31.
complaint, and alleges, as special defense,
G.R. No. 17024 March 24, 1922
DOMINGO BEARNEZA, plaintiff-appelle,
vs.
BALBINO DEQUILLA, defendant-appellant.
C. Lozano and Cecilio I. Lim for appellant.
Montinola, Montinola & Hontiveros for
appellee.
ROMUALDEZ, J.:
In the year 1903, Balbino Dequilla, the herein
defendant, and Perpetua Bearneza formed a
partnership for the purpose of exploiting a fish
pond situated in the barrio of Talisay,
municipality of Barotac Nuevo, Province of
Iloilo, Perpetua obligating herself to contribute
to the payment of the expenses of the
business, which obligation she made good,
and both agreeing to divide the profits
between themselves, which they had been
doing until the death of the said Perpetua in
the year 1912.
The deceased left a will in one of the clauses
of which she appointed Domingo Bearnez, the
herein plaintiff, as her heir to succeed to all
her rights and interests in the fish pond in
question.
Demand having been made upon Balbino
Dequilla by Domingo Bearneza for the
delivery of the part of the fish pond belonging
to his decedent, Perpetua, and delivery having
been refused, Domingo Bearneza brought this
action to recover said part of the fish pond
belonging to his decedent, Perpetua, and
delivery having been refused, Domingo
Bearneza brought this action recover said part
of the fish pond and one-half of the profits
received by the defendant from the fish pond
from the year 1913 to 1919, as damages (the
amended complaint was filed on April 12,
1920), amounting, according to plaintiff, to the
sum of thirteen thousand one hundred pesos
(13,100).
In his answer, the defendant denies generally
and specifically the allegations of the
that "the formation of the supposed
partnership between the plaintiff and the
defendant for the exploitation of the aforesaid
fish pond was not carried into effect, on
account of the plaintiff having refused to
defray the expenses of reconstruction and
exploitation of said fish pond." As another
special defense, the defendant alleges "that in
the event that the court should hold the
plaintiff to be entitled to the undivided one-half
of the fish pond, claimed in the complaint, the
plaintiff's action has prescribed, the time for
bringing the same having elapsed."
Proceedings having been held as usual, the
court below rendered judgment, declaring the
plaintiff owner of one-half of the fish pond,
which was composed of the portions known
as "Alimango" and "Dalusan," but without
awarding him any of the damages claimed by
him, the same not having been proven, in the
opinion of the court, and ordering the
defendant to pay the costs.
From this judgment the defendant appeals,
making various assignments of error. The
plaintiff did not appeal from that part of the
judgment denying his claim for damages;
hence the only question we are called upon to
decide is whether or not the plaintiff has any
right to maintain an action for the recovery of
one-half of the said fish pond.
The partnership formed by Perpetua
Bearneza and Balbino Dequilla, as to the
existence of which the proof contained in the
record is conclusive and there is no dispute,
was of a civil nature. It was a particular
partnership, as defined in article 1678 of the
Civil Code, it having had for its subject-matter
a specified thing, to with, the exploitation of
the aforementioned fish pond. Although, as
the trial court says in its decision, the
defendant, in his letters to Perpetua or her
husband, makes reference to the fish pond,
calling it "our," or "your fish pond," this
reference cannot be held to include the land
on which the said fish pond was built. It has
not been proven that Perpetua Bearneza
participated in the ownership of said land, and
Exhibits 2 and 3 of the defendant show that he
has been paying, as exclusive owner of the
fish pond, the land tax thereon, although in
Exhibit X he says that the said land belongs to
the State. The conclusion, therefore, from the
evidence is that the land on which the fish
pond was constructed did not constitute a part
of the subject- matter of the aforesaid
partnership.
Now, this partnership not having been
organized in the form of a mercantile
partnership, and, therefore, the provisions of
the Code of Commerce not being applicable
thereto (article 1670 of the Civil Code), it was
dissolved by the death of Perpetua Bearneza,
and falls under the provisions of article 1700,
subsection 3, of the same Code, and not
under the exception established in the last
paragraph of said article 1700 of the Civil
Code.
Neither can it be maintained that the
partnership continued to exist after the death
of Perpetua, inasmuch as it does not appear
that any stipulation to that effect has ever
been made by her and the defendant,
pursuant to the provisions of article 1704 of
the Code last cited.
The partnership having been dissolved by the
death of Perpetua Bearneza, its subsequent
legal status was that of a partnership in
liquidation, and the only rights inherited by her
testamentary heir, the herein plaintiff, were
those resulting from the said liquidation in
favor of the deceased partner, and nothing
more. Before this liquidation is made, which
up to the present has not been effected, it is
impossible to determine what rights or
interests, if any, the deceased had, the
partnership bond having been dissolved.
Neither can it be said that the partnership
continued between the plaintiff and the
defendant. It is true that the latter's act in
requiring the heirs of Perpetua to contribute to
the payment of the expenses of exploitation of
the aforesaid fishing industry was an attempt
to continue the partnership, but it is also true
that neither the said heirs collectively, nor the
plaintiff individually, took any action in
response to that requirement, nor made any
promise to that effect, and therefore no new
contract of partnership existed.
We find that the plaintiff has not sufficiently
shown his right of action.
The judgment appealed from is modified, the
same being affirmed insofar as it denies the
plaintiff's claim for damages, and reversed
insofar as it declares the said plaintiff owner of
one-half of the fish pond, "Alimango" and
"Dalusan," here in dispute.
No special finding as to costs is made. So
ordered.
Araullo, C.J., Malcolm, Avancea, Villamor,
Ostrand and Johns, JJ., concur

There is no sufficient ground for holding that a

community of property existed between the
plaintiff and the defendant, it not being known
whether the deceased still had any interest in
the partnership property which could have
been transmitted by will to the plaintiff. There
being no community of property, article 395 of
the Civil Code cited by the plaintiff in support
of his contention can have no application to
the case at bar.
32.
G.R. No. L-40098 August 29, 1975
ANTONIO LIM TANHU, DY OCHAY,
ALFONSO LEONARDO NG SUA and CO
OYO, petitioners,
vs.
HON. JOSE R. RAMOLETE as Presiding
Judge, Branch III, CFI, Cebu and TAN
PUT, respondents.
Zosa, Zosa, Castillo, Alcudia & Koh for
petitioners.
Fidel Manalo and Florido & Associates for
respondents.
BARREDO, J.:
Petition for (1) certiorari to annul and set aside
certain actuations of respondent Court of First
Instance of Cebu Branch III in its Civil Case
No. 12328, an action for accounting of
properties and money totalling allegedly about
P15 million pesos filed with a common cause
of action against six defendants, in which after
declaring four of the said defendants herein
petitioners, in default and while the trial as
against the two defendants not declared in
default was in progress, said court granted
plaintiff's motion to dismiss the case in so far
as the non-defaulted defendants were
concerned and thereafter proceeded to hear
ex-parte the rest of the plaintiffs evidence and
subsequently rendered judgment by default
against the defaulted defendants, with the
particularities that notice of the motion to
dismiss was not duly served on any of the
defendants, who had alleged a compulsory
counterclaim against plaintiff in their joint
answer, and the judgment so rendered
granted reliefs not prayed for in the complaint,
and (2) prohibition to enjoin further
proceedings relative to the motion for
immediate execution of the said judgment.
Originally, this litigation was a complaint filed
on February 9, 1971 by respondent Tan Put
only against the spouses-petitioners Antonio
Lim Tanhu and Dy Ochay. Subsequently, in
an amended complaint dated September 26,
1972, their son Lim Teck Chuan and the other
spouses-petitioners Alfonso Leonardo Ng Sua
and Co Oyo and their son Eng Chong
Leonardo were included as defendants. In
said amended complaint, respondent Tan
alleged that she "is the widow of Tee Hoon
Lim Po Chuan, who was a partner in the
commercial partnership, Glory Commercial
Company ... with Antonio Lim Tanhu and
Alfonso Ng Sua that "defendant Antonio Lim
Tanhu, Alfonso Leonardo Ng Sua, Lim Teck
Chuan, and Eng Chong Leonardo, through
fraud and machination, took actual and active
management of the partnership and although
Tee Hoon Lim Po Chuan was the manager of
Glory Commercial Company, defendants
managed to use the funds of the partnership
to purchase lands and building's in the cities
of Cebu, Lapulapu, Mandaue, and the
municipalities of Talisay and Minglanilla, some
of which were hidden, but the description of
those already discovered were as follows: (list
of properties) ...;" and that:
13. (A)fter the death of Tee
Hoon Lim Po Chuan, the
defendants, without liquidation
continued the business of
Glory Commercial Company
by purportedly organizing a
corporation known as the
Glory Commercial Company,
Incorporated, with paid up
capital in the sum of
P125,000.00, which money
and other assets of the said
Glory Commercial Company,
Incorporated are actually the
assets of the defunct Glory
Commercial Company
partnership, of which the
plaintiff has a share equivalent
to one third (/ 3) thereof;
14. (P)laintiff, on several
occasions after the death of
her husband, has asked
defendants of the above-
mentioned properties and for
the liquidation of the business
of the defunct partnership,
including investments on real give the share of the plaintiff.
estate in Hong Kong, but (Pp. 36-37, Record.)
defendants kept on promising
to liquidate said properties and She prayed as follows:
just told plaintiff to
WHEREFORE, it is most
15. (S)ometime in the month respectfully prayed that
of November, 1967, judgment be rendered:
defendants, Antonio Lim
Tanhu, by means of fraud a) Ordering the defendants to
deceit and misrepresentations render an accounting of the
did then and there, induce and real and personal properties of
convince the plaintiff to the Glory Commercial
execute a quitclaim of all her Company including those
rights and interests, in the registered in the names of the
assets of the partnership of defendants and other persons,
Glory Commercial Company, which properties are located in
which is null and void, the Philippines and in Hong
executed through fraud and Kong;
without any legal effect. The
original of said quitclaim is in
b) Ordering the defendants to
the possession of the adverse
deliver to the plaintiff after
party defendant Antonio Lim
accounting, one third (/ 3) of
Tanhu.
the total value of all the
properties which is
16. (A)s a matter of fact, after approximately P5,000,000.00
the execution of said quitclaim, representing the just share of
defendant Antonio Lim Tanhu the plaintiff;
offered to pay the plaintiff the
amount P65,000.00 within a c) Ordering the defendants to
period of one (1) month, for pay the attorney of the plaintiff
which plaintiff was made to the sum of Two Hundred Fifty
sign a receipt for the amount Thousand Pesos
of P65,000.00 although no (P250,000.00) by way of
such amount was given and attorney's fees and damages
plaintiff was not even given a in the sum of One Million
copy of said document; Pesos (P1,000,000.00).

