Article 1828.

1. G.R. No. 97212 June 30, 1993

BENJAMIN YU, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS COMPANY LIMITED,
WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN JENG and CHEN HO-FU, respondents.

Jose C. Guico for petitioner.

Wilfredo Cortez for private respondents.

FELICIANO, J.:

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

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

Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea Bendal and Rhodora
Bendal sold and transferred their interests in the partnership to private respondent Willy Co and to one
Emmanuel Zapanta. Mr. Yu Chang, a limited partner, also sold and transferred his interest in the partnership to
Willy Co. Between Mr. Emmanuel Zapanta and himself, private respondent Willy Co acquired the great bulk of
the partnership interest. The partnership now constituted solely by Willy Co and Emmanuel Zapanta continued
to use the old firm name of Jade Mountain, though they moved the firm's main office from Makati to
Mandaluyong, Metropolitan Manila. A Supplement to the Memorandum Agreement relating to the operation of
the marble quarry was entered into with the Cruz spouses in February of 1988.2 The actual operations of the
business enterprise continued as before. All the employees of the partnership continued working in the
business, all, save petitioner Benjamin Yu as it turned out.

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

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

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

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

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

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

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

In respect of the first issue, we agree with the result reached by the NLRC, that is, that the legal effect of the
changes in the membership of the partnership was the dissolution of the old partnership which had hired
petitioner in 1984 and the emergence of a new firm composed of Willy Co and Emmanuel Zapanta in 1987.

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

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

Article 1830 of the same Code must also be noted:

Art. 1830. Dissolution is caused:

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

xxx xxx xxx

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

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

xxx xxx xxx

(Emphasis supplied)

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

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

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

In the ordinary course of events, the legal personality of the expiring partnership persists for the limited
purpose of winding up and closing of the affairs of the partnership. In the case at bar, it is important to
underscore the fact that the business of the old partnership was simply continued by the new
partners, without the old partnership undergoing the procedures relating to dissolution and winding up of its
business affairs. In other words, the new partnership simply took over the business enterprise owned by the
preceeding partnership, and continued using the old name of Jade Mountain Products Company Limited,
without winding up the business affairs of the old partnership, paying off its debts, liquidating and distributing its
net assets, and then re-assembling the said assets or most of them and opening a new business enterprise.
There were, no doubt, powerful tax considerations which underlay such an informal approach to business on
the part of the retiring and the incoming partners. It is not, however, necessary to inquire into such matters.

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

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

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

(2) When all but one partner retire and assign (or the representative of a deceased partner assigns) their rights
in partnership property to the remaining partner, who continues the business without liquidation of partnership
affairs, either alone or with others;
(3) When any Partner retires or dies and the business of the dissolved partnership is continued as set forth in
Nos. 1 and 2 of this Article, with the consent of the retired partners or the representative of the deceased
partner, but without any assignment of his right in partnership property;

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

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

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

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

When the business of a partnership after dissolution is continued under any conditions set forth in this article
the creditors of the retiring or deceased partner or the representative of the deceased partner, have a prior
right to any claim of the retired partner or the representative of the deceased partner against the person or
partnership continuing the business on account of the retired or deceased partner's interest in the dissolved
partnership or on account of any consideration promised for such interest or for his right in partnership
property.

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

xxx xxx xxx

(Emphasis supplied)

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

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

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

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

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

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

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

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

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

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

Costs against private respondents.

SO ORDERED.
2. G.R. No. L-27343 February 28, 1979

MANUEL G. SINGSONG, JOSE BELZUNCE, AGUSTIN E. TONSAY, JOSE L. ESPINOS, BACOLOD

SOUTHERN LUMBER YARD, and OPPEN, ESTEBAN, INC., plaintiffs-appellees,
vs.
ISABELA SAWMILL, MARGARITA G. SALDAJENO and her husband CECILIO SALDAJENO LEON
GARIBAY, TIMOTEO TUBUNGBANUA, and THE PROVINCIAL SHERIFF OF NEGROS OCCIDENTAL,
defendants, MARGARITA G. SALDAJENO and her husband CECILIO SALDAJENO, defendants-
appellants.

FERNANDEZ, J.:

This is an appeal to the Court of Appeals from the judgment of the Court of First Instance of Negros Occidental
in Civil Cage No. 5343, entitled "Manuel G. Singson, et all vs. Isabela Sawmill, et al.,", the dispositive portion of
which reads:

IN VIEW OF THE FOREGOING CONSIDERATIONS, it is hereby held. (1) that the contract,
Appendix "F", of the Partial Stipulation of Facts, Exh. "A", has not created a chattel mortgage
lien on the machineries and other chattels mentioned therein, all of which are property of the
defendant partnership "Isabela Sawmill", (2) that the plaintiffs, as creditors of the defendant
partnership, have a preferred right over the assets of the said partnership and over the
proceeds of their sale at public auction, superior to the right of the defendant Margarita G.
Saldajeno, as creditor of the partners Leon Garibay and Timoteo Tubungbanua; (3) that the
defendant Isabela Sawmill' is indebted to the plaintiff Oppen, Esteban, Inc. in the amount of
P1,288.89, with legal interest thereon from the filing of the complaint on June 5, 1959; (4) that
the same defendant is indebted to the plaintiff Manuel G. Singsong in the total amount of
P5,723.50, with interest thereon at the rate of 1 % per month from May 6, 1959, (the date of the
statements of account, Exhs. "L" and "M"), and 25% of the total indebtedness at the time of
payment, for attorneys' fees, both interest and attorneys fees being stipulated in Exhs. "I" to
"17", inclusive; (5) that the same defendant is indebted to the plaintiff Agustin E. Tonsay in the
amount of P933.73, with legal interest thereon from the filing of the complaint on June 5, 1959;
(6) that the same defendant is indebted to the plaintiff Jose L. Espinos in the amount of
P1,579.44, with legal interest thereon from the filing of the complaint on June 5, 1959; (7) that
the same defendant is indebted to the plaintiff Bacolod Southern Lumber Yard in the amount of
Pl,048.78, with legal interest thereon from the filing of the complaint on June 5, 1959; (8) that
the same defendant is indebted to the plaintiff Jose Belzunce in the amount of P2,052.10, with
legal interest thereon from the filing of the complaint on June 5. 1959; (9) that the defendant
Margarita G. Saldajeno, having purchased at public auction the assets of the defendant
partnership over which the plaintiffs have a preferred right, and having sold said assets for P
45,000.00, is bound to pay to each of the plaintiffs the respective amounts for which the
defendant partnership is held indebted to, them, as above indicated and she is hereby ordered
to pay the said amounts, plus attorneys fees equivalent to 25% of the judgment in favor of the
plaintiff Manuel G. Singson, as stipulated in Exhs. "I" "to I-17", inclusive, and 20% of the
respective judgments in favor of the other plaintiffs, pursuant to. Art. 2208, pars. (5) and (11), of
the Civil Code of the Philippines; (10) The defendants Leon Garibay and Timoteo Tibungbanua
are hereby ordered to pay to the plaintiffs the respective amounts adjudged in their favor in the
event that said plaintiffs cannot recover them from the defendant Margarita G. Saldajeno and
the surety on the bond that she has filed for the lifting of the injunction ordered by this court
upon the commencement of this case.

The cross-claim cf the defendant Margarita G. Saldajeno against the defendants Leon Garibay
arid Timoteo Tubungbanua is hereby discussed Margarita G. Saldajeno shall pay the costs.

SO ORDERED.1
In a resolution promulgated on February 3, 1967, the Court of Appeals certified the records of this case to the
Supreme Court "considering that the resolution of this appeal involves purely questions or question of law over
which this Court has no jurisdiction ...2

On June 5. 1959, Manuel G. Singsong, Jose Belzunce, Agustin E. Tonsay, Jose L. Espinos, Bacolod Southern
Lumber Yard, and Oppen, Esteban, Inc. filed in the Court of first Instance of Negros Occidental, Branch I,
against "Isabela Sawmill", Margarita G. Saldajeno and her husband Cecilio Saldajeno, Leon Garibay, Timoteo
Tubungbanua and the Provincial Sheriff of Negros Occidental a complaint the prayer of which reads:

WHEREFORE, the plaintiffs respectfully pray:

(1) That a writ of preliminary injunction be issued restraining the defendant Provincial Sheriff of Negros
Occidental from proceeding with the sales at public auction that he advertised in two notices issued by him on
May 18, 1959 in connection with Civil Case No. 5223 of this Honorable Court, until further orders of this Court;
and to make said injunction permanent after hearing on the merits:

(2) That after hearing, the defendant partnership be ordered; to pay to the plaintiff Manuel G. Singson the sum
of P3,723.50 plus 1% monthly interest thereon and 25% attorney's fees, and costs; to pay to the plaintiff
JoseBelzunce the sum of P2,052.10, plus 6% annual interest thereon and 25% for attorney's fees, and costs;to
pay to the plaintiff Agustin E. Tonsay the sum of P993.73 plus 6% annual interest thereon and 25% attorney's
fees, and costs; to pay to the plaintiff Bacolod Southern Lumber Yard the sum of P1,048.78, plus 6% annual
interest thereon and 25% attorney's fees, and costs; and to pay to the plaintiff Oppen, Esteban, Inc. the sum of
P1,350.89, plus 6% annual interest thereon and 25% attorney's fees and costs:

(3) That the so-called Chattel Mortgage executed by the defendant Leon Garibay and Timoteo Tubungbanua in
favor of the defendant Margarita G. Saldajeno on May 26, 1958 be declared null and void being in fraud of
creditors of the defendant partnership and without valuable consideration insofar as the said defendant is
concerned:

(4) That the Honorable Court order the sale of public auction of the assets of the defendnat partnership in case
the latter fails to pay the judgment that the plaintiffs may recover in the action, with instructions that the
proceeds of the sale b e applied in payment of said judgment before any part of saod proceeds is paid to the
defendant Margarita G. Saldajeno;

(5) That the defendant Leon Garibay, Timoteo Tubungbanua, and Margarita G. Saldajeno be declared jointly
liable to the plaintiffs for whatever deficiency may remain unpaid after the proceeds of the sale of the assets of
the defendant partnership are supplied in payment of the judgment that said plaintiffs may recover in this
action;

(6) The plaintiffs further pray for all other remedies to which the Honorable Court will find them entitled to, with
costs to the defendants.

Bacolod City, June 4, 1959.3

The action was docketed as Civil Case No. 5343 of said court.

In their amended answer, the defendants Margarita G. Saldajeno and her husband, Cecilio Saldajeno, alleged
the following special and affirmative defenses:

xxx xxx xxx

2. That the defendant Isabela Sawmill has been dissolved by virtue of an action entitled "In the matter of:
Dissolution of Isabela Sawmill as partnership, etc. Margarita G. Saldajeno et al. vs. Isabela Sawmill, et al., Civil
Case No. 4787, Court of First Instance of Negros Occidental;
3. That as a result of the said dissolution and the decision of the Court of First Instance of Negros Occidental in
the aforesaid case, the other defendants herein Messrs. Leon Garibay and Timoteo Tubungbanua became the
successors-in-interest to the said defunct partnership and have bound themselves to answere for any and all
obligations of the defunct partnership to its creditors and third persons;

4. That to secure the performance of the obligations of the other defendants Leon Garibay and Timoteo
Tubungbanua to the answering defendant herein, the former have constituted a chattel mortgage over the
properties mentioned in the annexes to that instrument entitled "Assignment of Rights with Chattel Mortgage"
entered into on May 26, 1968 and duly registered in the Register of Deeds of Negros Occidental on the same
date:

5. That all the plaintiffs herein, with the exception of the plaintiff Oppen, Esteban, Inc. are creditors of Messrs.
Leon Garibay and Timoteo Tubungbanua and not of the defunct Isabela Sawmill and as such they have no
cause of action against answering defendant herein and the defendant Isabela Sawmill;

6. That all the plaintiffs herein, except for the plaintiff Oppen, Esteban, Inc. granted cash advances, gasoline,
crude oil, motor oil, grease, rice and nipa to the defendants Leon Garibay and Timoteo Tubungbanua with the
knowledge and notice that the Isabela Sawmill as a former partnership of defendants Margarita G. Isabela
Sawmill as a former partnership of defendants Margarita G. Saldajeno, Leon Garibay and Timoteo
Tubungbanua, has already been dissolved;

7. That this Honorable Court has no jurisdiction over the claims of the plaintiffs Oppen, Esteban, Inc., Agustin
R. Tonsay, Jose L. Espinos, and the Bacolod Southern Lumber Yard, it appearing that the amounts sought to
be recovered by them in this action is less than P2,000.00 each, exclusive of interests;

8. That in so far as the claims of these alleged creditors plaintiffs are concerned, there is a misjoinder of parties
because this is not a class suit, and therefore this Honorable Court cannot take jurisdiction of the claims for
payment;

9. That the claims of plaintiffs-creditors, except Oppen, Esteban, Inc. go beyond the limit mentioned in the
statute of frauds, Art. 1403 of the Civil Code, and are therefore unenforceable, even assuming that there were
such credits and claims;

10. That this Honorable Court has no jurisdiction in this case for it is well settled in law and in jurisprudence
that a court of first instance has no power or jurisdiction to annul judgments or decrees of a coordinate court
because other function devolves upon the proper appellate court; (Lacuna, et al. vs. Ofilada, et al., G.R. No. L-
13548, September 30, 1959; Cabigao vs. del Rosario, 44 Phil. 182; PNB vs. Javellana, 49 O.G. No. 1, p.124),
as it appears from the complaint in this case to annul the decision of this same court, but of another branch
(Branch II, Judge Querubin presiding).4

Said defendants interposed a cross-claim against the defendants Leon Garibay and Timoteo Tubungbanua
praying "that in the event that judgment be rendered ordering defendant cross claimant to pay to the plaintiffs
the amount claimed in the latter's complaint, that the cross claimant whatever amount is paid by the latter to
the plaintiff in accordance to the said judgment. ...5

After trial, judgment was rendered in favor of the plaintiffs and against the defendants.

The defendants, Margarita G. Saldajeno and her husband Cecilio Saldajeno, appealed to the Court of Appeals
assigning the following errors:

THE COURT A QUO ERRED IN ASSUMING JURISDICTION OVER THE CASE.

II
THE COURT A QUO ERRED IN HOLDING THAT THE ISSUE WITH REFERENCE TO THE
WITHDRAWAL OF DEFENDANT-APPELLANT MARGARITA G. SALDAJENO FROM THE
PARTNERSHIP "SABELA SAWMILL" WAS WHETHER OR NOT SUCH WITHDRAWAL
CAUSED THE "COMPLETE DISAPPEARANCE" OR "EXTINCTION" OF SAID PARTNERSHIP.

III

THE COURT A QUO ERRED IN OT HOLDING THAT THE WITHDRAWAL OF DEFENDANT-

APPELLANT MARGARITA G. SALDAJENO AS A PARTNER THEREIN DISSOLVED THE
PARTNERSHIP "ISABELA SAWMILL" (FORMED ON JAN. 30, 1951 AMONG LEON GARIBAY,
TIMOTEO TUBUNGBANUA AND SAID MARGARITA G. SALDAJENO).

IV

THE COURT A QUO ERRED IN ISSUING THE WRIT OF PRELIMINARY INJUNCTION.

THE COURT A QUO ERRED IN HOLDING THAT THE CHATTEL MORTGAGE DATED MAY
26, 1958, WHICH CONSTITUTED THE JUDGMENT IN CIVIL CASE NO. 4797 AND WHICH
WAS FORECLOSED IN CIVIL CASE NO. 5223 (BOTH OF THE COURT OF FIRST INSTANCE
OF NEGROS OCCIDENTAL) WAS NULL AND VOID.

VI

THE COURT A QUO ERRED IN HOLDING THAT THE CHATTLES ACQUIRED BY

DEFENDANT-APPELLANT MARGARITA G. SALDAJENO IN THE FORECLOSURE SALE IN
CIVIL CASE NO. 5223 CONSTITUTED 'ALL THE ASSETS OF THE DEFENDNAT
PARTNERSHIP.

