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Republic of the Philippines


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:

G.R. No. 109248 July 3, 1995

BACORRO, petitioners,
JOAQUIN L. MISA,respondents.

"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 instant petition seeks a review of the decision rendered by the Court of Appeals,
dated 26 February 1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in
toto that of the Securities and Exchange Commission ("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by respondent Commission and
quoted at length by the appellate court in its decision, are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly
registered in the Mercantile Registry on 4 January 1937 and reconstituted
with the Securities and Exchange Commission on 4 August 1948. The SEC
records show that there were several subsequent amendments to the
articles of partnership on 18 September 1958, to change the firm [name] to
ROSS, SELPH and CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH,
DEL ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to
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:

"The partnership has ceased to be mutually satisfactory

because of the working conditions of our employees
including the assistant attorneys. All my efforts to
ameliorate the below subsistence level of the pay scale of
our employees have been thwarted by the other partners.
Not only have they refused to give meaningful increases to
the employees, even attorneys, are dressed down publicly
in a loud voice in a manner that deprived them of their
self-respect. The result of such policies is the formation of
the union, including the assistant attorneys."
On 30 June 1988, petitioner filed with this Commission's Securities
Investigation and Clearing Department (SICD) a petition for dissolution and
liquidation of partnership, docketed as SEC Case No. 3384 praying that the
"1. Decree the formal dissolution and order the immediate
liquidation of (the partnership of) Bito, Misa & Lozada;
"2. Order the respondents to deliver or pay for petitioner's
share in the partnership assets plus the profits, rent or
interest attributable to the use of his right in the assets of
the dissolved partnership;

"3. Enjoin respondents from using the firm name of Bito,

Misa & Lozada in any of their correspondence, checks and
pleadings and to pay petitioners damages for the use
thereof despite the dissolution of the partnership in the
amount of at least P50,000.00;
"4. Order respondents jointly and severally to pay
petitioner attorney's fees and expense of litigation in such
amounts as maybe proven during the trial and which the
Commission may deem just and equitable under the
premises but in no case less than ten (10%) per cent of
the value of the shares of petitioner or P100,000.00;
"5. Order the respondents to pay petitioner moral
damages with the amount of P500,000.00 and exemplary
damages in the amount of P200,000.00.
"Petitioner likewise prayed for such other and further
reliefs that the Commission may deem just and equitable
under the premises."
On 13 July 1988, respondents-appellees filed their opposition to the petition.
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa &
Lozada did not dissolve the said law partnership.
Accordingly, the petitioner and respondents are hereby
enjoined to abide by the provisions of the Agreement
relative to the matter governing the liquidation of the
shares of any retiring or withdrawing partner in the
partnership interest." 1
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held
that the withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of "Bito,
Misa & Lozada." The Commission ruled that, being a partnership at will, the law firm
could be dissolved by any partner at anytime, such as by his withdrawal therefrom,
regardless of good faith or bad faith, since no partner can be forced to continue in the
partnership against his will. In its decision, dated 17 January 1990, the SEC held:
WHEREFORE, premises considered the appealed order of 31 March 1989
is hereby REVERSED insofar as it concludes that the partnership of Bito,
Misa & Lozada has not been dissolved. The case is hereby REMANDED to

the Hearing Officer for determination of the respective rights and obligations
of the parties. 2
The parties sought a reconsideration of the above decision. Attorney Misa, in addition,
asked for an appointment of a receiver to take over the assets of the dissolved
partnership and to take charge of the winding up of its affairs. On 4 April 1991,
respondent SEC issued an order denying reconsideration, as well as rejecting the
petition for receivership, and reiterating the remand of the case to the Hearing Officer.
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No.
24638 and CA-G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and
Attorney Mariano Lozada both died on, respectively, 05 September 1991 and 21
December 1991. The death of the two partners, as well as the admission of new
partners, in the law firm prompted Attorney Misa to renew his application for
receivership (in CA G.R. SP No. 24648). He expressed concern over the need to
preserve and care for the partnership assets. The other partners opposed the prayer.
The Court of Appeals, finding no reversible error on the part of respondent
Commission, AFFIRMED in toto the SEC decision and order appealed from. In fine,
the appellate court held, per its decision of 26 February 1993, (a) that Atty. Misa's
withdrawal from the partnership had changed the relation of the parties and inevitably
caused the dissolution of the partnership; (b) that such withdrawal was not in bad
faith; (c) that the liquidation should be to the extent of Attorney Misa's interest or
participation in the partnership which could be computed and paid in the manner
stipulated in the partnership agreement; (d) that the case should be remanded to the
SEC Hearing Officer for the corresponding determination of the value of Attorney
Misa's share in the partnership assets; and (e) that the appointment of a receiver was
unnecessary as no sufficient proof had been shown to indicate that the partnership
assets were in any such danger of being lost, removed or materially impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners confine
themselves to the following issues:
1. Whether or not the Court of Appeals has erred in holding that the
partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a
partnership at will;
2. Whether or not the Court of Appeals has erred in holding that the
withdrawal of private respondent dissolved the partnership regardless of his
good or bad faith; and
3. Whether or not the Court of Appeals has erred in holding that private
respondent's demand for the dissolution of the partnership so that he can
get a physical partition of partnership was not made in bad faith;

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

A partnership that does not fix its term is a partnership at will. That the law firm "Bito,
Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a
partnership need not be unduly belabored. We quote, with approval, like did the
appellate court, the findings and disquisition of respondent SEC on this matter; viz:
The partnership agreement (amended articles of 19 August 1948) does not
provide for a specified period or undertaking. The "DURATION" clause
simply states:
"5. DURATION. The partnership shall continue so long as
mutually satisfactory and upon the death or legal
incapacity of one of the partners, shall be continued by the
surviving partners."
The hearing officer however opined that the partnership is one for a specific
undertaking and hence not a partnership at will, citing paragraph 2 of the
Amended Articles of Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is
formed, is to act as legal adviser and representative of any
individual, firm and corporation engaged in commercial,
industrial or other lawful businesses and occupations; to
counsel and advise such persons and entities with respect
to their legal and other affairs; and to appear for and
represent their principals and client in all courts of justice
and government departments and offices in the
Philippines, and elsewhere when legally authorized to do
The "purpose" of the partnership is not the specific undertaking referred to in
the law. Otherwise, all partnerships, which necessarily must have a purpose,
would all be considered as partnerships for a definite undertaking. There
would therefore be no need to provide for articles on partnership at will as
none would so exist. Apparently what the law contemplates, is a specific
undertaking or "project" which has a definite or definable period of
completion. 3
The birth and life of a partnership at will is predicated on the mutual desire and
consent of the partners. The right to choose with whom a person wishes to associate
himself is the very foundation and essence of that partnership. Its continued existence
is, in turn, dependent on the constancy of that mutual resolve, along with each
partner's capability to give it, and the absence of a cause for dissolution provided by
the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a
dissolution of the partnership at will. He must, however, act in good faith, not that the

attendance of bad faith can prevent the dissolution of the partnership 4 but that it can
result in a liability for damages. 5
In passing, neither would the presence of a period for its specific duration or the
statement of a particular purpose for its creation prevent the dissolution of any
partnership by an act or will of a partner. 6 Among partners, 7 mutual agency arises
and the doctrine of delectus personae allows them to have the power, although not
necessarily the right, to dissolve the partnership. An unjustified dissolution by the
partner can subject him to a possible action for damages.
The dissolution of a partnership is the change in the relation of the parties caused by
any partner ceasing to be associated in the carrying on, as might be distinguished
from the winding up of, the business. 8 Upon its dissolution, the partnership continues
and its legal personality is retained until the complete winding up of its business
culminating in its termination. 9
The liquidation of the assets of the partnership following its dissolution is governed by
various provisions of the Civil Code; 10 however, an agreement of the partners, like
any other contract, is binding among them and normally takes precedence to the
extent applicable over the Code's general provisions. We here take note of paragraph
8 of the "Amendment to Articles of Partnership" reading thusly:
. . . In the event of the death or retirement of any partner, his interest in the
partnership shall be liquidated and paid in accordance with the existing
agreements and his partnership participation shall revert to the Senior
Partners for allocation as the Senior Partners may determine; provided,
however, that with respect to the two (2) floors of office condominium which
the partnership is now acquiring, consisting of the 5th and the 6th floors of
the Alpap Building, 140 Alfaro Street, Salcedo Village, Makati, Metro Manila,
their true value at the time of such death or retirement shall be determined
by two (2) independent appraisers, one to be appointed (by the partnership
and the other by the) retiring partner or the heirs of a deceased partner, as
the case may be. In the event of any disagreement between the said
appraisers a third appraiser will be appointed by them whose decision shall
be final. The share of the retiring or deceased partner in the aforementioned
two (2) floor office condominium shall be determined upon the basis of the
valuation above mentioned which shall be paid monthly within the first ten
(10) days of every month in installments of not less than P20,000.00 for the
Senior Partners, P10,000.00 in the case of two (2) existing Junior Partners
and P5,000.00 in the case of the new Junior Partner. 11
The term "retirement" must have been used in the articles, as we so hold, in a generic
sense to mean the dissociation by a partner, inclusive of resignation or withdrawal,
from the partnership that thereby dissolves it.
On the third and final issue, we accord due respect to the appellate court and
respondent Commission on their common factual finding, i.e., that Attorney Misa did

not act in bad faith. Public respondents viewed his withdrawal to have been spurred
by "interpersonal conflict" among the partners. It would not be right, we agree, to let
any of the partners remain in the partnership under such an atmosphere of animosity;
certainly, not against their will. 12Indeed, for as long as the reason for withdrawal of a
partner is not contrary to the dictates of justice and fairness, nor for the purpose of
unduly visiting harm and damage upon the partnership, bad faith cannot be said to
characterize the act. Bad faith, in the context here used, is no different from its normal
concept of a conscious and intentional design to do a wrongful act for a dishonest
purpose or moral obliquity.
WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on
Feliciano, Romero, Melo and Francisco, JJ., concur.
Republic of the Philippines
G.R. No. 127405

October 4, 2000


This is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV No.
41616,1 affirming the Decision of the Regional Trial Court of Makati, Branch 140, in
Civil Case No. 88-509.2
Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand, private
respondent Nenita A. Anay met petitioner William T. Belo, then the vice-president for
operations of Ultra Clean Water Purifier, through her former employer in Bangkok.
Belo introduced Anay to petitioner Marjorie Tocao, who conveyed her desire to enter
into a joint venture with her for the importation and local distribution of kitchen
cookwares. Belo volunteered to finance the joint venture and assigned to Anay the job
of marketing the product considering her experience and established relationship with
West Bend Company, a manufacturer of kitchen wares in Wisconsin, U.S.A. Under

the joint venture, Belo acted as capitalist, Tocao as president and general manager,
and Anay as head of the marketing department and later, vice-president for sales.
Anay organized the administrative staff and sales force while Tocao hired and fired
employees, determined commissions and/or salaries of the employees, and assigned
them to different branches. The parties agreed that Belos name should not appear in
any documents relating to their transactions with West Bend Company. Instead, they
agreed to use Anays name in securing distributorship of cookware from that
company. The parties agreed further that Anay would be entitled to: (1) ten percent
(10%) of the annual net profits of the business; (2) overriding commission of six
percent (6%) of the overall weekly production; (3) thirty percent (30%) of the sales
she would make; and (4) two percent (2%) for her demonstration services. The
agreement was not reduced to writing on the strength of Belos assurances that he
was sincere, dependable and honest when it came to financial commitments.
Anay having secured the distributorship of cookware products from the West Bend
Company and organized the administrative staff and the sales force, the cookware
business took off successfully. They operated under the name of Geminesse
Enterprise, a sole proprietorship registered in Marjorie Tocaos name, with office at
712 Rufino Building, Ayala Avenue, Makati City. Belo made good his monetary
commitments to Anay. Thereafter, Roger Muencheberg of West Bend Company
invited Anay to the distributor/dealer meeting in West Bend, Wisconsin, U.S.A., from
July 19 to 21, 1987 and to the southwestern regional convention in Pismo Beach,
California, U.S.A., from July 25-26, 1987. Anay accepted the invitation with the
consent of Marjorie Tocao who, as president and general manager of Geminesse
Enterprise, even wrote a letter to the Visa Section of the U.S. Embassy in Manila on
July 13, 1987. A portion of the letter reads:
"Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co.
for twenty (20) years now, acquired the distributorship of Royal Queen cookware for
Geminesse Enterprise, is the Vice President Sales Marketing and a business partner
of our company, will attend in response to the invitation." (Italics supplied.)3
Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the task
of saving the business on account of the unsatisfactory sales record in the Makati and
Cubao offices. On August 31, 1987, she received a plaque of appreciation from the
administrative and sales people through Marjorie Tocao4 for her excellent job
performance. On October 7, 1987, in the presence of Anay, Belo signed a
memo5 entitling her to a thirty-seven percent (37%) commission for her personal sales
"up Dec 31/87." Belo explained to her that said commission was apart from her ten
percent (10%) share in the profits. On October 9, 1987, Anay learned that Marjorie
Tocao had signed a letter6 addressed to the Cubao sales office to the effect that she
was no longer the vice-president of Geminesse Enterprise. The following day,
October 10, she received a note from Lina T. Cruz, marketing manager, that Marjorie
Tocao had barred her from holding office and conducting demonstrations in both
Makati and Cubao offices.7 Anay attempted to contact Belo. She wrote him twice to
demand her overriding commission for the period of January 8, 1988 to February 5,
1988 and the audit of the company to determine her share in the net profits. When

her letters were not answered, Anay consulted her lawyer, who, in turn, wrote Belo a
letter. Still, that letter was not answered.
Anay still received her five percent (5%) overriding commission up to December
1987. The following year, 1988, she did not receive the same commission although
the company netted a gross sales of P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of
money with damages8against Marjorie D. Tocao and William Belo before the Regional
Trial Court of Makati, Branch 140.
In her complaint, Anay prayed that defendants be ordered to pay her, jointly and
severally, the following: (1) P32,00.00 as unpaid overriding commission from January
8, 1988 to February 5, 1988; (2) P100,000.00 as moral damages, and (3)
P100,000.00 as exemplary damages. The plaintiff also prayed for an audit of the
finances of Geminesse Enterprise from the inception of its business operation until
she was "illegally dismissed" to determine her ten percent (10%) share in the net
profits. She further prayed that she be paid the five percent (5%) "overriding
commission" on the remaining 150 West Bend cookware sets before her "dismissal."

