THE GREAT COUNCIL OF THE UNITED STATES OF

THE IMPROVED ORDER OF RED MEN,Plaintif-

Appellee, v. THE VETERAN ARMY OF THE
PHILIPPINES, Defendant-Appellant.
Hartigan, Rohde, & Gutierrez, for Appellant.
W. A. Kincaid, for Appellee.
SYLLABUS
1. VETERAN ARMY OF THE PHILIPPINES. The
constitution of the Veteran Army of the Philippines makes
provision for the management of its afairs, so that article
1695 of the Civil Code, making each member an agent of
the partnership in the absence of such provision, is not
applicable to that organization.
2. ID.; FRATERNAL SOCIETIES; PARTNERSHIP.
Whether a fraternal society, such as the Veteran Army of
the Philippines, is a civil partnership is not decided.
D E C I S I O N
WILLARD, J. :
Article 3 of the Constitution of the Veteran Army of the
Philippines provides as follows:jgc:chanrobles.com.ph
"The object of this association shall be to perpetuate the
spirit of patriotism and fraternity those men who upheld
the Stars and Stripes in the Philippine Islands during the
Spanish war and the Philippine insurrection, and to
promote the welfare of its members in every just and
honorable way; to assist the sick and aficted and to bury
the dead, to maintain among its members in time of
peace the same union and harmony with which they
served their country in times of war and
insurrection."cralaw virtua1aw library
Article 5 provides that:jgc:chanrobles.com.ph
"This association shall be composed of
"(a) A department.
"(b) Two or more posts."cralaw virtua1aw library
It is provided in article 6 that the department shall be
composed of a department commander, fourteen ofcers,
and the commander of each post, or some member of the
post appointed by him. Six members of the department
constitute a quorum for the transaction of business.
The Constitution also provides for the organization of
posts. Among the posts thus organized is the General
Henry W. Lawton Post, No. 1. On the 1st day of March,
1903, a contract of lease of parts of a certain buildings in
the city of Manila was signed by W.W. Lewis, E.C. Stovall,
and V.O., Hayes, as trustees of the Apache Tribe, No. 1,
Improved Order of Red Men, as lessors, and Albert E.
McCabe, citing for and on behalf of Lawton Post, Veteran
Army of the Philippines as lessee. The lease was for the
term of two years commencing February 1, 903, and
ending February 28, 1905. The Lawton Post occupied the
premises in controversy for thirteen months, and paid the
rent for that time. It them abandoned them and this action
was commenced to recover the rent for the unexpired
term. Judgment was rendered in the court below on favor
of the defendant McCabe, acquitting him of the complaint.
Judgment was rendered also against the Veteran Army of
the Philippines for P1,738.50, and the costs. From this
judgment, the last named defendant has appealed. The
plaintif did not appeal from the judgment acquitting
defendant McCabe of the complaint.
It is claimed by the appellant that the action can not be
maintained by the plaintif, The Great Council of the
United States of the Improved Order of Red Men, as this
organization did not make the contract of lease.
It is also claimed that the action can not be maintained
against the Veteran Army of the Philippines because it
never contradicted, either with the plaintif or with Apach
Tribe, No. 1, and never authorized anyone to so contract
in its name.
We do not fnd it necessary to consider the frst point
because we think the contention of the appellant on the
second point must be sustained.
It is difcult to determine the exact nature of the defendant
organization. It is of course not a mercantile partnership.
There is some doubt as to whether it is a civil partnership,
in view of the defnition of the term in article 1665 of the
Civil Code. That article is as
follows:jgc:chanrobles.com.ph
"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 profts
among themselves."cralaw virtua1aw library
It seems to be the opinion of the commentators that
where the society is not constituted for the purpose of
gain. it does not fall within this article of the Civil Code.
Such an organization is fully covered by the Law of
Associations of 1887, but that law was never extended to
the Philippine Islands. According to some commentators it
would be governed by the provisions relating to the
community of property. However, the questions thus
presented we do not fnd necessary to , and to not
resolve. The view most favorable to the appellee is the
one that makes the appellant a civil partnership.
Assuming that is such, and is covered by the provisions of
title 8, book 4 of the Civil Code, it is necessary for the
appellee to prove that the contract in question was
executed by some authorized to so by the Veteran Army
of the Philippines.
Article 1695 of the Civil Code provides as
follows:jgc:chanrobles.com.ph
"Should no agreement have been made with regard to the
form of management, the following rules shall be
observed:jgc:chanrobles.com.ph
"1 All the partners shall be considered as agents, and
whatever any one of them may do by himself shall bind
the partnership; but each one may oppose the act of the
others before they may have produced any legal
efect."cralaw virtua1aw library
One partner, therefore, is empowered to contract in the
name of the partnership only when the articles of
partnership make no provision for the management of the
partnership business. In the case at bar we think that the
articles of the Veteran Army of the Philippines do so
provide. It is true that an express disposition to that efect
is not found therein, but we think one may be fairly
deduced from the contents of those articles. They declare
what the duties of the several ofcers are. In these
various provisions there is nothing said about the power
of making contracts, and that faculty is not expressly
given to any ofcer. We think that it was, therefore,
reserved to the department as a whole; that is, that in any
case not covered expressly by the rules prescribing the
duties of the ofcers, the department were present. It is
hardly conceivable that the members who formed this
organization should have had the intention of giving to
any one of the sixteen or more persons who composed
the department the power to make any contract relating to
the society which that particular ofcer saw ft to make, or
that a contract when so made without consultation with,
or knowledge of the other members of the department
should bind it. We therefore, hold, that no contract, such
as the one in question, is binding on the Veteran Army of
the Philippines unless it was authorized at a meeting of
the department. No evidence was ofered to show that the
department had never taken any such action. In fact, the
proof shows that the transaction in question was entirely
between Apache Tribe, No. 1, and the Lawton Post, and
there is nothing to show that any member of the
department ever knew anything about it, or had anything
to do with it. The liability of the Lawton Post is not
presented in this appeal.
Judgment against the appellant is reversed, and the
Veteran Army of the Philippines is acquitted of the
complaint. No costs will be allowed to either party in this
court. After the expiration of twenty days let judgment be
rendered in accordance to the lower court for proper
action. So ordered.
[G.R. No. L-3025. November 23, 1906. ]
SI-BOCO, Plaintif-Appellee, v. YAP TENG, Defendant-
Appellant.
Marcelo Caringal, for Appellant.
Thos. L. McGirr, for Appellee.
SYLLABUS
SALE; ACTION FOR DEBT. Held, That under the facts
stated in the opinion the defendant was liable to the
plaintif in the sum of P1,442.95.
D E C I S I O N
MAPA, J. :
This is an action by the plaintif to recover from the
defendant the sum of P1,442.95, alleged to be due him
from the latter. The court below rendered judgment in
favor of the plaintif for the aforesaid sum and legal
interest thereon at the rate of 6 per cent per annum from
the 25th of March, 1905, with costs against the defendant,
who excepted to the said judgment, made a motion for a
new trial on the ground that the fndings of fact contained
in the said judgment were plainly and manifestly against
the weight of the evidence, and has brought the case to
this court by a bill of exceptions.
The evidence shows that for a period of three years, more
or less, the plaintif had been furnishing to the defendant
native cloth for the latters store in the city of Manila. The
goods were at frst furnished on credit, but the business
relations of the parties caused entirely in 1904. The
defendant had a partner by the name of Yapsuan, who
was the manager of the business. The defendant
introduced him to the plaintif as such manager, and told
him that Yapsuan had authority from him to receive the
cloth, and that the value thereof should be charged to his,
the defendants account, and in fact the cloth was, as a
rule, received by Yapsuan from the plaintif. It became
necessary for Yapsuan to return to China in 1902 on
account of ill health and a liquidation of the accounts
between the plaintif and the defendant was made in
December of the said year, showing a balance of
P1,444.95 in favor of the plaintif, which the defendant
expressly undertook to pay. This was proved not only by
the testimony of the plaintif himself, but by that of two
witnesses who were present. After the liquidation was
made the defendant continued to buy the goods from the
plaintif for cash until the year 1904, when, as already
stated, the business relations between the parties
ceased.
The defendant has failed to show that he had paid the
aforesaid balance of P1,444.95 or an part thereof.
Consequently the judgment of the court below is just and
legal and should be afrmed. There is a diference of P2
between the said balance and the amount of the
judgment but, as the court properly said, the plaintif is not
entitled to receive more than he prays for in his complaint,
and the amount stated in the judgment is all that is sought
to be recovered.
It is contented by the appellant that the court below erred
in not fnding that, the only indebtedness of the defendant
being P1,442.95 according to the liquidation made in
December, 1902, he having thereafter paid the sum of
P1,810.87 as alleged in the complaint, and in default of
proof as to the value of the goods furnished to the
defendant, after that date, the plaintif could not maintain
an action to recover the said sum. There is, in fact, no
evidence in the record upon this last point. It was not
necessary, however, to ofer such evidence. The action
was not for the recovery of the value of the goods
furnished to the defendant after the liquidation of 1902.
The plaintif himself testifed that the defendant had paid
cash for such goods, but alleged that the latter had paid
nothing on account of the balance due after the said
liquidation. His testimony upon this point has not been
contradicted in any way and it is apparent from such
testimony that the P1,810.87 represented the value of the
goods for which the defendant paid cash. If this amount
was mentioned at all in the complaint, it was for the
purpose of comparing the same with the total value of the
goods furnished the defendant up to the year 1904,
which, according to the complaint, amounted to
P3,235.75. It should be borne in mind that the plaintif
continued to furnish goods to the defendant after the
liquidation until the year 1904. There is no evidence that
the aforesaid amount was paid on account of the balance
due because of the liquidation and not on account of the
value of the said goods. The plaintif testifed without
contradiction, that absolutely nothing had been paid on
the balance due from the said liquidation.
It is further alleged by the appellant that there is nothing
to show that after the year 1902 he continued to purchase
goods from the plaintif, paying cash therefor, as was
erroneously found by the court below. The positive and
uncontradicted statement of the plaintif to the contrary is
sufcient, however, to justify the fnding of the court below
upon that point. That court, therefore, committed no error
in this respect.
The appellant fnally contends that the goods having been
furnished to and received by the partnership between
himself and Yapsuan, and the accounts of the same not
having been liquidated, this action should have been
brought against the partnership itself, or against the
partners jointly, and not against the defendant only.
However that may be, the fact remains that the defendant
in this case was the only one who contradicted with the
plaintif in his own name, as appears from the latters
testimony. When the defendant told the plaintif that he
had authorized Yapsuan to receive the goods, he
instructed the plaintif to charge them to him (the
defendant) personally. The defendant, moreover,
undertook personally to pay the balance due the plaintif,
after the liquidation made in December, 1902, such as
being the sum sought to be recovered in this case, as
appears from the testimony of the plaintif and that of the
two witnesses who took part in the said liquidation.
Consequently the court below properly allowed the
plaintif to maintain this action against the defendant. The
judgment appealed from is accordingly afrmed with the
costs of this instance against the Appellant. After
expiration of twenty days let judgment be entered in
accordance herewith and in due time let the record be
remanded to the court below for execution. So ordered.
[G.R. No. 22442. August 1, 1924. ]
ANTONIO PARDO, Petitioner, v. THE HERCULES
LUMBER CO., INC., and IGNACIO
FERRER,Respondents.
W.J. ODonovan and M. H. de Joya for Petitioner.
Sumulong & Lavides and Ross, Lawrence & Selph for
Respondents.
SYLLABUS
1. CORPORATIONS; STOCKHOLDERS RIGHT TO
INSPECT RECORDS; UNREASONABLE RESTRICTION
BY DIRECTORS ON RIGHT OF INSPECTION. A
resolution of the board of directors of a corporation
limiting the right of stockholders to inspect its records to a
period of ten days shortly prior to the annual stockholders
meeting is an unreasonable restriction on the right of
inspection may be exercised at reasonable hours on
business days throughout the year, and not merely during
an arbitrary period of a few days chosen by the directors.
D E C I S I O N
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 plaintif and his duly authorized
agent and representative to examine the records and
business transactions of said company. To this petition
the respondents interposed an answer, in which, after
admitting certain allegations of the petition, the
respondents set forth the facts upon which they mainly
rely as a defense to the petition. To this answer the
petitioner in turn interposed a demurrer, and the cause is
now before us for determination of the issue thus
presented.
It is inferentially, if not directly admitted that the petitioner
is in fact a stockholder in the Hercules Lumber Company,
Inc., and that the respondent, Ignacio Ferrer, as acting
secretary of the said company, has refused to permit the
petitioner or his agent to inspect the records and business
transactions of the said Hercules Lumber Company, Inc.,
at times desired by the petitioner. No serious question is
of course made as to the right of the petitioner, by himself
or proper representative, to exercise the right of
inspection conferred by section 51 of Act No. 1459. Said
provision was under the consideration of this court in the
case of Philpotts v. Philippine Manufacturing Co. and
Berry (40 Phil., 471), where we held that the right of
examination there conceded to the stockholder may be
exercised either by a stockholder in person or by any duly
authorized agent or representative.
The main ground upon which the defense appears to be
rested has reference to the time, or times, within which
the right of inspection may be exercised. In this
connection the answer asserts that in article 10 of the By-
laws of the respondent corporation its is declared that
"Every shareholder may examine the books of the
company and other documents pertaining to the same
upon the days which the board of directors shall annually
fx." 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
efect:jgc:chanrobles.com.ph
"The board also resolved to call the usual general
(meeting of shareholders) for March 30 of the present
year, with notice to the shareholders that the books of the
company are at their disposition from the 15th to 25th of
the same month for examination, in appropriate
hours."cralaw virtua1aw library
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 defned, 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 ofcials in charge of a corporation
may deny inspection when sought at unusual hours or
under other improper conditions; but neither the executive
ofcers 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 efect are too numerous and
direct to require extended comment. (14 C.J., 859; 7
R.C.L., 325; 4 Thompson on Corporations, 2d ed., sec.
4517; Harkness v. Guthrie, 27 Utah, 248; 107 Am. St.,
Rep., 664, 681.) Under a statute similar to our own it has
been held that the statutory right of inspection is not
afected by the adoption by the board of directors of a
resolution providing for the closing of transfer books thirty
days before an election. (State v. St. Louis Railroad Co.,
29 Mo. Ap., 301.)
It will be noted that our statute declares that the right of
inspection can be exercised "at reasonable hours." This
means at reasonable hours on business days throughout
the year, and not merely during some arbitrary period of a
few days chosen by the directors.
In addition to relying upon the by-law, to which reference
is above made, the answer of the respondents calls in
question the motive which is supposed to prompt the
petitioner to make inspection; and in this connection it is
alleged that the information which the petitioner seeks is
desired for ulterior purposes in connection with a
competitive frm 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 costs
against the respondents. So ordered.
[G.R. No. L-4281. March 30, 1908. ]
JOSE GARRIDO, Plaintif-Appellant, v. AGUSTIN
ASENCIO, Defendant-Appellee.
Gregorio Yulo, for Appellant.
P. Q. Rothrock, for Appellee.
SYLLABUS
1. BOOKS OF ACCOUNT; ADMISSIBILITY. Books of
account, although not kept in accordance with the
provisions of the Code of Commerce, if not objected to,
are admissible in evidence, and, in any event, they may
be admitted under section 338 of the Code of Civil
Procedure, as a memorandum to refresh the memory of
the witness. (Tan Machan v. Gan Aya, 3 Phil. Rep., 684.)
2. ID.; ID.; ADMISSION. Behn Meyer & Co. v. Rosatzin
(5 Phil. Rep., 660) followed to the point that books of
account kept by a person (or by him jointly with another)
constitute an admission of the facts stated therein and are
admissible to show such admission.
D E C I S I O N
CARSON, J. :
Plaintif and defendant were members of a partnership
doing business under the frm name of Asencio y Cia.
The business of the partnership did not prosper and it
was dissolved by mutual agreement of the members. The
plaintif brings this action to recover from the defendant,
who appears to have been left in charge of the books and
the funds of the frm, 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 plaintif as claimed, and fled a cross
complaint wherein he prayed for a judgment against the
plaintif for a certain amount which he alleged to be due
by the plaintif under the articles of partnership on
account of plaintifs 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 sufciently of the evidence on which the trial court
based its fndings as to the status of the accounts of the
company.
Plaintif and appellant makes the following assignment of
errors:chanrob1es virtual 1aw library
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 sufcient 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 plaintif.
It appears from the record that by mutual agreement the
defendant had general charge and supervision of the
books and funds of the frm, but it appears that these
books were at all times open to the inspection of the
plaintif, and there is evidence which tends to show that
the plaintif 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
plaintif 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
efect as if they had been made by the other.
At the trial the principal question at issue was the amount
of the profts or losses of the business of the partnership
during the period of its operation. The plaintif made no
allegation as to profts, but denied defendants allegation
as to the losses. The defendant in support of his
allegations ofered 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 plaintif 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 v. Gan Aya, 3 Phil. Rep.,
684.) We think further that in view of the testimony of
record that the plaintif jointly with the defendant kept
these books, made entries therein, and was responsible
with him therefor, the doctrine laid down in Behn, Meyer &
Co., v. 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 plaintif 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 efect 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 satisfed 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 fndings of the trial court, and the
judgment entered in that court should be, and is hereby,
afrmed with the costs of this instance against the
Appellant. So ordered.
G.R. No. L-12151 January 19, 1918
ADRIANO BUENAVENTURA Y DEZOLLIER, palintif-
appellant, vs. ANTONIO DAVID y ABELIDO,
Defendant-Appellee.
Thos. D. Aitken for appellant.
Alfonso E. Mendoza for appellee.
STREET, J.:
By an agreement efective from April 20, 1906, a
partnership was formed by Antonio David y Abelido and
Adriano Buenaventura y Dezollier for the conduct of the
business of real estate brokers in the city of Manila, under
the frm name "Abelido and Co." The frst named party
was the capitalist member of the frm and its manager.,
while the last named was the industrial member and
bookkeeper. The frm maintained a feeble external
existence for a few months, during which period the
capitalist associate placed P209.86 in the enterprise. This
was consumed in ofce rent and other incidental
expenses. Only two proftable transactions were ever
accomplished by the frm of Abelido and Co. during its
existence. These produced a total income of P42, which
sum was noted on the credit side of the company's
ledger.chanroblesvirtualawlibrary chanrobles virtual law
library
It was agreed in the articles that the partnership should
be liquidated upon April 20, 1907, in the absence of any
agreement for the extension of its life; but upon February
1, 1908, it was agreed in writing that the partnership
should not be liquidated until the sale of a piece of real
estate in which the frm had become interested should be
efected with proft. The property to which reference was
thus made consisted of a farm in the municipality of
Murcia, in the Province of Tarlac, known as the "Hacienda
de Guitan." chanrobles virtual law library
This farm had been formerly owned by the spouses Loni
Diangco and Epifania Torres; and long before the frm of
Abelido and Co. had come into existence Antonio David y
Abelido had been their creditor by reason of certain sums
of money from time to time loaned them. After the death
of Lino Diangco in 1890 still other sums of money were
advanced by David to the widow, Epifania Torres, in
behalf of herself and her minor son Pablo Diangco. Upon
July 10, 1906, Epifania agreed to convey the Hacienda de
Guitan to Abelido and Buenaventura for a consideration
stated at P2,050 (Exhibit C). The purpose of the
transaction was to settle the debt of several thousand
pesos owing by her and her son to Antonio David y
Abelido. The conveyance by which this contract was
fnally carried into efect was executed upon January 30,
1908. The grantee named in the deed was Antonio David
y Abelido; and no reference was made in this instrument
to the frm of Abelido and Co., or to Buenaventura as a
partner therein. Buenaventura was present at the time of
the execution of this deed and signed as a subscribing
witness. The total consideration for the conveyance was
P7,170, of which the sum of P5,870 was consumed in
satisfying the old indebtedness due to David. The balance
(according to the recitals of the deed) was paid by him to
Epifania Torres. It further appears that Antonio David y
Abelido proceeded to procure the registration of the
hacienda in his own name and a Torrens title was in due
course issued to him.chanroblesvirtualawlibrary
chanrobles virtual law library
Upon the same day that the above-mentioned deed was
executed by Epifania Torres to Antonio David, a
declaration was drawn up and ratifed by Antonio David
and Adiano Buenaventura in which it was stated that
Epifania Torres had sold the estate above mentioned to
Antonio David for the sum of P7,170 and that of this
amount the sum of P3,370 had been advanced by
Abelido & Co., while P3,800 had been paid by David
individually. It was then said that the frm thereby became
the owner of the property in the proportion of the value
satisfed by it; and this was followed by an obscure clause
meaning, probably, that the right of the frm to acquire this
participation was dependent on the reimbursement of
David for the outlay made by him with respect to such
share. A further statement was added to the efect that
Buenaventura should have the option to advance half of
the sum paid out by Antonio David y Abelido, to wit, the
sum of P1,900, in the event Buenaventura should desire
to have a half interest in the property in his own
name.chanroblesvirtualawlibrary chanrobles virtual law
library
From the date of the conveyance above mentioned David
exercised all the rights of an owner over the property.
