CIR to Estanislao

7/30/2019 CIR to Estanislao

1/30

G.R. No. L-66653 June 19, 1986

COMMISSIONER OF INTERNAL REVENUE, petitioner,vs.BURROUGHS LIMITED AND THE COURT OF TAX APPEALS, respondents.

Sycip, Salazar, Feliciano & Hernandez Law Office for private respondent.

PARAS, J.:

Petition for certiorari to review and set aside the Decision dated June 27, 1983 of respondent Courtof Tax Appeals in its C.T.A. Case No. 3204, entitled "Burroughs Limited vs. Commissioner ofInternal Revenue"which ordered petitioner Commissioner of Internal Revenue to grant in favor ofprivate respondent Burroughs Limited, tax credit in the sum of P172,058.90, representingerroneously overpaid branch profit remittance tax.

Burroughs Limited is a foreign corporation authorized to engage in trade or business in thePhilippines through a branch office located at De la Rosa corner Esteban Streets, Legaspi Village,Makati, Metro Manila.

Sometime in March 1979, said branch office applied with the Central Bank for authority to remit to itsparent company abroad, branch profit amounting to P7,647,058.00. Thus, on March 14, 1979, it paidthe 15% branch profit remittance tax, pursuant to Sec. 24 (b) (2) (ii) and remitted to its head officethe amount of P6,499,999.30 computed as follows:

Amount applied for remittance................................ P7,647,058.00

Deduct: 15% branch profit

remittance tax ..............................................1,147,058.70

Net amount actually remitted.................................. P6,499,999.30

Claiming that the 15% profit remittance tax should have been computed on the basis of the amountactually remitted (P6,499,999.30) and not on the amount before profit remittance tax(P7,647,058.00), private respondent filed on December 24, 1980, a written claim for the refund or taxcredit of the amount of P172,058.90 representing alleged overpaid branch profit remittance tax,computed as follows:

Profits actually remitted .........................................P6,499,999.30

Remittance tax rate .......................................................15%

Branch profit remittance tax-

due thereon ......................................................P 974,999.89

Branch profit remittance

1


2/30

tax paid .............................................................Pl,147,058.70

Less: Branch profit remittance

tax as above computed................................................. 974,999.89

Total amount refundable........................................... P172,058.81

On February 24, 1981, private respondent filed with respondent court, a petition for review, docketedas C.T.A. Case No. 3204 for the recovery of the above-mentioned amount of P172,058.81.

On June 27, 1983, respondent court rendered its Decision, the dispositive portion of which reads

ACCORDINGLY, respondent Commission of Internal Revenue is hereby ordered to grant a taxcredit in favor of petitioner Burroughs Limited the amount of P 172,058.90. Without pronouncementas to costs.

SO ORDERED.

Unable to obtain a reconsideration from the aforesaid decision, petitioner filed the instant petitionbefore this Court with the prayers as herein earlier stated upon the sole issue of whether the taxbase upon which the 15% branch profit remittance tax shall be imposed under the provisions ofsection 24(b) of the Tax Code, as amended, is the amount applied for remittance on the profitactually remitted after deducting the 15% profit remittance tax. Stated differently is privaterespondent Burroughs Limited legally entitled to a refund of the aforementioned amount ofP172,058.90.

We rule in the affirmative. The pertinent provision of the National Revenue Code is Sec. 24 (b) (2) (ii)which states:

Sec. 24. Rates of tax on corporations....

(b) Tax on foreign corporations. ...

(2) (ii) Tax on branch profits remittances. Any profit remitted abroad by a branch to itshead office shall be subject to a tax of fifteen per cent (15 %) ...

In a Bureau of Internal Revenue ruling dated January 21, 1980 by then Acting Commissioner ofInternal Revenue Hon. Efren I. Plana the aforequoted provision had been interpreted to mean that"the tax base upon which the 15% branch profit remittance tax ... shall be imposed...(is) theprofit actually remittedabroad and not on the total branch profits out of which the remittance is to bemade. " The said ruling is hereinbelow quoted as follows:

In reply to your letter of November 3, 1978, relative to your query as to the tax baseupon which the 15% branch profits remittance tax provided for under Section 24 (b)(2) of the 1977 Tax Code shall be imposed, please be advised that the 15% branchprofit tax shall be imposed on the branch profits actually remitted abroad and not onthe total branch profits out of which the remittance is to be made.

Please be guided accordingly.

2


3/30

Applying, therefore, the aforequoted ruling, the claim of private respondent that it made anoverpayment in the amount of P172,058.90 which is the difference between the remittance taxactually paid of Pl,147,058.70 and the remittance tax that should have been paid of P974,999,89,computed as follows

Profits actually remitted......................................... P6,499,999.30

Remittance tax rate.............................................................. 15%

Remittance tax due................................................... P974,999.89

is well-taken. As correctly held by respondent Court in its assailed decision-

Respondent concedes at least that in his ruling dated January 21, 1980 he held thatunder Section 24 (b) (2) of the Tax Code the 15% branch profit remittance tax shallbe imposed on the profit actually remitted abroad and not on the total branch profitout of which the remittance is to be made. Based on such ruling petitioner shouldhave paid only the amount of P974,999.89 in remittance tax computed by taking the

15% of the profits of P6,499,999.89 in remittance tax actually remitted to its headoffice in the United States, instead of Pl,147,058.70, on its net profits ofP7,647,058.00. Undoubtedly, petitioner has overpaid its branch profit remittance taxin the amount of P172,058.90.

Petitioner contends that respondent is no longer entitled to a refund because Memorandum CircularNo. 8-82 dated March 17, 1982 had revoked and/or repealed the BIR ruling of January 21, 1980.The said memorandum circular states

Considering that the 15% branch profit remittance tax is imposed and collected atsource, necessarily the tax base should be the amount actually applied for by thebranch with the Central Bank of the Philippines as profit to be remitted abroad.

Petitioner's aforesaid contention is without merit. What is applicable in the case at bar is still theRevenue Ruling of January 21, 1980 because private respondent Burroughs Limited paid the branchprofit remittance tax in question on March 14, 1979. Memorandum Circular No. 8-82 dated March17, 1982 cannot be given retroactive effect in the light of Section 327 of the National InternalRevenue Code which provides-

Sec. 327. Non-retroactivity of rulings. Any revocation, modification, or reversal of anyof the rules and regulations promulgated in accordance with the preceding section orany of the rulings or circulars promulgated by the Commissioner shag not be givenretroactive application if the revocation, modification, or reversal will be prejudicial tothe taxpayer except in the following cases (a) where the taxpayer deliberatelymisstates or omits material facts from his return or in any document required of himby the Bureau of Internal Revenue; (b) where the facts subsequently gathered by theBureau of Internal Revenue are materially different from the facts on which the rulingis based, or (c) where the taxpayer acted in bad faith. (ABS-CBN Broadcasting Corp.v. CTA, 108 SCRA 151-152)

The prejudice that would result to private respondent Burroughs Limited by a retroactive applicationof Memorandum Circular No. 8-82 is beyond question for it would be deprived of the substantial

3


4/30

amount of P172,058.90. And, insofar as the enumerated exceptions are concerned, admittedly,Burroughs Limited does not fall under any of them.

WHEREFORE, the assailed decision of respondent Court of Tax Appeals is hereby AFFIRMED. Nopronouncement as to costs.

SO ORDERED.

4


5/30

G.R. No. L-25532 February 28, 1969

COMMISSIONER OF INTERNAL REVENUE, petitioner,vs.WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.

Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Roseteand Special Attorneys B. Gatdula, Jr. and T. Temprosa Jr. for petitioner.

A. S. Monzon, Gutierrez, Farrales and Ong for respondents.

REYES, J.B.L., J.:

A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30September 1947 by herein respondent William J. Suter as the general partner, and Julia Spirig andGustav Carlson, as the limited partners. The partners contributed, respectively, P20,000.00,P18,000.00 and P2,000.00 to the partnership. On 1 October 1947, the limited partnership was

registered with the Securities and Exchange Commission. The firm engaged, among other activities,in the importation, marketing, distribution and operation of automatic phonographs, radios, televisionsets and amusement machines, their parts and accessories. It had an office and held itself out as alimited partnership, handling and carrying merchandise, using invoices, bills and letterheads bearingits trade-name, maintaining its own books of accounts and bank accounts, and had a quotaallocation with the Central Bank.

