G.R. No.

109248 July 3, 1995

GREGORIO F. ORTEGA vs. CA

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. 12 Indeed, for as long as the reason for withdrawal of a partner is not contrary to
the dictates of justice and fairness, nor for the purpose of unduly visiting harm and
damage upon the partnership, bad faith cannot be said to characterize the act. Bad faith,
in the context here used, is no different from its normal concept of a conscious and
intentional design to do a wrongful act for a dishonest purpose or moral obliquity.
WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs. SO
ORDERED.

G.R. No. 31057 September 7, 1929

ADRIANO ARBES, ET AL., vs. VICENTE POLISTICO, ET AL.

This is an action to bring about liquidation of the funds and property of the association
called "Turnuhan Polistico & Co." The plaintiffs were members or shareholders, and the
defendants were designated as president-treasurer, directors and secretary of said
association.

It is well to remember that this case is now brought before the consideration of this court
for the second time. The first one was when the same plaintiffs appeared from the order
of the court below sustaining the defendant's demurrer, and requiring the former to
amend their complaint within a period, so as to include all the members of "Turnuhan
Polistico & Co.," either as plaintiffs or as a defendants. This court held then that in an
action against the officers of a voluntary association to wind up its affairs and enforce an
accounting for money and property in their possessions, it is not necessary that all
members of the association be made parties to the action. (Borlasa vs. Polistico, 47 Phil.,
345.) The case having been remanded to the court of origin, both parties amend,
respectively, their complaint and their answer, and by agreement of the parties, the court
appointed Amadeo R. Quintos, of the Insular Auditor's Office, commissioner to examine
all the books, documents, and accounts of "Turnuhan Polistico & Co.," and to receive
whatever evidence the parties might desire to present.

The commissioner rendered his report, which is attached to the record, with the following
resume:

Income:

Member's 97,263.70
shares............................

Credits paid................................ 6,196.55

Interest received........................... 4,569.45

Miscellaneous............................... 1,891.00

P109,620.70

Expenses:

Premiums to 68,146.25
members.......................

Loans on real- 9,827.00

estate.......................

Loans on promissory 4,258.55

notes..............

Salaries.................................... 1,095.00

Miscellaneous............................... 1,686.10

85,012.90

Cash on 24,607.80
hand........................................

The defendants objected to the commissioner's report, but the trial court, having
examined the reasons for the objection, found the same sufficiently explained in the
report and the evidence, and accepting it, rendered judgment, holding that the
association "Turnuhan Polistico & Co." is unlawful, and sentencing the defendants jointly
and severally to return the amount of P24,607.80, as well as the documents showing the
uncollected credits of the association, to the plaintiffs in this case, and to the rest of the
members of the said association represented by said plaintiffs, with costs against the
defendants.

The defendants assigned several errors as grounds for their appeal, but we believe they
can all be reduced to two points, to wit: (1) That not all persons having an interest in this
association are included as plaintiffs or defendants; (2) that the objection to the
commissioner's report should have been admitted by the court below.

As to the first point, the decision on the case of Borlasa vs. Polistico, supra, must be
followed.

With regard to the second point, despite the praiseworthy efforts of the attorney of the
defendants, we are of opinion that, the trial court having examined all the evidence
touching the grounds for the objection and having found that they had been explained
away in the commissioner's report, the conclusion reached by the court below, accepting
and adopting the findings of fact contained in said report, and especially those referring to
the disposition of the association's money, should not be disturbed.

In Tan Dianseng Tan Siu Pic vs. Echauz Tan Siuco (5 Phil., 516), it was held that the
findings of facts made by a referee appointed under the provisions of section 135 of the
Code of Civil Procedure stand upon the same basis, when approved by the Court, as
findings made by the judge himself. And in Kriedt vs. E. C. McCullogh & Co.(37 Phil.,
474), the court held: "Under section 140 of the Code of Civil Procedure it is made the duty
of the court to render judgment in accordance with the report of the referee unless the
court shall unless for cause shown set aside the report or recommit it to the referee. This
provision places upon the litigant parties of the duty of discovering and exhibiting to the
court any error that may be contained therein." The appellants stated the grounds for their
objection. The trial examined the evidence and the commissioner's report, and accepted
the findings of fact made in the report. We find no convincing arguments on the
appellant's brief to justify a reversal of the trial court's conclusion admitting the
commissioner's findings.

There is no question that "Turnuhan Polistico & Co." is an unlawful partnership (U.S. vs.
Baguio, 39 Phil., 962), but the appellants allege that because it is so, some charitable
institution to whom the partnership funds may be ordered to be turned over, should be
included, as a party defendant. The appellants refer to article 1666 of the Civil Code,
which provides:

A partnership must have a lawful object, and must be established for the common benefit of the
partners.

When the dissolution of an unlawful partnership is decreed, the profits shall be given to charitable
institutions of the domicile of the partnership, or, in default of such, to those of the province.

Appellant's contention on this point is untenable. According to said article, no charitable

institution is a necessary party in the present case of determination of the rights of the
parties. The action which may arise from said article, in the case of unlawful partnership,
is that for the recovery of the amounts paid by the member from those in charge of the
administration of said partnership, and it is not necessary for the said parties to base their
action to the existence of the partnership, but on the fact that of having contributed some
money to the partnership capital. And hence, the charitable institution of the domicile of
the partnership, and in the default thereof, those of the province are not necessary parties
in this case. The article cited above permits no action for the purpose of obtaining the
earnings made by the unlawful partnership, during its existence as result of the business
in which it was engaged, because for the purpose, as Manresa remarks, the partner will
have to base his action upon the partnership contract, which is to annul and without legal
existence by reason of its unlawful object; and it is self evident that what does not exist
cannot be a cause of action. Hence, paragraph 2 of the same article provides that when
the dissolution of the unlawful partnership is decreed, the profits cannot inure to the
benefit of the partners, but must be given to some charitable institution.

We deem in pertinent to quote Manresa's commentaries on article 1666 at length, as a

clear explanation of the scope and spirit of the provision of the Civil Code which we are
concerned. Commenting on said article Manresa, among other things says:

When the subscriptions of the members have been paid to the management of the partnership,
and employed by the latter in transactions consistent with the purposes of the partnership may
the former demand the return of the reimbursement thereof from the manager or administrator
withholding them?

Apropos of this, it is asserted: If the partnership has no valid existence, if it is considered

juridically non-existent, the contract entered into can have no legal effect; and in that case, how
can it give rise to an action in favor of the partners to judicially demand from the manager or the
administrator of the partnership capital, each one's contribution?

The authors discuss this point at great length, but Ricci decides the matter quite clearly, dispelling
all doubts thereon. He holds that the partner who limits himself to demanding only the amount
contributed by him need not resort to the partnership contract on which to base his action. And he
adds in explanation that the partner makes his contribution, which passes to the managing
partner for the purpose of carrying on the business or industry which is the object of the
partnership; or in other words, to breathe the breath of life into a partnership contract with an
objection forbidden by law. And as said contrast does not exist in the eyes of the law, the
purpose from which the contribution was made has not come into existence, and the
administrator of the partnership holding said contribution retains what belongs to others, without
any consideration; for which reason he is not bound to return it and he who has paid in his share
is entitled to recover it.