Upon one occasion he mortgaged it for the sum of P5,000
and Buenaventura was paid P300 for assisting in the
securing of this loan. At another time David mortgaged
the property for the sum of P15,000 and applied the
money thus secured to his own
use.chanroblesvirtualawlibrary chanrobles virtual law
library
Upon February 18, 1915, or more than seven years after
the day upon which the deed to the property had been
executed to David, Buenaventura fled the complaint in
this action. In this proceeding he seeks relief embracing
the following features: (1) a dissolution of the partnership
of Abelido and Co.; (2) judgment for a balance of some
P2,344.85. alleged to be due as arrears upon salary
account; (3) a transfer of the title of the Hacienda de
Guitan to Abelido and Co.; (4) and accounting for, and
division of all money, property and other efects of the
frm; and especially an accounting for profts alleged to
have been made by the defendant David from
investments of money derived from the hacienda, which
profts were alleged to amount to the sum of P5,190; (5) a
judgment for damages in the sum of P10,000; (6) such
and further relief as might seem to the court just and
equitable.chanroblesvirtualawlibrary chanrobles virtual
law library
At the hearing the court entered a judgment declaring that
the partnership of Abelido and Co. was dissolved and
denying all other relief sought in the complaint. From this
judgment the plaintif Buenaventura has
appealed.chanroblesvirtualawlibrary chanrobles virtual
law library
As regards the Hacienda de Guitan, it is in our opinion
clear upon the oral testimony and other proof adduced in
the cause that every cent of the consideration for the
purchase of this property was supplied by David; and it
consisted, as we have seen, mostly of money previously
loaned. Buenaventura had no resources, and it was
evidently quite beyond his power to raise the funds
necessary to participate in a business transaction of the
size of that in question. His pretension that he supplied
P1,025 or half of the consideration named in the original
contract (Exhibit C) was rightly rejected by the court.
Furthermore it appears that the frm of Abelido and Co.,
as distinguished from the individual David Abelido, never
in fact advanced a single peso in the transaction,
although the "declaration" of January 30, 1908, states
that the frm advanced P3,370. That declaration
constitutes an admission which entitles it to weight but its
recital as to the money paid or received may be explained
and even contradicted, as in case of a simple receipt.
David's explanation is that the plaintif, as bookkeeper,
had made it appear in the frm books that the frm was
debtor to David in the amount of P3,370 in respect to this
transaction and that the plaintif had requested David to
sign the declaration showing the frm to be a participant.
Throughout this afair David exhibited considerable
complaisance in signing papers at Buenaventura's
request. He apparently considered Buenaventura an
amiable old friend and was willing to indulge the latter's
fancy with the idea that he was party to an important
transaction, well knowing that he could never put up the
necessary money to enable him to share in the deal.
Whatever may be the explanation of David's imprudence
in allowing himself to be thus drawn into an admission
showing that the frm participated in the deal, it is quite
clear that he supplied all the money for the purchase in
question.chanroblesvirtualawlibrary chanrobles virtual law
library
The situation then, as regards the title to the hacienda is
this: David, who supplied all the funds, has obtained the
legal title in his own individual name. This was
accomplished with knowledge on the part of
Buenaventura. Furthermore he has registered his title by
means of legal proceedings which were probably known
to Buenaventura. Still later, the latter is seen acting as
broker for David in securing a loan on the hacienda and
receives a fee for his services. Meanwhile the original
partnership enterprise is abandoned. Finally more than
seven years after the day when Buenaventura stood by
and signed as a witness the deed conveying the property
to David, he comes into court and seeks to reach this
property through the ghost of the frm of Abelido and Co.
and bring the defendant to account for the profts which
he has obtained from the investments of its proceeds in
various enterprises.chanroblesvirtualawlibrary chanrobles
virtual law library
The purpose of the action is to impress a trust on the
property in favor of Abelido and Co., to divest the title out
of the present owner, and to have it, or its proceeds,
liquidated and administered as frm assets. We are of the
opinion that there is no merit in the plaintif's contention. It
is true that a court will not hesitate, under certain
circumstances, to divest a title out of the holder and
impress a trust upon it in favor of another, or to require the
holder of the title to administer the property for the true
owner (Uy Aloc vs. Cho Jan Ling, 19 Phil. Rep., 202); yet
this will not be done in the absence of a sufcient
contract, an express trust, or other strong equitable
circumstances requiring the intervention of equity. No
such relief can be granted, upon purely equitable
grounds, against a party who has himself paid the entire
purchase price in favor of one who advanced nothing. But
the declaration of January 30, 1908, is relied upon as
evidence of a contract establishing the right of Abelido
and Co. The reply is that by the terms of that instrument
Buenaventura's personal right was dependent upon the
advancement of money by him which was in fact never
supplied, and as to the statement contained in that
declaration that Abelido and Co. had advanced a certain
sum, it clearly appears that this is not true; and we hold
that the defendant is not precluded, or estopped, by that
admission from showing the actual
facts.chanroblesvirtualawlibrary chanrobles virtual law
library
Furthermore, it is evident that the plaintif's case is
adversely afected by his long delay in bringing this
action. Undue delay in the enforcement of a right is
strongly persuasive of a lack of merit in the claim, since it
is human nature for a person to assert his rights most
strongly when they are threatened or invaded. It is hard to
believe that, if the plaintif had been convinced of the
justice of his contention, he would have failed to assert
his right to a division at the time when the defendant was
pocketing the proceeds of the loans obtained upon the
security of the Hacienda de Guitan. The probabilities are
that Buenaventura realized at the time that his hopes of
sharing in this investment were doomed to
disappointment and that with full knowledge of all the
facts he decided to abandon the claim, or not assert it.
However, the documents which appear on their face to
establish his right to a participation in this property
remained in existence; and in course of time said claim
was made the basis of this action. The assertion of
doubtful claims, after long delay, can not be favored by
the courts. Time inevitably tends to obliterate occurrences
from the memory of witnesses, and even where the
recollection appears to be entirely clear, the true clue to
the solution of a case may be hopelessly lost. These
consideration constitute one of the pillars of the doctrine
long familiar in equity jurisprudence to the efect that
laches or unreasonable delay on the part of a plaintif in
seeking to enforce a right is not only persuasive of a want
of merit but may, according to the circumstances, be
destructive of the right itself. Vigilantibus non
dormientibus equitas subvenit.chanroblesvirtualawlibrary
chanrobles virtual law library
The decision of the main issue relative to the hacienda
renders unnecessary any discussion of other features of
the case presented in the appellant's brief. Upon the
whole it is our opinion that there was no error prejudicial
to the plaintif in the action of the court below and the
judgment is therefore afrmed, with costs against the
appellant.chanrob
G.R. No. L-16318 October 21, 1921
PANG LIM and BENITO GALVEZ, Plaintifs-Appellees,
v. LO SENG, Defendant-Appellant.
Cohn, Fisher and DeWitt for appellant.
No appearance for appellees.
STREET, J.:
For several years prior to June 1, 1916, two of the
litigating parties herein, namely, Lo Seng and Pang Lim,
Chinese residents of the City of Manila, were partners,
under the frm name of Lo Seng and Co., in the business
of running a distillery, known as "El Progreso," in the
Municipality of Paombong, in the Province of Bulacan.
The land on which said distillery is located as well as the
buildings and improvements originally used in the
business were, at the time to which reference is now
made, the property of another Chinaman, who resides in
Hongkong, named Lo Yao, who, in September, 1911,
leased the same to the frm of Lo Seng and Co. for the
term of three years.chanroblesvirtualawlibrary chanrobles
virtual law library
Upon the expiration of this lease a new written contract, in
the making of which Lo Yao was represented by one Lo
Shui as attorney in fact, became efective whereby the
lease was extended for ffteen years. The reason why the
contract was made for so long a period of time appears to
have been that the Bureau of Internal Revenue had
required sundry expensive improvements to be made in
the distillery, and it was agreed that these improvements
should be efected at the expense of the lessees. In
conformity with this understanding many thousands of
pesos were expended by Lo Seng and Co., and later by
Lo Seng alone, in enlarging and improving the
plant.chanroblesvirtualawlibrary chanrobles virtual law
library
Among the provisions contained in said lease we note the
following:
Know all men by these presents:
x x x x x x x x x
1. That I, Lo Shui, as attorney in fact in charge of the
properties of Mr. Lo Yao of Hongkong, cede by way of
lease for ffteen years more said distillery "El Progreso" to
Messrs. Pang Lim and Lo Seng (doing business under
the frm name of Lo Seng and Co.), after the termination
of the previous contract, because of the fact that they are
required, by the Bureau of Internal Revenue, to rearrange,
alter and clean up the distillery.chanroblesvirtualawlibrary
chanrobles virtual law library
2. That all the improvements and betterments which they
may introduce, such as machinery, apparatus, tanks,
pumps, boilers and buildings which the business may
require, shall be, after the termination of the ffteen years
of lease, for the beneft of Mr. Lo Yao, my principal, the
buildings being considered as
improvements.chanroblesvirtualawlibrary chanrobles
virtual law library
3. That the monthly rent of said distillery is P200, as
agreed upon in the previous contract of September 11,
1911, acknowledged before the notary public D. Vicente
Santos; and all modifcations and repairs which may be
needed shall be paid for by Messrs. Pang Lim and Lo
Seng.
We, Pang Lim and Lo Seng, as partners in said distillery
"El Progreso," which we are at present conducting,
hereby accept this contract in each and all its parts, said
contract to be efective upon the termination of the
contract of September 11, 1911.
Neither the original contract of lease nor the agreement
extending the same was inscribed in the property registry,
for the reason that the estate which is the subject of the
lease has never at any time been so
inscribed.chanroblesvirtualawlibrary chanrobles virtual
law library
On June 1, 1916, Pang Lim sold all his interest in the
distillery to his partner Lo Seng, thus placing the latter in
the position of sole owner; and on June 28, 1918, Lo
Shui, again acting as attorney in fact of Lo Yao, executed
and acknowledged before a notary public a deed
purporting to convey to Pang Lim and another Chinaman
named Benito Galvez, the entire distillery plant including
the land used in connection therewith. As in case of the
lease this document also was never recorded in the
registry of property. Thereafter Pang Lim and Benito
Galvez demanded possession from Lo Seng, but the
latter refused to yield; and the present action of unlawful
detainer was thereupon initiated by Pang Lim and Benito
Galvez in the court of the justice of the peace of
Paombong to recover possession of the premises. From
the decision of the justice of the peace the case was
appealed to the Court of First Instance, where judgment
was rendered for the plaintifs; and the defendant
thereupon appealed to the Supreme
Court.chanroblesvirtualawlibrary chanrobles virtual law
library
The case for the plaintifs 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 efect 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
fnd the following pertinent observation: "The Mortgage
Law is enacted in aid of and in respect to third persons
only; it does not afect the relations between the
contracting parties, nor their capacity to contract. Any
question afecting the former will be determined by the
dispositions of the special law [i.e., the Mortgage Law],
while any question afecting the latter will be determined
by the general law." ( Galindo y Escosura, Comentarios a
la Legislacion Hipotecaria, vol. I, p. 461.) chanrobles
virtual law library
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
frm of Lo Seng and Co. - this does not really solve the
problem now before us, which is, whether the plaintifs
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.chanroblesvirtualawlibrary chanrobles virtual law library
Upon this point the plaintifs 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.chanroblesvirtualawlibrary chanrobles virtual law
library
The words "subject to the provisions of the Mortgage
Law," contained in article 1571, express a qualifcation
which evidently has reference to the familiar proposition
that recorded instruments are efective 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.chanroblesvirtualawlibrary chanrobles virtual law
library
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 frst paragraph of article 23 of the Mortgage Law,
being to the efect that unrecorded leases shall be of no
efect as against third persons; and the same observation
will sufce 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 plaintifs under
article 1571.chanroblesvirtualawlibrary chanrobles virtual
law library
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 plaintif Pang Lim has occupied a
double role in the transactions which gave rise to this
litigation, namely, frst, 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.chanroblesvirtualawlibrary chanrobles
virtual law library
While yet a partner in the frm of Lo Seng and Co., Pang
Lim participated in the creation of this lease, and when he
sold out his interest in that frm to Lo Seng this operated
as a transfer to Lo Seng of Pang Lim's interest in the frm
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.chanroblesvirtualawlibrary
chanrobles virtual law library
The bad faith of the plaintifs 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 confdence 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 proft. On account of his status as partner in
the frm of Lo Seng and Co., Pang Lim knew that the
original lease had been extended for ffteen 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 profting by the sale of his interest in a business,
worthless without the lease, could intervene as purchaser
of the property and confscate for his own beneft 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.chanroblesvirtualawlibrary
chanrobles virtual law library
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 fduciary, each being considered in law, as
he is in fact, the confdential 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 beneft 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 beneft the renewal of a
lease on property used by the frm, to commence at a
date subsequent to the expiration of the frm's lease, the
partner obtaining the renewal is held to be a constructive
trustee of the frm 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 frm 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.)
chanrobles virtual law library
An additional consideration showing that the position of
the plaintif 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 frm 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 plaintifs 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.chanroblesvirtualawlibrary chanrobles virtual law
library
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.) chanrobles virtual law library
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 efected 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.chanroblesvirtualawlibrary chanrobles virtual
law library
We have assumed in the course of the preceding
discussion that the deed of sale under which the plaintifs
acquired the right of Lo Yao, the owner of the fee, is
competent proof in behalf of the plaintifs. 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 beneft of any written
brief in this case in behalf of the
appellees.chanroblesvirtualawlibrary chanrobles virtual
law library
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.chanroblesv
G.R. No. L-14617 February 18, 1920
R. Y. HANLON, Plaintif-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 profts gained by
them in rehabilitating the plant of the Benguet
Consolidated Mining Company and in particular to compel
them to surrender to the plaintif 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-plaintifs
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.chanroblesvirtualawlibrary chanrobles virtual
law library
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 fndings 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.chanroblesvirtualawlibrary
chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual
law library
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.chanroblesvirtualawlibrary chanrobles virtual law
library
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.chanroblesvirtualawlibrary chanrobles
virtual law library
In October, 1913, the plaintif 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 fnally 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 plaintif 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 sufcient 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 briefy 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 fulflled 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 frst
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 frst part, or his order;"
(8) providing that in the event the earnings of the
company should be insufcient 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 of 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.chanroblesvirtualawlibrary chanrobles virtual
law library
As was at the time well known to all parties concerned
herein the plaintif Hanlon was personally without the
fnancial 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 fnd P25,000 of the necessary
capital, and for the remainder the plaintif 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.chanroblesvirtualawlibrary chanrobles virtual
law library
In this contract of November 5, 1913, (Exhibit A), the four
parties, to wit: Hanlon, Sellner, Haussermann, and Beam,
agreed to collaborate in the fotation of the project
outlined in the contract Exhibit B, and defned 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 chanrobles virtual law
library
Whereas, the Board of Directors of the Benguet
Consolidated Mining Co., has accepted such proposition
as amended; and chanrobles virtual law library
Whereas, said parties have agreed to cooperate and
assist the said Hanlon in the fotation of said proposition;
chanrobles virtual law library
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 foat said proposition
and make the same a success.
II.
It is mutually agreed that said proposition shall be foated
in the following manner, to wit: chanrobles virtual law
library
( a) That 301,000 shares of the Benguet Consolidated
Mining Company shall be set aside and ofered 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.chanroblesvirtualawlibrary chanrobles virtual
law library
( 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.chanroblesvirtualawlibrary chanrobles virtual law
library
( c) That John W. Haussermann and A. W. Beam
undertake and agree to secure and obtain subscriptions
for the sum of P25,000.chanroblesvirtualawlibrary
chanrobles virtual law library
( 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
specifed, 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.chanroblesvirtualawlibrary chanrobles
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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 fotation 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.chanroblesvirtualawlibrary chanrobles
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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.chanroblesvirtualawlibrary chanrobles
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During the period which intervened between the making
of the preliminary verbal agreement and the fnal
execution of this contract, the plaintif, 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.chanroblesvirtualawlibrary chanrobles virtual law
library
Soon after the contract Exhibits B and A were made the
plaintif 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; chanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law
library
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 efectual receipts and discharges
for the same.
Prior to that time, on May 27, 1913, the plaintif 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 specifcally 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 specifc
powers, Beam was fnally 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.chanroblesvirtualawlibrary chanrobles virtual law
library
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
efort 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 efect
underwritten a subscription for the whole block of shares,
he made no efort 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 fulfll his undertaking. In this condition of
afairs the period of six months specifed in the contracts
of November 5 and 6 for the raising of the sum of
P75,000 passed.chanroblesvirtualawlibrary chanrobles
virtual law library
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
fnancing the project. They found it possible to efectuate
this through the ofces 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 profts 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
fotation. Some, however, dropped out, with the result that
Haussermann and Beam were compelled to increase
their subscriptions materially.chanroblesvirtualawlibrary
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As preliminary to the new scheme of fnancing the
corporation, the board of directors of the mining company,
composed of Haussermann Beam, and Sendres, saw ft
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.chanroblesvirtualawlibrary chanrobles virtual law
library
Immediately after the adoption of this resolution, the new
plan for fnancing 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 fnancial arrangements
said letter is as follows:
MANILA, P. I., June 17, 1914. chanrobles virtual law
library
To the DIRECTORS OF THE BENGUET
CONSOLIDATED MINING
CO.,
Manila, P. I.
GENTLEMEN: chanrobles virtual law library
The undersigned hereby applies for an option for 30 days
over 501,000 shares of unissued stock of your
corporation. . . .chanroblesvirtualawlibrary chanrobles
virtual law library
I have canvassed the local feld for capital and am
reasonably assured that the required capital will be
available as follows:chanrobles virtual law library
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 afording P136,000. . .
