THIRD DIVISION 1.
That plaintiff is entitled to the writ of preliminary attachment
[G.R. No. 136448. November 3, 1999]
LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR
INDUSTRIES, INC., respondent.
DECISION
PANGANIBAN, J.:
A partnership may be deemed to exist among parties who
agree to borrow money to pursue a business and to divide the
profits or losses that may arise therefrom, even if it is shown
that they have not contributed any capital of their own to a
"common fund." Their contribution may be in the form of credit
or industry, not necessarily cash or fixed assets. Being
partners, they are all liable for debts incurred by or on behalf
of the partnership. The liability for a contract entered into on
behalf of an unincorporated association or ostensible
corporation may lie in a person who may not have directly
transacted on its behalf, but reaped benefits from that contract.
The Case
In the Petition for Review on Certiorari before us, Lim Tong
Lim assails the November 26, 1998 Decision of the Court of
Appeals in CA-GR CV 41477,[1] which disposed as follows:
WHEREFORE, [there being] no reversible error in the
appealed decision, the same is hereby affirmed.[2]
The decretal portion of the Quezon City Regional Trial
Court (RTC) ruling, which was affirmed by the CA, reads as
follows:
WHEREFORE, the Court rules:
1|Page
issued by this Court on September 20, 1990;
2. That defendants are jointly liable to plaintiff for the
following amounts, subject to the modifications as hereinafter
made by reason of the special and unique facts and
circumstances and the proceedings that transpired during the
trial of this case;
a. P532,045.00 representing [the] unpaid purchase price of
the fishing nets covered by the Agreement plus P68,000.00
representing the unpaid price of the floats not covered by
said Agreement;
b. 12% interest per annum counted from date of plaintiffs
invoices and computed on their respective amounts as
follows:
i. Accrued interest of P73,221.00 on Invoice No. 14407
for P385,377.80 dated February 9, 1990;
ii. Accrued interest of P27,904.02 on Invoice No. 14413
for P146,868.00 dated February 13, 1990;
iii. Accrued interest of P12,920.00 on Invoice No. 14426
for P68,000.00 dated February 19, 1990;
c. P50,000.00 as and for attorneys fees, plus P8,500.00
representing P500.00 per appearance in court;
d. P65,000.00 representing P5,000.00 monthly rental for
storage charges on the nets counted from September 20,
1990 (date of attachment) to September 12, 1991 (date of
auction sale);
e. Cost of suit.
With respect to the joint liability of defendants for the principal
obligation or for the unpaid price of nets and floats in the
amount of P532,045.00 and P68,000.00, respectively, or for
the total amount of P600,045.00, this Court noted that these
items were attached to guarantee any judgment that may be
rendered in favor of the plaintiff but, upon agreement of the
parties, and, to avoid further deterioration of the nets during
the pendency of this case, it was ordered sold at public
auction for not less than P900,000.00 for which the plaintiff
was the sole and winning bidder. The proceeds of the sale
paid for by plaintiff was deposited in court. In effect, the
amount of P900,000.00 replaced the attached property as a
guaranty for any judgment that plaintiff may be able to secure
in this case with the ownership and possession of the nets
and floats awarded and delivered by the sheriff to plaintiff as
the highest bidder in the public auction sale. It has also been
noted that ownership of the nets [was] retained by the plaintiff
until full payment [was] made as stipulated in the invoices;
hence, in effect, the plaintiff attached its own properties. It
[was] for this reason also that this Court earlier ordered the
attachment bond filed by plaintiff to guaranty damages to
defendants to be cancelled and for the P900,000.00 cash
bidded and paid for by plaintiff to serve as its bond in favor of
defendants.
From the foregoing, it would appear therefore that whatever
judgment the plaintiff may be entitled to in this case will have
to be satisfied from the amount of P900,000.00 as this
amount replaced the attached nets and floats. Considering,
however, that the total judgment obligation as computed
above would amount to only P840,216.92, it would be
inequitable, unfair and unjust to award the excess to the
defendants who are not entitled to damages and who did not
put up a single centavo to raise the amount of P900,000.00
aside from the fact that they are not the owners of the nets
and floats. For this reason, the defendants are hereby
relieved from any and all liabilities arising from the monetary
judgment obligation enumerated above and for plaintiff to
retain possession and ownership of the nets and floats and
2|Page
for the reimbursement of the P900,000.00 deposited by it with
the Clerk of Court.
SO ORDERED. [3]
The Facts
On behalf of "Ocean Quest Fishing Corporation," Antonio
Chua and Peter Yao entered into a Contract dated February 7,
1990, for the purchase of fishing nets of various sizes from the
Philippine Fishing Gear Industries, Inc. (herein
respondent). They claimed that they were engaged in a
business venture with Petitioner Lim Tong Lim, who however
was not a signatory to the agreement. The total price of the
nets amounted to P532,045. Four hundred pieces of floats
worth P68,000 were also sold to the Corporation.[4]
The buyers, however, failed to pay for the fishing nets and
the floats; hence, private respondent filed a collection suit
against Chua, Yao and Petitioner Lim Tong Lim with a prayer
for a writ of preliminary attachment. The suit was brought
against the three in their capacities as general partners, on the
allegation that Ocean Quest Fishing Corporation was a
nonexistent corporation as shown by a Certification from the
Securities and Exchange Commission.[5] On September 20,
1990, the lower court issued a Writ of Preliminary Attachment,
which the sheriff enforced by attaching the fishing nets on
board F/B Lourdes which was then docked at the Fisheries
Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a
Manifestation admitting his liability and requesting a
reasonable time within which to pay. He also turned over to
respondent some of the nets which were in his
possession. Peter Yao filed an Answer, after which he was
deemed to have waived his right to cross-examine witnesses
and to present evidence on his behalf, because of his failure
to appear in subsequent hearings. Lim Tong Lim, on the other
hand, filed an Answer with Counterclaim and Crossclaim and The trial court noted that the Compromise Agreement was
moved for the lifting of the Writ of Attachment.[6] The trial court silent as to the nature of their obligations, but that joint liability
maintained the Writ, and upon motion of private respondent, could be presumed from the equal distribution of the profit and
ordered the sale of the fishing nets at a public loss.[12]
auction. Philippine Fishing Gear Industries won the bidding
Lim appealed to the Court of Appeals (CA) which, as
and deposited with the said court the sales proceeds
already stated, affirmed the RTC.
of P900,000.[7]
Ruling of the Court of Appeals
On November 18, 1992, the trial court rendered its
Decision, ruling that Philippine Fishing Gear Industries was In affirming the trial court, the CA held that petitioner was
entitled to the Writ of Attachment and that Chua, Yao and Lim, a partner of Chua and Yao in a fishing business and may thus
as general partners, were jointly liable to pay respondent.[8] be held liable as a such for the fishing nets and floats
purchased by and for the use of the partnership. The appellate
The trial court ruled that a partnership among Lim, Chua
court ruled:
and Yao existed based (1) on the testimonies of the witnesses
presented and (2) on a Compromise Agreement executed by
The evidence establishes that all the defendants including
the three[9] in Civil Case No. 1492-MN which Chua and Yao
herein appellant Lim Tong Lim undertook a partnership for a
had brought against Lim in the RTC of Malabon, Branch 72,
specific undertaking, that is for commercial fishing x x
for (a) a declaration of nullity of commercial documents; (b) a
x. Obviously, the ultimate undertaking of the defendants was
reformation of contracts; (c) a declaration of ownership of
to divide the profits among themselves which is what a
fishing boats; (d) an injunction and (e) damages.[10] The
partnership essentially is x x x. By a contract of partnership,
Compromise Agreement provided:
two or more persons bind themselves to contribute money,
property or industry to a common fund with the intention of
a) That the parties plaintiffs & Lim Tong Lim agree to have
dividing the profits among themselves (Article 1767, New
the four (4) vessels sold in the amount of P5,750,000.00
Civil Code).[13]
including the fishing net. This P5,750,000.00 shall be applied
as full payment for P3,250,000.00 in favor of JL Holdings
Hence, petitioner brought this recourse before this
Corporation and/or Lim Tong Lim;
Court.[14]
b) If the four (4) vessel[s] and the fishing net will be sold at a
higher price than P5,750,000.00 whatever will be the excess
will be divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; The Issues
1/3 Peter Yao;
In his Petition and Memorandum, Lim asks this Court to
c) If the proceeds of the sale the vessels will be less reverse the assailed Decision on the following grounds:
than P5,750,000.00 whatever the deficiency shall be
shouldered and paid to JL Holding Corporation by 1/3 Lim I THE COURT OF APPEALS ERRED IN HOLDING, BASED
Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao.[11] ON A COMPROMISE AGREEMENT THAT CHUA, YAO
AND PETITIONER LIM ENTERED INTO IN A SEPARATE

3|Page
CASE, THAT A PARTNERSHIP AGREEMENT EXISTED
AMONG THEM.
II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT
HE WAS ACTING FOR OCEAN QUEST FISHING
CORPORATION WHEN HE BOUGHT THE NETS FROM
PHILIPPINE FISHING, THE COURT OF APPEALS WAS
UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER
LIM AS WELL.
III THE TRIAL COURT IMPROPERLY ORDERED THE
SEIZURE AND ATTACHMENT OF PETITIONER LIMS
GOODS.
In determining whether petitioner may be held liable for the
fishing nets and floats purchased from respondent, the Court
must resolve this key issue: whether by their acts, Lim, Chua
and Yao could be deemed to have entered into a partnership.
This Courts Ruling
The Petition is devoid of merit.
First and Second Issues: Existence of a Partnership and
Petitioner's Liability
In arguing that he should not be held liable for the
equipment purchased from respondent, petitioner controverts
the CA finding that a partnership existed between him, Peter
Yao and Antonio Chua. He asserts that the CA based its
finding on the Compromise Agreement alone. Furthermore, he
disclaims any direct participation in the purchase of the nets,
alleging that the negotiations were conducted by Chua and
Yao only, and that he has not even met the representatives of
the respondent company. Petitioner further argues that he was
4|Page
a lessor, not a partner, of Chua and Yao, for the "Contract of
Lease" dated February 1, 1990, showed that he had merely
leased to the two the main asset of the purported partnership
-- the fishing boat F/B Lourdes. The lease was for six months,
with a monthly rental of P37,500 plus 25 percent of the gross
catch of the boat.
We are not persuaded by the arguments of petitioner. The
facts as found by the two lower courts clearly showed that
there existed a partnership among Chua, Yao and him,
pursuant to Article 1767 of the Civil Code which provides:
Article 1767 - By the contract of partnership, two or more
persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the
profits among themselves.
Specifically, both lower courts ruled that a partnership
among the three existed based on the following factual
findings:[15]
(1) That Petitioner Lim Tong Lim requested Peter Yao who
was engaged in commercial fishing to join him, while Antonio
Chua was already Yaos partner;
(2) That after convening for a few times, Lim Chua, and Yao
verbally agreed to acquire two fishing boats, the FB
Lourdes and the FB Nelson for the sum of P3.35 million;
(3) That they borrowed P3.25 million from Jesus Lim, brother
of Petitioner Lim Tong Lim, to finance the venture.
(4) That they bought the boats from CMF Fishing
Corporation, which executed a Deed of Sale over these two
(2) boats in favor of Petitioner Lim Tong Lim only to serve as
security for the loan extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing , re-
equipping, repairing, dry docking and other expenses for the
boats would be shouldered by Chua and Yao;
(6) That because of the unavailability of funds, Jesus Lim
again extended a loan to the partnership in the amount of P1
million secured by a check, because of which, Yao and Chua
entrusted the ownership papers of two other boats, Chuas FB
Lady Anne Mel and Yaos FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao
and Antonio Chua bought nets from Respondent Philippine
Fishing Gear, in behalf of "Ocean Quest Fishing
Corporation," their purported business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in
the Malabon RTC, Branch 72 by Antonio Chua and Peter Yao
against Lim Tong Lim for (a) declaration of nullity of
commercial documents; (b) reformation of contracts; (c)
declaration of ownership of fishing boats; (4) injunction; and
(e) damages.
(9) That the case was amicably settled through a
Compromise Agreement executed between the parties-
litigants the terms of which are already enumerated above.
From the factual findings of both lower courts, it is clear
that Chua, Yao and Lim had decided to engage in a fishing
business, which they started by buying boats worth P3.35
million, financed by a loan secured from Jesus Lim who was
petitioners brother. In their Compromise Agreement, they
subsequently revealed their intention to pay the loan with the
proceeds of the sale of the boats, and to divide equally among
them the excess or loss. These boats, the purchase and the
repair of which were financed with borrowed money, fell under
the term common fund under Article 1767. The contribution to
such fund need not be cash or fixed assets; it could be an
intangible like credit or industry. That the parties agreed that
any loss or profit from the sale and operation of the boats
5|Page
would be divided equally among them also shows that they
had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only
to the purchase of the boat, but also to that of the nets and the
floats. The fishing nets and the floats, both essential to fishing,
were obviously acquired in furtherance of their business. It
would have been inconceivable for Lim to involve himself so
much in buying the boat but not in the acquisition of the
aforesaid equipment, without which the business could not
have proceeded.
Given the preceding facts, it is clear that there was, among
petitioner, Chua and Yao, a partnership engaged in the fishing
business. They purchased the boats, which constituted the
main assets of the partnership, and they agreed that the
proceeds from the sales and operations thereof would be
divided among them.
We stress that under Rule 45, a petition for review like the
present case should involve only questions of law. Thus, the
foregoing factual findings of the RTC and the CA are binding
on this Court, absent any cogent proof that the present action
is embraced by one of the exceptions to the rule.[16] In assailing
the factual findings of the two lower courts, petitioner
effectively goes beyond the bounds of a petition for review
under Rule 45.
Compromise Agreement Not the Sole Basis of
Partnership
Petitioner argues that the appellate courts sole basis for
assuming the existence of a partnership was the Compromise
Agreement. He also claims that the settlement was entered
into only to end the dispute among them, but not to adjudicate
their preexisting rights and obligations. His arguments are
baseless. The Agreement was but an embodiment of the
relationship extant among the parties prior to its execution.
 A proper adjudication of claimants rights mandates that
courts must review and thoroughly appraise all relevant
facts. Both lower courts have done so and have found,
correctly, a preexisting partnership among the parties. In
implying that the lower courts have decided on the basis of one
piece of document alone, petitioner fails to appreciate that the
CA and the RTC delved into the history of the document and
explored all the possible consequential combinations in
harmony with law, logic and fairness. Verily, the two lower
courts factual findings mentioned above nullified petitioners
argument that the existence of a partnership was based only
on the Compromise Agreement.
Petitioner Was a Partner, Not a Lessor
We are not convinced by petitioners argument that he was
merely the lessor of the boats to Chua and Yao, not a partner
in the fishing venture. His argument allegedly finds support in
the Contract of Lease and the registration papers showing that
he was the owner of the boats, including F/B Lourdes where
the nets were found.
His allegation defies logic. In effect, he would like this
Court to believe that he consented to the sale of his own boats
to pay a debt of Chua and Yao, with the excess of the proceeds
to be divided among the three of them. No lessor would do
what petitioner did. Indeed, his consent to the sale proved that
there was a preexisting partnership among all three.
Verily, as found by the lower courts, petitioner entered into
a business agreement with Chua and Yao, in which debts were
undertaken in order to finance the acquisition and the
upgrading of the vessels which would be used in their fishing
business. The sale of the boats, as well as the division among
the three of the balance remaining after the payment of their
loans, proves beyond cavil that F/B Lourdes, though registered
in his name, was not his own property but an asset of the
partnership. It is not uncommon to register the properties
6|Page
acquired from a loan in the name of the person the lender
trusts, who in this case is the petitioner himself. After all, he is
the brother of the creditor, Jesus Lim.
We stress that it is unreasonable indeed, it is absurd -- for
petitioner to sell his property to pay a debt he did not incur, if
the relationship among the three of them was merely that of
lessor-lessee, instead of partners.
Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by
estoppel, liability can be imputed only to Chua and Yao, and
not to him. Again, we disagree.
Section 21 of the Corporation Code of the Philippines
provides:
Sec. 21. Corporation by estoppel. - All persons who assume
to act as a corporation knowing it to be without authority to do
so shall be liable as general partners for all debts, liabilities
and damages incurred or arising as a result thereof: Provided
however, That when any such ostensible corporation is sued
on any transaction entered by it as a corporation or on any
tort committed by it as such, it shall not be allowed to use as
a defense its lack of corporate personality.
One who assumes an obligation to an ostensible corporation
as such, cannot resist performance thereof on the ground
that there was in fact no corporation.
Thus, even if the ostensible corporate entity is proven to
be legally nonexistent, a party may be estopped from denying
its corporate existence. The reason behind this doctrine is
obvious - an unincorporated association has no personality
and would be incompetent to act and appropriate for itself the
power and attributes of a corporation as provided by law; it
cannot create agents or confer authority on another to act in
its behalf; thus, those who act or purport to act as its
representatives or agents do so without authority and at their
own risk. And as it is an elementary principle of law that a
person who acts as an agent without authority or without a
principal is himself regarded as the principal, possessed of all
the right and subject to all the liabilities of a principal, a person
acting or purporting to act on behalf of a corporation which has
no valid existence assumes such privileges and obligations
and becomes personally liable for contracts entered into or for
other acts performed as such agent.[17]
The doctrine of corporation by estoppel may apply to the
alleged corporation and to a third party. In the first instance, an
unincorporated association, which represented itself to be a
corporation, will be estopped from denying its corporate
capacity in a suit against it by a third person who relied in good
faith on such representation. It cannot allege lack of
personality to be sued to evade its responsibility for a contract
it entered into and by virtue of which it received advantages
and benefits.
On the other hand, a third party who, knowing an
association to be unincorporated, nonetheless treated it as a
corporation and received benefits from it, may be barred from
denying its corporate existence in a suit brought against the
alleged corporation. In such case, all those who benefited from
the transaction made by the ostensible corporation, despite
knowledge of its legal defects, may be held liable for contracts
they impliedly assented to or took advantage of.
There is no dispute that the respondent, Philippine Fishing
Gear Industries, is entitled to be paid for the nets it sold. The
only question here is whether petitioner should be held
jointly[18] liable with Chua and Yao. Petitioner contests such
liability, insisting that only those who dealt in the name of the
ostensible corporation should be held liable. Since his name
does not appear on any of the contracts and since he never
directly transacted with the respondent corporation, ergo, he
cannot be held liable.
7|Page
Unquestionably, petitioner benefited from the use of the
nets found inside F/B Lourdes, the boat which has earlier been
proven to be an asset of the partnership. He in fact questions
the attachment of the nets, because the Writ has effectively
stopped his use of the fishing vessel.
It is difficult to disagree with the RTC and the CA that Lim,
Chua and Yao decided to form a corporation. Although it was
never legally formed for unknown reasons, this fact alone does
not preclude the liabilities of the three as contracting parties in
representation of it. Clearly, under the law on estoppel, those
acting on behalf of a corporation and those benefited by it,
knowing it to be without valid existence, are held liable as
general partners.
Technically, it is true that petitioner did not directly act on
behalf of the corporation. However, having reaped the benefits
of the contract entered into by persons with whom he
previously had an existing relationship, he is deemed to be part
of said association and is covered by the scope of the doctrine
of corporation by estoppel. We reiterate the ruling of the Court
in Alonso v. Villamor:[19]
A litigation is not a game of technicalities in which one, more
deeply schooled and skilled in the subtle art of movement
and position , entraps and destroys the other. It is, rather, a
contest in which each contending party fully and fairly lays
before the court the facts in issue and then, brushing aside as
wholly trivial and indecisive all imperfections of form and
technicalities of procedure, asks that justice be done upon
the merits. Lawsuits, unlike duels, are not to be won by a
rapiers thrust. Technicality, when it deserts its proper office
as an aid to justice and becomes its great hindrance and
chief enemy, deserves scant consideration from
courts. There should be no vested rights in technicalities.
Third Issue: Validity of Attachment
 Finally, petitioner claims that the Writ of Attachment was
improperly issued against the nets. We agree with the Court of
Appeals that this issue is now moot and academic. As
previously discussed, F/B Lourdes was an asset of the
partnership and that it was placed in the name of petitioner,
only to assure payment of the debt he and his partners
owed. The nets and the floats were specifically manufactured
and tailor-made according to their own design, and were
bought and used in the fishing venture they agreed
upon. Hence, the issuance of the Writ to assure the payment
of the price stipulated in the invoices is proper. Besides, by
specific agreement, ownership of the nets remained with
Respondent Philippine Fishing Gear, until full payment thereof.
WHEREFORE, the Petition is DENIED and the assailed
Decision AFFIRMED. Costs against petitioner.
SO ORDERED.
Melo, (Chairman), Purisima, and Gonzaga-Reyes,
JJ., concur.
Vitug, J., Pls. see concurring opinion.

