G.R. No.

109248 July 3, 1995

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T.
BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and
JOAQUIN L. MISA,respondents.

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

"I trust that the accountants will be instructed to make the

proper liquidation of my participation in the firm."
On the same day, petitioner-appellant wrote respondents-appellees another letter
stating:
"Further to my letter to you today, I would like to have a
meeting with all of you with regard to the mechanics of
liquidation, and more particularly, my interest in the two floors
of this building. I would like to have this resolved soon because
it has to do with my own plans."
On 19 February 1988, petitioner-appellant wrote respondents-appellees another
letter stating:
"The partnership has ceased to be mutually satisfactory because
of the working conditions of our employees including the
assistant attorneys. All my efforts to ameliorate the below
subsistence level of the pay scale of our employees have been
thwarted by the other partners. Not only have they refused to
give meaningful increases to the employees, even attorneys, are
dressed down publicly in a loud voice in a manner that deprived
them of their self-respect. The result of such policies is the
formation of the union, including the assistant attorneys."
On 30 June 1988, petitioner filed with this Commission's Securities Investigation
and Clearing Department (SICD) a petition for dissolution and liquidation of
partnership, docketed as SEC Case No. 3384 praying that the Commission:
"1. Decree the formal dissolution and order the immediate
liquidation of (the partnership of) Bito, Misa & Lozada;
"2. Order the respondents to deliver or pay for petitioner's share
in the partnership assets plus the profits, rent or interest
attributable to the use of his right in the assets of the dissolved
partnership;
"3. Enjoin respondents from using the firm name of Bito, Misa
& Lozada in any of their correspondence, checks and pleadings
and to pay petitioners damages for the use thereof despite the

dissolution of the partnership in the amount of at least

P50,000.00;

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

"4. Order respondents jointly and severally to pay petitioner

attorney's fees and expense of litigation in such amounts as
maybe proven during the trial and which the Commission may
deem just and equitable under the premises but in no case less
than ten (10%) per cent of the value of the shares of petitioner
or P100,000.00;

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

"5. Order the respondents to pay petitioner moral damages with

the amount of P500,000.00 and exemplary damages in the
amount of P200,000.00.
"Petitioner likewise prayed for such other and further reliefs that
the Commission may deem just and equitable under the
premises."

The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No.
24638 and CA-G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and
Attorney Mariano Lozada both died on, respectively, 05 September 1991 and 21 December
1991. The death of the two partners, as well as the admission of new partners, in the law
firm prompted Attorney Misa to renew his application for receivership (in CA G.R. SP No.
24648). He expressed concern over the need to preserve and care for the partnership assets.
The other partners opposed the prayer.

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:

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;

WHEREFORE, premises considered the appealed order of 31 March 1989 is

hereby REVERSED insofar as it concludes that the partnership of Bito, Misa &

2. Whether or not the Court of Appeals has erred in holding that the withdrawal of
private respondent dissolved the partnership regardless of his good or bad faith;
and
3. Whether or not the Court of Appeals has erred in holding that private
respondent's demand for the dissolution of the partnership so that he can get a
physical partition of partnership was not made in bad faith;
to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will. That the law firm "Bito,
Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a partnership
need not be unduly belabored. We quote, with approval, like did the appellate court, the
findings and disquisition of respondent SEC on this matter; viz:
The partnership agreement (amended articles of 19 August 1948) does not provide
for a specified period or undertaking. The "DURATION" clause simply states:
"5. DURATION. The partnership shall continue so long as
mutually satisfactory and upon the death or legal incapacity of
one of the partners, shall be continued by the surviving
partners."
The hearing officer however opined that the partnership is one for a specific
undertaking and hence not a partnership at will, citing paragraph 2 of the
Amended Articles of Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is formed, is
to act as legal adviser and representative of any individual, firm
and corporation engaged in commercial, industrial or other
lawful businesses and occupations; to counsel and advise such
persons and entities with respect to their legal and other affairs;
and to appear for and represent their principals and client in all
courts of justice and government departments and offices in the
Philippines, and elsewhere when legally authorized to do so."
The "purpose" of the partnership is not the specific undertaking referred to in the
law. Otherwise, all partnerships, which necessarily must have a purpose, would all
be considered as partnerships for a definite undertaking. There would therefore be
no need to provide for articles on partnership at will as none would so exist.

Apparently what the law contemplates, is a specific undertaking or "project"

which has a definite or definable period of completion. 3
The birth and life of a partnership at will is predicated on the mutual desire and consent of
the partners. The right to choose with whom a person wishes to associate himself is the
very foundation and essence of that partnership. Its continued existence is, in turn,
dependent on the constancy of that mutual resolve, along with each partner's capability to
give it, and the absence of a cause for dissolution provided by the law itself. Verily, any one
of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He
must, however, act in good faith, not that the attendance of bad faith can prevent the
dissolution of the partnership 4 but that it can result in a liability for damages. 5
In passing, neither would the presence of a period for its specific duration or the statement
of a particular purpose for its creation prevent the dissolution of any partnership by an act
or will of a partner. 6 Among partners, 7 mutual agency arises and the doctrine of delectus
personae allows them to have the power, although not necessarily the right, to dissolve the
partnership. An unjustified dissolution by the partner can subject him to a possible action
for damages.
The dissolution of a partnership is the change in the relation of the parties caused by any
partner ceasing to be associated in the carrying on, as might be distinguished from the
winding up of, the business. 8 Upon its dissolution, the partnership continues and its legal
personality is retained until the complete winding up of its business culminating in its
termination. 9
The liquidation of the assets of the partnership following its dissolution is governed by
various provisions of the Civil Code; 10 however, an agreement of the partners, like any
other contract, is binding among them and normally takes precedence to the extent
applicable over the Code's general provisions. We here take note of paragraph 8 of the
"Amendment to Articles of Partnership" reading thusly:
. . . In the event of the death or retirement of any partner, his interest in the
partnership shall be liquidated and paid in accordance with the existing
agreements and his partnership participation shall revert to the Senior Partners for
allocation as the Senior Partners may determine; provided, however, that with
respect to the two (2) floors of office condominium which the partnership is now
acquiring, consisting of the 5th and the 6th floors of the Alpap Building, 140
Alfaro Street, Salcedo Village, Makati, Metro Manila, their true value at the time
of such death or retirement shall be determined by two (2) independent appraisers,
one to be appointed (by the partnership and the other by the) retiring partner or the
heirs of a deceased partner, as the case may be. In the event of any disagreement
between the said appraisers a third appraiser will be appointed by them whose

decision shall be final. The share of the retiring or deceased partner in the
aforementioned two (2) floor office condominium shall be determined upon the
basis of the valuation above mentioned which shall be paid monthly within the
first ten (10) days of every month in installments of not less than P20,000.00 for
the Senior Partners, P10,000.00 in the case of two (2) existing Junior Partners and
P5,000.00 in the case of the new Junior Partner. 11
The term "retirement" must have been used in the articles, as we so hold, in a generic sense
to mean the dissociation by a partner, inclusive of resignation or withdrawal, from the
partnership that thereby dissolves it.
On the third and final issue, we accord due respect to the appellate court and respondent
Commission on their common factual finding, i.e., that Attorney Misa did not act in bad
faith. Public respondents viewed his withdrawal to have been spurred by "interpersonal
conflict" among the partners. It would not be right, we agree, to let any of the partners
remain in the partnership under such an atmosphere of animosity; certainly, not against
their will. 12Indeed, 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.

