Sy vs. Court of Appeals

Dissolution of a partnership does not terminate its juridical personality, which continues until winding up is completed and the net assets are partitioned and distributed; and property of an owner-occupant cannot be closed by mandatory injunction without impleading and hearing such indispensable parties. Receivership during the interval between dissolution and termination is interlocutory and within SEC jurisdiction where agreed upon and needed to preserve assets, while an ex parte closure order against a stranger to the case is void for want of due process.

Sy Yong Hu & Sons is a partnership registered with the SEC on March 29, 1962, composed of Sy Yong Hu and his sons Jose Sy, Jayme Sy, Marciano Sy, Willie Sy, Vicente Sy and Jesus Sy, with Jose Sy as managing partner and stipulated capital contributions ranging from P31,000.00 to P205,000.00. Its holdings included valuable tracts planted to sugar cane and commercial lots in the business district of Bacolod City. SEC jurisdiction over intra-partnership disputes and receivership under Presidential Decree No. 902-A, as amended, and the Civil Code provisions on dissolution and winding up frame the controversy over control and distribution of those assets.

Sy Yong Hu & Sons was registered March 29, 1962 as a partnership of Sy Yong Hu and his sons Jose, Jayme, Marciano, Willie, Vicente and Jesus Sy, with contributions of P31,000.00 for Sy Yong Hu, P205,000.00 for Jose, P112,000.00 for Jayme, P143,000.00 for Marciano, P85,000.00 for Willie, P85,000.00 for Vicente and P88,000.00 for Jesus, and with Jose as managing partner. Sy Yong Hu died May 18, 1978, Jose died August 12, 1978, Vicente died December 30, 1979 and Marciano died August 7, 1987, leaving valuable sugar lands and Bacolod commercial lots under dispute.

Sometime in September 1977, during the lifetime of all partners, Keng Sian sued the partnership and individual partners in Civil Case No. 13388 before the then Court of First Instance of Negros Occidental for accounting and reconveyance of one-half of properties allegedly owned in common with Sy Yong Hu, her claimed common-law husband, averring diversion of co-owned properties to the partnership. In their answer dated November 3, 1977, the defendants including Sy Yong Hu himself countered that Keng Sian was only a house helper and the properties were exclusively owned by the partnership. On September 20, 1978, Marciano Sy filed SEC Case No. 1648 for declaratory relief to be appointed managing partner vice Jose, while Vicente, Jesus and Jaime sought dissolution and appointment of Vicente; Hearing Officer Sison dismissed the petition, dissolved the partnership and named Jesus, vice the deceased Vicente, as managing partner to wind up affairs. The SEC en banc in the June 8, 1982 Abello decision affirmed dissolution by express will of the majority, not ipso facto by death, directed Jesus as manager in liquidation to submit accounting and project of partition within 90 days, required petitioner's counter-project, and remanded for evaluation and approval, on the basis of which Hearing Officer Sison approved a partial partition on December 2, 1986. Meanwhile, Keng Sian's children sought revocation of the partnership registration in SEC Case No. 2338, dismissed January 11, 1984 with finality, and failed to intervene in SEC Case No. 1648 under the May 9, 1985 denial; Special Administrator Alex Ferrer for the Intestate Estate of Sy Yong Hu, appointed in Civil Case No. 13388, moved August 30, 1985 to intervene in SEC Case No. 1648, filed an amended complaint in December 1985 joining Keng Sian as plaintiff and adopting her theory that partnership assets were co-owned by Keng Sian and Sy Yong Hu and wrongfully diverted, and after denial on May 9, 1986 obtained the Sulit decision reversing the denial, giving due course to intervention and remanding for partition proceedings while reiterating the finality of the Abello dissolution.

During continuation before Hearing Officer Felipe Tongco, the parties stipulated on June 28, 1988 that a court case claimed all partnership assets belonged to Sy Yong Hu, that there would be no disposition of partnership assets during its pendency with further hearing suspended, and that position papers would be filed on whether partners or a receivership committee should manage assets, while the intervenor's motion to enjoin construction on partnership lots was also set for opposition. On October 5, 1988 Tongco issued the order placing the partnership under a receivership committee as the most equitable means to preserve assets during Civil Case No. 903 in Bacolod City, denying a separate restraining order against reconstruction. The SEC en banc in the January 16, 1989 Lopez Order affirmed, noting the supervening intervention claiming superior exclusive ownership then pending before the RTC justified suspension of disposition. The Court of Appeals on January 15, 1990 set aside both orders and directed execution of the Abello and Sulit partition, but on reconsideration on June 27, 1990 reinstated receivership, citing the June 28, 1988 agreement, the pending Civil Case No. 903 entitled Keng Sian and Intestate of Sy Yong Hu vs. Jayme Sy et al., sales already made as of 1987 as evidenced by deeds by Jesus in favor of Reynaldo Navarro among others, and failure of the manager in liquidation to render the required accounting.

