Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 109248 July 3, 1995

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

BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE 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 result in a
4

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 them
6 7
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 as long as the reason
12

for withdrawal of a partner is not contrary to the dictates of justice and fairness, nor for the purpose
of unduly visiting harm and damage upon the partnership, bad faith cannot be said to characterize
the act. Bad faith, in the context here used, is no different from its normal concept of a conscious
and intentional design to do a wrongful act for a dishonest purpose or moral obliquity.

WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.

SO ORDERED.

Feliciano, Romero, Melo and Francisco, JJ., concur.

 
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 127405               October 4, 2000

MARJORIE TOCAO and WILLIAM T. BELO, petitioners,

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

DECISION

YNARES-SANTIAGO, J.:

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

88-509. 2

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

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

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

Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the task of saving the
business on account of the unsatisfactory sales record in the Makati and Cubao offices. On August
31, 1987, she received a plaque of appreciation from the administrative and sales people through
Marjorie Tocao for her excellent job performance. On October 7, 1987, in the presence of Anay,
4 

Belo signed a memo entitling her to a thirty-seven percent (37%) commission for her personal sales
5 

"up Dec 31/87." Belo explained to her that said commission was apart from her ten percent (10%)
share in the profits. On October 9, 1987, Anay learned that Marjorie Tocao had signed a
letter addressed to the Cubao sales office to the effect that she was no longer the vice-president of
6 

Geminesse Enterprise. The following day, October 10, she received a note from Lina T. Cruz,
marketing manager, that Marjorie Tocao had barred her from holding office and conducting
demonstrations in both Makati and Cubao offices. Anay attempted to contact Belo. She wrote him
7 

twice to demand her overriding commission for the period of January 8, 1988 to February 5, 1988
and the audit of the company to determine her share in the net profits. When her letters were not
answered, Anay consulted her lawyer, who, in turn, wrote Belo a letter. Still, that letter was not
answered.

Anay still received her five percent (5%) overriding commission up to December 1987. The following
year, 1988, she did not receive the same commission although the company netted a gross sales of
P13,300,360.00.

On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of money with
damages against Marjorie D. Tocao and William Belo before the Regional Trial Court of Makati,
8 

Branch 140.

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

In their answer, Marjorie Tocao and Belo asserted that the "alleged agreement" with Anay that was
9 

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

Petitioners (defendants therein) further alleged that Anay filed the complaint on account of "ill-will
and resentment" because Marjorie Tocao did not allow her to "lord it over in the Geminesse
Enterprise." Anay had acted like she owned the enterprise because of her experience and expertise.
Hence, petitioners were the ones who suffered actual damages "including unreturned and
unaccounted stocks of Geminesse Enterprise," and "serious anxiety, besmirched reputation in the
business world, and various damages not less than P500,000.00." They also alleged that, to
"vindicate their names," they had to hire counsel for a fee of P23,000.00.
At the pre-trial conference, the issues were limited to: (a) whether or not the plaintiff was an
employee or partner of Marjorie Tocao and Belo, and (b) whether or not the parties are entitled to
damages. 10

In their defense, Belo denied that Anay was supposed to receive a share in the profit of the
business. He, however, admitted that the two had agreed that Anay would receive a three to four
percent (3-4%) share in the gross sales of the cookware. He denied contributing capital to the
business or receiving a share in its profits as he merely served as a guarantor of Marjorie Tocao,
who was new in the business. He attended and/or presided over business meetings of the venture in
his capacity as a guarantor but he never participated in decision-making. He claimed that he wrote
the memo granting the plaintiff thirty-seven percent (37%) commission upon her dismissal from the
business venture at the request of Tocao, because Anay had no other income.

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

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

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

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

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

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

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

damages, and

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

SO ORDERED."

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

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

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

Petitioners’ appeal to the Court of Appeals was dismissed, but the amount of damages awarded by
11 

the trial court were reduced to P50,000.00 for moral damages and P50,000.00 as exemplary
damages. Their Motion for Reconsideration was denied by the Court of Appeals for lack of
merit. Petitioners Belo and Marjorie Tocao are now before this Court on a petition for review
12 

on certiorari, asserting that there was no business partnership between them and herein private
respondent Nenita A. Anay who is, therefore, not entitled to the damages awarded to her by the
Court of Appeals.

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

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

private respondent established a business partnership. This Court finds no reason to rule otherwise.

To be considered a juridical personality, a partnership must fulfill these requisites: (1) two or more
persons bind themselves to contribute money, property or industry to a common fund; and (2)
intention on the part of the partners to divide the profits among themselves. It may be constituted in
15 

any form; a public instrument is necessary only where immovable property or real rights are
contributed thereto. This implies that since a contract of partnership is consensual, an oral contract
16 

of partnership is as good as a written one. Where no immovable property or real rights are involved,
what matters is that the parties have complied with the requisites of a partnership. The fact that there
appears to be no record in the Securities and Exchange Commission of a public instrument
embodying the partnership agreement pursuant to Article 1772 of the Civil Code did not cause the
17 

nullification of the partnership. The pertinent provision of the Civil Code on the matter states:

