Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 70403 July 7, 1989
SANTIAGO SYJUCO, INC., petitioner,
vs.
HON. JOSE P. CASTRO, AS PRESIDING JUDGE OF THE
REGIONAL TRIAL COURT OF THE NATIONAL CAPITAL
JUDICIAL REGION, BRANCH LXXXV, QUEZON CITY, THE CITY
SHERIFF OF THE CITY OF MANILA, THE CITY REGISTER OF
DEEDS OF THE CITY OF MANILA, EUGENIO LIM, ARAMIS LIM,
MARIO LIM, PAULINO LIM, LORENZO LIM, NILA LIM and/ or
THE PARTNERSHIP OF THE HEIRS OF HUGO LIM and
ATTORNEY PATERNO P. CANLAS, respondents.
Doroteo B. Daguna and Felix D. Carao for petitioner.
Paterno Canlas for private respondents.
NARVASA, J.:
This case may well serve as a textbook example of how judicial processes,
designed to promote the swift and efficient disposition of disputes at law,
can be so grossly abused and manipulated as to produce precisely the
opposite result; how they can be utilized by parties with small scruples to
forestall for an unconscionably long time so essentially simple a matter as
making the security given for a just debt answer for its payment.
The records of the present proceedings and of two other cases already
decided by this Court expose how indeed the routine procedure of an
extrajudicial foreclosure came by dint of brazen forum shopping and other
devious maneuvering to grow into a veritable thicket of litigation from
which the mortgagee has been trying to extricate itself for the last twenty
years.
Back in November 1964, Eugenio Lim, for and in his own behalf and as
attorney-in-fact of his mother, the widow Maria Moreno (now deceased) and
of his brother Lorenzo, together with his other brothers, Aramis, Mario and
Paulino, and his sister, Nila, all hereinafter collectively called the Lims,
borrowed from petitioner Santiago Syjuco, Inc. (hereinafter, Syjuco only)
the sum of P800,000.00. The loan was given on the security of a first
mortgage on property registered in the names of said borrowers as owners in
common under Transfer Certificates of Title Numbered 75413 and 75415 of
the Registry of Deeds of Manila. Thereafter additional loans on the same

security were obtained by the Lims from Syjuco, so that as of May 8, 1967,
the aggregate of the loans stood at P2,460,000.00, exclusive of interest, and
the security had been augmented by bringing into the mortgage other
property, also registered as owned pro indiviso by the Lims under two titles:
TCT Nos. 75416 and 75418 of the Manila Registry.
There is no dispute about these facts, nor about the additional circumstance
that as stipulated in the mortgage deed the obligation matured on November
8, 1967; that the Lims failed to pay it despite demands therefor; that Syjuco
consequently caused extra-judicial proceedings for the foreclosure of the
mortgage to be commenced by the Sheriff of Manila; and that the latter
scheduled the auction sale of the mortgaged property on December 27, 1968.
1

The attempt to foreclose triggered off a legal battle that has dragged on for more
than twenty years now, fought through five (5) cases in the trial courts, 2 two (2) in
the Court of Appeals, 3 and three (3) more in this Court, 4 with the end only now in
sight.

1. CIVIL CASE NO. 75180, CFI MANILA, BR.5; CA-G.R. NO. 00242-R;
G.R. NO. L-34683
To stop the foreclosure, the Lims through Atty. Marcial G. Mendiola,
who was later joined by Atty. Raul Correa filed Civil Case No. 75180 on
December 24,1968 in the Court of First Instance of Manila (Branch 5). In
their complaint they alleged that their mortgage was void, being usurious for
stipulating interest of 23% on top of 11 % that they had been required to pay
as "kickback." An order restraining the auction sale was issued two days
later, on December 26,1968, premised inter alia on the Lims' express waiver
of "their rights to the notice and re-publication of the notice of sale which
may be conducted at some future date." 5
On November 25,1970, the Court of First Instance (then presided over by
Judge Conrado M. Vasquez 6 rendered judgment finding that usury tained the
mortgage without, however, rendering it void, declaring the amount due to be only
Pl,136,235.00 and allowing the foreclosure to proceed for satisfaction of the
obligation reckoned at only said amount . 7

Syjuco moved for new trial to enable it to present additional evidence to

overthrow the finding of usury, and the Court ordered the case reopened for
that purpose. The Lims tried to negate that order of reopening in the Court of
Appeals, the proceedings being docketed as CA-G.R. No. 00242-R. They
failed. The Court of Appeals upheld the Trial Court. The Lims then sought
to nullify this action of the Appellate Court; towards that end, they filed with
this Court a petition for certiorari and prohibition, docketed as G.R. No. L34683. But here, too, they failed; their petition was dismissed. 8
Thereafter, and on the basis of the additional evidence adduced by Syjuco on

remand of the case from this Court, the Trial Court promulgated an amended
decision on August 16, 1972, reversing its previous holding that usury had
flawed the Lims' loan obligation. It declared that the principal of said
obligation indeed amounted to P2,460,000.00, exclusive of interest at the
rate of 12% per annum from November 8, 1967, and, that obligation being
already due, the defendants (Syjuco and the Sheriff of Manila) could
proceed with the extrajudicial foreclosure of the mortgage given to secure its
satisfaction. 9
2. APPEAL FROM CIVIL CASE NO. 75180; CA-G.R. NO. 51752; G.R.
NO. L-45752
On September 9, 1972, Atty. Paterno R. Canlas entered his appearance in
Civil Case No. 75180 as counsel for the Lims in collaboration with Atty.
Raul Correa, and on the same date appealed to the Court of Appeals from the
amended decision of August 16, 1972. 10 In that appeal, which was docketed as
CA G.R. No. 51752, Messrs. Canlas and Correa prayed that the loans be declared
usurious; that the principal of the loans be found to be in the total amount of
Pl,269,505.00 only, and the interest thereon fixed at only 6% per annum from the
filing of the complaint; and that the mortgage be also pronounced void ab initio. 11

The appeal met with no success. In a decision promulgated on October

25,1976, the Court of Appeals affirmed in toto the Trial Court's amended
decision. 12
The Lims came to this Court seeking reversal of the appellate Court's
decision. However, their petition for review-filed in their behalf by Canlas,
and Atty. Pio R. Marcos, and docketed as G.R. No. L-45752-was denied for
lack of merit in a minute resolution dated August 5, 1977. The Lims' motion
for reconsideration was denied and entry of judgment was made on
September 24,1977. 13 Here the matter should have ended; it marked only the
beginning of Syjuco's travails.

3. CIVIL CASE NO.112762, CFI MANILA BRANCH 9

Syjuco then resumed its efforts to proceed with the foreclosure. It caused the
auction sale of the mortgaged property to be scheduled on December 20,
1977, only to be frustrated again by another action filed by the Lims on
December 19, 1977, docketed as Civil Case No. 112762 of the Court of First
Instance of Manila. 14 The action sought to stop the sale on the ground that the
notice of foreclosure had not been republished; this, notwithstanding that as earlier
stressed, the restraining order of December 26, 1968 issued in Civil Case No
75180 explicitly declared itself to be predicated on the Lims' waiver of "their
rights to the notice and republication of the notice of sale which may be conducted
at some future date." 15 An order restraining the sale issued in the case, although
the petition for preliminary injunction was subsequently denied. A supplemental
complaint was also filed by the Lims seeking recovery of some Pl million in

damages allegedly suffered by reason of said lack of republication. 16

4. CIVIL CASE NO. 75180

That very same claim that there had been no republication of the notice
of sale, which was the foundation of the Lims' action in Civil Case No.
112762 as aforesaid was made by the Lims the basis of an urgent motion
filed on December 15, 1977 in Civil Case No. 75180, in which, as earlier
narrated, the judgement authorizing the foreclosure had been affirmed by
both the Court of Appeals and this Court, and had become final and
executory. And that motion sought exactly the same remedy prayed for in
Civil Case No. 112762 (filed by the Lims four [4] days later, on December
19, 1977), i.e., the prevention of the auction sale. The Court -- Branch 5,
then presided over by Judge Jose H. Tecson granted the restraining order
on December 19, 1977, 17 the very same day that the Lims commenced Civil
Case No. 112762 in the same Court and in which subsequent action they asked for
and obtained a similar restraining order.

The Lims' counsel thus brought about the anomalous situation of two (2)
restraining orders directed against the same auction sale, based on the same
ground, issued by different courts having cognizance of two (2) separate
proceedings instituted for identical objectives. This situation lasted for all of
three (3) years, despite the republication of the notice of sale caused by
Syjuco in January, 1978 in an effort to end all dispute about the matter, and
despite Judge Tecson's having been made aware of Civil Case No. 112762.
It should have been apparent to Judge Tecson that there was nothing more to
be done in Civil Case No. 75180 except to enforce the judgment, already
final and executory, authorizing the extrajudicial foreclosure of the
mortgage, a judgment sanctioned, to repeat, by both the Court of Appeals
and the Supreme Court; that there was in truth no need for another
publication of the notice since the Lims had precisely waived such
republication, this waiver having been the condition under which they had
earlier obtained an order restraining the first scheduled sale; that, in any
event, the republication effected by Syjuco had removed the only asserted
impediment to the holding of the same; and that, finally, the Lims were
acting in bad faith: they were maintaining proceedings in two (2) different
courts for essentially the same relief. 18 Incredibly, not only did Judge Tecson
refuse to allow the holding of the auction sale, as was the only just and lawful
course indicated by the circumstances, 19 he authorized the Lims to sell the
mortgaged property in a private sale, 20 with the evident intention that the proceeds
of the sale, which he directed to be deposited in court, would be divided between
Syjuco and the Lims; this, in line with the patently specious theory advocated by
the Lims' counsel that the bond flied by them for the postponement of the sale, set

at P6 million by the Court (later increased by P 3 million) had superseded and

caused novation of the mortgage. 21 The case lay fallow for a year, certain other,
incidents arising and remaining unresolved on account of numerous
postponements.

