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Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 167379 June 27, 2006
PRIMELINK PROPERTIES AND DEVELOPMENT CORPORATION and RAFAELITO W.
LOPEZ, Petitioners,
vs.
MA. CLARITA T. LAZATIN-MAGAT, JOSE SERAFIN T. LAZATIN, JAIME TEODORO T.
LAZATIN and JOSE MARCOS T. LAZATIN, Respondents.
D E C I S I O N
CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil
Procedure of the Decision1of the Court of Appeals (CA) in CA-G.R. CV No. 69200 and its
Resolution2denying petitioners motion for reconsideration thereof.
The factual and procedural antecedents are as follows:
Primelink Properties and Development Corporation (Primelink for brevity) is a domestic
corporation engaged in real estate development. Rafaelito W. Lopez is its President and
Chief Executive Officer.3
Ma. Clara T. Lazatin-Magat and her brothers, Jose Serafin T. Lazatin, Jaime T. Lazatin
and Jose Marcos T. Lazatin (the Lazatins for brevity), are co-owners of two (2) adjoining
parcels of land, with a combined area of 30,000 square meters, located in Tagaytay City
and covered by Transfer Certificate of Title (TCT) No. T-108484of the Register of Deeds of
Tagaytay City.
On March 10, 1994, the Lazatins and Primelink, represented by Lopez, in his capacity as
President, entered into a Joint Venture Agreement5(JVA) for the development of the
aforementioned property into a residential subdivision to be known as "Tagaytay Garden
Villas." Under the JVA, the Lazatin siblings obliged themselves to contribute the two
parcels of land as their share in the joint venture. For its part, Primelink undertook to
contribute money, labor, personnel, machineries, equipment, contractors pool, marketing
activities, managerial expertise and other needed resources to develop the property and
construct therein the units for sale to the public. Specifically, Primelink bound itself to
accomplish the following, upon the execution of the deed:
a.) Survey the land, and prepare the projects master plans, engineering designs, structural
and architectural plans, site development plans, and such other need plans in accordance
with existing laws and the rules and regulations of appropriate government institutions,firms or agencies;
b.) Secure and pay for all the licenses, permits and clearances needed for the projects;
c.) Furnish all materials, equipment, labor and services for the development of the land in
preparation for the construction and sale of the different types of units (single-detached,
duplex/twin, cluster and row house);
d.) Guarantee completion of the land development work if not prevented by force majeure
or fortuitous event or by competent authority, or other unavoidable circumstances beyond
the DEVELOPERS control, not to exceed three years from the date of the signing of this
Joint Venture Agreement, except the installation of the electrical facilities which is solely
MERALCOS responsibility;
e.) Provide necessary manpower resources, like executive and managerial officers,
support personnel and marketing staff, to handle all services related to land and housing
development (administrative and construction) and marketing (sales, advertising and
promotions).6
The Lazatins and Primelink covenanted that they shall be entitled to draw
allowances/advances as follows:
1. During the first two years of the Project, the DEVELOPER and the LANDOWNER can
draw allowances or make advances not exceeding a total of twenty percent (20%) of the
net revenue for that period, on the basis of sixty percent (60%) for the DEVELOPER and
forty percent (40%) for the LANDOWNERS.
The drawing allowances/advances are limited to twenty percent (20%) of the net revenue
for the first two years, in order to have sufficient reserves or funds to protect and/or
guarantee the construction and completion of the different types of units mentioned above.
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2. After two years, the DEVELOPER and the LANDOWNERS shall be entitled to drawing
allowances and/or advances equivalent to sixty percent (60%) and forty percent (40%),
respectively, of the total net revenue or income of the sale of the units.7
They also agreed to share in the profits from the joint venture, thus:
1. The DEVELOPER shall be entitled to sixty percent (60%) of the net revenue or incomeof the Joint Venture project, after deducting all expenses incurred in connection with the
land development (such as administrative management and construction expenses), and
marketing (such as sales, advertising and promotions), and
2. The LANDOWNERS shall be entitled to forty percent (40%) of the net revenue or
income of the Joint Venture project, after deducting all the above-mentioned expenses.8
Primelink submitted to the Lazatins its Projection of the Sales-Income-Cost of the project:
SALES-INCOME-COST PROJECTION
lawphil.net
SELLING PRICE COST PRICE DIFFERENCE INCOME
CLUSTER:
A1 3,200,000 - A2 1,260,000 = 1,940,000 x 24 = P 46,560,000.00
TWIN:
B1 2,500,000 - B2 960,000 = 1,540,000 x 24 = 36,960,000.00
SINGLE:
C1 3,500,000 - C2 1,400,000 = 2,100,000 x 16 = 33,600,000.00
ROW-TYPE TOWNHOMES:
D1 1,600,000 - D2 700,000 = 900,000 x 24 = 21,600,000.00
P138,720,000.00
(GROSS) Total Cash Price (A1+B1+C1+D1) = P231,200,000.00
Total Building Expense (A2+B2+C2+D2) = 92,480,000.00
COMPUTATION OF ADDL. INCOME ON INTEREST
TCP x 30% D/P = P 69,360,000 P 69,360,000.00
Balance = 70% = 161,840,000
x .03069 x 48 = P238,409,740 238,409,740.00
Total Amount (TCP + int. earn.) P307,769,740.00
EXPENSES:
less: A Building expenses P 92,480,000.00
B Commission (8% of TCP) 18,496,000.00
C Admin. & Mgmt. expenses (2% of TCP) 4,624,000.00
D Advertising & Promo exp. (2% of TCP) 4,624,000.00
E Building expenses for the open
spaces and Amenities (Development
cost not incl. Housing) 400 x 30,000 sqms. 12,000,000.00
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TOTAL EXPENSES (A+B+C+D+E) P132,224,000.00
RECONCILIATION OF INCOME VS. EXPENSES
Total Projected Income (incl. income from interest earn.) P307,769,740.00
less: 132,224,000.00
Total Expenses P175,545,740.009
The parties agreed that any unsettled or unresolved misunderstanding or conflicting
opinions between the parties relative to the interpretation, scope and reach, and the
enforcement/implementation of any provision of the agreement shall be referred to
Voluntary Arbitration in accordance with the Arbitration Law.10
The Lazatins agreed to subject the title over the subject property to an escrow agreement.
