THE GREAT COUNCIL OF THE UNITED STATES OF THE

The Constitution also provides for the organization of posts. Among

IMPROVED ORDER OF RED MEN,Plaintiff- Appellee, v. THE

the posts thus organized is the General Henry W. Lawton Post, No. 1.

VETERAN

On the 1st day of March, 1903, a contract of lease of parts of a

ARMY

OF

THE

PHILIPPINES, Defendant-

Appellant.

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,

Hartigan, Rohde, & Gutierrez, for Appellant.

Improved Order of Red Men, as lessors, and Albert E. McCabe,

citing for and on behalf of Lawton Post, Veteran

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 affairs, 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.

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 plaintiff 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 plaintiff, The Great Council of the United States of the Improved

DECISION
WILLARD, J. :

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

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.

Veteran Army of the Philippines because it never contradicted, either

with the plaintiff or with Apach Tribe, No. 1, and never authorized
anyone to so contract in its name.
We do not nd it necessary to consider the rst 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
denition 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

prots

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 nd 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.

[G.R. No. L-3025. November 23, 1906. ]

SI-BOCO, Plaintiff-Appellee, v.

YAP

TENG,

Defendant-

Appellant.
Marcelo Caringal, for Appellant.
Thos. L. McGirr, for Appellee.

Article

1695

of

the

Civil

Code

provides

as
SYLLABUS

follows:jgc:chanrobles.com.ph
"Should no agreement have been made with regard to the form of

SALE; ACTION FOR DEBT. Held, That under the facts stated in

management,

the opinion the defendant was liable to the plaintiff in the sum of

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

P1,442.95.
DECISION
MAPA, J. :

any legal effect."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 effect 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 t 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 offered
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

This is an action by the plaintiff 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 plaintiff 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 ndings 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
plaintiff had been furnishing to the defendant native cloth for the
latters store in the city of Manila. The goods were at rst 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
plaintiff 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 plaintiff. It became necessary for
Yapsuan to return to China in 1902 on account of ill health and a
liquidation of the accounts between the plaintiff and the defendant
was made in December of the said year, showing a balance of
P1,444.95 in favor of the plaintiff, which the defendant
expressly undertook to pay. This was proved not only by the
testimony of the plaintiff himself, but by that of two witnesses who
were present. After the liquidation was made the defendant continued
to buy the goods from the plaintiff for cash until the year 1904, when,
as already stated, the business relations between the parties ceased.

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.

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

difference of P2 between the said balance and the amount of the

judgment but, as the court properly said, the plaintiff 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
nding 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 plaintiff 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 offer 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 plaintiff
himself testied 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 plaintiff 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
plaintiff testied without contradiction, that absolutely nothing had
been paid on the balance due from the said liquidation.

and that of the two witnesses who took part in the said liquidation.
Consequently the court below properly allowed the plaintiff 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.

DECISION

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 plaintiff,

STREET, J. :

paying cash therefor, as was erroneously found by the court below.

The positive and uncontradicted statement of the plaintiff to the
contrary is sufcient, however, to justify the nding of the court
below upon that point. That court, therefore, committed no error in
this respect.
The appellant nally 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 plaintiff in
his own name, as appears from the latters testimony. When the
defendant told the plaintiff that he had authorized Yapsuan to receive
the goods, he instructed the plaintiff to charge them to him (the
defendant) personally. The defendant, moreover, undertook
personally to pay the balance due the plaintiff, 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 plaintiff

The petitioner, Antonio Pardo ,a stockholder in the Hercules Lumber

Company, Inc., one of the respondents herein, seeks by this original
proceeding in the Supreme Court to obtain a writ of mandamus to
compel the respondents to permit the plaintiff and his duly authorized
agent and representative to examine the records and business
transactions of said company. To this petition the respondents
interposed an answer, in which, after admitting certain allegations of
the petition, the respondents set forth the facts upon which they
mainly rely as a defense to the petition. To this answer the petitioner
in turn interposed a demurrer, and the cause is now before us for
determination of the issue thus presented.
It is inferentially, if not directly admitted that the petitioner is in fact a
stockholder in the Hercules Lumber Company, Inc., and that the
respondent, Ignacio Ferrer, as acting secretary of the said company,
has refused to permit the petitioner or his agent to inspect the records
and business transactions of the said Hercules Lumber Company,
Inc., at times desired by the petitioner. No serious question is of
course made as to the right of the petitioner, by himself or proper

representative, to exercise the right of inspection conferred by section

51 of Act No. 1459. Said provision was under the consideration of
this court in the case of Philpotts 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 x." It is further averred that at the directors
meeting of the respondent corporation held on February 16, 1924, the
board
passed
a
resolution
to
the
following
effect:jgc:chanrobles.com.ph

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
rm 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.

"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 dened, 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 effect
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 affected by the adoption by the board of
directors of a resolution providing for the closing of transfer books
thirty days before an election. (State 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

[G.R. No. L-4281. March 30, 1908. ]

JOSE

GARRIDO, Plaintiff-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.
DECISION

CARSON, J. :
Plaintiff and defendant were members of a partnership doing business
under the rm name of Asencio y Cia. The business of the
partnership did not prosper and it was dissolved by mutual agreement
of the members. The plaintiff brings this action to recover from the
defendant, who appears to have been left in charge of the books and
the funds of the rm, the amount of the capital which he had invested

in the business. The defendant, alleging that there had been

considerable losses in the conduct of the business of the partnership,
denied that there was anything due the plaintiff as claimed, and led a
cross complaint wherein he prayed for a judgment against the
plaintiff for a certain amount which he alleged to be due by the
plaintiff under the articles of partnership on account of plaintiffs
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 ndings
as to the status of the accounts of the company.

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 plaintiff jointly with the defendant
kept these books, made entries therein, and was responsible with him
therefor, the doctrine laid down in Behn, Meyer & Co., 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.

Plaintiff 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 plaintiff.

It appears from the record that the statement of account, the vouchers,
and the books of the company were placed at the disposition of the
plaintiff for more than six weeks prior to the trial, and that during the
trial he was given every opportunity to indicate any erroneous or
fraudulent items appearing in the account, yet he was unable, or in
any event he declined to specify such items, contenting himself with
a general statement to the effect that there
must be some mistake, as he did not and could not believe that the
business had been conducted at a loss.

It appears from the record that by mutual agreement the defendant

had general charge and supervision of the books and funds of the
rm, but it appears that these books were at all times open to the
inspection of the plaintiff, and there is evidence which tends to show
that the plaintiff himself made entries in these books touching
particular transactions in which he happened to be interested; so that
while it is clear that the defendant was more especially burdened with
the care of the books and accounts of the partnership, it would appear
that the plaintiff had equal rights with the defendant in this regard,
and that during the existence of the partnership they were equally
responsible for the mode in which the books were kept and that the
entries made by one had the same effect as if they had been made by
the other.

The court below seems to have scrutinized the account with

At the trial the principal question at issue was the amount of the

G.R. No. L-12151 January 19, 1918

prots or losses of the business of the partnership during the period of

its operation. The plaintiff made no allegation as to prots, but denied
defendants allegation as to the losses. The defendant in support of
his allegations offered in evidence the estado de cuentas (general
statement of accounts) of the partnership, supported by a number of
vouchers, and by his own testimony under oath as to the accuracy and
correctness

painstaking care, and to have been satised 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
ndings 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.

ADRIANO

BUENAVENTURA

DEZOLLIER,

palintiff-

appellant, vs. ANTONIO DAVID y ABELIDO,DefendantAppellee.

Thos. D. Aitken for appellant. Alfonso E. Mendoza for appellee.
STREET, J.:
By an agreement effective from April 20, 1906, a partnership was
formed by Antonio David y Abelido and Adriano Buenaventura y

of the items set out therein. The plaintiff assigns as error the

Dezollier for the conduct of the business of real estate brokers in the

admission of this account on the ground that the books of the

city of Manila, under the rm name "Abelido and Co." The rst

partnership were not kept in accordance with the provisions of Title

named party was the capitalist member of the rm and its manager.,

III, Book I, of the Code of Commerce.

while the last named was the industrial member and bookkeeper. The
rm 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 protable transactions were ever accomplished by the rm 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 rm had become interested should be
effected with prot. 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 rm 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 nally carried into effect 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 rm 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
ratied 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 rm thereby
became the owner of the property in the proportion of the value
satised by it; and this was followed by an obscure clause meaning,
probably, that the right of the rm 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 effect
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 led 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
effects of the rm; and especially an accounting for prots alleged to
have been made by the defendant David from investments of money
derived from the hacienda, which prots 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 plaintiff
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 rm 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 rm 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 plaintiff, as
bookkeeper, had made it appear in the rm books that the rm was
debtor to David in the amount of P3,370 in respect to this transaction
and that the plaintiff had requested David to sign the declaration
showing the rm to be a participant. Throughout this affair 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 rm 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 rm of
Abelido and Co. and bring the defendant to account for the prots
which he has obtained from the investments of its proceeds in various
enterprises.chanroblesvirtualawlibrary chanrobles virtual law library

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 effect that
laches or unreasonable delay on the part of a plaintiff 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 purpose of the action is to impress a trust on the property in favor

the appellant's brief. Upon the whole it is our opinion that there was

of Abelido and Co., to divest the title out of the present owner, and to

no error prejudicial to the plaintiff in the action of the court below

have it, or its proceeds, liquidated and administered as rm assets.

and the judgment is therefore afrmed, with costs against the

We are of the opinion that there is no merit in the plaintiff's

appellant.chanrob

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 plaintiff's case is adversely affected
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 plaintiff had been convinced of the justice of his

The decision of the main issue relative to the hacienda renders

unnecessary any discussion of other features of the case presented in

G.R. No. L-16318 October 21, 1921

PANG LIM and BENITO GALVEZ, Plaintiffs-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 rm 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 rm 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 effective whereby the lease was extended for fteen
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 effected 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 fteen years more
said distillery "El Progreso" to Messrs. Pang Lim and Lo Seng (doing
business under the rm 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 fteen years of lease, for the benet 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 modications 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

ART. 1571. The purchaser of a leased estate shall be entitled to

terminate any lease in force at the time of making the sale, unless the
contrary is stipulated, and subject to the provisions of the Mortgage
Law.
In considering this provision it may be premised that a contract of
lease is personally binding on all who participate in it regardless of
whether it is recorded or not, though of course the unrecorded lease
creates no real charge upon the land to which it relates. The Mortgage
Law was devised for the protection of third parties, or those who
have not participated in the contracts which are by that law required
to be registered; and none of its provisions with reference to leases
interpose any obstacle whatever to the giving of full effect to the
personal obligations incident to such contracts, so far as concerns the
immediate parties thereto. This is rudimentary, and the law appears to
be so understood by all commentators, there being, so far as we are
aware, no authority suggesting the contrary. Thus, in the
commentaries of the authors Galindo and Escosura, on the Mortgage
Law, we nd the following pertinent observation: "The Mortgage
Law is enacted in aid of and in respect to third persons only; it does
not affect the relations between the contracting parties, nor their
capacity to contract. Any question affecting the former will be
determined by the dispositions of the special law [i.e., the Mortgage
Law], while any question affecting the latter will be determined by
the general law." ( Galindo y Escosura, Comentarios a la Legislacion
Hipotecaria, vol. I, p. 461.) 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

contract to be effective 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 plaintiffs; and the defendant thereupon appealed to the
Supreme Court.chanroblesvirtualawlibrary chanrobles virtual law
library

The case for the plaintiffs is rested exclusively on the provisions of

article 1571 of the Civil Code, which reads in part as follows:

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 rm of Lo Seng and Co. this does not really solve the problem now before us, which is,
whether the plaintiffs herein, as purchasers of the estate, are at liberty
to terminate the lease, assuming that it was originally binding upon
all parties participating in it.chanroblesvirtualawlibrary chanrobles
virtual law library Upon this point the plaintiffs are undoubtedly
supported, prima facie, by the letter of article 1571 of the Civil Code;
and the position of the defendant derives no assistance from the mere
circumstance that the lease was admittedly binding as between the
parties thereto.chanroblesvirtualawlibrary chanrobles virtual law
library
The words "subject to the provisions of the Mortgage Law,"
contained in article 1571, express a qualication which evidently has
reference to the familiar proposition that recorded instruments are
effective against third persons from the date of registration (CoTiongco 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 rst paragraph of article 23 of
the Mortgage Law, being to the effect that unrecorded leases shall be
of no effect as against third persons; and the same observation will
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 plaintiffs 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 plaintiff Pang Lim has occupied a
double role in the transactions which gave rise to this litigation,
namely, rst, 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 rm of Lo Seng and Co., Pang Lim
participated in the creation of this lease, and when he
sold out his interest in that rm to Lo Seng this operated as a transfer
to Lo Seng of Pang Lim's interest in the rm 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 plaintiffs in seeking to deprive the defendant of
this lease is strikingly revealed in the circumstance that prior to the
acquisition of this property Pang Lim had been partner with Lo Seng
and Benito Galvez an employee. Both therefore had been in relations
of condence 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 prot. On account
of his status as partner in the rm of Lo Seng and Co., Pang Lim
knew that the original lease had been extended for fteen 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 proting by the sale of his interest in a
business, worthless without the lease, could intervene as purchaser of

the property and conscate for his own benet 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 duciary, each being considered in law, as he is in fact, the
condential 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 benet 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 benet the renewal of a lease on property used by the rm, to
commence at a date subsequent to the expiration of the rm's lease,
the partner obtaining the renewal is held to be a constructive trustee
of the rm 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 rm 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 plaintiff
Pang Lim in this case is untenable is deducible from articles 1461 and
1474 of the Civil Code, which declare that every person who sells
anything is bound to deliver and warrant the subject-matter of the
sale and is responsible to the vendee for the legal and lawful
possession of the thing sold. The pertinence of these provisions to the
case now under consideration is undeniable, for among the assets of
the partnership which Pang Lim transferred to Lo Seng, upon selling
out his interest in the rm to the latter, was this very lease; and while
it cannot be supposed that the obligation to warrant recognized in the
articles cited would nullify article 1571, if the latter article had
actually conferred on
the plaintiffs the right to terminate this lease, nevertheless said
articles (1461, 1474), in relation with other considerations, reveal the
basis of an estoppel which in our opinion precludes Pang Lim from
setting up his interest as purchaser of the estate to the detriment of Lo
Seng.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 effected where the partitioners are cotenants, that is, have an
interest of an identical character as among themselves. (30 Cyc.,178180.) 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 plaintiffs acquired the right of Lo Yao,
the owner of the fee, is competent proof in behalf of the plaintiffs. It
is, however, earnestly insisted by the attorney for Lo Seng that this
document, having never been recorded in the property registry,
cannot under article 389 of the Mortgage Law, be
used in court against him because as to said instrument he is a third
party. The important question thus raised is not absolutely necessary
to the decision of this case, and we are inclined to pass it without
decision, not only because the question does not seem to have been
ventilated in the Court of First Instance but for the further reason that
we have not had the benet 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, Plaintiff-Appellee, vs.

JOHN

HAUSSERMANN and A. W. BEAM,Defendants- Appellants.

W.

