Sunga-Chan v. Chua, G.R. No.

143340, [August 15, 2001], 415 PHIL 477-492

DECISION

GONZAGA-REYES, J : p

Before us is a petition for review on certiorari under Rule 45 of the Rules of

Court of the Decision 1 of the Court of Appeals dated January 31, 2000 in the
case entitled "Lamberto T. Chua vs. Lilibeth Sunga Chan and Cecilia Sunga" and
of the Resolution dated May 23, 2000 denying the motion for reconsideration of
herein petitioners Lilibeth Sunga Chan and Cecilia Sunga (hereafter collectively
referred to as petitioners).

The pertinent facts of this case are as follows:

On June 22, 1992, Lamberto T. Chua (hereafter respondent) filed a

complaint against Lilibeth Sunga Chan (hereafter petitioner Lilibeth) and Cecilia
Sunga (hereafter petitioner Cecilia),daughter and wife, respectively of the
deceased Jacinto L. Sunga (hereafter Jacinto),for "Winding Up of Partnership
Affairs, Accounting, Appraisal and Recovery of Shares and Damages with Writ of
Preliminary Attachment" with the Regional Trial Court, Branch 11, Sindangan,
Zamboanga del Norte.

Respondent alleged that in 1977, he verbally entered into a partnership

with Jacinto in the distribution of Shellane Liquefied Petroleum Gas (LPG) in
Manila. For business convenience, respondent and Jacinto allegedly agreed to
register the business name of their partnership, SHELLITE GAS APPLIANCE
CENTER (hereafter Shellite),under the name of Jacinto as a sole proprietorship.
Respondent allegedly delivered his initial capital contribution of P100,000.00 to
Jacinto while the latter in turn produced P100,000.00 as his counterpart
contribution, with the intention that the profits would be equally divided between
them. The partnership allegedly had Jacinto as manager, assisted by Josephine
Sy (hereafter Josephine),a sister of the wife of respondent, Erlinda Sy. As
compensation, Jacinto would receive a manager's fee or remuneration of 10% of
the gross profit and Josephine would receive 10% of the net profits, in addition to
her wages and other remuneration from the business.
 Allegedly, from the time that Shellite opened for business on July 8, 1977,
its business operation went quite well and was profitable. Respondent claimed
that he could attest to the success of their business because of the volume of
orders and deliveries of filled Shellane cylinder tanks supplied by Pilipinas Shell
Petroleum Corporation. While Jacinto furnished respondent with the merchandise
inventories, balance sheets and net worth of Shellite from 1977 to 1989,
respondent however suspected that the amount indicated in these documents
were understated and undervalued by Jacinto and Josephine for their own selfish
reasons and for tax avoidance. aEAcHI

Upon Jacinto's death in the later part of 1989, his surviving wife, petitioner
Cecilia and particularly his daughter, petitioner Lilibeth, took over the operations,
control, custody, disposition and management of Shellite without respondent's
consent. Despite respondent's repeated demands upon petitioners for
accounting, inventory, appraisal, winding up and restitution of his net shares in
the partnership, petitioners failed to comply. Petitioner Lilibeth allegedly
continued the operations of Shellite, converting to her own use and advantage its
properties.

On March 31, 1991, respondent claimed that after petitioner Lilibeth ran
out of alibis and reasons to evade respondent's demands, she disbursed out of
the partnership funds the amount of P200,000.00 and partially paid the same to
respondent. Petitioner Lilibeth allegedly informed respondent that the
P200,000.00 represented partial payment of the latter's share in the partnership,
with a promise that the former would make the complete inventory and winding
up of the properties of the business establishment. Despite such commitment,
petitioners allegedly failed to comply with their duty to account, and continued to
benefit from the assets and income of Shellite to the damage and prejudice of
respondent.

On December 19, 1992, petitioners filed a Motion to Dismiss on the ground

that the Securities and Exchange Commission (SEC) in Manila, not the Regional
Trial Court in Zamboanga del Norte had jurisdiction over the action. Respondent
opposed the motion to dismiss.

On January 12, 1993, the trial court finding the complaint sufficient in form
and substance denied the motion to dismiss.