Conformably with the escrow agreement, the owners duplicate of the title was deposited
with the China Banking Corporation.11However, Primelink failed to immediately secure a
Development Permit from Tagaytay City, and applied the permit only on August 30, 1995.
On October 12, 1995, the City issued a Development Permit to Primelink.12
In a Letter13dated April 10, 1997, the Lazatins, through counsel, demanded that Primelink
comply with its obligations under the JVA, otherwise the appropriate action would be filed
against it to protect their rights and interests. This impelled the officers of Primelink to meet
with the Lazatins and enabled the latter to review its business records/papers. In another
Letter14dated October 22, 1997, the Lazatins informed Primelink that they had decided to
rescind the JVA effective upon its receipt of the said letter. The Lazatins demanded thatPrimelink cease and desist from further developing the property.
Subsequently, on January 19, 1998, the Lazatins filed, with the Regional Trial Court (RTC)
of Tagaytay City, Branch 18, a complaint for rescission accounting and damages, with
prayer for temporary restraining order and/or preliminary injunction against Primelink and
Lopez. The case was docketed as Civil Case No. TG-1776. Plaintiffs alleged, among
others, that, despite the lapse of almost four (4) years from the execution of the JVA and
the delivery of the title and possession of the land to defendants, the land development
aspect of the project had not yet been completed, and the construction of the housing units
had not yet made any headway, based on the following facts, namely: (a) of the 50 housing
units programmed for Phase I, only the following types of houses appear on the site in
these condition: (aa) single detached, one completed and two units uncompleted; (bb)
cluster houses, one unit nearing completion; (cc) duplex, two units completed and two units
unfinished; and (dd) row houses, two units, completed; (b) in Phase II thereof, all that was
done by the defendants was to grade the area; the units so far constructed had been the
object of numerous complaints by their owners/purchasers for poor workmanship and the
use of sub-standard materials in their construction, thus, undermining the projects
marketability. Plaintiffs also alleged that defendants had, without justifiable reason,
completely disregarded previously agreed accounting and auditing procedures, checks and
balances system installed for the mutual protection of both parties, and the scheduled
regular meetings were seldom held to the detriment and disadvantage of plaintiffs. They
averred that they sent a letter through counsel, demanding compliance of what was agreed
upon under the agreement but defendants refused to heed said demand. After a
succession of letters with still no action from defendants, plaintiffs sent a letter on October
22, 1997, a letter formally rescinding the JVA.
Plaintiffs also claimed that in a sales-income-costs projection prepared and submitted by
defendants, they (plaintiffs) stood to receive the amount of P70,218,296.00 as their net
share in the joint venture project; to date, however, after almost four (4) years and despite
the undertaking in the JVA that plaintiffs shall initially get 20% of the agreed net revenue
during the first two (2) years (on the basis of the 60%-40% sharing) and their full 40%
share thereafter, defendants had yet to deliver these shares to plaintiffs which by
conservative estimates would amount to no less than P40,000,000.00.15
Plaintiffs prayed that, after due proceedings, judgment be rendered in their favor, thus:
WHEREFORE, it is respectfully prayed of this Honorable Court that a temporary restraining
order be forthwith issued enjoining the defendants to immediately stop their land
development, construction and marketing of the housing units in the aforesaid project; after
due proceedings, to issue a writ of preliminary injunction enjoining and prohibiting said land
development, construction and marketing of housing units, pending the disposition of the
instant case.
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After trial, a decision be rendered:
1. Rescinding the Joint Venture Agreement executed between the plaintiffs and the
defendants;
2. Immediately restoring to the plaintiffs possession of the subject parcels of land;
3. Ordering the defendants to render an accounting of all income generated as well asexpenses incurred and disbursement made in connection with the project;
4. Making the Writ of Preliminary Injunction permanent;
5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount Forty
Million Pesos (P40,000,000.00) in actual and/or compensatory damages;
6. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of Two
Million Pesos (P2,000,000.00) in exemplary damages;
7. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount equivalent
to ten percent (10%) of the total amount due as and for attorneys fees; and
8. To pay the costs of this suit.
Other reliefs and remedies as are just and equitable are likewise being prayed for.16
Defendants opposed plaintiffs plea for a writ of preliminary injunction on the ground that
plaintiffs complaint was premature, due to their failure to refer their complaint to a
Voluntary Arbitrator pursuant to the JVA in relation to Section 2 of Republic Act No. 876
before filing their complaint in the RTC. They prayed for the dismissal of the complaint
under Section 1(j), Rule 16 of the Rules of Court:
WHEREFORE, it is respectfully prayed that an Order be issued:
a) dismissing the Complaint on the basis of Section 1(j), Rule 16 of the aforecited Rules of
Court, or, in the alternative,
b) requiring the plaintiffs to make initiatory step for arbitration by f iling the demand to
arbitrate, and then asking the parties to resolve their controversies, pursuant to the
Arbitration Law, or in the alternative;
c) staying or suspending the proceedings in captioned case until the completion of the
arbitration, and
d) denying the plaintiffs prayer for the issuance of a temporary restraining order or writ of
preliminary injunction.
