THIRD DIVISION

G. R. No. 135813 - October 25, 2001

FERNANDO SANTOS, Petitioner, v. SPOUSES ARSENIO and NIEVES REYES, Respondents.

PANGANIBAN, J.:

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

The Case

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

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

Resolving respondent's Motion for Reconsideration, the August 17, 1998 Resolution ruled as
follows:

"WHEREFORE, [respondents'] motion for reconsideration is GRANTED. Accordingly, the court's

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

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

The Facts

The events that led to this case are summarized by the CA as follows:

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

"In July, 1986, x x x Nieves introduced Cesar Gragera to [petitioner]. Gragera, as chairman of the
Monte Maria Development Corporation6 (Monte Maria, for brevity), sought short-term loans for
members of the corporation. [Petitioner] and Gragera executed an agreement providing funds for
Monte Maria's members. Under the agreement, Monte Maria, represented by Gragera, was entitled
to P1.31 commission per thousand paid daily to [petitioner] (Exh. 'A')x x x . Nieves kept the books
as representative of [petitioner] while [Respondent] Arsenio, husband of Nieves, acted as credit
investigator.

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

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

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

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

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

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

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

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

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

Ruling of the Trial Court

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

"39. WHEREFORE, the Court hereby renders judgment

as follows:
39.1. THE SECOND AMENDED COMPLAINT dated July 26,
1989 is DISMISSED.
39.2. The [Petitioner] FERNANDO J. SANTOS is ordered
to pay the [Respondent] NIEVES S. REYES, the
following:
39.2.1. P3,064,428.0 - The 15 percent share of the
0 [respondent] NIEVES S. REYES in
the profits of her joint venture with
the [petitioner].
39.2.2. Six(6) percent - As damages from August 3, 1987
of until the P3,064,428.00 is fully paid.
P3,064,428.0
0
39.2.3. P50,000.00 - As moral damages
39.2.4. P10,000.00 - As exemplary damages
39.3. The [petitioner] FERNANDO J. SANTOS is ordered
to pay the [respondent] ARSENIO REYES, the
following:
39.3.1. P2,899,739.5 - The balance of the 15 percent
0 share of the [respondent] ARSENIO
REYES in the profits of his joint
venture with the [petitioner].
39.3.2. Six(6) percent - As damages from August 3, 1987
of until the P2,899,739.50 is fully paid.
P2,899,739.5
0
39.3.3. P25,000.00 - As moral damages
39.3.4. P10,000.00 - As exemplary damages
39.4. The [petitioner] FERNANDO J.
SANTOS is ordered to pay the
[respondents]:
39.4.1. P50,000.00 - As attorney's fees; and
39.4.2. The cost of the suit."8

Ruling of the Court of Appeals

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

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

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

Hence, this Petition.9

Issue

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

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

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

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

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

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

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

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

7. Denying Santos' motion for reconsideration dated September 11, 1998."

Succinctly put, the following were the issues raised by petitioner: (1) whether the parties'
relationship was one of partnership or of employer employee; (2) whether Nieves misappropriated
the sums of money allegedly entrusted to her for delivery to Gragera as his commissions; and (3)
whether respondents were entitled to the partnership profits as determined by the trial court.

The Court's Ruling

The Petition is partly meritorious.

First Issue:
Business Relationship

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

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

"[Respondents] were industrial partners of [petitioner]x x x . Nieves herself provided the initiative
in the lending activities with Monte Maria. In consonance with the agreement between appellant,
Nieves and Zabat (later replaced by Arsenio), [respondents] contributed industry to the common
fund with the intention of sharing in the profits of the partnership. [Respondents] provided
services without which the partnership would not have [had] the wherewithal to carry on the
purpose for which it was organized and as such [were] considered industrial partners (Evangelista
v. Abad Santos, 51 SCRA 416 [1973]).
"While concededly, the partnership between [petitioner,] Nieves and Zabat was technically
dissolved by the expulsion of Zabat therefrom, the remaining partners simply continued the
business of the partnership without undergoing the procedure relative to dissolution. Instead, they
invited Arsenio to participate as a partner in their operations. There was therefore, no intent to
dissolve the earlier partnership. The partnership between [petitioner,] Nieves and Arsenio simply
took over and continued the business of the former partnership with Zabat, one of the incidents of
which was the lending operations with Monte Maria.

xxx - xxx - xxx

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

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

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

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

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

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

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

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

Second Issue:
No Proof of Misappropriation of Gragera's Unpaid Commission

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

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

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

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

'SECTION 20. Proof of Private Document Before any private document offered as authentic is

received in evidence, its due execution and authenticity must be proved either:

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

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

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

"The court a quo even ruled that the signature thereon was a forgery, as it found that:

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

xxx - xxx - xxx

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

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

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

"Accordingly, we find Nieves' testimony that after August 20, 1986, all collections were made by
Gragera believable and worthy of credence. Since Gragera guaranteed a daily 100% payment of
the loans, he took charge of the collections. As [petitioner's] representative,
Nieves merely prepared the daily cash flow reports (Exh. '15' to '15 DDDDDDDDDD') to enable
[petitioner] to keep track of Gragera's operations. Gragera on the other hand devised the schedule
of daily payment (Exhs. 'B' and 'F') to record the projected gross daily collections.

"As aptly observed by the court a quo:

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

These findings are in harmony with the trial court's ruling, which we quote below:

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

"21.1. SANTOS claimed that he learned of NIEVES' failure to give the P200,000.00 to GRAGERA
when he received the latter's letter complaining of its delayed release. Assuming as true SANTOS'
claim that he gave P200,000.00 to GRAGERA, there is no competent evidence that NIEVES did not
give it to GRAGERA. The only proof that NIEVES did not give it is the letter. But SANTOS did not
even present the letter in evidence. He did not explain why he did not.

"21.2. The evidence shows that all money transactions of the money-lending business of SANTOS
were covered by petty cash vouchers. It is therefore strange why SANTOS did not present any
voucher or receipt covering the P200,000.00."18

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

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

Third Issue:
Accounting of Partnership

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

Respondent spouses, on the other hand, postulate that petitioner instituted the action below to
avoid payment of the demands of Nieves, because sometime in March 1987, she "signified to
petitioner that it was about time to get her share of the profits which had already accumulated to
some P3 million." Respondents add that while the partnership has not declared dividends or
liquidated its earnings, the profits are already reflected on paper. To prove the counterclaim of
Nieves, the spouses show that from June 13, 1986 up to April 19, 1987, the profit totaled
P20,429,520 (Exhs. "10" et seq. and "15" et seq.). Based on that income, her 15 percent share
under the joint venture amounts to P3,064,428 (Exh. "10-I-3"); and Arsenio's, P2,026,000 minus
the P30,000 which was already advanced to him (Petty Cash Vouchers, Exhs. "6, 6-A to 6-B").
The CA originally held that respondents' counterclaim was premature, pending an accounting of
the partnership. However, in its assailed Resolution of August 17, 1998, it turned volte face.
Affirming the trial court's ruling on the counterclaim, it held as follows:

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

The trial court's ruling alluded to above is quoted below:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

HEIRS OF TAN ENG KEE, petitioners,

vs.
COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its President
TAN ENG LAY, respondents.

DE LEON, JR., J.:

In this petition for review on certiorari, petitioners pray for the reversal of the Decision dated
1 

March 13, 1996 of the former Fifth Division of the Court of Appeals in CA-G.R. CV No. 47937,
2 

the dispositive portion of which states:

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

The facts are:

Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the common-law
spouse of the decedent, joined by their children Teresita, Nena, Clarita, Carlos, Corazon and
Elpidio, collectively known as herein petitioners HEIRS OF TAN ENG KEE, filed suit against the
decedent's brother TAN ENG LAY on February 19, 1990. The complaint, docketed as Civil Case
3 

No. 1983-R in the Regional Trial Court of Baguio City was for accounting, liquidation and winding
up of the alleged partnership formed after World War II between Tan Eng Kee and Tan Eng Lay.
On March 18, 1991, the petitioners filed an amended complaint impleading private respondent
4 

herein BENGUET LUMBER COMPANY, as represented by Tan Eng Lay. The amended
complaint was admitted by the trial court in its Order dated May 3, 1991. 5

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

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

wit:

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

a) Declaring that Benguet Lumber is a joint venture which is akin to a particular

partnership;

b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint adventurers
and/or partners in a business venture and/or particular partnership called Benguet
Lumber and as such should share in the profits and/or losses of the business venture or
particular partnership;
 c) Declaring that the assets of Benguet Lumber are the same assets turned over to
Benguet Lumber Co. Inc. and as such the heirs or legal representatives of the deceased
Tan Eng Kee have a legal right to share in said assets;

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

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

f) Ordering the appointment of a receiver to preserve and/or administer the assets of

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

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

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

SO ORDERED.

Private respondent sought relief before the Court of Appeals which, on March 13, 1996, rendered
the assailed decision reversing the judgment of the trial court. Petitioners' motion for
reconsideration was denied by the Court of Appeals in a Resolution dated October 11, 1996.
7  8 

Hence, the present petition.

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

In their assignment of errors, petitioners claim that:

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS

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

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

III

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE

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

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

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

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

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

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

IV

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS

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

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS

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

As a premise, we reiterate the oft-repeated rule that findings of facts of the Court of Appeals will
not be disturbed on appeal if such are supported by the evidence. Our jurisdiction, it must be
10 

emphasized, does not include review of factual issues. Thus:

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

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

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

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

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

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

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

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

facts;

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

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

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

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

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

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

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

xxx             xxx             xxx

We have the admission that the father of the plaintiffs was not a partner of the Benguet
Lumber before the war. The appellees however argued that (Rollo, p. 104; Brief, p. 6) this
is because during the war, the entire stocks of the pre-war Benguet Lumber were
confiscated if not burned by the Japanese. After the war, because of the absence of
capital to start a lumber and hardware business, Lay and Kee pooled the proceeds of
their individual businesses earned from buying and selling military supplies, so that the
common fund would be enough to form a partnership, both in the lumber and hardware
business. That Lay and Kee actually established the Benguet Lumber in Baguio City, was
even testified to by witnesses. Because of the pooling of resources, the post-war
Benguet Lumber was eventually established. That the father of the plaintiffs and Lay
were partners, is obvious from the fact that: (1) they conducted the affairs of the business
during Kee's lifetime, jointly, (2) they were the ones giving orders to the employees, (3)
they were the ones preparing orders from the suppliers, (4) their families stayed together
at the Benguet Lumber compound, and (5) all their children were employed in the
business in different capacities.

xxx             xxx             xxx

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

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

xxx             xxx             xxx

We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may be constituted
in any form, but when an immovable is constituted, the execution of a public instrument
becomes necessary. This is equally true if the capitalization exceeds P3,000.00, in which
case a public instrument is also necessary, and which is to be recorded with the
Securities and Exchange Commission. In this case at bar, we can easily assume that the
business establishment, which from the language of the appellees, prospered (pars. 5 &
9, Complaint), definitely exceeded P3,000.00, in addition to the accumulation of real
properties and to the fact that it is now a compound. The execution of a public
instrument, on the other hand, was never established by the appellees.

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

These are not evidences supporting the existence of a partnership:

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

Partnership presupposes the following elements [citation omitted]: 1) a contract, either

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

As can be seen, the appellate court disputed and differed from the trial court which had adjudged
that TAN ENG KEE and TAN ENG LAY had allegedly entered into a joint venture. In this
connection, we have held that whether a partnership exists is a factual matter; consequently,
since the appeal is brought to us under Rule 45, we cannot entertain inquiries relative to the
correctness of the assessment of the evidence by the court a quo. Inasmuch as the Court of
13 

Appeals and the trial court had reached conflicting conclusions, perforce we must examine the
record to determine if the reversal was justified.

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

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

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

Thus, in order to constitute a partnership, it must be established that (1) two or more
persons bound themselves to contribute money, property, or industry to a common fund,
and (2) they intend to divide the profits among themselves. The agreement need not be
15 

formally reduced into writing, since statute allows the oral constitution of a partnership,
save in two instances: (1) when immovable property or real rights are contributed, and 16 

(2) when the partnership has a capital of three thousand pesos or more. In both cases, a
17 

public instrument is required. An inventory to be signed by the parties and attached to

18 

the public instrument is also indispensable to the validity of the partnership whenever
immovable property is contributed to the partnership. 19

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

joint adventure, to wit:

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

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

A joint venture "presupposes generally a parity of standing between the joint co-ventures or
partners, in which each party has an equal proprietary interest in the capital or property
contributed, and where each party exercises equal rights in the conduct of the
business." Nonetheless, in Aurbach, et. al. v. Sanitary Wares Manufacturing Corporation, et.
22 

al., we expressed the view that a joint venture may be likened to a particular partnership, thus:
23 

The legal concept of a joint venture is of common law origin. It has no precise legal
definition, but it has been generally understood to mean an organization formed for some
 temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is hardly distinguishable
from the partnership, since their elements are similar — community of interest in the
business, sharing of profits and losses, and a mutual right of control. (Blackner v.
McDermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P.2d., 1043 [1939];
Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 P.2d. 242 [1955]). The main
distinction cited by most opinions in common law jurisdiction is that the partnership
contemplates a general business with some degree of continuity, while the joint venture
is formed for the execution of a single transaction, and is thus of a temporary nature.
(Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 Ill. 595, 71
NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This observation is not
entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be
particular or universal, and a particular partnership may have for its object a specific
undertaking. (Art. 1783, Civil Code). It would seem therefore that under Philippine law, a
joint venture is a form of partnership and should thus be governed by the law of
partnerships. The Supreme Court has however recognized a distinction between these
two business forms, and has held that although a corporation cannot enter into a
partnership contract, it may however engage in a joint venture with others. (At p. 12,
Tuazon v. Bolaños, 95 Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes
and Selected Cases, Corporation Code 1981).

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

Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng Lay,
could have expounded on the precise nature of the business relationship between them. In the
absence of evidence, we cannot accept as an established fact that Tan Eng Kee allegedly
contributed his resources to a common fund for the purpose of establishing a partnership. The
testimonies to that effect of petitioners' witnesses is directly controverted by Tan Eng Lay. It
should be noted that it is not with the number of witnesses wherein preponderance lies; the 24 

quality of their testimonies is to be considered. None of petitioners' witnesses could suitably

account for the beginnings of Benguet Lumber Company, except perhaps for Dionisio Peralta
whose deceased wife was related to Matilde Abubo. He stated that when he met Tan Eng Kee
25 

after the liberation, the latter asked the former to accompany him to get 80 pieces of G.I. sheets
supposedly owned by both brothers. Tan Eng Lay, however, denied knowledge of this meeting
26 

or of the conversation between Peralta and his brother. Tan Eng Lay consistently testified that
27 

he had his business and his brother had his, that it was only later on that his said brother, Tan
Eng Kee, came to work for him. Be that as it may, co-ownership or co-possession (specifically
here, of the G.I. sheets) is not an indicium of the existence of a partnership. 28

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

accounting as long as the partnership exists. We have allowed a scenario wherein "[i]f excellent
30 

relations exist among the partners at the start of the business and all the partners are more
interested in seeing the firm grow rather than get immediate returns, a deferment of sharing in
the profits is perfectly plausible." But in the situation in the case at bar, the deferment, if any, had
31 

gone on too long to be plausible. A person is presumed to take ordinary care of his concerns. As 32 

we explained in another case:

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

A demand for periodic accounting is evidence of a partnership. During his lifetime, Tan Eng Kee
34 

appeared never to have made any such demand for accounting from his brother, Tang Eng Lay.

