G.R. No.

143340 August 15, 2001

LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners,

vs.
LAMBERTO T. CHUA, respondent.

GONZAGA-REYES, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court of the Decision1 of
the Court of Appeals dated January 31, 2000 in the case entitled "Lamberto T. Chua vs. Lilibeth
Sunga Chan and Cecilia Sunga" and of the Resolution dated May 23, 2000 denying the motion for
reconsideration of herein petitioners Lilibeth Sunga and Cecilia Sunga (hereafter collectively referred
to as petitioners).

The pertinent facts of this case are as follows:

On June 22, 1992, Lamberto T. Chua (hereafter respondent) filed a complaint against Lilibeth Sunga
Chan (hereafter petitioner Lilibeth) and Cecilia Sunga (hereafter petitioner Cecilia), daughter and
wife, respectively of the deceased Jacinto L. Sunga (hereafter Jacinto), for "Winding Up of
Partnership Affairs, Accounting, Appraisal and Recovery of Shares and Damages with Writ of
Preliminary Attachment" with the Regional Trial Court, Branch 11, Sindangan, Zamboanga del Norte.

Respondent alleged that in 1977, he verbally entered into a partnership with Jacinto in the
distribution of Shellane Liquefied Petroleum Gas (LPG) in Manila. For business convenience,
respondent and Jacinto allegedly agreed to register the business name of their partnership,
SHELLITE GAS APPLIANCE CENTER (hereafter Shellite), under the name of Jacinto as a sole
proprietorship. Respondent allegedly delivered his initial capital contribution of P100,000.00 to
Jacinto while the latter in turn produced P100,000.00 as his counterpart contribution, with the
intention that the profits would be equally divided between them. The partnership allegedly had
Jacinto as manager, assisted by Josephine Sy (hereafter Josephine), a sister of the wife respondent,
Erlinda Sy. As compensation, Jacinto would receive a manager's fee or remuneration of 10% of the
gross profit and Josephine would receive 10% of the net profits, in addition to her wages and other
remuneration from the business.

Allegedly, from the time that Shellite opened for business on July 8, 1977, its business operation
went quite and was profitable. Respondent claimed that he could attest to success of their business
because of the volume of orders and deliveries of filled Shellane cylinder tanks supplied by Pilipinas
Shell Petroleum Corporation. While Jacinto furnished respondent with the merchandise inventories,
balance sheets and net worth of Shellite from 1977 to 1989, respondent however suspected that the
amount indicated in these documents were understated and undervalued by Jacinto and Josephine
for their own selfish reasons and for tax avoidance.

Upon Jacinto's death in the later part of 1989, his surviving wife, petitioner Cecilia and particularly his
daughter, petitioner Lilibeth, took over the operations, control, custody, disposition and management
of Shellite without respondent's consent. Despite respondent's repeated demands upon petitioners
for accounting, inventory, appraisal, winding up and restitution of his net shares in the partnership,
petitioners failed to comply. Petitioner Lilibeth allegedly continued the operations of Shellite,
converting to her own use and advantage its properties.

On March 31, 1991, respondent claimed that after petitioner Lilibeth ran out the alibis and reasons to
evade respondent's demands, she disbursed out of the partnership funds the amount of
P200,000.00 and partially paid the same to respondent. Petitioner Lilibeth allegedly informed
respondent that the P200,000.00 represented partial payment of the latter's share in the partnership,
with a promise that the former would make the complete inventory and winding up of the properties
of the business establishment. Despite such commitment, petitioners allegedly failed to comply with
their duty to account, and continued to benefit from the assets and income of Shellite to the damage
and prejudice of respondent.

On December 19, 1992, petitioners filed a Motion to Dismiss on the ground that the Securities and
Exchange Commission (SEC) in Manila, not the Regional Trial Court in Zamboanga del Norte had
jurisdiction over the action. Respondent opposed the motion to dismiss.

On January 12, 1993, the trial court finding the complaint sufficient in from and substance denied the
motion to dismiss.

On January 30, 1993, petitioners filed their Answer with Compulsory Counter-claims, contending that
they are not liable for partnership shares, unreceived income/profits, interests, damages and
attorney's fees, that respondent does not have a cause of action against them, and that the trial
court has no jurisdiction over the nature of the action, the SEC being the agency that has original
and exclusive jurisdiction over the case. As counterclaim, petitioner sought attorney's fees and
expenses of litigation.

On August 2, 1993, petitioner filed a second Motion to Dismiss this time on the ground that the claim
for winding up of partnership affairs, accounting and recovery of shares in partnership affairs,
accounting and recovery of shares in partnership assets/properties should be dismissed and
prosecuted against the estate of deceased Jacinto in a probate or intestate proceeding.

On August 16, 1993, the trial denied the second motion to dismiss for lack of merit.

On November 26, 1993, petitioners filed their Petition for Certiorari, Prohibition and Mandamus with
the Court of Appeals docketed as CA-G.R. SP No. 32499 questioning the denial of the motion to
dismiss.

On November 29, 1993, petitioners filed with the trial court a Motion to Suspend Pre-trial
Conference.

On December 13, 1993, the trial court granted the motion to suspend pre-trial conference.

On November 15, 1994, the Court of Appeals denied the petition for lack of merit.

On January 16, 1995, this Court denied the petition for review on certiorari filed by petitioner, "as
petitioners failed to show that a reversible error was committed by the appellate court."2

On February 20, 1995, entry of judgment was made by the Clerk of Court and the case was
remanded to the trial court on April 26, 1995.

On September 25, 1995, the trial court terminated the pre-trial conference and set the hearing of the
case of January 17, 1996. Respondent presented his evidence while petitioners were considered to
have waived their right to present evidence for their failure to attend the scheduled date for reception
of evidence despite notice.

