Partnership assigned readings University of the East

Ortiz, Ransell Alaistaire B. Atty. Al Jumrani

TAI TONG CHUACHE & CO., petitioner,

vs.
THE INSURANCE COMMISSION and TRAVELLERS MULTI-
INDEMNITY CORPORATION, respondents.

The facts of the case as found by respondent Insurance Commission

are as follows:

Complainants acquired from a certain Rolando Gonzales a

parcel of land and a building located at San Rafael Village,
Davao City. Complainants assumed the mortgage of the
building in favor of S.S.S., which building was insured with
respondent S.S.S. Accredited Group of Insurers for
P25,000.00.

On April 19, 1975, Azucena Palomo obtained a loan from Tai

Tong Chuache Inc. in the amount of P100,000.00. To secure
the payment of the loan, a mortgage was executed over the
land and the building in favor of Tai Tong Chuache & Co.
(Exhibit "1" and "1-A"). On April 25, 1975, Arsenio
Chua, representative of Thai Tong Chuache & Co. insured
the latter's interest with Travellers Multi-Indemnity
Corporation for P100,000.00 (P70,000.00 for the building
and P30,000.00 for the contents thereof) (Exhibit "A-a,"
contents thereof) (Exhibit "A-a").

On June 11, 1975, Pedro Palomo secured a Fire Insurance

Policy No. F- 02500 (Exhibit "A"), covering the building for
P50,000.00 with respondent Zenith Insurance Corporation.
On July 16, 1975, another Fire Insurance Policy No. 8459
(Exhibit "B") was procured from respondent Philippine British
Assurance Company, covering the same building for
P50,000.00 and the contents thereof for P70,000.00.

On July 31, 1975, the building and the contents were totally
razed by fire.

Adjustment Standard Corporation submitted a report as

follow

xxx xxx xxx

Thus the apportioned share of each company is as follows:

Partnership assigned readings
Ortiz, Ransell Alaistaire B.
Based on the computation of the loss, including the
Travellers Multi- Indemnity, respondents, Zenith Insurance,
Phil. British Assurance and S.S.S. Accredited Group of
Insurers, paid their corresponding shares of the loss.
Complainants were paid the following: P41,546.79 by
Philippine British Assurance Co., P11,877.14 by Zenith
Insurance Corporation, and P5,936.57 by S.S.S. Group of
Accredited Insurers (Par. 6. Amended Complaint). Demand
was made from respondent Travellers Multi-Indemnity for its
share in the loss but the same was refused. Hence,
complainants demanded from the other three (3)
respondents the balance of each share in the loss based on
the computation of the Adjustment Standards Report
excluding Travellers Multi-Indemnity in the amount of
P30,894.31 (P5,732.79-Zenith Insurance: P22,294.62, Phil.
British: and P2,866.90, SSS Accredited) but the same was
refused, hence, this action.
In their answers, Philippine British Assurance and Zenith
Insurance Corporation admitted the material allegations in
the complaint, but denied liability on the ground that the
claim of the complainants had already been waived,
extinguished or paid. Both companies set up counterclaim in
the total amount of P 91,546.79.
Instead of filing an answer, SSS Accredited Group of
Insurers informed the Commission in its letter of July 22,
1977 that the herein claim of complainants for the balance
had been paid in the amount of P 5,938.57 in full, based on
the Adjustment Standards Corporation Report of September
22, 1975.
Insurance, on its part, admitted the issuance of the
Policy No. 599 DV and alleged as its special and affirmative
defenses the following, to wit: that Fire Policy No. 599 DV,
covering the furniture and building of complainants was
secured by a certain Arsenio Chua, mortgage creditor, for
the purpose of protecting his mortgage credit against the
complainants; that the said policy was issued in the name of
Azucena Palomo, only to indicate that she owns the insured
premises; that the policy contains an endorsement in favor of
Arsenio Chua as his mortgage interest may appear to
indicate that insured was Arsenio Chua and the
complainants; that the premium due on said fire policy was
paid by Arsenio Chua; that respondent Travellers is not
liable to pay complainants.
University of the East
Atty. Al Jumrani
On May 31, 1977, Tai Tong Chuache & Co. filed a complaint
in intervention claiming the proceeds of the fire Insurance
Policy No. F-559 DV, issued by respondent Travellers Multi-
Indemnity.
Insurance, in answer to the complaint in intervention,
alleged that the Intervenor is not entitled to indemnity under
its Fire Insurance Policy for lack of insurable interest before
the loss of the insured premises and that the complainants,
spouses Pedro and Azucena Palomo, had already paid in
full their mortgage indebtedness to the intervenor. 3
As adverted to above respondent Insurance Commission dismissed
spouses Palomos' complaint on the ground that the insurance policy
subject of the complaint was taken out by Tai Tong Chuache &
Company, petitioner herein, for its own interest only as mortgagee of
the insured property and thus complainant as mortgagors of the
insured property have no right of action against herein respondent. It
likewise dismissed petitioner's complaint in intervention in the following
words:
We move on the issue of liability of respondent Travellers
Multi-Indemnity to the Intervenor-mortgagee. The
complainant testified that she was still indebted to Intervenor
in the amount of P100,000.00. Such allegation has not
however, been sufficiently proven by documentary evidence.
The certification (Exhibit 'E-e') issued by the Court of First
Instance of Davao, Branch 11, indicate that the complainant
was Antonio Lopez Chua and not Tai Tong Chuache &
Company. 4
From the above decision, only intervenor Tai Tong Chuache filed a
motion for reconsideration but it was likewise denied hence, the
present petition.
It is the contention of the petitioner that respondent Insurance
Commission decided an issue not raised in the pleadings of the parties
in that it ruled that a certain Arsenio Lopez Chua is the one entitled to
the insurance proceeds and not Tai Tong Chuache & Company.
This Court cannot fault petitioner for the above erroneous interpretation
of the decision appealed from considering the manner it was
written. 5 As correctly pointed out by respondent insurance
commission in their comment, the decision did not pronounce that it
was Arsenio Lopez Chua who has insurable interest over the insured
property. Perusal of the decision reveals however that it readily
absolved respondent insurance company from liability on the basis of
the commissioner's conclusion that at the time of the occurrence of the
peril insured against petitioner as mortgagee had no more insurable
interest over the insured property. It was based on the inference that
the credit secured by the mortgaged property was already paid by the
Palomos before the said property was gutted down by fire. The
foregoing conclusion was arrived at on the basis of the certification
issued by the then Court of First Instance of Davao, Branch II that in a
certain civil action against the Palomos, Antonio Lopez Chua stands as
the complainant and not petitioner Tai Tong Chuache & Company.
We find the petition to be impressed with merit. It is a well known
postulate that the case of a party is constituted by his own affirmative
allegations. Under Section 1, Rule 1316 each party must prove his own
affirmative allegations by the amount of evidence required by law
which in civil cases as in the present case is preponderance of
evidence. The party, whether plaintiff or defendant, who asserts the
affirmative of the issue has the burden of presenting at the trial such
amount of evidence as required by law to obtain favorable
judgment.7 Thus, petitioner who is claiming a right over the insurance
must prove its case. Likewise, respondent insurance company to avoid
liability under the policy by setting up an affirmative defense of lack of
insurable interest on the part of the petitioner must prove its own
affirmative allegations.
It will be recalled that respondent insurance company did not assail the
validity of the insurance policy taken out by petitioner over the
Partnership assigned readings
Ortiz, Ransell Alaistaire B.
mortgaged property. Neither did it deny that the said property was
totally razed by fire within the period covered by the insurance.
Respondent, as mentioned earlier advanced an affirmative defense of
lack of insurable interest on the part of the petitioner that before the
occurrence of the peril insured against the Palomos had already paid
their credit due the petitioner. Respondent having admitted the material
allegations in the complaint, has the burden of proof to show that
petitioner has no insurable interest over the insured property at the
time the contingency took place. Upon that point, there is a failure of
proof. Respondent, it will be noted, exerted no effort to present any
evidence to substantiate its claim, while petitioner did. For said
respondent's failure, the decision must be adverse to it.
However, as adverted to earlier, respondent Insurance Commission
absolved respondent insurance company from liability on the basis of
the certification issued by the then Court of First Instance of Davao,
Branch II, that in a certain civil action against the Palomos, Arsenio
Lopez Chua stands as the complainant and not Tai Tong Chuache.
From said evidence respondent commission inferred that the credit
extended by herein petitioner to the Palomos secured by the insured
property must have been paid. Such is a glaring error which this Court
cannot sanction. Respondent Commission's findings are based upon a
mere inference.
The record of the case shows that the petitioner to support its claim for
the insurance proceeds offered as evidence the contract of mortgage
(Exh. 1) which has not been cancelled nor released. It has been held in
a long line of cases that when the creditor is in possession of the
document of credit, he need not prove non-payment for it is
presumed. 8 The validity of the insurance policy taken b petitioner was
not assailed by private respondent. Moreover, petitioner's claim that
the loan extended to the Palomos has not yet been paid was
corroborated by Azucena Palomo who testified that they are still
indebted to herein petitioner. 9
Public respondent argues however, that if the civil case really stemmed
from the loan granted to Azucena Palomo by petitioner the same
should have been brought by Tai Tong Chuache or by its
representative in its own behalf. From the above premise respondent
concluded that the obligation secured by the insured property must
have been paid.
The premise is correct but the conclusion is wrong. Citing Rule 3, Sec.
2 10 respondent pointed out that the action must be brought in the
name of the real party in interest. We agree. However, it should be
borne in mind that petitioner being a partnership may sue and be sued
in its name or by its duly authorized representative. The fact that
Arsenio Lopez Chua is the representative of petitioner is not
questioned. Petitioner's declaration that Arsenio Lopez Chua acts as
the managing partner of the partnership was corroborated by
respondent insurance company. 11 Thus Chua as the managing
partner of the partnership may execute all acts of
administration 12 including the right to sue debtors of the partnership in
case of their failure to pay their obligations when it became due and
demandable. Or at the very least, Chua being a partner of petitioner
Tai Tong Chuache & Company is an agent of the partnership. Being an
agent, it is understood that he acted for and in behalf of the
firm.13 Public respondent's allegation that the civil case flied by
Arsenio Chua was in his capacity as personal creditor of spouses
Palomo has no basis.
The respondent insurance company having issued a policy in favor of
herein petitioner which policy was of legal force and effect at the time
of the fire, it is bound by its terms and conditions. Upon its failure to
prove the allegation of lack of insurable interest on the part of the
petitioner, respondent insurance company is and must be held liable.
IN VIEW OF THE FOREGOING, the decision appealed from is hereby
SET ASIDE and ANOTHER judgment is rendered order private
respondent Travellers Multi-Indemnity Corporation to pay petitioner the
face value of Insurance Policy No. 599-DV in the amount of
P100,000.00. Costs against said private respondent.
SO ORDERED.
University of the East
Atty. Al Jumrani
ARSENIO T. MENDIOLA, petitioner,
vs.
COURT OF APPEALS, NATIONAL LABOR RELATIONS
COMMISSION, PACIFIC FOREST RESOURCES, PHILS., INC.
and/or CELLMARK AB, respondents.
On appeal are the Decision1 and Resolution2 of the Court of Appeals,
dated January 30, 2003 and July 30, 2003, respectively, in CA-G.R.
SP No. 71028, affirming the ruling3 of the National Labor Relations
Commission (NLRC), which in turn set aside the July 30, 2001
Decision4 of the labor arbiter. The labor arbiter declared illegal the
dismissal of petitioner from employment and awarded separation pay,
moral and exemplary damages, and attorney's fees.
The facts are as follows:
Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a
corporation organized and existing under the laws of California, USA. It
is a subsidiary of Cellulose Marketing International, a corporation duly
organized under the laws of Sweden, with principal office in
Gothenburg, Sweden.
Private respondent Pacfor entered into a "Side Agreement on
Representative Office known as Pacific Forest Resources (Phils.),
Inc."5 with petitioner Arsenio T. Mendiola (ATM), effective May 1,
1995, "assuming that Pacfor-Phils. is already approved by the
Securities and Exchange Commission [SEC] on the said date."6 The
Side Agreement outlines the business relationship of the parties with
regard to the Philippine operations of Pacfor. Private respondent will
establish a Pacfor representative office in the Philippines, to be known
as Pacfor Phils, and petitioner ATM will be its President. Petitioner's
base salary and the overhead expenditures of the company shall be
borne by the representative office and funded by Pacfor/ATM, since
Pacfor Phils. is equally owned on a 50-50 equity by ATM and Pacfor-
usa.
On July 14, 1995, the SEC granted the application of private
respondent Pacfor for a license to transact business in the Philippines
under the name of Pacfor or Pacfor Phils.7 In its application, private
respondent Pacfor proposed to establish its representative office in the
Philippines with the purpose of monitoring and coordinating the market
activities for paper products. It also designated petitioner as its resident
agent in the Philippines, authorized to accept summons and processes
in all legal proceedings, and all notices affecting the corporation.8
In March 1997, the Side Agreement was amended through a "Revised
Operating and Profit Sharing Agreement for the Representative Office
Known as Pacific Forest Resources (Philippines),"9 where the salary of
petitioner was increased to $78,000 per annum. Both agreements
show that the operational expenses will be borne by the representative
office and funded by all parties "as equal partners," while the profits
and commissions will be shared among them.
In July 2000, petitioner wrote Kevin Daley, Vice President for Asia of
Pacfor, seeking confirmation of his 50% equity of Pacfor
Phils.10 Private respondent Pacfor, through William Gleason, its
President, replied that petitioner is not a part-owner of Pacfor Phils.
because the latter is merely Pacfor-USA's representative office and not
an entity separate and distinct from Pacfor-USA. "It's simply a
'theoretical company' with the purpose of dividing the income 50-
50."11 Petitioner presumably knew of this arrangement from the start,
having been the one to propose to private respondent Pacfor the
setting up of a representative office, and "not a branch office" in the
Philippines to save on taxes.12
Petitioner claimed that he was all along made to believe that he was in
a joint venture with them. He alleged he would have been better off
Partnership assigned readings
Ortiz, Ransell Alaistaire B.
remaining as an independent agent or representative of Pacfor-USA as
ATM Marketing Corp.13 Had he known that no joint venture existed, he
would not have allowed Pacfor to take the profitable business of his
own company, ATM Marketing Corp.14 Petitioner raised other issues,
such as the rentals of office furniture, salary of the employees,
company car, as well as commissions allegedly due him. The issues
were not resolved, hence, in October 2000, petitioner wrote Pacfor-
USA demanding payment of unpaid commissions and office furniture
and equipment rentals, amounting to more than one million dollars.15
On November 27, 2000, private respondent Pacfor, through counsel,
ordered petitioner to turn over to it all papers, documents, files,
records, and other materials in his or ATM Marketing Corporation's
possession that belong to Pacfor or Pacfor Phils.16 On December 18,
2000, private respondent Pacfor also required petitioner to remit more
than three hundred thousand-peso Christmas giveaway fund for clients
of Pacfor Phils.17 Lastly, private respondent Pacfor withdrew all its
offers of settlement and ordered petitioner to transfer title and turn over
to it possession of the service car.18
Private respondent Pacfor likewise sent letters to its clients in the
Philippines, advising them not to deal with Pacfor Phils. In its letter to
Intercontinental Paper Industries, Inc., dated November 21, 2000,
private respondent Pacfor stated:
Until further notice, please course all inquiries and
communications for Pacific Forest Resources (Philippines)
to:
Pacific Forest Resources
200 Tamal Plaza, Suite 200
Corte Madera, CA, USA 94925
(415) 927 1700 phone
(415) 381 4358 fax
Please do not send any communication to Mr. Arsenio "Boy"
T. Mendiola or to the offices of ATM Marketing Corporation
at Room 504, Concorde Building, Legaspi Village, Makati
City, Philippines.19
In another letter addressed to Davao Corrugated Carton Corp.
(DAVCOR), dated December 2000, private respondent directed said
client "to please communicate directly with us on any further questions
associated with these payments or any future business. Do not
communicate with [Pacfor] and/or [ATM]."20
Petitioner construed these directives as a severance of the
"unregistered partnership" between him and Pacfor, and the
termination of his employment as resident manager of Pacfor
Phils.21 In a memorandum to the employees of Pacfor Phils., dated
January 29, 2001, he stated:
I received a letter from Pacific Forest Resources, Inc.
demanding the turnover of all records to them effective
December 19, 2000. The company records were turned over
only on January 26, 2001. This means our jobs with Pacific
Forest were terminated effective December 19, 2000. I am
concerned about your welfare. I would like to help you by
offering you to work with ATM Marketing Corporation.
Please let me know if you are interested.22
On the basis of the "Side Agreement," petitioner insisted that he and
Pacfor equally own Pacfor Phils. Thus, it follows that he and Pacfor
likewise own, on a 50/50 basis, Pacfor Phils.' office furniture and
equipment and the service car. He also reiterated his demand for
unpaid commissions, and proposed to offset these with the remaining
Christmas giveaway fund in his possession.23 Furthermore, he did not
renew the lease contract with Pulp and Paper, Inc., the lessor of the
office premises of Pacfor Phils., wherein he was the signatory to the
lease agreement.24
On February 2, 2001, private respondent Pacfor placed petitioner on
preventive suspension and ordered him to show cause why no
disciplinary action should be taken against him. Private respondent
University of the East
Atty. Al Jumrani
Pacfor charged petitioner with willful disobedience and serious
misconduct for his refusal to turn over the service car and the
Christmas giveaway fund which he applied to his alleged unpaid
commissions. Private respondent also alleged loss of confidence and
gross neglect of duty on the part of petitioner for allegedly allowing
another corporation owned by petitioner's relatives, High End Products,
Inc. (HEPI), to use the same telephone and facsimile numbers of
Pacfor, to possibly steal and divert the sales and business of private
respondent for HEPI's principal, International Forest Products, a
competitor of private respondent.25
Petitioner denied the charges. He reiterated that he considered the
import of Pacfor President William Gleason's letters as a "cessation of
his position and of the existence of Pacfor Phils." He likewise informed
private respondent Pacfor that ATM Marketing Corp. now occupies
Pacfor Phils.' office premises,26 and demanded payment of his
separation pay.27 On February 15, 2001, petitioner filed his complaint
for illegal dismissal, recovery of separation pay, and payment of
attorney's fees with the NLRC.28
In the meantime, private respondent Pacfor lodged fresh charges
against petitioner. In a memorandum dated March 5, 2001, private
respondent directed petitioner to explain why he should not be
disciplined for serious misconduct and conflict of interest. Private
respondent charged petitioner anew with serious misconduct for the
latter's alleged act of fraud and misrepresentation in authorizing the
release of an additional peso salary for himself, besides the dollar
salary agreed upon by the parties. Private respondent also accused
petitioner of disloyalty and representation of conflicting interests for
having continued using the Pacfor Phils.' office for operations of HEPI.
In addition, petitioner allegedly solicited business for HEPI from a
competitor company of private respondent Pacfor.29
Labor Arbiter Felipe Pati ruled in favor of petitioner, finding there was
constructive dismissal. By directing petitioner to turn over all office
records and materials, regardless of whether he may have retained
copies, private respondent Pacfor virtually deprived petitioner of his job
by the gradual diminution of his authority as resident manager.
Petitioner's position as resident manager whose duty, among others,
was to maintain the security of its business transactions and
communications was rendered meaningless. The dispositive portion of
the decision of the Labor Arbiter reads:
WHEREFORE, premises considered, judgment is hereby
rendered ordering herein respondents Cellmark AB and
Pacific Forest Resources, Inc., jointly and severally to
compensate complainant Arsenio T. Mendiola separation
pay equivalent to at least one month for every year of
service, whichever is higher (sic), as reinstatement is no
longer feasible by reason of the strained relations of the
parties equivalent to five (5) months in the amount of
$32,000.00 plus the sum of P250,000.00; pay complainant
the sum of P500,000.00 as moral and exemplary damages
and ten percent (10%) of the amounts awarded as and for
attorney's fees.
All other claims are dismissed for lack of basis.
SO ORDERED.30
Private respondent Pacfor appealed to the NLRC which ruled in its
favor. On December 20, 2001, the NLRC set aside the July 30, 2001
decision of the labor arbiter, for lack of jurisdiction and lack of
merit.31 It held there was no employer-employee relationship between
the parties. Based on the two agreements between the parties, it
concluded that petitioner is not an employee of private respondent
Pacfor, but a full co-owner (50/50 equity).
The NLRC denied petitioner's Motion for Reconsideration.32
Petitioner was not successful on his appeal to the Court of Appeals.
The appellate court upheld the ruling of the NLRC.
Petitioner's Motion for Reconsideration33 of the decision of the Court
of Appeals was denied.
Partnership assigned readings
Ortiz, Ransell Alaistaire B.
Hence, this appeal.34
Petitioner assigns the following errors:
A. The Respondent Court of Appeals committed reversible
error and abused its discretion in rendering judgment against
petitioner since jurisdiction has been acquired over the
subject matter of the case as there exists employer-
employee relationship between the parties.
B. The Respondent Court of Appeals committed reversible
error and abused its discretion in ruling that jurisdiction over
the subject matter cannot be waived and may be alleged
even for the first time on appeal or considered by the court
motu prop[r]io.35
The first issue is whether an employer-employee relationship exists
between petitioner and private respondent Pacfor.
Petitioner argues that he is an industrial partner of the partnership he
formed with private respondent Pacfor, and also an employee of the
partnership. Petitioner insists that an industrial partner may at the