[G.R. No. 127405. October 4, 2000]

MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF

APPEALS and NENITA A. ANAY, respondents.
DECISION

proprietorship registered in Marjorie Tocaos name, with office at 712 Rufino Building,
Ayala Avenue, Makati City. Belo made good his monetary commitments to Anay.
Thereafter, Roger Muencheberg of West Bend Company invited Anay to the
distributor/dealer meeting in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987 and
to the southwestern regional convention in Pismo Beach, California, U.S.A., from July 2526, 1987. Anay accepted the invitation with the consent of Marjorie Tocao who, as
president and general manager of Geminesse Enterprise, even wrote a letter to the Visa
Section of the U.S. Embassy in Manila on July 13, 1987. A portion of the letter reads:
Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for
twenty (20) years now, acquired the distributorship of Royal Queen cookware for
Geminesse Enterprise, is the Vice President Sales Marketing and a business partner of our
company, will attend in response to the invitation. (Italics supplied.)[3]

YNARES-SANTIAGO, J.:
This is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV
No. 41616,[1] affirming the Decision of the Regional Trial Court of Makati, Branch 140, in
Civil Case No. 88-509.[2]
Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand, private
respondent Nenita A. Anay met petitioner William T. Belo, then the vice-president for
operations of Ultra Clean Water Purifier, through her former employer in Bangkok. Belo
introduced Anay to petitioner Marjorie Tocao, who conveyed her desire to enter into a joint
venture with her for the importation and local distribution of kitchen cookwares. Belo
volunteered to finance the joint venture and assigned to Anay the job of marketing the
product considering her experience and established relationship with West Bend Company,
a manufacturer of kitchen wares in Wisconsin, U.S.A. Under the joint venture, Belo acted
as capitalist, Tocao as president and general manager, and Anay as head of the marketing
department and later, vice-president for sales. Anay organized the administrative staff and
sales force while Tocao hired and fired employees, determined commissions and/or salaries
of the employees, and assigned them to different branches. The parties agreed that Belos
name should not appear in any documents relating to their transactions with West Bend
Company. Instead, they agreed to use Anays name in securing distributorship of cookware
from that company. The parties agreed further that Anay would be entitled to: (1) ten
percent (10%) of the annual net profits of the business; (2) overriding commission of six
percent (6%) of the overall weekly production; (3) thirty percent (30%) of the sales she
would make; and (4) two percent (2%) for her demonstration services. The agreement was
not reduced to writing on the strength of Belos assurances that he was sincere, dependable
and honest when it came to financial commitments.
Anay having secured the distributorship of cookware products from the West Bend
Company and organized the administrative staff and the sales force, the cookware business
took off successfully. They operated under the name of Geminesse Enterprise, a sole

Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the
task of saving the business on account of the unsatisfactory sales record in the Makati and
Cubao offices. On August 31, 1987, she received a plaque of appreciation from the
administrative and sales people through Marjorie Tocao [4] for her excellent job
performance. On October 7, 1987, in the presence of Anay, Belo signed a memo [5] entitling
her to a thirty-seven percent (37%) commission for her personal sales "up Dec 31/87. Belo
explained to her that said commission was apart from her ten percent (10%) share in the
profits. On October 9, 1987, Anay learned that Marjorie Tocao had signed a
letter[6] addressed to the Cubao sales office to the effect that she was no longer the vicepresident of Geminesse Enterprise. The following day, October 10, she received a note
from Lina T. Cruz, marketing manager, that Marjorie Tocao had barred her from holding
office and conducting demonstrations in both Makati and Cubao offices. [7] Anay attempted
to contact Belo. She wrote him twice to demand her overriding commission for the period
of January 8, 1988 to February 5, 1988 and the audit of the company to determine her share
in the net profits. When her letters were not answered, Anay consulted her lawyer, who, in
turn, wrote Belo a letter. Still, that letter was not answered.
Anay still received her five percent (5%) overriding commission up to December
1987. The following year, 1988, she did not receive the same commission although the
company netted a gross sales of P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of
money with damages[8] against Marjorie D. Tocao and William Belo before the Regional
Trial Court of Makati, Branch 140.
In her complaint, Anay prayed that defendants be ordered to pay her, jointly and
severally, the following: (1) P32,00.00 as unpaid overriding commission from January 8,
1988 to February 5, 1988; (2) P100,000.00 as moral damages, and (3) P100,000.00 as
exemplary damages. The plaintiff also prayed for an audit of the finances of Geminesse

Enterprise from the inception of its business operation until she was illegally dismissed to
determine her ten percent (10%) share in the net profits. She further prayed that she be paid
the five percent (5%) overriding commission on the remaining 150 West Bend cookware
sets before her dismissal.
In their answer,[9] Marjorie Tocao and Belo asserted that the alleged agreement with
Anay that was neither reduced in writing, nor ratified, was either unenforceable or void or
inexistent. As far as Belo was concerned, his only role was to introduce Anay to Marjorie
Tocao. There could not have been a partnership because, as Anay herself admitted,
Geminesse Enterprise was the sole proprietorship of Marjorie Tocao. Because Anay merely
acted as marketing demonstrator of Geminesse Enterprise for an agreed remuneration, and
her complaint referred to either her compensation or dismissal, such complaint should have
been lodged with the Department of Labor and not with the regular court.
Petitioners (defendants therein) further alleged that Anay filed the complaint on
account of ill-will and resentment because Marjorie Tocao did not allow her to lord it over
in the Geminesse Enterprise. Anay had acted like she owned the enterprise because of her
experience and expertise. Hence, petitioners were the ones who suffered actual damages
including unreturned and unaccounted stocks of Geminesse Enterprise, and serious anxiety,
besmirched reputation in the business world, and various damages not less than
P500,000.00. They also alleged that, to vindicate their names, they had to hire counsel for a
fee of P23,000.00.
At the pre-trial conference, the issues were limited to: (a) whether or not the plaintiff
was an employee or partner of Marjorie Tocao and Belo, and (b) whether or not the parties
are entitled to damages.[10]
In their defense, Belo denied that Anay was supposed to receive a share in the profit
of the business. He, however, admitted that the two had agreed that Anay would receive a
three to four percent (3-4%) share in the gross sales of the cookware. He denied
contributing capital to the business or receiving a share in its profits as he merely served as
a guarantor of Marjorie Tocao, who was new in the business. He attended and/or presided
over business meetings of the venture in his capacity as a guarantor but he never
participated in decision-making. He claimed that he wrote the memo granting the plaintiff
thirty-seven percent (37%) commission upon her dismissal from the business venture at the
request of Tocao, because Anay had no other income.
For her part, Marjorie Tocao denied having entered into an oral partnership agreement
with Anay. However, she admitted that Anay was an expert in the cookware business and
hence, they agreed to grant her the following commissions: thirty-seven percent (37%) on
personal sales; five percent (5%) on gross sales; two percent (2%) on product
demonstrations, and two percent (2%) for recruitment of personnel. Marjorie denied that
they agreed on a ten percent (10%) commission on the net profits. Marjorie claimed that
she got the capital for the business out of the sale of the sewing machines used in her
garments business and from Peter Lo, a Singaporean friend-financier who loaned her the

funds with interest. Because she treated Anay as her co-equal, Marjorie received the same
amounts of commissions as her. However, Anay failed to account for stocks valued at
P200,000.00.
On April 22, 1993, the trial court rendered a decision the dispositive part of which is
as follows:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. Ordering defendants to submit to the Court a formal account as to the
partnership affairs for the years 1987 and 1988 pursuant to Art. 1809 of the
Civil Code in order to determine the ten percent (10%) share of plaintiff in
the net profits of the cookware business;
2. Ordering defendants to pay five percent (5%) overriding commission for the
one hundred and fifty (150) cookware sets available for disposition when
plaintiff was wrongfully excluded from the partnership by defendants;
3. Ordering defendants to pay plaintiff overriding commission on the total
production which for the period covering January 8, 1988 to February 5,
1988 amounted to P32,000.00;
4. Ordering defendants to pay P100,000.00 as moral damages and P100,000.00
as exemplary damages, and
5. Ordering defendants to pay P50,000.00 as attorneys fees and P20,000.00 as
costs of suit.
SO ORDERED.
The trial court held that there was indeed an oral partnership agreement between the
plaintiff and the defendants, based on the following: (a) there was an intention to create a
partnership; (b) a common fund was established through contributions consisting of money
and industry, and (c) there was a joint interest in the profits. The testimony of Elizabeth
Bantilan, Anays cousin and the administrative officer of Geminesse Enterprise from August
21, 1986 until it was absorbed by Royal International, Inc., buttressed the fact that a
partnership existed between the parties. The letter of Roger Muencheberg of West Bend
Company stating that he awarded the distributorship to Anay and Marjorie Tocao because
he was convinced that with Marjories financial contribution and Anays experience, the
combination of the two would be invaluable to the partnership, also supported that
conclusion. Belos claim that he was merely a guarantor has no basis since there was no
written evidence thereof as required by Article 2055 of the Civil Code. Moreover, his acts
of attending and/or presiding over meetings of Geminesse Enterprise plus his issuance of a

