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[G.R. No. 30616 : December 10, 1990.

]
192 SCRA 110
EUFRACIO D. ROJAS, Plaintiff-Appellant, vs. CONSTANCIO B. MAGLANA,Defendant-Appellee.
DECISION
PARAS, J.:
This is a direct appeal to this Court from a decision ** of the then Court of First Instance of Davao, Seventh Judicial District, Branch III, in Civil Case No.
3518, dismissing appellant's complaint. As found by the trial court, the antecedent facts of the case are as follows:
On January 14, 1955, Maglana and Rojas executed their Articles of Co-Partnership (Exhibit "A") called Eastcoast Development Enterprises (EDE) with
only the two of them as partners. The partnership EDE with an indefinite term of existence was duly registered on January 21, 1955 with the Securities
and Exchange Commission.
One of the purposes of the duly-registered partnership was to "apply or secure timber and/or minor forests products licenses and concessions over
public and/or private forest lands and to operate, develop and promote such forests rights and concessions." (Rollo, p. 114).
A duly registered Articles of Co-Partnership was filed together with an application for a timber concession covering the area located at Cateel and
Baganga, Davao with the Bureau of Forestry which was approved and Timber License No. 35-56 was duly issued and became the basis of subsequent
renewals made for and in behalf of the duly registered partnership EDE.
Under the said Articles of Co-Partnership, appellee Maglana shall manage the business affairs of the partnership, including marketing and handling of
cash and is authorized to sign all papers and instruments relating to the partnership, while appellant Rojas shall be the logging superintendent and shall
manage the logging operations of the partnership. It is also provided in the said articles of co-partnership that all profits and losses of the partnership
shall be divided share and share alike between the partners.
During the period from January 14, 1955 to April 30, 1956, there was no operation of said partnership (Record on Appeal [R.A.] p. 946).
Because of the difficulties encountered, Rojas and Maglana decided to avail of the services of Pahamotang as industrial partner.
On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed their Articles of Co-Partnership (Exhibit "B" and Exhibit "C") under the firm name
EASTCOAST DEVELOPMENT ENTERPRISES (EDE). Aside from the slight difference in the purpose of the second partnership which is to hold and
secure renewal of timber license instead of to secure the license as in the first partnership and the term of the second partnership is fixed to thirty (30)
years, everything else is the same.
The partnership formed by Maglana, Pahamotang and Rojas started operation on May 1, 1956, and was able to ship logs and realize profits. An income
was derived from the proceeds of the logs in the sum of P643,633.07 (Decision, R.A. 919). On October 25, 1956, Pahamotang, Maglana and Rojas
executed a document entitled "CONDITIONAL SALE OF INTEREST IN THE PARTNERSHIP, EASTCOAST DEVELOPMENT ENTERPRISE" (Exhibits
"C" and "D") agreeing among themselves that Maglana and Rojas shall purchase the interest, share and participation in the Partnership of Pahamotang
assessed in the amount of P31,501.12. It was also agreed in the said instrument that after payment of the sum of P31,501.12 to Pahamotang including
the amount of loan secured by Pahamotang in favor of the partnership, the two (Maglana and Rojas) shall become the owners of all equipment
contributed by Pahamotang and the EASTCOAST DEVELOPMENT ENTERPRISES, the name also given to the second partnership, be dissolved.
Pahamotang was paid in fun on August 31, 1957. No other rights and obligations accrued in the name of the second partnership (R.A. 921).
After the withdrawal of Pahamotang, the partnership was continued by Maglana and Rojas without the benefit of any written agreement or reconstitution
of their written Articles of Partnership (Decision, R.A. 948). On January 28, 1957, Rojas entered into a management contract with another logging
enterprise, the CMS Estate, Inc. He left and abandoned the partnership (Decision, R.A. 947). On February 4, 1957, Rojas withdrew his equipment from
the partnership for use in the newly acquired area (Decision, R.A. 948). The equipment withdrawn were his supposed contributions to the first
partnership and was transferred to CMS Estate, Inc. by way of chattel mortgage (Decision, R.A. p. 948). On March 17, 1957, Maglana wrote Rojas
reminding the latter of his obligation to contribute, either in cash or in equipment, to the capital investments of the partnership as well as his obligation to
perform his duties as logging superintendent.
Two weeks after March 17, 1957, Rojas told Maglana that he will not be able to comply with the promised contributions and he will not work as logging
superintendent. Maglana then told Rojas that the latter's share will just be 20% of the net profits. Such was the sharing from 1957 to 1959 without
complaint or dispute (Decision, R.A. 949).: nad Meanwhile, Rojas took funds from the partnership more than his contribution. Thus, in a letter dated
February 21, 1961 (Exhibit "10") Maglana notified Rojas that he dissolved the partnership (R.A. 949).
On April 7, 1961, Rojas filed an action before the Court of First Instance of Davao against Maglana for the recovery of properties, accounting,
receivership and damages, docketed as Civil Case No. 3518 (Record on Appeal, pp. 1-26). Rojas' petition for appointment of a receiver was denied
(R.A. 894). Upon motion of Rojas on May 23, 1961, Judge Romero appointed commissioners to examine the long and voluminous accounts of the
Eastcoast Development Enterprises (Ibid., pp. 894-895). The motion to dismiss the complaint filed by Maglana on June 21, 1961 (Ibid., pp. 102-114) was
denied by Judge Romero for want of merit (Ibid., p. 125). Judge Romero also required the inclusion of the entire year 1961 in the report to be submitted
by the commissioners (Ibid., pp. 138-143). Accordingly, the commissioners started examining the records and supporting papers of the partnership as
well as the information furnished them by the parties, which were compiled in three (3) volumes.
On May 11, 1964, Maglana filed his motion for leave of court to amend his answer with counterclaim, attaching thereto the amended answer (Ibid., pp.
26-336), which was granted on May 22, 1964 (Ibid., p. 336).
On May 27, 1964, Judge M.G. Reyes approved the submitted Commissioners' Report (Ibid., p. 337).
On June 29, 1965, Rojas filed his motion for reconsideration of the order dated May 27, 1964 approving the report of the commissioners which was
opposed by the appellee.
On September 19, 1964, appellant's motion for reconsideration was denied (Ibid., pp. 446-451).
A mandatory pre-trial was conducted on September 8 and 9, 1964 and the following issues were agreed upon to be submitted to the trial court:
(a) The nature of partnership and the legal relations of Maglana and Rojas after the dissolution of the second partnership;
(b) Their sharing basis: whether in proportion to their contribution or share and share alike;
(c) The ownership of properties bought by Maglana in his wife's name;
(d) The damages suffered and who should be liable for them; and
(e) The legal effect of the letter dated February 23, 1961 of Maglana dissolving the partnership (Decision, R.A. pp. 895-896).- nad
After trial, the lower court rendered its decision on March 11, 1968, the dispositive portion of which reads as follows:
"WHEREFORE, the above facts and issues duly considered, judgment is hereby rendered by the Court declaring that:
"1. The nature of the partnership and the legal relations of Maglana and Rojas after Pahamotang retired from the second partnership, that is, after
August 31, 1957, when Pahamotang was finally paid his share the partnership of the defendant and the plaintiff is one of a de facto and at will;

"2. Whether the sharing of partnership profits should be on the basis of computation, that is the ratio and proportion of their respective contributions, or
on the basis of share and share alike this covered by actual contributions of the plaintiff and the defendant and by their verbal agreement; that the
sharing of profits and losses is on the basis of actual contributions; that from 1957 to 1959, the sharing is on the basis of 80% for the defendant and 20%
for the plaintiff of the profits, but from 1960 to the date of dissolution, February 23, 1961, the plaintiff's share will be on the basis of his actual contribution
and, considering his indebtedness to the partnership, the plaintiff is not entitled to any share in the profits of the said partnership;
"3. As to whether the properties which were bought by the defendant and placed in his or in his wife's name were acquired with partnership funds or with
funds of the defendant and the Court declares that there is no evidence that these properties were acquired by the partnership funds, and therefore
the same should not belong to the partnership;
"4. As to whether damages were suffered and, if so, how much, and who caused them and who should be liable for them the Court declares that
neither parties is entitled to damages, for as already stated above it is not a wise policy to place a price on the right of a person to litigate and/or to come
to Court for the assertion of the rights they believe they are entitled to;
"5. As to what is the legal effect of the letter of defendant to the plaintiff dated February 23, 1961; did it dissolve the partnership or not the Court
declares that the letter of the defendant to the plaintiff dated February 23, 1961, in effect dissolved the partnership;
"6. Further, the Court relative to the canteen, which sells foodstuffs, supplies, and other merchandise to the laborers and employees of the Eastcoast
Development Enterprises, the COURT DECLARES THE SAME AS NOT BELONGING TO THE PARTNERSHIP;
"7. That the alleged sale of forest concession Exhibit 9-B, executed by Pablo Angeles David is VALID AND BINDING UPON THE PARTIES AND
SHOULD BE CONSIDERED AS PART OF MAGLANA'S CONTRIBUTION TO THE PARTNERSHIP;
"8. Further, the Court orders and directs plaintiff Rojas to pay or turn over to the partnership the amount of P69,000.00 the profits he received from the
CMS Estate, Inc. operated by him;
"9. The claim that plaintiff Rojas should be ordered to pay the further sum of P85,000.00 which according to him he is still entitled to receive from the
CMS Estate, Inc. is hereby denied considering that it has not yet been actually received, and further the receipt is merely based upon an expectancy
and/or still speculative;
"10. The Court also directs and orders plaintiff Rojas to pay the sum of P62,988.19 his personal account to the partnership;
"11. The Court also credits the defendant the amount of P85,000.00 the amount he should have received as logging superintendent, and which was not
paid to him, and this should be considered as part of Maglana's contribution likewise to the partnership; and
"12. The complaint is hereby dismissed with costs against the plaintiff.: rd
"SO ORDERED." Decision, Record on Appeal, pp. 985-989).
Rojas interposed the instant appeal.
The main issue in this case is the nature of the partnership and legal relationship of the Maglana-Rojas after Pahamotang retired from the second
partnership.
The lower court is of the view that the second partnership superseded the first, so that when the second partnership was dissolved there was no written
contract of co-partnership; there was no reconstitution as provided for in the Maglana, Rojas and Pahamotang partnership contract. Hence, the
partnership which was carried on by Rojas and Maglana after the dissolution of the second partnership was a de facto partnership and at will. It was
considered as a partnership at will because there was no term, express or implied; no period was fixed, expressly or impliedly (Decision, R.A. pp. 962963).
On the other hand, Rojas insists that the registered partnership under the firm name of Eastcoast Development Enterprises (EDE) evidenced by the
Articles of Co-Partnership dated January 14, 1955 (Exhibit "A") has not been novated, superseded and/or dissolved by the unregistered articles of copartnership among appellant Rojas, appellee Maglana and Agustin Pahamotang, dated March 4, 1956 (Exhibit "C") and accordingly, the terms and
stipulations of said registered Articles of Co-Partnership (Exhibit "A") should govern the relations between him and Maglana. Upon withdrawal of Agustin
Pahamotang from the unregistered partnership (Exhibit "C"), the legally constituted partnership EDE (Exhibit "A") continues to govern the relations
between them and it was legal error to consider a de facto partnership between said two partners or a partnership at will. Hence, the letter of appellee
Maglana dated February 23, 1961, did not legally dissolve the registered partnership between them, being in contravention of the partnership agreement
agreed upon and stipulated in their Articles of Co-Partnership (Exhibit "A"). Rather, appellant is entitled to the rights enumerated in Article 1837 of the
Civil Code and to the sharing profits between them of "share and share alike" as stipulated in the registered Articles of Co-Partnership (Exhibit "A").
After a careful study of the records as against the conflicting claims of Rojas and Maglana, it appears evident that it was not the intention of the partners
to dissolve the first partnership, upon the constitution of the second one, which they unmistakably called an "Additional Agreement" (Exhibit "9-B") (Brief
for Defendant-Appellee, pp. 24-25). Except for the fact that they took in one industrial partner; gave him an equal share in the profits and fixed the term
of the second partnership to thirty (30) years, everything else was the same. Thus, they adopted the same name, EASTCOAST DEVELOPMENT
ENTERPRISES, they pursued the same purposes and the capital contributions of Rojas and Maglana as stipulated in both partnerships call for the same
amounts. Just as important is the fact that all subsequent renewals of Timber License No. 35-36 were secured in favor of the First Partnership, the
original licensee. To all intents and purposes therefore, the First Articles of Partnership were only amended, in the form of Supplementary Articles of CoPartnership (Exhibit "C") which was never registered (Brief for Plaintiff-Appellant, p. 5). Otherwise stated, even during the existence of the second
partnership, all business transactions were carried out under the duly registered articles. As found by the trial court, it is an admitted fact that even up to
now, there are still subsisting obligations and contracts of the latter (Decision, R.A. pp. 950-957). No rights and obligations accrued in the name of the
second partnership except in favor of Pahamotang which was fully paid by the duly registered partnership (Decision, R.A., pp. 919-921).
On the other hand, there is no dispute that the second partnership was dissolved by common consent. Said dissolution did not affect the first partnership
which continued to exist. Significantly, Maglana and Rojas agreed to purchase the interest, share and participation in the second partnership of
Pahamotang and that thereafter, the two (Maglana and Rojas) became the owners of equipment contributed by Pahamotang. Even more convincing, is
the fact that Maglana on March 17, 1957, wrote Rojas, reminding the latter of his obligation to contribute either in cash or in equipment, to the capital
investment of the partnership as well as his obligation to perform his duties as logging superintendent. This reminder cannot refer to any other but to the
provisions of the duly registered Articles of Co-Partnership. As earlier stated, Rojas replied that he will not be able to comply with the promised
contributions and he will not work as logging superintendent. By such statements, it is obvious that Roxas understood what Maglana was referring to and
left no room for doubt that both considered themselves governed by the articles of the duly registered partnership.
Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of Pahamotang can neither be considered as a De Facto
Partnership, nor a Partnership at Will, for as stressed, there is an existing partnership, duly registered.
As to the question of whether or not Maglana can unilaterally dissolve the partnership in the case at bar, the answer is in the affirmative.
Hence, as there are only two parties when Maglana notified Rojas that he dissolved the partnership, it is in effect a notice of withdrawal.
Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can cause its dissolution by expressly withdrawing even before
the expiration of the period, with or without justifiable cause. Of course, if the cause is not justified or no cause was given, the withdrawing partner is
liable for damages but in no case can he be compelled to remain in the firm. With his withdrawal, the number of members is decreased, hence, the
dissolution. And in whatever way he may view the situation, the conclusion is inevitable that Rojas and Maglana shall be guided in the liquidation of the
partnership by the provisions of its duly registered Articles of Co-Partnership; that is, all profits and losses of the partnership shall be divided "share and
share alike" between the partners.
But an accounting must first be made and which in fact was ordered by the trial court and accomplished by the commissioners appointed for the
purpose.
On the basis of the Commissioners' Report, the corresponding contribution of the partners from 1956-1961 are as follows: Eufracio Rojas who should
have contributed P158,158.00, contributed only P18,750.00 while Maglana who should have contributed P160,984.00, contributed P267,541.44
(Decision, R.A. p. 976). It is a settled rule that when a partner who has undertaken to contribute a sum of money fails to do so, he becomes a debtor of

the partnership for whatever he may have promised to contribute (Article 1786, Civil Code) and for interests and damages from the time he should have
complied with his obligation (Article 1788, Civil Code) (Moran, Jr. v. Court of Appeals, 133 SCRA 94 [1984]). Being a contract of partnership, each
partner must share in the profits and losses of the venture. That is the essence of a partnership (Ibid., p. 95).
Thus, as reported in the Commissioners' Report, Rojas is not entitled to any profits. In their voluminous reports which was approved by the trial court,
they showed that on 50-50% basis, Rojas will be liable in the amount of P131,166.00; on 80-20%, he will be liable for P40,092.96 and finally on the
basis of actual capital contribution, he will be liable for P52,040.31.
Consequently, except as to the legal relationship of the partners after the withdrawal of Pahamotang which is unquestionably a continuation of the duly
registered partnership and the sharing of profits and losses which should be on the basis of share and share alike as provided for in the duly registered
Articles of Co-Partnership, no plausible reason could be found to disturb the findings and conclusions of the trial court.: nad
As to whether Maglana is liable for damages because of such withdrawal, it will be recalled that after the withdrawal of Pahamotang, Rojas entered into
a management contract with another logging enterprise, the CMS Estate, Inc., a company engaged in the same business as the partnership. He
withdrew his equipment, refused to contribute either in cash or in equipment to the capital investment and to perform his duties as logging
superintendent, as stipulated in their partnership agreement. The records also show that Rojas not only abandoned the partnership but also took funds
in an amount more than his contribution (Decision, R.A., p. 949).
In the given situation Maglana cannot be said to be in bad faith nor can he be liable for damages.
PREMISES CONSIDERED, the assailed decision of the Court of First Instance of Davao, Branch III, is hereby MODIFIED in the sense that the duly
registered partnership of Eastcoast Development Enterprises continued to exist until liquidated and that the sharing basis of the partners should be on
share and share alike as provided for in its Articles of Partnership, in accordance with the computation of the commissioners. We also hereby AFFIRM
the decision of the trial court in all other respects.: nad
SO ORDERED.
2. Profits and Losses (Articles 1797-1799)
[G.R. No. 149844. October 13, 2004]
MIGUEL CUENCO, Substituted by MARIETTA C. CUYEGKENG, petitioner, vs. CONCEPCION CUENCO Vda. DE MANGUERRA, respondent.
DECISION
PANGANIBAN, J.:
Inasmuch as the facts indubitably and eloquently show an implied trust in favor of respondent, the Court of Appeals did not err in affirming the Decision
of the Regional Trial Court ordering petitioner to convey the subject property to her. That Decision satisfied the demands of justice and prevented unjust
enrichment.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, challenging the August 22, 2001 Decision[2] of the Court of Appeals (CA) in
CA-GR CV No. 54852. The assailed Decision disposed as follows:
WHEREFORE, the decision appealed from is AFFIRMED.[3]
On the other hand, the Regional Trial Court (RTC) Decision affirmed by the CA disposed as follows:
WHEREFORE, considering that this action is essentially one for reconveyance or enforcement of a trust, judgment is hereby rendered ordering the
substituted defendant Marietta Cuenco Cuyegkeng to reconvey or transfer, in a duly registrable public instrument, Lot No 903-A-6 under TCT No.
113781 of the Registry of Deeds of Cebu City, of the Banilad Estate with an area of 834 square meters, in favor of plaintiff Concepcion Cuenco Vda. De
Manguerra; or should the substituted defendant, for one reason or another, fail to execute the necessary instrument once the decision becomes final, the
Clerk of Court of this Court (RTC) is hereby instructed, in accordance with the Rules of Court, to prepare and execute the appropriate and requisite
conveyance and instrument in favor of herein plaintiff which, in either case, shall be registered with the Office of the Register of Deeds of Cebu City.
Without costs in this instance.[4]
The Facts
The facts were summarized by the appellate court as follows:
On September 19, 1970, the [respondent] filed the initiatory complaint herein for specific performance against her uncle [Petitioner] Miguel Cuenco
which averred, inter alia that her father, the late Don Mariano Jesus Cuenco (who became Senator) and said [petitioner] formed the Cuenco and Cuenco
Law Offices; that on or around August 4, 1931, the Cuenco and Cuenco Law Offices served as lawyers in two (2) cases entitled Valeriano Solon versus
Zoilo Solon (Civil Case 9037) and Valeriano Solon versus Apolonia Solon (Civil Case 9040) involving a dispute among relatives over ownership of lot
903 of the Banilad Estate which is near the Cebu Provincial Capitol; that records of said cases indicate the name of the [petitioner] alone as counsel of
record, but in truth and in fact, the real lawyer behind the success of said cases was the influential Don Mariano Jesus Cuenco; that after winning said
cases, the awardees of Lot 903 subdivided said lot into three (3) parts as follows:
Lot 903-A: 5,000 [square meters]: Mariano Cuencos attorneys fees
Lot 903-B: 5,000 [square meters]: Miguel Cuencos attorneys fees
Lot 903-C: 54,000 [square meters]: Solons retention
That at the time of distribution of said three (3) lots in Cebu, Mariano Jesus Cuenco was actively practicing law in Manila, and so he entrusted his share
(Lot 903-A) to his brother law partner (the [petitioner]); that on September 10, 1938, the [petitioner] was able to obtain in his own name a title for Lot 903A (Transfer Certificate of Title [TCT] RT-6999 [T-21108]); that he was under the obligation to hold the title in trust for his brother Marianos children by first
marriage; that sometime in 1947, the Cuenco family was anticipating Marianos second marriage, and so on February 1, 1947, they partitioned Lot 903-A
into six (6) sub-lots (Lots 903-A-1 to 903-A-6) to correspond to the six (6) children of Marianos first marriage (Teresita, Manuel, Lourdes, Carmen,
Consuelo, and Concepcion); that the [petitioner] did not object nor oppose the partition plan; that on June 4, 1947, the [petitioner] executed four (4)
deeds of donation in favor of Marianos four (4) children: Teresita, Manuel, Lourdes, and Carmen, pursuant to the partition plan (per notary documents
183, 184, 185, 186, Book III, Series 1947 of Cebu City Notary Public Candido Vasquez); that on June 24, 1947, the [petitioner] executed the fifth deed of
donation in favor of Marianos fifth child Consuelo (per notary document 214, Book III, Series 1947 of Cebu City Notary Public Candido Vasquez)
(Exhibits 2 to 5); that said five (5) deeds of donation left out Marianos sixth child Concepcion who later became the [respondent] in this case; that in
1949, [respondent] occupied and fenced a portion of Lot 903-A-6 for taxation purposes (Exhibit F, Exhibit 6); that she also paid the taxes thereon (Exhibit
G); that her father died on February 25, 1964 with a Last Will and Testament; that the pertinent portion of her fathers Last Will and Testament bequeaths
the lot.
near the Cebu provincial capitol, which were my attorneys fees from my clients, Victoria Rallos and Zoilo Solon, respectively have already long been
disposed of, and distributed by me, through my brother, Miguel, to all my said children in the first marriage;
That on June 3, 1966, the [petitioner] wrote a letter petitioning the Register of Deeds of Cebu to transfer Lot 903-A-6 to his name on the ground that Lot
903-A-6 is a portion of Lot 903-A; that on April 6, 1967, the [respondent] requested the Register of Deeds to annotate an affidavit of adverse claim
against the [petitioners] TCT RT-6999 (T-21108) which covers Lot 903-A; that on June 3, 1967, the Register of Deeds issued TCT 35275 covering Lot
903-A-6 in the name of the [petitioner] but carrying the earlier annotation of adverse claim; that in 1969, the [petitioner] tore down the wire fence which
the [respondent] constructed on Lot 903-A-6 which compelled the latter to institute the instant complaint dated August 20, 1970 on September 19, 1970.
On December 5, 1970, the answer with counterclaim dated December 3, 1970 of [petitioner] Miguel Cuenco was filed where he alleged that he was the
absolute owner of Lot 903-A-6; that this lot was a portion of Lot 903-A which in turn was part of Lot 903 which was the subject matter of litigation; that he
was alone in defending the cases involving Lot 903 without the participation of his brother Mariano Cuenco; that he donated five (5) of the six (6)