In their answer, Marjorie Tocao and Belo asserted that the "alleged agreement" with
Anay that was "neither reduced in writing, nor ratified," was "either unenforceable or
void or inexistent." As far as Belo was concerned, his only role was to introduce Anay
to Marjorie Tocao. There could not have been a partnership because, as Anay herself
admitted, Geminesse Enterprise was the sole proprietorship of Marjorie Tocao.
Because Anay merely acted as marketing demonstrator of Geminesse Enterprise for
an agreed remuneration, and her complaint referred to either her compensation or
dismissal, such complaint should have been lodged with the Department of Labor and
not with the regular court.
Petitioners (defendants therein) further alleged that Anay filed the complaint on
account of "ill-will and resentment" because Marjorie Tocao did not allow her to "lord it
over in the Geminesse Enterprise." Anay had acted like she owned the enterprise
because of her experience and expertise. Hence, petitioners were the ones who
suffered actual damages "including unreturned and unaccounted stocks of
Geminesse Enterprise," and "serious anxiety, besmirched reputation in the business
world, and various damages not less than P500,000.00." They also alleged that, to
"vindicate their names," they had to hire counsel for a fee of P23,000.00.
At the pre-trial conference, the issues were limited to: (a) whether or not the plaintiff
was an employee or partner of Marjorie Tocao and Belo, and (b) whether or not the
parties are entitled to damages.10
In their defense, Belo denied that Anay was supposed to receive a share in the profit
of the business. He, however, admitted that the two had agreed that Anay would
receive a three to four percent (3-4%) share in the gross sales of the cookware. He
denied contributing capital to the business or receiving a share in its profits as he

merely served as a guarantor of Marjorie Tocao, who was new in the business. He
attended and/or presided over business meetings of the venture in his capacity as a
guarantor but he never participated in decision-making. He claimed that he wrote the
memo granting the plaintiff thirty-seven percent (37%) commission upon her dismissal
from the business venture at the request of Tocao, because Anay had no other
For her part, Marjorie Tocao denied having entered into an oral partnership
agreement with Anay. However, she admitted that Anay was an expert in the
cookware business and hence, they agreed to grant her the following commissions:
thirty-seven percent (37%) on personal sales; five percent (5%) on gross sales; two
percent (2%) on product demonstrations, and two percent (2%) for recruitment of
personnel. Marjorie denied that they agreed on a ten percent (10%) commission on
the net profits. Marjorie claimed that she got the capital for the business out of the
sale of the sewing machines used in her garments business and from Peter Lo, a
Singaporean friend-financier who loaned her the funds with interest. Because she
treated Anay as her "co-equal," Marjorie received the same amounts of commissions
as her. However, Anay failed to account for stocks valued at P200,000.00.
On April 22, 1993, the trial court rendered a decision the dispositive part of which is
as follows:
"WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. Ordering defendants to submit to the Court a formal account as to the partnership
affairs for the years 1987 and 1988 pursuant to Art. 1809 of the Civil Code in order to
determine the ten percent (10%) share of plaintiff in the net profits of the cookware
2. Ordering defendants to pay five percent (5%) overriding commission for the one
hundred and fifty (150) cookware sets available for disposition when plaintiff was
wrongfully excluded from the partnership by defendants;
3. Ordering defendants to pay plaintiff overriding commission on the total production
which for the period covering January 8, 1988 to February 5, 1988 amounted to
4. Ordering defendants to pay P100,000.00 as moral damages and P100,000.00 as
exemplary damages, and
5. Ordering defendants to pay P50,000.00 as attorneys fees and P20,000.00 as
costs of suit.

The trial court held that there was indeed an "oral partnership agreement between the
plaintiff and the defendants," based on the following: (a) there was an intention to
create a partnership; (b) a common fund was established through contributions
consisting of money and industry, and (c) there was a joint interest in the profits. The
testimony of Elizabeth Bantilan, Anays cousin and the administrative officer of
Geminesse Enterprise from August 21, 1986 until it was absorbed by Royal
International, Inc., buttressed the fact that a partnership existed between the parties.
The letter of Roger Muencheberg of West Bend Company stating that he awarded the
distributorship to Anay and Marjorie Tocao because he was convinced that with
Marjories financial contribution and Anays experience, the combination of the two
would be invaluable to the partnership, also supported that conclusion. Belos claim
that he was merely a "guarantor" has no basis since there was no written evidence
thereof as required by Article 2055 of the Civil Code. Moreover, his acts of attending
and/or presiding over meetings of Geminesse Enterprise plus his issuance of a memo
giving Anay 37% commission on personal sales belied this. On the contrary, it
demonstrated his involvement as a partner in the business.
The trial court further held that the payment of commissions did not preclude the
existence of the partnership inasmuch as such practice is often resorted to in
business circles as an impetus to bigger sales volume. It did not matter that the
agreement was not in writing because Article 1771 of the Civil Code provides that a
partnership may be "constituted in any form." The fact that Geminesse Enterprise was
registered in Marjorie Tocaos name is not determinative of whether or not the
business was managed and operated by a sole proprietor or a partnership. What was
registered with the Bureau of Domestic Trade was merely the business name or style
of Geminesse Enterprise.
The trial court finally held that a partner who is excluded wrongfully from a partnership
is an innocent partner. Hence, the guilty partner must give him his due upon the
dissolution of the partnership as well as damages or share in the profits "realized from
the appropriation of the partnership business and goodwill." An innocent partner thus
possesses "pecuniary interest in every existing contract that was incomplete and in
the trade name of the co-partnership and assets at the time he was wrongfully
Petitioners appeal to the Court of Appeals11 was dismissed, but the amount of
damages awarded by the trial court were reduced to P50,000.00 for moral damages
and P50,000.00 as exemplary damages. Their Motion for Reconsideration was
denied by the Court of Appeals for lack of merit.12 Petitioners Belo and Marjorie Tocao
are now before this Court on a petition for review on certiorari, asserting that there
was no business partnership between them and herein private respondent Nenita A.
Anay who is, therefore, not entitled to the damages awarded to her by the Court of
Petitioners Tocao and Belo contend that the Court of Appeals erroneously held that a
partnership existed between them and private respondent Anay because Geminesse
Enterprise "came into being" exactly a year before the "alleged partnership" was

formed, and that it was very unlikely that petitioner Belo would invest the sum of
P2,500,000.00 with petitioner Tocao contributing nothing, without any "memorandum
whatsoever regarding the alleged partnership."13
The issue of whether or not a partnership exists is a factual matter which are within
the exclusive domain of both the trial and appellate courts. This Court cannot set
aside factual findings of such courts absent any showing that there is no evidence to
support the conclusion drawn by the court a quo.14 In this case, both the trial court
and the Court of Appeals are one in ruling that petitioners and private respondent
established a business partnership. This Court finds no reason to rule otherwise.
To be considered a juridical personality, a partnership must fulfill these requisites: (1)
two or more persons bind themselves to contribute money, property or industry to a
common fund; and (2) intention on the part of the partners to divide the profits among
themselves.15 It may be constituted in any form; a public instrument is necessary only
where immovable property or real rights are contributed thereto.16 This implies that
since a contract of partnership is consensual, an oral contract of partnership is as
good as a written one. Where no immovable property or real rights are involved, what
matters is that the parties have complied with the requisites of a partnership. The fact
that there appears to be no record in the Securities and Exchange Commission of a
public instrument embodying the partnership agreement pursuant to Article 1772 of
the Civil Code17 did not cause the nullification of the partnership. The pertinent
provision of the Civil Code on the matter states:
Art. 1768. The partnership has a juridical personality separate and distinct from that of
each of the partners, even in case of failure to comply with the requirements of article
1772, first paragraph.
Petitioners admit that private respondent had the expertise to engage in the business
of distributorship of cookware. Private respondent contributed such expertise to the
partnership and hence, under the law, she was the industrial or managing partner. It
was through her reputation with the West Bend Company that the partnership was
able to open the business of distributorship of that companys cookware products; it
was through the same efforts that the business was propelled to financial success.
Petitioner Tocao herself admitted private respondents indispensable role in putting up
the business when, upon being asked if private respondent held the positions of
marketing manager and vice-president for sales, she testified thus:
"A: No, sir at the start she was the marketing manager because there were no one to
sell yet, its only me there then her and then two (2) people, so about four (4). Now,
after that when she recruited already Oscar Abella and Lina Torda-Cruz these two (2)
people were given the designation of marketing managers of which definitely Nita as
superior to them would be the Vice President."18
By the set-up of the business, third persons were made to believe that a partnership
had indeed been forged between petitioners and private respondents. Thus, the

communication dated June 4, 1986 of Missy Jagler of West Bend Company to Roger
Muencheberg of the same company states:
"Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the
operations. Marge does not have cookware experience. Nita Anay has started to
gather former managers, Lina Torda and Dory Vista. She has also gathered former
demonstrators, Betty Bantilan, Eloisa Lamela, Menchu Javier. They will continue to
gather other key people and build up the organization. All they need is the finance
and the products to sell."19
On the other hand, petitioner Belos denial that he financed the partnership rings
hollow in the face of the established fact that he presided over meetings regarding
matters affecting the operation of the business. Moreover, his having authorized in
writing on October 7, 1987, on a stationery of his own business firm, Wilcon Builders
Supply, that private respondent should receive thirty-seven (37%) of the proceeds of
her personal sales, could not be interpreted otherwise than that he had a proprietary
interest in the business. His claim that he was merely a guarantor is belied by that
personal act of proprietorship in the business. Moreover, if he was indeed a guarantor
of future debts of petitioner Tocao under Article 2053 of the Civil Code,20 he should
have presented documentary evidence therefor. While Article 2055 of the Civil Code
simply provides that guaranty must be "express," Article 1403, the Statute of Frauds,
requires that "a special promise to answer for the debt, default or miscarriage of
another" be in writing.21

owned Geminesse Enterprise,27private respondent received only commissions and

transportation and representation allowances28 and not a fixed salary.29 Petitioner
Tocao testified:
"Q: Of course. Now, I am showing to you certain documents already marked as Exhs.
X and Y. Please go over this. Exh. Y is denominated `Cubao overrides 8-21-87
with ending August 21, 1987, will you please go over this and tell the Honorable Court
whether you ever came across this document and know of your own knowledge the
amount --A: Yes, sir this is what I am talking about earlier. Thats the one I am telling you earlier
a certain percentage for promotions, advertising, incentive.
Q: I see. Now, this promotion, advertising, incentive, there is a figure here and words
which I quote: Overrides Marjorie Ann Tocao P21,410.50 this means that you have
received this amount?
A: Oh yes, sir.
Q: I see. And, by way of amplification this is what you are saying as one representing
commission, representation, advertising and promotion?
A: Yes, sir.

Petitioner Tocao, a former ramp model,22 was also a capitalist in the partnership. She
claimed that she herself financed the business. Her and petitioner Belos roles as
both capitalists to the partnership with private respondent are buttressed by petitioner
Tocaos admissions that petitioner Belo was her boyfriend and that the partnership
was not their only business venture together. They also established a firm that they
called "Wiji," the combination of petitioner Belos first name, William, and her
nickname, Jiji.23 The special relationship between them dovetails with petitioner Belos
claim that he was acting in behalf of petitioner Tocao. Significantly, in the early stage
of the business operation, petitioners requested West Bend Company to allow them
to "utilize their banking and trading facilities in Singapore" in the matter of importation
and payment of the cookware products.24The inevitable conclusion, therefore, was
that petitioners merged their respective capital and infused the amount into the
partnership of distributing cookware with private respondent as the managing partner.
The business venture operated under Geminesse Enterprise did not result in an
employer-employee relationship between petitioners and private respondent. While it
is true that the receipt of a percentage of net profits constitutes only prima
facie evidence that the recipient is a partner in the business,25 the evidence in the
case at bar controverts an employer-employee relationship between the parties. In
the first place, private respondent had a voice in the management of the affairs of the
cookware distributorship,26 including selection of people who would constitute the
administrative staff and the sales force. Secondly, petitioner Tocaos admissions
militate against an employer-employee relationship. She admitted that, like her who

Q: I see. Below your name is the words and figure and I quote Nita D. Anay
P21,410.50, what is this?
A: Thats her overriding commission.
Q: Overriding commission, I see. Of course, you are telling this Honorable Court that
there being the same P21,410.50 is merely by coincidence?
A: No, sir, I made it a point that we were equal because the way I look at her kasi,
you know in a sense because of her expertise in the business she is vital to my
business. So, as part of the incentive I offer her the same thing.
Q: So, in short you are saying that this you have shared together, I mean having
gotten from the company P21,140.50 is your way of indicating that you were treating
her as an equal?
A: As an equal.
Q: As an equal, I see. You were treating her as an equal?
A: Yes, sir.

Q: I am calling again your attention to Exh. Y Overrides Makati the other one is --A: That is the same thing, sir.
Q: With ending August 21, words and figure Overrides Marjorie Ann Tocao
P15,314.25 the amount there you will acknowledge you have received that?
A: Yes, sir.
Q: Again in concept of commission, representation, promotion, etc.?
A: Yes, sir.
Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an
indication that she received the same amount?
A: Yes, sir.
Q: And, as in your previous statement it is not by coincidence that these two (2) are
the same?
A: No, sir.
Q: It is again in concept of you treating Miss Anay as your equal?
A: Yes, sir." (Italics supplied.)30
If indeed petitioner Tocao was private respondents employer, it is difficult to believe
that they shall receive the same income in the business. In a partnership, each
partner must share in the profits and losses of the venture, except that the industrial
partner shall not be liable for the losses.31 As an industrial partner, private respondent
had the right to demand for a formal accounting of the business and to receive her
share in the net profit.32
The fact that the cookware distributorship was operated under the name of
Geminesse Enterprise, a sole proprietorship, is of no moment. What was registered
with the Bureau of Domestic Trade on August 19, 1987 was merely the name of that
enterprise.33 While it is true that in her undated application for renewal of registration
of that firm name, petitioner Tocao indicated that it would be engaged in retail of
"kitchenwares, cookwares, utensils, skillet,"34 she also admitted that the enterprise
was only "60% to 70% for the cookware business," while 20% to 30% of its business
activity was devoted to the sale of water sterilizer or purifier.35 Indubitably then, the
business name Geminesse Enterprise was used only for practical reasons - it was
utilized as the common name for petitioner Tocaos various business activities, which
included the distributorship of cookware.