8|Page
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-68118 October 29, 1985
JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P.
OBILLOS and REMEDIOS P. OBILLOS, brothers and
sisters, petitioners
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT
OF TAX APPEALS, respondents.
Demosthenes B. Gadioma for petitioners.
AQUINO, J.:
This case is about the income tax liability of four brothers and
sisters who sold two parcels of land which they had acquired
from their father.
On March 2, 1973 Jose Obillos, Sr. completed payment to
Ortigas & Co., Ltd. on two lots with areas of 1,124 and 963
square meters located at Greenhills, San Juan, Rizal. The
next day he transferred his rights to his four children, the
petitioners, to enable them to build their residences. The
company sold the two lots to petitioners for P178,708.12 on
March 13 (Exh. A and B, p. 44, Rollo). Presumably, the
Torrens titles issued to them would show that they were co-
owners of the two lots.
In 1974, or after having held the two lots for more than a
year, the petitioners resold them to the Walled City Securities
Corporation and Olga Cruz Canda for the total sum of
P313,050 (Exh. C and D). They derived from the sale a total
9|Page
profit of P134,341.88 or P33,584 for each of them. They
treated the profit as a capital gain and paid an income tax on
one-half thereof or of P16,792.
In April, 1980, or one day before the expiration of the five-
year prescriptive period, the Commissioner of Internal
Revenue required the four petitioners to pay corporate
income tax on the total profit of P134,336 in addition to
individual income tax on their shares thereof He assessed
P37,018 as corporate income tax, P18,509 as 50% fraud
surcharge and P15,547.56 as 42% accumulated interest, or a
total of P71,074.56.
Not only that. He considered the share of the profits of each
petitioner in the sum of P33,584 as a " taxable in full (not a
mere capital gain of which ½ is taxable) and required them to
pay deficiency income taxes aggregating P56,707.20
including the 50% fraud surcharge and the accumulated
interest.
Thus, the petitioners are being held liable for deficiency
income taxes and penalties totalling P127,781.76 on their
profit of P134,336, in addition to the tax on capital gains
already paid by them.
The Commissioner acted on the theory that the four
petitioners had formed an unregistered partnership or joint
venture within the meaning of sections 24(a) and 84(b) of the
Tax Code (Collector of Internal Revenue vs. Batangas Trans.
Co., 102 Phil. 822).
The petitioners contested the assessments. Two Judges of
the Tax Court sustained the same. Judge Roaquin dissented.
Hence, the instant appeal.
We hold that it is error to consider the petitioners as having
formed a partnership under article 1767 of the Civil Code
simply because they allegedly contributed P178,708.12 to
buy the two lots, resold the same and divided the profit
among themselves.
To regard the petitioners as having formed a taxable
unregistered partnership would result in oppressive taxation
and confirm the dictum that the power to tax involves the
power to destroy. That eventuality should be obviated.
As testified by Jose Obillos, Jr., they had no such intention.
They were co-owners pure and simple. To consider them as
partners would obliterate the distinction between a co-
ownership and a partnership. The petitioners were not
engaged in any joint venture by reason of that isolated
transaction.
Their original purpose was to divide the lots for residential
purposes. If later on they found it not feasible to build their
residences on the lots because of the high cost of
construction, then they had no choice but to resell the same
to dissolve the co-ownership. The division of the profit was
merely incidental to the dissolution of the co-ownership which
was in the nature of things a temporary state. It had to be
terminated sooner or later. Castan Tobeñas says:
Como establecer el deslinde entre la
comunidad ordinaria o copropiedad y la
sociedad?
El criterio diferencial-segun la doctrina mas
generalizada-esta: por razon del origen, en que
la sociedad presupone necesariamente la
convencion, mentras que la comunidad puede
existir y existe ordinariamente sin ela; y por
razon del fin objecto, en que el objeto de la
sociedad es obtener lucro, mientras que el de la
indivision es solo mantener en su integridad la
cosa comun y favorecer su conservacion.
10 | P a g e
Reflejo de este criterio es la sentencia de 15 de
Octubre de 1940, en la que se dice que si en
nuestro Derecho positive se ofrecen a veces
dificultades al tratar de fijar la linea divisoria
entre comunidad de bienes y contrato de
sociedad, la moderna orientacion de la doctrina
cientifica señala como nota fundamental de
diferenciacion aparte del origen de fuente de
que surgen, no siempre uniforme, la finalidad
perseguida por los interesados: lucro comun
partible en la sociedad, y mera conservacion y
aprovechamiento en la comunidad. (Derecho
Civil Espanol, Vol. 2, Part 1, 10 Ed., 1971, 328-
329).
Article 1769(3) of the Civil Code provides that "the sharing of
gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or
common right or interest in any property from which the
returns are derived". There must be an unmistakable
intention to form a partnership or joint venture.*
Such intent was present in Gatchalian vs. Collector of Internal
Revenue, 67 Phil. 666, where 15 persons contributed small
amounts to purchase a two-peso sweepstakes ticket with the
agreement that they would divide the prize The ticket won the
third prize of P50,000. The 15 persons were held liable for
income tax as an unregistered partnership.
The instant case is distinguishable from the cases where the
parties engaged in joint ventures for profit. Thus, in Oña vs.
** This view is supported by the following rulings of
respondent Commissioner:
Co-owership distinguished from partnership.—
We find that the case at bar is fundamentally
similar to the De Leon case. Thus, like the De
Leon heirs, the Longa heirs inherited the
 'hacienda' in question pro-indiviso from their
deceased parents; they did not contribute or
invest additional ' capital to increase or expand
the inherited properties; they merely continued
dedicating the property to the use to which it
had been put by their forebears; they
individually reported in their tax returns their
corresponding shares in the income and
expenses of the 'hacienda', and they continued
for many years the status of co-ownership in
order, as conceded by respondent, 'to preserve
its (the 'hacienda') value and to continue the
existing contractual relations with the Central
Azucarera de Bais for milling purposes. Longa
vs. Aranas, CTA Case No. 653, July 31, 1963).
All co-ownerships are not deemed unregistered
pratnership.—Co-Ownership who own
properties which produce income should not
automatically be considered partners of an
unregistered partnership, or a corporation,
within the purview of the income tax law. To
hold otherwise, would be to subject the income
of all
co-ownerships of inherited properties to the tax
on corporations, inasmuch as if a property does
not produce an income at all, it is not subject to
any kind of income tax, whether the income tax
on individuals or the income tax on corporation.
(De Leon vs. CI R, CTA Case No. 738,
September 11, 1961, cited in Arañas, 1977 Tax
Code Annotated, Vol. 1, 1979 Ed., pp. 77-78).
It is likewise different from Reyes vs. Commissioner of
Internal Revenue, 24 SCRA 198, where father and son
purchased a lot and building, entrusted the administration of
the building to an administrator and divided equally the net
income, and from Evangelista vs. Collector of Internal
Revenue, 102 Phil. 140, where the three Evangelista sisters
bought four pieces of real property which they leased to
various tenants and derived rentals therefrom. Clearly, the
petitioners in these two cases had formed an unregistered
partnership.
In the instant case, what the Commissioner should have
investigated was whether the father donated the two lots to
the petitioners and whether he paid the donor's tax (See Art.
1448, Civil Code). We are not prejudging this matter. It might
have already prescribed.
WHEREFORE, the judgment of the Tax Court is reversed
and set aside. The assessments are cancelled. No costs.
SO ORDERED.
Abad Santos, Escolin, Cuevas and Alampay, JJ., concur.
Concepcion, Jr., is on leave.

Commissioner of Internal Revenue, L-19342, May 25, 1972,

45 SCRA 74, where after an extrajudicial settlement the co-
heirs used the inheritance or the incomes derived therefrom
as a common fund to produce profits for themselves, it was
held that they were taxable as an unregistered partnership.

11 | P a g e
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-5236 January 10, 1910
PEDRO MARTINEZ, plaintiff-appellee,
vs.
ONG PONG CO and ONG LAY, defendants.
ONG PONG CO., appellant.
Fernando de la Cantera for appellant.
O'Brien and DeWitt for appellee.
ARELLANO, C.J.:
On the 12th of December, 1900, the plaintiff herein delivered
P1,500 to the defendants who, in a private document,
acknowledged that they had received the same with the
agreement, as stated by them, "that we are to invest the
amount in a store, the profits or losses of which we are to
divide with the former, in equal shares."
The plaintiff filed a complaint on April 25, 1907, in order to
compel the defendants to render him an accounting of the
partnership as agreed to, or else to refund him the P1,500
that he had given them for the said purpose. Ong Pong Co
alone appeared to answer the complaint; he admitted the fact
of the agreement and the delivery to him and to Ong Lay of
the P1,500 for the purpose aforesaid, but he alleged that Ong
Lay, who was then deceased, was the one who had
managed the business, and that nothing had resulted
therefrom save the loss of the capital of P1,500, to which loss
the plaintiff agreed.
The judge of the Court of First Instance of the city of Manila
who tried the case ordered Ong Pong Co to return to the
12 | P a g e
plaintiff one-half of the said capital of P1,500 which, together
with Ong Lay, he had received from the plaintiff, to wit, P750,
plus P90 as one-half of the profits, calculated at the rate of 12
per cent per annum for the six months that the store was
supposed to have been open, both sums in Philippine
currency, making a total of P840, with legal interest thereon
at the rate of 6 per cent per annum, from the 12th of June,
1901, when the business terminated and on which date he
ought to have returned the said amount to the plaintiff, until
the full payment thereof with costs.
From this judgment Ong Pong Co appealed to this court, and
assigned the following errors:
1. For not having taken into consideration the fact that
the reason for the closing of the store was the
ejectment from the premises occupied by it.
2. For not having considered the fact that there were
losses.
3. For holding that there should have been profits.
4. For having applied article 1138 of the Civil Code.
5. and 6. For holding that the capital ought to have
yielded profits, and that the latter should be calculated
12 per cent per annum; and
7. The findings of the ejectment.
As to the first assignment of error, the fact that the store was
closed by virtue of ejectment proceedings is of no importance
for the effects of the suit. The whole action is based upon the
fact that the defendants received certain capital from the
plaintiff for the purpose of organizing a company; they,
according to the agreement, were to handle the said money
and invest it in a store which was the object of the
association; they, in the absence of a special agreement
vesting in one sole person the management of the business,
were the actual administrators thereof; as such administrators
they were the agent of the company and incurred the
liabilities peculiar to every agent, among which is that of
rendering account to the principal of their transactions, and
paying him everything they may have received by virtue of
the mandatum. (Arts. 1695 and 1720, Civil Code.) Neither of
them has rendered such account nor proven the losses
referred to by Ong Pong Co; they are therefore obliged to
refund the money that they received for the purpose of
establishing the said store — the object of the association.
This was the principal pronouncement of the judgment.
With regard to the second and third assignments of error, this
court, like the court below, finds no evidence that the entire
capital or any part thereof was lost. It is no evidence of such
loss to aver, without proof, that the effects of the store were
ejected. Even though this were proven, it could not be
inferred therefrom that the ejectment was due to the fact that
no rents were paid, and that the rent was not paid on account
of the loss of the capital belonging to the enterprise.
With regard to the possible profits, the finding of the court
below are based on the statements of the defendant Ong
Pong Co, to the effect that "there were some profits, but not
large ones." This court, however, does not find that the
amount thereof has been proven, nor deem it possible to
estimate them to be a certain sum, and for a given period of
time; hence, it can not admit the estimate, made in the
judgment, of 12 per cent per annum for the period of six
months.
which interest is not due except from the time of the judicial
demand, or, in the present case, from the filing of the
complaint. (Arts. 1108 and 1100, Civil Code.) We do not
consider that article 1688 is applicable in this case, in so far
as it provides "that the partnership is liable to every partner
for the amounts he may have disbursed on account of the
same and for the proper interest," for the reason that no other
money than that contributed as is involved.
As in the partnership there were two administrators or agents
liable for the above-named amount, article 1138 of the Civil
Code has been invoked; this latter deals with debts of a
partnership where the obligation is not a joint one, as is
likewise provided by article 1723 of said code with respect to
the liability of two or more agents with respect to the return of
the money that they received from their principal. Therefore,
the other errors assigned have not been committed.
In view of the foregoing judgment appealed from is hereby
affirmed, provided, however, that the defendant Ong Pong Co
shall only pay the plaintiff the sum of P750 with the legal
interest thereon at the rate of 6 per cent per annum from the
time of the filing of the complaint, and the costs, without
special ruling as to the costs of this instance. So ordered.
Torres, Johnson, Carson, and Moreland, JJ., concur.

