SALES CASES-Cause-Money or Its Equivalent

8/6/2019 SALES CASES-Cause-Money or Its Equivalent

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G.R. No. L-38498 August 10, 1989ISAAC BAGNAS, ENCARNACION BAGNAS, SILVESTRE BAGNAS MAXIMINABAGNAS, SIXTO BAGNAS and AGATONA ENCARNACION, petitioners,vs.HON. COURT OF APPEALS, ROSA L. RETONIL TEOFILO ENCARNACION,and JOSE B. NAMBAYANrespondents.Beltran, Beltran & Beltran for petitioners.Jose M. Legaspi for private respondents.

NARVASA, J.:The facts underlying this appeal by certiorariare not in dispute. Hilario Mateum ofKawit, Cavite, died on March 11, 1964, single, without ascendants or descendants,and survived only by collateral relatives, of whom petitioners herein, his firstcousins, were the nearest. Mateum left no will, no debts, and an estate consistingof twenty-nine parcels of land in Kawit and Imus, Cavite, ten of which are involvedin this appeal. 1

On April 3, 1964, the private respondents, themselves collateral relatives ofMateum though more remote in degree than the petitioners, 2 registered with theRegistry of Deeds for the Province of Cavite two deeds of sale purportedlyexecuted by Mateum in their (respondents') favor covering ten parcels of land.Both deeds were in Tagalog, save for the English descriptions of the lands

conveyed under one of them; and each recited the reconsideration of the sale tobe" ... halagang ISANG PISO (Pl.00), salaping Pilipino, at mga naipaglingkod,ipinaglilingkod sa aking kapakanan ..." ("the sum of ONE PESO Pl.00), PhilippineCurrency, and services rendered, being rendered and to be rendered for mybenefit"). One deed was dated February 6,1963 and covered five parcels of land,and the other was dated March 4, 1963, covering five other parcels, both,therefore, antedating Mateum's death by more than a year. 3It is asserted by thepetitioners, but denied by the respondents, that said sales notwithstanding,Mateum continued in the possession of the lands purportedly conveyed until hisdeath, that he remained the declared owner thereof and that the tax paymentsthereon continued to be paid in his name. 4 Whatever the truth, however, is notcrucial. What is not disputed is that on the strength of the deeds of sale, therespondents were able to secure title in their favor over three of the ten parcels of

land conveyed thereby. 5

On May 22,1964 the petitioners commenced suit against the respondents in theCourt of First Instance of Cavite, seeking annulment of the deeds of sale asfictitious, fraudulent or falsified, or, alternatively, as donations void for want ofacceptance embodied in a public instrument. Claiming ownership pro indiviso ofthe lands subject of the deeds by virtue of being intestate heirs of Hilario Mateum,the petitioners prayed for recovery of ownership and possession of said lands,accounting of the fruits thereof and damages. Although the complaint originallysought recovery of all the twenty-nine parcels of land left by Mateum, at the pre-trial the parties agreed that the controversy be limited to the ten parcels subject ofthe questioned sales, and the Trial Court ordered the exclusion of the nineteenother parcels from the action. 6 Of the ten parcels which remained in litigation, ninewere assessed for purposes of taxation at values aggregating P10,500 00. The

record does not disclose the assessed value of the tenth parcel, which has an areaof 1,443 square meters. 7

In answer to the complaint, the defendants (respondents here) denied the allegedfictitious or fraudulent character of the sales in their favor, asserting that said saleswere made for good and valuable consideration; that while "... they may have theeffect of donations, yet the formalities and solemnities of donation are not requiredfor their validity and effectivity, ... that defendants were collateral relatives of HilarioMateum and had done many good things for him, nursing him in his last illness,

which services constituted the bulk of the consideration of the sales; and (by wayof affirmative defense) that the plaintiffs could not question or seek annulment ofthe sales because they were mere collateral relatives of the deceased vendor andwere not bound, principally or subsidiarily, thereby. 8

After the plaintiffs had presented their evidence, the defendants filed a motion fordismissal in effect, a demurrer to the evidence reasserting the defense set up intheir answer that the plaintiffs, as mere collateral relatives of Hilario Mateum, hadno light to impugn the latter's disposition of his properties by means of thequestioned conveyances and submitting, additionally, that no evidence of fraudmaintaining said transfers had been presented. 9

The Trial Court granted the motion to dismiss, holding (a) on the authority ofArmentia vs. Patriarca, 10 that the plaintiffs, as mere collateral relatives, not forcedheirs, of Hilario Mateum, could not legally question the disposition made by said

deceased during his lifetime, regardless of whether, as a matter of objective reality,said dispositions were valid or not; and (b) that the plaintiffs evidence of allegedfraud was insufficient, the fact that the deeds of sale each stated a consideration ofonly Pl.00 not being in itself evidence of fraud or simulation. 11

On appeal by the plaintiffs to the Court of Appeals, that court affirmed, advertingwith approval to the Trial Court's reliance on theArmentia ruling which, it wouldappear, both courts saw as denying, without exception, to collaterals, of adecedent, not forced heirs, the right to impugn the latter's dispositions inter vivos ofhis property. The Appellate Court also analyzed the testimony of the plaintiffs'witnesses, declared that it failed to establish fraud of any kind or that Mateum hadcontinued paying taxes on the lands in question even after executing the deedsconveying them to the defendants, and closed with the statement that "... since induly notarized and registered deeds of sale consideration is presumed, we do not

and it necessary to rule on the alternative allegations of the appellants that the saiddeed of sale were (sic) in reality donations. 12

One issue clearly predominates here. It is whether, in view of the fact that, forproperties assuredly worth in actual value many times over their total assessedvaluation of more than P10,000.00, the questioned deeds of sale each state aprice of only one peso (P1.00) plus unspecified past, present and future services towhich no value is assigned, said deeds were void or inexistent from the beginning("nulo") or merely voidable, that is, valid until annulled. If they were only voidable,then it is a correct proposition that since the vendor Mateum had no forced heirswhose legitimes may have been impaired, and the petitioners, his collateralrelatives, not being bound either principally or subsidiarily to the terms of saiddeeds, the latter had and have no actionable right to question those transfers.On the other hand, if said deeds were void ab initio because to all intents andpurposes without consideration, then a different legal situation arises, and quite

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another result obtains, as pointed out by the eminent civil law authority, Mr. JusticeJ.B.L. Reyes who, in his concurring opinion inArmentia, said:

I ... cannot bring myself to agree to the proposition that the heirsintestate would have no legal standing to contest the conveyancemade by the deceased if the same were made without anyconsideration, or for a false and fictitious consideration. For underthe Civil Code of the Philippines, Art. 1409, par. 3, contracts witha cause that did not exist at the time of the transaction are

inexistent and void from the beginning. The same is true ofcontracts stating a false cause (consideration) unless the personsinterested in upholding the contract should prove that there isanother true and lawful consideration therefor. (lbid., Art. 1353).If therefore the contract has no causa or consideration, orthe causa is false and fictitious (and no true hidden causa isproved) the property allegedly conveyed never really leaves thepatrimony of the transferor, and upon the latter's death without atestament, such property would pass to the transferor's heirsintestate and be recoverable by them or by the Administrator ofthe transferor's estate. In this particular regard, I thinkConcepcion vs. Sta. Ana, 87 Phil. 787 and Sobs vs. Chua PuaHermanos, 50 Phil. 536, do not correctly state the present law,

