez,
claiming a share in the profit the latter is supposed to have
made from the assignment of the Meralco properties to the
corporation, estimated by plaintiffs to be P225,000 and their
share of it to be P115,312.50.
Defendant's answer denies that he has made any profit out of
the assignment in question and alleges that in any event
plaintiffs, after their withdrawal from the partnership, ceased
to have any further interest in the subsequent transactions of
the remaining members.
After trial the lower court found that the partnership had not
realized any profit out of the assignment of the Meralco
properties to the corporation and that, even supposing that
profit had really been made, defendant would not be the one
to answer to plaintiffs for their share thereof, because he did
not receive the consideration for the assignment, which
according to the court, consisted of the subscriptions of
various persons to the capital stock of the corporation. The
court therefore dismissed the complaint with costs against the
plaintiffs. From this decision plaintiffs appealed. The case
comes within our jurisdiction because of the amount involved.
We find no merit in the appeal.
In the first place, the profit alleged to have been realized from
the assignment of the Meralco properties to the new
corporation, the Bicol Electric Company, is more apparent
than real. It is true that the value set for those properties in
the deed of assignment was P365,000 when the acquisition
price was only P122,000. But one should not jump to the
conclusion that a profit, consisting of the difference between
the two sums was really made out of the transaction, for the
assignment was not made for cash but in payment for
subscriptions to shares of stock in the assignee, and while
those shares had a total face value of P225,000, this is not
necessarily their real worth. Needless to say, the real value of
the shares of stock of a corporation depends upon the value
of its assets over and above its liabilities. It does not appear
that the Bicol Electric Company had any assets other than
those acquired from the Meralco, and according to the
evidence the company, aside from owing the Meralco,
P82,000 was, in the language of the court below, actually "in
the red."
In the second place, assuming that the assignment actually
brought profit to the partnership, it is hard to see how
defendant could be made to answer for plaintiffs' alleged
share thereof. As stated in the decision below, defendant did
not receive the consideration for the assignment for, as
already stated, the assignment was made in payment for
subscriptions of various persons to the capital stock of the
new corporation. Plaintiffs, in order to give color of legality to
their claim against defendant, maintain that the latter should
be held liable for damages caused to them, consisting of the
loss of their share of the profits, due to defendant's failure
properly to perform his duty as a liquidator of the dissolved
partnership, this on the theory that as managing partner of
the partnership, it was defendant's duty to liquidate its affairs
upon its dissolutions. But it does not appear that plaintiffs
have ever asked for a liquidation, and as will presently be
explained no liquidation was called for because when plaintiffs
withdrew from the partnership the understanding was that
after they had been reimbursed their investment, they were
no longer to have any further interest in the partnership or its
assets and liabilities. Moreover, the stipulation of facts made
at the hearing does not bear out the claim that defendant was
the managing partner of the partnership, for if there appears
that the partnership had its general manager in the person of
Pedro Serranzana, who upon the formation of the new
corporation also became its vice-president and general
manager.
As a general rule, when a partner retires from the firm, he is
entitled to the payment of what may be due him after a
liquidation. But certainly no liquidation is necessary where
there is already a settlement or an agreement as to what the
retiring partner shall receive. In the instant case, it appears
that a settlement was agreed upon on the very day the
partnership was dissolved. For when plaintiffs and Judge Jaime
Reyes withdrew from the partnership on that day they did so
as agreed to by all the partners, subject to the only condition
that they were to be repaid their contributions or investments
within three days from said date. And this condition was
fulfilled when on the following day they were reimbursed the
respective amounts due them pursuant to the agreement.
There is evidence that the partnership was at that time
operating its business at a loss and that the partnership did
not have necessary funds to meet its obligation to Meralco for
the balance of the purchase price. And in that connection it
should be recalled that nonpayment of that obligation would
result in the partnership losing its entire investment because
of the penalty clause in the deed of sale. Because of these
circumstances there is every reason to believe that plaintiffs
together with Judge Jaime Reyes, withdrew from the
partnership for fear that they might lose their entire
investment should they choose to remain in the partnership
which then faced the danger of losing its entire assets. As
testified to by Judge Reyes, one of the withdrawing partners, it
was clearly understood that upon their withdrawal and return
to them of their investment they would have nothing more to
do with the association. It must, therefore, have been the
intention or understanding of the parties that the withdrawing
partners were relinquishing all their rights and interest in the
partnership upon the return to them of their investment. That
Judge Reyes did not join the plaintiffs in this action is a clear
indication that such was really the understanding. Judge
Reyes has testified that when he was invited to join in the
present claim he refused because he did not want to be a "sin
verguenza." And, indeed, if the agreement was that the
withdrawing partners were still to have participation in the
subsequent transactions of the partnership so that they would
have a share not only in the profits but also in the losses, it is
not likely that their investment would have been returned to
them.