.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual
law library
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.chanroblesvirtualawlibrary chanrobles virtual
law library
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.chanroblesvirtualawlibrary chanrobles virtual law
library
Trusting that the foregoing may meet with your approval
and acceptance, I amchanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law
library
The Beam project was carried out, and the mining
company was brought to a dividend-paying basis, paying
a quarterly dividend of fve 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 profts. 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 plaintifs, 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 plaintifs is considerably in
excess of $25,000 (U. S.
currency).chanroblesvirtualawlibrary chanrobles virtual
law library
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 plaintifs 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.chanroblesvirtualawlibrary
chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual
law library
In paragraph I of said contract each party obligates
himself to do all in his power to "foat" 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 fotation, however, points more
particularly to the efort 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 fotation is to be efected 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.chanroblesvirtualawlibrary chanrobles virtual law
library
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 frst paragraph is limited by that used in the second
paragraph. In other words, though in the frst paragraph
the parties agree to help foat the project, they are tied up,
in regard to the manner of efecting the fotation, to the
method agreed upon in the second. We can by no means
lend our assent to the proposition that the frst paragraph
created an obligation, independent of the provisions of
paragraph II, which continued to subsist after the method
of fotation described in paragraph II became impossible
of fulfllment. 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.)chanrobles virtual law library
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
fxed 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.chanroblesvirtualawlibrary chanrobles
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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 fnd,
Haussermann and Beam were
discharged.chanroblesvirtualawlibrary chanrobles virtual
law library
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.) chanrobles virtual law library
If the condition consists in the happening of an event
within a fxed 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 efect
of the non-fulfllment of the condition shall be precisely
the same as that which the statute attaches to it - the
extinction of the obligation.chanroblesvirtualawlibrary
chanrobles virtual law library
In the argument of the plaintifs 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 fotation after the plan
prescribed in the contract had become impossible of
fulfllment and to proceeds therewith for the beneft of all
four of the parties. Furthermore, this conception of the
case is apparently over-refned 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 efect 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.chanroblesvirtualawlibrary
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It is insisted in behalf of the plaintifs 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 diferent, 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.chanroblesvirtualawlibrary chanrobles virtual law
library
The interpretation which we have placed upon the
contract of November 5, 1913, exerts a decisive infuence
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.chanroblesvirtualawlibrary chanrobles virtual
law library
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 specifed, 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 plaintifs that this contract remained in
force after May 6, 1914, notwithstanding the failure of
Hanlon to supply the funds which he had agreed to fnd,
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.chanroblesvirtualawlibrary
chanrobles virtual law library
In the frst 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 ofered 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 benefts 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 efect, since one
party to a contract cannot absolve himself from its
obligations without the consent of the
other.chanroblesvirtualawlibrary chanrobles virtual law
library
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
efect 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 diference; 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.chanroblesvirtualawlibrary chanrobles virtual
law library
Much reliance is placed by counsel for the plaintifs upon
certain American decisions holding that partners, agents,
joint adventurers, and other persons occupying similar
fduciary relations to one another, must not be allowed to
obtain any undue advantage of their associates or to
retain any proft 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 difculty 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 fnd that the law is well established that the
relation between joint adventurers is fduciary 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 profts whichever the
case may be to enjoy an unfair advantage, or have any
greater rights in the property or profts 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 beneft; and any private
beneft, 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 beneft, takes away
the temptation to commit a dishonest act, founded in the
desire of obtaining a selfsh 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." chanrobles virtual law library
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.
Sufce 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 ofcials 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 fduciary 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 ofcers of the
mining company long before they came into contact with
him.chanroblesvirtualawlibrary chanrobles virtual law
library
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.chanroblesvirtualawlibrary chanrobles virtual law
library
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 indefnite period from seeking other
means of fnancing the company's necessities, save only
upon the penalty of surrendering a share of their ultimate
gain to the two adventurers who are plaintifs in this
action.chanroblesvirtualawlibrary chanrobles virtual law
library
The power of attorney which Hanlon left with Beam upon
departing for America was executed chiefy 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
beneft, 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.chanroblesvirtualawlibrarychanrobles virtual law
library
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 sufcient to fnance 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 sufcient number of
subscriptions to fnance the Hanlon project, and
concealing this fact, had subsequently utilized the same
subscriptions to fnance his own scheme, the case would
be diferent. But the revealed facts do not bear out this
imputation.chanroblesvirtualawlibrary chanrobles virtual
law library
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 ofcers had desired to do so; and if the mining
company was bound either legally ormorally to recognize
them, if cannot be imputed to the defendants as an act of
bad faith that such subscriptions were so
recognized.chanroblesvirtualawlibrary chanrobles virtual
law library
The trial court held that Haussermann, by reason of his
interest in the Beam project, was disqualifed 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 efect. We are of the
opinion that the circumstance referred to could at the
most have had no further efect 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 ratifcation of
the contract at a meeting of the stockholders. However
this may be, the plaintifs 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.chanroblesvirtualawlibrary chanrobles virtual law
library
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
proft-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? chanrobles virtual law
library
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.chanroblesvirtualawlibrary chanrobles virtual law
library
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 frst part agrees to pay into the
treasury of the party of the second part the sum of
Seventy-fve 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 fulfllment 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.chanroblesvirtualawlibrary chanrobles virtual law
library
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 proft-
sharing agreement (Exhibit A) was executed by the four
parties to this lawsuit. In other words, Haussermann and
Beam, as ofcials of the mining company, refrained from
executing the company's contract until Hanlon had
obligated himself by the proft-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 proft-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 proft-sharing agreement; and in
particular the minds of all must have riveted upon the
provisions of paragraph II of the proft-sharing agreement,
wherein is described the manner in which the project to
which the parties were then afxing their signatures
should be fnancially realized ("foated"). 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 proft-sharing agreement, it must have
seemed superfuous 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.chanroblesvirtualawlibrary chanrobles virtual law
library
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 specifc
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
specifc performance may be granted, due compensation
being made for the damage caused by the delay. In such
cases the courts take account of the diference between
that which is matter of substance and that which is matter
of mere form.chanroblesvirtualawlibrary chanrobles
virtual law library
To illustrate: the rule has been frmly 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 specifc 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 difculty 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 specifed 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.)
chanrobles virtual law library
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 sufcient
that the intention to this efect 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 efect, 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 specifc
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
fuctuating 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
efect. (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.chanroblesvirtualawlibrary chanrobles virtual law
library
Under the doctrine above expounded it is evident that
Hanlon would be entitled to no relief against the mining
company in an action of specifc performance, even if he
had been prepared and had ofered, 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 ofered to comply
with the obligations incumbent upon
himself.chanroblesvirtualawlibrary chanrobles virtual law
library
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.
[G.R. No. L-40098. August 29, 1975.]
ANTONIO LIM TANHU, DY OCHAY, ALFONSO
LEONARDO NG SUA and CO OYO, Petitioners, v.
HON. JOSE R. RAMOLETE, as Presiding Judge,
Branch III, CFI, Cebu and TAN PUT,Respondents.
Zosa, Zosa, Castillo, Alcudia & Koh, for Petitioners.
Fidel Manalo and Florido & Associates for
Respondents.
SYNOPSIS
Plaintif sued the spouses Lim Tanhu and Dy Ochay.
Later, she amended the complaint to include as
defendants Lim Teck Chuan, the spouses Alfonso Ng Sua
and Co Oyo, and their son Eng Chong Leonardo.
Claiming to be the widow of Po Chuan, a partner in the
Glory Commercial Co., plaintif charged the six
defendants with having conspired in misappropriating for
their own benefts the profts and assets of said
partnership. In a single answer with counterclaim,
defendants denied plaintifs allegation and claimed that
she was only a common-law wife of the deceased and
that she had already executed a quitclaim.
For failure to appear on the date set for pre-trial, both the
Tanhu and the Ng Sua spouses were all declared in
default; and their motion to lift the default order on the
ground that they were not notifed was denied. On
October 19, 1974, when plaintifs frst witness was up for
re-cross examination, she moved "to drop" the case
against the non-defaulted defendants, namely, Lim Teck
Chuan, and Eng Chong Leonardo. The motion, which
was set for hearing, 3 days later, or on October 21, was
granted by the court. Simultaneously, the Court in a
separate order motu propio deputized the branch clerk of
court to receive on November 20, 1974 plaintifs ex parte
evidence against the defaulted defendants since the case
against the non-defaulted defendants had already been
dismissed. But the ex-parte reception actually took place
on October 28, 1974, because on that date plaintif with
her witnesses appeared in court and asked to be allowed
to present her evidence, which was granted.
The non-defaulted defendants motion to reconsider the
dismissed order was denied. On December 20, 1974, the
Court rendered judgment. Thereafter, all the defendants
moved to quash the order of October 28, 1974, but later,
without waiting for the trial courts resolution, the non-
defaulted defendants went to the Court of Appeals on a
petition of certiorari, to annul the orders of October 21,
1974, October 28, 1974, and the decision of December
20, 1974. The Court of Appeals dismissed the petition as
being premature, the motion to quash not having been
resolved yet by the trial court.
On the other hand, the defaulted defendants, before the
perfection of their appeal, fled the present petition with
this Court, their counsel manifesting in the court below
that they had abandoned their motion to quash. Hence,
the trial court declared the motion to quash abandoned
and that the resolution for execution pending appeal
would be resolved after the certiorari and prohibition
petition shall have been resolved.
The Supreme Court held that the impugned decision is
legally anomalous, predicated as it is on two fatal
malactuations of the respondent court, namely: (1) the
dismissal of the complaint against the non-defaulted
defendants; and (2) the ex parte reception of evidence of
the plaintif by the Clerk of Court, the subsequent using of
the same as basis for its judgment and the rendition of
such judgment. The order of dismissal cannot be
sanctioned because (1) there was no timely notice of the
motion therefor to the non-defaulted defendants, aside
from there being no notice at all to the defaulted
defendants; (2) the common answer of defendants,
including the non-defaulted, contained a compulsory
counterclaim incapable of being determined in an
independent action; and (3) the immediate efect of such
dismissal was the removal of the two non-defaulted
defendants as parties, and inasmuch as they are both
indispensable parties in the case, the trial court
consequently lost the sine qua non of the exercise of
judicial power.
The Supreme Court was faced with a legal pare-dilemma;
to annul the dismissal would prejudice the rights of the
non-defaulted defendants whom the Supreme Court have
not heard and who event plaintif would not wish to have
anything anymore to do with the case; on the other hand,
to include the petitioners (the defaulted defendants) in the
dismissal would naturally set at naught the eforts of
plaintifs eforts to establish her case thru means
sanctioned by respondent court.
All things considered, the court held that as between the
two possible alternatives, since the situation was brought
out by plaintifs procedural maneuvers, it would only be
fair, equitable and proper to rule that the order of
dismissal of October 21, 1974 is in law a dismissal of the
whole case of the plaintif, including as to petitioner (the
defaulted defendants). Consequently, all proceedings
held by respondent court subsequent thereto including
and principally its decision of December 20, 1974 were
declared illegal and were set aside.
SYLLABUS
1. CIVIL PROCEDURE RULES OF PROCEDURE MAY
NOT BE MISUSED OR ABUSED AS INSTRUMENTS TO
DENY SUBSTANTIAL JUSTICE. A review of the
record of this case immediately discloses that here is
another demonstrative instance of how some members of
the bar, availing of their profciency in invoking the letter of
the rules without regard to their real spirit and intent,
succeed in inducing courts to act contrary to the dictates
of justice and equity, and, in some instance, to wittingly or
unwittingly abet unfair advantage by ironically
camoufaging their actuations as earnest eforts to satisfy
the public clamor for speedy disposition of litigations,
forgetting all the while that the plain injunction of Section
2 of Rule 1 is that the "rules shall be liberally construed in
order to promote their object and to assist the parties in
obtaining" not only speedy but more imperatively, "just . .
. and inexpensive determination of every action and
proceeding."cralaw virtua1aw library
2. ID.; MOTION TO LIFT ORDER OR DEFAULT; WHEN
FORMAL VERIFICATION NOT REQUIRED. Where the
motion to lift order of default, co-signed by the party and
her counsel, is over the jurat of the notary public before
whom she took her oath, it is error for the trial court to
hold that "the oath appearing at the bottom of the motion
is not the one contemplated by the rules (Sec. 3. Rule
18), or to hold that it is not even a verifcation (Sec. 6,
Rule 7). The rules, as interpreted by the Supreme Court,
require a separate afdavit of merit only in those
instances where the motion is not over the oath of the
party concerned, considering that what the cited provision
literally requires is no more than a motion under oath.
Stated otherwise, when a motion to lift an order of default
contains the reason for the failure to answer as well as
the facts constituting the prospective defense of the
defendant and it is sworn to by said defendant, neither a
formal verifcation nor a separate afdavit of merit is
necessary.
3. ID.; MOTION TO LIFT ORDER OF DEFAULT, NOT AN
ADMISSION OF SERVICE OF SUMMONS. It is error
for the trial court to hold that a motion to lift a default
order "is an admission that there is a valid service of
summons" and that said motion could not amount to a
challenge against the jurisdiction of the court over the
person of the defendant. Such a rationalization is patently
specious and reveals an evident failure to grasp the
import of the legal concepts involved. A motion to lift an
order of default on the ground that service of summons
and is in essence verily an attack against the jurisdiction
of the court over the person of the defendant, no less than
it if were worded in a manner specifcally embodying such
a direct challenge.
4. ID.; MOTIONS; THREE DAYS NOTICE
REQUIREMENT. Three days at least must intervene
between the date of service of notice and the date set for
the hearing, "otherwise the court may not validly act on a
motion." Thus, where the motion was set for hearing on
Monday, October 21, whereas one counsel was
personally served with notice only on Saturday, October
19, and the other counsel was notifed by registered mail
which was posted only that same Saturday, the notices
were held to be short of the three-day requirement of
Section 4, Rule 15.
5. JUDGES; DUTY OF JUDGES TO SEE THAT NO
PARTY IS DEPRIVED OF RIGHT TO BE HEARD. The
Supreme Court cannot but express its vehement
condemnation of any judicial actuation that unduly
deprives any party of the right to be heard without clear
and specifc warrant under the terms of existing rule or
binding jurisprudence. Extreme care must be the instant
reaction of every judge when confronted with a situation
involving risks that the proceedings may not be fair and
square to all parties concerned. Indeed, a keen sense of
fairness, equity and justice that constantly looks for
consistency between the letter of the adjective rules and
these basic principles must be possessed by every judge,
if substance is to prevail, as it must, over from in our
courts. Literal observance of the rules, when it is
conducive to unfair and undue advantage on the party of
any litigant before it, is unworthy of any court of justice
and equity. Withal, only those rules of procedure informed
with and founded on public policy deserve obedience in
accord with their unequivocal language or words.
6. CIVIL PROCEDURE; COUNTERCLAIM; NATURE OF
COMPULSORY COUNTERCLAIM. A counterclaim is
compulsory if it arises out of or is necessarily connected
with the occurrence that is the subject matter of the
plaintifs claim (Sec. 4, Rule 9). Thus where plaintif
alleged that, being the widow of deceased, she is entitled
to demand accounting of and to receive the share of her
alleged husband as partner of defendants and defendant
denied the truth of said allegations, maintaining in their
counterclaim that plaintif knew of the falsity of said
allegations even before she fled the complaint, she had
admitted in a quitclaim her common-law relationship with
deceased and that she had already quitclaimed her
rights, which quitclaim was, however, executed, according
to respondent herself in her amended complaint, through
fraud, and that having fled the complaint knowing that the
allegations thereof are false and baseless, she has
caused them to sufer damages, it was held that with such
allegations, defendants counterclaim is compulsory, not
only because the same evidence to sustain it will also
refute the cause or causes of action alleged in plaintifs
complaint, but also because from its very nature, it is
obvious that the same cannot "remain pending for
independent adjudication by the court." (Sec. 2, Rule 17)
7. ID.; ID.; MOTION TO DISMISS; PLAINTIFFS ACTION
MAY NOT BE DISMISSED IF COMPULSORY
COUNTERCLAIM IS PLEADED. Rule 17, Sec. 2
provides that "if a counterclaim has been pleaded by a
defendant prior to the service upon him of the plaintifs
motion to dismiss, the motion shall not be dismissed
against the defendants objection unless the counterclaim
can "remain pending for independent adjudication by the
court."cralaw virtua1aw library
8. ID.; PARTIES; MOTION TO DISMISS; ACTION MAY
NOT BE DISMISSED AS REGARD INDISPENSABLE
PARTIES. Where plaintifs complaint charged the six
defendants with having actually taken part in a conspiracy
to misappropriate, conceal and convert to their own
beneft the profts and assets of a partnership to be
extend that they have allegedly organized a corporation
with what they had illegally gotten from the partnership,
no judgment fnding the existence of the alleged
conspiracy or holding the capital of the corporation to be
the money of the partnership is legally possible without
the presence of all defendants. Hence, it was error for the
court to grant plaintifs motion to dismiss the case as
against the non-defaulted defendants, since all the
defendants, defaulted and non-defaulted, are
indispensable parties.
9. ID.; ID.; ACTIONS; JOINDER OF INDISPENSABLE
PARTIES. Whenever it appears to the court in the
course of a proceeding that an indispensable party has
not been joined, it is the duty of the court to stop the trial
and to order the inclusion of such party or the dismissal of
the case. Such an order is unavoidable, for the "general
rule with reference to the making of parties in a civil
action requires the joinder of all necessary parties under
any and all conditions, the presence of those latter being
a sine qua non of the existence of judicial power." It is
precisely "when an indispensable party is not before the
court that the action should be dismissed. The absence of
an indispensable party renders all subsequent actuations
of the court null and void, for want of authority to act, not
only as to the absent parties but even as to those present.
10. ID.; ID.; ID.; MISJOINDER OR NON-JOINDER OF
PARTIES; DROPPING OF PARTIES. Rule 3, Sec. 11
does not comprehend whimsical and irrational dropping
or adding of parties in a complaint. What it really
contemplates is erroneous or mistaken non-joinder and
misjoinder of parties. No one is free to join anybody in a
complaint in court only to drop him unceremoniously later
at the pleasure of the plaintif. The rule presupposes that
the original inclusion had been made in the honest
conviction that it was proper and the subsequent dropping
is requested because it has turned out that such inclusion
was a mistake. And this is the reason why the rule ordains
that the dropping be "on such terms as are just" just to
all the other parties.
11. ID.; ID.; ID.; DROPPING THE CASE AGAINST NON-
DEFAULTED DEFENDANTS. In a complaint against
six defendants, where after four of them had been
declared in default, for failure to appear at pre-trial, and at
the stage when plaintifs frst witness was up for cross-
examination, plaintif without any relevant explanation
asked the court to drop the non-defaulted defendants, it
was error for the court over the objection of the non-
defaulted defendants to grant such motion without
inquiring for the reasons or directing the granting of some
form of compensation for the trouble undergone by the
defendants in answering the complaint, preparing for or
proceeding partially to trial, hiring counsel and making
corresponding expenses in the premises. The Court
should have considered that the outright dropping of there
non-defaulted defendants over their objection would
certainly be unjust not only to the defaulted defendants
who would certainly be unjust not only to the defaulted
defendants who would in consequence, be entirely
defenseless, but also to the non-defaulted defendants
themselves who would naturally correspondingly sufer
from the eventual judgment against their co-defendants.
In such case, the court should pay heed to the mandate
that such dropping must be "on such terms as are just"
meaning to all concerned with its legal and factual efects.
12. LEGAL ETHICS; DUTY OF COUNSEL TO ACT WITH
CANDOR. Those appearing as counsel are
admonished that a pleading which is deceptive and
lacking in candor, has no place in any court, much less in
the Supreme Court. Parties and counsel would be well
advised to avoid such attempts to befuddle the issues as
invariably they will be exposed for what they are, certainly
unethical and degrading to the dignity of the law
profession. Moreover, almost always they only betray the
inherent weakness of the cause of the party resorting to
them.
13. CIVIL PROCEDURE; DEFAULT SHOULD NOT BE
TAKEN FOR GRANTED. The concept of default as a
procedural device should not be taken for granted as
being that a simple expedient of disallowing the ofending
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 modifed.