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

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

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

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

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

On the other hand, petitioner Belo’s denial that he financed the partnership rings hollow in the face
of the established fact that he presided over meetings regarding matters affecting the operation of
the business. Moreover, his having authorized in writing on October 7, 1987, on a stationery of his
own business firm, Wilcon Builders Supply, that private respondent should receive thirty-seven
(37%) of the proceeds of her personal sales, could not be interpreted otherwise than that he had a
proprietary interest in the business. His claim that he was merely a guarantor is belied by that
personal act of proprietorship in the business. Moreover, if he was indeed a guarantor of future debts
of petitioner Tocao under Article 2053 of the Civil Code, he should have presented documentary
20 

evidence therefor. While Article 2055 of the Civil Code simply provides that guaranty must be
"express," Article 1403, the Statute of Frauds, requires that "a special promise to answer for the
debt, default or miscarriage of another" be in writing.21

Petitioner Tocao, a former ramp model, was also a capitalist in the partnership. She claimed that
22 

she herself financed the business. Her and petitioner Belo’s roles as both capitalists to the
partnership with private respondent are buttressed by petitioner Tocao’s admissions that petitioner
Belo was her boyfriend and that the partnership was not their only business venture together. They
also established a firm that they called "Wiji," the combination of petitioner Belo’s first name, William,
and her nickname, Jiji. The special relationship between them dovetails with petitioner Belo’s claim
23 

that he was acting in behalf of petitioner Tocao. Significantly, in the early stage of the business
operation, petitioners requested West Bend Company to allow them to "utilize their banking and
trading facilities in Singapore" in the matter of importation and payment of the cookware
products. The inevitable conclusion, therefore, was that petitioners merged their respective capital
24 

and infused the amount into the partnership of distributing cookware with private respondent as the
managing partner.

The business venture operated under Geminesse Enterprise did not result in an employer-employee
relationship between petitioners and private respondent. While it is true that the receipt of a
percentage of net profits constitutes only prima facie evidence that the recipient is a partner in the
business, the evidence in the case at bar controverts an employer-employee relationship between
25 

the parties. In the first place, private respondent had a voice in the management of the affairs of the
cookware distributorship, including selection of people who would constitute the administrative staff
26 

and the sales force. Secondly, petitioner Tocao’s admissions militate against an employer-employee
relationship. She admitted that, like her who owned Geminesse Enterprise, private respondent
27 

received only commissions and transportation and representation allowances and not a fixed
28 

salary. Petitioner Tocao testified:

29 

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

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

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

A: Oh yes, sir.

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

A: Yes, sir.

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

A: That’s her overriding commission.

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

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

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

A: As an equal.

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

A: Yes, sir.

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

A: That is the same thing, sir.

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

A: Yes, sir.

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

A: Yes, sir.

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

A: Yes, sir.

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

A: No, sir.

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

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

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

industrial partner, private respondent had the right to demand for a formal accounting of the
business and to receive her share in the net profit.32

The fact that the cookware distributorship was operated under the name of Geminesse Enterprise, a
sole proprietorship, is of no moment. What was registered with the Bureau of Domestic Trade on
August 19, 1987 was merely the name of that enterprise. While it is true that in her undated
33 

application for renewal of registration of that firm name, petitioner Tocao indicated that it would be
engaged in retail of "kitchenwares, cookwares, utensils, skillet," she also admitted that the
34 

enterprise was only "60% to 70% for the cookware business," while 20% to 30% of its business
activity was devoted to the sale of water sterilizer or purifier. Indubitably then, the business name
35 

Geminesse Enterprise was used only for practical reasons - it was utilized as the common name for
petitioner Tocao’s various business activities, which included the distributorship of cookware.

Petitioners underscore the fact that the Court of Appeals did not return the "unaccounted and
unremitted stocks of Geminesse Enterprise amounting to P208,250.00." Obviously a ploy to offset
36 

the damages awarded to private respondent, that claim, more than anything else, proves the
existence of a partnership between them. In Idos v. Court of Appeals, this Court said:

"The best evidence of the existence of the partnership, which was not yet terminated (though in the
winding up stage), were the unsold goods and uncollected receivables, which were presented to the
trial court. Since the partnership has not been terminated, the petitioner and private complainant
remained as co-partners. x x x." 37

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

Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the partnership to reap
for herself and/or for petitioner Belo financial gains resulting from private respondent’s efforts to
make the business venture a success. Thus, as petitioner Tocao became adept in the business
operation, she started to assert herself to the extent that she would even shout at private respondent
in front of other people. Her instruction to Lina Torda Cruz, marketing manager, not to allow private
38 

respondent to hold office in both the Makati and Cubao sales offices concretely spoke of her
perception that private respondent was no longer necessary in the business operation, and resulted 39 

in a falling out between the two. However, a mere falling out or misunderstanding between partners
does not convert the partnership into a sham organization. The partnership exists until dissolved
40 

under the law. Since the partnership created by petitioners and private respondent has no fixed term
and is therefore a partnership at will predicated on their mutual desire and consent, it may be
dissolved by the will of a partner. Thus:

"x x x. The right to choose with whom a person wishes to associate himself is the very foundation
and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of
that mutual resolve, along with each partner’s capability to give it, and the absence of cause for
dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure,
dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the
attendance of bad faith can prevent the dissolution of the partnership but that it can result in a
liability for damages."
41

An unjustified dissolution by a partner can subject him to action for damages because by the mutual
agency that arises in a partnership, the doctrine of delectus personae allows the partners to have
the power, although not necessarily the right to dissolve the partnership. 42

In this case, petitioner Tocao’s unilateral exclusion of private respondent from the partnership is
shown by her memo to the Cubao office plainly stating that private respondent was, as of October 9,
1987, no longer the vice-president for sales of Geminesse Enterprise. By that memo, petitioner
43 

Tocao effected her own withdrawal from the partnership and considered herself as having ceased to
be associated with the partnership in the carrying on of the business. Nevertheless, the partnership
was not terminated thereby; it continues until the winding up of the business. 44

The winding up of partnership affairs has not yet been undertaken by the partnership.  This is
1âwphi1

manifest in petitioners’ claim for stocks that had been entrusted to private respondent in the pursuit
of the partnership business.

