Raymundo M. Melgrito, et al. vs. Cervulo C. Dominise

[SEC-SICD * CASE NO. 3462. September 28, 1990.] RAYMUNDO M. MELGRITO, ET AL. , plaintiffs , vs . CERVULO C. DOMINISE , defendant . D E C I S I O N This is an action for dissolution, accounting, liquidation, damages and injunction. In support thereof, plaintiffs alleged inter alia, that sometime in January 1986, they formed a partnership together with the defendant called "Manila Engineering Reviewers and Institute of Training and Co.", primarily engaged in the business of providing review classes and review materials to graduates of mechanical engineers preparing for the board examination; that defendant was designated as Manager of the partnership, that however, defendant mismanaged the partnership by treating the latter as his own exclusive business and enterprise and completely and totally disregarding plaintiffs rights to the partnership by obstinately refusing despite demands, to give the plaintiffs their share in the profits and surplus considering the brisk business brought about by increased enrollment of reviewees and by feigning losses to conceal profits, to consult plaintiffs on key business policies affecting the partnership; to call meetings or conference to discuss the partnership affairs; to give true and full information on the partnership business, to give an accounting on the partnership transactions and to allow the examination of the partnership books at reasonable time. At one time when plaintiffs made a demand for their share on the profits, defendant reluctantly gave the amount of P20,000.00 each to the plaintiffs and not as their share of the profits and surplus but as advances and considered as their indebtedness to the partnership. prLL Further, plaintiffs averred that they discussed with the partnership accountant, who reluctantly gave the information with supporting documents that the partnership has not only earned enormous income and profit with a cash on hand, in the amount of P416,242.72 but that there were irregular disbursements entered into the books of the partnership which deflated the income, aside from possible non-entry of actual Income Statement Comparative Balance Sheet on the Assets and Liabilities, Statement of Changes In Financial Position and Statement of Liquidation; that plaintiffs confronted defendant on the report of the accountant regarding the assets and liabilities particularly where the cash amount of P416,242.72 was deposited but defendant denied the contents of the report as well as the existence of the money on hand and in bank; that because of the denials, plaintiffs made a final demand for an accounting of the partnership transactions but defendant refused and still, refuses to comply; that defendant instead of rendering an accounting sent through the accountant, a check in the amount of P28,000.00 for plaintiff Raymund Atendido and a check in the amount of P8,000.00 each for plaintiffs Raymundo M. Melegrito, Teodoro A. Valle, and Reynaldo L. Bacus with instruction that the checks will not be given if plaintiffs refuse to sign the waiver and quitclaim and the certificate of dissolution. Plaintiffs, knowing that the above documents were full of inaccuracies and deceptions and that signing it will deprive them of thousands of pesos representing their interest in the partnership, refused to sign the documents but nevertheless, accepted the checks. When the checks were presented for payment, the same were dishonored on the ground of insufficient funds and closed account which shows that the partnership has no funds in the bank and that the defendant had appropriated for his own use and benefit the partnership money in the amount of P416,242.72 to the damage and prejudice of the plaintiffs. Moreover, plaintiffs alleged that as a further scheme to defraud the partnership and the plaintiffs for a continuing and additional income, the defendant has used an unregistered company called "Merit Philippines" which is the acronym of the partnership "Manila Engineering Reviewers and Institute of Training and Co.," in enrolling the new reviewees for October 1988, and excluding the partnership but the office and facilities used by defendant were that of the partnership, thus depriving the latter of thousands of pesos in income. Defendant filed his answer with counterclaim and special and affirmative defenses and alleged that he was designated Manager of the partnership, but the company has already ceased its operation as of October 2, 1988; that the partnership books are now in the possession of one of the plaintiffs who took it from the partnership office on the pretext that he would have them audited and photocopied but failed to return the same; that while defendant admit that he gave the amount of P20,000.00 each to the three (3) plaintiffs, defendant considered the amount as advances and their indebtedness to the partnership in keeping with sound business management and practice. Defendant denied that the partnership has cash on hand in the amount of P416,242.72 since plaintiffs failed to consider the expense which consist of the payment of liabilities of the partnership in the amount of P244,192.74; that the defendant at his instance caused the preparation and examination of the Balance Sheet and Statement of Income of the partnership by its accountant who certified and attested to the fact that the said accounting records present fairly the financial position of the partnership as of September 28, 1988. Defendant further claimed that it is using and advertising the new business names Mechanical Electrical Reviewers and Institute of Training of the Philippines (Merit Philippines), a single proprietorship duly registered with the Department of Trade and Industry and is leasing