Facts:

The case of Ramon Aboitiz vs. Arnaldo F. de Silva et al. (G.R. No. L-21036) was decided on April 5, 1924. The plaintiff, Ramon Aboitiz, sought to recover the sum of P159,000, which he claimed was the unpaid balance of the purchase price for his shares in the partnerships G. & R. Aboitiz and Viuda e Hijos de P. Aboitiz, which he sold to the defendants, Arnaldo F. de Silva, Guillermo Aboitiz, and Vidal Aboitiz. The sale was documented in a notarial document referred to as the "Hipoteca-Venta," which outlined the terms of the sale, including a total purchase price of P225,000, with an initial payment of P10,000 and subsequent monthly installments of P4,000. The defendants admitted to owing the full amount in their answer, except for De Silva, who raised various defenses and a counterclaim, asserting that the accounts were inaccurate and that he was owed P41,186.88 instead.

The trial court found that the defendants had defaulted on their payments ...

Facts:

Background of the Transaction

• Ramon Aboitiz, plaintiff and appellant, sold his shares in two partnerships—G. & R. Aboitiz and Viuda e Hijos de P. Aboitiz—to defendants Arnaldo F. de Silva, Guillermo Aboitiz, and Vidal Aboitiz.
• The sale was executed through a notarial document (referred to as the “Hipoteca-Venta”), which set forth the terms of the sale, including the payment and obligations of the parties.

Terms of the “Hipoteca-Venta” Document

• Sale Price and Payment Arrangements
• The total purchase price was fixed at P225,000.
• P10,000 was paid in cash upon execution, with the remaining balance (P215,000) to be paid in monthly installments of P4,000 each, accruing interest at 7% per annum, starting from May 1, 1919.
• Fifty-three promissory notes were issued for the installments, with a discrepancy noted as the final installment of P3,000 was not evidenced by any note.
• Specific Provisions Relating to Business Interests
• The document transferred a one-ninth interest in one portion of Viuda e Hijos de P. Aboitiz and half the interests in G. & R. Aboitiz.
• The “Hipoteca-Venta” also contained detailed provisions regarding the motor boat “Lolita,” including its valuation at P50,000, the partial payment made (P25,000), and the subsequent adjustment mechanism should the actual cost differ.
• Security and Other Covenants
• To secure the payment of the remaining balance, the defendants provided a first special and voluntary mortgage over designated real properties.
• Provisions were included that regulated the sale of the mortgaged properties and the allocation of funds resulting from such sales.
• An obligation was imposed on the seller not to engage in similar business activities for a specified period after complete payment.

Accounting and Subsequent Developments

• Creation and Consolidation of Accounts
• The “Hipoteca-Venta Account” was created based on Exhibit A and further supplemented by two statements of account (Exhibits C and D).
• Initially, the accounts were kept separately (one being the plaintiff’s personal current account and the other the “Hipoteca-Venta Account”), but on November 30, 1919, they were consolidated under the personal direction of De Silva.
• Business Reorganization
• After the share sale, the defendants acquired not only the plaintiff’s interests but later the interests of other partners.
• On March 26, 1920, the defendants, along with other associates, formed a corporation known as Aboitiz & Co., Inc., transferring the business assets and goodwill of both partnerships to the new corporate entity.
• De Silva, who had been managing the partnerships, continued as general manager until he was ousted in October 1920 after the business suffered under his leadership.

Litigation and Procedural History

• The plaintiff initiated the action to recover an alleged unpaid balance of P159,000 on the transaction.
• Defendants Guillermo and Vidal Aboitiz’s answer was treated as a confession of judgment for the full demanded amount, whereas defendant De Silva raised various special defenses, cross-complained, and counterclaimed on account of alleged inaccuracies in the bookkeeping.
• A preliminary attachment was executed on De Silva’s shares in Aboitiz & Co., Inc. following the filing of the complaint upon the plaintiff’s request.
• The trial court rendered a judgment:
• In favor of the plaintiff for the balance of P154,298.88 (with interest at 7% per annum beginning December 31, 1920) based on the consolidated account books.
• Against the plaintiff on De Silva’s counterclaim for damages of P6,000 arising from the attachment, which was later a matter of appellate contention.

Evidentiary and Testimonial Issues

• The defendant-appellant (De Silva) contended that the books of accounts, being under his control, should not be deemed conclusive as they were subject to his direction and could be rebutted by competent evidence.
• Testimony by an expert accountant (Cabellon) was admitted regarding the auditing of the account entries. His figures corroborated the mathematical accuracy of the entries, although his account largely echoed De Silva’s narrative.
• Discrepancies arose concerning:
• The handling of the payment for the motor boat Lolita, particularly the interpretation of paragraph 4 in the “Hipoteca-Venta” which conflicted with the earlier paragraphs regarding the complete sale of interests for P225,000.
• The issuance of fifty-three promissory notes versus a lower number that might be expected if the adjustment for the Lolita had been properly executed.
• The consolidation of the plaintiff’s personal account with the “Hipoteca-Venta Account,” which De Silva later disputed.

Issue:

Accounting Admissibility and Estoppel

• Whether the entries in the account books, kept under the defendant De Silva’s direction and control, constituted admissions against interest that could not be rebutted except by clear, contrary evidence.
• Whether De Silva was estopped from challenging the correctness of the consolidated account entries due to having directed its formation.

Novation and Transfer of Liability

• Whether the liability under the “Hipoteca-Venta” was transferred (novated) to the corporation Aboitiz & Co., Inc., through the defendants’ actions and the subsequent acceptance of payments by the plaintiff.
• Whether the power of attorney held by Guillermo and Vidal Aboitiz could authorize a shifting of personal liabilities to the new corporate entity.

Interpretation of the “Hipoteca-Venta” Provisions

• The ambiguity in paragraph 4 of the document, particularly concerning the valuation and payment adjustments for the motor boat Lolita.
• Whether parol evidence was admissible to interpret the conflicting provisions between paragraph 4 and paragraphs 1 and 2 regarding the reduction in purchase price due to the plaintiff’s retained interest in the boat.

Legality and Consequences of the Attachment

• Whether the preliminary attachment levied on De Silva’s stock constituted wrongful attachment warranting damages under his counterclaim.
• Whether the plaintiff’s actions regarding the attachment were justified, considering the business and personal accounts consolidation.

Evidentiary Weight of Testimony

• Whether the expert testimony and De Silva’s own extensive testimony could overcome the evidentiary weight of the account entries kept under his direction.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Admissibility and Effect of Account Entries

• When accounting entries are maintained under the direction and control of a party, these entries are considered as admissions against interest.

• The principle holds that such entries, unless the adverse party has been misled or there is contrary compelling evidence, remain conclusive in determining the balance due.

Novation Requires Clear and Unequivocal Evidence

• The doctrine that novation is not presumed absent clear, express agreement or acts of equivalent import is reaffirmed.
• The action of consolidating accounts or accepting payments under a transferred business entity does not inherently imply a novation of personal liability.

Use of Parol Evidence to Resolve Ambiguities

• Ambiguous contractual provisions, such as those concerning the valuation and cost adjustment of the motor boat Lolita, may be clarified through the introduction of parol evidence.
• The proper interpretation requires harmonizing conflicting terms to reflect the actual intentions of the contracting parties at the time of the transaction.

Limitations on Liability for Wrongful Attachment

• Damages for alleged wrongful attachment require a demonstration of actual malice or quantifiable prejudice.
• A mere technical irregularity in the execution of an attachment, particularly when executed under standard operational procedure, does not warra...continue reading
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