Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No.

159333 July 31, 2006

of Pacfor. Private respondent will establish a Pacfor representative office in the Philippines, to be known as Pacfor Phils, and petitioner ATM will be its President. Petitioner's base salary and the overhead expenditures of the company shall be borne by the representative office and funded by Pacfor/ATM, since Pacfor Phils. is equally owned on a 50-50 equity by ATM and Pacfor-usa. On July 14, 1995, the SEC granted the application of private respondent Pacfor for a license to transact business in the Philippines under the name of Pacfor or Pacfor Phils.7 In its application, private respondent Pacfor proposed to establish its representative office in the Philippines with the purpose of monitoring and coordinating the market activities for paper products. It also designated petitioner as its resident agent in the Philippines, authorized to accept summons and processes in all legal proceedings, and all notices affecting the corporation.8 In March 1997, the Side Agreement was amended through a "Revised Operating and Profit Sharing Agreement for the Representative Office Known as Pacific Forest Resources (Philippines),"9 where the salary of petitioner was increased to $78,000 per annum. Both agreements show that the operational expenses will be borne by the representative office and funded by all parties "as equal partners," while the profits and commissions will be shared among them. In July 2000, petitioner wrote Kevin Daley, Vice President for Asia of Pacfor, seeking confirmation of his 50% equity of Pacfor Phils.10 Private respondent Pacfor, through William Gleason, its President, replied that petitioner is not a part-owner of Pacfor Phils. because the latter is merely Pacfor-USA's representative office and not an entity separate and distinct from PacforUSA. "It's simply a 'theoretical company' with the purpose of dividing the income 50-50."11 Petitioner presumably knew of this arrangement from the start, having been the one to propose to private respondent Pacfor the setting up of a representative office, and "not a branch office" in the Philippines to save on taxes.12 Petitioner claimed that he was all along made to believe that he was in a joint venture with them. He alleged he would have been better off remaining as an independent agent or representative of Pacfor-USA as ATM Marketing Corp.13 Had he known that no joint venture existed, he would not have allowed Pacfor to take the profitable business of his own company,

ARSENIO T. MENDIOLA, petitioner, vs. COURT OF APPEALS, NATIONAL LABOR RELATIONS COMMISSION, PACIFIC FOREST RESOURCES, PHILS., INC. and/or CELLMARK AB, respondents. DECISION PUNO, J.: On appeal are the Decision and Resolution of the Court of Appeals, dated January 30, 2003 and July 30, 2003, respectively, in CA-G.R. SP No. 71028, affirming the ruling3 of the National Labor Relations Commission (NLRC), which in turn set aside the July 30, 2001 Decision4 of the labor arbiter. The labor arbiter declared illegal the dismissal of petitioner from employment and awarded separation pay, moral and exemplary damages, and attorney's fees. The facts are as follows: Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a corporation organized and existing under the laws of California, USA. It is a subsidiary of Cellulose Marketing International, a corporation duly organized under the laws of Sweden, with principal office in Gothenburg, Sweden. Private respondent Pacfor entered into a "Side Agreement on Representative Office known as Pacific Forest Resources (Phils.), Inc."5 with petitioner Arsenio T. Mendiola (ATM), effective May 1, 1995, "assuming that Pacfor-Phils. is already approved by the Securities and Exchange Commission [SEC] on the said date."6 The Side Agreement outlines the business relationship of the parties with regard to the Philippine operations
1 2

ATM Marketing Corp.14 Petitioner raised other issues, such as the rentals of office furniture, salary of the employees, company car, as well as commissions allegedly due him. The issues were not resolved, hence, in October 2000, petitioner wrote Pacfor-USA demanding payment of unpaid commissions and office furniture and equipment rentals, amounting to more than one million dollars.15 On November 27, 2000, private respondent Pacfor, through counsel, ordered petitioner to turn over to it all papers, documents, files, records, and other materials in his or ATM Marketing Corporation's possession that belong to Pacfor or Pacfor Phils.16 On December 18, 2000, private respondent Pacfor also required petitioner to remit more than three hundred thousand-peso Christmas giveaway fund for clients of Pacfor Phils.17 Lastly, private respondent Pacfor withdrew all its offers of settlement and ordered petitioner to transfer title and turn over to it possession of the service car.18 Private respondent Pacfor likewise sent letters to its clients in the Philippines, advising them not to deal with Pacfor Phils. In its letter to Intercontinental Paper Industries, Inc., dated November 21, 2000, private respondent Pacfor stated: Until further notice, please course all inquiries and communications for Pacific Forest Resources (Philippines) to: Pacific 200 Tamal Corte Madera, (415) 927 (415) 381 4358 fax Forest Plaza, CA, 1700 Resources 200 94925 phone

