THE GREAT COUNCIL OF THE UNITED STATES OF THE IMPROVED ORDER OF RED MEN,Plaintiff-Ap-pellee, v. THE VETERAN ARMY OF THE PHILIPPINES, Defendant-Appellant.

Hartigan, Rohde, & Gutierrez, for Appellant.

W. A. Kincaid, for Appellee.

SYLLABUS

1. VETERAN ARMY OF THE PHILIPPINES. — The con-stitution 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.

D E C I S I O N

WILLARD, J. :

Article 3 of the Constitution of the Veteran Army of the Philippines provides as follows:jgc:chanrobles.com.ph

"The object of this association shall be to perpetuate the spirit of patriotism and fraternity those men who upheld the Stars and Stripes in the Philippine Islands during the Spanish war and the Philippine insurrection, and to pro-mote the welfare of its members in every just and honor-able way; to assist the sick and afflicted 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 officers, and the commander of each post, or some member of the post appointed by him. Six members of the department constitute a quorum for the transaction of business.

The Constitution also provides for the organization of posts. Among the posts thus organized is the General Henry W. Lawton Post, No. 1. On the 1st day of March, 1903, a contract of lease of parts of a certain buildings in the city of Manila was signed by W.W. Lewis, E.C. Sto-vall, and V.O., Hayes, as trustees of the Apache Tribe, No. 1, Improved Order of Red Men, as lessors, and Albert E. McCabe, citing for and on behalf of Lawton Post, Vet-

eran 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 de-fendant 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 Order of Red Men, as this organization did not make the contract of lease.

It is also claimed that the action can not be maintained against the Veteran Army of the Philippines because it never contradicted, either with the plaintiff or with Apach Tribe, No. 1, and never authorized anyone to so contract in its name.

We do not find it necessary to consider the first point be-cause we think the contention of the appellant on the sec-ond point must be sustained.

It is difficult to determine the exact nature of the defen-dant organization. It is of course not a mercantile partner-ship. There is some doubt as to whether it is a civil part-nership, in view of the definition of the term in article 1665

of the Civil Code. That article is as follows:jgc:chanrob-les.com.ph

"Partnership is a contract by which two or more persons bind themselves to contribute money, property, or indus-try to a common fund, with the intention of dividing the profits 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 Asso-ciations 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 com-munity of property. However, the questions thus pre-sented we do not find 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 au-thorized to so by the Veteran Army of the Philippines.

Article 1695 of the Civil Code provides as follows:jgc:chanrobles.com.ph

"Should no agreement have been made with regard to the form of management, the following rules shall be ob-served:jgc:chanrobles.com.ph

"1 All the partners shall be considered as agents, and whatever any one of them may do by himself shall bind

the partnership; but each one may oppose the act of the others before they may have produced any legal effect."cralaw virtua1aw library

One partner, therefore, is empowered to contract in the name of the partnership only when the articles of partner-ship make no provision for the management of the part-nership business. In the case at bar we think that the arti-cles 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 officers are. In these various provi-sions there is nothing said about the power of making contracts, and that faculty is not expressly given to any officer. We think that it was, therefore, reserved to the de-partment as a whole; that is, that in any case not covered expressly by the rules prescribing the duties of the offi-cers, the department were present. It is hardly conceiv-able 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 officer saw fit to make, or that a con-tract when so made without consultation with, or knowl-edge 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 Philip-pines unless it was authorized at a meeting of the depart-ment. No evidence was offered to show that the depart-ment had never taken any such action. In fact, the proof shows that the transaction in question was entirely be-tween Apache Tribe, No. 1, and the Lawton Post, and

there is nothing to show that any member of the depart-ment 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 Vet-eran Army of the Philippines is acquitted of the complaint. No costs will be allowed to either party in this court. After the expiration of twenty days let judgment be rendered in accordance to the lower court for proper action. So or-dered.

[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.

SYLLABUS

SALE; ACTION FOR DEBT. — Held, That under the facts stated in the opinion the defendant was liable to the plain-tiff in the sum of P1,442.95.

D E C I S I O N

MAPA, J. :

This is an action by the plaintiff to recover from the defen-dant 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 ex-cepted to the said judgment, made a motion for a new trial on the ground that the findings 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 latter’s store in the city of Manila. The goods were at first furnished on credit, but the business relations of the parties caused entirely in 1904. The de-fendant 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 defen-dant’s account, and in fact the cloth was, as a rule, re-ceived 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 be-tween the parties ceased.

The defendant has failed to show that he had paid the aforesaid balance of P1,444.95 or an part thereof. Conse-quently the judgment of the court below is just and legal and should be affirmed. There is a difference of P2 be-tween 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 finding that, the only indebtedness of the defendant being P1,442.95 according to the liquidation made in De-cember, 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 defen-dant, after that date, the plaintiff could not maintain an ac-tion 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 de-fendant after the liquidation of 1902. The plaintiff himself testified 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 rep-resented the value of the goods for which the defendant

paid cash. If this amount was mentioned at all in the com-plaint, 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 evi-dence that the aforesaid amount was paid on account of the balance due because of the liquidation and not on ac-count of the value of the said goods. The plaintiff testified without contradiction, that absolutely nothing had been paid on the balance due from the said liquidation.

It is further alleged by the appellant that there is nothing to show that after the year 1902 he continued to purchase goods from the plaintiff, paying cash therefor, as was er-roneously found by the court below. The positive and un-contradicted statement of the plaintiff to the contrary is sufficient, however, to justify the finding of the court below upon that point. That court, therefore, committed no error in this respect.

The appellant finally 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 part-ners 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 latter’s testimony. When the defendant told the plaintiff that he had autho-rized 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 re-covered in this case, as appears from the testimony of the plaintiff and that of the two witnesses who took part in the said liquidation. Consequently the court below properly al-lowed the plaintiff to maintain this action against the de-fendant. The judgment appealed from is accordingly af-firmed with the costs of this instance against the Appel-lant. After expiration of twenty days let judgment be en-tered 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,Respon-dents.

W.J. O’Donovan and M. H. de Joya for Petitioner.

Sumulong & Lavides and Ross, Lawrence & Selph for Respondents.

SYLLABUS

1. CORPORATIONS; STOCKHOLDERS’ RIGHT TO IN-SPECT RECORDS; UNREASONABLE RESTRICTION BY DIRECTORS ON RIGHT OF INSPECTION. — A res-olution 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’ meet-ing is an unreasonable restriction on the right of inspec-tion may be exercised at reasonable hours on business days throughout the year, and not merely during an arbi-trary period of a few days chosen by the directors.

D E C I S I O N

STREET, J. :

The petitioner, Antonio Pardo ,a stockholder in the Her-cules 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 respon-dents 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 respon-dents interposed an answer, in which, after admitting cer-tain 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 determina-tion 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 inspec-tion conferred by section 51 of Act No. 1459. Said provi-sion 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 ei-ther 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 connec-tion 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 fix." It is further averred that at the directors’ meeting of the respondent corporation held on February 16, 1924, the board passed a resolution to the following effect:jgc:chanrobles.com.ph

"The board also resolved to call the usual general (meet-ing of shareholders) for March 30 of the present year, with notice to the shareholders that the books of the com-pany 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 con-

ferred by statute; and it is insisted that as the petitioner has not availed himself of the permission to inspect the books and transactions of the company within the ten days thus defined, his right to inspection and examination is lost, at least for this year.

We are entirely unable to concur in this contention. The general right given by the statute may not be lawfully abridged to the extent attempted in this resolution. It may be admitted that the officials in charge of a corporation may deny inspection when sought at unusual hours or un-der other improper conditions; but neither the executive officers nor the board of directors have the power to de-prive a stockholder of the right altogether. A by-law un-duly restricting the right of inspection is undoubtedly in-valid. Authorities to this effect are too numerous and di-rect 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 af-fected by the adoption by the board of directors of a reso-lution providing for the closing of transfer books thirty days before an election. (State v. St. Louis Railroad Co., 29 Mo. Ap., 301.)

It will be noted that our statute declares that the right of inspection can be exercised "at reasonable hours." This means at reasonable hours on business days throughout the year, and not merely during some arbitrary period of a few days chosen by the directors.

In addition to relying upon the by-law, to which reference is above made, the answer of the respondents calls in question the motive which is supposed to prompt the peti-tioner to make inspection; and in this connection it is al-leged that the information which the petitioner seeks is desired for ulterior purposes in connection with a competi-tive firm with which the petitioner is alleged to be con-nected. It is also insisted that one of the purposes of the petitioner is to obtain evidence preparatory to the institu-tion of an action which he means to bring against the cor-poration by reason of a contract of employment which once existed between the corporation and himself. These suggestions are entirely apart from the issue, as, gener-ally 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 pe-tition and the admissions of the answer, the petitioner is entitled to relief. The demurrer is, therefore, sustained; and the writ of mandamus will issue as prayed, with costs against the respondents. So ordered.

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

JOSE GARRIDO, 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 provi-sions 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 Proce-dure, as a memorandum to refresh the memory of the wit-ness. (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 ac-count kept by a person (or by him jointly with another) constitute an admission of the facts stated therein and are admissible to show such admission.

D E C I S I O N

CARSON, J. :

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

had invested in the business. The defendant, alleging that there had been considerable losses in the conduct of the business of the partnership, denied that there was any-thing due the plaintiff as claimed, and filed a cross com-plaint wherein he prayed for a judgment against the plain-tiff for a certain amount which he alleged to be due by the plaintiff under the articles of partnership on account of plaintiff’s share of these losses.

The trial court found that the evidence substantially sus-tains the claim of the defendant as to the alleged losses in the business of the partnership and gave judgment in his favor.

The only question submitted on appeal is the competency and sufficiently of the evidence on which the trial court based its findings as to the status of the accounts of the company.

Plaintiff and appellant makes the following assignment of errors:chanrob1es virtual 1aw library

First. The trial court erred in holding the estado de cuen-tas (statement of account) of the partnership of Asencio y Cia. submitted by the defendant as competent and suffi-cient evidence in this case.

Second. The trial court erred in holding that evidence of record proved the existence of losses in the business of the said partnership.

Third. The trial court erred in refusing to give judgment in favor of the plaintiff.

It appears from the record that by mutual agreement the defendant had general charge and supervision of the books and funds of the firm, but it appears that these books were at all times open to the inspection of the plaintiff, and there is evidence which tends to show that the plaintiff himself made entries in these books touching particular transactions in which he happened to be inter-ested; 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 ef-fect as if they had been made by the other.

At the trial the principal question at issue was the amount of the profits or losses of the business of the partnership during the period of its operation. The plaintiff made no al-legation as to profits, but denied defendant’s allegation as to the losses. The defendant in support of his allegations offered in evidence the estado de cuentas (general state-ment of accounts) of the partnership, supported by a number of vouchers, and by his own testimony under oath as to the accuracy and correctness of the items set out therein. The plaintiff assigns as error the admission of this account on the ground that the books of the partner-ship were not kept in accordance with the provisions of Title III, Book I, of the Code of Commerce.

It is not necessary for us to consider this assignment of error as to the inadmissibility of this account on the

ground that the books were not kept in accordance with the provisions of the Commercial Code, because no ob-jection 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 wit-ness. (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 there-for, 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 mis-take.

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 ev-ery 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 be-lieve that the business had been conducted at a loss.

The court below seems to have scrutinized the account with painstaking care, and to have been satisfied as to its accuracy, except as to some unimportant items, which he corrected, but counsel for the appellant reiterates in this court his general allegations as to the inaccuracy of the

account, and points out some instances wherein he al-leges that items of expenditure appear to have been charged against the partnership more than once.

Upon the whole record as brought here by the appellant we are not able to say that the weight of the evidence does not sustain the findings of the trial court, and the judgment entered in that court should be, and is hereby, affirmed with the costs of this instance against the Appel-lant. So ordered.

G.R. No. L-12151 January 19, 1918ADRIANO BUENAVENTURA Y DEZOLLIER, palintiff- appellant, vs. ANTONIO DAVID y ABELIDO, Defen-dant-Appellee.Thos. D. Aitken for appellant. Alfonso E. Mendoza for appellee.STREET, J.:By an agreement effective from April 20, 1906, a partner-ship was formed by Antonio David y Abelido and Adriano Buenaventura y Dezollier for the conduct of the business of real estate brokers in the city of Manila, under the firm name "Abelido and Co." The first named party was the capitalist member of the firm and its manager., while the last named was the industrial member and bookkeeper. The firm 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 office rent and other incidental expenses. Only two prof-itable transactions were ever accomplished by the firm 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 libraryIt 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 firm had become interested should be effected with profit. The property to which reference was thus made consisted of a farm in the municipality of Mur-cia, in the Province of Tarlac, known as the "Hacienda de Guitan." chanrobles virtual law libraryThis farm had been formerly owned by the spouses Loni Diangco and Epifania Torres; and long before the firm 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 be-half 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 transac-tion was to settle the debt of several thousand pesos ow-ing by her and her son to Antonio David y Abelido. The conveyance by which this contract was finally 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 firm 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 in-debtedness 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 li-braryUpon the same day that the above-mentioned deed was executed by Epifania Torres to Antonio David, a declara-tion was drawn up and ratified by Antonio David and Adi-ano 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 firm thereby became the owner of the property in the proportion of the value satisfied by it; and this was followed by an obscure clause meaning, proba-bly, that the right of the firm 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 in-terest in the property in his own name.chanroblesvirtu-alawlibrary chanrobles virtual law libraryFrom 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 se-curing 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 libraryUpon February 18, 1915, or more than seven years after the day upon which the deed to the property had been ex-ecuted to David, Buenaventura filed 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 ac-count; (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 firm; and es-pecially an accounting for profits alleged to have been made by the defendant David from investments of money derived from the hacienda, which profits were alleged to amount to the sum of P5,190; (5) a judgment for dam-ages in the sum of P10,000; (6) such and further relief as might seem to the court just and equitable.chanroblesvir-tualawlibrary chanrobles virtual law libraryAt 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.chan-roblesvirtualawlibrary chanrobles virtual law libraryAs 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 pur-chase of this property was supplied by David; and it con-sisted, as we have seen, mostly of money previously loaned. Buenaventura had no resources, and it was evi-dently quite beyond his power to raise the funds neces-sary 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 firm of Abelido and Co., as distin-guished 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 firm ad-vanced 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 firm books that the firm was debtor to David in the amount of P3,370 in respect to this transaction and that the plain-tiff had requested David to sign the declaration showing the firm to be a participant. Throughout this affair David exhibited considerable complaisance in signing papers at Buenaventura's request. He apparently considered Bue-naventura an amiable old friend and was willing to indulge the latter's fancy with the idea that he was party to an im-portant 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 impru-dence in allowing himself to be thus drawn into an admis-sion showing that the firm participated in the deal, it is quite clear that he supplied all the money for the pur-chase in question.chanroblesvirtualawlibrary chanrobles virtual law libraryThe 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 accom-plished with knowledge on the part of Buenaventura. Fur-thermore he has registered his title by means of legal pro-

ceedings 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 firm of Abelido and Co. and bring the defendant to account for the profits which he has obtained from the in-vestments of its proceeds in various enterprises.chanrob-lesvirtualawlibrary chanrobles virtual law libraryThe purpose of the action is to impress a trust on the property in favor of Abelido and Co., to divest the title out of the present owner, and to have it, or its proceeds, liqui-dated and administered as firm assets. We are of the opinion that there is no merit in the plaintiff's contention. It is true that a court will not hesitate, under certain circum-stances, 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 sufficient contract, an ex-press trust, or other strong equitable circumstances re-quiring 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 Janu-ary 30, 1908, is relied upon as evidence of a contract es-tablishing 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 state-

ment 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 li-braryFurthermore, it is evident that the plaintiff's case is ad-versely affected by his long delay in bringing this action. Undue delay in the enforcement of a right is strongly per-suasive 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 contention, he would have failed to assert his right to a di-vision 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 Buenaven-tura 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 ap-pear 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 asser-tion of doubtful claims, after long delay, can not be fa-vored by the courts. Time inevitably tends to obliterate oc-currences 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 dormien-tibus equitas subvenit.chanroblesvirtualawlibrary chan-robles virtual law libraryThe decision of the main issue relative to the hacienda renders unnecessary any discussion of other features of the case presented in the appellant's brief. Upon the whole it is our opinion that there was no error prejudicial to the plaintiff in the action of the court below and the judgment is therefore affirmed, with costs against the ap-pellant.chanrob

G.R. No. L-16318 October 21, 1921PANG 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 litigat-ing parties herein, namely, Lo Seng and Pang Lim, Chi-nese residents of the City of Manila, were partners, under the firm name of Lo Seng and Co., in the business of run-ning a distillery, known as "El Progreso," in the Municipal-ity 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 an-other Chinaman, who resides in Hongkong, named Lo Yao, who, in September, 1911, leased the same to the

firm of Lo Seng and Co. for the term of three years.chan-roblesvirtualawlibrary chanrobles virtual law libraryUpon 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 fifteen 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 re-quired 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 con-formity 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.chan-roblesvirtualawlibrary chanrobles virtual law libraryAmong the provisions contained in said lease we note the following:Know all men by these presents:x x x           x x x           x x x1. 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 fifteen years more said distillery "El Progreso" to Messrs. Pang Lim and Lo Seng (doing business under the firm 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 rear-range, alter and clean up the distillery.chanroblesvirtu-alawlibrary chanrobles virtual law library2. That all the improvements and betterments which they may introduce, such as machinery, apparatus, tanks, pumps, boilers and buildings which the business may re-quire, shall be, after the termination of the fifteen years of lease, for the benefit of Mr. Lo Yao, my principal, the

buildings being considered as improvements.chanrob-lesvirtualawlibrary chanrobles virtual law library3. 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 modifications and repairs which may be needed shall be paid for by Messrs. Pang Lim and Lo Seng.We, Pang Lim and Lo Seng, as partners in said distillery "El Progreso," which we are at present conducting, hereby accept this contract in each and all its parts, said contract to be effective upon the termination of the con-tract 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.chanrob-lesvirtualawlibrary chanrobles virtual law libraryOn June 1, 1916, Pang Lim sold all his interest in the dis-tillery 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 Ben-ito 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 prop-erty. 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 there-upon initiated by Pang Lim and Benito Galvez in the court of the justice of the peace of Paombong to recover pos-session 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 li-braryThe case for the plaintiffs is rested exclusively on the pro-visions of article 1571 of the Civil Code, which reads in part as follows:ART. 1571. The purchaser of a leased estate shall be en-titled 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 partici-pate 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 obliga-tions 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 suggest-ing the contrary. Thus, in the commentaries of the authors Galindo and Escosura, on the Mortgage Law, we find the following pertinent observation: "The Mortgage Law is en-acted 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 spe-

cial law [i.e., the Mortgage Law], while any question af-fecting the latter will be determined by the general law." ( Galindo y Escosura, Comentarios a la Legislacion Hipotecaria, vol. I, p. 461.) chanrobles virtual law libraryAlthough it is thus manifest that, under the Mortgage Law, as regards the personal obligations expressed therein, the lease in question was from the beginning, and has re-mained, binding upon all the parties thereto - among whom is to be numbered Pang Lim, then a member of the firm of Lo Seng and Co. - this does not really solve the problem now before us, which is, whether the plaintiffs herein, as purchasers of the estate, are at liberty to termi-nate the lease, assuming that it was originally binding upon all parties participating in it.chanroblesvirtualawli-brary chanrobles virtual law libraryUpon 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.chanroblesvirtu-alawlibrary chanrobles virtual law libraryThe words "subject to the provisions of the Mortgage Law," contained in article 1571, express a qualification which evidently has reference to the familiar proposition that recorded instruments are effective against third per-sons from the date of registration (Co-Tiongco vs. Co-Guia, 1 Phil., 210); from whence it follows that a recorded lease must be respected by any purchaser of the estate whomsoever. But there is nothing in the Mortgage Law which, so far as we now see, would prevent a purchaser from exercising the precise power conferred in article 1571 of the Civil Code, namely, of terminating any lease which is unrecorded; nothing in that law that can be con-

sidered as arresting the force of article 1571 as applied to the lease now before us.chanroblesvirtualawlibrary chan-robles virtual law libraryArticle 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 termi-nated by one who, like Pang Lim, has taken part in the contract. That provision is practically identical in terms with the first paragraph of article 23 of the Mortgage Law, being to the effect that unrecorded leases shall be of no effect as against third persons; and the same observation will suffice to dispose of it that was made by us above in discussing the Mortgage Law, namely, that while it recog-nizes 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 bind-ing, it can be terminated by the plaintiffs under article 1571.chanroblesvirtualawlibrary chanrobles virtual law li-braryHaving 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 unde-cisive - we are brought to consider the aspect of the case which seems to us conclusive. This is found in the cir-cumstance that the plaintiff Pang Lim has occupied a double role in the transactions which gave rise to this liti-gation, namely, first, as one of the lessees; and secondly, as one of the purchasers now seeking to terminate the lease. These two positions are essentially antagonistic and incompatible. Every competent person is by law bond to maintain in all good faith the integrity of his own obliga-tions; 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 libraryWhile yet a partner in the firm of Lo Seng and Co., Pang Lim participated in the creation of this lease, and when he sold out his interest in that firm to Lo Seng this operated as a transfer to Lo Seng of Pang Lim's interest in the firm assets, including the lease; and Pang Lim cannot now be permitted, in the guise of a purchaser of the estate, to de-stroy an interest derived from himself, and for which he has received full value.chanroblesvirtualawlibrary chan-robles virtual law libraryThe bad faith of the plaintiffs in seeking to deprive the de-fendant of this lease is strikingly revealed in the circum-stance 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 confi-dence with Lo Seng and in that position had acquired knowledge of the possibilities of the property and possibly an experience which would have enabled them, in case they had acquired possession, to exploit the distillery with profit. On account of his status as partner in the firm of Lo Seng and Co., Pang Lim knew that the original lease had been extended for fifteen years; and he knew the extent of valuable improvements that had been made thereon. Certainly, as observed in the appellant's brief, it would be shocking to the moral sense if the condition of the law were found to be such that Pang Lim, after profiting by the sale of his interest in a business, worthless without the lease, could intervene as purchaser of the property and confiscate for his own benefit the property which he had sold for a valuable consideration to Lo Seng. The sense of justice recoils before the mere possibility of such

eventuality.chanroblesvirtualawlibrary chanrobles virtual law libraryAbove all other persons in business relations, partners are required to exhibit towards each other the highest de-gree of good faith. In fact the relation between partners is essentially fiduciary, each being considered in law, as he is in fact, the confidential agent of the other. It is therefore accepted as fundamental in equity jurisprudence that one partner cannot, to the detriment of another, apply exclu-sively to his own benefit the results of the knowledge and information gained in the character of partner. Thus, it has been held that if one partner obtains in his own name and for his own benefit the renewal of a lease on property used by the firm, to commence at a date subsequent to the expiration of the firm's lease, the partner obtaining the renewal is held to be a constructive trustee of the firm as to such lease. (20 R. C. L., 878-882.) And this rule has even been applied to a renewal taken in the name of one partner after the dissolution of the firm and pending its liq-uidation. (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 libraryAn additional consideration showing that the position of the plaintiff Pang Lim in this case is untenable is de-ducible from articles 1461 and 1474 of the Civil Code, which declare that every person who sells anything is bound to deliver and warrant the subject-matter of the sale and is responsible to the vendee for the legal and lawful possession of the thing sold. The pertinence of these provisions to the case now under consideration is undeniable, for among the assets of the partnership which Pang Lim transferred to Lo Seng, upon selling out his interest in the firm to the latter, was this very lease;

and while it cannot be supposed that the obligation to warrant recognized in the articles cited would nullify arti-cle 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 consider-ations, reveal the basis of an estoppel which in our opin-ion precludes Pang Lim from setting up his interest as purchaser of the estate to the detriment of Lo Seng.chan-roblesvirtualawlibrary chanrobles virtual law libraryIt will not escape observation that the doctrine thus ap-plied is analogous to the doctrine recognized in courts of common law under the head of estoppel by deed, in ac-cordance 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 com-mon 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-ac-quired title. The indenture of lease, it may be further noted, was recognized as one of the modes of con-veyance at common law which created this estoppel. (8 R. C. L., 1058, 1059.) chanrobles virtual law libraryFrom what has been said it is clear that Pang Lim, having been a participant in the contract of lease now in ques-tion, is not in a position to terminate it: and this is a fatal obstacle to the maintenance of the action of unlawful de-tainer 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, un-der section 80 of the Code of Civil Procedure, the only question that can be adjudicated is the right to posses-sion; and in order to maintain the action, in the form in which it is here presented, the proof must show that occu-

pant'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 con-trary appears; for, even admitting that Pang Lim and Ben-ito 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, ac-cording to the proportion of their respective contribution to the purchase price. But it is well recognized that one ten-ant 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 in-terest of an identical character as among themselves. (30 Cyc., 178-180.) The practical result is that both Pang Lim and Benito Galvez are bound to respect Lo Seng's lease, at least in so far as the present action is concerned.chan-roblesvirtualawlibrary chanrobles virtual law libraryWe have assumed in the course of the preceding discus-sion that the deed of sale under which the plaintiffs ac-quired the right of Lo Yao, the owner of the fee, is compe-tent 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 be-cause the question does not seem to have been venti-lated in the Court of First Instance but for the further rea-son that we have not had the benefit of any written brief in this case in behalf of the appellees.chanroblesvirtualawli-brary chanrobles virtual law libraryThe judgment appealed from will be reversed, and the de-fendant will be absolved from the complaint. It is so or-dered, without express adjudication as to costs.chanrob-lesv