5. G.R. No. L-56014

Finally, on January 28, 1981, Syjuco betook itself to this Court, presumably
no longer disposed to await Judge Tecson's pleasure or the Lims'
convenience. It filed a petition for certiorari and prohibition, docketed as
G.R. No. L-56014, alleging that in Civil Case No. 75180, Judge Tecson had
gravely abused discretion in:
(1) unreasonably delaying the foreclosure of the mortgage;
(2) entertaining the Lims' motion to discharge said mortgage grounded on
the theory that it had been superseded and novated by the Lims' act of filing
the bond required by Judge Tecson in connection with the postponement of
the foreclosure sale, and unreasonably delaying resolution of the issue; and
(3) authorizing the Lims to negotiate and consummate the private sale of the
mortgaged property and motu proprio extending the period granted the Lims
for the purpose, in disregard of the final and executory judgment rendered in
the case.
By judgment rendered on September 21, 1982, after due proceedings, this
Court 22 issued the writ prayed for and nullified the orders and actuations of Judge
Tecson in Civil Case No. 75180. The judgment declared that:

(1) the republication by Syjuco of the notice of foreclosure sale rendered the
complaint in Civil Case No. 112762 moot and academic; hence, said case
could not operate to bar the sale;
(2) the Lims' bonds (of P 6 million and P 3 million), having by the terms
thereof been given to guarantee payment of damages to Syjuco and the
Sheriff of Manila resulting from the suspension of the auction sale, could not
in any sense and from any aspect have the effect of superseding the
mortgage or novating it;
(3) in fact, the bonds had become worthless when, as shown by the record,
the bondsman's authority to transact non-life insurance business in the
Philippines was not renewed, for cause, as of July 1, 1981.
The decision consequently decreed that the Sheriff of Manila should proceed
with the mortgage sale, there being no further impediment thereto. 23
Notice of the decision was served on the Lims, through Atty. Canlas, on
October 2, 1982. A motion for reconsideration was filed, 24 but the same was
denied with finality for lack of merit and entry of final judgment was made on
March 22,1983. 25

6. THE SECRET ACTION CIVIL CASE NO. Q-36845 OF THE

REGIONAL TRIAL COURT, QUEZON CITY, JUDGE JOSE P. CASTRO,

PRESIDING
Twelve (12) days after the Lims were served, as above mentioned, with
notice of this Court's judgment in G.R. No. 56014, or on October 14,1982,
they caused the filing with the Regional Trial Court of Quezon City of still
another action, the third, also designed, like the first two, to preclude
enforcement of the mortgage held by Syjuco.
This time the complaint was presented, not in their individual names, but in
the name of a partnership of which they themselves were the only partners:
"Heirs of Hugo Lim." The complaint advocated the theory that the mortgage
which they, together with their mother, had individually constituted (and
thereafter amended during the period from 1964 to 1967) over lands
standing in their names in the Property Registry as owners pro indiviso, in
fact no longer belonged to them at that time, having been earlier deeded over
by them to the partnership, "Heirs of Hugo Lim", more precisely, on March
30, 1959, hence, said mortgage was void because executed by them without
authority from the partnership.
The complaint was signed by a lawyer other than Atty. Canlas, but the
records disclose that Atty. Canlas took over as counsel as of November
4,1982. The case, docketed as Civil Case No. Q-39295, was assigned to
Branch 35 of the Quezon City Regional Trial Court, then presided over by
Judge Jose P. Castro.
Judge Castro issued a restraining order on October 15, 1982. Then, Sheriff
Perfecto G. Dalangin submitted a return of summons to the effect that on
December 6, 1982 he
.. served personally and left a copy of summons together with a copy of
Complaint and its annexes x x upon defendant's office formerly at 313
Quirino Ave., Paranaque, Metro-Manila and now at 407 Dona Felisa Syjuco
Building, Remedios St., corner Taft Avenue, Manila, through the Manager, a
person of sufficient age and discretion duly authorized to receive service of
such nature, but who refused to accept service and signed receipt thereof. 26
A vaguer return will be hard to find. It is impossible to discern from it where
precisely the summons was served, whether at Quirino Avenue, Paranaque,
or Taft Avenue, Manila; and it is inexplicable that the name of the person
that the sheriff had been able to identify as the manager is not stated, the
latter being described merely as "a person of sufficient age and discretion."
In any event, as it was to claim later, Syjuco asserts that it was never so
served with summons, or with any other notice, pleading, or motion relative
to the case, for that matter.
On February 10, 1983, Atty. Canlas filed an ex-parte motion to declare

Syjuco in default. The order of default issued the next day, also directing the
plaintiff partnership to present evidence ex parte within three (3) days. On
February 22, 1983, judgment by default was rendered, declaring void the
mortgage in question because executed by the Lims without authority from
the partnership which was and had been since March 30,1959 the exclusive
owner of the mortgaged property, and making permanent an injunction
against the foreclosure sale that had issued on January 14,1983. 27 Service of
notice of the default judgment was, according to the return of the same Sheriff
Perfecto Dalangin, effected on the following day, February 23, 1983. His return is
a virtual copy of his earlier one regarding service of summons: it also states the
place of service as the defendant's office, either at its former location, 313 Quirino
Avenue, Paranaque, or at the later address, 407 Dona Felisa, Syjuco Building, Taft
Avenue, Manila; and it also fails to identify the person on whom service was
made, describing him only as "the clerk or person in charge" of the office. 28

Unaccountably, and contrary to what might be expected from the rapidity

with which it was decided-twelve (12) days from February 10, 1983, when
the motion to declare defendant Syjuco in default was filed-the case was
afterwards allowed by Atty. Canlas to remain dormant for seventeen (17)
months. He made no effort to have the judgment executed, or to avail of it in
other actions instituted by him against Syjuco. The judgment was not to be
invoked until sometime in or after July, 1984, again to stop the extrajudicial
mortgage sale scheduled at or about that time at the instance of Syjuco, as
shall presently be recounted.
7. Other Actions in the Interim:
a. CIVIL CASE No. 83-19018, RTC MANILA
While the Lims, through their partnership ("Heirs of Hugo Lim"), were
prosecuting their action in the sala of Judge Castro, as above narrated,
Syjuco once again tried to proceed with the foreclosure after entry of
judgment had been made in G.R. No. 56014 on March 22, 1983. It
scheduled the auction sale on July 30, 1983. But once again it was frustrated.
Another obstacle was put up by the Lims and their counsel, Atty. Canlas.
This was Civil Case No. 83-19018 of the Manila Regional Trial Court. The
case was filed to stop the sale on the theory that what was sought to be
realized from the sale was much in excess of the judgment in Civil Case No.
75180, and that there was absence of the requisite notice. It is significant that
the judgment by default rendered by Judge Castro in Civil Case No. Q36485 was not asserted as additional ground to support the cause of action.
Be this as it may, a restraining order was issued on July 20,1983 in said
Civil Case No. 83-9018. 29
b. CIVIL CASE NO. Q-32924, RTC QUEZON CITY

What the outcome of this case, No. 83-19018, is not clear. What is certain is
(1) that the auction sale was re-scheduled for September 20, 1983, (2) that it
was aborted because the Lims managed to obtain still another restraining
order in another case commenced by their lawyer, Atty. Canlas: Civil Case
No. Q-32924 of the Court of First Instance of Quezon City, grounded on the
proposition that the publication of the notice of sale was defective; and (3)
that the action was dismissed by the Regional Trial Court on February 3,
1984. 30
No other salient details about these two (2) cases are available in the
voluminous records before the Court, except that it was Atty. Canlas who
had filed them. He admits having done so unequivocally: "Thus, the
undersigned counsel filed injunction cases in Civil Case No. 83-19018 and
Civil Case No. 39294, Regional Trial Courts of Manila and Quezon City. ...
" 31
7. RE-ACTIVATION OF CIVIL CASE NO. Q-36485, RTC, Q QUEZON
CITY, BRANCH XXXV
Upon the dismissal of Civil Case No. 39294, Syjuco once more resumed its
efforts to effect the mortgage sale which had already been stymied for more
than fifteen (15) years. At its instance, the sheriff once again set a date for
the auction sale. But on the date of the sale, a letter of Atty. Canlas was
handed to the sheriff drawing attention to the permanent injunction of the
sale embodied in the judgment by default rendered by Judge Castro in Civil
Case No. Q- 36485. 32 Syjuco lost no time in inquiring about Civil Case No. Q36485, and was very quickly made aware of the judgment by default therein
promulgated and the antecedent events leading thereto. It was also made known
that on July 9, 1984, Judge Castro had ordered execution of the judgment; that
Judge Castro had on July 16, 1984 granted Atty. Canlas' motion to declare
cancelled the titles to the Lims' mortgaged properties and as nun and void the
annotation of the mortgage and its amendments on said titles, and to direct the
Register of Deeds of Manila to issue new titles, in lieu of the old, in the name of
the partnership, "Heirs of Hugo Lim." 33

On July 17,1984, Syjuco filed in said Civil Case No. Q-36485 a motion for
reconsideration of the decision and for dismissal of the action, alleging that
it had never been served with summons; that granting arguendo that service
had somehow been made, it had never received notice of the decision and
therefore the same had not and could not have become final; and that the
action should be dismissed on the ground of bar by prior judgment premised
on the final decisions of the Supreme Court in G.R. No. L-45752 and G.R.
No. 56014.
Two other motions by Syjuco quickly followed. The first, dated July 20,

1984, prayed for abatement of Judge Castro's order decreeing the issuance of
new certificates of title over the mortgaged lands in the name of the plaintiff
partnership. 34 The second, filed on July 24, 1984, was a supplement to the
motion to dismiss earlier filed, asserting another ground for the dismissal of the
action, i.e., failure to state a cause of action, it appearing that the mortgaged
property remained registered in the names of the individual members of the Lim
family notwithstanding that the property had supposedly been conveyed to the
plaintiff partnership long before the execution of the mortgage and its
amendments,-and that even assuming ownership of the property by the
partnership, the mortgage executed by all the partners was valid and binding under
Articles 1811 and 1819 of the Civil Code. 35

The motions having been opposed in due course by the plaintiff partnership,
they remained pending until January 31, 1985 when Syjuco moved for their
immediate resolution. Syjuco now claims that Judge Castro never acted on
the motions. The latter however states that that he did issue an order on
February 22, 1985 declaring that he had lost jurisdiction to act thereon
because, petitio principii, his decision had already become final and
executory.
8. G.R.NO.L-70403; THE PROCEEDING AT BAR
For the third time Syjuco is now before this Court on the same matter. It
filed on April 3, 1985 the instant petition for certiorari, prohibition and
mandamus. It prays in its petition that the default judgment rendered against
it by Judge Castro in said Civil Case No. Q-36485 be annulled on the ground
of lack of service of summons, res judicata and laches, and failure of the
complaint to state a cause of action; that the sheriff be commanded to
proceed with the foreclosure of the mortgage on the property covered by
Transfer Certificates of Title Numbered 75413, 75415, 75416 and 75418 of
the Manila Registry; and that the respondents the Lims, Judge Castro, the
Sheriff and the Register of Deeds of Manila, the partnership known as
"Heirs of Hugo Lim," and Atty. Paterno R. Canlas, counsel for-the Lims and
their partnership-be perpetually enjoined from taking any further steps to
prevent the foreclosure.
The comment filed for the respondents by Atty. Canlas in substance alleged
that (a) Syjuco was validly served with summons in Civil Case No. Q36485, hence, that the decision rendered by default therein was also valid
and, having been also duly served on said petitioner, became final by
operation of law after the lapse of the reglementary appeal period; (b)
finality of said decision removed the case from the jurisdiction of the trial
court, which was powerless to entertain and act on the motion for
reconsideration and motion to dismiss; (c) the petition was in effect an

action to annul a judgment, a proceeding within the original jurisdiction of

the Court of Appeals; (d) the plea of res judicata came too late because
raised after the decision had already become final; moreover, no Identity of
parties existed between the cases invoked, on the one hand, and Civil Case
No. Q-36485, on the other, the parties in the former being the Lims in their
personal capacities and in the latter, the Lim Partnership, a separate and
distinct juridical entity; and the pleaded causes of action being different,
usury in the earlier cases and authority of the parties to encumber
partnership property in the case under review; (e) the plea of laches also
came too late, not having been invoked in the lower court; and (f) the
property involved constituted assets of the Lim partnership, being registered
as such with the Securities and Exchange Commission. 36
On his own behalf Atty. Canlas submitted that he had no knowledge of the
institution of Civil Case No. Q-36485 (though he admitted being
collaborating counsel in said case); that he did not represent the Lims in all
their cases against Syjuco, having been counsel for the former only since
1977, not for the last seventeen years as claimed by Syjuco; and that he had
no duty to inform opposing counsel of the pendency of Civil Case No. Q36485. 37
Respondent Judge Castro also filed a comment 38 disclaiming knowledge of
previous controversies regarding the mortgaged property. He asserted that Syjuco
had been properly declared in default for having failed to answer the complaint
despite service of summons upon it, and that his decision in said case which was
also properly served on Syjuco became final when it was not timely appealed,
after which he lost jurisdiction to entertain the motion for reconsideration and
motion to dismiss. He also denied having failed to act on said motions, adverting
to an alleged order of February 22, 1985 where he declared his lack of jurisdiction
to act thereon.