VII

THE COURT A QUO ERRED IN HOLDING THAT DEFENDANT-APPELLANT MARGARITA G.

SALDAJENO BECAME PRIMARILY LIABLE TO THE PLAINTFFS-APPELLEES FOR HAVING
ACQUIRED THE MORTGAGED CHATTLES IN THE FORECLOSURE SALE CONDUCTED IN
CONNECTION WITH CIVIL CASE NO. 5223.

VIII

THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT MARGARITA G.

SALDAJENO LIABLE FOR THE OBLIGATIONS OF MESSRS. LEON GARIBAY AND
TIMOTEO TUBUNGBANUA, INCURRED BY THE LATTER AS PARTNERS IN THE NEW
'ISABELA SAWMILL', AFTER THE DISSOLUTION OF THE OLD PARTNERSHIP IN WHICH
SAID MARGARITA G. SALDAJENO WAS A PARTNER.

IX

THE COURT A QUO ERRED IN HOLDING DEFENDANT-APPELLANT MARGARITA G.

SALDAJENO LIABLE TO THE PLAINTIFFS-APPELLEES FOR ATTORNEY'S FEES.

THE COURT A QUO ERRED IN NOT DISMISSING THE COMPLAINT OF THE PLAINTIFFS-
APPELLEES.
 XI

THE COURT A QUO ERRED IN DISMISSING THE CROSS-CLAIM OF DEFENDANT-

APPELLANT MARGARITA G. SALDAJENO AGAINST CROSS-DEFENDANTS LEON
GARIBAY AND TIMOTEO TUBUNGBANUA.6

The facts, as found by the trial court, are:

At the commencement of the hearing of the case on the merits the plaintiffs and the defendant Cecilio and
Margarita g. Saldajeno submittee a Partial Stipulation of Facts that was marked as Exh. "A". Said stipulation
reads as folows:

1. That on January 30, 1951 the defendants Leon Garibay, Margarita G. Saldejeno, and Timoteo Tubungbanua
entered into a Contract of Partnership under the firm name "Isabela Sawmill", a copy of which is hereto
attached Appendix "A".

2. That on February 3, 1956 the plaintiff Oppen, Esteban, Inc. sold a Motor Truck and two Tractors to the
partnership Isabela Sawmill for the sum of P20,500.00. In order to pay the said purchase price, the said
partnership agreed to make arrangements with the International Harvester Company at Bacolod City so that
the latter would sell farm machinery to Oppen, Esteban, Inc. with the understanding that the price was to be
paid by the partnership. A copy of the corresponding contract of sale is attached hereto as Appendix "B".

3. That through the method of payment stipulated in the contract marked as Appendix "B" herein, the
International Harvester Company has been paid a total of P19,211.11, leaving an unpaid balance of P1,288.89
as shown in the statements hereto attached as Appendices "C", "C-1", and "C-2".

4. That on April 25, 1958 Civil Case No. 4797 was filed by the spouses Cecilio Saldajeno and Margarita G.
Saldajeno against the Isabela Sawmill, Leon Garibay, and Timoteo Tubungbanua, a copy of which Complaint
is attached as Appendix 'D'.

5. That on April 27, 1958 the defendants LeonGaribay, Timoteo Tubungbanua and Margarita G. Saldajeno
entered into a "Memorandum Agreement", a copy of which is hereto attached as Appendix 'E' in Civil Case
4797 of the Court of First Instance of Negros Occidental.

6. That on May 26, 1958 the defendants Leon Garibay, Timoteo Tubungbanua and Margarita G. Saldajeno
executed a document entitled "Assignment of Rights with Chattel Mortgage", a copy of which documents and
its Annexes "A" to "A-5" forming a part of the record of the above mentioned Civil Case No. 4797, which deed
was referred to in the Decision of the Court of First Instance of Negros Occidental in Civil Case No. 4797 dated
May 29, 1958, a copy of which is hereto attached as Appendix "F" and "F-1" respectively.

7. That thereafter the defendants Leon Garibay and Timoteo Tubungbanua did not divide the assets and
properties of the "Isabela Sawmill" between them, but they continued the business of said partnership under
the same firm name "Isabela Sawmill".

8. That on May 18, 1959 the Provincial Sheriff of Negros Occidental published two (2) notices that he would
sell at public auction on June 5, 1959 at Isabela, Negros Occidental certain trucks, tractors, machinery, office
equipment and other things that were involved in Civil Case No. 5223 of the Court of First Instance of Negros
Occidental, entitled "Margarita G. Saldajeno vs. Leon Garibay, et al." See Appendices "G" and "G-1".

9. That on October 15, 1969 the Provincial Sheriff of Negros Occidental executed a Certificate of Sale in favor
of the defendant Margarita G. Saldajeno, as a result of the sale conducted by him on October 14 and 15, 1959
for the enforcement of the judgment rendered in Civil Case No. 5223 of the Court of First Instance of Negros
Occidental, a certified copy of which certificte of sale is hereto attached as Appendix "H".
10. That on October 20, 1959 the defendant Margarita G. Saldajeno executed a deed of sale in favor of the
Pan Oriental Lumber Company transferring to the latter for the sum of P45,000.00 the trucks, tractors,
machinery, and other things that she had purchased at a public auction referred to in the foregoing paragraph,
a certified true copy of which Deed of Sale is hereto attached as Appendix "I".

11. The plaintiffs and the defendants Cecilio Saldajeno and Margarita G. Saldajeno reserve the right to present
additional evidence at the hearing of this case.

Forming parts of the above copied stipulation are documents that were marked as Appendices "A", "B", "C",
"C-1", "C-2", "D", "E", "F", "F-1", "G", "G-1", "H", and "I".

The plaintiffs and the defendants Cecilio and Margarita G. Saldajeno presented additional evidence, mostly
documentary, while the cross-defendants did not present any evidence. The case hardly involves quetions of
fact at all, but only questions of law.

The fact that the defendant 'Isabela Sawmill' is indebted to the plaintiff Oppen, Esteban, Inc. in the amount of
P1,288.89 as the unpaid balance of an obligation of P20,500.00 contracted on February 3, 10956 is expressly
admitted in paragraph 2 and 3 of the Stipulation, Exh. "A" and its Appendices "B", "C", "C-1", and "C-2".

The plaintiff Agustin E. Tonssay proved by his own testimony and his Exhs. "B" to"G" that from October 6,
1958 to November 8, 1958 he advanced a total of P4,200.00 to the defendant 'Isabela Sawmill'. Against the
said advances said defendant delivered to Tonsay P3,266.27 worth of lumber, leaving an unpaid balance of
P933.73, which balance was confirmed on May 15, 1959 by the defendant Leon Garibay, as Manager of the
defendant partnership.

The plaintiff Manuel G. Singsong proved by his own testimony and by his Exhs. "J" to "L" that from May 25,
1988 to January 13, 1959 he sold on credit to the defendant "Isabela Sawmill" rice and bran, on account of
which business transaction there remains an unpaid balance of P3,580.50. The same plaintiff also proved that
the partnership owes him the sum of P143.00 for nipa shingles bought from him on credit and unpaid for.

The plaintiff Jose L. Espinos proved through the testimony of his witness Cayetano Palmares and his Exhs. "N"
to "O-3" that he owns the "Guia Lumber Yard", that on October 11, 1958 said lumber yard advanced the sum
of P2,500.00 to the defendant "Isabela Sawmill", that against the said cash advance, the defendant partnership
delivered to Guia Lumber Yard P920.56 worth of lumber, leaving an outstanding balance of P1,579.44.

The plaintiff Bacolod Southern Lumber Yard proved through the testimony of the witness Cayetano Palmares
and its Exhs. "P" to "Q-1" that on October 11, 1958 said plaintiff advanced the sum of P1,500.00 to the
defendant 'Isabela Sawmill', that against the said cash advance, the defendant partnership delivered to the
said plaintiff on November 19, 1958 P377.72 worth of lumber, and P73.54 worth of lumber on January 27,
1959, leaving an outstanding balance of P1,048.78.

The plaintiff Jose Balzunce proved through the testimony of Leon Garibay whom he called as his witness, and
through the Exhs. "R" to "E" that from September 14, 1958 to November 27, 1958 he sold to the defendant
"Isabela Sawmill" gasoline, motor fuel, and lubricating oils, and that on account of said transactions, the
defendant partnership owes him an unpaid balance of P2,052.10.

Appendix "H" of the stipulation Exh. "A" shows that on October 13 and 14, 1959 the Provincial Sheriff sold to
the defendant Margrita G. Saldajeno for P38,040.00 the assets of the defendant "Isabela Sawmill" which the
defendants Leon G. Garibay and Timoteo Tubungbanua had mortgaged to her, and said purchase price was
applied to the judgment that she has obtained against he said mortgagors in Civil Case No. 5223 of this Court.

Appendix "I" of the same stipulation Exh. "A" shows that on October 20, 1959 the defendant Margarita G.
Saldajeno sold to the PAN ORIENTAL LUMBER COMPANY for P45,000.00 part of the said properties that she
had bought at public auction one week before.
xxx xxx xxx7

It is contended by the appellants that the Court of First Instance of Negros Occidental had no jurisdiction over
Civil Case No. 5343 because the plaintiffs Oppen, Esteban, Inc., Agustin R. Tonsay, Jose L. Espinos and the
Bacolod Southern Lumber Yard sought to collect sums of money, the biggest amount of which was less than
P2,000.00 and, therefore, within the jurisdiction of the municipal court.

This contention is devoid of merit because all the plaintiffs also asked for the nullity of the assignment of right
with chattel mortgage entered into by and between Margarita G. Saldajeno and her former partners Leon
Garibay and Timoteo Tubungbanua. This cause of action is not capable of pecuniary estimation and falls under
the jurisdiction of the Court of First Instance. Where the basic issue is something more than the right to recover
a sum of money and where the money claim is purely incidental to or a consequence of the principal relief
sought, the action is as a case where the subject of the litigation is not capable of pecuniary estimation and is
cognizable exclusively by the Court of First Instance.

The jurisdiction of all courts in the Philippines, in so far as the authority thereof depends upon the nature of
litigation, is defined in the amended Judiciary Act, pursuant to which courts of first instance shall have
exclusive original jurisdiction over any case the subject matter of which is not capable of pecuniary estimation.
An action for the annulment of a judgment and an order of a court of justice belongs to th category.8

In determining whether an action is one the subject matter of which is not capable of pecuniary estimation this
Court has adopted the criterion of first ascertaining the nature of the principal action or remedy sought. If it is
primarily for the recovery of a sum of money, the claim is considered capable of pecuniary estimation, and
whether jurisdiction is in the municipal courts or in the courts of first instance would depend on the amount of
the claim. However, where the basic issue is something other than the right to recover a sum of money, where
the money claim is purely incidental to, or a consequence of, the principal relief sought, this Court has
considered such actions as cases where the subject of the litigation may not be estimated in terms of money,
and are cognizable exclusively by courts of first instance.

In Andres Lapitan vs. SCANDIA, Inc., et al.,9 this Court held:

Actions for specific performance of contracts have been expressly pronounced to be exclusively cognizable by
courts of first instance: De Jesus vs. Judge Garcia, L-26816, February 28, 1967; Manufacturers' Distributors,
Inc. vs. Yu Siu Liong, L-21285, April 29, 1966. And no cogent reason appears, and none is here advanced by
the parties, why an actin for rescission (or resolution) should be differently treated, a "rescission" being a
counterpart, so to speak, of "specific performance'. In both cases, the court would certainly have to undertake
an investigation into facts that would justify one act of the other. No award for damages may be had in an
action for rescission without first conducting an inquiry into matters which would justify the setting aside of a
contract, in the same manner that courts of first instance would have to make findings of fact and law in actions
not capable of pecuniary estimation expressly held to be so by this Court, arising from issues like those arised
in Arroz v. Alojado, et al., L-22153, March 31, 1967 (the legality or illegality of the conveyance sought for and
the determination of the validity of the money deposit made); De Ursua v. Pelayo, L-13285, April 18, 1950
(validity of a judgment); Bunayog v. Tunas, L-12707, December 23, 1959 (validity of a mortgage); Baito v.
Sarmiento, L-13105, August 25, 1960 (the relations of the parties, the right to support created by the relation,
etc., in actions for support); De Rivera, et al. v. Halili, L-15159, September 30, 1963 (the validity or nullity of
documents upon which claims are predicated). Issues of the same nature may be raised by a party against
whom an action for rescission has been brought, or by the plaintiff himself. It is, therefore, difficult to see why a
prayer for damages in an action for rescission should be taken as the basis for concluding such action for
rescission should be taken as the basis for concluding such action as one capable of pecuniary estimation - a
prayer which must be included in the main action if plaintiff is to be compensated for what he may have
suffered as a result of the breach committed by defendant, and not later on precluded from recovering
damages by the rule against splitting a cause of action and discouraging multiplicity of suits.

The foregoing doctrine was reiterated in The Good Development Corporation vs. Tutaan, 10 where this Court
held:
On the issue of which court has jurisdiction, the case of SENO vs. Pastolante, et al., is in point. It was ruled
therein that although the purposes of an action is to recover an amount plus interest which comes within the
original jurisdiction of the Justice of the Peace Court, yet when said action involves the foreclosure of a chattel
mortgage covering personal properties valued at more than P2,000, (now P10,000.00) the action should be
instituted before the Court of First Instance.

In the instant, case, the action is to recover the amount of P1,520.00 plus interest and costs, and involves the
foreclosure of a chattel mortgage of personal properties valued at P15,340.00, so that it is clearly within the
competence of the respondent court to try and resolve.

In the light of the foregoing recent rulings, the Court of First Instance of Negros Occidental did no err in
exercising jurisdiction over Civil Case No. 5343.

The appellants also contend that the chattel mortgage may no longer be annulled because it had been
judicially approved in Civil Case No. 4797 of the Court of First Instance of Negros Occidental and said chattel
mortgage had been ordered foreclosed in Civil Case No. 5223 of the same court.

On the question of whether a court may nullify a final judgment of another court of co-equal, concurrent and
coordinate jurisdiction, this Court originally ruled that:

A court has no power to interfere with the judgments or decrees of a court of concurrent or coordinate
jurisdiction having equal power to grant the relief sought by the injunction.

The various branches of the Court of First Instance of Manila are in a sense coordinate courts and cannot be
allowed to interfere with each others' judgments or decrees. 11

The foregoing doctrine was reiterated in a 1953 case 12 where this Court said:

The rule which prohibits a Judge from interfering with the actuations of the Judge of another branch of the
same court is not infringed when the Judge who modifies or annuls the order issued by the other Judge acts in
the same case and belongs to the same court (Eleazar vs. Zandueta, 48 Phil. 193. But the rule is infringed
when the Judge of a branch of the court issues a writ of preliminary injunction in a case to enjoin the sheriff
from carrying out an order by execution issued in another case by the Judge of another branch of the same
court. (Cabigao and Izquierdo vs. Del Rosario et al., 44 Phil. 182).

This ruling was maintained in 1967. In Mas vs. Dumaraog, 13 the judgment sought to be annulled was rendered
by the Court of First Instance of Iloilo and the action for annulment was filed with the Court of First Instance of
Antique, both courts belonging to the same Judicial District. This Court held that:

The power to open, modify or vacant a judgment is not only possessed by but restricted to the
court in which the judgment was rendered.

The reason of this Court was:

Pursuant to the policy of judicial stability, the judgment of a court of competent jurisdiction may
not be interfered with by any court concurrent jurisdiction.

