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Goquiolay and Tan Sin An & Antonio C. Goquiolay v. Sycip, et al.

July 26,
1960 (original decision)
FACTS: Tan Sin An and Antonio C. Goquiolay entered into a general commercial
partnership for the purpose of dealing in real estate. The partnership had a capital
of P30,000: P18,000 contributed by Goquiolay (60%); P12,000 by Tan Sin An (40%).
By virtue of the Articles of partnership and an special power of attorney, Tan Sin An
was designated as sole managing partner, and Goquiolay as co-partner. The
agreement stipulated that the partnership was fixed at 10 years, and that the
partnership would not be dissolved in the event of death of any of the partners at
any time before the expiration of the 10 years. In such a case, the partnership
would be continued, and the deceased partner would be represented by his heirs or
assigns.
The same day the partnership was created, it purchased three parcels of land in
Davao, subject matter of this litigation, assuming the payment of a mortgage
obligation payable to La Urbana. Another 46 parcels of land were purchased by Tan
Sin An in his individual capacity, assuming the payment of a mortgage obligation
payable to Yutivo and Co. The two separate obligations were consolidated in an
instrument executed by the partnership, whereby the entire 49 lots were mortgaged
in favor of the Banco Hipotecario de Filipinas (BHF), as successor to La Urbana. Tan
Sin An died, leaving as surviving heirs his widow Kong Chai Pin and their four minor
children. Kong Chai Pin was appointed administratrix of the intestate estate of her
deceased husband.
In the meantime, repeated demands were made by BHF on the partnership and Tin
Sin An. Defendant Sing Yee and Cuan Co (SY&C)., upon request of defendant Yutivo
Sons Hardware Co. (YSH), paid the remaining balance on the mortgage debt, and
the mortgage was cancelled.
SY&C and YSH filed their clams in the intestate proceedings of Tan Sin An. Kong Chai
Pin filed a petition for authority to sell all the 49 parcels of land to Washington Sycip
and Betty Lee, for the purpose of settling the debts of Tan Sin An and the
partnership. The court allowed. And so, Kong Chai Pin executed a deed of sale over
the 49 parcels of land to Sycip and Lee, in consideration of P37,000 and the
vendees assuming payments of the claims filed by SY&C and YSH. Later, Sycip and
Lee executed a deed of transfer over the properties in favor of Insular Decelopment
Co.
When Goquiolay learned of the sale to Sycip and Lee, he filed a petition in the
intestate proceedings seeking to set aside the order of the court approving the sale
insofar as his interest over the parcels of land was concerned.
The court annulled the sale with respect to the 60% interest of Goquiolay over the
properties. On appeal, the Supreme Court set aside the orders of the court and
remanded the case for new trial. The second amended complaint prayed for the

annulment of the sale in favor of Sycip and Lee, and their subsequent conveyance
in favor of Insular, insofar as the three lots owned by the partnership are concerned.
The lower court dismissed the complaint. Hence, this direct appeal.
ISSUE: Did Kong Chai Pin succeed her husband in the sole management of the
partnership, upon her husbands death?
RATIO: Tan Sin An had exclusive power over the management of the business.
Such power being premised on trust and confidence, was a personal right that
terminated upon Tans demise. The provision referring to the continuation of the
partnership even after the death of one of the partners could not have referred to
the managerial right given to Tan Sin An, but to the succession in the proprietary
interest of each partner.
On the other hand, in consonance with the articles of partnership providing for the
continuation of the firm notwithstanding the death of one of the partners, the heirs
of the deceased, by never repudiating or refusing to be bound under the said
provision, became individual partners with Goquiolay upon Tans demise. The
validity of like clauses is sanctioned under Art. 222 of the Code of Commerce.
Goquiolay argues that since the new members liability in the partnership was
limited to the value of the share or estate left by the deceased, they became no
more than limited partners, and as such, were disqualified from the management of
the business under Art. 148 of the Code of Commerce. Although ordinarily, this
effect follows from the the continuance of the heirs in the partnership, it was not so
with Kong Chai Pin.
Kong Chai Pin manifested her intent to be bound by the partnership agreement, not
only as a limited, but as a general partner. Thus, she managed and retained
possession of the partnership properties for seven years, and was admittedly
deriving income therefrom up to and until the properties were sold to Sycip and Lee.
In fact, by executing the deed of sale over the properties in the name of the
partnership, she was acting as no less than as a managing partner. Having preferred
to act as such, she could be held liable for the partnership debts and liabilities as a
general partner, beyond what she may have derived only from the estate of her
deceased husband.
MAIN ISSUE: Was the consent of Goquiolay necessary to perfect the sale of the
partnership properties to Sycip and Lee? NO.
Strangers dealing with a partnership have the right to assume, in the absence of
restrictive clauses in the partnership agreement that every general partner has
power to bind the partnership, especially those partners acting with ostensible
authority.

