Lichauco v. AGPC (1949) – Ozaeta, J.

Petitioner: estate of the deceased Richard T. Fitzsimmons with Lichauco as administrator

Respondents: Atlantic, Gulf & Pacific Company of Manila
Concept: Disqualification by Reason of Death or Insanity

Brief Facts: Fitzsimmons was the president and stockholder of Atlantic when the Pacific war broke out. He held
shares but some were not fully paid for, but for which he had executed promissory notes. When he died, Atlantic
filed a claim against his estate which is under the administration of Lichauco. The claim consist of 63, 000 from
overdraft which was supported by 2 testimonies and P867.67 for charges from San Francisco agent of the company.
Atlantic presented testimonies of the accountant and assistant accountant and also tried to present the testimonies of
the current president and vice-president-treasurer of the company but upon objection of the administrator the trial
court refused to admit their testimony on that point on the ground that said witnesses were incompetent under
section 26(c) of Rule 123. For the administrator, he presented his testimony and exhibit 1 which is a carbon copy of
the inventory of assets and liabilities of the conjugal partnership of Fitzsimmons which is submitted to court in the
divorce proceedings of Fitzsimmons marriage. Lichauco also filed a counterclaim for salaries allegedly due to the
deceased during the time of war and the company is closed. SC ruled that TC erred in not admitting the testimonies
of officers and stockholders. Exhibit 1 is a declaration against an interest and thus admissible. The claim of 63, 000
was not duly proven but the claim of P867.67 was sufficiently prove. The deceased is not entitled to the salaries
claimed.

FACTS:
1. Atlantic, Gulf and Pacific Company of Manila is a foreign corporation duly registered and licensed to do
business in the Philippines, with its office and principal place of business in the City of Manila.
2. Richard T. Fitzsimmons was the president and one of the largest stockholders of said company when the Pacific
war broke out on December 8, 1941. As such president he was receiving a salary of P3,000 a month. He held
1,000 shares of stocks, of which 545 shares had not been fully paid for, but for which he had executed
promissory notes in favor of the company aggregating P245,250, at the rate P450 a share.
3. In 1941 the sum of P64,500 had been credited in his favor on account of the purchase price of the said 545 share
of stock out of bonuses and dividends to which he was entitled from the company
4. Under his agreements with the company, should he die without having fully paid for the said 545 shares of
stock, the company, at its option, may either reacquire the said 545 shares of stock by returning to his estate the
amount applied thereon, or issue in favor of his estate the corresponding number of the company's shares of
stock equivalent to the amount paid thereon at P450 a share.
5. Soon after the Japanese army occupied Manila in January, 1942, it seized and took possession of the office and
all the properties and assets of the Atlantic and interned all its officials, they being American citizens
6. Richard T. Fitzsimmons died on June 27, 1944, in the Santos Tomas interment camp, and special proceeding
No. 70139 was subsequently instituted in the Court of First Instance of Manila for he settlement of his estate.
7. Atlantic filed a claim of P63, 868.67 against the estate of Fitzsimmons. P 63,000 of it for the personal overdraft
of Fitzsimmons with Atlantic and P867.67 for charges from San Francisco agent of the company (P1,002), less
subsequent credit advice from San Francisco agent (P133.33)
8. In the same claim Atlantic offered to require the 545 shares sold to the deceased Fitzsimmons upon return to his
estate of the amount of P64,500 paid thereon, and asked the court to authorize the setoff of the amount of its
claim of P63,868.67 from the amount of P64,500 returnable to the estate.
9. In his answer to the amended claim the administrator denied the alleged indebtedness of the deceased to the
claimant, expressed his conformity to the refund of P64,500 by the claimant to the estate and the retransfer by
the latter to the former of the 545 shares of stock, and set up a counterclaim of P90,000 for salaries allegedly
due the deceased from the claimant corresponding to the years 1942, 1943, and the first half of 1944, at P36,000
per annum.