On October 7, 1997, the trial court rendered its Decision ruling for respondent. The dispositive of the
Decision reads:
 "WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendants, as follows:

(1) DIRECTING them to render an accounting in acceptable form under accounting

procedures and standards of the properties, assets, income and profits of the Shellite
Gas Appliance Center Since the time of death of Jacinto L. Sunga, from whom they
continued the business operations including all businesses derived from Shellite Gas
Appliance Center, submit an inventory, and appraisal of all these properties, assets,
income, profits etc. to the Court and to plaintiff for approval or disapproval;

(2) ORDERING them to return and restitute to the partnership any and all properties,
assets, income and profits they misapplied and converted to their own use and
advantage the legally pertain to the plaintiff and account for the properties mentioned
in pars. A and B on pages 4-5 of this petition as basis;

(3) DIRECTING them to restitute and pay to the plaintiff ½ shares and interest of the
plaintiff in the partnership of the listed properties, assets and good will (sic) in
schedules A, B and C, on pages 4-5 of the petition;

(4) ORDERING them to pay the plaintiff earned but unreceived income and profits
from the partnership from 1988 to May 30, 1992, when the plaintiff learned of the
closure of the store the sum of P35,000.00 per month, with legal rate of interest until
fully paid;

(5) ORDERING them to wind up the affairs of the partnership and terminate its
business activities pursuant to law, after delivering to the plaintiff all the ½ interest,
shares, participation and equity in the partnership, or the value thereof in money or
money's worth, if the properties are not physically divisible;

(6) FINDING them especially Lilibeth Sunga-Chan guilty of breach of trust and in bad
faith and hold them liable to the plaintiff the sum of P50,000.00 as moral and
exemplary damages; and,

(7) DIRECTING them to reimburse and pay the sum of P25,000.00 as attorney's (sic)
and P25,000.00 as litigation expenses.

NO special pronouncements as to COSTS.

SO ORDERED."3

On October 28, 1997, petitioners filed a Notice of Appeal with the trial court, appealing the case to
the Court of Appeals.

On January 31, 2000, the Court of Appeals dismissed the appeal. The dispositive portion of the
Decision reads:

"WHEREFORE, the instant appeal is dismissed. The appealed decision is AFFIRMED in all
respects."4

On May 23, 2000, the Court of Appeals denied the motion for reconsideration filed by petitioner.
Hence, this petition wherein petitioner relies upon following grounds:

"1. The Court of Appeals erred in making a legal conclusion that there existed a partnership
between respondent Lamberto T. Chua and the late Jacinto L. Sunga upon the latter''
invitation and offer and that upon his death the partnership assets and business were taken
over by petitioners.

2. The Court of Appeals erred in making the legal conclusion that laches and/or prescription
did not apply in the instant case.

3. The Court of Appeals erred in making the legal conclusion that there was competent and
credible evidence to warrant the finding of a partnership, and assuming arguendo that
indeed there was a partnership, the finding of highly exaggerated amounts or values in the
partnership assets and profits."5

Petitioners question the correctness of the finding of the trial court and the Court of Appeals that a
partnership existed between respondent and Jacinto from 1977 until Jacinto's death. In the absence
of any written document to show such partnership between respondent and Jacinto, petitioners
argues that these courts were proscribes from hearing the testimonies of respondent and his
witness, Josephine, to prove the alleged partnership three years after Jacinto's death. To support
this argument, petitioners invoke the "Dead Man's Statute' or "Survivorship Rule" under Section 23,
Rule 130 of the Rules of Court that provides:

"SEC. 23. Disqualification by reason of death or insanity of adverse party. – Parties or

assignors of parties to a case, or persons in whose behalf a case is prosecuted, against an
executor or administrator or other representative of a deceased person, or against a person
of unsound mind, upon a claim or demand against the estate of such deceased person, or
against such person of unsound mind, cannot testify as to any matter of fact occurring before
the death of such deceased person or before such person became of unsound mind."

Petitioners thus implore this Court to rule that the testimonies of respondent and his alter ego,
Josephine, should not have been admitted to prove certain claims against a deceased person
(Jacinto), now represented by petitioners.

We are not persuaded.

A partnership may be constituted in any form, except where immovable property of real rights are
contributed thereto, in which case a public instrument shall necessary.6 Hence, based on the
intention of the parties, as gathered from the facts and ascertained from their language and conduct,
a verbal contract of partnership may arise.7 The essential profits that must be proven to that a
partnership was agreed upon are (1) mutual contribution to a common stock, and (2) a joint interest
in the profits.8 Understandably so, in view of the absence of the written contract of partnership
between respondent and Jacinto, respondent resorted to the introduction of documentary and
testimonial evidence to prove said partnership. The crucial issue to settle then is to whether or not
the "Dead Man's Statute" applies to this case so as to render inadmissible respondent's testimony
and that of his witness, Josephine.

The "Dead Man's Statute" provides that if one party to the alleged transaction is precluded from
testifying by death, insanity, or other mental disabilities, the surviving party is not entitled to the
undue advantage of giving his own uncontradicted and unexplained account of the transaction.9 But
before this rule can be successfully invoked to bar the introduction of testimonial evidence, it is
necessary that:
 "1. The witness is a party or assignor of a party to case or persons in whose behalf a case in
prosecuted.

2. The action is against an executor or administrator or other representative of a deceased

person or a person of unsound mind;

3. The subject-matter of the action is a claim or demand against the estate of such deceased
person or against person of unsound mind;

4. His testimony refers to any matter of fact of which occurred before the death of such
deceased person or before such person became of unsound mind."10

Two reasons forestall the application of the "Dead Man's Statute" to this case.