G.R. No. L-14617 February 18, 1920R. Y. HANLON, Plaintiff-Appellee, vs. JOHN W. HAUSSERMANN and A. W. BEAM,Defendants-Appel-lants. GEORGE C. SELLNER, intervener.Cohn and Fisher for appellants.Thomas D. Aitken and Gibbs, McDonough and Johnson for appellees.STREET, J.:This action was originally instituted by R. Y. Hanlon to compel the defendants, John W. Haussermann and A. W. Beam, to account for a share of the profits gained by them in rehabilitating the plant of the Benguet Consoli-dated 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 ex-

tent. Thereafter the case was conducted in all respects as if Hanlon and Sellner had been co-plaintiffs from the be-ginning. At the hearing judgment was rendered requiring the defendants to surrender to Hanlon and Sellner re-spectively 24,000 shares each of the stock of said com-pany, and to pay the dividends declared and paid on said stock for the years 1916 and 1917. From this judgment the defendants appealed.chanroblesvirtualawlibrary chan-robles virtual law libraryThe 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 par-ties to the appeal agree that his statement of facts is sub-stantially correct, we adopt his findings of fact as the ba-sis of our own statement, with such transposition, omis-sions, and additions as seen desirable for the easier com-prehension of the case.chanroblesvirtualawlibrary chan-robles virtual law libraryThe Benguet Consolidated Mining Company is a corpora-tion which was organized in 1903 with an authorized capi-tal stock of one million dollars, of the par value of one dol-lar per share, of which stock 499,000 shares had been is-sued 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.chanroblesvirtu-alawlibrary chanrobles virtual law libraryIn the year 1909 the milling plant of said company, situ-ated near Baguio in the subprovince of Benguet, Philip-pine 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 with-out credit, and therefore unable to rebuild the plant.chan-roblesvirtualawlibrary chanrobles virtual law libraryIn October and November 1913, and for a long time prior thereto, the defendant John W. Haussermann and A. W. Beam were shareholders in said mining company and members of its board of directors, and were at said time vice-president and secretary-treasurer, respectively, of said company.chanroblesvirtualawlibrary chanrobles vir-tual law libraryIn October, 1913, the plaintiff R. Y. Hanlon, an experi-enced mining engineer, upon the solicitation of the defen-dant 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 prop-erty; which proposition, with certain amendments, was fi-nally accepted by said company; and thereafter, on No-vember 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 defen-dant A. W. Beam as secretary. In this contract it appears that for and in consideration of the issuance and delivery to said Hanlon or to his order of the 501,000 shares of the unissued capital stock of said mining company, the said Hanlon undertook, promised, and agreed to do or cause to be done sufficient development work on the mining properties of said company to enable the company to mine and take out not less than sixty tons of ore per day, and to give an extraction of not less than 85 per cent of the gold content of the ore; and the terms and conditions

upon which said undertaking was based may be briefly stated as follows: (1) said Hanlon was to pay into the treasury of the mining company the sum of P75,000 in cash within six months from that date; (2) upon the pay-ment 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 men-tioned in paragraphs 4 and 5; (7) providing that, for the purpose of securing and guaranteeing the faithful perfor-mance of each and every undertaking in said agreement mentioned to be fulfilled by said Hanlon, 250,000 of said 501,000 shares should remain on deposit with said min-ing company, to be released, surrendered and delivered to said Hanlon or to his order, as follows: "151,000 shares to be released, surrendered and delivered to the said party of the first part, or his order, when said milling plant shall have been duly completed and the operation thereof commenced; the balance of said shares to wit: 100,000, shall remain on deposit with the party of the second part until the above mentioned loan to be secured by the as-sets of the company shall have been fully paid and dis-charged, in which event said shares shall be released, surrendered and delivered to the party of the first part, or

his order;" (8) providing that in the event the earnings of the company should be insufficient to pay all indebted-ness within the time provided in paragraphs 4 and 6, the balance remaining due thereon was to be paid by said Hanlon, and if he neglected to pay off and discharge the balance due, then the said mining company was to have the right and authority to sell and dispose of the 100,000 shares of stock remaining in its possession at public or private sale at the prevailing market price, or as many of said shares as might be necessary to fully liquidate and discharge the balance of said indebtedness remaining un-paid; (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 opera-tion.chanroblesvirtualawlibrary chanrobles virtual law li-braryAs was at the time well known to all parties concerned herein the plaintiff Hanlon was personally without the fi-nancial resources necessary to enable him to contribute P75,000 towards the project indicated in the contract Ex-hibit B, above set forth; and in order to overcome this ob-stacle he was compelled to seek the assistance of others. Haussermann and Beam, being cognizant of this neces-sity, agreed to find P25,000 of the necessary capital, and for the remainder the plaintiff relied upon G. C. Sellner, a business man of the city of Manila, who, upon being ap-proached, agreed to advance P50,000. A verbal under-standing with reference to his matter had been attained by the four parties to this litigation before the contract Ex-hibit 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 chan-robles virtual law libraryIn this contract of November 5, 1913, (Exhibit A), the four parties, to wit: Hanlon, Sellner, Haussermann, and Beam, agreed to collaborate in the flotation of the project out-lined in the contract Exhibit B, and defined the manner in which the necessary capital of P75,000 was to be raised. As this contract is absolutely vital in the present litigation its provisions are set out in full:Whereas, R. Y. Hanlon has submitted a proposition to the Benguet Consolidated Mining Co., a copy of which is hereto attached for reference; and chanrobles virtual law libraryWhereas, the Board of Directors of the Benguet Consoli-dated Mining Co., has accepted such proposition as amended; and chanrobles virtual law libraryWhereas, said parties have agreed to cooperate and as-sist the said Hanlon in the flotation of said proposition; chanrobles virtual law libraryNow, therefore, this agreement made by and between the undersigned as follows:I.It is mutually agreed by and between the parties hereto that each shall do all in his power to float said proposition and make the same a success.II.It is mutually agreed that said proposition shall be floated in the following manner, to wit: chanrobles virtual law li-brary( 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.chanroblesvirtualawli-brary chanrobles virtual law library( b) That of said sum of P75,000, the said George Seller agrees and undertakes to secure and obtain subscrip-tions for the sum of P50,000.chanroblesvirtualawlibrary chanrobles virtual law library( c) That John W. Haussermann and A. W. Beam under-take 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 be-ing understood and agreed that if for any cause the said Sellner shall fail to obtain subscriptions and payment thereof to the amount of P50,000 within the time herein specified, then and in that event the obligation of said Haussermann and Beam shall be discharged; and, on the other hand, if for any cause said Haussermann and Beam shall fail to obtain subscriptions for the P25,000 and pay-ment thereof within the time herein mentioned, then and in that event, the said Sellner shall be released from his obligation.chanroblesvirtualawlibrary chanrobles virtual law libraryIt is mutually understood and agreed that each of the par-ties 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 propo-sition 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 ren-dered in the flotation of this proposition.IV.They necessary funds to cover preliminary expenses, such as expenses to examining the properties of the Benguet Consolidated Mining Co., freight charges and other charges on ore samples, costs of testing same, etc., shall be supplied by Messrs. Sellner, Haussermann and Beam, which said sum shall be reimbursed to said parties out of the P75,000 fund raised by the sale of the P301,000 shares of stock hereinabove in Paragraph II, Subsection A, hereof, mentioned.V.Cash for the loan of P5,000 to be made to the Benguet Consolidated Mining Co., as provided in the proposition of the said Hanlon, shall be furnished by Messrs. Sellner, Haussermann and Beam, in equal proportions as needed by the company.chanroblesvirtualawlibrary chanrobles virtual law libraryIn witness whereof, the respective parties hereto have hereunto set their hands at Manila, P. I., this 5th day of November, 1913.(Sgd.) R. Y. HANLON, (Sgd.)GEORGE C. SELLER, (Sgd.)JOHN W. HAUSSERMANN, (Sgd.)A. W. BEAM.chanroblesvirtualawlibrary chanrobles virtual law library

During the period which intervened between the making of the preliminary verbal agreement and the final execu-tion of this contract, the plaintiff, Hanlon, at the expenses of the joint adventure went from Manila to the Benguet Consolidated mining properties, near Baguio, accompa-nied by the defendant Beam at the expense of said min-ing company, and said Hanlon made a preliminary inves-tigation 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 for-warded 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.chanroblesvirtu-alawlibrary chanrobles virtual law librarySoon after the contract Exhibits B and A were made the plaintiff Hanlon departed for the United States, in contem-plation of which event he executed a special power of at-torney, on November 10, 1913, constituting and appoint-ing Beam his special agent and attorney in fact, for and in his name, to do and perform the following acts:To vote at the meetings of any company or companies, and otherwise to act as my proxy or representative, in re-spect 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 libraryTo secure subscriptions in my name for the shares of the Benguet Consolidated Mining Co., to be issued to me un-der and by virtue of an agreement entered into with said

company on November 6, 1013, and to enter into the nec-essary agreements for the same of said shares.chanrob-lesvirtualawlibrarychanrobles virtual law libraryTo demand, sue for, and receive all debts, moneys, secu-rities for money, goods, chattels or other personal prop-erty 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 there-after on March 14, 1914, said Gnandt, owing to his in-tended 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 Philip-pine Islands. Said original power of attorney had no spe-cial relation to the substitute specifically authorized the at-torney in fact:To make, sign, execute and deliver any and all contracts, agreements, receipts and documents of any nature and kind whatsoever.After the enumeration of other general and specific pow-ers, Beam was finally authorized:To do any and all things necessary or proper for the due performance and execution of the foregoing powers.By reference to the contract of November 5, 1913, (Ex-hibit 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 contem-plated that these shares should be disposed of at 25 cen-tavos 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 chan-robles virtual law libraryIn 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 Sell-ner 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. Further-more, 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 never-theless desired to keep the entire 200,000 shares as-signed to him exclusively for himself, and proceeding on the assumption that he had in effect underwritten a sub-scription for the whole block of shares, he made no effort to obtain subscriptions from anybody else for any part of these shares. Meanwhile Haussermann and Beam were in touch with Sellner, urging him to action but without avail, Sellner being in fact wholly unable to fulfill his un-dertaking. In this condition of affairs the period of six months specified in the contracts of November 5 and 6 for the raising of the sum of P75,000 passed.chanroblesvirtu-alawlibrary chanrobles virtual law libraryThereafter Haussermann and Beam assumed that they were absolved from the obligations of their contract of No-vember 5, 1913, with Hanlon and Sellner, and that the mining company was no longer bound by its contract of November 6, 1913, with Hanlon. They therefore pro-ceeded, as parties interest in the rehabilitation of the min-ing company, to make other arrangements for financing the project. They found it possible to effectuate this through the offices of Sendres of the Bank of the Philip-pine 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 in-stead of the 100,000 shares which would have accrued to Haussermann and Beam if the Hanlon project had gone through. As a result of this, the profits of each were re-duced by the amount of 2,000 shares below what they might have realized under the Hanlon contract of Novem-ber 5. Another feature of the new project was that some

of those who had subscribed to the stock of the mining company through Beam under the Hanlon project were retained as stockholders in the new scheme of flotation. Some, however, dropped out, with the result that Haussermann and Beam were compelled to increase their subscriptions materially.chanroblesvirtualawlibrary chanrobles virtual law libraryAs preliminary to the new scheme of financing the corpo-ration, the board of directors of the mining company, com-posed of Haussermann Beam, and Sendres, saw fit at a special meeting on June 19, 1914, to adopt a resolution declaring the contract of November 6, 1913, between Hanlon and the company to be cancelled by reason of the failure of Hanlon to pay in the sum of P75,000 in cash on or before May 6, 1914.chanroblesvirtualawlibrary chan-robles virtual law libraryImmediately after the adoption of this resolution, the new plan for financing the mining company was unfolded by Mr. Beam to the Board in a letter, addressed by him to the Directors. In its parts relating to financial arrange-ments said letter is as follows:MANILA, P. I., June 17, 1914. chanrobles virtual law li-braryTo the DIRECTORS OF THE BENGUET CONSOLI-DATED MINING CO.,Manila, P. I.GENTLEMEN: chanrobles virtual law libraryThe undersigned hereby applies for an option for 30 days over 501,000 shares of unissued stock of your corpora-tion. . . .chanroblesvirtualawlibrary chanrobles virtual law library

I have canvassed the local field for capital and am rea-sonably assured that the required capital will be available as follows:chanrobles virtual law library405,000 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 in-stallments commencing July 15, 1914. . . . . Arrange-ments 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. . . .chanroblesvirtu-alawlibrary chanrobles virtual law libraryThe balance of the 501,000 shares of unissued stock, or 96,000 shares, are to be issued to my order when the to-tal sum of 86,000 subscribed as above stated shall have been paid to the company. The said shares are to be placed in the hands of the Bank of the Philippine Islands in escrow to be held by the said bank and delivered to my order as soon as the overdraft hereinbefore mentioned shall be fully paid and liquidated.chanroblesvirtualawli-brary chanrobles virtual law libraryIt 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.chanroblesvirtualawli-brary chanrobles virtual law libraryFor 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.chanrob-lesvirtualawlibrary chanrobles virtual law libraryTrusting that the foregoing may meet with your approval and acceptance, I amchanrobles virtual law libraryYours very truly,

(Sgd.) A. W. BEAM.Upon motion of Senders, the proposition of Beam was ac-cepted; 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 per-sonally present were A. W. Beam, E. Sendres, and O. M. Shuman; and various other shareholders were repre-sented 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 di-rectors, 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 di-rectors accepting Beam's proposition be approved, and this motion was duly seconded and unanimously car-ried.chanroblesvirtualawlibrary chanrobles virtual law li-braryThe Beam project was carried out, and the mining com-pany was brought to a dividend-paying basis, paying a quarterly dividend of five per cent; and at the time of the trial of this case the shares of stock in the market had risen from twenty centavos to P1.50 or higher. The defen-dants about 1916 received 48,000 shares each as their profits. It is stated in the appellants' brief, without denial from the appellee, that said shares have appreciated sub-

sequently 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 divi-dends 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 chan-robles virtual law librarySo 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 enter-tained while the Hanlon project was in course of promo-tion; 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 testi-mony tends to minimize the extent of Hanlon's contribu-tion to the project in labor and ideas. We believe it unnec-essary to enter into the merits of this contention, as in our opinion the solution of the case must be determined by other considerations.chanroblesvirtualawlibrary chanrob-les virtual law libraryAn examination of the rights of the parties to this litigation must begin with the interpretation of the contract of No-vember 5, 1913. Some discussion is indulged in the briefs of counsel upon the question whether that contract consti-tutes 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.chanroblesvirtu-alawlibrary chanrobles virtual law libraryIn paragraph I of said contract each party obligates him-self to do all in his power to "float" the Hanlon proposition, i. e., as indicated in the contract of November 6, between Hanlon and the mining company. This means of course that each was to do what he could to make that project for the rehabilitation of the mining company a success. The word flotation, however, points more particularly to the ef-fort to raise money, since, as all man know, it takes capi-tal to make any enterprise of this kind go. In paragraph II of the same contract the manner in which the flotation is to be effected is described, namely, that Sellner is to ob-tain 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 libraryNow the two paragraphs of the contract to which refer-ence has been made must be construed together, and it is entirely clear that the general language used in the first paragraph is limited by that used in the second para-graph. In other words, though in the first paragraph the parties agree to help float the project, they are tied up, in regard to the manner of effecting the flotation, to the method agreed upon in the second. We can by no means lend our assent to the proposition that the first paragraph created an obligation, independent of the provisions of paragraph II, which continued to subsist after the method of flotation described in paragraph II became impossible of fulfillment. It is a rudimentary canon of interpretation that all parts of a writing are to be construed together (6

R. C. L., p. 837) and that the particular controls the gen-eral. (Art. 1283, Civ. Code; 13 C. J., p. 537.)chanrobles virtual law libraryIt seems too plain for argument that so long as that con-tract was in force, Sellner did not have any right to inter-meddle with the 100,000 shares allotted to Haussermann and Beam. Neither could the latter dispose of the 200,000 shares allotted to Sellner. Indeed, Sellner, by reserving to himself all of these 200,000 shares and sitting tightly, as he did, on this block of stock, made it impossible for Haussermann, Beam, or anybody else, to raise money by selling those shares within the period fixed as the limit of his guaranty. There was absolutely, as everybody knew, no other means to raise money except by the sale of stock; and when Hanlon cabled to Beam in February to obtain the money elsewhere if Sellner could not supply it, he was directing the impossible, unless Sellner should re-lease 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 any-body; 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 li-braryBy referring to subsection ( d) to paragraph II of the con-tract of November 5, 1913, it will be seen that the prom-ises 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 oc-

curred in this case, i.e., the default of Sellner to pay to the mining company on or before May 6, 1914, the sum of money which he had undertaken to find, Haussermann and Beam were discharged.chanroblesvirtualawlibrary chanrobles virtual law libraryThis is a typical case of a resolutory condition under the civil law. The contract expressly provides that upon the happening of a future and uncertain negative event, the obligation created by the agreement shall cease to exist.In conditional obligations the acquisition of rights as well as the extinction of those already acquired shall depend upon the event constituting the condition. (Civ. Code, art. 1114.) chanrobles virtual law libraryIf the condition consists in the happening of an event within a fixed period the obligation shall be extinguished from the time the period elapses or when it becomes cer-tain that the event will not take place. (Civ. code, art. 1117.)The right of Hanlon to require any further aid or assis-tance from these defendants after May 6, 1914, was ex-pressly subordinated to a resolutory condition, and the contract itself declares in precise language that the effect of the non-fulfillment of the condition shall be precisely the same as that which the statute attaches to it - the ex-tinction of the obligation.chanroblesvirtualawlibrary chan-robles virtual law libraryIn 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 de-fendants 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 Han-lon. This argument proceeds on the erroneous assump-tion that the defendants were bound to discover some other method of flotation after the plan prescribed in the contract had become impossible of fulfillment and to pro-ceeds therewith for the benefit of all four of the parties. Furthermore, this conception of the case is apparently over-refined and not in harmony with the common-sense view of the situation as it must have presented itself to the contracting parties at the time. The obtaining of capital was fundamentally necessary before the project could be proceeded with; and it was obvious enough that, if the parties should fail to raise the money, the whole scheme must collapse like a stock of cards. The provisions rela-tive to the getting in of capital are the principal features of the contract, other matters being of subordinate impor-tance. 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 ei-ther 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.chan-roblesvirtualawlibrary chanrobles virtual law libraryIt is insisted in behalf of the plaintiffs that Haussermann and Beam, as well as Sellner, defaulted in the perfor-mance of the contract of November 5, 1913, and that not

having performed their obligation to obtain subscriptions for the sum of P25,000 and to cause payment to be made into the company's treasury on or before May 6, 1914, they cannot take advantage of the similar default of Sell-ner. This suggestion is irrelevant to the fundamental is-sue. 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 them-selves 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 dis-charged from the contract of November 5, 1913, by the default of Sellner; and this question must, under the con-tract, 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 libraryThe interpretation which we have placed upon the con-tract of November 5, 1913, exerts a decisive influence upon this litigation, and makes a reversal of the appealed judgment inevitable. There are, however, certain subordi-nate features of the case which, as disposed in the ap-pellee'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.chanroblesvir-tualawlibrary chanrobles virtual law libraryIt will be noted that there is no resolutory provision in the contract of November 6, 1913, between Hanlon and the mining company, declaring that said contract would be discharged or abrogated upon the failure of Hanlon to supply, within the period specified, the money which he

had obligated himself to raise. In other words, time is not expressly made of the essence of this contract. From this it is argued for the plaintiffs that this contract remained in force after May 6, 1914, notwithstanding the failure of Hanlon to supply the funds which he had agreed to find, and indeed it is insisted upon the authority of Ocejo, Perez & Co. vs. International Banking Corporation (37 Phil. Rep., 631), that the mining company could not be re-lieved 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 libraryIn the first place the present action is not based upon the contract between Hanlon and the mining company; and it is clear that if Hanlon had sued the mining company, as for example, in an action seeking to recover damages for breach of its contract with him, he would have been con-fronted by the insuperable obstacle that he had never supplied, nor offered to supply, one penny of the P75,000, which he had obligated himself to bind, and which was absolutely necessary to the rehabilitation of the company. The benefits of a contract are not for him who has failed to comply with its obligations. It may be admitted that the resolution of the Board of Directors of the mining company, on June 19, 1914, declaring the contract of November 6, 1913, with Hanlon to be can-celled, considered alone, was without legal effect, since one party to a contract cannot absolve himself from its obligations without the consent of the other.chanroblesvir-tualawlibrary chanrobles virtual law libraryWith 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 De-

cember 6, 1913, we will say that we consider the doctrine of Ocejo, Perez & Co., vs. International Banking Corpora-tion (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 pur-chase price did not ipso facto produce a reversion of title to the vendor, or authorize him, upon his election to re-scind, 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 ven-dor 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 posses-sion, to dispose of the property where the buyer fails to pay the price and take delivery. Of course no judicial pro-ceeding could be necessary to rescind a contract which, like that of November 5, 1913, contains a resolutory provi-sion by virtue of which the obligation is already extin-

guished.chanroblesvirtualawlibrary chanrobles virtual law libraryMuch reliance is placed by counsel for the plaintiffs upon certain American decisions holding that partners, agents, joint adventurers, and other persons occupying similar fiduciary relations to one another, must not be allowed to obtain any undue advantage of their associates or to re-tain any profit which others do not share. We have no crit-icism to make against this salutary doctrine when properly applied and would be slow to assume that our civil law re-quires any less degree of good faith between parties so circumstanced than is required by the courts of equity in other countries. For instance, we feel quite sure that this Court would have no difficulty in subscribing to the doc-trine which is stated in Lind vs. Webber (36 Nev., 623; 50 L. R. A. [N. S.], 1046}, with reference to joint adventurers as follows:We further find that the law is well established that the re-lation between joint adventurers is fiduciary in its charac-ter 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-adventur-ers, and that he will not be permitted, by reason of the possession of the property or profits whichever the case may be to enjoy an unfair advantage, or have any greater rights in the property or profits as trustee, than his co-ad-venturers are entitled to. The mere fact that he is in-trusted with the rights of his co-adventurers imposes upon him the sacred duty of guarding their rights equally with his own, and he is required to account strictly to his co-adventurers, and, if he is recreant to his trust, any rights they may be denied are recoverable.