and must be clarified.To be sure the quoted passage does not reject and is not to be construed asrejecting the Concepcion and Solisrulings 13 as outrightly erroneous, far from it. Onthe contrary, those rulings undoubtedly read and applied correctly the law extant intheir time: Art. 1276 of the Civil Code of 1889 under which the statement of a falsecause in a contract rendered it voidable only, not void ab initio. In observing thatthey "... do not correctly state the present law and must be clarified," Justice Reyesclearly had in mind the fact that the law as it is now (and already was in the timeArmentia) no longer deems contracts with a false cause, or which are absolutelysimulated or fictitious, merely voidable, but declares them void, i.e., inexistent("nulo") unless it is shown that they are supported by another true and lawful causeor consideration. 14 A logical consequence of that change is the juridical status ofcontracts without, or with a false, cause is that conveyances of property affected

with such a vice cannot operate to divest and transfer ownership, even ifunimpugned. If afterwards the transferor dies the property descends to his heirs,and without regard to the manner in which they are called to the succession, saidheirs may bring an action to recover the property from the purported transferee. Aspointed out, such an action is not founded on fraud, but on the premise that theproperty never leaves the estate of the transferor and is transmitted upon his deathto heirs, who would labor under no incapacity to maintain the action from the merefact that they may be only collateral relatives and bound neither principally orsubsidiarily under the deed or contract of conveyance.InArmentia the Court determined that the conveyance questioned was merelyannullable not void ab initio, and that the plaintiff s action was based on fraudvitiating said conveyance. The Court said:

Hypothetically admitting the truth of these allegations (of plaintiffscomplaint), the conclusion is irresistible that the sale is merely

voidable. Because Marta Armentia executed the document, andthis is not controverted by plaintiff. Besides, the fact that thevendees were minors, makes the contract, at worst, annullable bythem, Then again, inadequacy of consideration does not implytotal want of consideration. Without more, the parted acts ofMarta Armentia after the sale did not indicate that the said salewas void from the being.The sum total of all these is that, in essence, plaintiffs case is

bottomed on fraud, which renders the contract voidable.It therefore seems clear that insofar as it may be considered as setting orreaffirming precedent,Armentia only ruled that transfers made by a decedent in hislifetime, which are voidable for having been fraudulently made or obtained, cannotbe posthumously impugned by collateral relatives succeeding to his estate who arenot principally or subsidiarily bound by such transfers. For the reasons alreadystated, that ruling is not extendible to transfers which, though made under closelysimilar circumstances, are void ab initio for lack or falsity of consideration.The petitioners here argue on a broad front that the very recitals of the questioneddeeds of sale reveal such want or spuriousness of consideration and therefore thevoid character of said sales. They:1. advert to a decision of the Court of Appeals in Montinola vs. Herbosa (59 O.G.No. 47, pp, 8101, 8118) holding that a price of P l.00 for the sale of things worth at

least P20,000.00 is so insignificant as to amount to no price at all, and does notsatisfy the law which, while not requiring for the validity of a sale that the price beadequate, prescribes that it must be real, not fictitious, stressing the obviousparallel between that case and the present one in stated price and actual value ofthe property sold;2. cite Manresa to the same effect: that true price, which is essential to the validityof a sale, means existent, real and effective price, that which does not consist in aninsignificant amount as, say, P.20 for a house; that it is not the same as theconcept of a just price which entails weighing and measuring, for economicequivalence, the amount of price against all the factors that determine the value ofthe thing sold; but that there is no need of such a close examination when theimmense disproportion between such economic values is patent a case ofinsignificant or ridiculous price, the unbelievable amount of which at once points

out its inexistence; 15

3. assert that Art. 1458 of the Civil Code, in prescribing that a sale be for a ... pricecertain in money or its equivalent ... requires that "equivalent" be somethingrepresentative of money, e.g., a check or draft, again citing Manresa 16 to the effectthat services are not the equivalent of money insofar as said requirement isconcerned and that a contract is not a true sale where the price consists ofservices or prestations;4. once more citing Manresa 17 also point out that the "services" mentioned in thequestioned deeds of sale are not only vague and uncertain, but are unknown andnot susceptible of determination without the necessity of a new agreementbetween the parties to said deeds.Without necessarily according all these assertions its full concurrence, but uponthe consideration alone that the apparent gross, not to say enormous,disproportion between the stipulated price (in each deed) of P l.00 plus unspecified

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and unquantified services and the undisputably valuable real estate allegedly soldworth at least P10,500.00 going only by assessments for tax purposes which, it iswell-known, are notoriously low indicators of actual value plainly andunquestionably demonstrates that they state a false and fictitious consideration,and no other true and lawful cause having been shown, the Court finds both saiddeeds, insofar as they purport to be sales, not merely voidable, but void ab initio.Neither can the validity of said conveyances be defended on the theory that theirtrue causa is the liberality of the transferor and they may be considered in reality

donations18

because the law19

also prescribes that donations of immovableproperty, to be valid, must be made and acceptedin a public instrument, and it isnot denied by the respondents that there has been no such acceptance which theyclaim is not required. 20

The transfers in question being void, it follows as a necessary consequence andconformably to the concurring opinion inArmentia, with which the Court fullyagrees, that the properties purportedly conveyed remained part of the estate ofHilario Mateum, said transfers notwithstanding, recoverable by his intestate heirs,the petitioners herein, whose status as such is not challenged.The private respondents have only themselves to blame for the lack of proof thatmight have saved the questioned transfers from the taint of invalidity as beingfictitious and without ilicit cause; proof, to be brief, of the character and value of theservices, past, present, and future, constituting according to the very terms of said

transfers the principal consideration therefor. The petitioners' complaint (par.6) 21 averred that the transfers were "... fraudulent, fictitious and/or falsified and(were) ... in reality donations of immovables ...," an averment that the privaterespondents not only specifically denied, alleging that the transfers had been made"... for good and valuable consideration ...," but to which they also interposedthe affirmative defenses that said transfers were "... valid, binding and effective ...,"and, in an obvious reference to the services mentioned in the deeds, that they "...had done many good things to (the transferor) during his lifetime, nursed himduring his ripe years and took care of him during his previous and last illness ...,"(pars. 4, 6, 16 and 17, their answer).lwph1.t22The onus, therefore, of showingthe existence of valid and illicit consideration for the questioned conveyancesrested on the private respondents. But even on a contrary assumption, andpositing that the petitioners initially had the burden of showing that the transfers

lacked such consideration as they alleged in their complaint, that burden wasshifted to the private respondents when the petitioners presented the deeds whichthey claimed showed that defect on their face and it became the duty of saidrespondents to offer evidence of existent lawful consideration.As the record clearly demonstrates, the respondents not only failed to offer anyproof whatsoever, opting to rely on a demurrer to the petitioner's evidence andupon the thesis, which they have maintained all the way to this Court, thatpetitioners, being mere collateral relatives of the deceased transferor, were withoutright to the conveyances in question. In effect, they gambled their right to adduceevidence on a dismissal in the Trial Court and lost, it being the rule that when adismissal thus obtained is reversed on appeal, the movant loses the right topresent evidence in his behalf. 23

WHEREFORE, the appealed Decision of the Court of Appeals is reversed. Thequestioned transfers are declared void and of no force or effect. Such certificates

of title as the private respondents may have obtained over the properties subject ofsaid transfers are hereby annulled, and said respondents are ordered to return tothe petitioners possession of an the properties involved in tills action, to account tothe petitioners for the fruits thereof during the period of their possession, and topay the costs. No damages, attorney's fees or litigation expenses are awarded,there being no evidence thereof before the Court.SO ORDERED.Cruz, Gancayco, Gri;o-Aquino and Medialdea, JJ., concur.