First, petitioners filed a compulsory counterclaim11 against respondents in their answer before the trial
court, and with the filing of their counterclaim, petitioners themselves effectively removed this case
from the ambit of the "Dead Man's Statute".12 Well entrenched is the rule that when it is the executor
or administrator or representatives of the estates that sets up the counterclaim, the plaintiff, herein
respondent, may testify to occurrences before the death of the deceased to defeat the
counterclaim.13 Moreover, as defendant in the counterclaim, respondent is not disqualified from
testifying as to matters of facts occurring before the death of the deceased, said action not having
been brought against but by the estate or representatives of the deceased.14

Second, the testimony of Josephine is not covered by the "Dead Man's Statute" for the simple
reason that she is not "a party or assignor of a party to a case or persons in whose behalf a case is
prosecuted." Records show that respondent offered the testimony of Josephine to establish the
existence of the partnership between respondent and Jacinto. Petitioners' insistence that Josephine
is the alter ego of respondent does not make her an assignor because the term "assignor" of a party
means "assignor of a cause of action which has arisen, and not the assignor of a right assigned
before any cause of action has arisen."15 Plainly then, Josephine is merely a witness of respondent,
the latter being the party plaintiff.

We are not convinced by petitioners' allegation that Josephine's testimony lacks probative value
because she was allegedly coerced coerced by respondent, her brother-in-law, to testify in his favor,
Josephine merely declared in court that she was requested by respondent to testify and that if she
were not requested to do so she would not have testified. We fail to see how we can conclude from
this candid admission that Josephine's testimony is involuntary when she did not in any way
categorically say that she was forced to be a witness of respondent.

Also, the fact that Josephine is the sister of the wife of respondent does not diminish the value of her
testimony since relationship per se, without more, does not affect the credibility of witnesses.16

Petitioners' reliance alone on the "Dead Man's Statute" to defeat respondent's claim cannot prevail
over the factual findings of the trial court and the Court of Appeals that a partnership was established
between respondent and Jacinto. Based not only on the testimonial evidence, but the documentary
evidence as well, the trial court and the Court of Appeals considered the evidence for respondent as
sufficient to prove the formation of partnership, albeit an informal one.

Notably, petitioners did not present any evidence in their favor during trial. By the weight of judicial
precedents, a factual matter like the finding of the existence of a partnership between respondent
and Jacinto cannot be inquired into by this Court on review.17 This Court can no longer be tasked to
go over the proofs presented by the parties and analyze, assess and weigh them to ascertain if the
trial court and the appellate court were correct in according superior credit to this or that piece of
evidence of one party or the other.18 It must be also pointed out that petitioners failed to attend the
presentation of evidence of respondent. Petitioners cannot now turn to this Court to question the
admissibility and authenticity of the documentary evidence of respondent when petitioners failed to
object to the admissibility of the evidence at the time that such evidence was offered.19

With regard to petitioners' insistence that laches and/or prescription should have extinguished
respondent's claim, we agree with the trial court and the Court of Appeals that the action for
accounting filed by respondents three (3) years after Jacinto's death was well within the prescribed
period. The Civil Code provides that an action to enforce an oral contract prescribes in six (6)
years20 while the right to demand an accounting for a partner's interest as against the person
continuing the business accrues at the date of dissolution, in the absence of any contrary
agreement.21 Considering that the death of a partner results in the dissolution of the partnership22 , in
this case, it was Jacinto's death that respondent as the surviving partner had the right to an account
of his interest as against petitioners. It bears stressing that while Jacinto's death dissolved the
partnership, the dissolution did not immediately terminate the partnership. The Civil Code23 expressly
provides that upon dissolution, the partnership continues and its legal personality is retained until the
complete winding up of its business, culminating in its termination.24

In a desperate bid to cast doubt on the validity of the oral partnership between respondent and
Jacinto, petitioners maintain that said partnership that had initial capital of P200,000.00 should have
been registered with the Securities and Exchange Commission (SEC) since registration is mandated
by the Civil Code, True, Article 1772 of the Civil Code requires that partnerships with a capital of
P3,000.00 or more must register with the SEC, however, this registration requirement is not
mandatory. Article 1768 of the Civil Code25 explicitly provides that the partnership retains its juridical
personality even if it fails to register. The failure to register the contract of partnership does not
invalidate the same as among the partners, so long as the contract has the essential requisites,
because the main purpose of registration is to give notice to third parties, and it can be assumed that
the members themselves knew of the contents of their contract.26 In the case at bar, non-compliance
with this directory provision of the law will not invalidate the partnership considering that the totality
of the evidence proves that respondent and Jacinto indeed forged the partnership in question.

WHEREFORE, in view of the foregoing, the petition is DENIED and the appealed decision is
AFFIRMED.

SO ORDERED. 1âw phi 1.nêt

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

G.R. No. 110782 September 25, 1998

IRMA IDOS, petitioner,

vs.
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.

QUISUMBING, J.:

Before this Court is the petition for review of the Decision of respondent Court of
Appeals 1 dismissing petitioner's appeal in CA-G.R. CR No. 11960; and affirming her conviction as
well as the sentence imposed on her by the Regional Trial Court of Malolos, Bulacan, in Criminal
Case No. 1395-M-88 2 as follows:

WHEREFORE . . . the (c)ourt finds the accused Irma Idos guilty beyond reasonable
doubt and is hereby sentenced to suffer the penalty of imprisonment of six (6)
months and to pay a fine of P135,000.00 and to pay private complainant Eddie
Alarilla the amount of the check in question of P135,000.00 at 12% interest from the
time of the filing of the (i)nformation (August 10, 1988) until said amount has been
fully paid.

