Case Summary (G.R. No. 109248)
Petitioner and Respondent Roles
Petitioners are partners who contested the SEC and Court of Appeals determinations that the partnership was dissolved by Misa’s withdrawal and that liquidation proceedings should follow. Respondent Misa is the partner who withdrew and sought dissolution and subsequent winding up, including an application for receivership at one point. The SEC and Court of Appeals adjudicated and affirmed that the partnership was dissolved by withdrawal.
Key Dates and Procedural History
Partnership registration and amendments: originally registered in 1937 and reconstituted in 1948 with multiple subsequent name changes. Withdrawal letters by Misa: 17 and 19 February 1988. Petition for dissolution filed with SEC (SICD): 30 June 1988. Hearing Officer decision: 31 March 1989 (held withdrawal did not dissolve partnership). SEC en banc decision: 17 January 1990 (reversed, holding withdrawal dissolved the partnership and remanding for determination of rights/valuation). Reconsideration denied and receivership petition rejected: 4 April 1991. Deaths of partners Bito and Lozada: 5 September 1991 and 21 December 1991 respectively. Court of Appeals decision affirming SEC: 26 February 1993. Review by the Supreme Court culminated in affirmation of the appellate ruling.
Applicable Law and Sources
Primary legal sources applied in the decisions: the Civil Code provisions governing partnerships (notably Arts. 1828–1837 and Art. 1830 on dissolution and partnership at will) and general Civil Code principles such as Art. 19 on liability for bad faith. Because the operative decisions occurred after 1990, the 1987 Philippine Constitution is the constitutional framework under which these decisions were reached and applied. Precedent cited includes Rojas v. Maglana.
Factual Findings Material to the Decision
The partnership agreement (amended articles of 19 August 1948) contained a “DURATION” clause stating the partnership shall continue “so long as mutually satisfactory” and provides for continuation on death or incapacity by surviving partners. An amendment addressed liquidation upon death or retirement and specified valuation procedures for two condominium floors (5th and 6th, Alpap Building) and installment payment formulas. Misa formally notified withdrawal/retirement in February 1988 and later filed for dissolution and liquidation with the SEC; the partnership thereafter experienced partner deaths and admission of new partners.
Issue Framed for Review
The petitioners limited Supreme Court review to three issues: (1) whether the Court of Appeals erred in holding the firm was a partnership at will; (2) whether the appellate court erred in holding that Misa’s withdrawal dissolved the partnership regardless of his good or bad faith; and (3) whether the Court of Appeals erred in finding that Misa’s demand for dissolution to obtain physical partition was not made in bad faith.
Nature of the Partnership: Partnership at Will
The SEC and Court of Appeals—and consequently the Supreme Court—found the firm to be a partnership at will because the partnership agreement did not fix a definite term or specific undertaking of finite duration. The “purpose” clause in the articles (to act as legal advisers and represent clients) was held to state a general purpose, not a specific project with a definable completion period. Under Civil Code doctrine, a partnership that does not fix its term is a partnership at will, and the presence of a general purpose does not convert it into a partnership for a definite undertaking.
Legal Effect of Withdrawal by a Partner in a Partnership at Will
Under governing Civil Code provisions, any partner in a partnership at will may dissolve the partnership by withdrawing; the partnership’s existence is founded on mutual consent and may be terminated by the unilateral will of any partner. The Court recognized the doctrine of delectus personae (the significance of the identity of partners) and mutual agency among partners—factors that support the right of a partner to cease association and thereby effect dissolution. The decision stresses, however, that although withdrawal dissolves the partnership, the withdrawing partner must act in good faith; bad faith does not prevent dissolution but may give rise to liability for damages.
Good Faith, Bad Faith, and Consequences
The courts examined whether Misa’s withdrawal was in bad faith. The SEC and Court of Appeals found withdrawal to have been motivated by interpersonal conflicts and not to constitute bad faith. The Supreme Court agreed that withdrawal based on such conflicts, absent deliberate intent to injure the partnership or acts contrary to justice and fairness, does not amount to bad faith. The legal consequence is that the withdrawal validly dissolves the partnership, but were bad faith present it would expose the withdrawing partner to damages under Art. 19 and related Civil Code doctrines.
Liquidation, Valuation, and Contractual Provisions
Upon dissolution, the partnership continues for the purpose of winding up and liquidation. The Civil Code provisions on liquidation apply, but contractual agreements among partners ordinarily control to the extent they are applicable. The partnership articles here contained a liquidation clause providing that a retiring partner’s interest be liquidated according to agreements among partners, with a particular appraisal mechanism for the two condominium floors and specified installment schemes. The courts directed remand to determine the valuation and payment of Misa’s share consistent with those provisions.
