Republic of the Philippines SUPREME COURTManila THIRD DIVISION

G.R. No. 112675 January 25, 1999 AFISCO INSURANCE CORPORATION; CCC INSURANCE CORPORATION; C ARTER INSURANCE CO., INC.; CI!E"ES INSURANCE CORPORATION; COMMON#EA"T INSURANCE COMPAN$; CONSO"I%ATE% INSURANCE CO., INC.; %E&E"OPMENT INSURANCE ' SURET$ CORPORATION %OMESTIC INSURANCE COMPAN$ OF T E P I"IPPINE; EASTERN ASSURANCE COMPAN$ ' SURET$ CORP; EMPIRE INSURANCE COMPAN$; E(UITA!"E INSURANCE CORPORATION; FE%ERA" INSURANCE CORPORATION INC.; FGU INSURANCE CORPORATION; FI%E"IT$ ' SURET$ COMPAN$ OF T E P I"S., INC.; FI"IPINO MERC ANTS) aINSURANCE CO., INC.; GO&ERNMENT SER&ICE INSURANCE S$STEM; MA"A$AN INSURANCE CO., INC.; MA"A$AN *URIC INSURANCE CO.; INC.; MERCANTI"E INSURANCE CO., INC.; METROPO"ITAN INSURANCE COMPAN$; METRO+ TAIS O INSURANCE CORPORATION; NE# *EA"AN% INSURANCE CO., "T%.; PAN+MA"A$AN INSURANCE CORPORATION; PARAMOUNT INSURANCE CORPORATION; PEOP"E)S TRANS+EAST ASIA INSURANCE CORPORATION; PER"A COMPANIA %E SEGUROS, INC.; P I"IPPINE !RITIS ASSURANCE CO., INC.; P I"IPPINE FIRST INSURANCE CO., INC.; PIONEER INSURANCE ' SURET$ CORP.; PIONEER INTERCONTINENTA" INSURANCE CORPORATION; PRO&I%ENT INSURANCE COMPAN$ OF T E P I"IPPINES; P$RAMI% INSURANCE CO., INC.; RE"IANCE SURET$ ' INSURANCE COMPAN$; RI*A" SURET$ ' INSURANCE COMPAN$; SANPIRO INSURANCE CORPORATION; SEA!OAR%+EASTERN INSURANCE CO., INC.; SO"I% GUARANT$, INC.; SOUT SEA SURET$ ' INSURANCE CO., INC.; STATE !ON%ING ' INSURANCE CO., INC.; SUMMA INSURANCE CORPORATION; TA!ACA"ERA INSURANCE CO.,

INC. , a-- a../../0 a. 1POO" OF MAC INER$ INSURERS, petitioner, vs.COURT OF APPEA"S, COURT OF TA2 APPEA"S an0 COMISSIONER OF INTERNA" RE&ENUE, respondent.

PANGANI!AN, J.: Pursuant to reinsurance treaties, a nu!ber of local insurance fir!s for!ed the!selves into a pool in order to facilitate the handlin" of business contracted #ith a nonresident forei"n insurance co!pan$. Ma$ the clearin" house or insurance pool so for!ed be dee!ed a partnership or an association that is ta%able as a corporation under the National Internal Revenue &ode 'NIR&() Should the pool*s re!ittances to the !e!ber co!panies and to the said forei"n fir! be ta%able as dividends) +nder the facts of this case, has the "over!ent*s ri"ht to assess and collect said ta% prescribed) The Case These are the !ain ,uestions raised in the Petition for Revie# on Certiorari before us, assailin" the October --, -../ Decision 1 of the &ourt of 0ppeals 2 in &012R SP 34.53, #hich dis!issed petitioners* appeal of the October -., -..3 Decision 3 of the &ourt of Ta% 0ppeals 4 '&T0( #hich had previousl$ sustained petitioners* liabilit$ for deficienc$ inco!e ta%, interest and #ithholdin" ta%. The &ourt of 0ppeals ruled6 7H8R89OR8, the petition is DISMISS8D, #ith costs a"ainst petitioner 5 The petition also challen"es the Nove!ber -4, -../ &ourt of 0ppeals '&0( Resolution 6 den$in" reconsideration. The Facts The antecedent facts, 7 as found b$ the &ourt of 0ppeals, are as follo#s6 The petitioners are :- non1life insurance corporations, or"ani;ed and e%istin" under the la#s of the Philippines. +pon issuance b$

the! of 8rection, Machiner$ <rea=do#n, <oiler 8%plosion and &ontractors* 0ll Ris= insurance policies, the petitioners on 0u"ust -, -.>4 entered into a ?uota Share Reinsurance Treat$ and a Surplus Reinsurance Treat$ #ith the Munchener Ruc=versicherun"s1 2esselschaft 'hereafter called Munich(, a non1resident forei"n insurance corporation. The reinsurance treaties re,uired petitioners to for! a @pAool. 0ccordin"l$, a pool co!posed of the petitioners #as for!ed on the sa!e da$. On 0pril -:, -.B>, the pool of !achiner$ insurers sub!itted a financial state!ent and filed an Infor!ation Return of Or"ani;ation 8%e!pt fro! Inco!e Ta% for the $ear endin" in -.B4, on the basis of #hich it #as assessed b$ the &o!!issioner of Internal Revenue deficienc$ corporate ta%es in the a!ount of P-,C:/,3B/.>5, and #ithholdin" ta%es in the a!ount of P-,B>C,B.../. and PC.,:/C.>C on dividends paid to Munich and to the petitioners, respectivel$. These assess!ents #ere protested b$ the petitioners throu"h its auditors S$cip, 2orres, Vela$o and &o. On Danuar$ 3B, -.C>, the &o!!issioner of Internal Revenue denied the protest and ordered the petitioners, assessed as Pool of Machiner$ Insurers, to pa$ deficienc$ inco!e ta%, interest, and #ith @hAoldin" ta%, ite!i;ed as follo#s6 Net inco!e per infor!ation return P/,B/B,/B5.55 EEEEEEEEEEE Inco!e ta% due thereon P-,3.C,5C5.55 0dd6 -:F Int. fr. :G-4GB> to :G-4GB. 4:4,-./.>5 HHHHHH TOT0I 0MO+NT D+8 J P-,C:/,3B/.>5 &OII8&TI<I8 Dividend paid to Munich

Reinsurance &o!pan$ P/,B3C,:-3.55 HHHHHH /4F #ithholdin" ta% at source due thereon P-,/5:,.::.35 0dd6 34F surchar"e /3>,3/>.54 -:F interest fro! -G34GB> to -G34GB. -/B,5-..-: &o!pro!ise penalt$1 non1filin" of return /55.55 late pa$!ent /55.55 HHHHHH TOT0I 0MO+NT D+8 J P-,B>C,B.../. &OII8&TI<I8 EEEEEEEEEEE Dividend paid to Pool Me!bers P>44,>/>.55 EEEEEEEEEEE -5F #ithholdin" ta% at source due thereon P>4,4>/.>5 0dd6 34F surchar"e ->,/.5..5 -:F interest fro! -G34GB> to -G34GB. >,CC:.-C &o!pro!ise penalt$1 non1filin" of return /55.55

late pa$!ent /55.55 HHHHHH TOT0I 0MO+NT D+8 J PC.,:/C.>C &OII8&TI<I8 EEEEEEEEEEE 5 The &0 ruled in the !ain that the pool of !achiner$ insurers #as a partnership ta%able as a corporation, and that the latter*s collection of pre!iu!s on behalf of its !e!bers, the cedin" co!panies, #as ta%able inco!e. It added that prescription did not bar the <ureau of Internal Revenue '<IR( fro! collectin" the ta%es due, because the ta%pa$er cannot be located at the address "iven in the infor!ation return filed. Hence, this Petition for Revie# before us. 9 The Issues <efore this &ourt, petitioners raise the follo#in" issues6 -. 7hether or not the &learin" House, actin" as a !ere a"ent and perfor!in" strictl$ ad!inistrative functions, and #hich did not insure or assu!e an$ ris= in its o#n na!e, #as a partnership or association subKect to ta% as a corporationL 3. 7hether or not the re!ittances to petitioners and M+NI&HR8 of their respective shares of reinsurance pre!iu!s, pertainin" to their individual and separate contracts of reinsurance, #ere dividends subKect to ta%L and /. 7hether or not the respondent &o!!issioner*s ri"ht to assess the &learin" House had alread$ prescribed. 16 The Court's Ruling The petition is devoid of !erit. 7e sustain the rulin" of the &ourt of 0ppeals that the pool is ta%able as a corporation, and that the "overn!ent*s ri"ht to assess and collect the ta%es had not prescribed. First Issue6