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

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

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

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

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

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

(4) The receipt by a person of a share of the profits of a business is a prima

facie evidence that he is a partner in the business, but no such inference shall be drawn
if such profits were received in payment:

(a) As a debt by installment or otherwise;

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

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

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

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

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

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

However, private respondent counters that:

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

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

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

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

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

In the instant case, we find private respondent's arguments to be well-taken. Where

circumstances taken singly may be inadequate to prove the intent to form a partnership,
nevertheless, the collective effect of these circumstances may be such as to support a finding of
the existence of the parties' intent. Yet, in the case at bench, even the aforesaid circumstances
36 

when taken together are not persuasive indicia of a partnership. They only tend to show that Tan
Eng Kee was involved in the operations of Benguet Lumber, but in what capacity is unclear. We
cannot discount the likelihood that as a member of the family, he occupied a niche above the
rank-and-file employees. He would have enjoyed liberties otherwise unavailable were he not kin,
such as his residence in the Benguet Lumber Company compound. He would have moral, if not
actual, superiority over his fellow employees, thereby entitling him to exercise powers of
supervision. It may even be that among his duties is to place orders with suppliers. Again, the
circumstances proffered by petitioners do not provide a logical nexus to the conclusion desired;
these are not inconsistent with the powers and duties of a manager, even in a business
organized and run as informally as Benguet Lumber Company.

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

speak of. Hence, the petition must fail.

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

SO ORDERED.
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 partnership  but that it can
4

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.  Among partners,  mutual agency arises and the doctrine of delectus personae allows
6 7

them to have the power, although not necessarily the right, to dissolve the partnership. An
unjustified dissolution by the partner can subject him to a possible action for damages.

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

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;   however, an agreement of the partners, like any other contract, is
10

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.   Indeed, for
12

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.
 FIRST DIVISION

G.R. No. 193138, August 20, 2018

ANICETO G. SALUDO, JR., Petitioner, v. PHILIPPINE NATIONAL

BANK, Respondent.

DECISION

JARDELEZA, J.:

In this petition, we emphasize that a partnership for the practice of law, constituted
in accordance with the Civil Code provisions on partnership, acquires juridical
personality by operation of law. Having a juridical personality distinct and separate
from its partners, such partnership is the real party-in-interest in a suit brought in
connection with a contract entered into in its name and by a person authorized to
act on its behalf.

Petitioner Aniceto G. Saludo, Jr. (Saludo) filed this petition for review
on certiorari1 assailing the February 8, 2010 Decision2 and August 2, 2010
Resolution3 issued by the Court of Appeals (CA) in CA-G.R. SP No. 98898. The CA
affirmed with modification the January 11, 2007 Omnibus Order4 issued by Branch
58 of the Regional Trial Court (RTC) of Makati City in Civil Case No. 06-678, and
ruled that respondent Philippine National Bank's (PNB) counterclaims against Saludo
and the Saludo Agpalo Fernandez and Aquino Law Office (SAFA Law Office) should
be reinstated in its answer.

Records show that on June 11, 1998, SAFA Law Office entered into a Contract of
Lease5 with PNB, whereby the latter agreed to lease 632 square meters of the
second floor of the PNB Financial Center Building in Quezon City for a period of three
years and for a monthly rental fee of P189,600.00. The rental fee is subject to a
yearly escalation rate of 10%.6 SAFA Law Office then occupied the leased premises
and paid advance rental fees and security deposit in the total amount of
P1,137,600.00.7

On August 1, 2001, the Contract of Lease expired.8 According to PNB, SAFA Law

Office continued to occupy the leased premises until February 2005, but
discontinued paying its monthly rental obligations after December
2002.9 Consequently, PNB sent a demand letter10 dated July 17, 2003 for SAFA Law
Office to pay its outstanding unpaid rents in the amount of P4,648,086.34. PNB sent
another letter11 demanding the payment of unpaid rents in the amount of
P5,856,803.53 which was received by SAFA Law Office on November 10, 2003.

In a letter12 to PNB dated June 9, 2004, SAFA Law Office expressed its intention to
negotiate. It claimed that it was enticed by the former management of PNB into
renting the leased premises by promising to: (1) give it a special rate due to the
large area of the place; (2) endorse PNB's cases to the firm with rents to be paid out
of attorney's fees; and (3) retain the firm as one of PNB's external counsels. When
new management took over, it allegedly agreed to uphold this agreement to
facilitate rental payments. However, not a single case of significance was referred to
the firm. SAFA Law Office then asked PNB to review and discuss its billings, evaluate
the improvements in the area and agree on a compensatory sum to be applied to
the unpaid rents, make good its commitment to endorse or refer cases to SAFA Law
Office under the intended terms and conditions, and book the rental payments due
as receivables payable every time attorney's fees are due from the bank on the
cases it referred. The firm also asked PNB to give a 50% discount on its unpaid
rents, noting that while it was waiting for case referrals, it had paid a total amount
of P13,457,622.56 from January 1999 to December 2002, which included the
accelerated rates of 10% per annum beginning August 1999 until July 2003.

In February 2005, SAFA Law Office vacated the leased premises.13 PNB sent a
demand letter14 dated July 7, 2005 requiring the firm to pay its rental arrears in the
total amount of P10,951,948.32. In response, SAFA Law Office sent a letter dated
June 8, 2006, proposing a settlement by providing a range of suggested
computations of its outstanding rental obligations, with deductions for the value of
improvements it introduced in the premises, professional fees due from Macroasia
Corporation, and the 50% discount allegedly promised by Dr. Lucio Tan.15 PNB,
however, declined the settlement proposal in a letter16 dated July 17, 2006, stating
that it was not amenable to the settlement's terms. Besides, PNB also claimed that it
cannot assume the liabilities of Macroasia Corporation to SAFA Law Office as
Macroasia Corporation has a personality distinct and separate from the bank. PNB
then made a final demand for SAFA Law Office to pay its outstanding rental
obligations in the amount of P25,587,838.09.

On September 1, 2006, Saludo, in his capacity as managing partner of SAFA Law

Office, filed an amended complaint17 for accounting and/or recomputation of unpaid
rentals and damages against PNB in relation to the Contract of Lease.

On October 4, 2006, PNB filed a motion to include an indispensable party as

plaintiff,18 praying that Saludo be ordered to amend anew his complaint to include
SAFA Law Office as principal plaintiff. PNB argued that the lessee in the Contract of
Lease is not Saludo but SAFA Law Office, and that Saludo merely signed the
Contract of Lease as the managing partner of the law firm. Thus, SAFA Law Office
must be joined as a plaintiff in the complaint because it is considered an
indispensable party under Section 7, Rule 3 of the Rules of Court.19

On October 13, 2006, PNB filed its answer.20 By way of compulsory counterclaim, it
sought payment from SAFA Law Office in the sum of P25,587,838.09, representing
overdue rentals.21 PNB argued that as a matter of right and equity, it can claim that
amount from SAFA Law Office in solidum with Saludo.22

On October 23, 2006, Saludo filed his motion to dismiss counterclaims,23 mainly

arguing that SAFA Law Office is neither a legal entity nor party litigant. As it is only
a relationship or association of lawyers in the practice of law and a single
proprietorship which may only be sued through its owner or proprietor, no valid
counterclaims may be asserted against it.24

On January 11, 2007, the RTC issued an Omnibus Order denying PNB's motion to
include an indispensable party as plaintiff and granting Saludo's motion to dismiss
counterclaims in this wise:

The Court DENIES the motion of PNB to include the SAFA Law Offices. Plaintiff
has shown by documents attached to his pleadings that indeed SAFA Law Offices is a
mere single proprietorship and not a commercial and business partnership. More
importantly, plaintiff has admitted and shown sole responsibility in the affairs
entered into by the SAFA Law Office. PNB has even admitted that the SAFA Law
Office, being a partnership in the practice of law, is a non-legal entity. Being a non-
legal entity, it cannot be a proper party, and therefore, it cannot sue or be sued.

Consequently, plaintiff's Motion to Dismiss Counterclaims (claimed by

defendant PNB) should be GRANTED. The counterclaims prayed for to the effect
that the SAFA Law Offices be made to pay in solidum with plaintiff the amounts
stated in defendant's Answer is disallowed since no counterclaims can be raised
against a non-legal entity.25
PNB filed its motion for reconsideration26 dated February 5, 2007, alleging that SAFA
Law Office should be included as a co-plaintiff because it is the principal party to the
contract of lease, the one that occupied the leased premises, and paid the monthly
rentals and security deposit. In other words, it was the main actor and direct
beneficiary of the contract. Hence, it is the real party-in-interest.27 The RTC,
however, denied the motion for reconsideration in an Order28 dated March 8, 2007.

Consequently, PNB filed a petition for certiorari29 with the CA. On February 8, 2010,

the CA rendered its assailed Decision,30 the dispositive portion of which reads:
WHEREFORE, the petition is PARTIALLY GRANTED. The assailed Omnibus Order
dated 11 January 2007 and Order dated 8 March 2007, issued by respondent Court
in Civil Case No. 06-678, respectively, are AFFIRMED with MODIFICATION in that
petitioner's counterclaims should be reinstated in its Answer.

SO ORDERED.31
The CA ruled that an order granting Saludo's motion to dismiss counterclaim, being
interlocutory in nature, is not appealable until after judgment shall have been
rendered on Saludo's complaint. Since the Omnibus Order is interlocutory, and there
was an allegation of grave abuse of discretion, a petition for certiorari is the proper
remedy.32

On the merits, the CA held that Saludo is estopped from claiming that SAFA Law
Office is his single proprietorship. Under the doctrine of estoppel, an admission or
representation is rendered conclusive upon the person making it, and cannot be
denied or disproved as against the person relying thereon. Here, SAFA Law Office
was the one that entered into the lease contract and not Saludo. In fact, the latter
signed the contract as the firm's managing partner. The alleged Memorandum of
Understanding33 (MOU) executed by the partners of SAFA Law Office, .which states,
among others, that Saludo alone would be liable for the firm's losses and liabilities,
and the letter of Saludo to PNB confirming that SAFA Law Office is his single
proprietorship did not convert the firm to a single proprietorship. Moreover, SAFA
Law Office sent a letter to PNB regarding its unpaid rentals which Saludo signed as a
managing partner. The firm is also registered as a partnership with the Securities
and Exchange Commission (SEC).34

On the question of whether SAFA Law Office is an indispensable party, the CA held
that it is not. As a partnership, it may sue or be sued in its name or by its duly
authorized representative. Saludo, as managing partner, may execute all acts of
administration, including the right to sue. Furthermore, the CA found that SAFA Law
Office is not a legal entity. A partnership for the practice of law is not a legal entity
but a mere relationship or association for a particular purpose. Thus, SAFA Law
Office cannot file an action in court. Based on these premises, the CA held that the
RTC did not gravely abuse its discretion in denying PNB's motion to include an
indispensable party as plaintiff.35

Nonetheless, the CA ruled that PNB's counterclaims against SAFA Law Office should
not be dismissed. While SAFA Law Office is not a legal entity, it can still be sued
under Section 15,36 Rule 3 of the Rules of Court considering that it entered into the
Contract of Lease with PNB.37

The CA further ruled that while it is true that SAFA Law Office's liability is not in
solidum with Saludo as PNB asserts, it does not necessarily follow that both of them
cannot be made parties to PNB's counterclaims. Neither should the counterclaims be
dismissed on the ground that the nature of the alleged liability is solidary. According
to the CA, the presence ofSAFA Law Office is required for the granting of complete
relief in the determination of PNB's counterclaim. The court must, therefore, order it
to be brought in as defendant since jurisdiction over it can be obtained pursuant to
Section 12,38 Rule 6 of the Rules of Court.39

Finally, the CA emphasized that PNB's counterclaims are compulsory, as they arose
from the filing of Saludo's complaint. It cannot be made subject of a separate action
but should be asserted in the same suit involving the same transaction. Thus, the
Presiding Judge of the RTC gravely abused his discretion in dismissing PNB's
counterclaims as the latter may forever be barred from collecting overdue rental
fees if its counterclaims were not allowed.40

Saludo and PNB filed their respective motions for partial reconsideration dated
February 25, 201041 and February 26, 2010.42 In a Resolution dated August 2, 2010,
the CA denied both motions on the ground that no new or substantial matters had
been raised therein. Nonetheless, the CA addressed the issue on the joining of SAFA
Law Office as a defendant in PNB's compulsory counterclaim. Pertinent portions of
the CA Resolution read:
The Private Respondent claims that a compulsory counterclaim is one directed
against an opposing party. The SAFA Law Office is not a party to the case below and
to require it to be brought in as a defendant to the compulsory counterclaim would
entail making it a co-plaintiff. Otherwise, the compulsory counterclaim would be
changed into a third-party complaint. The Private Respondent also argues that
Section 15, Rule 3 of the Rules of Court (on entities without juridical personality) is
only applicable to initiatory pleadings and not to compulsory counterclaims. Lastly, it
is claimed that since the alleged obligations of the SAFA Law Office is solidary with
the Private Respondent, there is no need to make the former a defendant to the
counterclaim.

We disagree with the reasoning of the Private Respondent. That a compulsory

counterclaim can only be brought against an opposing party is belied by considering
one of the requisites of a compulsory counterclaim it does not require for its
adjudication the presence of third parties of whom the court cannot acquire
jurisdiction. This shows that non-parties to a suit may be brought in as defendants
to such a counterclaim. x x x

xxxx

In the case at bench, the trial court below can acquire jurisdiction over the SAFA
Law Office considering the amount and the nature of the counterclaim. Furthermore,
the inclusion of the SAFA Law Office as a defendant to the counterclaim will enable
the granting of complete relief in view [of] the liability of a partner to the
partnership's creditors under the law.43
Hence, this petition, where Saludo raises the following issues for our resolution:
(1)
Whether the CA erred in including SAFA Law Office as defendant to PNB's
counterclaim despite its holding that SAFA Law Office is neither an indispensable
party nor a legal entity;
(2)
Whether the CA went beyond the issues in the petition for certiorari and prematurely
dealt with the merits of PNB's counterclaim; and
(3)
Whether the CA erred when it gave due course to PNB's petition for certiorari to
annul and set aside the RTC's Omnibus Order dated January 11, 2007.44
The petition is bereft of merit.

We hold that SAFA Law Office is a juridical entity and the real party-in-interest in the
suit filed with the RTC by Saludo against PNB. Hence, it should be joined as plaintiff
in that case.

I.

Contrary to Saludo's submission, SAFA Law Office is a partnership and not a single
proprietorship.

Article 1767 of the Civil Code provides that by a contract of partnership, two or more
persons bind themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among themselves. Two or more
persons may also form a partnership for the exercise of a profession. Under Article
1771, a partnership may be constituted in any form, except where immovable
property or real rights are contributed thereto, in which case a public instrument
shall be necessary. Article 1784, on the other hand, provides that a partnership
begins from the moment of the execution of the contract, unless it is otherwise
stipulated.

Here, absent evidence of an earlier agreement, SAFA Law Office was constituted as
a partnership at the time its partners signed the Articles of Partnership45 wherein
they bound themselves to establish a partnership for the practice of law, contribute
capital and industry for the purpose, and receive compensation and benefits in the
course of its operation. The opening paragraph of the Articles of Partnership reveals
the unequivocal intention of its signatories to form a partnership, to wit:
WE, the undersigned ANICETO G. SALUDO, JR., RUBEN E. AGPALO, FILEMON L.
FERNANDEZ, AND AMADO D. AQUINO, all of legal age, Filipino citizens and members
of the Philippine Bar, have this day voluntarily associated ourselves for the purpose
of forming a partnership engaged in the practice of law, effective this date, under
the terms and conditions hereafter set forth, and subject to the provisions of
existing laws[.]46
The subsequent registration of the Articles of Partnership with the SEC, on the other
hand, was made in compliance with Article 1772 of the Civil Code, since the initial
capital of the partnership was P500,000.00.47 Said provision states:
Art. 1772. Every contract of partnership having a capital ofThree thousand pesos or
more, in money or property, shall appear in a public instrument, which must be
recorded in the Office of the Securities and Exchange Commission.

xxxx
The other provisions of the Articles of Partnership also positively identify SAFA Law
Office as a partnership. It constantly used the words "partners" and "partnership." It
designated petitioner Saludo as managing partner,48 and Attys. Ruben E. Agpalo,
Filemon L. Fernandez, and Amado D. Aquino as industrial partners.49 It also provided
for the term of the partnership,50 distribution of net profits and losses, and
management of the firm in which "the partners shall have equal interest in the
conduct of [its] affairs."51 Moreover, it provided for the cause and manner of
dissolution of the partnership.52 These provisions would not have been necessary if
what had been established was a sole proprietorship. Indeed, it may only be
concluded from the circumstances that, for all intents and purposes, SAFA Law Office
is a partnership created and organized in accordance with the Civil Code provisions
on partnership.