portions of Lot 903-A to the five (5) children of his brother Mariano out of gratitude for the love and care they exhibited to him (Miguel) during the time of
his long sickness; that he did not give or donate any portion of the lot to the [respondent] because she never visited him nor took care of him during his
long sickness; that he became critically ill on February 11, 1946 and was confined at the Singians Clinic in Manila and then transferred to Cebu where he
nearly died in 1946; that his wife Fara Remia Ledesma Cuenco had an operation on January 1951 and was confined at the University of Santo Tomas
Hospital and John Hopkins Hospital in the United States; that two of his children died at the University of Santo Tomas Hospital in 1951 and 1952; and
that his wife was blind for many months due to malignant hypertension but [respondent] never remembered her nor did she commiserate with him and
his wife in their long period of sorrow.
[Petitioner] Miguel Cuenco took the witness stand as early as September 13, 1974. His self-conducted direct examination lasted until 1985, the last one
on November 22, 1985. Unfortunately, he died[5] before he was able to submit himself for cross-examination and so his testimony had to be stricken off
the record. His only surviving daughter, Marietta Cuyegkeng, stood as the substitute [petitioner] in this case. She testified that she purchased Lot 903-A6 (the property subject matter of this case) from her late father sometime in 1990 and constructed a house thereon in the same year; that she became
aware of this case because her late father used to commute to Cebu City to attend to this case; and that Lot 903-A-6 is in her name per Transfer
Certificate of Title #113781 of the Registry of Deeds for Cebu.[6]
Ruling of the Court of Appeals
The CA found respondents action not barred by res judicata, because there was no identity of causes of action between the Petition for cancellation of
adverse claim in L.R.C. Records 5988 and the Complaint for specific performance to resolve the issue of ownership in Civil Case No. R-11891.
The appellate court further found no reason to disturb the findings of the trial court that respondent has the legal right of ownership over lot 903-A-6. The
CA ruled that the subject land is part of the attorneys fees of Don Mariano Cuenco, predecessor-in-interest of [Respondent] Concepcion Cuenco vda. de
Manguerra and [petitioner] merely holds such property in trust for [her], his title there[to] notwithstanding.
Finally, the CA held that the right of action of respondent has not yet prescribed as she was in possession of the lot in dispute and the prescriptive period
to file the case commences to run only from the time she acquired knowledge of an adverse claim over [her] possession.
Hence, this Petition.[7]
The Issues
In her Memorandum, petitioner raises the following issues for our consideration:
I.
On question of law, the Court of Appeals failed to consider facts of substance and significance which, if considered, will show that the preponderance of
evidence is in favor of the petitioner.
II.
On question of law, the Court of Appeals failed to appreciate the proposition that, contrary to the position taken by the trial court, no constructive or
implied trust exists between the parties, and neither is the action one for reconveyance based upon a constructive or implied trust.
III.
On question of law, the Court of Appeals erred in not finding that even where implied trust is admitted to exist the respondents action for relief is barred
by laches and prescription.
IV.
On question of law, the trial court and the appellate court erred in expunging from the records the testimony of Miguel Cuenco.[8]
This Courts Ruling
The Petition has no merit.
First Issue:
Evaluation of Evidence
Petitioner asks us to appreciate and weigh the evidence offered in support of the finding that Lot 903-A-6 constituted a part of Mariano Cuencos share in
the attorneys fees. In other words, she seeks to involve us in a reevaluation of the veracity and probative value of the evidence submitted to the lower
court. What she wants us to do is contrary to the dictates of Rule 45 that only questions of law may be raised and resolved in a petition for review.
Absent any whimsical or capricious exercise of judgment, and unless the lack of any basis for the conclusions made by the lower courts be amply
demonstrated, the Supreme Court will not disturb such factual findings.[9]
As a rule, findings of fact of the Court of Appeals affirming those of the trial court are binding and conclusive. Normally, such factual findings are not
disturbed by this Court, to which only questions of law may be raised in an appeal by certiorari.[10] This Court has consistently ruled that these
questions must involve no examination of the probative value of the evidence presented by the litigants or any of them.[11] Emphasizing the difference
between the two types of question, it has explained that there is a question of law in a given case when the doubt or difference arises as to what the law
is pertaining to a certain state of facts, and there is a question of fact when the doubt arises as the truth or the falsity of alleged facts.[12]
Indeed, after going over the records of the present case, we are not inclined to disturb the factual findings of the trial and the appellate courts, just
because of the insistent claim of petitioner. His witnesses allegedly testified that Civil Case No. 9040 involving Lot 903 had not been handled by Mariano
for defendants therein -- Apolonia Solon, Zoilo Solon, et al. It has sufficiently been proven, however, that these defendants were represented by the
Cuenco and Cuenco Law Office, composed of Partners Mariano Cuenco and Miguel Cuenco.
Given as attorneys fees was one hectare of Lot 903, of which two five-thousand square meter portions were identified as Lot 903-A and Lot 903-B. That
only Miguel handled Civil Case No. 9040 does not mean that he alone is entitled to the attorneys fees in the said cases. When a client employs the
services of a law firm, he does not employ the services of the lawyer who is assigned to personally handle the case. Rather, he employs the entire law
firm.[13] Being a partner in the law firm, Mariano -- like Miguel -- was likewise entitled[14] to a share in the attorneys fees from the firms clients. Hence,
the lower courts finding that Lot 903-A was a part of Mariano Cuencos attorneys fees has ample support.
Second Issue:
Implied Trust
Petitioner then contends that no constructive or implied trust exists between the parties.
A trust is a legal relationship between one having an equitable ownership in a property and another having legal title to it.[15]
Trust relations between parties may either be express or implied.[16] Express trusts are created by the direct and positive acts of the parties, indicated
through some writing, deed, will, or words evidencing an intention to create a trust.[17] On the other hand, implied trusts are those that, without being
express, are deducible from the nature of the transaction as matters of intent[;] or which are superinduced on the transaction by operation of law as a
matter of equity, independently of the particular intention of the parties. Implied trusts may either be resulting or constructive trusts, both coming into
being by operation of law.[18]
Resulting trusts are presumed to have been contemplated by the parties and are based on the equitable doctrine that valuable consideration, not legal
title, determines the equitable title or interest.[19] These trusts arise from the nature of or the circumstances involved in a transaction,[20] whereby legal
title becomes vested in one person, who is obligated in equity to hold that title for the benefit of another.
Constructive trusts are created by the construction of equity in order to satisfy the demands of justice and prevent unjust enrichment. They arise contrary
to intention against one who, by fraud, duress or abuse of confidence, obtains or holds the legal right to property which he ought not, in equity and good
conscience, to hold.[21]
A review of the records shows that indeed there is an implied trust between the parties.
Although Lot 903-A was titled in Miguels name, the circumstances surrounding the acquisition and the subsequent partial dispositions of this property
eloquently speak of the intent that the equitable or beneficial ownership of the property should belong to Mariano and his heirs.

First, Lot 903-A was one half of the one-hectare portion of Lot 903 given as attorneys fees by a client of the law firm of Partners Miguel and Mariano
Cuenco. It constituted the latters share in the attorneys fees and thus equitably belonged to him, as correctly found by the CA. That Lot 903-A had been
titled in the name of Miguel gave rise to an implied trust between him and Mariano, specifically, the former holds the property in trust for the latter. In the
present case, it is of no moment that the implied trust arose from the circumstance -- a share in the attorneys fees -- that does not categorically fall under
Articles 1448 to 1456 of the Civil Code. The cases of implied trust enumerated therein does not exclude others established by the general law of trust.
[22]
Second, from the time it was titled in his name in 1938,[23] Lot 903-A remained undivided and untouched[24] by Miguel. Only on February 3, 1947, did
Lourdes Cuenco,[25]upon the instruction of Mariano, have it surveyed and subdivided into six almost equal portions -- 903-A-1 to 903-A-6. Each portion
was specifically allocated to each of the six children of Mariano with his first wife.[26]
Third, Miguel readily surrendered his Certificate of Title[27] and interposed no objection[28] to the subdivision and the allocation of the property to
Marianos six children, including Concepcion.
Fourth, Marianos children, including Concepcion,[29] were the ones who shouldered the expenses incurred for the subdivision of the property.
Fifth, after the subdivision of the property, Marianos children -- including Concepcion[30] -- took possession of their respective portions thereof.
Sixth, the legal titles to five portions of the property were transferred via a gratuitous deed of conveyance to Marianos five children, following the
allocations specified in the subdivision plan prepared for Lourdes Cuenco.[31]
With respect to Lot 903-A-6 in particular, the existence of Concepcions equitable ownership thereof is bolstered, not just by the above circumstances,
but also by the fact that respondent fenced the portion allocated to her and planted trees thereon.[32]
More significantly, she also paid real property taxes on Lot 903-A-6 yearly, from 1956 until 1969[33] -- the year when she was dispossessed of the
property. Although tax declarations or realty tax payments of property are not conclusive evidence of ownership, nevertheless, they are good indicia of
possession in the concept of owner, for no one in his right mind would be paying taxes for a property that is not in his actual or at least constructive
possession.[34] Such realty tax payments constitute proof that the holder has a claim of title over the property.
Tellingly, Miguel started paying real property taxes on Lot 903-A-6 only on April 4, 1964,[35] after the death of Mariano.[36] This fact shows that it was
only in that year that he was emboldened to claim the property as his own and to stop recognizing Marianos, and subsequently Concepcions, ownership
rights over it. It was only by then that the one who could have easily refuted his claim had already been silenced by death. Such a situation cannot be
permitted to arise, as will be explained below.
Estoppel
From the time Lot 903-A was subdivided and Marianos six children -- including Concepcion -- took possession as owners of their respective portions, no
whimper of protest from petitioner was heard until 1963. By his acts as well as by his omissions, Miguel led Mariano and the latters heirs, including
Concepcion, to believe that Petitioner Cuenco respected the ownership rights of respondent over Lot 903-A-6. That Mariano acted and relied on Miguels
tacit recognition of his ownership thereof is evident from his will, executed in 1963, which states:
I hereby make it known and declare that x x x all properties which my first wife and I had brought to, or acquired during our marriage, or which I had
acquired during the years I was a widower including jewelry, war damage compensation, and two other lots also located at Cebu City, one near the
South-Western University and the other near the Cebu provincial capitol, which were my attorneys fees from my clients, Victoria Rallos and Zoilo Solon,
respectively have already long been disposed of, and distributed by me, through my brother, Miguel, to all my said six children in the first marriage.[37]
(emphasis supplied)
Indeed, as early as 1947, long before Mariano made his will in 1963, Lot 903-A -- situated along Juana Osmea Extension, Kamputhaw, Cebu City,[38]
near the Cebu Provincial Capitol -- had been subdivided and distributed to his six children in his first marriage. Having induced him and his heirs to
believe that Lot 903-A-6 had already been distributed to Concepcion as her own, petitioner is estopped from asserting the contrary and claiming
ownership thereof.
The principle of estoppel in pais applies when -- by ones acts, representations, admissions, or silence when there is a need to speak out -- one,
intentionally or through culpable negligence, induces another to believe certain facts to exist; and the latter rightfully relies and acts on such belief, so as
to be prejudiced if the former is permitted to deny the existence of those facts.[39]
Third Issue:
Laches
Petitioner claims that respondents action is already barred by laches.
We are not persuaded. Laches is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to it
has either abandoned or declined to assert it.[40] In the present case, respondent has persistently asserted her right to Lot 903-A-6 against petitioner.
Concepcion was in possession as owner of the property from 1949 to 1969.[41] When Miguel took steps to have it separately titled in his name, despite
the fact that she had the owners duplicate copy of TCT No. RT-6999 -- the title covering the entire Lot 903-A -- she had her adverse claim annotated on
the title in 1967. When petitioner ousted her from her possession of the lot by tearing down her wire fence in 1969,[42] she commenced the present
action on September 19, 1970,[43] to protect and assert her rights to the property. We find that she cannot be held guilty of laches, as she did not sleep
on her rights.
Fourth Issue:
Expunging of Testimony
Petitioner Cuyegkeng questions the expunging of the direct testimony of Miguel Cuenco. Respondent points out that this issue was not raised before the
CA. Neither had petitioner asked the trial court to reconsider its Order expunging the testimony. Hence, this issue cannot for the first time be raised at
this point of the appeal. Issues, arguments and errors not adequately and seriously brought below cannot be raised for the first time on appeal.[44] Basic
considerations of due process impel this rule.[45]
WHEREFORE, the Petition is DENIED, and the assailed Decision AFFIRMED. Costs against petitioner.
SO ORDERED.

MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS and NENITA A. ANAY, respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV No. 41616, [1] affirming the Decision of the Regional Trial Court of
Makati, Branch 140, in Civil Case No. 88-509.[2]
Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand, private respondent Nenita A. Anay met petitioner William T. Belo,
then the vice-president for operations of Ultra Clean Water Purifier, through her former employer in Bangkok. Belo introduced Anay to petitioner Marjorie
Tocao, who conveyed her desire to enter into a joint venture with her for the importation and local distribution of kitchen cookwares. Belo volunteered to
finance the joint venture and assigned to Anay the job of marketing the product considering her experience and established relationship with West Bend

Company, a manufacturer of kitchen wares in Wisconsin, U.S.A. Under the joint venture, Belo acted as capitalist, Tocao as president and general
manager, and Anay as head of the marketing department and later, vice-president for sales. Anay organized the administrative staff and sales force
while Tocao hired and fired employees, determined commissions and/or salaries of the employees, and assigned them to different branches. The parties
agreed that Belos name should not appear in any documents relating to their transactions with West Bend Company. Instead, they agreed to use Anays
name in securing distributorship of cookware from that company. The parties agreed further that Anay would be entitled to: (1) ten percent (10%) of the
annual net profits of the business; (2) overriding commission of six percent (6%) of the overall weekly production; (3) thirty percent (30%) of the sales
she would make; and (4) two percent (2%) for her demonstration services. The agreement was not reduced to writing on the strength of Belos
assurances that he was sincere, dependable and honest when it came to financial commitments.
Anay having secured the distributorship of cookware products from the West Bend Company and organized the administrative staff and the sales
force, the cookware business took off successfully. They operated under the name of Geminesse Enterprise, a sole proprietorship registered in Marjorie
Tocaos name, with office at 712 Rufino Building, Ayala Avenue, Makati City. Belo made good his monetary commitments to Anay. Thereafter, Roger
Muencheberg of West Bend Company invited Anay to the distributor/dealer meeting in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987 and to
the southwestern regional convention in Pismo Beach, California, U.S.A., from July 25-26, 1987. Anay accepted the invitation with the consent of
Marjorie Tocao who, as president and general manager of Geminesse Enterprise, even wrote a letter to the Visa Section of the U.S. Embassy in Manila
on July 13, 1987. A portion of the letter reads:
Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for twenty (20) years now, acquired the distributorship of Royal
Queen cookware for Geminesse Enterprise, is the Vice President Sales Marketing and a business partner of our company, will attend in response to the
invitation. (Italics supplied.)[3]
Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the task of saving the business on account of the unsatisfactory
sales record in the Makati and Cubao offices. On August 31, 1987, she received a plaque of appreciation from the administrative and sales people
through Marjorie Tocao[4] for her excellent job performance. On October 7, 1987, in the presence of Anay, Belo signed a memo [5] entitling her to a thirtyseven percent (37%) commission for her personal sales "up Dec 31/87. Belo explained to her that said commission was apart from her ten percent
(10%) share in the profits. On October 9, 1987, Anay learned that Marjorie Tocao had signed a letter [6] addressed to the Cubao sales office to the effect
that she was no longer the vice-president of Geminesse Enterprise. The following day, October 10, she received a note from Lina T. Cruz, marketing
manager, that Marjorie Tocao had barred her from holding office and conducting demonstrations in both Makati and Cubao offices. [7] Anay attempted to
contact Belo. She wrote him twice to demand her overriding commission for the period of January 8, 1988 to February 5, 1988 and the audit of the
company to determine her share in the net profits. When her letters were not answered, Anay consulted her lawyer, who, in turn, wrote Belo a letter. Still,
that letter was not answered.
Anay still received her five percent (5%) overriding commission up to December 1987. The following year, 1988, she did not receive the same
commission although the company netted a gross sales of P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of money with damages [8] against Marjorie D. Tocao and William
Belo before the Regional Trial Court of Makati, Branch 140.
In her complaint, Anay prayed that defendants be ordered to pay her, jointly and severally, the following: (1) P32,00.00 as unpaid overriding
commission from January 8, 1988 to February 5, 1988; (2) P100,000.00 as moral damages, and (3) P100,000.00 as exemplary damages. The plaintiff
also prayed for an audit of the finances of Geminesse Enterprise from the inception of its business operation until she was illegally dismissed to
determine her ten percent (10%) share in the net profits. She further prayed that she be paid the five percent (5%) overriding commission on the
remaining 150 West Bend cookware sets before her dismissal.
In their answer,[9] Marjorie Tocao and Belo asserted that the alleged agreement with Anay that was neither reduced in writing, nor ratified, was
either unenforceable or void or inexistent. As far as Belo was concerned, his only role was to introduce Anay to Marjorie Tocao. There could not have
been a partnership because, as Anay herself admitted, Geminesse Enterprise was the sole proprietorship of Marjorie Tocao. Because Anay merely acted
as marketing demonstrator of Geminesse Enterprise for an agreed remuneration, and her complaint referred to either her compensation or dismissal,
such complaint should have been lodged with the Department of Labor and not with the regular court.
Petitioners (defendants therein) further alleged that Anay filed the complaint on account of ill-will and resentment because Marjorie Tocao did not
allow her to lord it over in the Geminesse Enterprise. Anay had acted like she owned the enterprise because of her experience and expertise. Hence,
petitioners were the ones who suffered actual damages including unreturned and unaccounted stocks of Geminesse Enterprise, and serious anxiety,
besmirched reputation in the business world, and various damages not less than P500,000.00. They also alleged that, to vindicate their names, they had
to hire counsel for a fee of P23,000.00.
At the pre-trial conference, the issues were limited to: (a) whether or not the plaintiff was an employee or partner of Marjorie Tocao and Belo, and
(b) whether or not the parties are entitled to damages.[10]
In their defense, Belo denied that Anay was supposed to receive a share in the profit of the business. He, however, admitted that the two had
agreed that Anay would receive a three to four percent (3-4%) share in the gross sales of the cookware. He denied contributing capital to the business or
receiving a share in its profits as he merely served as a guarantor of Marjorie Tocao, who was new in the business. He attended and/or presided over
business meetings of the venture in his capacity as a guarantor but he never participated in decision-making. He claimed that he wrote the memo
granting the plaintiff thirty-seven percent (37%) commission upon her dismissal from the business venture at the request of Tocao, because Anay had no
other income.
For her part, Marjorie Tocao denied having entered into an oral partnership agreement with Anay. However, she admitted that Anay was an expert
in the cookware business and hence, they agreed to grant her the following commissions: thirty-seven percent (37%) on personal sales; five percent
(5%) on gross sales; two percent (2%) on product demonstrations, and two percent (2%) for recruitment of personnel. Marjorie denied that they agreed
on a ten percent (10%) commission on the net profits. Marjorie claimed that she got the capital for the business out of the sale of the sewing machines
used in her garments business and from Peter Lo, a Singaporean friend-financier who loaned her the funds with interest. Because she treated Anay as
her co-equal, Marjorie received the same amounts of commissions as her. However, Anay failed to account for stocks valued at P200,000.00.
On April 22, 1993, the trial court rendered a decision the dispositive part of which is as follows:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:

1. Ordering defendants to submit to the Court a formal account as to the partnership affairs for the years 1987 and 1988 pursuant to Art.
1809 of the Civil Code in order to determine the ten percent (10%) share of plaintiff in the net profits of the cookware business;
2. Ordering defendants to pay five percent (5%) overriding commission for the one hundred and fifty (150) cookware sets available for
disposition when plaintiff was wrongfully excluded from the partnership by defendants;
3. Ordering defendants to pay plaintiff overriding commission on the total production which for the period covering January 8, 1988 to
February 5, 1988 amounted to P32,000.00;
4. Ordering defendants to pay P100,000.00 as moral damages and P100,000.00 as exemplary damages, and
5. Ordering defendants to pay P50,000.00 as attorneys fees and P20,000.00 as costs of suit.
SO ORDERED.
The trial court held that there was indeed an oral partnership agreement between the plaintiff and the defendants, based on the following: (a) there
was an intention to create a partnership; (b) a common fund was established through contributions consisting of money and industry, and (c) there was a
joint interest in the profits. The testimony of Elizabeth Bantilan, Anays cousin and the administrative officer of Geminesse Enterprise from August 21,
1986 until it was absorbed by Royal International, Inc., buttressed the fact that a partnership existed between the parties. The letter of Roger
Muencheberg of West Bend Company stating that he awarded the distributorship to Anay and Marjorie Tocao because he was convinced that with
Marjories financial contribution and Anays experience, the combination of the two would be invaluable to the partnership, also supported that conclusion.
Belos claim that he was merely a guarantor has no basis since there was no written evidence thereof as required by Article 2055 of the Civil Code.
Moreover, his acts of attending and/or presiding over meetings of Geminesse Enterprise plus his issuance of a memo giving Anay 37% commission on
personal sales belied this. On the contrary, it demonstrated his involvement as a partner in the business.
The trial court further held that the payment of commissions did not preclude the existence of the partnership inasmuch as such practice is often
resorted to in business circles as an impetus to bigger sales volume. It did not matter that the agreement was not in writing because Article 1771 of the
Civil Code provides that a partnership may be constituted in any form. The fact that Geminesse Enterprise was registered in Marjorie Tocaos name is not
determinative of whether or not the business was managed and operated by a sole proprietor or a partnership. What was registered with the Bureau of
Domestic Trade was merely the business name or style of Geminesse Enterprise.
The trial court finally held that a partner who is excluded wrongfully from a partnership is an innocent partner. Hence, the guilty partner must give
him his due upon the dissolution of the partnership as well as damages or share in the profits realized from the appropriation of the partnership business
and goodwill. An innocent partner thus possesses pecuniary interest in every existing contract that was incomplete and in the trade name of the copartnership and assets at the time he was wrongfully expelled.
Petitioners appeal to the Court of Appeals [11] was dismissed, but the amount of damages awarded by the trial court were reduced to P50,000.00 for
moral damages and P50,000.00 as exemplary damages. Their Motion for Reconsideration was denied by the Court of Appeals for lack of merit.
[12]
Petitioners Belo and Marjorie Tocao are now before this Court on a petition for review on certiorari, asserting that there was no business partnership
between them and herein private respondent Nenita A. Anay who is, therefore, not entitled to the damages awarded to her by the Court of Appeals.
Petitioners Tocao and Belo contend that the Court of Appeals erroneously held that a partnership existed between them and private respondent
Anay because Geminesse Enterprise came into being exactly a year before the alleged partnership was formed, and that it was very unlikely that
petitioner Belo would invest the sum of P2,500,000.00 with petitioner Tocao contributing nothing, without any memorandum whatsoever regarding the
alleged partnership.[13]
The issue of whether or not a partnership exists is a factual matter which are within the exclusive domain of both the trial and appellate courts.
This Court cannot set aside factual findings of such courts absent any showing that there is no evidence to support the conclusion drawn by the court a
quo.[14] In this case, both the trial court and the Court of Appeals are one in ruling that petitioners and private respondent established a business
partnership. This Court finds no reason to rule otherwise.
To be considered a juridical personality, a partnership must fulfill these requisites: (1) two or more persons bind themselves to contribute money,
property or industry to a common fund; and (2) intention on the part of the partners to divide the profits among themselves. [15] It may be constituted in
any form; a public instrument is necessary only where immovable property or real rights are contributed thereto. [16] This implies that since a contract of
partnership is consensual, an oral contract of partnership is as good as a written one. Where no immovable property or real rights are involved, what
matters is that the parties have complied with the requisites of a partnership. The fact that there appears to be no record in the Securities and Exchange
Commission of a public instrument embodying the partnership agreement pursuant to Article 1772 of the Civil Code [17]did not cause the nullification of the
partnership. The pertinent provision of the Civil Code on the matter states:
Art. 1768. The partnership has a juridical personality separate and distinct from that of each of the partners, even in case of failure to comply with the
requirements of article 1772, first paragraph.
Petitioners admit that private respondent had the expertise to engage in the business of distributorship of cookware. Private respondent
contributed such expertise to the partnership and hence, under the law, she was the industrial or managing partner. It was through her reputation with
the West Bend Company that the partnership was able to open the business of distributorship of that companys cookware products; it was through the
same efforts that the business was propelled to financial success. Petitioner Tocao herself admitted private respondents indispensable role in putting up
the business when, upon being asked if private respondent held the positions of marketing manager and vice-president for sales, she testified thus:
A: No, sir at the start she was the marketing manager because there were no one to sell yet, its only me there then her and then two (2)
people, so about four (4). Now, after that when she recruited already Oscar Abella and Lina Torda-Cruz these two (2) people were given
the designation of marketing managers of which definitely Nita as superior to them would be the Vice President. [18]
By the set-up of the business, third persons were made to believe that a partnership had indeed been forged between petitioners and private
respondents. Thus, the communication dated June 4, 1986 of Missy Jagler of West Bend Company to Roger Muencheberg of the same company states:

Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the operations. Marge does not have cookware experience. Nita Anay has
started to gather former managers, Lina Torda and Dory Vista. She has also gathered former demonstrators, Betty Bantilan, Eloisa Lamela, Menchu
Javier. They will continue to gather other key people and build up the organization. All they need is the finance and the products to sell. [19]
On the other hand, petitioner Belos denial that he financed the partnership rings hollow in the face of the established fact that he presided over
meetings regarding matters affecting the operation of the business. Moreover, his having authorized in writing on October 7, 1987, on a stationery of his
own business firm, Wilcon Builders Supply, that private respondent should receive thirty-seven (37%) of the proceeds of her personal sales, could not be
interpreted otherwise than that he had a proprietary interest in the business. His claim that he was merely a guarantor is belied by that personal act of
proprietorship in the business. Moreover, if he was indeed a guarantor of future debts of petitioner Tocao under Article 2053 of the Civil Code, [20] he
should have presented documentary evidence therefor. While Article 2055 of the Civil Code simply provides that guaranty must be express, Article 1403,
the Statute of Frauds, requires that a special promise to answer for the debt, default or miscarriage of another be in writing. [21]
Petitioner Tocao, a former ramp model,[22] was also a capitalist in the partnership. She claimed that she herself financed the business. Her and
petitioner Belos roles as both capitalists to the partnership with private respondent are buttressed by petitioner Tocaos admissions that petitioner Belo
was her boyfriend and that the partnership was not their only business venture together. They also established a firm that they called Wiji, the
combination of petitioner Belos first name, William, and her nickname, Jiji. [23] The special relationship between them dovetails with petitioner Belos claim
that he was acting in behalf of petitioner Tocao. Significantly, in the early stage of the business operation, petitioners requested West Bend Company to
allow them to utilize their banking and trading facilities in Singapore in the matter of importation and payment of the cookware products. [24] The inevitable
conclusion, therefore, was that petitioners merged their respective capital and infused the amount into the partnership of distributing cookware with
private respondent as the managing partner.
The business venture operated under Geminesse Enterprise did not result in an employer-employee relationship between petitioners and private
respondent. While it is true that the receipt of a percentage of net profits constitutes only prima facie evidence that the recipient is a partner in the
business,[25] the evidence in the case at bar controverts an employer-employee relationship between the parties. In the first place, private respondent
had a voice in the management of the affairs of the cookware distributorship, [26]including selection of people who would constitute the administrative staff
and the sales force. Secondly, petitioner Tocaos admissions militate against an employer-employee relationship. She admitted that, like her who owned
Geminesse Enterprise,[27] private respondent received only commissions and transportation and representation allowances [28] and not a fixed salary.
[29]
Petitioner Tocao testified:
Q: Of course. Now, I am showing to you certain documents already marked as Exhs. X and Y. Please go over this. Exh. Y is denominated `Cubao
overrides 8-21-87 with ending August 21, 1987, will you please go over this and tell the Honorable Court whether you ever came across this
document and know of your own knowledge the amount --A: Yes, sir this is what I am talking about earlier. Thats the one I am telling you earlier a certain percentage for promotions, advertising, incentive.
Q: I see. Now, this promotion, advertising, incentive, there is a figure here and words which I quote: Overrides Marjorie Ann Tocao P21,410.50 this
means that you have received this amount?
A: Oh yes, sir.
Q: I see. And, by way of amplification this is what you are saying as one representing commission, representation, advertising and promotion?
A: Yes, sir.
Q: I see. Below your name is the words and figure and I quote Nita D. Anay P21,410.50, what is this?
A: Thats her overriding commission.
Q: Overriding commission, I see. Of course, you are telling this Honorable Court that there being the same P21,410.50 is merely by coincidence?
A: No, sir, I made it a point that we were equal because the way I look at her kasi, you know in a sense because of her expertise in the business she
is vital to my business. So, as part of the incentive I offer her the same thing.
Q: So, in short you are saying that this you have shared together, I mean having gotten from the company P21,140.50 is your way of indicating
that you were treating her as an equal?
A: As an equal.
Q: As an equal, I see. You were treating her as an equal?
A: Yes, sir.
Q: I am calling again your attention to Exh. Y Overrides Makati the other one is --A: That is the same thing, sir.
Q: With ending August 21, words and figure Overrides Marjorie Ann Tocao P15,314.25 the amount there you will acknowledge you have received
that?
A: Yes, sir.
Q: Again in concept of commission, representation, promotion, etc.?
A: Yes, sir.
Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an indication that she received the same amount?
A: Yes, sir.
Q: And, as in your previous statement it is not by coincidence that these two (2) are the same?
A: No, sir.
Q: It is again in concept of you treating Miss Anay as your equal?
A: Yes, sir. (Italics supplied.)[30]
If indeed petitioner Tocao was private respondents employer, it is difficult to believe that they shall receive the same income in the business. In a
partnership, each partner must share in the profits and losses of the venture, except that the industrial partner shall not be liable for the losses. [31] As an
industrial partner, private respondent had the right to demand for a formal accounting of the business and to receive her share in the net profit. [32]
The fact that the cookware distributorship was operated under the name of Geminesse Enterprise, a sole proprietorship, is of no moment. What
was registered with the Bureau of Domestic Trade on August 19, 1987 was merely the name of that enterprise. [33] While it is true that in her undated
application for renewal of registration of that firm name, petitioner Tocao indicated that it would be engaged in retail of kitchenwares, cookwares, utensils,
skillet,[34] she also admitted that the enterprise was only 60% to 70% for the cookware business, while 20% to 30% of its business activity was devoted to
the sale of water sterilizer or purifier.[35] Indubitably then, the business name Geminesse Enterprise was used only for practical reasons - it was utilized
as the common name for petitioner Tocaos various business activities, which included the distributorship of cookware.

Petitioners underscore the fact that the Court of Appeals did not return the unaccounted and unremitted stocks of Geminesse Enterprise
amounting to P208,250.00.[36]Obviously a ploy to offset the damages awarded to private respondent, that claim, more than anything else, proves the
existence of a partnership between them. In Idos v. Court of Appeals, this Court said:
The best evidence of the existence of the partnership, which was not yet terminated (though in the winding up stage), were the unsold goods and
uncollected receivables, which were presented to the trial court. Since the partnership has not been terminated, the petitioner and private complainant
remained as co-partners. x x x.[37]
It is not surprising then that, even after private respondent had been unceremoniously booted out of the partnership in October 1987, she still received
her overriding commission until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the partnership to reap for herself and/or for petitioner Belo financial
gains resulting from private respondents efforts to make the business venture a success. Thus, as petitioner Tocao became adept in the business
operation, she started to assert herself to the extent that she would even shout at private respondent in front of other people. [38] Her instruction to Lina
Torda Cruz, marketing manager, not to allow private respondent to hold office in both the Makati and Cubao sales offices concretely spoke of her
perception that private respondent was no longer necessary in the business operation, [39] and resulted in a falling out between the two. However, a mere
falling out or misunderstanding between partners does not convert the partnership into a sham organization. [40] The partnership exists until dissolved
under the law. Since the partnership created by petitioners and private respondent has no fixed term and is therefore a partnership at will predicated on
their mutual desire and consent, it may be dissolved by the will of a partner. Thus:
x x x. The right to choose with whom a person wishes to associate himself is the very foundation and essence of that partnership. Its continued
existence is, in turn, dependent on the constancy of that mutual resolve, along with each partners capability to give it, and the absence of cause for
dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must,
however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the partnership but that it can result in a liability for
damages.[41]
An unjustified dissolution by a partner can subject him to action for damages because by the mutual agency that arises in a partnership, the doctrine
of delectus personaeallows the partners to have the power, although not necessarily the right to dissolve the partnership.[42]
In this case, petitioner Tocaos unilateral exclusion of private respondent from the partnership is shown by her memo to the Cubao office plainly
stating that private respondent was, as of October 9, 1987, no longer the vice-president for sales of Geminesse Enterprise. [43] By that memo, petitioner
Tocao effected her own withdrawal from the partnership and considered herself as having ceased to be associated with the partnership in the carrying
on of the business. Nevertheless, the partnership was not terminated thereby; it continues until the winding up of the business. [44]
The winding up of partnership affairs has not yet been undertaken by the partnership. This is manifest in petitioners claim for stocks that had been
entrusted to private respondent in the pursuit of the partnership business.
The determination of the amount of damages commensurate with the factual findings upon which it is based is primarily the task of the trial court.
[45]
The Court of Appeals may modify that amount only when its factual findings are diametrically opposed to that of the lower court, [46] or the award is
palpably or scandalously and unreasonably excessive.[47] However, exemplary damages that are awarded by way of example or correction for the public
good,[48] should be reduced to P50,000.00, the amount correctly awarded by the Court of Appeals. Concomitantly, the award of moral damages of
P100,000.00 was excessive and should be likewise reduced to P50,000.00. Similarly, attorneys fees that should be granted on account of the award of
exemplary damages and petitioners evident bad faith in refusing to satisfy private respondents plainly valid, just and demandable claims, [49] appear to
have been excessively granted by the trial court and should therefore be reduced to P25,000.00.
WHEREFORE, the instant petition for review on certiorari is DENIED. The partnership among petitioners and private respondent is ordered
dissolved, and the parties are ordered to effect the winding up and liquidation of the partnership pursuant to the pertinent provisions of the Civil
Code. This case is remanded to the Regional Trial Court for proper proceedings relative to said dissolution. The appealed decisions of the Regional Trial
Court and the Court of Appeals are AFFIRMED with MODIFICATIONS, as follows --1. Petitioners are ordered to submit to the Regional Trial Court a formal account of the partnership affairs for the years 1987 and 1988, pursuant to
Article 1809 of the Civil Code, in order to determine private respondents ten percent (10%) share in the net profits of the partnership;
2. Petitioners are ordered, jointly and severally, to pay private respondent five percent (5%) overriding commission for the one hundred and fifty (150)
cookware sets available for disposition since the time private respondent was wrongfully excluded from the partnership by petitioners;
3. Petitioners are ordered, jointly and severally, to pay private respondent overriding commission on the total production which, for the period covering
January 8, 1988 to February 5, 1988, amounted to P32,000.00;
4. Petitioners are ordered, jointly and severally, to pay private respondent moral damages in the amount of P50,000.00, exemplary damages in the
amount of P50,000.00 and attorneys fees in the amount of P25,000.00.
SO ORDERED.

[G.R. No. 85494.August 17, 1999]


CHOITHRAM J. RAMNANI, et. al. vs. CA, et. al.
EN BANC
Gentlemen:
Quoted hereunder, for your information, is a resolution of this Court dated AUG 17, 1999.

