Haystack: Hongkong & Shanghai Banking v. Aldecoa & Co. (GR 8437, 23 March 1915)

Hongkong & Shanghai Banking v. Aldecoa & Co.
[G.R. No. 8437. March 23, 1915.]
En Banc, Trent (J): 3 concur, 1 concurs in result, 1 dissents.

Facts: The defendants, Joaquin, Zoilo, and Cecilia (all Ibañez de Aldecoa), were born in the Philippines on 27 March 1884, 4 July 1885, and 1887, respectively, the legitimate children of Zoilo Ibañez de Aldecoa and Isabel Palet; the parents being natives of Spain but domiciled in Manila. The firm of Aldecoa & Co., of which Zoilo Ibañez de Aldecoa, the father who died on 4 October 1895, had been a member and managing director, was reorganized in December 1896, and the widow became one of the general or "capitalistic" partners of the firm. The 3 children appear in the articles of agreement as industrial partners. The widow, retaining her Manila domicile, left the Philippines and went to Spain in 1897 due to her health, and did not return until the latter part of 1902.

On 31 July 1903, Isabel Palet went before a notary public and executed two instruments, whereby she emancipated her sons, who were 18 years old at that time, with their consent and acceptance. After the execution of said instruments, both Joaquin and Zoilo participated in the management of Aldecoa & Co. as partners by being present and voting at meetings of the partners of the company upon matters connected with its affairs.

On 23 February 1906, Aldecoa & Co. obtained from the bank a credit in account current up to the sum of P450,000 upon the terms and conditions set forth in the instrument Exhibit A. Later it was agreed that Isabel Palet and her sons should mortgage, in addition to certain securities of Aldecoa & Co. certain of their real properties as additional security for the obligations of Aldecoa & Co. Thus, on 23 March 1906, the mortgage, Exhibit B, was executed wherein certain corrections in the description of some of the real property mortgaged to the bank by Exhibit A were made and the amount for which each of the mortgaged properties should be liable was set forth. These two mortgages, Exhibits A and B, were duly recorded in the registry of property of the city of Manila on 23 March 1906. The real property mortgaged by Isabel Palet was at her instance, registered under the provisions of the Land Registration, the property subject to the mortgage in favor of the bank, by decree of the land court 8 March 1907; while another property, on 6 November 1906 and at the instance of Isabel Palet and her 3 children, was applied for registration (the undivided ¾ of said property being subject to the mortgage in favor of the bank), the application of which was granted by decree of the land court 8 September 1907.

On 31 December 1906, Aldecoa & Co. went into liquidation on account of the expiration of the term for which it had been organized, and the intervener, Urquhart, was duly elected by the parties as liquidator, and by resolution dated 24 January 1907, he was granted the authority expressed in that resolution.

Additional security for the performance of the obligation in favor of the bank under the terms of contracts Exhibit A and B were made on various dates. On 22 December 1906, Aldecoa & co. mortgaged to the bank the right of mortgage upon real property in the Province of Albay mortgage to it by one Zubeldia. On 31 Mach 1907, Aldecoa & Co., already in liquidation, mortgaged to the bank the right of mortgage upon real estate in the province of Ambos Camarines mortgage to it by one Andres Garchitorena (P20,280.19). On the same date, Aldecoa & Co. further mortgaged the right of mortgage upon real property in the same province mortgage to it by Tremoya Hermanos (P43,117.40) and Liborio Tremoya (P75,463.54). Further, on 30 January 1907, Aldecoa & Co. duly authorized the bank to collect from certain persons and firms any and all debts owing by them to Aldecoa & Co. and to apply all amounts so collected to the satisfaction, pro tanto, of any indebtedness of Aldecoa & Co. to the bank.

On the other hand, as the result of the litigation between Aldecoa & Co. and A. S. Macleod, wherein the injunction bond of P50,000 was made by the bank upon the condition that any liability incurred on the part of the bank upon this injunction bond would be covered by the mortgage of 23 February 1906, Aldecoa & Co. became the owner, through a compromise agreement executed on 14 August 1907, of the shares of the Pasay Estate Company Limited, and on 30 August 1907, Urquhart, as liquidator mortgaged to the bank, by way of additional security for the performance of the obligations set forth in Exhibits A and B, the 312 shares of the Pasay Estate Company, Limited, acquired by Aldecoa & Co.

