G.R. No. 24243 - De la Rosa vs. Go-Cotay

Case Summary (G.R. No. 24243)

Factual Background

During the Spanish regime the Chinamen Go-Lio and Vicente Go-Sengco formed a partnership for the purchase and sale of merchandise and opened a store in San Isidro, Nueva Ecija. Go-Lio thereafter returned to China. Vicente Go-Sengco died and his son, Enrique Ortega Go-Cotay, assumed charge of the business. Go-Lio died in China in October, 1916, leaving a widow and three children. One child came to the Philippines and secured the appointment of Ildefonso de la Rosa as administrator of Go-Lio's intestate estate.

Commencement of Suit and Interim Management

As administrator Ildefonso de la Rosa requested that Enrique Ortega Go-Cotay wind up the business and deliver the deceased partner's share. The defendant denied the claim. On July 2, 1918, the plaintiff filed a complaint in the Court of First Instance of Nueva Ecija praying that the defendant be ordered to deliver one-half of the partnership property and that the plaintiff be appointed receiver. The defendant answered, denied the allegations, and pleaded as a special defense that more than ten years had elapsed before suit.

Appointment of Commissioners and Early Reports

On August 3, 1918, the court appointed Justo Cabo-Chan, Francisco T. Tantengco, and Go-Tiao as commissioners to inventory, liquidate, and determine the plaintiff's one-half share. To prevent Cabo-Chan from assuming the office of receiver pursuant to the appointment, the defendant filed a bond of P10,000 on August 9, 1918. The commissioners reported on November 15, 1920, showing net profits for 1913–1917 totaling P25,038.70 (1913: P2,979.00; 1914: P3,046.94; 1915: P4,103.07; 1916: P4,735.00; 1917: P10,174.69).

Interlocutory Appeal, Further Proceedings, and Conflicting Reports

The defendant appealed. The parties agreed on December 7, 1921, to suspend liquidation pending appeal and authorized the defendant to retain possession upon giving a P25,000 bond and cancelling the prior bond. This Court in R. G. No. 18919 on October 5, 1922, held the appeal premature and remanded the record with instructions to enter a final order in accordance with the commissioners' liquidation. On remand two commissioners resigned and the court appointed Justo Cabo-Chan and Cua Poco. The commissioners produced two conflicting reports: a joint report by Tantengco and Cua Poco that examined books for 1919–1922, and a separate report by Cabo-Chan who examined all books and reported a net loss of P89,099.22.

Trial Court Disposition

After trial the lower court on December 13, 1924, disapproved the report of commissioners Tantengco and Cua Poco and approved, with slight modifications, the report of commissioner Cabo-Chan. The lower court found that the liquidation showed liabilities amounting to P89,690.45 and concluded that the plaintiff had nothing to recover because there were no profits to divide. The plaintiff appealed from that judgment.

The Parties' Contentions on Appeal

The plaintiff, Ildefonso de la Rosa, assigned five errors: that the lower court erred in holding the books authentic and in failing to find them false; that the court erred in giving full credit to commissioner Justo Cabo-Chan; that the court erred in accepting that the partnership incurred debts and losses from 1918 on; that the court erred in not finding the plaintiff's share to be P27,755.47 plus an annual quota of at least P2,503.87 for profits since 1918; and that the court erred in not directing the prosecuting attorney to investigate alleged falsified books for criminal proceedings. The defendant had interposed as a special defense that more than ten years had elapsed prior to filing suit.

Evidence, Account Books and the Problem of Missing Records

The record showed a partnership capital of P4,779.39 and net profits to 1915 of P5,551.40. Several books for 1906–1912 had been destroyed by white ants, preventing direct liquidation for that period. The commissioners and the court therefore resorted to computation by averaging. Using net profits known for 1904–1905 and for 1913, the court computed an average annual profit for 1906–1912 of P2,877.35 and a seven-year total of P20,141.45. The assets and value of the partnership property could not be ascertained due to the absence of an inventory; the plaintiff offered to accept the initial partnership capital as the capital at winding up.