Elevated from the Third Division3 of this Court, the case was accepted for resolution en banc on the
initial impression that here, a constitutional question might be involved. 4 It was opined that
petitioner's sentence, particularly six months' imprisonment, might be in violation of the constitutional
guarantee against imprisonment for non-payment of a debt.5

A careful consideration of the issues presented in the petition as well as the comments thereon and
the findings of fact by the courts below in the light of applicable laws and precedents convinces us,
however, that the constitutional dimension need not be reached in order to resolve those issues
adequately. For, as herein discussed, the merits of the petition could be determined without delving
into aspects of the cited constitutional guarantee vis-a-vis provisions of the Bouncing Checks Law
(Batas Pambansa Blg. 22). There being no necessity therefor, we lay aside discussions of the
constitutional challenge to said law in deciding this petition.

The petitioner herein, Irma L. Idos, is a businesswoman engaged in leather tanning. Her accuser for
violation of B.P. 22 is her erstwhile supplier and business partner, the complainant below, Eddie
Alarilla.

As narrated by the Court of Appeals, the background of this case is as follows:

The complainant Eddie Alarilla supplied chemicals and rawhide to the accused-
appellant Irma L. Idos for use in the latter's business of manufacturing leather. In
1985, he joined the accused-appellant's business and formed with her a partnership
under the style "Tagumpay Manufacturing," with offices in Bulacan and Cebu City.

However, the partnership was short lived. In January, 1986 the parties agreed to
terminate their partnership. Upon liquidation of the business the partnership had as
of May 1986 receivables and stocks worth P1,800,000.00. The complainant's share
 of the assets was P900,000.00 to pay for which the accused-appellant issued the
following postdated checks, all drawn against Metrobank Branch in Mandaue, Cebu:

CHECK NO. DATE AMOUNT

1) 103110295 8-15-86 P135,828.87

2) 103110294 P135,828.87

3) 103115490 9-30-86 P135,828.87

4) 103115491 10-30-86 P126,656.01

The complainant was able to encash the first, second, and fourth checks, but the
third check (Exh. A) which is the subject of this case, was dishonored on October 14,
1986 for insufficiency of funds. The complainant demanded payment from the
accused-appellant but the latter failed to pay. Accordingly, on December 18, 1986,
through counsel, he made a formal demand for payment. (Exh. B) In a letter dated
January 2, 1987, the accused-appellant denied liability. She claimed that the check
had been given upon demand of complainant in May 1986 only as "assurance" of his
share in the assets of the partnership and that it was not supposed to be deposited
until the stocks had been sold.

Complainant then filed his complaint in the Office of the Provincial Fiscal of Bulacan
which on August 22, 1988 filed an information for violation of BP Blg. 22 against
accused-appellant.

Complainant danied that the checks issued to him by accused-appellant were subject
to the disposition of the stocks and the collection of receivables of the business. But
the accused-appellant insisted that the complainant had known that the checks were
to be funded from the proceeds of the sale of the stocks and the collection of
receivables. She claimed that the complainant himself asked for the checks because
he did not want to continue in the tannery business and had no use for a share of the
stocks. (TSN, p. 7, April 14, 1991; id., pp. 8-9, Nov. 13, 1989; id., pp. 12, 16, 20, Feb.
14, 1990; id, p. 14, June 4, 1990).

On February 15, 1992, the trial court rendered judgment finding the accused-
appellant guilty of the crime charged. The accused-appellant's motion for annulment
of the decision and for reconsideration was denied by the trial court in its order dated
April 12, 1991.6

Herein respondent court thereafter affirmed on appeal the decision of the trial court. Petitioner timely
moved for a reconsideration, but this was subsequently denied by respondent court in its
Resolution7 dated June 11, 1993. Petitioner has now appealed to us by way of a petition
for certiorari under Rule 45 of the Rules of Court.

During the pendency of this petition, this Court by a resolutions8 dated August 30, 1993, took note of
the compromise agreement executed between the parties, regarding the civil aspect of the case, as
manifested by petitioner in a Motion to Render Judgment based on Compromise Agreement9 filed on
August 5, 1993. After submission of the Comment10 by the Solicitor General, and the Reply11 by
petitioner, this case was deemed submitted for decision.
Contending that the Court of Appeals erred in its affirmance of the trial court's decision, petitioner
cites the following reasons to justify the review of her case:

1. The Honorable Court of Appeals has decided against the

innocence of the accused based on mere probabilities which, on the
contrary, should have warranted her acquittal on reasonable doubt.
Even then, the conclusion of the trial court is contrary to the evidence
on record, including private complainant's judicial admission that
there was no consideration for the check.

2 The Honorable Court of Appeals has confused and merged into one
the legal concepts of dissolution, liquidation and termination of a
partnership and on the basis of such misconception of the law,
disregarded the fact of absence of consideration of the check and
convicted the accused.

3 While this appeal was pending, the parties submitted for the
approval of the Honorable Court a compromise agreement on the civil
liability. The accused humbly submits that this supervening event,
which by its terms puts to rest any doubt the Court of Appeals had
entertained against the defense of lack of consideration, should have
a legal effect favorable to the accused, considering that the
dishonored check constitutes a private transaction between partners
which does not involve the public interest, and considering further
that the offense is not one involving moral turpitude.

4 The Honorable Court of Appeals failed to appreciate the fact that

the accused had warned private complainant that the check was not
sufficiently funded, which should have exonerated the accused
pursuant to the ruling in the recent case of Magno vs. Court of
Appeals, 210 SCRA 471, which calls for a more flexible and less rigid
application of the Bouncing Checks law.12

For a thorough consideration of the merits of petitioner's appeal, we find pertinent and decisive the
following issues:

1. Whether respondent court erred in holding that the subject check was issued by petitioner to apply
on account or for value, that is, as part of the consideration of a "buy-out" of said complainant's
interest in the partnership, and not merely as a commitment on petitioner's part to return the
investment share of complainant, along with any profit pertaining to said share, in the partnership.