Inasmuch as in this case nothing appears other than the

failure to fulfill an obligation on the part of a partner who
acted as agent in receiving money for a given purpose, for
which he has rendered no accounting, such agent is
responsible only for the losses which, by a violation of the
provisions of the law, he incurred. This being an obligation to
pay in cash, there are no other losses than the legal interest,
13 | P a g e
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-45624 April 25, 1939
GEORGE LITTON, petitioner-appellant,
vs.
HILL & CERON, ET AL., respondents-appellees.
George E. Reich for appellant.
Roy and De Guzman for appellees.
Espeleta, Quijano and Liwag for appellee Hill.
CONCEPCION, J.:
This is a petition to review on certiorari the decision of the
Court of Appeals in a case originating from the Court of First
Instance of Manila wherein the herein petitioner George
Litton was the plaintiff and the respondents Hill & Ceron,
Robert Hill, Carlos Ceron and Visayan Surety & Insurance
Corporation were defendants.
The facts are as follows: On February 14, 1934, the plaintiff
sold and delivered to Carlos Ceron, who is one of the
managing partners of Hill & Ceron, a certain number of
mining claims, and by virtue of said transaction, the
defendant Carlos Ceron delivered to the plaintiff a document
reading as follows:
Feb. 14, 1934
Received from Mr. George Litton share certificates
Nos. 4428, 4429 and 6699 for 5,000, 5,000 and 7,000
shares respectively — total 17,000 shares of Big
Wedge Mining Company, which we have sold at P0.11
14 | P a g e
(eleven centavos) per share or P1,870.00 less 1/2 per
cent brokerage.
HILL & CERON
By: (Sgd.) CARLOS CERON
Ceron paid to the plaintiff the sum or P1,150 leaving an
unpaid balance of P720, and unable to collect this sum either
from Hill & Ceron or from its surety Visayan Surety &
Insurance Corporation, Litton filed a complaint in the Court of
First Instance of Manila against the said defendants for the
recovery of the said balance. The court, after trial, ordered
Carlos Ceron personally to pay the amount claimed and
absolved the partnership Hill & Ceron, Robert Hill and the
Visayan Surety & Insurance Corporation. On appeal to the
Court of Appeals, the latter affirmed the decision of the court
on May 29, 1937, having reached the conclusion that Ceron
did not intend to represent and did not act for the firm Hill &
Ceron in the transaction involved in this litigation.
Accepting, as we cannot but accept, the conclusion arrived at
by the Court of Appeals as to the question of fact just
mentioned, namely, that Ceron individually entered into the
transaction with the plaintiff, but in view, however, of certain
undisputed facts and of certain regulations and provisions of
the Code of Commerce, we reach the conclusion that the
transaction made by Ceron with the plaintiff should be
understood in law as effected by Hill & Ceron and binding
upon it.
In the first place, it is an admitted fact by Robert Hill when he
testified at the trial that he and Ceron, during the partnership,
had the same power to buy and sell; that in said partnership
Hill as well as Ceron made the transaction as partners in
equal parts; that on the date of the transaction, February 14,
1934, the partnership between Hill and Ceron was in
existence. After this date, or on February 19th, Hill & Ceron
sold shares of the Big Wedge; and when the transaction was
entered into with Litton, it was neither published in the
newspapers nor stated in the commercial registry that the
partnership Hill & Ceron had been dissolved.
Hill testified that a few days before February 14th he had a
conversation with the plaintiff in the course of which he
advised the latter not to deliver shares for sale or on
commission to Ceron because the partnership was about to
be dissolved; but what importance can be attached to said
advice if the partnership was not in fact dissolved on
February 14th, the date when the transaction with Ceron took
place?
Under article 226 of the Code of Commerce, the dissolution
of a commercial association shall not cause any prejudice to
third parties until it has been recorded in the commercial
registry. (See also Cardell vs. Mañeru, 14 Phil., 368.) The
Supreme Court of Spain held that the dissolution of a
partnership by the will of the partners which is not registered
in the commercial registry, does not prejudice third persons.
(Opinion of March 23, 1885.)
Aside from the aforecited legal provisions, the order of the
Bureau of Commerce of December 7, 1933, prohibits brokers
from buying and selling shares on their own account. Said
order reads:
The stock and/or bond broker is, therefore, merely an
agent or an intermediary, and as such, shall not be
allowed. . . .
(c) To buy or to sell shares of stock or bonds on his
own account for purposes of speculation and/or for
manipulating the market, irrespective of whether the
purchase or sale is made from or to a private
individual, broker or brokerage firm.
In its decision the Court of Appeals states:
15 | P a g e
But there is a stronger objection to the plaintiff's
attempt to make the firm responsible to him. According
to the articles of copartnership of 'Hill & Ceron,' filed in
the Bureau of Commerce.
Sixth. That the management of the business affairs of
the copartnership shall be entrusted to both copartners
who shall jointly administer the business affairs,
transactions and activities of the copartnership, shall
jointly open a current account or any other kind of
account in any bank or banks, shall jointly sign all
checks for the withdrawal of funds and shall jointly or
singly sign, in the latter case, with the consent of the
other partner. . . .
Under this stipulation, a written contract of the firm can
only be signed by one of the partners if the other
partner consented. Without the consent of one partner,
the other cannot bind the firm by a written contract.
Now, assuming for the moment that Ceron attempted
to represent the firm in this contract with the plaintiff
(the plaintiff conceded that the firm name was not
mentioned at that time), the latter has failed to prove
that Hill had consented to such contract.
It follows from the sixth paragraph of the articles of
partnership of Hill &n Ceron above quoted that the
management of the business of the partnership has been
entrusted to both partners thereof, but we dissent from the
view of the Court of Appeals that for one of the partners to
bind the partnership the consent of the other is necessary.
Third persons, like the plaintiff, are not bound in entering into
a contract with any of the two partners, to ascertain whether
or not this partner with whom the transaction is made has the
consent of the other partner. The public need not make
inquires as to the agreements had between the partners. Its
knowledge, is enough that it is contracting with the
partnership which is represented by one of the managing
partners.
 There is a general presumption that each individual
partner is an authorized agent for the firm and that he
has authority to bind the firm in carrying on the
partnership transactions. (Mills vs. Riggle, 112 Pac.,
617.)
The presumption is sufficient to permit third persons to
hold the firm liable on transactions entered into by one
of members of the firm acting apparently in its behalf
and within the scope of his authority. (Le
Roy vs.Johnson, 7 U. S. [Law. ed.], 391.)
The second paragraph of the articles of partnership of Hill &
Ceron reads in part:
Second: That the purpose or object for which this
copartnership is organized is to engage in the
business of brokerage in general, such as stock and
bond brokers, real brokers, investment security
brokers, shipping brokers, and other activities
pertaining to the business of brokers in general.
The kind of business in which the partnership Hill & Ceron is
to engage being thus determined, none of the two partners,
under article 130 of the Code of Commerce, may legally
engage in the business of brokerage in general as stock
brokers, security brokers and other activities pertaining to the
business of the partnership. Ceron, therefore, could not have
entered into the contract of sale of shares with Litton as a
private individual, but as a managing partner of Hill & Ceron.
The respondent argues in its brief that even admitting that
one of the partners could not, in his individual capacity,
engage in a transaction similar to that in which the
partnership is engaged without binding the latter,
nevertheless there is no law which prohibits a partner in the
stock brokerage business for engaging in other transactions
different from those of the partnership, as it happens in the
present case, because the transaction made by Ceron is a
16 | P a g e
mere personal loan, and this argument, so it is said, is
corroborated by the Court of Appeals. We do not find this
alleged corroboration because the only finding of fact made
by the Court of Appeals is to the effect that the transaction
made by Ceron with the plaintiff was in his individual
capacity.
The appealed decision is reversed and the defendants are
ordered to pay to the plaintiff, jointly and severally, the sum of
P720, with legal interest, from the date of the filing of the
complaint, minus the commission of one-half per cent (½%)
from the original price of P1,870, with the costs to the
respondents. So ordered.
Avanceña, C. J., Villa-Real, Imperial, Diaz, Laurel, and
Moran, JJ., concur.
RESOLUTION
July 13, 1939
CONCEPCION, J.:
A motion has been presented in this case by Robert Hill, one
of the defendants sentenced in our decision to pay to the
plaintiff the amount claimed in his complaint. It is asked that
we reconsider our decision, the said defendant insisting that
the appellant had not established that Carlos Ceron, another
of the defendants, had the consent of his copartner, the
movant, to enter with the appellant into the contract whose
breach gave rise to the complaint. It is argued that, it being
stipulated in the articles of partnership that Hill and Ceron,
only partners of the firm Hill & Ceron, would, as managers,
have the management of the business of the partnership, and
that either may contract and sign for the partnership with the
consent of the other; the parties of partnership having been,
so it is said, recorded in the commercial registry, the
appellant could not ignore the fact that the consent of the
movant was necessary for the validity of the contract which
he had with the other partner and defendant, Ceron, and
there being no evidence that said consent had been
obtained, the complaint to compel compliance with the said
contract had to be, as it must be in fact, a procedural failure.
Although this question has already been considered and
settled in our decision, we nevertheless take cognizance of
the motion in order to enlarge upon our views on the matter.
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 an 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 is it
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.
Wherefore, unless the contrary is shown, namely, that one of
the partners did not consent to his copartner entering into a
contract with a third person, and that the latter with
knowledge thereof entered into said contract, the aforesaid
presumption with all its force and legal effects should be
taken into account.
17 | P a g e
There is nothing in the case at bar which destroys this
presumption; the only thing appearing in he findings of fact of
the Court of Appeals is that the plaintiff "has failed to prove
that Hill had consented to such contract". According to this, it
seems that the Court of Appeals is of the opinion that the two
partners should give their consent to the contract and that the
plaintiff should prove it. The clause of the articles of
partnership should not be thus understood, for it means that
one of the two partners should have the consent of the other
to contract for the partnership, which is different; because it is
possible that one of the partners may not see any prospect in
a transaction, but he may nevertheless consent to the
realization thereof by his copartner in reliance upon his skill
and ability or otherwise. And here we have to hold once again
that it is not the plaintiff who, under the articles of partnership,
should obtain and prove the consent of Hill, but the latter's
partner, Ceron, should he file a complaint against the
partnership for compliance with the contract; but in the
present case, it is a third person, the plaintiff, who asks for it.
While the said presumption stands, the plaintiff has nothing to
prove.
Passing now to another aspect of the case, had Ceron in any
way stated to the appellant at the time of the execution of the
contract, or if it could be inferred by his conduct, that he had
the consent of Hill, and should it turn out later that he did not
have such consent, this alone would not annul the contract
judging from the provisions of article 130 of the Code of
Commerce reading as follows:
No new obligation shall be contracted against the
will of one of the managing partners, should he have
expressly stated it; but if, however, it should be
contracted it shall not be annulled for this reason, and
shall have its effects without prejudice to the liability of
the partner or partners who contracted it to reimburse
the firm for any loss occasioned by reason thereof.
(Emphasis supplied.)
Under the aforequoted provisions, when, not only without the
consent but against the will of any of the managing partners,
a contract is entered into with a third person who acts in good
faith, and the transaction is of the kind of business in which
the partnership is engaged, as in the present case, said
contract shall not be annulled, without prejudice to the liability
of the guilty partner.

The reason or purpose behind these legal provisions is no

other than to protect a third person who contracts with one of
the managing partners of the partnership, thus avoiding fraud
and deceit to which he may easily fall a victim without this
protection which the Code of Commerce wisely provides.

If we are to interpret the articles of partnership in question by

holding that it is the obligation of the third person to inquire
whether the managing copartner of the one with whom he
contracts has given his consent to said contract, which is
practically casting upon him the obligation to get such
consent, this interpretation would, in similar cases, operate to
hinder effectively the transactions, a thing not desirable and
contrary to the nature of business which requires promptness
and dispatch one the basis of good faith and honesty which
are always presumed.

In view of the foregoing, and sustaining the other views

expressed in the decision, the motion is denied. So ordered.

Avanceña, C. J., Villa-Real, Imperial, Diaz, Laurel, and

Moran, JJ., concur.