Narration of Evidence and testimonies presented:

EVIDENCE OF CLAIMANT ATLANTIC: 2 TESTIMONIES
Note: All the books, receipts, papers, documents, and accounts referring to the personal account of Mr. Fitzsimmons
were lost during the war.
1. Santiago Inacay – chief of accounting department; In his recollections of the personal account of Mr.
Fitzsimmons, as of the last statement of account rendered in the year 1941, it was around P63,000. Though he
admitted that he could not recollect the balance of each Americans and employees, he claimed to remember the
status of the personal account of Mr. Fitzsimmons because Mr. Fitzsimmons was the president and member of the
board of directors and it is very shameful if he could not remember it when said officer and other officers of the
company come around and ask him about their balance.

2. Modesto Flores – assistant accountant of Atlantic; he remembered that the personal account of Mr. Fitzsimmons
on December 29, 1941, was on the debit side, amounting to P63,000 more or less, according to his best recollection

3. Claimant Atlantic also called as witnesses Mr. Henry J. Belden and Mr. Samuel Garmezy, vice-president-
treasurer and president, respectively, of the Atlantic, to testify on the status of the personal account of the deceased
Fitzsimmons with the company as of December, 1941; but upon objection of the administrator the trial court refused
to admit their testimony on that point on the ground that said witnesses were incompetent under section 26(c) of
Rule 123, they being not only large stockholders and members of the board of directors but also vice-president-
treasurer and president, respectively, of the claimant company. Thus, the counsel for Atlantic just stated in the
record that Mr. Belden and Mr.Garmezy, if permitted to testify, would testify that The account of Mr. Fitzsimmons
had a debit balance of P63,000. Both ratified above statement.

EVIDENCE OF ADMINISTRATOR: EXHIBIT 1 AND 1 TESTIMONY

1. EXHIBIT 1: carbon copy of the inventory of the conjugal assets and liabilities, which was signed by
Fitzsimmons, and filed in the CFI of Manila and admitted by the trial court in the divorce proceeding against
MiguelaMalayto; the P63,000 claim of Atlantic is not listed in the liabilities declared by Fitzsimmons

2. Atty. Marcial P. Lichauco - administrator of deceased estate; he explains the circumstances under which said
document was prepared and signed by the deceased Fitzsimmons; as attorney for Mr. Fitzsimmons in the divorce
case he prepared the said inventory from the data furnished him by Mr. Fitzsimmons after he had conferred with and
explained to the latter why it was necessary to prepare said inventory, telling him that under the divorce law the
conjugal properties had to be liquidated and that he made it very clear to Mr. Fitzsimmons that he should not forget
the obligations he had because they would diminish the amount his wife was going to receive, and that any
obligation not included in the inventory would be borne by him alone after his wife had received her share.

ISSUES and RULING:

1. Whether or not the officers of a corporation which is a party to an action against an executor or
administrator of a deceased person are disqualified from testifying as to any matter of fact occurring before
the death of such deceased person, under Rule 123, section 26(c), of the Rules of Court? NO.
2. Whether or not Exhibit 1 (liquidation of conjugal properties) is admissible? YES
3. Whether or not Atlantic's claims of P63,000 and P868.67 have been established by satisfactory evidence?
No to P63,000; Yes to P868.67
4. Whether or not the deceased Richard T. Fitzsimmons was entitled to his salary as president of the Atlantic
from January, 1942, to June 27, 1944, when he died in the Santo Tomas internment camp? NO

RATIO:
1. No, the president and vice president-treasure may testify and their testimony should not have been
disqualified by the trial court.
- Although, in common law, interest disqualified a person from being a witness, that rule has been modified
by statute. In this state interest is no longer a disqualification, and the disqualifications are only such as the
law imposes.
- Inasmuch as section 26(c) of Rule 123 disqualifies only parties or assignors of parties, then officers and/or
stockholders of a corporation are not disqualified from testifying, for or against the corporation which is a
party to an action upon a claim or demand against the estate of a deceased person, as to any matter of fact
occurring before the death of such deceased person.
- City Savings Bank vs. Enos decided by SC of California ruled that such provision applies only to parties or
assignors of parties, and not to a stockholder for interest does not disqualifies.
 - Merriman vs. Wikkersman: It neither disqualifies parties to a contract nor persons in interest, but only
parties to the action. Such rule does not exclude from testifying a stockholder of a corporation, whether he
be but a stockholder, or whether, in addition thereto, he be a director or officer thereof.

