[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, v. 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, v.
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.chanroblesvirtualawlibrary
The facts that matter are as follows:chanrob1es virtual 1aw library
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:chanrob1es virtual
1aw library
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." 10chanrobles virtual
lawlibrary
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
1
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:jgc:chanrobles.com.ph
"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 tie 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."cralaw virtua1aw library
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 Huj 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
"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
2
manner to preserve the assets of the partnership during the pendency of the civil case
in the Regional Trial Court of Bacolod City."cralaw virtua1aw library
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.chanroblesvirtualawlibrary
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 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:chanrob1es virtual 1aw library
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. 28chanrobles virtual
lawlibrary
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 v.
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:chanrob1es virtual 1aw library
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
3
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:jgc:chanrobles.com.ph
". . . 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. . . .
"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.chanrobles virtual lawlibrary
"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, 1 991 and April 1 9, 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
4

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 dissolution of a partnership is the change in the relation of the parties caused by any
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.chanrobles lawlibrary : rednad
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
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. 46chanrobles lawlibrary : rednad
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
5
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 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.chanrobles lawlibrary : rednad
Sec. (6) of Presidential Decree No. 902-A, as amended, reads:jgc:chanrobles.com.ph
"SECTION 6. In order to effectively exercise such jurisdiction, the Commission
shall possess the following powers:chanrob1es virtual 1aw library
x x x Marciano Sy, Willy Sy, Intestate of Jose Sy, Intestate of Vicente Sy, Sy Yong Hu &
"(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; . . ."cralaw virtua1aw library
The findings of the Court of Appeals accord with existing rules and jurisprudence on
receivership. Conformably, it stated that: 51
". . . 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:chanrob1es virtual
1aw library
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. . . .
"As observed by the SEC Commission (sic) in its Order dated January
16,1989:chanrobles virtual lawlibrary
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 v. Jayme Sy, Jesus Sy,
6
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." chanrobles.com:cralaw:red
Receivership, which is admittedly a harsh remedy, should be 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 or 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 v. 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." chanrobles virtual lawlibrary
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.chanrobles lawlibrary : rednad
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.
7
Settled is the rule that the essence of due process is the opportunity to be heard.
Thus, in Legarda v. 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.chanroblesvirtual|awlibrary
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. 63chanroblesvirtual|awlibrary
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 v. 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.chanrobles.com:cralaw:red
SO ORDERED.
8
 [G.R. NO. 167379 : June 27, 2006]
in accordance with existing laws and the rules and regulations of appropriate
PRIMELINK PROPERTIES AND DEVELOPMENT CORPORATION and government institutions, firms or agencies;
RAFAELITO W. LOPEZ, Petitioners, v. MA. CLARITA T. LAZATIN-
MAGAT, JOSE SERAFIN T. LAZATIN, JAIME TEODORO T. LAZATIN
and JOSE MARCOS T. LAZATIN, Respondents. b.) Secure and pay for all the licenses, permits and clearances needed for the
projects;
DECISION

CALLEJO, SR., J.: c.) Furnish all materials, equipment, labor and services for the development of the

Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of land in preparation for the construction and sale of the different types of units
Civil Procedure of the Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. (single-detached, duplex/twin, cluster and row house);
69200 and its Resolution2denying petitioners' motion for reconsideration thereof.

The factual and procedural antecedents are as follows: d.) Guarantee completion of the land development work if not prevented by force
majeure or fortuitous event or by competent authority, or other unavoidable
Primelink Properties and Development Corporation (Primelink for brevity) is a
domestic corporation engaged in real estate development. Rafaelito W. Lopez is its circumstances beyond the DEVELOPER'S control, not to exceed three years from
President and Chief Executive Officer.3
the date of the signing of this Joint Venture Agreement, except the installation of the
Ma. Clara T. Lazatin-Magat and her brothers, Jose Serafin T. Lazatin, Jaime T. electrical facilities which is solely MERALCO'S responsibility;
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 e.) Provide necessary manpower resources, like executive and managerial officers,
the Register of Deeds of Tagaytay City.
support personnel and marketing staff, to handle all services related to land and
On March 10, 1994, the Lazatins and Primelink, represented by Lopez, in his housing development (administrative and construction) and marketing (sales,
capacity as President, entered into a Joint Venture Agreement5 (JVA) for the
development of the aforementioned property into a residential subdivision to be advertising and promotions).6
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. The Lazatins and Primelink covenanted that they shall be entitled to draw
For its part, Primelink undertook to contribute money, labor, personnel, machineries, allowances/advances as follows:
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 1. During the first two years of the Project, the DEVELOPER and the
execution of the deed: 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
A. ) Survey the land, and prepare the projects master plans, engineering designs,
(60%) for the DEVELOPER and forty percent (40%) for the LANDOWNERS.
structural and architectural plans, site development plans, and such other need plans