But this is not the case with regard to profits earned in the course of the partnership, because
they do not constitute or represent the partner's contribution but are the result of the industry,
business or speculation which is the object of the partnership, and therefor, in order to demand
the proportional part of the said profits, the partner would have to base his action on the contract
which is null and void, since this partition or distribution of the profits is one of the juridical effects
thereof. Wherefore considering this contract as non-existent, by reason of its illicit object, it cannot
give rise to the necessary action, which must be the basis of the judicial complaint. Furthermore,
it would be immoral and unjust for the law to permit a profit from an industry prohibited by it.
 Hence the distinction made in the second paragraph of this article of this Code, providing that the
profits obtained by unlawful means shall not enrich the partners, but shall upon the dissolution of
the partnership, be given to the charitable institutions of the domicile of the partnership, or, in
default of such, to those of the province.

This is a new rule, unprecedented by our law, introduced to supply an obvious deficiency of the
former law, which did not describe the purpose to which those profits denied the partners were to
be applied, nor state what to be done with them.

The profits are so applied, and not the contributions, because this would be an excessive and
unjust sanction for, as we have seen, there is no reason, in such a case, for depriving the partner
of the portion of the capital that he contributed, the circumstances of the two cases being entirely
different.

Our Code does not state whether, upon the dissolution of the unlawful partnership, the amounts
contributed are to be returned by the partners, because it only deals with the disposition of the
profits; but the fact that said contributions are not included in the disposal prescribed profits,
shows that in consequences of said exclusion, the general law must be followed, and hence the
partners should reimburse the amount of their respective contributions. Any other solution is
immoral, and the law will not consent to the latter remaining in the possession of the manager or
administrator who has refused to return them, by denying to the partners the action to demand
them. (Manresa, Commentaries on the Spanish Civil Code, vol. XI, pp. 262-264)

The judgment appealed from, being in accordance with law, should be, as it is hereby,
affirmed with costs against the appellants; provided, however, the defendants shall pay
the legal interest on the sum of P24,607.80 from the date of the decision of the court, and
provided, further, that the defendants shall deposit this sum of money and other
documents evidencing uncollected credits in the office of the clerk of the trial court, in
order that said court may distribute them among the members of said association, upon
being duly identified in the manner that it may deem proper. So ordered.

G.R. L-No. 4918 August 26, 1909

FELICIANA DARIANO vs. JOSE FERNANDEZ FIDALGO

This action was commenced in the Court of First Instance of the Province of Pampanga
on or about the 3d day of December, 1906, by the plaintiffs against the defendant for the
purpose of having declared null and void a certain account allowed by the commission
which was appointed for the purpose of considering claims against the estate of the
deceased De la Rosa. The account allowed amounted to P17,234.27. The claim of the
defendant was based upon two grounds:

First. That the said commission had no authority nor jurisdiction to consider a claim made
by the plaintiff against the estate of De la Rosa; and Second. By reason of fraud in the
allowance of said claim.

From an examination of the record the following facts seem t be clearly established:
First. That in the early months of the year 1900, the deceased De la Rosa and the
defendant entered into an arrangement by which they purchased and were to operate two
cascoes, numbered respectively 1515 and 2089. The agreement also provided for a
division of the profits resulting from the management of these cascoes.
(SeeFernandez vs. De la Rosa, 1 Phil Rep., 671.)

Second. Some question arose as to the relation which existed between the deceased, De
la Rosa and the said Fernandez, concerning the right of the latter to participate in the
profits resulting from the management of the said cascoes. This question was presented
to the courts and was finally decided by the Supreme Court upon the 2d day of February,
1903. The Supreme Court held.

. . . That a partnership was formed between the parties (De la Rosa and Fernandez) in January,
1900, the existence of which the defendant (De la Rosa) is bound to recognize; that cascoes Nos.
1515 and 2089 constitute partnership property, and that the plaintiff (Fernandez) is entitled to an
accounting of the defendant's administration of such property, and of the profits derived
therefrom. (Fernandez vs. De la Rosa, 1 Phil. Rep., 671., 678.)

The Supreme Court ordered the case returned to the lower court for an execution of the judgment. The
Supreme Court expressly declared that its decision did not involve an adjudication as to any disputed
items of the partnership account, evidently intending to leave all disputed items of the partnership
account to be settled in the further investigation of the cause by the lower court.

Third. After the said decision of the Supreme Court and on the 15th of April, 1903, De la
Rosa died and one Carmelino Punsalan was appointed administrator of his estate.

Fourth. In accordance with the provisions of section 669 of the Code of Procedure in Civil
Actions a committee was appointed for the purpose of hearing and allowing claims
against the estate of the deceased De la Rosa. The exact date of the appointment of this
committee does not appear.

Fifth. Later (the exact date not appearing) Fernandez Fidalgo, without waiting for a
settlement of the partnership account, dismissed his original action, which had been
returned to the lower court for an accounting of said partnership, and presented his claim
against De la Rosa relating to said partnership to the said committee. The claim
presented by Fernandez, showing the amount to which he was entitled as a result of the
management of the said cascoes, amounted to P17,234.27. This claim was allowed by
the committee. Later the said administrator, Carmelino Punsalan, resigned, which
resignation was accepted June 30, 1906, and the plaintiffs herein were then appointed
administratrix of the estate and tutor of the minor children of the said De la Rosa,
deceased, and on the 3d day of December of the same year this present action was
brought.

Sixth. It appears that at the time the said Fernandez Fidalgo presented his claims before
the said committee, the then administrator Punsalan refused to present any proof
whatever for the purpose of refuting the claim made by Fernandez, and in this the present
plaintiffs now claim he acted in collusion with the said Fernandez and allowed a fraud to
be perpetrated against the said estate, which this action was brought to set aside.

From the evidence adduced during the trial of the cause, it also appears that each of the cascoes from
the very beginning required a great many repairs, and that by reason of their rotten and decayed
condition they could be used but a small portion of the time. It appears also that long before any action
was brought for the purpose of settling the partnership accounts between Fernandez and De la Rosa,
each of the two cascoes was practically out of commission and had been for months. The claim of the
plaintiff (Fernandez) was based upon the profits resulting from the management of the cascoes,
assuming that they were in daily use from the commencement of the partnership until the action was
commenced, and without taking into consideration at all the fact that great expense had been incurred in
the maintenance and repair of the said cascoes. The books of De la Rosa were evidently in the
possession of Punsalan. These books, if they had been presented, would, no doubt, have shown the
real condition of the business resulting from the management of the said cascoes. They were not
presented.