Other reliefs and remedies just and equitable in the premises are prayed for.17
In the meantime, before the expiration of the reglementary period to answer the complaint,
defendants, invoking their counsels heavy workload, prayed for a 15-day
extension18within which to file their answer. The additional time prayed for was granted by
the RTC.19However, instead of filing their answer, defendants prayed for a series of 15-
day extensions in eight (8) successive motions for extensions on the same
justification.20The RTC again granted the additional time prayed for, but in granting the last
extension, it warned against further extension.21Despite the admonition, defendants again
moved for another 15-day extension,22which, this time, the RTC denied. No answer having
been filed, plaintiffs moved to declare the defendants in default,23which the RTC granted in
its Order24dated June 24, 1998.
On June 25, 1998, defendants filed, via registered mail, t heir "Answer with Counterclaimand Opposition to the Prayer for the Issuance of a Writ of Preliminary Injunction."25On July
8, 1998, defendants filed a Motion to Set Aside the Order of Default.26This was opposed
by plaintiffs.27In an Order28dated July 14, 1998, the RTC denied defendants motion to set
aside the order of default and ordered the reception of plaintiffs evidence ex parte.
Defendants filed a motion for reconsideration29of the July 14, 1998 Order, which the RTC
denied in its Order30dated October 21, 1998.
Defendants thereafter interposed an appeal to the CA assailing the Order declaring them in
default, as well as the Order denying their motion to set aside the order of default, alleging
that these were contrary to facts of the case, the law and jurisprudence.31On September
16, 1999, the appellate court issued a Resolution32dismissing the appeal on the ground
that the Orders appealed from were interlocutory in character and, therefore, notappealable. No motion for reconsideration of the Order of the dismissal was filed by
defendants.
In the meantime, plaintiffs adduced ex parte their testimonial and documentary evidence.
On April 17, 2000, the RTC rendered a Decision, the dispositive part of which reads:
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WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendants as follows:
1. Ordering the rescission of the Joint Venture Agreement as of the date of filing of this
complaint;
2. Ordering the defendants to return possession, including all improvements therein, of thereal estate property belonging to the plaintiffs which is described in, and covered by
Transfer Certificate of Title No. T-10848 of the Register of Deeds of Tagaytay City, and
located in Barangay Anulin, City of Tagaytay;
3. Ordering the defendants to turn over all documents, records or papers that have been
executed, prepared and retained in connection with any contract to sell or deed of sale of
all lots/units sold during the effectivity of the joint venture agreement;
4. Ordering the defendants to pay the plaintiffs the sum of P1,041,524.26 representing their
share of the net income of the P2,603,810.64 as of September 30, 1995, as stipulated in
the joint venture agreement;
5. Ordering the defendants to pay the plaintiffs attorneys fees in th e amountof P104,152.40;
6. Ordering the defendants to pay the costs.
SO ORDERED.33
The trial court anchored its decision on the following findings:
x x x Evidence on record have shown patent violations by the defendants of the
stipulations particularly paragraph II covering Developers (defendant)undertakings, as
well as paragraph III and paragraph V of the JVA. These violations are not limited to those
made against the plaintiffs alone as it appears that some of the unit buyers themselves
have their own separate gripes against the defendants as typified by the letters (Exhibits
"G" and "H") of Mr. Emmanuel Enciso.
x x x x
Rummaging through the evidence presented in the course of the testimony of Mrs.
Maminta on August 6, 1998 (Exhibits "N," "O," "P," "Q" and "R" as well as submarkings, pp.
60 to 62, TSN August 6, 1998) this court has observed, and is thus convinced, that a
pattern of what appears to be a scheme or plot to reduce and eventually blot out the net
income generated from sales of housing units by defendants, has been established. Exhibit
"P-2" is explicit in declaring that, as of September 30, 1995, the joint venture project earned
a net income of aboutP2,603,810.64. This amount, however, was drastically reduced in a
subsequent financial report submitted by the defendants to P1,954,216.39. Shortly
thereafter, and to the dismay of the plaintiffs, the defendants submitted an income
statement and a balance sheet (Exhibits "R" and "R-1") indicating a net loss
of P5,122,906.39 as of June 30, 1997.
Of the reported net income of P2,603,810.64 (Exhibit "P-2") the plaintiffs should have
received the sum ofP1,041,524.26 representing their 40% share under paragraph II and V
of the JVA. But this was not to be so. Even before the plaintiffs could get hold of their share
as indicated above, the defendants closed the chance altogether by declaring a net loss.
The court perceives this to be one calculated coup-de-grace that would put to thin air
plaintiffs hope of getting their share in the profit under the JVA.
That this matter had reached the court is no longer a cause for speculation. The way the
defendants treated the JVA and the manner by which they handled the project itself vis--
vis their partners, the plaintiffs herein, there is bound to be certain conflict as the latterrepeatedly would received the losing end of the bargain.
Under the intolerable circumstances, the plaintiffs could not have opted for some other
recourse but to file the present action to enforce their rights. x x x34
On May 15, 2000, plaintiffs filed a Motion for Execution Pending Appeal35alleging
defendants dilatory tactics for its allowance. This was opposed by defendants.36
On May 22, 2000, the RTC resolved the motion for execution pending appeal in favor of
plaintiffs.37Upon posting a bond of P1,000,000.00 by plaintiffs, a writ of execution pending
appeal was issued on June 20, 2000.38
Defendants appealed the decision to the CA on the following assignment of errors:
I
THE TRIAL COURT ERRED IN DECIDING THE CASE WITHOUT FIRST REFERRING
THE COMPLAINT FOR VOLUNTARY ARBITRATION (RA NO. 876), CONTRARY TO THE
MANDATED VOLUNTARY ARBITRATION CLAUSE UNDER THE JOINT VENTURE
AGREEMENT, AND THE DOCTRINE IN "MINDANAO PORTLAND CEMENT
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CORPORATION V. MCDONOUGH CONSTRUCTION COMPANY OF FLORIDA" (19
SCRA 814-815).