Again, in 1967 this Court ruled that the jurisdiction to annul a judgment of a branch of the court of First Instance
belongs solely to the very same branch which rendered the judgment. 14

Two years later, the same doctrine was laid down in the Sterling Investment case.15

In December 1971, however, this court re-examined and reversed its earlier doctrine on the matter. In Dupla v.
Court of Appeals, 16 this Tribunal, speaking through Mr. Justice Villamor declared:
... the underlying philosophy expressed in the Dumara-og case, the policy of judicial stability, to the end that
the judgment of a court of competent jurisdiction may not be interfered with by any court of concurrent
jurisdiction may not be interfered with by any court of concurrent jurisdiction, this Court feels that this is as
good an occasion as any to re-examine the doctrine laid down...

In an action to annul the judgment of a court, the plaintiff's cause of action springs from the alleged nullity of
the judgment based on one ground or another, particularly fraud, which fact affords the plaintiff a right to
judicial interference in his behalf. In such a suit the cause of action is entirely different from that in the action
which gave rise to the judgment sought to be annulled, for a direct attack against a final and executory
judgment is not a incidental to, but is the main object of the proceeding. The cause of action in the two cases
being distinct and separate from each other, there is no plausible reason why the venue of the action to annul
the judgment should necessarily follow the venue of the previous action ...

The present doctrine which postulate that one court or one branch of a court may not annul the judgment of
another court or branch, not only opens the door to a violation of Section 2 of Rule 4, (of the Rules of Court)
but also limit the opportunity for the application of said rule.

Our conclusion must therefore be that a court of first instance or a branch thereof has the authority and
jurisdiction to take cognizance of, and to act in, suit to annul final and executory judgment or order rendered by
another court of first instance or by another branch of the same court...

In February 1974 this Court reiterated the ruling in the Dulap case.17

In the light of the latest ruling of the Supreme Court, there is no doubt that one branch of the Court of First
Instance of Negros Occidental can take cognizance of an action to nullify a final judgment of the other two
branches of the same court.

It is true that the dissolution of a partnership is caused by any partner ceasing to be associated in the carrying
on of the business. 18 However, on dissolution, the partnership is not terminated but continuous until the
winding up to the business. 19

The remaining partners did not terminate the business of the partnership "Isabela Sawmill". Instead of winding
up the business of the partnership, they continued the business still in the name of said partnership. It is
expressly stipulated in the memorandum-agreement that the remaining partners had constituted themselves as
the partnership entity, the "Isabela Sawmill". 20

There was no liquidation of the assets of the partnership. The remaining partners, Leon Garibay and Timoteo
Tubungbanua, continued doing the business of the partnership in the name of "Isabela Sawmill". They used
the properties of said partnership.

The properties mortgaged to Margarita G. Saldajeno by the remaining partners, Leon Garibay and Timoteo
Tubungbanua, belonged to the partnership "Isabela Sawmill." The appellant, Margarita G. Saldajeno, was
correctly held liable by the trial court because she purchased at public auction the properties of the partnership
which were mortgaged to her.

It does not appear that the withdrawal of Margarita G. Saldajeno from the partnership was published in the
newspapers. The appellees and the public in general had a right to expect that whatever, credit they extended
to Leon Garibay and Timoteo Tubungbanua doing the business in the name of the partnership "Isabela
Sawmill" could be enforced against the properties of said partnership. The judicial foreclosure of the chattel
mortgage executed in favor of Margarita G. Saldajeno did not relieve her from liability to the creditors of the
partnership.

The appellant, margarita G. Saldajeno, cannot complain. She is partly to blame for not insisting on the
liquidaiton of the assets of the partnership. She even agreed to let Leon Garibay and Timoteo Tubungbanua
continue doing the business of the partnership "Isabela Sawmill" by entering into the memorandum-agreement
with them.

Although it may be presumed that Margarita G. Saldajeno had action in good faith, the appellees also acted in
good faith in extending credit to the partnership. Where one of two innocent persons must suffer, that person
who gave occasion for the damages to be caused must bear the consequences. Had Margarita G. Saldajeno
not entered into the memorandum-agreement allowing Leon Garibay and Timoteo Tubungbanua to continue
doing the business of the partnership, the appellees would not have been misled into thinking that they were
still dealing with the partnership "Isabela Sawmill". Under the facts, it is of no moment that technically speaking
the partnership "Isabela Sawmill" was dissolved by the withdrawal therefrom of Margarita G. Saldajeno. The
partnership was not terminated and it continued doping business through the two remaining partners.

The contention of the appellant that the appellees cannot bring an action to annul the chattel mortgage of the
properties of the partnership executed by Leon Garibay and Timoteo Tubungbanua in favor of Margarita G.
Saldajeno has no merit.

As a rule, a contract cannot be assailed by one who is not a party thereto. However, when a contract
prejudices the rights of a third person, he may file an action to annul the contract.

This Court has held that a person, who is not a party obliged principally or subsidiarily under a contract, may
exercised an action for nullity of the contract if he is prejudiced in his rights with respect to one of the
contracting parties, and can show detriment which would positively result to him from the contract in which he
has no intervention. 21

The plaintiffs-appellees were prejudiced in their rights by the execution of the chattel mortgage over the
properties of the partnership "Isabela Sawmill" in favor of Margarita G. Saldajeno by the remaining partners,
Leon Garibay and Timoteo Tubungbanua. Hence, said appelees have a right to file the action to nullify the
chattel mortgage in question.

The portion of the decision appealed from ordering the appellants to pay attorney's fees to the plaintiffs-
appellees cannot be sustained. There is no showing that the appellants displayed a wanton disregard of the
rights of the plaintiffs. Indeed, the appellants believed in good faith, albeit erroneously, that they are not liable
to pay the claims.

The defendants-appellants have a right to be reimbursed whatever amounts they shall pay the appellees by
their co-defendants Leon Garibay and Timoteo Tubungbanua. In the memorandum-agreement, Leon Garibay
and Timoteo Tubungbaun undertook to release Margarita G. Saldajeno from any obligation of "Isabela
Sawmill" to third persons. 22

WHEREFORE, the decision appealed from is hereby affirmed with the elimination of the portion ordering
appellants to pay attorney's fees and with the modification that the defendsants, Leon Garibay and Timoteo
Tubungbanua, should reimburse the defendants-appellants, Margarita G. Saldajeno and her husband Cecilio
Saldajeno, whatever they shall pay to the plaintiffs-appellees, without pronouncement as to costs.

SO ORDERED.
Article 1829.

1. Dira vs. Tanega

2. Sunga-Chan vs. Chua

3. G.R. No. 94285 August 31, 1999

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

-----------------------------

G.R. No. 100313 August 31, 1999

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

PURISIMA, J.:

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

In G.R. No. 94285, the petitioners assail the Resolution1 dated June 27, 1990 of the Court of Appeals granting
the Motion for Reconsideration interposed by the petitioners (now the private respondents) of its Decision2,
promulgated on January 15, 1990, which affirmed the Order3 issued on January 16, 1989 by the Securities and
Exchange Commission (SEC) en banc and the Order4 of SEC Hearing Officer Felipe Tongco, dated October 5,
1988.

The facts that matter are as follows:

Sy Yong Hu & Sons is a partnership of Sy Yong Hu and his sons, Jose Sy, Jayme Sy, Marciano Sy, Willie Sy,
Vicente Sy, and Jesus Sy, registered with the SEC on March 29, 1962, with Jose Sy as managing partner. The
partners and their respective shares are reflected in the Amended Articles of Partnership5 as follows:

AMOUNT
NAMES
CONTRIBUTED
SY YONG HU P 31,000.00
JOSE S. SY 205,000.00
JAYME S. SY 112,000.00
MARCIANO S. SY 143,000.00
WILLIE S. SY 85,000.00
 VICENTE SY 85,000.00
JESUS SY 88,000.00

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

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

In their answer dated November 3, 1977, the defendants, including Sy Yong Hu himself, countered that Keng
Sian is only a house helper of Sy Yong Hu and his wife, subject properties "are exclusively owned by
defendant partnership, and plaintiff has absolutely no right to or interest therein."10

On September 20, 1978, during the pendency of said civil case, Marciano Sy filed a petition for declaratory
relief against partners Vicente Sy, Jesus Sy and Jayme Sy, docketed as SEC Case No. 1648, praying that he
be appointed managing partner of the partnership, to replace Jose Sy who died on August 12, 1978.
Answering the petition, Vicente Sy, Jesus Sy and Jaime Sy, who claim to represent the majority interest in the
partnership, sought the dissolution of the partnership and the appointment of Vicente Sy as managing partner.
In due time, Hearing Officer Emmanuel Sison came out with a decision11 (Sison Decision) dismissing the
petition, dissolving the partnership and naming Jesus Sy, in lieu of Vicente Sy who had died earlier, as the
managing partner in charge of winding the affairs of the partnership.

The Sison decision was affirmed in toto by the SEC en banc in a decision12 (Abello decision) dated June 8,
1982, disposing thus:

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

On the basis of the above decision of the SEC en banc, Hearing Officer Sison approved a partial partition of
certain partnership assets in an order13 dated December 2, 1986. Therefrom, respondents seasonably
appealed.

In 1982, the children of Keng Sian with Sy Yong Hu, namely, John Keng Seng, Carlos Keng Seng, Tita Sy,
Yolanda Sy and Lolita Sy, filed a petition, docketed as SEC Case No. 2338, to revoke the certificate of
registration of Sy Yong Hu & Sons, and to have its assets reverted to the estate of the late Sy Yong Hu. After
hearings, the petition was dismissed by Hearing Officer Bernardo T. Espejo in an Order, dated January 11,
1984, which Order became final since no appeal was taken therefrom.14
After the dismissal of SEC Case No. 2338, the children of Keng Sian sought to intervene in SEC Case No.
1648 but their motion to so intervene was denied in an Order dated May 9, 1985. There was no appeal from
said order.15

In the meantime, Branch 43 of the Regional Trial Court of Negros Occidental appointed one Felix Ferrer as a
Special Administrator for the Intestate Estate of Sy Yong Hu in Civil Case No. 13388. Then, on August 30,
1985, Alex Ferrer moved to intervene in the proceedings in SEC Case No. 1648, for the partition and
distribution of the partnership assets, on behalf of the respondent Intestate Estate.16

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

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

In its decision (Sulit decision) on the aforesaid appeal from the Order dated May 9, 1986, and the Order dated
December 2, 1986, the SEC en banc18 ruled:

WHEREFORE, in the interest of Justice and equity, substantive rights of due process being paramount
over the rules of procedure, and in order to avoid multiplicity of suits; the order of the hearing officer
below dated May 9, 1986 denying the motion to intervene in SEC Case No. 1648 of appellant herein as
well as the order dated December 2, 198619 denying the motion for reconsideration are hereby
reversed and the motion to intervene given due course. The instant case is hereby remanded to the
hearing officer below for further proceeding on the aspect of partition and/or distribution of partnership
assets. The urgent motion for the issuance of a restraining order is likewise hereby remanded to the
hearing officer below for appropriate action.20

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

During the continuation of the proceedings in SEC Case No. 1648, now presided over by Hearing Officer
Felipe S. Tongco who had substituted Hearing Officer Sison, the propriety of placing the Partnership under
receivership was taken up. The parties brought to the attention of the Hearing Officer the fact of existence of
Civil Case No. 903 (formerly Civil Case No. 13388) pending before the Regional Trial Court of Negros
Occidental. They also agreed that during the pendency of the aforesaid court case, there will be no disposition
of the partnership assets.21 On October 5, 1988, Hearing Officer Tongco came out with an Order22 (Tongco
Order) incorporating the above submissions of the parties and placing23 the partnership under a receivership
committee, explaining that "it is the most equitable fair and just manner to preserve the assets of the
partnership during the pendency of the civil case in the Regional Trial Court of Bacolod City."

On October 22, 1988, a joint Notice of Appeal to the SEC en banc was filed by herein petitioners Jayme Sy,
Jesus Sy, Estate of Jose Sy, Estate of Vicente Sy, Heirs of Marciano Sy (represented by Justina Vda. de Sy),
and Willie Sy, against the Intervenor (now private respondent). In an order (Lopez Order) dated January 16,
1989, the SEC en banc24 affirmed the Tongco Order.

With the denial of their Motion for Reconsideration,25 petitioners filed a special civil action for certiorari with the
Court of Appeals.
On January 15, 1990, the Court of Appeals granted the petition and set aside the Tongco and Lopez Orders,
and remanded the case for further execution of the 1982 Abello and 1988 Sulit Decisions, ordering the partition
and distribution of the partnership properties.26

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

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

G.R. No. 100313 came about in view of the dismissal by the Court of Appeals27 of the Petition
for Certiorari with a Prayer for Preliminary Injunction, docketed as CA-G.R. SP No. 24189, seeking to annul
and set aside the orders, dated January 24, 1991 and April 19, 1989, respectively, in Civil Case No. 5326
before the Regional Trial Court of Bacolod City.

The antecedent facts are as follows:

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

From the records on hand, it can be gleaned that the Tongco Order29, dated October 5, 1988, in SEC Case No.
1648, had, among others, denied a similar petition of the intervenors therein (now private respondents) for a
restraining order and/or injunction to enjoin the reconstruction of the same building. However, on October 10,
1988, respondent Intestate Estate sent a letter to the City Engineer claiming that Jesus Sy is not authorized to
act for petitioners Sy Yong Hu & Sons with respect to the reconstruction or renovation of the property of the
partnership. This was followed by a letter dated November 11, 1988, requesting the revocation of Building
Permit No. 4936.

Respondent City Engineer inquired30 later from Jesus Sy for an "authority to sign for and on behalf of Sy Yong
Hu & Sons" to justify the latter's signature in the application for the building permit, informing him that absent
any proof of his authority, he would not be issued an occupancy permit.31 On December 27, 1988, respondent
Intestate Estate reiterated its objection to the authority of Jesus Sy to apply for a building permit and pointing
out that in view of the creation of a receivership committee, Jesus Sy no longer had any authority to act for the
partnership.32

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

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

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

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

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

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

On May 9, 1989, upon learning of the issuance of the Writ of Preliminary Injunction, dated May 4, 1989,
0petitioners immediately filed the: (1) Motion for Intervention; (2) Answer in Intervention; and (3) Motion to set
aside order of mandatory injunction. In its order dated June 22, 1989, the Motion for Intervention was granted
by the lower court through Acting Presiding Judge Porfirio A. Parian.

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

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

On January 25, 1990, petitioner Sy Yong Hu & Sons again wrote the respondent City Engineer to reiterate its
request for the immediate issuance of a certificate of occupancy, alleging that the Court of Appeals in its
Decision of January 15, 1990 in CA-G.R. No. 17070 had reversed the SEC decision which approved the
appointment of a receivership committee. However, the City Engineer refused to issue the Occupancy Permit
without the conformity of the respondent Intestate Estate and one John Keng Seng who claims to be an
Illegitimate son of the Late Sy Yong Hu.38

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

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

Again, it is emphasized that the issue involved is solely question of law and the Court cannot see any
logical reason that the intervenors should be allowed to intervene as earlier granted in the Order of the
then Presiding Judge Porfirio A. Parian, of June 22, 1989. Much less the said intervenors to move for
presentation of additional parties, only on the argument of Intervenors that any restraining order to be
issued by this Court upon the respondent would prejudice their present occupancy which is self serving,
whimsical and in fact immoral. It is axiomatic that the means would not justify the end nor the end justify
the means. Assuming damage to the present occupants will occur and assuming further that they are
entitled, the same should be ventilated in a different action against the lessor or landlord, and the
present petition cannot be the proper forum, otherwise, while it maybe argued that there is a multiplicity
of suit which actually is groundless, on the other hand, there will be only confusion of the issues to be
resolved by the Court. Well valid enough is to reiterate that the present petition is not the proper forum
for the intervenors to shop for whatever relief.
 In view of the above, the Order allowing the intervenors in this case is likewise hereby withdrawn for the
purposes above discussed. Consequently, the Motion to present additional parties is deemed denied,
and the Motion to Strike Or Expunge From The Records the Amended Answer In Intervention is
deemed granted as in fact the same become moot and academic with the elimination of the Intervenors
in this case.39

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

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

On February 27, 1991, the Court of Appeals issued a Temporary Restraining Order enjoining the respondent
Judge from implementing the questioned orders dated January 24, 1991 and April 19, 1989.40

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

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

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

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

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

II

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

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

THE HONORABLE COURT OF APPEALS (ELEVENTH DIVISION) ERRED IN HOLDING THAT

RESPONDENT JUDGE DID NOT ACT WITHOUT JURISDICTION AND WITH GRAVE ABUSE OF
JURISDICTION IN ISSUING THE WRIT OF PRELIMINARY MANDATORY INJUNCTION.