these payments or any future business. Do not communicate with [Pacfor] and/or [ATM]."20 Petitioner construed these directives as a severance of the "unregistered partnership" between him and Pacfor, and the termination of his employment as resident manager of Pacfor Phils.21 In a memorandum to the employees of Pacfor Phils., dated January 29, 2001, he stated: I received a letter from Pacific Forest Resources, Inc. demanding the turnover of all records to them effective December 19, 2000. The company records were turned over only on January 26, 2001. This means our jobs with Pacific Forest were terminated effective December 19, 2000. I am concerned about your welfare. I would like to help you by offering you to work with ATM Marketing Corporation. Please let me know if you are interested.22 On the basis of the "Side Agreement," petitioner insisted that he and Pacfor equally own Pacfor Phils. Thus, it follows that he and Pacfor likewise own, on a 50/50 basis, Pacfor Phils.' office furniture and equipment and the service car. He also reiterated his demand for unpaid commissions, and proposed to offset these with the remaining Christmas giveaway fund in his possession.23 Furthermore, he did not renew the lease contract with Pulp and Paper, Inc., the lessor of the office premises of Pacfor Phils., wherein he was the signatory to the lease agreement.24 On February 2, 2001, private respondent Pacfor placed petitioner on preventive suspension and ordered him to show cause why no disciplinary action should be taken against him. Private respondent Pacfor charged petitioner with willful disobedience and serious misconduct for his refusal to turn over the service car and the Christmas giveaway fund which he applied to his alleged unpaid commissions. Private respondent also alleged loss of confidence and gross neglect of duty on the part of petitioner for allegedly allowing another corporation owned by petitioner's relatives, High End Products, Inc. (HEPI), to use the same telephone and facsimile numbers of Pacfor, to possibly steal and divert the sales and business of private respondent for HEPI's principal, International Forest Products, a competitor of private respondent.25

Suite USA

Please do not send any communication to Mr. Arsenio "Boy" T. Mendiola or to the offices of ATM Marketing Corporation at Room 504, Concorde Building, Legaspi Village, Makati City, Philippines.19 In another letter addressed to Davao Corrugated Carton Corp. (DAVCOR), dated December 2000, private respondent directed said client "to please communicate directly with us on any further questions associated with

Petitioner denied the charges. He reiterated that he considered the import of Pacfor President William Gleason's letters as a "cessation of his position and of the existence of Pacfor Phils." He likewise informed private respondent Pacfor that ATM Marketing Corp. now occupies Pacfor Phils.' office premises,26 and demanded payment of his separation pay.27 On February 15, 2001, petitioner filed his complaint for illegal dismissal, recovery of separation pay, and payment of attorney's fees with the NLRC.28 In the meantime, private respondent Pacfor lodged fresh charges against petitioner. In a memorandum dated March 5, 2001, private respondent directed petitioner to explain why he should not be disciplined for serious misconduct and conflict of interest. Private respondent charged petitioner anew with serious misconduct for the latter's alleged act of fraud and misrepresentation in authorizing the release of an additional peso salary for himself, besides the dollar salary agreed upon by the parties. Private respondent also accused petitioner of disloyalty and representation of conflicting interests for having continued using the Pacfor Phils.' office for operations of HEPI. In addition, petitioner allegedly solicited business for HEPI from a competitor company of private respondent Pacfor.29 Labor Arbiter Felipe Pati ruled in favor of petitioner, finding there was constructive dismissal. By directing petitioner to turn over all office records and materials, regardless of whether he may have retained copies, private respondent Pacfor virtually deprived petitioner of his job by the gradual diminution of his authority as resident manager. Petitioner's position as resident manager whose duty, among others, was to maintain the security of its business transactions and communications was rendered meaningless. The dispositive portion of the decision of the Labor Arbiter reads: WHEREFORE, premises considered, judgment is hereby rendered ordering herein respondents Cellmark AB and Pacific Forest Resources, Inc., jointly and severally to compensate complainant Arsenio T. Mendiola separation pay equivalent to at least one month for every year of service, whichever is higher (sic), as reinstatement is no longer feasible by reason of the strained relations of the parties equivalent to five (5) months in the amount of $32,000.00 plus the sum of P250,000.00; pay complainant the sum of P500,000.00 as moral and exemplary damages and ten percent (10%) of the amounts awarded as and for attorney's fees.

