PANG LIM AND BENITO GALVEZ, PLAINTIFFS AND APPELLEES, VS. LO SENG, DEFENDANT AND APPELLANT.

For several years prior to June 1, 1916, two of
the litigating parties herein, namely, Lo Seng and Pang Lim, Chinese
residents of the City of Manila, were partners, under the firm name of
Lo Seng & Co., in the business of running a distillery, known as
“El Progreso,” in the Municipality of Paombong, in the Province of
Bulacan. The land on which said distillery is located as well as the
buildings and improvements originally used in the business were, at the
time to which reference is now made, the property of another Chinaman,
who resides in Hongkong, named Lo Yao, who, in September, 1911, leased
the same to the firm of Lo Seng & Co. for the term of three years.

Upon the expiration of this lease a new written contract, in the
making of which Lo Yao was represented by one Lo Shui as attorney in
fact, became effective whereby the lease was extended for fifteen
years. The reason why the contract was made for so long a period of
time appears to have been that the Bureau of Internal Revenue had
required sundry expensive improvements to be made in the distillery,
and it was agreed that these improvements should be effected at the
expense of the lessees. In conformity with this understanding many
thousands of pesos were expended by Lo Seng & Co., and later by Lo
Seng alone, in enlarging and improving the plant.

Among the provisions contained in said lease we note the following:

“Know all men by these presents:

* * * * * * *

“1. That I, Lo Shui, as attorney in fact in charge
of the properties of Mr. Lo Yao of Hongkong, cede by way of lease for
fifteen years more said distillery ‘El Progreso’ to Messrs. Pang Lim
and Lo Seng (doing business under the firm name of Lo Seng & Co.),
after the termination of the previous contract, because of the fact
that they are required, by the Bureau of Internal Revenue, to
rearrange, alter and clean up the distillery.

“2. That all
the improvements and betterments which they may introduce, such as
machinery, apparatus, tanks, pumps, boilers and buildings which the
business may require, shall be, after the termination of the fifteen
years of lease, for the benefit of Mr. Lo Yao, my principal, the
buildings being considered as improvements.

“3. That the
monthly rent of said distillery is P200, as agreed upon in the previous
contract of September 11,1911, acknowledged before the notary public D.
Vicente Santos; and all modifications and repairs which may be needed
shall be paid for by Messrs. Pang Lim and Lo Seng.

“We, Pang
Lim and Lo Seng, as partners in said distillery ‘El Progreso,’ which we
are at present conducting, hereby accept this contract in each and all
its parts, said contract to be effective upon the termination of the
contract of September 11, 1911.”

Neither the original contract of lease nor the agreement extending
the same was inscribed in the property registry, for the reason that
the estate which is the subject of the lease has never at any time been
so inscribed.

On June 1, 1916, Pang Lim sold all his interest in the distillery
to his partner Lo Seng, thus placing the latter in the position of sole
owner; and on June 28, 1918, Lo Shui, again acting as attorney in fact
of Lo Yao, executed and acknowledged before a notary public a deed
purporting to convey to Pang Lim and another Chinaman named Benito
Galvez, the entire distillery plant including the land used in
connection therewith. As in case of the lease this document also was
never recorded in the registry of property. Thereafter Pang Lim and
Benito Galvez demanded possession from Lo Seng, but the latter refused
to yield; and the present action of unlawful detainer was thereupon
initiated by Pang Lim and Benito Galvez in the court of the justice of
the peace of Paombong to recover possession of the premises. From the
decision of the justice of the peace the case was appealed to the Court
of First Instance, where judgment was rendered for the plaintiffs; and
the defendant thereupon appealed to the Supreme Court.

The case for the plaintiffs is rested exclusively on the provisions
of article 1571 of the Civil Code, which reads in part as follows:

“ART. 1571. The purchaser of a leased estate shall
be entitled to terminate any lease in force at the time of making the
sale, unless the contrary is stipulated, and subject to the provisions
of the Mortgage Law.”

In considering this provision it may be premised that a contract of
lease is personally binding on all who participate in it regardless of
whether it is recorded or not, though of course the unrecorded lease
creates no real charge upon the land to which it relates. The Mortgage
Law was devised for the protection of third parties, or those who have
not participated in the contracts which are by that law required to be
registered; and none of its provisions with reference to leases
interpose any obstacle whatever to the giving of full effect to the
personal obligations incident to such contracts, so far as concerns the
immediate parties thereto. This is rudimentary, and the law appears to
be so understood by all commentators, there being, so far as we are
aware, no authority suggesting the contrary. Thus, in the commentaries
of the authors Galindo and Escosura, on the Mortgage Law, we find the
following pertinent observation : “The Mortgage Law is enacted in aid
of and in respect to third persons only; it does not affect the
relations between the contracting parties, nor their capacity to
contract. Any question affecting the former will be determined by the
dispositions of the special law [i. e., the Mortgage Law], while any
question affecting the latter will be determined by the general law.” (Galindo y Escosura, Comentarios a la Legislation Hipotecaria, vol. I, p. 461.)