Pool Taxable as a Corporation Petitioners contend that the &ourt of 0ppeals erred in findin" that the pool of clearin" house #as an infor!al partnership, #hich #as ta%able as a corporation under the NIR&. The$ point out that the reinsurance policies #ere #ritten b$ the! individuall$ and separatel$, and that their liabilit$ #as li!ited to the e%tent of their allocated share in the ori"inal ris= thus reinsured. 11 Hence, the pool did not act or earn inco!e as a reinsurer. 12 Its role #as li!ited to its principal function of allocatin" and distributin" the ris='s( arisin" fro! the ori"inal insurance a!on" the si"natories to the treat$ or the !e!bers of the pool based on their abilit$ to absorb the ris='s( ceded@LA as #ell as the perfor!ance of incidental functions, such as records, !aintenance, collection and custod$ of funds, etc. 13 Petitioners belie the e%istence of a partnership in this case, because '-( the$, the reinsurers, did not share the sa!e ris= or solidar$ liabilit$, 14 '3( there #as no co!!on fundL 15 '/( the e%ecutive board of the pool did not e%ercise control and !ana"e!ent of its funds, unli=e the board of directors of a corporationL 16 and ':( the pool or clearin" house #as not and could not possibl$ have en"a"ed in the business of reinsurance fro! #hich it could have derived inco!e for itself. 17 The &ourt is not persuaded. The opinion or rulin" of the &o!!ission of Internal Revenue, the a"enc$ tas=ed #ith the enforce!ent of ta% la#, is accorded !uch #ei"ht and even finalit$, #hen there is no sho#in". that it is patentl$ #ron", 15 particularl$ in this case #here the findin"s and conclusions of the internal revenue co!!issioner #ere subse,uentl$ affir!ed b$ the &T0, a speciali;ed bod$ created for the e%clusive purpose of revie#in" ta% cases, and the &ourt of 0ppeals. 19 Indeed, @IAt has been the lon" standin" polic$ and practice of this &ourt to respect the conclusions of ,uasi1Kudicial a"encies, such as the &ourt of Ta% 0ppeals #hich, b$ the nature of its functions, is dedicated e%clusivel$ to the stud$ and consideration of ta% proble!s and has necessaril$ developed an e%pertise on the subKect, unless there has been an abuse or i!provident e%ercise of its authorit$. 26

This &ourt rules that the &ourt of 0ppeals, in affir!in" the &T0 #hich had previousl$ sustained the internal revenue co!!issioner, co!!itted no reversible error. Section 3: of the NIR&, as #orded in the $ear endin" -.B4, provides6 Sec. 3:. Rate of ta% on corporations. H 'a( Tax on domestic corporations. 0 ta% is hereb$ i!posed upon the ta%able net inco!e received durin" each ta%able $ear fro! all sources b$ ever$ corporation or"ani;ed in, or e%istin" under the la#s of the Philippines, no !atter ho# created or or"ani;ed, but not includin" dul$ re"istered "eneral co1partnership 'co!paMias colectivas(, "eneral professional partnerships, private educational institutions, and buildin" and loan associations . . . . Ineludibl$, the Philippine le"islature included in the concept of corporations those entities that rese!bled the! such as unre"istered partnerships and associations. Parentheticall$, the NIR&*s inclusion of such entities in the ta% on corporations #as !ade even clearer b$ the ta% Refor! 0ct of -..B, 21 #hich a!ended the Ta% &ode. Pertinent provisions of the ne# la# read as follo#s6 Sec. 3B. Rates of Inco!e Ta% on Do!estic &orporations. H '0( In General. H 8%cept as other#ise provided in this &ode, an inco!e ta% of thirt$1five percent '/4F( is hereb$ i!posed upon the ta%able inco!e derived durin" each ta%able $ear fro! all sources #ithin and #ithout the Philippines b$ ever$ corporation, as defined in Section 33 '<( of this &ode, and ta%able under this Title as a corporation . . . . Sec. 33. H Definition. H 7hen used in this Title6 %%% %%% %%% '<( The ter! corporation shall include partnerships, no !atter ho# created or or"ani;ed, Koint1stoc= co!panies, Koint accounts 'cuentas en participacion(, associations, or insurance co!panies, but does not include "eneral professional partnerships @orA a Koint venture or consortiu! for!ed for the purpose of underta=in" construction proKects or en"a"in" in petroleu!, coal, "eother!al

and other ener"$ operations pursuant to an operatin" or consortiu! a"ree!ent under a service contract #ithout the 2overn!ent. 2eneral professional partnerships are partnerships for!ed b$ persons for the sole purpose of e%ercisin" their co!!on profession, no part of the inco!e of #hich is derived fro! en"a"in" in an$ trade or business. %%% %%% %%% Thus, the &ourt in Evangelista v. Collector o Internal Revenue 22 held that Section 3: covered these unre"istered partnerships and even associations or Koint accounts, #hich had no le"al personalities apart fro! their individual !e!bers. 23 The &ourt of 0ppeals astutel$ applied Evangelista. 24 . . . 0ccordin"l$, a pool of individual real propert$ o#ners dealin" in real estate business #as considered a corporation for purposes of the ta% in sec. 3: of the Ta% &ode in Evangelista v. Collector o Internal Revenue! supra. The Supre!e &ourt said6 The ter! partnership includes a s$ndicate, "roup, pool, Koint venture or other unincorporated or"ani;ation, throu"h or b$ !eans of #hich an$ business, financial operation, or venture is carried on. 777 'C Merten*s Ia# of 9ederal Inco!e Ta%ation, p. 4>3 Note >/( 0rt. -B>B of the &ivil &ode reco"ni;es the creation of a contract of partnership #hen t#o or !ore persons bind the!selves to contribute !one$, propert$, or Industr$ to a co!!on fund, #ith the intention of dividin" the profits a!on" the!selves. 25 Its re,uisites are6 '-( !utual contribution to a co!!on stoc=, and '3( a Koint interest in the profits. 26 In other #ords, a partnership is for!ed #hen persons contract to devote to a co!!on purpose either !one$, propert$, or labor #ith the intention of dividin" the profits bet#eenthe!selves. 27 Mean#hile, an association i!plies associates #ho enter into a Koint enterprise . . . for the transaction of business. 25 In the case before us, the cedin" co!panies entered into a Pool 0"ree!ent 29 or an association 36 that #ould handle all the insurance businesses covered under their ,uota1share reinsurance treat$ 31 and surplus reinsurance treat$ 32 #ith Munich. The

follo#in" un!ista=abl$ indicates a partnership or an association covered b$ Section 3: of the NIR&6 '-( The pool has a co!!on fund, consistin" of !one$ and other valuables that are deposited in the na!e and credit of the pool. 33 This co!!on fund pa$s for the ad!inistration and operation e%penses of the pool. 24 '3( The pool functions throu"h an e%ecutive board, #hich rese!bles the board of directors of a corporation, co!posed of one representative for each of the cedin" co!panies. 35 '/( True, the pool itself is not a reinsurer and does not issue an$ insurance polic$L ho#ever, its #or= is indispensable, beneficial and econo!icall$ useful to the business of the cedin" co!panies and Munich, because #ithout it the$ #ould not have received their pre!iu!s. The cedin" co!panies share in the business ceded to the pool and in the e%penses accordin" to a Rules of Distribution anne%ed to the Pool 0"ree!ent. 36 Profit !otive or business is, therefore, the pri!ordial reason for the pool*s for!ation. 0s aptl$ found b$ the &T06 . . . The fact that the pool does not retain an$ profit or inco!e does not obliterate an antecedent fact, that of the pool bein" used in the transaction of business for profit. It is apparent, and petitioners ad!it, that their association or coaction #as indispensable @toA the transaction of the business, . . . If to"ether the$ have conducted business, profit !ust have been the obKect as, indeed, profit #as earned. Thou"h the profit #as apportioned a!on" the !e!bers, this is onl$ a !atter of conse,uence, as it i!plies that profit actuall$ resulted. 37 The petitioners* reliance on Pascuals v. Commissioner 35 is !isplaced, because the facts obtainin" therein are not on all fours #ith the present case. In Pascual, there #as no unre"istered partnership, but !erel$ a co1o#nership #hich too= up onl$ t#o isolated transactions. 39 The &ourt of 0ppeals did not err in appl$in" Evangelista, #hich involved a partnership that en"a"ed in a series of transactions spannin" !ore than ten $ears, as in the case before us.

"econd Issue6 Pool's Remittances are Taxable Petitioners further contend that the re!ittances of the pool to the cedin" co!panies and Munich are not dividends subKect to ta%. The$ insist that such re!ittances contravene Sections 3: 'b( 'I( and 3>/ of the -.BB NIR& and #ould be tanta!ount to an ille"al double ta%ation as it #ould result in ta%in" the sa!e ta%pa$er 46 Moreover, petitioners ar"ue that since Munich #as not a si"nator$ to the Pool 0"ree!ent, the re!ittances it received fro! the pool cannot be dee!ed dividends. 41 The$ add that even if such re!ittances #ere treated as dividends, the$ #ould have been e%e!pt under the previousl$ !entioned sections of the -.BB NIR&, 42 as #ell as 0rticle B of para"raph - 43 and 0rticle 4 of para"raph 4 44 of the RP17est 2er!an Ta% Treat$. 45 Petitioners are clutchin" at stra#s. Double ta%ation !eans ta%in" the sa!e propert$ t#ice #hen it should be ta%ed onl$ once. That is, . . . ta%in" the sa!e person t#ice b$ the sa!e Kurisdiction for the sa!e thin" 46 In the instant case, the pool is a ta%able entit$ distinct fro! the individual corporate entities of the cedin" co!panies. The ta% on its income is obviousl$ different fro! the ta% on the dividends received b$ the said co!panies. &learl$, there is no double ta%ation here. The ta% e%e!ptions clai!ed b$ petitioners cannot be "ranted, since their entitle!ent thereto re!ains unproven and unsubstantiated. It is a%io!atic in the la# of ta%ation that ta%es are the lifeblood of the nation. Hence, e%e!ptions therefro! are hi"hl$ disfavored in la# and he #ho clai!s ta% e%e!ption !ust be able to Kustif$ his clai! or ri"ht. 47 Petitioners have failed to dischar"e this burden of proof. The sections of the -.BB NIR& #hich the$ cite are inapplicable, because these #ere not $et in effect #hen the inco!e #as earned and #hen the subKect infor!ation return for the $ear endin" -.B4 #as filed. Referrin", to the -.B4 version of the counterpart sections of the NIR&, the &ourt still cannot Kustif$ the e%e!ptions clai!ed. Section 344 provides that no ta% shall . . . be paid upon reinsurance b$ an$ co!pan$ that has alread$ paid the ta% . . . This cannot be applied

