G.R. No.
L-22442 August 1, 1924 The board also resolved to call the usual general
ANTONIO PARDO, petitioner,
vs.
THE HERCULES LUMBER CO., INC., and IGNACIO
FERRER, respondents.
W.J. O'Donovan and M.H. de Joya for petitioner.
Sumulong and Lavides and Ross, Lawrence and
Selph for respondents.
STREET, J.:
The petitioner, Antonio Pardo, a stockholder in the
Hercules Lumber Company, Inc., one of the
respondents herein, seeks by this original proceeding
in the Supreme Court to obtain a writ of mandamus to
compel the respondents to permit the plaintiff and his
duly authorized agent and representative to examine
the records and business transactions of said
company. To this petition the respondents interposed
an answer, in which, after admitting certain
allegations of the petition, the respondents set forth
the facts upon which they mainly rely as a defense to
the petition. To this answer the petitioner in turn
interposed a demurrer, and the cause is now before
us for determination of the issue thus presented.
It is inferentially, if not directly admitted that the
petitioner is in fact a stockholder in the Hercules
Lumber Company, Inc., and that the respondent,
Ignacio Ferrer, as acting secretary of the said
company, has refused to permit the petitioner or his
agent to inspect the records and business
transactions of the said Hercules Lumber Company,
Inc., at times desired by the petitioner. No serious
question is of course made as to the right of the
petitioner, by himself or proper representative, to
exercise the right of inspection conferred by section
51 of Act No. 1459. Said provision was under the
consideration of this court in the case of Philpotts vs.
Philippine Manufacturing Co., and Berry (40 Phil.,
471), where we held that the right of examination
there conceded to the stockholder may be exercised
either by a stockholder in person or by any duly
authorized agent or representative.
The main ground upon which the defense appears to
be rested has reference to the time, or times, within
which the right of inspection may be exercised. In this
connection the answer asserts that in article 10 of the
By-laws of the respondent corporation it is declared
that "Every shareholder may examine the books of
the company and other documents pertaining to the
same upon the days which the board of directors shall
annually fix." It is further averred that at the directors'
meeting of the respondent corporation held on
February 16, 1924, the board passed a resolution to
the following effect:
(meeting of shareholders) for March 30 of the present
year, with notice to the shareholders that the books of
the company are at their disposition from the 15th to
25th of the same month for examination, in
appropriate hours.
The contention for the respondent is that this
resolution of the board constitutes a lawful
restriction on the right conferred by statute;
and it is insisted that as the petitioner has
not availed himself of the permission to
inspect the books and transactions of the
company within the ten days thus defined,
his right to inspection and examination is
lost, at least for this year.
We are entirely unable to concur in this contention.
The general right given by the statute may not be
lawfully abridged to the extent attempted in this
resolution. It may be admitted that the officials in
charge of a corporation may deny inspection when
sought at unusual hours or under other improper
conditions; but neither the executive officers nor the
board of directors have the power to deprive a
stockholder of the right altogether. A by-law unduly
restricting the right of inspection is undoubtedly
invalid. Authorities to this effect are too numerous and
direct to require extended comment. (14 C.J., 859; 7
R.C.L., 325; 4 Thompson on Corporations, 2nd ed.,
sec. 4517; Harkness vs. Guthrie, 27 Utah, 248; 107
Am., St. Rep., 664. 681.) Under a statute similar to
our own it has been held that the statutory right of
inspection is not affected by the adoption by the board
of directors of a resolution providing for the closing of
transfer books thirty days before an election.
(State vs. St. Louis Railroad Co., 29 Mo., Ap., 301.)
It will be noted that our statute declares that the right
of inspection can be exercised "at reasonable hours."
This means at reasonable hours on business days
throughout the year, and not merely during some
arbitrary period of a few days chosen by the directors.
In addition to relying upon the by-law, to which
reference is above made, the answer of the
respondents calls in question the motive which is
supposed to prompt the petitioner to make inspection;
and in this connection it is alleged that the information
which the petitioner seeks is desired for ulterior
purposes in connection with a competitive firm with
which the petitioner is alleged to be connected. It is
also insisted that one of the purposes of the petitioner
is to obtain evidence preparatory to the institution of
an action which he means to bring against the
corporation by reason of a contract of employment
which once existed between the corporation and
himself. These suggestions are entirely apart from the
issue, as, generally speaking, the motive of the
shareholder exercising the right is immaterial. (7
R.C.L., 327.)
We are of the opinion that, upon the allegations of the
petition and the admissions of the answer, the
petitioner is entitled to relief. The demurrer is,
therefore, sustained; and the writ of mandamus will
issue as prayed, with the costs against the
respondent. So ordered.

Johnson, Malcolm, Villamor, Ostrand, and

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

We have assumed in the course of the preceding

discussion that the deed of sale under which the
plaintiffs acquired the right of Lo Yao, the owner of the
fee, is competent proof in behalf of the plaintiffs. It is,
however, earnestly insisted by the attorney for Lo
Seng that this document, having never been recorded
in the property registry, cannot under article 389 of
the Mortgage Law, be used in court against him
because as to said instrument he is a third party. The
important question thus raised is not absolutely
necessary to the decision of this case, and we are
inclined to pass it without decision, not only because
the question does not seem to have been ventilated in
the Court of First Instance but for the further reason
that we have not had the benefit of any written brief in
this case in behalf of the appellees.

The judgment appealed from will be reversed, and the

defendant will be absolved from the complaint. It is so
ordered, without express adjudication as to costs.

Johnson, Araullo, Avancea and Villamor, JJ., concur.

CATALAN vs. GATCHALIAN 105 Phil 1270

FACTS:

>Catalan and Gatchalian are partners. They

mortgaged two lots to Dr. Marave together with the
improvements thereon to secure a credit from the
latter.

>The partnership failed to pay the obligation. The

properties were sold to Dr. Marave at a public auction.

> Catalan redeemed the property and he contends

that title should be cancelled and a new one must be
issued in his name.

ISSUE: Did Catalans redemption of the properties

make him the absolute owner of the lands?

HELD: No.

Under Article 1807 of the NCC every partner

becomes a trustee for his copartner with regard to any
benefits or profits derived from his act as a partner.

The right of redemption pertains to the owner of the

property; as it was the partnership which owned the
property, in this case, it was only the partnership
which could properly exercise the right of redemption.