the office space and facilities under the new business name and funded by the single proprietorship. As regards the incidents on the application for prohibitory and mandatory injunctions, this Hearing Officer had issued an Order on April 10, 1989 denying both provisional remedies. The evidence on record shows that the partnership, Manila Engineering Reviewers and Institute of Training and Co. was organized by the plaintiffs herein together with defendant and duly registered with the Securities and Exchange Commission on May 21, 1986. By express provision of the articles of partnership, the defendant was designated Manager and continued performing his function as such until October 2, 1988. During the preliminary conference, the parties agreed to dissolve the partnership. From the pleadings filed, the issues hinge on whether defendant mismanaged the partnership and also whether he should account for all the funds of the partnership. Passing now the issues, plaintiffs sought to establish, on one hand, that defendant mismanaged the business of the partnership. Plaintiff Raymund Atendido testified that since the start of the partnership in 1985 up to the present, he had been asking the defendant for a general meeting among the partners to discuss the financial situation of the partnership, but no meeting was conducted and despite demands, defendant failed to render an accounting and to furnish the partners copies of the financial statements for the years 1986, 1987 and 1988. Subsequently thereafter, plaintiff got a copy of the financial statements from the accountant of the partnership and discovered that the cash on hand and in bank amounted to P416,242.72 (Exhibit 31-A). When the defendant was confronted about the money, all the partners agreed to dissolve the partnership and a meeting was set on October 21, 1988 in order to determine the actual financial condition of the partnership and to divide the assets. During the said meeting, defendant failed to appear but was represented by a certain Mary Ann de la Pea, the accountant of the partnership. On that meeting, she presented the dissolution papers of the partnership and quit claim (Exhibits "G" and "F") which was signed by the defendant together with the corresponding checks containing the amount representing the share of the plaintiffs. On the other hand, defendant contends that the affairs of the partnership was properly managed. As told, the defendant hired the services of an accounting firm, Butcon and Associates to take care of the partnership accounts as well as the financial statement. Mary Ann de la Pea, the accountant, certified the correctness of the Comparative Income Statement of the partnership for the period September 25, 1988 and December 31, 1987; Comparative Balance Sheet for September 25, 1988, December 31, 1987 and 1986; Liabilities and Capital Statement and Changes in Financial Position for September 25, 1988 and December 31, 1987, and Statement of Liquidation for the period September 25, 1988 (Exhibits "A" to "A-8"). Further, defendant claimed that he rendered true and full information concerning the business of the partnership and allowed the plaintiffs to examine the books of the partnership. This was bolstered by the fact when plaintiff Raymund Atendido testified and admitted that he got the books of accounts of the partnership and have them examined (TSN page 35 September 15, 1989). From the foregoing, we find no convincing proof about the acts contemplated to constitute mismanagement. It has been held that before a partner sues another for alleged mismanagement and resultant damages, a liquidation must first be effected to know the extent of the damages. (Soncuya vs. De Luna, G.R. No. 45464, April 28, 1939, 67 Phil. 646). Anent the issue of accounting, while generally, no accounting is demandable till after dissolution, however, under the circumstances and in order to protect and preserve the rights of the partners and in the interest of the partnership, Manila Engineering Reviewers and Institute of Training and Co., it is just and reasonable that defendant be directed to render a complete accounting of all the partnership funds and properties received and disbursed by him from the time he assumed the position of Manager in the course of and as a result of such management. Article 1807 of the Civil Code of the Philippines provides that, "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". The reason for the law on the duty to account is the relationship of trust and confidence which must not be abused or used to personal advantage. (Pang Lim and Galvez vs. Lo Seng, G.R. No. 16318, October 21, 1921, 42 Phil. 282) Considering the agreement of the parties to dissolve the partnership, Manila Engineering Reviewers and Institute of Training and Co., there is an imperative need to liquidate said partnership and wind up its affairs and to divide and distribute the funds and properties in the manner provided for by law. LLphil WHEREFORE, judgment is hereby rendered, as follows: 1. Dissolving the partnership, Manila Engineering Reviewers and Institute of Training and Co., 2. Ordering defendant to render and submit an accounting of all the funds and properties of the partnership and the same be submitted to this Commission. 3. To liquidate and wind-up the affairs of the partnership, Manila Engineering Reviewers and Institute of Training and Co., dividing and distributing its assets and properties in the manner provided by law; For this purpose, let a Receiver be appointed to take care and liquidate the assets of the partnership. Parties are given ten (10) days from receipt hereof within which to appoint a Receiver. No pronouncement as to costs. LLpr SO ORDERED. (SGD.) ENRIQUE L. FLORES, JR. Hearing Officer