14. ID.; ID.; JUDGMENT ON DEFAULT SHALL NOT BE
DIFFERENT FROM THAT PRAYED FOR. Rule 18 of
the Rules of Court concerned solely with default resulting
from failure of the defendant or defendants to answer
within the reglementary period. Referring to the simplest
form of default, that is, where there is only one defendant
in the action and he fails to answer on time, Section 1 of
the Rule provides that upon "proof of such failure, (the
court shall) declare the defendant in default. Thereupon
the court shall proceed to receive the plaintifs evidence
and render judgment granting him such relief as the
complaint and the facts proven may warrant." This last
claim is clarifed by Section 5 which says that "a judgment
entered against a party in default shall not exceed the
amount or be diferent in kind from that prayed for."cralaw
virtua1aw library
15. ID.; ID.; NATURE OF DEFAULT, EXPLAINED.
Contrary to the immediate notion that can be drawn from
their language the provision of Rule 18 on the subject of
default are not to be understood as meaning that default
or the failure of the defendant to answer should be
"interpreted as an admission by the said defendant that
the plaintifs causes of action fnd support in the law or
that plaintif is entitled to the relief prayed for." Being
declared in default does not constitute a waiver of rights
except that of being heard and of presenting evidence in
trial. In other words, a defaulted defendant is not actually
thrown out of court. While in a sense it may be said that
by defaulting he leaves himself at the mercy of the court,
the rules see to it that any judgment against him must be
in accordance with law. The evidence to support plaintifs
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 sufcient to justify a
judgment for the plaintif, the complaint must be
dismissed. And if an unfavorable judgment should be
justifable, it cannot exceed in amount or be diferent in
kind from what is prayed for in the complaint.
16. ID.; ID.; ID.; DELEGATING TO CLERKS OF COURTS
RECEPTION OF EVIDENCE IN CASES OF DEFAULT
SHOULD BE STOPPED. The present widespread
practice of trial judges of delegating to their clerks of court
the reception of plaintifs evidence when the defendant is
in default is wrong in principle and orientation. It has no
basis in any rule. When a defendant allows himself to be
declared in default he relies on the faith that the court
would take care that his rights are not unduly prejudiced.
He has a right to presume that the law and the rules will
still be observed. The proceedings are held in his forced
absence, and it is but fair that the plaintif should not be
allowed to take advantage of the situation to win by foul or
illegal means or with inherently incompetent evidence. In
such instances, there is need for more attention from the
court, which only the judge himself can provide. The clerk
of court would not be in a position much less have the
authority to act in the premises in the manner demanded
by the rules of fair play and as contemplated in law,
considering this comparatively limited area of discretion
and his presumably inferior preparations for the functions
of a judge. Besides the default of the defendant is no
excuse for the court to renounce the opportunity to closely
observe the demeanor and conduct of the witnesses of
the plaintif, the better to appreciate their truthfulness and
credibility. The Supreme Court therefore declares as a
matter of judicial policy that there being no imperative
reason for judges to do otherwise, the practice should be
discontinued.
17. ID.; ID.; ID.; ENOUGH OPPORTUNITY SHOULD BE
LEFT OPEN FOR POSSIBLE LIFTING OF DEFAULT
ORDER. It is preferable as a matter of practice to leave
enough opportunity open for possible lifting of the order of
default before proceeding with the reception of the
plaintifs evidence and the rendition of the decision. "A
judgment by default may amount to positive and
considerable injustice to the defendant; and the possibility
of such serious consequences necessitates a careful and
liberal examination of the grounds upon which the
defendant may seek to set it aside." The expression in
Section 1 of Rule 18 which says that "thereupon the court
shall proceed to receive the plaintifs evidence, etc., is
not to be taken literally. The gain in time and dispatch
should the court immediately try the case on the very day
of or shortly after the declaration of default is far
outweighed by the inconvenience and complications
involved in having to undo everything already done in the
event the defendant should justify his omission to answer
on time.
18. ID.; ID.; ID.; EFFECT WHEN SOME ANSWER AND
OTHERS DO NOT. In all instance where a common
cause of action is alleged against several defendants,
some of whom answer and others do not, the latter to
those in default acquire a vested right not only to own the
defense interposed in the answer of their co-defendants
not in default but also to expect a result of the litigation
totally common with them in kind and in amount whether
favorable or unfavorable. The substantive unity of the
plaintifs cause against all defendants is carried through
to its adjective phase as ineluctably demanded by the
homogeneity and indivisibility of justice itself.
19. ID.; ID.; ID.; WHERE A SINGLE CAUSE OF ACTION
IS ASSERTED BY DEFENDANTS, DISMISSAL OF
ACTION AS TO NON-DEFAULTED DEFENDANTS
RESULTS IN DISMISSAL ALSO AS TO DEFAULTED
DEFENDANTS. Since the singleness of the cause of
action also inevitably implies that all the defendants are
indispensable parties, the courts power to act is integral
and cannot be split such that it cannot relieve any of them
and at the same time render judgment against the rest.
Considering the tenor of Section 4 of Rule 18, it is to be
assumed that when any defendant allows himself to be
declared in default knowing that his co-defendant has
already answered he does no trusting in the assurance
implicit in the rule that his default is in essence a mere
formality and deprives him of no more than the right to
take part in the trial and that the court would deem
anything done by or for the answering defendant as done
by or for him. The presumption is that otherwise he would
not have seen to it that he would not be in default. Of
course, he has to sufer the consequences of whatever
the answering defendant may do or fail to do, regardless
of possible adverse consequences, but if the complaint
has to be dismissed insofar as the answering defendant is
concerned, it becomes his inalienable right that the same
be dismissed also as to him.
20. ID.; ID.; ID.; WHERE ALL DEFENDANTS ARE
INDISPENSABLE PARTIES; DISMISSAL AS TO
ANSWERING DEFENDANTS RESULT IN DISMISSAL
AS TO DEFAULTED DEFENDANTS. Where all the
defendants are indispensable parties, for which reason
the absence of any of them in the case would result in the
court losing its competency to act validly, any compromise
that the plaintif might wish to make with any of them
must, as a matter of correct procedure, have to wait until
after the rendition of the judgment, at which state the
plaintif may then treat the matter for its execution and the
satisfaction of his claim as variably as he might please.
Accordingly, where all defendants are indispensable
parties, some of whom answer and others do not, the
dismissal of the complaint against the answering or non-
defaulted defendants should result also in the dismissal
thereof as to the defaulted defendants. And it does not
matter that the dismissal is upon the evidence presented
by the plaintif or upon the latters mere resistance, for in
both contingencies, the lack of sufcient legal basis must
be the cause. The integrity of the common cause of
action against all defendants and the indispensability of
all of them in the proceedings do not permit any possibility
of waiver of the plaintifs right only as to one or some of
them, without including all of them, and, so, as a rule,
withdraw must be deemed to be confession of weakness
as to all.
21. ID.; ID.; FAILURE TO APPEAR AT PRE-TRIAL.
Where all defendants already joined genuine issued with
the plaintif, and four of such defendants failed to appear
at the pre-trial but their absence could be attributable to
the fact that they might not have considered it necessary
anymore to be present since their respective children with
whom they have common cause could take care of their
defenses as well and anything that could be done by
them at such pre-trial could have be done for them by
their children, especially because in the light of the
pleadings before the court, the prospects of a
compromise must have appeared to the rather remote,
under such circumstances, to declare them immediately
and irrevocably in default was not an absolute necessity.
Practical consideration and reason of equity should have
moved the court to be more understanding in dealing with
the situation. After all, declaring them in default did not
impair their right to a common fate with their children.
22. ID.; ID.; DEFAULTED DEFENDANT ENTITLED TO
NOTICE OF SUBSTANTIALLY AMENDED PLEADING.
Section 9, Rule 13, provides that even after a
defendant has been declared in default, he shall be
entitled to notice of all further proceedings regardless of
whether the order of defaults is set aside or not, and a
party in default who has fled such a motion to set aside
must still be served with all "substantially amended or
supplemental pleadings."cralaw virtua1aw library
23. ID.; ID.; ID.; FORM OF MOTION TO LIFT ORDER OF
DEFAULT. Where issues have already been joined,
evidence partially ofered already at the pre-trial and more
of it at the actual trial which had already begun with the
frst witness of the plaintif undergoing re-cross-
examination, it would be requiring the obvious to pretend
that there was still need for an oath or a verifcation as to
merits of the defense of defaulted defendants (who were
declared in default not for failure to answer but for failure
to appear at pre-trial), asserted in their motion to
reconsider their default. And where it appears, moreover,
that the defaulted defendants being the parents of the
non-defaulted defendants, must have assumed that their
presence at the pre-trial was superfuous, particularly
because the cause of action against them as well as their
own defense are common, under these circumstances,
the form of the motion by which the defaults was sought
to be lifted is secondary and the requirements of Section
8, Rule 18 need not be strictly complied with, unlike in
cases of default of failure to answer. Hence, for purposes
of revival of their right to notice under Section 9 of Rule
13, the defaulted defendants motion for reconsideration
may be considered to be substance legally adequate
regardless of whether or not it was under oath.
24. ID.; ID.; ID.; MOTION TO DROP ANSWERING
DEFENDANT FROM COMPLAINT SUBSTANTIALLY
AMENDS COMPLAINT. A motion to drop non-
defaulted defendants from plaintifs complaint virtually
amends the complaint, and such amendment is
substantial, for with the elimination thereby of said
defendants, allegedly solidarily liable with their
codefendants, it had the efect of increasing
proportionately that which each of the remaining
defendants, would have to answer for jointly and
severally. Accordingly, notice to the defaulted defendants
of plaintifs motion is legally indispensable under Rule 13,
Sec. 9. Consequently, the court had no authority to act on
the motion to dismiss, without the requisite three-day
notice, pursuant to Sec. 6, Rule 15, for the Rules of Court
clearly provide that no motion shall be acted upon by the
Court without the proof of service of notice thereof,
together with a copy of the motion and other papers
accompanying it, to all parties concerned at least three
days before the hearing thereof, stating the time and
place for the hearing of the motion (Rule 26, Section 4, 5
and 6, Rules of Court, Now Sec. 15, New Rules). When
the motion does not comply with this requirement, it is not
a motion. It presents no question which the court could
decide. And the court acquires no jurisdiction to consider
it.
25. CERTIORARI; WHERE APPEAL IS NOT AN
ADEQUATE REMEDY; CERTIORARI MAYBE
RESORTED TO. The essential purpose of certiorari is
to keep the proceedings in lower judicial courts and
tribunals within legal bounds, so that due process and the
rule of law may prevail at all time and arbitrariness,
whimsicality and unfairness which justice abhors may
immediately be stamped out before graver injury, juridical
and otherwise, ensues. While generally those objectives
may well be attained in an ordinary appeal, it is
undoubtedly the better rule to allow the special remedy
ofcertiorari at the option of the party adversely afected,
when the irregularity committed by the trial court is so
grave and so far reaching in its consequences that the
long and cumbersome procedure of appeal will only
further aggravate the situation of the aggrieved party
because other untoward actuations are likely to
materialize as natural consequences of those already
perpetrated. Otherwise,certiorari would have no reason at
all for being.
26. ID.; ID.; SUPREME COURT MAY EXERCISE
INHERENT POWER OF SUPERVISION OVER
JUDICIAL ACTION. The Supreme Court will exercise
its inherent power of supervision over all kinds of judicial
actions of the court, where it appears that the stakes are
high, and where not only is the subject matter
considerably substantial, but there is the more important
aspect that not only the spirit and intent of the rules but
even the basic rudiments of fair play have been
disregarded. For the court to leave unrestrained the
obvious tendency of the proceedings would be nothing
short of wittingly condoning inequity and injustice
resulting from erroneous construction and unwarranted
application of procedural rules.
27. ID.; DEFAULT; SUPREME COURT WILL NOT
SANCTION PROCEDURAL MANEUVERS THAT WILL
DEPRIVE OTHER PARTY OF RIGHT TO BE HEARD.
The idea of "dropping" the non-defaulted defendants with
the end in view of completely incapacitating their co-
defendants from making any defense, without considering
that all of them are indispensable parties to a common
cause of action to which they have countered with a
common defense readily connotes an intent to secure a
one-sided decision, even improperly. Such procedural
maneuver resorted to by plaintif in securing the decision
in her favor was ill-conceived. It was characterized by that
which every principle of law and equity disdains taking
advantage of the rules of procedure in order to unduly
deprive the other party of full opportunity to defend his
cause. And when in this connection, the obvious
weakness of plaintifs evidence is taken into account, one
easily understands why such tactics had to be availed of.
The Supreme Court cannot directly and inequity in the
application of procedural rules, particularly when the
propriety of reliance thereon is not beyond controversy.
28. ID.; PARTIES; PARTY SHOULD NOT BE ALLOWED
TO BENEFIT FROM HER FRUSTRATED OBJECTIVE
TO SECURE A ONE-SIDED DECISION. Where all the
malactuations of the trial court are traceable to the
initiative of the plaintif and/or her counsel, she cannot
complain that she is being made to unjustifably sufer the
consequences of the erroneous orders of the trial court. It
is only fair that she should not be allowed, to beneft from
her own frustrated objective of securing a one-sided
decision.
29. ID.; ID.; SUPREME COURT NEED NOT REMANDS
CASE FOR FURTHER PROCEEDINGS IF ENOUGH
BASIS EXIST TO RESOLVE CLAIM. Where the
Supreme Court in a petition for certiorari has set aside the
order of dismissal of the respondent court, it may resolve
the plaintifs claim on the merits instead of merely
returning the case for a resumption of trial, if upon closer
study of the pleading and the decision of the trial court
and other circumstances extant in the record before the
Supreme Court there is enough basis to rule on the
plaintifs claim and if the remand would only lead to more
legal applications.
30. CIVIL PROCEDURE; PRE-TRIAL; PURPOSE OF.
The fundamental purpose of pre-trial, aside from afording
the parties every opportunity to compromise or settle their
diferences, is for the court to be apprised of the unsettled
issued between the parties and of their respective
evidence relative thereto, to the end that it may take
corresponding measures that would abbreviate the trial as
much as possible and the judge may be able to ascertain
the fact with the least observance of technical rules. In
other words. whatever is said or done by the parties or
their counsel at pre-trial serves to put the judge on notice
of their respective basic position, in order that in
appropriate cases he may, if necessary in the interest of
justice and a more accurate determination of the facts,
make inquiries about or require clarifcations of matters
taken up at the pre-trial, before fnally resolving any issue
of fact or law. In brief, the pre-trial constitutes part and
parcel of the proceedings, and hence, matters dealt with
therein may not disregarded in the process of decision
making. Otherwise, the real essence of compulsory pre-
trial would be insignifcant and worthless.
31. MARRIAGE; EVIDENCE OF. Under Article 55 of
the Civil Code, the declaration of the contracting parties
that they take each other as husband and wife "shall be
set forth in an instrument" signed by the parties as well as
by their witnesses and the person solemnizing the
marriage. Accordingly, the primary evidence of a marriage
must be an authentic copy of the marriage contract.
32. ID.; ID.; WHEN SECONDARY EVIDENCE MAY BE
AVAILED OF. While a marriage may also be proved by
other competent evidence, the absence of the contract
must frst be satisfactorily explained. The certifcation of
the person who allegedly solemnized a marriage is not
admissible evidence of such marriage unless proof or
loss of the contract or of any other satisfactory reason for
its non-production is frst presented to the court.
33. ID.; ID.; ID.; CERTIFICATION OF BISHOP WHO DID
NOT TESTIFY IS HEARSAY. The purported
certifcation issued by a bishop of the church where the
alleged marriage took place is not competent evidence, in
the absence of a showing as to the unavailability of the
marriage contract; and, as to the authenticity of the
signature of the signature of said certifed, the jurat
allegedly signed by a second assistant provincial fscal is
not authorized by law, since it is not part of the functions
of his ofce. Besides, inasmuch as the bishop did not
testify, the same is hearsay.
34. ID.; ID.; TESTIMONY OF ALLEGED WIDOW AS TO
MARRIAGE IS SELF-SERVING EVIDENCE. The
testimony of plaintif to the efect that she was married to
the deceased in a church as well as that of her witness,
allegedly a foster son of deceased whom she had reared
since his birth and with whom she has been living are
both self-serving and of very little evidentiary value, it
having been disclosed at the trial that plaintif had already
assigned all her rights in the case to said witness, thereby
making the latter the real party in interest and therefore
naturally as biased as plaintif herself. Besides, it appears
admitted that the witness was less than eight years old at
the time of the alleged marriage, thus making it extremely
doubtful if he could have been sufciently aware of such
event as to be competent to testify about it.
35. ID.; ID.; WEIGHT AND SUFFICIENCY OF
EVIDENCE. Where against the evidence of the plaintif
concerning her marriage to deceased, consisting of a
certifcation by the bishop of the church where the
marriage allegedly took place and her self-serving
testimony, two documents belying the pretended marriage
were presented namely the income tax return of the
deceased indicating a person other than plaintif as his
wife, and the quitclaim wherein plaintif stated that she
had been living with the deceased without beneft of
marriage and that she was his "common-law." it was held
that these two documents are far more reliable than the
evidence of plaintif put together.
36. ID.; ID.; ID.; ADMISSION AGAINST INTEREST.
Where the existence of the quitclaim (containing the
admission by plaintif of her common-law relationship only
with the deceased and of her having renounced for
valuable consideration whatever claim she might have
against the defendants), has been duly established at the
pre-trial without any circumstances to detract from its
legal import, the Court should have held that plaintif was
bound by her admission therein that she was the
common-law wife only of deceased, and what is more,
that she had already renounced her claim.
37. PARTNERSHIP; TRANSFER OF PARTNERSHIP
PROPERTY AFTER DISSOLUTION OF PARTNERSHIP.
Where it appears that most of the properties supposed
to have been acquired by defendants with funds of the
partnership appear to have been transferred in their
names long after the partnership had been automatically
dissolved as a result of the death of a partner, defendants
have no obligation to account to anyone for such
acquisitions in the absence of clear proof that they had
violated the trust of the deceased partner during the
existence of the partnership.
38. ID.; BOOKS OF ACCOUNTS; JUDGES NOT
GENERALLY QUALIFIED TO READ STATEMENTS OF
ACCOUNTS AND DRAW CONCLUSION FROM THEM.
It is unusual for a judge to delve into fnancial
statement and books of a partnership without the aid of
any accountant or without the same being explained by
any witness who had prepared them or who has
knowledge of the entries therein. To do so might result in
inconsistencies and inaccuracies in the conclusions the
judge may make out of them. Unless the judge is a
certifed public accountant, he is hardly qualifed to read
such statements and books and draw any defnite
conclusion therefrom, without risk of erring and
committing an injustice. Under such circumstances, the
Supreme Court is not prepared to permit anyone to
predicate any claim or right from the trial courts unaided
exercise of accounting knowledge.
39. ID.; LIQUIDATION; NO SPECIFIC AMOUNT CAN BE
DISTRIBUTED UNLESS PARTNERSHIP IS FIRST
LIQUIDATED. In the absence of a fnding that a new
corporation was organized after the death of the partner
(Plaintifs alleged husband) with capital from the funds of
the partnership, or fnding as to how some of the
defendants who just happen to be the wives of the
surviving partners could in any way be accountable to
plaintifs, it was error for the trial court to order defendants
to deliver or pay jointly and severally to the plaintif 1/3 of
the supposed cash belonging to the partnership and in
the same breath sentence defendants to partition and
give 1/3 of the properties enumerated in the dispositive
portion of the decision, which seemingly are the very
properties allegedly purchased from the funds of the
partnership would naturally include the amounts
defendants have to account for. And if there has not yet
been any liquidation of the partnership, so that said
partnership would have the status of a partnership in
liquidation, the only right plaintif could have would be to
what might result after much liquidation to belong to the
deceased partner (her alleged husband) and before this
is fnished, it is impossible to determine, what rights or
interest, if any the deceased had. In other words, no
specifc amounts or properties may be adjudicated to the
heir or legal representative of the deceased partner
without the liquidation being frst terminated.
D E C I S I O N
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 fled 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
plaintifs 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 plaintifs
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 plaintif in their joint answer, and the
judgment so rendered granted reliefs not prayed for in the
complaint, and (2) probition to enjoin further proceedings
relative to the motion for immediate execution of the said
judgment.
