Partnerships; Joint Venture Agreements (JVAs); A JVA is a form of partnership, and

as such is to be governed by the laws on partnership.—We agree with the CA

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

Same; Same; Dissolution of Partnerships; On dissolution, the partnership is not

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When the RTC rescinded the JVA on complaint of respondents based on the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

Same; Same; Same; Unless otherwise agreed, the parties who have not wrongfully
dissolved the partnership have the right to wind up the partnership affairs.—The
transfer of the possession of the parcels of land and the improvements
thereon to respondents was only for a specific purpose: the winding up of
partnership affairs, and the partition and distribution of the net partnership
assets as provided by law. After all, Article 1836 of the New Civil Code
provides that unless otherwise agreed by the parties in their JVA,
respondents have the right to wind up the partnership affairs: Art. 1836.
Unless otherwise agreed, the partners who have not wrongfully dissolved the
partnership or the legal representative of the last surviving partner, not
insolvent, has the right to wind up the partnership affairs, provided,
however, that any partner, his legal representative or his assignee, upon
cause shown, may obtain winding up by the court.

Same; Same; Same; Until the partnership accounts are determined, it cannot be
ascertained how much any of the parties is entitled to, if at all.—It must be
stressed, too, that although respondents acquired possession of the lands and
the improvements thereon, the said lands and improvements remained
partnership property, subject to the rights and obligations of the
parties, inter se, of the creditors and of third parties under Articles 1837 and
1838 of the New Civil Code, and subject to the outcome of the settlement of
the accounts between the parties as provided in Article 1839 of the New Civil
Code, absent any agreement of the parties in their JVA to the contrary. Until
the partnership accounts are determined, it cannot be ascertained how much
any of the parties is entitled to, if at all. It was thus premature for petitioner
Primelink to be demanding that it be indemnified for the value of the
improvements on the parcels of land owned by the joint venture/partnership.
Notably, the JVA of the parties does not contain any provision designating
any party to wind up the affairs of the partnership.

FIRST DIVISION

G.R. No. 167379 June 27, 2006

PRIMELINK PROPERTIES AND DEVELOPMENT CORPORATION and RAFAELITO W.

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

DECISION

CALLEJO, SR., J.:

Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure of
the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 69200 and its Resolution2 denying
petitioners’ motion for reconsideration thereof.

The factual and procedural antecedents are as follows:

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

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

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

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

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

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

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

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

The Lazatins and Primelink covenanted that they shall be entitled to draw allowances/advances as
follows:

1. During the first two years of the Project, the DEVELOPER and the LANDOWNER can
draw allowances or make advances not exceeding a total of twenty percent (20%) of the net
revenue for that period, on the basis of sixty percent (60%) for the DEVELOPER and forty
percent (40%) for the LANDOWNERS.

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

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

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

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

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

SALES-INCOME-COST PROJECTION
lawphil.net

SEL COS DIF INCOME

LIN T FER
G PRIC EN
PRI E CE
CE

CLUSTER:

1,
A
9
1
A2 4
3,
1, 0,
2
26 0
0 - = = P 46,560,000.00
0, 0
0,
00 0
0
0 x
0
2
0
4

TWIN:

1,
B
5
1
4
2, B2
0,
5 96
0
0 - 0, = = 36,960,000.00
0
0, 00
0
0 0
x
0
2
0
4

SINGLE:

C 2,
C2
1 1
1,
3, 0
40
5 - = 0, = 33,600,000.00
0,
0 0
00
0, 0
0
0 0
0 x
0 1
6

ROW-
TYPE
TOWNHO
MES:

D 9
1 0
1, D2 0,
6 70 0
0 - 0, = 0 = 21,600,000.00
0, 00 0
0 0 x
0 2
0 4

₱138,720,000.00

(
G
Total Cash
R
Price
O = ₱231,200,000.00
(A1+B1+C1
S
+D1)
S
)

Total
Building
Expense = 92,480,000.00
(A2+B2+C2
+D2)

COMPUTATION OF ADD’L. INCOME ON INTEREST

T
C
P
P
69
x
,3
3
= 60 P 69,360,000.00
0
,0
%
00
D
/
P

B
16
al
1,
a =
84
n
0,
c
e 00
= 0
7
0
%

x
.0 P2
3 38
0 ,4
6 = 09 238,409,740.00
9 ,7
x 40
4
8

Total Amount
P307,769,740.00
(TCP + int. earn.)

EXPENSES:

le
s Building
P 92,480,000.00
s: expenses
A

Commission
B 18,496,000.00
(8% of TCP)

Admin. &
Mgmt.
C 4,624,000.00
expenses (2%
of TCP)

Advertising &
D Promo exp. 4,624,000.00
(2% of TCP)

E Building
expenses for
the open
spaces and
Amenities
(Development
cost not incl.
Housing) 400
x 30,000
sqms. 12,000,000.00

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

RECONCILIATION OF INCOME VS. EXPENSES

 Total Projected P307,769,740.00
Income (incl.
income from
interest earn.)

less: 132,224,000.00

Total Expenses P175,545,740.009

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

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

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

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

Plaintiffs also claimed that in a sales-income-costs projection prepared and submitted by

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

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

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

After trial, a decision be rendered:

1. Rescinding the Joint Venture Agreement executed between the plaintiffs and the
defendants;

2. Immediately restoring to the plaintiffs possession of the subject parcels of land;

3. Ordering the defendants to render an accounting of all income generated as well as

expenses incurred and disbursement made in connection with the project;

4. Making the Writ of Preliminary Injunction permanent;

5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount Forty Million
Pesos (P40,000,000.00) in actual and/or compensatory damages;

6. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of Two
Million Pesos (P2,000,000.00) in exemplary damages;

7. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount equivalent
to ten percent (10%) of the total amount due as and for attorney’s fees; and

8. To pay the costs of this suit.

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

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

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

a) dismissing the Complaint on the basis of Section 1(j), Rule 16 of the aforecited Rules of
Court, or, in the alternative,
 b) requiring the plaintiffs to make initiatory step for arbitration by filing the demand to
arbitrate, and then asking the parties to resolve their controversies, pursuant to the
Arbitration Law, or in the alternative;

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

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

Other reliefs and remedies just and equitable in the premises are prayed for.17

In the meantime, before the expiration of the reglementary period to answer the complaint,
defendants, invoking their counsel’s heavy workload, prayed for a 15-day extension18 within which to
file their answer. The additional time prayed for was granted by the RTC.19However, instead of filing
their answer, defendants prayed for a series of 15-day extensions in eight (8) successive motions for
extensions on the same justification.20 The RTC again granted the additional time prayed for, but in
granting the last extension, it warned against further extension.21 Despite the admonition, defendants
again moved for another 15-day extension,22 which, this time, the RTC denied. No answer having
been filed, plaintiffs moved to declare the defendants in default,23 which the RTC granted in its
Order24 dated June 24, 1998.