The obligation created in Art. 129 of the Code of Commerce 1 is one imposed by law
on the partners among themselves that does not necessarily affect the validity of
the acts of a partner while acting within the scope of the ordinary course of
business, as regards third persons without notice. Such third persons may rightfully
assume that the contracting business partner was duly authorized to contract for
and in behalf of the firm and that, furthermore, he would not ordinarily act to the
prejudice of his co-partners. The regular course of business procedure does not
require that each time a third person contracts with one of the managing partners,
he should inquire as to the latter's authority to do so, or that he should first
ascertain whether or not the other partners had given their consent thereto. In fact,
Art. 130 of the same Code of Commerce provides that even if a new obligation was
contracted against the express will of one of the managing partners, "it shall not be
annulled for such reason, and it shall produce its effects without prejudice to the
responsibility of the member or members who contracted it, for the damages they
may have caused to the common fund."
Although the partnership here is a commercial partnership and, therefore, is to be
governed by the Code of Commerce, the provisions of the Old Civil Code may give
us some light on the right of one partner to bind the partnership. The relevant
provision is Art. 16952 thereof. The records fail to disclose that Goquiolay made any
opposition to the sale of the partnership realty to Sycip and Lee; on the contrary, it
appears that he only interposed his objections after the deed of conveyance was
executed and approved by the court, and, consequently, his opposition came too
late to be effective.
Were the amounts paid for the account of the partnership as found be the trial court
correct?
This need not be discussed here, as Sycip and Lee assumed, as part of the purchase
price, the full claims of the two creditors.
Is the sale of the entire firm realty valid? YES.
Goquiolay claims that such sale threw the partnership into dissolution, which
requires the consent of all partners, thereby making the sale invalid. This is
untenable. The partnership was left without the real property it originally had, but

1 If the management of the general partnership has not been limited by special agreement to any of the members,
all shall have the power to take part in the direction and management of the common business, and the members
present shall come to an agreement for all contracts or obligations which may concern the association.

Should no agreement have been made with respect to the form of management, the following rules shall be
observed:1. All the partners shall be considered agents, and whatever any one of the may do individually shall bind
the partnership; but each one may oppose any act of the others before it has become legally binding.