G.R. No. 85494(Choithram J. Ramnani and/or Nirmla Ramnani and Moti C. Ramnani, petitioners, vs. Court of Appeals, Sps. Shwar Ramnani, Sonya
Ramnani and Overseas Holding Company, Ltd., respondents.)
G.R. No. 85496(Sps. Ishwar J. Ramnani and Sonya J. Ramnani, petitioners, vs. Hon. Court of Appeals, Ortigas & Company, Limited Partnership, and
Overseas Holding Company Limited, respondents.)
On May 7, 1991, the First Division 1 Composed of Associate Justices Andres Narvasa, Emilio A. Gancayco (ponente), Isagani A. Cruz, Carolina C.
Grino-Aquino, and Leo D. Medialdea.of this Court promulgated its Decision 2 Annex "A," Manifestation and Urgent Motion; Rollo. pp. 10 15-1056.in SCG.R. Nos. 85494 and 85496 disposing as follows:
"WHEREFORE, the petition in G.R. No. 85494 is DENIED, while the petition in G.R. No. 85496 is hereby given due course and Granted.The judgment
of the Court of Appeals dated October 18, 1988 is hereby modified as follows:
1.Dividing equally between the respondents spouses Ishwar, on the one hand, and petitioner Choithram Ramnani, on the other, (in G.R. No. 85494) the
two parcels of land subject of this litigation, including all the improvements thereon, presently covered by Transfer Certificates of Title Nos. 40350 and
403152 of the Registry of Deeds, as well as the rental income of the property from 1967 to the present.
2.Petitioner Choithram Jethmal Ramnani, Nirla V. Ramnani, Moti C. Ramnani and respondent Ortigas and Company, Limited Partnership (in G.R. 85496)
are ordered solidarily to pay in cash the value of said one-half (1/2) share in the said land and improvements pertaining to respondents spouses Ishwar
and Sonya at their fair market value at the time of the satisfaction of this judgment but in no case less than their value as appraised by the Asian
Appraisal, Inc., in its Appraisal Report dated Aug. 1985. (Exhibits T to T-14, inclusive).
3.Petitioners Choithram, Nirmla and Moti Ramnani and respondent Ortigas and Co., Ltd., Partnership shall also be jointly and severally liable to pay to
said respondents spouses Ishwar and Sonya Ramnani one-half (1/2) of the total rental income of said properties and improvements from 1967 up to the
date of satisfaction of the judgment to be computed as follows:
'a.On Building C occupied by Eppie's Creation and Jethmal Industries from 1967 to 1973, inclusive, based on the 1967 to 1973 monthly rentals paid by
Eppie's Creation;
'b.Also on Building C above, occupied by Jethmal Industries and Lavine from 1974 to 1978, the rental incomes based on then rates prevailing as shown
under Exhibit 'P; and from 1979 to 1981, based on then prevailing rates as indicated under Exhibit 'Q'.
'c.On Building A occupied by Transworld Knitting Mills from 1972 to 1978, the rental incomes based upon then prevailing rates shown under Exhibit 'P',
and from 1971 to 1981, based on prevailing rates per Exhibit 'Q';
'd.On the two-Bays Buildings occupied by Sigma-Mariwasa from 1972 to 1978, the rentals based on the Lease Contract, Exhibit 'P', and from 1979 to
1980, the rentals based on the Lease Contract, Exhibit 'Q'.
and thereafter commencing 1982, to account for and turn over the rental incomes paid or ought to be paid for the use and occupancy of the properties
and all improvements totalling 10,048 sq. m., based on the rate per square meter prevailing in 1981 as indicated annually cumulative up to 1984.Then,
commencing 1985 and up to the satisfaction of the judgment, rentals shall be computed at ten percent (10%) annually of the fair market values of the
properties as appraised by the Asian Appraisals, Inc. in August 1985 (Exhibits T to T-14, inclusive).
4.To determine the market value of the properties at the time of the satisfaction of this judgment and the total rental incomes thereof, the trial court is
hereby directed to hold a hearing with deliberate dispatch for this purpose only and to have the judgment immediately executed after such determination.
5.Petitioners Choithram, Nirmla and Moti, all surnamed Ramnani, are also jointly and severally liable to pay respondents Ishwan and Sonya Ramnani
the amount of P500,000.00 as moral damages P200,000.00 as exemplary damages and attorney's fees equal to 10% of the total award to said
respondents spouses.
6.The motion to dissolve the writ of preliminary injunction dated December 10, 1990 filed by petitioners Choithram, Nirmla and Moti, all surnamed
Ramnani, is hereby DENIED and the said injunction is hereby made permanent. Let a writ of attachment be issued and levied against the properties and
improvements subject of this litigation to secure the payment of the above awards to spouses Ishwar and Sonya.
7.The mortgage constituted on the subject property dated June 20, 1989 by petitioners Choithram and Nirmla, both surnamed Ramnani in favor of
respondent Overseas Holding, Co. Ltd. (in G.R. No. 85496) for the amount of $3M is hereby declared null and void. The Register of Deeds of Pasig,
Rizal is directed to cancel the annotation of said mortgage on the title of the properties in question.
8.Should respondent Ortigas Co., Ltd. Partnership pay the awards to Ishwar and Sonya Ramnani under this judgment, it shall be entitled to
reimbursement from petitioner Choithram, Nirmla and Moti, all surnamed Ramnani.
9.The above awards shall bear legal rate of interest of six percent (6%) per annum from the time this judgment becomes final until they are fully paid by
petitioners Choithram Ramnani, Nirmla V. Ramnani, Moti C. Ramnani and Ortigas, Co., Ltd. Partnership. Said petitioners Choithram, et al. and
respondent Ortigas shall also pay the costs.
SO ORDERED."
From the aforesaid Decision, alt the parties filed motions for reconsideration. Acting thereon on February 26, 1992, the Third Division 3 Composed of
Associate Justices Hugo E. Gutierrez, Jr., Florentino P. Feliciano, Abdulwahid A. Bidin, Hilario G. Davide, Jr., and Flerida Ruth Romero.of this Court
came out with a Resolution, 4 Annex "B," Manifestation and Urgent Motion; Rollo, pp. 1057-1069.ruling thus:
"CONSIDERING THE FOREGOING, THE COURT RESOLVED to DENY the motions for reconsideration filed by the petitioners in G.R. No. 85494 and
the respondents in G.R. No. 85496.This denial is FINAL.The partial motion for reconsideration filed by the petitioners in G.R. No. 85496 who are also
respondents in G.R. No. 85494 is GRANTED.The portion of our May 7, 1991 decision dividing the two parcels of land, improvements, and rentals
equally between petitioner Choithram V. Ramnani and respondents Mr. & Mrs. Ishwar J. Ramnani is deleted and these properties are declared owned by
the latter respondents."

Petitioners Choithram Ramnani, et. al. ("Choithram", for short) and Ortigas & Co., Ltd., Partnership ("Ortigas", for brevity) presented a Motion for
Clarification of Judgment and/or Second Motion for Reconsideration of the Resolution, dated February 26, 1992, which the Court denied, holding:
"After carefully considering the motion for clarification of judgment and/or reconsideration in relation to the Omnibus Motion, the Court finds that it is
merely a clever expedient resorted to by petitioners to go around the finality of our denial of the first motion for reconsideration.
Acting therefore, on the second motion for reconsideration and considering that the first motion for reconsideration was denied with finality, the court
resolved to DENY the second motion for reconsideration and to order entry of judgment in this case." 5 Annex "C," Manifestation and Urgent Motion;
Rollo, p. 1070-1071.
On March 19, 1992, the Decision handed down on May 7, 1991 and Resolution of February 26, 1992, in SC-G.R. Nos. 85494 and 85496, became final
and executory.Entry of judgment was thus made on March 20, 1992.
On April 27, 1992, Overseas Holding Corporation filed a petition against the Spouses, Ishwar Ramnani and Sonya Ramnani, (hereinafter referred to as
Spouses Ishwar), docketed as G.R. No. 105071 before the Court En Banc, to set aside as unconstitutional the May 7, 1991 Decision of the First Division
and the February 26, 1992 Resolution of the Third Division in G.R. Nos. 85494 and 85496.However, the Supreme Court En Banc referred the same to
the Third Division which issued a Resolution dated May 25, 1992 6 Annex "D," Manifestation and Urgent Motion; Rollo, p. 1072-1074.in G.R. No. 105071
and G.R. Nos. 85494 and 85496, the decretal portion of which, reads:
"CONSIDERING THE FOREGOING, the COURT RESOLVED, to:
1.EXPUNGE the petition to set aside as unconstitutional the May 7, 1991 decision of this Court's First Division and the February 26, 1992 Resolution of
this Court's Third Division.
xxx
3.ORDER the Regional Trial Court at Pasay City to expeditiously execute as directed this court's decision and resolution in these cases and report to
this court on the action taken within ten (10) days from notice hereof;
4.WARN the parties and their respective counsels, present and future, that no further pleadings questioning the already final decision and resolution or
raising anew the issues already passed upon shall be entertained on pain of disciplinary action."
The aforequoted Resolution of the Court became final and executory on October 5, 1992 and entry of judgment thereof was made on the same day.
Pursuant to another Resolution of this Court dated August 26, 1992, 7 Annex "E," Manifestation and Urgent Motion; Rollo, pp. 1076-1081.the case was
re-raffled to the Regional Trial Court, Branch 119, Pasay City, presided over by Hon. Aurora Navarette-Recina.Thereafter, the same trial court, acting on
plaintiffs' (Spouses Ishwar) Motion for Partial Execution of the Judgment in G.R. Nos.85494 and 85496, issued its Order 8 See: Sps. Ishwar's
Consolidated Reply, p. 10; Rollo, p. 1317.of September 17, 1992,disposing as follows:
"Wherefore, in consonance with the judgment of the Supreme Court dated May 7, 1991, as amended by its Resolution dated February 26, 1992, and as
prayed for by plaintiffs, let the corresponding partial writ of execution issue with respect to the following:
a. the rental income of the properties and improvements from 1967 up to May 31, 1992 in the amount of P24,879,365.00;
b. the 1985 appraised value of the properties in the amount of P22,364,000.00; P500,00.00 moral damages; P200,000.00 exemplary damages; and
10% of said amount as attorney's fees, plus 6% legal interest on the totality of the amounts from the time judgment became final until fully paid.
xxx
SO ORDERED."
Accordingly, on September 23, 1992, the Deputy Sheriff a quo implemented the writ of execution/attachment issued on September 17 and 18, 1992, by
attaching and garnishing the properties and bank accounts of Choithram and Ortigas.
On July 19, 1993, a Compromise Agreement was entered into by the defendants, Ortigas, Choithram and Harish Ramnani, 9 Son of Choithram
Ramnani.the latter acting as the financier and guarantor of the obligations of the former, on the one hand, and the Spouses Ishwar, on the other.
Denominated as Tripartite Agreement, 10 Annex "F," Manifestation and Urgent Motion; Rollo, pp. 1082-1086.the said contract stipulated:
"xxx
2.xxx
The judgment debt provisionally set at P65 Million shall be paid jointly and severally by defendants Ortigas and Choithram Jethmal Ramnani plaintiffs
Sps. Ishwar Jethmal Ramnani and Sonya Jethmal Ramnani, as follows:
a. P40 Million upon the signing hereof by the parties;
b. P10 Million within thirty (30) days from July 5, 1993 or on or before August 4, 1993;
c. P15 Million within sixty (60) days from July 5, 1993 or on or before September 3, 1993."
and further provided:
"6. In the event of default by defendants Ortigas and Choithram Jethmal Ramnani to pay any of the amounts within the agreed period, proceedings in
execution, including hearings on valuation, shall immediately resume and plaintiffs shall be entitled to enforce and execute the Supreme Court's
judgment against the defendants in accordance with the terms thereof and the final and total monetary entitlements described in paragraph 1 above,

less whatever amounts plaintiff may have partially recovered from the defendants. In case of execution of the balance due Ishwar as finally determined
by the Court, plaintiffs shall proceed to first sell the subject properties mentioned in par. 6 hereof."
Simultaneous with the signing of the said Compromise Agreement, plaintiff Spouses Ishwar received from the defendants (Choithram and Ortigas) two
checks for a total amount of Forty Million (P40,000,000.00) Pesos in partial satisfaction of the monetary obligation involved.The said checks, both dated
July 12, 1993, were encashed by the plaintiffs on July 22, 1993. Conformably, "the contracting parties have agreed to suspend the proceedings of the
case until such time when all the documents in relation to the compromise agreement shall have been submitted to the Court." 11 See: Trial Court's
Order dated July 21, 1993; Annex "1-B," Comment/Opposition; Rollo, p. 1214.
On July 23, 1993, in compliance with the Tripartite Agreement, as stipulated in paragraph 2 (b), Choithram transmitted to Spouses Ishwar two (2) postdated Equitable Banking Corporation checks, dated August 12, 1993, payable to the said spouses in the amount of Five Million (P5,000,000.00) Pesos
each; and for the satisfaction of paragraph 2 (c) of the same, Choithram issued three (3) other post-dated Equitable Banking Corporation checks dated
September 12, 1993, each for Five Million (P5,000,000.00) Pesos, also payable to the plaintiff spouses.
In a letter dated July 29, 1993, Spouses Ishwar returned the said five personal post-dated checks of Choithram for the reason that the same were not in
accordance with the period/date stipulated in paragraphs 2 (b) and (c) of the Tripartite Agreement.Spouses Ishwar insisted that the first and second sets
of checks should have been dated August 4, 1993 and September 3, 1993, respectively.
On August 3, 1993, Choithram wrote the Bureau of Internal Revenue, asking for clarification on their obligations with respect to any tax due that the
government may collect against them as payors of P65 Million.In response thereto, BIR Commissioner Liwayway Vinzon.s-Chato, in a letter 12 Annex
"8" Comment/Opposition; Rollo, page 1220.dated August 6, 1993, informed petitioners Choithram and Ortigas that the P65 Million compromise
settlement is subject to 30% withholding tax collectible against Sps. Ishwar; and to protect the interest of the government, Commissioner Vinzons-Chato
constituted Choithram and Ortigas as "withholding agents" of the same, originally assessed at P20,150,000.00.
On September 7, 1993 or three days after the maturity date of the second set of checks by Choithram, Sps. Ishwar filed with the court a quo an Urgent
Motion for Immediate Resumption of Hearing 13 Annex "11," Comment/Opposition; Rollo, pages 1223-1228.arguing that pursuant to paragraph 6 of the
Tripartite Agreement, defendants Choithram and Ortigas were already in default in the payment of the outstanding balance amounting to P25 Million.
On January 24, 1994, the lower court issued an Order, 14 Annex "19," Comment/Opposition; Rollo, pages 1261-1264.the pertinent portions of which,
stated:
"That defendant's desire to pay the balance of the amount stipulated in their Tripartite Agreement is apparent. Under the aforestated facts and
circumstances, is it equitable that they be held in default? Article 1229 of the Civil Code gives the court the power to equitably reduce penalty when the
principal obligation has been partly complied with by the debtor. In default cases, the court may likewise, reconsider its order of default when the interest
of justice so dictates.
In order not to put to naught all the efforts of the parties in forging the Tripartite Agreement which took them a long period of time to arrive at, the Branch
Clerk of Court is directed to immediately endorse to the counsel of plaintiffs the two (2) checks in her custody but the defendants are directed to pay the
prevailing interest thereon from the time the amount of P25 Million was actually due the plaintiffs, up to the time the same is encashed, under the
following terms:
1. That the Quasha Law [F]irm receives the balance of the amount of P25 Million in compliance with the Tripartite Agreement, adverted to, and subject to
the tax claim of the BIR;
2. That it shall release to the plaintiffs the amount due them after the tax matter on said amount shall have been resolved, and in the meanwhile the said
amount shall be deposited in an interest bearing account and/or money placement in treasury bills; and
3. That upon receipt of the afore-stated amount, plaintiffs shall execute . the Deed of Assignment of Judgment in favor of defendants Ortigas & Co., Ltd.
Partnership and Choithram Jethwal Ramnani in the proportion agreed upon by the said defendants.
In view of the foregoing, plaintiffs' Motion for continuation of hearing is DENIED.
xxx
SO ORDERED."
Plaintiff spouses' motion for reconsideration was likewise denied. 15 Trial Court's Order dated April 5, 1994. See: Annex "22," Comment/Opposition;
Rollo, page 1268.Hence, Sps. Ishwar presented the present Manifestation and Urgent Motion before this Court, contending that the court a quo
committed grave abuse of discretion (1) In denying the motion for resumption of hearing; (2) In imposing as a condition that the Quasha Law Firm as
attorneys for Spouses Ishwar should receive the amount of P25 Million and to act as escrow agent and (3) respondent judge's application of equity in
favor of defendants is misplaced and goes against the doctrine "that he who invokes equity must come with clean hand."
Under the facts and circumstances of the case, did the respondent judge act with grave abuse of discretion in denying the two motions of Sps. Ishwar?
On this sole issue, the Court resolves in the negative.
It appears from the records on hand that immediately after BIR Commissioner Liwayway Vinzons-Chato constituted defendants Choithram and Ortigas
as "withholding agents" the contracting parties, through their respective lawyers, 16 Sps. Ishwar are represented by Atty. Cirilo Doronila of Quasha Law
Firm; Choithram Ramnani, et. al. by Any. Mario Ongkiko of Ongkiko and Dizon Law Offices; and the Ortigas & Co., Ltd. Partnership by Attys. Rodriguez
and Cabote.met a number of times to discuss how the withholding tax assessment could be settled to the satisfaction of all the parties concerned
including the Bureau of Internal Revenue.
On August 17, 1993, Atty. Cirillo Doronila, Sps. Ishwar's counsel, requested Atty. Mario E. Ongkiko, Choithram's counsel, to suspend remittance of any
amount as withholding tax to the Bureau of Internal Revenue since he (Atty. Doronila) intended to file a protest. In a letter bearing the same date, Atty.
Ongkiko acceded to the request of Atty. Doronila and assured the latter that he (Atty. Ongkiko) was to hold in abeyance the payment of subject
withholding tax pending the filing of the protest with the BIR. 17 See: "Annex 10", Comment/Opposition; Rollo, page 1222.
It is worthy to note that the inquiry of defendants' counsel for any tax liability as payor of P65 Million to BIR was dons prior to the maturity date of the first
two checks worth P5 Million each, and when the date due of said checks lapsed, instead of reinforcing their right to declare defendants in default as