In 1948, however, general partner Suter and limited partner Spirig got married and, thereafter,on 18 December 1948, limited partner Carlson sold his share in the partnership to Suter and hiswife. The sale was duly recorded with the Securities and Exchange Commission on 20 December1948.

The limited partnership had been filing its income tax returns as a corporation, withoutobjection by the herein petitioner, Commissioner of Internal Revenue, until in 1959 when the latter, inan assessment, consolidated the income of the firm and the individual incomes of the partners-spouses Suter and Spirig resulting in a determination of a deficiency income tax against respondentSuter in the amount of P2,678.06 for 1954 and P4,567.00 for 1955.

Respondent Suter protested the assessment, and requested its cancellation and withdrawal,as not in accordance with law, but his request was denied. Unable to secure a reconsideration, heappealed to the Court of Tax Appeals, which court, after trial, rendered a decision, on 11 November1965, reversing that of the Commissioner of Internal Revenue.

The present case is a petition for review, filed by the Commissioner of Internal Revenue, of

the tax court's aforesaid decision. It raises these issues:

(a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co., Ltd. shouldbe disregarded for income tax purposes, considering that respondent William J. Suter and his wife,Julia Spirig Suter actually formed a single taxable unit; and

(b) Whether or not the partnership was dissolved after the marriage of the partners,respondent William J. Suter and Julia Spirig Suter and the subsequent sale to them by the remaining

5


6/30

partner, Gustav Carlson, of his participation of P2,000.00 in the partnership for a nominal amount ofP1.00.

The theory of the petitioner, Commissioner of Internal Revenue, is that the marriage of Suterand Spirig and their subsequent acquisition of the interests of remaining partner Carlson in thepartnership dissolved the limited partnership, and if they did not, the fiction of juridical personality of

the partnership should be disregarded for income tax purposes because the spouses have exclusiveownership and control of the business; consequently the income tax return of respondent Suter forthe years in question should have included his and his wife's individual incomes and that of thelimited partnership, in accordance with Section 45 (d) of the National Internal Revenue Code, whichprovides as follows:

(d) Husband and wife. In the case of married persons, whether citizens, residents ornon-residents, only one consolidated return for the taxable year shall be filed by eitherspouse to cover the income of both spouses; ....

In refutation of the foregoing, respondent Suter maintains, as the Court of Tax Appeals held,that his marriage with limited partner Spirig and their acquisition of Carlson's interests in the

partnership in 1948 is not a ground for dissolution of the partnership, either in the Code ofCommerce or in the New Civil Code, and that since its juridical personality had not been affectedand since, as a limited partnership, as contra distinguished from a duly registered generalpartnership, it is taxable on its income similarly with corporations, Suter was not bound to include inhis individual return the income of the limited partnership.

We find the Commissioner's appeal unmeritorious.

The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has beendissolved by operation of law because of the marriage of the only general partner, William J. Suter tothe originally limited partner, Julia Spirig one year after the partnership was organized is rested bythe appellant upon the opinion of now Senator Tolentino in Commentaries and Jurisprudence onCommercial Laws of the Philippines, Vol. 1, 4th Ed., page 58, that reads as follows:

A husband and a wife may not enter into a contract ofgeneralcopartnership, becauseunder the Civil Code, which applies in the absence of express provision in the Code ofCommerce, persons prohibited from making donations to each other are prohibited fromentering into universalpartnerships. (2 Echaverri 196) It follows that the marriage of partnersnecessarily brings about the dissolution of a pre-existing partnership. (1 Guy de Montella 58)

The petitioner-appellant has evidently failed to observe the fact that William J. Suter "Morcoin"Co., Ltd. wasnot a universalpartnership, but a particular one. As appears from Articles 1674 and1675 of the Spanish Civil Code, of 1889 (which was the law in force when the subject firm wasorganized in 1947), a universalpartnership requires either that the object of the association be allthe present propertyof the partners, as contributed by them to the common fund, or else "allthat the

partners may acquire by theirindustry or workduring the existence of the partnership". William J.Suter "Morcoin" Co., Ltd. was not such a universal partnership, since the contributions of thepartners were fixed sums of money, P20,000.00 by William Suter and P18,000.00 by Julia Spirig andneither one of them was an industrial partner. It follows that William J. Suter "Morcoin" Co., Ltd. wasnot a partnership that spouses were forbidden to enter by Article 1677 of the Civil Code of 1889.

The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his Derecho Civil,7th Edition, 1952, Volume 4, page 546, footnote 1, says with regard to the prohibition contained inthe aforesaid Article 1677:

6


7/30

Los conyuges, segun esto, no pueden celebrar entre si el contrato de sociedaduniversal, pero o podran constituir sociedad particular? Aunque el punto ha sido muydebatido, nos inclinamos a la tesis permisiva de los contratos de sociedad particular entreesposos, ya que ningun precepto de nuestro Codigo los prohibe, y hay que estar a la normageneral segun la que toda persona es capaz para contratar mientras no sea declaradoincapaz por la ley. La jurisprudencia de la Direccion de los Registros fue favorable a esta

misma tesis en su resolution de 3 de febrero de 1936, mas parece cambiar de rumbo en lade 9 de marzo de 1943.

Nor could the subsequent marriage of the partners operate to dissolve it, such marriage notbeing one of the causes provided for that purpose either by the Spanish Civil Code or the Code ofCommerce.

The appellant's view, that by the marriage of both partners the company became a singleproprietorship, is equally erroneous. The capital contributions of partners William J. Suter and JuliaSpirig were separately owned and contributed by them before their marriage; and after they were

joined in wedlock, such contributions remained their respective separate property under the SpanishCivil Code (Article 1396):

The following shall be the exclusive property of each spouse:

(a) That which is brought to the marriage as his or her own; ....

Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did notbecome common property of both after their marriage in 1948.

It being a basic tenet of the Spanish and Philippine law that the partnership has a juridicalpersonality of its own, distinct and separate from that of its partners (unlike American and Englishlaw that does not recognize such separate juridical personality), the bypassing of the existence ofthe limited partnership as a taxpayer can only be done by ignoring or disregarding clear statutory

mandates and basic principles of our law. The limited partnership's separate individuality makes itimpossible to equate its income with that of the component members. True, section 24 of the InternalRevenue Code merges registered general co-partnerships (compaias colectivas) with thepersonality of the individual partners for income tax purposes. But this rule is exceptional in itsdisregard of a cardinal tenet of our partnership laws, and can not be extended by mere implication tolimited partnerships.

The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the Visayas,L-13554, Resolution of 30 October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authorityfor disregarding the fiction of legal personality of the corporations involved therein are not applicableto the present case. In the cited cases, the corporations were already subjectto tax when the fictionof their corporate personality was pierced; in the present case, to do so would exemptthe limitedpartnership from income taxation but would throw the tax burden upon the partners-spouses in their

individual capacities. The corporations, in the cases cited, merely served as business conduitsoralter egos of the stockholders, a factor that justified a disregard of their corporate personalities fortax purposes. This is not true in the present case. Here, the limited partnership is not a merebusiness conduit of the partner-spouses; it was organized for legitimate business purposes; itconducted its own dealings with its customers prior to appellee's marriage, and had been filing itsown income tax returns as such independent entity. The change in its membership, brought about bythe marriage of the partners and their subsequent acquisition of all interest therein, is no ground forwithdrawing the partnership from the coverage of Section 24 of the tax code, requiring it to payincome tax. As far as the records show, the partners did not enter into matrimony and thereafter buy

7


8/30

the interests of the remaining partner with the premeditated scheme or design to use the partnershipas a business conduit to dodge the tax laws. Regularity, not otherwise, is presumed.