same time be an employee of the partnership, provided there is such
an agreement, which, in this case, is the "Side Agreement" and the
"Revised Operating and Profit Sharing Agreement." The Court of
Appeals denied the appeal of petitioner, holding that "the legal basis of
the complaint is not employment but perhaps partnership, co-
ownership, or independent contractorship." Hence, the Labor Code
cannot apply.
We hold that petitioner is an employee of private respondent Pacfor
and that no partnership or co-ownership exists between the parties.
In a partnership, the members become co-owners of what is
contributed to the firm capital and of all property that may be acquired
thereby and through the efforts of the members.36 The property or
stock of the partnership forms a community of goods, a common fund,
in which each party has a proprietary interest.37 In fact, the New Civil
Code regards a partner as a co-owner of specific partnership
property.38 Each partner possesses a joint interest in the whole of
partnership property. If the relation does not have this feature, it is not
one of partnership.39 This essential element, the community of
interest, or co-ownership of, or joint interest in partnership property is
absent in the relations between petitioner and private respondent
Pacfor. Petitioner is not a part-owner of Pacfor Phils. William Gleason,
private respondent Pacfor's President established this fact when he
said that Pacfor Phils. is simply a "theoretical company" for the
purpose of dividing the income 50-50. He stressed that petitioner knew
of this arrangement from the very start, having been the one to
propose to private respondent Pacfor the setting up of a representative
office, and "not a branch office" in the Philippines to save on taxes.
Thus, the parties in this case, merely shared profits. This alone does
not make a partnership.40
Besides, a corporation cannot become a member of a partnership in
the absence of express authorization by statute or charter.41 This
doctrine is based on the following considerations: (1) that the mutual
agency between the partners, whereby the corporation would be
bound by the acts of persons who are not its duly appointed and
authorized agents and officers, would be inconsistent with the policy of
the law that the corporation shall manage its own affairs separately
and exclusively; and, (2) that such an arrangement would improperly
allow corporate property to become subject to risks not contemplated
by the stockholders when they originally invested in the
corporation.42 No such authorization has been proved in the case at
bar.
Be that as it may, we hold that on the basis of the evidence, an
employer-employee relationship is present in the case at bar. The
elements to determine the existence of an employment relationship
are: (a) the selection and engagement of the employee; (b) the
payment of wages; (c) the power of dismissal; and (d) the employer's
power to control the employee's conduct. The most important element
is the employer's control of the employee's conduct, not only as to the
University of the East
Atty. Al Jumrani
result of the work to be done, but also as to the means and methods to
accomplish it.43
In the instant case, all the foregoing elements are present. First, it was
private respondent Pacfor which selected and engaged the services of
petitioner as its resident agent in the Philippines. Second, as stipulated
in their Side Agreement, private respondent Pacfor pays petitioner his
salary amounting to $65,000 per annum which was later increased to
$78,000. Third, private respondent Pacfor holds the power of
dismissal, as may be gleaned through the various memoranda it
issued against petitioner, placing the latter on preventive suspension
while charging him with various offenses, including willful
disobedience, serious misconduct, and gross neglect of duty, and
ordering him to show cause why no disciplinary action should be taken
against him.
Lastly and most important, private respondent Pacfor has the power of
control over the means and method of petitioner in accomplishing his
work.
The power of control refers merely to the existence of the power, and
not to the actual exercise thereof. The principal consideration is
whether the employer has the right to control the manner of doing the
work, and it is not the actual exercise of the right by interfering with the
work, but the right to control, which constitutes the test of the existence
of an employer-employee relationship.44 In the case at bar, private
respondent Pacfor, as employer, clearly possesses such right of
control. Petitioner, as private respondent Pacfor's resident agent in the
Philippines, is, exactly so, only an agent of the corporation, a
representative of Pacfor, who transacts business, and accepts service
on its behalf.
This right of control was exercised by private respondent Pacfor during
the period of November to December 2000, when it directed petitioner
to turn over to it all records of Pacfor Phils.; when it ordered petitioner
to remit the Christmas giveaway fund intended for clients of Pacfor
Phils.; and, when it withdrew all its offers of settlement and ordered
petitioner to transfer title and turn over to it the possession of the
service car. It was also during this period when private respondent
Pacfor sent letters to its clients in the Philippines, particularly
Intercontinental Paper Industries, Inc. and DAVCOR, advising them not
to deal with petitioner and/or Pacfor Phils. In its letter to DAVCOR,
private respondent Pacfor replied to the client's request for an invoice
payment extension, and formulated a revised payment program for
DAVCOR. This is one unmistakable proof that private respondent
Pacfor exercises control over the petitioner.
Next, we shall determine if petitioner was constructively dismissed
from employment.
The evidence shows that when petitioner insisted on his 50% equity in
Pacfor Phils., and would not quit however, private respondent Pacfor
began to systematically deprive petitioner of his duties and benefits to
make him feel that his presence in the company was no longer wanted.
First, private respondent Pacfor directed petitioner to turn over to it all
records of Pacfor Phils. This would certainly make the work of
petitioner very difficult, if not impossible. Second, private respondent
Pacfor ordered petitioner to remit the Christmas giveaway fund
intended for clients of Pacfor Phils. Then it ordered petitioner to
transfer title and turn over to it the possession of the service car. It also
advised its clients in the Philippines, particularly Intercontinental Paper
Industries, Inc. and DAVCOR, not to deal with petitioner and/or Pacfor
Phils. Lastly, private respondent Pacfor appointed a new resident
agent for Pacfor Phils.45
Although there is no reduction of the salary of petitioner, constructive
dismissal is still present because continued employment of petitioner is
rendered, at the very least, unreasonable.46 There is an act of clear
discrimination, insensibility or disdain by the employer that continued
employment may become so unbearable on the part of the employee
so as to foreclose any choice on his part except to resign from such
employment.47
The harassing acts of the private respondent are unjustified. They
were undertaken when petitioner sought clarification from the private
Partnership assigned readings
Ortiz, Ransell Alaistaire B.
respondent about his supposed 50% equity on Pacfor Phils. Private
respondent Pacfor invokes its rights as an owner. Allegedly, its
issuance of the foregoing directives against petitioner was a valid
exercise of management prerogative. We remind private respondent
Pacfor that the exercise of management prerogative is not absolute.
"By its very nature, encompassing as it could be, management
prerogative must be exercised in good faith and with due regard to the
rights of labor – verily, with the principles of fair play at heart and
justice in mind." The exercise of management prerogative cannot be
utilized as an implement to circumvent our laws and oppress
employees.48
As resident agent of private respondent corporation, petitioner
occupied a position involving trust and confidence. In the light of the
strained relations between the parties, the full restoration of an
employment relationship based on trust and confidence is no longer
possible. He should be awarded separation pay, in lieu of
reinstatement.
IN VIEW WHEREOF, the petition is GRANTED. The Court of Appeals'
January 30, 2003 Decision in CA-G.R. SP No. 71028 and July 30,
2003 Resolution, affirming the December 20, 2001 Decision of the
National Labor Relations Commission, are ANNULED and SET
ASIDE. The July 30, 2001 Decision of the Labor Arbiter
is REINSTATED with the MODIFICATION that the amount
of P250,000.00 representing an alleged increase in petitioner's salary
shall be deducted from the grant of separation pay for lack of evidence.
SO ORDERED.
University of the East
Atty. Al Jumrani
INFORMATION TECHNOLOGY FOUNDATION OF THE
PHILIPPINES, MA. CORAZON M. AKOL, MIGUEL UY, EDUARDO H.
LOPEZ, AUGUSTO C. LAGMAN, REX C. DRILON, MIGUEL
HILADO, LEY SALCEDO, and MANUEL ALCUAZ JR., Petitioners,
vs.
COMMISSION ON ELECTIONS; COMELEC CHAIRMAN BENJAMIN
ABALOS SR.; COMELEC BIDDING and AWARD COMMITTEE
CHAIRMAN EDUARDO D. MEJOS and MEMBERS GIDEON DE
GUZMAN, JOSE F. BALBUENA, LAMBERTO P. LLAMAS, and
BARTOLOME SINOCRUZ JR.; MEGA PACIFIC eSOLUTIONS, INC.;
and MEGA PACIFIC CONSORTIUM, Respondents.
Our Decision1 in the present case voided the Contract entered into by
the Commission on Elections (Comelec) for the supply of automated
counting machines (ACMs) because of "clear violation of law and
jurisprudence" and "reckless disregard of [Comelec’s] own bidding
rules and procedure." Moreover, "Comelec awarded this billion-dollar
undertaking with inexplicable haste, without adequately checking and
observing mandatory financial, technical and legal requirements. x x x.
The illegal, imprudent and hasty actions of the Commission have not
only desecrated legal and jurisprudential norms, but have also cast
serious doubts upon the poll body’s ability and capacity to conduct
automated elections." As a result, the ACMs illegally procured and
improvidently paid for by Comelec were not used during the 2004
national elections.
In its present Motion, the poll body expressly admits that the Decision
"has become final and executory," and that "COMELEC and MPC-
MPEI are under obligation to make mutual restitution." Otherwise
stated, this admission implies that the ACMs are to be returned to
MPC-MPEI, and that the sum of over one billion pesos illegally paid for
them be refunded to the public purse.2 In short, ownership of the
ACMs never left MPC-MPEI and the money paid for them still belongs,
and must be returned, to the government.
Consequently, the ACMs, which "admittedly failed to pass legally
mandated technical requirements" cannot be used during the
forthcoming elections in the Autonomous Region for Muslim Mindanao
(ARMM). Apart from formidable legal, jurisprudential, technical and
financial obstacles, the use of the machines would expose the ARMM
elections to the same electoral pitfalls and frauds pointed out in our
Decision. If the ACMs were not good enough for the 2004 national
elections, why should they be good enough now for the 2005 ARMM
elections, considering that nothing has been done by Comelec to
correct the legal, jurisprudential and technical flaws underscored in our
final and executory Decision?
The Motion
Before us is the Commission on Election’s "Most Respectful Motion for
Leave to Use the Automated Counting Machines in [the] Custody of
the Commission on Elections for use (sic) in the August 8, 2005
Elections in the Autonomous Region for Muslim Mindanao (ARMM),"
dated December 9, 2004. In its January 18, 2005 Resolution, the Court
required the parties to comment. After careful deliberation on all
pleadings at hand, we now resolve the Motion.
Partnership assigned readings
Ortiz, Ransell Alaistaire B.
Background Information
At the outset, we stress that the Decision in the present case,
promulgated on January 13, 2004, has long attained finality.3 In our
February 17, 2004 Resolution, we denied with finality Comelec’s
Motion for Reconsideration dated January 28, 2004, as well as private
respondents’ Omnibus Motion dated January 26, 2004. The Decision
was recorded in the Book of Entries of Judgments on March 30, 2004.
Recall that our Decision declared Comelec to have acted with grave
abuse of discretion when, by way of its Resolution No. 6074, it
awarded the Contract for the supply of automated counting machines
(ACMs) to private respondents. It did so, not only in clear violation of
law and jurisprudence, but also with inexplicable haste and reckless
disregard of its own bidding rules and procedures; particularly the
mandatory financial, technical and legal requirements. It further
manifested such grave abuse of discretion when it accepted the
subject computer hardware and software even though, at the time of
the award, these had patently failed to pass eight critical requirements
designed to safeguard the integrity of the elections. Consequently, this
Court was constrained to exercise its constitutional duty by voiding the
assailed Resolution No. 6074 awarding the Contract to Mega Pacific
Consortium, as well as the subject Contract itself executed between
Comelec and Mega Pacific eSolutions, Inc.
Comelec was further ordered to refrain from implementing any other
contract or agreement it had entered into with regard to the said
project. We also declared that, as a necessary consequence of such
nullity and illegality, the purchase of the ACMs and the software, along
with all payments made for them, had no basis in law. Hence, the
public funds spent must be recovered from the payees and/or the
persons who made the illegal disbursements possible, without
prejudice to possible criminal prosecutions against them.4
Likewise, our February 17, 2004 Resolution denying reconsideration
found movants to have raised the same procedural and substantive
issues already exhaustively discussed and definitively passed upon in
our Decision. In that Resolution, we emphasized (and we reiterate
here) that the Decision did not prohibit automation of the elections.
Neither did the Court say that it was opposed to such project (or the
use of ACMs) as a general proposition. We repeated our explanation
that the reason for voiding the assailed Resolution and the subject
Contract was the grave abuse of discretion on the part of Comelec; as
well as its violations of law -- specifically RA 9184, RA 8436, and RA
6955 as amended by RA 7718; prevailing jurisprudence (the latest of
which was Agan v. Philippine International Air Terminals Co.,
Inc.5); and the bidding rules and policies of the Commission itself.
Comelec’s Claims
Notwithstanding our Decision and Resolution, the present Motion
claims, inter alia, that the ARMM elections are slated to be held on
August 8, 2005, and are mandated by RA 9333 to be automated; that
the government has no available funds to finance the automation of
those elections; that considering its present fiscal difficulties, obtaining
a special appropriation for the purpose is unlikely; that, on the other
hand, there are in Comelec’s custody at present 1,991 ACMs, which
were previously delivered by private respondents; that these machines
would deteriorate and become obsolete if they remain idle and unused;
that they are now being stored in the Comelec Maxilite Warehouse
along UN Avenue, at "storage expenses of ₱329,355.26 a month, or
₱3,979,460.24 annually."
The Motion further alleges that "information technology experts," who
purportedly supervised all stages of the software development for the
creation of the final version to be used in the ACMs, have unanimously
confirmed that this undertaking is in line with the internationally
accepted standards (ISO/IEC 12207) for software life cycle processes,
"with its quality assurance that it would be fit for use in the elections x x
x."
Comelec also points out that the process of "enhancement" of the
counting and canvassing software has to be commenced at least six
(6) months prior to the August 8, 2005 ARMM elections, in order to be
University of the East
Atty. Al Jumrani
ready by then. It asserts that its Motion is (a) without prejudice to the
ongoing Civil Case No. 04-346 pending before the Regional Trial Court
of Makati City, Branch 59, entitled "Mega Pacific eSolutions, Inc. v.
Republic of the Philippines (represented by the Commission on
Elections)," for the collection of a purported ₱200 million balance due
from Comelec under the voided Contract; and (b) with a continuing
respectful recognition of the finality and legal effects of our aforesaid
Decision. At bottom, Comelec prays that it be granted leave to use the
ACMs in its custody during the said ARMM elections.
Private Respondents’ Contentions
Commenting on the present Motion, private respondents take the
position that, since the subject ACMs have already been delivered to,
paid for and used by Comelec, the Republic of the Philippines is now
their owner, without prejudice to Mega Pacific eSolutions, Inc.’s claim
for damages in the case pending before the RTC of Makati; and that,
consequently, as far as private respondents are concerned, the
question of using the subject ACMs for the ARMM elections is
dependent solely on the discretion of the owner, the Republic of the
Philippines.
Petitioners’ Comment
On the other hand, petitioners contend that Comelec is asking this
Court to render an advisory opinion, in contravention of the
constitutional provision6 that explicitly states that the exercise of
judicial power is confined to (1) settling actual controversies involving
rights that are legally demandable and enforceable; and (2)
determining whether there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of government.
Petitioners assert that there is no longer any live case or controversy to
speak of -- an existing case or controversy that is appropriate or ripe
for determination, not merely conjectural or anticipatory; and that
Comelec’s allegations in its Motion do not amount to an actual case or
controversy that would require this Court to render a decision or
resolution in the legitimate exercise of its judicial power. This lack of
actual controversy is clearly seen in the relief prayed for in the Motion:
the grant of a leave to use the ACMs during the ARMM elections.
Obviously, Comelec merely seeks an advisory opinion from this Court
on whether its proposal to use the ACMs during the said elections
might be in violation of this Court’s Decision dated January 13, 2004,
and Resolution dated February 17, 2004.
Assuming arguendo that the present Motion might somehow be
justified by the government’s fiscal difficulties, petitioners further argue
that permitting Comelec to use the ACMs would nevertheless allow it
to do indirectly what it was not permitted by this Court to do directly.
They argue that the instant Motion is merely a subterfuge on the poll
body’s part to resurrect a lost case via a request for an advisory
opinion.
The OSG’s Comment
The Office of the Solicitor General (OSG) declares in its Comment that,
in compliance with this Court’s directive for it to "take measures to
protect the government and vindicate public interest from the ill effects
of the illegal disbursements of public funds made by reason of the void
[Comelec] Resolution and Contract," it filed on behalf of the Republic
on July 7, 2004, an Answer with Counterclaim in Civil Case No. 04-
346. The OSG prayed for the return of all payments made by Comelec
to Mega Pacific under the void Contract, amounting to ₱1,048,828,407.
The OSG also manifests that it received a copy of the Complaint-
Affidavit dated September 15, 2004, filed with the Office of the
Ombudsman by the Bantay Katarungan Foundation and the
Kilosbayan Foundation against the Comelec commissioners who had
awarded the Contract for the ACMs; and the private individuals
involved, including the incorporators and officers of Mega Pacific
eSolutions, Inc. This Complaint-Affidavit was for violation of the Anti-
Plunder Law (RA 7030), the Anti-Graft and Corrupt Practices Act (RA
3019 as amended), and the Code of Conduct and Ethical Standards
for Public Officials and Employees (RA 6713).
Partnership assigned readings
Ortiz, Ransell Alaistaire B.
The complainants alleged immense kickbacks and horrendous
overpricing involved in the purchase of the 1,991 ACMs. Based on the
OSG’s available records, it appears that Comelec withdrew from Land
Bank ₱1.03 billion, but actually paid Mega Pacific only ₱550.81 million.
Furthermore, commercial invoices and bank applications for
documentary credits reveal that each ACM cost only ₱276,650.00, but
that Comelec agreed to pay Mega Pacific ₱430,394.17 per unit -- or a
differential of ₱153,744.17 per unit or an aggregate differential of
₱306.10 million. Moreover, Mega Pacific charged ₱83.924 million for
value-added taxes (VAT) and ₱81.024 million more for customs duties
and brokerage fees, when in fact -- under the nullified Contract -- it was
supposed to be exempt from VAT, customs duties and brokerage fees.
Lastly, Comelec agreed to peg the ACM price at the exchange rate of
₱58 to $1, when the exchange rate was ₱55 to $1 at the time of the
bidding, resulting in additional losses for the government amounting to
about ₱30 million.
The OSG hews to the view that the automation of elections, if properly
carried out, is a desirable objective, but is mindful of the need for
mutual restitution by the parties as a result of the final Decision
nullifying the Contract for the ACMs. Nevertheless, in apparent
response to Comelec’s clamor to use the ACMs in the ARMM
elections, the OSG manifests that it has no objection to the proposal to
use the machines, provided however that (1) Comelec should show
with reasonable certainty that the hardware and software of the ACMs
can be effectively used for the intended purpose; (2) Mega Pacific
should be made to return to the Republic at least a substantial portion
of the overprice they charged for the purchase of the ACMs; and (3)
the use of these machines, if authorized by this Court, should be
without prejudice to the prosecution of the related criminal cases
pending before the Office of the Ombudsman (OMB).
The OMB’s Manifestation
For its part, the Office of the Ombudsman manifested that as a result
of the nullification of the Contract, various fact-finding investigations
had been conducted, and criminal and administrative charges filed
before it against the persons who appeared to be responsible for the
anomalous Contract; and that the various cases had been
consolidated, and preliminary investigation conducted in respect of the
non-impeachable Comelec officials and co-conspirators/private
individuals. Furthermore, the OMB is in the process of determining
