Republic of the Philippines SUPREME COURT

Manila

EN BANC

G.R. No. L-24670 December 14, 1979

ORTIGAS & CO., LIMITED PARTNERSHIP, plaintiff-appellant, vs. FEATI BANK AND TRUST CO., defendant-appellee.

Ramirez & Ortigas for appellant.

Tañada, Teehankee & Carreon for appellee.

SANTOS, J.:

An appeal interposed on June 23, 1965 by plaintiff-appellant, Ortigas & Co., Limited Partnership, from the decision of the Court of First Instance of Rizal, Branch VI, at Pasig, Hon. Andres Reyes presiding, which dismissed its complaint in Civil Case No. 7706, entitled, "Ortigas & Company, Limited Partnership, plaintiff, v. Feati Bank and Trust Company, defendant," for lack of merit.

The following facts — a reproduction of the lower court's findings, which, in turn, are based on a stipulation of facts entered into by the parties are not disputed. Plaintiff (formerly known as "Ortigas, Madrigal y Cia") is a limited partnership and defendant Feati Bank and Trust Co., is a corporation duly organized and existing in accordance with the laws of the Philippines. Plaintiff is engaged in real estate business, developing and selling lots to the public, particularly the Highway Hills Subdivision along Epifanio de los Santos Avenue, Mandaluyong, Rizal. 1

On March 4, 1952, plaintiff, as vendor, and Augusto Padilla y Angeles and Natividad Angeles, as vendees, entered into separate agreements of sale on installments over two parcels of land, known as Lots Nos. 5 and 6, Block 31, of the Highway Hills Subdivision, situated at Mandaluyong, Rizal. On July 19, 1962, the said vendees transferred their rights and interests over the aforesaid lots in favor of one Emma Chavez. Upon completion of payment of the purchase price, the plaintiff executed the corresponding deeds of sale in favor of Emma Chavez. Both the agreements (of sale on installment) and the deeds of sale contained the stipulations or restrictions that:

1. The parcel of land subject of this deed of sale shall be used the Buyer exclusively for residential purposes, and she shall not be entitled to take or remove soil, stones or gravel from it or any other lots belonging to the Seller.

2. All buildings and other improvements (except the fence) which may be constructed at any time in said lot must be, (a) of strong materials and properly painted, (b) provided with modern sanitary installations connected either to the public sewer or to an approved septic tank, and (c) shall not be at a distance of less than two (2) meters from its boundary lines. 2

The above restrictions were later annotated in TCT Nos. 101509 and 101511 of the Register of Deeds of Rizal, covering the said lots and issued in the name of Emma Chavez. 3

Eventually, defendant-appellee acquired Lots Nos. 5 and 6, with TCT Nos. 101613 and 106092 issued in its name, respectively and the building restrictions were also annotated therein. 4 Defendant-appellee bought Lot No. 5 directly from Emma Chavez, "free from all liens and encumbrances as stated in Annex 'D', 5 while Lot No. 6 was acquired from Republic Flour Mills through a "Deed of Exchange," Annex "E". 6 TCT No. 101719 in the name of Republic Flour Mills likewise contained the same restrictions, although defendant-appellee claims that Republic Flour Mills purchased the said Lot No. 6 "in good faith. free from all liens and encumbrances," as stated in the Deed of Sale, Annex "F" 7 between it and Emma Chavez.

Plaintiff-appellant claims that the restrictions annotated on TCT Nos. 101509, 101511, 101719, 101613, and 106092 were imposed as part of its general building scheme designed for the beautification and development of the Highway Hills Subdivision which forms part of the big landed estate of plaintiff-appellant where commercial and industrial sites are also designated or established. 8

Defendant-appellee, upon the other hand, maintains that the area along the western part of Epifanio de los Santos Avenue (EDSA) from Shaw Boulevard to Pasig River, has been declared a commercial and industrial zone, per Resolution No. 27, dated February 4, 1960 of the Municipal Council of Mandaluyong, Rizal. 9 It alleges that plaintiff-appellant 'completely sold and transferred to third persons all lots in said subdivision facing Epifanio de los Santos Avenue" 10 and the subject lots thereunder were acquired by it "only on July 23, 1962 or more than two (2) years after the area ... had been declared a commercial and industrial zone ... 11

On or about May 5, 1963, defendant-appellee began laying the foundation and commenced the construction of a building on Lots Nos. 5 and 6, to be devoted to banking purposes, but which defendant-appellee claims could also be devoted to, and used exclusively for, residential purposes. The following day, plaintiff-appellant demanded in writing that defendant-appellee stop the construction of the commerical building on the said lots. The latter refused to comply with the demand, contending that the building was being constructed in accordance with the zoning regulations, defendant-appellee having filed building and planning permit applications with the Municipality of Mandaluyong, and it had accordingly obtained building and planning permits to proceed with the construction. 12

On the basis of the foregoing facts, Civil Case No. 7706, supra, was submitted in the lower court for decision. The complaint sought, among other things, the issuance of "a writ of preliminary injunction ... restraining and enjoining defendant, its agents, assigns, and those acting on its or their behalf from continuing or completing the construction of a commercial bank building in the premises ... involved, with the view to commanding the defendant to observe and comply with the building restrictions annotated in the defendant's transfer certificate of title."

In deciding the said case, the trial court considered, as the fundamental issue, whether or not the resolution of the Municipal Council of Mandaluyong declaring Lots Nos. 5 and 6, among others, as part of the commercial and industrial zone of the municipality, prevailed over the building restrictions imposed by plaintiff-appellant on the lots in question. 13 The records do not show that a writ of preliminary injunction was issued.

The trial court upheld the defendant-appellee and dismissed the complaint, holding that the subject restrictions were subordinate to Municipal Resolution No. 27, supra. It predicated its conclusion on the exercise of police power of the said municipality, and stressed that private interest should "bow

down to general interest and welfare. " In short, it upheld the classification by the Municipal Council of the area along Epifanio de los Santos Avenue as a commercial and industrial zone, and held that the same rendered "ineffective and unenforceable" the restrictions in question as against defendant-appellee. 14 The trial court decision further emphasized that it "assumes said resolution to be valid, considering that there is no issue raised by either of the parties as to whether the same is null and void. 15

On March 2, 1965, plaintiff-appellant filed a motion for reconsideration of the above decision, 16 which motion was opposed by defendant-appellee on March 17, 1965. 17 It averred, among others, in the motion for reconsideration that defendant- appellee "was duty bound to comply with the conditions of the contract of sale in its favor, which conditions were duly annotated in the Transfer Certificates of Title issued in her (Emma Chavez) favor." It also invited the trial court's attention to its claim that the Municipal Council had (no) power to nullify the contractual obligations assumed by the defendant corporation." 18

The trial court denied the motion for reconsideration in its order of March 26, 1965. 19

On April 2, 1965 plaintiff-appellant filed its notice of appeal from the decision dismissing the complaint and from the order of March 26, 1965 denying the motion for reconsideration, its record on appeal, and a cash appeal bond." 20 On April 14, the appeal was given due course 21 and the records of the case were elevated directly to this Court, since only questions of law are raised. 22

Plaintiff-appellant alleges in its brief that the trial court erred —

I. When it sustained the view that Resolution No. 27, series of 1960 of the Municipal Council of Mandaluyong, Rizal declaring Lots Nos. 5 and 6, among others, as part of the commercial and industrial zone, is valid because it did so in the exercise of its police power; and

II. When it failed to consider whether or not the Municipal Council had the power to nullify the contractual obligations assumed by defendant-appellee and when it did not make a finding that the building was erected along the property line, when it should have been erected two meters away from said property line. 23

The defendant-appellee submitted its counter-assignment of errors. In this connection, We already had occasion to hold in Relativo v. Castro 24 that "(I)t is not incumbent on the appellee, who occupies a purely defensive position, and is seeking no affirmative relief, to make assignments of error, "

The only issues to be resolved, therefore, are: (1) whether Resolution No. 27 s-1960 is a valid exercise of police power; and (2) whether the said Resolution can nullify or supersede the contractual obligations assumed by defendant-appellee.

1. The contention that the trial court erred in sustaining the validity of Resolution No. 27 as an exercise of police power is without merit. In the first place, the validity of the said resolution was never questioned before it. The rule is that the question of law or of fact which may be included in the appellant's assignment of errors must be those which have been raised in the court below, and are within the issues framed by the parties. 25 The object of requiring the parties to present all questions and issues to the lower court before they can be presented to the appellate court is to enable the lower court to pass thereon, so that the appellate court upon appeal may determine whether or not such ruling was erroneous. The requirement is in furtherance of justice in that the other party may not be taken by surprise. 26 The rule against the practice of blowing "hot and cold" by assuming one position in the trial court and another on appeal will, in the words of Elliot, prevent deception. 27 For it is well-settled that issues or defenses not raised 28 or properly litigated 29 or pleaded 30 in the Court below cannot be raised or entertained on appeal.

In this particular case, the validity of the resolution was admitted at least impliedly, in the stipulation of facts below. when plaintiff-appellant did not dispute the same. The only controversy then as stated by the trial court was whether or not the resolution of the Municipal Council of Mandaluyong ... which declared lots Nos. 4 and 5 among others, as a part of the commercial and industrial zone of the municipality, prevails over the restrictions constituting as encumbrances on the lots in question. 31 Having admitted the validity of the subject resolution below, even if impliedly, plaintiff-appellant cannot now change its position on appeal.

But, assuming arguendo that it is not yet too late in the day for plaintiff-appellant to raise the issue of the invalidity of the municipal resolution in question, We are of the opinion that its posture is unsustainable. Section 3 of R.A. No. 2264, otherwise known as the Local Autonomy Act," 32 empowers a Municipal Council "to adopt zoning and subdivision ordinances or regulations"; 33 for the municipality. Clearly, the law does not restrict the exercise of the power through an ordinance. Therefore, granting that Resolution No. 27 is not an ordinance, it certainly is a regulatory measure within the intendment or ambit of the word "regulation" under the provision. As a matter of fact the same section declares that the power exists "(A)ny provision of law to the contrary notwithstanding ... "

An examination of Section 12 of the same law 34 which prescribes the rules for its interpretation likewise reveals that the implied power of a municipality should be "liberally construed in its favor" and that "(A)ny fair and reasonable doubt as to the existence of the power should be interpreted in favor of the local government and it shall be presumed to exist." The same section further mandates that the general welfare clause be liberally interpreted in case of doubt, so as to give more power to local governments in promoting the economic conditions, social welfare and material progress of the people in the community. The only exceptions under Section 12 are existing vested rights arising out of a contract between "a province, city or municipality on one hand and a third party on the other," in which case the original terms and provisions of the contract should govern. The exceptions, clearly, do not apply in the case at bar.

2. With regard to the contention that said resolution cannot nullify the contractual obligations assumed by the defendant-appellee – referring to the restrictions incorporated in the deeds of sale and later in the corresponding Transfer Certificates of Title issued to defendant-appellee – it should be stressed, that while non-impairment of contracts is constitutionally guaranteed, the rule is not absolute, since it has to be reconciled with the legitimate exercise of police power, i.e., "the power to prescribe regulations to promote the health, morals, peace, education, good order or safety and general welfare of the people. 35 Invariably described as "the most essential, insistent, and illimitable of powers" 36 and "in a sense, the greatest and most powerful attribute of government, 37 the exercise of the power may be judicially inquired into and corrected only if it is capricious, 'whimsical, unjust or unreasonable, there having been a denial of due process or a violation of any other applicable constitutional guarantee. 38 As this Court held through Justice Jose P. Bengzon in Philippine Long Distance Company vs. City of Davao, et al. 39 police power "is elastic and must be responsive to various social conditions; it is not, confined within narrow circumscriptions of precedents resting on past conditions; it must follow the legal progress of a democratic way of life." We were even more emphatic in Vda. de Genuino vs. The Court of Agrarian Relations, et al., 40 when We declared: "We do not see why public welfare when clashing with the individual right to property should not be made to prevail through the state's exercise of its police power.

Resolution No. 27, s-1960 declaring the western part of highway 54, now E. de los Santos Avenue (EDSA, for short) from Shaw Boulevard to the Pasig River as an industrial and commercial zone, was obviously passed by the Municipal Council of Mandaluyong, Rizal in the exercise of police power to safeguard or promote the health, safety, peace, good order and general welfare of the people in the locality, Judicial notice may be taken of the conditions prevailing in the area, especially where lots Nos. 5 and 6 are located. The lots themselves not only front the highway; industrial and commercial complexes have flourished about the place. EDSA, a main traffic artery which runs through several cities and municipalities in the Metro Manila area, supports an endless stream of traffic and the resulting activity, noise and pollution are hardly conducive to the health, safety or

welfare of the residents in its route. Having been expressly granted the power to adopt zoning and subdivision ordinances or regulations, the municipality of Mandaluyong, through its Municipal 'council, was reasonably, if not perfectly, justified under the circumstances, in passing the subject resolution.

The scope of police power keeps expanding as civilization advances, stressed this Court, speaking thru Justice Laurel in the leading case of Calalang v. Williams et al., 41 Thus-

As was said in the case of Dobbins v. Los Angeles (195 US 223, 238 49 L. ed. 169), 'the right to exercise the police power is a continuing one, and a business lawful today may in the future, because of changed situation, the growth of population or other causes, become a menace to the public health and welfare, and be required to yield to the public good.' And in People v. Pomar (46 Phil. 440), it was observed that 'advancing civilization is bringing within the scope of police power of the state today things which were not thought of as being with in such power yesterday. The development of civilization), the rapidly increasing population, the growth of public opinion, with an increasing desire on the part of the masses and of the government to look after and care for the interests of the individuals of the state, have brought within the police power many questions for regulation which formerly were not so considered. 42 (Emphasis, supplied.)

Thus, the state, in order to promote the general welfare, may interfere with personal liberty, with property, and with business and occupations. Persons may be subjected to all kinds of restraints and burdens, in order to secure the general comfort health and prosperity of the state 43 and to this fundamental aim of our Government, the rights of the individual are subordinated. 44

The need for reconciling the non-impairment clause of the Constitution and the valid exercise of police power may also be gleaned from Helvering v. Davis 45 wherein Mr. Justice Cardozo, speaking for the Court, resolved the conflict "between one welfare and another, between particular and general, thus —

Nor is the concept of the general welfare static. Needs that were narrow or parochial a century ago may be interwoven in our day with the well-being of the nation What is critical or urgent changes with the times. 46

The motives behind the passage of the questioned resolution being reasonable, and it being a " legitimate response to a felt public need," 47 not whimsical or oppressive, the non-impairment of contracts clause of the Constitution will not bar the municipality's proper exercise of the power. Now Chief Justice Fernando puts it aptly when he declared: "Police power legislation then is not likely to succumb to the challenge that thereby contractual rights are rendered nugatory." 48

Furthermore, We restated in Philippine American Life Ins. Co. v. Auditor General 49 that laws and reservation of essential attributes of sovereign power are read into contracts agreed upon by the parties. Thus —

Not only are existing laws read into contracts in order to fix obligations as between the parties, but the reservation of essential attributes of sovereign power is also read into contracts as a postulate of the legal order. The policy of protecting contracts against impairments presupposes the maintenance of a government by virtue of which contractual relations are worthwhile – a government which retains adequate authority to secure the peace and good order of society.

Again, We held in Liberation Steamship Co., Inc. v. Court of Industrial Relations, 50 through Justice J.B.L. Reyes, that ... the law forms part of, and is read into, every contract, unless clearly excluded therefrom in those cases where such exclusion is allowed." The decision in Maritime Company of the Philippines v. Reparations Commission, 51 written for the Court by Justice Fernando, now Chief Justice, restates the rule.

One last observation. Appellant has placed unqualified reliance on American jurisprudence and authorities 52 to bolster its theory that the municipal resolution in question cannot nullify or supersede the agreement of the parties embodied in the sales contract, as that, it claims, would impair the obligation of contracts in violation of the Constitution. Such reliance is misplaced.

In the first place, the views set forth in American decisions and authorities are not per se controlling in the Philippines, the laws of which must necessarily be construed in accordance with the intention of its own lawmakers and such intent may be deduced from the language of each law and the context of other local legislation related thereto. 53 and Burgess, et al v. Magarian, et al., 55 two Of the cases cited by plaintiff-appellant, lend support to the conclusion reached by the trial court, i.e. that the municipal resolution supersedes/supervenes over the contractual undertaking between the parties. Dolan v. Brown, states that "Equity will not, as a rule, enforce a restriction upon the use of property by injunction where the property has so changed in character and environment as to make it unfit or unprofitable for use should the restriction be enforced, but will, in such a case, leave the complainant to whatever remedy he may have at law. 56 (Emphasis supplied.) Hence, the remedy of injunction in Dolan vs. Brown was denied on the specific holding that "A grantor may lawfully insert in his deed conditions or restrictions which are not against public policy and do not materially impair the beneficial enjoyment of the estate. 57 Applying the principle just stated to the present controversy, We can say that since it is now unprofitable, nay a hazard to the health and comfort, to use Lots Nos. 5 and 6 for strictly residential purposes, defendants- appellees should be permitted, on the strength of the resolution promulgated under the police power of the municipality, to use the same for commercial purposes. In Burgess v. Magarian et al. it was, held that "restrictive covenants running with the land are binding on all subsequent purchasers ... " However, Section 23 of the zoning ordinance involved therein contained a proviso expressly declaring that the ordinance was not intended "to interfere with or abrogate or annul any easements, covenants or other agreement between parties." 58 In the case at bar, no such proviso is found in the subject resolution.

It is, therefore, clear that even if the subject building restrictions were assumed by the defendant-appellee as vendee of Lots Nos. 5 and 6, in the corresponding deeds of sale, and later, in Transfer Certificates of Title Nos. 101613 and 106092, the contractual obligations so assumed cannot prevail over Resolution No. 27, of the Municipality of Mandaluyong, which has validly exercised its police power through the said resolution. Accordingly, the building restrictions, which declare Lots Nos. 5 and 6 as residential, cannot be enforced.

IN VIEW OF THE FOREGOING, the decision appealed from, dismissing the complaint, is hereby AFFIRMED. "without pronouncement as to costs.

SO ORDERED.

Makasiar, Antonio, Concepcion, Jr., Fernandez, Guerrero, De Castro and Melencio-Herrera, JJ., concur.

Teehankee * and Aquino,JJ., took no part.

Separate Opinions

BARREDO, J., concurring:

I hold it is a matter of public knowledge that the place in question is commercial. It would be worse if the same were to be left as residential and all around are already commercial.

FERNANDO, C.J., concurring:

The exhaustive and lucid opinion of the Court penned by Justice Guillermo S. Santos commends itself for approval. I feel no hesitancy, therefore, in yielding concurrence, The observation, however, in the dissent of Justice Vicente Abad Santos relative to restrictive covenants calls, to my mind, for further reflection as to the respect to which they are entitled whenever police power legislation, whether on the national or local level, is assailed. Before doing so, however, it may not be amiss to consider further the effect of such all-embracing attribute on existing contracts.

1. Reference was made in the opinion of the Court to Philippine American Life Insurance Company v. Auditor General. 1 The ponente in that case was Justice Sanchez. A concurrence came from me. It contained this qualification: "It cannot be said, without rendering nugatory the constitutional guarantee of non-impairment, and for that matter both the equal protection and due process clauses which equally serve to protect property rights, that at the mere invocation of the police power, the objection on non-impairment grounds automatically loses force. Here, as in other cases where governmental authority may trench upon property rights, the process of balancing, adjustment or harmonization is called for. 2 After referring to three leading United States Supreme Court decisions, Home Building and Loan Association v. Blaisdell, 3Nebbia v. New York, 4 and Norman v. Baltimore and Ohio Railroad Co., 5 I stated: "All of the above decisions reflect the view that an enactment of a police power measure does not per se call for the overruling of objections based on either due process or non-impairment based on either due process or non-impairment grounds. There must be that balancing, or adjustment, or harmonization of the conflicting claims posed by an exercise of state regulatory power on the one hand and assertion of rights to property, whether of natural or of juridical persons, on the other. 'That is the only way by which the constitutional guarantees may serve the high ends that call for their inclusion in the Constitution and thus effectively preclude ally abusive exercise of governmental authority." 6 Nor did my concurrence stop there: "In the opinion of the Blaisdell case, penned by the then Chief Justice Hughes, there was this understandable stress on balancing or harmonizing, which is called for in litigations of this character: 'The policy of protecting contracts against impairment presupposes the maintenance of a government by virtue of which contractual relations are worthwhile a government which retains adequate authority to secure the peace and good order of society. This principle of harmonizing the constitutional prohibition with the necessary residuum of state power has had progressive recognition in the decisions of this Court.' Also to the same effect: 'Undoubtedly, whatever is reserved of state power must be consistent with the fair intent of the constitutional limitation of that power. The reserve power cannot be construed so as to destroy the limitation, nor is the limitation to be construed to destroy the reserved power in its essential aspects. 'They must be construed in harmony with each other. This principle precludes a construction which would permit the State to adopt as its policy the repudiation of debts or the destruction of contracts or the denial of means to enforce them. But it does not follow that conditions may not arise in which a temporary restraint of enforcement may be consistent with the spirit and purpose of the constitutional provision and thus be found to be within the range of the reserved power of the State to protect the vital interests of the community.' Further on, Chief Justice Hughes likewise stated: 'It is manifest from this review of our decisions that there has been a growing appreciation of public needs and of the necessity of finding ground for a rational compromise between individual rights and public welfare. " 7 This is the concluding paragraph of my concurrence in the Philippine American Life Insurance Co. case: "If emphasis be therefore laid, as this concurring opinion does, on the pressing and inescapable need for such an approach whenever a possible collision between state authority and an assertion of constitutional right to property may exist, it is not to depart from what sound constitutional orthodoxy dictates. It is rather to abide by what is compels. In litigations of this character then, perhaps much more so than in other

disputes, where there is a reliance on a constitutional provision, the judiciary cannot escape what Holmes fitly referred to as the sovereign prerogative of choice, the exercise of which might possibly be impugned if there be no attempt, however slight, at such an effort of adjusting or reconciling the respective claims of state regulatory power and constitutionally protected rights." 8

I adhere to such a view. This is not to say that there is a departure therefrom in the able and scholarly opinion of Justice Santos. It is merely to stress what to my mind is a fundamental postulate of our Constitution. The only point I would wish to add is that in the process of such balancing and adjustment, the present Constitution, the Philippine American Life Insurance Co. decision having been promulgated under the 1935 Charter, leaves no doubt that the claim to property rights based on the non-impairment clause has a lesser weight. For as explicitly provided by our present fundamental law: "The State shall promote social Justice to ensure the dignity, welfare, and security of all the people. Towards this end, the

State shall regulate the acquisition, ownership, use, enjoyment, and disposition of private property, and equitably diffuse property ownership and profits. 9

2. Now as to restrictive convenants, accurately included by Hart and Sacks under the category of "private directive arrangements. " 10 Through them people are enable to agree on how to order their affairs. They could be utilized to govern their affairs. They could be utilized to govern their future conduct. It is a well-known fact that the common law relies to a great extent on such private directive arrangements to attain a desirable social condition. More specifically, such covenants are an important means of ordering one aspect of property relationships. Through them, there could be delimitation of land use rights. It is quite understandable why the law should ordinarily accord them deference, It does so, it has been said, both on grounds of morality and utility. Nonetheless, there are limits to the literal enforcement of their terms. To the extent that they ignore technological or economic progress, they are not automatically entitled to judicial protection. Clearly, they must "speak from one point of time to another." 11 The parties, like all mortal, do not have the power of predicting the future with unfailing certainty. In cases therefore where societal welfare calls for police power legislation, the parties adversely affected should realize that arrangements dealing with property rights are not impressed with sanctity. That approach, in my view, was the guiding principle of the opinion of the Court. f fence my full and entire concurrence.

ABAD SANTOS, J:, dissenting:

Although Resolution No. 27, series of 1960, of the Municipal Council of Mandaluyong, Rizal, is valid until otherwise declared, I do not believe that its enactment was by virtue of the police power of that municipality. I do not here dispute the concept of police power as stated in Primicias vs. Fugoso, 80 Phil. 77 (1948) for as a matter of fact I accept it. And I agree also that it is elastic and must be responsive to various social conditions, etc. as ruled inPLDT vs. City of Davao, L-23080, Oct. 26, 1965, 15 SCRA 244. But Resolution No. 27, cannot be described as promotive of the health, morals, peace, education, good order or safety and general welfare of the people of Mandaluyong. On the contrary, its effect is the opposite. For the serenity, peace and quite of a residential section would by the resolution be replaced by the chaos, turmoil and frenzy of commerce and industry. Where there would be no industrial and noise pollution these bane of so-called progress would now pervade and suffocate the environment to the detriment of the ecology. To characterize the ordinance as an exercise of police power would be retrogressive. It will set back all the efforts of the Ministry of Human Settlements to improve the quality of life especially in Metro Manila. It will make Metro Manila, not the city of man as envisioned by its Governor but a city of commerce and industry.

Considering, therefore, that Resolution No, 2-1 was not enacted in the legitimate exercise of police power, it cannot impair the restrictive covenants which go with the lands that were sold by the plaintiff-appellant. I vote for the reversal of the appealed decision.

# Separate Opinions

BARREDO, J., concurring:

I hold it is a matter of public knowledge that the place in question is commercial. It would be worse if the same were to be left as residential and all around are already commercial.

FERNANDO, C.J., concurring:

The exhaustive and lucid opinion of the Court penned by Justice Guillermo S. Santos commends itself for approval. I feel no hesitancy, therefore, in yielding concurrence, The observation, however, in the dissent of Justice Vicente Abad Santos relative to restrictive covenants calls, to my mind, for further reflection as to the respect to which they are entitled whenever police power legislation, whether on the national or local level, is assailed. Before doing so, however, it may not be amiss to consider further the effect of such all-embracing attribute on existing contracts.

1. Reference was made in the opinion of the Court to Philippine American Life Insurance Company v. Auditor General. 1 The ponente in that case was Justice Sanchez. A concurrence came from me. It contained this qualification: "It cannot be said, without rendering nugatory the constitutional guarantee of non-impairment, and for that matter both the equal protection and due process clauses which equally serve to protect property rights, that at the mere invocation of the police power, the objection on non-impairment grounds automatically loses force. Here, as in other cases where governmental authority may trench upon property rights, the process of balancing, adjustment or harmonization is called for. 2 After referring to three leading United States Supreme Court decisions, Home Building and Loan Association v. Blaisdell, 3Nebbia v. New York, 4 and Norman v. Baltimore and Ohio Railroad Co., 5 I stated: "All of the above decisions reflect the view that an enactment of a police power measure does not per se call for the overruling of objections based on either due process or non-impairment based on either due process or non-impairment grounds. There must be that balancing, or adjustment, or harmonization of the conflicting claims posed by an exercise of state regulatory power on the one hand and assertion of rights to property, whether of natural or of juridical persons, on the other. 'That is the only way by which the constitutional guarantees may serve the high ends that call for their inclusion in the Constitution and thus effectively preclude ally abusive exercise of governmental authority." 6 Nor did my concurrence stop there: "In the opinion of the Blaisdell case, penned by the then Chief Justice Hughes, there was this understandable stress on balancing or harmonizing, which is called for in litigations of this character: 'The policy of protecting contracts against impairment presupposes the maintenance of a government by virtue of which contractual relations are worthwhile a government which retains adequate authority to secure the peace and good order of society. This principle of harmonizing the constitutional prohibition with the necessary residuum of state power has had progressive recognition in the decisions of this Court.' Also to the same effect: 'Undoubtedly, whatever is reserved of state power must be consistent with the fair intent of the constitutional limitation of that power. The reserve power cannot be construed so as to destroy the limitation, nor is the limitation to be construed to destroy the reserved power in its essential aspects. 'They must be construed in harmony with each other. This principle precludes a construction which would permit the State to adopt as its policy the repudiation of debts or the destruction of contracts or the denial of means to enforce them. But it does not follow that conditions may not arise in which a temporary restraint of enforcement may be consistent with the spirit and purpose of the constitutional provision and

thus be found to be within the range of the reserved power of the State to protect the vital interests of the community.' Further on, Chief Justice Hughes likewise stated: 'It is manifest from this review of our decisions that there has been a growing appreciation of public needs and of the necessity of finding ground for a rational compromise between individual rights and public welfare. " 7 This is the concluding paragraph of my concurrence in the Philippine American Life Insurance Co. case: "If emphasis be therefore laid, as this concurring opinion does, on the pressing and inescapable need for such an approach whenever a possible collision between state authority and an assertion of constitutional right to property may exist, it is not to depart from what sound constitutional orthodoxy dictates. It is rather to abide by what is compels. In litigations of this character then, perhaps much more so than in other disputes, where there is a reliance on a constitutional provision, the judiciary cannot escape what Holmes fitly referred to as the sovereign prerogative of choice, the exercise of which might possibly be impugned if there be no attempt, however slight, at such an effort of adjusting or reconciling the respective claims of state regulatory power and constitutionally protected rights." 8

I adhere to such a view. This is not to say that there is a departure therefrom in the able and scholarly opinion of Justice Santos. It is merely to stress what to my mind is a fundamental postulate of our Constitution. The only point I would wish to add is that in the process of such balancing and adjustment, the present Constitution, the Philippine American Life Insurance Co. decision having been promulgated under the 1935 Charter, leaves no doubt that the claim to property rights based on the non-impairment clause has a lesser weight. For as explicitly provided by our present fundamental law: "The State shall promote social Justice to ensure the dignity, welfare, and security of all the people. Towards this end, the

State shall regulate the acquisition, ownership, use, enjoyment, and disposition of private property, and equitably diffuse property ownership and profits. 9

2. Now as to restrictive convenants, accurately included by Hart and Sacks under the category of "private directive arrangements. " 10 Through them people are enable to agree on how to order their affairs. They could be utilized to govern their affairs. They could be utilized to govern their future conduct. It is a well-known fact that the common law relies to a great extent on such private directive arrangements to attain a desirable social condition. More specifically, such covenants are an important means of ordering one aspect of property relationships. Through them, there could be delimitation of land use rights. It is quite understandable why the law should ordinarily accord them deference, It does so, it has been said, both on grounds of morality and utility. Nonetheless, there are limits to the literal enforcement of their terms. To the extent that they ignore technological or economic progress, they are not automatically entitled to judicial protection. Clearly, they must "speak from one point of time to another." 11 The parties, like all mortal, do not have the power of predicting the future with unfailing certainty. In cases therefore where societal welfare calls for police power legislation, the parties adversely affected should realize that arrangements dealing with property rights are not impressed with sanctity. That approach, in my view, was the guiding principle of the opinion of the Court. f fence my full and entire concurrence.