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EN BANCG.R. No. L-11840 December 10, 1963ANTONIO C. GOQUIOLAY, ET AL., plaintiffs-appellants,vs.WASHINGTON Z. SYCIP, ET AL., defendants-appellees.Norberto J. Quisumbing and Sycip, Salazar and Associates for defendants-appellees.Jose C. Calayco for plaintiffs-appellants..

R E S O L U T I O NREYES, J.B.L., J.:The matter now pending is the appellant's motion for reconsideration of our maindecision, wherein we have upheld the validity of the sale of the lands owned by thepartnership Goquiolay & Tan Sin An, made in 1949 by the widow of the managingpartner, Tan Sin An (Executed in her dual capacity as Administratrix of thehusband's estate and as partner in lieu of the husband), in favor of the buyersWashington Sycip and Betty Lee for the following consideration:

Cash paid P37,000.00

Debts assumed by purchaser:

To Yutivo 62,415.91

To Sing Yee Cuan & Co., 54,310.13

T O T A L P153,726.04

Appellant Goquiolay, in his motion for reconsideration, insist that, contrary to ourholding, Kong Chai Pin, widow of the deceased partner Tan Sin An, never becamemore than a limitedpartner, incapacitated by law to manage the affairs ofpartnership; that the testimony of her witness Young and Lim belies that she tookover the administration of the partnership property; and that, in any event, the saleshould be set aside because it was executed with the intent to defraud appellant ofhis share in the properties sold.Three things must be always held in mind in the discussion of this motion toreconsider, being basic and beyond controversy:

(a) That we are dealing here with the transfer of partnership property by onepartner, acting in behalf of the firm, to a stranger. There is no question betweenpartners inter se, and this aspect to the case was expressly reserved in the maindecision of 26 July 1960;(b) That partnership was expressly organized: "to engage in real estate business,either by buying and sellingreal estate". The Articles of co-partnership, in fact,expressly provided that:

IV. The object and purpose of the copartnership are as follows:1. To engage in real estate business, either by buying and selling realestates; to subdivide real estates into lots for the purpose of leasing andselling them.;

(c) That the properties sold were not part of the contributed capital (which was incash) but land precisely acquired to be sold, although subject to a mortgage in

favor of the original owners, from whom the partnership had acquired them.

With these points firmly in mind, let us turn to the points insisted upon by appellant.It is first averred that there is "not one iota of evidence" that Kong Chai Pinmanaged and retained possession of the partnership properties. Suffice it to pointout that appellant Goquiolay himself admitted that

... Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai Pin continue tomanage the properties (as) she had no other means of income. Then Isaid, because I wanted to help Mrs. Kong Chai Pin, she could just do itand besides I am not interested in agricultural lands. I allowed her to take

care of the properties in order to help her and because I believe in Godand wanted to help her.Q So the answer to my question is you did not take any steps?A I did not.Q And this conversation which you had with Mrs. Yu Eng Laiwas few months after 1945?A In the year 1945. (Emphasis supplied).

The appellant subsequently ratified this testimony in his deposition of 30 June1956, pages 8-9, wherein he stated:

that plantation was being occupied at that time by the widow, Mrs. Tan SinAn, and of course they are receiving quiet a lot benefitfrom the plantation.

Discarding the self-serving expressions, these admissions of Goquiolay arecertainly entitled to greater weight than those of Hernando Young and Rufino Lim,

having been made against the party's own interest.Moreover, the appellant's reference to the testimony of Hernando Young, that thewitness found the properties "abandoned and undeveloped", omits to mention thatsaid part of the testimony started with the question:

Now, you said that about 1942 or 1943 you returned to Davao. Did youmeet Mrs. Kong Chai Pin there in Davao at that time?

Similarly, the testimony of Rufino Lim, to the effect that the properties of thepartnership were undeveloped, and the family of the widow (Kong Chai Pin) did notreceive any income from the partnership properties, was given in answer to thequestion:

According to Mr. Goquiolay, during the Japanese occupation Tan Sin anand his family lived on the plantation of the partnership and derived theirsubsistence from that plantation. What can you say to that? (Dep. 19 July

1956, p. 8).And also

What can you say as to the development of these other properties of thepartnership which you saw during the occupation? (Dep. p. 13, Emphasissupplied).

to which witness gave the following answer:I saw the properties in Mamay still undeveloped. The third property whichis in Tigato is about eleven (11) hectares and planted with abacaseedlings planted by Mr. Sin An. When I went there with HernandoYoungwe saw all the abaca destroyed. The place was occupied by theJapanese Army. They planted camotes and vegetables to feed theJapanese Army. Of course they never paid any money to Tan Sin An orhis family. (Dep., Lim, pp. 13-14. Emphasis supplied).

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Plainly, both Young and Lim's testimonies do not belie, or contradict, Goquiolay'sadmission that he told Mr. Yu Eng Lai that the widow "could just do it" (i.e.,continue to manage the properties). Witnesses Lim and Young referred to theperiod ofJapanese occupation; but Goquiolay's authority was, in fact, given to thewidow in 1945,afterthe occupation.Again, the disputed sale by the widow took place in 1949. That Kong Chai Pincarried out no acts of management during the Japanese occupation (1942-1944)does not mean that she did not do so from 1945 to 1949.

We thus find that Goquiolay did not merely rely on reports from Lim and Young; heactually manifested his willingness that the widow should manage the partnershipproperties. Whether or not she complied with this authority is a question betweenher and the appellant, and is not here involved. But the authority was given, andshe did have it when she made the questioned sale, because it was neverrevoked.It is argued that the authority given by Goquiolay to the widow Kong Chai Pin wasonly to manage the property, and that it did not include the power to alienate, citingArticle 1713 of the Civil Code of 1889. What this argument overlooks is that thewidow was not a mere agent, because she had become a partner upon herhusband's death, as expressly provided by the articles of copartnership. Evenmore, granting that by succession to her husband, Tan Sin An, the widow onlybecame a limited partner, Goquiolay's authorization to manage the partnership

property was proof that he considered and recognized her as general partner, atleast since 1945. The reason is plain: Under the law (Article 148, last paragraph,Code of Commerce), appellant could not empower the widow, if she were only alimited partner, to administer the properties of the firm, even as a mere agent:

Limited partners may not perform any act of administration with respect tothe interests of the copartnership, not even in the capacity of agents of themanaging partners. (Emphasis supplied).

By seeking authority to manage partnership property, Tan Sin An's widow showedthat she desired to be considered a generalpartner. By authorizing the widow tomanage partnership property (which a limited partner could not be authorized todo), Goquiolay recognized her as such partner, and is now in estoppel to deny herposition as a general partner, with authority to administer and alienate partnershipproperty.

Besides, as we pointed out in our main decision, the heirordinarily(and we did notsay "necessarily") becomes a limited partner for his own protection, because hewould normally prefer to avoid any liability in excess of the value of the estateinherited so as not to jeopardize his personal assets. But this statutory limitation ofresponsibility being designed to protect the heir, the latter may disregard it andinstead elect to become a collective or general partner, with all the rights andprivileges of one, and answering for the debts of the firm not only with theinheritance but also with the heir's personal fortune. This choice pertainsexclusively to the heir, and does not require the assent of the surviving partner.It must be remember that the articles of co-partnership here involved expresslystipulated that:

In the event of the death of any of the partners at any time before theexpiration of said term, the co-partnership shall not be dissolved but willhave to be continued and the deceased partner shall be represented by

his heirs or assigns in said co-partnership (Art. XII, Articles of Co-Partnership).