18 | P a g e
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-40098 August 29, 1975
ANTONIO LIM TANHU, DY OCHAY, ALFONSO
LEONARDO NG SUA and CO OYO, petitioners,
vs.
HON. JOSE R. RAMOLETE as Presiding Judge, Branch
III, CFI, Cebu and TAN PUT, respondents.
Zosa, Zosa, Castillo, Alcudia & Koh for petitioners.
Fidel Manalo and Florido & Associates for respondents.
BARREDO, J.:
Petition for (1) certiorari to annul and set aside certain
actuations of respondent Court of First Instance of Cebu
Branch III in its Civil Case No. 12328, an action for
accounting of properties and money totalling allegedly about
P15 million pesos filed with a common cause of action
against six defendants, in which after declaring four of the
said defendants herein petitioners, in default and while the
trial as against the two defendants not declared in default
was in progress, said court granted plaintiff's motion to
dismiss the case in so far as the non-defaulted defendants
were concerned and thereafter proceeded to hear ex-parte
the rest of the plaintiffs evidence and subsequently rendered
judgment by default against the defaulted defendants, with
the particularities that notice of the motion to dismiss was not
19 | P a g e
duly served on any of the defendants, who had alleged a
compulsory counterclaim against plaintiff in their joint answer,
and the judgment so rendered granted reliefs not prayed for
in the complaint, and (2) prohibition to enjoin further
proceedings relative to the motion for immediate execution of
the said judgment.
Originally, this litigation was a complaint filed on February 9,
1971 by respondent Tan Put only against the spouses-
petitioners Antonio Lim Tanhu and Dy Ochay. Subsequently,
in an amended complaint dated September 26, 1972, their
son Lim Teck Chuan and the other spouses-petitioners
Alfonso Leonardo Ng Sua and Co Oyo and their son Eng
Chong Leonardo were included as defendants. In said
amended complaint, respondent Tan alleged that she "is the
widow of Tee Hoon Lim Po Chuan, who was a partner in the
commercial partnership, Glory Commercial Company ... with
Antonio Lim Tanhu and Alfonso Ng Sua that "defendant
Antonio Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck
Chuan, and Eng Chong Leonardo, through fraud and
machination, took actual and active management of the
partnership and although Tee Hoon Lim Po Chuan was the
manager of Glory Commercial Company, defendants
managed to use the funds of the partnership to purchase
lands and building's in the cities of Cebu, Lapulapu,
Mandaue, and the municipalities of Talisay and Minglanilla,
some of which were hidden, but the description of those
already discovered were as follows: (list of properties) ...;"
and that:
13. (A)fter the death of Tee Hoon Lim Po
Chuan, the defendants, without liquidation
continued the business of Glory Commercial
Company by purportedly organizing a
corporation known as the Glory Commercial
Company, Incorporated, with paid up capital in
the sum of P125,000.00, which money and
other assets of the said Glory Commercial
Company, Incorporated are actually the assets
 of the defunct Glory Commercial Company
partnership, of which the plaintiff has a share
equivalent to one third (¹/3 ) thereof;
14. (P)laintiff, on several occasions after the
death of her husband, has asked defendants of
the above-mentioned properties and for the
liquidation of the business of the defunct
partnership, including investments on real
estate in Hong Kong, but defendants kept on
promising to liquidate said properties and just
told plaintiff to
15. (S)ometime in the month of November,
1967, defendants, Antonio Lim Tanhu, by
means of fraud deceit and misrepresentations
did then and there, induce and convince the
plaintiff to execute a quitclaim of all her rights
and interests, in the assets of the partnership of
Glory Commercial Company, which is null and
void, executed through fraud and without any
legal effect. The original of said quitclaim is in
the possession of the adverse party defendant
Antonio Lim Tanhu.
16. (A)s a matter of fact, after the execution of
said quitclaim, defendant Antonio Lim Tanhu
offered to pay the plaintiff the amount
P65,000.00 within a period of one (1) month, for
which plaintiff was made to sign a receipt for the
amount of P65,000.00 although no such
amount was given and plaintiff was not even
given a copy of said document;
17. (T)hereafter, in the year 1968-69, the
defendants who had earlier promised to
liquidate the aforesaid properties and assets in
favor among others of plaintiff and until the
middle of the year 1970 when the plaintiff
20 | P a g e
formally demanded from the defendants the
accounting of real and personal properties of
the Glory Commercial Company, defendants
refused and stated that they would not give the
share of the plaintiff. (Pp. 36-37, Record.)
She prayed as follows:
WHEREFORE, it is most respectfully prayed
that judgment be rendered:
a) Ordering the defendants to render an
accounting of the real and personal properties
of the Glory Commercial Company including
those registered in the names of the defendants
and other persons, which properties are located
in the Philippines and in Hong Kong;
b) Ordering the defendants to deliver to the
plaintiff after accounting, one third (¹/3 ) of the
total value of all the properties which is
approximately P5,000,000.00 representing the
just share of the plaintiff;
c) Ordering the defendants to pay the attorney
of the plaintiff the sum of Two Hundred Fifty
Thousand Pesos (P250,000.00) by way of
attorney's fees and damages in the sum of One
Million Pesos (P1,000,000.00).
This Honorable Court is prayed for other
remedies and reliefs consistent with law and
equity and order the defendants to pay the
costs. (Page 38, Record.)
The admission of said amended complaint was opposed by
defendants upon the ground that there were material
modifications of the causes of action previously alleged, but
respondent judge nevertheless allowed the amendment
reasoning that:
The present action is for accounting of real and
personal properties as well as for the recovery
of the same with damages.
An objective consideration of pars. 13 and 15 of
the amended complaint pointed out by the
defendants to sustain their opposition will show
that the allegations of facts therein are merely
to amplify material averments constituting the
cause of action in the original complaint. It
likewise include necessary and indispensable
defendants without whom no final determination
can be had in the action and in order that
complete relief is to be accorded as between
those already parties.
Considering that the amendments sought to be
introduced do not change the main causes of
action in the original complaint and the reliefs
demanded and to allow amendments is the rule,
and to refuse them the exception and in order
that the real question between the parties may
be properly and justly threshed out in a single
proceeding to avoid multiplicity of actions.
(Page 40, Record.)
In a single answer with counterclaim, over the signature of
their common counsel, defendants denied specifically not
only the allegation that respondent Tan is the widow of Tee
Hoon because, according to them, his legitimate wife was
Ang Siok Tin still living and with whom he had four (4)
legitimate children, a twin born in 1942, and two others born
in 1949 and 1965, all presently residing in Hongkong, but
also all the allegations of fraud and conversion quoted above,
the truth being, according to them, that proper liquidation had
been regularly made of the business of the partnership and
21 | P a g e
Tee Hoon used to receive his just share until his death, as a
result of which the partnership was dissolved and what
corresponded to him were all given to his wife and children.
To quote the pertinent portions of said answer:
AND BY WAY OF SPECIAL AND
AFFIRMATIVE DEFENSES,
defendants hereby incorporate all facts averred
and alleged in the answer, and further most
respectfully declare:
1. That in the event that plaintiff is filing the
present complaint as an heir of Tee Hoon Lim
Po Chuan, then, she has no legal capacity to
sue as such, considering that the legitimate
wife, namely: Ang Siok Tin, together with their
children are still alive. Under Sec. 1, (d), Rule
16 of the Revised Rules of Court, lack of legal
capacity to sue is one of the grounds for a
motion to dismiss and so defendants prays that
a preliminary hearing be conducted as provided
for in Sec. 5, of the same rule;
2. That in the alternative case or event that
plaintiff is filing the present case under Art. 144
of the Civil Code, then, her claim or demand
has been paid, waived abandoned or otherwise
extinguished as evidenced by the 'quitclaim'
Annex 'A' hereof, the ground cited is another
ground for a motion to dismiss (Sec. 1, (h), Rule
16) and hence defendants pray that a
preliminary hearing be made in connection
therewith pursuant to Section 5 of the
aforementioned rule;
3. That Tee Hoon Lim Po Chuan was legally
married to Ang Siok Tin and were blessed with
the following children, to wit: Ching Siong Lim
 and Ching Hing Lim (twins) born on February
16, 1942; Lim Shing Ping born on March 3,
1949 and Lim Eng Lu born on June 25, 1965
and presently residing in Hongkong;
4. That even before the death of Tee Hoon Lim
Po Chuan, the plaintiff was no longer his
common law wife and even though she was not
entitled to anything left by Tee Hoon Lim Po
Chuan, yet, out of the kindness and generosity
on the part of the defendants, particularly
Antonio Lain Tanhu, who, was inspiring to be
monk and in fact he is now a monk, plaintiff was
given a substantial amount evidenced by the
'quitclaim' (Annex 'A');
5. That the defendants have acquired properties
out of their own personal fund and certainly not
from the funds belonging to the partnership, just
as Tee Hoon Lim Po Chuan had acquired
properties out of his personal fund and which
are now in the possession of the widow and
neither the defendants nor the partnership have
anything to do about said properties;
6. That it would have been impossible to buy
properties from funds belonging to the
partnership without the other partners knowing
about it considering that the amount taken
allegedly is quite big and with such big amount
withdrawn the partnership would have been
insolvent;
7. That plaintiff and Tee Hoon Lim Po Chuan
were not blessed with children who would have
been lawfully entitled to succeed to the
properties left by the latter together with the
widow and legitimate children;
22 | P a g e
8. That despite the fact that plaintiff knew that
she was no longer entitled to anything of the
shares of the late Tee Hoon Lim Po Chuan, yet,
this suit was filed against the defendant who
have to interpose the following —
COUNTERCLAIM
A. That the defendants hereby reproduced, by
way of reference, all the allegations and
foregoing averments as part of this
counterclaim; .
B. That plaintiff knew and was aware she was
merely the common-law wife of Tee Hoon Lim
Po Chuan and that the lawful and legal is still
living, together with the legitimate children, and
yet she deliberately suppressed this fact, thus
showing her bad faith and is therefore liable for
exemplary damages in an amount which the
Honorable Court may determine in the exercise
of its sound judicial discretion. In the event that
plaintiff is married to Tee Hoon Lim Po Chuan,
then, her marriage is bigamous and should
suffer the consequences thereof;
C. That plaintiff was aware and had knowledge
about the 'quitclaim', even though she was not
entitled to it, and yet she falsely claimed that
defendants refused even to see her and for
filing this unfounded, baseless, futile and puerile
complaint, defendants suffered mental anguish
and torture conservatively estimated to be not
less than P3,000.00;
D. That in order to defend their rights in court,
defendants were constrained to engage the
services of the undersigned counsel, obligating
 themselves to pay P500,000.00 as attorney's
fees;
E. That by way of litigation expenses during the
time that this case will be before this Honorable
Court and until the same will be finally
terminated and adjudicated, defendants will
have to spend at least P5,000.00. (Pp. 44-47.
Record.)
After unsuccessfully trying to show that this counterclaim is
merely permissive and should be dismissed for non-payment
of the corresponding filing fee, and after being overruled by
the court, in due time, plaintiff answered the same, denying
its material allegations.
On February 3, 1973, however, the date set for the pre-trial,
both of the two defendants-spouses the Lim Tanhus and Ng
Suas, did not appear, for which reason, upon motion of
plaintiff dated February 16, 1973, in an order of March 12,
1973, they were all "declared in DEFAULT as of February 3,
1973 when they failed to appear at the pre-trial." They sought
to hive this order lifted thru a motion for reconsideration, but
the effort failed when the court denied it. Thereafter, the trial
started, but at the stage thereof where the first witness of the
plaintiff by the name of Antonio Nuñez who testified that he is
her adopted son, was up for re-cross-examination, said
plaintiff unexpectedly filed on October 19, 1974 the following
simple and unreasoned
MOTION TO DROP DEFENDANTS LIM TECK
CHUAN AND ENG CHONG LEONARDO
COMES now plaintiff, through her undersigned
counsel, unto the Honorable Court most
respectfully moves to drop from the complaint
the defendants Lim Teck Chuan and Eng
Chong Leonardo and to consider the case
dismissed insofar as said defendants Lim Teck
23 | P a g e
Chuan and Eng Chong Leonardo are
concerned.
WHEREFORE, it is most respectfully prayed of
the Honorable Court to drop from the complaint
the defendants Lim Teck Chuan and Eng
Chong Leonardo and to dismiss the case
against them without pronouncement as to
costs. (Page 50, Record.)
which she set for hearing on December 21,
1974. According to petitioners, none of the
defendants declared in default were notified of
said motion, in violation of Section 9 of Rule 13,
since they had asked for the lifting of the order
of default, albeit unsuccessfully, and as regards
the defendants not declared in default, the
setting of the hearing of said motion on October
21, 1974 infringed the three-day requirement of
Section 4 of Rule 15, inasmuch as Atty. Adelino
Sitoy of Lim Teck Chuan was served with a
copy of the motion personally only on October
19, 1974, while Atty. Benjamin Alcudia of Eng
Chong Leonardo was served by registered mail
sent only on the same date.
Evidently without even verifying the notices of
service, just as simply as plaintiff had couched
her motion, and also without any legal grounds
stated, respondent court granted the prayer of
the above motion thus:
ORDER
Acting on the motion of the plaintiff praying for
the dismissal of the complaint as against
defendants Lim Teck Chuan and Eng Chong
Leonardo. —
 The same is hereby GRANTED. The complaint
as against defendant Lim Teck Chuan and Eng
Chong Leonardo is hereby ordered DISMISSED
without pronouncement as to costs.
Simultaneously, the following order was also issued:
Considering that defendants Antonio Lim Tanhu
and his spouse Dy Ochay as well as defendants
Alfonso Ng Sua and his spouse Co Oyo have
been declared in default for failure to appear
during the pre-trial and as to the other
defendants the complaint had already been
ordered dismissed as against them.
Let the hearing of the plaintiff's evidence ex-
parte be set on November 20, 1974, at 8:30
A.M. before the Branch Clerk of Court who is
deputized for the purpose, to swear in
witnesses and to submit her report within ten
(10) days thereafter. Notify the plaintiff.
SO ORDERED.
Cebu City, Philippines, October 21, 1974. (Page
52, Record.)
But, in connection with this last order, the scheduled ex-parte
reception of evidence did not take place on November 20,
1974, for on October 28, 1974, upon verbal motion of plaintiff,
the court issued the following self-explanatory order: .
Acting favorably on the motion of the plaintiff
dated October 18, 1974, the Court deputized
the Branch Clerk of Court to receive the
evidence of the plaintiff ex-parte to be made on
November 20, 1974. However, on October 28,
1974, the plaintiff, together with her witnesses,
24 | P a g e
appeared in court and asked, thru counsel, that
she be allowed to present her evidence.
Considering the time and expenses incurred by
the plaintiff in bringing her witnesses to the
court, the Branch Clerk of Court is hereby
authorized to receive immediately the evidence
of the plaintiff ex-parte.
SO ORDERED.
Cebu City, Philippines, October 28, 1974. (Page
53. Record.)
Upon learning of these orders on October 23, 1973, the
defendant Lim Teck Cheng, thru counsel, Atty. Sitoy, filed a
motion for reconsideration thereof, and on November 1,
1974, defendant Eng Chong Leonardo, thru counsel Atty.
Alcudia, filed also his own motion for reconsideration and
clarification of the same orders. These motions were denied
in an order dated December 6, 1974 but received by the
movants only on December 23, 1974. Meanwhile, respondent
court rendered the impugned decision on December 20,
1974. It does not appear when the parties were served
copies of this decision.
Subsequently, on January 6, 1975, all the defendants, thru
counsel, filed a motion to quash the order of October 28,
1974. Without waiting however for the resolution thereof, on
January 13, 1974, Lim Teck Chuan and Eng Chong Leonardo
went to the Court of Appeals with a petition for certiorari
seeking the annulment of the above-mentioned orders of
October 21, 1974 and October 28, 1974 and decision of
December 20, 1974. By resolution of January 24, 1975, the
Court of Appeals dismissed said petition, holding that its filing
was premature, considering that the motion to quash the
order of October 28, 1974 was still unresolved by the trial
court. This holding was reiterated in the subsequent
resolution of February 5, 1975 denying the motion for
reconsideration of the previous dismissal.
On the other hand, on January 20, 1975, the other
defendants, petitioners herein, filed their notice of appeal,
appeal bond and motion for extension to file their record on
appeal, which was granted, the extension to expire after
fifteen (15) days from January 26 and 27, 1975, for
defendants Lim Tanhu and Ng Suas, respectively. But on
February 7, 1975, before the perfection of their appeal,
petitioners filed the present petition with this Court. And with
the evident intent to make their procedural position clear,
counsel for defendants, Atty. Manuel Zosa, filed with
respondent court a manifestation dated February 14, 1975
stating that "when the non-defaulted defendants Eng Chong
Leonardo and Lim Teck Chuan filed their petition in the Court
of Appeals, they in effect abandoned their motion to quash
the order of October 28, 1974," and that similarly "when
Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and
Co Oyo, filed their petition for certiorari and prohibition ... in
the Supreme Court, they likewise abandoned their motion to
quash." This manifestation was acted upon by respondent
court together with plaintiffs motion for execution pending
appeal in its order of the same date February 14, 1975 this
wise:
ORDER
When these incidents, the motion to quash the
order of October 28, 1974 and the motion for
execution pending appeal were called for
hearing today, counsel for the defendants-
movants submitted their manifestation inviting
the attention of this Court that by their filing for
certiorari and prohibition with preliminary
injunction in the Court of Appeals which was
dismissed and later the defaulted defendants
filed with the Supreme Court certiorari with
25 | P a g e
prohibition they in effect abandoned their
motion to quash.
IN VIEW HEREOF, the motion to quash is
ordered ABANDONED. The resolution of the
motion for execution pending appeal shall be
resolved after the petition for certiorari and
prohibition shall have been resolved by the
Supreme Court.
SO ORDERED.
Cebu City, Philippines, February 14, 1975.
(Page 216, Record.)
Upon these premises, it is the position of petitioners that
respondent court acted illegally, in violation of the rules or
with grave abuse of discretion in acting on respondent's
motion to dismiss of October 18, 1974 without previously
ascertaining whether or not due notice thereof had been
served on the adverse parties, as, in fact, no such notice was
timely served on the non-defaulted defendants Lim Teck
Chuan and Eng Chong Leonardo and no notice at all was
ever sent to the other defendants, herein petitioners, and
more so, in actually ordering the dismissal of the case by its
order of October 21, 1974 and at the same time setting the
case for further hearing as against the defaulted defendants,
herein petitioners, actually hearing the same ex-parte and
thereafter rendering the decision of December 20, 1974
granting respondent Tan even reliefs not prayed for in the
complaint. According to the petitioners, to begin with, there
was compulsory counterclaim in the common answer of the
defendants the nature of which is such that it cannot be
decided in an independent action and as to which the
attention of respondent court was duly called in the motions
for reconsideration. Besides, and more importantly, under
Section 4 of Rule 18, respondent court had no authority to
divide the case before it by dismissing the same as against
the non-defaulted defendants and thereafter proceeding to
hear it ex-parte and subsequently rendering judgment against
the defaulted defendants, considering that in their view, under
the said provision of the rules, when a common cause of
action is alleged against several defendants, the default of
any of them is a mere formality by which those defaulted are
not allowed to take part in the proceedings, but otherwise, all
the defendants, defaulted and not defaulted, are supposed to
have but a common fate, win or lose. In other words,
petitioners posit that in such a situation, there can only be
one common judgment for or against all the defendant, the
non-defaulted and the defaulted. Thus, petitioners contend
that the order of dismissal of October 21, 1974 should be
considered also as the final judgment insofar as they are
concerned, or, in the alternative, it should be set aside
together with all the proceedings and decision held and
rendered subsequent thereto, and that the trial be resumed
as of said date, with the defendants Lim Teck Chuan and Eng
Chong Leonardo being allowed to defend the case for all the
defendants.
On the other hand, private respondent maintains the contrary
view that inasmuch as petitioners had been properly declared
in default, they have no personality nor interest to question
the dismissal of the case as against their non-defaulted co-
defendants and should suffer the consequences of their own
default. Respondent further contends, and this is the only
position discussed in the memorandum submitted by her
counsel, that since petitioners have already made or at least
started to make their appeal, as they are in fact entitled to
appeal, this special civil action has no reason for being.
Additionally, she invokes the point of prematurity upheld by
the Court of Appeals in regard to the above-mentioned
petition therein of the non-defaulted defendants Lim Teck
Chuan and Eng Chong Leonardo. Finally, she argues that in
any event, the errors attributed to respondent court are errors
of judgment and may be reviewed only in an appeal.
After careful scrutiny of all the above-related proceedings, in
the court below and mature deliberation, the Court has
26 | P a g e
arrived at the conclusion that petitioners should be granted
relief, if only to stress emphatically once more that the rules
of procedure may not be misused and abused as instruments
for the denial of substantial justice. A review of the record of
this case immediately discloses that here is another