In June 1988 Jesus Sy as managing partner applied to reconstruct the fire-destroyed Sy Yong Hu & Sons Building on Gonzaga Street, Bacolod City, obtaining Building Permit No. 4936 on July 5, 1988 for the first two floors and completing reconstruction by January 1989, when Bacolod Canvas and Upholstery Supply Co. and Negros Isuzu Sales, owned by successors of Jose and Vicente, and John Tan, brother-in-law of Marciano, occupied it. According to the Estate, Tongco had denied enjoining reconstruction, but on October 10, 1988 it wrote the City Engineer that Jesus lacked authority, followed November 11, 1988 by a request to revoke the permit; the City Engineer on November 27, 1988 demanded Jesus's authority to act for the partnership lest no occupancy permit issue, and on December 27, 1988 the Estate reiterated that receivership deprived Jesus of authority, to which Jesus replied the Tongco Order was on appeal en banc and occupancy should issue for compliance with the Code. Unable to obtain revocation, the Estate filed Civil Case No. 5326 for mandamus with preliminary injunction against Engineer Jose Falsis, Jr. on February 22, 1989 praying padlocking, stoppage, barricading and Code enforcement, without impleading Sy Yong Hu & Sons or lessees-occupants, heard April 5, 1989 on lone testimony of the City Engineer and resulting in the April 19, 1989 order and May 4, 1989 writ of preliminary mandatory injunction to padlock. Upon learning thereof on May 9, 1989 petitioners moved to intervene, answered in intervention and moved to set aside, granted June 22, 1989 by Acting Judge Parian; the Estate moved August 3, 1989 to cite the Engineer for contempt and to strike the August 15, 1989 amended answer in intervention. After the City Engineer refused a January 25, 1990 request for occupancy without the Estate's conformity, Judge Katalbas-Moscardon on January 24, 1991, on ex parte motion to resolve incidents, ordered stoppage, cancellation of the permit, discontinuance of occupancy, desistance from issuing occupancy certificates, withdrew intervention as improper forum-shopping causing confusion, and deemed the motion to strike granted, prompting revocation notice, a February 15, 1991 CA certiorari petition, a February 27, 1991 TRO, and the May 31, 1991 CA denial now assailed.

The SEC and CA found an agreed suspension of disposition, supervening exclusive-ownership claim, prior dispositions under a non-final partial partition and unrendered accounting warranting receivership with all interests represented. The RTC found Building Code violations warranting padlocking on the Engineer's uncontradicted testimony, without hearing the unimpleaded owner and occupants whose property and possessory rights were directly affected.

• Dissolution Finality and Partition: Petitioner argued that the January 15, 1990 CA decision correctly remanded for implementation of the final 1982 Abello and 1988 Sulit decisions ordering distribution and partition, and that reinstating the Tongco receivership suspended dissolution and distribution contrary to final judgment.
• Excess of Jurisdiction and Non-Basis: Petitioner maintained that Hearing Officer Tongco, succeeding Sison, had no course except to continue partition, so placing properties under receivership on a ground not relied upon in the SEC resolution under review — disposition of small properties already adjudicated under the December 2, 1986 order and before the June 28, 1988 no-disposition agreement — was erroneous and in excess of jurisdiction.
• Unnecessary Receivership: Petitioner argued that receivership, an extreme remedy requiring proof of grave irreparable loss, was unnecessary because petitioners held ninety-six percent equity with greatest interest in preservation and because lis pendens annotations in the civil case adequately protected respondents.
• Due Process and Jurisdiction in Mandamus: Petitioner argued that failure to implead the building owner and lessee-occupants in Civil Case No. 5326 and ex parte grant of the mandatory injunction deprived them of opportunity to cross-examine and present evidence, and that recalling granted intervention without due process was without jurisdiction.
• Absence of Injunction Requisites and Bond: Petitioner maintained that the writ issued without material substantial invasion of a clear unmistakable right, urgent necessity to prevent serious damage, or the required injunction bond, and effectively disposed of the merits by ejecting lawful owner and occupants before trial.

• Superior Ownership and Pending Adjudication: Respondent countered that an intervenor claimed superior exclusive ownership of all partnership assets then pending in the RTC, overtaking the en banc order and justifying suspension of disposition and receivership to avoid multiplicity and preserve rights.
• Scope of Assets Beyond Land: Respondent argued that partnership assets included income and fruits thereof, so lis pendens annotations on real properties did not adequately protect its rights and a representative receivership committee was needed.
• Building Code Violation as Sole Issue: Respondent maintained that Civil Case No. 5326 concerned only whether the Building Code was violated, which after due hearing was established, warranting the April 19, 1989 writ, and that owner and lessees had nothing to do with mandamus directed at the building official's ministerial duty.
• Validity of Compliance by City Engineer: Respondent City Engineer argued that compliance with the padlocking order was proper in reliance on the trial court's valid order to enforce Code provisions without exemption.