It is, therefore, our conclusion that the acceptance by the
withdrawing partners, including the plaintiffs, of their
investment in the instant case was understood and intended
by all the parties as a final settlement of whatever rights or
claim the withdrawing partners might have in the dissolved
partnership. Such being the case they are now precluded from
claiming any share in the alleged profits, should there be any,
at the time of the dissolution.
In view of the foregoing, we find plaintiffs' claim against
defendant to be without legal basis so that the judgment of
dismissal rendered by the court below should be, as it is
hereby, affirmed, with costs against the appellants.
Paras, C. J., Pablo, Bengzon, Montemayor, Jugo, Bautista
Angelo, Labrador and Concepcion, JJ., concur.
[G.R. No. 143340. August 15, 2001]
LILIBETH SUNGA-CHAN and CECILIA
SUNGA, petitioners, vs. LAMBERTO T.
CHUA, respondent.
DECISION
GONZAGA-REYES, J.:
Before us is a petition for review on certiorari under Rule
45 of the Rules of Court of the Decision [1] of the Court of
Appeals dated January 31, 2000 in the case entitled Lamberto
T. Chua vs.
Lilibeth Sunga Chan and Cecilia Sunga and of the
Resolution dated May 23, 2000 denying the motion for
reconsideration of herein petitioners Lilibeth Sunga Chan and
Cecilia Sunga (hereafter collectively referred to as
petitioners).
The pertinent facts of this case are as follows:
On June 22, 1992, Lamberto T. Chua (hereafter
respondent) filed a complaint against Lilibeth Sunga Chan
(hereafter petitioner Lilibeth) and Cecilia Sunga (hereafter
petitioner Cecilia), daughter and wife, respectively of the
deceased Jacinto L. Sunga (hereafter Jacinto), for Winding Up
of Partnership Affairs, Accounting, Appraisal and Recovery of
Shares and Damages with Writ of Preliminary Attachment with
the Regional Trial Court, Branch 11, Sindangan, Zamboanga
del Norte.
Respondent alleged that in 1977, he verbally entered
into a partnership with Jacinto in the distribution of Shellane
Liquefied Petroleum Gas (LPG) in Manila. For business
convenience, respondent and Jacinto allegedly agreed to
register the business name of their partnership, SHELLITE GAS
APPLIANCE CENTER (hereafter Shellite), under the name of
Jacinto as a sole proprietorship. Respondent allegedly
delivered his initial capital contribution of P100,000.00 to
Jacinto while the latter in turn produced P100,000.00 as his
counterpart contribution, with the intention that the profits
would be equally divided between them. The partnership
allegedly had Jacinto as manager, assisted by Josephine Sy
(hereafter Josephine), a sister of the wife of respondent,
Erlinda Sy. As compensation, Jacinto would receive a
managers fee or remuneration of 10% of the gross profit and
Josephine would receive 10% of the net profits, in addition to
her wages and other remuneration from the business.
Allegedly, from the time that Shellite opened for
business on July 8, 1977, its business operation went quite
well and was profitable. Respondent claimed that he could
attest to the success of their business because of the volume
of orders and deliveries of filled Shellane cylinder tanks
supplied by Pilipinas Shell Petroleum Corporation. While
Jacinto furnished respondent with the merchandise
inventories, balance sheets and net worth of Shellite from
1977 to 1989, respondent however suspected that the
amount indicated in these documents were understated and
undervalued by Jacinto and Josephine for their own selfish
reasons and for tax avoidance.
Upon Jacintos death in the later part of 1989, his
surviving wife, petitioner Cecilia and particularly his daughter,
petitioner Lilibeth, took over the operations, control, custody,
disposition and management of Shellite without respondents
consent.