The Articles did not provide that the heirs of the deceased would bemerely limitedpartners; on the contrary, they expressly stipulated that in case ofdeath of either partner "the co-partnership ... will have to be continued" with theheirs or assigns. It certainly could not be continued if it were to be converted from ageneral partnership into a limited partnership, since the difference between the twokinds of associations is fundamental; and specially because the conversion into a

limitedassociation would have the heirs of the deceased partner without a share inthe management. Hence, the contractual stipulation does actually contemplate thatthe heirs would becomegeneral partners rather than limited ones.Of course, the stipulation would not bind the heirs of the deceased partner shouldthey refuse to assume personal and unlimited responsibility for the obligations ofthe firm. The heirs, in other words, can not be compelled to become generalpartners against their wishes. But because they are not so compellable, it does notlegitimately follow that they may not voluntarily choose to become generalpartners, waiving the protective mantle of the general laws of succession. And inthe latter event, it is pointless to discuss the legality of any conversion of a limitedpartner into a general one. The heir never was a limited partner, but chose to be,and became, a general partner right at the start.It is immaterial that the heir's name was not included in the firm name, since no

conversion of status is involved, and the articles of co-partnership expresslycontemplated the admission of the partner's heirs into the partnership.It must never be overlooked that this case involved the rights acquired bystrangers, and does not deal with the rights existing between partners Goquiolayand the widow of Tan Sin An. The issues between the partners inter sewereexpressly reserved in our main decision. Now, in determining what kind of partnerthe widow of partner Tan Sin an Had elected to become, strangers had to beguided by her conduct and actuations and those of appellant Goquiolay. Knowingthat by law a limited partner is barred from managing the partnership business orproperty, third parties (like the purchasers) who found the widow possessing andmanaging the firm property with the acquiescence (or at least without apparentopposition) of the surviving partners were perfectly justified in assuming that shehad become a general partner, and, therefore, in negotiating with her as such a

partner, having authority to act for, and in behalf of the firm. This belief, be it noted,was shared even by the probate court that approved the sale by the widow of thereal property standing in the partnership name. That belief was fostered by thevery inaction of appellant Goquiolay. Note that for seven long years, from partnerTan Sin An's death in 1942 to the sale in 1949, there was more than ample time forGoquiolay to take up the management of these properties, or at least ascertainhow its affairs stood. For seven years Goquiolay could have asserted his allegedrights, and by suitable notice in the commercial registry could have warnedstrangers that they must deal with him alone, as sole general partner. But he didnothing of the sort, because he was not interested (supra), and he did not eventake steps to pay, or settle the firm debts that were overdue since before theoutbreak of the last war. He did not even take steps, after Tan Sin An died, tocancel, or modify, the provisions of the partnership articles that he (Goquiolay)would have no intervention in the managementof the partnership.

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This laches certainly contributed to confirm the view that the widow of Tan Sin Anhad, or was given, authority to manage and deal with the firm's properties apartfrom the presumption that a general partner dealing with partnership property hasto requisite authority from his co-partners (Litton vs. Hill and Ceron, et al., 67 Phil.513; quoted in our main decision, p. 11).

The stipulation in the articles of partnership that any of the two managingpartners may contract and sign in the name of the partnership with theconsent of the other, undoubtedly creates on obligation between the two

partners, which consists in asking the other's consent before contractingfor the partnership. This obligation of course is not imposed upon a thirdperson who contracts with the partnership. Neither it is necessary for thethird person to ascertain if the managing partner with whom he contractshas previously obtained the consent of the other. A third person may andhas a right to presume that the partner with whom he contracts has, in theordinary and natural course of business, the consent of his copartner; forotherwise he would not enter into the contract. The third person wouldnaturally not presume that the partner with whom he enters into thetransaction is violating the articles of partnership, but on the contrary isacting in accordance therewith. And this finds support in the legalpresumption 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 applicableto contracts which have the force of law between the parties. (Litton vs.Hill & Ceron, et al., 67 Phil. 409, 516). (Emphasis supplied.)

It is next urged that the widow, even as a partner, had no authority to sell the realestate of the firm. This argument is lamentably superficial because it fails todifferentiate between real estate acquired and held as stock-in-tradeand real estateheld merely as business site (Vivante's "taller o banco social") for the partnership.Where the partnership business is to deal in merchandise and goods, i.e., movableproperty, the sale of its real property (immovables) is not within the ordinarypowers of a partner, because it is not in line with the normal business of the firm.But where the express and avowed purpose of the partnership is to buy and sellreal estate (as in the present case), the immovables thus acquired by the firm frompart of its stock-in-trade, and the sale thereof is in pursuance of partnership

purposes, hence within the ordinary powers of the partner. This distinction issupported by the opinion of Gay de Montella1, in the very passage quoted in theappellant's motion for reconsideration:

La enajenacion puede entrar en las facultades del gerante, cuando esconforme a los fines sociales. Pero esta facultad de enajenar limitada alas ventas conforme a los fines sociales, viene limitada a los objetos decomercio o a los productos de la fabrica para explotacion de los cuales seha constituido la Sociedad.Ocurrira una cosa parecida cuando el objetode la Sociedad fuese la compra y venta de inmuebles, en cuyo caso elgerente estaria facultado para otorgar las ventas que fuere necesario .(Montella) (Emphasis supplied).

The same rule obtains in American law.In Rosen vs. Rosen, 212 N.Y. Supp. 405, 406, it was held:

a partnership to deal in real estate may be created and either partner hasthe legal right to sell the firm real estate.

In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:And hence, when the partnership business is to deal in real estate, one partner hasample power, as a general agent of the firm, to enter into an executory contract forthe sale of real estate.And in Revelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St. Rep. 83:

If the several partners engaged in the business of buying and selling real

estate can not bind the firm by purchases or sales of such property madein the regular course of business, then they are incapable of exercisingthe essential rights and powers of general partners and their association isnot really a partnership at all, but a several agency.

Since the sale by the widow was in conformity with the express objective of thepartnership, "to engage ... in buying and sellingreal estate" (Art. IV, No. 1 Articlesof Copartnership), it can not be maintained that the sale was made in excess of herpower as general partner.Considerable stress is laid by appellant in the ruling of the Supreme Court of Ohioin McGrath, et al., vs. Cowen, et al., 49 N.E., 338. But the facts of that case arevastly different from the one before us. In the McGrath case, the Court expresslyfound that:

The firm was then, and for some time had been, insolvent, in the sense

that its property was insufficient to pay its debts, though it still had goodcredit, and was actively engaged in the prosecution of its business. Onthat day, which was Saturday, the plaintiff caused to be prepared, readyfor execution, the four chattel mortgages in question, which cover all thetangible property then belonging to the firm, including the counters,shelving, and other furnishings and fixtures necessary for, and used incarrying on, its business, and signed the same in this form: "In witnesswhereof, the said Cowen & McGrath, a firm, and Owen McGrath, survivingpartner, of said firm, and Owen McCrath, individually, have hereunto settheir hands, this 20th day of May, A.D. 1893. Cowen & Mcgrath, by OwenMcGrath. Owen McGrath, Surviving partner of Cowen & McGrath. OwenMcGrath." At the same time, theplaintiff had prepared, ready for filing, thepetitionfor the dissolution of the partnership and appointment of a

receiverwhich he subsequently filed, as hereinafter stated. On the day themortgages were signed, they were placed in the hands of the mortgagees,which was the first intimation to them that there was any intention to makethem. At the timenone of the claims secured by the mortgages weredue, except, it may be, a small part of one of them, andnone of thecreditors to whom the mortgages were made had requested security, orwere pressing for the payment of their debts. ... The mortgages appear tobe without a sufficient condition of defiance, and contain a stipulationauthorizing the mortgagees to take immediate possession of the property,which they did as soon as the mortgages were filed through the attorneywho then represented them, as well as the plaintiff; and the stores were atonce closed, and possession delivered by them to the receiverappointedupon the filing of the petition. The avowed purposes of the plaintiff, in thecourse pursued by him, was to terminate the partnership, place its

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properly beyond the control of the firm, and insure the preference of themortgagees, all of which was known to them at the time; .... (Cas cit., p.343, Emphasis supplied).