All other claims are dismissed for lack of basis. SO ORDERED.30 Private respondent Pacfor appealed to the NLRC which ruled in its favor. On December 20, 2001, the NLRC set aside the July 30, 2001 decision of the labor arbiter, for lack of jurisdiction and lack of merit.31 It held there was no employer-employee relationship between the parties. Based on the two agreements between the parties, it concluded that petitioner is not an employee of private respondent Pacfor, but a full co-owner (50/50 equity). The NLRC denied petitioner's Motion for Reconsideration.32 Petitioner was not successful on his appeal to the Court of Appeals. The appellate court upheld the ruling of the NLRC. Petitioner's Motion for Reconsideration33 of the decision of the Court of Appeals was denied. Hence, this appeal.34 Petitioner assigns the following errors: A. The Respondent Court of Appeals committed reversible error and abused its discretion in rendering judgment against petitioner since jurisdiction has been acquired over the subject matter of the case as there exists employer-employee relationship between the parties. B. The Respondent Court of Appeals committed reversible error and abused its discretion in ruling that jurisdiction over the subject matter cannot be waived and may be alleged even for the first time on appeal or considered by the court motu prop[r]io.35 The first issue is whether an employer-employee relationship exists between petitioner and private respondent Pacfor. Petitioner argues that he is an industrial partner of the partnership he formed with private respondent Pacfor, and also an employee of the partnership. Petitioner insists that an industrial partner may at the same

time be an employee of the partnership, provided there is such an agreement, which, in this case, is the "Side Agreement" and the "Revised Operating and Profit Sharing Agreement." The Court of Appeals denied the appeal of petitioner, holding that "the legal basis of the complaint is not employment but perhaps partnership, co-ownership, or independent contractorship." Hence, the Labor Code cannot apply. We hold that petitioner is an employee of private respondent Pacfor and that no partnership or co-ownership exists between the parties. In a partnership, the members become co-owners of what is contributed to the firm capital and of all property that may be acquired thereby and through the efforts of the members.36 The property or stock of the partnership forms a community of goods, a common fund, in which each party has a proprietary interest.37 In fact, the New Civil Code regards a partner as a co-owner of specific partnership property.38 Each partner possesses a joint interest in the whole of partnership property. If the relation does not have this feature, it is not one of partnership.39 This essential element, the community of interest, or co-ownership of, or joint interest in partnership property is absent in the relations between petitioner and private respondent Pacfor. Petitioner is not a part-owner of Pacfor Phils. William Gleason, private respondent Pacfor's President established this fact when he said that Pacfor Phils. is simply a "theoretical company" for the purpose of dividing the income 50-50. He stressed that petitioner knew of this arrangement from the very start, having been the one to propose to private respondent Pacfor the setting up of a representative office, and "not a branch office" in the Philippines to save on taxes. Thus, the parties in this case, merely shared profits. This alone does not make a partnership.40 Besides, a corporation cannot become a member of a partnership in the absence of express authorization by statute or charter.41 This doctrine is based on the following considerations: (1) that the mutual agency between the partners, whereby the corporation would be bound by the acts of persons who are not its duly appointed and authorized agents and officers, would be inconsistent with the policy of the law that the corporation shall manage its own affairs separately and exclusively; and, (2) that such an arrangement would improperly allow corporate property to become subject to risks not contemplated by the stockholders when they originally invested