stipulated in paragraph 6 of the Tripartite Agreement, Sps. Ishwar, through counsel, requested defendants to withhold the said amount until their protest
with BIR would be resolved.
On September 7, 1993, or three days after the date of maturity of the second set of checks issued by Choithram, spouses Ishwar J. Ramnani and Sonya
J. Ramnani filed with the lower court of origin an urgent motion for immediate Resumption of Hearing, theorizing that Choithram and Ortigas were
already in default in the payment of their outstanding balance amounting to Twenty Five Million (P25,000,000.00) Pesos, as stipulated in paragraph G of
the Tripartite Agreement.
On January 24, 1994, the court a quo issued an Order which denied the Motion for Continuation of hearing, ruling thus:
"That defendants' desire to pay the balance of the amount stipulated in their Tripartite Agreement is apparent. Under the afore-stated facts and
circumstances, is it equitable that they be held in default? Article 1229 of the Civil Code gives the Court the power to equitably reduce penalty when the
principal obligation has been partly complied with by the debtor.In default cases, the Court may likewise, reconsider its order of default when the interest
of justice so dictates.
In order not to put to naught all the efforts of the parties in forging the Tripartite Agreement which took them a long period of time to arrive at, the Branch
Clerk of Court is directed to immediately endorse to the counsel of plaintiffs the two (2) checks in her custody but the defendants are directed to pay the
prevailing interest thereon from the time the amount of P25 Million was actually due the plaintiffs, up to the time the same is encashed, under the
following terms:
1. That the Quasha Law firm receives the balance of the amount of P25 Million in compliance with the Tripartite Agreement, adverted to, and subject to
the tax claim of the BIR;
2. That it shall release to the plaintiffs the amount due them after the tax matter on said amount shall have been resolved, and in the meanwhile the said
amount shall be deposited in an interest bearing account and/or money placement in treasury bills; and
3. That upon receipt of the afore-stated amounts, plaintiffs shall execute the Deed of Assignment of Judgment in favor of defendants Ortigas & Co., Ltd.
Partnership and Choithram Jethwal Ramnani and or third party Harish Ramnani in the proportion agreed upon by the said defendants.
In view of the foregoing, plaintiffs' Motion for Continuation of hearing is DENIED.
xxx
SO ORDERED."
The spouses' Motion for Reconsideration was denied in the Order dated April 5, 1994 of the trial court a quo.Dissatisfied therewith, movants have come
to this Court via the present Manifestation and Urgent Motion for the reversal thereof, ascribing to the lower court grave abuse of discretion.
Given the foregoing factual and case settings, the Court finds no grave abuse of discretion on the part of the trial court.
WHEREFORE, the Manifestation and Urgent Motion of petitioner spouses Ishwar J. Ramnani and Sonya J. Ramnani is DENIED and the challenged
Orders dated January 24, 1994 and April 5, 1994, respectively, of the trial court quo are UPHELD. Let the case be remanded to the lower court for
appropriate proceedings.
Very truly yours,
(Sgd.) LUZVIMINDA D. PUNO
G.R. No. L-40098 August 29, 1975
ANTONIO LIM TANHU, DY OCHAY, ALFONSO LEONARDO NG SUA and CO OYO, petitioners,
vs.
HON. JOSE R. RAMOLETE as Presiding Judge, Branch III, CFI, Cebu and TAN PUT, respondents.
Zosa, Zosa, Castillo, Alcudia & Koh for petitioners.
Fidel Manalo and Florido & Associates for respondents.
BARREDO, J.:
Petition for (1) certiorari to annul and set aside certain actuations of respondent Court of First Instance of Cebu Branch III in its Civil Case No. 12328, an
action for accounting of properties and money totalling allegedly about P15 million pesos filed with a common cause of action against six defendants, in
which after declaring four of the said defendants herein petitioners, in default and while the trial as against the two defendants not declared in default
was in progress, said court granted plaintiff's motion to dismiss the case in so far as the non-defaulted defendants were concerned and thereafter
proceeded to hear ex-parte the rest of the plaintiffs evidence and subsequently rendered judgment by default against the defaulted defendants, with the
particularities that notice of the motion to dismiss was not duly served on any of the defendants, who had alleged a compulsory counterclaim against
plaintiff in their joint answer, and the judgment so rendered granted reliefs not prayed for in the complaint, and (2) prohibition to enjoin further
proceedings relative to the motion for immediate execution of the said judgment.
Originally, this litigation was a complaint filed on February 9, 1971 by respondent Tan Put only against the spouses-petitioners Antonio Lim Tanhu and Dy
Ochay. Subsequently, in an amended complaint dated September 26, 1972, their son Lim Teck Chuan and the other spouses-petitioners Alfonso
Leonardo Ng Sua and Co Oyo and their son Eng Chong Leonardo were included as defendants. In said amended complaint, respondent Tan alleged
that she "is the widow of Tee Hoon Lim Po Chuan, who was a partner in the commercial partnership, Glory Commercial Company ... with Antonio Lim
Tanhu and Alfonso Ng Sua that "defendant Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan, and Eng Chong Leonardo, through fraud and
machination, took actual and active management of the partnership and although Tee Hoon Lim Po Chuan was the manager of Glory Commercial
Company, defendants managed to use the funds of the partnership to purchase lands and building's in the cities of Cebu, Lapulapu, Mandaue, and the
municipalities of Talisay and Minglanilla, some of which were hidden, but the description of those already discovered were as follows: (list of
properties) ...;" and that:
13. (A)fter the death of Tee Hoon Lim Po Chuan, the defendants, without liquidation continued the business of Glory Commercial Company by
purportedly organizing a corporation known as the Glory Commercial Company, Incorporated, with paid up capital in the sum of P125,000.00, which
money and other assets of the said Glory Commercial Company, Incorporated are actually the assets of the defunct Glory Commercial Company
partnership, of which the plaintiff has a share equivalent to one third (/ 3) thereof;

14. (P)laintiff, on several occasions after the death of her husband, has asked defendants of the above-mentioned properties and for the liquidation of
the business of the defunct partnership, including investments on real estate in Hong Kong, but defendants kept on promising to liquidate said properties
and just told plaintiff to
15. (S)ometime in the month of November, 1967, defendants, Antonio Lim Tanhu, by means of fraud deceit and misrepresentations did then and there,
induce and convince the plaintiff to execute a quitclaim of all her rights and interests, in the assets of the partnership of Glory Commercial Company,
which is null and void, executed through fraud and without any legal effect. The original of said quitclaim is in the possession of the adverse party
defendant Antonio Lim Tanhu.
16. (A)s a matter of fact, after the execution of said quitclaim, defendant Antonio Lim Tanhu offered to pay the plaintiff the amount P65,000.00 within a
period of one (1) month, for which plaintiff was made to sign a receipt for the amount of P65,000.00 although no such amount was given and plaintiff was
not even given a copy of said document;
17. (T)hereafter, in the year 1968-69, the defendants who had earlier promised to liquidate the aforesaid properties and assets in favor among others of
plaintiff and until the middle of the year 1970 when the plaintiff formally demanded from the defendants the accounting of real and personal properties of
the Glory Commercial Company, defendants refused and stated that they would not give the share of the plaintiff. (Pp. 36-37, Record.)
She prayed as follows:
WHEREFORE, it is most respectfully prayed that judgment be rendered:
a) Ordering the defendants to render an accounting of the real and personal properties of the Glory Commercial Company including those registered in
the names of the defendants and other persons, which properties are located in the Philippines and in Hong Kong;
b) Ordering the defendants to deliver to the plaintiff after accounting, one third (/ 3) of the total value of all the properties which is approximately
P5,000,000.00 representing the just share of the plaintiff;
c) Ordering the defendants to pay the attorney of the plaintiff the sum of Two Hundred Fifty Thousand Pesos (P250,000.00) by way of attorney's fees
and damages in the sum of One Million Pesos (P1,000,000.00).
This Honorable Court is prayed for other remedies and reliefs consistent with law and equity and order the defendants to pay the costs. (Page 38,
Record.)
The admission of said amended complaint was opposed by defendants upon the ground that there were material modifications of the causes of action
previously alleged, but respondent judge nevertheless allowed the amendment reasoning that:
The present action is for accounting of real and personal properties as well as for the recovery of the same with damages.
An objective consideration of pars. 13 and 15 of the amended complaint pointed out by the defendants to sustain their opposition will show that the
allegations of facts therein are merely to amplify material averments constituting the cause of action in the original complaint. It likewise include
necessary and indispensable defendants without whom no final determination can be had in the action and in order that complete relief is to be
accorded as between those already parties.
Considering that the amendments sought to be introduced do not change the main causes of action in the original complaint and the reliefs demanded
and to allow amendments is the rule, and to refuse them the exception and in order that the real question between the parties may be properly and justly
threshed out in a single proceeding to avoid multiplicity of actions. (Page 40, Record.)
In a single answer with counterclaim, over the signature of their common counsel, defendants denied specifically not only the allegation that respondent
Tan is the widow of Tee Hoon because, according to them, his legitimate wife was Ang Siok Tin still living and with whom he had four (4) legitimate
children, a twin born in 1942, and two others born in 1949 and 1965, all presently residing in Hongkong, but also all the allegations of fraud and
conversion quoted above, the truth being, according to them, that proper liquidation had been regularly made of the business of the partnership and Tee
Hoon used to receive his just share until his death, as a result of which the partnership was dissolved and what corresponded to him were all given to his
wife and children. To quote the pertinent portions of said answer:
AND BY WAY OF SPECIAL AND AFFIRMATIVE DEFENSES,
defendants hereby incorporate all facts averred and alleged in the answer, and further most respectfully declare:
1. That in the event that plaintiff is filing the present complaint as an heir of Tee Hoon Lim Po Chuan, then, she has no legal capacity to sue as such,
considering that the legitimate wife, namely: Ang Siok Tin, together with their children are still alive. Under Sec. 1, (d), Rule 16 of the Revised Rules of
Court, lack of legal capacity to sue is one of the grounds for a motion to dismiss and so defendants prays that a preliminary hearing be conducted as
provided for in Sec. 5, of the same rule;
2. That in the alternative case or event that plaintiff is filing the present case under Art. 144 of the Civil Code, then, her claim or demand has been paid,
waived abandoned or otherwise extinguished as evidenced by the 'quitclaim' Annex 'A' hereof, the ground cited is another ground for a motion to dismiss
(Sec. 1, (h), Rule 16) and hence defendants pray that a preliminary hearing be made in connection therewith pursuant to Section 5 of the
aforementioned rule;
3. That Tee Hoon Lim Po Chuan was legally married to Ang Siok Tin and were blessed with the following children, to wit: Ching Siong Lim and Ching
Hing Lim (twins) born on February 16, 1942; Lim Shing Ping born on March 3, 1949 and Lim Eng Lu born on June 25, 1965 and presently residing in
Hongkong;
4. That even before the death of Tee Hoon Lim Po Chuan, the plaintiff was no longer his common law wife and even though she was not entitled to
anything left by Tee Hoon Lim Po Chuan, yet, out of the kindness and generosity on the part of the defendants, particularly Antonio Lain Tanhu, who,
was inspiring to be monk and in fact he is now a monk, plaintiff was given a substantial amount evidenced by the 'quitclaim' (Annex 'A');
5. That the defendants have acquired properties out of their own personal fund and certainly not from the funds belonging to the partnership, just as Tee
Hoon Lim Po Chuan had acquired properties out of his personal fund and which are now in the possession of the widow and neither the defendants nor
the partnership have anything to do about said properties;
6. That it would have been impossible to buy properties from funds belonging to the partnership without the other partners knowing about it considering
that the amount taken allegedly is quite big and with such big amount withdrawn the partnership would have been insolvent;
7. That plaintiff and Tee Hoon Lim Po Chuan were not blessed with children who would have been lawfully entitled to succeed to the properties left by
the latter together with the widow and legitimate children;
8. That despite the fact that plaintiff knew that she was no longer entitled to anything of the shares of the late Tee Hoon Lim Po Chuan, yet, this suit was
filed against the defendant who have to interpose the following
C O U N TE R C LAI M
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 exparte 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 nondefaulted defendants and thereafter proceeding to hear it ex-parte and subsequently rendering judgment against the defaulted defendants, considering
that in their view, under the said provision of the rules, when a common cause of action is alleged against several defendants, the default of any of them
is a mere formality by which those defaulted are not allowed to take part in the proceedings, but otherwise, all the defendants, defaulted and not
defaulted, are supposed to have but a common fate, win or lose. In other words, petitioners posit that in such a situation, there can only be one common
judgment for or against all the defendant, the non-defaulted and the defaulted. Thus, petitioners contend that the order of dismissal of October 21, 1974
should be considered also as the final judgment insofar as they are concerned, or, in the alternative, it should be set aside together with all the
proceedings and decision held and rendered subsequent thereto, and that the trial be resumed as of said date, with the defendants Lim Teck Chuan and
Eng Chong Leonardo being allowed to defend the case for all the defendants.
On the other hand, private respondent maintains the contrary view that inasmuch as petitioners had been properly declared in default, they have no
personality nor interest to question the dismissal of the case as against their non-defaulted co-defendants and should suffer the consequences of their
own default. Respondent further contends, and this is the only position discussed in the memorandum submitted by her counsel, that since petitioners
have already made or at least started to make their appeal, as they are in fact entitled to appeal, this special civil action has no reason for being.
Additionally, she invokes the point of prematurity upheld by the Court of Appeals in regard to the above-mentioned petition therein of the non-defaulted
defendants Lim Teck Chuan and Eng Chong Leonardo. Finally, she argues that in any event, the errors attributed to respondent court are errors of
judgment and may be reviewed only in an appeal.
After careful scrutiny of all the above-related proceedings, in the court below and mature deliberation, the Court has arrived at the conclusion that
petitioners should be granted relief, if only to stress emphatically once more that the rules of procedure may not be misused and abused as instruments
for the denial of substantial justice. A review of the record of this case immediately discloses that here is another demonstrative instance of how some
members of the bar, availing of their proficiency in invoking the letter of the rules without regard to their real spirit and intent, succeed in inducing courts
to act contrary to the dictates of justice and equity, and, in some instances, to wittingly or unwittingly abet unfair advantage by ironically camouflaging
their actuations as earnest efforts to satisfy the public clamor for speedy disposition of litigations, forgetting all the while that the plain injunction of
Section 2 of Rule 1 is that the "rules shall be liberally construed in order to promote their object and to assist the parties in obtaining not only 'speedy' but
more imperatively, "just ... and inexpensive determination of every action and proceeding." We cannot simply pass over the impression that the
procedural maneuvers and tactics revealed in the records of the case at bar were deliberately planned with the calculated end in view of depriving
petitioners and their co-defendants below of every opportunity to properly defend themselves against a claim of more than substantial character,
considering the millions of pesos worth of properties involved as found by respondent judge himself in the impugned decision, a claim that appears, in
the light of the allegations of the answer and the documents already brought to the attention of the court at the pre-trial, to be rather dubious. What is
most regrettable is that apparently, all of these alarming circumstances have escaped respondent judge who did not seem to have hesitated in acting
favorably on the motions of the plaintiff conducive to the deplorable objective just mentioned, and which motions, at the very least, appeared to be 'of
highly controversial' merit, considering that their obvious tendency and immediate result would be to convert the proceedings into a one-sided affair, a
situation that should be readily condemnable and intolerable to any court of justice.
Indeed, a seeming disposition on the part of respondent court to lean more on the contentions of private respondent may be discerned from the manner
it resolved the attempts of defendants Dy Ochay and Antonio Lim Tanhu to have the earlier order of default against them lifted. Notwithstanding that Dy
Ochay's motion of October 8, 1971, co-signed by her with their counsel, Atty. Jovencio Enjambre (Annex 2 of respondent answer herein) was over the
jurat of the notary public before whom she took her oath, in the order of November 2, 1971, (Annex 3 id.) it was held that "the oath appearing at the
bottom of the motion is not the one contemplated by the abovequoted pertinent provision (See. 3, Rule 18) of the rules. It is not even a verification. (See.
6, Rule 7.) What the rule requires as interpreted by the Supreme Court is that the motion must have to be accompanied by an affidavit of merits that the
defendant has a meritorious defense, thereby ignoring the very simple legal point that the ruling of the Supreme Court in Ong Peng vs. Custodio, 1
SCRA 781, relied upon by His Honor, under which a separate affidavit of merit is required refers obviously to instances where the motion is not over oath
of the party concerned, considering that what the cited provision literally requires is no more than a "motion under oath." Stated otherwise, when a
motion to lift an order of default contains the reasons for the failure to answer as well as the facts constituting the prospective defense of the defendant
and it is sworn to by said defendant, neither a formal verification nor a separate affidavit of merit is necessary.
What is worse, the same order further held that the motion to lift the order of default "is an admission that there was a valid service of summons" and
that said motion could not amount to a challenge against the jurisdiction of the court over the person of the defendant. Such a rationalization is patently
specious and reveals an evident failure to grasp the import of the legal concepts involved. A motion to lift an order of default on the ground that service of
summons has not been made in accordance with the rules is in order and is in essence verily an attack against the jurisdiction of the court over the
person of the defendant, no less than if it were worded in a manner specifically embodying such a direct challenge.
And then, in the order of February 14, 1972 (Annex 6, id.) lifting at last the order of default as against defendant Lim Tanhu, His Honor posited that said
defendant "has a defense (quitclaim) which renders the claim of the plaintiff contentious." We have read defendants' motion for reconsideration of
November 25, 1971 (Annex 5, id.), but We cannot find in it any reference to a "quitclaim". Rather, the allegation of a quitclaim is in the amended
complaint (Pars. 15-16, Annex B of the petition herein) in which plaintiff maintains that her signature thereto was secured through fraud and deceit. In
truth, the motion for reconsideration just mentioned, Annex 5, merely reiterated the allegation in Dy Ochay's earlier motion of October 8, 1971, Annex 2,
to set aside the order of default, that plaintiff Tan could be but the common law wife only of Tee Hoon, since his legitimate wife was still alive, which
allegation, His Honor held in the order of November 2, 1971, Annex 3, to be "not good and meritorious defense". To top it all, whereas, as already stated,
the order of February 19, 1972, Annex 6, lifted the default against Lim Tanhu because of the additional consideration that "he has a defense (quitclaim)
which renders the claim of the plaintiff contentious," the default of Dy Ochay was maintained notwithstanding that exactly the same "contentions"
defense as that of her husband was invoked by her.
Such tenuous, if not altogether erroneous reasonings and manifest inconsistency in the legal postures in the orders in question can hardly convince Us
that the matters here in issue were accorded due and proper consideration by respondent court. In fact, under the circumstances herein obtaining, it
seems appropriate to stress that, having in view the rather substantial value of the subject matter involved together with the obviously contentious
character of plaintiff's claim, which is discernible even on the face of the complaint itself, utmost care should have been taken to avoid the slightest
suspicion of improper motivations on the part of anyone concerned. Upon the considerations hereunder to follow, the Court expresses its grave concern
that much has to be done to dispel the impression that herein petitioners and their co-defendants are being railroaded out of their rights and properties
without due process of law, on the strength of procedural technicalities adroitly planned by counsel and seemingly unnoticed and undetected by
respondent court, whose orders, gauged by their tenor and the citations of supposedly pertinent provisions and jurisprudence made therein, cannot be
said to have proceeded from utter lack of juridical knowledgeability and competence.
1
The first thing that has struck the Court upon reviewing the record is the seeming alacrity with which the motion to dismiss the case against nondefaulted defendants Lim Teck Chuan and Eng Chong Leonardo was disposed of, which definitely ought not to have been the case. The trial was
proceeding with the testimony of the first witness of plaintiff and he was still under re-cross-examination. Undoubtedly, the motion to dismiss at that stage
and in the light of the declaration of default against the rest of the defendants was a well calculated surprise move, obviously designed to secure utmost
advantage of the situation, regardless of its apparent unfairness. To say that it must have been entirely unexpected by all the defendants, defaulted and
non-defaulted , is merely to rightly assume that the parties in a judicial proceeding can never be the victims of any procedural waylaying as long as
lawyers and judges are imbued with the requisite sense of equity and justice.
But the situation here was aggravated by the indisputable fact that the adverse parties who were entitled to be notified of such unanticipated dismissal
motion did not get due notice thereof. Certainly, the non-defaulted defendants had the right to the three-day prior notice required by Section 4 of Rule 15.
How could they have had such indispensable notice when the motion was set for hearing on Monday, October 21, 1974, whereas the counsel for Lim