As the limited partnership under consideration is taxable on its income, to require that incometo be included in the individual tax return of respondent Suter is to overstretch the letter and intent ofthe law. In fact, it would even conflict with what it specifically provides in its Section 24: for the

appellant Commissioner's stand results in equal treatment, tax wise, of a general copartnership(compaia colectiva) and a limited partnership, when the code plainly differentiates the two. Thus,the code taxes the latter on its income, but not the former, because it is in the case ofcompaiascolectivas that the members, and not the firm, are taxable in their individual capacities for anydividend or share of the profit derived from the duly registered general partnership (Section 26,N.I.R.C.; Araas, Anno. & Juris. on the N.I.R.C., As Amended, Vol. 1, pp. 88-89). lawphi1.nt

But it is argued that the income of the limited partnership is actually or constructively theincome of the spouses and forms part of the conjugal partnership of gains. This is not wholly correct.

As pointed out in Agapito vs. Molo 50 Phil. 779, and People's Bank vs. Register of Deeds of Manila,60 Phil. 167, the fruits of the wife's parapherna become conjugal only when no longer needed todefray the expenses for the administration and preservation of the paraphernal capital of the wife.

Then again, the appellant's argument erroneously confines itself to the question of the legalpersonality of the limited partnership, which is not essential to the income taxability of thepartnership since the law taxes the income of even joint accounts that have no personality of theirown. 1Appellant is, likewise, mistaken in that it assumes that the conjugal partnership of gains is ataxable unit, which it is not. What is taxable is the "income of both spouses" (Section 45 [d] in theirindividual capacities. Though the amount of income (income of the conjugal partnership vis-a-vis the

joint income of husband and wife) may be the same for a given taxable year, their consequenceswould be different, as their contributions in the business partnership are not the same.

The difference in tax rates between the income of the limited partnership being consolidatedwith, and when split from the income of the spouses, is not a justification for requiring consolidation;the revenue code, as it presently stands, does not authorize it, and even bars it by requiring thelimited partnership to pay tax on its own income.

FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No costs.

8


9/30

July 30, 1979

PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME "SYCIP, SALAZAR,FELICIANO, HERNANDEZ & CASTILLO." LUCIANO E. SALAZAR, FLORENTINO P.FELICIANO, BENILDO G. HERNANDEZ. GREGORIO R. CASTILLO. ALBERTO P. SAN JUAN,

JUAN C. REYES. JR., ANDRES G. GATMAITAN, JUSTINO H. CACANINDIN, NOEL A. LAMAN,ETHELWOLDO E. FERNANDEZ, ANGELITO C. IMPERIO, EDUARDO R. CENIZA, TRISTAN A.CATINDIG, ANCHETA K. TAN, and ALICE V. PESIGAN, petitioners.

IN THE MATTER OF THE PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME"OZAETA, ROMULO, DE LEON, MABANTA & REYES." RICARDO J. ROMULO, BENJAMIN M.DE LEON, ROMAN MABANTA, JR., JOSE MA, REYES, JESUS S. J. SAYOC, EDUARDO DELOS ANGELES, and JOSE F. BUENAVENTURA, petitioners.

R E S O L U T I O N

MELENCIO-HERRERA, J.:+.wph!1

Two separate Petitions were filed before this Court 1) by the surviving partners of Atty. AlexanderSycip, who died on May 5, 1975, and 2) by the surviving partners of Atty. Herminio Ozaeta, who diedon February 14, 1976, praying that they be allowed to continue using, in the names of their firms, thenames of partners who had passed away. In the Court's Resolution of September 2, 1976, bothPetitions were ordered consolidated.

Petitioners base their petitions on the following arguments:

1. Under the law, a partnership is not prohibited from continuing its business under a firm namewhich includes the name of a deceased partner; in fact, Article 1840 of the Civil Code explicitlysanctions the practice when it provides in the last paragraph that: t.hqw

The use by the person or partnership continuing the business of the partnership name,orthe name of a deceased partner as part thereof, shall not of itself make the individualproperty of the deceased partner liable for any debts contracted by such person orpartnership. 1

2. In regulating other professions, such as accountancy and engineering, the legislature hasauthorized the adoption of firm names without any restriction as to the use, in such firm name, of thename of a deceased partner; 2 the legislative authorization given to those engaged in the practice ofaccountancy a profession requiring the same degree of trust and confidence in respect of clientsas that implicit in the relationship of attorney and client to acquire and use a trade name, stronglyindicates that there is no fundamental policy that is offended by the continued use by a firm ofprofessionals of a firm name which includes the name of a deceased partner, at least where suchfirm name has acquired the characteristics of a "trade name." 3

3. The Canons of Professional Ethics are not transgressed by the continued use of the name of adeceased partner in the firm name of a law partnership because Canon 33 of the Canons ofProfessional Ethics adopted by the American Bar Association declares that: t.hqw

9


10/30

... The continued use of the name of a deceased or former partner when permissible bylocal custom, is not unethical but care should be taken that no imposition or deception ispracticed through this use. ... 4

4. There is no possibility of imposition or deception because the deaths of their respective deceasedpartners were well-publicized in all newspapers of general circulation for several days; the

stationeries now being used by them carry new letterheads indicating the years when theirrespective deceased partners were connected with the firm; petitioners will notify all leading nationaland international law directories of the fact of their respective deceased partners' deaths. 5

5. No local custom prohibits the continued use of a deceased partner's name in a professional firm'sname; 6 there is no custom or usage in the Philippines, or at least in the Greater Manila Area, whichrecognizes that the name of a law firm necessarily Identifies the individual members of the firm. 7

6. The continued use of a deceased partner's name in the firm name of law partnerships has beenconsistently allowed by U.S. Courts and is an accepted practice in the legal profession of mostcountries in the world. 8

The question involved in these Petitions first came under consideration by this Court in 1953 when alaw firm in Cebu (the Deen case) continued its practice of including in its firm name that of adeceased partner, C.D. Johnston. The matter was resolved with this Court advising the firm to desistfrom including in their firm designation the name of C. D. Johnston, who has long been dead."

The same issue was raised before this Court in 1958 as an incident in G. R. No. L-11964, entitledRegister of Deeds of Manila vs. China Banking Corporation. The law firm of Perkins & Ponce Enrilemoved to intervene asamicus curiae. Before acting thereon, the Court, in a Resolution of April 15,1957, stated that it "would like to be informed why the name of Perkins is still being used although

Atty. E. A. Perkins is already dead." In a Manifestation dated May 21, 1957, the law firm of Perkinsand Ponce Enrile, raising substantially the same arguments as those now being raised bypetitioners, prayed that the continued use of the firm name "Perkins & Ponce Enrile" be held proper.

On June 16, 1958, this Court resolved: t.hqw

After carefully considering the reasons given by Attorneys Alfonso Ponce Enrile andAssociates for their continued use of the name of the deceased E. G. Perkins, theCourt found no reason to depart from the policy it adopted in June 1953 when itrequired Attorneys Alfred P. Deen and Eddy A. Deen of Cebu City to desist fromincluding in their firm designation, the name of C. D. Johnston, deceased. The Courtbelieves that, in view of the personal and confidential nature of the relations betweenattorney and client, and the high standards demanded in the canons of professionalethics, no practice should be allowed which even in a remote degree could give riseto the possibility of deception. Said attorneys are accordingly advised to drop thename "PERKINS" from their firm name.

Petitioners herein now seek a re-examination of the policy thus far enunciated by the Court.

The Court finds no sufficient reason to depart from the rulings thus laid down.

A. Inasmuch as "Sycip, Salazar, Feliciano, Hernandez and Castillo" and "Ozaeta, Romulo, De Leon,Mabanta and Reyes" are partnerships, the use in their partnership names of the names of deceasedpartners will run counter to Article 1815 of the Civil Code which provides: t.hqw

10


11/30

Art. 1815. Every partnership shall operate under a firm name, which may or may notinclude the name of one or more of the partners.

Those who, not being members of the partnership, include their names in the firmname, shall be subject to the liability, of a partner.