The respondent Register of Deeds for his part presented a comment wherein
he stated that by virtue of an order of execution in Civil Case No. Q-36485,
he had cancelled TCTs Nos. 75413, 75415, 75416 and 75418 of his Registry
and prepared new certificates of title in lieu thereof, but that cancellation had
been held in abeyance for lack of certain registration requirements and by
reason also of the motion of Syjuco's Atty. Formoso to hold in abeyance
enforcement of the trial court's order of July 16, 1984 as well as of the
temporary restraining order subsequently issued by the Court. 39
It is time to write finis to this unedifying narrative which is notable chiefly
for the deception, deviousness and trickery which have marked the private
respondents' thus far successful attempts to avoid the payment of a just
obligation. The record of the present proceeding and the other records

already referred to, which the Court has examined at length, make it clear
that the dispute should have been laid to rest more than eleven years ago,
with entry of judgment of this Court (on September 24, 1977) in G.R. No. L45752 sealing the fate of the Lims' appeal against the amended decision in
Civil Case No. 75180 where they had originally questioned the validity of
the mortgage and its foreclosure. That result, the records also show, had
itself been nine (9) years in coming, Civil Case No. 75180 having been
instituted in December 1968 and, after trial and judgment, gone through the
Court of Appeals (in CA-G.R. No. 00242-R) and this Court (in G.R. No.
34683), both at the instance of the Lims, on the question of reopening before
the amended decision could be issued.
Unwilling, however, to concede defeat, the Lims moved (in Civil Case No.
75180) to stop the foreclosure sale on the ground of lack of republication.
On December 19,1977 they obtained a restraining order in said case, but this
notwithstanding, on the very same date they filed another action (Civil Case
No. 117262) in a different branch of the same Court of First Instance of
Manila to enjoin the foreclosure sale on the same ground of alleged lack of
republication. At about this time, Syjuco republished the notice of sale in
order, as it was later to manifest, to end all further dispute.
That move met with no success. The Lims managed to persuade the judge in
Civil Case No. 75180, notwithstanding his conviction that the amended
decision in said case had already become final, not only to halt the
foreclosure sale but also to authorize said respondents to dispose of the
mortgaged property at a private sale upon posting a bond of P6,000,000.00
(later increased by P3,000,000.00) to guarantee payment of Syjuco's
mortgage credit. This gave the Lims a convenient excuse for further
suspension of the foreclosure sale by introducing a new wrinkle into their
contentions-that the bond superseded the mortgage which should, they
claimed, therefore be discharged instead of foreclosed.
Thus from the final months of 1977 until the end of 1980, a period of three
years, Syjuco found itself fighting a legal battle on two fronts: in the already
finally decided Civil Case No. 75180 and in Civil Case No. 117262, upon
the single issue of alleged lack of republication, an issue already mooted by
the Lims' earlier waiver of republication as a condition for the issuance of
the original restraining order of December 26,1968 in Civil Case No. 75180,
not to mention the fact that said petitioner had also tried to put an end to it
by actually republishing the notice of sale.
With the advent of 1981, its pleas for early resolution having apparently
fallen on deaf ears, Syjuco went to this Court (in G.R. No. L-56014) from
which, on September 21, 1982, it obtained the decision already referred to

holding, in fine, that there existed no further impediment to the foreclosure

sale and that the sheriff could proceed with the same.
Said decision, instead of deterring further attempts to derail the foreclosure,
apparently gave the signal for the clandestine filing this time by the
Partnership of the Heirs of Hugo Lim -on October 14,1982 of Civil Case No.
Q-36485, the subject of the present petition, which for the first time asserted
the claim that the mortgaged property had been contributed to the plaintiff
partnership long before the execution of the Syjuco's mortgage in order to
defeat the foreclosure.
Syjuco now maintains that it had no actual knowledge of the existence and
pendency of Civil Case No. Q-36485 until confronted, in the manner already
adverted to, with the fait accompli of a "final" judgment with permanent
injunction therein, and nothing in the record disabuses the Court about the
truth of this disclaimer. Indeed, considering what had transpired up to that
denouement, it becomes quite evident that actuations of the Lims and their
lawyer had been geared to keeping Syjuco in the dark about said case. Their
filing of two other cases also seeking to enjoin the foreclosure sale (Civil
Case No. 83-19018, Regional Trial Court of Manila in July 1983, and Civil
Case No. Q-32924, Regional Trial Court of Quezon City in September of the
same year) after said sale had already been permanently enjoined by default
judgment in Civil Case No. Q-36485, appears in retrospect to be nothing but
a brace of feints calculated to keep Syjuco in that state of ignorance and to
lull any apprehensions it mat may have harbored about encountering further
surprises from any other quarter.
Further credence is lent to this appraisal by the unusually rapid movement of
Civil Case No. Q-36485 itself in its earlier stages, which saw the motion to
declare Syjuco in default filed, an order of default issued, evidence ex parte
for the plaintiffs received and judgment by default rendered, all within the
brief span of twelve days, February 10-22, 1983. Notice of said judgment
was "served" on February 23, 1983, the day after it was handed down, only
to be followed by an unaccountable lull of well over a year before it was
ordered executed on July 9, 1984 unaccountable, considering that
previous flurry of activity, except in the context of a plan to rush the case to
judgment and then divert Syjuco's attention to the Lims' moves in other
directions so as to prevent discovery of the existence of the case until it was
too late.
The Court cannot but condemn in the strongest terms this trifling with the
judicial process which degrades the administration of justice, mocks,
subverts and misuses that process for purely dilatory purposes, thus tending
to bring it into disrepute, and seriously erodes public confidence in the will

and competence of the courts to dispense swift justice.

Upon the facts, the only defense to the foreclosure that could possibly have
merited the full-blown trial and appeal proceedings it actually went through
was that of alleged usury pleaded in Civil Case No. 75180 and finally
decided against the respondent Lims in G.R. No. L-45752 in September
1977. The other issues of failure to republish and discharge of mortgage by
guarantee set up in succeeding actions were sham issues, questions without
substance raised only for purposes of delay by the private respondents, in
which they succeeded only too well. The claim urged in this latest case: that
the mortgaged property had been contributed to the respondent partnership
and was already property of said partnership when the individual Lims
unauthorizedly mortgaged it to Syjuco, is of no better stripe, and this, too, is
clear from the undisputed facts and the legal conclusions to be drawn
therefrom.
The record shows that the respondent partnership is composed exclusively of
the individual Lims in whose name all the cases herein referred to, with the
sole exception of Civil Case No. Q-36485, were brought and prosecuted,
their contribution to the partnership consisting chiefly, if not solely, of the
property subject of the Syjuco mortgage. It is also a fact that despite its
having been contributed to the partnership, allegedly on March 30, 1959, the
property was never registered with the Register of Deeds in the name of the
partnership, but to this date remains registered in the names of the Lims as
owners in common. The original mortgage deed of November 14,1964 was
executed by the Lims as such owners, as were all subsequent amendments of
the mortgage. There can be no dispute that in those circumstances, the
respondent partnership was chargeable with knowledge of the mortgage
from the moment of its execution. The legal fiction of a separate juridical
personality and existence will not shield it from the conclusion of having
such knowledge which naturally and irresistibly flows from the undenied
facts. It would violate all precepts of reason, ordinary experience and
common sense to propose that a partnership, as commonly known to all the
partners or of acts in which all of the latter, without exception, have taken
part, where such matters or acts affect property claimed as its own by said
partnership.
If, therefore, the respondent partnership was inescapably chargeable with
knowledge of the mortgage executed by all the partners thereof, its silence
and failure to impugn said mortgage within a reasonable time, let alone a
space of more than seventeen years, brought into play the doctrine of
estoppel to preclude any attempt to avoid the mortgage as allegedly
unauthorized.

The principles of equitable estoppel, sometimes called estoppel in pais, are

made part of our law by Art. 1432 of the Civil Code. Coming under this
class is estoppel by silence, which obtains here and as to which it has been
held that:
... an estoppel may arise from silence as well as from words. 'Estoppel by
silence' arises where a person, who by force of circumstances is under a duty
to another to speak, refrains from doing so and thereby leads the other to
believe in the existence of a state of facts in reliance on which he acts to his
prejudice. Silence may support an estoppel whether the failure to speak is
intentional or negligent.
Inaction or silence may under some circumstances amount to a
misrepresentation and concealment of the facts, so as to raise an equitable
estoppel. When the silence is of such a character and under such
circumstances that it would become a fraud on the other party to permit the
party who has kept silent to deny what his silence has induced the other to
believe and act on, it will operate as an estoppel. This doctrine rests on the
principle that if one maintains silence, when in conscience he ought to
speak, equity will debar him from speaking when in conscience he ought to
remain silent. He who remains silent when he ought to speak cannot be
heard to speak when he should be silent. 40
And more to the point:

A property owner who knowingly permits another to sell or encumber the

property, without disclosing his title or objecting to the transaction, is
estopped to set up his title or interest as against a person who has been
thereby misled to his injury.
xxx
An owner of real property who stands by and sees a third person selling or
mortgaging it under claim of title without asserting his own title or giving
the purchaser or mortgagee any notice thereof is estopped, as against such
purchaser or mortgagee, afterward to assert his title; and, although title does
not pass under these circumstances, a conveyance will be decreed by a court
of equity. Especially is the rule applicable where the party against whom the
estoppel is claimed, in addition to standing by, takes part in malting the sale
or mortgage. 41
More specifically, the concept to which that species of estoppel which results from
the non-disclosure of an estate or interest in real property has ordinarily been
referred is fraud, actual or constructive. ... Although fraud is not an essential
element of the original conduct working the estoppel, it may with perfect property
be said that it would be fraudulent for the party to repudiate his conduct, and to
assert a right or claim in contravention thereof. 42