2. Whether the respondent court erred in concluding that petitioner issued the subject check knowing
at the time of issue that she did not have sufficient funds in or credit with the drawee bank and
without communicating this fact of insufficiency of funds to the complainant.

Both inquiries boil down into one ultimate issue: Did the respondent court err in affirming the trial
court's judgment that she violated Batas Pambansa Blg. 22?

Considering that penal statutes are strictly construed against the state and liberally in favor of the
accused, it bears stressing that for an act to be punishable under the B.P. 22, it "must come clearly
within both the spirit and the letter of the statue. 13 Otherwise, the act has to be declared outside the
law's ambit and a plea of innocence by the accused must be sustained.
The relevant provisions of B.P. 22 state that:

Sec. 1. Checks without sufficient funds. — Any person who makes or draws and
issues any check to apply on account or for value, knowing at the time of issue that
he does not have sufficient funds in or credit with the drawee bank for the payment of
such check in full upon its presentment, which check is subsequently dishonored by
the drawee bank for insufficiency of funds or credit or would have been dishonored
for the same reason had not the drawer, without any valid reason, ordered the bank
to stop payment, shall be punished by imprisonment of not less than thirty days but
not more than one (1) year or by a fine of not less than but not more than double the
amount of the check which fine shall in no case exceed Two hundred thousand
pesos, or both such fine and imprisonment at the discretion of the court.

The same penalty shall be imposed upon any person who having sufficient funds in
or credit with the drawee bank when he makes or draws and issues a check, shall fail
to keep sufficient funds or to maintain a credit or to cover the full amount of the check
if presented within a period of ninety (90) days from the date appearing thereon, for
which reason it is dishonored by the drawee bank.

Where the check is drawn by a corporation, company or entity, the person or persons
who actually signed the check in behalf of such drawer shall be liable under this Act.

Sec. 2. Evidence of knowledge of insufficient funds. — The making, drawing and

issuance of a check payment of which is refused by the drawee because of
insufficient funds in or credit with such bank, when presented within ninety (90) days
from the date of the check, shall be prima facie evidence of knowledge of such
insufficiency of funds or credit unless such maker or drawer pays the holder thereof
the amount due thereon or makes arrangements for payment in full by the drawee of
such check within five (5) banking days after receiving notice that such check has not
been paid by the drawee. (Emphasis supplied)

As decided by this Court, the elements of the offense penalized under B.P. 22, are as follows: "(1)
the making, drawing and issuance of any check to apply to account or for value; (2) the knowledge
of the maker, drawer or issuer that at the time of issue he does not have sufficient funds in or credit
with the drawee bank for the payment of such check in full upon its presentment; and (3) subsequent
dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same
reason had not the drawer, without any valid cause, ordered the bank to stop payment. 14

In the present case, with regard to the first issue, evidence on record would show that the subject
check was to be funded from receivables to be collected and goods to be sold by the partnership,
and only when such collection and sale were realized. 15 Thus, there is sufficient basis for the
assertion that the petitioner issued the subject check (Metrobank Check No. 103115490 dated
October 30, 1986, in the amount of P135,828.87) to evidence only complainant's share or interest in
the partnership, or at best, to show her commitment that when receivables are collected and goods
are sold, she would give to private complainant the net amount due him representing his interest in
the partnership. It did not involve a debt of or any account due and payable by the petitioner.

Two facts stand out. Firstly, three of four checks were properly encashed by complainant; only one
(the third) was not. But eventually even this one was redeemed by petitioner. Secondly, even private
complainant admitted that there was no consideration whatsoever for the issuance of the check,
whose funding was dependent on future sales of goods and receipts of payment of account
receivables.
Now, it could not be denied that though the parties — petitioner and complainant — had agreed to
dissolve the partnership, such ageement did not automatically put an end to the partnership, since
they still had to sell the goods on hand and collect the receivables from debtors. In short, they were
still in the process of "winding up" the affairs of the partnership, when the check in question was
issued.

Under the Civil Code, the three final stages of a partnership are (1) dissolution; (2) winding-up; and
(3) termination. These stages are distinguished, to wit:

(1) Dissolution Defined

Dissolution is the change in the relation of the

partners caused by any partner ceasing to be
associated in the carrying on of the business (Art.
1828). It is that point of time the time the partners
cease to carry on the business tonether. (Citation
omitted).

(2) Winding Up Defined

Winding up is the process of settling business affairs

of dissolution.

(NOTE: Examples of winding up: the paying of

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

(3) Termination Defined

Termination is the point in time after all the partnership affairs have been wound up. 16 [Citation
omitted] (Emphasis supplied).

These final stages in the life of a partnership are recognized under the Civil Code that explicitly
declares that upon dissolution, the partnership is not terminated, to wit:

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.

Art. 1829. On dissolution the partnership is not terminated, but continues until the
winding up of partnership affairs is completed. (Emphasis supplied.)

The best evidence of the existence of the partnership, which was not yet terminated (though in the
winding up stage), were the unsold goods and uncollected receivables, which were presented to the
trial court. Since the partnership has not been terminated, the petitioner and private complainant
remained as co-partners. The check was thus issued by the petitioner to complainant, as would a
partner to another, and not as payment from a debtor to a creditor.
The more tenable view, one in favor of the accused, is that the check was issued merely to evidence
the complainant's share in the partnership property, or to assure the latter that he would receive in
time his due share therein. The alternative view that the check was in consideration of a "buy out" is
but a theory, favorable to the complainant, but lacking support in the record; and must necessarily be
discarded.

