[Partnership] | [Dissolution and Winding Up] 1

[Digest maker]

Irma Idos v CA and People of the Philippines

[GR NO. 110782] | [September 25, 1998] | [Quisumbing]

CASE SUMMARY
Complainant Eddie Alarilla formed a partnership with Irma Idos under the style
Tagumpay Manufacturing. They are engaged in leather tanning where Eddie was the
supplier of chemicals and rawhide. Soon, the parties agreed to terminate their
partnership and upon liquidation, the receivables and stocks of the partnership is
worth Php 1.8M, Eddies share of which is Php900,000. Irma issued four (4) postdated
checks for Eddies share of the assets. However, out of the four postdated checks, one
check was dishonored because of insufficiency of funds. When Eddie formally made a
demand for payment, Irma claimed that the check had been given only as assurance
of Eddies share in the assets of the partnership and was not supposed to be
deposited until the stocks had been sold. Thereafter, Eddie Alarilla filed an information
for violation of BP 22. He denied that the checks issued to him were subject to the
disposition of the stocks and the collection of receivables of the business. But Irma
insisted that the complainant had known that the checks were to be funded from the
proceeds of the sale of the stocks and collection of receivables. Trial court found her
guilty and denied the motion for reconsideration she subsequently filed. CA affirmed
the trial courts decision and likewise denied petitioners motion for reconsideration.
The SC, in arriving at the conclusion that Irma did not violate BP 22, took note of the
existence of the partnership. Although the parties had agreed to dissolve the
partnership, the agreement did not automatically put an end to the partnership since
they still had to sell the goods on hand and collect the receivables from debtors. They
were still in the process of winding up the affairs of the partnership when the check
was issued.
Civil Code explicitly declares that upon dissolution, the partnership is not terminated
(CC 1829).
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. The
check was thus issued by the petitioner to complainant, as would a partner to
another, and not as payment from a debtor to a creditor. The check was not intended
to apply on account or for value, it should be deemed as having been drawn without
consideration at the time of issue. Petition granted, petitioner acquitted.

CASE
This is a petition for review of the CA decision dismissing petitioners appeal,
affirming her conviction and the sentence imposed on her by RTC Malolos,
Bulacan. Elevated from the SCs Third Division, the case was accepted for
resolution en banc on the initial impression that a constitutional question might
be involved insofar as the sentence of imprisonment might be in violation of the
constitutional guarantee against imprisonment for non-payment of a debt.

FACTS
 Petitioner Irma Idos is a businesswoman engaged in leather tanning. Her
accuser for violation of BP 22 is Eddie Alarilla, her supplier (of chemicals and
rawhide) and business partner.
Eddie joined Irmas business and formed a partnership with her under the style
Tagumpay Manufacturing with offices in Bulacan and Cebu.
Soon, the parties agreed to terminate their partnership. Upon liquidation of the
business, the partnership had receivables and stocks worth Php 1.8M.
Eddies share of the assets was Php900k to pay for which Irma Idos issued 4
postdated checks all drawn against MetroBank Cebu.
All the checks were encashed except for the third one which was dishonored for
insufficiency of funds. Complainant demanded payment from Irma but she
failed to pay.
Eddie made a formal demand for payment. Irma denied liability, claiming that
the check had been given upon demand of complainant only as assurance of his
share in the partnerships assets and was not supposed to be deposited until the
stocks had been sold.
Complainant then filed an information for violation of BP 22.
He denied that the checks issued to him were subject to the disposition
of the stocks and the collection of receivables of the business.
BUT Irma insisted that the complainant had known that the checks
were to be funded from the proceeds of the sale of the stocks and
collection of receivables.
Complainant himself asked for the checks because he did not want to
continue in the tannery business and had no use for a share of the
stocks.
TC found Irma guilty. She filed a motion for annulment of the decision and for
reconsideration which were denied.
CA affirmed TCs decision. Petitioners motion for reconsideration was denied.
During the pendency of the petition before the SC, the Court, by a resolution,
took note of the compromise agreement between the parties regarding the civil
aspect of the case.