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 prots gained by them in rehabilitating the plant of the
Benguet Consolidated Mining Company and in particular to compel
them to surrender to the plaintiff 50,000 shares of the stock of said
company, with dividends paid thereon. A few days after the action
was begun G. C. Sellner was
permitted to intervene in like interest with Hanlon and to the same
extent. Thereafter the case was conducted in all respects as if Hanlon
and Sellner had been co-plaintiffsfrom 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 ndings 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 timevice-president and secretary-treasurer, respectively,
of said company.chanroblesvirtualawlibrary chanrobles virtual law
library
In October, 1913, the plaintiff R. Y. Hanlon, an experienced mining
engineer, upon the solicitation of the defendant Beam, presented to

the board of directors of the Benguet Consolidated Mining Company

a proposition for the rehabilitation of the company, and asked an
option for thirty days within which to thoroughly examine the
property; which proposition, with certain amendments, was nally
accepted by said company; and thereafter, on November 6, 1913,
within the option period, the terms of that proposition and acceptance
were incorporated in a written contract between the plaintiff and the
company, in which the said company acted by and through the
defendant John W. Haussermann as vice-president and the defendant
A. W. Beam as secretary. In this contract it appears that for and in
consideration of the issuance and delivery to said Hanlon or to his
order of the 501,000 shares of the unissued capital stock of said
mining company, the said Hanlon undertook, promised, and agreed to
do or cause to be done 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 briey 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 fullled 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 rst 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

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
plaintiff Hanlon was personally without the nancial 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 nd P25,000 of the necessary capital, and for the remainder
the plaintiff relied upon G. C. Sellner, a business man of the city of
Manila, who,
upon being approached, agreed to advance P50,000. A verbal
understanding with reference to his matter had been attained by the
four parties to this litigation before the contract Exhibit B between
Hanlon and the mining company had been formally executed, and
this agreement was in fact reduced to writing and signed on
November 5, 1913, one day prior to the execution of the contract
between Hanlon and the mining company.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 otation of the project outlined in the contract Exhibit B, and
dened 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 otation 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

on deposit with the party of the second part until the above mentioned

do all in his power to oat said proposition and make the same a

loan to be secured by the assets of the company shall have been fully

success.

paid and discharged, in which event said shares shall be released,

surrendered and delivered to the party of the rst 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 off and
discharge the balance due, then the said mining company was to have
the right and authority to sell and dispose of the 100,000 shares of
stock remaining in its possession at public or private sale at the
prevailing market price, or as many of said shares as might be

II.
It is mutually agreed that said proposition shall be oated 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 offered for sale for the purpose of
raising the sum of P75,000 required to be paid to the Benguet

Consolidated Mining Company in accordance with said

proposition.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 specied, 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

(Sgd.)A. W. BEAM.chanroblesvirtualawlibrary chanrobles virtual

law library
During the period which intervened between the making of the
preliminary verbal agreement and the nal execution of this contract,
the plaintiff, Hanlon, at the expenses of the joint adventure went from
Manila to the Benguet Consolidated mining properties, near Baguio,
accompanied by the defendant Beam at the expense of said mining
company, and said Hanlon made a preliminary investigation and
examination of the properties, selected and surveyed a suitable mill
site and took out about half a ton of ore samples which it had been
agreed were to be forwarded to the United States for tests for use by
him in the selection of the machinery best suited for the treatment of
such ore; and said Hanlon reported to his coadventurers that it was a
very feasible scheme, and that there was enough ore in sight to well
repay the investment of P125,000, which was the sum estimated by
said
Hanlon
to
be
necessary
to
equip
the
property.chanroblesvirtualawlibrary chanrobles virtual law library
Soon after the contract Exhibits B and A were made the plaintiff
Hanlon departed for the United States, in contemplation of which
event he executed a special power of attorney, on November 10,

and in that event, the said Sellner shall be released from his

1913, constituting and appointing Beam his special agent and

obligation.chanroblesvirtualawlibrary chanrobles virtual law library

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 otation 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.

attorney in

chanrobles virtual law library

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 effectual receipts and
discharges for the same.
Prior to that time, on May 27, 1913, the plaintiff Hanlon had given
one A. Gnandt of the city of Manila a power of attorney with general
and comprehensive powers, and "with full power of substitution and
revocation;" and thereafter on March 14, 1914, said Gnandt, owing to
his intended departure from the Philippine Islands, executed a power
of attorney in favor of said A. W. Beam, with the same general
powers which had been conferred upon him, and Beam became
Hanlon's sole agent in the Philippine Islands. Said original power of
attorney had no

In witness whereof, the respective parties hereto have hereunto set

special relation to the substitute specically authorized the attorney in

their hands at Manila, P. I., this 5th day of November, 1913.

(Sgd.) R. Y. HANLON, (Sgd.)GEORGE C. SELLER, (Sgd.)JOHN
W. HAUSSERMANN,

fact:
To make, sign, execute and deliver any and all contracts, agreements,
receipts and documents of any nature and kind whatsoever.

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

After the enumeration of other general and specic powers, Beam

was nally 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 effort to raise the
money and also cable Beam to obtain the money elsewhere if Sellner
could not supply it. Furthermore, in order to be prepared against the
contingency of Sellner's ultimate inability to respond, Hanlon
attempted to enlist the interest of capitalists in San Francisco but in
this was unsuccessful. It will be observed that, although by the exact
letter of the contract, Sellner was obligated to obtain subscriptions for
the sum of P50,000, he nevertheless desired to keep the entire
200,000 shares assigned to him exclusively for himself, and
proceeding on the assumption that he had in effect underwritten a
subscription for the whole block of shares, he made no effort to
obtain subscriptions from anybody else for any part of these shares.
Meanwhile Haussermann and Beam were in touch with Sellner,
urging him to action but without avail, Sellner being in fact wholly
unable to fulll his undertaking. In this condition of affairs the period
of six months specied in the contracts of November 5 and 6 for the
raising of the sum of P75,000 passed.chanroblesvirtualawlibrary
chanrobles virtual law library

November 6, 1913, with Hanlon. They therefore proceeded, as parties

interest in the rehabilitation of the mining company, to make other
arrangements for nancing the project. They found it possible to
effectuate 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 prots 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 otation. Some,
however, dropped out, with the result that Haussermann and Beam
were
compelled
to
increase
their
subscriptions
materially.chanroblesvirtualawlibrary chanrobles virtual law library
As preliminary to the new scheme of nancing the corporation, the
board of directors of the mining company, composed of Haussermann
Beam, and Sendres, saw t 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
nancing 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 nancial 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 eld 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 affording
P136,000. . . .chanroblesvirtualawlibrary chanrobles virtual law
library

Thereafter Haussermann and Beam assumed that they were absolved

The balance of the 501,000 shares of unissued stock, or 96,000

from the obligations of their contract of November 5, 1913, with

shares, are to be issued to my order when the total sum of 86,000

Hanlon and Sellner, and that the mining company was no longer

subscribed as above stated shall have been paid to the company. The

bound by its contract of

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
ve 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 prots. It is stated in the appellants' brief, without denial from
the appellee, that said shares have appreciated subsequently to the
trial below to the value of P2 each. The trial court held that the
plaintiffs, as coadventurers with the defendants in the project for the
rehabilitation of the mining company, are each entitled to recover
the one-fourth part of the 96,000 shares obtained from the mining
company by the defendants, or 24,000 shares, with dividends paid,
and to be paid beginning with the year 1916. It is thus apparent that
the value of the interest awarded to each of the plaintiffs is
considerably
in
excess
of
$25,000
(U.
S.
currency).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 plaintiffs that there
was an unfair appropriation by Beam of the labors and ideas of
Hanlon. This is denied by the defendants, whose testimony tends to
minimize the extent of Hanlon's contribution to the project in labor
and ideas. We believe it unnecessary to enter into the merits of this
contention, as in our opinion the solution of the case must be
determined by other considerations.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 "oat" 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 otation, however, points more particularly to the
effort to raise money, since, as all man know, it takes capital to make
any enterprise of this kind go. In paragraph II of the same contract the
manner in which the otation is to be effected is described, namely,
that Sellner is to obtain subscriptions for P50,000 and Haussermann
and Beam for P25,000. This involved, as we have already stated, the
allocation of 200,000 shares to Sellner and 100,000 to Hanlon and
Beam.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 rst paragraph is limited by that used in
the second paragraph. In other words, though in the rst paragraph
the parties agree to help oat the project, they are tied up, in regard to
the manner of effecting the otation, to the method agreed upon in
the second. We can by no means lend our assent to the proposition
that the rst paragraph created an obligation, independent of the
provisions of paragraph II, which continued to subsist after the
method of otation described in paragraph II became impossible of
fulllment. 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-meddlewith 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 xed 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 virtual law library
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
nd,
Haussermann
and
Beam
were
discharged.chanroblesvirtualawlibrary chanrobles virtual law library

the contract had become impossible of fulllment and to proceeds

therewith for the benet of all
four of the parties. Furthermore, this conception of the case is
apparently over-rened and not in harmony with thecommonsense view of the situation as it must have presented itself to the
contracting parties at the time. The obtaining of capital was
fundamentally necessary before the project could be proceeded with;
and it was obvious enough that, if the parties should fail to raise the
money, the whole scheme must collapse like a stock of cards. The
provisions relative to the getting in of capital are the principal
features of the contract, other matters being of subordinate
importance. In our opinion the contracting parties must have
understood and intended that Haussermann and Beam would be
discharged from the contract in its entirety by the failure of Sellner to
comply with his obligation. This is the plainest, simplest, and most
obvious meaning of which the words used are capable and we believe
it to be their correct interpretation. We are not to suppose that either
of the signatories intended for those words to operate as a trap for the
others; and such would certainly be the effect of the provision in
question if the words are to be understood as referring to a discharge
from the guaranty merely, leaving the contract intact in other
respects.chanroblesvirtualawlibrary chanrobles virtual law library
It is insisted in behalf of the plaintiffs that Haussermann and Beam,
as well as Sellner, defaulted in the performance of the contract of
November 5, 1913, and that not having performed their obligation to

This is a typical case of a resolutory condition under the civil law.

obtain subscriptions for the sum of P25,000 and to cause payment to

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 xed
period the obligation shall be extinguished from the time the period
elapses or when it becomes certain that the event will not take place.
(Civ. code, art. 1117.)
The right of Hanlon to require any further aid or assistance from
these defendants after May 6, 1914, was expressly subordinated to a
resolutory condition, and the contract itself declares in precise
language that the effect of thenon-fulllment 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 plaintiffs at this point a distinction is drawn
between the discharge from the guaranty to raise money at the stated
time and the discharge from the contract as an entirety; and it is
insisted that while the defendants were discharged from liability to
Sellner on their guaranty to have the money forthcoming on May 6,
they were not discharged from their liability on the contract,
considered in its broader features, and especially were not discharged
with reference to their obligation to Hanlon. This argument proceeds
on the erroneous assumption that the defendants were bound to
discover some other method of otation after the plan prescribed in

be made into the company's treasury on or before May 6, 1914, they

cannot take advantage of the similar default of Sellner. This
suggestion is irrelevant to the fundamental issue. The question here is
not whether
Haussermann and Beam have a right of action for damaged against
Sellner. If they were suing him, it would be pertinent to say that they
could not maintain the action because they themselves had not caused
the money to be paid in which they had agreed to raise. The question
here is different, namely, whether Haussermann and Beam have been
discharged from the contract of November 5, 1913, by the default of
Sellner; and this question must, under the contract, be answered by
reference to the acts of Sellner. Upon this point it is irrelevant to say
that the discharged was mutual as between the two parties and not
merely one- sided.chanroblesvirtualawlibrary chanrobles virtual law
library
The interpretation which we have placed upon the contract of
November 5, 1913, exerts a decisive inuence 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 specied, the
money which he had obligated himself to raise. In other words, time
is not expressly made of the essence of this contract. From this it is
argued for the plaintiffs that this contract remained in force after May
6, 1914, notwithstanding the failure of
Hanlon to supply the funds which he had agreed to nd, 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 rst place the present action is not based upon the contract
between Hanlon and the mining company; and it is clear that if
Hanlon had sued the mining company, as for example, in an action
seeking to recover damages for breach of its contract with him, he
would have been confronted by the insuperable obstacle that he had
never supplied, nor offered to supply, one penny of the P75,000,
which he had obligated himself to bind, and which was absolutely
necessary to the rehabilitation of the company. The benets of a
contract are not for him who has failed to comply with its obligations.
It may be admitted that the resolution of the Board of Directors of the
mining company, on June 19, 1914, declaring the contract of
November 6, 1913, with Hanlon to be cancelled, considered alone,
was without legal effect, since one party to a contract cannot absolve
himself from its obligations without the consent of the
other.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 effect of passing title, and that while
the failure of the purchaser to pay the price gave the seller a right to
sue for a rescission of the contract, the failure of the buyer to pay the
purchase price did not ipso facto produce a reversion of title to the
vendor, or authorize him, upon his election to rescind, to treat the
goods as his own property and retake them by writ of replevin. In the
present case the contract between Hanlon and the mining company
was executory as to both parties, and the obligation of the company
to deliver the shares could not arise until Hanlon should pay or tender
payment of the money. The situation is similar to that which arises
every day in business transactions in which the purchaser of goods
upon an executory contract fails to take delivery and pay the purchase
price. The vendor in such case is entitled to resell the goods. If he is
obliged to sell for less than the contract price, he holds the buyer for
the difference; if he sells for as much as or more than the contract
price, the breach of the contract by the original buyer is damnum
absque injuria. But it has never been held that there is any need of an

action of rescission to authorize the vendor, who is still in possession,

to dispose of the property where the buyer fails to pay the price and
take delivery. Of course no judicial proceeding could be necessary to
rescind a contract which, like that of November 5, 1913, contains a
resolutory provision by virtue of which the obligation is already
extinguished.chanroblesvirtualawlibrary chanrobles virtual law
library
Much reliance is placed by counsel for the plaintiffs upon certain
American decisions holding that partners, agents, joint adventurers,
and other persons occupying similar duciary relations to one
another, must not be allowed to obtain any undue advantage of their
associates or to retain any prot 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 nd that the law is well established that the relation
between joint adventurers is duciary 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 prots whichever the case may be to
enjoy an unfair advantage, or have any greater rights in the property
or prots as trustee, than hisco-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 hisco-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
benet; and any private benet, 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 benet, takes away the temptation to
commit a dishonest act, founded in the desire of obtaining a selsh
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 duciary relation with the mining company and
its other shareholders, to whom they

The power of attorney which Hanlon left with Beam upon departing
for America was executed chiey 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 benet,
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

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

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 nance 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 nance
the Hanlon project, and concealing this fact, had subsequently
utilized the same subscriptions to nance his own scheme, the case
would be different. 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 disqualied to act as a director of the mining
company upon the resolution accepting that project; and it was
accordingly declared that said resolution was without legal effect. We
are of the opinion that the circumstance referred to could at the most
have had no further effect than to render the contract with Beam
voidable and not void; and the irregularity involved in Haussermann's
participation in that resolution was doubtless cured by the later
ratication of the contract at a meeting of the stockholders. However
this may be, the plaintiffs are not in a position to question the validity
of the contract of the mining company with Beam since the purpose
of the action is to secure a share in the gains acquired under that
contract.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 subjectmatter; 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 indenite
period from seeking other means of nancing the company's
necessities, save only upon the penalty of surrendering a share of
their ultimate gain to the two adventurers who are plaintiffs in this
action.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

obligated himself by the prot-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 protsharingagreement 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 protsharing agreement; and in particular the minds of all must have
riveted upon the

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 theprot-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 rst part agrees to pay into the treasury of the
party of the second part the sum ofSeventy-ve 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 fulllment 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 prot- 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

provisions of paragraph II of the prot-sharing agreement, wherein is

described the manner in which the project to which the parties were
then afxing their signatures should be nancially realized
("oated"). 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 theprotsharing agreement, it must have seemed superuous 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 specic 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 specic performance may be granted, due
compensation being made for the damage caused by the delay. In
such cases the courts take account of the difference between that
which is matter of substance and that which is matter of mere
form.chanroblesvirtualawlibrary chanrobles virtual law library

To illustrate: the rule has been rmly 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 specic enforcement." (4 Pomeroy Eq. Jur., 3rd
ed., sec. 1408.) Again, says the same writer: "It

Supreme Court of the United States, such property requires, and of all
properties perhaps the most requires, the persons interested in it to be
vigilant and active in asserting their rights. (Waterman vs. Banks, 144
U. S., 394; 36 L. ed., 479, 483.) Hence it is uniformly held that time
is of the essence of the contract for the sale of an option on mining
property, or a contract for the sale thereof, even though there is no
express stipulation to that effect. (27 Cyc., 675). The same idea is
clearly applicable to a contract like that now under consideration
which provides for the rehabilitation of a mining plant with funds to
be
supplied
by
the
contractor
within
a
limited
period.chanroblesvirtualawlibrary chanrobles virtual law library

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 specied 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

the performance of the contract. Much less can he be considered

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 effect should appear; and there

Under the doctrine above expounded it is evident that Hanlon would

be entitled to no relief against the mining company in an action of
specic performance, even if he had been prepared and had offered,
after May 6, 1914, to advance the requisite money and proceed with
entitled to relief where he has remained in default throughout and has
at no time offered 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

are certain situations wherein it is held, from the nature of the

TAN PUT,Respondents.

agreement itself, that time is of the essence of the contract.