9

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
SELLING PRICE COST PRICE DIFFERENCE INCOME
CLUSTER:
P 46,560,000.00 TWIN:B1 2,500,000 - B2 960,000 = 1,540,000 x 24 =
36,960,000.00 SINGLE:C1 3,500,000 - C2 1,400,000 = 2,100,000 x 16 =
33,600,000.00 ROW-TYPE TOWNHOMES:D1 1,600,000 - D2 700,000 = 900,000
x 24 = 21,600,000.00
P138,720,000.00 (GROSS) Total Cash Price (A1+B1+C1+D1) =P231,200,000.00
Total Building Expense (A2+B2+C2+D2)
=rbl r l l lbrr92,480,000.00
COMPUTATION OF ADD L. INCOME ON INTERESTTCP x 30% D/P
=P 69,360,000 P 69,360,000.00 Balance = 70% = 161,840,000 x .03069 x 48
=P238,409,740 238,409,740.00Total Amount (TCP + int. earn.) P307,769,740.00
EXPENSES:less: A Building expenses P 92,480,000.00 B Commission (8% of TCP)
18,496,000.00 C Admin. & Mgmt. expenses (2% of TCP) 4,624,000.00 D
Advertising & Promo exp. (2% of TCP) 4,624,000.00 E Building expenses for the
open
spaces and Amenities (Development
cost not incl. Housing) 400 x 30,000 sqms. 12,000,000.00 TOTAL EXPENSES
(A+B+C+D+E)
P132,224,000.00 RECONCILIATION OF INCOME v. EXPENSESTotal Projected
Income (incl. income from interest earn.) P307,769,740.00
less: 132,224,000.00 Total Expenses P175,545,740.009
The parties agreed that any unsettled or unresolved misunderstanding or conflicting
opinions between the parties relative to the interpretation, scope and reach, and the
enforcement/implementation of any provision of the agreement shall be referred to
Voluntary Arbitration in accordance with the Arbitration Law.10
The Lazatins agreed to subject the title over the subject property to an escrow
agreement. Conformably with the escrow agreement, the owner's duplicate of the
title was deposited with the China Banking Corporation.11 However, 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
10
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.
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.

Subsequently, on January 19, 1998, the Lazatins filed, with the Regional Trial Court After trial, a decision be rendered:
(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. 1. Rescinding the Joint Venture Agreement executed between the plaintiffs and the
Plaintiffs alleged, among others, that, despite the lapse of almost four (4) years from defendants;
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 2. Immediately restoring to the plaintiffs possession of the subject parcels of land;
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 3. Ordering the defendants to render an accounting of all income generated as well as
nearing completion; (cc) duplex, two units completed and two units unfinished; and expenses incurred and disbursement made in connection with the project;
(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 4. Making the Writ of Preliminary Injunction permanent;
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, 5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount
checks and balances system installed for the mutual protection of both parties, and Forty Million Pesos (P40,000,000.00) in actual and/or compensatory damages;
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 6. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of
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. Two Million Pesos (P2,000,000.00) in exemplary damages;

Plaintiffs also claimed that in a sales-income-costs projection prepared and submitted 7. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount
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) equivalent to ten percent (10%) of the total amount due as and for attorney's fees;
years and despite the undertaking in the JVA that plaintiffs shall initially get 20% of
andcralawlibrary
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 8. To pay the costs of this suit.
than P40,000,000.00.15
Other reliefs and remedies as are just and equitable are likewise being prayed for. 16
Plaintiffs prayed that, after due proceedings, judgment be rendered in their favor,
thus: 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
11
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.19 However, 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;
12
 itself vis - -vis their partners, the plaintiffs herein, there is bound to be certain
5. Ordering the defendants to pay the plaintiffs' attorney's fees in the amount conflict as the latter repeatedly would received the losing end of the bargain.
of P104,152.40;
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 x 34
6. Ordering the defendants to pay the costs.
On May 15, 2000, plaintiffs filed a Motion for Execution Pending Appeal35 alleging
33
SO ORDERED. defendants' dilatory tactics for its allowance. This was opposed by defendants.36