in the corporation.42 No such authorization has been proved in the case at bar. Be that as it may, we hold that on the basis of the evidence, an employeremployee relationship is present in the case at bar. The elements to determine the existence of an employment relationship are: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer's power to control the employee's conduct. The most important element is the employer's control of the employee's conduct, not only as to the result of the work to be done, but also as to the means and methods to accomplish it.43 In the instant case, all the foregoing elements are present. First, it was private respondent Pacfor which selected and engaged the services of petitioner as its resident agent in the Philippines. Second, as stipulated in their Side Agreement, private respondent Pacfor pays petitioner his salary amounting to $65,000 per annum which was later increased to $78,000. Third, private respondent Pacfor holds the power of dismissal, as may be gleaned through the various memoranda it issued against petitioner, placing the latter on preventive suspension while charging him with various offenses, including willful disobedience, serious misconduct, and gross neglect of duty, and ordering him to show cause why no disciplinary action should be taken against him. Lastly and most important, private respondent Pacfor has the power of control over the means and method of petitioner in accomplishing his work. The power of control refers merely to the existence of the power, and not to the actual exercise thereof. The principal consideration is whether the employer has the right to control the manner of doing the work, and it is not the actual exercise of the right by interfering with the work, but the right to control, which constitutes the test of the existence of an employeremployee relationship.44 In the case at bar, private respondent Pacfor, as employer, clearly possesses such right of control. Petitioner, as private respondent Pacfor's resident agent in the Philippines, is, exactly so, only an agent of the corporation, a representative of Pacfor, who transacts business, and accepts service on its behalf. This right of control was exercised by private respondent Pacfor during the period of November to December 2000, when it directed petitioner to turn

over to it all records of Pacfor Phils.; when it ordered petitioner to remit the Christmas giveaway fund intended for clients of Pacfor Phils.; and, when it withdrew all its offers of settlement and ordered petitioner to transfer title and turn over to it the possession of the service car. It was also during this period when private respondent Pacfor sent letters to its clients in the Philippines, particularly Intercontinental Paper Industries, Inc. and DAVCOR, advising them not to deal with petitioner and/or Pacfor Phils. In its letter to DAVCOR, private respondent Pacfor replied to the client's request for an invoice payment extension, and formulated a revised payment program for DAVCOR. This is one unmistakable proof that private respondent Pacfor exercises control over the petitioner. Next, we shall determine if petitioner was constructively dismissed from employment. The evidence shows that when petitioner insisted on his 50% equity in Pacfor Phils., and would not quit however, private respondent Pacfor began to systematically deprive petitioner of his duties and benefits to make him feel that his presence in the company was no longer wanted. First, private respondent Pacfor directed petitioner to turn over to it all records of Pacfor Phils. This would certainly make the work of petitioner very difficult, if not impossible. Second, private respondent Pacfor ordered petitioner to remit the Christmas giveaway fund intended for clients of Pacfor Phils. Then it ordered petitioner to transfer title and turn over to it the possession of the service car. It also advised its clients in the Philippines, particularly Intercontinental Paper Industries, Inc. and DAVCOR, not to deal with petitioner and/or Pacfor Phils. Lastly, private respondent Pacfor appointed a new resident agent for Pacfor Phils.45 Although there is no reduction of the salary of petitioner, constructive dismissal is still present because continued employment of petitioner is rendered, at the very least, unreasonable.46 There is an act of clear discrimination, insensibility or disdain by the employer that continued employment may become so unbearable on the part of the employee so as to foreclose any choice on his part except to resign from such employment.47 The harassing acts of the private respondent are unjustified. They were undertaken when petitioner sought clarification from the private respondent about his supposed 50% equity on Pacfor Phils. Private