Zosa, Zosa, Castillo, Alcudia & Koh, for Petitioners.

Time may be of the essence, without express stipulation to that effect,

by implication from the nature of the contract itself, or of the subject-

Fidel Manalo and Florido & Associates for Respondents.

matter, or of the circumstances under which the contract is made. (36

SYNOPSIS

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

Plaintiff sued the spouses Lim Tanhu and Dy Ochay. Later, she
amended the complaint to include as defendants Lim Teck Chuan, the
spouses Alfonso Ng Sua and Co Oyo, and their son Eng Chong

recognized that in such contracts acceptance of the option and

Leonardo. Claiming to be the widow of Po Chuan, a partner in the

payment of the purchase price constitute conditions precedent to

Glory Commercial Co., plaintiff charged the six defendants with

specic
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 uctuating 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

having conspired in misappropriating for their own benets the

prots and assets of said partnership. In a single answer with
counterclaim,
defendants denied plaintiffs 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 notied was
denied. On October 19, 1974, when plaintiffs rst witness was up
for re-crossexamination, she moved "to drop" the case against
thenon-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 plaintiffs ex parte evidence
against the defaulted defendants since the case against thenondefaulted defendants had already been dismissed. But the exparte reception actually took place on October 28, 1974, because on
that date plaintiff with her witnesses appeared in court and asked to
be allowed to present her evidence, which was granted.
The non-defaulted defendants motion to reconsider the dismissed
order was denied. On December 20, 1974, the Court rendered

other hand, to include the petitioners (the defaulted defendants) in the

dismissal would naturally set at naught the efforts of plaintiffs efforts
to establish her case thru means sanctioned by respondent court.
All things considered, the court held that as between the two possible
alternatives, since the situation was brought out by plaintiffs
procedural maneuvers, it would only be fair, equitable and proper to
rule that the order of dismissal of October 21, 1974 is in law a
dismissal of the whole case of the plaintiff, including as to petitioner
(the defaulted defendants). Consequently, all proceedings held by
respondent court subsequent thereto including and principally its
decision of December 20, 1974 were declared illegal and were set
aside.

SYLLABUS

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

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 prociency 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

the trial court.

On the other hand, the defaulted defendants, before the perfection of
their appeal, led 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-defaulteddefendants; and (2) the ex parte reception of
evidence of the plaintiff by the Clerk of Court, the subsequent using
of the same as basis for its judgment and the rendition of such
judgment. The order of dismissal cannot be sanctioned because (1)
there was no timely notice of the motion therefor to the nondefaulted defendants, aside from there being no notice at all to the
defaulted defendants; (2) the common answer of defendants,
including thenon-defaulted, contained a compulsory counterclaim
incapable of being determined in an independent action; and (3) the
immediate effect of such dismissal was the removal of the two nondefaulted 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 thenon-defaulted defendants
whom the Supreme Court have not heard and who event plaintiff
would not wish to have anything anymore to do with the case; on the

of justice and equity, and, in some instance, to wittingly or

unwittingly abet unfair advantage by ironically camouaging their
actuations as earnest efforts to satisfy the public clamor for speedy
disposition of litigations, forgetting all the while that the plain
injunction of Section 2 of Rule 1 is that the "rules shall be liberally
construed in order to promote their object and to assist the parties in
obtaining" not only speedy but more imperatively,
"just . . . and inexpensive determination of every action and
proceeding."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 verication (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 verication 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 specically embodying
such a direct challenge.

her rights, which quitclaim was, however, executed, according to

respondent herself in her amended complaint, through fraud, and that
having led the complaint knowing that the allegations thereof are
false and baseless, she has caused them to suffer damages, it was held
that with such allegations, defendants counterclaim is compulsory,
not only because the same evidence to sustain it will also
refute the cause or causes of action alleged in plaintiffs 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

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
notied 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 specic 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 plaintiffs claim (Sec. 4,
Rule 9). Thus where plaintiff alleged that, being the widow of
deceased, she is entitled to demand accounting of and to receive the
share of her alleged husband as partner of defendants and defendant
denied the truth of said allegations, maintaining in their counterclaim
that plaintiff knew of the falsity of said allegations even before she
led the complaint, she had admitted in a quitclaim her commonlaw relationship with deceased and that she had already quitclaimed

been pleaded by a defendant prior to the service upon him of the

plaintiffs 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
plaintiffs complaint charged the six defendants with having actually
taken part in a conspiracy to misappropriate, conceal and convert to
their own benet the prots 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 nding 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 plaintiffs motion to dismiss the case as against thenondefaulted defendants, since all the defendants, defaulted and nondefaulted, are indispensable parties.
9.ID.; ID.; ACTIONS; JOINDER OF INDISPENSABLE PARTIES.
Whenever it appears to the court in the course of a proceeding that
an indispensable party has not been joined, it is the duty of the court
to stop the trial and to order the inclusion of such party or the
dismissal of the case. Such an order is unavoidable, for the "general
rule with reference to the making of parties in a civil action requires
the joinder of all necessary parties under any and all conditions, the
presence of those latter being a sine qua non of the existence of
judicial power." It is precisely "when an indispensable party is not
before the court that the action should be dismissed. The absence of
an indispensable party renders all subsequent actuations of the court
null and void, for want of authority to act, not only as to the absent
parties but even as to those present.

10.ID.; ID.; ID.; MISJOINDER OR NON-JOINDER OF PARTIES;

DROPPING OF PARTIES. Rule 3, Sec. 11 does not comprehend
whimsical and irrational dropping or adding of parties in a complaint.
What it really contemplates is erroneous or mistaken non-joinder and
misjoinder of parties. No one is free to join anybody in a complaint in
court only to drop him unceremoniously later at the pleasure of the

plaintiff. The rule presupposes that the original inclusion had been
made in the honest conviction that it was proper and the subsequent
dropping is requested because it has turned out that such inclusion
was a mistake. And this is the reason why the rule ordains that the
dropping be "on such terms as are just"
just to all the other parties.
11.ID.; ID.; ID.; DROPPING THE CASE AGAINST NONDEFAULTED 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 plaintiffs rst
witness was up for cross- examination, plaintiff without any relevant
explanation asked the court to drop the non-defaulted defendants, it
was error for the court over the objection of the non- defaulted
defendants to grant such motion without inquiring for the reasons or
directing the granting of some form of compensation for the trouble
undergone by the defendants in answering the complaint, preparing
for or proceeding partially to trial, hiring counsel and making
corresponding expenses in the premises. The Court should have
considered
that
the
outright
dropping
of
there nondefaulted defendants over their objection would certainly be unjust
not only to the defaulted defendants who would certainly be unjust
not only to the defaulted defendants who would in consequence, be
entirely defenseless, but also to the non-defaulted defendants
themselves who would naturally correspondingly suffer from the
eventual judgment against their co-defendants. In such case, the court
should pay heed to the mandate that such dropping must be "on such
terms as are just" meaning to all concerned with its legal and
factual effects.

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 plaintiffs evidence and render judgment granting him
such relief as the complaint and the facts proven may warrant." This
last claim is claried by Section 5 which says that "a judgment
entered against a party in default shall not exceed the amount or be
different in kind from that prayed for."cralaw virtua1aw library

15.ID.; ID.; NATURE OF DEFAULT, EXPLAINED. Contrary to

12.LEGAL ETHICS; DUTY OF COUNSEL TO ACT WITH

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 plaintiffs causes of action nd support in the
law or that plaintiff is entitled to the relief prayed for." Being
declared in default does not constitute a waiver of rights except that
of being heard and of presenting evidence in trial. In other words, a
defaulted defendant is not actually thrown out of court. While in a
sense it may be said that by defaulting he leaves himself at the mercy
of the court, the rules see to it that any judgment against him must be
in accordance with law. The evidence to support plaintiffs 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
plaintiff, the complaint must be dismissed. And if an unfavorable
judgment should be justiable, it cannot exceed in amount or be
different in kind from what is prayed for in the complaint.

CANDOR. Those appearing as counsel are admonished that a

16. ID.; ID.; ID.; DELEGATING TO CLERKS OF COURTS

pleading which is deceptive and lacking in candor, has no place in

RECEPTION OF EVIDENCE IN CASES OF DEFAULT SHOULD

any court, much less in the Supreme Court. Parties and counsel

BE STOPPED. The present widespread practice of trial judges of

would be well advised to avoid such attempts to befuddle the issues

delegating to their clerks of court the reception of plaintiffs evidence

as invariably they will be exposed for what they are, certainly

when the defendant is in default is wrong in principle and orientation.

unethical and degrading to the dignity of the law profession.

Moreover, almost always they only betray the inherent weakness of
the cause of the party resorting to them.
13.CIVIL PROCEDURE; DEFAULT SHOULD NOT BE TAKEN
FOR GRANTED. The concept of default as a procedural device
should not be taken for granted as being that a simple expedient of
disallowing the offending party to take part in the proceedings so that
after his adversary shall have presented his evidence, judgment may
be rendered in favor of such opponent, with hardly any chance of said
judgment being reversed or modied.
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

It has no basis in any rule. When a defendant allows himself to be

declared in default he relies on the faith that the court would take care
that his rights are not unduly prejudiced.
He has a right to presume that the law and the rules will still be
observed. The proceedings are held in his forced absence, and it is
but fair that the plaintiff should not be allowed to take advantage of
the situation to win by foul or illegal means or with inherently
incompetent evidence. In such instances, there is need for more
attention from the court, which only the judge himself can provide.
The clerk of court would not be in a position much less have the
authority to act in the premises in the manner demanded by the rules
of fair play and as contemplated in law, considering this
comparatively limited area of discretion and his presumably inferior
preparations for the functions of a judge. Besides the default of the
defendant is no excuse for the court to renounce the opportunity to
closely observe the demeanor and conduct of the witnesses of the
plaintiff, the better to appreciate their truthfulness and credibility. The

Supreme Court therefore declares as a matter of judicial policy that

there being no imperative reason for judges to do otherwise, the
practice should be discontinued.

it becomes his inalienable right that the same be dismissed also as to

him.

declaration of default is far outweighed by the inconvenience and

20. ID.; ID.; ID.; WHERE ALL DEFENDANTS ARE

INDISPENSABLE PARTIES; DISMISSAL AS TO ANSWERING
DEFENDANTS RESULT IN DISMISSAL AS TO DEFAULTED
DEFENDANTS. Where all the defendants are indispensable
parties, for which reason the absence of any of them in the case
would result in the court losing its competency to act validly, any
compromise that the plaintiff might wish to make with any of them
must, as a matter of correct procedure, have to wait until after the
rendition of the judgment, at which state the plaintiff may then treat
the matter for its execution and the satisfaction of his claim as
variably as he might please. Accordingly, where all defendants are
indispensable parties, some of whom answer and others do not, the
dismissal of the complaint against the answering or nondefaulteddefendants should result also in the dismissal thereof as to
the defaulted defendants. And it does not matter that the dismissal is
upon the

complications involved in having to undo everything already done in

evidence presented by the plaintiff or upon the latters mere

the event the defendant should justify his omission to answer on time.

resistance, for in both contingencies, the lack of sufcient legal basis

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 plaintiffs 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 plaintiffs 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

must be the cause. The integrity of the common cause of action

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-defendantsnot 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 plaintiffs 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

against all defendants and the indispensability of all of them in the

proceedings do not permit any possibility of waiver of the plaintiffs
right only as to one or some of them, without including all of them,
and, so, as a rule, withdraw must be deemed to be confession of
weakness as to all.
21.ID.; ID.; FAILURE TO APPEAR AT PRE-TRIAL. Where all
defendants already joined genuine issued with the plaintiff, and four
of such defendants failed to appear at the pre-trial but their absence
could be attributable to the fact that they might not have considered it
necessary anymore to be present since their respective children with
whom they have common cause could take care of their defenses as
well and anything that could be done by them at such pre-trial could
have be done for them by their children, especially because in the
light of the pleadings before the court, the prospects of a compromise
must have appeared to the rather remote, under such circumstances,
to declare them immediately and irrevocably in default was not an
absolute necessity. Practical consideration and reason of equity
should have moved the court to be more understanding in dealing
with the situation. After all, declaring them in default did not impair
their right to a common fate with their children.
22.ID.; ID.; DEFAULTED DEFENDANT ENTITLED TO NOTICE

declared in default knowing that his co-defendant has already

answered he does no trusting in the assurance implicit in the rule that
his default is in essence a mere formality and deprives him of no
more than the right to take part in the trial and that the court would
deem anything done by or for the answering defendant as done by or
for him. The presumption is that otherwise he would not have seen to
it that he would not be in default. Of course, he has to suffer the
consequences of whatever the answering defendant may do or fail to
do, regardless of possible adverse consequences, but if the complaint
has to be dismissed insofar as the answering defendant is concerned,

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
led 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 offered already at the pre-trial and more of it at the actual
trial which had already begun with the rst witness of the plaintiff
undergoing re-cross- examination, it would be requiring the obvious
to pretend that there was still need for an oath or a verication 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 pretrial),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 superuous, 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 plaintiffs complaint virtually amends the complaint,
and such amendment is substantial, for with the elimination thereby
of said defendants, allegedly solidarily liable with their codefendants,
it had the effect of increasing proportionately that which each of the
remaining defendants, would have to answer for jointly and severally.
Accordingly, notice to the defaulted defendants of plaintiffs 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.

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 affected, when the irregularity committed by the trial court
is so grave and so far reaching in its consequences that the long and
cumbersome procedure of appeal will only further aggravate the
situation of the aggrieved party because other untoward actuations
are likely to materialize as natural consequences of those already
perpetrated. Otherwise,certiorari would have no reason at all for
being.

