Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No.

L-11840 December 10, 1963

ANTONIO C. GOQUIOLAY, ET AL., plaintiffs-appellants, vs. WASHINGTON Z. SYCIP, ET AL., defendants-appellees. Norberto J. Quisumbing and Sycip, Salazar and Associates for defendants-appellees. Jose C. Calayco for plaintiffs-appellants.. RESOLUTION REYES, J.B.L., J.: The matter now pending is the appellant's motion for reconsideration of our main decision, wherein we have upheld the validity of the sale of the lands owned by the partnership Goquiolay & Tan Sin An, made in 1949 by the widow of the managing partner, Tan Sin An (Executed in her dual capacity as Administratrix of the husband's estate and as partner in lieu of the husband), in favor of the buyers Washington Sycip and Betty Lee for the following consideration: Cash paid Debts assumed by purchaser: To Yutivo To Sing Yee Cuan & Co., TOTAL 62,415.91 54,310.13 P153,726.04 P37,000.00

Appellant Goquiolay, in his motion for reconsideration, insist that, contrary to our holding, Kong Chai Pin, widow of the deceased partner Tan Sin An, never became more than a limited partner, incapacitated by law to manage the affairs of partnership; that the testimony of her witness Young and Lim belies that she took over the administration of the partnership property; and that, in any event, the sale should be set aside because it was executed with the intent to defraud appellant of his share in the properties sold. Three things must be always held in mind in the discussion of this motion to reconsider, being basic and beyond controversy: (a) That we are dealing here with the transfer of partnership property by one partner, acting in behalf of the firm, to astranger. There is no question between partners inter se, and this aspect to the case was expressly reserved in the main decision of 26 July 1960; (b) That partnership was expressly organized: "to engage in real estate business, either by buying and selling real estate". The Articles of co-partnership, in fact, expressly provided that:

IV. The object and purpose of the copartnership are as follows: 1. To engage in real estate business, either by buying and selling real estates; to subdivide real estates into lots for the purpose of leasing and selling them.; (c) That the properties sold were not part of the contributed capital (which was in cash) but land precisely acquired to be sold, although subject to a mortgage in favor of the original owners, from whom the partnership had acquired them. With these points firmly in mind, let us turn to the points insisted upon by appellant. It is first averred that there is "not one iota of evidence" that Kong Chai Pin managed and retained possession of the partnership properties. Suffice it to point out that appellant Goquiolay himself admitted that ... Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai Pin continue to manage the properties (as) she had no other means of income. Then I said, because I wanted to help Mrs. Kong Chai Pin, she could just do it and besides I am not interested in agricultural lands. I allowed her to take care of the properties in order to help her and because I believe in God and wanted to help her. Q So the answer to my question is you did not take any steps? A I did not. Q And this conversation which you had with Mrs. Yu Eng Lai was few months after 1945? A In the year 1945. (Emphasis supplied). The appellant subsequently ratified this testimony in his deposition of 30 June 1956, pages 8-9, wherein he stated: that plantation was being occupied at that time by the widow, Mrs. Tan Sin An, and of course they are receiving quiet a lot benefit from the plantation. Discarding the self-serving expressions, these admissions of Goquiolay are certainly entitled to greater weight than those of Hernando Young and Rufino Lim, having been made against the party's own interest. Moreover, the appellant's reference to the testimony of Hernando Young, that the witness found the properties "abandoned and undeveloped", omits to mention that said part of the testimony started with the question: Now, you said that about 1942 or 1943 you returned to Davao. Did you meet Mrs. Kong Chai Pin there in Davao at that time? Similarly, the testimony of Rufino Lim, to the effect that the properties of the partnership were undeveloped, and the family of the widow (Kong Chai Pin) did not receive any income from the partnership properties, was given in answer to the question:

According to Mr. Goquiolay, during the Japanese occupation Tan Sin an and his family lived on the plantation of the partnership and derived their subsistence from that plantation. What can you say to that? (Dep. 19 July 1956, p. 8). And also What can you say as to the development of these other properties of the partnership which you saw during the occupation? (Dep. p. 13, Emphasis supplied). to which witness gave the following answer: I saw the properties in Mamay still undeveloped. The third property which is in Tigato is about eleven (11) hectares and planted with abaca seedlings planted by Mr. Sin An. When I went there with Hernando Youngwe saw all the abaca destroyed. The place was occupied by the Japanese Army. They planted camotes and vegetables to feed the Japanese Army. Of course they never paid any money to Tan Sin An or his family. (Dep., Lim, pp. 13-14. Emphasis supplied). Plainly, both Young and Lim's testimonies do not belie, or contradict, Goquiolay's admission that he told Mr. Yu Eng Lai that the widow "could just do it" (i.e., continue to manage the properties). Witnesses Lim and Young referred to the period of Japanese occupation; but Goquiolay's authority was, in fact, given to the widow in 1945, after the occupation. Again, the disputed sale by the widow took place in 1949. That Kong Chai Pin carried out no acts of management during the Japanese occupation (1942-1944) does not mean that she did not do so from 1945 to 1949. We thus find that Goquiolay did not merely rely on reports from Lim and Young; he actually manifested his willingness that the widow should manage the partnership properties. Whether or not she complied with this authority is a question between her and the appellant, and is not here involved. But the authority was given, and she did have it when she made the questioned sale, because it was never revoked. It is argued that the authority given by Goquiolay to the widow Kong Chai Pin was only to manage the property, and that it did not include the power to alienate, citing Article 1713 of the Civil Code of 1889. What this argument overlooks is that the widow was not a mere agent, because she had become a partner upon her husband's death, as expressly provided by the articles of copartnership. Even more, granting that by succession to her husband, Tan Sin An, the widow only became a limited partner, Goquiolay's authorization to manage the partnership property was proof that he considered and recognized her as general partner, at least since 1945. The reason is plain: Under the law (Article 148, last paragraph, Code of Commerce), appellant could not empower the widow, if she were only a limited partner, to administer the properties of the firm, even as a mere agent: Limited partners may not perform any act of administration with respect to the interests of the copartnership, not even in the capacity of agents of the managing partners. (Emphasis supplied). By seeking authority to manage partnership property, Tan Sin An's widow showed that she desired to be considered a general partner. By authorizing the widow to manage partnership property (which a limited partner could not be authorized to do), Goquiolay recognized her as such partner, and is

now in estoppel to deny her position as a general partner, with authority to administer and alienate partnership property. Besides, as we pointed out in our main decision, the heir ordinarily (and we did not say "necessarily") becomes a limited partner for his own protection, because he would normally prefer to avoid any liability in excess of the value of the estate inherited so as not to jeopardize his personal assets. But this statutory limitation of responsibility being designed to protect the heir, the latter may disregard it and instead elect to become a collective or general partner, with all the rights and privileges of one, and answering for the debts of the firm not only with the inheritance but also with the heir's personal fortune. This choice pertains exclusively to the heir, and does not require the assent of the surviving partner. It must be remember that the articles of co-partnership here involved expressly stipulated that: In the event of the death of any of the partners at any time before the expiration of said term, the co-partnership shall not be dissolved but will have to be continued and the deceased partner shall be represented by his heirs or assigns in said co-partnership (Art. XII, Articles of Co-Partnership). The Articles did not provide that the heirs of the deceased would be merely limited partners; on the contrary, they expressly stipulated that in case of death of either partner "the co-partnership ... will have to be continued" with the heirs or assigns. It certainly could not be continued if it were to be converted from a general partnership into a limited partnership, since the difference between the two kinds of associations is fundamental; and specially because the conversion into a limited association would have the heirs of the deceased partner without a share in the management. Hence, the contractual stipulation does actually contemplate that the heirs would become general partners rather than limited ones. Of course, the stipulation would not bind the heirs of the deceased partner should they refuse to assume personal and unlimited responsibility for the obligations of the firm. The heirs, in other words, can not be compelled to become general partners against their wishes. But because they are not so compellable, it does not legitimately follow that they may not voluntarily choose to become general partners, waiving the protective mantle of the general laws of succession. And in the latter event, it is pointless to discuss the legality of any conversion of a limited partner into a general one. The heir never was a limited partner, but chose to be, and became, a general partner right at the start. It is immaterial that the heir's name was not included in the firm name, since no conversion of status is involved, and the articles of co-partnership expressly contemplated the admission of the partner's heirs into the partnership. It must never be overlooked that this case involved the rights acquired by strangers, and does not deal with the rights existing between partners Goquiolay and the widow of Tan Sin An. The issues between the partners inter sewere expressly reserved in our main decision. Now, in determining what kind of partner the widow of partner Tan Sin an Had elected to become, strangers had to be guided by her conduct and actuations and those of appellant Goquiolay. Knowing that by law a limited partner is barred from managing the partnership business or property, third parties (like the purchasers) who found the widow possessing and managing the firm property with the acquiescence (or at least without apparent opposition) of the surviving partners were perfectly justified in assuming that she had become a general partner, and, therefore, in negotiating with her as such a partner, having authority to act for, and in behalf of the firm. This belief, be it noted, was shared even by the probate court that approved the sale by the widow of the real property standing in the partnership