It is clearly tacit in the above provision that names in a firm name of a partnership must either bethose of living partners and. in the case of non-partners, should be living persons who can besubjected to liability. In fact, Article 1825 of the Civil Code prohibits a third person from including hisname in the firm name under pain of assuming the liability of a partner. The heirs of a deceasedpartner in a law firm cannot be held liable as the old members to the creditors of a firm particularlywhere they are non-lawyers. Thus, Canon 34 of the Canons of Professional Ethics "prohibits anagreement for the payment to the widow and heirs of a deceased lawyer of a percentage, eithergross or net, of the fees received from the future business of the deceased lawyer's clients, bothbecause the recipients of such division are not lawyers and because such payments will notrepresent service or responsibility on the part of the recipient. " Accordingly, neither the widow northe heirs can be held liable for transactions entered into after the death of their lawyer-predecessor.There being no benefits accruing, there ran be no corresponding liability.

Prescinding the law, there could be practical objections to allowing the use by law firms of the namesof deceased partners. The public relations value of the use of an old firm name can tend to createundue advantages and disadvantages in the practice of the profession. An able lawyer withoutconnections will have to make a name for himself starting from scratch. Another able lawyer, whocan join an old firm, can initially ride on that old firm's reputation established by deceased partners.

B. In regards to the last paragraph of Article 1840 of the Civil Code cited by petitioners, supra, thefirst factor to consider is that it is within Chapter 3 of Title IX of the Code entitled "Dissolution andWinding Up." The Article primarily deals with the exemption from liability in cases of a dissolvedpartnership, of the individual property of the deceased partner for debts contracted by the person orpartnership which continues the business using the partnership name or the name of the deceasedpartner as part thereof. What the law contemplates therein is a hold-over situation preparatory to

formal reorganization.

Secondly, Article 1840 treats more of a commercialpartnership with a good will to protect rather thanof aprofessionalpartnership, with no saleable good will but whose reputation depends on thepersonal qualifications of its individual members. Thus, it has been held that a saleable goodwill canexist only in a commercial partnership and cannot arise in a professional partnership consisting oflawyers. 9t.hqw

As a general rule, upon the dissolution of a commercial partnership the succeedingpartners or parties have the right to carry on the business under the old name, in theabsence of a stipulation forbidding it, (s)ince the name of a commercial partnership isa partnership asset inseparable from the good will of the firm. ... (60 Am Jur 2d, s

204, p. 115) (Emphasis supplied)

On the other hand, t.hqw

... a professional partnership the reputation of which depends or; the individual skill ofthe members, such as partnerships of attorneys or physicians, has no good win to bedistributed as a firm asset on its dissolution, however intrinsically valuable such skilland reputation may be, especially where there is no provision in the partnership

11


12/30

agreement relating to good will as an asset. ... (ibid, s 203, p. 115) (Emphasissupplied)

C. A partnership for the practice of law cannot be likened to partnerships formed by otherprofessionals or for business. For one thing, the law on accountancy specifically allows the use of atrade name in connection with the practice of accountancy. 10t.hqw

A partnership for the practice of law is not a legal entity. It is a mere relationship orassociation for a particular purpose. ... It is not a partnership formed for the purpose ofcarrying on trade or business or of holding property." 11 Thus, it has been stated that "theuse of a nom de plume, assumed or trade name in law practice is improper. 12

The usual reason given for different standards of conduct being applicable to thepractice of law from those pertaining to business is that the law is a profession.

Dean Pound, in his recently published contribution to the Survey of the LegalProfession, (The Lawyer from Antiquity to Modern Times, p. 5) defines a professionas "a group of men pursuing a learned art as a common calling in the spirit of public

service, no less a public service because it may incidentally be a means oflivelihood."

xxx xxx xxx

Primary characteristics which distinguish the legal profession from business are:

1. A duty of public service, of which the emolument is a byproduct, and in which onemay attain the highest eminence without making much money.

2. A relation as an "officer of court" to the administration of justice involving thoroughsincerity, integrity, and reliability.

3. A relation to clients in the highest degree fiduciary.

4. A relation to colleagues at the bar characterized by candor, fairness, and unwillingnessto resort to current business methods of advertising and encroachment on their practice,or dealing directly with their clients. 13

"The right to practice law is not a natural or constitutional right but is in the nature of a privilege orfranchise. 14 It is limited to persons of good moral character with special qualifications dulyascertained and certified. 15 The right does not only presuppose in its possessor integrity, legalstanding and attainment, but also the exercise of a special privilege, highly personaland partaking ofthe nature of a public trust." 16

D. Petitioners cited Canon 33 of the Canons of Professional Ethics of the American Bar Association"in support of their petitions.

It is true that Canon 33 does not consider as unethicalthe continued use of the name of a deceasedor former partner in the firm name of a law partnership when such a practice ispermissible by localcustom but the Canon warns that care should be taken that no imposition or deception is practicedthrough this use.

12


13/30

It must be conceded that in the Philippines, no local custompermits or allows the continued use of adeceased or former partner's name in the firm names of law partnerships. Firm names, under ourcustom, Identify the more active and/or more senior members or partners of the law firm. A glimpseat the history of the firms of petitioners and of other law firms in this country would show how theirfirm names have evolved and changed from time to time as the composition of the partnershipchanged. t.hqw

The continued use of a firm name after the death of one or more of the partnersdesignated by it is proper only where sustained by local custom and not where bycustom this purports to Identify the active members. ...

There would seem to be a question, under the working of the Canon, as to thepropriety of adding the name of a new partner and at the same time retaining that ofa deceased partnerwho was never a partner with the new one. (H.S. Drinker, op.cit., supra, at pp. 207208) (Emphasis supplied).

The possibility of deception upon the public, real or consequential, where the name of a deceasedpartner continues to be used cannot be ruled out. A person in search of legal counsel might be

guided by the familiar ring of a distinguished name appearing in a firm title.

E. Petitioners argue that U.S. Courts have consistently allowed the continued use of a deceasedpartner's name in the firm name of law partnerships. But that is so because it is sanctioned bycustom.

In the case ofMendelsohn v. Equitable Life Assurance Society(33 N.Y.S. 2d 733) which petitionersSalazar, et al. quoted in their memorandum, the New York Supreme Court sustained the use of thefirm name Alexander & Green even if none of the present ten partners of the firm bears eithername because the practice was sanctioned by custom and did not offend any statutory provision orlegislative policy and was adopted by agreement of the parties. The Court stated therein: t.hqw

The practice sought to be proscribed has the sanction of custom and offends nostatutory provision or legislative policy. Canon 33 of the Canons of ProfessionalEthics of both the American Bar Association and the New York State Bar Associationprovides in part as follows: "The continued use of the name of a deceased or formerpartner, when permissible by local custom is not unethical, but care should be takenthat no imposition or deception is practiced through this use." There is no questionas to local custom. Many firms in the city use the names of deceased members withthe approval of other attorneys, bar associations and the courts. The AppellateDivision of the First Department has considered the matter and reached Theconclusion that such practice should not be prohibited. (Emphasis supplied)

xxx xxx xxx

Neither the Partnership Law nor the Penal Law prohibits the practice in question. The useof the firm name herein is also sustainable by reason of agreement between thepartners. 18

Not so in this jurisdiction where there is no local custom that sanctions the practice. Custom hasbeen defined as a rule of conduct formed by repetition of acts, uniformly observed (practiced) as asocial rule, legally binding and obligatory. 19 Courts take no judicial notice of custom. A custom mustbe proved as a fact, according to the rules of evidence. 20 A local custom as a source of right cannotbe considered by a court of justice unless such custom is properly established by competent

13


14/30

evidence like any other fact. 21We find such proof of the existence of a local custom, and of theelements requisite to constitute the same, wanting herein. Merely because something is done as amatter of practice does not mean that Courts can rely on the same for purposes of adjudication as a

juridical custom. Juridical custom must be differentiated from social custom. The former cansupplement statutory law or be applied in the absence of such statute. Not so with the latter.