26.ID.; ID.; SUPREME COURT MAY EXERCISE INHERENT

POWER OF SUPERVISION OVER JUDICIAL ACTION. The
Supreme Court will exercise its inherent power of supervision over
all kinds of judicial actions of the court, where it appears that the
stakes are high, and where not only is the subject matter considerably
substantial, but there is the more important aspect that not only the
spirit and intent of the rules but even the basic rudiments of fair play
have been disregarded. For the court to leave unrestrained the
obvious tendency of the proceedings would be nothing short of
wittingly condoning inequity and injustice resulting from erroneous
construction and unwarranted application of procedural rules.
27.ID.; DEFAULT; SUPREME COURT WILL NOT SANCTION
PROCEDURAL MANEUVERS THAT WILL DEPRIVE OTHER
PARTY OF RIGHT TO BE HEARD. The idea of "dropping"
the non-defaulted defendants with the end in view of completely
incapacitating their codefendants 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 aone-sided decision, even improperly. Such
procedural maneuver resorted to by plaintiff in securing the decision
in her favor was ill-conceived. It was characterized by that which
every principle of law and equity disdains taking advantage of the
rules of procedure in order to unduly deprive the other party of full
opportunity to defend his cause. And when in this connection, the
obvious weakness of plaintiffs 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

25. CERTIORARI; WHERE APPEAL IS NOT AN ADEQUATE

A ONE-SIDED DECISION. Where all the malactuations of the

REMEDY; CERTIORARI MAYBE RESORTED TO. The

trial court are traceable to the initiative of the plaintiff and/or her

essential purpose of certiorari is to keep the proceedings in lower

counsel, she cannot complain that she is being made to unjustiably

judicial courts and tribunals within legal bounds, so that due process

suffer the consequences of the erroneous orders of the trial court. It is

and the rule of law may prevail at all time and arbitrariness,

only fair that she should not be allowed, to benet from her own

whimsicality and unfairness which justice abhors may immediately

frustrated objective of securing a one-sided decision.

be stamped out before graver injury, juridical

29.ID.; ID.; SUPREME COURT NEED NOT REMANDS CASE

FOR FURTHER PROCEEDINGS IF ENOUGH BASIS EXIST TO
RESOLVE CLAIM. Where the Supreme Court in a petition for
certiorari has set aside the order of dismissal of the respondent court,
it may resolve
the plaintiffs claim on the merits instead of merely returning the case
for a resumption of trial, if upon closer study of the pleading and the
decision of the trial court and other circumstances extant in the record
before the Supreme Court there is enough basis to rule on the
plaintiffs claim and if the remand would only lead to more legal
applications.
30.CIVIL PROCEDURE; PRE-TRIAL; PURPOSE OF. The
fundamental purpose of pre-trial, aside from affording the parties
every opportunity to compromise or settle their differences, is for the
court to be apprised of the unsettled issued between the parties and of
their respective evidence relative thereto, to the end that it may take
corresponding measures that would abbreviate the trial as much as
possible and the judge may be able to ascertain the fact with the least
observance of technical rules. In other words. whatever is said or
done by the parties or their counsel at pre-trial serves to put the judge
on notice of their respective basic position, in order that in
appropriate cases he may, if necessary in the interest of justice and a
more accurate determination of the facts, make inquiries about or
require clarications of matters taken up at thepre-trial, before nally
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
insignicant 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

signed by a second assistant provincial scal 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
plaintiff to the effect that she was married to the deceased in a church
as well as that of her witness, allegedly a foster son of deceased
whom she had reared since his birth and with whom she has been
living are bothself-serving and of very little evidentiary value, it
having been disclosed at the trial that plaintiff had already assigned
all her rights in the case to said witness, thereby making the latter the
real party in interest and therefore naturally as biased as plaintiff
herself. Besides, it appears admitted that the witness was less than
eight years old at the time of the alleged marriage, thus making it
extremely doubtful if he could have been 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 plaintiff concerning her marriage
to deceased, consisting of a certication by the bishop of the church
where the marriage allegedly took place and her selfserving testimony, two documents belying the pretended marriage
were presented namely the income tax return of the deceased
indicating a person other than plaintiff as his wife, and the quitclaim
wherein plaintiff stated that she had been living with the deceased
without benet of marriage and that she was his "common-law." it
was held that these two documents are far more reliable than the
evidence of plaintiff put together.

36.ID.; ID.; ID.; ADMISSION AGAINST INTEREST. Where the

existence of the quitclaim (containing the admission by plaintiff of
her common-law relationship only with the deceased and of her
having renounced for valuable consideration whatever claim she
might have against the defendants), has been duly established at
the pre-trialwithout any circumstances to detract from its legal

primary evidence of a marriage must be an authentic copy of the

import, the Court should have held that plaintiff was bound by her

marriage contract.

admission therein that she was the

32.ID.; ID.; WHEN SECONDARY EVIDENCE MAY BE AVAILED

common-law wife only of deceased, and what is more, that she had

OF. While a marriage may also be proved by other competent

already renounced her claim.

evidence, the absence of the contract must rst be satisfactorily

explained. The certication 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 itsnonproduction is rst presented to the court.
33.ID.; ID.; ID.; CERTIFICATION OF BISHOP WHO DID NOT
TESTIFY IS HEARSAY. The purported certication 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 certied, the jurat allegedly

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 nancial 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 certied public accountant,
he is hardly qualied to read such statements and books and draw any
denite 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 nding that a new corporation was organized
after the death of the partner (Plaintiffs alleged husband) with capital
from the funds of the partnership, or nding as to how some of the
defendants who just happen to be the wives of the surviving partners
could in any way be accountable to plaintiffs, it was error for the trial
court to order defendants to deliver or pay jointly and severally to the
plaintiff 1/3 of the supposed cash belonging to the partnership and in
the same breath sentence defendants to partition and give 1/3 of the
properties enumerated in the dispositive portion of the decision,
which seemingly are the very properties allegedly purchased from the
funds of the partnership would naturally include the amounts
defendants have to account for. And if there has not yet been any
liquidation of the partnership, so that said partnership would have the
status of a partnership in liquidation, the only right plaintiff could
have would be to what might result after much liquidation to belong
to the deceased partner (her alleged husband) and before this is
nished, it is impossible to determine, what rights or interest, if any
the deceased had. In other words, no specic amounts or properties
may be adjudicated to the heir or legal representative of the deceased
partner without the liquidation being rst terminated.

defendants, with the particularities that notice of the motion to

dismiss was not duly served on any of the defendants, who had
alleged a compulsory counterclaim against plaintiff in their joint
answer, and the judgment so rendered granted reliefs not prayed for
in the complaint, and (2) probition to enjoin further proceedings
relative to the motion for immediate execution of the said judgment.

Originally, this litigation was a complaint led 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
plaintiff has a share equivalent to one third (1/3) thereof;

DECISION
"14. (P)laintiff, on several occasions after the death of her husband,
has asked defendants of the above-mentionedproperties and for the
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 led 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 plaintiffs motion to dismiss the case in so far as
the non- defaulted defendants were concerned and thereafter
proceeded to hear ex-parte the rest of the plaintiffs evidence and
subsequently rendered judgment by default against the defaulted

liquidation of the business of the defunct partnership, including

investments on real estate in Hong Kong, but defendants kept on
promising to liquidate said properties and just told plaintiff to
"15. (S)ometime in the month of November, 1967, Defendants,
particularly Antonio Lim Tanhu, by means of fraud deceit, and
misrepresentations did then and there, induce and convince the
plaintiff to execute a quitclaim of all her rights and interests, in the
assets of the partnership of Glory Commercial Company, which
quitclaim is null and void, executed through fraud and without any
legal effect. The original of said quitclaim is in the possession of the
adverse party, defendant Antonio Lim Tanhu;

"16. (A)s a matter of fact, after the execution of said quitclaim,

indispensable defendants without whom no nal determination can be

defendant Antonio Lim Tanhu offered to pay the plaintiff the amount

had in the action and in order that complete relief is to be accorded as

of P65,000.00 within a period of one

between those already parties.

(1) month, for which plaintiff was made to sign a receipt for the

Considering that the amendments sought to be introduced do not

amount of P65,000 00 although no such amount was given, and

change the main causes of action in the original complaint and the

plaintiff

reliefs demanded and to allow amendments is the rule, and to refuse

was

not

even

given

copy

of

said

document:jgc:chanrobles.com.ph

them the exception and in order that the real question between the

"17. (T)hereafter, in the year 1968-69, the defendants who had earlier

parties may be properly and justly threshed out in a single proceeding

promised to liquidate the aforesaid properties and assets in favor,

to avoid multiplicity of actions." (Page 40, Record.)

among others of plaintiff and until the middle of the year 1970 when
the plaintiff formally demanded from the defendants the accounting
of real and personal properties of the Glory Commercial Company,
defendants refused and stated that they would not give the share of
the plaintiff." (Pp. 36-37, Record.).
She prayed as follows: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,

In a single answer with counterclaim, over the signature of their

common counsel, defendants denied specically 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

which properties are located in the Philippines and in Hong Kong;

b)Ordering the defendants to deliver to the plaintiff after accounting,

"AND BY WAY OF SPECIAL AND AFFIRMATIVE DEFENSES,

one third (1/3) of the total value of all the properties which is

defendants hereby incorporate all facts averred and alleged in the

approximately P5,000,000.00 representing the just share of the

answer, and further most respectfully declare:chanrob1es virtual 1aw

plaintiff;

library

c)Ordering the defendants to pay the attorney of the plaintiff the sum

1.That in the event that plaintiff is ling the present complaint as an

of Two Hundred Fifty Thousand Pesos (P250,000.00) by way of

heir of Tee Hoon Lim Po Chuan, then, she has no legal capacity to

attorneys fees and damages in the sum of One Million Pesos

sue as such, considering that the legitimate wife, namely: Ang Siok

(P1,000.000.00).

Tin, together with their children are still alive. Under Sec. 1, (d), Rule

"This Honorable Court is prayed for other remedies and reliefs

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

consistent with law and equity and order the defendants to pay the

preliminary hearing be conducted as provided for in Sec. 5, of the

costs." (Page 38, Record.)

same rule;

The admission of said amended complaint was opposed by

2.That in the alternative case or event that plaintiff is ling the

defendants upon the ground that there were material modications of

present case under Art. 144 of the Civil Code, then, her claim or

the causes of action previously alleged, but respondent judge

demand has been paid, waived abandoned or otherwise extinguished

nevertheless

as evidenced by the quitclaim Annex A hereof, the ground cited is

allowed

the

amendment

reasoning

that:jgc:chanrobles.com.ph
"The present action is for accounting of real and personal properties

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

as well as for the recovery of the same with damages.

rule;

An objective consideration of pars. 13 and 15 of the amended

3.That Tee Hoon Lim Po Chuan was legally married to Ang Siok Tin

complaint pointed out by the defendants to

and were blessed with the following children, to wit: Ching Siong

sustain their opposition will show that the allegations of facts therein

Lim and Ching Hing Lim (twins) born on February 16, 1942; Lim

are merely to amplify material averments constituting the cause of

Shing Ping born on March 3, 1949 and Lim Eng Lu born on June 25,

action in the original complaint. It likewise includes necessary and

1965 and presently residing in Hongkong;

4.That even before the death of Tee Hoon Lim Po Chuan, the plaintiff

D.That in order to defend their rights in court, defendants were

was no longer his common law wife and even though she was not

constrained to engage the services of the undersigned counsel,

entitled to anything left by Tee Hoon Lim Po Chuan, yet, out of the

obligating themselves to pay P500,000.00 as attorneys fees;

kindness and generosity on the part of the defendants, particularly

Antonio Lim Tanhu, who, was inspiring to be monk and in fact he is

E.That by way of litigation expenses during the time that this case

now a monk, plaintiff was given a substantial amount evidenced by

will be before this Honorable Court and until the

the quitclaim (Annex A);

same will be nally terminated and adjudicated, defendants will have

5.That the defendants have acquired properties out of their own

to spend at least P5,000.00." (Pp.44-47. Record.)

personal fund and certainly not from the funds belonging to the

After unsuccessfully trying to show that this counterclaim is merely

partnership, just as Tee Hoon Lim Po Chuan had acquired properties

permissive and should be dismissed for non- payment of the

out of his personal fund and which are now in the possession of the
widow and neither the defendants nor the partnership have anything
to do about said properties;
6.That it would have been impossible to buy properties from funds
belonging to the partnership without the other partners knowing
about it considering that the amount taken allegedly is quite big and
with such big amount withdrawn the partnership would have been
insolvent;
7.That plaintiff and Tee Hoon Lim Po Chuan were not blessed with
children who would have been lawfully entitled to succeed to the
properties left by the latter together with the widow and legitimate
children;
8.That despite the fact that plaintiff knew that she was no longer
entitled to anything of the shares of the late Tee Hoon Lim Po Chuan,

corresponding ling fee, and after being overruled by the court, in

due time, plaintiff answered the same, denying its material
allegations.
On February 3, 1973, however, the date set for the pre- trial, both of
the two defendants-spouses, the Lim Tanhus and Ng Suas, did not
appear, for which reason, upon motion of plaintiff dated February 16,
1973, in an order of March 12, 1973, they were all "declared in
DEFAULT as of February 3, 1973 when they failed to appear at the
pre- trial." They sought to have this order lifted thru a motion for
reconsideration, but the effort failed when the court denied it.
Thereafter, the trial started, but at the stage thereof where the rst
witness of the plaintiff by the name of Antonio Nuez, who testied
that he is her adopted son, was up forre-cross-examination, said
plaintiff unexpectedly led on October 19, 1974 the following simple
and unreasoned

yet, this suit was led against the defendant who have to interpose the
following

"MOTION TO DROP DEFENDANTS LIM TECK

C O U N T E R C LAI M

CHUAN AND ENG CHONG LEONARDO

A.That the defendants hereby reproduced, by way of reference, all

"COMES now plaintiff, through her undersigned counsel, unto the

the allegations and foregoing averments as part of this counterclaim;

Honorable Court most respectfully moves to drop from the complaint

B.That plaintiff knew and was aware she was merely thecommonlaw wife of Tee Hoon Lim Po Chuan and that the lawful and legal is
still living, together with the legitimate children, and yet she
deliberately suppressed this fact, thus showing her bad faith and is
therefore liable for exemplary damages in an amount which the
Honorable Court may determine in the exercise of its sound judicial
discretion. In the event that plaintiff is married to Tee Hoon Lim Po
Chuan, then, her marriage is bigamous and should suffer the
consequences thereof;

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.)

C.That plaintiff was aware and had knowledge about the quitclaim,
even though she was not entitled to it, and yet she falsely claimed that
defendants refused even to see her and for ling this unfounded,
baseless, futile and puerile complaint, defendants suffered mental
anguish and torture conservatively estimated to be not less than
P3,000.00;

which she set for hearing on December 21, 1974. According to

petitioners, none of the defendants declared in default were notied
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 thethreeday 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.

hereby authorized to receive immediately the evidence of the

plaintiff ex-parte.
SO ORDERED.

Evidently without even verifying the notices of service, just as simply

as plaintiff had couched her motion, and also without any legal
grounds stated, respondent court granted the prayer of the above
motion thus:jgc:chanrobles.com.ph
"ORDER
Acting on the motion of the plaintiff praying for the dismissal of the
complaint as against defendants Lim Teck Chuan and Eng Chong
Leonardo.
The same is hereby GRANTED. The complaint as against defendant
Lim Teck Chuan and Eng Chong Leonardo is hereby ordered
DISMISSED without pronouncement as to costs."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 pretrial 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 plaintiffs evidence ex-parte be set on
November 20, 1974, at 8:30 A.M. before the Branch Clerk of Court
who is deputized for the purpose, to swear in witnesses and to submit

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, led a motion for
reconsideration thereof, and on November 1, 1974, defendant Eng
Chong Leonardo, thru counsel Atty. Alcudia, led also his own
motion for reconsideration and clarication 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,
led 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 abovementioned 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 ling
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.

her report within ten (10) days thereafter. Notify the plaintiff.
SO ORDERED.
Cebu City, Philippines, October 21, 1974." (Page 52,
Record.)
But, in connection with this last order, the scheduled ex- parte
reception of evidence did not take place on November 20, 1974, for
on October 28, 1974, upon
verbal motion of plaintiff, the court issued the followingselfexplanatory order:jgc:chanrobles.com.ph
"Acting favorably on the motion of the plaintiff dated October 18,
1974, the Court deputized the Branch Clerk of Court to receive the

On the other hand, on January 20, 1975, the other defendants,

petitioners herein, led their notice of appeal, appeal bond and
motion for extension to le their record on appeal, which was
granted, the extension to expire after fteen (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 led the present petition with this Court. And with
the evident intent to make their procedural position clear, counsel for
defendants, Atty. Manuel Zosa, led with respondent court a
manifestation dated February 14, 1975 stating that "when the nondefaulted defendants Eng Chong Leonardo and Lim Teck Chuan led
their petition in the Court of Appeals, they in effect abandoned their
motion to quash the order of October 28, 1974," and that similarly
"when Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and
Co Oyo, led their petition

evidence of the plaintiff ex-parte to be made on November 20, 1974.

However, on October 28, 1974, the plaintiff, together with her

for certiorari and prohibition . . . in the Supreme Court, they likewise

witnesses, appeared in court and asked, thru counsel, that she be

abandoned their motion to quash." This manifestation was acted upon

allowed to present her evidence.

by respondent court together with plaintiffs motion for execution

Considering the time and expenses incurred by the plaintiff in

bringing her witnesses to the court, the Branch Clerk of Court is

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 thedefendants-movants submitted their
manifestation inviting the attention of this Court that by their ling
for certiorari and prohibition with preliminary injunction in the Court
of Appeals which was dismissed and later the defaulted defendants
led with the Supreme Court certiorari with prohibition they in effect
abandoned their motion to quash.