17. (T)hereafter, in the year This Honorable Court is

1968-69, the defendants who prayed for other remedies and
had earlier promised to reliefs consistent with law and
liquidate the aforesaid equity and order the
properties and assets in favor defendants to pay the costs.
among others of plaintiff and (Page 38, Record.)
until the middle of the year
1970 when the plaintiff The admission of said amended complaint
formally demanded from the was opposed by defendants upon the ground
defendants the accounting of that there were material modifications of the
real and personal properties of causes of action previously alleged, but
the Glory Commercial respondent judge nevertheless allowed the
Company, defendants refused amendment reasoning that:
and stated that they would not
 The present action is for
accounting of real and
personal properties as well as
for the recovery of the same
with damages.
An objective consideration of
pars. 13 and 15 of the
amended complaint pointed
out by the defendants to
sustain their opposition will
show that the allegations of
facts therein are merely to
amplify material averments
constituting the cause of
action in the original
complaint. It likewise include
necessary and indispensable
defendants without whom no
final determination can be had
in the action and in order that
complete relief is to be
accorded as between those
already parties.
Considering that the
amendments sought to be
introduced do not change the
main causes of action in the
original complaint and the
reliefs demanded and to allow
amendments is the rule, and
to refuse them the exception
and in order that the real
question between the parties
may be properly and justly
threshed out in a single
proceeding to avoid multiplicity
of actions. (Page 40, Record.)
In a single answer with counterclaim, over the
signature of their common counsel,
defendants denied specifically not only the
allegation that respondent Tan is the widow of
Tee Hoon because, according to them, his
legitimate wife was Ang Siok Tin still living and
with whom he had four (4) legitimate children,
a twin born in 1942, and two others born in
1949 and 1965, all presently residing in
Hongkong, but also all the allegations of fraud
and conversion quoted above, the truth being,
according to them, that proper liquidation had
been regularly made of the business of the
partnership and Tee Hoon used to receive his
just share until his death, as a result of which
the partnership was dissolved and what
corresponded to him were all given to his wife
and children. To quote the pertinent portions
of said answer:
AND BY WAY OF SPECIAL
AND AFFIRMATIVE
DEFENSES,
defendants hereby incorporate
all facts averred and alleged in
the answer, and further most
respectfully declare:
1. That in the event that
plaintiff is filing the present
complaint as an heir of Tee
Hoon Lim Po Chuan, then, she
has no legal capacity to sue as
such, considering that the
legitimate wife, namely: Ang
Siok Tin, together with their
children are still alive. Under
Sec. 1, (d), Rule 16 of the
Revised Rules of Court, lack
of legal capacity to sue is one
of the grounds for a motion to
dismiss and so defendants
prays that a preliminary
hearing be conducted as
provided for in Sec. 5, of the
same rule;
2. That in the alternative case
or event that plaintiff is filing
the present case under Art.
144 of the Civil Code, then,
her claim or demand has been
paid, waived abandoned or
otherwise extinguished as
evidenced by the 'quitclaim'
Annex 'A' hereof, the ground
cited is another ground for a
motion to dismiss (Sec. 1, (h),
Rule 16) and hence
defendants pray that a
preliminary hearing be made
in connection therewith
pursuant to Section 5 of the
aforementioned rule;
3. That Tee Hoon Lim Po
Chuan was legally married to
Ang Siok Tin and were
blessed with the following
children, to wit: Ching Siong
Lim and Ching Hing Lim
(twins) born on February 16,
1942; Lim Shing Ping born on
March 3, 1949 and Lim Eng Lu
born on June 25, 1965 and
presently residing in
Hongkong;
4. That even before the death
of Tee Hoon Lim Po Chuan,
the plaintiff was no longer his
common law wife and even
though she was not entitled to
anything left by Tee Hoon Lim
Po Chuan, yet, out of the
kindness and generosity on
the part of the defendants,
particularly Antonio Lain
Tanhu, who, was inspiring to
be monk and in fact he is now
a monk, plaintiff was given a
substantial amount evidenced
by the 'quitclaim' (Annex 'A');
5. That the defendants have
acquired properties out of their
own personal fund and
certainly not from the funds
belonging to the partnership,
just as Tee Hoon Lim Po
Chuan had acquired
properties out of his personal
fund and which are now in the
possession of the widow and
neither the defendants nor the
partnership have anything to
do about said properties;
6. That it would have been
impossible to buy properties
from funds belonging to the
partnership without the other
partners knowing about it
considering that the amount
taken allegedly is quite big and
with such big amount
withdrawn the partnership
would have been insolvent;
7. That plaintiff and Tee Hoon
Lim Po Chuan were not
blessed with children who
would have been lawfully
entitled to succeed to the
properties left by the latter
together with the widow and
legitimate children;
8. That despite the fact that
plaintiff knew that she was no
longer entitled to anything of
the shares of the late Tee
Hoon Lim Po Chuan, yet, this
suit was filed against the
defendant who have to
interpose the following
COUNTERCLAIM
A. That the defendants hereby
reproduced, by way of
reference, all the allegations
and foregoing averments as
part of this counterclaim; .
B. That plaintiff knew and was
aware she was merely the
common-law wife of Tee Hoon
Lim Po Chuan and that the
lawful and legal is still living,
together with the legitimate
children, and yet she
deliberately suppressed this
fact, thus showing her bad
faith and is therefore liable for
exemplary damages in an
amount which the Honorable
Court may determine in the
exercise of its sound judicial
discretion. In the event that
plaintiff is married to Tee Hoon
Lim Po Chuan, then, her
marriage is bigamous and
should suffer the
consequences thereof;
C. That plaintiff was aware
and had knowledge about the
'quitclaim', even though she
was not entitled to it, and yet
she falsely claimed that
 defendants refused even to
see her and for filing this
unfounded, baseless, futile
and puerile complaint,
defendants suffered mental
anguish and torture
conservatively estimated to be
not less than P3,000.00;
D. That in order to defend their
rights in court, defendants
were constrained to engage
the services of the
undersigned counsel,
obligating themselves to pay
P500,000.00 as attorney's
fees;
E. That by way of litigation
expenses during the time that
this case will be before this
Honorable Court and until the
same will be finally terminated
and adjudicated, defendants
will have to spend at least
P5,000.00. (Pp. 44-47.
Record.)
After unsuccessfully trying to show that this
counterclaim is merely permissive and should
be dismissed for non-payment of the
corresponding filing fee, and after being
overruled by the court, in due time, plaintiff
answered the same, denying its material
allegations.
On February 3, 1973, however, the date set
for the pre-trial, both of the two defendants-
spouses the Lim Tanhus and Ng Suas, did not
appear, for which reason, upon motion of
plaintiff dated February 16, 1973, in an order
of March 12, 1973, they were all "declared in
DEFAULT as of February 3, 1973 when they
failed to appear at the pre-trial." They sought
to hive this order lifted thru a motion for
reconsideration, but the effort failed when the
court denied it. Thereafter, the trial started, but
at the stage thereof where the first witness of
the plaintiff by the name of Antonio Nuez
who testified that he is her adopted son, was
up for re-cross-examination, said plaintiff
unexpectedly filed on October 19, 1974 the
following simple and unreasoned
MOTION TO DROP
DEFENDANTS LIM TECK
CHUAN AND ENG CHONG
LEONARDO
COMES now plaintiff, through
her undersigned counsel, unto
the Honorable Court most
respectfully moves to drop
from the complaint the
defendants Lim Teck Chuan
and Eng Chong Leonardo and
to consider the case dismissed
insofar as said defendants Lim
Teck Chuan and Eng Chong
Leonardo are concerned.
WHEREFORE, it is most
respectfully prayed of the
Honorable Court to drop from
the complaint the defendants
Lim Teck Chuan and Eng
Chong Leonardo and to
dismiss the case against them
without pronouncement as to
costs. (Page 50, Record.)
which she set for hearing on
December 21, 1974.
According to petitioners, none
of the defendants declared in
default were notified of said
motion, in violation of Section
9 of Rule 13, since they had
asked for the lifting of the
order of default, albeit
unsuccessfully, and as
regards the defendants not
declared in default, the setting
of the hearing of said motion
on October 21, 1974 infringed
the three-day requirement of
Section 4 of Rule 15,
inasmuch as Atty. Adelino
Sitoy of Lim Teck Chuan was
served with a copy of the
motion personally only on
October 19, 1974, while Atty.
Benjamin Alcudia of Eng
Chong Leonardo was served
by registered mail sent only on
the same date.
 Evidently without even
verifying the notices of service,
just as simply as plaintiff had
couched her motion, and also
without any legal grounds
stated, respondent court
granted the prayer of the
above motion thus:
ORDER
Acting on the motion of the
plaintiff praying for the
dismissal of the complaint as
against defendants Lim Teck
Chuan and Eng Chong
Leonardo.
The same is hereby
GRANTED. The complaint as
against defendant Lim Teck
Chuan and Eng Chong
Leonardo is hereby ordered
DISMISSED without
pronouncement as to costs.
Simultaneously, the following order was also
issued:
Considering that defendants
Antonio Lim Tanhu and his
spouse Dy Ochay as well as
defendants Alfonso Ng Sua
and his spouse Co Oyo have
been declared in default for
failure to appear during the
pre-trial and as to the other
defendants the complaint had
already been ordered
dismissed as against them.
Let the hearing of the plaintiff's
evidence ex-parte be set on
November 20, 1974, at 8:30
A.M. before the Branch Clerk
of Court who is deputized for
the purpose, to swear in
witnesses and to submit her
report within ten (10) days
thereafter. Notify the plaintiff.
SO ORDERED.
Cebu City, Philippines,
October 21, 1974. (Page 52,
Record.)
But, in connection with this last order, the
scheduled ex-parte reception of evidence did
not take place on November 20, 1974, for on
October 28, 1974, upon verbal motion of
plaintiff, the court issued the following self-
explanatory order: .
Acting favorably on the motion
of the plaintiff dated October
18, 1974, the Court deputized
the Branch Clerk of Court to
receive the evidence of the
plaintiff ex-parte to be made
on November 20, 1974.
However, on October 28,
1974, the plaintiff, together
with her witnesses, appeared
in court and asked, thru
counsel, that she be allowed
to present her evidence.
Considering the time and
expenses incurred by the
plaintiff in bringing her
witnesses to the court, the
Branch Clerk of Court is
hereby authorized to receive
immediately the evidence of
the plaintiff ex-parte.
SO ORDERED.
Cebu City, Philippines,
October 28, 1974. (Page 53.
Record.)
Upon learning of these orders on October 23,
1973, the defendant Lim Teck Cheng, thru
counsel, Atty. Sitoy, filed a motion for
reconsideration thereof, and on November 1,
1974, defendant Eng Chong Leonardo, thru
counsel Atty. Alcudia, filed also his own
motion for reconsideration and clarification of
the same orders. These motions were denied
in an order dated December 6, 1974 but
received by the movants only on December
23, 1974. Meanwhile, respondent court
rendered the impugned decision on December
20, 1974. It does not appear when the parties
were served copies of this decision.
Subsequently, on January 6, 1975, all the
defendants, thru counsel, filed a motion to
quash the order of October 28, 1974. Without
waiting however for the resolution thereof, on
January 13, 1974, Lim Teck Chuan and Eng
Chong Leonardo went to the Court of Appeals
with a petition for certiorari seeking the
annulment of the above-mentioned orders of
October 21, 1974 and October 28, 1974 and
decision of December 20, 1974. By resolution
of January 24, 1975, the Court of Appeals
dismissed said petition, holding that its filing
was premature, considering that the motion to
quash the order of October 28, 1974 was still
unresolved by the trial court. This holding was
reiterated in the subsequent resolution of
February 5, 1975 denying the motion for
reconsideration of the previous dismissal.
On the other hand, on January 20, 1975, the
other defendants, petitioners herein, filed their
notice of appeal, appeal bond and motion for
extension to file their record on appeal, which
was granted, the extension to expire after
fifteen (15) days from January 26 and 27,
1975, for defendants Lim Tanhu and Ng Suas,
respectively. But on February 7, 1975, before
the perfection of their appeal, petitioners filed
the present petition with this Court. And with
the evident intent to make their procedural
position clear, counsel for defendants, Atty.
Manuel Zosa, filed with respondent court a
manifestation dated February 14, 1975 stating
that "when the non-defaulted defendants Eng
Chong Leonardo and Lim Teck Chuan filed
their petition in the Court of Appeals, they in
effect abandoned their motion to quash the
order of October 28, 1974," and that similarly
"when Antonio Lim Tanhu, Dy Ochay, Alfonso
Leonardo Ng Sua and Co Oyo, filed their
petition for certiorari and prohibition ... in the
Supreme Court, they likewise abandoned their
motion to quash." This manifestation was
acted upon by respondent court together with
plaintiffs motion for execution pending appeal
in its order of the same date February 14,
1975 this wise:
ORDER
When these incidents, the
motion to quash the order of
October 28, 1974 and the
motion for execution pending
appeal were called for hearing
today, counsel for the
defendants-movants submitted
their manifestation inviting the
attention of this Court that by
their filing for certiorari and
prohibition with preliminary
injunction in the Court of
Appeals which was dismissed
and later the defaulted
defendants filed with the
Supreme Court certiorari with
prohibition they in effect
abandoned their motion to
quash.
IN VIEW HEREOF, the motion
to quash is ordered
ABANDONED. The resolution
of the motion for execution
pending appeal shall be
resolved after the petition for
certiorari and prohibition shall
have been resolved by the
Supreme Court.
SO ORDERED.
Cebu City, Philippines,
February 14, 1975. (Page 216,
Record.)
Upon these premises, it is the position of
petitioners that respondent court acted
illegally, in violation of the rules or with grave
abuse of discretion in acting on respondent's
motion to dismiss of October 18, 1974 without
previously ascertaining whether or not due
notice thereof had been served on the
adverse parties, as, in fact, no such notice
was timely served on the non-defaulted
defendants Lim Teck Chuan and Eng Chong
Leonardo and no notice at all was ever sent to
the other defendants, herein petitioners, and
more so, in actually ordering the dismissal of
the case by its order of October 21, 1974 and
at the same time setting the case for further
hearing as against the defaulted defendants,
herein petitioners, actually hearing the
same ex-parte and thereafter rendering the
decision of December 20, 1974 granting
respondent Tan even reliefs not prayed for in
the complaint. According to the petitioners, to
begin with, there was compulsory
counterclaim in the common answer of the
defendants the nature of which is such that it
cannot be decided in an independent action
and as to which the attention of respondent
court was duly called in the motions for
reconsideration. Besides, and more
importantly, under Section 4 of Rule 18,
respondent court had no authority to divide
the case before it by dismissing the same as
against the non-defaulted defendants and
thereafter proceeding to hear it ex-parte and
subsequently rendering judgment against the
defaulted defendants, considering that in their
view, under the said provision of the rules,
when a common cause of action is alleged
against several defendants, the default of any
of them is a mere formality by which those
defaulted are not allowed to take part in the
proceedings, but otherwise, all the
defendants, defaulted and not defaulted, are
supposed to have but a common fate, win or
lose. In other words, petitioners posit that in
such a situation, there can only be one
common judgment for or against all the
defendant, the non-defaulted and the
defaulted. Thus, petitioners contend that the
order of dismissal of October 21, 1974 should
be considered also as the final judgment
insofar as they are concerned, or, in the
alternative, it should be set aside together with
all the proceedings and decision held and
rendered subsequent thereto, and that the trial
be resumed as of said date, with the
defendants Lim Teck Chuan and Eng Chong
Leonardo being allowed to defend the case for
all the defendants.
On the other hand, private respondent
maintains the contrary view that inasmuch as
petitioners had been properly declared in
default, they have no personality nor interest
to question the dismissal of the case as
against their non-defaulted co-defendants and
should suffer the consequences of their own
default. Respondent further contends, and this
is the only position discussed in the
memorandum submitted by her counsel, that
since petitioners have already made or at
least started to make their appeal, as they are
in fact entitled to appeal, this special civil
action has no reason for being. Additionally,
she invokes the point of prematurity upheld by
the Court of Appeals in regard to the above-
mentioned petition therein of the non-
defaulted defendants Lim Teck Chuan and
Eng Chong Leonardo. Finally, she argues that
in any event, the errors attributed to
respondent court are errors of judgment and
may be reviewed only in an appeal.
After careful scrutiny of all the above-related
proceedings, in the court below and mature
deliberation, the Court has arrived at the
conclusion that petitioners should be granted
relief, if only to stress emphatically once more
that the rules of procedure may not be
misused and abused as instruments for the
denial of substantial justice. A review of the
record of this case immediately discloses that
here is another demonstrative instance of how
some members of the bar, availing of their
proficiency in invoking the letter of the rules
without regard to their real spirit and intent,
succeed in inducing courts to act contrary to
the dictates of justice and equity, and, in some
instances, to wittingly or unwittingly abet unfair
advantage by ironically camouflaging their
actuations as earnest efforts to satisfy the
public clamor for speedy disposition of
litigations, forgetting all the while that the plain
injunction of Section 2 of Rule 1 is that the
"rules shall be liberally construed in order to
promote their object and to assist the parties
in obtaining not only 'speedy' but more
imperatively, "just ... and inexpensive
determination of every action and
proceeding." We cannot simply pass over the
impression that the procedural maneuvers
and tactics revealed in the records of the case
at bar were deliberately planned with the
calculated end in view of depriving petitioners
and their co-defendants below of every
opportunity to properly defend themselves
against a claim of more than substantial
character, considering the millions of pesos
worth of properties involved as found by
respondent judge himself in the impugned
decision, a claim that appears, in the light of
the allegations of the answer and the
documents already brought to the attention of
the court at the pre-trial, to be rather dubious.
What is most regrettable is that apparently, all
of these alarming circumstances have
escaped respondent judge who did not seem
to have hesitated in acting favorably on the
motions of the plaintiff conducive to the
deplorable objective just mentioned, and
which motions, at the very least, appeared to
be 'of highly controversial' merit, considering
that their obvious tendency and immediate
result would be to convert the proceedings
into a one-sided affair, a situation that should
be readily condemnable and intolerable to any
court of justice.
Indeed, a seeming disposition on the part of
respondent court to lean more on the
contentions of private respondent may be
discerned from the manner it resolved the
attempts of defendants Dy Ochay and Antonio
Lim Tanhu to have the earlier order of default
against them lifted. Notwithstanding that Dy
Ochay's motion of October 8, 1971, co-signed
by her with their counsel, Atty. Jovencio
Enjambre (Annex 2 of respondent answer
herein) was over the jurat of the notary public
before whom she took her oath, in the order of
November 2, 1971, (Annex 3 id.) it was held
that "the oath appearing at the bottom of the
motion is not the one contemplated by the
abovequoted pertinent provision (See. 3, Rule
18) of the rules. It is not even a verification.
(See. 6, Rule 7.) What the rule requires as
interpreted by the Supreme Court is that the
motion must have to be accompanied by an
affidavit of merits that the defendant has a
meritorious defense, thereby ignoring the very
simple legal point that the ruling of the
Supreme Court in Ong Peng vs. Custodio, 1
SCRA 781, relied upon by His Honor, under
which a separate affidavit of merit is required
refers obviously to instances where the motion
is not over oath of the party concerned,
considering that what the cited provision
literally requires is no more than a "motion
under oath." Stated otherwise, when a motion
to lift an order of default contains the reasons
for the failure to answer as well as the facts
constituting the prospective defense of the
defendant and it is sworn to by said
defendant, neither a formal verification nor a
separate affidavit of merit is necessary.
What is worse, the same order further held
that the motion to lift the order of default "is an
admission that there was a valid service of
summons" and that said motion could not
amount to a challenge against the jurisdiction
of the court over the person of the defendant.
Such a rationalization is patently specious and
reveals an evident failure to grasp the import
of the legal concepts involved. A motion to lift
an order of default on the ground that service
of summons has not been made in
accordance with the rules is in order and is in
essence verily an attack against the
jurisdiction of the court over the person of the
defendant, no less than if it were worded in a
manner specifically embodying such a direct
challenge.
And then, in the order of February 14, 1972
(Annex 6, id.) lifting at last the order of default
as against defendant Lim Tanhu, His Honor
posited that said defendant "has a defense
(quitclaim) which renders the claim of the
plaintiff contentious." We have read
defendants' motion for reconsideration of
November 25, 1971 (Annex 5, id.), but We
cannot find in it any reference to a "quitclaim".
Rather, the allegation of a quitclaim is in the
amended complaint (Pars. 15-16, Annex B of
the petition herein) in which plaintiff maintains
that her signature thereto was secured
through fraud and deceit. In truth, the motion
for reconsideration just mentioned, Annex 5,
merely reiterated the allegation in Dy Ochay's
earlier motion of October 8, 1971, Annex 2, to
set aside the order of default, that plaintiff Tan
could be but the common law wife only of Tee
Hoon, since his legitimate wife was still alive,
which allegation, His Honor held in the order
of November 2, 1971, Annex 3, to be "not
good and meritorious defense". To top it all,
whereas, as already stated, the order of
February 19, 1972, Annex 6, lifted the default
against Lim Tanhu because of the additional
consideration that "he has a defense
(quitclaim) which renders the claim of the
plaintiff contentious," the default of Dy Ochay
was maintained notwithstanding that exactly
the same "contentions" defense as that of her
husband was invoked by her.
Such tenuous, if not altogether erroneous
reasonings and manifest inconsistency in the
legal postures in the orders in question can
hardly convince Us that the matters here in
issue were accorded due and proper
consideration by respondent court. In fact,
under the circumstances herein obtaining, it
seems appropriate to stress that, having in
view the rather substantial value of the subject
matter involved together with the obviously
contentious character of plaintiff's claim, which
is discernible even on the face of the
complaint itself, utmost care should have been
taken to avoid the slightest suspicion of
improper motivations on the part of anyone
concerned. Upon the considerations
hereunder to follow, the Court expresses its
grave concern that much has to be done to
dispel the impression that herein petitioners
and their co-defendants are being railroaded
out of their rights and properties without due
process of law, on the strength of procedural
technicalities adroitly planned by counsel and
seemingly unnoticed and undetected by
respondent court, whose orders, gauged by
their tenor and the citations of supposedly
pertinent provisions and jurisprudence made
therein, cannot be said to have proceeded
from utter lack of juridical knowledgeability
and competence.
1 requirement of said provision.
The first thing that has struck the Court upon
reviewing the record is the seeming alacrity
with which the motion to dismiss the case
against non-defaulted defendants Lim Teck
Chuan and Eng Chong Leonardo was
disposed of, which definitely ought not to have
been the case. The trial was proceeding with
the testimony of the first witness of plaintiff
and he was still under re-cross-examination.
Undoubtedly, the motion to dismiss at that
stage and in the light of the declaration of
default against the rest of the defendants was
a well calculated surprise move, obviously
designed to secure utmost advantage of the
situation, regardless of its apparent
unfairness. To say that it must have been
entirely unexpected by all the defendants,
defaulted and non-defaulted , is merely to
rightly assume that the parties in a judicial
proceeding can never be the victims of any
procedural waylaying as long as lawyers and
judges are imbued with the requisite sense of
equity and justice.
But the situation here was aggravated by the
indisputable fact that the adverse parties who
were entitled to be notified of such
unanticipated dismissal motion did not get due
notice thereof. Certainly, the non-defaulted
defendants had the right to the three-day prior
notice required by Section 4 of Rule 15. How
could they have had such indispensable
notice when the motion was set for hearing on
Monday, October 21, 1974, whereas the
counsel for Lim Teck Chuan, Atty. Sitoy was
personally served with the notice only on
Saturday, October 19, 1974 and the counsel
for Eng Chong Leonardo, Atty. Alcudia, was
notified by registered mail which was posted
only that same Saturday, October 19, 1974?
According to Chief Justice Moran, "three days
at least must intervene between the date of
service of notice and the date set for the
hearing, otherwise the court may not validly
act on the motion." (Comments on the Rules
of Court by Moran, Vol. 1, 1970 ed. p. 474.)
Such is the correct construction of Section 4
of Rule 15. And in the instant case, there can
be no question that the notices to the non-
defaulted defendants were short of the
We can understand the over-anxiety of
counsel for plaintiff, but what is
incomprehensible is the seeming inattention of
respondent judge to the explicit mandate of
the pertinent rule, not to speak of the
imperatives of fairness, considering he should
have realized the far-reaching implications,
specially from the point of view he
subsequently adopted, albeit erroneously, of
his favorably acting on it. Actually, he was
aware of said consequences, for
simultaneously with his order of dismissal, he
immediately set the case for the ex-parte
hearing of the evidence against the defaulted
defendants, which, incidentally, from the tenor
of his order which We have quoted above,
appears to have been done by him motu
propio As a matter of fact, plaintiff's motion
also quoted above did not pray for it.
Withal, respondent court's twin actions of
October 21, 1974 further ignores or is
inconsistent with a number of known juridical
principles concerning defaults, which We will
here take occasion to reiterate and further
elucidate on, if only to avoid a repetition of the
unfortunate errors committed in this case.
Perhaps some of these principles have not
been amply projected and elaborated before,
and such paucity of elucidation could be the
reason why respondent judge must have
acted as he did. Still, the Court cannot but
express its vehement condemnation of any
judicial actuation that unduly deprives any
party of the right to be heard without clear and
specific warrant under the terms of existing
rules or binding jurisprudence. Extreme care
must be the instant reaction of every judge
when confronted with a situation involving
risks that the proceedings may not be fair and
square to all the parties concerned. Indeed, a
keen sense of fairness, equity and justice that
constantly looks for consistency between the
letter of the adjective rules and these basic
principles must be possessed by every judge,
If substance is to prevail, as it must, over form
in our courts. Literal observance of the rules,
when it is conducive to unfair and undue
advantage on the part of any litigant before it,
is unworthy of any court of justice and equity.
Withal, only those rules and procedure
informed, with and founded on public policy
deserve obedience in accord with their
unequivocal language or words..
Before proceeding to the discussion of the
default aspects of this case, however, it
should not be amiss to advert first to the
patent incorrectness, apparent on the face of
the record, of the aforementioned order of
dismissal of October 21, 1974 of the case
below as regards non-defaulted defendants
Lim and Leonardo. While it is true that said
defendants are not petitioners herein, the
Court deems it necessary for a full view of the
outrageous procedural strategy conceived by
respondent's counsel and sanctioned by
respondent court to also make reference to
the very evident fact that in ordering said
dismissal respondent court disregarded
completely the existence of defendant's
counterclaim which it had itself earlier held if
indirectly, to be compulsory in nature when it
refused to dismiss the same on the ground
alleged by respondent Tan that he docketing
fees for the filing thereof had not been paid by
defendants.
Indeed, that said counterclaim is compulsory
needs no extended elaboration. As may be
noted in the allegations hereof aforequoted, it
arose out of or is necessarily connected with
the occurrence that is the subject matter of the
plaintiff's claim, (Section 4, Rule 9) namely,
plaintiff's allegedly being the widow of the
deceased Tee Hoon entitled, as such, to
demand accounting of and to receive the
share of her alleged late husband as partner
of defendants Antonio Lim Tanhu and Alfonso
Leonardo Ng Sua in Glory Commercial
Company, the truth of which allegations all the
defendants have denied. Defendants maintain
in their counterclaim that plaintiff knew of the
falsity of said allegations even before she filed
her complaint, for she had in fact admitted her
common-law relationship with said deceased
in a document she had jointly executed with
him by way of agreement to terminate their
illegitimate relationship, for which she
received P40,000 from the deceased, and
with respect to her pretended share in the
capital and profits in the partnership, it is also
defendants' posture that she had already
quitclaimed, with the assistance of able
counsel, whatever rights if any she had
thereto in November, 1967, for the sum of
P25,000 duly receipted by her, which
quitclaim was, however, executed, according
to respondent herself in her amended
complaint, through fraud. And having filed her
complaint knowing, according to defendants,
as she ought to have known, that the material
allegations thereof are false and baseless,
she has caused them to suffer damages.
Undoubtedly, with such allegations,
defendants' counterclaim is compulsory, not
only because the same evidence to sustain it
will also refute the cause or causes of action
alleged in plaintiff's complaint,
(Moran, supra p. 352) but also because from
its very nature, it is obvious that the same
cannot "remain pending for independent
adjudication by the court." (Section 2, Rule
17.)
The provision of the rules just cited specifically
enjoins that "(i)f a counterclaim has been
pleaded by a defendant prior to the service
upon him of the plaintiff's motion to dismiss,
the action shall not be dismissed against the
defendant's objection unless the counterclaim
can remain pending for independent
adjudication by the court." Defendants Lim
and Leonardo had no opportunity to object to
the motion to dismiss before the order
granting the same was issued, for the simple
reason that they were not opportunity notified
of the motion therefor, but the record shows
clearly that at least defendant Lim immediately
brought the matter of their compulsory
counterclaim to the attention of the trial court
in his motion for reconsideration of October
23, 1974, even as the counsel for the other
defendant, Leonardo, predicated his motion
on other grounds. In its order of December 6,
1974, however, respondent court not only
upheld the plaintiffs supposed absolute right
to choose her adversaries but also held that
the counterclaim is not compulsory, thereby
virtually making unexplained and inexplicable
180-degree turnabout in that respect.
There is another equally fundamental
consideration why the motion to dismiss
should not have been granted. As the
plaintiff's complaint has been framed, all the
six defendants are charged with having
actually taken part in a conspiracy to
misappropriate, conceal and convert to their
own benefit the profits, properties and all other
assets of the partnership Glory Commercial
Company, to the extent that they have
allegedly organized a corporation, Glory
Commercial Company, Inc. with what they
had illegally gotten from the partnership. Upon
such allegations, no judgment finding the
existence of the alleged conspiracy or holding
the capital of the corporation to be the money
of the partnership is legally possible without
the presence of all the defendants. The non-
defaulted defendants are alleged to be
stockholders of the corporation and any
decision depriving the same of all its assets
cannot but prejudice the interests of said
defendants. Accordingly, upon these
premises, and even prescinding from the
other reasons to be discussed anon it is clear
that all the six defendants below, defaulted
and non-defaulted, are indispensable parties.
Respondents could do no less than grant that
they are so on page 23 of their answer. Such
being the case, the questioned order of
dismissal is exactly the opposite of what ought
to have been done. Whenever it appears to
the court in the course of a proceeding that an
indispensable party has not been joined, it is
the duty of the court to stop the trial and to
order the inclusion of such party. (The
Revised Rules of Court, Annotated &
Commented by Senator Vicente J. Francisco,
Vol. 1, p. 271, 1973 ed. See also Cortez vs.
Avila, 101 Phil. 705.) Such an order is
unavoidable, for the "general rule with
reference to the making of parties in a civil
action requires the joinder of all necessary
parties wherever possible, and the joinder of
all indispensable parties under any and all
conditions, the presence of those latter being
a sine qua non of the exercise of judicial
power." (Borlasa vs. Polistico, 47 Phil. 345, at
p. 347.) It is precisely " when an indispensable
party is not before the court (that) the action
should be dismissed." (People v. Rodriguez,
106 Phil. 325, at p. 327.) The absence of an
indispensable party renders all subsequent
actuations of the court null and void, for want
of authority to act, not only as to the absent
parties but even as to those present. In short,
what respondent court did here was exactly
the reverse of what the law ordains it
eliminated those who by law should precisely
be joined.
As may he noted from the order of respondent
court quoted earlier, which resolved the
motions for reconsideration of the dismissal
order filed by the non-defaulted defendants,
His Honor rationalized his position thus:
It is the rule that it is the
absolute prerogative of the
plaintiff to choose, the theory
upon which he predicates his
right of action, or the parties
he desires to sue, without
dictation or imposition by the
court or the adverse party. If
he makes a mistake in the
choice of his right of action, or
in that of the parties against
whom he seeks to enforce it,
that is his own concern as he
alone suffers therefrom. The
plaintiff cannot be compelled
 to choose his defendants, He
may not, at his own expense,
be forced to implead anyone
who, under the adverse party's
theory, is to answer for
defendant's liability. Neither
may the Court compel him to
furnish the means by which
defendant may avoid or
mitigate their liability. (Vao
vs. Alo, 95 Phil. 495-496.)
This being the rule this court
cannot compel the plaintiff to
continue prosecuting her
cause of action against the
defendants-movants if in the
course of the trial she believes
she can enforce it against the
remaining defendants subject
only to the limitation provided
in Section 2, Rule 17 of the
Rules of Court. ... (Pages
6263, Record.)
Noticeably, His Honor has employed the same
equivocal terminology as in plaintiff's motion
of October 18, 1974 by referring to the action
he had taken as being "dismissal of the
complaint against them or their being dropped
therefrom", without perceiving that the reason
for the evidently intentional ambiguity is
transparent. The apparent idea is to rely on
the theory that under Section 11 of Rule 3,
parties may be dropped by the court upon
motion of any party at any stage of the action,
hence "it is the absolute right prerogative of
the plaintiff to choosethe parties he desires
to sue, without dictation or imposition by the
court or the adverse party." In other words,
the ambivalent pose is suggested that
plaintiff's motion of October 18, 1974 was not
predicated on Section 2 of Rule 17 but more
on Section 11 of Rule 3. But the truth is that
nothing can be more incorrect. To start with,
the latter rule does not comprehend whimsical
and irrational dropping or adding of parties in
a complaint. What it really contemplates is
erroneous or mistaken non-joinder and
misjoinder of parties. No one is free to join
anybody in a complaint in court only to drop
him unceremoniously later at the pleasure of
the plaintiff. The rule presupposes that the
original inclusion had been made in the
honest conviction that it was proper and the
subsequent dropping is requested because it
has turned out that such inclusion was a
mistake. And this is the reason why the rule
ordains that the dropping be "on such terms
as are just" just to all the other parties. In
the case at bar, there is nothing in the record
to legally justify the dropping of the non-
defaulted defendants, Lim and Leonardo. The
motion of October 18, 1974 cites none. From
all appearances, plaintiff just decided to ask
for it, without any relevant explanation at all.
Usually, the court in granting such a motion
inquires for the reasons and in the appropriate
instances directs the granting of some form of
compensation for the trouble undergone by
the defendant in answering the complaint,
preparing for or proceeding partially to trial,
hiring counsel and making corresponding
expenses in the premises. Nothing of these,
appears in the order in question. Most
importantly, His Honor ought to have
considered that the outright dropping of the
non-defaulted defendants Lim and Leonardo,
over their objection at that, would certainly be
unjust not only to the petitioners, their own
parents, who would in consequence be
entirely defenseless, but also to Lim and
Leonardo themselves who would naturally
correspondingly suffer from the eventual
judgment against their parents. Respondent
court paid no heed at all to the mandate that
such dropping must be on such terms as are
just" meaning to all concerned with its legal
and factual effects.
Thus, it is quite plain that respondent court
erred in issuing its order of dismissal of
October 21, 1974 as well as its order of
December 6, 1974 denying reconsideration of
such dismissal. As We make this ruling, We
are not oblivious of the circumstance that
defendants Lim and Leonardo are not parties
herein. But such consideration is
inconsequential. The fate of the case of
petitioners is inseparably tied up with said
order of dismissal, if only because the order
of ex-parte hearing of October 21, 1974 which
directly affects and prejudices said petitioners
is predicated thereon. Necessarily, therefore,
We have to pass on the legality of said order,
if We are to decide the case of herein
petitioners properly and fairly.
The attitude of the non-defaulted defendants
of no longer pursuing further their questioning
of the dismissal is from another point of view
understandable. On the one hand, why should
they insist on being defendants when plaintiff
herself has already release from her claims?
On the other hand, as far as their respective
parents-co-defendants are concerned, they
must have realized that they (their parents)
could even be benefited by such dismissal
because they could question whether or not
plaintiff can still prosecute her case against
them after she had secured the order of
dismissal in question. And it is in connection
with this last point that the true and correct
concept of default becomes relevant.
At this juncture, it may also be stated that the
decision of the Court of Appeals of January
24, 1975 in G. R. No. SP-03066 dismissing
the petition for certiorari of non-defaulted
defendants Lim and Leonardo impugning the
order of dismissal of October 21, 1974, has no
bearing at all in this case, not only because
that dismissal was premised by the appellate
court on its holding that the said petition was
premature inasmuch as the trial court had not
yet resolved the motion of the defendants of
October 28, 1974 praying that said disputed
order be quashed, but principally because
herein petitioners were not parties in that
proceeding and cannot, therefore, be bound
by its result. In particular, We deem it
warranted to draw the attention of private
respondent's counsel to his allegations in
paragraphs XI to XIV of his answer, which
relate to said decision of the Court of Appeals
and which have the clear tendency to make it
appear to the Court that the appeals court had
upheld the legality and validity of the
actuations of the trial court being questioned,
when as a matter of indisputable fact, the
dismissal of the petition was based solely and
exclusively on its being premature without in
any manner delving into its merits. The Court
must and does admonish counsel that such
manner of pleading, being deceptive and
lacking in candor, has no place in any court,
much less in the Supreme Court, and if We
are adopting a passive attitude in the
premises, it is due only to the fact that this is
counsel's first offense. But similar conduct on
his part in the future will definitely be dealt
with more severely. Parties and counsel would
be well advised to avoid such attempts to
befuddle the issues as invariably then will be
exposed for what they are, certainly unethical
and degrading to the dignity of the law
profession. Moreover, almost always they only
betray the inherent weakness of the cause of
the party resorting to them.
2
Coming now to the matter itself of default, it is
quite apparent that the impugned orders must
have proceeded from inadequate
apprehension of the fundamental precepts
governing such procedure under the Rules of
Court. It is time indeed that the concept of this
procedural device were fully understood by
the bench and bar, instead of being merely
taken for granted as being that of a simple
expedient of not allowing the offending party
to take part in the proceedings, so that after
his adversary shall have presented his
evidence, judgment may be rendered in favor
of such opponent, with hardly any chance of
said judgment being reversed or modified.
The Rules of Court contain a separate rule on
the subject of default, Rule 18. But said rule is
concerned solely with default resulting from
failure of the defendant or defendants to
answer within the reglementary period.
Referring to the simplest form of default, that
is, where there is only one defendant in the
action and he fails to answer on time, Section
1 of the rule provides that upon "proof of such
failure, (the court shall) declare the defendant
in default. Thereupon the court shall proceed
to receive the plaintiff's evidence and render
judgment granting him such relief as the
complaint and the facts proven may warrant."
This last clause is clarified by Section 5 which
says that "a judgment entered against a party
in default shall not exceed the amount or be
different in kind from that prayed for."
Unequivocal, in the literal sense, as these
provisions are, they do not readily convey the
full import of what they contemplate. To begin
with, contrary to the immediate notion that can
be drawn from their language, these
provisions are not to be understood as
meaning that default or the failure of the
defendant to answer should be "interpreted as
an admission by the said defendant that the
plaintiff's cause of action find support in the
law or that plaintiff is entitled to the relief
prayed for." (Moran, supra, p. 535 citing
Macondary & Co. v. Eustaquio, 64 Phil. 466,
citing with approval Chaffin v. McFadden, 41
Ark. 42; Johnson v. Pierce, 12 Ark. 599;
Mayden v. Johnson, 59 Ga. 105; People v.
Rust, 292 111. 328; Ken v. Leopold 21 111. A.
163; Chicago, etc. Electric R. Co. v. Krempel
116 111. A. 253.)
Being declared in default does not constitute a
waiver of rights except that of being heard and
of presenting evidence in the trial court.
According to Section 2, "except as provided in
Section 9 of Rule 13, a party declared in
default shall not be entitled to notice of
subsequent proceedings, nor to take part in
the trial." That provision referred to reads: "No
service of papers other than substantially
amended pleadings and final orders or
judgments shall be necessary on a party in
default unless he files a motion to set aside
the order of default, in which event he shall be
entitled to notice of all further proceedings
regardless of whether the order of default is
set aside or not." And pursuant to Section 2 of
Rule 41, "a party who has been declared in
default may likewise appeal from the judgment
rendered against him as contrary to the
evidence or to the law, even if no petition for
relief to set aside the order of default has
been presented by him in accordance with
Rule 38.".
In other words, a defaulted defendant is not
actually thrown out of court. While in a sense
it may be said that by defaulting he leaves
himself at the mercy of the court, the rules see
to it that any judgment against him must be in
accordance with law. The evidence to support
the plaintiff's cause is, of course, presented in
his absence, but the court is not supposed to
admit that which is basically incompetent.
Although the defendant would not be in a
position to object, elementary justice requires
that, only legal evidence should be considered
against him. If the evidence presented should
not be sufficient to justify a judgment for the
plaintiff, the complaint must be dismissed. And
if an unfavorable judgment should be
justifiable, it cannot exceed in amount or be
different in kind from what is prayed for in the
complaint.
Incidentally, these considerations argue
against the present widespread practice of
trial judges, as was done by His Honor in this
case, of delegating to their clerks of court the
reception of the plaintiff's evidence when the
defendant is in default. Such a Practice is
wrong in principle and orientation. It has no
basis in any rule. When a defendant allows
himself to be declared in default, he relies on
the faith that the court would take care that his
rights are not unduly prejudiced. He has a
right to presume that the law and the rules will
still be observed. The proceedings are held in
his forced absence, and it is but fair that the
plaintiff should not be allowed to take
advantage of the situation to win by foul or
illegal means or with inherently incompetent
evidence. Thus, in such instances, there is
need for more attention from the court, which
only the judge himself can provide. The clerk
of court would not be in a position much less
have the authority to act in the premises in the
manner demanded by the rules of fair play
and as contemplated in the law, considering
his comparably limited area of discretion and
his presumably inferior preparation for the
functions of a judge. Besides, the default of
the defendant is no excuse for the court to
renounce the opportunity to closely observe
the demeanor and conduct of the witnesses of
the plaintiff, the better to appreciate their
truthfulness and credibility. We therefore
declare as a matter of judicial policy that there
being no imperative reason for judges to do
otherwise, the practice should be
discontinued.
Another matter of practice worthy of mention
at this point is that it is preferable to leave
enough opportunity open for possible lifting of
the order of default before proceeding with the
reception of the plaintiff's evidence and the
rendition of the decision. "A judgment by
default may amount to a positive and
considerable injustice to the defendant; and
the possibility of such serious consequences
necessitates a careful and liberal examination
of the grounds upon which the defendant may
seek to set it aside." (Moran, supra p. 534,
citing Coombs vs. Santos, 24 Phil. 446; 449-
450.) The expression, therefore, in Section 1
of Rule 18 aforequoted which says that
"thereupon the court shall proceed to receive
the plaintiff's evidence etc." is not to be taken
literally. The gain in time and dispatch should
the court immediately try the case on the very
day of or shortly after the declaration of
default is far outweighed by the inconvenience
and complications involved in having to undo
everything already done in the event the
defendant should justify his omission to
answer on time.
The foregoing observations, as may be noted,
refer to instances where the only defendant or
all the defendants, there being several, are
declared in default. There are additional rules
embodying more considerations of justice and
equity in cases where there are several
defendants against whom a common cause of
action is averred and not all of them answer
opportunely or are in default, particularly in
reference to the power of the court to render
judgment in such situations. Thus, in addition
to the limitation of Section 5 that the judgment
by default should not be more in amount nor
different in kind from the reliefs specifically
sought by plaintiff in his complaint, Section 4
restricts the authority of the court in rendering
judgment in the situations just mentioned as
follows:
Sec. 4. Judgment when some
defendants answer, and other
make difficult. When a
complaint states a common
cause of action against
several defendant some of
whom answer, and the others
fail to do so, the court shall try
the case against all upon the
answer thus filed and render
judgment upon the evidence
presented. The same
proceeding applies when a
common cause of action is
pleaded in a counterclaim,
cross-claim and third-party
claim.
Very aptly does Chief Justice Moran elucidate
on this provision and the controlling
jurisprudence explanatory thereof this wise:
Where a complaint states a
common cause of action
against several defendants
and some appear to defend
the case on the merits while
others make default, the
defense interposed by those
who appear to litigate the case
inures to the benefit of those
who fail to appear, and if the
court finds that a good
defense has been made, all of
the defendants must be
absolved. In other words, the
answer filed by one or some of
the defendants inures to the
benefit of all the others, even
those who have not
seasonably filed their answer.
(Bueno v. Ortiz, L-22978, June
27, 1968, 23 SCRA 1151.)
The proper mode of
proceeding where a complaint
states a common cause of
action against several
defendants, and one of them
makes default, is simply to
enter a formal default order
against him, and proceed with
the cause upon the answers of
the others. The defaulting
defendant merely loses his
standing in court, he not being
entitled to the service of notice
in the cause, nor to appear in
the suit in any way. He cannot
adduce evidence; nor can he
be heard at the final hearing,
(Lim Toco v. Go Fay, 80 Phil.
166.) although he may appeal
the judgment rendered against
him on the merits. (Rule 41,
sec. 2.) If the case is finally
decided in the plaintiff's favor,
a final decree is then entered
against all the defendants; but
if the suit should be decided
against the plaintiff, the action
will be dismissed as to all the
defendants alike. (Velez v.
Ramas, 40 Phil. 787-792;
Frow v. de la Vega, 15 Wal.
552,21 L. Ed. 60.) In other
words the judgment will affect
the defaulting defendants
either favorably or adversely.
(Castro v. Pea, 80 Phil. 488.)
Defaulting defendant may ask
execution if judgment is in his
favor. (Castro v. Pea, supra.)
(Moran, Rules of Court, Vol. 1,
pp. 538-539.)
In Castro vs. Pea, 80 Phil.
488, one of the numerous
cases cited by Moran, this
Court elaborated on the
construction of the same rule
when it sanctioned the
execution, upon motion and
for the benefit of the defendant
in default, of a judgment which
was adverse to the plaintiff.
The Court held:
As above stated, Emilia
Matanguihan, by her counsel,
also was a movant in the
petition for execution Annex 1.
Did she have a right to be
such, having been declared in
default? In Frow vs. De la
Vega, supra, cited as authority
in Velez vs. Ramas, supra, the
Supreme Court of the United
States adopted as ground for
its own decision the following
ruling of the New York Court of
Errors in Clason vs. Morris, 10
Jons., 524:
It would be unreasonable to
hold that because one
defendant had made default,
the plaintiff should have a
decree even against him,
where the court is satisfied
from the proofs offered by the
other, that in fact the plaintiff is
not entitled to a decree. (21
Law, ed., 61.)
The reason is simple: justice
has to be consistent. The
complaint stating a common
cause of action against
several defendants, the
complainant's rights or lack
of them in the controversy
have to be the same, and not
different, as against all the
defendant's although one or
some make default and the
other or others appear, join
issue, and enter into trial. For
instance, in the case of Clason
vs. Morris above cited, the
New York Court of Errors in
effect held that in such a case
if the plaintiff is not entitled to
a decree, he will not be
entitled to it, not only as
against the defendant
appearing and resisting his
action but also as against the
one who made default. In the
case at bar, the cause of
action in the plaintiff's
complaint was common
against the Mayor of Manila,
Emilia Matanguihan, and the
other defendants in Civil Case
No. 1318 of the lower court.
The Court of First Instance in
its judgment found and held
upon the evidence adduced by
the plaintiff and the defendant
mayor that as between said
plaintiff and defendant
Matanguihan the latter was the
one legally entitled to occupy
the stalls; and it decreed,
among other things, that said
plaintiff immediately vacate
them. Paraphrasing the New
York Court of Errors, it would
be unreasonable to hold now
that because Matanguihan
had made default, the said
plaintiff should be declared, as
against her, legally entitled to
the occupancy of the stalls, or
to remain therein, although the
Court of First Instance was so
firmly satisfied, from the proofs
offered by the other defendant,