Consequently, when Catalan redeemed the properties

in question, he became a trustee and held the same
in trust for his copartner Gatchalian, subject to his
right to demand from the latter his contribution to the
amount of redemption.
G.R. No. L-14617 February 18, 1920
R. Y. HANLON, plaintiff-appellee,
vs.
JOHN W. HAUSSERMANN and A. W.
BEAM, defendants-appellants.
GEORGE C. SELLNER, intervener.
Cohn and Fisher for appellants.
Thomas D. Aitken and Gibbs, McDonough and
Johnson for appellees.
STREET, J.:
This action was originally instituted by R. Y. Hanlon to
compel the defendants, John W. Haussermann and
A. W. Beam, to account for a share of the profits
gained by them in rehabilitating the plant of the
Benguet Consolidated Mining Company and in
particular to compel them to surrender to the plaintiff
50,000 shares of the stock of said company, with
dividends paid thereon. A few days after the action
was begun G. C. Sellner was permitted to intervene in
like interest with Hanlon and to the same extent.
Thereafter the case was conducted in all respects as
if Hanlon and Sellner had been co-plaintiffs from the
beginning. At the hearing judgment was rendered
requiring the defendants to surrender to Hanlon and
Sellner respectively 24,000 shares each of the stock
of said company, and to pay the dividends declared
and paid on said stock for the years 1916 and 1917.
From this judgment the defendants appealed.
The controlling features of this controversy are
disclosed in documentary evidence, and the other
facts necessary to a proper understanding of the case
are stated in the narrative part of the opinion of the
trial judge. As both parties to the appeal agree that his
statement of facts is substantially correct, we adopt
his findings of fact as the basis of our own statement,
with such transposition, omissions, and additions as
seen desirable for the easier comprehension of the
case.
The Benguet Consolidated Mining Company is a
corporation which was organized in 1903 with an
authorized capital stock of one million dollars, of the
par value of one dollar per share, of which stock
499,000 shares had been issued prior to November
1913, and 501,000 shares then remained in the
treasury as unissued stock. The par value of the
shares was changed to one peso per share after the
organization of the corporation.
In the year 1909 the milling plant of said company,
situated near Baguio in the subprovince of Benguet,
Philippine Islands upon a partially developed quartz
mine, was badly damaged and partly destroyed by
high water, and in 1911 it was completely destroyed
by like causes. The company was thereafter without
working capital, and without credit, and therefore
unable to rebuild the plant.
In October and November 1913, and for a long time
prior thereto, the defendant John W. Haussermann
and A. W. Beam were shareholders in said mining
company and members of its board of directors, and
were at said time vice-president and secretary-
treasurer, respectively, of said company.
In October, 1913, the plaintiff R. Y. Hanlon, an
experienced mining engineer, upon the solicitation of
the defendant Beam, presented to the board of
directors of the Benguet Consolidated Mining
Company a proposition for the rehabilitation of the
company, and asked an option for thirty days within
which to thoroughly examine the property; which
proposition, with certain amendments, was finally
accepted by said company; and thereafter, on
November 6, 1913, within the option period, the terms
of that proposition and acceptance were incorporated
in a written contract between the plaintiff and the
company, in which the said company acted by and
through the defendant John W. Haussermann as vice-
president and the defendant A. W. Beam as
secretary. In this contract it appears that for and in
consideration of the issuance and delivery to said
Hanlon or to his order of the 501,000 shares of the
unissued capital stock of said mining company, the
said Hanlon undertook, promised, and agreed to do or
cause to be done sufficient development work on the
mining properties of said company to enable the
company to mine and take out not less than sixty tons
of ore per day, and to give an extraction of not less
than 85 per cent of the gold content of the ore; and
the terms and conditions upon which said undertaking
was based may be briefly stated as follows: (1) said
Hanlon was to pay into the treasury of the mining
company the sum of P75,000 in cash within six
months from that date; (2) upon the payment of said
P75,000 in cash there was to be issued and delivered
to said Hanlon or to his order 250,000 shares of said
unissued stock; (3) prescribing the purposes for which
said P75,000 should be disbursed by said mining
company upon the order of said Hanlon; (4) providing
for raising an additional sum of P75,000 by obtaining
a loan in the name of said mining company upon the
security of its properties and assets, such additional
indebtedness to be paid and discharged within
eighteen months from date of said agreement; (5)
providing for the payment of the then indebtedness of
said mining company amounting to P13,105.08; (6)
providing for the distribution of the net earnings after
the payment of the indebtedness mentioned in
paragraphs 4 and 5; (7) providing that, for the
purpose of securing and guaranteeing the faithful
performance of each and every undertaking in said
agreement mentioned to be fulfilled by said Hanlon,
250,000 of said 501,000 shares should remain on
deposit with said mining company, to be released,
surrendered and delivered to said Hanlon or to his
order, as follows: "151,000 shares to be released,
surrendered and delivered to the said party of the first
part, or his order, when said milling plant shall have
been duly completed and the operation thereof
commenced; the balance of said shares to wit:
100,000, shall remain on deposit with the party of the
second part until the above mentioned loan to be
secured by the assets of the company shall have
been fully paid and discharged, in which event said
shares shall be released, surrendered and delivered
to the party of the first part, or his order;" (8) providing
that in the event the earnings of the company should
be insufficient to pay all indebtedness within the time
provided in paragraphs 4 and 6, the balance
remaining due thereon was to be paid by said Hanlon,
and if he neglected to pay off and discharge the
balance due, then the said mining company was to
have the right and authority to sell and dispose of the
100,000 shares of stock remaining in its possession
at public or private sale at the prevailing market price,
or as many of said shares as might be necessary to
fully liquidate and discharge the balance of said
indebtedness remaining unpaid; (9) providing for
taking out insurance by said mining company for the
protection of said Hanlon, to cover the full value of
said plant during its erection and after the completion
thereof for a period of not less than eighteen months
after the same shall have been placed in operation.
As was at the time well known to all parties concerned
herein the plaintiff Hanlon was personally without the
financial resources necessary to enable him to
contribute P75,000 towards the project indicated in
the contract Exhibit B, above set forth; and in order to
overcome this obstacle he was compelled to seek the
assistance of others. Haussermann and Beam, being
cognizant of this necessity, agreed to find P25,000 of
the necessary capital, and for the remainder the
plaintiff relied upon G. C. Sellner, a business man of
the city of Manila, who, upon being approached,
agreed to advance P50,000. A verbal understanding
with reference to his matter had been attained by the
four parties to this litigation before the contract Exhibit
B between Hanlon and the mining company had been
formally executed, and this agreement was in fact
reduced to writing and signed on November 5, 1913,
one day prior to the execution of the contract between
Hanlon and the mining company.
In this contract of November 5, 1913, (Exhibit A), the
four parties, to wit: Hanlon, Sellner, Haussermann,
and Beam, agreed to collaborate in the flotation of the
project outlined in the contract Exhibit B, and defined
the manner in which the necessary capital of P75,000
was to be raised. As this contract is absolutely vital in
the present litigation its provisions are set out in full:
Whereas, R. Y. Hanlon has submitted a
proposition to the Benguet Consolidated
Mining Co., a copy of which is hereto
attached for reference; and
Whereas, the Board of Directors of the
Benguet Consolidated Mining Co., has
accepted such proposition as amended; and
Whereas, said parties have agreed to
cooperate and assist the said Hanlon in the
flotation of said proposition;
Now, therefore, this agreement made by and
between the undersigned as follows:
I.
It is mutually agreed by and between the
parties hereto that each shall do all in his
power to float said proposition and make the
same a success.
II.
It is mutually agreed that said proposition
shall be floated in the following manner, to
wit:
(a) That 301,000 shares of the Benguet
Consolidated Mining Company shall be set
aside and offered for sale for the purpose of
raising the sum of P75,000 required to be
paid to the Benguet Consolidated Mining
Company in accordance with said
proposition.
(b) That of said sum of P75,000, the said
George Seller agrees and undertakes to
secure and obtain subscriptions for the sum
of P50,000.
(c) That John W. Haussermann and A. W.
Beam undertake and agree to secure and
obtain subscriptions for the sum of P25,000.
(d) The said Sellner, Haussermann and
Beam hereby guarantee that the
subscriptions to be obtained by them as
hereinabove stated shall be fully paid within
six (6) months from the date of the
acceptance on the part of the said Hanlon of
the option granted by said company; it being
understood and agreed that if for any cause
the said Sellner shall fail to obtain
subscriptions and payment thereof to the
amount of P50,000 within the time herein
specified, then and in that event the
obligation of said Haussermann and Beam
shall be discharged; and, on the other hand,
if for any cause said Haussermann and
Beam shall fail to obtain subscriptions for the
P25,000 and payment thereof within the time
herein mentioned, then and in that event, the
 said Sellner shall be released from his
obligation.
It is mutually understood and agreed that
each of the parties mentioned in this
paragraph shall from time to time advise the
other parties as to the number of
subscriptions obtained and the amount of
payments thereon.
III.
That out of the remaining 200,000 shares of
the Benguet Consolidated Mining Co., to be
issued under said proposition each of said
parties hereto, that is to say: George Sellner,
John W. Haussermann, A. W. Beam and R.
Y. Hanlon shall be entitled to receive one-
fourth thereof, or 50,000 shares, as
compensation for the services rendered in
the flotation of this proposition.
IV.
They necessary funds to cover preliminary
expenses, such as expenses to examining
the properties of the Benguet Consolidated
Mining Co., freight charges and other
charges on ore samples, costs of testing
same, etc., shall be supplied by Messrs.
Sellner, Haussermann and Beam, which said
sum shall be reimbursed to said parties out
of the P75,000 fund raised by the sale of the
P301,000 shares of stock hereinabove in
Paragraph II, Subsection A, hereof,
mentioned.
V.
Cash for the loan of P5,000 to be made to
the Benguet Consolidated Mining Co., as
provided in the proposition of the said
Hanlon, shall be furnished by Messrs.
Sellner, Haussermann and Beam, in equal
proportions as needed by the company.
In witness whereof, the respective parties
hereto have hereunto set their hands at
Manila, P. I., this 5th day of November,
1913.
(Sgd.) R. Y. HANLON,
(Sgd.)GEORGE C. SELLER,
(Sgd.)JOHN W. HAUSSERMANN,
(Sgd.)A. W. BEAM.
During the period which intervened between
the making of the preliminary verbal
agreement and the final execution of this
contract, the plaintiff, Hanlon, at the
expenses of the joint adventure went from
Manila to the Benguet Consolidated mining
properties, near Baguio, accompanied by the
defendant Beam at the expense of said
mining company, and said Hanlon made a
preliminary investigation and examination of
the properties, selected and surveyed a
suitable mill site and took out about half a
ton of ore samples which it had been agreed
were to be forwarded to the United States for
tests for use by him in the selection of the
machinery best suited for the treatment of
such ore; and said Hanlon reported to his
coadventurers that it was a very feasible
scheme, and that there was enough ore in
sight to well repay the investment of
P125,000, which was the sum estimated by
said Hanlon to be necessary to equip the
property.
Soon after the contract Exhibits B and A
were made the plaintiff Hanlon departed for
the United States, in contemplation of which
event he executed a special power of
attorney, on November 10, 1913, constituting
and appointing Beam his special agent and
attorney in fact, for and in his name, to do
and perform the following acts:
To vote at the meetings of any
company or companies, and
otherwise to act as my proxy or
representative, in respect of any
shares of stock now held, or which
may hereafter be acquired by me
therein, and for that purpose to sign
and execute any proxy or other
instrument in my name and on my
behalf;
To secure subscriptions in my
name for the shares of the Benguet
Consolidated Mining Co., to be
issued to me under and by virtue of
an agreement entered into with said
company on November 6, 1013,
and to enter into the necessary
agreements for the same of said
shares.
To demand, sue for, and receive all
debts, moneys, securities for
money, goods, chattels or other
personal property to which I am
now or may hereafter become
entitled, or which are now or may
become due, owing or payable to
me from any person or persons
whomsoever, and in my name to
 give effectual receipts and
discharges for the same.
Prior to that time, on May 27, 1913, the
plaintiff Hanlon had given one A. Gnandt of
the city of Manila a power of attorney with
general and comprehensive powers, and
"with full power of substitution and
revocation;" and thereafter on March 14,
1914, said Gnandt, owing to his intended
departure from the Philippine Islands,
executed a power of attorney in favor of said
A. W. Beam, with the same general powers
which had been conferred upon him, and
Beam became Hanlon's sole agent in the
Philippine Islands. Said original power of
attorney had no special relation to the
substitute specifically authorized the attorney
in fact:
To make, sign, execute and deliver
any and all contracts, agreements,
receipts and documents of any
nature and kind whatsoever.
After the enumeration of other general and
specific powers, Beam was finally
authorized:
To do any and all things necessary
or proper for the due performance
and execution of the foregoing
powers.
By reference to the contract of November 5,
1913, (Exhibit A), it will be seen that 301,000
shares of the stock of the Benguet
Consolidated Mining Company were to be
used to raise the P75,000 which Hanlon was
bound to supply to the mining company; and
the contract contemplated that these shares
should be disposed of at 25 centavos per
share. As Sellner had agreed to raise
P50,000, it resulted that 200,000 shares had
to be allocated to him; while Haussermann
and Beam had at their disposal 100,000
shares, with which to raise P25,000. Sellner,
Haussermann, and Beam furthermore
guaranteed that the subscriptions to be
obtained by them should be fully paid within
six months from the date of the acceptance
by Hanlon of the contract with the mining
company, that is, from November 6, 1913.
In prosecution of the common purpose,
Haussermann and Beam proceeded, after
the departure of Hanlon, to procure
subscriptions upon the stock at their
disposal, part being subscribed by
themselves severally and part sold upon
subscription to outsiders; and during the next
two or three months the block of shares
allotted to them was subscribed. As a
consequence of this they were thereafter
prepared to pay in, or to cause to be paid in,
the entire amount which they were obligated
to raise. Doubts, however, presently arose
as to the ability of Sellner to obtain
subscriptions or produce the P75,000, which
he obligated to bring in; and as early as in
February of 1914, Beam cabled to Hanlon in
America "Sellner unable to pay. Have you
any instructions?" Upon receipt of this
cablegram, Hanlon cabled Sellner to use
every effort to raise the money and also
cable Beam to obtain the money elsewhere if
Sellner could not supply it. Furthermore, in
order to be prepared against the contingency
of Sellner's ultimate inability to respond,
Hanlon attempted to enlist the interest of
capitalists in San Francisco but in this was
unsuccessful. It will be observed that,
although by the exact letter of the contract,
Sellner was obligated to obtain subscriptions
for the sum of P50,000, he nevertheless
desired to keep the entire 200,000 shares
assigned to him exclusively for himself, and
proceeding on the assumption that he had in
effect underwritten a subscription for the
whole block of shares, he made no effort to
obtain subscriptions from anybody else for
any part of these shares. Meanwhile
Haussermann and Beam were in touch with
Sellner, urging him to action but without
avail, Sellner being in fact wholly unable to
fulfill his undertaking. In this condition of
affairs the period of six months specified in
the contracts of November 5 and 6 for the
raising of the sum of P75,000 passed.
Thereafter Haussermann and Beam
assumed that they were absolved from the
obligations of their contract of November 5,
1913, with Hanlon and Sellner, and that the
mining company was no longer bound by its
contract of November 6, 1913, with Hanlon.
They therefore proceeded, as parties interest
in the rehabilitation of the mining company,
to make other arrangements for financing the
project. They found it possible to effectuate
this through the offices of Sendres of the
Bank of the Philippine Islands, and in order
to do so, a new contract was made between
the mining company and Beam, with
Haussermann as silent partner of the latter,
whereby a bonus of 96,000 shares was
conceded to the promoter instead of the
100,000 shares which would have accrued
to Haussermann and Beam if the Hanlon
project had gone through. As a result of this,
the profits of each were reduced by the
amount of 2,000 shares below what they
 might have realized under the Hanlon
contract of November 5. Another feature of
the new project was that some of those who
had subscribed to the stock of the mining
company through Beam under the Hanlon
project were retained as stockholders in the
new scheme of flotation. Some, however,
dropped out, with the result that
Haussermann and Beam were compelled to
increase their subscriptions materially.
As preliminary to the new scheme of
financing the corporation, the board of
directors of the mining company, composed
of Haussermann Beam, and Sendres, saw fit
at a special meeting on June 19, 1914, to
adopt a resolution declaring the contract of
November 6, 1913, between Hanlon and the
company to be cancelled by reason of the
failure of Hanlon to pay in the sum of
P75,000 in cash on or before May 6, 1914.
Immediately after the adoption of this
resolution, the new plan for financing the
mining company was unfolded by Mr. Beam
to the Board in a letter, addressed by him to
the Directors. In its parts relating to financial
arrangements said letter is as follows:
MANILA, P. I., June 17, 1914.
To the DIRECTORS OF THE BENGUET
CONSOLIDATED MINING
CO.,
Manila, P. I.
GENTLEMEN:
The undersigned hereby applies for an option for 30
days over 501,000 shares of unissued stock of your
corporation. . . .
I have canvassed the local field for capital and am
reasonably assured that the required capital will be
available as follows:
405,000 shares have been subscribed for at 20 and
25 cents per share, making up a total of P86,000,
which sums is payable to the company in four equal
monthly installments commencing July 15, 1914. . . . .
Arrangements have been made whereby the Bank of
Philippine Islands will grant the company an overdraft
to the extent of P50,000, thus affording P136,000. . . .
The balance of the 501,000 shares of unissued stock,
or 96,000 shares, are to be issued to my order when
the total sum of 86,000 subscribed as above stated
shall have been paid to the company. The said shares
are to be placed in the hands of the Bank of the
Philippine Islands in escrow to be held by the said
bank and delivered to my order as soon as the
overdraft hereinbefore mentioned shall be fully paid
and liquidated.
It is further understood that the bank shall have full
power and authority to vote said shares until such
time as said overdraft is repaid to the company.
For the payment of the overdraft guaranteed by the
Bank of the Philippine Islands, it is understood that
the total net earning of the company shall be used,
and the term "net earnings" shall be understood to
mean the gross value of gold recovered less actual
operation expense.
Trusting that the foregoing may meet with your
approval and acceptance, I am
Yours very truly,
(Sgd.) A. W. BEAM.
Upon motion of Senders, the proposition of Beam was
accepted; Sendres and Haussermann voting in favor
of the same. At the same special meeting it was
moved and seconded and unanimously carried that a
meeting of the shareholders of the company be called
for the purpose of passing upon the action of the
directors in accepting the proposition made by Beam.
At this special meeting of the shareholders, held at
4:30 p. m., June 29, 1914, there were 310,405 shares
of the 499,000 shares of issued stock represented at
the meeting. The stockholders personally present
were A. W. Beam, E. Sendres, and O. M. Shuman;
and various other shareholders were represented by
Beam as proxy, and the Bank of the Philippine Islands
was represented by Sendres as proxy. It appears
from the minutes of said special meeting that Beam's
proposition, which had been accepted by the board of
directors, as above stated, was submitted to the
meeting and after being read was ordered to be
attached to the minutes. After due discussion by the
shareholders present, Shuman moved that the action
of the board of directors accepting Beam's proposition
be approved, and this motion was duly seconded and
unanimously carried.
The Beam project was carried out, and the mining
company was brought to a dividend-paying basis,
paying a quarterly dividend of five per cent; and at the
time of the trial of this case the shares of stock in the
market had risen from twenty centavos to P1.50 or
higher. The defendants about 1916 received 48,000
shares each as their profits. It is stated in the
appellants' brief, without denial from the appellee, that
said shares have appreciated subsequently to the trial
below to the value of P2 each. The trial court held that
the plaintiffs, as coadventurers with the defendants in
the project for the rehabilitation of the mining
company, are each entitled to recover the one-fourth
part of the 96,000 shares obtained from the mining
company by the defendants, or 24,000 shares, with
dividends paid, and to be paid beginning with the year
1916. It is thus apparent that the value of the interest
awarded to each of the plaintiffs is considerably in
excess of $25,000 (U. S. currency).
So far as Beam's material scheme for the
improvement of the mining property is concerned it
followed the same lines and embodied the same
ideas as had been entertained while the Hanlon
project was in course of promotion; and it is
contended for the plaintiffs that there was an unfair
appropriation by Beam of the labors and ideas of
Hanlon. This is denied by the defendants, whose
testimony tends to minimize the extent of Hanlon's
contribution to the project in labor and ideas. We
believe it unnecessary to enter into the merits of this
contention, as in our opinion the solution of the case
must be determined by other considerations.
An examination of the rights of the parties to this
litigation must begin with the interpretation of the
contract of November 5, 1913. Some discussion is
indulged in the briefs of counsel upon the question
whether that contract constitutes a partnership among
the four signatories or a mere enterprise upon joint
account (cuenta en participacion) under the Code of
Commerce. This question seems to us of academy
rather than practical importance; for whatever be the
character of the relation thus created, each party was
undoubtedly bound to use good faith towards the
other, so long as the relation subsisted.
In paragraph I of said contract each party obligates
himself to do all in his power to "float" the Hanlon
proposition, i. e., as indicated in the contract of
November 6, between Hanlon and the mining
company. This means of course that each was to do
what he could to make that project for the
rehabilitation of the mining company a success. The
word flotation, however, points more particularly to the
effort to raise money, since, as all man know, it takes
capital to make any enterprise of this kind go. In
paragraph II of the same contract the manner in which
the flotation is to be effected is described, namely,
that Sellner is to obtain subscriptions for P50,000 and
Haussermann and Beam for P25,000. This involved,
as we have already stated, the allocation of 200,000
shares to Sellner and 100,000 to Hanlon and Beam.
Now the two paragraphs of the contract to which
reference has been made must be construed
together, and it is entirely clear that the general
language used in the first paragraph is limited by that
used in the second paragraph. In other words, though
in the first paragraph the parties agree to help float
the project, they are tied up, in regard to the manner
of effecting the flotation, to the method agreed upon in
the second. We can by no means lend our assent to
the proposition that the first paragraph created an
obligation, independent of the provisions of paragraph
II, which continued to subsist after the method of
flotation described in paragraph II became impossible
of fulfillment. It is a rudimentary canon of
interpretation that all parts of a writing are to be
construed together (6 R. C. L., p. 837) and that the
particular controls the general. (Art. 1283, Civ. Code;
13 C. J., p. 537.)
It seems too plain for argument that so long as that
contract was in force, Sellner did not have any right to
inter-meddle with the 100,000 shares allotted to
Haussermann and Beam. Neither could the latter
dispose of the 200,000 shares allotted to Sellner.
Indeed, Sellner, by reserving to himself all of these
200,000 shares and sitting tightly, as he did, on this
block of stock, made it impossible for Haussermann,
Beam, or anybody else, to raise money by selling
those shares within the period fixed as the limit of his
guaranty. There was absolutely, as everybody knew,
no other means to raise money except by the sale of
stock; and when Hanlon cabled to Beam in February
to obtain the money elsewhere if Sellner could not
supply it, he was directing the impossible, unless
Sellner should release the block of shares assigned to
him, which he never did. As a matter of fact it appears
that this quantity of the stock of the mining company
could not then have been sold at 25 cents per share
in the Manila market to anybody; and in the end in
order to get Sendres and the Bank of the Philippine
Islands to take part in the Beam project 260,000
shares had to go at 20 centavos per share.
By referring to subsection (d) to paragraph II of the
contract of November 5, 1913, it will be seen that the
promises with reference to the obtaining of
subscriptions are mutual concurrent conditions; and it
is expressly declared in the contract that upon the
default of either party the obligation of the other shall
be discharged. From this it is clear that upon the
happening of the condition which occurred in this
case, i.e., the default of Sellner to pay to the mining
company on or before May 6, 1914, the sum of
money which he had undertaken to find,
Haussermann and Beam were discharged.
This is a typical case of a resolutory condition under
the civil law. The contract expressly provides that
upon the happening of a future and uncertain
negative event, the obligation created by the
agreement shall cease to exist.
In conditional obligations the acquisition of
rights as well as the extinction of those
already acquired shall depend upon the
event constituting the condition. (Civ. Code,
art. 1114.)
 If the condition consists in the happening of
an event within a fixed period the obligation
shall be extinguished from the time the
period elapses or when it becomes certain
that the event will not take place. (Civ. code,
art. 1117.)
The right of Hanlon to require any further aid or
assistance from these defendants after May 6, 1914,
was expressly subordinated to a resolutory condition,
and the contract itself declares in precise language
that the effect of the non-fulfillment of the condition
shall be precisely the same as that which the statute
attaches to it the extinction of the obligation.
In the argument of the plaintiffs at this point a
distinction is drawn between the discharge from the
guaranty to raise money at the stated time and the
discharge from the contract as an entirety; and it is
insisted that while the defendants were discharged
from liability to Sellner on their guaranty to have the
money forthcoming on May 6, they were not
discharged from their liability on the contract,
considered in its broader features, and especially
were not discharged with reference to their obligation
to Hanlon. This argument proceeds on the erroneous
assumption that the defendants were bound to
discover some other method of flotation after the plan
prescribed in the contract had become impossible of
fulfillment and to proceeds therewith for the benefit of
all four of the parties. Furthermore, this conception of
the case is apparently over-refined and not in
harmony with the common-sense view of the situation
as it must have presented itself to the contracting
parties at the time. The obtaining of capital was
fundamentally necessary before the project could be
proceeded with; and it was obvious enough that, if the
parties should fail to raise the money, the whole
scheme must collapse like a stock of cards. The
provisions relative to the getting in of capital are the
principal features of the contract, other matters being
of subordinate importance. In our opinion the
contracting parties must have understood and
intended that Haussermann and Beam would be
discharged from the contract in its entirety by the
failure of Sellner to comply with his obligation. This is
the plainest, simplest, and most obvious meaning of
which the words used are capable and we believe it to
be their correct interpretation. We are not to suppose
that either of the signatories intended for those words
to operate as a trap for the others; and such would
certainly be the effect of the provision in question if
the words are to be understood as referring to a
discharge from the guaranty merely, leaving the
contract intact in other respects.
It is insisted in behalf of the plaintiffs that
Haussermann and Beam, as well as Sellner,
defaulted in the performance of the contract of
November 5, 1913, and that not having performed
their obligation to obtain subscriptions for the sum of
P25,000 and to cause payment to be made into the
company's treasury on or before May 6, 1914, they
cannot take advantage of the similar default of
Sellner. This suggestion is irrelevant to the
fundamental issue. The question here is not whether
Haussermann and Beam have a right of action for
damaged against Sellner. If they were suing him, it
would be pertinent to say that they could not maintain
the action because they themselves had not caused
the money to be paid in which they had agreed to
raise. The question here is different, namely, whether
Haussermann and Beam have been discharged from
the contract of November 5, 1913, by the default of
Sellner; and this question must, under the contract, be
answered by reference to the acts of Sellner. Upon
this point it is irrelevant to say that the discharged was
mutual as between the two parties and not merely
one-sided.
The interpretation which we have placed upon the
contract of November 5, 1913, exerts a decisive
influence upon this litigation, and makes a reversal of
the appealed judgment inevitable. There are,
however, certain subordinate features of the case
which, as disposed in the appellee's brief, appear to
justify the conclusion of the trial judge; and we deem it
desirable to say something with reference to the
questions thus presented.
It will be noted that there is no resolutory provision in
the contract of November 6, 1913, between Hanlon
and the mining company, declaring that said contract
would be discharged or abrogated upon the failure of
Hanlon to supply, within the period specified, the
money which he had obligated himself to raise. In
other words, time is not expressly made of the
essence of this contract. From this it is argued for the
plaintiffs that this contract remained in force after May
6, 1914, notwithstanding the failure of Hanlon to
supply the funds which he had agreed to find, and
indeed it is insisted upon the authority of Ocejo, Perez
& Co. vs. International Banking Corporation (37 Phil.
Rep., 631), that the mining company could not be
relieved from that contract without obtaining a judicial
rescission in an action specially brought for that
purpose. The reply to this is two-fold.
In the first place the present action is not based upon
the contract between Hanlon and the mining
company; and it is clear that if Hanlon had sued the
mining company, as for example, in an action seeking
to recover damages for breach of its contract with
him, he would have been confronted by the
insuperable obstacle that he had never supplied, nor
offered to supply, one penny of the P75,000, which he
had obligated himself to bind, and which was
absolutely necessary to the rehabilitation of the
company. The benefits of a contract are not for him
who has failed to comply with its obligations. It may
be admitted that the resolution of the Board of
Directors of the mining company, on June 19, 1914,
declaring the contract of November 6, 1913, with
Hanlon to be cancelled, considered alone, was
without legal effect, since one party to a contract
cannot absolve himself from its obligations without the
consent of the other.
With reference to the second point, namely, that a
judicial rescission was necessary to absolve the
mining company from its obligations to Hanlon under
the contract of December 6, 1913, we will say that we
consider the doctrine of Ocejo, Perez & Co., vs.
International Banking Corporation (37 Phil. Rep.,
631), to be inapplicable. The contract there in
question was one relating to a sale of goods, and it
had been fully performed on the part of the vendor by
delivery. This court held that delivery had the effect of
passing title, and that while the failure of the
purchaser to pay the price gave the seller a right to
sue for a rescission of the contract, the failure of the
buyer to pay the purchase price did not ipso
facto produce a reversion of title to the vendor, or
authorize him, upon his election to rescind, to treat
the goods as his own property and retake them by
writ of replevin. In the present case the contract
between Hanlon and the mining company was
executory as to both parties, and the obligation of the
company to deliver the shares could not arise until
Hanlon should pay or tender payment of the money.
The situation is similar to that which arises every day
in business transactions in which the purchaser of
goods upon an executory contract fails to take
delivery and pay the purchase price. The vendor in
such case is entitled to resell the goods. If he is
obliged to sell for less than the contract price, he
holds the buyer for the difference; if he sells for as
much as or more than the contract price, the breach
of the contract by the original buyer is damnum
absque injuria. But it has never been held that there is
any need of an action of rescission to authorize the
vendor, who is still in possession, to dispose of the
property where the buyer fails to pay the price and
take delivery. Of course no judicial proceeding could
be necessary to rescind a contract which, like that of
November 5, 1913, contains a resolutory provision by
virtue of which the obligation is already extinguished.
Much reliance is placed by counsel for the plaintiffs
upon certain American decisions holding that
partners, agents, joint adventurers, and other persons
occupying similar fiduciary relations to one another,
must not be allowed to obtain any undue advantage
of their associates or to retain any profit which others
do not share. We have no criticism to make against
this salutary doctrine when properly applied and
would be slow to assume that our civil law requires
any less degree of good faith between parties so
circumstanced than is required by the courts of equity
in other countries. For instance, we feel quite sure
that this Court would have no difficulty in subscribing
to the doctrine which is stated in Lind vs. Webber (36
Nev., 623; 50 L. R. A. [N. S.], 1046}, with reference to
joint adventurers as follows:
We further find that the law is well
established that the relation between joint
adventurers is fiduciary in its character and
the utmost good faith is required of the
trustee, to whom the deal or property may be
instrusted, and such trustee will be held
strictly to account to his co-adventurers, and
that he will not be permitted, by reason of the
possession of the property or profits
whichever the case may be to enjoy an
unfair advantage, or have any greater rights
in the property or profits as trustee, than his
co-adventurers are entitled to. The mere fact
that he is intrusted with the rights of his co-
adventurers imposes upon him the sacred
duty of guarding their rights equally with his
own, and he is required to account strictly to
his co-adventurers, and, if he is recreant to
his trust, any rights they may be denied are
recoverable.
In Flagg vs. Mann (9 Fed. Cas., 202; Fed. Case No.
4847), it appeared that Flagg and Mann had an
agreement to purchase a tract of land on joint
account. The court held that where parties are
interested together by mutual agreement, and a
purchase is made agreeably thereto, neither party can
excuse the other from what was intended to be for the
common benefit; and any private benefit, touching the
common right, which is secured by either party must
be shared by both. Justice Story, acting as Circuit
Justice, said that the doctrine in question was "a
wholesome and equitable principle, which by
declaring the sole purchase to be for the joint benefit,
takes away the temptation to commit a dishonest act,
founded in the desire of obtaining a selfish gain to the
injury of a co-contractor, and thus adds strength to
wavering virtue, by making good faith an essential
ingredient in the validity of the purchase. There is not,
therefore, any novelty in the doctrine of Mr.
Chancellor Kent, notwithstanding the suggestion at
the bar to the contrary; and it stands approved equally
by ancient and modern authority, by the positive rule
of the Roman Law, the general recognition of
continental Europe, and the actual jurisprudence of
England and America."
We deem it unnecessary to proceed to an elaborate
analysis of the array of cases cited by the appellee as
containing applications of the doctrine above stated.
Suffice it to say that, upon examination, such of these
decisions as have reference to joint adventures will be
found to deal with the situation where the associates
are not only joint adventurers but are joint
adventurers merely. In the present case
Haussermann and Beam were stockholders and
officials in the mining company from a time long
anterior to the beginning of their relations with Hanlon.
They were not merely co-adventurers with Hanlon,
but in addition were in a fiduciary relation with the
mining company and its other shareholders, to whom
they owned duties as well as to Hanlon. It does not
appear that the defendants acquired any special
knowledge of the mine or of the feasibility of its
reconstruction by reason of their relation with Hanlon
which they did not already have; and they probably
were in no better situation as regards the facts
relating to the mine after the failure of the Hanlon
contract than they were before. The fact of their
having been formerly associated with Hanlon certainly
did not preclude them from making use of the
information which they possessed as stockholders
and officers of the mining company long before they
came into contact with him.
After the termination of an agency, partnership, or
joint adventure, each of the parties is free to act in his
own interest, provided he has done nothing during the
continuance of the relation to lay a foundation for an
undue advantage to himself. To act as agent for
another does not necessarily imply the creation of a
permanent disability in the agent to act for himself in
regard to the same subject-matter; and certainly no
case has been called to our attention in which the
equitable doctrine above referred to has been so
applied as to prevent an owner of property from doing
what he pleased with his own after such a contract as
that of November 5, 1913, between the parties to this
lawsuit had lapsed.
In the present case so far as we can see, the
defendants acted in good faith for the
accomplishment of the common purpose and to the
full extent of their obligation during the continuance of
their contract; and if Sellner had not defaulted, or if
Hanlon had been able to produce the necessary
capital from some other source, during the time set for
raising the money, the original project would
undoubtedly have proceeded to its consummation.
Certainly, no act of the defendants can be pointed to
which prevented or retarded its realization; and we
are of the opinion that, under the circumstances,
nothing more could be required of the defendants
than a full and honest compliance with their contract.
As this had been discharge through the fault of
another they can not be held liable upon it. Certainly,
we cannot accede to the proposition that the
defendants by making the contracts in question had
discapacitated themselves and their company for an
indefinite period from seeking other means of
financing the company's necessities, save only upon
the penalty of surrendering a share of their ultimate
gain to the two adventurers who are plaintiffs in this
action.
The power of attorney which Hanlon left with Beam
upon departing for America was executed chiefly to
enable Haussermann and Beam to comply with their
obligation to raise P25,000 by the sale of shares. This
feature of the power of attorney was manifestly
subordinate to the purpose of the joint agreement of
November 5, 1913. Certainly, under that power, Beam
could not have disposed of any of the stock allotted to
Sellner; neither was he bound, or even authorized,
after the joint agreement was at an end, to use the
power for Hanlon's benefit, even supposing
contrary to the proven fact that purchasers to the
necessary extent could have been found for the
shares at 25 centavos per share.
As we have already stated, some of the individuals
who originally subscribed to the Hanlon project were
carried as stockholders into the new project
engineered by Beam, being credited with any
payments previously made by them. In other words,
the mining company honored these subscriptions,
although the Hanlon project on which they were
based had fallen through. This circumstance cannot in
our opinion alter the fundamental features of the case.
Taken all together these subscriptions were for only a
part of the P25,000 which the defendants had
undertaken to raise and were by no means sufficient
to finance the Hanlon project without the assistance
which Sellner had agreed to give. Of course if Beam,
acting as attorney in fact of Hanlon, had obtained a
sufficient number of subscriptions to finance the
Hanlon project, and concealing this fact, had
subsequently utilized the same subscriptions to
finance his own scheme, the case would be different.
But the revealed facts do not bear out this imputation.
It should be noted in this connection that the mining
company had approved the subscriptions obtained by
Haussermann and Beam and had, prior to May 6,
1914, accepted part payment of the amount due upon
some of them. It is not at all clear that, under these
circumstances, the company could have repudiated
these subscriptions, even if its officers had desired to
do so; and if the mining company was bound either
legally or morally to recognize them, if cannot be
imputed to the defendants as an act of bad faith that
such subscriptions were so recognized.
The trial court held that Haussermann, by reason of
his interest in the Beam project, was disqualified to
act as a director of the mining company upon the
resolution accepting that project; and it was
accordingly declared that said resolution was without
legal effect. We are of the opinion that the
circumstance referred to could at the most have had
no further effect than to render the contract with Beam
voidable and not void; and the irregularity involved in
Haussermann's participation in that resolution was
doubtless cured by the later ratification of the contract
at a meeting of the stockholders. However this may
be, the plaintiffs are not in a position to question the
validity of the contract of the mining company with
Beam since the purpose of the action is to secure a
share in the gains acquired under that contract.
In the course of the preceding discussion we have
already noted the fact that no resolutory provision
contemplating the possible failure of Hanlon to supply
the necessary capital within the period of six months
is found in the contract of November 6, 1913,
between Hanlon and the mining company. In other
words, time was not expressly made of the essence
of that contract. It should not be too hastily inferred
from this that the mining company continued to be
bound by that contract after Hanlon dad defaulted in
procuring the money which he had obligated himself
to supply. Whether that contract continued to be
binding after the date stated is a question which does
not clearly appear to be necessary to the decision of
this case, but the attorneys for Hanlon earnestly insist
that said contract did in fact continue to be binding
upon the mining company after May 6, 1914; and
upon this assumption taken in connection with the
power held by Beam as attorney in fact of Hanlon, It is
argued that the right of action of Hanlon is complete,
as against Beam and Haussermann, even without
reference to the profit-sharing agreement of
November 5. We consider this contention to be
unsound; and the correctness of our position on this
point can, we think, be clearly demonstrated by
considering for a moment the question whether time
was in fact of the essence of the contract of
November 6, 1913, in other words, Was the mining
company discharged by the default of Hanlon in the
performance of that agreement?
Whether a party to a contract is impliedly discharged
by the failure of the other to comply with a certain
stipulation on or before the time set for performance,
must be determined with reference to the intention of
the parties as deduced from the contract itself in
relation with the circumstances under which the
contract was made.
Upon referring to the contract now in question i. e.,
the contract of November 6, 1913 it will be seen
that the leading stipulation following immediately after
the general paragraph at the beginning of the
contract, is that which relates to the raising of capital
by Hanlon. It reads as follows:
1. Said party of the first part agrees to pay
into the treasury of the party of the second
part the sum of Seventy-five Thousand
Pesos ( P75,000) in cash within six (6)
months from the date of this agreement.
Clearly, all the possibilities and potentialities of the
situation with respect to the rehabilitation of the
Benguet mining property, depended upon the
fulfillment of that stipulation; and in fact nearly all the
other subsequent provisions of the contract are
concerned in one way or another with the acts and
things that were contemplated to be done with that
money after it should be paid into the company's
treasury. Only in the event of such payment were
shares to be issued to Hanlon, and it was stipulated
that the money so to be paid in should be disbursed
to pay the expenses of the very improvements which
Hanlon had agreed to make. There can then be no
doubt that compliance on the part of Hanlon with this
stipulation was viewed by the parties as the pivotal
fact in the whole scheme.
Again, it will be recalled that this contract (Exhibit B)
between Hanlon and the mining company was not in
fact executed until the day following that on which the
profit-sharing agreement (Exhibit A) was executed by
the four parties to this lawsuit. In other words,
Haussermann and Beam, as officials of the mining
company, refrained from executing the company's
contract until Hanlon had obligated himself by the
profit-sharing agreement. Indeed, these two contracts
should really be considered as constituting a single
transaction; and it is obvious enough that the prime
motive which induced Haussermann and Beam to
place their signature upon the contract of November 6
was that they already had the profit-sharing
agreement securely in their hands. Therefore, when
the contract of November 6, between Hanlon and the
mining company was signed, all the parties who
participated therein acted with full knowledge of the
provisions contained in the profit-sharing agreement;
and in particular the minds of all must have riveted
upon the provisions of paragraph II of the profit-
sharing agreement, wherein is described the manner
in which the project to which the parties were then
affixing their signatures should be financially realized
("floated"). In subsection (d) of the same paragraph II,
as will be remembered, are found the words which
declare that Haussermann and Beam would be
discharged if Sellner should fail to pay into the
company's treasury on or before the expiration of the
prescribed period the money which he had agreed to
raise. Under these conditions it is apparent enough
that the parties to the later contract treated time as of
the essence of the agreement and intended that the
failure of Hanlon to supply the necessary capital
within the time stated should put an end to the whole
project. In view of the fact that an express resolutory
provision had been inserted in the profit-sharing
agreement, it must have seemed superfluous to insert
such express clause in the later contract. Any
extension of time, therefore, that the mining company
might have made after May 6, 1914, with respect to
the date of performance by Hanlon would have been
purely a matter of grace, and not demandable by
Hanlon as of absolute right. It is needless to say in
this connection that the default of Sellner was the
default of Hanlon.
An examination of the decisions of the American and
English courts reveals a great mass of material
devoted to the discussion of the question whether in a
given case time is of the essence of a contract. As
presented in those courts, the question commonly
arises where a contracting party, who has himself
failed to comply with some agreement, tenders
performance after the stipulated time has passed, and
upon the refusal of the other party to accept the
delayed performance the delinquent party resorts to
the court of equity to compel the other party to
proceed. The equitable doctrine there recognized as
applicable in such situation is that if the contracting
parties have treated time as of the essence of the
contract, the delinquency will not be excused and
specific performance will not be granted; but on the
other hand, if it appears that time has not been made
of the essence of the contract, equity will relieve from
the delinquency and specific performance may be
granted, due compensation being made for the
damage caused by the delay. In such cases the
courts take account of the difference between that
which is matter of substance and that which is matter
of mere form.
To illustrate: the rule has been firmly established from
an early date in courts of equity that in agreements for
the sale of land, time is not ordinarily of the essence
of the contract; that is to say, acts which one of the
parties has stipulated to perform on a given date may
be performed at a later date. Delay in the payment of
the purchase money, for instance, does not
necessarily result in the forfeiture of the rights of the
purchaser under the contract, since mere delay in the
payment of money may be compensated by the
allowance of interest. (36 Cyc., 707-708.) In
discussing this subject, Pomeroy says: "Time may be
essential. It is so whenever the intention of the parties
is clear that the performance of its terms shall be
accomplished exactly at the stipulated day. The
intention must then govern. A delay cannot be
excused. A performance at the time is essential; any
default will defeat the right to specific enforcement." (4
Pomeroy Eq. Jur., 3rd ed., sec. 1408.) Again, says
the same writer: "It is well settled that where the
parties have so stipulated as to make the time of
payment of the essence of the contract, within the
view of equity as well as of the law, a court of equity
cannot relieve a vendee who has made default. With
respect to this rule there is no doubt; the only difficulty
is in determining when time has thus been made
essential. It is also equally certain that when the
contract is made to depend upon a condition
precedent in other words, when no right shall vest
until certain acts have been done, as, for example,
until the vendee has paid certain sums at certain
specified times then, also a court of equity will not
relieve the vendee against the forfeiture incurred by a
breach of such condition precedent." (1 Pomeroy Eq.
Jur., 3rd ed., sec. 455.)
As has been determined in innumerable cases it is
not necessary, in order to make time of the essence
of a contract, that the contract should expressly so
declare. Words of this import need not to be used. It is
sufficient that the intention to this effect should
appear; and there are certain situations wherein it is
held, from the nature of the agreement itself, that time
is of the essence of the contract.
Time may be of the essence, without
express stipulation to that effect, by
implication from the nature of the contract
itself, or of the subject-matter, or of the
circumstances under which the contract is
made. (36 Cyc., 709.)
In agreements which are executed in the form of
options, time is always held to be of the essence of
the contract; and it is well recognized that in such
contracts acceptance of the option and payment of
the purchase price constitute conditions precedent to
specific enforcement. The same is true generally of all
unilateral contracts. (36 Cyc., 711.) In mercantile
contracts for the manufacture and sale of goods time
is also held to be of the essence of the agreement.
(13 C. J., 688.) Likewise, where the subject-matter of
a contract is of speculative or fluctuating value it is
held that the parties must have intended time to be of
the essence (13 C. J., 668.) Most conspicuous among
all the situations where time is presumed to be of the
essence of a contract from the mere nature of the
subject-matter is that where the contract relates to
mining property. As has been well said by the
Supreme Court of the United States, such property
requires, and of all properties perhaps the most
requires, the persons interested in it to be vigilant and
active in asserting their rights. (Waterman vs. Banks,
144 U. S., 394; 36 L. ed., 479, 483.) Hence it is
uniformly held that time is of the essence of the
contract for the sale of an option on mining property,
or a contract for the sale thereof, even though there is
no express stipulation to that effect. (27 Cyc., 675).
The same idea is clearly applicable to a contract like
that now under consideration which provides for the
rehabilitation of a mining plant with funds to be
supplied by the contractor within a limited period.
Under the doctrine above expounded it is evident that
Hanlon would be entitled to no relief against the
mining company in an action of specific performance,
even if he had been prepared and had offered, after
May 6, 1914, to advance the requisite money and
proceed with the performance of the contract. Much
less can he be considered entitled to relief where he
has remained in default throughout and has at no time
offered to comply with the obligations incumbent upon
himself.
Our conclusion, upon a careful examination of the
whole case, is that the action cannot be maintained.
The judgment is accordingly reversed and the
defendants are absolved from the complaint. No
express pronouncement will be made as to costs of
either instance.
Arellano, C.J., Torres, Araullo, Malcolm and
Avancea, JJ., concur.
G.R. No. L-40098 August 29, 1975
ANTONIO LIM TANHU, DY OCHAY, ALFONSO
LEONARDO NG SUA and CO OYO, petitioners,
vs.
HON. JOSE R. RAMOLETE as Presiding Judge,
Branch III, CFI, Cebu and TAN PUT, respondents.
Zosa, Zosa, Castillo, Alcudia & Koh for petitioners.
Fidel Manalo and Florido & Associates for
respondents.
BARREDO, J.:
Petition for (1) certiorari to annul and set aside certain
actuations of respondent Court of First Instance of
Cebu Branch III in its Civil Case No. 12328, an action
for accounting of properties and money totalling
allegedly about P15 million pesos filed with a common
cause of action against six defendants, in which after
declaring four of the said defendants herein
petitioners, in default and while the trial as against the
two defendants not declared in default was in
progress, said court granted plaintiff's motion to
dismiss the case in so far as the non-defaulted
defendants were concerned and thereafter proceeded
to hear ex-parte the rest of the plaintiffs evidence and
subsequently rendered judgment by default against
the defaulted defendants, with the particularities that
notice of the motion to dismiss was not duly served on
any of the defendants, who had alleged a compulsory
counterclaim against plaintiff in their joint answer, and
the judgment so rendered granted reliefs not prayed
for in the complaint, and (2) prohibition to enjoin
further proceedings relative to the motion for
immediate execution of the said judgment.
Originally, this litigation was a complaint filed on
February 9, 1971 by respondent Tan Put only against
the spouses-petitioners Antonio Lim Tanhu and Dy
Ochay. Subsequently, in an amended complaint
dated September 26, 1972, their son Lim Teck Chuan
and the other spouses-petitioners Alfonso Leonardo
Ng Sua and Co Oyo and their son Eng Chong
Leonardo were included as defendants. In said
amended complaint, respondent Tan alleged that she
"is the widow of Tee Hoon Lim Po Chuan, who was a
partner in the commercial partnership, Glory
Commercial Company ... with Antonio Lim Tanhu and
Alfonso Ng Sua that "defendant Antonio Lim Tanhu,
Alfonso Leonardo Ng Sua, Lim Teck Chuan, and Eng
Chong Leonardo, through fraud and machination,
took actual and active management of the partnership
and although Tee Hoon Lim Po Chuan was the
manager of Glory Commercial Company, defendants
managed to use the funds of the partnership to
purchase lands and building's in the cities of Cebu,
Lapulapu, Mandaue, and the municipalities of Talisay
and Minglanilla, some of which were hidden, but the
description of those already discovered were as
follows: (list of properties) ...;" and that:
13. (A)fter the death of Tee Hoon
Lim Po Chuan, the defendants,
without liquidation continued the
business of Glory Commercial
Company by purportedly organizing
a corporation known as the Glory
Commercial Company,
Incorporated, with paid up capital in
the sum of P125,000.00, which
money and other assets of the said
Glory Commercial Company,
Incorporated are actually the assets
of the defunct Glory Commercial
Company partnership, of which the
plaintiff has a share equivalent to
one third (/ 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
The first thing that has struck the Court upon
reviewing the record is the seeming alacrity with
which the motion to dismiss the case against non-
defaulted defendants Lim Teck Chuan and Eng
Chong Leonardo was disposed of, which definitely
ought not to have been the case. The trial was
proceeding with the testimony of the first witness of
plaintiff and he was still under re-cross-examination.
Undoubtedly, the motion to dismiss at that stage and
in the light of the declaration of default against the
rest of the defendants was a well calculated surprise
move, obviously designed to secure utmost
advantage of the situation, regardless of its apparent
unfairness. To say that it must have been entirely
unexpected by all the defendants, defaulted and non-
defaulted , is merely to rightly assume that the parties
in a judicial proceeding can never be the victims of
any procedural waylaying as long as lawyers and
judges are imbued with the requisite sense of equity
and justice.
But the situation here was aggravated by the
indisputable fact that the adverse parties who were
entitled to be notified of such unanticipated dismissal
motion did not get due notice thereof. Certainly, the
non-defaulted defendants had the right to the three-
day prior notice required by Section 4 of Rule 15. How
could they have had such indispensable notice when
the motion was set for hearing on Monday, October
21, 1974, whereas the counsel for Lim Teck Chuan,
Atty. Sitoy was personally served with the notice only
on Saturday, October 19, 1974 and the counsel for
Eng Chong Leonardo, Atty. Alcudia, was notified by
registered mail which was posted only that same
Saturday, October 19, 1974? According to Chief
Justice Moran, "three days at least must intervene
between the date of service of notice and the date set
for the hearing, otherwise the court may not validly act
on the motion." (Comments on the Rules of Court by
Moran, Vol. 1, 1970 ed. p. 474.) Such is the correct
construction of Section 4 of Rule 15. And in the
instant case, there can be no question that the notices
to the non-defaulted defendants were short of the
requirement of said provision.
We can understand the over-anxiety of counsel for
plaintiff, but what is incomprehensible is the seeming
inattention of respondent judge to the explicit
mandate of the pertinent rule, not to speak of the
imperatives of fairness, considering he should have
realized the far-reaching implications, specially from
the point of view he subsequently adopted, albeit
erroneously, of his favorably acting on it. Actually, he
was aware of said consequences, for simultaneously
with his order of dismissal, he immediately set the
case for the ex-parte hearing of the evidence against
the defaulted defendants, which, incidentally, from the
tenor of his order which We have quoted above,
appears to have been done by him motu propio As a
matter of fact, plaintiff's motion also quoted above did
not pray for it.
Withal, respondent court's twin actions of October 21,
1974 further ignores or is inconsistent with a number
of known juridical principles concerning defaults,
which We will here take occasion to reiterate and
further elucidate on, if only to avoid a repetition of the
unfortunate errors committed in this case. Perhaps
some of these principles have not been amply
projected and elaborated before, and such paucity of
elucidation could be the reason why respondent judge
must have acted as he did. Still, the Court cannot but
express its vehement condemnation of any judicial
actuation that unduly deprives any party of the right to
be heard without clear and specific warrant under the
terms of existing rules or binding jurisprudence.
Extreme care must be the instant reaction of every
judge when confronted with a situation involving risks
that the proceedings may not be fair and square to all
the parties concerned. Indeed, a keen sense of
fairness, equity and justice that constantly looks for
consistency between the letter of the adjective rules
and these basic principles must be possessed by
every judge, If substance is to prevail, as it must, over
form in our courts. Literal observance of the rules,
when it is conducive to unfair and undue advantage
on the part of any litigant before it, is unworthy of any
court of justice and equity. Withal, only those rules
and procedure informed, with and founded on public
policy deserve obedience in accord with their
unequivocal language or words..
Before proceeding to the discussion of the default
aspects of this case, however, it should not be amiss
to advert first to the patent incorrectness, apparent on
the face of the record, of the aforementioned order of
dismissal of October 21, 1974 of the case below as
regards non-defaulted defendants Lim and Leonardo.
While it is true that said defendants are not petitioners
herein, the Court deems it necessary for a full view of
the outrageous procedural strategy conceived by
respondent's counsel and sanctioned by respondent
court to also make reference to the very evident fact
that in ordering said dismissal respondent court
disregarded completely the existence of defendant's
counterclaim which it had itself earlier held if
indirectly, to be compulsory in nature when it refused
to dismiss the same on the ground alleged by
respondent Tan that he docketing fees for the filing
thereof had not been paid by defendants.
Indeed, that said counterclaim is compulsory needs
no extended elaboration. As may be noted in the
allegations hereof aforequoted, it arose out of or is
necessarily connected with the occurrence that is the
subject matter of the plaintiff's claim, (Section 4, Rule
9) namely, plaintiff's allegedly being the widow of the
deceased Tee Hoon entitled, as such, to demand
accounting of and to receive the share of her alleged
late husband as partner of defendants Antonio Lim
Tanhu and Alfonso Leonardo Ng Sua in Glory
Commercial Company, the truth of which allegations
all the defendants have denied. Defendants maintain
in their counterclaim that plaintiff knew of the falsity of
said allegations even before she filed her complaint,
for she had in fact admitted her common-law
relationship with said deceased in a document she
had jointly executed with him by way of agreement to
terminate their illegitimate relationship, for which she
received P40,000 from the deceased, and with
respect to her pretended share in the capital and
profits in the partnership, it is also defendants' posture
that she had already quitclaimed, with the assistance
of able counsel, whatever rights if any she had thereto
in November, 1967, for the sum of P25,000 duly
receipted by her, which quitclaim was, however,
executed, according to respondent herself in her
amended complaint, through fraud. And having filed
her complaint knowing, according to defendants, as
she ought to have known, that the material allegations
thereof are false and baseless, she has caused them
to suffer damages. Undoubtedly, with such
allegations, defendants' counterclaim is compulsory,
not only because the same evidence to sustain it will
also refute the cause or causes of action alleged in
plaintiff's complaint, (Moran, supra p. 352) but also
because from its very nature, it is obvious that the
same cannot "remain pending for independent
adjudication by the court." (Section 2, Rule 17.)
The provision of the rules just cited specifically
enjoins that "(i)f a counterclaim has been pleaded by
a defendant prior to the service upon him of the
plaintiff's motion to dismiss, the action shall not be
dismissed against the defendant's objection unless
the counterclaim can remain pending for independent
adjudication by the court." Defendants Lim and
Leonardo had no opportunity to object to the motion
to dismiss before the order granting the same was
issued, for the simple reason that they were not
opportunity notified of the motion therefor, but the
record shows clearly that at least defendant Lim
immediately brought the matter of their compulsory
counterclaim to the attention of the trial court in his
motion for reconsideration of October 23, 1974, even
as the counsel for the other defendant, Leonardo,
predicated his motion on other grounds. In its order of
December 6, 1974, however, respondent court not
only upheld the plaintiffs supposed absolute right to
choose her adversaries but also held that the
counterclaim is not compulsory, thereby virtually
making unexplained and inexplicable 180-degree
turnabout in that respect.
There is another equally fundamental consideration
why the motion to dismiss should not have been
granted. As the plaintiff's complaint has been framed,
all the six defendants are charged with having actually
taken part in a conspiracy to misappropriate, conceal
and convert to their own benefit the profits, properties
and all other assets of the partnership Glory
Commercial Company, to the extent that they have
allegedly organized a corporation, Glory Commercial
Company, Inc. with what they had illegally gotten from
the partnership. Upon such allegations, no judgment
finding the existence of the alleged conspiracy or
holding the capital of the corporation to be the money
of the partnership is legally possible without the
presence of all the defendants. The non-defaulted
defendants are alleged to be stockholders of the
corporation and any decision depriving the same of all
its assets cannot but prejudice the interests of said
defendants. Accordingly, upon these premises, and
even prescinding from the other reasons to be
discussed anon it is clear that all the six defendants
below, defaulted and non-defaulted, are
indispensable parties. Respondents could do no less
than grant that they are so on page 23 of their
answer. Such being the case, the questioned order of
dismissal is exactly the opposite of what ought to
have been done. Whenever it appears to the court in
the course of a proceeding that an indispensable
party has not been joined, it is the duty of the court to
stop the trial and to order the inclusion of such party.
(The Revised Rules of Court, Annotated &
Commented by Senator Vicente J. Francisco, Vol. 1,
p. 271, 1973 ed. See also Cortez vs. Avila, 101 Phil.
705.) Such an order is unavoidable, for the "general
rule with reference to the making of parties in a civil
action requires the joinder of all necessary parties
wherever possible, and the joinder of all
indispensable parties under any and all conditions,
the presence of those latter being a sine qua non of
the exercise of judicial power." (Borlasa vs. Polistico,
47 Phil. 345, at p. 347.) It is precisely " when an
indispensable party is not before the court (that) the
action should be dismissed." (People v. Rodriguez,
106 Phil. 325, at p. 327.) The absence of an
indispensable party renders all subsequent actuations
of the court null and void, for want of authority to act,
not only as to the absent parties but even as to those
present. In short, what respondent court did here was
exactly the reverse of what the law ordains it
eliminated those who by law should precisely be
joined.
As may he noted from the order of respondent court
quoted earlier, which resolved the motions for
reconsideration of the dismissal order filed by the
non-defaulted defendants, His Honor rationalized his
position thus:
It is the rule that it is the absolute
prerogative of the plaintiff to
choose, the theory upon which he
predicates his right of action, or the
parties he desires to sue, without
dictation or imposition by the court
or the adverse party. If he makes a
mistake in the choice of his right of
action, or in that of the parties
against whom he seeks to enforce
it, that is his own concern as he
alone suffers therefrom. The
plaintiff cannot be compelled to
 choose his defendants, He may not,
at his own expense, be forced to
implead anyone who, under the
adverse party's theory, is to answer
for defendant's liability. Neither may
the Court compel him to furnish the
means by which defendant may
avoid or mitigate their liability.
(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 choose
the parties he desires to sue, without dictation or
imposition by the court or the adverse party." In other
words, the ambivalent pose is suggested that
plaintiff's motion of October 18, 1974 was not
predicated on Section 2 of Rule 17 but more on
Section 11 of Rule 3. But the truth is that nothing can
be more incorrect. To start with, the latter rule does
not comprehend whimsical and irrational dropping or
adding of parties in a complaint. What it really
contemplates is erroneous or mistaken non-joinder
and misjoinder of parties. No one is free to join
anybody in a complaint in court only to drop him
unceremoniously later at the pleasure of the plaintiff.
The rule presupposes that the original inclusion had
been made in the honest conviction that it was proper
and the subsequent dropping is requested because it
has turned out that such inclusion was a mistake. And
this is the reason why the rule ordains that the
dropping be "on such terms as are just" just to all
the other parties. In the case at bar, there is nothing in
the record to legally justify the dropping of the non-
defaulted defendants, Lim and Leonardo. The motion
of October 18, 1974 cites none. From all
appearances, plaintiff just decided to ask for it,
without any relevant explanation at all. Usually, the
court in granting such a motion inquires for the
reasons and in the appropriate instances directs the
granting of some form of compensation for the trouble
undergone by the defendant in answering the
complaint, preparing for or proceeding partially to trial,
hiring counsel and making corresponding expenses in
the premises. Nothing of these, appears in the order
in question. Most importantly, His Honor ought to
have considered that the outright dropping of the non-
defaulted defendants Lim and Leonardo, over their
objection at that, would certainly be unjust not only to
the petitioners, their own parents, who would in
consequence be entirely defenseless, but also to Lim
and Leonardo themselves who would naturally
correspondingly suffer from the eventual judgment
against their parents. Respondent court paid no heed
at all to the mandate that such dropping must be on
such terms as are just" meaning to all concerned
with its legal and factual effects.
Thus, it is quite plain that respondent court erred in
issuing its order of dismissal of October 21, 1974 as
well as its order of December 6, 1974 denying
reconsideration of such dismissal. As We make this
ruling, We are not oblivious of the circumstance that
defendants Lim and Leonardo are not parties herein.
But such consideration is inconsequential. The fate of
the case of petitioners is inseparably tied up with said
order of dismissal, if only because the order of ex-
parte hearing of October 21, 1974 which directly
affects and prejudices said petitioners is predicated
thereon. Necessarily, therefore, We have to pass on
the legality of said order, if We are to decide the case
of herein petitioners properly and fairly.
The attitude of the non-defaulted defendants of no
longer pursuing further their questioning of the
dismissal is from another point of view
understandable. On the one hand, why should they
insist on being defendants when plaintiff herself has
already release from her claims? On the other hand,
as far as their respective parents-co-defendants are
concerned, they must have realized that they (their
parents) could even be benefited by such dismissal
because they could question whether or not plaintiff
can still prosecute her case against them after she
had secured the order of dismissal in question. And it
is in connection with this last point that the true and
correct concept of default becomes relevant.
At this juncture, it may also be stated that the decision
of the Court of Appeals of January 24, 1975 in G. R.
No. SP-03066 dismissing the petition for certiorari of
non-defaulted defendants Lim and Leonardo
impugning the order of dismissal of October 21, 1974,
has no bearing at all in this case, not only because
that dismissal was premised by the appellate court on
its holding that the said petition was premature
inasmuch as the trial court had not yet resolved the
motion of the defendants of October 28, 1974 praying
that said disputed order be quashed, but principally
because herein petitioners were not parties in that
proceeding and cannot, therefore, be bound by its
result. In particular, We deem it warranted to draw the
attention of private respondent's counsel to his
allegations in paragraphs XI to XIV of his answer,
which relate to said decision of the Court of Appeals
and which have the clear tendency to make it appear
to the Court that the appeals court had upheld the
legality and validity of the actuations of the trial court
being questioned, when as a matter of indisputable
fact, the dismissal of the petition was based solely
and exclusively on its being premature without in any
manner delving into its merits. The Court must and
does admonish counsel that such manner of pleading,
being deceptive and lacking in candor, has no place
in any court, much less in the Supreme Court, and if
We are adopting a passive attitude in the premises, it
is due only to the fact that this is counsel's first
offense. But similar conduct on his part in the future
will definitely be dealt with more severely. Parties and
counsel would be well advised to avoid such attempts
to befuddle the issues as invariably then will be
exposed for what they are, certainly unethical and
degrading to the dignity of the law profession.
Moreover, almost always they only betray the inherent
weakness of the cause of the party resorting to them.
2 to notice of all further proceedings regardless of
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
whether the order of default is set aside or not." And
pursuant to Section 2 of Rule 41, "a party who has
been declared in default may likewise appeal from the
judgment rendered against him as contrary to the
evidence or to the law, even if no petition for relief to
set aside the order of default has been presented by
him in accordance with Rule 38.".
In other words, a defaulted defendant is not actually
thrown out of court. While in a sense it may be said
that by defaulting he leaves himself at the mercy of
the court, the rules see to it that any judgment against
him must be in accordance with law. The evidence to
support the plaintiff's cause is, of course, presented in
his absence, but the court is not supposed to admit
that which is basically incompetent. Although the
defendant would not be in a position to object,
elementary justice requires that, only legal evidence
should be considered against him. If the evidence
presented should not be sufficient to justify a
judgment for the plaintiff, the complaint must be
dismissed. And if an unfavorable judgment should be
justifiable, it cannot exceed in amount or be different
in kind from what is prayed for in the complaint.
Incidentally, these considerations argue against the
present widespread practice of trial judges, as was
done by His Honor in this case, of delegating to their
clerks of court the reception of the plaintiff's evidence
when the defendant is in default. Such a Practice is
wrong in principle and orientation. It has no basis in
any rule. When a defendant allows himself to be
declared in default, he relies on the faith that the court
would take care that his rights are not unduly
prejudiced. He has a right to presume that the law
and the rules will still be observed. The proceedings
are held in his forced absence, and it is but fair that
the plaintiff should not be allowed to take advantage
of the situation to win by foul or illegal means or with
inherently incompetent evidence. Thus, in such
instances, there is need for more attention from the
court, which only the judge himself can provide. The
clerk of court would not be in a position much less
have the authority to act in the premises in the
manner demanded by the rules of fair play and as
contemplated in the law, considering his comparably
limited area of discretion and his presumably inferior
preparation for the functions of a judge. Besides, the
default of the defendant is no excuse for the court to
renounce the opportunity to closely observe the
demeanor and conduct of the witnesses of the
plaintiff, the better to appreciate their truthfulness and
credibility. We therefore declare as a matter of judicial
policy that there being no imperative reason for
judges to do otherwise, the practice should be
discontinued.
Another matter of practice worthy of mention at this
point is that it is preferable to leave enough
opportunity open for possible lifting of the order of
default before proceeding with the reception of the
plaintiff's evidence and the rendition of the decision.
"A judgment by default may amount to a positive and
considerable injustice to the defendant; and the
possibility of such serious consequences necessitates
a careful and liberal examination of the grounds upon
which the defendant may seek to set it aside."
(Moran, supra p. 534, citing Coombs vs. Santos, 24
Phil. 446; 449-450.) The expression, therefore, in
Section 1 of Rule 18 aforequoted which says that
"thereupon the court shall proceed to receive the
plaintiff's evidence etc." is not to be taken literally. The
gain in time and dispatch should the court
immediately try the case on the very day of or shortly
after the declaration of default is far outweighed by
the inconvenience and complications involved in
having to undo everything already done in the event
the defendant should justify his omission to answer on
time.
The foregoing observations, as may be noted, refer to
instances where the only defendant or all the
defendants, there being several, are declared in
default. There are additional rules embodying more
considerations of justice and equity in cases where
there are several defendants against whom a
common cause of action is averred and not all of
them answer opportunely or are in default, particularly
in reference to the power of the court to render
judgment in such situations. Thus, in addition to the
limitation of Section 5 that the judgment by default
should not be more in amount nor different in kind
from the reliefs specifically sought by plaintiff in his
complaint, Section 4 restricts the authority of the court
in rendering judgment in the situations just mentioned
as follows:
Sec. 4. Judgment when some
defendants answer, and other make
difficult. When a complaint states
a common cause of action against
several defendant some of whom
answer, and the others fail to do so,
the court shall try the case against
all upon the answer thus filed and
render judgment upon the evidence
presented. The same proceeding
applies when a common cause of
action is pleaded in a counterclaim,
cross-claim and third-party claim.
Very aptly does Chief Justice Moran elucidate on this
provision and the controlling jurisprudence
explanatory thereof this wise:
Where a complaint states a
common cause of action against
several defendants and some
appear to defend the case on the
merits while others make default,
the defense interposed by those
who appear to litigate the case
inures to the benefit of those who
fail to appear, and if the court finds
that a good defense has been
made, all of the defendants must be
absolved. In other words, the
answer filed by one or some of the
defendants inures to the benefit of
all the others, even those who have
not seasonably filed their answer.
(Bueno v. Ortiz, L-22978, June 27,
1968, 23 SCRA 1151.) The proper
mode of proceeding where a
complaint states a common cause
of action against several
defendants, and one of them makes
default, is simply to enter a formal
default order against him, and
proceed with the cause upon the
answers of the others. The
defaulting defendant merely loses
his standing in court, he not being
entitled to the service of notice in
the cause, nor to appear in the suit
in any way. He cannot adduce
evidence; nor can he be heard at
the final hearing, (Lim Toco v. Go
Fay, 80 Phil. 166.) although he may
appeal the judgment rendered
against him on the merits. (Rule 41,
sec. 2.) If the case is finally decided
in the plaintiff's favor, a final decree
is then entered against all the
defendants; but if the suit should be
decided against the plaintiff, the
action will be dismissed as to all the
defendants alike. (Velez v. Ramas,
40 Phil. 787-792; Frow v. de la
Vega, 15 Wal. 552,21 L. Ed. 60.) In
other words the judgment will affect
the defaulting defendants either
favorably or adversely. (Castro v.
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
Another issue to be resolved in this case is the
question of whether or not herein petitioners were
entitled to notice of plaintiff's motion to drop their co-
defendants Lim and Leonardo, considering that
petitioners had been previously declared in default. In
this connection, the decisive consideration is that
according to the applicable rule, Section 9, Rule 13,
already quoted above, (1) even after a defendant has
been declared in default, provided he "files a motion
to set aside the order of default, he shall be entitled
to notice of all further proceedings regardless of
whether the order of default is set aside or not" and
(2) a party in default who has not filed such a motion
to set aside must still be served with all "substantially
amended or supplemented pleadings." In the instant
case, it cannot be denied that petitioners had all filed
their motion for reconsideration of the order declaring
them in default. Respondents' own answer to the
petition therein makes reference to the order of April
3, 1973, Annex 8 of said answer, which denied said
motion for reconsideration. On page 3 of petitioners'
memorandum herein this motion is referred to as "a
motion to set aside the order of default." But as We
have not been favored by the parties with a copy of
the said motion, We do not even know the excuse
given for petitioners' failure to appear at the pre-trial,
and We cannot, therefore, determine whether or not
the motion complied with the requirements of Section
3 of Rule 18 which We have held to be controlling in
cases of default for failure to answer on time. (The
Philippine-British Co. Inc. etc. et al. vs. The Hon.
Walfrido de los Angeles etc. et al., 63 SCRA 50.)
We do not, however, have here, as earlier noted, a
case of default for failure to answer but one for failure
to appear at the pre-trial. We reiterate, in the situation
now before Us, issues have already been joined. In
fact, evidence had been partially offered already at
the pre-trial and more of it at the actual trial which had
already begun with the first witness of the plaintiff
undergoing re-cross-examination. With these facts in
mind and considering that issues had already been
joined even as regards the defaulted defendants, it
would be requiring the obvious to pretend that there
was still need for an oath or a verification as to the
merits of the defense of the defaulted defendants in
their motion to reconsider their default. Inasmuch as
none of the parties had asked for a summary
judgment there can be no question that the issues
joined were genuine, and consequently, the reason
for requiring such oath or verification no longer holds.
Besides, it may also be reiterated that being the
parents of the non-defaulted defendants, petitioners
must have assumed that their presence was
superfluous, particularly because the cause of action
against them as well as their own defenses are
common. Under these circumstances, the form of the
motion by which the default was sought to be lifted is
secondary and the requirements of Section 3 of Rule
18 need not be strictly complied with, unlike in cases
of default for failure to answer. We can thus hold as
We do hold for the purposes of the revival of their
right to notice under Section 9 of Rule 13, that
petitioner's motion for reconsideration was in
substance legally adequate regardless of whether or
not it was under oath.
In any event, the dropping of the defendants Lim and
Leonardo from plaintiff's amended complaint was
virtually a second amendment of plaintiffs complaint.
And there can be no doubt that such amendment was
substantial, for with the elimination thereby of two
defendants allegedly solidarily liable with their co-
defendants, herein petitioners, it had the effect of
increasing proportionally what each of the remaining
defendants, the said petitioners, would have to
answer for jointly and severally. Accordingly, notice to
petitioners of the plaintiff's motion of October 18, 1974
was legally indispensable under the rule above-
quoted. Consequently, respondent court had no
authority to act on the motion, to dismiss, pursuant to
Section 6 of Rule 15, for according to Senator
Francisco, "(t) he Rules of Court clearly provide that
no motion shall be acted upon by the Court without
the proof of service of notice thereof, together with a
copy of the motion and other papers accompanying it,
to all parties concerned at least three days before the
hearing thereof, stating the time and place for the
hearing of the motion. (Rule 26, section 4, 5 and 6,
Rules of Court (now Sec. 15, new Rules). When the
motion does not comply with this requirement, it is not
a motion. It presents no question which the court
could decide. And the Court acquires no jurisdiction to
consider it. (Roman Catholic Bishop of Lipa vs.
Municipality of Unisan 44 Phil., 866; Manakil vs.
Revilla, 42 Phil., 81.) (Laserna vs. Javier, et al., CA-
G.R. No. 7885, April 22, 1955; 21 L.J. 36, citing
Roman Catholic Bishop of Lipa vs. Municipality of
Unisan 44 Phil., 866; Manakil vs. Revilla, 42 Phil., 81.)
(Francisco. The Revised Rules of Court in the
Philippines, pp. 861-862.) Thus, We see again, from a
different angle, why respondent court's order of
dismissal of October 21, 1974 is fatally ineffective.
4 aspect that not only the spirit and intent of the rules
The foregoing considerations notwithstanding, it is
respondents' position that certiorari is not the proper
remedy of petitioners. It is contended that inasmuch
as said petitioners have in fact made their appeal
already by filing the required notice of appeal and
appeal bond and a motion for extension to file their
record on appeal, which motion was granted by
respondent court, their only recourse is to prosecute
that appeal. Additionally, it is also maintained that
since petitioners have expressly withdrawn their
motion to quash of January 4, 1975 impugning the
order of October 28, 1974, they have lost their right to
assail by certiorari the actuations of respondent court
now being questioned, respondent court not having
been given the opportunity to correct any possible
error it might have committed.
We do not agree. As already shown in the foregoing
discussion, the proceedings in the court below have
gone so far out of hand that prompt action is needed
to restore order in the entangled situation created by
the series of plainly illegal orders it had issued. The
essential purpose of certiorari is to keep the
proceedings in lower judicial courts and tribunals
within legal bounds, so that due process and the rule
of law may prevail at all times and arbitrariness,
whimsicality and unfairness which justice abhors may
immediately be stamped out before graver injury,
juridical and otherwise, ensues. While generally these
objectives may well be attained in an ordinary appeal,
it is undoubtedly the better rule to allow the special
remedy of certiorari at the option of the party
adversely affected, when the irregularity committed by
the trial court is so grave and so far reaching in its
consequences that the long and cumbersome
procedure of appeal will only further aggravate the
situation of the aggrieved party because other
untoward actuations are likely to materialize as
natural consequences of those already perpetrated. If
the law were otherwise, certiorari would have no
reason at all for being.
No elaborate discussion is needed to show the urgent
need for corrective measures in the case at bar.
Verily, this is one case that calls for the exercise of
the Supreme Court's inherent power of supervision
over all kinds of judicial actions of lower courts.
Private respondent's procedural technique designed
to disable petitioners to defend themselves against
her claim which appears on the face of the record
itself to be at least highly controversial seems to have
so fascinated respondent court that none would be
surprised should her pending motion for immediate
execution of the impugned judgment receive similar
ready sanction as her previous motions which turned
the proceedings into a one-sided affair. The stakes
here are high. Not only is the subject matter
considerably substantial; there is the more important
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 other words, whichever of the two apparent remedies
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
the Court chooses, it would necessarily entail some
kind of possible juridical imperfection. Speaking of
their respective practical or pragmatic effects, to annul
the dismissal would inevitably prejudice the rights of
the non-defaulted defendants whom We have not
heard and who even respondents would not wish to
have anything anymore to do with the case. On the
other hand, to include petitioners in the dismissal
would naturally set at naught every effort private
respondent has made to establish or prove her case
thru means sanctioned by respondent court. In short,
We are confronted with a legal para-dilemma. But one
thing is certain this difficult situations has been
brought about by none other than private respondent
who has quite cynically resorted to procedural
maneuvers without realizing that the technicalities of
the adjective law, even when apparently accurate
from the literal point of view, cannot prevail over the
imperatives of the substantive law and of equity that
always underlie them and which have to be inevitably
considered in the construction of the pertinent
procedural rules.
All things considered, after careful and mature
deliberation, the Court has arrived at the conclusion
that as between the two possible alternatives just
stated, it would only be fair, equitable and proper to
uphold the position of petitioners. In other words, We
rule that the order of dismissal of October 21, 1974 is
in law a dismissal of the whole case of the plaintiff,
including as to petitioners herein. Consequently, all
proceedings held by respondent court subsequent
thereto including and principally its decision of
December 20, 1974 are illegal and should be set
aside.
This conclusion is fully justified by the following
considerations of equity:
1. It is very clear to Us that the procedural maneuver
resorted to by private respondent in securing the
decision in her favor was ill-conceived. It was
characterized by that which every principle of law and
equity disdains taking unfair advantage of the rules
of procedure in order to unduly deprive the other party
of full opportunity to defend his cause. The idea of
"dropping" the non-defaulted defendants with the end
in view of completely incapacitating their co-
defendants from making any defense, without
considering that all of them are indispensable parties
to a common cause of action to which they have
countered with a common defense readily connotes
an intent to secure a one-sided decision, even
improperly. And when, in this connection, the obvious
weakness of plaintiff's evidence is taken into account,
one easily understands why such tactics had to be
availed of. We cannot directly or indirectly give Our
assent to the commission of unfairness and inequity
in the application of the rules of procedure,
particularly when the propriety of reliance thereon is
not beyond controversy.
2. The theories of remedial law pursued by private
respondents, although approved by His Honor, run
counter to such basic principles in the rules on default
and such elementary rules on dismissal of actions
and notice of motions that no trial court should be
unaware of or should be mistaken in applying. We are
at a loss as to why His Honor failed to see through
counsel's inequitous strategy, when the provisions (1)
on the three-day rule on notice of motions, Section 4
of Rule 15, (2) against dismissal of actions on motion
of plaintiff when there is a compulsory counterclaim,
Section 2, Rule 17, (3) against permitting the absence
of indispensable parties, Section 7, Rule 3, (4) on
service of papers upon defendants in default when
there are substantial amendments to pleadings,
Section 9, Rule 13, and (5) on the unity and integrity
of the fate of defendants in default with those not in
default where the cause of action against them and
their own defenses are common, Section 4, Rule 18,
are so plain and the jurisprudence declaratory of their
intent and proper construction are so readily
comprehensible that any error as to their application
would be unusual in any competent trial court.
3. After all, all the malactuations of respondent court
are traceable to the initiative of private respondent
and/or her counsel. She cannot, therefore, complain
that she is being made to unjustifiably suffer the
consequences of what We have found to be
erroneous orders of respondent court. It is only fair
that she should not be allowed to benefit from her
own frustrated objective of securing a one-sided
decision.
4. More importantly, We do not hesitate to hold that
on the basis of its own recitals, the decision in
question cannot stand close scrutiny. What is more,
the very considerations contained therein reveal
convincingly the inherent weakness of the cause of
the plaintiff. To be sure, We have been giving serious
thought to the idea of merely returning this case for a
resumption of trial by setting aside the order of
dismissal of October 21, 1974, with all its attendant
difficulties on account of its adverse effects on parties
who have not been heard, but upon closer study of
the pleadings and the decision and other
circumstances extant in the record before Us, We are
now persuaded that such a course of action would
only lead to more legal complications incident to
attempts on the part of the parties concerned to
desperately squeeze themselves out of a bad
situation. Anyway, We feel confident that by and
large, there is enough basis here and now for Us to
rule out the claim of the plaintiff.
Even a mere superficial reading of the decision would
immediately reveal that it is littered on its face with
deficiencies and imperfections which would have had
no reason for being were there less haste and more
circumspection in rendering the same. Recklessness
in jumping to unwarranted conclusions, both factual
and legal, is at once evident in its findings relative
precisely to the main bases themselves of the reliefs
granted. It is apparent therein that no effort has been
made to avoid glaring inconsistencies. Where
references are made to codal provisions and
jurisprudence, inaccuracy and inapplicability are at
once manifest. It hardly commends itself as a
deliberate and consciencious adjudication of a
litigation which, considering the substantial value of
the subject matter it involves and the unprecedented
procedure that was followed by respondent's counsel,
calls for greater attention and skill than the general
run of cases would.
Inter alia, the following features of the decision make
it highly improbable that if We took another course of
action, private respondent would still be able to make
out any case against petitioners, not to speak of their
co-defendants who have already been exonerated by
respondent herself thru her motion to dismiss:
1. According to His Honor's own statement of
plaintiff's case, "she is the widow of the late Tee Hoon
Po Chuan (Po Chuan, for short) who was then one of
the partners in the commercial partnership, Glory
Commercial Co. with defendants Antonio Lim Tanhu
(Lim Tanhu, for short) and Alfonso Leonardo Ng Sua
(Ng Sua, for short) as co-partners; that after the death
of her husband on March 11, 1966 she is entitled to
share not only in the capital and profits of the
partnership but also in the other assets, both real and
personal, acquired by the partnership with funds of
the latter during its lifetime."
Relatedly, in the latter part of the decision, the
findings are to the following effect: .
That the herein plaintiff Tan Put and
her late husband Po Chuan married
at the Philippine Independent
Church of Cebu City on December,
20, 1949; that Po Chuan died on
March 11, 1966; that the plaintiff
and the late Po Chuan were
childless but the former has a foster
son Antonio 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, Record.)
How did His Honor arrive at these conclusions? To
start with, it is not clear in the decision whether or not
in making its findings of fact the court took into
account the allegations in the pleadings of the parties
and whatever might have transpired at the pre-trial.
All that We can gather in this respect is that
references are made therein to pre-trial exhibits and
to Annex A of the answer of the defendants to
plaintiff's amended complaint. Indeed, it was
incumbent upon the court to consider not only the
evidence formally offered at the trial but also the
admissions, expressed or implied, in the pleadings, as
well as whatever might have been placed before it or
brought to its attention during the pre-trial. In this
connection, it is to be regretted that none of the
parties has thought it proper to give Us an idea of
what took place at the pre-trial of the present case
and what are contained in the pre-trial order, if any
was issued pursuant to Section 4 of Rule 20.
The fundamental purpose of pre-trial, aside from
affording the parties every opportunity to compromise
or settle their differences, is for the court to be
apprised of the unsettled issues between the parties
and of their respective evidence relative thereto, to
the end that it may take corresponding measures that
would abbreviate the trial as much as possible and
the judge may be able to ascertain the facts with the
least observance of technical rules. In other words
whatever is said or done by the parties or their
counsel at the pre- trial serves to put the judge on
notice of their respective basic positions, in order that
in appropriate cases he may, if necessary in the
interest of justice and a more accurate determination
of the facts, make inquiries about or require
clarifications of matters taken up at the pre-trial,
before finally resolving any issue of fact or of law. In
brief, the pre-trial constitutes part and parcel of the
proceedings, and hence, matters dealt with therein
may not be disregarded in the process of decision
making. Otherwise, the real essence of compulsory
pre-trial would be insignificant and worthless.
Now, applying these postulates to the findings of
respondent court just quoted, it will be observed that
the court's conclusion about the supposed marriage of
plaintiff to the deceased Tee Hoon Lim Po Chuan is
contrary to the weight of the evidence brought before
it during the trial and the pre-trial.
Under Article 55 of the Civil Code, the declaration of
the contracting parties that they take each other as
husband and wife "shall be set forth in an instrument"
signed by the parties as well as by their witnesses
and the person solemnizing the marriage.
Accordingly, the primary evidence of a marriage must
be an authentic copy of the marriage contract. While a
marriage may also be proved by other competent
evidence, the absence of the contract must first be
satisfactorily explained. Surely, the certification of the
person who allegedly solemnized a marriage is not
admissible evidence of such marriage unless proof of
loss of the contract or of any other satisfactory reason
for its non-production is first presented to the court. In
the case at bar, the purported certification issued by a
Mons. Jose M. Recoleto, Bishop, Philippine
Independent Church, Cebu City, is not, therefore,
competent evidence, there being absolutely no
showing as to unavailability of the marriage contract
and, indeed, as to the authenticity of the signature of
said certifier, the jurat allegedly signed by a second
assistant provincial fiscal not being authorized by law,
since it is not part of the functions of his office.
Besides, inasmuch as the bishop did not testify, the
same is hearsay.
As regards the testimony of plaintiff herself on the
same point and that of her witness Antonio Nuez,
there can be no question that they are both self-
serving and of very little evidentiary value, it having
been disclosed at the trial that plaintiff has already
assigned all her rights in this case to said Nuez,
thereby making him the real party in interest here and,
therefore, naturally as biased as herself. Besides, in
the portion of the testimony of Nuez copied in Annex
C of petitioner's memorandum, it appears admitted
that he was born only on March 25, 1942, which
means that he was less than eight years old at the
supposed time of the alleged marriage. If for this
reason alone, it is extremely doubtful if he could have
been sufficiently aware of such event as to be
competent to testify about it.
Incidentally, another Annex C of the same
memorandum purports to be the certificate of birth of
one Antonio T. Uy supposed to have been born on
March 23, 1937 at Centro Misamis, Misamis
Occidental, the son of one Uy Bien, father, and Tan
Put, mother. Significantly, respondents have not
made any adverse comment on this document. It is
more likely, therefore, that the witness is really the
son of plaintiff by her husband Uy Kim Beng. But she
testified she was childless. So which is which? In any
event, if on the strength of this document, Nuez is
actually the legitimate son of Tan Put and not her
adopted son, he would have been but 13 years old in
1949, the year of her alleged marriage to Po Chuan,
and even then, considering such age, his testimony in
regard thereto would still be suspect.
Now, as against such flimsy evidence of plaintiff, the
court had before it, two documents of great weight
belying the pretended marriage. We refer to (1)
Exhibit LL, the income tax return of the deceased Tee
Hoon Lim Po Chuan indicating that the name of his
wife was Ang 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.
G.R. No. 70926 January 31, 1989
DAN FUE LEUNG, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and
LEUNG YIU, respondents.
John L. Uy for petitioner.
Edgardo F. Sundiam for private respondent.
GUTIERREZ, JR., J.:
The petitioner asks for the reversal of the decision of
the then Intermediate Appellate Court in AC-G.R. No.
CV-00881 which affirmed the decision of the then
Court of First Instance of Manila, Branch II in Civil
Case No. 116725 declaring private respondent Leung
Yiu a partner of petitioner Dan Fue Leung in the
business of Sun Wah Panciteria and ordering the
petitioner to pay to the private respondent his share in
the annual profits of the said restaurant.
This case originated from a complaint filed by
respondent Leung Yiu with the then Court of First
Instance of Manila, Branch II to recover the sum
equivalent to twenty-two percent (22%) of the annual
profits derived from the operation of Sun Wah
Panciteria since October, 1955 from petitioner Dan
Fue Leung.
The Sun Wah Panciteria, a restaurant, located at
Florentino Torres Street, Sta. Cruz, Manila, was
established sometime in October, 1955. It was
registered as a single proprietorship and its licenses
and permits were issued to and in favor of petitioner
Dan Fue Leung as the sole proprietor. Respondent
Leung Yiu adduced evidence during the trial of the
case to show that Sun Wah Panciteria was actually a
partnership and that he was one of the partners
having contributed P4,000.00 to its initial
establishment.
The private respondents evidence is summarized as
follows:
About the time the Sun Wah Panciteria started to
become operational, the private respondent gave
P4,000.00 as his contribution to the partnership. This
is evidenced by a receipt identified as Exhibit "A"
wherein the petitioner acknowledged his acceptance
of the P4,000.00 by affixing his signature thereto. The
receipt was written in Chinese characters so that the
trial court commissioned an interpreter in the person
of Ms. Florence Yap to translate its contents into
English. Florence Yap issued a certification and
testified that the translation to the best of her
knowledge and belief was correct. The private
respondent identified the signature on the receipt as
that of the petitioner (Exhibit A-3) because it was
affixed by the latter in his (private respondents')
presence. Witnesses So Sia and Antonio Ah Heng
corroborated the private respondents testimony to the
effect that they were both present when the receipt
(Exhibit "A") was signed by the petitioner. So Sia
further testified that he himself received from the
petitioner a similar receipt (Exhibit D) evidencing
delivery of his own investment in another amount of
P4,000.00 An examination was conducted by the PC
Crime Laboratory on orders of the trial court granting
the private respondents motion for examination of
certain documentary exhibits. The signatures in
Exhibits "A" and 'D' when compared to the signature
of the petitioner appearing in the pay envelopes of
employees of the restaurant, namely Ah Heng and
Maria Wong (Exhibits H, H-1 to H-24) showed that the
signatures in the two receipts were indeed the
signatures of the petitioner.
Furthermore, the private respondent received from
the petitioner the amount of P12,000.00 covered by
the latter's Equitable Banking Corporation Check No.
13389470-B from the profits of the operation of the
restaurant for the year 1974. Witness Teodulo Diaz,
Chief of the Savings Department of the China
Banking Corporation testified that said check (Exhibit
B) was deposited by and duly credited to the private
respondents savings account with the bank after it
was cleared by the drawee bank, the Equitable
Banking Corporation. Another witness Elvira Rana of
the Equitable Banking Corporation testified that the
check in question was in fact and in truth drawn by
the petitioner and debited against his own account in
said bank. This fact was clearly shown and indicated
in the petitioner's statement of account after the check
(Exhibit B) was duly cleared. Rana further testified
that upon clearance of the check and pursuant to
normal banking procedure, said check was returned
to the petitioner as the maker thereof.
The petitioner denied having received from the private
respondent the amount of P4,000.00. He contested
and impugned the genuineness of the receipt (Exhibit
D). His evidence is summarized as follows:
The petitioner did not receive any contribution at the
time he started the Sun Wah Panciteria. He used his
savings from his salaries as an employee at Camp
Stotsenberg in Clark Field and later as waiter at the
Toho Restaurant amounting to a little more than
P2,000.00 as capital in establishing Sun Wah
Panciteria. To bolster his contention that he was the
sole owner of the restaurant, the petitioner presented
various government licenses and permits showing the
Sun Wah Panciteria was and still is a single
proprietorship solely owned and operated by himself
alone. Fue Leung also flatly denied having issued to
the private respondent the receipt (Exhibit G) and the
Equitable Banking Corporation's Check No. 13389470
B in the amount of P12,000.00 (Exhibit B).
As between the conflicting evidence of the parties, the
trial court gave credence to that of the plaintiffs.
Hence, the court ruled in favor of the private
respondent. The dispositive portion of the decision
reads:
WHEREFORE, judgment is hereby
rendered in favor of the plaintiff and
against the defendant, ordering the
latter to deliver and pay to the
former, the sum equivalent to 22%
of the annual profit derived from the
operation of Sun Wah Panciteria
from October, 1955, until fully paid,
and attorney's fees in the amount of
P5,000.00 and cost of suit. (p. 125,
Rollo)
The private respondent filed a verified motion for
reconsideration in the nature of a motion for new trial
and, as supplement to the said motion, he requested
that the decision rendered should include the net
profit of the Sun Wah Panciteria which was not
specified in the decision, and allow private respondent
to adduce evidence so that the said decision will be
comprehensively adequate and thus put an end to
further litigation.
The motion was granted over the objections of the
petitioner. After hearing the trial court rendered an
amended decision, the dispositive portion of which
reads:
FOR ALL THE FOREGOING
CONSIDERATIONS, the motion for
reconsideration filed by the plaintiff,
which was granted earlier by the
Court, is hereby reiterated and the
decision rendered by this Court on
September 30, 1980, is hereby
amended. The dispositive portion of
said decision should read now as
follows:
WHEREFORE, judgment is hereby
rendered, ordering the plaintiff (sic)
and against the defendant, ordering
the latter to pay the former the sum
equivalent to 22% of the net profit
of P8,000.00 per day from the time
of judicial demand, until fully paid,
plus the sum of P5,000.00 as and
for attorney's fees and costs of suit.
(p. 150, Rollo)
The petitioner appealed the trial court's amended
decision to the then Intermediate Appellate Court. The
questioned decision was further modified by the
appellate court. The dispositive portion of the
appellate court's decision reads:
WHEREFORE, the decision
appealed from is modified, the
dispositive portion thereof reading
as follows:
1. Ordering the defendant to pay
the plaintiff by way of temperate
damages 22% of the net profit of
P2,000.00 a day from judicial
demand to May 15, 1971;
2. Similarly, the sum equivalent to
22% of the net profit of P8,000.00 a
day from May 16, 1971 to August
30, 1975;
3. And thereafter until fully paid the
sum equivalent to 22% of the net
profit of P8,000.00 a day.
Except as modified, the decision of
the court a quo is affirmed in all
other respects. (p. 102, Rollo)
Later, the appellate court, in a resolution, modified its
decision and affirmed the lower court's decision. The
dispositive portion of the resolution reads:
WHEREFORE, the dispositive
portion of the amended judgment of
the court a quo reading as follows:
WHEREFORE, judgment is
rendered in favor of the plaintiff and
against the defendant, ordering the
latter to pay to the former the sum
equivalent to 22% of the net profit
of P8,000.00 per day from the time
of judicial demand, until fully paid,
plus the sum of P5,000.00 as and
for attorney's fees and costs of suit.
is hereby retained in full and affirmed in toto it being
understood that the date of judicial demand is July 13,
1978. (pp. 105-106, Rollo).
In the same resolution, the motion for reconsideration
filed by petitioner was denied.
Both the trial court and the appellate court found that
the private respondent is a partner of the petitioner in
the setting up and operations of the panciteria. While
the dispositive portions merely ordered the payment
of the respondents share, there is no question from
the factual findings that the respondent invested in the
business as a partner. Hence, the two courts declared
that the private petitioner is entitled to a share of the
annual profits of the restaurant. The petitioner,
however, claims that this factual finding is erroneous.
Thus, the petitioner argues: "The complaint avers that
private respondent extended 'financial assistance' to
herein petitioner at the time of the establishment of
the Sun Wah Panciteria, in return of which private
respondent allegedly will receive a share in the profits
of the restaurant. The same complaint did not claim
that private respondent is a partner of the business. It
was, therefore, a serious error for the lower court and
the Hon. Intermediate Appellate Court to grant a relief
not called for by the complaint. It was also error for
the Hon. Intermediate Appellate Court to interpret or
construe 'financial assistance' to mean the
contribution of capital by a partner to a partnership;"
(p. 75, Rollo)
The pertinent portions of the complaint state:
xxx xxx xxx
2. That on or about the latter (sic)
of September, 1955, defendant
sought the financial assistance of
plaintiff in operating the defendant's
eatery known as Sun Wah
Panciteria, located in the given
address of defendant; as a return
for such financial assistance.
plaintiff would be entitled to twenty-
two percentum (22%) of the
annual profit derived from the
operation of the said panciteria;
3. That on October 1, 1955, plaintiff
delivered to the defendant the sum
of four thousand pesos (P4,000.00),
Philippine Currency, of which copy
for the receipt of such amount, duly
acknowledged by the defendant is
attached hereto as Annex "A", and
form an integral part hereof; (p. 11,
Rollo)
In essence, the private respondent alleged that when
Sun Wah Panciteria was established, he gave
P4,000.00 to the petitioner with the understanding
that he would be entitled to twenty-two percent (22%)
of the annual profit derived from the operation of the
said panciteria. These allegations, which were
proved, make the private respondent and the
petitioner partners in the establishment of Sun Wah
Panciteria because Article 1767 of the Civil Code
provides that "By the contract of partnership two or
more persons bind themselves to contribute money,
property or industry to a common fund, with the
intention of dividing the profits among themselves".
Therefore, the lower courts did not err in construing
the complaint as one wherein the private respondent
asserted his rights as partner of the petitioner in the
establishment of the Sun Wah Panciteria,
notwithstanding the use of the term financial
assistance therein. We agree with the appellate
court's observation to the effect that "... given its
ordinary meaning, financial assistance is the giving
out of money to another without the expectation of
any returns therefrom'. It connotes an ex gratia dole
out in favor of someone driven into a state of
destitution. But this circumstance under which the
P4,000.00 was given to the petitioner does not obtain
in this case.' (p. 99, Rollo) The complaint explicitly
stated that "as a return for such financial assistance,
plaintiff (private respondent) would be entitled to
twenty-two percentum (22%) of the annual profit
derived from the operation of the said panciteria.' (p.
107, Rollo) The well-settled doctrine is that the '"...
nature of the action filed in court is determined by the
facts alleged in the complaint as constituting the
cause of action." (De Tavera v. Philippine
Tuberculosis Society, Inc., 113 SCRA 243; Alger
Electric, Inc. v. Court of Appeals, 135 SCRA 37).
The appellate court did not err in declaring that the
main issue in the instant case was whether or not the
private respondent is a partner of the petitioner in the
establishment of Sun Wah Panciteria.
The petitioner also contends that the respondent court
gravely erred in giving probative value to the PC
Crime Laboratory Report (Exhibit "J") on the ground
that the alleged standards or specimens used by the
PC Crime Laboratory in arriving at the conclusion
were never testified to by any witness nor has any
witness identified the handwriting in the standards or
specimens belonging to the petitioner. The supposed
standards or specimens of handwriting were marked
as Exhibits "H" "H-1" to "H-24" and admitted as
evidence for the private respondent over the vigorous
objection of the petitioner's counsel.
The records show that the PC Crime Laboratory upon
orders of the lower court examined the signatures in
the two receipts issued separately by the petitioner to
the private respondent and So Sia (Exhibits "A" and
"D") and compared the signatures on them with the
signatures of the petitioner on the various pay
envelopes (Exhibits "H", "H-1" to 'H-24") of Antonio Ah
Heng and Maria Wong, employees of the restaurant.
After the usual examination conducted on the
questioned documents, the PC Crime Laboratory
submitted its findings (Exhibit J) attesting that the
signatures appearing in both receipts (Exhibits "A"
and "D") were the signatures of the petitioner.
The records also show that when the pay envelopes
(Exhibits "H", "H-1" to "H-24") were presented by the
private respondent for marking as exhibits, the
petitioner did not interpose any objection. Neither did
the petitioner file an opposition to the motion of the
private respondent to have these exhibits together
with the two receipts examined by the PC Crime
Laboratory despite due notice to him. Likewise, no
explanation has been offered for his silence nor was
any hint of objection registered for that purpose.
Under these circumstances, we find no reason why
Exhibit "J" should be rejected or ignored. The records
sufficiently establish that there was a partnership.
The petitioner raises the issue of prescription. He
argues: The Hon. Respondent Intermediate Appellate
Court gravely erred in not resolving the issue of
prescription in favor of petitioner. The alleged receipt
is dated October 1, 1955 and the complaint was filed
only on July 13, 1978 or after the lapse of twenty-two
(22) years, nine (9) months and twelve (12) days.
From October 1, 1955 to July 13, 1978, no written
demands were ever made by private respondent.
The petitioner's argument is based on Article 1144 of
the Civil Code which provides:
Art. 1144. The following actions
must be brought within ten years
from the time the right of action
accrues:
(1) Upon a written contract;
(2) Upon an obligation created by
law;
(3) Upon a judgment.
in relation to Article 1155 thereof which provides:
Art. 1155. The prescription of
actions is interrupted when they are
filed before the court, when there is
a written extra-judicial demand by
the creditor, and when there is any
written acknowledgment of the debt
by the debtor.'
The argument is not well-taken.
The private respondent is a partner of the petitioner in
Sun Wah Panciteria. The requisites of a partnership
which are 1) two or more persons bind themselves
to contribute money, property, or industry to a
common fund; and 2) intention on the part of the
partners to divide the profits among themselves
(Article 1767, Civil Code; Yulo v. Yang Chiao Cheng,
106 Phil. 110)-have been established. As stated by
the respondent, a partner shares not only in profits
but also in the losses of the firm. If excellent relations
exist among the partners at the start of business and
all the partners are more interested in seeing the firm
grow rather than get immediate returns, a deferment
of sharing in the profits is perfectly plausible. It would
be incorrect to state that if a partner does not assert
his rights anytime within ten years from the start of
operations, such rights are irretrievably lost. The
private respondent's cause of action is premised upon
the failure of the petitioner to give him the agreed
profits in the operation of Sun Wah Panciteria. In
effect the private respondent was asking for an
accounting of his interests in the partnership.
It is Article 1842 of the Civil Code in conjunction with
Articles 1144 and 1155 which is applicable. Article
1842 states:
The right to an account of his
interest shall accrue to any partner,
or his legal representative as
against the winding up partners or
the surviving partners or the person
or partnership continuing the
business, at the date of dissolution,
in the absence or any agreement to
the contrary.
Regarding the prescriptive period within which the
private respondent may demand an accounting,
Articles 1806, 1807, and 1809 show that the right to
demand an accounting exists as long as the
partnership exists. Prescription begins to run only
upon the dissolution of the partnership when the final
accounting is done.
Finally, the petitioner assails the appellate court's
monetary awards in favor of the private respondent
for being excessive and unconscionable and above
the claim of private respondent as embodied in his
complaint and testimonial evidence presented by said
private respondent to support his claim in the
complaint.
Apart from his own testimony and allegations, the
private respondent presented the cashier of Sun Wah
Panciteria, a certain Mrs. Sarah L. Licup, to testify on
the income of the restaurant.
Mrs. Licup stated:
ATTY. HIPOLITO
(direct
examination to
Mrs. Licup).
Q Mrs. Witness,
you stated that
among your
duties was that
you were in A For regular
charge of the days, I received
custody of the around P7,000.00
cashier's box, of a day during my
the money, being shift alone and
the cashier, is during pay days I
that correct? receive more
than P10,000.00.
A Yes, sir. That is excluding
the catering
outside the place.
Q So that every
time there is a
customer who Q What about the
pays, you were catering service,
the one who will you please
accepted the tell the Honorable
money and you Court how many
gave the change, times a week
if any, is that were there
correct? catering
services?
A Yes.
A Sometimes
three times a
Q Now, after month;
11:30 (P.M.) sometimes two
which is the times a month or
closing time as more.
you said, what do
you do with the
money? xxx xxx xxx