whether a verified impeachment complaint may be filed against the poll
body’s impeachable officials concerned.
A Supplemental Complaint prepared and filed by the Field
Investigation Office of the Ombudsman reveals that the ACMs were
overpriced by about ₱162,000.00 per unit; that, additionally, Mega
Pacific unduly benefited by including VAT and import duties amounting
to ₱194.60 million in its bid price for the ACMs, despite Section 8 of RA
8436 exempting such equipment from taxes and duties; that Comelec
nonetheless awarded the Contract to Mega Pacific at the same bid
price of ₱1.249 billion, inclusive of VAT, import duties and so on; and
that the Commission allowed Mega Pacific to peg the ACM price using
an exchange rate of ₱58 to $1 instead of ₱53 to $1, which further
inflated Mega Pacific’s windfall.
The foregoing notwithstanding, the OMB had allegedly prepared a
comment on the present Motion, stating its position on the issue of
utilizing the ACMs, but upon further reflection decided not to file that
comment. It came to the conclusion that ventilating its position on the
matter might engender certain impressions that it had already resolved
factual and/or legal issues closely intertwined with the elements of the
offenses charged in the criminal and administrative cases pending
before it. "For one, utilizing illegally procured goods or the intentional
non-return thereof to the supplier may have a bearing on the
determination of evident bad faith or manifest partiality, an essential
element in any prosecution under the anti-graft law, and may, at the
same time, be constitutive of misconduct penalized under relevant
disciplinary laws."
Consequently, out of prudential considerations, the OMB prayed to be
excused from commenting on the merits of the present Motion, to
avoid any perception of prejudgment, bias or partiality on its part, in
University of the East
Atty. Al Jumrani
connection with the criminal and administrative cases pending before
it.
The Court’s Ruling
Decision Subverted by the Motion
There are several reasons why the present Motion must be
denied. First, although it professes utmost respect for the finality of our
Decision of January 13, 2004 -- an inescapable and immutable fact
from which spring equally ineludible consequences -- granting it would
have the effect of illegally reversing and subverting our final Decision.
Plainly stated, our final Decision bars the grant of the present Motion.
To stress, as a direct result of our January 13, 2004 Decision, the
Contract for the supply of the subject ACMs was voided, and the
machines were not used in the 2004 national elections. Furthermore,
the OSG was directed "to take measures to protect the government
and vindicate public interest from the ill-effects of the illegal
disbursements of public funds made by reason of the void Resolution."
Accordingly, in Civil Case No. 04-346, the government counsel has
prayed for mutual restitution; and for the "return of all payments,
amounting to ₱1,048,828,407.00 made by Comelec to Mega Pacific
under the void Contract."
In the meantime, Comelec has done nothing -- at least, nothing has
been reported in the present Motion -- to abide by and enforce our
Decision. Apparently, it has not done anything to rectify its violations of
laws, jurisprudence and its own bidding rules referred to in our
judgment. Neither has it reported any attempt to correct and observe
the "mandatory financial, technical and legal requirements" needed to
computerize the elections.
Apparently, it has simply filed the present Motion asking permission to
do what it has precisely been prohibited from doing under our final and
executory Decision. If law and jurisprudence bar it from using the
subject ACMs during the last elections, why should it even propose to
use these machines in the forthcoming ARMM elections? True, these
elections are important. But they cannot be more important than the
2004 national elections. Note that the factual premises and the laws
involved in the procurement and use of the ACMs have not changed.
Indeed, Comelec has not even alleged, much less proven, any
supervening factual or legal circumstances to justify its Motion.
Basic and primordial is the rule that when a final judgment becomes
executory, it thereby becomes immutable and unalterable. In other
words, such a judgment may no longer undergo any modification,
much less any reversal, even if it is meant to correct what is perceived
to be an erroneous conclusion of fact or law; and even if it is attempted
by the court rendering it or by this Court.7 Equally well-entrenched is
the doctrine that what is not permitted to be done directly may not be
done indirectly either. In the instant case, it is unarguable that the
inexorable result of granting the present Motion will precisely be a
subversion of the Decision, or at least a modification that would render
the latter totally ineffective and nugatory.
To support its present Motion, Comelec appended as Annex 1 a letter
dated January 22, 2004. Addressed to its chairman, the Annex was
signed by four8 self-proclaimed "information technology experts,"9 who
had gratuitously contended that this Court’s Decision was "one of the
most inopportune rulings ever to come out of the hallowed halls of that
High Tribunal"; blame the Decision for supposedly forcing our people
"to entrust their votes to a manual system of counting and canvassing
that have been proven to be prone to massive fraud in the past"; and
mouth legal/technical arguments that have already been repeatedly
debunked in the Decision and Resolution here. The letter also included
a long-winded, tortuous discussion of the software development life
cycle.
A quick check of the case records confirmed our suspicion. The very
same letter dated January 22, 2004 had previously been appended as
Annex 2 to private respondents’ "Omnibus Motion A) for
reconsideration of the Decision dated 13 January 2004; b) to admit
exhibits in refutation of the findings of fact of the Court; c) to have the
case set for hearing and/or reception of evidence if deemed necessary
Partnership assigned readings
Ortiz, Ransell Alaistaire B.
by the Court." The only difference is that this time around, Comelec
overlooked or failed to photocopy the last page (page 17) of the letter,
bearing the signatures of the four other purported "information
technology experts."10 In other words, to support its present Motion, it
merely recycled an earlier exhibit that had already been used in
seeking reconsideration of our aforesaid Decision.
While expressing utmost reverence for the finality of the Decision,
Comelec implicitly seeks, nevertheless, to have this Court take up
anew matters that have already been passed upon and disposed of
with finality.
It is a hornbook doctrine that courts are presumed to have passed
upon all points that were raised by the parties in their various
pleadings, and that form part of the records of the case. Our
Resolution, disposing of respondents’ arguments on reconsideration,
did not explicitly and specifically address all of the matters raised in the
said letter of January 22, 2004. It is presumed however, that all matters
within an issue raised in a case were passed upon by the Court,11 as
indeed they were in the instant case. And as we have held
elsewhere,12 courts will refuse to reopen what has been decided; they
will not allow the same parties or their privies to litigate anew a
question that has been considered and decided with finality.
Besides, the letter of January 22, 2004, laden as it is with technical
jargon and impressive concepts, does not serve to alter by even the
minutest degree our finding of grave abuse of discretion by Comelec,
on account of its clear violations of law and jurisprudence and its
unjustifiable and reckless disregard of its own bidding rules and
procedures.
Furthermore, the letter would obviously not contain anything that might
serve to persuade us that the situation obtaining in January 2004 has
so changed in the interim as to justify the use of the ACMs in August
2005.
The Commission seems to think that it can resurrect the dead case by
waving at this Court a letter replete with technical jargon, much like a
witch doctor muttering unintelligible incantations to revive a corpse.
In its main text, the Motion concedes that our Decision "has become
final and executory," and that all that remains to be done is "to make
mutual restitution."13 So, what is the relevance of all these useless
argumentations and pontifications in Annex 1 by the Commission’s
self-proclaimed "experts"? For its own illegal acts, imprudence and
grave abuse of discretion, why blame this Court? For Comelec to know
immediately which culprit should bear full responsibility for its
miserable failure to automate our elections, it should simply face the
mirror.
Recovery of Government Funds Barred by the Motion
Second, the grant of the Motion will bar or jeopardize the recovery of
government funds improvidently paid to private respondents, funds that
to date the OSG estimates to be over one billion pesos. At the very
least, granting the Motion will be antagonistic to the directive in our
Decision for the OSG to recover the "illegal disbursements of public
funds made by reason of the void Resolution and Contract."
Indeed, if the government is conned into not returning the ACMs but
instead keeping and utilizing them, there would be no need for Mega
Pacific to refund the payments made by Comelec. In fact, such
recovery will no longer be possible. Consequently, all those who stood
to benefit (or have already benefited) financially from the deal would no
longer be liable for the refund. They can argue that there was nothing
wrong with the voided Resolution and Contract, nothing wrong with the
public bidding, nothing wrong with the machines and software, since
the government has decided to keep and utilize them. This argument
can be stretched to abate the criminal prosecutions pending before the
OMB and the impeachment proceedings it is considering. After all,
"reasonable doubt" is all that is needed to secure acquittal in a criminal
prosecution.
In brief, the poll body’s Motion not only asks for what is legally
impossible to do (to reverse and subvert a final and executory Decision
University of the East
Atty. Al Jumrani
of the highest court of the land), but also prevents the Filipino people
from recovering illegally disbursed public funds running into billions of
pesos. Verily, by subverting the Decision of this Court, the Motion
would be unduly favoring and granting virtual immunity from criminal
prosecution to the parties responsible for the illegal disbursement of
scarce public funds.
Use of the ACMs and Software Detrimental to ARMM Elections
Third, the use of the unreliable ACMs and the nonexistent software
that is supposed to run them will expose the ARMM elections to the
same electoral ills pointed out in our final and executory Decision. Be it
remembered that this Court expressly ruled that the proffered
hardware and software had undeniably failed to pass eight critical
requirements designed to safeguard the integrity of elections,
especially the following three items:
"· They failed to achieve the accuracy rating criterion of 99.9995
percent set up by the Comelec itself.
"· They were not able to detect previously downloaded results at
various canvassing or consolidation levels and to prevent these from
being inputted again.
"· They were unable to print the statutorily required audit trails of the
count/canvass at different levels without any loss of data."14
The Motion has not at all demonstrated that these technical
requirements have been addressed from the time our Decision was
issued up to now. In fact, Comelec is merely asking for leave to use
the machines, without mentioning any specific manner in which the
foregoing requirements have been satisfactorily met.
Equally important, we stressed in our Decision that "[n]othing was said
or done about the software -- the deficiencies as to detection and
prevention of downloading and entering previously downloaded data,
as well as the capability to print an audit trail. No matter how many
times the machines were tested and retested, if nothing was done
about the programming defects and deficiencies, the same danger of
massive electoral fraud remains."15
Other than vaguely claiming that its four so-called "experts" have
"unanimously confirmed that the software development which the
Comelec undertook, [was] in line with the internationally accepted
standards (ISO/IEC 12207) [for] software life cycle processes," the
present Motion has not shown that the alleged "software development"
was indeed extant and capable of addressing the "programming
defects and deficiencies" pointed out by this Court.
At bottom, the proposed use of the ACMs would subject the ARMM
elections to the same dangers of massive electoral fraud that would
have been inflicted by the projected automation of the 2004 national
elections.
Motion Inadequate and Vague
Fourth, assuming arguendo that the foregoing
formidable legal, financial and technical obstacles could be overcome
or set aside, still, the Motion cannot be granted because it is vague; it
does not contain enough details to enable this Court to act
appropriately.
The sham nature of the Motion is evident from the following
considerations. While Comelec asserts a pressing need for the ACMs
to be used in the ARMM elections, strangely enough, it has not
bothered to determine the number of units that will be required for the
purpose, much less tried to justify such quantification. It contracted for
a total of 1,991 ACMs, intended for use throughout the entire country
during the 2004 elections. Are we to believe that all 1,991 units would
be utilized to count and canvass the votes cast in the ARMM
elections? Such a scenario is highly unlikely, even ridiculous.
A genuine, bona fide proposal for the utilization of the ACMs would
naturally have included a well-thought-out plan of action, indicating the
number of units to be deployed, places of utilization, number of
Partnership assigned readings
Ortiz, Ransell Alaistaire B.
operators and other personnel required, methods/periods of
deployment and recovery or retrieval, assessments of costs and risks
involved in implementing the proposal, and concomitant justifications,
among other things. Now, either "The Plan" is being kept absolutely
top secret, or it is completely nonexistent.
Furthermore, once the ACMs are deployed and utilized, they will no
longer be in the same condition as when they were first delivered to
Comelec. In fact, it is quite probable that by the time election day
comes around, some of the machines would have been mishandled
and damaged, maybe even beyond repair. What steps has the poll
body taken to make certain that such eventualities, if not altogether
preventable, can at least be minimized so as to ensure the eventual
return of the ACMs and the full recovery of the payments made for
them? A scrutiny of the 4-page Motion16 ends in futility. It is all too
clear that a failure or inability of Comelec to return the machines sans
damage would most assuredly be cited as a ground to refuse the
refund of the moneys paid. Yet, if Comelec has given any thought at all
to this or any other contingency, such fact has certainly not been made
evident to us.
ARMM Elections Not Jeopardized by Nonuse of ACMs
Fifth, there is no basis for the claim that unless the subject ACMs are
used, the ARMM elections would not be held.
At the outset, if such elections are not held, the blame must be laid
squarely at the doorstep of Comelec. To stress, had it not gravely
abused its discretion, the automation of the vote counting and
canvassing processes would have already become a reality over a
year ago, and the ACMs that would have been used in the 2004
national elections would now be available for the ARMM elections.
In any event, the Commission in its Motion argues that the
government, given its present fiscal difficulties, has no available funds
to finance the automation of the ARMM elections. Without even asking
under what authority it has assumed the role of Treasury spokesman,
we emphasize that there would not now be any lack of funds for
election automation had it not improvidently turned over ₱1 billion of
taxpayers’ moneys to Mega Pacific’s bank accounts.
Nevertheless, had the poll body been honestly and genuinely intent on
implementing automated counting and canvassing for the ARMM
elections, it ought to have informed Congress of the non-availability of
the subject ACMs due to our Decisions and of the need for special
appropriations, instead of wasting this Court’s time on its unmeritorious
Motion. In fact, if only it had taken proper heed of our Decision of
January 13, 2004, it could have conducted an above-board public
bidding for the supply of acceptable ACMs.
Certainly, this option or course of action was not foreclosed by our
Decision. Moreover, there was sufficient time within which to conduct
the public bidding process. RA 9333, which set the second Monday of
August 2005 (August 8, 2005) as the date of the ARMM elections, was
enacted on September 21, 2004. Undoubtedly, Comelec was made
aware of the proposed date of the ARMM elections way before the
passage of RA 9333. Thus, the poll body had about ten (10) months at
the very least (between the end of September 2004, when RA 9333
came into force and effect, and August 8, 2005) to lobby Congress,
properly conduct a public bidding, award the appropriate contracts,
deliver and test the new machines, and make final preparations for the
election.
Even assuming that a new public bidding for ACMs was not a viable
option, still, Comelec has had more than sufficient lead time -- about
ten months counted from the end of September 2004 until August 8,
2005 -- to prepare for manual counting and canvassing in the ARMM
elections. It publicly declared, sometime in late January 2004, that
notwithstanding our Decision nullifying the Mega Pacific Contract, it
would still be able to implement such manualization for the May 10,
2004 national elections. It made this declaration even though it had a
mere three months or so to set up the mechanics. In this present
instance involving elections on a much smaller scale, it will definitely
be able to implement manual processes if it wants to.
University of the East
Atty. Al Jumrani
There is therefore absolutely no basis for any apprehension that the
ARMM elections would not push through simply because the present
Motion cannot pass muster. More to the point, it would be ridiculous to
regard the grant of permission to use the subject ACMs as
the conditio sine qua non for the holding of the ARMM elections.
What is most odious is the resort to the present Motion seeking the use
of the subject ACMs despite the availability of viable alternative
courses of action17 that will not tend to disturb or render this Court’s
final Decision ineffectual. Thus, the present Motion is wholly
unnecessary and unwarranted. Upon it, however has Comelec pinned
all its hopes, instead of focusing on what the poll body can and ought
to do under the circumstances. The consequences of granting its
lamentable Motion, we repeat, will indubitably subvert and thwart the
Decision of this Court in the instant case.
Equally reprehensible is the attempt of the Commission to pass the
onus of its mismanagement problems on to this Court. For instance,
the Motion quotes the cost of storage of the ACMs in its Maxilite
Warehouse at ₱329,355.26 per month or ₱3,979,460.24 per annum.
Assuming for the nonce that the machines have to be held in storage
pending the decision in the civil case (as it would simply not do to
throw the machines out into the streets), why must it assume the cost
of storage? Per our Decision, the machines are to be returned to Mega
Pacific. If it refuses to accept them back, it does not follow that
Comelec must pick up the tab. Instead of further wasting the taxpayers’
money, it can simply send the bill to Mega Pacific for collection.
It would be entirely improper, bordering on unmitigated contempt of
court, for the Commission to try to pass on the problem to this Court
through its Motion.
No Actual Case or Controversy
Finally, the Motion presents no actual justiciable case or controversy
over which this Court can exercise its judicial authority. It is well-
established in this jurisdiction that "x x x for a court to exercise its
power of adjudication, there must be an actual case or controversy --
one which involves a conflict of legal rights, an assertion of opposite
legal claims susceptible of judicial resolution; the case must not be
moot or academic or based on extra-legal or other similar
considerations not cognizable by a court of justice. x x x [C]ourts do
not sit to adjudicate mere academic questions to satisfy scholarly
interest, however intellectually challenging."18 The controversy must
be justiciable -- definite and concrete, touching on the legal relations of
parties having adverse legal interests.19 In other words, the pleadings
must show an active antagonistic assertion of a legal right, on the one
hand, and a denial thereof on the other; that is, it must concern a real
and not a merely theoretical question or issue.20 There ought to be an
actual and substantial controversy admitting of specific relief through a
decree conclusive in nature, as distinguished from an opinion advising
what the law would be upon a hypothetical state of facts.21
A perusal of the present Motion will readily reveal the utter absence of
a live case before us, involving a clash of legal rights or opposing legal
claims. At best, it is merely a request for an advisory opinion, which
this Court has no jurisdiction to grant.22
EPILOGUE
We close this Resolution by repeating the last two paragraphs of our
final and executory Decision:
"True, our country needs to transcend our slow, manual and archaic
electoral process. But before it can do so, it must first have a diligent
and competent electoral agency that can properly and prudently
implement a well-conceived automated election system.
"At bottom, before the country can hope to have a speedy and fraud-
free automated election, it must first be able to procure the proper
computerized hardware and software legally, based on a transparent
and valid system of public bidding. As in any democratic system, the
ultimate goal of automating elections must be achieved by a legal,
valid and above-board process of acquiring the necessary tools and
skills therefor. Though the Philippines needs an automated electoral
Partnership assigned readings University of the East
Ortiz, Ransell Alaistaire B. Atty. Al Jumrani
process, it cannot accept just any system shoved into its bosom
through improper and illegal methods. As the saying goes, the end
never justifies the means. Penumbral contracting will not produce
enlightened results."23

