G.R. No. 159017-18 - Asilo, Jr. vs. People

On June 13, 1925, the firms San Miguel Brewery, Porta Pueo & Co., and Ruiz & Rementeria S. en C. filed an insolvency petition against Leoncia Vda. de Chan Diaco (alias Lao Liong Naw), alleged owner of a grocery store on Calle Nueva, Binondo.
The petition alleged that Leoncia was indebted to the petitioners in the sum of P26,234.47, incurred within 30 days prior to the filing, and additional creditors had claimed amounts aggregating P50,000 against her estate.
A hearing was set for June 25, 1925; Leoncia failed to appear even though proper notice was given.

Due to her absence, the court declared Leoncia insolvent and ordered the sheriff to take possession of her property.
The visible assets at that time included merchandise, which was later sold at public auction for P3,300.
Subsequently, on September 12, 1925, Judge Simplicio del Rosario appointed Ricardo Summers as referee to take evidence regarding questions raised in motions filed on August 5 and 19.

Approximately P56,000, representing funds that Chan Chiao Wa (the “encargado” of her business) had delivered to her on April 18, 1925; on April 19, 1925, this amount was about P56,102.65.
Accounts receivable as of June 19, 1925, amounting to P40,000, reflecting business activity two months after she assumed management of her store.
A sum of P2,000 withdrawn for her personal use on June 8, 1925.
Another P2,000 taken on June 5, 1925, from the China Banking Corporation for personal use while she was already insolvent.
Delivery and surrender of various accounting and financial records, including multiple books of accounts (creditor and debtor records, inventory and balance books, etc.).

The report was approved on April 14, 1926, by Judge del Rosario, who then ordered further actions against merchants alleged to have received fraudulent deliveries and cash from the insolvent.

On August 4, 1926, Leoncia’s attorney moved to dismiss the proceeding on the ground that the insolvency petition should have targeted the partnership “Lao Liong Naw & Co.”—a partnership created on July 22, 1922—rather than her individually.

The partnership was evidenced by an agreement in which Leoncia contributed only P4,000 out of a total capital of P21,000.

Judge del Rosario, on August 7, 1926, suspended the earlier decision (dated July 23, 1926) pending the hearing of the motion and reappointed Summers as referee.
In his second report rendered on February 28, 1927, the referee concluded that the alleged partnership was a fictitious organization intended to deceive customs and enable certain employees (coolies) to assume the status of merchants, thereby recommending that the motion to dismiss should be denied.

With Judge del Rosario absent, Judge Francisco Zandueta took up the matter and on June 6, 1927, rendered a decision disapproving the referee’s second report.
The lower court thereby affirmed the suspension of the decision ordering Leoncia to pay, dismissed the insolvency proceedings, and ordered the sheriff to return all of her property. It also allowed petitioners the option to file a new petition in insolvency against the partnership if desired.
A motion for reconsideration by the assignee was denied in an order dated July 1, 1927.
The assignee then appealed, raising three assignments of error:

The error in disapproving the referee’s February 28, 1927 report.
The error in dismissing the petition for Leoncia’s involuntary insolvency.
The error in directing a new petition against the alleged “fictitious” partnership and ordering the return of all property.

Whether the lower court erred in disapproving the referee’s second report which supported the factual findings that the partnership was fictitious and the insolvency petition against Leoncia was proper.
Whether the dismissal of the insolvency proceedings against Leoncia was justified, given the allegations and the evidence presented.
Whether the court erred in ordering that a new petition in insolvency should be filed against the partnership “Lao Liong Naw & Co.” when Leoncia, as an individual, was already acting in the capacity of an ostensible partner and conducting business under her name.