Philippine Supreme Court Jurisprudence

Philippine Supreme Court Jurisprudence > Year 2001 > October 2001 Decisions > G.R. No.
135813 October 25, 2001 - FERNANDO SANTOS v. Spouses ARSENIO and NIEVES REYES:

THIRD DIVISION

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

FERNANDO SANTOS, Petitioner, v. Spouses ARSENIO and NIEVES

REYES, Respondents.

DECISION

PANGANIBAN, J.:

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

The Case

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

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

Resolving respondent’s Motion for Reconsideration, the August 17, 1998 Resolution ruled as
follows:chanrob1es virtua1 1aw 1ibrary

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

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

The October 9, 1998 Resolution denied "for lack of merit" petitioner’s Motion for
Reconsideration of the August 17, 1998 Resolution. 5

The Facts

The events that led to this case are summarized by the CA as follows: jgc:chanrobles.com.ph

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

"In July, 1986, . . . Nieves introduced Cesar Gragera to [petitioner]. Gragera, as chairman of the
Monte Maria Development Corporation 6 (Monte Maria, for brevity), sought short-term loans for
members of the corporation. [Petitioner] and Gragera executed an agreement providing funds for
Monte Maria’s members. Under the agreement, Monte Maria, represented by Gragera, was
entitled to P1.31 commission per thousand paid daily to [petitioner] (Exh.’A’). . . . Nieves kept
the books as representative of [petitioner] while [Respondent] Arsenio, husband of Nieves, acted
as credit investigator.

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

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

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

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

". . . Arsenio alleged that he was enticed by [petitioner] to take the place of Zabat after
[petitioner] learned of Zabat’s activities. Arsenio resigned from his job at the Asian Development
Bank to join the partnership.

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

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

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

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

Ruling of the Trial Court

In its August 13, 1991 Decision, the trial court held that respondents were partners, not mere
employees, of petitioner. It further ruled that Gragera was only a commission agent of petitioner,
not his partner. Petitioner moreover failed to prove that he had entrusted any money to Nieves.
Thus, respondents’ counterclaim for their share in the partnership and for damages was granted.
The trial court disposed as follows: jgc:chanrobles.com.ph

"39. WHEREFORE, the Court hereby renders judgment as follows: chanrob1es virtual 1aw library

39.1. THE SECOND AMENDED COMPLAINT dated July 26, 1989 is DISMISSED.

39.2. The [Petitioner] FERNANDO J. SANTOS is ordered to pay the [Respondent] NIEVES S.
REYES, the following: chanrob1es virtual 1aw library

39.2.1. P3,064,428.00 - The 15 percent share of the

[respondent] NIEVES S. REYES

in the profits of her joint venture

with the [petitioner].

39.2.2. Six(6) percent of - As damages from August 3,

P3,064,428.00 1987 until the P3,064,428.00

is fully paid.

39.2.3. P50,000.00 - As moral damages

39.2.4. P10,000.00 - As exemplary damages

39.3. The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondent] ARSENIO
REYES, the following: chanrob1es virtual 1aw library

39.3.1. P2,899,739.50 - The balance of the 15 percent

share of the [respondent]

ARSENIO REYES in the profits

of his joint venture with the

[petitioner].

39.3.2. Six(6) percent of - As damages from August 3,

P2,899,739.50 1987 until the P2,899,739.50 is

fully paid.

39.3.3. P25,000.00 - As moral damages

39.3.4. P10,000.00 - As exemplary damages

39.4. The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondents]: chanrob1es virtual 1aw library

39.4.1. P50,000.00 - As attorney’s fees; and

39.4.2. The cost of the suit." 8

Ruling of the Court of Appeals

On appeal, the Decision of the trial court was upheld, and the counterclaim of respondents was
dismissed. Upon the latter’s Motion for Reconsideration, however, the trial court’s Decision was
reinstated in toto. Subsequently, petitioner’s own Motion for Reconsideration was denied in the
CA Resolution of October 9, 1998.

The CA ruled that the following circumstances indicated the existence of a partnership among
the parties: (1) it was Nieves who broached to petitioner the idea of starting a money-lending
business and introduced him to Gragera; (2) Arsenio received "dividends" or "profit-shares"
covering the period July 15 to August 7, 1986 (Exh. "6"); and (3) the partnership contract was
executed after the Agreement with Gragera and petitioner and thus showed the parties’ intention
to consider it as a transaction of the partnership. In their common venture, petitioner invested
capital while respondents contributed industry or services, with the intention of sharing in the
profits of the business.

The CA disbelieved petitioner’s claim that Nieves had misappropriated a total of P200,000
which was supposed to be delivered to Gragera to cover unpaid commissions. It was his task to
collect the amounts due, while hers was merely to prepare the daily cash flow reports (Exhs. "15-
15DDDDDDDDDD") to keep track of his collections.

Hence, this Petition. 9

Issue

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

"Whether or not Respondent Court of Appeals acted with grave abuse of discretion tantamount
to excess or lack of jurisdiction in:
chanrob1es virtual 1aw library

1. Holding that private respondents were partners/joint venturers and not employees of Santos in
connection with the agreement between Santos and Monte Maria/Gragera;

2. Affirming the findings of the trial court that the phrase ‘Received by’ on documents signed by
Nieves Reyes signified receipt of copies of the documents and not of the sums shown thereon;

3. Affirming that the signature of Nieves Reyes on Exhibit ‘E’ was a forgery;

4. Finding that Exhibit ‘H’ [did] not establish receipt by Nieves Reyes of P200,000.00 for
delivery to Gragera;

5 Affirming the dismissal of Santos’ [Second] Amended Complaint;

6. Affirming the decision of the trial court, upholding private respondents’ counterclaim;

7. Denying Santos’ motion for reconsideration dated September 11, 1998." cralaw virtua1aw library
Succinctly put, the following were the issues raised by petitioner: (1) whether the parties’
relationship was one of partnership or of employer employee; (2) whether Nieves
misappropriated the sums of money allegedly entrusted to her for delivery to Gragera as his
commissions; and (3) whether respondents were entitled to the partnership profits as determined
by the trial court.

The Court’s Ruling

The Petition is partly meritorious.