It is not necessary to decide whether the first administrator (Punsalan) was in collusion
with Fernandez in the presentation and allowance of his claim against the estate. It is
sufficient to decide that the claim presented by Fernandez had not been sufficiently
proven and that the fraud had been perpetrated against the estate of the deceased De la
Rosa. The lower court also held that the said commission had no authority to consider the
said claim of Fernandez. Upon this question the lower court said:

It is the opinion of the court that the commission had no jurisdiction whatever to hear the claim.
After the death of Francisco de la Rosa, Jose Fernandez Fidalgo was only entitled to demand an
accounting of the management of the cascoes. He might have applied to the court to compel the
administrator to render said accounts. The court would have compelled the latter to render them,
and would even have removed him from office had he failed to fulfill the order of the court. Once
the accounts were rendered, had they shown a balance against the estate in favor of Jose
Fernandez, the court would have compelled the administrator to pay the said balance and
charged the amount of the same as administration expenses. An action brought to recover the
outstanding balance after a liquidation made subsequent to the death of the deceased is not an
action originating during his lifetime, and actions which arise after the death of a person can not
properly be presented to such commission. (Philippine Trading Co. vs. Crossfield, 5 Phil. Rep.,
400.) Therefore the court considers that the decision of the commission whereby the estate of De
la Rosa is ordered to pay to Jose Fernandez Fidalgo the sum of P17,234.27 is null and void.

The lower court, after a full consideration of all of the facts, declared null and void the
resolution of the committee in respect of the claim of Jose Fernandez against the estate
of De la Rosa, with costs to the defendant. From this decision of the lower court the
defendant appealed and made the following assignments of error:

1. The action brought by the claimant Jose Fernandez Fidalgo originated before the death of
Francisco de la Rosa, that is to say, during his lifetime.

2. Under the law the commission has jurisdiction to hear and decide the claim of Jose Fernandez
Fidalgo.

3. Under the law, the action of the claimant, Fernandez, can not be brought before the Court of
First Instance.
With reference to the first assignment of error, it will be remembered that the Supreme Court, in its
decision above referred to, simply ordered that the lower court require an accounting of the said
partnership and refused to pass upon any item of indebtedness between the parties in relation thereto.
After the return of the case to the lower court Fernandez dismissed this action. The accounting was not
made as directed. There was no proof or finding of fact that De la Rosa owed the partnership a single
cent. There was no proof of any character showing that the partnership assets were not sufficient to
cover all of its liabilities. The partnership had not been dissolved until after the death of De la Rosa.
There was no accounting of the partnership business. Fernandez refused to proceed with the accounting
ordered by the Supreme Court. There was nothing to show what had become of the partnership property
existing at the time of the death of De la Rosa. So far as the record shows it may be even now in the
hands of the surviving partner. Certainly no claim existed against the private estate of De la Rosa for the
payment of the debts of the partnership until after the property of the partnership had been exhausted,
and no claim of this character is made. No debt of this nature had arisen before the death of De la Rosa.
The claim of Fernandez was a claim against the partnership and not a claim against De la Rosa until the
liquidation of the partnership business. The lower court committed no error, therefore, in holding that the
said commission, appointed for the purpose of allowing the claims against the estate of De la Rosa, had
no jurisdiction to consider the claim presented. (Philippine Trading Company vs. Crossfield, 5 Phil. Rep.,
400.)

What we have said with reference to the first assignment of error, we believe fully answers the second
also, and there is no question, under the provisions of the Code of Procedure in Civil Actions, that the
Court of First Instance had jurisdiction to review, on appeal, the findings of the said commission. It would
seem to be clear that someone was guilty of the fraud against the estate of De la Rosa in allowing the
present claim. The record does not clearly show who these parties were. It is sufficient, however, to set
aside the claim when it is shown that a fraud had been committed. Courts of probate jurisdiction are very
jealous in guarding the interest of the estates of deceased persons, and when the action of any party
connected with the administration of such estates is tained in the slightest degree with fraud, such courts
will take jurisdiction for the purpose of remedying whatever injury the estate may have suffered
thereby. For the reasons above stated the judgment of the lower court is hereby affirmed, with costs
against the defendant.

[G.R. No. 127347. November 25, 1999]

ALFREDO N. AGUILA, JR, Petitioner, v. HONORABLE COURT OF APPEALS and

FELICIDAD S. VDA. DE ABROGAR, Respondents.

This is a petition for review on certiorari of the decision1 of the Court of Appeals, dated
November 29, 1990, which reversed the decision of the Regional Trial Court, Branch 273,
Marikina, Metro Manila, dated April 11, 1995. The trial court dismissed the petition for
declaration of nullity of a deed of sale filed by private respondent Felicidad S. Vda. de
Abrogar against petitioner Alfredo N. Aguila, Jr.

The facts are as follows:

Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership engaged in lending
activities. Private respondent and her late husband, Ruben M. Abrogar, were the registered
owners of a house and lot, covered by Transfer Certificate of Title No. 195101, in Marikina,
Metro Manila. On April 18, 1991, private respondent, with the consent of her late husband,
and A.C. Aguila & Sons, Co., represented by petitioner, entered into a Memorandum of
Agreement, which provided:

(1) That the SECOND PARTY [A.C. Aguila & Sons, Co.] shall buy the above-described
property from the FIRST PARTY [Felicidad S. Vda. de Abrogar], and pursuant to this
agreement, a Deed of Absolute Sale shall be executed by the FIRST PARTY conveying the
property to the SECOND PARTY for and in consideration of the sum of Two Hundred
Thousand Pesos (P200,000.00), Philippine Currency;

(2) The FIRST PARTY is hereby given by the SECOND PARTY the option to repurchase the
said property within a period of ninety (90) days from the execution of this memorandum
of agreement effective April 18, 1991, for the amount of TWO HUNDRED THIRTY
THOUSAND PESOS (P230,000.00);

(3) In the event that the FIRST PARTY fail to exercise her option to repurchase the said
property within a period of ninety (90) days, the FIRST PARTY is obliged to deliver
peacefully the possession of the property to the SECOND PARTY within fifteen (15) days
after the expiration of the said 90 day grace period;

(4) During the said grace period, the FIRST PARTY obliges herself not to file any lis
pendens or whatever claims on the property nor shall be cause the annotation of say claim
at the back of the title to the said property;

(5) With the execution of the deed of absolute sale, the FIRST PARTY warrants her
ownership of the property and shall defend the rights of the SECOND PARTY against any
party whom may have any interests over the property;

(6) All expenses for documentation and other incidental expenses shall be for the account
of the FIRST PARTY;

(7) Should the FIRST PARTY fail to deliver peaceful possession of the property to the
SECOND PARTY after the expiration of the 15-day grace period given in paragraph 3
above, the FIRST PARTY shall pay an amount equivalent to Five Percent of the principal
amount of TWO HUNDRED PESOS (P200.00) or P10,000.00 per month of delay as and for
rentals and liquidated damages;