A We balance it Q Now more or

with the manager, less, do you know
Mr. Dan Fue the cost of the
Leung. catering service?

ATTY. A Yes, because I

HIPOLITO: am the one who
receives the
payment also of
I see. the catering.

Q So, in other Q How much is

words, after your that?
job, you huddle or
confer together?
A That ranges
from two
A Yes, count it thousand to six
all. I total it. We thousand pesos,
sum it up. sir.

Q Now, Mrs. Q Per service?

Witness, in an
average day,
more or less, will A Per service,
you please tell Per catering.
us, how much is
the gross income Q So in other
of the restaurant? words, Mrs.
witness, for your
 shift alone in a sales book. ledgers, journals and
single day from for this purpose, employed a
3:30 P.M. to bookkeeper. This inspired the Court
11:30 P.M. in the to ask counsel for the defendant to
evening the bring said records and counsel for
restaurant the defendant promised to bring
grosses an those that were available.
income of Seemingly, that was the reason
P7,000.00 in a why this case dragged for quite
regular day? sometime. To bemuddle the issue,
defendant instead of presenting the
A Yes. books where the same, etc. were
recorded, presented witnesses who
claimed to have supplied chicken,
Q And ten meat, shrimps, egg and other
thousand pesos poultry products which, however,
during pay day.? did not show the gross sales nor
does it prove that the same is the
A Yes. best evidence. This Court gave
warning to the defendant's counsel
(TSN, pp. 53 to that if he failed to produce the
59, inclusive, books, the same will be considered
November a waiver on the part of the
15,1978) defendant to produce the said
books inimitably showing decisive
records on the income of the eatery
xxx xxx xxx pursuant to the Rules of Court (Sec.
5(e) Rule 131). "Evidence willfully
COURT: suppressed would be adverse if
produced." (Rollo, p. 145)
Any cross?
The records show that the trial court went out of its
way to accord due process to the petitioner.
ATTY. UY
(counsel for
defendant): The defendant was given all the
chance to present all conceivable
witnesses, after the plaintiff has
No cross-
rested his case on February 25,
examination,
1981, however, after presenting
Your Honor.
several witnesses, counsel for
(T.S.N. p. 65,
defendant promised that he will
November 15,
present the defendant as his last
1978). (Rollo, pp.
witness. Notably there were several
127-128)
postponement asked by counsel for
the defendant and the last one was
The statements of the cashier were not rebutted. Not on October 1, 1981 when he asked
only did the petitioner's counsel waive the cross- that this case be postponed for 45
examination on the matter of income but he failed to days because said defendant was
comply with his promise to produce pertinent records. then in Hongkong and he
When a subpoena duces tecum was issued to the (defendant) will be back after said
petitioner for the production of their records of sale, period. The Court acting with great
his counsel voluntarily offered to bring them to court. concern and understanding reset
He asked for sufficient time prompting the court to the hearing to November 17, 1981.
cancel all hearings for January, 1981 and reset them On said date, the counsel for the
to the later part of the following month. The defendant who again failed to
petitioner's counsel never produced any books, present the defendant asked for
prompting the trial court to state: another postponement, this time to
November 24, 1981 in order to give
Counsel for the defendant admitted said defendant another judicial
that the sales of Sun Wah were magnanimity and substantial due
registered or recorded in the daily process. It was however a condition
 in the order granting the
postponement to said date that if
the defendant cannot be presented,
counsel is deemed to have waived
the presentation of said witness and
will submit his case for decision.
On November 24, 1981, there being
a typhoon prevailing in Manila said
date was declared a partial non-
working holiday, so much so, the
hearing was reset to December 7
and 22, 1981. On December 7,
1981, on motion of defendant's
counsel, the same was again reset
to December 22, 1981 as
previously scheduled which hearing
was understood as intransferable in
character. Again on December 22,
1981, the defendant's counsel
asked for postponement on the
ground that the defendant was sick.
the Court, after much tolerance and
judicial magnanimity, denied said
motion and ordered that the case
be submitted for resolution based
on the evidence on record and gave
the parties 30 days from December
23, 1981, within which to file their
simultaneous memoranda. (Rollo,
pp. 148-150)
The restaurant is located at No. 747 Florentino
Torres, Sta. Cruz, Manila in front of the Republic
Supermarket. It is near the corner of Claro M. Recto
Street. According to the trial court, it is in the heart of
Chinatown where people who buy and sell jewelries,
businessmen, brokers, manager, bank employees,
and people from all walks of life converge and
patronize Sun Wah.
There is more than substantial evidence to support
the factual findings of the trial court and the appellate
court. If the respondent court awarded damages only
from judicial demand in 1978 and not from the
opening of the restaurant in 1955, it is because of the
petitioner's contentions that all profits were being
plowed back into the expansion of the business.
There is no basis in the records to sustain the
petitioners contention that the damages awarded are
excessive. Even if the Court is minded to modify the
factual findings of both the trial court and the
appellate court, it cannot refer to any portion of the
records for such modification. There is no basis in the
records for this Court to change or set aside the
factual findings of the trial court and the appellate
court. The petitioner was given every opportunity to
refute or rebut the respondent's submissions but, after
promising to do so, it deliberately failed to present its
books and other evidence.
The resolution of the Intermediate Appellate Court
ordering the payment of the petitioner's obligation
shows that the same continues until fully paid. The
question now arises as to whether or not the payment
of a share of profits shall continue into the future with
no fixed ending date.
Considering the facts of this case, the Court may
decree a dissolution of the partnership under Article
1831 of the Civil Code which, in part, provides:
Art. 1831. On application by or for a
partner the court shall decree a
dissolution whenever:
xxx xxx xxx
(3) A partner has been guilty of
such conduct as tends to affect
prejudicially the carrying on of the
business;
(4) A partner willfully or persistently
commits a breach of the partnership
agreement, or otherwise so
conducts himself in matters relating
to the partnership business that it is
not reasonably practicable to carry
on the business in partnership with
him;
xxx xxx xxx
(6) Other circumstances render a
dissolution equitable.
There shall be a liquidation and winding up of
partnership affairs, return of capital, and other
incidents of dissolution because the continuation of
the partnership has become inequitable.
WHEREFORE, the petition for review is hereby
DISMISSED for lack of merit. The decision of the
respondent court is AFFIRMED with a
MODIFICATION that as indicated above, the
partnership of the parties is ordered dissolved.
SO ORDERED.
Fernan, C.J., (Chairman), Feliciano, Bidin and Cortes,
JJ., concur.

