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

BACORRO, petitioners, vs. HON. COURT OF APPEALS, SECURITIES AND

1995-07-03 | G.R. No. 109248

DECISION

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 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
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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 of
P100,00.00;

'5. Order the respondents to pay petitioner moral damages with the amount of P500,000.00 and
exemplary damages in the amount of P20,000.00.

'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
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winding up of its affairs. On 04 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 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
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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 of 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
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The term "retirement" must have been used in the articles, as we so hold, in a generic sense to mean
the dissociation by a partner, inclusive of resignation or withdrawal, from the partnership that thereby
dissolves it.

On the third and final issue, we accord due respect to the appellate court and respondent Commission
on their common factual finding, i. e., that Attorney Misa did not act in bad faith. Public respondents
viewed his withdrawal to have been spurred by "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.

Feliciano, Romero, Melo and Francisco, JJ., concur.

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Footnotes

1. Rollo, pp. 53-56.

"ART. 1837. When dissolution is caused in any way, except in contravention of the partnership
agreement, each partner, as against his co-partners and all persons claiming through them in respect of
their interests in the partnership, unless otherwise agreed, may have the partnership property applied to
discharge its liabilities, and the surplus applied to pay in cash the net amount owning to the respective
partners. But if dissolution is caused by expulsion of a partner, bona fide under the partnership
agreement and if the expelled partner is discharged from all partnership liabilities, either by payment or
agreement under the second paragraph of Article 1835, he shall receive in cash only the net amount due
him from the partnership."
11. Rollo, pp. 69-70.
12. Rojas v. Maglana, supra.

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