Partnership Cases

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 109248 July 3, 1995

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

VITUG, J.:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

"4. Order respondents jointly and severally to pay petitioner attorney's fees and expense of litigation in such amounts as maybe proven during the trial and which the Commission may deem just and equitable under the

premises but in no case less than ten (10%) per cent of the value of the shares of petitioner or P100,000.00;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to choose with whom a person wishes to associate himself is the very foundation and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve, along with each partner's capability to give it, and the absence of a cause for dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the partnership 4 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 the  right, to dissolve the partnership. An unjustified dissolution by the partner can subject him to a possible action for damages.

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

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

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

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

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

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

SO ORDERED.

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

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 127405               October 4, 2000

MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs.COURT OF APPEALS and NENITA A. ANAY, respondents.

D E C I S I O N

YNARES-SANTIAGO, J.:

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

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

Anay having secured the distributorship of cookware products from the West Bend Company and organized the administrative staff and the sales force, the cookware business took off successfully. They operated under the name of Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocao’s name, with office at 712 Rufino Building, Ayala Avenue, Makati City. Belo made good his monetary commitments to Anay. Thereafter, Roger Muencheberg of West Bend Company invited Anay to the distributor/dealer meeting in West Bend, Wisconsin, U.S.A., from

July 19 to 21, 1987 and to the southwestern regional convention in Pismo Beach, California, U.S.A., from July 25-26, 1987. Anay accepted the invitation with the consent of Marjorie Tocao who, as president and general manager of Geminesse Enterprise, even wrote a letter to the Visa Section of the U.S. Embassy in Manila on July 13, 1987. A portion of the letter reads:

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

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

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

On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of money with damages8against Marjorie D. Tocao and William Belo before the Regional Trial Court of Makati, Branch 140.

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

In their answer,9 Marjorie Tocao and Belo asserted that the "alleged agreement" with Anay that was "neither reduced in writing, nor ratified," was "either unenforceable or void or inexistent." As far as Belo was concerned, his only role was to introduce Anay to Marjorie Tocao. There could not have been a partnership because, as Anay herself

admitted, Geminesse Enterprise was the sole proprietorship of Marjorie Tocao. Because Anay merely acted as marketing demonstrator of Geminesse Enterprise for an agreed remuneration, and her complaint referred to either her compensation or dismissal, such complaint should have been lodged with the Department of Labor and not with the regular court.

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

At the pre-trial conference, the issues were limited to: (a) whether or not the plaintiff was an employee or partner of Marjorie Tocao and Belo, and (b) whether or not the parties are entitled to damages.10

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

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

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

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

1. Ordering defendants to submit to the Court a formal account as to the partnership affairs for the years 1987 and 1988 pursuant to Art. 1809 of the Civil Code in order to

determine the ten percent (10%) share of plaintiff in the net profits of the cookware business;

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

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

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

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

SO ORDERED."

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

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

The trial court finally held that a partner who is excluded wrongfully from a partnership is an innocent partner. Hence, the guilty partner must give him his due upon the dissolution of the partnership as well as damages or share in the profits "realized from

the appropriation of the partnership business and goodwill." An innocent partner thus possesses "pecuniary interest in every existing contract that was incomplete and in the trade name of the co-partnership and assets at the time he was wrongfully expelled."

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

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

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

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

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

Petitioners admit that private respondent had the expertise to engage in the business of distributorship of cookware. Private respondent contributed such expertise to the partnership and hence, under the law, she was the industrial or managing partner. It was through her reputation with the West Bend Company that the partnership was able to open the business of distributorship of that company’s cookware products; it

was through the same efforts that the business was propelled to financial success. Petitioner Tocao herself admitted private respondent’s indispensable role in putting up the business when, upon being asked if private respondent held the positions of marketing manager and vice-president for sales, she testified thus:

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

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

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

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

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

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

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

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

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

A: Oh yes, sir.

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

A: Yes, sir.

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

A: That’s her overriding commission.

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

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

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

A: As an equal.

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

A: Yes, sir.

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

A: That is the same thing, sir.

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

A: Yes, sir.

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

A: Yes, sir.

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

A: Yes, sir.

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

A: No, sir.

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

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

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

The fact that the cookware distributorship was operated under the name of Geminesse Enterprise, a sole proprietorship, is of no moment. What was registered with the Bureau of Domestic Trade on August 19, 1987 was merely the name of that enterprise.33 While it is true that in her undated application for renewal of registration of that firm name, petitioner Tocao indicated that it would be engaged in retail of "kitchenwares, cookwares, utensils, skillet,"34 she also admitted that the enterprise

was only "60% to 70% for the cookware business," while 20% to 30% of its business activity was devoted to the sale of water sterilizer or purifier.35 Indubitably then, the business name Geminesse Enterprise was used only for practical reasons - it was utilized as the common name for petitioner Tocao’s various business activities, which included the distributorship of cookware.

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

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

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

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

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

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

In this case, petitioner Tocao’s unilateral exclusion of private respondent from the partnership is shown by her memo to the Cubao office plainly stating that private respondent was, as of October 9, 1987, no longer the vice-president for sales of Geminesse Enterprise.43 By that memo, petitioner Tocao effected her own withdrawal from the partnership and considered herself as having ceased to be associated with the partnership in the carrying on of the business. Nevertheless, the partnership was not terminated thereby; it continues until the winding up of the business.44

The winding up of partnership affairs has not yet been undertaken by the partnership.1âwphi1 This is manifest in petitioners’ claim for stocks that had been entrusted to private respondent in the pursuit of the partnership business.

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

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

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

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

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

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

SO ORDERED.

Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Pardo, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-12164             May 22, 1959

BENITO LIWANAG and MARIA LIWANAG REYES, petitioners-appellants, vs.WORKMEN'S COMPENSATION COMMISSION, ET AL., respondents-appellees.

J. de Guia for appellants.Estanislao R. Bayot for appellees.

ENDENCIA, J.:

Appellants Benito Liwanag and Maria Liwanag Reyes are co-owners of Liwanag Auto Supply, a commercial guard who while in line of duty, was skilled by criminal hands. His widow Ciriaca Vda. de Balderama and minor children Genara, Carlos and Leogardo, all surnamed Balderama, in due time filed a claim for compensation with the Workmen's Compensation Commission, which was granted in an award worded as follows:

WHEREFORE, the order of the referee under consideration should be, as it is hereby, affirmed and respondents Benito Liwanag and Maria Liwanag Reyes, ordered.

1. To pay  jointly and severally  the amount of three thousand Four Hundred Ninety Four and 40/100 (P3,494.40) Pesos to the claimants in lump sum; and

To pay to the Workmen's Compensation Funds the sum of P4.00 (including P5.00 for this review) as fees, pursuant to Section 55 of the Act.

In appealing the case to this Tribunal, appellants do not question the right of appellees to compensation nor the amount awarded. They only claim that, under the Workmen's Compensation Act, the compensation is divisible, hence the commission erred in ordering appellants to pay  jointly and severally  the amount awarded. They argue that there is nothing in the compensation Act which provides that the obligation of an employer arising from compensable injury or death of an employee should be solidary obligation, the same should have been specifically provided, and that, in absence of such clear provision, the responsibility of appellants should not be solidary but merely joint.

At first blush appellants' contention would seem to be well, for ordinarily, the liability of the partners in a partnership is not solidary; but the law governing the liability of partners is not applicable to the case at bar wherein a claim for compensation by dependents of an employee who died in line of duty is involved. And although the Workmen's Compensation Act does not contain any provision expressly declaring solidary obligation of business partners like the herein appellants, there are other

provisions of law from which it could be gathered that their liability must be solidary. Arts. 1711 and 1712 of the new Civil Code provide:

ART. 1711. Owners of enterprises and other employers are obliged to pay compensation for the death of or injuries to their laborers, workmen, mechanics or other employees, even though the event may have been purely accidental or entirely due to a fortuitous cause, if the death or personal injury arose out of and in the course of the employment. . . . .

ART. 1712. If the death or injury is due to the negligence of a fellow-worker, the latter and the employer shall be solidarily liable for compensation. . . . .

And section 2 of the Workmen's Compensation Act, as amended reads in part as follows:

. . . The right to compensation as provided in this Act shall not be defeated or impaired on the ground that the death, injury or disease was due to the negligence of a fellow servant or employee, without prejudice to the right of the employer to proceed against the negligence party.

The provisions of the new Civil Code above quoted taken together with those of Section 2 of the Workmen's Compensation Act, reasonably indicate that in compensation cases, the liability of business partners, like appellants, should be solidary; otherwise, the right of the employee may be defeated, or at least crippled. If the responsibility of appellants were to be merely joint and solidary, and one of them happens to be insolvent, the amount awarded to the appellees would only be partially satisfied, which is evidently contrary to the intent and purposes of the Act. In the previous cases we have already held that the Workmen's Compensation Act should be construed fairly, reasonably and liberally in favor of and for the benefit of the employee and his dependents; that all doubts as to the right of compensation resolved in his favor; and that it should be interpreted to promote its purpose. Accordingly, the present controversy should be decided in favor of the appellees.

Moreover, Art. 1207 of the new Civil Code provides:

. . . . There is solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity.

Since the Workmen's Compensation Act was enacted to give full protection to the employee, reason demands that the nature of the obligation of the employers to pay compensation to the heirs of their employee who died in line of duty, should be solidary; otherwise, the purpose of the law could not be attained.

Wherefore, finding no error in the award appealed from, the same is hereby affirmed, with costs against appellants.

Republic of the PhilippinesSUPREME COURT

Manila

SPECIAL FIRST DIVISION

G.R. No. 124293               September 24, 2003

JG SUMMIT HOLDINGS, INC., Petitioner, vs.COURT OF APPEALS, COMMITTEE ON PRIVATIZATION, its Chairman and Members; ASSET PRIVATIZATION TRUST and PHILYARDS HOLDINGS, INC., Respondents.