On 18 February 1907, Aldecoa & Co. acknowledged an indebtedness of P154,689,20 each to Joaquin and Zoilo Ibañez de Aldecoa, and another P89,177.07 to Cecilia Ibañez de Aldecoa. On 30 September 1908, Joaquin, Zoilo, and Cecilia recovered a judgment in the CFI Manila for the payment of the balance of P155,127.31.

On 30 November 1907, Joaquin, Zoilo, and Cecilia instituted an action in the CFI Manila against the bank for the purpose of obtaining a judicial declaration to the effect that the contract whereby Aldecoa & Co. mortgaged to the bank the shares of the Pasay Estate Company recovered from Alejandro S. Macleod, was null and void, and for a judgment that these shares be sold and applied to the satisfaction of their judgment obtained on 30 September 1908. Judgment was rendered by the lower court in favor of the children, but upon appeal the Supreme Court reversed that judgment and declared that the mortgage of the shares of stock in the Pasay Estate Co. to the bank was valid.

In 1908, Joaquin, Zoilo, and Cecilia commenced an action against their mother, Isabel Palet, and Aldecoa & Co., in which the bank was not a party, and in September of that year procured a judgment of the CFI annulling the articles of copartnership of Aldecoa & Co., in so far as they were concerned, and decreeing that they were creditors and not partners of that firm.

In October 1908, Joaquin and Zoilo instituted an action against the bank for the purpose of obtaining a judgment annulling the mortgages created by them upon their interest in the properties described in Exhibits A and B, upon the ground that the emancipation by their mother was void and of no effect, and that, therefore, they were minors incapable of creating a valid mortgage upon their real property. The CFI dismissed the complaint as to Joaquin upon the ground that he had ratified those mortgages after becoming of age, but entered a judgment annulling said mortgages with respect to Zoilo. Both parties appealed from this decision and the case was given registry No. 6889 in the Supreme Court.

On 31 January 1911, the Bank filed an action against the defendants for the purpose of recovering from Aldecoa & Co., an amount due from the latter as the balance to its debit in an account current with the Company, and to enforce the subsidiary liability of the other defendants for the payment of this indebtedness, as partners of the Company, and to foreclose certain mortgages executed by the defendants to secure the indebtedness sued upon. On 10 August 1912, judgment was entered in favor of the bank, ordering the defendants to pay the sum of P344,924.23 with interest of 7% per annum from date of judgment until fully paid, and the costs; and ordering the foreclosure of the mortgages. Judgment was also entered denying the relief sought by the intervener. All of the defendants and the intervener have appealed.

The Supreme Court affirmed the judgment appealed from, and ordered the appellants whose appeals are determined to pay their respective portions of the cost.

1. Complaint not vague nor ambiguous
The complaint alleges that a certain specific amount was due from the defendant firm as a balance of its indebtedness to the plaintiff, and this necessarily implies that there were no credits in favor of the defendant firm of any kind whatsoever which had not already been deducted from the original obligation.

2. No evidence supports claim that bank prejudiced Aldecoa by inducing the customers to cease commercial relations
There is no evidence to show that there was any inducement made by the bank to prejudice Aldecoa & Co, for its customers to cease their commercial relations with Aldecoa & Co.. It may be possible that some of Aldecoa & Co.'s customers ceased doing business with that firm after it went into liquidation. This is the ordinary effect of a commercial firm going into liquidation. This is especially true for the reason that it was a well known fact that Aldecoa & Co. was insolvent. Furthermore, the bank was expressly empowered to take any steps which might be necessary, judicially or extrajudicially, for the collection of these credits. The real reason which caused the defendant's provincial customers to cease making shipments was due to the fact that the defendant, being out of funds, could not give its customers any further credit. It is therefore clear that the bank, having exercised the authority conferred upon it by the company in a legal manner, is not responsible for any damages which might have resulted from the failure of the defendant's provincial customers to continue doing business with that firm.