Originally, this litigation was a complaint fled on February
9, 1971 by respondent Tan Put only against the spouses-
petitioners Antonio Lim Tanhu and Dy Ochay.
Subsequently, in an amended complaint dated September
26, 1972, their son Lim Teck Chuan and the other
spouses-petitioners Alfonso Leonardo Ng Sua and Co
Oyo and their son Eng Chong Leonardo were included as
defendants. In said amended complaint, respondent Tan
alleged that she "is the widow of Tee Hoon Lim Po
Chuan, who was a partner in the commercial partnership,
Glory Commercial Company . . . with Antonio Lim Tanhu
and Alfonso Ng Sua" ; that "defendant Antonio Lim Tanhu,
Alfonso Leonardo Ng Sua, Lim Teck Chuan, and Eng
Chong Leonardo, through fraud and machination, took
actual and active management of the partnership and
although Tee Hoon Lim Po Chuan was the manager of
Glory Commercial Company, defendants managed to use
the funds of the partnership to purchase lands and
buildings in the cities of Cebu, Lapulapu, Mandaue, and
the municipalities of Talisay and Minglanilla, some of
which were hidden, but the description of those already
discovered were as follows: (list of properties) . . .;" and
that:jgc:chanrobles.com.ph
"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 plaintif has a share equivalent
to one third (1/3) thereof;
"14. (P)laintif, 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 plaintif to
"15. (S)ometime in the month of November, 1967,
Defendants, particularly Antonio Lim Tanhu, by means of
fraud deceit, and misrepresentations did then and there,
induce and convince the plaintif to execute a quitclaim of
all her rights and interests, in the assets of the
partnership of Glory Commercial Company, which
quitclaim is null and void, executed through fraud and
without any legal efect. 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 ofered to pay the
plaintif the amount of P65,000.00 within a period of one
(1) month, for which plaintif was made to sign a receipt
for the amount of P65,000 00 although no such amount
was given, and plaintif was not even given a copy of said
document:jgc:chanrobles.com.ph
"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 plaintif and until the
middle of the year 1970 when the plaintif 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 plaintif." (Pp. 36-37, Record.).
She prayed as follows:jgc:chanrobles.com.ph
"WHEREFORE, it is most respectfully prayed that
judgment be rendered:chanrob1es virtual 1aw library
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 plaintif after
accounting, one third (1/3) of the total value of all the
properties which is approximately P5,000,000.00
representing the just share of the plaintif;
c) Ordering the defendants to pay the attorney of the
plaintif the sum of Two Hundred Fifty Thousand Pesos
(P250,000.00) by way of attorneys fees and damages in
the sum of One Million Pesos (P1,000.000.00).
"This Honorable Court is prayed for other remedies and
reliefs consistent with law and equity and order the
defendants to pay the costs." (Page 38, Record.)
The admission of said amended complaint was opposed
by defendants upon the ground that there were material
modifcations of the causes of action previously alleged,
but respondent judge nevertheless allowed the
amendment reasoning that:jgc:chanrobles.com.ph
"The present action is for accounting of real and personal
properties as well as for the recovery of the same with
damages.
An objective consideration of pars. 13 and 15 of the
amended complaint pointed out by the defendants to
sustain their opposition will show that the allegations of
facts therein are merely to amplify material averments
constituting the cause of action in the original complaint. It
likewise includes necessary and indispensable
defendants without whom no fnal 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 specifcally 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:jgc:chanrobles.com.ph
"AND BY WAY OF SPECIAL AND AFFIRMATIVE
DEFENSES,
defendants hereby incorporate all facts averred and
alleged in the answer, and further most respectfully
declare:chanrob1es virtual 1aw library
1. That in the event that plaintif is fling 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 plaintif is fling
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 plaintif was no longer his common law wife and even
though she was not entitled to anything left by Tee Hoon
Lim Po Chuan, yet, out of the kindness and generosity on
the part of the defendants, particularly Antonio Lim
Tanhu, who, was inspiring to be monk and in fact he is
now a monk, plaintif 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 plaintif 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 plaintif knew that she was no
longer entitled to anything of the shares of the late Tee
Hoon Lim Po Chuan, yet, this suit was fled against the
defendant who have to interpose the following
C O U N T E R C L A I M
A. That the defendants hereby reproduced, by way of
reference, all the allegations and foregoing averments as
part of this counterclaim;
B. That plaintif 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 plaintif is married to Tee
Hoon Lim Po Chuan, then, her marriage is bigamous and
should sufer the consequences thereof;
C. That plaintif 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 fling this unfounded, baseless, futile and
puerile complaint, defendants sufered mental anguish
and torture conservatively estimated to be not less than
P3,000.00;
D. That in order to defend their rights in court, defendants
were constrained to engage the services of the
undersigned counsel, obligating themselves to pay
P500,000.00 as attorneys fees;
E. That by way of litigation expenses during the time that
this case will be before this Honorable Court and until the
same will be fnally 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 fling fee, and after being
overruled by the court, in due time, plaintif 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 plaintif dated February 16, 1973, in an order of
March 12, 1973, they were all "declared in DEFAULT as
of February 3, 1973 when they failed to appear at the pre-
trial." They sought to have this order lifted thru a motion
for reconsideration, but the efort failed when the court
denied it. Thereafter, the trial started, but at the stage
thereof where the frst witness of the plaintif by the name
of Antonio Nuez, who testifed that he is her adopted
son, was up for re-cross-examination, said plaintif
unexpectedly fled on October 19, 1974 the following
simple and unreasoned
"MOTION TO DROP DEFENDANTS LIM TECK
CHUAN AND ENG CHONG LEONARDO
"COMES now plaintif, 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 notifed 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 plaintif had couched her motion, and
also without any legal grounds stated, respondent court
granted the prayer of the above motion
thus:jgc:chanrobles.com.ph
"ORDER
Acting on the motion of the plaintif 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."cralaw virtua1aw library
Simultaneously, the following order was also
issued:jgc:chanrobles.com.ph
"Considering that defendants Antonio Lim Tanhu and his
spouse Dy Ochay as well as defendants Alfonso Ng Sua
and his spouse Co Oyo have been declared in default for
failure to appear during the pre-trial and as to the other
defendants the complaint had already been ordered
dismissed as against them:chanrob1es virtual 1aw library
Let the hearing of the plaintifs 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 plaintif.
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 plaintif, the court issued the following self-
explanatory order:jgc:chanrobles.com.ph
"Acting favorably on the motion of the plaintif dated
October 18, 1974, the Court deputized the Branch Clerk
of Court to receive the evidence of the plaintif ex-parte to
be made on November 20, 1974. However, on October
28, 1974, the plaintif, 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
plaintif in bringing her witnesses to the court, the Branch
Clerk of Court is hereby authorized to receive immediately
the evidence of the plaintif 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, fled
a motion for reconsideration thereof, and on November 1,
1974, defendant Eng Chong Leonardo, thru counsel Atty.
Alcudia, fled also his own motion for reconsideration and
clarifcation 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, fled 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 certiorariseeking 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 fling 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, fled their notice of appeal,
appeal bond and motion for extension to fle their record
on appeal, which was granted, the extension to expire
after ffteen (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 fled the present petition with this Court. And
with the evident intent to make their procedural position
clear, counsel for defendants, Atty. Manuel Zosa, fled
with respondent court a manifestation dated February 14,
1975 stating that "when the non-defaulted defendants
Eng Chong Leonardo and Lim Teck Chuan fled their
petition in the Court of Appeals, they in efect 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, fled 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 plaintifs motion for execution pending
appeal in its order of the same date February 14, 1975
thiswise:jgc:chanrobles.com.ph
"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 fling for certiorari
and prohibition with preliminary injunction in the Court of
Appeals which was dismissed and later the defaulted
defendants fled with the Supreme Court certiorari with
prohibition they in efect abandoned their motion to
quash.
IN VIEW HEREOF, the motion to quash is ordered
ABANDONED. The resolution of the motion for execution
pending appeal shall be resolved after the petition for
certiorari and prohibition shall have been resolved by the
Supreme Court.
SO ORDERED.
Cebu City, Philippines, February 14, 1975." (Page 216,
Record.)
Upon these premises, it is the position of petitioners that
respondent court acted illegally, in violation of the rules or
with grave abuse of discretion in acting on respondents
motion to dismiss of October 18, 1974 without previously
ascertaining whether or not due notice thereof had been
served on the adverse parties, as, in fact, such notice
was timely served on the non-defaulted defendants Lim
Teck Chuan and Eng Chong Leonardo and no notice at
all was ever sent to the other defendants, herein
petitioners, and more so, in actually ordering the
dismissal of the case by its order of October 21, 1974 and
at the same time setting the case for further hearing as
against the defaulted defendants, herein petitioners,
actually hearing the same ex-parte and thereafter
rendering the decision of December 20, 1974 granting
respondent Tan even reliefs not prayed for in the
complaint. According to the petitioners, to begin with,
there was compulsory counterclaim in the common
answer of the defendants the nature of which is such that
it cannot be decided in an independent action and as to
which the attention of respondent court was duly called in
the motions for reconsideration. Besides, and more
importantly, under Section 4 of Rule 18, respondent court
had no authority to divide the case before it by dismissing
the same as against the non-defaulted defendants and
thereafter proceeding to hear it ex-parte and
subsequently rendering judgment against the defaulted
defendants, considering that in their view, under the said
provision of the rules, when a common cause of action is
alleged against several defendants, the default of any of
them is a mere formality by which those defaulted are not
allowed to take part in the proceedings, but otherwise, all
the defendants, defaulted and not defaulted, are
supposed to have but a common fate, win or lose. In other
words, petitioners posit that in such a situation, there can
only be one common judgment for or against all the
defendants, the non-defaulted and the defaulted. Thus,
petitioners contend that the order of dismissal of October
21, 1974 should be considered also as the fnal 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 sufer 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
profciency 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 camoufaging their
actuations as earnest eforts 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 plaintif
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 afair, a situation that should
be readily condemnable and intolerable to any court of
justice.
Indeed, a seeming disposition on the part of respondent
court to lean more on the contentions of private
respondent may be discerned from the manner it resolved
the attempts of defendants Dy Ochay and Antonio Lim
Tanhu to have the earlier order of default against them
lifted. Notwithstanding that Dy Ochays motion of October
8, 1971, co-signed by her with their counsel, Atty.
Jovencio Enjambre, (Annex 2 of respondent answer
herein) was over the jurat of the notary public before
whom she took her oath in the order of November 2,
1971, (Annex 3 id.) it was held that "the oath appearing at
the bottom of the motion is not the one contemplated by
the abovequoted pertinent provision (Sec. 3, Rule 18) of
the rules. It is not even a verifcation. (Sec. 6, Rule 7.)
What the rule requires as interpreted by the Supreme
Court is that the motion must have to be accompanied by
an afdavit of merits that the defendant has a meritorious
defense, thereby ignoring the very simple legal point that
the ruling of the Supreme Court in Ong Peng v. Custodio,
1 SCRA 781, relied upon by His Honor, under which a
separate afdavit 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 verifcation nor a separate afdavit 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 specifcally 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 plaintif
contentious." We have read defendants motion for
reconsideration of November 25, 1971 (Annex 5, id.), but
We cannot fnd 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
plaintif maintains that her signature thereto was secured
through fraud and deceit. In truth, the motion for
reconsideration just mentioned, Annex 5, merely
reiterated the allegation in Dy Ochays earlier motion of
October 8, 1971, Annex 2, to set aside the order of
default, that plaintif 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 plaintif contentious", the default
of Dy Ochay was maintained notwithstanding that exactly
the game "contentious" defense as that of her husband
was invoked by her.
Such tenuous, if not altogether erroneous reasonings and
manifest inconsistency in the legal postures in the orders
in question can hardly convince Us that the matters here
in issue were accorded due and proper consideration by
respondent court. In fact, under the circumstances herein
obtaining, it seems appropriate to stress that, having in
view the rather substantial value of the subject matter
involved together with the obviously contentious character
of plaintifs 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 frst 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 defnitely ought not to have been the case. The trial
was proceeding with the testimony of the frst witness of
plaintif 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
notifed of such unanticipated dismissal motion did not get
due notice thereof. Certainly, the non-defaulted
defendants had the right to the three-day prior notice
required by Section 4 of Rule 15. How could they have
bad such indispensable notice when the motion was set
for hearing on Monday, October 21, 1974, whereas the
counsel for Lim Teck Chuan, Atty. Sitoy, was personally
served with the notice only on Saturday, October 19, 1974
and the counsel for Eng Chong Leonardo, Atty. Alcudia,
was notifed 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
plaintif, 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, plaintifs motion also
quoted above did not pray for it.
Withal, respondent courts twin actions of October 21,
1974 further ignores or is inconsistent with a number of
known juridical principles concerning defaults, which We
will here take occasion to reiterate and further elucidate
on, if only to avoid a repetition of the unfortunate errors
committed in this case. Perhaps some of these principles
have not been amply projected and elaborated before,
and such paucity of elucidation could be the reason why
respondent judge must have acted as he did. Still, the
Court cannot but express its vehement condemnation of
any judicial actuation that unduly deprives any party of the
right to be heard without clear and specifc 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 frst
to the patent incorrectness, apparent on the face of the
record, of the aforementioned order of dismissal of
October 21, 1974 of the case below as regards non-
defaulted defendants Lim and Leonardo. While it is true
that said defendants are not petitioners herein, the Court
deems it necessary for a full view of the outrageous
procedural strategy conceived by respondents counsel
and sanctioned by respondent court to also make
reference to the very evident fact that in ordering said
dismissal respondent court disregarded completely the
existence of defendants counterclaim which it had itself
earlier held, if indirectly, to be compulsory in nature when
it refused to dismiss the same on the ground alleged by
respondent Tan that the docketing fees for the fling
thereof had not been paid by defendants.
Indeed, that said counterclaim is compulsory needs no
extended elaboration. As may be noted in the allegations
thereof aforequoted, it arose out of or is necessarily
connected with the occurrence that is the subject matter
of the plaintifs claim, (Section 4, Rule 9) namely,
plaintifs 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 plaintif knew of the
falsity of said allegations even before she fled 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 profts 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 fled 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 sufer 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 plaintifs
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 specifcally enjoins
that" (i)f a counterclaim has been pleaded by a defendant
prior to the service upon him of the plaintifs motion to
dismiss, the action shall not be dismissed against the
defendants objection unless the counterclaim can remain
pending for independent adjudication by the court."
Defendants Lim and Leonardo had no opportunity to
object to the motion to dismiss before the order granting
the same was issued, for the simple reason that they
were not opportunely notifed 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
plaintifs 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 plaintifs 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 beneft the profts, 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 fnding the existence of the
alleged conspiracy or holding the capital of the
corporation to be the money of the partnership is legally
possible without the presence of all the defendants. The
non-defaulted defendants are alleged to be stockholders
of the corporation and any decision depriving the same of
all its assets cannot but prejudice the interests of said
defendants. Accordingly, upon these premises, and even
prescinding from the other reasons to be discussed anon,
it is clear that all the six defendants below, defaulted and
non-defaulted, are indispensable parties. Respondents
could do no less than grant that they are so on page 23 of
their answer. Such being the case, the questioned order
of dismissal is exactly the opposite of what ought to have
been done. Whenever it appears to the court in the
course of a proceeding that an indispensable party has
not been joined, it is the duty of the court to stop the trial
and to order the inclusion of such party. (The Revised
Rules of Court, Annotated & Commented by Senator
Vicente J. Francisco, Vol. I, p. 271, 1973 ed.; See also
Cortez v. Avila, 101 Phil. 705.) Such an order is
unavoidable, for the "general rule with reference to the
making of parties in a civil action requires the joinder of all
necessary parties wherever possible, and the joinder of
all indispensable parties under any and all conditions, the
presence of those latter being a sine qua non of the
exercise of judicial power." (Borlasa v. Polistico, 47 Phil.
345, at p. 347.) It is precisely "when an indispensable
party is not before the court (that) the action should be
dismissed." (People v. Rodriguez, 106 Phil. 325, at p.
327.) The absence of an indispensable party renders all
subsequent actuations of the court null and void, for want
of authority to act, not only as to the absent parties but
even as to those present. In short, what respondent court
did here was exactly the reverse of what the law ordains
it eliminated those who by law should precisely be
joined.
As may be noted from the order of respondent court
quoted earlier, which resolved the motions for
reconsideration of the dismissal order fled by the non-
defaulted defendants, His Honor rationalized his position
thus:jgc:chanrobles.com.ph
"It is the rule that it is the absolute prerogative of the
plaintif 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 sufers therefrom.
The plaintif cannot be compelled to choose his
defendants. He may not, at his own expense, be forced to
implead anyone who, under the adverse partys theory, is
to answer for defendants liability. Neither may the Court
compel him to furnish the means by which defendant may
avoid or mitigate their liability. (Vano v. Alo, 95 Phil. 495-
496.)
This being the rule this court cannot compel the plaintif to
continue prosecuting her cause of action against the
defendants-movants if in the course of the trial she
believes she can enforce it against the remaining
defendants subject only to the limitation provided in
Section 2, Rule 17 of the Rules of Court. . . ." (Pages 62-
63, Record.)
Noticeably, His Honor has employed the same equivocal
terminology as in plaintifs 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 plaintif 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 plaintifs
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 plaintif. The
rule presupposes that the original inclusion had been
made in the honest conviction that it was proper and the
subsequent dropping is requested because it has turned
out that such inclusion was a mistake. And this is the
reason why the rule ordains that the dropping be "on such
terms as are just" just to all the other parties. In the
case at bar, there is nothing in the record to legally justify
the dropping of the non-defaulted defendants, Lim and
Leonardo. The motion of October 18, 1984 cites none.
From all appearances, plaintif 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 sufer 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 efects.
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 afects and prejudices said petitioners
is predicated thereon. Necessarily, therefore, We have to
pass on the legality of said order, if We are to decide the
case of herein petitioners properly and fairly.
The attitude of the non-defaulted defendants of no longer
pursuing further their questioning of the dismissal is from
another point of view understandable. On the one hand,
should they insist on being defendants when plaintif
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 benefted by such dismissal
because they could question whether or not plaintif can
still prosecute her case against them after she had
secured the order of dismissal in question. And it is in
connection with this last point that the true and correct
concept of default becomes relevant.
At this juncture, it may also be stated that the decision of
the Court of Appeals of January 24, 1975 in G. R. No.
SP-03066 dismissing the petition for certiorari of non-
defaulted defendants Lim and Leonardo impugning the
order of dismissal of October 21, 1974, has no bearing at
all in this case, not only because that dismissal was
premised by the appellate court on its holding that the
said petition was premature inasmuch as the trial court
had not yet resolved the motion of the defendants of
October 28, 1974 praying that said disputed order be
quashed, but principally because herein petitioners were
not parties in that proceeding and cannot, therefore, be
bound by its result. In particular, We deem it warranted to
draw the attention of private respondents counsel to his
allegations in paragraphs XI to XIV of his answer, which
relate to said decision of the Court of Appeals and which
have the clear tendency to make it appear to the Court
that the appeals court had upheld the legality and validity
of the actuations of the trial court being questioned, when
as a matter of indisputable fact, the dismissal of the
petition was based solely and exclusively on its being
premature without in any manner delving into its merits.
The Court must and does admonish counsel that such
manner of pleading, being deceptive and lacking in
candor, has no place in any court, much less in the
Supreme Court, and if We are adopting a passive attitude
in the premises, it is due only to the fact that this is
counsels frst ofense. But similar conduct on his part in
the future will defnitely be dealt with more severely.
Parties and counsel would be well advised to avoid such
attempts to befuddle the issues as invariably they will be
exposed for what they are, certainly unethical and
degrading to the dignity of the law profession. Moreover,
almost always they only betray the inherent weakness of
the cause of the party resorting to them.