It is natural that form these facts the Supreme Court of Ohio should draw theconclusion that the conveyances were made with intent to terminate thepartnership, and that they were not within the powers of McGrath as a partner. Butthere is no similarity between those acts and the sale by the widow of Tan Sin An.In the McGrath case, the sale included even the fixtures used in the business; in

our case, the lands sold were those acquired to be sold. In the McGrath case,none of the creditors were pressing for payment; in our case, the creditors hadbeen unpaid for more than seven years, and their claims had been approved bythe probate court for payment. In the McGrath case, the partnership receivednothing beyond the discharge of its debts; in the present case, not only were itsdebts assumed by the buyers, but the latter paid, in addition, P37,000.00 in cash tothe widow, to the profit of the partnership. Clearly, the McGrath ruling is notapplicable.We will now turn to the question of fraud. No direct evidence of it exists; butappellant point out, as indicia thereof, the allegedly low price paid for the property,and the relationship between the buyers, the creditors of the partnership, and thewidow of Tan Sin An.First, as to the price: As already noted, this property was actually sold for a total of

P153,726.04, of which P37,000.00 was in cash, and the rest in partnership debtsassumed by the purchaser. These debts (62,415.91 to Yutivo, and P54,310.13 toSing Ye Cuan & Co.) are not questioned; they were approved by the court, and itsapproval is now final. The claims were, in fact, for the balance on the originalpurchase price of the land sold (sue first to La Urbana, later to the BancoHipotecario) plus accrued interests and taxes, redeemed by the two creditors-claimants. To show that the price was inadquate, appellant relies on the testimonyof the realtor Mata, who is 1955, six years after the sale in question, asserted thatthe land was worth P312,000.00. Taking into account the continued rise of realestate values since liberation, and the fact that the sale in question was practicallya forced sale because the partnership had no other means to pay its legitimatedebts, this evidence certainly does not show such "gross inadequacy" as to justifyrecission of the sale. If at the time of the sale (1949) the price of P153,726.04 was

really low, how is it that appellant was not able to raise the amount, even if thecreditor's representative, Yu Khe Thai, had already warned him four years before(1945) that the creditors wanted their money back, as they were justly entitled to?It is argued that the land could have been mortgaged to raise the sum needed todischarge the debts. But the lands were already mortgaged, and had beenmortgaged since 1940, first to La Urbana, and then to the Banco Hipotecario. Wasit reasonable to expect that other persons would loan money to the partnershipwhen it was unable even to pay the taxes on the property, and the interest on theprincipal since 1940? If it had been possible to find lenders willing to take a chanceon such a bad financial record, would not Goquiolay have taken advantage of it?But the fact is clear on the record that since liberation until 1949 Goquiolay neverlifted a finger to discharge the debts of the partnership. Is he entitled now to cryfraud after the debts were discharged with no help from him.

With regard to the relationship between the parties, suffice it to say that theSupreme Court has ruled that relationship alone is not a badge of fraud (OriaHnos. vs. McMicking, 21 Phil. 243; also Hermandad del Smo. Nombre de Jesusvs. Sanchez, 40 Off. Gaz., 1685). There is no evidence that the original buyers,Washington Sycip and Betty Lee, were without independent means to purchasethe property. That the Yutivos should be willing to extend credit to them, and not toappellant, is neither illegal nor immoral; at the very least, these buyers did not havea record of inveterate defaults like the partnership "Tan Sin An & Goquiolay".

Appellant seeks to create the impression that he was the victim of a conspiracybetween the Yutivo firm and their component members. But no proof is adduced. Ifhe was such a victim, he could have easily defeated the conspirators by raisingmoney and paying off the firm's debts between 1945 and 1949; but he did not; hedid not even care to look for a purchaser of the partnership assets. Were it truethat the conspiracy to defraud him arose (as he claims) because of his refusal tosell the lands when in 1945 Yu Khe Thai asked him to do so, it is certainly strangethat the conspirators should wait 4 years, until 1949, to have the sale effected bythe widow of Tan Sin An, and that the sale should have been routed through theprobate court taking cognizance of Tan Sin An's estate, all of which increased therisk that the supposed fraud should be detected.Neither was there any anomaly in the filing of the claims of Yutivo and Sing YeeCuan & Co., (as subrogees of the Banco Hipotecario) in proceedings for the

settlement of the estate of Tan Sin An. This for two reasons: First, Tan Sin An andthe partnership "Tan Sin An & Goquiolay" were solidary(Joint and several)debtors(Exhibits "N", mortgage to the Banco Hipotecario), and Rule 87, section 6 is theeffect that:

Where the obligation of the decedent is joint and severalwith anotherdebtor, the claim shall be filedagainst the decedent as if he were the onlydebtor, without prejudice to the right of the estate to recover contributionfrom the other debtor. (Emphasis supplied).

Secondly, the solidary obligation was guaranteed by a mortgage on the propertiesof the partnership and those of Tan Sim An personally, and a mortgage isindivisible, in the sense that each and every parcel under mortgage answers forthe totality of the debt (Civ. Code of 1889, Article 1860; New Civil Code, Art. 2089).A final and conclusive consideration: The fraud charged not being one used to

obtain a party's consent to a contract (i.e., not being deceit ordolus incontrahendo), if there is fraud at al, it can only be a fraud of creditorsthat gives riseto a rescission of the offending contract. But by express provision of law (Article1294, Civil Code of 1889; Article 1383, New Civil Code) "the action for rescission issubsidiary; it can not be instituted except when the party suffering damage has noother legal means to obtain reparation for the same". Since there is no allegation,or evidence, that Goquiolay can not obtain reparation from the widow and heirs ofTan Sin An, the present suit to rescind the sale in question is not maintainable,even if the fraud charged actually did exist.PREMISES CONSIDERED, the motion for reconsideration is denied.Bengzon, C.J., Padilla, Concepcion, Barrera and Dizon, JJ., concur.Regala, J., took no part.

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Separate OpinionsBAUTISTA ANGELO, J., dissenting:This is an appeal from a decision of the Court of First Instance of Davao dismissingthe complaint filed by Antonio C. Goquiolay, et al., seeking to annul the sale madeZ. Sycip and Betty Y. Lee on the ground that it was executed without properauthority and under fraudulent circumstances. In a decision rendered on July 26,1960 we affirmed this decision although on grounds different from those on whichthe latter is predicted. The case is once more before us on a motion for

reconsideration filed by appellants raising both questions of fact and of law.On May 29, 1940, Tan Sin An and Antonio C. Goquiolay executed in Davao City acommercial partnership for a period of ten years with a capital of P30,000.00 ofwhich Goquiolay contributed P18,000.00 representing 60% while Tan Sin AnP12,000.00 representing 40%. The business of the partnership was to engage inbuying real estate properties for subdivision, resale and lease. The partnershipwas duly registered, and among the conditions agreed upon in the partnershipagreement which are material to this case are: (1) that Tan Sin An would be theexclusive managing partner, and (2) in the event of the death of any of the partnersthe partnership would continue, the deceased to be represented by his heirs. OnMay 31, 1940, Goquiolay executed a general power of attorney in favor of Tan SinAn appointing the latter manager of the partnership and conferring upon him theusual powers of management.