The determination of the amount of damages commensurate with the factual findings upon which it
is based is primarily the task of the trial court. The Court of Appeals may modify that amount only
45 

when its factual findings are diametrically opposed to that of the lower court, or the award is
46 

palpably or scandalously and unreasonably excessive. However, exemplary damages that are
47 

awarded "by way of example or correction for the public good," should be reduced to P50,000.00,
48 

the amount correctly awarded by the Court of Appeals. Concomitantly, the award of moral damages
of P100,000.00 was excessive and should be likewise reduced to P50,000.00. Similarly, attorney’s
fees that should be granted on account of the award of exemplary damages and petitioners’ evident
bad faith in refusing to satisfy private respondent’s plainly valid, just and demandable
claims, appear to have been excessively granted by the trial court and should therefore be reduced
49 

to P25,000.00.

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

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

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

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

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

SO ORDERED.

Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. L-No. 3666            August 17, 1909

THE CITY OF MANILA, plaintiff-appellant,

vs.
FRANCISCO GAMBE, ET AL., defendants-appellees.

Modesto Reyes for appellant.

Del-Pan, Ortigas and Fisher for appellees.

JOHNSON, J.:

From the record the following facts appear:

First. That upon the 31st day of August, 1903, the plaintiff commenced an action in the Court of First
Instance of the city of Manila against the defendants, Francisco Gambe, Manuel Perez, Antonio
Herranz, and Florencio Garriz, who constitute the commercial firm of Herranz & Garriz, for the
purpose of recovering the sum of five thousand dollars ($5,000), United States currency, for certain
damages occasioned by the steamship Alfred to the "Spanish Bridge" in the city of Manila.

Second. After a consideration of the facts adduced during the trial, the Honorable Judge Rohde,
then one of the judges of the Court of First Instance of the city of Manila, rendered a judgment
against the said Francisco Gambe, for the sum of $1,300, United States currency, and for the costs.

Third. Francisco Gambe was a pilot and member of the Pilot's Association of Manila and was at the
time of the alleged accident and injury in charge of said steamship Alfred. Judge Rohde dismissed
the cause as to the other defendants.

Fourth. From this judgment of the lower court the defendant Gambe appealed to the Supreme Court.

Fifth. After a consideration of the facts, the Supreme Court on the 31st day of March, 1906, affirmed
with costs the judgment of the lower court. (See City of Manila vs. Gambe, 6 Phil. Rep., 49.)

Sixth. The judgment thus affirmed was returned to the lower court for an execution of the same.

Seventh. On the 26th day of May, 1906, an execution was issued upon the said judgment against
the said defendant, Francisco Gambe, and was returned upon the 23d day of June, 1906,
unsatisfied.

Eighth. Later, upon the 11th day of July, 1906, another execution was issued out of the Court of First
Instance against the defendant, Francisco Gambe, which was returned upon the 17th day of August,
1906, unsatisfied.

Ninth. On the same day, or the 11th day of July, 1906, in accordance with the provisions of section
431 of the Code of Procedure in Civil Actions, the plaintiff attempted to attach whatever money or
effects which the defendant had in the said Pilots' Association of Manila. These attachments were
directed to the Hongkong and Shanghai Banking Corporation, the Hon. W. Morgan Shuster,
Collector of Customs, as well as Francisco Aguado, who was the chief of the said Pilot's Association.

Tenth. On the 22d day of August, 1906, the attorney for the plaintiff presented in the lower court the
following affidavit:

Edmond Block, being duly sworn, says:

That he is the attorney for the plaintiff in the above-entitled action.

That a judgment was duly entered and docketed in the said action in the said court on the
20th day of April, 1906, for the sum of thirteen hundred dollars ($1,300), United States
currency, and costs, against the above-named defendant, in favor of the plaintiff.

That an execution upon said judgment was duly issued against the property of said judgment
debtor.

That the said judgment debtor now resides in the said city of Manila.

That the sheriff of the city of Manila has returned said execution wholly unsatisfied, and that
the said judgment still remains wholly unpaid.

That affiant is informed and believes that an organization or association known as the
"Manila Pilots' Association," of which Francisco Aguado is the chief pilot, Manuel Goitia is the
treasurer and custodian of its funds, and of which W. Morgan Shuster, Francisco Gambe,
and other pilots of the port of Manila are members, has property in its possession dedicated
to and for the purpose of payment of damages caused through negligence of the pilots of
said association, or any of them, to third persons.

That the said association has in its possession and under its control, property of the said
judgment debtor, exceeding eight hundred pesos (P800), Philippine currency, and is
indebted to the said judgment debtor in an amount exceeding eight hundred pesos (P800),
Philippine currency.

