Lim Tanhu vs. Ramolete

When a complaint states a common cause of action against several defendants, some of whom answer and others default, the dismissal of the complaint against the non-defaulted defendants must also operate as a dismissal against the defaulted defendants, because all defendants are indispensable parties, the defense interposed by answering defendants inures to the benefit of defaulting ones, and the substantive unity of the plaintiff's cause of action demands a single and indivisible judgment for or against all.

Tan Put claimed to be the widow of Tee Hoon Lim Po Chuan, who had been a partner in Glory Commercial Company, a commercial partnership engaged in hardware, import, and wholesale-retail trade in Cebu, together with Antonio Lim Tanhu and Alfonso Leonardo Ng Sua. The defendants contended that Tan Put was merely the common-law wife of the deceased, that his legitimate wife Ang Siok Tin and their children were still alive in Hong Kong, and that all of the deceased's partnership shares had already been settled and paid, including through a quitclaim executed by Tan Put in November 1967. The dispute involved partnership assets allegedly worth approximately P15 million, including real properties in Cebu, Lapulapu, Mandaue, Talisay, and Minglanilla, as well as investments in Hong Kong.

Tan Put filed a complaint on February 9, 1971 in the Court of First Instance of Cebu, Branch III, Civil Case No. 12328, against the spouses Antonio Lim Tanhu and Dy Ochay, seeking an accounting of the real and personal properties of Glory Commercial Company, delivery of one-third of the total value of all properties amounting to approximately P5,000,000, attorney's fees of P250,000, and damages of P1,000,000. She alleged that she was the widow of Tee Hoon Lim Po Chuan, a partner in the commercial partnership Glory Commercial Company with Antonio Lim Tanhu and Alfonso Leonardo Ng Sua, and that after Po Chuan's death on March 11, 1966, the defendants, through fraud and machination, took actual management of the partnership, used its funds to purchase lands and buildings in Cebu, Lapulapu, Mandaue, Talisay, and Minglanilla, and organized a corporation called Glory Commercial Company, Inc. with partnership assets. She further alleged that in November 1967, Antonio Lim Tanhu induced her through fraud to execute a quitclaim of all her rights and interests in the partnership assets, which she claimed was null and void.

In an amended complaint dated September 26, 1972, Tan Put added as defendants Lim Teck Chuan (son of the Lim Tanhus), Alfonso Leonardo Ng Sua and Co Oyo (spouses), and Eng Chong Leonardo (son of the Ng Suas). The defendants filed a single answer with counterclaim, denying that Tan Put was the widow of Tee Hoon, asserting that his legitimate wife was Ang Siok Tin, still living in Hong Kong with their four legitimate children. They alleged that proper liquidation of the partnership had been regularly made, that Tee Hoon received his just share until his death, and that Tan Put had already executed a quitclaim in November 1967 for P25,000 with the assistance of counsel. Their compulsory counterclaim sought exemplary damages for plaintiff's bad faith in suppressing the fact of her common-law relationship, attorney's fees of P500,000, and litigation expenses of P5,000.

On February 3, 1973, the date set for pre-trial, the two spouse-defendants — the Lim Tanhus and the Ng Suas — failed to appear. By order of March 12, 1973, they were all declared in default. Their motion for reconsideration was denied. Trial then commenced, with plaintiff's first witness, Antonio Nuñez, her adopted son, undergoing re-cross-examination. On October 19, 1974, while that witness was still under examination, plaintiff filed an unreasoned motion to drop defendants Lim Teck Chuan and Eng Chong Leonardo from the complaint, setting it for hearing on December 21, 1974 but actually having it heard on October 21, 1974. The non-defaulted defendants' counsel were served notice only on October 19, 1974 — Atty. Sitoy personally and Atty. Alcudia by registered mail posted that same day — violating the three-day notice requirement of Section 4, Rule 15. No notice at all was sent to the defaulted defendants, who had previously filed motions to lift the order of default.

Without verifying the notices of service, respondent judge granted the motion on October 21, 1974, dismissing the complaint against Lim Teck Chuan and Eng Chong Leonardo, and simultaneously ordering the ex-parte reception of plaintiff's evidence against the defaulted defendants on November 20, 1974. On October 28, 1974, upon plaintiff's verbal motion, the judge authorized the Branch Clerk of Court to receive plaintiff's evidence immediately. The non-defaulted defendants filed motions for reconsideration, which were denied on December 6, 1974. Meanwhile, on December 20, 1974, respondent court rendered a default judgment ordering petitioners to account for and deliver one-third of partnership assets valued at over P12 million, including specific real properties, plus attorney's fees and damages — reliefs not all of which were prayed for in the complaint.