(8) Should the FIRST PARTY fail to exercise her option to repurchase the property within
ninety (90) days period above-mentioned, this memorandum of agreement shall be
deemed cancelled and the Deed of Absolute Sale, executed by the parties shall be the final
contract considered as entered between the parties and the SECOND PARTY shall proceed
to transfer ownership of the property above described to its name free from lines and
encumbrances.2

On the same day, April 18, 1991, the parties likewise executed a deed of absolute
sale,3 dated June 11, 1991, wherein private respondent, with the consent of her late
husband, sold the subject property to A.C. Aguila & Sons, Co., represented by petitioner,
for P200,000.00. In a special power of attorney dated the same day, April 18, 1991,
private respondent authorized petitioner to cause the cancellation of TCT No. 195101 and
the issuance of a new certificate of title in the name of A.C. Aguila and Sons, Co., in the
event she failed to redeem the subject property as provided in the Memorandum of
Agreement.4

Private respondent failed to redeem the property within the 90-day period as provided in
the Memorandum of Agreement. Hence, pursuant to the special power of attorney
mentioned above, petitioner caused the cancellation of TCT No. 195101 and the issuance
of a new certificate of title in the name of A.C. Aguila and Sons, Co.5

Private respondent then received a letter dated August 10, 1991 from Atty. Lamberto C.
Nanquil, counsel for A.C. Aguila & Sons, Co., demanding that she vacate the premises
within 15 days after receipt of the letter and surrender its possession peacefully to A.C.
Aguila & Sons, Co. Otherwise, the latter would bring the appropriate action in court.6

Upon the refusal of private respondent to vacate the subject premises, A.C. Aguila & Sons,
Co. filed an ejectment case against her in the Metropolitan Trial Court, Branch 76,
Marikina, Metro Manila. In a decision, dated April 3, 1992, the Metropolitan Trial Court
ruled in favor of A.C. Aguila & Sons, Co. on the ground that private respondent did not
redeem the subject property before the expiration of the 90-day period provided in the
Memorandum of Agreement. Private respondent appealed first to the Regional Trial Court,
Branch 163, Pasig, Metro Manila, then to the Court of Appeals, and later to this Court, but
she lost in all the cases.

Private respondent then filed a petition for declaration of nullity of a deed of sale with the
Regional Trial Court, Branch 273, Marikina, Metro Manila on December 4, 1993. She
alleged that the signature of her husband on the deed of sale was a forgery because he
was already dead when the deed was supposed to have been executed on June 11, 1991.

It appears, however, that private respondent had filed a criminal complaint for falsification
against petitioner with the Office of the Prosecutor of Quezon City which was dismissed in a
resolution, dated February 14, 1994.

On April 11, 1995, Branch 273 of RTC-Marikina rendered its decision:

Plaintiffs claim therefore that the Deed of Absolute Sale is a forgery because they could not
personally appear before Notary Public Lamberto C. Nanquil on June 11, 1991 because her
husband, Ruben Abrogar, died on May 8, 1991 or one month and 2 days before the
execution of the Deed of Absolute Sale, while the plaintiff was still in the Quezon City
Medical Center recuperating from wounds which she suffered at the same vehicular
accident on May 8, 1991, cannot be sustained. The Court is convinced that the three
required documents, to wit: the Memorandum of Agreement, the Special Power of
Attorney, and the Deed of Absolute Sale were all signed by the parties on the same date
on April 18, 1991. It is a common and accepted business practice of those engaged in
money lending to prepare an undated absolute deed of sale in loans of money secured by
real estate for various reasons, foremost of which is the evasion of taxes and surcharges.
The plaintiff never questioned receiving the sum of P200,000.00 representing her loan
from the defendant. Common sense dictates that an established lending and realty firm
like the Aguila & Sons, Co. would not part with P200,000.00 to the Abrogar spouses, who
are virtual strangers to it, without the simultaneous accomplishment and signing of all the
required documents, more particularly the Deed of Absolute Sale, to protect its interest.
....

WHEREFORE, foregoing premises considered, the case in caption is hereby ORDERED

DISMISSED, with costs against the plaintiff.

On appeal, the Court of Appeals reversed. It held:

The facts and evidence show that the transaction between plaintiff-appellant and
defendant-appellee is indubitably an equitable mortgage. Article 1602 of the New Civil
Code finds strong application in the case at bar in the light of the following circumstances.

First: The purchase price for the alleged sale with right to repurchase is unusually
inadequate. The property is a two hundred forty (240) sq. m. lot. On said lot, the
residential house of plaintiff-appellant stands. The property is inside a subdivision/village.
The property is situated in Marikina which is already part of Metro Manila. The alleged sale
took place in 1991 when the value of the land had considerably increased.

For this property, defendant-appellee pays only a measly P200,000.00 or P833.33 per
square meter for both the land and for the house.

Second: The disputed Memorandum of Agreement specifically provides that plaintiff-

appellant is obliged to deliver peacefully the possession of the property to the SECOND
PARTY within fifteen (15) days after the expiration of the said ninety (90) day grace period.
Otherwise stated, plaintiff-appellant is to retain physical possession of the thing allegedly
sold.

In fact, plaintiff-appellant retained possession of the property sold as if they were still the
absolute owners. There was no provision for maintenance or expenses, much less for
payment of rent.

Third: The apparent vendor, plaintiff-appellant herein, continued to pay taxes on the
property sold. It is well-known that payment of taxes accompanied by actual possession of
the land covered by the tax declaration, constitute evidence of great weight that a person
under whose name the real taxes were declared has a claim of right over the land.

It is well-settled that the presence of even one of the circumstances in Article 1602 of the
New Civil Code is sufficient to declare a contract of sale with right to repurchase an
equitable mortgage.

Considering that plaintiff-appellant, as vendor, was paid a price which is unusually

inadequate, has retained possession of the subject property and has continued paying the
realty taxes over the subject property, (circumstances mentioned in par. (1) (2) and (5) of
Article 1602 of the New Civil Code), it must be conclusively presumed that the transaction
the parties actually entered into is an equitable mortgage, not a sale with right to
repurchase. The factors cited are in support to the finding that the Deed of
Sale/Memorandum of Agreement with right to repurchase is in actuality an equitable
mortgage.
Moreover, it is undisputed that the deed of sale with right of repurchase was executed by
reason of the loan extended by defendant-appellee to plaintiff-appellant. The amount of
loan being the same with the amount of the purchase price.

....

Since the real intention of the party is to secure the payment of debt, now deemed to be
repurchase price: the transaction shall then be considered to be an equitable mortgage.

Being a mortgage, the transaction entered into by the parties is in the nature of a pactum
commissorium which is clearly prohibited by Article 2088 of the New Civil Code. Article
2088 of the New Civil Code reads:

ART. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage,
or dispose of them. Any stipulation to the contrary is null and void.