G.R. No. 126334 November 23, 2001
EMILIO EMNACE, petitioner,
vs.
COURT OF APPEALS, ESTATE OF VICENTE
TABANAO, SHERWIN TABANAO, VICENTE
WILLIAM TABANAO, JANETTE TABANAO
DEPOSOY, VICENTA MAY TABANAO VARELA,
ROSELA TABANAO and VINCENT
TABANAO, respondents.
YNARES-SANTIAGO, J.:
Petitioner Emilio Emnace, Vicente Tabanao and
Jacinto Divinagracia were partners in a business
concern known as Ma. Nelma Fishing Industry.
Sometime in January of 1986, they decided to
dissolve their partnership and executed an agreement
of partition and distribution of the partnership
properties among them, consequent to Jacinto
Divinagracia's withdrawal from the
partnership.1 Among the assets to be distributed were
five (5) fishing boats, six (6) vehicles, two (2) parcels
of land located at Sto. Nio and Talisay, Negros
Occidental, and cash deposits in the local branches of
the Bank of the Philippine Islands and Prudential
Bank.
Throughout the existence of the partnership, and
even after Vicente Tabanao's untimely demise in
1994, petitioner failed to submit to Tabanao's heirs
any statement of assets and liabilities of the
partnership, and to render an accounting of the
partnership's finances. Petitioner also reneged on his
promise to turn over to Tabanao's heirs the
deceased's 1/3 share in the total assets of the
partnership, amounting to P30,000,000.00, or the sum
of P10,000,000.00, despite formal demand for
payment thereof.2
Consequently, Tabanao' s heirs, respondents herein,
filed against petitioner an action for accounting,
payment of shares, division of assets and
damages.3 In their complaint, respondents prayed as
follows:
1. Defendant be ordered to render the proper
accounting of all the assets and liabilities of
the partnership at bar; and
2. After due notice and hearing defendant be
ordered to pay/remit/deliver/surrender/yield
to the plaintiffs the following:
A. No less than One Third (1/3) of
the assets, properties, dividends,
cash, land(s), fishing vessels,
trucks, motor vehicles, and other
forms and substance of treasures
which belong and/or should belong,
had accrued and/or must accrue to
the partnership;
B. No less than Two Hundred
Thousand Pesos (P200,000.00) as
moral damages;
C. Attorney's fees equivalent to
Thirty Percent (30%) of the entire
share/amount/award which the
Honorable Court may resolve the
plaintiffs as entitled to plus
P1,000.00 for every appearance in
court.4
Petitioner filed a motion to dismiss the complaint on
the grounds of improper venue, lack of jurisdiction
over the nature of the action or suit, and lack of
capacity of the estate of Tabanao to sue.5 On August
30, 1994, the trial court denied the motion to dismiss.
It held that venue was properly laid because, while
realties were involved, the action was directed against
a particular person on the basis of his personal
liability; hence, the action is not only a personal action
but also an action in personam. As regards
petitioner's argument of lack of jurisdiction over the
action because the prescribed docket fee was not
paid considering the huge amount involved in the
claim, the trial court noted that a request for
accounting was made in order that the exact value of
the partnership may be ascertained and, thus, the
correct docket fee may be paid. Finally, the trial court
held that the heirs of Tabanao had aright to sue in
their own names, in view of the provision of Article
777 of the Civil Code, which states that the rights to
the succession are transmitted from the moment of
the death of the decedent.6
The following day, respondents filed an amended
complaint,7 incorporating the additional prayer that
petitioner be ordered to "sell all (the partnership's)
assets and thereafter pay/remit/deliver/surrender/yield
to the plaintiffs" their corresponding share in the
proceeds thereof. In due time, petitioner filed a
manifestation and motion to dismiss,8arguing that the
trial court did not acquire jurisdiction over the case
due to the plaintiffs' failure to pay the proper docket
fees. Further, in a supplement to his motion to
dismiss,9 petitioner also raised prescription as an
additional ground warranting the outright dismissal of
the complaint.
On June 15, 1995, the trial court issued an
Order,10 denying the motion to dismiss inasmuch as
the grounds raised therein were basically the same as
the earlier motion to dismiss which has been denied.
Anent the issue of prescription, the trial court ruled
that prescription begins to run only upon the
dissolution of the partnership when the final
accounting is done. Hence, prescription has not set in
the absence of a final accounting. Moreover, an
action based on a written contract prescribes in ten
years from the time the right of action accrues.
Petitioner filed a petition for certiorari before the Court
of Appeals,11 raising the following issues:
I. Whether or not respondent Judge
acted without jurisdiction or with grave abuse
of discretion in taking cognizance of a case
despite the failure to pay the required docket
fee;
II. Whether or not respondent Judge
acted without jurisdiction or with grave abuse
of discretion in insisting to try the case which
involve (sic) a parcel of land situated outside
of its territorial jurisdiction;
III. Whether or not respondent Judge
acted without jurisdiction or with grave abuse
of discretion in allowing the estate of the
deceased to appear as party plaintiff, when
there is no intestate case and filed by one
who was never appointed by the court as
administratrix of the estates; and
IV. Whether or not respondent Judge
acted without jurisdiction or with grave abuse
of discretion in not dismissing the case on
the ground of prescription.
On August 8, 1996, the Court of Appeals rendered the
assailed decision,12 dismissing the petition for
certiorari, upon a finding that no grave abuse of
discretion amounting to lack or excess of jurisdiction
was committed by the trial court in issuing the
questioned orders denying petitioner's motions to
dismiss.
Not satisfied, petitioner filed the instant petition for
review, raising the same issues resolved by the Court
of Appeals, namely:
I. Failure to pay the proper docket fee;
II. Parcel of land subject of the case
pending before the trial court is outside the
said court's territorial jurisdiction;
III. Lack of capacity to sue on the part of
plaintiff heirs of Vicente Tabanao; and
IV. Prescription of the plaintiff heirs' cause
of action.
It can be readily seen that respondents' primary and
ultimate objective in instituting the action below was to
recover the decedent's 1/3 share in the partnership' s
assets. While they ask for an accounting of the
partnership' s assets and finances, what they are
actually asking is for the trial court to compel
petitioner to pay and turn over their share, or the
equivalent value thereof, from the proceeds of the
sale of the partnership assets. They also assert that
until and unless a proper accounting is done, the
exact value of the partnership' s assets, as well as
their corresponding share therein, cannot be
ascertained. Consequently, they feel justified in not
having paid the commensurate docket fee as required
by the Rules of Court.1wphi1.nt
We do not agree. The trial court does not have to
employ guesswork in ascertaining the estimated value
of the partnership's assets, for respondents
themselves voluntarily pegged the worth thereof at
Thirty Million Pesos (P30,000,000.00). Hence, this
case is one which is really not beyond pecuniary
estimation, but rather partakes of the nature of a
simple collection case where the value of the subject
assets or amount demanded is pecuniarily
determinable.13 While it is true that the exact value of
the partnership's total assets cannot be shown with
certainty at the time of filing, respondents can and
must ascertain, through informed and practical
estimation, the amount they expect to collect from the
partnership, particularly from petitioner, in order to
determine the proper amount of docket and other
fees.14 It is thus imperative for respondents to pay the
corresponding docket fees in order that the trial court
may acquire jurisdiction over the action.15
Nevertheless, unlike in the case of Manchester
Development Corp. v. Court of Appeals,16 where there
was clearly an effort to defraud the government in
avoiding to pay the correct docket fees, we see no
attempt to cheat the courts on the part of
respondents. In fact, the lower courts have noted their
expressed desire to remit to the court "any payable
balance or lien on whatever award which the
Honorable Court may grant them in this case should
there be any deficiency in the payment of the docket
fees to be computed by the Clerk of Court." 17 There is
evident willingness to pay, and the fact that the docket
fee paid so far is inadequate is not an indication that
they are trying to avoid paying the required amount,
but may simply be due to an inability to pay at the
time of filing. This consideration may have moved the
trial court and the Court of Appeals to declare that the
unpaid docket fees shall be considered a lien on the
judgment award.
Petitioner, however, argues that the trial court and the
Court of Appeals erred in condoning the non-payment
of the proper legal fees and in allowing the same to
become a lien on the monetary or property judgment
that may be rendered in favor of respondents. There
is merit in petitioner's assertion. The third paragraph
of Section 16, Rule 141 of the Rules of Court states
that:
The legal fees shall be a lien on the
monetary or property judgment in favor of
the pauper-litigant.
Respondents cannot invoke the above provision in
their favor because it specifically applies to pauper-
litigants. Nowhere in the records does it appear that
respondents are litigating as paupers, and as such
are exempted from the payment of court fees.18
The rule applicable to the case at bar is Section 5(a)
of Rule 141 of the Rules of Court, which defines the
two kinds of claims as: (1) those which are
immediately ascertainable; and (2) those which
cannot be immediately ascertained as to the exact
amount. This second class of claims, where the exact
amount still has to be finally determined by the courts
based on evidence presented, falls squarely under
the third paragraph of said Section 5(a), which
provides:
In case the value of the property or estate or
the sum claimed is less or more in
accordance with the appraisal of the court,
the difference of fee shall be refunded or
paid as the case may be. (Underscoring
ours)
In Pilipinas Shell Petroleum Corporation v. Court of
Appeals,19 this Court pronounced that the above-
quoted provision "clearly contemplates an Initial
payment of the filing fees corresponding to the
estimated amount of the claim subject to adjustment
as to what later may be proved." 20 Moreover, we
reiterated therein the principle that the payment of
filing fees cannot be made contingent or dependent
on the result of the case. Thus, an initial payment of
the docket fees based on an estimated amount must
be paid simultaneous with the filing of the complaint.
Otherwise, the court would stand to lose the filing fees
should the judgment later turn out to be adverse to
any claim of the respondent heirs.
The matter of payment of docket fees is not a mere
triviality. These fees are necessary to defray court
expenses in the handling of cases. Consequently, in
order to avoid tremendous losses to the judiciary, and
to the government as well, the payment of docket fees
cannot be made dependent on the outcome of the
case, except when the claimant is a pauper-litigant.
Applied to the instant case, respondents have a
specific claim - 1/3 of the value of all the partnership
assets - but they did not allege a specific amount.
They did, however, estimate the partnership's total
assets to be worth Thirty Million Pesos
(P30,000,000.00), in a letter21 addressed to petitioner.
Respondents cannot now say that they are unable to
make an estimate, for the said letter and the
admissions therein form part of the records of this
case. They cannot avoid paying the initial docket fees
by conveniently omitting the said amount in their
amended complaint. This estimate can be made the
basis for the initial docket fees that respondents
should pay. Even if it were later established that the
amount proved was less or more than the amount
alleged or estimated, Rule 141, Section 5(a) of the
Rules of Court specifically provides that the court may
refund the 'excess or exact additional fees should the
initial payment be insufficient. It is clear that it is only
the difference between the amount finally awarded
and the fees paid upon filing of this complaint that is
subject to adjustment and which may be subjected to
alien.
In the oft-quoted case of Sun Insurance Office, Ltd. v.
Hon. Maximiano Asuncion,22 this Court held that when
the specific claim "has been left for the determination
by the court, the additional filing fee therefor shall
constitute a lien on the judgment and it shall be the
responsibility of the Clerk of Court or his duly
authorized deputy to enforce said lien and assess and
collect the additional fee." Clearly, the rules and
jurisprudence contemplate the initial payment of filing
and docket fees based on the estimated claims of the
plaintiff, and it is only when there is a deficiency that a
lien may be constituted on the judgment award until
such additional fee is collected.
Based on the foregoing, the trial court erred in not
dismissing the complaint outright despite their failure
to pay the proper docket fees. Nevertheless, as in
other procedural rules, it may be liberally construed in
certain cases if only to secure a just and speedy
disposition of an action. While the rule is that the
payment of the docket fee in the proper amount
should be adhered to, there are certain exceptions
which must be strictly construed.23
In recent rulings, this Court has relaxed the strict
adherence to the Manchester doctrine, allowing the
plaintiff to pay the proper docket fees within a
reasonable time before the expiration of the
applicable prescriptive or reglementary period.24
In the recent case of National Steel Corp. v. Court of
Appeals,25 this Court held that:
The court acquires jurisdiction over the
action if the filing of the initiatory pleading is
accompanied by the payment of the requisite
fees, or, if the fees are not paid at the time of
the filing of the pleading, as of the time of full
payment of the fees within such reasonable
time as the court may grant, unless, of
course, prescription has set in the meantime.
 It does not follow, however, that the trial
court should have dismissed the complaint
for failure of private respondent to pay the
correct amount of docket fees. Although the
payment of the proper docket fees is a
jurisdictional requirement, the trial court may
allow the plaintiff in an action to pay the
same within a reasonable time before the
expiration of the applicable prescriptive or
reglementary period. If the plaintiff fails to
comply within this requirement, the
defendant should timely raise the issue of
jurisdiction or else he would be considered in
estoppel. In the latter case, the balance
between the appropriate docket fees and the
amount actually paid by the plaintiff will be
considered a lien or any award he may
obtain in his favor. (Underscoring ours)
Accordingly, the trial court in the case at bar should
determine the proper docket fee based on the
estimated amount that respondents seek to collect
from petitioner, and direct them to pay the same
within a reasonable time, provided the applicable
prescriptive or reglementary period has not yet
expired, Failure to comply therewith, and upon motion
by petitioner, the immediate dismissal of the
complaint shall issue on jurisdictional grounds.
On the matter of improper venue, we find no error on
the part of the trial court and the Court of Appeals in
holding that the case below is a personal action
which, under the Rules, may be commenced and tried
where the defendant resides or may be found, or
where the plaintiffs reside, at the election of the
latter.26
Petitioner, however, insists that venue was improperly
laid since the action is a real action involving a parcel
of land that is located outside the territorial jurisdiction
of the court a quo. This contention is not well-taken.
The records indubitably show that respondents are
asking that the assets of the partnership be
accounted for, sold and distributed according to the
agreement of the partners. The fact that two of the
assets of the partnership are parcels of land does not
materially change the nature of the action. It is an
action in personam because it is an action against a
person, namely, petitioner, on the basis of his
personal liability. It is not an action in rem where the
action is against the thing itself instead of against the
person.27 Furthermore, there is no showing that the
parcels of land involved in this case are being
disputed. In fact, it is only incidental that part of the
assets of the partnership under liquidation happen to
be parcels of land.
The time-tested case of Claridades v. Mercader, et
al.,28 settled this issue thus:
The fact that plaintiff prays for the sale of the
assets of the partnership, including the
fishpond in question, did not change the
nature or character of the action, such sale
being merely a necessary incident of the
liquidation of the partnership, which should
precede and/or is part of its process of
dissolution.
The action filed by respondents not only seeks
redress against petitioner. It also seeks the
enforcement of, and petitioner's compliance with, the
contract that the partners executed to formalize the
partnership's dissolution, as well as to implement the
liquidation and partition of the partnership's assets.
Clearly, it is a personal action that, in effect, claims a
debt from petitioner and seeks the performance of a
personal duty on his part.29 In fine, respondents'
complaint seeking the liquidation and partition of the
assets of the partnership with damages is a personal
action which may be filed in the proper court where
any of the parties reside.30 Besides, venue has
nothing to do with jurisdiction for venue touches more
upon the substance or merits of the case.31 As it is,
venue in this case was properly laid and the trial court
correctly ruled so.
On the third issue, petitioner asserts that the surviving
spouse of Vicente Tabanao has no legal capacity to
sue since she was never appointed as administratrix
or executrix of his estate. Petitioner's objection in this
regard is misplaced. The surviving spouse does not
need to be appointed as executrix or administratrix of
the estate before she can file the action. She and her
children are complainants in their own right as
successors of Vicente Tabanao. From the very
moment of Vicente Tabanao' s death, his rights
insofar as the partnership was concerned were
transmitted to his heirs, for rights to the succession
are transmitted from the moment of death of the
decedent.32
Whatever claims and rights Vicente Tabanao had
against the partnership and petitioner were
transmitted to respondents by operation of law, more
particularly by succession, which is a mode of
acquisition by virtue of which the property, rights and
obligations to the extent of the value of the inheritance
of a person are transmitted.33Moreover, respondents
became owners of their respective hereditary shares
from the moment Vicente Tabanao died.34
A prior settlement of the estate, or even the
appointment of Salvacion Tabanao as executrix or
administratrix, is not necessary for any of the heirs to
acquire legal capacity to sue. As successors who
stepped into the shoes of their decedent upon his
death, they can commence any action originally
pertaining to the decedent.35 From the moment of his
death, his rights as a partner and to demand
fulfillment of petitioner's obligations as outlined in their
dissolution agreement were transmitted to
respondents. They, therefore, had the capacity to sue
and seek the court's intervention to compel petitioner
to fulfill his obligations.
Finally, petitioner contends that the trial court should
have dismissed the complaint on the ground of
prescription, arguing that respondents' action
prescribed four (4) years after it accrued in 1986. The
trial court and the Court of Appeals gave scant
consideration to petitioner's hollow arguments, and
rightly so.
The three (3) final stages of a partnership are: (1)
dissolution; (2) winding-up; and (3) termination.36 The
partnership, although dissolved, continues to exist
and its legal personality is retained, at which time it
completes the winding up of its affairs, including the
partitioning and distribution of the net partnership
assets to the partners.37 For as long as the
partnership exists, any of the partners may demand
an accounting of the partnership's business.
Prescription of the said right starts to run only upon
the dissolution of the partnership when the final
accounting is done.38
preliminary issue, with petitioner resurrecting the very
same arguments from the trial court all the way up to
the Supreme Court. The litigation of the merits and
substantial issues of this controversy is now long
overdue and must proceed without further delay.
WHEREFORE, in view of all the foregoing, the instant
petition is DENIED for lack of merit, and the case
is REMANDED to the Regional Trial Court of Cadiz
City, Branch 60, which is ORDERED to determine the
proper docket fee based on the estimated amount
that plaintiffs therein seek to collect, and direct said
plaintiffs to pay the same within a reasonable time,
provided the applicable prescriptive or reglementary
period has not yet expired. Thereafter, the trial court
is ORDERED to conduct the appropriate proceedings
in Civil Case No. 416-C.
Costs against petitioner.1wphi1.nt
SO ORDERED.
Davide, Jr., C.J., Puno, Kapunan, Pardo, JJ., concur.

Contrary to petitioner's protestations that respondents'

right to inquire into the business affairs of the
partnership accrued in 1986, prescribing four (4)
years thereafter, prescription had not even begun to
run in the absence of a final accounting. Article 1842
of the Civil Code provides:

The right to an account of his interest shall

accrue to any partner, or his legal
representative as against the winding up
partners or the surviving partners or the
person or partnership continuing the
business, at the date of dissolution, in the
absence of any agreement to the contrary.

Applied in relation to Articles 1807 and 1809, which

also deal with the duty to account, the above-cited
provision states that the right to demand an
accounting accrues at the date of dissolution in the
absence of any agreement to the contrary. When a
final accounting is made, it is only then that
prescription begins to run. In the case at bar, no final
accounting has been made, and that is precisely what
respondents are seeking in their action before the trial
court, since petitioner has failed or refused to render
an accounting of the partnership's business and
assets. Hence, the said action is not barred by
prescription.

In fine, the trial court neither erred nor abused its

discretion when it denied petitioner's motions to
dismiss. Likewise, the Court of Appeals did not
commit reversible error in upholding the trial court's
orders. Precious time has been lost just to settle this
SERGIO V. SISON, Plaintiff-Appellant, v. HELEN J.
MCQUAID, Defendant-Appellee.
Manansala & Manansala for Appellant.
J. C. Orendain for Appellee.
SYLLABUS
1. PLEADING AND PRACTICE; DISMISSAL OF
COMPLAINT; PRESCRIPTION OF ACTION, NOT
SHOWN. Where it is not clear from the allegations
of the complaint just when plaintiffs cause of action
accrued, and consequently, it cannot be determined
with certainty whether that action has already
prescribed or not, the defense of prescription can not
be sustained on a mere motion to dismiss based on
what appears on the face of the complaint.
2. ID.; ID.; NO CAUSE OF ACTION. Plaintiff seeks
to recover from defendant one-half of the purchase
price of lumber sold by the partnership to the United
States Army. But his complaint does not show why he
should be entitled to the sum he claims. It does not
allege that there has been a liquidation of their
partnership business and the said sum has been
found to be due him as his share of the profits. Held:
The complaint states no cause of action. The
proceeds from the sale of a certain amount of lumber
cannot be considered profits until costs and expenses
have been deducted. Moreover, the profits of a
business cannot be determined by taking into account
the result of one particular transaction instead of all
the transactions had. Hence, the need for a general
liquidation before a member of a partnership may
claim a specific sum as his share of the profits.
DECISION
REYES, J.:
On March 28, 1951, plaintiff brought an action in the
Court of First Instance of Manila against defendant,
alleging that during the year 1938 the latter borrowed
from him various sums of money, aggregating
P2,210, to enable her to pay her obligation to the
Bureau of Forestry and to add to her capital in her
lumber business, receipt of the amounts advanced
being acknowledged in a document, Exhibit A,
executed by her on November 10, 1938 and attached
to the complaint; that as defendant was not able to
pay the loan in 1938, as she had promised, she
proposed to take in plaintiff as a partner in her lumber
business, plaintiff to contribute to the partnership the
said sum of P2,210 due him from defendant in
addition to his personal services; that plaintiff agreed
to defendants proposal and, as a result, there was
formed between them, under the provisions of the
Civil Code, a partnership in which they were to share
alike in the income or profits of the business, each to
get one-half thereof; that in accordance with said
contract, plaintiff, together with defendant, rendered
services to the partnership without compensation from
June 15, 1938 to December, 1941; that before the last
World War, the partnership sold to the United States
Army 230,000 board feet of lumber for P13,800, for
the collection of which sum defendant, as manager of
the partnership, filed the corresponding claim with the
said army after the war; that the claim was "finally"
approved and the full amount paid - the complaint
does not say when but defendant has persistently
refused to deliver one-half of it, or P6,900, to plaintiff
notwithstanding repeated demands, investing the
whole sum of P13,800 for her own benefit. Plaintiff,
therefore, prays for judgment declaring the existence
of the alleged partnership and requiring defendant to
pay him the said sum of P6,900, in addition to
damages and costs.
Notified of the action, defendant filed a motion to
dismiss on the grounds that plaintiffs action had
already prescribed, that plaintiffs claim was not
provable under the Statute of Frauds, and that the
complaint stated no cause of action. Sustaining the
first ground, the court dismissed the case,
whereupon, plaintiff appealed to the Court of Appeals;
but that court has certified the case here on the
ground that the appeal involved only questions of
law.
It is not clear from the allegations of the complaint just
when plaintiffs cause of action accrued.
Consequently, it cannot be determined with certainty
whether that action has already prescribed or not.
Such being the case, the defense of prescription can
not be sustained on a mere motion to dismiss based
on what appears on the face of the complaint.
But though the reason given for the order of dismissal
be untenable, we find that the said order should be
upheld on the ground that the complaint states no
cause of action, which is also one of the grounds on
which defendants motion to dismiss was based.
Plaintiff seeks to recover from defendant one-half of
the purchase price of lumber sold by the partnership
to the United States Army. But his complaint does not
show why he should be entitled to the sum he claims.
It does not allege that there has been a liquidation of
the partnership business and the said sum has been
found to be due him as his share of the profits. The
proceeds from the sale of a certain amount of lumber
cannot be considered profits until costs and expenses
have been deducted. Moreover, the profits of a
business cannot be determined by taking into account
the result of one particular transaction instead of all
the transactions had. Hence, the need for a general
liquidation before a member of a partnership may
claim a specific sum as his share of the profits.
In view of the foregoing, the order of dismissal is
affirmed, but on the ground that the complaint states
no cause of action and without prejudice to the filing
of an action for accounting or liquidation should that
be what plaintiff really wants. Without costs in this
instance.

Paras, C.J., Pablo, Bengzon, Padilla, Tuason, Jugo,

Bautista Angelo and Labrador, JJ., concur.

G.R. No. 413 February 2, 1903
JOSE FERNANDEZ, plaintiff-appellant,
vs.
FRANCISCO DE LA ROSA, defendant-appellee.
Vicente Miranda, for appellant.
Simplicio del Rosario, for appellee.
LADD, J.:
The object of this action is to obtain from the court a
declaration that a partnership exists between the
parties, that the plaintiff has a consequent interested
in certain cascoes which are alleged to be partnership
property, and that the defendant is bound to render an
account of his administration of the cascoes and the
business carried on with them.
Judgment was rendered for the defendant in the court
below and the plaintiff appealed.
The respective claims of the parties as to the facts, so
far as it is necessary to state them in order to indicate
the point in dispute, may be briefly summarized. The
plaintiff alleges that in January, 1900, he entered into
a verbal agreement with the defendant to form a
partnership for the purchase of cascoes and the
carrying on of the business of letting the same for hire
in Manila, the defendant to buy the cascoes and each
partner to furnish for that purpose such amount of
money as he could, the profits to be divided
proportionately; that in the same January the plaintiff
furnished the defendant 300 pesos to purchase a
casco designated as No. 1515, which the defendant
did purchase for 500 pesos of Doa Isabel Vales,
taking the title in his own name; that the plaintiff
furnished further sums aggregating about 300 pesos
for repairs on this casco; that on the fifth of the
following March he furnished the defendant 825
pesos to purchase another casco designated as No.
2089, which the defendant did purchase for 1,000
pesos of Luis R. Yangco, taking the title to this casco
also in his own name; that in April the parties
undertook to draw up articles of partnership for the
purpose of embodying the same in an authentic
document, but that the defendant having proposed a
draft of such articles which differed materially from the
terms of the earlier verbal agreement, and being
unwillingly to include casco No. 2089 in the
partnership, they were unable to come to any
understanding and no written agreement was
executed; that the defendant having in the meantime
had the control and management of the two cascoes,
the plaintiff made a demand for an accounting upon
him, which the defendant refused to render, denying
the existence of the partnership altogether.
The defendant admits that the project of forming a
partnership in the casco business in which he was
already engaged to some extent individually was
discussed between himself and the plaintiff in
January, 1900, and earlier, one Marcos Angulo, who
was a partner of the plaintiff in a bakery business,
being also a party to the negotiations, but he denies
that any agreement was ever consummated. He
denies that the plaintiff furnished any money in
January, 1900, for the purchase of casco No. 1515, or
for repairs on the same, but claims that he borrowed
300 pesos on his individual account in January from
the bakery firm, consisting of the plaintiff, Marcos
Angulo, and Antonio Angulo. The 825 pesos, which
he admits he received from the plaintiff March 5, he
claims was for the purchase of casco No. 1515, which
he alleged was bought March 12, and he alleges that
he never received anything from the defendant toward
the purchase of casco No. 2089. He claims to have
paid, exclusive of repairs, 1,200 pesos for the first
casco and 2,000 pesos for the second one.
The case comes to this court under the old procedure,
and it is therefore necessary for us the review the
evidence and pass upon the facts. Our general
conclusions may be stated as follows:
(1) Doa Isabel Vales, from whom the defendant
bought casco No. 1515, testifies that the sale was
made and the casco delivered in January, although
the public document of sale was not executed till
some time afterwards. This witness is apparently
disinterested, and we think it is safe to rely upon the
truth of her testimony, especially as the defendant,
while asserting that the sale was in March, admits that
he had the casco taken to the ways for repairs in
January.
It is true that the public document of sale was
executed March 10, and that the vendor declares
therein that she is the owner of the casco, but such
declaration does not exclude proof as to the actual
date of the sale, at least as against the plaintiff, who
was not a party to the instrument. (Civil Code, sec.
1218.) It often happens, of course, in such cases, that
the actual sale precedes by a considerable time the
execution of the formal instrument of transfer, and this
is what we think occurred here.
(2) The plaintiff presented in evidence the following
receipt: "I have this day received from D. Jose
Fernandez eight hundred and twenty-five pesos for
the cost of a casco which we are to purchase in
company. Manila, March 5, 1900. Francisco de la
Rosa." The authenticity of this receipt is admitted by
the defendant. If casco No. 1515 was bought, as we
think it was, in January, the casco referred to in the
receipt which the parties "are to purchase in
company" must be casco No. 2089, which was bought
March 22. We find this to be the fact, and that the
plaintiff furnished and the defendant received 825
pesos toward the purchase of this casco, with the
understanding that it was to be purchased on joint
account.
(3) Antonio Fernandez testifies that in the early part of
January, 1900, he saw Antonio Angulo give the
defendant, in the name of the plaintiff, a sum of
money, the amount of which he is unable to state, for
the purchase of a casco to be used in the plaintiff's
and defendant's business. Antonio Angulo also
testifies, but the defendant claims that the fact that
Angulo was a partner of the plaintiff rendered him
incompetent as a witness under the provisions of
article 643 of the then Code of Civil Procedure, and
without deciding whether this point is well taken, we
have discarded his testimony altogether in
considering the case. The defendant admits the
receipt of 300 pesos from Antonio Angulo in January,
claiming, as has been stated, that it was a loan from
the firm. Yet he sets up the claim that the 825 pesos
which he received from the plaintiff in March were
furnished toward the purchase of casco No. 1515,
thereby virtually admitting that casco was purchased
in company with the plaintiff. We discover nothing in
the evidence to support the claim that the 300 pesos
received in January was a loan, unless it may be the
fact that the defendant had on previous occasions
borrowed money from the bakery firm. We think all
the probabilities of the case point to the truth of the
evidence of Antonio Fernandez as to this transaction,
and we find the fact to be that the sum in question
was furnished by the plaintiff toward the purchase for
joint ownership of casco No. 1515, and that the
defendant received it with the understanding that it
was to be used for this purposed. We also find that
the plaintiff furnished some further sums of money for
the repair of casco.
(4) The balance of the purchase price of each of the
two cascoes over and above the amount contributed
by the plaintiff was furnished by the defendant.
(5) We are unable to find upon the evidence before us
that there was any specific verbal agreement of
partnership, except such as may be implied from the
fact as to the purchase of the casco.
(6) Although the evidence is somewhat unsatisfactory
upon this point, we think it more probable than
otherwise that no attempt was made to agree upon
articles of partnership till about the middle of the April
following the purchase of the cascoes.
(7) At some time subsequently to the failure of the
attempt to agree upon partnership articles and after
the defendant had been operating the cascoes for
some time, the defendant returned to the plaintiff
1,125 pesos, in two different sums, one of 300 and
one of 825 pesos. The only evidence in the record as
to the circumstances under which the plaintiff
received these sums is contained in his answer to the
interrogatories proposed to him by the defendant, and
the whole of his statement on this point may properly
be considered in determining the fact as being in the
nature of an indivisible admission. He states that both
sums were received with an express reservation on
his part of all his rights as a partner. We find this to be
the fact.
Two questions of law are raised by the foregoing
facts: (1) Did a partnership exist between the parties?
(2) If such partnership existed, was it terminated as a
result of the act of the defendant in receiving back the
1,125 pesos?
(1) "Partnership is a contract by which two or more
persons bind themselves to contribute money,
property, or industry to a common fund, with the
intention of dividing the profits among themselves."
(Civil Code, art. 1665.)
The essential points upon which the minds of the
parties must meet in a contract of partnership are,
therefore, (1) mutual contribution to a common stock,
and (2) a joint interest in the profits. If the contract
contains these two elements the partnership relation
results, and the law itself fixes the incidents of this
relation if the parties fail to do so. (Civil Code, secs.
1689, 1695.)
We have found as a fact that money was furnished by
the plaintiff and received by the defendant with the
understanding that it was to be used for the purchase
of the cascoes in question. This establishes the first
element of the contract, namely, mutual contribution
to a common stock. The second element, namely, the
intention to share profits, appears to be an
unavoidable deduction from the fact of the purchase
of the cascoes in common, in the absence of any
other explanation of the object of the parties in
making the purchase in that form, and, it may be
added, in view of the admitted fact that prior to the
purchase of the first casco the formation of a
partnership had been a subject of negotiation
between them.
Under other circumstances the relation of joint
ownership, a relation distinct though perhaps not
essentially different in its practical consequence from
that of partnership, might have been the result of the
joint purchase. If, for instance, it were shown that the
object of the parties in purchasing in company had
been to make a more favorable bargain for the two
cascoes that they could have done by purchasing
them separately, and that they had no ulterior object
except to effect a division of the common property
when once they had acquired it, the affectio
societatiswould be lacking and the parties would have
become joint tenants only; but, as nothing of this sort
appears in the case, we must assume that the object
of the purchase was active use and profit and not
mere passive ownership in common.
It is thus apparent that a complete and perfect
contract of partnership was entered into by the
parties. This contract, it is true, might have been
subject to a suspensive condition, postponing its
operation until an agreement was reached as to the
respective participation of the partners in the profits,
the character of the partnership as collective or en
comandita, and other details, but although it is
asserted by counsel for the defendant that such was
the case, there is little or nothing in the record to
support this claim, and that fact that the defendant did
actually go on and purchase the boat, as it would
seem, before any attempt had been made to
formulate partnership articles, strongly
discountenances the theory.
The execution of a written agreement was not
necessary in order to give efficacy to the verbal
contract of partnership as a civil contract, the
contributions of the partners not having been in the
form of immovables or rights in immovables. (Civil
Code, art. 1667.) The special provision cited,
requiring the execution of a public writing in the single
case mentioned and dispensing with all formal
requirements in other cases, renders inapplicable to
this species of contract the general provisions of
article 1280 of the Civil Code.
(2) The remaining question is as to the legal effect of
the acceptance by the plaintiff of the money returned
to him by the defendant after the definitive failure of
the attempt to agree upon partnership articles. The
amount returned fell short, in our view of the facts, of
that which the plaintiff had contributed to the capital of
the partnership, since it did not include the sum which
he had furnished for the repairs of casco No. 1515.
Moreover, it is quite possible, as claimed by the
plaintiff, that a profit may have been realized from the
business during the period in which the defendant
have been administering it prior to the return of the
money, and if so he still retained that sum in his
hands. For these reasons the acceptance of the
money by the plaintiff did not have the effect of
terminating the legal existence of the partnership by
converting it into a societas leonina, as claimed by
counsel for the defendant.
Did the defendant waive his right to such interest as
remained to him in the partnership property by
receiving the money? Did he by so doing waive his
right to an accounting of the profits already realized, if
any, and a participation in them in proportion to the
amount he had originally contributed to the common
fund? Was the partnership dissolved by the "will or
withdrawal of one of the partners" under article 1705
of the Civil Code? We think these questions must be
answered in the negative.
There was no intention on the part of the plaintiff in
accepting the money to relinquish his rights as a
partner, nor is there any evidence that by anything
that he said or by anything that he omitted to say he
gave the defendant any ground whatever to believe
that he intended to relinquish them. On the contrary
he notified the defendant that he waived none of his
rights in the partnership. Nor was the acceptance of
the money an act which was in itself inconsistent with
the continuance of the partnership relation, as would
have been the case had the plaintiff withdrawn his
entire interest in the partnership. There is, therefore,
nothing upon which a waiver, either express or
implied, can be predicated. The defendant might have
himself terminated the partnership relation at any
time, if he had chosen to do so, by recognizing the
plaintiff's right in the partnership property and in the
profits. Having failed to do this he can not be
permitted to force a dissolution upon his co-partner
upon terms which the latter is unwilling to accept. We
see nothing in the case which can give the transaction
in question any other aspect than that of the
withdrawal by one partner with the consent of the
other of a portion of the common capital.
The result is that we hold and declare that a
partnership was formed between the parties in
January, 1900, the existence of which the defendant
is bound to recognize; that cascoes No. 1515 and
2089 constitute partnership property, and that the
plaintiff is entitled to an accounting of the defendant's
administration of such property, and of the profits
derived therefrom. This declaration does not involve
an adjudication as to any disputed items of the
partnership account.
The judgment of the court below will be reversed
without costs, and the record returned for the
execution of the judgment now rendered. So ordered.
Arellano, C.J., Torres, Cooper, and Mapa, JJ., concur.
Willard, J., dissenting.
ON MOTION FOR A REHEARING.
MAPA, J.:
This case has been decided on appeal in favor of the
plaintiff, and the defendant has moved for a rehearing
upon the following grounds:
1. Because that part of the decision which refers to
the existence of the partnership which is the object of
the complaint is not based upon clear and decisive
legal grounds; and
2. Because, upon the supposition of the existence of
the partnership, the decision does not clearly
determine whether the juridical relation between the
partners suffered any modification in consequence of
the withdrawal by the plaintiff of the sum of 1,125
pesos from the funds of the partnership, or if it
continued as before, the parties being thereby
deprived, he alleges, of one of the principal bases for
determining with exactness the amount due to each.
With respect to the first point, the appellant cites the
fifth conclusion of the decision, which is as follows:
"We are unable to find from the evidence before us
that there was any specific verbal agreement of
partnership, except such as may be implied from the
facts as to the purchase of the cascoes."
Discussing this part of the decision, the defendant
says that, in the judgment of the court, if on the one
hand there is no direct evidence of a contract, on the
other its existence can only be inferred from certain
facts, and the defendant adds that the possibility of an
inference is not sufficient ground upon which to
consider as existing what may be inferred to exist,
and still less as sufficient ground for declaring its
efficacy to produce legal effects.
This reasoning rests upon a false basis. We have not
taken into consideration the mere possibility of an
inference, as the appellant gratuitously stated, for the
purpose of arriving at a conclusion that a contract of
partnership was entered into between him and the
plaintiff, but have considered the proof which is
derived from the facts connected with the purchase of
the cascoes. It is stated in the decision that with the
exception of this evidence we find no other which
shows the making of the contract. But this does not
mean (for it says exactly the contrary) that this fact is
not absolutely proven, as the defendant erroneously
appears to think. From this data we infer a fact which
to our mind is certain and positive, and not a mere
possibility; we infer not that it is possible that the
contract may have existed, but that it actually did
exist. The proofs constituted by the facts referred to,
although it is the only evidence, and in spite of the
fact that it is not direct, we consider, however,
sufficient to produce such a conviction, which may
certainly be founded upon any of the various classes
of evidence which the law admits. There is all the
more reason for its being so in this case, because a
civil partnership may be constituted in any form,
according to article 1667 of the Civil Code, unless real
property or real rights are contributed to it the only
case of exception in which it is necessary that the
agreement be recorded in a public instrument.
It is of no importance that the parties have failed to
reach an agreement with respect to the minor details
of contract. These details pertain to the accidental
and not to the essential part of the contract. We have
already stated in the opinion what are the essential
requisites of a contract of partnership, according to
the definition of article 1665. Considering as a whole
the probatory facts which appears from the record, we
have reached the conclusion that the plaintiff and the
defendant agreed to the essential parts of that
contract, and did in fact constitute a partnership, with
the funds of which were purchased the cascoes with
which this litigation deals, although it is true that they
did not take the precaution to precisely establish and
determine from the beginning the conditions with
respect to the participation of each partner in the
profits or losses of the partnership. The
disagreements subsequently arising between them,
when endeavoring to fix these conditions, should not
and can not produce the effect of destroying that
which has been done, to the prejudice of one of the
partners, nor could it divest his rights under the
partnership which had accrued by the actual
contribution of capital which followed the agreement
to enter into a partnership, together with the
transactions effected with partnership funds. The law
has foreseen the possibility of the constitution of a
partnership without an express stipulation by the
partners upon those conditions, and has established
rules which may serve as a basis for the distribution
of profits and losses among the partners. (Art. 1689 of
the Civil Code. ) We consider that the partnership
entered into by the plaintiff and the defendant falls
within the provisions of this article.
With respect to the second point, it is obvious that
upon declaring the existence of a partnership and the
right of the plaintiff to demand from the defendant an
itemized accounting of his management thereof, it
was impossible at the same time to determine the
effects which might have been produced with respect
to the interest of the partnership by the withdrawal by
the plaintiff of the sum of 1,125 pesos. This could only
be determined after a liquidation of the partnership.
Then, and only then, can it be known if this sum is to
be charged to the capital contributed by the plaintiff,
or to his share of the profits, or to both. It might well
be that the partnership has earned profits, and that
the plaintiff's participation therein is equivalent to or
exceeds the sum mentioned. In this case it is evident
that, notwithstanding that payment, his interest in the
partnership would still continue. This is one case. It
would be easy to imagine many others, as the
possible results of a liquidation are innumerable. The
liquidation will finally determine the condition of the
legal relations of the partners inter se at the time of
the withdrawal of the sum mentioned. It was not, nor
is it possible to determine this status a priori without
prejudging the result, as yet unknown, of the litigation.
Therefore it is that in the decision no direct statement
has been made upon this point. It is for the same
reason that it was expressly stated in the decision that
it "does not involve an adjudication as to any disputed
item of the partnership account."

The contentions advanced by the moving party are so

evidently unfounded that we can not see the
necessity or convenience of granting the rehearing
prayed for, and the motion is therefore denied.

Arellano, C.J., Torres, Cooper, and Ladd, JJ., concur.

Willard and McDonough, JJ., did not sit in this case.
G.R. No. L-4281 March 30, 1908
JOSE GARRIDO, plaintiff-appellant,
vs.
AGUSTIN ASENCIO, defendant-appellee.
Gregorio Yulo for appellant.
P.Q. Rothrock for appellee.
CARSON, J.:
Plaintiff and defendant were members of a
partnership doing business under the firm name
of Asencio y Cia. The business of the partnership did
not prosper and it was dissolved by mutual agreement
of the members. The plaintiff brings this action to
recover from the defendant, who appears to have
been left in charge of the books and the funds of the
firm, the amount of the capital which he had invested
in the business. The defendant, alleging that there
had been considerable losses in the conduct of the
business of the partnership, denied that there was
anything due the plaintiff as claimed, and filed a cross
complaint wherein he prayed for a judgment against
the plaintiff for a certain amount which he alleged to
be due by the plaintiff under the articles of partnership
on account of plaintiff's share of these losses.
The trial court found that the evidence substantially
sustains the claim of the defendant as to the alleged
losses in the business of the partnership and gave
judgment in his favor.
The only question submitted on appeal is the
competency and sufficiently of the evidence on which
the trial court based its findings as to the status of the
accounts of the company.
Plaintiff and appellant makes the following
assignment of errors:
First. The trial court erred in holding the estado de
cuentas (statement of account) of the partnership of
Asencio y Cia. submitted by the defendant as
competent and sufficient evidence in this case.
Second. The trial court erred in holding that evidence
of record proved the existence of losses in the
business of the said partnership.
Third. The trial court erred in refusing to give
judgment in favor of the plaintiff.
It appears from the record that by mutual agreement
the defendant had general charge and supervision of
the books and funds of the firm, but it appears that
these books were at all times open to the inspection
of the plaintiff, and there is evidence which tends to
show that the plaintiff himself made entries in these
books touching particular transactions in which he
happened to be interested; so that while it is clear that
the defendant was more especially burdened with the
care of the books and accounts of the partnership, it
would appear that the plaintiff had equal rights with
the defendant in this regard, and that during the
existence of the partnership they were equally
responsible for the mode in which the books were
kept and that the entries made by one had the same
effect as if they had been made by the other.
At the trial the principal question at issue was the
amount of the profits or losses of the business of the
partnership during the period of its operation. The
plaintiff made no allegation as to profits, but denied
defendant's allegation as to the losses. The defendant
in support of his allegations offered in evidence
the estado de cuentas (general statement of
accounts) of the partnership, supported by a number
of vouchers, and by his own testimony under oath as
to the accuracy and correctness of the items set out
therein. The plaintiff assigns as error the admission of
this account on the ground that the books of the
partnership were not kept in accordance with the
provisions of Title III, Book I, of the Code of
Commerce.
It is not necessary for us to consider this assignment
of error as to the inadmissibility of this account on the
ground that the books were not kept in accordance
with the provisions of the Commercial Code, because
no objection was made to its admission in the court
below; and further, because in any event it was
admissible under the provisions of section 338 of the
Code of Civil Procedure as memorandum used to
refresh the memory of the witness. (Tan Machan vs.
Gan Aya, 3 Phil. Rep., 684.) We think further that in
view of the testimony of record that the plaintiff jointly
with the defendant kept these books, made entries
therein, and was responsible with him therefor, the
doctrine laid down in Behn, Meyer & Co., vs. Rosatzin
(5 Phil. Rep., 660) is applicable in this case, and the
correctness of the entries in these books must be
taken to be admitted by him, except so far as it is
made to appear that they are erroneous as a result of
fraud or mistake.
It appears from the record that the statement of
account, the vouchers, and the books of the company
were placed at the disposition of the plaintiff for more
than six weeks prior to the trial, and that during the
trial he was given every opportunity to indicate any
erroneous or fraudulent items appearing in the
account, yet he was unable, or in any event he
declined to specify such items, contenting himself with
a general statement to the effect that there must be
some mistake, as he did not and could not believe
that the business had been conducted at a loss.
The court below seems to have scrutinized the
account with painstaking care, and to have been
satisfied as to its accuracy, except as to some
unimportant items, which he corrected, but counsel
for the appellant reiterates in this court his general
allegations as to the inaccuracy of the account, and
points out some instances wherein he alleges that
items of expenditure appear to have been charged
against the partnership more than once.