Moreover, judicial decisions applying or interpreting the laws form part of the legal system. 22 Whenthe Supreme Court in the Deen and Perkins cases issued its Resolutions directing lawyers to desistfrom including the names of deceased partners in their firm designation, it laid down a legal ruleagainst which no custom or practice to the contrary, even if proven, can prevail. This is not to speakof our civil law which clearly ordains that a partnership is dissolved by the death of anypartner. 23Custom which are contrary to law, public order or public policy shall not becountenanced. 24

The practice of law is intimately and peculiarly related to the administration of justice and should notbe considered like an ordinary "money-making trade." t.hqw

... It is of the essence of a profession that it is practiced in a spirit of public service. A

trade ... aims primarily at personal gain; a profession at the exercise of powers beneficialto mankind. If, as in the era of wide free opportunity, we think of free competitive selfassertion as the highest good, lawyer and grocer and farmer may seem to be freelycompeting with their fellows in their calling in order each to acquire as much of the world'sgood as he may within the allowed him by law. But the member of a profession does notregard himself as in competition with his professional brethren. He is not bartering hisservices as is the artisan nor exchanging the products of his skill and learning as thefarmer sells wheat or corn. There should be no such thing as a lawyers' or physicians'strike. The best service of the professional man is often rendered for no equivalent or fora trifling equivalent and it is his pride to do what he does in a way worthy of his professioneven if done with no expectation of reward, This spirit of public service in which theprofession of law is and ought to be exercised is a prerequisite of sound administration of

justice according to law. The other two elements of a profession, namely, organizationand pursuit of a learned art have their justification in that they secure and maintain that

spirit. 25

In fine, petitioners' desire to preserve the Identity of their firms in the eyes of the public must bow tolegal and ethical impediment.

ACCORDINGLY, the petitions filed herein are denied and petitioners advised to drop the names"SYCIP" and "OZAETA" from their respective firm names. Those names may, however, be includedin the listing of individuals who have been partners in their firms indicating the years during whichthey served as such.

SO ORDERED.

Teehankee, Concepcion, Jr., Santos, Fernandez, Guerrero and De Castro, JJ., concur

Fernando, C.J. and Abad Santos, J., took no part.

Separate Opinions

14


15/30

FERNANDO, C.J., concurring:

The petitions are denied, as there are only four votes for granting them, seven of the Justices beingof the contrary view, as explained in the plurality opinion of Justice Ameurfina Melencio-Herrera. It is

out of delicadeza that the undersigned did not participate in the disposition of these petitions, as thelaw office of Sycip, Salazar, Feliciano, Hernandez and Castillo started with the partnership ofQuisumbing, Sycip, and Quisumbing, the senior partner, the late Ramon Quisumbing, being thefather-in-law of the undersigned, and the most junior partner then, Norberto J. Quisumbing, being hisbrother- in-law. For the record, the undersigned wishes to invite the attention of all concerned, andnot only of petitioners, to the last sentence of the opinion of Justice Ameurfina Melencio-Herrera:'Those names [Sycip and Ozaeta] may, however, be included in the listing of individuals wtes

AQUINO, J., dissenting:

I dissent. The fourteen members of the law firm, Sycip, Salazar, Feliciano, Hernandez & Castillo, intheir petition of June 10, 1975, prayed for authority to continue the use of that firm name,

notwithstanding the death of Attorney Alexander Sycip on May 5, 1975 (May he rest in peace). Hewas the founder of the firm which was originally known as the Sycip Law Office.

On the other hand, the seven surviving partners of the law firm, Ozaeta, Romulo, De Leon, Mabanta& Reyes, in their petition of August 13, 1976, prayed that they be allowed to continue using the saidfirm name notwithstanding the death of two partners, former Justice Roman Ozaeta and his son,Herminio, on May 1, 1972 and February 14, 1976, respectively.

They alleged that the said law firm was a continuation of the Ozaeta Law Office which wasestablished in 1957 by Justice Ozaeta and his son and that, as to the said law firm, the nameOzaeta has acquired an institutional and secondary connotation.

Article 1840 of the Civil Code, which speaks of the use by the partnership of the name of a deceasedpartner as part of the partnership name, is cited to justify the petitions. Also invoked is the canon thatthe continued use by a law firm of the name of a deceased partner, "when permissible by localcustom, is not unethical" as long as "no imposition or deception is practised through this use"(Canon 33 of the Canons of Legal Ethics).

I am of the opinion that the petition may be granted with the condition that it be indicated in theletterheads of the two firms (as the case may be) that Alexander Sycip, former Justice Ozaeta andHerminio Ozaeta are dead or the period when they served as partners should be stated therein.

Obviously, the purpose of the two firms in continuing the use of the names of their deceasedfounders is to retain the clients who had customarily sought the legal services of Attorneys Sycip andOzaeta and to benefit from the goodwill attached to the names of those respected and esteemed lawpractitioners. That is a legitimate motivation.

The retention of their names is not illegal per se. That practice was followed before the war by thelaw firm of James Ross. Notwithstanding the death of Judge Ross the founder of the law firm ofRoss, Lawrence, Selph and Carrascoso, his name was retained in the firm name with an indicationof the year when he died. No one complained that the retention of the name of Judge Ross in thefirm name was illegal or unethical.

15


16/30

# Separate Opinions

FERNANDO, C.J., concurring:

The petitions are denied, as there are only four votes for granting them, seven of the Justices beingof the contrary view, as explained in the plurality opinion of Justice Ameurfina Melencio-Herrera. It isout of delicadeza that the undersigned did not participate in the disposition of these petitions, as thelaw office of Sycip, Salazar, Feliciano, Hernandez and Castillo started with the partnership ofQuisumbing, Sycip, and Quisumbing, the senior partner, the late Ramon Quisumbing, being thefather-in-law of the undersigned, and the most junior partner then, Norberto J. Quisumbing, being hisbrother- in-law. For the record, the undersigned wishes to invite the attention of all concerned, andnot only of petitioners, to the last sentence of the opinion of Justice Ameurfina Melencio-Herrera:'Those names [Sycip and Ozaeta] may, however, be included in the listing of individuals wtes

AQUINO, J., dissenting:

I dissent. The fourteen members of the law firm, Sycip, Salazar, Feliciano, Hernandez & Castillo, intheir petition of June 10, 1975, prayed for authority to continue the use of that firm name,notwithstanding the death of Attorney Alexander Sycip on May 5, 1975 (May he rest in peace). Hewas the founder of the firm which was originally known as the Sycip Law Office.

On the other hand, the seven surviving partners of the law firm, Ozaeta, Romulo, De Leon, Mabanta& Reyes, in their petition of August 13, 1976, prayed that they be allowed to continue using the saidfirm name notwithstanding the death of two partners, former Justice Roman Ozaeta and his son,Herminio, on May 1, 1972 and February 14, 1976, respectively.

They alleged that the said law firm was a continuation of the Ozaeta Law Office which wasestablished in 1957 by Justice Ozaeta and his son and that, as to the said law firm, the name

Ozaeta has acquired an institutional and secondary connotation.

Article 1840 of the Civil Code, which speaks of the use by the partnership of the name of a deceasedpartner as part of the partnership name, is cited to justify the petitions. Also invoked is the canon thatthe continued use by a law firm of the name of a deceased partner, "when permissible by localcustom, is not unethical" as long as "no imposition or deception is practised through this use"(Canon 33 of the Canons of Legal Ethics).

I am of the opinion that the petition may be granted with the condition that it be indicated in theletterheads of the two firms (as the case may be) that Alexander Sycip, former Justice Ozaeta andHerminio Ozaeta are dead or the period when they served as partners should be stated therein.

Obviously, the purpose of the two firms in continuing the use of the names of their deceasedfounders is to retain the clients who had customarily sought the legal services of Attorneys Sycip andOzaeta and to benefit from the goodwill attached to the names of those respected and esteemed lawpractitioners. That is a legitimate motivation.

The retention of their names is not illegal per se. That practice was followed before the war by thelaw firm of James Ross. Notwithstanding the death of Judge Ross the founder of the law firm ofRoss, Lawrence, Selph and Carrascoso, his name was retained in the firm name with an indication

16


17/30

of the year when he died. No one complained that the retention of the name of Judge Ross in thefirm name was illegal or unethical.