R E S O L U T I O N

PUNO, J.:

The core issue posed by the Motions for Reconsideration is whether a shipyard is a public utility whose capitalization must be sixty percent (60%) owned by Filipinos. Our resolution of this issue will determine the fate of the shipbuilding and ship repair industry. It can either spell the industry’s demise or breathe new life to the struggling but potentially healthy partner in the country’s bid for economic growth. It can either kill an initiative yet in its infancy, or harness creativity in the productive disposition of government assets.

The facts are undisputed and can be summarized briefly as follows:

On January 27, 1977, the National Investment and Development Corporation (NIDC), a government corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) for the construction, operation and management of the Subic National Shipyard, Inc. (SNS) which subsequently became the Philippine Shipyard and Engineering Corporation (PHILSECO). Under the JVA, the NIDC and KAWASAKI will contribute P330 million for the capitalization of PHILSECO in the proportion of 60%-40% respectively.1 One of its salient features is the grant to the parties of the right of first refusal should either of them decide to sell, assign or transfer its interest in the joint venture, viz:

1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS [PHILSECO] to any third party without giving the other under the same terms the right of first refusal. This provision shall not apply if the transferee is a corporation owned or controlled by the GOVERNMENT or by a KAWASAKI affiliate.2

On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO to the Philippine National Bank (PNB). Such interests were subsequently transferred to the National Government pursuant to Administrative Order No. 14. On December 8, 1986, President Corazon C. Aquino issued Proclamation No. 50 establishing the Committee on Privatization (COP) and the Asset Privatization Trust (APT) to take title

to, and possession of, conserve, manage and dispose of non-performing assets of the National Government. Thereafter, on February 27, 1987, a trust agreement was entered into between the National Government and the APT wherein the latter was named the trustee of the National Government’s share in PHILSECO. In 1989, as a result of a quasi-reorganization of PHILSECO to settle its huge obligations to PNB, the National Government’s shareholdings in PHILSECO increased to 97.41% thereby reducing KAWASAKI’s shareholdings to 2.59%.3

In the interest of the national economy and the government, the COP and the APT deemed it best to sell the National Government’s share in PHILSECO to private entities. After a series of negotiations between the APT and KAWASAKI, they agreed that the latter’s right of first refusal under the JVA be "exchanged" for the right to top by five percent (5%) the highest bid for the said shares. They further agreed that KAWASAKI would be entitled to name a company in which it was a stockholder, which could exercise the right to top. On September 7, 1990, KAWASAKI informed APT that Philyards Holdings, Inc. (PHI) would exercise its right to top.4

At the pre-bidding conference held on September 18, 1993, interested bidders were given copies of the JVA between NIDC and KAWASAKI, and of the Asset Specific Bidding Rules (ASBR) drafted for the National Government’s 87.6% equity share in PHILSECO.5 The provisions of the ASBR were explained to the interested bidders who were notified that the bidding would be held on December 2, 1993. A portion of the ASBR reads:

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

. . .

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

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

3.0 This public bidding shall be on an Indicative Price Bidding basis. The Indicative price set for the National Government’s 87.67% equity in PHILSECO is PESOS: ONE BILLION THREE HUNDRED MILLION (P1,300,000,000.00).

. . .

6.0 The highest qualified bid will be submitted to the APT Board of Trustees at its regular meeting following the bidding, for the purpose of determining whether or not it should be endorsed by the APT Board of Trustees to the COP, and the latter approves the same. The APT shall advise Kawasaki

Heavy Industries, Inc. and/or its nominee, Philyards Holdings, Inc., that the highest bid is acceptable to the National Government. Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. shall then have a period of thirty (30) calendar days from the date of receipt of such advice from APT within which to exercise their "Option to Top the Highest Bid" by offering a bid equivalent to the highest bid plus five (5%) percent thereof.

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

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

. . .

12.0 The bidder shall be solely responsible for examining with appropriate care these rules, the official bid forms, including any addenda or amendments thereto issued during the bidding period. The bidder shall likewise be responsible for informing itself with respect to any and all conditions concerning the PHILSECO Shares which may, in any manner, affect the bidder’s proposal. Failure on the part of the bidder to so examine and inform itself shall be its sole risk and no relief for error or omission will be given by APT or COP. . ..6

At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc. submitted a bid of Two Billion and Thirty Million Pesos (P2,030,000,000.00) with an acknowledgement of KAWASAKI/Philyards’ right to top, viz:

4. I/We understand that the Committee on Privatization (COP) has up to thirty (30) days to act on APT’s recommendation based on the result of this bidding. Should the COP approve the highest bid, APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee, Philyards Holdings, Inc. that the highest bid is acceptable to the National Government. Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc. shall then have a period of thirty (30) calendar days from the date of receipt of such advice from APT within which to exercise their "Option to Top the Highest Bid" by offering a bid equivalent to the highest bid plus five (5%) percent thereof.7

As petitioner was declared the highest bidder, the COP approved the sale on December 3, 1993 "subject to the right of Kawasaki Heavy Industries, Inc./Philyards Holdings, Inc. to top JGSMI’s bid by 5% as specified in the bidding rules."8

On December 29, 1993, petitioner informed APT that it was protesting the offer of PHI to top its bid on the grounds that: (a) the KAWASAKI/PHI consortium composed of Kawasaki, Philyards, Mitsui, Keppel, SM Group, ICTSI and Insular Life violated the ASBR because the last four (4) companies were the losing bidders thereby circumventing the law and prejudicing the weak winning bidder; (b) only KAWASAKI could exercise the right to top; (c) giving the same option to top to PHI constituted unwarranted benefit to a third party; (d) no right of first refusal can be exercised in a public bidding or auction sale; and (e) the JG Summit consortium was not estopped from questioning the proceedings.9

On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the purchase price of the subject bidding. On February 7, 1994, the APT notified petitioner that PHI had exercised its option to top the highest bid and that the COP had approved the same on January 6, 1994. On February 24, 1994, the APT and PHI executed a Stock Purchase Agreement.10 Consequently, petitioner filed with this Court a Petition for Mandamus under G.R. No. 114057. On May 11, 1994, said petition was referred to the Court of Appeals. On July 18, 1995, the Court of Appeals denied the same for lack of merit. It ruled that the petition for mandamus was not the proper remedy to question the constitutionality or legality of the right of first refusal and the right to top that was exercised by KAWASAKI/PHI, and that the matter must be brought "by the proper party in the proper forum at the proper time and threshed out in a full blown trial." The Court of Appeals further ruled that the right of first refusal and the right to top are prima facie legal and that the petitioner, "by participating in the public bidding, with full knowledge of the right to top granted to KASAWASAKI/Philyards is . . .estopped from questioning the validity of the award given to Philyards after the latter exercised the right to top and had paid in full the purchase price of the subject shares, pursuant to the ASBR." Petitioner filed a Motion for Reconsideration of said Decision which was denied on March 15, 1996. Petitioner thus filed a Petition for Certiorari with this Court alleging grave abuse of discretion on the part of the appellate court.11

On November 20, 2000, this Court rendered the now assailed Decision ruling among others that the Court of Appeals erred when it dismissed the petition on the sole ground of the impropriety of the special civil action ofmandamus because the petition was also one of certiorari.12 It further ruled that a shipyard like PHILSECO is a public utility whose capitalization must be sixty percent (60%) Filipino-owned.13 Consequently, the right to top granted to KAWASAKI under the Asset Specific Bidding Rules (ASBR) drafted for the sale of the 87.67% equity of the National Government in PHILSECO is illegal---not only because it violates the rules on competitive bidding--- but more so, because it allows foreign corporations to own more than 40% equity in the shipyard.14 It also held that "although the petitioner had the opportunity to examine the ASBR before it participated in the bidding, it cannot be estopped from questioning the unconstitutional, illegal and inequitable provisions thereof."15 Thus, this Court voided the transfer of the national government’s 87.67% share in PHILSECO to Philyard Holdings, Inc., and upheld the right of JG Summit, as the highest bidder, to take title to the said shares, viz:

Wherefore, the instant petition for review on certiorari is GRANTED. The assailed Decision and Resolution of the Court of Appeals are REVERSED and SET ASIDE. Petitioner is ordered to pay to APT its bid price of Two Billion Thirty Million Pesos

(P2,030,000,000.00 ), less its bid deposit plus interests upon the finality of this Decision. In turn, APT is ordered to:

(a) accept the said amount of P2,030,000,000.00 less bid deposit and interests from petitioner;

(b) execute a Stock Purchase Agreement with petitioner;

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

(d) return to private respondent PHGI the amount of Two Billion One Hundred Thirty-One Million Five Hundred Thousand Pesos (P2,131,500,000.00); and

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

SO ORDERED.16

In separate Motions for Reconsideration,17 respondents submit three basic issues for our resolution: (1) Whether PHILSECO is a public utility; (2) Whether under the 1977 JVA, KAWASAKI can exercise its right of first refusal only up to 40% of the total capitalization of PHILSECO; and (3) Whether the right to top granted to KAWASAKI violates the principles of competitive bidding.

I.Whether PHILSECO is a Public Utility.

After carefully reviewing the applicable laws and jurisprudence, we hold that PHILSECO is not a public utility for the following reasons:

First. By nature, a shipyard is not a public utility.