that the same plaintiff was not
entitled to such occupancy
that it peremptorily ordered her
to vacate the stalls. If in the
cases of Clason vs. Morris,
supra, Frow vs. De la Vega,
supra, and Velez vs. Ramas,
supra the decrees entered
inured to the benefit of the
defaulting defendants, there is
no reason why that entered in
said case No. 1318 should not
be held also to have inured to
the benefit of the defaulting
defendant Matanguihan and
the doctrine in said three
cases plainly implies that there
is nothing in the law governing
default which would prohibit
the court from rendering
judgment favorable to the
defaulting defendant in such
cases. If it inured to her
benefit, it stands to reason that
she had a right to claim that
benefit, for it would not be a
benefit if the supposed
beneficiary were barred from
claiming it; and if the benefit
necessitated the execution of
the decree, she must be
possessed of the right to ask
for the execution thereof as
she did when she, by counsel,
participated in the petition for
execution Annex 1.
Section 7 of Rule 35 would
seem to afford a solid support
to the above considerations. It
provides that when a the PC was in default, so that
complaint states a common
cause of action against
several defendants, some of
whom answer, and the others
make default, 'the court shall
try the case against all upon
the answer thus filed and
render judgment upon the
evidence presented by the
parties in court'. It is obvious
that under this provision the
case is tried jointly not only
against the defendants
answering but also against
those defaulting, and the trial
is held upon the answer filed
by the former; and the
judgment, if adverse, will
prejudice the defaulting
defendants no less than those
who answer. In other words,
the defaulting defendants are
held bound by the answer filed
by their co-defendants and by
the judgment which the court
may render against all of
them. By the same token, and
by all rules of equity and fair
play, if the judgment should
happen to be favorable, totally
or partially, to the answering
defendants, it must
correspondingly benefit the
defaulting ones, for it would
not be just to let the judgment
produce effects as to the
defaulting defendants only
when adverse to them and not
when favorable.
In Bueno vs. Ortiz, 23 SCRA 1151, the Court
applied the provision under discussion in the
following words:
In answer to the charge that
respondent Judge had
committed a grave abuse of
discretion in rendering a
default judgment against the
PC, respondents allege that,
not having filed its answer
within the reglementary period,
it was proper for Patanao to
forthwith present his evidence
and for respondent Judge to
render said judgment. It
should be noted, however, that
in entering the area in
question and seeking to
prevent Patanao from
continuing his logging
operations therein, the PC was
merely executing an order of
 the Director of Forestry and
acting as his agent. Patanao's
cause of action against the
other respondents in Case No.
190, namely, the Director of
Forestry, the District Forester
of Agusan, the Forest Officer
of Bayugan, Agusan, and the
Secretary of Agriculture and
Natural Resources. Pursuant
to Rule 18, Section 4, of the
Rules of Court, 'when a
complaint states a common
cause of action against
several defendants some of
whom answer and the others
fail to do so, the court shall try
the case against all upon the
answer thus filed (by some)
and render judgment upon the
evidence presented.' In other
words, the answer filed by one
or some of the defendants
inures to the benefit of all the
others, even those who have
not seasonably filed their
answer.
Indeed, since the petition in
Case No. 190 sets forth a
common cause of action
against all of the respondents
therein, a decision in favor of
one of them would necessarily
favor the others. In fact, the
main issue, in said case, is
whether Patanao has a timber
license to undertake logging
operations in the disputed
area. It is not possible to
decide such issue in the
negative, insofar as the
Director of Forestry, and to
settle it otherwise, as regards
the PC, which is merely acting
as agent of the Director of
Forestry, and is, therefore, his
alter ego, with respect to the
disputed forest area.
Stated differently, in all instances where a
common cause of action is alleged against
several defendants, some of whom answer
and the others do not, the latter or those in
default acquire a vested right not only to own
the defense interposed in the answer of their
co- defendant or co-defendants not in default
but also to expect a result of the litigation
totally common with them in kind and in
amount whether favorable or unfavorable. The
substantive unity of the plaintiff's cause
against all the defendants is carried through to
its adjective phase as ineluctably demanded
by the homogeneity and indivisibility of justice
itself. Indeed, since the singleness of the
cause of action also inevitably implies that all
the defendants are indispensable parties, the
court's power to act is integral and cannot be
split such that it cannot relieve any of them
and at the same time render judgment against
the rest. Considering the tenor of the section
in question, it is to be assumed that when any
defendant allows himself to be declared in
default knowing that his defendant has
already answered, he does so trusting in the
assurance implicit in the rule that his default is
in essence a mere formality that deprives him
of no more than the right to take part in the
trial and that the court would deem anything
done by or for the answering defendant as
done by or for him. The presumption is that
otherwise he would not -have seen to that he
would not be in default. Of course, he has to
suffer the consequences of whatever the
answering defendant may do or fail to do,
regardless of possible adverse consequences,
but if the complaint has to be dismissed in so
far as the answering defendant is concerned it
becomes his inalienable right that the same
be dismissed also as to him. It does not
matter that the dismissal is upon the evidence
presented by the plaintiff or upon the latter's
mere desistance, for in both contingencies,
the lack of sufficient legal basis must be the
cause. The integrity of the common cause of
action against all the defendants and the
indispensability of all of them in the
proceedings do not permit any possibility of
waiver of the plaintiff's right only as to one or
some of them, without including all of them,
and so, as a rule, withdrawal must be deemed
to be a confession of weakness as to all. This
is not only elementary justice; it also
precludes the concomitant hazard that plaintiff
might resort to the kind of procedural
strategem practiced by private respondent
herein that resulted in totally depriving
petitioners of every opportunity to defend
themselves against her claims which, after all,
as will be seen later in this opinion, the record
does not show to be invulnerable, both in their
factual and legal aspects, taking into
consideration the tenor of the pleadings and
the probative value of the competent evidence
which were before the trial court when it
rendered its assailed decision where all the
defendants are indispensable parties, for
which reason the absence of any of them in
the case would result in the court losing its
competency to act validly, any compromise
that the plaintiff might wish to make with any
of them must, as a matter of correct
procedure, have to await until after the
rendition of the judgment, at which stage the
plaintiff may then treat the matter of its
execution and the satisfaction of his claim as
variably as he might please. Accordingly, in
the case now before Us together with the
dismissal of the complaint against the non-
defaulted defendants, the court should have
ordered also the dismissal thereof as to
petitioners.
Indeed, there is more reason to apply here the
principle of unity and indivisibility of the action
just discussed because all the defendants
here have already joined genuine issues with
plaintiff. Their default was only at the pre-trial.
And as to such absence of petitioners at the
pre-trial, the same could be attributed to the
fact that they might not have considered it
necessary anymore to be present, since their
respective children Lim and Leonardo, with
whom they have common defenses, could
take care of their defenses as well. Anything
that might have had to be done by them at
such pre-trial could have been done for them
by their children, at least initially, specially
because in the light of the pleadings before
the court, the prospects of a compromise must
have appeared to be rather remote. Such
attitude of petitioners is neither uncommon nor
totally unjustified. Under the circumstances, to
declare them immediately and irrevocably in
default was not an absolute necessity.
Practical considerations and reasons of equity
should have moved respondent court to be
more understanding in dealing with the
situation. After all, declaring them in default as
respondent court did not impair their right to a
common fate with their children.
3
Another issue to be resolved in this case is
the question of whether or not herein
petitioners were entitled to notice of plaintiff's
motion to drop their co-defendants Lim and
Leonardo, considering that petitioners had
been previously declared in default. In this
connection, the decisive consideration is that
according to the applicable rule, Section 9,
Rule 13, already quoted above, (1) even after
a defendant has been declared in default,
provided he "files a motion to set aside the
order of default, he shall be entitled to
notice of all further proceedings regardless of
whether the order of default is set aside or
not" and (2) a party in default who has not
filed such a motion to set aside must still be
served with all "substantially amended or
supplemented pleadings." In the instant case,
it cannot be denied that petitioners had all
filed their motion for reconsideration of the
order declaring them in default. Respondents'
own answer to the petition therein makes
reference to the order of April 3, 1973, Annex
8 of said answer, which denied said motion for
reconsideration. On page 3 of petitioners'
memorandum herein this motion is referred to
as "a motion to set aside the order of default."
But as We have not been favored by the
parties with a copy of the said motion, We do
not even know the excuse given for
petitioners' failure to appear at the pre-trial,
and We cannot, therefore, determine whether
or not the motion complied with the
requirements of Section 3 of Rule 18 which
We have held to be controlling in cases of
default for failure to answer on time. (The
Philippine-British Co. Inc. etc. et al. vs. The
Hon. Walfrido de los Angeles etc. et al., 63
SCRA 50.)
We do not, however, have here, as earlier
noted, a case of default for failure to answer
but one for failure to appear at the pre-trial.
We reiterate, in the situation now before Us,
issues have already been joined. In fact,
evidence had been partially offered already at
the pre-trial and more of it at the actual trial
which had already begun with the first witness
of the plaintiff undergoing re-cross-
examination. With these facts in mind and
considering that issues had already been
joined even as regards the defaulted
defendants, it would be requiring the obvious
to pretend that there was still need for an oath
or a verification as to the merits of the defense
of the defaulted defendants in their motion to
reconsider their default. Inasmuch as none of
the parties had asked for a summary
judgment there can be no question that the
issues joined were genuine, and
consequently, the reason for requiring such
oath or verification no longer holds. Besides, it
may also be reiterated that being the parents
of the non-defaulted defendants, petitioners
must have assumed that their presence was
superfluous, particularly because the cause of
action against them as well as their own
defenses are common. Under these
circumstances, the form of the motion by
which the default was sought to be lifted is
secondary and the requirements of Section 3
of Rule 18 need not be strictly complied with,
unlike in cases of default for failure to answer.
We can thus hold as We do hold for the
purposes of the revival of their right to notice
under Section 9 of Rule 13, that petitioner's
motion for reconsideration was in substance
legally adequate regardless of whether or not
it was under oath.
In any event, the dropping of the defendants
Lim and Leonardo from plaintiff's amended
complaint was virtually a second amendment
of plaintiffs complaint. And there can be no
doubt that such amendment was substantial,
for with the elimination thereby of two
defendants allegedly solidarily liable with their
co-defendants, herein petitioners, it had the
effect of increasing proportionally what each
of the remaining defendants, the said
petitioners, would have to answer for jointly
and severally. Accordingly, notice to
petitioners of the plaintiff's motion of October
18, 1974 was legally indispensable under the
rule above-quoted. Consequently, respondent
court had no authority to act on the motion, to
dismiss, pursuant to Section 6 of Rule 15, for
according to Senator Francisco, "(t) he Rules
of Court clearly provide that no motion shall
be acted upon by the Court without the proof
of service of notice thereof, together with a
copy of the motion and other papers
accompanying it, to all parties concerned at
least three days before the hearing thereof,
stating the time and place for the hearing of
the motion. (Rule 26, section 4, 5 and 6, Rules
of Court (now Sec. 15, new Rules). When the
motion does not comply with this requirement,
it is not a motion. It presents no question
which the court could decide. And the Court
acquires no jurisdiction to consider it. (Roman
Catholic Bishop of Lipa vs. Municipality of
Unisan 44 Phil., 866; Manakil vs. Revilla, 42
Phil., 81.) (Laserna vs. Javier, et al., CA-G.R.
No. 7885, April 22, 1955; 21 L.J. 36, citing
Roman Catholic Bishop of Lipa vs.
Municipality of Unisan 44 Phil., 866; Manakil
vs. Revilla, 42 Phil., 81.) (Francisco. The
Revised Rules of Court in the Philippines, pp.
861-862.) Thus, We see again, from a
different angle, why respondent court's order
of dismissal of October 21, 1974 is fatally
ineffective.
4
The foregoing considerations notwithstanding,
it is respondents' position that certiorari is not
the proper remedy of petitioners. It is
contended that inasmuch as said petitioners
have in fact made their appeal already by
filing the required notice of appeal and appeal
bond and a motion for extension to file their
record on appeal, which motion was granted
by respondent court, their only recourse is to
prosecute that appeal. Additionally, it is also
maintained that since petitioners have
expressly withdrawn their motion to quash of
January 4, 1975 impugning the order of
October 28, 1974, they have lost their right to
assail by certiorari the actuations of
respondent court now being questioned,
respondent court not having been given the
opportunity to correct any possible error it
might have committed.
We do not agree. As already shown in the
foregoing discussion, the proceedings in the
court below have gone so far out of hand that
prompt action is needed to restore order in the
entangled situation created by the series of
plainly illegal orders it had issued. The
essential purpose of certiorari is to keep the
proceedings in lower judicial courts and
tribunals within legal bounds, so that due
process and the rule of law may prevail at all
times and arbitrariness, whimsicality and
unfairness which justice abhors may
immediately be stamped out before graver
injury, juridical and otherwise, ensues. While
generally these objectives may well be
attained in an ordinary appeal, it is
undoubtedly the better rule to allow the
special remedy of certiorari at the option of the
party adversely affected, when the irregularity
committed by the trial court is so grave and so
far reaching in its consequences that the long
and cumbersome procedure of appeal will
only further aggravate the situation of the
aggrieved party because other untoward
actuations are likely to materialize as natural
consequences of those already perpetrated. If
the law were otherwise, certiorari would have
no reason at all for being.
No elaborate discussion is needed to show
the urgent need for corrective measures in the
case at bar. Verily, this is one case that calls
for the exercise of the Supreme Court's
inherent power of supervision over all kinds of
judicial actions of lower courts. Private
respondent's procedural technique designed
to disable petitioners to defend themselves
against her claim which appears on the face
of the record itself to be at least highly
controversial seems to have so fascinated
respondent court that none would be
surprised should her pending motion for
immediate execution of the impugned
judgment receive similar ready sanction as
her previous motions which turned the
proceedings into a one-sided affair. The
stakes here are high. Not only is the subject
matter considerably substantial; there is the
more important aspect that not only the spirit
and intent of the rules but even the basic
rudiments of fair play have been disregarded.
For the Court to leave unrestrained the
obvious tendency of the proceedings below
would be nothing short of wittingly condoning
inequity and injustice resulting from erroneous
construction and unwarranted application of
procedural rules.
5 so doing We would be reviewing the case as
The sum and total of all the foregoing
disquisitions is that the decision here in
question is legally anomalous. It is predicated
on two fatal malactuations of respondent court
namely (1) the dismissal of the complaint
against the non-defaulted defendants Lim and
Leonardo and (2) the ex-parte reception of the
evidence of the plaintiff by the clerk of court,
the subsequent using of the same as basis for
its judgment and the rendition of such
judgment.
For at least three reasons which We have
already fully discussed above, the order of
dismissal of October 21, 1974 is unworthy of
Our sanction: (1) there was no timely notice of
the motion therefor to the non-defaulted
defendants, aside from there being no notice
at all to herein petitioners; (2) the common
answer of the defendants, including the non-
defaulted, contained a compulsory
counterclaim incapable of being determined in
an independent action; and (3) the immediate
effect of such dismissal was the removal of
the two non-defaulted defendants as parties,
and inasmuch as they are both indispensable
parties in the case, the court consequently lost
the" sine qua non of the exercise of judicial
power", per Borlasa vs. Polistico, supra. This
is not to mention anymore the irregular
delegation to the clerk of court of the function
of receiving plaintiff's evidence. And as
regards the ex-parte reception of plaintiff's
evidence and subsequent rendition of the
judgment by default based thereon, We have
seen that it was violative of the right of the
petitioners, under the applicable rules and
principles on default, to a common and single
fate with their non-defaulted co-defendants.
And We are not yet referring, as We shall do
this anon to the numerous reversible errors in
the decision itself.
It is to be noted, however, that the above-
indicated two fundamental flaws in respondent
court's actuations do not call for a common
corrective remedy. We cannot simply rule that
all the impugned proceedings are null and
void and should be set aside, without being
faced with the insurmountable obstacle that by
against the two non-defaulted defendants who
are not before Us not being parties hereto.
Upon the other hand, for Us to hold that the
order of dismissal should be allowed to stand,
as contended by respondents themselves who
insist that the same is already final, not only
because the period for its finality has long
passed but also because allegedly, albeit not
very accurately, said 'non-defaulted
defendants unsuccessfully tried to have it set
aside by the Court of Appeals whose decision
on their petition is also already final, We would
have to disregard whatever evidence had
been presented by the plaintiff against them
and, of course, the findings of respondent
court based thereon which, as the assailed
decision shows, are adverse to them. In other
words, whichever of the two apparent
remedies the Court chooses, it would
necessarily entail some kind of possible
juridical imperfection. Speaking of their
respective practical or pragmatic effects, to
annul the dismissal would inevitably prejudice
the rights of the non-defaulted defendants
whom We have not heard and who even
respondents would not wish to have anything
anymore to do with the case. On the other
hand, to include petitioners in the dismissal
would naturally set at naught every effort
private respondent has made to establish or
prove her case thru means sanctioned by
respondent court. In short, We are confronted
with a legal para-dilemma. But one thing is
certain this difficult situations has been
brought about by none other than private
respondent who has quite cynically resorted to
procedural maneuvers without realizing that
the technicalities of the adjective law, even
when apparently accurate from the literal point
of view, cannot prevail over the imperatives of
the substantive law and of equity that always
underlie them and which have to be inevitably
considered in the construction of the pertinent
procedural rules.
All things considered, after careful and mature
deliberation, the Court has arrived at the
conclusion that as between the two possible
alternatives just stated, it would only be fair,
equitable and proper to uphold the position of
petitioners. In other words, We rule that the
order of dismissal of October 21, 1974 is in
law a dismissal of the whole case of the
plaintiff, including as to petitioners herein.
Consequently, all proceedings held by
respondent court subsequent thereto including
and principally its decision of December 20,
1974 are illegal and should be set aside.
This conclusion is fully justified by the
following considerations of equity:
1. It is very clear to Us that the procedural
maneuver resorted to by private respondent in
securing the decision in her favor was ill-
conceived. It was characterized by that which
every principle of law and equity disdains
taking unfair advantage of the rules of
procedure in order to unduly deprive the other
party of full opportunity to defend his cause.
The idea of "dropping" the non-defaulted
defendants with the end in view of completely
incapacitating their co-defendants from
making any defense, without considering that
all of them are indispensable parties to a
common cause of action to which they have
countered with a common defense readily
connotes an intent to secure a one-sided
decision, even improperly. And when, in this
connection, the obvious weakness of plaintiff's
evidence is taken into account, one easily
understands why such tactics had to be
availed of. We cannot directly or indirectly give
Our assent to the commission of unfairness
and inequity in the application of the rules of
procedure, particularly when the propriety of
reliance thereon is not beyond controversy.
2. The theories of remedial law pursued by
private respondents, although approved by
His Honor, run counter to such basic
principles in the rules on default and such
elementary rules on dismissal of actions and
notice of motions that no trial court should be
unaware of or should be mistaken in applying.
We are at a loss as to why His Honor failed to
see through counsel's inequitous strategy,
when the provisions (1) on the three-day rule
on notice of motions, Section 4 of Rule 15, (2)
against dismissal of actions on motion of
plaintiff when there is a compulsory
counterclaim, Section 2, Rule 17, (3) against
permitting the absence of indispensable
parties, Section 7, Rule 3, (4) on service of
papers upon defendants in default when there
are substantial amendments to pleadings,
Section 9, Rule 13, and (5) on the unity and
integrity of the fate of defendants in default
with those not in default where the cause of
action against them and their own defenses
are common, Section 4, Rule 18, are so plain
and the jurisprudence declaratory of their
intent and proper construction are so readily
comprehensible that any error as to their
application would be unusual in any
competent trial court.
3. After all, all the malactuations of respondent
court are traceable to the initiative of private
respondent and/or her counsel. She cannot,
therefore, complain that she is being made to
unjustifiably suffer the consequences of what
We have found to be erroneous orders of
respondent court. It is only fair that she should
not be allowed to benefit from her own
frustrated objective of securing a one-sided
decision.
4. More importantly, We do not hesitate to
hold that on the basis of its own recitals, the
decision in question cannot stand close
scrutiny. What is more, the very
considerations contained therein reveal
convincingly the inherent weakness of the
cause of the plaintiff. To be sure, We have
been giving serious thought to the idea of
merely returning this case for a resumption of
trial by setting aside the order of dismissal of
October 21, 1974, with all its attendant
difficulties on account of its adverse effects on
parties who have not been heard, but upon
closer study of the pleadings and the decision
and other circumstances extant in the record
before Us, We are now persuaded that such a
course of action would only lead to more legal
complications incident to attempts on the part
of the parties concerned to desperately
squeeze themselves out of a bad situation.
Anyway, We feel confident that by and large,
there is enough basis here and now for Us to
rule out the claim of the plaintiff.
Even a mere superficial reading of the
decision would immediately reveal that it is
littered on its face with deficiencies and
imperfections which would have had no
reason for being were there less haste and
more circumspection in rendering the same.
Recklessness in jumping to unwarranted
conclusions, both factual and legal, is at once
evident in its findings relative precisely to the
main bases themselves of the reliefs granted.
It is apparent therein that no effort has been
made to avoid glaring inconsistencies. Where
references are made to codal provisions and
jurisprudence, inaccuracy and inapplicability
are at once manifest. It hardly commends
itself as a deliberate and consciencious
adjudication of a litigation which, considering
the substantial value of the subject matter it
involves and the unprecedented procedure
that was followed by respondent's counsel,
calls for greater attention and skill than the
general run of cases would.
Inter alia, the following features of the decision
make it highly improbable that if We took
another course of action, private respondent
would still be able to make out any case
against petitioners, not to speak of their co-
defendants who have already been
exonerated by respondent herself thru her
motion to dismiss:
1. According to His Honor's own statement of
plaintiff's case, "she is the widow of the late
Tee Hoon Po Chuan (Po Chuan, for short)
who was then one of the partners in the
commercial partnership, Glory Commercial
Co. with defendants Antonio Lim Tanhu (Lim
Tanhu, for short) and Alfonso Leonardo Ng
Sua (Ng Sua, for short) as co-partners; that
after the death of her husband on March 11,
1966 she is entitled to share not only in the
capital and profits of the partnership but also
in the other assets, both real and personal,
acquired by the partnership with funds of the
latter during its lifetime."
Relatedly, in the latter part of the decision, the
findings are to the following effect: .
That the herein plaintiff Tan
Put and her late husband Po
Chuan married at the
Philippine Independent Church
of Cebu City on December,
20, 1949; that Po Chuan died
on March 11, 1966; that the
plaintiff and the late Po Chuan
were childless but the former
has a foster son Antonio
Nuez whom she has reared
since his birth with whom she
lives up to the present; that
prior to the marriage of the
plaintiff to Po Chuan the latter
was already managing the
partnership Glory Commercial
Co. then engaged in a little
business in hardware at
Manalili St., Cebu City; that
prior to and just after the
marriage of the plaintiff to Po
Chuan she was engaged in
the drugstore business; that
not long after her marriage,
upon the suggestion of Po
Chuan the plaintiff sold her
drugstore for P125,000.00
which amount she gave to her
husband in the presence of
defendant Lim Tanhu and was
invested in the partnership
Glory Commercial Co.
sometime in 1950; that after
the investment of the above-
stated amount in the
partnership its business
flourished and it embarked in
the import business and also
engaged in the wholesale and
retail trade of cement and GI
sheets and under huge profits;
xxx xxx xxx
That the late Po Chuan was
the one who actively managed
the business of the partnership
Glory Commercial Co. he was
the one who made the final
decisions and approved the
appointments of new
personnel who were taken in
by the partnership; that the
late Po Chuan and defendants
Lim Tanhu and Ng Sua are
brothers, the latter two (2)
being the elder brothers of the
former; that defendants Lim
Tanhu and Ng Sua are both
naturalized Filipino citizens
whereas the late Po Chuan
until the time of his death was
a Chinese citizen; that the
three (3) brothers were
partners in the Glory
Commercial Co. but Po Chuan
was practically the owner of
the partnership having the
controlling interest; that
defendants Lim Tanhu and Ng
Sua were partners in name but
they were mere employees of
Po Chuan .... (Pp. 89-91,
Record.)
How did His Honor arrive at these
conclusions? To start with, it is not clear in the
decision whether or not in making its findings
of fact the court took into account the
allegations in the pleadings of the parties and
whatever might have transpired at the pre-
trial. All that We can gather in this respect is
that references are made therein to pre-trial
exhibits and to Annex A of the answer of the
defendants to plaintiff's amended complaint.
Indeed, it was incumbent upon the court to
consider not only the evidence formally
offered at the trial but also the admissions,
expressed or implied, in the pleadings, as well
as whatever might have been placed before it
or brought to its attention during the pre-trial.
In this connection, it is to be regretted that
none of the parties has thought it proper to
give Us an idea of what took place at the pre-
trial of the present case and what are
contained in the pre-trial order, if any was
issued pursuant to Section 4 of Rule 20.
The fundamental purpose of pre-trial, aside
from affording the parties every opportunity to
compromise or settle their differences, is for
the court to be apprised of the unsettled
issues between the parties and of their
respective evidence relative thereto, to the
end that it may take corresponding measures
that would abbreviate the trial as much as
possible and the judge may be able to
ascertain the facts with the least observance
of technical rules. In other words whatever is
said or done by the parties or their counsel at
the pre- trial serves to put the judge on notice
of their respective basic positions, in order
that in appropriate cases he may, if necessary
in the interest of justice and a more accurate
determination of the facts, make inquiries
about or require clarifications of matters taken
up at the pre-trial, before finally resolving any
issue of fact or of law. In brief, the pre-trial
constitutes part and parcel of the proceedings,
and hence, matters dealt with therein may not
be disregarded in the process of decision
making. Otherwise, the real essence of
compulsory pre-trial would be insignificant and
worthless.
Now, applying these postulates to the findings
of respondent court just quoted, it will be
observed that the court's conclusion about the
supposed marriage of plaintiff to the deceased
Tee Hoon Lim Po Chuan is contrary to the
weight of the evidence brought before it during
the trial and the pre-trial.
Under Article 55 of the Civil Code, the
declaration of the contracting parties that they
take each other as husband and wife "shall be
set forth in an instrument" signed by the
parties as well as by their witnesses and the
person solemnizing the marriage. Accordingly,
the primary evidence of a marriage must be
an authentic copy of the marriage contract.
While a marriage may also be proved by other
competent evidence, the absence of the
contract must first be satisfactorily explained.
Surely, the certification of the person who
allegedly solemnized a marriage is not
admissible evidence of such marriage unless
proof of loss of the contract or of any other
satisfactory reason for its non-production is
first presented to the court. In the case at bar,
the purported certification issued by a Mons.
Jose M. Recoleto, Bishop, Philippine
Independent Church, Cebu City, is not,
therefore, competent evidence, there being
absolutely no showing as to unavailability of
the marriage contract and, indeed, as to the
authenticity of the signature of said certifier,
the jurat allegedly signed by a second
assistant provincial fiscal not being authorized
by law, since it is not part of the functions of
his office. Besides, inasmuch as the bishop
did not testify, the same is hearsay.
As regards the testimony of plaintiff herself on
the same point and that of her witness Antonio
Nuez, there can be no question that they are
both self-serving and of very little evidentiary
value, it having been disclosed at the trial that
plaintiff has already assigned all her rights in
this case to said Nuez, thereby making him
the real party in interest here and, therefore,
naturally as biased as herself. Besides, in the
portion of the testimony of Nuez copied in
Annex C of petitioner's memorandum, it
appears admitted that he was born only on
March 25, 1942, which means that he was
less than eight years old at the supposed time
of the alleged marriage. If for this reason
alone, it is extremely doubtful if he could have
been sufficiently aware of such event as to be
competent to testify about it.
Incidentally, another Annex C of the same
memorandum purports to be the certificate of
birth of one Antonio T. Uy supposed to have
been born on March 23, 1937 at Centro
Misamis, Misamis Occidental, the son of one
Uy Bien, father, and Tan Put, mother.
Significantly, respondents have not made any
adverse comment on this document. It is more
likely, therefore, that the witness is really the
son of plaintiff by her husband Uy Kim Beng.
But she testified she was childless. So which
is which? In any event, if on the strength of
this document, Nuez is actually the legitimate
son of Tan Put and not her adopted son, he
would have been but 13 years old in 1949, the
year of her alleged marriage to Po Chuan, and
even then, considering such age, his
testimony in regard thereto would still be
suspect.
Now, as against such flimsy evidence of
plaintiff, the court had before it, two
documents of great weight belying the
pretended marriage. We refer to (1) Exhibit
LL, the income tax return of the deceased Tee
Hoon Lim Po Chuan indicating that the name
of his wife was Ang Sick Tin and (2) the
quitclaim, Annex A of the answer, wherein
plaintiff Tan Put stated that she had been
living with the deceased without benefit of
marriage and that she was his "common-law
wife". Surely, these two documents are far
more reliable than all the evidence of the
plaintiff put together.
Of course, Exhibit LL is what might be termed
as pre-trial evidence. But it is evidence offered
to the judge himself, not to the clerk of court,
and should have at least moved him to ask
plaintiff to explain if not rebut it before jumping
to the conclusion regarding her alleged
marriage to the deceased, Po Chuan. And in
regard to the quitclaim containing the
admission of a common-law relationship only,
it is to be observed that His Honor found that
"defendants Lim Tanhu and Ng Sua had the
plaintiff execute a quitclaim on November 29,
1967 (Annex "A", Answer) where they gave
plaintiff the amount of P25,000 as her share in
the capital and profits of the business of Glory
Commercial Co. which was engaged in the
hardware business", without making mention
of any evidence of fraud and
misrepresentation in its execution, thereby
indicating either that no evidence to prove that
allegation of the plaintiff had been presented
by her or that whatever evidence was actually
offered did not produce persuasion upon the
court. Stated differently, since the existence of
the quitclaim has been duly established
without any circumstance to detract from its
legal import, the court should have held that
plaintiff was bound by her admission therein
that she was the common-law wife only of Po
Chuan and what is more, that she had already
renounced for valuable consideration
whatever claim she might have relative to the
partnership Glory Commercial Co.
And when it is borne in mind that in addition to
all these considerations, there are mentioned
and discussed in the memorandum of
petitioners (1) the certification of the Local
Civil Registrar of Cebu City and (2) a similar
certification of the Apostolic Prefect of the
Philippine Independent Church, Parish of Sto.
Nio, Cebu City, that their respective official
records corresponding to December 1949 to
December 1950 do not show any marriage
between Tee Hoon Lim Po Chuan and Tan
Put, neither of which certifications have been
impugned by respondent until now, it stands
to reason that plaintiff's claim of marriage is
really unfounded. Withal, there is still another
document, also mentioned and discussed in
the same memorandum and unimpugned by
respondents, a written agreement executed in
Chinese, but purportedly translated into
English by the Chinese Consul of Cebu,
between Tan Put and Tee Hoon Lim Po
Chuan to the following effect:
CONSULATE OF THE
REPUBLIC OF CHINA Cebu
City, Philippines
TRANSLATION
This is to certify that 1, Miss
Tan Ki Eng Alias Tan Put,
have lived with Mr. Lim Po
Chuan alias TeeHoon since
1949 but it recently occurs that
we are incompatible with each
other and are not in the
position to keep living together
permanently. With the mutual
concurrence, we decided to
terminate the existing
relationship of common law-
marriage and promised not to
interfere each other's affairs
from now on. The Forty
Thousand Pesos (P40,000.00)
has been given to me by Mr.
Lim Po Chuan for my
subsistence.
Witnesses:
Mr. Lim Beng Guan Mr. Huang
Sing Se
Signed on the 10 day of the
7th month of the 54th year of
the Republic of China
(corresponding to the year
1965).
(SGD) TAN KI ENG
Verified from the records.
JORGE TABAR (Pp. 283-284,
Record.)
Indeed, not only does this document prove
that plaintiff's relation to the deceased was
that of a common-law wife but that they had
settled their property interests with the
payment to her of P40,000.
In the light of all these circumstances, We find
no alternative but to hold that plaintiff Tan
Put's allegation that she is the widow of Tee
Hoon Lim Po Chuan has not been
satisfactorily established and that, on the
contrary, the evidence on record convincingly
shows that her relation with said deceased
was that of a common-law wife and
furthermore, that all her claims against the
company and its surviving partners as well as
those against the estate of the deceased have
already been settled and paid. We take
judicial notice of the fact that the respective
counsel who assisted the parties in the
quitclaim, Attys. H. Hermosisima and Natalio
Castillo, are members in good standing of the
Philippine Bar, with the particularity that the
latter has been a member of the Cabinet and
of the House of Representatives of the
Philippines, hence, absent any credible proof
that they had allowed themselves to be parties
to a fraudulent document His Honor did right
in recognizing its existence, albeit erring in not
giving due legal significance to its contents.
2. If, as We have seen, plaintiff's evidence of
her alleged status as legitimate wife of Po
Chuan is not only unconvincing but has been
actually overcome by the more competent and
weighty evidence in favor of the defendants,
her attempt to substantiate her main cause of
action that defendants Lim Tanhu and Ng Sua
have defrauded the partnership Glory
Commercial Co. and converted its properties
to themselves is even more dismal. From the
very evidence summarized by His Honor in
the decision in question, it is clear that not an
iota of reliable proof exists of such alleged
misdeeds.
Of course, the existence of the partnership
has not been denied, it is actually admitted
impliedly in defendants' affirmative defense
that Po Chuan's share had already been duly
settled with and paid to both the plaintiff and
his legitimate family. But the evidence as to
the actual participation of the defendants Lim
Tanhu and Ng Sua in the operation of the
business that could have enabled them to
make the extractions of funds alleged by
plaintiff is at best confusing and at certain
points manifestly inconsistent.
In her amended complaint, plaintiff repeatedly
alleged that as widow of Po Chuan she is
entitled to / 3 share of the assets and properties
of the partnership. In fact, her prayer in said
complaint is, among others, for the delivery to
her of such / 3 share. His Honor's statement of
the case as well as his findings and judgment
are all to that same effect. But what did she
actually try to prove at the ex- parte hearing?
According to the decision, plaintiff had shown
that she had money of her own when she
"married" Po Chuan and "that prior to and just
after the marriage of the plaintiff to Po Chuan,
she was engaged in the drugstore business;
that not long after her marriage, upon the
suggestion of Po Chuan, the plaintiff sold her
drugstore for P125,000 which amount she
gave to her husband in the presence of Tanhu
and was invested in the partnership Glory
Commercial Co. sometime in 1950; that after
the investment of the above-stated amount in
the partnership, its business flourished and it
embarked in the import business and also
engaged in the wholesale and retail trade of
cement and GI sheets and under (sic) huge
profits." (pp. 25-26, Annex L, petition.)
To begin with, this theory of her having
contributed of P125,000 to the capital of the
partnership by reason of which the business
flourished and amassed all the millions
referred to in the decision has not been
alleged in the complaint, and inasmuch as
what was being rendered was a judgment by
default, such theory should not have been
allowed to be the subject of any evidence. But
inasmuch as it was the clerk of court who
received the evidence, it is understandable
that he failed to observe the rule. Then, on the
other hand, if it was her capital that made the
partnership flourish, why would she claim to
be entitled to only to / 3 of its assets and
profits? Under her theory found proven by
respondent court, she was actually the owner of
everything, particularly because His Honor also
found "that defendants Lim Tanhu and Ng Sua
were partners in the name but they were
employees of Po Chuan that defendants Lim
Tanhu and Ng Sua had no means of livelihood
at the time of their employment with the Glory
Commercial Co. under the management of the
late Po Chuan except their salaries therefrom;
..." (p. 27, id.) Why then does she claim only
/ 3 share? Is this an indication of her generosity
towards defendants or of a concocted cause of
action existing only in her confused imagination
engendered by the death of her common-law
husband with whom she had settled her
common-law claim for recompense of her
services as common law wife for less than what
she must have known would go to his legitimate
wife and children?
Actually, as may be noted from the decision
itself, the trial court was confused as to the
participation of defendants Lim Tanhu and Ng
Sua in Glory Commercial Co. At one point,
they were deemed partners, at another point
mere employees and then elsewhere as
partners-employees, a newly found concept,
to be sure, in the law on partnership. And the
confusion is worse comfounded in the
judgment which allows these "partners in
name" and "partners-employees" or
employees who had no means of livelihood
and who must not have contributed any
capital in the business, "as Po Chuan was
practically the owner of the partnership having
the controlling interest", / 3 each of the huge
assets and profits of the partnership.
Incidentally, it may be observed at this juncture
that the decision has made Po Chuan play the
inconsistent role of being "practically the owner"
but at the same time getting his capital from the
P125,000 given to him by plaintiff and from
which capital the business allegedly "flourished."
Anent the allegation of plaintiff that the
properties shown by her exhibits to be in the
names of defendants Lim Tanhu and Ng Sua
were bought by them with partnership funds,
His Honor confirmed the same by finding and
holding that "it is likewise clear that real
properties together with the improvements in
the names of defendants Lim Tanhu and Ng
Sua were acquired with partnership funds as
these defendants were only partners-
employees of deceased Po Chuan in the
Glory Commercial Co. until the time of his
death on March 11, 1966." (p. 30, id.) It Is Our
considered view, however, that this conclusion
of His Honor is based on nothing but pure
unwarranted conjecture. Nowhere is it shown
in the decision how said defendants could
have extracted money from the partnership in
the fraudulent and illegal manner pretended
by plaintiff. Neither in the testimony of Nuez
nor in that of plaintiff, as these are
summarized in the decision, can there be
found any single act of extraction of
partnership funds committed by any of said
defendants. That the partnership might have
grown into a multi-million enterprise and that
the properties described in the exhibits
enumerated in the decision are not in the
names of Po Chuan, who was Chinese, but of
the defendants who are Filipinos, do not
necessarily prove that Po Chuan had not
gotten his share of the profits of the business
or that the properties in the names of the
defendants were bought with money of the
partnership. In this connection, it is decisively
important to consider that on the basis of the
concordant and mutually cumulative
testimonies of plaintiff and Nuez, respondent
court found very explicitly that, and We
reiterate:
xxx xxx xxx
That the late Po Chuan was
the one who actively managed
the business of the partnership
Glory Commercial Co. he was
the one who made the final
decisions and approved the
appointments of new
Personnel who were taken in
by the partnership; that the
late Po Chuan and defendants
Lim Tanhu and Ng Sua are
brothers, the latter to (2) being
the elder brothers of the
former; that defendants Lim
Tanhu and Ng Sua are both
naturalized Filipino citizens
whereas the late Po Chuan
until the time of his death was
a Chinese citizen; that the
three (3) brothers were
partners in the Glory
Commercial Co. but Po Chuan
was practically the owner of
the partnership having the
controlling interest; that
defendants Lim Tanhu and Ng
Sua were partners in name but
they were mere employees of
Po Chuan; .... (Pp. 90-91,
Record.)
If Po Chuan was in control of the affairs and
the running of the partnership, how could the
defendants have defrauded him of such huge
amounts as plaintiff had made his Honor
believe? Upon the other hand, since Po
Chuan was in control of the affairs of the
partnership, the more logical inference is that
if defendants had obtained any portion of the
funds of the partnership for themselves, it
must have been with the knowledge and
consent of Po Chuan, for which reason no
accounting could be demanded from them
therefor, considering that Article 1807 of the
Civil Code refers only to what is taken by a
partner without the consent of the other
partner or partners. Incidentally again, this
theory about Po Chuan having been actively
managing the partnership up to his death is a
substantial deviation from the allegation in the
amended complaint to the effect that
"defendants Antonio Lim Tanhu, Alfonso
Leonardo Ng Sua, Lim Teck Chuan and Eng
Chong Leonardo, through fraud and
machination, took actual and active
management of the partnership and although
Tee Hoon Lim Po Chuan was the manager of
Glory Commercial Co., defendants managed
to use the funds of the partnership to
purchase lands and buildings etc. (Par. 4, p. 2
of amended complaint, Annex B of petition)
and should not have been permitted to be
proven by the hearing officer, who naturally
did not know any better.
Moreover, it is very significant that according
to the very tax declarations and land titles
listed in the decision, most if not all of the
properties supposed to have been acquired by
the defendants Lim Tanhu and Ng Sua with
funds of the partnership appear to have been
transferred to their names only in 1969 or
later, that is, long after the partnership had
been automatically dissolved as a result of the
death of Po Chuan. Accordingly, defendants
have no obligation to account to anyone for
such acquisitions in the absence of clear proof
that they had violated the trust of Po Chuan
during the existence of the partnership. (See
Hanlon vs. Hansserman and. Beam, 40 Phil.
796.)
There are other particulars which should have
caused His Honor to readily disbelieve
plaintiffs' pretensions. Nuez testified that "for
about 18 years he was in charge of the GI
sheets and sometimes attended to the
imported items of the business of Glory
Commercial Co." Counting 18 years back
from 1965 or 1966 would take Us to 1947 or
1948. Since according to Exhibit LL, the
baptismal certificate produced by the same
witness as his birth certificate, shows he was
born in March, 1942, how could he have
started managing Glory Commercial Co. in
1949 when he must have been barely six or
seven years old? It should not have escaped
His Honor's attention that the photographs
showing the premises of Philippine Metal
Industries after its organization "a year or two
after the establishment of Cebu Can Factory
in 1957 or 1958" must have been taken after
1959. How could Nuez have been only 13
years old then as claimed by him to have
been his age in those photographs when
according to his "birth certificate", he was born
in 1942? His Honor should not have
overlooked that according to the same
witness, defendant Ng Sua was living in
Bantayan until he was directed to return to
Cebu after the fishing business thereat
floundered, whereas all that the witness knew
about defendant Lim Teck Chuan's arrival
from Hongkong and the expenditure of
partnership money for him were only told to
him allegedly by Po Chuan, which testimonies
are veritably exculpatory as to Ng Sua and
hearsay as to Lim Teck Chuan. Neither should
His Honor have failed to note that according to
plaintiff herself, "Lim Tanhu was employed by
her husband although he did not go there
always being a mere employee of Glory
Commercial Co." (p. 22, Annex the decision.)
The decision is rather emphatic in that Lim
Tanhu and Ng Sua had no known income
except their salaries. Actually, it is not stated,
however, from what evidence such conclusion
was derived in so far as Ng Sua is concerned.
On the other hand, with respect to Lim Tanhu,
the decision itself states that according to
Exhibit NN-Pre trial, in the supposed income
tax return of Lim Tanhu for 1964, he had an
income of P4,800 as salary from Philippine
Metal Industries alone and had a total assess
sable net income of P23,920.77 that year for
which he paid a tax of P4,656.00. (p. 14.
Annex L, id.) And per Exhibit GG-Pretrial in
the year, he had a net income of P32,000 for
which be paid a tax of P3,512.40. (id.) As
early as 1962, "his fishing business in
Madridejos Cebu was making money, and he
reported "a net gain from operation (in) the
amount of P865.64" (id., per Exhibit VV-Pre-
trial.) From what then did his Honor gather the
conclusion that all the properties registered in
his name have come from funds malversed
from the partnership?
It is rather unusual that His Honor delved into
financial statements and books of Glory
Commercial Co. without the aid of any
accountant or without the same being
explained by any witness who had prepared
them or who has knowledge of the entries
therein. This must be the reason why there
are apparent inconsistencies and inaccuracies
in the conclusions His Honor made out of
them. In Exhibit SS-Pre-trial, the reported total
assets of the company amounted to
P2,328,460.27 as of December, 1965, and
yet, Exhibit TT-Pre-trial, according to His
Honor, showed that the total value of goods
available as of the same date was
P11,166,327.62. On the other hand, per
Exhibit XX-Pre-trial, the supposed balance
sheet of the company for 1966, "the value of
inventoried merchandise, both local and
imported", as found by His Honor, was
P584,034.38. Again, as of December 31,
1966, the value of the company's goods
available for sale was P5,524,050.87, per
Exhibit YY and YY-Pre-trial. Then, per Exhibit
II-3-Pre-trial, the supposed Book of Account,
whatever that is, of the company showed its
"cash analysis" was P12,223,182.55. We do
not hesitate to make the observation that His
Honor, unless he is a certified public
accountant, was hardly qualified to read such
exhibits and draw any definite conclusions
therefrom, without risk of erring and
committing an injustice. In any event, there is
no comprehensible explanation in the decision
of the conclusion of His Honor that there were
P12,223,182.55 cash money defendants have
to account for, particularly when it can be very
clearly seen in Exhibits 11-4, 11-4- A, 11-5
and 11-6-Pre-trial, Glory Commercial Co. had
accounts payable as of December 31, 1965 in
the amount of P4,801,321.17. (p. 15, id.)
Under the circumstances, We are not
prepared to permit anyone to predicate any
claim or right from respondent court's unaided
exercise of accounting knowledge.
Additionally, We note that the decision has not
made any finding regarding the allegation in
the amended complaint that a corporation
denominated Glory Commercial Co., Inc. was
organized after the death of Po Chuan with
capital from the funds of the partnership. We
note also that there is absolutely no finding
made as to how the defendants Dy Ochay and
Co Oyo could in any way be accountable to
plaintiff, just because they happen to be the
wives of Lim Tanhu and Ng Sua, respectively.
We further note that while His Honor has
ordered defendants to deliver or pay jointly
and severally to the plaintiff P4,074,394.18 or
/ 3 of the P12,223,182.55, the supposed cash
belonging to the partnership as of December 31,
1965, in the same breath, they have also been
sentenced to partition and give / 3 share of the
properties enumerated in the dispositive portion
of the decision, which seemingly are the very
properties allegedly purchased from the funds of
the partnership which would naturally include the
P12,223,182.55 defendants have to account for.
Besides, assuming there has not yet been any
liquidation of the partnership, contrary to the
allegation of the defendants, then Glory
Commercial Co. would have the status of a
partnership in liquidation and the only right
plaintiff could have would be to what might result
after such liquidation to belong to the deceased
partner, and before this is finished, it is
impossible to determine, what rights or interests,
if any, the deceased had (Bearneza vs. Dequilla
43 Phil. 237). In other words, no specific
amounts or properties may be adjudicated to the
heir or legal representative of the deceased
partner without the liquidation being first
terminated.
Indeed, only time and the fear that this
decision would be much more extended than
it is already prevent us from further pointing
out the inexplicable deficiencies and
imperfections of the decision in question. After
all, what have been discussed should be more
than sufficient to support Our conclusion that
not only must said decision be set aside but
also that the action of the plaintiff must be
totally dismissed, and, were it not seemingly
futile and productive of other legal
complications, that plaintiff is liable on
defendants' counterclaims. Resolution of the
other issues raised by the parties albeit
important and perhaps pivotal has likewise
become superfluous.

