Techno-links Co., et al. vs. Antonio E. Santos

[SEC-SICD * CASE NO. 2729. February 9, 1990.] TECHNO-LINKS CO., ET AL. , complainants , vs . ANTONIO E. SANTOS , respondent . D E C I S I O N This is a complaint for: (1) dissolution of partnership, (2) accounting of partnership funds due to alleged misappropriation thereof, and (3) damages with application for writ of preliminary attachment. dctai The following pertinent facts appear undisputed, to wit: On October 10, 1979, complainant Reynaldo C. Teodoro (Teodoro, for brevity) entered into a partnership agreement with respondent under the business name "Techno-Links Co." This partnership was principally organized "to engage in the business of supplying any and all materials, equipment, spare parts and accessories for telecommunications including but not limited to systems design, consultancy, rehabilitation and servicing of telecommunication equipment systems, wiring installation, wiring rehabilitation, and any and all repair, reconditioning, servicing and maintenance of telecommunication systems and/or equipment". The partners contributed P1,500.00 each to the common fund with the understanding that all profits and losses shall be divided by them equally. On October 11, 1979, the Articles of Partnership of Techno-Links Co. was filed before this Commission and the corresponding Certificate for its filing was issued on November 14, 1979. After its registration, the partnership did business in accordance with its articles of partnership thereby acquiring profits and additional assets. At the start of the business, the partners jointly managed its operations and opened an account with the Commercial Bank of Manila (Combank, for brevity) in the name of the partnership. Checks issued by the partnership in payment of its obligation were jointly signed by the partners. With respect to accounting, albeit the articles of partnership provides that the partners should render an accounting at least once every three (3) months, the partners actually made their accounting at will. From time to time, they made a distribution of profits, share and share alike. At one time, they purchased two Celeste cars, one for each partner, as their share in the partnership profits. The harmonious and cordial relationship between the partners continued until such time when the management of the business of the partnership was left in the hands of the respondent. Thenceforth, the relationship between them became sour and ultimately resulted in the filing of the instant complaint and supplemental petition for issuance of writ of preliminary attachment by the complainants. In their complaint, complainants alleged, inter alia, that after several years of operations and joint management, respondent requested complainant Teodoro that he be allowed to assume sole management of the partnership and that considering the trust and confidence which complainant Teodoro had reposed on the respondent, complainant Teodoro acceded to the request; that it was agreed upon by the partners that in order not to hamper the affairs of the partnership with the absence of complainant, Teodoro, the latter would sign a set of blank Combank checks to be used by respondent in payment of partnership obligations; that complainant Teodoro agreed to the foregoing arrangement because he had complete trust and confidence in the respondent, being his "Kumpadre", having known him for at least three (3) years before the formation of the partnership; that pursuant to the aforesaid agreement, complainant Teodoro signed a set of blank Combank checks and entrusted them to the respondent to be used solely for the payment of obligations which the partnership would incur, that instead of using the checks for the payment of partnership obligations, and in manifest abuse of the trust reposed upon him by complainant Teodoro, respondent made withdrawals from Combank with the use of said checks and allegedly diverted the amounts so withdrawn to his own personal use; that respondent issued the following checks which were duly paid out of the funds of the partnership deposited with Combank, to wit: CHECK NO. PAYEE DATE AMOUNT 152096 Antonio E. Santos May 12, 1983 P34,000.00 152097 Cash July 22, 1983 820,000.00 152098 Cash July 26, 1983 41,000.00 152099 Antonio E. Santos Sept. 13, 1983 26,000.00 152100 Antonio E. Santos Nov. 11, 1983 77,674.00 TOTAL P198,674.00 ========= that at the same time that respondent was managing the partnership and without the knowledge or consent of complainant Teodoro, respondent formed, organized, operated and managed another business concern under the name and style "Topmost Engineering and Trading", a single proprietorship registered in the name of respondent which is engaged in the same business as the partnership and actively competed with the latter, that respondent used some personnel and equipment of the partnership in the conduct of his separate business Topmost Engineering and Trading, and thereby deprived the partnership of the income, profits or benefits which would have accrued or redounded to the partnership with the use of said personnel and equipment; that as a result of respondent's alleged diversion or misapplication of partnership funds to his own use or personal account, the partnership was left with insufficient funds for its operations and the payment of its obligations; that as a consequence of the foregoing, the partnership had been unable to make good or redeem certain checks issued to Golden Tiger Trading Co. Inc.; that for the non-payment of checks, Golden Tiger Trading Co. Inc., instituted civil and criminal actions against complainant Teodoro and respondent; that with the filing of the criminal case, complainant Teodoro was arrested by police authorities and spent the amount of P3,000.00 in connection with the bail bond for his temporary liberty and was compelled to pay the amount of P150,000.00 for the amicable settlement of the criminal and civil