Saludo asserts that SAFA Law Office is a sole proprietorship on the basis of the MOU
executed by the partners of the firm. The MOU states in full:53
MEMORANDUM OF UNDERSTANDING

WHEREAS, the undersigned executed and filed with the SEC the Articles of
Incorporation of SALUDO, AGPALO, FERNANDEZ and AQUINO on March 13, 1997;

WHEREAS, among the provisions of said Articles of Incorporation are the following:

1. That partners R. E. Agpalo, F. L. Fernandez and A. D. Aquino shall be industrial

partners, and they shall not contribute capital to the partnership and shall not in any
way be liable for any loss or liability that may be incurred by the law firm in the
course of its operation.

2. That the partnership shall be dissolved by agreement of the partners or for any
cause as and in accordance with the manner provided by law, in which event the
Articles of Dissolution of said partnership shall be filed with the Securities and
Exchange Commission. All remaining assets upon dissolution shall accrue exclusively
to A. G. Saludo, Jr. and all liabilities shall be solely for his account.

WHEREAS, the SEC has not approved the registration of the Articles of Incorporation
and its Examiner required that the phrase "shall not in any way be liable for any loss
or liability that may be incurred by the law firm in the course of its operation" in
Article VII be deleted;

WHEREAS, the SEC Examiner likewise required that the sentence "All remaining
assets upon dissolution shall accrue exclusively to A. G. Saludo, Jr. and all liabilities
shall be solely for his account" in Article X be likewise deleted;

WHEREAS, in order to meet the objections of said Examiner, the objectionable

provisions have been deleted and new Articles of Incorporation deleting said
objectionable provisions have been executed by the parties and filed with the SEC.

NOW, THEREFORE, for and in consideration of the premises and the mutual
covenant of the parties, the parties hereby agree as follows:

1. Notwithstanding the deletion of the portions objected to by the said Examiner, by

reason of which entirely new Articles of Incorporation have been executed by the
parties removing the objected portions, the actual and real intent of the parties is
still as originally envisioned, namely:

a) That partners R. E. Agpalo, F. L. Fernandez and A. D. Aquino shall not in any way
be liable for any loss or liability that may be incurred by the law firm in the course of
its operation;
b) That all remaining assets upon dissolution shall accrue exclusively to A. G.
Saludo, Jr. and all liabilities shall be solely for his account.

2. That the parties hereof hereby bind and obligate themselves to adhere and
observe the real intent of the parties as above-stated, any provisions in the Articles
of Incorporation as filed to meet the objections of the SEC Examiner to the contrary
notwithstanding.

IN WITNESS WHEREOF, we have set our hands this _____ day of May, 1997 at

Makati City, Philippines.

[Sgd.]
A.G. SALUDO, JR.
[Sgd.]
[Sgd.]
[Sgd.]
RUBEN E. AGPALO
FILEMON L. FERNANDEZ
AMADO D. AQUINO
The foregoing evinces the parties' intention to entirely shift any liability that may be
incurred by SAFA Law Office in the course of its operation to Saludo, who shall also
receive all the remaining assets of the firm upon its dissolution. This MOU, however,
does not serve to convert SAFA Law Office into a sole proprietorship. As discussed,
SAFA Law Office was manifestly established as a partnership based on the Articles of
Partnership. The MOU, from its tenor, reinforces this fact. It did not change the
nature of the organization of SAFA Law Office but only excused the industrial
partners from liability.

The law, in its wisdom, recognized the possibility that partners in a partnership may
decide to place a limit on their individual accountability. Consequently, to protect
third persons dealing with the partnership, the law provides a rule, embodied in
Article 1816 of the Civil Code, which states:
Art. 1816. All partners, including industrial ones, shall be liable pro rata with all their
property and after all the partnership assets have been exhausted, for the contract
which may be entered into in the name and for the account of the partnership,
under its signature and by a person authorized to act for the partnership. However,
any partner may enter into a separate obligation to perform a partnership contract.
The foregoing provision does not prevent partners from agreeing to limit their
liability, but such agreement may only be valid as among them. Thus, Article 1817
of the Civil Code provides:
Art. 1817. Any stipulation against the liability laid down in the preceding article shall
be void, except as among the partners.
The MOU is an agreement forged under the foregoing provision. Consequently, the
sole liability being undertaken by Saludo serves to bind only the parties to the MOU,
but never third persons like PNB.

Considering that the MOU is sanctioned by the law on partnership, it cannot change
the nature of a duly-constituted partnership. Hence, we cannot sustain Saludo's
position that SAFA Law Office is a sole proprietorship.

II.
Having settled that SAFA Law Office is a partnership, we hold that it acquired
juridical personality by operation of law. The perfection and validity of a contract of
partnership brings about the creation of a juridical person separate and distinct from
the individuals comprising the partnership. Thus, Article 1768 of the Civil Code
provides:
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.
Article 44 of the Civil Code likewise provides that partnerships are juridical persons,
to wit:
Art. 44. The following are juridical persons:

(1)
The State and its political subdivisions;
(2)
Other corporations, institutions and entities for public interest or purpose, created by
law; their personality begins as soon as they have been constituted according to
law;
(3)
Corporations, partnerships and associations for private interest or purpose to
which the law grants a juridical personality, separate and distinct from that of each
shareholder, partner or member.54
It is this juridical personality that allows a partnership to enter into business
transactions to fulfill its purposes. Article 46 of the Civil Code provides that
"[j]uridical persons may acquire and possess property of all kinds, as well as incur
obligations and bring civil or criminal actions, in conformity with the laws and
regulations of their organization."

SAFA Law Office entered into a contract of lease with PNB as a juridical person to
pursue the objectives of the partnership. The terms of the contract and the manner
in which the parties implemented it are a glaring recognition of SAFA Law Office's
juridical personality. Thus, the contract stated that it is being executed by PNB as
the lessor and "SALUDO AGPALO FERNANDEZ & AQUINO, a partnership organized
and existing under the laws of the Republic of the Philippines," as the lessee.55 It
also provided that the lessee, i.e., SAFA Law Office, shall be liable in case of
default.56

Furthermore, subsequent communications between the parties have always been

made for or on behalf ofPNB and SAFA Law Office, respectively.57

In view of the above, we see nothing to support the position of the RTC and the CA,
as well as Saludo, that SAFA Law Office is not a partnership and a legal entity.
Saludo's claims that SAFA Law Office is his sole proprietorship and not a legal entity
fail in light of the clear provisions of the law on partnership. To reiterate, SAFA Law
Office was created as a partnership, and as such, acquired juridical personality by
operation of law. Hence, its rights and obligations, as well as those of its partners,
are determined by law and not by what the partners purport them to be.

III.

In holding that SAFA Law Office, a partnership for the practice of law, is not a legal
entity, the CA cited58 the case of Petition for Authority to Continue Use of the Firm
Name "Sycip, Salazar, Feliciano, Hernandez & Castillo" 59 (Sycip case) wherein the
Court held that "[a] partnership for the practice of law is not a legal entity. It is a
mere relationship or association for a particular purpose. x x x It is not a partnership
formed for the purpose of carrying on trade or business or of holding
property."60 These are direct quotes from the US case of In re Crawford's
Estate.61 We hold, however, that our reference to this US case is an obiter
dictum which cannot serve as a binding precedent.62

An obiter dictum is an opinion of the court upon a question which was not necessary
to the decision of the case before it. It is an opinion uttered by the way, not upon
the point or question pending, as if turning aside from the main topic of the case to
collateral subjects, or an opinion that does not embody the court's determination
and is made without argument or full consideration of the point. It is not a professed
deliberate determination of the judge himself.63

The main issue raised for the court's determination in the Sycip case is whether the
two petitioner law firms may continue using the names of their deceased partners in
their respective firm names. The court decided the issue in the negative on the basis
of "legal and ethical impediments."64 To be sure, the pronouncement that a
partnership for the practice of law is not a legal entity does not bear on either the
legal or ethical obstacle for the continued use of a deceased partner's name,
inasmuch as it merely describes the nature of a law firm. The pronouncement is not
determinative of the main issue. As a matter of fact, if deleted from the judgment,
the rationale of the decision is neither affected nor altered.

Moreover, reference of the Sycip case to the In re Crawford's Estate case was made

without a full consideration of the nature of a law firm as a partnership possessed
with legal personality under our Civil Code. First, we note that while the Court
mentioned that a partnership for the practice of law is not a legal entity, it also
identified petitioner law firms as partnerships over whom Civil Code provisions on
partnership apply.65 The Court thus cannot hold that a partnership for the practice of
law is not a legal entity without running into conflict with Articles 44 and 1768 of the
Civil Code which provide that a partnership has a juridical personality separate and
distinct from that of each of the partners.

Second, our law on partnership does not exclude partnerships for the practice of law
from its coverage. Article 1767 of the Civil Code provides that "[t]wo or more
persons may also form a partnership for the exercise of a profession." Article 1783,
on the other hand, states that "[a] particular partnership has for its object
determinate things, their use or fruits, or a specific undertaking, or the exercise of a
profession or vocation." Since the law uses the word "profession" in the general
sense, and does not distinguish which professional partnerships are covered by its
provisions and which are not, then no valid distinction may be made.

Finally, we stress that unlike Philippine law, American law does not treat of
partnerships as forming a separate juridical personality for all purposes. In the case
of Bellis v. United States,66 the US Supreme Court stated that law firms, as a form of
partnership, are generally regarded as distinct entities for specific purposes, such as
employment, capacity to be sued, capacity to hold title to property, and
more.67 State and federal laws, however, do not treat partnerships as distinct
entities for all purposes.68

Our jurisprudence has long recognized that American common law does not treat of
partnerships as a separate juridical entity unlike Philippine law. Hence, in the case
of Campos Rueda & Co. v. Pacific Commercial Co.,69 which was decided under the old
Civil Code, we held:
Unlike the common law, the Philippine statutes consider a limited partnership as a
juridical entity for all intents and purposes, which personality is recognized in all its
acts and contracts (art. 116, Code of Commerce). This being so and the juridical
personality of a limited partnership being different from that of its members, it must,
on general principle, answer for, and suffer, the consequence of its acts as such an
entity capable of being the subject of rights and obligations.70 x x x
On the other hand, in the case of Commissioner of Internal Revenue v.
Suter.71 which was decided under the new Civil Code, we held:
It being a basic tenet of the Spanish and Philippine law that the partnership has a
juridical personality of its own, distinct and separate from that of its partners (unlike
American and English law that does not recognize such separate juridical
personality), the bypassing of the existence of the limited partnership as a taxpayer
can only be done by ignoring or disregarding clear statutory mandates and basic
principles of our law.72 x x x
Indeed, under the old and new Civil Codes, Philippine law has consistently treated
partnerships as having a juridical personality separate from its partners. In view of
the clear provisions of the law on partnership, as enriched by jurisprudence, we hold
that our reference to In re Crawford's Estate in the Sycip case is an obiter dictum.

IV.

Having settled that SAFA Law Office is a juridical person, we hold that it is also the
real party-in-interest in the case filed by Saludo against PNB.

Section 2, Rule 3 of the Rules of Court defines a real party-in-interest as the one
"who stands to be benefited or injured by the judgment in the suit, or the party
entitled to the avails of the suit." In Lee v. Romillo, Jr.,73 we held that the "real
[party-in-interest]-plaintiffis one who has a legal right[,] while a real [party-in-
interest]-defendant is one who has a correlative legal obligation whose act or
omission violates the legal rights of the former."74

SAFA Law Office is the party that would be benefited or injured by the judgment in
the suit before the RTC. Particularly, it is the party interested in the accounting
and/or recomputation of unpaid rentals and damages in relation to the contract of
lease. It is also the party that would be liable for payment to PNB of overdue rentals,
if that claim would be proven. This is because it is the one that entered into the
contract of lease with PNB. As an entity possessed of a juridical personality, it has
concomitant rights and obligations with respect to the transactions it enters into.
Equally important, the general rule under Article 1816 of the Civil Code is that
partnership assets are primarily liable for the contracts entered into in the name of
the partnership and by a person authorized to act on its behalf. All partners,
including industrial ones, are only liable pro rata with all their property after all the
partnership assets have been exhausted.

In Guy v. Gacott,75 we held that under Article 1816 of the Civil Code, the partners'
obligation with respect to the partnership liabilities is subsidiary in nature. It is
merely secondary and only arises if the one primarily liable fails to sufficiently satisfy
the obligation. Resort to the properties of a partner may be made only after efforts
in exhausting partnership assets have failed or if such partnership assets are
insufficient to cover the entire obligation.76 Consequently, considering that SAFA Law
Office is primarily liable under the contract of lease, it is the real party-in-interest
that should be joined as plaintiff in the RTC case.
Section 2, Rule 3 of the Rules of Court requires that every action must be
prosecuted or defended in the name of the real party-in-interest. As the one
primarily affected by the outcome of the suit, SAFA Law Office should have filed the
complaint with the RTC and should be made to respond to any counterclaims that
may be brought in the course of the proceeding.

In Aguila, Jr. v. Court of Appeals,77 a case for declaration of nullity of a deed of sale
was filed against a partner of A.C. Aguila & Sons, Co. We dismissed the complaint
and held that it was the partnership, not its partners, which should be impleaded for
a cause of action against the partnership itself. Moreover, the partners could not be
held liable for the obligations of the partnership unless it was shown that the legal
fiction of a different juridical personality was being used for fraudulent, unfair, or
illegal purposes. We held:
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. 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. Hence, a complaint filed against such a person should be
dismissed for failure to state a cause of action.

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.
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.78
In this case, there is likewise no showing that SAFA Law Office, as a separate
juridical entity, is being used for fraudulent, unfair, or illegal purposes. Hence, its
partners cannot be held primarily liable for the obligations of the partnership. As it
was SAFA Law Office that entered into a contract of lease with respondent PNB, it
should also be impleaded in any litigation concerning that contract.

Accordingly, the complaint filed by Saludo should be amended to include SAFA Law
Office as plaintiff. Section 11,79 Rule 3 of the Rules of Court gives power to the court
to add a party to the case on its own initiative at any stage of the action and on
such tenns as are just. We have also held in several cases80 that the court has full
powers, apart from that power and authority which are inherent, to amend
processes, pleadings, proceedings, and decisions by substituting as party-plaintiff
the real party-in-interest.

In view of the above discussion, we find it unnecessary to discuss the other issues
raised in the petition. It is unfortunate that the case has dragged on for more than
10 years even if it involves an issue that may be resolved by a simple application of
Civil Code provisions on partnership. It is time for trial to proceed so that the
parties' substantial rights may be adjudicated without further unnecessary delay.
WHEREFORE, the petition is DENIED. Petitioner is hereby ordered to amend his
complaint to include SAFA Law Office as plaintiff in Civil Case No. 06-678 pending
before Branch 58 of the Regional Trial Court of Makati City, it being the real party-
in-interest.

SO ORDERED.
G.R. No. 121087           August 26, 1999

FELIPE NAVARRO, petitioner,
vs.
THE COURT OF APPEALS and the PEOPLE OF THE PHILIPPINES, respondents.

MENDOZA, J.:

This is a petition for review on certiorari of the decision1 of the Court of Appeals, dated December
14, 1994, which affirmed the judgment of the Regional Trial Court, Branch 5, Lucena City, dated
July 27, 1992, finding petitioner Felipe Navarro guilty beyond reasonable doubt of homicide and
sentencing him to ten (10) years of prision mayor, as minimum, and fourteen (14) years and
eight (8) months, and (1) day of reclusion temporal, as maximum, but increased the death
indemnity awarded to the heirs of the victim, Enrique "Ike" Lingan, from P30,000.00 to
P50,000.00.

The information against petitioner alleged —

That on or about the 4th day of February, 1990, in the nighttime, in the City of Lucena,
Province of Quezon, Philippines, and within the jurisdiction of this Honorable Court, the
said accused, being then a member of the Lucena Integrated National Police, with intent
to kill, did then and there willfully, unlawfully and feloniously assault one Ike Lingan inside
the Lucena police headquarters, where authorities are supposed to be engaged in the
discharge of their duties, by boxing the said Ike Lingan in the head with the butt of a gun
and thereafter when the said victim fell, by banging his head against the concrete
pavement, as a consequence of which said Ike Lingan suffered cerebral concussion and
shock which directly caused his death.