IN VIEW HEREOF, the motion to quash is ordered ABANDONED.

The resolution of the motion for execution pending appeal shall be
resolved after the petition for certiorari and prohibition shall have
been resolved by the Supreme Court.
SO ORDERED.
Cebu City, Philippines, February 14, 1975." (Page 216,
Record.)
Upon these premises, it is the position of petitioners that respondent
court acted illegally, in violation of the rules or
with grave abuse of discretion in acting on 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 nondefaulted 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 sameex-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-defaulteddefendants and
thereafter proceeding to hear it ex-parteand 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 nal judgment insofar as they are concerned,

or, in the alternative, it should be set aside together with all the
proceedings and decision held and rendered subsequent thereto, and
that the trial be resumed as of said date, with the defendants Lim
Teck Chuan and Eng Chong Leonardo being allowed to defend the
case for all the defendants.

On the other hand, private respondent maintains the contrary view

that inasmuch as petitioners had been properly declared in default,
they have no personality nor interest to question the dismissal of the
case as against their non-defaulted co-defendants and should suffer
the consequences of their own default. Respondent further contends,
and this is the only position discussed in the memorandum submitted
by her counsel, that since petitioners have already made or at least
started to make their appeal, as they are in fact entitled to appeal, this
special civil action has no reason for being. Additionally, she invokes
the point of prematurity upheld by the Court of Appeals in regard to
the above-mentioned petition therein of the non-defaulted defendants
Lim Teck Chuan and Eng Chong Leonardo. Finally, she argues that in
any event, the errors attributed to respondent court are errors of
judgment and may be reviewed only in an appeal.
After careful scrutiny of all the above-related proceedings, in the
court below and mature deliberation, the Court has arrived at the
conclusion that petitioners should be
granted relief, if only to stress emphatically once more that the rules
of procedure may not be misused and abused as instruments for the
denial of substantial justice. A review of the record of this case
immediately discloses that here is another demonstrative instance of
how some members of the bar, availing of their prociency 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 camouaging their actuations as
earnest efforts to satisfy the public clamor for speedy disposition of
litigations forgetting all the while that the plain injunction of Section
2 of Rule 1 is that the "rules shall be liberally construed in order to
promote their object and to assist the parties in obtaining" not only
speedy but more imperatively, "just . . . and inexpensive
determination of every action and proceeding." We cannot simply
pass over the impression that the procedural maneuvers and tactics
revealed in the records of the case at bar were deliberately planned
with the calculated end in view of depriving petitioners and their codefendants 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 pretrial, to be rather dubious. What is most regrettable is that apparently,
all of these alarming circumstances have escaped respondent judge
who did not seem to have hesitated in acting favorably on the

motions of the plaintiff conducive to the deplorable objective just

mentioned, and which motions, at the very least, appeared to be of
highly controversial merit, considering that their obvious tendency
and immediate result would be to convert the proceedings into a onesided affair, a situation that should be readily condemnable and
intolerable to any court of justice.
Indeed, a seeming disposition on the part of respondent court to lean
more on the contentions of private respondent may be discerned from
the manner it resolved the attempts of defendants Dy Ochay and
Antonio Lim Tanhu to have the earlier order of default against them
lifted. Notwithstanding that Dy 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 verication. (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 verication 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 specically
embodying such a direct challenge.

And then, in the order of February 14, 1972 (Annex 6, id.) lifting at
last the order of default as against defendant Lim Tanhu, His Honor
posited that said defendant "has a defense (quitclaim) which renders
the claim of the plaintiff contentious." We have read defendants
motion for reconsideration of November 25, 1971 (Annex 5, id.), but
We cannot nd in it any reference to a "quitclaim." Rather, the
allegation of a quitclaim is in the amended complaint (Pars. 1516, Annex B of the petition herein) in which plaintiff maintains that

her signature thereto was secured through fraud and deceit. In truth,
the motion for reconsideration just mentioned, Annex 5, merely
reiterated the allegation in Dy Ochays earlier motion of October 8,
1971, Annex 2, to set aside the order of default, that plaintiff Tan
could be but the common law wife only of Tee Hoon, since his
legitimate wife was still alive, which allegation, His Honor held in
the order of November 2, 1971, Annex 3, to be "not good and
meritorious defense." To top it all, whereas, as already stated, the
order of February 19, 1972, Annex 6, lifted the default against Lim
Tanhu because of the additional consideration that "he has a defense
(quitclaim) which renders the claim of the plaintiff contentious", the
default of Dy Ochay was maintained notwithstanding that exactly the
game "contentious" defense as that of her husband was invoked by
her.

Such tenuous, if not altogether erroneous reasonings and manifest

inconsistency in the legal postures in the orders in question can
hardly convince Us that the matters here in issue were accorded due
and proper consideration by respondent court. In fact, under the
circumstances herein obtaining, it seems appropriate to stress that,
having in view the rather substantial value of the subject matter
involved together with the obviously contentious character of
plaintiffs 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 rst 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 denitely ought not to have been
the case. The trial was proceeding with the testimony of the rst
witness of plaintiff and he was still under re-crossexamination.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 notied of such unanticipated

founded on public policy deserve obedience in accord with their

unequivocal language or words.

dismissal motion did not get due notice thereof. Certainly, the nondefaulted 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 notied by registered mail which was posted only that
same Saturday, October 19, 1974? According to Chief Justice Moran,
"three days at least must intervene between the date of service of
notice and the date set for the hearing, otherwise the court may not
validly act on the motion." (Comments on the Rules of Court by
Moran, Vol. 1, 1970 ed. p. 474.) Such is the correct construction of
Section 4 of Rule 15. And in the instant case, there can be no question
that the notices to the non-defaulted defendants were short of the
requirement of said provision.

We can understand the over-anxiety of counsel for plaintiff, but what

is incomprehensible is the seeming inattention of respondent judge to
the explicit mandate of the pertinent rule, not to speak of the
imperatives of fairness, considering he should have realized the farreaching 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 exparte 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,
plaintiffs 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 specic
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

Before proceeding to the discussion of the default aspects of this

case, however, it should not be amiss to advert rst 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 ling 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 plaintiffs claim, (Section 4, Rule 9) namely,
plaintiffs allegedly being the widow of the deceased Tee Hoon
entitled, as such, to demand accounting of and to receive the share of
her alleged late husband as partner of defendants Antonio Lim Tanhu
and Alfonso Leonardo Ng Sua in Glory Commercial Company, the
truth of which allegations all the defendants have denied. Defendants
maintain in their counterclaim that plaintiff knew of the falsity of said
allegations even before she led her complaint, for she had in fact
admitted her common-lawrelationship 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 prots 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 led her complaint knowing, according to defendants, as she
ought to have known, that the material allegations thereof are false
and baseless, she has caused them to suffer damages. Undoubtedly,
with such allegations, defendants counterclaim is compulsory, not
only because the same evidence to sustain it will also refute the cause
or causes of action alleged in plaintiffs 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 specically enjoins that" (i)f a
counterclaim has been pleaded by a defendant prior to the service

upon him of the plaintiffs 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 notied 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

to those present. In short, what respondent court did here was exactly
the reverse of what the law ordains

motion on other grounds. In its order of December 6, 1974, however,

or the adverse party. If he makes a mistake in the choice of his right

respondent court not only upheld the plaintiffs supposed absolute

of action, or

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 plaintiffs 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 benet the prots, 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 nding 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. Thenon-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 andnon-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

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
led 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 plaintiff to
choose, the theory upon which he predicates his right of action, or the
parties he desires to sue, without dictation or imposition by the court

in that of the parties against whom he seeks to enforce it, that is his
own concern as he alone suffers therefrom. The plaintiff cannot be
compelled to choose his defendants. He may not, at his own expense,
be forced to implead anyone who, under the adverse 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 plaintiff to continue
prosecuting her cause of action against thedefendants-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 plaintiffs motion of October 18, 1974 by referring to the action
he had taken as being "dismissal of the complaint against them or
their being dropped therefrom", without perceiving that the reason for
the evidently intentional ambiguity is transparent. The apparent, idea
is to rely on the theory that under Section 11 of Rule 3, parties may
be dropped by the court upon motion of any party at any stage of the
action, hence "it is the absolute right prerogative of the plaintiff to
choose the parties he desires to sue, without dictation or
imposition by the court or the adverse party." In other words, the
ambivalent pose is suggested that plaintiffs motion of October 18,
1974 was not predicated on Section 2 of Rule 17 but more on Section
11 of Rule 3.
But the truth is that nothing can be more incorrect. To start with, the
latter rule does not comprehend whimsical and irrational dropping or
adding of parties in a complaint. What it really contemplates is
erroneous or mistaken non- joinder and misjoinder of parties. No one
is free to join anybody in a complaint in court only to drop him
unceremoniously later at the pleasure of the plaintiff. The rule
presupposes that the original inclusion had been made in the honest
conviction that it was proper and the subsequent dropping is
requested because it has turned out that such inclusion was a mistake.
And this is the reason why the rule ordains that the dropping be "on
such terms as are just" just to all the other parties. In the case at

bar, there is nothing in the record to legally justify the dropping of

the non-defaulteddefendants, Lim and Leonardo. The motion of
October 18, 1984 cites none. From all appearances, plaintiff just
decided to ask for it, without any relevant explanation at all. Usually,
the court in granting such a motion inquires for the reasons and in the
appropriate instances directs the granting of some form of
compensation for the trouble undergone by the defendant in
answering the complaint, preparing for or proceeding partially to
trial, hiring counsel and making corresponding expenses in the
premises. Nothing of these, appears in the order in question. Most
importantly, His Honor ought to have considered that the outright
dropping of the non-defaulted defendants Lim and Leonardo, over
their objection at that, would certainly be unjust not only to the
petitioners, their own parents, who would in consequence be entirely
defenseless, but also to Lim and Leonardo themselves who would
naturally correspondingly suffer from the eventual judgment against
their parents. Respondent court paid no heed at

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
rst offense. But similar conduct on his part in the future will
denitely 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

all to the mandate that such dropping must be on such terms as are
just" meaning to all concerned with its legal and factual effects.
Thus, it is quite plain that respondent court erred in issuing its order
of dismissal of October 21, 1974 as well as its order of December 6,
1974 denying reconsideration of such dismissal. As We make this
ruling, We are not oblivious of the circumstance that defendants Lim
and Leonardo are not parties herein. But such consideration is
inconsequential. The fate of the case of petitioners is inseparably tied
up with said order of dismissal, if only because the order of exparte hearing of October 21, 1974 which directly affects and
prejudices said petitioners is predicated thereon. Necessarily,
therefore, We have to pass on the legality of said order, if We are to
decide the case of herein petitioners properly and fairly.
The attitude of the non-defaulted defendants of no longer pursuing
further their questioning of the dismissal is from another point of
view understandable. On the one hand, should they insist on being
defendants when plaintiff herself has already release from her claims?
On the other hand, as far as their respective parents-co-defendants are
concerned, they must have realized that they (their parents) could
even be beneted by such dismissal because they could question
whether or not plaintiff can still prosecute her case against them after
she had secured the order of dismissal in question. And it is in
connection with this last point that the true and correct concept of
default becomes relevant.
At this juncture, it may also be stated that the decision of the Court of
Appeals of January 24, 1975 in G. R. No.SP-03066 dismissing the
petition for certiorari of non- defaulted defendants Lim and Leonardo
impugning the order of dismissal of October 21, 1974, has no bearing
at all in this case, not only because that dismissal was premised by
the appellate court on its holding that the said petition was premature
inasmuch as the trial court had not yet resolved the motion of the
defendants of October 28, 1974 praying that said disputed order be
quashed, but principally because herein petitioners were not parties in
that proceeding and cannot, therefore, be bound by its result. In
particular, We deem it warranted to draw the attention of private

the party resorting to them.

2
Coming now to the matter itself of default, it is quite apparent that the
impugned orders must have proceeded from inadequate apprehension
of the fundamental precepts governing such procedure under the
Rules of Court. It is time indeed that the concept of this procedural
device were fully understood by the bench and bar, instead of being
merely taken for granted as being that of a simple expedient of not
allowing the offending party to take part in the proceedings, so that
after his adversary shall have presented his evidence, judgment may
be rendered in favor of such opponent, with hardly any chance of said
judgment being reversed or modied.
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 plaintiffs evidence and render
judgment granting him such relief as the complaint and the facts
proven may warrant." This last clause is claried by Section 5 which
says that "a judgment entered against a party in default shall not
exceed the amount or be
different in kind from that prayed for."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 plaintiffs
cause of action nd support in the law or that plaintiff is entitled to
the relief prayed for." (Moran, supra, p. 535 citing Macondary & Co.

v. Eustaquio, 64 Phil. 466, citing with approval 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 nal orders or judgments shall be necessary
on a party in default unless he les 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

defendant is no excuse for the court to renounce the opportunity to

closely observe the demeanor and conduct of the witnesses of the
plaintiff, the better to appreciate their truthfulness and credibility. We
therefore declare as a matter of judicial policy that there being no
imperative reason for judges to do otherwise, the practice should be
discontinued.
Another matter of practice worthy of mention at this point is that it is
preferable to leave enough opportunity open for possible lifting of the
order of default before proceeding with the reception of the plaintiffs
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 plaintiffs evidence etc." is not to be
taken

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 plaintiffs 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 plaintiff, the complaint must be
dismissed. And if an unfavorable judgment should be justiable, it
cannot exceed in amount or be different in kind from what is prayed
for in the complaint.
Incidentally, these considerations argue against the present
widespread practice of trial judges, as was done by His Honor in this
case, of delegating to their clerks of court the reception of the
plaintiffs evidence when the defendant is in default. Such a practice
is wrong in principle and orientation. It has no basis in any rule.
When a defendant allows himself to be declared in default, he relies
on the faith that the court would take care that his rights are not
unduly prejudiced He has a right to presume that the law and the
rules will still be observed. The proceedings are held in his forced
absence, and it is but fair that the plaintiff should not be allowed to
take advantage of the situation to win by foul or illegal means or with
inherently incompetent evidence. Thus, in such instances, there is
need for more attention from the court, which only the judge himself
can provide. The clerk of court would not be in a position much less
have the authority to act in the premises in the manner demanded by
the rules of fair play and as contemplated in the law, considering his
comparably limited area of discretion and his presumably inferior
preparation for the functions of a judge. Besides, the default of the

literally. The gain in time and dispatch should the court immediately
try the case on the very day of or shortly after the declaration of
default is far outweighed by the inconvenience and complications
involved in having to undo everything already done in the event the
defendant should justify his omission to answer on time.
The foregoing observations, as may be noted, refer to instances where
the only defendant or all the defendants, there being several, are
declared in default. There are additional rules embodying more
considerations of justice and equity in cases where there are several
defendants against whom a common cause of action is averred and
not all of them answer opportunely or are in default, particularly in
reference to the power of the court to render judgment in such
situations. Thus, in addition to the limitation of Section 5 that the
judgment by default should not be more in amount nor different in
kind from the reliefs specically sought by plaintiff 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
led 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 benet of those who fall to appear, and

if the court nds that a good defense has been made, all of the
defendants must be absolved. In other words, the answer led by one
or some of the defendants inures to the benet of all the others, even
those who have not seasonably led their answer. (Bueno v. Ortiz, L22978, 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 nal 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
nally decided in the plaintiffs favor, a nal decree is then entered
against all the defendants; but if the suit should be decided against the
plaintiff, the action will be dismissed as to all the defendants alike.
(Velez v. Ramas, 40 Phil. 787-792; Frow v. de la Vega, 15 Wal. 552,
21 L. Ed. 60.) In other words the judgment will affect the
defaulting defendants either favorably or adversely. (Castro v. Pea,
80 Phil. 488.)