memo giving Anay 37% commission on personal sales belied this. On the contrary, it
demonstrated his involvement as a partner in the business.
The trial court further held that the payment of commissions did not preclude the
existence of the partnership inasmuch as such practice is often resorted to in business
circles as an impetus to bigger sales volume. It did not matter that the agreement was not in
writing because Article 1771 of the Civil Code provides that a partnership may be
constituted in any form. The fact that Geminesse Enterprise was registered in Marjorie
Tocaos name is not determinative of whether or not the business was managed and
operated by a sole proprietor or a partnership. What was registered with the Bureau of
Domestic Trade was merely the business name or style of Geminesse Enterprise.
The trial court finally held that a partner who is excluded wrongfully from a
partnership is an innocent partner. Hence, the guilty partner must give him his due upon the
dissolution of the partnership as well as damages or share in the profits realized from the
appropriation of the partnership business and goodwill. An innocent partner thus possesses
pecuniary interest in every existing contract that was incomplete and in the trade name of
the co-partnership and assets at the time he was wrongfully expelled.
Petitioners appeal to the Court of Appeals [11] was dismissed, but the amount of
damages awarded by the trial court were reduced to P50,000.00 for moral damages and
P50,000.00 as exemplary damages. Their Motion for Reconsideration was denied by the
Court of Appeals for lack of merit.[12] Petitioners Belo and Marjorie Tocao are now before
this Court on a petition for review on certiorari, asserting that there was no business
partnership between them and herein private respondent Nenita A. Anay who is, therefore,
not entitled to the damages awarded to her by the Court of Appeals.
Petitioners Tocao and Belo contend that the Court of Appeals erroneously held that a
partnership existed between them and private respondent Anay because Geminesse
Enterprise came into being exactly a year before the alleged partnership was formed, and
that it was very unlikely that petitioner Belo would invest the sum of P2,500,000.00 with
petitioner Tocao contributing nothing, without any memorandum whatsoever regarding the
alleged partnership.[13]
The issue of whether or not a partnership exists is a factual matter which are within
the exclusive domain of both the trial and appellate courts. This Court cannot set aside
factual findings of such courts absent any showing that there is no evidence to support the
conclusion drawn by the court a quo.[14] In this case, both the trial court and the Court of
Appeals are one in ruling that petitioners and private respondent established a business
partnership. This Court finds no reason to rule otherwise.
To be considered a juridical personality, a partnership must fulfill these requisites: (1)
two or more persons bind themselves to contribute money, property or industry to a
common fund; and (2) intention on the part of the partners to divide the profits among
themselves.[15] It may be constituted in any form; a public instrument is necessary only

where immovable property or real rights are contributed thereto. [16] This implies that since a
contract of partnership is consensual, an oral contract of partnership is as good as a written
one. Where no immovable property or real rights are involved, what matters is that the
parties have complied with the requisites of a partnership. The fact that there appears to be
no record in the Securities and Exchange Commission of a public instrument embodying
the partnership agreement pursuant to Article 1772 of the Civil Code [17] did not cause the
nullification of the partnership. The pertinent provision of the Civil Code on the matter
states:
Art. 1768. The partnership has a juridical personality separate and distinct from that of
each of the partners, even in case of failure to comply with the requirements of article
1772, first paragraph.
Petitioners admit that private respondent had the expertise to engage in the business
of distributorship of cookware. Private respondent contributed such expertise to the
partnership and hence, under the law, she was the industrial or managing partner. It was
through her reputation with the West Bend Company that the partnership was able to open
the business of distributorship of that companys cookware products; it was through the
same efforts that the business was propelled to financial success. Petitioner Tocao herself
admitted private respondents indispensable role in putting up the business when, upon
being asked if private respondent held the positions of marketing manager and vicepresident for sales, she testified thus:
A: No, sir at the start she was the marketing manager because there were no one
to sell yet, its only me there then her and then two (2) people, so about four
(4). Now, after that when she recruited already Oscar Abella and Lina TordaCruz these two (2) people were given the designation of marketing managers
of which definitely Nita as superior to them would be the Vice President. [18]
By the set-up of the business, third persons were made to believe that a partnership had
indeed been forged between petitioners and private respondents. Thus, the communication
dated June 4, 1986 of Missy Jagler of West Bend Company to Roger Muencheberg of the
same company states:
Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the operations.
Marge does not have cookware experience. Nita Anay has started to gather former
managers, Lina Torda and Dory Vista. She has also gathered former demonstrators, Betty
Bantilan, Eloisa Lamela, Menchu Javier. They will continue to gather other key people and
build up the organization. All they need is the finance and the products to sell.[19]
On the other hand, petitioner Belos denial that he financed the partnership rings
hollow in the face of the established fact that he presided over meetings regarding matters
affecting the operation of the business. Moreover, his having authorized in writing on

October 7, 1987, on a stationery of his own business firm, Wilcon Builders Supply, that
private respondent should receive thirty-seven (37%) of the proceeds of her personal sales,
could not be interpreted otherwise than that he had a proprietary interest in the business.
His claim that he was merely a guarantor is belied by that personal act of proprietorship in
the business. Moreover, if he was indeed a guarantor of future debts of petitioner Tocao
under Article 2053 of the Civil Code,[20] he should have presented documentary evidence
therefor. While Article 2055 of the Civil Code simply provides that guaranty must be
express, Article 1403, the Statute of Frauds, requires that a special promise to answer for
the debt, default or miscarriage of another be in writing.[21]

Q: I see. Now, this promotion, advertising, incentive, there is a figure here and words
which I quote: Overrides Marjorie Ann Tocao P21,410.50 this means that you
have received this amount?

Petitioner Tocao, a former ramp model,[22] was also a capitalist in the partnership. She
claimed that she herself financed the business. Her and petitioner Belos roles as both
capitalists to the partnership with private respondent are buttressed by petitioner Tocaos
admissions that petitioner Belo was her boyfriend and that the partnership was not their
only business venture together. They also established a firm that they called Wiji, the
combination of petitioner Belos first name, William, and her nickname, Jiji. [23] The special
relationship between them dovetails with petitioner Belos claim that he was acting in
behalf of petitioner Tocao. Significantly, in the early stage of the business operation,
petitioners requested West Bend Company to allow them to utilize their banking and
trading facilities in Singapore in the matter of importation and payment of the cookware
products.[24] The inevitable conclusion, therefore, was that petitioners merged their
respective capital and infused the amount into the partnership of distributing cookware
with private respondent as the managing partner.

Q: I see. Below your name is the words and figure and I quote Nita D. Anay
P21,410.50, what is this?

The business venture operated under Geminesse Enterprise did not result in an
employer-employee relationship between petitioners and private respondent. While it is
true that the receipt of a percentage of net profits constitutes only prima facie evidence that
the recipient is a partner in the business, [25] the evidence in the case at bar controverts an
employer-employee relationship between the parties. In the first place, private respondent
had a voice in the management of the affairs of the cookware distributorship, [26] including
selection of people who would constitute the administrative staff and the sales force.
Secondly, petitioner Tocaos admissions militate against an employer-employee
relationship. She admitted that, like her who owned Geminesse Enterprise, [27]private
respondent received only commissions and transportation and representation
allowances[28] and not a fixed salary.[29] Petitioner Tocao testified:

A: As an equal.

Q: Of course. Now, I am showing to you certain documents already marked as Exhs. X

and Y. Please go over this. Exh. Y is denominated `Cubao overrides 8-21-87 with
ending August 21, 1987, will you please go over this and tell the Honorable Court
whether you ever came across this document and know of your own knowledge
the amount --A: Yes, sir this is what I am talking about earlier. Thats the one I am telling you earlier
a certain percentage for promotions, advertising, incentive.

A: Oh yes, sir.
Q: I see. And, by way of amplification this is what you are saying as one representing
commission, representation, advertising and promotion?
A: Yes, sir.

A: Thats her overriding commission.

Q: Overriding commission, I see. Of course, you are telling this Honorable Court that
there being the same P21,410.50 is merely by coincidence?
A: No, sir, I made it a point that we were equal because the way I look at her kasi, you
know in a sense because of her expertise in the business she is vital to my
business. So, as part of the incentive I offer her the same thing.
Q: So, in short you are saying that this you have shared together, I mean having gotten
from the company P21,140.50 is your way of indicating that you were treating her
as an equal?

Q: As an equal, I see. You were treating her as an equal?

A: Yes, sir.
Q: I am calling again your attention to Exh. Y Overrides Makati the other one is --A: That is the same thing, sir.
Q: With ending August 21, words and figure Overrides Marjorie Ann Tocao P15,314.25
the amount there you will acknowledge you have received that?
A: Yes, sir.
Q: Again in concept of commission, representation, promotion, etc.?
A: Yes, sir.
Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an
indication that she received the same amount?
A: Yes, sir.