2
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 ofending 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 modifed.
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 plaintifs evidence and render judgment
granting him such relief as the complaint and the facts
proven may warrant." This last clause is clarifed by
Section 5 which says that "a judgment entered against a
party in default shall not exceed the amount or be
diferent in kind from that prayed for."cralaw virtua1aw
library
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 plaintifs cause of action fnd support in the law or that
plaintif is entitled to the relief prayed for." (Moran, supra,
p. 535 citing Macondary & Co. v. Eustaquio, 64 Phil. 466,
citing with approval Chafn v. McFadden, 41 Ark. 42;
Johnson v. Pierce, 12 Ark. 599; Mayden v. Johnson, 59
Ga. 105; People v. Rust, 292 Ill. 328; Ken v. Leopold, 21
Ill. A. 163; Chicago, etc. Electric R. Co. v. Krempel, 116
Ill. A. 253.).
Being declared in default does not constitute a waiver of
rights except that of being heard and of presenting
evidence in the trial court. According to Section 2, "except
as provided in Section 9 of Rule 13, a party declared in
default shall not be entitled to notice of subsequent
proceedings, nor to take part in the trial." That provision
referred to reads: "No service of papers other than
substantially amended pleadings and fnal orders or
judgments shall be necessary on a party in default unless
he fles a motion to set aside the order of default, in which
event he shall be entitled to notice of all further
proceedings regardless of whether the order of default is
set aside or not." And pursuant to Section 2 of Rule 41, "a
party who has been declared in default may likewise
appeal from the judgment rendered against him as
contrary to the evidence or to the law, even if no petition
for relief to set aside the order of default has been
presented by him in accordance with Rule 38."cralaw
virtua1aw library
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
plaintifs 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 sufcient to justify a
judgment for the plaintif, the complaint must be
dismissed. And if an unfavorable judgment should be
justifable, it cannot exceed in amount or be diferent 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 plaintifs 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 plaintif 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 plaintif, 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 plaintifs evidence
and the rendition of the decision. "A judgment by default
may amount to a positive and considerable injustice to the
defendant; and the possibility of such serious
consequences necessitates a careful and liberal
examination of the grounds upon which the defendant
may seek to set it aside." (Moran, supra p. 534, citing
Coombs v. Santos, 24 Phil. 446; 449-450.) The
expression, therefore, in Section 1 of Rule 18 aforequoted
which says that "thereupon the court shall proceed to
receive the plaintifs 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 diferent in kind from
the reliefs specifcally sought by plaintif in his complaint,
Section 4 restricts the authority of the court in rendering
judgment in the situations just mentioned as
follows:jgc:chanrobles.com.ph
"Sec. 4. Judgment when some defendants answer, and
others make default. When a complaint states a
common cause of action against several defendants,
some of whom answer, and the others fail to do so, the
court shall try the case against all upon the answers thus
fled and render judgment upon the evidence presented.
The same procedure applies when a common cause of
action is pleaded in a counterclaim, cross-claim and third-
party claim."cralaw virtua1aw library
Very aptly does Chief Justice Moran elucidate on this
provision and the controlling jurisprudence explanatory
thereof this wise:jgc:chanrobles.com.ph
"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 beneft of those who fall to appear, and
if the court fnds that a good defense has been made, all
of the defendants must be absolved. In other words, the
answer fled by one or some of the defendants inures to
the beneft of all the others, even those who have not
seasonably fled 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 fnal 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
fnally decided in the plaintifs favor, a fnal decree is then
entered against all the defendants; but if the suit should
be decided against the plaintif, 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 afect the
defaulting defendants either favorably or adversely.
(Castro v. Pea, 80 Phil. 488.)
Defaulting defendant may ask execution if judgment is in
his favor, (Castro v. Pea, supra.)" (Moran, Rules of
Court, Vol. 1, pp. 538-539.)
In Castro v. Pea, 80 Phil. 488, one of the numerous
cases cited by Moran, this Court elaborated on the
construction of the same rule when it sanctioned the
execution, upon motion and for the beneft of the
defendant in default, of a judgment which was adverse to
the plaintif. The Court held:jgc:chanrobles.com.ph
"As above stated, Emilia Matanguihan, by her counsel,
also was a movant in the petition for execution Annex 1.
Did she have a right to be such, having been declared in
default? In Frow v. De la Vega, supra, cited as authority in
Velez v. Ramas, supra, the Supreme Court of the United
States adopted as ground for its own decision the
following ruling of the New York Court of Errors in Clason
v. Morris, 10 Jons., 524:chanrob1es virtual 1aw library
It would be unreasonable to hold that because one
defendant had made default, the plaintif should have a
decree even against him, where the court is satisfed from
the proofs ofered by the other, that in fact the plaintif is
not entitled to a decree. (21 Law, ed., 61.)
The reason is simple: justice has to be consistent. The
complaint stating a common cause of action against
several defendants, the complainants rights or lack of
them in the controversy have to be the same, and not
diferent, as against all the defendants although one or
some make default and the other or others appear, join
issue, and enter into trial. For instance, in the case of
Clason v. Morris above cited, the New York Court of
Errors in efect held that in such a case if the plaintif 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 plaintifs
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 plaintif and the defendant
mayor that as between said plaintif and defendant
Matanguihan the latter was the one legally entitled to
occupy the stalls; and it decreed, among other things, that
said plaintif 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 plaintif 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 frmly
satisfed, from the proofs ofered by the other defendant,
that the same plaintif was not entitled to such occupancy
that it peremptorily ordered her to vacate the stalls. If in
the cases of Clason v. Morris, supra, Frow v. De la Vega,
supra, and Velez v. Ramas, supra, the decrees entered
inured to the beneft 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 beneft of the
defaulting defendant Matanguihan. Indeed, the doctrine in
said three cases plainly implies that there is nothing in the
law governing default which would prohibit the court from
rendering judgment favorable to the defaulting defendant
in such cases. If it inured to her beneft, its stands to
reason that she had a right to claim that beneft, for it
would not be a beneft if the supposed benefciary were
barred from claiming it; and if the beneft necessitated the
execution of the decree, she must he possessed of the
right to ask for the execution thereof as she did when she,
by counsel, participated in the petition for execution
Annex 1.
Section 7 of Rule 35 would seem to aford 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 fled 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 fled 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 fled 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 beneft the defaulting ones, for it would
not be just to let the judgment produce efects as to the
defaulting defendants only when adverse to them and not
when favorable."cralaw virtua1aw library
In Bueno v. Ortiz, 23 SCRA 1151, the Court applied the
provision under discussion in the following
words:jgc:chanrobles.com.ph
"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 fled its answer within the reglementary period,
the PC was in default, so that it was proper for Patanao to
forthwith present his evidence and for respondent Judge
to render said judgment. It should he noted, however, that
in entering the area in question and seeking to prevent
Patanao from continuing his logging operations therein,
the PC was merely executing an order of the Director of
Forestry and acting as his agent. Patanaos cause of
action against the other respondents in Case No. 190,
namely, the Director of Forestry, the District Forester of
Agusan, the Forest Ofcer 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 fled (by some) and render judgment
upon the evidence presented. In other words, the answer
fled by one or some of the defendants inures to the
beneft of all the others, even those who have not
seasonably fled 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."cralaw virtua1aw
library
Stated diferently, 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 plaintifs cause against all the defendants is carried
through to its adjective phase as ineluctably demanded by
the homogeneity and indivisibility of justice itself. Indeed,
since the singleness of the cause of action also inevitably
implies that all the defendants are indispensable parties,
the courts power to act is integral and cannot be split
such that it cannot relieve any of them and at the same
time render judgment against the rest. Considering the
tenor of the section in question, it is to be assumed that
when any defendant allows himself to be declared in
default knowing that his co-defendant has already
answered, he does so trusting in the assurance implicit in
the rule that his default is in essence a mere formality that
deprives him of no more than the right to take part in the
trial and that the court would deem anything done by or
for the answering defendant as done by or for him. The
presumption is that otherwise he would not have seen to
it that he would not be in default. Of course, he has to
sufer 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 plaintif
or upon the latters mere desistance, for in both
contingencies, the lack of sufcient 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 plaintifs 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 plaintif 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 plaintif 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 plaintif 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 plaintif. 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 unjustifed. 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 plaintifs 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 "fles 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 fled 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 fled their motion for reconsideration of the order
declaring them in default. Respondents own answer to
the petition therein makes reference to the order of April
3, 1973, Annex 8 of said answer, which denied said
motion for reconsideration. On page 3 of petitioners
memorandum herein this motion is referred to as "a
motion to set aside the order of default." But as We have
not been favored by the parties with a copy of the said
motion, We do not even know the excuse given for
petitioners failure to appear at the pre-trial, and We
cannot, therefore, determine whether or not the motion
complied with the requirements of Section 3 of Rule 18
which We have held to be controlling in cases of default
for failure to answer on time. (The Philippine-British Co.
Inc. etc. Et. Al. v. The Hon. Walfrido de los Angeles etc.
Et. Al., 63 SCRA 50.)
We do not, however, have here, as earlier noted, a case
of default for failure to answer but one for failure to appear
at the pre-trial. We reiterate, in the situation now before
Us, issues have already been joined. In fact, evidence
had been partially ofered already at the pre-trial and
more of it at the actual trial which had already begun with
the frst witness of the plaintif 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
verifcation 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 verifcation 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 superfuous, particularly
because the cause of action against them as well as their
own defenses are common. Under these circumstances,
the form of the motion by which the default was sought to
be lifted is secondary and the requirements of Section 3
of Rule 18 need not be strictly complied with, unlike in
cases of default for failure to answer. We can thus hold as
We do hold for the purposes of the revival of their right to
notice under Section 9 of Rule 137 that petitioners motion
for reconsideration was in substance legally adequate,
regardless of whether or not it was under oath.
In any event, the dropping of the defendants Lim and
Leonardo from plaintifs amended complaint was virtually
a second amendment of plaintifs 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 efect 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 plaintifs motion of
October 18, 1974 was legally indispensable under the
rule above-quoted. Consequently, respondent court had
no authority to act on the motion, to dismiss, pursuant to
Section 6 of Rule 15, for according to Senator Francisco,
(t)he Rules of Court clearly provide that no motion shall
be acted upon by the Court without the proof of service of
notice thereof, together with a copy of the motion and
other papers accompanying it, to all parties concerned at
least three days before the hearing thereof, stating the
time and place for the hearing of the motion. (Rule 26,
section 4, 5 and 6, Rules of Court (now Sec. 15, new
Rules). When the motion does not comply with this
requirement, it is not a motion. It presents no question
which the court could decide. And the Court acquires no
jurisdiction to consider it. (Roman Catholic Bishop of Lipa
v. Municipality of Unisan, 44 Phil., 866; Manakil v. Revilla,
42 Phil., 81.) (Laserna v. Javier, Et Al., CA-G.R. No. 7885,
April 22, 1955; 21 L.J. 36, citing Roman Catholic Bishop
of Lipa v. Municipality of Unisan, 44 Phil., 866; Manakil v.
Revilla, 42 Phil., 81.) (Francisco. The Revised Rules of
Court in the Philippines, pp. 861-862.) Thus, We see
again, from a diferent angle, why respondent courts
order of dismissal of October 21, 1974 is fatally
inefective.
4
The foregoing considerations notwithstanding, it is
respondents position that certiorari is not the proper
remedy of petitioners. It is contended that inasmuch as
said petitioners have in fact made their appeal already by
fling the required notice of appeal and appeal bond and a
motion for extension to fle 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 afected, 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
Courts inherent power of supervision over all kinds of
judicial actions of lower courts. Private respondents
procedural technique designed to disable petitioners to
defend themselves against her claim which appears on
the face of the record itself to be at least highly
controversial seems to have so fascinated respondent
court that none would be surprised should her pending
motion for immediate execution of the impugned judgment
receive similar ready sanction as her previous motions
which turned the proceedings into a one-sided afair. The
stakes here are high. Not only is the subject matter
considerably substantial; there is the more important
aspect that not only the spirit and intent of the rules but
even the basic rudiments of fair play have been
disregarded. For the Court to leave unrestrained the
obvious tendency of the proceedings below would be
nothing short of wittingly condoning inequity and injustice
resulting from erroneous construction and unwarranted
application of procedural rules.
5
The sum and total of all the foregoing disquisitions is that
the decision here in question is legally anomalous. It is
predicated on two fatal malactuations of respondent
court, namely (1) the dismissal of the complaint against
the non-defaulted defendants Lim and Leonardo and (2)
the ex-parte reception of the evidence of the plaintif 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 efect of
such dismissal was the removal of the two non-defaulted
defendants as parties, and inasmuch as they are both
indispensable parties in the case, the court consequently
lost the "sine qua non of the exercise of judicial power",
per Borlasa v. Polistico, supra. This is not to mention
anymore the irregular delegation to the clerk of court of
the function of receiving plaintifs evidence. And as
regards the ex-parte reception of plaintifs 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 faws in respondent courts actuations do not
call for a common corrective remedy. We cannot simply
rule that all the impugned proceedings are null and void
and should be set aside, without being faced with the
insurmountable obstacle that by so doing We would be
reviewing the case as against the two non-defaulted
defendants who are not before Us not being parties
hereto. Upon the other hand, for Us to hold that the order
of dismissal should be allowed to stand, as contended by
respondents themselves who insist that the same is
already fnal, not only because the period for its fnality
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
fnal, We would have to disregard whatever evidence had
been presented by the plaintif against them and, of
course, the fndings of respondent court based thereon
which, as the assailed decision shows, are adverse to
them. In other words, whichever of the two apparent
remedies the Court chooses, it would necessarily entail
some kind of possible juridical imperfection. Speaking of
their respective practical or pragmatic efects, 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 efort 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 difcult
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 plaintif, 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 justifed by the following
considerations of equity:chanrob1es virtual 1aw library
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 plaintifs evidence is taken into
account, one easily understands why such tactics had to
be availed of We cannot directly or indirectly give Our
assent to the commission of unfairness and inequity in
the application of the rules of procedure, particularly when
the propriety of reliance thereon is not beyond
controversy.
2. The theories of remedial law pursued by private
respondents, although approved by His Honor, run
counter to such basic principles in the rules on default
and such elementary rules on dismissal of actions and
notice of motions that no trial court should be unaware of
or should be mistaken in applying. We are at a loss as to
why His Honor failed to see through counsels inequitous
strategy, when the provisions (1) on, the three-day rule on
notice of motions, Section 4 of Rule 15, (2) against
dismissal of actions on motion of plaintif 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 unjustifably sufer 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 beneft from her own frustrated objective of
securing a one-sided decision.
4. More importantly, We do not hesitate to bold that on the
basis of its own recitals, the decision in question cannot
stand close scrutiny. What is more, the very
considerations contained therein reveal convincingly the
inherent weakness of the cause of the plaintif. 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 difculties on account of its adverse
efects 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
confdent that by and large, there is enough basis here
and now for Us to rule out the claim of the plaintif.
Even a mere superfcial reading of the decision would
immediately reveal that it is littered on its face with
defciencies 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 fndings relative precisely to
the main bases themselves of the reliefs granted. It is
apparent therein that no efort has been made to avoid
glaring inconsistencies. Where references are made to
codal provisions and jurisprudence, inaccuracy and
inapplicability are at once manifest. It hardly commends
itself as a deliberate and consciencious adjudication of a
litigation which, considering the substantial value of the
subject matter it involves and the unprecedented
procedure that was followed by respondents counsel,
calls for greater attention and skill than the general run of
cases would.
Inter alia, the following features of the decision make it
highly improbable that if We took another course of
action, private respondent would still be able to make out
any case against petitioners, not to speak of their co-
defendants who have already been exonerated by
respondent herself thru her motion to dismiss:chanrob1es
virtual 1aw library
1. According to His Honors own statement of plaintifs
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 profts 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."cralaw virtua1aw
library
Relatedly, in the latter part of the decision, the fndings
are to the following efect:jgc:chanrobles.com.ph
"That the herein plaintif Tan Put and her late husband Po
Chuan were married at the Philippine Independent
Church of Cebu City on December 20, 1949; that Po
Chuan died on March 11, 1966; that the plaintif 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 plaintif 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 plaintif to Po Chuan she was engaged in the
drugstore business; that not long after her marriage, upon
the suggestion of Po Chuan, the plaintif sold her
drugstore for P125,000.00 which amount she gave to her
husband in the presence of defendant Lim Tanhu and
was invested to the partnership Glory Commercial Co.
sometime in 1950; that after the investment of the above-
stated amount in the partnership its business fourished
and it embarked in the import business and also engaged
in the wholesale and retail trade of cement and GI sheets
and under huge profts;
x x x
"That the late Po Chuan was the one who actively
managed the business of the partnership Glory
Commercial Co.; he was the one who made the fnal
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 fndings 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 plaintifs amended complaint. Indeed, it
was incumbent upon the court to consider not only the
evidence formally ofered 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 afording
the parties every opportunity to compromise or settle their
diferences, 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 clarifcations of matters
taken up at the pre-trial, before fnally 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 insignifcant and worthless.
Now, applying these postulates to the fndings of
respondent court just quoted, it will be observed that the
courts conclusion about the supposed marriage of
plaintif 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 frst be satisfactorily explained. Surely, the
certifcation 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 frst presented
to the court. In the case at bar, the purported certifcation
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 certifer, the
jurat allegedly signed by a second assistant provincial
fscal not being authorized by law, since it is not part of
the functions of his ofce. Besides, inasmuch as the
bishop did not testify, the same is hearsay.
As regards the testimony of plaintif 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 plaintif has already assigned all her rights in this
case to said Nuez, thereby making him the real party in
interest here and, therefore, naturally as biased as
herself. Besides, in the portion of the testimony of Nuez
copied in Annex C of petitioners memorandum, it
appears admitted that he was born only on March 25,
1942, which means that he was less than eight years old
at the supposed time of the alleged marriage. If for this
reason alone, it is extremely doubtful if he could have
been sufciently aware of such event as to be competent
to testify about it.
Incidentally, another Annex C of the same memorandum
purports to be the certifcate 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. Signifcantly, respondents
have not made any adverse comment on this document. It
is more likely, therefore, that the witness is really the son
of plaintif by her husband Uy Kim Beng. But she testifed
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 fimsy evidence of plaintif, the court
had before it, two documents of great weight belying the
pretended marriage. We refer to (1) Exhibit LL, the
income tax return of the deceased Tee Hoon Lim Po
Chuan indicating that the name of his wife was Ang Siok
Tin and (2) the quitclaim, Annex A of the answer, wherein
plaintif Tan Put stated that she had been living with the
deceased without beneft of marriage and that she was
his "common-law wife." Surely, these two documents are
far more reliable than all the evidence of the plaintif put
together.
Of course, Exhibit LL is what might be termed as pre-trial
evidence. But it is evidence ofered to the judge himself,
not to the clerk of court, and should have at least moved
him to ask plaintif 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 plaintif
execute a quitclaim on November 29, 1967 (Annex "A",
Answer) where they gave plaintif the amount of P25,000
as her share in the capital and profts 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 plaintif had been presented by her or
that whatever evidence was actually ofered did not
produce persuasion upon the court. Stated diferently,
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 plaintif 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 certifcation of the
Local Civil Registrar of Cebu City and (2) a similar
certifcation of the Apostolic Prefect of the Philippine
Independent Church, Parish of Sto. Nino, Cebu City, that
their respective ofcial 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 certifcations have been impugned by
respondent until now, it stands to reason that plaintifs
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 efect:jgc:chanrobles.com.ph
"CONSULATE OF THE REPUBLIC OF CHINA
Cebu City, Philippines
TRANSLATION
This is to certify that I, Miss Tan Ki Eng Alias Tan Put,
have lived with Mr. Lim Po Chuan alias Tee Hoon since
1949 but it recently occurs that we are incompatible with
each other and are not in the position to keep living
together permanently. With the mutual concurrence, we
decided to terminate the existing relationship of common
law-marriage and promised not to interfere each others
afairs from now on. The Forty Thousand Pesos
(P40,000.00) has been given to me by Mr. Lim Po Chuan
for my subsistence.