#Footnotes t.hqw

1 See Memorandum of Salazar, et al., p. 5: see also Petition of Romulo, et al., p. 3.

2 Citing Sec, 16-A, Public Act No. 3105, as amended by Commonwealth Act No.342; Sec. 39, Commonwealth Act No. 294; Sec. 23, Republic Act No. 318; Sec. 39,Republic Act No. 184.

3 Memorandum of Salazar, et al., pp. 7-8.

4 Memorandum of Salazar, et al., pp. 8-10; Petition of Romulo, et al., pp. 3- 4.

5 Memorandum of Salazar, et al., p. 13; Petition of Romulo, et al., p. 4.

6 Petition of Romulo, et al., p. 4.

7 Memorandum of Salazar, et al., p. 11.

8 Memorandum of Salazar, et al., pp. 6-7 and pp. 16-18; Petition of Romulo. et al., p,5.

9 Seddal vs. Keating, 8 App. Div. 2d 44, 185 NYS 2d 630, affd 7 NY 2d 846, 196NYS 2d 986, 164 NE 2d 860.

10 Section 16-A, Commonwealth Act No. 342.

11 In re Crawford's Estate, 184 NE 2d 779, 783.

12 H.S. Drinker, Legal Ethics (1953), p. 206; see also Canon 33, par. 2, Canons ofProfessional Ethics.

13 H.S, Drinker, Legal Ethics (1953) pp. 4-5.

14 7 C.J.S. 708.

15 Am Jur 270.

16 In re Lavine, 41 P2d 161, all cited in Martin, Legal and Judicial Ethics, Fifth Ed., p.

8.

17 Canons 1 to 32 which were adopted by the American Bar Association in 1908were also adopted by the Philippine Bar Association in 1917. The American Bar

Association adopted Canons 33 to 45 in 1928, Canon 46 in 1933 and Canon 47 in1937. On April 20, 1946, when Canons 33 to 47 where already in effect, the RevisedConstitution of the Philippine Bar Association was approved and it provided that the

Association "adopts and makes its own the Code of Ethics of the American BarAssociation." (Martin, Legal and Judicial Ethics, Fifth Ed. p, 341).

17


18/30

18 33 N.Y.S. 2d 733, 734.

19 JBL Reyes & RC Puno, Outline of Philippine Civil Law. Fourth Ed., Vol. I, p. 7

20 Article 12, Civil Code.

21 Patriarca vs. Orate, 7 Phil. 390, 395 (1907).

22 Art. 8, Civil Code

23 Art. 1830, Civil Code.


25 Roscoe Pound, The Lawyer From Antiquity To Modern Times, (1953), pp. 9-10.

18


19/30

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 26February 1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in toto that of the Securities andExchange 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 theMercantile Registry on 4 January 1937 and reconstituted with the Securities and ExchangeCommission on 4 August 1948. The SEC records show that there were several subsequentamendments 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 andMariano M. Lozada associated themselves together, as senior partners with respondents-

appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as juniorpartners.

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, effectiveat the end of this month.

"I trust that the accountants will be instructed to make the proper liquidationof 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 ofyou with regard to the mechanics of liquidation, and more particularly, myinterest in the two floors of this building. I would like to have this resolvedsoon because it has to do with my own plans."

On 19 February 1988, petitioner-appellant wrote respondents-appellees another letterstating:

19


20/30

"The partnership has ceased to be mutually satisfactory because of theworking conditions of our employees including the assistant attorneys. All myefforts to ameliorate the below subsistence level of the pay scale of ouremployees have been thwarted by the other partners. Not only have theyrefused to give meaningful increases to the employees, even attorneys, aredressed 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 andClearing Department (SICD) a petition for dissolution and liquidation of partnership, docketedas SEC Case No. 3384 praying that the Commission:

"1. Decree the formal dissolution and order the immediate liquidation of (thepartnership of) Bito, Misa & Lozada;

"2. Order the respondents to deliver or pay for petitioner's share in thepartnership 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 inany of their correspondence, checks and pleadings and to pay petitionersdamages for the use thereof despite the dissolution of the partnership in theamount of at least P50,000.00;

"4. Order respondents jointly and severally to pay petitioner attorney's feesand expense of litigation in such amounts as maybe proven during the trialand which the Commission may deem just and equitable under the premisesbut in no case less than ten (10%) per cent of the value of the shares ofpetitioner or P100,000.00;

"5. Order the respondents to pay petitioner moral damages with the amountof P500,000.00 and exemplary damages in the amount of P200,000.00.

"Petitioner likewise prayed for such other and further reliefs that theCommission 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 notdissolve the said law partnership. Accordingly, the petitioner and respondentsare hereby enjoined to abide by the provisions of the Agreement relative tothe matter governing the liquidation of the shares of any retiring orwithdrawing partner in the partnership interest." 1

On appeal, the SEC en bancreversed the decision of the Hearing Officer and held that thewithdrawal of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa & Lozada." The

20


21/30

Commission ruled that, being a partnership at will, the law firm could be dissolved by any partner atanytime, such as by his withdrawal therefrom, regardless of good faith or bad faith, since no partnercan 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. Thecase is hereby REMANDED to the Hearing Officer for determination of the respective rights andobligations of the parties. 2

The parties sought a reconsideration of the above decision. Attorney Misa, in addition, asked for anappointment of a receiver to take over the assets of the dissolved partnership and to take charge ofthe winding up of its affairs. On 4 April 1991, respondent SEC issued an order denyingreconsideration, as well as rejecting the petition for receivership, and reiterating the remand of thecase to the Hearing Officer.

The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No. 24638 andCA-G.R. SP No. 24648).

During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and AttorneyMariano Lozada both died on, respectively, 05 September 1991 and 21 December 1991. The deathof the two partners, as well as the admission of new partners, in the law firm prompted Attorney Misato renew his application for receivership (in CA G.R. SP No. 24648). He expressed concern over theneed 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, perits decision of 26 February 1993, (a) that Atty. Misa's withdrawal from the partnership had changedthe relation of the parties and inevitably caused the dissolution of the partnership; (b) that suchwithdrawal was not in bad faith; (c) that the liquidation should be to the extent of Attorney Misa'sinterest 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 HearingOfficer for the corresponding determination of the value of Attorney Misa's share in the partnershipassets; and (e) that the appointment of a receiver was unnecessary as no sufficient proof had beenshown to indicate that the partnership assets were in any such danger of being lost, removed ormaterially impaired.

In this petition for review under Rule 45 of the Rules of Court, petitioners confine themselves to thefollowing 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 privaterespondent 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'sdemand for the dissolution of the partnership so that he can get a physical partition ofpartnership was not made in bad faith;

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

21


22/30

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 beunduly belabored. We quote, with approval, like did the appellate court, the findings and disquisitionof 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 mutuallysatisfactory 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 andhence 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 aslegal adviser and representative of any individual, firm and corporation

engaged in commercial, industrial or other lawful businesses andoccupations; to counsel and advise such persons and entities with respect totheir legal and other affairs; and to appear for and represent their principalsand client in all courts of justice and government departments and offices inthe 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 partnershipsfor a definite undertaking. There would therefore be no need to provide for articles on partnershipat 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 foundationand essence of that partnership. Its continued existence is, in turn, dependent on the constancy ofthat mutual resolve, along with each partner's capability to give it, and the absence of a cause fordissolution 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 theattendance of bad faith can prevent the dissolution of the partnership 4 but that it can result in aliability for damages. 5

In passing, neither would the presence of a period for its specific duration or the statement of aparticular purpose for its creation prevent the dissolution of any partnership by an act or will of apartner. 6 Among partners, 7 mutual agency arises and the doctrine ofdelectus personae allows themto have the power, although not necessarily theright, 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 partnerceasing to be associated in the carrying on, as might be distinguished from the winding up of, thebusiness. 8 Upon its dissolution, the partnership continues and its legal personality is retained untilthe 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 variousprovisions of the Civil Code; 10 however, an agreement of the partners, like any other contract, is

22


23/30

binding among them and normally takes precedence to the extent applicable over the Code'sgeneral 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 beliquidated 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 isnow 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 retirementshall be determined by two (2) independent appraisers, one to be appointed (by the partnershipand the other by the) retiring partner or the heirs of a deceased partner, as the case may be. Inthe event of any disagreement between the said appraisers a third appraiser will be appointed bythem whose decision shall be final. The share of the retiring or deceased partner in theaforementioned two (2) floor office condominium shall be determined upon the basis of thevaluation above mentioned which shall be paid monthly within the first ten (10) days of everymonth in installments of not less than P20,000.00 for the Senior Partners, P10,000.00 in the caseof 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 tomean the dissociation by a partner, inclusive of resignation or withdrawal, from the partnership thatthereby dissolves it.

