A.General Provisions (Art.

1767-1783)
1. What is a contract of partnership? (Art. 1767)
- Santos vs. Sps. Reyes, 368 SCRA 261

[G.R. No. 135813. October 25, 2001]

FERNANDO SANTOS, petitioner, vs. Spouses ARSENIO and NIEVES

REYES, respondents.

DECISION
PANGANIBAN, J.:

As a general rule, the factual findings of the Court of Appeals affirming those of the trial court are binding on
the Supreme Court. However, there are several exceptions to this principle. In the present case, we find occasion
to apply both the rule and one of the exceptions.

The Case

Before us is a Petition for Review on Certiorari assailing the November 28, 1997 Decision, [1] as well as the
August 17, 1998 and the October 9, 1998 Resolutions,[2]issued by the Court of Appeals (CA) in CA-GR CV No.
34742. The Assailed Decision disposed as follows:

WHEREFORE, the decision appealed from is AFFIRMED save as for the counterclaim which is
hereby DISMISSED. Costs against [petitioner]. [3]

Resolving respondents Motion for Reconsideration, the August 17, 1998 Resolution ruled as follows:

WHEREFORE, [respondents] motion for reconsideration is GRANTED. Accordingly, the courts

decision dated November 28, 1997 is hereby MODIFIED in that the decision appealed from is
AFFIRMED in toto, with costs against [petitioner]. [4]

The October 9, 1998 Resolution denied for lack of merit petitioners Motion for Reconsideration of the
August 17, 1998 Resolution.[5]
 The Facts

The events that led to this case are summarized by the CA as follows:

Sometime in June, 1986, [Petitioner] Fernando Santos and [Respondent] Nieves Reyes were
introduced to each other by one Meliton Zabat regarding a lending business venture proposed by
Nieves. It was verbally agreed that [petitioner would] act as financier while [Nieves] and Zabat
[would] take charge of solicitation of members and collection of loan payments. The venture was
launched on June 13, 1986, with the understanding that [petitioner] would receive 70% of the profits
while x x x Nieves and Zabat would earn 15% each.

In July, 1986, x x x Nieves introduced Cesar Gragera to [petitioner]. Gragera, as chairman of the
Monte Maria Development Corporation (Monte Maria, for brevity), sought short-term loans for
[6]

members of the corporation. [Petitioner] and Gragera executed an agreement providing funds for
Monte Marias members. Under the agreement, Monte Maria, represented by Gragera, was entitled
to P1.31 commission per thousand paid daily to [petitioner] (Exh. A). x x x Nieves kept the books as
representative of [petitioner] while [Respondent] Arsenio, husband of Nieves, acted as credit
investigator.

On August 6, 1986, [petitioner], x x x [Nieves] and Zabat executed the Article of Agreement which
formalized their earlier verbal arrangement.

[Petitioner] and [Nieves] later discovered that their partner Zabat engaged in the same lending
business in competition with their partnership[.] Zabat was thereby expelled from the
partnership. The operations with Monte Maria continued.

On June 5, 1987, [petitioner] filed a complaint for recovery of sum of money and
damages. [Petitioner] charged [respondents], allegedly in their capacities as employees of
[petitioner], with having misappropriated funds intended for Gragera for the period July 8, 1986 up
to March 31, 1987. Upon Grageras complaint that his commissions were inadequately remitted,
[petitioner] entrusted P200,000.00 to x x x Nieves to be given to Gragera. x x x Nieves allegedly
failed to account for the amount. [Petitioner] asserted that after examination of the records, he found
that of the total amount of P4,623,201.90 entrusted to [respondents], only P3,068,133.20 was
remitted to Gragera, thereby leaving the balance of P1,555,065.70 unaccounted for.

In their answer, [respondents] asserted that they were partners and not mere employees of
[petitioner]. The complaint, they alleged, was filed to preempt and prevent them from claiming their
rightful share to the profits of the partnership.

x x x Arsenio alleged that he was enticed by [petitioner] to take the place of Zabat after [petitioner]
learned of Zabats activities. Arsenio resigned from his job at the Asian Development Bank to join the
partnership.
For her part, x x x Nieves claimed that she participated in the business as a partner, as the lending
activity with Monte Maria originated from her initiative. Except for the limited period of July 8, 1986
through August 20, 1986, she did not handle sums intended for Gragera. Collections were turned
over to Gragera because he guaranteed 100% payment of all sums loaned by Monte Maria. Entries
she made on worksheets were based on this assumptive 100% collection of all loans. The loan
releases were made less Grageras agreed commission. Because of this arrangement, she neither
received payments from borrowers nor remitted any amount to Gragera. Her job was merely to make
worksheets (Exhs. 15 to 15-DDDDDDDDDD) to convey to [petitioner] how much he would earn if
all the sums guaranteed by Gragera were collected.

[Petitioner] on the other hand insisted that [respondents] were his mere employees and not partners
with respect to the agreement with Gragera. He claimed that after he discovered Zabats activities, he
ceased infusing funds, thereby causing the extinguishment of the partnership. The agreement with
Gragera was a distinct partnership [from] that of [respondent] and Zabat. [Petitioner] asserted that
[respondents] were hired as salaried employees with respect to the partnership between [petitioner]
and Gragera.

[Petitioner] further asserted that in Nieves capacity as bookkeeper, she received all payments from
which Nieves deducted Grageras commission. The commission would then be remitted to
Gragera. She likewise determined loan releases.

During the pre-trial, the parties narrowed the issues to the following points: whether [respondents]
were employees or partners of [petitioner], whether [petitioner] entrusted money to [respondents] for
delivery to Gragera, whether the P1,555,068.70 claimed under the complaint was actually remitted to
Gragera and whether [respondents] were entitled to their counterclaim for share in the profits. [7]

Ruling of the Trial Court

In its August 13, 1991 Decision, the trial court held that respondents were partners, not mere employees, of
petitioner. It further ruled that Gragera was only a commission agent of petitioner, not his partner. Petitioner
moreover failed to prove that he had entrusted any money to Nieves. Thus, respondents counterclaim for their
share in the partnership and for damages was granted. The trial court disposed as follows:
39. WHEREFORE, the Court hereby renders judgment as follows:
39.1. THE SECOND AMENDED COMPLAINT dated July 26, 1989 is DISMISSED.
39.2. The [Petitioner] FERNANDO J. SANTOS is ordered to pay the [Respondent] NIEVES S. REYES, the
following:
39.2.1. P3,064,428.00 - The 15 percent share of the [respondent] NIEVES S. REYES in the
profits of her joint venture with the [petitioner].
39.2.2. Six (6) percent of - As damages from P3,064,428.00 August 3, 1987 until
the P3,064,428.00 is fully paid.
 39.2.3. P50,000.00 - As moral damages
39.2.4. P10,000.00 - As exemplary damages
39.3. The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondent] ARSENIO REYES, the
following:
39.3.1. P2,899,739.50 - The balance of the 15 percent share of the [respondent] ARSENIO
REYES in the profits of his joint venture with the
[petitioner].
39.3.2. Six (6) percent of - As damages from P2,899,739.50 August 3, 1987 until
the P2,899,739.50 is fully paid.
39.3.3. P25,000.00 - As moral damages
39.3.4. P10,000.00 - As exemplary damages
39.4. The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondents]:
39.4.1. P50,000.00 - As attorneys fees; and
39.4.2 The cost of the suit.[8]

Ruling of the Court of Appeals

On appeal, the Decision of the trial court was upheld, and the counterclaim of respondents was
dismissed. Upon the latters Motion for Reconsideration, however, the trial courts Decision was reinstated in
toto. Subsequently, petitioners own Motion for Reconsideration was denied in the CA Resolution of October 9,
1998.
The CA ruled that the following circumstances indicated the existence of a partnership among the parties: (1)
it was Nieves who broached to petitioner the idea of starting a money-lending business and introduced him to
Gragera; (2) Arsenio received dividends or profit-shares covering the period July 15 to August 7, 1986 (Exh. 6);
and (3) the partnership contract was executed after the Agreement with Gragera and petitioner and thus showed
the parties intention to consider it as a transaction of the partnership. In their common venture, petitioner invested
capital while respondents contributed industry or services, with the intention of sharing in the profits of the
business.
The CA disbelieved petitioners claim that Nieves had misappropriated a total of P200,000 which was
supposed to be delivered to Gragera to cover unpaid commissions. It was his task to collect the amounts due,
while hers was merely to prepare the daily cash flow reports (Exhs. 15-15DDDDDDDDDD) to keep track of his
collections.
Hence, this Petition.[9]

Issue

Petitioner asks this Court to rule on the following issues:[10]

Whether or not Respondent Court of Appeals acted with grave abuse of discretion tantamount to
excess or lack of jurisdiction in:

1. Holding that private respondents were partners/joint venturers and not employees of Santos in connection with
the agreement between Santos and Monte Maria/Gragera;
2. Affirming the findings of the trial court that the phrase Received by on documents signed by Nieves Reyes
signified receipt of copies of the documents and not of the sums shown thereon;
3. Affirming that the signature of Nieves Reyes on Exhibit E was a forgery;
4. Finding that Exhibit H [did] not establish receipt by Nieves Reyes of P200,000.00 for delivery to Gragera;
5. Affirming the dismissal of Santos [Second] Amended Complaint;
6. Affirming the decision of the trial court, upholding private respondents counterclaim;
7. Denying Santos motion for reconsideration dated September 11, 1998.
Succinctly put, the following were the issues raised by petitioner: (1) whether the parties relationship was one
of partnership or of employer-employee; (2) whether Nieves misappropriated the sums of money allegedly
entrusted to her for delivery to Gragera as his commissions; and (3) whether respondents were entitled to the
partnership profits as determined by the trial court.

The Courts Ruling

The Petition is partly meritorious.

First Issue:

Business Relationship

Petitioner maintains that he employed the services of respondent spouses in the money-lending venture with
Gragera, with Nieves as bookkeeper and Arsenio as credit investigator. That Nieves introduced Gragera to Santos
did not make her a partner. She was only a witness to the Agreement between the two. Separate from the
partnership between petitioner and Gragera was that which existed among petitioner, Nieves and Zabat, a
partnership that was dissolved when Zabat was expelled.
On the other hand, both the CA and the trial court rejected petitioners contentions and ruled that the business
relationship was one of partnership. We quote from the CA Decision, as follows:

[Respondents] were industrial partners of [petitioner]. x x x Nieves herself provided the initiative in
the lending activities with Monte Maria. In consonance with the agreement between appellant,
Nieves and Zabat (later replaced by Arsenio), [respondents] contributed industry to the common fund
with the intention of sharing in the profits of the partnership. [Respondents] provided services
without which the partnership would not have [had] the wherewithal to carry on the purpose for
which it was organized and as such [were] considered industrial partners (Evangelista v. Abad
Santos, 51 SCRA 416 [1973]).

While concededly, the partnership between [petitioner,] Nieves and Zabat was technically dissolved
by the expulsion of Zabat therefrom, the remaining partners simply continued the business of the
partnership without undergoing the procedure relative to dissolution. Instead, they invited Arsenio to
participate as a partner in their operations. There was therefore, no intent to dissolve the earlier
partnership. The partnership between [petitioner,] Nieves and Arsenio simply took over and
continued the business of the former partnership with Zabat, one of the incidents of which was the
lending operations with Monte Maria.

xxxxxxxxx

Gragera and [petitioner] were not partners. The money-lending activities undertaken with Monte Maria was done
in pursuit of the business for which the partnership between [petitioner], Nieves and Zabat (later Arsenio) was
organized. Gragera who represented Monte Maria was merely paid commissions in exchange for the collection of
loans. The commissions were fixed on gross returns, regardless of the expenses incurred in the operation of the
business. The sharing of gross returns does not in itself establish a partnership.[11]

We agree with both courts on this point. By the contract of partnership, two or more persons bind themselves
to contribute money, property or industry to a common fund, with the intention of dividing the profits among
themselves.[12] The Articles of Agreement stipulated that the signatories shall share the profits of the business in a
70-15-15 manner, with petitioner getting the lions share.[13] This stipulation clearly proved the establishment of a
partnership.
We find no cogent reason to disagree with the lower courts that the partnership continued lending money to
the members of the Monte Maria Community Development Group, Inc., which later on changed its business name
to Private Association for Community Development, Inc. (PACDI). Nieves was not merely petitioners
employee. She discharged her bookkeeping duties in accordance with paragraphs 2 and 3 of the Agreement,
which states as follows:

2. That the SECOND PARTY and THIRD PARTY shall handle the solicitation and screening of
prospective borrowers, and shall x x x each be responsible in handling the collection of the loan
payments of the borrowers that they each solicited.

3. That the bookkeeping and daily balancing of account of the business operation shall be handled by
the SECOND PARTY. [14]

The Second Party named in the Agreement was none other than Nieves Reyes. On the other hand, Arsenios
duties as credit investigator are subsumed under the phrase screening of prospective borrowers. Because of this
Agreement and the disbursement of monthly allowances and profit shares or dividends (Exh. 6) to Arsenio, we
uphold the factual finding of both courts that he replaced Zabat in the partnership.
Indeed, the partnership was established to engage in a money-lending business, despite the fact that it was
formalized only after the Memorandum of Agreement had been signed by petitioner and Gragera. Contrary to
petitioners contention, there is no evidence to show that a different business venture is referred to in this
Agreement, which was executed on August 6, 1986, or about a month after the Memorandum had been signed by
petitioner and Gragera on July 14, 1986. The Agreement itself attests to this fact:

WHEREAS, the parties have decided to formalize the terms of their business relationship in order
that their respective interests may be properly defined and established for their mutual benefit and
understanding. [15]

Second Issue:

No Proof of Misappropriation of Grageras Unpaid Commission

Petitioner faults the CA finding that Nieves did not misappropriate money intended for Grageras
commission. According to him, Gragera remitted his daily collection to Nieves. This is shown by Exhibit B (the
Schedule of Daily Payments), which bears her signature under the words received by. For the period July 1986 to
March 1987, Gragera should have earned a total commission of P4,282,429.30. However, only P3,068,133.20
was received by him. Thus, petitioner infers that she misappropriated the difference of P1,214,296.10, which
represented the unpaid commissions. Exhibit H is an untitled tabulation which, according to him, shows that
Gragera was also entitled to a commission of P200,000, an amount that was never delivered by Nieves.[16]
On this point, the CA ruled that Exhibits B, F, E and H did not show that Nieves received for delivery to
Gragera any amount from which the P1,214,296.10 unpaid commission was supposed to come, and that such
exhibits were insufficient proof that she had embezzled P200,000. Said the CA:

The presentation of Exhibit D vaguely denominated as members ledger does not clearly establish that
Nieves received amounts from Monte Marias members. The document does not clearly state what
amounts the entries thereon represent. More importantly, Nieves made the entries for the limited
period of January 11, 1987 to February 17, 1987 only while the rest were made by Grageras own
staff.

Neither can we give probative value to Exhibit E which allegedly shows acknowledgment of the
remittance of commissions to Verona Gonzales. The document is a private one and its due execution
and authenticity have not been duly proved as required in [S]ection 20, Rule 132 of the Rules of
Court which states:

Sec. 20. Proof of Private Document Before any private document offered as authentic is received in
evidence, its due execution and authenticity must be proved either:

(a) By anyone who saw the document executed or written; or

(b) By evidence of the genuineness of the signature or handwriting of the maker.

Any other private document need only be identified as that which it is claimed to be.
The court a quo even ruled that the signature thereon was a forgery, as it found that:

x x x. But NIEVES denied that Exh. E-1 is her signature; she claimed that it is a forgery. The initial
stroke of Exh. E-1 starts from up and goes downward. The initial stroke of the genuine signatures of
NIEVES (Exhs. A-3, B-1, F-1, among others) starts from below and goes upward. This difference in
the start of the initial stroke of the signatures Exhs. E-1 and of the genuine signatures lends credence
to Nieves claim that the signature Exh. E-1 is a forgery.

xxxxxxxxx

Nieves testimony that the schedules of daily payment (Exhs. B and F) were based on the
predetermined 100% collection as guaranteed by Gragera is credible and clearly in accord with the
evidence. A perusal of Exhs. B and F as well as Exhs. 15 to 15-DDDDDDDDDD reveal that the
entries were indeed based on the 100% assumptive collection guaranteed by Gragera. Thus, the total
amount recorded on Exh. B is exactly the number of borrowers multiplied by the projected collection
of P150.00 per borrower. This holds true for Exh. F.

Corollarily, Nieves explanation that the documents were pro forma and that she signed them not to
signify that she collected the amounts but that she received the documents themselves is more
believable than [petitioners] assertion that she actually handled the amounts.

Contrary to [petitioners] assertion, Exhibit H does not unequivocally establish that x x x Nieves
received P200,000.00 as commission for Gragera. As correctly stated by the court a quo, the
document showed a liquidation of P240,000.00 and not P200,000.00.

Accordingly, we find Nieves testimony that after August 20, 1986, all collections were made by
Gragera believable and worthy of credence. Since Gragera guaranteed a daily 100% payment of the
loans, he took charge of the collections. As [petitioners] representative, Nieves merely prepared the
daily cash flow reports (Exh. 15 to 15 DDDDDDDDDD) to enable [petitioner] to keep track of
Grageras operations. Gragera on the other hand devised the schedule of daily payment (Exhs. B and
F) to record the projected gross daily collections.

As aptly observed by the court a quo:

26.1. As between the versions of SANTOS and NIEVES on how the commissions of GRAGERA
[were] paid to him[,] that of NIEVES is more logical and practical and therefore, more
believable. SANTOS version would have given rise to this improbable situation: GRAGERA would
collect the daily amortizations and then give them to NIEVES; NIEVES would get GRAGERAs
commissions from the amortizations and then give such commission to GRAGERA. [17]

These findings are in harmony with the trial courts ruling, which we quote below:
21. Exh. H does not prove that SANTOS gave to NIEVES and the latter received P200,000.00 for
delivery to GRAGERA. Exh. H shows under its sixth column ADDITIONAL CASH that the
additional cash was P240,000.00. If Exh. H were the liquidation of the P200,000.00 as alleged by
SANTOS, then his claim is not true. This is so because it is a liquidation of the sum of P240,000.00.

21.1. SANTOS claimed that he learned of NIEVES failure to give the P200,000.00 to GRAGERA
when he received the latters letter complaining of its delayed release.Assuming as true SANTOS
claim that he gave P200,000.00 to GRAGERA, there is no competent evidence that NIEVES did not
give it to GRAGERA. The only proof that NIEVES did not give it is the letter. But SANTOS did not
even present the letter in evidence. He did not explain why he did not.

21.2. The evidence shows that all money transactions of the money-lending business of SANTOS
were covered by petty cash vouchers. It is therefore strange why SANTOS did not present any
voucher or receipt covering the P200,000.00. [18]

In sum, the lower courts found it unbelievable that Nieves had embezzled P1,555,068.70 from the
partnership. She did not remit P1,214,296.10 to Gragera, because he had deducted his commissions before
remitting his collections. Exhibits B and F are merely computations of what Gragera should collect for the day;
they do not show that Nieves received the amounts stated therein. Neither is there sufficient proof that she
misappropriated P200,000, because Exhibit H does not indicate that such amount was received by her; in fact, it
shows a different figure.
Petitioner has utterly failed to demonstrate why a review of these factual findings is warranted. Well-
entrenched is the basic rule that factual findings of the Court of Appeals affirming those of the trial court are
binding and conclusive on the Supreme Court.[19] Although there are exceptions to this rule, petitioner has not
satisfactorily shown that any of them is applicable to this issue.

Third Issue:

Accounting of Partnership

Petitioner refuses any liability for respondents claims on the profits of the partnership. He maintains that both
business propositions were flops, as his investments were consumed and eaten up by the commissions
orchestrated to be due Gragera a situation that could not have been rendered possible without complicity between
Nieves and Gragera.
Respondent spouses, on the other hand, postulate that petitioner instituted the action below to avoid payment
of the demands of Nieves, because sometime in March 1987, she signified to petitioner that it was about time to
get her share of the profits which had already accumulated to some P3 million. Respondents add that while the
partnership has not declared dividends or liquidated its earnings, the profits are already reflected on paper. To
prove the counterclaim of Nieves, the spouses show that from June 13, 1986 up to April 19, 1987, the profit
totaled P20,429,520 (Exhs. 10 et seq. and 15 et seq.). Based on that income, her 15 percent share under the joint
venture amounts to P3,064,428 (Exh. 10-I-3); and Arsenios, P2,026,000 minus the P30,000 which was already
advanced to him (Petty Cash Vouchers, Exhs. 6, 6-A to 6-B).
 The CA originally held that respondents counterclaim was premature, pending an accounting of the
partnership. However, in its assailed Resolution of August 17, 1998, it turned volte face. Affirming the trial courts
ruling on the counterclaim, it held as follows:

We earlier ruled that there is still need for an accounting of the profits and losses of the partnership
before we can rule with certainty as to the respective shares of the partners. Upon a further review of
the records of this case, however, there appears to be sufficient basis to determine the amount of
shares of the parties and damages incurred by [respondents]. The fact is that the court a quo already
made such a determination [in its] decision dated August 13, 1991 on the basis of the facts on
record. [20]

The trial courts ruling alluded to above is quoted below:

27. The defendants counterclaim for the payment of their share in the profits of their joint venture
with SANTOS is supported by the evidence.

27.1. NIEVES testified that: Her claim to a share in the profits is based on the agreement (Exhs. 5, 5-
A and 5-B). The profits are shown in the working papers (Exhs. 10 to 10-I, inclusive) which she
prepared. Exhs. 10 to 10-I (inclusive) were based on the daily cash flow reports of which Exh. 3 is a
sample. The originals of the daily cash flow reports (Exhs. 3 and 15 to 15-D (10) were given to
SANTOS. The joint venture had a net profit of P20,429,520.00 (Exh. 10-I-1), from its operations
from June 13, 1986 to April 19, 1987 (Exh. 1-I-4). She had a share of P3,064,428.00 (Exh. 10-I-3)
and ARSENIO, about P2,926,000.00, in the profits.

27.1.1 SANTOS never denied NIEVES testimony that the money-lending business he was engaged
in netted a profit and that the originals of the daily case flow reports were furnished to him. SANTOS
however alleged that the money-lending operation of his joint venture with NIEVES and ZABAT
resulted in a loss of about half a million pesos to him. But such loss, even if true, does not negate
NIEVES claim that overall, the joint venture among them SANTOS, NIEVES and ARSENIO netted
a profit.There is no reason for the Court to doubt the veracity of [the testimony of] NIEVES.

