Sunga-Chan v. Chua
REITERATIONFacts
The Antecedents: Respondent Lamberto T. Chua filed a complaint against petitioners Lilibeth Sunga-Chan and Cecilia Sunga for winding up of partnership affairs, accounting, appraisal, and recovery of shares and damages. Respondent alleged that in 1977, he verbally entered into a partnership with the deceased Jacinto L. Sunga for the distribution of Shellane Liquefied Petroleum Gas (LPG) under the business name SHELLITE GAS APPLIANCE CENTER (Shellite). The business was registered under Jacinto's name for convenience, with respondent contributing P100,000.00 and Jacinto contributing P100,000.00, intending to divide profits equally. Jacinto managed the business, assisted by Josephine Sy, and received a manager's fee. The business was profitable from 1977 to 1989. Upon Jacinto's death in late 1989, petitioners took over the operations without respondent's consent. Despite repeated demands for accounting and restitution, petitioners failed to comply. Petitioner Lilibeth allegedly continued operations, converting partnership assets to her own use. On March 31, 1991, petitioner Lilibeth disbursed P200,000.00 from partnership funds as partial payment to respondent, promising a complete inventory and winding up, but failed to do so. Procedural History: Petitioners filed motions to dismiss, arguing that the Securities and Exchange Commission (SEC) had jurisdiction and that the action should be against the estate in a probate proceeding. Both motions were denied by the Regional Trial Court (RTC). Petitioners filed a petition for certiorari, prohibition, and mandamus with the Court of Appeals (CA), which was also denied. This Court denied their petition for review on certiorari. The RTC later rendered a decision in favor of the respondent, ordering petitioners to render an accounting, return misapplied properties, pay respondent's shares, pay earned but unreceived income, wind up the partnership, and pay damages and attorney's fees. Petitioners appealed to the CA, which affirmed the RTC decision. The CA also denied petitioners' motion for reconsideration. Hence, the present petition for review on certiorari. The Petition: Petitioners question the CA's conclusion that a partnership existed between respondent and Jacinto, arguing that the 'Dead Man's Statute' should have rendered respondent's and Josephine's testimonies inadmissible. They also contend that laches and/or prescription should have applied, and that there was insufficient evidence to prove the partnership and its alleged values.
Issue(s)
Whether the 'Dead Man's Statute' (Survivorship Rule) bars the testimony of the respondent and Josephine Sy regarding the alleged oral partnership with the deceased Jacinto L. Sunga. Whether the action for accounting and recovery of shares has prescribed or is barred by laches. Whether a valid partnership existed between the respondent and the deceased Jacinto L. Sunga, despite the absence of a written agreement. Whether the failure to register the partnership with the Securities and Exchange Commission (SEC) invalidates the partnership.
Ruling
The petition is DENIED. The appealed decision of the Court of Appeals is AFFIRMED.
Ratio Decidendi
On the applicability of the 'Dead Man's Statute': The Court held that the 'Dead Man's Statute' (Section 23, Rule 130 of the Rules of Court) does not apply in this case for two reasons. Firstly, the petitioners filed a compulsory counterclaim against the respondent in their Answer. When the representatives of the deceased set up a counterclaim, the surviving party (respondent) is allowed to testify about matters occurring before the death of the deceased to defeat the counterclaim. Secondly, the testimony of Josephine Sy is not covered by the statute because she is not a party, assignor of a party, or a person in whose behalf the case is prosecuted. She was merely a witness for the respondent, and her relationship to the respondent (sister of his wife) does not automatically diminish the credibility of her testimony. The Court found no evidence that her testimony was coerced. On prescription and laches: The Court found that the action for accounting filed by the respondent three years after Jacinto's death was well within the prescribed period. An oral contract prescribes in six years under the Civil Code. The right to demand an accounting for a partner's interest accrues at the date of dissolution, which in this case was Jacinto's death. The Court clarified that dissolution does not immediately terminate the partnership; it continues until the winding up of its business is completed. Therefore, the action was not barred by prescription or laches. On the existence of the partnership: The Court affirmed the factual findings of the trial court and the Court of Appeals that a partnership was established between the respondent and Jacinto. A partnership may be constituted in any form, even verbally, unless immovable property is contributed, which requires a public instrument. The essential elements of a partnership are mutual contribution to a common stock and a joint interest in the profits. The Court noted that petitioners did not present any evidence to refute the respondent's claims and failed to attend the presentation of evidence, thus waiving their right to present their own evidence. The Court also pointed out that petitioners failed to object to the admissibility of the documentary evidence at the time it was offered. On SEC registration: The Court reiterated that while Article 1772 of the Civil Code requires partnerships with a capital of P3,000.00 or more to register with the SEC, this requirement is not mandatory for the validity of the partnership among the partners. Article 1768 of the Civil Code explicitly provides that a partnership retains its juridical personality even if it fails to register. The failure to register does not invalidate the contract of partnership as among the partners, as the primary purpose of registration is to provide notice to third parties. The totality of the evidence presented sufficiently proved the existence of the partnership between the respondent and Jacinto.
Main Doctrine
The 'Dead Man's Statute' does not apply when the representatives of the deceased set up a counterclaim, or when the witness is not a party or assignor of a party to the case. Furthermore, the failure to register a partnership with the Securities and Exchange Commission does not invalidate the partnership among the partners if the essential requisites are present, as registration is primarily for notice to third parties.