Teck Chuan, Atty. Sitoy was personally served with the notice only on Saturday, October 19, 1974 and the counsel for Eng Chong Leonardo, Atty.
Alcudia, was notified by registered mail which was posted only that same Saturday, October 19, 1974? According to Chief Justice Moran, "three days at
least must intervene between the date of service of notice and the date set for the hearing, otherwise the court may not validly act on the motion."
(Comments on the Rules of Court by Moran, Vol. 1, 1970 ed. p. 474.) Such is the correct construction of Section 4 of Rule 15. And in the instant case,
there can be no question that the notices to the non-defaulted defendants were short of the requirement of said provision.
We can understand the over-anxiety of counsel for plaintiff, but what is incomprehensible is the seeming inattention of respondent judge to the explicit
mandate of the pertinent rule, not to speak of the imperatives of fairness, considering he should have realized the far-reaching implications, specially
from the point of view he subsequently adopted, albeit erroneously, of his favorably acting on it. Actually, he was aware of said consequences, for
simultaneously with his order of dismissal, he immediately set the case for the ex-parte hearing of the evidence against the defaulted defendants, which,
incidentally, from the tenor of his order which We have quoted above, appears to have been done by him motu propio As a matter of fact, plaintiff's
motion also quoted above did not pray for it.
Withal, respondent court's twin actions of October 21, 1974 further ignores or is inconsistent with a number of known juridical principles concerning
defaults, which We will here take occasion to reiterate and further elucidate on, if only to avoid a repetition of the unfortunate errors committed in this
case. Perhaps some of these principles have not been amply projected and elaborated before, and such paucity of elucidation could be the reason why
respondent judge must have acted as he did. Still, the Court cannot but express its vehement condemnation of any judicial actuation that unduly
deprives any party of the right to be heard without clear and specific warrant under the terms of existing rules or binding jurisprudence. Extreme care
must be the instant reaction of every judge when confronted with a situation involving risks that the proceedings may not be fair and square to all the
parties concerned. Indeed, a keen sense of fairness, equity and justice that constantly looks for consistency between the letter of the adjective rules and
these basic principles must be possessed by every judge, If substance is to prevail, as it must, over form in our courts. Literal observance of the rules,
when it is conducive to unfair and undue advantage on the part of any litigant before it, is unworthy of any court of justice and equity. Withal, only those
rules and procedure informed, with and founded on public policy deserve obedience in accord with their unequivocal language or words..
Before proceeding to the discussion of the default aspects of this case, however, it should not be amiss to advert first to the patent incorrectness,
apparent on the face of the record, of the aforementioned order of dismissal of October 21, 1974 of the case below as regards non-defaulted defendants
Lim and Leonardo. While it is true that said defendants are not petitioners herein, the Court deems it necessary for a full view of the outrageous
procedural strategy conceived by respondent's counsel and sanctioned by respondent court to also make reference to the very evident fact that in
ordering said dismissal respondent court disregarded completely the existence of defendant's counterclaim which it had itself earlier held if indirectly, to
be compulsory in nature when it refused to dismiss the same on the ground alleged by respondent Tan that he docketing fees for the filing thereof had
not been paid by defendants.
Indeed, that said counterclaim is compulsory needs no extended elaboration. As may be noted in the allegations hereof aforequoted, it arose out of or is
necessarily connected with the occurrence that is the subject matter of the plaintiff's claim, (Section 4, Rule 9) namely, plaintiff's allegedly being the
widow of the deceased Tee Hoon entitled, as such, to demand accounting of and to receive the share of her alleged late husband as partner of
defendants Antonio Lim Tanhu and Alfonso Leonardo Ng Sua in Glory Commercial Company, the truth of which allegations all the defendants have
denied. Defendants maintain in their counterclaim that plaintiff knew of the falsity of said allegations even before she filed her complaint, for she had in
fact admitted her common-law relationship with said deceased in a document she had jointly executed with him by way of agreement to terminate their
illegitimate relationship, for which she received P40,000 from the deceased, and with respect to her pretended share in the capital and profits in the
partnership, it is also defendants' posture that she had already quitclaimed, with the assistance of able counsel, whatever rights if any she had thereto in
November, 1967, for the sum of P25,000 duly receipted by her, which quitclaim was, however, executed, according to respondent herself in her
amended complaint, through fraud. And having filed her complaint knowing, according to defendants, as she ought to have known, that the material
allegations thereof are false and baseless, she has caused them to suffer damages. Undoubtedly, with such allegations, defendants' counterclaim is
compulsory, not only because the same evidence to sustain it will also refute the cause or causes of action alleged in plaintiff's complaint, (Moran, supra
p. 352) but also because from its very nature, it is obvious that the same cannot "remain pending for independent adjudication by the court." (Section 2,
Rule 17.)
The provision of the rules just cited specifically enjoins that "(i)f a counterclaim has been pleaded by a defendant prior to the service upon him of the
plaintiff's motion to dismiss, the action shall not be dismissed against the defendant's objection unless the counterclaim can remain pending for
independent adjudication by the court." Defendants Lim and Leonardo had no opportunity to object to the motion to dismiss before the order granting the
same was issued, for the simple reason that they were not opportunity notified of the motion therefor, but the record shows clearly that at least defendant
Lim immediately brought the matter of their compulsory counterclaim to the attention of the trial court in his motion for reconsideration of October 23,
1974, even as the counsel for the other defendant, Leonardo, predicated his motion on other grounds. In its order of December 6, 1974, however,
respondent court not only upheld the plaintiffs supposed absolute right to choose her adversaries but also held that the counterclaim is not compulsory,
thereby virtually making unexplained and inexplicable 180-degree turnabout in that respect.
There is another equally fundamental consideration why the motion to dismiss should not have been granted. As the plaintiff's complaint has been
framed, all the six defendants are charged with having actually taken part in a conspiracy to misappropriate, conceal and convert to their own benefit the
profits, properties and all other assets of the partnership Glory Commercial Company, to the extent that they have allegedly organized a corporation,
Glory Commercial Company, Inc. with what they had illegally gotten from the partnership. Upon such allegations, no judgment finding the existence of
the alleged conspiracy or holding the capital of the corporation to be the money of the partnership is legally possible without the presence of all the
defendants. The non-defaulted defendants are alleged to be stockholders of the corporation and any decision depriving the same of all its assets cannot
but prejudice the interests of said defendants. Accordingly, upon these premises, and even prescinding from the other reasons to be discussed anon it is
clear that all the six defendants below, defaulted and non-defaulted, are indispensable parties. Respondents could do no less than grant that they are so
on page 23 of their answer. Such being the case, the questioned order of dismissal is exactly the opposite of what ought to have been done. Whenever it
appears to the court in the course of a proceeding that an indispensable party has not been joined, it is the duty of the court to stop the trial and to order
the inclusion of such party. (The Revised Rules of Court, Annotated & Commented by Senator Vicente J. Francisco, Vol. 1, p. 271, 1973 ed. See also
Cortez vs. Avila, 101 Phil. 705.) Such an order is unavoidable, for the "general rule with reference to the making of parties in a civil action requires the
joinder of all necessary parties wherever possible, and the joinder of all indispensable parties under any and all conditions, the presence of those latter
being a sine qua non of the exercise of judicial power." (Borlasa vs. Polistico, 47 Phil. 345, at p. 347.) It is precisely " when an indispensable party is not
before the court (that) the action should be dismissed." (People v. Rodriguez, 106 Phil. 325, at p. 327.) The absence of an indispensable party renders
all subsequent actuations of the court null and void, for want of authority to act, not only as to the absent parties but even as to those present. In short,
what respondent court did here was exactly the reverse of what the law ordains it eliminated those who by law should precisely be joined.
As may he noted from the order of respondent court quoted earlier, which resolved the motions for reconsideration of the dismissal order filed by the
non-defaulted defendants, His Honor rationalized his position thus:
It is the rule that it is the absolute prerogative of the plaintiff to choose, the theory upon which he predicates his right of action, or the parties he desires
to sue, without dictation or imposition by the court or the adverse party. If he makes a mistake in the choice of his right of action, or in that of the parties
against whom he seeks to enforce it, that is his own concern as he alone suffers therefrom. The plaintiff cannot be compelled to choose his defendants,
He may not, at his own expense, be forced to implead anyone who, under the adverse party's theory, is to answer for defendant's liability. Neither may
the Court compel him to furnish the means by which defendant may avoid or mitigate their liability. (Vao vs. Alo, 95 Phil. 495-496.)
This being the rule this court cannot compel the plaintiff to continue prosecuting her cause of action against the defendants-movants if in the course of
the trial she believes she can enforce it against the remaining defendants subject only to the limitation provided in Section 2, Rule 17 of the Rules of
Court. ... (Pages 6263, Record.)

Noticeably, His Honor has employed the same equivocal terminology as in plaintiff's motion of October 18, 1974 by referring to the action he had taken
as being "dismissal of the complaint against them or their being dropped therefrom", without perceiving that the reason for the evidently intentional
ambiguity is transparent. The apparent idea is to rely on the theory that under Section 11 of Rule 3, parties may be dropped by the court upon motion of
any party at any stage of the action, hence "it is the absolute right prerogative of the plaintiff to 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 complaint states a common cause of
action against several defendants, some of whom answer, and the others make default, 'the court shall try the case against all upon the answer thus
filed and render judgment upon the evidence presented by the parties in court'. It is obvious that under this provision the case is tried jointly not only
against the defendants answering but also against those defaulting, and the trial is held upon the answer filed by the former; and the judgment, if
adverse, will prejudice the defaulting defendants no less than those who answer. In other words, the defaulting defendants are held bound by the answer
filed by their co-defendants and by the judgment which the court may render against all of them. By the same token, and by all rules of equity and fair
play, if the judgment should happen to be favorable, totally or partially, to the answering defendants, it must correspondingly benefit the defaulting ones,
for it would not be just to let the judgment produce effects as to the defaulting defendants only when adverse to them and not when favorable.
In Bueno vs. Ortiz, 23 SCRA 1151, the Court applied the provision under discussion in the following words:
In answer to the charge that respondent Judge had committed a grave abuse of discretion in rendering a default judgment against the PC, respondents
allege that, not having filed its answer within the reglementary period, the PC was in default, so that it was proper for Patanao to forthwith present his
evidence and for respondent Judge to render said judgment. It should be noted, however, that in entering the area in question and seeking to prevent
Patanao from continuing his logging operations therein, the PC was merely executing an order of the Director of Forestry and acting as his agent.
Patanao's cause of action against the other respondents in Case No. 190, namely, the Director of Forestry, the District Forester of Agusan, the Forest
Officer of Bayugan, Agusan, and the Secretary of Agriculture and Natural Resources. Pursuant to Rule 18, Section 4, of the Rules of Court, 'when a
complaint states a common cause of action against several defendants some of whom answer and the others fail to do so, the court shall try the case

against all upon the answer thus filed (by some) and render judgment upon the evidence presented.' In other words, the answer filed by one or some of
the defendants inures to the benefit of all the others, even those who have not seasonably filed their answer.
Indeed, since the petition in Case No. 190 sets forth a common cause of action against all of the respondents therein, a decision in favor of one of them
would necessarily favor the others. In fact, the main issue, in said case, is whether Patanao has a timber license to undertake logging operations in the
disputed area. It is not possible to decide such issue in the negative, insofar as the Director of Forestry, and to settle it otherwise, as regards the PC,
which is merely acting as agent of the Director of Forestry, and is, therefore, his alter ego, with respect to the disputed forest area.
Stated differently, in all instances where a common cause of action is alleged against several defendants, some of whom answer and the others do not,
the latter or those in default acquire a vested right not only to own the defense interposed in the answer of their co- defendant or co-defendants not in
default but also to expect a result of the litigation totally common with them in kind and in amount whether favorable or unfavorable. The substantive
unity of the plaintiff's cause against all the defendants is carried through to its adjective phase as ineluctably demanded by the homogeneity and
indivisibility of justice itself. Indeed, since the singleness of the cause of action also inevitably implies that all the defendants are indispensable parties,
the court's power to act is integral and cannot be split such that it cannot relieve any of them and at the same time render judgment against the rest.
Considering the tenor of the section in question, it is to be assumed that when any defendant allows himself to be declared in default knowing that his
defendant has already answered, he does so trusting in the assurance implicit in the rule that his default is in essence a mere formality that deprives him
of no more than the right to take part in the trial and that the court would deem anything done by or for the answering defendant as done by or for him.
The presumption is that otherwise he would not -have seen to that he would not be in default. Of course, he has to suffer the consequences of whatever
the answering defendant may do or fail to do, regardless of possible adverse consequences, but if the complaint has to be dismissed in so far as the
answering defendant is concerned it becomes his inalienable right that the same be dismissed also as to him. It does not matter that the dismissal is
upon the evidence presented by the plaintiff or upon the latter's mere desistance, for in both contingencies, the lack of sufficient legal basis must be the
cause. The integrity of the common cause of action against all the defendants and the indispensability of all of them in the proceedings do not permit any
possibility of waiver of the plaintiff's right only as to one or some of them, without including all of them, and so, as a rule, withdrawal must be deemed to
be a confession of weakness as to all. This is not only elementary justice; it also precludes the concomitant hazard that plaintiff might resort to the kind
of procedural strategem practiced by private respondent herein that resulted in totally depriving petitioners of every opportunity to defend themselves
against her claims which, after all, as will be seen later in this opinion, the record does not show to be invulnerable, both in their factual and legal
aspects, taking into consideration the tenor of the pleadings and the probative value of the competent evidence which were before the trial court when it
rendered its assailed decision where all the defendants are indispensable parties, for which reason the absence of any of them in the case would result
in the court losing its competency to act validly, any compromise that the plaintiff might wish to make with any of them must, as a matter of correct
procedure, have to await until after the rendition of the judgment, at which stage the plaintiff may then treat the matter of its execution and the
satisfaction of his claim as variably as he might please. Accordingly, in the case now before Us together with the dismissal of the complaint against the
non-defaulted defendants, the court should have ordered also the dismissal thereof as to petitioners.
Indeed, there is more reason to apply here the principle of unity and indivisibility of the action just discussed because all the defendants here have
already joined genuine issues with plaintiff. Their default was only at the pre-trial. And as to such absence of petitioners at the pre-trial, the same could
be attributed to the fact that they might not have considered it necessary anymore to be present, since their respective children Lim and Leonardo, with
whom they have common defenses, could take care of their defenses as well. Anything that might have had to be done by them at such pre-trial could
have been done for them by their children, at least initially, specially because in the light of the pleadings before the court, the prospects of a
compromise must have appeared to be rather remote. Such attitude of petitioners is neither uncommon nor totally unjustified. Under the circumstances,
to declare them immediately and irrevocably in default was not an absolute necessity. Practical considerations and reasons of equity should have moved
respondent court to be more understanding in dealing with the situation. After all, declaring them in default as respondent court did not impair their right
to a common fate with their children.
3
Another issue to be resolved in this case is the question of whether or not herein petitioners were entitled to notice of plaintiff's motion to drop their codefendants 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
The sum and total of all the foregoing disquisitions is that the decision here in question is legally anomalous. It is predicated on two fatal malactuations
of respondent court namely (1) the dismissal of the complaint against the non-defaulted defendants Lim and Leonardo and (2) the ex-parte reception of
the evidence of the plaintiff by the clerk of court, the subsequent using of the same as basis for its judgment and the rendition of such judgment.
For at least three reasons which We have already fully discussed above, the order of dismissal of October 21, 1974 is unworthy of Our sanction: (1)
there was no timely notice of the motion therefor to the non-defaulted defendants, aside from there being no notice at all to herein petitioners; (2) the
common answer of the defendants, including the non-defaulted, contained a compulsory counterclaim incapable of being determined in an independent
action; and (3) the immediate effect of such dismissal was the removal of the two non-defaulted defendants as parties, and inasmuch as they are both
indispensable parties in the case, the court consequently lost the" sine qua non of the exercise of judicial power", per Borlasa vs. Polistico, supra. This is
not to mention anymore the irregular delegation to the clerk of court of the function of receiving plaintiff's evidence. And as regards the ex-parte reception
of plaintiff's evidence and subsequent rendition of the judgment by default based thereon, We have seen that it was violative of the right of the
petitioners, under the applicable rules and principles on default, to a common and single fate with their non-defaulted co-defendants. And We are not yet
referring, as We shall do this anon to the numerous reversible errors in the decision itself.
It is to be noted, however, that the above-indicated two fundamental flaws in respondent court's actuations do not call for a common corrective remedy.
We cannot simply rule that all the impugned proceedings are null and void and should be set aside, without being faced with the insurmountable
obstacle that by so doing We would be reviewing the case as against the two non-defaulted defendants who are not before Us not being parties hereto.
Upon the other hand, for Us to hold that the order of dismissal should be allowed to stand, as contended by respondents themselves who insist that the
same is already final, not only because the period for its finality has long passed but also because allegedly, albeit not very accurately, said 'nondefaulted 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 selfserving 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
T R AN S LAT I O N
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-Pretrial, 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.
G.R. No. 109248 July 3, 1995
GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L. MISA,respondents.
VITUG, J.:
The instant petition seeks a review of the decision rendered by the Court of Appeals, dated 26 February 1993, in CA-G.R. SP No. 24638 and No. 24648
affirming in toto that of the Securities and Exchange Commission ("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by respondent Commission and quoted at length by the appellate court in its decision, are hereunder
restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the Mercantile Registry on 4 January 1937 and reconstituted
with the Securities and Exchange Commission on 4 August 1948. The SEC records show that there were several subsequent amendments to the
articles of partnership on 18 September 1958, to change the firm [name] to ROSS, SELPH and CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH,
SALCEDO, DEL ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO,
DEL ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to BITO, MISA & LOZADA; on
19 December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada associated themselves together, as senior partners with
respondents-appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.
On February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter stating:
I am withdrawing and retiring from the firm of Bito, Misa and Lozada, effective at the end of this month.
"I trust that the accountants will be instructed to make the proper liquidation of my participation in the firm."
On the same day, petitioner-appellant wrote respondents-appellees another letter stating:
"Further to my letter to you today, I would like to have a meeting with all of you with regard to the mechanics of liquidation, and more particularly, my
interest in the two floors of this building. I would like to have this resolved soon because it has to do with my own plans."
On 19 February 1988, petitioner-appellant wrote respondents-appellees another letter stating:
"The partnership has ceased to be mutually satisfactory because of the working conditions of our employees including the assistant attorneys. All my
efforts to ameliorate the below subsistence level of the pay scale of our employees have been thwarted by the other partners. Not only have they
refused to give meaningful increases to the employees, even attorneys, are dressed down publicly in a loud voice in a manner that deprived them of
their self-respect. The result of such policies is the formation of the union, including the assistant attorneys."
On 30 June 1988, petitioner filed with this Commission's Securities Investigation and Clearing Department (SICD) a petition for dissolution and
liquidation of partnership, docketed as SEC Case No. 3384 praying that the Commission:
"1. Decree the formal dissolution and order the immediate liquidation of (the partnership of) Bito, Misa & Lozada;
"2. Order the respondents to deliver or pay for petitioner's share in the partnership assets plus the profits, rent or interest attributable to the use of his
right in the assets of the dissolved partnership;
"3. Enjoin respondents from using the firm name of Bito, Misa & Lozada in any of their correspondence, checks and pleadings and to pay petitioners
damages for the use thereof despite the dissolution of the partnership in the amount of at least P50,000.00;
"4. Order respondents jointly and severally to pay petitioner attorney's fees and expense of litigation in such amounts as maybe proven during the trial
and which the Commission may deem just and equitable under the premises but in no case less than ten (10%) per cent of the value of the shares of
petitioner or P100,000.00;
"5. Order the respondents to pay petitioner moral damages with the amount of P500,000.00 and exemplary damages in the amount of P200,000.00.
"Petitioner likewise prayed for such other and further reliefs that the Commission may deem just and equitable under the premises."
On 13 July 1988, respondents-appellees filed their opposition to the petition.
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not dissolve the said law partnership. Accordingly, the petitioner and respondents are
hereby enjoined to abide by the provisions of the Agreement relative to the matter governing the liquidation of the shares of any retiring or withdrawing
partner in the partnership interest." 1
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the withdrawal of Attorney Joaquin L. Misa had dissolved the
partnership of "Bito, Misa & Lozada." The Commission ruled that, being a partnership at will, the law firm could be dissolved by any partner at anytime,
such as by his withdrawal therefrom, regardless of good faith or bad faith, since no partner can be forced to continue in the partnership against his will.
In its decision, dated 17 January 1990, the SEC held:
WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby REVERSED insofar as it concludes that the partnership of Bito,
Misa & Lozada has not been dissolved. The case is hereby REMANDED to the Hearing Officer for determination of the respective rights and obligations
of the parties. 2
The parties sought a reconsideration of the above decision. Attorney Misa, in addition, asked for an appointment of a receiver to take over the assets of
the dissolved partnership and to take charge of the winding up of its affairs. On 4 April 1991, respondent SEC issued an order denying reconsideration,
as well as rejecting the petition for receivership, and reiterating the remand of the case to the Hearing Officer.
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No. 24638 and CA-G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney Mariano Lozada both died on, respectively, 05 September
1991 and 21 December 1991. The death of the two partners, as well as the admission of new partners, in the law firm prompted Attorney Misa to renew
his application for receivership (in CA G.R. SP No. 24648). He expressed concern over the need to preserve and care for the partnership assets. The
other partners opposed the prayer.
The Court of Appeals, finding no reversible error on the part of respondent Commission, AFFIRMED in toto the SEC decision and order appealed from.
In fine, the appellate court held, per its decision of 26 February 1993, (a) that Atty. Misa's withdrawal from the partnership had changed the relation of the
parties and inevitably caused the dissolution of the partnership; (b) that such withdrawal was not in bad faith; (c) that the liquidation should be to the
extent of Attorney Misa's interest or participation in the partnership which could be computed and paid in the manner stipulated in the partnership
agreement; (d) that the case should be remanded to the SEC Hearing Officer for the corresponding determination of the value of Attorney Misa's share
in the partnership assets; and (e) that the appointment of a receiver was unnecessary as no sufficient proof had been shown to indicate that the
partnership assets were in any such danger of being lost, removed or materially impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners confine themselves to the following issues:
1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a
partnership at will;