27.2 The P26,260.50 which ARSENIO received as part of his share in the profits (Exhs. 6, 6-A and
6-B) should be deducted from his total share. [21]

After a close examination of respondents exhibits, we find reason to disagree with the CA. Exhibit 10-
I[22] shows that the partnership earned a total income ofP20,429,520 for the period June 13, 1986 until April 19,
1987. This entry is derived from the sum of the amounts under the following column headings: 2-Day Advance
Collection, Service Fee, Notarial Fee, Application Fee, Net Interest Income and Interest Income on Investment.
Such entries represent the collections of the money-lending business or its gross income.
The total income shown on Exhibit 10-I did not consider the expenses sustained by the partnership. For
instance, it did not factor in the gross loan releases representing the money loaned to clients. Since the business is
money-lending, such releases are comparable with the inventory or supplies in other business enterprises.
 Noticeably missing from the computation of the total income is the deduction of the weekly allowance
disbursed to respondents. Exhibits I et seq. and J et seq.[23] show that Arsenio received allowances from July 19,
1986 to March 27, 1987 in the aggregate amount of P25,500; and Nieves, from July 12, 1986 to March 27, 1987
in the total amount of P25,600. These allowances are different from the profit already received by Arsenio. They
represent expenses that should have been deducted from the business profits. The point is that all expenses
incurred by the money-lending enterprise of the parties must first be deducted from the total income in order to
arrive at the net profit of the partnership. The share of each one of them should be based on this net profit and not
from the gross income or total income reflected in Exhibit 10-I, which the two courts invariably referred to as
cash flow sheets.
Similarly, Exhibits 15 et seq.,[24] which are the Daily Cashflow Reports, do not reflect the business expenses
incurred by the parties, because they show only the daily cash collections. Contrary to the rulings of both the trial
and the appellate courts, respondents exhibits do not reflect the complete financial condition of the money-lending
business. The lower courts obviously labored over a mistaken notion that Exhibit 10-I-1 represented the net
profits earned by the partnership.
For the purpose of determining the profit that should go to an industrial partner (who shares in the profits but
is not liable for the losses), the gross income from all the transactions carried on by the firm must be added
together, and from this sum must be subtracted the expenses or the losses sustained in the business. Only in the
difference representing the net profits does the industrial partner share. But if, on the contrary, the losses exceed
the income, the industrial partner does not share in the losses.[25]
When the judgment of the CA is premised on a misapprehension of facts or a failure to notice certain relevant
facts that would otherwise justify a different conclusion, as in this particular issue, a review of its factual findings
may be conducted, as an exception to the general rule applied to the first two issues.[26]
The trial court has the advantage of observing the witnesses while they are testifying, an opportunity not
available to appellate courts. Thus, its assessment of the credibility of witnesses and their testimonies are
accorded great weight, even finality, when supported by substantial evidence; more so when such assessment is
affirmed by the CA. But when the issue involves the evaluation of exhibits or documents that are attached to the
case records, as in the third issue, the rule may be relaxed. Under that situation, this Court has a similar
opportunity to inspect, examine and evaluate those records, independently of the lower courts. Hence, we deem
the award of the partnership share, as computed by the trial court and adopted by the CA, to be incomplete and
not binding on this Court.
WHEREFORE, the Petition is partly GRANTED. The assailed November 28, 1997 Decision
is AFFIRMED, but the challenged Resolutions dated August 17, 1998 and October 9, 1998
are REVERSED and SET ASIDE. No costs.
SO ORDERED.

2. Determining factors in the existence of partnership

(Art. 1769)
 -Heirs of Tan Eng Kee vs. CA, 341 SCRA 740 (citing
Evangelista vs. Collector of Internal Revenue, 54 O.G.
996)

[G.R. No. 126881. October 3, 2000]

HEIRS OF TAN ENG KEE, petitioners, vs. COURT OF APPEALS and BENGUET
LUMBER COMPANY, represented by its President TAN ENG
LAY, respondents.

DECISION
DE LEON, JR., J.:

In this petition for review on certiorari, petitioners pray for the reversal of the Decision[1] dated
March 13, 1996 of the former Fifth Division[2] of the Court of Appeals in CA-G.R. CV No. 47937, the
dispositive portion of which states:

THE FOREGOING CONSIDERED, the appealed decision is hereby set aside, and the complaint
dismissed.

The facts are:

Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the common-law
spouse of the decedent, joined by their children Teresita, Nena, Clarita, Carlos, Corazon and Elpidio,
collectively known as herein petitioners HEIRS OF TAN ENG KEE, filed suit against the decedents
brother TAN ENG LAY on February 19, 1990. The complaint,[3] docketed as Civil Case No. 1983-R in
the Regional Trial Court of Baguio City was for accounting, liquidation and winding up of the alleged
partnership formed after World War II between Tan Eng Kee and Tan Eng Lay. On March 18, 1991, the
petitioners filed an amended complaint[4] impleading private respondent herein BENGUET LUMBER
COMPANY, as represented by Tan Eng Lay. The amended complaint was admitted by the trial court in
its Order dated May 3, 1991.[5]
The amended complaint principally alleged that after the second World War, Tan Eng Kee and Tan
Eng Lay, pooling their resources and industry together, entered into a partnership engaged in the
business of selling lumber and hardware and construction supplies. They named their enterprise
Benguet Lumber which they jointly managed until Tan Eng Kees death. Petitioners herein averred that
the business prospered due to the hard work and thrift of the alleged partners. However, they claimed
that in 1981, Tan Eng Lay and his children caused the conversion of the partnership Benguet Lumber
into a corporation called Benguet Lumber Company. The incorporation was purportedly a ruse to
deprive Tan Eng Kee and his heirs of their rightful participation in the profits of the business. Petitioners
prayed for accounting of the partnership assets, and the dissolution, winding up and liquidation thereof,
and the equal division of the net assets of Benguet Lumber.
After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment [6]on April 12, 1995, to
wit:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered:

a) Declaring that Benguet Lumber is a joint adventure which is akin to a particular partnership;

b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint adventurers and/or partners in
a business venture and/or particular partnership called Benguet Lumber and as such should share in
the profits and/or losses of the business venture or particular partnership;

c) Declaring that the assets of Benguet Lumber are the same assets turned over to Benguet Lumber
Co. Inc. and as such the heirs or legal representatives of the deceased Tan Eng Kee have a legal right
to share in said assets;

d) Declaring that all the rights and obligations of Tan Eng Kee as joint adventurer and/or as partner
in a particular partnership have descended to the plaintiffs who are his legal heirs.

e) Ordering the defendant Tan Eng Lay and/or the President and/or General Manager of Benguet
Lumber Company Inc. to render an accounting of all the assets of Benguet Lumber Company, Inc. so
the plaintiffs know their proper share in the business;

f) Ordering the appointment of a receiver to preserve and/or administer the assets of Benguet Lumber
Company, Inc. until such time that said corporation is finally liquidated are directed to submit the
name of any person they want to be appointed as receiver failing in which this Court will appoint the
Branch Clerk of Court or another one who is qualified to act as such.

g) Denying the award of damages to the plaintiffs for lack of proof except the expenses in filing the
instant case.

h) Dismissing the counter-claim of the defendant for lack of merit.

SO ORDERED.

Private respondent sought relief before the Court of Appeals which, on March 13, 1996, rendered
the assailed decision reversing the judgment of the trial court. Petitioners motion for
reconsideration[7] was denied by the Court of Appeals in a Resolution[8] dated October 11, 1996.
Hence, the present petition.
As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 against Tan Eng Lay
and Wilborn Tan for the use of allegedly falsified documents in a judicial proceeding. Petitioners
complained that Exhibits 4 to 4-U offered by the defendants before the trial court, consisting of payrolls
indicating that Tan Eng Kee was a mere employee of Benguet Lumber, were fake, based on the
discrepancy in the signatures of Tan Eng Kee. They also filed Criminal Cases Nos. 78857-78870
against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary and Willy, all surnamed Tan, for alleged
falsification of commercial documents by a private individual. On March 20, 1999, the Municipal Trial
Court of Baguio City, Branch 1, wherein the charges were filed, rendered judgment[9] dismissing the
cases for insufficiency of evidence.
In their assignment of errors, petitioners claim that:
I

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO

PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG
LAY BECAUSE: (A) THERE WAS NO FIRM ACCOUNT; (B) THERE WAS NO FIRM
LETTERHEADS SUBMITTED AS EVIDENCE; (C) THERE WAS NO CERTIFICATE OF
PARTNERSHIP; (D) THERE WAS NO AGREEMENT AS TO PROFITS AND LOSSES;
AND (E) THERE WAS NO TIME FIXED FOR THE DURATION OF THE PARTNERSHIP
(PAGE 13, DECISION).
II

THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THE SELF-

SERVING TESTIMONY OF RESPONDENT TAN ENG LAY THAT BENGUET LUMBER
WAS A SOLE PROPRIETORSHIP AND THAT TAN ENG KEE WAS ONLY AN
EMPLOYEE THEREOF.
III

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE FOLLOWING

FACTS WHICH WERE DULY SUPPORTED BY EVIDENCE OF BOTH PARTIES DO NOT
SUPPORT THE EXISTENCE OF A PARTNERSHIP JUST BECAUSE THERE WAS NO
ARTICLES OF PARTNERSHIP DULY RECORDED BEFORE THE SECURITIES AND
EXCHANGE COMMISSION:

a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE ALL LIVING AT THE
BENGUET LUMBER COMPOUND;
b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE COMMANDING THE EMPLOYEES OF
BENGUET LUMBER;
c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING THE EMPLOYEES
THEREIN;
d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES DETERMINING THE PRICES OF
STOCKS TO BE SOLD TO THE PUBLIC; AND
e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING ORDERS TO THE
SUPPLIERS (PAGE 18, DECISION).
 IV

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO

PARTNERSHIP JUST BECAUSE THE CHILDREN OF THE LATE TAN ENG KEE:
ELPIDIO TAN AND VERONICA CHOI, TOGETHER WITH THEIR WITNESS BEATRIZ
TANDOC, ADMITTED THAT THEY DO NOT KNOW WHEN THE ESTABLISHMENT
KNOWN IN BAUGIO CITY AS BENGUET LUMBER WAS STARTED AS A
PARTNERSHIP (PAGE 16-17, DECISION).
V

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO

PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG
LAY BECAUSE THE PRESENT CAPITAL OR ASSETS OF BENGUET LUMBER IS
DEFINITELY MORE THAN P3,000.00 AND AS SUCH THE EXECUTION OF A PUBLIC
INSTRUMENT CREATING A PARTNERSHIP SHOULD HAVE BEEN MADE AND NO
SUCH PUBLIC INSTRUMENT ESTABLISHED BY THE APPELLEES (PAGE 17,
DECISION).

As a premise, we reiterate the oft-repeated rule that findings of facts of the Court of Appeals will not
be disturbed on appeal if such are supported by the evidence. [10] Our jurisdiction, it must be
emphasized, does not include review of factual issues. Thus:

Filing of petition with Supreme Court.-A party desiring to appeal by certiorari from a judgment or
final order or resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial Court or
other courts whenever authorized by law, may file with the Supreme Court a verified petition for
review on certiorari. The petition shall raise only questions of law which must be distinctly set
forth.[11] [italics supplied]

Admitted exceptions have been recognized, though, and when present, may compel us to analyze
the evidentiary basis on which the lower court rendered judgment. Review of factual issues is therefore
warranted:

(1) when the factual findings of the Court of Appeals and the trial court are contradictory;

(2) when the findings are grounded entirely on speculation, surmises, or conjectures;

(3) when the inference made by the Court of Appeals from its findings of fact is manifestly mistaken,
absurd, or impossible;

(4) when there is grave abuse of discretion in the appreciation of facts;

(5) when the appellate court, in making its findings, goes beyond the issues of the case, and such
findings are contrary to the admissions of both appellant and appellee;
(6) when the judgment of the Court of Appeals is premised on a misapprehension of facts;

(7) when the Court of Appeals fails to notice certain relevant facts which, if properly considered, will
justify a different conclusion;

(8) when the findings of fact are themselves conflicting;

(9) when the findings of fact are conclusions without citation of the specific evidence on which they
are based; and

(10) when the findings of fact of the Court of Appeals are premised on the absence of evidence but
such findings are contradicted by the evidence on record.[12]

In reversing the trial court, the Court of Appeals ruled, to wit:

We note that the Court a quo over extended the issue because while the plaintiffs mentioned only the
existence of a partnership, the Court in turn went beyond that by justifying the existence of a joint
adventure.

When mention is made of a joint adventure, it would presuppose parity of standing between the
parties, equal proprietary interest and the exercise by the parties equally of the conduct of the
business, thus:

xxx xxx xxx xxx

We have the admission that the father of the plaintiffs was not a partner of the Benguet Lumber
before the war. The appellees however argued that (Rollo, p. 104; Brief, p. 6) this is because during
the war, the entire stocks of the pre-war Benguet Lumber were confiscated if not burned by the
Japanese. After the war, because of the absence of capital to start a lumber and hardware business,
Lay and Kee pooled the proceeds of their individual businesses earned from buying and selling
military supplies, so that the common fund would be enough to form a partnership, both in the
lumber and hardware business. That Lay and Kee actually established the Benguet Lumber in Baguio
City, was even testified to by witnesses. Because of the pooling of resources, the post-war Benguet
Lumber was eventually established. That the father of the plaintiffs and Lay were partners, is obvious
from the fact that: (1) they conducted the affairs of the business during Kees lifetime, jointly, (2) they
were the ones giving orders to the employees, (3) they were the ones preparing orders from the
suppliers, (4) their families stayed together at the Benguet Lumber compound, and (5) all their
children were employed in the business in different capacities.

xxx xxx xxx xxx

It is obvious that there was no partnership whatsoever. Except for a firm name, there was no firm
account, no firm letterheads submitted as evidence, no certificate of partnership, no agreement as to
profits and losses, and no time fixed for the duration of the partnership. There was even no attempt to
submit an accounting corresponding to the period after the war until Kees death in 1984. It had no
business book, no written account nor any memorandum for that matter and no license mentioning
the existence of a partnership [citation omitted].

Also, the exhibits support the establishment of only a proprietorship. The certification dated March 4,
1971, Exhibit 2, mentioned co-defendant Lay as the only registered owner of the Benguet Lumber
and Hardware. His application for registration, effective 1954, in fact mentioned that his business
started in 1945 until 1985 (thereafter, the incorporation). The deceased, Kee, on the other hand, was
merely an employee of the Benguet Lumber Company, on the basis of his SSS coverage effective
1958, Exhibit 3. In the Payrolls, Exhibits 4 to 4-U, inclusive, for the years 1982 to 1983, Kee was
similarly listed only as an employee; precisely, he was on the payroll listing. In the Termination
Notice, Exhibit 5, Lay was mentioned also as the proprietor.

xxx xxx xxx xxx

We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may be constituted in any
form, but when an immovable is constituted, the execution of a public instrument becomes
necessary. This is equally true if the capitalization exceeds P3,000.00, in which case a public
instrument is also necessary, and which is to be recorded with the Securities and Exchange
Commission. In this case at bar, we can easily assume that the business establishment, which from
the language of the appellees, prospered (pars. 5 & 9, Complaint), definitely exceeded P3,000.00, in
addition to the accumulation of real properties and to the fact that it is now a compound. The
execution of a public instrument, on the other hand, was never established by the appellees.

And then in 1981, the business was incorporated and the incorporators were only Lay and the
members of his family. There is no proof either that the capital assets of the partnership, assuming
them to be in existence, were maliciously assigned or transferred by Lay, supposedly to the
corporation and since then have been treated as a part of the latters capital assets, contrary to the
allegations in pars. 6, 7 and 8 of the complaint.

These are not evidences supporting the existence of a partnership:

1) That Kee was living in a bunk house just across the lumber store, and then in a room in the bunk
house in Trinidad, but within the compound of the lumber establishment, as testified to by Tandoc; 2)
that both Lay and Kee were seated on a table and were commanding people as testified to by the son,
Elpidio Tan; 3) that both were supervising the laborers, as testified to by Victoria Choi; and 4) that
Dionisio Peralta was supposedly being told by Kee that the proceeds of the 80 pieces of the G.I.
sheets were added to the business.

Partnership presupposes the following elements [citation omitted]: 1) a contract, either oral or
written. However, if it involves real property or where the capital is P3,000.00 or more, the execution
of a contract is necessary; 2) the capacity of the parties to execute the contract; 3) money property or
industry contribution; 4) community of funds and interest, mentioning equality of the partners or one
having a proportionate share in the benefits; and 5) intention to divide the profits, being the true test
of the partnership. The intention to join in the business venture for the purpose of obtaining profits
thereafter to be divided, must be established. We cannot see these elements from the testimonial
evidence of the appellees.

As can be seen, the appellate court disputed and differed from the trial court which had adjudged
that TAN ENG KEE and TAN ENG LAY had allegedly entered into a joint adventure. In this connection,
we have held that whether a partnership exists is a factual matter; consequently, since the appeal is
brought to us under Rule 45, we cannot entertain inquiries relative to the correctness of the
assessment of the evidence by the court a quo.[13] Inasmuch as the Court of Appeals and the trial court
had reached conflicting conclusions, perforce we must examine the record to determine if the reversal
was justified.
The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in Benguet
Lumber. A contract of partnership is defined by law as one where:

xxx two or more persons bind themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among themselves.

Two or more persons may also form a partnership for the exercise of a profession.[14]

Thus, in order to constitute a partnership, it must be established that (1) two or more persons bound
themselves to contribute money, property, or industry to a common fund, and (2) they intend to divide
the profits among themselves.[15] The agreement need not be formally reduced into writing, since
statute allows the oral constitution of a partnership, save in two instances: (1) when immovable
property or real rights are contributed,[16] and (2) when the partnership has a capital of three thousand
pesos or more.[17] In both cases, a public instrument is required.[18] An inventory to be signed by the
parties and attached to the public instrument is also indispensable to the validity of the partnership
whenever immovable property is contributed to the partnership. [19]
The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint adventure,
which it said is akin to a particular partnership.[20] A particular partnership is distinguished from a joint
adventure, to wit:
(a) A joint adventure (an American concept similar to our joint accounts) is a sort of informal
partnership, with no firm name and no legal personality. In a joint account, the participating
merchants can transact business under their own name, and can be individually liable therefor.
(b) Usually, but not necessarily a joint adventure is limited to a SINGLE TRANSACTION, although the
business of pursuing to a successful termination may continue for a number of years; a partnership
generally relates to a continuing business of various transactions of a certain kind.[21]
A joint adventure presupposes generally a parity of standing between the joint co-ventures or
partners, in which each party has an equal proprietary interest in the capital or property contributed,
and where each party exercises equal rights in the conduct of the business. [22] Nonetheless, in Aurbach,
et. al. v. Sanitary Wares Manufacturing Corporation, et. al., [23] we expressed the view that a joint
adventure may be likened to a particular partnership, thus:

The legal concept of a joint adventure is of common law origin. It has no precise legal definition, but
it has been generally understood to mean an organization formed for some temporary purpose. (Gates
v. Megargel, 266 Fed. 811 [1920]) It is hardly distinguishable from the partnership, since their
elements are similar-community of interest in the business, sharing of profits and losses, and a
mutual right of control. (Blackner v. McDermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95
P.2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 P.2d. 242 [1955]). The
main distinction cited by most opinions in common law jurisdiction is that the partnership
contemplates a general business with some degree of continuity, while the joint adventure is formed
for the execution of a single transaction, and is thus of a temporary nature. (Tufts v. Mann. 116 Cal.
App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74 [1947]; Gates v.
Megargel 266 Fed. 811 [1920]). This observation is not entirely accurate in this jurisdiction, since
under the Civil Code, a partnership may be particular or universal, and a particular partnership may
have for its object a specific undertaking. (Art. 1783, Civil Code). It would seem therefore that under
Philippine law, a joint adventure is a form of partnership and should thus be governed by the law of
partnerships. The Supreme Court has however recognized a distinction between these two business
forms, and has held that although a corporation cannot enter into a partnership contract, it may
however engage in a joint adventure with others. (At p. 12, Tuazon v. Bolaos, 95 Phil. 906 [1954])
(Campos and Lopez-Campos Comments, Notes and Selected Cases, Corporation Code 1981).

Undoubtedly, the best evidence would have been the contract of partnership itself, or the articles of
partnership but there is none. The alleged partnership, though, was never formally organized. In
addition, petitioners point out that the New Civil Code was not yet in effect when the partnership was
allegedly formed sometime in 1945, although the contrary may well be argued that nothing prevented
the parties from complying with the provisions of the New Civil Code when it took effect on August 30,
1950. But all that is in the past. The net effect, however, is that we are asked to determine whether a
partnership existed based purely on circumstantial evidence. A review of the record persuades us that
the Court of Appeals correctly reversed the decision of the trial court. The evidence presented by
petitioners falls short of the quantum of proof required to establish a partnership.
Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng Lay,
could have expounded on the precise nature of the business relationship between them. In the
absence of evidence, we cannot accept as an established fact that Tan Eng Kee allegedly contributed
his resources to a common fund for the purpose of establishing a partnership. The testimonies to that
effect of petitioners witnesses is directly controverted by Tan Eng Lay. It should be noted that it is not
with the number of witnesses wherein preponderance lies; [24] the quality of their testimonies is to be
considered. None of petitioners witnesses could suitably account for the beginnings of Benguet Lumber
Company, except perhaps for Dionisio Peralta whose deceased wife was related to Matilde
Abubo.[25] He stated that when he met Tan Eng Kee after the liberation, the latter asked the former to
accompany him to get 80 pieces of G.I. sheets supposedly owned by both brothers. [26] Tan Eng Lay,
however, denied knowledge of this meeting or of the conversation between Peralta and his
brother.[27] Tan Eng Lay consistently testified that he had his business and his brother had his, that it
was only later on that his said brother, Tan Eng Kee, came to work for him. Be that as it may, co-
ownership or co-possession (specifically here, of the G.I. sheets) is not an indicium of the existence of
a partnership.[28]
Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership was allegedly
in existence, Tan Eng Kee never asked for an accounting. The essence of a partnership is that the
partners share in the profits and losses.[29] Each has the right to demand an accounting as long as the
partnership exists.[30] We have allowed a scenario wherein [i]f excellent relations exist among the
partners at the start of the business and all the partners are more interested in seeing the firm grow
rather than get immediate returns, a deferment of sharing in the profits is perfectly plausible.[31] But in
the situation in the case at bar, the deferment, if any, had gone on too long to be plausible. A person is
presumed to take ordinary care of his concerns.[32] As we explained in another case:

In the first place, plaintiff did not furnish the supposed P20,000.00 capital. In the second place, she
did not furnish any help or intervention in the management of the theatre. In the third place, it does
not appear that she has even demanded from defendant any accounting of the expenses and earnings
of the business. Were she really a partner, her first concern should have been to find out how the
business was progressing, whether the expenses were legitimate, whether the earnings were correct,
etc. She was absolutely silent with respect to any of the acts that a partner should have done; all that
she did was to receive her share of P3,000.00 a month, which cannot be interpreted in any manner
than a payment for the use of the premises which she had leased from the owners. Clearly, plaintiff
had always acted in accordance with the original letter of defendant of June 17, 1945 (Exh. A), which
shows that both parties considered this offer as the real contract between them. [33] [italics supplied]

A demand for periodic accounting is evidence of a partnership.[34] During his lifetime, Tan Eng Kee
appeared never to have made any such demand for accounting from his brother, Tang Eng Lay.
This brings us to the matter of Exhibits 4 to 4-U for private respondents, consisting of payrolls
purporting to show that Tan Eng Kee was an ordinary employee of Benguet Lumber, as it was then
called. The authenticity of these documents was questioned by petitioners, to the extent that they filed
criminal charges against Tan Eng Lay and his wife and children. As aforesaid, the criminal cases were
dismissed for insufficiency of evidence. Exhibits 4 to 4-U in fact shows that Tan Eng Kee received sums
as wages of an employee. In connection therewith, Article 1769 of the Civil Code provides:

In determining whether a partnership exists, these rules shall apply:

(1) Except as provided by Article 1825, persons who are not partners as to each other are not partners
as to third persons;

(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners
or co-possessors do or do not share any profits made by the use of the property;

(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons
sharing them have a joint or common right or interest in any property which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a
partner in the business, but no such inference shall be drawn if such profits were received in
payment:

(a) As a debt by installment or otherwise;

(b) As wages of an employee or rent to a landlord;

(b) As an annuity to a widow or representative of a deceased partner;

(d) As interest on a loan, though the amount of payment vary with the profits of the business;

(e) As the consideration for the sale of a goodwill of a business or other property by
installments or otherwise.

