Hong kong Shanghai Bank vs Aledoca

Facts:

An action was brought on Jan. 31, 1911 by plaintiff Hong Kong Shanghai Bank against Aledoca & Co. for
recovery from Aledoca & Co an amount due from the latter as balance to its debit in an account current
with the Bank, and to enforce the subsidiary liability of other defendants from the payment of its
indebtedness, as partners of Aledoca & Co., and to foreclose certain mortgages executed by Aledoca &
Co. to secure indebtedness upon.

Judgment was rendered on Aug. 10, 1912,in favor of Shanghai bank against Aledoca for the sum of
P344,924.23, together with an interest rate of 7 % per annum from date of judgment until paid, and for
costs, and foreclosure of mortgage. The court decreed that in the event of there being a defiency, after
foreclosure of mortgage, the plaintiff must resort to and exhaust the property of principal defendant
before taking out execution against individual defendants held to be liable in solidum with the principal
debt, but subsidiarily. Judgment was also rendered denying the relief sought by intervener.

Defendants Joaquin Ibanez de Alcoa, Zoilo Ibanez de Alcoa, and Cecilia Ibanez de Alcoa were born into
the Philippines on March 27, 1884, Jully 4, 1885 and 1887 respectively. Both parents were natives of
Spain. Father’s Domicile Manila, and he died there on Oct. 4, 1895. The widow left the Philippines
Islands and went to Spain in 1897 because of her health, and returned in the latter part of 1902. The
firm of Aldecoa and Co, which Zoilo Ibanez de Alcoa, deceased, had been a member of and managing
director, was reorganized in 1896, and the widow became one of the general or “Capitalistic” partners
of the firm. The three children mentioned above are industrial partners as stated in the articles of
agreement.

On July 31, 1903, Isabel Palet, widowed mother of Joaquin and Zoilo de Alcoa, who were over 18 at that
time, went before a notary public and executed 2 instruments, wherein and whereby she emancipated
her 2 sons, with consent and acceptance. No guardian of the person or property of these two sons had
ever been applied for or appointed under or by virtue of the provisions of the Code of Civil Procedure.
After both execution of the 2 instruments, both Joaquin and Zoilo participated in the management of
Aldecoa and Co, as partners by being present and voting at meetings of the partners of the company
upon matters connected by its affairs.

On Feb 23, 1906, defendant Aldeco and Co. obtained from Shanghai Bank a credit in account current up
to P450,000 in terms and conditions set on that instrument executed on that day(Exhibit A). Later it was
agreed that defendants, Isabel Palet and her 2 sons, Joaquin and Zoilo, should mortgage in addition to
certain securities of Aldecoa and Co. On March 23, 1906, the mortgage, Exhibit B, was executed wherein
certain corrections in the description to some real property mortgaged to HongKong Shanghai Bank by
exhibit A were made and the amount for which each of the mortgaged properties should be liable was
set forth. The two mortgages were duly recorded in the registry of property of Manila on March 23,
1906.

On Dec 31, Aldeco and Co went into liquidation on account of the expiration of the term for which it had
been organized, and intervener, Urquhart, was duly elected by parties as liquidator, and he was granted
authority in a resolution date Jan 24, 1907.
On June 30, 1907, Aldeco and Co. required an injunction bond of P50,000, which was furnished by
HongKong Shanghai Bank upon the condition that any liability incurred on the part of the bank upon the
injunction bond would be covered by the mortgage of Feb 23, 1906. An agreement was executed by all
plaintiffs. In 1908, Joaquin ,Z oilo and Cecilia de Aldecoa commenced an action against their mother,
Isabel Palet, and Aldecoa and Co, in which the bank was not a party, and in September of the same year
procuring a judgment in the CFI annulling the articles of co-partnership of Aldecoa and co., insofar as
they are concerned, and decreeing that the the three children were creditors and not partners of the
firm.

On Nov. 6, 1906, defendants Isabel Palet and the three children applied to the land court for registration
of their title to real property , in which application they stated that the undivided ¾ of said property
belonging to defendants Palet and the three children were subject to mortgage in favor of Bank to
secure the sum of P203,985.97 under the terms of instrument dated March 22, 1906. The Court of Land
Registration registered the title to the undivided ¾ interest pertaining to defendants, subject to
mortgage in favor of plaintiff to secure the P203,985.97 sum.

On Dec 22, Aldecoa and Co executed before a notary public , as additional security for performance of
obligations in favor of plaintiff, mortgaged to the bank a right of mortgage pertaining to Aldecoa and Co.
upon certain Real Property in the Province of Albay, mortgaged to said company by one Zubeldia to
secure indebtedness to that firm.