Petitioners underscore the fact that the Court of Appeals did not return the
"unaccounted and unremitted stocks of Geminesse Enterprise amounting to
P208,250.00."36 Obviously a ploy to offset the damages awarded to private
respondent, that claim, more than anything else, proves the existence of a
partnership between them. In Idos v. Court of Appeals, this Court said:
"The best evidence of the existence of the partnership, which was not yet terminated
(though in the winding up stage), were the unsold goods and uncollected receivables,
which were presented to the trial court. Since the partnership has not been
terminated, the petitioner and private complainant remained as co-partners. x x x."37
It is not surprising then that, even after private respondent had been unceremoniously
booted out of the partnership in October 1987, she still received her overriding
commission until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the
partnership to reap for herself and/or for petitioner Belo financial gains resulting from
private respondents efforts to make the business venture a success. Thus, as
petitioner Tocao became adept in the business operation, she started to assert herself
to the extent that she would even shout at private respondent in front of other
people.38 Her instruction to Lina Torda Cruz, marketing manager, not to allow private
respondent to hold office in both the Makati and Cubao sales offices concretely spoke
of her perception that private respondent was no longer necessary in the business
operation,39 and resulted in a falling out between the two. However, a mere falling out
or misunderstanding between partners does not convert the partnership into a sham
organization.40 The partnership exists until dissolved under the law. Since the
partnership created by petitioners and private respondent has no fixed term and is
therefore a partnership at will predicated on their mutual desire and consent, it may
be dissolved by the will of a partner. Thus:
"x x x. The right to choose with whom a person wishes to associate himself is the very
foundation and essence of that partnership. Its continued existence is, in turn,
dependent on the constancy of that mutual resolve, along with each partners
capability to give it, and the absence of cause for dissolution provided by the law
itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of
the partnership at will. He must, however, act in good faith, not that the attendance of
bad faith can prevent the dissolution of the partnership but that it can result in a
liability for damages."41
An unjustified dissolution by a partner can subject him to action for damages because
by the mutual agency that arises in a partnership, the doctrine of delectus
personae allows the partners to have the power, although not necessarily the right to
dissolve the partnership.42
In this case, petitioner Tocaos unilateral exclusion of private respondent from the
partnership is shown by her memo to the Cubao office plainly stating that private
respondent was, as of October 9, 1987, no longer the vice-president for sales of

Geminesse Enterprise.43 By that memo, petitioner Tocao effected her own withdrawal
from the partnership and considered herself as having ceased to be associated with
the partnership in the carrying on of the business. Nevertheless, the partnership was
not terminated thereby; it continues until the winding up of the business.44
The winding up of partnership affairs has not yet been undertaken by the
partnership.1wphi1 This is manifest in petitioners claim for stocks that had been
entrusted to private respondent in the pursuit of the partnership business.
The determination of the amount of damages commensurate with the factual findings
upon which it is based is primarily the task of the trial court.45 The Court of Appeals
may modify that amount only when its factual findings are diametrically opposed to
that of the lower court,46 or the award is palpably or scandalously and unreasonably
excessive.47 However, exemplary damages that are awarded "by way of example or
correction for the public good,"48 should be reduced to P50,000.00, the amount
correctly awarded by the Court of Appeals. Concomitantly, the award of moral
damages of P100,000.00 was excessive and should be likewise reduced to
P50,000.00. Similarly, attorneys fees that should be granted on account of the award
of exemplary damages and petitioners evident bad faith in refusing to satisfy private
respondents plainly valid, just and demandable claims,49 appear to have been
excessively granted by the trial court and should therefore be reduced to P25,000.00.
WHEREFORE, the instant petition for review on certiorari is DENIED. The partnership
among petitioners and private respondent is ordered dissolved, and the parties are
ordered to effect the winding up and liquidation of the partnership pursuant to the
pertinent provisions of the Civil Code. This case is remanded to the Regional Trial
Court for proper proceedings relative to said dissolution. The appealed decisions of
the Regional Trial Court and the Court of Appeals are AFFIRMED with
MODIFICATIONS, as follows --1. Petitioners are ordered to submit to the Regional Trial Court a formal
account of the partnership affairs for the years 1987 and 1988, pursuant to
Article 1809 of the Civil Code, in order to determine private respondents ten
percent (10%) share in the net profits of the partnership;
2. Petitioners are ordered, jointly and severally, to pay private respondent
five percent (5%) overriding commission for the one hundred and fifty (150)
cookware sets available for disposition since the time private respondent
was wrongfully excluded from the partnership by petitioners;
3. Petitioners are ordered, jointly and severally, to pay private respondent
overriding commission on the total production which, for the period covering
January 8, 1988 to February 5, 1988, amounted to P32,000.00;
4. Petitioners are ordered, jointly and severally, to pay private respondent
moral damages in the amount of P50,000.00, exemplary damages in the
amount of P50,000.00 and attorneys fees in the amount of P25,000.00.

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

BENITO LIWANAG and MARIA LIWANAG REYES, petitioners-appellants,

J. de Guia for appellants.
Estanislao R. Bayot for appellees.
Appellants Benito Liwanag and Maria Liwanag Reyes are co-owners of Liwanag Auto
Supply, a commercial guard who while in line of duty, was skilled by criminal hands.
His widow Ciriaca Vda. de Balderama and minor children Genara, Carlos and
Leogardo, all surnamed Balderama, in due time filed a claim for compensation with
the Workmen's Compensation Commission, which was granted in an award worded
as follows:
WHEREFORE, the order of the referee under consideration should be, as it
is hereby, affirmed and respondents Benito Liwanag and Maria Liwanag
Reyes, ordered.
1. To pay jointly and severally the amount of three thousand Four Hundred
Ninety Four and 40/100 (P3,494.40) Pesos to the claimants in lump sum;
To pay to the Workmen's Compensation Funds the sum of P4.00 (including
P5.00 for this review) as fees, pursuant to Section 55 of the Act.
In appealing the case to this Tribunal, appellants do not question the right of
appellees to compensation nor the amount awarded. They only claim that, under the
Workmen's Compensation Act, the compensation is divisible, hence the commission
erred in ordering appellants to pay jointly and severally the amount awarded. They
argue that there is nothing in the compensation Act which provides that the obligation
of an employer arising from compensable injury or death of an employee should be
solidary obligation, the same should have been specifically provided, and that, in
absence of such clear provision, the responsibility of appellants should not be solidary
but merely joint.

Republic of the Philippines

G.R. No. L-12164

May 22, 1959

At first blush appellants' contention would seem to be well, for ordinarily, the liability of
the partners in a partnership is not solidary; but the law governing the liability of
partners is not applicable to the case at bar wherein a claim for compensation by
dependents of an employee who died in line of duty is involved. And although the
Workmen's Compensation Act does not contain any provision expressly declaring
solidary obligation of business partners like the herein appellants, there are other
provisions of law from which it could be gathered that their liability must be solidary.
Arts. 1711 and 1712 of the new Civil Code provide:

ART. 1711. Owners of enterprises and other employers are obliged to pay
compensation for the death of or injuries to their laborers, workmen,
mechanics or other employees, even though the event may have been
purely accidental or entirely due to a fortuitous cause, if the death or
personal injury arose out of and in the course of the employment. . . . .
ART. 1712. If the death or injury is due to the negligence of a fellow-worker,
the latter and the employer shall be solidarily liable for compensation. . . . .


G.R. No. 124293


INC., Respondents.

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

. . . The right to compensation as provided in this Act shall not be defeated
or impaired on the ground that the death, injury or disease was due to the
negligence of a fellow servant or employee, without prejudice to the right of
the employer to proceed against the negligence party.
The provisions of the new Civil Code above quoted taken together with those of
Section 2 of the Workmen's Compensation Act, reasonably indicate that in
compensation cases, the liability of business partners, like appellants, should be
solidary; otherwise, the right of the employee may be defeated, or at least crippled. If
the responsibility of appellants were to be merely joint and solidary, and one of them
happens to be insolvent, the amount awarded to the appellees would only be partially
satisfied, which is evidently contrary to the intent and purposes of the Act. In the
previous cases we have already held that the Workmen's Compensation Act should
be construed fairly, reasonably and liberally in favor of and for the benefit of the
employee and his dependents; that all doubts as to the right of compensation
resolved in his favor; and that it should be interpreted to promote its purpose.
Accordingly, the present controversy should be decided in favor of the appellees.
Moreover, Art. 1207 of the new Civil Code provides:
. . . . There is solidary liability only when the obligation expressly so states,
or when the law or the nature of the obligation requires solidarity.
Since the Workmen's Compensation Act was enacted to give full protection to the
employee, reason demands that the nature of the obligation of the employers to pay
compensation to the heirs of their employee who died in line of duty, should be
solidary; otherwise, the purpose of the law could not be attained.
Wherefore, finding no error in the award appealed from, the same is hereby affirmed,
with costs against appellants.
Republic of the Philippines

September 24, 2003

The core issue posed by the Motions for Reconsideration is whether a shipyard is a
public utility whose capitalization must be sixty percent (60%) owned by Filipinos. Our
resolution of this issue will determine the fate of the shipbuilding and ship repair
industry. It can either spell the industrys demise or breathe new life to the struggling
but potentially healthy partner in the countrys bid for economic growth. It can either
kill an initiative yet in its infancy, or harness creativity in the productive disposition of
government assets.
The facts are undisputed and can be summarized briefly as follows:
On January 27, 1977, the National Investment and Development Corporation (NIDC),
a government corporation, entered into a Joint Venture Agreement (JVA) with
Kawasaki Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) for the construction,
operation and management of the Subic National Shipyard, Inc. (SNS) which
subsequently became the Philippine Shipyard and Engineering Corporation
(PHILSECO). Under the JVA, the NIDC and KAWASAKI will contribute P330 million
for the capitalization of PHILSECO in the proportion of 60%-40% respectively.1 One of
its salient features is the grant to the parties of the right of first refusal should either of
them decide to sell, assign or transfer its interest in the joint venture, viz:
1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS
[PHILSECO] to any third party without giving the other under the same terms the right
of first refusal. This provision shall not apply if the transferee is a corporation owned
or controlled by the GOVERNMENT or by a KAWASAKI affiliate.2
On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO
to the Philippine National Bank (PNB). Such interests were subsequently transferred
to the National Government pursuant to Administrative Order No. 14. On December 8,
1986, President Corazon C. Aquino issued Proclamation No. 50 establishing the
Committee on Privatization (COP) and the Asset Privatization Trust (APT) to take title
to, and possession of, conserve, manage and dispose of non-performing assets of
the National Government. Thereafter, on February 27, 1987, a trust agreement was

entered into between the National Government and the APT wherein the latter was
named the trustee of the National Governments share in PHILSECO. In 1989, as a
result of a quasi-reorganization of PHILSECO to settle its huge obligations to PNB,
the National Governments shareholdings in PHILSECO increased to 97.41% thereby
reducing KAWASAKIs shareholdings to 2.59%.3
In the interest of the national economy and the government, the COP and the APT
deemed it best to sell the National Governments share in PHILSECO to private
entities. After a series of negotiations between the APT and KAWASAKI, they agreed
that the latters right of first refusal under the JVA be "exchanged" for the right to top
by five percent (5%) the highest bid for the said shares. They further agreed that
KAWASAKI would be entitled to name a company in which it was a stockholder,
which could exercise the right to top. On September 7, 1990, KAWASAKI informed
APT that Philyards Holdings, Inc. (PHI) would exercise its right to top.4
At the pre-bidding conference held on September 18, 1993, interested bidders were
given copies of the JVA between NIDC and KAWASAKI, and of the Asset Specific
Bidding Rules (ASBR) drafted for the National Governments 87.6% equity share in
PHILSECO.5 The provisions of the ASBR were explained to the interested bidders
who were notified that the bidding would be held on December 2, 1993. A portion of
the ASBR reads:
1.0 The subject of this Asset Privatization Trust (APT) sale through public
bidding is the National Governments equity in PHILSECO consisting of
896,869,942 shares of stock (representing 87.67% of PHILSECOs
outstanding capital stock), which will be sold as a whole block in accordance
with the rules herein enumerated.
2.0 The highest bid, as well as the buyer, shall be subject to the final
approval of both the APT Board of Trustees and the Committee on
Privatization (COP).
2.1 APT reserves the right in its sole discretion, to reject any or all bids.
3.0 This public bidding shall be on an Indicative Price Bidding basis. The
Indicative price set for the National Governments 87.67% equity in
6.0 The highest qualified bid will be submitted to the APT Board of Trustees
at its regular meeting following the bidding, for the purpose of determining
whether or not it should be endorsed by the APT Board of Trustees to the

COP, and the latter approves the same. The APT shall advise Kawasaki
Heavy Industries, Inc. and/or its nominee, Philyards Holdings, Inc., that the
highest bid is acceptable to the National Government. Kawasaki Heavy
Industries, Inc. and/or Philyards Holdings, Inc. shall then have a period of
thirty (30) calendar days from the date of receipt of such advice from APT
within which to exercise their "Option to Top the Highest Bid" by offering a
bid equivalent to the highest bid plus five (5%) percent thereof.
6.1 Should Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc.
exercise their "Option to Top the Highest Bid," they shall so notify the APT
about such exercise of their option and deposit with APT the amount
equivalent to ten percent (10%) of the highest bid plus five percent (5%)
thereof within the thirty (30)-day period mentioned in paragraph 6.0 above.
APT will then serve notice upon Kawasaki Heavy Industries, Inc. and/or
Philyards Holdings, Inc. declaring them as the preferred bidder and they
shall have a period of ninety (90) days from the receipt of the APTs notice
within which to pay the balance of their bid price.
6.2 Should Kawasaki Heavy Industries, Inc. and/or Philyards Holdings, Inc.
fail to exercise their "Option to Top the Highest Bid" within the thirty (30)-day
period, APT will declare the highest bidder as the winning bidder.
12.0 The bidder shall be solely responsible for examining with appropriate
care these rules, the official bid forms, including any addenda or
amendments thereto issued during the bidding period. The bidder shall
likewise be responsible for informing itself with respect to any and all
conditions concerning the PHILSECO Shares which may, in any manner,
affect the bidders proposal. Failure on the part of the bidder to so examine
and inform itself shall be its sole risk and no relief for error or omission will
be given by APT or COP. . ..6
At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc. submitted
a bid of Two Billion and Thirty Million Pesos (P2,030,000,000.00) with an
acknowledgement of KAWASAKI/Philyards right to top, viz:
4. I/We understand that the Committee on Privatization (COP) has up to thirty (30)
days to act on APTs recommendation based on the result of this bidding. Should the
COP approve the highest bid, APT shall advise Kawasaki Heavy Industries, Inc.
and/or its nominee, Philyards Holdings, Inc. that the highest bid is acceptable to the
National Government. Kawasaki Heavy Industries, Inc. and/or Philyards Holdings,
Inc. shall then have a period of thirty (30) calendar days from the date of receipt of
such advice from APT within which to exercise their "Option to Top the Highest Bid"
by offering a bid equivalent to the highest bid plus five (5%) percent thereof.7