In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was only an employee,
not a partner. Even if the payrolls as evidence were discarded, petitioners would still be back to square
one, so to speak, since they did not present and offer evidence that would show that Tan Eng Kee
received amounts of money allegedly representing his share in the profits of the enterprise. Petitioners
failed to show how much their father, Tan Eng Kee, received, if any, as his share in the profits of
Benguet Lumber Company for any particular period. Hence, they failed to prove that Tan Eng Kee and
Tan Eng Lay intended to divide the profits of the business between themselves, which is one of the
essential features of a partnership.
Nevertheless, petitioners would still want us to infer or believe the alleged existence of a
partnership from this set of circumstances: that Tan Eng Lay and Tan Eng Kee were commanding the
employees; that both were supervising the employees; that both were the ones who determined the
price at which the stocks were to be sold; and that both placed orders to the suppliers of the Benguet
Lumber Company. They also point out that the families of the brothers Tan Eng Kee and Tan Eng Lay
lived at the Benguet Lumber Company compound, a privilege not extended to its ordinary employees.
However, private respondent counters that:

Petitioners seem to have missed the point in asserting that the above enumerated powers and
privileges granted in favor of Tan Eng Kee, were indicative of his being a partner in Benguet Lumber
for the following reasons:

(i) even a mere supervisor in a company, factory or store gives orders and directions to his
subordinates. So long, therefore, that an employees position is higher in rank, it is not unusual that he
orders around those lower in rank.

(ii) even a messenger or other trusted employee, over whom confidence is reposed by the owner, can
order materials from suppliers for and in behalf of Benguet Lumber.Furthermore, even a partner does
not necessarily have to perform this particular task. It is, thus, not an indication that Tan Eng Kee
was a partner.
(iii) although Tan Eng Kee, together with his family, lived in the lumber compound and this privilege
was not accorded to other employees, the undisputed fact remains that Tan Eng Kee is the brother of
Tan Eng Lay. Naturally, close personal relations existed between them. Whatever privileges Tan Eng
Lay gave his brother, and which were not given the other employees, only proves the kindness and
generosity of Tan Eng Lay towards a blood relative.

(iv) and even if it is assumed that Tan Eng Kee was quarrelling with Tan Eng Lay in connection with
the pricing of stocks, this does not adequately prove the existence of a partnership relation between
them. Even highly confidential employees and the owners of a company sometimes argue with
respect to certain matters which, in no way indicates that they are partners as to each other. [35]

In the instant case, we find private respondents arguments to be well-taken. Where circumstances
taken singly may be inadequate to prove the intent to form a partnership, nevertheless, the collective
effect of these circumstances may be such as to support a finding of the existence of the parties
intent.[36]Yet, in the case at bench, even the aforesaid circumstances when taken together are not
persuasive indicia of a partnership. They only tend to show that Tan Eng Kee was involved in the
operations of Benguet Lumber, but in what capacity is unclear. We cannot discount the likelihood that
as a member of the family, he occupied a niche above the rank-and-file employees. He would have
enjoyed liberties otherwise unavailable were he not kin, such as his residence in the Benguet Lumber
Company compound. He would have moral, if not actual, superiority over his fellow employees, thereby
entitling him to exercise powers of supervision. It may even be that among his duties is to place orders
with suppliers. Again, the circumstances proffered by petitioners do not provide a logical nexus to the
conclusion desired; these are not inconsistent with the powers and duties of a manager, even in a
business organized and run as informally as Benguet Lumber Company.
There being no partnership, it follows that there is no dissolution, winding up or liquidation to speak
of. Hence, the petition must fail.
WHEREFORE, the petition is hereby denied, and the appealed decision of the Court of Appeals is
hereby AFFIRMED in toto. No pronouncement as to costs.
SO ORDERED.

-Negado vs. Makabenta, 54 O.G. 4082

https://www.scribd.com/document/126338926/Negado-vs-
Makabenta

-Yulo vs. Yang Chiaco Seng, L-12541, Aug. 28, 1959

G.R. No. L-12541 August 28, 1959

ROSARIO U. YULO, assisted by her husband JOSE C. YULO, plaintiffs-appellants,
vs.
YANG CHIAO SENG, defendant-appellee.

Punzalan, Yabut, Eusebio & Tiburcio for appellants.

Augusto Francisco and Julian T. Ocampo for appellee.

LABRADOR, J.:

Appeal from the judgment of the Court of First Instance of Manila, Hon. Bienvenido A. Tan,
presiding, dismissing plaintiff's complaint as well as defendant's counterclaim. The appeal is
prosecuted by plaintiff.

The record discloses that on June 17, 1945, defendant Yang Chiao Seng wrote a letter to the
palintiff Mrs. Rosario U. Yulo, proposing the formation of a partnership between them to run
and operate a theatre on the premises occupied by former Cine Oro at Plaza Sta. Cruz, Manila.
The principal conditions of the offer are (1) that Yang Chiao Seng guarantees Mrs. Yulo a
monthly participation of P3,000 payable quarterly in advance within the first 15 days of each
quarter, (2) that the partnership shall be for a period of two years and six months, starting from
July 1, 1945 to December 31, 1947, with the condition that if the land is expropriated or
rendered impracticable for the business, or if the owner constructs a permanent building
thereon, or Mrs. Yulo's right of lease is terminated by the owner, then the partnership shall be
terminated even if the period for which the partnership was agreed to be established has not
yet expired; (3) that Mrs. Yulo is authorized personally to conduct such business in the lobby of
the building as is ordinarily carried on in lobbies of theatres in operation, provided the said
business may not obstruct the free ingress and agrees of patrons of the theatre; (4) that after
December 31, 1947, all improvements placed by the partnership shall belong to Mrs. Yulo, but
if the partnership agreement is terminated before the lapse of one and a half years period
under any of the causes mentioned in paragraph (2), then Yang Chiao Seng shall have the
right to remove and take away all improvements that the partnership may place in the
premises.

Pursuant to the above offer, which plaintiff evidently accepted, the parties executed a
partnership agreement establishing the "Yang & Company, Limited," which was to exist from
July 1, 1945 to December 31, 1947. It states that it will conduct and carry on the business of
operating a theatre for the exhibition of motion and talking pictures. The capital is fixed at
P100,000, P80,000 of which is to be furnished by Yang Chiao Seng and P20,000, by Mrs. Yulo.
All gains and profits are to be distributed among the partners in the same proportion as their
capital contribution and the liability of Mrs. Yulo, in case of loss, shall be limited to her capital
contribution (Exh. "B").

In June , 1946, they executed a supplementary agreement, extending the partnership for a
period of three years beginning January 1, 1948 to December 31, 1950. The benefits are to be
divided between them at the rate of 50-50 and after December 31, 1950, the showhouse
building shall belong exclusively to the second party, Mrs. Yulo.

The land on which the theatre was constructed was leased by plaintiff Mrs. Yulo from Emilia
Carrion Santa Marina and Maria Carrion Santa Marina. In the contract of lease it was stipulated
that the lease shall continue for an indefinite period of time, but that after one year the lease
may be cancelled by either party by written notice to the other party at least 90 days before the
date of cancellation. The last contract was executed between the owners and Mrs. Yulo on
April 5, 1948. But on April 12, 1949, the attorney for the owners notified Mrs. Yulo of the
owner's desire to cancel the contract of lease on July 31, 1949. In view of the above notice,
Mrs. Yulo and her husband brought a civil action to the Court of First Instance of Manila on July
3, 1949 to declare the lease of the premises. On February 9, 1950, the Municipal Court of
Manila rendered judgment ordering the ejectment of Mrs. Yulo and Mr. Yang. The judgment
was appealed. In the Court of First Instance, the two cases were afterwards heard jointly, and
judgment was rendered dismissing the complaint of Mrs. Yulo and her husband, and declaring
the contract of lease of the premises terminated as of July 31, 1949, and fixing the reasonable
monthly rentals of said premises at P100. Both parties appealed from said decision and the
Court of Appeals, on April 30, 1955, affirmed the judgment.

On October 27, 1950, Mrs. Yulo demanded from Yang Chiao Seng her share in the profits of
the business. Yang answered the letter saying that upon the advice of his counsel he had to
suspend the payment (of the rentals) because of the pendency of the ejectment suit by the
owners of the land against Mrs. Yulo. In this letter Yang alleges that inasmuch as he is a
sublessee and inasmuch as Mrs. Yulo has not paid to the lessors the rentals from August,
1949, he was retaining the rentals to make good to the landowners the rentals due from Mrs.
Yulo in arrears (Exh. "E").

In view of the refusal of Yang to pay her the amount agreed upon, Mrs. Yulo instituted this
action on May 26, 1954, alleging the existence of a partnership between them and that the
defendant Yang Chiao Seng has refused to pay her share from December, 1949 to December,
1950; that after December 31, 1950 the partnership between Mrs. Yulo and Yang terminated,
as a result of which, plaintiff became the absolute owner of the building occupied by the Cine
Astor; that the reasonable rental that the defendant should pay therefor from January, 1951 is
P5,000; that the defendant has acted maliciously and refuses to pay the participation of the
plaintiff in the profits of the business amounting to P35,000 from November, 1949 to October,
1950, and that as a result of such bad faith and malice on the part of the defendant, Mrs. Yulo
has suffered damages in the amount of P160,000 and exemplary damages to the extent of
P5,000. The prayer includes a demand for the payment of the above sums plus the sum of
P10,000 for the attorney's fees.

In answer to the complaint, defendant alleges that the real agreement between the plaintiff and
the defendant was one of lease and not of partnership; that the partnership was adopted as a
subterfuge to get around the prohibition contained in the contract of lease between the owners
and the plaintiff against the sublease of the said property. As to the other claims, he denies the
same and alleges that the fair rental value of the land is only P1,100. By way of counterclaim
he alleges that by reason of an attachment issued against the properties of the defendant the
latter has suffered damages amounting to P100,000.

The first hearing was had on April 19, 1955, at which time only the plaintiff appeared. The court
heard evidence of the plaintiff in the absence of the defendant and thereafter rendered
judgment ordering the defendant to pay to the plaintiff P41,000 for her participation in the
business up to December, 1950; P5,000 as monthly rental for the use and occupation of the
building from January 1, 1951 until defendant vacates the same, and P3,000 for the use and
occupation of the lobby from July 1, 1945 until defendant vacates the property. This decision,
however, was set aside on a motion for reconsideration. In said motion it is claimed that
defendant failed to appear at the hearing because of his honest belief that a joint petition for
postponement filed by both parties, in view of a possible amicable settlement, would be
granted; that in view of the decision of the Court of Appeals in two previous cases between the
owners of the land and the plaintiff Rosario Yulo, the plaintiff has no right to claim the alleged
participation in the profit of the business, etc. The court, finding the above motion, well-
founded, set aside its decision and a new trial was held. After trial the court rendered the
decision making the following findings: that it is not true that a partnership was created between
the plaintiff and the defendant because defendant has not actually contributed the sum
mentioned in the Articles of Partnership, or any other amount; that the real agreement between
the plaintiff and the defendant is not of the partnership but one of the lease for the reason that
under the agreement the plaintiff did not share either in the profits or in the losses of the
business as required by Article 1769 of the Civil Code; and that the fact that plaintiff was
granted a "guaranteed participation" in the profits also belies the supposed existence of a
partnership between them. It. therefore, denied plaintiff's claim for damages or supposed
participation in the profits.

As to her claim for damages for the refusal of the defendant to allow the use of the supposed
lobby of the theatre, the court after ocular inspection found that the said lobby was very narrow
space leading to the balcony of the theatre which could not be used for business purposes
under existing ordinances of the City of Manila because it would constitute a hazard and
danger to the patrons of the theatre. The court, therefore, dismissed the complaint; so did it
dismiss the defendant's counterclaim, on the ground that the defendant failed to present
sufficient evidence to sustain the same. It is against this decision that the appeal has been
prosecuted by plaintiff to this Court.

The first assignment of error imputed to the trial court is its order setting aside its former
decision and allowing a new trial. This assignment of error is without merit. As that parties
agreed to postpone the trial because of a probable amicable settlement, the plaintiff could not
take advantage of defendant's absence at the time fixed for the hearing. The lower court,
therefore, did not err in setting aside its former judgment. The final result of the hearing shown
by the decision indicates that the setting aside of the previous decision was in the interest of
justice.

In the second assignment of error plaintiff-appellant claims that the lower court erred in not
striking out the evidence offered by the defendant-appellee to prove that the relation between
him and the plaintiff is one of the sublease and not of partnership. The action of the lower court
in admitting evidence is justified by the express allegation in the defendant's answer that the
agreement set forth in the complaint was one of lease and not of partnership, and that the
partnership formed was adopted in view of a prohibition contained in plaintiff's lease against a
sublease of the property.

The most important issue raised in the appeal is that contained in the fourth assignment of
error, to the effect that the lower court erred in holding that the written contracts, Exhs. "A", "B",
and "C, between plaintiff and defendant, are one of lease and not of partnership. We have gone
over the evidence and we fully agree with the conclusion of the trial court that the agreement
was a sublease, not a partnership. The following are the requisites of partnership: (1) two or
more persons who bind themselves to contribute money, property, or industry to a common
fund; (2) intention on the part of the partners to divide the profits among themselves. (Art. 1767,
Civil Code.).

In the first place, plaintiff did not furnish the supposed P20,000 capital. In the second place, she
did not furnish any help or intervention in the management of the theatre. In the third place, it
does not appear that she has ever demanded from defendant any accounting of the expenses
and earnings of the business. Were she really a partner, her first concern should have been to
find out how the business was progressing, whether the expenses were legitimate, whether the
earnings were correct, etc. She was absolutely silent with respect to any of the acts that a
partner should have done; all that she did was to receive her share of P3,000 a month, which
can not be interpreted in any manner than a payment for the use of the premises which she
had leased from the owners. Clearly, plaintiff had always acted in accordance with the original
letter of defendant of June 17, 1945 (Exh. "A"), which shows that both parties considered this
offer as the real contract between them.

Plaintiff claims the sum of P41,000 as representing her share or participation in the business
from December, 1949. But the original letter of the defendant, Exh. "A", expressly states that
the agreement between the plaintiff and the defendant was to end upon the termination of the
right of the plaintiff to the lease. Plaintiff's right having terminated in July, 1949 as found by the
Court of Appeals, the partnership agreement or the agreement for her to receive a participation
of P3,000 automatically ceased as of said date.

We find no error in the judgment of the court below and we affirm it in toto, with costs against
plaintiff-appellant.
 3. Distinction between partnership and a private
corporation
- 1 Fletcher, Cyc. Corp., Sec. 20

a) Principle of Delectus Personae (Art. 1804)

-Ortega, et al. v. CA, et al., 245 SCRA 529
G.R. No. 109248 July 3, 1995

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L. MISA, respondents.

VITUG, J.:

The instant petition seeks a review of the decision rendered by the Court of Appeals, dated 26 February 1993, in CA-
G.R. SP No. 24638 and No. 24648 affirming in toto that of the Securities and Exchange Commission ("SEC") in SEC
AC 254.

The antecedents of the controversy, summarized by respondent Commission and quoted at length by the appellate
court in its decision, are hereunder restated.

The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the Mercantile
Registry on 4 January 1937 and reconstituted with the Securities and Exchange Commission on 4 August
1948. The SEC records show that there were several subsequent amendments to the articles of partnership
on 18 September 1958, to change the firm [name] to ROSS, SELPH and CARRASCOSO; on 6 July 1965 . . .
to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO,
BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 11
March 1977 to DEL ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to BITO, MISA & LOZADA; on 19
December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada associated themselves
together, as senior partners with respondents-appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and
Benjamin Bacorro, as junior partners.

On February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter stating:

I am withdrawing and retiring from the firm of Bito, Misa and Lozada, effective at the end of this
month.

"I trust that the accountants will be instructed to make the proper liquidation of my participation
in the firm."

On the same day, petitioner-appellant wrote respondents-appellees another letter stating:

 "Further to my letter to you today, I would like to have a meeting with all of you with regard to
the mechanics of liquidation, and more particularly, my interest in the two floors of this building.
I would like to have this resolved soon because it has to do with my own plans."

On 19 February 1988, petitioner-appellant wrote respondents-appellees another letter stating:

"The partnership has ceased to be mutually satisfactory because of the working conditions of
our employees including the assistant attorneys. All my efforts to ameliorate the below
subsistence level of the pay scale of our employees have been thwarted by the other partners.
Not only have they refused to give meaningful increases to the employees, even attorneys, are
dressed down publicly in a loud voice in a manner that deprived them of their self-respect. The
result of such policies is the formation of the union, including the assistant attorneys."

On 30 June 1988, petitioner filed with this Commission's Securities Investigation and Clearing Department
(SICD) a petition for dissolution and liquidation of partnership, docketed as SEC Case No. 3384 praying that
the Commission:

"1. Decree the formal dissolution and order the immediate liquidation of (the partnership of)
Bito, Misa & Lozada;

"2. Order the respondents to deliver or pay for petitioner's share in the partnership assets plus
the profits, rent or interest attributable to the use of his right in the assets of the dissolved
partnership;

"3. Enjoin respondents from using the firm name of Bito, Misa & Lozada in any of their
correspondence, checks and pleadings and to pay petitioners damages for the use thereof
despite the dissolution of the partnership in the amount of at least P50,000.00;

"4. Order respondents jointly and severally to pay petitioner attorney's fees and expense of
litigation in such amounts as maybe proven during the trial and which the Commission may
deem just and equitable under the premises but in no case less than ten (10%) per cent of the
value of the shares of petitioner or P100,000.00;

"5. Order the respondents to pay petitioner moral damages with the amount of P500,000.00
and exemplary damages in the amount of P200,000.00.

"Petitioner likewise prayed for such other and further reliefs that the Commission may deem
just and equitable under the premises."

On 13 July 1988, respondents-appellees filed their opposition to the petition.

On 13 July 1988, petitioner filed his Reply to the Opposition.

On 31 March 1989, the hearing officer rendered a decision ruling that:

"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not dissolve the said law
partnership. Accordingly, the petitioner and respondents are hereby enjoined to abide by the
provisions of the Agreement relative to the matter governing the liquidation of the shares of
any retiring or withdrawing partner in the partnership interest."1
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the withdrawal of Attorney
Joaquin L. Misa had dissolved the partnership of "Bito, Misa & Lozada." The Commission ruled that, being a
partnership at will, the law firm could be dissolved by any partner at anytime, such as by his withdrawal therefrom,
regardless of good faith or bad faith, since no partner can be forced to continue in the partnership against his will. In
its decision, dated 17 January 1990, the SEC held:

WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby REVERSED insofar as it
concludes that the partnership of Bito, Misa & Lozada has not been dissolved. The case is hereby
REMANDED to the Hearing Officer for determination of the respective rights and obligations of the parties.2

The parties sought a reconsideration of the above decision. Attorney Misa, in addition, asked for an appointment of a
receiver to take over the assets of the dissolved partnership and to take charge of the winding up of its affairs. On 4
April 1991, respondent SEC issued an order denying reconsideration, as well as rejecting the petition for receivership,
and reiterating the remand of the case to the Hearing Officer.

The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No. 24638 and CA-G.R. SP No.
24648).

During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney Mariano Lozada both
died on, respectively, 05 September 1991 and 21 December 1991. The death of the two partners, as well as the
admission of new partners, in the law firm prompted Attorney Misa to renew his application for receivership (in CA
G.R. SP No. 24648). He expressed concern over the need to preserve and care for the partnership assets. The other
partners opposed the prayer.

The Court of Appeals, finding no reversible error on the part of respondent Commission, AFFIRMED in toto the SEC
decision and order appealed from. In fine, the appellate court held, per its decision of 26 February 1993, (a) that Atty.
Misa's withdrawal from the partnership had changed the relation of the parties and inevitably caused the dissolution of
the partnership; (b) that such withdrawal was not in bad faith; (c) that the liquidation should be to the extent of
Attorney Misa's interest or participation in the partnership which could be computed and paid in the manner stipulated
in the partnership agreement; (d) that the case should be remanded to the SEC Hearing Officer for the corresponding
determination of the value of Attorney Misa's share in the partnership assets; and (e) that the appointment of a
receiver was unnecessary as no sufficient proof had been shown to indicate that the partnership assets were in any
such danger of being lost, removed or materially impaired.

In this petition for review under Rule 45 of the Rules of Court, petitioners confine themselves to the following issues:

1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa & Lozada (now
Bito, Lozada, Ortega & Castillo) is a partnership at will;

2. Whether or not the Court of Appeals has erred in holding that the withdrawal of private respondent
dissolved the partnership regardless of his good or bad faith; and

3. Whether or not the Court of Appeals has erred in holding that private respondent's demand for the
dissolution of the partnership so that he can get a physical partition of partnership was not made in bad faith;

to which matters we shall, accordingly, likewise limit ourselves.

A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa & Lozada," and now "Bito,
Lozada, Ortega and Castillo," is indeed such a partnership need not be unduly belabored. We quote, with approval,
like did the appellate court, the findings and disquisition of respondent SEC on this matter; viz:
 The partnership agreement (amended articles of 19 August 1948) does not provide for a specified period or
undertaking. The "DURATION" clause simply states:

"5. DURATION. The partnership shall continue so long as mutually satisfactory and upon the
death or legal incapacity of one of the partners, shall be continued by the surviving partners."