On May 29, 1940, the partnership acquired three parcels of land known as LotsNos. 526, 441 and 521 of the cadastral survey of Davao, the only assets of thepartnership, with the capital orginally invested, financing the balance of thepurchase price with a mortgage in favor of "La Urbana Sociedad Mutua deConstruccion Prestamos" in the amount of P25,000.00, payable in ten years. Onthe same date, Tan Sin An, in his individual capacity, acquired 46 parcels of landexecuting a mortgage thereon in favor of the same company for the sum ofP35,000.00. On September 25, 1940, these two mortgage obligations wereconsolidated and transferred to the Banco Hipotecario de Filipinas and as a resultTan Sin An, in his individual capacity, and the partnership bound themselves topay jointly and severally the total amount of P52,282.80, with 8% annual interestthereon within a period of eight years mortgaging in favor of said entity the 3parcels of land belonging to the partnership and the 46 parcels of land belonging

individually to Tan Sin An.Tan Sin An died on June 26, 1942 and was survived by his widow, defendant KongChai Pin, and four children, all of whom are minors of tender age. On March 18,1944, Kong Chai Pin, was appointed administratrix of the intestate estate of TanSin An. And on the same date, Sing, Yee and Cuan Co., Inc. paid to the BancoHipotecario the remaining unpaid balance of the mortgage obligation of thepartnership amounting to P46,116.75 in Japanese currency.Sometimes in 1945, after the liberation of Manila, Yu Khe Thai, president andgeneral manager of Yutivo Sons Hardware Co. and Sing, Yee and Cuan Co., Inc.,called for Goquiolay and the two had a conference in the office of the former duringwhich he offered to buy the interest of Goquiolay in the partnership. In 1948, KongChai Pin, the widow, sent her counsel, Atty. Dominador Zuo, to ask Goquiolay toexecute in her favor a power of attorney. Goquiolay refused both to sell his interestin the partnership as well as to execute the power of attorney.

Having failed to get Goquiolay to sell his share in the partnership, Yutivo SonsHardware Co. and Sing, Yee and Cuan Co., Inc. filed in November, 1946 a claimeach in the intestate proceedings of Tan Sin An for the sum of P84,705.48 andP66,529.91, respectively, alleging that they represent obligations of both Tan SinAn and the partnership. After first denying any knowledge of the claims, Kong ChaiPin, as administratrix, admitted later without qualification the two claims in anamended answer she filed on February 28, 1947. The admission was predicted onthe ground that she and the creditors were closely related by blood, affinity and

business ties. In due course, these two claims were approved by the court.On March 29, 1949, more than two years after the approval of the claims, KongChai Pin filed a petition in the probate court to sell all the properties of thepartnership as well as some of the conjugal properties left by Tan Sin An for thepurpose of paying the claims. Following approval by the court of the petition forauthority to sell, Kong Chai Pin, in her capacity as administratrix, and presuming toact as managing partner of the partnership, executed on April 4, 1949 a deed ofsale of the properties owned by Tan Sin An and by the partnership in favor of BettyY. Lee and Washington Z. Sycip in consideration of the payment to Kong Chai Pinof the sum of P37,000.00, and the assumption by the buyers of the claims filed byYutivo & Sons Hardware Co. and Sing, Yee and Cuan Co., Inc. in whose favor thebuyers executed a mortgage on the properties purchased. Betty Y. Lee andWashington Z. Zycip subsequently executed a deed of sale of the same properties

in favor of their co-defendant Insular Development Company, Inc. It should benoted that these transactions took place without the knowledge of Goquiolay and itis admitted that Betty Lee and Washington Z. Sycip bought the properties onbehalf of the ultimate buyer, the Insular Development Company, Inc., with moneygiven by the latter.Upon learning of the sale of the partnership properties, Goquiolay filed on July 25,1949 in the intestate proceedings a petition to set aside the order of the courtapproving the sale. The court granted the petition. While the order was pendingappeal in the Supreme Court, Goquiolay filed the present case on January 15,1953 seeking to nullify the sale as stated in the early part of this decision. In themeantime, the Supreme Court remanded the original case to the probate court forrehearing due to lack of necessary parties.The plaintiffs in their complaint challenged the authority of Kong Chai Pin to sell the

partnership properties on the ground that she had no authority to sell becauseeven granting that she became a partner upon the death of Tan Sin An the powerof attorney granted in favor of the latter expired after his death.Defendants, on the other hand, defended the validity of the sale on the theory thatshe succeeded to all the rights and prerogatives of Tan Sin an as managingpartner.The trial court sustained the validity of the sale on the ground that under theprovisions of the articles of partnership allowing the heirs of the deceased partnerto represent him in the partnership after his death Kong Chai Pin became amanaging partner, this being the capacity held by Tan Sin an when he died.In the decision rendered by this Court on July 26, 1960, we affirmed this decisionbut on different grounds, among which the salient points are: (1) the power ofattorney given by Goquiloay to Tan Sin An as manager of the partnership expiredafter his death; (2) his widow Kong Chai Pin did not inherit the management of the

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partnership, it being a personal right; (3) as a general rule, the heirs of a deceasedgeneral partner come into the partnership in the capacity only of limited partners;(4) Kong Chai Pin, however, became a general partner because she exercisedcertain alleged acts of management; and (5) the sale being necessary to pay theobligations of the partnership properties without the consent of Goquiolay underthe principle of estoppel the buyers having the right to rely on her acts ofmanagement and to believe her to be in fact the managing partner.Considering that some of the above findings of fact and conclusions of law are

without legal or factual basis, appellants have in due course filed a motion forreconsideration which because of the importance of the issues therein raised hasbeen the subject of mature deliberation.In support of said motion, appellants advanced the following arguments:

1. If the conclusion of the Court is that heirs as a general rule enter thepartnership as limited partners only, therefore Kong Chai Pin, who mustnecessarily have entered the partnership as a limited partneroriginally,could have not chosen to be a general partner by exercising the allegedacts of management, because under Article 148 of the Code of Commercea limited partnercannotintervene in the management of the partnership,even if given a power of attorney by the general partners. An Actprohibited by law cannot given rise to any right and is void under theexpress provisions of the Civil Code.

2. The buyers were not strangers to Kong Chai Pin, all of them beingmembers of the Yu (Yutivo) family, the rest, members of the law firmwhich handles the Yutivo interests and handled the papers of sale. Theydid not rely on the alleged acts of management they believed (this wasthe opinion of their lawyers) that Kong Chai Pin succeeded her husbandas a managing partner and it was on this theory alone that they submittedthe case in the lower court.3. The alleged acts of management were denied and repudiatedby thevery witnesses presented by the defendants themselves.