In Flagg vs. Mann (9 Fed. Cas., 202; Fed. Case No. 4847), it appeared that Flagg and Mann had an agree-ment to purchase a tract of land on joint account. The court held that where parties are interested together by mutual agreement, and a purchase is made agreeably thereto, neither party can excuse the other from what was intended to be for the common benefit; and any private benefit, touching the common right, which is secured by either party must be shared by both. Justice Story, acting as Circuit Justice, said that the doctrine in question was "a wholesome and equitable principle, which by declaring the sole purchase to be for the joint benefit, takes away the temptation to commit a dishonest act, founded in the desire of obtaining a selfish gain to the injury of a co-con-tractor, 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 sug-gestion 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 conti-nental Europe, and the actual jurisprudence of England and America." chanrobles virtual law libraryWe deem it unnecessary to proceed to an elaborate anal-ysis of the array of cases cited by the appellee as con-taining applications of the doctrine above stated. Suffice it to say that, upon examination, such of these decisions as have reference to joint adventures will be found to deal with the situation where the associates are not only joint adventurers but are joint adventurers merely. In the present case Haussermann and Beam were stockholders and officials in the mining company from a time long ante-rior to the beginning of their relations with Hanlon. They

were not merely co-adventurers with Hanlon, but in addi-tion were in a fiduciary relation with the mining company and its other shareholders, to whom they owned duties as well as to Hanlon. It does not appear that the defendants acquired any special knowledge of the mine or of the fea-sibility of its reconstruction by reason of their relation with Hanlon which they did not already have; and they proba-bly were in no better situation as regards the facts relating to the mine after the failure of the Hanlon contract than they were before. The fact of their having been formerly associated with Hanlon certainly did not preclude them from making use of the information which they possessed as stockholders and officers of the mining company long before they came into contact with him.chanroblesvirtu-alawlibrary chanrobles virtual law libraryAfter the termination of an agency, partnership, or joint adventure, each of the parties is free to act in his own in-terest, provided he has done nothing during the continu-ance of the relation to lay a foundation for an undue ad-vantage to himself. To act as agent for another does not necessarily imply the creation of a permanent disability in the agent to act for himself in regard to the same subject-matter; and certainly no case has been called to our at-tention 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 par-ties to this lawsuit had lapsed.chanroblesvirtualawlibrary chanrobles virtual law libraryIn the present case so far as we can see, the defendants acted in good faith for the accomplishment of the com-mon purpose and to the full extent of their obligation dur-ing 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. Cer-tainly, 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 dis-charge through the fault of another they can not be held liable upon it. Certainly, we cannot accede to the proposi-tion that the defendants by making the contracts in ques-tion had discapacitated themselves and their company for an indefinite period from seeking other means of financ-ing 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.chan-roblesvirtualawlibrary chanrobles virtual law libraryThe power of attorney which Hanlon left with Beam upon departing for America was executed chiefly to enable Haussermann and Beam to comply with their obligation to raise P25,000 by the sale of shares. This feature of the power of attorney was manifestly subordinate to the pur-pose of the joint agreement of November 5, 1913. Cer-tainly, under that power, Beam could not have disposed of any of the stock allotted to Sellner; neither was he bound, or even authorized, after the joint agreement was at an end, to use the power for Hanlon's benefit, even supposing - contrary to the proven fact - that purchasers to the necessary extent could have been found for the shares at 25 centavos per share.chanroblesvirtualawli-brarychanrobles 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 under-taken to raise and were by no means sufficient to finance the Hanlon project without the assistance which Sellner had agreed to give. Of course if Beam, acting as attorney in fact of Hanlon, had obtained a sufficient number of sub-scriptions to finance the Hanlon project, and concealing this fact, had subsequently utilized the same subscrip-tions to finance his own scheme, the case would be differ-ent. But the revealed facts do not bear out this imputa-tion.chanroblesvirtualawlibrary chanrobles virtual law li-braryIt should be noted in this connection that the mining com-pany had approved the subscriptions obtained by Haussermann and Beam and had, prior to May 6, 1914, accepted part payment of the amount due upon some of them. It is not at all clear that, under these circumstances, the company could have repudiated these subscriptions, even if its officers had desired to do so; and if the mining company was bound either legally ormorally to recognize them, if cannot be imputed to the defendants as an act of bad faith that such subscriptions were so recog-nized.chanroblesvirtualawlibrary chanrobles virtual law li-brary

The trial court held that Haussermann, by reason of his interest in the Beam project, was disqualified to act as a director of the mining company upon the resolution ac-cepting 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 con-tract with Beam voidable and not void; and the irregularity involved in Haussermann's participation in that resolution was doubtless cured by the later ratification of the con-tract at a meeting of the stockholders. However this may be, the plaintiffs are not in a position to question the valid-ity 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 libraryIn the course of the preceding discussion we have al-ready noted the fact that no resolutory provision contem-plating the possible failure of Hanlon to supply the neces-sary 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 contin-ued to be bound by that contract after Hanlon dad de-faulted in procuring the money which he had obligated himself to supply. Whether that contract continued to be binding after the date stated is a question which does not clearly appear to be necessary to the decision of this case, but the attorneys for Hanlon earnestly insist that said contract did in fact continue to be binding upon the mining company after May 6, 1914; and upon this as-sumption taken in connection with the power held by

Beam as attorney in fact of Hanlon, It is argued that the right of action of Hanlon is complete, as against Beam and Haussermann, even without reference to the profit-sharing agreement of November 5. We consider this con-tention 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 dis-charged by the default of Hanlon in the performance of that agreement? chanrobles virtual law libraryWhether 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 deter-mined with reference to the intention of the parties as de-duced from the contract itself in relation with the circum-stances under which the contract was made.chanrob-lesvirtualawlibrary chanrobles virtual law libraryUpon 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 fol-lows:1. Said party of the first part agrees to pay into the trea-sury of the party of the second part the sum of Seventy-five Thousand Pesos ( P75,000) in cash within six (6) months from the date of this agreement.Clearly, all the possibilities and potentialities of the situa-tion with respect to the rehabilitation of the Benguet min-ing property, depended upon the fulfillment of that stipula-tion; 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 ex-penses of the very improvements which Hanlon had agreed to make. There can then be no doubt that compli-ance 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 libraryAgain, it will be recalled that this contract (Exhibit B) be-tween Hanlon and the mining company was not in fact ex-ecuted until the day following that on which the profit-sharing agreement (Exhibit A) was executed by the four parties to this lawsuit. In other words, Haussermann and Beam, as officials of the mining company, refrained from executing the company's contract until Hanlon had obli-gated himself by the profit-sharing agreement. Indeed, these two contracts should really be considered as consti-tuting a single transaction; and it is obvious enough that the prime motive which induced Haussermann and Beam to place their signature upon the contract of November 6 was that they already had the profit-sharing agreement securely in their hands. Therefore, when the contract of November 6, between Hanlon and the mining company was signed, all the parties who participated therein acted with full knowledge of the provisions contained in the profit-sharing agreement; and in particular the minds of all must have riveted upon the provisions of paragraph II of the profit-sharing agreement, wherein is described the manner in which the project to which the parties were then affixing their signatures should be financially realized

("floated"). In subsection (d) of the same paragraph II, as will be remembered, are found the words which declare that Haussermann and Beam would be discharged if Sell-ner 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 in-tended 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 resolu-tory provision had been inserted in the profit-sharing agreement, it must have seemed superfluous to insert such express clause in the later contract. Any extension of time, therefore, that the mining company might have made after May 6, 1914, with respect to the date of per-formance 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 de-fault of Sellner was the default of Hanlon.chanroblesvirtu-alawlibrary chanrobles virtual law libraryAn 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 con-tracting 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 ac-cept the delayed performance the delinquent party resorts to the court of equity to compel the other party to pro-ceed. The equitable doctrine there recognized as applica-ble in such situation is that if the contracting parties have

treated time as of the essence of the contract, the delin-quency will not be excused and specific performance will not be granted; but on the other hand, if it appears that time has not been made of the essence of the contract, equity will relieve from the delinquency and specific per-formance 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 li-braryTo illustrate: the rule has been firmly established from an early date in courts of equity that in agreements for the sale of land, time is not ordinarily of the essence of the contract; that is to say, acts which one of the parties has stipulated to perform on a given date may be performed at a later date. Delay in the payment of the purchase money, for instance, does not necessarily result in the for-feiture of the rights of the purchaser under the contract, since mere delay in the payment of money may be com-pensated 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 accom-plished exactly at the stipulated day. The intention must then govern. A delay cannot be excused. A performance at the time is essential; any default will defeat the right to specific enforcement." (4 Pomeroy Eq. Jur., 3rd ed., sec. 1408.) Again, says the same writer: "It is well settled that where the parties have so stipulated as to make the time of payment of the essence of the contract, within the view of equity as well as of the law, a court of equity cannot re-lieve a vendee who has made default. With respect to this

rule there is no doubt; the only difficulty is in determining when time has thus been made essential. It is also equally certain that when the contract is made to depend upon a condition precedent - in other words, when no right shall vest until certain acts have been done, as, for example, until the vendee has paid certain sums at cer-tain specified times - then, also a court of equity will not relieve the vendee against the forfeiture incurred by a breach of such condition precedent." (1 Pomeroy Eq. Jur., 3rd ed., sec. 455.) chanrobles virtual law libraryAs has been determined in innumerable cases it is not necessary, in order to make time of the essence of a con-tract, that the contract should expressly so declare. Words of this import need not to be used. It is sufficient that the intention to this effect should appear; and there are certain situations wherein it is held, from the nature of the agreement itself, that time is of the essence of the contract.Time may be of the essence, without express stipulation to that effect, by implication from the nature of the con-tract itself, or of the subject-matter, or of the circum-stances under which the contract is made. (36 Cyc., 709.)In agreements which are executed in the form of options, time is always held to be of the essence of the contract; and it is well recognized that in such contracts accep-tance of the option and payment of the purchase price constitute conditions precedent to specific enforcement. The same is true generally of all unilateral contracts. (36 Cyc., 711.) In mercantile contracts for the manufacture and sale of goods time is also held to be of the essence of the agreement. (13 C. J., 688.) Likewise, where the subject-matter of a contract is of speculative or fluctuating value it is held that the parties must have intended time to

be of the essence (13 C. J., 668.) Most conspicuous among all the situations where time is presumed to be of the essence of a contract from the mere nature of the subject-matter is that where the contract relates to mining property. As has been well said by the Supreme Court of the United States, such property requires, and of all prop-erties perhaps the most requires, the persons interested in it to be vigilant and active in asserting their rights. (Wa-terman 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 contrac-tor within a limited period.chanroblesvirtualawlibrary chanrobles virtual law libraryUnder the doctrine above expounded it is evident that Hanlon would be entitled to no relief against the mining company in an action of specific performance, even if he had been prepared and had offered, after May 6, 1914, to advance the requisite money and proceed with the perfor-mance of the contract. Much less can he be considered entitled to relief where he has remained in default throughout and has at no time offered to comply with the obligations incumbent upon himself.chanroblesvirtualawli-brary chanrobles virtual law libraryOur conclusion, upon a careful examination of the whole case, is that the action cannot be maintained. The judg-ment is accordingly reversed and the defendants are ab-solved from the complaint. No express pronouncement will be made as to costs of either instance.

[G.R. No. L-40098. August 29, 1975.]

ANTONIO LIM TANHU, DY OCHAY, ALFONSO LEONARDO NG SUA and CO OYO, Petitioners, v. HON. JOSE R. RAMOLETE, as Presiding Judge, Branch III, CFI, Cebu and TAN PUT,Respondents.

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

Fidel Manalo and Florido & Associates for Respon-dents.

SYNOPSIS

Plaintiff sued the spouses Lim Tanhu and Dy Ochay. Later, she amended the complaint to include as defen-dants Lim Teck Chuan, the spouses Alfonso Ng Sua and Co Oyo, and their son Eng Chong Leonardo. Claiming to be the widow of Po Chuan, a partner in the Glory Com-mercial Co., plaintiff charged the six defendants with hav-ing conspired in misappropriating for their own benefits the profits and assets of said partnership. In a single an-swer with counterclaim, defendants denied plaintiff’s alle-gation 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 de-fault; and their motion to lift the default order on the ground that they were not notified was denied. On Octo-

ber 19, 1974, when plaintiff’s first witness was up for re-cross examination, she moved "to drop" the case against the non-defaulted defendants, namely, Lim Teck Chuan, and Eng Chong Leonardo. The motion, which was set for hearing, 3 days later, or on October 21, was granted by the court. Simultaneously, the Court in a separate order motu propio deputized the branch clerk of court to receive on November 20, 1974 plaintiff’s ex parte evidence against the defaulted defendants since the case against the non-defaulted defendants had already been dis-missed. But the ex-parte reception actually took place on October 28, 1974, because on that date plaintiff with her witnesses appeared in court and asked to be allowed to present her evidence, which was granted.

The non-defaulted defendants’ motion to reconsider the dismissed order was denied. On December 20, 1974, the Court rendered judgment. Thereafter, all the defendants moved to quash the order of October 28, 1974, but later, without waiting for the trial court’s resolution, the non-de-faulted defendants went to the Court of Appeals on a peti-tion 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 be-ing premature, the motion to quash not having been re-solved yet by the trial court.

On the other hand, the defaulted defendants, before the perfection of their appeal, filed the present petition with this Court, their counsel manifesting in the court below that they had abandoned their motion to quash. Hence, the trial court declared the motion to quash abandoned and that the resolution for execution pending appeal

would be resolved after the certiorari and prohibition peti-tion shall have been resolved.

The Supreme Court held that the impugned decision is legally anomalous, predicated as it is on two fatal malac-tuations of the respondent court, namely: (1) the dis-missal of the complaint against the non-defaulted defen-dants; and (2) the ex parte reception of evidence of the plaintiff by the Clerk of Court, the subsequent using of the same as basis for its judgment and the rendition of such judgment. The order of dismissal cannot be sanctioned because (1) there was no timely notice of the motion therefor to the non-defaulted defendants, aside from there being no notice at all to the defaulted defendants; (2) the common answer of defendants, including the non-de-faulted, contained a compulsory counterclaim incapable of being determined in an independent action; and (3) the immediate effect of such dismissal was the removal of the two non-defaulted defendants as parties, and inasmuch as they are both indispensable parties in the case, the trial court consequently lost the sine qua non of the exer-cise of judicial power.

The Supreme Court was faced with a legal pare-dilemma; to annul the dismissal would prejudice the rights of the non-defaulted defendants whom the Supreme Court have not heard and who event plaintiff would not wish to have anything anymore to do with the case; on the other hand, to include the petitioners (the defaulted defendants) in the dismissal would naturally set at naught the efforts of plaintiff’s efforts to establish her case thru means sanc-tioned by respondent court.

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

SYLLABUS

1. CIVIL PROCEDURE RULES OF PROCEDURE MAY NOT BE MISUSED OR ABUSED AS INSTRUMENTS TO DENY SUBSTANTIAL JUSTICE. — A review of the record of this case immediately discloses that here is an-other demonstrative instance of how some members of the bar, availing of their proficiency in invoking the letter of the rules without regard to their real spirit and intent, succeed in inducing courts to act contrary to the dictates of justice and equity, and, in some instance, to wittingly or unwittingly abet unfair advantage by ironically camouflag-ing 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 pro-mote their object and to assist the parties in obtaining" not only ‘speedy’ but more imperatively, "just . . . and in-expensive 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 be-fore whom she took her oath, it is error for the trial court to hold that "the oath appearing at the bottom of the mo-tion is not the one contemplated by the rules (Sec. 3. Rule 18), or to hold that it is not even a verification (Sec. 6, Rule 7). The rules, as interpreted by the Supreme Court, require a separate affidavit of merit only in those instances where the motion is not over the oath of the party concerned, considering that what the cited provision literally requires is no more than a motion under oath. Stated otherwise, when a motion to lift an order of default contains the reason for the failure to answer as well as the facts constituting the prospective defense of the de-fendant and it is sworn to by said defendant, neither a for-mal verification nor a separate affidavit of merit is neces-sary.

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 sum-mons" and that said motion could not amount to a chal-lenge against the jurisdiction of the court over the person of the defendant. Such a rationalization is patently spe-cious and reveals an evident failure to grasp the import of the legal concepts involved. A motion to lift an order of default on the ground that service of summons and is in essence verily an attack against the jurisdiction of the court over the person of the defendant, no less than it if

were worded in a manner specifically embodying such a direct challenge.

4. ID.; MOTIONS; THREE DAYS NOTICE REQUIRE-MENT. — Three days at least must intervene between the date of service of notice and the date set for the hear-ing, "otherwise the court may not validly act on a motion." Thus, where the motion was set for hearing on Monday, October 21, whereas one counsel was personally served with notice only on Saturday, October 19, and the other counsel was notified by registered mail which was posted only that same Saturday, the notices were held to be short of the three-day requirement of Section 4, Rule 15.

5. JUDGES; DUTY OF JUDGES TO SEE THAT NO PARTY IS DEPRIVED OF RIGHT TO BE HEARD. — The Supreme Court cannot but express its vehement condem-nation of any judicial actuation that unduly deprives any party of the right to be heard without clear and specific warrant under the terms of existing rule or binding ju-risprudence. 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 sub-stance is to prevail, as it must, over from in our courts. Lit-eral observance of the rules, when it is conducive to un-fair and undue advantage on the party of any litigant be-fore 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 plain-tiff’s claim (Sec. 4, Rule 9). Thus where plaintiff alleged that, being the widow of deceased, she is entitled to de-mand accounting of and to receive the share of her al-leged 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 alle-gations even before she filed the complaint, she had ad-mitted in a quitclaim her common-law relationship with deceased and that she had already quitclaimed her rights, which quitclaim was, however, executed, accord-ing to respondent herself in her amended complaint, through fraud, and that having filed the complaint knowing that the allegations thereof are false and baseless, she has caused them to suffer damages, it was held that with such allegations, defendants’ counterclaim is compulsory, not only because the same evidence to sustain it will also refute the cause or causes of action alleged in plaintiff’s complaint, but also because from its very nature, it is ob-vious that the same cannot "remain pending for indepen-dent adjudication by the court." (Sec. 2, Rule 17)

7. ID.; ID.; MOTION TO DISMISS; PLAINTIFF’S ACTION MAY NOT BE DISMISSED IF COMPULSORY COUN-TERCLAIM IS PLEADED. — Rule 17, Sec. 2 provides that "if a counterclaim has been pleaded by a defendant prior to the service upon him of the plaintiff’s motion to

dismiss, the motion shall not be dismissed against the de-fendant’s 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 plaintiff’s complaint charged the six defendants with having actually taken part in a conspiracy to misappropriate, conceal and convert to their own bene-fit the profits and assets of a partnership to be extend that they have allegedly organized a corporation with what they had illegally gotten from the partnership, no judg-ment finding the existence of the alleged conspiracy or holding the capital of the corporation to be the money of the partnership is legally possible without the presence of all defendants. Hence, it was error for the court to grant plaintiff’s motion to dismiss the case as against the non-defaulted defendants, since all the defendants, defaulted and non-defaulted, are indispensable parties.

9. ID.; ID.; ACTIONS; JOINDER OF INDISPENSABLE PARTIES. — Whenever it appears to the court in the course of a proceeding that an indispensable party has not been joined, it is the duty of the court to stop the trial and to order the inclusion of such party or the dismissal of the case. Such an order is unavoidable, for the "general rule with reference to the making of parties in a civil ac-tion 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 contem-plates is erroneous or mistaken non-joinder and misjoin-der of parties. No one is free to join anybody in a com-plaint 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 re-quested because it has turned out that such inclusion was a mistake. And this is the reason why the rule ordains that the dropping be "on such terms as are just" — just to all the other parties.

11. ID.; ID.; ID.; DROPPING THE CASE AGAINST NON-DEFAULTED DEFENDANTS. — In a complaint against six defendants, where after four of them had been de-clared in default, for failure to appear at pre-trial, and at the stage when plaintiff’s first witness was up for cross-examination, plaintiff without any relevant explanation asked the court to drop the non-defaulted defendants, it was error for the court over the objection of the non-de-faulted 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 defen-dants in answering the complaint, preparing for or pro-ceeding partially to trial, hiring counsel and making corre-

sponding expenses in the premises. The Court should have considered that the outright dropping of there non-defaulted defendants over their objection would certainly be unjust not only to the defaulted defendants who would certainly be unjust not only to the defaulted defendants who would in consequence, be entirely defenseless, but also to the non-defaulted defendants themselves who would naturally correspondingly suffer from the eventual judgment against their co-defendants. In such case, the court should pay heed to the mandate that such dropping must be "on such terms as are just" — meaning to all concerned with its legal and factual effects.

12. LEGAL ETHICS; DUTY OF COUNSEL TO ACT WITH CANDOR. — Those appearing as counsel are ad-monished that a pleading which is deceptive and lacking in candor, has no place in any court, much less in the Supreme Court. Parties and counsel would be well ad-vised to avoid such attempts to befuddle the issues as in-variably they will be exposed for what they are, certainly unethical and degrading to the dignity of the law profes-sion. Moreover, almost always they only betray the inher-ent 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 be-ing that a simple expedient of disallowing the offending party to take part in the proceedings so that after his ad-versary shall have presented his evidence, judgment may be rendered in favor of such opponent, with hardly any chance of said judgment being reversed or modified.

14. ID.; ID.; JUDGMENT ON DEFAULT SHALL NOT BE DIFFERENT FROM THAT PRAYED FOR. — Rule 18 of the Rules of Court concerned solely with default resulting from failure of the defendant or defendants to answer within the reglementary period. Referring to the simplest form of default, that is, where there is only one defendant in the action and he fails to answer on time, Section 1 of the Rule provides that upon "proof of such failure, (the court shall) declare the defendant in default. Thereupon the court shall proceed to receive the plaintiff’s evidence and render judgment granting him such relief as the com-plaint and the facts proven may warrant." This last claim is clarified by Section 5 which says that "a judgment en-tered 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 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 "inter-preted as an admission by the said defendant that the plaintiff’s causes of action find support in the law or that plaintiff is entitled to the relief prayed for." Being declared in default does not constitute a waiver of rights except that of being heard and of presenting evidence in trial. In other words, a defaulted defendant is not actually thrown out of court. While in a sense it may be said that by de-faulting he leaves himself at the mercy of the court, the rules see to it that any judgment against him must be in accordance with law. The evidence to support plaintiff’s cause is, of course, presented in his absence, but the

Court is not supposed to admit that which is basically in-competent. Although the defendant would not be in a po-sition to object, elementary justice requires that only legal evidence should be considered against him. If the evi-dence presented should not be sufficient to justify a judg-ment for the plaintiff, the complaint must be dismissed. And if an unfavorable judgment should be justifiable, it cannot exceed in amount or be different in kind from what is prayed for in the complaint.

16. ID.; ID.; ID.; DELEGATING TO CLERKS OF COURTS RECEPTION OF EVIDENCE IN CASES OF DEFAULT SHOULD BE STOPPED. — The present wide-spread practice of trial judges of delegating to their clerks of court the reception of plaintiff’s evidence when the de-fendant is in default is wrong in principle and orientation. It has no basis in any rule. When a defendant allows him-self to be declared in default he relies on the faith that the court would take care that his rights are not unduly preju-diced. 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 incompe-tent 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 con-templated in law, considering this comparatively limited area of discretion and his presumably inferior prepara-tions for the functions of a judge. Besides the default of the defendant is no excuse for the court to renounce the

opportunity to closely observe the demeanor and conduct of the witnesses of the plaintiff, the better to appreciate their truthfulness and credibility. The Supreme Court therefore declares as a matter of judicial policy that there being no imperative reason for judges to do otherwise, the practice should be discontinued.

17. ID.; ID.; ID.; ENOUGH OPPORTUNITY SHOULD BE LEFT OPEN FOR POSSIBLE LIFTING OF DEFAULT ORDER. — It is preferable as a matter of practice to leave enough opportunity open for possible lifting of the order of default before proceeding with the reception of the plaintiff’s evidence and the rendition of the decision. "A judgment by default may amount to positive and con-siderable injustice to the defendant; and the possibility of such serious consequences necessitates a careful and liberal examination of the grounds upon which the defen-dant may seek to set it aside." The expression in Section 1 of Rule 18 which says that "thereupon the court shall proceed to receive the plaintiff’s evidence, etc., is not to be taken literally. The gain in time and dispatch should the court immediately try the case on the very day of or shortly after the declaration of default is far outweighed by the inconvenience and complications involved in having to undo everything already done in the event the defen-dant should justify his omission to answer on time.

18. ID.; ID.; ID.; EFFECT WHEN SOME ANSWER AND OTHERS DO NOT. — In all instance where a common cause of action is alleged against several defendants, some of whom answer and others do not, the latter to those in default acquire a vested right not only to own the defense interposed in the answer of their co-defendants

not in default but also to expect a result of the litigation to-tally common with them in kind and in amount whether fa-vorable or unfavorable. The substantive unity of the plain-tiff’s cause against all defendants is carried through to its adjective phase as ineluctably demanded by the homo-geneity and indivisibility of justice itself.