ABAD SANTOS, J:, dissenting:

Although Resolution No. 27, series of 1960, of the Municipal Council of Mandaluyong, Rizal, is valid until otherwise declared, I do not believe that its enactment was by virtue of the police power of that municipality. I do not here dispute the concept of police power as stated in Primicias vs. Fugoso, 80 Phil. 77 (1948) for as a matter of fact I accept it. And I agree also that it is elastic and must be responsive to various social conditions, etc. as ruled inPLDT vs. City of Davao, L-23080, Oct. 26, 1965, 15 SCRA 244. But Resolution No. 27, cannot be described as promotive of the health, morals, peace, education, good order or safety and general welfare of the people of Mandaluyong. On the contrary, its effect is the opposite. For the serenity, peace and quite of a residential section would by the resolution be replaced by the chaos, turmoil and frenzy of commerce and industry. Where there would be no industrial and noise pollution these bane of so-called progress would now pervade and

suffocate the environment to the detriment of the ecology. To characterize the ordinance as an exercise of police power would be retrogressive. It will set back all the efforts of the Ministry of Human Settlements to improve the quality of life especially in Metro Manila. It will make Metro Manila, not the city of man as envisioned by its Governor but a city of commerce and industry.

Considering, therefore, that Resolution No, 2-1 was not enacted in the legitimate exercise of police power, it cannot impair the restrictive covenants which go with the lands that were sold by the plaintiff-appellant. I vote for the reversal of the appealed decision.

Ortigas & Co., Limited Partnership vs. Feati Bank and Trust Co. L-24670 (December 14, 1979)

Facts:

Plaintiff is engaged in real estate business, developing and selling lots to the public, particularly the

Highway Hills Subdivision along EDSA, Mandaluyong, Rizal.

On March 4, 1952, plaintiff entered into separate agreements of sale with Augusto Padilla y Angeles and

Natividad Angeles over 2 parcels of land (Lots Nos. 5 and 6, Block 31, of the Highway Hills Subdivision).

On July 19, 1962 the vendees transferred their rights and interests over the said lots to Emma Chavez.

The plaintiff executed the corresponding deeds of sale in favor of Emma Chavez upon payment of the

purchase price. Both the agreements and the deeds of sale thereafter executed contained the

stipulation that the parcels of land subject of the deeds of sale “shall be used by the Buyer exclusively

for residential purposes”. The restrictions were later annotated in the Transfer Certificates of Titles

covering the said lots issued in the name of Chavez.

Eventually, defendant-appellee acquired Lots No. 5 and 6 with the building restrictions also annotated in

their corresponding TCTs. Lot No.5 was bought directly from Chavez “free from all liens and

encumbrances” while Lot No.6 was acquired through a “Deed of Exchange” from Republic Flour Mills.

Plaintiff claims that the restrictions were imposed as part of its general building scheme designed for the

beautification and development of the Highway Hills Subdivision which forms part of its big landed

estate where commercial and industrial sites are also designated or established.

Defendant maintains that the area along the western part of EDSA from Shaw Boulevard to the Pasig

River, has been declared a commercial and industrial zone, per Resolution No.27 of the Municipal

Council of Mandaluyong. It alleges that plaintiff “completely sold and transferred to third persons all lots

in said subdivision facing EDSA” and the subject lots thereunder were acquired by it “only on June 23,

1962 or more than 2 years after the area xxx had been declared a commercial and industrial zone”.

On or about May 5, 1963, defendant-appellee began construction of a building devoted to banking

purposes but which it claims could also be used exclusively for residential purposes. The following day,

the plaintiff demanded in writing that the construction of the commercial building be stopped but the

defendant refused to comply contending that the construction was in accordance with the zoning

regulations.

Issues:

1. Whether Resolution No. 27 s-1960 is a valid exercise of police power.

2. Whether the said Resolution can nullify or supersede the contractual obligations assumed by

defendant-appellee.

Held:

1. Yes. The validity of Resolution No.27 was never questioned. In fact, it was impliedly admitted in the

stipulation of facts, when plaintiff-appellant did not dispute the same. Having admitted the validity of

the subject resolution, plaintiff-appellant cannot now change its position on appeal.

However, assuming that it is not yet too late to question the validity of the said resolution, the posture is

unsustainable.

Municipalities are empowered by law through Sec.3 of RA 2264 (Local Autonomy Act) to to adopt zoning

and subdivision ordinances or regulations for the municipality. The law does not restrict the exercise of

the power through an ordinance. Therefore, granting that Resolution No.27 is not an ordinance, it

certainly is a regulatory measure within the intendment of the word “regulation” under the provision.

An examination of Sec.12 of the same law reveals that the implied power of a municipality should be

“liberally construed in its favor” and that “any fair and reasonable doubt as to the existence of the

power should be interpreted in favor of the local government and it shall be presumed to exist.” An

exception to the general welfare powers delegated to municipalities is when the exercise of its powers

will conflict with vested rights arising from contracts. The exception does not apply to the case at bar.

2. While non-impairment of contacts is constitutionally guaranteed, the rule is not absolute since it has

to be reconciled with the legitimate exercise of police power. Invariably described as the “most

essential, insistent and illimitable of powers” and the “greatest and most powerful attribute of

government”, the exercise of police power may be judicially inquired into and corrected only if it is

capricious, whimsical, unjust or unreasonable, there having been a denial of due process or a violation

of any other applicable constitutional guarantee.

Resolution No.27, S-1960 declaring the western part of EDSA from Shaw Boulevard to the Pasig River as

an industrial or commercial zone was passed by the Municipal Council of Mandaluyong in the exercise of

police power to safeguard/promote the health, safety, peace, good order and general welfare of the

people in the locality. Judicial notice may be taken of the conditions prevailing in the area, especially

where Lots Nos. 5 and 6 are located. EDSA supports an endless stream of traffic and the resulting

activity, noise and pollution which are hardly conducive to the health, safety or welfare of the residents

in its route. The Municipality of Mandaluyong was reasonably justified under the circumstances in

passing the subject resolution.

Thus, the state, in order to promote the general welfare, may interfere with personal liberty, with

property, and with business and occupations. Persons may be subjected to all kinds of restraint and

burdens, in order to secure the general comfort, health and prosperity of the state, and to this

fundamental aim of the Government, the rights of the individual are subordinated.

THIRD DIVISION ORTIGAS & COMPANY, G.R. No. 129822 LIMITED PARTNERSHIP,

Petitioner, Present: PERALTA, J., Acting Chairperson,*

- versus - BERSAMIN,** ABAD,

VILLARAMA, JR.,*** and PERLAS-BERNABE, JJ.

COURT OF APPEALS, HON. JESUS G. BERSAMIRA as Judge-RTC of Pasig City, Branch 166 and the Promulgated: CITY OF PASIG, Respondents. June 20, 2012 x --------------------------------------------------------------------------------------- x

DECISION ABAD, J.:

This case resolves the question of jurisdiction of the Regional Trial Court

over a complaint filed against a subdivision owner.

The Facts and the Case

Petitioner Ortigas & Company, Limited Partnership (Ortigas), a realty

company, developed the Ortigas Center that straddled the three cities of

Mandaluyong, Quezon, and Pasig. This case concerns the Pasig City side of the

commercial district known as the Ortigas Center, known in 1969 as Capitol VI

Subdivision.

In 1994 respondent City of Pasig (the City) filed a complaint against Ortigas

and Greenhills Properties, Inc. (GPI) for specific compliance before the Regional

Trial Court (RTC) of Pasig in Civil Case 64427. The City alleged that Ortigas

failed to comply with Municipal Ordinance 5, Series of 1966 (MO 5) which

required it to designate appropriate recreational and playground facilities at its

former Capitol VI Subdivision (regarded as a residential site), now the Pasig City

side of the Ortigas Center. Further, the City alleged that despite the fact that the

plan was only approved by the Municipal Council as to layout, petitioner

proceeded to develop the property without securing a final approval.

The City impleaded GPI as the party to whom Ortigas sold a piece of

property within the subdivision.

In answer, Ortigas alleged that its development plan for the subject land was

for a commercial subdivision, outside the scope of MO 5 that applied only to

residential subdivisions; that the City cannot assail the validity of that development

plan after its approval 25 years ago. Its development plan had been approved: (1)

by the Department of Justice through the Land Registration Commission on June

16, 1969; (2) by the Municipal Council of Pasig under Resolution 128 dated May

27, 1969; and (3) by the Court of First Instance of Rizal, Branch 25 in its Order

dated July 11, 1969.

Ortigas further alleged that only in 1984, 15 years after the approval of its

plan, that the National Housing Regulatory Commission imposed the open space

requirement for commercial subdivisions through its Rules and Regulations for

Commercial Subdivision and Commercial Subdivision Development.

The case was heard on pre-trial but before it could be terminated, on January

23, 1996 Ortigas filed a motion to dismiss the case on the ground that the RTC had

no jurisdiction over it, such jurisdiction being in the Housing and Land Use

Regulatory Board (HLURB) for unsound real estate business practices.

On April 15, 1996 the RTC denied the motion to dismiss.[1] It held that

HLURB’s jurisdiction pertained to disputes arising from transactions between

buyers, salesmen, and subdivision and condominium developers. In this case, the

City is a local government unit seeking to enforce compliance with a municipal

ordinance, an action that is not within the scope of the disputes cognizable by the

HLURB. With the denial of its motion for reconsideration on August 7, 1996,

Ortigas filed a petition for certioraribefore the Court of Appeals (CA) to challenge

the RTC’s actions.

On February 18, 1997 the CA rendered judgment, affirming the RTC’s

denial of the motion to dismiss.[2] The appellate court ruled that the City sought

compliance with a statutory obligation enacted “to promote the general welfare

(Section 16, Local Government Code) which invariably includes the preservation

of open spaces for recreational purposes.”[3] Since the City was not a buyer or one

entitled to refund for the price paid for a lot, the dispute must fall under the

jurisdiction of the RTC pursuant to Section 19 of The Judiciary Reorganization Act

of 1980.[4]

The CA denied Ortigas’ motion for reconsideration on June 27, 1997,

prompting it to file the present petition for review.

The Issue Presented

The sole issue in this case is whether or not the CA erred in affirming the

lower court’s ruling that jurisdiction over the City’s action lies with the RTC, not

with the HLURB.

The Court’s Ruling

Ortigas maintains that the HLURB has jurisdiction over the complaint since

a land developer's failure to comply with its statutory obligation to provide open

spaces constitutes unsound real estate business practice that Presidential Decree

(P.D.) 1344 prohibits. Executive Order 648 empowers the HLURB to hear and

decide claims of unsound real estate business practices against land developers.

Ultimately, whether or not the HLURB has the authority to hear and decide

a case is determined by the nature of the cause of action, the subject matter or

property involved, and the parties.[5] Section 1 of P.D. 1344[6] vests in the HLURB

the exclusive jurisdiction to hear and decide the following cases:

(a) unsound real estate business practices; (b) claims involving refund and any other claims filed by

subdivision lot or condominium unit buyer against the project owner, developer, dealer, broker, or salesman; and

(c) cases involving specific performance of contractual and

statutory obligations filed by buyers of subdivision lots or

condominium units against the owner, developer, dealer, broker or salesman.

Unlike paragraphs (b) and (c) above, paragraph (a) does not state which

party can file a claim against an unsound real estate business practice. But, in the

context of the evident objective of Section 1, it is implicit that the “unsound real

estate business practice” would, like the offended party in paragraphs (b) and (c),

be the buyers of lands involved in development. The policy of the law is to curb

unscrupulous practices in real estate trade and business that prejudice buyers.

This position is supported by the Court’s statement in Delos Santos v.

Sarmiento[7] that not every case involving buyers and sellers of subdivision lots or

condominium units can be filed with the HLURB. Its jurisdiction is limited to

those cases filed by the buyer or owner of a subdivision lot or condominium unit

and based on any of the causes of action enumerated in Section 1 of P.D. 1344.

Obviously, the City had not bought a lot in the subject area from Ortigas

which would give it a right to seek HLURB intervention in enforcing a local

ordinance that regulates the use of private land within its jurisdiction in the interest

of the general welfare. It has the right to bring such kind of action but only before

a court of general jurisdiction such as the RTC.

WHEREFORE , the Court DISMISSES the petition, AFFIRMS the Court

of Appeals Decision in CA-G.R. SP 42270 dated February 18, 1997,

and ORDERS the Regional Trial Court of Pasig City, Branch 166, to hear and

decide the case before it with deliberate dispatch.

SO ORDERED.

ROBERTO A. ABAD Associate Justice

WE CONCUR:

DIOSDADO M. PERALTA Associate Justice

Acting Chairperson

LUCAS P. BERSAMIN MARTIN S. VILLARAMA, JR. Associate Justice Associate Justice

ESTELA M. PERLAS-BERNABE Associate Justice

ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division. DIOSDADO M. PERALTA

Associate Justice Acting Chairperson, Third Division

CERTIFICATION I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division. ANTONIO T. CARPIO

Senior Associate Justice (Per Section 12, R.A. 296, The Judiciary Act of 1948, as amended)

SECOND DIVISION

[G.R. No. 30616 : December 10, 1990.]

192 SCRA 110

EUFRACIO D. ROJAS, Plaintiff-Appellant, vs. CONSTANCIO B.

MAGLANA,Defendant-Appellee.

D E C I S I O N

PARAS, J.:

This is a direct appeal to this Court from a decision ** of the then Court of First Instance of

Davao, Seventh Judicial District, Branch III, in Civil Case No. 3518, dismissing appellant's

complaint.

As found by the trial court, the antecedent facts of the case are as follows:

On January 14, 1955, Maglana and Rojas executed their Articles of Co-Partnership (Exhibit

"A") called Eastcoast Development Enterprises (EDE) with only the two of them as partners.

The partnership EDE with an indefinite term of existence was duly registered on January 21,

1955 with the Securities and Exchange Commission.

One of the purposes of the duly-registered partnership was to "apply or secure timber

and/or minor forests products licenses and concessions over public and/or private forest

lands and to operate, develop and promote such forests rights and concessions." (Rollo, p.

114).

A duly registered Articles of Co-Partnership was filed together with an application for a

timber concession covering the area located at Cateel and Baganga, Davao with the Bureau

of Forestry which was approved and Timber License No. 35-56 was duly issued and became

the basis of subsequent renewals made for and in behalf of the duly registered partnership

EDE.

Under the said Articles of Co-Partnership, appellee Maglana shall manage the business

affairs of the partnership, including marketing and handling of cash and is authorized to sign

all papers and instruments relating to the partnership, while appellant Rojas shall be the

logging superintendent and shall manage the logging operations of the partnership. It is

also provided in the said articles of co-partnership that all profits and losses of the

partnership shall be divided share and share alike between the partners.

During the period from January 14, 1955 to April 30, 1956, there was no operation of said

partnership (Record on Appeal [R.A.] p. 946).

Because of the difficulties encountered, Rojas and Maglana decided to avail of the services

of Pahamotang as industrial partner.

On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed their Articles of Co-

Partnership (Exhibit "B" and Exhibit "C") under the firm name EASTCOAST DEVELOPMENT

ENTERPRISES (EDE). Aside from the slight difference in the purpose of the second

partnership which is to hold and secure renewal of timber license instead of to secure the

license as in the first partnership and the term of the second partnership is fixed to thirty

(30) years, everything else is the same.

The partnership formed by Maglana, Pahamotang and Rojas started operation on May 1,

1956, and was able to ship logs and realize profits. An income was derived from the

proceeds of the logs in the sum of P643,633.07 (Decision, R.A. 919).

On October 25, 1956, Pahamotang, Maglana and Rojas executed a document entitled

"CONDITIONAL SALE OF INTEREST IN THE PARTNERSHIP, EASTCOAST DEVELOPMENT

ENTERPRISE" (Exhibits "C" and "D") agreeing among themselves that Maglana and Rojas

shall purchase the interest, share and participation in the Partnership of Pahamotang

assessed in the amount of P31,501.12. It was also agreed in the said instrument that after

payment of the sum of P31,501.12 to Pahamotang including the amount of loan secured by

Pahamotang in favor of the partnership, the two (Maglana and Rojas) shall become the

owners of all equipment contributed by Pahamotang and the EASTCOAST DEVELOPMENT

ENTERPRISES, the name also given to the second partnership, be dissolved. Pahamotang

was paid in fun on August 31, 1957. No other rights and obligations accrued in the name of

the second partnership (R.A. 921).

After the withdrawal of Pahamotang, the partnership was continued by Maglana and Rojas

without the benefit of any written agreement or reconstitution of their written Articles of

Partnership (Decision, R.A. 948).

On January 28, 1957, Rojas entered into a management contract with another logging

enterprise, the CMS Estate, Inc. He left and abandoned the partnership (Decision, R.A.

947).

On February 4, 1957, Rojas withdrew his equipment from the partnership for use in the

newly acquired area (Decision, R.A. 948).

The equipment withdrawn were his supposed contributions to the first partnership and was

transferred to CMS Estate, Inc. by way of chattel mortgage (Decision, R.A. p. 948).

On March 17, 1957, Maglana wrote Rojas reminding the latter of his obligation to

contribute, either in cash or in equipment, to the capital investments of the partnership as

well as his obligation to perform his duties as logging superintendent.

Two weeks after March 17, 1957, Rojas told Maglana that he will not be able to comply with

the promised contributions and he will not work as logging superintendent. Maglana then

told Rojas that the latter's share will just be 20% of the net profits. Such was the sharing

from 1957 to 1959 without complaint or dispute (Decision, R.A. 949).: nad

Meanwhile, Rojas took funds from the partnership more than his contribution. Thus, in a

letter dated February 21, 1961 (Exhibit "10") Maglana notified Rojas that he dissolved the

partnership (R.A. 949).

On April 7, 1961, Rojas filed an action before the Court of First Instance of Davao against

Maglana for the recovery of properties, accounting, receivership and damages, docketed as

Civil Case No. 3518 (Record on Appeal, pp. 1-26).

Rojas' petition for appointment of a receiver was denied (R.A. 894).

Upon motion of Rojas on May 23, 1961, Judge Romero appointed commissioners to examine

the long and voluminous accounts of the Eastcoast Development Enterprises (Ibid., pp. 894-

895).

The motion to dismiss the complaint filed by Maglana on June 21, 1961 (Ibid., pp. 102-114)

was denied by Judge Romero for want of merit (Ibid., p. 125). Judge Romero also required

the inclusion of the entire year 1961 in the report to be submitted by the commissioners

(Ibid., pp. 138-143). Accordingly, the commissioners started examining the records and

supporting papers of the partnership as well as the information furnished them by the

parties, which were compiled in three (3) volumes.

On May 11, 1964, Maglana filed his motion for leave of court to amend his answer with

counterclaim, attaching thereto the amended answer (Ibid., pp. 26-336), which was granted

on May 22, 1964 (Ibid., p. 336).

On May 27, 1964, Judge M.G. Reyes approved the submitted Commissioners' Report (Ibid.,

p. 337).

On June 29, 1965, Rojas filed his motion for reconsideration of the order dated May 27,

1964 approving the report of the commissioners which was opposed by the appellee.

On September 19, 1964, appellant's motion for reconsideration was denied (Ibid., pp. 446-

451).

A mandatory pre-trial was conducted on September 8 and 9, 1964 and the following issues

were agreed upon to be submitted to the trial court:

(a) The nature of partnership and the legal relations of Maglana and Rojas after the

dissolution of the second partnership;

(b) Their sharing basis: whether in proportion to their contribution or share and

share alike;

(c) The ownership of properties bought by Maglana in his wife's name;

(d) The damages suffered and who should be liable for them; and

(e) The legal effect of the letter dated February 23, 1961 of Maglana dissolving the

partnership (Decision, R.A. pp. 895-896).- nad

After trial, the lower court rendered its decision on March 11, 1968, the dispositive portion

of which reads as follows:

"WHEREFORE, the above facts and issues duly considered, judgment is hereby

rendered by the Court declaring that:

"1. The nature of the partnership and the legal relations of Maglana and Rojas after

Pahamotang retired from the second partnership, that is, after August 31, 1957,

when Pahamotang was finally paid his share — the partnership of the defendant and

the plaintiff is one of a de facto and at will;

"2. Whether the sharing of partnership profits should be on the basis of computation,

that is the ratio and proportion of their respective contributions, or on the basis of

share and share alike — this covered by actual contributions of the plaintiff and the

defendant and by their verbal agreement; that the sharing of profits and losses is on

the basis of actual contributions; that from 1957 to 1959, the sharing is on the basis

of 80% for the defendant and 20% for the plaintiff of the profits, but from 1960 to

the date of dissolution, February 23, 1961, the plaintiff's share will be on the basis of

his actual contribution and, considering his indebtedness to the partnership, the

plaintiff is not entitled to any share in the profits of the said partnership;

"3. As to whether the properties which were bought by the defendant and placed in

his or in his wife's name were acquired with partnership funds or with funds of the

defendant and — the Court declares that there is no evidence that these properties

were acquired by the partnership funds, and therefore the same should not belong to

the partnership;

"4. As to whether damages were suffered and, if so, how much, and who caused

them and who should be liable for them — the Court declares that neither parties is

entitled to damages, for as already stated above it is not a wise policy to place a

price on the right of a person to litigate and/or to come to Court for the assertion of

the rights they believe they are entitled to;

"5. As to what is the legal effect of the letter of defendant to the plaintiff dated

February 23, 1961; did it dissolve the partnership or not — the Court declares that

the letter of the defendant to the plaintiff dated February 23, 1961, in effect

dissolved the partnership;

"6. Further, the Court relative to the canteen, which sells foodstuffs, supplies, and

other merchandise to the laborers and employees of the Eastcoast Development

Enterprises, — the COURT DECLARES THE SAME AS NOT BELONGING TO THE

PARTNERSHIP;

"7. That the alleged sale of forest concession Exhibit 9-B, executed by Pablo Angeles

David — is VALID AND BINDING UPON THE PARTIES AND SHOULD BE CONSIDERED

AS PART OF MAGLANA'S CONTRIBUTION TO THE PARTNERSHIP;

"8. Further, the Court orders and directs plaintiff Rojas to pay or turn over to the

partnership the amount of P69,000.00 the profits he received from the CMS Estate,

Inc. operated by him;

"9. The claim that plaintiff Rojas should be ordered to pay the further sum of

P85,000.00 which according to him he is still entitled to receive from the CMS Estate,

Inc. is hereby denied considering that it has not yet been actually received, and

further the receipt is merely based upon an expectancy and/or still speculative;

"10. The Court also directs and orders plaintiff Rojas to pay the sum of P62,988.19

his personal account to the partnership;

"11. The Court also credits the defendant the amount of P85,000.00 the amount he

should have received as logging superintendent, and which was not paid to him, and

this should be considered as part of Maglana's contribution likewise to the

partnership; and

"12. The complaint is hereby dismissed with costs against the plaintiff.: rd

"SO ORDERED." Decision, Record on Appeal, pp. 985-989).

Rojas interposed the instant appeal.

The main issue in this case is the nature of the partnership and legal relationship of the

Maglana-Rojas after Pahamotang retired from the second partnership.

The lower court is of the view that the second partnership superseded the first, so that

when the second partnership was dissolved there was no written contract of co-partnership;

there was no reconstitution as provided for in the Maglana, Rojas and Pahamotang

partnership contract. Hence, the partnership which was carried on by Rojas and Maglana

after the dissolution of the second partnership was a de facto partnership and at will. It was

considered as a partnership at will because there was no term, express or implied; no

period was fixed, expressly or impliedly (Decision, R.A. pp. 962-963).

On the other hand, Rojas insists that the registered partnership under the firm name of

Eastcoast Development Enterprises (EDE) evidenced by the Articles of Co-Partnership dated

January 14, 1955 (Exhibit "A") has not been novated, superseded and/or dissolved by the

unregistered articles of co-partnership among appellant Rojas, appellee Maglana and

Agustin Pahamotang, dated March 4, 1956 (Exhibit "C") and accordingly, the terms and

stipulations of said registered Articles of Co-Partnership (Exhibit "A") should govern the

relations between him and Maglana. Upon withdrawal of Agustin Pahamotang from the

unregistered partnership (Exhibit "C"), the legally constituted partnership EDE (Exhibit "A")

continues to govern the relations between them and it was legal error to consider a de facto

partnership between said two partners or a partnership at will. Hence, the letter of appellee

Maglana dated February 23, 1961, did not legally dissolve the registered partnership

between them, being in contravention of the partnership agreement agreed upon and

stipulated in their Articles of Co-Partnership (Exhibit "A"). Rather, appellant is entitled to the

rights enumerated in Article 1837 of the Civil Code and to the sharing profits between them

of "share and share alike" as stipulated in the registered Articles of Co-Partnership (Exhibit

"A").

After a careful study of the records as against the conflicting claims of Rojas and Maglana, it

appears evident that it was not the intention of the partners to dissolve the first

partnership, upon the constitution of the second one, which they unmistakably called an

"Additional Agreement" (Exhibit "9-B") (Brief for Defendant-Appellee, pp. 24-25). Except for

the fact that they took in one industrial partner; gave him an equal share in the profits and

fixed the term of the second partnership to thirty (30) years, everything else was the same.

Thus, they adopted the same name, EASTCOAST DEVELOPMENT ENTERPRISES, they

pursued the same purposes and the capital contributions of Rojas and Maglana as stipulated

in both partnerships call for the same amounts. Just as important is the fact that all

subsequent renewals of Timber License No. 35-36 were secured in favor of the First

Partnership, the original licensee. To all intents and purposes therefore, the First Articles of

Partnership were only amended, in the form of Supplementary Articles of Co-Partnership

(Exhibit "C") which was never registered (Brief for Plaintiff-Appellant, p. 5). Otherwise

stated, even during the existence of the second partnership, all business transactions were

carried out under the duly registered articles. As found by the trial court, it is an admitted

fact that even up to now, there are still subsisting obligations and contracts of the latter

(Decision, R.A. pp. 950-957). No rights and obligations accrued in the name of the second

partnership except in favor of Pahamotang which was fully paid by the duly registered

partnership (Decision, R.A., pp. 919-921).

On the other hand, there is no dispute that the second partnership was dissolved by

common consent. Said dissolution did not affect the first partnership which continued to

exist. Significantly, Maglana and Rojas agreed to purchase the interest, share and

participation in the second partnership of Pahamotang and that thereafter, the two (Maglana

and Rojas) became the owners of equipment contributed by Pahamotang. Even more

convincing, is the fact that Maglana on March 17, 1957, wrote Rojas, reminding the latter of

his obligation to contribute either in cash or in equipment, to the capital investment of the

partnership as well as his obligation to perform his duties as logging superintendent. This

reminder cannot refer to any other but to the provisions of the duly registered Articles of

Co-Partnership. As earlier stated, Rojas replied that he will not be able to comply with the

promised contributions and he will not work as logging superintendent. By such statements,

it is obvious that Roxas understood what Maglana was referring to and left no room for

doubt that both considered themselves governed by the articles of the duly registered

partnership.

Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of

Pahamotang can neither be considered as a De Facto Partnership, nor a Partnership at Will,

for as stressed, there is an existing partnership, duly registered.

As to the question of whether or not Maglana can unilaterally dissolve the partnership in the

case at bar, the answer is in the affirmative.

Hence, as there are only two parties when Maglana notified Rojas that he dissolved the

partnership, it is in effect a notice of withdrawal.

Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner

can cause its dissolution by expressly withdrawing even before the expiration of the period,

with or without justifiable cause. Of course, if the cause is not justified or no cause was

given, the withdrawing partner is liable for damages but in no case can he be compelled to

remain in the firm. With his withdrawal, the number of members is decreased, hence, the

dissolution. And in whatever way he may view the situation, the conclusion is inevitable that

Rojas and Maglana shall be guided in the liquidation of the partnership by the provisions of

its duly registered Articles of Co-Partnership; that is, all profits and losses of the partnership

shall be divided "share and share alike" between the partners.

But an accounting must first be made and which in fact was ordered by the trial court and

accomplished by the commissioners appointed for the purpose.

On the basis of the Commissioners' Report, the corresponding contribution of the partners

from 1956-1961 are as follows: Eufracio Rojas who should have contributed P158,158.00,

contributed only P18,750.00 while Maglana who should have contributed P160,984.00,

contributed P267,541.44 (Decision, R.A. p. 976). It is a settled rule that when a partner

who has undertaken to contribute a sum of money fails to do so, he becomes a debtor of

the partnership for whatever he may have promised to contribute (Article 1786, Civil Code)

and for interests and damages from the time he should have complied with his obligation

(Article 1788, Civil Code) (Moran, Jr. v. Court of Appeals, 133 SCRA 94 [1984]). Being a

contract of partnership, each partner must share in the profits and losses of the venture.

That is the essence of a partnership (Ibid., p. 95).