That the said indebtedness to said judgment debtor arose through this, that the said
judgment debtor has deposited with the said association the amount exceeding eight
hundred pesos (P800), Philippine currency, and that the said association now holds the said
amount subject to the order of said judgment debtor, and that the said amount should be
applied, affiant believes, to the payment or satisfaction of the judgment debtor.

That on the 23d day of June and 11th of July, 1906, the said Pilots' Association, through the
chief pilot, the treasurer of said association, W. Morgan Shuster, and Francisco Gambe, was
duly notified and each of the above-mentioned persons were so duly notified by the sheriff of
the city of Manila, that attachment was levied against all the goods, effects, interests, credits
or money belonging to the defendant, in the possession of said association and persons, to
cover the amount of two thousand six hundred and seventy pesos (P2,670), Philippine
currency, and to make immediate payment of said goods, effects, interests, credits, or
money and forward same to the sheriff.
 That all of the above-mentioned persons denied having in their possession, and refused to
deliver any such said goods, effects, interests, credits, or money belonging to said
defendant.

Wherefore deponent prays an order of this court that the said Francisco Aguado, Francisco
Gambe, Manuel Goitia, and W. Morgan Shuster, be and appear and answer as to the
indebtedness of the said Pilots' Association to said judgment debtor, at a time and place by
said court to be specified.

(Signed) EDMOND BLOCK.

Subscribed and sworn to before me this 22d day of August, 1906, exhibiting in the act cedula
No. 175565, dated Manila, June 6, 1906.

(Signed) MODESTO REYES,

Notary Public.

Commission expires December 31, 1906.

Upon this affidavit, the Hon. A. S. Crossfield, one of the judges of the Court of First Instance of the
city of Manila, made the following order:

On reading the foregoing affidavit, it is satisfactorily appearing to me therefrom that the

Manila Pilots' Association has property of Francisco Gambe, the defendant in the above-
entitled action, which property ought to be applied toward the satisfaction of the judgment in
said action, and that Francisco Aguado is the chief pilot, Manuel Goitia the treasurer, and
Francisco Gambe and W. Morgan Shuster are members of said association, and that it is
proper cause for this order, I, the undersigned, judge of the Court of First Instance of the city
of Manila, Philippine Islands, do hereby order the said Francisco Aguado, Francisco Gambe,
Manuel Goitia, and W. Morgan Shuster personally to appear before me in the said city of
Manila, on the 10th day of September, at 10 o'clock in the morning of that day, to answer
concerning the said property.

Eleventh. In accordance with the above order, the said parties appeared before the said court and
testified relating to the money, property, credits or effects which the said Pilots' Association had in its
possession belonging to the said defendants.

After hearing the evidence of these parties, the said Hon. A. S. Crossfield rendered the following
judgment:

This case is now before the court for hearing the order directing Francisco Aguado as chief
pilot, Manuel Goitia as treasurer, and Francisco Gambe and W. Morgan Shuster as
members of the Pilots' Association to answer as to any property they may have in their
possession or under their control, belonging to the defendant, Francisco Gambe. Execution
having been issued in the above-named respondents having been attached, as in garnishee
proceedings, all of the above-named respondents appeared and the two first-named made
declarations as to the property in their hands.

From the declaration made it appears:

 That each member of the Pilots' Association before becoming such, must deposit with the
association the sum of P800, to be retained by the association for the purpose of satisfying
damages which may be incurred by others by reason of negligence or fault on the part of the
association in the transaction of its business.

It further appears from the declarations that persons thus depositing the money could not
withdraw it; that it is property of the association and may not be withdrawn, even in case of
the death of a member, and that said Francisco Gambe is a member.

I therefore find that the above-named respondents, either as officers of the association or
members thereof, have not in their control, nor do they possess any property, money, or
effects which would be the subject of a levy under execution against said Gambe, and the
order to appear is discharged.

From this decision of the lower court the plaintiff appealed and made the following assignments of
error in this court:

1. The court below erred in deciding that the sum of P800, Philippine currency, deposited by
the defendant, Gambe, with the Pilots' Association could not be withdrawn by him: "that it
has become the property of the association, and that the same can not be withdrawn even in
the event of the death of a member", and that the said Francisco Gambe is such a member.

2. The court below erred in deciding that the respondents called upon to appear in this
incident "either as officers of the association or as members thereof, have not under their
control nor in their possession any property, money, or goods subject to attachment by
reason of an execution against the said Gambe."

3. The court below erred in not ordering the respondents, as officers or members of the
Pilots' Association, to deliver to the plaintiff, the city of Manila, the P800, Philippine currency,
which the said defendant Gambe, against whom the plaintiff has an execution pending for
the sum of P2,670, Philippine currency, has in the treasury of the association.

The only question presented in this court is whether or not the said Pilots' Association had debts,
credits, or personal property, not capable of manual delivery, in its possession or under its control,
belonging to the defendant. In other words, did said Pilots' Association owe to the defendant, a debt
or have in its possession and under its control credits and other personal property, belonging to the
defendant, subject to be attached in accordance with the provisions of said section 431? Section 431
of the Code of Procedure in Civil Actions provides:

Debts and credits, and other personal property not capable of manual delivery, shall be
attached by leaving with the person owing such debts or having in his possession or under
his control such credits and other personal property, a copy of the order of attachment, and a
notice that the debts owing by him to the defendant, or the credits and other personal
property in his possession or under his control, belonging to the defendant, are attached in
pursuance of such order.

