Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 109248

July 3, 1995

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T.

BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION
and JOAQUIN L. MISA, respondents.

VITUG, J.:
The instant petition seeks a review of the decision rendered by the Court of
Appeals, dated 26 February 1993, in CA-G.R. SP No. 24638 and No. 24648
affirming in toto that of the Securities and Exchange Commission ("SEC") in SEC
AC 254.
The antecedents of the controversy, summarized by respondent Commission and
quoted at length by the appellate court in its decision, are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered
in the Mercantile Registry on 4 January 1937 and reconstituted with the
Securities and Exchange Commission on 4 August 1948. The SEC records show
that there were several subsequent amendments to the articles of partnership on
18 September 1958, to change the firm [name] to ROSS, SELPH and
CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO
& MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 4
December 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 11 March
1977 to DEL ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to BITO, MISA &
LOZADA; on 19 December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and
Mariano M. Lozada associated themselves together, as senior partners with
respondents-appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin
Bacorro, as junior partners.
On February 17, 1988, petitioner-appellant wrote the respondents-appellees a
letter stating:
I am withdrawing and retiring from the firm of Bito, Misa and Lozada, effective at
the end of this month.
"I trust that the accountants will be instructed to make the proper liquidation of
my participation in the firm."
On the same day, petitioner-appellant wrote respondents-appellees another
letter stating:

"Further to my letter to you today, I would like to have a meeting with all of you
with regard to the mechanics of liquidation, and more particularly, my interest in
the two floors of this building. I would like to have this resolved soon because it
has to do with my own plans."
On 19 February 1988, petitioner-appellant wrote respondents-appellees another
letter stating:
"The partnership has ceased to be mutually satisfactory because of the working
conditions of our employees including the assistant attorneys. All my efforts to
ameliorate the below subsistence level of the pay scale of our employees have
been thwarted by the other partners. Not only have they refused to give
meaningful increases to the employees, even attorneys, are dressed down
publicly in a loud voice in a manner that deprived them of their self-respect. The
result of such policies is the formation of the union, including the assistant
attorneys."
On 30 June 1988, petitioner filed with this Commission's Securities Investigation
and Clearing Department (SICD) a petition for dissolution and liquidation of
partnership, docketed as SEC Case No. 3384 praying that the Commission:
"1.
Decree the formal dissolution and order the immediate liquidation of (the
partnership of) Bito, Misa & Lozada;
"2.
Order the respondents to deliver or pay for petitioner's share in the
partnership assets plus the profits, rent or interest attributable to the use of his
right in the assets of the dissolved partnership;
"3.
Enjoin respondents from using the firm name of Bito, Misa & Lozada in any
of their correspondence, checks and pleadings and to pay petitioners damages
for the use thereof despite the dissolution of the partnership in the amount of at
least P50,000.00;
"4.
Order respondents jointly and severally to pay petitioner attorney's fees
and expense of litigation in such amounts as maybe proven during the trial and
which the Commission may deem just and equitable under the premises but in
no case less than ten (10%) per cent of the value of the shares of petitioner or
P100,000.00;
"5.
Order the respondents to pay petitioner moral damages with the amount
of P500,000.00 and exemplary damages in the amount of P200,000.00.
"Petitioner likewise prayed for such other and further reliefs that the Commission
may deem just and equitable under the premises."
On 13 July 1988, respondents-appellees filed their opposition to the petition.
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not dissolve
the said law partnership. Accordingly, the petitioner and respondents are hereby
enjoined to abide by the provisions of the Agreement relative to the matter

governing the liquidation of the shares of any retiring or withdrawing partner in

the partnership interest." 1
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held
that the withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of
"Bito, Misa & Lozada." The Commission ruled that, being a partnership at will, the
law firm could be dissolved by any partner at anytime, such as by his withdrawal
therefrom, regardless of good faith or bad faith, since no partner can be forced to
continue in the partnership against his will. In its decision, dated 17 January
1990, the SEC held:
WHEREFORE, premises considered the appealed order of 31 March 1989 is
hereby REVERSED insofar as it concludes that the partnership of Bito, Misa &
Lozada has not been dissolved. The case is hereby REMANDED to the Hearing
Officer for determination of the respective rights and obligations of the parties. 2
The parties sought a reconsideration of the above decision. Attorney Misa, in
addition, asked for an appointment of a receiver to take over the assets of the
dissolved partnership and to take charge of the winding up of its affairs. On 4
April 1991, respondent SEC issued an order denying reconsideration, as well as
rejecting the petition for receivership, and reiterating the remand of the case to
the Hearing Officer.
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP
No. 24638 and CA-G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito
and Attorney Mariano Lozada both died on, respectively, 05 September 1991 and
21 December 1991. The death of the two partners, as well as the admission of
new partners, in the law firm prompted Attorney Misa to renew his application for
receivership (in CA G.R. SP No. 24648). He expressed concern over the need to
preserve and care for the partnership assets. The other partners opposed the
prayer.
The Court of Appeals, finding no reversible error on the part of respondent
Commission, AFFIRMED in toto the SEC decision and order appealed from. In fine,
the appellate court held, per its decision of 26 February 1993, (a) that Atty.
Misa's withdrawal from the partnership had changed the relation of the parties
and inevitably caused the dissolution of the partnership; (b) that such withdrawal
was not in bad faith; (c) that the liquidation should be to the extent of Attorney
Misa's interest or participation in the partnership which could be computed and
paid in the manner stipulated in the partnership agreement; (d) that the case
should be remanded to the SEC Hearing Officer for the corresponding
determination of the value of Attorney Misa's share in the partnership assets;
and (e) that the appointment of a receiver was unnecessary as no sufficient proof
had been shown to indicate that the partnership assets were in any such danger
of being lost, removed or materially impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners confine
themselves to the following issues:
1.
Whether or not the Court of Appeals has erred in holding that the
partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a
partnership at will;