On January 30, 1993, petitioners filed their Answer with Compulsory

Counterclaims, contending that they are not liable for partnership shares,
unreceived income/profits, interests, damages and attorney's fees, that
respondent does not have a cause of action against them, and that the trial court
has no jurisdiction over the nature of the action, the SEC being the agency that
has original and exclusive jurisdiction over the case. As counterclaim, petitioner
sought attorney's fees and expenses of litigation.

On August 2, 1993, petitioner filed a second Motion to Dismiss this time on

the ground that the claim for winding up of partnership affairs, accounting and
recovery of shares in partnership affairs, accounting and recovery of shares in
partnership assets/properties should be dismissed and prosecuted against the
estate of deceased Jacinto in a probate or intestate proceeding.
On August 16, 1993, the trial court denied the second motion to dismiss for
lack of merit. HIcTDE

On November 26, 1993, petitioners filed their Petition

for Certiorari,Prohibition and Mandamus with the Court of Appeals docketed as
CA-G.R. SP No. 32499 questioning the denial of the motion to dismiss.

On November 29, 1993, petitioners filed with the trial court a Motion to
Suspend Pre-trial Conference.

On December 13, 1993, the trial court granted the motion to suspend pre-
trial conference.

On November 15, 1994, the Court of Appeals denied the petition for lack of
merit.

On January 16, 1995, this Court denied the petition for review
on certiorari filed by petitioner, "as petitioners failed to show that a reversible
error was committed by the appellate court." 2

On February 20, 1995, entry of judgment was made by the Clerk of Court
and the case was remanded to the trial court on April 26, 1995. DSTCIa

On September 25, 1995, the trial court terminated the pre-trial conference
and set the hearing of the case on January 17, 1996. Respondent presented his
evidence while petitioners were considered to have waived their right to present
evidence for their failure to attend the scheduled date for reception of evidence
despite notice.
 On October 7, 1997, the trial court rendered its Decision ruling for
respondent. The dispositive portion of the Decision reads:

"WHEREFORE, judgment is hereby rendered in favor of the

plaintiff and against the defendants, as follows:

(1) DIRECTING them to render an accounting in

acceptable form under accounting procedures and standards of
the properties, assets, income and profits of the Shellite Gas
Appliance Center since the time of death of Jacinto L. Sunga,
from whom they continued the business operations including all
businesses derived from the Shellite Gas Appliance Center;
submit an inventory, and appraisal of all these properties, assets,
income, profits, etc. to the Court and to plaintiff for approval or
disapproval;

(2) ORDERING them to return and restitute to the

partnership any and all properties, assets, income and profits they
misapplied and converted to their own use and advantage that
legally pertain to the plaintiff and account for the properties
mentioned in pars. A and B on pages 4-5 of this petition as basis;

(3) DIRECTING them to restitute and pay to the plaintiff 1/2

shares and interest of the plaintiff in the partnership of the listed
properties, assets and good will (sic) in schedules A, B and C, on
pages 4-5 of the petition;

(4) ORDERING them to pay the plaintiff earned but

unreceived income and profits from the partnership from 1988 to
May 30, 1992, when the plaintiff learned of the closure of the
store the sum of P35,000.00 per month, with legal rate of interest
until fully paid;

(5) ORDERING them to wind up the affairs of the

partnership and terminate its business activities pursuant to law,
after delivering to the plaintiff all the 1/2 interest, shares,
participation and equity in the partnership, or the value thereof in
money or money's worth, if the properties are not physically
divisible;
HEScID
 (6) FINDING them especially Lilibeth Sunga-Chan guilty of
breach of trust and in bad faith and hold them liable to the plaintiff
the sum of P50,000.00 as moral and exemplary damages; and,

(7) DIRECTING them to reimburse and pay the sum of

P25,000.00 as attorney's (sic) and P25,00.00 as litigation
expenses.

NO special pronouncements as to COSTS.

SO ORDERED." 3

On October 28, 1997, petitioners filed a Notice of Appeal with the trial
court, appealing the case to the Court of Appeals. TSIDEa

On January 31, 2000, the Court of Appeals dismissed the appeal. The
dispositive portion of the Decision reads:

"WHEREFORE, the instant appeal is dismissed. The appealed

decision is AFFIRMED in all respects." 4

On May 23, 2000, the Court of Appeals denied the motion for
reconsideration filed by petitioner.