The test whether or not the interests of the defendant, if he has any, in said association may be
attached by virtue of said section is whether said Gambe could maintain an action against the said
association for the recovery of the specific debt, credit, or personal property. It would seem clear and
conclusive that if Gambe himself could not maintain an action against the said association for the
recovery of the specific debt, credit, or personal property which the plaintiff here is attempting to get
possession of by virtue of the action, that said plaintiff could not recover the same under the form of
action adopted by it. If Gambe could successfully maintain an action against the said Pilots'
Association for the recovery of a specific sum of money or specific personal property, then, in our
opinion, his judgment creditors, or the plaintiff in this case, might also by the procedure provided for
under said section 431 maintain the present action, but not otherwise. (Hassie vs. God Is With Us
Cong., 35 Cal., 378, 386.)

We do not believe that a mere equitable or contingent debt, credit, or personal property can be
reached by the procedure provided for in said section (431). (Redondo Beach Co. vs. Brewer, 101
Cal., 322.)

A "debt," as used in said section, means some definite amount of money, ascertained or capable of
being ascertained, which may be paid over to the sheriff or the court under an order, while "credits "
and "personal property" are something belonging to the defendant, but in possession and under the
control of the person attached. (Gow vs. Marshall, 90 Cal., 565; Dunsmoor vs. Furstenfeldt, 88 Cal.,
522.)

In our opinion it is also essential that the debt, credit, or the personal property which is attempted to
be subjected to the payment of the obligation of the defendant, and which is alleged to be in the
possession of the person attached, must exist in some definite and ascertainable form at the time of
the attachment. (Norris vs. Burgoyne, 4 Cal., 409.)

The said Pilots' Association is purely a voluntary association of the pilots of the city of Manila. The
association is expressly recognized under the law. No one can become a member of said
association who has not shown special qualifications as a pilot, and no one can act as a pilot who
has not been expressly recommended and approved by the collector of the port of Manila, and no
one can become a member of said association without having paid a certain sum of money into the
treasury of said association. This funds becomes the property of the association for the purpose of
protecting its members against losses occasioned by its members to ships while said ships are
under the control of a member or members of said association. The money paid in by one member
of said association becomes a part of a general fund of said association, subject to be paid out for
damages done to ships by any member of the association. The fund created by the contributions of
the members no longer belongs to the members of the association; it belongs to the association. The
association has a distinct and separate entity from the individual members who make it up. The fund
is created for a specific purpose. (See articles 35, 36, 38, and 39 of the regulations of said
association.) Under the regulations of said association it has assumed a certain responsibility for its
members. Whether the damage caused by the defendant in this case is of such a character for
which the said association assumed the responsibility is a question which the person injured has a
right to test in a special action against said association.

From the evidence that was adduced before the lower court we are of the opinion, and so hold, that
the said association had no debts, credits, or personal property, not capable of manual delivery, in
its possession, belonging to the defendant (Gambe), which are subject to be attached in accordance
with the provisions of section 431. It is, therefore, hereby ordered that the plaintiff take nothing in this
action and that the plaintiff be charged with the costs of both instances.

Arellano, C. J., Torres, and Moreland, JJ., concur.

Carson, J., concurs in the result.
 SECOND DIVISION

G.R. No. 159333             July 31, 2006

ARSENIO T. MENDIOLA, petitioner,
vs.
COURT OF APPEALS, NATIONAL LABOR RELATIONS COMMISSION, PACIFIC FOREST
RESOURCES, PHILS., INC. and/or CELLMARK AB, respondents.

DECISION

PUNO, J.:

On appeal are the Decision1 and Resolution2 of the Court of Appeals, dated January 30, 2003 and
July 30, 2003, respectively, in CA-G.R. SP No. 71028, affirming the ruling 3 of the National Labor
Relations Commission (NLRC), which in turn set aside the July 30, 2001 Decision 4 of the labor
arbiter. The labor arbiter declared illegal the dismissal of petitioner from employment and awarded
separation pay, moral and exemplary damages, and attorney's fees.

The facts are as follows:

Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a corporation organized and
existing under the laws of California, USA. It is a subsidiary of Cellulose Marketing International, a
corporation duly organized under the laws of Sweden, with principal office in Gothenburg, Sweden.

Private respondent Pacfor entered into a "Side Agreement on Representative Office known as
Pacific Forest Resources (Phils.), Inc."5 with petitioner Arsenio T. Mendiola (ATM), effective May 1,
1995, "assuming that Pacfor-Phils. is already approved by the Securities and Exchange Commission
[SEC] on the said date."6 The Side Agreement outlines the business relationship of the parties with
regard to the Philippine operations of Pacfor. Private respondent will establish a Pacfor
representative office in the Philippines, to be known as Pacfor Phils, and petitioner ATM will be its
President. Petitioner's base salary and the overhead expenditures of the company shall be borne by
the representative office and funded by Pacfor/ATM, since Pacfor Phils. is equally owned on a 50-50
equity by ATM and Pacfor-usa.