Witnesses:chanrob1es virtual 1aw library
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
Verifed from the records.
JORGE TABAR"
(Pp. 283-284, Record.)
Indeed, not only does this document prove that plaintifs
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 fnd no
alternative but to hold that plaintif Tan Puts allegation
that she is the widow of Tee Hoon Lim Po Chuan has not
been satisfactorily established and that, on the contrary,
the evidence on record convincingly shows that her
relation with said deceased was that of a common-law
wife and furthermore, that all her claims against the
company and its surviving partners as well as those
against the estate of the deceased have already been
settled and paid. We take judicial notice of the fact that
the respective counsel who assisted the parties in the
quitclaim, Attys. H. Hermosisima and Natalio Castillo, are
members in good standing of the Philippine Bar, with the
particularity that the latter has been a member of the
Cabinet and of the House of Representatives of the
Philippines, hence, absent any credible proof that they
had allowed themselves to be parties to a fraudulent
document His Honor did right in recognizing its existence,
albeit erring in not giving due legal signifcance to its
contents.
2. If, as We have seen, plaintifs 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
afrmative defense that Po Chuans share had already
been duly settled with and paid to both the plaintif 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 plaintif
is at best confusing and at certain points manifestly
inconsistent.
In her amended complaint, plaintif repeatedly alleged that
as widow of Po Chuan she is entitled to 1/3 share of the
assets and properties of the partnership. In fact, her
prayer in said complaint is, among others, for the delivery
to her of such 1/3 share. His Honors statement of the
case as well as his fndings and judgment are all to that
same efect. But what did she actually try to prove at the
ex-parte hearing?
According to the decision, plaintif 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 plaintif to
Po Chuan, she was engaged in the drugstore business;
that not long after her marriage, upon the suggestion of
Po Chuan, the plaintif 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 fourished 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
profts." (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 fourished 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 fourish, why would she claim to be
entitled to only to 1/3 of its assets and profts? Under her
theory found proven by respondent court, she was
actually the owner of everything, particularly because His
Honor also found "that defendants Lim Tanhu and Ng Sua
were partners in the name but they were employees of Po
Chuan; that defendants Lim Tanhu and Ng Sua had no
means of livelihood at the time of their employment with
the Glory Commercial Co. under the management of the
late Po Chuan except their salaries therefrom; . . ." (p. 27,
id.) Why then does she claim only 1/3 share? Is this an
indication of her generosity towards defendants or of a
concocted cause of action existing only in her confused
imagination engendered by the death of her common-law
husband with whom she had settled her common-law
claim for recompense of her services as common-law
wife for less than what she must have known would go to
his legitimate wife and children?
Actually, as may be noted from the decision itself, the trial
court was confused as to the participation of defendants
Lim Tanhu and Ng Sua in Glory Commercial Co. At one
point, they were deemed partners, at another point mere
employees and then elsewhere as partners-employees, a
newly found concept, to be sure, in the law on
partnership. And the confusion is worse compounded in
the judgment which allows these "partners in name" and
"partners-employees" or employees who had no means of
livelihood and who must not have contributed any capital
in the business, "as Po Chuan was practically the owner
of the partnership having the controlling interest", 1/3
each of the huge assets and profts 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 plaintif and
from which capital the business allegedly
"fourished."cralaw virtua1aw library
Anent the allegation of plaintif 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 confrmed the same by fnding 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 plaintif. Neither in the testimony of
Nuez nor in that of plaintif, 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 profts 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 plaintif and Nuez, respondent court found
very explicitly that, and We reiterate:chanrob1es virtual
1aw library
x x x
"That the late Po Chuan was the one who actively
managed the business of the partnership Glory
Commercial Co.; he was the one who made the fnal
decisions and approved the appointments of new
personnel who were taken in by the partnership; that the
late Po Chuan and defendants Lim Tanhu and Ng Sua are
brothers, the latter two (2) being the elder brothers of the
former; that defendants Lim Tanhu and Ng Sua are both
naturalized Filipino citizens whereas the late Po Chuan
until the time of his death was a Chinese citizen; that the
three (3) brothers were partners in the Glory Commercial
Co. but Po Chuan was practically the owner of the
partnership having the controlling interest; that
defendants Lim Tanhu and Ng Sua were partners in name
but they were mere employees of Po Chuan; . . . ." (Pp.
90-91, Record.)
If Po Chuan was in control of the afairs and the running
of the partnership, how could the defendants have
defrauded him of such huge amounts as plaintif had
made his Honor believe? Upon the other hand, since Po
Chuan was in control of the afairs 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 efect 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 ofcer, who
naturally did not know any better.
Moreover, it is very signifcant that according to the very
tax declarations and land titles listed in the decision, most
if not all of the properties supposed to have been
acquired by the defendants Lim Tanhu and Ng Sua with
funds of the partnership appear to have been transferred
to their names only in 1969 or later, that is, long after the
partnership had been automatically dissolved as a result
of the death of Po Chuan. Accordingly, defendants have
no obligation to account to anyone for such acquisitions in
the absence of clear proof that they had violated the trust
of Po Chuan during the existence of the partnership. (See
Hanlon v. Hansserman and Beam, 40 Phil. 796.)
There are other particulars which should have caused His
Honor to readily disbelieve plaintifs pretensions. Nuez
testifed 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
certifcate produced by the same witness as his birth
certifcate, shows he was born in March, 1942, how could
he have started managing Glory Commercial Co. in 1949
when he must have been barely six or seven years old? It
should not have escaped His Honors attention that the
photographs showing the premises of Philippine Metal
Industries after its organization "a year or two after the
establishment of Cebu Can Factory in 1957 or 1958"
must have been taken after 1959. How could Nuez have
been only 13 years old then as claimed by him to have
been his age in those photographs when according to his
"birth certifcate", he was born in 1942? His Honor should
not have overlooked that according to the same witness,
defendant Ng Sua was lying in Bantayan until he was
directed to return to Cebu after the fshing business
thereat foundered, whereas all that the witness knew
about defendant Lim Teck Chuans arrival from Hongkong
and the expenditure of partnership money for him were
only told to him allegedly by Po Chuan, which testimonies
are veritably exculpatory as to Ng Sua and hearsay as to
Lim Teck Chuan. Neither should His Honor have failed to
note that according to plaintif herself, "Lim Tanhu was
employed by her husband although he did not go there
always being a mere employee of Glory Commercial Co."
(p. 22, Annex L, the decision.)
The decision is rather emphatic in that Lim Tanhu and Ng
Sua had no known income except their salaries. Actually,
it is not stated, however, from what evidence such
conclusion was derived in so far as Ng Sua is concerned.
On the other hand, with respect to Lim Tanhu, the
decision itself states that according to Exhibit NN-Pre-
trial, in the supposed income tax return of Lim Tanhu for
1964, he had an income of P4,800 as salary from
Philippine Metal Industries alone and had a total
assessable net income of P23,920.77 that year for which
he paid a tax of P4,656.00. (p. 14. Annex L, id.) And per
Exhibit GG-Pre-trial, in the year, he had a net income of
P32,000 for which he paid a tax of P3,512.40. (id.) As
early as 1962, "his fshing 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 fnancial
statements and books of Glory Commercial Co. without
the aid of any accountant or without the same being
explained by any witness who had prepared them or who
has knowledge of the entries therein. This must be the
reason why there are apparent inconsistencies and
inaccuracies in the conclusions His Honor made out of
them. In Exhibit SS-Pre-trial, the reported total assets of
the company amounted to P2,328,460.27 as of
December, 1965, and yet, Exhibit TT-Pre-trial, according
to His Honor, showed that the total value of goods
available as of the same date was P11,166,327.62. On
the other hand, per Exhibit XX-Pre-trial, the supposed
balance sheet of the company for 1966, "the value of
inventoried merchandise, both local and imported", as
found by His Honor, was P584,034.38. Again, as of
December 31, 1966, the value of the companys goods
available for sale was P5,524,050.87, per Exhibit YY and
YY-1-Pre-trial. Then, per Exhibit II-3-Pre-trial, the
supposed Book of Account, whatever that is, of the
company showed its "cash analysis" was
P12,223,182.55. We do not hesitate to make the
observation that His Honor, unless he is a certifed public
accountant, was hardly qualifed to read such exhibits and
draw any defnite conclusions therefrom, without risk of
erring and committing an injustice. In any event, there is
no comprehensible explanation in the decision of the
conclusion of His Honor that there were P12,223,182.55
cash money defendants have to account for, particularly
when it can be very clearly seen in Exhibits II-4, II-4-A, II-
5 and II-6-Pre-trial, Glory Commercial Co. had accounts
payable as of December 31, 1965 in the amount of
P4,801,321.17. (p. 15, id.) Under the circumstances, We
are not prepared to permit anyone to predicate any claim
or right from respondent courts unaided exercise of
accounting knowledge.
Additionally, We note that the decision has not made any
fnding 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 fnding made as to how the
defendants Dy Ochay and Co Oyo could in any way be
accountable to plaintif, 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 plaintif
P4,074,394.18 or 1/3 of the P12,223,182.55, the
supposed cash belonging to the partnership as of
December 31, 1965, in the same breath, they have also
been sentenced to partition and give 1/3 share of the
properties enumerated in the dispositive portion of the
decision, which seemingly are the very properties
allegedly purchased from the funds of the partnership
which would naturally include the P12,223,182.55
defendants have to account for. Besides, assuming there
has not yet been any liquidation of the partnership,
contrary to the allegation of the defendants, then Glory
Commercial Co. would have the status of a partnership in
liquidation and the only right plaintif could have would be
to what might result after such liquidation to belong to the
deceased partner, and before this is fnished, it is
impossible to determine, what rights or interests, if any,
the deceased had (Bearneza v. Deqoilla, 43 Phil. 237). In
other words, no specifc amounts or properties may be
adjudicated to the heir or legal representative of the
deceased partner without the liquidation being frst
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 defciencies and
imperfections of the decision in question. After all, what
have been discussed should be more than sufcient to
support Our conclusion that not only must said decision
be set aside but also that the action of the plaintif must
be totally dismissed, and, were it not seemingly futile and
productive of other legal complications, that plaintif is
liable on defendants counterclaims. Resolution of the
other issues raised by the parties albeit important and
perhaps pivotal has likewise become superfuous.
IN VIEW OF ALL THE FOREGOING, the petition is
granted. All proceedings held in respondent court in its
Civil Case No. 12328 subsequent to the order of
dismissal of October 21, 1974 are hereby annulled and
set aside, particularly the ex-parte proceedings against
petitioners and the decision of December 20, 1974.
Respondent court is hereby ordered to enter an order
extending the efects of its order of dismissal of the action
dated October 21, 1974 to herein petitioners Antonio Lim
Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and Co Oyo.
And respondent court is hereby permanently enjoined
from taking any further action in said civil case save and
except as herein indicated. Costs against private
Respondent.
THIRD DIVISION
[G.R. No. 70926. January 31, 1989.]
DAN FUE LEUNG, Petitioner, v. HON. INTERMEDIATE
APPELLATE COURT and LEUNG YIU,Respondents.
John L. Uy for Petitioner.
Edgardo F. Sundiam for Private Respondent.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE; ACTIONS;
CAUSE OF ACTION; NATURE OF ACTION IS
DETERMINED BY THE FACTS CONSTITUTING THE
CAUSE OF ACTION. The well-settled doctrine is that
the." . . nature of the action fled in court is determined by
the facts alleged in the complaint as constituting the
cause of action." (De Tavera v. Philippine Tuberculosis
Society, Inc., 113 SCRA 243; Alger Electric, Inc. v. Court
of Appeals, 135 SCRA 37).
2. CIVIL LAW; SPECIAL CONTRACTS; PARTNERSHIP;
REQUISITES. The requisites of a partnership which
are 1) two or more persons bind themselves to
contribute money, property, or industry to a common fund;
and 2) intention on the part of the partners to divide the
profts among themselves (Article 1767, Civil Code; Yulo
v. Yang Chiao Cheng, 106 Phil. 110)
3. ID.; ID.; ID.; OBLIGATIONS OF PARTNERS; RIGHT
TO DEMAND AN ACCOUNTING EXISTS AS LONG AS
PARTNERSHIP EXISTS; PRESCRIPTION BEGINS TO
RUN ONLY UPON DISSOLUTION OF PARTNERSHIP
WHEN FINAL ACCOUNTING IS DONE. Regarding the
prescriptive period within which the private respondent
may demand an accounting, Articles 1806, 1807, and
1809 show that the right to demand an accounting exists
as long as the partnership exists. Prescription begins to
run only upon the dissolution of the partnership when the
fnal accounting is done.
4. ID.; ID.; ID.; DISSOLUTION AND WINDING UP;
LIQUIDATION AND WINDING UP OF PARTNERSHIP
AFFAIRS, RETURN OF CAPITAL AND OTHER
INCIDENTS OF DISSOLUTION PROPER BECAUSE
CONTINUATION OF PARTNERSHIP HAS BECOME
INEQUITABLE. There shall be a liquidation and
winding up of partnership afairs, return of capital, and
other incidents of dissolution because the continuation of
the partnership has become inequitable.
D E C I S I O N
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 afrmed 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 profts of the said
restaurant.
This case originated from a complaint fled 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 profts derived from the
operation of Sun Wah Panciteria since October, 1955
from petitioner Dan Fue Leung.
The Sun Wah Panciteria, a restaurant, located at
Florentino Torres Street, Sta. Cruz, Manila, was
established sometime in October, 1955. It was registered
as a single proprietorship and its licenses and permits
were issued to and in favor of petitioner Dan Fue Leung
as the sole proprietor. Respondent Leung Yiu adduced
evidence during the trial of the case to show that Sun
Wah Panciteria was actually a partnership and that he
was one of tile partners having contributed P4,000.00 to
its initial establishment.
The private respondents evidence is summarized as
follows:chanrob1es virtual 1aw library
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 identifed as Exhibit "A" wherein the petitioner
acknowledged his acceptance of the P4,000.00 by
afxing 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
certifcation and testifed that the translation to the best of
her knowledge and belief was correct. The private
respondent identifed the signature on the receipt as that
of the petitioner (Exhibit A-3) because it was afxed by
the latter in his (private respondentss) presence.
Witnesses So Sia and Antonio Ah Heng corroborated the
private respondents testimony to the efect that they were
both present when the receipt (Exhibit "A") was signed by
the petitioner. So Sia further testifed 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.chanrobles lawlibrary : rednad
Furthermore, the private respondent received from the
petitioner the amount of P12,000.00 covered by the
latters Equitable Banking Corporation Check No.
13389470-B from the profts of the operation of the
restaurant for the year 1974. Witness Teodulo Diaz, Chief
of the Savings Department of the China Banking
Corporation testifed 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
testifed that the check in question was in fact and in truth
drawn by the petitioner and debited against his own
account in said bank. This fact was clearly shown and
indicated in the petitioners statement of account after the
check (Exhibit B) was duly cleared. Rana further testifed
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:chanrob1es virtual
1aw library
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 fatly denied having issued
to the private respondent the receipt (Exhibit G) and the
Equitable Banking Corporations Check No. 13389470 B
in the amount of P12,000.00 (Exhibit B).
As between the conficting evidence of the parties, the
trial court gave credence to that of the plaintifs. Hence,
the court ruled in favor of the private Respondent. The
dispositive portion of the decision
reads:jgc:chanrobles.com.ph
"WHEREFORE, judgment is hereby rendered in favor of
the plaintif and against the defendant, ordering the latter
to deliver and pay to the former, the sum equivalent to
22% of the annual proft derived from the operation of Sun
Wah Panciteria from October, 1955, until fully paid, and
attorneys fees in the amount of P5,000.00 and cost of
suit." (p. 125, Rollo)
The private respondent fled a verifed 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 proft of the Sun
Wah Panciteria which was not specifed 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.chanrobles virtual
lawlibrary
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:jgc:chanrobles.com.ph
"FOR ALL THE FOREGOING CONSIDERATIONS, the
motion for reconsideration fled by the plaintif, 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:jgc:chanrobles.com.ph
"WHEREFORE, judgment is hereby rendered, ordering
the plaintif (sic) and against the defendant, ordering the
latter to pay the former the sum equivalent to 22% of the
net proft of P8,000.00 per day from the time of judicial
demand, until fully paid, plus the sum of P5,000.00 as
and for attorneys fees and costs of suit." (p. 150, Rollo)
The petitioner appealed the trial courts amended
decision to the then Intermediate Appellate Court. The
questioned decision was further modifed by the appellate
court. The dispositive portion of the appellate courts
decision reads:jgc:chanrobles.com.ph
"WHEREFORE, the decision appealed from is modifed,
the dispositive portion thereof reading as
follows:jgc:chanrobles.com.ph
"1. Ordering the defendant to pay the plaintif by way of
temperate damages 22% of the net proft of P2,000.00 a
day from judicial demand to May 15, 1971;
"2. Similarly, the sum equivalent to 22% of the net proft 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 proft of P8,000.00 a day.
"Except as modifed, the decision of the court a quo is
afrmed in all other respects. (p. 102, Rollo)
Later, the appellate court, in a resolution, modifed its
decision and afrmed the lower courts decision. The
dispositive portion of the resolution
reads:jgc:chanrobles.com.ph
"WHEREFORE, the dispositive portion of the amended
judgment of the court a quo reading as
follows:chanrob1es virtual 1aw library
WHEREFORE, judgment is rendered in favor of the
plaintif and against the defendant, ordering the latter to
pay to the former the sum equivalent to 22% of the net
proft of P8,000.00 per day from the time of judicial
demand, until fully paid, plus the sum of P5,000.00 as
and for attorneys fees and costs of suit.
is hereby retained in full and afrmed 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
fled by petitioner was denied.chanrobles lawlibrary :
rednad
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
fndings 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 profts of the
restaurant. The petitioner, however, claims that this
factual fnding is erroneous. Thus, the petitioner argues:
"The complaint avers that private respondent extended
fnancial 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 profts 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
fnancial assistance to mean the contribution of capital
by a partner to a partnership;" (p. 75, Rollo)
The pertinent portions of the complaint state:chanrob1es
virtual 1aw library
x x x
"2. That on or about the latter (sic) of September, 1955,
defendant sought the fnancial assistance of plaintif in
operating the defendants eatery known as Sun Wah
Panciteria, located in the given address of defendant; as a
return for such fnancial assistance. plaintif would be
entitled to twenty-two percentum (22%) of the annual
proft derived from the operation of the said panciteria;
"3. That on October 1, 1955, plaintif 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 proft
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 profts 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 fnancial assistance therein. We agree with the
appellate courts observation to the efect that." . . given
its ordinary meaning, fnancial 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
fnancial assistance, plaintif (private respondent) would
be entitled to twenty-two percentum (22%) of the annual
proft derived from the operation of the said panciteria."
(p. 107, Rollo) The well-settled doctrine is that the." . .
nature of the action fled 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
testifed to by any witness nor has any witness identifed
the handwriting in the standards or specimens belonging
to the petitioner. The supposed standards or specimens
of handwriting were marked as Exhibits "H", "H-1" to "H-
24" and admitted as evidence for the private respondent
over the vigorous objection of the petitioners
counsel.chanrobles law library
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 fndings (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
fle 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 ofered for his
silence nor was any hint of objection registered for that
purpose.
Under these circumstances, we fnd no reason why
Exhibit "J" should be rejected or ignored. The records
sufciently 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 fled only on July 13, 1978 or
after the lapse of twenty-two (22) years, nine (9) months
and twelve (12) days. From October 1, 1955 to duly 13,
1978, no written demands were ever made by private
Respondent.
