G.R. No. 144214. July 14, 2003]
LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO JOSE, Petitioners, v. DONALDO EFREN C. RAMIREZ and Spouses CESAR G. RAMIREZ JR. and CARMELITA C. RAMIREZ, Respondents.
D E C I S I O N
A share in a partnership can be returned only after the completion of the latters dissolution, liquidation and winding up of the business.
The Petition for Review on Certiorari before us challenges the March 23, 2000 Decision1 and the July 26, 2000 Resolution2 of the Court of Appeals3 (CA) in CA-GR CV No. 41026. The assailed Decision disposed as follows:
WHEREFORE, foregoing premises considered, the Decision dated July
21, 1992 rendered by the Regional Trial Court, Branch 148, Makati City is hereby
SET ASIDE and NULLIFIED and in lieu thereof a new decision is rendered ordering
the [petitioners] jointly and severally to pay and reimburse to [respondents]
the amount of
Reconsideration was denied in the impugned Resolution.
On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and
Jesus Jose formed a partnership with a capital of
Respondent Donaldo Efren C. Ramirez joined as a partner in the
business on September 5, 1984.
capital contribution of
After Jesus Jose withdrew from the partnership in January 1987,
his capital contribution of
In the same month, without prior knowledge of respondents, petitioners closed down the restaurant, allegedly because of increased rental. The restaurant furniture and equipment were deposited in the respondents house for storage.8cräläwvirtualibräry
On March 1, 1987, respondent spouses wrote petitioners, saying that they were no longer interested in continuing their partnership or in reopening the restaurant, and that they were accepting the latters offer to return their capital contribution.9cräläwvirtualibräry
On October 13, 1987, Carmelita Ramirez wrote another letter informing petitioners of the deterioration of the restaurant furniture and equipment stored in their house. She also reiterated the request for the return of their one-third share in the equity of the partnership. The repeated oral and written requests were, however, left unheeded.10cräläwvirtualibräry
Before the Regional Trial Court (RTC) of Makati, Branch 59, respondents subsequently filed a Complaint11 dated November 10, 1987, for the collection of a sum of money from petitioners.
In their Answer, petitioners contended that respondents had
expressed a desire to withdraw from the partnership and had called for its
dissolution under Articles 1830 and 1831 of the Civil Code; that respondents
had been paid, upon the turnover to them of furniture and equipment worth over
In their Reply, respondents alleged that they did not know of any loan encumbrance on the restaurant. According to them, if such allegation were true, then the loans incurred by petitioners should be regarded as purely personal and, as such, not chargeable to the partnership. The former further averred that they had not received any regular report or accounting from the latter, who had solely managed the business. Respondents also alleged that they expected the equipment and the furniture stored in their house to be removed by petitioners as soon as the latter found a better location for the restaurant.13cräläwvirtualibräry
Respondents filed an Urgent Motion for Leave to Sell or Otherwise
Dispose of Restaurant Furniture and Equipment14 on
July 8, 1988.
The furniture and the
equipment stored in their house were inventoried and appraised at
After trial, the RTC17 ruled that the parties had voluntarily entered into a partnership, which could be dissolved at any time. Petitioners clearly intended to dissolve it when they stopped operating the restaurant. Hence, the trial court, in its July 21, 1992 Decision, held them liable as follows:18cräläwvirtualibräry
WHEREFORE, judgment is hereby rendered in favor of [respondents] and against the [petitioners] ordering the [petitioners] to pay jointly and severally the following:
(a) Actual damages in the
(b) Attorneys fee in the
(c) Costs of suit.
The CA Ruling
The CA held that, although respondents had no right to demand the return of their capital contribution, the partnership was nonetheless dissolved when petitioners lost interest in continuing the restaurant business with them. Because petitioners never gave a proper accounting of the partnership accounts for liquidation purposes, and because no sufficient evidence was presented to show financial losses, the CA computed their liability as follows:
Consequently, since what has been proven is only the outstanding
obligation of the partnership in the amount of
Hence, this Petition.20
In their Memorandum,21 petitioners submit the following issues for our consideration:
9.1. Whether the Honorable Court of Appeals decision ordering the distribution of the capital contribution, instead of the net capital after the dissolution and liquidation of a partnership, thereby treating the capital contribution like a loan, is in accordance with law and jurisprudence;
9.2. Whether the Honorable
Court of Appeals decision ordering the petitioners to jointly and severally
pay and reimburse the amount of [
9.3. Whether the Honorable Court of Appeals was correct in making [n]o pronouncement as to costs.22cräläwvirtualibräry
On closer scrutiny, the issues are as follows:
(1) whether petitioners are liable to
respondents for the latters share in the partnership; (2) whether the CAs
This Courts Ruling
The Petition has merit.
