NG CHO CIO, ET AL., PLAINTIFFS AND APPELLANTS, VS. NG DIONG, DEFENDANT AND APPELLANT, C. N. HODGES, ET AL., DEFENDANTS AND APPELLEES.

This
action was began in the Court of First Instance of Iloilo by Ng Cho
Cio, Ng Pian King and Ng Due King to recover their three-fourths (3/4) pro-indiviso
share on seven (7) parcels of land situated in the City of Iloilo which
were sold by Ng Diong as manager of the commercial firm Ng Chin Beng
Hermanos in favor of C. N. Hodges. The latter had sold four of those
parcels of land to Jose C. Tayengco and the other three parcels to
Julian Go, and for that reason these two were included as party
defendants. As the original plaintiffs sold their rights, title and
interest in said partnership to Ng Be Chuat and Ng Feng Tuan, the
latter two were allowed to intervene as plaintiffs. Since Jose C.
Tayengco had mortgaged three of the lands which he purchased from C. N.
Hodges in favor of the Bank of the Philippine Islands, the complaint
was amended so as to include the Bank also as party defendant.

On October 16, 1956, after trial had already begun, defendant Ng Diong
died, whereupon his heirs were ordered to substitute him as parties
defendants. Defendants C. N. Hodges, Ng Diong and Jose C. Tayengco
answered the complaint separately setting up certain special defenses
and counterclaims. In substance, they refuted the allegations set forth
in the complaint and prayed for its dismissal.

The parties
submitted a partial stipulation of facts on many points covered by the
pleadings thus simplifying the trial of the case while at the same time
they introduced additional evidence in amplification of the facts
stipulated. Thereupon, the trial court, after a thorough evaluation of
the evidence, rendered decision dismissing the complaint with costs.
Plaintiffs interposed the present appeal on purely questions of law.

The pertinent facts may be briefly stated as follows: On May 23, 1925,
Ng Diong, Ng Be Chuat, Ng Feng Tuan, Ng Be Kian, Ng Cho Cio, Ng Sian
King and Ng Due King entered into a contract of general co-partnership
under the name Ng Chin Beng Hermanos. The partnership was to exist for
a period of 10 years from May 23, 1925 and Ng Diong was named managing
partner. On May 10, 1935, the articles of co-partnership were amended
by extending its life to 16 years more to be counted from May 23, 1925,
or up to May 23, 1941.

On January 5, 1938, the partnership
obtained from the National Loan and Investment Board a loan in the
amount of P30,000.00, and to guarantee its payment it executed in its
favor a mortgage on Lots Nos. 236-B, 317-A, 233 and 540 of the
cadastral survey of Iloilo. On the same date, the partnership also
obtained from the same entity another loan in the amount of P50,000.00
to secure which it also executed in its favor a mortgage on Lots Nos.
386, 829 and 237 of the same cadastral survey.

Sometime in
1938, the partnership was declared insolvent upon petition of its
creditors in Special Proceedings No. 2419 of the Court of First
Instance of Iloilo wherein one Crispino Melocoton was elected as
assignee. As a consequence, on June 21, 1939, the titles to the seven
parcels of land abovementioned were issued in his name as assignee. In
due time, the creditors filed their claims in said proceeding which
totalled P192,901.12.

On August 9, 1940, a majority of the
creditors with claims amounting to P139,704.81, and the partners of the
firm, acting thru counsel, entered into a composition agreement
whereby it (was agreed that said creditors would receive 20% of the
amount of their claims in full payment thereof. Prior to this
agreement, however, defendant Julian Go had already acquired the rights
of 24 of the creditors of the insolvent whose total claims amounted to
P139,323.10. Said composition agreement was approved by the insolvency
court.

On January 30, 1941, the Agricultural and Industrial
Bank which had succeeded the National Loan and Investment Board
assigned its rights and interests in the loans obtained from it by the
partnership in the aggregate amount of P80,000.00 in favor of C. N.
Hodges, together with the right and interest in the mortgage executed
to secure the loans. Since said loans became due and no payment was
forthcoming, Hodges asked permission from the insolvency court to file
a complaint against the assignee to foreclose the mortgage executed to
secure the same in a separate proceeding, and permission having been
granted, Hodges filed a complaint for that purpose on May 13, 1941. In
his complaint, Hodges prayed that the assignee be ordered to pay him
the sum of P75,622.90, with interest at 8% per annum thereon from March
6, 1941, plus P8,000.00 attorney’s fees, exclusive of costs and
charges. Meanwhile, war broke out and nothing appears to have been done
in the insolvency proceedings. The court records were destroyed.
However, they were reconstituted later and given due course.

