Ortega vs. Court of Appeals

In a partnership at will, any partner may, at his sole pleasure, cause its dissolution by withdrawing from the firm. The presence of bad faith in the withdrawal does not prevent the dissolution but may render the withdrawing partner liable for damages.

The law firm of Ross, Lawrence, Selph and Carrascoso was registered in 1937 and underwent several amendments and changes in partnership composition. By 1980, the firm operated as "Bito, Misa & Lozada," with Jesus B. Bito and Mariano M. Lozada as senior partners and Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro as junior partners. On February 17, 1988, partner Joaquin L. Misa sent letters announcing his withdrawal and retirement from the firm, effective the end of that month, citing interpersonal conflicts and disagreements over employee compensation as reasons. He subsequently filed a petition with the SEC for the dissolution and liquidation of the partnership.

• Nature of the Partnership: The law firm "Bito, Misa & Lozada" was a registered partnership. Its Amended Articles of Partnership (19 August 1948) stated its "DURATION" as follows: "The partnership shall continue so long as mutually satisfactory and upon the death or legal incapacity of one of the partners, shall be continued by the surviving partners." It did not specify a fixed term.
• Misa's Withdrawal: On 17 February 1988, Joaquin L. Misa sent letters to his partners announcing his withdrawal and retirement, effective 29 February 1988, and requesting a meeting on the liquidation of his interest. In a subsequent letter dated 19 February 1988, he cited interpersonal conflicts and disputes over employee compensation as reasons for his withdrawal.
• SEC Proceedings: Misa filed a petition for dissolution and liquidation with the SEC on 30 June 1988. The opposing partners (Ortega, del Castillo, Bacorro) filed an opposition. The SEC Hearing Officer initially ruled that the withdrawal did not dissolve the partnership.
• Intervening Events: During the appeal to the Court of Appeals, senior partners Jesus Bito and Mariano Lozada died. Misa moved for the appointment of a receiver to preserve partnership assets, which was opposed by the other partners and ultimately denied.
• Lower Court Findings: Both the SEC en banc and the Court of Appeals found that Misa's withdrawal was prompted by "interpersonal conflict" and was not motivated by bad faith.

• Partnership Not at Will: Petitioners (Ortega, del Castillo, Bacorro) argued that the partnership was not a partnership at will but one for a specific undertaking—namely, the practice of law—and therefore could not be dissolved at the whim of a single partner.
• Bad Faith in Withdrawal: Petitioners maintained that Misa's withdrawal was in bad faith, as his true motive was to force a physical partition of partnership assets (specifically, two office condominium floors) for personal gain, not due to genuine interpersonal conflict.

• Partnership at Will: Respondent Misa countered that the partnership was a partnership at will because its articles lacked a fixed term, using the phrase "so long as mutually satisfactory."
• Right to Dissolve: Respondent argued that any partner in a partnership at will has the power to cause its dissolution by withdrawing, and that his reasons for withdrawal were legitimate and did not constitute bad faith.

• Partnership Characterization: Whether the law firm "Bito, Misa & Lozada" was a partnership at will.
• Effect of Withdrawal: Whether the withdrawal of a partner from a partnership at will results in its dissolution, irrespective of the presence of good or bad faith.
• Bad Faith: Whether the respondent's withdrawal from the partnership was made in bad faith.

• Partnership Characterization: The partnership was a partnership at will. Its stated purpose—to practice law—was not the "specific undertaking" contemplated by law, which refers to a project with a definite period of completion. The "DURATION" clause, providing for continuation only "so long as mutually satisfactory," confirmed its at-will nature.
• Effect of Withdrawal: The withdrawal of a partner from a partnership at will causes its dissolution. The right to choose one's associates is fundamental to such a partnership, and any partner may dictate its dissolution at his sole pleasure. Bad faith does not prevent the dissolution but may give rise to liability for damages under Article 19 of the Civil Code.
• Bad Faith: The withdrawal was not in bad faith. The factual findings of the SEC and Court of Appeals, which were accorded respect, established that the withdrawal was motivated by interpersonal conflict. Bad faith requires a conscious and intentional design to do a wrongful act, which was not present here.

• Partnership at Will — A partnership that does not fix its term or is not for a specific undertaking is a partnership at will. Its existence depends on the mutual desire and consent of the partners. Any partner may cause its dissolution at any time, subject to liability for damages if done in bad faith.
• Dissolution by Withdrawal — In a partnership at will, the act of a partner ceasing to be associated in the carrying on of the business constitutes a dissolution. The partnership's legal personality continues only for the purpose of winding up its affairs.
• Bad Faith in Partnership Dissolution — Bad faith, defined as a conscious and intentional design to do a wrongful act for a dishonest purpose, does not invalidate the dissolution of a partnership at will. However, it can form the basis for an action for damages against the withdrawing partner.

• "The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to choose with whom a person wishes to associate himself is the very foundation and essence of that partnership." — This passage underscores the core principle of delectus personae in partnerships at will.
• "An unjustified dissolution by the partner can subject him to a possible action for damages." — This clarifies that the power to dissolve is separate from the right to dissolve without consequence.
• "Bad faith, in the context here used, is no different from its normal concept of a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity." — This provides the Court's definition of bad faith for purposes of assessing liability upon dissolution.

• Rojas v. Maglana, 192 SCRA 110 — Cited for the principle that the presence of a period or specific purpose does not prevent the dissolution of a partnership by the act or will of a partner.

• Article 1830 (1)(b), Civil Code — Cited as the legal basis for the dissolution of a partnership at will by the express will of any partner at any time.
• Article 19, Civil Code — Referenced in the context that bad faith in causing dissolution could give rise to liability for damages under the general principle of abuse of rights.
• Articles 1828 & 1829, Civil Code — Cited to define dissolution as a change in the relation of the parties and to establish that the partnership continues only for winding up purposes after dissolution.
• Article 1837, Civil Code — Referenced regarding the rights of a partner upon dissolution to have partnership property applied to discharge liabilities and to receive the net amount due to him.

Justice Feliciano, Justice Romero, Justice Melo, and Justice Francisco.