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

III

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

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

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

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

The contentions are untenable. Petitioners fail to recognize the basic distinctions underlying the principles of
dissolution, winding up and partition or distribution. The dissolution of a partnership is the change in the
relation of the parties caused by any partner ceasing to be associated in the carrying on, as might be
distinguished from the winding up, of its business. Upon its dissolution, the partnership continues and its legal
personality is retained until the complete winding up of its business culminating in its termination.46

The dissolution of the partnership did not mean that the juridical entity was immediately terminated and that the
distribution of the assets to its partners should perfunctorily follow. On the contrary, the dissolution simply
effected a change in the relationship among the partners. The partnership, although dissolved, continues to
exist until its termination, at which time the winding up of its affairs should have been completed and the net
partnership assets are partitioned and distributed to the partners.47

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

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

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

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

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

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

xxx xxx xxx

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

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

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

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

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

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

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

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

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

Moreover, a review of the records reveal that certain properties in question have already been sold as of 1987,
as evidenced by deeds of absolute sale executed by Jesus in favor of Reynaldo Navarro (p. 331, Rollo),
among others.
To ensure that no further disposition shall be made of the questioned assets and in view of the pending civil
case in the lower court, there is a compelling necessity to place all these properties and assets under the
management of a receivership committee. The receivership committee, which will provide active participation,
through a designated representative, on the part of all interested parties, can best protect the properties
involved and assure fairness and equity for all.

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

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

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

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

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

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

With respect to G.R. No. 100313.56

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

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

In his Comment, the respondent City Engineer, relying on the validity of the order of the trial court to padlock
the building, denied any impropriety in his compliance with the said order.
After a careful examination of the records on hand, the Court finds merit in the petition.

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

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

Contrary to these basic tenets, the trial court gave due course to the petition for mandamus, and granted the
prayer for the issuance of a writ of preliminary injunction on May 4, 1989, notwithstanding the fact that the
owner (herein petitioner Sy Yong Hu) of the building and its occupants60 were not impleaded as parties in the
case. Affirming the same, the Court of Appeals acknowledged that the lower court came out with the said order
upon the testimony of the lone witness for the respondent, in the person of the City Engineer, whose testimony
was not effectively traversed by the petitioners. This conclusion arrived at by the Court of Appeals is erroneous
in the face of the irrefutable fact that the herein petitioners were not made parties in the said case and,
consequently, had absolutely no opportunity to cross examine the witness of private respondent and to present
contradicting evidence.

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

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

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

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

Parenthetically, the trial court, in issuing the questioned order, ignored established principles relative to the
issuance of a Writ of Preliminary Injunction. For the issuance of the writ of preliminary injunction to be proper, it
must be shown that the invasion of the right sought to be protected is material and substantial, that the right of
complainant is clear and unmistakable and that there is an urgent and paramount necessity for the writ to
prevent serious damage.63
In light of the allegations supporting the prayer for the issuance of a writ of preliminary injunction, the Court is
at a loss as to the basis of the respondent judge in issuing the same. What is clear is that complainant (now
private respondent) therein, which happens to be a juridical person (Estate of Sy Yong Hu), made general
allegations of hazard and serious damage to the public due to violations of various provisions of the Building
Code, but without any showing of any grave damage or injury it was bound to suffer should the writ not issue.

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

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

WHEREFORE, the Resolution of the Court of Appeals in CA-G.R. No. 17070 is AFFIRMED and its Decision in
CA-G.R. No. 24189 REVERSED. No pronouncement as to costs.1âwphi1.nêt

SO ORDERED.
Article 1831

1. G.R. No. 70926 January 31, 1989

DAN FUE LEUNG, petitioner,

vs.
HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU, respondents.

GUTIERREZ, JR., J.:

The petitioner asks for the reversal of the decision of the then Intermediate Appellate Court in AC-G.R. No. CV-
00881 which affirmed the decision of the then Court of First Instance of Manila, Branch II in Civil Case No.
116725 declaring private respondent Leung Yiu a partner of petitioner Dan Fue Leung in the business of Sun
Wah Panciteria and ordering the petitioner to pay to the private respondent his share in the annual profits of
the said restaurant.

This case originated from a complaint filed by respondent Leung Yiu with the then Court of First Instance of
Manila, Branch II to recover the sum equivalent to twenty-two percent (22%) of the annual profits derived from
the operation of Sun Wah Panciteria since October, 1955 from petitioner Dan Fue Leung.

The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz, Manila, was established
sometime in October, 1955. It was registered as a single proprietorship and its licenses and permits were
issued to and in favor of petitioner Dan Fue Leung as the sole proprietor. Respondent Leung Yiu adduced
evidence during the trial of the case to show that Sun Wah Panciteria was actually a partnership and that he
was one of the partners having contributed P4,000.00 to its initial establishment.

The private respondents evidence is summarized as follows:

About the time the Sun Wah Panciteria started to become operational, the private respondent gave P4,000.00
as his contribution to the partnership. This is evidenced by a receipt identified as Exhibit "A" wherein the
petitioner acknowledged his acceptance of the P4,000.00 by affixing his signature thereto. The receipt was
written in Chinese characters so that the trial court commissioned an interpreter in the person of Ms. Florence
Yap to translate its contents into English. Florence Yap issued a certification and testified that the translation to
the best of her knowledge and belief was correct. The private respondent identified the signature on the receipt
as that of the petitioner (Exhibit A-3) because it was affixed by the latter in his (private respondents') presence.
Witnesses So Sia and Antonio Ah Heng corroborated the private respondents testimony to the effect that they
were both present when the receipt (Exhibit "A") was signed by the petitioner. So Sia further testified that he
himself received from the petitioner a similar receipt (Exhibit D) evidencing delivery of his own investment in
another amount of P4,000.00 An examination was conducted by the PC Crime Laboratory on orders of the trial
court granting the private respondents motion for examination of certain documentary exhibits. The signatures
in Exhibits "A" and 'D' when compared to the signature of the petitioner appearing in the pay envelopes of
employees of the restaurant, namely Ah Heng and Maria Wong (Exhibits H, H-1 to H-24) showed that the
signatures in the two receipts were indeed the signatures of the petitioner.

Furthermore, the private respondent received from the petitioner the amount of P12,000.00 covered by the
latter's Equitable Banking Corporation Check No. 13389470-B from the profits of the operation of the
restaurant for the year 1974. Witness Teodulo Diaz, Chief of the Savings Department of the China Banking
Corporation testified that said check (Exhibit B) was deposited by and duly credited to the private respondents
savings account with the bank after it was cleared by the drawee bank, the Equitable Banking Corporation.
Another witness Elvira Rana of the Equitable Banking Corporation testified that the check in question was in
fact and in truth drawn by the petitioner and debited against his own account in said bank. This fact was clearly
shown and indicated in the petitioner's statement of account after the check (Exhibit B) was duly cleared. Rana
further testified that upon clearance of the check and pursuant to normal banking procedure, said check was
returned to the petitioner as the maker thereof.

The petitioner denied having received from the private respondent the amount of P4,000.00. He contested and
impugned the genuineness of the receipt (Exhibit D). His evidence is summarized as follows:

The petitioner did not receive any contribution at the time he started the Sun Wah Panciteria. He used his
savings from his salaries as an employee at Camp Stotsenberg in Clark Field and later as waiter at the Toho
Restaurant amounting to a little more than P2,000.00 as capital in establishing Sun Wah Panciteria. To bolster
his contention that he was the sole owner of the restaurant, the petitioner presented various government
licenses and permits showing the Sun Wah Panciteria was and still is a single proprietorship solely owned and
operated by himself alone. Fue Leung also flatly denied having issued to the private respondent the receipt
(Exhibit G) and the Equitable Banking Corporation's Check No. 13389470 B in the amount of P12,000.00
(Exhibit B).

As between the conflicting evidence of the parties, the trial court gave credence to that of the plaintiffs. Hence,
the court ruled in favor of the private respondent. The dispositive portion of the decision reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, ordering the
latter to deliver and pay to the former, the sum equivalent to 22% of the annual profit derived from the
operation of Sun Wah Panciteria from October, 1955, until fully paid, and attorney's fees in the amount of
P5,000.00 and cost of suit. (p. 125, Rollo)

The private respondent filed a verified motion for reconsideration in the nature of a motion for new trial and, as
supplement to the said motion, he requested that the decision rendered should include the net profit of the Sun
Wah Panciteria which was not specified in the decision, and allow private respondent to adduce evidence so
that the said decision will be comprehensively adequate and thus put an end to further litigation.

The motion was granted over the objections of the petitioner. After hearing the trial court rendered an amended
decision, the dispositive portion of which reads:

FOR ALL THE FOREGOING CONSIDERATIONS, the motion for reconsideration filed by the plaintiff, which
was granted earlier by the Court, is hereby reiterated and the decision rendered by this Court on September
30, 1980, is hereby amended. The dispositive portion of said decision should read now as follows:

WHEREFORE, judgment is hereby rendered, ordering the plaintiff (sic) and against the defendant, ordering the
latter to pay the former the sum equivalent to 22% of the net profit of P8,000.00 per day from the time of
judicial demand, until fully paid, plus the sum of P5,000.00 as and for attorney's fees and costs of suit. (p. 150,
Rollo)

The petitioner appealed the trial court's amended decision to the then Intermediate Appellate Court. The
questioned decision was further modified by the appellate court. The dispositive portion of the appellate court's
decision reads:

WHEREFORE, the decision appealed from is modified, the dispositive portion thereof reading as follows:

1. Ordering the defendant to pay the plaintiff by way of temperate damages 22% of the net profit of P2,000.00
a day from judicial demand to May 15, 1971;

2. Similarly, the sum equivalent to 22% of the net profit of P8,000.00 a day from May 16, 1971 to August 30,
1975;

3. And thereafter until fully paid the sum equivalent to 22% of the net profit of P8,000.00 a day.

Except as modified, the decision of the court a quo is affirmed in all other respects. (p. 102, Rollo)
Later, the appellate court, in a resolution, modified its decision and affirmed the lower court's decision. The
dispositive portion of the resolution reads:

WHEREFORE, the dispositive portion of the amended judgment of the court a quo reading as follows:

WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendant, ordering the latter to
pay to the former the sum equivalent to 22% of the net profit of P8,000.00 per day from the time of judicial
demand, until fully paid, plus the sum of P5,000.00 as and for attorney's fees and costs of suit.

is hereby retained in full and affirmed in toto it being understood that the date of judicial demand is July 13,
1978. (pp. 105-106, Rollo).

In the same resolution, the motion for reconsideration filed by petitioner was denied.

Both the trial court and the appellate court found that the private respondent is a partner of the petitioner in the
setting up and operations of the panciteria. While the dispositive portions merely ordered the payment of the
respondents share, there is no question from the factual findings that the respondent invested in the business
as a partner. Hence, the two courts declared that the private petitioner is entitled to a share of the annual
profits of the restaurant. The petitioner, however, claims that this factual finding is erroneous. Thus, the
petitioner argues: "The complaint avers that private respondent extended 'financial assistance' to herein
petitioner at the time of the establishment of the Sun Wah Panciteria, in return of which private respondent
allegedly will receive a share in the profits of the restaurant. The same complaint did not claim that private
respondent is a partner of the business. It was, therefore, a serious error for the lower court and the Hon.
Intermediate Appellate Court to grant a relief not called for by the complaint. It was also error for the Hon.
Intermediate Appellate Court to interpret or construe 'financial assistance' to mean the contribution of capital by
a partner to a partnership;" (p. 75, Rollo)

The pertinent portions of the complaint state:

xxx xxx xxx

2. That on or about the latter (sic) of September, 1955, defendant sought the financial assistance of plaintiff in
operating the defendant's eatery known as Sun Wah Panciteria, located in the given address of defendant; as
a return for such financial assistance. plaintiff would be entitled to twenty-two percentum (22%) of the
annual profit derived from the operation of the said panciteria;

3. That on October 1, 1955, plaintiff delivered to the defendant the sum of four thousand pesos (P4,000.00),
Philippine Currency, of which copy for the receipt of such amount, duly acknowledged by the defendant is
attached hereto as Annex "A", and form an integral part hereof; (p. 11, Rollo)

In essence, the private respondent alleged that when Sun Wah Panciteria was established, he gave P4,000.00
to the petitioner with the understanding that he would be entitled to twenty-two percent (22%) of the annual
profit derived from the operation of the said panciteria. These allegations, which were proved, make the private
respondent and the petitioner partners in the establishment of Sun Wah Panciteria because Article 1767 of the
Civil Code provides that "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".

Therefore, the lower courts did not err in construing the complaint as one wherein the private respondent
asserted his rights as partner of the petitioner in the establishment of the Sun Wah Panciteria, notwithstanding
the use of the term financial assistance therein. We agree with the appellate court's observation to the effect
that "... given its ordinary meaning, financial assistance is the giving out of money to another without the
expectation of any returns therefrom'. It connotes an ex gratia dole out in favor of someone driven into a state
of destitution. But this circumstance under which the P4,000.00 was given to the petitioner does not obtain in
this case.' (p. 99, Rollo) The complaint explicitly stated that "as a return for such financial assistance, plaintiff
(private respondent) would be entitled to twenty-two percentum (22%) of the annual profit derived from the
operation of the said panciteria.' (p. 107, Rollo) The well-settled doctrine is that the '"... nature of the action filed
in court is determined by the facts alleged in the complaint as constituting the cause of action." (De Tavera v.
Philippine Tuberculosis Society, Inc., 113 SCRA 243; Alger Electric, Inc. v. Court of Appeals, 135 SCRA 37).

The appellate court did not err in declaring that the main issue in the instant case was whether or not the
private respondent is a partner of the petitioner in the establishment of Sun Wah Panciteria.

The petitioner also contends that the respondent court gravely erred in giving probative value to the PC Crime
Laboratory Report (Exhibit "J") on the ground that the alleged standards or specimens used by the PC Crime
Laboratory in arriving at the conclusion were never testified to by any witness nor has any witness
identified the handwriting in the standards or specimens belonging to the petitioner. The supposed standards
or specimens of handwriting were marked as Exhibits "H" "H-1" to "H-24" and admitted as evidence for the
private respondent over the vigorous objection of the petitioner's counsel.

The records show that the PC Crime Laboratory upon orders of the lower court examined the signatures in the
two receipts issued separately by the petitioner to the private respondent and So Sia (Exhibits "A" and "D") and
compared the signatures on them with the signatures of the petitioner on the various pay envelopes (Exhibits
"H", "H-1" to 'H-24") of Antonio Ah Heng and Maria Wong, employees of the restaurant. After the usual
examination conducted on the questioned documents, the PC Crime Laboratory submitted its findings (Exhibit
J) attesting that the signatures appearing in both receipts (Exhibits "A" and "D") were the signatures of the
petitioner.

The records also show that when the pay envelopes (Exhibits "H", "H-1" to "H-24") were presented by the
private respondent for marking as exhibits, the petitioner did not interpose any objection. Neither did the
petitioner file an opposition to the motion of the private respondent to have these exhibits together with the two
receipts examined by the PC Crime Laboratory despite due notice to him. Likewise, no explanation has been
offered for his silence nor was any hint of objection registered for that purpose.

Under these circumstances, we find no reason why Exhibit "J" should be rejected or ignored. The records
sufficiently establish that there was a partnership.