2.
Whether or not the Court of Appeals has erred in holding that the
withdrawal of private respondent dissolved the partnership regardless of his
good or bad faith; and
3.
Whether or not the Court of Appeals has erred in holding that private
respondent's demand for the dissolution of the partnership so that he can get a
physical partition of partnership was not made in bad faith;
to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will. That the law firm
"Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed
such a partnership need not be unduly belabored. We quote, with approval, like
did the appellate court, the findings and disquisition of respondent SEC on this
matter; viz:
The partnership agreement (amended articles of 19 August 1948) does not
provide for a specified period or undertaking. The "DURATION" clause simply
states:
"5.
DURATION. The partnership shall continue so long as mutually satisfactory
and upon the death or legal incapacity of one of the partners, shall be continued
by the surviving partners."
The hearing officer however opined that the partnership is one for a specific
undertaking and hence not a partnership at will, citing paragraph 2 of the
Amended Articles of Partnership (19 August 1948):
"2.
Purpose. The purpose for which the partnership is formed, is to act as legal
adviser and representative of any individual, firm and corporation engaged in
commercial, industrial or other lawful businesses and occupations; to counsel
and advise such persons and entities with respect to their legal and other affairs;
and to appear for and represent their principals and client in all courts of justice
and government departments and offices in the Philippines, and elsewhere when
legally authorized to do so."
The "purpose" of the partnership is not the specific undertaking referred to in the
law. Otherwise, all partnerships, which necessarily must have a purpose, would
all be considered as partnerships for a definite undertaking. There would
therefore be no need to provide for articles on partnership at will as none would
so exist. Apparently what the law contemplates, is a specific undertaking or
"project" which has a definite or definable period of completion. 3
The birth and life of a partnership at will is predicated on the mutual desire and
consent of the partners. The right to choose with whom a person wishes to
associate himself is the very foundation and essence of that partnership. Its
continued existence is, in turn, dependent on the constancy of that mutual
resolve, along with each partner's capability to give it, and the absence of a
cause for dissolution provided by the law itself. Verily, any one of the partners
may, at his sole pleasure, dictate a dissolution of the partnership at will. He
must, however, act in good faith, not that the attendance of bad faith can
prevent the dissolution of the partnership 4 but that it can result in a liability for
damages. 5

In passing, neither would the presence of a period for its specific duration or the
statement of a particular purpose for its creation prevent the dissolution of any
partnership by an act or will of a partner. 6 Among partners, 7 mutual agency
arises and the doctrine of delectus personae allows them to have the power,
although not necessarily the right, to dissolve the partnership. An unjustified
dissolution by the partner can subject him to a possible action for damages.
The dissolution of a partnership is the change in the relation of the parties
caused by any partner ceasing to be associated in the carrying on, as might be
distinguished from the winding up of, the business. 8 Upon its dissolution, the
partnership continues and its legal personality is retained until the complete
winding up of its business culminating in its termination. 9
The liquidation of the assets of the partnership following its dissolution is
governed by various provisions of the Civil Code; 10 however, an agreement of
the partners, like any other contract, is binding among them and normally takes
precedence to the extent applicable over the Code's general provisions. We here
take note of paragraph 8 of the "Amendment to Articles of Partnership" reading
thusly:
. . . In the event of the death or retirement of any partner, his interest in the
partnership shall be liquidated and paid in accordance with the existing
agreements and his partnership participation shall revert to the Senior Partners
for allocation as the Senior Partners may determine; provided, however, that with
respect to the two (2) floors of office condominium which the partnership is now
acquiring, consisting of the 5th and the 6th floors of the Alpap Building, 140
Alfaro Street, Salcedo Village, Makati, Metro Manila, their true value at the time
of such death or retirement shall be determined by two (2) independent
appraisers, one to be appointed (by the partnership and the other by the) retiring
partner or the heirs of a deceased partner, as the case may be. In the event of
any disagreement between the said appraisers a third appraiser will be
appointed by them whose decision shall be final. The share of the retiring or
deceased partner in the aforementioned two (2) floor office condominium shall
be determined upon the basis of the valuation above mentioned which shall be
paid monthly within the first ten (10) days of every month in installments of not
less than P20,000.00 for the Senior Partners, P10,000.00 in the case of two (2)
existing Junior Partners and P5,000.00 in the case of the new Junior Partner. 11
The term "retirement" must have been used in the articles, as we so hold, in a
generic sense to mean the dissociation by a partner, inclusive of resignation or
withdrawal, from the partnership that thereby dissolves it.
On the third and final issue, we accord due respect to the appellate court and
respondent Commission on their common factual finding, i.e., that Attorney Misa
did not act in bad faith. Public respondents viewed his withdrawal to have been
spurred by "interpersonal conflict" among the partners. It would not be right, we
agree, to let any of the partners remain in the partnership under such an
atmosphere of animosity; certainly, not against their will. 12 Indeed, for as long
as the reason for withdrawal of a partner is not contrary to the dictates of justice
and fairness, nor for the purpose of unduly visiting harm and damage upon the
partnership, bad faith cannot be said to characterize the act. Bad faith, in the
context here used, is no different from its normal concept of a conscious and
intentional design to do a wrongful act for a dishonest purpose or moral obliquity.

WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on

costs.
SO ORDERED.