Upon the whole record as brought here by the

appellant we are not able to say that the weight of the
evidence does not sustain the findings of the trial
court, and the judgment entered in that court should
be, and is hereby, affirmed with the costs of this
instance against the appellant. So ordered.

Arellano, C.J., Torres, Mapa Johnson, Willard, and

Tracey, JJ., concur.
G.R. No. L-47823 July 26, 1943
JOSE ORNUM and EMERENCIANA
ORNUM, petitioners,
vs.
MARIANO, LASALA, et al., respondent.
Marcelino Lontok for petitioners.
Duran, Lim and Bausa and Augusto Francisco for
respondents.
PARAS, J.:
The following facts are practically admitted in the
pleadings and briefs of the parties: The respondents
(plaintiffs below) are natives of Taal, Batangas, and
resided therein or in Manila. The petitioners
(defendants below) are also natives of Taal, but
resided in the barrio of Tan-agan, municipality of
Tablas, Province of Romblon. In 1908 Pedro Lasala,
father of the respondents, and Emerenciano Ornum
formed a partnership, whereby the former, as
capitalist, delivered the sum of P1,000 to the latter
who, as industrial partner, was to conduct a business
at his place of residence in Romblon. In 1912, when
the assets of the partnership consisted of outstanding
accounts and old stock of merchandise, Emerenciano
Ornum, following the wishes of his wife, asked for the
dissolution of the Lasala, Emerenciano Ornum looked
for some one who could take his place and he
suggested the names of the petitioners who
accordingly became the new partners. Upon joining
the business, the petitioners, contributed P505.54 as
their capital, with the result that in the new partnership
Pedro Lasala had a capital of P1,000, appraised
value of the assets of the former partnership, plus the
said P505.54 invested by the petitioners who, as
industrial partners, were to run the business in
Romblon. After the death of Pedro Lasala, his
children (the respondents) succeeded to all his rights
and interest in the partnership. The partners never
knew each other personally. No formal partnership
agreement was ever executed. The petitioners, as
managing partners, were received one-half of the net
gains, and the other half was to be divided between
them and the Lasala group in proportion to the capital
put in by each group. During the course divided, but
the partners were given the election, as evidenced by
the statements of accounts referred to in the decision
of the Court of Appeals, to invest their respective
shares in such profits as additional capital. The
petitioners accordingly let a greater part of their profits
as additional investment in the partnership. After
twenty years the business had grown to such an
extent that is total value, including profits, amounted
to P44,618.67. Statements of accounts were
periodically prepared by the petitioners and sent to
the respondents who invariably did not make any
objection thereto. Before the last statement of
accounts was made, the respondents had received
P5,387.29 by way of profits. The last and final
statement of accounts, dated May 27, 1932, and
prepared by the petitioners after the respondents had
announced their desire to dissolve the partnership,
read as follows:
Ganancia total desde el ultimo balance hasta la fecha
Participacion del capital de los hermanos Lasala en la ganancia
Participacion del capital de Jose Ornum en el ganancia
Participacion de Jose Ornum como socio industrial
Participacion del capital de Emerenciana Ornum en la ganancia
Participacion de Emerenciana Ornum como socia industrial
Siendo este el balance final lo siguiente es la
cantidad que debe corresponder a cada
socio:
Capital de los hermanos Lasala segun el ultimo
balance P4,393.0
Ganancia de este capital 55.39
Pero se debe deducir la cantidad tomada por los
hermanos Lasala
Cantidad nota que debe corresponder a los
hermanos Lasala
Capital de Jose Ornum segun el ultimo balance P9,975.1
Ganancia de este capital 125.79
Participacion de Jose Ornum como socio industrial 143.86
Pero se debe deducir la cantidad tomada por Jose
Ornum
Cantidad neta que debe corresponder a Jose Ornum
Capital de Emerenciana Ornum segun el ultimo
balance P8,448.0
Ganancia de este capital 106.54
Participacion de Emerenciana Ornum como socia
industrial 143.86
Pero se debe deducir la cantidad tomada por
Emerenciana Ornum
Cantidad neta que debe corresponder a
Emerenciana Ornum
After the receipt of the foregoing statement of
accounts, Father Mariano Lasala, spokesman for the
respondents, wrote the following letter to the
petitioners on July 19, 1932:
Ya te manifestamos francamente aqui, como
consocio, y te autorizamos tambien para que
lo repitas a tu hermana Mering, viuda, que el
motivo porque recogemos el capital y
utilidades de nuestra sociedad en todo
nuestro negocio que esta al cuidado
vosotros dos, es que tenemos un grande
compromiso que casi no podemos evitarlo.
 Por esto volvemos a rogarles que por
cualquier medio antes de terminar este mes
de julio, 1932, nosotros esperamos vuestra
consideracion. Gracias.
En cuanto hayamos recibido esto, entonces
firmaremos el balance que habeis hecho alli,
cuya copia has dejado aqui.
Recuerdos a todos alli y mandar.
Pursuant to the request contained in this letter, the
petitioners remitted and paid to the respondents the
total amount corresponding to them under the above-
quoted statement of accounts which, however, was
not signed by the latter. Thereafter the complaint in
this case was filed by the respondents, praying for an
accounting and final liquidation of the assets of the
partnership. The Court of First Instance of Manila held
that the last and final statement of accounts prepared
by the petitioners was tacitly approved and accepted
by the respondents who, by virtue of the above-
quoted letter of Father Mariano Lasala, lost their right
to a further accounting from the moment they
received and accepted their shares as itemized in
said statement. This judgment was reversed by the
Court of Appeals principally on the ground that as the
final statement of accounts remains unsigned by the
respondents, the same stands disapproved. The
decision appealed by the petitioners thus said:
To support a plea of a stated account so as
to conclude the parties in relation to all
dealings between them, the accounting must
be shown to have been final. (1 Cyc. 366.)
All the first nine statements which the
defendants sent the plaintiffs were partial
settlements, while the last, although intended
to be final, has not been signed.
We hold that the last and final statement of accounts
hereinabove quoted, had been approved by the
respondents. This approval resulted, by virtue of the
letter of Father Mariano Lasala of July 19, 1932,
quoted in part in the appealed decision from the
failure of the respondents to object to the statement
and from their promise to sign the same as soon as
they received their shares as shown in said
statement. After such shares had been paid by the
petitioners and accepted by the respondents without
any reservation, the approval of the statement of
accounts was virtually confirmed and its signing
thereby became a mere formality to be complied with
by the respondents exclusively. Their refusal to sign,
after receiving their shares, amounted to a waiver to
that formality in favor of the petitioners who has
already performed their obligation.
This approval precludes any right on the part of the
respondents to a further liquidation, unless the latter
can show that there was fraud, deceit, error or
mistake in said approval. (Pastor, vs. Nicasio, 6 Phil.,
152; Aldecoa & Co., vs.Warner, Barnes & Co., 16
Phil., 423; Gonsalez vs. Harty, 32 Phil. 328.) The
Court of Appeals did not make any findings that there
was fraud, and on the matter of error or mistake it
merely said:
The question, then is, have mistakes, been
committed in the statements sent
appellants? Not only do plaintiffs so allege,
and not only does not evidence so tend to
prove, but the charge is seconded by the
defendants themselves when in their
counterclaims they said:
"(a) Que recientemente se ha hecho una
acabada revision de las cuentas y libros del
negocio, y, se ha descubierto que los
demandados cometieron un error al hacer
las entregas de las varias cantidades en
efectivo a los demandantes, entregando en
total mayor cantidades a la que tenian
derecho estos por su participacion y
ganancias en dicho negocio;
"(b) Que el exceso entregado a los
demandantes, asciende a la suma de
quinientos setenta y cinco pesos con doce
centimos (P575.12), y que los demandados
reclaman ahora de aquellos su devolucion o
pago en la presente contrademanda;"
In our opinion, the pronouncement that the evidence
tends to prove that there were mistakes in the
petitioners' statements of accounts, without specifying
the mistakes, merely intimates as suspicion and is not
such a positive and unmistakable finding of fact (Cf.
Concepcion vs. People, G.R. No. 48169, promulgated
December 28, 1942) as to justify a revision, especially
because the Court of Appeals has relied on the bare
allegations of the parties, Even admitting that, as
alleged by the petitioners in their counterclaim, they
overpaid the respondents in the sum of P575.12, this
error is essentially fatal to the latter's theory what the
statement of accounts shows, and is therefore not the
kind of error that calls for another accounting which
will serve the purpose of the respondent's suit.
Moreover, as the petitioners did not appeal from the
decision of the Court abandoned such allegation in
the Court of Appeals.
If the liquidation is ordered in the absence of any
particular error, found as a fact, simply because no
damage will be suffered by the petitioners in case the
latter's final statement of the accounts proves to be
correct, we shall be assuming a fundamentally
inconsistent position. If there is not mistake, the only
reason for a new accounting disappears. The
petitioners may not be prejudiced in the sense that
they will be required to pay anything to the
respondents, but they will have to go to the trouble of
itemizing accounts covering a period of twenty years
mostly from memory, its appearing that no regular
books of accounts were kept. Stated more
emphatically, they will be told to do what seems to be
hardly possible. When it is borne in mind that this
case has been pending for nearly nine years and that,
if another accounting is ordered, a costly action or
proceeding may arise which may not be disposed of
within a similar period, it is not improbable that the
intended relief may in fact be the respondents'
funeral.
We are reversing the appealed decision on the legal
ground that the petitioners' final statement of accounts
had been approved by the respondents and no
justifiable reason (fraud, deceit, error or mistake) has
been positively and unmistakably found by the Court
of Appeals so as to warrant the liquidations sought by
the respondents. In justice to the petitioners, however,
we may add that, considering that they ran the
business of the partnership for about twenty years at
a place far from the residence of the respondents and
without the latter's intervention; that the partners did
not even know each other personally; that no formal
partnership agreement was entered into which bound
the petitioners under specific conditions; that the
petitioners could have easily and freely alleged that
the business became partial, or even a total, loss for
any plausible reason which they could have
concocted, it appearing that the partnership engaged
in such uncertain ventures as agriculture, cattle
raising and operation of rice mill, and the petitioners
did not keep any regular books of accounts; that the
petitioners were still frank enough to disclose that the
original capital of P1,505.54 amounted, as of the date
of the dissolution of the partnership, to P44,618.67;
and that the respondents had received a total of
P8,105.76 out of their capital of P1,000, without any
effort on their part, we are reluctant even to make the
conjecture that the petitioners had ever intended to, or
actually did, take undue advantage of the absence
and confidence of the respondents. Indeed, we feel
justified in stating that the petitioners have here given
a remarkable demonstration of the legendary honesty,
good faith and industry with which the natives of Taal
pursue business arrangements similar to the
partnership in question, and we would hate, in the
absence of any sufficient reason, to let such a
beautiful legend have a distateful ending.
The appealed decision is hereby reversed and the
petitioners (defendants below) absolved from the
complaints of the respondents (plaintiffs below), with
costs against the latter.
Yulo, C.J., and Hontiveros, J., concur.
Separate Opinions
OZAETA J., concurring:
Let us record here the mental processes by which I
arrived at my vote for the reversal of the judgment of
the Court of Appeals.
After the respondents had announced their desire to
withdraw from the "partnership," the petitioners
rendered a final statement of account dated May 27,
1932, which is set forth in the opinion written by Mr.
Justice Paras and which was accepted as correct by
the respondents, who them asked from the payment
to them in cash of their participation in the capital and
profits of the business as shown by said statement. It
must be borne in mind that the assets reflected in said
statement of account did not consist of cash but of
merchandise, credits, land, large cattle, and a rice
mill. To gratify the respondent wish the petitioners
raised money and paid respondents' total
participation. After their interest and participation in
the business had thus been liquidated, the
respondents, apparently believing that they might be
entitled to more money than they had accepted and
received, sought to have the books and records
examined by a representative of theirs. The
petitioners regarded such conduct of the respondents
not only as a violation of their agreement to consider
the "partnership" dissolved upon the payment of
respondents' participation therein but as an
unwarranted reflections upon their honesty and good
faith. Hence they refused to allow the examination or
proposed reliquidation.
On November 20, 1933, the complaint in this case
was filed by the respondents, praying for an
accounting and final liquidation of the assets of the
"partnership." The trial lasted off and on from
September 26, 1934, to March 23, 1937, involving a
transcript of 815 pages of oral testimony. The Court of
First Instance of Manila rendered its decision on
December 29, 1937, in which it found that there was
no proof whatever to the effect that the defendants
acted in bad faith in the preparation of the periodical
statements of account by not including merchandise
or money to defraud the plaintiffs. Judge Rovira
analyzed the main aspect of the case as follows:
Pasado ahora a considerar la cuestion de
las cuentas, los demandantes sostienen que
los demandados deben rendir nueva cuenta
porque, segun ellos, estos, como socios
industriales y capitalistas, no podian incluir
su participacion como capital, pues por este
procedimiento los demandantes fueron
absorbidos y los demandados obtuvieron
mayor participacion en las ganancias.
Resulta de las pruebas que los
demandados, al hacer cada balance,
separaban la ganancia del capital, asi como
la ganancia que correspondia a los socios
industriales, y despues la participacion
proporcional que corresponde al capital y la
que los correspondia como socios
industriales, aumentando asi su capital en la
sociedad. Esto mismo hacian en relacion
con las gananciales del capital de Pedro
Lasala.
El primer balance sometido por los
demandados a los demandantes, despues
de la muerte de Pedro Lasala esta fechado
el 28 de diciembre de 1913, los
demandantes no protestaron contra este
balance; al contrario, recibieron su
participacion de P103, y no existe prueba
alguna que desvirtue la anotacion que
aparece a pagina 4 del Exhibit S, de que
Jose Ornum entrego esta cantidad a los
demandantes.
En los aos subsiguientes, o sea en los
aos de 1914, 1915, 1917, 1919, 1920,
1922, 1924 y 1929 y ultimamente el ao de
1932, los demandados han estado
sometiendo los balances del negocio.
Contra ninguno de los balances presentados
por los demandados se ha presentado
protesta alguna; al contrario, en 1929,
cuando los demandantes deseaban
separarse del negoci, Dionisia Lasala
escribio la carta Exhibit 1, en donde, entre
otras, se hizo constar que el capital 'esta en
buenas manos, produce ganancias y
ademas estoy contenta de los balances que
me habeis estado enviando.
Por otra parte, el mismo Mariano Lasala, en
carta de fecha 19 de julio de 1932, Exhibit 2,
dijo que 'en cuanto hayamos recibido todo
(refiriendose indudablemente al capital y
ganancia) entonces firmaremos el balance
que habeis hecho alli, cuya copia has dejado
aqui.'
Si los demandantes no estaban conformes
con el procedimiento adoptado por los
demandados, por que no protestaron
desde el principio? Cuando los demandados
les enviaban los balances, era la
oportunidad para ellos de expresar sus
quejas o sus agravios, pero se callaron;
expresaron su conformidad, y ahora vienen
a pedir otra nueva liquidacion.
Es mas; segun las pruebas despues del
balance del ao de 1932, los demandantes
han enviado cartas y telegramas pidiendo su
participacion de acuerdo con dicho balance.
Cayetano Montenegro, por ordenes del
demandado Jose Ornum, entrego a los
demandantes las respectivas cantidades
que les correspondia, sin ninguna protesta.
Segun el Exhibit 3, de fecha 20 de octubre
de 1932. Dionisia Lasala recibio de Jose
Ornum P1,600, de los cuales P1,000 habian
sido recibidos por dicha Dionisia Lasala en 2
de junio del mismo ao. Tambien Rafaela
Lasala, por el Exhibit 6, recibio de Jose
Ornum, por conducto de Cipriano
Montenegro, la cantidad de P368.47, y,
segun la nota que aparece al pie de dicho
Exhibit 6, el resto de la deuda de P400 fue
recibido por Mariano Lasala segun los
Exhibits 12, 13 y 14. Todo lo cual demuestra
que los demandantes estaban conformes
con los balances presentados, incluyendo el
ultimo balance del ao de 1932.
El Juzgado es de opinio de que no procede
ordenar a los demandados que presenten
una nueva liquidacion. Ademas, segun las
pruebas los demandados no llevaban otros
libros fuera de los Exhibits S y T. Es verdad
que la ley require que los demandados
lleven algunos libros, y el contador de los
demandantes declaro que, por la falta de
dichos libros, no ha podido verificar un
balance mas corecto, pues solo tuvo por
base de la liquidacion presentada los libros
presentados como exhibits S y T. Las
deficiencias notadas y las conclusiones de
dicho contador no pueden, en manera
alguna, cambiar el aspecto de la cuestion.
No existe prueba alguna de que los
demandados llevaban otros libros. Lo unico
que se probo es que segun la ley, los
demandados debian haber llevado otros
libros, pero no se ha probado que estos en
alguna ocasion hayan existido y que dichos
demandados, para defraudar a los
demandantes, no han querido presentar
dichos libros. Tampoco existe prueba alguna
de que, en la preparacion de los balances
que obran en los Exhibits S y T, los
demandados procedieron de mala fe, no
incluyendo mercaderias o dinero para
defraudar a los demandantes. Bajo estas
circunstancias, no podemos dar al Exhibit U
de los demandantes, que se relaciona con
los Exhibits S y T, el valor que pretenden los
demandantes por cuanto resultan
incompletos los datos sobre los cuales
descansa dicho report.
 Es principio generalmente reconocido que la
ley no puede amparar al que duerme, y
siendo esto asi, no acertamos a comprender
por que desde el ao de 1913, en que se
presento el primer balance, despues de la
muerte de Pedro Lasala y los sucesivos
balances hasta 1929 y, ultimamente, el
correspondiente al ao de 1932, solamente
el 20 de noviembre de 1933 se inicia la
presente accion para exigir una rendicion de
cuentas a los demandados, en esta causa.
Con una contalibidad tan deficiente, de una
parte, de otra, con balances anteriores ya
aceptados, y, finalmente, con el recibo de
cantidades resultantes del ultimo balance de
1932 de parte de los demandados, no
vemos camino legal y expedito para
sostener la accion de los demandantes en el
presente asunto, y somos, por tanto, de
opinion de que los demandados, despues de
presentada su liquidacion de 1932 y
entregados a los demandantes sus saldos,
segun queda dicho, no pueden ahora ser
obligados a una rendicion de cuentas.
Por todas las consideraciones expuestas,
dclaramos que no procede ordenar que los
demandados rindan nuevas cuentas y, en su
consecuencia, se absuelve a los
demandados de la demanda, sin especial
pronunciamiento en cuanto a las costas.
The Court of Appeals reversed that judgment and
ordered the defendants "to render an accounting of all
the assets of the partnership and of all its profits and
losses from the time of its organization to the date of
plaintiffs' withdrawal."
This is an unfortunate and unnecessary lawsuit,
engendered by suspicion and misunderstanding on
the part of the respondents and abetted by pride
and amor propio on the part of their opponents. It is
unfortunate from two viewpoints sentimental and
material: (1) Friendship that for twenty years united
the parties for the sake of business and of their
common birthplace has become but a program
memory to them, it having been dethroned from their
hearts and replaced by ill will and lacerated
sentiments. (2) The fruit of more than twenty years of
toil that should entitle the petitioners to enjoy
competence and comfort in their declining years is
being squandered by them in their defense of this
protracted litigation. This lawsuit is unnecessary
because once the smoke of passion and
misunderstanding has vanished, the parties would or
should see that there is no real cause for quarrel
between them.
The judgment of the trial court which would, once and
for all, put an end to this unnecessary lawsuit,
achieves practical justice; that of the Court of Appeals
which would prolong it, pursues theoretical justice.
Our own verdict is not difficult to make. Let us pour oil
on troubled waters.
First. The suspicions entertained by the respondents
against the good faith of their erstwhile friends, the
petitioners, finds expression in the allegation of
paragraph 8 of their complaint:
8. That the said defendants, in order to
defraud and deprive the plaintiffs of their just
share in the business have caused
properties, which rightfully belong to the
business of which they were and are the
managers, to be inscribed in their own joint
names or in their individual names, by virtue
of which said defendants now appears to be
the sole and exclusive owners of said
properties and their fruits.
Such suspicion is unjustified. There is nothing
irregular or improper in the act of the petitioners of
putting the properties and the business in their own
names. The association of the parties was not a
general copartnership under articles 125-144 of the
Code of Commerce but one of joint accounts
governed by articles 239-243 of the same Code. The
respondents acquired an interest in the transactions
of the petitioners by contributing thereto merchandise
and accounts receivable valued at P1,000 (Article
239.) No formality was observed in the formation of
the association. (Article 240.) No commercial name,
common to all the participants was adopted, and the
petitioners transacted and managed the business in
their own individual names and under their individual
liability. (Article 241.) The respondents had no reason
to expect the petitioners to put the business and
properties in the name of the "partnership" because
they knew that from the beginning no firm name had
been adopted for it. The respondents were silent
partners.
Second. An apparent misunderstanding on the part of
the respondents is reflected in the allegation of
paragraph 10 of their complaint:
10. That the defendants have fraudulently
withdrawn from the funds of the said
partnership large amounts of money, which
they applied for their personal use and
benefit to which withdrawals they were not
legally entitled, thereby impairing seriously
the capital of the partnership and hampering
its orderly and efficient administration.
Such unkind words uttered against long-trusted
business associates can only be attributed to a
serious misunderstanding in view of the fact that
neither the trial court nor the Court of Appeals found
any indicia of bad faith on the part of the petitioners.
The aspersion was wholly unwarranted.
Third. The respondents have apparently been misled
by the public accountant they employed, who
advanced a different method of computing the
participations of the parties in the profits. As noted by
the trial court in its decision and as urged by the
respondents in their brief, they claim that the
petitioners, "as industrial and capitalist partners, could
not include their participation in the profits as capital
because by such procedure the plaintiffs
[respondents] were absorbed and the defendants
[petitioners] obtained greater participation in the
profits. Following the hint of their "expert" accountant,
the respondent contend in their brief that the original
profit-sharing agreement of 50 per cent to the
industrial partner and the balance to be distributed
among the partners in proportion to their capital,
namely 66.67 per cent to the respondents for their
capital of P1,000 and 33.33 per cent to the petitioners
for their capital of P500, should be maintained
notwithstanding the increase of the capital of the
petitioners through the accumulation of unwithdrawn
profits. This contention does not impress us as being
either fair or sound. Throughout the twenty years of
have by common consent followed the same method
of distributing the profits in party was permitted to put
in as much capital as he wanted and to share in the
profits accordingly. Up to the time the respondents
received the last centavo of their participation in the
capital and profits of the business, they had tacitly
and repeatedly approved, the same procedure of
dividing the profits. They must have found it to be fair,
as indeed it was, for why should not one's share of
the profits increase in proportions to one's capital? It
is true that the original capital of respondents and
petitioners were P1,000 and P505.54 respectively, or,
roughly, a proportion of two to one be maintained
after the capital of the petitioners has increased
through the accumulation of unwithdrawn profits? In
any event, as the trial court held, the respondents are
now estopped from insisting on a fixed and invariable
two-to-one division of the profits regardless of the
amount of the capital of each of the parties in a given
year.
Fourth. If, as we have seen, there is no reasons for a
new division of the profits as contended by the
respondents, it seems to us that no useful purpose
would be attained by remanding the case to the trial
court with an order to the petitioners to render a new
account. As we have noted, respondents' allegation of
fraud and bad faith on the part of the petitioners in the
preparation of the statements of account submitted by
them to the respondents and tacitly approved by the
latter, was not found proven by the Court of Appeals.
All that the Court of Appeals intimated was that the
plaintiffs alleged that mistakes had been committed
and that the evidence so tended to prove. But the
mistake pointed out by the respondents consisted
principally in the mode or procedure of dividing the
profits and in petitioners' having caused the properties
"to be inscribed in their own joint names or in their
individual names"; and as we have seen, such alleged
mistakes are unfounded.
During the trial of this case, which off and on lasted
nearly three years, the petitioners and their witnesses,
who had to come from the Province of Romblon to
Manila, presented the only books they kept to the
business (Exhibits S and T). which respondents'
expert accountants audited and found to be incorrect
as to the mode of dividing the profits. Of course, the
auditor of the respondents also demanded vouchers,
ledgers, and other books. But the business having
been run for twenty years without employing a
bookkeeper, it seems too late now to do so after the
"partnership" has been dissolved.
In the absence of any finding of fraud or prejudicial
error committed by the petitioners in the rendition of
their accounts, which were tacitly, approved by their
respondents, who asked for and received their
participation in accordance with the liquidation, we
think it would only occasion unnecessary trouble and
expense to both parties to require further accounting
and remand the case to the trial court for further
proceedings. Nine years of litigation in three instances
should be enough to afford the parties in this case
their day in court. It would be scandalous to prolong it
under the circumstances. After all, it's only a tempest
in a teapot.
MORAN, J., dissenting:
The decision of the majority, ultimately analyzed,
suggests the query: May this Court, in an appeal by
certiorari from a judgment of the Court of Appeals,
make its own finding of fact in disregard of the
findings of the latter Court of Appeals, make its own
findings of fact in disregard to the findings of the latter
Court and reverse the appealed judgment
accordingly? The rule is settled that this Court cannot,
and that, on the contrary, in every such appeal
"everything necessary to uphold the jurisdiction" of
the Court of Appeals "and the correctness of its
proceedings and decision will be presumed, in the
absence of a clear showing to the contrary". (4 C.J.,
1082.)
The essential facts of the case, as found by the Court
of Appeals, are as follows: Petitioners and
respondents were members of a commercial
partnership, the former being the managers of the
business and the latter having "no hand whatsoever in
the conduct of it." From December 23, 1913 to May
27, 1932, petitioners had made ten balance
statements and sent copies thereof to respondents
together with the latter's shares in the profits. No
question arose between the parties as to the
correctness of the balance statements until the tenth
statement was made, respondents had made known
to petitioners their desire to withdraw from the
partnership and had requested for the remittance of
their capital and profits. On July 9, 1932, after the
tenth statement was received by them, respondent
reiterated their desire for withdrawal, adding that "en
cuanto hayamos recibido todo, entonces firmaremos
el balance que habeis hecho alli, cuya copia has
dejado aqui." The amount which purported to be their
entire capital and profits was received by respondents
but they refused to sign the statement of final
liquidation because they had an agreement with
petition to the effect that before they sign it, "they
would send some one to Tablas to examine the
partnership books, but that afterwards the defendants
(petitioners here) declined to allow plaintiffs'
(respondents here) representative to see said books."
And the evidence tends to prove, so the Court of
Appeals concluded, that there were mistakes in
petitioners statements of account sent to
respondents, as corroborated by petitioners
themselves in their counterclaims.
Upon these facts, the majority reversed the decision
of the Court of Appeals and sustained the petitioners
plea of concluded accounting upon the following
grounds.
1. That as respondents have promised to sign the
final statement of accounts upon their receipt of their
entire capital and profits, their acceptance without
reservation of said capital and profits, constitutes
virtual approval of the final liquidation and their
signing the same becomes a mere formality to be
subsequently complied with and which was waived by
their refusal to do so;
2. That while re-examination of accounts is authorized
upon proof of fraud or gross error, in the instant case,
the Court's finding as to mistake is not positive and its
pronouncement that "the evidence tends to prove that
there was mistake in the statement of accounts is not
a definite conclusion sufficient to justify a further
accounting";
3. That as this case has been pending for nearly nine
years, "if another accounting is ordered, a costly
action or proceedings may arise which may not be
disposed of within a similar period," and that
accordingly "it is not improbable that the intended
relief may prove to be the respondents' funeral"; and
4. That, in a nutshell, the circumstances of the case
attest remarkably to the honesty of petitioners in their
dealings with respondents.
I propose to take up these grounds seriatim.
"An account stated" has been defined as "an
agreement that the balance and all items of
an account representing the previous
monetary transaction of the parties thereto
are correct, together with the promise to pay
such balance." (1 C. J.S., p. 693.) In the
present case, was there such an
agreement? Respondents, it is true, had
promised to sign the balance statement upon
receiving their capital and share in the
profits, but they actually had never signed
such statement and a promise to sign is not
equivalent to signing. The fact that
respondents have never signed the
statement only indicates that they could not
agree with petitioners thereon. And if there is
no agreement there is no account stated.
Indeed, it has been held that "in stating as
account, as in making any other agreement,
the minds of the parties must meet." (1 C.J.,
pp. 684-685.) Here, there has been no
meeting of minds as to the true balance.
Besides, respondents' promise to sign the statement
of final liquidation upon receipts of their entire capital
and profits was not absolute. It was subject to the
agreement with petitioners that before respondents
"sign the final settlement they would send some one
to Tablas to examine the partnership books." This is a
fact supported by proof expressly mentioned by the
Court of Appeals which the majority has utterly
ignored and if considered would have been decidedly
fatal to the conclusion it has reached. As respondents
"to whom the accounts were rendered had no
knowledge of all the circumstances relating to the
business and had to rely upon the good faith of their
partners" (words of the Court of Appeals), the
examination of the partnership books becomes to
them a matter of capital important which, for purposes
of final liquidation, cannot lightly be dismissed. When
petitioners declined to allow respondents'
representative to see said books in violation of the
agreement, respondents must be deemed legally
exempted from their promise and are, therefore,
entirely justified in refusing to sign the final settlement.
Even if it be conceded that the final settlement had
been acquiesced in by the respondent, a reopening of
accounts, as the majority itself admits, is authorized
upon a showing of fraud or mistake. The rule is that
"an account stated being only prima facie evidence of
its correctness, does not work an estoppel and is
subject to impeachment for fraud or mistake; and if
fraud or mistake exists it is immaterial that the parties
agreed that the account shall not be opened for error
after a fixed period, that it was signed by the party
charged, or that evidence of indebtedness, receipt in
full, or releases were given." (1 C.J.S., pp. 728-729.)
In the instant case, does there exist evidence of such
mistake? The Court of Appeals, putting up the same
question, categorically stated:
The question then is, have mistakes been
committed in the statements sent
appellants? Not only do plaintiffs so allege,
and not only does the evidence so tend to
prove, but the charged is seconded by the
defendant themselves when in their
counterclaims they said:
(a) Que recientemente se ha hecho una
acabada revision de las cuentas y libros del
negocio, y, se ha descubierto que los
demandados cometieron un error al hacer
las entregas de las varias cantidades en
efectivo a los demandantes, entregando en
total mayores cantidades a la que tenian
derecho estos por su participacion y
ganancias en dicho negocio.
But the majority averred that this does not constitute a
positive findings of mistake and that "the
pronouncement of the Court of Appeals that the
evidence tends to prove that there was a mistake in
the statement of accounts is not a definite conclusion
in a sense sufficient to justify a further accounting." As
a general rule when the grant or refusal of a legal
relief sought in this Court depends upon the existence
of findings of fact by the Court of Appeals, the test for
the grant or refusal of such relief is not whether its
finding is positive or not, but whether such findings
actually exists and is sufficient for the purpose. The
reason is, in the language of the majority itself, "we
are not here authorized to review the evidence and
determine the existence" of any matter of fact. In the
closely analogue case of Zubiri vs. Quijano, G.R. No.
48696. November 28, 1942, this Court held:
Under the second assignment, the
petitioners alleged that the Court of Appeals
erred in not finding that she had paid to the
respondent usurious interest amounting (as
found by the Court of the First Instance of
Mindoro) to P950. The pronouncements of
the Court of Appeals to wit, "pero
rechazamos la pretension de la demandada,
aceptada por el Tribunal a quo, de que el
demandante percibio intereses usurarios"
and "con respecto a la alegacion sobre
usura, la misma nos parece insostenible",
being conclusions, of fact, must be accepted
for the purposes of the present appeal, since
we cannot make contrary findings without
reexamining the evidence, and we are not
authorized to do this.
In the instant case, the Court of Appeals made a
general conclusion of fact as to the existence of
mistake and, on the authority of the case cited, this
general conclusion must be deemed sufficient. When
the Court of Appeals went further and fortified its
general conclusion of fact by a specific instance of
such mistake, are we to reject the finding as less
sufficient because more specific?
But it is said that the Court of Appeals merely stated
that the evidence so tend to prove" the existence of
mistake. The use, however, of the verb "tend" in no
way imports ex necessitate rei indefiniteness or
ambiguity of the evidence upon which the Court of
Appeals rested its conclusion of mistake. Doubtless,
the verb was used advisedly because, the action
being merely to compel accounting, the Court cannot
and is not actually passing finally upon the
correctness of the accounts. Its pronouncement as to
mistake cannot accordingly be couched with finality,
much as the majority wishes it to be, but should
merely be worded as to indicate that a ground exists
for the accounting prayed for.
And as to the specific mistake found by the Court of
Appeals to have been admitted in petitioners'
counterclaim, the majority argues that such mistake
consists in overpayment of respondents of what is
due to them, and therefore, the error was not to their
prejudice. This argument entirely misses the point.
Whether the mistake be favorable or unfavorable to
respondents, the fact remains that a mistake exists
and this is sufficient to authorize a reopening even of
a concluded account. Indeed, if the mistake be one
prejudicial to the interest of the party who made the
statement, it is all the worse. When a person makes a
mistake against himself when he is presumed to have
taken special care for the protection of his interest, he
may in all probability be presumed to have made
more mistakes against others whose interests he is
less concerned with, if at all.
But assuming that the Court's finding as to mistake is
insufficient, is the majority justified in closing the case
upon that ground? To foreclose accounting, under the
circumstances, is to make, in effect, a contrary finding
that there is no mistake and to presume that
petitioners' accountings is correct. This is both
unauthorized and faulty. Unauthorized, because when
the finding of the Court of Appeals is here deemed
insufficient, the remedy is not for this Court to make
contrary findings but to supply the deficiency by
remanding the case to the Court of Appeals for further
findings, as we did in Ofiana vs. People (40 Off. Gaz.,
2293), and Bautista vs. Victoriano G.R. No. 46879,
April 3, 1940. Faulty, because when the majority
presumes that petitioners accounting is correct, it
takes for granted precisely the basic issue of the
case. And the presumption becomes the more faulty
when we considered that it militates against positive
findings of mistake by the Court of Appeals. The
existence of such findings, whether or not they are
insufficient, constitutes a solemn warning against
reliance upon a mere presumption, specially if there
exists a contrary presumption to the effect that
everything necessary to uphold the correctness of the
decision appealed from shall be deemed present in
the record, in the absence of a clear showing to the
contrary. And here, there is absolutely no showing
that the supposedly insufficient findings are
erroneous.
The majority expresses the fear that, as this case has
been pending for nearly, nine years, if another
accounting is ordered a costly action or proceedings
may arise which may not be disposed of within a
similar period. I cannot understand how this Court
would haphazardly close a case only upon bare fear
or delay. What the law abhors is unnecessary delay in
the administration of justice. Delays necessary for the
ascertainment of truth are welcomed. Hurried justice
is certainly not to be less deplored than delayed
justice. Dispatch in the disposal of cases is, indeed, in
every system of law, a beautiful ideal to be devoutly
wished for; but, like every other ideal, its beauty or
utility ends with its abuse. We owe it to the paramount
interests of justice that in every litigation we are called
upon to decide, we should strive thoroughly and
judiciously to ascertain the truth and not to hurriedly
pull down the curtain on the case until we are
reasonably certain that all efforts to the end have
been exhausted.
The majority adds that if the accounting prayed for the
permitted, it is not improbable that the intended relief
may prove to be the respondents' funeral. I take this
statement to mean that the majority hazards the
conjecture that if a new accounting is ordered,
respondents will probably come out to be less entitled
that what they have received. I do not think this Court
should, in propriety, hazard any guess on the
probable outcome of any suit specially where the
guess is made on the basis of factual evidence about
which it cannot speak with authority. And, neither is
the guess good, for if we remand the case to the
Court of Appeals for more specific findings, the
likelihood is that more specific mistakes will be shown
as to render it inevitable for this Court to order a new
accounting. This probability is founded not on mere
conjecture but on the presumption of law above
mentioned that the conclusions of fact of the Court of
Appeals are in accordance with the evidence.
Furthermore, respondents in asking for an accounting
are of course ready and willing to abide by any result,
whether it be favorable or unfavorable to them. There
being just grounds therefor, it should not be denied by
this Court because such accounting may be
disastrous to respondents.
The majority concluded its decision thus:
Considering that they (petitioners) ran the
business of the partnership for about twenty
years at a place far from the residence of the
respondents and without the latter's
intervention; that the partners did not even
know each other personally; that no formal
partnership agreement was entered into
which bound the petitioners under specific
conditions; that the petitioners could have
easily and freely alleged that the business
became a partial, or even a total, loss for any
plausible reason which they could have
concocted, it appearing that the partnership
engaged in such uncertain ventures as
agriculture, cattle raising, and the operation
of rice mill, and the petitioners did not keep
any regular books of accounts; that the
petitioners were still frank enough to disclose
that the original capital of P1,505.54
amounted, as of the date of the dissolution of
the partnership to P44,618.67; and that the
respondents had received a total of
P3,105.76 out of their capital of P1,000,
without any effort on their part, we are
reluctant even to make the conjecture that
the petitioners had ever intended to, or
actually did, take undue advantage of the
absence and confidence of the respondents.
Indeed, we feel justified in stating that the
petitioners have here given a remarkable
demonstration of the legendary honesty,
good faith and industry with which the
natives of Taal pursue business
arrangements similar to the partnership in
question, and we would hate in the absence
of any sufficient reason to let such a
beautiful legend have a distateful ending.
Too much, I fear, has here been assumed by the
majority. They assumed that the figures cited are
correct when they are in question; they assumed that
petitioners have not taken advantage of the
confidence of the respondents when this yet remains
to be seen; they assumed that petitioners' accounting
is correct when this is precisely the question between
the parties; and, finally, they held that because
petitioners did not keep any regular books of account,
they should not be compelled to an accounting
because they may not be able to do so, which is in
effect offering a premium for negligence. This mode of
ratiocination is, to my regret, without authority and
without parallel. True petitioners ran the business of
the partnership without intervention whatever on the
part of respondents who relied entirely on the good
faith of the former. This indicates that the relation
between the parties is manifestly fiduciary and it has
been held that "when a a fiduciary relationship exists
between the parties stating an account in will be more
readily reopened than when the parties had been
dealing with each other at arm's length." (1 C.J.S. p.
729.)
I wish I could share with the majority in the
abundance of their admirations for what they called
the "legendary honesty, good faith and industry with
which the natives of Taal pursue business
arrangements similar to the partnership in question to
let "such a beautiful legend have a distasteful ending."
But I fell loath to pose a set of men as paragons of
virtue and otherwise reflect, without cause or reason,
upon the integrity of the rest of their kind. I fell even
more loath to rest the judgment of this Court upon a
mere legend, no matter how beautiful that legend may
be, and would prefer to adjudicate every case upon
what the evidence and the law alone may direct.
Facts, not fancy, are still the chosen tools with which
the courts perform their solemn function of dispensing
justice of litigants.