First Issue: chanrob1es virtual 1aw library

Business Relationship

Petitioner maintains that he employed the services of respondent spouses in the money-lending
venture with Gragera, with Nieves as bookkeeper and Arsenio as credit investigator. That Nieves
introduced Gragera to Santos did not make her a partner. She was only a witness to the
Agreement between the two. Separate from the partnership between petitioner and Gragera was
that which existed among petitioner, Nieves and Zabat, a partnership that was dissolved when
Zabat was expelled.

On the other hand, both the CA and the trial court rejected petitioner’s contentions and ruled that
the business relationship was one of partnership. We quote from the CA Decision, as follows: jgc:chanrobles.com.ph

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

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

x x x

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

We agree with both courts on this point. By the contract of partnership, two or more persons bind
themselves to contribute money, property or industry to a common fund, with the intention of
dividing the profits among themselves. 12 The "Articles of Agreement" stipulated that the
signatories shall share the profits of the business in a 70-15-15 manner, with petitioner getting
the lion’s share. 13 This stipulation clearly proved the establishment of a partnership.

We find no cogent reason to disagree with the lower courts that the partnership continued
lending money to the members of the Monte Maria Community Development Group, Inc., which
later on changed its business name to Private Association for Community Development, Inc.
(PACDI). Nieves was not merely petitioner’s employee. She discharged her bookkeeping duties
in accordance with paragraphs 2 and 3 of the Agreement, which states as follows: jgc:chanrobles.com.ph

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

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

The "Second Party" named in the Agreement was none other than Nieves Reyes. On the other
hand, Arsenio’s duties as credit investigator are subsumed under the phrase "screening of
prospective borrowers." Because of this Agreement and the disbursement of monthly
"allowances" and "profit shares" or "dividends" (Exh. "6") to Arsenio, we uphold the factual
finding of both courts that he replaced Zabat in the partnership.

Indeed, the partnership was established to engage in a money-lending business, despite the fact
that it was formalized only after the Memorandum of Agreement had been signed by petitioner
and Gragera. Contrary to petitioner’s contention, there is no evidence to show that a different
business venture is referred to in this Agreement, which was executed on August 6, 1986, or
about a month after the Memorandum had been signed by petitioner and Gragera on July 14,
1986. The Agreement itself attests to this fact: jgc:chanrobles.com.ph

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

Second Issue: chanrob1es virtual 1aw library

No Proof of Misappropriation of

Gragera’s Unpaid Commission

Petitioner faults the CA finding that Nieves did not misappropriate money intended for Gragera’s
commission. According to him, Gragera remitted his daily collection to Nieves. This is shown by
Exhibit "B." (the "Schedule of Daily Payments"), which bears her signature under the words
"received by." For the period July 1986 to March 1987, Gragera should have earned a total
commission of P4,282,429.30. However, only P3,068,133.20 was received by him. Thus,
petitioner infers that she misappropriated the difference of P1,214,296.10, which represented the
unpaid commissions. Exhibit "H." is an untitled tabulation which, according to him, shows that
Gragera was also entitled to a commission of P200,000, an amount that was never delivered by
Nieves. 16

On this point, the CA ruled that Exhibits "B," "F," "E" and "H" did not show that Nieves
received for delivery to Gragera any amount from which the P1,214,296.10 unpaid commission
was supposed to come, and that such exhibits were insufficient proof that she had embezzled
P200,000. Said the CA: jgc:chanrobles.com.ph

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

"Neither can we give probative value to Exhibit ‘E’ which allegedly shows acknowledgment of
the remittance of commissions to Verona Gonzales. The document is a private one and its due
execution and authenticity have not been duly proved as required in [S]ection 20, Rule 132 of the
Rules of Court which states: chanrob1es virtual 1aw library

‘SECTION 20. Proof of Private Document — Before any private document offered as authentic
is received in evidence, its due execution and authenticity must be proved either: chanrob1es virtual 1aw library

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

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

‘Any other private document need only be identified as that which it is claimed to be.’

"The court a quo even ruled that the signature thereon was a forgery, as it found that: chanrob1es virtual 1aw library

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

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

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

"Contrary to [petitioner’s] assertion, Exhibit ‘H’ does not unequivocally establish that . . . Nieves
received P200,000.00 as commission for Gragera. As correctly stated by the court a quo, the
document showed a liquidation of P240.000 00 and not P200,000.00.

"Accordingly, we find Nieves’ testimony that after August 20, 1986, all collections were made
by Gragera believable and worthy of credence. Since Gragera guaranteed a daily 100% payment
of the loans, he took charge of the collections. As [petitioner’s] representative,

Nieves merely prepared the daily cash flow reports (Exh.’15’ to ‘15 DDDDDDDDDD’) to
enable [petitioner] to keep track of Gragera’s operations. Gragera on the other hand devised the
schedule of daily payment (Exhs.’B’ and ‘F’) to record the projected gross daily collections.

"As aptly observed by the court a quo: chanrob1es virtual 1aw library

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

These findings are in harmony with the trial court’s ruling, which we quote below: jgc:chanrobles.com.ph

"21. Exh. H does not prove that SANTOS gave to NIEVES and the latter received P200,000.00
for delivery to GRAGERA. Exh. H shows under its sixth column ‘ADDITIONAL CASH’ that
the additional cash was P240,000.00. If Exh. H were the liquidation of the P200,000.00 as
alleged by SANTOS, then his claim is not true. This is so because it is a liquidation of the sum of
P240,000.00.

"21.1. SANTOS claimed that he learned of NIEVES’ failure to give the P200,000.00 to
GRAGERA when he received the latter’s letter complaining of its delayed release. Assuming as
true SANTOS’ claim that he gave P200,000.00 to GRAGERA, there is no competent evidence
that NIEVES did not give it to GRAGERA. The only proof that NIEVES did not give it is the
letter. But SANTOS did not even present the letter in evidence. He did not explain why he did
not.
"21.2. The evidence shows that all money transactions of the money-lending business of
SANTOS were covered by petty cash vouchers. It is therefore strange why SANTOS did not
present any voucher or receipt covering the P200,000.00." 18

In sum, the lower courts found it unbelievable that Nieves had embezzled P1,555,068.70 from
the partnership. She did not remit P1,214,296.10 to Gragera, because he had deducted his
commissions before remitting his collections. Exhibits "B" and "F" are merely computations of
what Gragera should collect for the day; they do not show that Nieves received the amounts
stated therein. Neither is there sufficient proof that she misappropriated P200,000, because
Exhibit "H." does not indicate that such amount was received by her; in fact, it shows a different
figure.