IN VIEW OF ALL THE FOREGOING, the

petition is granted. All proceedings held in
respondent court in its Civil Case No. 12328
subsequent to the order of dismissal of
October 21, 1974 are hereby annulled and set
aside, particularly the ex-parte proceedings
against petitioners and the decision on
December 20, 1974. Respondent court is
hereby ordered to enter an order extending
the effects of its order of dismissal of the
action dated October 21, 1974 to herein
petitioners Antonio Lim Tanhu, Dy Ochay,
Alfonso Leonardo Ng Sua and Co Oyo. And
respondent court is hereby permanently
enjoined from taking any further action in said
civil case gave and except as herein
indicated. Costs against private respondent.

Makalintal, C.J., Fernando, Aquino and

Concepcion Jr., JJ., concur.
33.
G.R. No. L-5837 May 31, 1954
CRISTOBAL BONNEVIE, ET AL., plaintiffs-
appellants,
vs.
JAIME HERNANDEZ, defendant-appellee.
Ojeda and Vilgera for appellants.
Cea and Zurbano for appellee.
REYES, J.:
This is an action for the recovery of the sum of
P115,312.50, with interests, as plaintiffs'
alleged share in the profits of a partnership.
It appears that prior to January, 1947,
plaintiffs with other associates formed a
syndicate or secret partnership for the
purpose of acquiring the plants, franchises
and other properties of the Manila Electric Co.
hereinafter called the Meralco in the
provinces of Camarines Sur, Albay, and
Sorsogon, with the idea of continuing that
company's business in that region. No formal
articles were drawn for it was the purpose of
the members to incorporate once the deal had
been consummated. But in the meantime they
elected Pedro Serranzana and David Serrano
general manager and secretary-treasurer,
respectively, of the partnership.
Negotiation for the purchase was
commenced, but as it made no headway,
defendant was taken in as a member of the
partnership so that he could push the deal
through, and to that end he was given the
necessary power of attorney. Using
partnership funds, defendant was able to buy
the Meralco properties for P122,000, paying
P40,000 upon the signing of the deed of sale
and agreeing to pay the balance in two equal
installments, that is, P41,000 on or before July
31, 1947, and another P41,000 on or before
January 31, 1948, with interest at 6 per cent
per annum and with a penalty clause which
reads:
(6) That in case the VENDEE fails to
make the payment or payments of the
balance due or any part thereof as
herein provided, this contract shall, at
the option of the VENDOR, be
annuled and, in such an event, all
payments made by the VENDEE to
the VENDOR by virtue of this contract
shall be forfeited and retained by the
VENDOR in full satisfaction as the
liquidated damages sustained by said
VENDOR; and the said VENDOR
shall have the right to forthwith reenter
and take possession of the premises,
properties and rights which are the
subject-matter of this contract.
Although defendant was the one named
vendee in the deed of sale, there is no
question that the transaction was in penalty
made for the partnership so that the latter
assumed control of the business the day
following the sale.
About the latter half of the following month the
members of the partnership proceeded with
the formation of the proposed corporation,
apportioning among themselves its shares of
stock in proportion to their respective
contributions to the capital of the partnership
and their individual efforts in bringing about
the acquisition of the Meralco properties. But
before the incorporation papers could be
perfected, several partners, not satisfied with
the way matters were being run and fearful
that the venture might prove a failure because
the business was not going well and there
was a possibility of their being assessed more
than their original investments when the time
came to meet the two installments of the
unpaid purchase price due the Meralco,
expressed their desire to withdraw from the
partnership and get back the money they had
invested therein. In accordance with this wish,
one of them, Judge Jaime Reyes, in a
meeting held on April 10, 1947, to consider
various matters connected with the business,
presented a resolution to the effect that those
partners who did not want to remain in the
association should be allowed to withdraw and
get back their contributions. The resolution
was approved, with the herein plaintiffs voting
affirmatively, and on that same day plaintiffs
and Judge Reyes withdrew from the
partnership, and, as admitted by both parties,
the partnership was then dissolved. In
accordance with the terms of the resolution,
the withdrawing partners were, on the
following day, reimbursed their respective
contributions to the partnership fund.
Following the dissolution of the partnership,
the members who preferred to remain in the
business went ahead with the formation of the
corporation, taking in new associates as
stockholders. And defendant, on his part, in
fulfillment of his trust, made a formal
assignment of the Meralco properties to the
treasurer of the corporation, giving them a
book value of P365,000, in return for which
the corporation issued, to the various
subscribers to its capital stock, shares of stock
of the total face value of P225,000 and
assumed the obligation of paying what was
still due the Meralco on the purchase price.
The new corporation was named "Bicol
Electric Company."
Though business was losing during the first
year, that is, in 1947, the corporation, thanks
to a loan obtained from the RFC later
prospered and made money. Then trouble
began for one of its big stockholders, the
defendant herein.
Two years from their withdrawal from the
partnership, when the corporate business was
already in a prosperous condition, plaintiffs
brought the present suit against Jaime
Hernandez, claiming a share in the profit the
latter is supposed to have made from the
assignment of the Meralco properties to the
corporation, estimated by plaintiffs to be
P225,000 and their share of it to be
P115,312.50.
Defendant's answer denies that he has made
any profit out of the assignment in question
and alleges that in any event plaintiffs, after
their withdrawal from the partnership, ceased
to have any further interest in the subsequent
transactions of the remaining members.
After trial the lower court found that the
partnership had not realized any profit out of
the assignment of the Meralco properties to
the corporation and that, even supposing that
profit had really been made, defendant would
not be the one to answer to plaintiffs for their
share thereof, because he did not receive the
consideration for the assignment, which
according to the court, consisted of the
subscriptions of various persons to the capital
stock of the corporation. The court therefore
dismissed the complaint with costs against the
plaintiffs. From this decision plaintiffs
appealed. The case comes within our
jurisdiction because of the amount involved.
We find no merit in the appeal.
In the first place, the profit alleged to have
been realized from the assignment of the
Meralco properties to the new corporation, the
Bicol Electric Company, is more apparent than
real. It is true that the value set for those
properties in the deed of assignment was
P365,000 when the acquisition price was only
P122,000. But one should not jump to the
conclusion that a profit, consisting of the
difference between the two sums was really
made out of the transaction, for the
assignment was not made for cash but in
payment for subscriptions to shares of stock in
the assignee, and while those shares had a
total face value of P225,000, this is not
necessarily their real worth. Needless to say,
the real value of the shares of stock of a
corporation depends upon the value of its
assets over and above its liabilities. It does
not appear that the Bicol Electric Company
had any assets other than those acquired
from the Meralco, and according to the
evidence the company, aside from owing the
Meralco, P82,000 was, in the language of the
court below, actually "in the red."
In the second place, assuming that the
assignment actually brought profit to the
partnership, it is hard to see how defendant
could be made to answer for plaintiffs' alleged
share thereof. As stated in the decision below,
defendant did not receive the consideration for
the assignment for, as already stated, the
assignment was made in payment for
subscriptions of various persons to the capital
stock of the new corporation. Plaintiffs, in
order to give color of legality to their claim
against defendant, maintain that the latter
should be held liable for damages caused to
them, consisting of the loss of their share of
the profits, due to defendant's failure properly
to perform his duty as a liquidator of the
dissolved partnership, this on the theory that
as managing partner of the partnership, it was
defendant's duty to liquidate its affairs upon its
dissolutions. But it does not appear that
plaintiffs have ever asked for a liquidation, and
as will presently be explained no liquidation
was called for because when plaintiffs
withdrew from the partnership the
understanding was that after they had been
reimbursed their investment, they were no
longer to have any further interest in the
partnership or its assets and liabilities.
Moreover, the stipulation of facts made at the
hearing does not bear out the claim that
defendant was the managing partner of the
partnership, for if there appears that the
partnership had its general manager in the
person of Pedro Serranzana, who upon the
formation of the new corporation also became
its vice-president and general manager.
As a general rule, when a partner retires from
the firm, he is entitled to the payment of what
may be due him after a liquidation. But
certainly no liquidation is necessary where
there is already a settlement or an agreement
as to what the retiring partner shall receive. In
the instant case, it appears that a settlement
was agreed upon on the very day the
partnership was dissolved. For when plaintiffs
and Judge Jaime Reyes withdrew from the
partnership on that day they did so as agreed
to by all the partners, subject to the only
condition that they were to be repaid their
contributions or investments within three days
from said date. And this condition was fulfilled
when on the following day they were
reimbursed the respective amounts due them
pursuant to the agreement.
There is evidence that the partnership was at
that time operating its business at a loss and
that the partnership did not have necessary
funds to meet its obligation to Meralco for the
balance of the purchase price. And in that
connection it should be recalled that
nonpayment of that obligation would result in
the partnership losing its entire investment
because of the penalty clause in the deed of
sale. Because of these circumstances there is
every reason to believe that plaintiffs together
with Judge Jaime Reyes, withdrew from the
partnership for fear that they might lose their
entire investment should they choose to
remain in the partnership which then faced the
danger of losing its entire assets. As testified
to by Judge Reyes, one of the withdrawing
partners, it was clearly understood that upon
their withdrawal and return to them of their
investment they would have nothing more to
do with the association. It must, therefore,
have been the intention or understanding of
the parties that the withdrawing partners were
relinquishing all their rights and interest in the
partnership upon the return to them of their
investment. That Judge Reyes did not join the
plaintiffs in this action is a clear indication that
such was really the understanding. Judge
Reyes has testified that when he was invited
to join in the present claim he refused
because he did not want to be a "sin
verguenza." And, indeed, if the agreement
was that the withdrawing partners were still to
have participation in the subsequent
transactions of the partnership so that they
would have a share not only in the profits but
also in the losses, it is not likely that their
investment would have been returned to them.
It is, therefore, our conclusion that the
acceptance by the withdrawing partners,
including the plaintiffs, of their investment in
the instant case was understood and intended
by all the parties as a final settlement of
whatever rights or claim the withdrawing
partners might have in the dissolved
partnership. Such being the case they are
now precluded from claiming any share in the
alleged profits, should there be any, at the
time of the dissolution.
In view of the foregoing, we find plaintiffs'
claim against defendant to be without legal
basis so that the judgment of dismissal
rendered by the court below should be, as it is
hereby, affirmed, with costs against the
appellants.
Paras, C. J., Pablo, Bengzon, Montemayor,
Jugo, Bautista Angelo, Labrador and
Concepcion, JJ., concur.
34.
G.R. No. L-47823 July 26, 1943
JOSE ORNUM and EMERENCIANA
ORNUM, petitioners,
vs.
MARIANO, LASALA, et al., respondent.
Marcelino Lontok for petitioners.
Duran, Lim and Bausa and Augusto Francisco
for respondents.
PARAS, J.:
The following facts are practically admitted in
the pleadings and briefs of the parties: The
respondents (plaintiffs below) are natives of
Taal, Batangas, and resided therein or in
Manila. The petitioners (defendants below)
are also natives of Taal, but resided in the
barrio of Tan-agan, municipality of Tablas,
Province of Romblon. In 1908 Pedro Lasala,
father of the respondents, and Emerenciano
Ornum formed a partnership, whereby the
former, as capitalist, delivered the sum of
P1,000 to the latter who, as industrial partner,
was to conduct a business at his place of
residence in Romblon. In 1912, when the
assets of the partnership consisted of
outstanding accounts and old stock of
merchandise, Emerenciano Ornum, following
the wishes of his wife, asked for the
dissolution of the Lasala, Emerenciano Ornum
looked for some one who could take his place
and he suggested the names of the petitioners
who accordingly became the new partners.
Upon joining the business, the petitioners,
contributed P505.54 as their capital, with the
result that in the new partnership Pedro
Lasala had a capital of P1,000, appraised
value of the assets of the former partnership,
plus the said P505.54 invested by the
petitioners who, as industrial partners, were to
run the business in Romblon. After the death
of Pedro Lasala, his children (the
respondents) succeeded to all his rights and
interest in the partnership. The partners never
knew each other personally. No formal
partnership agreement was ever executed.
The petitioners, as managing partners, were
received one-half of the net gains, and the
other half was to be divided between them
and the Lasala group in proportion to the
capital put in by each group. During the
course divided, but the partners were given
the election, as evidenced by the statements
of accounts referred to in the decision of the
Court of Appeals, to invest their respective
shares in such profits as additional capital.
The petitioners accordingly let a greater part
of their profits as additional investment in the
partnership. After twenty years the business
had grown to such an extent that is total
value, including profits, amounted to
P44,618.67. Statements of accounts were
periodically prepared by the petitioners and
sent to the respondents who invariably did not
make any objection thereto. Before the last
statement of accounts was made, the
respondents had received P5,387.29 by way
of profits. The last and final statement of
accounts, dated May 27, 1932, and prepared
by the petitioners after the respondents had
announced their desire to dissolve the
partnership, read as follows:
Ganancia total desde el ultimo balance hasta la fecha
Participacion del capital de los hermanos Lasala en
ganancia
Participacion del capital de Jose Ornum en el ganancia
Participacion de Jose Ornum como socio industrial
Participacion del capital de Emerenciana Ornum en
ganancia
Participacion de Emerenciana Ornum como so
industrial
Siendo este el balance final lo
siguiente es la cantidad que debe
corresponder a cada socio:
Capital de los hermanos Lasala segun el
ultimo balance P4,393.08
Ganancia de este capital 55.39 P
Pero se debe deducir la cantidad tomada
por los hermanos Lasala 1
Cantidad nota que debe corresponder a
los hermanos Lasala
Capital de Jose Ornum segun el ultimo
balance P9,975.13
 Ganancia de este capital
Participacion de Jose Ornum como socio
industrial
Pero se debe deducir la cantidad tomada
por Jose Ornum
Cantidad neta que debe corresponder a
Jose Ornum
Capital de Emerenciana Ornum segun el
ultimo balance
Ganancia de este capital
Participacion de Emerenciana Ornum
como socia industrial
Pero se debe deducir la cantidad tomada
por Emerenciana Ornum
Cantidad neta que debe corresponder a
Emerenciana Ornum
After the receipt of the foregoing statement of
accounts, Father Mariano Lasala, spokesman
for the respondents, wrote the following letter
to the petitioners on July 19, 1932:
Ya te manifestamos francamente aqui,
como consocio, y te autorizamos
tambien para que lo repitas a tu
hermana Mering, viuda, que el motivo
porque recogemos el capital y
utilidades de nuestra sociedad en todo
nuestro negocio que esta al cuidado
vosotros dos, es que tenemos un
grande compromiso que casi no
podemos evitarlo. Por esto volvemos
a rogarles que por cualquier medio
antes de terminar este mes de julio,
1932, nosotros esperamos vuestra
consideracion. Gracias.
En cuanto hayamos recibido esto,
entonces firmaremos el balance que
habeis hecho alli, cuya copia has
dejado aqui.
Recuerdos a todos alli y mandar.
Pursuant to the request contained in this
letter, the petitioners remitted and paid to the
respondents the total amount corresponding
to them under the above-quoted statement of
accounts which, however, was not signed by
the latter. Thereafter the complaint in this case
125.79
was filed by the respondents, praying for an
accounting and final liquidation of the assets
143.86 P10,244.65
of the partnership. The Court of First Instance
of Manila held that the last and final statement
1,650.00
of accounts prepared by the petitioners was
tacitly approved and accepted by the
respondents who, P8,594.65
by virtue of the above-
quoted letter of Father Mariano Lasala, lost
their right to a further accounting from the
P8,448.00
moment they received and accepted their
shares as itemized in said statement. This
106.54
judgment was reversed by the Court of
AppealsP8,698.40
143.86 principally on the ground that as the
final statement of accounts remains unsigned
by the respondents, the same stands
1,850.00
disapproved. The decision appealed by the
petitioners thus said:
P6,848.40
To support a plea of a stated account
so as to conclude the parties in
relation to all dealings between them,
the accounting must be shown to have
been final. (1 Cyc. 366.) All the first
nine statements which the defendants
sent the plaintiffs were partial
settlements, while the last, although
intended to be final, has not been
signed.
We hold that the last and final statement of
accounts hereinabove quoted, had been
approved by the respondents. This approval
resulted, by virtue of the letter of Father
Mariano Lasala of July 19, 1932, quoted in
part in the appealed decision from the failure
of the respondents to object to the statement
and from their promise to sign the same as
soon as they received their shares as shown
in said statement. After such shares had been
paid by the petitioners and accepted by the
respondents without any reservation, the
approval of the statement of accounts was
virtually confirmed and its signing thereby
became a mere formality to be complied with
by the respondents exclusively. Their refusal
to sign, after receiving their shares, amounted
to a waiver to that formality in favor of the
petitioners who has already performed their
obligation.
This approval precludes any right on the part
of the respondents to a further liquidation,
unless the latter can show that there was
fraud, deceit, error or mistake in said
approval. (Pastor, vs. Nicasio, 6 Phil., 152;
Aldecoa & Co., vs.Warner, Barnes & Co., 16
Phil., 423; Gonsalez vs. Harty, 32 Phil. 328.)
The Court of Appeals did not make any
findings that there was fraud, and on the
matter of error or mistake it merely said:
The question, then is, have mistakes,
been committed in the statements
sent appellants? Not only do plaintiffs
so allege, and not only does not
evidence so tend to prove, but the
charge is seconded by the defendants
themselves when in their
counterclaims they said:
"(a) Que recientemente se ha hecho
una acabada revision de las cuentas y
libros del negocio, y, se ha
descubierto que los demandados
cometieron un error al hacer las
entregas de las varias cantidades en
efectivo a los demandantes,
entregando en total mayor cantidades
a la que tenian derecho estos por su
participacion y ganancias en dicho
negocio;
"(b) Que el exceso entregado a los
demandantes, asciende a la suma de
quinientos setenta y cinco pesos con
doce centimos (P575.12), y que los
demandados reclaman ahora de
aquellos su devolucion o pago en la
presente contrademanda;"
In our opinion, the pronouncement that the
evidence tends to prove that there were
mistakes in the petitioners' statements of
accounts, without specifying the mistakes,
merely intimates as suspicion and is not such
a positive and unmistakable finding of fact (Cf.
Concepcion vs. People, G.R. No. 48169,
promulgated December 28, 1942) as to justify
a revision, especially because the Court of
Appeals has relied on the bare allegations of
the parties, Even admitting that, as alleged by
the petitioners in their counterclaim, they
overpaid the respondents in the sum of
P575.12, this error is essentially fatal to the
latter's theory what the statement of accounts
shows, and is therefore not the kind of error
that calls for another accounting which will
serve the purpose of the respondent's suit.
Moreover, as the petitioners did not appeal
from the decision of the Court abandoned
such allegation in the Court of Appeals.
If the liquidation is ordered in the absence of
any particular error, found as a fact, simply
because no damage will be suffered by the
petitioners in case the latter's final statement
of the accounts proves to be correct, we shall
be assuming a fundamentally inconsistent
position. If there is not mistake, the only
reason for a new accounting disappears. The
petitioners may not be prejudiced in the sense
that they will be required to pay anything to
the respondents, but they will have to go to
the trouble of itemizing accounts covering a
period of twenty years mostly from memory,
its appearing that no regular books of
accounts were kept. Stated more
emphatically, they will be told to do what
seems to be hardly possible. When it is borne
in mind that this case has been pending for
nearly nine years and that, if another
accounting is ordered, a costly action or
proceeding may arise which may not be
disposed of within a similar period, it is not
improbable that the intended relief may in fact
be the respondents' funeral.
We are reversing the appealed decision on
the legal ground that the petitioners' final
statement of accounts had been approved by
the respondents and no justifiable reason
(fraud, deceit, error or mistake) has been
positively and unmistakably found by the
Court of Appeals so as to warrant the
liquidations sought by the respondents. In
justice to the petitioners, however, we may
add that, considering that they ran the
business of the partnership for about twenty
years at a place far from the residence of the
respondents and without the latter's
intervention; that the partners did not even
know each other personally; that no formal
partnership agreement was entered into which
bound the petitioners under specific
conditions; that the petitioners could have
easily and freely alleged that the business
became partial, or even a total, loss for any
plausible reason which they could have
concocted, it appearing that the partnership
engaged in such uncertain ventures as
agriculture, cattle raising and operation of rice
mill, and the petitioners did not keep any
regular books of accounts; that the petitioners
were still frank enough to disclose that the
original capital of P1,505.54 amounted, as of
the date of the dissolution of the partnership,
to P44,618.67; and that the respondents had
received a total of P8,105.76 out of their
capital of P1,000, without any effort on their
part, we are reluctant even to make the
conjecture that the petitioners had ever
intended to, or actually did, take undue
advantage of the absence and confidence of
the respondents. Indeed, we feel justified in
stating that the petitioners have here given a
remarkable demonstration of the legendary
honesty, good faith and industry with which
the natives of Taal pursue business
arrangements similar to the partnership in
question, and we would hate, in the absence
of any sufficient reason, to let such a beautiful
legend have a distateful ending.

The appealed decision is hereby reversed and

the petitioners (defendants below) absolved
from the complaints of the respondents
(plaintiffs below), with costs against the latter.

Yulo, C.J., and Hontiveros, J., concur.