A "public utility" is "a business or service engaged in regularly supplying the public with some commodity or service of public consequence such as electricity, gas, water, transportation, telephone or telegraph service."18To constitute a public utility, the facility must be necessary for the maintenance of life and occupation of the residents. However, the fact that a business offers services or goods that promote public good and serve the interest of the public does not automatically make it a public utility. Public use is not synonymous with public interest. As its name indicates, the term "public utility" implies public use and service to the public. The principal determinative characteristic of a public utility is that of service to, or readiness to serve, an indefinite public or portion of the public as such which has a legal right to demand and receive its services or commodities. Stated otherwise, the owner or person in control of a public utility must have devoted it to such use that the public generally or that part of the public which has been served and has accepted the service, has the right to demand that use or service so long as it is continued, with reasonable efficiency and under proper charges.19 Unlike a private enterprise which

independently determines whom it will serve, a "public utility holds out generally and may not refuse legitimate demand for service."20 Thus, in Iloilo Ice and Cold Storage Co. vs. Public Utility Board,21 this Court defined "public use," viz:

"Public use" means the same as "use by the public." The essential feature of the public use is that it is not confined to privileged individuals, but is open to the indefinite public. It is this indefinite or unrestricted quality that gives it its public character. In determining whether a use is public, we must look not only to the character of the business to be done, but also to the proposed mode of doing it. If the use is merely optional with the owners, or the public benefit is merely incidental, it is not a public use, authorizing the exercise of jurisdiction of the public utility commission. There must be, in general, a right which the law compels the owner to give to the general public. It is not enough that the general prosperity of the public is promoted. Public use is not synonymous with public interest. The true criterion by which to judge the character of the use is whether the public may enjoy it by right or only by permission.22 (emphasis supplied)

Applying the criterion laid down in Iloilo to the case at bar, it is crystal clear that a shipyard cannot be considered a public utility.

A "shipyard" is "a place or enclosure where ships are built or repaired."23 Its nature dictates that it serves but a limited clientele whom it may choose to serve at its discretion. While it offers its facilities to whoever may wish to avail of its services, a shipyard is not legally obliged to render its services indiscriminately to the public. It has no legal obligation to render the services sought by each and every client. The fact that it publicly offers its services does not give the public a legal right to demand that such services be rendered.

There can be no disagreement that the shipbuilding and ship repair industry is imbued with public interest as it involves the maintenance of the seaworthiness of vessels dedicated to the transportation of either persons or goods. Nevertheless, the fact that a business is affected with public interest does not imply that it is under a duty to serve the public. While the business may be regulated for public good, the regulation cannot justify the classification of a purely private enterprise as a public utility. The legislature cannot, by its mere declaration, make something a public utility which is not in fact such; and a private business operated under private contracts with selected customers and not devoted to public use cannot, by legislative fiat or by order of a public service commission, be declared a public utility, since that would be taking private property for public use without just compensation, which cannot be done consistently with the due process clause.24

It is worthy to note that automobile and aircraft manufacturers, which are of similar nature to shipyards, are not considered public utilities despite the fact that their operations greatly impact on land and air transportation. The reason is simple. Unlike commodities or services traditionally regarded as public utilities such as electricity, gas, water, transportation, telephone or telegraph service, automobile and aircraft manufacturing---and for that matter ship building and ship repair--- serve the public only incidentally.

Second. There is no law declaring a shipyard as a public utility.

History provides us hindsight and hindsight ought to give us a better view of the intent of any law. The succession of laws affecting the status of shipyards ought not to obliterate, but rather, give us full picture of the intent of the legislature. The totality of the circumstances, including the contemporaneous interpretation accorded by the administrative bodies tasked with the enforcement of the law all lead to a singular conclusion: that shipyards are not public utilities.

Since the enactment of Act No. 2307 which created the Public Utility Commission (PUC) until its repeal by Commonwealth Act No. 146, establishing the Public Service Commission (PSC), a shipyard, by legislative declaration, has been considered a public utility.25 A Certificate of Public Convenience (CPC) from the PSC to the effect that the operation of the said service and the authorization to do business will promote the public interests in a proper and suitable manner is required before any person or corporation may operate a shipyard.26 In addition, such persons or corporations should abide by the citizenship requirement provided in Article XIII, section 8 of the 1935 Constitution,27 viz:

Sec. 8. No franchise, certificate, or any other form or authorization for the operation of a public utility shall be granted except to citizens of the Philippines or to corporations or other entities organized under the laws of the Philippines, sixty per centum of the capital of which is owned by citizens of the Philippines, nor shall such franchise, certificate or authorization be exclusive in character or for a longer period than fifty years. No franchise or right shall be granted to any individual, firm or corporation, except under the condition that it shall be subject to amendment, alteration, or repeal by the National Assembly when the public interest so requires. (emphasis supplied)

To accelerate the development of shipbuilding and ship repair industry, former President Ferdinand E. Marcos issued P.D. No. 666 granting the following incentives:

SECTION 1. Shipbuilding and ship repair yards duly registered with the Maritime Industry Authority shall be entitled to the following incentive benefits:

(a) Exemption from import duties and taxes.- The importation of machinery, equipment and materials for shipbuilding, ship repair and/or alteration, including indirect import, as well as replacement and spare parts for the repair and overhaul of vessels such as steel plates, electrical machinery and electronic parts, shall be exempt from the payment of customs duty and compensating tax: Provided, however, That the Maritime Industry Authority certifies that the item or items imported are not produced locally in sufficient quantity and acceptable quality at reasonable prices, and that the importation is directly and actually needed and will be used exclusively for the construction, repair, alteration, or overhaul of merchant vessels, and other watercrafts; Provided, further, That if the above machinery, equipment, materials and spare parts are sold to non-tax exempt persons or entities, the corresponding duties and taxes shall be paid by the original importer; Provided, finally, That local dealers and/or agents who sell machinery, equipment, materials and accessories to shipyards for shipbuilding and ship repair are entitled to tax credits, subject to approval by the total tariff duties and compensating tax paid for said machinery, equipment, materials and accessories.

(b) Accelerated depreciation.- Industrial plant and equipment may, at the option of the shipbuilder and ship repairer, be depreciated for any number of years between five years and expected economic life.

(c) Exemption from contractor’s percentage tax.- The gross receipts derived by shipbuilders and ship repairers from shipbuilding and ship repairing activities shall be exempt from the Contractor’s Tax provided in Section 91 of the National Internal Revenue Code during the first ten years from registration with the Maritime Industry Authority, provided that such registration is effected not later than the year 1990; Provided, That any and all amounts which would otherwise have been paid as contractor’s tax shall be set aside as a separate fund, to be known as "Shipyard Development Fund", by the contractor for the purpose of expansion, modernization and/or improvement of the contractor’s own shipbuilding or ship repairing facilities; Provided, That, for this purpose, the contractor shall submit an annual statement of its receipts to the Maritime Industry Authority; and Provided, further, That any disbursement from such fund for any of the purposes hereinabove stated shall be subject to approval by the Maritime Industry Authority.

In addition, P.D. No. 666 removed the shipbuilding and ship repair industry from the list of public utilities, thereby freeing the industry from the 60% citizenship requirement under the Constitution and from the need to obtain Certificate of Public Convenience pursuant to section 15 of C.A No. 146. Section 1 (d) of P.D. 666 reads:

(d) Registration required but not as a Public Utility.- The business of constructing and repairing vessels or parts thereof shall not be considered a public utility and no Certificate of Public Convenience shall be required therefor. However, no shipyard, graving dock, marine railway or marine repair shop and no person or enterprise shall engage in construction and/or repair of any vessel, or any phase or part thereof, without a valid Certificate of Registration and license for this purpose from the Maritime Industry Authority, except those owned or operated by the Armed Forces of the Philippines or by foreign governments pursuant to a treaty or agreement. (emphasis supplied)

Any law, decree, executive order, or rules and regulations inconsistent with P.D. No. 666 were repealed or modified accordingly.28 Consequently, sections 13 (b) and 15 of C.A. No. 146 were repealed in so far as the former law included shipyards in the list of public utilities and required the certificate of public convenience for their operation. Simply stated, the repeal was due to irreconcilable inconsistency, and by definition, this kind of repeal falls under the category of an implied repeal.29

On April 28, 1983, Batas Pambansa Blg. 391, also known as the "Investment Incentive Policy Act of 1983," was enacted. It laid down the general policy of the government to encourage private domestic and foreign investments in the various sectors of the economy, to wit:

Sec. 2. Declaration of Investment Policy.- It is the policy of the State to encourage private domestic and foreign investments in industry, agriculture, mining and other sectors of the economy which shall: provide significant employment opportunities relative to the amount of the capital being invested; increase productivity of the land, minerals, forestry, aquatic and other resources of the country, and improve utilization of the products thereof; improve technical skills of the people employed in the enterprise; provide a foundation for the future development of the economy; accelerate development of less developed regions of the country; and result in increased volume and value of exports for the economy.

It is the policy of the State to extend to projects which will significantly contribute to the attainment of these objectives, fiscal incentives without which said projects may not be established in the locales, number and/or pace required for optimum national economic development. Fiscal incentive systems shall be devised to compensate for market imperfections, reward performance of making contributions to economic development, cost-efficient and be simple to administer.

The fiscal incentives shall be extended to stimulate establishment and assist initial operations of the enterprise, and shall terminate after a period of not more than 10 years from registration or start-up of operation unless a special period is otherwise stated.

The foregoing declaration shall apply to all investment incentive schemes and in particular will supersede article 2 of Presidential Decree No. 1789. (emphases supplied)

With the new investment incentive regime, Batas Pambansa Blg. 391 repealed the following laws, viz:

Sec. 20. The following provisions are hereby repealed:

1) Section 53, P.D. 463 (Mineral Resources Development Decree);

2.) Section 1, P.D. 666 (Shipbuilding and Ship Repair Industry);

3) Section 6, P.D. 1101 (Radioactive Minerals);

4) LOI 508 extending P.D. 791 and P.D. 924 (Sugar); and

5) The following articles of Presidential Decree 1789: 2, 18, 19, 22, 28, 30, 39, 49 (d), 62, and 77. Articles 45, 46 and 48 are hereby amended only with respect to domestic and export producers.