The arguments advanced by appellants are in our opinion well-taken and furnishsufficient to reconsider our decision if we want to do justice to Antonio C.Goquiolay. And to justify this conclusion, it is enough that we lay stress on thefollowing points: (1) there is no sufficient factual basis to conclude that Kong Chai

Pin executed acts of management to give her the character of general manager ofthe partnership, or to serve as basis for estoppel that may benefit the purchasersof the partnership properties; (92) the alleged acts of management, even if proven,could not give Kong Chai Pin the character of general manager for the samecontrary to law and well-known authorities; (3) even if Kong Chai Pin acted asgeneral manager she had no authority to sell the partnership properties as to makeit legal and valid; and (4) Kong Chai Pin had no necessity to sell the properties topay the obligation of the partnership and if she did so it was merely to favor thepurchasers who were close relatives to the prejudice of Goquiolay.1. This point is pivotal for if Kong Chai Pin did not execute the acts of managementimputed to her our ruling cannot be sustained. In making our aforesaid ruling weapparently gave particular importance to the fact that it was Goquiolay himself whotried to prove the acts of management. Appellants, however, have emphasized thefact, and with reason, the appellees themselves are the ones who denied and

refuted the so-called acts of management imputed to Kong Chai Pin. To have aclear view of this factual situation, it becomes necessary that we analyze theevidence of record.Plaintiff Goquiolay, it is intimated, testified on cross-examination that he had aconversation with one Hernando Young in Manila in the year 1945 who informedhim that Kong Chai Pin "was attending to the properties and deriving some incometherefrom and she had no other means of livelihood except those properties andsome rentals derived from the properties." He went on to say by way of remark that

she could continue doing this because he wanted to help her. One point that heemphasized was that he was "no interested in agricultural lands."On the other hand, defendants presented Hernando Young, the same personreferred to by Goquiolay, who was a close friend of the family of Kong Chai Pin, forthe purpose of denying the testimony of Goquiolay. Young testified that in 1945 hewas still in Davao, and insisted no less than six times during his testimony that hewas not in Manila in 1945, the year when he allegedly gave the information toGoquiolay, stating that he arrived in Manila for the first time in 1947. He testifiedfurther that he had visited the partnership properties during the period covered bythe alleged information given by him to Goquiolay and that he found them"abandoned and underdeveloped," and that Kong Chai Pin was not deriving anyincome from them.The other witness for the defendants, Rufino Lim, also testified that he had seen

the partnership properties and corroborated the testimony of Hernando Young inall respects: "the properties in Mamay were underdeveloped, the shacks weredestroyed in Tigato, and the family of Kong Chai Pin did not receive my incomefrom the partnership properties." He specifically rebutted the testimony ofGoquiolay, in his deposition given on June 30, 1956 that Kong Chai Pin and herfamily were living in the partnership properties, and stated that the "family neveractually lived in the properties of the partnership even before the war or after thewar."It is unquestionable that Goquiolay was merely repeating an information given tohim by a third person, Hernando Young he stressed this point twice. A carefulanalysis of the substance of Goquiolay's testimony will show that he merely had noobjection to allowing Kong Chai Pin to continue attending to the properties in orderto give her some means of livelihood, because, according to the information given

him by Hernando Young, which he assumed to be true, Kong Chai Pin had noother means of livelihood. But certainly he made it very clear that he did not allowher to manage the partnership when he explained his reason for refusing to sign ageneral power of attorney for Kong Chai Pin which her counsel, Atty. Zuo,brought with him to his house in 1948. He said:

... Then Mr. Yu Eng Lai told me that he brought with him Atty. Zuo and heasked me if I could execute a general power of attorney for Mrs. KongChai Pin. Then I told Atty. Zuo what is the use of executing a generalpower of attorney for Mrs. Kong Chai Pin when Mrs. Kong Chai Pin hadalready got that plantation for agricultural purposes, I said for agriculturalpurposes she can use that plantation ... (T.S.N. p. 9, Hearing on May 5,1955).

It must be noted that in his testimony Goquiolay was categorically stating hisopposition to the management of the partnership by Kong Chai Pin and carefully

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made the distinction that his conformity was for her to attend to the partnershipproperties in order to give her merely a means of livelihood. It should be stated thatthe period covered by the testimony refers to the period of occupation when livingcondition was difficult and precarious. And Atty. Zuo, it should also be stated, didnot deny the statement of Goquiolay.It can therefore be seen that the question as to whether Kong Chai Pin exercisedcertain acts of management of the partnership properties is highly controverted.The most that we can say is that the alleged acts are doubtful more so when they

are disputed by the defendants themselves who later became the purchasers ofthe properties, and yet these alleged acts, if at all, only refer to management of theproperties and not to management of the partnership, which are two differentthings.In resume, we may conclude that the sale of the partnership properties by KongChai Pin cannot be upheld on the ground of estoppel, first, because the allegedacts of management have not been clearly proven; second, because the recordclearly shows that the defendants, or the buyers, were not misled nor did they relyon the acts of management, but instead they acted solely on the opinion of theircounsel, Atty. Quisumbing, to the effect that she succeeded her husband in thepartnership as managing partner by operation of law; and third, because thedefendants are themselves estopped to invoke a defense which they tried todispute and repudiate.

2. Assuming arguendo that the acts of management imputed to Kong Chai Pin aretrue, could such acts give as we have concluded in our decision?Our answer is in the negative because it is contrary to law and precedents.Garrigues, a well-known commentator, is clearly of the opinion that mereacceptance of the inheritance does not maked the heir of a general partner ageneral partner himself. He emphasized that heirmust declare that he is enteringthe partnership as a general partner unless the deceased partner has made it anexpress condition in his will that the heir accepts the condition of entering thepartnership as a prerequisite of inheritance, in which case acceptance of theinheritance is enough.1But here Tan Sin An died intestate.Now, could Kong Chai Pin be deemed to have declared her intention to become ageneral partner by exercising acts of management? We believe not, for, inconsonance with our ruling that as a general rule the heirs of a deceased partner

succeed as limited partners only by operation of law, it is obvious that the heirs,upon entering the partnership, must make a declaration of his characters,otherwise he should be deemed as having succeeded as limited partner by themere acceptance of the inheritance. And here Kong Chai Pin did not make suchdeclaration. Being then a limited partner upon the death of Tan Sin An by operationof law, the peremptory prohibition contained in Article 1482of the Code ofCommerce became binding upon her and as a result she could not change herstatus by violating its provisions not only under the general principle that prohibitedacts cannot produce any legal effect, but also because under the provisions ofArticle 1473of the same Code she was precluded from acquiring more rights thanthose pertaining to her as a limited partner. The alleged acts of management,therefore, did not give Kong Chai Pin the character of general manager toauthorized her to bind the partnership.

Assuming also arguendo that the alleged acts of management imputed to KongChai Pin gave her the character of a general partner, could she sell the partnershipproperties without authority from the other partners?Our answer is also in the negative in the light of the provisions of the articles ofpartnership and the pertinent provisions of the Code of Commerce and the CivilCode. Thus, Article 129 of the Code of Commerce says:

If the management of the general partnership has not been limited byspecial agreement to any of the members, all shall have the power to take

part in the direction and management of the common business, and themembers present shall come to an agreement for all contracts orobligations which may concern the association.

And the pertinent portions of the articles of partnership provides:VII. The affairs of the co-partnership shall be managed exclusively by themanaging partner or by his authorized agent, and it is expressly stipulatedthat the managing partner may delegate the entire management of theaffairs of the co-partnership by irrevocable power of attorney to anyperson, firm or corporation he may select, upon such terms as regardscompensation as he may deem proper, and vest in such person, firm orcorporation full power and authority, as the agent of the co-partnershipand in his name, place and stead to do anything for it or on his behalfwhich he as such managing partner might do or cause to be done. (Page

23, Record on Appeal).It would thus be seen that the powers of the managing partner are not definedeither under the provisions of the Code of Commerce or in the articles ofpartnership, a situation which, under Article 2 of the same Code, rendersapplicable herein the provisions of the Civil Code. And since, according to well-known authorities, the relationship between a managing partner and thepartnership is substantially the same as that of the agent and his principal,4theextent of the power of Kong Chai Pin must, therefore, be determined under thegeneral principles governing agency. And, on this point, the law says that anagency created in general terms includes only acts of administrations, but withregard to the power to compromise, sell mortgage, and other acts of strictownership, an express power of attorney is required.5Here Kong Chai Pin did nothave such power when she sold the properties of the partnership.