The aforequoted provision furnishes the two elements for pactum commissorium to exist:
(1) that there should be a pledge or mortgage wherein a property is pledged or mortgaged
by way of security for the payment of principal obligation; and (2) that there should be a
stipulation for an automatic appropriation by the creditor of the thing pledged and
mortgaged in the event of non-payment of the principal obligation within the stipulated
period.

In this case, defendant-appellee in reality extended a P200,000.00 loan to plaintiff-

appellant secured by a mortgage on the property of plaintiff-appellant. The loan was
payable within ninety (90) days, the period within which plaintiff-appellant can repurchase
the property. Plaintiff-appellant will pay P230,000.00 and not P200,000.00, the P30,000.00
excess is the interest for the loan extended. Failure of plaintiff-appellee to pay the
P230,000,00 within the ninety (90) days period, the property shall automatically belong to
defendant-appellee by virtue of the deed of sale executed.

Clearly, the agreement entered into by the parties is in the nature of pactum
commissorium. Therefore, the deed of sale should be declared void as we hereby so
declare to be invalid, for being violative of law.

....

WHEREFORE, foregoing considered, the appealed decision is hereby REVERSED and SET
ASIDE. The questioned Deed of Sale and the cancellation of the TCT No. 195101 issued in
favor of plaintiff-appellant and the issuance of TCT No. 267073 issued in favor of
defendant-appellee pursuant to the questioned Deed of Sale is hereby declared VOID and
is hereby ANNULLED. Transfer Certificate of Title No. 195101 of the Registry of Marikina is
hereby ordered REINSTATED. The loan in the amount of P230,000.00 shall be paid within
ninety (90) days from the finality of this decision. In case of failure to pay the amount of
P230,000.00 from the period therein stated, the property shall be sold at public auction to
satisfy the mortgage debt and costs and if there is an excess, the same is to be given to
the owner.

Petitioner now contends that: (1) he is not the real party in interest but A.C. Aguila & Co.,
against which this case should have been brought; (2) the judgment in the ejectment case
is a bar to the filing of the complaint for declaration of nullity of a deed of sale in this case;
and (3) the contract between A.C. Aguila & Sons, Co. and private respondent is a pacto de
retro sale and not an equitable mortgage as held by the appellate court.

The petition is meritorious. Rule 3, 2 of the Rules of Court of 1964, under which the
complaint in this case was filed, provided that every action must be prosecuted and
defended in the name of the real party in interest. A real party in interest is one who would
be benefited or injured by the judgment, or who is entitled to the avails of the suit.7 This
ruling is now embodied in Rule 3, 2 of the 1997 Revised Rules of Civil Procedure. Any
decision rendered against a person who is not a real party in interest in the case cannot be
executed.8 Hence, a complaint filed against such a person should be dismissed for failure
to state a cause of action.9

Under Art. 1768 of the Civil Code, a partnership has a juridical personality separate and
distinct from that of each of the partners. The partners cannot be held liable for the
obligations of the partnership unless it is shown that the legal fiction of a different juridical
personality is being used for fraudulent, unfair, or illegal purposes.10 In this case, private
respondent has not shown that A.C. Aguila & Sons, Co., as a separate juridical entity, is
being used for fraudulent, unfair, or illegal purposes. Moreover, the title to the subject
property is in the name of A.C. Aguila & Sons, Co. and the Memorandum of Agreement was
executed between private respondent, with the consent of her late husband, and A. C.
Aguila & Sons, Co., represented by petitioner. Hence, it is the partnership, not its officers
or agents, which should be impleaded in any litigation involving property registered in its
name. A violation of this rule will result in the dismissal of the complaint.11 We cannot
understand why both the Regional Trial Court and the Court of Appeals sidestepped this
issue when it was squarely raised before them by petitioner.

Our conclusion that petitioner is not the real party in interest against whom this action
should be prosecuted makes it unnecessary to discuss the other issues raised by him in
this appeal. WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and
the complaint against petitioner is DISMISSED. SO ORDERED.
 G.R. No. 127405 October 4, 2000

MARJORIE TOCAO vs. COURT OF APPEALS

This is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV No.
41616,1 affirming the Decision of the Regional Trial Court of Makati, Branch 140, in Civil
Case No. 88-509.2

Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand, private
respondent Nenita A. Anay met petitioner William T. Belo, then the vice-president for
operations of Ultra Clean Water Purifier, through her former employer in Bangkok. Belo
introduced Anay to petitioner Marjorie Tocao, who conveyed her desire to enter into a joint
venture with her for the importation and local distribution of kitchen cookwares. Belo
volunteered to finance the joint venture and assigned to Anay the job of marketing the
product considering her experience and established relationship with West Bend Company,
a manufacturer of kitchen wares in Wisconsin, U.S.A. Under the joint venture, Belo acted
as capitalist, Tocao as president and general manager, and Anay as head of the marketing
department and later, vice-president for sales. Anay organized the administrative staff and
sales force while Tocao hired and fired employees, determined commissions and/or salaries
of the employees, and assigned them to different branches. The parties agreed that Belo’s
name should not appear in any documents relating to their transactions with West Bend
Company. Instead, they agreed to use Anay’s name in securing distributorship of cookware
from that company. The parties agreed further that Anay would be entitled to: (1) ten
percent (10%) of the annual net profits of the business; (2) overriding commission of six
percent (6%) of the overall weekly production; (3) thirty percent (30%) of the sales she
would make; and (4) two percent (2%) for her demonstration services. The agreement
was not reduced to writing on the strength of Belo’s assurances that he was sincere,
dependable and honest when it came to financial commitments.

Anay having secured the distributorship of cookware products from the West Bend
Company and organized the administrative staff and the sales force, the cookware
business took off successfully. They operated under the name of Geminesse Enterprise, a
sole proprietorship registered in Marjorie Tocao’s name, with office at 712 Rufino Building,
Ayala Avenue, Makati City. Belo made good his monetary commitments to Anay.
Thereafter, Roger Muencheberg of West Bend Company invited Anay to the
distributor/dealer meeting in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987 and
to the southwestern regional convention in Pismo Beach, California, U.S.A., from July 25-
26, 1987. Anay accepted the invitation with the consent of Marjorie Tocao who, as
president and general manager of Geminesse Enterprise, even wrote a letter to the Visa
Section of the U.S. Embassy in Manila on July 13, 1987. A portion of the letter reads:

"Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for
twenty (20) years now, acquired the distributorship of Royal Queen cookware for
Geminesse Enterprise, is the Vice President Sales Marketing and a business partner of our
company, will attend in response to the invitation." (Italics supplied.)3

Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the task of
saving the business on account of the unsatisfactory sales record in the Makati and Cubao
offices. On August 31, 1987, she received a plaque of appreciation from the administrative
and sales people through Marjorie Tocao4 for her excellent job performance. On October 7,
1987, in the presence of Anay, Belo signed a memo5 entitling her to a thirty-seven percent
(37%) commission for her personal sales "up Dec 31/87." Belo explained to her that said
commission was apart from her ten percent (10%) share in the profits. On October 9,
1987, Anay learned that Marjorie Tocao had signed a letter6 addressed to the Cubao sales
office to the effect that she was no longer the vice-president of Geminesse Enterprise. The
following day, October 10, she received a note from Lina T. Cruz, marketing manager, that
Marjorie Tocao had barred her from holding office and conducting demonstrations in both
Makati and Cubao offices.7 Anay attempted to contact Belo. She wrote him twice to
demand her overriding commission for the period of January 8, 1988 to February 5, 1988
and the audit of the company to determine her share in the net profits. When her letters
were not answered, Anay consulted her lawyer, who, in turn, wrote Belo a letter. Still, that
letter was not answered. Anay still received her five percent (5%) overriding commission
up to December 1987. The following year, 1988, she did not receive the same commission
although the company netted a gross sales of P13,300,360.00.