The evidence show that, at around 8:40 in the evening of February 4, 1990, Stanley Jalbuena
and Enrique "Ike" Lingan, who were reporters of the radio station DWTI in Lucena City, together
with one Mario Ilagan, went to the Entertainment City following reports that it was showing the
nude dancers. After the three had seated themselves at a table and ordered beer, a scantily clad
dancer appeared on stage and began to perform a strip act. As she removed her brassieres,
Jalbuena brought out his camera and took a picture.2

At that point, the floor manager, Dante Liquin, with a security guard, Alex Sioco, approached
Jalbuena and demanded to know why he took a picture.3 Jalbuena replied: "Wala kang pakialam,
because this is my job."4 Sioco pushed Jalbuena towards the table as he warned the latter that
he would kill him.5 When Jalbuena saw that Sioco was about to pull out his gun, he ran out of the
joint followed by his companions.6

Jalbuena and his companions went to the police station to report the matter. Three of the
policeman on duty, including petitioner Navarro, were having drinks in front of the police station,
and they asked Jalbuena and his companions to join them. Jalbuena declined and went to the
desk officer, Sgt. Añonuevo, to report the incident. In a while, Liquin and Sioco arrived on a
motorcycle.7

Sioco and Liquin were met by petitioner Navarro who talked with them in a corner for around
fifteen minutes.8 Afterwards, petitioner Navarro turned to Jalbuena and, pushing him to the wall,
said to him: "Putang ina, kinakalaban mo si Kabo Liquin, anak yan ni Kabo Liquin, hindi mo ba
kilala?"9 Petitioner Navarro then pulled out his firearm and cocked it, and, pressing it on the face
of Jalbuena, said "Ano, uutasin na kita?"10
At this point, Lingan intervened and said to petitioner Navarro: "Huwag namang ganyan pumarito
kami para magpa-blotter, I am here to mediate."11 Petitoner Navarro replied: "Walang press,
press, mag-sampu pa kayo."12 He then turned to Sgt. Añonuevo and told him to make of record
the behavior of Jalbuena and Lingan.13

This angered Lingan, who said: "O, di ilagay mo diyan"14 Petitioner Navarro retorted: "Talagang
ilalagay ko."15 The two then had a heated exchange.16 Finally, Lingan said: "Masyado kang
abusado, alisin mo yang baril mo at magsuntukan na lang tayo."17 Petitioner Navarro replied: "Ah,
ganoon?"18

As Lingan was about turn away, petitioner Navarro hit him with the handle of the pistol above the
left eyebrow. Lingan fell on the floor, blood flowing down his face. He tried to get up, but
petitioner Navarro gave him a fist blow on the forehead which floored him.19

Petitioner Navarro turned to Jalbuena and said: "Kita mo yan ha, buhay kang testigo, si Ike
Lingan and naghamon."20 He said to Sgt. Añonuevo: "Ilagay mo diyan sa blotter sa harap ni Alex
Sioco at Dante Liquin, na si Ike Lingan ang naghamon."21 He then poked his gun at the right
temple of Jalbuena and made him sign his name on the blotter.22 Jalbuena could not affix his
signature. His right hand was trembling and he simply wrote his name in print.23

Capt. Coronado, the station commander, called petitioner Navarro to his office, while a
policeman took Lingan to the Quezon Memorial Hospital. The station manager of DWTI, Boy,
Casañada, arrived and, learning that Lingan had been taken to the hospital, proceeded there.
But Lingan died from his injuries.24

Unknown to petitioner Navarro, Jalbuena was able to record on tape the exchange between
petitioner and the deceased.25 The following is an excerpt from the tape recording:

Lingan: Pare, you are abusing yourself.

Navarro: Who is that abusing?

Lingan: I'm here to mediate. Do not include me in the problem. I'm out of the problem.

xxx     xxx     xxx

Navarro: Wala sa akin yan. Ang kaso lang . . .

Lingan: Kalaban mo ang media, pare, Ako at si Stanley, dalawa kami. Okay. Do not fight
with me. I just came here to ayusin things. Do not say bad things against me. I'm the
number one loko sa media. I'm the best media man. . . .

Navarro: Huwag tayong mag-lokohan sa ganyan! Huwag na tayong mag-takotan! Huwag

mong sabihing loko ka!

Lingan: I'm brave also.

Navarro: Ay lalo na ako. Tahimik lang naman ako. Wala ka namang masasabi sa akin
dahil nag-tatrabaho lang ako ng ayon sa serbisyo ko.

Lingan: You are challenging me and him. . . .

Navarro: Ay walastik ka naman Ike! Pag may problema ka dito sinasabihan kita na may
balita tayong maganda. Pambihira ka Ike. Huwag mong sabihin na . . . Parang
minomonopoly mo eh.
 Lingan: Pati ako kalaban ninyo.

Navarro: Talagang kalaban namin ang press. Lahat, hindi lang ikaw!

Lingan: You are wrong. Bakit kalaban nyo ang press?

Navarro: Pulis ito! Aba!

Lingan: Alisin mo ang baril mo! Alisin mo ang baril mo! Suntukan tayo, sige.

Navarro: Mayabang ka ah!

(Sounds of a scuffle)

Navarro: Hinamon ako nyan! Pare hinamon ako nyan! Pare hinamon ako nyan, testigo
kayo. Alisin ko daw ang baril ko. Hinamon ako nyan. Pare, ilagay mo diyan, hinamon ako
sa harap ni Stanley. Testigo kayo, hinamon ako. Pulis tayo eh. Puta, buti nga, suntok
lang ang inabot nyan. Sa harap ni Alex, ni Joe, ni Stanley, hinamon ako. Pare, hinamon
ako, kinig nyo ha. Hinamon ako nyan. Sige, dalhin nyo sa hospital yan.

Petitioner Felipe Navarro claims that it was the deceased who tried to hit him twice, but he
(petitioner) was able to duck both times, and that Lingan was so drunk he fell on the floor twice,
each time hitting his head on the concrete.26

In giving credence to the evidence for the prosecution, the trial court stated:

After a thorough and in-depth evaluation of the evidence adduced by the prosecution and
the defense, this court finds that the evidence for the prosecution is the more credible,
concrete and sufficient to create that moral certainty in the mind of the court that accused
herein is criminally responsible.

The defense's evidence which consists of outright denial could not under the
circumstance overturn the strength of the prosecution's evidence.

This court finds that the prosecution witnesses, more particularly Stanley Jalbuena,
lacked any motive to make false accusation, distort the truth, testify falsehood or cause
accusation of one who had neither brought him harm or injury.

Going over the evidence on record, the postmortem report issued by Dra. Eva

Yamamoto confirms the detailed account given by Stanley Jalbuena on how Lingan
sustained head injuries.

Said post-mortem report together with the testimony of Jalbuena sufficiently belie the

claim of the defense that the head injuries of deceased Lingan were caused by the
latter's falling down on the concrete pavement head first.

The Court of Appeals affirmed:

We are far from being convinced by appellant's aforesaid disquisition. We have carefully
evaluated the conflicting versions of the incident as presented by both parties, and we
find the trial court's factual conclusions to have better and stronger evidentiary support.

In the first place, the mere fact that Jalbuena was himself a victim of appellant's
aggression does not impair the probative worth of his positive and logical account of the
incident in question. In fact, far from proving his innocence, appellant's unwarranted
 assault upon Jalbuena, which the defense has virtually admitted, clearly betrays his
violent character or disposition and his capacity to harm others. Apparently, the same
motivation that led him into assailing Jalbuena must have provoked him into also
attacking Lingan who had interceded for Jalbuena and humiliated him and further
challenged to a fist fight.
1âwphi1.nêt

xxx     xxx     xxx

On the other hand, appellant's explanation as how Lingan was injured is too tenuous and
illogical to be accepted. It is in fact contradicted by the number, nature and location of
Lingan's injuries as shown in the post-mortem report (Exh. D). According to the defense,
Lingan fell two times when he was outbalanced in the course of boxing the appellant.
And yet, Lingan suffered lacerated wounds in his left forehead, left eyebrow, between his
left and right eyebrows, and contusion in the right temporal region of the head (Exh. E.).
Certainly, these injuries could not have been resulted from Lingan's accidental fall.

Hence, this appeal. Petitioner Navarro contends:

THE HONORABLE COURT OF APPEALS HAS DECIDED THE CASE NOT IN

ACCORD WITH LAW AND WITH THE APPLICABLE DECISIONS OF THE SUPREME
COURT. ITS CONCLUSION IS A FINDING BASED ON SPECULATION, SURMISE OR
CONJECTURE; THE INFERENCE IT MADE IS MANIFESTLY MISTAKEN, ABSURD OR
IMPOSSIBLE; IT COMMITTED GRAVE ABUSE OF DISCRETION; ITS JUDGMENT IS
BASED ON A MISAPPREHENSION OF FACTS; ITS FINDING IS CONTRADICTED BY
EVIDENCE ON RECORD; AND ITS FINDING IS DEVOID OF SUPPORT IN THE
RECORD.

The appeal is without merit.

First. Petitioner Navarro questions the credibility of the testimony of Jalbuena on the ground that
he was a biased witness, having a grudge against him. The testimony of a witness who has an
interest in the conviction of the accused is not, for this reason alone, unreliable.27 Trial courts,
which have the opportunity observe the facial expressions, gestures, and tones of voice of a
witness while testifying, are competent to determine whether his or her testimony should be
given credence.28 In the instant case, petitioner Navarro has not shown that the trial court erred in
according weight to the testimony of Jalbuena.

Indeed, Jalbuena's testimony is confirmed by the voice recording had made. It may be asked
whether the tape is admissible in view of R.A. No. 4200, which prohibits wire tapping. The
answer is in the affirmative. The law provides:

Sec. 1. It shall be unlawful for any person, not being authorized by all the parties to any
private communication or spoken word, to tap any wire or cable, or by using any other
device or arrangement, to secretly overhear, intercept, or record such communication or
spoken word by using a device commonly known as dictaphone or dictagraph of
dectectaphone or walkie-talkie or tape-recorder, or however otherwise described:

It shall also be unlawful for any person, be he a participant or not in the act or acts
penalized in the next preceding sentence, to knowingly possess any tape record, wire
record, disc record, or any other such record, or copies thereof, of any communication or
spoken word secured either before or after the effective date of this Act in the manner
prohibited by this law; or to replay the same for any other person or persons; or to
communicate the contents thereof, either verbally or in writing, or to furnish transcriptions
thereof, whether complete or partial, to any other person: Provided, That the use of such
record or any copies thereof as evidence in any civil, criminal investigation or trial of
offenses mentioned in section 3 hereof, shall not be covered by this prohibition.
 xxx     xxx     xxx

Sec. 4. Any communication or spoken word, or the existence, contents, substance,

purport, effect, or meaning of the same or any part thereof, or any information therein
contained obtained or secured by any person in violation of the preceding sections of this
Act shall not be admissible in evidence in any judicial, quasi-judicial, legislative or
administrative hearing or investigation.

Thus, the law prohibits the overhearing, intercepting, or recording of private

communications.29 Since the exchange between petitioner Navarro and Lingan was not private,
its tape recording is not prohibited.

Nor is there any question that it was duly authenticated. A voice recording is authenticated by the
testimony of a witness (1) that he personally recorded the conversations; (2) that the tape played
in the court was the one he recorded; and (3) that the voices on the tape are those of the
persons such are claimed to belong.30 In the instant case, Jalbuena testified that he personally
made the voice recording;31 that the tape played in the court was the one he recorded;32 and that
the speakers on the tape were petitioner Navarro and Lingan.33 A sufficient foundation was thus
laid for the authentication of the tape presented by the prosecution.

Second. The voice recording made by Jalbuena established: (1) that there was a heated
exchange between petitioner Navarro and Lingan on the placing in the police blotter of an entry
against him and Jalbuena; and (2) that some form of violence occurred involving petitioner
Navarro and Lingan, with the latter getting the worst of it.

Furthermore, Dr. Eva Yamamoto, who performed the autopsy on the body of Lingan, issued the
medical certificate,34 dated February 5, 1990, containing the following findings:

Post Mortem Findings:

= Dried blood, forehead & face

= No blood oozed from the ears, nose & mouth

= Swelling, 3 cm x 2 cm, temporal region, head, right

= Lacerated wound, 2 cm in length, 1-2 in depth, lateral eyebrow, Left

= Lacerated wound, 0.5 cm in length, superficial, between the left & right eyebrow

= Lacerated wound, 2 cm in length, 1 cm in depth, forehead, Left

= Cyanosis of the tips of fingers & toes

CAUSE OF DEATH:

= CEREBRAL CONCUSSION & SHOCK

= BLOW ON THE HEAD

Dr. Yamamato testified:

Q   Give your opinion as to what was the possible cause of this findings number one, which is
oozing of blood from the forehead?
A   It may be due to a blow on the forehead or it bumped to a hard object, sir.

Q   Could a metal like a butt of a gun have caused this wound No. 1.?

A   It is possible, sir.

Q   And in the alternative, could have it been caused by bumping on a concrete floor?

A   Possible, sir.

FISCAL:

What could have been the cause of the contusion and swelling under your findings No. 2 doctor?

WITNESS:

It may be caused by bumping to a hard object, sir.

Q   Could a butt of a gun have caused it doctor?

A   The swelling is big so it could have not been caused by a butt of a gun because the butt of a
gun is small, sir.

Q   How about this findings No. 4?

A   By a bump or contact of the body to a hard object, sir.

Q   And findings No. 5 what could have caused it?

A   Same cause, sir.

Q   This findings No. 6 what could have caused this wound?

A   Same thing sir.

Q   How about the last finding, cyanosis of tips of fingers and toes, what could have caused it
doctor?

WITNESS:

It indicates there was cardiac failure, sir.

FISCAL:

In this same post mortem report and under the heading cause of death it states: Cause of Death:
Cerebral concussion and Shock, will you explain it?

A   Cerebral concussion means in Tagalog "naalog ang utak" or jarring of the brain, sir.

Q   What could have been the cause of jarring of the brain?

A   It could have been caused by a blow of a hard object, sir.

Q   What about the shock, what could have caused it?

A   It was due to peripheral circulatory failure, sir.

Q   Could any one of both caused the death of the victim?

A   Yes, sir.

Q   Could cerebral concussion alone have caused the death of the deceased?

A   May be, sir.

FISCAL:

Which of these two more likely, to cause death?

WITNESS:

Shock, sir.

Q   Please explain further the meaning of the medical term shock?

A   It is caused by peripheral circulatory failure as I have said earlier sir.

xxx     xxx     xxx

FISCAL:

Could a bumping or pushing of one's head against a concrete floor have caused shock?

WITNESS:

Possible, sir.

How about striking with a butt of a gun, could it cause shock?

A   Possible, sir.35

The above testimony clearly supports the claim of Jalbuena that petitioner Navarro hit Lingan
with the handle of his pistol above the left eyebrow and struck him on the forehead with his fist.

Third. It is argued that the mitigating circumstances of sufficient provocation or threat on the part
of the offended party immediately preceding the act should have been appreciated in favor of
petitioner Navarro. Provocation is defined to be any unjust or improper conduct or act of the
offended party, capable of exciting, inciting or irritating anyone.36 The provocation must be
sufficient and should immediately precede the act.37 To be sufficient, it must be adequate to
excite a person to commit the wrong, which must accordingly be proportionate in gravity.38 And it
must immediately precede the act so much so that there is no interval between the provocation
by the offended party and the commission of the crime by the accused.39

In the present case, the remarks of Lingan, which immediately preceded the act of petitioner,
constituted sufficient provocation. In People v. Macaso,40 we appreciated this mitigating
circumstance in favor of the accused, a policeman, who shot a motorist after the latter had
repeatedly taunted him with defiant words. Hence, this mitigating circumstance should be
considered in favor of petitioner Navarro.