cases; that with the filing of the civil case, a writ of attachment was issued against the properties of complainant Teodoro; that the amount of P198,674.00 was entrusted to the respondent or came to his possession by reason of, and in the course of his being the managing partner of the partnership; that respondent, in utter disregard of the trust and confidence reposed in him, and in willful violation of his duty as managing partner, to use said funds solely for the partnership, embezzled or fraudulently misapplied or converted to his own use said partnership fund; that to safeguard the interest of complainants, there is an urgent need for the issuance of writ of preliminary attachment; and, that complainants have meritorious grounds for the issuance of a writ of preliminary attachment as shown by the affidavit of merit of complainant Teodoro and that complainants are willing to post a bond in such amount as may be determined by this Commission for the issuance of a writ of preliminary attachment. Likewise, in their supplemental petition for the issuance of writ of preliminary attachment, complainants alleged that with the filing of the instant complaint, there is a grave danger that respondent may dispose of his properties, to complainants' prejudice. On January 9, 1985, the former Hearing Officer of this case granted complainants' application for a writ of preliminary attachment. On January 10, 1985, after the complainants have filed a bond in the amount of P150,000.00 the former Hearing Officer issued the corresponding writ of preliminary attachment which reads: "To: EX-OFFICIO SHERIFF Regional Trial Court Makati, Metro-Manila WHEREAS, Techno-Links Co., a partnership duly organized under existing laws, and Reynaldo C. Teodoro have filed a verified complaint for dissolution of partnership, accounting and damages against Antonio E. Santos before the Securities and Exchange Commission seeking the return of the amount of One Hundred Ninety Eight Thousand Six Hundred Seventy Four (P198,674.00) Pesos, representing the amount which respondent Antonio E. Santos had allegedly diverted or misapplied to his own personal use and benefit in utter violation of his fiduciary duty as partner and manager of Techno-Links Co.; WHEREAS, there is no other security for the claim sought to be enforced by the action except the properties or income of respondent Antonio E. Santos which may be attached by this Commission; WHEREAS, security has been given by the complainants according to provisions of the Rules of Court. I, therefore, command you that you attach the properties, real and personal, of respondent Antonio E. Santos located in the Municipality of Makati, not exempt from execution, or so much thereof as may be sufficient to cover the value of the aforesaid demands of the complainants including the costs of suit, and that you safely keep the same according to the provision of the Rules of Court, unless the respondent gives sufficient and adequate security to pay such judgment as may be recovered in the said action. SO ORDERED." Respondent, in his answer, denied all the material allegations in the complaint and; by way of special and affirmative defenses, claimed that since the inception of the partnership business, until they were able to accumulate a number of clients, both partners managed jointly their operations; that during the second quarter of 1983, when the business was getting bad and developing for the worse, complainant Teodoro abandoned the respondent and went back, and dedicated his time to his printing business; that at about this time in 1983, the partnership had some unfinished projects which, if stopped, would subject both partners to damage suit; that the remaining balance to the credit of the partnership at that time was P48.93; that in order to complete the projects within the limit specified in their contracts, respondent encumbered himself in a bold attempt of obtaining loans at extremely usurious interest and went about the massive work of wiring installations, reconditioning and servicing out of the funds borrowed; that each time respondent would have succeeded in collecting the amount equivalent to the work which he had accomplished under a progressive plan, respondent would deposit the proceeds thereof in the bank and it was the only time that he would approach complainant Teodoro to have the check signed to pay off, on installment basis, the loans obtained for the procurement of past and current materials, as well as the salaries and wages of workers and other matters of relevant nature; that respondent followed the same procedure each time he would be able to collect with respect to the checks for July, September and November, 1983; that in the process, complainant Teodoro was well advised not only of the respondent's collection but also with his progress in the projects which he was trying to finish against almost insurmountable odds; that respondent was so pre-occupied with the unfinished partnership projects that he did not have the time to look for new business for the partnership and merely thought of fulfilling their part of the contracts; that all partnership funds which the respondent was able to generate by completing the projects were all wisely spent for partnership obligations and in fact incurred a loss of more than P60,000.00 which at the beginning he wanted to shoulder exclusively; that respondent put up his own business, the Topmost Engineering and Trading on March 20, 1984 at the time when there was no more prospect of reviving partnership business with complainant Teodoro who abandoned him when the business was at its lowest ebb; that since the partnership was no longer a going concern, the possibility of any competition between Topmost Engineering and Trading and complainant Techno-Links Co. was absolutely remote; that since partnership equipment had been sold of which complainant Teodoro was aware, respondent had to secure his own