Case Summary (G.R. No. L-27343)
Procedural Posture
– Trial Court: Court of First Instance, Negros Occidental, Civil Case No. 5343
– Judgment: Held the chattel mortgage void as against partnership creditors; ordered Saldajeno to pay various partnership debts; directed co-partners Garibay and Tubungbanua to reimburse if Saldajeno paid.
– Court of Appeals: Certified the appeal to the Supreme Court for lack of jurisdiction over pure questions of law.
– Supreme Court Decision Date: February 28, 1979 (governed by the 1935 Constitution)
Factual Background
– Partnership Formation (Jan. 30, 1951): Leon Garibay, Margarita G. Saldajeno and Timoteo Tubungbanua formed “Isabela Sawmill.”
– Credit Transactions (1956–1959): Plaintiffs sold machinery, lumber, rice, fuel and other supplies on credit, accruing several several-thousand-peso balances.
– Dissolution Proceeding (April 1958): Saldajenos sued to dissolve the partnership; the partners entered a Memorandum Agreement (Apr. 27, 1958) and an “Assignment of Rights with Chattel Mortgage” (May 26, 1958) over all partnership assets in favor of Saldajeno.
– Foreclosure and Auction (1959): Judgment in the dissolution suit foreclosed the chattel mortgage; Saldajeno purchased the partnership’s machinery and chattels at sheriff’s sale (Oct. 1959) and resold them to Pan Oriental Lumber Co.
Issues Presented
- Whether the trial court had jurisdiction, given that some individual money claims were below the CFI’s minimum amount.
- Whether one branch of the Court of First Instance may annul the judgment of another branch.
- Whether Saldajeno’s withdrawal dissolved and terminated the Isabela Sawmill partnership.
- Whether the chattel mortgage constituted a valid lien on partnership property.
- Whether a purchaser at foreclosure sale takes free of partnership creditors’ rights.
- Whether attorney’s fees may be awarded.
- Whether Saldajeno may seek reimbursement from her co-partners.
Jurisdiction Over the Action
– Principal Relief: Annulment of the chattel mortgage and preservation of partnership assets for creditors.
– Rule: Courts of First Instance have exclusive original jurisdiction over actions not capable of pecuniary estimation (Judiciary Act; Rules of Court, Rule 4, Sec. 2).
– Holding: Although some money claims were under ₱2,000, the core relief sought was annulment of a judicially approved mortgage—an action not purely for money and therefore within CFI jurisdiction.
Power to Annul a Coordinate Branch’s Judgment
– Earlier Doctrine: A branch may not interfere with another branch’s final judgment (Cabigao v. Del Rosario; Mas v. Dumaraog).
– Modern Doctrine (Dupla v. Court of Appeals, 1971): Any branch of a Court of First Instance may hear an action to annul a final and executory judgment of another branch.
– Holding: The CFI Branch I properly exercised jurisdiction to set aside the foreclosure judgment entered by Branch II.
Effect of Partner’s Withdrawal on the Partnership
– Civil Code Arts. 1828–1829: Withdrawal of a partner dissolves the partnership but does not terminate it until winding up is complete.
– Facts: After Saldajeno’s withdrawal, Garibay and Tubungbanua continued business under the “Isabela Sawmill” name without liquidation.
– Holding: The partnership persisted until wind-up. Creditors reasonably relied on the continued existence of “Isabela Sawmill.”
Validity of the Chattel Mortgage
– Fraud on Creditors: A collateral mortgage inures to the prejudice of third-party creditors when it impairs the patrimonial cushion available to satisfy their claims.
– Party-in-Interest Rule: A non-party who is prejudiced by a contract may attack its validity.
– Holding: The Assignment of Rights with Chattel Mortgage executed by Garibay and Tubungbanua in favor of Saldajeno was null and void as to partnership creditors.
Liability of Purchaser at Foreclosure Sale
– Equitable Principle: A purchaser at foreclosure cannot acquire a lion’s share of partnership assets to the detriment of creditors when the partnership continues in business.
– Holding: Sal
Case Syllabus (G.R. No. L-27343)
Facts of the Case
- In January 1951 Leon Garibay, Margarita G. Saldajeno, and Timoteo Tubungbanua formed “Isabela Sawmill” as a partnership.
- On February 3, 1956, Oppen, Esteban, Inc. sold a motor truck and two tractors to the partnership, leaving an unpaid balance of ₱1,288.89.
- On May 26, 1958, Garibay, Tubungbanua, and Saldajeno executed an Assignment of Rights with Chattel Mortgage over the partnership’s machinery and chattels.
- The remaining partners continued to operate under the “Isabela Sawmill” name without liquidating assets after Saldajeno’s withdrawal.
- In May 1959 the Provincial Sheriff advertised the public auction of said mortgaged chattels; in October 1959 Saldajeno purchased them at auction for ₱38,040.00.
- On October 20, 1959, Saldajeno sold those assets to Pan Oriental Lumber Company for ₱45,000.00.
Procedural Posture
- June 5, 1959: Plaintiffs filed Civil Case No. 5343 in the Court of First Instance of Negros Occidental seeking injunction, payment of debts, nullity of the chattel mortgage, sale of partnership assets, and joint liability of partners.
- The CFI rendered judgment in favor of the plaintiffs, holding the chattel mortgage void as to partnership assets and ordering payment of specified amounts plus interest and attorney’s fees.
- Defendants‐appellants Margarita and Cecilio Saldajeno appealed to the Court of Appeals, which on February 3, 1967, certified the case to the Supreme Court for lack of appellate jurisdiction over pure questions of law.
Stipulated Facts and Documentary Exhibits
- The parties submitted a Partial Stipulation of Facts (Exh. A) covering:
- The original partnership contract (Appendix A) and subsequent dissolution proceedings.
- Sale agreements and outstanding balances between the partnership and each plaintiff (Appendices B–C-2).
- Civil Case No. 4797 complaint and Memorandum Agreement (Appendices D–E).
- Assignment of Rights with Chattel Mortgage and annexes (Appendix F–F-T).
- Notices of sheriff’s sale (Appendices G–G-1) and certificate of sale in favor of Saldajeno (Appendix H–H-l).
- Saldajeno’s deed of sale to Pan Oriental Lumber Company (Appendix I).
Plaintiffs’ Claims and Relief Sought
- Preliminary and permanent injunction against the sheriff’s public auction under Civil Case No. 5223.
- Payment by “Isabela Sawmill” of specified sums to each plaintiff with interest and 25% attorney’s fees.
- Declaration that the May 26, 1958 chattel mortgage was null and void as fraudulent and without consideration.
- Public auction of partnership assets with proceeds applied first to plaintiffs’ judgments.
- Joint and several liability of all partners for any deficiency after sale proceeds.
- Dismissal of cross‐clai