35.
LIMITADA
G.R. No. 19892 September 6, 1923
TECK SEING AND CO., LTD., petitioner-
appellee.
SANTIAGO JO CHUNG, ET AL., partners,
vs.
PACIFIC COMMERCIAL COMPANY, ET
AL., creditors-appellants.
Del Rosario & Del Rosario and Block,
Johnston and Greenbaum for appellants.
F. V. Arias for appellants Jo Ibec and Go
Tayco.
No appearance for petitioner and appellee.
Jose A. Espiritu and Felipe Ysmael as amici
curiae.
MALCOLM, J.:
Following the presentation of an application to
be adjudged an insolvent by the "Sociedad
Mercantil, Teck Seing & Co., Ltd.," the
creditors, the Pacific Commercial Company,
Piol & Company, Riu Hermanos, and W. H.
Anderson & Company, filed a motion in which
the Court was prayed to enter an order: "(A)
Declaring the individual partners as described
in paragraph 5 parties to this proceeding; (B)
to require each of said partners to file an
inventory of his property in the manner
required by section 51 of Act No. 1956; and
(C) that each of said partners be adjudicated
insolvent debtors in this proceeding." The trial
judge first granted the motion, but,
subsequently, on opposition being renewed,
denied it. It is from this last order that an
appeal was taken in accordance with section
82 of the Insolvency Law.
There has been laid before us for
consideration and decision a question of some
importance and of some intricacy. The issue
in the case relates to a determination of the
nature of the mercantile establishment which
operated under the name of Teck Seing & co.,
Ltd., and this issue requires us to look into,
and analyze, the document constituting Teck
Seing & Co., Ltd. It reads:
ESCRITURA DE SOCIEDAD MERCANTIL
Sepan todos por la presente:
Que nosotros, Santiago Jo Chung
Cang, mayor de edad comerciante,
vecino y residente del municipio de
Tabogon Provincia de Cebu, Islas
Filipinas, Go Tayco, mayor de edad,
comerciante, vecino y residente del
municipio de Cebu Provincia de Cebu,
Islas Filipinas, Yap Gueco, mayor de
edad, comerciante, vecino y residente
del municipio y Provincia de Cebu,
Islas Filipinas, Lim Yogsing, mayor de
edad comerciante, vecino y residente
del municipio de Cebu, Provincia de
Cebu, Islas Filipinas, y Jo Ybec,
mayor de edad, comerciante, vecino y
residente del municipio de Jagna,
Provincia de Bohol, Islas Filipinas,
hacemos constar por la presente, que
constituimos y formamos una
sociedad mercantil limitada, bajo las
leyes vigentes en las Islas Filipinas y
para ser registrada de acuerdo con los
reglamentos vigentes del Codigo de
Comercio en Filipinas.
Que la razon social se denominara
"Teck Seing & Co., Ltd." y tendra su
domicilio principal en la Calle
Magallanes No. 94, de la Ciudad de
Cebu, Provincia de Cebu, Islas
Filipinas.
Que el capital social sera de treinta
mil pesos (P30,000) moneda legal de
las Islas Filipinas, dividido en cinco
acciones de a P6,000 como sigue:
Santiago Jo Chung Cang . . . . . . . . . . . . . P6
Go Tayco . . . . . . . . . . . . . . . . . . . . . . . . . 6,0
.
Yap Gueco . . . . . . . . . . . . . . . . . . . . . . . . 6,0
Jo Ybec . . . . . . . . . . . . . . . . . . . . . . . . . . 6,0
.
 Lim Yogsing . . . . . . . . . . . . . . . . . . . . . . . Que los accionistas no podran extraer
6,000.00
ni disponer en ningun tiempo
Total . . . . . . . . . . . . . . . . . . . . . . cualesquiera cantidad o cantidades de
30,000.00
la sociedad, que haya sido aportado
por los mismos, para atender sus
Que la duracion de la sociedad sera la gastos particulares ni aun pagando
de seis aos, a contar de la fecha de redito alguno sobre la cantidad que
esta escritura, pudiendo prorrogarse intenen disponer o extraer de dicha
este tiempo a discrecion unanime de sociedad.
todos los accionistas.
El accionista Sr. Lim Yogsing tendra a
El objeto de la sociedad sera la su cargo, en union del Sr. Vicente
compra y venta de mercaderias en Jocson Jo, la administracion de la
general. Compaia, quienes podran usar
indistintamente la firma social,
El administrador o administradores de quedando por consiguiente
la sociedad podran, previa autorizados amobs para hacer en
conformidad de los accionistas, nombre de ella toda calse de
establecer cuantas sucursales o operaciones, negocios y
establecimientos considere especulaciones mercantiles,
necesarios para facilitar sus negocios practicando judicial y extra-
y el mayor desarrollo del comercio a judicialment cuantos actos se
que se dedica la sociedad, verificando requieran para el bien de la sociedad,
todas las operaciones que crean nombrar procuradores o abogados
convenientes para el fomento de su para reclamaciones y cobro de
capital. creditos y proponer ante los tribunales
las demandas, convenios,
Las ganancias o perdidas que transacciones y excepciones
resultaren durante cada ao procdentes. En caso de ausencia,
comercial, se distribuiran enfermedad o cualquier otro
proporcionalmente entre los impedimento del accionista
accionistas, de acuerdo con el capital administrador Sr. Lim Yogsing, este
aportado por cada uno de los mismos. podra conferir poder general o
especial al accionista que crea
Las ganancias que resultaren en cada conveniente para que en union del
ao comercial, si resultaren algunas administrador auxiliar Sr. Vicente
ganancias, no podran ser retiradas Jocson Jo, pudieran ambos
pors los accionistas hasta dentro del administrar convenientemente los
termino de tres aos a contar de la negocios de la sociedad. Que los
fecha del primer balance anual del administradores podran tener los
negocio, quedadno por tanto estas empleados necesarios para el mejor
ganancias en reserva, para ampliar el que debieran percibir dichos
capital aportado opor los accionistas y empleados por servicios rendidos a la
ampliar por tanto la esfera de accion sociedad.
emprendida por la misma sociedad. Al
pasar o expirar el termino de tres Que ambos administradores podran
aos, cada accionista podra retirar o disponer de mil discientos
depositar en poder de la sociedad, las pesos (P1,200) moneda filipina,
ganancias que le debiera anualmente, para sus gastos
corresponder durante dicho termino particulares, siendo dicha cantidad de
de tres aos. P1,200 la que corresponde a cada
uno de dichos administradores, como
emolumentos o salarios que se les
 asigna a cas uno, por sus trabajos en
la administracion de la
sociedad. Entendiendose, que, los
accionistas podran disponer cada fin
de aola gratificacion quese
concedera a cada administrador, si los
negocios del ao fueran boyantes y
justifiquen la concesion de una
"ESTADOS
gratificacion especial, aparte del
"ISLAS
salario aqui dispuesto y especificado.
"PROVINCIA DE CEBU
Que pasado el termino de seis aos, y
es de la conveniencia de los
accionistas la continuacion del
negocio de esta sociedad, dicho
termino sera prorrogado por igual
numero de aos, sin necesidas del
otorgamiento de ulteriores escrituras,
quedando la presente en vigor hasta
el termino dispuesto por todos los
accionistas.
Que las diferencias que pudieran
suscitarse entre los accionistas, bien
sea por razon de lo estipulado en esta
en ella comprendidos, se procurara
arreglar entre los mismos amistosa y
extrajudicialmente, y si no se
consiguiere un arreglo de este modo,
dichos accionistas nombraran un
arbitro, cuya resolucion estan todos
obligados y por la presente se
comprometen y se obligan a acatarla
en todas sus partes, renunciando
ulteriores recursos.
En cuyos terminos dejamos
formalizada esta escritura de sociedad
mercantillimitada, y prometemos
cumplirla fiel y estrictamente segun
los pactos que hemos establecido.
En testimonio de todo lo cual,
firmamos en la Ciudad de Cebu,
Provincia de Cebu, Islas Filipinas, hoy
31 de octubre de mil novecientos diez
y nueve.
(Fdos.) "LIM YOGSING
"Jo YBec por Ho Seng Sian
"SANTIAGO JO CHUNG CANG
"GO TAYCO
"YAP GUECO
Firnando en presencia de:
(Fdos.) "ATILANO LEYSON
"JULIO DIAZ
UNIDOS DE AMERCA
FILIPINAS
En el Municipio de Cebu, de la
Provincia antes mencionada, I.F., hoy
31 de octubre de 1919, A.D., ante mi,
Notario Publico que subscribe,
comprecieron personalmente
Santiago Jo Chung Cang, Go Tayco,
Yap Gueco, Lim Yogsing y Jo Ybec,
representado este ultimo por Ho Seng
Sian, segun autorizacion hecha en
telegrama de fecha 27 de septiembre
de 1919 que se me ha presentado en
este mismo acto, de quienes doy fe de
que les conozco por ser las mismas
personas que otorgaron el preinserto
documento, ratificando ant emi su
contenido y manifestando ser el
mismo un acto de su libre y voluntario
otorgamiento. El Sr. Santiago Jo
Chung Cang me exhibio su cedula
personal expedida en Cebu, Cebu,
I.F. el dia 19 de septiembre de 1919
bajo el No. H77742, Go Tayco
tambien me exhibio la suya expedida
en Cebu, Cebu, I.F., el dia 9 de
octubre de 1919 bajo el No.
G2042490, Yap Gueco tambien me
exhibio la suya expedida en Cebu,
Cebu, I.F. el dia 20 de enero de 1919
bajo el No. F1452296, Lim Yogsing
tambien me exhibio la suya expedida
en Cebu, Cebu, I.F., el dia 26 de
febrero de 1919 bajo el No.
F1455662, y Ho Seng Sian
representante de Jo Ybec, me exhibio
su cedula personal expedida en Cebu,
Cebu, I.f. el dia 4 de febrero de 1919
bajo el No. F1453733.
Ante mi,
(Fdo.) "F.V.ARIAS passage of the Corporation Law were
"Notario Publico recognized, which is not our case.
"Hasta el 1. de enero de 1920
The document providing for the partnership
contract purported to form "una sociedad
"Asiento No. 157 mercantil limitada," and counsel for the
Pagina No. 95 de mi petitioner's first contention was that Teck
Registro Notarial Seing & Co., Ltd., was not "una sociedad
Serie 1919 regular colectiva, ni siquiera comanditaria,
Libro 2. sino una sociedad mercantil limitada." Let us
see if the partnership contract created a
Presentado a las diez y cuarenta y "sociedad en comandita," or, as it is known in
tres minutos de la maana de hoy, English, and will hereafter be spoken of, "a
segun el asiento No. 125, pagina 9 del limited partnership."
Tomo 1. del Libro Diario. Cebu, 11 de
febrero de 1920. To establish a limited partnership there must
be, at least, one general partner and the name
of the least one of the general partners must
(Fdo.) "QUIRICO ABETO
appear in the firm name. (Code of Commerce,
[SELLO] "Registrador Mercantil Ex-Officio"
arts. 122 [2], 146, 148.) But neither of these
requirements have been fulfilled. The general
Inscrito el documento que preced al rule is, that those who seek to avail
folio 84 hoja No. 188, inscripcion 1.a themselves of the protection of laws permitting
del Tomo 3. del Libro Registro de the creation of limited partnerships must show
Sociedades Mercantiles. Cebu, 11 de a substantially full compliance with such laws.
febrero de 1920. Honorarios treinta A limited partnership that has not complied
pesos con cincuenta centavos. Art. with the law of its creation is not considered a
197, Ley No. 2711, Codigo limited partnership at all, but a general
Administrativo. partnership in which all the members are
liable. (Mechem, Elements of Partnership, p.
412; Gilmore, Partnership, pp. 499, 595; 20 R
(Fdo.) "QUIRICO ABETO C. L. 1064.)
[SELLO] "Registrador Mercantil Ex-Officio"
The contention of the creditors and appellants
Proceeding by process of elimination, it is self- is that the partnership contract established a
evident that Teck Seing & Co., Ltd., is not a general partnership.
corporation. Neither is it contended by any
one that Teck Seing & Co., Ltd., is accidental Article 125 of the Code of Commerce provides
partnership denominated cuenta en that the articles of general copartnership must
participacion (joint account association). estate the names, surnames, and domiciles of
the partners; the firm name; the names, and
Counsel for the petitioner and appellee surnames of the partners to whom the
described his client in once place in his management of the firm and the use of its
opposition to the motion of the creditors signature is instrusted; the capital which each
as "una verdadera sociedad anonima" (a partner contributes in cash, credits, or
true sociedad anonima). The provisions of the property, stating the value given the latter or
Code of Commerce relating to sociedades the basis on which their appraisement is to be
anonimas were, however, repealed by section made; the duration of the copartnership; and
191 of the Corporation Law (Act No. 1459), the amounts which, in a proper case, are to be
with the exceptions the sociedades given to each managing partner annually for
anonimas lawfully organized at the time of the his private expenses, while the succeeding
article of the Code provides that the general
copartnership must transact business under
the name of all its members, of several of
them, or of one only. Turning to the document
before us, it will be noted that all of the
requirements of the Code have been met, with
the sole exception of that relating to the
composition of the firm name. We leave
consideration of this phase of the case for
later discussion.
The remaining possibility is the revised
contention of counsel for the petitioners to the
effect that Teck Seing & Co., Ltd., is "una
sociedad mercantil "de facto"
solamente" (only a de facto commercial
association), and that the decision of the
Supreme court in the case of Hung-Man-
Yoc vs. Kieng-Chiong-Seng [1906], 6 Phil.,
498), is controlling. It was this argument which
convinced the trial judge, who gave effect to
his understanding of the case last cited and
which here must be given serious attention.
The decision in Hung-Man-Yoc vs. Kieng-
Chiong-Seng, supra, discloses that the firm
Kieng-Chiong-Seng was not organized by
means of any public document; that the
partnership had not been recorded in the
mercantile registry; and that Kieng-Chiong-
Seng was not proven to be the firm name, but
rather the designation of the partnership. The
conclusion then was, that the partnership in
question was merely de facto and that,
therefore, giving effect to the provisions of
article 120 of the Code of Commerce, the right
of action was against the persons in charge of
the management of the association.
Laying the facts of the case of Hung-Man-
Yoc vs. Kieng-Chiong-Seng, supra, side by
side with the facts before us, a marked
difference is at once disclosed. In the cited
case, the organization of the partnership was
not evidenced by any public document; here,
it is by a public document. In the cited case,
the partnership naturally could not present a
public instrument for record in the mercantile
registry; here, the contract of partnership has
been duly registered. But the two cases are
similar in that the firm name failed to include
the name of any of the partners.
We come then to the ultimate question, which
is, whether we should follow the decision in
Hung-Man-Yoc vs. Kieng-Chiong-
Seng, supra, or whether we should
differentiate the two cases, holding Teck
Seing & Co., Ltd., a general copartnership,
notwithstanding the failure of the firm name to
include the name of one of the partners. Let
us now notice this decisive point in the case.
Article 119 of the Code of Commerce requires
every commercial association before
beginning its business to state its article,
agreements, and conditions in a public
instrument, which shall be presented for
record in the mercantile registry. Article 120,
next following, provides that the persons in
charge of the management of the association
who violate the provisions of the foregoing
article shall be responsible in solidum to the
persons not members of the association with
whom they may have transacted business in
the name of the association. Applied to the
facts before us, it would seem that Teck Seing
& Co., Ltd. has fulfilled the provisions of article
119. Moreover, to permit the creditors only to
look to the person in charge of the
management of the association, the partner
Lim Yogsing, would not prove very helpful to
them.
What is said in article 126 of the Code of
Commerce relating to the general
copartnership transacting business under the
name of all its members or of several of them
or of one only, is wisely included in our
commercial law. It would appear, however,
that this provision was inserted more for the
protection of the creditors than of the partners
themselves. A distinction could well be drawn
between the right of the alleged partnership to
institute action when failing to live up to the
provisions of the law, or even the rights of the
partners as among themselves, and the right
of a third person to hold responsible a general
copartnership which merely lacks a legal firm
name in order to make it a partnership de jure.
The civil law and the common law alike seem
to point to a difference between the rights of
the partners who have failed to comply with
the law and the rights of third persons who
have dealt with the partnership.
The supreme court of Spain has repeatedly
held that notwithstanding the obligation of the
members to register the articles of association
in the commercial registry, agreements
containing all the essential requisites are valid
as between the contracting parties, whatever
the form adopted, and that, while the failure to
register in the commercial registry necessarily
precludes the members from enforcing rights
acquired by them against third persons, such
failure cannot prejudice the rights of third
persons. (See decisions of December 6, 1887,
January 25, 1888, November 10, 1890, and
January 26, 1900.) The same reasoning
would be applicable to the less formal
requisite pertaining to the firm name.
The common law is to the same effect. The
State of Michigan had a statute prohibiting the
transaction of business under an assumed
name or any other than the real name of the
individual conducting the same, unless such
person shall file with the county clerk a
certificate setting forth the name under which
the business is to be conducted and the real
name of each of the partners, with their
residences and post-office addresses, and
making a violation thereof a misdemeanor.
The supreme Court of Michigan said:
The one object of the act is manifestly
to protect the public against imposition
and fraud, prohibiting persons from
concealing their identity by doing
business under an assumed name,
making it unlawful to use other than
their real names in transacting
business without a public record of
who they are, available for use in
courts, and to punish those who
violate the prohibition. The object of
this act is not limited to facilitating the
collection of debts, or the protection of
those giving credit to persons doing
business under an assumed name. It
is not unilateral in its application. It
applies to debtor and creditor,
contractor and contractee, alike.
Parties doing business with those
acting under an assumed name,
whether they buy or sell, have a right,
under the law, to know who they are,
and who to hold responsible, in case
the question of damages for failure to
perform or breach of warranty should
arise.
The general rule is well settled that,
where statutes enacted to protect the
public against fraud or imposition, or
to safeguard the public health or
morals, contain a prohibition and
impose a penalty, all contracts in
violation thereof are void. . . .
As this act involves purely business
transactions, and affects only money
interests, we think it should be
construed as rendering contracts
made in violation of it unlawful and
unforceable at the instance of the
offending party only, but not as
designed to take away the rights of
innocent parties who may have dealt
with the offenders in ignorance of their
having violated the statute. (Cashin
vs. Pliter [1912], 168 Mich., 386; Ann.
Cas. [1913-C, 697.)
The early decision of our Supreme Court in
the case of Prautch Scholes & Co. vs.
Hernandez [1903], 1 Phil., 705), contains the
following pertinent observations:
Another case may be supposed. A
partnership is organized for
commercial purposes. It fails to
comply with the requirements of article
119. A creditor sues the partnership
for a debt contracted by it, claiming to
hold the partners severally. They
answer that their failure to comply with
the Code of Commerce makes them a
civil partnership and that they are in
accordance with article 1698 of the
Civil Code only liable jointly. To allow
such liberty of action would be to
permit the parties by a violation of the
Code to escape a liability which the
law has seen fit to impose upon
persons who organized commercial
partnership; "Because it would be
contrary to all legal principles that the
nonperformance of a duty should
redound to the benefit of the person in
default either intentional or
 unintentional." (Mercantile Law,
Eixala, fourth ed., p. 145.)" (See
also Lichauco vs. Lichauco [1916], 33
Phil., 350, 360.)
Dr. Jose de Echavarri y Vivanco, in his Codigo
de Comercio, includes the following comment
after articles 121 and 126 of the Code:
From the decisions cited in this and in
the previous comments, the following
is deduced: 1st. Defects in the
organization cannot affect relations
with third persons. 2d. Members who
contract with other persons before the
association is lawfully organized are
liable to these persons. 3d. The
intention to form an association is
necessary, so that if the intention of
mutual participation in the profits and
losses in a particular business is
proved, and there are no articles of
association, there is no association.
4th. An association, the articles of
which have not been registered, is
valid in favor of third persons. 5th. The
private pact or agreement to form a
commercial association is governed
not by the commercial law but by the
civil law. 6th. Secret
stipulations expressed in a public
instrument, but not inserted in the
articles of association, do not affect
third persons, but are binding on the
parties themselves. 7th. An agreement
made in a public instrument, other
than the articles of association, by
means of which one of the partners
guarantees to another certain profits
or secures him from losses, is valid
between them, without affecting the
association. 8th. Contracts entered
into by commercial associations
defectively organized are valid when
they are voluntarily executed by the
parties, if the only controversy relates
to whether or not they complied with
the agreement.
xxx xxx xxx
The name of the collective merchant is
called firm name. By this name, the
new being is distinguished from
others, its sphere of action fixed, and
the juridical personality better
determined, without constituting an
exclusive character of the general
partnership to such an extent as to
serve the purpose of giving a definition
of said kind of a mercantile
partnership, as is the case in our
Code.
Having in mind that these partnerships
are prevailingly of a personal
character, article 126 says that they
must transact business under the
name of all its members, of some of
them, or of one only, the words "and
company" to be added in the latter two
cases.
It is rendered impossible for the
general partnership to adopt a firm
name appropriate to its commercial
object; the law wants to link, and does
link, the solidary and unlimited
responsibility of the members of this
partnership with the formation of its
name, and imposes a limitation upon
personal liberty in its selection, not
only by prescribing the requisites, but
also by prohibiting persons not
members of the company from
including their names in its firm name
under penalty of civil solidary
responsibility.
Of course, the form required by the
Code for the adoption of the firm name
does not prevent the addition thereto
of any other title connected with the
commercial purpose of the
association. The reader may see our
commentaries on the mercantile
registry about the business names
and firm names of associations, but it
is proper to establish here that, while
the business name may be alienated
by any of the means admitted by the
law, it seems impossible to separate
the firm names of general partnerships
from the juridical entity for the creation
of which it was formed. (Vol. 2, pp.
197, 213.)
On the question of whether the fact that the
firm name "Teck Seing & Co., Ltd." does not
contain the name of all or any of the partners
as prescribed by the Code of Commerce
prevents the creation of a general partnership,
Professor Jose A. Espiritu, as amicus curi,
states:
My opinion is that such a fact alone
cannot and will not be a sufficient
cause of preventing the formation of a
general partnership, especially if the
other requisites are present and the
requisite regarding registration of the
articles of association in the
Commercial Registry has been
complied with, as in the present case.
I do not believe that the adoption of a
wrong name is a material fact to be
taken into consideration in this case;
first, because the mere fact that a
person uses a name not his own does
not prevent him from being bound in a
contract or an obligation he voluntarily
entered into; second, because such a
requirement of the law is merely a
formal and not necessarily an
essential one to the existence of the
partnership, and as long as the name
adopted sufficiently identity the firm or
partnership intended to use it, the acts
and contracts done and entered into
under such a name bind the firm to
third persons; and third, because the
failure of the partners herein to adopt
the correct name prescribed by law
cannot shield them from their personal
liabilities, as neither law nor equity will
permit them to utilize their own
mistake in order to put the blame on
third persons, and much less, on the
firm creditors in order to avoid their
personal possibility.
The legal intention deducible from the acts of
the parties controls in determining the
existence of a partnership. If they intend to do
a thing which in law constitutes a partnership,
they are partners, although their purpose was
to avoid the creation of such relation. Here,
the intention of the persons making up Teck
Seing & co., Ltd. was to establish a
partnership which they erroneously
denominated a limited partnership. If this was
their purpose, all subterfuges resorted to in
order to evade liability for possible losses,
while assuming their enjoyment of the
advantages to be derived from the relation,
must be disregarded. The partners who have
disguised their identity under a designation
distinct from that of any of the members of the
firm should be penalized, and not the creditors
who presumably have dealt with the
partnership in good faith.
Articles 127 and 237 of the Code of
Commerce make all the members of the
general copartnership liable personally and in
solidum with all their property for the results of
the transactions made in the name and for the
account of the partnership. Section 51 of the
Insolvency Law, likewise, makes all the
property of the partnership and also all the
separate property of each of the partners
liable. In other words, if a firm be insolvent,
but one or more partners thereof are solvent,
the creditors may proceed both against the
firm and against the solvent partner or
partners, first exhausting the assets of the firm
before seizing the property of the partners.
(Brandenburg of Bankcruptcy, sec. 108; De
los Reyes vs. Lukban and Borja [1916], 35
Phil., 757; Involuntary Insolvency of Campos
Rueda & Co. vs. Pacific Commercial Co.
[1922], 44 Phil., 916).
We reach the conclusion that the contract of
partnership found in the document
hereinbefore quoted established a general
partnership or, to be more exact, a partnership
as this word is used in the Insolvency Law.
Wherefore, the order appealed from is
reversed, and the record shall be returned to
the court of origin for further proceedings
pursuant to the motion presented by the
creditors, in conformity with the provisions of
the Insolvency Law. Without special findings
as to the costs in this instance, it is ordered.
Araullo, C.J., Johnson, Street, Avancea,
Villamor, Johns and Romualdez, JJ., concur.
36.
G.R. No. L-11840 December 10, 1963
ANTONIO C. GOQUIOLAY, ET AL., plaintiffs-
appellants,
vs.
WASHINGTON Z. SYCIP, ET
AL., defendants-appellees.
Norberto J. Quisumbing and Sycip, Salazar
and Associates for defendants-appellees.
Jose C. Calayco for plaintiffs-appellants..
RESOLUTION
REYES, J.B.L., J.:
The matter now pending is the appellant's
motion for reconsideration of our main
decision, wherein we have upheld the validity
of the sale of the lands owned by the
partnership Goquiolay & Tan Sin An, made in
1949 by the widow of the managing partner,
Tan Sin An (Executed in her dual capacity as
Administratrix of the husband's estate and as
partner in lieu of the husband), in favor of the
buyers Washington Sycip and Betty Lee for
the following consideration:
Cash paid P37,000.00 acquired them.
Debts assumed by purchaser:
To Yutivo 62,415.91
To Sing Yee Cuan & Co., 54,310.13
TOTAL P153,726.04 retained possession of the partnership
Appellant Goquiolay, in his motion for
reconsideration, insist that, contrary to our
holding, Kong Chai Pin, widow of the
deceased partner Tan Sin An, never became
more than a limited partner, incapacitated by
law to manage the affairs of partnership; that
the testimony of her witness Young and Lim
belies that she took over the administration of
the partnership property; and that, in any
event, the sale should be set aside because it
was executed with the intent to defraud
appellant of his share in the properties sold.
Three things must be always held in mind in
the discussion of this motion to reconsider,
being basic and beyond controversy:
(a) That we are dealing here with the transfer
of partnership property by one partner, acting
in behalf of the firm, to a stranger. There is no
question between partners inter se, and this
aspect to the case was expressly reserved in
the main decision of 26 July 1960;
(b) That partnership was expressly organized:
"to engage in real estate business, either
by buying and selling real estate". The Articles
of co-partnership, in fact, expressly provided
that:
IV. The object and purpose of the
copartnership are as follows:
1. To engage in real estate business,
either by buying and selling real
estates; to subdivide real estates into
lots for the purpose of leasing and
selling them.;
(c) That the properties sold were not part of
the contributed capital (which was in cash) but
land precisely acquired to be sold, although
subject to a mortgage in favor of the original
owners, from whom the partnership had
With these points firmly in mind, let us turn to
the points insisted upon by appellant.
It is first averred that there is "not one iota of
evidence" that Kong Chai Pin managed and
properties. Suffice it to point out that appellant
Goquiolay himself admitted that
... Mr. Yu Eng Lai asked me if I can
just let Mrs. Kong Chai Pin continue to
manage the properties (as) she had
no other means of income. Then I
said, because I wanted to help Mrs.
Kong Chai Pin, she could just do it
and besides I am not interested in
agricultural lands. I allowed her to take
care of the properties in order to help
 her and because I believe in God and
wanted to help her.
Q So the answer to my
question is you did not take
any steps?
A I did not.
Q And this conversation
which you had with Mrs. Yu
Eng Lai was few months after
1945?
A In the year 1945.
(Emphasis supplied).
The appellant subsequently ratified this
testimony in his deposition of 30 June 1956,
pages 8-9, wherein he stated:
that plantation was being occupied at
that time by the widow, Mrs. Tan Sin
An, and of course they are
receiving quiet a lot benefit from the
plantation.
Discarding the self-serving expressions, these
admissions of Goquiolay are certainly entitled
to greater weight than those of Hernando
Young and Rufino Lim, having been made
against the party's own interest.
Moreover, the appellant's reference to
testimony of Hernando Young, that
witness found the properties "abandoned
undeveloped", omits to mention that said
of the testimony started with the question:
Now, you said that about 1942 or
1943 you returned to Davao. Did you
meet Mrs. Kong Chai Pin there in
Davao at that time?
Similarly, the testimony of Rufino Lim, to the
effect that the properties of the partnership
were undeveloped, and the family of the
widow (Kong Chai Pin) did not receive any
income from the partnership properties, was
given in answer to the question:
According to Mr. Goquiolay, during the
Japanese occupation Tan Sin an and
his family lived on the plantation of the
partnership and derived their
subsistence from that plantation. What
can you say to that? (Dep. 19 July
1956, p. 8).
And also
What can you say as to the
development of these other properties
of the partnership which you
saw during the occupation? (Dep. p.
13, Emphasis supplied).
to which witness gave the following answer:
I saw the properties in Mamay still
undeveloped. The third property which
is in Tigato is about eleven (11)
hectares and planted with abaca
seedlings planted by Mr. Sin
An. When I went there with Hernando
Young we saw all the abaca
destroyed. The place was occupied by
the Japanese Army. They planted
camotes and vegetables to feed the
Japanese Army. Of course they never
paid any money to Tan Sin An or his
family. (Dep., Lim, pp. 13-14.
Emphasis supplied).
Plainly, both Young and Lim's testimonies do
the
not belie, or contradict, Goquiolay's admission
the
that he told Mr. Yu Eng Lai that the widow
and
"could just do it" (i.e., continue to manage the
part
properties). Witnesses Lim and Young
referred to the period of Japanese occupation;
but Goquiolay's authority was, in fact, given to
the widow in 1945, after the occupation.
Again, the disputed sale by the widow took
place in 1949. That Kong Chai Pin carried out
no acts of management during the Japanese
occupation (1942-1944) does not mean that
she did not do so from 1945 to 1949.
We thus find that Goquiolay did not merely
rely on reports from Lim and Young; he
actually manifested his willingness that the
widow should manage the partnership
properties. Whether or not she complied with
this authority is a question between her and
the appellant, and is not here involved. But the
authority was given, and she did have it when
she made the questioned sale, because it was
never revoked.
It is argued that the authority given by
Goquiolay to the widow Kong Chai Pin was
only to manage the property, and that it did
not include the power to alienate, citing Article
1713 of the Civil Code of 1889. What this
argument overlooks is that the widow was not
a mere agent, because she had become a
partner upon her husband's death, as
expressly provided by the articles of
copartnership. Even more, granting that by
succession to her husband, Tan Sin An, the
widow only became a limited
partner, Goquiolay's authorization to manage
the partnership property was proof that he
considered and recognized her as general
partner, at least since 1945. The reason is
plain: Under the law (Article 148, last
paragraph, Code of Commerce), appellant
could not empower the widow, if she were
only a limited partner, to administer the
properties of the firm, even as a mere agent:
Limited partners may not perform any
act of administration with respect to
the interests of the copartnership, not
even in the capacity of agents of the
managing partners. (Emphasis
supplied).
By seeking authority to manage partnership
property, Tan Sin An's widow showed that she
desired to be considered a general partner. By
authorizing the widow to manage partnership
property (which a limited partner could not be
authorized to do), Goquiolay recognized her
as such partner, and is now in estoppel to
deny her position as a general partner, with
authority to administer and alienate
partnership property.
Besides, as we pointed out in our main
decision, the heir ordinarily (and we did not
say "necessarily") becomes a limited partner
for his own protection, because he would
normally prefer to avoid any liability in excess
of the value of the estate inherited so as not to
jeopardize his personal assets. But this
statutory limitation of responsibility being
designed to protect the heir, the latter may
disregard it and instead elect to become a
collective or general partner, with all the rights
and privileges of one, and answering for the
debts of the firm not only with the inheritance
but also with the heir's personal fortune. This
choice pertains exclusively to the heir, and
does not require the assent of the surviving
partner.
It must be remember that the articles of co-
partnership here involved expressly stipulated
that:
In the event of the death of any of the
partners at any time before the
expiration of said term, the co-
partnership shall not be dissolved but
will have to be continued and the
deceased partner shall be represented
by his heirs or assigns in said co-
partnership (Art. XII, Articles of Co-
Partnership).
The Articles did not provide that the heirs of
the deceased would be
merely limited partners; on the contrary, they
expressly stipulated that in case of death of
either partner "the co-partnership ... will have
to be continued" with the heirs or assigns. It
certainly could not be continued if it were to be
converted from a general partnership into a
limited partnership, since the difference
between the two kinds of associations is
fundamental; and specially because the
conversion into a limited association would
have the heirs of the deceased partner without
a share in the management. Hence, the
contractual stipulation does actually
contemplate that the heirs would
become general partners rather than limited
ones.
Of course, the stipulation would not bind the
heirs of the deceased partner should they
refuse to assume personal and unlimited
responsibility for the obligations of the firm.
The heirs, in other words, can not be
compelled to become general partners against
their wishes. But because they are not so
compellable, it does not legitimately follow that
they may not voluntarily choose to become
general partners, waiving the protective
mantle of the general laws of succession. And
in the latter event, it is pointless to discuss the
legality of any conversion of a limited partner
into a general one. The heir never was a
limited partner, but chose to be, and became,
a general partner right at the start.
It is immaterial that the heir's name was not
included in the firm name, since no conversion
of status is involved, and the articles of co-
partnership expressly contemplated the
admission of the partner's heirs into the
partnership.
It must never be overlooked that this case
involved the rights acquired by strangers, and
does not deal with the rights existing between
partners Goquiolay and the widow of Tan Sin
An. The issues between the partners inter
sewere expressly reserved in our main
decision. Now, in determining what kind of
partner the widow of partner Tan Sin an Had
elected to become, strangers had to be
guided by her conduct and actuations and
those of appellant Goquiolay. Knowing that by
law a limited partner is barred from managing
the partnership business or property, third
parties (like the purchasers) who found the
widow possessing and managing the firm
property with the acquiescence (or at least
without apparent opposition) of the surviving
partners were perfectly justified in assuming
that she had become a general partner, and,
therefore, in negotiating with her as such a
partner, having authority to act for, and in
behalf of the firm. This belief, be it noted, was
shared even by the probate court that
approved the sale by the widow of the real
property standing in the partnership name.
That belief was fostered by the very inaction
of appellant Goquiolay. Note that for seven
long years, from partner Tan Sin An's death in
1942 to the sale in 1949, there was more than
ample time for Goquiolay to take up the
management of these properties, or at least
ascertain how its affairs stood. For seven
years Goquiolay could have asserted his
alleged rights, and by suitable notice in the
commercial registry could have warned
strangers that they must deal with him alone,
as sole general partner. But he did nothing of
the sort, because he was not interested
(supra), and he did not even take steps to
pay, or settle the firm debts that were overdue
since before the outbreak of the last war. He
did not even take steps, after Tan Sin An died,
to cancel, or modify, the provisions of the
partnership articles that he (Goquiolay) would
have no intervention in the management of
the partnership. This laches certainly
contributed to confirm the view that the widow
of Tan Sin An had, or was given, authority to
manage and deal with the firm's properties
apart from the presumption that a general
partner dealing with partnership property has
to requisite authority from his co-partners
(Litton vs. Hill and Ceron, et al., 67 Phil. 513;
quoted in our main decision, p. 11).
The stipulation in the articles of
partnership that any of the two
managing partners may contract and
sign in the name of the partnership
with the consent of the other,
undoubtedly creates on obligation
between the two partners, which
consists in asking the other's consent
before contracting for the
partnership. This obligation of course
is not imposed upon a third
person who contracts with the
partnership. Neither it is necessary for
the third person to ascertain if the
managing partner with whom he
contracts has previously obtained the
consent of the other. A third person
may and has a right to presume that
the partner with whom he contracts
has, in the ordinary and natural course
of business, the consent of his
copartner; for otherwise he would not
enter into the contract. The third
person would naturally not presume
that the partner with whom he enters
into the transaction is violating the
articles of partnership, but on the
contrary is acting in accordance
therewith. And this finds support in the
legal presumption that the ordinary
course of business has been followed
(No. 18, section 334, Code of Civil
Procedure), and that the law has been
obeyed (No. 31, section 334). This last
presumption is equally applicable to
 contracts which have the force of law
between the parties. (Litton vs. Hill &
Ceron, et al., 67 Phil. 409, 516).
(Emphasis supplied.)
It is next urged that the widow, even as a
partner, had no authority to sell the real estate
of the firm. This argument is lamentably
superficial because it fails to differentiate
between real estate acquired and held
as stock-in-trade and real estate held merely
as business site (Vivante's "taller o banco
social") for the partnership. Where the
partnership business is to deal in merchandise
and goods, i.e., movable property, the sale of
its real property (immovables) is not within the
ordinary powers of a partner, because it is not
in line with the normal business of the firm.
But where the express and avowed purpose
of the partnership is to buy and sell real estate
(as in the present case), the immovables thus
acquired by the firm from part of its stock-in-
trade, and the sale thereof is in pursuance of
partnership purposes, hence within the
ordinary powers of the partner. This distinction
is supported by the opinion of Gay de
Montella1 , in the very passage quoted in the
appellant's motion for reconsideration:
La enajenacion puede entrar en las
facultades del gerante, cuando es
conforme a los fines sociales. Pero
esta facultad de enajenar limitada a
las ventas conforme a los fines
sociales, viene limitada a los objetos
de comercio o a los productos de la
fabrica para explotacion de los cuales
se ha constituido la
Sociedad. Ocurrira una cosa parecida
cuando el objeto de la Sociedad fuese
la compra y venta de inmuebles, en
cuyo caso el gerente estaria facultado
para otorgar las ventas que fuere
necesario. (Montella) (Emphasis
supplied).
The same rule obtains in American law.
In Rosen vs. Rosen, 212 N.Y. Supp. 405, 406,
it was held:
a partnership to deal in real estate
may be created and either partner has
the legal right to sell the firm real
estate.
In Chester vs. Dickerson, 54 N. Y. 1, 13 Am.
Rep. 550:
And hence, when the partnership business is
to deal in real estate, one partner has ample
power, as a general agent of the firm, to enter
into an executory contract for the sale of real
estate.
And in Revelsky vs. Brown, 92 Ala. 522, 9
South 182, 25 Am. St. Rep. 83:
If the several partners engaged in the
business of buying and selling real
estate can not bind the firm by
purchases or sales of such property
made in the regular course of
business, then they are incapable of
exercising the essential rights and
powers of general partners and their
association is not really a partnership
at all, but a several agency.
Since the sale by the widow was in conformity
with the express objective of the partnership,
"to engage ... in buying and selling real estate"
(Art. IV, No. 1 Articles of Copartnership), it can
not be maintained that the sale was made in
excess of her power as general partner.
Considerable stress is laid by appellant in the
ruling of the Supreme Court of Ohio
in McGrath, et al., vs. Cowen, et al., 49 N.E.,
338. But the facts of that case are vastly
different from the one before us. In the
McGrath case, the Court expressly found that:
The firm was then, and for some time
had been, insolvent, in the sense that
its property was insufficient to pay its
debts, though it still had good credit,
and was actively engaged in the
prosecution of its business. On that
day, which was Saturday, the plaintiff
caused to be prepared, ready for
execution, the four chattel mortgages
in question, which cover all the
tangible property then belonging to the
firm, including the counters, shelving,
and other furnishings and fixtures
necessary for, and used in carrying
on, its business, and signed the same
in this form: "In witness whereof, the
said Cowen & McGrath, a firm, and
Owen McGrath, surviving partner, of
said firm, and Owen McCrath,
individually, have hereunto set their
hands, this 20th day of May, A.D.
1893. Cowen & Mcgrath, by Owen
McGrath. Owen McGrath, Surviving
partner of Cowen & McGrath. Owen
McGrath." At the same time,
the plaintiff had prepared, ready for
filing, the petition for the dissolution of
the partnership and appointment of a
receiver which he subsequently filed,
as hereinafter stated. On the day the
mortgages were signed, they were
placed in the hands of the
mortgagees, which was the first
intimation to them that there was any
intention to make them. At the
time none of the claims secured by the
mortgages were due, except, it may
be, a small part of one of them,
and none of the creditors to whom the
mortgages were made had requested
security, or were pressing for the
payment of their debts. ... The
mortgages appear to be without a
sufficient condition of defiance, and
contain a stipulation authorizing the
mortgagees to take immediate
possession of the property, which they
did as soon as the mortgages were
filed through the attorney who then
represented them, as well as the
plaintiff; and the stores were at once
closed, and possession delivered by
them to the receiver appointed upon
the filing of the petition. The avowed
purposes of the plaintiff, in the course
pursued by him, was to terminate the
partnership, place its properly beyond
the control of the firm, and insure the
preference of the mortgagees, all of
which was known to them at the time;
.... (Cas cit., p. 343, Emphasis
supplied).
It is natural that form these facts the Supreme
Court of Ohio should draw the conclusion that
the conveyances were made with intent to
terminate the partnership, and that they were
not within the powers of McGrath as a partner.
But there is no similarity between those acts
and the sale by the widow of Tan Sin An. In
the McGrath case, the sale included even the
fixtures used in the business; in our case, the
lands sold were those acquired to be sold. In
the McGrath case, none of the creditors were
pressing for payment; in our case, the
creditors had been unpaid for more than
seven years, and their claims had been
approved by the probate court for payment. In
the McGrath case, the partnership received
nothing beyond the discharge of its debts; in
the present case, not only were its debts
assumed by the buyers, but the latter paid, in
addition, P37,000.00 in cash to the widow, to
the profit of the partnership. Clearly, the
McGrath ruling is not applicable.
We will now turn to the question of fraud. No
direct evidence of it exists; but appellant point
out, as indicia thereof, the allegedly low price
paid for the property, and the relationship
between the buyers, the creditors of the
partnership, and the widow of Tan Sin An.
First, as to the price: As already noted, this
property was actually sold for a total of
P153,726.04, of which P37,000.00 was in
cash, and the rest in partnership debts
assumed by the purchaser. These debts
(62,415.91 to Yutivo, and P54,310.13 to Sing
Ye Cuan & Co.) are not questioned; they were
approved by the court, and its approval is now
final. The claims were, in fact, for the balance
on the original purchase price of the land sold
(sue first to La Urbana, later to the Banco
Hipotecario) plus accrued interests and taxes,
redeemed by the two creditors-claimants. To
show that the price was inadquate, appellant
relies on the testimony of the realtor Mata,
who is 1955, six years after the sale in
question, asserted that the land was worth
P312,000.00. Taking into account the
continued rise of real estate values since
liberation, and the fact that the sale in
question was practically a forced sale
because the partnership had no other means
to pay its legitimate debts, this evidence
certainly does not show such "gross
inadequacy" as to justify recission of the sale.
If at the time of the sale (1949) the price of
P153,726.04 was really low, how is it that
appellant was not able to raise the amount,
even if the creditor's representative, Yu Khe
Thai, had already warned him four years
before (1945) that the creditors wanted their
money back, as they were justly entitled to?
It is argued that the land could have been
mortgaged to raise the sum needed to
discharge the debts. But the lands were
already mortgaged, and had been mortgaged
since 1940, first to La Urbana, and then to the
Banco Hipotecario. Was it reasonable to
expect that other persons would loan money
to the partnership when it was unable even to
pay the taxes on the property, and the interest
on the principal since 1940? If it had been
possible to find lenders willing to take a
chance on such a bad financial record, would
not Goquiolay have taken advantage of it? But
the fact is clear on the record that since
liberation until 1949 Goquiolay never lifted a
finger to discharge the debts of the
partnership. Is he entitled now to cry fraud
after the debts were discharged with no help
from him.
With regard to the relationship between the
parties, suffice it to say that the Supreme
Court has ruled that relationship alone is not a
badge of fraud (Oria Hnos. vs. McMicking, 21
Phil. 243; also Hermandad del Smo. Nombre
de Jesus vs. Sanchez, 40 Off. Gaz., 1685).
There is no evidence that the original buyers,
Washington Sycip and Betty Lee, were
without independent means to purchase the
property. That the Yutivos should be willing to
extend credit to them, and not to appellant, is
neither illegal nor immoral; at the very least,
these buyers did not have a record of
inveterate defaults like the partnership "Tan
Sin An & Goquiolay".
Appellant seeks to create the impression that
he was the victim of a conspiracy between the
Yutivo firm and their component members.
But no proof is adduced. If he was such a
victim, he could have easily defeated the
conspirators by raising money and paying off
the firm's debts between 1945 and 1949; but
he did not; he did not even care to look for a
purchaser of the partnership assets. Were it
true that the conspiracy to defraud him arose
(as he claims) because of his refusal to sell
the lands when in 1945 Yu Khe Thai asked
him to do so, it is certainly strange that the
conspirators should wait 4 years, until 1949, to
have the sale effected by the widow of Tan
Sin An, and that the sale should have been
routed through the probate court taking
cognizance of Tan Sin An's estate, all of
which increased the risk that the supposed
fraud should be detected.
Neither was there any anomaly in the filing of
the claims of Yutivo and Sing Yee Cuan &
Co., (as subrogees of the Banco Hipotecario)
in proceedings for the settlement of the estate
of Tan Sin An. This for two reasons: First, Tan
Sin An and the partnership "Tan Sin An &
Goquiolay" were solidary (Joint and
several)debtors (Exhibits "N", mortgage to the
Banco Hipotecario), and Rule 87, section 6 is
the effect that:
Where the obligation of the decedent
is joint and several with another
debtor, the claim shall be filed against
the decedent as if he were the only
debtor, without prejudice to the right of
the estate to recover contribution from
the other debtor. (Emphasis supplied).
Secondly, the solidary obligation was
guaranteed by a mortgage on the properties
of the partnership and those of Tan Sim An
personally, and a mortgage is indivisible, in
the sense that each and every parcel under
mortgage answers for the totality of the debt
(Civ. Code of 1889, Article 1860; New Civil
Code, Art. 2089).
A final and conclusive consideration: The
fraud charged not being one used to obtain a
party's consent to a contract (i.e., not being
deceit or dolus in contrahendo), if there is
fraud at al, it can only be a fraud of
creditors that gives rise to a rescission of the
offending contract. But by express provision of
law (Article 1294, Civil Code of 1889; Article
1383, New Civil Code) "the action for
rescission is subsidiary; it can not be instituted
except when the party suffering damage has
no other legal means to obtain reparation for
the same". Since there is no allegation, or
evidence, that Goquiolay can not obtain
reparation from the widow and heirs of Tan
Sin An, the present suit to rescind the sale in
question is not maintainable, even if the fraud
charged actually did exist.

PREMISES CONSIDERED, the motion for

reconsideration is denied.

Bengzon, C.J., Padilla, Concepcion, Barrera

and Dizon, JJ., concur.
Regala, J., took no part.
37. CASTILLO, JOSE REA, GIL GANADO,
PRIMITIVA LICAYAN, LETICIA ALQUEZA
G.R. No. 152613 & No. 152628 June and joel brillantes management mining
23, 2006 corporation, Respondents.