The hearing officer however opined that the partnership is one for a specific undertaking and hence not a
partnership at will, citing paragraph 2 of the Amended Articles of Partnership (19 August 1948):

"2. Purpose. The purpose for which the partnership is formed, is to act as legal adviser and
representative of any individual, firm and corporation engaged in commercial, industrial or
other lawful businesses and occupations; to counsel and advise such persons and entities with
respect to their legal and other affairs; and to appear for and represent their principals and
client in all courts of justice and government departments and offices in the Philippines, and
elsewhere when legally authorized to do so."

The "purpose" of the partnership is not the specific undertaking referred to in the law. Otherwise, all
partnerships, which necessarily must have a purpose, would all be considered as partnerships for a definite
undertaking. There would therefore be no need to provide for articles on partnership at will as none would so
exist. Apparently what the law contemplates, is a specific undertaking or "project" which has a definite or
definable period of completion.3

The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to
choose with whom a person wishes to associate himself is the very foundation and essence of that partnership. Its
continued existence is, in turn, dependent on the constancy of that mutual resolve, along with each partner's capability
to give it, and the absence of a cause for dissolution provided by the law itself. Verily, any one of the partners may, at
his sole pleasure, dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the
attendance of bad faith can prevent the dissolution of the partnership4 but that it can result in a liability for damages.5

In passing, neither would the presence of a period for its specific duration or the statement of a particular purpose for
its creation prevent the dissolution of any partnership by an act or will of a partner.6 Among partners,7 mutual agency
arises and the doctrine of delectus personae allows them to have the power, although not necessarily theright, to
dissolve the partnership. An unjustified dissolution by the partner can subject him to a possible action for damages.

The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be
associated in the carrying on, as might be distinguished from the winding up of, the business.8 Upon its dissolution, the
partnership continues and its legal personality is retained until the complete winding up of its business culminating in
its termination.9

The liquidation of the assets of the partnership following its dissolution is governed by various provisions of the Civil
Code; 10 however, an agreement of the partners, like any other contract, is binding among them and normally takes
precedence to the extent applicable over the Code's general provisions. We here take note of paragraph 8 of the
"Amendment to Articles of Partnership" reading thusly:

. . . In the event of the death or retirement of any partner, his interest in the partnership shall be liquidated and
paid in accordance with the existing agreements and his partnership participation shall revert to the Senior
Partners for allocation as the Senior Partners may determine; provided, however, that with respect to the two
(2) floors of office condominium which the partnership is now acquiring, consisting of the 5th and the 6th floors
of the Alpap Building, 140 Alfaro Street, Salcedo Village, Makati, Metro Manila, their true value at the time of
such death or retirement shall be determined by two (2) independent appraisers, one to be appointed (by the
partnership and the other by the) retiring partner or the heirs of a deceased partner, as the case may be. In
the event of any disagreement between the said appraisers a third appraiser will be appointed by them whose
 decision shall be final. The share of the retiring or deceased partner in the aforementioned two (2) floor office
condominium shall be determined upon the basis of the valuation above mentioned which shall be paid
monthly within the first ten (10) days of every month in installments of not less than P20,000.00 for the Senior
Partners, P10,000.00 in the case of two (2) existing Junior Partners and P5,000.00 in the case of the new
Junior Partner. 11

The term "retirement" must have been used in the articles, as we so hold, in a generic sense to mean the dissociation
by a partner, inclusive of resignation or withdrawal, from the partnership that thereby dissolves it.

On the third and final issue, we accord due respect to the appellate court and respondent Commission on their
common factual finding, i.e., that Attorney Misa did not act in bad faith. Public respondents viewed his withdrawal to
have been spurred by "interpersonal conflict" among the partners. It would not be right, we agree, to let any of the
partners remain in the partnership under such an atmosphere of animosity; certainly, not against their will. 12 Indeed,
for as long as the reason for withdrawal of a partner is not contrary to the dictates of justice and fairness, nor for the
purpose of unduly visiting harm and damage upon the partnership, bad faith cannot be said to characterize the act.
Bad faith, in the context here used, is no different from its normal concept of a conscious and intentional design to do
a wrongful act for a dishonest purpose or moral obliquity.

WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.

SO ORDERED.

-Tocao, et al. v. CA, 342 SCRA 20

[G.R. No. 127405. October 4, 2000]

MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS

and NENITA A. ANAY, respondents.

DECISION
YNARES-SANTIAGO, J.:

This is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV No.
41616,[1] affirming the Decision of the Regional Trial Court of Makati, Branch 140, in Civil
Case No. 88-509.[2]
Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand, private
respondent Nenita A. Anay met petitioner William T. Belo, then the vice-president for
operations of Ultra Clean Water Purifier, through her former employer in Bangkok. Belo
introduced Anay to petitioner Marjorie Tocao, who conveyed her desire to enter into a joint
venture with her for the importation and local distribution of kitchen cookwares. Belo
volunteered to finance the joint venture and assigned to Anay the job of marketing the
product considering her experience and established relationship with West Bend Company,
a manufacturer of kitchen wares in Wisconsin, U.S.A. Under the joint venture, Belo acted as
capitalist, Tocao as president and general manager, and Anay as head of the marketing
department and later, vice-president for sales. Anay organized the administrative staff and
sales force while Tocao hired and fired employees, determined commissions and/or
salaries of the employees, and assigned them to different branches. The parties agreed that
Belos name should not appear in any documents relating to their transactions with West
Bend Company. Instead, they agreed to use Anays name in securing distributorship of
cookware from that company. The parties agreed further that Anay would be entitled to: (1)
ten percent (10%) of the annual net profits of the business; (2) overriding commission of six
percent (6%) of the overall weekly production; (3) thirty percent (30%) of the sales she
would make; and (4) two percent (2%) for her demonstration services. The agreement was
not reduced to writing on the strength of Belos assurances that he was sincere, dependable
and honest when it came to financial commitments.
Anay having secured the distributorship of cookware products from the West Bend
Company and organized the administrative staff and the sales force, the cookware business
took off successfully. They operated under the name of Geminesse Enterprise, a sole
proprietorship registered in Marjorie Tocaos name, with office at 712 Rufino Building, Ayala
Avenue, Makati City. Belo made good his monetary commitments to Anay. Thereafter,
Roger Muencheberg of West Bend Company invited Anay to the distributor/dealer meeting
in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987 and to the southwestern regional
convention in Pismo Beach, California, U.S.A., from July 25-26, 1987. Anay accepted the
invitation with the consent of Marjorie Tocao who, as president and general manager of
Geminesse Enterprise, even wrote a letter to the Visa Section of the U.S. Embassy in
Manila on July 13, 1987. A portion of the letter reads:

Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for twenty (20)
years now, acquired the distributorship of Royal Queen cookware for Geminesse Enterprise, is the
Vice President Sales Marketing and a business partner of our company, will attend in response to the
invitation. (Italics supplied.)[3]

Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the task
of saving the business on account of the unsatisfactory sales record in the Makati and
Cubao offices. On August 31, 1987, she received a plaque of appreciation from the
administrative and sales people through Marjorie Tocao[4] for her excellent job performance.
On October 7, 1987, in the presence of Anay, Belo signed a memo[5] entitling her to a thirty-
seven percent (37%) commission for her personal sales "up Dec 31/87. Belo explained to
her that said commission was apart from her ten percent (10%) share in the profits. On
October 9, 1987, Anay learned that Marjorie Tocao had signed a letter [6] addressed to the
Cubao sales office to the effect that she was no longer the vice-president of Geminesse
Enterprise. The following day, October 10, she received a note from Lina T. Cruz, marketing
manager, that Marjorie Tocao had barred her from holding office and conducting
demonstrations in both Makati and Cubao offices.[7] Anay attempted to contact Belo. She
wrote him twice to demand her overriding commission for the period of January 8, 1988 to
February 5, 1988 and the audit of the company to determine her share in the net profits.
When her letters were not answered, Anay consulted her lawyer, who, in turn, wrote Belo a
letter. Still, that letter was not answered.
Anay still received her five percent (5%) overriding commission up to December
1987. The following year, 1988, she did not receive the same commission although the
company netted a gross sales of P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of
money with damages[8] against Marjorie D. Tocao and William Belo before the Regional
Trial Court of Makati, Branch 140.
In her complaint, Anay prayed that defendants be ordered to pay her, jointly and
severally, the following: (1) P32,00.00 as unpaid overriding commission from January 8,
1988 to February 5, 1988; (2) P100,000.00 as moral damages, and (3) P100,000.00 as
exemplary damages. The plaintiff also prayed for an audit of the finances of Geminesse
Enterprise from the inception of its business operation until she was illegally dismissed to
determine her ten percent (10%) share in the net profits. She further prayed that she be
paid the five percent (5%) overriding commission on the remaining 150 West Bend
cookware sets before her dismissal.
In their answer,[9] Marjorie Tocao and Belo asserted that the alleged agreement with
Anay that was neither reduced in writing, nor ratified, was either unenforceable or void or
inexistent. As far as Belo was concerned, his only role was to introduce Anay to Marjorie
Tocao. There could not have been a partnership because, as Anay herself admitted,
Geminesse Enterprise was the sole proprietorship of Marjorie Tocao. Because Anay merely
acted as marketing demonstrator of Geminesse Enterprise for an agreed remuneration, and
her complaint referred to either her compensation or dismissal, such complaint should have
been lodged with the Department of Labor and not with the regular court.
Petitioners (defendants therein) further alleged that Anay filed the complaint on account
of ill-will and resentment because Marjorie Tocao did not allow her to lord it over in the
Geminesse Enterprise. Anay had acted like she owned the enterprise because of her
experience and expertise. Hence, petitioners were the ones who suffered actual damages
including unreturned and unaccounted stocks of Geminesse Enterprise, and serious
anxiety, besmirched reputation in the business world, and various damages not less than
P500,000.00. They also alleged that, to vindicate their names, they had to hire counsel for a
fee of P23,000.00.
 At the pre-trial conference, the issues were limited to: (a) whether or not the plaintiff was
an employee or partner of Marjorie Tocao and Belo, and (b) whether or not the parties are
entitled to damages.[10]
In their defense, Belo denied that Anay was supposed to receive a share in the profit of
the business. He, however, admitted that the two had agreed that Anay would receive a
three to four percent (3-4%) share in the gross sales of the cookware. He denied
contributing capital to the business or receiving a share in its profits as he merely served as
a guarantor of Marjorie Tocao, who was new in the business. He attended and/or presided
over business meetings of the venture in his capacity as a guarantor but he never
participated in decision-making. He claimed that he wrote the memo granting the plaintiff
thirty-seven percent (37%) commission upon her dismissal from the business venture at the
request of Tocao, because Anay had no other income.
For her part, Marjorie Tocao denied having entered into an oral partnership agreement
with Anay. However, she admitted that Anay was an expert in the cookware business and
hence, they agreed to grant her the following commissions: thirty-seven percent (37%) on
personal sales; five percent (5%) on gross sales; two percent (2%) on product
demonstrations, and two percent (2%) for recruitment of personnel. Marjorie denied that
they agreed on a ten percent (10%) commission on the net profits. Marjorie claimed that
she got the capital for the business out of the sale of the sewing machines used in her
garments business and from Peter Lo, a Singaporean friend-financier who loaned her the
funds with interest. Because she treated Anay as her co-equal, Marjorie received the same
amounts of commissions as her. However, Anay failed to account for stocks valued at
P200,000.00.
On April 22, 1993, the trial court rendered a decision the dispositive part of which is as
follows:

WHEREFORE, in view of the foregoing, judgment is hereby rendered:

1. Ordering defendants to submit to the Court a formal account as to the partnership affairs for the years
1987 and 1988 pursuant to Art. 1809 of the Civil Code in order to determine the ten percent (10%)
share of plaintiff in the net profits of the cookware business;
2. Ordering defendants to pay five percent (5%) overriding commission for the one hundred and fifty
(150) cookware sets available for disposition when plaintiff was wrongfully excluded from the
partnership by defendants;
3. Ordering defendants to pay plaintiff overriding commission on the total production which for the
period covering January 8, 1988 to February 5, 1988 amounted to P32,000.00;
4. Ordering defendants to pay P100,000.00 as moral damages and P100,000.00 as exemplary
damages, and
5. Ordering defendants to pay P50,000.00 as attorneys fees and P20,000.00 as costs of suit.
SO ORDERED.

The trial court held that there was indeed an oral partnership agreement between the
plaintiff and the defendants, based on the following: (a) there was an intention to create a
partnership; (b) a common fund was established through contributions consisting of money
and industry, and (c) there was a joint interest in the profits. The testimony of Elizabeth
Bantilan, Anays cousin and the administrative officer of Geminesse Enterprise from August
21, 1986 until it was absorbed by Royal International, Inc., buttressed the fact that a
partnership existed between the parties. The letter of Roger Muencheberg of West Bend
Company stating that he awarded the distributorship to Anay and Marjorie Tocao because
he was convinced that with Marjories financial contribution and Anays experience, the
combination of the two would be invaluable to the partnership, also supported that
conclusion. Belos claim that he was merely a guarantor has no basis since there was no
written evidence thereof as required by Article 2055 of the Civil Code. Moreover, his acts of
attending and/or presiding over meetings of Geminesse Enterprise plus his issuance of a
memo giving Anay 37% commission on personal sales belied this. On the contrary, it
demonstrated his involvement as a partner in the business.
The trial court further held that the payment of commissions did not preclude the
existence of the partnership inasmuch as such practice is often resorted to in business
circles as an impetus to bigger sales volume. It did not matter that the agreement was not in
writing because Article 1771 of the Civil Code provides that a partnership may be
constituted in any form. The fact that Geminesse Enterprise was registered in Marjorie
Tocaos name is not determinative of whether or not the business was managed and
operated by a sole proprietor or a partnership. What was registered with the Bureau of
Domestic Trade was merely the business name or style of Geminesse Enterprise.
The trial court finally held that a partner who is excluded wrongfully from a partnership is
an innocent partner. Hence, the guilty partner must give him his due upon the dissolution of
the partnership as well as damages or share in the profits realized from the appropriation of
the partnership business and goodwill. An innocent partner thus possesses pecuniary
interest in every existing contract that was incomplete and in the trade name of the co-
partnership and assets at the time he was wrongfully expelled.
Petitioners appeal to the Court of Appeals[11] was dismissed, but the amount of damages
awarded by the trial court were reduced to P50,000.00 for moral damages and P50,000.00
as exemplary damages. Their Motion for Reconsideration was denied by the Court of
Appeals for lack of merit.[12]Petitioners Belo and Marjorie Tocao are now before this Court on
a petition for review on certiorari, asserting that there was no business partnership between
them and herein private respondent Nenita A. Anay who is, therefore, not entitled to the
damages awarded to her by the Court of Appeals.
 Petitioners Tocao and Belo contend that the Court of Appeals erroneously held that a
partnership existed between them and private respondent Anay because Geminesse
Enterprise came into being exactly a year before the alleged partnership was formed, and
that it was very unlikely that petitioner Belo would invest the sum of P2,500,000.00 with
petitioner Tocao contributing nothing, without any memorandum whatsoever regarding the
alleged partnership.[13]
The issue of whether or not a partnership exists is a factual matter which are within the
exclusive domain of both the trial and appellate courts. This Court cannot set aside factual
findings of such courts absent any showing that there is no evidence to support the
conclusion drawn by the court a quo.[14]In this case, both the trial court and the Court of
Appeals are one in ruling that petitioners and private respondent established a business
partnership. This Court finds no reason to rule otherwise.
To be considered a juridical personality, a partnership must fulfill these requisites: (1)
two or more persons bind themselves to contribute money, property or industry to a
common fund; and (2) intention on the part of the partners to divide the profits among
themselves.[15] It may be constituted in any form; a public instrument is necessary only
where immovable property or real rights are contributed thereto.[16] This implies that since a
contract of partnership is consensual, an oral contract of partnership is as good as a written
one. Where no immovable property or real rights are involved, what matters is that the
parties have complied with the requisites of a partnership. The fact that there appears to be
no record in the Securities and Exchange Commission of a public instrument embodying
the partnership agreement pursuant to Article 1772 of the Civil Code[17] did not cause the
nullification of the partnership. The pertinent provision of the Civil Code on the matter
states:

Art. 1768. The partnership has a juridical personality separate and distinct from that of each of the
partners, even in case of failure to comply with the requirements of article 1772, first paragraph.

Petitioners admit that private respondent had the expertise to engage in the business of
distributorship of cookware. Private respondent contributed such expertise to the
partnership and hence, under the law, she was the industrial or managing partner. It was
through her reputation with the West Bend Company that the partnership was able to open
the business of distributorship of that companys cookware products; it was through the
same efforts that the business was propelled to financial success. Petitioner Tocao herself
admitted private respondents indispensable role in putting up the business when, upon
being asked if private respondent held the positions of marketing manager and vice-
president for sales, she testified thus:
A: No, sir at the start she was the marketing manager because there were no one to sell yet, its only me
there then her and then two (2) people, so about four (4). Now, after that when she recruited already
Oscar Abella and Lina Torda-Cruz these two (2) people were given the designation of marketing
managers of which definitely Nita as superior to them would be the Vice President.[18]
By the set-up of the business, third persons were made to believe that a partnership had
indeed been forged between petitioners and private respondents. Thus, the communication
dated June 4, 1986 of Missy Jagler of West Bend Company to Roger Muencheberg of the
same company states:

Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the operations. Marge
does not have cookware experience. Nita Anay has started to gather former managers, Lina Torda
and Dory Vista. She has also gathered former demonstrators, Betty Bantilan, Eloisa Lamela, Menchu
Javier. They will continue to gather other key people and build up the organization. All they need is
the finance and the products to sell.[19]

On the other hand, petitioner Belos denial that he financed the partnership rings hollow
in the face of the established fact that he presided over meetings regarding matters
affecting the operation of the business. Moreover, his having authorized in writing on
October 7, 1987, on a stationery of his own business firm, Wilcon Builders Supply, that
private respondent should receive thirty-seven (37%) of the proceeds of her personal sales,
could not be interpreted otherwise than that he had a proprietary interest in the business.
His claim that he was merely a guarantor is belied by that personal act of proprietorship in
the business. Moreover, if he was indeed a guarantor of future debts of petitioner Tocao
under Article 2053 of the Civil Code,[20] he should have presented documentary evidence
therefor. While Article 2055 of the Civil Code simply provides that guaranty must be
express, Article 1403, the Statute of Frauds, requires that a special promise to answer for
the debt, default or miscarriage of another be in writing.[21]
Petitioner Tocao, a former ramp model,[22] was also a capitalist in the partnership. She
claimed that she herself financed the business. Her and petitioner Belos roles as both
capitalists to the partnership with private respondent are buttressed by petitioner Tocaos
admissions that petitioner Belo was her boyfriend and that the partnership was not their
only business venture together. They also established a firm that they called Wiji, the
combination of petitioner Belos first name, William, and her nickname, Jiji.[23] The special
relationship between them dovetails with petitioner Belos claim that he was acting in behalf
of petitioner Tocao. Significantly, in the early stage of the business operation, petitioners
requested West Bend Company to allow them to utilize their banking and trading facilities in
Singapore in the matter of importation and payment of the cookware products. [24] The
inevitable conclusion, therefore, was that petitioners merged their respective capital and
infused the amount into the partnership of distributing cookware with private respondent as
the managing partner.
The business venture operated under Geminesse Enterprise did not result in an
employer-employee relationship between petitioners and private respondent. While it is true
that the receipt of a percentage of net profits constitutes only prima facie evidence that the
recipient is a partner in the business,[25] the evidence in the case at bar controverts an
employer-employee relationship between the parties. In the first place, private respondent
had a voice in the management of the affairs of the cookware distributorship, [26] including
selection of people who would constitute the administrative staff and the sales force.
Secondly, petitioner Tocaos admissions militate against an employer-employee
relationship. She admitted that, like her who owned Geminesse Enterprise,[27] private
respondent received only commissions and transportation and representation
allowances[28] and not a fixed salary.[29] Petitioner Tocao testified:
Q: Of course. Now, I am showing to you certain documents already marked as Exhs. X and Y. Please go over
this. Exh. Y is denominated `Cubao overrides 8-21-87 with ending August 21, 1987, will you please go
over this and tell the Honorable Court whether you ever came across this document and know of your
own knowledge the amount ---
A: Yes, sir this is what I am talking about earlier. Thats the one I am telling you earlier a certain percentage for
promotions, advertising, incentive.
Q: I see. Now, this promotion, advertising, incentive, there is a figure here and words which I quote: Overrides
Marjorie Ann Tocao P21,410.50 this means that you have received this amount?
A: Oh yes, sir.
Q: I see. And, by way of amplification this is what you are saying as one representing commission,
representation, advertising and promotion?
A: Yes, sir.
Q: I see. Below your name is the words and figure and I quote Nita D. Anay P21,410.50, what is this?
A: Thats her overriding commission.
Q: Overriding commission, I see. Of course, you are telling this Honorable Court that there being the same
P21,410.50 is merely by coincidence?
A: No, sir, I made it a point that we were equal because the way I look at her kasi, you know in a sense
because of her expertise in the business she is vital to my business. So, as part of the incentive I offer
her the same thing.
Q: So, in short you are saying that this you have shared together, I mean having gotten from the company
P21,140.50 is your way of indicating that you were treating her as an equal?
A: As an equal.
Q: As an equal, I see. You were treating her as an equal?
A: Yes, sir.
Q: I am calling again your attention to Exh. Y Overrides Makati the other one is ---
A: That is the same thing, sir.
Q: With ending August 21, words and figure Overrides Marjorie Ann Tocao P15,314.25 the amount there you
will acknowledge you have received that?
A: Yes, sir.
Q: Again in concept of commission, representation, promotion, etc.?
A: Yes, sir.
 Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an indication that she received
the same amount?
A: Yes, sir.
Q: And, as in your previous statement it is not by coincidence that these two (2) are the same?
A: No, sir.
Q: It is again in concept of you treating Miss Anay as your equal?
A: Yes, sir. (Italics supplied.)[30]

If indeed petitioner Tocao was private respondents employer, it is difficult to believe that
they shall receive the same income in the business. In a partnership, each partner must
share in the profits and losses of the venture, except that the industrial partner shall not be
liable for the losses.[31] As an industrial partner, private respondent had the right to demand
for a formal accounting of the business and to receive her share in the net profit.[32]
The fact that the cookware distributorship was operated under the name of Geminesse
Enterprise, a sole proprietorship, is of no moment. What was registered with the Bureau of
Domestic Trade on August 19, 1987 was merely the name of that enterprise. [33] While it is
true that in her undated application for renewal of registration of that firm name, petitioner
Tocao indicated that it would be engaged in retail of kitchenwares, cookwares, utensils,
skillet,[34] she also admitted that the enterprise was only 60% to 70% for the cookware
business, while 20% to 30% of its business activity was devoted to the sale of water
sterilizer or purifier.[35] Indubitably then, the business name Geminesse Enterprise was used
only for practical reasons - it was utilized as the common name for petitioner Tocaos
various business activities, which included the distributorship of cookware.
Petitioners underscore the fact that the Court of Appeals did not return the unaccounted
and unremitted stocks of Geminesse Enterprise amounting to P208,250.00.[36] Obviously a
ploy to offset the damages awarded to private respondent, that claim, more than anything
else, proves the existence of a partnership between them. In Idos v. Court of Appeals, this
Court said:

The best evidence of the existence of the partnership, which was not yet terminated (though in the
winding up stage), were the unsold goods and uncollected receivables, which were presented to the
trial court. Since the partnership has not been terminated, the petitioner and private complainant
remained as co-partners. x x x.[37]

It is not surprising then that, even after private respondent had been unceremoniously
booted out of the partnership in October 1987, she still received her overriding commission
until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the
partnership to reap for herself and/or for petitioner Belo financial gains resulting from private
respondents efforts to make the business venture a success. Thus, as petitioner Tocao
became adept in the business operation, she started to assert herself to the extent that she
would even shout at private respondent in front of other people.[38] Her instruction to Lina
Torda Cruz, marketing manager, not to allow private respondent to hold office in both the
Makati and Cubao sales offices concretely spoke of her perception that private respondent
was no longer necessary in the business operation,[39] and resulted in a falling out between
the two. However, a mere falling out or misunderstanding between partners does not
convert the partnership into a sham organization.[40] The partnership exists until dissolved
under the law.Since the partnership created by petitioners and private respondent has no
fixed term and is therefore a partnership at will predicated on their mutual desire and
consent, it may be dissolved by the will of a partner. Thus:

x x x. The right to choose with whom a person wishes to associate himself is the very foundation and
essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that
mutual resolve, along with each partners capability to give it, and the absence of cause for dissolution
provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a
dissolution of the partnership at will. He must, however, act in good faith, not that the attendance of
bad faith can prevent the dissolution of the partnership but that it can result in a liability for
damages.[41]

An unjustified dissolution by a partner can subject him to action for damages because by
the mutual agency that arises in a partnership, the doctrine of delectus personae allows the
partners to have the power, although not necessarily the right to dissolve the partnership.[42]
In this case, petitioner Tocaos unilateral exclusion of private respondent from the
partnership is shown by her memo to the Cubao office plainly stating that private
respondent was, as of October 9, 1987, no longer the vice-president for sales of Geminesse
Enterprise.[43] By that memo, petitioner Tocao effected her own withdrawal from the
partnership and considered herself as having ceased to be associated with the partnership
in the carrying on of the business. Nevertheless, the partnership was not terminated
thereby; it continues until the winding up of the business.[44]
The winding up of partnership affairs has not yet been undertaken by the
partnership. This is manifest in petitioners claim for stocks that had been entrusted to
private respondent in the pursuit of the partnership business.
The determination of the amount of damages commensurate with the factual findings
upon which it is based is primarily the task of the trial court.[45]The Court of Appeals may
modify that amount only when its factual findings are diametrically opposed to that of the
lower court,[46] or the award is palpably or scandalously and unreasonably
excessive.[47] However, exemplary damages that are awarded by way of example or
correction for the public good,[48]should be reduced to P50,000.00, the amount correctly
awarded by the Court of Appeals. Concomitantly, the award of moral damages of
P100,000.00 was excessive and should be likewise reduced to P50,000.00. Similarly,
attorneys fees that should be granted on account of the award of exemplary damages and
petitioners evident bad faith in refusing to satisfy private respondents plainly valid, just and
demandable claims,[49] appear to have been excessively granted by the trial court and
should therefore be reduced to P25,000.00.
WHEREFORE, the instant petition for review on certiorari is DENIED. The partnership
among petitioners and private respondent is ordered dissolved, and the parties are ordered
to effect the winding up and liquidation of the partnership pursuant to the pertinent
provisions of the Civil Code. This case is remanded to the Regional Trial Court for proper
proceedings relative to said dissolution. The appealed decisions of the Regional Trial Court
and the Court of Appeals are AFFIRMED with MODIFICATIONS, as follows ---

1. Petitioners are ordered to submit to the Regional Trial Court a formal account of the partnership
affairs for the years 1987 and 1988, pursuant to Article 1809 of the Civil Code, in order to determine
private respondents ten percent (10%) share in the net profits of the partnership;

2. Petitioners are ordered, jointly and severally, to pay private respondent five percent (5%)
overriding commission for the one hundred and fifty (150) cookware sets available for disposition
since the time private respondent was wrongfully excluded from the partnership by petitioners;

3. Petitioners are ordered, jointly and severally, to pay private respondent overriding commission on
the total production which, for the period covering January 8, 1988 to February 5, 1988, amounted to
P32,000.00;

4. Petitioners are ordered, jointly and severally, to pay private respondent moral damages in the
amount of P50,000.00, exemplary damages in the amount of P50,000.00 and attorneys fees in the
amount of P25,000.00.

SO ORDERED.

-JG Summit Holdings v. CA, Sept. 24, 2003, G.R.

No. 124293
JG SUMMIT HOLDINGS, INC., petitioner, vs. COURT OF APPEALS,
COMMITTEE ON PRIVATIZATION, its Chairman and Members; ASSET
PRIVATIZATION TRUST and PHILYARDS HOLDINGS, INC., respondents.

RESOLUTION
PUNO, J.:
 The core issue posed by the Motions for Reconsideration is whether a shipyard is a
public utility whose capitalization must be sixty percent (60%) owned by Filipinos. Our
resolution of this issue will determine the fate of the shipbuilding and ship repair industry. It
can either spell the industrys demise or breathe new life to the struggling but potentially
healthy partner in the countrys bid for economic growth. It can either kill an initiative yet in
its infancy, or harness creativity in the productive disposition of government assets.
The facts are undisputed and can be summarized briefly as follows:
On January 27, 1977, the National Investment and Development Corporation (NIDC), a
government corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki
Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) for the construction, operation and
management of the Subic National Shipyard, Inc. (SNS) which subsequently became the
Philippine Shipyard and Engineering Corporation (PHILSECO). Under the JVA, the NIDC
and KAWASAKI will contribute P330 million for the capitalization of PHILSECO in the
proportion of 60%-40% respectively. One of its salient features is the grant to the parties of
[1]

the right of first refusal should either of them decide to sell, assign or transfer its interest
in the joint venture, viz:

1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [PHILSECO] to
any third party without giving the other under the same terms the right of first refusal. This provision
shall not apply if the transferee is a corporation owned or controlled by the GOVERNMENT or by a
KAWASAKI affiliate. [2]

On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO to
the Philippine National Bank (PNB). Such interests were subsequently transferred to the
National Government pursuant to Administrative Order No. 14. On December 8, 1986,
President Corazon C. Aquino issued Proclamation No. 50 establishing the Committee on
Privatization (COP) and the Asset Privatization Trust (APT) to take title to, and possession
of, conserve, manage and dispose of non-performing assets of the National
Government. Thereafter, on February 27, 1987, a trust agreement was entered into
between the National Government and the APT wherein the latter was named the trustee of
the National Governments share in PHILSECO. In 1989, as a result of a quasi-
reorganization of PHILSECO to settle its huge obligations to PNB, the National
Governments shareholdings in PHILSECO increased to 97.41% thereby reducing
KAWASAKIs shareholdings to 2.59%. [3]

In the interest of the national economy and the government, the COP and the APT
deemed it best to sell the National Governments share in PHILSECO to private entities.
After a series of negotiations between the APT and KAWASAKI, they agreed that the latters
right of first refusal under the JVA be exchanged for the right to top by five percent (5%) the
highest bid for the said shares. They further agreed that KAWASAKI would be entitled to
name a company in which it was a stockholder, which could exercise the right to top. On
September 7, 1990, KAWASAKI informed APT that Philyards Holdings, Inc. (PHI) would
exercise its right to top. [4]

At the pre-bidding conference held on September 18, 1993, interested bidders were
given copies of the JVA between NIDC and KAWASAKI, and of the Asset Specific Bidding
Rules (ASBR) drafted for the National Governments 87.6% equity share in
PHILSECO. The provisions of the ASBR were explained to the interested bidders who
[5]

were notified that the bidding would be held on December 2, 1993. A portion of the ASBR
reads:

1.0 The subject of this Asset Privatization Trust (APT) sale through public bidding is the National
Governments equity in PHILSECO consisting of 896,869,942 shares of stock (representing 87.67%
of PHILSECOs outstanding capital stock), which will be sold as a whole block in accordance with
the rules herein enumerated.

...

2.0 The highest bid, as well as the buyer, shall be subject to the final approval of both the APT Board
of Trustees and the Committee on Privatization (COP).

2.1 APT reserves the right in its sole discretion, to reject any or all bids.

3.0 This public bidding shall be on an Indicative Price Bidding basis. The Indicative price set for the
National Governments 87.67% equity in PHILSECO is PESOS: ONE BILLION THREE
HUNDRED MILLION (P1,300,000,000.00).

...

6.0 The highest qualified bid will be submitted to the APT Board of Trustees at its regular meeting
following the bidding, for the purpose of determining whether or not it should be endorsed by the
APT Board of Trustees to the COP, and the latter approves the same. The APT shall advise
Kawasaki Heavy Industries, Inc. and/or its nominee, Philyards Holdings, Inc., that the highest bid is
acceptable to the National Government. Kawasaki Heavy Industries, Inc. and/or Philyards Holdings,
Inc. shall then have a period of thirty (30) calendar days from the date of receipt of such advice from
APT within which to exercise their Option to Top the Highest Bid by offering a bid equivalent to the
highest bid plus five (5%) percent thereof.

6.1 Should Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. exercise their Option to
Top the Highest Bid, they shall so notify the APT about such exercise of their option and deposit
with APT the amount equivalent to ten percent (10%) of the highest bid plus five percent (5%)
thereof within the thirty (30)-day period mentioned in paragraph 6.0 above. APT will then serve
notice upon Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. declaring them as the
preferred bidder and they shall have a period of ninety (90) days from the receipt of the APTs notice
within which to pay the balance of their bid price.

6.2 Should Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. fail to exercise their
Option to Top the Highest Bid within the thirty (30)-day period, APT will declare the highest bidder
as the winning bidder.

...

12.0 The bidder shall be solely responsible for examining with appropriate care these rules, the
official bid forms, including any addenda or amendments thereto issued during the bidding period.
The bidder shall likewise be responsible for informing itself with respect to any and all conditions
concerning the PHILSECO Shares which may, in any manner, affect the bidders proposal. Failure on
the part of the bidder to so examine and inform itself shall be its sole risk and no relief for error or
omission will be given by APT or COP. . .. [6]

At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc. submitted a
bid of Two Billion and Thirty Million Pesos (P2,030,000,000.00) with an acknowledgement
of KAWASAKI/Philyards right to top, viz:

4. I/We understand that the Committee on Privatization (COP) has up to thirty (30) days to act on
APTs recommendation based on the result of this bidding. Should the COP approve the highest bid,
APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee, Philyards Holdings, Inc. that
the highest bid is acceptable to the National Government. Kawasaki Heavy Industries, Inc. and/or
Philyards Holdings, Inc. shall then have a period of thirty (30) calendar days from the date of receipt
of such advice from APT within which to exercise their Option to Top the Highest Bid by offering a
bid equivalent to the highest bid plus five (5%) percent thereof. [7]

As petitioner was declared the highest bidder, the COP approved the sale on December
3, 1993 subject to the right of Kawasaki Heavy Industries, Inc./Philyards Holdings, Inc. to
top JGSMIs bid by 5% as specified in the bidding rules. [8]

On December 29, 1993, petitioner informed APT that it was protesting the offer of PHI to
top its bid on the grounds that: (a) the KAWASAKI/PHI consortium composed of Kawasaki,
Philyards, Mitsui, Keppel, SM Group, ICTSI and Insular Life violated the ASBR because the
last four (4) companies were the losing bidders thereby circumventing the law and
prejudicing the weak winning bidder; (b) only KAWASAKI could exercise the right to top; (c)
giving the same option to top to PHI constituted unwarranted benefit to a third party; (d) no
right of first refusal can be exercised in a public bidding or auction sale; and (e) the JG
Summit consortium was not estopped from questioning the proceedings. [9]

On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the
purchase price of the subject bidding. On February 7, 1994, the APT notified petitioner that
PHI had exercised its option to top the highest bid and that the COP had approved the
same on January 6, 1994. On February 24, 1994, the APT and PHI executed a Stock
Purchase Agreement. Consequently, petitioner filed with this Court a Petition for
[10]

Mandamus under G.R. No. 114057. On May 11, 1994, said petition was referred to the
Court of Appeals. On July 18, 1995, the Court of Appeals denied the same for lack of merit.
It ruled that the petition for mandamus was not the proper remedy to question the
constitutionality or legality of the right of first refusal and the right to top that was exercised
by KAWASAKI/PHI, and that the matter must be brought by the proper party in the proper
forum at the proper time and threshed out in a full blown trial. The Court of Appeals further
ruled that the right of first refusal and the right to top are prima facie legal and that the
petitioner, by participating in the public bidding, with full knowledge of the right to top
granted to KASAWASAKI/Philyards is . . .estopped from questioning the validity of the
award given to Philyards after the latter exercised the right to top and had paid in full the
purchase price of the subject shares, pursuant to the ASBR. Petitioner filed a Motion for
Reconsideration of said Decision which was denied on March 15, 1996. Petitioner thus filed
a Petition for Certiorari with this Court alleging grave abuse of discretion on the part of the
appellate court. [11]

On November 20, 2000, this Court rendered the now assailed Decision ruling among
others that the Court of Appeals erred when it dismissed the petition on the sole ground of
the impropriety of the special civil action of mandamus because the petition was also one
of certiorari. It further ruled that a shipyard like PHILSECO is a public utility whose
[12]

capitalization must be sixty percent (60%) Filipino-owned. Consequently, the right to

[13]

top granted to KAWASAKI under the Asset Specific Bidding Rules (ASBR) drafted for the
sale of the 87.67% equity of the National Government in PHILSECO is illegal---not only
because it violates the rules on competitive bidding--- but more so, because it allows foreign
corporations to own more than 40% equity in the shipyard. It also held that although the
[14]

petitioner had the opportunity to examine the ASBR before it participated in the bidding, it
cannot be estopped from questioning the unconstitutional, illegal and inequitable provisions
thereof. Thus, this Court voided the transfer of the national governments 87.67% share in
[15]

PHILSECO to Philyard Holdings, Inc., and upheld the right of JG Summit, as the highest
bidder, to take title to the said shares, viz:

WHEREFORE, the instant petition for review on certiorari is GRANTED. The assailed Decision
and Resolution of the Court of Appeals are REVERSED and SET ASIDE. Petitioner is ordered to
pay to APT its bid price of Two Billion Thirty Million Pesos (P2,030,000,000.00 ), less its bid
deposit plus interests upon the finality of this Decision. In turn, APT is ordered to:

(a) accept the said amount of P2,030,000,000.00 less bid deposit and interests from
petitioner;

(b) execute a Stock Purchase Agreement with petitioner;

 (c) cause the issuance in favor of petitioner of the certificates of stocks representing
87.6% of PHILSECOs total capitalization;

(d) return to private respondent PHGI the amount of Two Billion One Hundred Thirty-
One Million Five Hundred Thousand Pesos (P2,131,500,000.00); and

(e) cause the cancellation of the stock certificates issued to PHI.

SO ORDERED. [16]

In separate Motions for Reconsideration, respondents submit three basic issues for
[17]

our resolution: (1) Whether PHILSECO is a public utility; (2) Whether under the 1977 JVA,
KAWASAKI can exercise its right of first refusal only up to 40% of the total capitalization of
PHILSECO; and (3) Whether the right to top granted to KAWASAKI violates the principles
of competitive bidding.

I.
Whether PHILSECO is a Public Utility.

After carefully reviewing the applicable laws and jurisprudence, we hold that PHILSECO
is not a public utility for the following reasons:
First. By nature, a shipyard is not a public utility.
A public utility is a business or service engaged in regularly supplying the public with
some commodity or service of public consequence such as electricity, gas, water,
transportation, telephone or telegraph service. To constitute a public utility, the facility
[18]

must be necessary for the maintenance of life and occupation of the residents. However,
the fact that a business offers services or goods that promote public good and serve the
interest of the public does not automatically make it a public utility. Public use is not
synonymous with public interest. As its name indicates, the term public utility implies public
use and service to the public. The principal determinative characteristic of a public
utility is that of service to, or readiness to serve, an indefinite public or portion of the public
as such which has a legal right to demand and receive its services or commodities. Stated
otherwise, the owner or person in control of a public utility must have devoted it to such use
that the public generally or that part of the public which has been served and has accepted
the service, has the right to demand that use or service so long as it is continued, with
reasonable efficiency and under proper charges. Unlike a private enterprise which
[19]

independently determines whom it will serve, a public utility holds out generally and may not
refuse legitimate demand for service. Thus, in Iloilo Ice and Cold Storage Co. vs. Public
[20]

Utility Board, this Court defined public use, viz:

[21]
Public use means the same as use by the public. The essential feature of the public use is that it is not
confined to privileged individuals, but is open to the indefinite public. It is this indefinite or
unrestricted quality that gives it its public character. In determining whether a use is public, we must
look not only to the character of the business to be done, but also to the proposed mode of doing it. If
the use is merely optional with the owners, or the public benefit is merely incidental, it is not a public
use, authorizing the exercise of jurisdiction of the public utility commission. There must be, in
general, a right which the law compels the owner to give to the general public. It is not enough that
the general prosperity of the public is promoted. Public use is not synonymous with public
interest. The true criterion by which to judge the character of the use is whether the public may
enjoy it by right or only by permission. (emphasis supplied)
[22]

Applying the criterion laid down in Iloilo to the case at bar, it is crystal clear that a
shipyard cannot be considered a public utility.
A shipyard is a place or enclosure where ships are built or repaired. Its nature dictates
[23]

that it serves but a limited clientele whom it may choose to serve at its discretion. While it
offers its facilities to whoever may wish to avail of its services, a shipyard is not legally
obliged to render its services indiscriminately to the public. It has no legal obligation to
render the services sought by each and every client. The fact that it publicly offers its
services does not give the public a legal right to demand that such services be rendered.
There can be no disagreement that the shipbuilding and ship repair industry is imbued
with public interest as it involves the maintenance of the seaworthiness of vessels
dedicated to the transportation of either persons or goods. Nevertheless, the fact that a
business is affected with public interest does not imply that it is under a duty to serve the
public. While the business may be regulated for public good, the regulation cannot justify
the classification of a purely private enterprise as a public utility. The legislature cannot, by
its mere declaration, make something a public utility which is not in fact such; and a private
business operated under private contracts with selected customers and not devoted
to public use cannot, by legislative fiat or by order of a public service commission,
be declared a public utility, since that would be taking private property for public use
without just compensation, which cannot be done consistently with the due process
clause. [24]

It is worthy to note that automobile and aircraft manufacturers, which are of similar
nature to shipyards, are not considered public utilities despite the fact that their operations
greatly impact on land and air transportation. The reason is simple. Unlike commodities or
services traditionally regarded as public utilities such as electricity, gas, water,
transportation, telephone or telegraph service, automobile and aircraft manufacturing---and
for that matter ship building and ship repair--- serve the public only incidentally.
Second. There is no law declaring a shipyard as a public utility.
 History provides us hindsight and hindsight ought to give us a better view of the intent of
any law. The succession of laws affecting the status of shipyards ought not to obliterate, but
rather, give us full picture of the intent of the legislature. The totality of the circumstances,
including the contemporaneous interpretation accorded by the administrative bodies tasked
with the enforcement of the law all lead to a singular conclusion: that shipyards are not
public utilities.
Since the enactment of Act No. 2307 which created the Public Utility Commission (PUC)
until its repeal by Commonwealth Act No. 146, establishing the Public Service Commission
(PSC), a shipyard, by legislative declaration, has been considered a public utility. A [25]

Certificate of Public Convenience (CPC) from the PSC to the effect that the operation of the
said service and the authorization to do business will promote the public interests in a
proper and suitable manner is required before any person or corporation may operate a
shipyard. In addition, such persons or corporations should abide by the citizenship
[26]

requirement provided in Article XIII, section 8 of the 1935 Constitution, viz:[27]

Sec. 8. No franchise, certificate, or any other form or authorization for the operation of a public
utility shall be granted except to citizens of the Philippines or to corporations or other entities
organized under the laws of the Philippines, sixty per centum of the capital of which is owned by
citizens of the Philippines, nor shall such franchise, certificate or authorization be exclusive in
character or for a longer period than fifty years. No franchise or right shall be granted to any
individual, firm or corporation, except under the condition that it shall be subject to amendment,
alteration, or repeal by the National Assembly when the public interest so requires. (emphasis
supplied)

To accelerate the development of shipbuilding and ship repair industry, former President
Ferdinand E. Marcos issued P.D. No. 666 granting the following incentives:

SECTION 1. Shipbuilding and ship repair yards duly registered with the Maritime Industry Authority
shall be entitled to the following incentive benefits:

(a) Exemption from import duties and taxes.- The importation of machinery, equipment and materials
for shipbuilding, ship repair and/or alteration, including indirect import, as well as replacement and
spare parts for the repair and overhaul of vessels such as steel plates, electrical machinery and
electronic parts, shall be exempt from the payment of customs duty and compensating tax: Provided,
however, That the Maritime Industry Authority certifies that the item or items imported are not
produced locally in sufficient quantity and acceptable quality at reasonable prices, and that the
importation is directly and actually needed and will be used exclusively for the construction, repair,
alteration, or overhaul of merchant vessels, and other watercrafts; Provided, further, That if the
above machinery, equipment, materials and spare parts are sold to non-tax exempt persons or
entities, the corresponding duties and taxes shall be paid by the original importer; Provided, finally,
That local dealers and/or agents who sell machinery, equipment, materials and accessories to
shipyards for shipbuilding and ship repair are entitled to tax credits, subject to approval by the total
tariff duties and compensating tax paid for said machinery, equipment, materials and accessories.

(b) Accelerated depreciation.- Industrial plant and equipment may, at the option of the shipbuilder
and ship repairer, be depreciated for any number of years between five years and expected economic
life.