Thus, as reported in the Commissioners' Report, Rojas is not entitled to any profits. In their

voluminous reports which was approved by the trial court, they showed that on 50-50%

basis, Rojas will be liable in the amount of P131,166.00; on 80-20%, he will be liable for

P40,092.96 and finally on the basis of actual capital contribution, he will be liable for

P52,040.31.

Consequently, except as to the legal relationship of the partners after the withdrawal of

Pahamotang which is unquestionably a continuation of the duly registered partnership and

the sharing of profits and losses which should be on the basis of share and share alike as

provided for in the duly registered Articles of Co-Partnership, no plausible reason could be

found to disturb the findings and conclusions of the trial court.: nad

As to whether Maglana is liable for damages because of such withdrawal, it will be recalled

that after the withdrawal of Pahamotang, Rojas entered into a management contract with

another logging enterprise, the CMS Estate, Inc., a company engaged in the same business

as the partnership. He withdrew his equipment, refused to contribute either in cash or in

equipment to the capital investment and to perform his duties as logging superintendent, as

stipulated in their partnership agreement. The records also show that Rojas not only

abandoned the partnership but also took funds in an amount more than his contribution

(Decision, R.A., p. 949).

In the given situation Maglana cannot be said to be in bad faith nor can he be liable for

damages.

PREMISES CONSIDERED, the assailed decision of the Court of First Instance of Davao,

Branch III, is hereby MODIFIED in the sense that the duly registered partnership of

Eastcoast Development Enterprises continued to exist until liquidated and that the sharing

basis of the partners should be on share and share alike as provided for in its Articles of

Partnership, in accordance with the computation of the commissioners. We also hereby

AFFIRM the decision of the trial court in all other respects.: nad

SO ORDERED.

Melencio-Herrera, Sarmiento and Regalado, JJ., concur.

Padilla, J., took no part.

Republic of the Philippines SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 97212 June 30, 1993

BENJAMIN YU, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTA IN PRODUCTS COMPANY LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, C HIU SHIAN JENG and CHEN HO-FU, respondents.

Jose C. Guico for petitioner.

Wilfredo Cortez for private respondents.

FELICIANO, J.:

Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble quarrying and export business operated by a registered partnership with the firm name of "Jade Mountain Products Company Limited" ("Jade Mountain"). The partnership was originally organized on 28 June 1984 with Lea Bendal and Rhodora Bendal as general partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang, all citizens of the Republic of China (Taiwan), as limited partners. The partnership business consisted of exploiting a marble deposit found on land owned by the Sps. Ricardo and Guillerma Cruz, situated in Bulacan Province, under a Memorandum Agreement dated 26 June 1984 with the Cruz spouses. 1 The partnership had its main office in Makati, Metropolitan Manila.

Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985, as Assistant General Manager with a monthly salary of P4,000.00. According to petitioner Yu, however, he actually received only half of his stipulated monthly salary, since he had accepted the promise of the partners that the balance would be paid when the firm shall have secured additional operating funds from abroad. Benjamin Yu actually managed the operations and finances of the business; he had overall supervision of the workers at the marble quarry in Bulacan and took charge of the preparation of papers relating to the exportation of the firm's products.

Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea Bendal and Rhodora Bendal sold and transferred their interests in the partnership to private respondent Willy Co and to one Emmanuel Zapanta. Mr. Yu Chang, a limited partner, also sold and transferred his interest in the partnership to Willy Co. Between Mr. Emmanuel Zapanta and himself, private respondent Willy Co acquired the great bulk of the partnership interest. The partnership now constituted solely by Willy Co and Emmanuel Zapanta continued to use the old firm name of Jade Mountain, though they moved the firm's main office from Makati to Mandaluyong, Metropolitan Manila. A Supplement to the Memorandum Agreement relating to the operation of the marble quarry

was entered into with the Cruz spouses in February of 1988. 2 The actual operations of the business enterprise continued as before. All the employees of the partnership continued working in the business, all, save petitioner Benjamin Yu as it turned out.

On 16 November 1987, having learned of the transfer of the firm's main office from Makati to Mandaluyong, petitioner Benjamin Yu reported to the Mandaluyong office for work and there met private respondent Willy Co for the first time. Petitioner was informed by Willy Co that the latter had bought the business from the original partners and that it was for him to decide whether or not he was responsible for the obligations of the old partnership, including petitioner's unpaid salaries. Petitioner was in fact not allowed to work anymore in the Jade Mountain business enterprise. His unpaid salaries remained unpaid. 3

On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and recovery of unpaid salaries accruing from November 1984 to October 1988, moral and exemplary damages and attorney's fees, against Jade Mountain, Mr. Willy Co and the other private respondents. The partnership and Willy Co denied petitioner's charges, contending in the main that Benjamin Yu was never hired as an employee by the present or new partnership. 4

In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that petitioner had been illegally dismissed. The Labor Arbiter decreed his reinstatement and awarded him his claim for unpaid salaries, backwages and attorney's fees. 5

On appeal, the National Labor Relations Commission ("NLRC") reversed the decision of the Labor Arbiter and dismissed petitioner's complaint in a Resolution dated 29 November 1990. The NLRC held that a new partnership consisting of Mr. Willy Co and Mr. Emmanuel Zapanta had bought the Jade Mountain business, that the new partnership had not retained petitioner Yu in his original position as Assistant General Manager, and that there was no law requiring the new partnership to absorb the employees of the old partnership. Benjamin Yu, therefore, had not been illegally dismissed by the new partnership which had simply declined to retain him in his former managerial position or any other position. Finally, the NLRC held that Benjamin Yu's claim for unpaid wages should be asserted against the original members of the preceding partnership, but these though impleaded had, apparently, not been served with summons in the proceedings before the Labor Arbiter. 6

Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari, asking us to set aside and annul the Resolution of the NLRC as a product of grave abuse of discretion amounting to lack or excess of jurisdiction.

The basic contention of petitioner is that the NLRC has overlooked the principle that a partnership has a juridical personality separate and distinct from that of each of its members. Such independent legal personality subsists, petitioner claims, notwithstanding changes in the identities of the partners. Consequently, the employment contract between Benjamin Yu and the partnership Jade Mountain could not have been affected by changes in the latter's membership. 7

Two (2) main issues are thus posed for our consideration in the case at bar: (1) whether the partnership which had hired petitioner Yu as Assistant General Manager had been extinguished and replaced by a new partnerships composed of Willy Co and Emmanuel Zapanta; and (2) if indeed a new partnership had come into existence, whether petitioner Yu could nonetheless assert his rights under his employment contract as against the new partnership.

In respect of the first issue, we agree with the result reached by the NLRC, that is, that the legal effect of the changes in the membership of the partnership was the dissolution of the old partnership

which had hired petitioner in 1984 and the emergence of a new firm composed of Willy Co and Emmanuel Zapanta in 1987.

The applicable law in this connection — of which the NLRC seemed quite unaware — is found in the Civil Code provisions relating to partnerships. Article 1828 of the Civil Code provides as follows:

Art. 1828. The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business. (Emphasis supplied)

Article 1830 of the same Code must also be noted:

Art. 1830. Dissolution is caused:

(1) without violation of the agreement between the partners;

xxx xxx xxx

(b) by the express will of any partner, who must act in good faith, when no definite term or particular undertaking is specified;

xxx xxx xxx

(2) in contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision of this article, by the express will of any partner at any time;

xxx xxx xxx

(Emphasis supplied)

In the case at bar, just about all of the partners had sold their partnership interests (amounting to 82% of the total partnership interest) to Mr. Willy Co and Emmanuel Zapanta. The record does not show what happened to the remaining 18% of the original partnership interest. The acquisition of 82% of the partnership interest by new partners, coupled with the retirement or withdrawal of the partners who had originally owned such 82% interest, was enough to constitute a new partnership.

The occurrence of events which precipitate the legal consequence of dissolution of a partnership do not, however, automatically result in the termination of the legal personality of the old partnership. Article 1829 of the Civil Code states that:

[o]n dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed.

In the ordinary course of events, the legal personality of the expiring partnership persists for the limited purpose of winding up and closing of the affairs of the partnership. In the case at bar, it is important to underscore the fact that the business of the old partnership was simply continued by the new partners, without the old partnership undergoing the procedures relating to dissolution and winding up of its business affairs. In other words, the new partnership simply took over the business

enterprise owned by the preceeding partnership, and continued using the old name of Jade Mountain Products Company Limited, without winding up the business affairs of the old partnership, paying off its debts, liquidating and distributing its net assets, and then re-assembling the said assets or most of them and opening a new business enterprise. There were, no doubt, powerful tax considerations which underlay such an informal approach to business on the part of the retiring and the incoming partners. It is not, however, necessary to inquire into such matters.

What is important for present purposes is that, under the above described situation, not only the retiring partners (Rhodora Bendal, et al.) but also the new partnership itself which continued the business of the old, dissolved, one, are liable for the debts of the preceding partnership. In Singson, et al. v. Isabela Saw Mill, et al, 8 the Court held that under facts very similar to those in the case at bar, a withdrawing partner remains liable to a third party creditor of the old partnership. 9 The liability of the new partnership, upon the other hand, in the set of circumstances obtaining in the case at bar, is established in Article 1840 of the Civil Code which reads as follows:

Art. 1840. In the following cases creditors of the dissolved partnership are also creditors of the person or partnership continuing the business:

(1) When any new partner is admitted into an existing partnership, or when any partner retires and assigns (or the representative of the deceased partner assigns) his rights in partnership property to two or more of the partners, or to one or more of the partners and one or more third persons, if the business is continued without liquidation of the partnership affairs;

(2) When all but one partner retire and assign (or the representative of a deceased partner assigns) their rights in partnership property to the remaining partner, who continues the business without liquidation of partnership affairs, either alone or with others;

(3) When any Partner retires or dies and the business of the dissolved partnership is continued as set forth in Nos. 1 and 2 of this Article, with the consent of the retired partners or the representative of the deceased partner, but without any assignment of his right in partnership property;

(4) When all the partners or their representatives assign their rights in partnership property to one or more third persons who promise to pay the debts and who continue the business of the dissolved partnership;

(5) When any partner wrongfully causes a dissolution and remaining partners continue the businessunder the provisions of article 1837, second paragraph, No. 2, either alone or with others, and without liquidation of the partnership affairs;

(6) When a partner is expelled and the remaining partners continue the business either alone or with others without liquidation of the partnership affairs;

The liability of a third person becoming a partner in the partnership continuing the business, under this article, to the creditors of the dissolved partnership shall be satisfied out of the partnership property only, unless there is a stipulation to the contrary.

When the business of a partnership after dissolution is continued under any conditions set forth in this article the creditors of the retiring or deceased partner or

the representative of the deceased partner, have a prior right to any claim of the retired partner or the representative of the deceased partner against the person or partnership continuing the business on account of the retired or deceased partner's interest in the dissolved partnership or on account of any consideration promised for such interest or for his right in partnership property.

Nothing in this article shall be held to modify any right of creditors to set assignment on the ground of fraud.

xxx xxx xxx

(Emphasis supplied)

Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the new Jade Mountain which continued the business of the old one without liquidation of the partnership affairs. Indeed, a creditor of the old Jade Mountain, like petitioner Benjamin Yu in respect of his claim for unpaid wages, is entitled to priority vis-a-visany claim of any retired or previous partner insofar as such retired partner's interest in the dissolved partnership is concerned. It is not necessary for the Court to determine under which one or mare of the above six (6) paragraphs, the case at bar would fall, if only because the facts on record are not detailed with sufficient precision to permit such determination. It is, however, clear to the Court that under Article 1840 above, Benjamin Yu is entitled to enforce his claim for unpaid salaries, as well as other claims relating to his employment with the previous partnership, against the new Jade Mountain.

It is at the same time also evident to the Court that the new partnership was entitled to appoint and hire a new general or assistant general manager to run the affairs of the business enterprise take over. An assistant general manager belongs to the most senior ranks of management and a new partnership is entitled to appoint a top manager of its own choice and confidence. The non-retention of Benjamin Yu as Assistant General Manager did not therefore constitute unlawful termination, or termination without just or authorized cause. We think that the precise authorized cause for termination in the case at bar was redundancy. 10 The new partnership had its own new General Manager, apparently Mr. Willy Co, the principal new owner himself, who personally ran the business of Jade Mountain. Benjamin Yu's old position as Assistant General Manager thus became superfluous or redundant. 11 It follows that petitioner Benjamin Yu is entitled to separation pay at the rate of one month's pay for each year of service that he had rendered to the old partnership, a fraction of at least six (6) months being considered as a whole year.

While the new Jade Mountain was entitled to decline to retain petitioner Benjamin Yu in its employ, we consider that Benjamin Yu was very shabbily treated by the new partnership. The old partnership certainly benefitted from the services of Benjamin Yu who, as noted, previously ran the whole marble quarrying, processing and exporting enterprise. His work constituted value-added to the business itself and therefore, the new partnership similarly benefitted from the labors of Benjamin Yu. It is worthy of note that the new partnership did not try to suggest that there was any cause consisting of some blameworthy act or omission on the part of Mr. Yu which compelled the new partnership to terminate his services. Nonetheless, the new Jade Mountain did not notify him of the change in ownership of the business, the relocation of the main office of Jade Mountain from Makati to Mandaluyong and the assumption by Mr. Willy Co of control of operations. The treatment (including the refusal to honor his claim for unpaid wages) accorded to Assistant General Manager Benjamin Yu was so summary and cavalier as to amount to arbitrary, bad faith treatment, for which the new Jade Mountain may legitimately be required to respond by paying moral damages. This Court, exercising its discretion and in view of all the circumstances of this case, believes that an indemnity for moral damages in the amount of P20,000.00 is proper and reasonable.

In addition, we consider that petitioner Benjamin Yu is entitled to interest at the legal rate of six percent (6%) per annum on the amount of unpaid wages, and of his separation pay, computed from the date of promulgation of the award of the Labor Arbiter. Finally, because the new Jade Mountain compelled Benjamin Yu to resort to litigation to protect his rights in the premises, he is entitled to attorney's fees in the amount of ten percent (10%) of the total amount due from private respondent Jade Mountain.

WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE COURSE, the Comment filed by private respondents is treated as their Answer to the Petition for Certiorari, and the Decision of the NLRC dated 29 November 1990 is hereby NULLIFIED and SET ASIDE. A new Decision is hereby ENTERED requiring private respondent Jade Mountain Products Company Limited to pay to petitioner Benjamin Yu the following amounts:

(a) for unpaid wages which, as found by the Labor Arbiter, shall be computed at the rate of P2,000.00 per month multiplied by thirty-six (36) months (November 1984 to December 1987) in the total amount of P72,000.00;

(b) separation pay computed at the rate of P4,000.00 monthly pay multiplied by three (3) years of service or a total of P12,000.00;

(c) indemnity for moral damages in the amount of P20,000.00;

(d) six percent (6%) per annum legal interest computed on items (a) and (b) above, commencing on 26 December 1989 and until fully paid; and

(e) ten percent (10%) attorney's fees on the total amount due from private respondent Jade Mountain.

Costs against private respondents.

SO ORDERED.

Bidin, Davide, Jr., Romero and Melo, JJ., concur.

Benjamin Yu v. National Labor Relations Commission & Jade Mountain ProductsCo. Ltd., Willy Co,

Rhodora Bendal, Lea Bendal, Chiu Shian Jeng and Chen Ho-Fu

G.R. No. 97212 June 30, 1993

Feliciano, J.

Facts:

Yu – ex-Assistant General Manager of the marble quarrying and export business operatedby a

registered partnership called Jade Mountain Products Co. Ltd.

partnership was originally organized with Bendals as general partners and Chin Shian Jeng,Chen Ho-Fu

and Yu Chang as limited partners; partnership business consisted of exploitinga marble deposit in

Bulacan

Yu, as Assistant General Manager, had a monthly salary of 4000. Yu, however, actuallyreceived only

half of his stipulated salary, since he had accepted the promise of thepartners that the balance would be

paid when the firm shall have secured additionaloperating funds from abroad. Yu actually managed the

operations and finances of thebusiness; he had overall supervision of the workers at the marble quarry

in Bulacan andtook charge of the preparation of papers relating to the exportation of the firm’s

products.

general partners Bendals sold and transferred their interests in the partnership to Co andEmmanuel

Zapanta

partnership was constituted solely by Co and Zapanta; it continued to use the old firmname of Jade

Mountain

Yu – dismissed by the new partners

Issues:

1. WON the partnership which had hired Yu as Asst. Gen. Manager had beenextinguished and replaced

by a new partnership composed of Co and Zapanta; 2. if indeed anew partnership had come into

existence, WON Yu could nonetheless assert his rights underhis employment contract with the old

partnership as against the new partnership

Held:

1. Yes. Changes in the membership of the partnership resulted in the dissolution of the old partnership

which had hired Yu and the emergence of a new partnership composedof Co and Zapanta.

Legal bases:

Art. 1828. The dissolution of a partnership is the change in the relation of thepartners caused by any

partner ceasing to be associated in the carrying on asdistinguished from the winding up of the business.

Art. 1830. Dissolution is caused:(1) without violation of the agreement between the partners;(b) by

the express will of any partner, who must act in good faith, when no definite termor particular

undertaking is specified;(2) in contravention of the agreement between the partners, where the

circumstances donot permit a dissolution under any other provision of this article, by the express will of

anypartner at any time;

No winding up of affairs in this case as contemplated in Art. 1829: on dissolution thepartnership is not

terminated, but continues until the winding up of partnership affairs iscompleted

the new partnership simply took over the business enterprise owned by the oldpartnership, and

continued using the old name of Jade Mountain Products CompanyLimited, without winding up the

business affairs of the old partnership, paying off its debts,liquidating and distributing its net assets, and

then re-assembling the said assets or mostof them and opening a new business enterprise

2. Yes. the new partnership is liable for the debts of the old partnership

Legal basis: Art. 1840 (see codal)

SYNOPSIS

G.R. No. 94285

Sy Yong Hu & Sons is a partnership of Sy Yung Hu and his six (6) sons. The partnership has valuable assets such as tracts of land planted with sugar cane and commercial lots in the business district of Bacolod City. Sometime in September 1977, a certain Keng Sian brought an action before the then Court of First Instance of Negros Occidental, docketed as Civil Case No. 13388, against the partnership for accounting of all the partnership properties and for the delivery or reconveyance of her one-half (1/2) share in the properties and in the fruits thereof. Keng Sian averred that she is the common-law wife of Sy Yung Hu and that the latter and his children connived to deprive her of her share in the properties by diverting it to the partnership. During the pendency of said civil case, partner Marciano Sy filed a petition for declaratory relief against his co-partners docketed as SEC Case No. 1648, praying that he be appointed managing partner to replace Jose Sy who just died. Answering the petition, his brothers, Vicente, Jesus and Jaime, who claimed to represent the majority interest in the partnership, sought the dissolution of the partnership and the appointment of Vicente Sy as managing partner. The Hearing Officer, in a decision (Sison Decision) dismissed the petition, and dissolved the partnership. The Sison Decision was affirmed by the SEC En Bane (Abello Decision). In the meantime, Branch 43 of the Regional Trial Court of Negros Occidental appointed one Alex Ferrer as Special Administrator. Thereafter, Alex Ferrer moved to intervene in the proceedings in SEC Case No. 1648 for the partition and distribution of the of the partnership assets on behalf of the respondent intestate estate. The motion was denied. The Intestate Estate appealed to the SEC en bane. In its decision (Sulit Decision), the SEC en bane reiterated that the Abello decision, which upheld the order of dissolution of the partnership, had long become final and executory. No further appeal was taken

from said decision. During the continuation of SEC Case 1648, presided by Hearing Office Felipe S. Tongco who substituted Hearing Officer Sison, the parties brought to the attention of the Hearing Officer the fact of existence of Civil Case 903 (formerly Civil Case No. 13388) pending before the RTC of Negros Occidental. They also agreed that during the pendency of said case, there would be no disposition of partnership assets. Hearing Officer Tongco in an order (Tongco Order) placed the partnership under a receivership committee. Petitioners appealed to the SEC en banc. In an order (Lopez Order), the SEC en banc affirmed the Tongco order. Petitioners’ motion for reconsideration was denied. Then they filed a special civil action forcertiorari with the Court of Appeals. The appellate court granted the petition and remanded the case for further execution of the Abello and Sulit Decisions, ordering partition and distribution of partnership properties. On motion for reconsideration by private respondents, the Court of Appeals reversed its earlier decision and remanded the case to the SEC for the formation of a receivership committee as envisioned in the Tongco Order. Hence the present petition.

The Supreme Court affirmed the assailed resolution of the Court of Appeals. It ruled that although the Abello Decision was, indeed, final and executory, it did not pose any obstacle to the hearing officer to issue orders not inconsistent therewith because from the time a dissolution is ordered until the actual termination of the partnership, the SEC retained jurisdiction to adjudicate all incidents relative thereto. Thus, the disputed order placing the partnership under a receivership committee cannot be said to have varied the final order of dissolution. Neither did it suspend the dissolution of the partnership. If at all, it only suspended the partition and distribution of partnership assets pending disposition of Civil Case No. 903 on the basis of the agreement of the parties and under the circumstances of the case. The Court added that having agreed with the respondents not to dispose of the partnership assets, petitioners effectively consented to the suspension of the winding up or, more specifically, the partition and distribution of subject assets. Petitioners are now estopped from questioning the order of the Hearing officer issued in accordance with the said agreement.

G.R. No. 100313

Sometime in June 1988, petitioner Sy Yong Hu & Sons, through its managing partner, Jesus Sy, applied for a building permit to reconstruct its building called Sy Yong Hu & Sons Building located in Bacolod City. Respondent City Engineer issued the building permit. Upon completion of the reconstruction work, the building was occupied by herein petitioners Bacolod and Upholstery Supply Company and Negros Isuzu Sales which businesses are owned by the successors-in-interest of the deceased partners Jose Sy and Vicente Sy. Petitioner John Tan, who is also an occupant of the reconstructed building, is the brother-in-law of deceased partner Marciano Sy. Respondent Intestate Estate of Sy Yong Hu sent a letter to the City Engineer claiming

that Jesus Sy is not authorized to act for petitioners Sy Yong Hu & Sons with respect to the reconstruction and renovation of the property of the partnership. This was followed by a letter requesting revocation of the Building Permit issued earlier. Unable to convince the respondent City Engineer to revoke subject building permit, respondent Intestate Estate brought a petition for mandamus with prayer for a writ of preliminary injunction against the City Engineer. Petitioners Sy Yong Hu and Sons, the owners of the building sought to be padlocked, were not impleaded as party to the petition and were not notified of the scheduled hearing thereon. Subsequently, the Regional Trial Court issued an order for the issuance of a writ of preliminary injunction ordering the City Engineer to padlock the building. However, upon motion filed by respondent Intestate Estate, the trial judge issued an order modifying the earlier Writ of Preliminary Injunction by directing the City Engineer to order the stoppage of all construction work on the building, and commanding discontinuance of the occupancy thereof because of alleged violation of certain provisions of the Building Code. Petitioners filed a Petition for Certiorariwith Preliminary Injunction with the respondent Court of Appeals. The appellate court issued a Temporary Restraining Order enjoining the respondent judge from implementing the questioned orders. The appellate court rendered its decision denying the petition. Hence, this petition.

The Supreme Court granted the petition. The Court ruled that the trial court acted without jurisdiction when it failed to give petitioners their day in court to be heard before they were condemned for the alleged violation of certain provisions of the Building Code. It stressed that being the owner of the building, petitioners possess property rights which cannot be arbitrarily interfered with without running afoul with the due process rule enshrined in the Bill of Rights. For failure to observe due process, respondent trial court acted without jurisdiction. The Court is also at loss as to the basis of respondent judge in issuing the writ of preliminary injunction. The Court found that the Intestate Estate made general allegations of hazard and serious damage to the public due to various violations of the provisions of the Building Code, but without any showing of any grave damage or injury it was bound to suffer should the writ not issue. The Court also noted with disapproval what the respondent court did in ordering the ejectment of the lawful owner and the occupants of the building by the simple expedient of issuing the said writ of preliminary injunction and reiterated its previous ruling and policy that courts should avoid issuing a writ of preliminary injunction which in effect disposes of the main case without trial.

SYLLABUS 1. CIVIL LAW; SPECIAL CONTRACTS; PARTNERSHIP; BASIC DISTINCTIONS UNDERLYING THE

PRINCIPLES OF DISSOLUTION, WINDING UP AND PARTITION OR DISTRIBUTION. - Petitioners fail to recognize the basic distinctions underlying the principles of dissolution, winding up and partition or distribution. 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 its

business. Upon its dissolution, the partnership continues and its legal personality is retained until the complete winding up of its business culminating in its termination. The dissolution of the partnership did not mean that the juridical entity was immediately terminated and that the distribution of the assets to its partners should perfunctorily follow. On the contrary, the dissolution simply effected a change in the relationship among the partners. The partnership, although dissolved, continues to exist until its termination, at which time the winding up of its affairs should have been completed and the net partnership assets are partitioned and distributed to the partners.

2. COMMERCIAL LAW; SECURITIES AND EXCHANGE COMMISSI ON; FROM THE TIME A DISSOLUTION IS ORDERED UNTIL THE TERMINATION OF THE PARTNERSHIP, THE COMMISSION RETAINED JURISDICTION TO ADJUDICATE ALL INCIDENTS RELATIVE THERETO; CASE AT BAR. - The error, therefore, ascribed to the Court of Appeals is devoid of any sustainable basis. The Abello Decision though, indeed, final and executory, did not pose any obstacle to the Hearing Officer to issue orders not inconsistent therewith. From the time a dissolution is ordered until the actual termination of the partnership, the SEC retained jurisdiction to adjudicate all incidents relative thereto. Thus, the disputed order placing the partnership under a receivership committee cannot be said to have varied the final order of dissolution. Neither did it suspend the dissolution of the partnership. If at all, it only suspended the partition and distribution of the partnership assets pending disposition of Civil Case No. 903 on the basis of the agreement by the parties and under the circumstances of the case. It bears stressing that, like the appointment of a manager in charge of the winding up of the affairs of the partnership, said appointment of a receiver during the pendency of the dissolution is interlocutory in nature, well within the jurisdiction of the SEC. Furthermore, having agreed with the respondents not to dispose of the partnership assets, petitioners effectively consented to the suspension of the winding up or, more specifically, the partition and distribution of subject assets. Petitioners are now estopped from questioning the order of the Hearing Officer issued in accordance with the said agreement.

3. REMEDIAL LAW; CIVIL PROCEDURE; PARTIES TO CIVIL ACTIONS; FAILURE TO IMPLEAD PETITIONERS AS INDISPENSABLE PARTIES CONSIDERED VIO LATION OF THEIR RIGHT TO DUE PROCESS; AS A RESULT, PETITIONERS ARE STRANGERS TO THE CASE AND ARE NOT BOUND BY JUDGMENT RENDERED BY THE COURT. - No matter how private respondent justifies its failure to implead the petitioners, the alleged violation of the provisions of the Building Code relative to the reconstruction of the building in question, by petitioners, did not warrant an ex parte and summary resolution of the petition. The violation of a substantive law should not be confused with punishment of the violator for such violation. The former merely gives rise to a cause of action while the latter is its effect, after compliance with the requirements of due process. The trial court failed to give petitioners their day in court to be heard before they were condemned for the alleged violation of certain provisions of the Building Code. Being the owner of the building in question and lessees thereon, petitioners possess property rights entitled to be protected by law. Their property rights cannot be arbitrarily interfered with without running afoul with the due process rule enshrined in the Bill of Rights. For failure to observe due process, the herein respondent court acted without jurisdiction. As a result, petitioners cannot be bound by its orders. Generally accepted is the principle that no man shall be affected by any proceeding to which he is a stranger, and strangers to a case are not bound by judgment rendered by the court.

4. ID.; SPECIAL CIVIL ACTIONS; INJUNCTION; GENERAL ALLEGATIONS OF HAZARD AND SERIOUS DAMAGE TO THE PUBLIC DUE TO VIOLATIONS OF V ARIOUS PROVISIONS OF THE BUILDING CODE, BUT WITHOUT ANY SHOWING OF ANY G RAVE DAMAGE OR INJURY IT WAS BOUND TO SUFFER SHOULD THE WRIT NOT ISSUE NO T SUFFICIENT BASIS FOR ISSUANCE THEREOF. - The trial court, in issuing the questioned order, ignored established principles relative to the issuance of a Writ of Preliminary Injunction. For the issuance of the writ of preliminary injunction to be proper, it must be shown that the invasion of the right sought to be protected is material and substantial, that the right of complainant is clear and unmistakable and that there is an urgent and paramount necessity for the writ to prevent serious damage. In light of the allegations supporting the prayer for the issuance of a writ of preliminary injunction, the Court is at a loss as to the basis of the respondent judge in issuing the same. What is clear is that complainant (now private respondent) therein, which happens to be a juridical person (Estate of Sy Yong Hu), made general allegations of hazard and serious damage to the public due to violations of various provisions of the Building Code, but without any showing of any grave damage or injury it was bound to suffer should the writ not issue.

5. ID.; ID.; COURTS SHOULD AVOID ISSUING A WRIT OF PRELIMINARY INJUNCTION WHICH IN EFFECT DISPOSES OF THE MAIN CASE WITHOUT TRIAL. - The Court notes, with disapproval, what the respondent court did in ordering the ejectment of the lawful owner and the occupants of the building, and disposed of the case before him even before it was heard on the merits by the simple expedient of issuing the said writ of preliminary injunction. In Ortigas & Company Limited Partnership vs. Court of Appeals, et al.this Court held that courts should avoid issuing a writ of preliminary injunction which in effect disposes of the main case without trial.