II
THE TRIAL COURT ERRED IN ISSUING A WRIT OF EXECUTION PENDING APPEAL
EVEN IN THE ABSENCE OF GOOD AND COMPELLING REASONS TO JUSTIFY SAIDISSUANCE, AND DESPITE PRIMELINKS STRONG OPPOSITION THERETO.
III
THE TRIAL COURT ERRED IN REFUSING TO DECIDE PRIMELINKS MOTION TO
QUASH THE WRIT OF EXECUTION PENDING APPEAL AND THE MOTION FOR
RECONSIDERATION, ALTHOUGH THE COURT HAS RETAINED ITS JURISDICTION
TO RULE ON ALL QUESTIONS RELATED TO EXECUTION.
IV
THE TRIAL COURT ERRED IN RESCINDING THE JOINT VENTURE AGREEMENT
ALTHOUGH PRIMELINK HAS SUBSTANTIALLY DEVELOPED THE PROJECT AND HAS
SPENT MORE OR LESS FORTY MILLION PESOS, AND DESPITE APPELLEESFAILURE TO PRESENT SUFFICIENT EVIDENCE JUSTIFYING THE SAID RESCISSION.
V
THE TRIAL COURT ERRED IN DECIDING THAT THE APPELLEES HAVE THE RIGHT
TO TAKE OVER THE SUBDIVISION AND TO APPROPRIATE FOR THEMSELVES ALL
THE EXISTING IMPROVEMENTS INTRODUCED THEREIN BY PRIMELINK, ALTHOUGH
SAID RIGHT WAS NEITHER ALLEGED NOR PRAYED FOR IN THE COMPLAINT, MUCH
LESS PROVEN DURING THE EX PARTE HEARING, AND EVEN WITHOUT ORDERING
APPELLEES TO FIRST REIMBURSE PRIMELINK OF THE SUBSTANTIAL DIFFERENCE
BETWEEN THE MARKET VALUE OF APPELLEES RAW, UNDEVELOPED AND
UNPRODUCTIVE LAND (CONTRIBUTED TO THE PROJECT) AND THE SUM OF MOREOR LESS FORTY MILLION PESOS WHICH PRIMELINK HAD SPENT FOR THE
HORIZONTAL AND VERTICAL DEVELOPMENT OF THE PROJECT, THEREBY
ALLOWING APPELLEES TO UNJUSTLY ENRICH THEMSELVES AT THE EXPENSE OF
PRIMELINK.39
The appeal was docketed in the CA as CA-G.R. CV No. 69200.
On August 9, 2004, the appellate court rendered a decision affirming, with modification, the
appealed decision. The fallo of the decision reads:
WHEREFORE, in view of the foregoing, the assailed decision of the Regional Trial Court of
Tagaytay City, Branch 18, promulgated on April 17, 2000 in Civil Case No. TG-1776, is
hereby AFFIRMED. Accordingly, Transfer Certificate of Title No. T-10848 held for
safekeeping by Chinabank pursuant to the Escrow Agreement is ordered released forreturn to the plaintiffs-appellees and conformably with the affirmed decision, the
cancellation by the Register of Deeds of Tagaytay City of whatever annotation in TCT No.
10848 by virtue of the Joint Venture Agreement, is now proper.
SO ORDERED.40
Citing the ruling of this Court in Aurbach v. Sanitary Wares Manufacturing
Corporation,41the appellate court ruled that, under Philippine law, a joint venture is a form
of partnership and is to be governed by the laws of partnership. The aggrieved parties filed
a motion for reconsideration,42which the CA denied in its Resolution43dated March 7,
2005.
Petitioners thus filed the instant Petition for Review on Certiorari, alleging that:
1) DID THE HONORABLE COURT OF APPEALS COMMIT A FATAL AND REVERSIBLE
LEGAL ERROR AND/OR GRAVE ABUSE OF DISCRETION IN ORDERING THE
RETURN TO THE RESPONDENTS OF THE PROPERTY WITH ALL IMPROVEMENTS
THEREON, EVEN WITHOUT ORDERING/REQUIRING THE RESPONDENTS TO FIRST
PAY OR REIMBURSE PRIMELINK OF ALL EXPENSES INCURRED IN DEVELOPING
AND MARKETING THE PROJECT, LESS THE ORIGINAL VALUE OF THE PROPERTY,
AND THE SHARE DUE RESPONDENTS FROM THE PROFITS (IF ANY) OF THE JOINT
VENTURE PROJECT?
2) IS THE AFORESAID ORDER ILLEGAL AND CONFISCATORY, OPPRESSIVE AND
UNCONSCIONABLE, CONTRARY TO THE TENETS OF GOOD HUMAN RELATIONS
AND VIOLATIVE OF EXISTING LAWS AND JURISPRUDENCE ON JUDICIAL NOTICE,
DEFAULT, UNJUST ENRICHMENT AND RESCISSION OF CONTRACT WHICH
REQUIRES MUTUAL RESTITUTION, NOT UNILATERAL APPROPRIATION, OF
PROPERTY BELONGING TO ANOTHER?44
Petitioners maintain that the aforesaid portion of the decision which unconditionally awards
to respondents "all improvements" on the project without requiring them to pay the value
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thereof or to reimburse Primelink for all expenses incurred therefore is inherently and
essentially illegal and confiscatory, oppressive and unconscionable, contrary to the tenets
of good human relations, and will allow respondents to unjustly enrich themselves at
Primelinks expense. At the time respondents contributed the two parcels of land,
consisting of 30,000 square meters to the joint venture project when the JVA was signed
on March 10, 1994, the said properties were worth not more than P500.00 per square
meter, the "price tag" agreed upon the parties for the purpose of the JVA. Moreover, beforerespondents rescinded the JVA sometime in October/November 1997, the property had
already been substantially developed as improvements had already been introduced
thereon; petitioners had likewise incurred administrative and marketing expenses, among
others, amounting to more or less P40,000,000.00.45
Petitioners point out that respondents did not pray in their complaint that they be declared
the owners and entitled to the possession of the improvements made by petitioner
Primelink on the property; neither did they adduce evidence to prove their entitlement to
said improvements. It follows, petitioners argue, that respondents were not entitled to the
improvements although petitioner Primelink was declared in default.