Furthermore, the mitigating circumstance that the offender had no intention to commit so grave a
wrong as that committed should also be appreciated in favor of petitioner. The frantic
exclamations of petitioner Navarro after the scuffle that it was Lingan who provoked him shows
that he had no intent to kill the latter. Thus, this mitigating circumstance should be taken into
account in determining the penalty that should be imposed on petitioner Navarro. The allowance
of this mitigating circumstance is consistent with the rule that criminal liability shall be incurred by
any person committing a felony although the wrongful act done be different from that which he
intended.41 In People v. Castro,42 the mitigating circumstance of lack of intent to commit so grave
a wrong as that committed was appreciated in favor of the accused while finding him guilty of
homicide.

However, the aggravating circumstance of commission of a crime in a place where the public
authorities are engaged in the discharge of their duties should be appreciated against petitioner
Navarro. The offense in this case was committed right in the police station where policemen were
discharging their public functions.43

The crime committed as found by the trial court and the Court of Appeals was homicide, for
which the penalty under Art. 249 of the Revised Penal Code is reclusion temporal. As there were
two mitigating circumstances and one aggravating circumstances, the penalty should be fixed in
its minimum period.44 Applying the Indeterminate Sentence Law, petitioner Navarro should be
sentenced to an indeterminate penalty, the minimum of which is within the range of the penalty
next lower degree, i.e., prision mayor, and the maximum of which is reclusion temporal in its
minimum period.45

The indemnity as increased by the Court of Appeals from P30,000.00 to P50,000.00 is in

accordance with the current jurisprudence.46

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the modification that
petitioner Felipe Navarro is hereby SENTENCED to suffer a prison terms of 18 years of prision
mayor, as minimum, to 14 years and 8 months of reclusion temporal, as maximum.

SO ORDERED. 1âwphi1.nêt
 FIRST DIVISION

G.R. No. 127405            September 20, 2001

MARJORIE TOCAO and WILLIAM T. BELO, petitioners,

vs.
COURT OF APPEALS and NENITA A. ANAY, respondent.

RESOLUTION

YNARES-SANTIAGO, J.:

The inherent powers of a Court to amend and control its processes and orders so as to make
them conformable to law and justice includes the right to reverse itself, especially when in its
honest opinion it has committed an error or mistake in judgment, and that to adhere to its
decision will cause injustice to a party litigant.1

On November 14, 2001, petitioners Marjorie Tocao and William T. Belo filed a Motion for
Reconsideration of our Decision dated October 4, 2000. They maintain that there was no
partnership between petitioner Belo, on the one hand, and respondent Nenita A. Anay, on the
other hand; and that the latter being merely an employee of petitioner Tocao.

After a careful review of the evidence presented, we are convinced that, indeed, petitioner Belo
acted merely as guarantor of Geminesse Enterprise. This was categorically affirmed by
respondent's own witness, Elizabeth Bantilan, during her cross-examination. Furthermore,
Bantilan testified that it was Peter Lo who was the company's financier. Thus:

Q     -    You mentioned a while ago the name William Belo. Now, what is the role of
William Belo with Geminesse Enterprise?

A     -    William Belo is the friend of Marjorie Tocao and he was the guarantor of the
company.

Q     -    What do you mean by guarantor?

A     -    He guarantees the stocks that she owes somebody who is Peter Lo and he acts
as guarantor for us. We can borrow money from him.

Q     -    You mentioned a certain Peter Lo. Who is this Peter Lo?

A     -    Peter Lo is based in Singapore.

Q     -    What is the role of Peter Lo in the Geminesse Enterprise?

A     -    He is the one fixing our orders that open the L/C.

Q     -    You mean Peter Lo is the financier?

A     -    Yes, he is the financier.

Q     -    And the defendant William Belo is merely the guarantor of Geminesse

Enterprise, am I correct?
 A     -    Yes, sir2

The foregoing was neither refuted nor contradicted by respondent's evidence. It should be
recalled that the business relationship created between petitioner Tocao and respondent Anay
was an informal partnership, which was not even recorded with the Securities and Exchange
Commission. As such, it was understandable that Belo, who was after all petitioner Tocao's good
friend and confidante, would occasionally participate in the affairs of the business, although
never in a formal or official capacity.3 Again, respondent's witness, Elizabeth Bantilan, confirmed
that petitioner Belo's presence in Geminesse Enterprise's meetings was merely as guarantor of
the company and to help petitioner Tocao.4

Furthermore, no evidence was presented to show that petitioner Belo participated in the profits of
the business enterprise. Respondent herself professed lack of knowledge that petitioner Belo
received any share in the net income of the partnership.5 On the other hand, petitioner Tocao
declared that petitioner Belo was not entitled to any share in the profits of Geminesse
Enterprise.6 With no participation in the profits, petitioner Belo cannot be deemed a partner since
the essence of a partnership is that the partners share in the profits and losses.7

Consequently, inasmuch as petitioner Belo was not a partner in Geminesse Enterprise,

respondent had no cause of action against him and her complaint against him should accordingly
be dismissed.

As regards the award of damages, petitioners argue that respondent should be deemed in bad
faith for failing to account for stocks of Geminesse Enterprise amounting to P208,250.00 and
that, accordingly, her claim for damages should be barred to that extent. We do not agree. Given
the circumstances surrounding private respondent's sudden ouster from the partnership by
petitioner Tocao, her act of withholding whatever stocks were in her possession and control was
justified, if only to serve as security for her claims against the partnership. However, while we do
not agree that the same renders private respondent in bad faith and should bar her claim for
damages, we find that the said sum of P208,250.00 should be deducted from whatever amount
is finally adjudged in her favor on the basis of the formal account of the partnership affairs to be
submitted to the Regional Trial Court.

WHEREFORE, based on the foregoing, the Motion for Reconsideration of petitioners is

PARTIALLY GRANTED. The Regional Trial Court of Makati is hereby ordered to DISMISS the
complaint, docketed as Civil Case No. 88-509, as against petitioner William T. Belo only. The
sum of P208,250.00 shall be deducted from whatever amount petitioner Marjorie Tocao shall be
held liable to pay respondent after the normal accounting of the partnership affairs.

SO ORDERED.

Davide, Jr., Kapunan, and Pardo; JJ., concur.

Puno, J., on official leave.
 SPECIAL FIRST DIVISION

G.R. No. 124293             January 31, 2005

J.G. SUMMIT HOLDINGS, INC., petitioner,

vs.
COURT OF APPEALS; COMMITTEE ON PRIVATIZATION, its Chairman and Members;
ASSET PRIVATIZATION TRUST; and PHILYARDS HOLDINGS, INC., respondents.

RESOLUTION

PUNO, J.:

For resolution before this Court are two motions filed by the petitioner, J.G. Summit Holdings,
Inc. for reconsideration of our Resolution dated September 24, 2003 and to elevate this case to
the Court En Banc. The petitioner questions the Resolution which reversed our Decision of
November 20, 2000, which in turn reversed and set aside a Decision of the Court of Appeals
promulgated on July 18, 1995.

I. Facts

The undisputed facts of the case, as set forth in our Resolution of September 24, 2003, are as
follows:

On January 27, 1997, the National Investment and Development Corporation (NIDC), a
government corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy
Industries, Ltd. of Kobe, Japan (KAWASAKI) for the construction, operation and management of
the Subic National Shipyard, Inc. (SNS) which subsequently became the Philippine Shipyard and
Engineering Corporation (PHILSECO). Under the JVA, the NIDC and KAWASAKI will contribute
₱330 million for the capitalization of PHILSECO in the proportion of 60%-40% respectively. One
of its salient features is the grant to the parties of the right of first refusal should either of them
decide to sell, assign or transfer its interest in the joint venture, viz:

1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [PHILSECO] to
any third party without giving the other under the same terms the right of first refusal. This
provision shall not apply if the transferee is a corporation owned or controlled by the
GOVERNMENT or by a KAWASAKI affiliate.

On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO to the
Philippine National Bank (PNB). Such interests were subsequently transferred to the National
Government pursuant to Administrative Order No. 14. On December 8, 1986, President Corazon
C. Aquino issued Proclamation No. 50 establishing the Committee on Privatization (COP) and
the Asset Privatization Trust (APT) to take title to, and possession of, conserve, manage and
dispose of non-performing assets of the National Government. Thereafter, on February 27, 1987,
a trust agreement was entered into between the National Government and the APT wherein the
latter was named the trustee of the National Government's share in PHILSECO. In 1989, as a
result of a quasi-reorganization of PHILSECO to settle its huge obligations to PNB, the National
Government's shareholdings in PHILSECO increased to 97.41% thereby reducing KAWASAKI's
shareholdings to 2.59%.

In the interest of the national economy and the government, the COP and the APT deemed it
best to sell the National Government's share in PHILSECO to private entities. After a series of
negotiations between the APT and KAWASAKI, they agreed that the latter's right of first refusal
under the JVA be "exchanged" for the right to top by five percent (5%) the highest bid for the said
shares. They further agreed that KAWASAKI would be entitled to name a company in which it
was a stockholder, which could exercise the right to top. On September 7, 1990, KAWASAKI
informed APT that Philyards Holdings, Inc. (PHI)1 would exercise its right to top.

At the pre-bidding conference held on September 18, 1993, interested bidders were given copies
of the JVA between NIDC and KAWASAKI, and of the Asset Specific Bidding Rules (ASBR)
drafted for the National Government's 87.6% equity share in PHILSECO. The provisions of the
ASBR were explained to the interested bidders who were notified that the bidding would be held
on December 2, 1993. A portion of the ASBR reads:

1.0 The subject of this Asset Privatization Trust (APT) sale through public bidding is the National
Government's equity in PHILSECO consisting of 896,869,942 shares of stock (representing
87.67% of PHILSECO's outstanding capital stock), which will be sold as a whole block in
accordance with the rules herein enumerated.

xxx xxx xxx

2.0 The highest bid, as well as the buyer, shall be subject to the final approval of both the APT
Board of Trustees and the Committee on Privatization (COP).

2.1 APT reserves the right in its sole discretion, to reject any or all bids.

3.0 This public bidding shall be on an Indicative Price Bidding basis. The Indicative price set for
the National Government's 87.67% equity in PHILSECO is PESOS: ONE BILLION THREE
HUNDRED MILLION (₱1,300,000,000.00).

xxx xxx xxx

6.0 The highest qualified bid will be submitted to the APT Board of Trustees at its regular
meeting following the bidding, for the purpose of determining whether or not it should be
endorsed by the APT Board of Trustees to the COP, and the latter approves the same. The APT
shall advise Kawasaki Heavy Industries, Inc. and/or its nominee, [PHILYARDS] Holdings, Inc.,
that the highest bid is acceptable to the National Government. Kawasaki Heavy Industries, Inc.
and/or [PHILYARDS] Holdings, Inc. shall then have a period of thirty (30) calendar days from the
date of receipt of such advice from APT within which to exercise their "Option to Top the Highest
Bid" by offering a bid equivalent to the highest bid plus five (5%) percent thereof.

6.1 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. exercise their
"Option to Top the Highest Bid," they shall so notify the APT about such exercise of their option
and deposit with APT the amount equivalent to ten percent (10%) of the highest bid plus five
percent (5%) thereof within the thirty (30)-day period mentioned in paragraph 6.0 above. APT will
then serve notice upon Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc.
declaring them as the preferred bidder and they shall have a period of ninety (90) days from the
receipt of the APT's notice within which to pay the balance of their bid price.

6.2 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. fail to exercise
their "Option to Top the Highest Bid" within the thirty (30)-day period, APT will declare the highest
bidder as the winning bidder.

xxx xxx xxx

12.0 The bidder shall be solely responsible for examining with appropriate care these rules, the
official bid forms, including any addenda or amendments thereto issued during the bidding
period. The bidder shall likewise be responsible for informing itself with respect to any and all
conditions concerning the PHILSECO Shares which may, in any manner, affect the bidder's
proposal. Failure on the part of the bidder to so examine and inform itself shall be its sole risk
and no relief for error or omission will be given by APT or COP. . . .

At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc.2 submitted a bid of
Two Billion and Thirty Million Pesos (₱2,030,000,000.00) with an acknowledgment of
KAWASAKI/[PHILYARDS'] right to top, viz:

4. I/We understand that the Committee on Privatization (COP) has up to thirty (30) days to act on
APT's recommendation based on the result of this bidding. Should the COP approve the highest
bid, APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee, [PHILYARDS]
Holdings, Inc. that the highest bid is acceptable to the National Government. Kawasaki Heavy
Industries, Inc. and/or [PHILYARDS] Holdings, Inc. shall then have a period of thirty (30)
calendar days from the date of receipt of such advice from APT within which to exercise their
"Option to Top the Highest Bid" by offering a bid equivalent to the highest bid plus five (5%)
percent thereof.

As petitioner was declared the highest bidder, the COP approved the sale on December 3, 1993
"subject to the right of Kawasaki Heavy Industries, Inc./[PHILYARDS] Holdings, Inc. to top
JGSMI's bid by 5% as specified in the bidding rules."

On December 29, 1993, petitioner informed APT that it was protesting the offer of PHI to top its
bid on the grounds that: (a) the KAWASAKI/PHI consortium composed of KAWASAKI,
[PHILYARDS], Mitsui, Keppel, SM Group, ICTSI and Insular Life violated the ASBR because the
last four (4) companies were the losing bidders thereby circumventing the law and prejudicing the
weak winning bidder; (b) only KAWASAKI could exercise the right to top; (c) giving the same
option to top to PHI constituted unwarranted benefit to a third party; (d) no right of first refusal
can be exercised in a public bidding or auction sale; and (e) the JG Summit consortium was not
estopped from questioning the proceedings.

On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the purchase
price of the subject bidding. On February 7, 1994, the APT notified petitioner that PHI had
exercised its option to top the highest bid and that the COP had approved the same on January
6, 1994. On February 24, 1994, the APT and PHI executed a Stock Purchase Agreement.
Consequently, petitioner filed with this Court a Petition for Mandamus under G.R. No. 114057.
On May 11, 1994, said petition was referred to the Court of Appeals. On July 18, 1995, the Court
of Appeals denied the same for lack of merit. It ruled that the petition for mandamus was not the
proper remedy to question the constitutionality or legality of the right of first refusal and the right
to top that was exercised by KAWASAKI/PHI, and that the matter must be brought "by the proper
party in the proper forum at the proper time and threshed out in a full blown trial." The Court of
Appeals further ruled that the right of first refusal and the right to top are prima facie legal and
that the petitioner, "by participating in the public bidding, with full knowledge of the right to top
granted to KAWASAKI/[PHILYARDS] is…estopped from questioning the validity of the award
given to [PHILYARDS] after the latter exercised the right to top and had paid in full the purchase
price of the subject shares, pursuant to the ASBR." Petitioner filed a Motion for Reconsideration
of said Decision which was denied on March 15, 1996. Petitioner thus filed a Petition for
Certiorari with this Court alleging grave abuse of discretion on the part of the appellate court.

On November 20, 2000, this Court rendered x x x [a] Decision ruling among others that the Court
of Appeals erred when it dismissed the petition on the sole ground of the impropriety of the
special civil action of mandamus because the petition was also one of certiorari. It further ruled
that a shipyard like PHILSECO is a public utility whose capitalization must be sixty percent (60%)
Filipino-owned. Consequently, the right to top granted to KAWASAKI under the Asset Specific
Bidding Rules (ASBR) drafted for the sale of the 87.67% equity of the National Government in
PHILSECO is illegal — not only because it violates the rules on competitive bidding — but more
so, because it allows foreign corporations to own more than 40% equity in the shipyard. It also
held that "although the petitioner had the opportunity to examine the ASBR before it participated
in the bidding, it cannot be estopped from questioning the unconstitutional, illegal and inequitable
provisions thereof." Thus, this Court voided the transfer of the national government's 87.67%
share in PHILSECO to Philyard[s] Holdings, Inc., and upheld the right of JG Summit, as the
highest bidder, to take title to the said shares, viz:

WHEREFORE, the instant petition for review on certiorari is GRANTED. The assailed Decision
and Resolution of the Court of Appeals are REVERSED and SET ASIDE. Petitioner is ordered to
pay to APT its bid price of Two Billion Thirty Million Pesos (₱2,030,000,000.00), less its bid
deposit plus interests upon the finality of this Decision. In turn, APT is ordered to:

(a) accept the said amount of ₱2,030,000,000.00 less bid deposit and interests from
petitioner;

(b) execute a Stock Purchase Agreement with petitioner;

(c) cause the issuance in favor of petitioner of the certificates of stocks representing
87.6% of PHILSECO's total capitalization;

(d) return to private respondent PHGI the amount of Two Billion One Hundred Thirty-One
Million Five Hundred Thousand Pesos (₱2,131,500,000.00); and

(e) cause the cancellation of the stock certificates issued to PHI.