All other laws, decrees, executive orders, administrative orders, rules and regulations or parts thereof which are inconsistent with the provisions of this Act are hereby repealed, amended or modified accordingly.

All other incentive systems which are not in any way affected by the provisions of this Act may be restructured by the President so as to render them cost-efficient and to make them conform with the other policy guidelines in the declaration of policy provided in Section 2 of this Act. (emphasis supplied)

From the language of the afore-quoted provision, the whole of P.D. No. 666, section 1 was expressly and categorically repealed. As a consequence, the provisions of C.A. No. 146, which were impliedly repealed by P.D. No. 666, section 1 were revived.30 In other words, with the enactment of Batas Pambansa Blg. 391, a shipyard reverted back to its status as a public utility and as such, requires a CPC for its operation.

The crux of the present controversy is the effect of the express repeal of Batas Pambansa Blg. 391 by Executive Order No. 226 issued by former President Corazon C. Aquino under her emergency powers.

We rule that the express repeal of Batas Pambansa Blg. 391 by E.O. No. 226 did not revive Section 1 of P.D. No. 666. But more importantly, it also put a period to the existence of sections 13 (b) and 15 of C.A. No. 146. It bears emphasis that sections 13 (b) and 15 of C.A. No. 146, as originally written, owed their continued existence to Batas Pambansa Blg. 391. Had the latter not repealed P.D. No. 666, the former should have been modified accordingly and shipyards effectively removed from the list of public utilities. Ergo, with the express repeal of Batas Pambansa Blg. 391 by E.O. No. 226, the revival of sections 13 (b) and 15 of C.A. No. 146 had no more leg to stand on. A law that has been expressly repealed ceases to exist and becomes inoperative from the moment the repealing law becomes effective.31 Hence, there is simply no basis in the conclusion that shipyards remain to be a public utility. A repealed statute cannot be the basis for classifying shipyards as public utilities.

In view of the foregoing, there can be no other conclusion than to hold that a shipyard is not a pubic utility. A shipyard has been considered a public utility merely by legislative declaration. Absent this declaration, there is no more reason why it should continuously be regarded as such. The fact that the legislature did not clearly and unambiguously express its intention to include shipyards in the list of public utilities indicates that that it did not intend to do so. Thus, a shipyard reverts back to its status as non-public utility prior to the enactment of the Public Service Law.

This interpretation is in accord with the uniform interpretation placed upon it by the Board of Investments (BOI), which was entrusted by the legislature with the preparation of annual Investment Priorities Plan (IPPs). The BOI has consistently classified shipyards as part of the manufacturing sector and not of the public utilities sector. The enactment of Batas Pambansa Blg. 391 did not alter the treatment of the BOI on shipyards. It has been, as at present, classified as part of the manufacturing and not of the public utilities sector.32

Furthermore, of the 441 Ship Building and Ship Repair (SBSR) entities registered with the MARINA,33 none appears to have an existing franchise. If we continue to hold that a shipyard is a pubic utility, it is a necessary consequence that all these entities should have obtained a franchise as was the rule prior to the enactment of P.D. No. 666. But MARINA remains without authority, pursuant to P.D. No. 47434 to issue franchises for the operation of shipyards. Surely, the legislature did not intend to

create a vacuum by continuously treating a shipyard as a public utility without giving MARINA the power to issue a Certificate of Public Convenience (CPC) or a Certificate of Public Convenience and Necessity (CPCN) as required by section 15 of C.A. No. 146.

II.Whether under the 1977 Joint Venture Agreement,KAWASAKI can purchase only a maximum of 40%

of PHILSECO’s total capitalization.

A careful reading of the 1977 Joint Venture Agreement reveals that there is nothing that prevents KAWASAKI from acquiring more than 40% of PHILSECO’s total capitalization. Section 1 of the 1977 JVA states:

1.3 The authorized capital stock of Philseco shall be P330 million. The parties shall thereafter increase their subscription in Philseco as may be necessary and as called by the Board of Directors, maintaining a proportion of 60%-40% for NIDC and KAWASAKI respectively, up to a total subscribed and paid-up capital stock of P312 million.

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

1.5 The By-Laws of SNS [PHILSECO] shall grant the parties preemptive rights to unissued shares of SNS [PHILSECO].35

Under section 1.3, the parties agreed to the amount of P330 million as the total capitalization of their joint venture. There was no mention of the amount of their initial subscription. What is clear is that they are to infuse the needed capital from time to time until the total subscribed and paid-up capital reaches P312 million. The phrase "maintaining a proportion of 60%-40%" refers to their respective share of the burden each time the Board of Directors decides to increase the subscription to reach the target paid-up capital of P312 million. It does not bind the parties to maintain the sharing scheme all throughout the existence of their partnership.

The parties likewise agreed to arm themselves with protective mechanisms to preserve their respective interests in the partnership in the event that (a) one party decides to sell its shares to third parties; and (b) new Philseco shares are issued. Anent the first situation, the non-selling party is given the right of first refusal under section 1.4 to have a preferential right to buy or to refuse the selling party’s shares. The right of first refusal is meant to protect the original or remaining joint venturer(s) or shareholder(s) from the entry of third persons who are not acceptable to it as co-venturer(s) or co-shareholder(s). The joint venture between the Philippine Government and KAWASAKI is in the nature of a partnership36 which, unlike an ordinary corporation, is based on delectus personae.37 No one can become a member of the partnership association without the consent of all the other associates. The

right of first refusal thus ensures that the parties are given control over who may become a new partner in substitution of or in addition to the original partners. Should the selling partner decide to dispose all its shares, the non-selling partner may acquire all these shares and terminate the partnership. No person or corporation can be compelled to remain or to continue the partnership. Of course, this presupposes that there are no other restrictions in the maximum allowable share that the non-selling partner may acquire such as the constitutional restriction on foreign ownership in public utility. The theory that KAWASAKI can acquire, as a maximum, only 40% of PHILSECO’s shares is correct only if a shipyard is a public utility. In such instance, the non-selling partner who is an alien can acquire only a maximum of 40% of the total capitalization of a public utility despite the grant of first refusal. The partners cannot, by mere agreement, avoid the constitutional proscription. But as afore-discussed, PHILSECO is not a public utility and no other restriction is present that would limit the right of KAWASAKI to purchase the Government’s share to 40% of Philseco’s total capitalization.

Furthermore, the phrase "under the same terms" in section 1.4 cannot be given an interpretation that would limit the right of KAWASAKI to purchase PHILSECO shares only to the extent of its original proportionate contribution of 40% to the total capitalization of the PHILSECO. Taken together with the whole of section 1.4, the phrase "under the same terms" means that a partner to the joint venture that decides to sell its shares to a third party shall make a similar offer to the non-selling partner. The selling partner cannot make a different or a more onerous offer to the non-selling partner.

The exercise of first refusal presupposes that the non-selling partner is aware of the terms of the conditions attendant to the sale for it to have a guided choice. While the right of first refusal protects the non-selling partner from the entry of third persons, it cannot also deprive the other partner the right to sell its shares to third persons if, under the same offer, it does not buy the shares.

Apart from the right of first refusal, the parties also have preemptive rights under section 1.5 in the unissued shares of Philseco. Unlike the former, this situation does not contemplate transfer of a partner’s shares to third parties but the issuance of new Philseco shares. The grant of preemptive rights preserves the proportionate shares of the original partners so as not to dilute their respective interests with the issuance of the new shares. Unlike the right of first refusal, a preemptive right gives a partner a preferential right over the newly issued shares only to the extent that it retains its original proportionate share in the joint venture.

The case at bar does not concern the issuance of new shares but the transfer of a partner’s share in the joint venture. Verily, the operative protective mechanism is the right of first refusal which does not impose any limitation in the maximum shares that the non-selling partner may acquire.

III.Whether the right to top granted to KAWASAKIin exchange for its right of first refusal violates

the principles of competitive bidding.

We also hold that the right to top granted to KAWASAKI and exercised by private respondent did not violate the rules of competitive bidding.

The word "bidding" in its comprehensive sense means making an offer or an invitation to prospective contractors whereby the government manifests its intention to make proposals for the purpose of supplies, materials and equipment for official business or public use, or for public works or repair.38 The three principles of public bidding are: (1) the offer to the public; (2) an opportunity for competition; and (3) a basis for comparison of bids.39 As long as these three principles are complied with, the public bidding can be considered valid and legal. It is not necessary that the highest bid be automatically accepted. The bidding rules may specify other conditions or the bidding process be subjected to certain reservation or qualification such as when the owner reserves to himself openly at the time of the sale the right to bid upon the property, or openly announces a price below which the property will not be sold. Hence, where the seller reserves the right to refuse to accept any bid made, a binding sale is not consummated between the seller and the bidder until the seller accepts the bid. Furthermore, where a right is reserved in the seller to reject any and all bids received, the owner may exercise the right even after the auctioneer has accepted a bid, and this applies to the auction of public as well as private property. 40 Thus:

It is a settled rule that where the invitation to bid contains a reservation for the Government to reject any or all bids, the lowest or the highest bidder, as the case may be, is not entitled to an award as a matter of right for it does not become a ministerial duty of the Government to make such an award. Thus, it has been held that where the right to reject is so reserved, the lowest bid or any bid for that matter may be rejected on a mere technicality, that all bids may be rejected, even if arbitrarily and unwisely, or under a mistake, and that in the exercise of a sound discretion, the award may be made to another than the lowest bidder. And so, where the Government as advertiser, availing itself of that right, makes its choice in rejecting any or all bids, the losing bidder has no cause to complain nor right to dispute that choice, unless an unfairness or injustice is shown. Accordingly, he has no ground of action to compel the Government to award the contract in his favor, nor compel it to accept his bid.41

In the instant case, the sale of the Government shares in PHILSECO was publicly known. All interested bidders were welcomed. The basis for comparing the bids were laid down. All bids were accepted sealed and were opened and read in the presence of the COA’s official representative and before all interested bidders. The only question that remains is whether or not the existence of KAWASAKI’s right to top destroys the essence of competitive bidding so as to say that the bidders did not have an opportunity for competition. We hold that it does not.