On June 25, 1998, defendants filed, via registered mail, their "Answer with Counterclaim and
Opposition to the Prayer for the Issuance of a Writ of Preliminary Injunction."25 On July 8, 1998,
defendants filed a Motion to Set Aside the Order of Default.26 This was opposed by plaintiffs.27 In an
Order28 dated July 14, 1998, the RTC denied defendants’ motion to set aside the order of default and
ordered the reception of plaintiffs’ evidence ex parte. Defendants filed a motion for
reconsideration29 of the July 14, 1998 Order, which the RTC denied in its Order30 dated October 21,
1998.

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

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

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

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

2. Ordering the defendants to return possession, including all improvements therein, of the
real estate property belonging to the plaintiffs which is described in, and covered by Transfer
Certificate of Title No. T-10848 of the Register of Deeds of Tagaytay City, and located in
Barangay Anulin, City of Tagaytay;
 3. Ordering the defendants to turn over all documents, records or papers that have been
executed, prepared and retained in connection with any contract to sell or deed of sale of all
lots/units sold during the effectivity of the joint venture agreement;

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

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

6. Ordering the defendants to pay the costs.

SO ORDERED.33

The trial court anchored its decision on the following findings:

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

xxxx

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

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

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

Under the intolerable circumstances, the plaintiffs could not have opted for some other recourse but
to file the present action to enforce their rights. x x x34
On May 15, 2000, plaintiffs filed a Motion for Execution Pending Appeal35alleging defendants’
dilatory tactics for its allowance. This was opposed by defendants.36

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

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

THE TRIAL COURT ERRED IN DECIDING THE CASE WITHOUT FIRST

REFERRING THE COMPLAINT FOR VOLUNTARY ARBITRATION (RA NO. 876),
CONTRARY TO THE MANDATED VOLUNTARY ARBITRATION CLAUSE UNDER
THE JOINT VENTURE AGREEMENT, AND THE DOCTRINE IN "MINDANAO
PORTLAND CEMENT CORPORATION V. MCDONOUGH CONSTRUCTION
COMPANY OF FLORIDA" (19 SCRA 814-815).

II

THE TRIAL COURT ERRED IN ISSUING A WRIT OF EXECUTION PENDING

APPEAL EVEN IN THE ABSENCE OF GOOD AND COMPELLING REASONS TO
JUSTIFY SAID ISSUANCE, AND DESPITE PRIMELINK’S STRONG OPPOSITION
THERETO.

III

THE TRIAL COURT ERRED IN REFUSING TO DECIDE PRIMELINK’S MOTION TO

QUASH THE WRIT OF EXECUTION PENDING APPEAL AND THE MOTION FOR
RECONSIDERATION, ALTHOUGH THE COURT HAS RETAINED ITS
JURISDICTION TO RULE ON ALL QUESTIONS RELATED TO EXECUTION.

IV

THE TRIAL COURT ERRED IN RESCINDING THE JOINT VENTURE AGREEMENT

ALTHOUGH PRIMELINK HAS SUBSTANTIALLY DEVELOPED THE PROJECT
AND HAS SPENT MORE OR LESS FORTY MILLION PESOS, AND DESPITE
APPELLEES’ FAILURE TO PRESENT SUFFICIENT EVIDENCE JUSTIFYING THE
SAID RESCISSION.

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

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

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

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

SO ORDERED.40

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

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

1) DID THE HONORABLE COURT OF APPEALS COMMIT A FATAL AND REVERSIBLE

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

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

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

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

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

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

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

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

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

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

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

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

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing,
in accordance with articles 1385 and 1388 and the Mortgage Law.

They insist that petitioners are not entitled to rescission for the improvements because, as found by
the RTC and the CA, it was petitioner Primelink that enriched itself at the expense of respondents.
Respondents reiterate the ruling of the CA, and argue as follows:

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

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

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

The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it
has been generally understood to mean an organization formed for some temporary purpose. (Gates
v. Megargel, 266 Fed. 811 [1920]) It is, in fact, hardly distinguishable from the partnership, since
elements are similar – community of interest in the business, sharing of profits and losses, and a
mutual right of control. (Blackner v. McDermott, 176 F.2d 498 [1949]; Carboneau v. Peterson, 95
P.2d 1043 [1939]; Buckley v. Chadwick, 45 Cal.2d 183, 288 P.2d 12, 289 P.2d 242 [1955]) The main
distinction cited by most opinions in common law jurisdictions is that the partnership contemplates a
general business with some degree of continuity, while the joint venture is formed for the execution
of a single transaction, and is thus of a temporary nature. (Tuffs v. Mann, 116 Cal.App. 170, 2 P.2d
500 [1931]; Harmon v. Martin, 395 III. 595, 71 N.E.2d 74 [1947]; Gates v. Megargel, 266 Fed. 811
[1920]) This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a
partnership may be particular or universal, and a particular partnership may have for its object a
specific undertaking. (Art. 1783, Civil Code). It would seem therefore that, under Philippine law, a
joint venture is a form of partnership and should thus be governed by the laws of partnership. The
Supreme Court has, however, recognized a distinction between these two business forms, and has
held that although a corporation cannot enter into a partnership contract, it may, however, engage in
a joint venture with others. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954]; Campos and Lopez –
Campos Comments, Notes and Selected Cases, Corporation Code 1981) (Emphasis Supplied)

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

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

Respondents stress that petitioners must bear any damages or losses they may have suffered. They
likewise stress that they did not enrich themselves at the expense of petitioners.

In reply, petitioners assert that it is unjust and inequitable for respondents to retain the improvements
even if their share in the P1,041,524.26 of the net income of the property and the sale of the land
were to be deducted from the value of the improvements, plus administrative and marketing
expenses in the total amount of P40,000,000.00. Petitioners will still be entitled to an accounting
from respondents. Respondents cannot deny the existence and nature of said improvements as they
are visible to the naked eye.