On the third and final issue, we accord due respect to the appellate court and respondentCommission on their common factual finding, i.e., that Attorney Misa did not act in bad faith. Publicrespondents viewed his withdrawal to have been spurred by "interpersonal conflict" among thepartners. It would not be right, we agree, to let any of the partners remain in the partnership undersuch an atmosphere of animosity; certainly, not against their will. 12Indeed, for as long as the reasonfor withdrawal of a partner is not contrary to the dictates of justice and fairness, nor for the purposeof unduly visiting harm and damage upon the partnership, bad faith cannot be said to characterizethe act. Bad faith, in the context here used, is no different from its normal concept of a consciousand 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.

Footnotes

1 Rollo, pp. 53-56.

2 Rollo, p. 122.

3 Rollo, pp. 119-120.

4 Art. 1830 (1) (b), Civil Code.

5 SeeArt. 19, Civil Code.

23


24/30

6 Art. 1830 (2), Civil Code; see also Rojas vs. Maglana, 192 SCRA 110.

7 As general, as distinguished from limited partners.



10 For instance, Art. 1837 of the Civil Code provides:

"Art. 1837. When dissolution is caused in any way, except in contravention of thepartnership agreement, each partner, as against his co-partners and all personsclaiming through them in respect of their interests in the partnership, unlessotherwise agreed, may have the partnership property applied to discharge itsliabilities, and the surplus applied to pay in cash the net amount owning to therespective partners. But if dissolution is caused by expulsion of a partner, bonafide under the partnership agreement and if the expelled partner is discharged fromall 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 fromthe partnership."

11 Rollo, pp. 69-70.

12 Rojas v. Maglana, supra.

24


25/30

G.R. No. L-49982 April 27, 1988

ELIGIO ESTANISLAO, JR., petitioner,vs.THE HONORABLE COURT OF APPEALS, REMEDIOS ESTANISLAO, EMILIO and LEOCADIO

SANTIAGO,respondents.

Agustin O. Benitez for petitioner.

Benjamin C. Yatco for private respondents.

GANCAYCO, J.:

By this petition for certiorari the Court is asked to determine if a partnership exists between membersof the same family arising from their joint ownership of certain properties.

Petitioner and private respondents are brothers and sisters who are co-owners of certain lots at thecorner of Annapolis and Aurora Blvd., QuezonCity which were then being leased to the ShellCompany of the Philippines Limited (SHELL). They agreed to open and operate a gas station thereatto be known as Estanislao Shell Service Station with an initial investment of P 15,000.00 to be takenfrom the advance rentals due to them from SHELL for the occupancy of the said lots owned incommon by them. A joint affidavit was executed by them on April 11, 1966 which was preparedbyAtty. Democrito Angeles 1 They agreed to help their brother, petitioner herein, by allowing him tooperate and manage the gasoline service station of the family. They negotiated with SHELL. Forpractical purposes and in order not to run counter to the company's policy of appointing only onedealer, it was agreed that petitioner would apply for the dealership. Respondent Remedios helped inmanaging the bussiness with petitioner from May 3, 1966 up to February 16, 1967.

On May 26, 1966, the parties herein entered into an Additional Cash Pledge Agreement with SHELLwherein it was reiterated that the P 15,000.00 advance rental shall be deposited with SHELL tocover advances of fuel to petitioner as dealer with a proviso that said agreement "cancels andsupersedes the Joint Affidavit dated 11 April 1966 executed by the co-owners." 2

For sometime, the petitioner submitted financial statements regarding the operation of the businessto private respondents, but therafter petitioner failed to render subsequent accounting. Hencethrough Atty. Angeles, a demand was made on petitioner to render an accounting of the profits.

The financial report of December 31, 1968 shows that the business was able to make a profit of P87,293.79 and that by the year ending 1969, a profit of P 150,000.00 was realized. 3

Thus, on August 25, 1970 private respondents filed a complaint in the Court of First Instance of Rizalagainst petitioner praying among others that the latter be ordered:

1. to execute a public document embodying all the provisions of the partnershipagreement entered into between plaintiffs and defendant as provided in Article 1771of the New Civil Code;

25


26/30

2. to render a formal accounting of the business operation covering the period fromMay 6, 1966 up to December 21, 1968 and from January 1, 1969 up to the time theorder is issued and that the same be subject to proper audit;

3. to pay the plaintiffs their lawful shares and participation in the net profits of thebusiness in an amount of no less than P l50,000.00 with interest at the rate of 1% per

month from date of demand until full payment thereof for the entire duration of thebusiness; and

4. to pay the plaintiffs the amount of P 10,000.00 as attorney's fees and costs of thesuit (pp. 13-14 Record on Appeal.)

After trial on the merits, on October 15, 1975, Hon. Lino Anover who was then the temporarypresiding judge of Branch IV of the trial court, rendered judgment dismissing the complaint andcounterclaim and ordering private respondents to pay petitioner P 3,000.00 attorney's fee and costs.Private respondent filed a motion for reconsideration of the decision. On December 10, 1975, Hon.Ricardo Tensuan who was the newly appointed presiding judge of the same branch, set aside theaforesaid derision and rendered another decision in favor of said respondents.

The dispositive part thereof reads as follows:

WHEREFORE, the Decision of this Court dated October 14, 1975 is herebyreconsidered and a new judgment is hereby rendered in favor of the plaintiffs and asagainst the defendant:

(1) Ordering the defendant to execute a public instrument embodying all theprovisions of the partnership agreement entered into between plaintiffs anddefendant as provided for in Article 1771, Civil Code of the Philippines;

(2) Ordering the defendant to render a formal accounting of the business operation

from April 1969 up to the time this order is issued, the same to be subject toexamination and audit by the plaintiff,

(3) Ordering the defendant to pay plaintiffs their lawful shares and participation in thenet profits of the business in the amount of P 150,000.00, with interest thereon at therate of One (1%) Per Cent per month from date of demand until full payment thereof;

(4) Ordering the defendant to pay the plaintiffs the sum of P 5,000.00 by way ofattorney's fees of plaintiffs' counsel; as well as the costs of suit. (pp. 161-162. Recordon Appeal).

Petitioner then interposed an appeal to the Court of Appeals enumerating seven (7) errors allegedly

committed by the trial court. In due course, a decision was rendered by the Court of Appeals onNovember 28,1978 affirming in toto the decision of the lower court with costs against petitioner. *

A motion for reconsideration of said decision filed by petitioner was denied on January 30, 1979. Notsatisfied therewith, the petitioner now comes to this court by way of this petition for certiorari allegingthat the respondent court erred:

1. In interpreting the legal import of the Joint Affidavit (Exh. 'A') vis-a-vis theAdditional Cash Pledge Agreement (Exhs. "B-2","6", and "L"); and

26


27/30

2. In declaring that a partnership was established by and among the petitioner andthe private respondents as regards the ownership and or operation of the gasolineservice station business.