On July 14, 1995, the SEC granted the application of private respondent Pacfor for a license to
transact business in the Philippines under the name of Pacfor or Pacfor Phils. 7 In its application,
private respondent Pacfor proposed to establish its representative office in the Philippines with the
purpose of monitoring and coordinating the market activities for paper products. It also designated
petitioner as its resident agent in the Philippines, authorized to accept summons and processes in all
legal proceedings, and all notices affecting the corporation. 8

In March 1997, the Side Agreement was amended through a "Revised Operating and Profit Sharing
Agreement for the Representative Office Known as Pacific Forest Resources (Philippines)," 9 where
the salary of petitioner was increased to $78,000 per annum. Both agreements show that the
operational expenses will be borne by the representative office and funded by all parties "as equal
partners," while the profits and commissions will be shared among them.

In July 2000, petitioner wrote Kevin Daley, Vice President for Asia of Pacfor, seeking confirmation of
his 50% equity of Pacfor Phils.10 Private respondent Pacfor, through William Gleason, its President,
replied that petitioner is not a part-owner of Pacfor Phils. because the latter is merely Pacfor-USA's
representative office and not an entity separate and distinct from Pacfor-USA. "It's simply a
'theoretical company' with the purpose of dividing the income 50-50." 11 Petitioner presumably knew
of this arrangement from the start, having been the one to propose to private respondent Pacfor the
setting up of a representative office, and "not a branch office" in the Philippines to save on taxes. 12

Petitioner claimed that he was all along made to believe that he was in a joint venture with them. He
alleged he would have been better off remaining as an independent agent or representative of
Pacfor-USA as ATM Marketing Corp.13 Had he known that no joint venture existed, he would not
have allowed Pacfor to take the profitable business of his own company, ATM Marketing
Corp.14 Petitioner raised other issues, such as the rentals of office furniture, salary of the employees,
company car, as well as commissions allegedly due him. The issues were not resolved, hence, in
October 2000, petitioner wrote Pacfor-USA demanding payment of unpaid commissions and office
furniture and equipment rentals, amounting to more than one million dollars. 15

On November 27, 2000, private respondent Pacfor, through counsel, ordered petitioner to turn over
to it all papers, documents, files, records, and other materials in his or ATM Marketing Corporation's
possession that belong to Pacfor or Pacfor Phils. 16 On December 18, 2000, private respondent
Pacfor also required petitioner to remit more than three hundred thousand-peso Christmas giveaway
fund for clients of Pacfor Phils.17 Lastly, private respondent Pacfor withdrew all its offers of settlement
and ordered petitioner to transfer title and turn over to it possession of the service car. 18

Private respondent Pacfor likewise sent letters to its clients in the Philippines, advising them not to
deal with Pacfor Phils. In its letter to Intercontinental Paper Industries, Inc., dated November 21,
2000, private respondent Pacfor stated:

Until further notice, please course all inquiries and communications for Pacific Forest
Resources (Philippines) to:

Pacific Forest Resources

200 Tamal Plaza, Suite 200
Corte Madera, CA, USA 94925
(415) 927 1700 phone
(415) 381 4358 fax

Please do not send any communication to Mr. Arsenio "Boy" T. Mendiola or to the offices of
ATM Marketing Corporation at Room 504, Concorde Building, Legaspi Village, Makati City,
Philippines.19

In another letter addressed to Davao Corrugated Carton Corp. (DAVCOR), dated December 2000,
private respondent directed said client "to please communicate directly with us on any further
questions associated with these payments or any future business. Do not communicate with [Pacfor]
and/or [ATM]."20

Petitioner construed these directives as a severance of the "unregistered partnership" between him
and Pacfor, and the termination of his employment as resident manager of Pacfor Phils. 21 In a
memorandum to the employees of Pacfor Phils., dated January 29, 2001, he stated:

I received a letter from Pacific Forest Resources, Inc. demanding the turnover of all records
to them effective December 19, 2000. The company records were turned over only on
January 26, 2001. This means our jobs with Pacific Forest were terminated effective
December 19, 2000. I am concerned about your welfare. I would like to help you by offering
you to work with ATM Marketing Corporation.
 Please let me know if you are interested. 22

On the basis of the "Side Agreement," petitioner insisted that he and Pacfor equally own Pacfor
Phils. Thus, it follows that he and Pacfor likewise own, on a 50/50 basis, Pacfor Phils.' office furniture
and equipment and the service car. He also reiterated his demand for unpaid commissions, and
proposed to offset these with the remaining Christmas giveaway fund in his
possession.23 Furthermore, he did not renew the lease contract with Pulp and Paper, Inc., the lessor
of the office premises of Pacfor Phils., wherein he was the signatory to the lease agreement. 24

On February 2, 2001, private respondent Pacfor placed petitioner on preventive suspension and
ordered him to show cause why no disciplinary action should be taken against him. Private
respondent Pacfor charged petitioner with willful disobedience and serious misconduct for his refusal
to turn over the service car and the Christmas giveaway fund which he applied to his alleged unpaid
commissions. Private respondent also alleged loss of confidence and gross neglect of duty on the
part of petitioner for allegedly allowing another corporation owned by petitioner's relatives, High End
Products, Inc. (HEPI), to use the same telephone and facsimile numbers of Pacfor, to possibly steal
and divert the sales and business of private respondent for HEPI's principal, International Forest
Products, a competitor of private respondent.25