Q: And, as in your previous statement it is not by coincidence that these two (2) are the
same?
A: No, sir.
Q: It is again in concept of you treating Miss Anay as your equal?
A: Yes, sir. (Italics supplied.)[30]
If indeed petitioner Tocao was private respondents employer, it is difficult to believe
that they shall receive the same income in the business. In a partnership, each partner must
share in the profits and losses of the venture, except that the industrial partner shall not be
liable for the losses.[31] As an industrial partner, private respondent had the right to demand
for a formal accounting of the business and to receive her share in the net profit.[32]
The fact that the cookware distributorship was operated under the name of Geminesse
Enterprise, a sole proprietorship, is of no moment. What was registered with the Bureau of
Domestic Trade on August 19, 1987 was merely the name of that enterprise. [33] While it is
true that in her undated application for renewal of registration of that firm name, petitioner
Tocao indicated that it would be engaged in retail of kitchenwares, cookwares, utensils,
skillet,[34] she also admitted that the enterprise was only 60% to 70% for the cookware
business, while 20% to 30% of its business activity was devoted to the sale of water
sterilizer or purifier.[35] Indubitably then, the business name Geminesse Enterprise was used
only for practical reasons - it was utilized as the common name for petitioner Tocaos
various business activities, which included the distributorship of cookware.
Petitioners underscore the fact that the Court of Appeals did not return the
unaccounted and unremitted stocks of Geminesse Enterprise amounting to P208,250.00.
[36]
Obviously a ploy to offset the damages awarded to private respondent, that claim, more
than anything else, proves the existence of a partnership between them. In Idos v. Court of
Appeals, this Court said:
The best evidence of the existence of the partnership, which was not yet terminated (though
in the winding up stage), were the unsold goods and uncollected receivables, which were
presented to the trial court. Since the partnership has not been terminated, the petitioner
and private complainant remained as co-partners. x x x.[37]
It is not surprising then that, even after private respondent had been unceremoniously
booted out of the partnership in October 1987, she still received her overriding commission
until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the
partnership to reap for herself and/or for petitioner Belo financial gains resulting from
private respondents efforts to make the business venture a success. Thus, as petitioner
Tocao became adept in the business operation, she started to assert herself to the extent that

she would even shout at private respondent in front of other people. [38] Her instruction to
Lina Torda Cruz, marketing manager, not to allow private respondent to hold office in both
the Makati and Cubao sales offices concretely spoke of her perception that private
respondent was no longer necessary in the business operation, [39] and resulted in a falling
out between the two. However, a mere falling out or misunderstanding between partners
does not convert the partnership into a sham organization. [40] The partnership exists until
dissolved under the law. Since the partnership created by petitioners and private respondent
has no fixed term and is therefore a partnership at will predicated on their mutual desire
and consent, it may be dissolved by the will of a partner. Thus:
x x x. 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 partners capability to give it, and the
absence of 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 but that it can result in a liability for damages. [41]
An unjustified dissolution by a partner can subject him to action for damages because by
the mutual agency that arises in a partnership, the doctrine of delectus personae allows the
partners to have the power, although not necessarily the right to dissolve the partnership.[42]
In this case, petitioner Tocaos unilateral exclusion of private respondent from the
partnership is shown by her memo to the Cubao office plainly stating that private
respondent was, as of October 9, 1987, no longer the vice-president for sales of Geminesse
Enterprise.[43] By that memo, petitioner Tocao effected her own withdrawal from the
partnership and considered herself as having ceased to be associated with the partnership in
the carrying on of the business. Nevertheless, the partnership was not terminated thereby; it
continues until the winding up of the business.[44]
The winding up of partnership affairs has not yet been undertaken by the
partnership. This is manifest in petitioners claim for stocks that had been entrusted to
private respondent in the pursuit of the partnership business.
The determination of the amount of damages commensurate with the factual findings
upon which it is based is primarily the task of the trial court. [45] The Court of Appeals may
modify that amount only when its factual findings are diametrically opposed to that of the
lower court,[46] or the award is palpably or scandalously and unreasonably excessive.
[47]
However, exemplary damages that are awarded by way of example or correction for the
public good,[48] should be reduced to P50,000.00, the amount correctly awarded by the
Court of Appeals. Concomitantly, the award of moral damages of P100,000.00 was
excessive and should be likewise reduced to P50,000.00. Similarly, attorneys fees that
should be granted on account of the award of exemplary damages and petitioners evident

bad faith in refusing to satisfy private respondents plainly valid, just and demandable
claims,[49] appear to have been excessively granted by the trial court and should therefore
be reduced to P25,000.00.
WHEREFORE, the instant petition for review on certiorari is DENIED. The
partnership among petitioners and private respondent is ordered dissolved, and the parties
are ordered to effect the winding up and liquidation of the partnership pursuant to the
pertinent provisions of the Civil Code. This case is remanded to the Regional Trial Court
for proper proceedings relative to said dissolution. The appealed decisions of the Regional
Trial Court and the Court of Appeals are AFFIRMED with MODIFICATIONS, as follows
--1. Petitioners are ordered to submit to the Regional Trial Court a formal account of the
partnership affairs for the years 1987 and 1988, pursuant to Article 1809 of the Civil Code,
in order to determine private respondents ten percent (10%) share in the net profits of the
partnership;
2. Petitioners are ordered, jointly and severally, to pay private respondent five percent (5%)
overriding commission for the one hundred and fifty (150) cookware sets available for
disposition since the time private respondent was wrongfully excluded from the partnership
by petitioners;
3. Petitioners are ordered, jointly and severally, to pay private respondent overriding
commission on the total production which, for the period covering January 8, 1988 to
February 5, 1988, amounted to P32,000.00;
4. Petitioners are ordered, jointly and severally, to pay private respondent moral damages in
the amount of P50,000.00, exemplary damages in the amount of P50,000.00 and attorneys
fees in the amount of P25,000.00.
SO ORDERED.

10

G.R. No. 124293

January 31, 2005

J.G.
SUMMIT
HOLDINGS,
INC., petitioner,
vs.
COURT OF APPEALS; COMMITTEE ON PRIVATIZATION, its Chairman and
Members; ASSET PRIVATIZATION TRUST; and PHILYARDS HOLDINGS,
INC., respondents.
RESOLUTION
PUNO, J.:
For resolution before this Court are two motions filed by the petitioner, J.G. Summit
Holdings, Inc. for reconsideration of our Resolution dated September 24, 2003 and to
elevate this case to the Court En Banc. The petitioner questions the Resolution which
reversed our Decision of November 20, 2000, which in turn reversed and set aside a
Decision of the Court of Appeals promulgated on July 18, 1995.

On November 25, 1986, NIDC transferred all its rights, title and interest in PHILSECO to
the Philippine National Bank (PNB). Such interests were subsequently transferred to the
National Government pursuant to Administrative Order No. 14. On December 8, 1986,
President Corazon C. Aquino issued Proclamation No. 50 establishing the Committee on
Privatization (COP) and the Asset Privatization Trust (APT) to take title to, and possession
of, conserve, manage and dispose of non-performing assets of the National Government.
Thereafter, on February 27, 1987, a trust agreement was entered into between the National
Government and the APT wherein the latter was named the trustee of the National
Government's share in PHILSECO. In 1989, as a result of a quasi-reorganization of
PHILSECO to settle its huge obligations to PNB, the National Government's shareholdings
in PHILSECO increased to 97.41% thereby reducing KAWASAKI's shareholdings to
2.59%.
In the interest of the national economy and the government, the COP and the APT deemed
it best to sell the National Government's share in PHILSECO to private entities. After a
series of negotiations between the APT and KAWASAKI, they agreed that the latter's right
of first refusal under the JVA be "exchanged" for the right to top by five percent (5%) the
highest bid for the said shares. They further agreed that KAWASAKI would be entitled to
name a company in which it was a stockholder, which could exercise the right to top. On
September 7, 1990, KAWASAKI informed APT that Philyards Holdings, Inc. (PHI) 1 would
exercise its right to top.

I. Facts
The undisputed facts of the case, as set forth in our Resolution of September 24, 2003, are
as follows:
On January 27, 1997, the National Investment and Development Corporation (NIDC), a
government corporation, entered into a Joint Venture Agreement (JVA) with Kawasaki
Heavy Industries, Ltd. of Kobe, Japan (KAWASAKI) for the construction, operation and
management of the Subic National Shipyard, Inc. (SNS) which subsequently became the
Philippine Shipyard and Engineering Corporation (PHILSECO). Under the JVA, the NIDC
and KAWASAKI will contribute P330 million for the capitalization of PHILSECO in the
proportion of 60%-40% respectively. One of its salient features is the grant to the parties of
the right of first refusal should either of them decide to sell, assign or transfer its interest
in the joint venture, viz:
1.4 Neither party shall sell, transfer or assign all or any part of its interest in SNS
[PHILSECO] to any third party without giving the other under the same terms the right of
first refusal. This provision shall not apply if the transferee is a corporation owned or
controlled by the GOVERNMENT or by a KAWASAKI affiliate.

