G.R. No. 122216. March 28, 2001 (Case Brief / Digest)

**Title:** Aljem’s Corporation vs. Court of Appeals and Rudy Y. Chua: A Case of Auditing Discrepancies in Joint Venture Liquidation

**Facts:** Aljem’s Corporation Logging Division, through its president, Pacifico V. Dizon, Jr., entered into a joint venture with Rudy Y. Chua from June 1988 to August 1990. Initially agreed upon a 55-45 sharing basis, this was later modified to a 50-50 split. In August 1992, Chua sued Aljem’s Corporation for his 50% share from the net income of the logging operations, which he claimed was P3,659,710.07 from January to August 1990, a figure Aljem disputed. Aljem contended that the income was actually P2,089,141.80 and that Chua had already received his share of P2,632,719.85 in a partial liquidation held on August 2, 1990. Discrepancies arose regarding sales, depreciation, and interest, leading to the appointment of a commissioner, Leonora B. Cainglet, by the Regional Trial Court (RTC), to audit Aljem’s accounting records. Despite objections from Aljem regarding the commissioner’s report, the RTC approved it, a decision affirmed by the Court of Appeals, leading to this petition in the Supreme Court.

1. Whether the commissioner’s failure to hold a formal hearing and not swearing in witnesses when auditing Aljem’s Corporation’s records denied the corporation due process.
2. Whether the trial court erred in approving the commissioner’s report despite objections from Aljem’s Corporation.
3. Whether the objections to the commissioner’s report could be raised for the first time in a motion for reconsideration.

**Court’s Decision:**
The Supreme Court found merit in Aljem’s Corporation’s petition, highlighting that the commissioner’s procedure was not in compliance with Rule 33 of the 1964 Rules of Court, which necessitated a formal hearing and the swearing in of witnesses. This procedural lapse denied Aljem’s Corporation due process, as it was denied the opportunity to object during the commissioner’s process. Consequently, the Court reversed the decisions of the Court of Appeals and the Regional Trial Court, remanding the case for further proceedings following proper legal protocols.

The case established the necessity of formal hearings and the swearing of witnesses in proceedings before a commissioner to satisfy the requirements of due process, per Rule 33 of the 1964 Rules of Court. This adheres to the principle that the proceedings before a commissioner should mirror those before a court to ensure fairness and thoroughness in fact-finding and decision-making.

**Class Notes:**
– Formal hearings and the swearing of witnesses are essential for due process in proceedings before a commissioner, ensuring an opportunity for the parties to object and participate meaningfully in the process.
– Discrepancies in financial reports within a joint venture context, especially regarding liquidation and profit sharing, necessitate transparent and due process-compliant auditing processes.
– The approval of a commissioner’s report by a trial court without formal hearings or consideration of objections may be reversed on grounds of due procedural lapses.

**Historical Background:**
This case underscores the legal intricacies involved in the dissolution and financial settlement of joint ventures, particularly in industries with significant assets and operations like logging. It also reflects the Philippine judiciary’s recognition of procedural due process in disputes over financial auditing, ensuring that all parties have a fair opportunity to present their cases and objections.


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