SO ORDERED.

In separate Motions for Reconsideration, respondents submit[ted] three basic issues for x x x
resolution: (1) Whether PHILSECO is a public utility; (2) Whether under the 1977 JVA,
KAWASAKI can exercise its right of first refusal only up to 40% of the total capitalization of
PHILSECO; and (3) Whether the right to top granted to KAWASAKI violates the principles of
competitive bidding.3 (citations omitted)

In a Resolution dated September 24, 2003, this Court ruled in favor of the respondents. On the
first issue, we held that Philippine Shipyard and Engineering Corporation (PHILSECO) is not a
public utility, as by nature, a shipyard is not a public utility4 and that no law declares a shipyard to
be a public utility.5 On the second issue, we found nothing in the 1977 Joint Venture Agreement
(JVA) which prevents Kawasaki Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) from
acquiring more than 40% of PHILSECO’s total capitalization.6 On the final issue, we held that the
right to top granted to KAWASAKI in exchange for its right of first refusal did not violate the
principles of competitive bidding.7

On October 20, 2003, the petitioner filed a Motion for Reconsideration8 and a Motion to Elevate
This Case to the Court En Banc.9 Public respondents Committee on Privatization (COP) and
Asset Privatization Trust (APT), and private respondent Philyards Holdings, Inc. (PHILYARDS)
filed their Comments on J.G. Summit Holdings, Inc.’s (JG Summit’s) Motion for Reconsideration
and Motion to Elevate This Case to the Court En Banc on January 29, 2004 and February 3,
2004, respectively.

II. Issues

Based on the foregoing, the relevant issues to resolve to end this litigation are the following:

1. Whether there are sufficient bases to elevate the case at bar to the Court en banc.

2. Whether the motion for reconsideration raises any new matter or cogent reason to
warrant a reconsideration of this Court’s Resolution of September 24, 2003.
Motion to Elevate this Case to the

Court En Banc

The petitioner prays for the elevation of the case to the Court en banc on the following grounds:

1. The main issue of the propriety of the bidding process involved in the present case has
been confused with the policy issue of the supposed fate of the shipping industry which
has never been an issue that is determinative of this case.10

2. The present case may be considered under the Supreme Court Resolution dated
February 23, 1984 which included among en banc cases those involving a novel question
of law and those where a doctrine or principle laid down by the Court en banc or in
division may be modified or reversed.11

3. There was clear executive interference in the judicial functions of the Court when the
Honorable Jose Isidro Camacho, Secretary of Finance, forwarded to Chief Justice
Davide, a memorandum dated November 5, 2001, attaching a copy of the Foreign
Chambers Report dated October 17, 2001, which matter was placed in the agenda of the
Court and noted by it in a formal resolution dated November 28, 2001.12

Opposing J.G. Summit’s motion to elevate the case en banc, PHILYARDS points out the
petitioner’s inconsistency in previously opposing PHILYARDS’ Motion to Refer the Case to the
Court En Banc. PHILYARDS contends that J.G. Summit should now be estopped from asking
that the case be referred to the Court en banc. PHILYARDS further contends that the Supreme
Court en banc is not an appellate court to which decisions or resolutions of its divisions may be
appealed citing Supreme Court Circular No. 2-89 dated February 7, 1989.13 PHILYARDS also
alleges that there is no novel question of law involved in the present case as the assailed
Resolution was based on well-settled jurisprudence. Likewise, PHILYARDS stresses that the
Resolution was merely an outcome of the motions for reconsideration filed by it and the COP and
APT and is "consistent with the inherent power of courts to ‘amend and control its process and
orders so as to make them conformable to law and justice.’ (Rule 135, sec. 5)"14 Private
respondent belittles the petitioner’s allegations regarding the change in ponente and the alleged
executive interference as shown by former Secretary of Finance Jose Isidro Camacho’s
memorandum dated November 5, 2001 arguing that these do not justify a referral of the present
case to the Court en banc.

In insisting that its Motion to Elevate This Case to the Court En Banc should be granted, J.G.
Summit further argued that: its Opposition to the Office of the Solicitor General’s Motion to Refer
is different from its own Motion to Elevate; different grounds are invoked by the two motions;
there was unwarranted "executive interference"; and the change in ponente is merely noted in
asserting that this case should be decided by the Court en banc.15

We find no merit in petitioner’s contention that the propriety of the bidding process involved in the
present case has been confused with the policy issue of the fate of the shipping industry which,
petitioner maintains, has never been an issue that is determinative of this case. The Court’s
Resolution of September 24, 2003 reveals a clear and definitive ruling on the propriety of the
bidding process. In discussing whether the right to top granted to KAWASAKI in exchange for its
right of first refusal violates the principles of competitive bidding, we made an exhaustive
discourse on the rules and principles of public bidding and whether they were complied with in
the case at bar.16 This Court categorically ruled on the petitioner’s argument that PHILSECO, as
a shipyard, is a public utility which should maintain a 60%-40% Filipino-foreign equity ratio, as it
was a pivotal issue. In doing so, we recognized the impact of our ruling on the shipbuilding
industry which was beyond avoidance.17
We reject petitioner’s argument that the present case may be considered under the Supreme
Court Resolution dated February 23, 1984 which included among en banc cases those involving
a novel question of law and those where a doctrine or principle laid down by the court en banc or
in division may be modified or reversed. The case was resolved based on basic principles of the
right of first refusal in commercial law and estoppel in civil law. Contractual obligations arising
from rights of first refusal are not new in this jurisdiction and have been recognized in numerous
cases.18 Estoppel is too known a civil law concept to require an elongated discussion.
Fundamental principles on public bidding were likewise used to resolve the issues raised by the
petitioner. To be sure, petitioner leans on the right to top in a public bidding in arguing that the
case at bar involves a novel issue. We are not swayed. The right to top was merely a condition or
a reservation made in the bidding rules which was fully disclosed to all bidding parties. In Bureau
Veritas, represented by Theodor H. Hunermann v. Office of the President, et al., 19 we dealt
with this conditionality, viz:

x x x It must be stressed, as held in the case of A.C. Esguerra & Sons v. Aytona, et al., (L-18751,
28 April 1962, 4 SCRA 1245), that in an "invitation to bid, there is a condition imposed upon
the bidders to the effect that the bidding shall be subject to the right of the government to
reject any and all bids subject to its discretion. In the case at bar, the government has
made its choice and unless an unfairness or injustice is shown, the losing bidders have
no cause to complain nor right to dispute that choice. This is a well-settled doctrine in this
jurisdiction and elsewhere."

The discretion to accept or reject a bid and award contracts is vested in the Government
agencies entrusted with that function. The discretion given to the authorities on this matter is of
such wide latitude that the Courts will not interfere therewith, unless it is apparent that it is used
as a shield to a fraudulent award (Jalandoni v. NARRA, 108 Phil. 486 [1960]). x x x The exercise
of this discretion is a policy decision that necessitates prior inquiry, investigation, comparison,
evaluation, and deliberation. This task can best be discharged by the Government agencies
concerned, not by the Courts. The role of the Courts is to ascertain whether a branch or
instrumentality of the Government has transgressed its constitutional boundaries. But the Courts
will not interfere with executive or legislative discretion exercised within those boundaries.
Otherwise, it strays into the realm of policy decision-making.

It is only upon a clear showing of grave abuse of discretion that the Courts will set aside the
award of a contract made by a government entity. Grave abuse of discretion implies a capricious,
arbitrary and whimsical exercise of power (Filinvest Credit Corp. v. Intermediate Appellate Court,
No. 65935, 30 September 1988, 166 SCRA 155). The abuse of discretion must be so patent and
gross as to amount to an evasion of positive duty or to a virtual refusal to perform a duty enjoined
by law, as to act at all in contemplation of law, where the power is exercised in an arbitrary and
despotic manner by reason of passion or hostility (Litton Mills, Inc. v. Galleon Trader, Inc., et al[.],
L-40867, 26 July 1988, 163 SCRA 489).

The facts in this case do not indicate any such grave abuse of discretion on the part of public
respondents when they awarded the CISS contract to Respondent SGS. In the "Invitation to
Prequalify and Bid" (Annex "C," supra), the CISS Committee made an express reservation of
the right of the Government to "reject any or all bids or any part thereof or waive any
defects contained thereon and accept an offer most advantageous to the Government." It
is a well-settled rule that where such reservation is made in an Invitation to Bid, the
highest or lowest bidder, as the case may be, is not entitled to an award as a matter of
right (C & C Commercial Corp. v. Menor, L-28360, 27 January 1983, 120 SCRA 112). Even the
lowest Bid or any Bid may be rejected or, in the exercise of sound discretion, the award may be
made to another than the lowest bidder (A.C. Esguerra & Sons v. Aytona, supra, citing 43 Am.
Jur., 788). (emphases supplied) 1awphi1.nét

Like the condition in the Bureau Veritas case, the right to top was a condition imposed by the
government in the bidding rules which was made known to all parties. It was a condition
imposed on all bidders equally, based on the APT’s exercise of its discretion in deciding
on how best to privatize the government’s shares in PHILSECO. It was not a whimsical or
arbitrary condition plucked from the ether and inserted in the bidding rules but a condition which
the APT approved as the best way the government could comply with its contractual obligations
to KAWASAKI under the JVA and its mandate of getting the most advantageous deal for the
government. The right to top had its history in the mutual right of first refusal in the JVA and was
reached by agreement of the government and KAWASAKI.

Further, there is no "executive interference" in the functions of this Court by the mere filing of a
memorandum by Secretary of Finance Jose Isidro Camacho. The memorandum was merely
"noted" to acknowledge its filing. It had no further legal significance. Notably too, the assailed
Resolution dated September 24, 2003 was decided unanimously by the Special First
Division in favor of the respondents.

Again, we emphasize that a decision or resolution of a Division is that of the Supreme

Court20 and the Court en banc is not an appellate court to which decisions or resolutions of a
Division may be appealed.21

For all the foregoing reasons, we find no basis to elevate this case to the Court en banc.

Motion for Reconsideration

Three principal arguments were raised in the petitioner’s Motion for Reconsideration. First, that a
fair resolution of the case should be based on contract law, not on policy considerations; the
contracts do not authorize the right to top to be derived from the right of first refusal.22 Second,
that neither the right of first refusal nor the right to top can be legally exercised by the consortium
which is not the proper party granted such right under either the JVA or the Asset Specific
Bidding Rules (ASBR).23 Third, that the maintenance of the 60%-40% relationship between the
National Investment and Development Corporation (NIDC) and KAWASAKI arises from contract
and from the Constitution because PHILSECO is a landholding corporation and need not be a
public utility to be bound by the 60%-40% constitutional limitation.24

On the other hand, private respondent PHILYARDS asserts that J.G. Summit has not been able
to show compelling reasons to warrant a reconsideration of the Decision of the
Court.25 PHILYARDS denies that the Decision is based mainly on policy considerations and
points out that it is premised on principles governing obligations and contracts and corporate law
such as the rule requiring respect for contractual stipulations, upholding rights of first refusal, and
recognizing the assignable nature of contracts rights.26 Also, the ruling that shipyards are not
public utilities relies on established case law and fundamental rules of statutory construction.
PHILYARDS stresses that KAWASAKI’s right of first refusal or even the right to top is not limited
to the 40% equity of the latter.27 On the landholding issue raised by J.G. Summit, PHILYARDS
emphasizes that this is a non-issue and even involves a question of fact. Even assuming that this
Court can take cognizance of such question of fact even without the benefit of a trial,
PHILYARDS opines that landholding by PHILSECO at the time of the bidding is irrelevant
because what is essential is that ultimately a qualified entity would eventually hold PHILSECO’s
real estate properties.28 Further, given the assignable nature of the right of first refusal, any
applicable nationality restrictions, including landholding limitations, would not affect the right of
first refusal itself, but only the manner of its exercise.29 Also, PHILYARDS argues that if this Court
takes cognizance of J.G. Summit’s allegations of fact regarding PHILSECO’s landholding, it must
also recognize PHILYARDS’ assertions that PHILSECO’s landholdings were sold to another
corporation.30 As regards the right of first refusal, private respondent explains that KAWASAKI’s
reduced shareholdings (from 40% to 2.59%) did not translate to a deprivation or loss of its
contractually granted right of first refusal.31 Also, the bidding was valid because PHILYARDS
exercised the right to top and it was of no moment that losing bidders later joined PHILYARDS in
raising the purchase price.32
In cadence with the private respondent PHILYARDS, public respondents COP and APT contend:

1. The conversion of the right of first refusal into a right to top by 5% does not violate any
provision in the JVA between NIDC and KAWASAKI.

2. PHILSECO is not a public utility and therefore not governed by the constitutional
restriction on foreign ownership.

3. The petitioner is legally estopped from assailing the validity of the proceedings of the
public bidding as it voluntarily submitted itself to the terms of the ASBR which included
the provision on the right to top.

4. The right to top was exercised by PHILYARDS as the nominee of KAWASAKI and the
fact that PHILYARDS formed a consortium to raise the required amount to exercise the
right to top the highest bid by 5% does not violate the JVA or the ASBR.

5. The 60%-40% Filipino-foreign constitutional requirement for the acquisition of lands

does not apply to PHILSECO because as admitted by petitioner itself, PHILSECO no
longer owns real property.

6. Petitioner’s motion to elevate the case to the Court en banc is baseless and would only
delay the termination of this case.33

In a Consolidated Comment dated March 8, 2004, J.G. Summit countered the arguments of the
public and private respondents in this wise:

1. The award by the APT of 87.67% shares of PHILSECO to PHILYARDS with losing
bidders through the exercise of a right to top, which is contrary to law and the constitution
is null and void for being violative of substantive due process and the abuse of right
provision in the Civil Code.

a. The bidders[’] right to top was actually exercised by losing bidders.

b. The right to top or the right of first refusal cannot co-exist with a genuine
competitive bidding.

c. The benefits derived from the right to top were unwarranted.

2. The landholding issue has been a legitimate issue since the start of this case but is
shamelessly ignored by the respondents.

a. The landholding issue is not a non-issue.

b. The landholding issue does not pose questions of fact.

c. That PHILSECO owned land at the time that the right of first refusal was
agreed upon and at the time of the bidding are most relevant.

d. Whether a shipyard is a public utility is not the core issue in this case.

3. Fraud and bad faith attend the alleged conversion of an inexistent right of first refusal
to the right to top.

a. The history behind the birth of the right to top shows fraud and bad faith.
 b. The right of first refusal was, indeed, "effectively useless."

4. Petitioner is not legally estopped to challenge the right to top in this case.

a. Estoppel is unavailing as it would stamp validity to an act that is prohibited by

law or against public policy.

b. Deception was patent; the right to top was an attractive nuisance.

c. The 10% bid deposit was placed in escrow.

J.G. Summit’s insistence that the right to top cannot be sourced from the right of first refusal is
not new and we have already ruled on the issue in our Resolution of September 24, 2003. We
upheld the mutual right of first refusal in the JVA.34 We also ruled that nothing in the JVA prevents
KAWASAKI from acquiring more than 40% of PHILSECO’s total capitalization.35 Likewise,
nothing in the JVA or ASBR bars the conversion of the right of first refusal to the right to top. In
sum, nothing new and of significance in the petitioner’s pleading warrants a reconsideration of
our ruling.