The essence of competition in public bidding is that the bidders are placed on equal footing. This means that all qualified bidders have an equal chance of winning the auction through their bids. In the case at bar, all of the bidders were exposed to the same risk and were subjected to the same condition, i.e., the existence of KAWASAKI’s right to top. Under the ASBR, the Government expressly reserved the right to reject any or all bids, and manifested its intention not to accept the highest bid should KAWASAKI decide to exercise its right to top under the ABSR. This reservation or qualification was made known to the bidders in a pre-bidding

conference held on September 28, 1993. They all expressly accepted this condition in writing without any qualification. Furthermore, when the Committee on Privatization notified petitioner of the approval of the sale of the National Government shares of stock in PHILSECO, it specifically stated that such approval was subject to the right of KAWASAKI Heavy Industries, Inc./Philyards Holdings, Inc. to top JGSMI’s bid by 5% as specified in the bidding rules. Clearly, the approval of the sale was a conditional one. Since Philyards eventually exercised its right to top petitioner’s bid by 5%, the sale was not consummated. Parenthetically, it cannot be argued that the existence of the right to top "set for naught the entire public bidding." Had Philyards Holdings, Inc. failed or refused to exercise its right to top, the sale between the petitioner and the National Government would have been consummated. In like manner, the existence of the right to top cannot be likened to a second bidding, which is countenanced, except when there is failure to bid as when there is only one bidder or none at all. A prohibited second bidding presupposes that based on the terms and conditions of the sale, there is already a highest bidder with the right to demand that the seller accept its bid. In the instant case, the highest bidder was well aware that the acceptance of its bid was conditioned upon the non-exercise of the right to top.

To be sure, respondents did not circumvent the requirements for bidding by granting KAWASAKI, a non-bidder, the right to top the highest bidder. The fact that KAWASAKI’s nominee to exercise the right to top has among its stockholders some losing bidders cannot also be deemed "unfair."

It must be emphasized that none of the parties questions the existence of KAWASAKI’s right of first refusal, which is concededly the basis for the grant of the right to top. Under KAWASAKI’s right of first refusal, the National Government is under the obligation to give preferential right to KAWASAKI in the event it decides to sell its shares in PHILSECO. It has to offer to KAWASAKI the shares and give it the option to buy or refuse under the same terms for which it is willing to sell the said shares to third parties. KAWASAKI is not a mere non-bidder. It is a partner in the joint venture; the incidents of which are governed by the law on contracts and on partnership.

It is true that properties of the National Government, as a rule, may be sold only after a public bidding is held. Public bidding is the accepted method in arriving at a fair and reasonable price and ensures that overpricing, favoritism and other anomalous practices are eliminated or minimized.42 But the requirement for public bidding does not negate the exercise of the right of first refusal. In fact, public bidding is an essential first step in the exercise of the right of first refusal because it is only after the public bidding that the terms upon which the Government may be said to be willing to sell its shares to third parties may be known.1âwphi1 It is only after the public bidding that the Government will have a basis with which to offer KAWASAKI the option to buy or forego the shares.

Assuming that the parties did not swap KAWASAKI’s right of first refusal with the right to top, KAWASAKI would have been able to buy the National Government’s shares in PHILSECO under the same terms as offered by the highest bidder. Stated otherwise, by exercising its right of first refusal, KAWASAKI could have bought the shares for only P2.03 billion and not the higher amount of P2.1315 billion. There is, thus, no basis in the submission that the right to top unfairly favored KAWASAKI. In fact, with

the right to top, KAWASAKI stands to pay higher than it should had it settled with its right of first refusal. The obvious beneficiary of the scheme is the National Government.

If at all, the obvious consideration for the exchange of the right of first refusal with the right to top is that KAWASAKI can name a nominee, which it is a shareholder, to exercise the right to top. This is a valid contractual stipulation; the right to top is an assignable right and both parties are aware of the full legal consequences of its exercise. As aforesaid, all bidders were aware of the existence of the right to top, and its possible effects on the result of the public bidding was fully disclosed to them. The petitioner, thus, cannot feign ignorance nor can it be allowed to repudiate its acts and question the proceedings it had fully adhered to.43

The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group, Insular Life Assurance, Mitsui and ICTSI), has joined Philyards in the latter’s effort to raise P2.131 billion necessary in exercising the right to top is not contrary to law, public policy or public morals. There is nothing in the ASBR that bars the losing bidders from joining either the winning bidder (should the right to top is not exercised) or KAWASAKI/PHI (should it exercise its right to top as it did), to raise the purchase price. The petitioner did not allege, nor was it shown by competent evidence, that the participation of the losing bidders in the public bidding was done with fraudulent intent. Absent any proof of fraud, the formation by Philyards of a consortium is legitimate in a free enterprise system. The appellate court is thus correct in holding the petitioner estopped from questioning the validity of the transfer of the National Government’s shares in PHILSECO to respondent.

Finally, no factual basis exists to support the view that the drafting of the ASBR was illegal because no prior approval was given by the COA for it, specifically the provision on the right to top the highest bidder and that the public auction on December 2, 1993 was not witnessed by a COA representative. No evidence was proffered to prove these allegations and the Court cannot make legal conclusions out of mere allegations. Regularity in the performance of official duties is presumed44 and in the absence of competent evidence to rebut this presumption, this Court is duty bound to uphold this presumption.

IN VIEW OF THE FOREGOING, the Motion for Reconsideration is hereby GRANTED. The impugned Decision and Resolution of the Court of Appeals are AFFIRMED.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Ynares-Santiago, and Corona, JJ., concur.

Tinga, J., please see separate opinion.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-5242            August 6, 1910

ALDECOA & CO., plaintiff-appellant, vs.WARNER, BARNES & CO., LTD., defendant-appellee.

Rosado, Sanz and Opisso, for appellant.Haussermann, Ortigas, Cohn and Fisher, for appellee.

TORRES, J.:

By a complaint filed on September 26, 1907, the legal representative of Aldecoa and Co., in liquidation, filed suit in the Court of First Instance of Manila against Warner, Barnes and Co., Ltd., alleging in the first three paragraphs of their complaint, as a cause of action, that the plaintiff is a regular collective mercantile association organized in accordance with the laws of these islands, duly registered in the mercantile registry, and at present in liquidation; that the defendant is a joint stock mercantile firm organized in accordance with the laws of England, registered in the mercantile registry of Manila, and has done and is still doing business in these Islands under the name of Warner, Barnes and Co., Ltd., which required the business that was conducted in these Islands by Warner, Barnes and Co., the assets, liabilities, and all the obligations of which were assumed by the defendant.

In other paragraphs of the complaint, from the fourth to the twelfth, the plaintiff set forth that, prior to December 1, 1898, Warner, Barnes and Co. were conducting a business in Albay, the principal object of which was the purchase of hemp in the pueblos of Legaspi and Tobacco for the purpose of bringing it to Manila, here to sell if for exportation, and that on the said date of December 1, 1898, the plaintiff company became interested in the said business of Warner, Barnes and Co., in Albay and formed therewith a joint-account partnership whereby Aldecoa and Co., were to share equally in the gains and losses of the business in Albay; that the defendant is the successor to all the rights and obligations of Warner, Barnes and Co., among which is that of being manager of the said joint-account partnership with Aldecoa and Co.; that the defendant acted, and continues to act as such manager, and is obliged to render accounts supported by proofs, and to liquidate the business, which defendant not only has not done, in spite of the demand made upon it, but it has expressly denied the right of plaintiff to examine the vouchers, contenting itself with forwarding copies of the entries in its books, which entries contain errors and omissions that hereinafter will be mentioned.

Said entries moreover, whereas its operations should have commenced and did commence on December 1, 1898, on which date the joint-account partnership commenced; that, with respect to the liquidation of the business, the operations

having been closed on December 31, 1903, Warner, Barnes and Co., Ltd., the defendant, has not realized upon the assets of the firm by selling the property which constitutes its capital; that the persons who were the managers and general partners of Warner, Barnes and Co., Ltd., and are the managers and directors of that firm in the Philippine Islands and are the ones who, under the previous firm name of Warner, Barnes and Co., admitted Aldecoa and Co. as a participant in one-half of the said business, on the 1st day of December, 1898; that the said directors of the defendant company, unlawfully, maliciously, and criminally conspired with the persons who were managing the commercial firm of Aldecoa and Co. during the years 1899, 1900, 1901, 1902, and 1903, to defraud the latter of its interest in the said joint-account partnership, buying the silence of the said managers with respect to the operations of the joint-account partnership during the time comprised between the 1st of December, 1898, and the 30th of June, 1899, and also with respect to the errors and omission in the accounts relating to the second semester of 1899, and those relating to 1900, 1901, 1902, and 1903.

That the said fraudulent acts were not known to the partners of the plaintiff firm until the managers, in collusion with the managers of the defendant firm to defraud and injure the plaintiff firm, had ceased to hold their positions, to wit, until after the 31st of December, 1906, and that by reason of this conspiracy to defraud the plaintiffs, the defendants have been benefited; that the errors and omissions found in the entries of the books kept by the defendant firm as manager of the joint-account partnership are those expressed in details here below:

(a) It appears that between the 10th of July and the 26th of December, 1899, 43,934 piculs of hemp arrived in Manila for the joint-account partnership, which were purchased in Legaspi and Tobacco at 13 pesos per picul, and, after charging against this hemp excessive expenses for collection, storage, freight, fire, marine, and war insurance, personnel, etc., the defendants, Warner, Barnes and Co., as managers of the joint-account partnership and commission agents of their joint-account partners, claim that they purchased the said hemp for themselves, but do not give the price received from the sale thereof and merely credit it at 13 pesos a picul, when the average market price at that time was 16.50 pesos a picul; said defendants thereby injuring plaintiffs to the amount of P76,884.50.

