Ornum vs. Lasala, et al.

A final statement of accounts is deemed approved by a partner where, after receiving it, the partner fails to object, promises to sign it upon receipt of the shares stated therein, and accepts payment of those shares without reservation; the signing then becomes a mere formality, and further liquidation is barred absent a positive and unmistakable finding of fraud, deceit, error, or mistake.

Respondents are the children and successors-in-interest of Pedro Lasala, who had entered into a business arrangement with Emerenciano Ornum for a business in Romblon; petitioners Jose and Emerenciana Ornum later became the managing partners after Emerenciano withdrew. The Lasala group were silent capitalist partners while the Ornums ran the business as industrial/managing partners. No formal partnership agreement was executed, no common firm name was adopted, and the Ornums transacted in their own names; the Court characterized the association as one of joint accounts under the Code of Commerce rather than a general copartnership. The dispute concerns the final liquidation of that business after the Lasala group announced its withdrawal.

In 1908, Pedro Lasala, father of the respondents, and Emerenciano Ornum formed a partnership. Pedro Lasala, as capitalist, delivered P1,000 to Emerenciano Ornum, who as industrial partner was to conduct the business at his place of residence in Romblon. In 1912, when the assets of the partnership consisted of outstanding accounts and old stock of merchandise, Emerenciano Ornum, following the wishes of his wife, asked for the dissolution of the partnership. He looked for someone to take his place and suggested the names of the petitioners, Jose and Emerenciana Ornum, who accordingly became the new partners. Upon joining the business, the petitioners contributed P505.54 as their capital, with the result that in the new partnership Pedro Lasala had a capital of P1,000, representing the appraised value of the assets of the former partnership, plus the P505.54 invested by the petitioners, who as industrial partners were to run the business in Romblon.

After the death of Pedro Lasala, his children, the respondents, succeeded to all his rights and interest in the partnership. The partners never knew each other personally, and no formal partnership agreement was ever executed. The petitioners, as managing partners, received one-half of the net gains, and the other half was to be divided between them and the Lasala group in proportion to the capital put in by each group. The partners were given the election to invest their respective shares in such profits as additional capital, and the petitioners accordingly let a greater part of their profits remain as additional investment in the partnership. After twenty years, the business had grown to such an extent that its total value, including profits, amounted to P44,618.67. Statements of accounts were periodically prepared by the petitioners and sent to the respondents, who invariably did not make any objection thereto. Before the last statement of accounts was made, the respondents had received P5,387.29 by way of profits.

After the respondents had announced their desire to dissolve the partnership, the petitioners prepared the last and final statement of accounts dated May 27, 1932. The statement showed a total gain since the last balance of P575.45 and allocated the shares of the partners, with net amounts due after deductions: P2,718.47 to the Lasala brothers, P8,594.65 to Jose Ornum, and P6,848.40 to Emerenciana Ornum. After receipt of the statement, Father Mariano Lasala, spokesman for the respondents, wrote a letter to the petitioners on July 19, 1932, stating that the reason for collecting their capital and profits was a large commitment, and asking that payment be made by any means before the end of July 1932; he further stated, “En cuanto hayamos recibido esto, entonces firmaremos el balance que habeis hecho alli, cuya copia has dejado aqui.” Pursuant to the request contained in this letter, the petitioners remitted and paid to the respondents the total amount corresponding to them under the statement of accounts, but the respondents did not sign the statement.

Thereafter, the respondents filed a complaint for an accounting and final liquidation of the assets of the partnership. They alleged that the petitioners, in order to defraud and deprive them of their just share, had caused properties rightfully belonging to the business to be inscribed in their own names, and had fraudulently withdrawn large amounts of money for personal use. They also alleged mistakes in the statements and contended that the petitioners, as industrial and capitalist partners, could not include their participation in profits as capital because this absorbed the respondents and gave the petitioners greater participation in the profits. The petitioners, in their counterclaim, alleged that a recent revision of the accounts and books showed they had overpaid the respondents by P575.12 and sought its return or payment. The trial court found that the final statement of accounts was tacitly approved and accepted by the respondents, that there was no proof of bad faith in its preparation, and absolved the defendants. The Court of Appeals reversed, principally because the final statement remained unsigned by the respondents, and ordered a new accounting. The Court of Appeals did not find fraud; it stated only that the evidence tended to prove that mistakes had been committed in the statements sent to the respondents.

• Overpayment Counterclaim: Petitioners alleged in their counterclaim that a recent revision of the accounts and books showed they had overpaid respondents by P575.12 and sought reimbursement or payment.

• Fraud and Misappropriation: Respondents alleged that petitioners, in order to defraud and deprive them of their just share in the business, caused properties rightfully belonging to the business to be inscribed in petitioners' own names, and fraudulently withdrew large amounts of money for personal use.
• Improper Profit-Sharing and Capitalization: Respondents contended that petitioners, as industrial and capitalist partners, could not include their participation in the profits as capital because by such procedure respondents were absorbed and petitioners obtained greater participation in the profits; the original profit-sharing agreement of 50 per cent to the industrial partner and the balance to be distributed among the partners in proportion to their capital, namely 66.67 per cent to respondents for their capital of P1,000 and 33.33 per cent to petitioners for their capital of P500, should be maintained notwithstanding the increase of petitioners' capital through the accumulation of unwithdrawn profits.
• Accounting and Mistakes: Respondents sought an accounting and final liquidation, alleging mistakes in the statements of accounts; the Court of Appeals reversed the trial court because the final statement remained unsigned by respondents.