As a result of litigation between Aldecoa & Co and A.S. Macleod, wherei Injunction Bond of P50,000 was
made by Bank, Aldecoa and Co became the owner, through a compromise agreement executed in
Manila on Aug 14, 1907, of the shares of the Pasay Estate Company Limited, and on Aug 30, Urquhartm
as liquidator, mortgaged to plaintiff, by way of additional security for the performance of obligations set
forth in Exhibit A and B, 312 shares of Palay Estate Company, Limited, acquired by Aldecoa and Co.

On March 31, 1907, Aldecoa and Co mortgaged to plaintiff the right of mortgage, pertaining to Aldecoa
and Co by one Andres Garchitorena to secure a balance of indebtedness to that firm the sum of
P20,280.19. On March 31, 1907, Aldecoa and Co mortgaged, as further additional security for
performance of obligations in Exhibit A and B, the rights of mortgage pertaining to the firm of Aldecoa
and Co. upon other Real Property in the same province, mortgaged by the firm of Aldecoa and Co. of
P43,117.40 and the personal debt of latter of P75,643.54.

On Nov 30, 1907, Aldecoa and Co duly authorized the bank to collect from certain persons and firms
any and all debts owing to them by Aldecoa and Co. and to apply all amounts so collected to the
satisfaction ,pro tanto, of any indebtedness of Aldecoa and Co to the Bank.

By an instrument dated Feb 18, 1907, Aldecoa and Co acknowledged as indebtedness to Joaquin Ibanez
de Alcoa in the sum of P154,589.20, P89,177.07 to Zoilo. A judgment then was recovered in the CFI for
the payment to the three children the sum of P155,127.31 as balance due them upon indebtedness
acknowledged in the public instrument dated Feb 18, 1907.

On Nov. 30, 1907, Joaquin, Zoilo and Cecila instituted an action in the CFI against plaintiff bank for
purpose of obtaining judicial declaration to the effect that a contract whereby Aldecoa and Co
mortgaged to Shanghai Bank the shares of Pasay Estate Company recovered from Alejando J. Macleod,
was null and void, and for judgment that these shares be sold and applied for the satisfaction of their
judgment obtained on Sept 30, 1908. Judgment was rendered by the lower court in favor of plaintiffs in
accordance with their appeal, but upon appeal the court reversed judgment and declared that mortgage
of shares of stock in the Pasay Estate Co. to bank was valid.

On Oct 1908, Joaquin and Zoilo instituted an action against plaintiff Shanghai Bank for the purpose of
obtaining judgment annulling mortgages created by them upon interest in properties described in
exhibit A and B, upon the ground that emancipation by their mother was void and of no effect, and that
therefore, they were minors incapable of creating a valid mortgage upon their real property. The CFI
dismissed the case as to Joaquin upon the ground that he had ratified those mortgages upon his coming
of age, but annulling mortgages with respect to Zoilo,

Trial court found that there was no competent evidence that the Bank induced, or attempted to induce,
any cutomer of Aldeoca and Co to discontinue business relations with the company. The Court further
found that Urquhart had failed to show that he had interest in matter in litigation between plaintiff and
defendants, or in success of either parties, or an interest against both, as required by Sec 121 of the
code of civil procedures.

Issue:

1.) WON Aldeco & Co mortgaged any real estate within the jurisdiction of the CFI
2.) WON the credits due to Urquhart has preference over the Bank’s

Ruling:

1.) Aldeco and Co did not mortgage any real estate since both parties must jointly agree on
mortgage.
The banks is not trying to foreclose, in this section, any mortgages on real property executed by
Aldecoa and Co. It is true that the bank sought and obtained a money judgment against that firm,
and at the same time and in the same action obtained a foreclosure judgment against the other
defendants. If two or more persons are in solidum the debtors mortgage any of their real property
situate in the jurisdiction of the court, the creditor, in case of the solidary debtors in the same suit
and secure a joint and several judgment against them, as well as judgments of foreclosure upon the
respective mortgages.

2. Yes, since Urquhart was given authority by bank to execute as it’s representative.

The contention that the extensions granted to Aldecoa and Co.'s debtors, with the consent and
authority of that firm itself, has resulted in extinguishment of the mortgages created by Aldecoa and
Co. or of the mortgages created by partners of that company to secure its liabilities to the bank, is
not tenable. The record shows that all the sureties were represented by Urquhart, the person elected
by them as liquidator of the firm, when he agreed with the bank upon the extensions granted to
those debtors. The authority to grant these extensions was conferred upon the bank by the
liquidator, and he was given authority by all the sureties to authorized the bank to proceed in this
manner.