They also aver that, under Article 1384 of the New Civil Code, rescission shall be only tothe extent necessary to cover the damages caused and that, under Article 1385 of the
same Code, rescission creates the obligation to return the things which were not object of
the contract, together with their fruits, and the price with its interest; consequently, it can be
effected only when respondents can return whatever they may be obliged to return.
Respondents who sought the rescission of the JVA must place petitioner Primelink in the
status quo. They insist that respondents cannot rescind and, at the same time, retain the
consideration, or part of the consideration received under the JVA. They cannot have the
benefits of rescission without assuming its burden. All parties must be restored to their
original positions as nearly as possible upon the rescission of a contract. In the event that
restoration to the status quo is impossible, rescission may be granted if the Court can
balance the equities and fashion an appropriate remedy that would be equitable to both
parties and afford complete relief.
Petitioners insist that being defaulted in the court a quo would in no way defeat their claim
for reimbursement because "[w]hat matters is that the improvements exist and they cannot
be denied."46Moreover, they point out, the ruling of this Court in Aurbach v. Sanitary
Wares Manufacturing Corporation47cited by the CA is not in point.
On the other hand, the CA ruled that although respondents therein (plaintiffs below) did not
specifically pray for their takeover of the property and for the possession of the
improvements on the parcels of land, nevertheless, respondents were entitled to said relief
as a necessary consequence of the ruling of the trial court ordering the rescission of the
JVA. The appellate court cited the ruling of this Court in the Aurbach case and Article 1838
of the New Civil Code, to wit:
As a general rule, the relation of the parties in joint ventures is governed by their
agreement. When the agreement is silent on any particular issue, the general principles of
partnership may be resorted to.48
Respondents, for their part, assert that Articles 1380 to 1389 of the New Civil Code deal
with rescissible contracts. What applies is Article 1191 of the New Civil Code, which reads:
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he
has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired
the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.
They insist that petitioners are not entitled to rescission for the improvements because, as
found by the RTC and the CA, it was petitioner Primelink that enriched itself at the expense
of respondents. Respondents reiterate the ruling of the CA, and argue as follows:
PRIMELINK argued that the LAZATINs in their complaint did not allege, did not prove and
did not pray that they are and should be entitled to take over the development of theproject, and that the improvements and existing structures which were introduced by
PRIMELINK after spending more or less Forty Million Pesosbe awarded to them. They
merely asked in the complaint that the joint venture agreement be rescinded, and that the
parcels of land they contributed to the project be returned to them.
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PRIMELINKs argument lacks merit. The order of the court for PRIMELINK to return
possession of the real estate property belonging to the LAZATINs including all
improvements thereon was not a judgment that was different in kind than what was prayed
for by the LAZATINs. The order to return the property with all the improvements thereon is
just a necessary consequence to the order of rescission.
As a general rule, the relation of the parties in joint ventures is governed by theiragreement. When the agreement is silent on any particular issue, the general principles of
partnership may be resorted to. In Aurbach v. Sanitary Wares Manufacturing Corporation,
the Supreme Court discussed the following points regarding joint ventures and partnership:
The legal concept of a joint venture is of common law origin. It has no precise legal
definition, but it has been generally understood to mean an organization formed for some
temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is, in fact, hardly
distinguishable from the partnership, since elements are similar community of interest in
the business, sharing of profits and losses, and a mutual right of control. (Blackner v.
McDermott, 176 F.2d 498 [1949]; Carboneau v. Peterson, 95 P.2d 1043 [1939]; Buckley v.
Chadwick, 45 Cal.2d 183, 288 P.2d 12, 289 P.2d 242 [1955]) The main distinction cited by
most opinions in common law jurisdictions is that the partnership contemplates a generalbusiness with some degree of continuity, while the joint venture is formed for the execution
of a single transaction, and is thus of a temporary nature. (Tuffs v. Mann, 116 Cal.App.
170, 2 P.2d 500 [1931]; Harmon v. Martin, 395 III. 595, 71 N.E.2d 74 [1947]; Gates v.
Megargel, 266 Fed. 811 [1920]) This observation is not entirely accurate in this jurisdiction,
since under the Civil Code, a partnership may be particular or universal, and a particular
partnership may have for its object a specific undertaking. (Art. 1783, Civil Code). It would
seem therefore that, under Philippine law, a joint venture is a form of partnership and
should thus be governed by the laws of partnership. The Supreme Court has, however,
recognized a distinction between these two business forms, and has held that although a
corporation cannot enter into a partnership contract, it may, however, engage in a joint
venture with others. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954]; Campos and Lopez
Campos Comments, Notes and Selected Cases, Corporation Code 1981) (EmphasisSupplied)
The LAZATINs were able to establish fraud on the part of PRIMELINK which, in the words
of the court a quo, was a pattern of what appears to be a scheme or plot to reduce and
eventually blot out the net incomes generated from sales of housing units by the
defendants. Under Article 1838 of the Civil Code, where the partnership contract is
rescinded on the ground of the fraud or misrepresentation of one of the parties thereto, the
party entitled to rescind is, without prejudice to any other right is entitled to a lien on, or
right of retention of, the surplus of the partnership property after satisfying the partnership
liabilities to third persons for any sum of money paid by him for the purchase of an interest
in the partnership and for any capital or advance contributed by him. In the instant case,
the joint venture still has outstanding liabilities to third parties or the buyers of the property.