Share in Partnership
Both the trial and the appellate courts found that a partnership had indeed existed, and that it was dissolved on March 1, 1987. They found that the dissolution took place when respondents informed petitioners of the intention to discontinue it because of the formers dissatisfaction with, and loss of trust in, the latters management of the partnership affairs. These findings were amply supported by the evidence on record. Respondents consequently demanded from petitioners the return of their one-third equity in the partnership.
We hold that respondents have no right to demand from petitioners the return of their equity share. Except as managers of the partnership, petitioners did not personally hold its equity or assets. The partnership has a juridical personality separate and distinct from that of each of the partners.23 Since the capital was contributed to the partnership, not to petitioners, it is the partnership that must refund the equity of the retiring partners.24
What Must Be Returned?
Since it is the partnership, as a separate and distinct entity, that must refund the shares of the partners, the amount to be refunded is necessarily limited to its total resources. In other words, it can only pay out what it has in its coffers, which consists of all its assets. However, before the partners can be paid their shares, the creditors of the partnership must first be compensated.25 After all the creditors have been paid, whatever is left of the partnership assets becomes available for the payment of the partners shares.
Evidently, in the present case, the exact amount of refund equivalent to respondents one-third share in the partnership cannot be determined until all the partnership assets will have been liquidated -- in other words, sold and converted to cash -- and all partnership creditors, if any, paid. The CAs computation of the amount to be refunded to respondents as their share was thus erroneous.
First, it seems that the appellate court was under the misapprehension that the total capital contribution was equivalent to the gross assets to be distributed to the partners at the time of the dissolution of the partnership. We cannot sustain the underlying idea that the capital contribution at the beginning of the partnership remains intact, unimpaired and available for distribution or return to the partners. Such idea is speculative, conjectural and totally without factual or legal support.
Generally, in the pursuit of a partnership business, its capital
is either increased by profits earned or decreased by losses sustained.
It does not remain static and unaffected by
the changing fortunes of the business.
In the present case, the financial statements presented before the trial
court showed that the business had made meager profits.26
However, notable therefrom is the omission
of any provision for the depreciation27 of
the furniture and the equipment.
amortization of the goodwill28
(initially valued at
Second, the CAs
finding that the partnership had an outstanding obligation in the amount of
x x x [E]vidence on record failed to show the exact loan owed by
the partnership to its creditors.
balance sheet (Exh. 4) does not reveal the total loan.
The Agreement (Exh. A) par. 6 shows an
outstanding obligation of
Third, the CA failed to
reduce the capitalization by
Because of the above-mentioned transactions, the partnership
capital was actually reduced.
petitioners and respondents ventured into business together, they should have
prepared for the fact that their investment would either grow or shrink.
In the present case, the investment of
respondents substantially dwindled.
original amount of
It is a long established doctrine that the law does not relieve parties from the effects of unwise, foolish or disastrous contracts they have entered into with all the required formalities and with full awareness of what they were doing. Courts have no power to relieve them from obligations they have voluntarily assumed, simply because their contracts turn out to be disastrous deals or unwise investments.29cräläwvirtualibräry
Petitioners further argue that respondents acted negligently by permitting the partnership assets in their custody to deteriorate to the point of being almost worthless. Supposedly, the latter should have liquidated these sole tangible assets of the partnership and considered the proceeds as payment of their net capital. Hence, petitioners argue that the turnover of the remaining partnership assets to respondents was precisely the manner of liquidating the partnership and fully settling the latters share in the partnership.
We disagree. The delivery of the store furniture and equipment to private respondents was for the purpose of storage. They were unaware that the restaurant would no longer be reopened by petitioners. Hence, the former cannot be faulted for not disposing of the stored items to recover their capital investment.
Section 1, Rule 142, provides:
SECTION 1. Costs ordinarily follow results of suit. Unless otherwise provided in these rules, costs shall be allowed to the prevailing party as a matter of course, but the court shall have power, for special reasons, to adjudge that either party shall pay the costs of an action, or that the same be divided, as may be equitable. No costs shall be allowed against the Republic of the Philippines unless otherwise provided by law.
Although, as a rule, costs are adjudged against the losing party, courts have discretion, for special reasons, to decree otherwise. When a lower court is reversed, the higher court normally does not award costs, because the losing party relied on the lower courts judgment which is presumed to have been issued in good faith, even if found later on to be erroneous. Unless shown to be patently capricious, the award shall not be disturbed by a reviewing tribunal.
WHEREFORE, the Petition is GRANTED, and the assailed Decision and Resolution SET ASIDE. This disposition is without prejudice to proper proceedings for the accounting, the liquidation and the distribution of the remaining partnership assets, if any. No pronouncement as to costs.
Puno, (Chairman), Corona, and Carpio-Morales, JJ., concur.
Sandoval-Gutierrez, J., on official leave.
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