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

The petition has no merit.

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

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

On the second issue, we agree with the CA ruling that petitioner Primelink and respondents entered
into a joint venture as evidenced by their JVA which, under the Court’s ruling in Aurbach, is a form of
partnership, and as such is to be governed by the laws on partnership.
When the RTC rescinded the JVA on complaint of respondents based on the evidence on record
that petitioners willfully and persistently committed a breach of the JVA, the court thereby
dissolved/cancelled the partnership.54 With the rescission of the JVA on account of petitioners’
fraudulent acts, all authority of any partner to act for the partnership is terminated except so far as
may be necessary to wind up the partnership affairs or to complete transactions begun but not yet
finished.55 On dissolution, the partnership is not terminated but continues until the winding up of
partnership affairs is completed.56 Winding up means the administration of the assets of the
partnership for the purpose of terminating the business and discharging the obligations of the
partnership.

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

Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the partnership
or the legal representative of the last surviving partner, not insolvent, has the right to wind up the
partnership affairs, provided, however, that any partner, his legal representative or his assignee,
upon cause shown, may obtain winding up by the court.

It must be stressed, too, that although respondents acquired possession of the lands and the
improvements thereon, the said lands and improvements remained partnership property, subject to
the rights and obligations of the parties, inter se, of the creditors and of third parties under Articles
1837 and 1838 of the New Civil Code, and subject to the outcome of the settlement of the accounts
between the parties as provided in Article 1839 of the New Civil Code, absent any agreement of the
parties in their JVA to the contrary.58 Until the partnership accounts are determined, it cannot be
ascertained how much any of the parties is entitled to, if at all.

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

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

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

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

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

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

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

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

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

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

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

(3) To be indemnified by the person guilty of the fraud or making the representation against
all debts and liabilities of the partnership.

The accounts between the parties after dissolution have to be settled as provided in Article 1839 of
the New Civil Code:

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

(1) The assets of the partnership are:

(a) The partnership property,

(b) The contributions of the partners necessary for the payment of all the liabilities
specified in No. 2.

(2) The liabilities of the partnership shall rank in order of payment, as follows:

(a) Those owing to creditors other than partners,

(b) Those owing to partners other than for capital and profits,

(c) Those owing to partners in respect of capital,

(d) Those owing to partners in respect of profits.

 (3) The assets shall be applied in the order of their declaration in No. 1 of this article to the
satisfaction of the liabilities.

(4) The partners shall contribute, as provided by article 1797, the amount necessary to
satisfy the liabilities.

(5) An assignee for the benefit of creditors or any person appointed by the court shall have
the right to enforce the contributions specified in the preceding number.

(6) Any partner or his legal representative shall have the right to enforce the contributions
specified in No. 4, to the extent of the amount which he has paid in excess of his share of the
liability.

(7) The individual property of a deceased partner shall be liable for the contributions
specified in No. 4.

(8) When partnership property and the individual properties of the partners are in possession
of a court for distribution, partnership creditors shall have priority on partnership property and
separate creditors on individual property, saving the rights of lien or secured creditors.

(9) Where a partner has become insolvent or his estate is insolvent, the claims against his
separate property shall rank in the following order:

(a) Those owing to separate creditors;

(b) Those owing to partnership creditors;

(c) Those owing to partners by way of contribution.

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

Costs against petitioners.

SO ORDERED.

ROMEO J. CALLEJO, SR.

Associate Justice

WE CONCUR:

Partnerships; Dissolutions; Words and Phrases; Dissolution of a partnership is the change

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

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

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

Same; Same; Receivership; Receivership, which is admittedly a harsh remedy, should be

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

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

Same; Same; Same; The power to appoint a receiver pendente lite is discretionary with the
judge, and once the discretion is exercised, the appellate court will not interfere, except in a
clear case of abuse thereof, or an extra limitation of jurisdiction.—What is more, as held
in Go Tecson vs. Macadaeg: “The power to appoint a receiver pendente lite is discretionary
with the judge of the court of first instance; and once the discretion is exercised, the
appellate court will not interfere, except in a clear case of abuse thereof, or an extra
limitation of jurisdiction.”

THIRD DIVISION

[G.R. No. 94285. August 31, 1999]

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

[G.R. No. 100313. August 31, 1999]

SY YONG HU & SONS, JOHN TAN, BACOLOD CANVAS AND

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

At bar are two consolidated petitions for review on certiorari under Rule 45 of the Revised
Rules of Court, docketed as G. R. Nos. 94285 and G.R. No. 100313, respectively, seeking to
reinstate the Resolution of the Court of Appeals in CA - G. R. SP No. 17070 and its Decision in
CA-G. R. SP No. 24189.
In G. R. No. 94285, the petitioners assail the Resolution[1] dated June 27, 1990 of the Court of
Appeals granting the Motion for Reconsideration interposed by the petitioners (now the private
respondents) of its Decision[2], promulgated on January 15, 1990, which affirmed the
Order[3] issued on January 16, 1989 by the Securities and Exchange Commission (SEC) en
banc and the Order[4] of SEC Hearing Officer Felipe Tongco, dated October 5, 1988,
The facts that matter are as follows:
Sy Yong Hu & Sons is a partnership of Sy Yong Hu and his sons, Jose Sy, Jayme Sy, Marciano
Sy, Willie Sy, Vicente Sy, and Jesus Sy, registered with the SEC on March 29, 1962, with Jose Sy
as managing partner. The partners and their respective shares are reflected in the Amended Articles
of Partnership[5] as follows:

NAMES AMOUNT CONTRIBUTED

SY YONG HU P 31, 000. 00

JOSE S. SY 205, 000. 00

JAYME S. SY 112, 000. 00

MARCIANO S. SY 143, 000. 00

WILLIE S. SY 85, 000. 00

VICENTE SY 85, 000. 00

JESUS SY 88, 000. 00

Partners Sy Yong Hu, Jose Sy, Vicente Sy, and Marciano Sy died on May 18, 1978, August 12,
1978, December 30, 1979 and August 7, 1987, respectively.[6] At present, the partnership has
valuable assets such as tracts of lands planted to sugar cane and commercial lots in the business
district of Bacolod City.
Sometime in September, 1977, during the lifetime of all the partners, Keng Sian brought an
action,[7] docketed as Civil Case No. 13388 before the then Court of First Instance of Negros
Occidental, against the partnership as well as against the individual partners for accounting of all
the properties allegedly owned in common by Sy Yong Hu and the plaintiff (Keng Sian), and for
the delivery or reconveyance of her one-half (1/2) share in said properties and in the fruits
thereof. Keng Sian averred that she was the common law wife of partner Sy Yong Hu, that Sy
Yong Hu, together with his children,[8] who were partners in the partnership, connived to deprive
her of her share in the properties acquired during her cohabitation with Sy Yong Hu, by diverting
such properties to the partnership.[9]
In their answer dated November 3, 1977, the defendants, including Sy Yong Hu himself,
countered that Keng Sian is only a house helper of Sy Yong Hu and his wife, subject properties
are exclusively owned by defendant partnership, and plaintiff has absolutely no right to or interest
therein.[10]
On September 20, 1978, during the pendency of said civil case, Marciano Sy filed a petition
for declaratory relief against partners Vicente Sy, Jesus Sy and Jayme Sy, docketed as SEC Case
No. 1648, praying that he be appointed managing partner of the partnership, to replace Jose Sy
who died on August 12, 1978. Answering the petition, Vicente Sy, Jesus Sy and Jaime Sy, who
claim to represent the majority interest in the partnership, sought the dissolution of the partnership
and the appointment of Vicente Sy as managing partner. In due time, Hearing Officer Emmanuel
Sison came out with a decision[11] (Sison Decision) dismissing the petition, dissolving the
partnership and naming Jesus Sy, in lieu of Vicente Sy who had died earlier, as the managing
partner in charge of winding the affairs of the partnership.
The Sison decision was affirmed in toto by the SEC en banc in a decision[12] (Abello decision)
dated June 8, 1982, disposing thus:

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

On the basis of the above decision of the SEC en banc, Hearing Officer Sison approved a
partial partition of certain partnership assets in an order[13] dated December 2, 1986.Therefrom,
respondents seasonably appealed.
In 1982, the children of Keng Sian with Sy Yong Hu, namely, John Keng Seng, Carlos Keng
Seng, Tita Sy, Yolanda Sy and Lolita Sy, filed a petition, docketed as SEC Case No 2338, to revoke
the certificate of registration of Sy Yong Hu & Sons, and to have its assets reverted to the estate
of the late Sy Yong Hu. After hearings, the petition was dismissed by Hearing Officer Bernardo
T. Espejo in an Order, dated January 11, 1984, which Order became final since no appeal was
taken therefrom.[14]
After the dismissal of SEC Case No. 2338, the children of Keng Sian sought to intervene in
SEC Case No. 1648 but their motion to so intervene was denied in an Order dated May 9,
1985. There was no appeal from said order.[15]
 In the meantime, Branch 43 of the Regional Trial Court of Negros Occidental appointed one
Felix Ferrer as a Special Administrator for the Intestate Estate of Sy Yong Hu in Civil Case No.
13388. Then, on August 30, 1985, Alex Ferrer moved to intervene in the proceedings in SEC Case
No. 1648, for the partition and distribution of the partnership assets, on behalf of the respondent
Intestate Estate.[16]
It appears that sometime in December, 1985, Special Administrator Ferrer filed an Amended
Complaint on behalf of respondent Intestate Estate in Civil Case No. 13388, wherein he joined
Keng Sian as plaintiff and thereby withdrew as defendant in the case.Special Administrator Ferrer
adopted the theory of Keng Sian that the assets of the partnership belong to Keng Sian and Sy
Yong Hu (now represented by the Estate of Sy Yong Hu) in co-ownership, which assets were
wrongfully diverted in favor of the defendants.[17]
The motion to intervene in SEC Case No. 1648, filed by Special Administrator Alex Ferrer
on behalf of the respondent Estate, was denied in the order issued on May 9, 1986 by Hearing
Officer Sison. With the denial of the motion for reconsideration, private respondent Intestate Estate
of Sy Yong Hu appealed to the Commission en banc.
In its decision (Sulit decision) on the aforesaid appeal from the Order dated May 9, 1986, and
the Order dated December 2, 1986, the SEC en banc[18] ruled:

WHEREFORE, in the interest of Justice and equity, substantive rights of due process
being paramount over the rules of procedure, and in order to avoid multiplicity of suits;
the order of the hearing officer below dated May 9, 1986 denying the motion to
intervene in SEC Case No. 1648 of appellant herein as well as the order dated
December 2, 1986[19] denying the motion for reconsideration are hereby reversed and
the motion to intervene given due course. The instant case is hereby remanded to the
hearing officer below for further proceeding on the aspect of partition and/or distribution
of partnership assets. The urgent motion for the issuance of a restraining order is
likewise hereby remanded to the hearing officer below for appropriate action. [20]