Although it is thus manifest that, under the Mortgage Law, as
regards the personal obligations expressed therein, the lease in
question was from the beginning, and has remained, binding upon all the
parties thereto—among whom is to be numbered Pang Lim, then a member of
the firm of Lo Seng & Co.—this does not really solve the problem
now before us, which is, whether the plaintiffs herein, as purchasers
of the estate, are at liberty to terminate the lease, assuming that it
was originally binding upon all parties participating in it.

Upon this point the plaintiffs are undoubtedly supported, prima facie,
by the letter of article 1571 of the Civil Code; and the position of
the defendant derives no assistance from the mere circumstance that the
lease was admittedly binding as between the parties thereto.

The words “subject to the provisions of the Mortgage Law,”
contained in article 1571, express a qualification which evidently has
reference to the familiar proposition that recorded instruments are
effective against third persons from the date of registration
(Co-Tiongco vs. Co-Guia, 1 Phil., 210) ; from whence it
follows that a recorded lease must be respected by any purchaser of the
estate whomsoever. But there is nothing in the Mortgage Law which, so
far as we now see, would prevent a purchaser from exercising the
precise power conferred in article 1571 of the Civil Code, namely, of
terminating any lease which is unrecorded; nothing in that law that can
be considered as arresting the force of article 1571 as applied to the
lease now before us.

Article 1549 of the Civil Code has also been cited by the attorneys
for the appellant as supplying authority for the proposition that the
lease in question cannot be terminated by one who, like Pang Lim, has
taken part in the contract. That provision is practically identical in
terms with the first paragraph of article 23 of the Mortgage Law, being
to the effect that unrecorded leases shall be of no effect as against
third persons; and the same observation will suffice to dispose of it
that was made by us above in discussing the Mortgage Law, namely, that
while it recognizes the fact that an unrecorded lease is binding on all
persons who participate therein, this does not determine the question
whether, admitting the lease to be so binding, it can be terminated by
the plaintiffs under article 1571.

Having thus disposed of the considerations which arise in relation
with the Mortgage Law, as well as article 1549 of the Civil Code—all of
which, as we have seen, are undecisive—we are brought to consider the
aspect of the case which seems to us conclusive. This is found in the
circumstance that the plaintiff Pang Lim has occupied a double role in
the transactions which gave rise to this litigation, namely, first, as
one of the lessees; and secondly, as one of the purchasers now seeking
to terminate the lease. These two positions are essentially
antagonistic and incompatible. Every competent person is by law bound
to maintain in all good faith the integrity of his own obligations; and
no less certainly is he bound to respect the rights of any person whom
he has placed in his own shoes as regards any contract previously
entered into by himself.

While yet a partner in the firm
of Lo Seng & Co., Pang Lim participated in the creation of this
lease; and when he sold out his interest in that firm to Lo Seng this
operated as a transfer to Lo Seng of Pang Lim’s interest in the firm
assets, including the lease; and Pang Lim cannot now be permitted, in
the guise of a purchaser of the estate, to destroy an interest derived
from himself, and for which he has received full value.

The bad faith of the plaintiffs in seeking to deprive the defendant
of this lease is strikingly revealed in the circumstance that prior to
the acquisition of this property Pang Lim had been partner with Lo Seng
and Benito Galvez an employee. Both therefore had been in relations of
confidence with Lo Seng and in that position had acquired knowledge of
the possibilities of the property and possibly an experience which
would have enabled them, in case they had acquired possession, to
exploit the distillery with profit. On account of his status as partner
in the firm of Lo Seng & Co., Pang Lim knew that the original lease
had been extended for fifteen years; and he knew the extent of valuable
improvements that had been made thereon. Certainly, as observed in the
appellant’s brief, it would be shocking to the moral sense if the
condition of the law were found to be such that Pang Lim, after
profiting by the sale of his interest in a business, worthless without
the lease, could intervene as purchaser of the property and confiscate
for his own benefit the property which he had sold for a valuable
consideration to Lo Seng. The sense of justice recoils before the mere
possibility of such eventuality.