The non-defaulted defendants filed a petition for certiorari with the Court of Appeals on January 13, 1975, which was dismissed as premature on January 24, 1975. The defaulted defendants filed a notice of appeal and appeal bond on January 20, 1975, but before perfecting the appeal, filed the present petition for certiorari and prohibition with the Supreme Court on February 7, 1975. The trial court's findings, which the Supreme Court found fatally deficient, included a conclusion that Tan Put was the legitimate widow of Po Chuan based on a certification from a bishop of the Philippine Independent Church and the self-serving testimony of Tan Put and her adopted son, while disregarding the deceased's income tax return naming Ang Siok Tin as his wife, a quitclaim in which Tan Put admitted being only a common-law wife, a written agreement terminating the common-law relationship for P40,000, and certifications from the Local Civil Registrar and the Apostolic Prefect showing no record of any marriage between Tan Put and Po Chuan.

• Lack of Notice: Petitioner argued that respondent court acted illegally in acting on plaintiff's motion to dismiss without ascertaining whether due notice had been served on the adverse parties, as no notice was timely served on the non-defaulted defendants and no notice at all was sent to the defaulted defendants.
• Compulsory Counterclaim: Petitioner maintained that the common answer contained a compulsory counterclaim that could not be decided in an independent action and could not remain pending for independent adjudication, making dismissal of the complaint improper under Section 2, Rule 17.
• Indivisibility of Default Judgment: Petitioner contended that under Section 4, Rule 18, when a common cause of action is alleged against several defendants, the default of any is a mere formality, and all defendants — defaulted and non-defaulted — must share a common fate, win or lose; accordingly, the order of dismissal should extend to all defendants or, alternatively, all subsequent proceedings should be set aside and trial resumed with the non-defaulted defendants defending for all.
• Relief Not Prayed For: Petitioner argued that the default judgment granted reliefs not prayed for in the complaint, including a theory that plaintiff contributed P125,000 to the partnership capital, which was never alleged in the complaint.

• Lack of Personality: Respondent countered that because petitioners had been properly declared in default, they had no personality or interest to question the dismissal of the case against their non-defaulted co-defendants and should suffer the consequences of their own default.
• Availability of Appeal: Respondent argued that since petitioners had already filed their notice of appeal and appeal bond, certiorari was improper and their recourse was to prosecute the appeal.
• Prematurity: Respondent invoked the Court of Appeals' ruling that the petition of the non-defaulted defendants was premature, contending the same applied here.
• Errors of Judgment: Respondent maintained that the errors attributed to respondent court were errors of judgment reviewable only on appeal, not through certiorari.

• Notice of Motion to Dismiss: Whether respondent court acted with grave abuse of discretion in granting plaintiff's motion to dismiss without proper notice to the adverse parties.
• Common Fate of Defendants: Whether the dismissal of the complaint against non-defaulted defendants must also operate as a dismissal against defaulted defendants when a common cause of action is alleged against all.
• Entitlement to Notice of Defaulted Defendants: Whether defaulted defendants who had filed a motion to set aside the order of default were entitled to notice of the motion to drop their co-defendants.
• Propriety of Certiorari: Whether certiorari is the proper remedy notwithstanding the availability of appeal.
• Validity of the Default Judgment: Whether the default judgment of December 20, 1974 is valid given the procedural irregularities and evidentiary deficiencies.

• Notice of Motion to Dismiss: No. The motion to dismiss was acted upon without the requisite three-day prior notice to the non-defaulted defendants and without any notice to the defaulted defendants, rendering the court without jurisdiction to act on the motion under Section 6, Rule 15.
• Common Fate of Defendants: Yes. The dismissal of the complaint against non-defaulted defendants must extend to defaulted defendants, because all defendants are indispensable parties sharing a common cause of action and a common defense, and the substantive unity of the plaintiff's cause demands a single, indivisible judgment.
• Entitlement to Notice of Defaulted Defendants: Yes. Petitioners had filed a motion to set aside the order of default, entitling them to notice of all further proceedings under Section 9, Rule 13; moreover, the dropping of co-defendants was a substantial amendment to the complaint requiring notice to all parties.
• Propriety of Certiorari: Yes. Certiorari is proper when the irregularity committed by the trial court is so grave and far-reaching that the cumbersome procedure of appeal would only aggravate the aggrieved party's situation.
• Validity of the Default Judgment: No. The judgment was null, being predicated on illegally conducted ex-parte proceedings, resting on incompetent and self-serving evidence, granting reliefs not prayed for, and containing numerous factual and legal inconsistencies.