It is not amiss to state that title to the land or TCT No. T-10848 which is now held by
Chinabank for safekeeping pursuant to the Escrow Agreement executed between
Primelink Properties and Development Corporation and Ma. Clara T. Lazatin-Magat should
also be returned to the LAZATINs as a necessary consequence of the order of rescission
of contract. The reason for the existence of the Escrow Agreement has ceased to exist
when the joint venture agreement was rescinded.49
Respondents stress that petitioners must bear any damages or losses they may have
suffered. They likewise stress that they did not enrich themselves at the expense of
petitioners.
In reply, petitioners assert that it is unjust and inequitable for respondents to retain the
improvements even if their share in the P1,041,524.26 of the net income of the propertyand the sale of the land were to be deducted from the value of the improvements, plus
administrative and marketing expenses in the total amount of P40,000,000.00. Petitioners
will still be entitled to an accounting from respondents. Respondents cannot deny the
existence and nature of said improvements as they are visible to the naked eye.
The threshold issues are the following: (1) whether respondents are entitled to the
possession of the parcels of land covered by the JVA and the improvements thereon
introduced by petitioners as their contribution to the JVA; (2) whether petitioners are
entitled to reimbursement for the value of the improvements on the parcels of land.
The petition has no merit.
On the first issue, we agree with petitioners that respondents did not specifically pray intheir complaint below that possession of the improvements on the parcels of land which
they contributed to the JVA be transferred to them. Respondents made a specific prayer in
their complaint that, upon the rescission of the JVA, they be placed in possession of the
parcels of land subject of the agreement, and for other "reliefs and such other remedies as
are just and equitable in the premises." However, the trial court was not precluded from
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awarding possession of the improvements on the parcels of land to respondents in its
decision. Section 2(c), Rule 7 of the Rules of Court provides that a pleading shall specify
the relief sought but it may add as general prayer for such further or other relief as may be
deemed just and equitable. Even without the prayer for a specific remedy, proper relief
may be granted by the court if the facts alleged in the complaint and the evidence
introduced so warrant.50The court shall grant relief warranted by the allegations and the
proof even if no such relief is prayed for.51The prayer in the complaint for other reliefsequitable and just in the premises justifies the grant of a relief not otherwise specifically
prayed for.52
The trial court was not proscribed from placing respondents in possession of the parcels of
land and the improvements on the said parcels of land. It bears stressing that the parcels
of land, as well as the improvements made thereon, were contributed by the parties to the
joint venture under the JVA, hence, formed part of the assets of the joint venture.53The
trial court declared that respondents were entitled to the possession not only of the parcels
of land but also of the improvements thereon as a consequence of its finding that
petitioners breached their agreement and defrauded respondents of the net income under
the JVA.
On the second issue, we agree with the CA ruling that petitioner Primelink and
respondents entered into a joint venture as evidenced by their JVA which, under the
Courts ruling in Aurbach, is a form of partnership, and as such is to be governed by the
laws on partnership.
When the RTC rescinded the JVA on complaint of respondents based on the evidence on
record that petitioners willfully and persistently committed a breach of the JVA, the court
thereby dissolved/cancelled the partnership.54With the rescission of the JVA on account of
petitioners fraudulent acts, all authority of any partner to act for the partnership is
terminated except so far as may be necessary to wind up the partnership affairs or to
complete transactions begun but not yet finished.55On dissolution, the partnership is not
terminated but continues until the winding up of partnership affairs is completed.56Winding
up means the administration of the assets of the partnership for the purpose of terminating
the business and discharging the obligations of the partnership.
The transfer of the possession of the parcels of land and the improvements thereon to
respondents was only for a specific purpose: the winding up of partnership affairs, and the
partition and distribution of the net partnership assets as provided by law.57After all, Article
1836 of the New Civil Code provides that unless otherwise agreed by the parties in their
JVA, respondents have the right to wind up the partnership affairs:
Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the
partnership or the legal representative of the last surviving partner, not insolvent, has the
right to wind up the partnership affairs, provided, however, that any partner, his legal
representative or his assignee, upon cause shown, may obtain winding up by the court.
It must be stressed, too, that although respondents acquired possession of the lands and
the improvements thereon, the said lands and improvements remained partnership
property, subject to the rights and obligations of the parties, inter se, of the creditors and of
third parties under Articles 1837 and 1838 of the New Civil Code, and subject to the
outcome of the settlement of the accounts between the parties as provided in Article 1839
of the New Civil Code, absent any agreement of the parties in their JVA to the
contrary.58Until the partnership accounts are determined, it cannot be ascertained how
much any of the parties is entitled to, if at all.
It was thus premature for petitioner Primelink to be demanding that it be indemnified for the
value of the improvements on the parcels of land owned by the joint venture/partnership.
Notably, the JVA of the parties does not contain any provision designating any party towind up the affairs of the partnership.
Thus, under Article 1837 of the New Civil Code, the rights of the parties when dissolution is
caused in contravention of the partnership agreement are as follows:
(1) Each partner who has not caused dissolution wrongfully shall have:
(a) All the rights specified in the first paragraph of this article, and
(b) The right, as against each partner who has caused the dissolution wrongfully, to
damages for breach of the agreement.
(2) The partners who have not caused the dissolution wrongfully, if they all desire to
continue the business in the same name either by themselves or j ointly with others, may do
so, during the agreed term for the partnership and for that purpose may possess the
partnership property, provided they secure the payment by bond approved by the court, or
pay to any partner who has caused the dissolution wrongfully, the value of his interest in
the partnership at the dissolution, less any damages recoverable under the second
http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt50http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt50http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt50http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt51http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt51http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt51http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt52http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt52http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt52http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt53http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt53http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt53http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt54http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt54http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt55http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt55http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt55http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt5http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt5http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt5http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt57http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt57http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt57http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt58http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt58http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt58http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt58http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt57http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt5http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt55http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt54http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt53http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt52http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt51http://www.lawphil.net/judjuris/juri2006/jun2006/gr_167379_2006.html#fnt50 -
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paragraph, No. 1(b) of this article, and in like manner indemnify him against all present or
future partnership liabilities.