demonstrative instance of how some members of the bar,
availing of their proficiency in invoking the letter of the rules
without regard to their real spirit and intent, succeed in
inducing courts to act contrary to the dictates of justice and
equity, and, in some instances, to wittingly or unwittingly abet
unfair advantage by ironically camouflaging their actuations
as earnest efforts to satisfy the public clamor for speedy
disposition of litigations, forgetting all the while that the plain
injunction of Section 2 of Rule 1 is that the "rules shall be
liberally construed in order to promote their object and to
assist the parties in obtaining not only 'speedy' but more
imperatively, "just ... and inexpensive determination of every
action and proceeding." We cannot simply pass over the
impression that the procedural maneuvers and tactics
revealed in the records of the case at bar were deliberately
planned with the calculated end in view of depriving
petitioners and their co-defendants below of every
opportunity to properly defend themselves against a claim of
more than substantial character, considering the millions of
pesos worth of properties involved as found by respondent
judge himself in the impugned decision, a claim that appears,
in the light of the allegations of the answer and the
documents already brought to the attention of the court at the
pre-trial, to be rather dubious. What is most regrettable is that
apparently, all of these alarming circumstances have
escaped respondent judge who did not seem to have
hesitated in acting favorably on the motions of the plaintiff
conducive to the deplorable objective just mentioned, and
which motions, at the very least, appeared to be 'of highly
controversial' merit, considering that their obvious tendency
and immediate result would be to convert the proceedings
into a one-sided affair, a situation that should be readily
condemnable and intolerable to any court of justice.
Indeed, a seeming disposition on the part of respondent court
to lean more on the contentions of private respondent may be
discerned from the manner it resolved the attempts of
defendants Dy Ochay and Antonio Lim Tanhu to have the
earlier order of default against them lifted. Notwithstanding
that Dy Ochay's motion of October 8, 1971, co-signed by her
with their counsel, Atty. Jovencio Enjambre (Annex 2 of
respondent answer herein) was over the jurat of the notary
public before whom she took her oath, in the order of
November 2, 1971, (Annex 3 id.) it was held that "the oath
appearing at the bottom of the motion is not the one
contemplated by the abovequoted pertinent provision (See. 3,
Rule 18) of the rules. It is not even a verification. (See. 6,
Rule 7.) What the rule requires as interpreted by the
Supreme Court is that the motion must have to be
accompanied by an affidavit of merits that the defendant has
a meritorious defense, thereby ignoring the very simple legal
point that the ruling of the Supreme Court in Ong Peng vs.
Custodio, 1 SCRA 781, relied upon by His Honor, under
which a separate affidavit of merit is required refers obviously
to instances where the motion is not over oath of the party
concerned, considering that what the cited provision literally
requires is no more than a "motion under oath." Stated
otherwise, when a motion to lift an order of default contains
the reasons for the failure to answer as well as the facts
constituting the prospective defense of the defendant and it is
sworn to by said defendant, neither a formal verification nor a
separate affidavit of merit is necessary.
What is worse, the same order further held that the motion to
lift the order of default "is an admission that there was a valid
service of summons" and that said motion could not amount
to a challenge against the jurisdiction of the court over the
person of the defendant. Such a rationalization is patently
specious and reveals an evident failure to grasp the import of
the legal concepts involved. A motion to lift an order of default
on the ground that service of summons has not been made in
accordance with the rules is in order and is in essence verily
an attack against the jurisdiction of the court over the person
27 | P a g e
of the defendant, no less than if it were worded in a manner
specifically embodying such a direct challenge.
And then, in the order of February 14, 1972 (Annex 6, id.)
lifting at last the order of default as against defendant Lim
Tanhu, His Honor posited that said defendant "has a defense
(quitclaim) which renders the claim of the plaintiff
contentious." We have read defendants' motion for
reconsideration of November 25, 1971 (Annex 5, id.), but We
cannot find in it any reference to a "quitclaim". Rather, the
allegation of a quitclaim is in the amended complaint (Pars.
15-16, Annex B of the petition herein) in which plaintiff
maintains that her signature thereto was secured through
fraud and deceit. In truth, the motion for reconsideration just
mentioned, Annex 5, merely reiterated the allegation in Dy
Ochay's earlier motion of October 8, 1971, Annex 2, to set
aside the order of default, that plaintiff Tan could be but the
common law wife only of Tee Hoon, since his legitimate wife
was still alive, which allegation, His Honor held in the order of
November 2, 1971, Annex 3, to be "not good and meritorious
defense". To top it all, whereas, as already stated, the order
of February 19, 1972, Annex 6, lifted the default against Lim
Tanhu because of the additional consideration that "he has a
defense (quitclaim) which renders the claim of the plaintiff
contentious," the default of Dy Ochay was maintained
notwithstanding that exactly the same "contentions" defense
as that of her husband was invoked by her.
Such tenuous, if not altogether erroneous reasonings and
manifest inconsistency in the legal postures in the orders in
question can hardly convince Us that the matters here in
issue were accorded due and proper consideration by
respondent court. In fact, under the circumstances herein
obtaining, it seems appropriate to stress that, having in view
the rather substantial value of the subject matter involved
together with the obviously contentious character of plaintiff's
claim, which is discernible even on the face of the complaint
itself, utmost care should have been taken to avoid the
slightest suspicion of improper motivations on the part of
anyone concerned. Upon the considerations hereunder to
follow, the Court expresses its grave concern that much has
to be done to dispel the impression that herein petitioners
and their co-defendants are being railroaded out of their
rights and properties without due process of law, on the
strength of procedural technicalities adroitly planned by
counsel and seemingly unnoticed and undetected by
respondent court, whose orders, gauged by their tenor and
the citations of supposedly pertinent provisions and
jurisprudence made therein, cannot be said to have
proceeded from utter lack of juridical knowledgeability and
competence.
–1–
The first thing that has struck the Court upon reviewing the
record is the seeming alacrity with which the motion to
dismiss the case against non-defaulted defendants Lim Teck
Chuan and Eng Chong Leonardo was disposed of, which
definitely ought not to have been the case. The trial was
proceeding with the testimony of the first witness of plaintiff
and he was still under re-cross-examination. Undoubtedly,
the motion to dismiss at that stage and in the light of the
declaration of default against the rest of the defendants was a
well calculated surprise move, obviously designed to secure
utmost advantage of the situation, regardless of its apparent
unfairness. To say that it must have been entirely unexpected
by all the defendants, defaulted and non-defaulted , is merely
to rightly assume that the parties in a judicial proceeding can
never be the victims of any procedural waylaying as long as
lawyers and judges are imbued with the requisite sense of
equity and justice.
But the situation here was aggravated by the indisputable fact
that the adverse parties who were entitled to be notified of
such unanticipated dismissal motion did not get due notice
thereof. Certainly, the non-defaulted defendants had the right
to the three-day prior notice required by Section 4 of Rule 15.
How could they have had such indispensable notice when the
28 | P a g e
motion was set for hearing on Monday, October 21, 1974,
whereas the counsel for Lim Teck Chuan, Atty. Sitoy was
personally served with the notice only on Saturday, October
19, 1974 and the counsel for Eng Chong Leonardo, Atty.
Alcudia, was notified by registered mail which was posted
only that same Saturday, October 19, 1974? According to
Chief Justice Moran, "three days at least must intervene
between the date of service of notice and the date set for the
hearing, otherwise the court may not validly act on the
motion." (Comments on the Rules of Court by Moran, Vol. 1,
1970 ed. p. 474.) Such is the correct construction of Section
4 of Rule 15. And in the instant case, there can be no
question that the notices to the non-defaulted defendants
were short of the requirement of said provision.
We can understand the over-anxiety of counsel for plaintiff,
but what is incomprehensible is the seeming inattention of
respondent judge to the explicit mandate of the pertinent rule,
not to speak of the imperatives of fairness, considering he
should have realized the far-reaching implications, specially
from the point of view he subsequently adopted, albeit
erroneously, of his favorably acting on it. Actually, he was
aware of said consequences, for simultaneously with his
order of dismissal, he immediately set the case for the ex-
parte hearing of the evidence against the defaulted
defendants, which, incidentally, from the tenor of his order
which We have quoted above, appears to have been done by
him motu propio As a matter of fact, plaintiff's motion also
quoted above did not pray for it.
Withal, respondent court's twin actions of October 21, 1974
further ignores or is inconsistent with a number of known
juridical principles concerning defaults, which We will here
take occasion to reiterate and further elucidate on, if only to
avoid a repetition of the unfortunate errors committed in this
case. Perhaps some of these principles have not been amply
projected and elaborated before, and such paucity of
elucidation could be the reason why respondent judge must
have acted as he did. Still, the Court cannot but express its
vehement condemnation of any judicial actuation that unduly
deprives any party of the right to be heard without clear and
specific warrant under the terms of existing rules or binding
jurisprudence. Extreme care must be the instant reaction of
every judge when confronted with a situation involving risks
that the proceedings may not be fair and square to all the
parties concerned. Indeed, a keen sense of fairness, equity
and justice that constantly looks for consistency between the
letter of the adjective rules and these basic principles must be
possessed by every judge, If substance is to prevail, as it
must, over form in our courts. Literal observance of the rules,
when it is conducive to unfair and undue advantage on the
part of any litigant before it, is unworthy of any court of justice
and equity. Withal, only those rules and procedure informed,
with and founded on public policy deserve obedience in
accord with their unequivocal language or words..
Before proceeding to the discussion of the default aspects of
this case, however, it should not be amiss to advert first to
the patent incorrectness, apparent on the face of the record,
of the aforementioned order of dismissal of October 21, 1974
of the case below as regards non-defaulted defendants Lim
and Leonardo. While it is true that said defendants are not
petitioners herein, the Court deems it necessary for a full
view of the outrageous procedural strategy conceived by
respondent's counsel and sanctioned by respondent court to
also make reference to the very evident fact that in ordering
said dismissal respondent court disregarded completely the
existence of defendant's counterclaim which it had itself
earlier held if indirectly, to be compulsory in nature when it
refused to dismiss the same on the ground alleged by
respondent Tan that he docketing fees for the filing thereof
had not been paid by defendants.
Indeed, that said counterclaim is compulsory needs no
extended elaboration. As may be noted in the allegations
hereof aforequoted, it arose out of or is necessarily
connected with the occurrence that is the subject matter of
the plaintiff's claim, (Section 4, Rule 9) namely, plaintiff's
29 | P a g e
allegedly being the widow of the deceased Tee Hoon entitled,
as such, to demand accounting of and to receive the share of
her alleged late husband as partner of defendants Antonio
Lim Tanhu and Alfonso Leonardo Ng Sua in Glory
Commercial Company, the truth of which allegations all the
defendants have denied. Defendants maintain in their
counterclaim that plaintiff knew of the falsity of said
allegations even before she filed her complaint, for she had in
fact admitted her common-law relationship with said
deceased in a document she had jointly executed with him by
way of agreement to terminate their illegitimate relationship,
for which she received P40,000 from the deceased, and with
respect to her pretended share in the capital and profits in the
partnership, it is also defendants' posture that she had
already quitclaimed, with the assistance of able counsel,
whatever rights if any she had thereto in November, 1967, for
the sum of P25,000 duly receipted by her, which quitclaim
was, however, executed, according to respondent herself in
her amended complaint, through fraud. And having filed her
complaint knowing, according to defendants, as she ought to
have known, that the material allegations thereof are false
and baseless, she has caused them to suffer damages.
Undoubtedly, with such allegations, defendants' counterclaim
is compulsory, not only because the same evidence to
sustain it will also refute the cause or causes of action
alleged in plaintiff's complaint, (Moran, supra p. 352) but also
because from its very nature, it is obvious that the same
cannot "remain pending for independent adjudication by the
court." (Section 2, Rule 17.)
The provision of the rules just cited specifically enjoins that
"(i)f a counterclaim has been pleaded by a defendant prior to
the service upon him of the plaintiff's motion to dismiss, the
action shall not be dismissed against the defendant's
objection unless the counterclaim can remain pending for
independent adjudication by the court." Defendants Lim and
Leonardo had no opportunity to object to the motion to
dismiss before the order granting the same was issued, for
the simple reason that they were not opportunity notified of
the motion therefor, but the record shows clearly that at least
defendant Lim immediately brought the matter of their
compulsory counterclaim to the attention of the trial court in
his motion for reconsideration of October 23, 1974, even as
the counsel for the other defendant, Leonardo, predicated his
motion on other grounds. In its order of December 6, 1974,
however, respondent court not only upheld the plaintiffs
supposed absolute right to choose her adversaries but also
held that the counterclaim is not compulsory, thereby virtually
making unexplained and inexplicable 180-degree turnabout in
that respect.
There is another equally fundamental consideration why the
motion to dismiss should not have been granted. As the
plaintiff's complaint has been framed, all the six defendants
are charged with having actually taken part in a conspiracy to
misappropriate, conceal and convert to their own benefit the
profits, properties and all other assets of the partnership
Glory Commercial Company, to the extent that they have
allegedly organized a corporation, Glory Commercial
Company, Inc. with what they had illegally gotten from the
partnership. Upon such allegations, no judgment finding the
existence of the alleged conspiracy or holding the capital of
the corporation to be the money of the partnership is legally
possible without the presence of all the defendants. The non-
defaulted defendants are alleged to be stockholders of the
corporation and any decision depriving the same of all its
assets cannot but prejudice the interests of said defendants.
Accordingly, upon these premises, and even prescinding
from the other reasons to be discussed anon it is clear that all
the six defendants below, defaulted and non-defaulted, are
indispensable parties. Respondents could do no less than
grant that they are so on page 23 of their answer. Such being
the case, the questioned order of dismissal is exactly the
opposite of what ought to have been done. Whenever it
appears to the court in the course of a proceeding that an
indispensable party has not been joined, it is the duty of the
court to stop the trial and to order the inclusion of such party.
(The Revised Rules of Court, Annotated & Commented by
30 | P a g e
Senator Vicente J. Francisco, Vol. 1, p. 271, 1973 ed. See
also Cortez vs. Avila, 101 Phil. 705.) Such an order is
unavoidable, for the "general rule with reference to the
making of parties in a civil action requires the joinder of all
necessary parties wherever possible, and the joinder of all
indispensable parties under any and all conditions, the
presence of those latter being a sine qua non of the exercise
of judicial power." (Borlasa vs. Polistico, 47 Phil. 345, at p.
347.) It is precisely " when an indispensable party is not
before the court (that) the action should be dismissed."
(People v. Rodriguez, 106 Phil. 325, at p. 327.) The absence
of an indispensable party renders all subsequent actuations
of the court null and void, for want of authority to act, not only
as to the absent parties but even as to those present. In
short, what respondent court did here was exactly the reverse
of what the law ordains — it eliminated those who by law
should precisely be joined.
As may he noted from the order of respondent court quoted
earlier, which resolved the motions for reconsideration of the
dismissal order filed by the non-defaulted defendants, His
Honor rationalized his position thus:
It is the rule that it is the absolute prerogative of
the plaintiff to choose, the theory upon which he
predicates his right of action, or the parties he
desires to sue, without dictation or imposition by
the court or the adverse party. If he makes a
mistake in the choice of his right of action, or in
that of the parties against whom he seeks to
enforce it, that is his own concern as he alone
suffers therefrom. The plaintiff cannot be
compelled to choose his defendants, He may
not, at his own expense, be forced to implead
anyone who, under the adverse party's theory,
is to answer for defendant's liability. Neither
may the Court compel him to furnish the means
by which defendant may avoid or mitigate their
liability. (Vaño vs. Alo, 95 Phil. 495-496.)
 This being the rule this court cannot compel the
plaintiff to continue prosecuting her cause of
action against the defendants-movants if in the
course of the trial she believes she can enforce
it against the remaining defendants subject only
to the limitation provided in Section 2, Rule 17
of the Rules of Court. ... (Pages 6263, Record.)
Noticeably, His Honor has employed the same equivocal
terminology as in plaintiff's motion of October 18, 1974 by
referring to the action he had taken as being "dismissal of the
complaint against them or their being dropped therefrom",
without perceiving that the reason for the evidently intentional
ambiguity is transparent. The apparent idea is to rely on the
theory that under Section 11 of Rule 3, parties may be
dropped by the court upon motion of any party at any stage of
the action, hence "it is the absolute right prerogative of the
plaintiff to choose—the parties he desires to sue, without
dictation or imposition by the court or the adverse party." In
other words, the ambivalent pose is suggested that plaintiff's
motion of October 18, 1974 was not predicated on Section 2
of Rule 17 but more on Section 11 of Rule 3. But the truth is
that nothing can be more incorrect. To start with, the latter
rule does not comprehend whimsical and irrational dropping
or adding of parties in a complaint. What it really
contemplates is erroneous or mistaken non-joinder and
misjoinder of parties. No one is free to join anybody in a
complaint in court only to drop him unceremoniously later at
the pleasure of the plaintiff. The rule presupposes that the
original inclusion had been made in the honest conviction that
it was proper and the subsequent dropping is requested
because it has turned out that such inclusion was a mistake.
And this is the reason why the rule ordains that the dropping
be "on such terms as are just" — just to all the other parties.
In the case at bar, there is nothing in the record to legally
justify the dropping of the non-defaulted defendants, Lim and
Leonardo. The motion of October 18, 1974 cites none. From
all appearances, plaintiff just decided to ask for it, without any
relevant explanation at all. Usually, the court in granting such
31 | P a g e
a motion inquires for the reasons and in the appropriate
instances directs the granting of some form of compensation
for the trouble undergone by the defendant in answering the
complaint, preparing for or proceeding partially to trial, hiring
counsel and making corresponding expenses in the
premises. Nothing of these, appears in the order in question.
Most importantly, His Honor ought to have considered that
the outright dropping of the non-defaulted defendants Lim
and Leonardo, over their objection at that, would certainly be
unjust not only to the petitioners, their own parents, who
would in consequence be entirely defenseless, but also to
Lim and Leonardo themselves who would naturally
correspondingly suffer from the eventual judgment against
their parents. Respondent court paid no heed at all to the
mandate that such dropping must be on such terms as are
just" — meaning to all concerned with its legal and factual
effects.
Thus, it is quite plain that respondent court erred in issuing its
order of dismissal of October 21, 1974 as well as its order of
December 6, 1974 denying reconsideration of such dismissal.
As We make this ruling, We are not oblivious of the
circumstance that defendants Lim and Leonardo are not
parties herein. But such consideration is inconsequential. The
fate of the case of petitioners is inseparably tied up with said
order of dismissal, if only because the order of ex-
parte hearing of October 21, 1974 which directly affects and
prejudices said petitioners is predicated thereon. Necessarily,
therefore, We have to pass on the legality of said order, if We
are to decide the case of herein petitioners properly and
fairly.
The attitude of the non-defaulted defendants of no longer
pursuing further their questioning of the dismissal is from
another point of view understandable. On the one hand, why
should they insist on being defendants when plaintiff herself
has already release from her claims? On the other hand, as
far as their respective parents-co-defendants are concerned,
they must have realized that they (their parents) could even
be benefited by such dismissal because they could question
whether or not plaintiff can still prosecute her case against
them after she had secured the order of dismissal in
question. And it is in connection with this last point that the
true and correct concept of default becomes relevant.
At this juncture, it may also be stated that the decision of the
Court of Appeals of January 24, 1975 in G. R. No. SP-03066
dismissing the petition for certiorari of non-defaulted
defendants Lim and Leonardo impugning the order of
dismissal of October 21, 1974, has no bearing at all in this