At the pre-bidding conference held on September 18, 1993, interested bidders were given
copies of the JVA between NIDC and KAWASAKI, and of the Asset Specific Bidding
Rules (ASBR) drafted for the National Government's 87.6% equity share in PHILSECO.
The provisions of the ASBR were explained to the interested bidders who were notified
that the bidding would be held on December 2, 1993. A portion of the ASBR reads:
1.0 The subject of this Asset Privatization Trust (APT) sale through public bidding is the
National Government's equity in PHILSECO consisting of 896,869,942 shares of stock
(representing 87.67% of PHILSECO's outstanding capital stock), which will be sold as a
whole block in accordance with the rules herein enumerated.
xxx xxx xxx
2.0 The highest bid, as well as the buyer, shall be subject to the final approval of both the
APT Board of Trustees and the Committee on Privatization (COP).
2.1 APT reserves the right in its sole discretion, to reject any or all bids.

11

3.0 This public bidding shall be on an Indicative Price Bidding basis. The Indicative price
set for the National Government's 87.67% equity in PHILSECO is PESOS: ONE BILLION
THREE HUNDRED MILLION (P1,300,000,000.00).
xxx xxx xxx
6.0 The highest qualified bid will be submitted to the APT Board of Trustees at its regular
meeting following the bidding, for the purpose of determining whether or not it should be
endorsed by the APT Board of Trustees to the COP, and the latter approves the same. The
APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee, [PHILYARDS]
Holdings, Inc., that the highest bid is acceptable to the National Government. Kawasaki
Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. shall then have a period of
thirty (30) calendar days from the date of receipt of such advice from APT within which to
exercise their "Option to Top the Highest Bid" by offering a bid equivalent to the highest
bid plus five (5%) percent thereof.
6.1 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. exercise
their "Option to Top the Highest Bid," they shall so notify the APT about such exercise of
their option and deposit with APT the amount equivalent to ten percent (10%) of the
highest bid plus five percent (5%) thereof within the thirty (30)-day period mentioned in
paragraph 6.0 above. APT will then serve notice upon Kawasaki Heavy Industries, Inc.
and/or [PHILYARDS] Holdings, Inc. declaring them as the preferred bidder and they shall
have a period of ninety (90) days from the receipt of the APT's notice within which to pay
the balance of their bid price.
6.2 Should Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. fail to
exercise their "Option to Top the Highest Bid" within the thirty (30)-day period, APT will
declare the highest bidder as the winning bidder.
xxx xxx xxx
12.0 The bidder shall be solely responsible for examining with appropriate care these rules,
the official bid forms, including any addenda or amendments thereto issued during the
bidding period. The bidder shall likewise be responsible for informing itself with respect to
any and all conditions concerning the PHILSECO Shares which may, in any manner, affect
the bidder's proposal. Failure on the part of the bidder to so examine and inform itself shall
be its sole risk and no relief for error or omission will be given by APT or COP. . . .
At the public bidding on the said date, petitioner J.G. Summit Holdings, Inc. 2 submitted a
bid of Two Billion and Thirty Million Pesos (P2,030,000,000.00) with an acknowledgment
of KAWASAKI/[PHILYARDS'] right to top, viz:

4. I/We understand that the Committee on Privatization (COP) has up to thirty (30) days to
act on APT's recommendation based on the result of this bidding. Should the COP approve
the highest bid, APT shall advise Kawasaki Heavy Industries, Inc. and/or its nominee,
[PHILYARDS] Holdings, Inc. that the highest bid is acceptable to the National
Government. Kawasaki Heavy Industries, Inc. and/or [PHILYARDS] Holdings, Inc. shall
then have a period of thirty (30) calendar days from the date of receipt of such advice from
APT within which to exercise their "Option to Top the Highest Bid" by offering a bid
equivalent to the highest bid plus five (5%) percent thereof.
As petitioner was declared the highest bidder, the COP approved the sale on December 3,
1993 "subject to the right of Kawasaki Heavy Industries, Inc./[PHILYARDS] Holdings,
Inc. to top JGSMI's bid by 5% as specified in the bidding rules."
On December 29, 1993, petitioner informed APT that it was protesting the offer of PHI to
top its bid on the grounds that: (a) the KAWASAKI/PHI consortium composed of
KAWASAKI, [PHILYARDS], Mitsui, Keppel, SM Group, ICTSI and Insular Life violated
the ASBR because the last four (4) companies were the losing bidders thereby
circumventing the law and prejudicing the weak winning bidder; (b) only KAWASAKI
could exercise the right to top; (c) giving the same option to top to PHI constituted
unwarranted benefit to a third party; (d) no right of first refusal can be exercised in a public
bidding or auction sale; and (e) the JG Summit consortium was not estopped from
questioning the proceedings.
On February 2, 1994, petitioner was notified that PHI had fully paid the balance of the
purchase price of the subject bidding. On February 7, 1994, the APT notified petitioner that
PHI had exercised its option to top the highest bid and that the COP had approved the same
on January 6, 1994. On February 24, 1994, the APT and PHI executed a Stock Purchase
Agreement. Consequently, petitioner filed with this Court a Petition for Mandamus under
G.R. No. 114057. On May 11, 1994, said petition was referred to the Court of Appeals. On
July 18, 1995, the Court of Appeals denied the same for lack of merit. It ruled that the
petition for mandamus was not the proper remedy to question the constitutionality or
legality of the right of first refusal and the right to top that was exercised by
KAWASAKI/PHI, and that the matter must be brought "by the proper party in the proper
forum at the proper time and threshed out in a full blown trial." The Court of Appeals
further ruled that the right of first refusal and the right to top are prima facie legal and that
the petitioner, "by participating in the public bidding, with full knowledge of the right to
top granted to KAWASAKI/[PHILYARDS] isestopped from questioning the validity of
the award given to [PHILYARDS] after the latter exercised the right to top and had paid in
full the purchase price of the subject shares, pursuant to the ASBR." Petitioner filed a
Motion for Reconsideration of said Decision which was denied on March 15, 1996.
Petitioner thus filed a Petition for Certiorari with this Court alleging grave abuse of
discretion on the part of the appellate court.

12

On November 20, 2000, this Court rendered x x x [a] Decision ruling among others that the
Court of Appeals erred when it dismissed the petition on the sole ground of the impropriety
of the special civil action of mandamus because the petition was also one of certiorari. It
further ruled that a shipyard like PHILSECO is a public utility whose capitalization must
be sixty percent (60%) Filipino-owned. Consequently, the right to top granted to
KAWASAKI under the Asset Specific Bidding Rules (ASBR) drafted for the sale of the
87.67% equity of the National Government in PHILSECO is illegal not only because it
violates the rules on competitive bidding but more so, because it allows foreign
corporations to own more than 40% equity in the shipyard. It also held that "although the
petitioner had the opportunity to examine the ASBR before it participated in the bidding, it
cannot be estopped from questioning the unconstitutional, illegal and inequitable
provisions thereof." Thus, this Court voided the transfer of the national government's
87.67% share in PHILSECO to Philyard[s] Holdings, Inc., and upheld the right of JG
Summit, as the highest bidder, to take title to the said shares, viz:
WHEREFORE, the instant petition for review on certiorari is GRANTED. The assailed
Decision and Resolution of the Court of Appeals are REVERSED and SET ASIDE.
Petitioner is ordered to pay to APT its bid price of Two Billion Thirty Million Pesos
(P2,030,000,000.00), less its bid deposit plus interests upon the finality of this Decision. In
turn, APT is ordered to:

In a Resolution dated September 24, 2003, this Court ruled in favor of the respondents. On
the first issue, we held that Philippine Shipyard and Engineering Corporation (PHILSECO)
is not a public utility, as by nature, a shipyard is not a public utility 4 and that no law
declares a shipyard to be a public utility.5 On the second issue, we found nothing in the
1977 Joint Venture Agreement (JVA) which prevents Kawasaki Heavy Industries, Ltd. of
Kobe, Japan (KAWASAKI) from acquiring more than 40% of PHILSECOs total
capitalization.6 On the final issue, we held that the right to top granted to KAWASAKI in
exchange for its right of first refusal did not violate the principles of competitive bidding. 7
On October 20, 2003, the petitioner filed a Motion for Reconsideration 8 and a Motion to
Elevate This Case to the Court En Banc.9 Public respondents Committee on Privatization
(COP) and Asset Privatization Trust (APT), and private respondent Philyards Holdings,
Inc. (PHILYARDS) filed their Comments on J.G. Summit Holdings, Inc.s (JG Summits)
Motion for Reconsideration and Motion to Elevate This Case to the Court En Banc on
January 29, 2004 and February 3, 2004, respectively.
II. Issues
Based on the foregoing, the relevant issues to resolve to end this litigation are the
following:

(a) accept the said amount of P2,030,000,000.00 less bid deposit and interests
from petitioner;

1. Whether there are sufficient bases to elevate the case at bar to the Court en
banc.

(b) execute a Stock Purchase Agreement with petitioner;

2. Whether the motion for reconsideration raises any new matter or cogent reason
to warrant a reconsideration of this Courts Resolution of September 24, 2003.