3. Court has jurisdiction as bank does not seek to exercise mortgage right on real properties in the provinces
The bank is not seeking to exercise its mortgage rights upon the mortgages which the defendant firm holds upon certain real properties in the Provinces of Albay and Ambos Camarines and to sell these properties at public auction in these proceedings; nor does the judgment of the trial court directs that this be done. Before that property can be sold the original mortgagors will have to be made parties. The bank is not trying to foreclose any mortgages on real property executed by Aldecoa & Co.

4. Solidary obligation; Money judgment against the firm and foreclosure judgment against the others
It is true that the bank sought and obtained a money judgment against that firm, and at the same time and in the same action obtained a foreclosure judgment against the other defendants. If two or more persons are in solidum the debtors of a third person, and one or more of such debtors mortgage any of their real property situate in the jurisdiction of the court, the creditor, in case his obligation is not paid at maturity, may include all of the solidary debtors in the same suit and secure a joint and several judgment against them, as well as judgments of foreclosure upon the respective mortgages.

5. Extensions does not extinguish the mortgages
The contention that the extensions granted to Aldecoa & Co.'s debtors, with the consent and authority of that firm itself, has resulted in extinguishment of the mortgages created by Aldecoa & Co. or of the mortgages created by partners of that company to secure its liabilities to the bank, is untenable. The record shows that all the sureties were represented by Urquhart, the person elected by them as liquidator of the firm, when he agreed with the bank upon the extensions granted to those debtors. The authority to grant these extensions was conferred upon the bank by the liquidator, and he was given authority by all the sureties to authorize the bank to proceed in this manner.

6. Properties Isabel Palet mortgage were not security for performance of her solidary subsidiary obligation but part of the direct obligation of the firm itself
Although the court recognized the subsidiary character of the personal liability of Doña Isabel Palet as a member of the firm of Aldecoa & Co. and decreed that as to any deficiency which might result after the sale of the mortgaged properties, execution should not issue against the properties of Doña Isabel Palet until all the property of Aldecoa & Co. shall have been exhausted. The properties mortgaged by Doña Isabel Palet were so mortgaged not merely as security for the performance of her own solidary subsidiary obligation as a partner bound for all the debts of Aldecoa & Co., but for the purpose of securing the direct obligation of the firm itself to the bank.

7. Isabel Palet a personal debtor in solidum with Aldecoa & Co., and not a mere surety
The extension of the term which, in accordance with the provisions of article 1851 of the Civil Code produces the extinction of the liability of the surety must of necessity be based on some new agreement between the creditor and principal debtor, by virtue of which the creditor deprives himself of his right to immediately bring an action for the enforcement of his claim. The mere failure to bring an action upon a credit, as soon as the same or any part of it matures, does not constitute an extension of the term of the obligation. In the present case, Doña Isabel Palet is a personal debtor jointly and severally with Aldecoa & Co. for the whole indebtedness of the latter firm to the bank, and not a mere surety for the performance of the obligations of Aldecoa & Co. without any solidary liability. It is true that certain additional deeds of mortgage and pledge were executed by Aldecoa & Co. in favor of the bank as additional security after Aldecoa & Co. had failed to meet its obligation to pay the first installment due under the agreement of 23 February 1906, but there is no stipulation whatever in any of these documents or deeds which can in any way be interpreted in the sense of constituting an extension which would bind the bank to wait for the expiration of any new term before suing upon its claim against Aldecoa & Co.

8. Intervener is not a preferred creditor over the bank
The intervener is seeking to have himself declared a preferred creditor over the bank; citing Section 121 of the Code of Civil Procedure which provides that "A person may, at any period of a trial, upon motion, be permitted by the court to intervene in an action or proceeding, if he has legal interest in the matter in litigation, or in the success of either of the parties, or an interest against both." The amount (P21,000) to which the intervener is a creditor of Aldecoa & Co. is not evidenced by a public document, or any document for that matter, nor secured by pledge or mortgage, while the amount due the bank appears in a public instrument and is also secured by pledges and mortgages on the property of Aldecoa & Co., out of which the intervener seeks to have his indebtedness satisfied. It is, therefore, clear that the intervener is not entitled to the relief sought. Further, the amount (P14,000) sought by the intervener as salary represents his salary as liquidator of the firm and not to salary prior to liquidation.