to the present case because, as previousl$ discussed, the pool is a ta%able entit$ distinct fro! the cedin" co!paniesL therefore, the latter cannot individuall$ clai! the inco!e ta% paid b$ the for!er as their o#n. On the other hand, Section 3: 'b( '-( 45 pertains to ta% on forei"n corporationsL hence, it cannot be clai!ed b$ the cedin" co!panies #hich are do!estic corporations. Nor can Munich, a forei"n corporation, be "ranted e%e!ption based solel$ on this provision of the Ta% &ode, because the sa!e subsection specificall$ ta%es dividends, the t$pe of re!ittances for#arded to it b$ the pool. 0lthou"h not a si"nator$ to the Pool 0"ree!ent, Munich is patentl$ an associate of the cedin" co!panies in the entit$ for!ed, pursuant to their reinsurance treaties #hich re,uired the creation of said pool. +nder its pool arran"e!ent #ith the cedin" co!paniesL Munich shared in their inco!e and loss. This is !anifest fro! a readin" of 0rticle / 49 and -5 56 of the ?uota1Share Reinsurance treat$ and 0rticles / 51 and -5 52 of the Surplus Reinsurance Treat$. The fore"oin" interpretation of Section 3: 'b( '-( is in line #ith the doctrine that a ta% e%e!ption !ust be construed strictissimi #uris! and the statutor$ e%e!ption clai!ed !ust be e%pressed in a lan"ua"e too plain to be !ista=en. 53 9inall$ the petitioners* clai! that Munich is ta%1e%e!pt based on the RP1 7est 2er!an Ta% Treat$ is li=e#ise unpersuasive, because the internal revenue co!!issioner assessed the pool for corporate ta%es on the basis of the infor!ation return it had sub!itted for the $ear endin" -.B4, a ta%able $ear #hen said treat$ #as not $et in effect. 54 0lthou"h petitioners o!itted in their pleadin"s the date of effectivit$ of the treat$, the &ourt ta=es Kudicial notice that it too= effect onl$ later, on Dece!ber -:, -.C:. 55 Third Issue6 Prescription Petitioners also ar"ue that the "overn!ent*s ri"ht to assess and collect the subKect ta% had prescribed. The$ clai! that the subKect infor!ation return #as filed b$ the pool on 0pril -:, -.B>. On the basis of this return, the <IR telephoned petitioners on Nove!ber

--, -.C-, to "ive the! notice of its letter of assess!ent dated March 3B, -.C-. Thus, the petitioners contend that the five1$ear statute of li!itations then provided in the NIR& had alread$ lapsed, and that the internal revenue co!!issioner #as alread$ barred b$ prescription fro! !a=in" an assess!ent. 56 7e cannot sustain the petitioners. The &0 and the &T0 cate"oricall$ found that the prescriptive period #as tolled under then Section /// of the NIR&, 57 because the ta%pa$er cannot be located at the address "iven in the infor!ation return filed and for #hich reason there #as dela$ in sendin" the assess!ent. 55 Indeed, #hether the "overn!ent*s ri"ht to collect and assess the ta% has prescribed involves facts #hich have been ruled upon b$ the lo#er courts. It is a%io!atic that in the absence of a clear sho#in" of palpable error or "rave abuse of discretion, as in this case, this &ourt !ust not overturn the factual findin"s of the &0 and the &T0. 9urther!ore, petitioners ad!itted in their Motion for Reconsideration before the &ourt of 0ppeals that the pool chan"ed its address, for the$ stated that the pool*s infor!ation return filed in -.C5 indicated therein its present address. The &ourt finds that this falls short of the re,uire!ent of Section /// of the NIR& for the suspension of the prescriptive period. The la# clearl$ states that the said period #ill be suspended onl$ if the ta%pa$er infor!s the &o!!issioner of Internal Revenue of an$ chan"e in the address. 7H8R89OR8, the petition is D8NI8D. The Resolution of the &ourt of 0ppeals dated October --, -../ and Nove!ber -4, -../ are hereb$ 099IRM8D. &ost a"ainst petitioners.$%&phi$.n't SO ORD8R8D. Romero! (itug! Purisima! Gon)aga*Re+es! ,,.! concur. Foo8no8/.

- Rollo, pp. 4B1>..

3 Second Division, co!posed of D. Vicente V. Mendo;a 'no# an associate Kustice of the Supre!e &ourt(, ponente and chair!an of the DivisionL concurred in b$ DD. Desus M. 8lbinias and Iourdes N. Ta$ao1Ta"uros, !e!bers. / Rollo, pp. -B31-.-. : Penned b$ Presidin" Dud"e 8rnesto D. 0costa and concurred in b$ Dud"es Manuel N. 2ruba and Ra!on O. De Ve$ra. 4 Decision of the &ourt of 0ppeals, p. -3L rollo, p. >C. > Rollo, p. B-. B The petition aptl$ raises onl$ ,uestions of la#, not of facts. C &0 Decision, pp. -1/L rollo, pp. 4B14.. . The case #as dee!ed sub!itted for resolution on Danuar$ 35, -..C, upon receipt b$ this &ourt of the !e!orandu! for Respondent &o!!issioner. Petitioners* Me!orandu! #as received earlier, on Dul$ --, -..B. -5 Me!orandu! for Petitioner, p. -5L rollo, p. /.5. -- Ibid., p. -:L rollo, p. /.:. -3 Ibid., p. 3CL rollo, p. :5C. -/ Ibid., p. -4L rollo, p. /.4. -: Ibid., p. 3:L rollo, p. :5:. -4 Ibid., p. 3>L rollo, p. :5>. -> Ibid., pp. 3:134L rollo, p. :5:1:54. -B Ibid., p. 34L rollo, p. :54. -C "ee Doebon Mar=etin" &orporation v. &ourt of 0ppeals, the &o!!issioner of Internal Revenue, 2R No. -345B5, Dul$ -B, -..>, Third Division, Minute ResolutionL citing Misa!is Oriental

0ssociation of &oco Traders, Inc. v. Depart!ent of 9inance Secretar$, 3/C S&R0 >/, >C, Nove!ber -5, -..:. -. "ee &o!!issioner of Internal Revenue v. &ourt of 0ppeals, 3BS&R0 >54, >-.1>35, 0pril -C, -..B. 35 &o!!issioner of Internal Revenue v. &ourt of 0ppeals, 35: S&R0 -C3, -C.1-.5 per Re"alado, D. 3- R0 No. C:3:, #hich too= effect on Danuar$ -, -..C. 33 -53 Phil. -:5 '-.4B(. 3/ "upra, pp. -:>1-:BL cited in Dustice Dose &. Vitu", Compedium o Tax -a& and ,urisprudence! p. 43, 3nd revised ed. '-.C.(. 3: Decision of the &ourt of 0ppeals, p. 4L rollo, p. >-. 34 0rt. -B>B, &ivil &ode of the Philippines. 3> Tolentino Civil Code o the Philippines! p. /35, Vol. V '-..3(. 3B Prautch, Scholes J &o. v. Dolores Hernande; de 2o$onechea, - Phil. B54, B5.1B-5 '-.5/(, per 7illiard, D.L cited in Moreno, Philippine Ia# Dictionar$, p. ::4 '-.C3(. 3C Morrisse$ v. &o!!issioner, 3.> +S /::, /4>L decided Dece!ber ->, -./4, per Hu"hes, &D. 3. Pool 0"ree!ent, p. -L rollo, p. -4:. /5 Ibid., p. 3L rollo, p. -44. /- 0nne% &L rollo, pp. B31-55. /3 0nne% DL rollo, pp. -5-1-4/. // Pool 0"ree!ent, p. :L rollo, p. -4B. /: Ibid., p. >L rollo, p. -4.. /4 Ibid., p. 3L rollo, p. -44.

/> Ibid., p. >L rollo, p. -4.. /B &T0 Decision, pp. ->1-BL rollo, pp. -CB1-CC. /C ->> S&R0 4>5, October -C, -.CC. /. Pascual v. &o!!issioner, supra, p. 4>C. :5 Me!orandu! for Petitioners, pp. /31//L rollo, pp. :-31:-/. :- Ibid., p. 3.L rollo, p. :5.. :3 Ibid., p. /5L rollo, p. :-5. :/ -. The profits of an enterprise of a &ontractin" State shall ta%able onl$ in that State unless the enterprise carries on business in the other &ontractin" State throu"h a per!anent establish!ent situated therein. . . . :: 4. 0n insurance enterprise of a &ontractin" State shall, e%cept #ith re"ard to re1insurance, be dee!ed to have a per!anent establish!ent in the other State, if it collects pre!iu!s in the territor$ of that State or insures ris=s situated therein throu"h an e!plo$ee or throu"h a representative #ho is not an a"ent of independent status #ithin the !eanin" of para"raph >. :4 Me!orandu! for Petitioners, p. /-L rollo, p. :--. Petitioner are refferin" to the treat$ entitled 0"ree!ent bet#een the 9ederal Republic of 2er!an$ and the Republic of the Philippines for the 0voidance of Double Ta%ation #ith respect to Ta%es on Inco!e and &apital. :> Victorias Millin" &o., Inc., v. Municipalit$ of Victorias, Ne"ros Occidental, 34 S&R0 -.3, 35., Septe!ber 3B, -.>C, per Sanche;, D. :B Vitu", supra, p 3.L citing 7onder Mechanical 8n"ineerin" &orporation v. &ourt of Ta% 0ppeals, >: S&R0 444, Dune /5, -.B4. "ee also &o!!issioner of Internal Revenue v. &ourt of 0ppeals, &ourt of Ta% of 0ppeal and Ooun" Men*s &hristian 0ssociation of the Philippines, Inc, 2R No. -3:5:/, pp. --1-3, October -:, -..CL