Petitioner has utterly failed to demonstrate why a review of these factual findings is warranted.
Well-entrenched is the basic rule that factual findings of the Court of Appeals affirming those of
the trial court are binding and conclusive on the Supreme Court. 19 Although there are
exceptions to this rule, petitioner has not satisfactorily shown that any of them is applicable to
this issue.

Third Issue: chanrob1es virtual 1aw library

Accounting of Partnership

Petitioner refuses any liability for respondents’ claims on the profits of the partnership. He
maintains that "both business propositions were flops," as his investments were "consumed and
eaten up by the commissions orchestrated to be due Gragera" — a situation that "could not have
been rendered possible without complicity between Nieves and Gragera." cralaw virtua1aw library

Respondent spouses, on the other hand, postulate that petitioner instituted the action below to
avoid payment of the demands of Nieves, because sometime in March 1987, she "signified to
petitioner that it was about time to get her share of the profits which had already accumulated to
some P3 million." Respondents add that while the partnership has not declared dividends or
liquidated its earnings, the profits are already reflected on paper. To prove the counterclaim of
Nieves, the spouses show that from June 13, 1986 up to April 19, 1987, the profit totaled
P20,429,520 (Exhs. "10" et seq. and "15" et seq.). Based on that income, her 15 percent share
under the joint venture amounts to P3,064,428 (Exh. "10-I-3"); and Arsenio’s, P2,026,000 minus
the P30,000 which was already advanced to him (Petty Cash Vouchers, Exhs. "6, 6-A to 6-B").

The CA originally held that respondents’ counterclaim was premature, pending an accounting of
the partnership. However, in its assailed Resolution of August 17, 1998, it turned volte face.
Affirming the trial court’s ruling on the counterclaim, it held as follows:
jgc:chanrobles.com.ph

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

The trial court’s ruling alluded to above is quoted below: jgc:chanrobles.com.ph

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

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

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

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

After a close examination of respondents’ exhibits, we find reason to disagree with the CA.
Exhibit "10-I" 22 shows that the partnership earned a "total income" of P20,429,520 for the
period June 13, 1986 until April 19, 1987. This entry is derived from the sum of the amounts
under the following column headings: "2-Day Advance Collection," "Service Fee," "Notarial
Fee," "Application Fee," "Net Interest Income" and "Interest Income on Investment." Such
entries represent the collections of the money-lending business or its gross income. chanrob1es virtua1 1aw 1ibrary

The "total income" shown on Exhibit "10-I" did not consider the expenses sustained by the
partnership. For instance, it did not factor in the "gross loan releases" representing the money
loaned to clients. Since the business is money-lending, such releases are comparable with the
inventory or supplies in other business enterprises.

Noticeably missing from the computation of the "total income" is the deduction of the weekly
allowance disbursed to respondents. Exhibits "I" et seq. and "J" et seq. 23 show that Arsenio
received allowances from July 19, 1986 to March 27, 1987 in the aggregate amount of P25,500;
and Nieves, from July 12, 1986 to March 27, 1987, in the total amount of P25,600. These
allowances are different from the profit already received by Arsenio. They represent expenses
that should have been deducted from the business profits. The point is that all expenses incurred
by the money-lending enterprise of the parties must first be deducted from the "total income" in
order to arrive at the "net profit" of the partnership. The share of each one of them should be
based on this "net profit" and not from the "gross income" or "total income" reflected in Exhibit
"10-I," which the two courts invariably referred to as "cash flow" sheets.

Similarly, Exhibits "15" et seq., 24 which are the "Daily Cashflow Reports," do not reflect the
business expenses incurred by the parties, because they show only the daily cash collections.
Contrary to the rulings of both the trial and the appellate courts, respondents’ exhibits do not
reflect the complete financial condition of the money-lending business. The lower courts
obviously labored over a mistaken notion that Exhibit" 10-I-1" represented the "net profits"
earned by the partnership.

For the purpose of determining the profit that should go to an industrial partner (who shares in
the profits but is not liable for the losses), the gross income from all the transactions carried on
by the firm must be added together, and from this sum must be subtracted the expenses or the
losses sustained in the business. Only in the difference representing the net profits does the
industrial partner share. But if, on the contrary, the losses exceed the income, the industrial
partner does not share in the losses.25 cralaw:red

When the judgment of the CA is premised on a misapprehension of facts or a failure to notice

certain relevant facts that would otherwise justify a different conclusion, as in this particular
issue, a review of its factual findings may be conducted, as an exception to the general rule
applied to the first two issues. 26

The trial court has the advantage of observing the witnesses while they are testifying, an
opportunity not available to appellate courts. Thus, its assessment of the credibility of witnesses
and their testimonies are accorded great weight, even finality, when supported by substantial
evidence; more so when such assessment is affirmed by the CA. But when the issue involves the
evaluation of exhibits or documents that are attached to the case records, as in the third issue, the
rule may be relaxed. Under that situation, this Court has a similar opportunity to inspect,
examine and evaluate those records, independently of the lower courts. Hence, we deem the
award of the partnership share, as computed by the trial court and adopted by the CA, to be
incomplete and not binding on this Court.

WHEREFORE, the Petition is partly GRANTED. The assailed November 28, 1997 Decision is
AFFIRMED, but the challenged Resolutions dated August 17, 1998 and October 9, 1998 are
REVERSED and SET ASIDE. No costs.

SO ORDERED.

Melo, and Sandoval-Gutierrez, JJ., concur.

Vitug, J., on official leave.

Endnotes:
1. First Division, composed of JJ Fidel P. Purisima, chairman; Corona Ibay-Somera,
member; and Oswaldo D. Agcaoili, member and ponente.

2. Special Former First Division, composed of JJ. Quirino D. Abad Santos Jr., chairman
(vice J. Purisima); Ibay-Somera and Agcaoili.