APEX MINING CO., INC., petitioner, x--------------------------------------x

vs.
SOUTHEAST MINDANAO GOLD MINING G.R. No. 152870-71 June 23, 2006
CORP., the mines adjudication board,
provincial mining regulatory board (PMRB- THE MINES ADJUDICATION BOARD AND
DAVAO), MONKAYO INTEGRATED SMALL ITS MEMBERS, THE HON. VICTOR O.
SCALE MINERS ASSOCIATION, INC., RAMOS (Chairman), UNDERSECRETARY
ROSENDO VILLAFLOR, BALITE VIRGILIO MARCELO (Member) and
COMMUNAL PORTAL MINING DIRECTOR HORACIO RAMOS
COOPERATIVE, DAVAO UNITED MINERS (Member), petitioners,
COOPERATIVE, ANTONIO DACUDAO, vs.
PUTING-BATO GOLD MINERS SOUTHEAST MINADANAO GOLD MINING
COOPERATIVE, ROMEO ALTAMERA, CORPORATION, Respondent.
THELMA CATAPANG, LUIS GALANG,
RENATO BASMILLO, FRANCISCO DECISION
YOBIDO, EDUARDO GLORIA, EDWIN
ASION, MACARIO HERNANDEZ,
CHICO-NAZARIO, J.:
REYNALDO CARUBIO, ROBERTO
BUNIALES, RUDY ESPORTONO, ROMEO
CASTILLO, JOSE REA, GIL GANADO, On 27 February 1931, Governor General
PRIMITIVA LICAYAN, LETICIA ALQUEZA Dwight F. Davis issued Proclamation No. 369,
and joel brillantes management mining establishing the Agusan-Davao-Surigao
corporation, Respondents. Forest Reserve consisting of approximately
1,927,400 hectares.1
x--------------------------------------x
The disputed area, a rich tract of mineral land,
is inside the forest reserve located at
G.R. No. 152619-20 June 23, 2006
Monkayo, Davao del Norte, and Cateel,
Davao Oriental, consisting of 4,941.6759
BALITE COMMUNAL PORTAL MINING hectares.2 This mineral land is encompassed
COOPERATIVE, petitioner, by Mt. Diwata, which is situated in the
vs. municipalities of Monkayo and Cateel. It later
SOUTHEAST MINDANAO GOLD MINING became known as the "Diwalwal Gold Rush
CORPORATION, APEX MINING CO., INC., Area." It has since the early 1980s been
the mines adjudication board, provincial stormed by conflicts brought about by the
mining regulatory board (PMRB-DAVAO), numerous mining claimants scrambling for
MONKAYO INTEGRATED SMALL SCALE gold that lies beneath its bosom.
MINERS ASSOCIATION, INC., ROSENDO
VILLAFLOR, DAVAO UNITED MINERS
On 21 November 1983, Camilo Banad and his
COOPERATIVE, ANTONIO DACUDAO,
group, who claimed to have first discovered
PUTING-BATO GOLD MINERS
traces of gold in Mount Diwata, filed a
COOPERATIVE, ROMEO ALTAMERA,
Declaration of Location (DOL) for six mining
THELMA CATAPANG, LUIS GALANG,
claims in the area.
RENATO BASMILLO, FRANCISCO
YOBIDO, EDUARDO GLORIA, EDWIN
ASION, MACARIO HERNANDEZ, Camilo Banad and some other natives pooled
REYNALDO CARUBIO, ROBERTO their skills and resources and organized the
BUNIALES, RUDY ESPORTONO, ROMEO Balite Communal Portal Mining Cooperative
(Balite).3
On 12 December 1983, Apex Mining
Corporation (Apex) entered into operating
agreements with Banad and his group.
From November 1983 to February 1984,
several individual applications for mining
locations over mineral land covering certain
parts of the Diwalwal gold rush area were filed
with the Bureau of Mines and Geo-Sciences
(BMG).
On 2 February 1984, Marcopper Mining
Corporation (MMC) filed 16 DOLs or mining
claims for areas adjacent to the area covered
by the DOL of Banad and his group. After
realizing that the area encompassed by its
mining claims is a forest reserve within the
coverage of Proclamation No. 369 issued by
Governor General Davis, MMC abandoned
the same and instead applied for a
prospecting permit with the Bureau of Forest
Development (BFD).
On 1 July 1985, BFD issued a Prospecting
Permit to MMC covering an area of
4,941.6759 hectares traversing the
municipalities of Monkayo and Cateel, an area
within the forest reserve under Proclamation
No. 369. The permit embraced the areas
claimed by Apex and the other individual
mining claimants.
On 11 November 1985, MMC filed Exploration
Permit Application No. 84-40 with the BMG.
On 10 March 1986, the BMG issued to MCC
Exploration Permit No. 133 (EP 133).
Discovering the existence of several mining
claims and the proliferation of small-scale
miners in the area covered by EP 133, MMC
thus filed on 11 April 1986 before the BMG a
Petition for the Cancellation of the Mining
Claims of Apex and Small Scale Mining
Permit Nos. (x-1)-04 and (x-1)-05 which was
docketed as MAC No. 1061. MMC alleged
that the areas covered by its EP 133 and the
mining claims of Apex were within an
established and existing forest reservation
(Agusan-Davao-Surigao Forest Reserve)
under Proclamation No. 369 and that pursuant
to Presidential Decree No. 463,4 acquisition of
mining rights within a forest reserve is through
the application for a permit to prospect with
the BFD and not through registration of a DOL
with the BMG.
On 23 September 1986, Apex filed a motion to
dismiss MMCs petition alleging that its mining
claims are not within any established or
proclaimed forest reserve, and as such, the
acquisition of mining rights thereto must be
undertaken via registration of DOL with the
BMG and not through the filing of application
for permit to prospect with the BFD.
On 9 December 1986, BMG dismissed MMCs
petition on the ground that the area covered
by the Apex mining claims and MMCs permit
to explore was not a forest reservation. It
further declared null and void MMCs EP 133
and sustained the validity of Apex mining
claims over the disputed area.
MMC appealed the adverse order of BMG to
the Department of Environment and Natural
Resources (DENR).
On 15 April 1987, after due hearing, the
DENR reversed the 9 December 1996 order
of BMG and declared MMCs EP 133 valid
and subsisting.
Apex filed a Motion for Reconsideration with
the DENR which was subsequently denied.
Apex then filed an appeal before the Office of
the President. On 27 July 1989, the Office of
the President, through Assistant Executive
Secretary for Legal Affairs, Cancio C.
Garcia,5 dismissed Apexs appeal and
affirmed the DENR ruling.
Apex filed a Petition for Certiorari before this
Court. The Petition was docketed as G.R. No.
92605 entitled, "Apex Mining Co., Inc. v.
Garcia."6 On 16 July 1991, this Court
rendered a Decision against Apex holding that
the disputed area is a forest reserve; hence,
the proper procedure in acquiring mining
rights therein is by initially applying for a
permit to prospect with the BFD and not
through a registration of DOL with the BMG.
On 27 December 1991, then DENR Secretary
Fulgencio Factoran, Jr. issued Department
Administrative Order No. 66 (DAO No. 66)
declaring 729 hectares of the areas covered
by the Agusan-Davao-Surigao Forest Reserve
as non-forest lands and open to small-scale
mining purposes.
As DAO No. 66 declared a portion of the
contested area open to small scale miners,
several mining entities filed applications for
Mineral Production Sharing Agreement
(MPSA).
On 25 August 1993, Monkayo Integrated
Small Scale Miners Association (MISSMA)
filed an MPSA application which was denied
by the BMG on the grounds that the area
applied for is within the area covered by MMC
EP 133 and that the MISSMA was not
qualified to apply for an MPSA under DAO No.
82,7 Series of 1990.
On 5 January 1994, Rosendo Villaflor and his
group filed before the BMG a Petition for
Cancellation of EP 133 and for the admission
of their MPSA Application. The Petition was
docketed as RED Mines Case No. 8-8-94.
Davao United Miners Cooperative (DUMC)
and Balite intervened and likewise sought the
cancellation of EP 133.
On 16 February 1994, MMC assigned EP 133
to Southeast Mindanao Gold Mining
Corporation (SEM), a domestic corporation
which is alleged to be a 100% -owned
subsidiary of MMC.
On 14 June 1994, Balite filed with the BMG an
MPSA application within the contested area
that was later on rejected.
On 23 June 1994, SEM filed an MPSA
application for the entire 4,941.6759 hectares
under EP 133, which was also denied by
reason of the pendency of RED Mines Case
No. 8-8-94. On 1 September 1995, SEM filed
another MPSA application.
On 20 October 1995, BMG accepted and
registered SEMs MPSA application and the
Deed of Assignment over EP 133 executed in
its favor by MMC. SEMs application was
designated MPSA Application No. 128
(MPSAA 128). After publication of SEMs
application, the following filed before the BMG
their adverse claims or oppositions:
a) MAC Case No. 004 (XI) JB
Management Mining Corporation;
b) MAC Case No. 005(XI)
Davao United Miners
Cooperative;
c) MAC Case No. 006(XI) Balite
Integrated Small Scale Miners
Cooperative;
d) MAC Case No. 007(XI) Monkayo
Integrated Small Scale Miners
Association, Inc. (MISSMA);
e) MAC Case No. 008(XI) Paper
Industries Corporation of the
Philippines;
f) MAC Case No. 009(XI) Rosendo
Villafor, et al.;
g) MAC Case No. 010(XI) Antonio
Dacudao;
h) MAC Case No. 011(XI) Atty. Jose
T. Amacio;
i) MAC Case No. 012(XI) Puting-
Bato Gold Miners Cooperative;
j) MAC Case No. 016(XI) Balite
Communal Portal Mining Cooperative;
k) MAC Case No. 97-01(XI) Romeo
Altamera, et al.8
To address the matter, the DENR constituted
a Panel of Arbitrators (PA) to resolve the
following:
(a) The adverse claims on MPSAA
No. 128; and
(b) The Petition to Cancel EP 133 filed
by Rosendo Villaflor docketed as RED
Case No. 8-8-94.9
On 13 June 1997, the PA rendered a
resolution in RED Mines Case No. 8-8-94. As
to the Petition for Cancellation of EP 133
issued to MMC, the PA relied on the ruling in
Apex Mining Co., Inc. v. Garcia,10 and opined
that EP 133 was valid and subsisting. It also
declared that the BMG Director, under Section
99 of the Consolidated Mines Administrative
Order implementing Presidential Decree No.
463, was authorized to issue exploration
permits and to renew the same without limit.
With respect to the adverse claims on SEMs
MPSAA No. 128, the PA ruled that adverse
claimants petitions were not filed in
accordance with the existing rules and
regulations governing adverse claims because
the adverse claimants failed to submit the
sketch plan containing the technical
description of their respective claims, which
was a mandatory requirement for an adverse
claim that would allow the PA to determine if
indeed there is an overlapping of the area
occupied by them and the area applied for by
SEM. It added that the adverse claimants
were not claim owners but mere occupants
conducting illegal mining activities at the
contested area since only MMC or its
assignee SEM had valid mining claims over
the area as enunciated in Apex Mining Co.,
Inc. v. Garcia.11 Also, it maintained that the
adverse claimants were not qualified as small-
scale miners under DENR Department
Administrative Order No. 34 (DAO No.
34),12 or the Implementing Rules and
Regulation of Republic Act No. 7076
(otherwise known as the "Peoples Small-
Scale Mining Act of 1991"), as they were not
duly licensed by the DENR to engage in the
extraction or removal of minerals from the
ground, and that they were large-scale
miners. The decretal portion of the PA
resolution pronounces:
VIEWED IN THE LIGHT OF THE
FOREGOING, the validity of Expoloration
Permit No. 133 is hereby reiterated and all the
adverse claims against MPSAA No. 128 are
DISMISSED.13
Undaunted by the PA ruling, the adverse
claimants appealed to the Mines Adjudication
Board (MAB). In a Decision dated 6 January
1998, the MAB considered erroneous the
dismissal by the PA of the adverse claims filed
against MMC and SEM over a mere
technicality of failure to submit a sketch plan.
It argued that the rules of procedure are not
meant to defeat substantial justice as the
former are merely secondary in importance to
the latter. Dealing with the question on EP
133s validity, the MAB opined that said issue
was not crucial and was irrelevant in
adjudicating the appealed case because EP
133 has long expired due to its non-renewal
and that the holder of the same, MMC, was no
longer a claimant of the Agusan-Davao-
Surigao Forest Reserve having relinquished
its right to SEM. After it brushed aside the
issue of the validity of EP 133 for being
irrelevant, the MAB proceeded to treat SEMs
MPSA application over the disputed area as
an entirely new and distinct application. It
approved the MPSA application, excluding the
area segregated by DAO No. 66, which
declared 729 hectares within the Diwalwal
area as non-forest lands open for small-scale
mining. The MAB resolved:
WHEREFORE, PREMISES CONSIDERED,
the decision of the Panel of Arbitrators dated
13 June 1997 is hereby VACATED and a new
one entered in the records of the case as
follows:
1. SEMs MPSA application is hereby
given due course subject to the full
and strict compliance of the provisions
of the Mining Act and its Implementing
Rules and Regulations;
2. The area covered by DAO 66,
series of 1991, actually occupied and
actively mined by the small-scale
miners on or before August 1, 1987 as
determined by the Provincial Mining
Regulatory Board (PMRB), is hereby
excluded from the area applied for by
SEM;
3. A moratorium on all mining and
mining-related activities, is hereby
imposed until such time that all
necessary procedures, licenses,
permits, and other requisites as
provided for by RA 7076, the Mining
 Act and its Implementing Rules and
Regulations and all other pertinent
laws, rules and regulations are
complied with, and the appropriate
environmental protection measures
and safeguards have been effectively
put in place;
4. Consistent with the spirit of RA
7076, the Board encourages SEM and
all small-scale miners to continue to
negotiate in good faith and arrive at an
agreement beneficial to all. In the
event of SEMs strict and full
compliance with all the requirements
of the Mining Act and its Implementing
Rules and Regulations, and the
concurrence of the small-scale miners
actually occupying and actively mining
the area, SEM may apply for the
inclusion of portions of the areas
segregated under paragraph 2 hereof,
to its MPSA application. In this light,
subject to the preceding paragraph,
the contract between JB [JB
Management Mining Corporation] and
SEM is hereby recognized.14
Dissatisfied, the Villaflor group and Balite
appealed the decision to this Court. SEM,
aggrieved by the exclusion of 729 hectares
from its MPSA application, likewise appealed.
Apex filed a Motion for Leave to Admit Petition
for Intervention predicated on its right to stake
its claim over the Diwalwal gold rush which
was granted by the Court. These cases,
however, were remanded to the Court of
Appeals for proper disposition pursuant to
Rule 43 of the 1997 Rules of Civil Procedure.
The Court of Appeals consolidated the
remanded cases as CA-G.R. SP No. 61215
and No. 61216.
In the assailed Decision15 dated 13 March
2002, the Court of Appeals affirmed in toto the
decision of the PA and declared null and void
the MAB decision.
The Court of Appeals, banking on the premise
that the SEM is the agent of MMC by virtue of
its assignment of EP 133 in favor of SEM and
the purported fact that SEM is a 100%
subsidiary of MMC, ruled that the transfer of
EP 133 was valid. It argued that since SEM is
an agent of MMC, the assignment of EP 133
did not violate the condition therein prohibiting
its transfer except to MMCs duly designated
agent. Thus, despite the non-renewal of EP
133 on 6 July 1994, the Court of Appeals
deemed it relevant to declare EP 133 as valid
since MMCs mining rights were validly
transferred to SEM prior to its expiration.
The Court of Appeals also ruled that MMCs
right to explore under EP 133 is a property
right which the 1987 Constitution protects and
which cannot be divested without the holders
consent. It stressed that MMCs failure to
proceed with the extraction and utilization of
minerals did not diminish its vested right to
explore because its failure was not attributable
to it.
Reading Proclamation No. 369, Section 11 of
Commonwealth Act 137, and Sections 6, 7,
and 8 of Presidential Decree No. 463, the
Court of Appeals concluded that the issuance
of DAO No. 66 was done by the DENR
Secretary beyond his power for it is the
President who has the sole power to withdraw
from the forest reserve established under
Proclamation No. 369 as non-forest land for
mining purposes. Accordingly, the segregation
of 729 hectares of mining areas from the
coverage of EP 133 by the MAB was
unfounded.
The Court of Appeals also faulted the DENR
Secretary in implementing DAO No. 66 when
he awarded the 729 hectares segregated from
the coverage area of EP 133 to other
corporations who were not qualified as small-
scale miners under Republic Act No. 7076.
As to the petitions of Villaflor and company,
the Court of Appeals argued that their failure
to submit the sketch plan to the PA, which is a
jurisdictional requirement, was fatal to their
appeal. It likewise stated the Villaflor and
companys mining claims, which were based
on their alleged rights under DAO No. 66,
cannot stand as DAO No. 66 was null and
void. The dispositive portion of the Decision
decreed:
WHEREFORE, premises considered, the LAW THAT "PRIORITY IN TIME IS
Petition of Southeast Mindanao Gold Mining PRIORITY IN RIGHT."17
Corporation is GRANTED while the Petition of
Rosendo Villaflor, et al., is DENIED for lack of In G.R. No. 152619-20, Balite anchors its
merit. The Decision of the Panel of Arbitrators petition on the following grounds:
dated 13 June 1997 is AFFIRMED in toto and
the assailed MAB Decision is hereby SET I
ASIDE and declared as NULL and VOID.16
WHETHER OR NOT THE MPSA OF SEM
Hence, the instant Petitions for Review on WHICH WAS FILED NINE (9) DAYS LATE
Certiorari under Rule 45 of the Rules of Court (JUNE 23, 1994) FROM THE FILING OF THE
filed by Apex, Balite and MAB. MPSA OF BALITE WHICH WAS FILED ON
JUNE 14, 1994 HAS A PREFERENTIAL
During the pendency of these Petitions, RIGHT OVER THAT OF BALITE.
President Gloria Macapagal-Arroyo issued
Proclamation No. 297 dated 25 November II
2002. This proclamation excluded an area of
8,100 hectares located in Monkayo,
WHETHER OR NOT THE DISMISSAL BY
Compostela Valley, and proclaimed the same
THE PANEL OF ARBITRATORS OF THE
as mineral reservation and as environmentally
ADVERSE CLAIM OF BALITE ON THE
critical area. Subsequently, DENR
GROUND THAT BALITE FAILED TO SUBMIT
Administrative Order No. 2002-18 was issued
THE REQUIRED SKETCH PLAN DESPITE
declaring an emergency situation in the
THE FACT THAT BALITE, HAD IN FACT
Diwalwal gold rush area and ordering the
SUBMITTED ON TIME WAS A VALID
stoppage of all mining operations therein.
DISMISSAL OF BALITES ADVERSE CLAIM.
Thereafter, Executive Order No. 217 dated 17
June 2003 was issued by the President
creating the National Task Force Diwalwal III
which is tasked to address the situation in the
Diwalwal Gold Rush Area. WHETHER OR NOT THE ACTUAL
OCCUPATION AND SMALL-MINING
In G.R. No. 152613 and No. 152628, Apex OPERATIONS OF BALITE PURSUANT TO
raises the following issues: DAO 66 IN THE 729 HECTARES WHICH
WAS PART OF THE 4,941.6759 HECTARES
COVERED BY ITS MPSA WHICH WAS
I
REJECTED BY THE BUREAU OF MINES
AND GEOSCIENCES WAS ILLEGAL.18
WHETHER OR NOT SOUTHEAST
MINDANAO GOLD MININGS [SEM] E.P. 133
In G.R. No. 152870-71, the MAB submits two
IS NULL AND VOID DUE TO THE FAILURE
issues, to wit:
OF MARCOPPER TO COMPLY WITH THE
TERMS AND CONDITIONS PRESCRIBED IN
EP 133. I

II WHETHER OR NOT EP NO. 133 IS STILL

VALID AND SUBSISTING.
WHETHER OR NOT APEX HAS A
SUPERIOR AND PREFERENTIAL RIGHT TO II
STAKE ITS CLAIM OVER THE ENTIRE
4,941 HECTARES AGAINST SEM AND THE WHETHER OR NOT THE SUBSEQUENT
OTHER CLAIMANTS PURSUANT TO THE ACTS OF THE GOVERNMENT SUCH AS
TIME-HONORED PRINCIPLE IN MINING THE ISSUANCE OF DAO NO. 66,
PROCLAMATION NO. 297, AND
EXECUTIVE ORDER 217 CAN OUTWEIGH
EP NO. 133 AS WELL AS OTHER ADVERSE
CLAIMS OVER THE DIWALWAL GOLD
RUSH AREA.19
The common issues raised by petitioners may
be summarized as follows:
I. Whether or not the Court of Appeals
erred in upholding the validity and
continuous existence of EP 133 as
well as its transfer to SEM;
II. Whether or not the Court of Appeals
erred in declaring that the DENR
Secretary has no authority to issue
DAO No. 66; and
III. Whether or not the subsequent
acts of the executive department such
as the issuance of Proclamation No.
297, and DAO No. 2002-18 can
outweigh Apex and Balites claims
over the Diwalwal Gold Rush Area.
On the first issue, Apex takes exception to the
Court of Appeals ruling upholding the validity
of MMCs EP 133 and its subsequent transfer
to SEM asserting that MMC failed to comply
with the terms and conditions in its exploration
permit, thus, MMC and its successor-in-
interest SEM lost their rights in the Diwalwal
Gold Rush Area. Apex pointed out that MMC
violated four conditions in its permit. First,
MMC failed to comply with the mandatory
work program, to complete exploration work,
and to declare a mining feasibility. Second, it
reneged on its duty to submit an
Environmental Compliance Certificate. Third,
it failed to comply with the reportorial
requirements. Fourth, it violated the terms of
EP 133 when it assigned said permit to SEM
despite the explicit proscription against its
transfer.
Apex likewise emphasizes that MMC failed to
file its MPSA application required under DAO
No. 8220 which caused its exploration permit to
lapse because DAO No. 82 mandates holders
of exploration permits to file a Letter of Intent
and a MPSA application not later than 17 July
1991. It said that because EP 133 expired
prior to its assignment to SEM, SEMs MPSA
application should have been evaluated on its
own merit.
As regards the Court of Appeals recognition of
SEMs vested right over the disputed area,
Apex bewails the same to be lacking in
statutory bases. According to Apex,
Presidential Decree No. 463 and Republic Act
No. 7942 impose upon the claimant the
obligation of actually undertaking exploration
work within the reserved lands in order to
acquire priority right over the area. MMC,
Apex claims, failed to conduct the necessary
exploration work, thus, MMC and its
successor-in-interest SEM lost any right over
the area.
In its Memorandum, Balite maintains that EP
133 of MMC, predecessor-in-interest of SEM,
is an expired and void permit which cannot be
made the basis of SEMs MPSA application.
Similarly, the MAB underscores that SEM did
not acquire any right from MMC by virtue of
the transfer of EP 133 because the transfer
directly violates the express condition of the
exploration permit stating that "it shall be for
the exclusive use and benefit of the permittee
or his duly authorized agents." It added that
while MMC is the permittee, SEM cannot be
considered as MMCs duly designated agent
as there is no proof on record authorizing
SEM to represent MMC in its business
dealings or undertakings, and neither did SEM
pursue its interest in the permit as an agent of
MMC. According to the MAB, the assignment
by MMC of EP 133 in favor of SEM did not
make the latter the duly authorized agent of
MMC since the concept of an agent under EP
133 is not equivalent to the concept of
assignee. It finds fault in the assignment of EP
133 which lacked the approval of the DENR
Secretary in contravention of Section 25 of
Republic Act No. 794221 requiring his approval
for a valid assignment or transfer of
exploration permit to be valid.
SEM, on the other hand, counters that the
errors raised by petitioners Apex, Balite and
the MAB relate to factual and evidentiary
matters which this Court cannot inquire into in
an appeal by certiorari.
The established rule is that in the exercise of
the Supreme Courts power of review, the
Court not being a trier of facts, does not
normally embark on a re-examination of the
evidence presented by the contending parties
during the trial of the case considering that the
findings of facts of the Court of Appeals are
conclusive and binding on the Court.22 This
rule, however, admits of exceptions as
recognized by jurisprudence, to wit:
(1) [w]hen the findings are grounded entirely
on speculation, surmises or conjectures; (2)
when the inference made is manifestly
mistaken, absurd or impossible; (3) when
there is grave abuse of discretion; (4) when
the judgment is based on misapprehension of
facts; (5) when the findings of facts are
conflicting; (6) when in making its findings the
Court of Appeals went beyond the issues of
the case, or its findings are contrary to the
admissions of both the appellant and the
appellee; (7) when the findings are contrary to
the trial court; (8) when the findings are
conclusions without citation of specific
evidence on which they are based; (9) when
the facts set forth in the petition as well as in
the petitioners main and reply briefs are not
disputed by the respondent; (10) when the
findings of fact are premised on the supposed
absence of evidence and contradicted by the
evidence on record; and (11) when the Court
of Appeals manifestly overlooked certain
relevant facts not disputed by the parties,
which, if properly considered, would justify a
different conclusion.23
Also, in the case of Manila Electric Company
v. Benamira,24 the Court in a Petition for
Review on Certiorari, deemed it proper to look
deeper into the factual circumstances of the
case since the Court of Appeals findings are
at odds to those of the National Labor
Relations Commission (NLRC). Just like in the
foregoing case, it is this Courts considered
view that a re-evaluation of the attendant facts
surrounding the present case is appropriate
considering that the findings of the MAB are in
conflict with that of the Court of Appeals.
I
At the threshold, it is an undisputed fact that
MMC assigned to SEM all its rights under EP
133 pursuant to a Deed of Assignment dated
16 February 1994.25
EP 133 is subject to the following terms and
conditions26 :
1. That the permittee shall abide by
the work program submitted with the
application or statements made later
in support thereof, and which shall be
considered as conditions and
essential parts of this permit;
2. That permittee shall maintain a
complete record of all activities and
accounting of all expenditures incurred
therein subject to periodic inspection
and verification at reasonable intervals
by the Bureau of Mines at the expense
of the applicant;
3. That the permittee shall submit to
the Director of Mines within 15 days
after the end of each calendar quarter
a report under oath of a full and
complete statement of the work done
in the area covered by the permit;
4. That the term of this permit shall be
for two (2) years to be effective from
this date, renewable for the same
period at the discretion of the Director
of Mines and upon request of the
applicant;
5. That the Director of Mines may at
any time cancel this permit for
violation of its provision or in case of
trouble or breach of peace arising in
the area subject hereof by reason of
conflicting interests without any
responsibility on the part of the
government as to expenditures for
exploration that might have been
incurred, or as to other damages that
might have been suffered by the
permittee; and
6. That this permit shall be for the
exclusive use and benefit of the
 permittee or his duly authorized
agents and shall be used for mineral
exploration purposes only and for no
other purpose.
Under Section 9027 of Presidential Decree No.
463, the applicable statute during the
issuance of EP 133, the DENR Secretary,
through Director of BMG, is charged with
carrying out the said law. Also, under
Commonwealth Act No. 136, also known as
"An Act Creating The Bureau of Mines," which
was approved on 7 November 1936, the
Director of Mines has the direct charge of the
administration of the mineral lands and
minerals, and of the survey, classification,
lease or any other form of concession or
disposition thereof under the Mining
Act.28 This power of administration includes
the power to prescribe terms and conditions in
granting exploration permits to qualified
entities. Thus, in the grant of EP 133 in favor
of the MMC, the Director of the BMG acted
within his power in laying down the terms and
conditions attendant thereto.
Condition number 6 categorically states that
the permit shall be for the exclusive use and
benefit of MMC or its duly authorized agents.
While it may be true that SEM, the assignee of
EP 133, is a 100% subsidiary corporation of
MMC, records are bereft of any evidence
showing that the former is the duly authorized
agent of the latter. For a contract of agency to
exist, it is essential that the principal consents
that the other party, the agent, shall act on its
behalf, and the agent consents so as to
act.29 In the case of Yu Eng Cho v. Pan
American World Airways, Inc.,30this Court had
the occasion to set forth the elements of
agency, viz:
(1) consent, express or implied, of the
parties to establish the relationship;
(2) the object is the execution of a
juridical act in relation to a third
person;
(3) the agent acts as a representative
and not for himself;
(4) the agent acts within the scope of
his authority.
The existence of the elements of agency is a
factual matter that needs to be established or
proven by evidence. The burden of proving
that agency is extant in a certain case rests in
the party who sets forth such allegation. This
is based on the principle that he who alleges a
fact has the burden of proving it.31 It must
likewise be emphasized that the evidence to
prove this fact must be clear, positive and
convincing.32
In the instant Petitions, it is incumbent upon
either MMC or SEM to prove that a contract of
agency actually exists between them so as to
allow SEM to use and benefit from EP 133 as
the agent of MMC. SEM did not claim nor
submit proof that it is the designated agent of
MMC to represent the latter in its business
dealings or undertakings. SEM cannot,
therefore, be considered as an agent of MMC
which can use EP 133 and benefit from it.
Since SEM is not an authorized agent of
MMC, it goes without saying that the
assignment or transfer of the permit in favor of
SEM is null and void as it directly contravenes
the terms and conditions of the grant of EP
133.
Furthermore, the concept of agency is distinct
from assignment. In agency, the agent acts
not on his own behalf but on behalf of his
principal.33 While in assignment, there is total
transfer or relinquishment of right by the
assignor to the assignee.34 The assignee
takes the place of the assignor and is no
longer bound to the latter. The deed of
assignment clearly stipulates:
1. That for ONE PESO (P1.00) and other
valuable consideration received by the
ASSIGNOR from the ASSIGNEE, the
ASSIGNOR hereby ASSIGNS, TRANSFERS
and CONVEYS unto the ASSIGNEE whatever
rights or interest the ASSIGNOR may have in
the area situated in Monkayo, Davao del
Norte and Cateel, Davao Oriental, identified
as Exploration Permit No. 133 and Application
for a Permit to Prospect in Bunawan, Agusan
del Sur respectively.35
Bearing in mind the just articulated distinctions
and the language of the Deed of Assignment,
it is readily obvious that the assignment by
MMC of EP 133 in favor of SEM did not make
the latter the formers agent. Such assignment
involved actual transfer of all rights and
obligations MMC have under the permit in
favor of SEM, thus, making SEM the
permittee. It is not a mere grant of authority to
SEM, as an agent of MMC, to use the permit.
It is a total abdication of MMCs rights over the
permit. Hence, the assignment in question did
not make SEM the authorized agent of MMC
to make use and benefit from EP 133.
The condition stipulating that the permit is for
the exclusive use of the permittee or its duly
authorized agent is not without any reason.
Exploration permits are strictly granted to
entities or individuals possessing the
resources and capability to undertake mining
operations. Without such a condition, non-
qualified entities or individuals could
circumvent the strict requirements under the
law by the simple expediency acquiring the
permit from the original permittee.
We cannot lend recognition to the Court of
Appeals theory that SEM, being a 100%
subsidiary of MMC, is automatically an agent
of MMC.
A corporation is an artificial being created by
operation of law, having the right of
succession and the powers, attributes, and
properties expressly authorized by law or
incident to its existence.36 It is an artificial
being invested by law with a personality
separate and distinct from those of the
persons composing it as well as from that of
any other legal entity to which it may be
related.37 Resultantly, absent any clear proof
to the contrary, SEM is a separate and distinct
entity from MMC.
The Court of Appeals pathetically invokes the
doctrine of piercing the corporate veil to
legitimize the prohibited transfer or
assignment of EP 133. It stresses that SEM is
just a business conduit of MMC, hence, the
distinct legal personalities of the two entities
should not be recognized. True, the corporate
mask may be removed when the corporation
is just an alter ego or a mere conduit of a
person or of another corporation.38 For
reasons of public policy and in the interest of
justice, the corporate veil will justifiably be
impaled only when it becomes a shield for
fraud, illegality or inequity committed against a
third person.39 However, this Court has made
a caveat in the application of the doctrine of
piercing the corporate veil. Courts should be
mindful of the milieu where it is to be applied.
Only in cases where the corporate fiction was
misused to such an extent that injustice, fraud
or crime was committed against another, in
disregard of its rights may the veil be pierced
and removed. Thus, a subsidiary corporation
may be made to answer for the liabilities
and/or illegalities done by the parent
corporation if the former was organized for the
purpose of evading obligations that the latter
may have entered into. In other words, this
doctrine is in place in order to expose and
hold liable a corporation which commits illegal
acts and use the corporate fiction to avoid
liability from the said acts. The doctrine of
piercing the corporate veil cannot therefore be
used as a vehicle to commit prohibited acts
because these acts are the ones which the
doctrine seeks to prevent.
To our mind, the application of the foregoing
doctrine is unwarranted. The assignment of
the permit in favor of SEM is utilized to
circumvent the condition of non-transferability
of the exploration permit. To allow SEM to
avail itself of this doctrine and to approve the
validity of the assignment is tantamount to
sanctioning illegal act which is what the
doctrine precisely seeks to forestall.
Quite apart from the above, a cursory
consideration of the mining law pertinent to
the case, will, indeed, demonstrate the
infraction committed by MMC in its
assignment of EP 133 to SEM.
Presidential Decree No. 463, enacted on 17
May 1974, otherwise known as the Mineral
Resources Development Decree, which
governed the old system of exploration,
development, and utilization of mineral
resources through "license, concession or
lease" prescribed:
SEC. 97. Assignment of Mining Rights. A
mining lease contract or any interest
therein shall not be transferred, assigned, or
subleased without the prior approval of the
Secretary: Provided, That such transfer,
assignment or sublease may be made only to
a qualified person possessing the resources
and capability to continue the mining
operations of the lessee and that the assignor
has complied with all the obligations of the
lease: Provided, further, That such transfer or
assignment shall be duly registered with the
office of the mining recorder concerned.
(Emphasis supplied.)
The same provision is reflected in Republic
Act No. 7942, otherwise known as the
Philippine Mining Act of 1995, which is the
new law governing the exploration,
development and utilization of the natural
resources, which provides:
SEC. 25. Transfer or Assignment. - An
exploration permit may be transferred or
assigned to a qualified person subject to the
approval of the Secretary upon the
recommendation of the Director.
The records are bereft of any indication that
the assignment bears the imprimatur of the
Secretary of the DENR. Presidential Decree
No. 463, which is the governing law when the
assignment was executed, explicitly requires
that the transfer or assignment of mining
rights, including the right to explore a mining
area, must be with the prior approval of the
Secretary of DENR. Quite conspicuously,
SEM did not dispute the allegation that the
Deed of Assignment was made without the
prior approval of the Secretary of DENR.
Absent the prior approval of the Secretary of
DENR, the assignment of EP 133, was,
therefore, without legal effect for violating the
mandatory provision of Presidential Decree
No. 463.
An added significant omission proved fatal to
MMC/SEMs cause. While it is true that the
case of Apex Mining Co., Inc. v.
Garcia40 settled the issue of which between
Apex and MMC validly acquired mining rights
over the disputed area, such rights, though,
had been extinguished by subsequent events.
Records indicate that on 6 July 1993, EP 133
was extended for 12 months or until 6 July
1994.41 MMC never renewed its permit prior
and after its expiration. Thus, EP 133 expired
by non-renewal.
With the expiration of EP 133 on 6 July 1994,
MMC lost any right to the Diwalwal Gold Rush
Area. SEM, on the other hand, has not
acquired any right to the said area because
the transfer of EP 133 in its favor is invalid.
Hence, both MMC and SEM have not
acquired any vested right over the 4,941.6759
hectares which used to be covered by EP
133.
II
The Court of Appeals theorizes that DAO No.
66 was issued beyond the power of the DENR
Secretary since the power to withdraw lands
from forest reserves and to declare the same
as an area open for mining operation resides
in the President.
Under Proclamation No. 369 dated 27
February 1931, the power to convert forest
reserves as non-forest reserves is vested with
the DENR Secretary. Proclamation No. 369
partly states:
From this reserve shall be considered
automatically excluded all areas which had
already been certified and which in the future
may be proclaimed as classified and certified
lands and approved by the Secretary of
Agriculture and Natural Resources.42
However, a subsequent law, Commonwealth
Act No. 137, otherwise known as "The Mining
Act" which was approved on 7 November
1936 provides:
Sec. 14. Lands within reservations for
purposes other than mining, which, after such
reservation is made, are found to be more
valuable for their mineral contents than for the
purpose for which the reservation was made,
may be withdrawn from such reservations by
the President with the concurrence of the
National Assembly, and thereupon such lands
shall revert to the public domain and be
subject to disposition under the provisions of
this Act.
Unlike Proclamation No. 369, Commonwealth
Act No. 137 vests solely in the President, with
the concurrence of the National Assembly, the
power to withdraw forest reserves found to be
more valuable for their mineral contents than
for the purpose for which the reservation was
made and convert the same into non-forest
reserves. A similar provision can also be
found in Presidential Decree No. 463 dated 17
May 1974, with the modifications that (1) the
declaration by the President no longer
requires the concurrence of the National
Assembly and (2) the DENR Secretary merely
exercises the power to recommend to the
President which forest reservations are to be
withdrawn from the coverage thereof. Section
8 of Presidential Decree No. 463 reads:
SEC. 8. Exploration and Exploitation of
Reserved Lands. When lands within
reservations, which have been established for
purposes other than mining, are found to be
more valuable for their mineral contents, they
may, upon recommendation of the Secretary
be withdrawn from such reservation by the
President and established as a mineral
reservation.
Against the backdrop of the applicable
statutes which govern the issuance of DAO
No. 66, this Court is constrained to rule that
said administrative order was issued not in
accordance with the laws. Inescapably, DAO
No. 66, declaring 729 hectares of the areas
covered by the Agusan-Davao-Surigao Forest
Reserve as non-forest land open to small-
scale mining operations, is null and void as,
verily, the DENR Secretary has no power to
convert forest reserves into non-forest
reserves.
III
It is the contention of Apex that its right over
the Diwalwal gold rush area is superior to that
of MMC or that of SEM because it was the
first one to occupy and take possession of the
area and the first to record its mining claims
over the area.
For its part, Balite argues that with the
issuance of DAO No. 66, its occupation in the
contested area, particularly in the 729
hectares small-scale mining area, has entitled
it to file its MPSA. Balite claims that its MPSA
application should have been given
preference over that of SEM because it was
filed ahead.
The MAB, on the other hand, insists that the
issue on who has superior right over the
disputed area has become moot and
academic by the supervening events. By
virtue of Proclamation No. 297 dated 25
November 2002, the disputed area was
declared a mineral reservation.
Proclamation No. 297 excluded an area of
8,100 hectares located in Monkayo,
Compostela Valley, and proclaimed the same
as mineral reservation and as environmentally
critical area, viz:
WHEREAS, by virtue of Proclamation No.
369, series of 1931, certain tracts of public
land situated in the then provinces of Davao,
Agusan and Surigao, with an area of
approximately 1,927,400 hectares, were
withdrawn from settlement and disposition,
excluding, however, those portions which had
been certified and/or shall be classified and
certified as non-forest lands;
WHEREAS, gold deposits have been found
within the area covered by Proclamation No.
369, in the Municipality of Monkayo,
Compostela Valley Province, and unregulated
small to medium-scale mining operations
have, since 1983, been undertaken therein,
causing in the process serious environmental,
health, and peace and order problems in the
area;
WHEREAS, it is in the national interest to
prevent the further degradation of the
environment and to resolve the health and
peace and order problems spawned by the
unregulated mining operations in the said
area;
WHEREAS, these problems may be
effectively addressed by rationalizing mining
operations in the area through the
establishment of a mineral reservation;
WHEREAS, after giving due notice, the
Director of Mines and Geoxciences conducted
public hearings on September 6, 9 and 11,
2002 to allow the concerned sectors and
communities to air their views regarding the
establishment of a mineral reservation in the
place in question;
WHEREAS, pursuant to the Philippine Mining
Act of 1995 (RA 7942), the President may,
upon the recommendation of the Director of
Mines and Geosciences, through the
Secretary of Environment and Natural
Resources, and when the national interest so
requires, establish mineral reservations where
mining operations shall be undertaken by the
Department directly or thru a contractor;
WHEREAS, as a measure to attain and
maintain a rational and orderly balance
between socio-economic growth and
environmental protection, the President may,
pursuant to Presidential Decree No. 1586, as
amended, proclaim and declare certain areas
in the country as environmentally critical;
NOW, THEREFORE, I, GLORIA
MACAPAGAL-ARROYO, President of the
Philippines, upon recommendation of the
Secretary of the Department of Environment
and Natural Resources (DENR), and by virtue
of the powers vested in me by law, do hereby
exclude certain parcel of land located in
Monkayo, Compostela Valley, and proclaim
the same as mineral reservation and as
environmentally critical area, with metes and
bound as defined by the following
geographical coordinates;
xxxx
with an area of Eight Thousand One Hundred
(8,100) hectares, more or less. Mining
operations in the area may be undertaken
either by the DENR directly, subject to
payment of just compensation that may be
due to legitimate and existing claimants, or
thru a qualified contractor, subject to existing
rights, if any.
The DENR shall formulate and issue the
appropriate guidelines, including the
establishment of an environmental and social
fund, to implement the intent and provisions of
this Proclamation.
Upon the effectivity of the 1987 Constitution,
the State assumed a more dynamic role in the
exploration, development and utilization of the
natural resources of the country.43 With this
policy, the State may pursue full control and
supervision of the exploration, development
and utilization of the countrys natural mineral
resources. The options open to the State are
through direct undertaking or by entering into
co-production, joint venture, or production-
sharing agreements, or by entering into
agreement with foreign-owned corporations
for large-scale exploration, development and
utilization.44 Thus, Article XII, Section 2, of the
1987 Constitution, specifically states:
SEC. 2. All lands of the public domain, waters,
minerals, coal, petroleum, and other mineral
oils, all forces of potential energy, fisheries,
forests or timber, wildlife, flora and fauna, and
other natural resources are owned by the
State. With the exception of agricultural lands,
all other natural resources shall not be
alienated. The exploration, development, and
utilization of natural resources shall be under
the full control and supervision of the
State. The State may directly undertake such
activities, or it may enter into co-production,
joint venture, or production-sharing
agreements with Filipino citizens, or
corporations or associations at least sixty per
centum of whose capital is owned by such
citizens. Such agreements may be for a
period not exceeding twenty-five years,
renewable for not more than twenty-five years,
and under such terms and conditions as may
be provided by law. x x x
xxxx
The President may enter into agreements with
foreign-owned corporations involving either
technical or financial assistance for large-
scale exploration, development, and utilization
of minerals, petroleum, and other mineral oils
according to the general terms and conditions
provided by law, based on real contributions
to the economic growth and general welfare of
the country. x x x (Underscoring supplied.)
Recognizing the importance of the countrys
natural resources, not only for national
economic development, but also for its
security and national defense, Section 5 of
Republic Act No. 7942 empowers the
President, when the national interest so
requires, to establish mineral reservations
where mining operations shall be undertaken
directly by the State or through a contractor.
To implement the intent and provisions of
Proclamation No. 297, the DENR Secretary
issued DAO No. 2002-18 dated 12 August
2002 declaring an emergency situation in the
Diwalwal Gold Rush Area and ordering the
stoppage of all mining operations therein.
The issue on who has priority right over the
disputed area is deemed overtaken by the
above subsequent developments particularly
with the issuance of Proclamation 297 and
DAO No. 2002-18, both being constitutionally-
sanctioned acts of the Executive Branch.
Mining operations in the Diwalwal Mineral
Reservation are now, therefore, within the full
control of the State through the executive
branch. Pursuant to Section 5 of Republic Act
No. 7942, the State can either directly
undertake the exploration, development and
utilization of the area or it can enter into
agreements with qualified entities, viz:
SEC 5. Mineral Reservations. When the
national interest so requires, such as when
there is a need to preserve strategic raw
materials for industries critical to national
development, or certain minerals for scientific,
cultural or ecological value, the President may
establish mineral reservations upon the
recommendation of the Director through the
Secretary. Mining operations in existing
mineral reservations and such other
reservations as may thereafter be established,
shall be undertaken by the Department or
through a contractor x x x .
It is now up to the Executive Department
whether to take the first option, i.e., to
undertake directly the mining operations of the
Diwalwal Gold Rush Area. As already ruled,
the State may not be precluded from
considering a direct takeover of the mines, if it
is the only plausible remedy in sight to the
gnawing complexities generated by the gold
rush. The State need be guided only by the
demands of public interest in settling on this
option, as well as its material and logistic
feasibility.45 The State can also opt to award
mining operations in the mineral reservation to
private entities including petitioners Apex and
Balite, if it wishes. The exercise of this
prerogative lies with the Executive
Department over which courts will not
interfere.
WHEREFORE, premises considered, the
Petitions of Apex, Balite and the MAB are
PARTIALLY GRANTED, thus:
1. We hereby REVERSE and SET
ASIDE the Decision of the Court of
Appeals, dated 13 March 2002, and
hereby declare that EP 133 of MMC
has EXPIRED on 7 July 1994 and that
its subsequent transfer to SEM on 16
February 1994 is VOID.
2. We AFFIRM the finding of the Court
of Appeals in the same Decision
declaring DAO No. 66 illegal for
having been issued in excess of the
DENR Secretarys authority.
Consequently, the State, should it so desire,
may now award mining operations in the
disputed area to any qualified entity it may
determine. No costs.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice
38. (hereinafter referred to as the Agreement),
whereby the former authorized the latter to act
G.R. No. 76931 May 29, 1991 as its exclusive general sales agent within the
Philippines for the sale of air passenger
ORIENT AIR SERVICES & HOTEL transportation. Pertinent provisions of the
REPRESENTATIVES, petitioner, agreement are reproduced, to wit:
vs.
COURT OF APPEALS and AMERICAN AIR- WITNESSETH
LINES INCORPORATED, respondents.
In consideration of the mutual
G.R. No. 76933 May 29, 1991 convenants herein contained, the
parties hereto agree as follows:
AMERICAN AIRLINES,
INCORPORATED, petitioner, 1. Representation of American by
vs. Orient Air Services
COURT OF APPEALS and ORIENT AIR
SERVICES & HOTEL REPRESENTATIVES, Orient Air Services will act on
INCORPORATED,respondents. American's behalf as its exclusive
General Sales Agent within the
Francisco A. Lava, Jr. and Andresito X. Philippines, including any United
Fornier for Orient Air Service and Hotel States military installation therein
Representatives, Inc. which are not serviced by an Air
Sycip, Salazar, Hernandez & Gatmaitan for Carrier Representation Office (ACRO),
American Airlines, Inc. for the sale of air passenger
transportation. The services to be
performed by Orient Air Services shall
include:

(a) soliciting and promoting

PADILLA, J.:
passenger traffic for the
services of American and, if
This case is a consolidation of two (2) necessary, employing staff
petitions for review on certiorari of a competent and sufficient to do
decision 1 of the Court of Appeals in CA-G.R. so;
No. CV-04294, entitled "American Airlines,
Inc. vs. Orient Air Services and Hotel
(b) providing and maintaining
Representatives, Inc." which affirmed, with
a suitable area in its place of
modification, the decision 2 of the Regional
business to be used
Trial Court of Manila, Branch IV, which
exclusively for the transaction
dismissed the complaint and granted therein
of the business of American;
defendant's counterclaim for agent's
overriding commission and damages.
(c) arranging for distribution of
American's timetables, tariffs
The antecedent facts are as follows:
and promotional material to
sales agents and the general
On 15 January 1977, American Airlines, Inc. public in the assigned territory;
(hereinafter referred to as American Air), an
air carrier offering passenger and air cargo
(d) servicing and supervising
transportation in the Philippines, and Orient
of sales agents (including such
Air Services and Hotel Representatives
sub-agents as may be
(hereinafter referred to as Orient Air), entered
appointed by Orient Air
into a General Sales Agency Agreement
Services with the prior written
 consent of American) in the
assigned territory including if
required by American the
control of remittances and
commissions retained; and
(e) holding out a passenger
reservation facility to sales
agents and the general public
in the assigned territory.
In connection with scheduled or non-
scheduled air passenger
transportation within the United
States, neither Orient Air Services nor
its sub-agents will perform services for
any other air carrier similar to those to
be performed hereunder for American
without the prior written consent of
American. Subject to periodic
instructions and continued consent
from American, Orient Air Services
may sell air passenger transportation
to be performed within the United
States by other scheduled air carriers
provided American does not provide
substantially equivalent schedules
between the points involved.
xxx xxx xxx
4. Remittances
Orient Air Services shall remit in
United States dollars to American the
ticket stock or exchange orders, less
commissions to which Orient Air
Services is entitled hereunder, not
less frequently than semi-monthly, on
the 15th and last days of each month
for sales made during the preceding
half month.
All monies collected by Orient Air
Services for transportation sold
hereunder on American's ticket stock
or on exchange orders, less applicable
commissions to which Orient Air
Services is entitled hereunder, are the
property of American and shall be held
in trust by Orient Air Services until
satisfactorily accounted for to
American.
5. Commissions
American will pay Orient Air Services
commission on transportation sold
hereunder by Orient Air Services or its
sub-agents as follows:
(a) Sales agency commission
American will pay Orient Air Services
a sales agency commission for all
sales of transportation by Orient Air
Services or its sub-agents over
American's services and any
connecting through air transportation,
when made on American's ticket
stock, equal to the following
percentages of the tariff fares and
charges:
(i) For transportation solely
between points within the
United States and between
such points and Canada: 7%
or such other rate(s) as may
be prescribed by the Air Traffic
Conference of America.
(ii) For transportation included
in a through ticket covering
transportation between points
other than those described
above: 8% or such other
rate(s) as may be prescribed
by the International Air
Transport Association.
(b) Overriding commission
In addition to the above commission
American will pay Orient Air Services
an overriding commission of 3% of the
tariff fares and charges for all sales of
transportation over American's service
by Orient Air Service or its sub-agents.
xxx xxx xxx
10. Default
 If Orient Air Services shall at any time
default in observing or performing any
of the provisions of this Agreement or
shall become bankrupt or make any
assignment for the benefit of or enter
into any agreement or promise with its
creditors or go into liquidation, or
suffer any of its goods to be taken in
execution, or if it ceases to be in
business, this Agreement may, at the
option of American, be terminated
forthwith and American may, without
prejudice to any of its rights under this
Agreement, take possession of any
ticket forms, exchange orders, traffic
material or other property or funds
belonging to American.
11. IATA and ATC Rules
The provisions of this Agreement are
subject to any applicable rules or
resolutions of the International Air
Transport Association and the Air
Traffic Conference of America, and
such rules or resolutions shall control
in the event of any conflict with the
provisions hereof.
xxx xxx xxx
13. Termination
American may terminate the
Agreement on two days' notice in the
event Orient Air Services is unable to
transfer to the United States the funds
payable by Orient Air Services to
American under this Agreement.
Either party may terminate the
Agreement without cause by giving
the other 30 days' notice by letter,
telegram or cable.
xxx xxx x x x3
On 11 May 1981, alleging that Orient Air had
reneged on its obligations under the
Agreement by failing to promptly remit the net
proceeds of sales for the months of January to
March 1981 in the amount of US $254,400.40,
American Air by itself undertook the collection
of the proceeds of tickets sold originally by
Orient Air and terminated forthwith the
Agreement in accordance with Paragraph 13
thereof (Termination). Four (4) days later, or
on 15 May 1981, American Air instituted suit
against Orient Air with the Court of First
Instance of Manila, Branch 24, for Accounting
with Preliminary Attachment or Garnishment,
Mandatory Injunction and Restraining
Order 4 averring the aforesaid basis for the
termination of the Agreement as well as
therein defendant's previous record of failures
"to promptly settle past outstanding refunds of
which there were available funds in the
possession of the defendant, . . . to the
damage and prejudice of plaintiff." 5
In its Answer 6 with counterclaim dated 9 July
1981, defendant Orient Air denied the material
allegations of the complaint with respect to
plaintiff's entitlement to alleged unremitted
amounts, contending that after application
thereof to the commissions due it under the
Agreement, plaintiff in fact still owed Orient Air
a balance in unpaid overriding commissions.
Further, the defendant contended that the
actions taken by American Air in the course of
terminating the Agreement as well as the
termination itself were untenable, Orient Air
claiming that American Air's precipitous
conduct had occasioned prejudice to its
business interests.
Finding that the record and the evidence
substantiated the allegations of the defendant,
the trial court ruled in its favor, rendering a
decision dated 16 July 1984, the dispositive
portion of which reads:
WHEREFORE, all the foregoing
premises considered, judgment is
hereby rendered in favor of defendant
and against plaintiff dismissing the
complaint and holding the termination
made by the latter as affecting the
GSA agreement illegal and improper
and order the plaintiff to reinstate
defendant as its general sales agent
for passenger tranportation in the
Philippines in accordance with said
GSA agreement; plaintiff is ordered to
pay defendant the balance of the
overriding commission on total flown
 revenue covering the period from
March 16, 1977 to December 31, 1980
in the amount of US$84,821.31 plus
the additional amount of US$8,000.00
by way of proper 3% overriding
commission per month commencing
from January 1, 1981 until such
reinstatement or said amounts in its
Philippine peso equivalent legally
prevailing at the time of payment plus
legal interest to commence from the
filing of the counterclaim up to the time
of payment. Further, plaintiff is
directed to pay defendant the amount
of One Million Five Hundred Thousand
(Pl,500,000.00) pesos as and for
exemplary damages; and the amount
of Three Hundred Thousand
(P300,000.00) pesos as and by way of
attorney's fees.
Costs against plaintiff. 7
On appeal, the Intermediate Appellate Court
(now Court of Appeals) in a decision
promulgated on 27 January 1986, affirmed the
findings of the court a quo on their material
points but with some modifications with
respect to the monetary awards granted. The
dispositive portion of the appellate court's
decision is as follows:
WHEREFORE, with the following
modifications
1) American is ordered to pay Orient
the sum
of US$53,491.11 representing the
balance of the latter's overriding
commission covering the period March
16, 1977 to December 31, 1980, or its
Philippine peso equivalent in
accordance with the official rate of
exchange legally prevailing on July 10,
1981, the date the counterclaim was
filed;
2) American is ordered to pay Orient
the sum of US$7,440.00 as the latter's
overriding commission per month
starting January 1, 1981 until date of
termination, May 9, 1981 or its
Philippine peso equivalent in
accordance with the official rate of
exchange legally prevailing on July 10,
1981, the date the counterclaim was
filed
3) American is ordered to pay interest
of 12% on said amounts from July 10,
1981 the date the answer with
counterclaim was filed, until full
payment;
4) American is ordered to pay
Orient exemplary damages of
P200,000.00;
5) American is ordered to pay Orient
the sum of P25,000.00 as attorney's
fees.
the rest of the appealed decision is
affirmed.
Costs against American.8
American Air moved for reconsideration of the
aforementioned decision, assailing the
substance thereof and arguing for its reversal.
The appellate court's decision was also the
subject of a Motion for Partial Reconsideration
by Orient Air which prayed for the restoration
of the trial court's ruling with respect to the
monetary awards. The Court of Appeals, by
resolution promulgated on 17 December
1986, denied American Air's motion and with
respect to that of Orient Air, ruled thus:
Orient's motion for partial
reconsideration is denied insofar as it
prays for affirmance of the trial court's
award of exemplary damages and
attorney's fees, but granted insofar as
the rate of exchange is concerned.
The decision of January 27, 1986 is
modified in paragraphs (1) and (2) of
the dispositive part so that the
payment of the sums mentioned
therein shall be at their Philippine
peso equivalent in accordance with
the official rate of exchange legally
prevailing on the date of actual
payment. 9
Both parties appealed the aforesaid resolution
and decision of the respondent court, Orient
Air as petitioner in G.R. No. 76931 and
American Air as petitioner in G.R. No. 76933.
By resolution 10 of this Court dated 25 March
1987 both petitions were consolidated, hence,
the case at bar.
The principal issue for resolution by the Court
is the extent of Orient Air's right to the 3%
overriding commission. It is the stand of
American Air that such commission is based
only on sales of its services actually
negotiated or transacted by Orient Air,
otherwise referred to as "ticketed sales." As
basis thereof, primary reliance is placed upon
paragraph 5(b) of the Agreement which, in
reiteration, is quoted as follows:
5. Commissions
a) . . .
b) Overriding Commission
In addition to the above commission,
American will pay Orient Air Services
an overriding commission of 3% of the
tariff fees and charges for all sales of
transportation over American's
services by Orient Air Services or
itssub-agents. (Emphasis supplied)
Since Orient Air was allowed to carry only the
ticket stocks of American Air, and the former
not having opted to appoint any sub-agents, it
is American Air's contention that Orient Air
can claim entitlement to the disputed
overriding commission based only on ticketed
sales. This is supposed to be the clear
meaning of the underscored portion of the
above provision. Thus, to be entitled to the 3%
overriding commission, the sale must be
made by Orient Air and the sale must be done
with the use of American Air's ticket stocks.
On the other hand, Orient Air contends that
the contractual stipulation of a 3% overriding
commission covers the total revenue of
American Air and not merely that derived from
ticketed sales undertaken by Orient Air. The
latter, in justification of its submission, invokes
its designation as the exclusive General Sales
Agent of American Air, with the corresponding
obligations arising from such agency, such as,
the promotion and solicitation for the services
of its principal. In effect, by virtue of such
exclusivity, "all sales of transportation over
American Air's services are necessarily by
Orient Air." 11
It is a well settled legal principle that in the
interpretation of a contract, the entirety thereof
must be taken into consideration to ascertain
the meaning of its provisions. 12 The various
stipulations in the contract must be read
together to give effect to all. 13 After a careful
examination of the records, the Court finds
merit in the contention of Orient Air that the
Agreement, when interpreted in accordance
with the foregoing principles, entitles it to the
3% overriding commission based on total
revenue, or as referred to by the parties, "total
flown revenue."
As the designated exclusive General Sales
Agent of American Air, Orient Air was
responsible for the promotion and marketing
of American Air's services for air passenger
transportation, and the solicitation of sales
therefor. In return for such efforts and
services, Orient Air was to be paid
commissions of two (2) kinds: first, a sales
agency commission, ranging from 7-8% of
tariff fares and charges from sales by
Orient Air when made on American Air ticket
stock; and second, an overriding commission
of 3% of tariff fares and charges for all
sales of passenger transportation over
American Air services. It is immediately
observed that the precondition attached to the
first type of commission does not obtain for
the second type of commissions. The latter
type of commissions would accrue for sales of
American Air services made not on its ticket
stock but on the ticket stock of other air
carriers sold by such carriers or other
authorized ticketing facilities or travel agents.
To rule otherwise, i.e., to limit the basis of
such overriding commissions to sales from
American Air ticket stock would erase any
distinction between the two (2) types of
commissions and would lead to the absurd
conclusion that the parties had entered into a
contract with meaningless provisions. Such an
interpretation must at all times be avoided with
every effort exerted to harmonize the entire
Agreement.
An additional point before finally disposing of
this issue. It is clear from the records that
American Air was the party responsible for the
preparation of the Agreement. Consequently,
any ambiguity in this "contract of adhesion" is
to be taken "contra proferentem", i.e.,
construed against the party who caused the
ambiguity and could have avoided it by the
exercise of a little more care. Thus, Article
1377 of the Civil Code provides that the
interpretation of obscure words or stipulations
in a contract shall not favor the party who
caused the obscurity. 14 To put it differently,
when several interpretations of a provision are
otherwise equally proper, that interpretation or
construction is to be adopted which is most
favorable to the party in whose favor the
provision was made and who did not cause
the ambiguity. 15 We therefore agree with the
respondent appellate court's declaration that:
Any ambiguity in a contract, whose
terms are susceptible of different
interpretations, must be read against
the party who drafted it. 16
We now turn to the propriety of American Air's
termination of the Agreement. The respondent
appellate court, on this issue, ruled thus:
It is not denied that Orient withheld
remittances but such action finds
justification from paragraph 4 of the
Agreement, Exh. F, which provides for
remittances to American less
commissions to which Orient is
entitled, and from paragraph 5(d)
which specifically allows Orient to
retain the full amount of its
commissions. Since, as stated ante,
Orient is entitled to the 3% override.
American's premise, therefore, for the
cancellation of the Agreement did not
exist. . . ."
We agree with the findings of the respondent
appellate court. As earlier established, Orient
Air was entitled to an overriding commission
based on total flown revenue. American Air's
perception that Orient Air was remiss or in
default of its obligations under the Agreement
was, in fact, a situation where the latter acted
in accordance with the Agreementthat of
retaining from the sales proceeds its accrued
commissions before remitting the balance to
American Air. Since the latter was still
obligated to Orient Air by way of such
commissions. Orient Air was clearly justified in
retaining and refusing to remit the sums
claimed by American Air. The latter's
termination of the Agreement was, therefore,
without cause and basis, for which it should
be held liable to Orient Air.
On the matter of damages, the respondent
appellate court modified by reduction the trial
court's award of exemplary damages and
attorney's fees. This Court sees no error in
such modification and, thus, affirms the same.
It is believed, however, that respondent
appellate court erred in affirming the rest of
the decision of the trial court. We refer
1w phi 1
particularly to the lower court's decision
ordering American Air to "reinstate defendant
as its general sales agent for passenger
transportation in the Philippines in accordance
with said GSA Agreement."
By affirming this ruling of the trial court,
respondent appellate court, in effect, compels
American Air to extend its personality to
Orient Air. Such would be violative of the
principles and essence of agency, defined by
law as a contract whereby "a person binds
himself to render some service or to do
something in representation or on behalf of
another, WITH THE CONSENT OR
AUTHORITY OF THE LATTER . 17 (emphasis
supplied) In an agent-principal relationship,
the personality of the principal is extended
through the facility of the agent. In so doing,
the agent, by legal fiction, becomes the
principal, authorized to perform all acts which
the latter would have him do. Such a
relationship can only be effected with the
consent of the principal, which must not, in
any way, be compelled by law or by any court.
The Agreement itself between the parties
states that "either party may terminate the
Agreementwithout cause by giving the other
30 days' notice by letter, telegram or cable."
(emphasis supplied) We, therefore, set aside
the portion of the ruling of the respondent
appellate court reinstating Orient Air as
general sales agent of American Air.

WHEREFORE, with the foregoing

modification, the Court AFFIRMS the decision
and resolution of the respondent Court of
Appeals, dated 27 January 1986 and 17
December 1986, respectively. Costs against
petitioner American Air.

SO ORDERED.

Melencio-Herrera, and Regalado, JJ., concur.