For there is nothing on record which even slightly suggest that petitioner ever became interested in
acquiring, much less keeping, the shares of the complainant. What is very clear therefrom is that the
petitioner exerted her best efforts to sell the remaining goods and to collect the receivables of the
partnership, in order to come up with the amount necessary to satisfy the value of complainant's
interest in the partnership at the dissolution thereof. To go by accepted custom of the trade, we are
more inclined to the view that the subject check was issued merely to evidence complainant's
interest in the partnership. Thus, we are persuaded that the check was not intended to apply on
account or for value; rather it should be deemed as having been drawn without consideration at the
time of issue.

Absent the first element of the offense penalized under B.P. 22, which is "the making, drawing and
issuance of any check to apply on account or for value", petitioner's issuance of the subject check
was not an act contemplated in nor made punishable by said statute.

As to the second issue, the Solicitor General contends that under the Bouncing Checks Law, the
elements of deceit and damage are not essential or required to constitute a violation thereof. In his
view, the only essential element is the knowledge on the part of the maker or drawer of the check of
the insufficiency of his/her funds at the time of the issuance of said check.

The Bouncing Checks Law makes the mere act of issuing a bad or worthless check a special
offense punishable by law. "Malice or intent in issuing the worthless check is immaterial, the offense
being malum
prohibitum," 17 so goes the argument for the public respondents.

But of course this could not be an absolute proposition without descending to absurdity. For if a
check were issued by a kidnap victim to a kidnapper for ransom, it would be absurd to hold the
drawer liable under B.P. 22, if the check is dishonored and unpaid. That would go against public
policy and common sense.

Public respondents further contend that "since petitioner issued the check in favor of complainant.
Alarilla and when notified that it was returned for insufficiency of funds, failed to make good the
check, then petitioner is liable for violation of B.P. 22.18 Again, this matter could not be all that simple.
For while "the maker's knowledge of the insufficiency of funds is legally presumed from the dishonor
of his checks for insufficiency of funds,19 this presumption is rebuttable.

In the instant case, there is only a prima facie presumption which did not preclude the presentation
of contrary evidence.20 In fact, such contrary evidence on two points could be gleaned from the
record concerning (1) lack of actual knowledge of insufficiency of funds; and (2) lack of adequate
notice of dishonor.

Noteworthy for the defense, knowledge of insufficiency of funds or credit in the drawee bank for the
payment of a check upon its presentment is an essential element of the offense.21 It must be proved,
particularly where the prima facie presumption of the existence of this element has been rebutted.
The prima facie presumption arising from the fact of drawing, issuing or making a check, the
payment of which was subsequently refused for insufficiency of funds is, moreover, not sufficient
proof of guilt by the issuer.
In the case of Nieva v. Court of Appeals,22 it was held that the subsequent dishonor of the subject
check issued by accused merely engendered the prima facie presumption that she knew of the
insufficiency of funds, but did not render the accused automatically guilty under B.P. 22.23

The prosecution has a duty to prove all the elements of the crime, including the acts
that give rise to the prima facie presumption; petitioner, on the other hand, has a right
to rebut the prima faciepresumption. Therefore, if such knowledge of insufficiency of
funds is proven to be actually absent or non-existent, the accused should not be held
liable for the offense defined under the first paragraph of Section 1 of B.P. 22.
Although the offense charged is a malum prohibitum, the prosecution is not thereby
excused from its responsibility of proving beyond reasonable doubt all the elements
of the offense, one of which is knowledge of the insufficiency of funds.

Sec. 1 of B.P. 22 specifically requires that the person in making, drawing or issuing the check, be
shown that he knows at the time of issue, that he does not have sufficient funds in or credit with the
drawee bank for the payment of such check in full upon its presentment.

In the case at bar, as earlier discussed, petitioner issued the check merely to evidence the
proportionate share of complainant in the partnership assets upon its dissolution. Payment of that
share in the partnership was conditioned on the subsequent realization of profits from the unsold
goods and collection of the receivables of the firm. This condition must be satisfied or complied with
before the complainant can actually "encash" the check. The reason for the condition is that
petitioner has no independent means to satisfy or discharge the complainant's share, other than by
the future sale and collection of the partnership assets. Thus, prior to the selling of the goods and
collecting of the receivables, the complainant could not, as of yet, demand his proportionate share in
the business. This situation would hold true until after the winding up, and subsequent termination of
the partnership. For only then, when the goods were already sold and receivables paid that cash
money could be availed of by the erstwhile partners.

Complainant did not present any evidence that petitioner signed and issued four checks actually
knowing that funds therefor would be insufficient at the time complainant would present them to the
drawee bank. For it was uncertain at the time of issuance of the checks whether the unsold goods
would have been sold, or whether the receivables would have been collected by the time the checks
would be encashed. As it turned out, three were fully funded when presented to the bank; the
remaining one was settled only later on.

Since petitioner issued these four checks without actual knowledge of the insufficiency of funds, she
could not be held liable under B.P. 22 when one was not honored right away. For it is basic doctrine
that penal statutes such as B.P. 22 "must be construed with such strictness as to carefully safeguard
the rights of the defendant . . ."24 The element of knowledge of insufficiency of funds has to be proved
by the prosecution; absent said proof, petitioner could not be held criminally liable under that law.
Moreover, the presumption of prima facie knowledge of such insufficiency in this case was actually
rebutted by petitioner's evidence.

Further, we find that the prosecution also failed to prove adequate notice of dishonor of the subject
check on petitioner's part, thus precluding any finding of prima facie evidence of knowledge of
insufficiency of funds. There is no proof that notice of dishonor was actually sent by the complainant
or by the drawee bank to the petitioner. On this point, the record is bereft of evidence to the contrary.