(c) Exemption from contractors percentage tax.- The gross receipts derived by shipbuilders and ship
repairers from shipbuilding and ship repairing activities shall be exempt from the Contractors Tax
provided in Section 91 of the National Internal Revenue Code during the first ten years from
registration with the Maritime Industry Authority, provided that such registration is effected not later
than the year 1990; Provided, That any and all amounts which would otherwise have been paid as
contractors tax shall be set aside as a separate fund, to be known as Shipyard Development Fund, by
the contractor for the purpose of expansion, modernization and/or improvement of the contractors
own shipbuilding or ship repairing facilities; Provided, That, for this purpose, the contractor shall
submit an annual statement of its receipts to the Maritime Industry Authority; and Provided, further,
That any disbursement from such fund for any of the purposes hereinabove stated shall be subject to
approval by the Maritime Industry Authority.

In addition, P.D. No. 666 removed the shipbuilding and ship repair industry from the list
of public utilities, thereby freeing the industry from the 60% citizenship requirement under
the Constitution and from the need to obtain Certificate of Public Convenience pursuant to
section 15 of C.A No. 146. Section 1 (d) of P.D. 666 reads:

(d) Registration required but not as a Public Utility.- The business of constructing and repairing
vessels or parts thereof shall not be considered a public utility and no Certificate of Public
Convenience shall be required therefor. However, no shipyard, graving dock, marine railway or
marine repair shop and no person or enterprise shall engage in construction and/or repair of any
vessel, or any phase or part thereof, without a valid Certificate of Registration and license for this
purpose from the Maritime Industry Authority, except those owned or operated by the Armed Forces
of the Philippines or by foreign governments pursuant to a treaty or agreement. (emphasis supplied)

Any law, decree, executive order, or rules and regulations inconsistent with P.D. No.
666 were repealed or modified accordingly. Consequently, sections 13 (b) and 15 of C.A.
[28]

No. 146 were repealed in so far as the former law included shipyards in the list of public
utilities and required the certificate of public convenience for their operation. Simply stated,
the repeal was due to irreconcilable inconsistency, and by definition, this kind of repeal falls
under the category of an implied repeal. [29]

On April 28, 1983, Batas Pambansa Blg. 391, also known as the Investment Incentive
Policy Act of 1983, was enacted. It laid down the general policy of the government to
encourage private domestic and foreign investments in the various sectors of the economy,
to wit:

Sec. 2. Declaration of Investment Policy.- It is the policy of the State to encourage private domestic
and foreign investments in industry, agriculture, mining and other sectors of the economy which
shall: provide significant employment opportunities relative to the amount of the capital being
invested; increase productivity of the land, minerals, forestry, aquatic and other resources of the
country, and improve utilization of the products thereof; improve technical skills of the people
employed in the enterprise; provide a foundation for the future development of the economy;
accelerate development of less developed regions of the country; and result in increased volume and
value of exports for the economy.

It is the policy of the State to extend to projects which will significantly contribute to the attainment
of these objectives, fiscal incentives without which said projects may not be established in the
locales, number and/or pace required for optimum national economic development. Fiscal incentive
systems shall be devised to compensate for market imperfections, reward performance of
making contributions to economic development, cost-efficient and be simple to administer.

The fiscal incentives shall be extended to stimulate establishment and assist initial operations of the
enterprise, and shall terminate after a period of not more than 10 years from registration or start-up of
operation unless a special period is otherwise stated.

The foregoing declaration shall apply to all investment incentive schemes and in particular will
supersede article 2 of Presidential Decree No. 1789. (emphases supplied)

With the new investment incentive regime, Batas Pambansa Blg. 391 repealed the
following laws, viz:

Sec. 20. The following provisions are hereby repealed:

1) Section 53, P.D. 463 (Mineral Resources Development Decree);

2.) Section 1, P.D. 666 (Shipbuilding and Ship Repair Industry);

3) Section 6, P.D. 1101 (Radioactive Minerals);

4) LOI 508 extending P.D. 791 and P.D. 924 (Sugar); and

5) The following articles of Presidential Decree 1789: 2, 18, 19, 22, 28, 30, 39, 49 (d), 62,
and 77. Articles 45, 46 and 48 are hereby amended only with respect to domestic and
export producers.
All other laws, decrees, executive orders, administrative orders, rules and regulations or parts thereof
which are inconsistent with the provisions of this Act are hereby repealed, amended or modified
accordingly.

All other incentive systems which are not in any way affected by the provisions of this Act may be
restructured by the President so as to render them cost-efficient and to make them conform with the
other policy guidelines in the declaration of policy provided in Section 2 of this Act. (emphasis
supplied)

From the language of the afore-quoted provision, the whole of P.D. No. 666, section 1
was expressly and categorically repealed. As a consequence, the provisions of C.A. No.
146, which were impliedly repealed by P.D. No. 666, section 1 were revived. In other [30]

words, with the enactment of Batas Pambansa Blg. 391, a shipyard reverted back to its
status as a public utility and as such, requires a CPC for its operation.
The crux of the present controversy is the effect of the express repeal of Batas
Pambansa Blg. 391 by Executive Order No. 226 issued by former President Corazon C.
Aquino under her emergency powers.
We rule that the express repeal of Batas Pambansa Blg. 391 by E.O. No. 226 did not
revive Section 1 of P.D. No. 666. But more importantly, it also put a period to the existence
of sections 13 (b) and 15 of C.A. No. 146. It bears emphasis that sections 13 (b) and 15 of
C.A. No. 146, as originally written, owed their continued existence to Batas Pambansa Blg.
391. Had the latter not repealed P.D. No. 666, the former should have been modified
accordingly and shipyards effectively removed from the list of public utilities. Ergo, with the
express repeal of Batas Pambansa Blg. 391 by E.O. No. 226, the revival of sections 13 (b)
and 15 of C.A. No. 146 had no more leg to stand on. A law that has been expressly
repealed ceases to exist and becomes inoperative from the moment the repealing law
becomes effective. Hence, there is simply no basis in the conclusion that shipyards remain
[31]

to be a public utility. A repealed statute cannot be the basis for classifying shipyards as
public utilities.
In view of the foregoing, there can be no other conclusion than to hold that a shipyard is
not a pubic utility. A shipyard has been considered a public utility merely by legislative
declaration. Absent this declaration, there is no more reason why it should continuously be
regarded as such. The fact that the legislature did not clearly and unambiguously express
its intention to include shipyards in the list of public utilities indicates that that it did not
intend to do so. Thus, a shipyard reverts back to its status as non-public utility prior to the
enactment of the Public Service Law.
This interpretation is in accord with the uniform interpretation placed upon it by the
Board of Investments (BOI), which was entrusted by the legislature with the preparation of
annual Investment Priorities Plan (IPPs). The BOI has consistently classified shipyards as
part of the manufacturing sector and not of the public utilities sector. The enactment of
Batas Pambansa Blg. 391 did not alter the treatment of the BOI on shipyards. It has been,
as at present, classified as part of the manufacturing and not of the public utilities sector. [32]

Furthermore, of the 441 Ship Building and Ship Repair (SBSR) entities registered with
the MARINA, none appears to have an existing franchise. If we continue to hold that a
[33]

shipyard is a pubic utility, it is a necessary consequence that all these entities should have
obtained a franchise as was the rule prior to the enactment of P.D. No. 666. But MARINA
remains without authority, pursuant to P.D. No. 474 to issue franchises for the operation of
[34]

shipyards. Surely,
the legislature did not intend to create a vacuum by continuously treating a shipyard as
a public utility without giving MARINA the power to issue a Certificate of Public
Convenience (CPC) or a Certificate of Public Convenience and Necessity (CPCN) as
required by section 15 of C.A. No. 146.
II.
Whether under the 1977 Joint Venture Agreement,
KAWASAKI can purchase only a maximum of 40%
of PHILSECOs total capitalization.

A careful reading of the 1977 Joint Venture Agreement reveals that there is nothing that
prevents KAWASAKI from acquiring more than 40% of PHILSECOs total capitalization.
Section 1 of the 1977 JVA states:

1.3 The authorized capital stock of Philseco shall be P330 million. The parties shall thereafter
increase their subscription in Philseco as may be necessary and as called by the Board of Directors,
maintaining a proportion of 60%-40% for NIDC and KAWASAKI respectively, up to a total
subscribed and paid-up capital stock of P312 million.

1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [renamed
PHILSECO] to any third party without giving the other under the same terms the right of first
refusal. This provision shall not apply if the transferee is a corporation owned and controlled by the
GOVERMENT [of the Philippines] or by a Kawasaki affiliate.

1.5 The By-Laws of SNS [PHILSECO] shall grant the parties preemptive rights to unissued shares of
SNS [PHILSECO]. [35]

Under section 1.3, the parties agreed to the amount of P330 million as the total
capitalization of their joint venture. There was no mention of the amount of their initial
subscription. What is clear is that they are to infuse the needed capital from time to time
until the total subscribed and paid-up capital reaches P312 million. The phrase maintaining
a proportion of 60%-40% refers to their respective share of the burden each time the Board
of Directors decides to increase the subscription to reach the target paid-up capital of P312
million. It does not bind the parties to maintain the sharing scheme all throughout the
existence of their partnership.
The parties likewise agreed to arm themselves with protective mechanisms to preserve
their respective interests in the partnership in the event that (a) one party decides to sell its
shares to third parties; and (b) new Philseco shares are issued. Anent the first situation, the
non-selling party is given the right of first refusal under section 1.4 to have a preferential
right to buy or to refuse the selling partys shares. The right of first refusal is meant to protect
the original or remaining joint venturer(s) or shareholder(s) from the entry of third persons
who are not acceptable to it as co-venturer(s) or co-shareholder(s). The joint venture
between the Philippine Government and KAWASAKI is in the nature of a
partnership which, unlike an ordinary corporation, is based on delectus personae. No
[36] [37]

one can become a member of the partnership association without the consent of all the
other associates. The right of first refusal thus ensures that the parties are given control
over who may become a new partner in substitution of or in addition to the original partners.
Should the selling partner decide to dispose all its shares, the non-selling partner may
acquire all these shares and terminate the partnership. No person or corporation can be
compelled to remain or to continue the partnership. Of course, this presupposes that there
are no other restrictions in the maximum allowable share that the non-selling partner may
acquire such as the constitutional restriction on foreign ownership in public utility. The
theory that KAWASAKI can acquire, as a maximum, only 40% of PHILSECOs shares is
correct only if a shipyard is a public utility. In such instance, the non-selling partner who is
an alien can acquire only a maximum of 40% of the total capitalization of a public utility
despite the grant of first refusal. The partners cannot, by mere agreement, avoid the
constitutional proscription. But as afore-discussed, PHILSECO is not a public utility and no
other restriction is present that would limit the right of KAWASAKI to purchase the
Governments share to 40% of Philsecos total capitalization.
Furthermore, the phrase under the same terms in section 1.4 cannot be given an
interpretation that would limit the right of KAWASAKI to purchase PHILSECO shares only to
the extent of its original proportionate contribution of 40% to the total capitalization of the
PHILSECO. Taken together with the whole of section 1.4, the phrase under the same
terms means that a partner to the joint venture that decides to sell its shares to a
third party shall make a similar offer to the non-selling partner. The selling partner
cannot make a different or a more onerous offer to the non-selling partner.
The exercise of first refusal presupposes that the non-selling partner is aware of the
terms of the conditions attendant to the sale for it to have a guided choice. While the right of
first refusal protects the non-selling partner from the entry of third persons, it cannot also
deprive the other partner the right to sell its shares to third persons if, under the same offer,
it does not buy the shares.
 Apart from the right of first refusal, the parties also have preemptive rights under
section 1.5 in the unissued shares of Philseco. Unlike the former, this situation does not
contemplate transfer of a partners shares to third parties but the issuance of new Philseco
shares. The grant of preemptive rights preserves the proportionate shares of the original
partners so as not to dilute their respective interests with the issuance of the new shares.
Unlike the right of first refusal, a preemptive right gives a partner a preferential right over the
newly issued shares only to the extent that it retains its original proportionate share in the
joint venture.
The case at bar does not concern the issuance of new shares but the transfer of a
partners share in the joint venture. Verily, the operative protective mechanism is the right of
first refusal which does not impose any limitation in the maximum shares that the non-
selling partner may acquire.
III.
Whether the right to top granted to KAWASAKI
in exchange for its right of first refusal violates
the principles of competitive bidding.

We also hold that the right to top granted to KAWASAKI and exercised by private
respondent did not violate the rules of competitive bidding.
The word bidding in its comprehensive sense means making an offer or an invitation to
prospective contractors whereby the government manifests its intention to make proposals
for the purpose of supplies, materials and equipment for official business or public use, or
for public works or repair. The three principles of public bidding are: (1) the offer to the
[38]

public; (2) an opportunity for competition; and (3) a basis for comparison of bids. As long [39]

as these three principles are complied with, the public bidding can be considered valid and
legal. It is not necessary that the highest bid be automatically accepted. The bidding rules
may specify other conditions or the bidding process be subjected to certain reservation or
qualification such as when the owner reserves to himself openly at the time of the sale the
right to bid upon the property, or openly announces a price below which the property will not
be sold. Hence, where the seller reserves the right to refuse to accept any bid made, a
binding sale is not consummated between the seller and the bidder until the seller accepts
the bid. Furthermore, where a right is reserved in the seller to reject any and all bids
received, the owner may exercise the right even after the auctioneer has accepted a bid,
and this applies to the auction of public as well as private property. Thus: [40]

It is a settled rule that where the invitation to bid contains a reservation for the Government to reject
any or all bids, the lowest or the highest bidder, as the case may be, is not entitled to an award as a
matter of right for it does not become a ministerial duty of the Government to make such an award.
Thus, it has been held that where the right to reject is so reserved, the lowest bid or any bid for that
matter may be rejected on a mere technicality, that all bids may be rejected, even if arbitrarily and
unwisely, or under a mistake, and that in the exercise of a sound discretion, the award may be made
to another than the lowest bidder. And so, where the Government as advertiser, availing itself of that
right, makes its choice in rejecting any or all bids, the losing bidder has no cause to complain nor
right to dispute that choice, unless an unfairness or injustice is shown. Accordingly, he has no ground
of action to compel the Government to award the contract in his favor, nor compel it to accept his
bid.
[41]

In the instant case, the sale of the Government shares in PHILSECO was publicly
known. All interested bidders were welcomed. The basis for comparing the bids were laid
down. All bids were accepted sealed and were opened and read in the presence of the
COAs official representative and before all interested bidders. The only question that
remains is whether or not the existence of KAWASAKIs right to top destroys the essence of
competitive bidding so as to say that the bidders did not have an opportunity for
competition. We hold that it does not.
The essence of competition in public bidding is that the bidders are placed on equal
footing. This means that all qualified bidders have an equal chance of winning the auction
through their bids. In the case at bar, all of the bidders were exposed to the same risk and
were subjected to the same condition, i.e., the existence of KAWASAKIs right to top. Under
the ASBR, the Government expressly reserved the right to reject any or all bids, and
manifested its intention not to accept the highest bid should KAWASAKI decide to exercise
its right to top under the ABSR. This reservation or qualification was made known to the
bidders in a pre-bidding conference held on September 28, 1993. They all expressly
accepted this condition in writing without any qualification. Furthermore, when the
Committee on Privatization notified petitioner of the approval of the sale of the National
Government shares of stock in PHILSECO, it specifically stated that such approval was
subject to the right of KAWASAKI Heavy Industries, Inc./Philyards Holdings, Inc. to top
JGSMIs bid by 5% as specified in the bidding rules. Clearly, the approval of the sale was a
conditional one. Since Philyards eventually exercised its right to top petitioners bid by 5%,
the sale was not consummated. Parenthetically, it cannot be argued that the existence of
the right to top set for naught the entire public bidding. Had Philyards Holdings, Inc. failed or
refused to exercise its right to top, the sale between the petitioner and the National
Government would have been consummated. In like manner, the existence of the right to
top cannot be likened to a second bidding, which is countenanced, except when there is
failure to bid as when there is only one bidder or none at all. A prohibited second bidding
presupposes that based on the terms and conditions of the sale, there is already a highest
bidder with the right to demand that the seller accept its bid. In the instant case, the highest
bidder was well aware that the acceptance of its bid was conditioned upon the non-exercise
of the right to top.
To be sure, respondents did not circumvent the requirements for bidding by granting
KAWASAKI, a non-bidder, the right to top the highest bidder. The fact that KAWASAKIs
nominee to exercise the right to top has among its stockholders some losing bidders cannot
also be deemed unfair.
It must be emphasized that none of the parties questions the existence of KAWASAKIs
right of first refusal, which is concededly the basis for the grant of the right to top. Under
KAWASAKIs right of first refusal, the National Government is under the obligation to give
preferential right to KAWASAKI in the event it decides to sell its shares in PHILSECO. It has
to offer to KAWASAKI the shares and give it the option to buy or refuse under the same
terms for which it is willing to sell the said shares to third parties. KAWASAKI is not a mere
non-bidder. It is a partner in the joint venture; the incidents of which are governed by the
law on contracts and on partnership.
It is true that properties of the National Government, as a rule, may be sold only after a
public bidding is held. Public bidding is the accepted method in arriving at a fair and
reasonable price and ensures that overpricing, favoritism and other anomalous practices
are eliminated or minimized. But the requirement for public bidding does not negate the
[42]

exercise of the right of first refusal. In fact, public bidding is an essential first step in the
exercise of the right of first refusal because it is only after the public bidding that the terms
upon which the Government may be said to be willing to sell its shares to third parties may
be known. It is only after the public bidding that the Government will have a basis with
which to offer KAWASAKI the option to buy or forego the shares.
Assuming that the parties did not swap KAWASAKIs right of first refusal with the right to
top, KAWASAKI would have been able to buy the National Governments shares in
PHILSECO under the same terms as offered by the highest bidder. Stated otherwise, by
exercising its right of first refusal, KAWASAKI could have bought the shares for only P2.03
billion and not the higher amount of P2.1315 billion. There is, thus, no basis in the
submission that the right to top unfairly favored KAWASAKI. In fact, with the right to top,
KAWASAKI stands to pay higher than it should had it settled with its right of first refusal.
The obvious beneficiary of the scheme is the National Government.
If at all, the obvious consideration for the exchange of the right of first refusal with the
right to top is that KAWASAKI can name a nominee, which it is a shareholder, to exercise
the right to top. This is a valid contractual stipulation; the right to top is an assignable right
and both parties are aware of the full legal consequences of its exercise. As aforesaid, all
bidders were aware of the existence of the right to top, and its possible effects on the result
of the public bidding was fully disclosed to them. The petitioner, thus, cannot feign
ignorance nor can it be allowed to repudiate its acts and question the proceedings it had
fully adhered to.[43]

The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group,
Insular Life Assurance, Mitsui and ICTSI), has joined Philyards in the latters effort to
raise P2.131 billion necessary in exercising the right to top is not contrary to law, public
policy or public morals. There is nothing in the ASBR that bars the losing bidders from
joining either the winning bidder (should the right to top is not exercised) or KAWASAKI/PHI
(should it exercise its right to top as it did), to raise the purchase price. The petitioner did
not allege, nor was it shown by competent evidence, that the participation of the losing
bidders in the public bidding was done with fraudulent intent. Absent any proof of fraud, the
formation by Philyards of a consortium is legitimate in a free enterprise system. The
appellate court is thus correct in holding the petitioner estopped from questioning the
validity of the transfer of the National Governments shares in PHILSECO to respondent.
Finally, no factual basis exists to support the view that the drafting of the ASBR was
illegal because no prior approval was given by the COA for it, specifically the provision on
the right to top the highest bidder and that the public auction on December 2, 1993 was not
witnessed by a COA representative. No evidence was proffered to prove these allegations
and the Court cannot make legal conclusions out of mere allegations. Regularity in the
performance of official duties is presumed and in the absence of competent evidence to
[44]

rebut this presumption, this Court is duty bound to uphold this presumption.
IN VIEW OF THE FOREGOING, the Motion for Reconsideration is hereby
GRANTED. The impugned Decision and Resolution of the Court of Appeals are
AFFIRMED.
SO ORDERED.

c) Partners liability for partnership obligation (nature) (Art.

1816 in rel. to 1824)
-Liwanag vs. Workmens Compenstion Commission, 105 Phil.
741
G.R. No. L-12164 May 22, 1959

BENITO LIWANAG and MARIA LIWANAG REYES, petitioners-appellants,

vs.
WORKMEN'S COMPENSATION COMMISSION, ET AL., respondents-appellees.

J. de Guia for appellants.

Estanislao R. Bayot for appellees.

ENDENCIA, J.:

Appellants Benito Liwanag and Maria Liwanag Reyes are co-owners of Liwanag Auto Supply, a commercial guard
who while in line of duty, was skilled by criminal hands. His widow Ciriaca Vda. de Balderama and minor children
Genara, Carlos and Leogardo, all surnamed Balderama, in due time filed a claim for compensation with the
Workmen's Compensation Commission, which was granted in an award worded as follows:
 WHEREFORE, the order of the referee under consideration should be, as it is hereby, affirmed and
respondents Benito Liwanag and Maria Liwanag Reyes, ordered.

1. To pay jointly and severally the amount of three thousand Four Hundred Ninety Four and 40/100
(P3,494.40) Pesos to the claimants in lump sum; and

To pay to the Workmen's Compensation Funds the sum of P4.00 (including P5.00 for this review) as fees,
pursuant to Section 55 of the Act.

In appealing the case to this Tribunal, appellants do not question the right of appellees to compensation nor the
amount awarded. They only claim that, under the Workmen's Compensation Act, the compensation is divisible, hence
the commission erred in ordering appellants to pay jointly and severally the amount awarded. They argue that there is
nothing in the compensation Act which provides that the obligation of an employer arising from compensable injury or
death of an employee should be solidary obligation, the same should have been specifically provided, and that, in
absence of such clear provision, the responsibility of appellants should not be solidary but merely joint.

At first blush appellants' contention would seem to be well, for ordinarily, the liability of the partners in a partnership is
not solidary; but the law governing the liability of partners is not applicable to the case at bar wherein a claim for
compensation by dependents of an employee who died in line of duty is involved. And although the Workmen's
Compensation Act does not contain any provision expressly declaring solidary obligation of business partners like the
herein appellants, there are other provisions of law from which it could be gathered that their liability must be solidary.
Arts. 1711 and 1712 of the new Civil Code provide:

ART. 1711. Owners of enterprises and other employers are obliged to pay compensation for the death of or
injuries to their laborers, workmen, mechanics or other employees, even though the event may have been
purely accidental or entirely due to a fortuitous cause, if the death or personal injury arose out of and in the
course of the employment. . . . .

ART. 1712. If the death or injury is due to the negligence of a fellow-worker, the latter and the employer shall
be solidarily liable for compensation. . . . .

And section 2 of the Workmen's Compensation Act, as amended reads in part as follows:

. . . The right to compensation as provided in this Act shall not be defeated or impaired on the ground that the
death, injury or disease was due to the negligence of a fellow servant or employee, without prejudice to the
right of the employer to proceed against the negligence party.