Equally or even more preclusive of the respondent partnership's claim to the

mortgaged property is the last paragraph of Article 1819 of the Civil Code,
which contemplates a situation duplicating the circumstances that attended
the execution of the mortgage in favor of Syjuco and therefore applies
foursquare thereto:
Where the title to real property is in the names of all the partners a
conveyance executed by all the partners passes all their rights in such
property.
The term "conveyance" used in said provision, which is taken from Section
10 of the American Uniform Partnership Act, includes a mortgage.
Interpreting Sec. 10 of the Uniform Partnership Act, it has been held that the
right to mortgage is included in the right to convey. This is different from
the rule in agency that a special power to sell excludes the power to
mortgage (Art. 1879). 43
As indisputable as the propositions and principles just stated is that the cause
of action in Civil Case No. Q-36485 is barred by prior judgment. The right
subsumed in that cause is the negation of the mortgage, postulated on the
claim that the parcels of land mortgaged by the Lims to Syjuco did not in
truth belong to them but to the partnership. Assuming this to be so, the right
could have been asserted at the time that the Lims instituted their first action
on December 24, 1968 in the Manila Court of First Instance, Civil Case No.
75180, or when they filed their subsequent actions: Civil Case No. 112762,
on December 19, 1977; Civil Case No. 83-19018, in 1983, and Civil Case
No. Q-39294, also in 1983. The claim could have been set up by the Lims,
as members composing the partnership, "Heirs of Hugo Lim." It could very
well have been put forth by the partnership itself, as co-plaintiff in the
corresponding complaints, considering that the actions involved property
supposedly belonging to it and were being prosecuted by the entire
membership of the partnership, and therefore, the partnership was in
actuality, the real party in interest. In fact, consistently with the Lims' theory,
they should be regarded, in all the actions presented by them, as having sued
for vindication, not of their individual rights over the property mortgaged,
but those of the partnership. There is thus no reason to distinguish between
the Lims, as individuals, and the partnership itself, since the former
constituted the entire membership of the latter. In other words, despite the
concealment of the existence of the partnership, for all intents and purposes
and consistently with the Lims' own theory, it was that partnership which
was the real party in interest in all the actions; it was actually represented in
said actions by all the individual members thereof, and consequently, those
members' acts, declarations and omissions cannot be deemed to be simply

the individual acts of said members, but in fact and in law, those of the
partnership.
What was done by the Lims or by the partnership of which they were the
only members-was to split their cause of action in violation of the well
known rule that only one suit may be instituted for a single cause of action.
44

The right sought to be enforced by them in all their actions was, at bottom, to
strike down the mortgage constituted in favor of Syjuco, a right which, in their
view, resulted from several circumstances, namely that the mortgage was
constituted over property belonging to the partnership without the latter's
authority; that the principal obligation thereby secured was usurious; that the
publication of the notice of foreclosure sale was fatally defective, circumstances
which had already taken place at the time of the institution of the actions. They
instituted four (4) actions for the same purpose on one ground or the other, making
each ground the subject of a separate action. Upon these premises, application of
the sanction indicated by law is caned for, i.e., the judgment on the merits in any
one is available as a bar in the others. 45

The first judgment-rendered in Civil Case No. 75180 and affirmed by both
the Court of Appeals (CA-G.R. No. 51752) and this Court (G.R. No. L45752) should therefore have barred all the others, all the requisites of res
judicata being present. The judgment was a final and executory judgment; it
had been rendered by a competent court; and there was, between the first
and subsequent cases, not only identity of subject-matter and of cause of
action, but also of parties. As already pointed out, the plaintiffs in the first
four (4) actions, the Lims, were representing exactly the same claims as
those of the partnership, the plaintiff in the fifth and last action, of which
partnership they were the only members, and there was hence no substantial
difference as regards the parties plaintiff in all the actions. Under the
doctrine of res judicata, the judgment in the first was and should have been
regarded as conclusive in all other, actions not only "with respect to the
matter directly adjudged," but also "as to any other matter that could have
been raised in relation thereto. " 46 It being indisputable that the matter of the
partnership's being the owner of the mortgaged properties "could have been raised
in relation" to those expressly made issuable in the first action, it follows that that
matter could not be re-litigated in the last action, the fifth.

Though confronted with the facts thus precluding the respondent

partnership's claim to the property under both the principle of estoppel and
the provisions of Article 1819, last paragraph, of the Civil Code, as well as
the familiar doctrine of res judicata, the respondent Judge refused to act on
Syjuco's motions on the ground that he no longer had jurisdiction to do so
because they were filed after judgment by default against Syjuco, which
failed to answer the complaint despite valid service of summons, had been

rendered and become final. The sheriffs return, however, creates grave
doubts about the correctness of the Judge's basic premise that summons had
been validly served on Syjuco. For one thing, the return 47 is unspecific about
where service was effected. No safe conclusion about the place of service can be
made from its reference to a former and a present office of Syjuco in widely
separate locations, with nothing to indicate whether service was effected at one
address or the other, or even at both. A more serious defect is the failure to name
the person served who is, with equal ambiguity, identified only as "the Manager"
of the defendant corporation (petitioner herein). Since the sheriffs return
constitutes primary evidence of the manner and incidents of personal service of a
summons, the Rules are quite specific about what such a document should contain:

SEC. 20. Proof of service. The proof of service of a summons shall be

made in writing by the server and shall set forth the manner, place and date
of service; shall specify any papers which have been served with the process
and the name of the person who received the same; and shall be sworn to
when made by a person other than a sheriff or his deputy. 48
In the case of Delta Motor Sales Corporation vs. Mangosing 49 it was held
that:"

(a) strict compliance with the mode of service is necessary to confer

jurisdiction of the court over a corporation. The officer upon whom service
is made must be one who is named in the statute; otherwise the service is
insufficient. So, where the statute requires that in the case of a domestic
corporation summons should be served on 'the president or head of the
corporation, secretary, treasurer, cashier or managing agent thereof, service
of summons on the secretary's wife did not confer jurisdiction over the
corporation in the foreclosure proceeding against it. Hence, the decree of
foreclosure and the deficiency judgment were void and should be vacated
(Reader vs. District Court, 94 Pacific 2nd 858).
The purpose is to render it reasonably certain that the corporation will
receive prompt and proper notice in an action against it or to insure that the
summons be served on a representative so integrated with the corporation
that such person will know what to do with the legal papers served on him.
In other words, 'to bring home to the corporation notice of the filing of the
action'. (35 A C.J.S. 288 citing Jenkins vs. Lykes Bros. S.S. Co., 48 F. Supp.
848; MacCarthy vs. Langston, D.C. Fla., 23 F.R.D. 249).
The liberal construction rule cannot be invoked and utilized as a substitute
for the plain legal requirements as to the manner in which summons should
be served on a domestic corporation (U.S. vs. Mollenhauer Laboratories,
Inc., 267 Fed. Rep. 2nd 260).'
The rule cannot be any less exacting as regards adherence to the

requirements of proof of service, it being usually by such proof that

sufficiency of compliance with the prescribed mode of service is measured.
Here the only proof of service of summons is the questioned sheriff's return
which, as already pointed out, is not only vague and unspecific as to the
place of service, but also neglects to Identify by name the recipient of the
summons as required by Rule 20, Section 14, of the Rules of Court. Where
the sheriffs return is defective the presumption of regularity in the
performance of official functions will not lie. 50 The defective sheriffs return
thus being insufficient and incompetent to prove that summons was served in the
manner prescribed for service upon corporations, there is no alternative to
affirming the petitioner's claim that it had not been validly summoned in Civil
Case No. Q-36485. It goes without saying that lacking such valid service, the Trial
Court did not acquire jurisdiction over the petitioner Syjuco, rendering null and
void all subsequent proceedings and issuances in the action from the order of
default up to and including the judgment by default and the order for its execution.
51

The respondents' contention that the petition is in effect an action to annul a

judgment which is within the exclusive original jurisdiction of the Court of
Appeals 52 has already been answered in Matanguihan vs. Tengco 53 where, by
declaring that an action for annulment of judgment is not a plain, speedy and
adequate remedy, this Court in effect affirmed that certiorari is an appropriate
remedy against judgments or proceedings alleged to have been rendered or had
without valid service of summons. 54

Respondent Judge Castro begged the question when, instead of resolving on

the merits the issue of the invalidity of his default judgment and of the
proceedings leading thereto because of absence of valid service of summons
on the defendant, which had been expressly raised in the defendant's motion
for reconsideration, he simply refused to do so on the excuse that he had lost
jurisdiction over the case. This refusal was, in the premises, a grave abuse of
judicial discretion which must be rectified.
What has been said makes unnecessary any further proceedings in the Court
below, which might otherwise be indicated by the consideration that two of
the postulates of petitioner's unresolved motions which the Court considers
equally as decisive as res judicata, to wit: estoppel by silence and Article
1819, last paragraph, of the Civil Code, do not constitute grounds for a
motion to dismiss under rule 16, of the Rules of Court. Such a step would
only cause further delay. And delay has been the bane of petitioner's cause,
defying through all these years all its efforts to collect on a just debt.
The undenied and undisputable facts make it perfectly clear that the claim to
the mortgaged property belatedly and in apparent bad faith pressed by the
respondent partnership is foreclosed by both law and equity. Further

proceedings will not make this any clearer than it already is. The Court is
clothed with ample authority, in such a case, to call a halt to all further
proceedings and pronounce judgment on the basis of what is already
manifestly of record.
So much for the merits; the consequences that should attend the inexcusable
and indefensible conduct of the respondents Lims, the respondent
partnership and their counsel, Atty. Paterno R. Canlas, should now be
addressed. That the Lims and their partnership acted in bad faith and with
intent to defraud is manifest in the record of their actuations, presenting as
they did, piecemeal and in one case after another, defenses to the foreclosure
or claims in derogation thereof that were available to them from the very
beginning actuations that were to stave off the liquidation of an undenied
debt for more than twenty years and culminated in the clandestine filing and
prosecution of the action subject of the present petition.
What has happened here, it bears repeating, is nothing less than an abuse of
process, a trifling with the courts and with the rights of access thereto, for
which Atty. Canlas must share responsibility equally with his clients. The
latter could not have succeeded so well in obstructing the course of justice
without his aid and advice and his tireless espousal of their claims and
pretensions made in the various cases chronicled here. That the cause to
which he lent his advocacy was less than just or worthy could not have
escaped him, if not at the start of his engagement, in the years that followed
when with his willing assistance, if not instigation, it was shuttled from one
forum to another after each setback. This Court merely stated what is
obvious and cannot be gainsaid when, in Surigao Mineral Reservation
Board vs. Cloribel, 55 it held that a party's lawyer of record has control of the
proceedings and that '(w)hatever steps his client takes should be within his
knowledge and responsibility."
In Prudential Bank vs. Castro, 56 strikingly similar actuations in a case, which
are described in the following paragraph taken from this Court's decision therein:

Respondents' foregoing actuations reveal an 'unholy alliance' between them

and a clear indication of partiality for the party represented by the other to
the detriment of the objective dispensation of justice. Writs of Attachment
and Execution were issued and implemented with lightning speed; the case
itself was railroaded to a swift conclusion through a similar judgment;
astronomical sums were awarded as damages and attorney's fees; and
topping it all, the right to appeal was foreclosed by clever maneuvers," and
which, the Court found, followed a pattern of conduct in other cases of
which judicial notice was taken, were deemed sufficient cause for
disbarment.