19. ID.; ID.; ID.; WHERE A SINGLE CAUSE OF ACTION IS ASSERTED BY DEFENDANTS, DISMISSAL OF AC-TION AS TO NON-DEFAULTED DEFENDANTS RE-SULTS IN DISMISSAL ALSO AS TO DEFAULTED DE-FENDANTS. — Since the singleness of the cause of ac-tion also inevitably implies that all the defendants are in-dispensable parties, the court’s power to act is integral and cannot be split such that it cannot relieve any of them and at the same time render judgment against the rest. Considering the tenor of Section 4 of Rule 18, it is to be assumed that when any defendant allows himself to be declared in default knowing that his co-defendant has al-ready answered he does no trusting in the assurance im-plicit in the rule that his default is in essence a mere for-mality 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 answer-ing defendant may do or fail to do, regardless of possible adverse consequences, but if the complaint has to be dis-missed insofar as the answering defendant is concerned, it becomes his inalienable right that the same be dis-missed also as to him.

20. ID.; ID.; ID.; WHERE ALL DEFENDANTS ARE INDIS-PENSABLE PARTIES; DISMISSAL AS TO ANSWERING DEFENDANTS RESULT IN DISMISSAL AS TO DE-FAULTED DEFENDANTS. — Where all the defendants are indispensable parties, for which reason the absence of any of them in the case would result in the court losing its competency to act validly, any compromise that the plaintiff might wish to make with any of them must, as a matter of correct procedure, have to wait until after the rendition of the judgment, at which state the plaintiff may then treat the matter for its execution and the satisfaction of his claim as variably as he might please. Accordingly, where all defendants are indispensable parties, some of whom answer and others do not, the dismissal of the complaint against the answering or non-defaulted defen-dants should result also in the dismissal thereof as to the defaulted defendants. And it does not matter that the dis-missal is upon the evidence presented by the plaintiff or upon the latter’s mere resistance, for in both contingen-cies, the lack of sufficient legal basis must be the cause. The integrity of the common cause of action against all defendants and the indispensability of all of them in the proceedings do not permit any possibility of waiver of the plaintiff’s right only as to one or some of them, without in-cluding 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 plead-ings before the court, the prospects of a compromise must have appeared to the rather remote, under such cir-cumstances, to declare them immediately and irrevocably in default was not an absolute necessity. Practical consid-eration and reason of equity should have moved the court to be more understanding in dealing with the situation. Af-ter all, declaring them in default did not impair their right to a common fate with their children.

22. ID.; ID.; DEFAULTED DEFENDANT ENTITLED TO NOTICE OF SUBSTANTIALLY AMENDED PLEADING. — Section 9, Rule 13, provides that even after a defen-dant has been declared in default, he shall be entitled to notice of all further proceedings regardless of whether the order of defaults is set aside or not, and a party in default who has filed such a motion to set aside must still be served with all "substantially amended or supplemental pleadings."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 first witness of the plaintiff undergoing re-cross-examina-tion, it would be requiring the obvious to pretend that there was still need for an oath or a verification as to mer-its of the defense of defaulted defendants (who were de-clared in default not for failure to answer but for failure to appear at pre-trial), asserted in their motion to reconsider

their default. And where it appears, moreover, that the de-faulted defendants being the parents of the non-defaulted defendants, must have assumed that their presence at the pre-trial was superfluous, particularly because the cause of action against them as well as their own defense are common, under these circumstances, the form of the motion by which the defaults was sought to be lifted is secondary and the requirements of Section 8, Rule 18 need not be strictly complied with, unlike in cases of de-fault of failure to answer. Hence, for purposes of revival of their right to notice under Section 9 of Rule 13, the de-faulted 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 DE-FENDANT FROM COMPLAINT SUBSTANTIALLY AMENDS COMPLAINT. — A motion to drop non-de-faulted defendants from plaintiff’s complaint virtually amends the complaint, and such amendment is substan-tial, for with the elimination thereby of said defendants, al-legedly 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 defen-dants of plaintiff’s motion is legally indispensable under Rule 13, Sec. 9. Consequently, the court had no authority to act on the motion to dismiss, without the requisite three-day notice, pursuant to Sec. 6, Rule 15, for the Rules of Court clearly provide that no motion shall be acted upon by the Court without the proof of service of notice thereof, together with a copy of the motion and other papers accompanying it, to all parties concerned at

least three days before the hearing thereof, stating the time and place for the hearing of the motion (Rule 26, Section 4, 5 and 6, Rules of Court, Now Sec. 15, New Rules). When the motion does not comply with this re-quirement, it is not a motion. It presents no question which the court could decide. And the court acquires no jurisdiction to consider it.

25. CERTIORARI; WHERE APPEAL IS NOT AN ADE-QUATE REMEDY; CERTIORARI MAYBE RESORTED TO. — The essential purpose of certiorari is to keep the proceedings in lower judicial courts and tribunals within legal bounds, so that due process and the rule of law may prevail at all time and arbitrariness, whimsicality and un-fairness which justice abhors may immediately be stamped out before graver injury, juridical and otherwise, ensues. While generally those objectives may well be at-tained 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 com-mitted by the trial court is so grave and so far reaching in its consequences that the long and cumbersome proce-dure 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 INHER-ENT POWER OF SUPERVISION OVER JUDICIAL AC-TION. — 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 sub-stantial, 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 construc-tion and unwarranted application of procedural rules.

27. ID.; DEFAULT; SUPREME COURT WILL NOT SANCTION PROCEDURAL MANEUVERS THAT WILL DEPRIVE OTHER PARTY OF RIGHT TO BE HEARD. — The idea of "dropping" the non-defaulted defendants with the end in view of completely incapacitating their co-de-fendants 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 com-mon defense readily connotes an intent to secure a one-sided decision, even improperly. Such procedural maneu-ver 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 ad-vantage of the rules of procedure in order to unduly de-prive the other party of full opportunity to defend his cause. And when in this connection, the obvious weak-ness of plaintiff’s evidence is taken into account, one eas-ily understands why such tactics had to be availed of. The Supreme Court cannot directly and inequity in the appli-cation of procedural rules, particularly when the propriety of reliance thereon is not beyond controversy.

28. ID.; PARTIES; PARTY SHOULD NOT BE ALLOWED TO BENEFIT FROM HER FRUSTRATED OBJECTIVE

TO SECURE A ONE-SIDED DECISION. — Where all the malactuations of the trial court are traceable to the initia-tive of the plaintiff and/or her counsel, she cannot com-plain that she is being made to unjustifiably suffer the consequences of the erroneous orders of the trial court. It is only fair that she should not be allowed, to benefit from her own frustrated objective of securing a one-sided deci-sion.

29. ID.; ID.; SUPREME COURT NEED NOT REMANDS CASE FOR FURTHER PROCEEDINGS IF ENOUGH BA-SIS 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 applica-tions.

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 evi-dence relative thereto, to the end that it may take corre-sponding 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 appropri-ate cases he may, if necessary in the interest of justice and a more accurate determination of the facts, make in-quiries about or require clarifications of matters taken up at the pre-trial, before finally resolving any issue of fact or law. In brief, the pre-trial constitutes part and parcel of the proceedings, and hence, matters dealt with therein may not disregarded in the process of decision making. Other-wise, the real essence of compulsory pre-trial would be insignificant and worthless.

31. MARRIAGE; EVIDENCE OF. — Under Article 55 of the Civil Code, the declaration of the contracting parties that they take each other as husband and wife "shall be set forth in an instrument" signed by the parties as well as by their witnesses and the person solemnizing the mar-riage. Accordingly, the primary evidence of a marriage must be an authentic copy of the marriage contract.

32. ID.; ID.; WHEN SECONDARY EVIDENCE MAY BE AVAILED OF. — While a marriage may also be proved by other competent evidence, the absence of the contract must first be satisfactorily explained. The certification of the person who allegedly solemnized a marriage is not admissible evidence of such marriage unless proof or loss of the contract or of any other satisfactory reason for its non-production is first presented to the court.

33. ID.; ID.; ID.; CERTIFICATION OF BISHOP WHO DID NOT TESTIFY IS HEARSAY. — The purported certifica-tion issued by a bishop of the church where the alleged marriage took place is not competent evidence, in the ab-sence of a showing as to the unavailability of the mar-

riage contract; and, as to the authenticity of the signature of the signature of said certified, the jurat allegedly signed by a second assistant provincial fiscal is not authorized by law, since it is not part of the functions of his office. Be-sides, 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 testi-mony of plaintiff to the effect that she was married to the deceased in a church as well as that of her witness, al-legedly a foster son of deceased whom she had reared since his birth and with whom she has been living are both self-serving and of very little evidentiary value, it having been disclosed at the trial that plaintiff had already assigned all her rights in the case to said witness, thereby making the latter the real party in interest and therefore naturally as biased as plaintiff herself. Besides, it appears admitted that the witness was less than eight years old at the time of the alleged marriage, thus making it extremely doubtful if he could have been sufficiently aware of such event as to be competent to testify about it.

35. ID.; ID.; WEIGHT AND SUFFICIENCY OF EVI-DENCE. — Where against the evidence of the plaintiff concerning her marriage to deceased, consisting of a cer-tification by the bishop of the church where the marriage allegedly took place and her self-serving testimony, two documents belying the pretended marriage were pre-sented namely the income tax return of the deceased in-dicating a person other than plaintiff as his wife, and the quitclaim wherein plaintiff stated that she had been living with the deceased without benefit of marriage and that

she was his "common-law." it was held that these two documents are far more reliable than the evidence of plaintiff put together.

36. ID.; ID.; ID.; ADMISSION AGAINST INTEREST. — Where the existence of the quitclaim (containing the ad-mission by plaintiff of her common-law relationship only with the deceased and of her having renounced for valu-able consideration whatever claim she might have against the defendants), has been duly established at the pre-trial without any circumstances to detract from its legal import, the Court should have held that plaintiff was bound by her admission therein that she was the common-law wife only of deceased, and what is more, that she had already re-nounced her claim.

37. PARTNERSHIP; TRANSFER OF PARTNERSHIP PROPERTY AFTER DISSOLUTION OF PARTNERSHIP. — Where it appears that most of the properties supposed to have been acquired by defendants with funds of the partnership appear to have been transferred in their names long after the partnership had been automatically dissolved as a result of the death of a partner, defendants have no obligation to account to anyone for such acquisi-tions 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 GEN-ERALLY QUALIFIED TO READ STATEMENTS OF AC-COUNTS AND DRAW CONCLUSION FROM THEM. — It is unusual for a judge to delve into financial statement and books of a partnership without the aid of any accoun-

tant or without the same being explained by any witness who had prepared them or who has knowledge of the en-tries therein. To do so might result in inconsistencies and inaccuracies in the conclusions the judge may make out of them. Unless the judge is a certified public accountant, he is hardly qualified to read such statements and books and draw any definite conclusion therefrom, without risk of erring and committing an injustice. Under such circum-stances, the Supreme Court is not prepared to permit anyone to predicate any claim or right from the trial court’s unaided exercise of accounting knowledge.

39. ID.; LIQUIDATION; NO SPECIFIC AMOUNT CAN BE DISTRIBUTED UNLESS PARTNERSHIP IS FIRST LIQ-UIDATED. — In the absence of a finding that a new cor-poration was organized after the death of the partner (Plaintiff’s alleged husband) with capital from the funds of the partnership, or finding as to how some of the defen-dants 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 sup-posed 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 al-legedly purchased from the funds of the partnership would naturally include the amounts defendants have to account for. And if there has not yet been any liquidation of the partnership, so that said partnership would have the status of a partnership in liquidation, the only right plaintiff could have would be to what might result after much liquidation to belong to the deceased partner (her

alleged husband) and before this is finished, it is impossi-ble to determine, what rights or interest, if any the de-ceased had. In other words, no specific amounts or prop-erties may be adjudicated to the heir or legal representa-tive of the deceased partner without the liquidation being first terminated.

D E C I S I O N

BARREDO, J.:

Petition for (1) certiorari to annul and set aside certain ac-tuations of respondent Court of First Instance of Cebu Branch III in its Civil Case No. 12328, an action for ac-counting of properties and money totalling allegedly about P15 million pesos filed with a common cause of action against six defendants, in which after declaring four of the said defendants herein petitioners, in default and while the trial as against the two defendants not declared in de-fault was in progress, said court granted plaintiff’s motion to dismiss the case in so far as the non-defaulted defen-dants were concerned and thereafter proceeded to hear ex-parte the rest of the plaintiff’s evidence and subse-quently rendered judgment by default against the de-faulted defendants, with the particularities that notice of the motion to dismiss was not duly served on any of the defendants, who had alleged a compulsory counterclaim against plaintiff in their joint answer, and the judgment so rendered granted reliefs not prayed for in the complaint,

and (2) probition to enjoin further proceedings relative to the motion for immediate execution of the said judgment.

Originally, this litigation was a complaint filed on February 9, 1971 by respondent Tan Put only against the spouses-petitioners Antonio Lim Tanhu and Dy Ochay. Subse-quently, 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 defen-dants. In said amended complaint, respondent Tan al-leged 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, Al-fonso Leonardo Ng Sua, Lim Teck Chuan, and Eng Chong Leonardo, through fraud and machination, took actual and active management of the partnership and al-though 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 build-ings 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 discov-ered were as follows: (list of properties) . . .;" and that:jgc:chanrobles.com.ph

"13. (A)fter the death of Tee Hoon Lim Po Chuan, the de-fendants, without liquidation, continued the business of Glory Commercial Company, by purportedly organizing a corporation known as the Glory Commercial Company, Incorporated, with paid up capital in the sum of P125,000.00, which money and other assets of the said

Glory Commercial Company, Incorporated are actually the assets of the defunct Glory Commercial Company partnership, of which the plaintiff has a share equivalent to one third (1/3) thereof;

"14. (P)laintiff, on several occasions after the death of her husband, has asked defendants of the above-mentioned properties and for the liquidation of the business of the defunct partnership, including investments on real estate in Hong Kong, but defendants kept on promising to liqui-date said properties and just told plaintiff to

"15. (S)ometime in the month of November, 1967, Defen-dants, 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 quit-claim, defendant Antonio Lim Tanhu offered to pay the plaintiff the amount of P65,000.00 within a period of one (1) month, for which plaintiff was made to sign a receipt for the amount of P65,000 00 although no such amount was given, and plaintiff was not even given a copy of said document:jgc:chanrobles.com.ph

"17. (T)hereafter, in the year 1968-69, the defendants who had earlier promised to liquidate the aforesaid prop-erties and assets in favor, among others of plaintiff and

until the middle of the year 1970 when the plaintiff for-mally 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 judg-ment be rendered:chanrob1es virtual 1aw library

a) Ordering the defendants to render an accounting of the real and personal properties of the Glory Commercial Company including those registered in the names of the defendants and other persons, which properties are lo-cated in the Philippines and in Hong Kong;

b) Ordering the defendants to deliver to the plaintiff after accounting, one third (1/3) of the total value of all the properties which is approximately P5,000,000.00 repre-senting the just share of the plaintiff;

c) Ordering the defendants to pay the attorney of the plaintiff the sum of Two Hundred Fifty Thousand Pesos (P250,000.00) by way of attorney’s fees and damages in the sum of One Million Pesos (P1,000.000.00).

"This Honorable Court is prayed for other remedies and reliefs consistent with law and equity and order the defen-dants to pay the costs." (Page 38, Record.)

The admission of said amended complaint was opposed by defendants upon the ground that there were material

modifications of the causes of action previously alleged, but respondent judge nevertheless allowed the amend-ment reasoning that:jgc:chanrobles.com.ph

"The present action is for accounting of real and personal properties as well as for the recovery of the same with damages.

An objective consideration of pars. 13 and 15 of the amended complaint pointed out by the defendants to sus-tain their opposition will show that the allegations of facts therein are merely to amplify material averments consti-tuting the cause of action in the original complaint. It like-wise includes necessary and indispensable defendants without whom no final determination can be had in the ac-tion and in order that complete relief is to be accorded as between those already parties.

Considering that the amendments sought to be intro-duced do not change the main causes of action in the original complaint and the reliefs demanded and to allow amendments is the rule, and to refuse them the exception and in order that the real question between the parties may be properly and justly threshed out in a single pro-ceeding to avoid multiplicity of actions." (Page 40, Record.)

In a single answer with counterclaim, over the signature of their common counsel, defendants denied specifically not only the allegation that respondent Tan is the widow of Tee Hoon because, according to them, his legitimate wife was Ang Siok Tin, still living and with whom he had four (4) legitimate children, a twin born in 1942, and two

others born in 1949 and 1965, all presently residing in Hongkong, but also all the allegations of fraud and con-version 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 re-ceive his just share until his death, as a result of which the partnership was dissolved and what corresponded to him were all given to his wife and children. To quote the pertinent portions of said answer:jgc:chanrobles.com.ph

"AND BY WAY OF SPECIAL AND AFFIRMATIVE DE-FENSES,

defendants hereby incorporate all facts averred and al-leged in the answer, and further most respectfully de-clare:chanrob1es virtual 1aw library

1. That in the event that plaintiff is filing the present com-plaint as an heir of Tee Hoon Lim Po Chuan, then, she has no legal capacity to sue as such, considering that the legitimate wife, namely: Ang Siok Tin, together with their children are still alive. Under Sec. 1, (d), Rule 16 of the Revised Rules of Court, lack of legal capacity to sue is one of the grounds for a motion to dismiss and so defen-dants prays that a preliminary hearing be conducted as provided for in Sec. 5, of the same rule;

2. That in the alternative case or event that plaintiff is fil-ing the present case under Art. 144 of the Civil Code, then, her claim or demand has been paid, waived aban-doned or otherwise extinguished as evidenced by the ‘quitclaim’ Annex ‘A’ hereof, the ground cited is another ground for a motion to dismiss (Sec. 1, (h), Rule 16) and

hence defendants pray that a preliminary hearing be made in connection therewith pursuant to Section 5 of the aforementioned rule;

3. That Tee Hoon Lim Po Chuan was legally married to Ang Siok Tin and were blessed with the following chil-dren, to wit: Ching Siong Lim and Ching Hing Lim (twins) born on February 16, 1942; Lim Shing Ping born on March 3, 1949 and Lim Eng Lu born on June 25, 1965 and presently residing in Hongkong;

4. That even before the death of Tee Hoon Lim Po Chuan, the plaintiff was no longer his common law wife and even though she was not entitled to anything left by Tee Hoon Lim Po Chuan, yet, out of the kindness and generosity on the part of the defendants, particularly An-tonio Lim Tanhu, who, was inspiring to be monk and in fact he is now a monk, plaintiff was given a substantial amount evidenced by the ‘quitclaim’ (Annex ‘A’);

5. That the defendants have acquired properties out of their own personal fund and certainly not from the funds belonging to the partnership, just as Tee Hoon Lim Po Chuan had acquired properties out of his personal fund and which are now in the possession of the widow and neither the defendants nor the partnership have anything to do about said properties;

6. That it would have been impossible to buy properties from funds belonging to the partnership without the other partners knowing about it considering that the amount taken allegedly is quite big and with such big amount withdrawn the partnership would have been insolvent;

7. That plaintiff and Tee Hoon Lim Po Chuan were not blessed with children who would have been lawfully enti-tled to succeed to the properties left by the latter together with the widow and legitimate children;

8. That despite the fact that plaintiff knew that she was no longer entitled to anything of the shares of the late Tee Hoon Lim Po Chuan, yet, this suit was filed against the defendant who have to interpose the following —

C O U N T E R C L A I M

A. That the defendants hereby reproduced, by way of ref-erence, all the allegations and foregoing averments as part of this counterclaim;

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

C. That plaintiff was aware and had knowledge about the ‘quitclaim’, even though she was not entitled to it, and yet she falsely claimed that defendants refused even to see her and for filing this unfounded, baseless, futile and puerile complaint, defendants suffered mental anguish

and torture conservatively estimated to be not less than P3,000.00;

D. That in order to defend their rights in court, defendants were constrained to engage the services of the under-signed counsel, obligating themselves to pay P500,000.00 as attorney’s fees;

E. That by way of litigation expenses during the time that this case will be before this Honorable Court and until the same will be finally terminated and adjudicated, defen-dants will have to spend at least P5,000.00." (Pp. 44-47. Record.)

After unsuccessfully trying to show that this counterclaim is merely permissive and should be dismissed for non-payment of the corresponding filing fee, and after being overruled by the court, in due time, plaintiff answered the same, denying its material allegations.

On February 3, 1973, however, the date set for the pre-trial, both of the two defendants-spouses, the Lim Tanhus and Ng Suas, did not appear, for which reason, upon mo-tion of plaintiff dated February 16, 1973, in an order of March 12, 1973, they were all "declared in DEFAULT as of February 3, 1973 when they failed to appear at the pre-trial." They sought to have this order lifted thru a motion for reconsideration, but the effort failed when the court denied it. Thereafter, the trial started, but at the stage thereof where the first witness of the plaintiff by the name of Antonio Nuñez, who testified that he is her adopted son, was up for re-cross-examination, said plaintiff unex-

pectedly filed on October 19, 1974 the following simple and unreasoned

"MOTION TO DROP DEFENDANTS LIM TECK

CHUAN AND ENG CHONG LEONARDO

"COMES now plaintiff, through her undersigned counsel, unto the Honorable Court most respectfully moves to drop from the complaint the defendants Lim Teck Chuan and Eng Chong Leonardo and to consider the case dismissed insofar as said defendants Lim Teck Chuan and Eng Chong Leonardo are concerned.

WHEREFORE, it is most respectfully prayed of the Hon-orable Court to drop from the complaint the defendants Lim Teck Chuan and Eng Chong Leonardo and to dis-miss the case against them without pronouncement as to costs." (Page 50, Record.)

which she set for hearing on December 21, 1974. Accord-ing to petitioners, none of the defendants declared in de-fault were notified of said motion, in violation of Section 9 of Rule 13, since they had asked for the lifting of the order of default, albeit unsuccessfully, and as regards the de-fendants not declared in default, the setting of the hearing of said motion on October 21, 1974 infringed the three-day requirement of Section 4 of Rule 15, inasmuch as Atty. Adelino Sitoy of Lim Teck Chuan was served with a copy of the motion personally only on October 19, 1974, while Atty. Benjamin Alcudia of Eng Chong Leonardo was served by registered mail sent only on the same date.

Evidently without even verifying the notices of service, just as simply as plaintiff had couched her motion, and also without any legal grounds stated, respondent court granted the prayer of the above motion thus:jgc:chanrob-les.com.ph

"ORDER

Acting on the motion of the plaintiff praying for the dis-missal of the complaint as against defendants Lim Teck Chuan and Eng Chong Leonardo. —

The same is hereby GRANTED. The complaint as against defendant Lim Teck Chuan and Eng Chong Leonardo is hereby ordered DISMISSED without pronouncement as to costs."cralaw virtua1aw library

Simultaneously, the following order was also issued:jgc:chanrobles.com.ph

"Considering that defendants Antonio Lim Tanhu and his spouse Dy Ochay as well as defendants Alfonso Ng Sua and his spouse Co Oyo have been declared in default for failure to appear during the pre-trial and as to the other defendants the complaint had already been ordered dis-missed 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 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 Novem-ber 20, 1974, for on October 28, 1974, upon verbal mo-tion of plaintiff, the court issued the following self-explana-tory order:jgc:chanrobles.com.ph

"Acting favorably on the motion of the plaintiff dated Octo-ber 18, 1974, the Court deputized the Branch Clerk of Court to receive the evidence of the plaintiff ex-parte to be made on November 20, 1974. However, on October 28, 1974, the plaintiff, together with her witnesses, ap-peared in court and asked, thru counsel, that she be al-lowed to present her evidence.

Considering the time and expenses incurred by the plain-tiff in bringing her witnesses to the court, the Branch Clerk of Court is hereby authorized to receive immediately the evidence of the plaintiff ex-parte.

SO ORDERED.

Cebu City, Philippines, October 28, 1974." (Page 53, Record.)

Upon learning of these orders, on October 23, 1973, the defendant Lim Teck Cheng, thru counsel, Atty. Sitoy, filed a motion for reconsideration thereof, and on November 1, 1974, defendant Eng Chong Leonardo, thru counsel Atty.

Alcudia, filed also his own motion for reconsideration and clarification of the same orders. These motions were de-nied in an order dated December 6, 1974 but received by the movants only on December 23, 1974. Meanwhile, re-spondent court rendered the impugned decision on De-cember 20, 1974. It does not appear when the parties were served copies of this decision.

Subsequently, on January 6, 1975, all the defendants, thru counsel, filed a motion to quash the order of October 28, 1974. Without waiting however for the resolution thereof, on January 13, 1974, Lim Teck Chuan and Eng Chong Leonardo went to the Court of Appeals with a peti-tion for certiorariseeking the annulment of the above-mentioned orders of October 21, 1974 and October 28, 1974 and decision of December 20, 1974. By resolution of January 24, 1975, the Court of Appeals dismissed said petition, holding that its filing was premature, considering that the motion to quash the order of October 28, 1974 was still unresolved by the trial court. This holding was re-iterated in the subsequent resolution of February 5, 1975 denying the motion for reconsideration of the previous dismissal.