case, not only because that dismissal was premised by the
appellate court on its holding that the said petition was
premature inasmuch as the trial court had not yet resolved
the motion of the defendants of October 28, 1974 praying that
said disputed order be quashed, but principally because
herein petitioners were not parties in that proceeding and
cannot, therefore, be bound by its result. In particular, We
deem it warranted to draw the attention of private
respondent's counsel to his allegations in paragraphs XI to
XIV of his answer, which relate to said decision of the Court
of Appeals and which have the clear tendency to make it
appear to the Court that the appeals court had upheld the
legality and validity of the actuations of the trial court being
questioned, when as a matter of indisputable fact, the
dismissal of the petition was based solely and exclusively on
its being premature without in any manner delving into its
merits. The Court must and does admonish counsel that such
manner of pleading, being deceptive and lacking in candor,
has no place in any court, much less in the Supreme Court,
and if We are adopting a passive attitude in the premises, it is
due only to the fact that this is counsel's first offense. But
similar conduct on his part in the future will definitely be dealt
with more severely. Parties and counsel would be well
advised to avoid such attempts to befuddle the issues as
invariably then will be exposed for what they are, certainly
unethical and degrading to the dignity of the law profession.
Moreover, almost always they only betray the inherent
weakness of the cause of the party resorting to them.
32 | P a g e
–2–
Coming now to the matter itself of default, it is quite apparent
that the impugned orders must have proceeded from
inadequate apprehension of the fundamental precepts
governing such procedure under the Rules of Court. It is time
indeed that the concept of this procedural device were fully
understood by the bench and bar, instead of being merely
taken for granted as being that of a simple expedient of not
allowing the offending party to take part in the proceedings,
so that after his adversary shall have presented his evidence,
judgment may be rendered in favor of such opponent, with
hardly any chance of said judgment being reversed or
modified.
The Rules of Court contain a separate rule on the subject of
default, Rule 18. But said rule is concerned solely with default
resulting from failure of the defendant or defendants to
answer within the reglementary period. Referring to the
simplest form of default, that is, where there is only one
defendant in the action and he fails to answer on time,
Section 1 of the rule provides that upon "proof of such failure,
(the court shall) declare the defendant in default. Thereupon
the court shall proceed to receive the plaintiff's evidence and
render judgment granting him such relief as the complaint
and the facts proven may warrant." This last clause is
clarified by Section 5 which says that "a judgment entered
against a party in default shall not exceed the amount or be
different in kind from that prayed for."
Unequivocal, in the literal sense, as these provisions are,
they do not readily convey the full import of what they
contemplate. To begin with, contrary to the immediate notion
that can be drawn from their language, these provisions are
not to be understood as meaning that default or the failure of
the defendant to answer should be "interpreted as an
admission by the said defendant that the plaintiff's cause of
action find support in the law or that plaintiff is entitled to the
relief prayed for." (Moran, supra, p. 535 citing Macondary &
Co. v. Eustaquio, 64 Phil. 466, citing with approval Chaffin v.
McFadden, 41 Ark. 42; Johnson v. Pierce, 12 Ark. 599;
Mayden v. Johnson, 59 Ga. 105; People v. Rust, 292 111.
328; Ken v. Leopold 21 111. A. 163; Chicago, etc. Electric R.
Co. v. Krempel 116 111. A. 253.)
Being declared in default does not constitute a waiver of
rights except that of being heard and of presenting evidence
in the trial court. According to Section 2, "except as provided
in Section 9 of Rule 13, a party declared in default shall not
be entitled to notice of subsequent proceedings, nor to take
part in the trial." That provision referred to reads: "No service
of papers other than substantially amended pleadings and
final orders or judgments shall be necessary on a party in
default unless he files a motion to set aside the order of
default, in which event he shall be entitled to notice of all
further proceedings regardless of whether the order of default
is set aside or not." And pursuant to Section 2 of Rule 41, "a
party who has been declared in default may likewise appeal
from the judgment rendered against him as contrary to the
evidence or to the law, even if no petition for relief to set
aside the order of default has been presented by him in
accordance with Rule 38.".
In other words, a defaulted defendant is not actually thrown
out of court. While in a sense it may be said that by defaulting
he leaves himself at the mercy of the court, the rules see to it
that any judgment against him must be in accordance with
law. The evidence to support the plaintiff's cause is, of
course, presented in his absence, but the court is not
supposed to admit that which is basically incompetent.
Although the defendant would not be in a position to object,
elementary justice requires that, only legal evidence should
be considered against him. If the evidence presented should
not be sufficient to justify a judgment for the plaintiff, the
complaint must be dismissed. And if an unfavorable judgment
should be justifiable, it cannot exceed in amount or be
different in kind from what is prayed for in the complaint.
33 | P a g e
Incidentally, these considerations argue against the present
widespread practice of trial judges, as was done by His
Honor in this case, of delegating to their clerks of court the
reception of the plaintiff's evidence when the defendant is in
default. Such a Practice is wrong in principle and orientation.
It has no basis in any rule. When a defendant allows himself
to be declared in default, he relies on the faith that the court
would take care that his rights are not unduly prejudiced. He
has a right to presume that the law and the rules will still be
observed. The proceedings are held in his forced absence,
and it is but fair that the plaintiff should not be allowed to take
advantage of the situation to win by foul or illegal means or
with inherently incompetent evidence. Thus, in such
instances, there is need for more attention from the court,
which only the judge himself can provide. The clerk of court
would not be in a position much less have the authority to act
in the premises in the manner demanded by the rules of fair
play and as contemplated in the law, considering his
comparably limited area of discretion and his presumably
inferior preparation for the functions of a judge. Besides, the
default of the defendant is no excuse for the court to
renounce the opportunity to closely observe the demeanor
and conduct of the witnesses of the plaintiff, the better to
appreciate their truthfulness and credibility. We therefore
declare as a matter of judicial policy that there being no
imperative reason for judges to do otherwise, the practice
should be discontinued.
Another matter of practice worthy of mention at this point is
that it is preferable to leave enough opportunity open for
possible lifting of the order of default before proceeding with
the reception of the plaintiff's evidence and the rendition of
the decision. "A judgment by default may amount to a
positive and considerable injustice to the defendant; and the
possibility of such serious consequences necessitates a
careful and liberal examination of the grounds upon which the
defendant may seek to set it aside." (Moran, supra p. 534,
citing Coombs vs. Santos, 24 Phil. 446; 449-450.) The
expression, therefore, in Section 1 of Rule 18 aforequoted
which says that "thereupon the court shall proceed to receive
the plaintiff's evidence etc." is not to be taken literally. The
gain in time and dispatch should the court immediately try the
case on the very day of or shortly after the declaration of
default is far outweighed by the inconvenience and
complications involved in having to undo everything already
done in the event the defendant should justify his omission to
answer on time.
The foregoing observations, as may be noted, refer to
instances where the only defendant or all the defendants,
there being several, are declared in default. There are
additional rules embodying more considerations of justice
and equity in cases where there are several defendants
against whom a common cause of action is averred and not
all of them answer opportunely or are in default, particularly in
reference to the power of the court to render judgment in
such situations. Thus, in addition to the limitation of Section 5
that the judgment by default should not be more in amount
nor different in kind from the reliefs specifically sought by
plaintiff in his complaint, Section 4 restricts the authority of
the court in rendering judgment in the situations just
mentioned as follows:
Sec. 4. Judgment when some defendants
answer, and other make difficult. — When a
complaint states a common cause of action
against several defendant some of whom
answer, and the others fail to do so, the court
shall try the case against all upon the answer
thus filed and render judgment upon the
evidence presented. The same proceeding
applies when a common cause of action is
pleaded in a counterclaim, cross-claim and
third-party claim.
Very aptly does Chief Justice Moran elucidate on this
provision and the controlling jurisprudence explanatory
thereof this wise:
34 | P a g e
Where a complaint states a common cause of
action against several defendants and some
appear to defend the case on the merits while
others make default, the defense interposed by
those who appear to litigate the case inures to
the benefit of those who fail to appear, and if
the court finds that a good defense has been
made, all of the defendants must be absolved.
In other words, the answer filed by one or some
of the defendants inures to the benefit of all the
others, even those who have not seasonably
filed their answer. (Bueno v. Ortiz, L-22978,
June 27, 1968, 23 SCRA 1151.) The proper
mode of proceeding where a complaint states a
common cause of action against several
defendants, and one of them makes default, is
simply to enter a formal default order against
him, and proceed with the cause upon the
answers of the others. The defaulting defendant
merely loses his standing in court, he not being
entitled to the service of notice in the cause, nor
to appear in the suit in any way. He cannot
adduce evidence; nor can he be heard at the
final hearing, (Lim Toco v. Go Fay, 80 Phil.
166.) although he may appeal the judgment
rendered against him on the merits. (Rule 41,
sec. 2.) If the case is finally decided in the
plaintiff's favor, a final decree is then entered
against all the defendants; but if the suit should
be decided against the plaintiff, the action will
be dismissed as to all the defendants alike.
(Velez v. Ramas, 40 Phil. 787-792; Frow v. de
la Vega, 15 Wal. 552,21 L. Ed. 60.) In other
words the judgment will affect the defaulting
defendants either favorably or adversely.
(Castro v. Peña, 80 Phil. 488.)
Defaulting defendant may ask execution if
judgment is in his favor. (Castro v.
 Peña, supra.) (Moran, Rules of Court, Vol. 1,
pp. 538-539.)
In Castro vs. Peña, 80 Phil. 488, one of the
numerous cases cited by Moran, this Court
elaborated on the construction of the same rule
when it sanctioned the execution, upon motion
and for the benefit of the defendant in default, of
a judgment which was adverse to the plaintiff.
The Court held:
As above stated, Emilia Matanguihan, by her
counsel, also was a movant in the petition for
execution Annex 1. Did she have a right to be
such, having been declared in default? In Frow
vs. De la Vega, supra, cited as authority
in Velez vs. Ramas, supra, the Supreme Court
of the United States adopted as ground for its
own decision the following ruling of the New
York Court of Errors in Clason vs. Morris, 10
Jons., 524:
It would be unreasonable to hold that because
one defendant had made default, the plaintiff
should have a decree even against him, where
the court is satisfied from the proofs offered by
the other, that in fact the plaintiff is not entitled
to a decree. (21 Law, ed., 61.)
The reason is simple: justice has to be
consistent. The complaint stating a common
cause of action against several defendants, the
complainant's rights — or lack of them — in the
controversy have to be the same, and not
different, as against all the defendant's although
one or some make default and the other or
others appear, join issue, and enter into trial.
For instance, in the case of Clason vs.
Morris above cited, the New York Court of
35 | P a g e
Errors in effect held that in such a case if the
plaintiff is not entitled to a decree, he will not be
entitled to it, not only as against the defendant
appearing and resisting his action but also as
against the one who made default. In the case
at bar, the cause of action in the plaintiff's
complaint was common against the Mayor of
Manila, Emilia Matanguihan, and the other
defendants in Civil Case No. 1318 of the lower
court. The Court of First Instance in its
judgment found and held upon the evidence
adduced by the plaintiff and the defendant
mayor that as between said plaintiff and
defendant Matanguihan the latter was the one
legally entitled to occupy the stalls; and it
decreed, among other things, that said plaintiff
immediately vacate them. Paraphrasing the
New York Court of Errors, it would be
unreasonable to hold now that because
Matanguihan had made default, the said plaintiff
should be declared, as against her, legally
entitled to the occupancy of the stalls, or to
remain therein, although the Court of First
Instance was so firmly satisfied, from the proofs
offered by the other defendant, that the same
plaintiff was not entitled to such occupancy that
it peremptorily ordered her to vacate the stalls.
If in the cases of Clason vs. Morris, supra, Frow
vs. De la Vega, supra, and Velez vs. Ramas,
supra the decrees entered inured to the benefit
of the defaulting defendants, there is no reason
why that entered in said case No. 1318 should
not be held also to have inured to the benefit of
the defaulting defendant Matanguihan and the
doctrine in said three cases plainly implies that
there is nothing in the law governing default
which would prohibit the court from rendering
judgment favorable to the defaulting defendant
in such cases. If it inured to her benefit, it
 stands to reason that she had a right to claim
that benefit, for it would not be a benefit if the
supposed beneficiary were barred from claiming
it; and if the benefit necessitated the execution
of the decree, she must be possessed of the
right to ask for the execution thereof as she did
when she, by counsel, participated in the
petition for execution Annex 1.
Section 7 of Rule 35 would seem to afford a
solid support to the above considerations. It
provides that when a complaint states a
common cause of action against several
defendants, some of whom answer, and the
others make default, 'the court shall try the case
against all upon the answer thus filed and
render judgment upon the evidence presented
by the parties in court'. It is obvious that under
this provision the case is tried jointly not only
against the defendants answering but also
against those defaulting, and the trial is held
upon the answer filed by the former; and the
judgment, if adverse, will prejudice the
defaulting defendants no less than those who
answer. In other words, the defaulting
defendants are held bound by the answer filed
by their co-defendants and by the judgment
which the court may render against all of them.
By the same token, and by all rules of equity
and fair play, if the judgment should happen to
be favorable, totally or partially, to the
answering defendants, it must correspondingly
benefit the defaulting ones, for it would not be
just to let the judgment produce effects as to the
defaulting defendants only when adverse to
them and not when favorable.
In Bueno vs. Ortiz, 23 SCRA 1151, the Court applied the
provision under discussion in the following words:
36 | P a g e
In answer to the charge that respondent Judge
had committed a grave abuse of discretion in
rendering a default judgment against the PC,
respondents allege that, not having filed its
answer within the reglementary period, the PC
was in default, so that it was proper for Patanao
to forthwith present his evidence and for
respondent Judge to render said judgment. It
should be noted, however, that in entering the
area in question and seeking to prevent
Patanao from continuing his logging operations
therein, the PC was merely executing an order
of the Director of Forestry and acting as his
agent. Patanao's cause of action against the
other respondents in Case No. 190, namely, the
Director of Forestry, the District Forester of
Agusan, the Forest Officer of Bayugan, Agusan,
and the Secretary of Agriculture and Natural
Resources. Pursuant to Rule 18, Section 4, of
the Rules of Court, 'when a complaint states a
common cause of action against several
defendants some of whom answer and the
others fail to do so, the court shall try the case
against all upon the answer thus filed (by some)
and render judgment upon the evidence
presented.' In other words, the answer filed by
one or some of the defendants inures to the
benefit of all the others, even those who have
not seasonably filed their answer.
Indeed, since the petition in Case No. 190 sets
forth a common cause of action against all of
the respondents therein, a decision in favor of
one of them would necessarily favor the others.
In fact, the main issue, in said case, is whether
Patanao has a timber license to undertake
logging operations in the disputed area. It is not
possible to decide such issue in the negative,
insofar as the Director of Forestry, and to settle
 it otherwise, as regards the PC, which is merely
acting as agent of the Director of Forestry, and
is, therefore, his alter ego, with respect to the
disputed forest area.
Stated differently, in all instances where a common cause of
action is alleged against several defendants, some of whom
answer and the others do not, the latter or those in default
acquire a vested right not only to own the defense interposed
in the answer of their co- defendant or co-defendants not in
default but also to expect a result of the litigation totally
common with them in kind and in amount whether favorable
or unfavorable. The substantive unity of the plaintiff's cause
against all the defendants is carried through to its adjective
phase as ineluctably demanded by the homogeneity and
indivisibility of justice itself. Indeed, since the singleness of
the cause of action also inevitably implies that all the
defendants are indispensable parties, the court's power to act
is integral and cannot be split such that it cannot relieve any
of them and at the same time render judgment against the
rest. Considering the tenor of the section in question, it is to
be assumed that when any defendant allows himself to be
declared in default knowing that his defendant has already
answered, he does so trusting in the assurance implicit in the
rule that his default is in essence a mere formality that
deprives him of no more than the right to take part in the trial
and that the court would deem anything done by or for the
answering defendant as done by or for him. The presumption
is that otherwise he would not -have seen to that he would
not be in default. Of course, he has to suffer the
consequences of whatever the answering defendant may do
or fail to do, regardless of possible adverse consequences,
but if the complaint has to be dismissed in so far as the
answering defendant is concerned it becomes his inalienable
right that the same be dismissed also as to him. It does not
matter that the dismissal is upon the evidence presented by
the plaintiff or upon the latter's mere desistance, for in both
contingencies, the lack of sufficient legal basis must be the
cause. The integrity of the common cause of action against
37 | P a g e
all the defendants and the indispensability of all of them in the
proceedings do not permit any possibility of waiver of the
plaintiff's right only as to one or some of them, without
including all of them, and so, as a rule, withdrawal must be
deemed to be a confession of weakness as to all. This is not
only elementary justice; it also precludes the concomitant
hazard that plaintiff might resort to the kind of procedural
strategem practiced by private respondent herein that
resulted in totally depriving petitioners of every opportunity to
defend themselves against her claims which, after all, as will
be seen later in this opinion, the record does not show to be
invulnerable, both in their factual and legal aspects, taking
into consideration the tenor of the pleadings and the
probative value of the competent evidence which were before
the trial court when it rendered its assailed decision where all
the defendants are indispensable parties, for which reason
the absence of any of them in the case would result in the
court losing its competency to act validly, any compromise
that the plaintiff might wish to make with any of them must, as
a matter of correct procedure, have to await until after the
rendition of the judgment, at which stage the plaintiff may
then treat the matter of its execution and the satisfaction of
his claim as variably as he might please. Accordingly, in the
case now before Us together with the dismissal of the
complaint against the non-defaulted defendants, the court
should have ordered also the dismissal thereof as to
petitioners.
Indeed, there is more reason to apply here the principle of
unity and indivisibility of the action just discussed because all
the defendants here have already joined genuine issues with
plaintiff. Their default was only at the pre-trial. And as to such
absence of petitioners at the pre-trial, the same could be
attributed to the fact that they might not have considered it
necessary anymore to be present, since their respective
children Lim and Leonardo, with whom they have common
defenses, could take care of their defenses as well. Anything
that might have had to be done by them at such pre-trial
could have been done for them by their children, at least
initially, specially because in the light of the pleadings before
the court, the prospects of a compromise must have
appeared to be rather remote. Such attitude of petitioners is
neither uncommon nor totally unjustified. Under the
circumstances, to declare them immediately and irrevocably
in default was not an absolute necessity. Practical
considerations and reasons of equity should have moved
respondent court to be more understanding in dealing with
the situation. After all, declaring them in default as
respondent court did not impair their right to a common fate
with their children.
–3–
Another issue to be resolved in this case is the question of
whether or not herein petitioners were entitled to notice of
plaintiff's motion to drop their co-defendants Lim and
Leonardo, considering that petitioners had been previously
declared in default. In this connection, the decisive
consideration is that according to the applicable rule, Section
9, Rule 13, already quoted above, (1) even after a defendant
has been declared in default, provided he "files a motion to
set aside the order of default, — he shall be entitled to notice
of all further proceedings regardless of whether the order of