But in fact, while the subject check initially bounced, it was later made good by petitioner. In addition,
the terms of the parties' compromise agreement, entered into during the pendency of this case,
effectively invalidates the allegation of failure to pay or to make arrangement for the payment of the
check in full. Verily, said compromise agreement constitutes an arrangement for the payment in full
of the subject check.

The absence of notice of dishonor is crucial in the present case. As held by this Court in prior cases:

Because no notice of dishonor was actually sent to and received by the petitioner,
the prima faciepresumption that she knew about the insufficiency of funds cannot
apply. Section 2 of B.P. 22 clearly provides that this presumption arises not from the
mere fact of drawing, making and issuing a bum check; there must also be a showing
that, within five banking days from receipt of the notice of dishonor, such maker or
drawer failed to pay the holder of the check the amount due thereon or to make
arrangement for its payment in full by the drawee of such check. 25 [Emphasis
supplied.]

The absence of a notice of dishonor necessarily deprives an accused an opportunity

to preclude a criminal prosecution. Accordingly, procedural due process clearly
enjoins that a notice of dishonor be actually served on petitioner. Petitioner has a
right to demand — and the basic postulates of fairness require — that the notice of
dishonor be actually sent to and received by her to afford her the opportunity to avert
prosecution under
B.P. 26

Further, what militates strongly against public respondents' stand is the fact that petitioner repeatedly
notified the complainant of the insufficiency of funds. Instructive is the following pronouncement of
this Court in Magno v. Court of Appeals:

Furthermore, the element of "knowing at the time of issue that he does not have
sufficient funds in or credit with the drawee bank for the payment of such check in full
upon its presentment, which check is subsequently dishonored by the drawee bank
for insufficiency of funds or credit or would have been dishonored for the same
reason . . ." is inversely applied in this case. From the very beginning. petitioner
never hid the fact that he did not have the funds with which to put up the warranty
deposit and as a matter of fact, he openly intimated this to the vital conduit of the
transaction, Joey Gomez, to whom petitioner was introduced by Mrs. Teng. It would
have been different if this predicament was not communicated to all the parties he
dealt with regarding the lease agreement the financing or which was covered by L.S.
Finance Management. " 27

In the instant case, petitioner intimated to private complainant the possibility that funds might be
insufficient to cover the subject check, due to the fact that the partnership's goods were yet to be
sold and receivables yet to be collected.

As Magno had well observed:

For all intents and purposes, the law was devised to safeguard the interest of the
banking system and the legitimate public checking account user. It did not intend to
shelter or favor nor encourage users of the system to enrich themselves through
manipulations and circumvention of the noble purpose and objective of the law. Least
should it be used also as a means of jeopardizing honest-to-goodness transactions
with some color of "get-rich" scheme to the prejudice of well-meaning businessmen
who are the pillars of society.
 xxx xxx xxx

Thus, it behooves upon a court of law that in applying the punishment imposed upon
the accused, the objective of retribution of a wronged society, should be directed
against the "actual and potential wrongdoers". In the instant case, there is no doubt
that petitioner's four (4) checks were used to collateralize an accommodation, and
not to cover the receipt of an actual "account or credit for value" as this was absent,
and therefore petitioner should not be punished for mere issuance of the checks in
question. Following the aforecited theory, in petitioner's stead the "potential
wrongdoer," whose operation could be a menace to society, should not be glorified
by convicting the petitioner. 28

Under the circumstances obtaining in this case, we find the petitioner to have issued the check in
good faith, with every intention of abiding by her commitment to return, as soon as able, the
investments of complainant in the partnership. Evidently, petitioner issued the check with benign
considerations in mind, and not for the purpose of committing fraud, deceit, or violating public policy.

To recapitulate, we find the petition impressed with merit. Petitioner may not be held liable for
violation of B.P. 22 for the following reasons: (1) the subject check was not made, drawn and issued
by petitioner in exchange for value received as to qualify it as a check on account or for value; (2)
there is no sufficient basis to conclude that petitioner, at the time of issue of the check, had actual
knowledge of the insufficiency of funds; and (3) there was no notice of dishonor of said check
actually served on petitioner, thereby depriving her of the opportunity to pay or make arrangements
for the payment of the check, to avoid criminal prosecution.

Having resolved the foregoing principal issues, and finding the petition meritorious, we no longer
need to pass upon the validity and legality or necessity of the purported compromise agreement on
civil liability between the petitioner and the complainant.

WHEREFORE, the instant petition is hereby GRANTED AND THE PETITIONER ACQUITTED. The
Decision of the respondent Court of Appeals in CA-G.R. CR No. 11960 is hereby REVERSED and
the Decision of Regional Trial Court in Criminal Case No. 1395-M-88 is hereby SET ASIDE.

NO COSTS.

SO ORDERED.

Narvasa, C.J., Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan, Panganiban,
Martinez and Purisima, JJ., concur.

Mendoza, J., took no part.

G.R. No. 97212 June 30, 1993

BENJAMIN YU, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS COMPANY
LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU 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 business under 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-vis any 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.

G.R. No. 109248 July 3, 1995

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T.

BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L.
MISA, respondents.