this will not work the partnerships dissolution, since the firm was not organized to
exploit these precise lots.
Was the sale of the partnership properties a fraudulent device to ease Goquiolay out
of the partnership? NO
Goquiolay presented no evidence of the marker value of the lots as of the time of
their sale to Sycip and Lee.
RULING: Affirmed. The sale to Sycip and Lee is valid.
SUMMARY: Tan Sin An and Goquiolay entered into a partnership. The partnership
was fixed to exist for ten years, and also provided that the partnership would
continue even in the event of the death of one of the partners, through
representation by the deceased partners heirs. The partnership, and Goquiolay in
his personal capacity, purchased three and 46 lots, respectively. In doing so, they
assumed the mortgage obligations on such lots. Tan Sin died, and his widow Kong
Chai Pin was designated as administratrix. Demands were made on the partnership
and Goquiolay to pay the mortgage. Kong Chai Pin, supposedly without the consent
of Goquiolay, sold all 49 parcels of land to Sycip and Lee to settle the debts. When
Goquiolay learned of the sale, he filed a petition claiming that the sale is invalid
insofar as his interest over the parcels of land was concerned. The Supreme Court
upheld the validity of the sale.
DOCTRINE: Strangers dealing with a partnership have the right to assume, in the
absence of restrictive clauses in the partnership agreement that every general
partner has power to bind the partnership, especially those partners acting with
ostensible authority.
Goquiolay v. Sycip 108 Phil 947
Facts:
1940: Goquiolay and Tan Sin An were partners who owned 3 parcels of land. On the
same date that the partnership acquired these, Tan Sin An purchased 46 parcels of
land. Both the partnership and Tan Sin An alone executed mortgages in favor of the
same company, La Urbanidad Sociedad Mutua de Construccion. For the
partnership, it was P25,000 while for Tan Sin An, it was P35,000. A few months later,
the two mortgage obligations were consolidated and transferred to the Banco
Hipotecario de Filipinas and as a result, Tan Sin An, in his individual capacity, and
the partnership bound themselves to pay jointly and severally the total amount of
P52,282.20, with 8% annual interest thereon within a period of eight years
mortgaging in favor of said entity the 3 parcels of land belonging to the partnership
and the 46 parcels of land belonging individually to Tan Sin An.
1942: Tan Sin An died, his widow, Kong Chai Pin was made Administratrix of his
estates in 1944. In 1949, she executed a sale of these lands. This was executed in

her dual capacity as Administratrix of her husbands estates and as partner in lieu
of her husband. She sold these to respondents Washington Sycip and Betty Lee.
We note the following in this situation:
We are dealing with the transfer of partnership property by one partner, acting in
behalf of the firm, to a stranger. There is no question between the partners inter se.
The partnership was expressly organized to engage in real estate business, either
by buying and selling real estate. These are expressly provided for in the Articles of
co-partnership.
The properties sold were not part of the contributed capital 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.
Regardless of the previous ruling by the Supreme Court for the respondents, the
petitioners still filed this motion for reconsideration.
Issue: W/N Tan Sin Ans widow, Kong Chai Pin, became partner when her husband
died, allowing her to validly sell the property that belongs to the partnership. YES.
Goquiolay insists that Kong Chai Pin never became more than a limited partner,
incapacitated by law to manage the affairs of partnership; that the testimony of
Kongs witnesses belie that she took over the administration of the partnership
property; and that, in any event, the sale should be set aside because it was
executed with the intent to defraud Goquiolay of his share in the properties sold.
Based on the sequence of events (as taken from the testimonies of Goquiolay and
Kong Chai Pins witnesses, Young and Lim), Young and Lim observed that most of
the properties were undeveloped and some were occupied by the Japanese Army
during the Japanese Occupation from 1942-1944. Goquiolay then admitted that in
1945, after the Japanese Occupation, he allowed the widow to continue managing
the properties. The sale made by Kong Chai Pin was in 1949. Clearly, the
testimonies of the widows witnesses do not contradict Goquiolays admission. He
had given her authority after the occupation while witnesses were referring to the
time of the Japanese period. And this authority was never revoked until now.
Goquiolay tried to argue that Kong Chai Pin only had the authority to manage the
property and did not include the power to alienate, citing Art. 1713 of the Civil Code
of 1889. What this argument overlooks is that the widow was not a mere agent
because she had become partner upon her husbands death, which was expressly
stipulated in the articles of co-partnership. The stipulation in the articles of copartnership imply that there is a general partnership, and not merely a limited one,
because since the co-partnershipwill have to be continued with the heirs and
assigns, it cannot continue if the partnership would be converted to a limited one
upon death of one of the partners.