After this dissent had been written, Brother Justice

Ozaeta gave out his concurring opinion predicated
fundamentally upon facts not appearing in the findings
of the Court of Appeals. We have held time and again
that in appeals by certiorari from the Court of Appeals
and in cases like the present one, only questions of
law may be considered, question of fact requiring
examination of evidence being without our jurisdiction.
(Rule 46, sec. 2; Guico vs. Mayuga, 63 Phil., 328;
Mateo vs. Collector of Customs, 63 Phil., 470;
Mamuyac vs. Abena, 38 Off. Gaz., 34,
Meneses vs.Com. of the Philippines, 40 Off, Gaz., 7th
Sup. 41; Diaz vs. People, 40 Off. Gaz. 3d Sup. 22.) I
abstain, therefore, from dealing on matters that are
forbidden to us by our own Rules. Doubtless, the
concurring opinion is impelled by the commendable
desire to do "practical," not "theoretical," justice.
Regrettably, however, we cannot fulfill this end at the
risk of transcending the limits of this Court's
jurisdictions. Beyond that jurisdiction all our
pronouncements have no judicial value for they may
be regarded as made out of court and do not
constitute due process of law. And, what is worse is
that the concurring opinion takes the decision of the
Court of First Instance wholly or in part as a basis for
reversing the decision of the Court of Appeals. This
mode of procedure is unprecedented and amazing.
The law considers the Court of Appeals as superior to
a Court of First Instance specially on matters of fact,
and yet the reverse is implied in the concurring
opinion.

I vote, therefore, to affirm the judgment of the Court of

Appeals.

Bocobo and Imperial, JJ., also dissenting:

G.R. No. L-31684 June 28, 1973
EVANGELISTA & CO., DOMINGO C.
EVANGELISTA, JR., CONCHITA B. NAVARRO and
LEONARDA ATIENZA ABAD SABTOS, petitioners,
vs.
ESTRELLA ABAD SANTOS, respondent.
Leonardo Abola for petitioners.
Baisas, Alberto & Associates for respondent.
MAKALINTAL, J.:
On October 9, 1954 a co-partnership was formed
under the name of "Evangelista & Co." On June 7,
1955 the Articles of Co-partnership was amended as
to include herein respondent, Estrella Abad Santos,
as industrial partner, with herein petitioners Domingo
C. Evangelista, Jr., Leonardo Atienza Abad Santos
and Conchita P. Navarro, the original capitalist
partners, remaining in that capacity, with a
contribution of P17,500 each. The amended Articles
provided, inter alia, that "the contribution of Estrella
Abad Santos consists of her industry being an
industrial partner", and that the profits and losses
"shall be divided and distributed among the partners
... in the proportion of 70% for the first three partners,
Domingo C. Evangelista, Jr., Conchita P. Navarro and
Leonardo Atienza Abad Santos to be divided among
them equally; and 30% for the fourth partner Estrella
Abad Santos."
On December 17, 1963 herein respondent filed suit
against the three other partners in the Court of First
Instance of Manila, alleging that the partnership,
which was also made a party-defendant, had been
paying dividends to the partners except to her; and
that notwithstanding her demands the defendants had
refused and continued to refuse and let her examine
the partnership books or to give her information
regarding the partnership affairs to pay her any share
in the dividends declared by the partnership. She
therefore prayed that the defendants be ordered to
render accounting to her of the partnership business
and to pay her corresponding share in the partnership
profits after such accounting, plus attorney's fees and
costs.
The defendants, in their answer, denied ever having
declared dividends or distributed profits of the
partnership; denied likewise that the plaintiff ever
demanded that she be allowed to examine the
partnership books; and byway of affirmative defense
alleged that the amended Articles of Co-partnership
did not express the true agreement of the parties,
which was that the plaintiff was not an industrial
partner; that she did not in fact contribute industry to
the partnership; and that her share of 30% was to be
based on the profits which might be realized by the
partnership only until full payment of the loan which it
had obtained in December, 1955 from the
Rehabilitation Finance Corporation in the sum of
P30,000, for which the plaintiff had signed a
promisory note as co-maker and mortgaged her
property as security.
The parties are in agreement that the main issue in
this case is "whether the plaintiff-appellee (respondent
here) is an industrial partner as claimed by her or
merely a profit sharer entitled to 30% of the net profits
that may be realized by the partnership from June 7,
1955 until the mortgage loan from the Rehabilitation
Finance Corporation shall be fully paid, as claimed by
appellants (herein petitioners)." On that issue the
Court of First Instance found for the plaintiff and
rendered judgement "declaring her an industrial
partner of Evangelista & Co.; ordering the defendants
to render an accounting of the business operations of
the (said) partnership ... from June 7, 1955; to pay the
plaintiff such amounts as may be due as her share in
the partnership profits and/or dividends after such an
accounting has been properly made; to pay plaintiff
attorney's fees in the sum of P2,000.00 and the costs
of this suit."
The defendants appealed to the Court of Appeals,
which thereafter affirmed judgments of the court a
quo.
In the petition before Us the petitioners have assigned
the following errors:
I. The Court of Appeals erred in the
finding that the respondent is an
industrial partner of Evangelista &
Co., notwithstanding the admitted
fact that since 1954 and until after
promulgation of the decision of the
appellate court the said respondent
was one of the judges of the City
Court of Manila, and despite its
findings that respondent had been
paid for services allegedly
contributed by her to the
partnership. In this connection the
Court of Appeals erred:
(A) In finding that
the "amended
Articles of Co-
partnership,"
Exhibit "A" is
conclusive
evidence that
respondent was
in fact made an
 industrial partner dismissing respondent's complaint,
of Evangelista & with costs, against the respondent.
Co.
It is quite obvious that the questions raised in the first
(B) In not finding assigned errors refer to the facts as found by the
that a portion of Court of Appeals. The evidence presented by the
respondent's parties as the trial in support of their respective
testimony quoted positions on the issue of whether or not the
in the decision respondent was an industrial partner was thoroughly
proves that said analyzed by the Court of Appeals on its decision, to
respondent did the extent of reproducing verbatim therein the lengthy
not bind herself to testimony of the witnesses.
contribute her
industry, and she It is not the function of the Supreme Court to analyze
could not, and in or weigh such evidence all over again, its jurisdiction
fact did not, being limited to reviewing errors of law that might
because she was have been commited by the lower court. It should be
one of the judges observed, in this regard, that the Court of Appeals did
of the City Court not hold that the Articles of Co-partnership, identified
of Manila since in the record as Exhibit "A", was conclusive evidence
1954. that the respondent was an industrial partner of the
said company, but considered it together with other
(C) In finding that factors, consisting of both testimonial and
respondent did documentary evidences, in arriving at the factual
not in fact conclusion expressed in the decision.
contribute her
industry, despite The findings of the Court of Appeals on the various
the appellate points raised in the first assignment of error are
court's own hereunder reproduced if only to demonstrate that the
finding that she same were made after a through analysis of then
has been paid for evidence, and hence are beyond this Court's power of
the services review.
allegedly
rendered by her,
as well as for the The aforequoted findings of the
loans of money lower Court are assailed under
made by her to Appellants' first assigned error,
the partnership. wherein it is pointed out that
"Appellee's documentary evidence
does not conclusively prove that
II. The lower court erred in not appellee was in fact admitted by
finding that in any event the appellants as industrial partner of
respondent was lawfully excluded Evangelista & Co." and that "The
from, and deprived of, her alleged grounds relied upon by the lower
share, interests and participation, Court are untenable" (Pages 21 and
as an alleged industrial partner, in 26, Appellant's Brief).
the partnership Evangelista & Co.,
and its profits or net income.
The first point refers to Exhibit A, B,
C, K, K-1, J, N and S, appellants'
III. The Court of Appeals erred in complaint being that "In finding that
affirming in toto the decision of the the appellee is an industrial partner
trial court whereby respondent was of appellant Evangelista & Co.,
declared an industrial partner of the herein referred to as the partnership
petitioner, and petitioners were the lower court relied mainly on
ordered to render an accounting of the appellee's documentary
the business operation of the evidence, entirely disregarding facts
partnership from June 7, 1955, and and circumstances established by
to pay the respondent her alleged appellants" evidence which
share in the net profits of the contradict the said finding' (Page
partnership plus the sum of 21, Appellants' Brief). The lower
P2,000.00 as attorney's fees and court could not have done
the costs of the suit, instead of
otherwise but rely on the exhibits
just mentioned, first, because
appellants have admitted their
genuineness and due execution,
hence they were admitted without
objection by the lower court when
appellee rested her case and,
secondly the said exhibits
indubitably show the appellee is an
industrial partner of appellant
company. Appellants are virtually
estopped from attempting to detract
from the probative force of the said
exhibits because they all bear the
imprint of their knowledge and
consent, and there is no credible
showing that they ever protested
against or opposed their contents
prior of the filing of their answer to
appellee's complaint. As a matter of
fact, all the appellant Evangelista,
Jr., would have us believe as
against the cumulative force of
appellee's aforesaid documentary
evidence is the appellee's Exhibit
"A", as confirmed and corroborated
by the other exhibits already
mentioned, does not express the
true intent and agreement of the
parties thereto, the real
understanding between them being
the appellee would be merely a
profit sharer entitled to 30% of the
net profits that may be realized
between the partners from June 7,
1955, until the mortgage loan of
P30,000.00 to be obtained from the
RFC shall have been fully paid.
This version, however, is
discredited not only by the
aforesaid documentary evidence
brought forward by the appellee,
but also by the fact that from June
7, 1955 up to the filing of their
answer to the complaint on
February 8, 1964 or a period of
over eight (8) years appellants
did nothing to correct the alleged
false agreement of the parties
contained in Exhibit "A". It is thus
reasonable to suppose that, had
appellee not filed the present
action, appellants would not have
advanced this obvious afterthought
that Exhibit "A" does not express
the true intent and agreement of the
parties thereto.
At pages 32-33 of appellants' brief,
they also make much of the
argument that 'there is an overriding
fact which proves that the parties to
the Amended Articles of
Partnership, Exhibit "A", did not
contemplate to make the appellee
Estrella Abad Santos, an industrial
partner of Evangelista & Co. It is an
admitted fact that since before the
execution of the amended articles
of partnership, Exhibit "A", the
appellee Estrella Abad Santos has
been, and up to the present time
still is, one of the judges of the City
Court of Manila, devoting all her
time to the performance of the
duties of her public office. This fact
proves beyond peradventure that it
was never contemplated between
the parties, for she could not
lawfully contribute her full time and
industry which is the obligation of
an industrial partner pursuant to Art.
1789 of the Civil Code.
The Court of Appeals then proceeded to consider
appellee's testimony on this point, quoting it in the
decision, and then concluded as follows:
One cannot read appellee's
testimony just quoted without
gaining the very definite impression
that, even as she was and still is a
Judge of the City Court of Manila,
she has rendered services for
appellants without which they would
not have had the wherewithal to
operate the business for which
appellant company was organized.
Article 1767 of the New Civil Code
which provides that "By contract of
partnership two or more persons
bind themselves, to contribute
money, property, or industry to a
common fund, with the intention of
dividing the profits among
themselves, 'does not specify the
kind of industry that a partner may
thus contribute, hence the said
services may legitimately be
considered as appellee's
contribution to the common fund.
Another article of the same Code
relied upon appellants reads:
'ART. 1789. An
industrial partner
cannot engage in
business for
himself, unless
the partnership
expressly permits
him to do so; and
if he should do
 so, the capitalist
partners may
either exclude
him from the firm
or avail
themselves of the
benefits which he
may have
obtained in
violation of this
provision, with a
right to damages
in either case.'
It is not disputed that the provision
against the industrial partner
engaging in business for himself
seeks to prevent any conflict of
interest between the industrial
partner and the partnership, and to
insure faithful compliance by said
partner with this prestation. There is
no pretense, however, even on the
part of the appellee is engaged in
any business antagonistic to that of
appellant company, since being a
Judge of one of the branches of the
City Court of Manila can hardly be
characterized as a business. That
appellee has faithfully complied with
her prestation with respect to
appellants is clearly shown by the
fact that it was only after filing of the
complaint in this case and the
answer thereto appellants
exercised their right of exclusion
under the codal art just mentioned
by alleging in their Supplemental
Answer dated June 29, 1964 or
after around nine (9) years from
June 7, 1955 subsequent to the
filing of defendants' answer to the
complaint, defendants reached an
agreement whereby the herein
plaintiff been excluded from, and
deprived of, her alleged share,
interests or participation, as an
alleged industrial partner, in the
defendant partnership and/or in its
net profits or income, on the ground
plaintiff has never contributed her
industry to the partnership, instead
she has been and still is a judge of
the City Court (formerly Municipal
Court) of the City of Manila,
devoting her time to performance of
her duties as such judge and
enjoying the privilege and
emoluments appertaining to the
said office, aside from teaching in
law school in Manila, without the
express consent of the herein
defendants' (Record On Appeal, pp.
24-25). Having always knows as a
appellee as a City judge even
before she joined appellant
company on June 7, 1955 as an
industrial partner, why did it take
appellants many yearn before
excluding her from said company
as aforequoted allegations? And
how can they reconcile such
exclusive with their main theory that
appellee has never been such a
partner because "The real
agreement evidenced by Exhibit "A"
was to grant the appellee a share of
30% of the net profits which the
appellant partnership may realize
from June 7, 1955, until the
mortgage of P30,000.00 obtained
from the Rehabilitation Finance
Corporal shall have been fully paid."
(Appellants Brief, p. 38).
What has gone before persuades
us to hold with the lower Court that
appellee is an industrial partner of
appellant company, with the right to
demand for a formal accounting
and to receive her share in the net
profit that may result from such an
accounting, which right appellants
take exception under their second
assigned error. Our said holding is
based on the following article of the
New Civil Code:
'ART. 1899. Any
partner shall have
the right to a
formal account as
to partnership
affairs:
(1) If he is wrongfully excluded from
the partnership business or
possession of its property by his co-
partners;
(2) If the right exists under the
terms of any agreement;
(3) As provided by article 1807;
(4) Whenever other circumstance
render it just and reasonable.
We find no reason in this case to depart from the rule
which limits this Court's appellate jurisdiction to
reviewing only errors of law, accepting as conclusive
the factual findings of the lower court upon its own
assessment of the evidence.

The judgment appealed from is affirmed, with costs.

Zaldivar, Castro, Fernando, Teehankee, Barredo,

Makasiar, Antonio and Esguerra, JJ., concur.
G.R. No. L-21906 August 29, 1969
INOCENCIA DELUAO and FELIPE
DELUAO, plaintiffs-appellees,
vs.
NICANOR CASTEEL and JUAN
DEPRA, defendants,
NICANOR CASTEEL, defendant-appellant.
RESOLUTION
CASTRO, J.:
Subject of this Resolution is the appellees' motion of
February 8, 1969 for reconsideration of our decision
of December 24, 1968. It poses several propositions
which we will now discuss in seriatim.
I. The appellees initially argue that because the
Fisheries Act (Act 4003) does not contain any
prohibition against the transfer or sub-letting of
fishponds covered by permits or lease agreements,
Fisheries Administrative Order 14, sec. 7, which
embodies said prohibition, is therefore a nullity
because it is inconsistent with the Fisheries Act. They
cite sec. 63.
We disagree.
Sec. 63 of Act 4003 provides:
Permits or leases entitling the holders
thereof, for a certain stated period of time not
to exceed twenty years, to enter upon
definite tracts of a public forest land to be
devoted exclusively for fishponds purposes,
or to take certain fishery products or to
construct fishponds within tidal, mangrove
and other swamps, ponds and streams
within public forest lands or proclaimed
timber lands or established forest reserves,
may be issued or executed by the Secretary
of Agriculture and Natural Resources,
subject to the restrictions and limitations
imposed by the forest laws and regulations,
to such persons, associations or
corporations as are qualified to utilize or take
forest products under Act Number Thirty-six
hundred and seventy-four. ... . (Emphasis
supplied)
It is clear from the above-quoted section of the
Fisheries Act that only holders of permits or leases
issued or executed by the Secretary of Agriculture
and Natural Resources (hereinafter referred to as
DANR Secretary) can "enter upon definite tracts of
public forest land to be devoted exclusively for
fishpond purposes, ... or to construct fishponds within
tidal, mangrove and other swamps, ponds and
streams within public forest lands or established
forest reserves ... ." Inferentially, persons who do not
have permits or leases properly issued or executed by
the DANR Secretary cannot do any of the acts
mentioned in sec. 63. Certainly, a transferee or sub-
lessee of a fishpond is not a holder of a permit or
lease. He cannot, therefore, lawfully "enter upon
definite tracts of a public forest land to be devoted
exclusively for fishpond purposes, ...or to construct
fishponds within tidal, mangrove and other swamps,
ponds and streams within public forest lands or
proclaimed timber lands or established forest
reserves ... ." No doubt, the intent of the legislature is
to grant the privilege of constructing, occupying and
operating fishponds within public land only to holders
of permits and leases, and to no one else. Inclusio
unius est exclusio alterius. And in declaring null and
void a sublease or transfer of the whole or part of a
fishpond and/or its improvements unless previously
approved by the Director (Commissioner) of
Fisheries, see. 37(a) of Fisheries Administrative Order
14 does no more than carry into effect the will of the
legislature as expressed in the Fisheries Act. It is a
valid administrative order issued under the authority
conferred by sec. 4 of the Fisheries Act on the DANR
Secretary to "issue instructions, orders, rules and
regulations consistent with this Act, as may be
necessary to carry into effect the provisions thereof."
It is a salutary rule because it is issued in fulfillment of
the duty of the administrative officials concerned to
preserve and conserve the natural resources of the
country by scrutinizing the qualifications of those who
apply permission to establish and operate fishponds
of the public domain. It is a necessary consequence
of the executive and administrative powers of the
DANR Secretary with regard to the survey,
classification lease, sale or any other form of
concession or disposition and management of lands
of the public domain, and, more specially, with regard
to the grant or withholding of licenses, permits, leases
and contracts over portions of the public domain to be
utilized as fishponds. The prohibition thus merely
implements the Fisheries Act and surely cannot be
considered an act of legislation.
People v. Santos (63 Phil. 360) cited by the appellees
has no application to the case at bar. In that case, the
Supreme Court declared null and void an
administrative order issued by the DANR Secretary
prohibiting boats not subject to license from fishing
within three kilometers of the shore line of American
military and naval reservations without a special
permit from the DANR Secretary upon
recommendation of the military and naval authorities,
because the Fisheries Act really does not contain
such a provision. Here, sec. 63 of the Fisheries Act,
under the aforecited well-ensconced principle of
"Inclusion unius est exclusio alterius," prohibits
persons without permits or leases to operate
fishponds of the public domain, because it allows
only holders of permits or leases to construct, occupy
and enjoy such fishponds.
The appellees, however, insist that the prohibition in
Fisheries Administrative Order 14, sec. 37(a), refers
to fishponds covered by permits or leases, and since
no permit or lease had as yet been granted to
Casteel, the prohibition does not apply. Stated
elsewise, their theory is that it was perfectly all right
for Casteel to violate Fisheries Administrative Order
14, for, anyway, he had not yet been issued a permit
or lease.
The appellees advocate a dangerous theory which
invites promiscuous violation of the said
administrative order. For all that a would-be permittee
or lessee would do in order to escape the
consequences of an unauthorized sublease or
transfer, is to effect such sublease or transfer before
the issuance of the lease or permit, and then argue
that there is no violation because such sublease or
transfer was effected before a permit or lease was
issued. To be sure, this theory espoused by the
appellees would violate the intent of the legislature to
grant the privilege of occupying, possessing,
developing and enjoying fishponds of the public
domain only to bona fide holders of permits or lease
agreements properly issued or executed by the DANR
Secretary.
The appellees assail as inaccurate the statement in
our decision that "after the Secretary of Agriculture
and Natural Resources approved the appellant's
application, he became to all intents and purposes the
legal permittee of the area with the corresponding
right to possess, occupy and enjoy the same,"
because the decisions of the Secretary allegedly did
not approve the appellant's fishpond application but
merely reinstated and gave due course to the same.
This is not correct. The decisions of the DANR
Secretary in DANR cases 353 and 353-B did not
merely recognize the occupancy rights of Casteel
(and, necessarily, his rights to possess and enjoy the
fishpond), as admitted by the Deluaos (p. 13, motion
for reconsideration), but approved his application as
well. Several orders, memoranda, letters and other
official communications of the DANR Secretary and
other administrative officials of the DANR, found in
the records of this case and in the records of the
DANR (of which this Court can take judicial notice),
attest to this.
The decisions in cases 353 and 353-E were ordered
executed way back on August 4, 1955. (rollo, p. 179)
Then in a 1st Indorsement dated July 1, 1961, the
DANR ordered the Director of Fisheries to execute
the said decisions, "it appearing from the records of
this Office that the same had long become final and
executory and that there is nothing in said records to
show that this Office is party-litigant in Civil Case No.
629, allegedly filed by Inocencia Deluao and Felipe
Deluao against Nicanor Casteel for "Specific
Performance, etc." (rollo, p. 100) On October 26,
1961 the Director of Fisheries issued a memorandum
to the District Fishery Officer, Davao City, in
compliance with the aforementioned 1st Indorsement,
instructing the latter "to take immediate steps to
execute the decisions of the Secretary of Agriculture
and Natural Resource both dated September 15,
1950 ... ."(rollo, p. 101) Next came a memorandum
dated June 27, 1962 of the Director of Fisheries to the
Regional Director, Fishery Regional Office No. VIII,
Davao City, stating, "Your attention is again invited to
the memorandum of this Office, dated October 26,
1961, wherein you were instructed to execute the
decisions both dated September 15, 1950, in
connection with the above-entitled cases ... . In this
connection, you are hereby directed to execute the
aforesaid decisions in the presence of the parties
concerned, ..." The Director of Fisheries also sent a
telegram dated July 21, 1962 to the Fishery Officer,
Davao City enjoining the latter to "EXECUTE
DECISIONS BY SECRETARY AS INSTRUCTED
PLACE CASTEEL IN POSSESSION AREAS OF
ARADILLOS CARPIO AND CACAM DEPOSIT
REIMBURSEMENT FOR CACAM CLERK OF
COURT RIGHT OF CASTEEL TO AREAS
SANCTIONED BY DECISIONS ISSUANCE
PERMITS WILL FOLLOW LATER." (rollo, p. 102;
emphasis supplied)
A notice of execution dated September 11, 1962 of
the Regional Director of the Fishery Office of Davao
City was sent to the parties in this case, requiring
them "to be present in the premises of the area under
Fp. A. No. 1711 of Nicanor Casteel situated in Barrio
Palili, Padada (formerly covered by the areas under
F-299-C and F-539-C of Leoncio Aradillos and
Alejandro Cacam, respectively, and Fp. A. No. 763 of
Victorio D. Carpio), on September 24, 1962 at 10
o'clock in the morning. This Office will place Nicanor
Casteel in possession of the area pursuant to the
instructions in the telegrams of the Director of
Fisheries, dated July 21, 1962, and September 7,
1962, in connection with the decisions of the
Honorable, the Secretary of Agriculture and Natural
Resources in DANR Cases Nos. 353 and 353-B, both
dated September 15, 1950."
The appellees, however, filed on July 9, 1963 a new
protest against the execution of the decisions with the
Commissioner of Fisheries. Said protest was
dismissed by the Acting Commissioner of Fisheries in
a letter to Mrs. Inocencia Deluao dated June 1, 1964,
which stated, inter alia:
This is in connection with your claim as
embodied in the protest filed by you and your
husband, Felipe Deluao, over the area
covered by Fishpond Application No. 1717 of
Nicanor Casteel, located in Malalag,
Padada, Davao. Please be advised that the
right over the area in question was already
adjudicated or awarded to Nicanor Casteel,
in the Order of the Secretary of Agriculture
 and Natural Resources, dated September
15, 1950 (DANR Cases Nos. 353-B and No.
353), hence, this matter is a decided and
closed case. The aforestated Order has long
become final and executory. In fact, it has
been partially executed. Nothing new has
been raised in your instant protest which
appears to be intended mainly to delay the
full execution of the order or Decision of the
Secretary. Your protest, therefore, lacks
merit or basis.
It appearing, therefore, that there is nothing
worth taking into consideration in your claim
or protest which has not moreover been
officially docketed for failure to pay the
protest fee, as required by the rules and
regulations, your instant protest is hereby
DISMISSED; and, the matter definitely
considered CLOSED. (Emphasis supplied)
An appeal from the foregoing dismissal was taken by
the appellees to the DANR Secretary who dismissed
the same in a letter dated September 12, 1967, thus:
In view of the finality of our decisions in the
two aforementioned administrative cases
(DANR Cases Nos. 353 and 353-B),
execution of the same had been ordered by
this Office as early as August 4, 1955,
notwithstanding the injunction proceeding,
because it appears that neither the Secretary
of Agriculture and Natural Resource nor the
Director of Fisheries was a party thereto.
However, due to several incidental
requirements necessary in the
implementation of said decisions, the
execution thereof was delayed. In another
directive of this Office to the Director of
Fisheries contained in a 1st Indorsement
dated July 5, 1961, the Office reiterated due
execution of the said decisions. The Director
of Fisheries, in turn, relayed the directive to
the Fisheries Regional Director in Davao City
who gave notice to Nicanor Casteel and
Felipe Deluao to be present in the area in
question on September 24, 1962 and that
Casteel would be placed in possession
thereof.
The due execution of the decisions suffered
again another delay because you filed two
separate "URGENT OMNIBUS PETITIONS
TO DECLARE RESPONDENTS (Nicanor
Casteel, Director of Fisheries and Regional
Director Crispin Mondragon) IN CONTEMPT
OF COURT AND TO DIRECT
RESPONDENTS TO DESIST FROM
PLACING RESPONDENT NICANOR
CASTEEL IN POSSESSION OF THE
LITIGATED PROPERTY." The first was filed
before the Court of First Instance of Davao
and the other, before the Court of Appeals in
Manila. However, in separate orders of the
Court of Appeals dated October 12, 1962
and of the Court of First Instance of Davao
dated October 24, 1962, the "Urgent
Omnibus Petitions, etc." were both denied.
The denial by the Courts of the said urgent
omnibus petitions to declare respondents in
contempt of court and to direct the
respondents to desist from placing Nicanor
Casteel in possession of the litigated
property, could be interpreted to mean that
there is no legal impediment, in the
execution of the decisions of this Office
which had long become final and executory,
and an implied approval by the Courts in the
enforcement of said decisions.
Notwithstanding all the circumstances,
however, you again filed on July 9, 1963, a
new protest against the execution of the
aforementioned final decisions of this Office
of September 15, 1950 before the
Commissioner of Fisheries. A close study of
your protest shows that there is no new
matter raised in said protest which has not
been disposed of in previous resolutions
either by this Office or by the Philippine
Fisheries Commission. This Office is even
inclined to share the opinion of the Acting
Commissioner of Fisheries that the protest
apparently is a move intended to delay
further the due execution of the final
decisions.
IN VIEW OF ALL THE FOREGOING, and
finding the notice of appeal to be
unmeritorious, the same, much to our regret,
cannot be favorably entertained and the
same is hereby dismissed. The
Commissioner of Fisheries is directed to
immediately execute the decisions of this
Office in the aforementioned DANR Cases
Nos. 353 and 353-B upon receipt of this
order, it appearing that said decisions had
long become final and executory. However,
in implementing the said decisions, it is
necessary that Nicanor Casteel first be
granted a permit, and once the
corresponding permit is granted, to place
him in possession of the area in question.
(rollo, pp. 179-180)
Pursuant to the direction made to the Commissioner
of Fisheries in the above letter-decision, the latter
sent a memorandum dated May 31, 1968 to the
Regional Director, Fisheries Regional Office No. VIII,
Davao City, quoted in part as follows:
 For the early execution of the directive of the
Secretary, you are hereby ordered to
prepare the sketch plan or plans of the area
or areas with respective location and
technical description so that the necessary
permit can be issued in favor of Mr. Casteel.
This Office will have to abide with the latest
decision of the Secretary, hence, your letter-
recommendation of January 3, 1968, will
have to be set aside. (Emphasis Supplied)
Again, in a letter dated September 30, 1967, the
appellees moved for reconsideration of the above
dismissal. This was likewise denied by the DANR
Secretary in his reply to them dated December 16,
1968, holding that:
In connection with your letter dated
September 30, 1967 requesting for a
reconsideration of a letter-decision of this
Office dated September 12, 1967, and for
the withholding of the enforcement of the
aforesaid decision, please be informed that
we have already considered the reasons you
advanced and we see no cogent reason to
modify or reverse our stand on the matter.
xxx xxx xxx
In view of the foregoing, your request for
reconsideration should be, as hereby it is,
denied. (see annex 1-B of appellant's answer
to appellees' motion for reconsideration of
decision rendered on December 24, 1968.)
The overwhelming thrust of the above-cited orders,
memoranda, and letter-decision, is that Casteel's Fp.
A. 1717 had been approved by the Secretary in
DANR cases 353 and 353-B and that the area
covered by his application had been adjudicated and
awarded to him. In fact, the said decisions had
already been partly executed because contrary to
the appellees' allegation Casteel had already
complied with the order in DANR case 353-B that he
reimburse to Leoncio Aradillos and Alejandro Cacam
the amount of the improvements introduced by them
in the area they formerly occupied (see annex A of
the appellees' motion for issuance of temporary
restraining order and petition for contempt, rollo, pp.
173-180). And the only reason why the issuance of a
permit to Casteel was delayed was the numerous
legal maneuvers of the appellees which, in the words
of both the Acting Commissioner of Fisheries and the
DANR Secretary, were "intended to delay" the
execution of the aforestated decisions. The non-
issuance of the permit due to the deliberate attempts
of the appellees to forestall the same cannot and
should not be taken against the herein appellant,
because clear and unmistakable is the intention of the
DANR Secretary to place him in possession of the
whole fishpond in question.
Pursuing further their buckshot arguments under the
first proposition, the appellees insist that the decisions
in DANR cases 353 and 353-B are not binding on
them because they were not parties to the cases.
They argue that even if their second motion for
reconsideration dated January 9, 1969 which they
alleged was given due course of the letter-decision
of the DANR Secretary dated September 12, 1967
were denied, the denial would merely foreclose the
question of whether or not they could still intervene in
DANR cases 353 and 353-B after the same have
become final, but will not preclude them from
asserting their interest in the fishpond through other
means, such as the filing of an application over the
half portion occupied by them or a protest against the
issuance of a permit to Casteel over the said half.
Nothing could be farther from the truth. The records of
this case and of the cases in the DANR show the
several protests, appeals, motion to intervene and
motions for reconsideration of the appellees all
calculated to prevent the execution of the decisions in
DANR cases 353 and 353-B. In the face of all these
legal maneuvers, all of which had been denied validity
by the Fisheries Commissioner and the DANR
Secretary, how can they now assert that the said
decisions do not bind them? Contrary to their
representations, they are certainly precluded from
filing application over the half portion occupied by
them or a protest against the issuance of a permit to
Casteel over the said half. After all, the area involved
in DANR cases 353 and 353-B is the total area of
178.86 hectares, more or less, covered by Casteel's
Fp. A. 1717. This is clear not only from the above
discussion, but from appendix 13 of the appellees'
motion for reconsideration itself which is the
certification of the Fisheries Commissioner stating
that:
The records further show that the area under
Fp. A. No 1717 is involved in administrative
cases to wit: DANR CASES 353 and 353-B,
entitled "Nicanor Casteel vs. Victorio D.
Carpio" and "Nicanor Casteel vs. Alejandro
Cacam, et al.," respectively, which has been
decided by the Secretary of Agriculture and
Natural Resources in a letter dated
September 12, 1967, in favor of Nicanor
Casteel. ... .
It is extremely doubtful that their second motion for
reconsideration allegedly filed on January 9, 1969
was really given due course by the DANR. Appendix
E cited by them which is the DANR Legal
Department's reply dated February 4, 1969, merely
mentions the reference of their motion to the
Department's "Action Committee" for deliberation and
action. No favorable action has been taken on it to
date.
II. The appellees next argue that the contract of
service, ex. A, is not by itself a transfer or sublease
but merely an agreement to divide or transfer, and
that pursuant to its intended "ultimate undertaking" of
dividing the fishpond into two equal parts the
appellant is under obligation, conformably with the law
on obligations and contracts, to execute a formal
transfer and to secure official approval of the same.
They allege that actual division of the fishpond was
predicated on a favorable decision in the then
pending DANR cases 353 and 353-B; that the
pendency of the said cases served to suspend
implementation of the agreement to divide; and that
after the DANR Secretary ruled in Casteel's favor, the
suspensive condition was fulfilled and the ultimate
undertaking to divide the fishpond became a
demandable obligation.
The appellees seem to have failed to grasp the
rationale of our decision. We discussed at length in
the said decision and in the resolution of their first
proposition above that the contract of partnership
to divide the fishpond between them after such award
became illegal because it is at war with several
prohibitory laws. As such, it cannot be made subject
to any suspensive condition the fulfillment of which
could allegedly make the ultimate undertaking therein
a demandable obligation. It is an elementary rule in
law that a partnership cannot be formed for an illegal
purpose or one contrary to public policy and that
where the object of a partnership is the prosecution of
an illegal business or one which is contrary to public
policy, the partnership is void. And since the contract
is null and void, the appellant is not bound to execute
a formal transfer of one-half of the fishpond and to
secure official approval of the same.
It must be recalled that the appellees have always
vehemently insisted that the "contract of service," exh.
A, created a contract of co-ownership between the
parties over the fishpond in question. We, however,
refused to go along with their theory in order not to be
compelled to declare the contract a complete nullity
as being violative of the prohibitory laws, thus
precluding the appellees from obtaining any relief. It is
precisely to enable us to grant relief to the appellees
that, in our decision, we assumed that the parties did
not intend to violate the prohibitory laws governing the
grant and operation of fishery permits.
We cannot, however, require the appellant to divide
the fishpond in question with the appellees, in
violation of the decisions of the DANR Secretary
rendered in DANR cases 353 and 353-B way back on
September 15, 1950, because that would violate the
principle that purely administrative and discretionary
functions may not be interfered with by the courts. We
are loath to impose our judgment on the DANR
Secretary on purely administrative and discretionary
functions in a case where the latter is not even a
party. At all events, we are persuaded that we have
sufficiently protected the interests of the appellees in
our decision.
III. The appellees next contend that assuming that the
prohibition by mere administrative regulation against
the transfer of fishpond rights without prior official
approval is valid; that the said prohibition was already
operative notwithstanding that no permit had as yet
been issued to Casteel; and that the contract of
service is already a "transfer" and not a mere
agreement "to divide," the contract of service, even
without prior official approval, is not a nullity because
under the rulings of the Supreme Court and the
DANR in analogous cases, the requisite approval
may, on equitable and/or other considerations, be
obtained even after the transfer.
Zamboanga Transportation Co. vs. Public Utility
Commission (50 Phil. 237), cited by the appellees to
buttress their stand, is not in point. In that case, this
Court held that the approval of the mortgage on the
property of the public utility involved, instead of being
prejudicial is convenient and beneficial to the public
interest. Thus, considerations of public interest moved
this Court to hold that the approval by the Public
Utility Commission may be given before or after the
creation of the lien. On the other hand, no real
considerations of public interest obtain in this case.
This is merely a controversy between two parties over
a fishpond of the public domain. Besides, the subject
matter of the contract of sale or mortgage in the
Zamboanga case is private property capable of
private ownership. Which explains why this Court held
in that case that "The approval of the Public Utility
Commission required by law before the execution of a
mortgage on the property of a public utility or the sale
thereof, has no more effect than an authorization to
mortgage or sell and does not affect the essential
formalities of a contract, but its efficacy." In other
words, as long as the contract to sell or mortgage a
public utility's properties is executed with all the
intrinsic and extrinsic formalities of a contract, it is
valid irrespective of the presence or absence of the
approval by the Public Utility Commission. Only
the efficacy of such a contract is affected by the
preserve or absence of the approval of the Public
Utility Commission. In the case at bar, the subject
matter is a fishpond which is part of the public domain
the ownership of which cannot be privately acquired.
Thus, without the prior approval of the DANR
Secretary, any contract purporting to sublease or
transfer the rights to and/or improvements of the
fishpond, is null and void.
Equally inapplicable to the case at bar is Evangelista
vs. Montao, et al. (93 Phil. 275). The subject matter
in that case is a homestead which is capable of
private ownership, while involved here is a fishpond of
the public domain incapable of private ownership. The
provision of law involved in that case is sec. 118 of
the Public Land Act (C.A. 141) which explicitly
provides that the approval of the DANR Secretary to
any alienation, transfer or conveyance of a
homestead shall not be denied except on
constitutional and legal grounds. There was no
allegation in the said case that "there were
constitutional or legal impediments to the sales, and
no pretense that if the sales had been submitted to
the Secretary concerned they would have been
disapproved." Thus, there this Court held that
"approval was a ministerial duty, to be had as a
matter of course and demandable if refused." In this
case, sec. 37 of Fisheries Administrative Order 14
very clearly provides that without the approval of the
DANR Secretary any sublease or transfer is null and
void. It does not state that approval may be withheld
only on constitutional and legal grounds, so that in the
absence of said ground, approval of the sublease or
transfer becomes ministerial. In Evangelista this Court
applied art. 1461 of the Civil Code of 1889, which
provided that the vendor was bound to deliver and
warrant the subject matter of the sale, in relation to
art. 1474 thereof, which held the vendor responsible
to the vendee for the legal and peaceful possession of
the subject matter of the sale. It construed the
foregoing provisions as contemplating the obligation
to deliver clear title, including the securing of the
approval of the sales by the DANR Secretary, and
held that by force of this obligation, the plaintiff in that
cage, who stepped into the shoes of his grantor,
cannot use the lack of approval to nullify the sales
because a seller will not be allowed to take advantage
of his omission or wrong. Thus, under the maxim,
"Equity regards that as done which should have been
done," this Court viewed the sales as though the
obligations imposed upon the parties had been met,
and treated the purchasers as the owners of the
subject matter of the sales, notwithstanding the
defects of the conveyances or of their execution.
Certainly, the factual situation in the case at bar does
not warrant application of the above-quoted maxim.
Here, a transfer by Casteel to Deluao of one-half of
the fishpond in question without the prior approval of
the DANR Secretary is legally objectionable, and no
justifying reason exists for us to view the requirement
of prior approval as merely directory.
The appellees cite sec. 33, sub-sec. (4) of Fisheries
Administrative Order 14, which states,1wph1.t
If a permittee transfers his/her right to any
area or land improvements he introduced
thereon, the transferee may secure a permit
by filing the proper application and paying
the necessary fee, rental and bond deposit.
The rental may be as provided in sections 16
and 20 hereof.
and argue that the said administrative order evinces
in its other provisions an intention not to give the
prohibition in sec. 37 an absolute and inflexible effect,
because no reference is made to the prohibition in
section 37 as qualificatory. This is typical of the
appellees' clutching-at-straws reasoning. There is
obviously no need to mention the prohibition in sec.
37 as qualificatory because the prefatory sentence of
sec. 33 provides that "Every permit or lease shall be
governed by the provisions of this Administrative
Order," among which is sec. 37 thereof. Besides, if
the appellees should see any conflict between sec.
33, subsection (r) (4) and sec. 37(a) although there
is clearly none to be found then, following the rules
of statutory construction, sec. 37(a), the latter
provision should prevail.
The appellees' argument that the prohibition itself is
self-emasculating because while stipulating in its first
sentence that any unapproved transfer or sublease
shall be null and void, it states in the second sentence
that "a transfer not previously approved
or reported shall be considered sufficient cause for
the cancellation of the permit ...," thereby implying
that a mere "report" of the transfer, even without
approval thereof, may suffice to preserve existing
rights of the parties is now rendered academic by
Revised Fisheries Administrative Order 60, effective
June 29, 1960, which repealed Fisheries
Administrative Order 14 and its amendments. Thus,
sec. 32 of Fisheries Administrative Order No. 60
provides that:
A transfer or sublease of the rights to, and/or
improvements in, the area covered by permit or lease
may be allowed, subject to the following conditions:
xxx xxx xxx
(d) That any transfer or sublease without the
previous approval of the Secretary shall be
considered null and void and deemed
sufficient cause for the cancellation of the
permit or lease, and the forfeiture of the
improvements and the bond deposited in
connection therewith, in favor of the
Government.
Note that there is no mention whatsoever of the
word report and that it is the DANR Secretary's
approval which must be secured. A mere report,
therefore, of the transfer is not sufficient. In fact,
although the Bureau of Fisheries was fully informed of
the contract of partnership between the parties to
divide the fishpond, still, the said Bureau did not grant
the reliefs prayed for by the appellees in their
numerous protests, motions for reconsideration and
appeals. The numerous reports made by the
appellees to the Bureau of Fisheries were, therefore,
disregarded.
Finally, the appellees cite the case of Amado
Lacuesta vs. Roberto Doromal, etc. (DANR case
3270) in which the DANR Secretary has allegedly
interpreted the prohibition found in sec. 37(a) of
Fisheries Administrative Order 14 as not absolute so
that the approval required by yet legally be obtained
even after the transfer of a permit.
It would not serve the cause of interdepartmental
courtesy were we to review or comment on the
decision of the DANR Secretary in the said case. But
even at that, the factual situation in Lacuesta shows
that there was sufficient justification for the DANR
Secretary to divide the fishpond between the parties,
which does not obtain in this case.
In Lacuesta the verbal agreement to divide the
fishpond was entered into even before the fishpond
application was filed. The parties there helped each
other in securing the approval of the application. The
DANR Secretary found for a fact that the appellee in
the said case would not have succeeded in securing
the approval of his fishpond application, coupled with
the issuance of the permit, were it not for
the indispensable aid both material and otherwise
extended by the appellant spouses. Thus, the
appellant spouses paid the filing fee for the
application, the bond premiums and the surveying
fees. They asked the assistance of their congressman
who facilitated the release of the permit. They paid
the rentals for the fishpond for several years. In fact,
the permit was even cancelled although later
reinstated because of the appellee's failure to pay
rentals. In the face of the foregoing facts, the DANR
Secretary could not simply ignore the equitable rights
of the appellants over one-half of the fishpond in
question.
In this case, Casteel was the original occupant and
applicant since before the last World War. He wanted
to preclude subsequent applicants from entering and
spreading themselves within the area applied for by
him, by expanding his occupation thereof by the
construction of dikes and the cultivation of marketable
fishes. Thus, he borrowed money from the Deluaos to
finance needed improvements for the fishpond, and
was compelled by force of this circumstance to enter
into the contract of partnership to divide the fishpond
after the award (see letter dated November 15, 1949
of Casteel to Felipe Deluao quoted inter alia on page
4 of our Decision). This, however, was all that the
appellee spouses did. The appellant single-handedly
opposed rival applicants who occupied portions of the
fishpond area, and relentlessly pursued his claim to
the said area up to the Office of the DANR Secretary,
until it was finally awarded to him. There is here
neither allegation nor proof that, without the financial
aid given by the Deluaos in the amount of P27,000,
the area would not have been awarded nor
adjudicated to Casteel. This explains, perhaps, why
the DANR Secretary did not find it equitable to award
one-half of the fishpond to the appellee spouses
despite their many appeals and motions for
reconsideration.
IV. The appellees submit as their fourth proposition
that there being no prohibition against joint applicants
for a fishpond permit, the fact that Casteel and Deluao
agreed to acquire the fishpond in question in the
name of Casteel alone resulted in a trust by operation
of law (citing art. 1452, Civil Code) in favor of the
appellees as regards their one-half interest.
A trust is the right, enforceable in equity, to the
beneficial enjoyment of property the legal title to
which is in another (Ulmer v. Fulton, 97 ALR 1170,
120 Ohio St. 323, 195 NE 557). However, since we
held as illegal the second part of the contract of
partnership between the parties to divide the fishpond
between them after the award, a fortiori, no rights or
obligations could have arisen therefrom. Inescapably,
no trust could have resulted because trust is founded
on equity and can never result from an act violative of
the law. Art. 1452 of the Civil Code does not support
the appellees' stand because it contemplates an
agreement between two or more persons to purchase
property capable of private ownership the legal
title of which is to be taken in the name of one of them
for the benefit of all. In the case at bar, the parties did
not agree to purchase the fishpond, and even if they
did, such is prohibited by law, a fishpond of the public
domain not being susceptible of private ownership.
The foregoing is also one reason why Gauiran vs.
Sahagun (93 Phil. 227) is inapplicable to the case at
bar. The subject matter in the said case is a
homestead which, unlike a fishpond of the public
domain the title to which remains in the Government,
is capable of being privately owned. It is also
noteworthy that in the said case, the Bureau of Lands
was not apprised of the joint tenancy between the
parties and of their agreement to divide the
homestead between them, leading this Court to state
the possibility of nullification of said agreement if the
Director of lands finds out that material facts set out in
the application were not true, such as the statement in
the application that it "is made for the exclusive
benefit of the applicant and not, either directly or
indirectly, for the benefit of any other person or
persons, corporations, associations or partnerships."
In the case at bar, despite the presumed knowledge
acquired by DANR administrative officials of the
partnership to divide the fishpond between the
parties, due largely to the reports made by the
Deluaos, the latter's numerous appeals, motion for
intervention and motions for reconsideration of the
DANR Secretary's decisions in DANR cases 353 and
353-B, were all disregarded and denied.
V. The appellees insist that the parties' intention "to
divide" the fishpond remained unchanged; that the
change in intention referred solely to joint
administration before the actual division of the
fishpond; and that what can be held as having been
dissolved by the "will" of the parties is merely the
partnership to exploit the fishpond pending the award
but not the partnership to divide the fishpond after
such award. In support of their argument, they cite
Casteel's letters of December 27, 1950 and January
4, 1951 which allegedly merely signified the latter's
desire to put an end to the joint administration, but to
which the Deluaos demurred.
Even admitting arguendo that Casteel's desire to
terminate the contract of partnership as allegedly
expressed in his aforecited letters is equivocal in
that it contemplated the termination merely of the joint
administration over the fishpond, the resolution of the
Deluaos to terminate the same partnership is
unequivocal. Thus, in his letter of December 29, 1950
to Casteel, Felipe Deluao expressed his
disagreement to the division (not joint administration)
of the fishpond, because he stated inter alia that:
As regards your proposition to divide the
fishpond into two among ourselves, I believe
it does not find any appropriate grounds by
now. ... .
Be informed that the conflicts over
the fishpond at Balasinon which you
proposed to divide, has not as yet been
finally extinguished by the competent agency
of the government which shall have the last
say on the matter. Pending the final
resolution of the case over said area, your
proposition is out of order. (Emphasis
supplied)
Parenthetically, the appellees' statement that the
beneficial right over the fishpond in question is the
"specific partnership property" contemplated by art.
1811 of the Civil Code is incorrect. A reading of the
said provision will show that what is meant is tangible
property, such as a car, truck or a piece of land, but
not an intangible thing such as the beneficial right to a
fishpond. If what the appellees have in mind is the
fishpond itself, they are grossly in error. A fishpond of
the public domain can never be considered a specific
partnership property because only its use and
enjoyment never its title or ownership is granted
to specific private persons.
VII. The appellees' final proposition that only by giving
effect to the confirmed intention of the parties may the
cause of equity and justice be served, is sufficiently
answered by our discussion and resolution of their
first six propositions. However, in answer to the focal
issue they present, we must state that since the
contract of service, exh. A, is contrary to law and,
therefore, null and void, it is not and can never be
considered as the law between the parties.
ACCORDINGLY, the appellees' February 8, 1969
motion for reconsideration is denied.1wph1.t