The said decision of the SEC en banc reiterated that the Abello decision of June 8, 1982, which
upheld the order of dissolution of the partnership, had long become final and executory. No further
appeal was taken from the Sulit Decision.
During the continuation of the proceedings in SEC Case No. 1648, now presided over by
Hearing Officer Felipe S. Tongco who had substituted Hearing Officer Sison, the propriety of
placing the Partnership under receivership was taken up. The parties brought to the attention of the
Hearing Officer the fact of existence of Civil Case No. 903 (formerly Civil Case No. 13388)
pending before the Regional Trial Court of Negros Occidental. They also agreed that during the
pendency of the aforesaid court case, there will be no disposition of the partnership assets.[21] On
October 5, 1988, Hearing Officer Tongco came out with an Order[22] (Tongco Order) incorporating
the above submissions of the parties and placing[23]the partnership under a receivership committee,
explaining that it is the most equitable fair and just manner to preserve the assets of the partnership
during the pendency of the civil case in the Regional Trial Court of Bacolod City.
On October 22, 1988, a joint Notice of Appeal to the SEC en banc was filed by herein
petitioners Jayme Sy, Jesus Sy, Estate of Jose Sy, Estate of Vicente Sy, Heirs of Marciano Sy
(represented by Justina Vda. de Sy), and Willie Sy, against the Intervenor (now private
respondent). In an order (Lopez Order) dated January 16, 1989, the SEC en banc[24]affirmed the
Tongco Order.
With the denial of their Motion for Reconsideration,[25] petitioners filed a special civil action
for certiorari with the Court of Appeals.
On January 15, 1990, the Court of Appeals granted the petition and set aside the Tongco and
Lopez Orders, and remanded the case for further execution of the 1982 Abello and 1988 Sulit
Decisions, ordering the partition and distribution of the partnership properties.[26]
Private respondent seasonably interposed a motion for reconsideration of such decision of the
Court of Appeals.
Acting thereupon on June 27, 1990, the Court of Appeals issued its assailed Resolution,
reversing its Decision of January 15, 1990, and remanding the case to the SEC for the formation
of a receivership committee, as envisioned in the Tongco Order.
G. R. No. 100313 came about in view of the dismissal by the Court of Appeals[27] of the
Petition for Certiorari with a Prayer for Preliminary Injunction, docketed as CA-G. R. SP No.
24189, seeking to annul and set aside the orders, dated January 24, 1991 and April 19, 1989,
respectively, in Civil Case No. 5326 before the Regional Trial Court of Bacolod City.
The antecedent facts are as follows:
Sometime in June of 1988, petitioner Sy Yong Hu & Sons through its Managing Partner, Jesus
Sy, applied for a building permit to reconstruct its building called Sy Yong Hu & Sons
Building, located in the central business district of Bacolod City, which had been destroyed by fire
in the late 70s. On July 5, 1988, respondent City Engineer issued Building Permit No. 4936 for the
reconstruction of the first two floors of the building. Soon thereafter, reconstruction work began. In
January, 1989, upon completion of its reconstruction, the building was occupied by the herein
petitioners, Bacolod and Upholstery Supply Company and Negros Isuzu Sales, which businesses
are owned by successors-in-interest of the deceased partners Jose Sy and Vicente Sy. Petitioner
John Tan, who is also an occupant of the reconstructed building, is the brother-in-law of deceased
partner Marciano Sy.[28]
From the records on hand, it can be gleaned that the Tongco Order[29], dated October 5, 1988,
in SEC Case No. 1648, had, among others, denied a similar petition of the intervenors therein (now
private respondents) for a restraining order and/or injunction to enjoin the reconstruction of the
same building. However, on October 10, 1988, respondent Intestate Estate sent a letter to the City
Engineer claiming that Jesus Sy is not authorized to act for petitioners Sy Yong Hu & Sons with
respect to the reconstruction or renovation of the property of the partnership. This was followed
by a letter dated November 11, 1988, requesting the revocation of Building Permit No. 4936.
Respondent City Engineer inquired[30] later from Jesus Sy for an authority to sign for and on
behalf of Sy Yong Hu & Sons to justify the latters signature in the application for the building
permit, informing him that absent any proof of his authority, he would not be issued an occupancy
permit.[31] On December 27, 1988, respondent Intestate Estate reiterated its objection to the
authority of Jesus Sy to apply for a building permit and pointing out that in view of the creation of
a receivership committee, Jesus Sy no longer had any authority to act for the partnership.[32]
 In reply, Jesus Sy informed the City Engineer that the Tongco Order had been elevated to the
SEC en banc, making him still the authorized manager of the partnership. He then requested that
an occupancy permit be issued as Sy Yong Hu & Sons had complied with the requirements of the
City Engineers Office and the National Building Code.[33]
Unable to convince the respondent City Engineer to revoke subject building permit,
respondent Intestate Estate brought a Petition for Mandamus with prayer for a Writ of Preliminary
Injunction, docketed as Civil Case No 5326 before the Regional Trial Court of Bacolod City and
entitled Intestate Estate of the Late Sy Yong Hu vs. Engineer Jose P. Falsis, Jr.[34] The Complaint
concluded with the following prayer:

WHEREFORE PREMISES CONSIDERED, it is respectfully prayed of the Honorable

Court that:

1. A writ of Preliminary Injunction be issued to the respondent, after preliminary hearing

is had.compelling his office to padlock the premises occupied, without the requisite
Certificate of Occupancy; to stop all construction activities, and barricade the same
premises so that the unwary public will not be subject to undue hazards due to lack of
requisite safety precaution;

2. The Respondent be ordered to enforce without exemption every requisite provision of

the Building Code as so mandated by it.[35]

Petitioners Sy Yong Hu & Sons, the owners of the building sought to be padlocked were not
impleaded as party to the petition dated February 22, 1989. Neither were the lessees-occupants
thereon so impleaded. Thus, they were not notified of the hearing scheduled for April 5, 1989, on
which date the Petition was heard. Subsequently, however, the Regional Trial Court issued an
order dated April 19, 1989 for the issuance of a Writ of Preliminary Mandatory Injunction ordering
the City Engineer to padlock the building.[36]
On May 9, 1989, upon learning of the issuance of the Writ of Preliminary Injunction, dated
May 4, 1989, petitioners immediately filed the: (1) Motion for Intervention; (2) Answer in
Intervention; and (3) Motion to set aside order of mandatory injunction. In its order dated June 22,
1989, the Motion for Intervention was granted by the lower court through Acting Presiding Judge
Porfirio A. Parian.
On August 3, 1989, respondent Intestate Estate presented a Motion to cite Engineer Jose Falsis,
Jr. in contempt of court for failure to implement the injunctive relief.
On August 15, 1989, petitioners submitted an Amended Answer in Intervention. Reacting
thereto, respondent Intestate Estate filed a Motion to Strike or Expunge from the Record the
Amended Answer in Intervention.[37]
On January 25, 1990, petitioner Sy Yong Hu & Sons again wrote the respondent City Engineer
to reiterate its request for the immediate issuance of a certificate of occupancy, alleging that the
Court of Appeals in its Decision of January 15, 1990 in CA-G. R. No. 17070 had reversed the SEC
decision which approved the appointment of a receivership committee. However, the City
Engineer refused to issue the Occupancy Permit without the conformity of the respondent Intestate
Estate and one John Keng Seng who claims to be an Illegitimate son of the Late Sy Yong Hu.[38]
 In an order issued on January 24, 1991 upon an Ex Parte Motion to Have All Pending
Incidents Resolved filed by respondent Intestate Estate, Judge Bethel Katalbas-Moscardon issued
an order modifying the Writ of Preliminary Mandatory Injunction, and directing the respondent
City Engineer to:

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

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

In view of the above, the Order allowing the intervenors in this case is likewise hereby
withdrawn for the purposes above discussed. Consequently, the Motion to present
additional parties is deemed denied, and the Motion to Strike Or Expunge From The
Records the Amended Answer In Intervention is deemed granted as in fact the same
become moot and academic with the elimination of the Intervenors in this case. [39]