The provisions of the new Civil Code above quoted taken together with those of Section 2 of the Workmen's
Compensation Act, reasonably indicate that in compensation cases, the liability of business partners, like appellants,
should be solidary; otherwise, the right of the employee may be defeated, or at least crippled. If the responsibility of
appellants were to be merely joint and solidary, and one of them happens to be insolvent, the amount awarded to the
appellees would only be partially satisfied, which is evidently contrary to the intent and purposes of the Act. In the
previous cases we have already held that the Workmen's Compensation Act should be construed fairly, reasonably
and liberally in favor of and for the benefit of the employee and his dependents; that all doubts as to the right of
compensation resolved in his favor; and that it should be interpreted to promote its purpose. Accordingly, the present
controversy should be decided in favor of the appellees.

Moreover, Art. 1207 of the new Civil Code provides:

. . . . There is solidary liability only when the obligation expressly so states, or when the law or the nature of
the obligation requires solidarity.
Since the Workmen's Compensation Act was enacted to give full protection to the employee, reason demands that the
nature of the obligation of the employers to pay compensation to the heirs of their employee who died in line of duty,
should be solidary; otherwise, the purpose of the law could not be attained.

Wherefore, finding no error in the award appealed from, the same is hereby affirmed, with costs against appellants.

Paras, C. J., Bengzon, Padilla, Montemayor, Bautista Angelo, Labrador, and Concepcion, JJ., concur.

4. Duty to wind up/ liquidate partnership affairs (Art.

1836)
-Aldecoa & Co. vs. Warner, Barnes & Co., 16 Phil. 423
G.R. No. L-5242 August 6, 1910

ALDECOA & CO., plaintiff-appellant,

vs.
WARNER, BARNES & CO., LTD., defendant-appellee.

Rosado, Sanz and Opisso, for appellant.

Haussermann, Ortigas, Cohn and Fisher, for appellee.

TORRES, J.:

By a complaint filed on September 26, 1907, the legal representative of Aldecoa and Co., in liquidation, filed suit in the
Court of First Instance of Manila against Warner, Barnes and Co., Ltd., alleging in the first three paragraphs of their
complaint, as a cause of action, that the plaintiff is a regular collective mercantile association organized in accordance
with the laws of these islands, duly registered in the mercantile registry, and at present in liquidation; that the
defendant is a joint stock mercantile firm organized in accordance with the laws of England, registered in the
mercantile registry of Manila, and has done and is still doing business in these Islands under the name of Warner,
Barnes and Co., Ltd., which required the business that was conducted in these Islands by Warner, Barnes and Co.,
the assets, liabilities, and all the obligations of which were assumed by the defendant.

In other paragraphs of the complaint, from the fourth to the twelfth, the plaintiff set forth that, prior to December 1,
1898, Warner, Barnes and Co. were conducting a business in Albay, the principal object of which was the purchase of
hemp in the pueblos of Legaspi and Tobacco for the purpose of bringing it to Manila, here to sell if for exportation, and
that on the said date of December 1, 1898, the plaintiff company became interested in the said business of Warner,
Barnes and Co., in Albay and formed therewith a joint-account partnership whereby Aldecoa and Co., were to share
equally in the gains and losses of the business in Albay; that the defendant is the successor to all the rights and
obligations of Warner, Barnes and Co., among which is that of being manager of the said joint-account partnership
with Aldecoa and Co.; that the defendant acted, and continues to act as such manager, and is obliged to render
accounts supported by proofs, and to liquidate the business, which defendant not only has not done, in spite of the
demand made upon it, but it has expressly denied the right of plaintiff to examine the vouchers, contenting itself with
forwarding copies of the entries in its books, which entries contain errors and omissions that hereinafter will be
mentioned.

Said entries moreover, whereas its operations should have commenced and did commence on December 1, 1898, on
which date the joint-account partnership commenced; that, with respect to the liquidation of the business, the
operations having been closed on December 31, 1903, Warner, Barnes and Co., Ltd., the defendant, has not realized
upon the assets of the firm by selling the property which constitutes its capital; that the persons who were the
managers and general partners of Warner, Barnes and Co., Ltd., and are the managers and directors of that firm in
the Philippine Islands and are the ones who, under the previous firm name of Warner, Barnes and Co., admitted
Aldecoa and Co. as a participant in one-half of the said business, on the 1st day of December, 1898; that the said
directors of the defendant company, unlawfully, maliciously, and criminally conspired with the persons who were
managing the commercial firm of Aldecoa and Co. during the years 1899, 1900, 1901, 1902, and 1903, to defraud the
latter of its interest in the said joint-account partnership, buying the silence of the said managers with respect to the
operations of the joint-account partnership during the time comprised between the 1st of December, 1898, and the
30th of June, 1899, and also with respect to the errors and omission in the accounts relating to the second semester
of 1899, and those relating to 1900, 1901, 1902, and 1903.

That the said fraudulent acts were not known to the partners of the plaintiff firm until the managers, in collusion with
the managers of the defendant firm to defraud and injure the plaintiff firm, had ceased to hold their positions, to wit,
until after the 31st of December, 1906, and that by reason of this conspiracy to defraud the plaintiffs, the defendants
have been benefited; that the errors and omissions found in the entries of the books kept by the defendant firm as
manager of the joint-account partnership are those expressed in details here below:

(a) It appears that between the 10th of July and the 26th of December, 1899, 43,934 piculs of hemp arrived in Manila
for the joint-account partnership, which were purchased in Legaspi and Tobacco at 13 pesos per picul, and, after
charging against this hemp excessive expenses for collection, storage, freight, fire, marine, and war insurance,
personnel, etc., the defendants, Warner, Barnes and Co., as managers of the joint-account partnership and
commission agents of their joint-account partners, claim that they purchased the said hemp for themselves, but do not
give the price received from the sale thereof and merely credit it at 13 pesos a picul, when the average market price at
that time was 16.50 pesos a picul; said defendants thereby injuring plaintiffs to the amount of P76,884.50.

(b) Striking a balance from the amount of hemp debited and that credited, there results a difference of 4,332.96 piculs
not credited which, at 24 pesos a picul, the market price at the time, represents an injury to plaintiffs to the extent of
P51,995.52, the said deficit, with respect to the hemp, pertaining to the period beginning with December 31, 1899, in
the manner shown by the following table:

Invoices & Cr. Dr.

Piculs Piculs

1899 Dec. 31 ....................................... 86,534.18 43,934

1900 Apr. 30 ...................................... 13,069.97 50,261.78

1900 Dec. 31 ...................................... 67,892.56 71,277

1901 Dec. 31 ...................................... 101,253.31 100,342

1902 Dec. 31 ...................................... 98,074.52 94,279.20

1903 Dec. 31 ...................................... 66,482.49 68,880.09 433,307.03 428,974.07

4,332.96 Lacking .............................................. 433,307.03 433,307.03

(c) In 1900, on April 30, Messrs. Warner, Barnes and Co. Ltd., give credit for 5,485 piculs of hemp, at 16 pesos a
picul, when the market price at that time, according to themselves, was P23.78; thereby injuring plaintiffs in the sum
of P21,350.36.
(d) In 1901, on the date of January 31, Messrs. Warner, Barnes and Co., Ltd give credit for 4,600 piculs of hemp, at
8.93 pesos a picul, when, according to themselves, the market price at that time was 11.50 pesos a picul; thereby
injuring plaintiffs in the sum of P5,911.

(e) One of the sources of profit of the joint-account partnership between Aldecoa and Co. and Warner, Barnes and
Co., Ltd., was from the pressing of hemp, which profit is to be credited to the partnership joint-accounts, when the
hemp is realized in Manila, and from this source there are due to the plaintiffs P149,084.12, in which sum they have
been injured by the defendants. The said credit for pressing is omitted from the books of Warner, Barnes and Co.,
Ltd., and should be entered as follows:

1899 ............................................. 21,968 bales, at P1.25 ................................. P27,460 1900 to April 30

......................... 25,130 bales, at P1.25 ................................. 31,412.50 1900 May 10 to Dec. 31 ............
35,639 bales, at P1.25 ................................. 44,548.75 1901.............................................. 50,151 bales, at
P1.25 ................................. 62,688.75 1902 to July 31 ........................... 26,825 bales, at P1.25
................................. 33,531.25
Aug. 1 to Dec. 31 ............. 20,314 bales, at P1.75 ................................. 35,549.50 1903
............................................. 34,440 bales, at P1.75 ................................. 60,270

214,467 bales ................................................. 295,460.75 2,166 bales, lacking, at P1.25

2,707.50

216,633 bales .................................................. 298,168.25 20 loose.

216,653 bales.

(f) Another error found in the books of Warner, Barnes, and Co., Ltd., is in connection with the outstanding accounts,
which are debited in the sum of P52,510.36, while only P2,769.24 are credited in the manner set out in the following
statement:

DR.

1899 July 31. W.B. and Co., Tobacco, transferred to net

account their account sale 92.25 piculs hides

by Kongsee ............................................................................. P1,149.46

1899 Dec. 31. For transfer account to cover business this

semester without statement .................................................. 16,100.57

1900 Feb. 28. As transferred account items noted page

114 day-book .......................................................................... 18,635.08

1900 Feb. 28. To cover war insurance, January ................................................. 4,000

1900 Feb. 28. To cover outstanding accounts ................................................... 2,625.25 52,510.36

 CR.

1900 Feb. 28. As transferred account items noted page

113 day-book .......................................................................... 2,769.24

There remain, therefore ......................................................... 49,741.12 of which one-half, that is

...................................................... 24,870.56 belongs to the plaintiffs.

(g) In 1900, there is unduly included an item of net account which should be stricken out, as it does not pertain to this
business. This item is the following:

1900

June 30. To Miguel Estela. For transfer made to his account

of 5 per cent commission on his hemp, which should

not be paid according to agreement ..................................... P870.75

Half of this sum, P435.37, must be credited to the plaintiffs.

(h) On the date of December 26, 1899, Messrs. Warner, Barnes and Co., Ltd., deduct from the profits which they
show as belonging to Aldecoa and Co., the sum of P7,400, under the appearance of the insurance premium, and they
delivered that sum to the plaintiffs' managers with whom they conspired, for the purposes of the collusion alleged in
Paragraph VII of the complaint, in the manner failing to observe the truth in their statement of the facts. Aldecoa and
Co., therefore, claim for themselves this amount, P7,400.

(i) On December 31, 1903, on a capital of P50,000 brought in by Aldecoa and Co., and to whom it should bear 5 per
cent interest from the 8th of June, 1900, the interest is unduly credited to the joint-account, thereby injuring the
plaintiffs in the sum of P8,750.

(j) On December 31, 1902, Aldecoa and Co. are charged with six months' interest, amounting to P736.46, on a
balance debited against them for alleged losses, and on June 30, 1903, they are charged with P1,818.58 for a like
reason. These two items should be stricken out, because the accounts when correctly made to show no losses, but
profits. By such debits the plaintiffs have been injured in the sum of P1,277.52.

(k) In the entries corresponding to the years 1902 and 1903, Warner, Barnes and Co., Ltd., give the price of "corriente
buena" (currect good), to the grade which, according to the mark, was classified as "abaca superior" (superior hemp);
the price of "corriente ordinario" (current ordinary), to the hemp marked under the classification of "corriente buena"
(current good); the price of "segunda superior" (second superior), to what is "corriente" or "current," and so on
successively; whence results a difference of price to the value of P233,102.18, in 1902, and P74,274.90, in 1903, one-
half of which differences should be credited to Aldecoa and Co., that is P153,688.54.

(l) The value of the properties brought in by Warner, Barnes and Co., Ltd., to the joint-account, instead of cash capital,
is omitted from the accounts. These properties are the following:

Those purchased from Mariano Roisa, consisting of one galvanized-iron-roofed warehouse, with hemp press; one
house of strong materials and the lot on which it stands, in Tobacco, P12,000.
That purchased from Juana Roisa, which is one small warehouse of strong materials, in Tobacco, worth about
P2,500.

Those purchased from D. Manuel Zalvidea situated in Tobacco, which are: One warehouse of strong materials, with
press; another warehouse of strong materials; and two houses of strong materials, together with the lots on which
they are built, P22,000.

Those purchased from D. Marcos Zubeldia, in Legaspi, which are: Four warehouses with three hemp presses, and
one house of strong materials, with their corresponding lots, P50,000.

Total cost, P86,500.

The complaint further sets forth that if the entries made by the defendant in its books show in themselves the
foregoing errors and omissions, the plaintiff has good grounds for believing that, if the vouchers were examined, still
greater errors would be found, as to which the plaintiff can not formulate its claims with exactness until the defendant
renders it an account, accompanied by vouchers; that the defendant, as manager of the joint-account partnership with
Alcodea & Co., neglected to comply with what is especially prescribed in article 243 of the Code of Commerce, as a
duty to inherent to its position as manager of the joint-account partnership, which is that of rendering an account with
vouchers, and that of liquidating the said business, for it refuses to furnish the plaintiff the documents required for their
examination and verification, and also refuses to realize the firm assets by selling the warehouses, houses, and other
property which constitute the capital; that, as the defendant refuses to do the things above related, the plaintiff has no
other easy, expeditious and suitable remedy than to petition the court for a writ of mandamus, wherefore it prays the
court to protect it in its rights and to issue the said mandamus against the defendant, ordering it, within a date set for
this purpose, to render to the court an account, accompanied by invoices, receipts, and vouchers of the Albay
business, beginning the said account as of December 1, 1898, the date on which the partnership was formed, and
correcting in it errors and omissions related in paragraph 9 of this complaint; that the defendant credit and pay to the
plaintiff the sums alleged in that paragraph to be due to the plaintiff, with interest at the legal rate upon the sums of
omitted for the difference between the amounts incorrectly debited and credited, from the respective dates on which
they should appear, if correctly entered; that after the said accounts have been rendered and discussed, judgment be
entered for any balance which may appear in favor of the plaintiff, including the sums claimed, and legal interest
thereon. The plaintiff also prays that the writ of mandamus fix a term within which the defendant is to liquidate the
business, selling the properties aforementioned and distributing the proceeds between both the litigants, and that the
defendant be adjudged liable for costs of suit, and plaintiff be granted such other and further relief as may be found
just and equitable.

On November 11, 1907, the defendant filed a written answer an counterclaim against the defendant, and,
notwithstanding the overruling of the demurrer filed by the latter to the counterclaim, the court by writ of December 4,
1907, ordered that the defendant should, within a period of five days, make its allegations more specific with respect
to certain particulars mentioned in the order of the court, and both parties being notified thereof, the defendant, on
January 24, 1908 prayed the court to authorize it to file the attached amended answer instead of the original one.

In the said amended answer the firm of Warner, Barnes & Co. Ltd., the defendant, states that it denies each and every
one of the allegations of the complaint, with the exception of those which are expressly admitted in its answer, and
admit the allegations of paragraphs 1, 2, and 3 of the complaint. In answer to the allegations of paragraphs 4 to 12 of
the complaint, it admits that on June 30, 1899, a joint-account partnership was formed between the plaintiff and the
defendant transactions of which were the purchase of hemp in Legaspi and Tobacco, of which business one-half of
the results, whether losses or gains, appertained to the plaintiff. Defendant also admits that the said business
continued under the management of the defendant company, as manager of the said joint-account partnership, until
December 31, 1903; but it denies all the other allegations contained in the said paragraphs. For its first special
defense, the defendant alleges that during the period that the said joint-account partnership existed, the manager
thereof, the defendant, rendered to the plaintiff just and true accounts of its transaction as manager of the said
partnership, which accounts have been approved by the plaintiff, with the exception of those relating to the year 1903,
and as to the latter, that the same were objected to by plaintiff firm solely upon the grounds mentioned in clause (k) of
paragraph 9 of the complaint, which objections are wholly unfounded. As its second special defense, the defendant
alleges that more than four years have expired between the time the alleged right of action accrued to the plaintiff and
the date of the filing of the complaint. For all the reasons set forth in this amended answer, the defendant prayed that
it be absolved from the complaint, with the costs against the plaintiff.

On the subsequent to the 14th of August, 1908, the trial of this cause was held and oral evidence was introduced by
the plaintiff, but no witnesses were offered by the defendant, which finally moved for a dismissal of the case, and the
court, on December 26 of the same year, 1908, rendered judgment, dismissing the complaint with respect to the
petition for the rendering of an account, verified by invoices, receipts and vouchers, of the said Albay business,
pertaining to the period comprised from the beginning of the business to the 31st of December, 1902, inclusive,
assessing the costs against the plaintiff, and opening the second period of the trial with respect to the account for the
whole year 1903, in accordance with the ruling of the court made at the commencement of the hearing. The plaintiff
on being notified of this judgment filed a written exception thereto and announced his intention to forward through
regular channels a bill of exceptions, and by another writing moved for a new trial on the ground that the evidence did
not justify the judgment rendered, which it alleged it was openly and manifestly contrary to the weight of the evidence
and to law. This motion being denied, to which exception was taken by the plaintiff, the latter duly filed a proper bill of
exceptions which was certified to and forwarded to this court, together with all the documentary and oral evidence
produced at the trial.

This litigation concerns the rendering of accounts pertaining to the management of the business of a joint-account
partnership formed between the two litigants companies.

Both the plaintiff and the defendant are in accord that, through verbal agreement, the said partnership was
established, whereby they should share equally the profits and losses of the business of gathering and storing hemp
in Albay and selling it in Manila for exportation, and that the commercial firm of Warner, Barnes and Co., Ltd., was the
manager of the said joint-account partnership.

The disagreement between the parties consists in the following points: First, as to the date when the partnership was
formed and began business in the province mentioned; second, whether the managing firm did render accounts, duly
verified by vouchers, of its management from the date of the organization of the partnership; third, whether errors and
omission, prejudicial to the plaintiff, Aldecoa and Co., exist in the partnership books and in its accounts, and whether,
in the management of the said business, fraudulent acts were committed also to the plaintiff's injury; and, fourth,
whether the partnership property should be included in the liquidation of the said business and in the accounts
appertaining to the year 1903, when the existence of the partnership came to an end.

With respect to the date on which the said partnership began, the plaintiff, Aldecoa and Co., submitted evidence
unrebutted by that of the defendant, Warner, Barnes and Co., Ltd., and although the latter averred that the joint-
account partnership began on June 30, 1899, denying that it was commenced, or was formed, on December 1, 1898,
as the plaintiff says that it was, it is certain that the defendant has not proved its averment; and if, on the opening of
this case de novo it shall not have done so within such period as the court may see fit to determine, it will be proper to
find in accordance with the value of the evidence adduced by the plaintiff and to advise the defendant to render, within
a fixed period, accounts, verified by vouchers, of the management of the partnership business and pertaining to the
seven months from December 1, 1898, to June 29, 1899; and, in view of the evidence adduced by the plaintiff in proof
of the aforesaid first point, if the defendant does not produce other evidence in rebuttal, they must, for some reason,
be expressly rejected in the judgment, if they are not to be taken into account in reaching the conclusions or in
considering the case upon the merits.

As regards the second point, we agree with the opinion expressed by the lower court and find that the firm of Warner,
Barnes and Co., Ltd., did render accounts from June 30, 1899, to December 31, 1902, inasmuch as the very evidence
introduced by the plaintiff showed that the said accounts had been rendered and were approved by it, according to the
context of its own letters of the dates of July 27, 1907, and February 19, 1903. Therefore, the plaintiff is in nowise
entitled, and has no right of action to compel the defendant to render the accounts pertaining to that period, they
having already been rendered and duly approved.

It is a rule of law generally observed that he who takes charge of the management of another's property is bound
immediately thereafter to render accounts covering his transactions; and that it is always to be understood that all
accounts rendered must be duly substantiated by vouchers.

It is a fact admitted by both litigating parties that Warner, Barnes and Co., Ltd., was the manager of the business of
the joint-account partnership formed between it and Aldecoa and Co., it is unquestionable that it was and is the
defendant's duty to render accounts of the management of the business, as it partially has done. Although the
defendant has not proved, as it should have done, that it complied with its duty of rendering accounts of its
management, since the letters themselves exhibited by the plaintiff, and duly authenticated as being written by the
latter, prove that the defendant did render accounts from June 30, 1899, to December 31, 1902, no legal reason
whatever exists for not accepting the finding of the lower court which decided that it had been proved that accounts
were rendered pertaining to the period mentioned and that the said accounts were approved by the plaintiff.

The procedure of the plaintiff is truly inexplicable in accepting and approving accounts that were rendered to it, and
which only begin with June 30, 1899, inasmuch as such approval would appear to indicate that it agreed to the claim
made by the defendant that the partnership commenced on the said date; but even so, once that it is proved that the
actual date on which the partnership was formed was December 1, 1898, and that it is not shown that the defendant
has rendered accounts corresponding to the seven months subsequent to the said date of December 1, the
acceptation and approval of accounts rendered since the 30th of June 1899, does not excuse nor release the
manager of the partnership, the defendant, from complying with its unquestionable duty of rendering accounts
covering the aforesaid seven months. The presumption must be sustained until proof to the contrary is presented.

Moreover, the approval of accounts corresponding to the years from June 30, 1899, to December 31, 1902, does not
imply that the said approved accounts comprise those pertaining that the seven months mentioned, December 1,
1899, to June 29, 1899, because the defendant, the accountant, denied that the partnership commenced on the
aforesaid date of December 1st, asserting it began on June 30, 1899; wherefore, on defendant's rendering those
accounts, it is to be presumed that it did so from the date which it avers was that of the information of the partnership
and the beginning of the business, and it is therefore evident that it has not rendered accounts pertaining to the seven
months mentioned.

With respect to the third point relative to whether errors and omissions prejudicial to the plaintiff, Aldecoa & Co., exist
in the partnership books and in its accounts, and whether, in the management of the said business, fraudulent acts
were committed to plaintiff's injury, it must be borne in mind that once accounts have been approved which were
rendered by the managing firm of Warner, Barnes & Co., Ltd., the plaintiff, Aldecoa & Co., is not entitled afterwards to
claim a revision of the same, unless it shows that there was fraud, deceit, error, or mistake in the approval of the said
accounts.

Under these hypothesis, Alcodea & Co. are strictly obliged to prove the errors, omissions, and fraudulent acts
attributed to the defendant, in connection with the accounts already rendered, and approved by them, in order that the
same may be revised in accordance with law and the jurisprudence of the courts. (Pastor vs. Nicasio, 6 Phil. Rep.,
152.)

The approval of an account does not prevent its subsequent revision, or at least its correction, if it is proved in a
satisfactory manner that there was deceit and fraud or error and omission in it. (Arts. 1265, 1266, Civil Code.)