• Approval of Final Statement: Whether the final statement of accounts dated May 27, 1932 was approved by respondents despite their failure to sign it.
• Further Liquidation: Whether respondents may demand a further accounting and final liquidation despite such approval.
• Sufficiency of Mistake Finding: Whether the Court of Appeals' statement that the evidence tends to prove mistakes, without specifying them, is a sufficient finding to justify reopening the accounts.
• Effect of Overpayment: Whether the alleged overpayment by petitioners to respondents of P575.12 constitutes an error warranting another accounting.
• Fraud and Property Ownership: Whether petitioners' act of placing the business properties in their own names and the alleged withdrawals were fraudulent or irregular.
• Profit-Sharing Method: Whether respondents are estopped from insisting on a fixed two-to-one division of profits notwithstanding the increase in petitioners' capital through accumulated unwithdrawn profits.

• Approval of Final Statement: Yes. The final statement was approved by respondents through their letter, failure to object, and acceptance of shares without reservation; signing became a mere formality waived by their refusal.
• Further Liquidation: No. Approval precludes further liquidation unless fraud, deceit, error, or mistake is shown.
• Sufficiency of Mistake Finding: No. A statement that evidence tends to prove mistakes, without specifying them, is mere suspicion and not a positive and unmistakable finding of fact.
• Effect of Overpayment: No. The alleged overpayment, even if admitted, was not the kind of error that called for another accounting and was abandoned on appeal.
• Fraud and Property Ownership: No. No irregularity was shown; the association was one of joint accounts under the Code of Commerce, not a general copartnership, and respondents were silent partners.
• Profit-Sharing Method: No. Respondents were estopped; they had tacitly and repeatedly approved the method for twenty years.

• Approval of Final Statement: The letter of Father Mariano Lasala dated July 19, 1932 showed respondents' promise to sign the balance as soon as they received their shares. After petitioners paid and respondents accepted the amounts without reservation, approval was virtually confirmed. The signing became a mere formality for respondents to comply with; their refusal after receiving their shares waived that formality in favor of petitioners, who had already performed their obligation. The final statement was therefore a stated account.

• Further Liquidation: The Court cited Pastor vs. Nicasio, Aldecoa & Co. vs. Warner, Barnes & Co., and Gonsalez vs. Harty for the rule that approval precludes further liquidation unless fraud, deceit, error, or mistake is shown. The Court of Appeals found no fraud. On error or mistake, it merely said the evidence tended to prove mistakes, without specifying them. That was insufficient. The Court also considered that a new accounting would require itemizing twenty years of accounts mostly from memory, that no regular books were kept, and that the case had been pending nearly nine years; no useful purpose would be served by remand.

• Sufficiency of Mistake Finding: The pronouncement that evidence tends to prove mistakes, without specifying the mistakes, merely intimated suspicion and was not a positive and unmistakable finding of fact. The Court cited Concepcion vs. People. The Court of Appeals relied on the bare allegations of the parties. A new accounting cannot be ordered on such a basis.

• Effect of Overpayment: Even admitting petitioners' counterclaim that they overpaid respondents P575.12, that error was essentially fatal to respondents' theory of what the statement of accounts showed and was not the kind of error that called for another accounting to serve respondents' suit. Moreover, petitioners did not appeal from the decision of the Court of First Instance and abandoned the allegation in the Court of Appeals.

• Fraud and Property Ownership: No irregularity was found in petitioners putting the properties and business in their own names. The association was not a general copartnership under Articles 125–144 of the Code of Commerce but one of joint accounts under Articles 239–243. Respondents acquired an interest by contributing merchandise and accounts receivable valued at P1,000 (Article 239). No formality was observed (Article 240). No commercial name common to all participants was adopted, and petitioners transacted and managed the business in their own individual names and under individual liability (Article 241). Respondents were silent partners and knew no firm name had been adopted. The allegations of fraudulent withdrawals were unwarranted because neither the trial court nor the Court of Appeals found bad faith.

• Profit-Sharing Method: Respondents' claim that petitioners could not include their profit shares as capital and that the original two-to-one division should be maintained was neither fair nor sound. For twenty years the parties by common consent followed the same method; each partner could put in as much capital as he wanted and share in the profits accordingly. Up to the time respondents received the last centavo of their participation in the capital and profits, they had tacitly and repeatedly approved the procedure. The trial court held respondents estopped from insisting on a fixed and invariable two-to-one division regardless of the amount of capital of each party in a given year.