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.
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:
I

xxxx THE TRIAL COURT ERRED IN DECIDING THE CASE WITHOUT FIRST
Rummaging through the evidence presented in the course of the testimony of Mrs. REFERRING THE COMPLAINT FOR VOLUNTARY ARBITRATION (RA NO.
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 876), CONTRARY TO THE MANDATED VOLUNTARY ARBITRATION
convinced, that a pattern of what appears to be a scheme or plot to reduce and CLAUSE UNDER THE JOINT VENTURE AGREEMENT, AND THE
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 DOCTRINE IN "MINDANAO PORTLAND CEMENT CORPORATION V.
September 30, 1995, the joint venture project earned a net income of
MCDONOUGH CONSTRUCTION COMPANY OF FLORIDA" (19 SCRA 814-
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 815).
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. II

Of the reported net income of P2,603,810.64 (Exhibit "P-2") the plaintiffs should
THE TRIAL COURT ERRED IN ISSUING A WRIT OF EXECUTION PENDING
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 APPEAL EVEN IN THE ABSENCE OF GOOD AND COMPELLING REASONS
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- TO JUSTIFY SAID ISSUANCE, AND DESPITE PRIMELINK'S STRONG
de-grace that would put to thin air plaintiffs' hope of getting their share in the profit OPPOSITION THERETO.
under the JVA.

That this matter had reached the court is no longer a cause for speculation. The way III
the defendants treated the JVA and the manner by which they handled the project

13
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.
V Corporation,41 the appellate court ruled that, under Philippine law, a joint venture is a
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
form of partnership and is to be governed by the laws of partnership. The aggrieved
parties filed a motion for reconsideration,42 which 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?cralawlibrary
14

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:
15
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
property after satisfying the partnership liabilities to third persons for any sum of
money paid by him for the purchase of an interest in the partnership and for any
capital or advance contributed by him. In the instant case, the joint venture still has
outstanding liabilities to third parties or the buyers of the property.
It is not amiss to state that title to the land or TCT No. T-10848 which is now held by
Chinabank for safekeeping pursuant to the Escrow Agreement executed between
Primelink Properties and Development Corporation and Ma. Clara T. Lazatin-Magat
should also be returned to the LAZATINs as a necessary consequence of the order of
rescission of contract. The reason for the existence of the Escrow Agreement has
ceased to exist when the joint venture agreement was rescinded.49
Respondents stress that petitioners must bear any damages or losses they may have
suffered. They likewise stress that they did not enrich themselves at the expense of
petitioners.
In reply, petitioners assert that it is unjust and inequitable for respondents to retain
the improvements even if their share in the P1,041,524.26 of the net income of the
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
16
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
17

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
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,

in cash, or the payment secured by a bond approved by the court, and to be released
(b) Those owing to partners other than for capital and profits,
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. (c) Those owing to partners in respect of capital,

And under Article 1838 of the New Civil Code, the party entitled to rescind is,
without prejudice to any other right, entitled: (d) Those owing to partners in respect of profits.

(1) To a lien on, or right of retention of, the surplus of the partnership property after (3) The assets shall be applied in the order of their declaration in No. 1 of this article

satisfying the partnership liabilities to third persons for any sum of money paid by to the satisfaction of the liabilities.

him for the purchase of an interest in the partnership and for any capital or advances
(4) The partners shall contribute, as provided by article 1797, the amount necessary
contributed by him;
to satisfy the liabilities.

(2) To stand, after all liabilities to third persons have been satisfied, in the place of
(5) An assignee for the benefit of creditors or any person appointed by the court shall
the creditors of the partnership for any payments made by him in respect of the
have the right to enforce the contributions specified in the preceding number.
partnership liabilities; andcralawlibrary

(3) To be indemnified by the person guilty of the fraud or making the representation
against all debts and liabilities of the partnership.
18
(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.