Receivership and Preservation of Assets
Attorney Misa renewed a request for appointment of a receiver after partner deaths and admission of new partners; this was opposed by o
Case Syllabus (G.R. No. 109248)
Procedural History
- The instant petition is a Rule 45 petition for review of the Court of Appeals decision dated 26 February 1993 in CA-G.R. SP No. 24638 and No. 24648, which affirmed in toto the Securities and Exchange Commission (SEC) decision in SEC AC 254.
- The SEC’s file shows an earlier Hearing Officer decision dated 31 March 1989, which ruled that petitioner Joaquin L. Misa’s withdrawal did not dissolve the law partnership and enjoined the parties to abide by their agreement governing liquidation of a withdrawing partner’s share.
- The SEC en banc reversed the Hearing Officer on 17 January 1990, holding that Misa’s withdrawal dissolved the partnership because it was a partnership at will; the case was remanded to the Hearing Officer to determine respective rights and obligations.
- Reconsideration of the SEC en banc decision was denied and the petition for receivership was rejected by the SEC in an order dated 4 April 1991, with reiteration of the remand to the Hearing Officer.
- Separate appeals were filed in the Court of Appeals (docketed CA-G.R. SP No. 24638 and CA-G.R. SP No. 24648). While the appeals were pending, partners Jesus B. Bito and Mariano M. Lozada died on 5 September 1991 and 21 December 1991, respectively; Attorney Misa renewed his application for receivership, which the other partners opposed.
- The Court of Appeals, finding no reversible error by the SEC, affirmed the SEC decision and order in toto on 26 February 1993, including remand for valuation and denial of receivership.
- Petitioners here limit their questions to three issues: (1) whether the Court of Appeals erred in holding the partnership to be a partnership at will; (2) whether the Court of Appeals erred in holding that Misa’s withdrawal dissolved the partnership regardless of good or bad faith; and (3) whether the Court of Appeals erred in holding that Misa’s demand for dissolution to obtain physical partition of partnership assets was not made in bad faith.
Factual Background
- The law firm originally registered in the Mercantile Registry on 4 January 1937 and reconstituted with the SEC on 4 August 1948, initially as ROSS, LAWRENCE, SELPH and CARRASCOSO.
- SEC records document successive amendments to the firm name and composition on: 18 September 1958 (to ROSS, SELPH and CARRASCOSO), 6 July 1965 (to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA), 18 April 1972 (to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA), 4 December 1972 (same), 11 March 1977 (to DEL ROSARIO, BITO, MISA & LOZADA), 7 June 1977 (to BITO, MISA & LOZADA), and 19 December 1980 (association of Jesus B. Bito and Mariano M. Lozada as senior partners with Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin T. Bacorro as junior partners).
- On 17 February 1988, petitioner Misa wrote the other partners stating: “I am withdrawing and retiring from the firm of Bito, Misa and Lozada, effective at the end of this month,” and requested that accountants be instructed to make the proper liquidation of his participation in the firm.
- On the same day Misa sent another letter requesting a meeting regarding liquidation mechanics and specifically his interest in two floors of the partnership’s office condominium.
- On 19 February 1988 Misa wrote another letter stating that the partnership had “ceased to be mutually satisfactory” because of working conditions, low pay for employees and attorneys, public dress-downs of attorneys that deprived them of self-respect, and the formation of a union among assistant attorneys.
- On 30 June 1988 Misa filed with the SEC’s Securities Investigation and Clearing Department (SICD) a petition for dissolution and liquidation of partnership, docketed SEC Case No. 3384, praying that the Commission:
- decree formal dissolution and immediate liquidation of Bito, Misa & Lozada;
- order respondents to deliver or pay for petitioner’s share in partnership assets plus profits, rent or interest attributable to the use of his right in the assets;
- enjoin respondents from using the firm name and award damages of at least P50,000 for its use despite dissolution;
- order respondents jointly and severally to pay petitioner attorney’s fees and litigation expenses (claimed at not less than ten percent of the value of petitioner’s shares or P100,000); and
- order respondents to pay moral damages in the amount of P500,000 and exemplary damages of P200,000, together with other equitable reliefs.
- Respondents filed opposition on 13 July 1988, and petitioner filed a reply on the same date.
- After SEC en banc reversal and remand, and subsequent appellate proceedings, the Court of Appeals affirmed the SEC, and the Supreme Court rendered the present decision.
Issues Presented by Petitioners
- Whether the Court of Appeals erred in holding that the partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at will.
- Whether the Court of Appeals erred in holding that the withdrawal of private respondent (Misa) dissolved the partnership regardless of his good or