G.R. No. 10670 - People vs. Li Sui Wun

Prior to January 1947, a syndicate (or secret partnership) was formed by plaintiffs with other associates to acquire the plants, franchises, and other properties of the Manila Electric Co. (Meralco) in the provinces of Camarines Sur, Albay, and Sorsogon.
No formal articles of partnership were drawn up as the plan was to incorporate a formal corporation once the deal was consummated.

Pedro Serranzana and David Serrano were elected as general manager and secretary-treasurer, respectively, of the partnership.
In order to move the negotiations forward, defendant Jaime Hernandez was admitted as a member of the partnership and given the necessary power of attorney to push through the acquisition.

Using funds from the partnership, defendant executed the purchase of the Meralco properties for P122,000.
The payment was structured with an initial P40,000 paid upon signing the deed of sale and two subsequent installments of P41,000 on or before July 31, 1947, and January 31, 1948, respectively, with interest at 6% per annum.
A penalty clause provided that failure to pay would result in annulment of the contract with forfeiture of all payments made as liquidated damages and immediate reentry by the vendor.

As the planned incorporation was underway, several partners, fearing further financial exposure (especially with the looming installments for the unpaid purchase price), expressed their desire to withdraw.
On April 10, 1947, during a meeting to address the business’s future, a resolution was adopted to allow withdrawing partners to reclaim their initial contributions.
Plaintiffs and Judge Jaime Reyes executed their withdrawal from the partnership on the same day as the resolution, thereby dissolving the partnership, and received reimbursement of their respective contributions the following day.

The remaining partners, opting to continue the business, proceeded with the formation of a new corporation—Bicol Electric Company—by taking in additional stockholders and apportioning shares according to capital contributions and individual efforts.
Defendant, in fulfillment of his duties, made a formal assignment of the Meralco properties to the corporation’s treasurer, assigning them a book value of P365,000, while the corporation issued shares totaling a face value of P225,000 in exchange and assumed the obligation for the remaining purchase price due to Meralco.
Despite initial losses in 1947, the corporation later prospered after obtaining a loan from the RFC.

Two years after the withdrawal of some partners, when the business was in a more prosperous state, plaintiffs brought suit against defendant claiming a share in the alleged profit derived from the assignment of the Meralco properties.
Plaintiffs estimated the profit at P225,000 and asserted that their share amounted to P115,312.50.
Defendant denied receiving any profit out of the assignment, asserting that the consideration was in the form of shares issued to various subscribers rather than a direct cash profit.

The trial court found that the partnership had not realized any actual profit from the assignment of the Meralco properties.
Even assuming a profit had been made, the court ruled that defendant could not be held liable to the plaintiffs because he did not receive the direct consideration for the assignment—it was made in exchange for subscriptions to the corporation’s capital stock.
Consequently, the lower court dismissed the complaint with costs against the plaintiffs.

Plaintiffs appealed the lower court’s decision, arguing that defendant had a duty as a managing partner to liquidate the partnership’s affairs properly and account for any profit derived from the assignment.
The appellate court noted that the so-called profit was more apparent than real, given the discrepancy between the purchase price and the assigned book value did not necessarily translate to realized profit.
The court further emphasized that the withdrawal of the plaintiffs (and Judge Reyes) was done with the clear understanding that, upon reimbursement of their contributions, they relinquished any further interest in the partnership or its subsequent transactions.

Whether plaintiffs, having withdrawn and been reimbursed their respective contributions from the partnership, retained any claim to profits derived from the subsequent assignment of the Meralco properties.

Whether the alleged profit from the assignment of the Meralco properties was real and sufficient to establish a liability on the part of defendant against withdrawing partners.

Whether defendant, in his role in facilitating the assignment of the partnership’s assets to the new corporation, had any legal duty to account for or distribute any profit to the withdrawing partners.