On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of money
with damages8 against Marjorie D. Tocao and William Belo before the Regional Trial Court
of Makati, Branch 140.

In her complaint, Anay prayed that defendants be ordered to pay her, jointly and severally,
the following: (1) P32,00.00 as unpaid overriding commission from January 8, 1988 to
February 5, 1988; (2) P100,000.00 as moral damages, and (3) P100,000.00 as exemplary
damages. The plaintiff also prayed for an audit of the finances of Geminesse Enterprise
from the inception of its business operation until she was "illegally dismissed" to determine
her ten percent (10%) share in the net profits. She further prayed that she be paid the five
percent (5%) "overriding commission" on the remaining 150 West Bend cookware sets
before her "dismissal."

In their answer,9 Marjorie Tocao and Belo asserted that the "alleged agreement" with Anay
that was "neither reduced in writing, nor ratified," was "either unenforceable or void or
inexistent." As far as Belo was concerned, his only role was to introduce Anay to Marjorie
Tocao. There could not have been a partnership because, as Anay herself admitted,
Geminesse Enterprise was the sole proprietorship of Marjorie Tocao. Because Anay merely
acted as marketing demonstrator of Geminesse Enterprise for an agreed remuneration,
and her complaint referred to either her compensation or dismissal, such complaint should
have been lodged with the Department of Labor and not with the regular court.

Petitioners (defendants therein) further alleged that Anay filed the complaint on account of
"ill-will and resentment" because Marjorie Tocao did not allow her to "lord it over in the
Geminesse Enterprise." Anay had acted like she owned the enterprise because of her
experience and expertise. Hence, petitioners were the ones who suffered actual damages
"including unreturned and unaccounted stocks of Geminesse Enterprise," and "serious
anxiety, besmirched reputation in the business world, and various damages not less than
P500,000.00." They also alleged that, to "vindicate their names," they had to hire counsel
for a fee of P23,000.00.

At the pre-trial conference, the issues were limited to: (a) whether or not the plaintiff was
an employee or partner of Marjorie Tocao and Belo, and (b) whether or not the parties are
entitled to damages.10
In their defense, Belo denied that Anay was supposed to receive a share in the profit of the
business. He, however, admitted that the two had agreed that Anay would receive a three
to four percent (3-4%) share in the gross sales of the cookware. He denied contributing
capital to the business or receiving a share in its profits as he merely served as a
guarantor of Marjorie Tocao, who was new in the business. He attended and/or presided
over business meetings of the venture in his capacity as a guarantor but he never
participated in decision-making. He claimed that he wrote the memo granting the plaintiff
thirty-seven percent (37%) commission upon her dismissal from the business venture at
the request of Tocao, because Anay had no other income.

For her part, Marjorie Tocao denied having entered into an oral partnership agreement with
Anay. However, she admitted that Anay was an expert in the cookware business and
hence, they agreed to grant her the following commissions: thirty-seven percent (37%) on
personal sales; five percent (5%) on gross sales; two percent (2%) on product
demonstrations, and two percent (2%) for recruitment of personnel. Marjorie denied that
they agreed on a ten percent (10%) commission on the net profits. Marjorie claimed that
she got the capital for the business out of the sale of the sewing machines used in her
garments business and from Peter Lo, a Singaporean friend-financier who loaned her the
funds with interest. Because she treated Anay as her "co-equal," Marjorie received the
same amounts of commissions as her. However, Anay failed to account for stocks valued at
P200,000.00.

On April 22, 1993, the trial court rendered a decision the dispositive part of which is as
follows:

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

1. Ordering defendants to submit to the Court a formal account as to the partnership affairs for the
years 1987 and 1988 pursuant to Art. 1809 of the Civil Code in order to determine the ten percent
(10%) share of plaintiff in the net profits of the cookware business;

2. Ordering defendants to pay five percent (5%) overriding commission for the one hundred and
fifty (150) cookware sets available for disposition when plaintiff was wrongfully excluded from the
partnership by defendants;

3. Ordering defendants to pay plaintiff overriding commission on the total production which for the
period covering January 8, 1988 to February 5, 1988 amounted to P32,000.00;

4. Ordering defendants to pay P100,000.00 as moral damages and P100,000.00 as exemplary

damages, and

5. Ordering defendants to pay P50,000.00 as attorney’s fees and P20,000.00 as costs of suit. SO
ORDERED."

The trial court held that there was indeed an "oral partnership agreement between the
plaintiff and the defendants," based on the following: (a) there was an intention to create a
partnership; (b) a common fund was established through contributions consisting of money
and industry, and (c) there was a joint interest in the profits. The testimony of Elizabeth
Bantilan, Anay’s cousin and the administrative officer of Geminesse Enterprise from August
21, 1986 until it was absorbed by Royal International, Inc., buttressed the fact that a
partnership existed between the parties. The letter of Roger Muencheberg of West Bend
Company stating that he awarded the distributorship to Anay and Marjorie Tocao because
he was convinced that with Marjorie’s financial contribution and Anay’s experience, the
combination of the two would be invaluable to the partnership, also supported that
conclusion. Belo’s claim that he was merely a "guarantor" has no basis since there was no
written evidence thereof as required by Article 2055 of the Civil Code. Moreover, his acts of
attending and/or presiding over meetings of Geminesse Enterprise plus his issuance of a
memo giving Anay 37% commission on personal sales belied this. On the contrary, it
demonstrated his involvement as a partner in the business.

The trial court further held that the payment of commissions did not preclude the existence
of the partnership inasmuch as such practice is often resorted to in business circles as an
impetus to bigger sales volume. It did not matter that the agreement was not in writing
because Article 1771 of the Civil Code provides that a partnership may be "constituted in
any form." The fact that Geminesse Enterprise was registered in Marjorie Tocao’s name is
not determinative of whether or not the business was managed and operated by a sole
proprietor or a partnership. What was registered with the Bureau of Domestic Trade was
merely the business name or style of Geminesse Enterprise.