Atty. Canlas even tried to mislead this Court by claiming that he became the
Lims' lawyer only in 1977, 57 when the record indubitably shows that he has
represented them since September 9, 1972 when he first appeared for them to
prosecute their appeal in Civil Case No. 75180. 58 He has also quite impenitently
disclaimed a duty to inform opposing counsel in Civil Case No. Q-39294 of the
existence of Civil Case No. Q-36485, as plaintiffs' counsel in both actions, even
while the former, which involved the same mortgage, was already being litigated
when the latter was filed, although in the circumstances such disclosure was
required by the ethics of his profession, if not indeed by his lawyer's oath.

A clear case also exists for awarding at least nominal damages to petitioner,
though damages are not expressly prayed for, under the general prayer of the
petition for "such other reliefs as may be just and equitable under the
premises," and the action being not only of certiorari and prohibition, but
also of mandamus-in which the payment of "damages sustained by the
petitioner by reason of the wrongful acts of the defendant' is expressly
authorized. 59
There is no question in the Court's mind that such interests as may have
accumulated on the mortgage loan will not offset the prejudice visited upon
the petitioner by the excruciatingly long delay in the satisfaction of said debt
that the private respondents have engineered and fomented.
These very same considerations dictate the imposition of exemplary
damages in accordance with Art. 2229 of the Civil Code.
WHEREFORE, so that complete justice may be dispensed here and, as far as
consistent with that end, all the matters and incidents with which these
proceedings are concerned may be brought to a swift conclusion:
(1) the assailed judgment by default in Civil Case No.Q-36485, the writ of
execution and all other orders issued in implementation thereof, and all
proceedings in the case leading to said judgment after the filing of the
complaint are DECLARED null and void and are hereby SET ASIDE; and
the complaint in said case is DISMISSED for being barred by prior
judgment and estoppel, and for lack of merit;
(2) the City Sheriff of Manila is ORDERED, upon receipt of this Decision,
to schedule forthwith and thereafter conduct with all due dispatch the sale at
public auction of the mortgaged property in question for the satisfaction of
the mortgage debt of the respondents Lims to petitioner, in the principal
amount of P2,460,000.00 as found in the amended decision in Civil Case
No. 75180 of the Court of First Instance of Manila, interests thereon at the
rate of twelve (12%) percent per annum from November 8, 1967 until the
date of sale, plus such other and additional sums for commissions, expenses,
fees, etc. as may be lawfully chargeable in extrajudicial foreclosure and sale

proceedings;
(3) the private respondents, their successors and assigns, are
PERPETUALLY ENJOINED from taking any action whatsoever to
obstruct, delay or prevent said auction sale;
(4) the private respondents (the Lims, the Partnership of the Heirs of Hugo
Lim and Atty. Paterno R. Canlas) are sentenced, jointly and severally, to pay
the petitioner P25,000.00 as nominal damages and P100,000.00 as
exemplary damages, as well as treble costs; and
(5) let this matter be referred to the Integrated Bar of the Philippines for
investigation, report, and recommendation insofar as the conduct of Atty.
Canlas as counsel in this case and in the other cases hereinabove referred to
is concerned.
SO ORDERED.
Cruz, Gancayco, Grio-Aquino and Medialdea, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-5963
May 20, 1953
THE LEYTE-SAMAR SALES CO., and RAYMUNDO TOMASSI,
petitioners,
vs.
SULPICIO V. CEA, in his capacity as Judge of the Court of First
Instance of Leyte and OLEGARIO LASTRILLA, respondents.
Filomeno Montejo for petitioners. Sulpicio V. Cea in his own
behalf. Olegario Lastrilla in his own behalf.
BENGZON, J.:
Labaled "Certiorari and Prohibition with preliminary Injunction" this
petition prays for the additional writ of mandamus to compel the respondent
judge to give due course to petitioners' appeal from his order taxing costs.
However, inasmuch as according to the answer, petitioners through their
attorney withdrew their cash appeal bond of P60 after the record on appeal
bond of P60 after the record on appeal had been rejected, the matter of
mandamus may be summarily be dropped without further comment.
From the pleadings it appears that,
In civil case No. 193 of the Court of First Instance of Leyte, which is a suit
for damages by the Leyte-Samar Sales Co. (hereinafter called LESSCO) and

Raymond Tomassi against the Far Eastern Lumber & Commercial Co.
(unregistered commercial partnership hereinafter called FELCO), Arnold
Hall, Fred Brown and Jean Roxas, judgment against defendants jointly and
severally for the amount of P31,589.14 plus costs was rendered on October
29, 1948. The Court of Appeals confirmed the award in November 1950,
minus P2,000 representing attorney's fees mistakenly included. The decision
having become final, the sheriff sold at auction on June 9, 1951 to Robert
Dorfe and Pepito Asturias "all the rights, interests, titles and participation" of
the defendants in certain buildings and properties described in the certificate,
for a total price of eight thousand and one hundred pesos. But on June 4,
1951 Olegario Lastrilla filed in the case a motion, wherein he claimed to be
the owner by purchase on September 29, 1949, of all the "shares and
interests" of defendant Fred Brown in the FELCO, and requested "under the
law of preference of credits" that the sheriff be required to retain in his
possession so much of the deeds of the auction sale as may be necessary "to
pay his right". Over the plaintiffs' objection the judge in his order of June 13,
1951, granted Lastrilla's motion by requiring the sheriff to retain 17 per cent
of the money "for delivery to the assignee, administrator or receiver" of the
FELCO. And on motion of Lastrilla, the court on August 14, 1951, modified
its order of delivery and merely declared that Lastrilla was entitled to 17 per
cent of the properties sold, saying in part:
. . . el Juzgado ha encontrado que no se han respetado los derechos del Sr.
Lastrilla en lo que se refiere a su adquiscicion de las acciones de C. Arnold
Hall (Fred Brown) en la Far Eastern Lumber & Lumber Commercial C.
porque la mismas han sido incluidas en la subasta.
Es vedad que las acciones adquiridas por el Sr. Lastilla representan el 17 por
ciento del capital de la sociedad "Far Eastern Lumber & Commercial Co.,
Inc., et al." pero esto no quiere decir que su vlor no esta sujeto a las
fluctuaciones del negocio donde las invirtio.
Se vendieron propiedades de la corporacion "Far Eastern Lumber & Co.
Inc.," y de la venta solamente se obtuvo la cantidad de P8,100.
"En su virtud, se declara que el 17 por ciento de las propiedades vendidas en
publica subasta pretenece al Sr. O Lastrilla y este tiene derecho a dicha
porcion pero con la obligacion de pagar el 17 por ciento de los gastos for la
conservacion de dichas propriedades por parte del Sheriff; . . . . (Annex K)
It is from this declaration and the subsequent orders to enforce it1 that the
petitioners seek relief by certiorari, their position being the such orders were
null and void for lack of jurisdiction. At their request a writ of preliminary
injunction was issued here.
The record is not very clear, but there are indications, and we shall assume

for the moment, that Fred Brown (like Arnold Hall and Jean Roxas) was a
partner of the FELCO, was defendant in Civil Case No. 193 as such partner,
and that the properties sold at auction actually belonged to the FELCO
partnership and the partners. We shall also assume that the sale made to
Lastrilla on September 29, 1949, of all the shares of Fred Brown in the
FELCO was valid. (Remember that judgment in this case was entered in the
court of first instance a year before.)
The result then, is that on June 9, 1951 when the sale was effected of the
properties of FELCO to Roberto Dorfe and Pepito Asturias, Lastilla was
already a partner of FELCO.
Now, does Lastrilla have any proper claim to the proceeds of the sale? If he
was a creditor of the FELCO, perhaps or maybe. But he was no. The partner
of a partnership is not a creditor of such partnership for the amount of his
shares. That is too elementary to need elaboration.
Lastrilla's theory, and the lower court's seems to be: inasmuch as Lastrilla
had acquired the shares of Brown is September, 1949, i.e., before the auction
sale and he was not a party to the litigation, such shares could not have been
transferred to Dorfe and Austrilla.
Granting arguendo that the auction sale and not included the interest or
portion of the FELCO properties corresponding to the shares of Lastrilla in
the same partnership (17%), the resulting situation would be at most
that the purchasers Dorfe and Austrias will have to recognized dominion of
Lastrillas over 17 per cent of the properties awarded to them.2 So Lastrilla
acquired no right to demand any part of the money paid by Dorfe and
Austrias to he sheriff any part of the money paid by Dorfe and Austrias to
the sheriff for the benefit of FELCO and Tomassi, the plaintiffs in that case,
for the reason that, as he says, his shares (acquired from Brown) could not
have been and were not auctioned off to Dorfe and Austrias.
Supposing however that Lastrillas shares have been actually (but unlawfully)
sold by the sheriff (at the instance of plaintiffs) to Dorfe and Austrias, what
is his remedy? Section 15, Rule 39 furnishes the answer.
Precisely, respondents argue, Lastrilla vindicated his claim by proper action,
i.e., motion in the case. We ruled once that "action" in this section means
action as defined in section 1, Rule 2.3 Anyway his remedy is to claim "the
property", not the proceeds of the sale, which the sheriff is directed by
section 14, Rule 39 to deliver unto the judgment creditors.
In other words, the owner of property wrongfully sold may not voluntarily
come to court, and insist, "I approve the sale, therefore give me the proceeds
because I am the owner". The reason is that the sale was made for the
judgment creditor (who paid for the fees and notices), and not for anybody

else.
On this score the respondent judge's action on Lastrilla's motion should be
declared as in excess of jurisdiction, which even amounted to want of
jurisdiction, which even amounted to want of jurisdiction, considering
specially that Dorfe and Austrias, and the defendants themselves, had
undoubtedly the right to be heardbut they were not notified.4
Why was it necessary to hear them on the merits of Lastrilla's motion?
Because Dorfe and Austrillas might be unwilling to recognized the validity
of Lastrilla's purchase, or, if valid, they may want him not to forsake the
partnership that might have some obligations in connection with the
partnership properties. And what is more important, if the motion is granted,
when the time for redemptioner seventeen per cent (178%) less than amount
they had paid for the same properties.
The defendants Arnold Hall and Jean Roxas, eyeing Lastrilla's financial
assets, might also oppose the substitution by Lastrilla of Fred Brown, the
judgment against them being joint and several. They might entertain
misgivings about Brown's slipping out of their common predicament
through the disposal of his shares.
Lastly, all the defendants would have reasonable motives to object to the
delivery of 17 per cent of the proceeds to Lustrial, because it is so much
money deducted, and for which the plaintiffs might as another levy on their
other holdings or resources. Supposing of course, there was no fraudulent
collusion among them.
Now, these varied interest of necessity make Dorfe, Asturias and the
defendants indispensable parties to the motion of Lastrilla granting it was
step allowable under our regulations on execution. Yet these parties were not
notified, and obviously took no part in the proceedings on the motion.
A valid judgment cannot be rendered where there is a want of necessary
parties, and a court cannot properly adjudicate matters involved in a suit
when necessary and indispensable parties to the proceedings are not before
it. (49 C.J.S., 67.)
Indispensable parties are those without whom the action cannot be finally
determined. In a case for recovery of real property, the defendant alleged in
his answer that he was occupying the property as a tenant of a third person.
This third person is an indispensable party, for, without him, any judgment
which the plaintiff might obtain against the tenant would have no
effectiveness, for it would not be binding upon, and cannot be executed
against, the defendant's landlord, against whom the plaintiff has to file
another action if he desires to recover the property effectively. In an action
for partition of property, each co-owner is an indispensable party. (Moran,

Comments, 1952 ed. Vol. I, p. 56.) (Emphasis supplied.)