3. CA Decision, p. 12; rollo, p. 96.

4. CA Resolution, p. 3; rollo, p. 241.

5. Rollo, p; 128.

6. Referred to by petitioner in his Memorandum (p. 4) as "Monte Maria Community

Development Group, Inc." cralaw virtua1aw library

7. CA Decision, pp. 2-4; rollo, 86-88.

8. RTC Decision, pp. 16-17; rollo, pp. 82-83.

9. On November 4, 1999, the Court received the Memorandum for the Respondents,
signed by Atty. Benito P. Fabie. Petitioner’s Memorandum, signed by Atty. Arcangelita
M. Romilla-Lontok, was received on October 20, 1999. In its October 27, 1999
Resolution, this Court required the CA to explain the discrepancy in the copies of the
August 17, 1998 Resolution received by the parties and to furnish it with an authentic
copy thereof. The CA complied on November 12, 1999, the date on which this case was
deemed submitted for resolution.

10. Memorandum for the Petitioner, pp. 7-8; rollo, pp. 180-181.

11. CA Decision, pp. 7-8; rollo, pp. 91-92.

12. Art. 1767, Civil Code. The essential elements of a partnership are as follows: (1) an
agreement to contribute money, property or industry to a common fund; and (2) an
intent to divide the profits among the contracting parties. Vitug, Compendium of Civil
Law & Jurisprudence, 1993 rev. ed., p. 707; Fue Leung v. Intermediate Appellate Court,
169 SCRA 746, 754, January 31, 1989; and Evangelista v. Collector of Internal
Revenue, 102 Phil. 140, 144, October 15, 1957.

13. Par. 4, Articles of Agreement, Annex "D" ; rollo, p. 56.

14. Annex "D" of the Petition; rollo, p. 56.

15. Annex "D" of the Petition; rollo, p. 56.

16. Petitioner claims that Nieves embezzled P1,555,068.70 from the partnership (rollo,
p. 12), the amount broken down as follows: chanrob1es virtual 1aw library

P1,214,296.10 - unpaid commission due Gragera (Exh. "C-l")

140,772.60 - unpaid commission for the two-day advance

payment of clients (Exh. "C-l l")

200,000.00 - cash actually delivered by petitioner to

Nieves (Exh. "H")

17. CA Decision, pp. 10-11; rollo, pp. 94-95.

18. RTC Decision, p. 12; rollo, p. 78.

19. National Steel Corp. v. Court of Appeals, 283 SCRA 45, 66, December 12, 1997;
Fuentes v. Court of Appeals, 268 SCRA 703, 708-709, February 26, 1997; Sps.
Lagandaon v. Court of Appeals, 290 SCRA 330, 341, May 21, 1998.

20. CA Resolution, p. 2; rollo, p. 240.

21. RTC Decision, p. 14; rollo, p. 80.

22. "Daily Interest Income & Other Income Control," Folder II, Records.

23. Folder I, Records.

24. Folder II, Records.

25. Criado v. Gutierrez Hermanos, 37 Phil. 883, 894-895, March 23, 1918; and Moran
Jr. v. Court of Appeals, 133 SCRA 88, 96, October 31, 1984.

26. Fuentes v. CA, supra at 709.

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Republic of the Philippines

SUPREME COURT
Manila

EN BANC

July 30, 1979

PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME "SYCIP, SALAZAR, FELICIANO, HERNA
CASTILLO." LUCIANO E. SALAZAR, FLORENTINO P. FELICIANO, BENILDO G. HERNANDEZ. GREGORIO R. C
ALBERTO P. SAN JUAN, JUAN C. REYES. JR., ANDRES G. GATMAITAN, JUSTINO H. CACANINDIN, NOEL A.
ETHELWOLDO E. FERNANDEZ, ANGELITO C. IMPERIO, EDUARDO R. CENIZA, TRISTAN A. CATINDIG, ANCH
TAN, and ALICE V. PESIGAN, petitioners.

IN THE MATTER OF THE PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME "OZAETA, ROM
LEON, MABANTA & REYES." RICARDO J. ROMULO, BENJAMIN M. DE LEON, ROMAN MABANTA, JR., JOSE
REYES, JESUS S. J. SAYOC, EDUARDO DE LOS ANGELES, and JOSE F. BUENAVENTURA, petitioners.

RESOLUTION

MELENCIO-HERRERA, J.: ñé+.£ªwph!1

Two separate Petitions were filed before this Court 1) by the surviving partners of Atty. Alexander Sycip, who died on
1975, and 2) by the surviving partners of Atty. Herminio Ozaeta, who died on February 14, 1976, praying that they be
continue using, in the names of their firms, the names of partners who had passed away. In the Court's Resolution of
2, 1976, both Petitions were ordered consolidated.

Petitioners base their petitions on the following arguments:

1. Under the law, a partnership is not prohibited from continuing its business under a firm name which includes the na
deceased partner; in fact, Article 1840 of the Civil Code explicitly sanctions the practice when it provides in the last pa
that:têñ.£îhqwâ£

The use by the person or partnership continuing the business of the partnership name, or the
deceased partner as part thereof, shall not of itself make the individual property of the deceas
 liable for any debts contracted by such person or partnership. 1

2. In regulating other professions, such as accountancy and engineering, the legislature has authorized the adoption
names without any restriction as to the use, in such firm name, of the name of a deceased partner; the legislative au
2

given to those engaged in the practice of accountancy — a profession requiring the same degree of trust and confide
respect of clients as that implicit in the relationship of attorney and client — to acquire and use a trade name, strongly
that there is no fundamental policy that is offended by the continued use by a firm of professionals of a firm name wh
the name of a deceased partner, at least where such firm name has acquired the characteristics of a "trade name." 3

3. The Canons of Professional Ethics are not transgressed by the continued use of the name of a deceased partner i
name of a law partnership because Canon 33 of the Canons of Professional Ethics adopted by the American Bar Ass
declares that:têñ.£îhqwâ£

... The continued use of the name of a deceased or former partner when permissible by local
not unethical but care should be taken that no imposition or deception is practiced through this

4. There is no possibility of imposition or deception because the deaths of their respective deceased partners were w
publicized in all newspapers of general circulation for several days; the stationeries now being used by them carry ne
letterheads indicating the years when their respective deceased partners were connected with the firm; petitioners wi
leading national and international law directories of the fact of their respective deceased partners' deaths. 5

5. No local custom prohibits the continued use of a deceased partner's name in a professional firm's name; there is 6

or usage in the Philippines, or at least in the Greater Manila Area, which recognizes that the name of a law firm neces
Identifies the individual members of the firm. 7

6. The continued use of a deceased partner's name in the firm name of law partnerships has been consistently allowe
Courts and is an accepted practice in the legal profession of most countries in the world. 8

The question involved in these Petitions first came under consideration by this Court in 1953 when a law firm in Cebu
case) continued its practice of including in its firm name that of a deceased partner, C.D. Johnston. The matter was re
this Court advising the firm to desist from including in their firm designation the name of C. D. Johnston, who has long
dead."