As petitioner was declared the highest bidder, the COP approved the sale on
December 3, 1993 "subject to the right of Kawasaki Heavy Industries, Inc./Philyards
Holdings, Inc. to top JGSMIs bid by 5% as specified in the bidding rules."8
On December 29, 1993, petitioner informed APT that it was protesting the offer of PHI
to top its bid on the grounds that: (a) the KAWASAKI/PHI consortium composed of
Kawasaki, Philyards, Mitsui, Keppel, SM Group, ICTSI and Insular Life violated the
ASBR because the last four (4) companies were the losing bidders thereby
circumventing the law and prejudicing the weak winning bidder; (b) only KAWASAKI
could exercise the right to top; (c) giving the same option to top to PHI constituted
unwarranted benefit to a third party; (d) no right of first refusal can be exercised in a
public bidding or auction sale; and (e) the JG Summit consortium was not estopped
from questioning the proceedings.9
On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the
purchase price of the subject bidding. On February 7, 1994, the APT notified
petitioner that PHI had exercised its option to top the highest bid and that the COP
had approved the same on January 6, 1994. On February 24, 1994, the APT and PHI
executed a Stock Purchase Agreement.10 Consequently, petitioner filed with this Court
a Petition for Mandamus under G.R. No. 114057. On May 11, 1994, said petition was
referred to the Court of Appeals. On July 18, 1995, the Court of Appeals denied the
same for lack of merit. It ruled that the petition for mandamus was not the proper
remedy to question the constitutionality or legality of the right of first refusal and the
right to top that was exercised by KAWASAKI/PHI, and that the matter must be
brought "by the proper party in the proper forum at the proper time and threshed out
in a full blown trial." The Court of Appeals further ruled that the right of first refusal and
the right to top are prima facie legal and that the petitioner, "by participating in the
public bidding, with full knowledge of the right to top granted to
KASAWASAKI/Philyards is . . .estopped from questioning the validity of the award
given to Philyards after the latter exercised the right to top and had paid in full the
purchase price of the subject shares, pursuant to the ASBR." Petitioner filed a Motion
for Reconsideration of said Decision which was denied on March 15, 1996. Petitioner
thus filed a Petition for Certiorari with this Court alleging grave abuse of discretion on
the part of the appellate court.11
On November 20, 2000, this Court rendered the now assailed Decision ruling among
others that the Court of Appeals erred when it dismissed the petition on the sole
ground of the impropriety of the special civil action ofmandamus because the petition
was also one of certiorari.12 It further ruled that a shipyard like PHILSECO is a public
utility whose capitalization must be sixty percent (60%) Filipinoowned.13 Consequently, the right to top granted to KAWASAKI under the Asset
Specific Bidding Rules (ASBR) drafted for the sale of the 87.67% equity of the
National Government in PHILSECO is illegal---not only because it violates the rules
on competitive bidding--- but more so, because it allows foreign corporations to own
more than 40% equity in the shipyard.14 It also held that "although the petitioner had
the opportunity to examine the ASBR before it participated in the bidding, it cannot be
estopped from questioning the unconstitutional, illegal and inequitable provisions
thereof."15 Thus, this Court voided the transfer of the national governments 87.67%

share in PHILSECO to Philyard Holdings, Inc., and upheld the right of JG Summit, as
the highest bidder, to take title to the said shares, viz:
Wherefore, the instant petition for review on certiorari is GRANTED. The assailed
Decision and Resolution of the Court of Appeals are REVERSED and SET ASIDE.
Petitioner is ordered to pay to APT its bid price of Two Billion Thirty Million Pesos
(P2,030,000,000.00 ), less its bid deposit plus interests upon the finality of this
Decision. In turn, APT is ordered to:
(a) accept the said amount of P2,030,000,000.00 less bid deposit and
interests from petitioner;
(b) execute a Stock Purchase Agreement with petitioner;
(c) cause the issuance in favor of petitioner of the certificates of stocks
representing 87.6% of PHILSECOs total capitalization;
(d) return to private respondent PHGI the amount of Two Billion One
Hundred Thirty-One Million Five Hundred Thousand Pesos
(P2,131,500,000.00); and
(e) cause the cancellation of the stock certificates issued to PHI.
In separate Motions for Reconsideration,17 respondents submit three basic issues for
our resolution: (1) Whether PHILSECO is a public utility; (2) Whether under the 1977
JVA, KAWASAKI can exercise its right of first refusal only up to 40% of the total
capitalization of PHILSECO; and (3) Whether the right to top granted to KAWASAKI
violates the principles of competitive bidding.
Whether PHILSECO is a Public Utility.
After carefully reviewing the applicable laws and jurisprudence, we hold that
PHILSECO is not a public utility for the following reasons:
First. By nature, a shipyard is not a public utility.
A "public utility" is "a business or service engaged in regularly supplying the public
with some commodity or service of public consequence such as electricity, gas, water,
transportation, telephone or telegraph service."18To constitute a public utility, the
facility must be necessary for the maintenance of life and occupation of the residents.
However, the fact that a business offers services or goods that promote public good
and serve the interest of the public does not automatically make it a public utility.

Public use is not synonymous with public interest. As its name indicates, the term
"public utility" implies public use and service to the public. The principal determinative
characteristic of a public utility is that of service to, or readiness to serve, an indefinite
public or portion of the public as such which has a legal right to demand and receive
its services or commodities. Stated otherwise, the owner or person in control of a
public utility must have devoted it to such use that the public generally or that part of
the public which has been served and has accepted the service, has the right to
demand that use or service so long as it is continued, with reasonable efficiency and
under proper charges.19 Unlike a private enterprise which independently determines
whom it will serve, a "public utility holds out generally and may not refuse legitimate
demand for service."20 Thus, in Iloilo Ice and Cold Storage Co. vs. Public Utility
Board,21 this Court defined "public use," viz:
"Public use" means the same as "use by the public." The essential feature of the
public use is that it is not confined to privileged individuals, but is open to the
indefinite public. It is this indefinite or unrestricted quality that gives it its public
character. In determining whether a use is public, we must look not only to the
character of the business to be done, but also to the proposed mode of doing it. If the
use is merely optional with the owners, or the public benefit is merely incidental, it is
not a public use, authorizing the exercise of jurisdiction of the public utility
commission. There must be, in general, a right which the law compels the owner to
give to the general public. It is not enough that the general prosperity of the public is
promoted. Public use is not synonymous with public interest. The true criterion by
which to judge the character of the use is whether the public may enjoy it by right or
only by permission.22 (emphasis supplied)
Applying the criterion laid down in Iloilo to the case at bar, it is crystal clear that a
shipyard cannot be considered a public utility.
A "shipyard" is "a place or enclosure where ships are built or repaired."23 Its nature
dictates that it serves but a limited clientele whom it may choose to serve at its
discretion. While it offers its facilities to whoever may wish to avail of its services, a
shipyard is not legally obliged to render its services indiscriminately to the public. It
has no legal obligation to render the services sought by each and every client. The
fact that it publicly offers its services does not give the public a legal right to demand
that such services be rendered.
There can be no disagreement that the shipbuilding and ship repair industry is
imbued with public interest as it involves the maintenance of the seaworthiness of
vessels dedicated to the transportation of either persons or goods. Nevertheless, the
fact that a business is affected with public interest does not imply that it is under a
duty to serve the public. While the business may be regulated for public good, the
regulation cannot justify the classification of a purely private enterprise as a public
utility. The legislature cannot, by its mere declaration, make something a public utility
which is not in fact such; and a private business operated under private contracts with
selected customers and not devoted to public use cannot, by legislative fiat or by
order of a public service commission, be declared a public utility, since that would be

taking private property for public use without just compensation, which cannot be
done consistently with the due process clause.24
It is worthy to note that automobile and aircraft manufacturers, which are of similar
nature to shipyards, are not considered public utilities despite the fact that their
operations greatly impact on land and air transportation. The reason is simple. Unlike
commodities or services traditionally regarded as public utilities such as electricity,
gas, water, transportation, telephone or telegraph service, automobile and aircraft
manufacturing---and for that matter ship building and ship repair--- serve the public
only incidentally.
Second. There is no law declaring a shipyard as a public utility.
History provides us hindsight and hindsight ought to give us a better view of the intent
of any law. The succession of laws affecting the status of shipyards ought not to
obliterate, but rather, give us full picture of the intent of the legislature. The totality of
the circumstances, including the contemporaneous interpretation accorded by the
administrative bodies tasked with the enforcement of the law all lead to a singular
conclusion: that shipyards are not public utilities.
Since the enactment of Act No. 2307 which created the Public Utility Commission
(PUC) until its repeal by Commonwealth Act No. 146, establishing the Public Service
Commission (PSC), a shipyard, by legislative declaration, has been considered a
public utility.25 A Certificate of Public Convenience (CPC) from the PSC to the effect
that the operation of the said service and the authorization to do business will
promote the public interests in a proper and suitable manner is required before any
person or corporation may operate a shipyard.26 In addition, such persons or
corporations should abide by the citizenship requirement provided in Article XIII,
section 8 of the 1935 Constitution,27 viz:
Sec. 8. No franchise, certificate, or any other form or authorization for the operation of
a public utility shall be granted except to citizens of the Philippines or to corporations
or other entities organized under the laws of the Philippines, sixty per centum of the
capital of which is owned by citizens of the Philippines, nor shall such franchise,
certificate or authorization be exclusive in character or for a longer period than fifty
years. No franchise or right shall be granted to any individual, firm or corporation,
except under the condition that it shall be subject to amendment, alteration, or repeal
by the National Assembly when the public interest so requires. (emphasis supplied)
To accelerate the development of shipbuilding and ship repair industry, former
President Ferdinand E. Marcos issued P.D. No. 666 granting the following incentives:
SECTION 1. Shipbuilding and ship repair yards duly registered with the Maritime
Industry Authority shall be entitled to the following incentive benefits:

(a) Exemption from import duties and taxes.- The importation of machinery,
equipment and materials for shipbuilding, ship repair and/or alteration,
including indirect import, as well as replacement and spare parts for the
repair and overhaul of vessels such as steel plates, electrical machinery and
electronic parts, shall be exempt from the payment of customs duty and
compensating tax: Provided, however, That the Maritime Industry Authority
certifies that the item or items imported are not produced locally in sufficient
quantity and acceptable quality at reasonable prices, and that the
importation is directly and actually needed and will be used exclusively for
the construction, repair, alteration, or overhaul of merchant vessels, and
other watercrafts; Provided, further, That if the above machinery, equipment,
materials and spare parts are sold to non-tax exempt persons or entities, the
corresponding duties and taxes shall be paid by the original importer;
Provided, finally, That local dealers and/or agents who sell machinery,
equipment, materials and accessories to shipyards for shipbuilding and ship
repair are entitled to tax credits, subject to approval by the total tariff duties
and compensating tax paid for said machinery, equipment, materials and
(b) Accelerated depreciation.- Industrial plant and equipment may, at the
option of the shipbuilder and ship repairer, be depreciated for any number of
years between five years and expected economic life.
(c) Exemption from contractors percentage tax.- The gross receipts derived
by shipbuilders and ship repairers from shipbuilding and ship repairing
activities shall be exempt from the Contractors Tax provided in Section 91 of
the National Internal Revenue Code during the first ten years from
registration with the Maritime Industry Authority, provided that such
registration is effected not later than the year 1990; Provided, That any and
all amounts which would otherwise have been paid as contractors tax shall
be set aside as a separate fund, to be known as "Shipyard Development
Fund", by the contractor for the purpose of expansion, modernization and/or
improvement of the contractors own shipbuilding or ship repairing facilities;
Provided, That, for this purpose, the contractor shall submit an annual
statement of its receipts to the Maritime Industry Authority; and Provided,
further, That any disbursement from such fund for any of the purposes
hereinabove stated shall be subject to approval by the Maritime Industry
In addition, P.D. No. 666 removed the shipbuilding and ship repair industry
from the list of public utilities, thereby freeing the industry from the 60%
citizenship requirement under the Constitution and from the need to obtain
Certificate of Public Convenience pursuant to section 15 of C.A No. 146.
Section 1 (d) of P.D. 666 reads:
(d) Registration required but not as a Public Utility.- The business of
constructing and repairing vessels or parts thereof shall not be

considered a public utility and no Certificate of Public Convenience

shall be required therefor. However, no shipyard, graving dock, marine
railway or marine repair shop and no person or enterprise shall engage in
construction and/or repair of any vessel, or any phase or part thereof,
without a valid Certificate of Registration and license for this purpose from
the Maritime Industry Authority, except those owned or operated by the
Armed Forces of the Philippines or by foreign governments pursuant to a
treaty or agreement. (emphasis supplied)
Any law, decree, executive order, or rules and regulations inconsistent with P.D. No.
666 were repealed or modified accordingly.28 Consequently, sections 13 (b) and 15 of
C.A. No. 146 were repealed in so far as the former law included shipyards in the list
of public utilities and required the certificate of public convenience for their operation.
Simply stated, the repeal was due to irreconcilable inconsistency, and by definition,
this kind of repeal falls under the category of an implied repeal.29
On April 28, 1983, Batas Pambansa Blg. 391, also known as the "Investment
Incentive Policy Act of 1983," was enacted. It laid down the general policy of the
government to encourage private domestic and foreign investments in the various
sectors of the economy, to wit:
Sec. 2. Declaration of Investment Policy.- It is the policy of the State to encourage
private domestic and foreign investments in industry, agriculture, mining and other
sectors of the economy which shall: provide significant employment opportunities
relative to the amount of the capital being invested; increase productivity of the land,
minerals, forestry, aquatic and other resources of the country, and improve utilization
of the products thereof; improve technical skills of the people employed in the
enterprise; provide a foundation for the future development of the economy;
accelerate development of less developed regions of the country; and result in
increased volume and value of exports for the economy.
It is the policy of the State to extend to projects which will significantly contribute to
the attainment of these objectives, fiscal incentives without which said projects may
not be established in the locales, number and/or pace required for optimum national
economic development. Fiscal incentive systems shall be devised to compensate for
market imperfections, reward performance of making contributions to economic
development, cost-efficient and be simple to administer.
The fiscal incentives shall be extended to stimulate establishment and assist initial
operations of the enterprise, and shall terminate after a period of not more than 10
years from registration or start-up of operation unless a special period is otherwise
The foregoing declaration shall apply to all investment incentive schemes and in
particular will supersede article 2 of Presidential Decree No. 1789. (emphases

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

inoperative from the moment the repealing law becomes effective.31 Hence, there is
simply no basis in the conclusion that shipyards remain to be a public utility. A
repealed statute cannot be the basis for classifying shipyards as public utilities.