The trial court finally held that a partner who is excluded wrongfully from a partnership is
an innocent partner. Hence, the guilty partner must give him his due upon the dissolution
of the partnership as well as damages or share in the profits "realized from the
appropriation of the partnership business and goodwill." An innocent partner thus
possesses "pecuniary interest in every existing contract that was incomplete and in the
trade name of the co-partnership and assets at the time he was wrongfully expelled."

Petitioners’ appeal to the Court of Appeals11 was dismissed, but the amount of damages
awarded by the trial court were reduced to P50,000.00 for moral damages and P50,000.00
as exemplary damages. Their Motion for Reconsideration was denied by the Court of
Appeals for lack of merit.12 Petitioners Belo and Marjorie Tocao are now before this Court
on a petition for review on certiorari, asserting that there was no business partnership
between them and herein private respondent Nenita A. Anay who is, therefore, not entitled
to the damages awarded to her by the Court of Appeals.

Petitioners Tocao and Belo contend that the Court of Appeals erroneously held that a
partnership existed between them and private respondent Anay because Geminesse
Enterprise "came into being" exactly a year before the "alleged partnership" was formed,
and that it was very unlikely that petitioner Belo would invest the sum of P2,500,000.00
with petitioner Tocao contributing nothing, without any "memorandum whatsoever
regarding the alleged partnership."13

The issue of whether or not a partnership exists is a factual matter which are within the
exclusive domain of both the trial and appellate courts. This Court cannot set aside factual
findings of such courts absent any showing that there is no evidence to support the
conclusion drawn by the court a quo.14 In this case, both the trial court and the Court of
Appeals are one in ruling that petitioners and private respondent established a business
partnership. This Court finds no reason to rule otherwise.

To be considered a juridical personality, a partnership must fulfill these requisites: (1) two
or more persons bind themselves to contribute money, property or industry to a common
fund; and (2) intention on the part of the partners to divide the profits among
themselves.15 It may be constituted in any form; a public instrument is necessary only
where immovable property or real rights are contributed thereto.16 This implies that since a
contract of partnership is consensual, an oral contract of partnership is as good as a
written one. Where no immovable property or real rights are involved, what matters is that
the parties have complied with the requisites of a partnership. The fact that there appears
to be no record in the Securities and Exchange Commission of a public instrument
embodying the partnership agreement pursuant to Article 1772 of the Civil Code17 did not
cause the nullification of the partnership. The pertinent provision of the Civil Code on the
matter states:

Art. 1768. The partnership has a juridical personality separate and distinct from that of
each of the partners, even in case of failure to comply with the requirements of article
1772, first paragraph.

Petitioners admit that private respondent had the expertise to engage in the business of
distributorship of cookware. Private respondent contributed such expertise to the
partnership and hence, under the law, she was the industrial or managing partner. It was
through her reputation with the West Bend Company that the partnership was able to open
the business of distributorship of that company’s cookware products; it was through the
same efforts that the business was propelled to financial success. Petitioner Tocao herself
admitted private respondent’s indispensable role in putting up the business when, upon
being asked if private respondent held the positions of marketing manager and vice-
president for sales, she testified thus:

"A: No, sir at the start she was the marketing manager because there were no one to sell
yet, it’s only me there then her and then two (2) people, so about four (4). Now, after that
when she recruited already Oscar Abella and Lina Torda-Cruz these two (2) people were
given the designation of marketing managers of which definitely Nita as superior to them
would be the Vice President."18

By the set-up of the business, third persons were made to believe that a partnership had
indeed been forged between petitioners and private respondents. Thus, the communication
dated June 4, 1986 of Missy Jagler of West Bend Company to Roger Muencheberg of the
same company states:

"Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the

operations. Marge does not have cookware experience. Nita Anay has started to gather
former managers, Lina Torda and Dory Vista. She has also gathered former demonstrators,
Betty Bantilan, Eloisa Lamela, Menchu Javier. They will continue to gather other key people
and build up the organization. All they need is the finance and the products to sell."19

On the other hand, petitioner Belo’s denial that he financed the partnership rings hollow in
the face of the established fact that he presided over meetings regarding matters affecting
the operation of the business. Moreover, his having authorized in writing on October 7,
1987, on a stationery of his own business firm, Wilcon Builders Supply, that private
respondent should receive thirty-seven (37%) of the proceeds of her personal sales, could
not be interpreted otherwise than that he had a proprietary interest in the business. His
claim that he was merely a guarantor is belied by that personal act of proprietorship in the
business. Moreover, if he was indeed a guarantor of future debts of petitioner Tocao under
Article 2053 of the Civil Code,20 he should have presented documentary evidence therefor.
While Article 2055 of the Civil Code simply provides that guaranty must be "express,"
Article 1403, the Statute of Frauds, requires that "a special promise to answer for the debt,
default or miscarriage of another" be in writing.21

Petitioner Tocao, a former ramp model,22 was also a capitalist in the partnership. She
claimed that she herself financed the business. Her and petitioner Belo’s roles as both
capitalists to the partnership with private respondent are buttressed by petitioner Tocao’s
admissions that petitioner Belo was her boyfriend and that the partnership was not their
only business venture together. They also established a firm that they called "Wiji," the
combination of petitioner Belo’s first name, William, and her nickname, Jiji.23 The special
relationship between them dovetails with petitioner Belo’s claim that he was acting in
behalf of petitioner Tocao. Significantly, in the early stage of the business operation,
petitioners requested West Bend Company to allow them to "utilize their banking and
trading facilities in Singapore" in the matter of importation and payment of the cookware
products.24 The inevitable conclusion, therefore, was that petitioners merged their
respective capital and infused the amount into the partnership of distributing cookware
with private respondent as the managing partner.

The business venture operated under Geminesse Enterprise did not result in an employer-
employee relationship between petitioners and private respondent. While it is true that the
receipt of a percentage of net profits constitutes only prima facie evidence that the
recipient is a partner in the business,25 the evidence in the case at bar controverts an
employer-employee relationship between the parties. In the first place, private respondent
had a voice in the management of the affairs of the cookware distributorship,26 including
selection of people who would constitute the administrative staff and the sales force.
Secondly, petitioner Tocao’s admissions militate against an employer-employee
relationship. She admitted that, like her who owned Geminesse Enterprise,27 private
respondent received only commissions and transportation and representation
allowances28 and not a fixed salary.29 Petitioner Tocao testified:

"Q: Of course. Now, I am showing to you certain documents already marked as Exhs. ‘X’ and ‘Y.’
Please go over this. Exh. ‘Y’ is denominated `Cubao overrides’ 8-21-87 with ending August 21,
1987, will you please go over this and tell the Honorable Court whether you ever came across this
document and know of your own knowledge the amount ---

A: Yes, sir this is what I am talking about earlier. That’s the one I am telling you earlier a certain
percentage for promotions, advertising, incentive.

Q: I see. Now, this promotion, advertising, incentive, there is a figure here and words which I
quote: ‘Overrides Marjorie Ann Tocao P21,410.50’ this means that you have received this amount?

A: Oh yes, sir.