The petitioners argument is based on Article 1144 of the
Civil Code which provides:chanrob1es virtual 1aw library
Art. 1144. The following actions must be brought within
ten years from the time the right of section
accrues:jgc:chanrobles.com.ph
"(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment."cralaw virtua1aw library
in relation to Article 1155 thereof which
provides:jgc:chanrobles.com.ph
"Art. 1155. The prescription of actions is interrupted when
they are fled before the court, when there is a written
extra-judicial demand by the creditor, and when there is
any written acknowledgment of the debt by the
debtor."cralaw virtua1aw library
The argument is not well-taken.
The private respondent is a partner of the petitioner in
Sun Wah Panciteria. The requisites of a partnership
which are 1) two or more persons bind themselves to
contribute money, property, or industry to a common fund;
and 2) intention on the part of the partners to divide the
profts 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 profts but also in the losses of the frm.
If excellent relations exist among the partners at the start
of business and all the partners are more interested in
seeing the frm grow rather than get immediate returns, a
deferment of sharing in the profts is perfectly plausible. It
would be incorrect to state that if a partner does not
assert his rights anytime within ten years from the start of
operations, such rights are irretrievably lost. The private
respondents cause of action is premised upon the failure
of the petitioner to give him the agreed profts in the
operation of Sun Wah Panciteria. In efect the private
respondent was asking for an accounting of his interests
in the partnership.cralawnad
It is Article 1842 of the Civil Code in conjunction with
Articles 1144 and 1155 which is applicable. Article 1842
states:jgc:chanrobles.com.ph
"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."cralaw virtua1aw library
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 fnal accounting is done.
Finally, the petitioner assails the appellate courts
monetary awards in favor of the private respondent for
being excessive and unconscionable and above the claim
of private respondent as embodied in his complaint and
testimonial evidence presented by said private
respondent to support his claim in the complaint.
Apart from his own testimony and allegations, the private
respondent presented the cashier of Sun Wah Panciteria,
a certain Mrs. Sarah L. Licup, to testify on the income of
the restaurant.
Mrs. Licup stated:jgc:chanrobles.com.ph
"ATTY. HIPOLITO (direct examination to Mrs. Licup).
"Q Mrs. Witness, yon stated that among your duties was
that you were in charge of the custody of the cashiers
box, of the money, being the cashier, is that correct?
"A Yes, sir.
"Q So that every time there is a customer who pays, you
were the one who accepted the money and you gave the
change, if any, is that correct?
"A Yes.
"Q Now, after 11:30 (P.M.) which is the closing time as
you said, what do you do with the money?
"A We balance it with the manager, Mr. Dan Fue Leung.
"ATTY. HIPOLITO:chanrob1es virtual 1aw library
I see.
"Q So, in other words, after your job, you huddle or confer
together?
"A Yes, count it all. I total it. We sum it up.
"Q Now, Mrs. Witness, in an average day, more or less,
will you please tell us, how much is the gross income of
the restaurant?
"A For regular days, I received around P7,000.00 a day
during my shift alone and during pay days I receive more
than P10,000.00. That is excluding the catering outside
the place.
"Q What about the catering service, will you please tell
the Honorable Court how many times a week were there
catering services?
"A Sometimes three times a month; sometimes two times
a month or more.
x x x
"Q Now more or less, do you know the cost of the
catering service?
"A Yes, because I am the one who receives the payment
also of the catering.
"Q How much is that?
"A That ranges from two thousand to six thousand pesos,
sir.
"Q Per service?
"A Per service, Per catering.
"Q So in other words, Mrs. witness, for your shift alone in
a single day from 3:30 P.M. to 11:30 P.M. in the evening
the restaurant grosses an income of P7,000.00 in a
regular day?
"A Yes.
"Q And ten thousand pesos during pay day?
"A Yes.(TSN, pp. 53 to 59, inclusive, November 15, 1978).
x x x
"COURT:chanrob1es virtual 1aw library
Any cross?
"ATTY. UY (counsel for defendant):chanrob1es virtual
1aw library
No cross-examination, Your Honor. (TSN. p. 65,
November 15, 1978)." (Rollo, pp. 127-128)
The statements of the cashier were not rebutted. Not only
did the petitioners counsel waive the cross-examination
on the matter of income but he failed to comply with his
promise to produce pertinent records. When a subpoena
duces tecum was issued to the petitioner for the
production of their records of sale, his counsel voluntarily
ofered to bring them to court. He asked for sufcient time
prompting the court to cancel all hearings for January,
1981 and reset them to the later part of the following
month. The petitioners counsel never produced any
books, prompting the trial court to state:chanrobles virtual
lawlibrary
"Counsel for the defendant admitted that the sales of Sun
Wah were registered or recorded in the daily sales book,
ledgers, journals and for this purpose, employed a
bookkeeper. This inspired the Court to ask counsel for the
defendant to bring said records and counsel for the
defendant promised to bring those that were available.
Seemingly, that was the reason why this case dragged for
quite sometime. To bemuddle the issue, defendant
instead of presenting the books where the same, etc.
were recorded, presented witnesses who claimed to have
supplied chicken, meat, shrimps, egg and other poultry
products which, however, did not show the gross sales
nor does it prove that the same is the best evidence. This
Court gave warning to the defendants counsel that if he
failed to produce the books, the same will be considered
a waiver on the part of the defendant to produce the said
books inimitably showing decisive records on the income
of the eatery pursuant to the Rules of Court (Sec. 5(e)
Rule 131). "Evidence willfully suppressed would be
adverse if produced." (Rollo, p. 145)
The records show that the trial court went out of its way to
accord due process to the petitioner.
"The defendant was given all the chance to present all
conceivable witnesses, after the plaintif has rested his
case on February 25, 1981, however, after presenting
several witnesses, counsel for defendant promised that
he will present the defendant as his last witness. Notably
there were several postponement asked by counsel for
the defendant and the last one was on October 1, 1981
when he asked that this case be postponed for 45 days
because said defendant was then in Hongkong and he
(defendant) will be back after said period. The Court
acting with great concern and understanding reset the
hearing to November 17, 1981. On said date, the counsel
for the defendant who again failed to present the
defendant asked for another postponement, this time to
November 24, 1981 in order to give said defendant
another judicial magnanimity and substantial due
process. It was however a condition in the order granting
the postponement to said date that if the defendant
cannot be presented, counsel is deemed to have waived
the presentation of said witness and will submit his case
for decision.
"On November 24, 1981, there being a typhoon prevailing
in Manila said date was declared a partial non-working
holiday, so much so, the hearing was reset to December 7
and 22, 1981. On December 7, 1981, on motion of
defendants counsel, the same was again reset to
December 22, 1981 as previously scheduled which
hearing was understood as intransferable in character.
Again on December 22, 1981, the defendants counsel
asked for postponement on the ground that the defendant
was sick. The Court, after much tolerance and judicial
magnanimity, denied said motion and ordered that the
case be submitted for resolution based on the evidence
on record and gave the parties 30 days from December
23, 1981, within which to fle 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 fndings of the trial court and the appellate court. If
the respondent court awarded damages only from judicial
demand in 1978 and not from the opening of the
restaurant in 1955, it is because of the petitioners
contentions that all profts 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 fndings of both the trial court
and the appellate court, it cannot refer to any portion of
the records for such modifcation. There is no basis in the
records for this Court to change or set aside the factual
fndings of the trial court and the appellate court. The
petitioner was given every opportunity to refute or rebut
the respondents submissions but, after promising to do
so, it deliberately failed to present its books and other
evidence.
The resolution of the Intermediate Appellate Court
ordering the payment of the petitioners obligation shows
that the same continues until fully paid. The question now
arises as to whether or not the payment of a share of
profts shall continue into the future with no fxed ending
date.chanrobles law library : red
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:jgc:chanrobles.com.ph
"Art. 1831. On application by or for a partner the court
shall decree a dissolution whenever:chanrob1es virtual
1aw library
x x x
"(3) A partner has been guilty of such conduct as tends to
afect prejudicially the carrying on of the business;
"(4) A partner willfully or persistently commits a breach of
the partnership agreement, or otherwise so conducts
himself in matters relating to the partnership business that
it is not reasonably practicable to carry on the business in
partnership with him;
x x x
"(6) Other circumstances render a dissolution
equitable."cralaw virtua1aw library
There shall be a liquidation and winding up of partnership
afairs, return of capital, and other incidents of dissolution
because the continuation of the partnership has become
inequitable.
WHEREFORE, the petition for review is hereby
DISMISSED for lack of merit. The decision of the
respondent court is AFFIRMED with a MODIFICATION
that as indicated above, the partnership of the parties is
ordered dissolved.
SO ORDERED
FIRST DIVISION
[G.R. No. 126334. November 23, 2001.]
EMILIO EMNACE, Petitioner, v. COURT OF APPEALS,
ESTATE OF VICENTE TABANAO, SHERWIN
TABANAO, VICENTE WILLIAM TABANAO, JANETTE
TABANAO DEPOSOY, VICENTA MAY TABANAO
VARELA, ROSELA TABANAO and VINCENT
TABANAO, Respondents.
D E C I S I O N
YNARES-SANTIAGO, J.:
Petitioner Emilio Emnace, Vicente Tabanao and Jacinto
Divinagracia were partners in a business concern known
as Ma. Nelma Fishing Industry. Sometime in January of
1986, they decided to dissolve their partnership and
executed an agreement of partition and distribution of the
partnership properties among them, consequent to
Jacinto Divinagracias withdrawal from the partnership. 1
Among the assets to be distributed were fve (5) fshing
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.chanrob1es
virtua1 1aw 1ibrary
Throughout the existence of the partnership, and even
after Vicente Tabanaos untimely demise in 1994,
petitioner failed to submit to Tabanaos heirs any
statement of assets and liabilities of the partnership, and
to render an accounting of the partnerships fnances.
Petitioner also reneged on his promise to turn over to
Tabanaos heirs the deceaseds 1/3 share in the total
assets of the partnership, amounting to P30,000,000.00,
or the sum of P10,000,000.00, despite formal demand for
payment thereof. 2
Consequently, Tabanaos heirs, respondents herein, fled
against petitioner an action for accounting, payment of
shares, division of assets and damages. 3 In their
complaint, respondents prayed as follows:chanrob1es
virtual 1aw library
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 plaintifs the
following:chanrob1es virtual 1aw library
A. No less than One Third (1/3) of the assets, properties,
dividends, cash, land(s), fshing vessels, trucks, motor
vehicles, and other forms and substance of treasures
which belong and/or should belong, had accrued and/or
must accrue to the partnership;
B. No less than Two Hundred Thousand Pesos
(P200,000.00) as moral damages;
C. Attorneys fees equivalent to Thirty Percent (30%) of
the entire share/amount/award which the Honorable Court
may resolve the plaintifs as entitled to plus P1,000.00 for
every appearance in court. 4
Petitioner fled 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 petitioners argument of lack of jurisdiction over
the action because the prescribed docket fee was not
paid considering the huge amount involved in the claim,
the trial court noted that a request for accounting was
made in order that the exact value of the partnership may
be ascertained and, thus, the correct docket fee may be
paid. Finally, the trial court held that the heirs of Tabanao
had a right to sue in their own names, in view of the
provision of Article 777 of the Civil Code, which states
that the rights to the succession are transmitted from the
moment of the death of the decedent. 6
The following day, respondents fled an amended
complaint, 7 incorporating the additional prayer that
petitioner be ordered to "sell all (the partnerships) assets
and thereafter pay/remit/deliver/surrender/yield to the
plaintifs" their corresponding share in the proceeds
thereof. In due time, petitioner fled a manifestation and
motion to dismiss, 8 arguing that the trial court did not
acquire jurisdiction over the case due to the plaintifs
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 fnal accounting is done. Hence, prescription
has not set in the absence of a fnal accounting.
Moreover, an action based on a written contract
prescribes in ten years from the time the right of action
accrues.
Petitioner fled a petition for certiorari before the Court of
Appeals, 11 raising the following issues:chanrob1es
virtual 1aw library
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 plaintif,
when there is no intestate case and fled 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 forcertiorari,
upon a fnding that no grave abuse of discretion
amounting to lack or excess of jurisdiction was committed
by the trial court in issuing the questioned orders denying
petitioners motions to dismiss.
Not satisfed, petitioner fled the instant petition for review,
raising the same issues resolved by the Court of Appeals,
namely:chanrob1es virtual 1aw library
I. Failure to pay the proper docket fee;
II. Parcel of land subject of the case pending before the
trial court is outside the said courts territorial jurisdiction;
III. Lack of capacity to sue on the part of plaintif heirs of
Vicente Tabanao; and
IV. Prescription of the plaintif heirs cause of action.
It can be readily seen that respondents primary and
ultimate objective in instituting the action below was to
recover the decedents 1/3 share in the partnerships
assets. While they ask for an accounting of the
partnerships assets and fnances, what they are actually
asking is for the trial court to compel petitioner to pay and
turn over their share, or the equivalent value thereof, from
the proceeds of the sale of the partnership assets. They
also assert that until and unless a proper accounting is
done, the exact value of the partnerships assets, as well
as their corresponding share therein, cannot be
ascertained. Consequently, they feel justifed in not
having paid the commensurate docket fee as required by
the Rules of Court.
We do not agree. The trial court does not have to employ
guesswork in ascertaining the estimated value of the
partnerships assets, for respondents themselves
voluntarily pegged the worth thereof at Thirty Million
Pesos (P30,000,000.00). Hence, this case is one which is
really not beyond pecuniary estimation, but rather
partakes of the nature of a simple collection case where
the value of the subject assets or amount demanded is
pecuniarily determinable. 13 While it is true that the exact
value of the partnerships total assets cannot be shown
with certainty at the time of fling, 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 efort 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 defciency 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 fling. This consideration may have moved the
trial court and the Court of Appeals to declare that the
unpaid docket fees shall be considered a lien on the
judgment award.
Petitioner, however, argues that the trial court and the
Court of Appeals erred in condoning the non-payment of
the proper legal fees and in allowing the same to become
a lien on the monetary or property judgment that may be
rendered in favor of respondents. There is merit in
petitioners assertion. The third paragraph of Section 16,
Rule 141 of the Rules of Court states that:chanrob1es
virtual 1aw library
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 specifcally 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 defnes 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 fnally
determined be the courts based on evidence presented,
falls squarely under the third paragraph of said Section
5(a), which provides:chanrob1es virtual 1aw library
In case the value of the property or estate or the sum
claimed is less or more in accordance with the appraisal
of the court, the diference of fee shall be refunded or paid
as the case may be. (Emphasis 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
fling 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 fling 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 fling of the
complaint. Otherwise, the court would stand to lose the
fling 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 specifc
claim 1/3 of the value of all the partnership assets
but they did not allege a specifc amount. They did,
however, estimate the partnerships total assets to be
worth Thirty Million Pesos (P30,000,000.00), in a letter 21
addressed to petitioner. Respondents cannot now say that
they are unable to make an estimate, for the said letter
and the admissions therein form part of the records of this
case. They cannot avoid paying the initial docket fees by
conveniently omitting the said amount in their amended
complaint. This estimate can be made the basis for the
initial docket fees that respondents should pay. Even if it
were later established that the amount proved was less or
more than the amount alleged or estimated, Rule 141,
Section 5(a) of the Rules of Court specifcally provides
that the court may refund the excess or exact additional
fees should the initial payment be insufcient. It is clear
that it is only the diference between the amount fnally
awarded and the fees paid upon fling of this complaint
that is subject to adjustment and which may be subjected
to a lien.
In the oft-quoted case of Sun Insurance Ofce, Ltd. v.
Hon. Maximiano Asuncion, 22 this Court held that when
the specifc claim "has been left for the determination by
the court, the additional fling 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 fling and docket fees based on the estimated
claims of the plaintif, and it is only when there is a
defciency 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
plaintif 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:chanrob1es virtual 1aw
library
The court acquires jurisdiction over the action if the fling
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 fling 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 plaintif in an
action to pay the same within a reasonable time before
the expiration of the applicable prescriptive or
reglementary period. If the plaintif 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 plaintif will be considered a lien or any award he may
obtain in his favor. (Emphasis ours)
Accordingly, the trial court in the case at bar should
determine the proper docket fee based on the estimated
amount that respondents seek to collect from petitioner,
and direct them to pay the same within a reasonable time,
provided the applicable prescriptive or reglementary
period has not yet expired. Failure to comply therewith,
and upon motion by petitioner, the immediate dismissal of
the complaint shall issue on jurisdictional grounds.
On the matter of improper venue, we fnd 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 plaintifs 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:chanrob1es virtual 1aw library
The fact that plaintif prays for the sale of the assets of the
partnership, including the fshpond 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 fled by respondents not only seeks redress
against petitioner. It also seeks the enforcement of, and
petitioners compliance with, the contract that the partners
executed to formalize the partnerships dissolution, as
well as to implement the liquidation and partition of the
partnerships assets. Clearly, it is a personal action that,
in efect, claims a debt from petitioner and seeks the
performance of a personal duty on his part. 29 In fne,
respondents complaint seeking the liquidation and
partition of the assets of the partnership with damages is
a personal action which may be fled 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. Petitioners objection in this regard
is misplaced. The surviving spouse does not need to be
appointed as executrix or administratrix of the estate
before she can fle the action. She and her children are
complainants in their own right as successors of Vicente
Tabanao. From the very moment of Vicente Tabanaos
death, his rights insofar as the partnership was concerned
were transmitted to his heirs, for rights to the succession
are transmitted from the moment of death of the
decedent. 32
Whatever claims and rights Vicente Tabanao had against
the partnership and petitioner were transmitted to
respondents by operation of law, more particularly by
succession, which is a mode of acquisition by virtue of
which the property, rights and obligations to the extent of
the value of the inheritance of a person are transmitted.
33 Moreover, respondents became owners 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
fulfllment of petitioners obligations as outlined in their
dissolution agreement were transmitted to respondents.
They, therefore, had the capacity to sue and seek the
courts intervention to compel petitioner to fulfll his
obligations.
Finally, petitioner contends that the trial court should have
dismissed the complaint on the ground of prescription,
arguing that respondents action prescribed four (4) years
after it accrued in 1986. The trial court and the Court of
Appeals gave scant consideration to petitioners hollow
arguments, and rightly so.
The three (3) fnal 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 afairs, including the partitioning and
distribution of the net partnership assets to the partners.
37 For as long as the partnership exists, any of the
partners may demand an accounting of the partnerships
business. Prescription of the said right starts to run only
upon the dissolution of the partnership when the fnal
accounting is done. 38
Contrary to petitioners protestations that respondents
right to inquire into the business afairs of the partnership
accrued in 1986, prescribing four (4) years thereafter,
prescription had not even begun to run in the absence of
a fnal accounting. Article 1842 of the Civil Code
provides:chanrob1es virtual 1aw library
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 fnal accounting is made, it is only
then that prescription begins to run. In the case at bar, no
fnal accounting has been made, and that is precisely
what respondents are seeking in their action before the
trial court, since petitioner has failed or refused to render
an accounting of the partnerships business and assets.
Hence, the said action is not barred by prescription.
In fne, the trial court neither erred nor abused its
discretion when it denied petitioners motions to dismiss.
Likewise, the Court of Appeals did not commit reversible
error in upholding the trial courts orders. Precious time
has been lost just to settle this preliminary issue, with
petitioner resurrecting the very same arguments from the
trial court all the way up to the Supreme Court. The
litigation of the merits and substantial issues of this
controversy is now long overdue and must proceed
without further delay.chanrob1es virtua1 1aw 1ibrary
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 plaintifs
therein seek to collect, and direct said plaintifs to pay the
same within a reasonable time, provided the applicable
prescriptive or reglementary period has not yet expired.
Thereafter, the trial court is ORDERED to conduct the
appropriate proceedings in Civil Case No. 416-C.
Costs against petitioner.
SO ORDERED.