Hence, this petition wherein petitioner relies upon the following grounds:

"1. The Court of Appeals erred in making a legal conclusion that there existed a
partnership between respondent Lamberto T. Chua and the late Jacinto
L. Sunga upon the latter's invitation and offer and that upon his death the
partnership assets and business were taken over by petitioners.

2. The Court of Appeals erred in making the legal conclusion that laches and/or
prescription did not apply in the instant case.

3. The Court of Appeals erred in making the legal conclusion that there was
competent and credible evidence to warrant the finding of a partnership,
and assuming arguendo that indeed there was a partnership, the finding
of highly exaggerated amounts or values in the partnership assets and
profits." 5
 Petitioners question the correctness of the finding of the trial court and the
Court of Appeals that a partnership existed between respondent and Jacinto from
1977 until Jacinto's death. In the absence of any written document to show such
partnership between respondent and Jacinto, petitioners argue that these courts
were proscribed from hearing the testimonies of respondent and his witness,
Josephine, to prove the alleged partnership three years after Jacinto's death. To
support this argument, petitioners invoke the "Dead Man's Statute" or
"Survivorship Rule" under Section 23, Rule 130 of the Rules of Court that
provides:

"SECTION 23. Disqualification by reason of death or insanity of

adverse party.— Parties or assignors of parties to a case, or persons in
whose behalf a case is prosecuted, against an executor or administrator
or other representative of a deceased person, or against a person of
unsound mind, upon a claim or demand against the estate of such
deceased person, or against such person of unsound mind, cannot
testify as to any matter of fact occurring before the death of such
deceased person or before such person became of unsound mind."

Petitioners thus implore this Court to rule that the testimonies of respondent
and his alter ego, Josephine, should not have been admitted to prove certain
claims against a deceased person (Jacinto),now represented by petitioners.

We are not persuaded.

A partnership may be constituted in any form, except where immovable

property or real rights are contributed thereto, in which case a public instrument
shall be necessary. 6 Hence, based on the intention of the parties, as gathered
from the facts and ascertained from their language and conduct, a verbal
contract of partnership may arise. 7 The essential points that must be proven to
show that a partnership was agreed upon are (1) mutual contribution to a
common stock, and (2) a joint interest in the profits. 8 Understandably so, in view
of the absence of a written contract of partnership between respondent and
Jacinto, respondent resorted to the introduction of documentary and testimonial
evidence to prove said partnership. The crucial issue to settle then is whether or
not the "Dead Man's Statute" applies to this case so as to render inadmissible
respondent's testimony and that of his witness, Josephine.

The "Dead Man's Statute" provides that if one party to the alleged
transaction is precluded from testifying by death, insanity, or other mental
disabilities, the surviving party is not entitled to the undue advantage of giving his
own uncontradicted and unexplained account of the transaction. 9 But before this
rule can be successfully invoked to bar the introduction of testimonial evidence, it
is necessary that:

"1. The witness is a party or assignor of a party to a case or persons in whose

behalf a case is prosecuted.EDCIcH

2. The action is against an executor or administrator or other representative of

a deceased person or a person of unsound mind;

3. The subject-matter of the action is a claim or demand against the estate of

such deceased person or against person of unsound mind;

4. His testimony refers to any matter of fact which occurred before the death of
such deceased person or before such person became of unsound
mind." 10

Two reasons forestall the application of the "Dead Man's Statute" to this
case.

First, petitioners filed a compulsory counterclaim 11 against respondent in

their answer before the trial court, and with the filing of their counterclaim,
petitioners themselves effectively removed this case from the ambit of the "Dead
Man's Statute". 12 Well entrenched is the rule that when it is the executor or
administrator or representatives of the estate that sets up the counterclaim, the
plaintiff, herein respondent, may testify to occurrences before the death of the
deceased to defeat the counterclaim. 13 Moreover, as defendant in the
counterclaim, respondent is not disqualified from testifying as to matters of fact
occurring before the death of the deceased, said action not having been brought
against but by the estate or representatives of the deceased. 14

Second, the testimony of Josephine is not covered by the "Dead Man's

Statute" for the simple reason that she is not "a party or assignor of a party to a
case or persons in whose behalf a case is prosecuted".Records show that
respondent offered the testimony of Josephine to establish the existence of the
partnership between respondent and Jacinto. Petitioners' insistence that
Josephine is the alter ego of respondent does not make her an assignor because
the term "assignor" of a party means "assignor of a cause of action which has
arisen, and not the assignor of a right assigned before any cause of action has
arisen." 15 Plainly then, Josephine is merely a witness of respondent, the latter
being the party plaintiff.