On the other hand, on January 20, 1975, the other defen-dants, petitioners herein, filed their notice of appeal, ap-peal bond and motion for extension to file their record on appeal, which was granted, the extension to expire after fifteen (15) days from January 26 and 27, 1975, for defen-dants Lim Tanhu and Ng Suas, respectively. But on Feb-ruary 7, 1975, before the perfection of their appeal, peti-tioners filed the present petition with this Court. And with the evident intent to make their procedural position clear,

counsel for defendants, Atty. Manuel Zosa, filed with re-spondent court a manifestation dated February 14, 1975 stating that "when the non-defaulted defendants Eng Chong Leonardo and Lim Teck Chuan filed their petition in the Court of Appeals, they in effect abandoned their motion to quash the order of October 28, 1974," and that similarly "when Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and Co Oyo, filed their petition for cer-tiorari and prohibition . . . in the Supreme Court, they like-wise abandoned their motion to quash." This manifesta-tion was acted upon by respondent court together with plaintiff’s motion for execution pending appeal in its order of the same date February 14, 1975 thiswise:jgc:chanrob-les.com.ph

"ORDER

When these incidents, the motion to quash the order of October 28, 1974 and the motion for execution pending appeal were called for hearing today, counsel for the de-fendants-movants submitted their manifestation inviting the attention of this Court that by their filing for certiorari and prohibition with preliminary injunction in the Court of Appeals which was dismissed and later the defaulted de-fendants filed with the Supreme Court certiorari with pro-hibition 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 cer-tiorari and prohibition shall have been resolved by the Supreme Court.

SO ORDERED.

Cebu City, Philippines, February 14, 1975." (Page 216, Record.)

Upon these premises, it is the position of petitioners that respondent court acted illegally, in violation of the rules or with grave abuse of discretion in acting on respondent’s motion to dismiss of October 18, 1974 without previously ascertaining whether or not due notice thereof had been served on the adverse parties, as, in fact, such notice was timely served on the non-defaulted defendants Lim Teck Chuan and Eng Chong Leonardo and no notice at all was ever sent to the other defendants, herein petition-ers, 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 de-faulted defendants, herein petitioners, actually hearing the same ex-parte and thereafter rendering the decision of December 20, 1974 granting respondent Tan even re-liefs not prayed for in the complaint. According to the peti-tioners, 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. Be-sides, and more importantly, under Section 4 of Rule 18, respondent court had no authority to divide the case be-fore it by dismissing the same as against the non-de-faulted defendants and thereafter proceeding to hear it ex-parte and subsequently rendering judgment against the defaulted defendants, considering that in their view, under the said provision of the rules, when a common

cause of action is alleged against several defendants, the default of any of them is a mere formality by which those defaulted are not allowed to take part in the proceedings, but otherwise, all the defendants, defaulted and not de-faulted, are supposed to have but a common fate, win or lose. In other words, petitioners posit that in such a situa-tion, there can only be one common judgment for or against all the defendants, the non-defaulted and the de-faulted. Thus, petitioners contend that the order of dis-missal of October 21, 1974 should be considered also as the final judgment insofar as they are concerned, or, in the alternative, it should be set aside together with all the proceedings and decision held and rendered subsequent thereto, and that the trial be resumed as of said date, with the defendants Lim Teck Chuan and Eng Chong Leonardo being allowed to defend the case for all the de-fendants.

On the other hand, private respondent maintains the con-trary 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 conse-quences of their own default. Respondent further con-tends, and this is the only position discussed in the mem-orandum submitted by her counsel, that since petitioners have already made or at least started to make their ap-peal, as they are in fact entitled to appeal, this special civil action has no reason for being. Additionally, she in-vokes the point of prematurity upheld by the Court of Ap-peals 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 jus-tice. A review of the record of this case immediately dis-closes that here is another demonstrative instance of how some members of the bar, availing of their proficiency in invoking the letter of the rules without regard to their real spirit and intent, succeed in inducing courts to act con-trary to the dictates of justice and equity, and, in some in-stances, to wittingly or unwittingly abet unfair advantage by ironically camouflaging their actuations as earnest ef-forts 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 imper-atively, "just . . . and inexpensive determination of every action and proceeding." We cannot simply pass over the impression that the procedural maneuvers and tactics re-vealed in the records of the case at bar were deliberately planned with the calculated end in view of depriving peti-tioners and their co-defendants below of every opportu-nity to properly defend themselves against a claim of more than substantial character, considering the millions of pesos worth of properties involved as found by respon-dent judge himself in the impugned decision, a claim that appears, in the light of the allegations of the answer and

the documents already brought to the attention of the court at the pre-trial, to be rather dubious. What is most regrettable is that apparently, all of these alarming cir-cumstances 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, ap-peared to be of highly controversial merit, considering that their obvious tendency and immediate result would be to convert the proceedings into a one-sided affair, a situation that should be readily condemnable and intolera-ble to any court of justice.

Indeed, a seeming disposition on the part of respondent court to lean more on the contentions of private respon-dent may be discerned from the manner it resolved the attempts of defendants Dy Ochay and Antonio Lim Tanhu to have the earlier order of default against them lifted. Notwithstanding that Dy Ochay’s motion of October 8, 1971, co-signed by her with their counsel, Atty. Jovencio Enjambre, (Annex 2 of respondent answer herein) was over the jurat of the notary public before whom she took her oath in the order of November 2, 1971, (Annex 3 id.) it was held that "the oath appearing at the bottom of the motion is not the one contemplated by the abovequoted pertinent provision (Sec. 3, Rule 18) of the rules. It is not even a verification. (Sec. 6, Rule 7.) What the rule re-quires as interpreted by the Supreme Court is that the motion must have to be accompanied by an affidavit of merits that the defendant has a meritorious defense, thereby ignoring the very simple legal point that the ruling of the Supreme Court in Ong Peng v. Custodio, 1 SCRA 781, relied upon by His Honor, under which a separate af-

fidavit 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 rea-sons for the failure to answer as well as the facts consti-tuting the prospective defense of the defendant and it is sworn to by said defendant, neither a formal verification nor a separate affidavit of merit is necessary.

What is worse, the same order further held that the mo-tion 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 ratio-nalization is patently specious and reveals an evident fail-ure 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 defen-dant, no less than if it were worded in a manner specifi-cally 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 de-fense (quitclaim) which renders the claim of the plaintiff contentious." We have read defendants’ motion for recon-sideration of November 25, 1971 (Annex 5, id.), but We cannot find in it any reference to a "quitclaim." Rather, the allegation of a quitclaim is in the amended complaint (Pars. 15-16, Annex B of the petition herein) in which

plaintiff maintains that her signature thereto was secured through fraud and deceit. In truth, the motion for reconsid-eration just mentioned, Annex 5, merely reiterated the al-legation in Dy Ochay’s earlier motion of October 8, 1971, Annex 2, to set aside the order of default, that plaintiff Tan could be but the common law wife only of Tee Hoon, since his legitimate wife was still alive, which allegation, His Honor held in the order of November 2, 1971, Annex 3, to be "not good and meritorious defense." To top it all, whereas, as already stated, the order of February 19, 1972, Annex 6, lifted the default against Lim Tanhu be-cause of the additional consideration that "he has a de-fense (quitclaim) which renders the claim of the plaintiff contentious", the default of Dy Ochay was maintained notwithstanding that exactly the game "contentious" de-fense 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 in-volved together with the obviously contentious character of plaintiff’s claim, which is discernible even on the face of the complaint itself, utmost care should have been taken to avoid the slightest suspicion of improper motivations on the part of anyone concerned. Upon the considerations hereunder to follow, the Court expresses its grave con-cern 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 technicali-ties adroitly planned by counsel and seemingly unnoticed and undetected by respondent court, whose orders, gauged by their tenor and the citations of supposedly per-tinent provisions and jurisprudence made therein, cannot be said to have proceeded from utter lack of juridical knowledgeability and competence.

— 1 —

The first thing that has struck the Court upon reviewing the record is the seeming alacrity with which the motion to dismiss the case against non-defaulted defendants Lim Teck Chuan and Eng Chong Leonardo was disposed of, which definitely ought not to have been the case. The trial was proceeding with the testimony of the first witness of plaintiff and he was still under re-cross-examination. Un-doubtedly, 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, obvi-ously designed to secure utmost advantage of the situa-tion, regardless of its apparent unfairness. To say that it must have been entirely unexpected by all the defen-dants, 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 noti-fied of such unanticipated dismissal motion did not get due notice thereof. Certainly, the non-defaulted defen-

dants 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 noti-fied 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 ques-tion 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 plain-tiff, but what is incomprehensible is the seeming inatten-tion of respondent judge to the explicit mandate of the pertinent rule, not to speak of the imperatives of fairness, considering he should have realized the far-reaching im-plications, specially from the point of view he subse-quently adopted, albeit erroneously, of his favorably act-ing on it. Actually, he was aware of said consequences, for simultaneously with his order of dismissal, he immedi-ately set the case for the ex-parte hearing of the evidence against the defaulted defendants, which, incidentally, from the tenor of his order which We have quoted above, appears to have been done by him motu propio. As a matter of fact, plaintiff’s motion also quoted above did not pray for it.

Withal, respondent court’s twin actions of October 21, 1974 further ignores or is inconsistent with a number of known juridical principles concerning defaults, which We will here take occasion to reiterate and further elucidate on, if only to avoid a repetition of the unfortunate errors committed in this case. Perhaps some of these principles have not been amply projected and elaborated before, and such paucity of elucidation could be the reason why respondent judge must have acted as he did. Still, the Court cannot but express its vehement condemnation of any judicial actuation that unduly deprives any party of the right to be heard without clear and specific warrant under the terms of existing rules or binding jurisprudence. Extreme care must be the instant reaction of every judge when confronted with a situation involving risks that the proceedings may not be fair and square to all the parties concerned. Indeed, a keen sense of fairness, equity and justice that constantly looks for consistency between the letter of the adjective rules and these basic principles must be possessed by every judge, If substance is to pre-vail, as it must, over form in our courts. Literal observance of the rules, when it is conducive to unfair and undue ad-vantage on the part of any litigant before it, is unworthy of any court of justice and equity. Withal, only those rules and procedure informed with and founded on public policy deserve obedience in accord with their unequivocal lan-guage or words.

Before proceeding to the discussion of the default as-pects of this case, however, it should not be amiss to ad-vert first to the patent incorrectness, apparent on the face of the record, of the aforementioned order of dismissal of

October 21, 1974 of the case below as regards non-de-faulted 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 pro-cedural strategy conceived by respondent’s counsel and sanctioned by respondent court to also make reference to the very evident fact that in ordering said dismissal re-spondent court disregarded completely the existence of defendant’s counterclaim which it had itself earlier held, if indirectly, to be compulsory in nature when it refused to dismiss the same on the ground alleged by respondent Tan that the docketing fees for the filing thereof had not been paid by defendants.

Indeed, that said counterclaim is compulsory needs no extended elaboration. As may be noted in the allegations thereof aforequoted, it arose out of or is necessarily con-nected with the occurrence that is the subject matter of the plaintiff’s claim, (Section 4, Rule 9) namely, plaintiff’s allegedly being the widow of the deceased Tee Hoon en-titled, as such, to demand accounting of and to receive the share of her alleged late husband as partner of defen-dants Antonio Lim Tanhu and Alfonso Leonardo Ng Sua in Glory Commercial Company, the truth of which allega-tions all the defendants have denied. Defendants main-tain in their counterclaim that plaintiff knew of the falsity of said allegations even before she filed her complaint, for she had in fact admitted her common-law relationship with said deceased in a document she had jointly exe-cuted with him by way of agreement to terminate their ille-gitimate relationship, for which she received P40,000 from the deceased, and with respect to her pretended share in the capital and profits in the partnership, it is also

defendants’ posture that she had already quitclaimed, with the assistance of able counsel, whatever rights if any she had thereto in November, 1967, for the sum of P25,000 duly receipted by her, which quitclaim was, how-ever, executed, according to respondent herself in her amended complaint, through fraud. And having filed her complaint knowing, according to defendants, as she ought to have known, that the material allegations thereof are false and baseless, she has caused them to suffer damages. Undoubtedly, with such allegations, defen-dants’ counterclaim is compulsory, not only because the same evidence to sustain it will also refute the cause or causes of action alleged in plaintiff’s complaint, (Moran, supra p. 352) but also because from its very nature, it is obvious that the same cannot "remain pending for inde-pendent adjudication by the court." (Section 2, Rule 17.)

The provision of the rules just cited specifically enjoins that" (i)f a counterclaim has been pleaded by a defendant prior to the service upon him of the plaintiff’s motion to dismiss, the action shall not be dismissed against the de-fendant’s objection unless the counterclaim can remain pending for independent adjudication by the court." De-fendants Lim and Leonardo had no opportunity to object to the motion to dismiss before the order granting the same was issued, for the simple reason that they were not opportunely notified of the motion therefor, but the record shows clearly that at least defendant Lim immedi-ately brought the matter of their compulsory counterclaim to the attention of the trial court in his motion for reconsid-eration of October 23, 1974, even as the counsel for the other defendant, Leonardo, predicated his motion on other grounds. In its order of December 6, 1974, how-

ever, respondent court not only upheld the plaintiff’s sup-posed absolute right to choose her adversaries but also held that the counterclaim is not compulsory, thereby vir-tually making unexplained and inexplicable 180-degree turnabout in that respect.

There is another equally fundamental consideration why the motion to dismiss should not have been granted. As the plaintiff’s complaint has been framed, all the six de-fendants are charged with having actually taken part in a conspiracy to misappropriate, conceal and convert to their own benefit the profits, properties and all other assets of the partnership Glory Commercial Company, to the extent that they have allegedly organized a corporation, Glory Commercial Company, Inc. with what they had illegally gotten from the partnership. Upon such allegations, no judgment finding the existence of the alleged conspiracy or holding the capital of the corporation to be the money of the partnership is legally possible without the presence of all the defendants. The non-defaulted defendants are alleged to be stockholders of the corporation and any de-cision depriving the same of all its assets cannot but prej-udice the interests of said defendants. Accordingly, upon these premises, and even prescinding from the other rea-sons to be discussed anon, it is clear that all the six de-fendants below, defaulted and non-defaulted, are indis-pensable 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 ex-actly the opposite of what ought to have been done. Whenever it appears to the court in the course of a pro-ceeding 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, An-notated & 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 ac-tion requires the joinder of all necessary parties wherever possible, and the joinder of all indispensable parties un-der 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 pre-cisely "when an indispensable party is not before the court (that) the action should be dismissed." (People v. Rodriguez, 106 Phil. 325, at p. 327.) The absence of an indispensable party renders all subsequent actuations of the court null and void, for want of authority to act, not only as to the absent parties but even as to those present. In short, what respondent court did here was ex-actly the reverse of what the law ordains — it eliminated those who by law should precisely be joined.

As may be noted from the order of respondent court quoted earlier, which resolved the motions for reconsider-ation of the dismissal order filed by the non-defaulted de-fendants, 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 or the adverse party. If he makes a mistake in the choice of his right of action, or in that of the parties against whom he seeks to enforce it, that is his own concern as he alone suffers therefrom.

The plaintiff cannot be compelled to choose his defen-dants. He may not, at his own expense, be forced to im-plead anyone who, under the adverse party’s theory, is to answer for defendant’s liability. Neither may the Court compel him to furnish the means by which defendant may avoid or mitigate their liability. (Vano v. Alo, 95 Phil. 495-496.)

This being the rule this court cannot compel the plaintiff to continue prosecuting her cause of action against the de-fendants-movants if in the course of the trial she believes she can enforce it against the remaining defendants sub-ject only to the limitation provided in Section 2, Rule 17 of the Rules of Court. . . ." (Pages 62-63, Record.)

Noticeably, His Honor has employed the same equivocal terminology as in plaintiff’s motion of October 18, 1974 by referring to the action he had taken as being "dismissal of the complaint against them or their being dropped there-from", 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, par-ties 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 ambiva-lent pose is suggested that plaintiff’s motion of October 18, 1974 was not predicated on Section 2 of Rule 17 but more on Section 11 of Rule 3. But the truth is that nothing can be more incorrect. To start with, the latter rule does not comprehend whimsical and irrational dropping or adding of parties in a complaint. What it really contem-

plates is erroneous or mistaken non-joinder and misjoin-der of parties. No one is free to join anybody in a com-plaint 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 re-quested because it has turned out that such inclusion was a mistake. And this is the reason why the rule ordains that the dropping be "on such terms as are just" — just to all the other parties. In the case at bar, there is nothing in the record to legally justify the dropping of the non-defaulted defendants, Lim and Leonardo. The motion of October 18, 1984 cites none. From all appearances, plaintiff just decided to ask for it, without any relevant explanation at all. Usually, the court in granting such a motion inquires for the reasons and in the appropriate instances directs the granting of some form of compensation for the trouble undergone by the defendant in answering the complaint, preparing for or proceeding partially to trial, hiring counsel and making corresponding expenses in the premises. Nothing of these, appears in the order in question. Most importantly, His Honor ought to have considered that the outright dropping of the non-defaulted defendants Lim and Leonardo, over their objection at that, would certainly be unjust not only to the petitioners, their own parents, who would in consequence be entirely defenseless, but also to Lim and Leonardo themselves who would natu-rally correspondingly suffer from the eventual judgment against their parents. Respondent court paid no heed at all to the mandate that such dropping must be on such terms as are just" — meaning to all concerned with its le-gal and factual effects.

Thus, it is quite plain that respondent court erred in issu-ing 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 oblivi-ous 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 in-separably tied up with said order of dismissal, if only be-cause the order of ex-parte hearing of October 21, 1974 which directly affects and prejudices said petitioners is predicated thereon. Necessarily, therefore, We have to pass on the legality of said order, if We are to decide the case of herein petitioners properly and fairly.

The attitude of the non-defaulted defendants of no longer pursuing further their questioning of the dismissal is from another point of view understandable. On the one hand, should they insist on being defendants when plaintiff her-self has already release from her claims? On the other hand, as far as their respective parents-co-defendants are concerned, they must have realized that they (their parents) could even be benefited by such dismissal be-cause 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 de-fault 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-de-faulted defendants Lim and Leonardo impugning the or-der 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 Oc-tober 28, 1974 praying that said disputed order be quashed, but principally because herein petitioners were not parties in that proceeding and cannot, therefore, be bound by its result. In particular, We deem it warranted to draw the attention of private respondent’s counsel to his allegations in paragraphs XI to XIV of his answer, which relate to said decision of the Court of Appeals and which have the clear tendency to make it appear to the Court that the appeals court had upheld the legality and validity of the actuations of the trial court being questioned, when as a matter of indisputable fact, the dismissal of the peti-tion was based solely and exclusively on its being prema-ture without in any manner delving into its merits. The Court must and does admonish counsel that such manner of pleading, being deceptive and lacking in candor, has no place in any court, much less in the Supreme Court, and if We are adopting a passive attitude in the premises, it is due only to the fact that this is counsel’s first offense. But similar conduct on his part in the future will definitely be dealt with more severely. Parties and counsel would be well advised to avoid such attempts to befuddle the is-sues as invariably they will be exposed for what they are, certainly unethical and degrading to the dignity of the law profession. Moreover, almost always they only betray the inherent weakness of the cause of the party resorting to them.

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Coming now to the matter itself of default, it is quite ap-parent that the impugned orders must have proceeded from inadequate apprehension of the fundamental pre-cepts 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, in-stead 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 ren-dered in favor of such opponent, with hardly any chance of said judgment being reversed or modified.

The Rules of Court contain a separate rule on the subject of default, Rule 18. But said rule is concerned solely with default resulting from failure of the defendant or defen-dants 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 de-fault. Thereupon the court shall proceed to receive the plaintiff’s evidence and render judgment granting him such relief as the complaint and the facts proven may warrant." This last clause is clarified by Section 5 which says that "a judgment entered against a party in default shall not exceed the amount or be different in kind from that prayed for."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 no-tion that can be drawn from their language, these provi-

sions are not to be understood as meaning that default or the failure of the defendant to answer should be "inter-preted as an admission by the said defendant that the plaintiff’s cause of action find support in the law or that plaintiff is entitled to the relief prayed for." (Moran, supra, p. 535 citing Macondary & Co. v. Eustaquio, 64 Phil. 466, citing with approval Chaffin v. McFadden, 41 Ark. 42; Johnson v. Pierce, 12 Ark. 599; Mayden v. Johnson, 59 Ga. 105; People v. Rust, 292 Ill. 328; Ken v. Leopold, 21 Ill. A. 163; Chicago, etc. Electric R. Co. v. Krempel, 116 Ill. A. 253.).

Being declared in default does not constitute a waiver of rights except that of being heard and of presenting evi-dence in the trial court. According to Section 2, "except as provided in Section 9 of Rule 13, a party declared in de-fault shall not be entitled to notice of subsequent proceed-ings, nor to take part in the trial." That provision referred to reads: "No service of papers other than substantially amended pleadings and final orders or judgments shall be necessary on a party in default unless he files a mo-tion to set aside the order of default, in which event he shall be entitled to notice of all further proceedings re-gardless 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 evi-dence 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 plaintiff’s cause is, of course, presented in his absence, but the court is not supposed to admit that which is basi-cally incompetent. Although the defendant would not be in a position to object, elementary justice requires that only legal evidence should be considered against him. If the evidence presented should not be sufficient to justify a judgment for the plaintiff, the complaint must be dis-missed. And if an unfavorable judgment should be justifi-able, it cannot exceed in amount or be different in kind from what is prayed for in the complaint.

Incidentally, these considerations argue against the present widespread practice of trial judges, as was done by His Honor in this case, of delegating to their clerks of court the reception of the plaintiff’s evidence when the de-fendant is in default. Such a practice is wrong in principle and orientation. It has no basis in any rule. When a defen-dant 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 com-

parably limited area of discretion and his presumably infe-rior preparation for the functions of a judge. Besides, the default of the defendant is no excuse for the court to re-nounce 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 proceed-ing with the reception of the plaintiff’s evidence and the rendition of the decision. "A judgment by default may amount to a positive and considerable injustice to the de-fendant; 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 plaintiff’s evidence etc." is not to be taken literally. The gain in time and dispatch should the court immediately try the case on the very day of or shortly after the declaration of default is far out-weighed 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 in-stances where the only defendant or all the defendants,

there being several, are declared in default. There are ad-ditional 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, par-ticularly in reference to the power of the court to render judgment in such situations. Thus, in addition to the limi-tation of Section 5 that the judgment by default should not be more in amount nor different in kind from the reliefs specifically sought by plaintiff in his complaint, Section 4 restricts the authority of the court in rendering judgment in the situations just mentioned as follows:jgc:chanrobles.-com.ph

"Sec. 4. Judgment when some defendants answer, and others make default. — When a complaint states a com-mon cause of action against several defendants, some of whom answer, and the others fail to do so, the court shall try the case against all upon the answers thus filed and render judgment upon the evidence presented. The same procedure applies when a common cause of action is pleaded in a counterclaim, cross-claim and third-party claim."cralaw virtua1aw library

Very aptly does Chief Justice Moran elucidate on this pro-vision 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 de-fense interposed by those who appear to litigate the case inures to the benefit of those who fall to appear, and if the

court finds that a good defense has been made, all of the defendants must be absolved. In other words, the answer filed by one or some of the defendants inures to the bene-fit of all the others, even those who have not seasonably filed their answer. (Bueno v. Ortiz, L-22978, June 27, 1968, 23 SCRA 1151.) The proper mode of proceeding where a complaint states a common cause of action against several defendants, and one of them makes de-fault, is simply to enter a formal default order against him, and proceed with the cause upon the answers of the oth-ers. 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 ad-duce evidence; nor can he be heard at the final hearing, (Lim. Toco v. Go Fay, 80 Phil. 166.) although he may ap-peal the judgment rendered against him on the merits. (Rule 41, sec. 2.) If the case is finally decided in the plain-tiff’s favor, a final decree is then entered against all the defendants; but if the suit should be decided against the plaintiff, the action will be dismissed as to all the defen-dants 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 favor-ably or adversely. (Castro v. Peña, 80 Phil. 488.)

Defaulting defendant may ask execution if judgment is in his favor, (Castro v. Peña, supra.)" (Moran, Rules of Court, Vol. 1, pp. 538-539.)