And even though she only became a limited partner at her husbands death as
Goquiolay claims, Goquilays authorization to manage the property was proof that
he considered her and recognized her as a general partner, at least since 1945.
Take note that if she were only a limited partner, under the Code of Commerce, Art.
148, last paragraph:
Limited partners may not perform any act of administration with respect to the
interest of the copartnership, not even in the capacity of agents of the managing
partners.
Goquiolay is estopped from saying that Kong Chai Pin is not a general partner
because he granted her the authority to manage the partnership properties. Also,
the heir ordinarily becomes a limited partner for his own protection, because he
would normally prefer to avoid any liability in excess of the value of the estate
inherited so as not to jeopardize his personal assets, however, he may also elect to
become general partner instead. This is a choice exclusively to be made by the heir,
because as general partner, he may have all the rights and privileges of one, and
answering got the debts of the firm not only with the inheritance but also with the
heirs personal fortune. In addition to this authority, the Court had yet again
stressed the fact that he had 7 years between the death of his partner and the sale
made by his partners widow to take up the management of the properties himself,
which he clearly failed to do.
General Rule: Stipulations made between partners in the articles of co-partnership
which require that any of the two managing partners may contract in the name of
the partnership with the consent of the other, creates an obligation between the
two partners BUT shall not impose the same obligation to a third person who
contracts with the partnership. This means that a third person has the right to
presume that the partner he contracts with already has the consent of his partner
when they both enter into a contract.
In a partnership that deals with real estate, it is presumed that every partner
already has ample power, as a general agent of the firm, to enter into an executory
contract for the sale of real estate. (American cases: Rosen v. Rose, Chester v.
Dickerson, Revelsky v. Brown) In this case, since the articles of co-partnership
expressly stipulate that the business of the partnership is in the buying and selling
of real estate, it cannot be maintained that the sale Kong Chai Pin made was in
excess of her power as a general partner.
Obiter (very
explanation):

quick

summary

only,

read

the

case

for

lengthier

There is no fraud: first of all, the price was already approved by the Court in the
previous case, even if the petitioners claim it to be much too low. The relationship
between the buyers of the lands and Kong Chai Pin alone cannot be a badge of
fraud. There is no proof that the buyers were without independent means to

purchase the property. Goquiolay has no proof that he was a victim of a conspiracy
because he has no proof.
Dispositive: Premises considered, the motion for reconsideration is denied. DISSENT
(Bautista Angelo, J.): The facts of the case were told a bit differently in the dissent.
1946: Two companies (Yutivo Sons Hardware co. and Sing, Yee and Cuan Co. filed
claims in the intestate proceeding in Tan Sin An because Tan Sin An himself and the
partnership with Goquiolay had obligations to him. And when Goquiolay refused to
sell his interest to the companies, these went after the deceased partners estate.
1948: It appears that Goquiolay actually refused to grant Kong Chai Pin a power of
attorney when she requested for one . 1949: Kong Chai Pin filed a petition in the
probabte court to sell the properties of the partnership and some conjugal
properties for the purpose of paying these claims. This was approved by the court
and then she then begun to presume the role of managing partner. The dissenting
opinion stresses on the following 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 of the partnership, or
to serve as basis for estoppel that may benefit the purchasers of the partnership
properties;
we may conclude that the sale of the partnership properties by Kong Chai Pin
cannot be upheld on the ground of estoppel, first, because the alleged acts of
management have not been clearly proven; second, because the record clearly
shows that the defendants, or the buyers, were not misled nor did they rely on the
acts of management, but instead they acted solely on the opinion of their counsel,
Atty. Quisumbing, to the effect that she succeeded her husband in the partnership
as managing partner by operation of law; and third, because the defendants are
themselves estopped to invoke a defense which they tried to dispute and
repudiate.
(2) the alleged acts of management, even if proven, could not give Kong Chai Pin
the character of general manager for the same contrary to law and well-known
authorities;
Garrigues, a well-known commentator, is clearly of the opinion that mere
acceptance of the inheritance does not make the heir of a general partner a general
partner himself. He emphasized that heir must declare that he is entering the
partnership as a general partner unless the deceased partner has made it an
express condition in his will that the heir accepts the condition of entering the
partnership as a prerequisite of inheritance, in which case acceptance of the
inheritance is enough. But here Tan Sin An died intestate.
(3) even if Kong Chai Pin acted as general manager she had no authority to sell the
partnership properties as to make it legal and valid; and

Article 129 of the Code of Commerce says:


If the management of the general partnership has not been limited by special
agreement to any of the members, all shall have the power to take part in the
direction and management of the common business, and the members present shall
come to an agreement for all contracts or obligations which may concern the
association.
The pertinent portions of the articles of partnership provides:
VII. The affairs of the co-partnership shall be managed exclusively by the managing
partner or by his authorized agent, and it is expressly stipulated that the managing
partner may delegate the entire management of the affairs of the co-partnership by
irrevocable power of attorney to any person, firm or corporation he may select,
upon such terms as regards compensation as he may deem proper, and vest in such
person, firm or corporation full power and authority, as the agent of the copartnership and in his name, place and stead to do anything for it or on his behalf
which he as such managing partner might do or cause to be done.
The law says that an agency created in general terms includes only acts of
administrations, but with regard to the power to compromise, sell mortgage, and
other acts of strict ownership, an express power of attorney is required. Here Kong
Chai Pin did not have such power when she sold the properties of the partnership.
(4) Kong Chai Pin had no necessity to sell the properties to pay the obligation of the
partnership and if she did so it was merely to favor the purchasers who were close
relatives to the prejudice of Goquiolay.

d. Insolvency sections 32 and 51, act 1956, insolvency law

Sec. 32. Transfer of property to assignee. As soon as an assignee is


elected or appointed and qualified, the clerk of the court shall, by an
instrument under his hand and seal of the court, assign and convey to the
assignee all the real and personal property, estate, and effects of the
debtor with all his deeds, books, and papers relating thereto, and such
assignment shall relate back to the commencement of the proceedings in
insolvency, and shall relate back to the acts upon which the adjudication
was founded, and by operation of law shall vest the title to all such
property, estate, and effects in the assignee, although the same is then
attached on mesne process, as the property of the debtor. Such
assignment shall operate to vest in the assignee all of the estate of the
insolvent debtor not exempt by law from execution. 17 It shall also
dissolve any attachment levied within one month next preceding the
commencement of the insolvency proceedings and vacate and set aside

any judgment entered in any action commenced within thirty days


immediately prior to the commencement of insolvency proceedings and
shall vacate and set aside any execution issued thereon and shall vacate
and set aside any judgment entered by default or consent of the debtor
within thirty days immediately prior to the commencement of the
insolvency proceedings.
PROPERTIES OF INSOLVENT THAT PASS TO THE ASSIGNEE
1. All real and personal property, estate and effects of the debtor including
all deeds, books, and papers in relation thereto
2. Properties fraudulently conveyed
3. Right of action for damages to real property
4. The undivided share for interest of the insolvent debtor in property held under
co-ownership
PROPERTIES OF INSOLVENT THAT DOESNT PASS TO THE ASSIGNEE
1. Property exempt from execution
2. Property held in trust
3. Property
of
the
conjugal
partnership
or
absolute community so
long as said partnership or community exists except insofar as the insolvent
debtors obligations have redounded to the benefit of the former
4. Property over which a mortgage or pledge exists unless the creditor surrenders
his security or lien
5. After-acquired property except fruits and income of property owned by
the debtor and which had passed to the assignee in insolvency law
6.
Non-leviable assets like a life insurance policy which
surrender value

doesnt

have

cash

7. Right of action for tort which is purely personal in nature

Sec. 51. Partnerships. A partnership, during the continuation of the


partnership business, or after its dissolution and before the final
settlement thereof, may be adjudged insolvent, either on the petition of
the partners or any one of them, or on the petition of three or more
creditors of the partnership, qualified as provided in section twenty of this
Act, in either of which cases the court shall issue an order in the manner
provided by this Act, upon which all the property of the partnership, and