Sec. 20. The following provisions are hereby repealed:

1) Section 53, P.D. 463 (Mineral Resources Development Decree);
2.) Section 1, P.D. 666 (Shipbuilding and Ship Repair Industry);
3) Section 6, P.D. 1101 (Radioactive Minerals);
4) LOI 508 extending P.D. 791 and P.D. 924 (Sugar); and
5) The following articles of Presidential Decree 1789: 2, 18, 19, 22, 28, 30,
39, 49 (d), 62, and 77. Articles 45, 46 and 48 are hereby amended only with
respect to domestic and export producers.
All other laws, decrees, executive orders, administrative orders, rules and regulations
or parts thereof which are inconsistent with the provisions of this Act are hereby
repealed, amended or modified accordingly.
All other incentive systems which are not in any way affected by the provisions of this
Act may be restructured by the President so as to render them cost-efficient and to
make them conform with the other policy guidelines in the declaration of policy
provided in Section 2 of this Act. (emphasis supplied)
From the language of the afore-quoted provision, the whole of P.D. No. 666, section 1
was expressly and categorically repealed. As a consequence, the provisions of C.A.
No. 146, which were impliedly repealed by P.D. No. 666, section 1 were revived.30 In
other words, with the enactment of Batas Pambansa Blg. 391, a shipyard reverted
back to its status as a public utility and as such, requires a CPC for its operation.
The crux of the present controversy is the effect of the express repeal of Batas
Pambansa Blg. 391 by Executive Order No. 226 issued by former President Corazon
C. Aquino under her emergency powers.
We rule that the express repeal of Batas Pambansa Blg. 391 by E.O. No. 226 did not
revive Section 1 of P.D. No. 666. But more importantly, it also put a period to the
existence of sections 13 (b) and 15 of C.A. No. 146. It bears emphasis that sections
13 (b) and 15 of C.A. No. 146, as originally written, owed their continued existence to
Batas Pambansa Blg. 391. Had the latter not repealed P.D. No. 666, the former
should have been modified accordingly and shipyards effectively removed from the
list of public utilities. Ergo, with the express repeal of Batas Pambansa Blg. 391 by
E.O. No. 226, the revival of sections 13 (b) and 15 of C.A. No. 146 had no more leg to
stand on. A law that has been expressly repealed ceases to exist and becomes

In view of the foregoing, there can be no other conclusion than to hold that a shipyard
is not a pubic utility. A shipyard has been considered a public utility merely by
legislative declaration. Absent this declaration, there is no more reason why it should
continuously be regarded as such. The fact that the legislature did not clearly and
unambiguously express its intention to include shipyards in the list of public utilities
indicates that that it did not intend to do so. Thus, a shipyard reverts back to its status
as non-public utility prior to the enactment of the Public Service Law.
This interpretation is in accord with the uniform interpretation placed upon it by the
Board of Investments (BOI), which was entrusted by the legislature with the
preparation of annual Investment Priorities Plan (IPPs). The BOI has consistently
classified shipyards as part of the manufacturing sector and not of the public utilities
sector. The enactment of Batas Pambansa Blg. 391 did not alter the treatment of the
BOI on shipyards. It has been, as at present, classified as part of the manufacturing
and not of the public utilities sector.32
Furthermore, of the 441 Ship Building and Ship Repair (SBSR) entities registered with
the MARINA,33 none appears to have an existing franchise. If we continue to hold that
a shipyard is a pubic utility, it is a necessary consequence that all these entities
should have obtained a franchise as was the rule prior to the enactment of P.D. No.
666. But MARINA remains without authority, pursuant to P.D. No. 47434 to issue
franchises for the operation of shipyards. Surely, the legislature did not intend to
create a vacuum by continuously treating a shipyard as a public utility without giving
MARINA the power to issue a Certificate of Public Convenience (CPC) or a Certificate
of Public Convenience and Necessity (CPCN) as required by section 15 of C.A. No.
Whether under the 1977 Joint Venture Agreement,
KAWASAKI can purchase only a maximum of 40%
of PHILSECOs total capitalization.
A careful reading of the 1977 Joint Venture Agreement reveals that there is nothing
that prevents KAWASAKI from acquiring more than 40% of PHILSECOs total
capitalization. Section 1 of the 1977 JVA states:
1.3 The authorized capital stock of Philseco shall be P330 million. The parties shall
thereafter increase their subscription in Philseco as may be necessary and as called
by the Board of Directors, maintaining a proportion of 60%-40% for NIDC and
KAWASAKI respectively, up to a total subscribed and paid-up capital stock of P312

1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS
[renamed PHILSECO] to any third party without giving the other under the same
terms the right of first refusal. This provision shall not apply if the transferee is a
corporation owned and controlled by the GOVERMENT [of the Philippines] or by a
Kawasaki affiliate.
1.5 The By-Laws of SNS [PHILSECO] shall grant the parties preemptive rights to
unissued shares of SNS [PHILSECO].35
Under section 1.3, the parties agreed to the amount of P330 million as the total
capitalization of their joint venture. There was no mention of the amount of their initial
subscription. What is clear is that they are to infuse the needed capital from time to
time until the total subscribed and paid-up capital reaches P312 million. The phrase
"maintaining a proportion of 60%-40%" refers to their respective share of the burden
each time the Board of Directors decides to increase the subscription to reach the
target paid-up capital of P312 million. It does not bind the parties to maintain the
sharing scheme all throughout the existence of their partnership.
The parties likewise agreed to arm themselves with protective mechanisms to
preserve their respective interests in the partnership in the event that (a) one party
decides to sell its shares to third parties; and (b) new Philseco shares are issued.
Anent the first situation, the non-selling party is given the right of first refusal under
section 1.4 to have a preferential right to buy or to refuse the selling partys shares.
The right of first refusal is meant to protect the original or remaining joint venturer(s)
or shareholder(s) from the entry of third persons who are not acceptable to it as coventurer(s) or co-shareholder(s). The joint venture between the Philippine
Government and KAWASAKI is in the nature of a partnership36 which, unlike an
ordinary corporation, is based on delectus personae.37 No one can become a member
of the partnership association without the consent of all the other associates. The
right of first refusal thus ensures that the parties are given control over who may
become a new partner in substitution of or in addition to the original partners. Should
the selling partner decide to dispose all its shares, the non-selling partner may
acquire all these shares and terminate the partnership. No person or corporation can
be compelled to remain or to continue the partnership. Of course, this presupposes
that there are no other restrictions in the maximum allowable share that the nonselling partner may acquire such as the constitutional restriction on foreign ownership
in public utility. The theory that KAWASAKI can acquire, as a maximum, only 40% of
PHILSECOs shares is correct only if a shipyard is a public utility. In such instance,
the non-selling partner who is an alien can acquire only a maximum of 40% of the
total capitalization of a public utility despite the grant of first refusal. The partners
cannot, by mere agreement, avoid the constitutional proscription. But as aforediscussed, PHILSECO is not a public utility and no other restriction is present that
would limit the right of KAWASAKI to purchase the Governments share to 40% of
Philsecos total capitalization.
Furthermore, the phrase "under the same terms" in section 1.4 cannot be given an
interpretation that would limit the right of KAWASAKI to purchase PHILSECO shares

only to the extent of its original proportionate contribution of 40% to the total
capitalization of the PHILSECO. Taken together with the whole of section 1.4, the
phrase "under the same terms" means that a partner to the joint venture that decides
to sell its shares to a third party shall make a similar offer to the non-selling partner.
The selling partner cannot make a different or a more onerous offer to the non-selling
The exercise of first refusal presupposes that the non-selling partner is aware of the
terms of the conditions attendant to the sale for it to have a guided choice. While the
right of first refusal protects the non-selling partner from the entry of third persons, it
cannot also deprive the other partner the right to sell its shares to third persons if,
under the same offer, it does not buy the shares.
Apart from the right of first refusal, the parties also have preemptive rights under
section 1.5 in the unissued shares of Philseco. Unlike the former, this situation does
not contemplate transfer of a partners shares to third parties but the issuance of new
Philseco shares. The grant of preemptive rights preserves the proportionate shares of
the original partners so as not to dilute their respective interests with the issuance of
the new shares. Unlike the right of first refusal, a preemptive right gives a partner a
preferential right over the newly issued shares only to the extent that it retains its
original proportionate share in the joint venture.
The case at bar does not concern the issuance of new shares but the transfer of a
partners share in the joint venture. Verily, the operative protective mechanism is the
right of first refusal which does not impose any limitation in the maximum shares that
the non-selling partner may acquire.
Whether the right to top granted to KAWASAKI
in exchange for its right of first refusal violates
the principles of competitive bidding.
We also hold that the right to top granted to KAWASAKI and exercised by private
respondent did not violate the rules of competitive bidding.
The word "bidding" in its comprehensive sense means making an offer or an invitation
to prospective contractors whereby the government manifests its intention to make
proposals for the purpose of supplies, materials and equipment for official business or
public use, or for public works or repair.38 The three principles of public bidding are:
(1) the offer to the public; (2) an opportunity for competition; and (3) a basis for
comparison of bids.39 As long as these three principles are complied with, the public
bidding can be considered valid and legal. It is not necessary that the highest bid be
automatically accepted. The bidding rules may specify other conditions or the bidding
process be subjected to certain reservation or qualification such as when the owner
reserves to himself openly at the time of the sale the right to bid upon the property, or
openly announces a price below which the property will not be sold. Hence, where the
seller reserves the right to refuse to accept any bid made, a binding sale is not

consummated between the seller and the bidder until the seller accepts the bid.
Furthermore, where a right is reserved in the seller to reject any and all bids received,
the owner may exercise the right even after the auctioneer has accepted a bid, and
this applies to the auction of public as well as private property. 40 Thus:

prohibited second bidding presupposes that based on the terms and conditions of the
sale, there is already a highest bidder with the right to demand that the seller accept
its bid. In the instant case, the highest bidder was well aware that the acceptance of
its bid was conditioned upon the non-exercise of the right to top.

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

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

In the instant case, the sale of the Government shares in PHILSECO was publicly
known. All interested bidders were welcomed. The basis for comparing the bids were
laid down. All bids were accepted sealed and were opened and read in the presence
of the COAs official representative and before all interested bidders. The only
question that remains is whether or not the existence of KAWASAKIs right to top
destroys the essence of competitive bidding so as to say that the bidders did not have
an opportunity for competition. We hold that it does not.
The essence of competition in public bidding is that the bidders are placed on equal
footing. This means that all qualified bidders have an equal chance of winning the
auction through their bids. In the case at bar, all of the bidders were exposed to the
same risk and were subjected to the same condition, i.e., the existence of
KAWASAKIs right to top. Under the ASBR, the Government expressly reserved the
right to reject any or all bids, and manifested its intention not to accept the highest bid
should KAWASAKI decide to exercise its right to top under the ABSR. This
reservation or qualification was made known to the bidders in a pre-bidding
conference held on September 28, 1993. They all expressly accepted this condition in
writing without any qualification. Furthermore, when the Committee on Privatization
notified petitioner of the approval of the sale of the National Government shares of
stock in PHILSECO, it specifically stated that such approval was subject to the right of
KAWASAKI Heavy Industries, Inc./Philyards Holdings, Inc. to top JGSMIs bid by 5%
as specified in the bidding rules. Clearly, the approval of the sale was a conditional
one. Since Philyards eventually exercised its right to top petitioners bid by 5%, the
sale was not consummated. Parenthetically, it cannot be argued that the existence of
the right to top "set for naught the entire public bidding." Had Philyards Holdings, Inc.
failed or refused to exercise its right to top, the sale between the petitioner and the
National Government would have been consummated. In like manner, the existence
of the right to top cannot be likened to a second bidding, which is countenanced,
except when there is failure to bid as when there is only one bidder or none at all. A

It must be emphasized that none of the parties questions the existence of

KAWASAKIs right of first refusal, which is concededly the basis for the grant of the
right to top. Under KAWASAKIs right of first refusal, the National Government is
under the obligation to give preferential right to KAWASAKI in the event it decides to
sell its shares in PHILSECO. It has to offer to KAWASAKI the shares and give it the
option to buy or refuse under the same terms for which it is willing to sell the said
shares to third parties. KAWASAKI is not a mere non-bidder. It is a partner in the joint
venture; the incidents of which are governed by the law on contracts and on
It is true that properties of the National Government, as a rule, may be sold only after
a public bidding is held. Public bidding is the accepted method in arriving at a fair and
reasonable price and ensures that overpricing, favoritism and other anomalous
practices are eliminated or minimized.42 But the requirement for public bidding does
not negate the exercise of the right of first refusal. In fact, public bidding is an
essential first step in the exercise of the right of first refusal because it is only after the
public bidding that the terms upon which the Government may be said to be willing to
sell its shares to third parties may be known.1wphi1 It is only after the public bidding
that the Government will have a basis with which to offer KAWASAKI the option to
buy or forego the shares.
Assuming that the parties did not swap KAWASAKIs right of first refusal with the right
to top, KAWASAKI would have been able to buy the National Governments shares in
PHILSECO under the same terms as offered by the highest bidder. Stated otherwise,
by exercising its right of first refusal, KAWASAKI could have bought the shares for
only P2.03 billion and not the higher amount of P2.1315 billion. There is, thus, no
basis in the submission that the right to top unfairly favored KAWASAKI. In fact, with
the right to top, KAWASAKI stands to pay higher than it should had it settled with its
right of first refusal. The obvious beneficiary of the scheme is the National
If at all, the obvious consideration for the exchange of the right of first refusal with the
right to top is that KAWASAKI can name a nominee, which it is a shareholder, to
exercise the right to top. This is a valid contractual stipulation; the right to top is an
assignable right and both parties are aware of the full legal consequences of its
exercise. As aforesaid, all bidders were aware of the existence of the right to top, and
its possible effects on the result of the public bidding was fully disclosed to them. The

petitioner, thus, cannot feign ignorance nor can it be allowed to repudiate its acts and
question the proceedings it had fully adhered to.43
The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group,
Insular Life Assurance, Mitsui and ICTSI), has joined Philyards in the latters effort to
raise P2.131 billion necessary in exercising the right to top is not contrary to law,
public policy or public morals. There is nothing in the ASBR that bars the losing
bidders from joining either the winning bidder (should the right to top is not exercised)
or KAWASAKI/PHI (should it exercise its right to top as it did), to raise the purchase
price. The petitioner did not allege, nor was it shown by competent evidence, that the
participation of the losing bidders in the public bidding was done with fraudulent
intent. Absent any proof of fraud, the formation by Philyards of a consortium is
legitimate in a free enterprise system. The appellate court is thus correct in holding
the petitioner estopped from questioning the validity of the transfer of the National
Governments shares in PHILSECO to respondent.
Finally, no factual basis exists to support the view that the drafting of the ASBR was
illegal because no prior approval was given by the COA for it, specifically the
provision on the right to top the highest bidder and that the public auction on
December 2, 1993 was not witnessed by a COA representative. No evidence was
proffered to prove these allegations and the Court cannot make legal conclusions out
of mere allegations. Regularity in the performance of official duties is presumed44 and
in the absence of competent evidence to rebut this presumption, this Court is duty
bound to uphold this presumption.
IN VIEW OF THE FOREGOING, the Motion for Reconsideration is hereby
GRANTED. The impugned Decision and Resolution of the Court of Appeals are
Davide, Jr., C.J., (Chairman), Ynares-Santiago, and Corona, JJ., concur.
Tinga, J., please see separate opinion.