&o!!issioner of Internal Revenue v. &ourt of 0ppeals, 3B- S&R0 >54, >-/1>-:, 0pril -C, -..B. :C Section 3: 'b( '-(, as a!ended b$ R0 No. >--5 #hich too= effect on 0u"ust :, -.>., -.>. reads6 'b( Tax on oreign corporation. '-( .on*resident corporations. H 0 forei"n corporation not en"a"ed in trade or business in the Philippines includin" a forei"n life insurance co!pan$ not en"a"ed in the life insurance business in the Philippines shall pa$ a ta% e,ual to thirt$1five per cent of the "ross inco!e received durin" each ta%able $ear fro! all sources #ithin the philippines, as interests, dividends, rents, ro$alties, salaries, #a"es, technical services or other#ise, e!olu!ents or other fi%ed or deter!inable annual, periodical or casual "ains, profits, and inco!e, and capital "ains6 Provided! ho&ever! That Pre!iu!s shall not include reinsurance pre!iu!s. :. Rollo, p. B/. The &edin" &o!panies underta=e to cede to the Munich fi%ed ,uota share of :5F of all insurances !entioned in 0rticle 3 and the Munich shall be obli"ed to accept all insurances so ceded. 45 Ibid., p. B>. The Munich*s proportion of an$ loss shall be settled b$ debitin" it in account, and a !onthl$ list co!prisin" all losses paid shall be rendered to the Munich. . . . 4- Ibid., p. -53. The &edin" &o!panies bind the!selves to cede to the Munich the entire -4 line surplus of the insurances specified in 0rticle 3 hereof. The surplus shall consist of all su!s insured re!ainin" after deduction of the ?uota Share and the proportion co!bined net retention of the Pool. The Munich underta=es to accept the a!ounts so ceded up to fifteen ti!es the &edin" &o!pan$*s proportionate retention.

43 Ibid., -54. The Munich*s* proportion of an$ loss shall be settled b$ debitin" in it account. 0 !onthl$ list co!prisin" all losses paid shall be rendered to the Munich on for!s to be a"reed. . . . 4/ Davao 2ulf Iu!ber &orporation v. &o!!issioner of Internal Revenue and &ourt of 0ppeals, 2R No. --B/4., p. -4, Dul$ 3/, -..C. 4: "ee the Philippine Treaties Inde%6 -.:>1-.C3, 9orei"n Service Institute, Manila, Philippines '-.C/(. "ee also Philippine Treat$ Series, Vol. I to VII. 44 "ee <unde"eset;blatt Dahr"an"6-.C:, Teil II '9ederal Ia# 2a;ette6 -.C:, Part II(,p. -55C. 4> Me!orandu! for Petitioners, //1/4L rollo, pp. :-/1:-4. 4B Sec. ///. "uspension o running o statute. H The runnin" of the statute of li!itations provided in section three hundred thirt$1one or three hundred1thirt$ t#o on the !a=in" of the assess!ent and the be"innin" of distraint or lev$ or a proceedin" in the court collection, in respect of an$ deficienc$, shall be suspended for the period durin" #hich &o!!issioner of Internal Revenue is prohibited fro! !a=in" the assess!ent or be""inin" distraint or lev$ or a proceedin" in court, and for si%t$ da$s thereafterL #hen the ta%pa$er re,uest for a reinvesti"ation #hich is "ranted b$ the &o!!issioner #hen the ta%pa$er cannot be located in the address b$ hi! in the return filed upon #hich a ta% is bein" assessed or collected6 . . . 4C Decision of the &ourt of 0ppeals, p. --L rollo, p. >B.

Republic of the PhilippinesSUPREME COURTManila THIRD DIVISION

G.R. No. 136445 No9/:;/r 3, 1999 "IM TONG "IM, petitioner, vs.P I"IPPINE FIS ING GEAR IN%USTRIES, INC., respondent.

PANGANI!AN, J.: 0 partnership !a$ be dee!ed to e%ist a!on" parties #ho a"ree to borro# !one$ to pursue a business and to divide the profits or losses that !a$ arise therefro!, even if it is sho#n that the$ have not contributed an$ capital of their o#n to a co!!on fund. Their contribution !a$ be in the for! of credit or industr$, not necessaril$ cash or fi%ed assets. <ein" partner, the$ are all liable for debts incurred b$ or on behalf of the partnership. The liabilit$ for a contract entered into on behalf of an unincorporated association or ostensible corporation !a$ lie in a person #ho !a$ not have directl$ transacted on its behalf, but reaped benefits fro! that contract. The Case In the Petition for Revie# on Certiorari before us, Ii! Ton" Ii! assails the Nove!ber 3>, -..C Decision of the &ourt of 0ppeals in &012R &V:-:BB, 1 #hich disposed as follo#s6 7H8R89OR8, @there bein"A no reversible error in the appealed decision, the sa!e is hereb$ affir!ed. 2 The decretal portion of the ?ue;on &it$ Re"ional Trial &ourt 'RT&( rulin", #hich #as affir!ed b$ the &0, reads as follo#s6 7H8R89OR8, the &ourt rules6 -. That plaintiff is entitled to the #rit of preli!inar$ attach!ent issued b$ this &ourt on Septe!ber 35, -..5L 3. That defendants are Kointl$ liable to plaintiff for the follo#in" a!ounts, subKect to the !odifications as hereinafter !ade b$ reason of the special and uni,ue facts and circu!stances and the proceedin"s that transpired durin" the trial of this caseL

a. P4/3,5:4.55 representin" @theA unpaid purchase price of the fishin" nets covered b$ the 0"ree!ent plus P>C,555.55 representin" the unpaid price of the floats not covered b$ said 0"ree!entL b. -3F interest per annum counted fro! date of plaintiff*s invoices and co!puted on their respective a!ounts as follo#s6 i. 0ccrued interest of PB/,33-.55 on Invoice No. -::5B for P/C4,/BB.C5 dated 9ebruar$ ., -..5L ii. 0ccrued interest for P3B,.5:.53 on Invoice No. -::-/ for P-:>,C>C.55 dated 9ebruar$ -/, -..5L iii. 0ccrued interest of P-3,.35.55 on Invoice No. -::3> for P>C,555.55 dated 9ebruar$ -., -..5L c. P45,555.55 as and for attorne$*s fees, plus PC,455.55 representin" P455.55 per appearance in courtL d. P>4,555.55 representin" P4,555.55 !onthl$ rental for stora"e char"es on the nets counted fro! Septe!ber 35, -..5 'date of attach!ent( to Septe!ber -3, -..- 'date of auction sale(L e. &ost of suit. 7ith respect to the Koint liabilit$ of defendants for the principal obli"ation or for the unpaid price of nets and floats in the a!ount of P4/3,5:4.55 and P>C,555.55, respectivel$, or for the total a!ount P>55,5:4.55, this &ourt noted that these ite!s #ere attached to "uarantee an$ Kud"!ent that !a$ be rendered in favor of the plaintiff but, upon a"ree!ent of the parties, and, to avoid further deterioration of the nets durin" the pendenc$ of this case, it #as ordered sold at public auction for not less than P.55,555.55 for #hich the plaintiff #as the sole and #innin" bidder. The proceeds of the sale paid for b$ plaintiff #as deposited in court. In effect, the a!ount of P.55,555.55 replaced the attached propert$ as a "uarant$ for an$ Kud"!ent that plaintiff !a$ be able to secure in this case #ith the o#nership and possession of the nets and floats a#arded and delivered b$ the sheriff to plaintiff as the hi"hest bidder in the public auction sale. It has also been noted that

o#nership of the nets @#asA retained b$ the plaintiff until full pa$!ent @#asA !ade as stipulated in the invoicesL hence, in effect, the plaintiff attached its o#n properties. It @#asA for this reason also that this &ourt earlier ordered the attach!ent bond filed b$ plaintiff to "uarant$ da!a"es to defendants to be cancelled and for the P.55,555.55 cash bidded and paid for b$ plaintiff to serve as its bond in favor of defendants. 9ro! the fore"oin", it #ould appear therefore that #hatever Kud"!ent the plaintiff !a$ be entitled to in this case #ill have to be satisfied fro! the a!ount of P.55,555.55 as this a!ount replaced the attached nets and floats. &onsiderin", ho#ever, that the total Kud"!ent obli"ation as co!puted above #ould a!ount to onl$ PC:5,3->..3, it #ould be ine,uitable, unfair and unKust to a#ard the e%cess to the defendants #ho are not entitled to da!a"es and #ho did not put up a sin"le centavo to raise the a!ount of P.55,555.55 aside fro! the fact that the$ are not the o#ners of the nets and floats. 9or this reason, the defendants are hereb$ relieved fro! an$ and all liabilities arisin" fro! the !onetar$ Kud"!ent obli"ation enu!erated above and for plaintiff to retain possession and o#nership of the nets and floats and for the rei!burse!ent of the P.55,555.55 deposited b$ it #ith the &ler= of &ourt. SO ORD8R8D. 3 The Facts On behalf of Ocean ?uest 9ishin" &orporation, 0ntonio &hua and Peter Oao entered into a &ontract dated 9ebruar$ B, -..5, for the purchase of fishin" nets of various si;es fro! the Philippine 9ishin" 2ear Industries, Inc. 'herein respondent(. The$ clai!ed that the$ #ere en"a"ed in a business venture #ith Petitioner Ii! Ton" Ii!, #ho ho#ever #as not a si"nator$ to the a"ree!ent. The total price of the nets a!ounted to P4/3,5:4. 9our hundred pieces of floats #orth P>C,555 #ere also sold to the &orporation. 4 The bu$ers, ho#ever, failed to pa$ for the fishin" nets and the floatsL hence, private respondents filed a collection suit a"ainst &hua, Oao and Petitioner Ii! Ton" Ii! #ith a pra$er for a #rit of preli!inar$ attach!ent. The suit #as brou"ht a"ainst the three in their capacities as "eneral partners, on the alle"ation that Ocean