Comelec must follow and not skirt our Decision. Neither may it short-
circuit our laws and jurisprudence. It should return the ACMs to MPC-
MPEI and recover the improvidently disbursed funds. Instead of
blaming this Court for its illegal actions and grave abuse of discretion,
the Commission should, for a change, devise a legally and technically
sound plan to computerize our elections and show our people that it is
capable of managing the transition from an archaic to a modern
electoral system.

WHEREFORE, the Motion is hereby DENIED for utter lack of merit.

SO ORDERED.

MOBIL OIL PHILIPPINES, INC., petitioner,

vs.
COURT OF FIRST INSTANCE OF RIZAL, BRANCH VI, GEMINIANO
F. YABUT and AGUEDA ENRIQUEZ YABUT

This is a petition for review on certiorari filed by petitioner Mobil Oil

Philippines, Inc. questioning (1) the Order of respondent Court of First
Instance, Branch VI, Pasig, Rizal, promulgated on November 20, 1974
declaring its earlier Decision dated July 25, 1974 as null and void
insofar as it concerned private respondents Geminiano F. Yabut and
Agueda Enriquez-Yabut, and (2) the Order promulgated on February
20, 1975 and denying petitioner's Motion for the Issuance of a Writ of
Execution and Appointment of Special Sheriff.

The facts of the case are as follows:

On November 8, 1972, petitioner filed a complaint 1 in the Court of

First Instance of Rizal against the partnership La Mallorca and its
general partners, which included private respondents, for collection of
a sum of money arising from gasoline purchased on credit but not paid,
for damages and attorney's fees.

On December 22, 1972, petitioner, with leave of court, filed an

Amended Complaint 2 impleading the heirs of the deceased partners
as defendants. During the hearing held on April 1, 1974, after petitioner
had presented its evidence, the parties agreed to submit the case for
decision on the basis of the evidence on record adduced by petitioner
but "to exclude past interest in the amount of P150,000.00 and to
award nominal attorney's fees." Consequently, on July 25, 1974, a
Decision 3 was rendered in favor of the petitioner and against
defendants. Private respondents thereafter filed a Petition to Modify
Decision and/or Petition for Reconsideration, 4 which was
opposed 5 by petitioner.

The Petition to Modify Decision and/or Reconsideration is predicated

on the following grounds:

1. That there was no stipulation or agreement of the parties on the

award of attorney's fees;

2. That Miguel Enriquez, not being a general partner, could not bind
the partnership in the Sales Agreement he signed with plaintiff; and

3. That defendant Geminiano Yabut already withdrew as partner and

president of La Mallorca as of September 14, 1972.
Partnership assigned readings
Ortiz, Ransell Alaistaire B.
On November 20, 1974, respondent court issued its disputed
Order 6 declaring its decision null and void insofar as private
respondents were concerned on the ground that there was no
evidence to show that the counsel for the defendants had been duly
authorized by their respective clients to enter into a stipulation or facts,
a compromise agreement or a confession judgment with petitioner, a
ground never raised by the parties. Petitioner filed a Motion for
Reconsideration and Clarification, 7 seeking the reconsideration of
said order or, if not reconsidered, clarification from respondent court as
to whether or not there will be further proceedings for reception of
private respondents' evidence in court. Respondent court denied the
motion, as well as petitioner's Motion for the Issuance of a Writ of
Execution and Appointment of Special Sheriff, by way of the Order
dated February 20, 1975. Hence, this petition.
The issue presented before Us is whether or not public respondent
acted with grave abuse of discretion amounting to lack of jurisdiction in
declaring null and void its earlier decision of July 25, 1974.
We find merit in the instant petition.
In the Order of November 20, 1974, 8 respondent court declared the
decision dated July 25, 1974 null and void for the following reason:
There is no evidence on record to show that the attorneys of record for
the defendants had been duly authorized by their respective clients,
including present movants, to enter into a stipulation of facts or a
compromise agreement of confession of judgment. Ant any settlement
or confession of judgment which an attorney may enter for his client
without any written authority cannot bind the client. To be sure, the
stipulation of facts which amounts to or approximates a compromise
agreement, or waives a right or practically confesses judgment,
entered into by a lawyer without the consent and conformity of his
clients, is an absolute nullity. This precisely is what appears to be the
stipulation of the movants, as well as the other defendants as the
records show. In view of the conclusion thus reached, it would appear
that there is no necessity to discuss the other grounds raised by the
movants.
The records show that the petitioner had already adduced evidence
and formally offered its evidence in court; that at the hearing of April 1,
1974, for the presentation of defendants' evidence, the parties through
their counsels, 9 mutually agreed to the waiver of the presentation of
defendants' evidence on one hand, and the waiver of past interest in
the amount of P150,000.00 on the part of the plaintiff and the payment
of only nominal attorney's fees, thus the respondent court issued the
following Order:
Calling this case for hearing today, the parties pray the Court that they
are submitting the case for decision on the basis of the evidence thus
presented but to exclude past interest in the amount of about
P150,000.00 and to award nominal attorney's fees.
Finding the said motion in order, let judgment be rendered in
accordance with the evidence so far presented. 10
The foregoing Order is not a stipulation of facts nor a confession of
judgment. If at all, there has been a mutual waiver by the parties of the
right to present evidence in court on the part of the defendants on one
hand, and waiver of interest in the amount of P150,000.00 and the
stipulated attorney's fees of 25% of the principal amount on the part of
the plaintiff, except a nominal one.
The counsels of the parties in this case had the implied authority to do
all acts necessary or incidental to the prosecution and management of
the suit in behalf of their clients of their clients who were all present
and never objected to the disputed order of the respondent court. They
have the exclusive management of the procedural aspect of the
litigation including the enforcement of the rights and remedies of their
client. Thus, when the case was submitted for decision on the
evidence so far presented, the counsel for private respondents acted
within the scope of his authority as agent and lawyer in negotiating for
favorable terms for his clients. It may be that in waiving the
presentation of defendants' evidence, counsel believed that petitioner's
evidence was insufficient to prove its cause of action or knowing the
University of the East
Atty. Al Jumrani
futility of resisting the claim, defendants opted to waive their right to
present evidence in exchange for the condonation of past interest in
the amount of around P150,000.00 and the award of a nominal
attorney's fees instead of the 25% stipulated in the Sales Agreement
and Invoices. In fact, when counsel secured a waiver of the
accumulated interest of P150,000.00 and the 25% stipulated attorney's
fees, the defendants were certainly benefited.
Parties are bound by the acts and mistakes of their counsel in
procedural matters. Mistakes of counsel as to the relevancy or
irrelevancy of certain evidence or mistakes in the proper defense, in
the introduction of certain evidence, or in argumentation are, among
others all mistakes of procedure, and they bind the clients, as in the
instant case. 11
Having obtained what defendants bargained for and having wrongly
appreciated the sufficiency or insufficiency of petitioner's evidence,
private respondents are now estopped from assailing the decision
dated July 25, 1974.
Records would show that private respondents have not submitted any
evidence or pleading to contest the authority of their counsel to waive
as he did waive presentation of their evidence in exchange for and in
consideration of petitioner's waiver of past interest and the stipulated
25% of attorney' fees.
Even if We construe the Order of April 1, 1974 to be based on an oral
compromise agreement, the same is valid for as held in the case
of Cadano vs. Cadano 12 an oral compromise may be the basis of a
judgment although written evidence thereof is not signed. It has been
said that the elements necessary to a valid agreement of compromise
are the reality of the claim made and the bona fides of the
compromise. 13
The validity of a judgment or order of a court cannot be assailed
collaterally unless the ground of attack is lack of jurisdiction or
irregularity in their entry apparent on the face of the record or because
it is vitiated by fraud. If the purported nullity of the judgment lies on the
party's lack of consent to the compromise agreement, the remedy of
the aggrieved party is to have it reconsidered, and if denied, to appeal
from such judgment, or if final to apply for relief under rule 38. 14 It is
well settled that a judgment on compromise is not appealable and is
immediately executory unless a motion is field to set aside the
compromise on the ground of fraud, mistake or duress, in which case
an appeal may be taken from the order denying the motion. 15
Moreover, We do not find the grounds relied upon in private
respondents' Petition to Modify Decision to be meritorious.
Mr. Miguel Enriquez automatically became a general partner of the
partnership La Mallorca being one of the heirs of the deceased partner
Mariano Enriquez. Article IV of the uncontested Articles of Co-
Partnership of La Mallorca provides:
IV. Partners. –– The parties above-named, with their civil status,
citizenship and residences set forth after their respective names, shall
be members comprising this partnership, all of whom shall be general
partners.
If during the existence of this co-partnership, any of the herein partners
should die, the co-partnership shall continue to exist amongst the
surviving partners and the heir or heirs of the deceased partner or
partners; Provided, However, that if the heir or heirs of the deceased
partner or partners elect not to continue in the co-partnership, the
surviving partners shall have the right to acquire the interests of the
deceased partner or partners at their book value based upon the last
balance sheet of the co-partnership, and in proportion to their
respective capital contributions; And, Provided Further, that should a
partner or partners desire to withdraw from the co-partnership and the
remaining partners are not willing to acquire his or their shares or
interest in the co-partnership in accordance with the foregoing
provisions, the co-partnership shall not thereby be dissolved, but such
retiring partner or partners shall only be entitled to his or their shares in
the assets of the co-partnership according to the latest balance sheet
which have been drawn prior to the date of his or their withdrawal. In
Partnership assigned readings University of the East
Ortiz, Ransell Alaistaire B. Atty. Al Jumrani
such event, the co-partnership shall continue amongst the remaining
partners. 16