Syllabi/Synopsis

THIRD DIVISION

[G.R. No. 94285. August 31, 1999]

JESUS SY, JAIME SY, ESTATE OF JOSE SY, ESTATE OF VICENTE SY, HEIR OF MARCIANO SY represented by JUSTINA VDA. DE SY and WILLIE SY, petitioners, vs. THE COURT OF APPEALS, INTESTATE ESTATE OF SY YONG HU, SEC. HEARING OFFICER FELIPE TONGCO, SECURITIES AND EXCHANGE COMMISSION , respondents.

[G.R. No. 100313. August 31, 1999]

SY YONG HU & SONS, JOHN TAN, BACOLOD CANVAS AND UPHOLSTERY SUPPLY CO., AND NEGROS ISUZU SALES, petitioners, vs. HONORABLE COURT OF APPEALS (11th Division), INTESTATE ESTATE OF THE LATE SY YONG HU, JOSE FALSIS, JR., AND HON. BETHEL KATALBAS-MOSCARDON, RT C OF NEGROS OCCIDENTAL, Branch 51, respondents.

D E C I S I O N PURISIMA, J.:

At bar are two consolidated petitions for review on certiorari under Rule 45 of the Revised Rules of Court, docketed as G. R. Nos. 94285 and G.R. No. 100313, respectively, seeking to reinstate the Resolution of the Court of Appeals in CA - G. R. SP No. 17070 and its Decision in CA-G. R. SP No. 24189.

In G. R. No. 94285, the petitioners assail the Resolution[1] dated June 27, 1990 of the Court of Appeals granting the Motion for Reconsideration interposed by the petitioners (now the private respondents) of its Decision[2], promulgated on January 15, 1990, which affirmed the Order[3] issued on January 16, 1989 by the Securities and Exchange Commission (SEC) en banc and the Order[4] of SEC Hearing Officer Felipe Tongco, dated October 5, 1988,

The facts that matter are as follows:

Sy Yong Hu & Sons is a partnership of Sy Yong Hu and his sons, Jose Sy, Jayme Sy, Marciano Sy, Willie Sy, Vicente Sy, and Jesus Sy, registered with the SEC on March 29, 1962, with Jose Sy as managing partner. The partners and their respective shares are reflected in the Amended Articles of Partnership[5] as follows:

NAMES AMOUNT CONTRIBUTED

SY YONG HU P 31, 000. 00

JOSE S. SY 205, 000. 00

JAYME S. SY 112, 000. 00

MARCIANO S. SY 143, 000. 00

WILLIE S. SY 85, 000. 00

VICENTE SY 85, 000. 00

JESUS SY 88, 000. 00

Partners Sy Yong Hu, Jose Sy, Vicente Sy, and Marciano Sy died on May 18, 1978, August 12, 1978, December 30, 1979 and August 7, 1987, respectively.[6] At present, the partnership has valuable assets such as tracts of lands planted to sugar cane and commercial lots in the business district of Bacolod City.

Sometime in September, 1977, during the lifetime of all the partners, Keng Sian brought an action,[7] docketed as Civil Case No. 13388 before the then Court of First Instance of Negros Occidental, against the partnership as well as against the individual partners for accounting of all the properties allegedly owned in common by Sy Yong Hu and the plaintiff (Keng Sian), and for the delivery or reconveyance of her one-half (1/2) share in said properties and in the fruits thereof. Keng Sian averred that she was the common law wife of partner Sy Yong Hu, that Sy Yong Hu, together with his children,[8] who were partners in the partnership, connived to deprive her of her share in the properties acquired during her cohabitation with Sy Yong Hu, by diverting such properties to the partnership.[9]

In their answer dated November 3, 1977, the defendants, including Sy Yong Hu himself, countered that Keng Sian is only a house helper of Sy Yong Hu and his wife, subject properties

“are exclusively owned by defendant partnership, and plaintiff has absolutely no right to or interest therein.”[10]

On September 20, 1978, during the pendency of said civil case, Marciano Sy filed a petition for declaratory relief against partners Vicente Sy, Jesus Sy and Jayme Sy, docketed as SEC Case No. 1648, praying that he be appointed managing partner of the partnership, to replace Jose Sy who died on August 12, 1978. Answering the petition, Vicente Sy, Jesus Sy and Jaime Sy, who claim to represent the majority interest in the partnership, sought the dissolution of the partnership and the appointment of Vicente Sy as managing partner. In due time, Hearing Officer Emmanuel Sison came out with a decision[11] (Sison Decision) dismissing the petition, dissolving the partnership and naming Jesus Sy, in lieu of Vicente Sy who had died earlier, as the managing partner in charge of winding the affairs of the partnership.

The Sison decision was affirmed in toto by the SEC en banc in a decision[12] (Abello decision) dated June 8, 1982, disposing thus:

“WHEREFORE, the Commission en banc affirms the dispositive portion of the decision of the Hearing Officer, but clarifies that: (1) the partnership was dissolved by express will of the majority and not ipso facto because of the death of any partner in view of the stipulation of Articles of Partnership and the provisions of the New Civil Code particularly Art. 1837 [2] and Art. 1841. (2) The Managing Partner designated by the majority, namely Jesus Sy, vice Vicente Sy (deceased) shall only act as a manager in liquidation and he shall submit to the Hearing Officer an accounting and a project of partition, within 90 days from receipt of this decision. (3) The petitioner is also required within the same period to submit his counter-project of partition, from date of receipt of the Managing Partner’s project of partition. (4) The case is remanded to the Hearing Officer for evaluation and approval of the accounting and project of partition.”

On the basis of the above decision of the SEC en banc, Hearing Officer Sison approved a partial partition of certain partnership assets in an order[13] dated December 2, 1986. Therefrom, respondents seasonably appealed.

In 1982, the children of Keng Sian with Sy Yong Hu, namely, John Keng Seng, Carlos Keng Seng, Tita Sy, Yolanda Sy and Lolita Sy, filed a petition, docketed as SEC Case No 2338, to revoke the certificate of registration of Sy Yong Hu & Sons, and to have its assets reverted to the estate of the late Sy Yong Hu. After hearings, the petition was dismissed by Hearing Officer Bernardo T. Espejo in an Order, dated January 11, 1984, which Order became final since no appeal was taken therefrom.[14]

After the dismissal of SEC Case No. 2338, the children of Keng Sian sought to intervene in SEC Case No. 1648 but their motion to so intervene was denied in an Order dated May 9, 1985. There was no appeal from said order.[15]

In the meantime, Branch 43 of the Regional Trial Court of Negros Occidental appointed one Felix Ferrer as a Special Administrator for the Intestate Estate of Sy Yong Hu in Civil Case No. 13388. Then, on August 30, 1985, Alex Ferrer moved to intervene in the proceedings in SEC

Case No. 1648, for the partition and distribution of the partnership assets, on behalf of the respondent Intestate Estate.[16]

It appears that sometime in December, 1985, Special Administrator Ferrer filed an Amended Complaint on behalf of respondent Intestate Estate in Civil Case No. 13388, wherein he joined Keng Sian as plaintiff and thereby withdrew as defendant in the case. Special Administrator Ferrer adopted the theory of Keng Sian that the assets of the partnership belong to Keng Sian and Sy Yong Hu (now represented by the Estate of Sy Yong Hu) in co-ownership, which assets were wrongfully diverted in favor of the defendants.[17]

The motion to intervene in SEC Case No. 1648, filed by Special Administrator Alex Ferrer on behalf of the respondent Estate, was denied in the order issued on May 9, 1986 by Hearing Officer Sison. With the denial of the motion for reconsideration, private respondent Intestate Estate of Sy Yong Hu appealed to the Commission en banc.

In its decision (Sulit decision) on the aforesaid appeal from the Order dated May 9, 1986, and the Order dated December 2, 1986, the SEC en banc[18] ruled:

“WHEREFORE, in the interest of Justice and equity, substantive rights of due process being paramount over the rules of procedure, and in order to avoid multiplicity of suits; the order of the hearing officer below dated May 9, 1986 denying the motion to intervene in SEC Case No. 1648 of appellant herein as well as the order dated December 2, 1986[19] denying the motion for reconsideration are hereby reversed and the motion to intervene given due course. The instant case is hereby remanded to the hearing officer below for further proceeding on the aspect of partition and/or distribution of partnership assets. The urgent motion for the issuance of a restraining order is likewise hereby remanded to the hearing officer below for appropriate action.[20]”

The said decision of the SEC en banc reiterated that the Abello decision of June 8, 1982, which upheld the order of dissolution of the partnership, had long become final and executory. No further appeal was taken from the Sulit Decision.

During the continuation of the proceedings in SEC Case No. 1648, now presided over by Hearing Officer Felipe S. Tongco who had substituted Hearing Officer Sison, the propriety of placing the Partnership under receivership was taken up. The parties brought to the attention of the Hearing Officer the fact of existence of Civil Case No. 903 (formerly Civil Case No. 13388) pending before the Regional Trial Court of Negros Occidental. They also agreed that during the pendency of the aforesaid court case, there will be no disposition of the partnership assets.[21] On October 5, 1988, Hearing Officer Tongco came out with an Order[22] (Tongco Order) incorporating the above submissions of the parties and placing[23] the partnership under a receivership committee, explaining that “it is the most equitable fair and just manner to preserve the assets of the partnership during the pendency of the civil case in the Regional Trial Court of Bacolod City.”

On October 22, 1988, a joint Notice of Appeal to the SEC en banc was filed by herein petitioners Jayme Sy, Jesus Sy, Estate of Jose Sy, Estate of Vicente Sy, Heirs of Marciano Sy (represented by Justina Vda. de Sy), and Willie Sy, against the Intervenor (now private

respondent). In an order (Lopez Order) dated January 16, 1989, the SEC en banc[24]affirmed the Tongco Order.

With the denial of their Motion for Reconsideration,[25] petitioners filed a special civil action for certiorari with the Court of Appeals.

On January 15, 1990, the Court of Appeals granted the petition and set aside the Tongco and Lopez Orders, and remanded the case for further execution of the 1982 Abello and 1988 Sulit Decisions, ordering the partition and distribution of the partnership properties.[26]

Private respondent seasonably interposed a motion for reconsideration of such decision of the Court of Appeals.

Acting thereupon on June 27, 1990, the Court of Appeals issued its assailed Resolution, reversing its Decision of January 15, 1990, and remanding the case to the SEC for the formation of a receivership committee, as envisioned in the Tongco Order.

G. R. No. 100313 came about in view of the dismissal by the Court of Appeals[27] of the Petition for Certiorari with a Prayer for Preliminary Injunction, docketed as CA-G. R. SP No. 24189, seeking to annul and set aside the orders, dated January 24, 1991 and April 19, 1989, respectively, in Civil Case No. 5326 before the Regional Trial Court of Bacolod City.

The antecedent facts are as follows:

Sometime in June of 1988, petitioner Sy Yong Hu & Sons through its Managing Partner, Jesus Sy, applied for a building permit to reconstruct its building calledSy Yong Hu & Sons Building, located in the central business district of Bacolod City, which had been destroyed by fire in the late 70’s. On July 5, 1988, respondent City Engineer issued Building Permit No. 4936 for the reconstruction of the first two floors of the building. Soon thereafter, reconstruction work began. In January, 1989, upon completion of its reconstruction, the building was occupied by the herein petitioners, Bacolod and Upholstery Supply Company and Negros Isuzu Sales, which businesses are owned by successors-in-interest of the deceased partners Jose Sy and Vicente Sy. Petitioner John Tan, who is also an occupant of the reconstructed building, is the brother-in-law of deceased partner Marciano Sy.[28]

From the records on hand, it can be gleaned that the Tongco Order[29], dated October 5, 1988, in SEC Case No. 1648, had, among others, denied a similar petition of the intervenors therein (now private respondents) for a restraining order and/or injunction to enjoin the reconstruction of the same building. However, on October 10, 1988, respondent Intestate Estate sent a letter to the City Engineer claiming that Jesus Sy is not authorized to act for petitioners Sy Yong Hu & Sons with respect to the reconstruction or renovation of the property of the partnership. This was followed by a letter dated November 11, 1988, requesting the revocation of Building Permit No. 4936.

Respondent City Engineer inquired[30] later from Jesus Sy for an “authority to sign for and on behalf of Sy Yong Hu & Sons” to justify the latter’s signature in the application for the building permit, informing him that absent any proof of his authority, he would not be issued an occupancy permit.[31] On December 27, 1988, respondent Intestate Estate reiterated its objection to the authority of Jesus Sy to apply for a building permit and pointing out that in view of the creation of a receivership committee, Jesus Sy no longer had any authority to act for the partnership.[32]

In reply, Jesus Sy informed the City Engineer that the Tongco Order had been elevated to the SEC en banc, making him still the authorized manager of the partnership. He then requested that an occupancy permit be issued as Sy Yong Hu & Sons had complied with the requirements of the City Engineer’s Office and the National Building Code.[33]

Unable to convince the respondent City Engineer to revoke subject building permit, respondent Intestate Estate brought a “Petition for Mandamus with prayer for a Writ of Preliminary Injunction,” docketed as Civil Case No 5326 before the Regional Trial Court of Bacolod City and entitled “Intestate Estate of the Late Sy Yong Hu vs. Engineer Jose P. Falsis, Jr.” [34] The Complaint concluded with the following prayer:

“WHEREFORE PREMISES CONSIDERED, it is respectfully prayed of the Honorable Court that:

1. A writ of Preliminary Injunction be issued to the respondent, after preliminary hearing is had. compelling his office to padlock the premises occupied, without the requisite Certificate of Occupancy; to stop all construction activities, and barricade the same premises so that the unwary public will not be subject to undue hazards due to lack of requisite safety precaution;

2. The Respondent be ordered to enforce without exemption every requisite provision of the Building Code as so mandated by it.”[35]

Petitioners Sy Yong Hu & Sons, the owners of the building sought to be padlocked were not impleaded as party to the petition dated February 22, 1989. Neither were the lessees-occupants thereon so impleaded. Thus, they were not notified of the hearing scheduled for April 5, 1989, on which date the Petition was heard. Subsequently, however, the Regional Trial Court issued an order dated April 19, 1989 for the issuance of a Writ of Preliminary Mandatory Injunction ordering the City Engineer to padlock the building.[36]

On May 9, 1989, upon learning of the issuance of the Writ of Preliminary Injunction, dated May 4, 1989, petitioners immediately filed the: (1) Motion for Intervention; (2) Answer in Intervention; and (3) Motion to set aside order of mandatory injunction. In its order dated June 22, 1989, the Motion for Intervention was granted by the lower court through Acting Presiding Judge Porfirio A. Parian.

On August 3, 1989, respondent Intestate Estate presented a Motion to cite Engineer Jose Falsis, Jr. in contempt of court for failure to implement the injunctive relief.

On August 15, 1989, petitioners submitted an “Amended Answer in Intervention”. Reacting thereto, respondent Intestate Estate filed a “Motion to Strike or Expunge from the Record” the Amended Answer in Intervention.[37]

On January 25, 1990, petitioner Sy Yong Hu & Sons again wrote the respondent City Engineer to reiterate its request for the immediate issuance of a certificate of occupancy, alleging that the Court of Appeals in its Decision of January 15, 1990 in CA-G. R. No. 17070 had reversed the SEC decision which approved the appointment of a receivership committee. However, the City Engineer refused to issue the Occupancy Permit without the

conformity of the respondent Intestate Estate and one John Keng Seng who claims to be an Illegitimate son of the Late Sy Yong Hu.[38]

In an order issued on January 24, 1991 upon an “Ex Parte Motion to Have All Pending Incidents Resolved” filed by respondent Intestate Estate, Judge Bethel Katalbas-Moscardon issued an order modifying the Writ of Preliminary Mandatory Injunction, and directing the respondent City Engineer to:

“x x x immediately order stoppage of any work affecting the construction of the said building under Lot 259-A-2 located at Gonzaga Street adjacent to the present Banco de Oro Building, BACOLOD City, to cancel or cause to be cancelled the Building Permit it had issued; to order the discontinuance of the occupancy or use of said building or structure or portion thereof found to be occupied or used, the same being contrary and violative of the provisions of the Code; and to desist from issuing any certificate of Occupancy until the merits of this case can finally be resolved by this Court. x x x

“Again, it is emphasized that the issue involved is solely question of law and the Court cannot see any logical reason that the intervenors should be allowed to intervene as earlier granted in the Order of the then Presiding Judge Porfirio A. Parian, of June 22, 1989. Much less for said intervenors to move for presentation of additional parties, only on the argument of Intervenors that any restraining order to be issued by this Court upon the respondent would prejudice their present occupancy which is self serving, whimsical and in fact immoral. It is axiomatic that the means would not justify the end nor the end justify the means. Assuming damage to the present occupants will occur and assuming further that they are entitled, the same should be ventilated in a different action against the lessor or landlord, and the present petition cannot be the proper forum, otherwise, while it maybe argued that there is a multiplicity of suit which actually is groundless, on the other hand, there will be only confusion of the issues to be resolved by the Court. Well valid enough is to reiterate that the present petition is not the proper forum for the intervenors to shop for whatever relief.

“In view of the above, the Order allowing the intervenors in this case is likewise hereby withdrawn for the purposes above discussed. Consequently, the Motion to present additional parties is deemed denied, and the Motion to Strike Or Expunge From The Records the Amended Answer In Intervention is deemed granted as in fact the same become moot and academic with the elimination of the Intervenors in this case.”[39]

Pursuant to the above Order of January 24, 1991, respondent City Engineer served a notice upon petitioners revoking Building Permit No. 4936, ordering the stoppage of all construction work on the building, and commanding discontinuance of the occupancy thereof.

On February 15, 1991, the aggrieved petitioners filed a Petition for Certiorari with Prayer for Preliminary Injunction with the Court of Appeals, docketed as CA-G. R. SP No. 24189.

On February 27, 1991, the Court of Appeals issued a Temporary Restraining Order enjoining the respondent Judge from implementing the questioned orders dated January 24, 1991 and April 19, 1989.[40]

After the respondents had sent in their answer, petitioners filed a Reply with a prayer for the issuance of a writ of mandamus directing the respondent City Engineer to reissue the building permit previously issued in favor of petitioner Sy Yong Hu & Sons, and to issue a certificate of occupancy on the basis of the admission by respondent City Engineer that petitioner had complied with the provisions of the National Building Code.[41]

On May 31, 1991, the Court of Appeals rendered its questioned decision denying the petition.[42]

From the Resolution of the Court of Appeals granting the motion for reconsideration in CA-G. R. SP No. 17070 and the Decision in CA-G. R. SP No. 24189, petitioners have come to this Court for relief.

In G. R. No. 94285, petitioners contend by way of assignment of errors,[43] that:

I

RESPONDENT COURT OF APPEALS ERRED IN REVERSING ITS MAIN DECISION IN CA-G. R. No. 17070, WHICH DECISION HAD REMANDED TO THE SEC THE CASE FOR THE PROPER IMPLEMENTATION OF THE 1982 ABELLO AND 1988 SULIT DECISIONS WHICH IN TURN ORDERED THE DISTRIBUTION AND PARTITION OF THE PARTNERSHIP PROPERTIES.

II

RESPONDENT COURT OF APPEALS ERRED IN REINSTATING THE TONGCO ORDER, WHICH HAD SUSPENDED THE DISSOLUTION OF THE PARTNERSHIP AND THE DISTRIBUTION OF ITS ASSETS, AND IN PLACING THE PARTNERSHIP PROPERTIES UNDER RECEIVERSHIP PENDING THE RESOLUTION OF CIVIL CASE NO. 903 (13388), ON A GROUND NOT MADE THE BASIS OF THE SEC RESOLUTION UNDER REVIEW, I. E., THE DISPOSITION BY A PARTNER OF SMALL PROPERTIES ALREADY ADJUDICATED TO HIM BY A FINAL SEC ORDER DATED DECEMBER 2, 1986 AND MADE LONG BEFORE THE AGREEMENT OF JUNE 28, 1988 OF THE PETITIONERS NOT TO DISPOSE OF THE PARTNERSHIP ASSETS.

In G. R. No. 100313, Petitioners assign as errors, that:[44]

I

THE HONORABLE COURT OF APPEALS (ELEVENTH DIVISION) ERRED IN HOLDING THAT RESPONDENT JUDGE DID NOT ACT WITHOUT JURISDICTION AND WITH GRAVE ABUSE OF JURISDICTION IN ISSUING THE WRIT OF PRELIMINARY MANDATORY INJUNCTION.

II

THE HONORABLE COURT OF APPEALS (ELEVENTH DIVISION) ERRED IN HOLDING THAT THE RESPONDENT JUDGE DID NOT ACT WITHOUT JURISDICTION AND WITH GRAVE ABUSE OF DISCRETION IN DISALLOWING THE INTERVENTION OF PETITIONERS IN CIVIL CASE NO. 5326.

III

THE LOWER COURT ACTED WITH GRAVE ABUSE OF DISCRETION IN ISSUING AND ORDERING THE IMPLEMENTATION OF THE WRIT OF PRELIMINARY MANDATORY INJUNCTION DESPITE THE ABSENCE OR LACK OF AN INJUNCTION BOND.[45]

On the two (2) issues raised in G. R. No. 94285, the Court rules for respondents.

Petitioners fault the Court of Appeals for affirming the 1989 Decision of the SEC which approved the appointment of a receivership committee as ordered by Hearing Officer Felipe Tongco. They theorize that the 1988 Tongco Decision varied the 1982 Abello Decision affirming the dissolution of the partnership, contrary to the final and executory tenor of the said judgment. To buttress their theory, petitioners offer the 1988 Sulit Decision which, among others, expressly confirmed the finality of the Abello Decision.

On the same premise, petitioners aver that when Hearing Officer Tongco took over from Hearing Officer Sison, he was left with no course of action as far as the proceedings in the SEC Case were concerned other than to continue with the partition and distribution of the partnership assets. Thus, the Order placing the partnership under a receivership committee was erroneous and tainted with excess of jurisdiction.

The contentions are untenable. Petitioners fail to recognize the basic distinctions underlying the principles of dissolution, winding up and partition or distribution. 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 its business. Upon its dissolution, the partnership continues and its legal personality is retained until the complete winding up of its business culminating in its termination.[46]

The dissolution of the partnership did not mean that the juridical entity was immediately terminated and that the distribution of the assets to its partners should perfunctorily follow. On the contrary, the dissolution simply effected a change in the relationship among the partners. The partnership, although dissolved, continues to exist until its termination, at which

time the winding up of its affairs should have been completed and the net partnership assets are partitioned and distributed to the partners.[47]

The error, therefore, ascribed to the Court of Appeals is devoid of any sustainable basis. The Abello Decision though, indeed, final and executory, did not pose any obstacle to the Hearing Officer to issue orders not inconsistent therewith. From the time a dissolution is ordered until the actual termination of the partnership, the SEC retained jurisdiction to adjudicate all incidents relative thereto. Thus, the disputed order placing the partnership under a receivership committee cannot be said to have varied the final order of dissolution. Neither did it suspend the dissolution of the partnership. If at all, it only suspended the partition and distribution of the partnership assets pending disposition of Civil Case No. 903 on the basis of the agreement by the parties and under the circumstances of the case. It bears stressing that, like the appointment of a manager in charge of the winding up of the affairs of the partnership, said appointment of a receiver during the pendency of the dissolution is interlocutory in nature, well within the jurisdiction of the SEC.

Furthermore, having agreed with the respondents not to dispose of the partnership assets, petitioners effectively consented to the suspension of the winding up or, more specifically, the partition and distribution of subject assets. Petitioners are now estopped from questioning the order of the Hearing Officer issued in accordance with the said agreement.[48]

Petitioners also assail the propriety of the receivership theorizing that there was no necessity therefor, and that such remedy should be granted only in extreme cases, with respondent being duty-bound to adduce evidence of the grave and irremediable loss or damage which it would suffer if the same was not granted. It is further theorized that, at any rate, the rights of respondent Intestate Estate are adequately protected since notices of lis pendens of the aforesaid civil case have been annotated on the real properties of the partnership.[49]

To bolster petitioners' contention, they maintain that they are the majority partners of the partnership Sy Yong Hu & Sons controlling Ninety Six per cent (96%) of its equity. As such, they have the greatest interest in preserving the partnership properties for themselves,[50] and therefore, keeping the said properties in their possession will not bring about any feared damage or dissipation of such properties, petitioner’s stressed.

Sec. (6) of Presidential Decree No. 902-A, as amended, reads:

“SEC. 6. In order to effectively exercise such jurisdiction, the Commission shall possess the following powers:

xxx xxx xxx

“(c) To appoint one or more receivers of the property, real or personal, which is the subject of the action pending before the commission in accordance with the pertinent provisions of the Rules of Court, and in such other cases, whenever necessary in order to preserve the rights of parties-litigants and/or protect the interest of the investing public and creditors; xxx.”

The findings of the Court of Appeals accord with existing rules and jurisprudence on receivership. Conformably, it stated that:[51]

“ x x x From a reexamination of the issues and the evidences involved, We find merit in respondent’s motion for reconsideration.

”This Court notes with special attention the order dated June 28, 1988 issued by Hearing Officer Felipe S. Tongco in SEC Case No. 1648 (Annex to Manifestation, June 16, 1990) wherein all the parties agreed on the following:

‘1. That there is a pending case in court wherein the plaintiffs are claiming in their complaint that all the assets of the partnership belong to Sy Yong Hu;

‘2. That the parties likewise agreed that during the pendency of the court case, there will be no disposition of the partnership assets and further hearing is suspended. x x x’

“As observed by the SEC Commission (sic) in its Order dated January 16, 1989:

‘Ordinarily, appellants’ contention would be correct, except that the en banc order of April 29th appears to have been overtaken, and accordingly, rendered inappropriate, by subsequent developments in SEC Case No. 1648, particularly the entry in that proceedings, as of April 29, 1988, of an intervenor who claims a superior and exclusive ownership right to all the partnership assets and property. This claim of superior ownership right is presently pending adjudication before the Regional Trial Court of Negros Occidental, And precisely because if this supervening development, it would appear that the parties in SEC Case No. 1648 agreed among themselves, as of June 28, 1988, that during the pendency of the Negros Occidental case just mentioned, there should be no disposition of partnership assets or property, and further, that the proceedings in SEC Case No. 1648 should be suspended in the meantime’ (p. 2, Order; p. 12, Rollo)

“As alleged by the respondents and as shown by the records there is now pending civil case entitled “Keng Sian and Intestate of Sy Yong Hu vs. Jayme Sy, Jesus Sy, Marciano Sy, Willy Sy, Intestate of Jose Sy, Intestate of Vicente Sy, Sy Yong Hu & co and Sy Yong Hu & Sons’ denominated as Civil Case No. 903 before Branch 50 of the Regional Trial Court of Bacolod City.

“Moreover, a review of the records reveal that certain properties in question have already been sold as of 1987, as evidenced by deeds of absolute sale executed by Jesus in favor of Reynaldo Navarro (p. 331, Rollo), among others.

“To ensure that no further disposition shall be made of the questioned assets and in view of the pending civil case in the lower court, there is a compelling necessity to place all these properties and assets under the management of a receivership committee. The receivership committee, which will provide active participation, through a designated representative, on the part of all interested parties, can best protect the properties involved and assure fairness and equity for all.”

Receivership, which is admittedly a harsh remedy, should be granted with extreme caution.[52] Sound bases therefor must appear on record, and there should be a clear showing of its necessity.[53] The need for a receivership in the case under consideration can be gleaned from the aforecited disquisition by the Court of Appeals finding that the properties of the partnership were in danger of being damaged or lost on account of certain acts of the appointed manager in liquidation.

The dispositions of certain properties by the said manager, on the basis of an order of partial partition, dated December 2, 1986, by Hearing Officer Sison, which was not yet final and executory, indicated that the feared irreparable injury to the properties of the partnership might happen again. So also, the failure of the manager in liquidation to submit to the SEC an accounting of all the partnership assets as required in its order of April 29, 1988, justified the SEC in placing the subject assets under receivership.

Moreover, it has been held by this Court that an order placing the partnership under receivership so as to wind up its affairs in an orderly manner and to protect the interest of the plaintiff (herein private respondent) was not tainted with grave abuse of discretion.[54] The allegation that respondents’ rights are adequately protected by the notices of lis pendens in Civil Case 903 is inaccurate. As pointed out in their Comment to the Petition, the private respondents claim that the partnership assets include the income and fruits thereof. Therefore, protection of such rights and preservation of the properties involved are best left to a receivership committee in which the opposing parties are represented.

What is more, as held in Go Tecson vs. Macaraig: [55]

“The power to appoint a receiver pendente lite is discretionary with the judge of the court of first instance; and once the discretion is exercised, the appellate court will not interfere, except in a clear case of abuse thereof, or an extra limitation of jurisdiction. “

Here, no clear abuse of discretion in the appointment of a receiver in the case under consideration can be discerned.

With respect to G. R. No. 100313.[56]

Petitioners argue in this case that the failure of the private respondents to implead them in Civil Case No. 5326 constituted a violation of due process. It is their submission that the ex parte grant of said petition by the trial court worked to their prejudice as they were deprived of an opportunity to be heard on the allegations of the petition concerning subject property and assets. The recall of the order granting their Motion to Intervene was done without the observance of due process and consequently without jurisdiction on the part of the lower court.

Commenting on the Petition, private respondents maintain that the only issue in the present case is whether or not there was a violation of the Building Code. They contend that after due and proper hearing before the lower court, it was fully established that the provisions of the said Code had been violated, warranting issuance of the Writ of Preliminary Injunction dated April 19, 1989. They further asseverate that the petitioners, who are the owner and lessees in the building under controversy, have nothing to do with the case for mandamus since it is directed against the respondent building official to perform a specific duty mandated by the provisions of the Building Code.