• Notice of Motion to Dismiss: The three-day notice rule under Section 4, Rule 15 requires that at least three days intervene between the date of service of notice and the date set for hearing. Here, the non-defaulted defendants' counsel were served only on October 19, 1974, for a hearing on October 21, 1974, plainly short of the requirement. The defaulted defendants received no notice at all. Under Section 6, Rule 15, a motion without proof of service of notice presents no question the court could decide, and the court acquires no jurisdiction to consider it. The court's failure to verify notices of service before acting on the motion constituted grave abuse of discretion.

• Common Fate of Defendants: Section 4, Rule 18 provides that when a complaint states a common cause of action against several defendants, some of whom answer and others default, the court shall try the case against all upon the answer filed and render judgment upon the evidence presented. The defense interposed by answering defendants inures to the benefit of defaulting ones. If the complaint is dismissed as to the answering defendants, it must also be dismissed as to the defaulting defendants, because the substantive unity of the plaintiff's cause of action and the indispensability of all defendants demand a single, indivisible judgment. The court's power to act is integral and cannot be split to relieve some defendants while rendering judgment against the rest. Since all defendants were indispensable parties — a position respondent herself conceded — the court could not eliminate some and proceed against others. The absence of an indispensable party renders all subsequent actuations null and void for want of authority to act.

• Entitlement to Notice of Defaulted Defendants: Under Section 9, Rule 13, a party in default who files a motion to set aside the order of default is entitled to notice of all further proceedings regardless of whether the order is set aside. Petitioners had filed a motion for reconsideration of the default order, which in substance was legally adequate to revive their right to notice. Moreover, the dropping of two defendants from the amended complaint was a substantial amendment — it increased proportionally what each remaining defendant would have to answer for — and thus required notice to petitioners under the same rule. The court therefore had no authority to act on the motion without such notice.

• Propriety of Certiorari: While certiorari generally coexists with appeal, the special remedy is available at the option of the aggrieved party when the irregularity is so grave and far-reaching that the long and cumbersome procedure of appeal would only aggravate the situation. The proceedings below had gone so far out of hand — with illegal orders, deprivation of due process, and a pending motion for execution pending appeal — that prompt corrective action was needed to restore order and prevent graver injury.

• Validity of the Default Judgment: The judgment was fatally deficient on multiple grounds. First, it was predicated on ex-parte proceedings conducted by the clerk of court, a practice the Court declared improper, as the judge alone must ensure that only competent evidence is considered against a defaulted defendant. Second, the evidence was overwhelmingly insufficient: plaintiff's alleged marriage to Po Chuan was supported only by a bishop's certification (inadmissible without proof of loss of the marriage contract and hearsay since the bishop did not testify) and self-serving testimony from plaintiff and her adopted son, who was the real party in interest. Against this stood the deceased's income tax return naming Ang Siok Tin as his wife, a quitclaim in which Tan Put admitted being only a common-law wife, a written agreement terminating the common-law relationship for P40,000, and certifications from the Local Civil Registrar and Apostolic Prefect showing no marriage record. Third, no reliable evidence showed that defendants fraudulently extracted partnership funds; the court's own findings showed Po Chuan actively managed the partnership, making it illogical that defendants could have defrauded him without his knowledge. Fourth, the judgment granted reliefs not prayed for — including a theory that plaintiff contributed P125,000 to the partnership, never alleged in the complaint. Fifth, the court delved into financial statements without the aid of any accountant, producing inconsistent and incomprehensible conclusions. Sixth, the properties in question were mostly transferred to defendants' names after the partnership's automatic dissolution upon Po Chuan's death. Accordingly, the complaint was totally dismissed.

• Unity and Indivisibility of Judgment in Default — When a complaint states a common cause of action against several defendants, some of whom answer and others default, the defense interposed by answering defendants inures to the benefit of defaulting ones. The court shall try the case against all upon the answer filed and render a single judgment upon the evidence presented. If the complaint is dismissed as to answering defendants, the dismissal must extend to defaulting defendants as well. The substantive unity of the plaintiff's cause of action demands a common fate for all defendants, favorable or unfavorable. Applied here: the dismissal of the complaint against non-defaulted defendants Lim Teck Chuan and Eng Chong Leonardo was held to extend to defaulted petitioners, annulling all subsequent proceedings.