(c) cause the issuance in favor of petitioner of the certificates of stocks

representing 87.6% of PHILSECO's total capitalization;

Motion to Elevate this Case to the

(d) return to private respondent PHGI the amount of Two Billion One Hundred
Thirty-One Million Five Hundred Thousand Pesos (P2,131,500,000.00); and

Court En Banc

(e) cause the cancellation of the stock certificates issued to PHI.

The petitioner prays for the elevation of the case to the Court en banc on the following
grounds:

SO ORDERED.
In separate Motions for Reconsideration, respondents submit[ted] three basic issues for x x
x resolution: (1) Whether PHILSECO is a public utility; (2) Whether under the 1977 JVA,
KAWASAKI can exercise its right of first refusal only up to 40% of the total capitalization
of PHILSECO; and (3) Whether the right to top granted to KAWASAKI violates the
principles of competitive bidding.3 (citations omitted)

1. The main issue of the propriety of the bidding process involved in the present
case has been confused with the policy issue of the supposed fate of the shipping
industry which has never been an issue that is determinative of this case. 10
2. The present case may be considered under the Supreme Court Resolution dated
February 23, 1984 which included among en banc cases those involving a novel

13

question of law and those where a doctrine or principle laid down by the Court en
banc or in division may be modified or reversed. 11
3. There was clear executive interference in the judicial functions of the Court
when the Honorable Jose Isidro Camacho, Secretary of Finance, forwarded to
Chief Justice Davide, a memorandum dated November 5, 2001, attaching a copy
of the Foreign Chambers Report dated October 17, 2001, which matter was placed
in the agenda of the Court and noted by it in a formal resolution dated November
28, 2001.12
Opposing J.G. Summits motion to elevate the case en banc, PHILYARDS points out the
petitioners inconsistency in previously opposing PHILYARDS Motion to Refer the Case
to the Court En Banc. PHILYARDS contends that J.G. Summit should now be estopped
from asking that the case be referred to the Court en banc. PHILYARDS further contends
that the Supreme Court en banc is not an appellate court to which decisions or resolutions
of its divisions may be appealed citing Supreme Court Circular No. 2-89 dated February 7,
1989.13 PHILYARDS also alleges that there is no novel question of law involved in the
present case as the assailed Resolution was based on well-settled jurisprudence. Likewise,
PHILYARDS stresses that the Resolution was merely an outcome of the motions for
reconsideration filed by it and the COP and APT and is "consistent with the inherent power
of courts to amend and control its process and orders so as to make them conformable to
law and justice. (Rule 135, sec. 5)" 14 Private respondent belittles the petitioners
allegations regarding the change in ponente and the alleged executive interference as
shown by former Secretary of Finance Jose Isidro Camachos memorandum dated
November 5, 2001 arguing that these do not justify a referral of the present case to the
Court en banc.
In insisting that its Motion to Elevate This Case to the Court En Banc should be granted,
J.G. Summit further argued that: its Opposition to the Office of the Solicitor Generals
Motion to Refer is different from its own Motion to Elevate; different grounds are invoked
by the two motions; there was unwarranted "executive interference"; and the change
in ponente is merely noted in asserting that this case should be decided by the Court en
banc.15
We find no merit in petitioners contention that the propriety of the bidding process
involved in the present case has been confused with the policy issue of the fate of the
shipping industry which, petitioner maintains, has never been an issue that is determinative
of this case. The Courts Resolution of September 24, 2003 reveals a clear and definitive
ruling on the propriety of the bidding process. In discussing whether the right to top
granted to KAWASAKI in exchange for its right of first refusal violates the principles of
competitive bidding, we made an exhaustive discourse on the rules and principles of public
bidding and whether they were complied with in the case at bar.16 This Court categorically

ruled on the petitioners argument that PHILSECO, as a shipyard, is a public utility which
should maintain a 60%-40% Filipino-foreign equity ratio, as it was a pivotal issue. In doing
so, we recognized the impact of our ruling on the shipbuilding industry which was beyond
avoidance.17
We reject petitioners argument that the present case may be considered under the Supreme
Court Resolution dated February 23, 1984 which included among en banc cases those
involving a novel question of law and those where a doctrine or principle laid down by the
court en banc or in division may be modified or reversed. The case was resolved based on
basic principles of the right of first refusal in commercial law and estoppel in civil law.
Contractual obligations arising from rights of first refusal are not new in this jurisdiction
and have been recognized in numerous cases.18 Estoppel is too known a civil law concept
to require an elongated discussion. Fundamental principles on public bidding were likewise
used to resolve the issues raised by the petitioner. To be sure, petitioner leans on the right to
top in a public bidding in arguing that the case at bar involves a novel issue. We are not
swayed. The right to top was merely a condition or a reservation made in the bidding rules
which was fully disclosed to all bidding parties. In Bureau Veritas, represented by
Theodor H. Hunermann v. Office of the President, et al., 19 we dealt with this
conditionality, viz:
x x x It must be stressed, as held in the case of A.C. Esguerra & Sons v. Aytona, et al., (L18751, 28 April 1962, 4 SCRA 1245), that in an "invitation to bid, there is a condition
imposed upon the bidders to the effect that the bidding shall be subject to the right of
the government to reject any and all bids subject to its discretion. In the case at bar,
the government has made its choice and unless an unfairness or injustice is shown, the
losing bidders have no cause to complain nor right to dispute that choice. This is a
well-settled doctrine in this jurisdiction and elsewhere."
The discretion to accept or reject a bid and award contracts is vested in the Government
agencies entrusted with that function. The discretion given to the authorities on this matter
is of such wide latitude that the Courts will not interfere therewith, unless it is apparent that
it is used as a shield to a fraudulent award (Jalandoni v. NARRA, 108 Phil. 486 [1960]). x
x x The exercise of this discretion is a policy decision that necessitates prior inquiry,
investigation, comparison, evaluation, and deliberation. This task can best be discharged by
the Government agencies concerned, not by the Courts. The role of the Courts is to
ascertain whether a branch or instrumentality of the Government has transgressed its
constitutional boundaries. But the Courts will not interfere with executive or legislative
discretion exercised within those boundaries. Otherwise, it strays into the realm of policy
decision-making.
It is only upon a clear showing of grave abuse of discretion that the Courts will set aside
the award of a contract made by a government entity. Grave abuse of discretion implies a

14

capricious, arbitrary and whimsical exercise of power (Filinvest Credit Corp. v.

Intermediate Appellate Court, No. 65935, 30 September 1988, 166 SCRA 155). The abuse
of discretion must be so patent and gross as to amount to an evasion of positive duty or to a
virtual refusal to perform a duty enjoined by law, as to act at all in contemplation of law,
where the power is exercised in an arbitrary and despotic manner by reason of passion or
hostility (Litton Mills, Inc. v. Galleon Trader, Inc., et al[.], L-40867, 26 July 1988, 163
SCRA 489).
The facts in this case do not indicate any such grave abuse of discretion on the part of
public respondents when they awarded the CISS contract to Respondent SGS. In the
"Invitation to Prequalify and Bid" (Annex "C," supra), the CISS Committee made an
express reservation of the right of the Government to "reject any or all bids or any
part thereof or waive any defects contained thereon and accept an offer most
advantageous to the Government." It is a well-settled rule that where such
reservation is made in an Invitation to Bid, the highest or lowest bidder, as the case
may be, is not entitled to an award as a matter of right (C & C Commercial Corp. v.
Menor, L-28360, 27 January 1983, 120 SCRA 112). Even the lowest Bid or any Bid may
be rejected or, in the exercise of sound discretion, the award may be made to another than
the lowest bidder (A.C. Esguerra & Sons v. Aytona, supra, citing 43 Am. Jur., 788).
(emphases supplied)1awphi1.nt
Like the condition in the Bureau Veritas case, the right to top was a condition imposed by
the government in the bidding rules which was made known to all parties. It was a
condition imposed on all bidders equally, based on the APTs exercise of its discretion
in deciding on how best to privatize the governments shares in PHILSECO. It was not
a whimsical or arbitrary condition plucked from the ether and inserted in the bidding rules
but a condition which the APT approved as the best way the government could comply
with its contractual obligations to KAWASAKI under the JVA and its mandate of getting
the most advantageous deal for the government. The right to top had its history in the
mutual right of first refusal in the JVA and was reached by agreement of the government
and KAWASAKI.
Further, there is no "executive interference" in the functions of this Court by the mere filing
of a memorandum by Secretary of Finance Jose Isidro Camacho. The memorandum was
merely "noted" to acknowledge its filing. It had no further legal significance. Notably
too, the assailed Resolution dated September 24, 2003 was decided unanimously by
the Special First Division in favor of the respondents.
Again, we emphasize that a decision or resolution of a Division is that of the Supreme
Court20 and the Court en banc is not an appellate court to which decisions or resolutions of
a Division may be appealed.21