respondent Pacfor invokes its rights as an owner. Allegedly, its issuance of the foregoing directives against petitioner was a valid exercise of management prerogative. We remind private respondent Pacfor that the exercise of management prerogative is not absolute. "By its very nature, encompassing as it could be, management prerogative must be exercised in good faith and with due regard to the rights of labor verily, with the principles of fair play at heart and justice in mind." The exercise of management prerogative cannot be utilized as an implement to circumvent our laws and oppress employees.48 As resident agent of private respondent corporation, petitioner occupied a position involving trust and confidence. In the light of the strained relations between the parties, the full restoration of an employment relationship based on trust and confidence is no longer possible. He should be awarded separation pay, in lieu of reinstatement. IN VIEW WHEREOF, the petition is GRANTED. The Court of Appeals' January 30, 2003 Decision in CA-G.R. SP No. 71028 and July 30, 2003 Resolution, affirming the December 20, 2001 Decision of the National Labor Relations Commission, are ANNULED and SET ASIDE. The July 30, 2001 Decision of the Labor Arbiter is REINSTATED with the MODIFICATION that the amount of P250,000.00 representing an alleged increase in petitioner's salary shall be deducted from the grant of separation pay for lack of evidence. SO ORDERED. Sandoval-Gutierrez, Corona, Azcuna, Garcia, J.J., concur.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 143340 August 15, 2001

profits would be equally divided between them. The partnership allegedly had Jacinto as manager, assisted by Josephine Sy (hereafter Josephine), a sister of the wife respondent, Erlinda Sy. As compensation, Jacinto would receive a manager's fee or remuneration of 10% of the gross profit and Josephine would receive 10% of the net profits, in addition to her wages and other remuneration from the business. Allegedly, from the time that Shellite opened for business on July 8, 1977, its business operation went quite and was profitable. Respondent claimed that he could attest to success of their business because of the volume of orders and deliveries of filled Shellane cylinder tanks supplied by Pilipinas Shell Petroleum Corporation. While Jacinto furnished respondent with the merchandise inventories, balance sheets and net worth of Shellite from 1977 to 1989, respondent however suspected that the amount indicated in these documents were understated and undervalued by Jacinto and Josephine for their own selfish reasons and for tax avoidance. Upon Jacinto's death in the later part of 1989, his surviving wife, petitioner Cecilia and particularly his daughter, petitioner Lilibeth, took over the operations, control, custody, disposition and management of Shellite without respondent's consent. Despite respondent's repeated demands upon petitioners for accounting, inventory, appraisal, winding up and restitution of his net shares in the partnership, petitioners failed to comply. Petitioner Lilibeth allegedly continued the operations of Shellite, converting to her own use and advantage its properties. On March 31, 1991, respondent claimed that after petitioner Lilibeth ran out the alibis and reasons to evade respondent's demands, she disbursed out of the partnership funds the amount of P200,000.00 and partially paid the same to respondent. Petitioner Lilibeth allegedly informed respondent that the P200,000.00 represented partial payment of the latter's share in the partnership, with a promise that the former would make the complete inventory and winding up of the properties of the business establishment. Despite such commitment, petitioners allegedly failed to comply with their duty to account, and continued to benefit from the assets and income of Shellite to the damage and prejudice of respondent. On December 19, 1992, petitioners filed a Motion to Dismiss on the ground that the Securities and Exchange Commission (SEC) in Manila, not the

LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners, vs. LAMBERTO T. CHUA, respondent. GONZAGA-REYES, J.: Before us is a petition for review on certiorari under Rule 45 of the Rules of Court of the Decision1 of the Court of Appeals dated January 31, 2000 in the case entitled "Lamberto T. Chua vs. Lilibeth Sunga Chan and Cecilia Sunga" and of the Resolution dated May 23, 2000 denying the motion for reconsideration of herein petitioners Lilibeth Sunga and Cecilia Sunga (hereafter collectively referred to as petitioners). The pertinent facts of this case are as follows: On June 22, 1992, Lamberto T. Chua (hereafter respondent) filed a complaint against Lilibeth Sunga Chan (hereafter petitioner Lilibeth) and Cecilia Sunga (hereafter petitioner Cecilia), daughter and wife, respectively of the deceased Jacinto L. Sunga (hereafter Jacinto), for "Winding Up of Partnership Affairs, Accounting, Appraisal and Recovery of Shares and Damages with Writ of Preliminary Attachment" with the Regional Trial Court, Branch 11, Sindangan, Zamboanga del Norte. Respondent alleged that in 1977, he verbally entered into a partnership with Jacinto in the distribution of Shellane Liquefied Petroleum Gas (LPG) in Manila. For business convenience, respondent and Jacinto allegedly agreed to register the business name of their partnership, SHELLITE GAS APPLIANCE CENTER (hereafter Shellite), under the name of Jacinto as a sole proprietorship. Respondent allegedly delivered his initial capital contribution of P100,000.00 to Jacinto while the latter in turn produced P100,000.00 as his counterpart contribution, with the intention that the