2. Yes, Exhibit 1 is a declaration against an interest and thus admissible

- Atlantic contends that Exhibit 1 is a self-serving declaration, while administrator Lichaucocontends that it
is a declaration against interest.
- A self-serving declaration is a statement favorable to the interest of the declarant. It is not admissible in
evidence as proof of the facts asserted. "The vital objection to the admission of this kind of evidence is its
hearsay character. Furthermore such declarations are untrustworthy; to permit their introduction in
evidence would open the door to frauds and perjuries."
- On the other hand, a declaration against the interest of the person making it is admissible in evidence,
notwithstanding its hearsay character, if the declaration is relevant and the declarant has died, become
insane, or for some other reason is not available as a witness."
- The true test in reference to the reliability of the declaration is not whether it was made ante litem motam ,
as is the case with reference to some classes of hearsay evidence, whether the declaration was uttered
under circumstances justifying the conclusion that there was no probable motive to falsify."
- Insofar, at least, as the Fitzsimmons was concerned, there was no probable motive on the part of
Fitzsimmons to falsify his inventory Exhibit 1 by not including therein Atlantic’s present claim of P63,000
among his obligations or liabilities to be deducted from the assets of the conjugal partnership between him
and his divorced wife. It would even be unfavorable to him because such liabilities will be borne by him
alone. Hence, Exhibit 1, insofar as the omission therefrom of the claim in question was concerned, far from
being self-serving to, was a declaration against the interest of, the declarant Fitzsimmons. He having since
died and therefore no longer available as a witness, said document was correctly admitted by the trial court
in evidence.

3. P63,000 not proven; P868.67 sufficiently proven

- There is no reason to doubt the good faith of the witnesses of the claimant and administrator Lichauco.
However, there is a possible explanation of this seemingly irreconcilable conflict, which in the absence of
other proofs is considered satisfactory but which both parties seem to have overlooked.
- In the testimony during direct examination of Santiago Inacay, he explained that at the end of each year,
after the declaration of dividends, bonuses, and director's fees, the account of Fitzsimmons was brought up
to a credit balance. In other words, at the start of the following year the account will be on the credit side.
Unfortunately, no counsel pursued this statement. But enough appears in his testimony to warrant the
deduction that had the war not forced the corporation to close office on December 29, 1941, dividends,
bonuses, and director's fees for the year 1941 would, as of the and of that year, have been declared and
credited to the account of Fitzsimmons, which as in previous years would or might have brought that
account on the credit side.
- Probably the reason why Fitzsimmons did not include or mention any obligation in favor of his own
corporation in his inventory Exhibit 1 was that he believed he was entitled to be credited by said
corporation with dividends, bonuses, and director's fees corresponding to the year 1941, which as in
previous years would bring his account on the credit side.
- Fitzsimmons was justified in considering his account was having to all intends and purposes been brought
on the credit side; because if such dividends, bonuses, and director's fees had been earned, the fact that they
were not actually declared and credited to him, should not prejudice him the subsequent loss of the
company's properties and assets as a result of the war should be borne by the company and not by its
officers.
- Note: Recognizing the fraility and unreliability of human memory especially with regard to figures, after
the lapse of more than five years, there is no sufficient basis upon which to reverse the trial court's finding
that this claim had not been satisfactorily proven.
- However, the claim of P868.67 was sufficiently proven as it was supported by documents (debit notices of
the deposits).
4. No, Fitzsimmons is not entitled to such salaries claimed
5. There was no resolution either of the stockholders of the board of directors of the company authorizing the
payment of the salaries of the president or any other officer or employee of the corporation for the period of
 the war when the corporation was forced completely to suspend its business operations and when its
officers were interned or virtually held prisoners by the enemy.
- There is no principle of law that would authorize the court to compel a corporation, which for a long period
was not in operation and did not receive any income, to pay the salaries of its officers during such period,
even though they were incapacitated and did not perform any service. To do so would be tantamount to
depriving the corporation or its stockholders of their property without due process of law.

DISPOSITIVE: The appellant Atlantic, Gulf and Pacific Company of Manila is ordered to pay to the administrator
the sum of P64,500 upon the retransfer by the latter to the former of the 545 shares of stock purchased by the
decedent in 1939. The administrator is ordered to pay to the said company the sum of P868.67. The claim of the
company against the estate for P63,000 and the counterclaim of the estate against the company for P90,000 are
disapproved.