In Castro v. Peña, 80 Phil. 488, one of the numerous cases cited by Moran, this Court elaborated on the con-struction of the same rule when it sanctioned the execu-tion, upon motion and for the benefit of the defendant in

default, of a judgment which was adverse to the plaintiff. The Court held:jgc:chanrobles.com.ph

"As above stated, Emilia Matanguihan, by her counsel, also was a movant in the petition for execution Annex 1. Did she have a right to be such, having been declared in default? In Frow v. De la Vega, supra, cited as authority in Velez v. Ramas, supra, the Supreme Court of the United States adopted as ground for its own decision the following ruling of the New York Court of Errors in Clason v. Morris, 10 Jons., 524:chanrob1es virtual 1aw library

‘It would be unreasonable to hold that because one de-fendant had made default, the plaintiff should have a de-cree even against him, where the court is satisfied from the proofs offered by the other, that in fact the plaintiff is not entitled to a decree.’ (21 Law, ed., 61.)

The reason is simple: justice has to be consistent. The complaint stating a common cause of action against sev-eral defendants, the complainant’s rights — or lack of them — in the controversy have to be the same, and not different, as against all the defendant’s although one or some make default and the other or others appear, join issue, and enter into trial. For instance, in the case of Cla-son 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 against the defendant appearing and resisting his action but also as against the one who made default. In the case at bar, the cause of action in the plaintiff’s complaint was common against the Mayor of Manila, Emilia Matangui-han, and the other defendants in Civil Case No. 1318 of

the lower court. The Court of First Instance in its judg-ment 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 Matan-guihan had made default, the said plaintiff should be de-clared, as against her, legally entitled to the occupancy of the stalls, or to remain therein, although the Court of First Instance was so firmly satisfied, from the proofs offered by the other defendant, that the same plaintiff was not en-titled 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 benefit of the de-faulting defendants, there is no reason why that entered in said case No. 1318 should not be held also to have in-ured to the benefit of the defaulting defendant Matangui-han. Indeed, the doctrine in said three cases plainly im-plies that there is nothing in the law governing default which would prohibit the court from rendering judgment favorable to the defaulting defendant in such cases. If it inured to her benefit, its stands to reason that she had a right to claim that benefit, for it would not be a benefit if the supposed beneficiary were barred from claiming it; and if the benefit necessitated the execution of the de-cree, she must he possessed of the right to ask for the execution thereof as she did when she, by counsel, par-ticipated in the petition for execution Annex 1.

Section 7 of Rule 35 would seem to afford a solid support to the above considerations. It provides that when a com-plaint states a common cause of action against several defendants, some of whom answer, and the others make default, ‘the court shall try the case against all upon the answer thus filed and render judgment upon the evidence presented by the parties in court’. It is obvious that under this provision the case is tried jointly not only against the defendants answering but also against those defaulting, and the trial is held upon the answer filed by the former; and the judgment, if adverse, will prejudice the defaulting defendants no less than those who answer. In other words, the defaulting defendants are held bound by the answer filed by their co-defendants and by the judgment which the court may render against all of them. By the same token, and by all rules of equity and fair play, if the judgment should happen to be favorable, totally or par-tially, to the answering defendants, it must correspond-ingly benefit the defaulting ones, for it would not be just to let the judgment produce effects as to the defaulting de-fendants only when adverse to them and not when favor-able."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 com-mitted a grave abuse of discretion in rendering a default judgment against the PC, respondents allege that, not having filed its answer within the reglementary period, the PC was in default, so that it was proper for Patanao to forthwith present his evidence and for respondent Judge

to render said judgment. It should he noted, however, that in entering the area in question and seeking to prevent Patanao from continuing his logging operations therein, the PC was merely executing an order of the Director of Forestry and acting as his agent. Patanao’s cause of ac-tion against the other respondents in Case No. 190, namely, the Director of Forestry, the District Forester of Agusan, the Forest Officer of Bayugan, Agusan, and the Secretary of Agriculture and Natural Resources. Pursuant to Rule 18, Section 4, of the Rules of Court, ‘when a com-plaint 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 an-swer thus filed (by some) and render judgment upon the evidence presented.’ In other words, the answer filed by one or some of the defendants inures to the benefit of all the others, even those who have not seasonably filed their answer.

"Indeed, since the petition in Case No. 190 sets forth a common cause of action against all of the respondents therein, a decision in favor of one of them would neces-sarily favor the others. In fact, the main issue, in said case, is whether Patanao has a timber license to under-take logging operations in the disputed area. It is not pos-sible to decide such issue in the negative, insofar as the Director of Forestry, and to settle it otherwise, as regards the PC, which is merely acting as agent of the Director of Forestry, and is, therefore, his alter ego, with respect to the disputed forest area."cralaw virtua1aw library

Stated differently, in all instances where a common cause of action is alleged against several defendants, some of

whom answer and the others do not, the latter or those in default acquire a vested right not only to own the defense interposed in the answer of their co-defendant or co-de-fendants not in default but also to expect a result of the lit-igation totally common with them in kind and in amount whether favorable or unfavorable. The substantive unity of the plaintiff’s cause against all the defendants is carried through to its adjective phase as ineluctably demanded by the homogeneity and indivisibility of justice itself. In-deed, since the singleness of the cause of action also in-evitably implies that all the defendants are indispensable parties, the court’s power to act is integral and cannot be split such that it cannot relieve any of them and at the same time render judgment against the rest. Considering the tenor of the section in question, it is to be assumed that when any defendant allows himself to be declared in default knowing that his co-defendant has already an-swered, he does so trusting in the assurance implicit in the rule that his default is in essence a mere formality that deprives him of no more than the right to take part in the trial and that the court would deem anything done by or for the answering defendant as done by or for him. The presumption is that otherwise he would not have seen to it that he would not be in default. Of course, he has to suf-fer the consequences of whatever the answering defen-dant 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 be-comes his inalienable right that the same be dismissed also as to him. It does not matter that the dismissal is upon the evidence presented by the plaintiff or upon the latter’s mere desistance, for in both contingencies, the lack of sufficient legal basis must be the cause. The in-

tegrity of the common cause of action against all the de-fendants and the indispensability of all of them in the pro-ceedings do not permit any possibility of waiver of the plaintiff’s right only as to one or some of them, without in-cluding 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 concomi-tant hazard that plaintiff might resort to the kind of proce-dural strategem practiced by private respondent herein that resulted in totally depriving petitioners of every op-portunity 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 evi-dence which were before the trial court when it rendered its assailed decision. Where all the defendants are indis-pensable parties, for which reason the absence of any of them in the case would result in the court losing its com-petency to act validly, any compromise that the plaintiff might wish to make with any of them must, as a matter of correct procedure, have to await until after the rendition of the judgment, at which stage the plaintiff may then treat the matter of its execution and the satisfaction of his claim as variably as he might please. Accordingly, in the case now before Us together with the dismissal of the com-plaint against the non-defaulted defendants, the court should have ordered also the dismissal thereof as to peti-tioners.

Indeed, there is more reason to apply here the principle of unity and indivisibility of the action just discussed be-cause all the defendants here have already joined gen-

uine issues with plaintiff. Their default was only at the pre-trial. And as to such absence of petitioners at the pre-trial, the same could be attributed to the fact that they might not have considered it necessary anymore to be present, since their respective children Lim and Leonardo, with whom they have common defenses, could take care of their defenses as well. Anything that might have had to be done by them at such pre-trial could have been done for them by their children, at least initially, specially because in the light of the pleadings before the court, the prospects of a compromise must have appeared to be rather remote. Such attitude of petitioners is neither un-common nor totally unjustified. Under the circumstances, to declare them immediately and irrevocably in default was not an absolute necessity. Practical considerations and reasons of equity should have moved respondent court to be more understanding in dealing with the situa-tion. After all, declaring them in default as respondent court did not impair their right to a common fate with their children.

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Another issue to be resolved in this case is the question of whether or not herein petitioners were entitled to notice of plaintiff’s motion to drop their co-defendants Lim and Leonardo, considering that petitioners had been previ-ously declared in default. In this connection, the decisive consideration is that according to the applicable rule, Sec-tion 9, Rule 13, already quoted above, (1) even after a defendant has been declared in default, provided he "files a motion to set aside the order of default, — he shall be entitled to notice of all further proceedings regardless of

whether the order of default is set aside or not" and (2) a party in default who has not filed such a motion to set aside must still be served with all "substantially amended or supplemented pleadings." In the instant case, it cannot be denied that petitioners had all filed their motion for re-consideration of the order declaring them in default. Re-spondents’ own answer to the petition therein makes ref-erence to the order of April 3, 1973, Annex 8 of said an-swer, 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 mo-tion complied with the requirements of Section 3 of Rule 18 which We have held to be controlling in cases of de-fault 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 ap-pear at the pre-trial. We reiterate, in the situation now be-fore Us, issues have already been joined. In fact, evi-dence had been partially offered already at the pre-trial and more of it at the actual trial which had already begun with the first witness of the plaintiff undergoing re-cross-examination. With these facts in mind and considering that issues had already been joined even as regards the defaulted defendants, it would be requiring the obvious to pretend that there was still need for an oath or a verifica-tion as to the merits of the defense of the defaulted defen-

dants 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 gen-uine, and consequently, the reason for requiring such oath or verification no longer holds. Besides, it may also be reiterated that being the parents of the non-defaulted defendants, petitioners must have assumed that their presence was superfluous, particularly because the cause of action against them as well as their own de-fenses 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 no-tice under Section 9 of Rule 137 that petitioners’ motion for reconsideration was in substance legally adequate, re-gardless of whether or not it was under oath.

In any event, the dropping of the defendants Lim and Leonardo from plaintiff’s amended complaint was virtually a second amendment of plaintiff’s complaint. And there can be no doubt that such amendment was substantial, for with the elimination thereby of two defendants al-legedly solidarily liable with their co-defendants, herein petitioners, it had the effect of increasing proportionally what each of the remaining defendants, the said petition-ers, would have to answer for jointly and severally. Ac-cordingly, notice to petitioners of the plaintiff’s motion of October 18, 1974 was legally indispensable under the rule above-quoted. Consequently, respondent court had no authority to act on the motion, to dismiss, pursuant to Section 6 of Rule 15, for according to Senator Francisco,

(t)he Rules of Court clearly provide that no motion shall be acted upon by the Court without the proof of service of notice thereof, together with a copy of the motion and other papers accompanying it, to all parties concerned at least three days before the hearing thereof, stating the time and place for the hearing of the motion. (Rule 26, section 4, 5 and 6, Rules of Court (now Sec. 15, new Rules). When the motion does not comply with this re-quirement, 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 court’s order of dismissal of October 21, 1974 is fatally ineffec-tive.

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The foregoing considerations notwithstanding, it is re-spondents’ position that certiorari is not the proper rem-edy of petitioners. It is contended that inasmuch as said petitioners have in fact made their appeal already by filing the required notice of appeal and appeal bond and a mo-tion for extension to file their record on appeal, which mo-tion was granted by respondent court, their only recourse is to prosecute that appeal. Additionally, it is also main-tained 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 as-sail 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 dis-cussion, the proceedings in the court below have gone so far out of hand that prompt action is needed to restore or-der 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 in-jury, juridical and otherwise, ensues. While generally these objectives may well be attained in an ordinary ap-peal, 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 be-cause other untoward actuations are likely to materialize as natural consequences of those already perpetrated. If the law were otherwise, certiorari would have no reason at all for being.

No elaborate discussion is needed to show the urgent need for corrective measures in the case at bar. Verily, this is one case that calls for the exercise of the Supreme Court’s inherent power of supervision over all kinds of ju-

dicial actions of lower courts. Private respondent’s proce-dural 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 imme-diate 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 substan-tial; 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 be-low would be nothing short of wittingly condoning inequity and injustice resulting from erroneous construction and unwarranted application of procedural rules.

— 5 —

The sum and total of all the foregoing disquisitions is that the decision here in question is legally anomalous. It is predicated on two fatal malactuations of respondent court, namely (1) the dismissal of the complaint against the non-defaulted defendants Lim and Leonardo and (2) the ex-parte reception of the evidence of the plaintiff by the clerk of court, the subsequent using of the same as basis for its judgment and the rendition of such judgment.

For at least three reasons which We have already fully discussed above, the order of dismissal of October 21, 1974 is unworthy of Our sanction: (1) there was no timely notice of the motion therefor to the non-defaulted defen-

dants, aside from there being no notice at all to herein pe-titioners; (2) the common answer of the defendants, in-cluding the non-defaulted, contained a compulsory coun-terclaim incapable of being determined in an independent action; and (3) the immediate effect of such dismissal was the removal of the two non-defaulted defendants as par-ties, 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 dele-gation to the clerk of court of the function of receiving plaintiff’s evidence. And as regards the ex-parte reception of plaintiff’s evidence and subsequent rendition of the judgment by default based thereon, We have seen that it was violative of the right of the petitioners, under the ap-plicable rules and principles on default, to a common and single fate with their non-defaulted co-defendants. And We are not yet referring, as We shall do this anon, to the numerous reversible errors in the decision itself.

It is to be noted, however, that the above-indicated two fundamental flaws in respondent court’s actuations do not call for a common corrective remedy. We cannot simply rule that all the impugned proceedings are null and void and should be set aside, without being faced with the in-surmountable obstacle that by so doing We would be re-viewing the case as against the two non-defaulted defen-dants who are not before Us not being parties hereto. Upon the other hand, for Us to hold that the order of dis-missal should be allowed to stand, as contended by re-spondents themselves who insist that the same is already final, not only because the period for its finality has long passed but also because allegedly, albeit not very accu-

rately, said non-defaulted defendants unsuccessfully tried to have it set aside by the Court of Appeals whose deci-sion on their petition is also already final, We would have to disregard whatever evidence had been presented by the plaintiff against them and, of course, the findings of respondent court based thereon which, as the assailed decision shows, are adverse to them. In other words, whichever of the two apparent remedies the Court chooses, it would necessarily entail some kind of possible juridical imperfection. Speaking of their respective practi-cal or pragmatic effects, to annul the dismissal would in-evitably prejudice the rights of the non-defaulted defen-dants whom We have not heard and who even respon-dents 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 pri-vate respondent has made to establish or prove her case thru means sanctioned by respondent court. In short, We are confronted with a legal para-dilemma. But one thing is certain — this difficult situations has been brought about by none other than private respondent who has quite cyn-ically resorted to procedural maneuvers without realizing that the technicalities of the adjective law, even when ap-parently 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 in-evitably considered in the construction of the pertinent procedural rules.

All things considered, after careful and mature delibera-tion, the Court has arrived at the conclusion that as be-tween 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 dis-missal 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 de-cision of December 20, 1974 are illegal and should be set aside.

This conclusion is fully justified by the following consider-ations of equity:chanrob1es virtual 1aw library

1. It is very clear to Us that the procedural maneuver re-sorted to by private respondent in securing the decision in her favor was ill-conceived. It was characterized by that which every principle of law and equity disdains — taking unfair advantage of the rules of procedure in order to un-duly deprive the other party of full opportunity to defend his cause. The idea of "dropping" the non-defaulted de-fendants with the end in view of completely incapacitating their co-defendants from making any defense, without considering that all of them are indispensable parties to a common cause of action to which they have countered with a common defense readily connotes an intent to se-cure a one-sided decision, even improperly. And when, in this connection, the obvious weakness of plaintiff’s evi-dence is taken into account, one easily understands why such tactics had to be availed of We cannot directly or in-directly 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 re-spondents, although approved by His Honor, run counter to such basic principles in the rules on default and such elementary rules on dismissal of actions and notice of motions that no trial court should be unaware of or should be mistaken in applying. We are at a loss as to why His Honor failed to see through counsel’s inequitous strategy, when the provisions (1) on, the three-day rule on notice of motions, Section 4 of Rule 15, (2) against dismissal of ac-tions on motion of plaintiff when there is a compulsory counterclaim, Section 2, Rule 17, (3) against permitting the absence of indispensable parties, Section 7, Rule 3, (4) on service of papers upon defendants in default when there are substantial amendments to pleadings, Section 9, Rule 13, and (5) on the unity and integrity of the fate of defendants in default with those not in default where the cause of action against them and their own defenses are common, Section 4, Rule 18, are so plain and the ju-risprudence declaratory of their intent and proper con-struction are so readily comprehensible that any error as to their application would be unusual in any competent trial court.

3. After all, all the malactuations of respondent court are traceable to the initiative of private respondent and/or her counsel. She cannot, therefore, complain that she is be-ing made to unjustifiably suffer the consequences of what We have found to be erroneous orders of respondent court. It is only fair that she should not be allowed to ben-efit from her own frustrated objective of securing a one-sided decision.

4. More importantly, We do not hesitate to bold that on the basis of its own recitals, the decision in question can-not stand close scrutiny. What is more, the very consider-ations 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 re-turning this case for a resumption of trial by setting aside the order of dismissal of October 21, 1974, with all its at-tendant difficulties on account of its adverse effects on parties who have not been heard, but upon closer study of the pleadings and the decision and other circum-stances extant in the record before Us, We are now per-suaded 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 them-selves out of a bad situation. Anyway, We feel confident that by and large, there is enough basis here and now for Us to rule out the claim of the plaintiff.

Even a mere superficial reading of the decision would im-mediately reveal that it is littered on its face with deficien-cies 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 un-warranted conclusions, both factual and legal, is at once evident in its findings relative precisely to the main bases themselves of the reliefs granted. It is apparent therein that no effort has been made to avoid glaring inconsisten-cies. 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, consider-ing the substantial value of the subject matter it involves

and the unprecedented procedure that was followed by respondent’s counsel, calls for greater attention and skill than the general run of cases would.

Inter alia, the following features of the decision make it highly improbable that if We took another course of ac-tion, private respondent would still be able to make out any case against petitioners, not to speak of their co-de-fendants who have already been exonerated by respon-dent herself thru her motion to dismiss:chanrob1es virtual 1aw library

1. According to His Honor’s own statement of plaintiff’s case, "she is the widow of the late Tee Hoon Po Chuan (Po Chuan, for short) who was then one of the partners in the commercial partnership, Glory Commercial Co . . . with defendants Antonio Lim Tanhu (Lim Tanhu, for short) and Alfonso Leonardo Ng Sua (Ng Sua, for short) as co-partners; that after the death of her husband on March 11, 1966 she is entitled to share not only in the capital and profits of the partnership but also in the other assets, both real and personal, acquired by the partnership with funds of the latter during its lifetime."cralaw virtua1aw li-brary

Relatedly, in the latter part of the decision, the findings are to the 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 Nuñez 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 al-ready 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 drug-store 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 in-vested to the partnership Glory Commercial Co. some-time in 1950; that after the investment of the above-stated amount in the partnership its business flourished and it embarked in the import business and also engaged in the wholesale and retail trade of cement and GI sheets and under huge profits;

x       x       x

"That the late Po Chuan was the one who actively man-aged the business of the partnership Glory Commercial Co.; he was the one who made the final decisions and approved the appointments of new personnel who were taken in by the partnership; that the late Po Chuan and defendants Lim Tanhu and Ng Sua are brothers, the latter two (2) being the elder brothers of the former; that defen-dants 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 employ-ees 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 mak-ing its findings of fact the court took into account the alle-gations in the pleadings of the parties and whatever might have transpired at the pre-trial. All that We can gather in this respect is that references are made therein to pre-trial exhibits and to Annex A of the answer of the defen-dants to plaintiff’s amended complaint. Indeed, it was in-cumbent upon the court to consider not only the evidence formally offered at the trial but also the admissions, ex-pressed or implied, in the pleadings, as well as whatever might have been placed before it or brought to its atten-tion during the pre-trial. In this connection, it is to be re-gretted 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 or-der, if any was issued pursuant to Section 4 of Rule 20.

The fundamental purpose of pre-trial, aside from affording the parties every opportunity to compromise or settle their differences, is for the court to be apprised of the unsettled issues between the parties and of their respective evi-dence relative thereto, to the end that it may take corre-sponding 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 no-tice of their respective basic positions, in order that in ap-

propriate cases he may, if necessary in the interest of jus-tice and a more accurate determination of the facts, make inquiries about or require clarifications of matters taken up at the pre-trial, before finally resolving any issue of fact or of law. In brief, the pre-trial constitutes part and parcel of the proceedings, and hence, matters dealt with therein may not be disregarded in the process of decision mak-ing. Otherwise, the real essence of compulsory pre-trial would be insignificant and worthless.

Now, applying these postulates to the findings of respon-dent court just quoted, it will be observed that the court’s conclusion about the supposed marriage of plaintiff to the deceased Tee Hoon Lim Po Chuan is contrary to the weight of the evidence brought before it during the trial and the pre-trial.

Under Article 55 of the Civil Code, the declaration of the contracting parties that they take each other as husband and wife "shall be set forth in an instrument" signed by the parties as well as by their witnesses and the person solemnizing the marriage. Accordingly, the primary evi-dence of a marriage must be an authentic copy of the marriage contract. While a marriage may also be proved by other competent evidence, the absence of the contract must first be satisfactorily explained. Surely, the certifica-tion of the person who allegedly solemnized a marriage is not admissible evidence of such marriage unless proof of loss of the contract or of any other satisfactory reason for its non-production is first presented to the court. In the case at bar, the purported certification issued by a Mons. Jose M. Recoleto, Bishop, Philippine Independent Church, Cebu City, is not, therefore, competent evidence,

there being absolutely no showing as to unavailability of the marriage contract and, indeed, as to the authenticity of the signature of said certifier, the jurat allegedly signed by a second assistant provincial fiscal not being autho-rized by law, since it is not part of the functions of his of-fice. 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 Nuñez, there can be no question that they are both self-serving and of very lit-tle evidentiary value, it having been disclosed at the trial that plaintiff has already assigned all her rights in this case to said Nuñez, thereby making him the real party in interest here and, therefore, naturally as biased as her-self. Besides, in the portion of the testimony of Nuñez copied in Annex C of petitioner’s memorandum, it ap-pears 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 suffi-ciently aware of such event as to be competent to testify about it.

Incidentally, another Annex C of the same memorandum purports to be the certificate of birth of one Antonio T. Uy supposed to have been born on March 23, 1937 at Cen-tro Misamis, Misamis Occidental, the son of one Uy Bien, father, and Tan Put, mother. Significantly, respondents have not made any adverse comment on this document. It is more likely, therefore, that the witness is really the son of plaintiff by her husband Uy Kim Beng. But she tes-tified she was childless. So which is which? In any event,

if on the strength of this document, Nuñez 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, consider-ing such age, his testimony in regard thereto would still be suspect.

Now, as against such flimsy evidence of plaintiff, the court had before it, two documents of great weight belying the pretended marriage. We refer to (1) Exhibit LL, the in-come tax return of the deceased Tee Hoon Lim Po Chuan indicating that the name of his wife was Ang Siok Tin and (2) the quitclaim, Annex A of the answer, wherein plaintiff Tan Put stated that she had been living with the de-ceased without benefit of marriage and that she was his "common-law wife." Surely, these two documents are far more reliable than all the evidence of the plaintiff put to-gether.

Of course, Exhibit LL is what might be termed as pre-trial evidence. But it is evidence offered to the judge himself, not to the clerk of court, and should have at least moved him to ask plaintiff to explain if not rebut it before jumping to the conclusion regarding her alleged marriage to the deceased, Po Chuan. And in regard to the quitclaim con-taining 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 quit-claim on November 29, 1967 (Annex "A", Answer) where they gave plaintiff the amount of P25,000 as her share in the capital and profits of the business of Glory Commer-cial Co. which was engaged in the hardware business", without making mention of any evidence of fraud and mis-

representation 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 quit-claim has been duly established without any circum-stance to detract from its legal import, the court should have held that plaintiff was bound by her admission therein that she was the common-law wife only of Po Chuan and what is more, that she had already renounced for valuable consideration whatever claim she might have relative to the partnership Glory Commercial Co.