As to respondent Geminiano Yabut's claim that he cannot be liable as

a partner, he having withdrawn as such, does not convince Us. The
debt was incurred long before his withdrawal as partner and his
resignation as President of La Mallorca on September 14, 1972.
Respondent Geminiano Yabut could not just withdraw unilaterally from
the partnership to avoid his liability as a general partner to third
persons like the petitioner in the instant case.

This is likewise true with regard to the alleged non-active participation

of respondent Agueda Yabut in the partnership. Active participation in
a partnership is not a condition precedent for membership in a
partnership so as to be entitled to its profits nor be burdened with its
liabilities.

From the foregoing, it is evident that the court a quo erred in issuing

the Orders of November 20, 1974 and February 20, 1975 nullifying the
decision dated July 25, 1974 and dismissing the complaint against
private respondents Geminiano Yabut and Agueda Enriquez Yabut.

WHEREFORE, the Orders of November 20, 1974 and February 20,

1975 is hereby REVERSED and SET ASIDE and the Decision dated
July 25, 1975 is reinstated and declaring the same valid and binding
against private respondents Geminiano Yabut and Agueda Enriquez-
Yabut. With costs de officio.

LIM TONG LIM, petitioner,

vs.
PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.

A partnership may be deemed to exist among parties who agree to

borrow money to pursue a business and to divide the profits or losses
that may arise therefrom, even if it is shown that they have not
contributed any capital of their own to a "common fund." Their
contribution may be in the form of credit or industry, not necessarily
cash or fixed assets. Being partner, they are all liable for debts
incurred by or on behalf of the partnership. The liability for a contract
entered into on behalf of an unincorporated association or ostensible
corporation may lie in a person who may not have directly transacted
on its behalf, but reaped benefits from that contract.

The Case

In the Petition for Review on Certiorari before us, Lim Tong Lim assails
the November 26, 1998 Decision of the Court of Appeals in CA-GR CV
41477, 1 which disposed as follows:

WHEREFORE, [there being] no reversible error in the appealed

decision, the same is hereby affirmed. 2

The decretal portion of the Quezon City Regional Trial Court (RTC)
ruling, which was affirmed by the CA, reads as follows:

WHEREFORE, the Court rules:

1. That plaintiff is entitled to the writ of preliminary attachment issued

by this Court on September 20, 1990;

2. That defendants are jointly liable to plaintiff for the following

amounts, subject to the modifications as hereinafter made by reason of
the special and unique facts and circumstances and the proceedings
that transpired during the trial of this case;

a. P532,045.00 representing [the] unpaid purchase price of the fishing

nets covered by the Agreement plus P68,000.00 representing the
unpaid price of the floats not covered by said Agreement;
Partnership assigned readings
Ortiz, Ransell Alaistaire B.
b. 12% interest per annum counted from date of plaintiff's invoices and
computed on their respective amounts as follows:
i. Accrued interest of P73,221.00 on Invoice No. 14407 for
P385,377.80 dated February 9, 1990;
ii. Accrued interest for P27,904.02 on Invoice No. 14413 for
P146,868.00 dated February 13, 1990;
iii. Accrued interest of P12,920.00 on Invoice No. 14426 for
P68,000.00 dated February 19, 1990;
c. P50,000.00 as and for attorney's fees, plus P8,500.00 representing
P500.00 per appearance in court;
d. P65,000.00 representing P5,000.00 monthly rental for storage
charges on the nets counted from September 20, 1990 (date of
attachment) to September 12, 1991 (date of auction sale);
e. Cost of suit.
With respect to the joint liability of defendants for the principal
obligation or for the unpaid price of nets and floats in the amount of
P532,045.00 and P68,000.00, respectively, or for the total amount
P600,045.00, this Court noted that these items were attached to
guarantee any judgment that may be rendered in favor of the plaintiff
but, upon agreement of the parties, and, to avoid further deterioration
of the nets during the pendency of this case, it was ordered sold at
public auction for not less than P900,000.00 for which the plaintiff was
the sole and winning bidder. The proceeds of the sale paid for by
plaintiff was deposited in court. In effect, the amount of P900,000.00
replaced the attached property as a guaranty for any judgment that
plaintiff may be able to secure in this case with the ownership and
possession of the nets and floats awarded and delivered by the sheriff
to plaintiff as the highest bidder in the public auction sale. It has also
been noted that ownership of the nets [was] retained by the plaintiff
until full payment [was] made as stipulated in the invoices; hence, in
effect, the plaintiff attached its own properties. It [was] for this reason
also that this Court earlier ordered the attachment bond filed by plaintiff
to guaranty damages to defendants to be cancelled and for the
P900,000.00 cash bidded and paid for by plaintiff to serve as its bond
in favor of defendants.
From the foregoing, it would appear therefore that whatever judgment
the plaintiff may be entitled to in this case will have to be satisfied from
the amount of P900,000.00 as this amount replaced the attached nets
and floats. Considering, however, that the total judgment obligation as
computed above would amount to only P840,216.92, it would be
inequitable, unfair and unjust to award the excess to the defendants
who are not entitled to damages and who did not put up a single
centavo to raise the amount of P900,000.00 aside from the fact that
they are not the owners of the nets and floats. For this reason, the
defendants are hereby relieved from any and all liabilities arising from
the monetary judgment obligation enumerated above and for plaintiff to
retain possession and ownership of the nets and floats and for the
reimbursement of the P900,000.00 deposited by it with the Clerk of
Court.
SO ORDERED. 3
The Facts
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and
Peter Yao entered into a Contract dated February 7, 1990, for the
purchase of fishing nets of various sizes from the Philippine Fishing
Gear Industries, Inc. (herein respondent). They claimed that they were
engaged in a business venture with Petitioner Lim Tong Lim, who
however was not a signatory to the agreement. The total price of the
nets amounted to P532,045. Four hundred pieces of floats worth
P68,000 were also sold to the Corporation. 4
The buyers, however, failed to pay for the fishing nets and the floats;
hence, private respondents filed a collection suit against Chua, Yao
and Petitioner Lim Tong Lim with a prayer for a writ of preliminary
attachment. The suit was brought against the three in their capacities
University of the East
Atty. Al Jumrani
as general partners, on the allegation that "Ocean Quest Fishing
Corporation" was a nonexistent corporation as shown by a Certification
from the Securities and Exchange Commission. 5 On September 20,
1990, the lower court issued a Writ of Preliminary Attachment, which
the sheriff enforced by attaching the fishing nets on board F/B Lourdes
which was then docked at the Fisheries Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation
admitting his liability and requesting a reasonable time within which to
pay. He also turned over to respondent some of the nets which were in
his possession. Peter Yao filed an Answer, after which he was deemed
to have waived his right to cross-examine witnesses and to present
evidence on his behalf, because of his failure to appear in subsequent
hearings. Lim Tong Lim, on the other hand, filed an Answer with
Counterclaim and Crossclaim and moved for the lifting of the Writ of
Attachment. 6 The trial court maintained the Writ, and upon motion of
private respondent, ordered the sale of the fishing nets at a public
auction. Philippine Fishing Gear Industries won the bidding and
deposited with the said court the sales proceeds of P900,000. 7
On November 18, 1992, the trial court rendered its Decision, ruling that
Philippine Fishing Gear Industries was entitled to the Writ of
Attachment and that Chua, Yao and Lim, as general partners, were
jointly liable to pay respondent. 8
The trial court ruled that a partnership among Lim, Chua and Yao
existed based (1) on the testimonies of the witnesses presented and
(2) on a Compromise Agreement executed by the three 9 in Civil Case
No. 1492-MN which Chua and Yao had brought against Lim in the
RTC of Malabon, Branch 72, for (a) a declaration of nullity of
commercial documents; (b) a reformation of contracts; (c) a declaration
of ownership of fishing boats; (d) an injunction and (e)
damages. 10 The Compromise Agreement provided:
a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4)
vessels sold in the amount of P5,750,000.00 including the fishing net.
This P5,750,000.00 shall be applied as full payment for P3,250,000.00
in favor of JL Holdings Corporation and/or Lim Tong Lim;
b) If the four (4) vessel[s] and the fishing net will be sold at a higher
price than P5,750,000.00 whatever will be the excess will be divided
into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;
c) If the proceeds of the sale the vessels will be less than
P5,750,000.00 whatever the deficiency shall be shouldered and paid to
JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3
Peter Yao. 11
The trial court noted that the Compromise Agreement was silent as to
the nature of their obligations, but that joint liability could be presumed
from the equal distribution of the profit and loss. 21
Lim appealed to the Court of Appeals (CA) which, as already stated,
affirmed the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a partner of
Chua and Yao in a fishing business and may thus be held liable as a
such for the fishing nets and floats purchased by and for the use of the
partnership. The appellate court ruled:
The evidence establishes that all the defendants including herein
appellant Lim Tong Lim undertook a partnership for a specific
undertaking, that is for commercial fishing . . . . Oviously, the ultimate
undertaking of the defendants was to divide the profits among
themselves which is what a partnership essentially is . . . . By a
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 (Article 1767, New
Civil Code). 13
Hence, petitioner brought this recourse before this Court. 14
The Issues
Partnership assigned readings
Ortiz, Ransell Alaistaire B.
In his Petition and Memorandum, Lim asks this Court to reverse the
assailed Decision on the following grounds:
I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A
COMPROMISE AGREEMENT THAT CHUA, YAO AND PETITIONER
LIM ENTERED INTO IN A SEPARATE CASE, THAT A
PARTNERSHIP AGREEMENT EXISTED AMONG THEM.
II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS
ACTING FOR OCEAN QUEST FISHING CORPORATION WHEN HE
BOUGHT THE NETS FROM PHILIPPINE FISHING, THE COURT OF
APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO
PETITIONER LIM AS WELL.
III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND
ATTACHMENT OF PETITIONER LIM'S GOODS.
In determining whether petitioner may be held liable for the fishing nets
and floats from respondent, the Court must resolve this key issue:
whether by their acts, Lim, Chua and Yao could be deemed to have
entered into a partnership.
This Court's Ruling
The Petition is devoid of merit.
First and Second Issues:
Existence of a Partnership
and Petitioner's Liability
In arguing that he should not be held liable for the equipment
purchased from respondent, petitioner controverts the CA finding that a
partnership existed between him, Peter Yao and Antonio Chua. He
asserts that the CA based its finding on the Compromise Agreement
alone. Furthermore, he disclaims any direct participation in the
purchase of the nets, alleging that the negotiations were conducted by
Chua and Yao only, and that he has not even met the representatives
of the respondent company. Petitioner further argues that he was a
lessor, not a partner, of Chua and Yao, for the "Contract of Lease "
dated February 1, 1990, showed that he had merely leased to the two
the main asset of the purported partnership — the fishing boat F/B
Lourdes. The lease was for six months, with a monthly rental of
P37,500 plus 25 percent of the gross catch of the boat.
We are not persuaded by the arguments of petitioner. The facts as
found by the two lower courts clearly showed that there existed a
partnership among Chua, Yao and him, pursuant to Article 1767 of the
Civil Code which provides:
Art. 1767 — 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.
Specifically, both lower courts ruled that a partnership among the three
existed based on the following factual findings: 15
(1) That Petitioner Lim Tong Lim requested Peter Yao who was
engaged in commercial fishing to join him, while Antonio Chua was
already Yao's partner;
(2) That after convening for a few times, Lim, Chua, and Yao verbally
agreed to acquire two fishing boats, the FB Lourdes and the FB
Nelson for the sum of P3.35 million;
(3) That they borrowed P3.25 million from Jesus Lim, brother of
Petitioner Lim Tong Lim, to finance the venture.
(4) That they bought the boats from CMF Fishing Corporation, which
executed a Deed of Sale over these two (2) boats in favor of Petitioner
Lim Tong Lim only to serve as security for the loan extended by Jesus
Lim;
University of the East
Atty. Al Jumrani
(5) That Lim, Chua and Yao agreed that the refurbishing, re-equipping,
repairing, dry docking and other expenses for the boats would be
shouldered by Chua and Yao;
(6) That because of the "unavailability of funds," Jesus Lim again
extended a loan to the partnership in the amount of P1 million secured
by a check, because of which, Yao and Chua entrusted the ownership
papers of two other boats, Chua's FB Lady Anne Mel and Yao's
FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao and
Antonio Chua bought nets from Respondent Philippine Fishing Gear, in
behalf of "Ocean Quest Fishing Corporation," their purported business
name.
(8) That subsequently, Civil Case No. 1492-MN was filed in the
Malabon RTC, Branch 72 by Antonio Chua and Peter Yao against Lim
Tong Lim for (a) declaration of nullity of commercial documents; (b)
reformation of contracts; (c) declaration of ownership of fishing boats;
(4) injunction; and (e) damages.
(9) That the case was amicably settled through a Compromise
Agreement executed between the parties-litigants the terms of which
are already enumerated above.
From the factual findings of both lower courts, it is clear that Chua, Yao
and Lim had decided to engage in a fishing business, which they
started by buying boats worth P3.35 million, financed by a loan
secured from Jesus Lim who was petitioner's brother. In their
Compromise Agreement, they subsequently revealed their intention to
pay the loan with the proceeds of the sale of the boats, and to divide
equally among them the excess or loss. These boats, the purchase
and the repair of which were financed with borrowed money, fell under
the term "common fund" under Article 1767. The contribution to such
fund need not be cash or fixed assets; it could be an intangible like
credit or industry. That the parties agreed that any loss or profit from
the sale and operation of the boats would be divided equally among
them also shows that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the
purchase of the boat, but also to that of the nets and the floats. The
fishing nets and the floats, both essential to fishing, were obviously
acquired in furtherance of their business. It would have been
inconceivable for Lim to involve himself so much in buying the boat but
not in the acquisition of the aforesaid equipment, without which the
business could not have proceeded.
Given the preceding facts, it is clear that there was, among petitioner,
Chua and Yao, a partnership engaged in the fishing business. They
purchased the boats, which constituted the main assets of the
partnership, and they agreed that the proceeds from the sales and
operations thereof would be divided among them.
We stress that under Rule 45, a petition for review like the present
case should involve only questions of law. Thus, the foregoing factual
findings of the RTC and the CA are binding on this Court, absent any
cogent proof that the present action is embraced by one of the
exceptions to the rule. 16 In assailing the factual findings of the two
lower courts, petitioner effectively goes beyond the bounds of a petition
for review under Rule 45.
Compromise Agreement
Not the Sole Basis of Partnership
Petitioner argues that the appellate court's sole basis for assuming the
existence of a partnership was the Compromise Agreement. He also
claims that the settlement was entered into only to end the dispute
among them, but not to adjudicate their preexisting rights and
obligations. His arguments are baseless. The Agreement was but an
embodiment of the relationship extant among the parties prior to its
execution.
A proper adjudication of claimants' rights mandates that courts must
review and thoroughly appraise all relevant facts. Both lower courts
Partnership assigned readings
Ortiz, Ransell Alaistaire B.
have done so and have found, correctly, a preexisting partnership
among the parties. In implying that the lower courts have decided on
the basis of one piece of document alone, petitioner fails to appreciate
that the CA and the RTC delved into the history of the document and
explored all the possible consequential combinations in harmony with
law, logic and fairness. Verily, the two lower courts' factual findings
mentioned above nullified petitioner's argument that the existence of a
partnership was based only on the Compromise Agreement.
Petitioner Was a Partner,
Not a Lessor
We are not convinced by petitioner's argument that he was merely the
lessor of the boats to Chua and Yao, not a partner in the fishing
venture. His argument allegedly finds support in the Contract of Lease
and the registration papers showing that he was the owner of the
boats, including F/B Lourdes where the nets were found.
His allegation defies logic. In effect, he would like this Court to believe
that he consented to the sale of his own boats to pay a debt of Chua
and Yao, with the excess of the proceeds to be divided among the
three of them. No lessor would do what petitioner did. Indeed, his
consent to the sale proved that there was a preexisting partnership
among all three.
Verily, as found by the lower courts, petitioner entered into a business
agreement with Chua and Yao, in which debts were undertaken in
order to finance the acquisition and the upgrading of the vessels which
would be used in their fishing business. The sale of the boats, as well
as the division among the three of the balance remaining after the
payment of their loans, proves beyond cavil that F/B Lourdes, though
registered in his name, was not his own property but an asset of the
partnership. It is not uncommon to register the properties acquired
from a loan in the name of the person the lender trusts, who in this
case is the petitioner himself. After all, he is the brother of the creditor,
Jesus Lim.
We stress that it is unreasonable — indeed, it is absurd — for
petitioner to sell his property to pay a debt he did not incur, if the
relationship among the three of them was merely that of lessor-lessee,
instead of partners.
Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by estoppel,
liability can be imputed only to Chua and Yao, and not to him. Again,
we disagree.
Sec. 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. — All persons who assume to act as
a corporation knowing it to be without authority to do so shall be liable
as general partners for all debts, liabilities and damages incurred or
arising as a result thereof: Provided however, That when any such
ostensible corporation is sued on any transaction entered by it as a
corporation or on any tort committed by it as such, it shall not be
allowed to use as a defense its lack of corporate personality.
One who assumes an obligation to an ostensible corporation as such,
cannot resist performance thereof on the ground that there was in fact
no corporation.
Thus, even if the ostensible corporate entity is proven to be legally
nonexistent, a party may be estopped from denying its corporate
existence. "The reason behind this doctrine is obvious — an
unincorporated association has no personality and would be
incompetent to act and appropriate for itself the power and attributes of
a corporation as provided by law; it cannot create agents or confer
authority on another to act in its behalf; thus, those who act or purport
to act as its representatives or agents do so without authority and at
their own risk. And as it is an elementary principle of law that a person
who acts as an agent without authority or without a principal is himself
regarded as the principal, possessed of all the right and subject to all
the liabilities of a principal, a person acting or purporting to act on
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behalf of a corporation which has no valid existence assumes such
privileges and obligations and becomes personally liable for contracts
entered into or for other acts performed as such agent. 17
The doctrine of corporation by estoppel may apply to the alleged
corporation and to a third party. In the first instance, an unincorporated
association, which represented itself to be a corporation, will be
estopped from denying its corporate capacity in a suit against it by a
third person who relied in good faith on such representation. It cannot
allege lack of personality to be sued to evade its responsibility for a
contract it entered into and by virtue of which it received advantages
and benefits.
On the other hand, a third party who, knowing an association to be
unincorporated, nonetheless treated it as a corporation and received
benefits from it, may be barred from denying its corporate existence in
a suit brought against the alleged corporation. In such case, all those
who benefited from the transaction made by the ostensible corporation,
despite knowledge of its legal defects, may be held liable for contracts
they impliedly assented to or took advantage of.
There is no dispute that the respondent, Philippine Fishing Gear
Industries, is entitled to be paid for the nets it sold. The only question
here is whether petitioner should be held jointly 18 liable with Chua
and Yao. Petitioner contests such liability, insisting that only those who
dealt in the name of the ostensible corporation should be held liable.
Since his name does not appear on any of the contracts and since he
never directly transacted with the respondent corporation, ergo, he
cannot be held liable.
Unquestionably, petitioner benefited from the use of the nets found
inside F/B Lourdes, the boat which has earlier been proven to be an
asset of the partnership. He in fact questions the attachment of the
nets, because the Writ has effectively stopped his use of the fishing
vessel.
It is difficult to disagree with the RTC and the CA that Lim, Chua and
Yao decided to form a corporation. Although it was never legally
formed for unknown reasons, this fact alone does not preclude the
liabilities of the three as contracting parties in representation of it.
Clearly, under the law on estoppel, those acting on behalf of a
corporation and those benefited by it, knowing it to be without valid
existence, are held liable as general partners.
Technically, it is true that petitioner did not directly act on behalf of the
corporation. However, having reaped the benefits of the contract
entered into by persons with whom he previously had an existing
relationship, he is deemed to be part of said association and is covered
by the scope of the doctrine of corporation by estoppel. We reiterate
the ruling of the Court in Alonso v. Villamor: 19
A litigation is not a game of technicalities in which one, more deeply
schooled and skilled in the subtle art of movement and position,
entraps and destroys the other. It is, rather, a contest in which each
contending party fully and fairly lays before the court the facts in issue
and then, brushing aside as wholly trivial and indecisive all
imperfections of form and technicalities of procedure, asks that justice
be done upon the merits. Lawsuits, unlike duels, are not to be won by
a rapier's thrust. Technicality, when it deserts its proper office as an aid
to justice and becomes its great hindrance and chief enemy, deserves
scant consideration from courts. There should be no vested rights in
technicalities.
Third Issue:
Validity of Attachment
Finally, petitioner claims that the Writ of Attachment was improperly
issued against the nets. We agree with the Court of Appeals that this
issue is now moot and academic. As previously discussed, F/B
Lourdes was an asset of the partnership and that it was placed in the
name of petitioner, only to assure payment of the debt he and his
partners owed. The nets and the floats were specifically manufactured
and tailor-made according to their own design, and were bought and
used in the fishing venture they agreed upon. Hence, the issuance of
Partnership assigned readings University of the East
Ortiz, Ransell Alaistaire B. Atty. Al Jumrani
the Writ to assure the payment of the price stipulated in the invoices is
proper. Besides, by specific agreement, ownership of the nets
remained with Respondent Philippine Fishing Gear, until full payment
thereof.