In his Comment, the respondent City Engineer, relying on the validity of the order of the trial court to padlock the building, denied any impropriety in his compliance with the said order.

After a careful examination of the records on hand, the Court finds merit in the petition.

In opposing the petition, respondent intestate estate anchors its stance on the existence of violations of pertinent provisions of the aforesaid Code. As regards due process, however, a distinction must be made between matters of substance.[57] In essence, procedural due process “refers to the method or manner by which the law is enforced,” while substantive due process “requires that the law itself, not merely the procedure by which the law would be enforced, is fair, reasonable, and just”.[58] Although private respondent upholds the substantive aspect of due process, it, in the same breath, brushes aside its procedural aspect, which is just as important, if the constitutional injunction against deprivation of property without due process is to be observed.

Settled is the rule that the essence of due process is the opportunity to be heard. Thus, in Legarda vs. Court of Appeals et al.,[59] the Court held that as long as a party was given the opportunity to defend her interest in due course, he cannot be said to have been denied due process of law.

Contrary to these basic tenets, the trial court gave due course to the petition for mandamus, and granted the prayer for the issuance of a writ of preliminary injunction on May 4, 1989, notwithstanding the fact that the owner (herein petitioner Sy Yong Hu) of the building and its occupants[60] were not impleaded as parties in the case. Affirming the same, the Court of Appeals acknowledged that the lower court came out with the said order upon the testimony of the lone witness for the respondent, in the person of the City Engineer, whose testimony was not effectively traversed by the petitioners. This conclusion arrived at by the Court of Appeals is erroneous in the face of the irrefutable fact that the herein petitioners were not made parties in the said case and, consequently, had absolutely no opportunity to cross examine the witness of private respondent and to present contradicting evidence.

To be sure, the petitioners are indispensable parties in Civil Case No. 5326, which sought to close subject building. Such being the case, no final determination of the claims thereover could be had.[61] That the petition for mandamus with a prayer for the issuance of a writ of preliminary mandatory injunction was only directed against the City Engineer is of no moment. No matter how private respondent justifies its failure to implead the petitioners, the alleged violation of the provisions of the Building Code relative to the reconstruction of the building in question, by petitioners, did not warrant an ex parte and summary resolution of the petition. The violation of a substantive law should not be confused with punishment of the violator for such violation. The

former merely gives rise to a cause of action while the latter is its effect, after compliance with the requirements of due process.

The trial court failed to give petitioners their day in court to be heard before they were condemned for the alleged violation of certain provisions of the Building Code. Being the owner of the building in question and lessees thereon, petitioners possess property rights entitled to be protected by law. Their property rights cannot be arbitrarily interfered with without running afoul with the due process rule enshrined in the Bill of Rights.

For failure to observe due process, the herein respondent court acted without jurisdiction. As a result, petitioners cannot be bound by its orders. Generally accepted is the principle that no man shall be affected by any proceeding to which he is a stranger, and strangers to a case are not bound by judgment rendered by the court.[62]

In similar fashion, the respondent court acted with grave abuse of discretion when it disallowed the intervention of petitioners in Civil Case No. 5326. As it was, the issuance of the Writ of Preliminary Injunction directing the padlocking of the building was improper for non-conformity with the rudiments of due process.

Parenthetically, the trial court, in issuing the questioned order, ignored established principles relative to the issuance of a Writ of Preliminary Injunction. For the issuance of the writ of preliminary injunction to be proper, it must be shown that the invasion of the right sought to be protected is material and substantial, that the right of complainant is clear and unmistakable and that there is an urgent and paramount necessity for the writ to prevent serious damage.[63]

In light of the allegations supporting the prayer for the issuance of a writ of preliminary injunction, the Court is at a loss as to the basis of the respondent judge in issuing the same. What is clear is that complainant (now private respondent) therein, which happens to be a juridical person (Estate of Sy Yong Hu), made general allegations of hazard and serious damage to the public due to violations of various provisions of the Building Code, but without any showing of any grave damage or injury it was bound to suffer should the writ not issue.

Finally, the Court notes, with disapproval, what the respondent court did in ordering the ejectment of the lawful owner and the occupants of the building, and disposed of the case before him even before it was heard on the merits by the simple expedient of issuing the said writ of preliminary injunction. In Ortigas & Company Limited Partnership vs. Court of Appeals et al. this Court held that courts should avoid issuing a writ of preliminary injunction which in effect disposes of the main case without trial.[64]

Resolution of the third issue has become moot and academic in view of the Court’s finding of grave abuse of discretion tainting the issuance of the Writ of Preliminary Injunction in question.

WHEREFORE , the Resolution of the Court of Appeals in CA-G. R. No. 17070 is AFFIRMED and its Decision in CA-G. R. No. 24189 REVERSED. No pronouncement as to costs.

SO ORDERED.

Melo, (Chairman), Vitug, Panganiban, and Gonzaga-Reyes, JJ., concur.

SECOND DIVISION

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

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

D E C I S I O N DE LEON, JR., J.:

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

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

The facts are:

Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the common-law spouse of the decedent, joined by their children Teresita, Nena, Clarita, Carlos, Corazon and Elpidio, collectively known as herein petitioners HEIRS OF TAN ENG KEE, filed suit against the decedent’s brother TAN ENG LAY on February 19, 1990. The complaint,[3] docketed as Civil Case No. 1983-R in the Regional Trial Court of Baguio City was for accounting, liquidation and winding up of the alleged partnership formed after World War II between Tan Eng Kee and Tan Eng Lay. On March 18, 1991, the petitioners filed an amended complaint[4] impleading private respondent herein BENGUET LUMBER COMPANY, as represented by Tan Eng Lay. The amended complaint was admitted by the trial court in its Order dated May 3, 1991.[5]

The amended complaint principally alleged that after the second World War, Tan Eng Kee and Tan Eng Lay, pooling their resources and industry together, entered into a partnership engaged in the business of selling lumber and hardware and construction supplies. They named their enterprise “Benguet Lumber” which they jointly managed until Tan Eng Kee’s death. Petitioners herein averred that the business prospered due to the hard work and thrift of the alleged partners. However, they claimed that in 1981, Tan Eng Lay and his children caused the conversion of the partnership “Benguet Lumber” into a corporation called “Benguet Lumber Company.” The incorporation was purportedly a ruse to deprive Tan Eng Kee and his heirs of their rightful participation in the profits of the business. Petitioners prayed for accounting of the partnership assets,

and the dissolution, winding up and liquidation thereof, and the equal division of the net assets of Benguet Lumber.

After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment[6]on April 12, 1995, to wit:

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

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

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

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

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

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

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

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

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

SO ORDERED.

Private respondent sought relief before the Court of Appeals which, on March 13, 1996, rendered the assailed decision reversing the judgment of the trial

court. Petitioners’ motion for reconsideration[7] was denied by the Court of Appeals in a Resolution[8] dated October 11, 1996.

Hence, the present petition.

As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 against Tan Eng Lay and Wilborn Tan for the use of allegedly falsified documents in a judicial proceeding. Petitioners complained that Exhibits “4” to “4-U” offered by the defendants before the trial court, consisting of payrolls indicating that Tan Eng Kee was a mere employee of Benguet Lumber, were fake, based on the discrepancy in the signatures of Tan Eng Kee. They also filed Criminal Cases Nos. 78857-78870 against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary and Willy, all surnamed Tan, for alleged falsification of commercial documents by a private individual. On March 20, 1999, the Municipal Trial Court of Baguio City, Branch 1, wherein the charges were filed, rendered judgment[9] dismissing the cases for insufficiency of evidence.

In their assignment of errors, petitioners claim that:

I

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

II

THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THE SELF-SERVING TESTIMONY OF RESPONDENT TAN ENG LAY THAT BENGUET LUMBER WAS A SOLE PROPRIETORSHIP AND THAT TAN ENG KEE WAS ONLY AN EMPLOYEE THEREOF.

III

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE FOLLOWING FACTS WHICH WERE DULY SUPPORTED BY EVIDENCE OF BOTH PARTIES DO NOT SUPPORT THE EXISTENCE OF A PARTNERSHIP JUST BECAUSE THERE WAS NO ARTICLES OF PARTNERSHIP DULY RECORDED BEFORE THE SECURITIES AND EXCHANGE COMMISSION:

a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE ALL LIVING AT THE BENGUET LUMBER COMPOUND;

b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE COMMANDING THE EMPLOYEES OF BENGUET LUMBER;

c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING THE EMPLOYEES THEREIN;

d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES DETERMINING THE PRICES OF STOCKS TO BE SOLD TO THE PUBLIC; AND

e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING ORDERS TO THE SUPPLIERS (PAGE 18, DECISION).

IV

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP JUST BECAUSE THE CHILDREN OF THE LATE TAN ENG KEE: ELPIDIO TAN AND VERONICA CHOI, TOGETHER WITH THEIR WITNESS BEATRIZ TANDOC, ADMITTED THAT THEY DO NOT KNOW WHEN THE ESTABLISHMENT KNOWN IN BAUGIO CITY AS BENGUET LUMBER WAS STARTED AS A PARTNERSHIP (PAGE 16-17, DECISION).

V

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

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

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

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

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

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

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

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

(5) when the appellate court, in making its findings, goes beyond the issues of the case, and such findings are contrary to the admissions of both appellant and appellee;

(6) when the judgment of the Court of Appeals is premised on a misapprehension of facts;

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

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

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

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

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

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

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

xxx xxx xxx xxx

We have the admission that the father of the plaintiffs was not a partner of the Benguet Lumber before the war. The appellees however argued that (Rollo, p. 104; Brief, p. 6) this is because during the war, the entire stocks of the pre-war Benguet Lumber were confiscated if not burned by the Japanese. After the war, because of the

absence of capital to start a lumber and hardware business, Lay and Kee pooled the proceeds of their individual businesses earned from buying and selling military supplies, so that the common fund would be enough to form a partnership, both in the lumber and hardware business. That Lay and Kee actually established the Benguet Lumber in Baguio City, was even testified to by witnesses. Because of the pooling of resources, the post-war Benguet Lumber was eventually established. That the father of the plaintiffs and Lay were partners, is obvious from the fact that: (1) they conducted the affairs of the business during Kee’s lifetime, jointly, (2) they were the ones giving orders to the employees, (3) they were the ones preparing orders from the suppliers, (4) their families stayed together at the Benguet Lumber compound, and (5) all their children were employed in the business in different capacities.

xxx xxx xxx xxx

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

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

xxx xxx xxx xxx

We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may be constituted in any form, but when an immovable is constituted, the execution of a public instrument becomes necessary. This is equally true if the capitalization exceeds P3,000.00, in which case a public instrument is also necessary, and which is to be recorded with the Securities and Exchange Commission. In this case at bar, we can easily assume that the business establishment, which from the language of the appellees, prospered (pars. 5 & 9, Complaint), definitely exceeded P3,000.00, in

addition to the accumulation of real properties and to the fact that it is now a compound. The execution of a public instrument, on the other hand, was never established by the appellees.

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

These are not evidences supporting the existence of a partnership:

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

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

As can be seen, the appellate court disputed and differed from the trial court which had adjudged that TAN ENG KEE and TAN ENG LAY had allegedly entered into a joint adventure. In this connection, we have held that whether a partnership exists is a factual matter; consequently, since the appeal is brought to us under Rule 45, we cannot entertain inquiries relative to the correctness of the assessment of the evidence by the court a quo.[13] Inasmuch as the Court of Appeals and the trial court had reached conflicting conclusions, perforce we must examine the record to determine if the reversal was justified.

The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in Benguet Lumber. A contract of partnership is defined by law as one where:

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

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

Thus, in order to constitute a partnership, it must be established that (1) two or more persons bound themselves to contribute money, property, or industry to a common fund, and (2) they intend to divide the profits among themselves.[15] The agreement need not be formally reduced into writing, since statute allows the oral constitution of a partnership, save in two instances: (1) when immovable property or real rights are contributed,[16] and (2) when the partnership has a capital of three thousand pesos or more.[17] In both cases, a public instrument is required.[18]An inventory to be signed by the parties and attached to the public instrument is also indispensable to the validity of the partnership whenever immovable property is contributed to the partnership.[19]

The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint adventure, which it said is akin to a particular partnership.[20] A particular partnership is distinguished from a joint adventure, to wit:

(a) A joint adventure (an American concept similar to our joint accounts) is a sort of informal partnership, with no firm name and no legal personality. In a joint account, the participating merchants can transact business under their own name, and can be individually liable therefor.

(b) Usually, but not necessarily a joint adventure is limited to a SINGLE TRANSACTION, although the business of pursuing to a successful termination may continue for a number of years; a partnership generally relates to a continuing business of various transactions of a certain kind.[21]

A joint adventure “presupposes generally a parity of standing between the joint co-ventures or partners, in which each party has an equal proprietary interest in the capital or property contributed, and where each party exercises equal rights in the conduct of the business.”[22]Nonetheless, in Aurbach, et. al. v. Sanitary Wares Manufacturing Corporation, et. al.,[23] we expressed the view that a joint adventure may be likened to a particular partnership, thus:

The legal concept of a joint adventure is of common law origin. It has no precise legal definition, but it has been generally understood to mean an organization formed for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is hardly distinguishable from the partnership, since their elements are similar-community of interest in the business, sharing of profits and losses, and a mutual right of control. (Blackner v. McDermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P.2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 P.2d. 242 [1955]). The main distinction cited by most opinions in common law jurisdiction is that the partnership contemplates a general business with some degree of continuity, while the joint adventure is formed for the execution of a single transaction, and is thus of a temporary nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d. 500 [1931];

Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a particular partnership may have for its object a specific undertaking. (Art. 1783, Civil Code). It would seem therefore that under Philippine law, a joint adventure is a form of partnership and should thus be governed by the law of partnerships. The Supreme Court has however recognized a distinction between these two business forms, and has held that although a corporation cannot enter into a partnership contract, it may however engage in a joint adventure with others.(At p. 12, Tuazon v. Bolaños, 95 Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes and Selected Cases, Corporation Code 1981).

Undoubtedly, the best evidence would have been the contract of partnership itself, or the articles of partnership but there is none. The alleged partnership, though, was never formally organized. In addition, petitioners point out that the New Civil Code was not yet in effect when the partnership was allegedly formed sometime in 1945, although the contrary may well be argued that nothing prevented the parties from complying with the provisions of the New Civil Code when it took effect on August 30, 1950. But all that is in the past. The net effect, however, is that we are asked to determine whether a partnership existed based purely on circumstantial evidence. A review of the record persuades us that the Court of Appeals correctly reversed the decision of the trial court. The evidence presented by petitioners falls short of the quantum of proof required to establish a partnership.

Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng Lay, could have expounded on the precise nature of the business relationship between them. In the absence of evidence, we cannot accept as an established fact that Tan Eng Kee allegedly contributed his resources to a common fund for the purpose of establishing a partnership. The testimonies to that effect of petitioners’ witnesses is directly controverted by Tan Eng Lay. It should be noted that it is not with the number of witnesses wherein preponderance lies;[24] the quality of their testimonies is to be considered. None of petitioners’ witnesses could suitably account for the beginnings of Benguet Lumber Company, except perhaps for Dionisio Peralta whose deceased wife was related to Matilde Abubo.[25] He stated that when he met Tan Eng Kee after the liberation, the latter asked the former to accompany him to get 80 pieces of G.I. sheets supposedly owned by both brothers.[26] Tan Eng Lay, however, denied knowledge of this meeting or of the conversation between Peralta and his brother.[27] Tan Eng Lay consistently testified that he had his business and his brother had his, that it was only later on that his said brother, Tan Eng Kee, came to work for him. Be that as it may, co-ownership or co-possession (specifically here, of the G.I. sheets) is not an indicium of the existence of a partnership.[28]

Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership was allegedly in existence, Tan Eng Kee never asked for an accounting. The essence of a partnership is that the partners share in the profits and losses.[29] Each has the right to demand an accounting as long as the partnership

exists.[30] We have allowed a scenario wherein “[i]f excellent relations exist among the partners at the start of the business and all the partners are more interested in seeing the firm grow rather than get immediate returns, a deferment of sharing in the profits is perfectly plausible.”[31] But in the situation in the case at bar, the deferment, if any, had gone on too long to be plausible. A person is presumed to take ordinary care of his concerns.[32] As we explained in another case:

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

A demand for periodic accounting is evidence of a partnership.[34] During his lifetime, Tan Eng Kee appeared never to have made any such demand for accounting from his brother, Tang Eng Lay.

This brings us to the matter of Exhibits “4” to “4-U” for private respondents, consisting of payrolls purporting to show that Tan Eng Kee was an ordinary employee of Benguet Lumber, as it was then called. The authenticity of these documents was questioned by petitioners, to the extent that they filed criminal charges against Tan Eng Lay and his wife and children. As aforesaid, the criminal cases were dismissed for insufficiency of evidence. Exhibits “4” to “4-U” in fact shows that Tan Eng Kee received sums as wages of an employee. In connection therewith, Article 1769 of the Civil Code provides:

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

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

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

(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property which the returns are derived;

(4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment:

(a) As a debt by installment or otherwise;

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

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

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

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

In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was only an employee, not a partner. Even if the payrolls as evidence were discarded, petitioners would still be back to square one, so to speak, since they did not present and offer evidence that would show that Tan Eng Kee received amounts of money allegedly representing his share in the profits of the enterprise. Petitioners failed to show how much their father, Tan Eng Kee, received, if any, as his share in the profits of Benguet Lumber Company for any particular period. Hence, they failed to prove that Tan Eng Kee and Tan Eng Lay intended to divide the profits of the business between themselves, which is one of the essential features of a partnership.

Nevertheless, petitioners would still want us to infer or believe the alleged existence of a partnership from this set of circumstances: that Tan Eng Lay and Tan Eng Kee were commanding the employees; that both were supervising the employees; that both were the ones who determined the price at which the stocks were to be sold; and that both placed orders to the suppliers of the Benguet Lumber Company. They also point out that the families of the brothers Tan Eng Kee and Tan Eng Lay lived at the Benguet Lumber Company compound, a privilege not extended to its ordinary employees.

However, private respondent counters that:

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

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

(ii) even a messenger or other trusted employee, over whom confidence is reposed by the owner, can order materials from suppliers for and in behalf of Benguet Lumber. Furthermore, even a partner does not necessarily have to perform this particular task. It is, thus, not an indication that Tan Eng Kee was a partner.

(iii) although Tan Eng Kee, together with his family, lived in the lumber compound and this privilege was not accorded to other employees, the undisputed fact remains that Tan Eng Kee is the brother of Tan Eng Lay. Naturally, close personal relations existed between them. Whatever privileges Tan Eng Lay gave his brother, and which were not given the other employees, only proves the kindness and generosity of Tan Eng Lay towards a blood relative.

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

In the instant case, we find private respondent’s arguments to be well-taken. Where circumstances taken singly may be inadequate to prove the intent to form a partnership, nevertheless, the collective effect of these circumstances may be such as to support a finding of the existence of the parties’ intent.[36] Yet, in the case at bench, even the aforesaid circumstances when taken together are not persuasive indicia of a partnership. They only tend to show that Tan Eng Kee was involved in the operations of Benguet Lumber, but in what capacity is unclear. We cannot discount the likelihood that as a member of the family, he occupied a niche above the rank-and-file employees. He would have enjoyed liberties otherwise unavailable were he not kin, such as his residence in the Benguet Lumber Company compound. He would have moral, if not actual, superiority over his fellow employees, thereby entitling him to exercise powers of supervision. It may even be that among his duties is to place orders with suppliers. Again, the circumstances proffered by petitioners do not provide a logical nexus to the conclusion desired; these are not inconsistent with the powers and duties of a manager, even in a business organized and run as informally as Benguet Lumber Company.

There being no partnership, it follows that there is no dissolution, winding up or liquidation to speak of. Hence, the petition must fail.

WHEREFORE, the petition is hereby denied, and the appealed decision of the Court of Appeals is hereby AFFIRMED in toto. No pronouncement as to costs.

SO ORDERED.

Bellosillo, (Chairman), Mendoza, Quisumbing, and Buena, JJ., concur.

HEIRS OF TAN ENG KEE, Petitioners vs. COURT OF APPEALS and BENGUET LUMBER COMPANY,

represented byits President TAN ENG LAY, respondents,

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

Following the death of Tan Eng Kee, the common-law spouse of the decedent, joined by their children

collectively known asherein petitioners HEIRS OF TAN ENG KEE, filed suit against the decedent's brother

TAN ENG LAY for accounting, liquidationand winding up of the alleged partnership formed after World

War II between Tan Eng Kee and Tan Eng Lay.

Facts:

The complaint alleged that after the second World War, Tan Eng Kee and Tan Eng Lay, pooling their

resources andindustry together, entered into a partnership engaged in the business of selling lumber

and hardware and constructionsupplies. They named their enterprise "Benguet Lumber" which they

jointly managed until Tan Eng Kee's death.Petitioners claimed that Tan Eng Lay and his children caused

the conversion of the partnership "Benguet Lumber" into acorporation called "Benguet Lumber

Company." Petitioners prayed for accounting of the partnership assets, and thedissolution, winding up

and liquidation thereof, and the equal division of the net assets of Benguet Lumber.The RTC ruled in

favor of petitioners, declaring that Benguet Lumber is a joint venture which is akin to a

particularpartnership. The Court of Appeals rendered the assailed decision reversing the judgment of

the trial court.

Issue:

Whether or not Tan Eng Kee and Tan Eng Lay were partners in Benguet Lumber.

Held: NO.

The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint venture, which it

said isakin to a particular partnership. A particular partnership is distinguished from a joint adventure, to

wit:(a) A joint adventure (an American concept similar to our joint accounts) is a sort of informal

partnership, with no firmname and no legal personality. In a joint account, the participating merchants

can transact business under their ownname, and can be individually liable therefor.(b) Usually, but not

necessarily a joint adventure is limited to a SINGLE TRANSACTION, although the business of pursuingto a

successful termination may continue for a number of years; a partnership generally relates to a

continuing business of various transactions of a certain kind.A joint venture "presupposes generally a

parity of standing between the joint co-ventures or partners, in which each partyhas an equal

proprietary interest in the capital or property contributed, and where each party exercises equal rights

in theconduct of the business."A review of the record persuades us that the Court of Appeals correctly

reversed the decision of the trial court.

Theevidence presented by petitioners falls short of the quantum of proof required to establish a

partnership.

Unfortunately for petitioners,

Tan Eng Kee has passed away. Only he, aside from Tan Eng Lay, could have expoundedon the precise

nature of the business relationship between them.

In the absence of evidence, we cannot accept as anestablished fact that Tan Eng Kee allegedly

contributed his resources to a common fund for the purpose of establishing apartnership.Besides, it is

indeed odd, if not unnatural, that despite the forty years the partnership was allegedly in existence, Tan

EngKee never asked for an accounting.

The essence of a partnership is that the partners share in the profits and losses. Eachhas the right to

demand an accounting as long as the partnership exists.

A demand for periodic accounting is evidence of apartnership. During his lifetime, Tan Eng Kee appeared

never to have made any such demand for accounting from hisbrother, Tang Eng Lay.We conclude that

Tan Eng Kee was only an employee, not a partner. Even if the payrolls as evidence were

discarded,petitioners would still be back to square one, so to speak, since they did not present and offer

evidence that would showthat Tan Eng Kee received amounts of money allegedly representing his share

in the profits of the enterprise.

There being no partnership, it follows that there is no dissolution, winding up or liquidation to speak of.

Hence,

the petition must fail.

Another digest:

Benguet Lumber has been around even before World War II but during the war, its stocks were

confiscated by the Japanese. After the war, the brothers Tan Eng Lay and Tan Eng Kee pooled their

resources in order to revive the business. In 1981, Tan Eng Lay caused the conversion of Benguet

Lumber into a corporation called Benguet Lumber and Hardware Company, with him and his family as

the incorporators. In 1983, Tan Eng Kee died. Thereafter, the heirs of Tan Eng Kee demanded for an

accounting and the liquidation of the partnership.

Tan Eng Lay denied that there was a partnership between him and his brother. He said that Tan Eng Kee

was merely an employee of Benguet Lumber. He showed evidence consisting of Tan Eng Kee’s payroll;

his SSS as an employee and Benguet Lumber being the employee. As a result of the presentation of said

evidence, the heirs of Tan Eng Kee filed a criminal case against Tan Eng Lay for allegedly fabricating

those evidence. Said criminal case was however dismissed for lack of evidence.

ISSUE: Whether or not Tan Eng Kee is a partner.

HELD: No. There was no certificate of partnership between the brothers. The heirs were not able to

show what was the agreement between the brothers as to the sharing of profits. All they presented

were circumstantial evidence which in no way proved partnership.

It is obvious that there was no partnership whatsoever. Except for a firm name, there was no firm

account, no firm letterheads submitted as evidence, no certificate of partnership, no agreement as to

profits and losses, and no time fixed for the duration of the partnership. There was even no attempt to

submit an accounting corresponding to the period after the war until Kee’s death in 1984. It had no

business book, no written account nor any memorandum for that matter and no license mentioning the

existence of a partnership.

In fact, Tan Eng Lay was able to show evidence that Benguet Lumber is a sole proprietorship. He

registered the same as such in 1954; that Kee was just an employee based on the latter’s payroll and SSS

coverage, and other records indicating Tan Eng Lay as the proprietor.

Also, the business definitely amounted to more P3,000.00 hence if there was a partnership, it should

have been made in a public instrument.

But the business was started after the war (1945) prior to the publication of the New Civil Code in 1950?

Even so, nothing prevented the parties from complying with this requirement.

Also, the Supreme Court emphasized that for 40 years, Tan Eng Kee never asked for an accounting. The

essence of a partnership is that the partners share in the profits and losses. Each has the right to

demand an accounting as long as the partnership exists. Even if it can be speculated that a scenario

wherein “if excellent relations exist among the partners at the start of the business and all the partners

are more interested in seeing the firm grow rather than get immediate returns, a deferment of sharing

in the profits is perfectly plausible.” But in the situation in the case at bar, the deferment, if any, had

gone on too long to be plausible. A person is presumed to take ordinary care of his concerns. A demand

for periodic accounting is evidence of a partnership which Kee never did.

The Supreme Court also noted:

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

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

as to third persons;

(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or

co-possessors do or do not share any profits made by the use of the property;

(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons

sharing them have a joint or common right or interest in any property which the returns are derived;

(4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a

partner in the business, but no such inference shall be drawn if such profits were received in payment:

(a) As a debt by installment or otherwise;

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

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

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

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

otherwise.

THIRD DIVISION AURELIO K. LITONJUA, JR.,

Petitioner, - versus –

EDUARDO K. LITONJUA, SR., ROBERT T. YANG, ANGLO PHILS. MARITIME, INC., CINEPLEX, INC., DDM GARMENTS, INC., EDDIE K.

G.R. NOS. 166299-300 Present: PANGANIBAN, J., Chairman SANDOVAL- GUTIERREZ, CORONA,

LITONJUA SHIPPING AGENCY, INC., EDDIE K. LITONJUA SHIPPING CO., INC., LITONJUA SECURITIES, INC. (formerly E. K. Litonjua Sec), LUNETA THEATER, INC., E & L REALTY, (formerly E & L INT’L SHIPPING CORP.), FNP CO., INC., HOME ENTERPRISES, INC., BEAUMONT DEV. REALTY CO., INC., GLOED LAND CORP., EQUITY TRADING CO., INC., 3D CORP., “L” DEV. CORP, LCM THEATRICAL ENTERPRISES, INC., LITONJUA SHIPPING CO. INC., MACOIL INC., ODEON REALTY CORP., SARATOGA REALTY, INC., ACT THEATER INC. (formerly General Theatrical & Film Exchange, INC.), AVENUE REALTY, INC., AVENUE THEATER, INC. and LVF PHILIPPINES, INC., (Formerly VF PHILIPPINES),

Respondents.

CARPIO MORALES and GARCIA, JJ. Promulgated: December 13, 2005

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x D E C I S I O N

GARCIA, J.: In this petition for review under Rule 45 of the Rules of Court,

petitioner Aurelio K. Litonjua, Jr. seeks to nullify and set aside the Decision

of the Court of Appeals (CA) dated March 31, 2004[1] in consolidated

cases C.A. G.R. Sp. No. 76987 and C.A. G.R. SP. No 78774 and its

Resolution dated December 07, 2004,[2] denying petitioner’s motion for

reconsideration.