The petitioner raises the issue of prescription. He argues: The Hon. Respondent Intermediate Appellate Court
gravely erred in not resolving the issue of prescription in favor of petitioner. The alleged receipt is dated
October 1, 1955 and the complaint was filed only on July 13, 1978 or after the lapse of twenty-two (22) years,
nine (9) months and twelve (12) days. From October 1, 1955 to July 13, 1978, no written demands were ever
made by private respondent.

The petitioner's argument is based on Article 1144 of the Civil Code which provides:

Art. 1144. The following actions must be brought within ten years from the time the right of
action accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;

(3) Upon a judgment.

in relation to Article 1155 thereof which provides:

Art. 1155. The prescription of actions is interrupted when they are filed before the court, when
there is a written extra-judicial demand by the creditor, and when there is any written
acknowledgment of the debt by the debtor.'
The argument is not well-taken.

The private respondent is a partner of the petitioner in Sun Wah Panciteria. The requisites of a partnership
which are — 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 (Article 1767, Civil
Code; Yulo v. Yang Chiao Cheng, 106 Phil. 110)-have been established. As stated by the respondent, a
partner shares not only in profits but also in the losses of the firm. If excellent relations exist among the
partners at the start of 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. It would be incorrect to state that
if a partner does not assert his rights anytime within ten years from the start of operations, such rights are
irretrievably lost. The private respondent's cause of action is premised upon the failure of the petitioner to give
him the agreed profits in the operation of Sun Wah Panciteria. In effect the private respondent was asking for
an accounting of his interests in the partnership.

It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which is applicable. Article 1842
states:

The right to an account of his interest shall accrue to any partner, or his legal representative as against the
winding up partners or the surviving partners or the person or partnership continuing the business, at the date
of dissolution, in the absence or any agreement to the contrary.

Regarding the prescriptive period within which the private respondent may demand an accounting, Articles
1806, 1807, and 1809 show that the right to demand an accounting exists as long as the partnership exists.
Prescription begins to run only upon the dissolution of the partnership when the final accounting is done.

Finally, the petitioner assails the appellate court's monetary awards in favor of the private respondent for being
excessive and unconscionable and above the claim of private respondent as embodied in his complaint and
testimonial evidence presented by said private respondent to support his claim in the complaint.

Apart from his own testimony and allegations, the private respondent presented the cashier of Sun Wah
Panciteria, a certain Mrs. Sarah L. Licup, to testify on the income of the restaurant.

Mrs. Licup stated:

ATTY. HIPOLITO (direct examination to Mrs. Licup).

Q Mrs. Witness, you stated that among your duties was that you were in charge of the custody of the cashier's
box, of the money, being the cashier, is that correct?

A Yes, sir.

Q So that every time there is a customer who pays, you were the one who accepted the money and you gave
the change, if any, is that correct?

A Yes.

Q Now, after 11:30 (P.M.) which is the closing time as you said, what do you do with the money?

A We balance it with the manager, Mr. Dan Fue Leung.

ATTY. HIPOLITO:

I see.

Q So, in other words, after your job, you huddle or confer together?
A Yes, count it all. I total it. We sum it up.

Q Now, Mrs. Witness, in an average day, more or less, will you please tell us, how much is the gross income of
the restaurant?

A For regular days, I received around P7,000.00 a day during my shift alone and during pay days I receive
more than P10,000.00. That is excluding the catering outside the place.

Q What about the catering service, will you please tell the Honorable Court how many times a week were there
catering services?

A Sometimes three times a month; sometimes two times a month or more.

xxx xxx xxx

Q Now more or less, do you know the cost of the catering service?

A Yes, because I am the one who receives the payment also of the catering.

Q How much is that?

A That ranges from two thousand to six thousand pesos, sir.

Q Per service?

A Per service, Per catering.

Q So in other words, Mrs. witness, for your shift alone in a single day from 3:30 P.M. to 11:30 P.M. in the
evening the restaurant grosses an income of P7,000.00 in a regular day?

A Yes.

Q And ten thousand pesos during pay day.?

A Yes.

(TSN, pp. 53 to 59, inclusive, November 15,1978)

xxx xxx xxx

COURT:

Any cross?

ATTY. UY (counsel for defendant):

No cross-examination, Your Honor. (T.S.N. p. 65, November 15, 1978). (Rollo, pp. 127-128)

The statements of the cashier were not rebutted. Not only did the petitioner's counsel waive the cross-
examination on the matter of income but he failed to comply with his promise to produce pertinent records.
When a subpoena duces tecum was issued to the petitioner for the production of their records of sale, his
counsel voluntarily offered to bring them to court. He asked for sufficient time prompting the court to cancel all
hearings for January, 1981 and reset them to the later part of the following month. The petitioner's counsel
never produced any books, prompting the trial court to state:
Counsel for the defendant admitted that the sales of Sun Wah were registered or recorded in the daily sales
book. ledgers, journals and for this purpose, employed a bookkeeper. This inspired the Court to ask counsel
for the defendant to bring said records and counsel for the defendant promised to bring those that were
available. Seemingly, that was the reason why this case dragged for quite sometime. To bemuddle the issue,
defendant instead of presenting the books where the same, etc. were recorded, presented witnesses who
claimed to have supplied chicken, meat, shrimps, egg and other poultry products which, however, did not show
the gross sales nor does it prove that the same is the best evidence. This Court gave warning to the
defendant's counsel that if he failed to produce the books, the same will be considered a waiver on the part of
the defendant to produce the said books inimitably showing decisive records on the income of the eatery
pursuant to the Rules of Court (Sec. 5(e) Rule 131). "Evidence willfully suppressed would be adverse if
produced." (Rollo, p. 145)

The records show that the trial court went out of its way to accord due process to the petitioner.

The defendant was given all the chance to present all conceivable witnesses, after the plaintiff has rested his
case on February 25, 1981, however, after presenting several witnesses, counsel for defendant promised that
he will present the defendant as his last witness. Notably there were several postponement asked by counsel
for the defendant and the last one was on October 1, 1981 when he asked that this case be postponed for 45
days because said defendant was then in Hongkong and he (defendant) will be back after said period. The
Court acting with great concern and understanding reset the hearing to November 17, 1981. On said date, the
counsel for the defendant who again failed to present the defendant asked for another postponement, this time
to November 24, 1981 in order to give said defendant another judicial magnanimity and substantial due
process. It was however a condition in the order granting the postponement to said date that if the defendant
cannot be presented, counsel is deemed to have waived the presentation of said witness and will submit his
case for decision.

On November 24, 1981, there being a typhoon prevailing in Manila said date was declared a partial non-
working holiday, so much so, the hearing was reset to December 7 and 22, 1981. On December 7, 1981, on
motion of defendant's counsel, the same was again reset to December 22, 1981 as previously scheduled
which hearing was understood as intransferable in character. Again on December 22, 1981, the defendant's
counsel asked for postponement on the ground that the defendant was sick. the Court, after much tolerance
and judicial magnanimity, denied said motion and ordered that the case be submitted for resolution based on
the evidence on record and gave the parties 30 days from December 23, 1981, within which to file their
simultaneous memoranda. (Rollo, pp. 148-150)

The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila in front of the Republic Supermarket.
It is near the corner of Claro M. Recto Street. According to the trial court, it is in the heart of Chinatown where
people who buy and sell jewelries, businessmen, brokers, manager, bank employees, and people from all
walks of life converge and patronize Sun Wah.

There is more than substantial evidence to support the factual findings of the trial court and the appellate court.
If the respondent court awarded damages only from judicial demand in 1978 and not from the opening of the
restaurant in 1955, it is because of the petitioner's contentions that all profits were being plowed back into the
expansion of the business. There is no basis in the records to sustain the petitioners contention that the
damages awarded are excessive. Even if the Court is minded to modify the factual findings of both the trial
court and the appellate court, it cannot refer to any portion of the records for such modification. There is no
basis in the records for this Court to change or set aside the factual findings of the trial court and the appellate
court. The petitioner was given every opportunity to refute or rebut the respondent's submissions but, after
promising to do so, it deliberately failed to present its books and other evidence.

The resolution of the Intermediate Appellate Court ordering the payment of the petitioner's obligation shows
that the same continues until fully paid. The question now arises as to whether or not the payment of a share of
profits shall continue into the future with no fixed ending date.

Considering the facts of this case, the Court may decree a dissolution of the partnership under Article 1831 of
the Civil Code which, in part, provides:
Art. 1831. On application by or for a partner the court shall decree a dissolution whenever:

xxx xxx xxx

(3) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business;

(4) A partner willfully or persistently commits a breach of the partnership agreement, or otherwise so conducts
himself in matters relating to the partnership business that it is not reasonably practicable to carry on the
business in partnership with him;

xxx xxx xxx

(6) Other circumstances render a dissolution equitable.

There shall be a liquidation and winding up of partnership affairs, return of capital, and other incidents of
dissolution because the continuation of the partnership has become inequitable.

WHEREFORE, the petition for review is hereby DISMISSED for lack of merit. The decision of the respondent
court is AFFIRMED with a MODIFICATION that as indicated above, the partnership of the parties is ordered
dissolved.

SO ORDERED.

Article 1839

1. G.R. No. L-20341 May 14, 1966

DR. SIMEON S. CLARIDADES, plaintiff and appellant,

vs.
VICENTE C. MERCADER and PERFECTO FERNANDEZ, defendants and appellees,
GUILLERMO REYES, intervenor and appellant,
ARMANDO H. ASUNCION, intervenor and appellee,
ALFREDO J. ZULUETA and YAP LEDING, intervenors and appellees.

Francisco S. Dizon for plaintiffs and appellants.

Gonzales, Sr. and Munsayac for defendants and appellees.
Jose F. Tiburcio for intervenors and appellees Zulueta and Leding.
Toribio T. Bella for intervenor and appellee Asuncion.

CONCEPCION, J.:

Appeal from an order of dismissal of the Court of First Instance of Bulacan based upon the ground that venue
had been improperly laid.

Petitioner, Dr. Simeon S. Claridades brought this action against Vicente C. Mercader and Perfecto Fernandez
for the dissolution of a partnership allegedly existing between them and an accounting of the operation of the
partnership, particularly a fishpond located in Sta. Cruz, Marinduque, which was the main asset of the
partnership, from September 1954, as well as to recover moral and exemplary damages, in addition to
attorney's fees and costs.

In their answer the defendants admitted the existence of the partnership and alleged that its operation had
been so far unproductive. By way of special defense, they alleged, also, that there is an impending auction
sale of said fishpond due to delinquency in the payment of taxes owing to lack of funds and plaintiff's failure to
contribute what is due from him. Defendants, likewise, set up a counter-claim for damages, by reason of the
institution of this action, and for attorney's fees and costs.

Subsequently, Guillermo Reyes was allowed to intervene for the purpose of recovering a sum of money
allegedly due him for services rendered as foreman of said fishpond, plus damages. Later, one Armando
Asuncion succeeded in intervening as the alleged assignee of the interest of defendant. Mercader in said
partnership and fishpond. Thereafter, on plaintiff's motion, the lower court appointed a receiver of the fishpond.
Upon the other hand, Alfredo Zulueta and his wife Yap Leding sought permission to intervene, still later,
alleging that they are the owners of said fishpond, having bought one-half (½)of it from Benito Regencia, who,
in turn, had acquired it from Asuncion, who had purchased the fishpond from defendant Mercader, and the
other half having been assigned to him directly by Asuncion.

Despite plaintiff's opposition thereto, said permission was granted in an order dated February 8, 1962, which,
likewise gave the Zuluetas ten (10) days within which to file such pleading as they may deem necessary for the
protection of their rights. Soon thereafter, or on February 12, 1962, the Zuluetas filed a motion to dismiss upon
the ground that the complaint states no cause of action; that venue has been improperly laid; and that plaintiff
complaint is moot and academic. Acting upon the motion, on March 2, 1962, the lower court granted the same
upon the ground of improper venue. A reconsideration of this order having been denied, plaintiff and intervenor
Reyes have interposed the present appeal.

The only question for determination before us is whether or not this action should have been instituted, not in
the Court of First Instance of Bulacan, but in that of Marinduque, where the aforementioned fishpond is
located. The lower court answered this question in the affirmative, upon the ground that the subject matter of
this case is the possessor of said fishpond, because plaintiff prays in the complaint that the assets of the
partnership, including said fishpond be sold, that the proceeds of the sale be applied to the payment of the
debts of the partnership, and that the residue be distributed equally among the partners; that, as intervenor,
Asuncion claims to have an interest in said fishpond; that the same has been placed under a receivership; and
that the Zuluetas claim to be the exclusive owners of the fishpond aforementioned.

The conclusion drawn from these premises is erroneous. Plaintiff's complaint merely seeks the liquidation of
his partnership with defendants Fernandez and Mercader. This is obviously a personal action, which may be
brought in the place of residence of either the plaintiff or the defendants. Since plaintiff is a resident of Bulacan,
he had the right to bring the action in the court of first instance of that province.1 What is more, although
defendants Fernandez and Mercader reside in Marinduque, they did not object to the venue. In other words,
they waived whatever rights they had, if any, to question it.2

The fact that plaintiff prays for the sale of the assets of the partnership, including the fishpond in question, did
not change the nature or character of action, such sale being merely a necessary incident of the liquidation of
the partnership, which should precede and/or is part of its process of dissolution. Neither plaintiff's complaint
nor the answer filed by defendants Fernandez and Mercader questioned the title to said property or the
possession thereof.

Again, the situation was not changed materially by the Intervention either of Asuncion or of the Zuluetas, for, as
alleged successors to the interest Mercader in the fishpond, they, at best, stepped into his shoes. Again, the
nature of an action is determined by the allegations of the complaint.3 At any rate, since the venue was
properly laid when the complaint was filed, said venue cannot, subsequently, become improper in
consequence of issues later raised by any of the intervenors. The court having legally acquired authority to
hear and decide the case, it can not be divested of that authority by said intervenors. "An intervention cannot
alter the nature of the action and the issues joined by the original parties thereto." 4

Wherefore, the order appealed from should be as it is hereby set aside and the case remanded to the lower
court for further proceedings, with costs against intervenors appellees, Armando H. Asuncion and Mr. and Mrs.
Alfredo J. Zulueta. It is so ordered.
2. G.R. No. 109248 July 3, 1995

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L.
MISA, respondents

VITUG, J.:

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

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

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

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

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

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

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

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

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

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

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

"1. Decree the formal dissolution and order the immediate liquidation of (the partnership of) Bito, Misa &
Lozada;
"2. Order the respondents to deliver or pay for petitioner's share in the partnership assets plus the profits, rent
or interest attributable to the use of his right in the assets of the dissolved partnership;

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

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

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

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

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

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

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

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

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

WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby REVERSED insofar as it
concludes that the partnership of Bito, Misa & Lozada has not been dissolved. The case is hereby
REMANDED to the Hearing Officer for determination of the respective rights and obligations of the parties.2

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

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

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

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

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

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

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

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

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

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

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

"5. DURATION. The partnership shall continue so long as mutually satisfactory and upon the death or legal
incapacity of one of the partners, shall be continued by the surviving partners."

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

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

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

The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The
right to choose with whom a person wishes to associate himself is the very foundation and essence of that
partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve, along with
each partner's capability to give it, and the absence of a cause for dissolution provided by the law itself. Verily,
any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must,
however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the
partnership4 but that it can result in a liability for damages.5
In passing, neither would the presence of a period for its specific duration or the statement of a particular
purpose for its creation prevent the dissolution of any partnership by an act or will of a partner.6 Among
partners,7 mutual agency arises and the doctrine of delectus personae allows them to have the power,
although not necessarily theright, to dissolve the partnership. An unjustified dissolution by the partner can
subject him to a possible action for damages.