WHEREFORE, the Petition is DENIED and the assailed Decision

AFFIRMED. Costs against petitioner.

SO ORDERED.

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.

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.
Partnership assigned readings
Ortiz, Ransell Alaistaire B.
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
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Atty. Al Jumrani
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:
Partnership assigned readings
Ortiz, Ransell Alaistaire B.
"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 the right, 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
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Atty. Al Jumrani
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.
DAN FUE LEUNG, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and LEUNG
YIU, respondents.
The petitioner asks for the reversal of the decision of the then
Intermediate Appellate Court in AC-G.R. No. CV-00881 which affirmed
the decision of the then Court of First Instance of Manila, Branch II in
Civil Case No. 116725 declaring private respondent Leung Yiu a
partner of petitioner Dan Fue Leung in the business of Sun Wah
Panciteria and ordering the petitioner to pay to the private respondent
his share in the annual profits of the said restaurant.
This case originated from a complaint filed by respondent Leung Yiu
with the then Court of First Instance of Manila, Branch II to recover the
sum equivalent to twenty-two percent (22%) of the annual profits
derived from the operation of Sun Wah Panciteria since October, 1955
from petitioner Dan Fue Leung.
The Sun Wah Panciteria, a restaurant, located at Florentino Torres
Street, Sta. Cruz, Manila, was established sometime in October, 1955.
It was registered as a single proprietorship and its licenses and permits
were issued to and in favor of petitioner Dan Fue Leung as the sole
proprietor. Respondent Leung Yiu adduced evidence during the trial of
the case to show that Sun Wah Panciteria was actually a partnership
and that he was one of the partners having contributed P4,000.00 to its
initial establishment.
Partnership assigned readings
Ortiz, Ransell Alaistaire B.
The private respondents evidence is summarized as follows:
About the time the Sun Wah Panciteria started to become operational,
the private respondent gave P4,000.00 as his contribution to the
partnership. This is evidenced by a receipt identified as Exhibit "A"
wherein the petitioner acknowledged his acceptance of the P4,000.00
by affixing his signature thereto. The receipt was written in Chinese
characters so that the trial court commissioned an interpreter in the
person of Ms. Florence Yap to translate its contents into English.
Florence Yap issued a certification and testified that the translation to
the best of her knowledge and belief was correct. The private
respondent identified the signature on the receipt as that of the
petitioner (Exhibit A-3) because it was affixed by the latter in his
(private respondents') presence. Witnesses So Sia and Antonio Ah
Heng corroborated the private respondents testimony to the effect that
they were both present when the receipt (Exhibit "A") was signed by
the petitioner. So Sia further testified that he himself received from the
petitioner a similar receipt (Exhibit D) evidencing delivery of his own
investment in another amount of P4,000.00 An examination was
conducted by the PC Crime Laboratory on orders of the trial court
granting the private respondents motion for examination of certain
documentary exhibits. The signatures in Exhibits "A" and 'D' when
compared to the signature of the petitioner appearing in the pay
envelopes of employees of the restaurant, namely Ah Heng and Maria
Wong (Exhibits H, H-1 to H-24) showed that the signatures in the two
receipts were indeed the signatures of the petitioner.
Furthermore, the private respondent received from the petitioner the
amount of P12,000.00 covered by the latter's Equitable Banking
Corporation Check No. 13389470-B from the profits of the operation of
the restaurant for the year 1974. Witness Teodulo Diaz, Chief of the
Savings Department of the China Banking Corporation testified that
said check (Exhibit B) was deposited by and duly credited to the
private respondents savings account with the bank after it was cleared
by the drawee bank, the Equitable Banking Corporation. Another
witness Elvira Rana of the Equitable Banking Corporation testified that
the check in question was in fact and in truth drawn by the petitioner
and debited against his own account in said bank. This fact was clearly
shown and indicated in the petitioner's statement of account after the
check (Exhibit B) was duly cleared. Rana further testified that upon
clearance of the check and pursuant to normal banking procedure,
said check was returned to the petitioner as the maker thereof.
The petitioner denied having received from the private respondent the
amount of P4,000.00. He contested and impugned the genuineness of
the receipt (Exhibit D). His evidence is summarized as follows:
The petitioner did not receive any contribution at the time he started
the Sun Wah Panciteria. He used his savings from his salaries as an
employee at Camp Stotsenberg in Clark Field and later as waiter at the
Toho Restaurant amounting to a little more than P2,000.00 as capital
in establishing Sun Wah Panciteria. To bolster his contention that he
was the sole owner of the restaurant, the petitioner presented various
government licenses and permits showing the Sun Wah Panciteria was
and still is a single proprietorship solely owned and operated by
himself alone. Fue Leung also flatly denied having issued to the private
respondent the receipt (Exhibit G) and the Equitable Banking
Corporation's Check No. 13389470 B in the amount of P12,000.00
(Exhibit B).
As between the conflicting evidence of the parties, the trial court gave
credence to that of the plaintiffs. Hence, the court ruled in favor of the
private respondent. The dispositive portion of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff
and against the defendant, ordering the latter to deliver and pay to the
former, the sum equivalent to 22% of the annual profit derived from the
operation of Sun Wah Panciteria from October, 1955, until fully paid,
and attorney's fees in the amount of P5,000.00 and cost of suit. (p.
125, Rollo)
The private respondent filed a verified motion for reconsideration in the
nature of a motion for new trial and, as supplement to the said motion,
he requested that the decision rendered should include the net profit of
the Sun Wah Panciteria which was not specified in the decision, and
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Atty. Al Jumrani
allow private respondent to adduce evidence so that the said decision
will be comprehensively adequate and thus put an end to further
litigation.
The motion was granted over the objections of the petitioner. After
hearing the trial court rendered an amended decision, the dispositive
portion of which reads:
FOR ALL THE FOREGOING CONSIDERATIONS, the motion for
reconsideration filed by the plaintiff, which was granted earlier by the
Court, is hereby reiterated and the decision rendered by this Court on
September 30, 1980, is hereby amended. The dispositive portion of
said decision should read now as follows:
WHEREFORE, judgment is hereby rendered, ordering the plaintiff (sic)
and against the defendant, ordering the latter to pay the former the
sum equivalent to 22% of the net profit of P8,000.00 per day from the
time of judicial demand, until fully paid, plus the sum of P5,000.00 as
and for attorney's fees and costs of suit. (p. 150, Rollo)
The petitioner appealed the trial court's amended decision to the then
Intermediate Appellate Court. The questioned decision was further
modified by the appellate court. The dispositive portion of the appellate
court's decision reads:
WHEREFORE, the decision appealed from is modified, the dispositive
portion thereof reading as follows:
1. Ordering the defendant to pay the plaintiff by way of temperate
damages 22% of the net profit of P2,000.00 a day from judicial
demand to May 15, 1971;
2. Similarly, the sum equivalent to 22% of the net profit of P8,000.00 a
day from May 16, 1971 to August 30, 1975;
3. And thereafter until fully paid the sum equivalent to 22% of the net
profit of P8,000.00 a day.
Except as modified, the decision of the court a quo is affirmed in all
other respects. (p. 102, Rollo)
Later, the appellate court, in a resolution, modified its decision and
affirmed the lower court's decision. The dispositive portion of the
resolution reads:
WHEREFORE, the dispositive portion of the amended judgment of the
court a quo reading as follows:
WHEREFORE, judgment is rendered in favor of the plaintiff and
against the defendant, ordering the latter to pay to the former the sum
equivalent to 22% of the net profit of P8,000.00 per day from the time
of judicial demand, until fully paid, plus the sum of P5,000.00 as and
for attorney's fees and costs of suit.
is hereby retained in full and affirmed in toto it being understood that
the date of judicial demand is July 13, 1978. (pp. 105-106, Rollo).
In the same resolution, the motion for reconsideration filed by petitioner
was denied.
Both the trial court and the appellate court found that the private
respondent is a partner of the petitioner in the setting up and
operations of the panciteria. While the dispositive portions merely
ordered the payment of the respondents share, there is no question
from the factual findings that the respondent invested in the business
as a partner. Hence, the two courts declared that the private petitioner
is entitled to a share of the annual profits of the restaurant. The
petitioner, however, claims that this factual finding is erroneous. Thus,
the petitioner argues: "The complaint avers that private respondent
extended 'financial assistance' to herein petitioner at the time of the
establishment of the Sun Wah Panciteria, in return of which private
respondent allegedly will receive a share in the profits of the
restaurant. The same complaint did not claim that private respondent is
a partner of the business. It was, therefore, a serious error for the
lower court and the Hon. Intermediate Appellate Court to grant a relief
Partnership assigned readings
Ortiz, Ransell Alaistaire B.
not called for by the complaint. It was also error for the Hon.
Intermediate Appellate Court to interpret or construe 'financial
assistance' to mean the contribution of capital by a partner to a
partnership;" (p. 75, Rollo)
The pertinent portions of the complaint state:
xxx xxx xxx
2. That on or about the latter (sic) of September, 1955, defendant
sought the financial assistance of plaintiff in operating the defendant's
eatery known as Sun Wah Panciteria, located in the given address of
defendant; as a return for such financial assistance. plaintiff would be
entitled to twenty-two percentum (22%) of the annual profit derived
from the operation of the said panciteria;
3. That on October 1, 1955, plaintiff delivered to the defendant the sum
of four thousand pesos (P4,000.00), Philippine Currency, of which
copy for the receipt of such amount, duly acknowledged by the
defendant is attached hereto as Annex "A", and form an integral part
hereof; (p. 11, Rollo)
In essence, the private respondent alleged that when Sun Wah
Panciteria was established, he gave P4,000.00 to the petitioner with
the understanding that he would be entitled to twenty-two percent
(22%) of the annual profit derived from the operation of the said
panciteria. These allegations, which were proved, make the private
respondent and the petitioner partners in the establishment of Sun
Wah Panciteria because Article 1767 of the Civil Code provides that
"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".
Therefore, the lower courts did not err in construing the complaint as
one wherein the private respondent asserted his rights as partner of
the petitioner in the establishment of the Sun Wah Panciteria,
notwithstanding the use of the term financial assistance therein. We
agree with the appellate court's observation to the effect that "... given
its ordinary meaning, financial assistance is the giving out of money to
another without the expectation of any returns therefrom'. It connotes
an ex gratia dole out in favor of someone driven into a state of
destitution. But this circumstance under which the P4,000.00 was
given to the petitioner does not obtain in this case.' (p. 99, Rollo) The
complaint explicitly stated that "as a return for such financial
assistance, plaintiff (private respondent) would be entitled to twenty-
two percentum (22%) of the annual profit derived from the operation of
the said panciteria.' (p. 107, Rollo) The well-settled doctrine is that the
'"... nature of the action filed in court is determined by the facts alleged
in the complaint as constituting the cause of action." (De Tavera v.
Philippine Tuberculosis Society, Inc., 113 SCRA 243; Alger Electric,
Inc. v. Court of Appeals, 135 SCRA 37).
The appellate court did not err in declaring that the main issue in the
instant case was whether or not the private respondent is a partner of
the petitioner in the establishment of Sun Wah Panciteria.
The petitioner also contends that the respondent court gravely erred in
giving probative value to the PC Crime Laboratory Report (Exhibit "J")
on the ground that the alleged standards or specimens used by the PC
Crime Laboratory in arriving at the conclusion were never testified to
by any witness nor has any witness identified the handwriting in the
standards or specimens belonging to the petitioner. The supposed
standards or specimens of handwriting were marked as Exhibits "H"
"H-1" to "H-24" and admitted as evidence for the private respondent
over the vigorous objection of the petitioner's counsel.
The records show that the PC Crime Laboratory upon orders of the
lower court examined the signatures in the two receipts issued
separately by the petitioner to the private respondent and So Sia
(Exhibits "A" and "D") and compared the signatures on them with the
signatures of the petitioner on the various pay envelopes (Exhibits "H",
"H-1" to 'H-24") of Antonio Ah Heng and Maria Wong, employees of
the restaurant. After the usual examination conducted on the
questioned documents, the PC Crime Laboratory submitted its findings
University of the East
Atty. Al Jumrani
(Exhibit J) attesting that the signatures appearing in both receipts
(Exhibits "A" and "D") were the signatures of the petitioner.
The records also show that when the pay envelopes (Exhibits "H", "H-
1" to "H-24") were presented by the private respondent for marking as
exhibits, the petitioner did not interpose any objection. Neither did the
petitioner file an opposition to the motion of the private respondent to
have these exhibits together with the two receipts examined by the PC
Crime Laboratory despite due notice to him. Likewise, no explanation
has been offered for his silence nor was any hint of objection
registered for that purpose.
Under these circumstances, we find no reason why Exhibit "J" should
be rejected or ignored. The records sufficiently establish that there was
a partnership.
The petitioner raises the issue of prescription. He argues: The Hon.
Respondent Intermediate Appellate Court gravely erred in not
resolving the issue of prescription in favor of petitioner. The alleged
receipt is dated October 1, 1955 and the complaint was filed only on
July 13, 1978 or after the lapse of twenty-two (22) years, nine (9)
months and twelve (12) days. From October 1, 1955 to July 13,
1978, no written demands were ever made by private respondent.
The petitioner's argument is based on Article 1144 of the Civil Code
which provides:
Art. 1144. The following actions must be brought within ten years from
the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
in relation to Article 1155 thereof which provides:
Art. 1155. The prescription of actions is interrupted when they are filed
before the court, when there is a written extra-judicial demand by the
creditor, and when there is any written acknowledgment of the debt by
the debtor.'
The argument is not well-taken.
The private respondent is a partner of the petitioner in Sun Wah
Panciteria. The requisites of a partnership which are — 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 (Article 1767, Civil Code; Yulo v. Yang
Chiao Cheng, 106 Phil. 110)-have been established. As stated by the
respondent, a partner shares not only in profits but also in the losses of
the firm. If excellent relations exist among the partners at the start of
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. It would be incorrect to state that if a
partner does not assert his rights anytime within ten years from the
start of operations, such rights are irretrievably lost. The private
respondent's cause of action is premised upon the failure of the
petitioner to give him the agreed profits in the operation of Sun Wah
Panciteria. In effect the private respondent was asking for an
accounting of his interests in the partnership.
It is Article 1842 of the Civil Code in conjunction with Articles 1144 and
1155 which is applicable. Article 1842 states:
The right to an account of his interest shall accrue to any partner, or
his legal representative as against the winding up partners or the
surviving partners or the person or partnership continuing the
business, at the date of dissolution, in the absence or any agreement
to the contrary.
Regarding the prescriptive period within which the private respondent
may demand an accounting, Articles 1806, 1807, and 1809 show that
the right to demand an accounting exists as long as the partnership
Partnership assigned readings
Ortiz, Ransell Alaistaire B.
exists. Prescription begins to run only upon the dissolution of the
partnership when the final accounting is done.
Finally, the petitioner assails the appellate court's monetary awards in
favor of the private respondent for being excessive and
unconscionable and above the claim of private respondent as
embodied in his complaint and testimonial evidence presented by said
private respondent to support his claim in the complaint.
Apart from his own testimony and allegations, the private respondent
presented the cashier of Sun Wah Panciteria, a certain Mrs. Sarah L.
Licup, to testify on the income of the restaurant.
Mrs. Licup stated:
ATTY. HIPOLITO (direct examination to Mrs. Licup).
Q Mrs. Witness, you stated that among your duties was that you were
in charge of the custody of the cashier's box, of the money, being the
cashier, is that correct?
A Yes, sir.
Q So that every time there is a customer who pays, you were the one
who accepted the money and you gave the change, if any, is that
correct?
A Yes.
Q Now, after 11:30 (P.M.) which is the closing time as you said, what
do you do with the money?
A We balance it with the manager, Mr. Dan Fue Leung.
ATTY. HIPOLITO:
I see.
Q So, in other words, after your job, you huddle or confer together?
A Yes, count it all. I total it. We sum it up.
Q Now, Mrs. Witness, in an average day, more or less, will you please
tell us, how much is the gross income of the restaurant?
A For regular days, I received around P7,000.00 a day during my shift
alone and during pay days I receive more than P10,000.00. That is
excluding the catering outside the place.
Q What about the catering service, will you please tell the Honorable
Court how many times a week were there catering services?
A Sometimes three times a month; sometimes two times a month or
more.
xxx xxx xxx
Q Now more or less, do you know the cost of the catering service?
A Yes, because I am the one who receives the payment also of the
catering.
Q How much is that?
A That ranges from two thousand to six thousand pesos, sir.
Q Per service?
A Per service, Per catering.
Q So in other words, Mrs. witness, for your shift alone in a single day
from 3:30 P.M. to 11:30 P.M. in the evening the restaurant grosses an
income of P7,000.00 in a regular day?
A Yes.
University of the East
Atty. Al Jumrani
Q And ten thousand pesos during pay day.?
A Yes.
(TSN, pp. 53 to 59, inclusive, November 15,1978)
xxx xxx xxx
COURT:
Any cross?
ATTY. UY (counsel for defendant):
No cross-examination, Your Honor. (T.S.N. p. 65, November 15,
1978). (Rollo, pp. 127-128)
The statements of the cashier were not rebutted. Not only did the
petitioner's counsel waive the cross-examination on the matter of
income but he failed to comply with his promise to produce pertinent
records. When a subpoena duces tecum was issued to the petitioner
for the production of their records of sale, his counsel voluntarily
offered to bring them to court. He asked for sufficient time prompting
the court to cancel all hearings for January, 1981 and reset them to the
later part of the following month. The petitioner's counsel never
produced any books, prompting the trial court to state:
Counsel for the defendant admitted that the sales of Sun Wah were
registered or recorded in the daily sales book. ledgers, journals and for
this purpose, employed a bookkeeper. This inspired the Court to ask
counsel for the defendant to bring said records and counsel for the
defendant promised to bring those that were available. Seemingly, that
was the reason why this case dragged for quite sometime. To
bemuddle the issue, defendant instead of presenting the books where
the same, etc. were recorded, presented witnesses who claimed to
have supplied chicken, meat, shrimps, egg and other poultry products
which, however, did not show the gross sales nor does it prove that the
same is the best evidence. This Court gave warning to the defendant's
counsel that if he failed to produce the books, the same will be
considered a waiver on the part of the defendant to produce the said
books inimitably showing decisive records on the income of the eatery
pursuant to the Rules of Court (Sec. 5(e) Rule 131). "Evidence willfully
suppressed would be adverse if produced." (Rollo, p. 145)
The records show that the trial court went out of its way to accord due
process to the petitioner.
The defendant was given all the chance to present all conceivable
witnesses, after the plaintiff has rested his case on February 25, 1981,
however, after presenting several witnesses, counsel for defendant
promised that he will present the defendant as his last witness. Notably
there were several postponement asked by counsel for the defendant
and the last one was on October 1, 1981 when he asked that this case
be postponed for 45 days because said defendant was then in
Hongkong and he (defendant) will be back after said period. The Court
acting with great concern and understanding reset the hearing to
November 17, 1981. On said date, the counsel for the defendant who
again failed to present the defendant asked for another postponement,
this time to November 24, 1981 in order to give said defendant another
judicial magnanimity and substantial due process. It was however a
condition in the order granting the postponement to said date that if the
defendant cannot be presented, counsel is deemed to have waived the
presentation of said witness and will submit his case for decision.
On November 24, 1981, there being a typhoon prevailing in Manila
said date was declared a partial non-working holiday, so much so, the
hearing was reset to December 7 and 22, 1981. On December 7,
1981, on motion of defendant's counsel, the same was again reset to
December 22, 1981 as previously scheduled which hearing was
understood as intransferable in character. Again on December 22,
1981, the defendant's counsel asked for postponement on the ground
that the defendant was sick. the Court, after much tolerance and
judicial magnanimity, denied said motion and ordered that the case be
submitted for resolution based on the evidence on record and gave the
Partnership assigned readings University of the East
Ortiz, Ransell Alaistaire B. Atty. Al Jumrani
parties 30 days from December 23, 1981, within which to file their
simultaneous memoranda. (Rollo, pp. 148-150)

The restaurant is located at No. 747 Florentino Torres, Sta. Cruz,

Manila in front of the Republic Supermarket. It is near the corner of
Claro M. Recto Street. According to the trial court, it is in the heart of
Chinatown where people who buy and sell jewelries, businessmen,
brokers, manager, bank employees, and people from all walks of life
converge and patronize Sun Wah.

There is more than substantial evidence to support the factual findings

of the trial court and the appellate court. If the respondent court
awarded damages only from judicial demand in 1978 and not from the
opening of the restaurant in 1955, it is because of the petitioner's
contentions that all profits were being plowed back into the expansion
of the business. There is no basis in the records to sustain the
petitioners contention that the damages awarded are excessive. Even
if the Court is minded to modify the factual findings of both the trial
court and the appellate court, it cannot refer to any portion of the
records for such modification. There is no basis in the records for this
Court to change or set aside the factual findings of the trial court and
the appellate court. The petitioner was given every opportunity to
refute or rebut the respondent's submissions but, after promising to do
so, it deliberately failed to present its books and other evidence.

The resolution of the Intermediate Appellate Court ordering the

payment of the petitioner's obligation shows that the same continues
until fully paid. The question now arises as to whether or not the
payment of a share of profits shall continue into the future with no fixed
ending date.

Considering the facts of this case, the Court may decree a dissolution
of the partnership under Article 1831 of the Civil Code which, in part,
provides:

Art. 1831. On application by or for a partner the court shall decree a

dissolution whenever:

xxx xxx xxx

(3) A partner has been guilty of such conduct as tends to affect

prejudicially the carrying on of the business;

(4) A partner willfully or persistently commits a breach of the

partnership agreement, or otherwise so conducts himself in matters
relating to the partnership business that it is not reasonably practicable
to carry on the business in partnership with him;

xxx xxx xxx

(6) Other circumstances render a dissolution equitable.
There shall be a liquidation and winding up of partnership affairs,
return of capital, and other incidents of dissolution because the
continuation of the partnership has become inequitable.
EMILIO EMNACE, petitioner,
vs.
COURT OF APPEALS, ESTATE OF VICENTE TABANAO,
SHERWIN TABANAO, VICENTE WILLIAM TABANAO, JANETTE
TABANAO DEPOSOY, VICENTA MAY TABANAO VARELA,
ROSELA TABANAO and VINCENT TABANAO, respondents

WHEREFORE, the petition for review is hereby DISMISSED for lack of
merit. The decision of the respondent court is AFFIRMED with a
MODIFICATION that as indicated above, the partnership of the parties
is ordered dissolved.
SO ORDERED.
Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divinagracia
were partners in a business concern known as Ma. Nelma Fishing
Industry. Sometime in January of 1986, they decided to dissolve their
partnership and executed an agreement of partition and distribution of
the partnership properties among them, consequent to Jacinto
Divinagracia's withdrawal from the partnership.1 Among the assets to
be distributed were five (5) fishing boats, six (6) vehicles, two (2)
parcels of land located at Sto. Niño and Talisay, Negros Occidental,
and cash deposits in the local branches of the Bank of the Philippine
Islands and Prudential Bank.