Petitioner relies heavily on the provisions of the Joint Affidavit of April 11, 1966 (Exhibit A) and theAdditional Cash Pledge Agreement of May 20, 1966 (Exhibit 6) which are herein reproduced-

(a) The joint Affidavit of April 11, 1966, Exhibit A reads:

(1) That we are the Lessors of two parcels of land fully describe in TransferCertificates of Title Nos. 45071 and 71244 of the Register of Deeds of Quezon City,in favor of the LESSEE - SHELL COMPANY OF THE PHILIPPINES LIMITED acorporation duly licensed to do business in the Philippines;

(2) That we have requested the said SHELL COMPANY OF THE PHILIPPINELIMITED advanced rentals in the total amount of FIFTEEN THOUSAND PESOS (Pl5,000.00) Philippine Currency, so that we can use the said amount to augment ourcapital investment in the operation of that gasoline station constructed ,by the said

company on our two lots aforesaid by virtue of an outstanding Lease Agreement wehave entered into with the said company;

(3) That the and SHELL COMPANY OF THE PHILIPPINE LIMITED out of itsbenevolence and desire to help us in aumenting our capital investment in theoperation of the said gasoline station, has agreed to give us the said amount of P15,000.00, which amount will partake the nature of ADVANCED RENTALS;

(4) That we have freely and voluntarily agreed that upon receipt of the said amount ofFIFTEEN THOUSAND PESOS (P l6,000.00) from he SHELL COMPANY OF THEPHILIPPINES LIMITED, the said sum as ADVANCED RENTALS to us be applied asmonthly rentals for the sai two lots under our Lease Agreement starting on the 25th

of May, 1966 until such time that the said of P 15,000.00 be applicable, which time toour estimate and one-half months from May 25, 1966 or until the 10th of October,1966 more or less;

(5) That we have likewise agreed among ourselves that the SHELL COMPANY OFTHE PHILIPPINES LIMITED execute an instrument for us to sign embodying ourconformity that the said amount that it will generously grant us as requested beapplied as ADVANCED RENTALS; and

(6) FURTHER AFFIANTS SAYETH NOT.,

(b) The Additional Cash Pledge Agreement of May 20,1966, Exhibit 6, is as follows:

WHEREAS, under the lease Agreement dated 13th November, 1963 (identified asdoc. Nos. 491 & 1407, Page Nos. 99 & 66, Book Nos. V & III, Series of 1963 in theNotarial Registers of Notaries Public Rosauro Marquez, and R.D. Liwanag,respectively) executed in favour of SHELL by the herein CO-OWNERS and anotherLease Agreement dated 19th March 1964 . . . also executed in favour of SHELL byCO-OWNERS Remedios and MARIA ESTANISLAO for the lease of adjoiningportions of two parcels of land at Aurora Blvd./ Annapolis, Quezon City, the CO

27


28/30

OWNERS RECEIVE a total monthly rental of PESOS THREE THOUSAND THREEHUNDRED EIGHTY TWO AND 29/100 (P 3,382.29), Philippine Currency;

WHEREAS, CO-OWNER Eligio Estanislao Jr. is the Dealer of the Shell Stationconstructed on the leased land, and as Dealer under the Cash Pledge Agreementdated llth May 1966, he deposited to SHELL in cash the amount of PESOS TEN

THOUSAND (P 10,000), Philippine Currency, to secure his purchase on credit ofShell petroleum products; . . .

WHEREAS, said DEALER, in his desire, to be granted an increased the limit up to P25,000, has secured the conformity of his CO-OWNERS to waive and assign toSHELL the total monthly rentals due to all of them to accumulate the equivalentamount of P 15,000, commencing 24th May 1966, this P 15,000 shall be treated asadditional cash deposit to SHELL under the same terms and conditions of theaforementioned Cash Pledge Agreement dated llth May 1966.

NOW, THEREFORE, for and in consideration of the foregoing premises,and themutual covenants among the CO-OWNERS herein and SHELL, said parties have

agreed and hereby agree as follows:

l. The CO-OWNERS dohere by waive in favor of DEALER the monthly rentals due toall CO-OWNERS, collectively, under the above describe two Lease Agreements, onedated 13th November 1963 and the other dated 19th March 1964 to enable DEALERto increase his existing cash deposit to SHELL, from P 10,000 to P 25,000, for suchpurpose, the SHELL CO-OWNERS and DEALER hereby irrevocably assign toSHELL the monthly rental of P 3,382.29 payable to them respectively as they falldue, monthly, commencing 24th May 1966, until such time that the monthly rentalsaccumulated, shall be equal to P l5,000.

2. The above stated monthly rentals accumulated shall be treated as additional cashdeposit by DEALER to SHELL, thereby in increasing his credit limit from P 10,000 toP 25,000. This agreement, therefore, cancels and supersedes the Joint affidavitdated 11 April 1966 executed by the CO-OWNERS.

3. Effective upon the signing of this agreement, SHELL agrees to allow DEALER topurchase from SHELL petroleum products, on credit, up to the amount of P 25,000.

4. This increase in the credit shall also be subject to the same terms and conditionsof the above-mentioned Cash Pledge Agreement dated llth May 1966. (Exhs. "B-2,""L," and "6"; emphasis supplied)

In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it is clearly stipulated by the parties thatthe P 15,000.00 advance rental due to them from SHELL shall augment their "capital investment" in

the operation of the gasoline station, which advance rentals shall be credited as rentals from May25, 1966 up to four and one-half months or until 10 October 1966, more or less covering said P15,000.00.

In the subsequent document entitled "Additional Cash Pledge Agreement" above reproduced(Exhibit 6), the private respondents and petitioners assigned to SHELL the monthly rentals due themcommencing the 24th of May 1966 until such time that the monthly rentals accumulated equal P15,000.00 which private respondents agree to be a cash deposit of petitioner in favor of SHELL toincrease his credit limit as dealer. As above-stated it provided therein that "This agreement,

28


29/30

therefore, cancels and supersedes the Joint Affidavit dated 11 April 1966 executed by the CO-OWNERS."

Petitioner contends that because of the said stipulation cancelling and superseding that previousJoint Affidavit, whatever partnership agreement there was in said previous agreement had therebybeen abrogated. We find no merit in this argument. Said cancelling provision was necessary for the

Joint Affidavit speaks of P 15,000.00 advance rentals starting May 25, 1966 while the latteragreement also refers to advance rentals of the same amount starting May 24, 1966. There is,therefore, a duplication of reference to the P 15,000.00 hence the need to provide in the subsequentdocument that it "cancels and supersedes" the previous one. True it is that in the latter document, itis silent as to the statement in the Joint Affidavit that the P 15,000.00 represents the "capitalinvestment" of the parties in the gasoline station business and it speaks of petitioner as the soledealer, but this is as it should be for in the latter document SHELL was a signatory and it would beagainst its policy if in the agreement it should be stated that the business is a partnership withprivate respondents and not a sole proprietorship of petitioner.

Moreover other evidence in the record shows that there was in fact such partnership agreementbetween the parties. This is attested by the testimonies of private respondent Remedies Estanislao

and Atty. Angeles. Petitioner submitted to private respondents periodic accounting of thebusiness. 4 Petitioner gave a written authority to private respondent Remedies Estanislao, his sister,to examine and audit the books of their "common business' aming negosyo). 5 RespondentRemedios assisted in the running of the business. There is no doubt that the parties hereto formed apartnership when they bound themselves to contribute money to a common fund with the intention ofdividing the profits among themselves. 6 The sole dealership by the petitioner and the issuance of allgovernment permits and licenses in the name of petitioner was in compliance with the afore-statedpolicy of SHELL and the understanding of the parties of having only one dealer of the SHELLproducts.

Further, the findings of facts of the respondent court are conclusive in this proceeding, and itsconclusion based on the said facts are in accordancewith the applicable law.

WHEREFORE, the judgment appealed from is AFFIRMED in toto with costs against petitioner. Thisdecision is immediately executory and no motion for extension of time to file a motion forreconsideration shag beentertained.

SO ORDERED.

Narvasa, Cruz and Grio-Aquino, JJ., concur.

Footnotes

1 Exhibit A.

2 Exhibits 6 and 6-A.

3 Exhibit D.

* Penned by then Justice Ramon G. Gaviola, Jr., and concurred in by Justices B.S.de la Fuente and Edgardo Paras, Fourth Division, Court of Appeals.

29


30/30

4 Exhibits D, D-1, D-2, D-3 and D-4.

5 Exhibit E.

6 Article 1767, New Civil Code.

30

CIR to Estanislao

Documents

Transcript of CIR to Estanislao