9. Receiver appointed by the court preferred in payment of fees over creditors; Intervener was appointed by members of the Company without approval from the creditor-bank
The ruling of the supreme court of Spain in 16 March 1897 was correct to the effect that the fees of a receiver, appointed by the court to preserve property in litigation, must be paid in preference to the claims of creditors. In said ruling the court said “that the expense of maintenance of property is bound to affect such persons as have an interest therein, whether they be the owners or creditors of the property; therefore payment for this object has preference over any other debt, since such other debts are recoverable to the extent that the property is preserved and maintained." In the present case, however, Urquhart was elected liquidator by the members of the firm of Aldecoa & Co. without the consent or approval of the bank or of any other creditor. He did not receive his employment by reason of any judicial act. Whatever may be due him for his services as liquidator is due under a contract of employment between himself and the members of the firm of Aldecoa & Co.

10. Intervener not preferred over creditors over the firm’s personal property; mortgage over real property not personal property
Article 1922 of the Civil Code provides that, with regard to specified the personal property of the debtor, the “credits for the construction, repair, preservation, or for the amount of the sale of personal property which may be in the possession of the debtor to the extent of the value of the same” are preferred. The only personal property of Aldecoa & Co. is 16 shares of the stock of the Banco Español-Filipino; 450 shares of the stock of the Compañia Maritima (both items preceding were pledged before the liquidation); 330 shares of the stock of the Pasay Estate Co., Ltd. (which were in the possession of Aldecoa & co or its liquidator for only 1 day); and certain claims against debtors of Aldecoa & Co., mentioned in Exhibit G, which were assigned to the bank on 30 January 1907. As the intervener has been paid for his services up to January 1910, he cannot be declared a preferred creditor of the bank. The only property of Aldecoa & Co. which the liquidator had anything to do with after 1910 was the real estate mortgages mortgaged to the bank as additional security. These mortgages on real property cannot be regarded as personal property, and it is only of personal property that article 1922 speaks of.

11. Plea of another action pending is not sustained if its pendency is set up to defeat another
The principle upon which a plea of another action pending is sustained is that the latter action is deemed unnecessary and vexatious (Williams vs. Gaston, 148 Ala., 214; 42 Sou., 552; 1 Cyc. 21; 1 RCL, sec. 1.) but when the pendency of such a suit is set up to defeat another, the case must be the same. There must be the same parties, or at least such as represent the same interest, there must be the same rights asserted, and the same relief prayed for. This relief must be founded on the same facts, and the title or essential basis of the relief sought must be the same. The identity in these particulars should be such that if the pending case had already been disposed of, it could be pleaded in bar as a former adjudication of the same matter between the same parties (Watson vs. Jones, 13 Wall., 679, 715; 20 L. ed., 666). In the present case, the case and the one pending in the Supreme Court are identical; thus the inquiry must therefore proceed to the other requisites demanded by the rule. The former suit is one to annul the mortgages. The present suit is one for the foreclosure of the mortgages. It may be conceded that if the final judgment in the former action is that the mortgages be annulled, such an adjudication will deny the right of the bank to foreclose the mortgages.

12. Test of identity
The test of identity, stated in 1 Cyc., 28, is that "a plea of the pendency of a prior action is not available unless the prior action is of such a character that, had a judgment been rendered therein on the merits, such a judgment would be conclusive between the parties and could be pleaded in bar of the second action." This test has been approved, citing the quotation, in Williams vs. Gaston (148 Ala., 214; 42 Sou., 552); Van Vleck vs. Anderson (136 Iowa, 366; 113 N. W., 853); Wetzstein vs. Mining Co. (28 Mont., 451; 72 P., 865). It is applicable, between the same parties, only when the judgment to be rendered in the action first instituted will be such that, regardless of which party is successful, it will amount to res adjudicata against the second action.

13. Judgment declaring the children as creditors and not partners of Aldecoa not binding to the bank
It appears that a certified copy of the judgment entered in the former case, wherein it was declared that the children, were creditors and partners of Aldecoa & Co., was offered in evidence. Such evidence was objected to by the bank on the ground that is was res inter alios acta and not competent evidence against the bank or binding upon it in any way because it was not a party to that action. This objection was sustained and the proffered evidence excluded. It was an action in personam and the bank was not a party. The judgment is binding only upon the parties to the suit and their successors in interest (sec. 306, Code of Civil Procedure, No. 2).

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