• Compulsory Counterclaim Bars Dismissal — Under Section 2, Rule 17, if a counterclaim has been pleaded by a defendant prior to service of a motion to dismiss, the action shall not be dismissed against the defendant's objection unless the counterclaim can remain pending for independent adjudication. A counterclaim is compulsory when it arises out of or is necessarily connected with the transaction that is the subject matter of the plaintiff's claim, and the same evidence sustains both. Applied here: defendants' counterclaim for damages arising from plaintiff's allegedly false and bad-faith complaint was compulsory and could not remain pending independently, so dismissal was improper.

• Indispensable Parties — Indispensable parties are those whose presence is a sine qua non of the exercise of judicial power; their absence renders all subsequent actuations of the court null and void, not only as to the absent parties but even as to those present. When it appears that an indispensable party has not been joined, the court must order inclusion, not elimination. Applied here: all six defendants were indispensable parties because the complaint alleged a conspiracy among all to misappropriate partnership assets, and any judgment would necessarily affect all; the court's elimination of non-defaulted defendants was the reverse of what the law ordains.

• Three-Day Notice Rule — Under Section 4, Rule 15, at least three days must intervene between the date of service of notice and the date set for hearing of a motion; otherwise, the court may not validly act on it. A motion without proof of service of notice presents no question the court could decide, and the court acquires no jurisdiction to consider it. Applied here: plaintiff's motion to dismiss was served on non-defaulted defendants only one or two days before hearing, and no notice was sent to defaulted defendants, rendering the court's action void.

• Notice to Defaulted Defendants on Substantial Amendments — Under Section 9, Rule 13, a party in default who files a motion to set aside the order of default is entitled to notice of all further proceedings; and even a defaulted defendant who has not filed such a motion must still be served with substantially amended or supplemented pleadings. Applied here: petitioners' motion for reconsideration of the default order revived their right to notice, and the dropping of co-defendants was a substantial amendment requiring notice to all parties.

• Default Does Not Constitute Admission — Being declared in default does not constitute a waiver of rights except that of being heard and presenting evidence; it is not an admission that the plaintiff's cause of action finds support in law or that plaintiff is entitled to the relief prayed for. The court must still ensure that only legal and competent evidence is considered and that any judgment does not exceed the amount or differ in kind from what is prayed for.

• Reception of Evidence in Default Should Be by the Judge — The practice of delegating to the clerk of court the reception of plaintiff's evidence when the defendant is in default was declared improper, as the judge alone has the competence and authority to ensure that only competent evidence is considered and to observe the demeanor of witnesses. The Court declared as judicial policy that this practice should be discontinued.

• "the rules of procedure may not be misused and abused as instruments for the denial of substantial justice." — This passage frames the Court's overarching rationale for granting the petition, emphasizing that procedural rules must be construed liberally to promote just, speedy, and inexpensive determination of every action, per Section 2, Rule 1.

• "the defense interposed by those who appear to litigate the case inures to the benefit of those who fail to appear, and if the court finds that a good defense has been made, all of the defendants must be absolved." — This is the canonical formulation of the unity-of-fate doctrine in default cases, quoting Chief Justice Moran's commentary on Section 4, Rule 18, and is the ratio decidendi for extending the dismissal to defaulted defendants.

• "The substantive unity of the plaintiff's cause against all the defendants is carried through to its adjective phase as ineluctably demanded by the homogeneity and indivisibility of justice itself." — This passage articulates the theoretical foundation for the indivisibility of judgment when a common cause of action is alleged against several defendants, tying substantive law to procedural consequences.

• "It is precisely 'when an indispensable party is not before the court (that) the action should be dismissed.' — This quotation, drawn from People vs. Rodriguez, 106 Phil. 325, states the rule that the absence of an indispensable party deprives the court of competency to act, applied here to reverse the trial court's elimination of indispensable parties.