On August 15, 1945, the partners of the insolvent firm and Julian Go,
who acquired most of the claims of the creditors, filed a petition with
the insolvency court praying that the insolvency proceedings be closed
or terminated because the, composition agreement the
creditors had submitted relative to the settlement of the claims had
already been approved on October 10, 1940. And on October 6, 1945, the
court, acting favorably on the petition, ordered the closure of the
proceedings directing the assignee to return and reconvey all the
properties of the partnership back to the latter as required by law. In
accordance with this order of the court, the assignee executed a deed
of reconveyance of the properties to the partnership on April 2, 1946
and by virtue thereof, the register of deeds cancelled the titles
issued in the name of the assignee and issued new ones in lieu thereof
in the name of the partnership.

As of said date, April 2,
1946, the indebtedness of the partnership to C. N. Hodges which was the
subject of the foreclosure proceedings in a separate case was
P103,883.34. In order to pay off the same and raise necessary funds to
pay the other obligations of the partnership, it was deemed proper and
wise by Ng Diong, who continued to be the manager of the partnership,
to sell all its properties mortgaged to Hodges in order that the excess
may be applied to the payment of said other obligations, and to that
effect Ng Diong executed on April 2, 1946 a deed of sale thereof in
favor of Hodges for the sum of P124,580.00. Out of this price, the sum
of P103,883.34 was applied to the payment of the debt of the
partnership to Hodges and the balance was paid to the other creditors
of the partnership. On the same date, Hodges executed another contract
giving the partnership the right to repurchase Lots Nos. 237, 386 and
829 in installments for the sum of P26,000.00 within three years with
interest at the rate of 1% per annum, payable monthly.

On May 23, 1947, the partnership had not yet paid its indebtedness to Julian Go in the amount of P24,864.62 under the composition agreement,
nor did it have any money to repurchase Lots Nos. 237, 386 and 829 from
Hodges, and so Ng Diong, in behalf of the partnership, transferred the
right of the latter to repurchase the same from Hodges to Julian Go in
full payment of the partnership’s indebtedness to him. And having
Julian Go exercised the option, on January 6, 1948, Hodges executed a
deed of sale of the properties in his favor, and pursuant thereto the
register of deeds issued new titles in his name covering said lots. On
May 29, 1948, Hodges executed another deed of sale covering Lots Nos.
317-A, 236-B, 233 and 540 for the sum of P119,067.79 in favor of Jose
C. Tayengco. And on August 31, 1948, Tayengco, mortgaged said lots,
together with three other lots of his, to the Bank of the Philippine
Islands to secure a loan of P126,000.00 to be used in the construction
of a commercial building on said lots.

Appellants make in
their brief six assignments of errors, which, reduced to bare
essentials, may be boiled down to the following points: (1) the sale
made by Ng Diong in behalf of the partnership Ng Chin Beng Hermanos of
the seven lots belonging to it in favor of C. N. Hodges on April 2,
1946 is null and void because at that time said parcels were still in
the custody of the assignee of the insolvency proceedings, or in custodia legis,
and hence, the same is null and void; (2) said sale is also null and
void “because of the disparity, irrationality and unreasonableness
between the consideration and the real value of the properties when
sold”; and (3) the lower court erred in not finding that the two deeds
of mortgage executed by the partnership in favor of the National Loan
and Investment Board which were later assigned to C. N. Hodges can no
longer be enforced because the action to foreclose the same has already
prescribed.