The recourse is cast against the following factual backdrop:

Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent

Eduardo K. Litonjua, Sr. (Eduardo) are brothers. The legal dispute between

them started when, on December 4, 2002, in the Regional Trial Court

(RTC) at Pasig City, Aurelio filed a suit against his brother Eduardo and

herein respondent Robert T. Yang (Yang) and several corporations for

specific performance and accounting. In his complaint,[3] docketed as Civil

Case No. 69235 and eventually raffled to Branch 68 of the court,[4] Aurelio

alleged that, since June 1973, he and Eduardo are into a joint

venture/partnership arrangement in the Odeon Theater business which had

expanded thru investment in Cineplex, Inc., LCM Theatrical Enterprises,

Odeon Realty Corporation (operator of Odeon I and II theatres), Avenue

Realty, Inc., owner of lands and buildings, among other corporations. Yang

is described in the complaint as petitioner’s and Eduardo’s partner in their

Odeon Theater investment.[5] The same complaint also contained the

following material averments: 3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a joint venture/partnership for the continuation of their family business and common family funds …. 3.01.1 This joint venture/[partnership] agreement was contained in a memorandum addressed by Eduardo to his siblings, parents and other relatives. Copy of this memorandum is attached hereto and made an integral part as Annex “A” and the portion referring to [Aurelio] submarked asAnnex “A-1”. 3.02 It was then agreed upon between [Aurelio] and Eduardo that in consideration of [Aurelio’s] retaining his share in the remaining family businesses (mostly, movie theaters, shipping and land development) and contributing his industry to the continued operation of these businesses, [Aurelio] will be given P1 Million or 10% equity in all these businesses and those to be subsequently acquired by them whichever is greater. . . . 4.01 … from 22 June 1973 to about August 2001, or [in] a span of 28 years, [Aurelio] and Eduardo had accumulated in their joint venture/partnership

various assets including but not limited to the corporate defendants and [their] respective assets. 4.02 In addition . . . the joint venture/partnership … had also acquired [various other assets], but Eduardo caused to be registered in the names of other parties…. xxx xxx xxx 4.04 The substantial assets of most of the corporate defendants consist of real properties …. A list of some of these real properties is attached hereto and made an integral part as Annex “B”. xxx xxx xxx 5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo became sour so that [Aurelio] requested for an accounting and liquidation of his share in the joint venture/partnership [but these demands for complete accounting and liquidation were not heeded].

xxx xxx xxx 5.05 What is worse, [Aurelio] has reasonable cause to believe that Eduardo and/or the corporate defendants as well as Bobby [Yang], are transferring . . . various real properties of the corporations belonging to the joint venture/partnership to other parties in fraud of [Aurelio]. In consequence, [Aurelio] is therefore causing at this time the annotation on the titles of these real properties… a notice of lis pendens …. (Emphasis in the original; underscoring and words in bracket added.)

For ease of reference, Annex “A-1” of the complaint, which

petitioner asserts to have been meant for him by his brother

Eduardo, pertinently reads: 10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]: You have now your own life to live after having been married. …. I am trying my best to mold you the way I work so you can follow the pattern …. You will be the only one left with the company, among us brothers and I will ask you to stay as I want you to run this office every time I am away. I want you to run it the way I am trying to run it because I will be all alone and I will depend entirely to you (sic). My sons will not be ready to help me yet until about maybe 15/20 years from now. Whatever is left in the corporation, I will make sure that you get ONE MILLION PESOS (P1,000,000.00) or ten percent

(10%) equity, whichever is greater. We two will gamble the whole thing of what I have and what you are entitled to. …. It will be you and me alone on this. If ever I pass away, I want you to take care of all of this. You keep my share for my two sons are ready take over but give them the chance to run the company which I have built. xxx xxx xxx Because you will need a place to stay, I will arrange to give you first ONE HUNDRED THOUSANDS PESOS: (P100, 000.00) in cash or asset, like Lt. Artiaga so you can live better there. The rest I will give you in form of stocks which you can keep. This stock I assure you is good and saleable. I will also gladly give you the share of Wack-Wack …and Valley Golf … because you have been good. The rest will be in stocks from all the corporations which I repeat, ten percent (10%) equity. [6]

On December 20, 2002, Eduardo and the corporate respondents, as

defendants a quo, filed a joint ANSWERWith Compulsory

Counterclaim denying under oath the material allegations of the complaint,

more particularly that portion thereof depicting petitioner and Eduardo as

having entered into a contract of partnership. As affirmative defenses,

Eduardo, et al., apart from raising a jurisdictional matter, alleged that the

complaint states no cause of action, since no cause of action may be

derived from the actionable document, i.e., Annex “A-1”, being void under

the terms of Article 1767 in relation to Article 1773 of the Civil

Code, infra. It is further alleged that whatever undertaking Eduardo

agreed to do, if any, under Annex “A-1”, are unenforceable under the

provisions of the Statute of Frauds.[7]

For his part, Yang - who was served with summons long after the

other defendants submitted their answer – moved to dismiss on the

ground, inter alia, that, as to him, petitioner has no cause of action and the

complaint does not state any.[8] Petitioner opposed this motion to dismiss.

On January 10, 2003, Eduardo, et al., filed a Motion to Resolve

Affirmative Defenses.[9] To this motion, petitioner interposed

an Opposition with ex-Parte Motion to Set the Case for Pre-trial.[10]

Acting on the separate motions immediately adverted to above, the

trial court, in an Omnibus Order dated March 5, 2003, denied the

affirmative defenses and, except for Yang, set the case for pre-trial on April

10, 2003.[11]

In another Omnibus Order of April 2, 2003, the same court denied

the motion of Eduardo, et al., for reconsideration[12] and Yang’s motion to

dismiss. The following then transpired insofar as Yang is concerned: 1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved the right to seek

reconsideration of the April 2, 2003 Omnibus Order and to pursue his failed motion to dismiss[13] to its full resolution.

2. On April 24, 2003, he moved for reconsideration of the Omnibus Order of April 2,

2003, but his motion was denied in an Order of July 4, 2003.[14] 3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a petition

for certiorari under Rule 65 of the Rules of Court, docketed as CA-G.R. SP No. 78774,[15] to nullify the separate orders of the trial court, the first denying his motion to dismiss the basic complaint and, the second, denying his motion for reconsideration.

Earlier, Eduardo and the corporate defendants, on the contention

that grave abuse of discretion and injudicious haste attended the issuance

of the trial court’s aforementioned Omnibus Orders dated March 5, and

April 2, 2003, sought relief from the CA via similar recourse. Their petition

for certiorari was docketed as CA G.R. SP No. 76987.

Per its resolution dated October 2, 2003,[16] the CA’s 14th Division

ordered the consolidation of CA G.R. SP No. 78774 with CA G.R. SP No.

76987.

Following the submission by the parties of their respective

Memoranda of Authorities, the appellate court came out with the herein

assailed Decision dated March 31, 2004, finding for Eduardo and Yang,

as lead petitioners therein, disposing as follows: WHEREFORE, judgment is hereby rendered granting the issuance of the

writ of certiorari in these consolidated cases annulling, reversing and setting aside the assailed orders of the court a quo dated March 5, 2003, April 2, 2003 and July

4, 2003 and the complaint filed by private respondent [now petitioner Aurelio] against all the petitioners [now herein respondents Eduardo, et al.] with the court a quo is hereby dismissed.

SO ORDERED.[17] (Emphasis in the original; words in bracket added.)

Explaining its case disposition, the appellate court stated, inter

alia, that the alleged partnership, as evidenced by the actionable

documents, Annex “A” and “A-1” attached to the complaint, and upon

which petitioner solely predicates his right/s allegedly violated by Eduardo,

Yang and the corporate defendants a quo is “void or legally inexistent”.

In time, petitioner moved for reconsideration but his motion was

denied by the CA in its equally assailedResolution of December 7,

2004.[18] .

Hence, petitioner’s present recourse, on the contention that the CA

erred: A. When it ruled that there was no partnership created by the actionable document because this was not a public instrument and immovable properties were contributed to the partnership. B. When it ruled that the actionable document did not create a demandable right in favor of petitioner. C. When it ruled that the complaint stated no cause of action against [respondent] Robert Yang; and D. When it ruled that petitioner has changed his theory on appeal when all that Petitioner had done was to support his pleaded cause of action by another legal perspective/argument.

The petition lacks merit.

Petitioner’s demand, as defined in the petitory portion of his

complaint in the trial court, is for delivery or payment to him, as

Eduardo’s and Yang’s partner, of his partnership/joint venture share, after

an accounting has been duly conducted of what he deems to be

partnership/joint venture property.[19]

A partnership exists when two or more persons agree to place their

money, effects, labor, and skill in lawful commerce or business, with the

understanding that there shall be a proportionate sharing of the profits

and losses between them.[20] A contract of partnership is defined by the

Civil Code as one where two or more persons bound themselves to

contribute money, property, or industry to a common fund with the

intention of dividing the profits among themselves.[21] A joint venture,

on the other hand, is hardly distinguishable from, and may be likened to,

a partnership since their elements are similar, i.e., community of interests

in the business and sharing of profits and losses. Being a form of

partnership, a joint venture is generally governed by the law on

partnership.[22]

The underlying issue that necessarily comes to mind in this

proceedings is whether or not petitioner and respondent Eduardo are

partners in the theatre, shipping and realty business, as one claims but

which the other denies. And the issue bearing on the first assigned error

relates to the question of what legal provision is applicable under the

premises, petitioner seeking, as it were, to enforce the actionable

document - Annex “A-1” - which he depicts in his complaint to be the

contract of partnership/joint venture between himself and Eduardo.

Clearly, then, a look at the legal provisions determinative of the existence,

or defining the formal requisites, of a partnership is indicated. Foremost of

these are the following provisions of the Civil Code: Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary. Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission.

Failure to comply with the requirement of the preceding paragraph shall not affect the liability of the partnership and the members thereof to third persons. Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument.

Annex “A-1”, on its face, contains typewritten entries, personal in

tone, but is unsigned and undated. As an unsigned document, there can be

no quibbling that Annex “A-1” does not meet the public instrumentation

requirements exacted under Article 1771 of the Civil Code. Moreover, being

unsigned and doubtless referring to a partnership involving more than

P3,000.00 in money or property, Annex “A-1” cannot be presented for

notarization, let alone registered with the Securities and Exchange

Commission (SEC), as called for under the Article 1772 of the Code. And

inasmuch as the inventory requirement under the succeeding Article 1773

goes into the matter of validity when immovable property is contributed to

the partnership, the next logical point of inquiry turns on the nature of

petitioner’s contribution, if any, to the supposed partnership.

The CA, addressing the foregoing query, correctly stated that

petitioner’s contribution consisted of immovables and real rights. Wrote

that court:

A further examination of the allegations in the complaint would show that [petitioner’s] contribution to the so-called “partnership/joint venture” was his supposed share in the family business that is consisting of movie theaters, shipping and land development under paragraph 3.02 of the complaint. In other words, his contribution as a partner in the alleged partnership/joint venture consisted of immovable properties and real rights. ….[23]

Significantly enough, petitioner matter-of-factly concurred with the

appellate court’s observation that, prescinding from what he himself

alleged in his basic complaint, his contribution to the partnership consisted

of his share in the Litonjua family businesses which owned variable

immovable properties. Petitioner’s assertion in his motion for

reconsideration[24] of the CA’s decision, that “what was to be contributed to

the business [of the partnership] was [petitioner’s] industry and his share

in the family [theatre and land development] business” leaves no room for

speculation as to what petitioner contributed to the perceived partnership.

Lest it be overlooked, the contract-validating inventory requirement

under Article 1773 of the Civil Code applies as long real property or real

rights are initially brought into the partnership. In short, it is really of no

moment which of the partners, or, in this case, who between petitioner

and his brother Eduardo, contributed immovables. In context, the more

important consideration is that real property was contributed, in which case

an inventory of the contributed property duly signed by the parties should

be attached to the public instrument, else there is legally no partnership to

speak of.

Petitioner, in an obvious bid to evade the application of Article 1773,

argues that the immovables in question were not contributed, but were

acquired after the formation of the supposed partnership. Needless to

stress, the Court cannot accord cogency to this specious argument. For, as

earlier stated, petitioner himself admitted contributing his share in the

supposed shipping, movie theatres and realty development family

businesses which already owned immovables even before Annex “A-

1” was allegedly executed.

Considering thus the value and nature of petitioner’s alleged

contribution to the purported partnership, the Court, even if so disposed,

cannot plausibly extend Annex “A-1” the legal effects that petitioner so

desires and pleads to be given. Annex “A-1”, in fine, cannot support the

existence of the partnership sued upon and sought to be enforced. The

legal and factual milieu of the case calls for this disposition. A partnership

may be constituted in any form, save when immovable property or real

rights are contributed thereto or when the partnership has a capital of at

least P3,000.00, in which case a public instrument shall be

necessary.[25] And if only to stress what has repeatedly been articulated, an

inventory to be signed by the parties and attached to the public instrument

is also indispensable to the validity of the partnership whenever immovable

property is contributed to it.

Given the foregoing perspective, what the appellate court wrote in its

assailed Decision[26] about the probative value and legal effect of

Annex “A-1” commends itself for concurrence:

Considering that the allegations in the complaint showed that [petitioner] contributed immovable properties to the alleged partnership, the “Memorandum” (Annex “A” of the complaint) which purports to establish the said “partnership/joint venture” is NOT a public instrument and there was NO inventory of the immovable property duly signed by the parties. As such, the said “Memorandum” … is null and void for purposes of establishing the existence of a valid contract of partnership. Indeed, because of the failure to comply with the essential formalities of a valid contract, the purported “partnership/joint venture” is legally inexistent and it produces no effect whatsoever. Necessarily, a void or legally inexistent contract cannot be the source of any contractual or legal right. Accordingly, the allegations in the complaint, including the actionable document attached thereto, clearly demonstrates that [petitioner] has NO valid contractual or legal right which could be violated by the [individual respondents] herein. As a consequence, [petitioner’s] complaint does NOT state a valid cause of action because NOT all the essential elements of a cause of action are present. (Underscoring and words in bracket added.)

Likewise well-taken are the following complementary excerpts from

the CA’s equally assailed Resolution of December 7, 2004[27] denying

petitioner’s motion for reconsideration: Further, We conclude that despite glaring defects in the allegations in the

complaint as well as the actionable document attached thereto (Rollo, p. 191), the [trial] court did not appreciate and apply the legal provisions which were brought to its attention by herein [respondents] in the their pleadings. In our evaluation of [petitioner’s] complaint, the latter alleged inter alia to have contributed immovable properties to the alleged partnership but the actionable document is not a public document and there was no inventory of immovable properties signed by the parties. Both the allegations in the complaint and the actionable documents considered, it is crystal clear that [petitioner] has no valid or legal right which could be violated by [respondents]. (Words in bracket added.)

Under the

second assigned error, it is petitioner’s posture that Annex “A-1”,

assuming its inefficacy or nullity as a partnership document,

nevertheless created demandable rights in his favor. As petitioner

succinctly puts it in this petition: 43. Contrariwise, this actionable document, especially its above-quoted

provisions, established an actionable contract even though it may not be a partnership. This actionable contract is what is known as an innominate contract (Civil Code, Article 1307).

44. It may not be a contract of loan, or a mortgage or whatever, but

surely the contract does create rights and obligations of the parties and which rights and obligations may be enforceable and demandable. Just because the relationship created by the agreement cannot be specifically labeled or pigeonholed into a category of nominate contract does not mean it is void or unenforceable.

Petitioner has thus thrusted the notion of an innominate

contract on this Court - and earlier on the CA after he experienced a

reversal of fortune thereat - as an afterthought. The appellate court,

however, cannot really be faulted for not yielding to petitioner’s dubious

stratagem of altering his theory of joint

venture/partnership to an innominate contract. For, at bottom,

the appellate court’s certiorari jurisdiction was circumscribed by what was

alleged to have been the order/s issued by the trial court in grave abuse of

discretion. As respondent Yang pointedly observed,[28] since the parties’

basic position had been well-defined, that of petitioner being that the

actionable document established a partnership/joint venture, it is on those

positions that the appellate court exercised its certiorari jurisdiction.

Petitioner’s act of changing his original theory is an impermissible practice

and constitutes, as the CA aptly declared, an admission of the untenability

of such theory in the first place. [Petitioner] is now humming a different tune . . . . In a sudden twist of

stance, he has now contended that the actionable instrument may be considered an innominate contract. xxx Verily, this now changes [petitioner’s] theory of the case which is not only prohibited by the Rules but also is an implied admission that the very theory he himself … has adopted, filed and prosecuted before the respondent court is erroneous.

Be that as it may . …. We hold that this new theory contravenes

[petitioner’s] theory of the actionable document being a partnership document. If anything, it is so obvious we do have to test the sufficiency of the cause of action

on the basis of partnership law xxx.[29] (Emphasis in the original; Words in bracket added).

But even assuming in gratia argumenti that Annex “A-1” partakes

of a perfected innominate contract, petitioner’s complaint would still be

dismissible as against Eduardo and, more so, against Yang. It cannot be

over-emphasized that petitioner points to Eduardo as the author of Annex

“A-1”. Withal, even on this consideration alone, petitioner’s claim against

Yang is doomed from the very start.

As it were, the only portion of Annex “A-1” which could perhaps be

remotely regarded as vesting petitioner with a right to demand from

respondent Eduardo the observance of a determinate conduct, reads: xxx You will be the only one left with the company, among us brothers and

I will ask you to stay as I want you to run this office everytime I am away. I want you to run it the way I am trying to run it because I will be alone and I will depend entirely to you, My sons will not be ready to help me yet until about maybe 15/20 years from now. Whatever is left in the corporation, I will make sure that you get ONE MILLION PESOS (P1,000,000.00) or ten percent (10%) equity, whichever is greater. (Underscoring added)

It is at

once apparent that what respondent Eduardo imposed upon himself

under the above passage, if he indeed wrote Annex “A-1”, is a

promise which is not to be performed within one year from “contract”

execution on June 22, 1973. Accordingly, the agreement embodied

in Annex “A-1” is covered by the Statute of Frauds

and ergo unenforceable for non-compliance therewith.[30] By force of

the statute of frauds, an agreement that by its terms is not to be

performed within a year from the making thereof shall be

unenforceable by action, unless the same, or some note or

memorandum thereof, be in writing and subscribed by the party

charged. Corollarily, no action can be proved unless the requirement

exacted by the statute of frauds is complied with.[31]

Lest it be

overlooked, petitioner is the intended beneficiary of the P1 Million or

10% equity of the family businesses supposedly promised by

Eduardo to give in the near future. Any suggestion that the stated

amount or the equity component of the promise was intended to go

to a common fund would be to read something not written

in Annex “A-1”. Thus, even this angle alone argues against the very

idea of a partnership, the creation of which requires two or more

contracting minds mutually agreeing to contribute money, property

or industry to a common fund with the intention of dividing the

profits between or among themselves.[32]

In sum then, the Court rules, as did the CA, that petitioner’s

complaint for specific performance anchored on an actionable document of

partnership which is legally inexistent or void or, at best, unenforceable

does not state a cause of action as against respondent Eduardo and the

corporate defendants. And if no of action can successfully be maintained

against respondent Eduardo because no valid partnership existed between

him and petitioner, the Court cannot see its way clear on how the same

action could plausibly prosper against Yang. Surely, Yang could not have

become a partner in, or could not have had any form of business

relationship with, an inexistent partnership.

As may be noted, petitioner has not, in his complaint, provide the

logical nexus that would tie Yang to him as his partner. In fact, attendant

circumstances would indicate the contrary. Consider: 1. Petitioner asserted in his complaint that his so-called joint venture/partnership with Eduardo was “for the continuation of their family business and common family funds which were theretofore being mainly managed by Eduardo.” [33] But Yang denies kinship with the Litonjua family and petitioner has not disputed the disclaimer.

2. In some detail, petitioner mentioned what he had contributed to the joint venture/partnership with Eduardo and what his share in the businesses will be. No allegation is made whatsoever about what Yang contributed, if any, let alone his proportional share in the profits. But such allegation cannot, however, be made because, as aptly observed by the CA, the

actionable document did not contain such provision, let alone mention the name of Yang. How, indeed, could a person be considered a partner when the document purporting to establish the partnership contract did not even mention his name.

3. Petitioner states in par. 2.01 of the complaint that “[he] and Eduardo are business partners in the [respondent] corporations,” while “Bobby is his and Eduardo’s partner in their Odeon Theater investment’ (par. 2.03). This means that the partnership between petitioner and Eduardo came first; Yang became their partner in their Odeon Theater investment thereafter. Several paragraphs later, however, petitioner would contradict himself by alleging that his “investment and that of Eduardo and Yang in the Odeon theater business has expanded through a reinvestment of profit income and direct investments in several corporation including but not limited to [six] corporate respondents” This simply means that the “Odeon Theatre business” came before the corporate respondents. Significantly enough, petitioner refers to the corporate respondents as “progeny” of the Odeon Theatre business.[34]

Needless to stress, petitioner has not sufficiently established in his

complaint the legal vinculum whence he sourced his right to drag Yang into

the fray. The Court of Appeals, in its assailed decision, captured and

formulated the legal situation in the following wise: [Respondent] Yang, … is impleaded because, as alleged in the complaint, he is a “partner” of [Eduardo] and the [petitioner] in the Odeon Theater Investment which expanded through reinvestments of profits and direct investments in several corporations, thus:

xxx xxx xxx

Clearly, [petitioner’s] claim against … Yang arose from his alleged partnership with petitioner and the …respondent. However, there was NO allegation in the complaint which directly alleged how the supposed contractual relation was created between [petitioner] and …Yang. More importantly, however, the foregoing ruling of this Court that the purported partnership between [Eduardo] is void and legally inexistent directly affects said claim against …Yang. Since [petitioner] is trying to establish his claim against … Yang by linking him to the legally inexistent partnership . . . such attempt had become futile because there was NOTHING that would contractually connect [petitioner] and … Yang. To establish a valid cause of action, the complaint should have a statement of fact upon which to connect [respondent] Yang to the alleged partnership between [petitioner] and respondent [Eduardo], including their alleged investment in the

Odeon Theater. A statement of facts on those matters is pivotal to the complaint as they would constitute the ultimate facts necessary to establish the elements of a cause of action against … Yang. [35]

Pressing its point, the CA later stated in its resolution denying

petitioner’s motion for reconsideration the following:

xxx Whatever the complaint calls it, it is the actionable document attached to the complaint that is controlling. Suffice it to state, We have not ignored the actionable document … As a matter of fact, We emphasized in our decision … that insofar as [Yang] is concerned, he is not even mentioned in the said actionable document. We are therefore puzzled how a person not mentioned in a document purporting to establish a partnership could be considered a partner.[36] (Words in bracket ours).

The last issue raised by petitioner, referring to whether or not he

changed his theory of the case, as peremptorily determined by the CA, has

been discussed at length earlier and need not detain us long. Suffice it to

say that after the CA has ruled that the alleged partnership is inexistent,

petitioner took a different tack. Thus, from a joint venture/partnership

theory which he adopted and consistently pursued in his complaint,

petitioner embraced the innominate contract theory. Illustrative of this shift

is petitioner’s statement in par. #8 of his motion for reconsideration of the

CA’s decision combined with what he said in par. # 43 of this petition, as

follows: 8. Whether or not the actionable document creates a partnership, joint

venture, or whatever, is a legal matter. What is determinative for purposes of sufficiency of the complainant’s allegations, is whether the actionable document bears out an actionable contract – be it a partnership, a joint venture or whatever or some innominate contract … It may be noted that one kind of innominate contract is what is known as du ut facias (I give that you may do).[37]

43. Contrariwise, this actionable document, especially its above-quoted

provisions, established an actionable contract even though it may not be a partnership. This actionable contract is what is known as an innominate contract (Civil Code, Article 1307).[38]

Springing surprises on the opposing party is offensive to the sporting

idea of fair play, justice and due process; hence, the proscription against a

party shifting from one theory at the trial court to a new and different

theory in the appellate court.[39] On the same rationale, an issue which was

neither averred in the complaint cannot be raised for the first time on

appeal.[40] It is not difficult, therefore, to agree with the CA when it made

short shrift of petitioner’s innominate contract theory on the basis of the

foregoing basic reasons.

Petitioner’s protestation that his act of introducing the concept of

innominate contract was not a case of changing theories but of supporting

his pleaded cause of action – that of the existence of a partnership - by

another legal perspective/argument, strikes the Court as a strained

attempt to rationalize an untenable position. Paragraph 12 of his motion for

reconsideration of the CA’s decision virtually relegates partnership as a fall-

back theory. Two paragraphs later, in the same notion, petitioner faults the

appellate court for reading, with myopic eyes, the actionable document

solely as establishing a partnership/joint venture. Verily, the cited

paragraphs are a study of a party hedging on whether or not to pursue

the original cause of action or altogether abandoning the same, thus:

12.

Incidentally, assuming that the actionable document created a partnership between [respondent] Eduardo, Sr. and [petitioner], no immovables were contributed to this partnership. xxx

14. All told, the Decision takes off from a false premise that the actionable document attached to the complaint does not establish a contractual relationship between [petitioner] and … Eduardo, Sr. and Roberto T Yang simply because his document does not create a partnership or a joint venture. This is … a myopic reading of the actionable document.

Per the Court’s own count, petitioner used in his complaint the mixed

words “joint venture/partnership” nineteen (19) times and the term

“partner” four (4) times. He made reference to the “law of joint

venture/partnership [being applicable] to the business relationship …

between [him], Eduardo and Bobby [Yang]” and to his “rights

in all specific properties of their joint venture/partnership”. Given this

consideration, petitioner’s right of action against respondents Eduardo and

Yang doubtless pivots on the existence of the partnership between the

three of them, as purportedly evidenced

by the undated and unsigned Annex “A-1”. A void Annex “A-1”,

as an actionable document of partnership, would strip petitioner

of a cause of action under the premises. A complaint for delivery and

accounting of partnership property based on such void or legally non-

existent actionable document is dismissible for failure to state of action. So,

in gist, said the Court of Appeals. The Court agrees.

WHEREFORE, the instant petition is DENIED and the impugned

Decision and Resolution of the Court of Appeals AFFIRMED.

Cost against the petitioner.

SO ORDERED.

CANCIO C. GARCIA Associate Justice

WE CONCUR:

ARTEMIO V. PANGANIBAN

Associate Justice

ANGELINA SANDOVAL-GUTIERREZ

Associate Justice

RENATO C. CORONA

Associate Justice

CONCHITA CARPIO MORALES

Associate Justice

A T T E S T A T I O N

I attest that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court’s Division.

ARTEMIO V. PANGANIBAN

Associate Justice

Chairman, Third Division

C E R T I F I C A T I O N

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairman's Attestation, it is hereby certified that the conclusions in the above decision were reached in consultation before the case was assigned to the writer of the opinion of the Court.

HILARIO G. DAVIDE, JR. Chief Justice

Aurelio and Eduardo are brothers. In 1973, Aurelio alleged that Eduardo entered into a contract of partnership with him. Aurelio showed as evidence a letter sent to him by Eduardo that the latter is allowing Aurelio to manage their family business (if Eduardo’s away) and in exchange thereof he will be giving Aurelio P1 million or 10% equity, whichever is higher. A memorandum was subsequently made for the said partnership agreement. The memorandum this time stated that in exchange of Aurelio, who just got married, retaining his share in the family business (movie theatres, shipping and land development) and some other immovable properties, he will be given P1 Million or 10% equity in all these businesses and those to be subsequently acquired by them whichever is greater. In 1992 however, the relationship between the brothers went sour. And so Aurelio demanded an accounting and the liquidation of his share in the partnership. Eduardo did not heed and so Aurelio sued Eduardo. ISSUE: Whether or not there exists a partnership. HELD: No. The partnership is void and legally nonexistent. The documentary evidence presented by Aurelio, i.e. the letter from Eduardo and the Memorandum, did not prove partnership. The 1973 letter from Eduardo on its face, contains typewritten entries, personal in tone, but is unsigned and undated. As an unsigned document, there can be no quibbling that said letter does not meet the public instrumentation requirements exacted under Article 1771 (how partnership is constituted) of the Civil Code. Moreover, being unsigned and doubtless referring to a partnership involving more than P3,000.00 in money or property, said letter cannot be presented for notarization, let alone registered with the Securities and Exchange Commission (SEC), as called for under the Article 1772 (capitalization of a partnership) of the Code. And inasmuch as the inventory requirement under the succeeding Article 1773 goes into the matter of validity when immovable property is contributed to

the partnership, the next logical point of inquiry turns on the nature of Aurelio’s contribution, if any, to the supposed partnership. The Memorandum is also not a proof of the partnership for the same is not a public instrument and again, no inventory was made of the immovable property and no inventory was attached to the Memorandum. Article 1773 of the Civil Code requires that if immovable property is contributed to the partnership an inventory shall be had and attached to the contract.

THIRD DIVISION

[G.R. No. 144214. July 14, 2003]

LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CAR MELITO JOSE, petitioners, vs. DONALDO EFREN C. RAMIREZ and Spouses CESAR G. RAMIREZ JR. and CARMELITA C. RAMIREZ, respondents.

D E C I S I O N PANGANIBAN, J.:

A share in a partnership can be returned only after the completion of the latter’s dissolution, liquidation and winding up of the business.

The Case

The Petition for Review on Certiorari before us challenges the March 23, 2000 Decision[1] and the July 26, 2000 Resolution[2] of the Court of Appeals[3] (CA) in CA-GR CV No. 41026. The assailed Decision disposed as follows:

“WHEREFORE, foregoing premises considered, the Decision dated July 21, 1992 rendered by the Regional Trial Court, Branch 148, Makati City is hereby SET ASIDE and NULLIFIED and in lieu thereof a new decision is rendered ordering the [petitioners] jointly and severally to pay and reimburse to [respondents] the amount of P253,114.00. No pronouncement as to costs.”[4]

Reconsideration was denied in the impugned Resolution.

The Facts

On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus Jose formed a partnership with a capital of P750,000 for the operation of a restaurant and catering business under the name “Aquarius Food House and Catering Services.”[5] Villareal was appointed general manager and Carmelito Jose, operations manager.

Respondent Donaldo Efren C. Ramirez joined as a partner in the business on September 5, 1984. His capital contribution of P250,000 was paid by his parents, Respondents Cesar and Carmelita Ramirez.[6]

After Jesus Jose withdrew from the partnership in January 1987, his capital contribution of P250,000 was refunded to him in cash by agreement of the partners.[7]

In the same month, without prior knowledge of respondents, petitioners closed down the restaurant, allegedly because of increased rental. The restaurant furniture and equipment were deposited in the respondents’ house for storage.[8]

On March 1, 1987, respondent spouses wrote petitioners, saying that they were no longer interested in continuing their partnership or in reopening the restaurant, and that they were accepting the latter’s offer to return their capital contribution.[9]

On October 13, 1987, Carmelita Ramirez wrote another letter informing petitioners of the deterioration of the restaurant furniture and equipment stored in their house. She also reiterated the request for the return of their one-third share in the equity of the partnership. The repeated oral and written requests were, however, left unheeded.[10]

Before the Regional Trial Court (RTC) of Makati, Branch 59, respondents subsequently filed a Complaint[11] dated November 10, 1987, for the collection of a sum of money from petitioners.