Pursuant to the above Order of January 24, 1991, respondent City Engineer served a notice upon
petitioners revoking Building Permit No. 4936, ordering the stoppage of all construction work on
the building, and commanding discontinuance of the occupancy thereof.
On February 15, 1991, the aggrieved petitioners filed a Petition for Certiorari with Prayer for
Preliminary Injunction with the Court of Appeals, docketed as CA-G. R. SP No. 24189.
On February 27, 1991, the Court of Appeals issued a Temporary Restraining Order enjoining
the respondent Judge from implementing the questioned orders dated January 24, 1991 and April
19, 1989.[40]
After the respondents had sent in their answer, petitioners filed a Reply with a prayer for the
issuance of a writ of mandamus directing the respondent City Engineer to reissue the building
permit previously issued in favor of petitioner Sy Yong Hu & Sons, and to issue a certificate of
occupancy on the basis of the admission by respondent City Engineer that petitioner had complied
with the provisions of the National Building Code.[41]
On May 31, 1991, the Court of Appeals rendered its questioned decision denying the
petition.[42]
From the Resolution of the Court of Appeals granting the motion for reconsideration in CA-
G. R. SP No. 17070 and the Decision in CA-G. R. SP No. 24189, petitioners have come to this
Court for relief.
In G. R. No. 94285, petitioners contend by way of assignment of errors,[43] that:
I

RESPONDENT COURT OF APPEALS ERRED IN REVERSING ITS MAIN

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

II

RESPONDENT COURT OF APPEALS ERRED IN REINSTATING THE

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

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

I

THE HONORABLE COURT OF APPEALS (ELEVENTH DIVISION) ERRED IN

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

II

THE HONORABLE COURT OF APPEALS (ELEVENTH DIVISION) ERRED IN

HOLDING THAT THE RESPONDENT JUDGE DID NOT ACT WITHOUT
JURISDICTION AND WITH GRAVE ABUSE OF DISCRETION IN
 DISALLOWING THE INTERVENTION OF PETITIONERS IN CIVIL CASE NO.
5326.

III

THE LOWER COURT ACTED WITH GRAVE ABUSE OF DISCRETION IN

ISSUING AND ORDERING THE IMPLEMENTATION OF THE WRIT OF
PRELIMINARY MANDATORY INJUNCTION DESPITE THE ABSENCE OR
LACK OF AN INJUNCTION BOND.[45]

On the two (2) issues raised in G. R. No. 94285, the Court rules for respondents.
Petitioners fault the Court of Appeals for affirming the 1989 Decision of the SEC which
approved the appointment of a receivership committee as ordered by Hearing Officer Felipe
Tongco. They theorize that the 1988 Tongco Decision varied the 1982 Abello Decision affirming
the dissolution of the partnership, contrary to the final and executory tenor of the said judgment. To
buttress their theory, petitioners offer the 1988 Sulit Decision which, among others, expressly
confirmed the finality of the Abello Decision.
On the same premise, petitioners aver that when Hearing Officer Tongco took over from
Hearing Officer Sison, he was left with no course of action as far as the proceedings in the SEC
Case were concerned other than to continue with the partition and distribution of the partnership
assets. Thus, the Order placing the partnership under a receivership committee was erroneous and
tainted with excess of jurisdiction.
The contentions are untenable. Petitioners fail to recognize the basic distinctions underlying
the principles of dissolution, winding up and partition or distribution. The dissolution of a
partnership is the change in the relation of the parties caused by any partner ceasing to be
associated in the carrying on, as might be distinguished from the winding up, of its business. Upon
its dissolution, the partnership continues and its legal personality is retained until the complete
winding up of its business culminating in its termination.[46]
The dissolution of the partnership did not mean that the juridical entity was immediately
terminated and that the distribution of the assets to its partners should perfunctorily follow.On the
contrary, the dissolution simply effected a change in the relationship among the partners. The
partnership, although dissolved, continues to exist until its termination, at which time the winding
up of its affairs should have been completed and the net partnership assets are partitioned and
distributed to the partners.[47]
The error, therefore, ascribed to the Court of Appeals is devoid of any sustainable basis.The
Abello Decision though, indeed, final and executory, did not pose any obstacle to the Hearing
Officer to issue orders not inconsistent therewith. From the time a dissolution is ordered until the
actual termination of the partnership, the SEC retained jurisdiction to adjudicate all incidents
relative thereto. Thus, the disputed order placing the partnership under a receivership committee
cannot be said to have varied the final order of dissolution.Neither did it suspend the dissolution
of the partnership. If at all, it only suspended the partition and distribution of the partnership assets
pending disposition of Civil Case No. 903 on the basis of the agreement by the parties and under
the circumstances of the case. It bears stressing that, like the appointment of a manager in charge
of the winding up of the affairs of the partnership, said appointment of a receiver during the
pendency of the dissolution is interlocutory in nature, well within the jurisdiction of the SEC.
Furthermore, having agreed with the respondents not to dispose of the partnership assets,
petitioners effectively consented to the suspension of the winding up or, more specifically, the
partition and distribution of subject assets. Petitioners are now estopped from questioning the order
of the Hearing Officer issued in accordance with the said agreement.[48]
Petitioners also assail the propriety of the receivership theorizing that there was no necessity
therefor, and that such remedy should be granted only in extreme cases, with respondent being
duty-bound to adduce evidence of the grave and irremediable loss or damage which it would suffer
if the same was not granted. It is further theorized that, at any rate, the rights of respondent Intestate
Estate are adequately protected since notices of lis pendens of the aforesaid civil case have been
annotated on the real properties of the partnership.[49]
To bolster petitioners' contention, they maintain that they are the majority partners of the
partnership Sy Yong Hu & Sons controlling Ninety Six per cent (96%) of its equity. As such, they
have the greatest interest in preserving the partnership properties for themselves,[50]and therefore,
keeping the said properties in their possession will not bring about any feared damage or
dissipation of such properties, petitioners stressed.
Sec. (6) of Presidential Decree No. 902-A, as amended, reads:

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

xxx xxx xxx

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

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

x x x From a reexamination of the issues and the evidences involved, We find merit in
respondents motion for reconsideration.

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

1. That there is a pending case in court wherein the plaintiffs are claiming in their
complaint that all the assets of the partnership belong to Sy Yong Hu;
2. That the parties likewise agreed that during the pendency of the court case, there will
be no disposition of the partnership assets and further hearing is suspended. x x x

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

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

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

Moreover, a review of the records reveal that certain properties in question have already
been sold as of 1987, as evidenced by deeds of absolute sale executed by Jesus in
favor of Reynaldo Navarro (p. 331, Rollo), among others.