The same issue was raised before this Court in 1958 as an incident in G. R. No. L-11964, entitled Register of Deeds
vs. China Banking Corporation. The law firm of Perkins & Ponce Enrile moved to intervene as amicus curiae. Before
thereon, the Court, in a Resolution of April 15, 1957, stated that it "would like to be informed why the name of Perkins
being used although Atty. E. A. Perkins is already dead." In a Manifestation dated May 21, 1957, the law firm of Perki
Ponce Enrile, raising substantially the same arguments as those now being raised by petitioners, prayed that the con
of the firm name "Perkins & Ponce Enrile" be held proper.

On June 16, 1958, this Court resolved: têñ.£îhqwâ£

After carefully considering the reasons given by Attorneys Alfonso Ponce Enrile and Associate
continued use of the name of the deceased E. G. Perkins, the Court found no reason to depar
policy it adopted in June 1953 when it required Attorneys Alfred P. Deen and Eddy A. Deen of
to desist from including in their firm designation, the name of C. D. Johnston, deceased. The C
believes that, in view of the personal and confidential nature of the relations between attorney
and the high standards demanded in the canons of professional ethics, no practice should be
which even in a remote degree could give rise to the possibility of deception. Said attorneys a
 accordingly advised to drop the name "PERKINS" from their firm name.

Petitioners herein now seek a re-examination of the policy thus far enunciated by the Court.

The Court finds no sufficient reason to depart from the rulings thus laid down.

A. Inasmuch as "Sycip, Salazar, Feliciano, Hernandez and Castillo" and "Ozaeta, Romulo, De Leon, Mabanta and Re
partnerships, the use in their partnership names of the names of deceased partners will run counter to Article 1815 of
Code which provides: têñ.£îhqwâ£

Art. 1815. Every partnership shall operate under a firm name, which may or may not include th
one or more of the partners.

Those who, not being members of the partnership, include their names in the firm name, shall
to the liability, of a partner.

It is clearly tacit in the above provision that names in a firm name of a partnership must either be those of living partn
the case of non-partners, should be living persons who can be subjected to liability. In fact, Article 1825 of the Civil C
prohibits a third person from including his name in the firm name under pain of assuming the liability of a partner. The
deceased partner in a law firm cannot be held liable as the old members to the creditors of a firm particularly where th
lawyers. Thus, Canon 34 of the Canons of Professional Ethics "prohibits an agreement for the payment to the widow
a deceased lawyer of a percentage, either gross or net, of the fees received from the future business of the deceased
clients, both because the recipients of such division are not lawyers and because such payments will not represent se
responsibility on the part of the recipient. " Accordingly, neither the widow nor the heirs can be held liable for transact
into after the death of their lawyer-predecessor. There being no benefits accruing, there ran be no corresponding liab

Prescinding the law, there could be practical objections to allowing the use by law firms of the names of deceased pa
public relations value of the use of an old firm name can tend to create undue advantages and disadvantages in the p
the profession. An able lawyer without connections will have to make a name for himself starting from scratch. Anothe
lawyer, who can join an old firm, can initially ride on that old firm's reputation established by deceased partners.

B. In regards to the last paragraph of Article 1840 of the Civil Code cited by petitioners, supra, the first factor to consi
is within Chapter 3 of Title IX of the Code entitled "Dissolution and Winding Up." The Article primarily deals with the e
from liability in cases of a dissolved partnership, of the individual property of the deceased partner for debts contracte
person or partnership which continues the business using the partnership name or the name of the deceased partner
thereof. What the law contemplates therein is a hold-over situation preparatory to formal reorganization.

Secondly, Article 1840 treats more of a commercial partnership with a good will to protect rather than of
a professional partnership, with no saleable good will but whose reputation depends on the personal qualifications of
individual members. Thus, it has been held that a saleable goodwill can exist only in a commercial partnership and ca
in a professional partnership consisting of lawyers. 9
têñ.£îhqwâ£

As a general rule, upon the dissolution of a commercial partnership the succeeding partners o
have the right to carry on the business under the old name, in the absence of a stipulation forb
(s)ince the name of a commercial partnership is a partnership asset inseparable from the goo
firm. ... (60 Am Jur 2d, s 204, p. 115) (Emphasis supplied)

On the other hand, têñ.£îhqwâ£

... a professional partnership the reputation of which depends or; the individual skill of the mem
 as partnerships of attorneys or physicians, has no good win to be distributed as a firm asset o
dissolution, however intrinsically valuable such skill and reputation may be, especially where t
provision in the partnership agreement relating to good will as an asset. ... (ibid, s 203, p. 115
supplied)

C. A partnership for the practice of law cannot be likened to partnerships formed by other professionals or for busines
thing, the law on accountancy specifically allows the use of a trade name in connection with the practice of accountan

A partnership for the practice of law is not a legal entity. It is a mere relationship or association
particular purpose. ... It is not a partnership formed for the purpose of carrying on trade or bus
holding property." Thus, it has been stated that "the use of a nom de plume, assumed or trad
11

law practice is improper. 12

The usual reason given for different standards of conduct being applicable to the practice of la
those pertaining to business is that the law is a profession.

Dean Pound, in his recently published contribution to the Survey of the Legal Profession, (The
from Antiquity to Modern Times, p. 5) defines a profession as "a group of men pursuing a lear
common calling in the spirit of public service, — no less a public service because it may incide
means of livelihood."

xxx xxx xxx

Primary characteristics which distinguish the legal profession from business are:

1. A duty of public service, of which the emolument is a byproduct, and in which one may atta
highest eminence without making much money.

2. A relation as an "officer of court" to the administration of justice involving thorough sincerity

and reliability.