Petitioner denied the charges. He reiterated that he considered the import of Pacfor President
William Gleason's letters as a "cessation of his position and of the existence of Pacfor Phils." He
likewise informed private respondent Pacfor that ATM Marketing Corp. now occupies Pacfor Phils.'
office premises,26 and demanded payment of his separation pay.27 On February 15, 2001, petitioner
filed his complaint for illegal dismissal, recovery of separation pay, and payment of attorney's fees
with the NLRC.28

In the meantime, private respondent Pacfor lodged fresh charges against petitioner. In a
memorandum dated March 5, 2001, private respondent directed petitioner to explain why he should
not be disciplined for serious misconduct and conflict of interest. Private respondent charged
petitioner anew with serious misconduct for the latter's alleged act of fraud and misrepresentation in
authorizing the release of an additional peso salary for himself, besides the dollar salary agreed
upon by the parties. Private respondent also accused petitioner of disloyalty and representation of
conflicting interests for having continued using the Pacfor Phils.' office for operations of HEPI. In
addition, petitioner allegedly solicited business for HEPI from a competitor company of private
respondent Pacfor.29

Labor Arbiter Felipe Pati ruled in favor of petitioner, finding there was constructive dismissal. By
directing petitioner to turn over all office records and materials, regardless of whether he may have
retained copies, private respondent Pacfor virtually deprived petitioner of his job by the gradual
diminution of his authority as resident manager. Petitioner's position as resident manager whose
duty, among others, was to maintain the security of its business transactions and communications
was rendered meaningless. The dispositive portion of the decision of the Labor Arbiter reads:

WHEREFORE, premises considered, judgment is hereby rendered ordering herein

respondents Cellmark AB and Pacific Forest Resources, Inc., jointly and severally to
compensate complainant Arsenio T. Mendiola separation pay equivalent to at least one
month for every year of service, whichever is higher (sic), as reinstatement is no longer
feasible by reason of the strained relations of the parties equivalent to five (5) months in the
amount of $32,000.00 plus the sum of P250,000.00; pay complainant the sum
of P500,000.00 as moral and exemplary damages and ten percent (10%) of the amounts
awarded as and for attorney's fees.
 All other claims are dismissed for lack of basis.

SO ORDERED.30

Private respondent Pacfor appealed to the NLRC which ruled in its favor. On December 20, 2001,
the NLRC set aside the July 30, 2001 decision of the labor arbiter, for lack of jurisdiction and lack of
merit.31 It held there was no employer-employee relationship between the parties. Based on the two
agreements between the parties, it concluded that petitioner is not an employee of private
respondent Pacfor, but a full co-owner (50/50 equity).

The NLRC denied petitioner's Motion for Reconsideration. 32

Petitioner was not successful on his appeal to the Court of Appeals. The appellate court upheld the
ruling of the NLRC.

Petitioner's Motion for Reconsideration 33 of the decision of the Court of Appeals was denied.

Hence, this appeal.34

Petitioner assigns the following errors:

A. The Respondent Court of Appeals committed reversible error and abused its discretion in
rendering judgment against petitioner since jurisdiction has been acquired over the subject
matter of the case as there exists employer-employee relationship between the parties.

B. The Respondent Court of Appeals committed reversible error and abused its discretion in
ruling that jurisdiction over the subject matter cannot be waived and may be alleged even for
the first time on appeal or considered by the court motu prop[r]io. 35

The first issue is whether an employer-employee relationship exists between petitioner and private
respondent Pacfor.

Petitioner argues that he is an industrial partner of the partnership he formed with private respondent
Pacfor, and also an employee of the partnership. Petitioner insists that an industrial partner may at
the same time be an employee of the partnership, provided there is such an agreement, which, in
this case, is the "Side Agreement" and the "Revised Operating and Profit Sharing Agreement." The
Court of Appeals denied the appeal of petitioner, holding that "the legal basis of the complaint is not
employment but perhaps partnership, co-ownership, or independent contractorship." Hence, the
Labor Code cannot apply.

We hold that petitioner is an employee of private respondent Pacfor and that no partnership or co-
ownership exists between the parties.

In a partnership, the members become co-owners of what is contributed to the firm capital and of all
property that may be acquired thereby and through the efforts of the members. 36 The property or
stock of the partnership forms a community of goods, a common fund, in which each party has a
proprietary interest.37 In fact, the New Civil Code regards a partner as a co-owner of specific
partnership property.38 Each partner possesses a joint interest in the whole of partnership property. If
the relation does not have this feature, it is not one of partnership. 39 This essential element, the
community of interest, or co-ownership of, or joint interest in partnership property is absent in the
relations between petitioner and private respondent Pacfor. Petitioner is not a part-owner of Pacfor
Phils. William Gleason, private respondent Pacfor's President established this fact when he said that
Pacfor Phils. is simply a "theoretical company" for the purpose of dividing the income 50-50. He
stressed that petitioner knew of this arrangement from the very start, having been the one to
propose to private respondent Pacfor the setting up of a representative office, and "not a branch
office" in the Philippines to save on taxes. Thus, the parties in this case, merely shared profits. This
alone does not make a partnership. 40

Besides, a corporation cannot become a member of a partnership in the absence of express

authorization by statute or charter.41 This doctrine is based on the following considerations: (1) that
the mutual agency between the partners, whereby the corporation would be bound by the acts of
persons who are not its duly appointed and authorized agents and officers, would be inconsistent
with the policy of the law that the corporation shall manage its own affairs separately and
exclusively; and, (2) that such an arrangement would improperly allow corporate property to become
subject to risks not contemplated by the stockholders when they originally invested in the
corporation.42 No such authorization has been proved in the case at bar.

