NG CHO CIO ET AL vs.NG DIONG, C. N.

HODGES, ET AL The partnership was to exist for 10 years but articles of co-partnership were amended by
G.R. No. L-14832 January 28, 1961 extending its life to 16 years more to be counted from May 23, 1925, or up to May 23,
Bulacan 1941.
DOCTRINE: In 1938
Partnership Insolvency Termination of proceeding.Where, after the approval by the court
of a composition agreement in an insolvency proceeding, the court declared the proceeding 1. Partnership obtained 2 loans from National Loan and Investment Board( succeded
terminated and, pursuant to its order, the assignee reconveyed to the partnership its by Agricultural and Industrial Bank) both guaranteed by a mortgage of lots (total:7
properties on April 2, 1946, for all legal and practical purposes the insolvency ended on said parcels of land )of the cadastral survey of Iloilo.
date and the firm was restored to its status quo. It reacquired its personality, Its properties 2. Later,the partnership was declared insolvent upon petition of its creditors in,
ceased to be in custodia legis. Special Proceedings wherein Crispino Melocoton was elected as assignee.

In due time, thecreditors filed their claims in said proceeding which totalled P192,901.12.
1940: a majority of the creditors with claims amounting to P139,704.81, and the partners
Sale of land by partnership.A sale of land, made by the general manager of a partnership, by
of the firm entered into a composition agreement (approved by the court) whereby it
virtue of the power vested in him by the articles of partnership, which sale was effected after
was agreed that said creditors would receive 20% of the amount of their claims in full
the insolvency proceeding involving the partnership
payment thereof.
was terminated, is valid. 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.
1941: the Agricultural and Industrial Bank assigned its rights and interests in the loans in
favor of C.N. Hodges
Same Old law Liquidation of partnership's affairs after expiration of term.The general
When the loans became due and no payment was forthcoming, Hodges asked
manager of a partnership, whose term had expired, may liquidate its business. His sale of the
permission from the insolvency court to file a complaint against the assignee to foreclose
lots belonging to the firm, while it was under receivership, is sanctioned by article 228 of the
the mortgage and such was granted. So Hodges filed a complaint praying that the
Code of Commerce, the law in
assignee be ordered to pay him.
force at the time of the sale. 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.
August 15, 1945, the partners of the insolvent firm and Julian Go filed a petition with the
PARTIES:
insolvency court praying at the insolvency proceedings be closed or terminated cause the
APPELLANTS:NG CHO CIO ET AL (partners)
DEFENDANT-APPELLANT: NG DIONG (managing partner) composition agreement had already been approved.--Approved
Defendants-appellees: C. N. HODGES, ET AL (creditors) October 6, 1946, the court then ordered closure of the proceedings directing the
assignee to turn and reconvey all the properties.
April 2, 1946,
FACTS:

This action was begun in the Court of First Instance of Iloilo by Ng Cho Cio Ng Sian King and Ng 1. Assignee then executed a deed of reconveyance of the properties to the
Due King to recover their three-fourths (3/4) pro-indiviso share on seven (7) parcels of land partnership
2. As of date, indebtedness of the partnership to C. N. Hodges which was the subject of
situated in the City of Iloilo which were sold by Ng Diong as manager of the commercial firm
the foreclosure proceedings in a separate case was P103,883.34.
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. 3. Deed of sale in favor of Hodges for the sum of P124,580.00 was executed by Ng
Diong over the properties mortgaged in order to pay off the debt and raise necessary
funds to pay the other obligations of the partnership.
Ng Diong, Ng Be Chuat, Ng Feng Tuan Ng Be Kian Ng Cho Cio, Ng Sian King and Ng Due
4. Hodges executed another contract giving the partnership the right to repurchase
King entered into a contract of general co-partnership under the name NG CHIN BENG
Lots
HERMANOS .
Ng Diong was named as managing partner.
 On May 23, 1947, the partnership had not yet paid its indebtedness to Julian Go under he had the necessary authority to liquidate its affairs under its articles of co-partnership. And
the composition agreement, nor did it have any money to repurchase (from Hodges) considering that war had intervened and the affairs of the partnership were placed under
So, in behalf of the partnership, Ng Diong transferred the right to repurchase from receivership up to October 6, 1945, we are of the opinion that Ng Diong could still exercise his
Hodges to Julian Go in full payment of the partnership's indebtedness to him. power as liquidator when he executed the sale in question in favor of C. N. Hodges. This is
Julian Go then exercised the option. sanctioned by Article 228 of the Code of Commerce which was the law in force at the time.

CONTENTIONS OF APPELLANTS: DISPOSITION: WHEREFORE, the decision appealed from is affirmed, with costs against
appellants.
1. Sale made by Ng Diong in behalf of the partnership 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

ISSUES:

1. Whether the partners can recover the lands sold by Ng Diong.-NO because the sale was valid

HELD:

When the composition agreement was approved on October 10, 1940 , in contemplation of
law,it 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 the partnership. The actual reconveyance was done by a assignee on April 2, 1946.

It would, therefore, appear that for legal and practical purposes the insolvency ended on said
date. Since then 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 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 fixed: Who shall wind up it 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