3. A relation to clients in the highest degree fiduciary.

4. A relation to colleagues at the bar characterized by candor, fairness, and unwillingness to r

current business methods of advertising and encroachment on their practice, or dealing direct
clients.13

"The right to practice law is not a natural or constitutional right but is in the nature of a privilege or franchise. It is lim
14

persons of good moral character with special qualifications duly ascertained and certified. The right does not only p
15

in its possessor integrity, legal standing and attainment, but also the exercise of a special privilege, highly personal a
of the nature of a public trust."16

D. Petitioners cited Canon 33 of the Canons of Professional Ethics of the American Bar Association" in support of the

It is true that Canon 33 does not consider as unethical the continued use of the name of a deceased or former partne
name of a law partnership when such a practice is permissible by local custom but the Canon warns that care should
that no imposition or deception is practiced through this use.

It must be conceded that in the Philippines, no local custom permits or allows the continued use of a deceased or form
partner's name in the firm names of law partnerships. Firm names, under our custom, Identify the more active and/or
members or partners of the law firm. A glimpse at the history of the firms of petitioners and of other law firms in this c
would show how their firm names have evolved and changed from time to time as the composition of the partnership

The continued use of a firm name after the death of one or more of the partners designated by
only where sustained by local custom and not where by custom this purports to Identify the ac
members. ...

There would seem to be a question, under the working of the Canon, as to the propriety of ad
name of a new partner and at the same time retaining that of a deceased partner who was ne
partner with the new one. (H.S. Drinker, op. cit., supra, at pp. 207208) (Emphasis supplied).

The possibility of deception upon the public, real or consequential, where the name of a deceased partner continues
cannot be ruled out. A person in search of legal counsel might be guided by the familiar ring of a distinguished name
in a firm title.

E. Petitioners argue that U.S. Courts have consistently allowed the continued use of a deceased partner's name in th
of law partnerships. But that is so because it is sanctioned by custom.

In the case of Mendelsohn v. Equitable Life Assurance Society (33 N.Y.S. 2d 733) which petitioners Salazar, et al. qu
memorandum, the New York Supreme Court sustained the use of the firm name Alexander & Green even if none of t
ten partners of the firm bears either name because the practice was sanctioned by custom and did not offend any sta
provision or legislative policy and was adopted by agreement of the parties. The Court stated therein: têñ.£îhqwâ£

The practice sought to be proscribed has the sanction of custom and offends no statutory pro
legislative policy. Canon 33 of the Canons of Professional Ethics of both the American Bar As
and the New York State Bar Association provides in part as follows: "The continued use of the
deceased or former partner, when permissible by local custom is not unethical, but care shoul
that no imposition or deception is practiced through this use." There is no question as to local
Many firms in the city use the names of deceased members with the approval of other attorne
associations and the courts. The Appellate Division of the First Department has considered th
and reached The conclusion that such practice should not be prohibited. (Emphasis supplied)

xxx xxx xxx

Neither the Partnership Law nor the Penal Law prohibits the practice in question. The use of t
name herein is also sustainable by reason of agreement between the partners. 18

Not so in this jurisdiction where there is no local custom that sanctions the practice. Custom has been defined as a ru
conduct formed by repetition of acts, uniformly observed (practiced) as a social rule, legally binding and obligatory. 19

no judicial notice of custom. A custom must be proved as a fact, according to the rules of evidence. A local custom
20

of right cannot be considered by a court of justice unless such custom is properly established by competent evidence
other fact. We find such proof of the existence of a local custom, and of the elements requisite to constitute the sam
21

herein. Merely because something is done as a matter of practice does not mean that Courts can rely on the same fo
of adjudication as a juridical custom. Juridical custom must be differentiated from social custom. The former can supp
statutory law or be applied in the absence of such statute. Not so with the latter.

Moreover, judicial decisions applying or interpreting the laws form part of the legal system. When the Supreme Cou
22

Deen and Perkins cases issued its Resolutions directing lawyers to desist from including the names of deceased part
firm designation, it laid down a legal rule against which no custom or practice to the contrary, even if proven, can prev
not to speak of our civil law which clearly ordains that a partnership is dissolved by the death of any partner. Custom 23
contrary to law, public order or public policy shall not be countenanced. 24

The practice of law is intimately and peculiarly related to the administration of justice and should not be considered lik
ordinary "money-making trade." têñ.£îhqwâ£

... It is of the essence of a profession that it is practiced in a spirit of public service. A trade ...
primarily at personal gain; a profession at the exercise of powers beneficial to mankind. If, as
wide free opportunity, we think of free competitive self assertion as the highest good, lawyer a
and farmer may seem to be freely competing with their fellows in their calling in order each to
much of the world's good as he may within the allowed him by law. But the member of a profe
not regard himself as in competition with his professional brethren. He is not bartering his serv
the artisan nor exchanging the products of his skill and learning as the farmer sells wheat or c
should be no such thing as a lawyers' or physicians' strike. The best service of the professiona
often rendered for no equivalent or for a trifling equivalent and it is his pride to do what he doe
worthy of his profession even if done with no expectation of reward, This spirit of public servic
the profession of law is and ought to be exercised is a prerequisite of sound administration of
according to law. The other two elements of a profession, namely, organization and pursuit of
art have their justification in that they secure and maintain that spirit. 25

In fine, petitioners' desire to preserve the Identity of their firms in the eyes of the public must bow to legal and ethical

ACCORDINGLY, the petitions filed herein are denied and petitioners advised to drop the names "SYCIP" and "OZAE
their respective firm names. Those names may, however, be included in the listing of individuals who have been part
firms indicating the years during which they served as such.

SO ORDERED.

Teehankee, Concepcion, Jr., Santos, Fernandez, Guerrero and De Castro, JJ., concur

Fernando, C.J. and Abad Santos, J., took no part.