(3) A partner who has caused the dissolution wrongfully shall have:
(a) If the business is not continued under the provisions of the second paragraph, No. 2, all
the rights of a partner under the f irst paragraph, subject to liability for damages in the
second paragraph, No. 1(b), of this article.
(b) If the business is continued under the second paragraph, No. 2, of this article, the right
as against his co-partners and all claiming through them in respect of their interests in the
partnership, to have the value of his interest in the partnership, less any damage caused to
his co-partners by the dissolution, ascertained and paid to him in cash, or the payment
secured by a bond approved by the court, and to be released from all existing liabilities of
the partnership; but in ascertaining the value of the partners interest the value of the good-
will of the business shall not be considered.
And under Article 1838 of the New Civil Code, the party entitled to rescind is, without
prejudice to any other right, entitled:
(1) To a lien on, or right of retention of, the surplus of the partnership property after
satisfying the partnership liabilities to third persons for any sum of money paid by him for
the purchase of an interest in the partnership and for any capital or advances contributed
by him;
(2) To stand, after all liabilities to third persons have been satisfied, in the place of the
creditors of the partnership for any payments made by him in respect of the partnership
liabilities; and
(3) To be indemnified by the person guilty of the fraud or making the representation against
all debts and liabilities of the partnership.
The accounts between the parties after dissolution have to be settled as provided in Article
1839 of the New Civil Code:
Art. 1839. In settling accounts between the partners after dissolution, the following rules
shall be observed, subject to any agreement to the contrary:
(1) The assets of the partnership are:
(a) The partnership property,
(b) The contributions of the partners necessary for the payment of all the liabilities specified
in No. 2.
(2) The liabilities of the partnership shall rank in order of payment, as follows:
(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for capital and profits,
(c) Those owing to partners in respect of capital,
(d) Those owing to partners in respect of profits.
(3) The assets shall be applied in the order of their declaration in No. 1 of this article to the
satisfaction of the liabilities.
(4) The partners shall contribute, as provided by article 1797, the amount necessary to
satisfy the liabilities.
(5) An assignee for the benefit of creditors or any person appointed by the court shall havethe right to enforce the contributions specified in the preceding number.
(6) Any partner or his legal representative shall have the right to enforce the contributions
specified in No. 4, to the extent of the amount which he has paid in excess of his share of
the liability.
(7) The individual property of a deceased partner shall be liable for the contributions
specified in No. 4.
(8) When partnership property and the individual properties of the partners are in
possession of a court for distribution, partnership creditors shall have priority on
partnership property and separate creditors on individual property, saving the rights of lien
or secured creditors.
(9) Where a partner has become insolvent or his estate is insolvent, the claims against his
separate property shall rank in the following order:
(a) Those owing to separate creditors;
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(b) Those owing to partnership creditors;
(c) Those owing to partners by way of contribution.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed Decision and
Resolution of the Court of Appeals in CA-G.R. CV No. 69200 are AFFIRMED insofar as
they conform to this Decision of the Court.
Costs against petitioners.
SO ORDERED.
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Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 109248 July 3, 1995
GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T.
BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and
JOAQUIN L. MISA,respondents.
VITUG, J.:
The instant petition seeks a review of the decision rendered by the Court of Appeals, dated26 February 1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in totothat 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 otherpartners. 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 assetsplus 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;
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"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 bancreversed 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'sdemand 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.
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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 principalsand 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 partnership4but 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.6Among partners,7mutual agency arises and the doctrine of delectus
personaeallows them to have the power, although not necessarily theright, to dissolve the
partnership. An unjustified dissolution by the partner can subject him to a possible action
for damages.
The dissolution of a partnership is the change in the relation of the parties caused by any
partner ceasing to be associated in the carrying on, as might be distinguished from the
winding up of, the business.8Upon 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; 10however, 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 partnershipshall 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 ofevery 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
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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 "interpersonalconflict" 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 faithcannot 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.
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Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 126334 November 23, 2001
EMILIO EMNACE,petitioner,
vs.
COURT OF APPEALS, ESTATE OF VICENTE TABANAO, SHERWIN TABANAO,
VICENTE WILLIAM TABANAO, JANETTE TABANAO DEPOSOY, VICENTA MAY
TABANAO VARELA, ROSELA TABANAO and VINCENT TABANAO,respondents.
YNARES-SANTIAGO, J.:
Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divinagracia were partners in a
business concern known as Ma. Nelma Fishing Industry. Sometime in January of 1986,
they decided to dissolve their partnership and executed an agreement of partition and
distribution of the partnership properties among them, consequent to Jacinto Divinagracia's
withdrawal from the partnership.1Among the assets to be distributed were five (5) fishing
boats, six (6) vehicles, two (2) parcels of land located at Sto. Nio and Talisay, Negros
Occidental, and cash deposits in the local branches of the Bank of the Philippine Islands
and Prudential Bank.
Throughout the existence of the partnership, and even after Vicente Tabanao's untimely
demise in 1994, petitioner failed to submit to Tabanao's heirs any statement of assets and
liabilities of the partnership, and to render an accounting of the partnership's finances.