Likewise, we already disposed of the argument that neither the right of first refusal nor the right to
top can legally be exercised by the consortium which is not the proper party granted such right
under either the JVA or the ASBR. Thus, we held:

The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group, Insular Life
Assurance, Mitsui and ICTSI), has joined PHILYARDS in the latter's effort to raise ₱2.131 billion
necessary in exercising the right to top is not contrary to law, public policy or public morals.
There is nothing in the ASBR that bars the losing bidders from joining either the winning bidder
(should the right to top is not exercised) or KAWASAKI/PHI (should it exercise its right to top as it
did), to raise the purchase price. The petitioner did not allege, nor was it shown by competent
evidence, that the participation of the losing bidders in the public bidding was done with
fraudulent intent. Absent any proof of fraud, the formation by [PHILYARDS] of a consortium is
legitimate in a free enterprise system. The appellate court is thus correct in holding the petitioner
estopped from questioning the validity of the transfer of the National Government's shares in
PHILSECO to respondent.36

Further, we see no inherent illegality on PHILYARDS’ act in seeking funding from parties who
were losing bidders. This is a purely commercial decision over which the State should not
interfere absent any legal infirmity. It is emphasized that the case at bar involves the disposition
of shares in a corporation which the government sought to privatize. As such, the persons with
whom PHILYARDS desired to enter into business with in order to raise funds to purchase the
shares are basically its business. This is in contrast to a case involving a contract for the
operation of or construction of a government infrastructure where the identity of the buyer/bidder
or financier constitutes an important consideration. In such cases, the government would have to
take utmost precaution to protect public interest by ensuring that the parties with which it is
contracting have the ability to satisfactorily construct or operate the infrastructure.

On the landholding issue, J.G. Summit submits that since PHILSECO is a landholding company,
KAWASAKI could exercise its right of first refusal only up to 40% of the shares of PHILSECO
due to the constitutional prohibition on landholding by corporations with more than 40% foreign-
owned equity. It further argues that since KAWASAKI already held at least 40% equity in
PHILSECO, the right of first refusal was inutile and as such, could not subsequently be converted
into the right to top. 37 Petitioner also asserts that, at present, PHILSECO continues to violate the
constitutional provision on landholdings as its shares are more than 40% foreign-
owned.38 PHILYARDS admits that it may have previously held land but had already divested such
landholdings.39 It contends, however, that even if PHILSECO owned land, this would not affect
the right of first refusal but only the exercise thereof. If the land is retained, the right of first
refusal, being a property right, could be assigned to a qualified party. In the alternative, the land
could be divested before the exercise of the right of first refusal. In the case at bar, respondents
assert that since the right of first refusal was validly converted into a right to top, which was
exercised not by KAWASAKI, but by PHILYARDS which is a Filipino corporation (i.e., 60% of its
shares are owned by Filipinos), then there is no violation of the Constitution.40 At first, it would
seem that questions of fact beyond cognizance by this Court were involved in the issue.
However, the records show that PHILYARDS admits it had owned land up until the time of
the bidding.41 Hence, the only issue is whether KAWASAKI had a valid right of first refusal
over PHILSECO shares under the JVA considering that PHILSECO owned land until the
time of the bidding and KAWASAKI already held 40% of PHILSECO’s equity.

We uphold the validity of the mutual rights of first refusal under the JVA between KAWASAKI and
NIDC. First of all, the right of first refusal is a property right of PHILSECO shareholders,
KAWASAKI and NIDC, under the terms of their JVA. This right allows them to purchase the
shares of their co-shareholder before they are offered to a third party. The agreement of co-
shareholders to mutually grant this right to each other, by itself, does not constitute a
violation of the provisions of the Constitution limiting land ownership to Filipinos and
Filipino corporations. As PHILYARDS correctly puts it, if PHILSECO still owns land, the right of
first refusal can be validly assigned to a qualified Filipino entity in order to maintain the 60%-40%
ratio. This transfer, by itself, does not amount to a violation of the Anti-Dummy Laws, absent
proof of any fraudulent intent. The transfer could be made either to a nominee or such other party
which the holder of the right of first refusal feels it can comfortably do business with.
Alternatively, PHILSECO may divest of its landholdings, in which case KAWASAKI, in exercising
its right of first refusal, can exceed 40% of PHILSECO’s equity. In fact, it can even be said that
if the foreign shareholdings of a landholding corporation exceeds 40%, it is not the
foreign stockholders’ ownership of the shares which is adversely affected but the
capacity of the corporation to own land – that is, the corporation becomes disqualified to own
land. This finds support under the basic corporate law principle that the corporation and its
stockholders are separate juridical entities. In this vein, the right of first refusal over shares
pertains to the shareholders whereas the capacity to own land pertains to the corporation.
Hence, the fact that PHILSECO owns land cannot deprive stockholders of their right of first
refusal. No law disqualifies a person from purchasing shares in a landholding corporation
even if the latter will exceed the allowed foreign equity, what the law disqualifies is the
corporation from owning land. This is the clear import of the following provisions in the
Constitution:

Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral
oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other
natural resources are owned by the State. With the exception of agricultural lands, all other
natural resources shall not be alienated. The exploration, development, and utilization of natural
resources shall be under the full control and supervision of the State. The State may directly
undertake such activities, or it may enter into co-production, joint venture, or production-sharing
agreements with Filipino citizens, or corporations or associations at least sixty per centum
of whose capital is owned by such citizens. Such agreements may be for a period not
exceeding twenty-five years, renewable for not more than twenty-five years, and under such
terms and conditions as may be provided by law. In cases of water rights for irrigation, water
supply, fisheries, or industrial uses other than the development of water power, beneficial use
may be the measure and limit of the grant.

xxx xxx xxx

Section 7. Save in cases of hereditary succession, no private lands shall be transferred or

conveyed except to individuals, corporations, or associations qualified to acquire or hold
lands of the public domain.42 (emphases supplied)
The petitioner further argues that "an option to buy land is void in itself (Philippine Banking
Corporation v. Lui She, 21 SCRA 52 [1967]). The right of first refusal granted to KAWASAKI, a
Japanese corporation, is similarly void. Hence, the right to top, sourced from the right of first
refusal, is also void."43 Contrary to the contention of petitioner, the case of Lui She did not that
say "an option to buy land is void in itself," for we ruled as follows:

x x x To be sure, a lease to an alien for a reasonable period is valid. So is an option giving

an alien the right to buy real property on condition that he is granted Philippine
citizenship. As this Court said in Krivenko vs. Register of Deeds:

[A]liens are not completely excluded by the Constitution from the use of lands for residential
purposes. Since their residence in the Philippines is temporary, they may be granted temporary
rights such as a lease contract which is not forbidden by the Constitution. Should they desire to
remain here forever and share our fortunes and misfortunes, Filipino citizenship is not impossible
to acquire.

But if an alien is given not only a lease of, but also an option to buy, a piece of land, by
virtue of which the Filipino owner cannot sell or otherwise dispose of his property, this to
last for 50 years, then it becomes clear that the arrangement is a virtual transfer of
ownership whereby the owner divests himself in stages not only of the right to enjoy the
land (jus possidendi, jus utendi, jus fruendi and jus abutendi) but also of the right to
dispose of it (jus disponendi) — rights the sum total of which make up ownership. It is
just as if today the possession is transferred, tomorrow, the use, the next day, the
disposition, and so on, until ultimately all the rights of which ownership is made up are
consolidated in an alien. And yet this is just exactly what the parties in this case did within this
pace of one year, with the result that Justina Santos'[s] ownership of her property was reduced to
a hollow concept. If this can be done, then the Constitutional ban against alien landholding in the
Philippines, as announced in Krivenko vs. Register of Deeds, is indeed in grave
peril.44 (emphases supplied; Citations omitted)

In Lui She, the option to buy was invalidated because it amounted to a virtual transfer of
ownership as the owner could not sell or dispose of his properties. The contract in Lui
She prohibited the owner of the land from selling, donating, mortgaging, or encumbering the
property during the 50-year period of the option to buy. This is not so in the case at bar where the
mutual right of first refusal in favor of NIDC and KAWASAKI does not amount to a virtual transfer
of land to a non-Filipino. In fact, the case at bar involves a right of first refusal over shares of
stock while the Lui She case involves an option to buy the land itself. As discussed earlier,
there is a distinction between the shareholder’s ownership of shares and the corporation’s
ownership of land arising from the separate juridical personalities of the corporation and its
shareholders.

We note that in its Motion for Reconsideration, J.G. Summit alleges that PHILSECO continues to
violate the Constitution as its foreign equity is above 40% and yet owns long-term leasehold
rights which are real rights.45 It cites Article 415 of the Civil Code which includes in the
definition of immovable property, "contracts for public works, and servitudes and other real rights
over immovable property."46 Any existing landholding, however, is denied by PHILYARDS citing
its recent financial statements.47 First, these are questions of fact, the veracity of which would
require introduction of evidence. The Court needs to validate these factual allegations based on
competent and reliable evidence. As such, the Court cannot resolve the questions they pose.
Second, J.G. Summit misreads the provisions of the Constitution cited in its own pleadings, to
wit:

29.2 Petitioner has consistently pointed out in the past that private respondent is not a 60%-40%
corporation, and this violates the Constitution x x x The violation continues to this day because
under the law, it continues to own real property…
 xxx xxx xxx

32. To review the constitutional provisions involved, Section 14, Article XIV of the 1973
Constitution (the JVA was signed in 1977), provided:

"Save in cases of hereditary succession, no private lands shall be transferred or conveyed

except to individuals, corporations, or associations qualified to acquire or hold lands of the public
domain."

32.1 This provision is the same as Section 7, Article XII of the 1987 Constitution.

32.2 Under the Public Land Act, corporations qualified to acquire or hold lands of the public
domain are corporations at least 60% of which is owned by Filipino citizens (Sec. 22,
Commonwealth Act 141, as amended). (emphases supplied)

As correctly observed by the public respondents, the prohibition in the Constitution applies only
to ownership of land.48 It does not extend to immovable or real property as defined under
Article 415 of the Civil Code. Otherwise, we would have a strange situation where the
ownership of immovable property such as trees, plants and growing fruit attached to the
land49 would be limited to Filipinos and Filipino corporations only.

III.

WHEREFORE, in view of the foregoing, the petitioner’s Motion for Reconsideration is DENIED
WITH FINALITY and the decision appealed from is AFFIRMED. The Motion to Elevate This Case
to the Court En Banc is likewise DENIED for lack of merit.

SO ORDERED.
Aldecoa & Co. vs Warner, Barnes, & Co.., 16 Phil. 423
Aldecoa & Co. vs Warner, Barnes, & Co.., 16 Phil. 423

Nature: Appeal form a judgment of the CFI of Manila

Facts: From the fourth to the twelfth paragraph of the complaint, the plaintiff set forth that, prior to
December 1, 1898, Warner, Barnes and Co. were conducting a business in Albay. The principal
object of the business was the purchase of hemp in the pueblos of Legaspi and Tobacco for the
purpose of bringing it to Manila to sell if for exportation. On the same date, the plaintiff company
became interested in the business of Warner, Barnes and Co. in Albay and formed therewith a joint-
account partnership in which Aldecoa and Co. were to share equally in the gains and losses of the
business.

 The defendant is the successor to all the rights and obligations of Warner, Barnes and Co., among
which is that of being manager of the joint-account partnership with Aldecoa and Co., It is a
recognized fact, and one admitted by both parties that the partnership herein concerned concluded its
transactions on December 31, 1903. Wherefore the firm of Warner, Barnes & Co. Ltd., the manager of
the partnership, in declaring the latter's transactions concluded and in rendering duly verified accounts
of its results, owes the duty to include therein the property and effects belonging to the partnership in
common.

Issue: WON this litigation concerns the rendering of accounts pertaining to the management of the
business of a joint-account partnership formed between the two litigants companies.

Held: It is a rule of law generally observed that he who takes charge of the management of another's
property is bound immediately thereafter to render accounts covering his transactions; and that it is
always to be understood that all accounts rendered must be duly substantiated by vouchers. It is one
of the duties of the manager of a joint-account partnership, to liquidate the assets that form the
common property, and to state the result obtained therefrom in the final rendering of the accounts
which he is to present at the conclusion of the partnership.

SAME SAME

1.PARTNERSHIP; ACCOUNTING; DUTY OF BUSINESS MANAGER.—It is a general rule of law that

he who takes charge of the management of another's property is bound immediately thereafter to
render accounts of his transactions; and that it is always to be understood that all accounts must be
duly supported by proofs.

2.ID. ; ID, ; ID.—The acceptance and approval of any account rendered from a certain date does not
excuse nor relieve the manager of a joint-account partnership from complying with the unquestionable
duty of rendering accounts covering a period of time prior to the said date. They must be rendered
from the time the partnership was actually formed and its business actually commenced.

3.ID.; ID.; ID.; REVISION OF ACCOUNTS.—Once certain accounts have been approved, which were
duly rendered by the manager of a joint-account partnership, the member of the entity not vested with
the character of manager is not entitled afterwards to claim the revision of the accounts already
approved, unless it shall be proved satisfactorily, by the production of evidence, that there was fraud,
deceit, error, or mistake in the approval of the said accounts. (Arts. 1265, 1266, Civil Code, and law
30, title 11, 5th Partida.)

4.ID.; ID.; ID.—One of the duties of the manager of a joint-account partnership is that of liquidating the
assets of the common ownership and to state the result obtained therefrom in the final rendering of
accounts which he is to present at the conclusion of the partnership, as no person should enrich
himself unjustly at the expense of another. (Art. 243, Code of Commerce, and decision in cassation
given on July 1, 1870, by the supreme court of Spain.)
 EN BANC

G.R. No. L-18707 December 9, 1922

PO YENG CHEO, Plaintiff-Appellee, vs. LIM KA

YAM, Defendant-Appellant.

F. R. Feria and Romualdez Bros. for appellant.

Quintin Llorente and Carlos C. Viana for appellee.

STREET, J.:

By the amended complaint in this action, the present plaintiff, Po

Yeng Cheo, alleged sole owner of a business formerly conducted
in the City of Manila under the style of Kwong Cheong, as
managing partner in said business and to recover from him its
properties and assets. The defendant having died during the
pendency of the cause in the court below and the death
suggested of record, his administrator, one Lim Yock Tock, was
required to appear and make defense.   chanroblesvirtualawlibrary chanrobles virtual law library

In a decision dated July 1, 1921, the Honorable C. A. Imperial,

presiding in the court below, found that the plaintiff was entitled
to an accounting from Lim Ka Yam, the original defendant, as
manager of the business already reffered to, and he accordingly
required Lim Yock Tock, as administrator, to present a liquidation
of said business within a stated time. This order bore no
substantial fruit, for the reason that Lim Yock Tock personally
knew nothing about the aforesaid business (which had ceased
operation more than ten years previously) and was apparently
unable to find any books or documents that could shed any real
light on its transaction. However, he did submit to the court a
paper written by Lim Ka Yam in life purporting to give, with vague
and uncertain details, a history of the formation of the Kwong
Cheong Tay and some account of its disruption and cessation
from business in 1910. To this narrative was appended a
statement of assets and liabilities, purporting to show that after
the business was liquidate, it was actually debtor to Lim Ka Yam
to the extent of several thousand pesos. Appreciating the
worthlessness of this so-called statement, and all parties
apparently realizing that nothing more was likely to be discovered
by further insisting on an accounting, the court proceeded, on
December 27, 1921, to render final judgment in favor of the
plaintiff.  
chanroblesvirtualawlibrary chanrobles virtual law library

The decision made on this occasion takes as its basis the fact
stated by the court in its earlier decision of July 1, 1921, which
may be briefly set fourth as follows:  chanrobles virtual law library

The plaintiff, Po Yeng Cheo, is the sole heir of one Po Gui Yao,
deceased, and as such Po Yeng Cheo inherited the interest left by
Po Gui Yao in a business conducted in Manila under the style of
Kwong Cheong Tay. This business had been in existence in Manila
for many years prior to 1903, as a mercantile partnership, with a
capitalization of P160,000, engaged in the import and export
trade; and after the death of Po Gui Yao the following seven
persons were interested therein as partners in the amounts set
opposite their respective names, to wit: Po Yeng Cheo, P60,000;
Chua Chi Yek, P50,000; Lim Ka Yam, P10,000; Lee Kom Chuen,
P10,000; Ley Wing Kwong, P10,000; Chan Liong Chao, P10,000;
Lee Ho Yuen, P10,000. The manager of Kwong Cheong Tay, for
many years prior of its complete cessation from business in 1910,
was Lim Ka Yam, the original defendant herein.   chanroblesvirtualawlibrary chanrobles virtual law library