For all the foregoing reasons, we find no basis to elevate this case to the Court en banc.
Motion for Reconsideration
Three principal arguments were raised in the petitioners Motion for Reconsideration. First,
that a fair resolution of the case should be based on contract law, not on policy
considerations; the contracts do not authorize the right to top to be derived from the right of
first refusal.22 Second, that neither the right of first refusal nor the right to top can be
legally exercised by the consortium which is not the proper party granted such right under
either the JVA or the Asset Specific Bidding Rules (ASBR). 23 Third, that the maintenance
of the 60%-40% relationship between the National Investment and Development
Corporation (NIDC) and KAWASAKI arises from contract and from the Constitution
because PHILSECO is a landholding corporation and need not be a public utility to be
bound by the 60%-40% constitutional limitation.24
On the other hand, private respondent PHILYARDS asserts that J.G. Summit has not been
able to show compelling reasons to warrant a reconsideration of the Decision of the
Court.25 PHILYARDS denies that the Decision is based mainly on policy considerations
and points out that it is premised on principles governing obligations and contracts and
corporate law such as the rule requiring respect for contractual stipulations, upholding
rights of first refusal, and recognizing the assignable nature of contracts rights. 26 Also, the
ruling that shipyards are not public utilities relies on established case law and fundamental
rules of statutory construction. PHILYARDS stresses that KAWASAKIs right of first
refusal or even the right to top is not limited to the 40% equity of the latter.27 On the
landholding issue raised by J.G. Summit, PHILYARDS emphasizes that this is a non-issue
and even involves a question of fact. Even assuming that this Court can take cognizance of
such question of fact even without the benefit of a trial, PHILYARDS opines that
landholding by PHILSECO at the time of the bidding is irrelevant because what is essential
is that ultimately a qualified entity would eventually hold PHILSECOs real estate
properties.28 Further, given the assignable nature of the right of first refusal, any applicable
nationality restrictions, including landholding limitations, would not affect the right of first
refusal itself, but only the manner of its exercise. 29 Also, PHILYARDS argues that if this
Court takes cognizance of J.G. Summits allegations of fact regarding PHILSECOs
landholding, it must also recognize PHILYARDS assertions that PHILSECOs
landholdings were sold to another corporation. 30 As regards the right of first refusal, private
respondent explains that KAWASAKIs reduced shareholdings (from 40% to 2.59%) did
not translate to a deprivation or loss of its contractually granted right of first refusal. 31 Also,
the bidding was valid because PHILYARDS exercised the right to top and it was of no
moment that losing bidders later joined PHILYARDS in raising the purchase price.32
In cadence with the private respondent PHILYARDS, public respondents COP and APT
contend:

15

1. The conversion of the right of first refusal into a right to top by 5% does not
violate any provision in the JVA between NIDC and KAWASAKI.

a. The landholding issue is not a non-issue.

b. The landholding issue does not pose questions of fact.

2. PHILSECO is not a public utility and therefore not governed by the

constitutional restriction on foreign ownership.
3. The petitioner is legally estopped from assailing the validity of the proceedings
of the public bidding as it voluntarily submitted itself to the terms of the ASBR
which included the provision on the right to top.
4. The right to top was exercised by PHILYARDS as the nominee of KAWASAKI
and the fact that PHILYARDS formed a consortium to raise the required amount
to exercise the right to top the highest bid by 5% does not violate the JVA or the
ASBR.
5. The 60%-40% Filipino-foreign constitutional requirement for the acquisition of
lands does not apply to PHILSECO because as admitted by petitioner itself,
PHILSECO no longer owns real property.
6. Petitioners motion to elevate the case to the Court en banc is baseless and
would only delay the termination of this case.33
In a Consolidated Comment dated March 8, 2004, J.G. Summit countered the arguments of
the public and private respondents in this wise:
1. The award by the APT of 87.67% shares of PHILSECO to PHILYARDS with
losing bidders through the exercise of a right to top, which is contrary to law and
the constitution is null and void for being violative of substantive due process and
the abuse of right provision in the Civil Code.
a. The bidders[] right to top was actually exercised by losing bidders.
b. The right to top or the right of first refusal cannot co-exist with a
genuine competitive bidding.
c. The benefits derived from the right to top were unwarranted.
2. The landholding issue has been a legitimate issue since the start of this case but
is shamelessly ignored by the respondents.

c. That PHILSECO owned land at the time that the right of first refusal
was agreed upon and at the time of the bidding are most relevant.
d. Whether a shipyard is a public utility is not the core issue in this case.
3. Fraud and bad faith attend the alleged conversion of an inexistent right of first
refusal to the right to top.
a. The history behind the birth of the right to top shows fraud and bad
faith.
b. The right of first refusal was, indeed, "effectively useless."
4. Petitioner is not legally estopped to challenge the right to top in this case.
a. Estoppel is unavailing as it would stamp validity to an act that is
prohibited by law or against public policy.
b. Deception was patent; the right to top was an attractive nuisance.
c. The 10% bid deposit was placed in escrow.
J.G. Summits insistence that the right to top cannot be sourced from the right of first
refusal is not new and we have already ruled on the issue in our Resolution of September
24, 2003. We upheld the mutual right of first refusal in the JVA. 34 We also ruled that
nothing in the JVA prevents KAWASAKI from acquiring more than 40% of PHILSECOs
total capitalization.35 Likewise, nothing in the JVA or ASBR bars the conversion of the
right of first refusal to the right to top. In sum, nothing new and of significance in the
petitioners pleading warrants a reconsideration of our ruling.
Likewise, we already disposed of the argument that neither the right of first refusal nor the
right to top can legally be exercised by the consortium which is not the proper party
granted such right under either the JVA or the ASBR. Thus, we held:
The fact that the losing bidder, Keppel Consortium (composed of Keppel, SM Group,
Insular Life Assurance, Mitsui and ICTSI), has joined PHILYARDS in the latter's effort to

16

raise P2.131 billion necessary in exercising the right to top is not contrary to law, public
policy or public morals. There is nothing in the ASBR that bars the losing bidders from
joining either the winning bidder (should the right to top is not exercised) or
KAWASAKI/PHI (should it exercise its right to top as it did), to raise the purchase price.
The petitioner did not allege, nor was it shown by competent evidence, that the
participation of the losing bidders in the public bidding was done with fraudulent intent.
Absent any proof of fraud, the formation by [PHILYARDS] of a consortium is legitimate in
a free enterprise system. The appellate court is thus correct in holding the petitioner
estopped from questioning the validity of the transfer of the National Government's shares
in PHILSECO to respondent.36
Further, we see no inherent illegality on PHILYARDS act in seeking funding from parties
who were losing bidders. This is a purely commercial decision over which the State should
not interfere absent any legal infirmity. It is emphasized that the case at bar involves the
disposition of shares in a corporation which the government sought to privatize. As such,
the persons with whom PHILYARDS desired to enter into business with in order to raise
funds to purchase the shares are basically its business. This is in contrast to a case
involving a contract for the operation of or construction of a government infrastructure
where the identity of the buyer/bidder or financier constitutes an important consideration.
In such cases, the government would have to take utmost precaution to protect public
interest by ensuring that the parties with which it is contracting have the ability to
satisfactorily construct or operate the infrastructure.
On the landholding issue, J.G. Summit submits that since PHILSECO is a landholding
company, KAWASAKI could exercise its right of first refusal only up to 40% of the shares
of PHILSECO due to the constitutional prohibition on landholding by corporations with
more than 40% foreign-owned equity. It further argues that since KAWASAKI already held
at least 40% equity in PHILSECO, the right of first refusal was inutile and as such, could
not subsequently be converted into the right to top. 37 Petitioner also asserts that, at present,
PHILSECO continues to violate the constitutional provision on landholdings as its shares
are more than 40% foreign-owned.38PHILYARDS admits that it may have previously held
land but had already divested such landholdings. 39 It contends, however, that even if
PHILSECO owned land, this would not affect the right of first refusal but only the exercise
thereof. If the land is retained, the right of first refusal, being a property right, could be
assigned to a qualified party. In the alternative, the land could be divested before the
exercise of the right of first refusal. In the case at bar, respondents assert that since the right
of first refusal was validly converted into a right to top, which was exercised not by
KAWASAKI, but by PHILYARDS which is a Filipino corporation (i.e., 60% of its shares
are owned by Filipinos), then there is no violation of the Constitution. 40 At first, it would
seem that questions of fact beyond cognizance by this Court were involved in the issue.
However, the records show that PHILYARDS admits it had owned land up until the
time of the bidding.41 Hence, the only issue is whether KAWASAKI had a valid right