2. Whether or not the Court of Appeals has erred in holding that the withdrawal of private respondent dissolved the partnership regardless of his good or
bad faith; and
3. Whether or not the Court of Appeals has erred in holding that private respondent's demand for the dissolution of the partnership so that he can get a
physical partition of partnership was not made in bad faith;
to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is
indeed such a partnership need not be unduly belabored. We quote, with approval, like did the appellate court, the findings and disquisition of
respondent SEC on this matter; viz:
The partnership agreement (amended articles of 19 August 1948) does not provide for a specified period or undertaking. The "DURATION" clause
simply states:
"5. DURATION. The partnership shall continue so long as mutually satisfactory and upon the death or legal incapacity of one of the partners, shall be
continued by the surviving partners."
The hearing officer however opined that the partnership is one for a specific undertaking and hence not a partnership at will, citing paragraph 2 of the
Amended Articles of Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is formed, is to act as legal adviser and representative of any individual, firm and corporation
engaged in commercial, industrial or other lawful businesses and occupations; to counsel and advise such persons and entities with respect to their legal
and other affairs; and to appear for and represent their principals and client in all courts of justice and government departments and offices in the
Philippines, and elsewhere when legally authorized to do so."
The "purpose" of the partnership is not the specific undertaking referred to in the law. Otherwise, all partnerships, which necessarily must have a
purpose, would all be considered as partnerships for a definite undertaking. There would therefore be no need to provide for articles on partnership at
will as none would so exist. Apparently what the law contemplates, is a specific undertaking or "project" which has a definite or definable period of
completion. 3
The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to choose with whom a person wishes
to associate himself is the very foundation and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual
resolve, along with each partner's capability to give it, and the absence of a cause for dissolution provided by the law itself. Verily, any one of the
partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the attendance of bad faith
can prevent the dissolution of the partnership 4 but that it can result in a liability for damages. 5
In passing, neither would the presence of a period for its specific duration or the statement of a particular purpose for its creation prevent the dissolution
of any partnership by an act or will of a partner. 6 Among partners, 7 mutual agency arises and the doctrine of delectus personae allows them to have
the power, although not necessarily the right, to dissolve the partnership. An unjustified dissolution by the partner can subject him to a possible action for
damages.
The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be associated in the carrying on, as might
be distinguished from the winding up of, the business. 8 Upon its dissolution, the partnership continues and its legal personality is retained until the
complete winding up of its business culminating in its termination. 9
The liquidation of the assets of the partnership following its dissolution is governed by various provisions of the Civil Code; 10 however, an agreement of
the partners, like any other contract, is binding among them and normally takes precedence to the extent applicable over the Code's general provisions.
We here take note of paragraph 8 of the "Amendment to Articles of Partnership" reading thusly:
. . . In the event of the death or retirement of any partner, his interest in the partnership shall be liquidated and paid in accordance with the existing
agreements and his partnership participation shall revert to the Senior Partners for allocation as the Senior Partners may determine; provided, however,
that with respect to the two (2) floors of office condominium which the partnership is now acquiring, consisting of the 5th and the 6th floors of the Alpap
Building, 140 Alfaro Street, Salcedo Village, Makati, Metro Manila, their true value at the time of such death or retirement shall be determined by two (2)
independent appraisers, one to be appointed (by the partnership and the other by the) retiring partner or the heirs of a deceased partner, as the case
may be. In the event of any disagreement between the said appraisers a third appraiser will be appointed by them whose decision shall be final. The
share of the retiring or deceased partner in the aforementioned two (2) floor office condominium shall be determined upon the basis of the valuation
above mentioned which shall be paid monthly within the first ten (10) days of every month in installments of not less than P20,000.00 for the Senior
Partners, P10,000.00 in the case of two (2) existing Junior Partners and P5,000.00 in the case of the new Junior Partner. 11
The term "retirement" must have been used in the articles, as we so hold, in a generic sense to mean the dissociation by a partner, inclusive of
resignation or withdrawal, from the partnership that thereby dissolves it.
On the third and final issue, we accord due respect to the appellate court and respondent Commission on their common factual finding, i.e., that Attorney
Misa did not act in bad faith. Public respondents viewed his withdrawal to have been spurred by "interpersonal conflict" among the partners. It would not
be right, we agree, to let any of the partners remain in the partnership under such an atmosphere of animosity; certainly, not against their will. 12Indeed,
for as long as the reason for withdrawal of a partner is not contrary to the dictates of justice and fairness, nor for the purpose of unduly visiting harm and
damage upon the partnership, bad faith cannot be said to characterize the act. Bad faith, in the context here used, is no different from its normal concept
of a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity.
WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.
SO ORDERED.
G.R. No. L-27343 February 28, 1979
MANUEL G. SINGSONG, JOSE BELZUNCE, AGUSTIN E. TONSAY, JOSE L. ESPINOS, BACOLOD SOUTHERN LUMBER YARD, and OPPEN,
ESTEBAN, INC., plaintiffs-appellees,
vs.
ISABELA SAWMILL, MARGARITA G. SALDAJENO and her husband CECILIO SALDAJENO LEON GARIBAY, TIMOTEO TUBUNGBANUA, and
THE PROVINCIAL SHERIFF OF NEGROS OCCIDENTAL, defendants, MARGARITA G. SALDAJENO and her husband CECILIO SALDAJENO,
defendants-appellants.
FERNANDEZ, J.:
This is an appeal to the Court of Appeals from the judgment of the Court of First Instance of Negros Occidental in Civil Cage No. 5343, entitled "Manuel
G. Singson, et all vs. Isabela Sawmill, et al.,", the dispositive portion of which reads:
IN VIEW OF THE FOREGOING CONSIDERATIONS, it is hereby held. (1) that the contract, Appendix "F", of the Partial Stipulation of Facts, Exh. "A",
has not created a chattel mortgage lien on the machineries and other chattels mentioned therein, all of which are property of the defendant partnership
"Isabela Sawmill", (2) that the plaintiffs, as creditors of the defendant partnership, have a preferred right over the assets of the said partnership and over
the proceeds of their sale at public auction, superior to the right of the defendant Margarita G. Saldajeno, as creditor of the partners Leon Garibay and
Timoteo Tubungbanua; (3) that the defendant Isabela Sawmill' is indebted to the plaintiff Oppen, Esteban, Inc. in the amount of P1,288.89, with legal
interest thereon from the filing of the complaint on June 5, 1959; (4) that the same defendant is indebted to the plaintiff Manuel G. Singsong in the total
amount of P5,723.50, with interest thereon at the rate of 1 % per month from May 6, 1959, (the date of the statements of account, Exhs. "L" and "M"),
and 25% of the total indebtedness at the time of payment, for attorneys' fees, both interest and attorneys fees being stipulated in Exhs. "I" to "17",

inclusive; (5) that the same defendant is indebted to the plaintiff Agustin E. Tonsay in the amount of P933.73, with legal interest thereon from the filing of
the complaint on June 5, 1959; (6) that the same defendant is indebted to the plaintiff Jose L. Espinos in the amount of P1,579.44, with legal interest
thereon from the filing of the complaint on June 5, 1959; (7) that the same defendant is indebted to the plaintiff Bacolod Southern Lumber Yard in the
amount of Pl,048.78, with legal interest thereon from the filing of the complaint on June 5, 1959; (8) that the same defendant is indebted to the plaintiff
Jose Belzunce in the amount of P2,052.10, with legal interest thereon from the filing of the complaint on June 5. 1959; (9) that the defendant Margarita
G. Saldajeno, having purchased at public auction the assets of the defendant partnership over which the plaintiffs have a preferred right, and having sold
said assets for P 45,000.00, is bound to pay to each of the plaintiffs the respective amounts for which the defendant partnership is held indebted to,
them, as above indicated and she is hereby ordered to pay the said amounts, plus attorneys fees equivalent to 25% of the judgment in favor of the
plaintiff Manuel G. Singson, as stipulated in Exhs. "I" "to I-17", inclusive, and 20% of the respective judgments in favor of the other plaintiffs, pursuant to.
Art. 2208, pars. (5) and (11), of the Civil Code of the Philippines; (10) The defendants Leon Garibay and Timoteo Tibungbanua are hereby ordered to
pay to the plaintiffs the respective amounts adjudged in their favor in the event that said plaintiffs cannot recover them from the defendant Margarita G.
Saldajeno and the surety on the bond that she has filed for the lifting of the injunction ordered by this court upon the commencement of this case.
The cross-claim cf the defendant Margarita G. Saldajeno against the defendants Leon Garibay arid Timoteo Tubungbanua is hereby discussed
Margarita G. Saldajeno shall pay the costs.
SO ORDERED. 1
In a resolution promulgated on February 3, 1967, the Court of Appeals certified the records of this case to the Supreme Court "considering that the
resolution of this appeal involves purely questions or question of law over which this Court has no jurisdiction ... 2
On June 5. 1959, Manuel G. Singsong, Jose Belzunce, Agustin E. Tonsay, Jose L. Espinos, Bacolod Southern Lumber Yard, and Oppen, Esteban, Inc.
filed in the Court of first Instance of Negros Occidental, Branch I, against "Isabela Sawmill", Margarita G. Saldajeno and her husband Cecilio Saldajeno,
Leon Garibay, Timoteo Tubungbanua and the Provincial Sheriff of Negros Occidental a complaint the prayer of which reads:
WHEREFORE, the plaintiffs respectfully pray:
(1) That a writ of preliminary injunction be issued restraining the defendant Provincial Sheriff of Negros Occidental from proceeding with the sales at
public auction that he advertised in two notices issued by him on May 18, 1959 in connection with Civil Case No. 5223 of this Honorable Court, until
further orders of this Court; and to make said injunction permanent after hearing on the merits:
(2) That after hearing, the defendant partnership be ordered; to pay to the plaintiff Manuel G. Singson the sum of P3,723.50 plus 1% monthly interest
thereon and 25% attorney's fees, and costs; to pay to the plaintiff JoseBelzunce the sum of P2,052.10, plus 6% annual interest thereon and 25% for
attorney's fees, and costs;to pay to the plaintiff Agustin E. Tonsay the sum of P993.73 plus 6% annual interest thereon and 25% attorney's fees, and
costs; to pay to the plaintiff Bacolod Southern Lumber Yard the sum of P1,048.78, plus 6% annual interest thereon and 25% attorney's fees, and costs;
and to pay to the plaintiff Oppen, Esteban, Inc. the sum of P1,350.89, plus 6% annual interest thereon and 25% attorney's fees and costs:
(3) That the so-called Chattel Mortgage executed by the defendant Leon Garibay and Timoteo Tubungbanua in favor of the defendant Margarita G.
Saldajeno on May 26, 1958 be declared null and void being in fraud of creditors of the defendant partnership and without valuable consideration insofar
as the said defendant is concerned:
(4) That the Honorable Court order the sale of public auction of the assets of the defendnat partnership in case the latter fails to pay the judgment that
the plaintiffs may recover in the action, with instructions that the proceeds of the sale b e applied in payment of said judgment before any part of saod
proceeds is paid to the defendant Margarita G. Saldajeno;
(5) That the defendant Leon Garibay, Timoteo Tubungbanua, and Margarita G. Saldajeno be declared jointly liable to the plaintifs for whatever deficiency
may remain unpaid after the proceeds of the sale of the assets of the defendnt partnership are supplied in payment of the judgment that said plaintiffs
may recover in this action;
(6) The plaintiffs further pray for all other remedies to which the Honorable Court will find them entitled to, with costs to the defendants.
Bacolod City, June 4, 1959. 3
The action was docketed as Civil Case No. 5343 of said court.
In their amended answer, the defendants Margarita G. Saldajeno and her husband, Cecilio Saldajeno, alleged the following special and affirmative
defenses:
xxx xxx xxx
2. That the defendant Isabela Sawmill has been dissolved by virtue of an action entitled "In the matter of: Dissolution of Isabela Sawmill as partnership,
etc. Margarita G. Saldajeno et al. vs. Isabela Sawmill, et al., Civil Case No. 4787, Court of First Instance of Negros Occidental;
3. That as a result of the said dissolution and the decision of the Court of First Instance of Negros Occidental in the aforesaid case, the other defendants
herein Messrs. Leon Garibay and Timoteo Tubungbanua became the successors-in-interest to the said defunct partnership and have bound themselves
to answere for any and all obligations of the defunct partnership to its creditors and third persons;
4. That to secure the performance of the obligations of the other defendants Leon Garibay and Timoteo Tubungbanua to the answering defendant
herein, the former have constituted a chattel mortgage over the properties mentioned in the annexes to that instrument entitled "Assignment of Rights
with Chattel Mortgage" entered into on May 26, 1968 and duly registered in the Register of Deeds of Negros Occidental on the same date:
5. That all the plaintiffs herein, with the exceptionof the plaintiff Oppen, Esteban, Inc. are creditors of Messrs. Leon Garibay and Timoteo Tubungbanua
and not of the defunct Isabela Sawmill and as such they have no cause of action against answering defendant herein and the defendant Isabela
Sawmill;
6. That all the plaintiffs herein, except for the plaintiff Oppen, Esteban, Inc. granted cash advances, gasoline, crude oil, motor oil, grease, rice and nipa to
the defendants Leon Garibay and Timoteo Tubungbanua with the knowledge and notice that the Isabela Sawmill as a former partnership of defendants
Margarita G. Isabela Sawmill as a former partnership of defendants Margarita G. Saldajeno, Leon Garibay and Timoteo Tubungbanua, has already been
dissolved;
7. That this Honorable Court has no jurisdictionover the claims of the plaintiffs Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos, and the
Bacolod Southern Lumber Yard, it appearing that the amounts sought to be recovered by them in this action is less than P2,000.00 each, exclusive of
interests;
8. That in so far as the claims of these alleged creditors plaintiffs are concerned, there is a misjoinder of parties because this is not a class suit, and
therefore this Honorable Court cannot take jurisdictionof the claims for payment;
9. That the claims of plaintiffs-creditors, except Oppen, Esteban, Inc. go beyond the limit mentioned inthe statute of frauds, Art. 1403 of the Civil Code,
and are therefor unenforceable, even assuming that there were such credits and claims;
10. That this Honorable Court has no jurisdiction in this case for it is well settled in law and in jurisprudence that a court of first instance has no power or
jurisdiction to annul judgments or decrees of a coordinate court because other function devolves upon the proper appellate court; (Lacuna, et al. vs.
Ofilada, et al., G.R. No. L-13548, September 30, 1959; Cabigao vs. del Rosario, 44 Phil. 182; PNB vs. Javellana, 49 O.G. No. 1, p.124), as it appears
from the complaint in this case to annul the decision of this same court, but of another branch (Branch II, Judge Querubin presiding). 4
Said defendants interposed a cross-claim against the defendsants Leon Garibay and Timoteo Tubungbanua praying "that in the event that judgment be
rendered ordering defendant cross claimant to pay to the plaintiffs the amount claimed in the latter's complaint, that the cross claimant whatever amount
is paid by the latter to the plaintiff in accordance to the said judgment. ... 5
After trial, judgment was rendered in favor of the plaintiffs and against the defendants.
The defendants, Margarita G. Saldajeno and her husband Cecilio Saldajeno, appealed to the Court of Appeals assigning the following errors:
I
THE COURT A QUO ERRED IN ASSUMING JURISDICTION OVER THE CASE.
II