Republic of the Philippines


G.R. No. L-5242

August 6, 1910

ALDECOA & CO., plaintiff-appellant,

WARNER, BARNES & CO., LTD., defendant-appellee.
Rosado, Sanz and Opisso, for appellant.
Haussermann, Ortigas, Cohn and Fisher, for appellee.
By a complaint filed on September 26, 1907, the legal representative of Aldecoa and
Co., in liquidation, filed suit in the Court of First Instance of Manila against Warner,
Barnes and Co., Ltd., alleging in the first three paragraphs of their complaint, as a
cause of action, that the plaintiff is a regular collective mercantile association
organized in accordance with the laws of these islands, duly registered in the
mercantile registry, and at present in liquidation; that the defendant is a joint stock
mercantile firm organized in accordance with the laws of England, registered in the
mercantile registry of Manila, and has done and is still doing business in these Islands
under the name of Warner, Barnes and Co., Ltd., which required the business that
was conducted in these Islands by Warner, Barnes and Co., the assets, liabilities, and
all the obligations of which were assumed by the defendant.
In other paragraphs of the complaint, from the fourth to the twelfth, the plaintiff set
forth that, prior to December 1, 1898, Warner, Barnes and Co. were conducting a
business in Albay, the principal object of which was the purchase of hemp in the
pueblos of Legaspi and Tobacco for the purpose of bringing it to Manila, here to sell if
for exportation, and that on the said date of December 1, 1898, the plaintiff company
became interested in the said business of Warner, Barnes and Co., in Albay and
formed therewith a joint-account partnership whereby Aldecoa and Co., were to share
equally in the gains and losses of the business in Albay; that the defendant is the
successor to all the rights and obligations of Warner, Barnes and Co., among which is
that of being manager of the said joint-account partnership with Aldecoa and Co.; that
the defendant acted, and continues to act as such manager, and is obliged to render
accounts supported by proofs, and to liquidate the business, which defendant not only
has not done, in spite of the demand made upon it, but it has expressly denied the
right of plaintiff to examine the vouchers, contenting itself with forwarding copies of
the entries in its books, which entries contain errors and omissions that hereinafter
will be mentioned.

the Philippine Islands and are the ones who, under the previous firm name of Warner,
Barnes and Co., admitted Aldecoa and Co. as a participant in one-half of the said
business, on the 1st day of December, 1898; that the said directors of the defendant
company, unlawfully, maliciously, and criminally conspired with the persons who were
managing the commercial firm of Aldecoa and Co. during the years 1899, 1900, 1901,
1902, and 1903, to defraud the latter of its interest in the said joint-account
partnership, buying the silence of the said managers with respect to the operations of
the joint-account partnership during the time comprised between the 1st of December,
1898, and the 30th of June, 1899, and also with respect to the errors and omission in
the accounts relating to the second semester of 1899, and those relating to 1900,
1901, 1902, and 1903.
That the said fraudulent acts were not known to the partners of the plaintiff firm until
the managers, in collusion with the managers of the defendant firm to defraud and
injure the plaintiff firm, had ceased to hold their positions, to wit, until after the 31st of
December, 1906, and that by reason of this conspiracy to defraud the plaintiffs, the
defendants have been benefited; that the errors and omissions found in the entries of
the books kept by the defendant firm as manager of the joint-account partnership are
those expressed in details here below:
(a) It appears that between the 10th of July and the 26th of December, 1899, 43,934
piculs of hemp arrived in Manila for the joint-account partnership, which were
purchased in Legaspi and Tobacco at 13 pesos per picul, and, after charging against
this hemp excessive expenses for collection, storage, freight, fire, marine, and war
insurance, personnel, etc., the defendants, Warner, Barnes and Co., as managers of
the joint-account partnership and commission agents of their joint-account partners,
claim that they purchased the said hemp for themselves, but do not give the price
received from the sale thereof and merely credit it at 13 pesos a picul, when the
average market price at that time was 16.50 pesos a picul; said defendants thereby
injuring plaintiffs to the amount of P76,884.50.
(b) Striking a balance from the amount of hemp debited and that credited, there
results a difference of 4,332.96 piculs not credited which, at 24 pesos a picul, the
market price at the time, represents an injury to plaintiffs to the extent of P51,995.52,
the said deficit, with respect to the hemp, pertaining to the period beginning with
December 31, 1899, in the manner shown by the following table:
Invoices & Cr. Dr.
Piculs Piculs

Said entries moreover, whereas its operations should have commenced and did
commence on December 1, 1898, on which date the joint-account partnership
commenced; that, with respect to the liquidation of the business, the operations
having been closed on December 31, 1903, Warner, Barnes and Co., Ltd., the
defendant, has not realized upon the assets of the firm by selling the property which
constitutes its capital; that the persons who were the managers and general partners
of Warner, Barnes and Co., Ltd., and are the managers and directors of that firm in

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

1900 Apr. 30 ...................................... 13,069.97 50,261.78
1900 Dec. 31 ...................................... 67,892.56 71,277

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

1902 Dec. 31 ...................................... 98,074.52 94,279.20
1903 Dec. 31 ...................................... 66,482.49 68,880.09
433,307.03 428,974.07 4,332.96
Lacking .............................................. 433,307.03 433,307.03

(f) Another error found in the books of Warner, Barnes, and Co., Ltd., is in connection
with the outstanding accounts, which are debited in the sum of P52,510.36, while only
P2,769.24 are credited in the manner set out in the following statement:
1899 July 31. W.B. and Co., Tobacco, transferred to net

(c) In 1900, on April 30, Messrs. Warner, Barnes and Co. Ltd., give credit for 5,485
piculs of hemp, at 16 pesos a picul, when the market price at that time, according to
themselves, was P23.78; thereby injuring plaintiffs in the sum of P21,350.36.

account their account sale 92.25 piculs hides

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

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

(e) One of the sources of profit of the joint-account partnership between Aldecoa and
Co. and Warner, Barnes and Co., Ltd., was from the pressing of hemp, which profit is
to be credited to the partnership joint-accounts, when the hemp is realized in Manila,
and from this source there are due to the plaintiffs P149,084.12, in which sum they
have been injured by the defendants. The said credit for pressing is omitted from the
books of Warner, Barnes and Co., Ltd., and should be entered as follows:
1899 ............................................. 21,968 bales, at
P1.25 ................................. P27,460 1900 to April 30 ......................... 25,130
bales, at P1.25 ................................. 31,412.50 1900 May 10 to Dec.
31 ............ 35,639 bales, at P1.25 ................................. 44,548.75
1901.............................................. 50,151 bales, at
P1.25 ................................. 62,688.75 1902 to July 31 ...........................
26,825 bales, at P1.25 ................................. 33,531.25
Aug. 1 to Dec. 31 ............. 20,314 bales, at P1.75 .................................
35,549.50 1903 ............................................. 34,440 bales, at
P1.75 ................................. 60,270
214,467 bales ................................................. 295,460.75
2,166 bales, lacking, at P1.25 2,707.50
216,633 bales ..................................................
298,168.25 20 loose.

216,653 bales.

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

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

1900 Feb. 28. As transferred account items noted page
114 day-book .......................................................................... 18,635.08
1900 Feb. 28. To cover war insurance,
January ................................................. 4,000
1900 Feb. 28. To cover outstanding
accounts ................................................... 2,625.25 52,510.36
1900 Feb. 28. As transferred account items noted page
113 day-book .......................................................................... 2,769.24
There remain, therefore .........................................................
49,741.12 of which one-half, that is ......................................................
24,870.56 belongs to the plaintiffs.
(g) In 1900, there is unduly included an item of net account which should be stricken
out, as it does not pertain to this business. This item is the following:
June 30. To Miguel Estela. For transfer made to his account
of 5 per cent commission on his hemp, which should

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

and two houses of strong materials, together with the lots on which they are built,

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

(h) On the date of December 26, 1899, Messrs. Warner, Barnes and Co., Ltd., deduct
from the profits which they show as belonging to Aldecoa and Co., the sum of P7,400,
under the appearance of the insurance premium, and they delivered that sum to the
plaintiffs' managers with whom they conspired, for the purposes of the collusion
alleged in Paragraph VII of the complaint, in the manner failing to observe the truth in
their statement of the facts. Aldecoa and Co., therefore, claim for themselves this
amount, P7,400.
(i) On December 31, 1903, on a capital of P50,000 brought in by Aldecoa and Co.,
and to whom it should bear 5 per cent interest from the 8th of June, 1900, the interest
is unduly credited to the joint-account, thereby injuring the plaintiffs in the sum of
(j) On December 31, 1902, Aldecoa and Co. are charged with six months' interest,
amounting to P736.46, on a balance debited against them for alleged losses, and on
June 30, 1903, they are charged with P1,818.58 for a like reason. These two items
should be stricken out, because the accounts when correctly made to show no
losses, but profits. By such debits the plaintiffs have been injured in the sum of
(k) In the entries corresponding to the years 1902 and 1903, Warner, Barnes and Co.,
Ltd., give the price of "corriente buena" (currect good), to the grade which, according
to the mark, was classified as "abaca superior" (superior hemp); the price of
"corriente ordinario" (current ordinary), to the hemp marked under the classification of
"corriente buena" (current good); the price of "segunda superior" (second superior), to
what is "corriente" or "current," and so on successively; whence results a difference of
price to the value of P233,102.18, in 1902, and P74,274.90, in 1903, one-half of
which differences should be credited to Aldecoa and Co., that is P153,688.54.
(l) The value of the properties brought in by Warner, Barnes and Co., Ltd., to the jointaccount, instead of cash capital, is omitted from the accounts. These properties are
the following:
Those purchased from Mariano Roisa, consisting of one galvanized-iron-roofed
warehouse, with hemp press; one house of strong materials and the lot on which it
stands, in Tobacco, P12,000.
That purchased from Juana Roisa, which is one small warehouse of strong materials,
in Tobacco, worth about P2,500.
Those purchased from D. Manuel Zalvidea situated in Tobacco, which are: One
warehouse of strong materials, with press; another warehouse of strong materials;

Those purchased from D. Marcos Zubeldia, in Legaspi, which are: Four warehouses
with three hemp presses, and one house of strong materials, with their corresponding
lots, P50,000.
Total cost, P86,500.
The complaint further sets forth that if the entries made by the defendant in its books
show in themselves the foregoing errors and omissions, the plaintiff has good
grounds for believing that, if the vouchers were examined, still greater errors would be
found, as to which the plaintiff can not formulate its claims with exactness until the
defendant renders it an account, accompanied by vouchers; that the defendant, as
manager of the joint-account partnership with Alcodea & Co., neglected to comply
with what is especially prescribed in article 243 of the Code of Commerce, as a duty
to inherent to its position as manager of the joint-account partnership, which is that of
rendering an account with vouchers, and that of liquidating the said business, for it
refuses to furnish the plaintiff the documents required for their examination and
verification, and also refuses to realize the firm assets by selling the warehouses,
houses, and other property which constitute the capital; that, as the defendant refuses
to do the things above related, the plaintiff has no other easy, expeditious and
suitable remedy than to petition the court for a writ of mandamus, wherefore it prays
the court to protect it in its rights and to issue the said mandamus against the
defendant, ordering it, within a date set for this purpose, to render to the court an
account, accompanied by invoices, receipts, and vouchers of the Albay business,
beginning the said account as of December 1, 1898, the date on which the
partnership was formed, and correcting in it errors and omissions related in paragraph
9 of this complaint; that the defendant credit and pay to the plaintiff the sums alleged
in that paragraph to be due to the plaintiff, with interest at the legal rate upon the
sums of omitted for the difference between the amounts incorrectly debited and
credited, from the respective dates on which they should appear, if correctly entered;
that after the said accounts have been rendered and discussed, judgment be entered
for any balance which may appear in favor of the plaintiff, including the sums claimed,
and legal interest thereon. The plaintiff also prays that the writ of mandamus fix a term
within which the defendant is to liquidate the business, selling the properties
aforementioned and distributing the proceeds between both the litigants, and that the
defendant be adjudged liable for costs of suit, and plaintiff be granted such other and
further relief as may be found just and equitable.
On November 11, 1907, the defendant filed a written answer an counterclaim against
the defendant, and, notwithstanding the overruling of the demurrer filed by the latter
to the counterclaim, the court by writ of December 4, 1907, ordered that the
defendant should, within a period of five days, make its allegations more specific with
respect to certain particulars mentioned in the order of the court, and both parties
being notified thereof, the defendant, on January 24, 1908 prayed the court to
authorize it to file the attached amended answer instead of the original one.