Despite respondents repeated demands upon petitioners
for accounting, inventory, appraisal, winding up and
restitution of his net shares in the partnership, petitioners
failed to comply. Petitioner Lilibeth allegedly continued the
operations of Shellite, converting to her own use and
advantage its properties.
On March 31, 1991, respondent claimed that after
petitioner Lilibeth ran out of alibis and reasons to evade
respondents demands, she disbursed out of the partnership
funds the amount of P200,000.00 and partially paid the same
to respondent. Petitioner Lilibeth allegedly informed
respondent that the P200,000.00 represented partial payment
of the latters share in the partnership, with a promise that the
former would make the complete inventory and winding up of
the properties of the business establishment. Despite such
commitment, petitioners allegedly failed to comply with their
duty to account, and continued to benefit from the assets and
income of Shellite to the damage and prejudice of respondent.
On December 19, 1992, petitioners filed a Motion to
Dismiss on the ground that the Securities and Exchange
Commission (SEC) in Manila, not the Regional Trial Court in
Zambaonga del Norte had jurisdiction over the
action. Respondent opposed the motion to dismiss.
On January 12, 1993, the trial court finding the complaint
sufficient in form and substance denied the motion to dismiss.
On January 30, 1993, petitioners filed their Answer with
Compulsory Counterclaims, contending that they are not
liable for partnership shares, unreceived income/profits,
interests, damages and attorneys fees, that respondent does
not have a cause of action against them, and that the trial
court has no jurisdiction over the nature of the action, the SEC
being the agency that has original and exclusive jurisdiction
over the case. As counterclaim, petitioner sought attorneys
fees and expenses of litigation.
On August 2, 1993, petitioner filed a second Motion to
Dismiss this time on the ground that the claim for winding up
of partnership affairs, accounting and recovery of shares in
partnership affairs, accounting and recovery of shares
in partnership assets /properties should be dismissed and
prosecuted against the estate of deceased Jacinto in a probate
or intestate proceeding.
On August 16, 1993, the trial court denied the second
motion to dismiss for lack of merit.
On November 26, 1993, petitioners filed their Petition for
Certiorari, Prohibition and Mandamus with the Court of
Appeals docketed as CA-G.R. SP No. 32499 questioning the
denial of the motion to dismiss.
On November 29, 1993, petitioners filed with the trial
court a Motion to Suspend Pre-trial Conference.
On December 13, 1993, the trial court granted the
motion to suspend pre-trial conference.
On November 15, 1994, the Court of Appeals denied the
petition for lack of merit.
On January 16, 1995, this Court denied the petition for
review on certiorari filed by petitioner, as petitioners failed to
show that a reversible error was committed by the appellate
court."[2]
On February 20, 1995, entry of judgment was made by
the Clerk of Court and the case was remanded to the trial
court on April 26, 1995.
On September 25, 1995, the trial court terminated the
pre-trial conference and set the hearing of the case on
January 17, 1996. Respondent presented his evidence while
petitioners were considered to have waived their right to
present evidence for their failure to attend the scheduled date
for reception of evidence despite notice.
On October 7, 1997, the trial court rendered its Decision
ruling for respondent. The dispositive portion of the Decision
reads:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff and against the defendants, as follows:
(1) DIRECTING them to render an accounting in acceptable
form under accounting procedures and standards of the
properties, assets, income and profits of the Shellite Gas
Appliance Center since the time of death of Jacinto L. Sunga,
from whom they continued the business operations including
all businesses derived from the Shellite Gas Appliance Center;
submit an inventory, and appraisal of all these properties,
assets, income, profits, etc. to the Court and to plaintiff for
approval or disapproval;
(2) ORDERING them to return and restitute to the partnership
any and all properties, assets, income and profits they
misapplied and converted to their own use and advantage
that legally pertain to the plaintiff and account for the
properties mentioned in pars. A and B on pages 4-5 of this
petition as basis;
(3) DIRECTING them to restitute and pay to the plaintiff shares
and interest of the plaintiff in the partnership of the listed
properties, assets and good will (sic) in schedules A, B and C,
on pages 4-5 of the petition;
(4) ORDERING them to pay the plaintiff earned but unreceived
income and profits from the partnership from 1988 to may 30,
1992, when the plaintiff learned of the closure of the store the
sum of P35,000.00 per month, with legal rate of interest until
fully paid;
(5) ORDERING them to wind up the affairs of the partnership
and terminate its business activities pursuant to law, after
delivering to the plaintiff all the interest, shares, participation
and equity in the partnership, or the value thereof in money
or moneys worth, if the properties are not physically divisible;
(6) FINDING them especially Lilibeth Sunga-Chan guilty of
breach of trust and in bad faith and hold them liable to the
plaintiff the sum of P50,000.00 as moral and exemplary
damages; and,
(7) DIRECTING them to reimburse and pay the sum
of P25,000.00 as attorneys (sic) and P25,00.00 as litigation
expenses.