name. That belief was fostered by the very inaction of appellant Goquiolay. Note that for seven long years, from partner Tan Sin An's death in 1942 to the sale in 1949, there was more than ample time for Goquiolay to take up the management of these properties, or at least ascertain how its affairs stood. For seven years Goquiolay could have asserted his alleged rights, and by suitable notice in the commercial registry could have warned strangers that they must deal with him alone, as sole general partner. But he did nothing of the sort, because he was not interested (supra), and he did not even take steps to pay, or settle the firm debts that were overdue since before the outbreak of the last war. He did not even take steps, after Tan Sin An died, to cancel, or modify, the provisions of the partnership articles that he (Goquiolay) would have no intervention in the management of the partnership. This laches certainly contributed to confirm the view that the widow of Tan Sin An had, or was given, authority to manage and deal with the firm's properties apart from the presumption that a general partner dealing with partnership property has to requisite authority from his co-partners (Litton vs. Hill and Ceron, et al., 67 Phil. 513; quoted in our main decision, p. 11). The stipulation in the articles of partnership that any of the two managing partners may contract and sign in the name of the partnership with the consent of the other, undoubtedly creates on obligation between the two partners, which consists in asking the other's consent before contracting for the partnership. This obligation of course is not imposed upon a third person who contracts with the partnership. Neither it is necessary for the third person to ascertain if the managing partner with whom he contracts has previously obtained the consent of the other. A third person may and has a right to presume that the partner with whom he contracts has, in the ordinary and natural course of business, the consent of his copartner; for otherwise he would not enter into the contract. The third person would naturally not presume that the partner with whom he enters into the transaction is violating the articles of partnership, but on the contrary is acting in accordance therewith. And this finds support in the legal presumption that the ordinary course of business has been followed (No. 18, section 334, Code of Civil Procedure), and that the law has been obeyed (No. 31, section 334). This last presumption is equally applicable to contracts which have the force of law between the parties. (Litton vs. Hill & Ceron, et al., 67 Phil. 409, 516). (Emphasis supplied.) It is next urged that the widow, even as a partner, had no authority to sell the real estate of the firm. This argument is lamentably superficial because it fails to differentiate between real estate acquired and held as stock-in-trade and real estate held merely as business site (Vivante's "taller o banco social") for the partnership. Where the partnership business is to deal in merchandise and goods, i.e., movable property, the sale of its real property (immovables) is not within the ordinary powers of a partner, because it is not in line with the normal business of the firm. But where the express and avowed purpose of the partnership is to buy and sell real estate (as in the present case), the immovables thus acquired by the firm from part of its stock-in-trade, and the sale thereof is in pursuance of partnership purposes, hence within the ordinary powers of the partner. This distinction is supported by the opinion of Gay de Montella1 , in the very passage quoted in the appellant's motion for reconsideration: La enajenacion puede entrar en las facultades del gerante, cuando es conforme a los fines sociales. Pero esta facultad de enajenar limitada a las ventas conforme a los fines sociales, viene limitada a los objetos de comercio o a los productos de la fabrica para explotacion de los cuales se ha constituido la Sociedad.Ocurrira una cosa parecida cuando el objeto de la Sociedad fuese la compra y venta de inmuebles, en cuyo caso el gerente estaria facultado para otorgar las ventas que fuere necesario. (Montella) (Emphasis supplied). The same rule obtains in American law.