THE COURT A QUO ERRED IN HOLDING THAT THE ISSUE WITH REFERENCE TO THE WITHDRAWAL OF DEFENDANT-APPELLANT
MARGARITA G. SALDAJENO FROM THE PARTNERSHIP "SABELA SAWMILL" WAS WHETHER OR NOT SUCH WITHDRAWAL CAUSED THE
"COMPLETE DISAPPEARANCE" OR "EXTINCTION" OF SAID PARTNERSHIP.
III
THE COURT A QUO ERRED IN OT HOLDING THAT THE WITHDRAWAL OF DEFENDANT-APPELLANT MARGARITA G. SALDAJENO AS A
PARTNER THEREIN DISSOLVED THE PARTNERSHIP "ISABELA SAWMILL" (FORMED ON JAN. 30, 1951 AMONG LEON GARIBAY, TIMOTEO
TUBUNGBANUA AND SAID MARGARITA G. SALDAJENO).
IV
THE COURT A QUO ERRED IN ISSUING THE WRIT OF PRELIMINARY INJUNCTION.
V
THE COURT A QUO ERRED IN HOLDING THAT THE CHATTEL MORTGAGE DATED MAY 26, 1958, WHICH CONSTITUTED THE JUDGMENT IN
CIVIL CASE NO. 4797 AND WHICH WAS FORECLOSED IN CIVIL CASE NO. 5223 (BOTH OF THE COURT OF FIRST INSTANCE OF NEGROS
OCCIDENTAL) WAS NULL AND VOID.
VI
THE COURT A QUO ERRED IN HOLDING THAT THE CHATTLES ACQUIRED BY DEFENDANT-APPELLANT MARGARITA G. SALDAJENO IN THE
FORECLOSURE SALE IN CIVIL CASE NO. 5223 CONSTITUTED 'ALL THE ASSETS OF THE DEFENDNAT PARTNERSHIP.
VII
THE COURT A QUO ERRED IN HOLDING THAT DEFENDANT-APPELLANT MARGARITA G. SALDAJENO BECAME PRIMARILY LIABLE TO THE
PLAINTFFS-APPELLEES FOR HAVING ACQUIRED THE MORTGAGED CHATTLES IN THE FORECLOSURE SALE CONDUCTED IN CONNECTION
WITH CIVIL CASE NO. 5223.
VIII
THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT MARGARITA G. SALDAJENO LIABLE FOR THE OBLIGATIONS OF MESSRS.
LEON GARIBAY AND TIMOTEO TUBUNGBANUA, INCURRED BY THE LATTER AS PARTNERS IN THE NEW 'ISABELA SAWMILL', AFTER THE
DISSOLUTION OF THE OLD PARTNERSHIP IN WHICH SAID MARGARITA G. SALDAJENO WAS A PARTNER.
IX
THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT MARGARITA G. SALDAJENO LIABLE TO THE PLAINTIFFS-APPELLEES FOR
ATTORNEY'S FEES.
X
THE COURT A QUO ERRED IN NOT DISMISSING THE COMPLAINT OF THE PLAINTIFFS-APPELLEES.
XI
THE COURT A QUO ERRED IN DISMISSING THE CROSS-CLAIM OF DEFENDANT-APPELLANT MARGARITA G. SALDAJENO AGAINST CROSSDEFENDANTS LEON GARIBAY AND TIMOTEO TUBUNGBANUA. 6
The facts, as found by the trial court, are:
At the commencement of the hearing of the case on the merits the plaintiffs and the defendant Cecilio and Margarita g. Saldajeno submittee a Partial
Stipulation of Facts that was marked as Exh. "A". Said stipulation reads as folows:
1. That on January 30, 1951 the defendants Leon Garibay, Margarita G. Saldejeno, and Timoteo Tubungbanua entered into a Contract of Partnership
under the firm name "Isabela Sawmill", a copy of which is hereto attached Appendix "A".
2. That on February 3, 1956 the plaintiff Oppen, Esteban, Inc. sold a Motor Truck and two Tractors to the partnership Isabela Sawmill for the sum of
P20,500.00. In order to pay the said purcahse price, the said partnership agreed to make arrangements with the International Harvester Company at
Bacolod City so that the latter would sell farm machinery to Oppen, Esteban, Inc. with the understanding that the price was to be paid by the partnership.
A copy of the corresponding contract of sle is attached hereto as Appendix "B".
3. That through the method of payment stipulated in the contract marked as Appendix "B" herein, the International Harvester Company has been paid a
total of P19,211.11, leaving an unpaid balance of P1,288.89 as shown in the statements hereto attached as Appendices "C", "C-1", and "C-2".
4. That on April 25, 1958 Civil Case No. 4797 was filed by the spouses Cecilio Saldajeno and Margarita G. Saldajeno against the Isabela Sawmill, Leon
Garibay, and Timoteo Tubungbanua, a copy of which Complaint is attached as Appendix 'D'.
5. That on April 27, 1958 the defendants LeonGaribay, Timoteo Tubungbanua and Margarita G. Saldajeno entered into a "Memorandum Agreement", a
copy of which is hereto attached as Appendix 'E' in Civil Case 4797 of the Court of First Instance of Negros Occidental.
6. That on May 26, 1958 the defendants Leon Garibay, Timoteo Tubungbanua and Margarita G. Saldajeno executed a document entitled "Assignment of
Rights with Chattel Mortgage", a copy of which documents and its Annexes "A" to "A-5" forming a part of the record of the above mentioned Civil Case
No. 4797, which deed was referred to in the Decision of the Court ofFirst Instance of Negros Occidental in Civil Case No. 4797 dated May 29, 1958, a
copy of which is hereto attached as Appendix "F" and "F-1" respectively.
7. That thereafter the defendants Leon Garibay and Timoteo Tubungbanua did not divide the assets and properties of the "Isabela Sawmill" between
them, but they continued the business of said partnership under the same firm name "Isabela Sawmill".
8. That on May 18, 1959 the Provincial Sheriff of Negros Occidental published two (2) notices that he would sell at public auction on June 5, 1959 at
Isabela, Negros Occidental certain trucks, tractors, machinery, officeequipment and other things that were involved in Civil Case No. 5223 of the Court of
First Instance of Negros Occidental, entitled "Margarita G. Saldajeno vs. Leon Garibay, et al." See Appendices "G" and "G-1".
9. That on October 15, 1969 the Provincial Sheriff of Negros Occidental executed a Certificate ofSale in favor of the defendant Margarita G. Saldajeno,
as a result of the sale conducted by him on October 14 and 15, 1959 for the enforcement of the judgment rendered in Civil Case No. 5223 of the Court
of First Instance of Negros Occidental, a certified copy of which certificte of sale is hereto attached as Appendix "H".
10. That on October 20, 1959 the defendant Margarita G. Saldajeno executed a deed of sale in favor of the Pan Oriental Lumber Company transfering to
the latter for the sum of P45,000.00 the trucks, tractors, machinery, and other things that she had purchashed at a public auction referred to in the
foregoing paragraph, a certified true copy of which Deed of Sale is hereto attached as Appendix "I".
11. The plaintiffs and the defendants Cecilio Saldajeno and Margarita G. Saldajeno reserve the right to present additional evidence at the hearing of this
case.
Forming parts of the above copied stipulation are documents that were marked as Appendices "A", "B", "C", "C-1", "C-2", "D", "E", "F", "F-1", "G", "G-1",
"H", and "I".
The plaintiffs and the defendants Cecilio and Margarita G. Saldajeno presented additional evidence, mostly documentary, while the cross-defendants did
not present any evidence. The case hardly involves quetions of fact at all, but only questions of law.
The fact that the defendnat 'Isabela Sawmill' is indebted to theplaintiff Oppen, Esteban, Inc. in the amount of P1,288.89 as the unpaid balance of an
obligation of P20,500.00 contracted on February 3, 10956 is expressly admitted in paragraph 2 and 3 of the Stipulation, Exh. "A" and its Appendices "B",
"C", "C-1", and "C-2".
The plaintiff Agustin E. Tonssay proved by his own testimony and his Exhs. "B" to"G" that from October 6, 1958 to November 8, 1958 he advanced a
total of P4,200.00 to the defendant 'Isabela Sawmill'. Agaist the said advances said defendant delivered to Tonsay P3,266.27 worth of lumber, leavng an
unpaid balance of P933.73, which balance was confirmed on May 15, 1959 by the defendant Leon Garibay, as Manager of the defendant partnership.
The plaintiff Manuel G. Singsong proved by his own testimony and by his Exhs. "J" to "L" that from May 25, 1988 to January 13, 1959 he sold on credit
to the defendnat "Isabela Sawmill" rice and bran, on account of which business transaction there remains an unpaid balance of P3,580.50. The same
plaintiff also proved that the partnership ownes him the sum of P143.00 for nipa shingles bought from him on credit and unpaid for.

The plaintiff Jose L. Espinos proved through the testimony of his witness Cayetano Palmares and his Exhs. "N" to "O-3" that he owns the "Guia Lumber
Yard", that on October 11, 1958 said lumber yard advanced the sum of P2,500.00 to the defendant "Isabela Sawmill", that against the said cash
advance, the defendant partnership delivered to Guia Lumber Yard P920.56 worth of lumber, leaving an outstanding balance of P1,579.44.
The plaintiff Bacolod Southern Lumber Yard proved through the testimony of the witness Cayetano Palmares an its Exhs. "P" to "Q-1" that on October
11, 1958 said plaintiff advanced the sum of P1,500.00 to the defendsant 'Isabela Sawmill', that against the said cash advance, the defendant partnership
delivered to the said plaintiff on November 19, 1958 P377.72 worth of lumber, and P73.54 worth of lumber on January 27, 1959, leaving an outstanding
balance of P1,048.78.
The plaintiff Jose Balzunce proved through the testimony of Leon Garibay whom he called as his witness, and through the Exhs. "R" to "E" that from
September 14, 1958 to November 27, 1958 he sold to the defedant "Isabela Sawmill" gasoline, motor fuel, and lubricating oils, and that on account of
said transactions, the defendant partnersip ownes him an unpaid balance of P2,052.10.
Appendix "H" of the stipulation Exh. "A" shows that on October 13 and 14, 1959 the Provincial Sheriff sold to the defendant Margrita G. Saldajeno for
P38,040.00 the assets of the defendsant "Isabela Sawmill" which the defendants Leon G. Garibay and Timoteo Tubungbanua had mortgaged to her, and
said purchase price was applied to the judgment that she has obtained against he said mortgagors in Civil Case No. 5223 of this Court.
Appendix "I" of the same stipulation Exh. "A" shows that on October 20, 1959 the defendant Margarita G. Saldajeno sold to the PAN ORIENTAL
LUMBER COMPANY for P45,000.00 part of the said properties that she had bought at public aucton one week before.
xxx xxx xxx 7
It is contended by the appellants that the Court of First Instance of Negros Occidental had no jurisdiction over Civil Case No. 5343 because the plaintiffs
Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos and the Bacolod Southern Lumber Yard sought to collect sums of moeny, the biggest amount
of which was less than P2,000.00 and, therefore, within the jurisdiction of the municipal court.
This contention is devoid of merit because all the plaintiffs also asked for the nullity of the assignment of right with chattel mortgage entered into by and
between Margarita G. Saldajeno and her former partners Leon Garibay and Timoteo Tubungbanua. This cause of action is not capable of pecuniary
estimation and falls under the jurisdiction of the Court of First Instnace. Where the basic issue is something more than the right to recover a sum of
money and where the money claim is purely incidental to or a consequence of the principal relief sought, the action is as a case where the subject of the
litigation is not capable of pecuniary estimation and is cognizable exclusively by the Court of First Instance.
The jurisdiction of all courts in the Philippines, in so far as the authority thereof depends upon the nature of litigation, is defined in the amended Judiciary
Act, pursuant to which courts of first instance shall have exclusive original jurisdiction over any case the subject matter of which is not capable of
pecuniary estimation. An action for the annulment of a judgment and an order of a court of justice belongs to th category. 8
In determining whether an action is one the subject matter of which is not capable of pecuniary estimation this Court has adopted the criterion of first
ascertaining the nature of the principal action or remedy sought. If it is primarily for the recovery of a sum of money, the cliam is considered capable of
pecuniary estimation, and whether jurisdiciton is in the municipal courts or in the courts of first instance would depend on the amount of the claim.
However, where the basic issue is something other than the right to recover a sum of money, where the money claim is purely incidental to, or a
consequence of, the principal relief sought, this Court has considered such actions as cases where the subject ogf the litigation may not be estimated in
terms of money, and are cognizable exclusively by courts of first instance.
In Andres Lapitan vs. SCANDIA, Inc., et al., 9 this Court held:
Actions for specific performance of contracts have been expressly prounounced to be exclusively cognizable by courts of first instance: De Jesus vs.
Judge Garcia, L-26816, February 28, 1967;Manufacturers' Distributors, Inc. vs. Yu Siu Liong, L-21285, April 29, 1966. And no cogent reason appears,
and none is here advanced by the parties, why an actin for rescission (or resolution) should be differently treated, a "rescission" being a counterpart, so
to speak, of "specific performance'. In both cases, the court would certainly have to undertake an investigation into facts that would justify one act of the
other. No award for damages may be had in an action for resicssion without first conducting an inquiry into matters which would justify the setting aside
of a contract, in the same manner that courts of first instance would have to make findings of fact and law in actions not capable of pecuniary
estimnation espressly held to be so by this Court, arising from issues like those arised in Arroz v. Alojado, et al., L-22153, March 31, 1967 (the legality or
illegality of the conveyance sought for and the determination of the validity of the money deposit made); De Ursua v. Pelayo, L-13285, April 18, 1950
(validity of a judgment); Bunayog v. Tunas, L-12707, December 23, 1959 (validity of a mortgage); Baito v. Sarmiento, L-13105, August 25, 1960 (the
relations of the parties, the right to support created by the relation, etc., in actions for support); De Rivera, et al. v. Halili, L-15159, September 30, 1963
(the validity or nullity of documents upon which claims are predicated). Issues of the same nature may be raised by a party against whom an action for
rescission has been brought, or by the plaintiff himself. It is, therefore, difficult to see why a prayer for damages in an action for rescission should be
taken as the basis for concluding such action for resiccison should be taken as the basis for concluding such action as one cpable of pecuniary
estimation - a prayer which must be included in the main action if plaintiff is to be compensated for what he may have suffered as a result of the breach
committed by defendant, and not later on precluded from recovering damages by the rule against splitting a cause of action and discouraging multiplicitly
of suits.
The foregoing doctrine was reiterated in The Good Development Corporation vs. Tutaan, 10 where this Court held:
On the issue of which court has jurisdiction, the case of SENO vs. Pastolante, et al., is in point. It was ruled therein that although the purposes of an
action is to recover an amount plus interest which comes within the original jurisidction of the Justice of the Peace Court, yet when said action involves
the foreclosure of a chattel mortgage covering personal properties valued at more than P2,000, (now P10,000.00) the action should be instituted before
the Court of First Instance.
In the instanct, case, the action is to recover the amount of P1,520.00 plus interest and costs, and involves the foreclosure of a chattel mortgage of
personal properties valued at P15,340.00, so that it is clearly within the competence of the respondent court to try and resolve.
In the light of the foregoing recent rulings, the Court of First Instance of Negros Occidental did no err in exercising jurisidction over Civil Case No. 5343.
The appellants also contend that the chattel mortgage may no longer be annulled because it had been judicially approved in Civil Case No. 4797 of the
Court of First Instance of Negros Occidental and said chattel mortgage had been ordered foreclosed in Civil Case No. 5223 of the same court.
On the question of whether a court may nullify a final judgment of another court of co-equal, concurrent and coordinate jusridiction, this Court originally
ruled that:
A court has no power to interfere with the judgments or decrees of a court of concurrent or coordinate jurisdiction having equal power to grant the relief
sought by the injunction.
The various branches of the Court of First Instance of Manila are in a sense coordinate courts and cannot be allowed to interfere with each others'
judgments or decrees. 11
The foregoing doctrine was reiterated in a 1953 case 12 where this Court said:
The rule which prohibits a Judge from intertering with the actuations of the Judge of another branch of the same court is not infringed when the Judge
who modifies or annuls the order isued by the other Judge acts in the same case and belongs to the same court (Eleazar vs. Zandueta, 48 Phil. 193. But
the rule is infringed when the Judge of a branch of the court issues a writ of preliminary injunction in a case to enjoint the sheriff from carrying out an
order by execution issued in another case by the Judge of another branch of the same court. (Cabigao and Izquierdo vs. Del Rosario et al., 44 Phil.
182).
This ruling was maintained in 1967. In Mas vs. Dumaraog, 13 the judgment sought to be annulled was rendered by the Court of First Instance of Iloilo
and the action for annullment was filed with the Court of First Instance of Antique, both courts belonging to the same Judicial District. This Court held
that:
The power to open, modify or vacant a judgment is not only possessed by but restricted to the court in which the judgment was rendered.
The reason of this Court was:

Pursuant to the policy of judicial stability, the judgment of a court of competent jurisdiction may not be interfered with by any court concurrrent
jurisdiction.
Again, in 1967 this Court ruled that the jurisdiction to annul a judgement of a branch of the court of First Instance belongs solely to the very same branch
which rendered the judgement. 14
Two years later, the same doctrine was laid down in the Sterling Investment case. 15
In December 1971, however, this court re-examined and reversed its earlier doctrine on the matter. In Dupla v. Court of Appeals, 16 this Tribunal,
speaking through Mr. Justice Villamor declared:
... the underlying philosophy expressed in the Dumara-og case, the policy of judicial stability, to the end that the judgment of a court of competent
jurisdiction may not be interfered with by any court of concurrent jurisdiction may not be interfered with by any court of concurrent jurisdiciton, this Court
feels that this is as good an occasion as any to re-examine the doctrine laid down ...
In an action to annul the judgment of a court, the plaintiff's cause of action springs from the alleged nullity of the judgment based on one ground or
another, particularly fraud, which fact affords the plaintiff a right to judicial interference in his behalf. In such a suit the cause of action is entirely different
from that in the actgion which grave rise to the judgment sought to be annulled, for a direct attack against a final and executory judgment is not a
incidental to, but is the main object of the proceeding. The cause of action in the two cases being distinct and separate from each other, there is no
plausible reason why the venue of the action to annul the judgment should necessarily follow the venue of the previous action ...
The present doctrine which postulate that one court or one branch of a court may not annul the judgment of another court or branch, not only opens the
door to a violation of Section 2 of Rule 4, (of the Rules of Court) but also limit the opportunity for the application of said rule.
Our conclusion must therefore be that a court of first instance or a branch thereof has the authority and jurisdiction to take cognizance of, and to act in,
suit to annul final and executory judgment or order rendered by another court of first instance or by another branch of the same court...
In February 1974 this Court reiterated the ruling in the Dulap case. 17
In the light of the latest ruling of the Supreme Court, there is no doubt that one branch of the Court of First Instance of Negros Occidental can take
cognizance of an action to nullify a final judgment of the other two branches of the same court.
It is true that the dissolution of a partnership is caused by any partner ceasing to be associated in the carrying on of the business. 18 However, on
dissolution, the partnershop is not terminated but continuous until the winding up to the business. 19
The remaining partners did not terminate the business of the partnership "Isabela Sawmill". Instead of winding up the business of the partnership, they
continued the business still in the name of said partnership. It is expressly stipulated in the memorandum-agreement that the remaining partners had
constituted themselves as the partnership entity, the "Isabela Sawmill". 20
There was no liquidation of the assets of the partnership. The remaining partners, Leon Garibay and Timoteo Tubungbanua, continued doing the
business of the partnership in the name of "Isabela Sawmill". They used the properties of said partnership.
The properties mortgaged to Margarita G. Saldajeno by the remaining partners, Leon Garibay and Timoteo Tubungbanua, belonged to the partnership
"Isabela Sawmill." The appellant, Margarita G. Saldajeno, was correctly held liable by the trial court because she purchased at public auction the
properties of the partnership which were mortgaged to her.
It does not appear that the withdrawal of Margarita G. Saldajeno from the partnership was published in the newspapers. The appellees and the public in
general had a right to expect that whatever, credit they extended to Leon Garibay and Timoteo Tubungbanua doing the business in the name of the
partnership "Isabela Sawmill" could be enforced against the proeprties of said partnership. The judicial foreclosure of the chattel mortgage executed in
favor of Margarita G. Saldajeno did not relieve her from liability to the creditors of the partnership.
The appellant, margrita G. Saldajeno, cannot complain. She is partly to blame for not insisting on the liquidaiton of the assets of the partnership. She
even agreed to let Leon Garibay and Timoteo Tubungbanua continue doing the business of the partnership "Isabela Sawmill" by entering into the
memorandum-agreement with them.
Although it may be presumed that Margarita G. Saldajeno had action in good faith, the appellees aslo acted in good faith in extending credit to the
partnership. Where one of two innocent persons must suffer, that person who gave occasion for the damages to be caused must bear the
consequences. Had Margarita G. Saldajeno not entered into the memorandum-agreement allowing Leon Garibay and Timoteo Tubungbanua to continue
doing the business of the aprtnership, the applees would not have been misled into thinking that they were still dealing with the partnership "Isabela
Sawmill". Under the facts, it is of no moment that technically speaking the partnership "Isabela Sawmill" was dissolved by the withdrawal therefrom of
Margarita G. Saldajeno. The partnership was not terminated and it continued doping business through the two remaining partners.
The contention of the appellant that the appleees cannot bring an action to annul the chattel mortgage of the propertiesof the partnership executed by
Leon Garibay and Timoteo Tubungbanua in favor of Margarita G. Saldajeno has no merit.
As a rule, a contract cannot be assailed by one who is not a party thereto. However, when a contract prejudices the rights of a third person, he may file
an action to annul the contract.
This Court has held that a person, who is not a party obliged principally or subsidiarily under a contract, may exercised an action for nullity of the
contract if he is prejudiced in his rights with respect to one of the contracting parties, and can show detriment which would positively result to him from
the contract in which he has no intervention. 21
The plaintiffs-appellees were prejudiced in their rights by the execution of the chattel mortgage over the properties of the partnership "Isabela Sawmill" in
favopr of Margarita G. Saldajeno by the remaining partners, Leon Garibay and Timoteo Tubungbanua. Hence, said appelees have a right to file the
action to nullify the chattel mortgage in question.
The portion of the decision appealed from ordering the appellants to pay attorney's fees to the plaintiffs-appellees cannot be sustained. There is no
showing that the appellants displayed a wanton disregard of the rights of the plaintiffs. Indeed, the appellants believed in good faith, albeit erroneously,
that they are not liable to pay the claims.
The defendants-appellants have a right to be reimbursed whatever amounts they shall pay the appellees by their co-defendants Leon Garibay and
Timoteo Tubungbanua. In the memorandum-agreement, Leon Garibay and Timoteo Tubungbaun undertook to release Margarita G. Saldajeno from any
obligation of "Isabela Sawmill" to third persons. 22
WHEREFORE, the decision appealed from is hereby affirmed with the elimination of the portion ordering appellants to pay attorney's fees and with the
modification that the defendsants, Leon Garibay and Timoteo Tubungbanua, should reimburse the defendants-appellants, Margarita G. Saldajeno and
her husband Cecilio Saldajeno, whatever they shall pay to the plaintiffs-appellees, without pronouncement as to costs.
SO ORDERED.
Limited Partnership
Articles 1843-1867
A. Nature (Arts. 1843-1849; 1867)
B. Rights/Duties/Liabilities of General Partners (Arts. 1850 and 1853)
C. Rights/Duties/Liabilities of Limited Partners (Arts. 1848; 1851; 1854-1859)
D. Dissolution and Winding Up (Arts. 1860; 1863-1866)
Agency
Nature, Form and Kinds of Agency
Articles 1868-1883
A.
Agency as a contract (Art. 1868)