NO special pronouncements as to COSTS.
SO ORDERED.[3]
On October 28, 1997, petitioners filed a Notice of Appeal
with the trial court, appealing the case to the Court of
Appeals.
On January 31, 2000, the Court of Appeals dismissed the
appeal. The dispositive portion of the Decision reads:
WHEREFORE, the instant appeal is dismissed. The appealed
decision is AFFIRMED in all respects.[4]
On May 23, 2000, the Court of Appeals denied the
motion for reconsideration filed by petitioner.
Hence, this petition wherein petitioner relies upon the
following grounds:
1. The Court of Appeals erred in making a legal
conclusion that there existed a partnership
between respondent Lamberto T. Chua and the
late Jacinto L. Sunga upon the latters invitation
and offer and that upon his death the
partnership assets and business were taken
over by petitioners.
2. The Court of Appeals erred in making the legal
conclusion that laches and/or prescription did
not apply in the instant case.
3. The Court of Appeals erred in making the legal
conclusion that there was competent and
credible evidence to warrant the finding of a
partnership, and assuming arguendo that
indeed there was a partnership, the finding of
highly exaggerated amounts or values in the
partnership assets and profits.[5]
Petitioners question the correctness of the finding of the
trial court and the Court of Appeals that a partnership existed
between respondent and Jacinto from 1977 until Jacintos
death. In the absence of any written document to show such
partnership between respondent and Jacinto, petitioners
argue that these courts were proscribed from hearing the
testimonies of respondent and his witness, Josephine, to prove
the alleged partnership three years after Jacintos death. To
support this argument, petitioners invoke the Dead Mans
Statute or Survivorship Rule under Section 23, Rule 130 of the
Rules of Court that provides:
SEC. 23. Disqualification by reason of death or insanity of
adverse party.-- Parties or assignors of parties to a case, or
persons in whose behalf a case is prosecuted, against an
executor or administrator or other representative of a
deceased person, or against a person of unsound mind, upon
a claim or demand against the estate of such deceased
person, or against such person of unsound mind, cannot
testify as to any matter of fact occurring before the death of
such deceased person or before such person became of
unsound mind.
Petitioners thus implore this Court to rule that the testimonies
of respondent and his alter ego, Josephine, should not have
been admitted to prove certain claims against a deceased
person (Jacinto), now represented by petitioners.
We are not persuaded.
A partnership may be constituted in any form, except
where immovable property or real rights are contributed
thereto, in which case a public instrument shall be necessary.
[6]
Hence, based on the intention of the parties, as gathered
from the facts and ascertained from their language and
conduct, a verbal contract of partnership may arise. [7] The
essential points that must be proven to show that a
partnership was agreed upon are (1) mutual contribution to a
common stock, and (2) a joint interest in the profits.
[8]
Understandably so, in view of the absence of a written
contract of partnership between respondent and Jacinto,
respondent resorted to the introduction of documentary and
testimonial evidence to prove said partnership. The crucial
issue to settle then is whether or not the Dead Mans Statute
applies to this case so as to render inadmissible respondents
testimony and that of his witness, Josephine.
The Dead Mans Statute provides that if one party to the
alleged transaction is precluded from testifying by death,
insanity, or other mental disabilities, the surviving party is not
entitled to the undue advantage of giving his own
uncontradicted and unexplained account of the transaction.
[9]
But before this rule can be successfully invoked to bar the
introduction of testimonial evidence, it is necessary that:
1. The witness is a party or assignor of a party to a
case or persons in whose behalf a case is
prosecuted.
2. The action is against an executor or
administrator or other representative of a
deceased person or a person of unsound mind;
3. The subject-matter of the action is a claim or
demand against the estate of such deceased
person or against person of unsound mind;
4. His testimony refers to any matter of fact which
occurred before the death of such deceased
person or before such person became of
unsound mind.[10]
Two reasons forestall the application of the Dead Mans
Statute to this case.