?uest 9ishin" &orporation #as a none%istent corporation as sho#n b$ a &ertification fro! the Securities and 8%chan"e &o!!ission. 5 On Septe!ber 35, -..5, the lo#er court issued a 7rit of Preli!inar$ 0ttach!ent, #hich the sheriff enforced b$ attachin" the fishin" nets on board 9G< Iourdes #hich #as then doc=ed at the 9isheries Port, Navotas, Metro Manila. Instead of ans#erin" the &o!plaint, &hua filed a Manifestation ad!ittin" his liabilit$ and re,uestin" a reasonable ti!e #ithin #hich to pa$. He also turned over to respondent so!e of the nets #hich #ere in his possession. Peter Oao filed an 0ns#er, after #hich he #as dee!ed to have #aived his ri"ht to cross1e%a!ine #itnesses and to present evidence on his behalf, because of his failure to appear in subse,uent hearin"s. Ii! Ton" Ii!, on the other hand, filed an 0ns#er #ith &ounterclai! and &rossclai! and !oved for the liftin" of the 7rit of 0ttach!ent. 6 The trial court !aintained the 7rit, and upon !otion of private respondent, ordered the sale of the fishin" nets at a public auction. Philippine 9ishin" 2ear Industries #on the biddin" and deposited #ith the said court the sales proceeds of P.55,555. 7 On Nove!ber -C, -..3, the trial court rendered its Decision, rulin" that Philippine 9ishin" 2ear Industries #as entitled to the 7rit of 0ttach!ent and that &hua, Oao and Ii!, as "eneral partners, #ere Kointl$ liable to pa$ respondent. 5 The trial court ruled that a partnership a!on" Ii!, &hua and Oao e%isted based '-( on the testi!onies of the #itnesses presented and '3( on a &o!pro!ise 0"ree!ent e%ecuted b$ the three 9 in &ivil &ase No. -:.31MN #hich &hua and Oao had brou"ht a"ainst Ii! in the RT& of Malabon, <ranch B3, for 'a( a declaration of nullit$ of co!!ercial docu!entsL 'b( a refor!ation of contractsL 'c( a declaration of o#nership of fishin" boatsL 'd( an inKunction and 'e( da!a"es. 16 The &o!pro!ise 0"ree!ent provided6 a( That the parties plaintiffs J Ii! Ton" Ii! a"ree to have the four ':( vessels sold in the a!ount of P4,B45,555.55 includin" the fishin" net. This P4,B45,555.55 shall be applied as full pa$!ent for P/,345,555.55 in favor of DI Holdin"s &orporation andGor Ii! Ton" Ii!L

b( If the four ':( vessel@sA and the fishin" net #ill be sold at a hi"her price than P4,B45,555.55 #hatever #ill be the e%cess #ill be divided into /6 -G/ Ii! Ton" Ii!L -G/ 0ntonio &huaL -G/ Peter OaoL c( If the proceeds of the sale the vessels #ill be less than P4,B45,555.55 #hatever the deficienc$ shall be shouldered and paid to DI Holdin" &orporation b$ -G/ Ii! Ton" Ii!L -G/ 0ntonio &huaL -G/ Peter Oao. 11 The trial court noted that the &o!pro!ise 0"ree!ent #as silent as to the nature of their obli"ations, but that Koint liabilit$ could be presu!ed fro! the e,ual distribution of the profit and loss. 21 Ii! appealed to the &ourt of 0ppeals '&0( #hich, as alread$ stated, affir!ed the RT&. Ruling o the Court o /ppeals In affir!in" the trial court, the &0 held that petitioner #as a partner of &hua and Oao in a fishin" business and !a$ thus be held liable as a such for the fishin" nets and floats purchased b$ and for the use of the partnership. The appellate court ruled6 The evidence establishes that all the defendants includin" herein appellant Ii! Ton" Ii! undertoo= a partnership for a specific underta=in", that is for co!!ercial fishin" . . . . Oviousl$, the ulti!ate underta=in" of the defendants #as to divide the profits a!on" the!selves #hich is #hat a partnership essentiall$ is . . . . <$ a contract of partnership, t#o or !ore persons bind the!selves to contribute !one$, propert$ or industr$ to a co!!on fund #ith the intention of dividin" the profits a!on" the!selves '0rticle -B>B, Ne# &ivil &ode(. 13 Hence, petitioner brou"ht this recourse before this &ourt. The Issues In his Petition and Me!orandu!, Ii! as=s this &ourt to reverse the assailed Decision on the follo#in" "rounds6 I TH8 &O+RT O9 0PP80IS 8RR8D IN HOIDIN2, <0S8D ON 0 &OMPROMIS8 02R88M8NT TH0T &H+0, O0O 0ND
14

P8TITION8R IIM 8NT8R8D INTO IN 0 S8P0R0T8 &0S8, TH0T 0 P0RTN8RSHIP 02R88M8NT 8PIST8D 0MON2 TH8M. II SIN&8 IT 70S ONIO &H+0 7HO R8PR8S8NT8D TH0T H8 70S 0&TIN2 9OR O&80N ?+8ST 9ISHIN2 &ORPOR0TION 7H8N H8 <O+2HT TH8 N8TS 9ROM PHIIIPPIN8 9ISHIN2, TH8 &O+RT O9 0PP80IS 70S +ND+STI9I8D IN IMP+TIN2 II0<IIITO TO P8TITION8R IIM 0S 78II. III TH8 TRI0I &O+RT IMPROP8RIO ORD8R8D TH8 S8IQ+R8 0ND 0TT0&HM8NT O9 P8TITION8R IIM*S 2OODS. In deter!inin" #hether petitioner !a$ be held liable for the fishin" nets and floats fro! respondent, the &ourt !ust resolve this =e$ issue6 #hether b$ their acts, Ii!, &hua and Oao could be dee!ed to have entered into a partnership. This Court's Ruling The Petition is devoid of !erit. First and "econd Issues6 Existence o a Partnership and Petitioner's -iabilit+ In ar"uin" that he should not be held liable for the e,uip!ent purchased fro! respondent, petitioner controverts the &0 findin" that a partnership e%isted bet#een hi!, Peter Oao and 0ntonio &hua. He asserts that the &0 based its findin" on the &o!pro!ise 0"ree!ent alone. 9urther!ore, he disclai!s an$ direct participation in the purchase of the nets, alle"in" that the ne"otiations #ere conducted b$ &hua and Oao onl$, and that he has not even !et the representatives of the respondent co!pan$. Petitioner further ar"ues that he #as a lessor, not a partner, of &hua and Oao, for the &ontract of Iease dated 9ebruar$ -, -..5, sho#ed that he had !erel$ leased to the t#o the !ain asset of the purported partnership H the fishin" boat F01 -ourdes. The lease #as for si% !onths, #ith a !onthl$ rental of P/B,455 plus 34 percent of the "ross catch of the boat.

7e are not persuaded b$ the ar"u!ents of petitioner. The facts as found b$ the t#o lo#er courts clearl$ sho#ed that there e%isted a partnership a!on" &hua, Oao and hi!, pursuant to 0rticle -B>B of the &ivil &ode #hich provides6 0rt. -B>B H <$ the contract of partnership, t#o or !ore persons bind the!selves to contribute !one$, propert$, or industr$ to a co!!on fund, #ith the intention of dividin" the profits a!on" the!selves. Specificall$, both lo#er courts ruled that a partnership a!on" the three e%isted based on the follo#in" factual findin"s6 15 '-( That Petitioner Ii! Ton" Ii! re,uested Peter Oao #ho #as en"a"ed in co!!ercial fishin" to Koin hi!, #hile 0ntonio &hua #as alread$ Oao*s partnerL '3( That after convenin" for a fe# ti!es, Ii!, &hua, and Oao verball$ a"reed to ac,uire t#o fishin" boats, the F1 -ourdes and the F1 .elson for the su! of P/./4 !illionL '/( That the$ borro#ed P/.34 !illion fro! Desus Ii!, brother of Petitioner Ii! Ton" Ii!, to finance the venture. ':( That the$ bou"ht the boats fro! &M9 9ishin" &orporation, #hich e%ecuted a Deed of Sale over these t#o '3( boats in favor of Petitioner Ii! Ton" Ii! onl$ to serve as securit$ for the loan e%tended b$ Desus Ii!L '4( That Ii!, &hua and Oao a"reed that the refurbishin", re1 e,uippin", repairin", dr$ doc=in" and other e%penses for the boats #ould be shouldered b$ &hua and OaoL '>( That because of the unavailabilit$ of funds, Desus Ii! a"ain e%tended a loan to the partnership in the a!ount of P- !illion secured b$ a chec=, because of #hich, Oao and &hua entrusted the o#nership papers of t#o other boats, &hua*s F1 -ad+ /nne 2el and 3ao's F1 Trac$ to Ii! Ton" Ii!. 'B( That in pursuance of the business a"ree!ent, Peter Oao and 0ntonio &hua bou"ht nets fro! Respondent Philippine 9ishin"