also all the separate property of each of the partners, if they are liable,
shall be taken, excepting such parts thereof as may be exempt by law; and
all creditors of the partnership, and the separate creditors of each partner,
shall be allowed to prove their respective claims; and the assignee shall
be chosen by the creditors of the partnership, and shall also keep
separate accounts of the property of the partnership, and of the separate
estate of each member thereof. The expenses of the proceedings shall be
paid from the partnership property and the individual property of the
partners in such proportions as the court shall determine. The net
proceeds of the partnership property shall be appropriated to the
payment of the partnership debts and the net proceeds of the individual
estate of each partner to the payment of his individual debts. Should any
surplus remain of the property of any partner after paying his individual
debts, such surplus shall be added to the partnership assets and be
applied to the payment of the partnership debts. Should any surplus of
the partnership property remain after paying the partnership debts, such
surplus shall be added to the assets of the individual partners in the
proportion of their respective interests in the partnership. Certificate of
discharge shall be granted or refused to each partner as the same would
or ought to be if the proceedings had been by or against him alone under
this Act; and in all other respects the proceedings as to the partners shall
be conducted in like manner as if they had been commenced and
prosecuted by or against one person alone. If such partners reside in
different provinces, the court in which the petition is first filed shall retain
exclusive jurisdiction over the case. If the petition to be filed by less than
all the partners of a partnership those partners who do not join in the
petition shall be ordered to show cause why they, as individuals, and said
partnership, should not be adjudged to be insolvent, in the same manner
as other debtors are required to show cause upon a creditor's petition, as
in this Act provided; and no order of adjudication shall be made in said
proceedings until after the hearing of said order to show cause.

NG CHO CIO ET AL., plaintiffs-appellants, vs. NG DIONG, defendantappellant. C. N. HODGES, ET AL., defendants-appellees.
Facts: On May 23, 1925, Ng Diong, Ng Be Chuat, Ng Feng Tuan Ng Be Kian Ng Cho
Cio, Ng Sian King and Ng Due King entered into a contract of general co-partnership
under the name NG CHIN BENG HERMANOS. The partnership was to exist for a
period of 10 years from May 23, 1925 and Ng Diong was named as managing
partner. On May 10, 1935, the articles of co-partnership were amended by
extending its life to 16 years more to be counted from May 23, 1925, or up to May
23, 1941.

On January 5, 1938, the partnership obtained from the National Loan and
Investment Board a loan in the amount of P30,000.00, and to guarantee its
payment it executed in its favor a mortgage on Lots Nos. 236-B, 317-A, 233 and 540
of the cadastral survey of Iloilo. On the same date, the partnership also obtained
from the same entity another loan in the amount of P50,000.00 to secure which it
also executed in its favor a mortgage on Lots Nos. 386, 829 and 237 of the same
cadastral survey.
Sometime in 1938, the partnership was declared insolvent upon petition of its
creditors in, Special Proceedings No. 2419 of the Court of First Instance of Iloilo
wherein one Crispino Melocoton was elected as assignee. As a consequence, on
June 21, 1939, the titles to the seven parcels of land abovementioned were issued
in his name as assignee. In due time, the creditors filed their claims in said
proceeding which totalled P192,901.12.
On August 9, 1940, a majority of the creditors with claims amounting to
P139,704.81, and the partners of the firm, acting thru counsel, entered into a
composition agreement whereby it was agreed that said creditors would receive
20% of the amount of their claims in full payment thereof. Prior to this agreement,
however, defendant Julian Go had already acquired the rights of 24 of the creditors
of the insolvent whose total claims amounted to P139,323.10. Said composition
agreement was approved by the insolvency court.
On January 30, 1941, the Agricultural and Industrial Bank which had succeeded the
National Loan and Investment Board assigned its rights and interests in the loans
obtained from it by the partnership in the aggregate amount of P80,000.00 in favor
of C.N. Hodges, together with the right and interest in the mortgage executed to
secure the loans. Since said loans became due and no payment was forthcoming,
Hodges asked permission from the insolvency court to file a complaint against the
assignee to foreclose he mortgage executed to secure the same in a separate
proceeding, and permission having been granted, Hodges filed a complaint for that
purpose on May 13, 1941. In his complaint, Hodges prayed that the assignee be
ordered to pay him the sum of P75,622.90, with interest at 8% per annum thereon
from March 6, 1941, plus P8,000.00 attorney's fees, exclusive of costs and charges.
Meanwhile, war broke out and nothing appears to have been done in the insolvency
proceedings. The court records were destroyed. However, they were reconstituted
later and given due course.
On August 15, 1945, the partners of the insolvent firm and Julian Go, who acquired
most of the claims of the creditors, filed a petition with the insolvency court praying
at the insolvency proceedings be closed or terminated cause the composition
agreement the creditors had submitted relative to the settlement of the claims had
already been approved on October 10, 1940. And on October 6, 1946, the court,
acting favorably on the petition, ordered, closure of the proceedings directing the
assignee to turn and reconvey all the properties of the partnership back to the latter