VITUG, J.:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not
dissolve the said law partnership. Accordingly, the petitioner and respondents
are hereby enjoined to abide by the provisions of the Agreement relative to
the matter governing the liquidation of the shares of any retiring or
withdrawing partner in the partnership interest."1

On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the
withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa & Lozada." The
Commission ruled that, being a partnership at will, the law firm could be dissolved by any partner at
anytime, such as by his withdrawal therefrom, regardless of good faith or bad faith, since no partner
can be forced to continue in the partnership against his will. In its decision, dated 17 January 1990,
the SEC held:

WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby

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

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

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

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

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

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

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

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

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

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

A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa &
Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a partnership need not be
unduly belabored. We quote, with approval, like did the appellate court, the findings and disquisition
of respondent SEC on this matter; viz:

The partnership agreement (amended articles of 19 August 1948) does not provide for a
specified period or undertaking. The "DURATION" clause simply states:

"5. DURATION. The partnership shall continue so long as mutually

satisfactory and upon the death or legal incapacity of one of the partners,
shall be continued by the surviving partners."

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

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

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

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

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

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

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

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

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

On the third and final issue, we accord due respect to the appellate court and respondent
Commission on their common factual finding, i.e., that Attorney Misa did not act in bad faith. Public
respondents viewed his withdrawal to have been spurred by "interpersonal conflict" among the
partners. It would not be right, we agree, to let any of the partners remain in the partnership under
such an atmosphere of animosity; certainly, not against their will. 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.

G.R. No. L-40504 July 29, 1983

FORTUNATO RECENTES, BENJAMIN DE GRACIA and RAMONA MERCED, petitioners,

vs.
COURT OF FIRST INSTANCE OF ZAMBOANGA DEL NORTE, BRANCH I, PRESIDED BY HON.
DIMALANES E. BUISSAN, and CONCEPCION V. ZOSA, respondents.

Bar Pacatang for petitioners.

Uldarico B. Mejorado & Associates for private respondent.

ABAD SANTOS, J.:

Petition to set aside several orders issued in Civil Case No. 2080 of the defunct Court of First
Instance of Zamboanga del Norte, namely the orders of June 13, 1974 (Annex L), July 5, 1974
(Annex M), January 9, 1975 (Annex O), February 21, 1975 (Annex Q) and March 31, 1975 (Annex
S) which are described below.

Concepcion V. Zosa filed a complaint dated September 8, 1970, in the CFI of Zamboanga del Sur
(Civil Case No. 2080) against Fortunato Recentes, Benjamin de Gracia and Ramona Merced for
accounting and payment of money alleged to be due to her as their partner in Zamboanga Ports
Terminal and Arrastre Service. The answer alleged that proper accounting and payment had already
been made.

Two years after issues had been joined but the case still unterminated, Zosa asked the Court to
appoint Ramona Merced as receiver of the partnership. She alleged that the assets of the
partnership were being squandered by mismanagement. The court, thru Judge Onofre Abalos,
appointed Merced as receiver and she qualified.

Subsequently, Fortunato Recentes and Benjamin de Gracia filed a motion to annul and dissolve the
receivership. Reason given: the partnership was no longer in existence because its term of ten years
expired in 1967.

Judge Rafael T. Mendoza, granted the motion. However, Judge Dimalanes B. Buissan who
succeeded Judge Mendoza reconsidered the latter's action by reinstating the receivership in his
order dated June 6, 1974.

In the order dated June 13, 1974 (Annex L), Judge Buissan explained why he reinstated the
receivership:

The order of Honorable Judge Mendoza terminating the receivership appears to be

premised on the fact that the partnership known as the Zamboanga Ports Terminal
and Arrastre Service has automatically been dissolved after the termination of its ten-
year existence provided for in the partnership disregarding the fact that, after the
termination of the ten-year period from January 1967, the defendants Recentes and
de Gracia and the treasurer of the partnership never rendered an accounting for the
purpose of dissolving the partnership even up to the present, so that ordinarily the
partnership still continuously exists as usual. However, defendants de Gracia and
Recentes formed another partnership known as the Zamboanga Ports Arrastre and
 Stevedoring Service and continued the business that was conducted by the former
partnership. This is shown by the fact that the last partnership is doing business with
the clientele of the old partnership. It should be noted also that only plaintiff
Concepcion Zosa was not included in the so-called new partnership.

xxx xxx xxx

The movant failed to consider the fact that while the existence of the former
partnership may have been already terminated, its existence as such partnership
with respect to its members and third parties who may have interest therein, is not
terminated until the officers who are defendants in this case, and who were charged
by law to make the necessary accounting and liquidation for the purpose of
terminating the previous partnership shall comply with the requisites of the law.

The order dated July 5, 1974 (Annex M), directed that:

... the management and operation of the partnership will remain with the officers of
said partnership and that Ramona Merced as receiver will only receive the net profit
of the partnership and to keep each income, account for them when required by this
court until such time as the same win be distributed to those who may be entitled to
it.

The order dated January 9, 1975 (Annex O), reiterated the order dated July 5, 1974.

The order dated February 21, 1975 (Annex Q), directed the defendants and Ramona Merced, the
receiver, to submit an accounting of the partnership affairs under pain of contempt.

And the order of March 31, 1975 (Annex S), reiterated the previous orders.

The issue in this case is simple: Was there lack of jurisdiction or grave abuse of discretion in the
issuance of the questioned orders? The answer is equally simple: No.

Art. 1829 of the Civil Code stipulates:

Art. 1829. On dissolution the partnership is terminated, but continues until the
winding up of partnership affairs is completed.

Obviously, all the questioned orders are intended to wind up the partnership affairs in an orderly
manner and to protect the interest of the plaintiff who is the private respondent in this case. The
respondent judge not only had jurisdiction to issue the orders, he also acted prudently in the
premises.

WHEREFORE, the petition is hereby denied for lack of merit. Costs against the petitioners.

SO ORDERED.

Makasiar (Chairman), Aquino, Concepcion, Jr., Guerrero and Escolin, JJ., concur.

De Castro, J., is on leave.