Appointment as Receiver and Consequences for Liability

On August 3, 1918, the defendant assumed complete responsibility for the business by objecting to the appointment of a receiver and by giving bond. Prior to that date his acts were those of a managing partner and bound the partnership. From that date his status became that of a receiver within the meaning of section 175 of the Code of Civil Procedure. The Court observed that a receiver has no right to carry on a business of the estate unless authorized or directed by the court. It found no evidence that the defendant, as receiver, was so authorized. The authorities cited indicated that a receiver who continues the business without court authority is personally liable for resultant losses. The Court therefore held that the partnership should not be charged with losses attributable to the defendant's unauthorized management after August 3, 1918.

Computation of Profits and Final Accounting

The Court treated the first semester of 1918 as having produced profits at least equal to the 1917 level and therefore estimated first-semester 1918 profits at P5,087.34 (half of 1917 profits of P10,174.69). The Court aggregated the following items: capital P4,779.39; profits until 1906 P6,651.40; profits for 1906–1912 P20,141.46; profits for 1913–1917 P25,038.70; and profits for the first semester of 1918 P5,087.34, giving a total of P60,598.28. One-half of that total, P30,299.14, constituted the plaintiff's share.

Legal Basis and Reasoning

The C

Case Syllabus (G.R. No. 24243)

Parties and Procedural Posture

Ildefonso de la Rosa was appointed administrator of the intestate estate of the deceased Go-Lio and brought this action as plaintiff-appellant.
Enrique Ortega Go-Cotay was the defendant-appellant who had taken charge of the business formerly operated by the deceased and his partner.
The plaintiff filed a complaint on July 2, 1918 praying for delivery of one-half of the partnership property and appointment as receiver.
The defendant answered, denied the allegations, and pleaded as a special defense that more than ten years had elapsed before the filing of the complaint.
The Court of First Instance of Nueva Ecija entered liquidation proceedings and appointed commissioners to inventory and determine the plaintiff’s share.
The lower court rendered an order of liquidation that disapproved one commissioners’ report and approved another, leading to a judgment for the defendant that the plaintiff could not recover.
The plaintiff appealed from the lower court’s December 13, 1924 order and the appeal resulted in this decision reversing that order.

Key Factual Allegations

The partnership was formed during the Spanish regime between Go-Lio and Vicente Go-Sengco for purchase and sale of articles of commerce and operated a store in San Isidro, Nueva Ecija.
Go-Lio left for China, Vicente Go-Sengco died, and his son Enrique Ortega Go-Cotay thereafter took charge of the business.
Go-Lio died in China in October, 1916, leaving a widow and three children, one of whom sought administration of his estate in the Philippines.
The plaintiff alleged that one-half of the partnership property and profits belonged to the estate of Go-Lio and demanded accounting and delivery.
Certain books of account for early years were destroyed by white ants, which prevented direct liquidation for the period 1906 to 1912.
Commissioners’ reports diverged sharply, one showing net profits for 1913–1917 totaling P25,038.70 and another finding net losses and liabilities exceeding P89,000 for later years.

Procedural History

The court below appointed commissioners on August 3, 1918 to inventory and liquidate the partnership assets.
The defendant filed a bond on August 9, 1918 to prevent appointment of a receiver and continued in possession.
Commissioners initially reported profits for 1913–1917 totaling P25,038.70 on November 15, 1920.
The parties agreed on December 7, 1921 to suspend liquidation pending appeal and to allow the defendant to remain in possession upon posting a P25,000 bond.
This Court previously held in R. G. No. 18919 that an appeal was premature and remanded the record for entry of a final order in accordance with the liquidation.
After remand and new appointments of commissioners, conflicting reports were filed and the lower court approved the report of commissioner Justo Cabo-Chan, disallowing the plaintiff’s recovery.

Issues Presented

Whether the lower court erred in accepting the authenticity of certain books of account and in finding the books to reflect losses and liabilities rather than profits.
Whether the lower court erred in crediting the testimony and report of commissioner Justo Cabo-Chan over the other c