In the said amended answer the firm of Warner, Barnes & Co. Ltd., the defendant,
states that it denies each and every one of the allegations of the complaint, with the
exception of those which are expressly admitted in its answer, and admit the
allegations of paragraphs 1, 2, and 3 of the complaint. In answer to the allegations of
paragraphs 4 to 12 of the complaint, it admits that on June 30, 1899, a joint-account
partnership was formed between the plaintiff and the defendant transactions of which
were the purchase of hemp in Legaspi and Tobacco, of which business one-half of
the results, whether losses or gains, appertained to the plaintiff. Defendant also
admits that the said business continued under the management of the defendant
company, as manager of the said joint-account partnership, until December 31, 1903;
but it denies all the other allegations contained in the said paragraphs. For its first
special defense, the defendant alleges that during the period that the said jointaccount partnership existed, the manager thereof, the defendant, rendered to the
plaintiff just and true accounts of its transaction as manager of the said partnership,
which accounts have been approved by the plaintiff, with the exception of those
relating to the year 1903, and as to the latter, that the same were objected to by
plaintiff firm solely upon the grounds mentioned in clause (k) of paragraph 9 of the
complaint, which objections are wholly unfounded. As its second special defense, the
defendant alleges that more than four years have expired between the time the
alleged right of action accrued to the plaintiff and the date of the filing of the
complaint. For all the reasons set forth in this amended answer, the defendant prayed
that it be absolved from the complaint, with the costs against the plaintiff.
On the subsequent to the 14th of August, 1908, the trial of this cause was held and
oral evidence was introduced by the plaintiff, but no witnesses were offered by the
defendant, which finally moved for a dismissal of the case, and the court, on
December 26 of the same year, 1908, rendered judgment, dismissing the complaint
with respect to the petition for the rendering of an account, verified by invoices,
receipts and vouchers, of the said Albay business, pertaining to the period comprised
from the beginning of the business to the 31st of December, 1902, inclusive,
assessing the costs against the plaintiff, and opening the second period of the trial
with respect to the account for the whole year 1903, in accordance with the ruling of
the court made at the commencement of the hearing. The plaintiff on being notified of
this judgment filed a written exception thereto and announced his intention to forward
through regular channels a bill of exceptions, and by another writing moved for a new
trial on the ground that the evidence did not justify the judgment rendered, which it
alleged it was openly and manifestly contrary to the weight of the evidence and to law.
This motion being denied, to which exception was taken by the plaintiff, the latter duly
filed a proper bill of exceptions which was certified to and forwarded to this court,
together with all the documentary and oral evidence produced at the trial.
This litigation concerns the rendering of accounts pertaining to the management of
the business of a joint-account partnership formed between the two litigants
Both the plaintiff and the defendant are in accord that, through verbal agreement, the
said partnership was established, whereby they should share equally the profits and
losses of the business of gathering and storing hemp in Albay and selling it in Manila

for exportation, and that the commercial firm of Warner, Barnes and Co., Ltd., was the
manager of the said joint-account partnership.
The disagreement between the parties consists in the following points: First, as to the
date when the partnership was formed and began business in the province
mentioned; second, whether the managing firm did render accounts, duly verified by
vouchers, of its management from the date of the organization of the partnership;
third, whether errors and omission, prejudicial to the plaintiff, Aldecoa and Co., exist in
the partnership books and in its accounts, and whether, in the management of the
said business, fraudulent acts were committed also to the plaintiff's injury; and, fourth,
whether the partnership property should be included in the liquidation of the said
business and in the accounts appertaining to the year 1903, when the existence of
the partnership came to an end.
With respect to the date on which the said partnership began, the plaintiff, Aldecoa
and Co., submitted evidence unrebutted by that of the defendant, Warner, Barnes and
Co., Ltd., and although the latter averred that the joint-account partnership began on
June 30, 1899, denying that it was commenced, or was formed, on December 1,
1898, as the plaintiff says that it was, it is certain that the defendant has not proved its
averment; and if, on the opening of this case de novo it shall not have done so within
such period as the court may see fit to determine, it will be proper to find in
accordance with the value of the evidence adduced by the plaintiff and to advise the
defendant to render, within a fixed period, accounts, verified by vouchers, of the
management of the partnership business and pertaining to the seven months from
December 1, 1898, to June 29, 1899; and, in view of the evidence adduced by the
plaintiff in proof of the aforesaid first point, if the defendant does not produce other
evidence in rebuttal, they must, for some reason, be expressly rejected in the
judgment, if they are not to be taken into account in reaching the conclusions or in
considering the case upon the merits.
As regards the second point, we agree with the opinion expressed by the lower court
and find that the firm of Warner, Barnes and Co., Ltd., did render accounts from June
30, 1899, to December 31, 1902, inasmuch as the very evidence introduced by the
plaintiff showed that the said accounts had been rendered and were approved by it,
according to the context of its own letters of the dates of July 27, 1907, and February
19, 1903. Therefore, the plaintiff is in nowise entitled, and has no right of action to
compel the defendant to render the accounts pertaining to that period, they having
already been rendered and duly approved.
It is a rule of law generally observed that he who takes charge of the management of
another's property is bound immediately thereafter to render accounts covering his
transactions; and that it is always to be understood that all accounts rendered must
be duly substantiated by vouchers.
It is a fact admitted by both litigating parties that Warner, Barnes and Co., Ltd., was
the manager of the business of the joint-account partnership formed between it and
Aldecoa and Co., it is unquestionable that it was and is the defendant's duty to render

accounts of the management of the business, as it partially has done. Although the
defendant has not proved, as it should have done, that it complied with its duty of
rendering accounts of its management, since the letters themselves exhibited by the
plaintiff, and duly authenticated as being written by the latter, prove that the defendant
did render accounts from June 30, 1899, to December 31, 1902, no legal reason
whatever exists for not accepting the finding of the lower court which decided that it
had been proved that accounts were rendered pertaining to the period mentioned and
that the said accounts were approved by the plaintiff.
The procedure of the plaintiff is truly inexplicable in accepting and approving accounts
that were rendered to it, and which only begin with June 30, 1899, inasmuch as such
approval would appear to indicate that it agreed to the claim made by the defendant
that the partnership commenced on the said date; but even so, once that it is proved
that the actual date on which the partnership was formed was December 1, 1898, and
that it is not shown that the defendant has rendered accounts corresponding to the
seven months subsequent to the said date of December 1, the acceptation and
approval of accounts rendered since the 30th of June 1899, does not excuse nor
release the manager of the partnership, the defendant, from complying with its
unquestionable duty of rendering accounts covering the aforesaid seven months. The
presumption must be sustained until proof to the contrary is presented.
Moreover, the approval of accounts corresponding to the years from June 30, 1899,
to December 31, 1902, does not imply that the said approved accounts comprise
those pertaining that the seven months mentioned, December 1, 1899, to June 29,
1899, because the defendant, the accountant, denied that the partnership
commenced on the aforesaid date of December 1st, asserting it began on June 30,
1899; wherefore, on defendant's rendering those accounts, it is to be presumed that it
did so from the date which it avers was that of the information of the partnership and
the beginning of the business, and it is therefore evident that it has not rendered
accounts pertaining to the seven months mentioned.
With respect to the third point relative to whether errors and omissions prejudicial to
the plaintiff, Aldecoa & Co., exist in the partnership books and in its accounts, and
whether, in the management of the said business, fraudulent acts were committed to
plaintiff's injury, it must be borne in mind that once accounts have been approved
which were rendered by the managing firm of Warner, Barnes & Co., Ltd., the plaintiff,
Aldecoa & Co., is not entitled afterwards to claim a revision of the same, unless it
shows that there was fraud, deceit, error, or mistake in the approval of the said
Under these hypothesis, Alcodea & Co. are strictly obliged to prove the errors,
omissions, and fraudulent acts attributed to the defendant, in connection with the
accounts already rendered, and approved by them, in order that the same may be
revised in accordance with law and the jurisprudence of the courts. (Pastor vs.
Nicasio, 6 Phil. Rep., 152.)

The approval of an account does not prevent its subsequent revision, or at least its
correction, if it is proved in a satisfactory manner that there was deceit and fraud or
error and omission in it. (Arts. 1265, 1266, Civil Code.)
Law 30, title 11, 5th Partida, provides, among other things, the following:
That is precisely what we say should be observed, in all other accounts that
men make among themselves, in connection with the things which belong to
them. Notwithstanding that they may acknowledge the settlement of the
accounts between them and promise never to bring them up again, if it had
be known in truth that he who gave the account or had the things in his
keeping, concealed anything deceitfully, or committed other fraud against
those who have a share in such thing, then neither the suit, nor such
previous status and promise shall avail; on the contrary, we say that they
may sue him to compel him to remedy the deceit he committed against
them, and to pay all the damages and losses that have accrued to them by
reason thereof; provided, however, he especially shall not have repaired the
deceit that he committed.
So that it does not matter that the accounts pertaining to the years comprised
between the 30th of June, 1899, and the 31st of December, 1902, may have been
approved by Aldecoa & Co. Whenever this firm shall succeed in proving that there
was error, omission, fraud, or deceit in these accounts, they may be duly revised,
according to the law.
With regard to the last point in controversy, the defendant agrees that the plaintiff has
not yet approved the accounts that the former rendered, pertaining to 1903, the last
years of the existence of the joint-account partnership; and, for this reason, it was
provided in the judgment appealed from that the trial should continue with respect to
the said accounts corresponding to the year 1903, in order that the plaintiff might take
such objections and statements in regard to the same as he deemed proper, and
adduce the evidence conducive to prove his claim, in accordance with law.
It is one of the duties of the manager of a joint-account partnership, to liquidate the
assets that form the common property, and to state the result obtained therefrom in
the final rendering of the accounts which he is to present at the conclusion of the
Article 243 of the Code of Commerce says;
The liquidation shall be effected by the manager, and after the transactions
have been concluded he shall render a proper account of its results.
It is a recognized fact, and one admitted by both parties that the partnership herein
concerned concluded its transactions on December 31, 1903; wherefore the firm of
Warner, Barnes & Co. Ltd., the manager of the partnership, in declaring the latter's

transactions concluded and in rendering duly verified accounts of its results, owes the
duty to include therein the property and effects belonging to the partnership in
common. This rule was established by the supreme court of Spain in applying a
similar precept of the mercantile code, in its decision on an appeal in causation of the
1st of July, 1870, setting up the following doctrine:
In case of the liquidation of a company of this kind (denominated jointaccount partnership), inasmuch as the sale of the firm assets is necessarily
uncertain and eventual, considering the greater or lesser selling price that
may be obtained from the property and effects which comprise such assets,
the price received should be alloted in the same proportion as that fixed in
the contract for the division of the profits and losses, for otherwise one of the
partners would be benefited to the detriment and loss of his copartners.
This doctrine is perfectly legal and in accord with justice, as no person should enrich
himself wrongfully at the expense of another; and, in the case under review, should it
be duly and fully proved that the managing firm acquired realty in the name and at the
expense of the joint-account partnership with the plaintiff firm, it is just that, in
liquidating the property of common ownership, such realty should be divided between
the partners in the same manner as were the profits and losses during the existence
of the business, from the beginning of the partnership to the date of its dissolution.
By the facts herein above set forth, it has been shown that in the present state of this
cause resulting from the rendering of the judgment appealed from, it has not been
possible to decide in a final manner the various issues brought up and controverted
by the litigants, for, though it be granted as proved that the defendant firm, the
manager of the said partnership, has in fact rendered accounts pertaining to the years
from June 30, 1899, to December 31, 1902, as found in the said judgment, there still
remain to be decided the four points or questions of fact before specified. Wherefore,
and in accordance with section 496 of the Code of Civil Procedure, a new trial should
be held For the purpose of a final decision of all the questions involved in this
litigation, and accordingly the judgment appealed from is set aside and this cause
shall be returned to the court below, accompanied by a certified copy of this decision,
for the holding of a new trial, for which purpose, first, the defendant shall be advised
that it must, within a fixed period, render an account, verified by vouchers, of its
management of the business of the joint-account partnership with the plaintiff,
pertaining to the months from December 1, 1898, to June 29, 1899, and to the twelve
months of the year 1903, unless it shall prove in a satisfactory manner that the said
partnership began on June 30, 1899, contrary to the averment of the plaintiff
supported by evidence that it commenced on December 1, 1898, in which case the
said rendering of account shall be restricted to the twelve months of the year 1903, in
the accounts of which last period must be included all the property that is found to
belong to the said partnership; second, in the examination of the accounts that may
be found to have been rendered, the parties may allege and prove facts conducive to
their revision or approval besides availing themselves of the evidence already
adduced at trial; and, third, with respect to the accounts corresponding to the period
from June 30, 1899, to December 31, 1902, already approved, the trial court shall be
proceed in accordance with law, duly considering the errors, omissions, mistakes and

fraudulent or deceitful acts that have been alleged or may specifically be alleged in
rejecting the said approved accounts, as well as the evidence introduced by both
parties, and it shall be careful to decide in its final judgment all the issues raised
between the parties in the course of this litigation and to provide such remedies as
are proper in regard to their respective claims. So ordered.
Johnson, Moreland and Trent, JJ., concur.

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

Republic of the Philippines

G.R. No. L-18707 December 9, 1922
PO YENG CHEO, plaintiff-appellee,
LIM KA YAM, defendant-appellant.
F. R. Feria and Romualdez Bros. for appellant.
Quintin Llorente and Carlos C. Viana for appellee.

The decision made on this occasion takes as its basis the fact stated by the court in
its earlier decision of July 1, 1921, which may be briefly set fourth as
The plaintiff, Po Yeng Cheo, is the sole heir of one Po Gui Yao, deceased, and as
such Po Yeng Cheo inherited the interest left by Po Gui Yao in a business conducted
in Manila under the style of Kwong Cheong Tay. This business had been in existence
in Manila for many years prior to 1903, as a mercantile partnership, with a
capitalization of P160,000, engaged in the import and export trade; and after the
death of Po Gui Yao the following seven persons were interested therein as partners
in the amounts set opposite their respective names, to wit: Po Yeng Cheo, P60,000;
Chua Chi Yek, P50,000; Lim Ka Yam, P10,000; Lee Kom Chuen, P10,000; Ley Wing
Kwong, P10,000; Chan Liong Chao, P10,000; Lee Ho Yuen, P10,000. The manager
of Kwong Cheong Tay, for many years prior of its complete cessation from business in
1910, was Lim Ka Yam, the original defendant herein.
Among the properties pertaining to Kwong Cheong Tay and consisting part of its
assets were ten shares of a total par value of P10,000 in an enterprise conducted
under the name of Yut Siong Chyip Konski and certain shares to the among of P1,000
in the Manila Electric Railroad and Light Company, of Manila.