Of course, there is authority to the effect that a managing partner, even withoutexpress power of attorney may perform acts affecting ownership if the same arenecessary to promote or accomplish a declared object of the partnership, but herethe transaction is not for this purpose. It was effected not to promote any avowedobject of the partnership.6Rather, the sale was affected to pay an obligation of thepartnership by selling its real properties which Kong Chai Pin could not do withoutexpress authority. The authorities supporting this view are overwhelming.

La enajenacion puede entrar en las facultades del gerente, cuando esconforme a los fines sociales. Pero esta facultad de enajenar limitada alas ventas conforme a los fines sociales, viene limitada a los objetos decomercio, o a los productos de la fabrica para explotacion de los caualese ha constituido la Sociedad. Ocurrira una cosa parecida cuando elobjeto de la Sociedad fuese la compra y venta de inmuebles, en cuyocaso el gerente estaria facultado para otorgar las ventas que fuere

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necesario. Por el contrario el generente no tiene attribuciones paravender las instalaciones del comercio, ni la fabrica, ni las maquinarias,vehiculos de transporte, etc. que forman parte de la explotacion social. Entodos estas casos, equalmente que sisse tratase de la venta de unamarca o procedimiento mecanico o quimico, etc., siendo actos dedisposicion, seria necesario contar con la conformidad expresa de todoslos socios. (R. Gay de Montella, id., pp. 223-224; Emphasis supplied).Los poderes de los Administradores no tienen ante el silencio del contrato

otros limites que los sealados porel objeto de la Sociedady, porconsiguiente, pueden llevar a cabo todas las operaciones que sirven paraaquel ejercicio, incluso cambiando repetidas veces los propios acuerdossegun el interest convenido de la Sociedad. Pueden contratar y despedira los empleados. tomar en arriendo almacenes y tiendas; expedircambiales, girarlas, avalarlas, dar en prenda o en hipoteca los bienes dela sociedad y adquirir inmuebles destinados a su explotacion o al empleo,estable de sus capitales. Pero no podran ejecutar los actos que esten encontradiccion con la explotacion que les fue confiada; no podran cambiarel objeto, el domicilio, la razon social; fundir a la Sociedad en otro; cederla accion, y por tanto, el uso de la firma social a otro, renunciardefinitivamente el ejercicio de uno de otro ramo comercio que se les hayaconfiado yenajenar o pignorar el taller o el banco social, excepto que la

venta o pignoracion tengan por el objeto procurar los medios necesariospara la continuacion de la empresa social. (Cesar Vivante, Tratado deDerecho Mercantil, pp. 124-125, Vol. II, 1a. ed.; Emphasis supplied).The act of one partner, to bind the firm, must be necessary for the carryingone of its business. If all that can be said of it was that it was convenient,or that it facilitated the transaction of the business of the firm, that is notsufficient, in the absence of evidence of sanction by other partners. Nor, it,seems, will necessity itself be sufficient if it be an extraordinary necessity.What is necessary for carrying on the business of the firm under ordinarycircumstances and in the usual way, is the test. Lindl. Partn. Sec. 126.While, within this rule, one member of a partnership may, in the usual andordinary course of its business, make a valid sale or pledge, by way ofmortgage or otherwise, of all or part of its effects intended for sale, to

a bona fidepurchaser of mortgagee, without the consent of the othermembers of the firm, it is not within the scope of his implied authority tomake a final disposition of al of its effects, including those employed asthe means of carrying on its business, the object and effect of which is toimmediately terminate the partnership, and place its property beyond itscontrol. Such a disposition, instead of being within the scope of thepartnership business, or in the usual and ordinary way of carrying it on, isnecessarily subversive of the object of the partnership, and contrary to thepresumed intention of the partnership in its formation. (McGrath, et al. vs.Cowen, et al., 49 N.E., 338, 343; Emphasis supplied).

Since Kong Chai Pin sold the partnership properties not in line with the business ofthe partnership but to pay its obligation without first obtaining the consent of theother partners the sale is invalid in excess of her authority.

4. Finally, the sale under consideration was effected in a suspicious manner asmay be gleaned from the following circumstances:(a) The properties subject of the instant sale which consist of three parcels of landsituated in the City of Davao have an area of 200 hectares more or less, or2,000,000 square meters. These properties were purchased by the partnership forpurposes of subdivision. According to realtor Mata, who testified in court, theseproperties could command at the time he testified a value of not less thanP312,000.00, and according to Dalton Chen, manager of the firm which took over

the administration, since the date of sale no improvement was ever made thereonprecisely because of this litigation. And yet, for said properties, aside from the sumof P37,000.00 which was paid for the properties of the deceased and thepartnership, only the paltry sum of P66,529.91 was paid as a considerationtherefor, of which the sum of P46,116.75 was even paid in Japanese currency.(b) Considering the area of the properties Kong Chai Pin had no valid reason tosell them if her purpose was only to pay the partnership obligation. She could havenegotiated a loan if she wanted to pay it by placing the properties as security, butpreferred to sell them even at such low price because of her close relationship withthe purchasers and creditors who conveniently organized a partnership to exploitthem, as may be seen from the following relationship of their pedigree:

KONG CHAI PIN, the administratrix, was a grandaughter of Jose P.Yutivo, founder of the defendant Yutivo Sons Hardware Co. YUTIVO

SONS HARDWARE CO. and SING, YEE & CUAN CO., INC., allegedcreditors, are owned by the heirs of Jose P. Yutivo (Sing, Yee & Cuan arethe three children of Jose). YU KHE THAI is a grandson of the same JoseP. Yutivo, and president of the two alleged creditors. He is theacknowledged head of the Yu families. WASHINGTON Z. SYCIP, one ofthe original buyers, is married to Ana Yu, a daughter of Yu Khe Thai.BETTY Y. LEE, the other original buyer is also a daughter of Yu Khe Thai.The INSULAR DEVELOPMENT CO., the ultimate buyer, was organizedfor the specific purpose of buying the partnership properties. Itsincorporators were: Ana Yu and Betty Y. Lee, Attys. Quisumbing andSalazar, the lawyers who studied the papers of the sale and have beencounsel for the Yutivo interests; Dalton Chen, a brother-in-law of Yu KheThai and an executive of Sing, Yee & Cuan Co; Lillian Yu, daughter of Yu

Eng Poh, an executive of Yutivo Sons Hardware, and Simeon Daguiwag,a trusted employee of the Yutivos.

(c) Lastly, even since Tan Sin An died in 1942 the creditors, who were closerelatives of Kong Chai Pin, have already conceived the idea of possessing thelands for purposes of subdivision, excluding Goquilolay from their plan, and this isevident from the following sequence of events;lawphil.net

Tan Sin An died in 1942 and intestate proceedings were opened in 1944.In 1946, the creditors of the partnership filed their claim against thepartnership in the intestate proceedings. The creditors studied ways andmeans of liquidating the obligation of the partnership, leading to theformation of the defendant Insular Development Co., composed ofmembers of the Yutivo family and the counsel of record of the defendants,which subsequently bought the properties of the partnership and assumed

the obligation of the latter in favor of the creditors of the partnership,11


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Yutivo Sons Hardware and Sing, Yee & Cuan, also of the Yutivo family.The buyers took time to study the commercial potentialities of thepartnership properties and their lawyers carefully studied the documentand other papers involved in the transaction. All these steps led finally tothe sale of the three partnership properties.

UPON THE STRENGTH OF THE FOREGOING CONSIDERATIONS, I vote togrant the motion for reconsideration.Labrador, Paredes, and Makalintal, JJ., concur.

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SALES CASES-Cause-Money or Its Equivalent