as required by law. In accordance with this order of the court, the assignee executed
a deed of reconveyance of the properties to the partnership on April 2, 1946 and by
virtue thereof, the register of deeds cancelled the titles issued in the name of the
assignee and issued new ones in lieu thereof in the name of the partnership.
As of said date, April 2, 1946, the indebtedness of the partnership to C. N. Hodges
which was the subject of the foreclosure proceedings in a separate case was
P103,883.34. In order to pay off the same and raise necessary funds to pay the
other obligations of the partnership, it was deemed proper and wise by Ng Diong,
who continued to be the manager of the partnership, to sell all its properties
mortgaged to Hodges in order that the excess may be applied to the Payment of
said other obligations, and to that effect Ng Diong executed on April 2, 1946 a deed
of sale thereof in favor of Hodges for the sum of P124,580.00. Out of this price; the
sum of P103,883.34 was applied to the payment of the debt of the partnership to
Hodges and the balance was paid to the other creditors of the partnership. On the
same date, Hodges executed another contract giving the partnership the right to
repurchase Lots Nos. 237, 386 and 829 in installments for the sum of P26,000.00
within three years with interest the rate of 1% Per annum, Payable monthly.
On May 23, 1947, the partnership had not yet paid its indebtedness to Julian Go in
the amount of P24,864.62 under the composition agreement, nor did it have any
money to repurchase Lots Nos. 237, 386 and 829 and so Ng Diong, in behalf of the
partnership, transferred the right of the latter to repurchase the same from Hodges
to Julian Go in full payment of the partnership's indebtedness to him. And having
Julian Go exercised the option January 6, 1948, Hodges executed a deed of sale of
the properties in his favor, and pursuant thereto the register of deeds issued new
titles' in his name covering said lots. On May 29, 1948, Hodges executed another
deed of sale covering Lots Nos. 317-A, 236-B, 233 and 540 for the sum of
P119,067.79 in favor of Jose C. Tayengco. And on August 31, 1948, Tayengco
mortgaged said lots, together with three other lots of his, to the Bank of the
Philippine Islands to secure a loan of P126,000.00 to be used in the construction of a
commercial building on said lots.
Issue: the sale made by Ng Diong in behalf of the partnership NG CHIN BENG
HERMANOS of the seven lots belonging to it in favor of C. N. Hodges on April 2,
1946 is null and void because at that time said parcels were still in the custody of
the assignee of the insolvency proceedings, or in custodia legis, and, hence, the
same is null and void;
Held: Anent the first issue, it would be well to state the following facts by way of
clarification: It should be recalled that on August 8, 1940 the majority of the
creditors of the partnership, as well as the representatives of the latter, submitted
to the court taking cognizance of the insolvency proceedings a composition
agreement whereby it was agreed that said creditors would receive 20% of the
amount of their claims in full payment thereof. This agreement was approved on