Throughout the existence of the partnership, and even after Vicente

Tabanao's untimely demise in 1994, petitioner failed to submit to
Tabanao's heirs any statement of assets and liabilities of the
partnership, and to render an accounting of the partnership's finances.
Petitioner also reneged on his promise to turn over to Tabanao's heirs
the deceased's 1/3 share in the total assets of the partnership,
amounting to P30,000,000.00, or the sum of P10,000,000.00, despite
formal demand for payment thereof.2
Partnership assigned readings
Ortiz, Ransell Alaistaire B.
Consequently, Tabanao' s heirs, respondents herein, filed against
petitioner an action for accounting, payment of shares, division of
assets and damages.3 In their complaint, respondents prayed as
follows:
University of the East
Atty. Al Jumrani
III.     Whether or not respondent Judge acted without jurisdiction or
with grave abuse of discretion in allowing the estate of the deceased to
appear as party plaintiff, when there is no intestate case and filed by
one who was never appointed by the court as administratrix of the
estates; and

1. Defendant be ordered to render the proper accounting of all the
assets and liabilities of the partnership at bar; and
2. After due notice and hearing defendant be ordered
pay/remit/deliver/surrender/yield to the plaintiffs the following:
A. No less than One Third (1/3) of the assets, properties, dividends,
cash, land(s), fishing vessels, trucks, motor vehicles, and other forms
and substance of treasures which belong and/or should belong, had
accrued and/or must accrue to the partnership;
B. No less than Two Hundred Thousand Pesos (P200,000.00) as
moral damages;
C. Attorney's fees equivalent to Thirty Percent (30%) of the entire
share/amount/award which the Honorable Court may resolve the
plaintiffs as entitled to plus P1,000.00 for every appearance in court.4
IV.     Whether or not respondent Judge acted without jurisdiction or
with grave abuse of discretion in not dismissing the case on the ground
of prescription.
to
On August 8, 1996, the Court of Appeals rendered the assailed
decision,12 dismissing the petition for certiorari, upon a finding that no
grave abuse of discretion amounting to lack or excess of jurisdiction
was committed by the trial court in issuing the questioned orders
denying petitioner's motions to dismiss.
Not satisfied, petitioner filed the instant petition for review, raising the
same issues resolved by the Court of Appeals, namely:
I.       Failure to pay the proper docket fee;
II.      Parcel of land subject of the case pending before the trial court is
outside the said court's territorial jurisdiction;

Petitioner filed a motion to dismiss the complaint on the grounds of
improper venue, lack of jurisdiction over the nature of the action or suit,
and lack of capacity of the estate of Tabanao to sue.5 On August 30,
1994, the trial court denied the motion to dismiss. It held that venue
was properly laid because, while realties were involved, the action was
directed against a particular person on the basis of his personal
liability; hence, the action is not only a personal action but also an
action in personam. As regards petitioner's argument of lack of
jurisdiction over the action because the prescribed docket fee was not
paid considering the huge amount involved in the claim, the trial court
noted that a request for accounting was made in order that the exact
value of the partnership may be ascertained and, thus, the correct
docket fee may be paid. Finally, the trial court held that the heirs of
Tabanao had aright to sue in their own names, in view of the provision
of Article 777 of the Civil Code, which states that the rights to the
succession are transmitted from the moment of the death of the
decedent.6
The following day, respondents filed an amended
complaint,7 incorporating the additional prayer that petitioner be
ordered to "sell all (the partnership's) assets and thereafter
pay/remit/deliver/surrender/yield to the plaintiffs" their corresponding
share in the proceeds thereof. In due time, petitioner filed a
manifestation and motion to dismiss,8 arguing that the trial court did
not acquire jurisdiction over the case due to the plaintiffs' failure to pay
the proper docket fees. Further, in a supplement to his motion to
dismiss,9 petitioner also raised prescription as an additional ground
warranting the outright dismissal of the complaint.
On June 15, 1995, the trial court issued an Order,10 denying the
motion to dismiss inasmuch as the grounds raised therein were
basically the same as the earlier motion to dismiss which has been
denied. Anent the issue of prescription, the trial court ruled that
prescription begins to run only upon the dissolution of the partnership
when the final accounting is done. Hence, prescription has not set in
the absence of a final accounting. Moreover, an action based on a
written contract prescribes in ten years from the time the right of action
accrues.
Petitioner filed a petition for certiorari before the Court of
Appeals,11 raising the following issues:
I.       Whether or not respondent Judge acted without jurisdiction or
with grave abuse of discretion in taking cognizance of a case despite
the failure to pay the required docket fee;
II.      Whether or not respondent Judge acted without jurisdiction or
with grave abuse of discretion in insisting to try the case which involve
(sic) a parcel of land situated outside of its territorial jurisdiction;
III.     Lack of capacity to sue on the part of plaintiff heirs of Vicente
Tabanao; and
IV.     Prescription of the plaintiff heirs' cause of action.
It can be readily seen that respondents' primary and ultimate objective
in instituting the action below was to recover the decedent's 1/3 share
in the partnership' s assets. While they ask for an accounting of the
partnership' s assets and finances, what they are actually asking is for
the trial court to compel petitioner to pay and turn over their share, or
the equivalent value thereof, from the proceeds of the sale of the
partnership assets. They also assert that until and unless a proper
accounting is done, the exact value of the partnership' s assets, as well
as their corresponding share therein, cannot be ascertained.
Consequently, they feel justified in not having paid the commensurate
docket fee as required by the Rules of Court.1âwphi1.nêt
We do not agree. The trial court does not have to employ guesswork in
ascertaining the estimated value of the partnership's assets, for
respondents themselves voluntarily pegged the worth thereof at Thirty
Million Pesos (P30,000,000.00). Hence, this case is one which is really
not beyond pecuniary estimation, but rather partakes of the nature of a
simple collection case where the value of the subject assets or amount
demanded is pecuniarily determinable.13 While it is true that the exact
value of the partnership's total assets cannot be shown with certainty
at the time of filing, respondents can and must ascertain, through
informed and practical estimation, the amount they expect to collect
from the partnership, particularly from petitioner, in order to determine
the proper amount of docket and other fees.14 It is thus imperative for
respondents to pay the corresponding docket fees in order that the trial
court may acquire jurisdiction over the action.15
Nevertheless, unlike in the case of Manchester Development
Corp. v. Court of Appeals,16 where there was clearly an effort to
defraud the government in avoiding to pay the correct docket fees, we
see no attempt to cheat the courts on the part of respondents. In fact,
the lower courts have noted their expressed desire to remit to the court
"any payable balance or lien on whatever award which the Honorable
Court may grant them in this case should there be any deficiency in the
payment of the docket fees to be computed by the Clerk of
Court."17 There is evident willingness to pay, and the fact that the
docket fee paid so far is inadequate is not an indication that they are
trying to avoid paying the required amount, but may simply be due to
an inability to pay at the time of filing. This consideration may have
moved the trial court and the Court of Appeals to declare that the
unpaid docket fees shall be considered a lien on the judgment award.
Petitioner, however, argues that the trial court and the Court of
Appeals erred in condoning the non-payment of the proper legal fees
and in allowing the same to become a lien on the monetary or property
judgment that may be rendered in favor of respondents. There is merit
Partnership assigned readings
Ortiz, Ransell Alaistaire B.
in petitioner's assertion. The third paragraph of Section 16, Rule 141 of
the Rules of Court states that:
The legal fees shall be a lien on the monetary or property judgment in
favor of the pauper-litigant.
Respondents cannot invoke the above provision in their favor because
it specifically applies to pauper-litigants. Nowhere in the records does it
appear that respondents are litigating as paupers, and as such are
exempted from the payment of court fees.18
The rule applicable to the case at bar is Section 5(a) of Rule 141 of the
Rules of Court, which defines the two kinds of claims as: (1) those
which are immediately ascertainable; and (2) those which cannot be
immediately ascertained as to the exact amount. This second class of
claims, where the exact amount still has to be finally determined by the
courts based on evidence presented, falls squarely under the third
paragraph of said Section 5(a), which provides:
In case the value of the property or estate or the sum claimed is less or
more in accordance with the appraisal of the court, the difference of
fee shall be refunded or paid as the case may be. (Underscoring ours)
In Pilipinas Shell Petroleum Corporation v. Court of Appeals,19 this
Court pronounced that the above-quoted provision "clearly
contemplates an Initial payment of the filing fees corresponding to the
estimated amount of the claim subject to adjustment as to what later
may be proved."20 Moreover, we reiterated therein the principle that
the payment of filing fees cannot be made contingent or dependent on
the result of the case. Thus, an initial payment of the docket fees
based on an estimated amount must be paid simultaneous with the
filing of the complaint. Otherwise, the court would stand to lose the
filing fees should the judgment later turn out to be adverse to any claim
of the respondent heirs.
The matter of payment of docket fees is not a mere triviality. These
fees are necessary to defray court expenses in the handling of cases.
Consequently, in order to avoid tremendous losses to the judiciary, and
to the government as well, the payment of docket fees cannot be made
dependent on the outcome of the case, except when the claimant is a
pauper-litigant.
Applied to the instant case, respondents have a specific claim - 1/3 of
the value of all the partnership assets - but they did not allege a
specific amount. They did, however, estimate the partnership's total
assets to be worth Thirty Million Pesos (P30,000,000.00), in a
letter21 addressed to petitioner. Respondents cannot now say that
they are unable to make an estimate, for the said letter and the
admissions therein form part of the records of this case. They cannot
avoid paying the initial docket fees by conveniently omitting the said
amount in their amended complaint. This estimate can be made the
basis for the initial docket fees that respondents should pay. Even if it
were later established that the amount proved was less or more than
the amount alleged or estimated, Rule 141, Section 5(a) of the Rules
of Court specifically provides that the court may refund the 'excess or
exact additional fees should the initial payment be insufficient. It is
clear that it is only the difference between the amount finally awarded
and the fees paid upon filing of this complaint that is subject to
adjustment and which may be subjected to alien.
In the oft-quoted case of Sun Insurance Office, Ltd. v. Hon. Maximiano
Asuncion,22 this Court held that when the specific claim "has been left
for the determination by the court, the additional filing fee therefor shall
constitute a lien on the judgment and it shall be the responsibility of the
Clerk of Court or his duly authorized deputy to enforce said lien and
assess and collect the additional fee." Clearly, the rules and
jurisprudence contemplate the initial payment of filing and docket fees
based on the estimated claims of the plaintiff, and it is only when there
is a deficiency that a lien may be constituted on the judgment award
until such additional fee is collected.
Based on the foregoing, the trial court erred in not dismissing the
complaint outright despite their failure to pay the proper docket fees.
Nevertheless, as in other procedural rules, it may be liberally construed
in certain cases if only to secure a just and speedy disposition of an
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action. While the rule is that the payment of the docket fee in the
proper amount should be adhered to, there are certain exceptions
which must be strictly construed.23
In recent rulings, this Court has relaxed the strict adherence to
the Manchester doctrine, allowing the plaintiff to pay the proper docket
fees within a reasonable time before the expiration of the applicable
prescriptive or reglementary period.24
In the recent case of National Steel Corp. v. Court of Appeals,25 this
Court held that:
The court acquires jurisdiction over the action if the filing of the
initiatory pleading is accompanied by the payment of the requisite fees,
or, if the fees are not paid at the time of the filing of the pleading, as of
the time of full payment of the fees within such reasonable time as the
court may grant, unless, of course, prescription has set in the
meantime.
It does not follow, however, that the trial court should have dismissed
the complaint for failure of private respondent to pay the correct
amount of docket fees. Although the payment of the proper docket fees
is a jurisdictional requirement, the trial court may allow the plaintiff in
an action to pay the same within a reasonable time before the
expiration of the applicable prescriptive or reglementary period. If the
plaintiff fails to comply within this requirement, the defendant should
timely raise the issue of jurisdiction or else he would be considered in
estoppel. In the latter case, the balance between the appropriate
docket fees and the amount actually paid by the plaintiff will be
considered a lien or any award he may obtain in his favor.
(Underscoring ours)
Accordingly, the trial court in the case at bar should determine the
proper docket fee based on the estimated amount that respondents
seek to collect from petitioner, and direct them to pay the same within
a reasonable time, provided the applicable prescriptive or reglementary
period has not yet expired, Failure to comply therewith, and upon
motion by petitioner, the immediate dismissal of the complaint shall
issue on jurisdictional grounds.
On the matter of improper venue, we find no error on the part of the
trial court and the Court of Appeals in holding that the case below is a
personal action which, under the Rules, may be commenced and tried
where the defendant resides or may be found, or where the plaintiffs
reside, at the election of the latter.26
Petitioner, however, insists that venue was improperly laid since the
action is a real action involving a parcel of land that is located outside
the territorial jurisdiction of the court a quo. This contention is not well-
taken. The records indubitably show that respondents are asking that
the assets of the partnership be accounted for, sold and distributed
according to the agreement of the partners. The fact that two of the
assets of the partnership are parcels of land does not materially
change the nature of the action. It is an action in personam because it
is an action against a person, namely, petitioner, on the basis of his
personal liability. It is not an action in rem where the action is against
the thing itself instead of against the person.27 Furthermore, there is
no showing that the parcels of land involved in this case are being
disputed. In fact, it is only incidental that part of the assets of the
partnership under liquidation happen to be parcels of land.
The time-tested case of Claridades v. Mercader, et al.,28 settled this
issue thus:
The fact that plaintiff prays for the sale of the assets of the partnership,
including the fishpond in question, did not change the nature or
character of the action, such sale being merely a necessary incident of
the liquidation of the partnership, which should precede and/or is part
of its process of dissolution.
The action filed by respondents not only seeks redress against
petitioner. It also seeks the enforcement of, and petitioner's compliance
with, the contract that the partners executed to formalize the
partnership's dissolution, as well as to implement the liquidation and
partition of the partnership's assets. Clearly, it is a personal action that,
Partnership assigned readings
Ortiz, Ransell Alaistaire B.
in effect, claims a debt from petitioner and seeks the performance of a
personal duty on his part.29 In fine, respondents' complaint seeking
the liquidation and partition of the assets of the partnership with
damages is a personal action which may be filed in the proper court
where any of the parties reside.30 Besides, venue has nothing to do
with jurisdiction for venue touches more upon the substance or merits
of the case.31 As it is, venue in this case was properly laid and the trial
court correctly ruled so.
On the third issue, petitioner asserts that the surviving spouse of
Vicente Tabanao has no legal capacity to sue since she was never
appointed as administratrix or executrix of his estate. Petitioner's
objection in this regard is misplaced. The surviving spouse does not
need to be appointed as executrix or administratrix of the estate before
she can file the action. She and her children are complainants in their
own right as successors of Vicente Tabanao. From the very moment of
Vicente Tabanao' s death, his rights insofar as the partnership was
concerned were transmitted to his heirs, for rights to the succession
are transmitted from the moment of death of the decedent.32
Whatever claims and rights Vicente Tabanao had against the
partnership and petitioner were transmitted to respondents by
operation of law, more particularly by succession, which is a mode of
acquisition by virtue of which the property, rights and obligations to the
extent of the value of the inheritance of a person are
transmitted.33 Moreover, respondents became owners of their
respective hereditary shares from the moment Vicente Tabanao
died.34
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partnership's business and assets. Hence, the said action is not barred
by prescription.
In fine, the trial court neither erred nor abused its discretion when it
denied petitioner's motions to dismiss. Likewise, the Court of Appeals
did not commit reversible error in upholding the trial court's orders.
Precious time has been lost just to settle this preliminary issue, with
petitioner resurrecting the very same arguments from the trial court all
the way up to the Supreme Court. The litigation of the merits and
substantial issues of this controversy is now long overdue and must
proceed without further delay.
WHEREFORE, in view of all the foregoing, the instant petition
is DENIED for lack of merit, and the case is REMANDED to the
Regional Trial Court of Cadiz City, Branch 60, which is ORDERED to
determine the proper docket fee based on the estimated amount that
plaintiffs therein seek to collect, and direct said plaintiffs to pay the
same within a reasonable time, provided the applicable prescriptive or
reglementary period has not yet expired. Thereafter, the trial court
is ORDERED to conduct the appropriate proceedings in Civil Case No.
416-C.
Costs against petitioner.1âwphi1.nêt
SO ORDERED.

A prior settlement of the estate, or even the appointment of Salvacion

Tabanao as executrix or administratrix, is not necessary for any of the
heirs to acquire legal capacity to sue. As successors who stepped into
the shoes of their decedent upon his death, they can commence any
action originally pertaining to the decedent.35 From the moment of his
death, his rights as a partner and to demand fulfillment of petitioner's
obligations as outlined in their dissolution agreement were transmitted
to respondents. They, therefore, had the capacity to sue and seek the
court's intervention to compel petitioner to fulfill his obligations.

Finally, petitioner contends that the trial court should have dismissed
the complaint on the ground of prescription, arguing that respondents'
action prescribed four (4) years after it accrued in 1986. The trial court
and the Court of Appeals gave scant consideration to petitioner's
hollow arguments, and rightly so.

The three (3) final stages of a partnership are: (1) dissolution; (2)
winding-up; and (3) termination.36 The partnership, although
dissolved, continues to exist and its legal personality is retained, at
which time it completes the winding up of its affairs, including the
partitioning and distribution of the net partnership assets to the
partners.37 For as long as the partnership exists, any of the partners
may demand an accounting of the partnership's business. Prescription
of the said right starts to run only upon the dissolution of the
partnership when the final accounting is done.38

Contrary to petitioner's protestations that respondents' right to inquire

into the business affairs of the partnership accrued in 1986, prescribing
four (4) years thereafter, prescription had not even begun to run in the
absence of a final accounting. Article 1842 of the Civil Code provides:

The right to an account of his interest shall accrue to any partner, or

his legal representative as against the winding up partners or the
surviving partners or the person or partnership continuing the
business, at the date of dissolution, in the absence of any agreement
to the contrary.

Applied in relation to Articles 1807 and 1809, which also deal with the
duty to account, the above-cited provision states that the right to
demand an accounting accrues at the date of dissolution in the
absence of any agreement to the contrary. When a final accounting is
made, it is only then that prescription begins to run. In the case at bar,
no final accounting has been made, and that is precisely what
respondents are seeking in their action before the trial court, since
petitioner has failed or refused to render an accounting of the