Wherefore, the orders of the court recognizing Lastrilla's right and ordering
payment to him of a part of the proceeds were patently erroneous, because
promulgated in excess or outside of its jurisdiction. For this reason the
respondents' argument resting on plaintiffs' failure to appeal from the orders
on time, although ordinarily decisive, carries no persuasive force in this
instance.
For as the former Chief Justice Dr. Moran has summarized in his Comments,
1952 ed. Vol. II, p. 168
. . . And in those instances wherein the lower court has acted without
jurisdiction over the subject-matter, or where the order or judgment
complained of is a patent nullity, courts have gone even as far as to disregard
completely the questions of petitioner's fault, the reason being, undoubtedly,
that acts performed with absolute want of jurisdiction over the subjectmatter are void ab initio and cannot be validated by consent, express or
implied, of the parties. Thus, the Supreme Court granted a petition for
certiorari and set aside an order reopening a cadastral case five years after
the judgment rendered therein had become final. In another case, the Court
set aside an order amending a judgment acquired a definitive character. And
still in another case, an order granting a review of a decree of registration
issued more than a year ago had been declared null void. In all these case the
existence of the right to appeal has been recitals was rendered without any
trial or hearing, and the Supreme Court, in granting certiorari, said that the
judgment was by its own recitals a patent nullity, which should be set aside
though an appeal was available but was not availed of. . . .
Invoking our ruling in Melocotones vs. Court of First Instance, (57 Phil.,
144), wherein we applied the theory of laches to petitioners' 3-years delay in
requesting certiorari, respondents point out that whereas the orders
complained of herein were issued in June 13, 1951 and August 14, 1951 this
special civil action was not filed until August 1952. It should be observed
that the order of June 13 was superseded by that of August 14, 1951. The
last order merely declared "que el 17 por ciento de la propiedades vendidas
en publica subasta pertenece at Sr. Lastrilla y este tiene derecho a dicha
porcion." This does not necessarily mean that 17 per cent of the money had
to be delivered to him. It could mean, as hereinbefore indicated, that the
purchasers of the property (Dorfe and Asturias) had to recognize Lastrilla's
ownership. It was only on April 16, 1952 (Annex N) that the court issued an
order directing the sheriff "to tun over" to Lastrilla "17 per cent of the total
proceeds of the auction sale". There is the order that actually prejudiced the
petitioners herein, and they fought it until the last order of July 10,. 1952

(Annex Q). Surely a month's delay may not be regarded as laches.

In view of the foregoing, it is our opinion, and we so hold, that all orders of
the respondents judge requiring delivery of 17 per cent of the proceeds of the
auction sale to respondent Olegario Lastrilla are null and void; and the costs
of this suit shall be taxed against the latter. The preliminary injunction
heretofore issued is made permanent. So ordered.
Paras, C.J., Feria, Pablo, Tuason, Montemayor, Reyes, Jugo, Bautista
Angelo and Labrador, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-22493 July 31, 1975
ISLAND SALES, INC., plaintiff-appellee,
vs.
UNITED PIONEERS GENERAL CONSTRUCTION COMPANY, ET.
AL defendants. BENJAMIN C. DACO, defendant-appellant.
Grey, Buenaventura and Santiago for plaintiff-appellee.
Anacleto D. Badoy, Jr. for defendant-appellant.
CONCEPCION JR., J.:
This is an appeal interposed by the defendant Benjamin C. Daco from the
decision of the Court of First Instance of Manila, Branch XVI, in Civil Case
No. 50682, the dispositive portion of which reads:
WHEREFORE, the Court sentences defendant United Pioneer General
Construction Company to pay plaintiff the sum of P7,119.07 with interest at
the rate of 12% per annum until it is fully paid, plus attorney's fees which the
Court fixes in the sum of Eight Hundred Pesos (P800.00) and costs.
The defendants Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim and
Augusto Palisoc are sentenced to pay the plaintiff in this case with the
understanding that the judgment against these individual defendants shall be
enforced only if the defendant company has no more leviable properties with
which to satisfy the judgment against it. .
The individual defendants shall also pay the costs.
On April 22, 1961, the defendant company, a general partnership duly
registered under the laws of the Philippines, purchased from the plaintiff a
motor vehicle on the installment basis and for this purpose executed a

promissory note for P9,440.00, payable in twelve (12) equal monthly

installments of P786.63, the first installment payable on or before May 22,
1961 and the subsequent installments on the 22nd day of every month
thereafter, until fully paid, with the condition that failure to pay any of said
installments as they fall due would render the whole unpaid balance
immediately due and demandable.
Having failed to receive the installment due on July 22, 1961, the plaintiff
sued the defendant company for the unpaid balance amounting to P7,119.07.
Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim, Romulo B. Lumauig,
and Augusto Palisoc were included as co-defendants in their capacity as
general partners of the defendant company.
Daniel A. Guizona failed to file an answer and was consequently declared in
default. 1
Subsequently, on motion of the plaintiff, the complaint was dismissed
insofar as the defendant Romulo B. Lumauig is concerned. 2
When the case was called for hearing, the defendants and their counsels
failed to appear notwithstanding the notices sent to them. Consequently, the
trial court authorized the plaintiff to present its evidence ex-parte 3 , after
which the trial court rendered the decision appealed from.

The defendants Benjamin C. Daco and Noel C. Sim moved to reconsider the
decision claiming that since there are five (5) general partners, the joint and
subsidiary liability of each partner should not exceed one-fifth ( 1/ 5 ) of the
obligations of the defendant company. But the trial court denied the said motion
notwithstanding the conformity of the plaintiff to limit the liability of the
defendants Daco and Sim to only one-fifth ( 1/ 5 ) of the obligations of the
defendant company. 4 Hence, this appeal.

The only issue for resolution is whether or not the dismissal of the complaint
to favor one of the general partners of a partnership increases the joint and
subsidiary liability of each of the remaining partners for the obligations of
the partnership.
Article 1816 of the Civil Code provides:
Art. 1816. All partners including industrial ones, shall be liable pro rata with
all their property and after all the partnership assets have been exhausted, for
the contracts which may be entered into in the name and for the account of
the partnership, under its signature and by a person authorized to act for the
partnership. However, any partner may enter into a separate obligation to
perform a partnership contract.
In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held:
The partnership of Yulo and Palacios was engaged in the operation of a
sugar estate in Negros. It was, therefore, a civil partnership as distinguished

from a mercantile partnership. Being a civil partnership, by the express

provisions of articles l698 and 1137 of the Civil Code, the partners are not
liable each for the whole debt of the partnership. The liability is pro rata and
in this case Pedro Yulo is responsible to plaintiff for only one-half of the
debt. The fact that the other partner, Jaime Palacios, had left the country
cannot increase the liability of Pedro Yulo.
In the instant case, there were five (5) general partners when the promissory
note in question was executed for and in behalf of the partnership. Since the
liability of the partners is pro rata, the liability of the appellant Benjamin C.
Daco shall be limited to only one-fifth ( 1/ 5 ) of the obligations of the defendant
company. The fact that the complaint against the defendant Romulo B. Lumauig
was dismissed, upon motion of the plaintiff, does not unmake the said Lumauig as
a general partner in the defendant company. In so moving to dismiss the
complaint, the plaintiff merely condoned Lumauig's individual liability to the
plaintiff.

WHEREFORE, the appealed decision as thus clarified is hereby

AFFIRMED, without pronouncement as to costs.
SO ORDERED.
Makalintal, C.J., Fernando (Chairman), Barredo and Aquino, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 97212 June 30, 1993
BENJAMIN YU, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and JADE
MOUNTAIN PRODUCTS COMPANY LIMITED, WILLY CO,
RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN JENG and
CHEN HO-FU, respondents.
Jose C. Guico for petitioner.
Wilfredo Cortez for private respondents.
FELICIANO, J.:
Petitioner Benjamin Yu was formerly the Assistant General Manager of the
marble quarrying and export business operated by a registered partnership

with the firm name of "Jade Mountain Products Company Limited" ("Jade
Mountain"). The partnership was originally organized on 28 June 1984 with
Lea Bendal and Rhodora Bendal as general partners and Chin Shian Jeng,
Chen Ho-Fu and Yu Chang, all citizens of the Republic of China (Taiwan),
as limited partners. The partnership business consisted of exploiting a
marble deposit found on land owned by the Sps. Ricardo and Guillerma
Cruz, situated in Bulacan Province, under a Memorandum Agreement dated
26 June 1984 with the Cruz spouses. 1 The partnership had its main office in
Makati, Metropolitan Manila.

Benjamin Yu was hired by virtue of a Partnership Resolution dated 14

March 1985, as Assistant General Manager with a monthly salary of
P4,000.00. According to petitioner Yu, however, he actually received only
half of his stipulated monthly salary, since he had accepted the promise of
the partners that the balance would be paid when the firm shall have secured
additional operating funds from abroad. Benjamin Yu actually managed the
operations and finances of the business; he had overall supervision of the
workers at the marble quarry in Bulacan and took charge of the preparation
of papers relating to the exportation of the firm's products.
Sometime in 1988, without the knowledge of Benjamin Yu, the general
partners Lea Bendal and Rhodora Bendal sold and transferred their interests
in the partnership to private respondent Willy Co and to one Emmanuel
Zapanta. Mr. Yu Chang, a limited partner, also sold and transferred his
interest in the partnership to Willy Co. Between Mr. Emmanuel Zapanta and
himself, private respondent Willy Co acquired the great bulk of the
partnership interest. The partnership now constituted solely by Willy Co and
Emmanuel Zapanta continued to use the old firm name of Jade Mountain,
though they moved the firm's main office from Makati to Mandaluyong,
Metropolitan Manila. A Supplement to the Memorandum Agreement
relating to the operation of the marble quarry was entered into with the Cruz
spouses in February of 1988. 2 The actual operations of the business enterprise
continued as before. All the employees of the partnership continued working in the
business, all, save petitioner Benjamin Yu as it turned out.