In their Answer, petitioners contended that respondents had expressed a desire to withdraw from the partnership and had called for its dissolution under Articles 1830 and 1831 of the Civil Code; that respondents had been paid, upon the turnover to them of furniture and equipment worth over P400,000; and that the latter had no right to demand a return of their equity because their share, together with the rest of the capital of the partnership, had been spent as a result of irreversible business losses.[12]

In their Reply, respondents alleged that they did not know of any loan encumbrance on the restaurant. According to them, if such allegation were true, then the loans incurred by petitioners should be regarded as purely personal and, as such, not chargeable to the partnership. The former further averred that they had not received any regular report or accounting from the latter, who had solely managed the business. Respondents also alleged that they expected the equipment and the furniture stored in their house to be removed by petitioners as soon as the latter found a better location for the restaurant.[13]

Respondents filed an Urgent Motion for Leave to Sell or Otherwise Dispose of Restaurant Furniture and Equipment[14] on July 8, 1988. The furniture and the equipment stored in their house were inventoried and appraised at P29,000.[15] The display freezer was sold for P5,000 and the proceeds were paid to them.[16]

After trial, the RTC[17] ruled that the parties had voluntarily entered into a partnership, which could be dissolved at any time. Petitioners clearly intended to dissolve it when they stopped operating the restaurant. Hence, the trial court, in its July 21, 1992 Decision, held them liable as follows:[18]

“WHEREFORE, judgment is hereby rendered in favor of [respondents] and against the [petitioners] ordering the [petitioners] to pay jointly and severally the following:

(a) Actual damages in the amount of P250,000.00

(b) Attorney’s fee in the amount of P30,000.00

(c) Costs of suit.”

The CA Ruling

The CA held that, although respondents had no right to demand the return of their capital contribution, the partnership was nonetheless dissolved when petitioners lost interest in continuing the restaurant business with them. Because petitioners never gave a proper accounting of the partnership accounts for liquidation purposes, and because no sufficient evidence was presented to show financial losses, the CA computed their liability as follows:

“Consequently, since what has been proven is only the outstanding obligation of the partnership in the amount of P240,658.00, although contracted by the partnership before [respondents’] have joined the partnership but in accordance with Article 1826 of the New Civil Code, they are liable which must have to be deducted from the remaining capitalization of the said partnership which is in the amount of P1,000,000.00 resulting in the amount of P759,342.00, and in order to get the share of [respondents], this amount of P759,342.00 must be divided into three (3) shares or in the amount of P253,114.00 for each share and which is the only amount which [petitioner] will return to [respondents’] representing the contribution to the partnership minus the outstanding debt thereof.”[19]

Hence, this Petition.[20]

Issues

In their Memorandum,[21] petitioners submit the following issues for our consideration:

“9.1. Whether the Honorable Court of Appeals’ decision ordering the distribution of the capital contribution, instead of the net capital after the dissolution and liquidation of a partnership, thereby treating the capital contribution like a loan, is in accordance with law and jurisprudence;

“9.2. Whether the Honorable Court of Appeals’ decision ordering the petitioners to jointly and severally pay and reimburse the amount of [P]253,114.00 is supported by the evidence on record; and

“9.3. Whether the Honorable Court of Appeals was correct in making [n]o pronouncement as to costs.”[22]

On closer scrutiny, the issues are as follows: (1) whether petitioners are liable to respondents for the latter’s share in the partnership; (2) whether the CA’s computation of P253,114 as respondents’ share is correct; and (3) whether the CA was likewise correct in not assessing costs.

This Court’s Ruling

The Petition has merit.

First Issue: Share in Partnership

Both the trial and the appellate courts found that a partnership had indeed existed, and that it was dissolved on March 1, 1987. They found that the dissolution took place when respondents informed petitioners of the intention to discontinue it because of the former’s dissatisfaction with, and loss of trust in, the latter’s management of the partnership affairs. These findings were amply supported by the evidence on record. Respondents consequently demanded from petitioners the return of their one-third equity in the partnership.

We hold that respondents have no right to demand from petitioners the return of their equity share. Except as managers of the partnership, petitioners did not personally hold its equity or assets. “The partnership has a juridical personality separate and distinct from that of each of the partners.”[23] Since the capital was contributed to the partnership, not to petitioners, it is the partnership that must refund the equity of the retiring partners.[24]

Second Issue: What Must Be Returned?

Since it is the partnership, as a separate and distinct entity, that must refund the shares of the partners, the amount to be refunded is necessarily limited to its total resources. In other words, it can only pay out what it has in its coffers, which consists of all its assets. However, before the partners can be paid their shares, the creditors of the partnership must first be compensated.[25] After all the creditors have been paid, whatever is left of the partnership assets becomes available for the payment of the partners’ shares.

Evidently, in the present case, the exact amount of refund equivalent to respondents’ one-third share in the partnership cannot be determined until all the partnership assets will have been liquidated -- in other words, sold and converted to cash -- and all partnership creditors, if any, paid. The CA’s computation of the amount to be refunded to respondents as their share was thus erroneous.

First, it seems that the appellate court was under the misapprehension that the total capital contribution was equivalent to the gross assets to be distributed to the partners at the time of the dissolution of the partnership. We cannot sustain the underlying idea that the capital contribution at the beginning of the partnership remains intact, unimpaired and available for distribution or return to the partners. Such idea is speculative, conjectural and totally without factual or legal support.

Generally, in the pursuit of a partnership business, its capital is either increased by profits earned or decreased by losses sustained. It does not remain static and unaffected by the changing fortunes of the business. In the present case, the financial statements presented before the trial court showed that the business had made meager profits.[26] However, notable therefrom is the omission of any provision for the depreciation[27]of the furniture and the equipment. The amortization of the goodwill[28] (initially valued at P500,000) is not reflected either. Properly taking these non-cash items into account will show that the partnership was actually sustaining substantial losses, which consequently decreased the capital of the partnership. Both the trial and the appellate courts in fact recognized the decrease of the partnership assets to almost nil, but the latter failed to recognize the consequent corresponding decrease of the capital.

Second, the CA’s finding that the partnership had an outstanding obligation in the amount of P240,658 was not supported by evidence. We sustain the contrary finding of the RTC, which had rejected the contention that the obligation belonged to the partnership for the following reason:

“x x x [E]vidence on record failed to show the exact loan owed by the partnership to its creditors. The balance sheet (Exh. ‘4’) does not reveal the total loan. The Agreement (Exh. ‘A’) par. 6 shows an outstanding obligation of P240,055.00 which the partnership owes to different creditors, while the Certification issued by Mercator Finance (Exh. ‘8’) shows that it was Sps. Diogenes P. Villareal and Luzviminda J.

Villareal, the former being the nominal party defendant in the instant case, who obtained a loan of P355,000.00 on Oct. 1983, when the original partnership was not yet formed.”

Third, the CA failed to reduce the capitalization by P250,000, which was the amount paid by the partnership to Jesus Jose when he withdrew from the partnership.

Because of the above-mentioned transactions, the partnership capital was actually reduced. When petitioners and respondents ventured into business together, they should have prepared for the fact that their investment would either grow or shrink. In the present case, the investment of respondents substantially dwindled. The original amount of P250,000 which they had invested could no longer be returned to them, because one third of the partnership properties at the time of dissolution did not amount to that much.

It is a long established doctrine that the law does not relieve parties from the effects of unwise, foolish or disastrous contracts they have entered into with all the required formalities and with full awareness of what they were doing. Courts have no power to relieve them from obligations they have voluntarily assumed, simply because their contracts turn out to be disastrous deals or unwise investments.[29]

Petitioners further argue that respondents acted negligently by permitting the partnership assets in their custody to deteriorate to the point of being almost worthless. Supposedly, the latter should have liquidated these sole tangible assets of the partnership and considered the proceeds as payment of their net capital. Hence, petitioners argue that the turnover of the remaining partnership assets to respondents was precisely the manner of liquidating the partnership and fully settling the latter’s share in the partnership.

We disagree. The delivery of the store furniture and equipment to private respondents was for the purpose of storage. They were unaware that the restaurant would no longer be reopened by petitioners. Hence, the former cannot be faulted for not disposing of the stored items to recover their capital investment.

Third Issue: Costs

Section 1, Rule 142, provides:

“SECTION 1. Costs ordinarily follow results of suit.– Unless otherwise provided in these rules, costs shall be allowed to the prevailing party as a matter of course, but the court shall have power, for special reasons, to adjudge that either party shall pay the costs of an action, or that the same be divided, as may be equitable. No costs shall be allowed against the Republic of the Philippines unless otherwise provided by law.”

Although, as a rule, costs are adjudged against the losing party, courts have discretion, “for special reasons,” to decree otherwise. When a lower court is reversed, the higher court normally does not award costs, because the losing party relied on the lower court’s judgment which is presumed to have been issued in good faith, even if found later on to be erroneous. Unless shown to be patently capricious, the award shall not be disturbed by a reviewing tribunal.

WHEREFORE, the Petition is GRANTED, and the assailed Decision and Resolution SET ASIDE. This disposition is without prejudice to proper proceedings for the accounting, the liquidation and the distribution of the remaining partnership assets, if any. No pronouncement as to costs.

SO ORDERED.

Puno, (Chairman), Corona, and Carpio-Morales, JJ., concur. Sandoval-Gutierrez, J., on official leave.

VILLAREAL VS. RAMIREZ G.R. No. 144214 July 14, 2003 FACTS: Villareal, C. Jose and J. Jose formed a partnership for the operation of a restaurant and catering business under the name “Aquarius Food House and Catering Services, each contributing 250K. Ramirez was later added, contributing 250K as well. After some time, one of them (J. Jose) withdrew from the partnership; his capital contribution was refunded to him in cash by agreement of the partners. Without prior knowledge of respondents, petitioners closed down the restaurant, allegedly because of increased rental. On March 1, 1987, The respondent spouses wrote petitioners, saying that they were no longer interested in continuing their partnership or in reopening the restaurant, and that they were accepting the latter’s offer to return their capital contribution. The repeated oral and written requests were, however, left unheeded Before the RTC, respondents subsequently filed a Complaintfor the collection of a sum of money from petitioners. the RTC ruled in favor of the respondents, ordering petitioners to pay damages and AF and costs. The CA sustained the lower court’s decision, and made a computation on the petitioners’ liability to respondents: Capital, at dissolution: **P1,000,000.00 Less: liability to creditors 240,658.00 Amount to be distributed to partners 759,342.00

Over: Number of partners 3 Each partner’s share at dissolution 253,114.00 ** which is erroneous, as this is the capital at the BEGINNING of the partnership Hence this petition. ISSUE: WON the CA computation was erroneous HELD: We hold that respondents have no right to demand from petitioners the return of their equity share. YES Generally, in the pursuit of a partnership business, its capital is either increased by profits earned or decreased by losses sustained. It does not remain static and unaffected by the changing fortunes of the business. In the computation of the amount to be refunded to respondents, The CA did not consider: 1. The omission of any provision for the depreciationof the furniture and the equipment. 2. The amortization of the goodwill is not reflected 3. The capitalization amount paid by the partnership to J. Jose when he withdrew from the partnership. Because of the above-mentioned transactions, the partnership capital was actually reduced. But the disposition is without prejudice to proper proceedings for the accounting, the liquidation and the distribution of the remaining partnership assets, if any

Republic of the Philippines SUPREME COURT

Manila

FIRST DIVISION

G.R. No. 70403 July 7, 1989

SANTIAGO SYJUCO, INC., petitioner, vs. HON. JOSE P. CASTRO, AS PRESIDING JUDGE OF THE REGI ONAL TRIAL COURT OF THE NATIONAL CAPITAL JUDICIAL REGION, BRANCH LXXXV, QUE ZON CITY, THE CITY SHERIFF OF THE CITY OF MANILA, THE CITY REGISTER OF DEEDS O F THE CITY OF MANILA, EUGENIO LIM, ARAMIS LIM, MARIO LIM, PAULINO LIM, LO RENZO LIM, NILA LIM and/ or THE

PARTNERSHIP OF THE HEIRS OF HUGO LIM and ATTORNEY P ATERNO P. CANLAS, respondents.

Doroteo B. Daguna and Felix D. Carao for petitioner.

Paterno Canlas for private respondents.

NARVASA, J.:

This case may well serve as a textbook example of how judicial processes, designed to promote the swift and efficient disposition of disputes at law, can be so grossly abused and manipulated as to produce precisely the opposite result; how they can be utilized by parties with small scruples to forestall for an unconscionably long time so essentially simple a matter as making the security given for a just debt answer for its payment.

The records of the present proceedings and of two other cases already decided by this Court expose how indeed the routine procedure of an extrajudicial foreclosure came by dint of brazen forum shopping and other devious maneuvering to grow into a veritable thicket of litigation from which the mortgagee has been trying to extricate itself for the last twenty years.

Back in November 1964, Eugenio Lim, for and in his own behalf and as attorney-in-fact of his mother, the widow Maria Moreno (now deceased) and of his brother Lorenzo, together with his other brothers, Aramis, Mario and Paulino, and his sister, Nila, all hereinafter collectively called the Lims, borrowed from petitioner Santiago Syjuco, Inc. (hereinafter, Syjuco only) the sum of P800,000.00. The loan was given on the security of a first mortgage on property registered in the names of said borrowers as owners in common under Transfer Certificates of Title Numbered 75413 and 75415 of the Registry of Deeds of Manila. Thereafter additional loans on the same security were obtained by the Lims from Syjuco, so that as of May 8, 1967, the aggregate of the loans stood at P2,460,000.00, exclusive of interest, and the security had been augmented by bringing into the mortgage other property, also registered as owned pro indiviso by the Lims under two titles: TCT Nos. 75416 and 75418 of the Manila Registry.

There is no dispute about these facts, nor about the additional circumstance that as stipulated in the mortgage deed the obligation matured on November 8, 1967; that the Lims failed to pay it despite demands therefor; that Syjuco consequently caused extra-judicial proceedings for the foreclosure of the mortgage to be commenced by the Sheriff of Manila; and that the latter scheduled the auction sale of the mortgaged property on December 27, 1968. 1 The attempt to foreclose triggered off a legal battle that has dragged on for more than twenty years now, fought through five (5) cases in the trial courts, 2 two (2) in the Court of Appeals, 3 and three (3) more in this Court, 4 with the end only now in sight.

1. CIVIL CASE NO. 75180, CFI MANILA, BR.5; CA-G.R. NO. 00242-R; G.R. NO. L-34683

To stop the foreclosure, the Lims — through Atty. Marcial G. Mendiola, who was later joined by Atty. Raul Correa — filed Civil Case No. 75180 on December 24,1968 in the Court of First Instance of Manila (Branch 5). In their complaint they alleged that their mortgage was void, being usurious for stipulating interest of 23% on top of 11 % that they had been required to pay as "kickback." An order restraining the auction sale was issued two days later, on December 26,1968, premised inter alia on

the Lims' express waiver of "their rights to the notice and re-publication of the notice of sale which may be conducted at some future date." 5

On November 25,1970, the Court of First Instance (then presided over by Judge Conrado M. Vasquez 6 rendered judgment finding that usury tained the mortgage without, however, rendering it void, declaring the amount due to be only Pl,136,235.00 and allowing the foreclosure to proceed for satisfaction of the obligation reckoned at only said amount . 7

Syjuco moved for new trial to enable it to present additional evidence to overthrow the finding of usury, and the Court ordered the case reopened for that purpose. The Lims tried to negate that order of reopening in the Court of Appeals, the proceedings being docketed as CA-G.R. No. 00242-R. They failed. The Court of Appeals upheld the Trial Court. The Lims then sought to nullify this action of the Appellate Court; towards that end, they filed with this Court a petition for certiorari and prohibition, docketed as G.R. No. L-34683. But here, too, they failed; their petition was dismissed. 8

Thereafter, and on the basis of the additional evidence adduced by Syjuco on remand of the case from this Court, the Trial Court promulgated an amended decision on August 16, 1972, reversing its previous holding that usury had flawed the Lims' loan obligation. It declared that the principal of said obligation indeed amounted to P2,460,000.00, exclusive of interest at the rate of 12% per annum from November 8, 1967, and, that obligation being already due, the defendants (Syjuco and the Sheriff of Manila) could proceed with the extrajudicial foreclosure of the mortgage given to secure its satisfaction. 9

2. APPEAL FROM CIVIL CASE NO. 75180; CA-G.R. NO. 51752; G.R. NO. L-45752

On September 9, 1972, Atty. Paterno R. Canlas entered his appearance in Civil Case No. 75180 as counsel for the Lims in collaboration with Atty. Raul Correa, and on the same date appealed to the Court of Appeals from the amended decision of August 16, 1972. 10 In that appeal, which was docketed as CA G.R. No. 51752, Messrs. Canlas and Correa prayed that the loans be declared usurious; that the principal of the loans be found to be in the total amount of Pl,269,505.00 only, and the interest thereon fixed at only 6% per annum from the filing of the complaint; and that the mortgage be also pronounced void ab initio. 11

The appeal met with no success. In a decision promulgated on October 25,1976, the Court of Appeals affirmed in toto the Trial Court's amended decision. 12

The Lims came to this Court seeking reversal of the appellate Court's decision. However, their petition for review-filed in their behalf by Canlas, and Atty. Pio R. Marcos, and docketed as G.R. No. L-45752-was denied for lack of merit in a minute resolution dated August 5, 1977. The Lims' motion for reconsideration was denied and entry of judgment was made on September 24,1977. 13 Here the matter should have ended; it marked only the beginning of Syjuco's travails.

3. CIVIL CASE NO.112762, CFI MANILA BRANCH 9

Syjuco then resumed its efforts to proceed with the foreclosure. It caused the auction sale of the mortgaged property to be scheduled on December 20, 1977, only to be frustrated again by another action filed by the Lims on December 19, 1977, docketed as Civil Case No. 112762 of the Court of First Instance of Manila. 14 The action sought to stop the sale on the ground that the notice of foreclosure had not been republished; this, notwithstanding that as earlier stressed, the restraining order of December 26, 1968 issued in Civil Case No 75180 explicitly declared itself to be predicated on the Lims' waiver of "their rights to the notice and republication of the notice of sale which may be conducted at

some future date." 15 An order restraining the sale issued in the case, although the petition for preliminary injunction was subsequently denied. A supplemental complaint was also filed by the Lims seeking recovery of some Pl million in damages allegedly suffered by reason of said lack of republication. 16

4. CIVIL CASE NO. 75180

That very same claim — that there had been no republication of the notice of sale, which was the foundation of the Lims' action in Civil Case No. 112762 as aforesaid — was made by the Lims the basis of an urgent motion filed on December 15, 1977 in Civil Case No. 75180, in which, as earlier narrated, the judgement authorizing the foreclosure had been affirmed by both the Court of Appeals and this Court, and had become final and executory. And that motion sought exactly the same remedy prayed for in Civil Case No. 112762 (filed by the Lims four [4] days later, on December 19, 1977), i.e., the prevention of the auction sale. The Court -- Branch 5, then presided over by Judge Jose H. Tecson — granted the restraining order on December 19, 1977, 17 the very same day that the Lims commenced Civil Case No. 112762 in the same Court and in which subsequent action they asked for and obtained a similar restraining order.

The Lims' counsel thus brought about the anomalous situation of two (2) restraining orders directed against the same auction sale, based on the same ground, issued by different courts having cognizance of two (2) separate proceedings instituted for identical objectives. This situation lasted for all of three (3) years, despite the republication of the notice of sale caused by Syjuco in January, 1978 in an effort to end all dispute about the matter, and despite Judge Tecson's having been made aware of Civil Case No. 112762. It should have been apparent to Judge Tecson that there was nothing more to be done in Civil Case No. 75180 except to enforce the judgment, already final and executory, authorizing the extrajudicial foreclosure of the mortgage, a judgment sanctioned, to repeat, by both the Court of Appeals and the Supreme Court; that there was in truth no need for another publication of the notice since the Lims had precisely waived such republication, this waiver having been the condition under which they had earlier obtained an order restraining the first scheduled sale; that, in any event, the republication effected by Syjuco had removed the only asserted impediment to the holding of the same; and that, finally, the Lims were acting in bad faith: they were maintaining proceedings in two (2) different courts for essentially the same relief. 18 Incredibly, not only did Judge Tecson refuse to allow the holding of the auction sale, as was the only just and lawful course indicated by the circumstances, 19 he authorized the Lims to sell the mortgaged property in a private sale, 20 with the evident intention that the proceeds of the sale, which he directed to be deposited in court, would be divided between Syjuco and the Lims; this, in line with the patently specious theory advocated by the Lims' counsel that the bond flied by them for the postponement of the sale, set at P6 million by the Court (later increased by P 3 million) had superseded and caused novation of the mortgage. 21 The case lay fallow for a year, certain other, incidents arising and remaining unresolved on account of numerous postponements.

5. G.R. No. L-56014

Finally, on January 28, 1981, Syjuco betook itself to this Court, presumably no longer disposed to await Judge Tecson's pleasure or the Lims' convenience. It filed a petition for certiorari and prohibition, docketed as G.R. No. L-56014, alleging that in Civil Case No. 75180, Judge Tecson had gravely abused discretion in:

(1) unreasonably delaying the foreclosure of the mortgage;

(2) entertaining the Lims' motion to discharge said mortgage grounded on the theory that it had been superseded and novated by the Lims' act of filing the bond required by Judge Tecson in connection with the postponement of the foreclosure sale, and unreasonably delaying resolution of the issue; and

(3) authorizing the Lims to negotiate and consummate the private sale of the mortgaged property and motu proprio extending the period granted the Lims for the purpose, in disregard of the final and executory judgment rendered in the case.

By judgment rendered on September 21, 1982, after due proceedings, this Court 22 issued the writ prayed for and nullified the orders and actuations of Judge Tecson in Civil Case No. 75180. The judgment declared that:

(1) the republication by Syjuco of the notice of foreclosure sale rendered the complaint in Civil Case No. 112762 moot and academic; hence, said case could not operate to bar the sale;

(2) the Lims' bonds (of P 6 million and P 3 million), having by the terms thereof been given to guarantee payment of damages to Syjuco and the Sheriff of Manila resulting from the suspension of the auction sale, could not in any sense and from any aspect have the effect of superseding the mortgage or novating it;

(3) in fact, the bonds had become worthless when, as shown by the record, the bondsman's authority to transact non-life insurance business in the Philippines was not renewed, for cause, as of July 1, 1981.

The decision consequently decreed that the Sheriff of Manila should proceed with the mortgage sale, there being no further impediment thereto. 23

Notice of the decision was served on the Lims, through Atty. Canlas, on October 2, 1982. A motion for reconsideration was filed, 24 but the same was denied with finality for lack of merit and entry of final judgment was made on March 22,1983. 25

6. THE SECRET ACTION CIVIL CASE NO. Q-36845 OF THE REGIONAL TRIAL COURT, QUEZON CITY, JUDGE JOSE P. CASTRO, PRESIDING

Twelve (12) days after the Lims were served, as above mentioned, with notice of this Court's judgment in G.R. No. 56014, or on October 14,1982, they caused the filing with the Regional Trial Court of Quezon City of still another action, the third, also designed, like the first two, to preclude enforcement of the mortgage held by Syjuco.

This time the complaint was presented, not in their individual names, but in the name of a partnership of which they themselves were the only partners: "Heirs of Hugo Lim." The complaint advocated the theory that the mortgage which they, together with their mother, had individually constituted (and thereafter amended during the period from 1964 to 1967) over lands standing in their names in the Property Registry as owners pro indiviso, in fact no longer belonged to them at that time, having been earlier deeded over by them to the partnership, "Heirs of Hugo Lim", more precisely, on March 30, 1959, hence, said mortgage was void because executed by them without authority from the partnership.

The complaint was signed by a lawyer other than Atty. Canlas, but the records disclose that Atty. Canlas took over as counsel as of November 4,1982. The case, docketed as Civil Case No. Q-39295, was assigned to Branch 35 of the Quezon City Regional Trial Court, then presided over by Judge Jose P. Castro.

Judge Castro issued a restraining order on October 15, 1982. Then, Sheriff Perfecto G. Dalangin submitted a return of summons to the effect that on December 6, 1982 he —

.. served personally and left a copy of summons together with a copy of Complaint and its annexes x x upon defendant's office formerly at 313 Quirino Ave., Paranaque, Metro-Manila and now at 407 Dona Felisa Syjuco Building, Remedios St., corner Taft Avenue, Manila, through the Manager, a person of sufficient age and discretion duly authorized to receive service of such nature, but who refused to accept service and signed receipt thereof. 26

A vaguer return will be hard to find. It is impossible to discern from it where precisely the summons was served, whether at Quirino Avenue, Paranaque, or Taft Avenue, Manila; and it is inexplicable that the name of the person that the sheriff had been able to identify as the manager is not stated, the latter being described merely as "a person of sufficient age and discretion." In any event, as it was to claim later, Syjuco asserts that it was never so served with summons, or with any other notice, pleading, or motion relative to the case, for that matter.

On February 10, 1983, Atty. Canlas filed an ex-parte motion to declare Syjuco in default. The order of default issued the next day, also directing the plaintiff partnership to present evidence ex parte within three (3) days. On February 22, 1983, judgment by default was rendered, declaring void the mortgage in question because executed by the Lims without authority from the partnership which was and had been since March 30,1959 the exclusive owner of the mortgaged property, and making permanent an injunction against the foreclosure sale that had issued on January 14,1983. 27 Service of notice of the default judgment was, according to the return of the same Sheriff Perfecto Dalangin, effected on the following day, February 23, 1983. His return is a virtual copy of his earlier one regarding service of summons: it also states the place of service as the defendant's office, either at its former location, 313 Quirino Avenue, Paranaque, or at the later address, 407 Dona Felisa, Syjuco Building, Taft Avenue, Manila; and it also fails to identify the person on whom service was made, describing him only as "the clerk or person in charge" of the office. 28

Unaccountably, and contrary to what might be expected from the rapidity with which it was decided-twelve (12) days from February 10, 1983, when the motion to declare defendant Syjuco in default was filed-the case was afterwards allowed by Atty. Canlas to remain dormant for seventeen (17) months. He made no effort to have the judgment executed, or to avail of it in other actions instituted by him against Syjuco. The judgment was not to be invoked until sometime in or after July, 1984, again to stop the extrajudicial mortgage sale scheduled at or about that time at the instance of Syjuco, as shall presently be recounted.

7. Other Actions in the Interim:

a. CIVIL CASE No. 83-19018, RTC MANILA

While the Lims, through their partnership ("Heirs of Hugo Lim"), were prosecuting their action in the sala of Judge Castro, as above narrated, Syjuco once again tried to proceed with the foreclosure after entry of judgment had been made in G.R. No. 56014 on March 22, 1983. It scheduled the auction sale on July 30, 1983. But once again it was frustrated. Another obstacle was put up by the Lims and their counsel, Atty. Canlas. This was Civil Case No. 83-19018 of the Manila Regional Trial Court. The case was filed to stop the sale on the theory that what was sought to be realized from the sale was much in excess of the judgment in Civil Case No. 75180, and that there was absence of the requisite notice. It is significant that the judgment by default rendered by Judge Castro in Civil Case No. Q-36485 was not asserted as additional ground to support the cause of action. Be this as it may, a restraining order was issued on July 20,1983 in said Civil Case No. 83-9018. 29

b. CIVIL CASE NO. Q-32924, RTC QUEZON CITY

What the outcome of this case, No. 83-19018, is not clear. What is certain is (1) that the auction sale was re-scheduled for September 20, 1983, (2) that it was aborted because the Lims managed to obtain still another restraining order in another case commenced by their lawyer, Atty. Canlas: Civil Case No. Q-32924 of the Court of First Instance of Quezon City, grounded on the proposition that the publication of the notice of sale was defective; and (3) that the action was dismissed by the Regional Trial Court on February 3, 1984. 30

No other salient details about these two (2) cases are available in the voluminous records before the Court, except that it was Atty. Canlas who had filed them. He admits having done so unequivocally: "Thus, the undersigned counsel filed injunction cases in Civil Case No. 83-19018 and Civil Case No. 39294, Regional Trial Courts of Manila and Quezon City. ... " 31

7. RE-ACTIVATION OF CIVIL CASE NO. Q-36485, RTC, Q QUEZON CITY, BRANCH XXXV

Upon the dismissal of Civil Case No. 39294, Syjuco once more resumed its efforts to effect the mortgage sale which had already been stymied for more than fifteen (15) years. At its instance, the sheriff once again set a date for the auction sale. But on the date of the sale, a letter of Atty. Canlas was handed to the sheriff drawing attention to the permanent injunction of the sale embodied in the judgment by default rendered by Judge Castro in Civil Case No. Q- 36485. 32 Syjuco lost no time in inquiring about Civil Case No. Q-36485, and was very quickly made aware of the judgment by default therein promulgated and the antecedent events leading thereto. It was also made known that on July 9, 1984, Judge Castro had ordered execution of the judgment; that Judge Castro had on July 16, 1984 granted Atty. Canlas' motion to declare cancelled the titles to the Lims' mortgaged properties and as nun and void the annotation of the mortgage and its amendments on said titles, and to direct the Register of Deeds of Manila to issue new titles, in lieu of the old, in the name of the partnership, "Heirs of Hugo Lim." 33

On July 17,1984, Syjuco filed in said Civil Case No. Q-36485 a motion for reconsideration of the decision and for dismissal of the action, alleging that it had never been served with summons; that granting arguendo that service had somehow been made, it had never received notice of the decision and therefore the same had not and could not have become final; and that the action should be dismissed on the ground of bar by prior judgment premised on the final decisions of the Supreme Court in G.R. No. L-45752 and G.R. No. 56014.