To ensure that no further disposition shall be made of the questioned assets and in view
of the pending civil case in the lower court, there is a compelling necessity to place all
these properties and assets under the management of a receivership committee. The
receivership committee, which will provide active participation, through a designated
representative, on the part of all interested parties, can best protect the properties
involved and assure fairness and equity for all.

Receivership, which is admittedly a harsh remedy, should be granted with extreme

caution.[52] Sound bases therefor must appear on record, and there should be a clear showing of its
necessity.[53] The need for a receivership in the case under consideration can be gleaned from the
aforecited disquisition by the Court of Appeals finding that the properties of the partnership were
in danger of being damaged or lost on account of certain acts of the appointed manager in
liquidation.
The dispositions of certain properties by the said manager, on the basis of an order of partial
partition, dated December 2, 1986, by Hearing Officer Sison, which was not yet final and
executory, indicated that the feared irreparable injury to the properties of the partnership might
happen again. So also, the failure of the manager in liquidation to submit to the SEC an accounting
of all the partnership assets as required in its order of April 29, 1988, justified the SEC in placing
the subject assets under receivership.
Moreover, it has been held by this Court that an order placing the partnership under
receivership so as to wind up its affairs in an orderly manner and to protect the interest of the
plaintiff (herein private respondent) was not tainted with grave abuse of discretion.[54]The
allegation that respondents rights are adequately protected by the notices of lis pendens in Civil
Case 903 is inaccurate. As pointed out in their Comment to the Petition, the private respondents
claim that the partnership assets include the income and fruits thereof.Therefore, protection of such
rights and preservation of the properties involved are best left to a receivership committee in which
the opposing parties are represented.
What is more, as held in Go Tecson vs. Macaraig: [55]

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

Here, no clear abuse of discretion in the appointment of a receiver in the case under consideration
can be discerned.
With respect to G. R. No. 100313.[56]
Petitioners argue in this case that the failure of the private respondents to implead them in
Civil Case No. 5326 constituted a violation of due process. It is their submission that the ex
parte grant of said petition by the trial court worked to their prejudice as they were deprived of an
opportunity to be heard on the allegations of the petition concerning subject property and
assets. The recall of the order granting their Motion to Intervene was done without the observance
of due process and consequently without jurisdiction on the part of the lower court.
Commenting on the Petition, private respondents maintain that the only issue in the present
case is whether or not there was a violation of the Building Code. They contend that after due and
proper hearing before the lower court, it was fully established that the provisions of the said Code
had been violated, warranting issuance of the Writ of Preliminary Injunction dated April 19,
1989. They further asseverate that the petitioners, who are the owner and lessees in the building
under controversy, have nothing to do with the case for mandamus since it is directed against the
respondent building official to perform a specific duty mandated by the provisions of the Building
Code.
In his Comment, the respondent City Engineer, relying on the validity of the order of the trial
court to padlock the building, denied any impropriety in his compliance with the said order.
After a careful examination of the records on hand, the Court finds merit in the petition.
In opposing the petition, respondent intestate estate anchors its stance on the existence of
violations of pertinent provisions of the aforesaid Code. As regards due process, however, a
distinction must be made between matters of substance.[57] In essence, procedural due process
refers to the method or manner by which the law is enforced, while substantive due process
requires that the law itself, not merely the procedure by which the law would be enforced, is fair,
reasonable, and just.[58] Although private respondent upholds the substantive aspect of due process,
it, in the same breath, brushes aside its procedural aspect, which is just as important, if the
constitutional injunction against deprivation of property without due process is to be observed.
Settled is the rule that the essence of due process is the opportunity to be heard. Thus,
in Legarda vs. Court of Appeals et al.,[59] the Court held that as long as a party was given the
opportunity to defend her interest in due course, he cannot be said to have been denied due process
of law.
Contrary to these basic tenets, the trial court gave due course to the petition for mandamus,
and granted the prayer for the issuance of a writ of preliminary injunction on May 4, 1989,
notwithstanding the fact that the owner (herein petitioner Sy Yong Hu) of the building and its
occupants[60] were not impleaded as parties in the case. Affirming the same, the Court of Appeals
acknowledged that the lower court came out with the said order upon the testimony of the lone
witness for the respondent, in the person of the City Engineer, whose testimony was not effectively
traversed by the petitioners. This conclusion arrived at by the Court of Appeals is erroneous in the
face of the irrefutable fact that the herein petitioners were not made parties in the said case and,
consequently, had absolutely no opportunity to cross examine the witness of private respondent
and to present contradicting evidence.
To be sure, the petitioners are indispensable parties in Civil Case No. 5326, which sought to
close subject building. Such being the case, no final determination of the claims thereover could
be had.[61] That the petition for mandamus with a prayer for the issuance of a writ of preliminary
mandatory injunction was only directed against the City Engineer is of no moment. No matter how
private respondent justifies its failure to implead the petitioners, the alleged violation of the
provisions of the Building Code relative to the reconstruction of the building in question, by
petitioners, did not warrant an ex parte and summary resolution of the petition. The violation of a
substantive law should not be confused with punishment of the violator for such violation. The
former merely gives rise to a cause of action while the latter is its effect, after compliance with the
requirements of due process.
The trial court failed to give petitioners their day in court to be heard before they were
condemned for the alleged violation of certain provisions of the Building Code. Being the owner
of the building in question and lessees thereon, petitioners possess property rights entitled to be
protected by law. Their property rights cannot be arbitrarily interfered with without running afoul
with the due process rule enshrined in the Bill of Rights.
For failure to observe due process, the herein respondent court acted without jurisdiction.As
a result, petitioners cannot be bound by its orders. Generally accepted is the principle that no man
shall be affected by any proceeding to which he is a stranger, and strangers to a case are not bound
by judgment rendered by the court.[62]
In similar fashion, the respondent court acted with grave abuse of discretion when it
disallowed the intervention of petitioners in Civil Case No. 5326. As it was, the issuance of the
Writ of Preliminary Injunction directing the padlocking of the building was improper for non-
conformity with the rudiments of due process.
Parenthetically, the trial court, in issuing the questioned order, ignored established principles
relative to the issuance of a Writ of Preliminary Injunction. For the issuance of the writ of
preliminary injunction to be proper, it must be shown that the invasion of the right sought to be
protected is material and substantial, that the right of complainant is clear and unmistakable and
that there is an urgent and paramount necessity for the writ to prevent serious damage.[63]
In light of the allegations supporting the prayer for the issuance of a writ of preliminary
injunction, the Court is at a loss as to the basis of the respondent judge in issuing the same.What
is clear is that complainant (now private respondent) therein, which happens to be a juridical person
(Estate of Sy Yong Hu), made general allegations of hazard and serious damage to the public due
to violations of various provisions of the Building Code, but without any showing of any grave
damage or injury it was bound to suffer should the writ not issue.
Finally, the Court notes, with disapproval, what the respondent court did in ordering the
ejectment of the lawful owner and the occupants of the building, and disposed of the case before
him even before it was heard on the merits by the simple expedient of issuing the said writ of
preliminary injunction. In Ortigas & Company Limited Partnership vs. Court of Appeals et al. this
Court held that courts should avoid issuing a writ of preliminary injunction which in effect disposes
of the main case without trial.[64]
Resolution of the third issue has become moot and academic in view of the Courts finding of
grave abuse of discretion tainting the issuance of the Writ of Preliminary Injunction in question.
WHEREFORE, the Resolution of the Court of Appeals in CA-G. R. No. 17070 is
AFFIRMED and its Decision in CA-G. R. No. 24189 REVERSED. No pronouncement as to costs.
SO ORDERED.
Melo, (Chairman), Vitug, Panganiban, and Gonzaga-Reyes, JJ., concur.