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 plaintiffs complaint was common against the Mayor of
Manila, Emilia Matanguihan, and the other defendants in Civil Case
No. 1318 of the lower court. The Court of First Instance in its
judgment found and held upon the evidence adduced by the plaintiff
and the defendant mayor that as between said plaintiff and defendant
Matanguihan the latter was the one legally entitled to occupy the
stalls; and it decreed, among other things, that said plaintiff
immediately vacate them. Paraphrasing the New York Court of
Errors, it would be unreasonable to hold now that because
Matanguihan had made default, the said plaintiff should be declared,
as against her, legally entitled to the occupancy of the stalls, or to
remain therein, although the Court of First Instance was so rmly
satised, from the proofs offered by the other defendant, that the
same plaintiff was not entitled to such occupancy that it peremptorily
ordered her to vacate the stalls. If in the cases of Clason v. Morris,
supra, Frow v. De la Vega, supra, and Velez v. Ramas, supra, the
decrees entered inured to the benet 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 benet of the defaulting defendant
Matanguihan. Indeed, the doctrine in said three cases plainly implies
that there is nothing in the

Defaulting defendant may ask execution if judgment is in his favor,

(Castro v. Pea, supra.)" (Moran, Rules of Court, Vol. 1, pp. 538539.)
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 benet of
the defendant in default, of a judgment which was adverse to the
plaintiff. The Court held:jgc:chanrobles.com.ph

law governing default which would prohibit the court from rendering
judgment favorable to the defaulting defendant in such cases. If it
inured to her benet, its stands to reason that she had a right to claim
that benet, for it would not be a benet if the supposed beneciary
were barred from claiming it; and if the benet 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.

"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 plaintiff should have a decree even against him,
where the court is satised from the proofs offered by the other, that
in fact the plaintiff is not entitled to a decree. (21 Law, ed., 61.)
The reason is simple: justice has to be consistent. The complaint
stating a common cause of action against several defendants, the
complainants rights or lack of them in the controversy have to
be the same, and not
different, 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 effect held that in such a case if the plaintiff
is not entitled to a decree, he will not be entitled to it, not only as

Section 7 of Rule 35 would seem to afford a solid support to the

above considerations. It provides that when a complaint states a
common cause of action against several defendants, some of whom
answer, and the others make default, the court shall try the case
against all upon the answer thus led 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 led 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
led 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 benet the defaulting ones, for it would not be just to
let the judgment produce effects as to the defaulting defendants only
when adverse to them and not when favorable."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 led 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 led (by
some) and render judgment upon the evidence presented. In other
words, the answer led by one or some of the defendants inures to the
benet of all the others, even those who have not seasonably led
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

of no more than the right to take part in the trial and that the court
would deem
anything done by or for the answering defendant as done by or for
him. The presumption is that otherwise he would not have seen to it
that he would not be in default. Of course, he has to suffer the
consequences of whatever the answering defendant may do or fail to
do, regardless of possible adverse consequences, but if the complaint
has to be dismissed in so far as the answering defendant is concerned,
it becomes his inalienable right that the same be dismissed also as to
him. It does not matter that the dismissal is upon the evidence
presented by the plaintiff or upon the 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 plaintiffs right only as
to one or some of them, without including all of them, and so, as a
rule, withdrawal must be deemed to be a confession of weakness as
to all. This is not only elementary justice; it also precludes the
concomitant hazard that plaintiff might resort to the kind of
procedural strategem practiced by private respondent herein that
resulted in totally depriving petitioners of every opportunity to
defend themselves against her claims which, after all, as will be seen
later in this opinion, the record does not show to be invulnerable,
both in their factual and legal aspects, taking into consideration the
tenor of the pleadings and the probative value of the competent
evidence which were before the trial court when it rendered its
assailed decision. Where all the defendants are indispensable parties,
for which reason the absence of any of them in the case would result
in the court losing its competency to act validly, any compromise that
the plaintiff might wish to make with any

in the disputed area. It is not possible to decide such issue in the

of them must, as a matter of correct procedure, have to await until

negative, insofar as the Director of Forestry, and to settle it otherwise,

after the rendition of the judgment, at which stage the plaintiff may

as regards the PC, which is merely acting as agent of the Director of

then treat the matter of its execution and the satisfaction of his claim

Forestry, and is, therefore, his alter ego, with respect to the disputed

as variably as he might please. Accordingly, in the case now before

forest area."cralaw virtua1aw library

Us together with the dismissal of the complaint against thenon-

Stated differently, in all instances where a common cause of action is

alleged against several defendants, some of whom answer and the
others do not, the latter or those in default acquire a vested right not
only to own the defense interposed in the answer of their codefendant 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
plaintiffs 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

defaulted defendants, the court should have ordered also the dismissal
thereof as to petitioners.
Indeed, there is more reason to apply here the principle of unity and
indivisibility of the action just discussed because all the defendants
here have already joined genuine issues with plaintiff. Their default
was only at the pre-trial. And as to such absence of petitioners at the
pre- trial, the same could be attributed to the fact that they might not
have considered it necessary anymore to be present, since their
respective children Lim and Leonardo, with whom they have
common defenses, could take care of their defenses as well. Anything
that might have had to be done by them at suchpre-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 unjustied. 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 plaintiffs 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 "les 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 led
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 led 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 offered already at the pretrial and more of it at the actual trial which had already begun with
the rst witness of the plaintiff undergoing re-cross- examination.
With these facts in mind and considering that issues had already been
joined even as regards the defaulted defendants, it would be requiring
the obvious to pretend that there was still need for an oath or a
verication 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 verication no longer holds. Besides, it may
also be reiterated that being the parents of the nondefaulteddefendants, petitioners must have assumed that their
presence was superuous, 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
plaintiffs amended complaint was virtually a second amendment of
plaintiffs complaint. And there can be no doubt that such amendment
was substantial, for with the elimination thereby of two defendants
allegedly solidarily liable with their co-defendants, herein petitioners,
it had the effect of increasing proportionally what each of the
remaining defendants, the said petitioners, would have to answer for
jointly and severally. Accordingly, notice to petitioners of the
plaintiffs 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 different angle, why respondent courts
order of dismissal of October 21, 1974 is fatally ineffective.
4
The foregoing considerations notwithstanding, it is respondents
position that certiorari is not the proper remedy of petitioners. It is
contended that inasmuch as said petitioners have in fact made their
appeal already by ling the required notice of appeal and appeal bond
and a motion for extension to le their record on appeal, which
motion was granted by respondent court, their only recourse is to
prosecute that appeal. Additionally, it is also maintained that since
petitioners have expressly withdrawn their motion to quash of
January 4, 1975 impugning the order of October 28, 1974, they have
lost their right to assail by certiorari the actuations of respondent
court now being questioned, respondent court not having been given
the opportunity to correct any possible error it might have committed.
We do not agree. As already shown in the foregoing discussion, the
proceedings in the court below have gone so far out of hand that
prompt action is needed to restore order in the entangled situation
created by the series of plainly illegal orders it had issued. The
essential purpose of certiorari is to keep the proceedings in lower
judicial courts and tribunals within legal bounds, so that due process
and the rule of law may prevail at all times and arbitrariness,
whimsicality and unfairness which justice abhors may immediately

be stamped out before graver injury, juridical and otherwise, ensues.

While generally these objectives may well be attained in an ordinary
appeal, it is undoubtedly the better rule to allow the special remedy of
certiorari at the option of the party adversely affected, when the
irregularity committed by the trial court is so grave and so far
reaching in its consequences that the long and cumbersome procedure
of appeal will only further aggravate the situation of the aggrieved
party because other untoward actuations are likely to materialize as
natural consequences of those already perpetrated. If the law were
otherwise, certiorari would have no reason at all for being.
No elaborate discussion is needed to show the urgent need for
corrective measures in the case at bar. Verily, this is one case that
calls for the exercise of the Supreme 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 affair. The stakes here are high. Not
only is the subject matter considerably substantial; there is the more
important aspect that not only the spirit and intent of the rules but
even the basic rudiments of fair play have been disregarded. For the
Court to leave unrestrained the obvious tendency of the proceedings
below would be nothing short of wittingly condoning inequity and
injustice resulting from erroneous construction and unwarranted
application of procedural rules.
5
The sum and total of all the foregoing disquisitions is that the
decision here in question is legally anomalous. It is predicated on two
fatal malactuations of respondent court, namely (1) the dismissal of
the complaint against thenon-defaulted defendants Lim and Leonardo
and (2) theex-parte reception of the evidence of the plaintiff by the
clerk of court, the subsequent using of the same as basis for its
judgment and the rendition of such judgment.
For at least three reasons which We have already fully discussed
above, the order of dismissal of October 21, 1974 is unworthy of Our
sanction: (1) there was no timely notice of the motion therefor to
the non-defaulteddefendants, aside from there being no notice at all
to herein petitioners; (2) the common answer of the defendants,
including the non-defaulted, contained a compulsory counterclaim
incapable of being determined in an independent action; and (3) the
immediate effect of such dismissal was the removal of the two nondefaulteddefendants 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 plaintiffs evidence. And as
regards theex-parte reception of plaintiffs 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 nondefaulted 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
aws 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-defaulteddefendants 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 nal, not only because the period for its nality 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 nal, We would have to disregard whatever evidence had
been presented by the plaintiff against them and, of course, the
ndings of respondent court based thereon which, as the assailed
decision shows, are adverse to them. In other words, whichever of the
two apparent remedies the Court chooses, it would necessarily entail
some kind of possible juridical imperfection. Speaking of their
respective practical or pragmatic effects, to annul the dismissal would
inevitably prejudice the rights of the non- defaulted defendants whom
We have not heard and who even respondents would not wish to have
anything anymore to do with the case. On the other hand, to include
petitioners in the dismissal would naturally set at
naught every effort private respondent has made to establish or prove
her case thru means sanctioned by respondent court. In short, We are
confronted with a legalpara-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 plaintiff, including as to petitioners herein.
Consequently, all proceedings held by respondent court subsequent
thereto including and principally its decision of December 20, 1974
are illegal and should be set aside.

This conclusion is fully justied 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 illconceived. 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 theirco-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 aonesided decision, even improperly. And when, in this connection, the
obvious weakness of plaintiffs 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 plaintiff
when there is a compulsory counterclaim, Section 2, Rule 17, (3)
against permitting the absence of indispensable parties, Section 7,
Rule 3, (4) on service of papers upon defendants in default when
there are substantial amendments to pleadings, Section 9, Rule 13,
and (5) on the unity and

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 effects on parties who have not been heard, but
upon closer study of the pleadings and the decision and other
circumstances extant in the record before Us, We are now persuaded
that such a course of action would only lead to more legal
complications incident to attempts on the part of the parties
concerned to desperately squeeze themselves out of a bad situation.
Anyway, We feel
condent that by and large, there is enough basis here and now for Us
to rule out the claim of the plaintiff.
Even a mere supercial reading of the decision would immediately
reveal that it is littered on its face with deciencies 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 ndings relative precisely to the main bases themselves of the
reliefs granted. It is apparent therein that no effort has been made to
avoid glaring inconsistencies. Where references are made to codal
provisions and jurisprudence, inaccuracy and inapplicability are at
once manifest. It hardly commends itself as a deliberate and
consciencious adjudication of a litigation which, considering the
substantial value of the subject matter it involves and the
unprecedented procedure that was followed by 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

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

1. According to His Honors own statement of plaintiffs case, "she is

declaratory of their intent and proper construction are so readily

the widow of the late Tee Hoon Po Chuan (Po Chuan, for short) who

comprehensible that any error as to their application would be

was then one of the partners in

unusual in any competent trial court.

the commercial partnership, Glory Commercial Co . . .

3.After all, all the malactuations of respondent court are traceable to

with defendants Antonio Lim Tanhu (Lim Tanhu, for short) and

the initiative of private respondent and/or her counsel. She cannot,

Alfonso Leonardo Ng Sua (Ng Sua, for short) as co- partners; that

therefore, complain that she is being made to unjustiably suffer the

after the death of her husband on March 11, 1966 she is entitled to

consequences of what We have found to be erroneous orders of

share not only in the capital and prots of the partnership but also in

respondent court. It is only fair that she should not be allowed to

the other assets, both real and personal, acquired by the partnership

benet from her own frustrated objective of securing a one-

with funds of the latter during its lifetime."cralaw virtua1aw library

sided decision.
Relatedly, in the latter part of the decision, the ndings are to the
4.More importantly, We do not hesitate to bold that on the basis of its
own recitals, the decision in question cannot stand close scrutiny.
What is more, the very considerations contained therein reveal
convincingly the inherent weakness of the cause of the plaintiff. To
be sure, We have been giving serious thought to the idea of merely

following effect:jgc:chanrobles.com.ph
"That the herein plaintiff Tan Put and her late husband Po Chuan
were married at the Philippine Independent Church of Cebu City on
December 20, 1949; that Po Chuan died on March 11, 1966; that the
plaintiff and the late Po Chuan were childless but the former has a

foster son Antonio Nuez whom she has reared since his birth with
whom she lives up to the present; that prior to the marriage of the
plaintiff to Po Chuan the latter was already managing the partnership
Glory Commercial Co. then engaged in a little business in hardware
at Manalili St., Cebu City; that prior to and just after the marriage of
the plaintiff to Po Chuan she was engaged in the drugstore business;
that not long after her marriage, upon the suggestion of Po Chuan, the
plaintiff sold her drugstore for P125,000.00 which amount she gave
to her husband in the presence of defendant Lim Tanhu and was
invested to the partnership Glory Commercial Co. sometime in 1950;
that after the investment of the above- stated amount in the
partnership its business ourished and it embarked in the import
business and also engaged
in the wholesale and retail trade of cement and GI sheets and under

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 clarications of matters taken up at thepre-trial, before nally
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
insignicant and worthless.

huge prots;

Now, applying these postulates to the ndings of respondent court

xxx

just quoted, it will be observed that the courts conclusion about the
supposed marriage of

"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 nal 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 ndings 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 pretrial exhibits and to Annex A of the answer of the defendants to
plaintiffs amended complaint. Indeed, it was incumbent upon the
court to consider not only the evidence formally offered at the trial
but also the
admissions, expressed or implied, in the pleadings, as well as
whatever might have been placed before it or brought to its attention
during the pre-trial. In this connection, it is to be regretted that none
of the parties has thought it proper to give Us an idea of what took
place at the pre-trial of the present case and what are contained in
the pre-trial order, if any was issued pursuant to Section 4 of Rule 20.

The fundamental purpose of pre-trial, aside from affording the parties

every opportunity to compromise or settle their differences, is for the
court to be apprised of the unsettled issues between the parties and of

plaintiff to the deceased Tee Hoon Lim Po Chuan is contrary to the

weight of the evidence brought before it during the trial and the pretrial.
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 rst be
satisfactorily explained. Surely, the certication 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 rst presented to the
court. In the case at bar, the purported certication 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 certier, the jurat allegedly
signed by a second assistant provincial scal 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 plaintiff herself on the same point and
that of her witness Antonio Nuez, there can be no question that they
are both self-serving and of very little evidentiary value, it having
been disclosed at the trial that plaintiff has already assigned all her
rights in this
case to said Nuez, thereby making him the real party in interest here
and, therefore, naturally as biased as herself. Besides, in the portion
of the testimony of Nuez copied in Annex C of 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 certicate 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. Signicantly,
respondents have not made any adverse comment on this document.
It is more likely, therefore, that the witness is really the son of
plaintiff by her husband Uy Kim Beng. But she testied 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.