First, petitioners filed a compulsory
counterclaim[11] against respondent in their answer before the
trial court, and with the filing of their counterclaim, petitioners
themselves effectively removed this case from the ambit of
the Dead Mans Statute.[12] Well entrenched is the rule that
when it is the executor or administrator or representatives of
the estate that sets up the counterclaim, the plaintiff, herein
respondent, may testify to occurrences before the death of
the deceased to defeat the counterclaim. [13] Moreover, as
defendant in the counterclaim, respondent is not disqualified
from testifying as to matters of fact occurring before the
death of the deceased, said action not having been brought
against but by the estate or representatives of the deceased.
[14]
Second, the testimony of Josephine is not covered by the
Dead Mans Statute for the simple reason that she is not a
party or assignor of a party to a case or persons in whose
behalf a case is prosecuted. Records show that respondent
offered the testimony of Josephine to establish the existence
of the partnership between respondent and Jacinto. Petitioners
insistence that Josephine is the alter ego of respondent does
not make her an assignor because the term assignor of a
party means assignor of a cause of action which has arisen,
and not the assignor of a right assigned before any cause of
action has arisen.[15] Plainly then, Josephine is merely a
witness of respondent, the latter being the party plaintiff.
We are not convinced by petitioners allegation that
Josephines testimony lacks probative value because she was
allegedly coerced by respondent, her brother-in-law, to testify
in his favor. Josephine merely declared in court that she was
requested by respondent to testify and that if she were not
requested to do so she would not have testified. We fail to see
how we can conclude from this candid admission that
Josephines testimony is involuntary when she did not in any
way categorically say that she was forced to be a witness of
respondent. Also, the fact that Josephine is the sister of the
wife of respondent does not diminish the value of her
testimony since relationship per se, without more, does not
affect the credibility of witnesses.[16]
Petitioners reliance alone on the Dead Mans Statute to
defeat respondents claim cannot prevail over the factual
findings of the trial court and the Court of Appeals that a
partnership was established between respondent and
Jacinto. Based not only on the testimonial evidence, but the
documentary evidence as well, the trial court and the Court of
Appeals considered the evidence for respondent as sufficient
to prove the formation of a partnership, albeit an informal
one.
Notably, petitioners did not present any evidence in their
favor during trial. By the weight of judicial precedents, a
factual matter like the finding of the existence of a
partnership between respondent and Jacinto cannot be
inquired into by this Court on review. [17] This Court can no
longer be tasked to go over the proofs presented by the
parties and analyze, assess and weigh them to ascertain if the
trial court and the appellate court were correct in according
superior credit to this or that piece of evidence of one party or
the other.[18] It must be also pointed out that petitioners failed
to attend the presentation of evidence
respondent. Petitioners cannot now turn to this Court to
question the admissibility and authenticity of the
documentary evidence of respondent when petitioners failed
to object to the admissibility of the evidence at the time that
such evidence was offered.[19]
With regard to petitioners insistence that laches and/or
prescription should have extinguished respondents claim, we
agree with the trial court and the Court of Appeals that the
action for accounting filed by respondent three (3) years after
Jacintos death was well within the prescribed period. The Civil
Code provides that an action to enforce an oral contract
prescribes in six (6) years[20] while the right to demand an
accounting for a partners interest as against the person
continuing the business accrues at the date of dissolution, in
the absence of any contrary agreement. [21] Considering that
the death of a partner results in the dissolution of the
partnership[22], in this case, it was after Jacintos death that
respondent as the surviving partner had the right to an
account of his interest as against petitioners. It bears
stressing that while Jacintos death dissolved the partnership,
the dissolution did not immediately terminate the
partnership. The Civil Code[23] expressly provides that upon
dissolution, the partnership continues and its legal personality
is retained until the complete winding up of its business,
culminating in its termination.[24]
In a desperate bid to cast doubt on the validity of the
oral partnership between respondent and Jacinto, petitioners
maintain that said partnership that had an initial capital of
P200,000.00 should have been registered with the Securities
and Exchange Commission (SEC) since registration is
mandated by the Civil Code. True, Article 1772 of the Civil
Code requires that partnerships with a capital of P3,000.00 or
more must register with the SEC, however, this registration
requirement is not mandatory. Article 1768 of the Civil
Code[25] explicitly provides that the partnership retains its
juridical personality even if it fails to register. The failure to
register the contract of partnership does not invalidate the
same as among the partners, so long as the contract has the
essential requisites, because the main purpose of registration
is to give notice to third parties, and it can be assumed that
the members themselves knew of the contents of their
contract.[26] In the case at bar, non-compliance with this
directory provision of the law will not invalidate the
of
partnership considering that the totality of the evidence
proves that respondent and Jacinto indeed forged the
partnership in question.