default is set aside or not" and (2) a party in default who has
not filed such a motion to set aside must still be served with
all "substantially amended or supplemented pleadings." In the
instant case, it cannot be denied that petitioners had all filed
their motion for reconsideration of the order declaring them in
default. Respondents' own answer to the petition therein
makes reference to the order of April 3, 1973, Annex 8 of said
answer, which denied said motion for reconsideration. On
page 3 of petitioners' memorandum herein this motion is
referred to as "a motion to set aside the order of default." But
as We have not been favored by the parties with a copy of
the said motion, We do not even know the excuse given for
petitioners' failure to appear at the pre-trial, and We cannot,
therefore, determine whether or not the motion complied with
the requirements of Section 3 of Rule 18 which We have held
38 | P a g e
to be controlling in cases of default for failure to answer on
time. (The Philippine-British Co. Inc. etc. et al. vs. The Hon.
Walfrido de los Angeles etc. et al., 63 SCRA 50.)
We do not, however, have here, as earlier noted, a case of
default for failure to answer but one for failure to appear at
the pre-trial. We reiterate, in the situation now before Us,
issues have already been joined. In fact, evidence had been
partially offered already at the pre-trial and more of it at the
actual trial which had already begun with the first witness of
the plaintiff undergoing re-cross-examination. With these
facts in mind and considering that issues had already been
joined even as regards the defaulted defendants, it would be
requiring the obvious to pretend that there was still need for
an oath or a verification as to the merits of the defense of the
defaulted defendants in their motion to reconsider their
default. Inasmuch as none of the parties had asked for a
summary judgment there can be no question that the issues
joined were genuine, and consequently, the reason for
requiring such oath or verification no longer holds. Besides, it
may also be reiterated that being the parents of the non-
defaulted defendants, petitioners must have assumed that
their presence was superfluous, particularly because the
cause of action against them as well as their own defenses
are common. Under these circumstances, the form of the
motion by which the default was sought to be lifted is
secondary and the requirements of Section 3 of Rule 18 need
not be strictly complied with, unlike in cases of default for
failure to answer. We can thus hold as We do hold for the
purposes of the revival of their right to notice under Section 9
of Rule 13, that petitioner's motion for reconsideration was in
substance legally adequate regardless of whether or not it
was under oath.
In any event, the dropping of the defendants Lim and
Leonardo from plaintiff's amended complaint was virtually a
second amendment of plaintiffs complaint. And there can be
no doubt that such amendment was substantial, for with the
elimination thereby of two defendants allegedly solidarily
liable with their co-defendants, herein petitioners, it had the
effect of increasing proportionally what each of the remaining
defendants, the said petitioners, would have to answer for
jointly and severally. Accordingly, notice to petitioners of the
plaintiff's motion of October 18, 1974 was legally
indispensable under the rule above-quoted. Consequently,
respondent court had no authority to act on the motion, to
dismiss, pursuant to Section 6 of Rule 15, for according to
Senator Francisco, "(t) he Rules of Court clearly provide that
no motion shall be acted upon by the Court without the proof
of service of notice thereof, together with a copy of the motion
and other papers accompanying it, to all parties concerned at
least three days before the hearing thereof, stating the time
and place for the hearing of the motion. (Rule 26, section 4, 5
and 6, Rules of Court (now Sec. 15, new Rules). When the
motion does not comply with this requirement, it is not a
motion. It presents no question which the court could decide.
And the Court acquires no jurisdiction to consider it. (Roman
Catholic Bishop of Lipa vs. Municipality of Unisan 44 Phil.,
866; Manakil vs. Revilla, 42 Phil., 81.) (Laserna vs. Javier, et
al., CA-G.R. No. 7885, April 22, 1955; 21 L.J. 36, citing
Roman Catholic Bishop of Lipa vs. Municipality of Unisan 44
Phil., 866; Manakil vs. Revilla, 42 Phil., 81.) (Francisco. The
Revised Rules of Court in the Philippines, pp. 861-862.)
Thus, We see again, from a different angle, why respondent
court's order of dismissal of October 21, 1974 is fatally
ineffective.
–4–
The foregoing considerations notwithstanding, it is
respondents' position that certiorari is not the proper remedy
of petitioners. It is contended that inasmuch as said
petitioners have in fact made their appeal already by filing the
required notice of appeal and appeal bond and a motion for
extension to file their record on appeal, which motion was
granted by respondent court, their only recourse is to
prosecute that appeal. Additionally, it is also maintained that
since petitioners have expressly withdrawn their motion to
39 | P a g e
quash of January 4, 1975 impugning the order of October 28,
1974, they have lost their right to assail by certiorari the
actuations of respondent court now being questioned,
respondent court not having been given the opportunity to
correct any possible error it might have committed.
We do not agree. As already shown in the foregoing
discussion, the proceedings in the court below have gone so
far out of hand that prompt action is needed to restore order
in the entangled situation created by the series of plainly
illegal orders it had issued. The essential purpose
of certiorari is to keep the proceedings in lower judicial courts
and tribunals within legal bounds, so that due process and
the rule of law may prevail at all times and arbitrariness,
whimsicality and unfairness which justice abhors may
immediately be stamped out before graver injury, juridical and
otherwise, ensues. While generally these objectives may well
be attained in an ordinary appeal, it is undoubtedly the better
rule to allow the special remedy of certiorari at the option of
the party adversely affected, when the irregularity committed
by the trial court is so grave and so far reaching in its
consequences that the long and cumbersome procedure of
appeal will only further aggravate the situation of the
aggrieved party because other untoward actuations are likely
to materialize as natural consequences of those already
perpetrated. If the law were otherwise, certiorari would have
no reason at all for being.
No elaborate discussion is needed to show the urgent need
for corrective measures in the case at bar. Verily, this is one
case that calls for the exercise of the Supreme Court's
inherent power of supervision over all kinds of judicial actions
of lower courts. Private respondent's procedural technique
designed to disable petitioners to defend themselves against
her claim which appears on the face of the record itself to be
at least highly controversial seems to have so fascinated
respondent court that none would be surprised should her
pending motion for immediate execution of the impugned
judgment receive similar ready sanction as her previous
motions which turned the proceedings into a one-sided affair.
The stakes here are high. Not only is the subject matter
considerably substantial; there is the more important aspect
that not only the spirit and intent of the rules but even the
basic rudiments of fair play have been disregarded. For the
Court to leave unrestrained the obvious tendency of the
proceedings below would be nothing short of wittingly
condoning inequity and injustice resulting from erroneous
construction and unwarranted application of procedural rules.
–5–
The sum and total of all the foregoing disquisitions is that the
decision here in question is legally anomalous. It is
predicated on two fatal malactuations of respondent court
namely (1) the dismissal of the complaint against the non-
defaulted defendants Lim and Leonardo and (2) the ex-
parte reception of the evidence of the plaintiff by the clerk of
court, the subsequent using of the same as basis for its
judgment and the rendition of such judgment.
For at least three reasons which We have already fully
discussed above, the order of dismissal of October 21, 1974
is unworthy of Our sanction: (1) there was no timely notice of
the motion therefor to the non-defaulted defendants, aside
from there being no notice at all to herein petitioners; (2) the
common answer of the defendants, including the non-
defaulted, contained a compulsory counterclaim incapable of
being determined in an independent action; and (3) the
immediate effect of such dismissal was the removal of the
two non-defaulted defendants as parties, and inasmuch as
they are both indispensable parties in the case, the court
consequently lost the" sine qua non of the exercise of judicial
power", per Borlasa vs. Polistico, supra. This is not to
mention anymore the irregular delegation to the clerk of court
of the function of receiving plaintiff's evidence. And as
regards the ex-parte reception of plaintiff's evidence and
subsequent rendition of the judgment by default based
thereon, We have seen that it was violative of the right of the
40 | P a g e
petitioners, under the applicable rules and principles on
default, to a common and single fate with their non-defaulted
co-defendants. And We are not yet referring, as We shall do
this anon to the numerous reversible errors in the decision
itself.
It is to be noted, however, that the above-indicated two
fundamental flaws in respondent court's actuations do not call
for a common corrective remedy. We cannot simply rule that
all the impugned proceedings are null and void and should be
set aside, without being faced with the insurmountable
obstacle that by so doing We would be reviewing the case as
against the two non-defaulted defendants who are not before
Us not being parties hereto. Upon the other hand, for Us to
hold that the order of dismissal should be allowed to stand,
as contended by respondents themselves who insist that the
same is already final, not only because the period for its
finality has long passed but also because allegedly, albeit not
very accurately, said 'non-defaulted defendants
unsuccessfully tried to have it set aside by the Court of
Appeals whose decision on their petition is also already final,
We would have to disregard whatever evidence had been
presented by the plaintiff against them and, of course, the
findings of respondent court based thereon which, as the
assailed decision shows, are adverse to them. In other
words, whichever of the two apparent remedies the Court
chooses, it would necessarily entail some kind of possible
juridical imperfection. Speaking of their respective practical or
pragmatic effects, to annul the dismissal would inevitably
prejudice the rights of the non-defaulted defendants whom
We have not heard and who even respondents would not
wish to have anything anymore to do with the case. On the
other hand, to include petitioners in the dismissal would
naturally set at naught every effort private respondent has
made to establish or prove her case thru means sanctioned
by respondent court. In short, We are confronted with a legal
para-dilemma. But one thing is certain — this difficult
situations has been brought about by none other than private
respondent who has quite cynically resorted to procedural
maneuvers without realizing that the technicalities of the
adjective law, even when apparently accurate from the literal
point of view, cannot prevail over the imperatives of the
substantive law and of equity that always underlie them and
which have to be inevitably considered in the construction of
the pertinent procedural rules.
All things considered, after careful and mature deliberation,
the Court has arrived at the conclusion that as between the
two possible alternatives just stated, it would only be fair,
equitable and proper to uphold the position of petitioners. In
other words, We rule that the order of dismissal of October
21, 1974 is in law a dismissal of the whole case of the
plaintiff, including as to petitioners herein. Consequently, all
proceedings held by respondent court subsequent thereto
including and principally its decision of December 20, 1974
are illegal and should be set aside.
This conclusion is fully justified by the following
considerations of equity:
1. It is very clear to Us that the procedural maneuver resorted
to by private respondent in securing the decision in her favor
was ill-conceived. It was characterized by that which every
principle of law and equity disdains — taking unfair
advantage of the rules of procedure in order to unduly
deprive the other party of full opportunity to defend his cause.
The idea of "dropping" the non-defaulted defendants with the
end in view of completely incapacitating their co-defendants
from making any defense, without considering that all of them
are indispensable parties to a common cause of action to
which they have countered with a common defense readily
connotes an intent to secure a one-sided decision, even
improperly. And when, in this connection, the obvious
weakness of plaintiff's evidence is taken into account, one
easily understands why such tactics had to be availed of. We
cannot directly or indirectly give Our assent to the
commission of unfairness and inequity in the application of
41 | P a g e
the rules of procedure, particularly when the propriety of
reliance thereon is not beyond controversy.
2. The theories of remedial law pursued by private
respondents, although approved by His Honor, run counter to
such basic principles in the rules on default and such
elementary rules on dismissal of actions and notice of
motions that no trial court should be unaware of or should be
mistaken in applying. We are at a loss as to why His Honor
failed to see through counsel's inequitous strategy, when the
provisions (1) on the three-day rule on notice of motions,
Section 4 of Rule 15, (2) against dismissal of actions on
motion of plaintiff when there is a compulsory counterclaim,
Section 2, Rule 17, (3) against permitting the absence of
indispensable parties, Section 7, Rule 3, (4) on service of
papers upon defendants in default when there are substantial
amendments to pleadings, Section 9, Rule 13, and (5) on the
unity and integrity of the fate of defendants in default with
those not in default where the cause of action against them
and their own defenses are common, Section 4, Rule 18, are
so plain and the jurisprudence declaratory of their intent and
proper construction are so readily comprehensible that any
error as to their application would be unusual in any
competent trial court.
3. After all, all the malactuations of respondent court are
traceable to the initiative of private respondent and/or her
counsel. She cannot, therefore, complain that she is being
made to unjustifiably suffer the consequences of what We
have found to be erroneous orders of respondent court. It is
only fair that she should not be allowed to benefit from her
own frustrated objective of securing a one-sided decision.
4. More importantly, We do not hesitate to hold that on the
basis of its own recitals, the decision in question cannot stand
close scrutiny. What is more, the very considerations
contained therein reveal convincingly the inherent weakness
of the cause of the plaintiff. To be sure, We have been giving
serious thought to the idea of merely returning this case for a
resumption of trial by setting aside the order of dismissal of
October 21, 1974, with all its attendant difficulties on account
of its adverse effects on parties who have not been heard,
but upon closer study of the pleadings and the decision and
other circumstances extant in the record before Us, We are
now persuaded that such a course of action would only lead
to more legal complications incident to attempts on the part of
the parties concerned to desperately squeeze themselves out
of a bad situation. Anyway, We feel confident that by and
large, there is enough basis here and now for Us to rule out
the claim of the plaintiff.
Even a mere superficial reading of the decision would
immediately reveal that it is littered on its face with
deficiencies and imperfections which would have had no
reason for being were there less haste and more
circumspection in rendering the same. Recklessness in
jumping to unwarranted conclusions, both factual and legal, is
at once evident in its findings relative precisely to the main
bases themselves of the reliefs granted. It is apparent therein
that no effort has been made to avoid glaring inconsistencies.
Where references are made to codal provisions and
jurisprudence, inaccuracy and inapplicability are at once
manifest. It hardly commends itself as a deliberate and
consciencious adjudication of a litigation which, considering
the substantial value of the subject matter it involves and the
unprecedented procedure that was followed by respondent's
counsel, calls for greater attention and skill than the general
run of cases would.
Inter alia, the following features of the decision make it highly
improbable that if We took another course of action, private
respondent would still be able to make out any case against
petitioners, not to speak of their co-defendants who have
already been exonerated by respondent herself thru her
motion to dismiss:
1. According to His Honor's own statement of plaintiff's case,
"she is the widow of the late Tee Hoon Po Chuan (Po Chuan,
42 | P a g e
for short) who was then one of the partners in the commercial
partnership, Glory Commercial Co. with defendants Antonio
Lim Tanhu (Lim Tanhu, for short) and Alfonso Leonardo Ng
Sua (Ng Sua, for short) as co-partners; that after the death of
her husband on March 11, 1966 she is entitled to share not
only in the capital and profits of the partnership but also in the
other assets, both real and personal, acquired by the
partnership with funds of the latter during its lifetime."
Relatedly, in the latter part of the decision, the findings are to
the following effect: .
That the herein plaintiff Tan Put and her late
husband Po Chuan married at the Philippine
Independent Church of Cebu City on
December, 20, 1949; that Po Chuan died on
March 11, 1966; that the plaintiff and the late Po
Chuan were childless but the former has a
foster son Antonio Nuñez whom she has reared
since his birth with whom she lives up to the
present; that prior to the marriage of the plaintiff
to Po Chuan the latter was already managing
the partnership Glory Commercial Co. then
engaged in a little business in hardware at
Manalili St., Cebu City; that prior to and just
after the marriage of the plaintiff to Po Chuan
she was engaged in the drugstore business;
that not long after her marriage, upon the
suggestion of Po Chuan the plaintiff sold her
drugstore for P125,000.00 which amount she
gave to her husband in the presence of
defendant Lim Tanhu and was invested in the
partnership Glory Commercial Co. sometime in
1950; that after the investment of the above-
stated amount in the partnership its business
flourished and it embarked in the import
business and also engaged in the wholesale
and retail trade of cement and GI sheets and
under huge profits;
 xxx xxx xxx
That the late Po Chuan was the one who
actively managed the business of the
partnership Glory Commercial Co. he was the
one who made the final decisions and approved
the appointments of new personnel who were
taken in by the partnership; that the late Po
Chuan and defendants Lim Tanhu and Ng Sua
are brothers, the latter two (2) being the elder
brothers of the former; that defendants Lim
Tanhu and Ng Sua are both naturalized Filipino
citizens whereas the late Po Chuan until the
time of his death was a Chinese citizen; that the
three (3) brothers were partners in the Glory
Commercial Co. but Po Chuan was practically
the owner of the partnership having the
controlling interest; that defendants Lim Tanhu
and Ng Sua were partners in name but they
were mere employees of Po Chuan .... (Pp. 89-
91, Record.)
How did His Honor arrive at these conclusions? To start with,
it is not clear in the decision whether or not in making its
findings of fact the court took into account the allegations in
the pleadings of the parties and whatever might have
transpired at the pre-trial. All that We can gather in this
respect is that references are made therein to pre-trial
exhibits and to Annex A of the answer of the defendants to
plaintiff's amended complaint. Indeed, it was incumbent upon
the court to consider not only the evidence formally offered at
the trial but also the admissions, expressed or implied, in the
pleadings, as well as whatever might have been placed
before it or brought to its attention during the pre-trial. In this
connection, it is to be regretted that none of the parties has
thought it proper to give Us an idea of what took place at the
pre-trial of the present case and what are contained in the
pre-trial order, if any was issued pursuant to Section 4 of
Rule 20.
43 | P a g e
The fundamental purpose of pre-trial, aside from affording the
parties every opportunity to compromise or settle their
differences, is for the court to be apprised of the unsettled
issues between the parties and of their respective evidence
relative thereto, to the end that it may take corresponding
measures that would abbreviate the trial as much as possible
and the judge may be able to ascertain the facts with the
least observance of technical rules. In other words whatever
is said or done by the parties or their counsel at the pre- trial
serves to put the judge on notice of their respective basic
positions, in order that in appropriate cases he may, if
necessary in the interest of justice and a more accurate
determination of the facts, make inquiries about or require
clarifications of matters taken up at the pre-trial, before finally
resolving any issue of fact or of law. In brief, the pre-trial
constitutes part and parcel of the proceedings, and hence,
matters dealt with therein may not be disregarded in the
process of decision making. Otherwise, the real essence of
compulsory pre-trial would be insignificant and worthless.
Now, applying these postulates to the findings of respondent
court just quoted, it will be observed that the court's
conclusion about the supposed marriage of plaintiff to the
deceased Tee Hoon Lim Po Chuan is contrary to the weight
of the evidence brought before it during the trial and the pre-
trial.
Under Article 55 of the Civil Code, the declaration of the
contracting parties that they take each other as husband and
wife "shall be set forth in an instrument" signed by the parties
as well as by their witnesses and the person solemnizing the
marriage. Accordingly, the primary evidence of a marriage
must be an authentic copy of the marriage contract. While a
marriage may also be proved by other competent evidence,
the absence of the contract must first be satisfactorily
explained. Surely, the certification of the person who
allegedly solemnized a marriage is not admissible evidence
of such marriage unless proof of loss of the contract or of any
other satisfactory reason for its non-production is first
presented to the court. In the case at bar, the purported
certification issued by a Mons. Jose M. Recoleto, Bishop,
Philippine Independent Church, Cebu City, is not, therefore,
competent evidence, there being absolutely no showing as to
unavailability of the marriage contract and, indeed, as to the
authenticity of the signature of said certifier, the jurat
allegedly signed by a second assistant provincial fiscal not
being authorized by law, since it is not part of the functions of
his office. Besides, inasmuch as the bishop did not testify, the