It must be observed that, despite the decisions of the

DANR Secretary in DANR cases 353 and 353-B
awarding the area to Casteel, and despite the latter's
proposal that they divide the fishpond between them,
the Deluaos unequivocally expressed in their
aforequoted letter their decision not to share the
fishpond with Casteel. This produced the dissolution
of the entire contract of partnership (to jointly
administer and to divide the fishpond after the award)
between the parties, not to mention its automatic
dissolution for being contrary to law.

VI. Since we have shown in the immediate preceding

discussion that even if we consider Casteel's
decision to terminate the contract of partnership to
divide the fishpond as equivocal the determination
of the Deluaos to terminate said partnership is
unequivocal, then the appellees' sixth proposition that
Casteel is liable to the Deluaos for one-half of the
fishpond or the actual value thereof does not merit
any consideration. The appellees, after all, also
caused the dissolution of the partnership.
ENRIQUE CLEMENTE, plaintiff-appellee,
vs.
DIONISIO GALVAN, defendant-appellee.
JOSE ECHEVARRIA, intervenor-appellant.

Engracio F. Clemea and Celedonio Bernardo for

appellant.
Vicente Bengson for defendant-appellee.
No appearance for other party.

DIAZ, J.:

The intervenor Jose Echevarria having lost in the

Court of First Instance of manila which rendered
judgment against him, the pertinent portion of which
reads: "and with respect to the complaint of the
intervenor, the mortgage executed in his favor by
plaintiff is declared null and void, and said complaint
in intervention, as well as the counterclaim filed by the
defendant against the intervenor, is dismissed,
without pronouncement as to costs," he appealed to
this court on the ground that, according to him, the
lower court committed the errors assigned in his brief
as follows:

I. The court a quo erred in finding in the

appealed decision that plaintiff was unable to
take possession of the machines subject of
the deed of mortgage Exhibit B either before
or after the execution thereof.
 II. The court a quo likewise erred in deciding
the present case against the intervenor-
appellant, on the ground, among others, that
"plaintiff has not adduced any evidence nor
has he testified to show that the machines
mortgaged by him to the intervenor have
ever belonged to him, notwithstanding that
said intervenor is his close relative.".
III. The lower court also erred in declaring
null and void the mortgage executed by
plaintiff in favor of the intervenor and,
thereby, dismissing the complaint in
intervention.
IV. The lower court lastly erred in ordering
the receiver J. D. Mencarini to deliver to the
defendant the aforesaid machines upon
petition of the plaintiff.
In order to have a clear idea of the question, it is
proper to state the facts bearing on the case as they
appear in the decision and judgment of the lower
court and in the documents which constitute all the
evidence adduced by the parties during the trial.
On June 6, 1931, plaintiff and defendant organized a
civil partnership which they named "Galvan y
Compaia" to engage in the manufacture and sale of
paper and other stationery. they agreed to invest
therein a capital of P100,000, but as a matter of fact
they did not cover more than one-fifth thereof, each
contributing P10,000. Hardly a year after such
organization, the plaintiff commenced the present
case in the above-mentioned court to ask for the
dissolution of the partnership and to compel
defendant to whom the management thereof was
entrusted to submit an accounting of his
administration and to deliver to him his share as such
partner. In his answer defendant expressed his
conformity to the dissolution of the partnership and
the liquidation of its affairs; but by way of counterclaim
he asked that, having covered a deficit incurred by the
partnership amounting to P4,000 with his own money,
plaintiff reimburse him of one-half of said sum. On
petition of the plaintiff a receiver and liquidator to take
charge of the properties and business for the
partnership while the same was not yet definitely
dissolved, was appointed, the person chosen being
Juan D. Mencarini. The latter was already discharging
the duties of his office when the court, by virtue of a
petition ex parte of the plaintiff, issued the order of
May 24, 1933, requiring said receiver to deliver to him
(plaintiff) certain machines which were then at Nos.
705-707 Ylaya Street, Manila but authorizing him to
charge their value of P4,500 against the portion which
may eventually be due to said plaintiff. To comply with
said order, the receiver delivered to plaintiff the keys
to the place where the machines were found, which
was the same place where defendant had his home;
but before he could take actual possession of said
machines, upon the strong opposition of defendant,
the court, on motion of the latter, suspended the
effects of its order of May 24, 1933. In the meantime
the judgments rendered in cases Nos. 42794 and
43070 entitled "Philippine Education Co.,
Inc. vs. Enrique Clemente" for the recovery of a sum
of money, and "Jose Echevarria vs. Enrique
Clemente", also for the recovery of a sum of money,
respectively, were made executory; and in order to
avoid the attachment and subsequent sale of the
machines by the sheriff for the satisfaction from the
proceeds thereof of the judgments rendered in the
two cases aforecited, plaintiff agreed with the
intervenor, who is his nephew, to execute, as he in
fact executed in favor of the latter, a deed of
mortgage Exhibit B encumbering the machines
described in said deed in which it is stated that "they
are situated on Singalong Street No. 1163", which is a
place entirely different from the house Nos. 705 and
707 on Ylaya Street hereinbefore mentioned. The one
year agreed upon in the deed of mortgage for the
fulfillment by the plaintiff of the obligation he had
contracted with the intervenor, having expired, the
latter commenced case No. 49629 to collect his
mortgage credit. The intervenor, as plaintiff in the said
case, obtained judgment in his favor because the
defendant did not interpose any defense or objection,
and, moreover, admitted being really indebted to the
intervenor in the amount set forth in the deed of
mortgage Exhibit B. The machines which the
intervenor said were mortgaged to him were then in
fact in custodia legis, as they were under the control
of the receiver and liquidator Juan D. Mencarini. It
was, therefore, useless for the intervenor to attach the
same in view of the receiver's opposition; and the
question having been brought to court, it decided that
nothing could be done because the receiver was not a
party to the case which the intervenor instituted to
collect his aforesaid credit. (Civil case No. 49629.)
The question ended thus because the intervenor did
not take any other step until he thought of joining in
this case as intervenor.
1. From the foregoing facts, it is clear that
plaintiff could not obtain possession of the
machines in question. The constructive
possession deducible from the fact that he
had the keys to the place where the
machines were found (Ylaya Street Nos.
705-707), as they had been delivered to him
by the receiver, does not help him any
because the lower court suspended the
effects of the other whereby the keys were
delivered to him a few days after its
issuance; and thereafter revoked it entirely in
the appealed decision. Furthermore, when
he attempted to take actual possession of
the machines, the defendant did not allow
him to do so. Consequently, if he did not
have actual possession of the machines, he
could not in any manner mortgage them, for
while it is true that the oft-mentioned deed of
 mortgage Exhibit B was annotated in the
registry of property, it is no less true the
machines to which it refers are not the same
as those in question because the latter are
on Ylaya Street Nos. 705-707 and the former
are on Singalong Street No. 1163. It can not
be said that Exhibit B-1, allegedly a
supplementary contract between the plaintiff
and the intervenor, shows that the machines
referred to in the deed of mortgage are the
same as those in dispute and which are
found on Ylaya Street because said exhibit
being merely a private document, the same
cannot vary or alter the terms of a public
document which is Exhibit B or the deed of
mortgage.

2. The second error attributed to the lower

court is baseless. The evidence of record
shows that the machines in contention
originally belonged to the defendant and
from him were transferred to the partnership
Galvan y Compania. This being the case,
said machines belong to the partnership and
not to him, and shall belong to it until
partition is effected according to the result
thereof after the liquidation.

3. The last two errors attributed by the

appellant to the lower court have already G.R. No. L-13680 April 27, 1960
been disposed of by the considerations
above set forth. they are as baseless as the
previous ones. MAURO LOZANA, plaintiff-appellee,
vs.
SERAFIN DEPAKAKIBO, defendant-appellant.
In view of all the foregoing, the judgment appealed
from is affirmed, with costs against the appellant. So
ordered. Antonio T. Lozada for appellee.
Agustin T. Misola and Tomas D. Dominado for
appellant.

LABRADOR, J.:

This is an appeal from a judgment of the Court of First

Instance of Iloilo, certified to us by the Court of
Appeals, for the reason that only questions of law are
involved in said appeal.

The record discloses that on November 16, 1954

plaintiff Mauro Lozana entered into a contract with
defendant Serafin Depakakibo wherein they
established a partnership capitalized at the sum of
P30,000, plaintiff furnishing 60% thereof and the
defendant, 40%, for the purpose of maintaining,
operating and distributing electric light and power in
the Municipality of Dumangas, Province of Iloilo,
under a franchise issued to Mrs. Piadosa Buenaflor.
However, the franchise or certificate of public
necessity and convenience in favor of the said Mrs.
Piadosa Buenaflor was cancelled and revoked by the
Public Service Commission on May 15, 1955. But the
decision of the Public Service Commission was
appealed to Us on October 21, 1955. A temporary
certificate of public convenience was issued in the
name of Olimpia D. Decolongon on December 22,
1955 (Exh. "B"). Evidently because of the cancellation
of the franchise in the name of Mrs. Piadosa
Buenaflor, plaintiff herein Mauro Lozana sold a
generator, Buda (diesel), 75 hp. 30 KVA capacity,
Serial No. 479, to the new grantee Olimpia D.
Decolongon, by a deed dated October 30, 1955
(Exhibit "C"). Defendant Serafin Depakakibo, on the
other hand, sold one Crossly Diesel Engine, 25 h. p.,
Serial No. 141758, to the spouses Felix Jimenea and
Felina Harder, by a deed dated July 10, 1956.
On November 15, 1955, plaintiff Mauro Lozana
brought an action against the defendant, alleging that
he is the owner of the Generator Buda (Diesel),
valued at P8,000 and 70 wooden posts with the wires
connecting the generator to the different houses
supplied by electric current in the Municipality of
Dumangas, and that he is entitled to the possession
thereof, but that the defendant has wrongfully
detained them as a consequence of which plaintiff
suffered damages. Plaintiff prayed that said properties
be delivered back to him. Three days after the filing of
the complaint, that is on November 18, 1955, Judge
Pantaleon A. Pelayo issued an order in said case
authorizing the sheriff to take possession of the
generator and 70 wooden posts, upon plaintiff's filing
of a bond in the amount of P16,000 in favor of the
defendant (for subsequent delivery to the plaintiff). On
December 5, 1955, defendant filed an answer,
denying that the generator and the equipment
mentioned in the complaint belong to the plaintiff and
alleging that the same had been contributed by the
plaintiff to the partnership entered into between them
in the same manner that defendant had contributed
equipments also, and therefore that he is not
unlawfully detaining them. By way of counterclaim,
defendant alleged that under the partnership
agreement the parties were to contribute equipments,
plaintiff contributing the generator and the defendant,
the wires for the purpose of installing the main and
delivery lines; that the plaintiff sold his contribution to
the partnership, in violation of the terms of their
agreement. He, therefore, prayed that the complaint
against him be dismissed; that plaintiff be adjudged
guilty of violating the partnership contract and be
ordered to pay the defendant the sum of P3,000, as
actual damages, P600.00 as attorney's fees and
P2,600 annually as actual damages; that the court
order dissolution of the partnership, after the
accounting and liquidation of the same.
On September 27, 1956, the defendant filed a motion
to declare plaintiff in default on his counterclaim, but
this was denied by the court. Hearings on the case
were conducted on October 25, 1956 and November
5, 1956, and on the latter date the judge entered a
decision declaring plaintiff owner of the equipment
and entitled to the possession thereof, with costs
against defendant. It is against this judgment that the
defendant has appealed.
The above judgment of the court was rendered on a
stipulation of facts, which is as follows:
1. That on November 16, 1954, in the City of
Iloilo, the aforementioned plaintiff, and the
defendant entered into a contract of
Partnership, a copy of which is attached as
Annex "A" of defendant's answer and
counterclaim, for the purpose set forth
therein and under the national franchise
granted to Mrs. Piadosa Buenaflor;
2. That according to the aforementioned
Partnership Contract, the plaintiff Mr. Mauro
Lozana, contributed the amount of Eighteen
Thousand Pesos (P18,000.00); said
contributions of both parties being the
appraised values of their respective
properties brought into the partnership;
3. That the said Certificate of Public
Convenience and Necessity was revoked
and cancelled by order of the Public Service
Commission dated March 15, 1955,
promulgated in case No. 58188, entitled,
"Piadosa Buenaflor, applicant", which order
has been appealed to the Supreme Court by
Mrs. Buenaflor;
4. That on October 30, 1955, the plaintiff
sold properties brought into by him to the
said partnership in favor of Olimpia
Decolongon in the amount of P10,000.00 as
per Deed of Sale dated October 30, 1955
executed and ratified before Notary Public,
Delfin Demaisip, in and for the Municipality
of Dumangas, Iloilo and entered in his
Notarial Registry as Doc. No. 832; Page No.
6; Book No. XIII; and Series of 1955, a copy
thereof is made as Annex "B" of defendant's
answer and counterclaim;
5. That there was no liquidation of
partnership and that at the time of said Sale
on October 30, 1955, defendant was the
manager thereof;
6. That by virtue of the Order of this
Honorable Court dated November 18, 1955,
those properties sold were taken by the
Provincial Sheriff on November 20, 1955 and
delivered to the plaintiff on November 25,
1955 upon the latter posting the required
bond executed by himself and the Luzon
Surety Co., dated November 17, 1955 and
ratified before the Notary Public, Eleuterio
 del Rosario in and for the province of Iloilo
known as Doc. No. 200; Page 90; Book No.
VII; and Series of 1955; of said Notary
Public;
7. That the said properties sold are now in
the possession of Olimpia Decolongon, the
purchaser, who is presently operating an
electric light plant in Dumangas, Iloilo;
8. That the defendant sold certain properties
in favor of the spouses, Felix Jimenea and
Felisa Harder contributed by him to the
partnership for P3,500.00 as per Deed of
Sale executed and ratified before the Notary
Public Rodrigo J. Harder in and for the
Province of Iloilo, known as Doc. No. 76;
Page 94; Book No. V; and Series of 1955, a
certified copy of which is hereto attached
marked as Annex "A", and made an integral
part hereof; (pp, 27-29 ROA).
As it appears from the above stipulation of facts that
the plaintiff and the defendant entered into the
contract of partnership, plaintiff contributing the
amount of P18,000, and as it is not stated therein that
there bas been a liquidation of the partnership assets
at the time plaintiff sold the Buda Diesel Engine on
October 15, 1955, and since the court below had
found that the plaintiff had actually contributed one
engine and 70 posts to the partnership, it necessarily
follows that the Buda diesel engine contributed by the
plaintiff had become the property of the partnership.
As properties of the partnership, the same could not
be disposed of by the party contributing the same
without the consent or approval of the partnership or
of the other partner. (Clemente vs. Galvan, 67 Phil.,
565).
The lower court declared that the contract of
partnership was null and void, because by the
contract of partnership, the parties thereto have
become dummies of the owner of the franchise. The
reason for this holding was the admission by
defendant when being cross-examined by the court
that he and the plaintiff are dummies. We find that this
admission by the defendant is an error of law, not a
statement of a fact. The Anti-Dummy law has not
been violated as parties plaintiff and defendant are
not aliens but Filipinos. The Anti-Dummy law refers to
aliens only (Commonwealth Act 108 as amended).
Upon examining the contract of partnership,
especially the provision thereon wherein the parties
agreed to maintain, operate and distribute electric
light and power under the franchise belonging to Mrs.
Buenaflor, we do not find the agreement to be illegal,
or contrary to law and public policy such as to make
the contract of partnership, null and void ab initio. The
agreement could have been submitted to the Public
Service Commission if the rules of the latter require
them to be so presented. But the fact of furnishing the
current to the holder of the franchise alone, without
the previous approval of the Public Service
Commission, does not per se make the contract of
partnership null and void from the beginning and
render the partnership entered into by the parties for
the purpose also void and non-existent. Under the
circumstances, therefore, the court erred in declaring
that the contract was illegal from the beginning and
that parties to the partnership are not bound therefor,
such that the contribution of the plaintiff to the
partnership did not pass to it as its property. It also
follows that the claim of the defendant in his
counterclaim that the partnership be dissolved and its
assets liquidated is the proper remedy, not for each
contributing partner to claim back what he had
contributed.
For the foregoing considerations, the judgment
appealed from as well as the order of the court for the
taking of the property into custody by the sheriff must
be, as they hereby are set aside and the case
remanded to the court below for further proceedings
in accordance with law.
Paras, C.J., Bengzon, Montemayor, Bautista Angelo,
Concepcion, Endencia, Barrera and Gutierrez David,
JJ.,concur.
G.R. No. L-5963 May 20, 1953
THE LEYTE-SAMAR SALES CO., and RAYMUNDO
TOMASSI, petitioners,
vs.
SULPICIO V. CEA, in his capacity as Judge of the
Court of First Instance of Leyte and OLEGARIO
LASTRILLA, respondents.
Filomeno Montejo for petitioners.
Sulpicio V. Cea in his own behalf.
Olegario Lastrilla in his own behalf.
BENGZON, J.:
Labaled "Certiorari and Prohibition with preliminary
Injunction" this petition prays for the additional writ
of mandamusto compel the respondent judge to give
due course to petitioners' appeal from his order taxing
costs. However, inasmuch as according to the
answer, petitioners through their attorney withdrew
their cash appeal bond of P60 after the record on
appeal bond of P60 after the record on appeal had
been rejected, the matter of mandamus may be
summarily be dropped without further comment.
From the pleadings it appears that,
In civil case No. 193 of the Court of First Instance of
Leyte, which is a suit for damages by the Leyte-
Samar Sales Co. (hereinafter called LESSCO) and
Raymond Tomassi against the Far Eastern Lumber &
Commercial Co. (unregistered commercial
partnership hereinafter called FELCO), Arnold Hall,
Fred Brown and Jean Roxas, judgment against
defendants jointly and severally for the amount of
P31,589.14 plus costs was rendered on October 29,
1948. The Court of Appeals confirmed the award in
November 1950, minus P2,000 representing
attorney's fees mistakenly included. The decision
having become final, the sheriff sold at auction on
June 9, 1951 to Robert Dorfe and Pepito Asturias "all
the rights, interests, titles and participation" of the
defendants in certain buildings and properties
described in the certificate, for a total price of eight
thousand and one hundred pesos. But on June 4,
1951 Olegario Lastrilla filed in the case a motion,
wherein he claimed to be the owner by purchase on
September 29, 1949, of all the "shares and interests"
of defendant Fred Brown in the FELCO, and
requested "under the law of preference of credits" that
the sheriff be required to retain in his possession so
much of the deeds of the auction sale as may be
necessary "to pay his right". Over the plaintiffs'
objection the judge in his order of June 13, 1951,
granted Lastrilla's motion by requiring the sheriff to
retain 17 per cent of the money "for delivery to the
assignee, administrator or receiver" of the FELCO.
And on motion of Lastrilla, the court on August 14,
1951, modified its order of delivery and merely
declared that Lastrilla was entitled to 17 per cent of
the properties sold, saying in part:
. . . el Juzgado ha encontrado que no se han
respetado los derechos del Sr. Lastrilla en lo
que se refiere a su adquiscicion de las
acciones de C. Arnold Hall (Fred Brown) en
la Far Eastern Lumber & Lumber
Commercial C. porque la mismas han sido
incluidas en la subasta.
Es vedad que las acciones adquiridas por el
Sr. Lastilla representan el 17 por ciento del
capital de la sociedad "Far Eastern Lumber
& Commercial Co., Inc., et al." pero esto no
quiere decir que su vlor no esta sujeto a las
fluctuaciones del negocio donde las invirtio.
Se vendieron propiedades de la corporacion
"Far Eastern Lumber & Co. Inc.," y de la
venta solamente se obtuvo la cantidad de
P8,100.
"En su virtud, se declara que el 17 por ciento
de las propiedades vendidas en publica
subasta pretenece al Sr. O Lastrilla y este
tiene derecho a dicha porcion pero con la
obligacion de pagar el 17 por ciento de los
gastos for la conservacion de dichas
propriedades por parte del Sheriff; . . . .
(Annex K)
It is from this declaration and the subsequent orders
to enforce it1 that the petitioners seek relief by
certiorari, their position being the such orders were
null and void for lack of jurisdiction. At their request a
writ of preliminary injunction was issued here.
The record is not very clear, but there are indications,
and we shall assume for the moment, that Fred
Brown (like Arnold Hall and Jean Roxas) was a
partner of the FELCO, was defendant in Civil Case
No. 193 as such partner, and that the properties sold
at auction actually belonged to the FELCO
partnership and the partners. We shall also assume
that the sale made to Lastrilla on September 29,
1949, of all the shares of Fred Brown in the FELCO
was valid. (Remember that judgment in this case was
entered in the court of first instance a year before.)
The result then, is that on June 9, 1951 when the sale
was effected of the properties of FELCO to Roberto
Dorfe and Pepito Asturias, Lastilla was already a
partner of FELCO.
Now, does Lastrilla have any proper claim to the
proceeds of the sale? If he was a creditor of the
FELCO, perhaps or maybe. But he was no. The
partner of a partnership is not a creditor of such
partnership for the amount of his shares. That is too
elementary to need elaboration.
Lastrilla's theory, and the lower court's seems to be:
inasmuch as Lastrilla had acquired the shares of
Brown is September, 1949, i.e., before the auction
sale and he was not a party to the litigation, such
shares could not have been transferred to Dorfe and
Austrilla.
Granting arguendo that the auction sale and not
included the interest or portion of the FELCO
properties corresponding to the shares of Lastrilla in
the same partnership (17%), the resulting situation
would be at most that the purchasers Dorfe and
Austrias will have to recognized dominion of Lastrillas
over 17 per cent of the properties awarded to
them.2 So Lastrilla acquired no right to demand any
part of the money paid by Dorfe and Austrias to he
sheriff any part of the money paid by Dorfe and
Austrias to the sheriff for the benefit of FELCO and
Tomassi, the plaintiffs in that case, for the reason
that, as he says, his shares (acquired from Brown)
could not have been and were not auctioned off to
Dorfe and Austrias.
Supposing however that Lastrillas shares have been
actually (but unlawfully) sold by the sheriff (at the
instance of plaintiffs) to Dorfe and Austrias, what is
his remedy? Section 15, Rule 39 furnishes the
answer.
Precisely, respondents argue, Lastrilla vindicated his
claim by proper action, i.e., motion in the case. We
ruled once that "action" in this section means action
as defined in section 1, Rule 2.3 Anyway his remedy is
to claim "the property", not the proceeds of the sale,
which the sheriff is directed by section 14, Rule 39 to
deliver unto the judgment creditors.
In other words, the owner of property wrongfully sold
may not voluntarily come to court, and insist, "I
approve the sale, therefore give me the proceeds
because I am the owner". The reason is that the sale
was made for the judgment creditor (who paid for the
fees and notices), and not for anybody else.
On this score the respondent judge's action on
Lastrilla's motion should be declared as in excess of
jurisdiction, which even amounted to want of
jurisdiction, which even amounted to want of
jurisdiction, considering specially that Dorfe and
Austrias, and the defendants themselves, had
undoubtedly the right to be heardbut they were not
notified.4
Why was it necessary to hear them on the merits of
Lastrilla's motion?
Because Dorfe and Austrillas might be unwilling to
recognized the validity of Lastrilla's purchase, or, if
valid, they may want him not to forsake the
partnership that might have some obligations in
connection with the partnership properties. And what
is more important, if the motion is granted, when the
time for redemptioner seventeen per cent (178%) less
than amount they had paid for the same properties.
The defendants Arnold Hall and Jean Roxas, eyeing
Lastrilla's financial assets, might also oppose the
substitution by Lastrilla of Fred Brown, the judgment
against them being joint and several. They might
entertain misgivings about Brown's slipping out of
their common predicament through the disposal of his
shares.
Lastly, all the defendants would have reasonable
motives to object to the delivery of 17 per cent of the
proceeds to Lustrial, because it is so much money
deducted, and for which the plaintiffs might as another
levy on their other holdings or resources. Supposing
of course, there was no fraudulent collusion among
them.
Now, these varied interest of necessity make Dorfe,
Asturias and the defendants indispensable parties to
the motion of Lastrilla granting it was step
allowable under our regulations on execution. Yet
these parties were not notified, and obviously took no
part in the proceedings on the motion.
A valid judgment cannot be rendered where
there is a want of necessary parties, and a
court cannot properly adjudicate matters
involved in a suit when necessary and
indispensable parties to the proceedings are
not before it. (49 C.J.S., 67.)
Indispensable parties are those without
whom the action cannot be finally
determined. In a case for recovery of real
property, the defendant alleged in his answer
that he was occupying the property as a
tenant of a third person. This third person is
an indispensable party, for, without him, any
judgment which the plaintiff might obtain
against the tenant would have no
effectiveness, for it would not be binding
upon, and cannot be executed against, the
defendant's landlord, against whom the
plaintiff has to file another action if he
desires to recover the property effectively. In
an action for partition of property, each co-
owner is an indispensable party. (Moran,
Comments, 1952 ed. Vol. I, p. 56.)
(Emphasis supplied.)
Wherefore, the orders of the court recognizing
Lastrilla's right and ordering payment to him of a part
of the proceeds were patently erroneous, because
promulgated in excess or outside of its jurisdiction.
For this reason the respondents' argument resting on
plaintiffs' failure to appeal from the orders on time,
although ordinarily decisive, carries no persuasive
force in this instance.
For as the former Chief Justice Dr. Moran has
summarized in his Comments, 1952 ed. Vol. II, p. 168
. . . And in those instances wherein the lower
court has acted without jurisdiction over the
subject-matter, or where the order or
judgment complained of is a patent nullity,
courts have gone even as far as to disregard
completely the questions of petitioner's fault,
the reason being, undoubtedly, that acts
performed with absolute want of jurisdiction
over the subject-matter are void ab initio and
cannot be validated by consent, express or
implied, of the parties. Thus, the Supreme
Court granted a petition for certiorari and set
aside an order reopening a cadastral case
five years after the judgment rendered
therein had become final. In another case,
the Court set aside an order amending a
judgment acquired a definitive character.
And still in another case, an order granting a
 review of a decree of registration issued
more than a year ago had been declared null
void. In all these case the existence of the
right to appeal has been recitals was
rendered without any trial or hearing, and the
Supreme Court, in granting certiorari, said
that the judgment was by its own recitals a
patent nullity, which should be set aside
though an appeal was available but was not
availed of. . . .

Invoking our ruling in Melocotones vs. Court of First

Instance, (57 Phil., 144), wherein we applied the
theory of laches to petitioners' 3-years delay in
requesting certiorari, respondents point out that
whereas the orders complained of herein were issued
in June 13, 1951 and August 14, 1951 this special
civil action was not filed until August 1952. It should
be observed that the order of June 13 was
superseded by that of August 14, 1951. The last order
merely declared "que el 17 por ciento de la
propiedades vendidas en publica subasta pertenece
at Sr. Lastrilla y este tiene derecho a dicha porcion."
This does not necessarily mean that 17 per cent
of the money had to be delivered to him. It could
mean, as hereinbefore indicated, that the purchasers
of the property (Dorfe and Asturias) had to recognize
Lastrilla's ownership. It was only on April 16,
1952 (Annex N) that the court issued an order
directing the sheriff "to tun over" to Lastrilla "17 per
cent of the total proceeds of the auction sale". There
is the order that actually prejudiced the petitioners
herein, and they fought it until the last order of July
10,. 1952 (Annex Q). Surely a month's delay may not
be regarded as laches. G.R. No. 19892 September 6, 1923

In view of the foregoing, it is our opinion, and we so TECK SEING AND CO., LTD., petitioner-appellee.
hold, that all orders of the respondents judge requiring SANTIAGO JO CHUNG, ET AL., partners,
delivery of 17 per cent of the proceeds of the auction vs.
sale to respondent Olegario Lastrilla are null and void; PACIFIC COMMERCIAL COMPANY, ET
and the costs of this suit shall be taxed against the AL., creditors-appellants.
latter. The preliminary injunction heretofore issued is
made permanent. So ordered. Del Rosario & Del Rosario and Block, Johnston and
Greenbaum for appellants.
Paras, C.J., Feria, Pablo, Tuason, Montemayor, F. V. Arias for appellants Jo Ibec and Go Tayco.
Reyes, Jugo, Bautista Angelo and Labrador, No appearance for petitioner and appellee.
JJ., concur. Jose A. Espiritu and Felipe Ysmael as amici curiae.

