FORTUNATO RECENTES, BENJAMIN DE GRACIA AND RAMONA MERCED, PETITIONERS, VS. COURT OF FIRST INSTANCE OF ZAMBOANGA DEL NORTE, BRANCH I, PRESIDED BY HON. DIMALANES E. BUISSAN, AND C…

Recentes versus Court of First Instance of Zamboanga del Norte

The Case

This is a petition filed by Fortunato Recentes, Benjamin de Gracia, and Ramona Merced asking the Supreme Court to set aside several orders issued by the Court of First Instance of Zamboanga del Norte in a suit for accounting and payment of money brought against them by their former business partner, Concepcion Zosa. The case matters because it fixes a basic rule of partnership law that every Bar candidate must carry into the examination room: the dissolution of a partnership does not terminate it, and the partnership continues until the winding up of its affairs is completed. The Court uses that rule to sustain a receivership and a series of orders compelling an accounting, even though the partnership's agreed term had already expired.

Procedural History

Concepcion Zosa filed a complaint for accounting and payment of money against the three petitioners in the Court of First Instance of Zamboanga del Sur. The defendants answered that a proper accounting and payment had already been made. Two years after the issues were joined, with the case still unresolved, Zosa asked the court to appoint Ramona Merced as receiver of the partnership, alleging that its assets were being squandered through mismanagement. Judge Onofre Abalos granted the request, and Merced qualified as receiver.

Fortunato Recentes and Benjamin de Gracia then moved to annul and dissolve the receivership, arguing that the partnership no longer existed because its ten-year term had expired in 1967. Judge Rafael Mendoza granted that motion. Judge Dimalanes Buissan, who succeeded Judge Mendoza, reconsidered the ruling and reinstated the receivership. He then issued the questioned orders of June 13, 1974, July 5, 1974, January 9, 1975, February 21, 1975, and March 31, 1975. The petitioners brought this petition before the Supreme Court to set those orders aside on the ground of lack of jurisdiction or grave abuse of discretion.

Facts

Concepcion Zosa, Fortunato Recentes, and Benjamin de Gracia were partners in a business known as the Zamboanga Ports Terminal and Arrastre Service. The partnership had a term of ten years, which expired in 1967. In September 1970, Zosa sued her partners for an accounting and for payment of the money she claimed was due her as a partner. The defendants insisted that a proper accounting and payment had already been made.

As the case dragged on, Zosa asked the court to place the partnership under receivership, claiming that its assets were being squandered through mismanagement. The court appointed Ramona Merced as receiver, and she qualified. Recentes and de Gracia moved to annul the receivership, pointing out that the partnership's ten-year term had already expired. Judge Mendoza granted their motion, but Judge Buissan later reconsidered and reinstated the receivership.

In reinstating the receivership, Judge Buissan observed that after the ten-year period ended, the defendants and the partnership treasurer never rendered an accounting for the purpose of dissolving the partnership, so that ordinarily the partnership still continuously existed as usual. He also noted that de Gracia and Recentes formed another partnership, the Zamboanga Ports Arrastre and Stevedoring Service, and continued the business of the old partnership, serving its clientele, with Zosa alone excluded from the new firm. He reasoned that while the former partnership's existence may have ended, it was not terminated as to its members and interested third parties until the officers charged by law to make the accounting and liquidation complied with the requisites of law. The later orders directed that management remain with the partnership officers, that the receiver merely receive and account for the net profit, and that the defendants and the receiver submit an accounting under pain of contempt.

Issues

• Whether or not the respondent judge acted without jurisdiction or with grave abuse of discretion in issuing the questioned orders reinstating the receivership and compelling an accounting.
• Whether or not the expiration of the partnership's ten-year term terminated the partnership so as to bar the receivership and the orders for accounting.

Applicable Provisions

Article 1829 of the Civil Code provides:

Article 1829. On dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed.

This provision is the decisive rule: it answers whether the expiry of the partnership's term ended the firm for all purposes, and it supplies the legal basis for the orders directing the winding up of its affairs.

Ruling

On the first issue, the Court held that there was neither lack of jurisdiction nor grave abuse of discretion. The issue, the Court said, is simple, and the answer is equally simple: no. The respondent judge not only had jurisdiction to issue the orders; he also acted prudently in the premises.

On the second issue, the Court held that the expiration of the ten-year term did not terminate the partnership. Applying Article 1829 of the Civil Code, the Court explained that on dissolution the partnership is not terminated but continues until the winding up of its affairs is completed. All the questioned orders, the Court observed, were intended to wind up the partnership affairs in an orderly manner and to protect the interest of the plaintiff, who is the private respondent. The Court quoted the governing rule:

Article 1829. On dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed.

Because the partnership had been dissolved but not yet wound up, the trial court could properly keep the receivership in place and compel the partners and the receiver to render an accounting.

Doctrine

A Bar candidate should retain this rule: the dissolution of a partnership does not terminate it. Under Article 1829 of the Civil Code, the partnership continues until the winding up of its affairs is completed. Dissolution ends the relationship among the partners for purposes of carrying on the business, but the firm survives as a juridical relationship for the limited purpose of liquidation, so that the partners and the persons charged with liquidation must still account, settle, and distribute the partnership assets. Until that winding up is finished, the courts may act to protect the interests of the partners and third parties, including by maintaining a receivership and ordering an accounting. The expiration of the partnership's agreed term is a cause of dissolution, not of termination.

Disposition

The Supreme Court denied the petition for lack of merit, with costs against the petitioners, thereby sustaining all the questioned orders.

Remember This

Memorize the line: on dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed. Examiners use this case to test whether a student confuses dissolution with termination, especially where the partnership's term has expired but no accounting and liquidation have yet been made.