In Rosen vs. Rosen, 212 N.Y. Supp. 405, 406, it was held: a partnership to deal in real estate may be created and either partner has the legal right to sell the firm real estate. In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550: And hence, when the partnership business is to deal in real estate, one partner has ample power, as a general agent of the firm, to enter into an executory contract for the sale of real estate. And in Revelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St. Rep. 83: If the several partners engaged in the business of buying and selling real estate can not bind the firm by purchases or sales of such property made in the regular course of business, then they are incapable of exercising the essential rights and powers of general partners and their association is not really a partnership at all, but a several agency. Since the sale by the widow was in conformity with the express objective of the partnership, "to engage ... in buying and selling real estate" (Art. IV, No. 1 Articles of Copartnership), it can not be maintained that the sale was made in excess of her power as general partner. Considerable stress is laid by appellant in the ruling of the Supreme Court of Ohio in McGrath, et al., vs. Cowen, et al., 49 N.E., 338. But the facts of that case are vastly different from the one before us. In the McGrath case, the Court expressly found that: The firm was then, and for some time had been, insolvent, in the sense that its property was insufficient to pay its debts, though it still had good credit, and was actively engaged in the prosecution of its business. On that day, which was Saturday, the plaintiff caused to be prepared, ready for execution, the four chattel mortgages in question, which cover all the tangible property then belonging to the firm, including the counters, shelving, and other furnishings and fixtures necessary for, and used in carrying on, its business, and signed the same in this form: "In witness whereof, the said Cowen & McGrath, a firm, and Owen McGrath, surviving partner, of said firm, and Owen McCrath, individually, have hereunto set their hands, this 20th day of May, A.D. 1893. Cowen & Mcgrath, by Owen McGrath. Owen McGrath, Surviving partner of Cowen & McGrath. Owen McGrath." At the same time, the plaintiff had prepared, ready for filing, the petition for the dissolution of the partnership and appointment of a receiver which he subsequently filed, as hereinafter stated. On the day the mortgages were signed, they were placed in the hands of the mortgagees, which was the first intimation to them that there was any intention to make them. At the time none of the claims secured by the mortgages were due, except, it may be, a small part of one of them, and none of the creditors to whom the mortgages were made had requested security, or were pressing for the payment of their debts. ... The mortgages appear to be without a sufficient condition of defiance, and contain a stipulation authorizing the mortgagees to take immediate possession of the property, which they did as soon as the mortgages were filed through the attorney who then represented them, as well as the plaintiff; and the stores were at once closed, and possession delivered by them to the receiver appointed upon the filing of the petition. The avowed purposes of the plaintiff, in the course pursued by him, was to terminate the partnership, place its properly beyond the control of the firm, and insure the preference of the mortgagees, all of which was known to them at the time; .... (Cas cit., p. 343, Emphasis supplied).