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

In the year 1910 (exact date unstated) Kwong Cheong Tay ceased to do business,
owing principally to the fact that the plaintiff ceased at that time to transmit
merchandise from Hongkong, where he then resided. Lim Ka Yam appears at no time
to have submitted to the partners any formal liquidation of the business, though
repeated demands to that effect have been made upon him by the plaintiff.
In view of the facts above stated, the trial judge rendered judgment in favor of the
plaintiff, Po Yeng Cheo, to recover of the defendant Lim Yock Tock, as administrator of

Lim Ka Yam, the sum of sixty thousand pesos (P60,000), constituting the interest of
the plaintiff in the capital of Kwong Cheong Tay, plus the plaintiff's proportional interest
in shares of the Yut Siong Chyip Konski and Manila Electric Railroad and Light
Company, estimated at P11,000, together with the costs. From this judgment the
defendant appealed.
In beginning our comment on the case, it is to be observed that this court finds itself
strictly circumscribed so far as our power of review is concerned, to the facts found by
the trial judge, for the plaintiff did not appeal from the decision of the court below in so
far as it was unfavorable to him, and the defendant, as appellant, has not caused a
great part of the oral testimony to be brought up. It results, as stated, that we must
accept the facts as found by the trial judge; and our review must be limited to the
error, or errors, if any, which may be apparent upon the face of the appealed decision,
in relation with the pleadings of record.
Proceeding then to consider the appealed decision in relation with the facts therein
stated and other facts appearing in the orders and proceedings in the cause, it is
quite apparent that the judgment cannot be sustained. In the first place, it was
erroneous in any event to give judgment in favor of the plaintiff to the extent of his
share of the capital of Kwong Cheong Tay. The managing partner of a mercantile
enterprise is not a debtor to the shareholders for the capital embarked by them in the
business; and he can only be made liable for the capital when, upon liquidation of the
business, there are found to be assets in his hands applicable to capital account. That
the sum of one hundred and sixty thousand pesos (P160,000) was embarked in this
business many years ago reveals nothing as to the condition of the capital account at
the time the concern ceased to do business; and even supposing--as the court
possibly did--that the capital was intact in 1908, this would not prove it was intact in
1910 when the business ceased to be a going concern; for in that precise interval of
time the capital may have been diminished or dissipated from causes in no wise
chargeable to the negligence or misfeasance of the manager.
Again, so far as appears from the appealed decision, the only property pertaining to
Kwong Cheong Tay at the time this action was brought consisted of shares in the two
concerns already mentioned of the total par value of P11,000. Of course, if these
shares had been sold and converted into money, the proceeds, if not needed to pay
debts, would have been distributable among the various persons in interest, that is,
among the various shareholders, in their respective proportions. But under the
circumstances revealed in this case, it was erroneous to give judgment in favor of the
plaintiff for his aliquot part of the par value of said shares. It is elementary that one
partner, suing alone, cannot recover of the managing partner the value of such
partner's individual interest; and a liquidation of the business is an essential
prerequisite. It is true that in Lichauco vs. Lichauco (33 Phil., 350), this court
permitted one partner to recover of the manager the plaintiff's aliquot part of the
proceeds of the business, then long since closed; but in that case the affairs of the
defunct concern had been actually liquidate by the manager to the extent that he had
apparently converted all its properties into money and had pocketed the same--which
was admitted;--and nothing remained to be done except to compel him to pay over
the money to the persons in interest. In the present case, the shares referred to--

constituting the only assets of Kwong Cheong Tay--have not been converted into
ready money and doubtless still remain in the name of Kwong Cheong Tay as owner.
Under these circumstances it is impossible to sustain a judgment in favor of the
plaintiff for his aliquot part of the par value of said shares, which would be equivalent
to allowing one of several coowners to recover from another, without process of
division, a part of an undivided property.
Another condition will be noted as present in this case which in our opinion is fatal to
the maintenance of the appealed judgment. This is that, after the death of the original
defendant, Lim Ka Yam, the trial court allowed the action to proceed against Lim Yock
Tock, as his administrator, and entered judgment for a sum of money against said
administrator as the accounting party,--notwithstanding the insistence of the attorneys
for the latter that the action should be discontinued in the form in which it was then
being prosecuted. The error of the trial court in so doing can be readily demonstrated
from more than one point of view.
In the first place, it is well settled that when a member of a mercantile partnership
dies, the duty of liquidating its affair devolves upon the surviving member, or
members, of the firm, not upon the legal representative of the deceased partner.
(Wahl vs. Donaldson Sim & Co., 5 Phil., 11; Sugo and Shibata vs. Green, 6 Phil., 744)
And the same rule must be equally applicable to a civil partnership clothed with the
form of a commercial association (art. 1670, Civil Code; Lichauco vs. Lichauco, 33
Phil., 350) Upon the death of Lim Ka Yam it therefore became the duty of his
surviving associates to take the proper steps to settle the affairs of the firm, and any
claim against him, or his estate, for a sum of money due to the partnership by reason
of any misappropriation of its funds by him, or for damages resulting from his wrongful
acts as manager, should be prosecuted against his estate in administration in the
manner pointed out in sections 686 to 701, inclusive, of the Code of Civil Procedure.
Moreover, when it appears, as here, that the property pertaining to Kwong Cheong
Tay, like the shares in the Yut Siong Chyip Konski and the Manila Electric Railroad
and Light Company, are in the possession of the deceased partner, the proper step
for the surviving associates to take would be to make application to the court having
charge to the administration to require the administrator to surrender such property.
But, in the second place, as already indicated, the proceedings in this cause,
considered in the character of an action for an accounting, were futile; and the court,
abandoning entirely the effort to obtain an accounting, gave judgment against the
administrator upon the supposed liability of his intestate to respond for the plaintiff's
proportionate share of the capital and assets. But of course the action was not
maintainable in this aspect after the death of the defendant; and the motion to
discontinue the action as against the administrator should have been granted.
The judgment must be reversed, and the defendant will be absolved from the
complaint; but it will be understood that this order is without prejudice to any
proceeding which may be undertaken by the proper person or persons in interest to
settle the affairs of Kwong Cheong Tay and in connection therewith to recover from

the administrator of Lim Ka Yam the shares in the two concerns mentioned above. No
special pronouncement will be made as to costs of either. So ordered.

accounting, verified by vouchers, of the partnership business from June 15, 1918,
until September 1, 1922. To this decision and order the plaintiff duly excepted.

Araullo, C. J., Johnson, Malcolm, Avancea, and Villamor, JJ., concur.

Ostrand, J., concurs in the result.
Johns, and Romualdez, JJ., took no part in the decision of this case.

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

Republic of the Philippines

G.R. No. L-28920

October 24, 1928

MAXIMO GUIDOTE, plaintiff-appellant,

ROMANA BORJA, as administratrix of the estate of Narciso Santos,
deceased, defendant-appellee.
Francisco, Lualhati and Lopez for appellant.
M. G. Goyena for appellee.

On March 4, 1921, the plaintiff brought an action against the administratrix of the
estate of Narciso Santos, deceased, to recover the sum of P9,534.14, a part of which
was alleged to be the net profits due the plaintiff in a partnership business conducted
under the name of "Taller Sinukuan," in which the deceased was the capitalist partner
and the plaintiff the industrial partner, the rest of the sum consisting of advances
alleged to have been made to said partnership by the plaintiff. The defendant in her
answer admitted the existence of the partnership and in a cross-complaint and
counter-claim prayed that the plaintiff be ordered to render an accounting of the
partnership business and to pay to the estate of the deceased the sum of P25,000 as
net profits, credits, and property pertaining to said deceased.
In the first trial of the case the plaintiff called several witnesses and introduced a socalled accounting and a mass of documentary evidence consisting of books, bills, and
alleged vouchers, which documentary evidence was so hopelessly and inextricably
confused that the court, as stated in its decision, could not consider it of much
probative value. It was, however, fund as facts that the aforesaid partnership had
been formed, on or about June 15, 1918; that Narciso Santos died on April 6, 1920,
leaving the plaintiff as the surviving partner; and that plaintiff failed to liquidate the
affairs of the partnership and to render an account thereof to the administratrix of
Santos' estate. The court, therefore, dismissed the plaintiff's complaint and absolved
the defendant therefrom, and ordered the plaintiff to render a full and complete

On January 25, 1924, the defendant presented an account and liquidation prepared
by a public accountant, Santiago A. Lindaya, showing a balance of P29,088.95 in
favor of the defendant. The account was set down for hearing upon the question of its
approval or disapproval by the court, at which hearing the defendant introduced the
public accountant Jose Turiano Santiago to testify as to the results of an audit made
by him of the accounts of the partnership. Santiago testified that he had been a public
accountant for over 20 years, having appeared in court as such on several occasions;
that he had examined the exhibits offered in evidence of the case by both parties; that
he had prepared a separate accounting or liquidation similar in results to that
prepared by Lindaya, but with a few differences in the sums total; and that according
to his examination, the financial status of the partnership was as follows:
Narciso Santos is a creditor of the Taller Sinukuan in the
sum of P26,020.89 consisting as follows:


For his capital ..................................


For his credit ...................................


For his share of the profits ............


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


Maximo Guidote is a debtor to the Taller Sinukuan in the

sum of P20,020.89, consisting as follows:
For his debt (debito) .........................
Less his share of the profits ...........
Total balance ......................................


In order to contradict the conclusions of Lindaya and Jose Turiano Santiago, the
plaintiff presented Tomas Alfonso and the bookkeeper, Pio Gaudier, as witnesses in
his favor. In regard to the character of the testimony of these witnesses, His Honor,
the trial judge, says:
The testimony of these two witnesses is so unreliable that the court can
place no reliance thereon. Mr. Tomas Alfonso is the same public accountant

who filed the liquidation Exhibit O on behalf of the plaintiff, in relation to the
partnership business, which liquidation was disapproved by this court in its
decision of August 20, 1923. It is also to be noted that Mr. Alfonso would
have this court believe the proposition that the plaintiff, a mere industrial
partner, notwithstanding his having received the sum of P21,649.61 on the
various jobs and contracts of the "Taller Sinukuan," had actually expended
and paid out the sum of P63,360.27, of P44,710.66 in excess of the gross
receipts of the business. This proposition is not only improbable on its face,
but it materially contradicts the allegations of plaintiff's complaint to the effect
that the advances made by the plaintiff only the amount to P2,017.50.
Mr. Pio Gaudier is the same bookkeeper who prepared three entirely
separate and distinct liquidation for the same partnership business all of
which were repeated by the court in its decisions of September 1, 1922 and
the court finds that the testimony given by him at the last hearing is
confusing, contradictory and unreliable.1awph!
As to the other witnesses for the plaintiff His Honor further says:
The testimony of the other witnesses for the plaintiff deserves but scant
consideration as evidence to overcome the testimony of Mr. Santiago, as a
whole particularly that of the witness Chua Chak, who, after identifying and
testifying as to a certain exhibit shown him by counsel for plaintiff, showed
that he could neither read nor write English, Spanish, or Tagalog, and that of
the witness Mr. Claro Reyes, who, after positively assuring the court that a
certain exhibit tendered him for identification was an original document, was
forced to admit that it was but a mere copy.
The court therefore, found that the conclusions reached by Santiago A. Lindaya as
modified by Jose Turinao Santiago were just and correct and ordered the plaintiff to
pay the defendant the sum of P26,020.89, Philippine currency, with legal interest
thereon from April 2, 1921, the date of the defendant's answer, and to pay the costs.
From this judgment the plaintiff appealed to this court and presents the following
assignments of error:
(1) That the court erred in dismissing the plaintiff's complaint and ordering
him to present a liquidation of the operations and accounts of the partnership
formed with the deceased Narciso Santos, from the beginning of the
partnership until September 1, 1922.
(2) That the court erred in approving the liquidation made by the public
accountant Santiago A. Lindaya, with the modification introduced by the
witness Jose Turiano Santiago.
(3) That the court erred in ordering the plaintiff and appellant to pay to the
defendant and appellee the sum of P26,020.89.
As to the first assignment of error there may be some merit in the appellant's
contention that the dismissal of his complaint was premature. The better practise

would, perhaps, have been to let the complaint stand until the result of the liquidation
of the partnership affairs was known. But under the circumstances of this case no
harm was done by the dismissal of the complaint, and the error, if any there be, is not
Under the same assignment of error the plaintiff argues that as the deceased up to
the time of his death generally took care of the payments and collections of the
partnership, his legal representatives were under the obligation to render accounts of
the operations of the partnership, notwithstanding the fact that the plaintiff was in
charge of the business subsequent to the death of Santos. This argument is without
merit. In the case of Wahl vs. Donaldson Sim & Co. (5 Phil., 11, 14), it was held that
the death of one of the partners dissolves the partnership, but that the liquidation of
its affairs is by law intrusted, not to the executors of the deceased partner, but to the
surviving partners or the liquidators appointed by them (citing article 229 of the Code
of Commerce and secs. 664 and 665 of the Code of Civil Procedure). The same rule
is laid down by the Supreme Court of Spain in sentence of October 12, 1870.
The other assignments of error have reference only to questions of fact in regard to
which the findings of the court below seem to be as nearly correct as possible upon
the evidence presented. There may be errors in the interpretation of the accounts,
and it is possible that the amount of P26,020.89 charged against the plaintiff is
excessive, but the evidence presented by him is so confusing and unreliable as to be
practically of no weight and cannot serve as a basis for a readjustment of the
accounts prepared by the accountant Lindaya and the apparently reliable witness,
Jose Turiano Santiago.
We should, perhaps, have been more inclined to question the conclusions of Lindaya
and Santiago if the plaintiff had shown a disposition to render an honest account of
the business and to effect a fair liquidation of the partnership but instead of doing so,
he has by means of very questionable, and apparently false, evidence sought to
mulct his deceased partner's estate to the extent of over P9,000. The rule for the
conduct of a surviving partner is thus stated in 20 R. C. L., 1003:
In equity surviving partners are treated as trustees of the representatives of
the deceased partner, in regard to the interest of the deceased partner in the
firm. As a consequence of this trusteeship, surviving partners are held in
their dealings with the firm assets and the representatives of the deceased
to that nicety of dealing and that strictness of accountability required of and
incident to the position of one occupying a confidential relation. It is the duty
of surviving partners to render an account of the performance of their trust to
the personal representatives of the deceased partner, and to pay over to
them the share of such deceased member in the surplus of firm property,
whether it consists of real or personal assets.
The appellant has completely failed to observe the rule quoted, and he is not in
position to complain if his testimony and that of his witnesses is discredited.
The appealed judgment is affirmed with the costs against the appellant. So ordered.

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