On 16 November 1987, having learned of the transfer of the firm's main

office from Makati to Mandaluyong, petitioner Benjamin Yu reported to the
Mandaluyong office for work and there met private respondent Willy Co for
the first time. Petitioner was informed by Willy Co that the latter had bought
the business from the original partners and that it was for him to decide
whether or not he was responsible for the obligations of the old partnership,
including petitioner's unpaid salaries. Petitioner was in fact not allowed to
work anymore in the Jade Mountain business enterprise. His unpaid salaries

remained unpaid. 3
On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal
and recovery of unpaid salaries accruing from November 1984 to October
1988, moral and exemplary damages and attorney's fees, against Jade
Mountain, Mr. Willy Co and the other private respondents. The partnership
and Willy Co denied petitioner's charges, contending in the main that
Benjamin Yu was never hired as an employee by the present or new
partnership. 4
In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision
holding that petitioner had been illegally dismissed. The Labor Arbiter
decreed his reinstatement and awarded him his claim for unpaid salaries,
backwages and attorney's fees. 5
On appeal, the National Labor Relations Commission ("NLRC") reversed
the decision of the Labor Arbiter and dismissed petitioner's complaint in a
Resolution dated 29 November 1990. The NLRC held that a new partnership
consisting of Mr. Willy Co and Mr. Emmanuel Zapanta had bought the Jade
Mountain business, that the new partnership had not retained petitioner Yu
in his original position as Assistant General Manager, and that there was no
law requiring the new partnership to absorb the employees of the old
partnership. Benjamin Yu, therefore, had not been illegally dismissed by the
new partnership which had simply declined to retain him in his former
managerial position or any other position. Finally, the NLRC held that
Benjamin Yu's claim for unpaid wages should be asserted against the
original members of the preceding partnership, but these though impleaded
had, apparently, not been served with summons in the proceedings before
the Labor Arbiter. 6
Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari,
asking us to set aside and annul the Resolution of the NLRC as a product of
grave abuse of discretion amounting to lack or excess of jurisdiction.
The basic contention of petitioner is that the NLRC has overlooked the
principle that a partnership has a juridical personality separate and distinct
from that of each of its members. Such independent legal personality
subsists, petitioner claims, notwithstanding changes in the identities of the
partners. Consequently, the employment contract between Benjamin Yu and
the partnership Jade Mountain could not have been affected by changes in
the latter's membership. 7
Two (2) main issues are thus posed for our consideration in the case at bar:
(1) whether the partnership which had hired petitioner Yu as Assistant
General Manager had been extinguished and replaced by a new partnerships
composed of Willy Co and Emmanuel Zapanta; and (2) if indeed a new

partnership had come into existence, whether petitioner Yu could

nonetheless assert his rights under his employment contract as against the
new partnership.
In respect of the first issue, we agree with the result reached by the NLRC,
that is, that the legal effect of the changes in the membership of the
partnership was the dissolution of the old partnership which had hired
petitioner in 1984 and the emergence of a new firm composed of Willy Co
and Emmanuel Zapanta in 1987.
The applicable law in this connection of which the NLRC seemed quite
unaware is found in the Civil Code provisions relating to partnerships.
Article 1828 of the Civil Code provides as follows:
Art. 1828. The dissolution of a partnership is the change in the relation of
the partners caused by any partner ceasing to be associated in the carrying
on as distinguished from the winding up of the business. (Emphasis
supplied)
Article 1830 of the same Code must also be noted:
Art. 1830. Dissolution is caused:
(1) without violation of the agreement between the partners;
xxx xxx xxx
(b) by the express will of any partner, who must act in good faith, when no
definite term or particular undertaking is specified;
xxx xxx xxx
(2) in contravention of the agreement between the partners, where the
circumstances do not permit a dissolution under any other provision of this
article, by the express will of any partner at any time;
xxx xxx xxx
(Emphasis supplied)
In the case at bar, just about all of the partners had sold their partnership
interests (amounting to 82% of the total partnership interest) to Mr. Willy Co
and Emmanuel Zapanta. The record does not show what happened to the
remaining 18% of the original partnership interest. The acquisition of 82%
of the partnership interest by new partners, coupled with the retirement or
withdrawal of the partners who had originally owned such 82% interest, was
enough to constitute a new partnership.
The occurrence of events which precipitate the legal consequence of
dissolution of a partnership do not, however, automatically result in the
termination of the legal personality of the old partnership. Article 1829 of
the Civil Code states that:
[o]n dissolution the partnership is not terminated, but continues until the
winding up of partnership affairs is completed.

In the ordinary course of events, the legal personality of the expiring

partnership persists for the limited purpose of winding up and closing of the
affairs of the partnership. In the case at bar, it is important to underscore the
fact that the business of the old partnership was simply continued by the new
partners, without the old partnership undergoing the procedures relating to
dissolution and winding up of its business affairs. In other words, the new
partnership simply took over the business enterprise owned by the
preceeding partnership, and continued using the old name of Jade Mountain
Products Company Limited, without winding up the business affairs of the
old partnership, paying off its debts, liquidating and distributing its net
assets, and then re-assembling the said assets or most of them and opening a
new business enterprise. There were, no doubt, powerful tax considerations
which underlay such an informal approach to business on the part of the
retiring and the incoming partners. It is not, however, necessary to inquire
into such matters.
What is important for present purposes is that, under the above described
situation, not only the retiring partners (Rhodora Bendal, et al.) but also the
new partnership itself which continued the business of the old, dissolved,
one, are liable for the debts of the preceding partnership. In Singson, et al. v.
Isabela Saw Mill, et al, 8 the Court held that under facts very similar to those in
the case at bar, a withdrawing partner remains liable to a third party creditor of the
old partnership. 9 The liability of the new partnership, upon the other hand, in the
set of circumstances obtaining in the case at bar, is established in Article 1840 of
the Civil Code which reads as follows:

Art. 1840. In the following cases creditors of the dissolved partnership are
also creditors of the person or partnership continuing the business:
(1) When any new partner is admitted into an existing partnership, or when
any partner retires and assigns (or the representative of the deceased partner
assigns) his rights in partnership property to two or more of the partners, or
to one or more of the partners and one or more third persons, if the business
is continued without liquidation of the partnership affairs;
(2) When all but one partner retire and assign (or the representative of a
deceased partner assigns) their rights in partnership property to the
remaining partner, who continues the business without liquidation of
partnership affairs, either alone or with others;
(3) When any Partner retires or dies and the business of the dissolved
partnership is continued as set forth in Nos. 1 and 2 of this Article, with the
consent of the retired partners or the representative of the deceased partner,
but without any assignment of his right in partnership property;
(4) When all the partners or their representatives assign their rights in

partnership property to one or more third persons who promise to pay the
debts and who continue the business of the dissolved partnership;
(5) When any partner wrongfully causes a dissolution and remaining
partners continue the business under the provisions of article 1837, second
paragraph, No. 2, either alone or with others, and without liquidation of the
partnership affairs;
(6) When a partner is expelled and the remaining partners continue the
business either alone or with others without liquidation of the partnership
affairs;
The liability of a third person becoming a partner in the partnership
continuing the business, under this article, to the creditors of the dissolved
partnership shall be satisfied out of the partnership property only, unless
there is a stipulation to the contrary.
When the business of a partnership after dissolution is continued under any
conditions set forth in this article the creditors of the retiring or deceased
partner or the representative of the deceased partner, have a prior right to
any claim of the retired partner or the representative of the deceased partner
against the person or partnership continuing the business on account of the
retired or deceased partner's interest in the dissolved partnership or on
account of any consideration promised for such interest or for his right in
partnership property.
Nothing in this article shall be held to modify any right of creditors to set
assignment on the ground of fraud.
xxx xxx xxx
(Emphasis supplied)
Under Article 1840 above, creditors of the old Jade Mountain are also
creditors of the new Jade Mountain which continued the business of the old
one without liquidation of the partnership affairs. Indeed, a creditor of the
old Jade Mountain, like petitioner Benjamin Yu in respect of his claim for
unpaid wages, is entitled to priority vis-a-vis any claim of any retired or
previous partner insofar as such retired partner's interest in the dissolved
partnership is concerned. It is not necessary for the Court to determine under
which one or mare of the above six (6) paragraphs, the case at bar would
fall, if only because the facts on record are not detailed with sufficient
precision to permit such determination. It is, however, clear to the Court that
under Article 1840 above, Benjamin Yu is entitled to enforce his claim for
unpaid salaries, as well as other claims relating to his employment with the
previous partnership, against the new Jade Mountain.
It is at the same time also evident to the Court that the new partnership was
entitled to appoint and hire a new general or assistant general manager to run

the affairs of the business enterprise take over. An assistant general manager
belongs to the most senior ranks of management and a new partnership is
entitled to appoint a top manager of its own choice and confidence. The nonretention of Benjamin Yu as Assistant General Manager did not therefore
constitute unlawful termination, or termination without just or authorized
cause. We think that the precise authorized cause for termination in the case
at bar was redundancy. 10 The new partnership had its own new General
Manager, apparently Mr. Willy Co, the principal new owner himself, who
personally ran the business of Jade Mountain. Benjamin Yu's old position as
Assistant General Manager thus became superfluous or redundant. 11 It follows
that petitioner Benjamin Yu is entitled to separation pay at the rate of one month's
pay for each year of service that he had rendered to the old partnership, a fraction
of at least six (6) months being considered as a whole year.

While the new Jade Mountain was entitled to decline to retain petitioner
Benjamin Yu in its employ, we consider that Benjamin Yu was very
shabbily treated by the new partnership. The old partnership certainly
benefitted from the services of Benjamin Yu who, as noted, previously ran
the whole marble quarrying, processing and exporting enterprise. His work
constituted value-added to the business itself and therefore, the new
partnership similarly benefitted from the labors of Benjamin Yu. It is worthy
of note that the new partnership did not try to suggest that there was any
cause consisting of some blameworthy act or omission on the part of Mr. Yu
which compelled the new partnership to terminate his services. Nonetheless,
the new Jade Mountain did not notify him of the change in ownership of the
business, the relocation of the main office of Jade Mountain from Makati to
Mandaluyong and the assumption by Mr. Willy Co of control of operations.
The treatment (including the refusal to honor his claim for unpaid wages)
accorded to Assistant General Manager Benjamin Yu was so summary and
cavalier as to amount to arbitrary, bad faith treatment, for which the new
Jade Mountain may legitimately be required to respond by paying moral
damages. This Court, exercising its discretion and in view of all the
circumstances of this case, believes that an indemnity for moral damages in
the amount of P20,000.00 is proper and reasonable.
In addition, we consider that petitioner Benjamin Yu is entitled to interest at
the legal rate of six percent (6%) per annum on the amount of unpaid wages,
and of his separation pay, computed from the date of promulgation of the
award of the Labor Arbiter. Finally, because the new Jade Mountain
compelled Benjamin Yu to resort to litigation to protect his rights in the
premises, he is entitled to attorney's fees in the amount of ten percent (10%)
of the total amount due from private respondent Jade Mountain.