2ear, in behalf of Ocean ?uest 9ishin" &orporation, their purported business na!e. 'C( That subse,uentl$, &ivil &ase No. -:.31MN #as filed in the Malabon RT&, <ranch B3 b$ 0ntonio &hua and Peter Oao a"ainst Ii! Ton" Ii! for 'a( declaration of nullit$ of co!!ercial docu!entsL 'b( refor!ation of contractsL 'c( declaration of o#nership of fishin" boatsL ':( inKunctionL and 'e( da!a"es. '.( That the case #as a!icabl$ settled throu"h a &o!pro!ise 0"ree!ent e%ecuted bet#een the parties1liti"ants the ter!s of #hich are alread$ enu!erated above. 9ro! the factual findin"s of both lo#er courts, it is clear that &hua, Oao and Ii! had decided to en"a"e in a fishin" business, #hich the$ started b$ bu$in" boats #orth P/./4 !illion, financed b$ a loan secured fro! Desus Ii! #ho #as petitioner*s brother. In their &o!pro!ise 0"ree!ent, the$ subse,uentl$ revealed their intention to pa$ the loan #ith the proceeds of the sale of the boats, and to divide e,uall$ a!on" the! the e%cess or loss. These boats, the purchase and the repair of #hich #ere financed #ith borro#ed !one$, fell under the ter! co!!on fund under 0rticle -B>B. The contribution to such fund need not be cash or fi%ed assetsL it could be an intan"ible li=e credit or industr$. That the parties a"reed that an$ loss or profit fro! the sale and operation of the boats #ould be divided e,uall$ a!on" the! also sho#s that the$ had indeed for!ed a partnership. Moreover, it is clear that the partnership e%tended not onl$ to the purchase of the boat, but also to that of the nets and the floats. The fishin" nets and the floats, both essential to fishin", #ere obviousl$ ac,uired in furtherance of their business. It #ould have been inconceivable for Ii! to involve hi!self so !uch in bu$in" the boat but not in the ac,uisition of the aforesaid e,uip!ent, #ithout #hich the business could not have proceeded. 2iven the precedin" facts, it is clear that there #as, a!on" petitioner, &hua and Oao, a partnership en"a"ed in the fishin" business. The$ purchased the boats, #hich constituted the !ain assets of the partnership, and the$ a"reed that the proceeds fro! the sales and operations thereof #ould be divided a!on" the!.

7e stress that under Rule :4, a petition for revie# li=e the present case should involve onl$ ,uestions of la#. Thus, the fore"oin" factual findin"s of the RT& and the &0 are bindin" on this &ourt, absent an$ co"ent proof that the present action is e!braced b$ one of the e%ceptions to the rule. 16 In assailin" the factual findin"s of the t#o lo#er courts, petitioner effectivel$ "oes be$ond the bounds of a petition for revie# under Rule :4. Compromise /greement .ot the "ole 1asis o Partnership Petitioner ar"ues that the appellate court*s sole basis for assu!in" the e%istence of a partnership #as the &o!pro!ise 0"ree!ent. He also clai!s that the settle!ent #as entered into onl$ to end the dispute a!on" the!, but not to adKudicate their pree%istin" ri"hts and obli"ations. His ar"u!ents are baseless. The 0"ree!ent #as but an e!bodi!ent of the relationship e%tant a!on" the parties prior to its e%ecution. 0 proper adKudication of clai!ants* ri"hts !andates that courts !ust revie# and thorou"hl$ appraise all relevant facts. <oth lo#er courts have done so and have found, correctl$, a pree%istin" partnership a!on" the parties. In i!pl$in" that the lo#er courts have decided on the basis of one piece of docu!ent alone, petitioner fails to appreciate that the &0 and the RT& delved into the histor$ of the docu!ent and e%plored all the possible conse,uential co!binations in har!on$ #ith la#, lo"ic and fairness. Veril$, the t#o lo#er courts* factual findin"s !entioned above nullified petitioner*s ar"u!ent that the e%istence of a partnership #as based onl$ on the &o!pro!ise 0"ree!ent. Petitioner 4as a Partner! .ot a -essor 7e are not convinced b$ petitioner*s ar"u!ent that he #as !erel$ the lessor of the boats to &hua and Oao, not a partner in the fishin" venture. His ar"u!ent alle"edl$ finds support in the &ontract of Iease and the re"istration papers sho#in" that he #as the o#ner of the boats, includin" F01 -ourdes #here the nets #ere found.

His alle"ation defies lo"ic. In effect, he #ould li=e this &ourt to believe that he consented to the sale of his o#n boats to pa$ a debt of Chua and 3ao, #ith the e%cess of the proceeds to be divided a!on" the three of the!. No lessor #ould do #hat petitioner did. Indeed, his consent to the sale proved that there #as a pree%istin" partnership a!on" all three. Veril$, as found b$ the lo#er courts, petitioner entered into a business a"ree!ent #ith &hua and Oao, in #hich debts #ere underta=en in order to finance the ac,uisition and the up"radin" of the vessels #hich #ould be used in their fishin" business. The sale of the boats, as #ell as the division a!on" the three of the balance re!ainin" after the pa$!ent of their loans, proves be$ond cavil that F01 -ourdes, thou"h re"istered in his na!e, #as not his o#n propert$ but an asset of the partnership. It is not unco!!on to re"ister the properties ac,uired fro! a loan in the na!e of the person the lender trusts, #ho in this case is the petitioner hi!self. 0fter all, he is the brother of the creditor, Desus Ii!. 7e stress that it is unreasonable H indeed, it is absurd H for petitioner to sell his propert$ to pa$ a debt he did not incur, if the relationship a!on" the three of the! #as !erel$ that of lessor1 lessee, instead of partners. Corporation b+ Estoppel Petitioner ar"ues that under the doctrine of corporation b$ estoppel, liabilit$ can be i!puted onl$ to &hua and Oao, and not to hi!. 0"ain, #e disa"ree. Sec. 3- of the &orporation &ode of the Philippines provides6 Sec. 3-. Corporation b+ estoppel. H 0ll persons #ho assu!e to act as a corporation =no#in" it to be #ithout authorit$ to do so shall be liable as "eneral partners for all debts, liabilities and da!a"es incurred or arisin" as a result thereof6 Provided ho&ever! That #hen an$ such ostensible corporation is sued on an$ transaction entered b$ it as a corporation or on an$ tort co!!itted b$ it as such, it shall not be allo#ed to use as a defense its lac= of corporate personalit$.

One #ho assu!es an obli"ation to an ostensible corporation as such, cannot resist perfor!ance thereof on the "round that there #as in fact no corporation. Thus, even if the ostensible corporate entit$ is proven to be le"all$ none%istent, a part$ !a$ be estopped fro! den$in" its corporate e%istence. The reason behind this doctrine is obvious H an unincorporated association has no personalit$ and #ould be inco!petent to act and appropriate for itself the po#er and attributes of a corporation as provided b$ la#L it cannot create a"ents or confer authorit$ on another to act in its behalfL thus, those #ho act or purport to act as its representatives or a"ents do so #ithout authorit$ and at their o#n ris=. 0nd as it is an ele!entar$ principle of la# that a person #ho acts as an a"ent #ithout authorit$ or #ithout a principal is hi!self re"arded as the principal, possessed of all the ri"ht and subKect to all the liabilities of a principal, a person actin" or purportin" to act on behalf of a corporation #hich has no valid e%istence assu!es such privile"es and obli"ations and beco!es personall$ liable for contracts entered into or for other acts perfor!ed as such a"ent. 17 The doctrine of corporation b$ estoppel !a$ appl$ to the alle"ed corporation and to a third part$. In the first instance, an unincorporated association, #hich represented itself to be a corporation, #ill be estopped fro! den$in" its corporate capacit$ in a suit a"ainst it b$ a third person #ho relied in "ood faith on such representation. It cannot alle"e lac= of personalit$ to be sued to evade its responsibilit$ for a contract it entered into and b$ virtue of #hich it received advanta"es and benefits. On the other hand, a third part$ #ho, =no#in" an association to be unincorporated, nonetheless treated it as a corporation and received benefits fro! it, !a$ be barred fro! den$in" its corporate e%istence in a suit brou"ht a"ainst the alle"ed corporation. In such case, all those #ho benefited fro! the transaction !ade b$ the ostensible corporation, despite =no#led"e of its le"al defects, !a$ be held liable for contracts the$ i!pliedl$ assented to or too= advanta"e of. There is no dispute that the respondent, Philippine 9ishin" 2ear Industries, is entitled to be paid for the nets it sold. The onl$

,uestion here is #hether petitioner should be held Kointl$ 15 liable #ith &hua and Oao. Petitioner contests such liabilit$, insistin" that onl$ those #ho dealt in the na!e of the ostensible corporation should be held liable. Since his na!e does not appear on an$ of the contracts and since he never directl$ transacted #ith the respondent corporation, er"o, he cannot be held liable. +n,uestionabl$, petitioner benefited fro! the use of the nets found inside F01 -ourdes, the boat #hich has earlier been proven to be an asset of the partnership. He in fact ,uestions the attach!ent of the nets, because the 7rit has effectivel$ stopped his use of the fishin" vessel. It is difficult to disa"ree #ith the RT& and the &0 that Ii!, &hua and Oao decided to for! a corporation. 0lthou"h it #as never le"all$ for!ed for un=no#n reasons, this fact alone does not preclude the liabilities of the three as contractin" parties in representation of it. &learl$, under the la# on estoppel, those actin" on behalf of a corporation and those benefited b$ it, =no#in" it to be #ithout valid e%istence, are held liable as "eneral partners. Technicall$, it is true that petitioner did not directl$ act on behalf of the corporation. Ho#ever, havin" reaped the benefits of the contract entered into b$ persons #ith #ho! he previousl$ had an e%istin" relationship, he is dee!ed to be part of said association and is covered b$ the scope of the doctrine of corporation b$ estoppel. 7e reiterate the rulin" of the &ourt in /lonso v. (illamor6
19

0 liti"ation is not a "a!e of technicalities in #hich one, !ore deepl$ schooled and s=illed in the subtle art of !ove!ent and position, entraps and destro$s the other. It is, rather, a contest in #hich each contendin" part$ full$ and fairl$ la$s before the court the facts in issue and then, brushin" aside as #holl$ trivial and indecisive all i!perfections of for! and technicalities of procedure, as=s that Kustice be done upon the !erits. Ia#suits, unli=e duels, are not to be #on b$ a rapier*s thrust. Technicalit$, #hen it deserts its proper office as an aid to Kustice and beco!es its "reat hindrance and chief ene!$, deserves scant consideration fro! courts. There should be no vested ri"hts in technicalities.