Among the properties pertaining to Kwong Cheong Tay and

consisting part of its assets were ten shares of a total par value of
P10,000 in an enterprise conducted under the name of Yut Siong
Chyip Konski and certain shares to the among of P1,000 in the
Manila Electric Railroad and Light Company, of Manila.   chanroblesvirtualawlibrary chanrobles virtual law library

In the year 1910 (exact date unstated) Kwong Cheong Tay

ceased to do business, owing principally to the fact that the
plaintiff ceased at that time to transmit merchandise from
Hongkong, where he then resided. Lim Ka Yam appears at no
time to have submitted to the partners any formal liquidation of
the business, though repeated demands to that effect have been
made upon him by the plaintiff.   chanroblesvirtualawlibrary chanrobles virtual law library

In view of the facts above stated, the trial judge rendered

judgment in favor of the plaintiff, Po Yeng Cheo, to recover of the
defendant Lim Yock Tock, as administrator of Lim Ka Yam, the
sum of sixty thousand pesos (P60,000), constituting the interest
of the plaintiff in the capital of Kwong Cheong Tay, plus the
plaintiff's proportional interest in shares of the Yut Siong Chyip
Konski and Manila Electric Railroad and Light Company, estimated
at P11,000, together with the costs. From this judgment the
defendant appealed.  chanroblesvirtualawlibrary chanrobles virtual law library

In beginning our comment on the case, it is to be observed that

this court finds itself strictly circumscribed so far as our power of
review is concerned, to the facts found by the trial judge, for the
plaintiff did not appeal from the decision of the court below in so
far as it was unfavorable to him, and the defendant, as appellant,
has not caused a great part of the oral testimony to be brought
up. It results, as stated, that we must accept the facts as found
by the trial judge; and our review must be limited to the error, or
errors, if any, which may be apparent upon the face of the
appealed decision, in relation with the pleadings of record.   chanroblesvirtualawlibrary chanrobles virtual law library

Proceeding then to consider the appealed decision in relation with

the facts therein stated and other facts appearing in the orders
and proceedings in the cause, it is quite apparent that the
judgment cannot be sustained. In the first place, it was erroneous
in any event to give judgment in favor of the plaintiff to the
extent of his share of the capital of Kwong Cheong Tay. The
managing partner of a mercantile enterprise is not a debtor to the
shareholders for the capital embarked by them in the business;
and he can only be made liable for the capital when, upon
liquidation of the business, there are found to be assets in his
hands applicable to capital account. That the sum of one hundred
and sixty thousand pesos (P160,000) was embarked in this
business many years ago reveals nothing as to the condition of
the capital account at the time the concern ceased to do
business; and even supposing--as the court possibly did--that the
capital was intact in 1908, this would not prove it was intact in
1910 when the business ceased to be a going concern; for in that
precise interval of time the capital may have been diminished or
dissipated from causes in no wise chargeable to the negligence or
misfeasance of the manager.   chanroblesvirtualawlibrary chanrobles virtual law library

Again, so far as appears from the appealed decision, the only

property pertaining to Kwong Cheong Tay at the time this action
was brought consisted of shares in the two concerns already
mentioned of the total par value of P11,000. Of course, if these
shares had been sold and converted into money, the proceeds, if
not needed to pay debts, would have been distributable among
the various persons in interest, that is, among the various
shareholders, in their respective proportions. But under the
circumstances revealed in this case, it was erroneous to give
judgment in favor of the plaintiff for his aliquot part of the par
value of said shares. It is elementary that one partner, suing
alone, cannot recover of the managing partner the value of such
partner's individual interest; and a liquidation of the business is
an essential prerequisite. It is true that in Lichauco vs. Lichauco
(33 Phil., 350), this court permitted one partner to recover of the
manager the plaintiff's aliquot part of the proceeds of the
business, then long since closed; but in that case the affairs of
the defunct concern had been actually liquidate by the manager
to the extent that he had apparently converted all its properties
into money and had pocketed the same--which was admitted;--
and nothing remained to be done except to compel him to pay
over the money to the persons in interest. In the present case,
the shares referred to--constituting the only assets of Kwong
Cheong Tay--have not been converted into ready money and
doubtless still remain in the name of Kwong Cheong Tay as
owner. Under these circumstances it is impossible to sustain a
judgment in favor of the plaintiff for his aliquot part of the par
value of said shares, which would be equivalent to allowing one of
several coowners to recover from another, without process of
division, a part of an undivided property.  
chanroblesvirtualawlibrary chanrobles virtual law library

Another condition will be noted as present in this case which in

our opinion is fatal to the maintenance of the appealed judgment.
This is that, after the death of the original defendant, Lim Ka
Yam, the trial court allowed the action to proceed against Lim
Yock Tock, as his administrator, and entered judgment for a sum
of money against said administrator as the accounting party,--
notwithstanding the insistence of the attorneys for the latter that
the action should be discontinued in the form in which it was then
being prosecuted. The error of the trial court in so doing can be
readily demonstrated from more than one point of view.   chanroblesvirtualawlibrary chanrobles virtual law library

In the first place, it is well settled that when a member of a

mercantile partnership dies, the duty of liquidating its affair
devolves upon the surviving member, or members, of the firm,
not upon the legal representative of the deceased partner. (Wahl
vs. Donaldson Sim & Co., 5 Phil., 11; Sugo and Shibata vs.
Green, 6 Phil., 744) And the same rule must be equally applicable
to a civil partnership clothed with the form of a commercial
association (art. 1670, Civil Code; Lichauco vs. Lichauco, 33 Phil.,
350) Upon the death of Lim Ka Yam it therefore became the duty
of his surviving associates to take the proper steps to settle the
affairs of the firm, and any claim against him, or his estate, for a
sum of money due to the partnership by reason of any
misappropriation of its funds by him, or for damages resulting
from his wrongful acts as manager, should be prosecuted against
his estate in administration in the manner pointed out in sections
686 to 701, inclusive, of the Code of Civil Procedure. Moreover,
when it appears, as here, that the property pertaining to Kwong
Cheong Tay, like the shares in the Yut Siong Chyip Konski and
the Manila Electric Railroad and Light Company, are in the
possession of the deceased partner, the proper step for the
surviving associates to take would be to make application to the
court having charge to the administration to require the
administrator to surrender such property.   chanroblesvirtualawlibrary chanrobles virtual law library

But, in the second place, as already indicated, the proceedings in

this cause, considered in the character of an action for an
accounting, were futile; and the court, abandoning entirely the
effort to obtain an accounting, gave judgment against the
administrator upon the supposed liability of his intestate to
respond for the plaintiff's proportionate share of the capital and
assets. But of course the action was not maintainable in this
aspect after the death of the defendant; and the motion to
discontinue the action as against the administrator should have
been granted.  
chanroblesvirtualawlibrary chanrobles virtual law library

The judgment must be reversed, and the defendant will be

absolved from the complaint; but it will be understood that this
order is without prejudice to any proceeding which may be
undertaken by the proper person or persons in interest to settle
the affairs of Kwong Cheong Tay and in connection therewith to
recover from the administrator of Lim Ka Yam the shares in the
two concerns mentioned above. No special pronouncement will be
made as to costs of either. So ordered.   chanroblesvirtualawlibrary chanrobles virtual law library
 EN BANC

G.R. No. L-28920             October 24, 1928

MAXIMO GUIDOTE, plaintiff-appellant,
vs.
ROMANA BORJA, as administratrix of the estate of Narciso Santos, deceased, defendant-
appellee.

Francisco, Lualhati and Lopez for appellant.

M. G. Goyena for appellee.

OSTRAND, J.:

On March 4, 1921, the plaintiff brought an action against the administratrix of the estate of
Narciso Santos, deceased, to recover the sum of P9,534.14, a part of which was alleged to be
the net profits due the plaintiff in a partnership business conducted under the name of "Taller
Sinukuan," in which the deceased was the capitalist partner and the plaintiff the industrial
partner, the rest of the sum consisting of advances alleged to have been made to said
partnership by the plaintiff. The defendant in her answer admitted the existence of the
partnership and in a cross-complaint and counter-claim prayed that the plaintiff be ordered to
render an accounting of the partnership business and to pay to the estate of the deceased the
sum of P25,000 as net profits, credits, and property pertaining to said deceased.

In the first trial of the case the plaintiff called several witnesses and introduced a so-called
accounting and a mass of documentary evidence consisting of books, bills, and alleged
vouchers, which documentary evidence was so hopelessly and inextricably confused that the
court, as stated in its decision, could not consider it of much probative value. It was, however,
fund as facts that the aforesaid partnership had been formed, on or about June 15, 1918; that
Narciso Santos died on April 6, 1920, leaving the plaintiff as the surviving partner; and that
plaintiff failed to liquidate the affairs of the partnership and to render an account thereof to the
administratrix of Santos' estate. The court, therefore, dismissed the plaintiff's complaint and
absolved the defendant therefrom, and ordered the plaintiff to render a full and complete
accounting, verified by vouchers, of the partnership business from June 15, 1918, until
September 1, 1922. To this decision and order the plaintiff duly excepted.

The plaintiff thereupon rendered an account prepared by one Tomas Alfonso, a public
accountant. Numerous objections to said account were presented by the defendant, and the
court, upon hearing, disapproved the account and ordered that the defendant submit to the court
an accounting of the partnership business from the date of the commencement of the
partnership, June 15, 1918, up to the time the business was closed.  1awph!l.net

On January 25, 1924, the defendant presented an account and liquidation prepared by a public
accountant, Santiago A. Lindaya, showing a balance of P29,088.95 in favor of the defendant.
The account was set down for hearing upon the question of its approval or disapproval by the
court, at which hearing the defendant introduced the public accountant Jose Turiano Santiago to
testify as to the results of an audit made by him of the accounts of the partnership. Santiago
testified that he had been a public accountant for over 20 years, having appeared in court as
such on several occasions; that he had examined the exhibits offered in evidence of the case by
both parties; that he had prepared a separate accounting or liquidation similar in results to that
prepared by Lindaya, but with a few differences in the sums total; and that according to his
examination, the financial status of the partnership was as follows:

Narciso Santos is a creditor of the Taller

<br<
Sinukuan in the sum of P26,020.89 consisting
td=""></br<>
as follows:
For his capital .................................. P12,588.53
For his credit ................................... 10,348.30
For his share of the profits ............ 3,068.06

Total ................................................... 26,020.89

Maximo Guidote is a debtor to the Taller
Sinukuan in the sum of P20,020.89, consisting
as follows:
For his debt (debito) ......................... P29,088.95
Less his share of the profits ........... 3,068.06

Total balance ...................................... 26.020.89

In order to contradict the conclusions of Lindaya and Jose Turiano Santiago, the plaintiff
presented Tomas Alfonso and the bookkeeper, Pio Gaudier, as witnesses in his favor. In regard
to the character of the testimony of these witnesses, His Honor, the trial judge, says:

The testimony of these two witnesses is so unreliable that the court can place no reliance
thereon. Mr. Tomas Alfonso is the same public accountant who filed the liquidation
Exhibit O on behalf of the plaintiff, in relation to the partnership business, which
liquidation was disapproved by this court in its decision of August 20, 1923. It is also to
be noted that Mr. Alfonso would have this court believe the proposition that the plaintiff, a
mere industrial partner, notwithstanding his having received the sum of P21,649.61 on
the various jobs and contracts of the "Taller Sinukuan," had actually expended and paid
out the sum of P63,360.27, of P44,710.66 in excess of the gross receipts of the business.
This proposition is not only improbable on its face, but it materially contradicts the
allegations of plaintiff's complaint to the effect that the advances made by the plaintiff
only the amount to P2,017.50.

Mr. Pio Gaudier is the same bookkeeper who prepared three entirely separate and
distinct liquidation for the same partnership business all of which were repeated by the
court in its decisions of September 1, 1922 and the court finds that the testimony given
by him at the last hearing is confusing, contradictory and unreliable. 1awph!l.net

As to the other witnesses for the plaintiff His Honor further says:

The testimony of the other witnesses for the plaintiff deserves but scant consideration as
evidence to overcome the testimony of Mr. Santiago, as a whole particularly that of the
witness Chua Chak, who, after identifying and testifying as to a certain exhibit shown him
by counsel for plaintiff, showed that he could neither read nor write English, Spanish, or
Tagalog, and that of the witness Mr. Claro Reyes, who, after positively assuring the court
that a certain exhibit tendered him for identification was an original document, was forced
to admit that it was but a mere copy.
The court therefore, found that the conclusions reached by Santiago A. Lindaya as modified by
Jose Turinao Santiago were just and correct and ordered the plaintiff to pay the defendant the
sum of P26,020.89, Philippine currency, with legal interest thereon from April 2, 1921, the date of
the defendant's answer, and to pay the costs. From this judgment the plaintiff appealed to this
court and presents the following assignments of error:

(1) That the court erred in dismissing the plaintiff's complaint and ordering him to present
a liquidation of the operations and accounts of the partnership formed with the deceased
Narciso Santos, from the beginning of the partnership until September 1, 1922.

(2) That the court erred in approving the liquidation made by the public accountant
Santiago A. Lindaya, with the modification introduced by the witness Jose Turiano
Santiago.

(3) That the court erred in ordering the plaintiff and appellant to pay to the defendant and
appellee the sum of P26,020.89.

As to the first assignment of error there may be some merit in the appellant's contention that the
dismissal of his complaint was premature. The better practise would, perhaps, have been to let
the complaint stand until the result of the liquidation of the partnership affairs was known. But
under the circumstances of this case no harm was done by the dismissal of the complaint, and
the error, if any there be, is not reversible.

Under the same assignment of error the plaintiff argues that as the deceased up to the time of
his death generally took care of the payments and collections of the partnership, his legal
representatives were under the obligation to render accounts of the operations of the
partnership, notwithstanding the fact that the plaintiff was in charge of the business subsequent
to the death of Santos. This argument is without merit. In the case of Wahl vs. Donaldson Sim &
Co. (5 Phil., 11, 14), it was held that the death of one of the partners dissolves the partnership,
but that the liquidation of its affairs is by law intrusted, not to the executors of the deceased
partner, but to the surviving partners or the liquidators appointed by them (citing article 229 of the
Code of Commerce and secs. 664 and 665 of the Code of Civil Procedure). The same rule is laid
down by the Supreme Court of Spain in sentence of October 12, 1870.

The other assignments of error have reference only to questions of fact in regard to which the
findings of the court below seem to be as nearly correct as possible upon the evidence
presented. There may be errors in the interpretation of the accounts, and it is possible that the
amount of P26,020.89 charged against the plaintiff is excessive, but the evidence presented by
him is so confusing and unreliable as to be practically of no weight and cannot serve as a basis
for a readjustment of the accounts prepared by the accountant Lindaya and the apparently
reliable witness, Jose Turiano Santiago.

We should, perhaps, have been more inclined to question the conclusions of Lindaya and
Santiago if the plaintiff had shown a disposition to render an honest account of the business and
to effect a fair liquidation of the partnership but instead of doing so, he has by means of very
questionable, and apparently false, evidence sought to mulct his deceased partner's estate to the
extent of over P9,000. The rule for the conduct of a surviving partner is thus stated in 20 R. C. L.,
1003:

In equity surviving partners are treated as trustees of the representatives of the deceased
partner, in regard to the interest of the deceased partner in the firm. As a consequence of
this trusteeship, surviving partners are held in their dealings with the firm assets and the
representatives of the deceased to that nicety of dealing and that strictness of
accountability required of and incident to the position of one occupying a confidential
relation. It is the duty of surviving partners to render an account of the performance of
their trust to the personal representatives of the deceased partner, and to pay over to
 them the share of such deceased member in the surplus of firm property, whether it
consists of real or personal assets.

The appellant has completely failed to observe the rule quoted, and he is not in position to
complain if his testimony and that of his witnesses is discredited.

The appealed judgment is affirmed with the costs against the appellant. So ordered.