Law 30, title 11, 5th Partida, provides, among other things, the following:

That is precisely what we say should be observed, in all other accounts that men make among themselves, in
connection with the things which belong to them. Notwithstanding that they may acknowledge the settlement
 of the accounts between them and promise never to bring them up again, if it had be known in truth that he
who gave the account or had the things in his keeping, concealed anything deceitfully, or committed other
fraud against those who have a share in such thing, then neither the suit, nor such previous status and
promise shall avail; on the contrary, we say that they may sue him to compel him to remedy the deceit he
committed against them, and to pay all the damages and losses that have accrued to them by reason thereof;
provided, however, he especially shall not have repaired the deceit that he committed.

So that it does not matter that the accounts pertaining to the years comprised between the 30th of June, 1899, and
the 31st of December, 1902, may have been approved by Aldecoa & Co. Whenever this firm shall succeed in proving
that there was error, omission, fraud, or deceit in these accounts, they may be duly revised, according to the law.

With regard to the last point in controversy, the defendant agrees that the plaintiff has not yet approved the accounts
that the former rendered, pertaining to 1903, the last years of the existence of the joint-account partnership; and, for
this reason, it was provided in the judgment appealed from that the trial should continue with respect to the said
accounts corresponding to the year 1903, in order that the plaintiff might take such objections and statements in
regard to the same as he deemed proper, and adduce the evidence conducive to prove his claim, in accordance with
law.

It is one of the duties of the manager of a joint-account partnership, to liquidate the assets that form the common
property, and to state the result obtained therefrom in the final rendering of the accounts which he is to present at the
conclusion of the partnership.

Article 243 of the Code of Commerce says;

The liquidation shall be effected by the manager, and after the transactions have been concluded he shall
render a proper account of its results.

It is a recognized fact, and one admitted by both parties that the partnership herein concerned concluded its
transactions on December 31, 1903; wherefore the firm of Warner, Barnes & Co. Ltd., the manager of the partnership,
in declaring the latter's transactions concluded and in rendering duly verified accounts of its results, owes the duty to
include therein the property and effects belonging to the partnership in common. This rule was established by the
supreme court of Spain in applying a similar precept of the mercantile code, in its decision on an appeal in causation
of the 1st of July, 1870, setting up the following doctrine:

In case of the liquidation of a company of this kind (denominated joint-account partnership), inasmuch as the
sale of the firm assets is necessarily uncertain and eventual, considering the greater or lesser selling price that
may be obtained from the property and effects which comprise such assets, the price received should be
alloted in the same proportion as that fixed in the contract for the division of the profits and losses, for
otherwise one of the partners would be benefited to the detriment and loss of his copartners.

This doctrine is perfectly legal and in accord with justice, as no person should enrich himself wrongfully at the expense
of another; and, in the case under review, should it be duly and fully proved that the managing firm acquired realty in
the name and at the expense of the joint-account partnership with the plaintiff firm, it is just that, in liquidating the
property of common ownership, such realty should be divided between the partners in the same manner as were the
profits and losses during the existence of the business, from the beginning of the partnership to the date of its
dissolution.

By the facts herein above set forth, it has been shown that in the present state of this cause resulting from the
rendering of the judgment appealed from, it has not been possible to decide in a final manner the various issues
brought up and controverted by the litigants, for, though it be granted as proved that the defendant firm, the manager
of the said partnership, has in fact rendered accounts pertaining to the years from June 30, 1899, to December 31,
1902, as found in the said judgment, there still remain to be decided the four points or questions of fact before
specified. Wherefore, and in accordance with section 496 of the Code of Civil Procedure, a new trial should be held
For the purpose of a final decision of all the questions involved in this litigation, and accordingly the judgment
appealed from is set aside and this cause shall be returned to the court below, accompanied by a certified copy of this
decision, for the holding of a new trial, for which purpose, first, the defendant shall be advised that it must, within a
fixed period, render an account, verified by vouchers, of its management of the business of the joint-account
partnership with the plaintiff, pertaining to the months from December 1, 1898, to June 29, 1899, and to the twelve
months of the year 1903, unless it shall prove in a satisfactory manner that the said partnership began on June 30,
1899, contrary to the averment of the plaintiff supported by evidence that it commenced on December 1, 1898, in
which case the said rendering of account shall be restricted to the twelve months of the year 1903, in the accounts of
which last period must be included all the property that is found to belong to the said partnership; second, in the
examination of the accounts that may be found to have been rendered, the parties may allege and prove facts
conducive to their revision or approval besides availing themselves of the evidence already adduced at trial; and,
third, with respect to the accounts corresponding to the period from June 30, 1899, to December 31, 1902, already
approved, the trial court shall be proceed in accordance with law, duly considering the errors, omissions, mistakes and
fraudulent or deceitful acts that have been alleged or may specifically be alleged in rejecting the said approved
accounts, as well as the evidence introduced by both parties, and it shall be careful to decide in its final judgment all
the issues raised between the parties in the course of this litigation and to provide such remedies as are proper in
regard to their respective claims. So ordered.

Johnson, Moreland and Trent, JJ., concur.

-Po Yeng Cheo vs. Lim Ka Yan, 44 Phil. 172

G.R. No. L-18707 December 9, 1922

PO YENG CHEO, plaintiff-appellee,

vs.
LIM KA YAM, defendant-appellant.

F. R. Feria and Romualdez Bros. for appellant.

Quintin Llorente and Carlos C. Viana for appellee.

STREET, J.:

By the amended complaint in this action, the present plaintiff, Po Yeng Cheo, alleged sole owner of a business
formerly conducted in the City of Manila under the style of Kwong Cheong, as managing partner in said business and
to recover from him its properties and assets. The defendant having died during the pendency of the cause in the
court below and the death suggested of record, his administrator, one Lim Yock Tock, was required to appear and
make defense.

In a decision dated July 1, 1921, the Honorable C. A. Imperial, presiding in the court below, found that the plaintiff was
entitled to an accounting from Lim Ka Yam, the original defendant, as manager of the business already reffered to,
and he accordingly required Lim Yock Tock, as administrator, to present a liquidation of said business within a stated
time. This order bore no substantial fruit, for the reason that Lim Yock Tock personally knew nothing about the
aforesaid business (which had ceased operation more than ten years previously) and was apparently unable to find
any books or documents that could shed any real light on its transaction. However, he did submit to the court a paper
written by Lim Ka Yam in life purporting to give, with vague and uncertain details, a history of the formation of the
Kwong Cheong Tay and some account of its disruption and cessation from business in 1910. To this narrative was
appended a statement of assets and liabilities, purporting to show that after the business was liquidate, it was actually
debtor to Lim Ka Yam to the extent of several thousand pesos. Appreciating the worthlessness of this so-called
statement, and all parties apparently realizing that nothing more was likely to be discovered by further insisting on an
accounting, the court proceeded, on December 27, 1921, to render final judgment in favor of the plaintiff.

The decision made on this occasion takes as its basis the fact stated by the court in its earlier decision of July 1, 1921,
which may be briefly set fourth as follows: lawphil. net

The plaintiff, Po Yeng Cheo, is the sole heir of one Po Gui Yao, deceased, and as such Po Yeng Cheo inherited the
interest left by Po Gui Yao in a business conducted in Manila under the style of Kwong Cheong Tay. This business
had been in existence in Manila for many years prior to 1903, as a mercantile partnership, with a capitalization of
P160,000, engaged in the import and export trade; and after the death of Po Gui Yao the following seven persons
were interested therein as partners in the amounts set opposite their respective names, to wit: Po Yeng Cheo,
P60,000; Chua Chi Yek, P50,000; Lim Ka Yam, P10,000; Lee Kom Chuen, P10,000; Ley Wing Kwong, P10,000;
Chan Liong Chao, P10,000; Lee Ho Yuen, P10,000. The manager of Kwong Cheong Tay, for many years prior of its
complete cessation from business in 1910, was Lim Ka Yam, the original defendant herein.

Among the properties pertaining to Kwong Cheong Tay and consisting part of its assets were ten shares of a total par
value of P10,000 in an enterprise conducted under the name of Yut Siong Chyip Konski and certain shares to the
among of P1,000 in the Manila Electric Railroad and Light Company, of Manila.

In the year 1910 (exact date unstated) Kwong Cheong Tay ceased to do business, owing principally to the fact that
the plaintiff ceased at that time to transmit merchandise from Hongkong, where he then resided. Lim Ka Yam appears
at no time to have submitted to the partners any formal liquidation of the business, though repeated demands to that
effect have been made upon him by the plaintiff.

In view of the facts above stated, the trial judge rendered judgment in favor of the plaintiff, Po Yeng Cheo, to recover
of the defendant Lim Yock Tock, as administrator of Lim Ka Yam, the sum of sixty thousand pesos (P60,000),
constituting the interest of the plaintiff in the capital of Kwong Cheong Tay, plus the plaintiff's proportional interest in
shares of the Yut Siong Chyip Konski and Manila Electric Railroad and Light Company, estimated at P11,000,
together with the costs. From this judgment the defendant appealed.

In beginning our comment on the case, it is to be observed that this court finds itself strictly circumscribed so far as
our power of review is concerned, to the facts found by the trial judge, for the plaintiff did not appeal from the decision
of the court below in so far as it was unfavorable to him, and the defendant, as appellant, has not caused a great part
of the oral testimony to be brought up. It results, as stated, that we must accept the facts as found by the trial judge;
and our review must be limited to the error, or errors, if any, which may be apparent upon the face of the appealed
decision, in relation with the pleadings of record.

Proceeding then to consider the appealed decision in relation with the facts therein stated and other facts appearing in
the orders and proceedings in the cause, it is quite apparent that the judgment cannot be sustained. In the first place,
it was erroneous in any event to give judgment in favor of the plaintiff to the extent of his share of the capital of Kwong
Cheong Tay. The managing partner of a mercantile enterprise is not a debtor to the shareholders for the capital
embarked by them in the business; and he can only be made liable for the capital when, upon liquidation of the
business, there are found to be assets in his hands applicable to capital account. That the sum of one hundred and
sixty thousand pesos (P160,000) was embarked in this business many years ago reveals nothing as to the condition
of the capital account at the time the concern ceased to do business; and even supposing--as the court possibly did--
that the capital was intact in 1908, this would not prove it was intact in 1910 when the business ceased to be a going
concern; for in that precise interval of time the capital may have been diminished or dissipated from causes in no wise
chargeable to the negligence or misfeasance of the manager.
Again, so far as appears from the appealed decision, the only property pertaining to Kwong Cheong Tay at the time
this action was brought consisted of shares in the two concerns already mentioned of the total par value of P11,000.
Of course, if these shares had been sold and converted into money, the proceeds, if not needed to pay debts, would
have been distributable among the various persons in interest, that is, among the various shareholders, in their
respective proportions. But under the circumstances revealed in this case, it was erroneous to give judgment in favor
of the plaintiff for his aliquot part of the par value of said shares. It is elementary that one partner, suing alone, cannot
recover of the managing partner the value of such partner's individual interest; and a liquidation of the business is an
essential prerequisite. It is true that in Lichauco vs. Lichauco (33 Phil., 350), this court permitted one partner to
recover of the manager the plaintiff's aliquot part of the proceeds of the business, then long since closed; but in that
case the affairs of the defunct concern had been actually liquidate by the manager to the extent that he had
apparently converted all its properties into money and had pocketed the same--which was admitted;--and nothing
remained to be done except to compel him to pay over the money to the persons in interest. In the present case, the
shares referred to--constituting the only assets of Kwong Cheong Tay--have not been converted into ready money
and doubtless still remain in the name of Kwong Cheong Tay as owner. Under these circumstances it is impossible to
sustain a judgment in favor of the plaintiff for his aliquot part of the par value of said shares, which would be
equivalent to allowing one of several coowners to recover from another, without process of division, a part of an
undivided property.

Another condition will be noted as present in this case which in our opinion is fatal to the maintenance of the appealed
judgment. This is that, after the death of the original defendant, Lim Ka Yam, the trial court allowed the action to
proceed against Lim Yock Tock, as his administrator, and entered judgment for a sum of money against said
administrator as the accounting party,--notwithstanding the insistence of the attorneys for the latter that the action
should be discontinued in the form in which it was then being prosecuted. The error of the trial court in so doing can
be readily demonstrated from more than one point of view.

In the first place, it is well settled that when a member of a mercantile partnership dies, the duty of liquidating its affair
devolves upon the surviving member, or members, of the firm, not upon the legal representative of the deceased
partner. (Wahl vs. Donaldson Sim & Co., 5 Phil., 11; Sugo and Shibata vs. Green, 6 Phil., 744) And the same rule
must be equally applicable to a civil partnership clothed with the form of a commercial association (art. 1670, Civil
Code; Lichauco vs. Lichauco, 33 Phil., 350) Upon the death of Lim Ka Yam it therefore became the duty of his
surviving associates to take the proper steps to settle the affairs of the firm, and any claim against him, or his estate,
for a sum of money due to the partnership by reason of any misappropriation of its funds by him, or for damages
resulting from his wrongful acts as manager, should be prosecuted against his estate in administration in the manner
pointed out in sections 686 to 701, inclusive, of the Code of Civil Procedure. Moreover, when it appears, as here, that
the property pertaining to Kwong Cheong Tay, like the shares in the Yut Siong Chyip Konski and the Manila Electric
Railroad and Light Company, are in the possession of the deceased partner, the proper step for the surviving
associates to take would be to make application to the court having charge to the administration to require the
administrator to surrender such property.

But, in the second place, as already indicated, the proceedings in this cause, considered in the character of an action
for an accounting, were futile; and the court, abandoning entirely the effort to obtain an accounting, gave judgment
against the administrator upon the supposed liability of his intestate to respond for the plaintiff's proportionate share of
the capital and assets. But of course the action was not maintainable in this aspect after the death of the defendant;
and the motion to discontinue the action as against the administrator should have been granted.

The judgment must be reversed, and the defendant will be absolved from the complaint; but it will be understood that
this order is without prejudice to any proceeding which may be undertaken by the proper person or persons in interest
to settle the affairs of Kwong Cheong Tay and in connection therewith to recover from the administrator of Lim Ka
Yam the shares in the two concerns mentioned above. No special pronouncement will be made as to costs of either.
So ordered.
Araullo, C. J., Johnson, Malcolm, Avancea, and Villamor, JJ., concur.
Ostrand, J., concurs in the result.
Johns, and Romualdez, JJ., took no part in the decision of this case.

-Guidote vs. Borja, 53 Phil. 900

G.R. No. L-28920 October 24, 1928

MAXIMO GUIDOTE, plaintiff-appellant,

vs.
ROMANA BORJA, as administratrix of the estate of Narciso Santos, deceased, defendant-appellee.

Francisco, Lualhati and Lopez for appellant.

M. G. Goyena for appellee.

OSTRAND, J.:

On March 4, 1921, the plaintiff brought an action against the administratrix of the estate of Narciso Santos, deceased,
to recover the sum of P9,534.14, a part of which was alleged to be the net profits due the plaintiff in a partnership
business conducted under the name of "Taller Sinukuan," in which the deceased was the capitalist partner and the
plaintiff the industrial partner, the rest of the sum consisting of advances alleged to have been made to said
partnership by the plaintiff. The defendant in her answer admitted the existence of the partnership and in a cross-
complaint and counter-claim prayed that the plaintiff be ordered to render an accounting of the partnership business
and to pay to the estate of the deceased the sum of P25,000 as net profits, credits, and property pertaining to said
deceased.

In the first trial of the case the plaintiff called several witnesses and introduced a so-called accounting and a mass of
documentary evidence consisting of books, bills, and alleged vouchers, which documentary evidence was so
hopelessly and inextricably confused that the court, as stated in its decision, could not consider it of much probative
value. It was, however, fund as facts that the aforesaid partnership had been formed, on or about June 15, 1918; that
Narciso Santos died on April 6, 1920, leaving the plaintiff as the surviving partner; and that plaintiff failed to liquidate
the affairs of the partnership and to render an account thereof to the administratrix of Santos' estate. The court,
therefore, dismissed the plaintiff's complaint and absolved the defendant therefrom, and ordered the plaintiff to render
a full and complete accounting, verified by vouchers, of the partnership business from June 15, 1918, until September
1, 1922. To this decision and order the plaintiff duly excepted.

The plaintiff thereupon rendered an account prepared by one Tomas Alfonso, a public accountant. Numerous
objections to said account were presented by the defendant, and the court, upon hearing, disapproved the account
and ordered that the defendant submit to the court an accounting of the partnership business from the date of the
commencement of the partnership, June 15, 1918, up to the time the business was closed. 1awph!l.net

On January 25, 1924, the defendant presented an account and liquidation prepared by a public accountant, Santiago
A. Lindaya, showing a balance of P29,088.95 in favor of the defendant. The account was set down for hearing upon
the question of its approval or disapproval by the court, at which hearing the defendant introduced the public
accountant Jose Turiano Santiago to testify as to the results of an audit made by him of the accounts of the
partnership. Santiago testified that he had been a public accountant for over 20 years, having appeared in court as
such on several occasions; that he had examined the exhibits offered in evidence of the case by both parties; that he
had prepared a separate accounting or liquidation similar in results to that prepared by Lindaya, but with a few
differences in the sums total; and that according to his examination, the financial status of the partnership was as
follows:

Narciso Santos is a creditor of the Taller

<br<
Sinukuan in the sum of P26,020.89 consisting
td=""></br<>
as follows:
For his capital .................................. P12,588.53
For his credit ................................... 10,348.30
For his share of the profits ............ 3,068.06

Total ................................................... 26,020.89

Maximo Guidote is a debtor to the Taller
Sinukuan in the sum of P20,020.89, consisting
as follows:
For his debt (debito) ......................... P29,088.95
Less his share of the profits ........... 3,068.06

Total balance ...................................... 26.020.89

In order to contradict the conclusions of Lindaya and Jose Turiano Santiago, the plaintiff presented Tomas Alfonso
and the bookkeeper, Pio Gaudier, as witnesses in his favor. In regard to the character of the testimony of these
witnesses, His Honor, the trial judge, says:

The testimony of these two witnesses is so unreliable that the court can place no reliance thereon. Mr. Tomas
Alfonso is the same public accountant who filed the liquidation Exhibit O on behalf of the plaintiff, in relation to
the partnership business, which liquidation was disapproved by this court in its decision of August 20, 1923. It
is also to be noted that Mr. Alfonso would have this court believe the proposition that the plaintiff, a mere
industrial partner, notwithstanding his having received the sum of P21,649.61 on the various jobs and
contracts of the "Taller Sinukuan," had actually expended and paid out the sum of P63,360.27, of P44,710.66
in excess of the gross receipts of the business. This proposition is not only improbable on its face, but it
materially contradicts the allegations of plaintiff's complaint to the effect that the advances made by the plaintiff
only the amount to P2,017.50.

Mr. Pio Gaudier is the same bookkeeper who prepared three entirely separate and distinct liquidation for the
same partnership business all of which were repeated by the court in its decisions of September 1, 1922 and
the court finds that the testimony given by him at the last hearing is confusing, contradictory and unreliable. 1awph!l.net

As to the other witnesses for the plaintiff His Honor further says:

The testimony of the other witnesses for the plaintiff deserves but scant consideration as evidence to
overcome the testimony of Mr. Santiago, as a whole particularly that of the witness Chua Chak, who, after
identifying and testifying as to a certain exhibit shown him by counsel for plaintiff, showed that he could neither
read nor write English, Spanish, or Tagalog, and that of the witness Mr. Claro Reyes, who, after positively
 assuring the court that a certain exhibit tendered him for identification was an original document, was forced to
admit that it was but a mere copy.

The court therefore, found that the conclusions reached by Santiago A. Lindaya as modified by Jose Turinao Santiago
were just and correct and ordered the plaintiff to pay the defendant the sum of P26,020.89, Philippine currency, with
legal interest thereon from April 2, 1921, the date of the defendant's answer, and to pay the costs. From this judgment
the plaintiff appealed to this court and presents the following assignments of error:

(1) That the court erred in dismissing the plaintiff's complaint and ordering him to present a liquidation of the
operations and accounts of the partnership formed with the deceased Narciso Santos, from the beginning of
the partnership until September 1, 1922.

(2) That the court erred in approving the liquidation made by the public accountant Santiago A. Lindaya, with
the modification introduced by the witness Jose Turiano Santiago.

(3) That the court erred in ordering the plaintiff and appellant to pay to the defendant and appellee the sum of
P26,020.89.

As to the first assignment of error there may be some merit in the appellant's contention that the dismissal of his
complaint was premature. The better practise would, perhaps, have been to let the complaint stand until the result of
the liquidation of the partnership affairs was known. But under the circumstances of this case no harm was done by
the dismissal of the complaint, and the error, if any there be, is not reversible.

Under the same assignment of error the plaintiff argues that as the deceased up to the time of his death generally
took care of the payments and collections of the partnership, his legal representatives were under the obligation to
render accounts of the operations of the partnership, notwithstanding the fact that the plaintiff was in charge of the
business subsequent to the death of Santos. This argument is without merit. In the case of Wahl vs. Donaldson Sim &
Co. (5 Phil., 11, 14), it was held that the death of one of the partners dissolves the partnership, but that the liquidation
of its affairs is by law intrusted, not to the executors of the deceased partner, but to the surviving partners or the
liquidators appointed by them (citing article 229 of the Code of Commerce and secs. 664 and 665 of the Code of Civil
Procedure). The same rule is laid down by the Supreme Court of Spain in sentence of October 12, 1870.

The other assignments of error have reference only to questions of fact in regard to which the findings of the court
below seem to be as nearly correct as possible upon the evidence presented. There may be errors in the
interpretation of the accounts, and it is possible that the amount of P26,020.89 charged against the plaintiff is
excessive, but the evidence presented by him is so confusing and unreliable as to be practically of no weight and
cannot serve as a basis for a readjustment of the accounts prepared by the accountant Lindaya and the apparently
reliable witness, Jose Turiano Santiago.

We should, perhaps, have been more inclined to question the conclusions of Lindaya and Santiago if the plaintiff had
shown a disposition to render an honest account of the business and to effect a fair liquidation of the partnership but
instead of doing so, he has by means of very questionable, and apparently false, evidence sought to mulct his
deceased partner's estate to the extent of over P9,000. The rule for the conduct of a surviving partner is thus stated in
20 R. C. L., 1003:

In equity surviving partners are treated as trustees of the representatives of the deceased partner, in regard to
the interest of the deceased partner in the firm. As a consequence of this trusteeship, surviving partners are
held in their dealings with the firm assets and the representatives of the deceased to that nicety of dealing and
that strictness of accountability required of and incident to the position of one occupying a confidential relation.
It is the duty of surviving partners to render an account of the performance of their trust to the personal
representatives of the deceased partner, and to pay over to them the share of such deceased member in the
surplus of firm property, whether it consists of real or personal assets.
The appellant has completely failed to observe the rule quoted, and he is not in position to complain if his testimony
and that of his witnesses is discredited.

The appealed judgment is affirmed with the costs against the appellant. So ordered.

Avancea, C. J., Johnson, Street, Malcolm, Villamor, Romualdez, and Villa-Real, JJ., concur.