WHEREFORE, for all the foregoing, the Petition for Certiorari is

GRANTED DUE COURSE, the Comment filed by private respondents is
treated as their Answer to the Petition for Certiorari, and the Decision of the
NLRC dated 29 November 1990 is hereby NULLIFIED and SET ASIDE. A
new Decision is hereby ENTERED requiring private respondent Jade
Mountain Products Company Limited to pay to petitioner Benjamin Yu the
following amounts:
(a) for unpaid wages which, as found by the Labor Arbiter, shall be
computed at the rate of P2,000.00 per month multiplied by thirty-six (36)
months (November 1984 to December 1987) in the total amount of
P72,000.00;
(b) separation pay computed at the rate of P4,000.00 monthly pay multiplied
by three (3) years of service or a total of P12,000.00;
(c) indemnity for moral damages in the amount of P20,000.00;
(d) six percent (6%) per annum legal interest computed on items (a) and (b)
above, commencing on 26 December 1989 and until fully paid; and
(e) ten percent (10%) attorney's fees on the total amount due from private
respondent Jade Mountain.
Costs against private respondents.
SO ORDERED.
Bidin, Davide, Jr., Romero and Melo, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
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 DEFENDANTAPPELLANT 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 DEFENDANTAPPELLANT 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 DEFENDANTAPPELLANT 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
CROSS-DEFENDANTS
LEON
GARIBAY
AND
TIMOTEO
6
TUBUNGBANUA.
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 crossdefendants 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 reexamine 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.
Teehankee (Chairman), Makasiar, Guerrero, De Castro and MelencioHerrera, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-14606
April 28, 1960
LAGUNA TRANSPORTATION CO., INC., petitioner-appellant,
vs.
SOCIAL SECURITY SYSTEM, respondent-appellee.
Yatco & Yatco for appellant. Solicitor General Edilberto Barot, Solicitor
Camilo Quiason and Crispin Baizas for appellee.
BARRERA, J.:
On January 24, 1958, petitioner Laguna Transportation Co., Inc. filed with
the Court of First Instance of Laguna petition praying that an order be issued
by the court declaring that it is not bound to register as a member of
respondent Social Security System and, therefore, not obliged to pay to the
latter the contributions required under the Social Security Act.1 To this
petition, respondent filed its answer on February 11, 1958 praying for its
dismissal due to petitioner's failure to exhaust administrative remedies, and
for a declaration that petitioner is covered by said Act, since the latter's
business has been in operation for at least 2 years prior to September 1,
1957.
On February 11, 1958, respondent filed a motion for preliminary hearing on
its defense that petitioner failed to exhaust administrative remedies. When
the case was called for preliminary hearing, it was postponed by agreement
of the parties. Subsequently, it was set for trial. On the date of the trial, the
parties agreed to present, in lieu of any other evidence, a stipulation of facts,
which they did on May 27, 1958, as follows:
1. That petitioner is a domestic corporation duly organized and existing
under the laws of the Philippines, with principal place of business at Bian,
Laguna;
2. That respondent is an agency created under Republic Act No. 1161, as
amended by Republic Act No. 1792, with the principal place of business at

the new GSIS Bldg., corner Arroceros and Concepcion Streets, Manila,
where it may be served with summons;
3. That respondent has served notice upon the petitioner requiring it to
register as member of the System and to remit the premiums due from all the
employees of the petitioner and the contribution of the latter to the System
beginning the month of September, 1957;
4. That sometime in 1949, the Bian Transportation Co., a corporation duly
registered with the Securities and Exchange Commission, sold part of the
lines and equipment it operates to Gonzalo Mercado, Artemio Mercado,
Florentino Mata and Dominador Vera Cruz;
5. That after the sale, the said vendees formed an unregistered partnership
under the name of Laguna Transportation Company which continued to
operate the lines and equipment bought from the Bian Transportation
Company, in addition to new lines which it was able to secure from the
Public Service Commission;
6. That the original partners forming the Laguna Transportation Company,
with the addition of two new members, organized a corporation known as
the Laguna Transportation Company, Inc., which was registered with the
Securities and Exchange Commission on June 20, 1956, and which
corporation is the plaintiff now in this case;
7. That the incorporators of the Laguna Transportation Company, Inc., and
their corresponding shares are as follows:
Name
No. of Shares
Amount
Amount
Subscribed
Paid
Dominador Cruz
333 shares
P33,300.00
P9,160.81
Maura Mendoza
333 shares
33,300.00
9,160.81
Gonzalo Mercado
66 shares
6,600.00
1,822.49
Artemio Mercado
94 shares
9,400.00
2,565.90
Florentino Mata
110 shares
11,000.00
3,021.54
Sabina Borja
64 shares
6,400.00
1,750.00
1,000 shares
P100,000.00
P27,481.55
8. That the corporation continued the same transportation business of the
unregistered partnership;
9. That the plaintiff filed on August 30, 1957 an Employee's Data Record . . .
and a supplemental Information Sheet . . .;
10. That prior to November 11, 1957, plaintiff requested for exemption from
coverage by the System on the ground that it started operation only on June
20, 1956, when it was registered with the Securities and Exchange
Commission but on November 11, 1957, the Social Security System notified
plaintiff that it was covered;

11. On November 14, 1957, plaintiff through counsel sent a letter to the
Social Security System contesting the claim of the System that plaintiff was
covered, . . .
12. On November 27, 1957, Carlos Sanchez, Manager of the Production
Department of the respondent System for and in behalf of the Acting
Administrator, informed plaintiff that plaintiff's business has been in actual
operation for at least two years, . . .
On the basis of the foregoing stipulation of facts, the court, on August 15,
1958, rendered a decision the dispositive part of which reads:
Wherefore, the Court is of the opinion and so declares that the petitioner was
an employer engaged in business as common carrier which had been in
operation for at least two years prior to the enactment of Republic Act No.
1161, as amended by Republic Act 1792 and by virtue thereof, it was subject
to compulsory coverage under said law. . . .
From this decision, petitioner appealed directly to us, raising purely
questions of law.
Petitioner claims that the lower court erred in holding that it is an employer
engaged in business as a common carrier which had been in operation for at
least 2 years prior to the enactment of the Social Security Act and, therefore,
subject to compulsory coverage thereunder.
Section 9 of the Social Security Act, in part, provides:
SEC. 9 Compulsory Coverage. Coverage in the System shall be
compulsory upon all employees between the ages of sixteen and sixty years,
inclusive, if they have been for at least six months in the service of an
employer who is a member of the System. Provided, That the Commission
may not compel any employer to become a member of the System unless he
shall have been in operation for at least two years . . . . (Italics supplied.).
It is not disputed that the Laguna Transportation Company, an unregistered
partnership composed of Gonzalo Mercado, Artemio Mercado, Florentina
Mata, and Dominador Vera Cruz, commenced the operation of its business
as a common carrier on April 1, 1949. These 4 original partners, with 2
others (Maura Mendoza and Sabina Borja) later converted the partnership
into a corporate entity, by registering its articles of incorporation with the
Securities and Exchange Commission on June 20, 1956. The firm name
"Laguna Transportation Company" was not altered, except with the addition
of the word "Inc." to indicate that petitioner was duly incorporated under
existing laws. The corporation continued the same transportation business of
the unregistered partnership, using the same lines and equipment. There was,
in effect, only a change in the form of the organization of the entity engaged
in the business of transportation of passengers. Hence, said entity as an

employer engaged in business, was already in operation for at least 3 years

prior to the enactment of the Social Security Act on June 18, 1954 and for at
least two years prior to the passage of the amendatory act on June 21, 1957.
Petitioner argues that, since it was registered as a corporation with the
Securities and Exchange Commission only on June 20, 1956, it must be
considered to have been in operation only on said date. While it is true that a
corporation once formed is conferred a juridical personality separate and
district from the persons composing it, it is but a legal fiction introduced for
purposes of convenience and to subserve the ends of justice. The concept
cannot be extended to a point beyond its reasons and policy, and when
invoked in support of an end subversive of this policy, will be disregarded
by the courts. (13 Am. Jur. 160.)
If any general rule can be laid down, in the present state of authority, it is
that a corporation will be looked upon as a legal entity as a general rule, and
until sufficient reason to the contrary appears; but, when the motion of legal
entity is used to defeat public convenience, justify wrong, protect fraud, or
defend crime, the law will regard the corporation as an association of
persons. (1 Fletcher Cyclopedia Corporations [Perm. Ed.] 135-136; U.S.
Milwaukee Refrigeration Transit Co., 142 Fed. 247, cited in Koppel
Philippines, Inc. vs. Yatco, 43 Off. Gaz., 4604.)
To adopt petitioner's argument would defeat, rather than promote, the ends
for which the Social Security Act was enacted. An employer could easily
circumvent the statute by simply changing his form of organization every
other year, and then claim exemption from contribution to the System as
required, on the theory that, as a new entity, it has not been in operation for a
period of at least 2 years. the door to fraudulent circumvention of the statute
would, thereby, be opened.
Moreover, petitioner admitted that as an employer engaged in the business
of a common carrier, its operation commenced on April 1, 1949 while it was
a partnership and continued by the corporation upon its formation on June
20, 1956. Unlike in the conveyance made by the Bian Transportation
Company to the partners Gonzalo Mercado, Artemio Mercado, Florentino
Mata, and Dominador Vera Cruz, no mention whatsoever is made either in
the pleadings or in the stipulation of facts that the lines and equipment of the
unregistered partnership had been sold and transferred to the corporation,
petitioner herein. This omission, to our mind, clearly indicates that there
was, in fact, no transfer of interest, but a mere change in the form of the
organization of the employer engaged in the transportation business, i.e.,
from an unregistered partnership to that of a corporation. As a rule, courts
will look to the substance and not to the form.(Colonial Trust Co. vs.

Montolo Eric Works, 172 Fed. 310; Metropolitan Holding Co. vs. Snyder,
79 F. 2d 263, 103 A.L.R. 612; Arnold vs. Willits, et al., 44 Phil., 634; 1
Fletcher Cyclopedia Corporations [Perm. Ed.] 139-140.)
Finally, the weight of authority supports the view that where a corporation
was formed by, and consisted of members of a partnership whose business
and property was conveyed and transferred to the corporation for the
purpose of continuing its business, in payment for which corporate capital
stock was issued, such corporation is presumed to have assumed partnership
debts, and is prima facie liable therefor. (Stowell vs. Garden City News
Corps., 57 P. 2d 12; Chicago Smelting & Refining Corp. vs. Sullivan, 246
IU, App. 538; Ball vs. Bross., 83 June 19, N.Y. Supp. 692.) The reason for
the rule is that the members of the partnership may be said to have simply
put on a new coat, or taken on a corporate cloak, and the corporation is a
mere continuation of the partnership. (8 Fletcher Cyclopedia Corporations
[Perm. Ed.] 402-411.)
Wherefore, finding no error in the judgment of the court a quo, the same is
hereby affirmed, with costs against petitioner-appellant. So ordered.
Paras, C. J., Bengzon, Montemayor, Bautista Angelo, Labrador, Concepcion
and Gutierrez, David, JJ., co