MALCOLM, J.:

Following the presentation of an application to be

adjudged an insolvent by the "Sociedad Mercantil,
Teck Seing & Co., Ltd.," the creditors, the Pacific
Commercial Company, Piol & Company, Riu
Hermanos, and W. H. Anderson & Company, filed a
motion in which the Court was prayed to enter an
order: "(A) Declaring the individual partners as
described in paragraph 5 parties to this proceeding;
(B) to require each of said partners to file an inventory
of his property in the manner required by section 51 of
Act No. 1956; and (C) that each of said partners be
adjudicated insolvent debtors in this proceeding." The
trial judge first granted the motion, but, subsequently,
on opposition being renewed, denied it. It is from this
last order that an appeal was taken in accordance
with section 82 of the Insolvency Law.
There has been laid before us for consideration and
decision a question of some importance and of some
intricacy. The issue in the case relates to a
determination of the nature of the mercantile
establishment which operated under the name of
Teck Seing & co., Ltd., and this issue requires us to
look into, and analyze, the document constituting
Teck Seing & Co., Ltd. It reads:
ESCRITURA DE SOCIEDAD MERCANTIL LIMITADA
Sepan todos por la presente:
Que nosotros, Santiago Jo Chung Cang,
mayor de edad comerciante, vecino y
residente del municipio de Tabogon
Provincia de Cebu, Islas Filipinas, Go Tayco,
mayor de edad, comerciante, vecino y
residente del municipio de Cebu Provincia
de Cebu, Islas Filipinas, Yap Gueco, mayor
de edad, comerciante, vecino y residente del
municipio y Provincia de Cebu, Islas
Filipinas, Lim Yogsing, mayor de edad
comerciante, vecino y residente del
municipio de Cebu, Provincia de Cebu, Islas
Filipinas, y Jo Ybec, mayor de edad,
comerciante, vecino y residente del
municipio de Jagna, Provincia de Bohol,
Islas Filipinas, hacemos constar por la
presente, que constituimos y formamos una
sociedad mercantil limitada, bajo las leyes
vigentes en las Islas Filipinas y para ser
registrada de acuerdo con los reglamentos
vigentes del Codigo de Comercio en
Filipinas.
Que la razon social se denominara "Teck
Seing & Co., Ltd." y tendra su domicilio
principal en la Calle Magallanes No. 94, de
la Ciudad de Cebu, Provincia de Cebu, Islas
Filipinas.
Que el capital social sera de treinta mil
pesos (P30,000) moneda legal de las Islas
Filipinas, dividido en cinco acciones de a
P6,000 como sigue:
Santiago Jo Chung Cang . . . . . . . . . . . . .
Go Tayco . . . . . . . . . . . . . . . . . . . . . . . . . .
Yap Gueco . . . . . . . . . . . . . . . . . . . . . . . .
Jo Ybec . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,0
Lim Yogsing . . . . . . . . . . . . . . . . . . . . . . . 6,0
Total . . . . . . . . . . . . . . . . . . . . . . 30,
Que la duracion de la sociedad sera la de
seis aos, a contar de la fecha de esta
escritura, pudiendo prorrogarse este tiempo
a discrecion unanime de todos los
accionistas.
El objeto de la sociedad sera la compra y
venta de mercaderias en general.
El administrador o administradores de la
sociedad podran, previa conformidad de los
accionistas, establecer cuantas sucursales o
establecimientos considere necesarios para
facilitar sus negocios y el mayor desarrollo
del comercio a que se dedica la sociedad,
verificando todas las operaciones que crean
convenientes para el fomento de su capital.
Las ganancias o perdidas que resultaren
durante cada ao comercial, se distribuiran
proporcionalmente entre los accionistas, de
acuerdo con el capital aportado por cada
uno de los mismos.
Las ganancias que resultaren en cada ao
comercial, si resultaren algunas ganancias,
no podran ser retiradas pors los accionistas
hasta dentro del termino de tres aos a
contar de la fecha del primer balance anual
del negocio, quedadno por tanto estas
ganancias en reserva, para ampliar el capital
aportado opor los accionistas y ampliar por
tanto la esfera de accion emprendida por la
misma sociedad. Al pasar o expirar el
termino de tres aos, cada accionista podra
retirar o depositar en poder de la sociedad,
las ganancias que le debiera corresponder
durante dicho termino de tres aos.
Que los accionistas no podran extraer ni
disponer en ningun tiempo cualesquiera
cantidad o cantidades de la sociedad, que
haya sido aportado por los mismos, para
atender sus gastos particulares ni aun
pagando redito alguno sobre la cantidad que
intenen disponer o extraer de dicha
sociedad.
P6,000.00
El accionista Sr. Lim Yogsing tendra a su
cargo, en union del Sr. Vicente Jocson Jo, la
6,000.00
administracion de la Compaia, quienes
podran usar indistintamente la firma social,
6,000.00
quedando por consiguiente autorizados
amobs para hacer en nombre de ella toda
calse de operaciones, negocios y escritura de sociedad mercantillimitada, y
especulaciones mercantiles, practicando
judicial y extra-judicialment cuantos actos se
requieran para el bien de la sociedad,
nombrar procuradores o abogados para
reclamaciones y cobro de creditos y
proponer ante los tribunales las demandas,
convenios, transacciones y excepciones
procdentes. En caso de ausencia,
enfermedad o cualquier otro impedimento
del accionista administrador Sr. Lim
Yogsing, este podra conferir poder general o
especial al accionista que crea conveniente
para que en union del administrador auxiliar
Sr. Vicente Jocson Jo, pudieran ambos
administrar convenientemente los negocios
de la sociedad. Que los administradores
podran tener los empleados necesarios para
el mejor que debieran percibir dichos
empleados por servicios rendidos a la
sociedad.
Que ambos administradores podran
disponer de mil discientos pesos (P1,200)
moneda filipina, anualmente, para sus
gastos particulares, siendo dicha cantidad
de P1,200 la que corresponde a cada uno
de dichos administradores, como
emolumentos o salarios que se les asigna a
cas uno, por sus trabajos en la
administracion de la
sociedad. Entendiendose, que, los
accionistas podran disponer cada fin de
aola gratificacion quese concedera a cada
administrador, si los negocios del ao fueran
boyantes y justifiquen la concesion de una
gratificacion especial, aparte del salario aqui
dispuesto y especificado.
Que pasado el termino de seis aos, y es de
la conveniencia de los accionistas la
continuacion del negocio de esta sociedad,
dicho termino sera prorrogado por igual
numero de aos, sin necesidas del
otorgamiento de ulteriores escrituras,
quedando la presente en vigor hasta el
termino dispuesto por todos los accionistas.
Que las diferencias que pudieran suscitarse
entre los accionistas, bien sea por razon de
lo estipulado en esta en ella comprendidos,
se procurara arreglar entre los mismos
amistosa y extrajudicialmente, y si no se
consiguiere un arreglo de este modo, dichos
accionistas nombraran un arbitro, cuya
resolucion estan todos obligados y por la
presente se comprometen y se obligan a
acatarla en todas sus partes, renunciando
ulteriores recursos.
En cuyos terminos dejamos formalizada esta
prometemos cumplirla fiel y estrictamente
segun los pactos que hemos establecido.
En testimonio de todo lo cual, firmamos en la
Ciudad de Cebu, Provincia de Cebu, Islas
Filipinas, hoy 31 de octubre de mil
novecientos diez y nueve.
(Fdos.) "LIM YOGSING
"Jo YBec por Ho Seng Sian
"SANTIAGO JO CHUNG CANG
"GO TAYCO
"YAP GUECO
Firnando en presencia de:
(Fdos.) "ATILANO LEYSON
"JULIO DIAZ
"ESTADOS UNIDOS DE AMERCA
"ISLAS FILIPINAS
"PROVINCIA DE CEBU
En el Municipio de Cebu, de la Provincia
antes mencionada, I.F., hoy 31 de octubre
de 1919, A.D., ante mi, Notario Publico que
subscribe, comprecieron personalmente
Santiago Jo Chung Cang, Go Tayco, Yap
Gueco, Lim Yogsing y Jo Ybec,
representado este ultimo por Ho Seng Sian,
segun autorizacion hecha en telegrama de
fecha 27 de septiembre de 1919 que se me
ha presentado en este mismo acto, de
quienes doy fe de que les conozco por ser
las mismas personas que otorgaron el
preinserto documento, ratificando ant emi su
contenido y manifestando ser el mismo un
acto de su libre y voluntario otorgamiento. El
Sr. Santiago Jo Chung Cang me exhibio su
cedula personal expedida en Cebu, Cebu,
I.F. el dia 19 de septiembre de 1919 bajo el
No. H77742, Go Tayco tambien me exhibio
la suya expedida en Cebu, Cebu, I.F., el dia
9 de octubre de 1919 bajo el No. G2042490,
Yap Gueco tambien me exhibio la suya
expedida en Cebu, Cebu, I.F. el dia 20 de
enero de 1919 bajo el No. F1452296, Lim
Yogsing tambien me exhibio la suya
expedida en Cebu, Cebu, I.F., el dia 26 de
febrero de 1919 bajo el No. F1455662, y Ho
Seng Sian representante de Jo Ybec, me
exhibio su cedula personal expedida en
Cebu, Cebu, I.f. el dia 4 de febrero de 1919
bajo el No. F1453733.
Ante mi,
 in English, and will hereafter be spoken of, "a limited
(Fdo.) "F.V.ARIAS
partnership."
"Notario Publico
"Hasta el 1. de enero de 1920
To establish a limited partnership there must be, at
least, one general partner and the name of the least
"Asiento No. 157 one of the general partners must appear in the firm
Pagina No. 95 de mi name. (Code of Commerce, arts. 122 [2], 146, 148.)
Registro Notarial But neither of these requirements have been fulfilled.
Serie 1919 The general rule is, that those who seek to avail
Libro 2. themselves of the protection of laws permitting the
creation of limited partnerships must show a
Presentado a las diez y cuarenta y tres substantially full compliance with such laws. A limited
minutos de la maana de hoy, segun el partnership that has not complied with the law of its
asiento No. 125, pagina 9 del Tomo 1. del creation is not considered a limited partnership at all,
Libro Diario. Cebu, 11 de febrero de 1920. but a general partnership in which all the members
are liable. (Mechem, Elements of Partnership, p. 412;
Gilmore, Partnership, pp. 499, 595; 20 R C. L. 1064.)
(Fdo.) "QUIRICO ABETO
[SELLO] "Registrador Mercantil Ex-Officio" The contention of the creditors and appellants is that
the partnership contract established a general
partnership.
Inscrito el documento que preced al folio 84
hoja No. 188, inscripcion 1.a del Tomo 3.
del Libro Registro de Sociedades Article 125 of the Code of Commerce provides that
Mercantiles. Cebu, 11 de febrero de 1920. the articles of general copartnership must estate the
Honorarios treinta pesos con cincuenta names, surnames, and domiciles of the partners; the
centavos. Art. 197, Ley No. 2711, Codigo firm name; the names, and surnames of the partners
Administrativo. to whom the management of the firm and the use of
its signature is instrusted; the capital which each
partner contributes in cash, credits, or property,
(Fdo.) "QUIRICO ABETO stating the value given the latter or the basis on which
[SELLO] "Registrador Mercantil Ex-Officio" their appraisement is to be made; the duration of the
copartnership; and the amounts which, in a proper
case, are to be given to each managing partner
Proceeding by process of elimination, it is self-evident annually for his private expenses, while the
that Teck Seing & Co., Ltd., is not a corporation. succeeding article of the Code provides that the
Neither is it contended by any one that Teck Seing & general copartnership must transact business under
Co., Ltd., is accidental partnership the name of all its members, of several of them, or of
denominated cuenta en participacion (joint account one only. Turning to the document before us, it will be
association). noted that all of the requirements of the Code have
been met, with the sole exception of that relating to
the composition of the firm name. We leave
Counsel for the petitioner and appellee described his
consideration of this phase of the case for later
client in once place in his opposition to the motion of
discussion.
the creditors as "una verdadera sociedad anonima" (a
true sociedad anonima). The provisions of the Code
of Commerce relating to sociedades anonimas were, The remaining possibility is the revised contention of
however, repealed by section 191 of the Corporation counsel for the petitioners to the effect that Teck
Law (Act No. 1459), with the exceptions Seing & Co., Ltd., is "una sociedad mercantil "de
the sociedades anonimas lawfully organized at the facto" solamente" (only a de facto commercial
time of the passage of the Corporation Law were association), and that the decision of the Supreme
recognized, which is not our case. court in the case of Hung-Man-Yoc vs. Kieng-Chiong-
Seng [1906], 6 Phil., 498), is controlling. It was this
argument which convinced the trial judge, who gave
The document providing for the partnership contract
effect to his understanding of the case last cited and
purported to form "una sociedad mercantil
which here must be given serious attention.
limitada," and counsel for the petitioner's first
contention was that Teck Seing & Co., Ltd., was
not "una sociedad regular colectiva, ni siquiera The decision in Hung-Man-Yoc vs. Kieng-Chiong-
comanditaria, sino una sociedad mercantil Seng, supra, discloses that the firm Kieng-Chiong-
limitada." Let us see if the partnership contract Seng was not organized by means of any public
created a "sociedad en comandita," or, as it is known document; that the partnership had not been recorded
in the mercantile registry; and that Kieng-Chiong-
Seng was not proven to be the firm name, but rather
the designation of the partnership. The conclusion
then was, that the partnership in question was
merely de facto and that, therefore, giving effect to the
provisions of article 120 of the Code of Commerce,
the right of action was against the persons in charge
of the management of the association.
Laying the facts of the case of Hung-Man-Yoc vs.
Kieng-Chiong-Seng, supra, side by side with the facts
before us, a marked difference is at once disclosed. In
the cited case, the organization of the partnership was
not evidenced by any public document; here, it is by a
public document. In the cited case, the partnership
naturally could not present a public instrument for
record in the mercantile registry; here, the contract of
partnership has been duly registered. But the two
cases are similar in that the firm name failed to
include the name of any of the partners.
We come then to the ultimate question, which is,
whether we should follow the decision in Hung-Man-
Yoc vs. Kieng-Chiong-Seng, supra, or whether we
should differentiate the two cases, holding Teck Seing
& Co., Ltd., a general copartnership, notwithstanding
the failure of the firm name to include the name of one
of the partners. Let us now notice this decisive point
in the case.
Article 119 of the Code of Commerce requires every
commercial association before beginning its business
to state its article, agreements, and conditions in a
public instrument, which shall be presented for record
in the mercantile registry. Article 120, next following,
provides that the persons in charge of the
management of the association who violate the
provisions of the foregoing article shall be
responsible in solidum to the persons not members of
the association with whom they may have transacted
business in the name of the association. Applied to
the facts before us, it would seem that Teck Seing &
Co., Ltd. has fulfilled the provisions of article 119.
Moreover, to permit the creditors only to look to the
person in charge of the management of the
association, the partner Lim Yogsing, would not prove
very helpful to them.
What is said in article 126 of the Code of Commerce
relating to the general copartnership transacting
business under the name of all its members or of
several of them or of one only, is wisely included in
our commercial law. It would appear, however, that
this provision was inserted more for the protection of
the creditors than of the partners themselves. A
distinction could well be drawn between the right of
the alleged partnership to institute action when failing
to live up to the provisions of the law, or even the
rights of the partners as among themselves, and the
right of a third person to hold responsible a general
copartnership which merely lacks a legal firm name in
order to make it a partnership de jure.
The civil law and the common law alike seem to point
to a difference between the rights of the partners who
have failed to comply with the law and the rights of
third persons who have dealt with the partnership.
The supreme court of Spain has repeatedly held that
notwithstanding the obligation of the members to
register the articles of association in the commercial
registry, agreements containing all the essential
requisites are valid as between the contracting
parties, whatever the form adopted, and that, while
the failure to register in the commercial registry
necessarily precludes the members from enforcing
rights acquired by them against third persons, such
failure cannot prejudice the rights of third persons.
(See decisions of December 6, 1887, January 25,
1888, November 10, 1890, and January 26, 1900.)
The same reasoning would be applicable to the less
formal requisite pertaining to the firm name.
The common law is to the same effect. The State of
Michigan had a statute prohibiting the transaction of
business under an assumed name or any other than
the real name of the individual conducting the same,
unless such person shall file with the county clerk a
certificate setting forth the name under which the
business is to be conducted and the real name of
each of the partners, with their residences and post-
office addresses, and making a violation thereof a
misdemeanor. The supreme Court of Michigan said:
The one object of the act is manifestly to
protect the public against imposition and
fraud, prohibiting persons from concealing
their identity by doing business under an
assumed name, making it unlawful to use
other than their real names in transacting
business without a public record of who they
are, available for use in courts, and to punish
those who violate the prohibition. The object
of this act is not limited to facilitating the
collection of debts, or the protection of those
giving credit to persons doing business
under an assumed name. It is not unilateral
in its application. It applies to debtor and
creditor, contractor and contractee, alike.
Parties doing business with those acting
under an assumed name, whether they buy
or sell, have a right, under the law, to know
who they are, and who to hold responsible,
in case the question of damages for failure to
perform or breach of warranty should arise.
The general rule is well settled that, where
statutes enacted to protect the public against
fraud or imposition, or to safeguard the
public health or morals, contain a prohibition
and impose a penalty, all contracts in
violation thereof are void. . . .
 As this act involves purely business
transactions, and affects only money
interests, we think it should be construed as
rendering contracts made in violation of it
unlawful and unforceable at the instance of
the offending party only, but not as designed
to take away the rights of innocent parties
who may have dealt with the offenders in
ignorance of their having violated the statute.
(Cashin vs. Pliter [1912], 168 Mich., 386;
Ann. Cas. [1913-C, 697.)
The early decision of our Supreme Court in the case
of Prautch Scholes & Co. vs. Hernandez [1903], 1
Phil., 705), contains the following pertinent
observations:
Another case may be supposed. A
partnership is organized for commercial
purposes. It fails to comply with the
requirements of article 119. A creditor sues
the partnership for a debt contracted by it,
claiming to hold the partners severally. They
answer that their failure to comply with the
Code of Commerce makes them a civil
partnership and that they are in accordance
with article 1698 of the Civil Code only
liable jointly. To allow such liberty of action
would be to permit the parties by a violation
of the Code to escape a liability which the
law has seen fit to impose upon persons who
organized commercial partnership; "Because
it would be contrary to all legal principles that
the nonperformance of a duty should
redound to the benefit of the person in
default either intentional or unintentional."
(Mercantile Law, Eixala, fourth ed., p. 145.)"
(See also Lichauco vs. Lichauco [1916], 33
Phil., 350, 360.)
Dr. Jose de Echavarri y Vivanco, in his Codigo de
Comercio, includes the following comment after
articles 121 and 126 of the Code:
From the decisions cited in this and in the
previous comments, the following is
deduced: 1st. Defects in the organization
cannot affect relations with third persons. 2d.
Members who contract with other persons
before the association is lawfully organized
are liable to these persons. 3d. The intention
to form an association is necessary, so that if
the intention of mutual participation in the
profits and losses in a particular business is
proved, and there are no articles of
association, there is no association. 4th. An
association, the articles of which have not
been registered, is valid in favor of third
persons. 5th. The private pact or agreement
to form a commercial association is
governed not by the commercial law but by
the civil law. 6th. Secret
stipulations expressed in a public instrument,
but not inserted in the articles of association,
do not affect third persons, but are binding
on the parties themselves. 7th. An
agreement made in a public instrument,
other than the articles of association, by
means of which one of the partners
guarantees to another certain profits or
secures him from losses, is valid between
them, without affecting the association.
8th. Contracts entered into by commercial
associations defectively organized are valid
when they are voluntarily executed by the
parties, if the only controversy relates to
whether or not they complied with the
agreement.
xxx xxx xxx
The name of the collective merchant is
called firm name. By this name, the new
being is distinguished from others, its sphere
of action fixed, and the juridical personality
better determined, without constituting an
exclusive character of the general
partnership to such an extent as to serve the
purpose of giving a definition of said kind of
a mercantile partnership, as is the case in
our Code.
Having in mind that these partnerships are
prevailingly of a personal character, article
126 says that they must transact business
under the name of all its members, of some
of them, or of one only, the words "and
company" to be added in the latter two
cases.
It is rendered impossible for the general
partnership to adopt a firm name appropriate
to its commercial object; the law wants to
link, and does link, the solidary and unlimited
responsibility of the members of this
partnership with the formation of its name,
and imposes a limitation upon personal
liberty in its selection, not only by prescribing
the requisites, but also by prohibiting
persons not members of the company from
including their names in its firm name under
penalty of civil solidary responsibility.
Of course, the form required by the Code for
the adoption of the firm name does not
prevent the addition thereto of any other title
connected with the commercial purpose of
the association. The reader may see our
commentaries on the mercantile registry
about the business names and firm names of
associations, but it is proper to establish
 here that, while the business name may be
alienated by any of the means admitted by
the law, it seems impossible to separate the
firm names of general partnerships from the
juridical entity for the creation of which it was
formed. (Vol. 2, pp. 197, 213.)
On the question of whether the fact that the firm name
"Teck Seing & Co., Ltd." does not contain the name of
all or any of the partners as prescribed by the Code of
Commerce prevents the creation of a general
partnership, Professor Jose A. Espiritu, as amicus
curi, states:
My opinion is that such a fact alone cannot
and will not be a sufficient cause of
preventing the formation of a general
partnership, especially if the other requisites
are present and the requisite regarding
registration of the articles of association in
the Commercial Registry has been complied
with, as in the present case. I do not believe
that the adoption of a wrong name is a
material fact to be taken into consideration in
this case; first, because the mere fact that a
person uses a name not his own does not
prevent him from being bound in a contract
or an obligation he voluntarily entered into;
second, because such a requirement of the
law is merely a formal and not necessarily an
essential one to the existence of the
partnership, and as long as the name
adopted sufficiently identity the firm or
partnership intended to use it, the acts and
contracts done and entered into under such
a name bind the firm to third persons; and
third, because the failure of the partners
herein to adopt the correct name prescribed
by law cannot shield them from their
personal liabilities, as neither law nor equity
will permit them to utilize their own mistake
in order to put the blame on third persons,
and much less, on the firm creditors in order
to avoid their personal possibility.
The legal intention deducible from the acts of the
parties controls in determining the existence of a
partnership. If they intend to do a thing which in law
constitutes a partnership, they are partners, although
their purpose was to avoid the creation of such
relation. Here, the intention of the persons making up
Teck Seing & co., Ltd. was to establish a partnership
which they erroneously denominated a limited
partnership. If this was their purpose, all subterfuges
resorted to in order to evade liability for possible
losses, while assuming their enjoyment of the
advantages to be derived from the relation, must be
disregarded. The partners who have disguised their
identity under a designation distinct from that of any of
the members of the firm should be penalized, and not
the creditors who presumably have dealt with the
partnership in good faith.
Articles 127 and 237 of the Code of Commerce make
all the members of the general copartnership liable
personally and in solidum with all their property for the
results of the transactions made in the name and for
the account of the partnership. Section 51 of the
Insolvency Law, likewise, makes all the property of
the partnership and also all the separate property of
each of the partners liable. In other words, if a firm be
insolvent, but one or more partners thereof are
solvent, the creditors may proceed both against the
firm and against the solvent partner or partners, first
exhausting the assets of the firm before seizing the
property of the partners. (Brandenburg of
Bankcruptcy, sec. 108; De los Reyes vs. Lukban and
Borja [1916], 35 Phil., 757; Involuntary Insolvency of
Campos Rueda & Co. vs. Pacific Commercial Co.
[1922], 44 Phil., 916).
We reach the conclusion that the contract of
partnership found in the document hereinbefore
quoted established a general partnership or, to be
more exact, a partnership as this word is used in the
Insolvency Law.
Wherefore, the order appealed from is reversed, and
the record shall be returned to the court of origin for
further proceedings pursuant to the motion presented
by the creditors, in conformity with the provisions of
the Insolvency Law. Without special findings as to the
costs in this instance, it is ordered.
PHILIPPINE NATIONAL BANK, plaintiff-appellee,
vs.
SEVERO EUGENIO LO, ET AL., defendants.
SEVERIO EUGENIO LO, NG KHEY LING and YEP
SENG, appellants.
Jose Lopez Vito for appellants.
Roman Lacson for appellee.
VILLAMOR, J.:
On September 29, 1916, the appellants Severo
Eugenio Lo and Ng Khey Ling, together with J. A. Say
Lian Ping, Ko Tiao Hun, On Yem Ke Lam and Co
Sieng Peng formed a commercial partnership under
the name of "Tai Sing and Co.," with a capital of
P40,000 contributed by said partners. In the articles of
copartnership, Exhibit A, it appears that the
partnership was to last for five years from after the
date of its organization, and that its purpose was to do
business in the City of Iloilo, Province of Iloilo, or in
any other part of the Philippine Islands the partners
might desire, under the name of "Tai Sing & Co.," for
the purchase and sale of merchandise, goods, and
native, as well as Chinese and Japanese, products,
and to carry on such business and speculations as
they might consider profitable. One of the partners, J.
A. Say Lian Ping was appointed general manager of
the partnership, with the appointed general manager
of the partnership, with the powers specified in said
articles of copartnership.
On June 4, 1917, general manager A. Say Lian Ping
executed a power of attorney (Exhibit C-1) in favor of
A. Y. Kelam, authorizing him to act in his stead as
manager and administrator of "Tai Sing & Co.," on
July 26, 1918, for, and obtained a loan of P8,000 in
current account from the plaintiff bank. (Exhibit C). As
security for said loan, he mortgaged certain personal
property of "Tai Sing & Co., (Exhibit C.)
This credit was renew several times and on March 25,
1919, A. Y. Kelam, as attorney-in-fact of "Tai Sing &
Co., executed a chattel mortgage in favor of plaintiff
bank as security for a loan of P20,000 with interest
(Exhibit D). This mortgage was again renewed on
April 16, 1920 and A. Y. Kelam, as attorney-in-fact of
"Tai Sing & Co., executed another chattel mortgage
for the said sum of P20,000 in favor of plaintiff bank.
(Exhibit E.) According to this mortgage contract, the
P20,000 loan was to earn 9 per cent interest per
annum.
On April 20, 1920, Yap Seng, Severo Eugenio Lo, A.
Y. Kelam and Ng Khey Ling, the latter represented by
M. Pineda Tayenko, executed a power of attorney in
favor of Sy Tit by virtue of which Sy Tit, representing
"Tai Sing & Co., obtained a credit of P20,000 from
plaintiff bank on January 7, 1921, executing a chattel
mortgage on certain personal property belonging to
"Tai Sing & Co.
Defendants had been using this commercial credit in
a current account with the plaintiff bank, from the year
1918, to May 22, 1921, and the debit balance of this
account, with interest to December 31, 1924, is as
follows:
TAI SING & CO.
To your outstanding account (C. O. D.) with us on June 30, 1922
Interest on same from June 30, 1922 to December 31,1924, at 1917,
cent per annum
Total
This total is the sum claimed in the complaint,
together with interest on the P16,518.74 debt, at 9 per
cent per annum from January 1, 1925 until fully paid,
with the costs of the trial.
Defendant Eugenio Lo sets up, as a general defense,
that "Tai Sing & Co. was not a general partnership,
and that the commercial credit in current account
which "Tai Sing & Co. obtained from the plaintiff bank
had not been authorized by the board of directors of
the company, nor was the person who subscribed
said contract authorized to make the same, under the
article of copartnership. The other defendants, Yap
Sing and Ng Khey Ling, answered the complaint
denying each and every one of the allegations
contained therein.
After the hearing, the court found:
(1) That defendants Eugenio Lo, Ng Khey
Ling and Yap Seng Co., Sieng Peng
indebted to plaintiff Philippine National Bank
in sum of P22,595.26 to July 29, 1926, with a
daily interest of P4.14 on the balance on
account of the partnership "Tai Sing & Co.
for the sum of P16,518.74 until September 9,
1922;
(2) Said defendants are ordered jointly and
severally to pay the Philippine National Bank
the sum of P22,727.74 up to August 31,
1926, and from the date, P4.14 daily interest
on the principal; and
(3) The defendants are furthermore ordered
to pay the costs of the action.1awph!l.net
Defendants appealed, making the following
assignments of error:
I. The trial court erred in finding that article
126 of the Code of Commerce at present in
force is not mandatory.
II. The trial court erred in finding that the
partnership agreement of "Tai Sing & Co.,
(Exhibit A), is in accordance with the
requirements of article 125 of the Code of
Commerce for the organization of a regular
partnership.
III. The P16,518.74
trial court erred in not admitting J. A.
Sai Lian Ping's death in China in November,
9 per as a proven fact.
3,720.86
IV. The trial court erred in finding that the
death 20, of J.239.00
A. Say Lian Ping cannot
extinguish the defendants' obligation to the
=========
plaintiff bank, because the last debt incurred
by the commercial partnership "Tai Sing &
Co., was that evidence by Exhibit F, signed
by Sy Tit as attorney-in-fact of the members
of "Tai Sing & Co., by virtue of Exhibit G.
 V. The trial court erred in not finding that
plaintiff bank was not able to collect its credit
from the goods of "Tai Sing & Co., given as
security therefor through its own fault and
negligence; and that the action brought by
plaintiff is a manifest violation of article 237
of the present Code of Commerce.
VI. The trial court erred in finding that the
current account of "Tai Sing & Co. with
plaintiff bank shows a debit balance of
P16,518.74, which in addition to interest at 9
per cent per annum from July 29, 1926,
amount to P16,595.26, with a daily interest
of P4.14 on the sum of P16,518.74.
VII. The trial court erred in ordering the
defendants appellants to pay jointly and
severally to the Philippine National Bank the
sum of P22,727.74 up to August 31, 1926,
and interest on P16,518.74 from that date
until fully paid, with the costs of the action.
VIII. The trial court erred in denying the
motion for a new trial filed by defendants-
appellants.
Appellants admit, and it appears from the context of
Exhibit A, that the defendant association formed by
the defendants is a general partnership, as defined in
article 126 of the Code Commerce. This partnership
was registered in the mercantile register of the
Province of Iloilo. The only anomaly noted in its
organization is that instead of adopting for their firm
name the names of all of the partners, of several of
them, or only one of them, to be followed in the last
two cases, by the words "and to be followed in the last
two cases, by the words "and company" the partners
agreed upon "Tai Sing & Co." as the firm name.
In the case of Hung-Man-Yoc, under the name
of Kwong-Wo-Sing vs. Kieng-Chiong-Seng, cited by
appellants, this court held that, as the company
formed by defendants had existed in fact, though not
in law due to the fact that it was not recorded in the
register, and having operated and contracted debts in
favor of the plaintiff, the same must be paid by
someone. This applies more strongly to the
obligations contracted by the defendants, for they
formed a partnership which was registered in the
mercantile register, and carried on business
contracting debts with the plaintiff bank. The
anomalous adoption of the firm name above noted
does not affect the liability of the general partners to
third parties under article 127 of the Code of
Commerce. And the Supreme Court so held in the
case of Jo Chung Cang vs. Pacific Commercial
Co., (45 Phil., 142), in which it said that the object of
article 126 of the Code of Commerce in requiring a
general partnership to transact business under the
name of all its members, of several of them, or of one
only, is to protect the public from imposition and fraud;
and that the provision of said article 126 is for the
protection of the creditors rather than of the partners
themselves. And consequently the doctrine was
enunciated that the law must be unlawful and
unenforceable only as between the partners and at
the instance of the violating party, but not in the sense
of depriving innocent parties of their rights who may
have dealt with the offenders in ignorance of the latter
having violated the law; and that contracts entered
into by commercial associations defectively organized
are valid when voluntarily executed by the parties,
and the only question is whether or not they complied
with the agreement. Therefore, the defendants cannot
invoke in their defense the anomaly in the firm name
which they themselves adopted.
As to the alleged death of the manager of the
company, Say Lian Ping, before the attorney-in-fact
Ou Yong Kelam executed Exhibits C, D and E, the
trial court did not find this fact proven at the hearing.
But even supposing that the court had erred, such an
error would not justify the reversal of the judgment, for
two reasons at least: (1) Because Ou Yong Kelam
was a partner who contracted in the name of the
partnership, without any objection of the other
partners; and (2) because it appears in the record that
the appellant-partners Severo Eugenio Lo, Ng Khey
Ling and Yap Seng, appointed Sy Tit as manager,
and he obtained from the plaintiff bank the credit in
current account, the debit balance of which is sought
to be recovered in this action.
Appellants allege that such of their property as is not
included in the partnership assets cannot-be seized
for the payment of the debts contracted by the
partnership until after the partnership property has
been exhausted. The court found that the partnership
property described in the mortgage Exhibit F no loner
existed at the time of the filing of the herein complaint
nor has its existence been proven, nor was it offered
to the plaintiff for sale. We find no just reason to
reverse this conclusion of the trial court, and this
being so, it follows that article 237 of the Code of
Commerce, invoked by the appellant, can in no way
have any application here.
Appellants also assign error to the action of the trial
court in ordering them to pay plaintiff, jointly and
severally, the sums claimed with 9 per cent interest
on P16,518.74, owing from them.
The judgment against the appellants is in accordance
with article 127 of the Code of Commerce which
provides that all the members of a general
partnership, be they managing partners thereof or not,
shall be personally and solidarily liable with all their
property, for the results of the transactions made in
the name and for the account of the partnership,
under the signature of the latter, and by a person
authorized to use it.

As to the amount of the interest suffice it to remember

that the credit in current account sued on in this case
as been renewed by the parties in such a way that
while it appears in the mortgage Exhibit D executed
on March 25, 1919 by the attorney-in-fact Ou Yong
Kelam that the P20,000 credit would earn 8 per cent
interest annually, yet from that executed on April 16,
1920, Exhibit E, it appears that the P20,000 would
earn 9 per cent interest per annum. The credit was
renewed in January, 1921, and in the deed of pledge,
Exhibit F, executed by "Tai Sing & Co., represented
by the attorney-in-fact Sy Tit, it appears that this
security is for the payment of the sums received by
the partnership, not to exceed P20,000 with interest
and collection fees. There can be no doubt that the
parties agreed upon the rate of interest fixed in the
document Exhibit E, namely 9 per cent per annum.

The judgment appealed from is in accordance with

the law, and must therefore be, as it is hereby,
affirmed with costs against the appellants. So
ordered.

Avancea, C.J., Johnson, Street, Malcolm, Johns and

Romualdez, JJ., concur.

G.R. No. L-3146 September 14, 1907

NICOLAS CO-PITCO, plaintiff-appellee,

vs.
PEDRO YULO, defendant-appellant.

Salvador Laguda, for appellant.

Rothrock and Ney, for appellee.

WILLIARD, J.:

The appellee makes the point in his brief in this court

that although the defendant excepted to the order of
the court below denying his motion for a new trial on
the ground of the insufficiency of the evidence, yet we
can not review such evidence because it is not
properly certified. We think that this point is well
taken. The testimony of one witness is certified to by
the stenographer, who says that it is all the evidence
which took during the trial. The testimony of this
witness is unimportant. There follow in the record
several pages of what purports to be evidence of
different witnesses taken in narrative form, but neither
the judge, nor the clerk, nor the stenographer certify
in any way what these pages are or that they contain
evidence taken during the trial of this case. For the
purpose of this review, therefore, we can only
consider the facts admitted by the pleadings and
those stated in the decision of the court below. In that
decision the court makes the following finding of fact,
among others:

Before February, 1903, Florencio Yulo and

Jaime Palacios were partners in the
operation of a sugar estate in Victorias,
Island of Negros, and had commercial
dealings with a Chinaman named Dy-Sianco,
who furnished them with money and goods,
and used to buy their crop of sugar. In
February, 1903, the defendant, Pedro Yulo,
father of the said Florencio, took charge of
the latter's interest in the above-mentioned
partnership, and he became a general
partner with the said Jaime Palacios in the
same business, and he continued as such
partner until about the end of 1904, dealing
with Dy-Sianco in the same manner as the
old partnership had dealt with the latter.

He then finds that the balance due from the firm

Pedro Yulo and Jaime Palacios was 1,638.40 pesos,
Philippine currency, and orders judgment against the
defendant, Pedro Yulo, for the entire amount, with
interest.

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 G.R. No. L-22493 July 31, 1975
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 ISLAND SALES, INC., plaintiff-appellee,
plaintiff for only one-half of the debt. The fact that the vs.
other partner, Jaime Palacios, had left the country can UNITED PIONEERS GENERAL CONSTRUCTION
not increase the liability of Pedro Yulo. COMPANY, ET. AL defendants. BENJAMIN C.
DACO, defendant-appellant.
The judgment of the court below is reversed and
judgment is ordered in favor of the plaintiff and Grey, Buenaventura and Santiago for plaintiff-
against the defendant, Pedro Yulo, for the sum of appellee.
P819.20 pesos, Philippine Currency, with interest
thereon at the rate of 6 per cent per annum from the Anacleto D. Badoy, Jr. for defendant-appellant.
12th day of January, 1905, and the costs of the Court
of First Instance. No costs will be allowed to either
party in this court. So ordered.

CONCEPCION JR., J.:

Arellano, C. J., Torres, Johnson, and Tracey,
JJ., concur.
This is an appeal interposed by the defendant
Benjamin C. Daco from the decision of the Court of
First Instance of Manila, Branch XVI, in Civil Case No.
50682, the dispositive portion of which reads:
 WHEREFORE, the Court
sentences defendant United
Pioneer General Construction
Company to pay plaintiff the sum of
P7,119.07 with interest at the rate
of 12% per annum until it is fully
paid, plus attorney's fees which the
Court fixes in the sum of Eight
Hundred Pesos (P800.00) and
costs.
The defendants Benjamin C. Daco,
Daniel A. Guizona, Noel C. Sim and
Augusto Palisoc are sentenced to
pay the plaintiff in this case with the
understanding that the judgment
against these individual defendants
shall be enforced only if the
defendant company has no more
leviable properties with which to
satisfy the judgment against it. .
The individual defendants shall also
pay the costs.
On April 22, 1961, the defendant company, a general
partnership duly registered under the laws of the
Philippines, purchased from the plaintiff a motor
vehicle on the installment basis and for this purpose
executed a promissory note for P9,440.00, payable in
twelve (12) equal monthly installments of P786.63,
the first installment payable on or before May 22,
1961 and the subsequent installments on the 22nd
day of every month thereafter, until fully paid, with the
condition that failure to pay any of said installments as
they fall due would render the whole unpaid balance
immediately due and demandable.
Having failed to receive the installment due on July
22, 1961, the plaintiff sued the defendant company for
the unpaid balance amounting to P7,119.07.
Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim,
Romulo B. Lumauig, and Augusto Palisoc were
included as co-defendants in their capacity as general
partners of the defendant company.
Daniel A. Guizona failed to file an answer and was
consequently declared in default. 1
Subsequently, on motion of the plaintiff, the complaint
was dismissed insofar as the defendant Romulo B.
Lumauig is concerned. 2
When the case was called for hearing, the defendants
and their counsels failed to appear notwithstanding
the notices sent to them. Consequently, the trial court
authorized the plaintiff to present its evidence ex-
parte 3 , after which the trial court rendered the
decision appealed from.
The defendants Benjamin C. Daco and Noel C. Sim
moved to reconsider the decision claiming that since
there are five (5) general partners, the joint and
subsidiary liability of each partner should not exceed
one-fifth ( 1/ 5 ) of the obligations of the defendant
company. But the trial court denied the said motion
notwithstanding the conformity of the plaintiff to limit
the liability of the defendants Daco and Sim to only
one-fifth ( 1/ 5 ) of the obligations of the defendant
company. 4Hence, this appeal.
The only issue for resolution is whether or not the
dismissal of the complaint to favor one of the general
partners of a partnership increases the joint and
subsidiary liability of each of the remaining partners
for the obligations of the partnership.
Article 1816 of the Civil Code provides:
Art. 1816. All partners including
industrial ones, shall be liable pro
rata with all their property and after
all the partnership assets have
been exhausted, for the contracts
which may be entered into in the
name and for the account of the
partnership, under its signature and
by a person authorized to act for
the partnership. However, any
partner may enter into a separate
obligation to perform a partnership
contract.
In the case of Co-Pitco vs. Yulo (8 Phil. 544) this
Court held:
The partnership of Yulo and
Palacios was engaged in the
operation of a sugar estate in
Negros. It was, therefore, a civil
partnership as distinguished from a
mercantile partnership. Being a civil
partnership, by the express
provisions of articles l698 and 1137
of the Civil Code, the partners are
not liable each for the whole debt of
the partnership. The liability is pro
rata and in this case Pedro Yulo is
responsible to plaintiff for only one-
half of the debt. The fact that the
other partner, Jaime Palacios, had
left the country cannot increase the
liability of Pedro Yulo.
In the instant case, there were five (5) general
partners when the promissory note in question was
executed for and in behalf of the partnership. Since
the liability of the partners is pro rata, the liability of
the appellant Benjamin C. Daco shall be limited to
only one-fifth ( 1/ 5 ) of the obligations of the defendant
company. The fact that the complaint against the
defendant Romulo B. Lumauig was dismissed, upon
motion of the plaintiff, does not unmake the said
Lumauig as a general partner in the defendant
company. In so moving to dismiss the complaint, the
plaintiff merely condoned Lumauig's individual liability
to the plaintiff.

WHEREFORE, the appealed decision as thus

clarified is hereby AFFIRMED, without
pronouncement as to costs.

SO ORDERED.