same is hearsay.
As regards the testimony of plaintiff herself on the same point
and that of her witness Antonio Nuñez, there can be no
question that they are both self-serving and of very little
evidentiary value, it having been disclosed at the trial that
plaintiff has already assigned all her rights in this case to said
Nuñez, thereby making him the real party in interest here
and, therefore, naturally as biased as herself. Besides, in the
portion of the testimony of Nuñez copied in Annex C of
petitioner's memorandum, it appears admitted that he was
born only on March 25, 1942, which means that he was less
than eight years old at the supposed time of the alleged
marriage. If for this reason alone, it is extremely doubtful if he
could have been sufficiently aware of such event as to be
competent to testify about it.
Incidentally, another Annex C of the same memorandum
purports to be the certificate of birth of one Antonio T. Uy
supposed to have been born on March 23, 1937 at Centro
Misamis, Misamis Occidental, the son of one Uy Bien, father,
and Tan Put, mother. Significantly, respondents have not
made any adverse comment on this document. It is more
likely, therefore, that the witness is really the son of plaintiff
by her husband Uy Kim Beng. But she testified she was
childless. So which is which? In any event, if on the strength
of this document, Nuñez is actually the legitimate son of Tan
Put and not her adopted son, he would have been but 13
years old in 1949, the year of her alleged marriage to Po
44 | P a g e
Chuan, and even then, considering such age, his testimony in
regard thereto would still be suspect.
Now, as against such flimsy evidence of plaintiff, the court
had before it, two documents of great weight belying the
pretended marriage. We refer to (1) Exhibit LL, the income
tax return of the deceased Tee Hoon Lim Po Chuan
indicating that the name of his wife was Ang Sick Tin and (2)
the quitclaim, Annex A of the answer, wherein plaintiff Tan
Put stated that she had been living with the deceased without
benefit of marriage and that she was his "common-law wife".
Surely, these two documents are far more reliable than all the
evidence of the plaintiff put together.
Of course, Exhibit LL is what might be termed as pre-trial
evidence. But it is evidence offered to the judge himself, not
to the clerk of court, and should have at least moved him to
ask plaintiff to explain if not rebut it before jumping to the
conclusion regarding her alleged marriage to the deceased,
Po Chuan. And in regard to the quitclaim containing the
admission of a common-law relationship only, it is to be
observed that His Honor found that "defendants Lim Tanhu
and Ng Sua had the plaintiff execute a quitclaim on
November 29, 1967 (Annex "A", Answer) where they gave
plaintiff the amount of P25,000 as her share in the capital and
profits of the business of Glory Commercial Co. which was
engaged in the hardware business", without making mention
of any evidence of fraud and misrepresentation in its
execution, thereby indicating either that no evidence to prove
that allegation of the plaintiff had been presented by her or
that whatever evidence was actually offered did not produce
persuasion upon the court. Stated differently, since the
existence of the quitclaim has been duly established without
any circumstance to detract from its legal import, the court
should have held that plaintiff was bound by her admission
therein that she was the common-law wife only of Po Chuan
and what is more, that she had already renounced for
valuable consideration whatever claim she might have
relative to the partnership Glory Commercial Co.
And when it is borne in mind that in addition to all these
considerations, there are mentioned and discussed in the
memorandum of petitioners (1) the certification of the Local
Civil Registrar of Cebu City and (2) a similar certification of
the Apostolic Prefect of the Philippine Independent Church,
Parish of Sto. Niño, Cebu City, that their respective official
records corresponding to December 1949 to December 1950
do not show any marriage between Tee Hoon Lim Po Chuan
and Tan Put, neither of which certifications have been
impugned by respondent until now, it stands to reason that
plaintiff's claim of marriage is really unfounded. Withal, there
is still another document, also mentioned and discussed in
the same memorandum and unimpugned by respondents, a
written agreement executed in Chinese, but purportedly
translated into English by the Chinese Consul of Cebu,
between Tan Put and Tee Hoon Lim Po Chuan to the
following effect:
CONSULATE OF THE REPUBLIC OF CHINA
Cebu City, Philippines
TRANSLATION
This is to certify that 1, Miss Tan Ki Eng Alias
Tan Put, have lived with Mr. Lim Po Chuan alias
TeeHoon since 1949 but it recently occurs that
we are incompatible with each other and are not
in the position to keep living together
permanently. With the mutual concurrence, we
decided to terminate the existing relationship of
common law-marriage and promised not to
interfere each other's affairs from now on. The
Forty Thousand Pesos (P40,000.00) has been
given to me by Mr. Lim Po Chuan for my
subsistence.
Witnesses:
Mr. Lim Beng Guan Mr. Huang Sing Se
45 | P a g e
Signed on the 10 day of the 7th month of the
54th year of the Republic of China
(corresponding to the year 1965).
(SGD) TAN KI ENG
Verified from the records. JORGE TABAR (Pp.
283-284, Record.)
Indeed, not only does this document prove that plaintiff's
relation to the deceased was that of a common-law wife but
that they had settled their property interests with the payment
to her of P40,000.
In the light of all these circumstances, We find no alternative
but to hold that plaintiff Tan Put's allegation that she is the
widow of Tee Hoon Lim Po Chuan has not been satisfactorily
established and that, on the contrary, the evidence on record
convincingly shows that her relation with said deceased was
that of a common-law wife and furthermore, that all her
claims against the company and its surviving partners as well
as those against the estate of the deceased have already
been settled and paid. We take judicial notice of the fact that
the respective counsel who assisted the parties in the
quitclaim, Attys. H. Hermosisima and Natalio Castillo, are
members in good standing of the Philippine Bar, with the
particularity that the latter has been a member of the Cabinet
and of the House of Representatives of the Philippines,
hence, absent any credible proof that they had allowed
themselves to be parties to a fraudulent document His Honor
did right in recognizing its existence, albeit erring in not giving
due legal significance to its contents.
2. If, as We have seen, plaintiff's evidence of her alleged
status as legitimate wife of Po Chuan is not only
unconvincing but has been actually overcome by the more
competent and weighty evidence in favor of the defendants,
her attempt to substantiate her main cause of action that
defendants Lim Tanhu and Ng Sua have defrauded the
partnership Glory Commercial Co. and converted its
properties to themselves is even more dismal. From the very
evidence summarized by His Honor in the decision in
question, it is clear that not an iota of reliable proof exists of
such alleged misdeeds.
Of course, the existence of the partnership has not been
denied, it is actually admitted impliedly in defendants'
affirmative defense that Po Chuan's share had already been
duly settled with and paid to both the plaintiff and his
legitimate family. But the evidence as to the actual
participation of the defendants Lim Tanhu and Ng Sua in the
operation of the business that could have enabled them to
make the extractions of funds alleged by plaintiff is at best
confusing and at certain points manifestly inconsistent.
In her amended complaint, plaintiff repeatedly alleged that as
widow of Po Chuan she is entitled to ¹/3 share of the assets
and properties of the partnership. In fact, her prayer in said
complaint is, among others, for the delivery to her of such
¹/3 share. His Honor's statement of the case as well as his
findings and judgment are all to that same effect. But what
did she actually try to prove at the ex- parte hearing?
According to the decision, plaintiff had shown that she had
money of her own when she "married" Po Chuan and "that
prior to and just after the marriage of the plaintiff to Po
Chuan, she was engaged in the drugstore business; that not
long after her marriage, upon the suggestion of Po Chuan,
the plaintiff sold her drugstore for P125,000 which amount
she gave to her husband in the presence of Tanhu and was
invested in the partnership Glory Commercial Co. sometime
in 1950; that after the investment of the above-stated amount
in the partnership, its business flourished and it embarked in
the import business and also engaged in the wholesale and
retail trade of cement and GI sheets and under (sic) huge
profits." (pp. 25-26, Annex L, petition.)
46 | P a g e
To begin with, this theory of her having contributed of
P125,000 to the capital of the partnership by reason of which
the business flourished and amassed all the millions referred
to in the decision has not been alleged in the complaint, and
inasmuch as what was being rendered was a judgment by
default, such theory should not have been allowed to be the
subject of any evidence. But inasmuch as it was the clerk of
court who received the evidence, it is understandable that he
failed to observe the rule. Then, on the other hand, if it was
her capital that made the partnership flourish, why would she
claim to be entitled to only to ¹/3 of its assets and profits?
Under her theory found proven by respondent court, she was
actually the owner of everything, particularly because His
Honor also found "that defendants Lim Tanhu and Ng Sua
were partners in the name but they were employees of Po
Chuan that defendants Lim Tanhu and Ng Sua had no means
of livelihood at the time of their employment with the Glory
Commercial Co. under the management of the late Po Chuan
except their salaries therefrom; ..." (p. 27, id.) Why then does
she claim only ¹/3 share? Is this an indication of her
generosity towards defendants or of a concocted cause of
action existing only in her confused imagination engendered
by the death of her common-law husband with whom she had
settled her common-law claim for recompense of her services
as common law wife for less than what she must have known
would go to his legitimate wife and children?
Actually, as may be noted from the decision itself, the trial
court was confused as to the participation of defendants Lim
Tanhu and Ng Sua in Glory Commercial Co. At one point,
they were deemed partners, at another point mere
employees and then elsewhere as partners-employees, a
newly found concept, to be sure, in the law on partnership.
And the confusion is worse comfounded in the judgment
which allows these "partners in name" and "partners-
employees" or employees who had no means of livelihood
and who must not have contributed any capital in the
business, "as Po Chuan was practically the owner of the
partnership having the controlling interest", ¹/3 each of the
huge assets and profits of the partnership. Incidentally, it may
be observed at this juncture that the decision has made Po
Chuan play the inconsistent role of being "practically the
owner" but at the same time getting his capital from the
P125,000 given to him by plaintiff and from which capital the
business allegedly "flourished."
Anent the allegation of plaintiff that the properties shown by
her exhibits to be in the names of defendants Lim Tanhu and
Ng Sua were bought by them with partnership funds, His
Honor confirmed the same by finding and holding that "it is
likewise clear that real properties together with the
improvements in the names of defendants Lim Tanhu and Ng
Sua were acquired with partnership funds as these
defendants were only partners-employees of deceased Po
Chuan in the Glory Commercial Co. until the time of his death
on March 11, 1966." (p. 30, id.) It Is Our considered view,
however, that this conclusion of His Honor is based on
nothing but pure unwarranted conjecture. Nowhere is it
shown in the decision how said defendants could have
extracted money from the partnership in the fraudulent and
illegal manner pretended by plaintiff. Neither in the testimony
of Nuñez nor in that of plaintiff, as these are summarized in
the decision, can there be found any single act of extraction
of partnership funds committed by any of said defendants.
That the partnership might have grown into a multi-million
enterprise and that the properties described in the exhibits
enumerated in the decision are not in the names of Po
Chuan, who was Chinese, but of the defendants who are
Filipinos, do not necessarily prove that Po Chuan had not
gotten his share of the profits of the business or that the
properties in the names of the defendants were bought with
money of the partnership. In this connection, it is decisively
important to consider that on the basis of the concordant and
mutually cumulative testimonies of plaintiff and Nuñez,
respondent court found very explicitly that, and We reiterate:
xxx xxx xxx
47 | P a g e
That the late Po Chuan was the one who
actively managed the business of the
partnership Glory Commercial Co. he was the
one who made the final decisions and approved
the appointments of new Personnel who were
taken in by the partnership; that the late Po
Chuan and defendants Lim Tanhu and Ng Sua
are brothers, the latter to (2) being the elder
brothers of the former; that defendants Lim
Tanhu and Ng Sua are both naturalized Filipino
citizens whereas the late Po Chuan until the
time of his death was a Chinese citizen; that the
three (3) brothers were partners in the Glory
Commercial Co. but Po Chuan was practically
the owner of the partnership having the
controlling interest; that defendants Lim Tanhu
and Ng Sua were partners in name but they
were mere employees of Po Chuan; .... (Pp. 90-
91, Record.)
If Po Chuan was in control of the affairs and the running of
the partnership, how could the defendants have defrauded
him of such huge amounts as plaintiff had made his Honor
believe? Upon the other hand, since Po Chuan was in control
of the affairs of the partnership, the more logical inference is
that if defendants had obtained any portion of the funds of the
partnership for themselves, it must have been with the
knowledge and consent of Po Chuan, for which reason no
accounting could be demanded from them therefor,
considering that Article 1807 of the Civil Code refers only to
what is taken by a partner without the consent of the other
partner or partners. Incidentally again, this theory about Po
Chuan having been actively managing the partnership up to
his death is a substantial deviation from the allegation in the
amended complaint to the effect that "defendants Antonio
Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan and
Eng Chong Leonardo, through fraud and machination, took
actual and active management of the partnership and
although Tee Hoon Lim Po Chuan was the manager of Glory
Commercial Co., defendants managed to use the funds of the
partnership to purchase lands and buildings etc. (Par. 4, p. 2
of amended complaint, Annex B of petition) and should not
have been permitted to be proven by the hearing officer, who
naturally did not know any better.
Moreover, it is very significant that according to the very tax
declarations and land titles listed in the decision, most if not
all of the properties supposed to have been acquired by the
defendants Lim Tanhu and Ng Sua with funds of the
partnership appear to have been transferred to their names
only in 1969 or later, that is, long after the partnership had
been automatically dissolved as a result of the death of Po
Chuan. Accordingly, defendants have no obligation to
account to anyone for such acquisitions in the absence of
clear proof that they had violated the trust of Po Chuan during
the existence of the partnership. (See Hanlon vs.
Hansserman and. Beam, 40 Phil. 796.)
There are other particulars which should have caused His
Honor to readily disbelieve plaintiffs' pretensions. Nuñez
testified that "for about 18 years he was in charge of the GI
sheets and sometimes attended to the imported items of the
business of Glory Commercial Co." Counting 18 years back
from 1965 or 1966 would take Us to 1947 or 1948. Since
according to Exhibit LL, the baptismal certificate produced by
the same witness as his birth certificate, shows he was born
in March, 1942, how could he have started managing Glory
Commercial Co. in 1949 when he must have been barely six
or seven years old? It should not have escaped His Honor's
attention that the photographs showing the premises of
Philippine Metal Industries after its organization "a year or
two after the establishment of Cebu Can Factory in 1957 or
1958" must have been taken after 1959. How could Nuñez
have been only 13 years old then as claimed by him to have
been his age in those photographs when according to his
"birth certificate", he was born in 1942? His Honor should not
have overlooked that according to the same witness,
defendant Ng Sua was living in Bantayan until he was
48 | P a g e
directed to return to Cebu after the fishing business thereat
floundered, whereas all that the witness knew about
defendant Lim Teck Chuan's arrival from Hongkong and the
expenditure of partnership money for him were only told to
him allegedly by Po Chuan, which testimonies are veritably
exculpatory as to Ng Sua and hearsay as to Lim Teck Chuan.
Neither should His Honor have failed to note that according to
plaintiff herself, "Lim Tanhu was employed by her husband
although he did not go there always being a mere employee
of Glory Commercial Co." (p. 22, Annex the decision.)
The decision is rather emphatic in that Lim Tanhu and Ng
Sua had no known income except their salaries. Actually, it is
not stated, however, from what evidence such conclusion
was derived in so far as Ng Sua is concerned. On the other
hand, with respect to Lim Tanhu, the decision itself states
that according to Exhibit NN-Pre trial, in the supposed income
tax return of Lim Tanhu for 1964, he had an income of
P4,800 as salary from Philippine Metal Industries alone and
had a total assess sable net income of P23,920.77 that year
for which he paid a tax of P4,656.00. (p. 14. Annex L, id.) And
per Exhibit GG-Pretrial in the year, he had a net income of
P32,000 for which be paid a tax of P3,512.40. (id.) As early
as 1962, "his fishing business in Madridejos Cebu was
making money, and he reported "a net gain from operation
(in) the amount of P865.64" (id., per Exhibit VV-Pre-trial.)
From what then did his Honor gather the conclusion that all
the properties registered in his name have come from funds
malversed from the partnership?
It is rather unusual that His Honor delved into financial
statements and books of Glory Commercial Co. without the
aid of any accountant or without the same being explained by
any witness who had prepared them or who has knowledge
of the entries therein. This must be the reason why there are
apparent inconsistencies and inaccuracies in the conclusions
His Honor made out of them. In Exhibit SS-Pre-trial, the
reported total assets of the company amounted to
P2,328,460.27 as of December, 1965, and yet, Exhibit TT-
Pre-trial, according to His Honor, showed that the total value
of goods available as of the same date was P11,166,327.62.
On the other hand, per Exhibit XX-Pre-trial, the supposed
balance sheet of the company for 1966, "the value of
inventoried merchandise, both local and imported", as found
by His Honor, was P584,034.38. Again, as of December 31,
1966, the value of the company's goods available for sale
was P5,524,050.87, per Exhibit YY and YY-Pre-trial. Then,
per Exhibit II-3-Pre-trial, the supposed Book of Account,
whatever that is, of the company showed its "cash analysis"
was P12,223,182.55. We do not hesitate to make the
observation that His Honor, unless he is a certified public
accountant, was hardly qualified to read such exhibits and
draw any definite conclusions therefrom, without risk of erring
and committing an injustice. In any event, there is no
comprehensible explanation in the decision of the conclusion
of His Honor that there were P12,223,182.55 cash money
defendants have to account for, particularly when it can be
very clearly seen in Exhibits 11-4, 11-4- A, 11-5 and 11-6-
Pre-trial, Glory Commercial Co. had accounts payable as of
December 31, 1965 in the amount of P4,801,321.17. (p.
15, id.) Under the circumstances, We are not prepared to
permit anyone to predicate any claim or right from respondent
court's unaided exercise of accounting knowledge.
Additionally, We note that the decision has not made any
finding regarding the allegation in the amended complaint
that a corporation denominated Glory Commercial Co., Inc.
was organized after the death of Po Chuan with capital from
the funds of the partnership. We note also that there is
absolutely no finding made as to how the defendants Dy
Ochay and Co Oyo could in any way be accountable to
plaintiff, just because they happen to be the wives of Lim
Tanhu and Ng Sua, respectively. We further note that while
His Honor has ordered defendants to deliver or pay jointly
and severally to the plaintiff P4,074,394.18 or ¹/3 of the
P12,223,182.55, the supposed cash belonging to the
partnership as of December 31, 1965, in the same breath,
they have also been sentenced to partition and give ¹/3share
49 | P a g e
of the properties enumerated in the dispositive portion of the
decision, which seemingly are the very properties allegedly
purchased from the funds of the partnership which would
naturally include the P12,223,182.55 defendants have to
account for. Besides, assuming there has not yet been any
liquidation of the partnership, contrary to the allegation of the
defendants, then Glory Commercial Co. would have the
status of a partnership in liquidation and the only right plaintiff
could have would be to what might result after such
liquidation to belong to the deceased partner, and before this
is finished, it is impossible to determine, what rights or
interests, if any, the deceased had (Bearneza vs. Dequilla 43
Phil. 237). In other words, no specific amounts or properties
may be adjudicated to the heir or legal representative of the
deceased partner without the liquidation being first
terminated.
Indeed, only time and the fear that this decision would be
much more extended than it is already prevent us from
further pointing out the inexplicable deficiencies and
imperfections of the decision in question. After all, what have
been discussed should be more than sufficient to support Our
conclusion that not only must said decision be set aside but
also that the action of the plaintiff must be totally dismissed,
and, were it not seemingly futile and productive of other legal
complications, that plaintiff is liable on defendants'
counterclaims. Resolution of the other issues raised by the
parties albeit important and perhaps pivotal has likewise
become superfluous.
IN VIEW OF ALL THE FOREGOING, the petition is granted.
All proceedings held in respondent court in its Civil Case No.
12328 subsequent to the order of dismissal of October 21,
1974 are hereby annulled and set aside, particularly the ex-
parte proceedings against petitioners and the decision on
December 20, 1974. Respondent court is hereby ordered to
enter an order extending the effects of its order of dismissal
of the action dated October 21, 1974 to herein petitioners
Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and
Co Oyo. And respondent court is hereby permanently
enjoined from taking any further action in said civil case gave
and except as herein indicated. Costs against private
respondent.

Makalintal, C.J., Fernando, Aquino and Concepcion Jr., JJ.,

concur.

50 | P a g e