Anent the first issue, it would be well to state
the following facts by way of clarification: It should be recalled that
on August 8, 1940 the majority of the creditors of the partnership, as
well as the representative of the latter, submitted to the court taking
cognizance of the insolvency proceedings a composition agreement
whereby it was agreed that said creditors would receive 20% of the
amount of their claims in full payment thereof. This agreement was
approved on October 10, 1940 which, in contemplation of law, has the
effect of putting an end to the insolvency proceedings. However, no
further step was taken thereon because of the outbreak of the war.
Later, the record of the case was reconstituted and the parties on
August 15, 1945 filed a petition with the court praying for the
dismissal and closure of the proceedings in view of the approval of the
aforesaid composition agreement, and acting favorably thereon, the
court on October 6, 1945, issued an order declaring the proceedings
terminated and ordering the assignee to return and reconvey the
properties to the partnership. The actual reconveyance was done by the
assignee on April 2, 1946.

It would, therefore, appear that
for legal and practical purposes the insolvency ended on said date.
Since then the partnership became restored to its status quo.
It again reacquired its personality as such with Ng Diong as its
general manager. From that date on its properties ceased to be in custodia legis.
Such being the case, it is obvious that when Ng Diong as manager of the
partnership sold the seven parcels of land to C. N. Hodges on April 2,
1946 by virtue of a deed of sale acknowledged before a notary public on
April 6, 1946, the properties were already free from the custody of the
court as to which the partnership was at liberty to do what it may deem
convenient and proper to protect its interest. And acting accordingly,
Ng Diong made the sale in the exercise of the power granted to him by
the partnership in its articles of co-partnership. We do not,
therefore, find anything irregular in this actuation of Ng Diong.

Since at the time of the sale the life of the partnership had already
expired, the question may be asked: Who shall wind up its business
affairs? May its manager still execute the sale of its properties to C.
N. Hodges as was done by Ng Diong? The answer to this question cannot
but be in the affirmative because Ng Diong was still the managing
partner of the partnership and he had the necessary authority to
liquidate its affairs under its articles of co-partnership. And
considering that, war had intervened and the affairs of the partnership
were placed under receivership, up to October 6, 1945, we are of the
opinion that Ng Diong could still exercise his power as liquidator when
he executed the sale in question in favor of C. N. Hodges. This is
sanctioned by Article 228 of the Code of Commerce which was the law in
force at the time.^[1]

With regard to the second issue, it is contended that the trial court
should have declared the sale of the lots made to C. N. Hodges null and
void “because of the disparity, irrationality and unreasonableness
between the consideration and real value of the properties when sold.”
In stressing his point, counsel contends that the lands in question,
which are located in a commercial section of the City of Iloilo, were
frittered away only for a “pittance of P124,580.00” when, borrowing his
words, “they could have been sold like hotcakes to any resident of the
city of regular financial standing upon proper approaches and
representations, because at that time those properties were fairly
worth one-half of a million pesos.”

This claim may be true,
but the same is unsupported. Appellants have failed to introduce any
evidence to show that they could have secured better offers for the
properties if given a chance to do so and what they advance now is a
mere speculation or conjecture which has no place in our judicial
system. Since every claim must be substantiated by sufficient evidence,
and these appellants have failed to do, their pretense cannot be
entertained.

Neither can we give any value to the claim that
the action for the foreclosure of the mortgage executed by the
partnership in favor of C. N. Hodges has already prescribed not only
because the same is immaterial but because it is an issue that
appellants are raising for the first time in this appeal. Such issue
has never been raised in their pleadings, nor in the trial courts.
Verily, this claim has no merit.

With regard to the appeal
taken by the heirs of defendant Ng Diong whose main claim is that the
trial court failed to adjudicate to the partnership the properties
which were bought by Julian Go from C. N. Hodges, suffice it to say
that the same could not be done, firstly, because no such claim was
made by them in their pleadings in the trial court, and, secondly,
because the evidence shows that said properties were bought by Julian
Go by virtue of the option given to him by the partnership for a
valuable consideration in full payment of the credits assigned to him
by a good number of creditors of said partnership. There is no evidence
that he promised to reconvey the same to the partnership.

Wherefore, the decision appealed from is affirmed, with costs against appellants.

Paras, C. J., Bengzon, Labrador, Concepcion, Reyes, J.B.L., Barrera, Gutierrez David, Paredes, and Dizon JJ., concur.

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^[1] Testate Estate of Lazaro Mota vs. Serra, 47 Phil., 464; Lichauco vs. Lichauco, 33 Phil., 350.