Above all other persons
in business relations, partners are required to exhibit towards each
other the highest degree of good faith. In fact the relation between
partners is essentially fiduciary, each being considered in law, as he
is in fact, the confidential agent of the other. It is therefore
accepted as fundamental in equity jurisprudence that one partner
cannot, to the detriment of another, apply exclusively to his own
benefit the results of the knowledge and information gained in the
character of partner. Thus, it has been held that if one partner
obtains in his own name and for his own benefit the renewal of a lease
on property used by the firm, to commence at a date subsequent to the
expiration of the firm’s lease, the partner obtaining the renewal is
held to be a constructive trustee for the firm as to such lease. (20 R.
C. L., 878-882.) And this rule has even been applied to a renewal taken
in the name of one partner after the dissolution of the firm and
pending its liquidation. (16 R. C. L., 906; Knapp vs. Reed, 88 Neb., 754; 32 L. R. A. [N. S.], 869; Mitchell vs. Reed, 61 N. Y., 123; 19 Am. Rep., 252.)

An additional consideration showing that the position of the
plaintiff Pang Lim in this case is untenable is deducible from articles
1461 and 1474 of the Civil Code, which declare that every person who
sells anything is bound to deliver and warrant the subject-matter of
the sale and is responsible to the vendee for the legal and lawful
possession of the thing sold. The pertinence of these provisions to the
case now under consideration is undeniable, for among the assets of the
partnership which Pang Lim transferred to Lo Seng, upon selling out his
interest in the firm to the latter, was this very lease; and while it
cannot be supposed that the obligation to warrant recognized in the
articles cited would nullify article 1571, if the latter article had
actually conferred on the plaintiffs the right to terminate this lease,
nevertheless said articles (1461,1474), in relation with other
considerations, reveal the basis of an estoppel which in our opinion
precludes Pang Lim from setting up his interest as purchaser of the
estate to the detriment of Lo Seng.

It will not escape observation that the doctrine thus applied is
analogous to the doctrine recognized in courts of common law under the
head of estoppel by deed, in accordance with which it is held that if a
person, having no title to land, conveys the same to another by some
one or another of the recognized modes of conveyance at common law, any
title afterwards acquired by the vendor will pass to the purchaser; and
the vendor is estopped as against such purchaser from asserting such
after-acquired title. The indenture of lease, it may be further noted,
was recognized as one of the modes of conveyance at common law which
created this estoppel. (8 R. C. L., 1058, 1059.)

From what has been said it is clear that Pang Lim. having been a
participant in the contract of lease now in question, is not in a
position to terminate it: and this is a fatal obstacle to the
maintenance of the action of unlawful detainer by him. Moreover, it is
fatal to the maintenance of the action brought jointly by Pains Lim and
Benito Galvez. The reason is that in the action of unlawful detainer,
under section 80 of the Code of Civil Procedure, the only question that
can be adjudicated is the right to possession; and in order to maintain
the action, in the form in which it is here presented, the proof must
show that occupant’s possession is unlawful, i. e., that he
is unlawfully withholding possession after the determination of the
right to hold possession. In the case before us quite the contrary
appears; for, even admitting that Pang Lim and Benito Galvez have
purchased the estate from Lo Yao, the original landlord, they are, as
between themselves, in the position of tenants in common or owners pro indiviso,
according to the proportion of their respective contribution to the
purchase price. But it is well recognized that one tenant in common
cannot maintain a possessory action against his cotenant, since one is
as much entitled to have possession as the other. The remedy is
ordinarily by an action for partition. (Cornista vs. Ticson,
27 Phil., 80.) It follows that as Lo Seng is vested with the possessory
right as against Pang Lim, he cannot be ousted either by Pang Lim or
Benito Galvez. Having lawful possession as against one cotenant, he is
entitled to retain it against both. Furthermore, it is obvious that
partition proceedings could not be maintained at the instance of Benito
Galvez as against Lo Seng, since partition can only be effected where
the partitioners are cotenants, that is, have an interest of an
identical character as among themselves. (30 Cyc, 178-180.) The
practical result is that both Pang Lim and Benito Galvez are bound to
respect Lo Seng’s lease, at least in so far as the present action is
concerned.

We have assumed in the course of the preceding discussion that the
deed of sale under which the plaintiffs acquired the rights of Lo Yao,
the owner of the fee, is competent proof in behalf of the plaintiffs.
It is, however, earnestly insisted by the attorney for Lo Seng that
this document, having never been recorded in the property registry,
cannot, under article 389 of the Mortgage Law, be used in court against
him because as to said instrument he is a third party. The important
question thus raised is not absolutely necessary to the decision of
this case, and we are inclined to pass it without decision, not only
because the question does not seem to have been ventilated in the Court
of First Instance but for the further reason that we have not had the
benefit of any written brief in this case in behalf of the appellees.

The judgment appealed from will be reversed, and the defendant will
be absolved from the complaint. It is so ordered, without express
adjudication as to costs.

Johnson, Araullo, Avancena, and Villamor, JJ., concur.