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

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

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

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

On the third and final issue, we accord due respect to the appellate court and respondent Commission on their
common factual finding, i.e., that Attorney Misa did not act in bad faith. Public respondents viewed his
withdrawal to have been spurred by "interpersonal conflict" among the partners. It would not be right, we
agree, to let any of the partners remain in the partnership under such an atmosphere of animosity; certainly,
not against their will. 12 Indeed, for as long as the reason for withdrawal of a partner is not contrary to the
dictates of justice and fairness, nor for the purpose of unduly visiting harm and damage upon the
partnership, bad faith cannot be said to characterize the act. Bad faith, in the context here used, is no different
from its normal concept of a conscious and intentional design to do a wrongful act for a dishonest purpose or
moral obliquity.

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

SO ORDERED.
3. G.R. No. 167379 June 27, 2006

PRIMELINK PROPERTIES AND DEVELOPMENT CORPORATION and RAFAELITO W.

LOPEZ, Petitioners,
vs.
MA. CLARITA T. LAZATIN-MAGAT, JOSE SERAFIN T. LAZATIN, JAIME TEODORO T. LAZATIN and
JOSE MARCOS T. LAZATIN, Respondents.

DECISION

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure of the
Decision1of the Court of Appeals (CA) in CA-G.R. CV No. 69200 and its Resolution2 denying petitioners’
motion for reconsideration thereof.

The factual and procedural antecedents are as follows:

Primelink Properties and Development Corporation (Primelink for brevity) is a domestic corporation engaged in
real estate development. Rafaelito W. Lopez is its President and Chief Executive Officer. 3

Ma. Clara T. Lazatin-Magat and her brothers, Jose Serafin T. Lazatin, Jaime T. Lazatin and Jose Marcos T.
Lazatin (the Lazatins for brevity), are co-owners of two (2) adjoining parcels of land, with a combined area of
30,000 square meters, located in Tagaytay City and covered by Transfer Certificate of Title (TCT) No. T-
108484 of the Register of Deeds of Tagaytay City.

On March 10, 1994, the Lazatins and Primelink, represented by Lopez, in his capacity as President, entered
into a Joint Venture Agreement5 (JVA) for the development of the aforementioned property into a residential
subdivision to be known as "Tagaytay Garden Villas." Under the JVA, the Lazatin siblings obliged themselves
to contribute the two parcels of land as their share in the joint venture. For its part, Primelink undertook to
contribute money, labor, personnel, machineries, equipment, contractor’s pool, marketing activities, managerial
expertise and other needed resources to develop the property and construct therein the units for sale to the
public. Specifically, Primelink bound itself to accomplish the following, upon the execution of the deed:

a.) Survey the land, and prepare the projects master plans, engineering designs, structural and architectural
plans, site development plans, and such other need plans in accordance with existing laws and the rules and
regulations of appropriate government institutions, firms or agencies;

b.) Secure and pay for all the licenses, permits and clearances needed for the projects;

c.) Furnish all materials, equipment, labor and services for the development of the land in preparation for the
construction and sale of the different types of units (single-detached, duplex/twin, cluster and row house);

d.) Guarantee completion of the land development work if not prevented by force majeure or fortuitous event or
by competent authority, or other unavoidable circumstances beyond the DEVELOPER’S control, not to exceed
three years from the date of the signing of this Joint Venture Agreement, except the installation of the electrical
facilities which is solely MERALCO’S responsibility;

e.) Provide necessary manpower resources, like executive and managerial officers, support personnel and
marketing staff, to handle all services related to land and housing development (administrative and
construction) and marketing (sales, advertising and promotions).6

The Lazatins and Primelink covenanted that they shall be entitled to draw allowances/advances as follows:
1. During the first two years of the Project, the DEVELOPER and the LANDOWNER can draw allowances or
make advances not exceeding a total of twenty percent (20%) of the net revenue for that period, on the basis
of sixty percent (60%) for the DEVELOPER and forty percent (40%) for the LANDOWNERS.

The drawing allowances/advances are limited to twenty percent (20%) of the net revenue for the first two
years, in order to have sufficient reserves or funds to protect and/or guarantee the construction and completion
of the different types of units mentioned above.

2. After two years, the DEVELOPER and the LANDOWNERS shall be entitled to drawing allowances and/or
advances equivalent to sixty percent (60%) and forty percent (40%), respectively, of the total net revenue or
income of the sale of the units.7

They also agreed to share in the profits from the joint venture, thus:

1. The DEVELOPER shall be entitled to sixty percent (60%) of the net revenue or income of the Joint Venture
project, after deducting all expenses incurred in connection with the land development (such as administrative
management and construction expenses), and marketing (such as sales, advertising and promotions), and

2. The LANDOWNERS shall be entitled to forty percent (40%) of the net revenue or income of the Joint
Venture project, after deducting all the above-mentioned expenses.8

Primelink submitted to the Lazatins its Projection of the Sales-Income-Cost of the project:

SALES-INCOME-COST PROJECTION

SELLING PRICE COST PRICE DIFFERENCE INCOME

CLUSTER:
A1 3,200,000 - A2 1,260,000 = 1,940,000 x 24 = P 46,560,000.00
TWIN:
B1 2,500,000 - B2 960,000 = 1,540,000 x 24 = 36,960,000.00
SINGLE:
C1 3,500,000 - C2 1,400,000 = 2,100,000 x 16 = 33,600,000.00
ROW-TYPE TOWNHOMES:
D1 1,600,000 - D2 700,000 = 900,000 x 24 = 21,600,000.00

₱138,720,000.00
(GROSS) Total Cash Price (A1+B1+C1+D1) = ₱231,200,000.00
Total Building Expense (A2+B2+C2+D2) = 92,480,000.00
COMPUTATION OF ADD’L. INCOME ON INTEREST
TCP x 30% D/P = P 69,360,000 P 69,360,000.00
Balance = 70% = 161,840,000
x .03069 x 48 = P238,409,740 238,409,740.00
Total Amount (TCP + int. earn.) P307,769,740.00
EXPENSES:
 less: A Building expenses P 92,480,000.00
B Commission (8% of TCP) 18,496,000.00
C Admin. & Mgmt. expenses (2% of TCP) 4,624,000.00
D Advertising & Promo exp. (2% of TCP) 4,624,000.00
E Building expenses for the open
spaces and Amenities (Development
cost not incl. Housing) 400 x 30,000 sqms. 12,000,000.00

TOTAL EXPENSES (A+B+C+D+E) P132,224,000.00

RECONCILIATION OF INCOME VS. EXPENSES
Total Projected Income (incl. income from interest earn.) P307,769,740.00

less: 132,224,000.00
Total Expenses P175,545,740.009

The parties agreed that any unsettled or unresolved misunderstanding or conflicting opinions between the
parties relative to the interpretation, scope and reach, and the enforcement/implementation of any provision of
the agreement shall be referred to Voluntary Arbitration in accordance with the Arbitration Law.10

The Lazatins agreed to subject the title over the subject property to an escrow agreement. Conformably with
the escrow agreement, the owner’s duplicate of the title was deposited with the China Banking
Corporation.11 However, Primelink failed to immediately secure a Development Permit from Tagaytay City, and
applied the permit only on August 30, 1995. On October 12, 1995, the City issued a Development Permit to
Primelink.12

In a Letter13 dated April 10, 1997, the Lazatins, through counsel, demanded that Primelink comply with its
obligations under the JVA, otherwise the appropriate action would be filed against it to protect their rights and
interests. This impelled the officers of Primelink to meet with the Lazatins and enabled the latter to review its
business records/papers. In another Letter14 dated October 22, 1997, the Lazatins informed Primelink that they
had decided to rescind the JVA effective upon its receipt of the said letter. The Lazatins demanded that
Primelink cease and desist from further developing the property.

Subsequently, on January 19, 1998, the Lazatins filed, with the Regional Trial Court (RTC) of Tagaytay City,
Branch 18, a complaint for rescission accounting and damages, with prayer for temporary restraining order
and/or preliminary injunction against Primelink and Lopez. The case was docketed as Civil Case No. TG-1776.
Plaintiffs alleged, among others, that, despite the lapse of almost four (4) years from the execution of the JVA
and the delivery of the title and possession of the land to defendants, the land development aspect of the
project had not yet been completed, and the construction of the housing units had not yet made any headway,
based on the following facts, namely: (a) of the 50 housing units programmed for Phase I, only the following
types of houses appear on the site in these condition: (aa) single detached, one completed and two units
uncompleted; (bb) cluster houses, one unit nearing completion; (cc) duplex, two units completed and two units
unfinished; and (dd) row houses, two units, completed; (b) in Phase II thereof, all that was done by the
defendants was to grade the area; the units so far constructed had been the object of numerous complaints by
their owners/purchasers for poor workmanship and the use of sub-standard materials in their construction,
thus, undermining the project’s marketability. Plaintiffs also alleged that defendants had, without justifiable
reason, completely disregarded previously agreed accounting and auditing procedures, checks and balances
system installed for the mutual protection of both parties, and the scheduled regular meetings were seldom
held to the detriment and disadvantage of plaintiffs. They averred that they sent a letter through counsel,
demanding compliance of what was agreed upon under the agreement but defendants refused to heed said
demand. After a succession of letters with still no action from defendants, plaintiffs sent a letter on October 22,
1997, a letter formally rescinding the JVA.

Plaintiffs also claimed that in a sales-income-costs projection prepared and submitted by defendants, they
(plaintiffs) stood to receive the amount of P70,218,296.00 as their net share in the joint venture project; to date,
however, after almost four (4) years and despite the undertaking in the JVA that plaintiffs shall initially get 20%
of the agreed net revenue during the first two (2) years (on the basis of the 60%-40% sharing) and their full
40% share thereafter, defendants had yet to deliver these shares to plaintiffs which by conservative estimates
would amount to no less than P40,000,000.00.15

Plaintiffs prayed that, after due proceedings, judgment be rendered in their favor, thus:

WHEREFORE, it is respectfully prayed of this Honorable Court that a temporary restraining order be forthwith
issued enjoining the defendants to immediately stop their land development, construction and marketing of the
housing units in the aforesaid project; after due proceedings, to issue a writ of preliminary injunction enjoining
and prohibiting said land development, construction and marketing of housing units, pending the disposition of
the instant case.

After trial, a decision be rendered:

1. Rescinding the Joint Venture Agreement executed between the plaintiffs and the defendants;
2. Immediately restoring to the plaintiffs possession of the subject parcels of land;
3. Ordering the defendants to render an accounting of all income generated as well as expenses incurred and
disbursement made in connection with the project;
4. Making the Writ of Preliminary Injunction permanent;
5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount Forty Million Pesos
(P40,000,000.00) in actual and/or compensatory damages;
6. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of Two Million Pesos
(P2,000,000.00) in exemplary damages;
7. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount equivalent to ten percent
(10%) of the total amount due as and for attorney’s fees; and
8. To pay the costs of this suit.

Other reliefs and remedies as are just and equitable are likewise being prayed for.16

Defendants opposed plaintiffs’ plea for a writ of preliminary injunction on the ground that plaintiffs’ complaint
was premature, due to their failure to refer their complaint to a Voluntary Arbitrator pursuant to the JVA in
relation to Section 2 of Republic Act No. 876 before filing their complaint in the RTC. They prayed for the
dismissal of the complaint under Section 1(j), Rule 16 of the Rules of Court:

WHEREFORE, it is respectfully prayed that an Order be issued:

a) dismissing the Complaint on the basis of Section 1(j), Rule 16 of the aforecited Rules of Court, or, in the
alternative,

b) requiring the plaintiffs to make initiatory step for arbitration by filing the demand to arbitrate, and then asking
the parties to resolve their controversies, pursuant to the Arbitration Law, or in the alternative;

c) staying or suspending the proceedings in captioned case until the completion of the arbitration, and

d) denying the plaintiffs’ prayer for the issuance of a temporary restraining order or writ of preliminary
injunction.

Other reliefs and remedies just and equitable in the premises are prayed for.17
In the meantime, before the expiration of the reglementary period to answer the complaint, defendants,
invoking their counsel’s heavy workload, prayed for a 15-day extension18 within which to file their answer. The
additional time prayed for was granted by the RTC.19 However, instead of filing their answer, defendants
prayed for a series of 15-day extensions in eight (8) successive motions for extensions on the same
justification.20 The RTC again granted the additional time prayed for, but in granting the last extension, it
warned against further extension.21 Despite the admonition, defendants again moved for another 15-day
extension,22 which, this time, the RTC denied. No answer having been filed, plaintiffs moved to declare the
defendants in default,23 which the RTC granted in its Order24dated June 24, 1998.

On June 25, 1998, defendants filed, via registered mail, their "Answer with Counterclaim and Opposition to the
Prayer for the Issuance of a Writ of Preliminary Injunction."25 On July 8, 1998, defendants filed a Motion to Set
Aside the Order of Default.26 This was opposed by plaintiffs.27 In an Order28 dated July 14, 1998, the RTC
denied defendants’ motion to set aside the order of default and ordered the reception of plaintiffs’ evidence ex
parte. Defendants filed a motion for reconsideration29 of the July 14, 1998 Order, which the RTC denied in its
Order30dated October 21, 1998.

Defendants thereafter interposed an appeal to the CA assailing the Order declaring them in default, as well as
the Order denying their motion to set aside the order of default, alleging that these were contrary to facts of the
case, the law and jurisprudence.31 On September 16, 1999, the appellate court issued a
Resolution32 dismissing the appeal on the ground that the Orders appealed from were interlocutory in character
and, therefore, not appealable. No motion for reconsideration of the Order of the dismissal was filed by
defendants.

In the meantime, plaintiffs adduced ex parte their testimonial and documentary evidence. On April 17, 2000,
the RTC rendered a Decision, the dispositive part of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants as follows:

1. Ordering the rescission of the Joint Venture Agreement as of the date of filing of this complaint;

2. Ordering the defendants to return possession, including all improvements therein, of the real estate property
belonging to the plaintiffs which is described in, and covered by Transfer Certificate of Title No. T-10848 of the
Register of Deeds of Tagaytay City, and located in Barangay Anulin, City of Tagaytay;

3. Ordering the defendants to turn over all documents, records or papers that have been executed, prepared
and retained in connection with any contract to sell or deed of sale of all lots/units sold during the effectivity of
the joint venture agreement;

4. Ordering the defendants to pay the plaintiffs the sum of P1,041,524.26 representing their share of the net
income of the P2,603,810.64 as of September 30, 1995, as stipulated in the joint venture agreement;

5. Ordering the defendants to pay the plaintiffs’ attorney’s fees in the amount of P104,152.40;

6. Ordering the defendants to pay the costs. SO ORDERED.33

The trial court anchored its decision on the following findings:

x x x Evidence on record have shown patent violations by the defendants of the stipulations particularly
paragraph II covering Developer’s (defendant) undertakings, as well as paragraph III and paragraph V of the
JVA. These violations are not limited to those made against the plaintiffs alone as it appears that some of the
unit buyers themselves have their own separate gripes against the defendants as typified by the letters
(Exhibits "G" and "H") of Mr. Emmanuel Enciso.

xxxx
Rummaging through the evidence presented in the course of the testimony of Mrs. Maminta on August 6, 1998
(Exhibits "N," "O," "P," "Q" and "R" as well as submarkings, pp. 60 to 62, TSN August 6, 1998) this court has
observed, and is thus convinced, that a pattern of what appears to be a scheme or plot to reduce and
eventually blot out the net income generated from sales of housing units by defendants, has been established.
Exhibit "P-2" is explicit in declaring that, as of September 30, 1995, the joint venture project earned a net
income of about P2,603,810.64. This amount, however, was drastically reduced in a subsequent financial
report submitted by the defendants to P1,954,216.39. Shortly thereafter, and to the dismay of the plaintiffs, the
defendants submitted an income statement and a balance sheet (Exhibits "R" and "R-1") indicating a net loss
of P5,122,906.39 as of June 30, 1997.

Of the reported net income of P2,603,810.64 (Exhibit "P-2") the plaintiffs should have received the sum
of P1,041,524.26 representing their 40% share under paragraph II and V of the JVA. But this was not to be so.
Even before the plaintiffs could get hold of their share as indicated above, the defendants closed the chance
altogether by declaring a net loss. The court perceives this to be one calculated coup-de-grace that would put
to thin air plaintiffs’ hope of getting their share in the profit under the JVA.