Third Issue6 (alidit+ o /ttachment 9inall$, petitioner clai!s that the 7rit of 0ttach!ent #as i!properl$ issued a"ainst the nets. 7e a"ree #ith the &ourt of 0ppeals that this issue is no# !oot and acade!ic. 0s previousl$ discussed, F01 -ourdes #as an asset of the partnership and that it #as placed in the na!e of petitioner, onl$ to assure pa$!ent of the debt he and his partners o#ed. The nets and the floats #ere specificall$ !anufactured and tailor1!ade accordin" to their o#n desi"n, and #ere bou"ht and used in the fishin" venture the$ a"reed upon. Hence, the issuance of the 7rit to assure the pa$!ent of the price stipulated in the invoices is proper. <esides, b$ specific a"ree!ent, o#nership of the nets re!ained #ith Respondent Philippine 9ishin" 2ear, until full pa$!ent thereof. 7H8R89OR8, the Petition is D8NI8D and the assailed Decision 099IRM8D. &osts a"ainst petitioner. SO ORD8R8D. 2elo! Purisima and Gon)aga*Re+es! ,,.! concur. (itug! ,.! pls. see concurring opinion. S/<ara8/ O<=n=on. &ITUG, J., concurrin" opinionL I share the vie#s e%pressed in the ponencia of an estee!ed collea"ue, Mr. Dustice 0rte!io V. Pan"aniban, particularl$ the findin" that 0ntonio &hua, Peter Oao and petitioner Ii! Ton" Ii! have incurred the liabilities of "eneral partners. I !erel$ #ould #ish to elucidate a bit, albeit briefl$, the liabilit$ of partners in a "eneral partnership. 7hen a person b$ his act or deed represents hi!self as a partner in an e%istin" partnership or #ith one or !ore persons not actual partners, he is dee!ed an a"ent of such persons consentin" to such representation and in the sa!e !anner, if he #ere a partner, #ith respect to persons #ho rel$ upon the representation. 1 The

association for!ed b$ &hua, Oao and Ii!, should be, as it has been dee!ed, a de acto partnership #ith all the conse,uent obli"ations for the purpose of enforcin" the ri"hts of third persons. The liabilit$ of "eneral partners 'in a "eneral partnership as so opposed to a li!ited partnership( is laid do#n in 0rticle -C-> 2 #hich posits that all partners shall be liable pro rata be$ond the partnership assets for all the contracts #hich !a$ have been entered into in its na!e, under its si"nature, and b$ a person authori;ed to act for the partnership. This rule is to be construed alon" #ith other provisions of the &ivil &ode #hich postulate that the partners can be held solidaril+ liable #ith the partnership specificall$ in these instances H '-( #here, b$ an$ #ron"ful act or o!ission of an$ partner actin" in the ordinar$ course of the business of the partnership or #ith the authorit$ of his co1partners, loss or inKur$ is caused to an$ person, not bein" a partner in the partnership, or an$ penalt$ is incurred, the partnership is liable therefor to the sa!e e%tent as the partner so actin" or o!ittin" to actL '3( #here one partner actin" #ithin the scope of his apparent authorit$ receives !one$ or propert$ of a third person and !isapplies itL and '/( #here the partnership in the course of its business receives !one$ or propert$ of a third person and the !one$ or propert$ so received is !isapplied b$ an$ partner #hile it is in the custod$ of the partnership 3 H consistentl$ #ith the rules on the nature of civil liabilit$ in delicts and ,uasi1delicts. Foo8no8/. - Penned b$ D. Portia 0lino1Hor!achuelosL #ith the concurrence of DD. <uenaventura D. 2uerrero, Division chair!an, and Presbitero D. Velasco Dr., !e!ber. 3 &0 Decision, p. -3L rollo, p. />. / RT& Decision penned b$ Dud"e Ma%i!iano &. 0suncion. pp. --1 -3L rollo, pp. :C1:.. : &0 Decision, pp. -13L rollo, pp. 3413>. 4 Ibid., p. 3L rollo, p. 3>. > RT& Decision, p. 3L Rollo, p. /..

B Petition, p. :L rollo, p. --. C Ibid. . RT& Decision, pp. >1BL rollo, pp. :/1::. -5 Respondent*s Me!orandu!, pp. 4, CL rollo, pp. -5B, -5.. -- &0 Decision, pp. .1-5L rollo, pp. //1/:. -3 RT& Decision, p. -5L rollo, p. :B. -/ Ibid. -: This case #as dee!ed sub!itted for resolution on 0u"ust -5, -..., #hen this &ourt received petitioner*s Me!orandu! si"ned b$ 0tt$. Roberto 0. 0bad. Respondent*s Me!orandu! si"ned b$ 0tt$. <enKa!in S. <enito #as filed earlier on Dul$ 3B, -.... -4 Nos. -1B are fro! &0 Decision p. . 'rollo, p. //(L No. C is fro! RT& Decision, p. 4 'rollo, p. :3(L and No. . is fro! &0 Decision, pp. .1-5 'rollo, pp. //1/:(. -> "ee 9uentes v. &ourt of 0ppeals, 3>C S&R0 B5/, 9ebruar$ 3>, -..B. -B Salvatierra v. 2arlitos, -5/ S&R0 B4B, Ma$ 3/, -.4C, per 9eli% D.L citing 9a$ v. Noble, B &ushin" @Mass.A -CC. -C The liabilit$ is Koint if it is not specificall$ stated that it is solidar$, Mara!ba v. Io;ano, -3> Phil C//, Dune 3., -.>B, per Ma=alintal, D. "ee also 0rticle -35B of the &ivil &ode, #hich provides6 The concurrence of t#o or !ore creditors or of t#o or !ore debtors in one @andA the sa!e obli"ation does not i!pl$ that each one of the for!er has a ri"ht to de!and, or that each one of the latter is bound to render, entire co!pliance #ith the prestation. There is a solidar$ liabilit$ onl$ #hen the obli"ation e%pressl$ so states, or #hen the la# or the nature of the obli"ation re,uires solidarit$. -. -> Phil. /-4, Dul$ 3>, -.-5, per Moreland, D. VIT+2, D., concurrin" opinionL

- 0rt. -C34. 7hen a person, b$ #ords spo=en or #ritten or b$ conduct, represents hi!self, or consents to another representin" hi! to an$one, as a partner in an e%istin" partnership or #ith one or !ore persons not actual partners, he is liable to an$ such persons to #ho! such representation has been !ade, #ho has, on the faith of such representation, "iven credit to the actual or apparent partnership, and if he has !ade such representation or consented to its bein" !ade in a public !anner he is liable to such person, #hether the representation has or has not been !ade or co!!unicated to such person so "ivin" credit b$ or #ith the =no#led"e of the apparent partner !a=in" the representation or consentin" to its bein" !ade6 '-( 7hen a partnership liabilit$ results, he is liable as thou"h he #ere an actual !e!ber of the partnershipL '3( 7hen no partnership liabilit$ results, he is liable pro rata #ith the other persons, if an$, so consentin" to the contract or representation as to incur liabilit$, other#ise separatel$. 7hen a person has been thus represented to be a partner in an e%istin" partnership, or #ith one or !ore persons not actual partners, he is an a"ent of the persons consentin" to such representation to bind the! to the sa!e e%tent and in the sa!e !anner as thou"h he #ere a partner in fact, #ith respect to persons #ho rel$ upon the representation. 7hen all the !e!bers of the e%istin" partnership consent to the representation, a partnership act or obli"ation resultsL but in all other cases it is the Koint act or obli"ation of the person actin" and the persons consentin" to the representation. 3 0ll partners, includin" industrial ones, shall be liable pro rata #ith all their propert$ and after all the partnership assets have been e%hausted, for the contracts #hich !a$ be entered into in the na!e and for the account of the partnership, under its si"nature and b$ a person authori;ed to act for the partnership. Ho#ever, an$ partner !a$ enter into a separate obli"ation to perfor! a partnership contract. / 0rt. -C3: in relation to 0rticle -C33 and 0rticle -C3/, Ne# &ivil &ode.