ISSUE
1. WON the respondent court erred in affirming the trial courts judgment that she
violated BP 22 YES
2. WON the agreement to dissolve the partnership automatically put an
end to it NO

RATIO
1. WON the respondent court erred in affirming the trial courts judgment that she
violated BP 22 YES
a. The elements of the offense penalized under BP 22 are:
(1) the making, drawing, and issuance of any check to apply to
account or for value
(2) the knowledge of the maker, drawer, or issuer that at the time of
issuance he does not have sufficient funds in or credit with the drawee
bank for the payment of such check in full upon its presentment
(3) subsequent dishonor of the check by the drawee bank for
insufficiency of funds or credit or dishonor for the same reason had not
the drawer, without valid cause, ordered the bank to stop payment.
 [Partnership] | [Dissolution and Winding Up] 3
[Digest maker]

b. Anent the first issue, evidence showed that the check was to be funded
from receivables to be collected and goods to be sold by the partnership,
and when such collection and sale were realized.
c. There is sufficient basis for the assertion that petitioner Irma issued the
subject check as an evidence of complainants share or interest in the
partnership, or to show her commitment that she would give private
complainant the amount due him, representing his interest in the
partnership. It did not involve a debt by the petitioner.
d. Petitioner exerted her best efforts to sell the remaining goods and to
collect the receivables of the partnership in order to come up with the
amount necessary to satisfy the value of complainants interest in the
partnership at the dissolution thereof. The check was not intended to
apply on account or for value, it should be deemed as having been drawn
without consideration at the time of issue.
e. Absent the first element, the check was not an act contemplated nor
made punishable by the statute.
f. Moreover, petitioner issued the checks without actual knowledge of the
insufficiency of funds. The element of knowledge of insufficiency of funds
has to be proved by the prosecution; absent said proof, petitioner could
not be held criminally liable under that law. Petitioner issued the check
merely to evidence the proportionate share of complainant in the
partnership assets upon its dissolution. Payment of that share in the
partnership was conditioned on the subsequent realization of profits from
the unsold goods and collection of the receivables of the firm. This
condition must be satisfied or complied with before the complainant can
actually encash the check. The reason for the condition is that petitioner
has no independent means to satisfy or discharge the complainants share,
other than by the future sale and collection of the partnership assets.
g. Also, the absence of notice of dishonor is fatal to the case as it deprives
the accused an opportunity to preclude a criminal prosecution.
h. Petitioner issued the check in good faith, with every intention of abiding
by her commitment to return the investments of complainant in the
partnership.
2. WON the agreement to dissolve the partnership automatically put an
end to it NO
a. Although the parties had agreed to dissolve the partnership, the
agreement did not automatically put an end to the partnership since they
still had to sell the goods on hand and collect the receivables from
debtors. They were still in the process of winding up the affairs of the
partnership when the check was issued.
b. The final stages of a partnership are dissolution, winding up and
termination.
(1) Dissolution
Dissolution is the change in the relation of the partners caused by any
partner ceasing to be associated in the carrying on of the business (Art.
1828). It is that point of time the partners cease to carry on the business
together.

(2) Winding Up
 Winding up is the process of settling business affairs after dissolution.

(NOTE: Examples of winding up: the paying of previous obligations; the

collecting of assets previously demandable; even new business if needed
to wind up, as the contracting with a demolition company for the
demolition of the garage used in a used car partnership.)

(3) Termination
Termination is the point in time after all the partnership affairs have been
wound up.
c. Civil Code explicitly declares that upon dissolution, the partnership is not
terminated (CC 1829).
d. 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. The check was thus issued by the
petitioner to complainant, as would a partner to another, and not as
payment from a debtor to a creditor.

DECISION
PETITION GRANTED AND PETITIONER ACQUITTED. CA decision reversed
and RTC decision set aside.