Regional Trial Court in Zamboanga del Norte had jurisdiction over the action. Respondent opposed the motion to dismiss. On January 12, 1993, the trial court finding the complaint sufficient in from and substance denied the motion to dismiss. On January 30, 1993, petitioners filed their Answer with Compulsory Counter-claims, contending that they are not liable for partnership shares, unreceived income/profits, interests, damages and attorney's fees, that respondent does not have a cause of action against them, and that the trial court has no jurisdiction over the nature of the action, the SEC being the agency that has original and exclusive jurisdiction over the case. As counterclaim, petitioner sought attorney's fees and expenses of litigation. On August 2, 1993, petitioner filed a second Motion to Dismiss this time on the ground that the claim for winding up of partnership affairs, accounting and recovery of shares in partnership affairs, accounting and recovery of shares in partnership assets/properties should be dismissed and prosecuted against the estate of deceased Jacinto in a probate or intestate proceeding. On August 16, 1993, the trial denied the second motion to dismiss for lack of merit. On November 26, 1993, petitioners filed their Petition for Certiorari, Prohibition and Mandamus with the Court of Appeals docketed as CA-G.R. SP No. 32499 questioning the denial of the motion to dismiss. On November 29, 1993, petitioners filed with the trial court a Motion to Suspend Pre-trial Conference. On December 13, 1993, the trial court granted the motion to suspend pretrial conference. On November 15, 1994, the Court of Appeals denied the petition for lack of merit. On January 16, 1995, this Court denied the petition for review on certiorari filed by petitioner, "as petitioners failed to show that a reversible error was committed by the appellate court."2

On February 20, 1995, entry of judgment was made by the Clerk of Court and the case was remanded to the trial court on April 26, 1995. On September 25, 1995, the trial court terminated the pre-trial conference and set the hearing of the case of January 17, 1996. Respondent presented his evidence while petitioners were considered to have waived their right to present evidence for their failure to attend the scheduled date for reception of evidence despite notice. On October 7, 1997, the trial court rendered its Decision ruling for respondent. The dispositive of the Decision reads: "WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, as follows: (1) DIRECTING them to render an accounting in acceptable form under accounting procedures and standards of the properties, assets, income and profits of the Shellite Gas Appliance Center Since the time of death of Jacinto L. Sunga, from whom they continued the business operations including all businesses derived from Shellite Gas Appliance Center, submit an inventory, and appraisal of all these properties, assets, income, profits etc. to the Court and to plaintiff for approval or disapproval; (2) ORDERING them to return and restitute to the partnership any and all properties, assets, income and profits they misapplied and converted to their own use and advantage the legally pertain to the plaintiff and account for the properties mentioned in pars. A and B on pages 4-5 of this petition as basis; (3) DIRECTING them to restitute and pay to the plaintiff shares and interest of the plaintiff in the partnership of the listed properties, assets and good will (sic) in schedules A, B and C, on pages 4-5 of the petition; (4) ORDERING them to pay the plaintiff earned but unreceived income and profits from the partnership from

1988 to May 30, 1992, when the plaintiff learned of the closure of the store the sum of P35,000.00 per month, with legal rate of interest until fully paid; (5) ORDERING them to wind up the affairs of the partnership and terminate its business activities pursuant to law, after delivering to the plaintiff all the interest, shares, participation and equity in the partnership, or the value thereof in money or money's worth, if the properties are not physically divisible; (6) FINDING them especially Lilibeth Sunga-Chan guilty of breach of trust and in bad faith and hold them liable to the plaintiff the sum of P50,000.00 as moral and exemplary damages; and, (7) DIRECTING them to reimburse and pay the sum of P25,000.00 as attorney's (sic) and P25,000.00 as litigation expenses. NO special pronouncements as to COSTS. SO ORDERED."3 On October 28, 1997, petitioners filed a Notice of Appeal with the trial court, appealing the case to the Court of Appeals. On January 31, 2000, the Court of Appeals dismissed the appeal. The dispositive portion of the Decision reads: "WHEREFORE, the instant appeal is dismissed. The appealed decision is AFFIRMED in all respects."4 On May 23, 2000, the Court of Appeals denied the motion for reconsideration filed by petitioner. Hence, this petition wherein petitioner relies upon following grounds:

"1. The Court of Appeals erred in making a legal conclusion that there existed a partnership between respondent Lamberto T. Chua and the late Jacinto L. Sunga upon the latter'' invitation and offer and that upon his death the partnership assets and business were taken over by petitioners. 2. The Court of Appeals erred in making the legal conclusion that laches and/or prescription did not apply in the instant case. 3. The Court of Appeals erred in making the legal conclusion that there was competent and credible evidence to warrant the finding of a partnership, and assuming arguendo that indeed there was a partnership, the finding of highly exaggerated amounts or values in the partnership assets and profits."5 Petitioners question the correctness of the finding of the trial court and the Court of Appeals that a partnership existed between respondent and Jacinto from 1977 until Jacinto's death. In the absence of any written document to show such partnership between respondent and Jacinto, petitioners argues that these courts were proscribes from hearing the testimonies of respondent and his witness, Josephine, to prove the alleged partnership three years after Jacinto's death. To support this argument, petitioners invoke the "Dead Man's Statute' or "Survivorship Rule" under Section 23, Rule 130 of the Rules of Court that provides: "SEC. 23. Disqualification by reason of death or insanity of adverse party. Parties or assignors of parties to a case, or persons in whose behalf a case is prosecuted, against an executor or administrator or other representative of a deceased person, or against a person of unsound mind, upon a claim or demand against the estate of such deceased person, or against such person of unsound mind, cannot testify as to any matter of fact occurring before the death of such deceased person or before such person became of unsound mind." Petitioners thus implore this Court to rule that the testimonies of respondent and his alter ego, Josephine, should not have been admitted to prove certain claims against a deceased person (Jacinto), now represented by petitioners.

We are not persuaded. A partnership may be constituted in any form, except where immovable property of real rights are contributed thereto, in which case a public instrument shall necessary.6 Hence, based on the intention of the parties, as gathered from the facts and ascertained from their language and conduct, a verbal contract of partnership may arise.7 The essential profits that must be proven to that a partnership was agreed upon are (1) mutual contribution to a common stock, and (2) a joint interest in the profits.8 Understandably so, in view of the absence of the written contract of partnership between respondent and Jacinto, respondent resorted to the introduction of documentary and testimonial evidence to prove said partnership. The crucial issue to settle then is to whether or not the "Dead Man's Statute" applies to this case so as to render inadmissible respondent's testimony and that of his witness, Josephine. The "Dead Man's Statute" provides that if one party to the alleged transaction is precluded from testifying by death, insanity, or other mental disabilities, the surviving party is not entitled to the undue advantage of giving his own uncontradicted and unexplained account of the transaction.9 But before this rule can be successfully invoked to bar the introduction of testimonial evidence, it is necessary that: "1. The witness is a party or assignor of a party to case or persons in whose behalf a case in prosecuted. 2. The action is against an executor or administrator or other representative of a deceased person or a person of unsound mind; 3. The subject-matter of the action is a claim or demand against the estate of such deceased person or against person of unsound mind; 4. His testimony refers to any matter of fact of which occurred before the death of such deceased person or before such person became of unsound mind."10 Two reasons forestall the application of the "Dead Man's Statute" to this case.