And when it is borne in mind that in addition to all these considerations, there are mentioned and discussed in the memorandum of petitioners (1) the certification of the Lo-cal Civil Registrar of Cebu City and (2) a similar certifica-tion of the Apostolic Prefect of the Philippine Independent Church, Parish of Sto. Nino, Cebu City, that their respec-tive official records corresponding to December 1949 to December 1950 do not show any marriage between Tee Hoon Lim Po Chuan and Tan Put, neither of which certifi-cations have been impugned by respondent until now, it stands to reason that plaintiff’s claim of marriage is really unfounded. Withal, there is still another document, also mentioned and discussed in the same memorandum and unimpugned by respondents, a written agreement exe-cuted 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:chan-robles.com.ph

"CONSULATE OF THE REPUBLIC OF CHINA

Cebu City, Philippines

TRANSLATION

This is to certify that I, Miss Tan Ki Eng Alias Tan Put, have lived with Mr. Lim Po Chuan alias Tee Hoon since 1949 but it recently occurs that we are incompatible with each other and are not in the position to keep living to-gether permanently. With the mutual concurrence, we de-cided to terminate the existing relationship of common law-marriage and promised not to interfere each other’s affairs from now on. The Forty Thousand Pesos (P40,000.00) has been given to me by Mr. Lim Po Chuan for my subsistence.

Witnesses:chanrob1es virtual 1aw library

Mr. Lim Beng Guan

Mr. Huang Sing Se

Signed on the 10 day of the 7th month of the 54th year of the Republic of China (corresponding to the year 1965).

(SGD) TAN KI ENG

Verified from the records.

JORGE TABAR"

(Pp. 283-284, Record.)

Indeed, not only does this document prove that plaintiffs relation to the deceased was that of a common-law wife but that they had settled their property interests with the payment to her of P40,000.

In the light of all these circumstances, We find no alterna-tive but to hold that plaintiff Tan Put’s allegation that she is the widow of Tee Hoon Lim Po Chuan has not been satisfactorily established and that, on the contrary, the ev-idence on record convincingly shows that her relation with said deceased was that of a common-law wife and fur-thermore, 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. Hermo-sisima and Natalio Castillo, are members in good stand-ing of the Philippine Bar, with the particularity that the lat-ter 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 le-gal significance to its contents.

2. If, as We have seen, plaintiff’s evidence of her alleged status as legitimate wife of Po Chuan is not only uncon-vincing but has been actually overcome by the more com-petent 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 prop-erties to themselves is even more dismal. From the very

evidence summarized by His Honor in the decision in question, it is clear that not an iota of reliable proof exists of such alleged misdeeds.

Of course, the existence of the partnership has not been denied, it is actually admitted impliedly in defendants’ af-firmative defense that Po Chuan’s share had already been duly settled with and paid to both the plaintiff and his legitimate family. But the evidence as to the actual participation of the defendants Lim Tanhu and Ng Sua in the operation of the business that could have enabled them to make the extractions of funds alleged by plaintiff is at best confusing and at certain points manifestly incon-sistent.

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

According to the decision, plaintiff had shown that she had money of her own when she "married" Po Chuan and "that prior to and just after the marriage of the plaintiff to Po Chuan, she was engaged in the drugstore business; that not long after her marriage, upon the suggestion of Po Chuan, the plaintiff sold her drugstore for P125,000 which amount she gave to her husband in the presence of Tanhu and was invested in the partnership Glory Com-mercial Co. sometime in 1950; that after the investment of

the above-stated amount in the partnership, its business flourished and it embarked in the import business and also engaged in the wholesale and retail trade of cement and GI sheets and under (sic) huge profits." (pp. 25-26, Annex L, petition.)

To begin with, this theory of her having contributed of P125,000 to the capital of the partnership by reason of which the business flourished and amassed all the mil-lions referred to in the decision has not been alleged in the complaint, and inasmuch as what was being rendered was a judgment by default, such theory should not have been allowed to be the subject of any evidence. But inas-much as it was the clerk of court who received the evi-dence, it is understandable that he failed to observe the rule. Then, on the other hand, if it was her capital that made the partnership flourish, why would she claim to be entitled to only to 1/3 of its assets and profits? Under her theory found proven by respondent court, she was actu-ally the owner of everything, particularly because His Honor also found "that defendants Lim Tanhu and Ng Sua were partners in the name but they were employees of Po Chuan; that defendants Lim Tanhu and Ng Sua had no means of livelihood at the time of their employment with the Glory Commercial Co. under the management of the late Po Chuan except their salaries therefrom; . . ." (p. 27, id.) Why then does she claim only 1/3 share? Is this an indication of her generosity towards defendants or of a concocted cause of action existing only in her confused imagination engendered by the death of her common-law husband with whom she had settled her common-law claim for recompense of her services as common-law

wife for less than what she must have known would go to his legitimate wife and children?

Actually, as may be noted from the decision itself, the trial court was confused as to the participation of defendants Lim Tanhu and Ng Sua in Glory Commercial Co. At one point, they were deemed partners, at another point mere employees and then elsewhere as partners-employees, a newly found concept, to be sure, in the law on partner-ship. And the confusion is worse compounded in the judg-ment which allows these "partners in name" and "part-ners-employees" or employees who had no means of livelihood and who must not have contributed any capital in the business, "as Po Chuan was practically the owner of the partnership having the controlling interest", 1/3 each of the huge assets and profits of the partnership. In-cidentally, it may be observed at this juncture that the de-cision has made Po Chuan play the inconsistent role of being "practically the owner" but at the same time getting his capital from the P125,000 given to him by plaintiff and from which capital the business allegedly "flourished."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 confirmed the same by finding and hold-ing 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 de-ceased 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 conjec-ture. Nowhere is it shown in the decision how said defen-dants could have extracted money from the partnership in the fraudulent and illegal manner pretended by plaintiff. Neither in the testimony of Nuñez 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 partner-ship might have grown into a multi-million enterprise and that the properties described in the exhibits enumerated in the decision are not in the names of Po Chuan, who was Chinese, but of the defendants who are Filipinos, do not necessarily prove that Po Chuan had not gotten his share of the profits of the business or that the properties in the names of the defendants were bought with money of the partnership. In this connection, it is decisively im-portant to consider that on the basis of the concordant and mutually cumulative testimonies of plaintiff and Nuñez, respondent court found very explicitly that, and We reiterate:chanrob1es virtual 1aw library

x       x       x

"That the late Po Chuan was the one who actively man-aged the business of the partnership Glory Commercial Co.; he was the one who made the final decisions and approved the appointments of new personnel who were taken in by the partnership; that the late Po Chuan and defendants Lim Tanhu and Ng Sua are brothers, the latter two (2) being the elder brothers of the former; that defen-dants 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 employ-ees 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 de-frauded 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 de-manded 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. Inci-dentally 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 peti-tion) and should not have been permitted to be proven by the hearing officer, who naturally did not know any better.

Moreover, it is very significant that according to the very tax declarations and land titles listed in the decision, most if not all of the properties supposed to have been ac-quired 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. Nuñez testified that "for about 18 years he was in charge of the GI sheets and sometimes attended to the imported items of the business of Glory Commercial Co." Counting 18 years back from 1965 or 1966 would take Us to 1947 or 1948. Since according to Exhibit LL, the baptismal certifi-cate produced by the same witness as his birth certificate, shows he was born in March, 1942, how could he have started managing Glory Commercial Co. in 1949 when he must have been barely six or seven years old? It should not have escaped His Honor’s attention that the photo-graphs showing the premises of Philippine Metal Indus-tries after its organization "a year or two after the estab-lishment of Cebu Can Factory in 1957 or 1958" must have been taken after 1959. How could Nuñez have been only 13 years old then as claimed by him to have been his age in those photographs when according to his "birth certificate", he was born in 1942? His Honor should not

have overlooked that according to the same witness, de-fendant Ng Sua was lying in Bantayan until he was di-rected to return to Cebu after the fishing business thereat floundered, whereas all that the witness knew about de-fendant Lim Teck Chuan’s arrival from Hongkong and the expenditure of partnership money for him were only told to him allegedly by Po Chuan, which testimonies are veri-tably 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 em-ployed by her husband although he did not go there al-ways 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 conclu-sion was derived in so far as Ng Sua is concerned. On the other hand, with respect to Lim Tanhu, the decision it-self states that according to Exhibit NN-Pre-trial, in the supposed income tax return of Lim Tanhu for 1964, he had an income of P4,800 as salary from Philippine Metal Industries alone and had a total assessable net income of P23,920.77 that year for which he paid a tax of P4,656.00. (p. 14. Annex L, id.) And per Exhibit GG-Pre-trial, in the year, he had a net income of P32,000 for which he paid a tax of P3,512.40. (id.) As early as 1962, "his fishing business in Madridejos, Cebu was making money, and he reported "a net gain from operation (in) the amount of P865.64" (id., per Exhibit VV-Pre-trial.) From what then did his Honor gather the conclusion that all the properties registered in his name have come from funds malversed from the partnership?

It is rather unusual that His Honor delved into financial statements and books of Glory Commercial Co. without the aid of any accountant or without the same being ex-plained by any witness who had prepared them or who has knowledge of the entries therein. This must be the reason why there are apparent inconsistencies and inac-curacies in the conclusions His Honor made out of them. In Exhibit SS-Pre-trial, the reported total assets of the company amounted to P2,328,460.27 as of December, 1965, and yet, Exhibit TT-Pre-trial, according to His Honor, showed that the total value of goods available as of the same date was P11,166,327.62. On the other hand, per Exhibit XX-Pre-trial, the supposed balance sheet of the company for 1966, "the value of inventoried merchandise, both local and imported", as found by His Honor, was P584,034.38. Again, as of December 31, 1966, the value of the company’s goods available for sale was P5,524,050.87, per Exhibit YY and YY-1-Pre-trial. Then, per Exhibit II-3-Pre-trial, the supposed Book of Ac-count, 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 certi-fied public accountant, was hardly qualified to read such exhibits and draw any definite conclusions therefrom, without risk of erring and committing an injustice. In any event, there is no comprehensible explanation in the deci-sion 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 Ex-hibits II-4, II-4-A, II-5 and II-6-Pre-trial, Glory Commercial Co. had accounts payable as of December 31, 1965 in the amount of P4,801,321.17. (p. 15, id.) Under the cir-

cumstances, We are not prepared to permit anyone to predicate any claim or right from respondent court’s un-aided exercise of accounting knowledge.

Additionally, We note that the decision has not made any finding regarding the allegation in the amended complaint that a corporation denominated Glory Commercial Co., Inc. was organized after the death of Po Chuan with capi-tal from the funds of the partnership. We note also that there is absolutely no finding made as to how the defen-dants Dy Ochay and Co Oyo could in any way be ac-countable 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 de-liver or pay jointly and severally to the plaintiff P4,074,394.18 or 1/3 of the P12,223,182.55, the sup-posed cash belonging to the partnership as of December 31, 1965, in the same breath, they have also been sen-tenced 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 pur-chased from the funds of the partnership which would naturally include the P12,223,182.55 defendants have to account for. Besides, assuming there has not yet been any liquidation of the partnership, contrary to the allega-tion 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 af-ter such liquidation to belong to the deceased partner, and before this is finished, it is impossible to determine, what rights or interests, if any, the deceased had (Bearneza v. Deqoilla, 43 Phil. 237). In other words, no specific amounts or properties may be adjudicated to the

heir or legal representative of the deceased partner with-out the liquidation being first terminated.

Indeed, only time and the fear that this decision would be much more extended than it is already prevent us from further pointing out the inexplicable deficiencies and im-perfections of the decision in question. After all, what have been discussed should be more than sufficient to support Our conclusion that not only must said decision be set aside but also that the action of the plaintiff must be totally dismissed, and, were it not seemingly futile and productive of other legal complications, that plaintiff is li-able on defendants’ counterclaims. Resolution of the other issues raised by the parties albeit important and perhaps pivotal has likewise become superfluous.

IN VIEW OF ALL THE FOREGOING, the petition is granted. All proceedings held in respondent court in its Civil Case No. 12328 subsequent to the order of dis-missal of October 21, 1974 are hereby annulled and set aside, particularly the ex-parte proceedings against peti-tioners and the decision of December 20, 1974. Respon-dent court is hereby ordered to enter an order extending the effects of its order of dismissal of the action dated Oc-tober 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 ex-cept as herein indicated. Costs against private Respon-dent.

THIRD DIVISION

[G.R. No. 70926. January 31, 1989.]

DAN FUE LEUNG, Petitioner, v. HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU,Respondents.

John L. Uy for Petitioner.

Edgardo F. Sundiam for Private Respondent.

SYLLABUS

1. REMEDIAL LAW; CIVIL PROCEDURE; ACTIONS; CAUSE OF ACTION; NATURE OF ACTION IS DETER-MINED BY THE FACTS CONSTITUTING THE CAUSE OF ACTION. — The well-settled doctrine is that the." . . nature of the action filed in court is determined by the facts alleged in the complaint as constituting the cause of action." (De Tavera v. Philippine Tuberculosis Society, Inc., 113 SCRA 243; Alger Electric, Inc. v. Court of Ap-peals, 135 SCRA 37).

2. CIVIL LAW; SPECIAL CONTRACTS; PARTNERSHIP; REQUISITES. — The requisites of a partnership which are — 1) two or more persons bind themselves to contrib-ute money, property, or industry to a common fund; and 2) intention on the part of the partners to divide the profits among themselves (Article 1767, Civil Code; Yulo v. Yang Chiao Cheng, 106 Phil. 110)

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 respon-dent 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 be-gins to run only upon the dissolution of the partnership when the final accounting is done.

4. ID.; ID.; ID.; DISSOLUTION AND WINDING UP; LIQ-UIDATION AND WINDING UP OF PARTNERSHIP AF-FAIRS, RETURN OF CAPITAL AND OTHER INCIDENTS OF DISSOLUTION PROPER BECAUSE CONTINUA-TION OF PARTNERSHIP HAS BECOME INEQUITABLE. — There shall be a liquidation and winding up of partner-ship affairs, return of capital, and other incidents of disso-lution because the continuation of the partnership has be-come inequitable.

D E C I S I O N

GUTIERREZ, JR., J.:

The petitioner asks for the reversal of the decision of the then Intermediate Appellate Court in AC-G.R. No. CV-00881 which affirmed the decision of the then Court of First Instance of Manila, Branch II in Civil Case No.

116725 declaring private respondent Leung Yiu a partner of petitioner Dan Fue Leung in the business of Sun Wah Panciteria and ordering the petitioner to pay to the private respondent his share in the annual profits of the said restaurant.

This case originated from a complaint filed by respondent Leung Yiu with the then Court of First Instance of Manila, Branch II to recover the sum equivalent to twenty-two per-cent (22%) of the annual profits derived from the opera-tion of Sun Wah Panciteria since October, 1955 from peti-tioner Dan Fue Leung.

The Sun Wah Panciteria, a restaurant, located at Flo-rentino 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 pro-prietor. Respondent Leung Yiu adduced evidence during the trial of the case to show that Sun Wah Panciteria was actually a partnership and that he was one of tile partners having contributed P4,000.00 to its initial establishment.

The private respondent’s evidence is summarized as fol-lows: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 re-ceipt identified as Exhibit "A" wherein the petitioner ac-knowledged his acceptance of the P4,000.00 by affixing his signature thereto. The receipt was written in Chinese characters so that the trial court commissioned an inter-

preter in the person of Ms. Florence Yap to translate its contents into English. Florence Yap issued a certification and testified that the translation to the best of her knowl-edge and belief was correct. The private respondent iden-tified the signature on the receipt as that of the petitioner (Exhibit A-3) because it was affixed by the latter in his (private respondents’s) presence. Witnesses So Sia and Antonio Ah Heng corroborated the private respondent’s testimony to the effect that they were both present when the receipt (Exhibit "A") was signed by the petitioner. So Sia further testified that he himself received from the peti-tioner 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 respon-dent’s motion for examination of certain documentary ex-hibits. The signatures in Exhibits "A" and "D" when com-pared 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 lat-ter’s Equitable Banking Corporation Check No. 13389470-B from the profits of the operation of the restaurant for the year 1974. Witness Teodulo Diaz, Chief of the Savings Department of the China Banking Corpora-tion testified that said check (Exhibit B) was deposited by and duly credited to the private respondent’s savings ac-count with the bank after it was cleared by the drawee bank, the Equitable Banking Corporation. Another witness

Elvira Rana of the Equitable Banking Corporation testified that the check in question was in fact and in truth drawn by the petitioner and debited against his own account in said bank. This fact was clearly shown and indicated in the petitioner’s statement of account after the check (Ex-hibit B) was duly cleared. Rana further testified that upon clearance of the check and pursuant to normal banking procedure, said check was returned to the petitioner as the maker thereof.

The petitioner denied having received from the private re-spondent the amount of P4,000.00. He contested and im-pugned the genuineness of the receipt (Exhibit D). His ev-idence is summarized as follows:chanrob1es virtual 1aw library

The petitioner did not receive any contribution at the time he started the Sun Wah Panciteria. He used his savings from his salaries as an employee at Camp Stotsenberg in Clark Field and later as waiter at the Toho Restaurant amounting to a little more than P2,000.00 as capital in es-tablishing Sun Wah Panciteria. To bolster his contention that he was the sole owner of the restaurant, the peti-tioner presented various government licenses and per-mits showing the Sun Wah Panciteria was and still is a single proprietorship solely owned and operated by him-self alone. Fue Leung also flatly denied having issued to the private respondent the receipt (Exhibit G) and the Eq-uitable Banking Corporation’s Check No. 13389470 B in the amount of P12,000.00 (Exhibit B).

As between the conflicting evidence of the parties, the trial court gave credence to that of the plaintiff’s. Hence,

the court ruled in favor of the private Respondent. The dispositive portion of the decision reads:jgc:chanrobles.-com.ph

"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, ordering the latter to deliver and pay to the former, the sum equivalent to 22% of the annual profit derived from the operation of Sun Wah Panciteria from October, 1955, until fully paid, and attorney’s fees in the amount of P5,000.00 and cost of suit." (p. 125, Rollo)

The private respondent filed a verified motion for recon-sideration in the nature of a motion for new trial and, as supplement to the said motion, he requested that the de-cision rendered should include the net profit of the Sun Wah Panciteria which was not specified in the decision, and allow private respondent to adduce evidence so that the said decision will be comprehensively adequate and thus put an end to further litigation.chanrobles virtual lawlibrary

The motion was granted over the objections of the peti-tioner. After hearing, the trial court rendered an amended decision, the dispositive portion of which reads:jgc:chan-robles.com.ph

"FOR ALL THE FOREGOING CONSIDERATIONS, the motion for reconsideration filed by the plaintiff, which was granted earlier by the Court, is hereby reiterated and the decision rendered by this Court on September 30, 1980, is hereby amended. The dispositive portion of said deci-sion 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 the sum equivalent to 22% of the net profit of P8,000.00 per day from the time of judicial demand, until fully paid, plus the sum of P5,000.00 as and for attorney’s fees and costs of suit." (p. 150, Rollo)

The petitioner appealed the trial court’s amended deci-sion to the then Intermediate Appellate Court. The ques-tioned decision was further modified by the appellate court. The dispositive portion of the appellate court’s deci-sion reads:jgc:chanrobles.com.ph

"WHEREFORE, the decision appealed from is modified, 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 profit of P2,000.00 a day from judicial demand to May 15, 1971;

"2. Similarly, the sum equivalent to 22% of the net profit of P8,000.00 a day from May 16, 1971 to August 30, 1975;

"3. And thereafter until fully paid the sum equivalent to 22% of the net profit of P8,000.00 a day.

"Except as modified, the decision of the court a quo is af-firmed in all other respects. (p. 102, Rollo)

Later, the appellate court, in a resolution, modified its de-cision and affirmed the lower court’s decision. The dis-

positive portion of the resolution reads:jgc:chanrobles.-com.ph

"WHEREFORE, the dispositive portion of the amended judgment of the court a quo reading as follows:chan-rob1es virtual 1aw library

WHEREFORE, judgment is rendered in favor of the plain-tiff and against the defendant, ordering the latter to pay to the former the sum equivalent to 22% of the net profit of P8,000.00 per day from the time of judicial demand, until fully ‘paid, plus the sum of P5,000.00 as and for attor-ney’s fees and costs of suit’.

is hereby retained in full and affirmed in toto it being un-derstood that the date of judicial demand is July 13, 1978." (pp. 105-106, Rollo).

In the same resolution, the motion for reconsideration filed by petitioner was denied.chanrobles lawlibrary : red-nad

Both the trial court and the appellate court found that the private respondent is a partner of the petitioner in the set-ting up and operations of the panciteria. While the dispos-itive portions merely ordered the payment of the respon-dent’s share, there is no question from the factual findings that the respondent invested in the business as a partner. Hence, the two courts declared that the private petitioner is entitled to a share of the annual profits of the restau-rant. The petitioner, however, claims that this factual find-ing is erroneous. Thus, the petitioner argues: "The com-plaint avers that private respondent extended ‘financial

assistance’ to herein petitioner at the time of the estab-lishment of the Sun Wah Panciteria, in return of which pri-vate respondent allegedly will receive a share in the prof-its of the restaurant. The same complaint did not claim that private respondent is a partner of the business. It was, therefore, a serious error for the lower court and the Hon. Intermediate Appellate Court to grant a relief not called for by the complaint. It was also error for the Hon. Intermediate Appellate Court to interpret or construe ‘fi-nancial assistance’ to mean the contribution of capital by a partner to a partnership;" (p. 75, Rollo)

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

x       x       x

"2. That on or about the latter (sic) of September, 1955, defendant sought the financial assistance of plaintiff in operating the defendant’s eatery known as Sun Wah Panciteria, located in the given address of defendant; as a return for such financial assistance. plaintiff would be entitled to twenty-two percentum (22%) of the annual profit derived from the operation of the said panciteria;

"3. That on October 1, 1955, plaintiff delivered to the de-fendant 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 en-titled to twenty-two percent (22%) of the annual profit de-rived from the operation of the said panciteria. These alle-gations, which were proved, make the private respondent and the petitioner partners in the establishment of Sun Wah Panciteria because Article 1767 of the Civil Code provides that "By the contract of partnership two or more persons bind themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves."

Therefore, the lower courts did not err in construing the complaint as one wherein the private respondent as-serted his rights as partner of the petitioner in the estab-lishment of the Sun Wah Panciteria, notwithstanding the use of the term financial assistance therein. We agree with the appellate court’s observation to the effect that." . . given its ordinary meaning, financial assistance ‘is the giving out of money to another without the expectation of any returns therefrom’. It connotes an ex gratia dole out in favor of someone driven into a state of destitution. But this circumstance under which the P4,000.00 was given to the petitioner does not obtain in this case." (p. 99, Rollo) The complaint explicitly stated that "as a return for such financial assistance, plaintiff (private respondent) would be entitled to twenty-two percentum (22%) of the annual profit derived from the operation of the said panci-teria." (p. 107, Rollo) The well-settled doctrine is that the." . . nature of the action filed in court is determined by the facts alleged in the complaint as constituting the cause of action." (De Tavera v. Philippine Tuberculosis Society,

Inc., 113 SCRA 243; Alger Electric, Inc. v. Court of Ap-peals, 135 SCRA 37).

The appellate court did not err in declaring that the main issue in the instant case was whether or not the private respondent is a partner of the petitioner in the establish-ment of Sun Wah Panciteria.

The petitioner also contends that the respondent court gravely erred in giving probative value to the PC Crime Laboratory Report (Exhibit "J") on the ground that the al-leged standards or specimens used by the PC Crime Laboratory in arriving at the conclusion were never testi-fied to by any witness nor has any witness identified the handwriting in the standards or specimens belonging to the petitioner. The supposed standards or specimens of handwriting were marked as Exhibits "H", "H-1" to "H-24" and admitted as evidence for the private respondent over the vigorous objection of the petitioner’s counsel.chanrob-les law library

The records show that the PC Crime Laboratory upon or-ders 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 com-pared 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, em-ployees of the restaurant. After the usual examination conducted on the questioned documents, the PC Crime Laboratory submitted its findings (Exhibit J) attesting that the signatures appearing in both receipts (Exhibits "A" and "D") were the signatures of the petitioner.

The records also show that when the pay envelopes (Ex-hibits "H", "H-1" to "H-24") were presented by the private respondent for marking as exhibits, the petitioner did not interpose any objection. Neither did the petitioner file an opposition to the motion of the private respondent to have these exhibits together with the two receipts examined by the PC Crime Laboratory despite due notice to him. Like-wise, no explanation has been offered for his silence nor was any hint of objection registered for that purpose.

Under these circumstances, we find no reason why Ex-hibit "J" should be rejected or ignored. The records suffi-ciently establish that there was a partnership.

The petitioner raises the issue of prescription. He argues: The Hon. Respondent Intermediate Appellate Court gravely erred in not resolving the issue of prescription in favor of petitioner. The alleged receipt is dated October 1, 1955 and the complaint was filed only on July 13, 1978 or after the lapse of twenty-two (22) years, nine (9) months and twelve (12) days. From October 1, 1955 to duly 13, 1978, no written demands were ever made by private Re-spondent.