equipment, apparatuses and men to pursue his own business; that from the time complainant Teodoro deserted the respondent, he had never offered any assistance of whatever form to ease the difficulties from which the respondent was trying to extricate himself; that should there be any winding up to determine the losses incurred, the same should be undertaken by respondent considering that complainant Teodoro was the one at fault; that the obligations with Golden Tiger Trading Co., Inc., which complainant Teodoro had capitalized in claiming imagined damages was incurred when the partnership was beginning to experience reverses during their joint management; that both criminal and civil cases against the partners were settled amicably with each partner answering equally for their unpaid accounts to Golden Tiger Trading Co., Inc., with no expectancy from the respondent to answer for checks which bounced before the settlement took place; that respondent was also arrested, molested and had likewise incurred damages as a result of the criminal action filed against the partners by Golden Tiger Trading Co., Inc.; that complainant Teodoro has waived his right to demand for accounting and is now estopped from suggesting the matter of winding up the affairs of the partnership because he had abandoned the management of the business during the crisis of the partnership until it completely collapsed; that in order to secure the writ of attachment in this case, complainant Teodoro bent so low as to commit perjury by stating falsely under oath that the respondent resorted to schemes, which are non-existent, allegedly designed to abscond or dispose of his properties to take them away from the reach of his creditors. On September 13, 1985, the preliminary conference was terminated and the parties have agreed that the issues to be resolved are: 1) Whether or not the funds or money being claimed by the complainants to have been allegedly misappropriated by the respondent were partnership funds and corollary thereto, whether or not respondent misappropriated said funds; 2) Whether or not the partnership is still existing and engaging in its regular business from April, 1983 up to the present; 3) Whether or not the respondent used some personnel and equipment of the partnership in connection with the conduct of the business of Topmost Engineering and Trading, Co.; 4) Whether or not respondent had engaged in the same line of business as that of the partnership and whether said business is competing in nature with that of the partnership; 5) Who should be entitled to claim for damages and attorney's fees? Another more important issue posed before this Hearing Officer which the parties had failed to raise at the pre-trial conference is whether or not complainants are entitled to their prayer for accounting, dissolution and application for a writ of preliminary or final attachment. LLphil From the evidence submitted by the parties, both testimonial as well as documentary, it appears that the amount of P198,674.00 which the complainants claimed to have been misappropriated by the respondent is part of the partnership funds derived from collection or receivables of the partnership and proceeds received by the respondent for the completion of the partnership's unfinished projects at the time the management of the partnership was turned over to respondent. In fact, this amount came from the partnership's depository account No. 14-00507-2 with Combank. In order to determine the issue of whether respondent had misappropriated partnership funds, it becomes inescapably imperative to define the term "misappropriation". The Supreme Court, in a number of cases which were cited in Philippine Law Dictionary, by Federico B. Moreno, Third Edition, 601, has defined misappropriation as: The act of devoting another's property to a purpose or use different from that agreed upon. People v. Malgapo, 16816-CR, August 23, 1976. Using or disposing of another's property without lawful authority to do so in a manner different from that with which a property is held by the trustees to whom the owner had entrusted the same. It is not necessary that the use for which the property is given be directly to the advantage of the person misappropriating or converting the property of another. People v. Carballo, 17136-CR November 17, 1976. The act of owning or taking something for one's own benefit. Quimson v. Progressive Commercial Bank. 55757-R, November 24, 1977. The act of disposing of another's property as if it were one's own. People v. Jimenez, 04794-CR, March 10, 1972. Applying the above-quoted definitions of the word "misappropriation", it would appear that respondent has not misappropriated partnership funds considering that there was no evidence to show that he used said funds for his own benefit or for the purpose or use other than for the payment of partnership obligations. As regard the second issue, the records of the Commission will show that the partnership has not yet been dissolved up to the present and, therefore, the same is still existing. However, from the testimonies of the witnesses of both parties, it would seem that from April, 1983, which was the time when the management of the partnership was turned over to respondent, the partnership was merely finishing its unfinished projects which include the following, to wit: Guadalupe Bliss Project, Tejeros Bliss Project and Menton Plaza Building Project. With respect to the third issue, this Hearing Officer finds, as gleaned from the testimony of complainants' witness, Jaime Barquia, that respondent had used some personnel and equipment of the partnership in the conduct of the affairs of Topmost Engineering and Trading, a single proprietorship business owned and operated by respondent. Anent the fourth issue, it is clear from the respondent's own evidence that he is the owner of Topmost Engineering and Trading which is engaged in the same line of business as that