19
 [G.R. No. 97212. June 30, 1993.]
BENJAMIN YU, Petitioner, v. 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, Jr. for Petitioner.
Wilfredo Cortez for Private Respondents.
SYLLABUS
1. CIVIL LAW; SPECIAL CONTRACTS; PARTNERSHIP; NEW PARTNERSHIP
IN LIEU OF THE OLD PARTNERSHIP, CREATED IN CASE AT BAR.
Whether the partnership which had hired petitioner Yu as Assistant General Manager
had been extinguished and replaced by a new partnership composed of Willy Co and
Emmanuel Zapanta, 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. 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.
2. ID.; ID.; ID.; OLD PARTNERSHIP SIMPLY CONTINUED BY THE NEW
PARTNERSHIP IN CASE AT BAR. 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 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. 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.
3. ID.; ID.; ID.; ID.; LIABILITY TO THE CREDITORS OF PRECEDING
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.
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. Under
Article 1840, 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 partners interest
in the dissolved partnership is concerned. It is not necessary for the Court to
determine under which one or more 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.
4. LABOR LAW; EMPLOYMENT; TERMINATION, LAWFUL IN CASE AT
BAR; PROPER INDEMNITY THEREOF. It is 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. 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 Yus old position as Assistant General Manager thus became superfluous
or redundant. It follows that petitioner Benjamin Yu is entitled to separation pay at
the rate of one months pay for each year of service that he had rendered to the old
20
partnership, a fraction of at least six (6) months being considered as a whole year.
5. CIVIL LAW; DAMAGES; MORAL DAMAGES FOR ARBITRARY
TREATMENT OF PETITIONER, PROPER IN CASE AT BAR. 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.
6. ID.; ID.; INTEREST FOR UNPAID WAGES AND SEPARATION PAY,
ATTORNEYS FEES, PROPER IN CASE AT BAR. 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 attorneys fees in the amount of ten percent (10%) of the
total amount due from private respondent Jade Mountain.
DECISION
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 Chiu 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.chanrobles virtual lawlibrary
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 firms 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 firms 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 firms 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 petitioners 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 attorneys fees, against Jade Mountain, Mr. Willy Co
and the other private respondents. The partnership and Willy Co denied petitioners
charges, contending in the main that Benjamin Yu was never hired as an employee
by the present or new partnership. 4
21

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 attorneys fees. 5
On appeal, the National Labor Relations Commission ("NLRC") reversed the
decision of the Labor Arbiter and dismissed petitioners 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 Yus 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 and the partnership
Jade Mountain could not have been affected by changes in the latters membership.
7 (Emphasis supplied)
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 partnership 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:jgc:chanrobles.com.ph
"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:jgc:chanrobles.com.ph
"Art. 1830. Dissolution is caused:chanrob1es virtual 1aw library
(1) without violation of the agreement between the partners;
x x x
(b) by the express will of any partner, who must act in good faith, when no definite
term of particular undertaking is specified;
x x x
(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;
x x x
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:jgc:chanrobles.com.ph
" [o]n dissolution the partnership is not terminated, but continues until the winding
up of partnership affairs is completed."cralaw virtua1aw library
22
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. 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:jgc:chanrobles.com.ph
"Art. 1840. In the following cases creditors of the dissolved partnership are also
creditors of the person or partnership continuing the business:chanrob1es virtual 1aw
library
(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 representative 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 partners
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 aside any
assignment on the ground of fraud.
x x x
(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
partners interest in the dissolved partnership is concerned. It is not necessary for the
Court to determine under which one or more 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
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partnership, against the new Jade Mountain.chanrobles lawlibrary : rednad 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
It is at the same time also evident to the Court that the new partnership was entitled Petition for Certiorari, and the Decision of the NLRC dated 29 November 1990 is
to appoint and hire a new general or assistant general manager to run the affairs of hereby NULLIFIED and SET ASIDE. A new Decision is hereby ENTERED
the business enterprise taken over. An assistant general manager belongs to the most requiring private respondent Jade Mountain Products Company Limited to pay to
senior ranks of management and a new partnership is entitled to appoint a top petitioner Benjamin Yu the following amounts:chanrob1es virtual 1aw library
manager of its own choice and confidence. The non-retention of Benjamin Yu as
Assistant General Manager did not therefore constitute unlawful termination, or (a) for unpaid wages which, as found by the Labor Arbiter, shall be computed at the
termination without just or authorized cause. We think that the precise authorized rate of P2,000.00 per month multiplied by thirty-six (36) months (November 1984 to
cause for termination in the case at bar was redundancy. 10 The new partnership had October 1987) in the total amount of P72,000.00;
its own new General Manager, apparently Mr. Willy Co, the principal new owner
himself, who personally ran the business of Jade Mountain. Benjamin Yus old (b) separation pay computed at the rate of P4,000.00 monthly pay multiplied by three
position as Assistant General Manager thus became superfluous or redundant. 11 It (3) years of service or a total of P12,000.00;
follows that petitioner Benjamin Yu is entitled to separation pay at the rate of one
months pay for each year of service that he had rendered to the old partnership, a (c) indemnity for moral damages in the amount of P20,000.00;
fraction of at least six (6) months being considered as a whole year.
(d) six percent (6%) per annum legal interest computed on items (a) and (b) above,
While the new Jade Mountain was entitled to decline to retain petitioner Benjamin commencing on 26 December 1989 and until fully paid; and
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 (e) ten percent (10%) attorneys fees on the total amount due from private respondent
Benjamin Yu who, as noted, previously ran the whole marble quarrying, processing Jade Mountain.
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. Costs against private respondents.
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 SO ORDERED.
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 attorneys fees in the
amount of ten percent (10%) of the total amount due from private respondent Jade
Mountain.

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