(b) Striking a balance from the amount of hemp debited and that credited, there results a difference of 4,332.96 piculs not credited which, at 24 pesos a picul, the market price at the time, represents an injury to plaintiffs to the extent of P51,995.52, the said deficit, with respect to the hemp, pertaining to the period beginning with December 31, 1899, in the manner shown by the following table:

Invoices & Cr. Dr.

Piculs Piculs

1899 Dec. 31 ....................................... 86,534.18 43,934

1900 Apr. 30 ...................................... 13,069.97 50,261.78

1900 Dec. 31 ...................................... 67,892.56 71,277

1901 Dec. 31 ...................................... 101,253.31 100,342

1902 Dec. 31 ...................................... 98,074.52 94,279.20

1903 Dec. 31 ...................................... 66,482.49 68,880.09 ¯¯¯¯¯¯¯¯ ¯¯¯¯¯¯¯¯ 433,307.03 428,974.07 4,332.96 ¯¯¯¯¯¯¯¯ ¯¯¯¯¯¯¯¯ Lacking .............................................. 433,307.03 433,307.03

(c) In 1900, on April 30, Messrs. Warner, Barnes and Co. Ltd., give credit for 5,485 piculs of hemp, at 16 pesos a picul, when the market price at that time, according to themselves, was P23.78½; thereby injuring plaintiffs in the sum of P21,350.36.

(d) In 1901, on the date of January 31, Messrs. Warner, Barnes and Co., Ltd give credit for 4,600 piculs of hemp, at 8.93 pesos a picul, when, according to themselves, the market price at that time was 11.50 pesos a picul; thereby injuring plaintiffs in the sum of P5,911.

(e) One of the sources of profit of the joint-account partnership between Aldecoa and Co. and Warner, Barnes and Co., Ltd., was from the pressing of hemp, which profit is to be credited to the partnership joint-accounts, when the hemp is realized in Manila, and from this source there are due to the plaintiffs P149,084.12, in which sum they have been injured by the defendants. The said credit for pressing is omitted from the books of Warner, Barnes and Co., Ltd., and should be entered as follows:

1899 ............................................. 21,968 bales, at P1.25 ................................. P27,460 1900 to April 30 ......................... 25,130 bales, at P1.25 ................................. 31,412.50 1900 May 10 to Dec. 31 ............ 35,639 bales, at P1.25 ................................. 44,548.75 1901.............................................. 50,151 bales, at P1.25 ................................. 62,688.75 1902 to July 31 ........................... 26,825 bales, at P1.25 ................................. 33,531.25Aug. 1 to Dec. 31 ............. 20,314 bales, at P1.75 ................................. 35,549.50 1903 ............................................. 34,440 bales, at P1.75 ................................. 60,270

¯¯¯¯¯¯ ¯¯¯¯¯¯¯¯ 214,467 bales ................................................. 295,460.75 2,166 bales, lacking, at P1.25 2,707.50

¯¯¯¯¯¯ ¯¯¯¯¯¯¯¯ 216,633 bales .................................................. 298,168.25 20 loose.

¯¯¯¯¯¯ 216,653 bales.

(f) Another error found in the books of Warner, Barnes, and Co., Ltd., is in connection with the outstanding accounts, which are debited in the sum of P52,510.36, while only P2,769.24 are credited in the manner set out in the following statement:

DR.

1899 July 31. W.B. and Co., Tobacco, transferred to net

account their account sale 92.25 piculs hides

by Kongsee ............................................................................. P1,149.46

1899 Dec. 31. For transfer account to cover business this

semester without statement .................................................. 16,100.57

1900 Feb. 28. As transferred account items noted page

114 day-book .......................................................................... 18,635.08

1900 Feb. 28. To cover war insurance, January ................................................. 4,000

1900 Feb. 28. To cover outstanding accounts ................................................... 2,625.25 ¯¯¯¯¯¯¯¯ 52,510.36

CR.

1900 Feb. 28. As transferred account items noted page

113 day-book .......................................................................... 2,769.24

¯¯¯¯¯¯¯¯ There remain, therefore ......................................................... 49,741.12 of which one-half, that is ...................................................... 24,870.56 belongs to the plaintiffs.

(g) In 1900, there is unduly included an item of net account which should be stricken out, as it does not pertain to this business. This item is the following:

1900

June 30. To Miguel Estela. For transfer made to his account

of 5 per cent commission on his hemp, which should

not be paid according to agreement ..................................... P870.75

Half of this sum, P435.37, must be credited to the plaintiffs.

(h) On the date of December 26, 1899, Messrs. Warner, Barnes and Co., Ltd., deduct from the profits which they show as belonging to Aldecoa and Co., the sum of P7,400, under the appearance of the insurance premium, and they delivered that sum to the plaintiffs' managers with whom they conspired, for the purposes of the collusion alleged in Paragraph VII of the complaint, in the manner failing to observe the truth in their statement of the facts. Aldecoa and Co., therefore, claim for themselves this amount, P7,400.

(i) On December 31, 1903, on a capital of P50,000 brought in by Aldecoa and Co., and to whom it should bear 5 per cent interest from the 8th of June, 1900, the interest is unduly credited to the joint-account, thereby injuring the plaintiffs in the sum of P8,750.

(j) On December 31, 1902, Aldecoa and Co. are charged with six months' interest, amounting to P736.46, on a balance debited against them for alleged losses, and on June 30, 1903, they are charged with P1,818.58 for a like reason. These two items should be stricken out, because the accounts when correctly made to show no losses, but profits. By such debits the plaintiffs have been injured in the sum of P1,277.52.

(k) In the entries corresponding to the years 1902 and 1903, Warner, Barnes and Co., Ltd., give the price of "corriente buena" (currect good), to the grade which, according to the mark, was classified as "abaca superior" (superior hemp); the price of "corriente ordinario" (current ordinary), to the hemp marked under the classification of "corriente buena" (current good); the price of "segunda superior" (second superior), to what is "corriente" or "current," and so on successively; whence results a difference of price to the value of P233,102.18, in 1902, and P74,274.90, in 1903, one-half of which differences should be credited to Aldecoa and Co., that is P153,688.54.

(l) The value of the properties brought in by Warner, Barnes and Co., Ltd., to the joint-account, instead of cash capital, is omitted from the accounts. These properties are the following:

Those purchased from Mariano Roisa, consisting of one galvanized-iron-roofed warehouse, with hemp press; one house of strong materials and the lot on which it stands, in Tobacco, P12,000.

That purchased from Juana Roisa, which is one small warehouse of strong materials, in Tobacco, worth about P2,500.

Those purchased from D. Manuel Zalvidea situated in Tobacco, which are: One warehouse of strong materials, with press; another warehouse of strong materials; and two houses of strong materials, together with the lots on which they are built, P22,000.

Those purchased from D. Marcos Zubeldia, in Legaspi, which are: Four warehouses with three hemp presses, and one house of strong materials, with their corresponding lots, P50,000.

Total cost, P86,500.

The complaint further sets forth that if the entries made by the defendant in its books show in themselves the foregoing errors and omissions, the plaintiff has good grounds for believing that, if the vouchers were examined, still greater errors would be found, as to which the plaintiff can not formulate its claims with exactness until the defendant renders it an account, accompanied by vouchers; that the defendant, as manager of the joint-account partnership with Alcodea & Co., neglected to comply with what is especially prescribed in article 243 of the Code of Commerce, as a duty to inherent to its position as manager of the joint-account partnership, which is that of rendering an account with vouchers, and that of liquidating the said business, for it refuses to furnish the plaintiff the documents required for their examination and verification, and also refuses to realize the firm assets by selling the warehouses, houses, and other property which constitute the capital; that, as the defendant refuses to do the things above related, the plaintiff has no other easy, expeditious and suitable remedy than to petition the court for a writ of mandamus, wherefore it prays the court to protect it in its rights and to issue the said mandamus against the defendant, ordering it, within a date set for this purpose, to render to the court an account, accompanied by invoices, receipts, and vouchers of the Albay business, beginning the said account as of December 1, 1898, the date on which the partnership was formed, and correcting in it errors and omissions related in paragraph 9 of this complaint; that the defendant credit and pay to the plaintiff the sums alleged in that paragraph to be due to the plaintiff, with interest at the legal rate upon the sums of omitted for the difference between the amounts incorrectly debited and credited, from the respective dates on which they should appear, if correctly entered; that after the said accounts have been rendered and discussed, judgment be entered for any balance which may appear in favor of the plaintiff, including the sums claimed, and legal interest thereon. The plaintiff also prays that the writ of mandamus fix a term within which the defendant is to liquidate the business, selling the properties aforementioned and distributing the proceeds between both the litigants, and that the defendant be adjudged liable for costs of suit, and plaintiff be granted such other and further relief as may be found just and equitable.

On November 11, 1907, the defendant filed a written answer an counterclaim against the defendant, and, notwithstanding the overruling of the demurrer filed by the latter to the counterclaim, the court by writ of December 4, 1907, ordered that the defendant should, within a period of five days, make its allegations more specific with respect to certain particulars mentioned in the order of the court, and both parties being notified thereof, the defendant, on January 24, 1908 prayed the court to authorize it to file the attached amended answer instead of the original one.