Separate Opinions

FERNANDO, C.J., concurring:

The petitions are denied, as there are only four votes for granting them, seven of the Justices being of the contrary vi
explained in the plurality opinion of Justice Ameurfina Melencio-Herrera. It is out of delicadeza that the undersigned d
participate in the disposition of these petitions, as the law office of Sycip, Salazar, Feliciano, Hernandez and Castillo
the partnership of Quisumbing, Sycip, and Quisumbing, the senior partner, the late Ramon Quisumbing, being the fat
of the undersigned, and the most junior partner then, Norberto J. Quisumbing, being his brother- in-law. For the recor
undersigned wishes to invite the attention of all concerned, and not only of petitioners, to the last sentence of the opin
Justice Ameurfina Melencio-Herrera: 'Those names [Sycip and Ozaeta] may, however, be included in the listing of ind
wtes

AQUINO, J., dissenting:

I dissent. The fourteen members of the law firm, Sycip, Salazar, Feliciano, Hernandez & Castillo, in their petition of Ju
1975, prayed for authority to continue the use of that firm name, notwithstanding the death of Attorney Alexander Syc
5, 1975 (May he rest in peace). He was the founder of the firm which was originally known as the Sycip Law Office.

On the other hand, the seven surviving partners of the law firm, Ozaeta, Romulo, De Leon, Mabanta & Reyes, in thei
August 13, 1976, prayed that they be allowed to continue using the said firm name notwithstanding the death of two p
former Justice Roman Ozaeta and his son, Herminio, on May 1, 1972 and February 14, 1976, respectively.

They alleged that the said law firm was a continuation of the Ozaeta Law Office which was established in 1957 by Ju
and his son and that, as to the said law firm, the name Ozaeta has acquired an institutional and secondary connotatio

Article 1840 of the Civil Code, which speaks of the use by the partnership of the name of a deceased partner as part
partnership name, is cited to justify the petitions. Also invoked is the canon that the continued use by a law firm of the
deceased partner, "when permissible by local custom, is not unethical" as long as "no imposition or deception is prac
through this use" (Canon 33 of the Canons of Legal Ethics).

I am of the opinion that the petition may be granted with the condition that it be indicated in the letterheads of the two
the case may be) that Alexander Sycip, former Justice Ozaeta and Herminio Ozaeta are dead or the period when the
partners should be stated therein.

Obviously, the purpose of the two firms in continuing the use of the names of their deceased founders is to retain the
had customarily sought the legal services of Attorneys Sycip and Ozaeta and to benefit from the goodwill attached to
of those respected and esteemed law practitioners. That is a legitimate motivation.

The retention of their names is not illegal per se. That practice was followed before the war by the law firm of James R
Notwithstanding the death of Judge Ross the founder of the law firm of Ross, Lawrence, Selph and Carrascoso, his n
retained in the firm name with an indication of the year when he died. No one complained that the retention of the nam
Ross in the firm name was illegal or unethical.

# Separate Opinions

FERNANDO, C.J., concurring:

The petitions are denied, as there are only four votes for granting them, seven of the Justices being of the contrary vi
explained in the plurality opinion of Justice Ameurfina Melencio-Herrera. It is out of delicadeza that the undersigned d
participate in the disposition of these petitions, as the law office of Sycip, Salazar, Feliciano, Hernandez and Castillo
the partnership of Quisumbing, Sycip, and Quisumbing, the senior partner, the late Ramon Quisumbing, being the fat
of the undersigned, and the most junior partner then, Norberto J. Quisumbing, being his brother- in-law. For the recor
undersigned wishes to invite the attention of all concerned, and not only of petitioners, to the last sentence of the opin
Justice Ameurfina Melencio-Herrera: 'Those names [Sycip and Ozaeta] may, however, be included in the listing of ind
wtes

AQUINO, J., dissenting:

I dissent. The fourteen members of the law firm, Sycip, Salazar, Feliciano, Hernandez & Castillo, in their petition of Ju
1975, prayed for authority to continue the use of that firm name, notwithstanding the death of Attorney Alexander Syc
5, 1975 (May he rest in peace). He was the founder of the firm which was originally known as the Sycip Law Office.
On the other hand, the seven surviving partners of the law firm, Ozaeta, Romulo, De Leon, Mabanta & Reyes, in thei
August 13, 1976, prayed that they be allowed to continue using the said firm name notwithstanding the death of two p
former Justice Roman Ozaeta and his son, Herminio, on May 1, 1972 and February 14, 1976, respectively.

They alleged that the said law firm was a continuation of the Ozaeta Law Office which was established in 1957 by Ju
and his son and that, as to the said law firm, the name Ozaeta has acquired an institutional and secondary connotatio

Article 1840 of the Civil Code, which speaks of the use by the partnership of the name of a deceased partner as part
partnership name, is cited to justify the petitions. Also invoked is the canon that the continued use by a law firm of the
deceased partner, "when permissible by local custom, is not unethical" as long as "no imposition or deception is prac
through this use" (Canon 33 of the Canons of Legal Ethics).

I am of the opinion that the petition may be granted with the condition that it be indicated in the letterheads of the two
the case may be) that Alexander Sycip, former Justice Ozaeta and Herminio Ozaeta are dead or the period when the
partners should be stated therein.

Obviously, the purpose of the two firms in continuing the use of the names of their deceased founders is to retain the
had customarily sought the legal services of Attorneys Sycip and Ozaeta and to benefit from the goodwill attached to
of those respected and esteemed law practitioners. That is a legitimate motivation.

The retention of their names is not illegal per se. That practice was followed before the war by the law firm of James R
Notwithstanding the death of Judge Ross the founder of the law firm of Ross, Lawrence, Selph and Carrascoso, his n
retained in the firm name with an indication of the year when he died. No one complained that the retention of the nam
Ross in the firm name was illegal or unethical.

The Lawphil Project - Arellano Law Foundation

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Republic of the Philippines

 SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-36187 January 17, 1989

REYNOLDS PHILIPPINE CORPORATION, petitioner,

vs.
HON. COURT OF APPEALS and SERG'S PRODUCTS, INC., respondents.

Belo, Abiera & Associates for petitioner.

Ponciano U. Pitargue for private respondent.

GRIÑO-AQUINO, J.:

This is a petition for review of the decision dated December 1, 1972 of the Court of Appeals in "Reynolds Philippine C
vs. Serg's Products, Inc." dismissing the petitioner's collection suit.

In its complaint of June 2, 1966, the petitioner sought to recover from the private respondent Serg's Products, Inc. the
P32,565.62 representing the unpaid price of aluminum foils and cores sold and delivered by it to the latter.

The private respondent denied liability for payment of the account on the ground that the aluminum foils and cores we
or purchased by Serg's Chocolate Products, a partnership of Antonio Goquiolay and Luis Sequia Mendoza, not Serg'
Inc., a corporation managed and controlled by Antonio Goquiolay and his wife Conchita Goquiolay, as majority stockh
principal officers.