• Bueno vs. Ortiz, 23 SCRA 1151 — Followed. The Court applied the principle that the answer filed by one or some of the defendants inures to the benefit of all others, even those who have not seasonably filed their answer, when a common cause of action is alleged against all.
• Castro vs. Peña, 80 Phil. 488 — Followed. The Court relied on this case for the proposition that a judgment in a common-cause-of-action case affects defaulting defendants either favorably or adversely, and that a defaulting defendant may even ask for execution if the judgment is in their favor.
• Velez vs. Ramas, 40 Phil. 787 — Followed. Cited for the rule that where a complaint states a common cause of action against several defendants and the suit is decided against the plaintiff, the action will be dismissed as to all defendants alike.
• Borlasa vs. Polistico, 47 Phil. 345 — Followed. Cited for the principle that the joinder of all indispensable parties is required under any and all conditions, their presence being a sine qua non of the exercise of judicial power.
• Lim Toco vs. Go Fay, 80 Phil. 166 — Followed. Cited for the rule that the proper mode of proceeding where one defendant makes default is to enter a formal default order and proceed with the cause upon the answers of the others.
• Ong Peng vs. Custodio, 1 SCRA 781 — Distinguished. The trial court relied on this case to require a separate affidavit of merit for a motion to lift default; the Supreme Court clarified that the ruling applies only where the motion is not under oath of the party concerned, and that a motion to lift default that contains the reasons for failure to answer and the facts constituting the defense, sworn to by the defendant, needs neither formal verification nor a separate affidavit of merit.
• People vs. Rodriguez, 106 Phil. 325 — Followed. Cited for the rule that when an indispensable party is not before the court, the action should be dismissed.
• Cortez vs. Avila, 101 Phil. 705 — Followed. Cited for the duty of the court to order inclusion of indispensable parties when their absence appears during proceedings.
• Macondary & Co. vs. Eustaquio, 64 Phil. 466 — Followed. Cited for the proposition that default should not be interpreted as an admission by the defendant that the plaintiff's cause of action finds support in law or that plaintiff is entitled to the relief prayed for.
• Bearneza vs. Dequilla, 43 Phil. 237 — Followed. Cited for the rule that before liquidation of a partnership is terminated, no specific amounts or properties may be adjudicated to the heir or legal representative of a deceased partner.
• Hanlon vs. Hansserman and Beam, 40 Phil. 796 — Followed. Cited for the principle that defendants have no obligation to account for acquisitions made after the partnership's automatic dissolution, absent clear proof of breach of trust during the partnership's existence.

• Section 4, Rule 18, Rules of Court — Governs judgment when some defendants answer and others default in a common cause of action. The court shall try the case against all upon the answer filed and render judgment upon the evidence presented. Applied as the primary basis for ruling that the dismissal of the complaint against non-defaulted defendants must extend to defaulted defendants.
• Section 2, Rule 17, Rules of Court — Provides that if a counterclaim has been pleaded prior to service of a motion to dismiss, the action shall not be dismissed against the defendant's objection unless the counterclaim can remain pending for independent adjudication. Applied to hold that the dismissal was improper because defendants' counterclaim was compulsory and could not remain pending independently.
• Section 4, Rule 15, Rules of Court — Requires at least three days' notice of hearing of a motion to all parties concerned. Applied to hold that the motion to dismiss was improperly acted upon for lack of timely notice.
• Section 6, Rule 15, Rules of Court — Provides that no motion shall be acted upon without proof of service of notice. Applied to hold that the court acquired no jurisdiction to act on the motion to dismiss.
• Section 9, Rule 13, Rules of Court — Governs service of papers on parties in default; a defaulted defendant who files a motion to set aside the order of default is entitled to notice of all further proceedings, and substantially amended pleadings must be served even on defaulted defendants. Applied to hold that petitioners were entitled to notice of the motion to drop co-defendants.
• Section 7, Rule 3, Rules of Court — Requires joinder of indispensable parties. Applied to hold that all six defendants were indispensable parties and the court could not eliminate any of them.
• Section 11, Rule 3, Rules of Court — Governs dropping or adding parties; the Court clarified this rule contemplates erroneous or mistaken joinder, not whimsical dropping, and requires that dropping be "on such terms as are just" to all parties.
• Section 5, Rule 18, Rules of Court — Provides that a judgment by default shall not exceed the amount or be different in kind from that prayed for. Applied to note that the default judgment granted reliefs not prayed for.
• Section 2, Rule 1, Rules of Court — Mandates liberal construction of the rules to promote their object and assist parties in obtaining just, speedy, and inexpensive determination of every action. Invoked as the overarching principle guiding the Court's resolution.
• Section 2, Rule 41, Rules of Court — Provides that a party declared in default may appeal from the judgment rendered against him. Cited to show that a defaulted defendant retains substantive rights notwithstanding default.
• Article 55, Civil Code — Requires that the declaration of contracting parties taking each other as husband and wife be set forth in an instrument signed by the parties, witnesses, and solemnizing officer. Applied to hold that the primary evidence of marriage is the marriage contract, and that a bishop's certification was inadmissible without proof of loss of the contract.
• Article 1807, Civil Code — Refers to what a partner takes without the consent of the other partner or partners. Applied to note that since Po Chuan actively managed the partnership, any funds obtained by defendants must have been with his knowledge and consent, negating any claim of fraud.

Makalintal, C.J., Fernando, Aquino, and Concepcion Jr., JJ., concurred.