In the said amended answer the firm of Warner, Barnes & Co. Ltd., the defendant, states that it denies each and every one of the allegations of the complaint, with the exception of those which are expressly admitted in its answer, and admit the allegations of paragraphs 1, 2, and 3 of the complaint. In answer to the allegations of paragraphs 4 to 12 of the complaint, it admits that on June 30, 1899, a joint-account

partnership was formed between the plaintiff and the defendant transactions of which were the purchase of hemp in Legaspi and Tobacco, of which business one-half of the results, whether losses or gains, appertained to the plaintiff. Defendant also admits that the said business continued under the management of the defendant company, as manager of the said joint-account partnership, until December 31, 1903; but it denies all the other allegations contained in the said paragraphs. For its first special defense, the defendant alleges that during the period that the said joint-account partnership existed, the manager thereof, the defendant, rendered to the plaintiff just and true accounts of its transaction as manager of the said partnership, which accounts have been approved by the plaintiff, with the exception of those relating to the year 1903, and as to the latter, that the same were objected to by plaintiff firm solely upon the grounds mentioned in clause (k) of paragraph 9 of the complaint, which objections are wholly unfounded. As its second special defense, the defendant alleges that more than four years have expired between the time the alleged right of action accrued to the plaintiff and the date of the filing of the complaint. For all the reasons set forth in this amended answer, the defendant prayed that it be absolved from the complaint, with the costs against the plaintiff.

On the subsequent to the 14th of August, 1908, the trial of this cause was held and oral evidence was introduced by the plaintiff, but no witnesses were offered by the defendant, which finally moved for a dismissal of the case, and the court, on December 26 of the same year, 1908, rendered judgment, dismissing the complaint with respect to the petition for the rendering of an account, verified by invoices, receipts and vouchers, of the said Albay business, pertaining to the period comprised from the beginning of the business to the 31st of December, 1902, inclusive, assessing the costs against the plaintiff, and opening the second period of the trial with respect to the account for the whole year 1903, in accordance with the ruling of the court made at the commencement of the hearing. The plaintiff on being notified of this judgment filed a written exception thereto and announced his intention to forward through regular channels a bill of exceptions, and by another writing moved for a new trial on the ground that the evidence did not justify the judgment rendered, which it alleged it was openly and manifestly contrary to the weight of the evidence and to law. This motion being denied, to which exception was taken by the plaintiff, the latter duly filed a proper bill of exceptions which was certified to and forwarded to this court, together with all the documentary and oral evidence produced at the trial.

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

Both the plaintiff and the defendant are in accord that, through verbal agreement, the said partnership was established, whereby they should share equally the profits and losses of the business of gathering and storing hemp in Albay and selling it in Manila for exportation, and that the commercial firm of Warner, Barnes and Co., Ltd., was the manager of the said joint-account partnership.

The disagreement between the parties consists in the following points: First, as to the date when the partnership was formed and began business in the province mentioned; second, whether the managing firm did render accounts, duly verified by vouchers, of its management from the date of the organization of the partnership;

third, whether errors and omission, prejudicial to the plaintiff, Aldecoa and Co., exist in the partnership books and in its accounts, and whether, in the management of the said business, fraudulent acts were committed also to the plaintiff's injury; and, fourth, whether the partnership property should be included in the liquidation of the said business and in the accounts appertaining to the year 1903, when the existence of the partnership came to an end.

With respect to the date on which the said partnership began, the plaintiff, Aldecoa and Co., submitted evidence unrebutted by that of the defendant, Warner, Barnes and Co., Ltd., and although the latter averred that the joint-account partnership began on June 30, 1899, denying that it was commenced, or was formed, on December 1, 1898, as the plaintiff says that it was, it is certain that the defendant has not proved its averment; and if, on the opening of this case de novo  it shall not have done so within such period as the court may see fit to determine, it will be proper to find in accordance with the value of the evidence adduced by the plaintiff and to advise the defendant to render, within a fixed period, accounts, verified by vouchers, of the management of the partnership business and pertaining to the seven months from December 1, 1898, to June 29, 1899; and, in view of the evidence adduced by the plaintiff in proof of the aforesaid first point, if the defendant does not produce other evidence in rebuttal, they must, for some reason, be expressly rejected in the judgment, if they are not to be taken into account in reaching the conclusions or in considering the case upon the merits.

As regards the second point, we agree with the opinion expressed by the lower court and find that the firm of Warner, Barnes and Co., Ltd., did render accounts from June 30, 1899, to December 31, 1902, inasmuch as the very evidence introduced by the plaintiff showed that the said accounts had been rendered and were approved by it, according to the context of its own letters of the dates of July 27, 1907, and February 19, 1903. Therefore, the plaintiff is in nowise entitled, and has no right of action to compel the defendant to render the accounts pertaining to that period, they having already been rendered and duly approved.

It is a rule of law generally observed that he who takes charge of the management of another's property is bound immediately thereafter to render accounts covering his transactions; and that it is always to be understood that all accounts rendered must be duly substantiated by vouchers.

It is a fact admitted by both litigating parties that Warner, Barnes and Co., Ltd., was the manager of the business of the joint-account partnership formed between it and Aldecoa and Co., it is unquestionable that it was and is the defendant's duty to render accounts of the management of the business, as it partially has done. Although the defendant has not proved, as it should have done, that it complied with its duty of rendering accounts of its management, since the letters themselves exhibited by the plaintiff, and duly authenticated as being written by the latter, prove that the defendant did render accounts from June 30, 1899, to December 31, 1902, no legal reason whatever exists for not accepting the finding of the lower court which decided that it had been proved that accounts were rendered pertaining to the period mentioned and that the said accounts were approved by the plaintiff.

The procedure of the plaintiff is truly inexplicable in accepting and approving accounts that were rendered to it, and which only begin with June 30, 1899, inasmuch as such approval would appear to indicate that it agreed to the claim made by the defendant that the partnership commenced on the said date; but even so, once that it is proved that the actual date on which the partnership was formed was December 1, 1898, and that it is not shown that the defendant has rendered accounts corresponding to the seven months subsequent to the said date of December 1, the acceptation and approval of accounts rendered since the 30th of June 1899, does not excuse nor release the manager of the partnership, the defendant, from complying with its unquestionable duty of rendering accounts covering the aforesaid seven months. The presumption must be sustained until proof to the contrary is presented.

Moreover, the approval of accounts corresponding to the years from June 30, 1899, to December 31, 1902, does not imply that the said approved accounts comprise those pertaining that the seven months mentioned, December 1, 1899, to June 29, 1899, because the defendant, the accountant, denied that the partnership commenced on the aforesaid date of December 1st, asserting it began on June 30, 1899; wherefore, on defendant's rendering those accounts, it is to be presumed that it did so from the date which it avers was that of the information of the partnership and the beginning of the business, and it is therefore evident that it has not rendered accounts pertaining to the seven months mentioned.

With respect to the third point relative to whether errors and omissions prejudicial to the plaintiff, Aldecoa & Co., exist in the partnership books and in its accounts, and whether, in the management of the said business, fraudulent acts were committed to plaintiff's injury, it must be borne in mind that once accounts have been approved which were rendered by the managing firm of Warner, Barnes & Co., Ltd., the plaintiff, Aldecoa & Co., is not entitled afterwards to claim a revision of the same, unless it shows that there was fraud, deceit, error, or mistake in the approval of the said accounts.

Under these hypothesis, Alcodea & Co. are strictly obliged to prove the errors, omissions, and fraudulent acts attributed to the defendant, in connection with the accounts already rendered, and approved by them, in order that the same may be revised in accordance with law and the jurisprudence of the courts. (Pastor vs. Nicasio, 6 Phil. Rep., 152.)

The approval of an account does not prevent its subsequent revision, or at least its correction, if it is proved in a satisfactory manner that there was deceit and fraud or error and omission in it. (Arts. 1265, 1266, Civil Code.)

Law 30, title 11, 5th Partida, provides, among other things, the following:

That is precisely what we say should be observed, in all other accounts that men make among themselves, in connection with the things which belong to them. Notwithstanding that they may acknowledge the settlement of the accounts between them and promise never to bring them up again, if it had be known in truth that he who gave the account or had the things in his keeping, concealed anything deceitfully, or committed other fraud against those who have a share in such thing, then neither the suit, nor such

previous status and promise shall avail; on the contrary, we say that they may sue him to compel him to remedy the deceit he committed against them, and to pay all the damages and losses that have accrued to them by reason thereof; provided, however, he especially shall not have repaired the deceit that he committed.

So that it does not matter that the accounts pertaining to the years comprised between the 30th of June, 1899, and the 31st of December, 1902, may have been approved by Aldecoa & Co. Whenever this firm shall succeed in proving that there was error, omission, fraud, or deceit in these accounts, they may be duly revised, according to the law.

With regard to the last point in controversy, the defendant agrees that the plaintiff has not yet approved the accounts that the former rendered, pertaining to 1903, the last years of the existence of the joint-account partnership; and, for this reason, it was provided in the judgment appealed from that the trial should continue with respect to the said accounts corresponding to the year 1903, in order that the plaintiff might take such objections and statements in regard to the same as he deemed proper, and adduce the evidence conducive to prove his claim, in accordance with law.

It is one of the duties of the manager of a joint-account partnership, to liquidate the assets that form the common property, and to state the result obtained therefrom in the final rendering of the accounts which he is to present at the conclusion of the partnership.

Article 243 of the Code of Commerce says;

The liquidation shall be effected by the manager, and after the transactions have been concluded he shall render a proper account of its results.