Two other motions by Syjuco quickly followed. The first, dated July 20, 1984, prayed for abatement of Judge Castro's order decreeing the issuance of new certificates of title over the mortgaged lands in the name of the plaintiff partnership. 34 The second, filed on July 24, 1984, was a supplement to the motion to dismiss earlier filed, asserting another ground for the dismissal of the action, i.e., failure to state a cause of action, it appearing that the mortgaged property remained registered in the names of the individual members of the Lim family notwithstanding that the property had supposedly been conveyed to the plaintiff partnership long before the execution of the mortgage and its amendments,-and that even assuming ownership of the property by the partnership, the mortgage executed by all the partners was valid and binding under Articles 1811 and 1819 of the Civil Code. 35

The motions having been opposed in due course by the plaintiff partnership, they remained pending until January 31, 1985 when Syjuco moved for their immediate resolution. Syjuco now claims that Judge Castro never acted on the motions. The latter however states that that he did issue an order on February 22, 1985 declaring that he had lost jurisdiction to act thereon because, petitio principii, his decision had already become final and executory.

8. G.R.NO.L-70403; THE PROCEEDING AT BAR

For the third time Syjuco is now before this Court on the same matter. It filed on April 3, 1985 the instant petition for certiorari, prohibition and mandamus. It prays in its petition that the default judgment rendered against it by Judge Castro in said Civil Case No. Q-36485 be annulled on the ground of lack of service of summons, res judicata and laches, and failure of the complaint to state a cause of action; that the sheriff be commanded to proceed with the foreclosure of the mortgage on the property covered by Transfer Certificates of Title Numbered 75413, 75415, 75416 and 75418 of the Manila Registry; and that the respondents the Lims, Judge Castro, the Sheriff and the Register of Deeds of Manila, the partnership known as "Heirs of Hugo Lim," and Atty. Paterno R. Canlas, counsel for-the Lims and their partnership-be perpetually enjoined from taking any further steps to prevent the foreclosure.

The comment filed for the respondents by Atty. Canlas in substance alleged that (a) Syjuco was validly served with summons in Civil Case No. Q-36485, hence, that the decision rendered by default therein was also valid and, having been also duly served on said petitioner, became final by operation of law after the lapse of the reglementary appeal period; (b) finality of said decision removed the case from the jurisdiction of the trial court, which was powerless to entertain and act on the motion for reconsideration and motion to dismiss; (c) the petition was in effect an action to annul a judgment, a proceeding within the original jurisdiction of the Court of Appeals; (d) the plea of res judicata came too late because raised after the decision had already become final; moreover, no Identity of parties existed between the cases invoked, on the one hand, and Civil Case No. Q-36485, on the other, the parties in the former being the Lims in their personal capacities and in the latter, the Lim Partnership, a separate and distinct juridical entity; and the pleaded causes of action being different, usury in the earlier cases and authority of the parties to encumber partnership property in the case under review; (e) the plea of laches also came too late, not having been invoked in the lower court; and (f) the property involved constituted assets of the Lim partnership, being registered as such with the Securities and Exchange Commission. 36

On his own behalf Atty. Canlas submitted that he had no knowledge of the institution of Civil Case No. Q-36485 (though he admitted being collaborating counsel in said case); that he did not represent the Lims in all their cases against Syjuco, having been counsel for the former only since 1977, not for the last seventeen years as claimed by Syjuco; and that he had no duty to inform opposing counsel of the pendency of Civil Case No. Q-36485. 37

Respondent Judge Castro also filed a comment 38 disclaiming knowledge of previous controversies regarding the mortgaged property. He asserted that Syjuco had been properly declared in default for having failed to answer the complaint despite service of summons upon it, and that his decision in said case which was also properly served on Syjuco became final when it was not timely appealed, after which he lost jurisdiction to entertain the motion for reconsideration and motion to dismiss. He also denied having failed to act on said motions, adverting to an alleged order of February 22, 1985 where he declared his lack of jurisdiction to act thereon.

The respondent Register of Deeds for his part presented a comment wherein he stated that by virtue of an order of execution in Civil Case No. Q-36485, he had cancelled TCTs Nos. 75413, 75415, 75416 and 75418 of his Registry and prepared new certificates of title in lieu thereof, but that cancellation had been held in abeyance for lack of certain registration requirements and by reason also of the motion of Syjuco's Atty. Formoso to hold in abeyance enforcement of the trial court's order of July 16, 1984 as well as of the temporary restraining order subsequently issued by the Court. 39

It is time to write finis to this unedifying narrative which is notable chiefly for the deception, deviousness and trickery which have marked the private respondents' thus far successful attempts to avoid the payment of a just obligation. The record of the present proceeding and the other records already referred to, which the Court has examined at length, make it clear that the dispute should have been laid to rest more than eleven years ago, with entry of judgment of this Court (on September 24, 1977) in G.R. No. L-45752 sealing the fate of the Lims' appeal against the amended decision in Civil Case No. 75180 where they had originally questioned the validity of the mortgage and its foreclosure. That result, the records also show, had itself been nine (9) years in coming, Civil Case No. 75180 having been instituted in December 1968 and, after trial and judgment, gone through the Court of Appeals (in CA-G.R. No. 00242-R) and this Court (in G.R. No. 34683), both at the instance of the Lims, on the question of reopening before the amended decision could be issued.

Unwilling, however, to concede defeat, the Lims moved (in Civil Case No. 75180) to stop the foreclosure sale on the ground of lack of republication. On December 19,1977 they obtained a restraining order in said case, but this notwithstanding, on the very same date they filed another action (Civil Case No. 117262) in a different branch of the same Court of First Instance of Manila to enjoin the foreclosure sale on the same ground of alleged lack of republication. At about this time, Syjuco republished the notice of sale in order, as it was later to manifest, to end all further dispute.

That move met with no success. The Lims managed to persuade the judge in Civil Case No. 75180, notwithstanding his conviction that the amended decision in said case had already become final, not only to halt the foreclosure sale but also to authorize said respondents to dispose of the mortgaged property at a private sale upon posting a bond of P6,000,000.00 (later increased by P3,000,000.00) to guarantee payment of Syjuco's mortgage credit. This gave the Lims a convenient excuse for further suspension of the foreclosure sale by introducing a new wrinkle into their contentions-that the bond superseded the mortgage which should, they claimed, therefore be discharged instead of foreclosed.

Thus from the final months of 1977 until the end of 1980, a period of three years, Syjuco found itself fighting a legal battle on two fronts: in the already finally decided Civil Case No. 75180 and in Civil Case No. 117262, upon the single issue of alleged lack of republication, an issue already mooted by the Lims' earlier waiver of republication as a condition for the issuance of the original restraining order of December 26,1968 in Civil Case No. 75180, not to mention the fact that said petitioner had also tried to put an end to it by actually republishing the notice of sale.

With the advent of 1981, its pleas for early resolution having apparently fallen on deaf ears, Syjuco went to this Court (in G.R. No. L-56014) from which, on September 21, 1982, it obtained the decision already referred to holding, in fine, that there existed no further impediment to the foreclosure sale and that the sheriff could proceed with the same.

Said decision, instead of deterring further attempts to derail the foreclosure, apparently gave the signal for the clandestine filing this time — by the Partnership of the Heirs of Hugo Lim -on October 14,1982 of Civil Case No. Q-36485, the subject of the present petition, which for the first time asserted the claim that the mortgaged property had been contributed to the plaintiff partnership long before the execution of the Syjuco's mortgage in order to defeat the foreclosure.

Syjuco now maintains that it had no actual knowledge of the existence and pendency of Civil Case No. Q-36485 until confronted, in the manner already adverted to, with the fait accompli of a "final" judgment with permanent injunction therein, and nothing in the record disabuses the Court about the truth of this disclaimer. Indeed, considering what had transpired up to that denouement, it becomes quite evident that actuations of the Lims and their lawyer had been geared to keeping Syjuco in the dark about said case. Their filing of two other cases also seeking to enjoin the foreclosure sale (Civil

Case No. 83-19018, Regional Trial Court of Manila in July 1983, and Civil Case No. Q-32924, Regional Trial Court of Quezon City in September of the same year) after said sale had already been permanently enjoined by default judgment in Civil Case No. Q-36485, appears in retrospect to be nothing but a brace of feints calculated to keep Syjuco in that state of ignorance and to lull any apprehensions it mat may have harbored about encountering further surprises from any other quarter.

Further credence is lent to this appraisal by the unusually rapid movement of Civil Case No. Q-36485 itself in its earlier stages, which saw the motion to declare Syjuco in default filed, an order of default issued, evidence ex parte for the plaintiffs received and judgment by default rendered, all within the brief span of twelve days, February 10-22, 1983. Notice of said judgment was "served" on February 23, 1983, the day after it was handed down, only to be followed by an unaccountable lull of well over a year before it was ordered executed on July 9, 1984 — unaccountable, considering that previous flurry of activity, except in the context of a plan to rush the case to judgment and then divert Syjuco's attention to the Lims' moves in other directions so as to prevent discovery of the existence of the case until it was too late.

The Court cannot but condemn in the strongest terms this trifling with the judicial process which degrades the administration of justice, mocks, subverts and misuses that process for purely dilatory purposes, thus tending to bring it into disrepute, and seriously erodes public confidence in the will and competence of the courts to dispense swift justice.

Upon the facts, the only defense to the foreclosure that could possibly have merited the full-blown trial and appeal proceedings it actually went through was that of alleged usury pleaded in Civil Case No. 75180 and finally decided against the respondent Lims in G.R. No. L-45752 in September 1977. The other issues of failure to republish and discharge of mortgage by guarantee set up in succeeding actions were sham issues, questions without substance raised only for purposes of delay by the private respondents, in which they succeeded only too well. The claim urged in this latest case: that the mortgaged property had been contributed to the respondent partnership and was already property of said partnership when the individual Lims unauthorizedly mortgaged it to Syjuco, is of no better stripe, and this, too, is clear from the undisputed facts and the legal conclusions to be drawn therefrom.

The record shows that the respondent partnership is composed exclusively of the individual Lims in whose name all the cases herein referred to, with the sole exception of Civil Case No. Q-36485, were brought and prosecuted, their contribution to the partnership consisting chiefly, if not solely, of the property subject of the Syjuco mortgage. It is also a fact that despite its having been contributed to the partnership, allegedly on March 30, 1959, the property was never registered with the Register of Deeds in the name of the partnership, but to this date remains registered in the names of the Lims as owners in common. The original mortgage deed of November 14,1964 was executed by the Lims as such owners, as were all subsequent amendments of the mortgage. There can be no dispute that in those circumstances, the respondent partnership was chargeable with knowledge of the mortgage from the moment of its execution. The legal fiction of a separate juridical personality and existence will not shield it from the conclusion of having such knowledge which naturally and irresistibly flows from the undenied facts. It would violate all precepts of reason, ordinary experience and common sense to propose that a partnership, as commonly known to all the partners or of acts in which all of the latter, without exception, have taken part, where such matters or acts affect property claimed as its own by said partnership.

If, therefore, the respondent partnership was inescapably chargeable with knowledge of the mortgage executed by all the partners thereof, its silence and failure to impugn said mortgage within

a reasonable time, let alone a space of more than seventeen years, brought into play the doctrine of estoppel to preclude any attempt to avoid the mortgage as allegedly unauthorized.

The principles of equitable estoppel, sometimes called estoppel in pais, are made part of our law by Art. 1432 of the Civil Code. Coming under this class is estoppel by silence, which obtains here and as to which it has been held that:

... an estoppel may arise from silence as well as from words. 'Estoppel by silence' arises where a person, who by force of circumstances is under a duty to another to speak, refrains from doing so and thereby leads the other to believe in the existence of a state of facts in reliance on which he acts to his prejudice. Silence may support an estoppel whether the failure to speak is intentional or negligent.

Inaction or silence may under some circumstances amount to a misrepresentation and concealment of the facts, so as to raise an equitable estoppel. When the silence is of such a character and under such circumstances that it would become a fraud on the other party to permit the party who has kept silent to deny what his silence has induced the other to believe and act on, it will operate as an estoppel. This doctrine rests on the principle that if one maintains silence, when in conscience he ought to speak, equity will debar him from speaking when in conscience he ought to remain silent. He who remains silent when he ought to speak cannot be heard to speak when he should be silent. 40

And more to the point:

A property owner who knowingly permits another to sell or encumber the property, without disclosing his title or objecting to the transaction, is estopped to set up his title or interest as against a person who has been thereby misled to his injury.

x x x

An owner of real property who stands by and sees a third person selling or mortgaging it under claim of title without asserting his own title or giving the purchaser or mortgagee any notice thereof is estopped, as against such purchaser or mortgagee, afterward to assert his title; and, although title does not pass under these circumstances, a conveyance will be decreed by a court of equity. Especially is the rule applicable where the party against whom the estoppel is claimed, in addition to standing by, takes part in malting the sale or mortgage. 41

More specifically, the concept to which that species of estoppel which results from the non-disclosure of an estate or interest in real property has ordinarily been referred is fraud, actual or constructive. ... Although fraud is not an essential element of the original conduct working the estoppel, it may with perfect property be said that it would be fraudulent for the party to repudiate his conduct, and to assert a right or claim in contravention thereof. 42

Equally or even more preclusive of the respondent partnership's claim to the mortgaged property is the last paragraph of Article 1819 of the Civil Code, which contemplates a situation duplicating the circumstances that attended the execution of the mortgage in favor of Syjuco and therefore applies foursquare thereto:

Where the title to real property is in the names of all the partners a conveyance executed by all the partners passes all their rights in such property.

The term "conveyance" used in said provision, which is taken from Section 10 of the American Uniform Partnership Act, includes a mortgage.

Interpreting Sec. 10 of the Uniform Partnership Act, it has been held that the right to mortgage is included in the right to convey. This is different from the rule in agency that a special power to sell excludes the power to mortgage (Art. 1879). 43

As indisputable as the propositions and principles just stated is that the cause of action in Civil Case No. Q-36485 is barred by prior judgment. The right subsumed in that cause is the negation of the mortgage, postulated on the claim that the parcels of land mortgaged by the Lims to Syjuco did not in truth belong to them but to the partnership. Assuming this to be so, the right could have been asserted at the time that the Lims instituted their first action on December 24, 1968 in the Manila Court of First Instance, Civil Case No. 75180, or when they filed their subsequent actions: Civil Case No. 112762, on December 19, 1977; Civil Case No. 83-19018, in 1983, and Civil Case No. Q-39294, also in 1983. The claim could have been set up by the Lims, as members composing the partnership, "Heirs of Hugo Lim." It could very well have been put forth by the partnership itself, as co-plaintiff in the corresponding complaints, considering that the actions involved property supposedly belonging to it and were being prosecuted by the entire membership of the partnership, and therefore, the partnership was in actuality, the real party in interest. In fact, consistently with the Lims' theory, they should be regarded, in all the actions presented by them, as having sued for vindication, not of their individual rights over the property mortgaged, but those of the partnership. There is thus no reason to distinguish between the Lims, as individuals, and the partnership itself, since the former constituted the entire membership of the latter. In other words, despite the concealment of the existence of the partnership, for all intents and purposes and consistently with the Lims' own theory, it was that partnership which was the real party in interest in all the actions; it was actually represented in said actions by all the individual members thereof, and consequently, those members' acts, declarations and omissions cannot be deemed to be simply the individual acts of said members, but in fact and in law, those of the partnership.

What was done by the Lims — or by the partnership of which they were the only members-was to split their cause of action in violation of the well known rule that only one suit may be instituted for a single cause of action. 44 The right sought to be enforced by them in all their actions was, at bottom, to strike down the mortgage constituted in favor of Syjuco, a right which, in their view, resulted from several circumstances, namely that the mortgage was constituted over property belonging to the partnership without the latter's authority; that the principal obligation thereby secured was usurious; that the publication of the notice of foreclosure sale was fatally defective, circumstances which had already taken place at the time of the institution of the actions. They instituted four (4) actions for the same purpose on one ground or the other, making each ground the subject of a separate action. Upon these premises, application of the sanction indicated by law is caned for, i.e., the judgment on the merits in any one is available as a bar in the others. 45

The first judgment-rendered in Civil Case No. 75180 and affirmed by both the Court of Appeals (CA-G.R. No. 51752) and this Court (G.R. No. L-45752) should therefore have barred all the others, all the requisites of res judicata being present. The judgment was a final and executory judgment; it had been rendered by a competent court; and there was, between the first and subsequent cases, not only identity of subject-matter and of cause of action, but also of parties. As already pointed out, the plaintiffs in the first four (4) actions, the Lims, were representing exactly the same claims as those of the partnership, the plaintiff in the fifth and last action, of which partnership they were the only members, and there was hence no substantial difference as regards the parties plaintiff in all the actions. Under the doctrine of res judicata, the judgment in the first was and should have been

regarded as conclusive in all other, actions not only "with respect to the matter directly adjudged," but also "as to any other matter that could have been raised in relation thereto. " 46 It being indisputable that the matter of the partnership's being the owner of the mortgaged properties "could have been raised in relation" to those expressly made issuable in the first action, it follows that that matter could not be re-litigated in the last action, the fifth.

Though confronted with the facts thus precluding the respondent partnership's claim to the property under both the principle of estoppel and the provisions of Article 1819, last paragraph, of the Civil Code, as well as the familiar doctrine of res judicata, the respondent Judge refused to act on Syjuco's motions on the ground that he no longer had jurisdiction to do so because they were filed after judgment by default against Syjuco, which failed to answer the complaint despite valid service of summons, had been rendered and become final. The sheriffs return, however, creates grave doubts about the correctness of the Judge's basic premise that summons had been validly served on Syjuco. For one thing, the return 47 is unspecific about where service was effected. No safe conclusion about the place of service can be made from its reference to a former and a present office of Syjuco in widely separate locations, with nothing to indicate whether service was effected at one address or the other, or even at both. A more serious defect is the failure to name the person served who is, with equal ambiguity, identified only as "the Manager" of the defendant corporation (petitioner herein). Since the sheriffs return constitutes primary evidence of the manner and incidents of personal service of a summons, the Rules are quite specific about what such a document should contain:

SEC. 20. Proof of service. — The proof of service of a summons shall be made in writing by the server and shall set forth the manner, place and date of service; shall specify any papers which have been served with the process and the name of the person who received the same; and shall be sworn to when made by a person other than a sheriff or his deputy. 48

In the case of Delta Motor Sales Corporation vs. Mangosing 49 it was held that:"

(a) strict compliance with the mode of service is necessary to confer jurisdiction of the court over a corporation. The officer upon whom service is made must be one who is named in the statute; otherwise the service is insufficient. So, where the statute requires that in the case of a domestic corporation summons should be served on 'the president or head of the corporation, secretary, treasurer, cashier or managing agent thereof, service of summons on the secretary's wife did not confer jurisdiction over the corporation in the foreclosure proceeding against it. Hence, the decree of foreclosure and the deficiency judgment were void and should be vacated (Reader vs. District Court, 94 Pacific 2nd 858).

The purpose is to render it reasonably certain that the corporation will receive prompt and proper notice in an action against it or to insure that the summons be served on a representative so integrated with the corporation that such person will know what to do with the legal papers served on him. In other words, 'to bring home to the corporation notice of the filing of the action'. (35 A C.J.S. 288 citing Jenkins vs. Lykes Bros. S.S. Co., 48 F. Supp. 848; MacCarthy vs. Langston, D.C. Fla., 23 F.R.D. 249).

The liberal construction rule cannot be invoked and utilized as a substitute for the plain legal requirements as to the manner in which summons should be served on a domestic corporation (U.S. vs. Mollenhauer Laboratories, Inc., 267 Fed. Rep. 2nd 260).'

The rule cannot be any less exacting as regards adherence to the requirements of proof of service, it being usually by such proof that sufficiency of compliance with the prescribed mode of service is

measured. Here the only proof of service of summons is the questioned sheriff's return which, as already pointed out, is not only vague and unspecific as to the place of service, but also neglects to Identify by name the recipient of the summons as required by Rule 20, Section 14, of the Rules of Court. Where the sheriffs return is defective the presumption of regularity in the performance of official functions will not lie. 50 The defective sheriffs return thus being insufficient and incompetent to prove that summons was served in the manner prescribed for service upon corporations, there is no alternative to affirming the petitioner's claim that it had not been validly summoned in Civil Case No. Q-36485. It goes without saying that lacking such valid service, the Trial Court did not acquire jurisdiction over the petitioner Syjuco, rendering null and void all subsequent proceedings and issuances in the action from the order of default up to and including the judgment by default and the order for its execution. 51

The respondents' contention that the petition is in effect an action to annul a judgment which is within the exclusive original jurisdiction of the Court of Appeals 52 has already been answered in Matanguihan vs. Tengco 53 where, by declaring that an action for annulment of judgment is not a plain, speedy and adequate remedy, this Court in effect affirmed that certiorari is an appropriate remedy against judgments or proceedings alleged to have been rendered or had without valid service of summons. 54

Respondent Judge Castro begged the question when, instead of resolving on the merits the issue of the invalidity of his default judgment and of the proceedings leading thereto because of absence of valid service of summons on the defendant, which had been expressly raised in the defendant's motion for reconsideration, he simply refused to do so on the excuse that he had lost jurisdiction over the case. This refusal was, in the premises, a grave abuse of judicial discretion which must be rectified.

What has been said makes unnecessary any further proceedings in the Court below, which might otherwise be indicated by the consideration that two of the postulates of petitioner's unresolved motions which the Court considers equally as decisive as res judicata, to wit: estoppel by silence and Article 1819, last paragraph, of the Civil Code, do not constitute grounds for a motion to dismiss under rule 16, of the Rules of Court. Such a step would only cause further delay. And delay has been the bane of petitioner's cause, defying through all these years all its efforts to collect on a just debt.

The undenied and undisputable facts make it perfectly clear that the claim to the mortgaged property belatedly and in apparent bad faith pressed by the respondent partnership is foreclosed by both law and equity. Further proceedings will not make this any clearer than it already is. The Court is clothed with ample authority, in such a case, to call a halt to all further proceedings and pronounce judgment on the basis of what is already manifestly of record.

So much for the merits; the consequences that should attend the inexcusable and indefensible conduct of the respondents Lims, the respondent partnership and their counsel, Atty. Paterno R. Canlas, should now be addressed. That the Lims and their partnership acted in bad faith and with intent to defraud is manifest in the record of their actuations, presenting as they did, piecemeal and in one case after another, defenses to the foreclosure or claims in derogation thereof that were available to them from the very beginning — actuations that were to stave off the liquidation of an undenied debt for more than twenty years and culminated in the clandestine filing and prosecution of the action subject of the present petition.

What has happened here, it bears repeating, is nothing less than an abuse of process, a trifling with the courts and with the rights of access thereto, for which Atty. Canlas must share responsibility equally with his clients. The latter could not have succeeded so well in obstructing the course of justice without his aid and advice and his tireless espousal of their claims and pretensions made in the various cases chronicled here. That the cause to which he lent his advocacy was less than just or worthy could not have escaped him, if not at the start of his engagement, in the years that

followed when with his willing assistance, if not instigation, it was shuttled from one forum to another after each setback. This Court merely stated what is obvious and cannot be gainsaid when, inSurigao Mineral Reservation Board vs. Cloribel, 55 it held that a party's lawyer of record has control of the proceedings and that '(w)hatever steps his client takes should be within his knowledge and responsibility."

In Prudential Bank vs. Castro, 56 strikingly similar actuations in a case, which are described in the following paragraph taken from this Court's decision therein:

Respondents' foregoing actuations reveal an 'unholy alliance' between them and a clear indication of partiality for the party represented by the other to the detriment of the objective dispensation of justice. Writs of Attachment and Execution were issued and implemented with lightning speed; the case itself was railroaded to a swift conclusion through a similar judgment; astronomical sums were awarded as damages and attorney's fees; and topping it all, the right to appeal was foreclosed by clever maneuvers," and which, the Court found, followed a pattern of conduct in other cases of which judicial notice was taken, were deemed sufficient cause for disbarment.

Atty. Canlas even tried to mislead this Court by claiming that he became the Lims' lawyer only in 1977, 57 when the record indubitably shows that he has represented them since September 9, 1972 when he first appeared for them to prosecute their appeal in Civil Case No. 75180. 58 He has also quite impenitently disclaimed a duty to inform opposing counsel in Civil Case No. Q-39294 of the existence of Civil Case No. Q-36485, as plaintiffs' counsel in both actions, even while the former, which involved the same mortgage, was already being litigated when the latter was filed, although in the circumstances such disclosure was required by the ethics of his profession, if not indeed by his lawyer's oath.

A clear case also exists for awarding at least nominal damages to petitioner, though damages are not expressly prayed for, under the general prayer of the petition for "such other reliefs as may be just and equitable under the premises," and the action being not only of certiorari and prohibition, but also of mandamus-in which the payment of "damages sustained by the petitioner by reason of the wrongful acts of the defendant' is expressly authorized.59

There is no question in the Court's mind that such interests as may have accumulated on the mortgage loan will not offset the prejudice visited upon the petitioner by the excruciatingly long delay in the satisfaction of said debt that the private respondents have engineered and fomented.

These very same considerations dictate the imposition of exemplary damages in accordance with Art. 2229 of the Civil Code.

WHEREFORE, so that complete justice may be dispensed here and, as far as consistent with that end, all the matters and incidents with which these proceedings are concerned may be brought to a swift conclusion:

(1) the assailed judgment by default in Civil Case No.Q-36485, the writ of execution and all other orders issued in implementation thereof, and all proceedings in the case leading to said judgment after the filing of the complaint are DECLARED null and void and are hereby SET ASIDE; and the complaint in said case is DISMISSED for being barred by prior judgment and estoppel, and for lack of merit;

(2) the City Sheriff of Manila is ORDERED, upon receipt of this Decision, to schedule forthwith and thereafter conduct with all due dispatch the sale at public auction of the

mortgaged property in question for the satisfaction of the mortgage debt of the respondents Lims to petitioner, in the principal amount of P2,460,000.00 as found in the amended decision in Civil Case No. 75180 of the Court of First Instance of Manila, interests thereon at the rate of twelve (12%) percent per annum from November 8, 1967 until the date of sale, plus such other and additional sums for commissions, expenses, fees, etc. as may be lawfully chargeable in extrajudicial foreclosure and sale proceedings;

(3) the private respondents, their successors and assigns, are PERPETUALLY ENJOINED from taking any action whatsoever to obstruct, delay or prevent said auction sale;

(4) the private respondents (the Lims, the Partnership of the Heirs of Hugo Lim and Atty. Paterno R. Canlas) are sentenced, jointly and severally, to pay the petitioner P25,000.00 as nominal damages and P100,000.00 as exemplary damages, as well as treble costs; and

(5) let this matter be referred to the Integrated Bar of the Philippines for investigation, report, and recommendation insofar as the conduct of Atty. Canlas as counsel in this case and in the other cases hereinabove referred to is concerned.

SO ORDERED.

Cruz, Gancayco, Griño-Aquino and Medialdea, JJ., concur.

Republic of the Philippines SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 109248 July 3, 1995

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

VITUG, J.:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not dissolve the said law partnership. Accordingly, the petitioner and respondents are hereby enjoined to abide by the provisions of the Agreement relative to the matter governing the liquidation of the shares of any retiring or withdrawing partner in the partnership interest." 1

On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa & Lozada." The Commission ruled that, being a partnership at will, the law firm could be dissolved by any partner at anytime, such as by his withdrawal therefrom, regardless of good faith or bad faith, since no partner can be forced to continue in the partnership against his will. In its decision, dated 17 January 1990, the SEC held:

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

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

reconsideration, as well as rejecting the petition for receivership, and reiterating the remand of the case to the Hearing Officer.

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

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

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

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

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

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

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

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

A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a partnership need not be unduly belabored. We quote, with approval, like did the appellate court, the findings and disquisition of respondent SEC on this matter; viz:

The partnership agreement (amended articles of 19 August 1948) does not provide for a specified period or undertaking. The "DURATION" clause simply states:

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

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

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

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

The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to choose with whom a person wishes to associate himself is the very foundation and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve, along with each partner's capability to give it, and the absence of a cause for dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the partnership 4 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 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. 12Indeed, 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.

Feliciano, Romero, Melo and Francisco, JJ., concur.

Gregorio Ortega, Tomas del Castillo, Jr. and Benjamin Bacorro v. CA, SEC and Joaquin Misa

G.R. No. 109248 July 3, 1995

Vitug, J.

Facts:

Ortega, then a senior partner in the law firm Bito, Misa, and Lozada withdrew in said firm.

He filed with SEC a petition for dissolution and liquidation of partnership.

SEC en banc ruled that withdrawal of Misa from the firm had dissolved the partnership.Reason: since

it is partnership at will, the law firm could be dissolved by any partner atanytime, such as by withdrawal

therefrom, regardless of good faith or bad faith, since nopartner can be forced to continue in the

partnership against his will.

Issue:

1. WON the partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo)is a partnership at

will; 2. WON the withdrawal of Misa dissolved the partnership regardlessof his good or bad faith;

Held:

1. Yes. The partnership agreement of the firm provides that ”[t]he partnership shallcontinue so long as

mutually satisfactory and upon the death or legal incapacity of one of the partners, shall be continued

by the surviving partners.”2. Yes. Any one of the partners may, at his sole pleasure, dictate a dissolution

of thepartnership at will (e.g. by way of withdrawal of a partner). He must, however, act in goodfaith,

not that the attendance of bad faith can prevent the dissolution of the partnership butthat it can result

in a liability for damages