Q: I see. And, by way of amplification this is what you are saying as one representing commission,
representation, advertising and promotion?

A: Yes, sir.

Q: I see. Below your name is the words and figure and I quote ‘Nita D. Anay P21,410.50’, what is
this?

A: That’s her overriding commission.

Q: Overriding commission, I see. Of course, you are telling this Honorable Court that there being
the same P21,410.50 is merely by coincidence?

A: No, sir, I made it a point that we were equal because the way I look at her kasi, you know in a
sense because of her expertise in the business she is vital to my business. So, as part of the
incentive I offer her the same thing.

Q: So, in short you are saying that this you have shared together, I mean having gotten from the
company P21,140.50 is your way of indicating that you were treating her as an equal?

A: As an equal.

Q: As an equal, I see. You were treating her as an equal?

A: Yes, sir.

Q: I am calling again your attention to Exh. ‘Y’ ‘Overrides Makati the other one is ---

A: That is the same thing, sir.

Q: With ending August 21, words and figure ‘Overrides Marjorie Ann Tocao P15,314.25’ the amount
there you will acknowledge you have received that?

A: Yes, sir.

Q: Again in concept of commission, representation, promotion, etc.?

A: Yes, sir.

Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an indication that she
received the same amount?

A: Yes, sir.

Q: And, as in your previous statement it is not by coincidence that these two (2) are the same?

A: No, sir.

Q: It is again in concept of you treating Miss Anay as your equal?

A: Yes, sir." (Italics supplied.)30

If indeed petitioner Tocao was private respondent’s employer, it is difficult to believe that
they shall receive the same income in the business. In a partnership, each partner must
share in the profits and losses of the venture, except that the industrial partner shall not
be liable for the losses.31 As an industrial partner, private respondent had the right to
demand for a formal accounting of the business and to receive her share in the net
profit.32

The fact that the cookware distributorship was operated under the name of Geminesse
Enterprise, a sole proprietorship, is of no moment. What was registered with the Bureau of
Domestic Trade on August 19, 1987 was merely the name of that enterprise.33 While it is
true that in her undated application for renewal of registration of that firm name, petitioner
Tocao indicated that it would be engaged in retail of "kitchenwares, cookwares, utensils,
skillet,"34 she also admitted that the enterprise was only "60% to 70% for the cookware
business," while 20% to 30% of its business activity was devoted to the sale of water
sterilizer or purifier.35 Indubitably then, the business name Geminesse Enterprise was used
only for practical reasons - it was utilized as the common name for petitioner Tocao’s
various business activities, which included the distributorship of cookware.

Petitioners underscore the fact that the Court of Appeals did not return the "unaccounted
and unremitted stocks of Geminesse Enterprise amounting to P208,250.00."36 Obviously a
ploy to offset the damages awarded to private respondent, that claim, more than anything
else, proves the existence of a partnership between them. In Idos v. Court of Appeals, this
Court said:

"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. x x x."37

It is not surprising then that, even after private respondent had been unceremoniously
booted out of the partnership in October 1987, she still received her overriding commission
until December 1987.

Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the

partnership to reap for herself and/or for petitioner Belo financial gains resulting from
private respondent’s efforts to make the business venture a success. Thus, as petitioner
Tocao became adept in the business operation, she started to assert herself to the extent
that she would even shout at private respondent in front of other people.38 Her instruction
to Lina Torda Cruz, marketing manager, not to allow private respondent to hold office in
both the Makati and Cubao sales offices concretely spoke of her perception that private
respondent was no longer necessary in the business operation,39 and resulted in a falling
out between the two. However, a mere falling out or misunderstanding between partners
does not convert the partnership into a sham organization.40 The partnership exists until
dissolved under the law. Since the partnership created by petitioners and private
respondent has no fixed term and is therefore a partnership at will predicated on their
mutual desire and consent, it may be dissolved by the will of a partner. Thus:

"x x x. 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 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 but that it can result in a liability for damages."41

An unjustified dissolution by a partner can subject him to action for damages because by
the mutual agency that arises in a partnership, the doctrine of delectus personae allows
the partners to have the power, although not necessarily the right to dissolve the
partnership.42
In this case, petitioner Tocao’s unilateral exclusion of private respondent from the
partnership is shown by her memo to the Cubao office plainly stating that private
respondent was, as of October 9, 1987, no longer the vice-president for sales of
Geminesse Enterprise.43 By that memo, petitioner Tocao effected her own withdrawal from
the partnership and considered herself as having ceased to be associated with the
partnership in the carrying on of the business. Nevertheless, the partnership was not
terminated thereby; it continues until the winding up of the business.44

The winding up of partnership affairs has not yet been undertaken by the partnership. This
is manifest in petitioners’ claim for stocks that had been entrusted to private respondent in
the pursuit of the partnership business.

The determination of the amount of damages commensurate with the factual findings upon
which it is based is primarily the task of the trial court.45 The Court of Appeals may modify
that amount only when its factual findings are diametrically opposed to that of the lower
court,46 or the award is palpably or scandalously and unreasonably excessive.47 However,
exemplary damages that are awarded "by way of example or correction for the public
good,"48 should be reduced to P50,000.00, the amount correctly awarded by the Court of
Appeals. Concomitantly, the award of moral damages of P100,000.00 was excessive and
should be likewise reduced to P50,000.00. Similarly, attorney’s fees that should be granted
on account of the award of exemplary damages and petitioners’ evident bad faith in
refusing to satisfy private respondent’s plainly valid, just and demandable claims,49 appear
to have been excessively granted by the trial court and should therefore be reduced to
P25,000.00.

WHEREFORE, the instant petition for review on certiorari is DENIED. The partnership among
petitioners and private respondent is ordered dissolved, and the parties are ordered to effect the
winding up and liquidation of the partnership pursuant to the pertinent provisions of the Civil Code.
This case is remanded to the Regional Trial Court for proper proceedings relative to said
dissolution. The appealed decisions of the Regional Trial Court and the Court of Appeals are
AFFIRMED with MODIFICATIONS, as follows ---

1. Petitioners are ordered to submit to the Regional Trial Court a formal account of the
partnership affairs for the years 1987 and 1988, pursuant to Article 1809 of the Civil Code,
in order to determine private respondent’s ten percent (10%) share in the net profits of the
partnership;

2. Petitioners are ordered, jointly and severally, to pay private respondent five percent (5%)
overriding commission for the one hundred and fifty (150) cookware sets available for
disposition since the time private respondent was wrongfully excluded from the partnership
by petitioners;

3. Petitioners are ordered, jointly and severally, to pay private respondent overriding
commission on the total production which, for the period covering January 8, 1988 to
February 5, 1988, amounted to P32,000.00;

4. Petitioners are ordered, jointly and severally, to pay private respondent moral damages in
the amount of P50,000.00, exemplary damages in the amount of P50,000.00 and attorney’s
fees in the amount of P25,000.00.SO ORDERED.