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

Same; Same; Same; Occurrence of events which precipitate the legal consequence of
dissolution of a partnership do not automatically result in the termination of the legal
personality of the old partnership.—The occurrence of events which precipitate the legal
consequence of dissolution of a partnership do not, however, automatically result in the
termination of the legal personality of the old partnership.

Same; Same; Same; The legal personality of the expiring partnership persists for the limited
purpose of winding up and closing of the affairs of the partnership.—In the ordinary course
of events, the legal personality of the expiring partnership persists for the limited purpose
of winding up and closing of the affairs of the partnership. In the case at bar, it is important
to underscore the fact that the business of the old partnership was simply continued by the
new partners, without the old partnership undergoing the procedures relating to
dissolution and winding up of its business affairs. In other words, the new partnership
simply took over the business enterprise owned by the preceding partnership, and
continued using the old name of Jade Mountain Products Company Limited, without
winding up the business affairs of the old partnership, paying off its debts, liquidating and
distributing its net assets, and then re-assembling the said assets or most of them and
opening a new business enterprise.

Same; Same; Same; A withdrawing partner remains liable to a third party creditor of the
old partnership.—What is important for present purposes is that, under the above
described situation, not only the retiring partners (Rhodora Bendal, et al.) but also the new
partnership itself which continued the business of the old, dissolved, one, are liable for the
debts of the preceding partnership. In Singson, et al. v. Isabela Saw Mill, et al, the Court
held that under facts very similar to those in the case at bar, a withdrawing partner
remains liable to a third party creditor of the old partnership.

Same; Same; Same; Creditors of the old Jade Mountain are also creditors of the New Jade
Mountain which continued the business of the old one without liquidation of the partnership
affairs.—Under Article 1840 above, creditors of the old Jade Mountain are also creditors of
the new Jade Mountain which continued the business of the old one without liquidation of
the partnership affairs. Indeed, a creditor of the old Jade Mountain, like petitioner
Benjamin Yu in respect of his claim for unpaid wages, is entitled to priority vis-a-vis any
claim of any retired or previous partner insofar as such retired partner’s interest in the
dissolved partnership is concerned.

Same; Same; Same; The new partnership is entitled to appoint and hire a new general or
assistant general manager to run the affairs of the business enterprise taken over.—It is at
the same time also evident to the Court that the new partnership was entitled to appoint
and hire a new general or assistant general manager to run the affairs of the business
enterprise taken over. An assistant general manager belongs to the most senior ranks of
management and a new partnership is entitled to appoint a top manager of its own choice
and confidence. The non-retention of Benjamin Yu as Assistant General Manager did not
therefore constitute unlawful termination, or termination without just or authorized cause.
We think that the precise authorized cause for termination in the case at bar was
redundancy.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 97212 June 30, 1993

BENJAMIN YU, petitioner,

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

Jose C. Guico for petitioner.

Wilfredo Cortez for private respondents.

FELICIANO, J.:

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

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

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

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

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

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

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

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

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

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

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

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

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

Article 1830 of the same Code must also be noted:

Art. 1830. Dissolution is caused:

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

xxx xxx xxx

(b) by the express will of any partner, who must act in

good faith, when no definite term or particular
undertaking is specified;

xxx xxx xxx

(2) in contravention of the agreement between the

partners, where the circumstances do not permit a
dissolution under any other provision of this article, by
the express will of any partner at any time;

xxx xxx xxx

(Emphasis supplied)

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

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

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

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

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

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

(2) When all but one partner retire and assign (or the representative of a deceased
partner assigns) their rights in partnership property to the remaining partner,
who continues the business without liquidation of partnership affairs, either alone or
with others;

(3) When any Partner retires or dies and the business of the dissolved partnership is
continued as set forth in Nos. 1 and 2 of this Article, with the consent of the retired
partners or the representative of the deceased partner, but without any assignment
of his right in partnership property;

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

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

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

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

When the business of a partnership after dissolution is continued under any

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

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

xxx xxx xxx

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

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

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

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

WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE COURSE, the
Comment filed by private respondents is treated as their Answer to the Petition for Certiorari, and the
Decision of the NLRC dated 29 November 1990 is hereby NULLIFIED and SET ASIDE. A new
Decision is hereby ENTERED requiring private respondent Jade Mountain Products Company
Limited to pay to petitioner Benjamin Yu the following amounts:
 (a) for unpaid wages which, as found by the Labor Arbiter, shall be
computed at the rate of P2,000.00 per month multiplied by thirty-six
(36) months (November 1984 to December 1987) in the total amount
of P72,000.00;

(b) separation pay computed at the rate of P4,000.00 monthly pay

multiplied by three (3) years of service or a total of P12,000.00;

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

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

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

Costs against private respondents.

SO ORDERED.

Bidin, Davide, Jr., Romero and Melo, JJ., concur.