• Dissolution vs. Receivership: Whether the Tongco and Lopez orders placing the dissolved partnership under a receivership committee varied or suspended the final Abello dissolution and exceeded SEC jurisdiction.
• Necessity of Receivership: Whether receivership was justified by necessity and danger of loss despite petitioners' majority equity and lis pendens annotations.
• Due Process and Indispensable Parties: Whether the RTC acted without jurisdiction and with grave abuse of discretion in issuing the preliminary mandatory injunction without impleading the owner and occupants and in withdrawing granted intervention.
• Requisites of Preliminary Injunction: Whether the writ satisfied requisites of clear right, material invasion and urgent necessity, did not prematurely dispose of the main case, and whether absence of injunction bond voids it.

• Dissolution vs. Receivership: No. Dissolution merely changed relations among partners while juridical personality continued until termination; the receivership was interlocutory, within retained SEC jurisdiction, and consented to, suspending only partition pending Civil Case No. 903.
• Necessity of Receivership: Yes. Necessity was shown by agreed non-disposition, prior sales under a non-final partial partition, failure to account, and inadequacy of lis pendens to cover fruits, with no clear abuse of discretion.
• Due Process and Indispensable Parties: Yes. The owner and occupants were indispensable parties deprived of opportunity to be heard; orders issued without jurisdiction do not bind strangers, and withdrawal of intervention was grave abuse of discretion.
• Requisites of Preliminary Injunction: No. No material invasion of a clear right of the Estate with urgent necessity was shown, the writ ejected lawful possessors and disposed of merits without trial, and the bond issue was rendered moot by invalidity of the writ.

• Dissolution vs. Receivership: Dissolution is the change in relations caused by a partner ceasing association, distinct from winding up, with personality retained until termination when winding up is completed and net assets partitioned under Articles 1828-1829. Because the Abello dissolution was final, the SEC retained jurisdiction over incidents until termination, so an order appointing a receiver like appointing a manager in liquidation did not vary dissolution but only suspended partition and distribution. Having agreed June 28, 1988 that no disposition occur during Civil Case No. 903, petitioners were estopped from assailing the conforming Tongco order.
• Necessity of Receivership: Under Sec. 6(c) of Presidential Decree No. 902-A, the SEC may appoint receivers of property subject of pending action to preserve litigants' rights. Sound bases appeared: reexamination showed agreed suspension due to supervening exclusive-ownership claim, pending Civil Case No. 903, 1987 sales by the manager in liquidation under the not-yet-final December 2, 1986 partial partition indicating repeatable irreparable injury, and non-submission of the April 29, 1988 required accounting. Majority control did not negate danger, and lis pendens did not secure income and fruits; discretionary appointment absent clear abuse is not disturbed pursuant to Go Tecson vs. Macaraig.
• Due Process and Indispensable Parties: Procedural due process concerns the method of enforcement and requires opportunity to be heard, while substantive due process concerns fairness of the law itself. Mandamus was granted May 4, 1989 on the lone City Engineer's testimony without impleading Sy Yong Hu & Sons and occupants, denying cross-examination and contradicting evidence despite their direct property rights. As indispensable parties under Sec. 7, Rule 3, no final determination could be had without them, and violation of substantive law merely gives rise to a cause of action, not summary punishment without hearing; judgments do not bind strangers pursuant to Matuguina Integrated Wood Products, Inc. vs. Court of Appeals.
• Requisites of Preliminary Injunction: A writ requires material substantial invasion of a clear unmistakable right and urgent paramount necessity to prevent serious damage. The Estate, a juridical person, alleged general public hazard from Code violations without showing grave damage it would suffer if the writ did not issue. Ordering padlocking, stoppage, permit cancellation and ejectment disposed of the merits before hearing, contrary to Ortigas & Company Limited Partnership vs. Court of Appeals, and invalidity for grave abuse rendered the bond question moot under Arcega et al. vs. Court of Appeals standards.