It is a recognized fact, and one admitted by both parties that the partnership herein concerned concluded its transactions on December 31, 1903; wherefore the firm of Warner, Barnes & Co. Ltd., the manager of the partnership, in declaring the latter's transactions concluded and in rendering duly verified accounts of its results, owes the duty to include therein the property and effects belonging to the partnership in common. This rule was established by the supreme court of Spain in applying a similar precept of the mercantile code, in its decision on an appeal in causation of the 1st of July, 1870, setting up the following doctrine:

In case of the liquidation of a company of this kind (denominated joint-account partnership), inasmuch as the sale of the firm assets is necessarily uncertain and eventual, considering the greater or lesser selling price that may be obtained from the property and effects which comprise such assets, the price received should be alloted in the same proportion as that fixed in the contract for the division of the profits and losses, for otherwise one of the partners would be benefited to the detriment and loss of his copartners.

This doctrine is perfectly legal and in accord with justice, as no person should enrich himself wrongfully at the expense of another; and, in the case under review, should it

be duly and fully proved that the managing firm acquired realty in the name and at the expense of the joint-account partnership with the plaintiff firm, it is just that, in liquidating the property of common ownership, such realty should be divided between the partners in the same manner as were the profits and losses during the existence of the business, from the beginning of the partnership to the date of its dissolution.

By the facts herein above set forth, it has been shown that in the present state of this cause resulting from the rendering of the judgment appealed from, it has not been possible to decide in a final manner the various issues brought up and controverted by the litigants, for, though it be granted as proved that the defendant firm, the manager of the said partnership, has in fact rendered accounts pertaining to the years from June 30, 1899, to December 31, 1902, as found in the said judgment, there still remain to be decided the four points or questions of fact before specified. Wherefore, and in accordance with section 496 of the Code of Civil Procedure, a new trial should be held For the purpose of a final decision of all the questions involved in this litigation, and accordingly the judgment appealed from is set aside and this cause shall be returned to the court below, accompanied by a certified copy of this decision, for the holding of a new trial, for which purpose, first, the defendant shall be advised that it must, within a fixed period, render an account, verified by vouchers, of its management of the business of the joint-account partnership with the plaintiff, pertaining to the months from December 1, 1898, to June 29, 1899, and to the twelve months of the year 1903, unless it shall prove in a satisfactory manner that the said partnership began on June 30, 1899, contrary to the averment of the plaintiff supported by evidence that it commenced on December 1, 1898, in which case the said rendering of account shall be restricted to the twelve months of the year 1903, in the accounts of which last period must be included all the property that is found to belong to the said partnership; second, in the examination of the accounts that may be found to have been rendered, the parties may allege and prove facts conducive to their revision or approval besides availing themselves of the evidence already adduced at trial; and, third, with respect to the accounts corresponding to the period from June 30, 1899, to December 31, 1902, already approved, the trial court shall be proceed in accordance with law, duly considering the errors, omissions, mistakes and fraudulent or deceitful acts that have been alleged or may specifically be alleged in rejecting the said approved accounts, as well as the evidence introduced by both parties, and it shall be careful to decide in its final judgment all the issues raised between the parties in the course of this litigation and to provide such remedies as are proper in regard to their respective claims. So ordered.

Johnson, Moreland and Trent, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

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

PO YENG CHEO, plaintiff-appellee, vs.LIM KA YAM, defendant-appellant.

F. R. Feria and Romualdez Bros. for appellant. Quintin Llorente and Carlos C. Viana for appellee.

STREET, J.:

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

In a decision dated July 1, 1921, the Honorable C. A. Imperial, presiding in the court below, found that the plaintiff was entitled to an accounting from Lim Ka Yam, the original defendant, as manager of the business already reffered to, and he accordingly required Lim Yock Tock, as administrator, to present a liquidation of said business within a stated time. This order bore no substantial fruit, for the reason that Lim Yock Tock personally knew nothing about the aforesaid business (which had ceased operation more than ten years previously) and was apparently unable to find any books or documents that could shed any real light on its transaction. However, he did submit to the court a paper written by Lim Ka Yam in life purporting to give, with vague and uncertain details, a history of the formation of the Kwong Cheong Tay and some account of its disruption and cessation from business in 1910. To this narrative was appended a statement of assets and liabilities, purporting to show that after the business was liquidate, it was actually debtor to Lim Ka Yam to the extent of several thousand pesos. Appreciating the worthlessness of this so-called statement, and all parties apparently realizing that nothing more was likely to be discovered by further insisting on an accounting, the court proceeded, on December 27, 1921, to render final judgment in favor of the plaintiff.

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

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

Among the properties pertaining to Kwong Cheong Tay and consisting part of its assets were ten shares of a total par value of P10,000 in an enterprise conducted under the name of Yut Siong Chyip Konski and certain shares to the among of P1,000 in the Manila Electric Railroad and Light Company, of Manila.

In the year 1910 (exact date unstated) Kwong Cheong Tay ceased to do business, owing principally to the fact that the plaintiff ceased at that time to transmit merchandise from Hongkong, where he then resided. Lim Ka Yam appears at no time to have submitted to the partners any formal liquidation of the business, though repeated demands to that effect have been made upon him by the plaintiff.

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

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

Proceeding then to consider the appealed decision in relation with the facts therein stated and other facts appearing in the orders and proceedings in the cause, it is quite apparent that the judgment cannot be sustained. In the first place, it was erroneous in any event to give judgment in favor of the plaintiff to the extent of his share of the capital of Kwong Cheong Tay. The managing partner of a mercantile enterprise is not a debtor to the shareholders for the capital embarked by them in the business; and he can only be made liable for the capital when, upon liquidation of the business, there are found to be assets in his hands applicable to capital account. That the sum of one hundred and sixty thousand pesos (P160,000) was embarked in this business many years ago reveals nothing as to the condition of the capital account at

the time the concern ceased to do business; and even supposing--as the court possibly did--that the capital was intact in 1908, this would not prove it was intact in 1910 when the business ceased to be a going concern; for in that precise interval of time the capital may have been diminished or dissipated from causes in no wise chargeable to the negligence or misfeasance of the manager.

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

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

In the first place, it is well settled that when a member of a mercantile partnership dies, the duty of liquidating its affair devolves upon the surviving member, or members, of the firm, not upon the legal representative of the deceased partner. (Wahl vs. Donaldson Sim & Co., 5 Phil., 11; Sugo and Shibata vs. Green, 6 Phil., 744) And the same rule must be equally applicable to a civil partnership clothed with the form of a commercial association (art. 1670, Civil Code; Lichauco vs. Lichauco, 33 Phil., 350) Upon the death of Lim Ka Yam it therefore became the duty of his surviving associates to take the proper steps to settle the affairs of the firm, and any claim against him, or his estate, for a sum of money due to the partnership by reason of any misappropriation of its funds by him, or for damages resulting from his wrongful acts as manager, should be prosecuted against his estate in administration in the manner pointed out in sections 686 to 701, inclusive, of the Code of Civil Procedure.

Moreover, when it appears, as here, that the property pertaining to Kwong Cheong Tay, like the shares in the Yut Siong Chyip Konski and the Manila Electric Railroad and Light Company, are in the possession of the deceased partner, the proper step for the surviving associates to take would be to make application to the court having charge to the administration to require the administrator to surrender such property.

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

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

Araullo, C. J., Johnson, Malcolm, Avanceña, and Villamor, JJ., concur. Ostrand, J., concurs in the result.Johns, and Romualdez, JJ., took no part in the decision of this case.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

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

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

Francisco, Lualhati and Lopez for appellant. M. G. Goyena for appellee.

OSTRAND, J.:

On March 4, 1921, the plaintiff brought an action against the administratrix of the estate of Narciso Santos, deceased, to recover the sum of P9,534.14, a part of which was alleged to be the net profits due the plaintiff in a partnership business conducted

under the name of "Taller Sinukuan," in which the deceased was the capitalist partner and the plaintiff the industrial partner, the rest of the sum consisting of advances alleged to have been made to said partnership by the plaintiff. The defendant in her answer admitted the existence of the partnership and in a cross-complaint and counter-claim prayed that the plaintiff be ordered to render an accounting of the partnership business and to pay to the estate of the deceased the sum of P25,000 as net profits, credits, and property pertaining to said deceased.

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

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

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

Narciso Santos is a creditor of the Taller Sinukuan in the sum of P26,020.89 consisting as follows:

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For his capital .................................. P12,588.53

For his credit ................................... 10,348.30

For his share of the profits ............ 3,068.06

Total ...................................................

26,020.89

Maximo Guidote is a debtor to the Taller Sinukuan in the sum of P20,020.89, consisting as follows:

For his debt (debito) ......................... P29,088.95

Less his share of the profits ........... 3,068.06

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

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

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

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

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

The testimony of the other witnesses for the plaintiff deserves but scant consideration as evidence to overcome the testimony of Mr. Santiago, as a whole particularly that of the witness Chua Chak, who, after identifying and testifying as to a certain exhibit shown him by counsel for plaintiff, showed that he could neither read nor write English, Spanish, or Tagalog, and that of the witness Mr. Claro Reyes, who, after positively assuring the court that a certain exhibit tendered him for identification was an original document, was forced to admit that it was but a mere copy.

The court therefore, found that the conclusions reached by Santiago A. Lindaya as modified by Jose Turinao Santiago were just and correct and ordered the plaintiff to pay the defendant the sum of P26,020.89, Philippine currency, with legal interest

thereon from April 2, 1921, the date of the defendant's answer, and to pay the costs. From this judgment the plaintiff appealed to this court and presents the following assignments of error:

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

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

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

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

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

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

We should, perhaps, have been more inclined to question the conclusions of Lindaya and Santiago if the plaintiff had shown a disposition to render an honest account of the business and to effect a fair liquidation of the partnership but instead of doing so, he has by means of very questionable, and apparently false, evidence sought to

mulct his deceased partner's estate to the extent of over P9,000. The rule for the conduct of a surviving partner is thus stated in 20 R. C. L., 1003:

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

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

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

Avanceña, C. J., Johnson, Street, Malcolm, Villamor, Romualdez, and Villa-Real, JJ., concur.