That this matter had reached the court is no longer a cause for speculation. The way the defendants treated
the JVA and the manner by which they handled the project itself vis-à-vis their partners, the plaintiffs herein,
there is bound to be certain conflict as the latter repeatedly would received the losing end of the bargain.

Under the intolerable circumstances, the plaintiffs could not have opted for some other recourse but to file the
present action to enforce their rights. x x x34

On May 15, 2000, plaintiffs filed a Motion for Execution Pending Appeal35 alleging defendants’ dilatory tactics
for its allowance. This was opposed by defendants.36

On May 22, 2000, the RTC resolved the motion for execution pending appeal in favor of plaintiffs.37 Upon
posting a bond of P1,000,000.00 by plaintiffs, a writ of execution pending appeal was issued on June 20,
2000.38

Defendants appealed the decision to the CA on the following assignment of errors:

THE TRIAL COURT ERRED IN DECIDING THE CASE WITHOUT FIRST REFERRING THE COMPLAINT
FOR VOLUNTARY ARBITRATION (RA NO. 876), CONTRARY TO THE MANDATED VOLUNTARY
ARBITRATION CLAUSE UNDER THE JOINT VENTURE AGREEMENT, AND THE DOCTRINE IN
"MINDANAO PORTLAND CEMENT CORPORATION V. MCDONOUGH CONSTRUCTION COMPANY OF
FLORIDA" (19 SCRA 814-815).

II

THE TRIAL COURT ERRED IN ISSUING A WRIT OF EXECUTION PENDING APPEAL EVEN IN THE
ABSENCE OF GOOD AND COMPELLING REASONS TO JUSTIFY SAID ISSUANCE, AND DESPITE
PRIMELINK’S STRONG OPPOSITION THERETO.

III

THE TRIAL COURT ERRED IN REFUSING TO DECIDE PRIMELINK’S MOTION TO QUASH THE WRIT OF
EXECUTION PENDING APPEAL AND THE MOTION FOR RECONSIDERATION, ALTHOUGH THE COURT
HAS RETAINED ITS JURISDICTION TO RULE ON ALL QUESTIONS RELATED TO EXECUTION.

IV
THE TRIAL COURT ERRED IN RESCINDING THE JOINT VENTURE AGREEMENT ALTHOUGH
PRIMELINK HAS SUBSTANTIALLY DEVELOPED THE PROJECT AND HAS SPENT MORE OR LESS
FORTY MILLION PESOS, AND DESPITE APPELLEES’ FAILURE TO PRESENT SUFFICIENT EVIDENCE
JUSTIFYING THE SAID RESCISSION.

THE TRIAL COURT ERRED IN DECIDING THAT THE APPELLEES HAVE THE RIGHT TO TAKE OVER THE
SUBDIVISION AND TO APPROPRIATE FOR THEMSELVES ALL THE EXISTING IMPROVEMENTS
INTRODUCED THEREIN BY PRIMELINK, ALTHOUGH SAID RIGHT WAS NEITHER ALLEGED NOR
PRAYED FOR IN THE COMPLAINT, MUCH LESS PROVEN DURING THE EX PARTE HEARING, AND
EVEN WITHOUT ORDERING APPELLEES TO FIRST REIMBURSE PRIMELINK OF THE SUBSTANTIAL
DIFFERENCE BETWEEN THE MARKET VALUE OF APPELLEES’ RAW, UNDEVELOPED AND
UNPRODUCTIVE LAND (CONTRIBUTED TO THE PROJECT) AND THE SUM OF MORE OR LESS FORTY
MILLION PESOS WHICH PRIMELINK HAD SPENT FOR THE HORIZONTAL AND VERTICAL
DEVELOPMENT OF THE PROJECT, THEREBY ALLOWING APPELLEES TO UNJUSTLY ENRICH
THEMSELVES AT THE EXPENSE OF PRIMELINK.39

The appeal was docketed in the CA as CA-G.R. CV No. 69200.

On August 9, 2004, the appellate court rendered a decision affirming, with modification, the appealed decision.
The fallo of the decision reads:

WHEREFORE, in view of the foregoing, the assailed decision of the Regional Trial Court of Tagaytay City,
Branch 18, promulgated on April 17, 2000 in Civil Case No. TG-1776, is hereby AFFIRMED. Accordingly,
Transfer Certificate of Title No. T-10848 held for safekeeping by Chinabank pursuant to the Escrow Agreement
is ordered released for return to the plaintiffs-appellees and conformably with the affirmed decision, the
cancellation by the Register of Deeds of Tagaytay City of whatever annotation in TCT No. 10848 by virtue of
the Joint Venture Agreement, is now proper.

SO ORDERED.40

Citing the ruling of this Court in Aurbach v. Sanitary Wares Manufacturing Corporation, 41 the appellate court
ruled that, under Philippine law, a joint venture is a form of partnership and is to be governed by the laws of
partnership. The aggrieved parties filed a motion for reconsideration,42 which the CA denied in its
Resolution43 dated March 7, 2005.

Petitioners thus filed the instant Petition for Review on Certiorari, alleging that:

1) DID THE HONORABLE COURT OF APPEALS COMMIT A FATAL AND REVERSIBLE LEGAL ERROR
AND/OR GRAVE ABUSE OF DISCRETION IN ORDERING THE RETURN TO THE RESPONDENTS OF THE
PROPERTY WITH ALL IMPROVEMENTS THEREON, EVEN WITHOUT ORDERING/REQUIRING THE
RESPONDENTS TO FIRST PAY OR REIMBURSE PRIMELINK OF ALL EXPENSES INCURRED IN
DEVELOPING AND MARKETING THE PROJECT, LESS THE ORIGINAL VALUE OF THE PROPERTY, AND
THE SHARE DUE RESPONDENTS FROM THE PROFITS (IF ANY) OF THE JOINT VENTURE PROJECT?

2) IS THE AFORESAID ORDER ILLEGAL AND CONFISCATORY, OPPRESSIVE AND UNCONSCIONABLE,

CONTRARY TO THE TENETS OF GOOD HUMAN RELATIONS AND VIOLATIVE OF EXISTING LAWS AND
JURISPRUDENCE ON JUDICIAL NOTICE, DEFAULT, UNJUST ENRICHMENT AND RESCISSION OF
CONTRACT WHICH REQUIRES MUTUAL RESTITUTION, NOT UNILATERAL APPROPRIATION, OF
PROPERTY BELONGING TO ANOTHER?44

Petitioners maintain that the aforesaid portion of the decision which unconditionally awards to respondents "all
improvements" on the project without requiring them to pay the value thereof or to reimburse Primelink for all
expenses incurred therefore is inherently and essentially illegal and confiscatory, oppressive and
unconscionable, contrary to the tenets of good human relations, and will allow respondents to unjustly enrich
themselves at Primelink’s expense. At the time respondents contributed the two parcels of land, consisting of
30,000 square meters to the joint venture project when the JVA was signed on March 10, 1994, the said
properties were worth not more than P500.00 per square meter, the "price tag" agreed upon the parties for the
purpose of the JVA. Moreover, before respondents rescinded the JVA sometime in October/November 1997,
the property had already been substantially developed as improvements had already been introduced thereon;
petitioners had likewise incurred administrative and marketing expenses, among others, amounting to more or
less P40,000,000.00.45

Petitioners point out that respondents did not pray in their complaint that they be declared the owners and
entitled to the possession of the improvements made by petitioner Primelink on the property; neither did they
adduce evidence to prove their entitlement to said improvements. It follows, petitioners argue, that respondents
were not entitled to the improvements although petitioner Primelink was declared in default.

They also aver that, under Article 1384 of the New Civil Code, rescission shall be only to the extent necessary
to cover the damages caused and that, under Article 1385 of the same Code, rescission creates the obligation
to return the things which were not object of the contract, together with their fruits, and the price with its
interest; consequently, it can be effected only when respondents can return whatever they may be obliged to
return. Respondents who sought the rescission of the JVA must place petitioner Primelink in the status quo.
They insist that respondents cannot rescind and, at the same time, retain the consideration, or part of the
consideration received under the JVA. They cannot have the benefits of rescission without assuming its
burden. All parties must be restored to their original positions as nearly as possible upon the rescission of a
contract. In the event that restoration to the status quo is impossible, rescission may be granted if the Court
can balance the equities and fashion an appropriate remedy that would be equitable to both parties and afford
complete relief.

Petitioners insist that being defaulted in the court a quo would in no way defeat their claim for reimbursement
because "[w]hat matters is that the improvements exist and they cannot be denied."46 Moreover, they point out,
the ruling of this Court in Aurbach v. Sanitary Wares Manufacturing Corporation47 cited by the CA is not in
point.

On the other hand, the CA ruled that although respondents therein (plaintiffs below) did not specifically pray for
their takeover of the property and for the possession of the improvements on the parcels of land, nevertheless,
respondents were entitled to said relief as a necessary consequence of the ruling of the trial court ordering the
rescission of the JVA. The appellate court cited the ruling of this Court in the Aurbach case and Article 1838 of
the New Civil Code, to wit:

As a general rule, the relation of the parties in joint ventures is governed by their agreement. When the
agreement is silent on any particular issue, the general principles of partnership may be resorted to. 48

Respondents, for their part, assert that Articles 1380 to 1389 of the New Civil Code deal with rescissible
contracts. What applies is Article 1191 of the New Civil Code, which reads:

ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in
accordance with articles 1385 and 1388 and the Mortgage Law.
They insist that petitioners are not entitled to rescission for the improvements because, as found by the RTC
and the CA, it was petitioner Primelink that enriched itself at the expense of respondents. Respondents
reiterate the ruling of the CA, and argue as follows:

PRIMELINK argued that the LAZATINs in their complaint did not allege, did not prove and did not pray that
they are and should be entitled to take over the development of the project, and that the improvements and
existing structures which were introduced by PRIMELINK after spending more or less Forty Million Pesos – be
awarded to them. They merely asked in the complaint that the joint venture agreement be rescinded, and that
the parcels of land they contributed to the project be returned to them.

PRIMELINK’s argument lacks merit. The order of the court for PRIMELINK to return possession of the real
estate property belonging to the LAZATINs including all improvements thereon was not a judgment that was
different in kind than what was prayed for by the LAZATINs. The order to return the property with all the
improvements thereon is just a necessary consequence to the order of rescission.

As a general rule, the relation of the parties in joint ventures is governed by their agreement. When the
agreement is silent on any particular issue, the general principles of partnership may be resorted to. In
Aurbach v. Sanitary Wares Manufacturing Corporation, the Supreme Court discussed the following points
regarding joint ventures and partnership:

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, in fact, hardly distinguishable from the partnership, since 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
jurisdictions 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. (Tuffs v.
Mann, 116 Cal.App. 170, 2 P.2d 500 [1931]; Harmon v. Martin, 395 III. 595, 71 N.E.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 laws of partnership. 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. Bolanos, 95 Phil. 906 [1954]; Campos and Lopez – Campos Comments, Notes and Selected Cases,
Corporation Code 1981) (Emphasis Supplied)

The LAZATINs were able to establish fraud on the part of PRIMELINK which, in the words of the court a quo,
was a pattern of what appears to be a scheme or plot to reduce and eventually blot out the net incomes
generated from sales of housing units by the defendants. Under Article 1838 of the Civil Code, where the
partnership contract is rescinded on the ground of the fraud or misrepresentation of one of the parties
thereto, the party entitled to rescind is, without prejudice to any other right is entitled to a lien on, or right of
retention of, the surplus of the partnership property after satisfying the partnership liabilities to third persons for
any sum of money paid by him for the purchase of an interest in the partnership and for any capital or advance
contributed by him. In the instant case, the joint venture still has outstanding liabilities to third parties or the
buyers of the property.

It is not amiss to state that title to the land or TCT No. T-10848 which is now held by Chinabank for
safekeeping pursuant to the Escrow Agreement executed between Primelink Properties and Development
Corporation and Ma. Clara T. Lazatin-Magat should also be returned to the LAZATINs as a necessary
consequence of the order of rescission of contract. The reason for the existence of the Escrow Agreement has
ceased to exist when the joint venture agreement was rescinded.49

Respondents stress that petitioners must bear any damages or losses they may have suffered. They likewise
stress that they did not enrich themselves at the expense of petitioners.
In reply, petitioners assert that it is unjust and inequitable for respondents to retain the improvements even if
their share in the P1,041,524.26 of the net income of the property and the sale of the land were to be deducted
from the value of the improvements, plus administrative and marketing expenses in the total amount
of P40,000,000.00. Petitioners will still be entitled to an accounting from respondents. Respondents cannot
deny the existence and nature of said improvements as they are visible to the naked eye.

The threshold issues are the following: (1) whether respondents are entitled to the possession of the parcels of
land covered by the JVA and the improvements thereon introduced by petitioners as their contribution to the
JVA; (2) whether petitioners are entitled to reimbursement for the value of the improvements on the parcels of
land.

The petition has no merit.

On the first issue, we agree with petitioners that respondents did not specifically pray in their complaint below
that possession of the improvements on the parcels of land which they contributed to the JVA be transferred to
them. Respondents made a specific prayer in their complaint that, upon the rescission of the JVA, they be
placed in possession of the parcels of land subject of the agreement, and for other "reliefs and such other
remedies as are just and equitable in the premises." However, the trial court was not precluded from awarding
possession of the improvements on the parcels of land to respondents in its decision. Section 2(c), Rule 7 of
the Rules of Court provides that a pleading shall specify the relief sought but it may add as general prayer for
such further or other relief as may be deemed just and equitable. Even without the prayer for a specific
remedy, proper relief may be granted by the court if the facts alleged in the complaint and the evidence
introduced so warrant.50 The court shall grant relief warranted by the allegations and the proof even if no such
relief is prayed for.51 The prayer in the complaint for other reliefs equitable and just in the premises justifies the
grant of a relief not otherwise specifically prayed for.52

The trial court was not proscribed from placing respondents in possession of the parcels of land and the
improvements on the said parcels of land. It bears stressing that the parcels of land, as well as the
improvements made thereon, were contributed by the parties to the joint venture under the JVA, hence, formed
part of the assets of the joint venture.53 The trial court declared that respondents were entitled to the
possession not only of the parcels of land but also of the improvements thereon as a consequence of its
finding that petitioners breached their agreement and defrauded respondents of the net income under the JVA.

On the second issue, we agree with the CA ruling that petitioner Primelink and respondents entered into a joint
venture as evidenced by their JVA which, under the Court’s ruling in Aurbach, is a form of partnership, and as
such is to be governed by the laws on partnership.

When the RTC rescinded the JVA on complaint of respondents based on the evidence on record that
petitioners willfully and persistently committed a breach of the JVA, the court thereby dissolved/cancelled the
partnership.54With the rescission of the JVA on account of petitioners’ fraudulent acts, all authority of any
partner to act for the partnership is terminated except so far as may be necessary to wind up the partnership
affairs or to complete transactions begun but not yet finished.55 On dissolution, the partnership is not
terminated but continues until the winding up of partnership affairs is completed.56 Winding up means the
administration of the assets of the partnership for the purpose of terminating the business and discharging the
obligations of the partnership.

The transfer of the possession of the parcels of land and the improvements thereon to respondents was only
for a specific purpose: the winding up of partnership affairs, and the partition and distribution of the net
partnership assets as provided by law.57 After all, Article 1836 of the New Civil Code provides that unless
otherwise agreed by the parties in their JVA, respondents have the right to wind up the partnership affairs:

Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the partnership or the
legal representative of the last surviving partner, not insolvent, has the right to wind up the partnership affairs,
provided, however, that any partner, his legal representative or his assignee, upon cause shown, may obtain
winding up by the court.
It must be stressed, too, that although respondents acquired possession of the lands and the improvements
thereon, the said lands and improvements remained partnership property, subject to the rights and obligations
of the parties, inter se, of the creditors and of third parties under Articles 1837 and 1838 of the New Civil Code,
and subject to the outcome of the settlement of the accounts between the parties as provided in Article 1839 of
the New Civil Code, absent any agreement of the parties in their JVA to the contrary. 58 Until the partnership
accounts are determined, it cannot be ascertained how much any of the parties is entitled to, if at all.