We are not convinced by petitioners' allegation that Josephine's testimony

lacks probative value because she was allegedly coerced by respondent, her
brother-in-law, to testify in his favor. Josephine merely declared in court that she
was requested by respondent to testify and that if she were not requested to do
so she would not have testified. We fail to see how we can conclude from this
candid admission that Josephine's testimony is involuntary when she did not in
any way categorically say that she was forced to be a witness of respondent.
Also, the fact that Josephine is the sister of the wife of respondent does not
diminish the value of her testimony since relationship per se, without more, does
not affect the credibility of witnesses. 16

Petitioners' reliance alone on the "Dead Man's Statute" to defeat

respondent's claim cannot prevail over the factual findings of the trial court and
the Court of Appeals that a partnership was established between respondent and
Jacinto. Based not only on the testimonial evidence, but the documentary
evidence as well, the trial court and the Court of Appeals considered the
evidence for respondent as sufficient to prove the formation of a partnership,
albeit an informal one.

Notably, petitioners did not present any evidence in their favor during trial.
By the weight of judicial precedents, a factual matter like the finding of the
existence of a partnership between respondent and Jacinto cannot be inquired
into by this Court on review. 17 This Court can no longer be tasked to go over the
proofs presented by the parties and analyze, assess and weigh them to ascertain
if the trial court and the appellate court were correct in according superior credit
to this or that piece of evidence of one party or the other. 18 It must be also
pointed out that petitioners failed to attend the presentation of evidence of
respondent. Petitioners cannot now turn to this Court to question the admissibility
and authenticity of the documentary evidence of respondent when petitioners
failed to object to the admissibility of the evidence at the time that such evidence
was offered. 19
With regard to petitioners' insistence that laches and/or prescription should
have extinguished respondent's claim, we agree with the trial court and the Court
of Appeals that the action for accounting filed by respondent three (3) years after
Jacinto's death was well within the prescribed period. The Civil Code provides
that an action to enforce an oral contract prescribes in six (6) years 20 while the
right to demand an accounting for a partner's interest as against the person
continuing the business accrues at the date of dissolution, in the absence of any
contrary agreement. 21 Considering that the death of a partner results in the
dissolution of the partnership 22 , in this case, it was after Jacinto's death that
respondent as the surviving partner had the right to an account of his interest as
against petitioners. It bears stressing that while Jacinto's death dissolved the
partnership, the dissolution did not immediately terminate the partnership. The
Civil Code 23 expressly provides that upon dissolution, the partnership continues
and its legal personality is retained until the complete winding up of its business,
culminating in its termination. 24

In a desperate bid to cast doubt on the validity of the oral partnership

between respondent and Jacinto, petitioners maintain that said partnership that
had an initial capital of P200,000.00 should have been registered with the
Securities and Exchange Commission (SEC) since registration is mandated
by the Civil Code. True, Article 1772 of the Civil Code requires that partnerships
with a capital of P3,000.00 or more must register with the SEC, however, this
registration requirement is not mandatory. Article 1768 of the Civil
Code 25 explicitly provides that the partnership retains its juridical personality
even if it fails to register. The failure to register the contract of partnership does
not invalidate the same as among the partners, so long as the contract has the
essential requisites, because the main purpose of registration is to give notice to
third parties, and it can be assumed that the members themselves knew of the
contents of their contract. 26 In the case at bar, non-compliance with this directory
provision of the law will not invalidate the partnership considering that the totality
of the evidence proves that respondent and Jacinto indeed forged the
partnership in question.

WHEREFORE, in view of the foregoing, the petition is DENIED and the

appealed decision is AFFIRMED.

SO ORDERED.
|||

(Sunga-Chan v. Chua, G.R. No. 143340, [August 15, 2001], 415 PHIL 477-492)