The petitioner’s argument is based on Article 1144 of the Civil Code which provides:chanrob1es virtual 1aw library

Art. 1144. The following actions must be brought within ten years from the time the right of section accrues:jgc:chanrobles.com.ph

"(1) Upon a written contract;

(2) Upon an obligation created by law;

(3) Upon a judgment."cralaw virtua1aw library

in relation to Article 1155 thereof which provides:jgc:chan-robles.com.ph

"Art. 1155. The prescription of actions is interrupted when they are filed before the court, when there is a written ex-tra-judicial demand by the creditor, and when there is any written acknowledgment of the debt by the debtor."cralaw virtua1aw library

The argument is not well-taken.

The private respondent is a partner of the petitioner in Sun Wah Panciteria. The requisites of a partnership which are — 1) two or more persons bind themselves to contribute money, property, or industry to a common fund; and 2) intention on the part of the partners to divide the profits among themselves (Article 1767, Civil Code; Yulo v. Yang Chiao Cheng, 106 Phil. 110) — have been established. As stated by the respondent, a partner shares not only in profits but also in the losses of the firm. If excellent relations exist among the partners at the start of business and all the partners are more interested in seeing the firm grow rather than get immediate returns, a deferment of sharing in the profits is perfectly plausible. It would be incorrect to state that if a partner does not as-sert his rights anytime within ten years from the start of operations, such rights are irretrievably lost. The private respondent’s cause of action is premised upon the failure

of the petitioner to give him the agreed profits in the oper-ation of Sun Wah Panciteria. In effect the private respon-dent was asking for an accounting of his interests in the partnership.cralawnad

It is Article 1842 of the Civil Code in conjunction with Arti-cles 1144 and 1155 which is applicable. Article 1842 states:jgc:chanrobles.com.ph

"The right to an account of his interest shall accrue to any partner, or his legal representative as against the winding up partners or the surviving partners or the person or partnership continuing the business, at the date of disso-lution, in the absence or any agreement to the contrary."cralaw virtua1aw library

Regarding the prescriptive period within which the private respondent may demand an accounting, Articles 1806, 1807, and 1809 show that the right to demand an ac-counting exists as long as the partnership exists. Pre-scription begins to run only upon the dissolution of the partnership when the final accounting is done.

Finally, the petitioner assails the appellate court’s mone-tary awards in favor of the private respondent for being excessive and unconscionable and above the claim of pri-vate respondent as embodied in his complaint and testi-monial evidence presented by said private respondent to support his claim in the complaint.

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

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

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

"ATTY. HIPOLITO (direct examination to Mrs. Licup).

"Q Mrs. Witness, yon stated that among your duties was that you were in charge of the custody of the cashier’s box, of the money, being the cashier, is that correct?

"A Yes, sir.

"Q So that every time there is a customer who pays, you were the one who accepted the money and you gave the change, if any, is that correct?

"A Yes.

"Q Now, after 11:30 (P.M.) which is the closing time as you said, what do you do with the money?

"A We balance it with the manager, Mr. Dan Fue Leung.

"ATTY. HIPOLITO:chanrob1es virtual 1aw library

I see.

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

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

"Q Now, Mrs. Witness, in an average day, more or less, will you please tell us, how much is the gross income of the restaurant?

"A For regular days, I received around P7,000.00 a day during my shift alone and during pay days I receive more than P10,000.00. That is excluding the catering outside the place.

"Q What about the catering service, will you please tell the Honorable Court how many times a week were there catering services?

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

x       x       x

"Q Now more or less, do you know the cost of the cater-ing service?

"A Yes, because I am the one who receives the payment also of the catering.

"Q How much is that?

"A That ranges from two thousand to six thousand pesos, sir.

"Q Per service?

"A Per service, Per catering.

"Q So in other words, Mrs. witness, for your shift alone in a single day from 3:30 P.M. to 11:30 P.M. in the evening the restaurant grosses an income of P7,000.00 in a regu-lar day?

"A Yes.

"Q And ten thousand pesos during pay day?

"A Yes.(TSN, pp. 53 to 59, inclusive, November 15, 1978).

x       x       x

"COURT:chanrob1es virtual 1aw library

Any cross?

"ATTY. UY (counsel for defendant):chanrob1es virtual 1aw library

No cross-examination, Your Honor. (TSN. p. 65, Novem-ber 15, 1978)." (Rollo, pp. 127-128)

The statements of the cashier were not rebutted. Not only did the petitioner’s counsel waive the cross-examination on the matter of income but he failed to comply with his promise to produce pertinent records. When a subpoena duces tecum was issued to the petitioner for the produc-tion of their records of sale, his counsel voluntarily offered to bring them to court. He asked for sufficient time

prompting the court to cancel all hearings for January, 1981 and reset them to the later part of the following month. The petitioner’s counsel never produced any books, prompting the trial court to state: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 book-keeper. This inspired the Court to ask counsel for the de-fendant to bring said records and counsel for the defen-dant promised to bring those that were available. Seem-ingly, 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 sup-plied chicken, meat, shrimps, egg and other poultry prod-ucts which, however, did not show the gross sales nor does it prove that the same is the best evidence. This Court gave warning to the defendant’s counsel that if he failed to produce the books, the same will be considered a waiver on the part of the defendant to produce the said books inimitably showing decisive records on the income of the eatery pursuant to the Rules of Court (Sec. 5(e) Rule 131). "Evidence willfully suppressed would be ad-verse if produced.’" (Rollo, p. 145)

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

"The defendant was given all the chance to present all conceivable witnesses, after the plaintiff has rested his case on February 25, 1981, however, after presenting

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

"On November 24, 1981, there being a typhoon prevailing in Manila said date was declared a partial non-working holiday, so much so, the hearing was reset to December 7 and 22, 1981. On December 7, 1981, on motion of de-fendant’s counsel, the same was again reset to Decem-ber 22, 1981 as previously scheduled which hearing was understood as intransferable in character. Again on De-cember 22, 1981, the defendant’s counsel asked for post-ponement on the ground that the defendant was sick. The Court, after much tolerance and judicial magnanimity, de-nied said motion and ordered that the case be submitted for resolution based on the evidence on record and gave the parties 30 days from December 23, 1981, within which to file their simultaneous memoranda." (Rollo, pp. 148-150)

The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila in front of the Republic Supermarket. It is near the corner of Claro M. Recto Street. According to the trial court, it is in the heart of Chinatown where people who buy and sell jewelries, businessmen, brokers, man-ager, bank employees, and people from all walks of life converge and patronize Sun Wah.

There is more than substantial evidence to support the factual findings of the trial court and the appellate court. If the respondent court awarded damages only from judicial demand in 1978 and not from the opening of the restau-rant in 1955, it is because of the petitioner’s contentions that all profits were being plowed back into the expansion of the business. There is no basis in the records to sus-tain the petitioner’s contention that the damages awarded are excessive. Even if the Court is minded to modify the factual findings of both the trial court and the appellate court, it cannot refer to any portion of the records for such modification. There is no basis in the records for this Court to change or set aside the factual findings of the trial court and the appellate court. The petitioner was given every opportunity to refute or rebut the respon-dent’s submissions but, after promising to do so, it delib-erately failed to present its books and other evidence.

The resolution of the Intermediate Appellate Court order-ing the payment of the petitioner’s obligation shows that the same continues until fully paid. The question now arises as to whether or not the payment of a share of profits shall continue into the future with no fixed ending date.chanrobles law library : red

Considering the facts of this case, the Court may decree a dissolution of the partnership under Article 1831 of the Civil Code which, in part, provides:jgc:chanrobles.com.ph

"Art. 1831. On application by or for a partner the court shall decree a dissolution whenever:chanrob1es virtual 1aw library

x       x       x

"(3) A partner has been guilty of such conduct as tends to 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 him-self in matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him;

x       x       x

"(6) Other circumstances render a dissolution equitable."cralaw virtua1aw library

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

WHEREFORE, the petition for review is hereby DIS-MISSED for lack of merit. The decision of the respondent court is AFFIRMED with a MODIFICATION that as indi-cated above, the partnership of the parties is ordered dis-solved.

SO ORDERED

FIRST DIVISION

[G.R. No. 126334. November 23, 2001.]

EMILIO EMNACE, Petitioner, v. COURT OF APPEALS, ESTATE OF VICENTE TABANAO, SHERWIN TA-BANAO, VICENTE WILLIAM TABANAO, JANETTE TA-BANAO DEPOSOY, VICENTA MAY TABANAO VARELA, ROSELA TABANAO and VINCENT TA-BANAO, Respondents.

D E C I S I O N

YNARES-SANTIAGO, J.:

Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divinagracia were partners in a business concern known as Ma. Nelma Fishing Industry. Sometime in January of 1986, they decided to dissolve their partnership and exe-cuted an agreement of partition and distribution of the partnership properties among them, consequent to Jac-into Divinagracia’s withdrawal from the partnership. 1 Among the assets to be distributed were five (5) fishing

boats, six (6) vehicles, two (2) parcels of land located at Sto. Niño and Talisay, Negros Occidental, and cash de-posits in the local branches of the Bank of the Philippine Islands and Prudential Bank.chanrob1es virtua1 1aw 1ibrary

Throughout the existence of the partnership, and even af-ter Vicente Tabanao’s untimely demise in 1994, petitioner failed to submit to Tabanao’s heirs any statement of as-sets and liabilities of the partnership, and to render an ac-counting of the partnership’s finances. Petitioner also re-neged on his promise to turn over to Tabanao’s heirs the deceased’s 1/3 share in the total assets of the partner-ship, amounting to P30,000,000.00, or the sum of P10,000,000.00, despite formal demand for payment thereof. 2

Consequently, Tabanao’s heirs, respondents herein, filed against petitioner an action for accounting, payment of shares, division of assets and damages. 3 In their com-plaint, respondents prayed as follows:chanrob1es virtual 1aw library

1. Defendant be ordered to render the proper accounting of all the assets and liabilities of the partnership at bar; and

2. After due notice and hearing defendant be ordered to pay/remit/deliver/surrender/yield to the plaintiffs the fol-lowing:chanrob1es virtual 1aw library

A. No less than One Third (1/3) of the assets, properties, dividends, cash, land(s), fishing vessels, trucks, motor ve-

hicles, and other forms and substance of treasures which belong and/or should belong, had accrued and/or must accrue to the partnership;

B. No less than Two Hundred Thousand Pesos (P200,000.00) as moral damages;

C. Attorney’s fees equivalent to Thirty Percent (30%) of the entire share/amount/award which the Honorable Court may resolve the plaintiffs as entitled to plus P1,000.00 for every appearance in court. 4

Petitioner filed a motion to dismiss the complaint on the grounds of improper venue, lack of jurisdiction over the nature of the action or suit, and lack of capacity of the es-tate 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 ba-sis of his personal liability; hence, the action is not only a personal action but also an action in personam. As re-gards petitioner’s argument of lack of jurisdiction over the action because the prescribed docket fee was not paid considering the huge amount involved in the claim, the trial court noted that a request for accounting was made in order that the exact value of the partnership may be as-certained and, thus, the correct docket fee may be paid. Finally, the trial court held that the heirs of Tabanao had a right to sue in their own names, in view of the provision of Article 777 of the Civil Code, which states that the rights to the succession are transmitted from the moment of the death of the decedent. 6

The following day, respondents filed an amended com-plaint, 7 incorporating the additional prayer that petitioner be ordered to "sell all (the partnership’s) assets and thereafter pay/remit/deliver/surrender/yield to the plain-tiffs" their corresponding share in the proceeds thereof. In due time, petitioner filed a manifestation and motion to dismiss, 8 arguing that the trial court did not acquire juris-diction 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 mo-tion to dismiss which has been denied. Anent the issue of prescription, the trial court ruled that prescription begins to run only upon the dissolution of the partnership when the final accounting is done. Hence, prescription has not set in the absence of a final accounting. Moreover, an ac-tion based on a written contract prescribes in ten years from the time the right of action accrues.

Petitioner filed a petition for certiorari before the Court of Appeals, 11 raising the following issues:chanrob1es vir-tual 1aw library

I. Whether or not respondent Judge acted without jurisdic-tion 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 juris-diction or with grave abuse of discretion in insisting to try the case which involve (sic) a parcel of land situated out-side of its territorial jurisdiction;

III. Whether or not respondent Judge acted without juris-diction or with grave abuse of discretion in allowing the estate of the deceased to appear as party plaintiff, when there is no intestate case and filed by one who was never appointed by the court as administratrix of the estates; and

IV. Whether or not respondent Judge acted without juris-diction 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 as-sailed decision, 12 dismissing the petition forcertiorari, upon a finding that no grave abuse of discretion amount-ing to lack or excess of jurisdiction was committed by the trial court in issuing the questioned orders denying peti-tioner’s motions to dismiss.

Not satisfied, petitioner filed 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 court’s territorial jurisdiction;

III. Lack of capacity to sue on the part of plaintiff heirs of Vicente Tabanao; and

IV. Prescription of the plaintiff heirs’ cause of action.

It can be readily seen that respondents’ primary and ulti-mate objective in instituting the action below was to re-cover the decedent’s 1/3 share in the partnership’s as-sets. While they ask for an accounting of the partnership’s assets and finances, what they are actually asking is for the trial court to compel petitioner to pay and turn over their share, or the equivalent value thereof, from the pro-ceeds of the sale of the partnership assets. They also as-sert that until and unless a proper accounting is done, the exact value of the partnership’s assets, as well as their corresponding share therein, cannot be ascertained. Con-sequently, they feel justified in not having paid the com-mensurate 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 part-nership’s assets, for respondents themselves voluntarily pegged the worth thereof at Thirty Million Pesos (P30,000,000.00). Hence, this case is one which is really not beyond pecuniary estimation, but rather partakes of the nature of a simple collection case where the value of the subject assets or amount demanded is pecuniarily de-terminable. 13 While it is true that the exact value of the partnership’s total assets cannot be shown with certainty at the time of filing, respondents can and must ascertain, through informed and practical estimation, the amount they expect to collect from the partnership, particularly from petitioner, in order to determine the proper amount

of docket and other fees. 14 It is thus imperative for re-spondents to pay the corresponding docket fees in order that the trial court may acquire jurisdiction over the action. 15

Nevertheless, unlike in the case of Manchester Develop-ment Corp. v. Court of Appeals, 16 where there was clearly an effort to defraud the government in avoiding to pay the correct docket fees, we see no attempt to cheat the courts on the part of respondents. In fact, the lower courts have noted their expressed desire to remit to the court "any payable balance or lien on whatever award which the Honorable Court may grant them in this case should there be any deficiency in the payment of the docket fees to be computed by the Clerk of Court." 17 There is evident willingness to pay, and the fact that the docket fee paid so far is inadequate is not an indication that they are trying to avoid paying the required amount, but may simply be due to an inability to pay at the time of filing. This consideration may have moved the trial court and the Court of Appeals to declare that the unpaid docket fees shall be considered a lien on the judgment award.

Petitioner, however, argues that the trial court and the Court of Appeals erred in condoning the non-payment of the proper legal fees and in allowing the same to become a lien on the monetary or property judgment that may be rendered in favor of respondents. There is merit in peti-tioner’s assertion. The third paragraph of Section 16, Rule 141 of the Rules of Court states that:chanrob1es virtual 1aw library

The legal fees shall be a lien on the monetary or property judgment in favor of the pauper-litigant.

Respondents cannot invoke the above provision in their favor because it specifically applies to pauper-litigants. Nowhere in the records does it appear that respondents are litigating as paupers, and as such are exempted from the payment of court fees. 18

The rule applicable to the case at bar is Section 5(a) of Rule 141 of the Rules of Court, which defines the two kinds of claims as: (1) those which are immediately ascer-tainable; and (2) those which cannot be immediately as-certained as to the exact amount. This second class of claims, where the exact amount still has to be finally de-termined be the courts based on evidence presented, falls squarely under the third paragraph of said Section 5(a), which provides:chanrob1es virtual 1aw library

In case the value of the property or estate or the sum claimed is less or more in accordance with the appraisal of the court, the difference of fee shall be refunded or paid as the case may be. (Emphasis ours)

In Pilipinas Shell Petroleum Corporation v. Court of Ap-peals, 19 this Court pronounced that the above-quoted provision "clearly contemplates an initial payment of the filing fees corresponding to the estimated amount of the claim subject to adjustment as to what later may be proved." 20 Moreover, we reiterated therein the principle that the payment of filing fees cannot be made contingent or dependent on the result of the case. Thus, an initial payment of the docket fees based on an estimated

amount must be paid simultaneous with the filing of the complaint. Otherwise, the court would stand to lose the fil-ing 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 trivial-ity. 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 govern-ment as well, the payment of docket fees cannot be made dependent on the outcome of the case, except when the claimant is a pauper-litigant.

Applied to the instant case, respondents have a specific claim — 1/3 of the value of all the partnership assets — but they did not allege a specific amount. They did, how-ever, estimate the partnership’s total assets to be worth Thirty Million Pesos (P30,000,000.00), in a letter 21 ad-dressed to petitioner. Respondents cannot now say that they are unable to make an estimate, for the said letter and the admissions therein form part of the records of this case. They cannot avoid paying the initial docket fees by conveniently omitting the said amount in their amended complaint. This estimate can be made the basis for the initial docket fees that respondents should pay. Even if it were later established that the amount proved was less or more than the amount alleged or estimated, Rule 141, Section 5(a) of the Rules of Court specifically provides that the court may refund the excess or exact additional fees should the initial payment be insufficient. It is clear that it is only the difference between the amount finally awarded and the fees paid upon filing of this complaint

that is subject to adjustment and which may be subjected to a lien.

In the oft-quoted case of Sun Insurance Office, Ltd. v. Hon. Maximiano Asuncion, 22 this Court held that when the specific claim "has been left for the determination by the court, the additional filing fee therefor shall constitute a lien on the judgment and it shall be the responsibility of the Clerk of Court or his duly authorized deputy to enforce said lien and assess and collect the additional fee." Clearly, the rules and jurisprudence contemplate the ini-tial payment of filing and docket fees based on the esti-mated claims of the plaintiff, and it is only when there is a deficiency that a lien may be constituted on the judgment award until such additional fee is collected.

Based on the foregoing, the trial court erred in not dis-missing the complaint outright despite their failure to pay the proper docket fees. Nevertheless, as in other proce-dural rules, it may be liberally construed in certain cases if only to secure a just and speedy disposition of an action. While the rule is that the payment of the docket fee in the proper amount should be adhered to, there are certain exceptions which must be strictly construed. 23

In recent rulings, this Court has relaxed the strict adher-ence to the Manchester doctrine, allowing the plaintiff to pay the proper docket fees within a reasonable time be-fore the expiration of the applicable prescriptive or regle-mentary period. 24

In the recent case of National Steel Corp. v. Court of Ap-peals, 25 this Court held that:chanrob1es virtual 1aw li-brary

The court acquires jurisdiction over the action if the filing of the initiatory pleading is accompanied by the payment of the requisite fees, or, if the fees are not paid at the time of the filing of the pleading, as of the time of full payment of the fees within such reasonable time as the court may grant, unless, of course, prescription has set in the mean-time.

It does not follow, however, that the trial court should have dismissed the complaint for failure of private respon-dent 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 ac-tion 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 require-ment, the defendant should timely raise the issue of juris-diction 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)

Accordingly, the trial court in the case at bar should deter-mine the proper docket fee based on the estimated amount that respondents seek to collect from petitioner, and direct them to pay the same within a reasonable time, provided the applicable prescriptive or reglementary pe-riod has not yet expired. Failure to comply therewith, and

upon motion by petitioner, the immediate dismissal of the complaint shall issue on jurisdictional grounds.

On the matter of improper venue, we find no error on the part of the trial court and the Court of Appeals in holding that the case below is a personal action which, under the Rules, may be commenced and tried where the defen-dant resides or may be found, or where the plaintiffs re-side, at the election of the latter. 26

Petitioner, however, insists that venue was improperly laid since the action is a real action involving a parcel of land that is located outside the territorial jurisdiction of the court a quo. This contention is not well-taken. The records indubitably show that respondents are asking that the assets of the partnership be accounted for, sold and distributed according to the agreement of the partners. The fact that two of the assets of the partnership are parcels of land does not materially change the nature of the action. It is an action in personam because it is an ac-tion 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 per-son. 27 Furthermore, there is no showing that the parcels of land involved in this case are being disputed. In fact, it is only incidental that part of the assets of the partnership under liquidation happen to be parcels of land.

The time-tested case of Claridades v. Mercader, Et Al., 28 settled this issue thus:chanrob1es virtual 1aw library

The fact that plaintiff prays for the sale of the assets of the partnership, including the fishpond in question, did not

change the nature or character of the action, such sale being merely a necessary incident of the liquidation of the partnership, which should precede and/or is part of its process of dissolution.

The action filed by respondents not only seeks redress against petitioner. It also seeks the enforcement of, and petitioner’s compliance with, the contract that the partners executed to formalize the partnership’s dissolution, as well as to implement the liquidation and partition of the partnership’s assets. Clearly, it is a personal action that, in effect, claims a debt from petitioner and seeks the per-formance of a personal duty on his part. 29 In fine, re-spondents’ complaint seeking the liquidation and partition of the assets of the partnership with damages is a per-sonal action which may be filed in the proper court where any of the parties reside. 30 Besides, venue has nothing to do with jurisdiction for venue touches more upon the substance or merits of the case. 31 As it is, venue in this case was properly laid and the trial court correctly ruled so.

On the third issue, petitioner asserts that the surviving spouse of Vicente Tabanao has no legal capacity to sue since she was never appointed as administratrix or ex-ecutrix of his estate. Petitioner’s objection in this regard is misplaced. The surviving spouse does not need to be ap-pointed as executrix or administratrix of the estate before she can file the action. She and her children are com-plainants in their own right as successors of Vicente Ta-banao. From the very moment of Vicente Tabanao’s death, his rights insofar as the partnership was concerned were transmitted to his heirs, for rights to the succession

are transmitted from the moment of death of the dece-dent. 32

Whatever claims and rights Vicente Tabanao had against the partnership and petitioner were transmitted to respon-dents by operation of law, more particularly by succes-sion, which is a mode of acquisition by virtue of which the property, rights and obligations to the extent of the value of the inheritance of a person are transmitted. 33 More-over, 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 fulfill-ment of petitioner’s obligations as outlined in their dissolu-tion agreement were transmitted to respondents. They, therefore, had the capacity to sue and seek the court’s in-tervention to compel petitioner to fulfill his obligations.

Finally, petitioner contends that the trial court should have dismissed the complaint on the ground of prescription, ar-guing that respondents’ action prescribed four (4) years after it accrued in 1986. The trial court and the Court of Appeals gave scant consideration to petitioner’s hollow arguments, and rightly so.

The three (3) final stages of a partnership are: (1) dissolu-tion; (2) winding-up; and (3) termination. 36 The partner-ship, 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 dis-tribution of the net partnership assets to the partners. 37 For as long as the partnership exists, any of the partners may demand an accounting of the partnership’s business. Prescription of the said right starts to run only upon the dissolution of the partnership when the final accounting is done. 38

Contrary to petitioner’s protestations that respondents’ right to inquire into the business affairs of the partnership accrued in 1986, prescribing four (4) years thereafter, prescription had not even begun to run in the absence of a final accounting. Article 1842 of the Civil Code provides: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 disso-lution, in the absence of any agreement to the contrary.

Applied in relation to Articles 1807 and 1809, which also deal with the duty to account, the above-cited provision states that the right to demand an accounting accrues at the date of dissolution in the absence of any agreement to the contrary. When a final accounting is made, it is only then that prescription begins to run. In the case at bar, no final accounting has been made, and that is precisely what respondents are seeking in their action before the

trial court, since petitioner has failed or refused to render an accounting of the partnership’s business and assets. Hence, the said action is not barred by prescription.

In fine, the trial court neither erred nor abused its discre-tion when it denied petitioner’s motions to dismiss. Like-wise, the Court of Appeals did not commit reversible error in upholding the trial court’s orders. Precious time has been lost just to settle this preliminary issue, with peti-tioner 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 de-lay.chanrob1es virtua1 1aw 1ibrary

WHEREFORE, in view of all the foregoing, the instant pe-tition is DENIED for lack of merit, and the case is RE-MANDED 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 ap-propriate proceedings in Civil Case No. 416-C.

Costs against petitioner.

SO ORDERED.