It is natural that form these facts the Supreme Court of Ohio should draw the conclusion that the conveyances were made with intent to terminate the partnership, and that they were not within the powers of McGrath as a partner. But there is no similarity between those acts and the sale by the widow of Tan Sin An. In the McGrath case, the sale included even the fixtures used in the business; in our case, the lands sold were those acquired to be sold. In the McGrath case, none of the creditors were pressing for payment; in our case, the creditors had been unpaid for more than seven years, and their claims had been approved by the probate court for payment. In the McGrath case, the partnership received nothing beyond the discharge of its debts; in the present case, not only were its debts assumed by the buyers, but the latter paid, in addition, P37,000.00 in cash to the widow, to the profit of the partnership. Clearly, the McGrath ruling is not applicable. We will now turn to the question of fraud. No direct evidence of it exists; but appellant point out, as indicia thereof, the allegedly low price paid for the property, and the relationship between the buyers, the creditors of the partnership, and the widow of Tan Sin An. First, as to the price: As already noted, this property was actually sold for a total of P153,726.04, of which P37,000.00 was in cash, and the rest in partnership debts assumed by the purchaser. These debts (62,415.91 to Yutivo, and P54,310.13 to Sing Ye Cuan & Co.) are not questioned; they were approved by the court, and its approval is now final. The claims were, in fact, for the balance on the original purchase price of the land sold (sue first to La Urbana, later to the Banco Hipotecario) plus accrued interests and taxes, redeemed by the two creditors-claimants. To show that the price was inadquate, appellant relies on the testimony of the realtor Mata, who is 1955,six years after the sale in question, asserted that the land was worth P312,000.00. Taking into account the continued rise of real estate values since liberation, and the fact that the sale in question was practically a forced sale because the partnership had no other means to pay its legitimate debts, this evidence certainly does not show such "gross inadequacy" as to justify recission of the sale. If at the time of the sale (1949) the price of P153,726.04 was really low, how is it that appellant was not able to raise the amount, even if the creditor's representative, Yu Khe Thai, had already warned him four years before (1945) that the creditors wanted their money back, as they were justly entitled to? It is argued that the land could have been mortgaged to raise the sum needed to discharge the debts. But the lands were already mortgaged, and had been mortgaged since 1940, first to La Urbana, and then to the Banco Hipotecario. Was it reasonable to expect that other persons would loan money to the partnership when it was unable even to pay the taxes on the property, and the interest on the principal since 1940? If it had been possible to find lenders willing to take a chance on such a bad financial record, would not Goquiolay have taken advantage of it? But the fact is clear on the record that since liberation until 1949 Goquiolay never lifted a finger to discharge the debts of the partnership. Is he entitled now to cry fraud after the debts were discharged with no help from him. With regard to the relationship between the parties, suffice it to say that the Supreme Court has ruled that relationship alone is not a badge of fraud (Oria Hnos. vs. McMicking, 21 Phil. 243; also Hermandad del Smo. Nombre de Jesus vs. Sanchez, 40 Off. Gaz., 1685). There is no evidence that the original buyers, Washington Sycip and Betty Lee, were without independent means to purchase the property. That the Yutivos should be willing to extend credit to them, and not to appellant, is neither illegal nor immoral; at the very least, these buyers did not have a record of inveterate defaults like the partnership "Tan Sin An & Goquiolay". Appellant seeks to create the impression that he was the victim of a conspiracy between the Yutivo firm and their component members. But no proof is adduced. If he was such a victim, he could have easily defeated the conspirators by raising money and paying off the firm's debts between 1945 and 1949; but he did not; he did not even care to look for a purchaser of the partnership assets. Were it

true that the conspiracy to defraud him arose (as he claims) because of his refusal to sell the lands when in 1945 Yu Khe Thai asked him to do so, it is certainly strange that the conspirators should wait 4 years, until 1949, to have the sale effected by the widow of Tan Sin An, and that the sale should have been routed through the probate court taking cognizance of Tan Sin An's estate, all of which increased the risk that the supposed fraud should be detected. Neither was there any anomaly in the filing of the claims of Yutivo and Sing Yee Cuan & Co., (as subrogees of the Banco Hipotecario) in proceedings for the settlement of the estate of Tan Sin An. This for two reasons: First, Tan Sin An and the partnership "Tan Sin An & Goquiolay" were solidary (Joint and several)debtors (Exhibits "N", mortgage to the Banco Hipotecario), and Rule 87, section 6 is the effect that: Where the obligation of the decedent is joint and several with another debtor, the claim shall be filed against the decedent as if he were the only debtor, without prejudice to the right of the estate to recover contribution from the other debtor. (Emphasis supplied). Secondly, the solidary obligation was guaranteed by a mortgage on the properties of the partnership and those of Tan Sim An personally, and a mortgage is indivisible, in the sense that each and every parcel under mortgage answers for the totality of the debt (Civ. Code of 1889, Article 1860; New Civil Code, Art. 2089). A final and conclusive consideration: The fraud charged not being one used to obtain a party's consent to a contract (i.e., not being deceit or dolus in contrahendo), if there is fraud at al, it can only be a fraud of creditors that gives rise to a rescission of the offending contract. But by express provision of law (Article 1294, Civil Code of 1889; Article 1383, New Civil Code) "the action for rescission is subsidiary; it can not be instituted except when the party suffering damage has no other legal means to obtain reparation for the same". Since there is no allegation, or evidence, that Goquiolay can not obtain reparation from the widow and heirs of Tan Sin An, the present suit to rescind the sale in question is not maintainable, even if the fraud charged actually did exist. PREMISES CONSIDERED, the motion for reconsideration is denied. Bengzon, C.J., Padilla, Concepcion, Barrera and Dizon, JJ., concur. Regala, J., took no part.