Be that as it may, we hold that on the basis of the evidence, an employer-employee relationship is
present in the case at bar. The elements to determine the existence of an employment relationship
are: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of
dismissal; and (d) the employer's power to control the employee's conduct. The most important
element is the employer's control of the employee's conduct, not only as to the result of the work to
be done, but also as to the means and methods to accomplish it. 43

In the instant case, all the foregoing elements are present. First, it was private respondent Pacfor
which selected and engaged the services of petitioner as its resident agent in the Philippines.
Second, as stipulated in their Side Agreement, private respondent Pacfor pays petitioner his salary
amounting to $65,000 per annum which was later increased to $78,000. Third, private respondent
Pacfor holds the power of dismissal, as may be gleaned through the various memoranda it issued
against petitioner, placing the latter on preventive suspension while charging him with various
offenses, including willful disobedience, serious misconduct, and gross neglect of duty, and ordering
him to show cause why no disciplinary action should be taken against him.

Lastly and most important, private respondent Pacfor has the power of control over the means and
method of petitioner in accomplishing his work.

The power of control refers merely to the existence of the power, and not to the actual exercise
thereof. The principal consideration is whether the employer has the right to control the manner of
doing the work, and it is not the actual exercise of the right by interfering with the work, but the right
to control, which constitutes the test of the existence of an employer-employee relationship. 44 In the
case at bar, private respondent Pacfor, as employer, clearly possesses such right of control.
Petitioner, as private respondent Pacfor's resident agent in the Philippines, is, exactly so, only an
agent of the corporation, a representative of Pacfor, who transacts business, and accepts service on
its behalf.

This right of control was exercised by private respondent Pacfor during the period of November to
December 2000, when it directed petitioner to turn over to it all records of Pacfor Phils.; when it
ordered petitioner to remit the Christmas giveaway fund intended for clients of Pacfor Phils.; and,
when it withdrew all its offers of settlement and ordered petitioner to transfer title and turn over to it
the possession of the service car. It was also during this period when private respondent Pacfor sent
letters to its clients in the Philippines, particularly Intercontinental Paper Industries, Inc. and
DAVCOR, advising them not to deal with petitioner and/or Pacfor Phils. In its letter to DAVCOR,
private respondent Pacfor replied to the client's request for an invoice payment extension, and
formulated a revised payment program for DAVCOR. This is one unmistakable proof that private
respondent Pacfor exercises control over the petitioner.

Next, we shall determine if petitioner was constructively dismissed from employment.

The evidence shows that when petitioner insisted on his 50% equity in Pacfor Phils., and would not
quit however, private respondent Pacfor began to systematically deprive petitioner of his duties and
benefits to make him feel that his presence in the company was no longer wanted. First, private
respondent Pacfor directed petitioner to turn over to it all records of Pacfor Phils. This would
certainly make the work of petitioner very difficult, if not impossible. Second, private respondent
Pacfor ordered petitioner to remit the Christmas giveaway fund intended for clients of Pacfor Phils.
Then it ordered petitioner to transfer title and turn over to it the possession of the service car. It also
advised its clients in the Philippines, particularly Intercontinental Paper Industries, Inc. and
DAVCOR, not to deal with petitioner and/or Pacfor Phils. Lastly, private respondent Pacfor appointed
a new resident agent for Pacfor Phils.45

Although there is no reduction of the salary of petitioner, constructive dismissal is still present
because continued employment of petitioner is rendered, at the very least, unreasonable. 46 There is
an act of clear discrimination, insensibility or disdain by the employer that continued employment
may become so unbearable on the part of the employee so as to foreclose any choice on his part
except to resign from such employment.47

The harassing acts of the private respondent are unjustified. They were undertaken when petitioner
sought clarification from the private respondent about his supposed 50% equity on Pacfor Phils.
Private respondent Pacfor invokes its rights as an owner. Allegedly, its issuance of the foregoing
directives against petitioner was a valid exercise of management prerogative. We remind private
respondent Pacfor that the exercise of management prerogative is not absolute. "By its very nature,
encompassing as it could be, management prerogative must be exercised in good faith and with due
regard to the rights of labor – verily, with the principles of fair play at heart and justice in mind." The
exercise of management prerogative cannot be utilized as an implement to circumvent our laws and
oppress employees.48

As resident agent of private respondent corporation, petitioner occupied a position involving trust
and confidence. In the light of the strained relations between the parties, the full restoration of an
employment relationship based on trust and confidence is no longer possible. He should be awarded
separation pay, in lieu of reinstatement.

IN VIEW WHEREOF, the petition is GRANTED. The Court of Appeals' January 30, 2003 Decision in
CA-G.R. SP No. 71028 and July 30, 2003 Resolution, affirming the December 20, 2001 Decision of
the National Labor Relations Commission, are ANNULED and SET ASIDE. The July 30, 2001
Decision of the Labor Arbiter is REINSTATED with the MODIFICATION that the amount
of P250,000.00 representing an alleged increase in petitioner's salary shall be deducted from the
grant of separation pay for lack of evidence.

SO ORDERED.

Sandoval-Gutierrez, Corona, Azcuna, Garcia, J.J., concur.