Paras, J., took no part. Son is a partner in one
of the counsel.
Sarmiento, J., is on leave.
39.
G.R. No. 179382 January 14, 2013
SPOUSES BENJAMIN C. MAMARIL AND
SONIA P. MAMARIL, Petitioners,
vs.
THE BOY SCOUT OF THE PHILIPPINES,
AIB SECURITY AGENCY, INC., CESARIO
PEA,* AND VICENTE GADDI, Respondents.
DECISION
PERLAS-BERNABE, J.:
This is a Petition for Review on Certiorari
assailing the May 31, 2007 Decision1 and
August 16, 2007 Resolution2 of the Court of
Appeals (CA) in CA-G.R. CV No. 75978. The
dispositive portion of the said Decision reads:
WHEREFORE, the Decision dated November
28, 2001 and the Order dated June 11, 2002
rendered by the Regional Trial Court of
Manila, Branch 39 is hereby MODIFIED to the
effect that only defendants AIB Security
Agency, Inc., Cesario Pea and Vicente
Gaddi are held jointly and severally liable to
pay plaintiffs-appellees Spouses Benjamin C.
Mamaril and Sonia P. Mamaril the amount of
Two Hundred Thousand Pesos (P200,000.00)
representing the cost of the lost vehicle, and
to pay the cost of suit. The other monetary
awards are DELETED for lack of merit and/or
basis.
Defendant-Appellant Boy Scout of the
Philippines is absolved from any liability.
SO ORDERED.3
The Antecedent Facts
Spouses Benjamin C. Mamaril and Sonia P.
Mamaril (Sps. Mamaril) are jeepney operators
since 1971. They would park their six (6)
passenger jeepneys every night at the Boy
Scout of the Philippines' (BSP) compound
located at 181 Concepcion Street, Malate,
Manila for a fee of P300.00 per month for
each unit. On May 26, 1995 at 8 o'clock in the
evening, all these vehicles were parked inside
the BSP compound. The following morning,
however, one of the vehicles with Plate No.
DCG 392 was missing and was never
recovered.4 According to the security guards
Cesario Pea (Pea) and Vicente Gaddi
(Gaddi) of AIB Security Agency, Inc. (AIB)
with whom BSP had contracted5 for its
security and protection, a male person who
looked familiar to them took the subject
vehicle out of the compound.
On November 20, 1996, Sps. Mamaril filed a
complaint6 for damages before the Regional
Trial Court (RTC) of Manila, Branch 39,
against BSP, AIB, Pea and Gaddi. In support
thereof, Sps. Mamaril averred that the loss of
the subject vehicle was due to the gross
negligence of the above-named security
guards on-duty who allowed the subject
vehicle to be driven out by a stranger despite
their agreement that only authorized drivers
duly endorsed by the owners could do so.
Pea and Gaddi even admitted their
negligence during the ensuing investigation.
Notwithstanding, BSP and AIB did not heed
Sps. Mamaril's demands for a conference to
settle the matter. They therefore prayed that
Pea and Gaddi, together with AIB and BSP,
be held liable for: (a) the value of the subject
vehicle and its accessories in the aggregate
amount of P300,000.00; (b) P275.00
representing daily loss of income/boundary
reckoned from the day the vehicle was lost;
(c) exemplary damages; (d) moral damages;
(e) attorney's fees; and (f) cost of suit.
In its Answer,7 BSP denied any liability
contending that not only did Sps. Mamaril
directly deal with AIB with respect to the
manner by which the parked vehicles would
be handled, but the parking ticket8 itself
expressly stated that the "Management shall
not be responsible for loss of vehicle or any of
its accessories or article left therein." It also
claimed that Sps. Mamaril erroneously relied
on the Guard Service Contract. Apart from not
being parties thereto, its provisions cover only
the protection of BSP's properties, its officers,
and employees.
In addition to the foregoing defenses, AIB
alleged that it has observed due diligence in
the selection, training and supervision of its
security guards while Pea and Gaddi claimed
that the person who drove out the lost vehicle
from the BSP compound represented himself
as the owners' authorized driver and had with
him a key to the subject vehicle. Thus, they
contended that Sps. Mamaril have no cause
of action against them.
The RTC Ruling
After due proceedings, the RTC rendered a
Decision9 dated November 28, 2001 in favor
of Sps. Mamaril. The dispositive portion of the
RTC decision reads:
WHEREFORE, judgment is hereby rendered
ordering the defendants Boy Scout of the
Philippines and AIB Security Agency, with
security guards Cesario Pena and Vicente
Gaddi: -
1. To pay the plaintiffs jointly and
severally the cost of the vehicle which
is P250,000.00 plus accessories
of P50,000.00;
2. To pay jointly and severally to the
plaintiffs the daily loss of the
income/boundary of the said jeepney
to be reckoned fromits loss up to the
final adjudication of the case, which
is P275.00 a day;
3. To pay jointly and severally to the
plaintiffs moral damages in the
amount of P50,000.00;
4. To pay jointly and severally to the
plaintiffs exemplary damages in the
amount of P50,000.00;
5. To pay jointly and severally the
attorney's fees of P50,000.00 and
appearances in court the amount
of P1,500.00 per appearance; and
6. To pay cost.
SO ORDERED.10
The RTC found that the act of Pea and
Gaddi in allowing the entry of an unidentified
person and letting him drive out the subject
vehicle in violation of their internal agreement
with Sps. Mamaril constituted gross
negligence, rendering AIB and its security
guards liable for the former's loss. BSP was
also adjudged liable because the Guard
Service Contract it entered into with AIB
offered protection to all properties inside the
BSP premises, which necessarily included
Sps. Mamaril's vehicles. Moreover, the said
contract stipulated AIB's obligation to
indemnify BSP for all losses or damages that
may be caused by any act or negligence of its
security guards. Accordingly, the BSP, AIB,
and security guards Pea and Gaddi were
held jointly and severally liable for the loss
suffered by Sps. Mamaril.
On June 11, 2002, the RTC modified its
decision reducing the cost of the stolen
vehicle from P250,000.00 to P200,000.00.11
Only BSP appealed the foregoing disquisition
before the CA.
The CA Ruling
In its assailed Decision,12 the CA affirmed the
finding of negligence on the part of security
guards Pea and Gaddi. However, it absolved
BSP from any liability, holding that the Guard
Service Contract is purely between BSP and
AIB and that there was nothing therein that
would indicate any obligation and/or liability on
the part of BSP in favor of third persons, such
as Sps. Mamaril. Nor was there evidence
sufficient to establish that BSP was negligent.
It further ruled that the agreement between
Sps. Mamaril and BSP was substantially a
contract of lease whereby the former paid
parking fees to the latter for the lease of
parking slots. As such, the lessor, BSP, was
not an insurer nor bound to take care and/or
protect the lessees' vehicles.
On the matter of damages, the CA deleted the
award of P50,000.00 representing the value of
the accessories inside the lost vehicle and
the P275.00 a day for loss of income in the
absence of proof to support them. It also
deleted the award of moral and exemplary
damages and attorney's fees for lack of
factual and legal bases.
Sps. Mamaril's motion for reconsideration
thereof was denied in the August 16, 2007
Resolution.13
Issues Before the Court
Hence, the instant petition based on the
following assignment of errors, to wit:
I.
THE HONORABLE COURT OF
APPEALS SERIOUSLY ERRED IN
ABSOLVING RESPONDENT BOY
SCOUT OF THE PHILIPPINES FROM
ANY LIABILITY.
II.
THE HONORABLE COURT OF
APPEALS COMMITTED SERIOUS
MISTAKE WHEN IT RULED THAT
THE GUARD SERVICE CONTRACT
IS PURELY BETWEEN BOY SCOUT
OF THE
PHILIPPINES AND AIB SECURITY
AGENCY, INC., AND IN HOLDING
THAT THERE IS ABSOLUTELY
NOTHING IN THE SAID CONTRACT
THAT WOULD INDICATE ANY
OBLIGATION AND/OR LIABILITY ON
THE PART OF THE PARTIES
THEREIN IN FAVOR OF THIRD
PERSONS, SUCH AS PETITIONERS
HEREIN.
III.
THE HONORABLE COURT OF
APPEALS COMMITTED SERIOUS
ERROR IN THE INTERPRETATION
OF LAW WHEN IT CONSIDERED
THE AGREEMENT BETWEEN BOY
SCOUT OF THE PHILIPPINES AND
PETITIONERS A CONTRACT OF
LEASE, WHEREBY THE BOY
SCOUT IS NOT DUTY BOUND TO
PROTECT OR TAKE CARE OF
PETITIONERS' VEHICLES.
IV.
THE HONORABLE COURT OF
APPEALS SERIOUSLY ERRED
WHEN IT RULED THAT
PETITIONERS ARE NOT ENTITLED
TO DAMAGES AND ATTORNEY'S
FEES.14
In fine, Sps. Mamaril maintain that: (1) BSP
should be held liable for the loss of their
vehicle based on the Guard Service Contract
and the parking ticket it issued; and (2) the CA
erred in deleting the RTC awards of damages
and attorney's fees.
The Court's Ruling
The petition lacks merit.
Article 20 of the Civil Code provides that every
person, who, contrary to law, willfully or
negligently causes damage to another, shall
indemnify the latter for the same. Similarly,
Article 2176 of the Civil Code states:
Art. 2176. Whoever by act or omission causes
damage to another, there being fault or
negligence, is obliged to pay for the damage
done. Such fault or negligence, if there is no
preexisting contractual relation between the
parties, is called a quasi-delict and is
governed by the provisions of this Chapter.
In this case, it is undisputed that the proximate
cause of the loss of Sps. Mamaril's vehicle
was the negligent act of security guards Pea
and Gaddi in allowing an unidentified person
to drive out the subject vehicle. Proximate
cause has been defined as that cause, which,
in natural and continuous sequence, unbroken
by any efficient intervening cause, produces
the injury or loss, and without which the result
would not have occurred.15
Moreover, Pea and Gaddi failed to refute
Sps. Mamaril's contention16 that they readily
admitted being at fault during the investigation
that ensued.
On the other hand, the records are bereft of
any finding of negligence on the part of BSP.
Hence, no reversible error was committed by
the CA in absolving it from any liability for the
loss of the subject vehicle based on fault or
negligence.
Neither will the vicarious liability of an
employer under Article 218017 of the Civil
Code apply in this case. It is uncontested that
Pea and Gaddi were assigned as security
guards by AIB to BSP pursuant to the Guard
Service Contract. Clearly, therefore, no
employer-employee relationship existed
between BSP and the security guards
assigned in its premises. Consequently, the
latter's negligence cannot be imputed against
BSP but should be attributed to AIB, the true
employer of Pea and Gaddi.18
In the case of Soliman, Jr. v. Tuazon, the 19
Court enunciated thus:
It is settled that where the security agency, as
here, recruits, hires and assigns the work of
its watchmen or security guards, the agency is
the employer of such guards and watchmen.
Liability for illegal or harmful acts committed
by the security guards attaches to the
employer agency, and not to the clients or
customers of such agency. As a general rule,
a client or customer of a security agency has
no hand in selecting who among the pool of
security guards or watchmen employed by the
agency shall be assigned to it; the duty to
observe the diligence of a good father of a
family in the selection of the guards cannot, in
the ordinary course of events, be demanded
from the client whose premises or property
are protected by the security guards. The fact
that a client company may give instructions or
directions to the security guards assigned to it,
does not, by itself, render the client
responsible as an employer of the security
guards concerned and liable for their wrongful
acts or omissions. Those instructions or
directions are ordinarily no more than
requests commonly envisaged in the contract
for services entered into with the security
agency.20
Nor can it be said that a principal-agent
relationship existed between BSP and the
security guards Pea and Gaddi as to make
the former liable for the latter's complained
act. Article 1868 of the Civil Code states that
"by the contract of agency, a person binds
himself to render some service or to do
something in representation or on behalf of
another, with the consent or authority of the
latter." The basis for agency therefore is
representation,21 which element is absent in
the instant case. Records show that BSP
merely hired the services of AIB, which, in
turn, assigned security guards, solely for the
protection of its properties and premises.
Nowhere can it be inferred in the Guard
Service Contract that AIB was appointed as
an agent of BSP. Instead, what the parties
intended was a pure principal-client
relationship whereby for a consideration, AIB
rendered its security services to BSP.
Notwithstanding, however, Sps. Mamaril insist
that BSP should be held liable for their loss on
the basis of the Guard Service Contract that
the latter entered into with AIB and their
parking agreement with BSP.
Such contention cannot be sustained.
Article 1311 of the Civil Code states:
Art. 1311. Contracts take effect only between
the parties, their assigns and heirs, except in
case where the rights and obligations arising
from the contract are not transmissible by their
nature, or by stipulation or by provision of law.
The heir is not liable beyond the value of the
property he received from the decedent.
If a contract should contain some stipulation in
favor of a third person, he may demand its
fulfillment provided he communicated his
acceptance to the obligor before its
revocation. A mere incidental benefit or
interest of a person is not sufficient. The
contracting parties must have clearly and
deliberately conferred a favor upon a third
person.
Thus, in order that a third person benefited by
the second paragraph of Article 1311, referred
to as a stipulation pour autrui, may demand its
fulfillment, the following requisites must
concur: (1) There is a stipulation in favor of a
third person; (2) The stipulation is a part, not
the whole, of the contract; (3) The contracting
parties clearly and deliberately conferred a
favor to the third person - the favor is not
merely incidental; (4) The favor is
unconditional and uncompensated; (5) The
third person communicated his or her
acceptance of the favor before its revocation;
and (6) The contracting parties do not
represent, or are not authorized, by the third
party.22 However, none of the foregoing
elements obtains in this case.
It is undisputed that Sps. Mamaril are not
parties to the Guard Service
Contract. Neither did the subject agreement
1w phi1
contain any stipulation pour autrui. And even if
there was, Sps. Mamaril did not convey any
acceptance thereof. Thus, under the principle
of relativity of contracts, they cannot validly
claim any rights or favor under the said
agreement.23 As correctly found by the CA:
First, the Guard Service Contract between
defendant-appellant BSP and defendant AIB
Security Agency is purely between the parties
therein. It may be observed that although the
whereas clause of the said agreement
provides that defendant-appellant desires
security and protection for its compound and
all properties therein, as well as for its officers
and employees, while inside the premises, the
same should be correlated with paragraph
3(a) thereof which provides that the security
agency shall indemnify defendant-appellant
for all losses and damages suffered by it
attributable to any act or negligence of the
former's guards.
Otherwise stated, defendant-appellant sought
the services of defendant AIB Security Agency
for the purpose of the security and protection
of its properties, as well as that of its officers
and employees, so much so that in case of
loss of [sic] damage suffered by it as a result
of any act or negligence of the guards, the
security agency would then be held
responsible therefor. There is absolutely
nothing in the said contract that would indicate
any obligation and/or liability on the part of the
parties therein in favor of third persons such
as herein plaintiffs-appellees.24
Moreover, the Court concurs with the finding
of the CA that the contract between the
parties herein was one of lease25 as defined
under Article 164326 of the Civil Code. It has
been held that the act of parking a vehicle in a
garage, upon payment of a fixed amount, is a
lease.27 Even in a majority of American cases,
it has been ruled that where a customer
simply pays a fee, parks his car in any
available space in the lot, locks the car and
takes the key with him, the possession and
control of the car, necessary elements in
bailment, do not pass to the parking lot
operator, hence, the contractual relationship
between the parties is one of lease.28
In the instant case, the owners parked their
six (6) passenger jeepneys inside the BSP
compound for a monthly fee of P300.00 for
each unit and took the keys home with them.
Hence, a lessor-lessee relationship
indubitably existed between them and BSP.
On this score, Article 1654 of the Civil Code
provides that "the lessor (BSP) is obliged: (1)
to deliver the thing which is the object of the
contract in such a condition as to render it fit
for the use intended; (2) to make on the same
during the lease all the necessary repairs in
order to keep it suitable for the use to which it
has been devoted, unless there is a stipulation
to the contrary; and (3) to maintain the lessee
in the peaceful and adequate enjoyment of the
lease for the entire duration of the contract." In
relation thereto, Article 1664 of the same
Code states that "the lessor is not obliged to
answer for a mere act of trespass which a
third person may cause on the use of the thing
leased; but the lessee shall have a direct
action against the intruder." Here, BSP was
not remiss in its obligation to provide Sps.
Mamaril a suitable parking space for their
jeepneys as it even hired security guards to
secure the premises; hence, it should not be
held liable for the loss suffered by Sps.
Mamaril.
It bears to reiterate that the subject loss was
caused by the negligence of the security
guards in allowing a stranger to drive out
plaintiffs-appellants' vehicle despite the latter's
instructions that only their authorized drivers legal bases. While the RTC granted these
may do so. Moreover, the agreement with awards in the dispositive portion of its
respect to the ingress and egress of Sps. November 28, 2001 decision, it failed to
Mamaril's vehicles were coordinated only with provide sufficient justification therefor.37
AIB and its security guards,29 without the
knowledge and consent of BSP. Accordingly, WHEREFORE premises considered, the
the mishandling of the parked vehicles that instant petition is DENIED. The May 31, 2007
resulted in herein complained loss should be Decision and August 16, 2007 Resolution of
recovered only from the tort feasors (Pea the Court of Appeals in CA-G.R. CV No.
and Gaddi) and their employer, AIB; and not 75978 are AFFIRMFED.
against the lessor, BSP.30
SO ORDERED.
Anent Sps. Mamaril's claim that the
exculpatory clause: "Management shall not be ESTELA M. PERLAS-BERNABE
responsible for loss of vehicle or any of its Associate Justice
accessories or article left therein"31 contained
in the BSP issued parking ticket was void for
being a contract of adhesion and against
public policy, suffice it to state that contracts
of adhesion are not void per se. It is binding
as any other ordinary contract and a party
who enters into it is free to reject the
stipulations in its entirety. If the terms thereof
are accepted without objection, as in this
case, where plaintiffs-appellants have been
leasing BSP's parking space for more or less
20 years,32 then the contract serves as the law
between them.33 Besides, the parking fee
of P300.00 per month or P10.00 a day for
each unit is too minimal an amount to even
create an inference that BSP undertook to be
an insurer of the safety of plaintiffs-appellants'
vehicles.

On the matter of damages, the Court noted

that while Sonia P. Mamaril testified that the
subject vehicle had accessories worth around
!J50,000.00, she failed to present any receipt
to substantiate her claim.34 Neither did she
submit any record or journal that would have
established the purported P275.0035 daily
earnings of their jeepney. It is axiomatic that
actual damages must be proved with
reasonable degree of certainty and a party is
entitled only to such compensation for the
pecuniary loss that was duly proven. Thus,
absent any competent proof of the amount of
damages sustained, the CA properly deleted
the said awards.36

Similarly, the awards of moral and exemplary

damages and attorney's fees were properly
disallowed by the CA for lack of factual and
40.
G.R. No. L-24332 January 31, 1978
RAMON RALLOS, Administrator of the
Estate of CONCEPCION
RALLOS, petitioner,
vs.
FELIX GO CHAN & SONS REALTY
CORPORATION and COURT OF
APPEALS, respondents.
Seno, Mendoza & Associates for petitioner.
Ramon Duterte for private respondent.
MUOZ PALMA, J.:
This is a case of an attorney-in-fact, Simeon
Rallos, who after of his death of his principal,
Concepcion Rallos, sold the latter's undivided
share in a parcel of land pursuant to a power
of attorney which the principal had executed in
favor. The administrator of the estate of the
went to court to have the sale declared
uneanforceable and to recover the disposed
share. The trial court granted the relief prayed
for, but upon appeal the Court of Appeals
uphold the validity of the sale and the
complaint.
Hence, this Petition for Review on certiorari.
The following facts are not disputed.
Concepcion and Gerundia both surnamed
Rallos were sisters and registered co-owners
of a parcel of land known as Lot No. 5983 of
the Cadastral Survey of Cebu covered by
Transfer Certificate of Title No. 11116 of the
Registry of Cebu. On April 21, 1954, the
sisters executed a special power of attorney in
favor of their brother, Simeon Rallos,
authorizing him to sell for and in their behalf
lot 5983. On March 3, 1955, Concepcion
Rallos died. On September 12, 1955, Simeon
Rallos sold the undivided shares of his sisters
Concepcion and Gerundia in lot 5983 to Felix
Go Chan & Sons Realty Corporation for the
sum of P10,686.90. The deed of sale was
registered in the Registry of Deeds of Cebu,
TCT No. 11118 was cancelled, and a new
transfer certificate of Title No. 12989 was
issued in the named of the vendee.
On May 18, 1956 Ramon Rallos as
administrator of the Intestate Estate of
Concepcion Rallos filed a complaint docketed
as Civil Case No. R-4530 of the Court of First
Instance of Cebu, praying (1) that the sale of
the undivided share of the deceased
Concepcion Rallos in lot 5983 be d
unenforceable, and said share be reconveyed
to her estate; (2) that the Certificate of 'title
issued in the name of Felix Go Chan & Sons
Realty Corporation be cancelled and another
title be issued in the names of the corporation
and the "Intestate estate of Concepcion
Rallos" in equal undivided and (3) that plaintiff
be indemnified by way of attorney's fees and
payment of costs of suit. Named party
defendants were Felix Go Chan & Sons
Realty Corporation, Simeon Rallos, and the
Register of Deeds of Cebu, but subsequently,
the latter was dropped from the complaint.
The complaint was amended twice; defendant
Corporation's Answer contained a crossclaim
against its co-defendant, Simon Rallos while
the latter filed third-party complaint against his
sister, Gerundia Rallos While the case was
pending in the trial court, both Simon and his
sister Gerundia died and they were
substituted by the respective administrators of
their estates.
After trial the court a quo rendered judgment
with the following dispositive portion:
A. On Plaintiffs Complaint
(1) Declaring
the deed of
sale, Exh. "C",
null and void
insofar as the
one-half pro-
indiviso share
of Concepcion
Rallos in the
property in
question,
Lot 5983 of the
Cadastral
Survey of
Cebu is the sum of
concerned; P1,000.00; and

(2) Ordering (5) Ordering

the Register of both
Deeds of Cebu defendants to
City to cancel pay the costs
Transfer jointly and
Certificate of severally.
Title No. 12989
covering Lot B. On GO CHANTS Cross-
5983 and to Claim:
issue in lieu
thereof another (1) Sentencing
in the names of the co-
FELIX GO defendant
CHAN & Juan T.
SONS Borromeo,
REALTY administrator
CORPORATIO of the Estate of
N and the Simeon Rallos,
Estate of to pay to
Concepcion defendant Felix
Rallos in the Co Chan &
proportion of Sons Realty
one-half (1/2) Corporation
share each the sum of
pro-indiviso; P5,343.45,
representing
(3) Ordering the price of
Felix Go Chan one-half (1/2)
& Sons Realty share of lot
Corporation to 5983;
deliver the
possession of (2) Ordering
an undivided co-defendant
one-half (1/2) Juan T.
share of Lot Borromeo,
5983 to the administrator
herein plaintiff; of the Estate of
Simeon Rallos,
(4) Sentencing to pay in
the defendant concept of
Juan T. reasonable
Borromeo, attorney's fees
administrator to Felix Go
of the Estate of Chan & Sons
Simeon Rallos, Realty
to pay to Corporation
plaintiff in the sum of
concept of P500.00.
reasonable
attorney's fees
 C. On Third-Party Complaint
of defendant Juan T.
Borromeo administrator of
Estate of Simeon Rallos,
against Josefina Rallos special
administratrix of the Estate of
Gerundia Rallos:
(1) Dismissing the third-party
complaint without prejudice to
filing either a complaint
against the regular
administrator of the Estate of
Gerundia Rallos or a claim in
the Intestate-Estate of
Cerundia Rallos, covering the
same subject-matter of the
third-party complaint, at bar.
(pp. 98-100, Record on
Appeal)
Felix Go Chan & Sons Realty Corporation
appealed in due time to the Court of Appeals
from the foregoing judgment insofar as it set
aside the sale of the one-half (1/2) share of
Concepcion Rallos. The appellate tribunal, as
adverted to earlier, resolved the appeal on
November 20, 1964 in favor of the appellant
corporation sustaining the sale in
question. 1 The appellee administrator, Ramon
Rallos, moved for a reconsider of the decision
but the same was denied in a resolution of
March 4, 1965. 2
What is the legal effect of an act performed by
an agent after the death of his principal?
Applied more particularly to the instant case,
We have the query. is the sale of the
undivided share of Concepcion Rallos in lot
5983 valid although it was executed by the
agent after the death of his principal? What is
the law in this jurisdiction as to the effect of
the death of the principal on the authority of
the agent to act for and in behalf of the latter?
Is the fact of knowledge of the death of the
principal a material factor in determining the
legal effect of an act performed after such
death?
Before proceedings to the issues, We shall
briefly restate certain principles of law relevant
to the matter tinder consideration.
1. It is a basic axiom in civil law embodied in
our Civil Code that no one may contract in the
name of another without being authorized by
the latter, or unless he has by law a right to
represent him. 3 A contract entered into in the
name of another by one who has no authority or
the legal representation or who has acted
beyond his powers, shall be unenforceable,
unless it is ratified, expressly or impliedly, by the
person on whose behalf it has been executed,
before it is revoked by the other contracting
party. 4 Article 1403 (1) of the same Code also
provides:
ART. 1403. The following
contracts are unenforceable,
unless they are justified:
(1) Those entered into in the
name of another person by
one who hi - been given no
authority or legal
representation or who has
acted beyond his powers; ...
Out of the above given principles, sprung the
creation and acceptance of the relationship of
agency whereby one party, caged the
principal (mandante), authorizes another,
called the agent (mandatario), to act for and in
his behalf in transactions with third persons.
The essential elements of agency are: (1)
there is consent, express or implied of the
parties to establish the relationship; (2) the
object is the execution of a juridical act in
relation to a third person; (3) the agents acts
as a representative and not for himself, and
(4) the agent acts within the scope of his
authority. 5
Agency is basically personal representative,
and derivative in nature. The authority of the
agent to act emanates from the powers
granted to him by his principal; his act is the
act of the principal if done within the scope of
the authority. Qui facit per alium facit se. "He
who acts through another acts himself". 6
2. There are various ways of extinguishing
agency, 7 but her We are concerned only with
one cause death of the principal Paragraph 3
of Art. 1919 of the Civil Code which was taken
from Art. 1709 of the Spanish Civil Code
provides:
ART. 1919. Agency is
extinguished.
xxx xxx xxx
3. By the death, civil
interdiction, insanity or
insolvency of the principal or
of the agent; ... (Emphasis
supplied)
By reason of the very nature of the
relationship between Principal and agent,
agency is extinguished by the death of the
principal or the agent. This is the law in this
jurisdiction. 8
Manresa commenting on Art. 1709 of the
Spanish Civil Code explains that the rationale
for the law is found in the juridical basis of
agency which is representation Them being
an in. integration of the personality of the
principal integration that of the agent it is not
possible for the representation to continue to
exist once the death of either is
establish. Pothier agrees with Manresa that by
reason of the nature of agency, death is a
necessary cause for its
extinction. Laurent says that the juridical tie
between the principal and the agent is
severed ipso jure upon the death of either
without necessity for the heirs of the fact to
notify the agent of the fact of death of the
former. 9
The same rule prevails at common law the
death of the principal effects instantaneous
and absolute revocation of the authority of the
agent unless the Power be coupled with an
interest. 10 This is the prevalent rule in American
Jurisprudence where it is well-settled that a
power without an interest confer. red upon an
agent is dissolved by the principal's death, and
any attempted execution of the power afterward
is not binding on the heirs or representatives of
the deceased. 11
3. Is the general rule provided for in Article
1919 that the death of the principal or of the
agent extinguishes the agency, subject to any
exception, and if so, is the instant case within
that exception? That is the determinative point
in issue in this litigation. It is the contention of
respondent corporation which was sustained
by respondent court that notwithstanding the
death of the principal Concepcion Rallos the
act of the attorney-in-fact, Simeon Rallos in
selling the former's sham in the property is
valid and enforceable inasmuch as the
corporation acted in good faith in buying the
property in question.
Articles 1930 and 1931 of the Civil Code
provide the exceptions to the general rule
afore-mentioned.
ART. 1930. The agency shall
remain in full force and effect
even after the death of the
principal, if it has been
constituted in the common
interest of the latter and of the
agent, or in the interest of a
third person who has accepted
the stipulation in his favor.
ART. 1931. Anything done by
the agent, without knowledge
of the death of the principal or
of any other cause which
extinguishes the agency, is
valid and shall be fully
effective with respect to third
persons who may have
contracted with him in good.
faith.
Article 1930 is not involved because
admittedly the special power of attorney
executed in favor of Simeon Rallos was not
coupled with an interest.
Article 1931 is the applicable law. Under this
provision, an act done by the agent after the
death of his principal is valid and effective only
under two conditions, viz: (1) that the agent
acted without knowledge of the death of the
principal and (2) that the third person who
contracted with the agent himself acted in
good faith. Good faith here means that the
third person was not aware of the death of the
principal at the time he contracted with said
agent. These two requisites must concur the
absence of one will render the act of the agent
invalid and unenforceable.
In the instant case, it cannot be questioned
that the agent, Simeon Rallos, knew of the
death of his principal at the time he sold the
latter's share in Lot No. 5983 to respondent
corporation. The knowledge of the death is
clearly to be inferred from the pleadings filed
by Simon Rallos before the trial court. 12 That
Simeon Rallos knew of the death of his sister
Concepcion is also a finding of fact of the court a
quo 13 and of respondent appellate court when
the latter stated that Simon Rallos 'must have
known of the death of his sister, and yet he
proceeded with the sale of the lot in the name of
both his sisters Concepcion and Gerundia
Rallos without informing appellant (the realty
corporation) of the death of the former. 14
On the basis of the established knowledge of
Simon Rallos concerning the death of his
principal Concepcion Rallos, Article 1931 of
the Civil Code is inapplicable. The law
expressly requires for its application lack of
knowledge on the part of the agent of the
death of his principal; it is not enough that the
third person acted in good faith. Thus in
Buason & Reyes v. Panuyas, the Court
applying Article 1738 of the old Civil rode now
Art. 1931 of the new Civil Code sustained the
validity , of a sale made after the death of the
principal because it was not shown that the
agent knew of his principal's demise. 15 To the
same effect is the case of Herrera, et al., v. Luy
Kim Guan, et al., 1961, where in the words of
Justice Jesus Barrera the Court stated:
... even granting arguemendo
that Luis Herrera did die in
1936, plaintiffs presented no
proof and there is no indication
in the record, that the agent
Luy Kim Guan was aware of
the death of his principal at the
time he sold the property. The
death 6f the principal does not
render the act of an agent
unenforceable, where the
latter had no knowledge of
such extinguishment of the
agency. (1 SCRA 406, 412)
4. In sustaining the validity of the sale to
respondent consideration the Court of
Appeals reasoned out that there is no
provision in the Code which provides that
whatever is done by an agent having
knowledge of the death of his principal is void
even with respect to third persons who may
have contracted with him in good faith and
without knowledge of the death of the
principal. 16
We cannot see the merits of the foregoing
argument as it ignores the existence of the
general rule enunciated in Article 1919 that
the death of the principal extinguishes the
agency. That being the general rule it follows
a fortiorithat any act of an agent after the
death of his principal is void ab initio unless
the same fags under the exception provided
for in the aforementioned Articles 1930 and
1931. Article 1931, being an exception to the
general rule, is to be strictly construed, it is not
to be given an interpretation or application
beyond the clear import of its terms for
otherwise the courts will be involved in a
process of legislation outside of their judicial
function.
5. Another argument advanced by respondent
court is that the vendee acting in good faith
relied on the power of attorney which was duly
registered on the original certificate of title
recorded in the Register of Deeds of the
province of Cebu, that no notice of the death
was aver annotated on said certificate of title
by the heirs of the principal and accordingly
they must suffer the consequences of such
omission. 17
To support such argument reference is made
to a portion in Manresa's Commentaries which
We quote:
If the agency has been
granted for the purpose of
contracting with certain
persons, the revocation must
be made known to them. But if
the agency is general iii
 nature, without reference to
particular person with whom
the agent is to contract, it is
sufficient that the principal
exercise due diligence to
make the revocation of the
agency publicity known.
In case of a general power
which does not specify the
persons to whom represents'
on should be made, it is the
general opinion that all acts,
executed with third persons
who contracted in good faith,
Without knowledge of the
revocation, are valid. In such
case, the principal may
exercise his right against the
agent, who, knowing of the
revocation, continued to
assume a personality which he
no longer had. (Manresa Vol.
11, pp. 561 and 575; pp. 15-
16, rollo)
The above discourse however, treats of
revocation by an act of the principal as a
mode of terminating an agency which is to be
distinguished from revocation by operation of
law such as death of the principal which
obtains in this case. On page six of this
Opinion We stressed that by reason of the
very nature of the relationship between
principal and agent, agency is
extinguished ipso jure upon the death of either
principal or agent. Although a revocation of a
power of attorney to be effective must be
communicated to the parties concerned, 18 yet
a revocation by operation of law, such as by
death of the principal is, as a rule,
instantaneously effective inasmuch as "by legal
fiction the agent's exercise of authority is
regarded as an execution of the
principal's continuing will. 19 With death, the
principal's will ceases or is the of authority is
extinguished.
The Civil Code does not impose a duty on the
heirs to notify the agent of the death of the
principal What the Code provides in Article
1932 is that, if the agent die his heirs must
notify the principal thereof, and in the
meantime adopt such measures as the
circumstances may demand in the interest of
the latter. Hence, the fact that no notice of the
death of the principal was registered on the
certificate of title of the property in the Office
of the Register of Deeds, is not fatal to the
cause of the estate of the principal
6. Holding that the good faith of a third person
in said with an agent affords the former
sufficient protection, respondent court drew a
"parallel" between the instant case and that of
an innocent purchaser for value of a land,
stating that if a person purchases a registered
land from one who acquired it in bad faith
even to the extent of foregoing or falsifying the
deed of sale in his favor the registered
owner has no recourse against such innocent
purchaser for value but only against the
forger. 20
To support the correctness of this respondent
corporation, in its brief, cites the case
of Blondeau, et al., v. Nano and Vallejo, 61
Phil. 625. We quote from the brief:
In the case of Angel Blondeau
et al. v. Agustin Nano et al., 61
Phil. 630, one Vallejo was a
co-owner of lands with Agustin
Nano. The latter had a power
of attorney supposedly
executed by Vallejo Nano in
his favor. Vallejo delivered to
Nano his land titles. The
power was registered in the
Office of the Register of
Deeds. When the lawyer-
husband of Angela Blondeau
went to that Office, he found
all in order including the power
of attorney. But Vallejo denied
having executed the power
The lower court sustained
Vallejo and the plaintiff
Blondeau appealed. Reversing
the decision of the court a quo,
the Supreme Court, quoting
the ruling in the case
of Eliason v. Wilborn, 261 U.S.
457, held:
But there is a would not have
narrower sent
ground on P12,000.00 to
which the the defendant
defenses of the Vallejo.' An
defendant- executed
appellee must transfer of
be overruled. registered
Agustin Nano lands placed
had by the
possession of registered
Jose Vallejo's owner thereof
title papers. in the hands of
Without those another
title papers operates as a
handed over to representation
Nano with the to a third party
acquiescence that the holder
of Vallejo, a of the transfer
fraud could not is authorized to
have been deal with the
perpetuated. land.
When
Fernando de la As between
Canters, a two innocent
member of the persons, one
Philippine Bar of whom must
and the suffer the
husband of consequence
Angela of a breach of
Blondeau, the trust, the one
principal who made it
plaintiff, possible by his
searched the act of
registration coincidence
record, he bear the loss.
found them in (pp. 19-21)
due form
including the The Blondeau decision, however, is not on all
power of fours with the case before Us because here
attorney of We are confronted with one who admittedly
Vallajo in favor was an agent of his sister and who sold the
of Nano. If this property of the latter after her death with full
had not been knowledge of such death. The situation is
so and if expressly covered by a provision of law on
thereafter the agency the terms of which are clear and
proper notation unmistakable leaving no room for an
of the interpretation contrary to its tenor, in the same
encumbrance manner that the ruling in Blondeau and the
could not have cases cited therein found a basis in Section
been made, 55 of the Land Registration Law which in part
Angela provides:
Blondeau
 xxx xxx xxx
The production of the owner's
duplicate certificate whenever
any voluntary instrument is
presented for registration shall
be conclusive authority from
the registered owner to the
register of deeds to enter a
new certificate or to make a
memorandum of registration in
accordance with such
instruments, and the new
certificate or memorandum
Shall be binding upon the
registered owner and upon all
persons claiming under him in
favor of every purchaser for
value and in good
faith: Provided however, That
in all cases of registration
provided by fraud, the owner
may pursue all his legal and
equitable remedies against the
parties to such fraud without
prejudice, however, to the
right, of any innocent holder
for value of a certificate of title.
... (Act No. 496 as amended)
7. One last point raised by respondent
corporation in support of the appealed
decision is an 1842 ruling of the Supreme
Court of Pennsylvania in Cassiday v.
McKenzie wherein payments made to an
agent after the death of the principal were
held to be "good", "the parties being ignorant
of the death". Let us take note that the
Opinion of Justice Rogers was premised on
the statement that the parties were ignorant of
the death of the principal. We quote from that
decision the following:
... Here the precise point is,
whether a payment to an
agent when the Parties are
ignorant of the death is a good
payment. in addition to the
case in Campbell before cited,
the same judge Lord
Ellenboruogh, has decided in
5 Esp. 117, the general
question that a payment after
the death of principal is not
good. Thus, a payment of
sailor's wages to a person
having a power of attorney to
receive them, has been held
void when the principal was
dead at the time of the
payment. If, by this case, it is
meant merely to decide the
general proposition that by
operation of law the death of
the principal is a revocation of
the powers of the attorney, no
objection can be taken to it.
But if it intended to say that his
principle applies where there
was 110 notice of death, or
opportunity of twice I must be
permitted to dissent from it.
... That a payment may be
good today, or bad tomorrow,
from the accident
circumstance of the death of
the principal, which he did not
know, and which by no
possibility could he know? It
would be unjust to the agent
and unjust to the debtor. In the
civil law, the acts of the agent,
done bona fide in ignorance of
the death of his principal are
held valid and binding upon
the heirs of the latter. The
same rule holds in the Scottish
law, and I cannot believe the
common law is so
unreasonable... (39 Am. Dec.
76, 80, 81; emphasis supplied)
To avoid any wrong impression which the
Opinion in Cassiday v. McKenzie may evoke,
mention may be made that the above
represents the minority view in American
jurisprudence. Thus in Clayton v. Merrett, the
Court said.
There are several cases which
seem to hold that although, as
a general principle, death
revokes an agency and
renders null every act of the
agent thereafter performed,
 yet that where a payment has
been made in ignorance of the
death, such payment will be
good. The leading case so
holding is that of Cassiday v.
McKenzie, 4 Watts & S. (Pa)
282, 39 Am. 76, where, in an
elaborate opinion, this view ii
broadly announced. It is
referred to, and seems to have
been followed, in the case
of Dick v. Page, 17 Mo. 234,
57 AmD 267; but in this latter
case it appeared that the
estate of the deceased
principal had received the
benefit of the money paid, and
therefore the representative of
the estate might well have
been held to be estopped from
suing for it again. . . . These
cases, in so far, at least, as
they announce the doctrine
under discussion, are
exceptional. The Pennsylvania
Case, supra (Cassiday v.
McKenzie 4 Watts & S. 282,
39 AmD 76), is believed to
stand almost, if not quite,
alone in announcing the
principle in its broadest scope.
(52, Misc. 353, 357, cited in 2
C.J. 549)
So also in Travers v. Crane, speaking
of Cassiday v. McKenzie, and pointing out that
the opinion, except so far as it related to the
particular facts, was a mere dictum, Baldwin J.
said:
The opinion, therefore, of the
learned Judge may be
regarded more as an
extrajudicial indication of his
views on the general subject,
than as the adjudication of the
Court upon the point in
question. But accordingly all
power weight to this opinion,
as the judgment of a of great
respectability, it stands alone
among common law
authorities and is opposed by
an array too formidable to
permit us to following it. (15
Cal. 12,17, cited in 2 C.J. 549)
Whatever conflict of legal opinion was
generated by Cassiday v. McKenzie in
American jurisprudence, no such conflict
exists in our own for the simple reason that
our statute, the Civil Code, expressly provides
for two exceptions to the general rule that
death of the principal revokes ipso jure the
agency, to wit: (1) that the agency is coupled
with an interest (Art 1930), and (2) that the act
of the agent was executed without knowledge
of the death of the principal and the third
person who contracted with the agent acted
also in good faith (Art. 1931). Exception No. 2
is the doctrine followed in Cassiday, and again
We stress the indispensable requirement that
the agent acted without knowledge or notice
of the death of the principal In the case before
Us the agent Ramon Rallos executed the sale
notwithstanding notice of the death of his
principal Accordingly, the agent's act is
unenforceable against the estate of his
principal.
IN VIEW OF ALL THE FOREGOING, We set
aside the ecision of respondent appellate
court, and We affirm en toto the judgment
rendered by then Hon. Amador E. Gomez of
the Court of First Instance of Cebu, quoted in
pages 2 and 3 of this Opinion, with costs
against respondent realty corporation at all
instances.
So Ordered.
Teehankee (Chairman), Makasiar, Fernandez
and Guerrero, JJ., concur.