Petitioner also reneged on his promise to turn over to Tabanao's heirs the deceased's 1/3
share in the total assets of the partnership, amounting to P30,000,000.00, or the sum of
P10,000,000.00, despite formal demand for payment thereof.2
Consequently, Tabanao' s heirs, respondents herein, filed against petitioner an action foraccounting, payment of shares, division of assets and damages.3In their complaint,
respondents prayed as follows:
1. Defendant be ordered to render the proper accounting of all the assets and liabilities of
the partnership at bar; and
2. After due notice and hearing defendant be ordered to pay/remit/deliver/surrender/yield to
the plaintiffs the following:
A. No less than One Third (1/3) of the assets, properties, dividends, cash, land(s), fishing
vessels, trucks, motor vehicles, and other forms and substance of treasures which belong
and/or should belong, had accrued and/or must accrue to the partnership;
B. No less than Two Hundred Thousand Pesos (P200,000.00) as moral damages;
C. Attorney's fees equivalent to Thirty Percent (30%) of the entire share/amount/award
which the Honorable Court may resolve the plaintiffs as entitled to plus P1,000.00 for every
appearance in court.4
Petitioner filed a motion to dismiss the complaint on the grounds of improper venue, lack of
jurisdiction over the nature of the action or suit, and lack of capacity of the estate of
Tabanao to sue.5On August 30, 1994, the t rial court denied the motion to dismiss. It held
that venue was properly laid because, while realties were involved, the action was directed
against a particular person on the basis of his personal liability; hence, the action is not
only a personal action but also an action in personam.As regards petitioner's argument of
lack of jurisdiction over the action because the prescribed docket fee was not paidconsidering the huge amount involved in the claim, the trial court noted that a request for
accounting was made in order that the exact value of the partnership may be ascertained
and, thus, the correct docket fee may be paid. Finally, the trial court held that the heirs of
Tabanao had aright to sue in their own names, in view of the provision of Article 777 of the
Civil Code, which states that the rights to the succession are transmitted from the moment
of the death of the decedent.6
The following day, respondents filed an amended complaint,7incorporating the additional
prayer that petitioner be ordered to "sell all (the partnership's) assets and thereafter
pay/remit/deliver/surrender/yield to the plaintiffs" their corresponding share in the proceeds
thereof. In due time, petitioner filed a manifestation and motion to dismiss,8arguing that the
trial court did not acquire jurisdiction over the case due to the plaintiffs' failure to pay the
proper docket fees. Further, in a supplement to his motion to dismiss,9petitioner also
raised prescription as an additional ground warranting the outright dismissal of the
complaint.
On June 15, 1995, the trial court i ssued an Order,10denying the motion to dismiss
inasmuch as the grounds raised therein were basically the same as the earlier motion to
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dismiss which has been denied. Anent the issue of prescription, the trial court ruled that
prescription begins to run only upon the dissolution of the partnership when the final
accounting is done. Hence, prescription has not set in the absence of a final accounting.
Moreover, an action based on a written contract prescribes in ten years from the time the
right of action accrues.
Petitioner filed a petition for certiorari before the Court of Appeals,11
raising the followingissues:
I. Whether or not respondent Judge acted without jurisdiction or with grave abuse of
discretion in taking cognizance of a case despite the failure to pay the required docket fee;
II. Whether or not respondent Judge acted without jurisdiction or with grave abuse of
discretion in insisting to try the case which involve (sic) a parcel of land situated outside of
its territorial jurisdiction;
III. Whether or not respondent Judge acted without jurisdiction or with grave abuse of
discretion in allowing the estate of the deceased to appear as party plaintiff, when there is
no intestate case and filed by one who was never appointed by the court as administratrix
of the estates; and
IV. Whether or not respondent Judge acted without jurisdiction or with grave abuse of
discretion in not dismissing the case on the ground of prescription.
On August 8, 1996, the Court of Appeals rendered the assailed decision,12dismissing the
petition for certiorari, upon a finding that no grave abuse of discretion amounting to lack or
excess of jurisdiction was committed by the trial court in issuing the questioned orders
denying petitioner's motions to dismiss.
Not satisfied, petitioner filed the instant petition for review, raising the same issues
resolved by the Court of Appeals, namely:
I. Failure to pay the proper docket fee;
II. Parcel of land subject of the case pending before the trial court is outside the said
court's territorial jurisdiction;
III. Lack of capacity to sue on the part of plaintiff heirs of Vicente Tabanao; and
IV. Prescription of the plaintiff heirs' cause of action.
It can be readily seen that respondents' primary and ultimate objective in instituting the
action below was to recover the decedent's 1/3 share in the partnership' s assets. While
they ask for an accounting of the partnership' s assets and finances, what they are actually
asking is for the trial court to compel petitioner to pay and turn over their share, or the
equivalent value thereof, from the proceeds of the sale of the partnership assets. They also
assert that until and unless a proper accounting is done, the exact value of the partnership'
s assets, as well as their corresponding share therein, cannot be ascertained.Consequently, they feel justified in not having paid the commensurate docket fee as
required by the Rules of Court.1wphi1.nt
We do not agree. The trial court does not have to employ guesswork in ascertaining the
estimated value of the partnership's assets, for respondents themselves voluntarily pegged
the worth thereof at Thirty Million Pesos (P30,000,000.00). Hence, this case is one which is
really not beyond pecuniary estimation, but rather partakes of the nature of a simple
collection case where the value of the subject assets or amount demanded is pecuniarily
determinable.13While it is true that the exact value of the partnership's total assets cannot
be shown with certainty at the t ime of filing, respondents can and must ascertain, through
informed and practical estimation, the amount they expect to collect from the partnership,
particularly from petitioner, in order to determine the proper amount of docket and otherfees.14It is thus imperative for respondents to pay the corresponding docket fees in order
that the trial court may acquire jurisdiction over the action.15
Nevertheless, unlike in the case of Manchester Development Corp. v. Court of
Appeals,16where there was clearly an effort to defraud the government in avoiding to pay
the correct docket fees, we see n o attempt to cheat the courts on the part of respondents.
In fact, the lower courts have noted their expressed desire to remit to the court "any
payable balance or lien on whatever award which the Honorable Court may grant them in
this case should there be any deficiency in the payment of the docket fees to be computed
by the Clerk of Court."17There is evident willingness to pay, and the fact that the docket fee
paid so far is inadequate is not an indication that they are trying to avoid paying the
required amount, but may simply be due to an inability to pay at the time of filing. This
consideration may have moved the trial court and the Court of Appeals to declare that the
unpaid docket fees shall be considere