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
certications have been impugned by respondent until now, it stands
to reason that plaintiffs claim of marriage is really unfounded.
Withal, there is still another document, also mentioned and discussed
in the same memorandum and unimpugned by respondents, a written
agreement executed in Chinese, but purportedly translated into
English by the Chinese Consul of Cebu, between Tan Put and Tee
Hoon Lim Po Chuan to the following effect:jgc:chanrobles.com.ph

"CONSULATE OF THE REPUBLIC OF CHINA

Cebu City, Philippines
TRANSLATION

Now, as against such imsy evidence of plaintiff, the court had before
it, two documents of great weight belying the pretended marriage. We

This is to certify that I, Miss Tan Ki Eng Alias Tan Put, have lived

refer to (1) Exhibit LL, the income tax return of the deceased Tee

with Mr. Lim Po Chuan alias Tee Hoon since 1949 but it recently

Hoon Lim Po Chuan indicating that the name of his wife was Ang

occurs that we are incompatible with each other and are not in the

Siok Tin and (2) the quitclaim, Annex A of the answer, wherein

position to keep living together permanently. With the mutual

plaintiff Tan Put stated that she had been living with the deceased

concurrence, we decided to terminate the existing relationship of

without benet of marriage and that she was his "common-law wife."

commonlaw-marriage and promised not to interfere each others

Surely, these two documents are far more reliable than all the

affairs from now on. The Forty Thousand Pesos (P40,000.00) has

evidence of the plaintiff put together.

been given to me by Mr. Lim Po Chuan for my subsistence.

Of course, Exhibit LL is what might be termed as pre-trialevidence.

But it is evidence offered to the judge himself, not to the clerk of
court, and should have at least moved him to ask plaintiff to explain
if not rebut it before jumping to the conclusion regarding her alleged
marriage to the deceased, Po Chuan. And in regard to the quitclaim
containing the admission of a common-law relationship only, it is to
be observed that His Honor found that "defendants Lim Tanhu and
Ng Sua had the plaintiff execute a quitclaim on November 29, 1967
(Annex "A", Answer) where they gave plaintiff the amount of
P25,000 as her share in the capital and prots of the business of
Glory Commercial Co. which was engaged in the hardware
business", without making mention of any evidence of fraud and
misrepresentation in its execution, thereby indicating either that no
evidence to prove that allegation of the plaintiff had been presented
by her or that whatever evidence was actually offered did not produce
persuasion upon the court. Stated differently, since the existence of
the quitclaim has been duly established without any circumstance to
detract from its legal import, the court should have held that plaintiff
was bound by her admission therein that she was the commonlaw 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.

Witnesses:chanrob1es virtual 1aw library

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 certication of the Local Civil
Registrar of Cebu City and (2) a similar certication of the Apostolic

Hoon Lim Po Chuan has not been satisfactorily established and that,

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
Veried from the records.
JORGE TABAR"
(Pp. 283-284, Record.)
Indeed, not only does this document prove that plaintiffs relation to
the deceased was that of a common-law wife but that they had settled
their property interests with the payment to her of P40,000.
In the light of all these circumstances, We nd no alternative but to
hold that plaintiff Tan Puts allegation that she is the widow of Tee
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 signicance to its contents.

2. If, as We have seen, plaintiffs 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

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 ourish, why would she claim to be entitled to
only to 1/3 of its assets and prots? 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 commonlaw 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 admitted impliedly in defendants afrmative defense that Po

Actually, as may be noted from the decision itself, the trial court was

Chuans share had already been duly settled with and paid to both the

confused as to the participation of defendants Lim Tanhu and Ng Sua

plaintiff and his legitimate family. But the evidence as to the actual

in Glory Commercial Co. At one point, they were deemed partners, at

participation of the defendants Lim Tanhu and Ng Sua in the

another point mere employees and then elsewhere as partners-

operation of the business that could have enabled

employees, a newly found concept, to be sure, in the law on

them to make the extractions of funds alleged by plaintiff is at best

partnership. And the confusion is worse compounded in the judgment

confusing and at certain points manifestly inconsistent.

which allows these "partners in name" and"partners-employees" or

In her amended complaint, plaintiff repeatedly alleged that as widow

of Po Chuan she is entitled to 1/3 share of the assets and properties of
the partnership. In fact, her prayer in said complaint is, among others,
for the delivery to her of such 1/3 share. His Honors statement of the
case as well as his ndings and judgment are all to that same effect.
But what did she actually try to prove at the ex-parte hearing?

According to the decision, plaintiff had shown that she had money of
her own when she "married" Po Chuan and "that prior to and just
after the marriage of the plaintiff to Po Chuan, she was engaged in
the drugstore business; that not long after her marriage, upon the
suggestion of Po Chuan, the plaintiff sold her drugstore for P125,000
which amount she gave to her husband in the presence of Tanhu and
was invested in the partnership Glory Commercial Co. sometime in
1950; that after the investment of theabove-stated amount in the
partnership, its business ourished 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 prots." (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
ourished and amassed all the millions referred to in the decision has

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
prots of the partnership. Incidentally, it may be observed at this
juncture that the decision has made Po Chuan play the inconsistent
role of being "practically the owner" but at the same time getting his
capital from the P125,000 given to him by plaintiff and from which
capital the business allegedly "ourished."cralaw virtua1aw library
Anent the allegation of plaintiff that the properties shown by her
exhibits to be in the names of defendants Lim Tanhu and Ng Sua
were bought by them with partnership funds, His Honor conrmed
the same by nding and holding that "it is likewise clear that real
properties together with the improvements in the names of defendants
Lim Tanhu and Ng Sua were acquired with partnership funds as these
defendants were only partners-employees of deceased Po Chuan in
the Glory Commercial Co. until the time of his death on March 11,
1966." (p. 30, id.) It is Our considered view, however, that this
conclusion of His Honor is based on nothing but pure unwarranted
conjecture. Nowhere is it shown in the decision how said defendants
could have extracted money from the partnership in the fraudulent
and illegal manner pretended by plaintiff. Neither in the testimony of
Nuez nor in that of plaintiff, as these are summarized in the

decision, can there be found any single act of extraction of

partnership funds committed by any of said defendants. That the
partnership might have grown into a multi-million enterprise and that
the properties described in the exhibits enumerated in the decision are
not in the
names of Po Chuan, who was Chinese, but of the defendants who are
Filipinos, do not necessarily prove that Po Chuan had not gotten his
share of the prots of the business or that the properties in the names
of the defendants were bought with money of the partnership. In this
connection, it is decisively important to consider that on the basis of
the concordant and mutually cumulative testimonies of plaintiff and
Nuez, respondent court found very explicitly that, and We
reiterate:chanrob1es virtual 1aw library
xxx

"That the late Po Chuan was the one who actively managed the
business of the partnership Glory Commercial Co.; he was the one
who made the nal decisions and approved the appointments of new
personnel who were taken in by the partnership; that the late Po
Chuan and defendants Lim Tanhu and Ng Sua are brothers, the latter
two (2) being the elder brothers of the former; that defendants Lim
Tanhu and Ng Sua are both naturalized Filipino citizens whereas the
late Po Chuan until the time of his death was a Chinese citizen; that
the three (3) brothers were partners in the Glory Commercial Co. but
Po Chuan was practically the owner of the partnership having the
controlling interest; that defendants Lim Tanhu and Ng Sua were
partners in name but they were mere employees of Po Chuan; . . . ."
(Pp.90-91, Record.)

If Po Chuan was in control of the affairs and the running of the

partnership, how could the defendants have
defrauded him of such huge amounts as plaintiff had made his Honor
believe? Upon the other hand, since Po Chuan was in control of the
affairs of the partnership, the more logical inference is that if
defendants had obtained any portion of the funds of the partnership
for themselves, it must have been with the knowledge and consent of
Po Chuan, for which reason no accounting could be demanded from
them therefor, considering that Article 1807 of the Civil Code refers
only to what is taken by a partner without the consent of the other
partner or partners. Incidentally again, this theory about Po Chuan
having been actively managing the partnership up to his death is a
substantial deviation from the allegation in the amended complaint to
the effect that "defendants Antonio Lim Tanhu, Alfonso Leonardo Ng
Sua, Lim Teck Chuan and Eng Chong Leonardo, through fraud and
machination, took actual and active management of the partnership
and although Tee Hoon Lim Po Chuan was the manager of Glory
Commercial Co., defendants managed to use the funds of the
partnership to purchase lands and buildings etc. (Par. 4, p. 2 of
amended complaint, Annex B of petition) and should not have been
permitted to be proven by the hearing ofcer, who naturally did not
know any better.

Moreover, it is very signicant 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 plaintiffs pretensions. Nuez testied 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 certicate
produced by the same witness as his birth certicate, 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
certicate", 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
shing business thereat oundered, 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 plaintiff herself, "Lim Tanhu was employed by
her husband although he did not go there always being a mere
employee of Glory Commercial Co." (p. 22, Annex L, the decision.)
The decision is rather emphatic in that Lim Tanhu and Ng Sua had no
known income except their salaries. Actually, it is not stated,
however, from what evidence such conclusion was derived in so far
as Ng Sua is concerned. On the other hand, with respect to Lim
Tanhu, the decision itself states that according to Exhibit NNPre- 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 shing 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 nancial 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

been any liquidation of the partnership, contrary to the allegation of

the defendants, then Glory Commercial Co. would have the status of
a partnership in liquidation and the only right plaintiff could have
would be to what might result after such liquidation to belong to the
deceased partner, and before this is nished, it is impossible to
determine, what rights or interests, if any, the deceased had (Bearneza
v. Deqoilla, 43 Phil. 237). In other words, no specic amounts or
properties may be adjudicated to the heir or legal representative of
the deceased partner without the liquidation being rst terminated.

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

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

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 certied public
accountant, was hardly qualied to read such exhibits and draw any
denite 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-4A, II-5and 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.

inexplicable deciencies and imperfections of the decision in

Additionally, We note that the decision has not made any nding

THIRD DIVISION

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 nding made as to how the defendants Dy Ochay and
Co Oyo could in any way be accountable to plaintiff, just because
they happen to be the wives of Lim Tanhu and Ng Sua, respectively.
We further note that while His Honor has ordered defendants to
deliver or pay jointly and severally to the plaintiff P4,074,394.18 or
1/3 of the P12,223,182.55, the supposed cash belonging to the
partnership as of December 31, 1965, in the same breath, they have
also been sentenced to partition and give 1/3 share of the properties
enumerated in the dispositive portion of the decision, which
seemingly are the very properties allegedly purchased from the funds
of the partnership which would naturally include the P12,223,182.55
defendants have to account for. Besides, assuming there has not yet

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 plaintiff must be totally dismissed, and, were it not
seemingly futile and productive of other legal complications, that
plaintiff is liable on defendants counterclaims. Resolution of the
other issues raised by the parties albeit important and perhaps pivotal
has likewise become superuous.
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 effects of its order
of dismissal of the action dated October 21, 1974 to herein petitioners
Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and Co
Oyo. And respondent court is hereby permanently enjoined from
taking any further action in said civil case save and except as herein
indicated. Costs against private Respondent.

[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 led 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

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.

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 prots 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 nal accounting is done.
4.

ID.;

ID.;

ID.;

DISSOLUTION

AND

WINDING

UP;

LIQUIDATION AND WINDING UP OF PARTNERSHIP AFFAIRS,

RETURN

OF

CAPITAL

AND

OTHER

DISSOLUTION

PROPER

BECAUSE

INCIDENTS

OF

CONTINUATION

OF

PARTNERSHIP HAS BECOME INEQUITABLE. There shall be

a liquidation and winding up of partnership affairs, return of capital,
and other incidents of dissolution because the continuation of the
partnership has become inequitable.
DECISION

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 prots of the said restaurant.
This case originated from a complaint led by respondent Leung Yiu
with the then Court of First Instance of Manila,
Branch II to recover the sum equivalent to twenty-twopercent (22%)
of the annual prots derived from the operation of Sun Wah
Panciteria since October, 1955 from petitioner Dan Fue Leung.

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 identied 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 certication and testied that the translation to
the best of her knowledge and belief was correct. The private
respondent identied 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 effect that they were both present when
the receipt (Exhibit "A") was signed by the petitioner. So Sia further
testied 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-Bfrom the prots of the operation
of the restaurant for the year 1974. Witness Teodulo Diaz, Chief of
the Savings Department of the China Banking Corporation testied
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
testied 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
testied

that upon clearance of the check and pursuant to normal banking

the sum equivalent to 22% of the net prot of P8,000.00 per day from

procedure, said check was returned to the petitioner as the maker

the time of judicial

thereof.

demand, until fully paid, plus the sum of P5,000.00 as and for

The petitioner denied having received from the private respondent the

attorneys fees and costs of suit." (p. 150, Rollo)

amount of P4,000.00. He contested and impugned the genuineness of

The petitioner appealed the trial courts amended decision to the then

the

Intermediate Appellate Court. The questioned decision was further

receipt

(Exhibit

D).

His

evidence

is

summarized

as

follows:chanrob1es virtual 1aw library

modied by the appellate court. The dispositive portion of the

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 atly 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).

appellate courts decision reads:jgc:chanrobles.com.ph

As between the conicting evidence of the parties, the trial court gave

"WHEREFORE, the decision appealed from is modied, the

dispositive portion thereof reading as follows:jgc:chanrobles.com.ph
"1. Ordering the defendant to pay the plaintiff by way of temperate
damages 22% of the net prot of P2,000.00 a day from judicial
demand to May 15, 1971;
"2. Similarly, the sum equivalent to 22% of the net prot 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 prot of P8,000.00 a day.

credence to that of the plaintiffs. Hence, the court ruled in favor of

"Except as modied, the decision of the court a quo is afrmed in all

the private Respondent. The dispositive portion of the decision

other respects. (p. 102, Rollo)

reads:jgc:chanrobles.com.ph

Later, the appellate court, in a resolution, modied its decision and

"WHEREFORE, judgment is hereby rendered in favor of the plaintiff

afrmed the lower courts decision. The dispositive portion of the

and against the defendant, ordering the latter

resolution reads:jgc:chanrobles.com.ph

to deliver and pay to the former, the sum equivalent to 22% of the

"WHEREFORE, the dispositive portion of the amended judgment of

annual prot derived from the operation of Sun Wah Panciteria from

the court a quo reading as follows:chanrob1es virtual 1aw library

October, 1955, until fully paid, and attorneys fees in the amount of
P5,000.00 and cost of suit." (p. 125, Rollo)

WHEREFORE, judgment is rendered in favor of the plaintiff and

against the defendant, ordering the latter to pay to the former the sum

The private respondent led a veried motion for reconsideration in

equivalent to 22% of the net prot of P8,000.00 per day from the

the nature of a motion for new trial and, as supplement to the said

time of judicial demand, until fully paid, plus the sum of P5,000.00

motion, he requested that the decision rendered should include the net

as and for attorneys fees and costs of suit.

prot of the Sun Wah Panciteria which was not specied in the
decision, and allow private respondent to adduce evidence so that the

is hereby retained in full and afrmed in toto it being understood that

said decision will be comprehensively adequate and thus put an end

the date of judicial demand is July 13, 1978." (pp. 105-106, Rollo).

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 led by the plaintiff, which was granted earlier by the
Court, is hereby reiterated and the decision rendered by this Court on
September 30, 1980, is hereby amended. The dispositive portion of
said decision should read now as follows:jgc:chanrobles.com.ph
"WHEREFORE, judgment is hereby rendered, ordering the plaintiff
(sic) and against the defendant, ordering the latter to pay the former

In the same resolution, the motion for reconsideration led 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 ndings 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 prots of the restaurant. The
petitioner, however, claims that this factual nding is erroneous.
Thus, the petitioner argues: "The complaint avers that private
respondent extended nancial 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

Court to grant a relief not called for by the complaint. It was also

two percentum (22%) of the annual prot derived from the operation
of the said panciteria." (p. 107, Rollo) The well-settled doctrine is
that the." . . nature of the action led 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).

error for the Hon. Intermediate Appellate Court to interpret or

The appellate court did not err in declaring that the main issue in the

construe nancial assistance to mean the contribution of capital by a

instant case was whether or not the private respondent is a partner of

partner to a partnership;" (p. 75, Rollo)

the petitioner in the establishment of Sun Wah Panciteria.