• Stated Account / Approval by Conduct — A final statement of accounts may be deemed approved by a partner's conduct where the partner, after receiving the statement, fails to object, promises to sign it upon receipt of the shares stated therein, and accepts payment of those shares without reservation. The signing becomes a mere formality, and refusal to sign after receiving the shares amounts to a waiver of that formality in favor of the partner who has performed.
• Reopening of Accounts — An approved statement of accounts precludes further liquidation unless fraud, deceit, error, or mistake is shown. The fraud, deceit, error, or mistake must be positively and unmistakably found as a fact; a statement that the evidence merely tends to prove mistakes, without specifying them, is insufficient and amounts only to suspicion.
• Joint Accounts under the Code of Commerce — An association governed by Articles 239–243 of the Code of Commerce is one of joint accounts, not a general copartnership under Articles 125–144. No formality is required for its formation, no common commercial name need be adopted, and the managers may transact business in their own individual names and under individual liability. The contributors who do not manage are silent partners.
• Estoppel by Tacit Approval — Parties who repeatedly and tacitly approve a method of distributing profits over a long period are estopped from later insisting on a fixed and invariable division of profits contrary to that method.
• Waiver of Formality — Where a party promises to sign a final statement upon receiving the benefits stated therein and then accepts those benefits without reservation, the signing becomes a mere formality; refusal to sign thereafter operates as a waiver of that formality.

• "We hold that the last and final statement of accounts hereinabove quoted, had been approved by the respondents. This approval resulted, by virtue of the letter of Father Mariano Lasala of July 19, 1932, quoted in part in the appealed decision from the failure of the respondents to object to the statement and from their promise to sign the same as soon as they received their shares as shown in said statement." — This is the ratio decidendi on approval of the final statement through conduct and promise.
• "This approval precludes any right on the part of the respondents to a further liquidation, unless the latter can show that there was fraud, deceit, error or mistake in said approval." — This states the controlling rule on when an approved account may be reopened.
• "In our opinion, the pronouncement that the evidence tends to prove that there were mistakes in the petitioners' statements of accounts, without specifying the mistakes, merely intimates as suspicion and is not such a positive and unmistakable finding of fact (Cf. Concepcion vs. People, G.R. No. 48169, promulgated December 28, 1942) as to justify a revision, especially because the Court of Appeals has relied on the bare allegations of the parties," — This defines the quantum of factual finding required to justify reopening accounts.
• "The association of the parties was not a general copartnership under articles 125-144 of the Code of Commerce but one of joint accounts governed by articles 239-243 of the same Code." — This characterizes the legal nature of the parties' business association.

• Pastor vs. Nicasio, 6 Phil. 152 — Cited by the majority for the rule that approval of accounts precludes further liquidation unless fraud, deceit, error, or mistake is shown.
• Aldecoa & Co. vs. Warner, Barnes & Co., 16 Phil. 423 — Cited by the majority for the same rule on the conclusiveness of an approved account absent fraud, deceit, error, or mistake.
• Gonsalez vs. Harty, 32 Phil. 328 — Cited by the majority for the same rule on reopening approved accounts.
• Concepcion vs. People, G.R. No. 48169, promulgated December 28, 1942 — Cited by the majority for the requirement of a positive and unmistakable finding of fact; mere suspicion is insufficient.

• Articles 125–144, Code of Commerce — General copartnership provisions; the majority distinguished them because the parties' association was not a general copartnership.
• Articles 239–243, Code of Commerce — Joint accounts provisions; applied to characterize the association as one of joint accounts rather than a general copartnership.
• Article 239, Code of Commerce — Respondents acquired an interest in the transactions by contributing merchandise and accounts receivable valued at P1,000.
• Article 240, Code of Commerce — No formality was observed in the formation of the association.
• Article 241, Code of Commerce — No commercial name common to all participants was adopted, and petitioners transacted and managed the business in their own individual names and under individual liability.

• Yulo, C.J. — concurred.
• Hontiveros, J. — concurred.
• Ozaeta, J. — filed a separate concurring opinion. He recorded the mental processes behind his vote for reversal, noting that the final statement of accounts was accepted as correct by respondents, who asked for payment of their participation in capital and profits; that the assets reflected in the statement were not cash but merchandise, credits, land, large cattle, and a rice mill; and that petitioners raised money to pay respondents' total participation. He viewed the lawsuit as unfortunate and unnecessary, found respondents' suspicions unjustified, agreed that the association was one of joint accounts, found no fraud or bad faith, and concluded that no useful purpose would be served by remanding the case for further accounting after nine years of litigation.

• Moran, J. — Dissented. He maintained that in an appeal by certiorari from the Court of Appeals, the Supreme Court cannot make its own findings of fact in disregard of the Court of Appeals' findings. The Court of Appeals found that the evidence tended to prove mistakes in the statements, and that finding was sufficient. A promise to sign is not equivalent to signing, and there was no meeting of minds; respondents' promise was subject to the agreement that they would send someone to Tablas to examine the partnership books, which petitioners refused. An account stated is subject to impeachment for fraud or mistake, and a mistake exists even if it favored respondents. If the Court of Appeals' finding was insufficient, the proper remedy was to remand for further findings, not to close the case. Delay was not a reason to deny an accounting, especially given the fiduciary relationship between the parties. He voted to affirm the Court of Appeals.
• Bocobo and Imperial, JJ. — also dissented; the text does not set out additional reasoning.