of first refusal over PHILSECO shares under the JVA considering that PHILSECO
owned land until the time of the bidding and KAWASAKI already held 40% of
PHILSECOs equity.
We uphold the validity of the mutual rights of first refusal under the JVA between
KAWASAKI and NIDC. First of all, the right of first refusal is a property right of
PHILSECO shareholders, KAWASAKI and NIDC, under the terms of their JVA. This right
allows them to purchase the shares of their co-shareholder before they are offered to a third
party. The agreement of co-shareholders to mutually grant this right to each other, by
itself, does not constitute a violation of the provisions of the Constitution limiting land
ownership to Filipinos and Filipino corporations. As PHILYARDS correctly puts it, if
PHILSECO still owns land, the right of first refusal can be validly assigned to a qualified
Filipino entity in order to maintain the 60%-40% ratio. This transfer, by itself, does not
amount to a violation of the Anti-Dummy Laws, absent proof of any fraudulent intent. The
transfer could be made either to a nominee or such other party which the holder of the right
of first refusal feels it can comfortably do business with. Alternatively, PHILSECO may
divest of its landholdings, in which case KAWASAKI, in exercising its right of first refusal,
can exceed 40% of PHILSECOs equity. In fact, it can even be said that if the foreign
shareholdings of a landholding corporation exceeds 40%, it is not the foreign
stockholders ownership of the shares which is adversely affected but the capacity of
the corporation to own land that is, the corporation becomes disqualified to own land.
This finds support under the basic corporate law principle that the corporation and its
stockholders are separate juridical entities. In this vein, the right of first refusal over shares
pertains to the shareholders whereas the capacity to own land pertains to the corporation.
Hence, the fact that PHILSECO owns land cannot deprive stockholders of their right of
first refusal. No law disqualifies a person from purchasing shares in a landholding
corporation even if the latter will exceed the allowed foreign equity, what the law
disqualifies is the corporation from owning land. This is the clear import of the
following provisions in the Constitution:
Section 2. All lands of the public domain, waters, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, fisheries, forests or timber, wildlife, flora and
fauna, and other natural resources are owned by the State. With the exception of
agricultural lands, all other natural resources shall not be alienated. The exploration,
development, and utilization of natural resources shall be under the full control and
supervision of the State. The State may directly undertake such activities, or it may enter
into co-production, joint venture, or production-sharing agreements with Filipino citizens,
or corporations or associations at least sixty per centum of whose capital is owned by
such citizens. Such agreements may be for a period not exceeding twenty-five years,
renewable for not more than twenty-five years, and under such terms and conditions as
may be provided by law. In cases of water rights for irrigation, water supply, fisheries, or

17

industrial uses other than the development of water power, beneficial use may be the
measure and limit of the grant.
xxx xxx xxx
Section 7. Save in cases of hereditary succession, no private lands shall be transferred or
conveyed except to individuals, corporations, or associations qualified to acquire or
hold lands of the public domain.42(emphases supplied)
The petitioner further argues that "an option to buy land is void in itself (Philippine
Banking Corporation v. Lui She, 21 SCRA 52 [1967]). The right of first refusal granted to
KAWASAKI, a Japanese corporation, is similarly void. Hence, the right to top, sourced
from the right of first refusal, is also void." 43 Contrary to the contention of petitioner, the
case of Lui She did not that say "an option to buy land is void in itself," for we ruled as
follows:
x x x To be sure, a lease to an alien for a reasonable period is valid. So is an option
giving an alien the right to buy real property on condition that he is granted
Philippine citizenship. As this Court said in Krivenko vs. Register of Deeds:
[A]liens are not completely excluded by the Constitution from the use of lands for
residential purposes. Since their residence in the Philippines is temporary, they may be
granted temporary rights such as a lease contract which is not forbidden by the
Constitution. Should they desire to remain here forever and share our fortunes and
misfortunes, Filipino citizenship is not impossible to acquire.
But if an alien is given not only a lease of, but also an option to buy, a piece of land, by
virtue of which the Filipino owner cannot sell or otherwise dispose of his property,
this to last for 50 years, then it becomes clear that the arrangement is a virtual
transfer of ownership whereby the owner divests himself in stages not only of the
right to enjoy the land (jus possidendi, jus utendi, jus fruendi and jus abutendi) but also
of the right to dispose of it (jus disponendi) rights the sum total of which make up
ownership. It is just as if today the possession is transferred, tomorrow, the use, the
next day, the disposition, and so on, until ultimately all the rights of which
ownership is made up are consolidated in an alien. And yet this is just exactly what the
parties in this case did within this pace of one year, with the result that Justina Santos'[s]
ownership of her property was reduced to a hollow concept. If this can be done, then the
Constitutional ban against alien landholding in the Philippines, as announced in Krivenko
vs. Register of Deeds, is indeed in grave peril.44 (emphases supplied; Citations omitted)

In Lui She, the option to buy was invalidated because it amounted to a virtual transfer of
ownership as the owner could not sell or dispose of his properties. The contract in Lui
She prohibited the owner of the land from selling, donating, mortgaging, or encumbering
the property during the 50-year period of the option to buy. This is not so in the case at bar
where the mutual right of first refusal in favor of NIDC and KAWASAKI does not amount
to a virtual transfer of land to a non-Filipino. In fact, the case at bar involves a right of
first refusal over shares of stock while the Lui She case involves an option to buy the
land itself. As discussed earlier, there is a distinction between the shareholders ownership
of shares and the corporations ownership of land arising from the separate juridical
personalities of the corporation and its shareholders.
We note that in its Motion for Reconsideration, J.G. Summit alleges that PHILSECO
continues to violate the Constitution as its foreign equity is above 40% and yet owns longterm leasehold rights which are real rights.45 It cites Article 415 of the Civil Code which
includes in the definition of immovable property, "contracts for public works, and
servitudes and other real rights over immovable property." 46 Any existing landholding,
however, is denied by PHILYARDS citing its recent financial statements. 47 First, these are
questions of fact, the veracity of which would require introduction of evidence. The Court
needs to validate these factual allegations based on competent and reliable evidence. As
such, the Court cannot resolve the questions they pose. Second, J.G. Summit misreads the
provisions of the Constitution cited in its own pleadings, to wit:
29.2 Petitioner has consistently pointed out in the past that private respondent is not a 60%40% corporation, and this violates the Constitution x x x The violation continues to this
day because under the law, it continues to own real property
xxx xxx xxx
32. To review the constitutional provisions involved, Section 14, Article XIV of the 1973
Constitution (the JVA was signed in 1977), provided:
"Save in cases of hereditary succession, no private lands shall be transferred or conveyed
except to individuals, corporations, or associations qualified to acquire or hold lands of the
public domain."
32.1 This provision is the same as Section 7, Article XII of the 1987 Constitution.
32.2 Under the Public Land Act, corporations qualified to acquire or hold lands of the
public domain are corporations at least 60% of which is owned by Filipino citizens (Sec.
22, Commonwealth Act 141, as amended). (emphases supplied)

18

As correctly observed by the public respondents, the prohibition in the Constitution applies
only to ownership of land.48 It does not extend to immovable or real property as defined
under Article 415 of the Civil Code.Otherwise, we would have a strange situation where
the ownership of immovable property such as trees, plants and growing fruit attached to the
land49 would be limited to Filipinos and Filipino corporations only.
III.
WHEREFORE, in view of the foregoing, the petitioners Motion for Reconsideration is
DENIED WITH FINALITY and the decision appealed from is AFFIRMED. The Motion to
Elevate This Case to the Court En Banc is likewise DENIED for lack of merit.
SO ORDERED.

19