It was thus premature for petitioner Primelink to be demanding that it be indemnified for the value of the
improvements on the parcels of land owned by the joint venture/partnership. Notably, the JVA of the parties
does not contain any provision designating any party to wind up the affairs of the partnership.

Thus, under Article 1837 of the New Civil Code, the rights of the parties when dissolution is caused in
contravention of the partnership agreement are as follows:

(1) Each partner who has not caused dissolution wrongfully shall have:

(a) All the rights specified in the first paragraph of this article, and

(b) The right, as against each partner who has caused the dissolution wrongfully, to damages for breach of the
agreement.

(2) The partners who have not caused the dissolution wrongfully, if they all desire to continue the business in
the same name either by themselves or jointly with others, may do so, during the agreed term for the
partnership and for that purpose may possess the partnership property, provided they secure the payment by
bond approved by the court, or pay to any partner who has caused the dissolution wrongfully, the value of his
interest in the partnership at the dissolution, less any damages recoverable under the second paragraph, No.
1(b) of this article, and in like manner indemnify him against all present or future partnership liabilities.

(3) A partner who has caused the dissolution wrongfully shall have:

(a) If the business is not continued under the provisions of the second paragraph, No. 2, all the rights of a
partner under the first paragraph, subject to liability for damages in the second paragraph, No. 1(b), of this
article.

(b) If the business is continued under the second paragraph, No. 2, of this article, the right as against his co-
partners and all claiming through them in respect of their interests in the partnership, to have the value of his
interest in the partnership, less any damage caused to his co-partners by the dissolution, ascertained and paid
to him in cash, or the payment secured by a bond approved by the court, and to be released from all existing
liabilities of the partnership; but in ascertaining the value of the partner’s interest the value of the good-will of
the business shall not be considered.

And under Article 1838 of the New Civil Code, the party entitled to rescind is, without prejudice to any other
right, entitled:

(1) To a lien on, or right of retention of, the surplus of the partnership property after satisfying the partnership
liabilities to third persons for any sum of money paid by him for the purchase of an interest in the partnership
and for any capital or advances contributed by him;

(2) To stand, after all liabilities to third persons have been satisfied, in the place of the creditors of the
partnership for any payments made by him in respect of the partnership liabilities; and

(3) To be indemnified by the person guilty of the fraud or making the representation against all debts and
liabilities of the partnership.
The accounts between the parties after dissolution have to be settled as provided in Article 1839 of the New
Civil Code:

Art. 1839. In settling accounts between the partners after dissolution, the following rules shall be observed,
subject to any agreement to the contrary:

(1) The assets of the partnership are:

(a) The partnership property,
(b) The contributions of the partners necessary for the payment of all the liabilities specified in No. 2.
(2) The liabilities of the partnership shall rank in order of payment, as follows:
(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for capital and profits,
(c) Those owing to partners in respect of capital,
(d) Those owing to partners in respect of profits.
(3) The assets shall be applied in the order of their declaration in No. 1 of this article to the satisfaction of the
liabilities.
(4) The partners shall contribute, as provided by article 1797, the amount necessary to satisfy the liabilities.
(5) An assignee for the benefit of creditors or any person appointed by the court shall have the right to enforce
the contributions specified in the preceding number.
(6) Any partner or his legal representative shall have the right to enforce the contributions specified in No. 4, to
the extent of the amount which he has paid in excess of his share of the liability.
(7) The individual property of a deceased partner shall be liable for the contributions specified in No. 4.
(8) When partnership property and the individual properties of the partners are in possession of a court for
distribution, partnership creditors shall have priority on partnership property and separate creditors on
individual property, saving the rights of lien or secured creditors.
(9) Where a partner has become insolvent or his estate is insolvent, the claims against his separate property
shall rank in the following order:
(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
(c) Those owing to partners by way of contribution.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed Decision and Resolution of the
Court of Appeals in CA-G.R. CV No. 69200 are AFFIRMED insofar as they conform to this Decision of the
Court.

Costs against petitioners.

SO ORDERED.
4. G.R. No. 144214 July 14, 2003

LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO JOSE, petitioners,

vs.
DONALDO EFREN C. RAMIREZ and Spouses CESAR G. RAMIREZ JR. and CARMELITA C.
RAMIREZ,respondents.

PANGANIBAN, J.:

A share in a partnership can be returned only after the completion of the latter's dissolution, liquidation and
winding up of the business.

The Case

The Petition for Review on Certiorari before us challenges the March 23, 2000 Decision1 and the July 26, 2000
Resolution2 of the Court of Appeals3 (CA) in CA-GR CV No. 41026. The assailed Decision disposed as follows:

"WHEREFORE, foregoing premises considered, the Decision dated July 21, 1992 rendered by the Regional
Trial Court, Branch 148, Makati City is hereby SET ASIDE and NULLIFIED and in lieu thereof a new decision
is rendered ordering the [petitioners] jointly and severally to pay and reimburse to [respondents] the amount of
P253,114.00. No pronouncement as to costs."4

Reconsideration was denied in the impugned Resolution.

The Facts

On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus Jose formed a partnership with a capital
of P750,000 for the operation of a restaurant and catering business under the name "Aquarius Food House
and Catering Services."5 Villareal was appointed general manager and Carmelito Jose, operations manager.

Respondent Donaldo Efren C. Ramirez joined as a partner in the business on September 5, 1984. His capital
contribution of P250,000 was paid by his parents, Respondents Cesar and Carmelita Ramirez.6

After Jesus Jose withdrew from the partnership in January 1987, his capital contribution of P250,000 was
refunded to him in cash by agreement of the partners.7

In the same month, without prior knowledge of respondents, petitioners closed down the restaurant, allegedly
because of increased rental. The restaurant furniture and equipment were deposited in the respondents' house
for storage.8

On March 1, 1987, respondent spouses wrote petitioners, saying that they were no longer interested in
continuing their partnership or in reopening the restaurant, and that they were accepting the latter's offer to
return their capital contribution.9

On October 13, 1987, Carmelita Ramirez wrote another letter informing petitioners of the deterioration of the
restaurant furniture and equipment stored in their house. She also reiterated the request for the return of their
one-third share in the equity of the partnership. The repeated oral and written requests were, however, left
unheeded.10

Before the Regional Trial Court (RTC) of Makati, Branch 59, respondents subsequently filed a
Complaint11 dated November 10, 1987, for the collection of a sum of money from petitioners.

In their Answer, petitioners contended that respondents had expressed a desire to withdraw from the
partnership and had called for its dissolution under Articles 1830 and 1831 of the Civil Code; that respondents
had been paid, upon the turnover to them of furniture and equipment worth over P400,000; and that the latter
had no right to demand a return of their equity because their share, together with the rest of the capital of the
partnership, had been spent as a result of irreversible business losses.12

In their Reply, respondents alleged that they did not know of any loan encumbrance on the restaurant.
According to them, if such allegation were true, then the loans incurred by petitioners should be regarded as
purely personal and, as such, not chargeable to the partnership. The former further averred that they had not
received any regular report or accounting from the latter, who had solely managed the business. Respondents
also alleged that they expected the equipment and the furniture stored in their house to be removed by
petitioners as soon as the latter found a better location for the restaurant.13

Respondents filed an Urgent Motion for Leave to Sell or Otherwise Dispose of Restaurant Furniture and
Equipment14 on July 8, 1988. The furniture and the equipment stored in their house were inventoried and
appraised at P29,000.15 The display freezer was sold for P5,000 and the proceeds were paid to them.16

After trial, the RTC 17 ruled that the parties had voluntarily entered into a partnership, which could be dissolved
at any time. Petitioners clearly intended to dissolve it when they stopped operating the restaurant. Hence, the
trial court, in its July 21, 1992 Decision, held there liable as follows:18

"WHEREFORE, judgment is hereby rendered in favor of [respondents] and against the [petitioners] ordering
the [petitioners] to pay jointly and severally the following:

(a) Actual damages in the amount of P250,000.00

(b) Attorney's fee in the amount of P30,000.00
(c) Costs of suit."

The CA Ruling

The CA held that, although respondents had no right to demand the return of their capital contribution, the
partnership was nonetheless dissolved when petitioners lost interest in continuing the restaurant business with
them. Because petitioners never gave a proper accounting of the partnership accounts for liquidation
purposes, and because no sufficient evidence was presented to show financial losses, the CA. computed their
liability as follows:

"Consequently, since what has been proven is only the outstanding obligation of the partnership in the amount
of P240,658.00, although contracted by the partnership before [respondents'] have joined the partnership but
in accordance with Article 1826 of the New Civil Code, they are liable which must have to be deducted from the
remaining capitalization of the said partnership which is in the amount of P1,000,000.00 resulting in the amount
of P759,342.00, and in order to get the share of [respondents], this amount of P759,342.00 must be divided
into three (3) shares or in the amount of P253,114.00 for each share and which is the only amount which
[petitioner] will return to [respondents'] representing the contribution to the partnership minus the outstanding
debt thereof."19

Hence, this Petition.20

Issues

In their Memorandum,21 petitioners submit the following issues for our consideration:

"9.1. Whether the Honorable Court of Appeals' decision ordering the distribution of the capital contribution,
instead of the net capital after the dissolution and liquidation of a partnership, thereby treating the capital
contribution like a loan, is in accordance with law and jurisprudence;
"9.2. Whether the Honorable Court of Appeals' decision ordering the petitioners to jointly and severally pay and
reimburse the amount of [P]253,114.00 is supported by the evidence on record; and

"9.3. Whether the Honorable Court of Appeals was correct in making [n]o pronouncement as to costs." 22

On closer scrutiny, the issues are as follows: (1) whether petitioners are liable to respondents for the latter's
share in the partnership; (2) whether the CA's computation of P253,114 as respondents' share is correct; and
(3) whether the CA was likewise correct in not assessing costs.

This Court's Ruling

The Petition has merit.

First Issue:
Share in Partnership

Both the trial and the appellate courts found that a partnership had indeed existed, and that it was dissolved on
March 1, 1987. They found that the dissolution took place when respondents informed petitioners of the
intention to discontinue it because of the former's dissatisfaction with, and loss of trust in, the latter's
management of the partnership affairs. These findings were amply supported by the evidence on record.
Respondents consequently demanded from petitioners the return of their one-third equity in the partnership.

We hold that respondents have no right to demand from petitioners the return of their equity share. Except as
managers of the partnership, petitioners did not personally hold its equity or assets. "The partnership has a
juridical personality separate and distinct from that of each of the partners."23 Since the capital was contributed
to the partnership, not to petitioners, it is the partnership that must refund the equity of the retiring partners. 24

Second Issue:
What Must Be Returned?

Since it is the partnership, as a separate and distinct entity, that must refund the shares of the partners, the
amount to be refunded is necessarily limited to its total resources. In other words, it can only pay out what it
has in its coffers, which consists of all its assets. However, before the partners can be paid their shares, the
creditors of the partnership must first be compensated.25 After all the creditors have been paid, whatever is left
of the partnership assets becomes available for the payment of the partners' shares.

Evidently, in the present case, the exact amount of refund equivalent to respondents' one-third share in the
partnership cannot be determined until all the partnership assets will have been liquidated — in other words,
sold and converted to cash — and all partnership creditors, if any, paid. The CA's computation of the amount
to be refunded to respondents as their share was thus erroneous.

First, it seems that the appellate court was under the misapprehension that the total capital contribution was
equivalent to the gross assets to be distributed to the partners at the time of the dissolution of the partnership.
We cannot sustain the underlying idea that the capital contribution at the beginning of the partnership remains
intact, unimpaired and available for distribution or return to the partners. Such idea is speculative, conjectural
and totally without factual or legal support.

Generally, in the pursuit of a partnership business, its capital is either increased by profits earned or decreased
by losses sustained. It does not remain static and unaffected by the changing fortunes of the business. In the
present case, the financial statements presented before the trial court showed that the business had made
meager profits.26However, notable therefrom is the omission of any provision for the depreciation27 of the
furniture and the equipment. The amortization of the goodwill28 (initially valued at P500,000) is not reflected
either. Properly taking these non-cash items into account will show that the partnership was actually sustaining
substantial losses, which consequently decreased the capital of the partnership. Both the trial and the
appellate courts in fact recognized the decrease of the partnership assets to almost nil, but the latter failed to
recognize the consequent corresponding decrease of the capital.

Second, the CA's finding that the partnership had an outstanding obligation in the amount of P240,658 was not
supported by evidence. We sustain the contrary finding of the RTC, which had rejected the contention that the
obligation belonged to the partnership for the following reason:

"x x x [E]vidence on record failed to show the exact loan owed by the partnership to its creditors. The balance
sheet (Exh. '4') does not reveal the total loan. The Agreement (Exh. 'A') par. 6 shows an outstanding obligation
of P240,055.00 which the partnership owes to different creditors, while the Certification issued by Mercator
Finance (Exh. '8') shows that it was Sps. Diogenes P. Villareal and Luzviminda J. Villareal, the former being
the nominal party defendant in the instant case, who obtained a loan of P355,000.00 on Oct. 1983, when the
original partnership was not yet formed."

Third, the CA failed to reduce the capitalization by P250,000, which was the amount paid by the partnership to
Jesus Jose when he withdrew from the partnership.

Because of the above-mentioned transactions, the partnership capital was actually reduced. When petitioners
and respondents ventured into business together, they should have prepared for the fact that their investment
would either grow or shrink. In the present case, the investment of respondents substantially dwindled. The
original amount of P250,000 which they had invested could no longer be returned to them, because one third
of the partnership properties at the time of dissolution did not amount to that much.

It is a long established doctrine that the law does not relieve parties from the effects of unwise, foolish or
disastrous contracts they have entered into with all the required formalities and with full awareness of what
they were doing. Courts have no power to relieve them from obligations they have voluntarily assumed, simply
because their contracts turn out to be disastrous deals or unwise investments.29

Petitioners further argue that respondents acted negligently by permitting the partnership assets in their
custody to deteriorate to the point of being almost worthless. Supposedly, the latter should have liquidated
these sole tangible assets of the partnership and considered the proceeds as payment of their net capital.
Hence, petitioners argue that the turnover of the remaining partnership assets to respondents was precisely
the manner of liquidating the partnership and fully settling the latter's share in the partnership.

We disagree. The delivery of the store furniture and equipment to private respondents was for the purpose of
storage. They were unaware that the restaurant would no longer be reopened by petitioners. Hence, the former
cannot be faulted for not disposing of the stored items to recover their capital investment.

Third Issue:
Costs

Section 1, Rule 142, provides:

"SECTION 1. Costs ordinarily follow results of suit. — Unless otherwise provided in these rules, costs shall be
allowed to the prevailing party as a matter of course, but the court shall have power, for special reasons, to
adjudge that either party shall pay the costs of an action, or that the same be divided, as may be equitable. No
costs shall be allowed against the Republic of the Philippines unless otherwise provided by law."

Although, as a rule, costs are adjudged against the losing party, courts have discretion, "for special reasons,"
to decree otherwise. When a lower court is reversed, the higher court normally does not award costs, because
the losing party relied on the lower court's judgment which is presumed to have been issued in good faith, even
if found later on to be erroneous. Unless shown to be patently capricious, the award shall not be disturbed by a
reviewing tribunal.
WHEREFORE, the Petition is GRANTED, and the assailed Decision and Resolution SET ASIDE. This
disposition is without prejudice to proper proceedings for the accounting, the liquidation and the distribution of
the remaining partnership assets, if any. No pronouncement as to costs.

SO ORDERED.