• Dissolution, winding up and termination of partnership — Dissolution is the change in relation of partners caused by any partner ceasing to be associated in carrying on, as distinguished from winding up, of business; the partnership continues with retained personality until termination when winding up is completed and net assets partitioned and distributed. Applied to hold Abello dissolution final yet compatible with interlocutory receivership and suspended partition pending ownership litigation.
• SEC receivership power under Sec. 6(c), P.D. No. 902-A — The Commission may appoint receivers of property subject of pending action per Rules of Court and whenever necessary to preserve litigants' rights and protect investors and creditors. Applied to sustain receivership committee with representation of all interested parties to prevent further disposition during Civil Case No. 903.
• Estoppel by agreement to suspend disposition — Parties agreeing before the Hearing Officer not to dispose of partnership assets during a pending court case are estopped from questioning the conforming order suspending winding up in part. Applied to petitioners' June 28, 1988 stipulation.
• Discretionary appointment of receiver pendente lite — Appointment rests in trial discretion and is not disturbed absent clear abuse or excess of jurisdiction. Applied pursuant to Go Tecson vs. Macaraig to uphold SEC discretion where danger of damage or loss appeared.
• Procedural vs. substantive due process — Procedural due process refers to method or manner of enforcement, while substantive due process requires the law itself be fair, reasonable and just. Applied to reject justification of ex parte closure by alleged Code violation without hearing.
• Opportunity to be heard and indispensable parties — Essence of due process is opportunity to be heard; where owner and occupants whose property will be closed are indispensable parties, failure to implead denies cross-examination and presentation of evidence, renders proceedings without jurisdiction, and strangers are not bound, per Sec. 7, Rule 3 and Matuguina Integrated Wood Products, Inc. vs. Court of Appeals.
• Requisites of preliminary injunction and prohibition against disposing of merits — Issuance requires material substantial invasion of a clear unmistakable right and urgent paramount necessity to prevent serious damage; courts must avoid writs effectively disposing of main case without trial. Applied to void padlocking and ejectment based on general hazard allegations, per Arcega et al. vs. Court of Appeals and Ortigas & Company Limited Partnership vs. Court of Appeals.

• "The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be associated in the carrying on, as might be distinguished from the winding up, of its business." — States the controlling distinction allowing continued juridical existence after dissolution until winding up and termination.
• "Settled is the rule that the essence of due process is the opportunity to be heard." — Anchors invalidation of the ex parte mandatory injunction issued without impleading owner and occupants.
• "Generally accepted is the principle that no man shall be affected by any proceeding to which he is a stranger, and strangers to a case are not bound by judgment rendered by the court." — Supports holding that unimpleaded indispensable parties are not bound by closure orders.
• "For the issuance of the writ of preliminary injunction to be proper, it must be shown that the invasion of the right sought to be protected is material and substantial, that the right of complainant is clear and unmistakable and that there is an urgent and paramount necessity for the writ to prevent serious damage." — Provides the canonical test failed by general hazard allegations in the mandamus case.

• Gregorio F. Ortega et al. vs. Court of Appeals et al., 245 SCRA 529 — Cited for Civil Code dissolution-winding up distinction; followed to hold dissolved partnership retains personality until termination.
• Mendiola vs. Court of Appeals et al., 106 SCRA 130 — Cited for rule that harsh remedy of receivership requires extreme caution, sound bases and clear necessity; applied to test SEC appointment.
• Recentes et al. vs. Court of First Instance of Zamboanga del Norte, Branch 1, et al., 123 SCRA 778 — Cited as authority that receivership to wind up partnership orderly and protect plaintiff is not grave abuse; followed.
• Go Tecson vs. Macaraig, 88 Phil 604 — Cited for discretionary nature of receiver pendente lite undisturbed absent clear abuse or jurisdictional excess; followed.
• Corona et al. vs. United Harbor Pilots Association of the Philippines et al., 283 SCRA 31 — Cited for procedural vs. substantive due process definitions; followed.
• Legarda vs. Court of Appeals et al., 280 SCRA 642 — Cited for opportunity to defend as essence of due process; followed to find denial where no chance to traverse testimony.
• Matuguina Integrated Wood Products, Inc. vs. Court of Appeals et al., 263 SCRA 490 — Cited for rule strangers are not bound by judgment; followed for unimpleaded owner-occupants.
• Arcega et al. vs. Court of Appeals et al., 275 SCRA 176 — Cited for requisites of preliminary injunction; applied to void writ.
• Ortigas & Company Limited Partnership vs. Court of Appeals et al., 162 SCRA 165 — Cited for avoidance of injunctions disposing of main case without trial; applied to padlocking-ejectment writ.

• Sec. 6(c), Presidential Decree No. 902-A, as amended — Empowers SEC to appoint receivers of property subject of pending action and when necessary to preserve litigants' rights and protect investors/creditors; basis for Tongco receivership committee.
• Articles 1828-1829, 1837[2] and 1841, New Civil Code — Govern dissolution, its causes including express will of majority, and continuation until winding up; basis for Abello clarification that dissolution was by majority will not ipso facto by death.
• Sec. 7, Rule 3, Revised Rules of Court — Requires joinder of indispensable parties without whom no final determination can be had; basis for voiding mandamus injunction without owner and lessees.
• National Building Code provisions invoked — Relied upon by Estate and City Engineer to justify padlocking for lack of occupancy certificate and safety compliance; held to create at most a cause of action requiring due-process hearing, not ground for summary punishment.

Melo, Vitug, Panganiban and Gonzaga-Reyes, JJ., concur.