of the partnership. Since both Topmost Engineering and Trading and the partnership are engaged in the same line of business, therefore, the probability of competition is not remote. Respondent's contention that he put up Topmost Engineering and Trading on March 20, 1984 at the time when there was no more prospect of reviving the partnership is of no moment considering that the partnership is still existing and that what the law prohibits is the engaging in business by the respondent which is similar to the business of the partnership. Thus, Article 1808 of the Civil Code of the Philippines provides: "The capitalist partners cannot engaged for their own account in any operation which is of the kind of business in which the partnership is engaged, unless there is a stipulation to the contrary." "Any capitalist partner violating this prohibition shall bring to the common fund any profits accruing to him from his transaction, and shall personally bear all the losses." Respondent is not only a capitalist partner but he is also the managing partner entrusted with the management of the partnership. Ergo, having violated this prohibition, respondent is now under obligation to bring to the common fund of the partnership any profits derived by him in the operation of Topmost Engineering and Trading if any, and in case of losses, he shall bear them alone. On the issue of whether the complainants are entitled to their prayer for accounting, the answer is in the affirmative. LLjur Article 1809 of the Civil Code of the Philippines states: "Any partner shall have the right to a formal account as to partnership affairs: (1) . . . (2) If the right exists under the terms of any agreement; (3) As provided by article 1807; (4) . . . The articles of partnership provides that the partners should render an accounting at least once every three (3) months while article 1807 of the Civil Code of the Philippines reads: "Every partner must account to the partnership for any benefit, and hold as trustee for it any profits derived by him without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use by him of its property." From the evidence adduced, this Hearing Officer did not find any evidence to show that respondent has substantially complied with the proper accounting of partnership funds from the time he took over the management of the partnership alone pursuant to the generally accepted definition of accounting which reads: "The art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are in part at least, of financial character and interpreting the results thereof." (People vs. Orbiso, 18193-CR, July 28, 1980, cited in Philippine Law Dictionary, by Federico B. Moreno, Third Edition, p. 18) As regard the matter of dissolution, Art. 1831 of the Civil Code of the Philippines provides: On application by or for a partner the court shall decree a dissolution whenever: (6) Other circumstances render a dissolution equitable." Complainants maintained that respondent requested complainant Teodoro that he be allowed to assume sole management of the partnership. On the other hand, respondent claimed that complainant Teodoro abandoned him and went back and dedicated his time to his printing business. Since it could not very well be ascertained with reasonable certainty as to who is telling the truth between complainant Teodoro and respondent, and considering the filing of the instant complaint by the complainants against the respondent, the most logical thing to do is to dissolve the partnership. Moreover, under the present condition obtaining between the parties, dissolution of the partnership is more equitable. Thus, the following are circumstances which render dissolution equitable, to wit: (1) Refusal of a partner's right to participate in the management of the partnership affairs, unless otherwise agreed. (Herman vs. Pepper, 311 Pa. 104, 166 Atl. 387); and, (2) Abandonment of the business. (See The Law on Partnership and Private Corporations by Hector S. de Leon, 1982 Edition, p. 107) For this purpose, the parties are hereby directed to submit the names of their respective nominees from whom this Hearing Officer shall appoint one as liquidator to wind up the partnership affairs, within ten (10) days from finality of this Decision. LLjur Anent the complainants' application for a writ of preliminary or final attachment, the same should be denied and the writ of attachment issued on January 10, 1985 should be discharged, for failure of the complainants to adduce evidence in support thereof. There is a clear showing that respondent has not absconded or disposed of his properties with intent to defraud his creditors and the complainants. The complainants likewise failed to show that the respondent had used the partnership funds for the latter's benefit or for the purpose or use other than for the payment of partnership obligations. With respect to both parties' claim for damages and attorney's fees, the same could not be granted for failure of both parties to present any evidence in support thereof. WHEREFORE, premises considered, judgment is hereby rendered as follows: 1. Directing the respondents to render an accounting of the partnership funds from the time he assumed sole management of the affairs of the partnership, and the profits, if any, derived by him in the operation of Topmost Engineering and Trading within one (1) month from finality of this Decision; 2. Discharging the writ of preliminary attachment issued on January 10, 1985 and directing Deputy Sheriff Antonio M. Bautista to release to respondent the latter's Toyota Jitney and Celeste motor vehicle immediately upon receipt of this Decision; 3. Dissolving the partnership, Techno-Links; and 4. Dismissing the counterclaim. No pronouncement as to costs. Let copy of this Decision be furnished the Corporate and Legal Department and the Records Division for their information and guidance. SO ORDERED. (SGD.) ROLANDO C. MALABONGA Hearing Officer