October 10, 1940 which, in contemplation of law, has the effect of putting an end to
the insolvency proceedings. However, no further step was taken thereon because of
the outbreak of the war. Later, the record of the case was reconstituted and the
parties on August 15, 1945 filed a petition with the court praying for the dismissal
and closure of the proceedings in view of the approval of the aforesaid composition
agreement, and acting favorably thereon, the court on October 6, 1945, issued an
order declaring the proceedings terminated and ordering the assignee to return and
reconvey the properties the partnership. The actual reconveyance was done by an
assignee on April 2, 1946.
It would, therefore, appear that for legal and practical purposes the insolvency
ended on said date. Since then partnership became, restored to its status quo. It
again reacquired its personality as such with Ng Diong as its general manager. From
that date on its properties ceased to be in custodia legis. Such being the case, it is
obvious that when Ng Diong as manager of the partnership sold the seven parcels
of land to C. N. Hodges on April 2, 1946 by virtue of a deed of sale acknowledged
before a notary public on April 6, 1946, the properties were already was at liberty to
do what it may deem convenient and proper to protect its interest. And acting
accordingly, Ng Diong made the sale in the exercise of the power granted to him by
the partnership in its articles of co-partnership. We do not, therefore, find anything
irregular in this actuation of Ng Diong.
With regard to the appeal taken by the heirs of defendant Ng Diong whose main
claim is that the trial court failed to adjudicate to the partnership the properties
which were bought by Julian Go from C. N. Hodges, suffice it to say that the same
could not be done, firstly, because no such claim was made by them in their
pleadings in the trial court, and, secondly, because the evidence shows that said
properties were bought by Julian Go by virtue of the option given to him by the
partnership for a valuable consideration in full payment of the credits assigned to
him by a good number of creditors of said partnership. There is no evidence that he
promised to reconvey the same to the partnership.
WHEREFORE, the decision appealed from is affirmed, with costs against appellants.

e. Civil interdicition of partner art. 1327, 38; art.34, RPC

Art. 1327. The following cannot give consent to a contract:


(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know how to
write. (1263a)

3 persons who CANNOT GIVE CONSENT to a contract (if entered into, contract
is voidable)
1. UNEMANCIPATED MINORS
2. INSANE/DEMENTED PERSONS (unless they acted DURING LUCID INTERVAL)
3. DEAF-MUTES who DO NOT know how to write
DEMENTED PERSON NOT exactly insane; difficult to distin-guish right from wrong
LUCID INTERVAL period when an INSANE has acquired SANITY temporarily,
therefore, capacitated to enter into a valid contract
2 RULES on persons WHO CANNOT GIVE CONSENT to a contract
1. Age of majority is 18 yrs old
2. A contract entered into by UNEMANCIPATED MINOR w/o parents/guardians
consent is voidable, except:
a. Minor MISREPRESENTS his age (estoppel)
b. Contract involves sale & delivery of necessities to minor

Art. 38. Minority, insanity or imbecility, the state of being a deaf-mute,


prodigality and civil interdiction are mere restrictions on capacity to act,
and do not exempt the incapacitated person from certain obligations, as
when the latter arise from his acts or from property relations, such as
easements. (32a)
Articles 38 and 39 are really the same thing. They are redundant.
Insolvency certain obligations cannot be performed (i.e., one cannot pay off debts
in favor of one creditor while excluding other creditors)
Trusteeship - one is placed in guardianship.
Prodigality - it is not by itself a restriction. It is a ground to be placed in guardianship
These restrictions dont exempt incapacitated persons from certain obligations.
Under
Article
1156,
there
are
5
sources
of
obligations:
1.Law2.Contract3.Delict4.Quasi-delict5.Quasi-contract
Thus, Articles 38 and 39 prevent incapacitated persons from incurring contractual
obligations only. Thus, even though an insane person cannot be thrown in jail fora

criminal act, the insane person is still civilly liable (delict). An incapacitated person
must still pay income tax if income is earned.
Although Articles 38 and 39 dont mention it, incapacitated persons may acquire
rights. For example, they have the right to accept donations or to succeed.
The enumeration in Articles 38 and 39 is not exclusive. There are others spread
throughout the code. (I.e. A lawyer cannot buy property in litigation Article1491
(5)

Art. 34. Civil interdiction. Civil interdiction shall deprive the offender
during the time of his sentence of the rights of parental authority, or
guardianship, either as to the person or property of any ward, of marital
authority, of the right to manage his property and of the right to dispose
of such property by any act or any conveyance inter vivos.
Disqualification is withholding a privilege, not a denial of a right.
Civil interdiction shall cause the following effects:
Deprivation of the rights of parental authority or guardianship of any ward;
Deprivation of marital authority;
Deprivation of right to manage his property and the right to dispose such property
by any act or any conveyance inter vivos (or donation made during lifetime).