The pertinent portions of the complaint state:chanrob1es virtual 1aw

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
testied to by any witness nor has any witness identied 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 prots 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

library
xxx

"2. That on or about the latter (sic) of September, 1955, defendant

sought the nancial assistance of plaintiff in operating the defendants
eatery known as Sun Wah Panciteria, located in the given address of
defendant; as a return for such nancial assistance. plaintiff would be
entitled to twenty-two percentum (22%) of the annual prot derived
from the operation of the said panciteria;
"3. That on October 1, 1955, plaintiff delivered to the defendant the
sum of four thousand pesos (P4,000.00), Philippine Currency, of
which copy for the receipt of such amount, duly acknowledged by the
defendant is attached hereto as Annex "A", and form an integral part
hereof;" (p. 11, Rollo)
In essence, the private respondent alleged that when Sun Wah
Panciteria was established, he gave P4,000.00 to the petitioner with
the understanding that he would be
entitled to twenty-two percent (22%) of the annual prot 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 prots
among themselves."

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
ndings (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 le an opposition to the motion of the
private respondent to have these exhibits together with the two
receipts examined by the PC Crime Laboratory despite due notice to
him. Likewise, no explanation has been offered for his silence nor
was any hint of objection registered for that purpose.
Under these circumstances, we nd no reason why Exhibit "J" should
be rejected or ignored. The records sufciently establish that there

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 nancial assistance therein. We
agree with the appellate courts observation to the effect that." . .
given its ordinary meaning, nancial 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 nancial
assistance, plaintiff (private respondent) would be entitled to twenty-

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 led 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

unconscionable and above the claim of private respondent as

from the time the right of section accrues:jgc:chanrobles.com.ph

embodied in his complaint and testimonial evidence presented by

said private respondent to support his claim in the complaint.

"(1) Upon a written contract;

(2)Upon an obligation created by law;

Apart from his own testimony and allegations, the private respondent
presented the cashier of Sun Wah Panciteria,

(3)Upon a judgment."cralaw virtua1aw library

a certain Mrs. Sarah L. Licup, to testify on the income of the

in

relation

to

Article

1155

thereof

which

restaurant.
Mrs. Licup stated:jgc:chanrobles.com.ph

provides:jgc:chanrobles.com.ph
"Art. 1155. The prescription of actions is interrupted when they are
led before the court, when there is a writtenextra-judicial demand by
the creditor, and when there is any written acknowledgment of the
debt by the debtor."cralaw virtua1aw library

"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,

The argument is not well-taken.

being the cashier, is that correct?

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 prots 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
prots but also in the losses of the rm. If excellent relations exist
among the partners at the start of business and all the partners are
more interested in seeing the rm grow rather than get immediate
returns, a deferment of sharing in the prots 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

"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.

of the petitioner to give him the agreed prots in the operation of Sun
Wah Panciteria. In effect the private respondent was asking for an

"Q So, in other words, after your job, you huddle or confer together?

accounting of his interests in the partnership.cralawnad

"A Yes, count it all. I total it. We sum it up.

It is Article 1842 of the Civil Code in conjunction with Articles 1144

"Q Now, Mrs. Witness, in an average day, more or less, will you

and

please tell us, how much is the gross income of the restaurant?

1155

which

is

applicable.

Article

1842

states:jgc:chanrobles.com.ph

"A For regular days, I received around P7,000.00 a day during my

"The right to an account of his interest shall accrue to any partner, or

shift alone and during pay days I receive more than P10,000.00. That

his legal representative as against the winding up partners or the

is excluding the catering outside the place.

surviving partners or the person or partnership continuing the

business, at the date of dissolution, in the absence or any agreement

"Q What about the catering service, will you please tell the

to the contrary."cralaw virtua1aw library

Honorable Court how many times a week were there catering

Regarding the prescriptive period within which the private

services?

respondent may demand an accounting, Articles 1806, 1807, and

"A Sometimes three times a month; sometimes two times a month or

1809 show that the right to demand an accounting exists as long as

more.

the partnership exists. Prescription begins to run only upon the

dissolution of the partnership when the nal accounting is done.
Finally, the petitioner assails the appellate courts monetary awards in
favor of the private respondent for being excessive

and

xxx

"Q Now more or less, do you know the cost of the catering service?
"A Yes, because I am the one who receives the payment also of the
catering.
"Q How much is that?

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)

"A That ranges from two thousand to six thousand pesos, sir.
"Q Per service?

The records show that the trial court went out of its way to accord
due process to the petitioner.

"A Per service, Per catering.

"Q So in other words, Mrs. witness, for your shift alone in a single
day from 3:30 P.M. to 11:30 P.M. in the evening the restaurant
grosses an income of P7,000.00 in a regular day?
"A Yes.
"Q And ten thousand pesos during pay day?
"A Yes.(TSN, pp. 53 to 59, inclusive, November 15, 1978).
xxx

"COURT:chanrob1es virtual 1aw library

Any cross?

"The defendant was given all the chance to present all conceivable
witnesses, after the plaintiff has rested his case on February 25, 1981,
however, after presenting several witnesses, counsel for defendant
promised that
he will present the defendant as his last witness. Notably there were
several postponement asked by counsel for the defendant and the last
one was on October 1, 1981 when he asked that this case be
postponed for 45 days because said defendant was then in Hongkong
and he (defendant) will be back after said period. The Court acting
with great concern and understanding reset the hearing to November
17, 1981. On said date, the counsel for the defendant who again
failed to present the defendant asked for another postponement, this
time to November 24, 1981 in order to give said defendant another
judicial magnanimity and substantial due process. It was however a
condition in the order granting the postponement to said date that if
the defendant cannot be presented, counsel is deemed to have waived
the presentation of said witness and will submit his case for decision.

"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
offered 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

"On November 24, 1981, there being a typhoon prevailing in Manila

said date was declared a partial non-workingholiday, 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 le
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
ndings 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 prots 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 ndings
of both the trial court and the appellate court, it cannot refer to any
portion of the records for such modication. There is no basis in the
records for this Court to change or set aside the factual ndings 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.

[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.
DECISION

YNARES-SANTIAGO, J.:
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

Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divinagracia

payment of a share of

were partners in a business concern known as Ma. Nelma Fishing

prots shall continue into the future with no xed ending

date.chanrobles law library : red

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

Considering the facts of this case, the Court may decree a dissolution

Divinagracias withdrawal from the partnership. 1

of the partnership under Article 1831 of the Civil Code which, in part,

Among the assets to be distributed were ve (5) shing boats, six (6)

provides:jgc:chanrobles.com.ph

vehicles, two (2) parcels of land located at Sto. Nio and Talisay,
Negros Occidental, and cash deposits in the local branches of the

"Art. 1831. On application by or for a partner the court shall decree a

Bank of the Philippine Islands and Prudential Bank.chanrob1es

dissolution whenever:chanrob1es virtual 1aw library

virtua1 1aw 1ibrary

xxx

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 nances.
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

"(3) A partner has been guilty of such conduct as tends to affect

prejudicially the carrying on of the business;
"(4) A partner willfully or persistently commits a breach of the
partnership agreement, or otherwise so conducts himself in matters
relating to the partnership business that it is not reasonably
practicable to carry on the business in partnership with him;
xxx

Consequently, Tabanaos heirs, respondents herein, led 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

"(6) Other circumstances render a dissolution equitable."cralaw

1.Defendant be ordered to render the proper accounting of all the

virtua1aw library

assets and liabilities of the partnership at bar; and

There shall be a liquidation and winding up of partnership affairs,

2.After

return of capital, and other incidents of dissolution because the

pay/remit/deliver/surrender/yield

continuation of the partnership has become inequitable.

following:chanrob1es virtual 1aw library

WHEREFORE, the petition for review is hereby DISMISSED for

A.No less than One Third (1/3) of the assets, properties, dividends,

lack of merit. The decision of the respondent court is AFFIRMED

cash, land(s), shing vessels, trucks, motor vehicles, and other forms

with a MODIFICATION that as indicated above, the partnership of

and substance of treasures which belong and/or should belong, had

the parties is ordered dissolved.

accrued and/or must accrue to the partnership;

SO ORDERED
FIRST DIVISION

due

notice

and

hearing defendant
to

the

be

ordered

plaintiffs

to
the

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

involve (sic) a parcel of land situated outside of its territorial

share/amount/award which the Honorable Court may resolve the

jurisdiction;

plaintiffs as entitled to plus P1,000.00 for every appearance in court.

4
Petitioner led 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 led 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
plaintiffs"
their
corresponding share in the proceeds thereof. In due time, petitioner
led a manifestation and motion to dismiss, 8 arguing that the trial
court did not acquire jurisdiction over the case due to the plaintiffs
failure to pay the proper docket fees. Further, in a supplement to his
motion to dismiss, 9 petitioner also raised prescription as an
additional ground warranting the outright dismissal of the complaint.
On June 15, 1995, the trial court issued an Order, 10 denying the
motion to dismiss inasmuch as the grounds raised therein were
basically the same as the earlier motion to dismiss which has been
denied. Anent the issue of prescription, the trial court ruled that
prescription begins to run only upon the dissolution of the partnership
when the nal accounting is done. Hence, prescription has not set in
the absence of a nal accounting. Moreover, an action based on a
written contract prescribes in ten years from the time the right of
action accrues.

Petitioner led 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

III. Whether or not respondent Judge acted without jurisdiction or

with grave abuse of discretion in allowing the estate of the deceased
to appear as party plaintiff, when there is no intestate case and led
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 nding 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 satised, petitioner led 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 plaintiff heirs of Vicente
Tabanao; and
IV. Prescription of the plaintiff heirs cause of action.
It can be readily seen that respondents primary and ultimate
objective in instituting the action below was to recover the decedents
1/3 share in the partnerships assets. While they ask for an accounting
of the partnerships assets and nances, 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 justied 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

contemplates an initial payment of the ling fees corresponding to the

at the time of ling, respondents can and must ascertain, through

estimated amount of the

informed and practical estimation, the amount they expect to collect

from the partnership, particularly from petitioner, in order to

claim subject to adjustment as to what later may be proved." 20

determine the proper amount of docket and other fees. 14 It is thus

Moreover, we reiterated therein the principle that the payment of

imperative for respondents to pay the corresponding docket fees in

ling fees cannot be made contingent or dependent on the result of

order that the trial court may acquire jurisdiction over the action. 15

the case. Thus, an initial payment of the docket fees based on an

Nevertheless, unlike in the case of Manchester Development Corp. v.

Court of Appeals, 16 where there was clearly an effort to defraud the
government in avoiding to pay the correct docket fees, we see no
attempt to cheat the courts on the part of respondents. In fact, the
lower courts have noted their expressed desire to remit to the court
"any payable balance or lien on whatever award which the Honorable
Court may grant them in this case should there be any deciency 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 ling. 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

estimated amount must be paid simultaneous with the ling of the

complaint. Otherwise, the court would stand to lose the ling 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 specic claim 1/3
of the value of all the partnership assets but they did not allege a
specic 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 specically
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

favor of the pauper-litigant.

difference between the amount nally awarded and the fees paid

Respondents cannot invoke the above provision in their favor

upon ling of this complaint that is subject to adjustment and which

because it specically applies to pauper-litigants.Nowhere in the

may be subjected to a lien.

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 denes 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 nally
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 the oft-quoted case of Sun Insurance Ofce, Ltd. v. Hon.

Maximiano Asuncion, 22 this Court held that when the specic claim
"has been left for the determination by the court, the additional ling
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 ling
and docket fees based on the estimated claims of the plaintiff, and it
is only when there is a deciency that a lien may be constituted on
the judgment award until such additional fee is collected.

In case the value of the property or estate or the sum claimed is less

Based on the foregoing, the trial court erred in not dismissing the

or more in accordance with the appraisal of the court, the difference

complaint outright despite their failure to pay the proper docket fees.

of fee shall be refunded or paid as the case may be. (Emphasis ours)

Nevertheless, as in other procedural rules, it may be liberally

In Pilipinas Shell Petroleum Corporation v. Court of Appeals, 19 this

Court

pronounced

that

the above-quotedprovision

"clearly

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

reglementary period. 24

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.

In the recent case of National Steel Corp. v. Court of Appeals, 25 this

The time-tested case of Claridades v. Mercader, Et Al., 28 settled this

Court held that:chanrob1es virtual 1aw library

issue thus:chanrob1es virtual 1aw library

The court acquires jurisdiction over the action if the ling of the

The fact that plaintiff prays for the sale of the assets of the

initiatory pleading is accompanied by the payment of the requisite

partnership, including the shpond in question, did not change the

fees, or, if the fees are not paid at the time of the ling of the

nature or character of the action, such sale being merely a necessary

pleading, as of the time of full payment of the fees within such

incident of the liquidation of the partnership, which should precede

reasonable time as the court may grant, unless, of course, prescription

and/or is part of its process of dissolution.

docket fee in the proper amount should be adhered to, there are
certain exceptions which must be strictly construed. 23
In recent rulings, this Court has relaxed the strict adherence to the
Manchester doctrine, allowing the plaintiff to pay the proper docket
fees within a reasonable
time before the expiration of the applicable prescriptive or

has set in the meantime.

It does not follow, however, that the trial court should have dismissed
the complaint for failure of private respondent to pay the correct
amount of docket fees. Although the payment of the proper docket
fees is a jurisdictional requirement, the trial court may allow the
plaintiff in an action to pay the same within a reasonable time before
the expiration of the applicable prescriptive or reglementary period. If
the plaintiff fails to comply within this requirement, the defendant
should timely raise the issue of jurisdiction or else he would be
considered in estoppel. In the latter case, the balance between the
appropriate docket fees and the amount actually paid by the plaintiff
will be considered a lien or any award he may obtain in his favor.
(Emphasis ours)

The action led 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 effect, claims a debt from petitioner and seeks the
performance of a personal duty on his part. 29 In ne, respondents
complaint seeking the liquidation and partition of the assets of the
partnership with damages is a personal action which may be led 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

Accordingly, the trial court in the case at bar should determine the

Vicente Tabanao has no legal capacity to sue since she was never

proper docket fee based on the estimated amount that respondents

appointed as administratrix or executrix of his estate. Petitioners

seek to collect from petitioner,

objection in this regard is misplaced. The surviving spouse does not

and direct them to pay the same within a reasonable time, provided

need to be appointed as executrix or administratrix of the estate

the applicable prescriptive or reglementary period has not yet

before she can le the action. She and her children are complainants

expired. Failure to comply therewith, and upon motion by petitioner,

in their own right as successors of Vicente Tabanao. From the very

the immediate dismissal of the complaint shall issue on jurisdictional

moment of Vicente Tabanaos death, his rights insofar as the

grounds.
On the matter of improper venue, we nd no error on the part of 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

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

Whatever claims and rights Vicente Tabanao had against the

where the defendant resides or may be found, or where the plaintiffs

partnership and petitioner were transmitted to respondents by

reside, at the election of the latter. 26

operation of law, more particularly by succession, which is a mode of

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

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 fulllment 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 fulll his
obligations.

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
nal accounting is made, it is only then that prescription begins to
run. In the case at bar, no nal 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

Finally, petitioner contends that the trial court should have dismissed

the partnerships business and assets. Hence, the said action is not

the complaint on the ground of prescription,

barred by 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) nal stages of a partnership are: (1) dissolution;
(2) winding-up; and (3) termination. 36 The partnership, although
dissolved, continues to exist and its legal personality is retained, at
which time it completes the winding up of its affairs, including the
partitioning and distribution of the net partnership assets to the
partners. 37 For as long as the partnership exists, any of the partners
may demand an accounting of the partnerships business. Prescription
of the said right starts to run only upon the dissolution of the
partnership when the nal accounting is done. 38
Contrary to petitioners protestations that respondents right to
inquire into the business affairs of the partnership accrued in 1986,
prescribing four (4) years thereafter, prescription had not even begun
to run in the absence of a nal accounting. Article 1842 of the Civil

In ne, 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 plaintiffs therein seek to collect, and direct said plaintiffs to pay
the same within a reasonable time, provided the applicable
prescriptive or reglementary period has not yet expired. Thereafter,
the trial court is ORDERED to conduct the appropriate proceedings
in Civil Case No. 416-C.

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.

Costs against petitioner.

SO ORDERED.