On July 31, 1968, the trial court rendered judgment finding the private respondent liable and ordered it —

to pay 'Reynolds Philippine Corporation the balance of its account in the sum of Thirty Two Th
Five Hundred Sixty Five Pesos and Sixty-Two Centavos (P32,565.62) with 6% interest per an
January 26, 1966, until paid; Two thousand Pesos (P2,000.00) as attorney's fees, and litigatio
and costs of this suit.' (p. 46, Rollo, pp. 88-89, Record on Appeal.)

Upon private respondent's appeal to the Court of Appeals, that court on December 1, 1972, reversed the trial court an
dismissed the complaint on the ground that petitioner had no cause of action against Serg's Products, Inc. (p. 43, Rol

Reynolds is now before Us, seeking a review of the Court of Appeals' decision. The petition raises a factual issue: Wh
real debtor of the petitioner? Is it the partnership of Goquiolay and Mendoza, doing business under the trade name of
Chocolate Products,' or the respondent corporation, Serg's Products, Inc.?

Based on the testimony of the witnesses, the trial court held the corporation, "Serg's Products, Inc.," liable as the real
user of the aluminum foils and cores. However, the Court of Appeals relied on the sales orders, delivery receipts, stat
account and demand letters where the purchaser named was "Serg's Chocolate Products," the partnership.

While it is an established principle that in a petition for review under Rule 45 of the Rules of Court, the Supreme Cour
only questions of law and that the factual findings of the Court of Appeals are conclusive upon Us, nevertheless, ther
recognized exceptions to that rule. The exceptions are: (1) when the conclusion is grounded entirely on speculation, s
and conjectures; (2) when the inference is manifestly mistaken, absurd, and impossible; (3) where there is grave abu
discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the Court in making its findings, w
the issues of the case, and the same are contrary to the admissions of both the appellant and the appellee; (6) when
of the Appellate Court are contrary to those of the trial court; (7) when the findings are without citation of specific evid
which they are based (Mendoza vs. Court of Appeals, 156 SCRA 597; Manlapaz vs. Court of Appeals, 147 SCRA 23
Sacay vs. Sandiganbayan, 142 SCRA 609 [1986] Guita vs. CA, 139 SCRA 576 [1985]). It was held that where finding
Court of Appeals and trial court are contrary to each other, the Supreme Court may scrutinize the evidence on record
CA, 129 SCRA 222 [1984]).

In this case, the trial court which heard the witnesses testify, hence was in a superior position to assess the probative
their evidence, found that although the commercial documents were indeed in the name of "Serg's Chocolate Produc
following facts proved that the true purchaser of the aluminum foils and cores from the petitioner, was "Serg's Produc
the partnership denominated "Serg's Chocolate Products:"

(1) The rolls of aluminum foil were ordered and signed for by Antonio Goquiolay president of S
Products, Inc. They were delivered to, accepted, and used by said corporation in its chocolate
Cainta, Rizal (p. 47,Rollo; p. 8, Brief for plaintiff-appellee);

(2) Antonio Goquiolay did not appear in court to shed light on whether he signed the purchase
delivery receipts as managing partner of "Serg's Chocolate Products," or as president and gen
manager of "Serg's Products, Inc." Jesus V. Toledo, the Chief Accountant of Serg's Products,
admitted, however, that "we (Serg's products, Inc.) are buying from them (Reynolds) the alum
(t.s.n., Dec. 7, 1967, P. 9);

(3) The error in Identifying the customer as 'Serg's Chocolate Products," instead of Serg's Pro
in the sales orders, delivery receipts and invoices was caused by Antonio Goquiolay himself w
the orders;

(4) The trial court noted that "Serg's Products, Inc." "acted in such a manner that third persons
with it were led to believe that 'Serg's Products, Inc.' and 'Serg's Chocolate Products' were on
same party. Serg's Products, Inc. has its address at 109 Cordillera St., Quezon City, which is
address of Serg's Chocolate Products (see Exhibit 'NN'), and the managing partner of the par
doing business under the name 'Serg's Chocolate Products is Antonio Goquiolay who is also
of Serg's Products Inc." (p. 46, Rollo; p. 82, Record on Appeal.)

(5) Serg's Chocolate Products ceased to exist in 1959 for under the partnership Agreement be
Goquiolay and Mendoza (Exh. "2") the partnership which they formed on March 17, 1954 had
five (5) years, or up to 1959 only. While that term was renewable for the same period upon ag
the parties, no evidence was adduced that it was renewed after it expired in 1959. Having cea
since 1959, the partnership has no more juridical personality nor capacity to sue and be sued.
Chocolate Products" is nothing but a name now which the manager of Serg's Products, Inc. a
have used to confuse, deceive, and delay, if not completely evade, the payment of the corpora
debt to the petitioner.

Those important facts were overlooked by the Court of Appeals.

In La Campana Coffee Factory, Inc. vs. Kaisahan ng mga Manggagawa sa La Campana, 93 Phil. 160, where a some
situation existed as in this case, We ruled:

The attempt to make the two factories appear as two separate businesses, when in reality the
one, is but a devise to defeat the ends of the law and should not be permitted to prevail. Altho
coffee factory is a corporation and, by legal fiction, an entity existing separate and apart from
composing it, T and his family, it is settled that this fiction of law, which had been introduced a
of convenience and to subserve the ends of justice cannot be invoked to further an end subve
purpose. (13 Am. Jur. 160-162; Anno. 1 A.L.R. 612, s. 34 A.L.R. 599.)

Similarly, apropos is the decision of this Court in Telephone Engineering & Service Company, Inc. vs. Workmen's Co
Commission, et al., 104 SCRA 354, where We held:

Petitioner admitted that TESCO and UMACOR are sister companies operating under one sing
management and based in the same building. Although respect for corporate personality as s
general rule, there are exceptions. In appropriate cases, the veil of corporate fiction may be pi
when the same is made as a shield to confuse legitimate issues.

WHEREFORE, the petition for review is granted. The decision of the Court of Appeals is reversed and set aside and
trial court is reinstated. Costs against the private respondent Serg's Products, Inc.

SO ORDERED.

Narvasa, Cruz, Gancayco and Medialdea, JJ., concur.

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