First, petitioners filed a compulsory counterclaim11 against respondents in their answer before the trial court, and with the filing of their counterclaim, petitioners themselves effectively removed this case from the ambit of the "Dead Man's Statute".12 Well entrenched is the rule that when it is the executor or administrator or representatives of the estates that sets up the counterclaim, the plaintiff, herein respondent, may testify to occurrences before the death of the deceased to defeat the counterclaim.13 Moreover, as defendant in the counterclaim, respondent is not disqualified from testifying as to matters of facts occurring before the death of the deceased, said action not having been brought against but by the estate or representatives of the deceased.14 Second, the testimony of Josephine is not covered by the "Dead Man's Statute" for the simple reason that she is not "a party or assignor of a party to a case or persons in whose behalf a case is prosecuted." Records show that respondent offered the testimony of Josephine to establish the existence of the partnership between respondent and Jacinto. Petitioners' insistence that Josephine is the alter ego of respondent does not make her an assignor because the term "assignor" of a party means "assignor of a cause of action which has arisen, and not the assignor of a right assigned before any cause of action has arisen."15 Plainly then, Josephine is merely a witness of respondent, the latter being the party plaintiff. We are not convinced by petitioners' allegation that Josephine's testimony lacks probative value because she was allegedly coerced coerced by respondent, her brother-in-law, to testify in his favor, Josephine merely declared in court that she was requested by respondent to testify and that if she were not requested to do so she would not have testified. We fail to see how we can conclude from this candid admission that Josephine's testimony is involuntary when she did not in any way categorically say that she was forced to be a witness of respondent. Also, the fact that Josephine is the sister of the wife of respondent does not diminish the value of her testimony since relationship per se, without more, does not affect the credibility of witnesses.16 Petitioners' reliance alone on the "Dead Man's Statute" to defeat respondent's claim cannot prevail over the factual findings of the trial court and the Court of Appeals that a partnership was established between respondent and Jacinto. Based not only on the testimonial evidence, but the

documentary evidence as well, the trial court and the Court of Appeals considered the evidence for respondent as sufficient to prove the formation of partnership, albeit an informal one. Notably, petitioners did not present any evidence in their favor during trial. By the weight of judicial precedents, a factual matter like the finding of the existence of a partnership between respondent and Jacinto cannot be inquired into by this Court on review.17 This Court can no longer be tasked to go over the proofs presented by the parties and analyze, assess and weigh them to ascertain if the trial court and the appellate court were correct in according superior credit to this or that piece of evidence of one party or the other.18 It must be also pointed out that petitioners failed to attend the presentation of evidence of respondent. Petitioners cannot now turn to this Court to question the admissibility and authenticity of the documentary evidence of respondent when petitioners failed to object to the admissibility of the evidence at the time that such evidence was offered.19 With regard to petitioners' insistence that laches and/or prescription should have extinguished respondent's claim, we agree with the trial court and the Court of Appeals that the action for accounting filed by respondents three (3) years after Jacinto's death was well within the prescribed period. The Civil Code provides that an action to enforce an oral contract prescribes in six (6) years20 while the right to demand an accounting for a partner's interest as against the person continuing the business accrues at the date of dissolution, in the absence of any contrary agreement.21 Considering that the death of a partner results in the dissolution of the partnership22, in this case, it was Jacinto's death that respondent as the surviving partner had the right to an account of his interest as against petitioners. It bears stressing that while Jacinto's death dissolved the partnership, the dissolution did not immediately terminate the partnership. The Civil Code23 expressly provides that upon dissolution, the partnership continues and its legal personality is retained until the complete winding up of its business, culminating in its termination.24 In a desperate bid to cast doubt on the validity of the oral partnership between respondent and Jacinto, petitioners maintain that said partnership that had initial capital of P200,000.00 should have been registered with the Securities and Exchange Commission (SEC) since registration is mandated by the Civil Code, True, Article 1772 of the Civil Code requires that partnerships

with a capital of P3,000.00 or more must register with the SEC, however, this registration requirement is not mandatory. Article 1768 of the Civil Code25 explicitly provides that the partnership retains its juridical personality even if it fails to register. The failure to register the contract of partnership does not invalidate the same as among the partners, so long as the contract has the essential requisites, because the main purpose of registration is to give notice to third parties, and it can be assumed that the members themselves knew of the contents of their contract.26 In the case at bar, non-compliance with this directory provision of the law will not invalidate the partnership considering that the totality of the evidence proves that respondent and Jacinto indeed forged the partnership in question. WHEREFORE, in view of the foregoing, the petition is DENIED and the appealed decision is AFFIRMED. SO ORDERED.1wphi1.nt Melo, Vitug, Panganiban, and Sandoval-Gutierrez, JJ., concur.