pat, batch 3 (partnership)

8/11/2019 PAT, Batch 3 (Partnership)

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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
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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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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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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

pat, batch 3 (partnership)

Documents