WHEREFORE, in view of the foregoing, the petition is
DENIED and the appealed decision is AFFIRMED.
SO ORDERED.
Melo, (Chairman), Vitug, Panganiban, and Sandoval-
Gutierrez, JJ., concur.
G.R. No. L-45464 April 28, 1939
JOSUE SONCUYA, plaintiff-appellant,
vs.
CARMEN DE LUNA, defendant-appellee.Josue Soncuya in his
own behalf.
Conrado V. Sanchez and Jesus de Veyra for appellee.
VILLA-REAL, J.:
On September 11, 1936, plaintiff Josue Soncuya filed with the
Court of First Instance of Manila and amended complaint
against Carmen de Luna in her own name and as co-
administratrix of the intestate estate, of Librada Avelino, in
which, upon the facts therein alleged, he prayed that
defendant be sentenced to pay him the sum of P700,432 as
damages and costs.
To the aforesaid amended complaint defendant Carmen de
Luna interposed a demurrer based on the following grounds:
(1) That the complaint does not contain facts sufficient to
constitute a cause of action; and (2) that the complaint is
ambiguous, unintelligible and vague.
Trial on the demurrer having been held and the parties heard,
the court found the same well-founded and sustained it,
ordering the plaintiff to amend his complaint within a period of
ten days from receipt of notice of the order.
Plaintiff having manifested that he would prefer not to amend
his amended complaint, the attorney for the defendant,
Carmen de Luna, filed a motion praying that the amended
complaint be dismissed with costs against the plaintiff. Said
motion was granted by The Court of First Instance of Manila
which ordered the dismissal of the aforesaid amended
complaint, with costs against the plaintiff.
From this order of dismissal, the appellant took an appeal,
assigning twenty alleged errors committed by the lower court
in its order referred to.
The demurrer interposed by defendant to the amended
complaint filed by plaintiff having been sustained on the
grounds that the facts alleged in said complaint are not
sufficient to constitute a cause of action and that the
complaint is ambiguous, unintelligible and vague, the only
questions which may be raised and considered in the present
appeal are those which refer to said grounds.
In the amended complaint it is prayed that defendant Carmen
de Luna be sentenced to pay plaintiff damages in the sum of
P700,432 as a result of the administration, said to be
fraudulent, of he partnership, "Centro Escolar de Seoritas", of
which plaintiff, defendant and the deceased Librada Avelino
were members. For the purpose of adjudicating to plaintiff
damages which he alleges to have suffered as a partner by
reason of the supposed fraudulent management of he
partnership referred to, it is first necessary that a liquidation
of the business thereof be made to the end that the profits
and losses may be known and the causes of the latter and the
responsibility of the defendant as well as the damages which
each partner may have suffered, may be determined. It is not
alleged in the complaint that such a liquidation has been
effected nor is it prayed that it be made. Consequently, there
is no reason or cause for plaintiff to institute the action for
damages which he claims from the managing partner Carmen
de Luna (Po Yeng Cheo vs. Lim Ka Yam, 44 Phil., 172).
Having reached the conclusion that the facts alleged in the
complaint are not sufficient to constitute a cause of action on
the part of plaintiff as member of the partnership "Centro
Escolar de Seoritas" to collect damages from defendant as
managing partner thereof, without a previous liquidation, we
do not deem it necessary to discuss the remaining question of
whether or not the complaint is ambiguous, unintelligible and
vague.
In view of the foregoing considerations, we are of the opinion
and so hold that for a partner to be able to claim from another
partner who manages the general copartnership, damages
allegedly suffered by him by reason of the fraudulent
administration of the latter, a previous liquidation of said
partnership is necessary.
Wherefore, finding no error in the order appealed from the
same is affirmed in all its parts, with costs against the
appellant. So ordered.