Republic of the PhilippinesSUPREME COURTManila T IR% %I&ISION G.R. No. 145157 A<r=- 16, 2665

P I"E2 MINING CORPORATION, petitioner, vs.COMMISSIONER OF INTERNA" RE&ENUE, respondent. %ECISION $NARES+SANTIAGO, J.> This is a petition for revie# on certiorari of the Dune /5, 3555 Decision- of the &ourt of 0ppeals in &012.R. SP No. :./C4, #hich affir!ed the Decision3 of the &ourt of Ta% 0ppeals in &.T.0. &ase No. 4355. 0lso assailed is the 0pril /, 355- Resolution/ den$in" the !otion for reconsideration. The facts of the case are as follo#s6 On 0pril ->, -.B-, petitioner Phile% Minin" &orporation 'Phile% Minin"(, entered into an a"ree!ent: #ith <a"uio 2old Minin" &o!pan$ ' <a"uio 2old ( for the for!er to !ana"e and operate the latterRs !inin" clai!, =no#n as the Sto. Nino !ine, located in 0to= and Tubla$, <en"uet Province. The partiesR a"ree!ent #as deno!inated as Po#er of 0ttorne$ and provided for the follo#in" ter!s6 :. 7ithin three '/( $ears fro! date thereof, the PRIN&IP0I '<a"uio 2old( shall !a=e available to the M0N028RS 'Phile% Minin"( up to 8I8V8N MIIIION P8SOS 'P--,555,555.55(, in such a!ounts as fro! ti!e to ti!e !a$ be re,uired b$ the M0N028RS #ithin the said /1$ear period, for use in the M0N028M8NT of the STO. NINO MIN8. The said 8I8V8N MIIIION P8SOS 'P--,555,555.55( shall be dee!ed, for internal audit purposes, as the o#nerRs account in the Sto. Nino PROD8&T. 0n$ part of an$ inco!e of the PRIN&IP0I

fro! the STO. NINO MIN8, #hich is left #ith the Sto. Nino PROD8&T, shall be added to such o#nerRs account. 4. 7henever the M0N028RS shall dee! it necessar$ and convenient in connection #ith the M0N028M8NT of the STO. NINO MIN8, the$ !a$ transfer their o#n funds or propert$ to the Sto. Nino PROD8&T, in accordance #ith the follo#in" arran"e!ents6 'a( The properties shall be appraised and, to"ether #ith the cash, shall be carried b$ the Sto. Nino PROD8&T as a special fund to be =no#n as the M0N028RSR account. 'b( The total of the M0N028RSR account shall not e%ceed P--,555,555.55, e%cept #ith prior approval of the PRIN&IP0IL provided, ho#ever, that if the co!pensation of the M0N028RS as herein provided cannot be paid in cash fro! the Sto. Nino PROD8&T, the a!ount not so paid in cash shall be added to the M0N028RSR account. 'c( The cash and propert$ shall not thereafter be #ithdra#n fro! the Sto. Nino PROD8&T until ter!ination of this 0"enc$. 'd( The M0N028RSR account shall not accrue interest. Since it is the desire of the PRIN&IP0I to e%tend to the M0N028RS the benefit of subse,uent appreciation of propert$, upon a proKected ter!ination of this 0"enc$, the ratio #hich the M0N028RSR account has to the o#nerRs account #ill be deter!ined, and the correspondin" proportion of the entire assets of the STO. NINO MIN8, e%cludin" the clai!s, shall be transferred to the M0N028RS, e%cept that such transferred assets shall not include !ine develop!ent, roads, buildin"s, and si!ilar propert$ #hich #ill be valueless, or of sli"ht value, to the M0N028RS. The M0N028RS can, on the other hand, re,uire at their option that propert$ ori"inall$ transferred b$ the! to the Sto. Nino PROD8&T be re1transferred to the!. +ntil such assets are transferred to the M0N028RS, this 0"enc$ shall re!ain subsistin". %%%%

-3. The co!pensation of the M0N028R shall be fift$ per cent '45F( of the net profit of the Sto. Nino PROD8&T before inco!e ta%. It is understood that the M0N028RS shall pa$ inco!e ta% on their co!pensation, #hile the PRIN&IP0I shall pa$ inco!e ta% on the net profit of the Sto. Nino PROD8&T after deduction therefro! of the M0N028RSR co!pensation. %%%% ->. The PRIN&IP0I has current pecuniar$ obli"ation in favor of the M0N028RS and, in the future, !a$ incur other obli"ations in favor of the M0N028RS. This Po#er of 0ttorne$ has been e%ecuted as securit$ for the pa$!ent and satisfaction of all such obli"ations of the PRIN&IP0I in favor of the M0N028RS and as a !eans to fulfill the sa!e. Therefore, this 0"enc$ shall be irrevocable #hile an$ obli"ation of the PRIN&IP0I in favor of the M0N028RS is outstandin", inclusive of the M0N028RSR account. 0fter all obli"ations of the PRIN&IP0I in favor of the M0N028RS have been paid and satisfied in full, this 0"enc$ shall be revocable b$ the PRIN&IP0I upon />1!onth notice to the M0N028RS. -B. Not#ithstandin" an$ a"ree!ent or understandin" bet#een the PRIN&IP0I and the M0N028RS to the contrar$, the M0N028RS !a$ #ithdra# fro! this 0"enc$ b$ "ivin" >1!onth notice to the PRIN&IP0I. The M0N028RS shall not in an$ !anner be held liable to the PRIN&IP0I b$ reason alone of such #ithdra#al. Para"raph 4'd( hereof shall be operative in case of the M0N028RSR #ithdra#al. % % % %4 In the course of !ana"in" and operatin" the proKect, Phile% Minin" !ade advances of cash and propert$ in accordance #ith para"raph 4 of the a"ree!ent. Ho#ever, the !ine suffered continuin" losses over the $ears #hich resulted to petitionerRs #ithdra#al as !ana"er of the !ine on Danuar$ 3C, -.C3 and in the eventual cessation of !ine operations on 9ebruar$ 35, -.C3.> Thereafter, on Septe!ber 3B, -.C3, the parties e%ecuted a &o!pro!ise #ith Dation in Pa$!ent B #herein <a"uio 2old ad!itted an indebtedness to petitioner in the a!ount of

P-B.,/.:,555.55 and a"reed to pa$ the sa!e in three se"!ents b$ first assi"nin" <a"uio 2oldRs tan"ible assets to petitioner, transferrin" to the latter <a"uio 2oldRs e,uitable title in its Philodrill assets and finall$ settlin" the re!ainin" liabilit$ throu"h properties that <a"uio 2old !a$ ac,uire in the future. On Dece!ber /-, -.C3, the parties e%ecuted an 0!end!ent to &o!pro!ise #ith Dation in Pa$!ent C #here the parties deter!ined that <a"uio 2oldRs indebtedness to petitioner actuall$ a!ounted to P34.,-/B,3:4.55, #hich su! included liabilities of <a"uio 2old to other creditors that petitioner had assu!ed as "uarantor. These liabilities pertained to lon"1ter! loans a!ountin" to +SS--,555,555.55 contracted b$ <a"uio 2old fro! the <an= of 0!erica NT J S0 and &itiban= N.0. This ti!e, <a"uio 2old undertoo= to pa$ petitioner in t#o se"!ents b$ first assi"nin" its tan"ible assets for P-3B,C/C,54-.55 and then transferrin" its e,uitable title in its Philodrill assets for P->,/53,:3>.55. The parties then ascertained that <a"uio 2old had a re!ainin" outstandin" indebtedness to petitioner in the a!ount of P--:,..>,B>C.55. Subse,uentl$, petitioner #rote off in its -.C3 boo=s of account the re!ainin" outstandin" indebtedness of <a"uio 2old b$ char"in" P--3,-/>,555.55 to allo#ances and reserves that #ere set up in -.C- and P3,C>5,B>C.55 to the -.C3 operations. In its -.C3 annual inco!e ta% return, petitioner deducted fro! its "ross inco!e the a!ount of P--3,-/>,555.55 as loss on settle!ent of receivables fro! <a"uio 2old a"ainst reserves and allo#ances. . Ho#ever, the <ureau of Internal Revenue '<IR( disallo#ed the a!ount as deduction for bad debt and assessed petitioner a deficienc$ inco!e ta% of P>3,C--,->-./.. Petitioner protested before the <IR ar"uin" that the deduction !ust be allo#ed since all re,uisites for a bad debt deduction #ere satisfied, to #it6 'a( there #as a valid and e%istin" debtL 'b( the debt #as ascertained to be #orthlessL and 'c( it #as char"ed off #ithin the ta%able $ear #hen it #as deter!ined to be #orthless. Petitioner e!phasi;ed that the debt arose out of a valid !ana"e!ent contract it entered into #ith <a"uio 2old. The bad debt deduction represented advances !ade b$ petitioner #hich,

pursuant to the !ana"e!ent contract, for!ed part of <a"uio 2oldRs pecuniar$ obli"ations to petitioner. It also included pa$!ents !ade b$ petitioner as "uarantor of <a"uio 2oldRs lon"1ter! loans #hich le"all$ entitled petitioner to be subro"ated to the ri"hts of the ori"inal creditor. Petitioner also asserted that due to <a"uio 2oldRs irreversible losses, it beca!e evident that it #ould not be able to recover the advances and pa$!ents it had !ade in behalf of <a"uio 2old. 9or a debt to be considered #orthless, petitioner clai!ed that it #as neither re,uired to institute a Kudicial action for collection a"ainst the debtor nor to sell or dispose of collateral assets in satisfaction of the debt. It is enou"h that a ta%pa$er e%erted dili"ent efforts to enforce collection and e%hausted all reasonable !eans to collect. On October 3C, -..:, the <IR denied petitionerRs protest for lac= of le"al and factual basis. It held that the alle"ed debt #as not ascertained to be #orthless since <a"uio 2old re!ained e%istin" and had not filed a petition for ban=ruptc$L and that the deduction did not consist of a valid and subsistin" debt considerin" that, under the !ana"e!ent contract, petitioner #as to be paid fift$ percent '45F( of the proKectRs net profit.-5 Petitioner appealed before the &ourt of Ta% 0ppeals '&T0( #hich rendered Kud"!ent, as follo#s6 7H8R89OR8, in vie# of the fore"oin", the instant Petition for Revie# is hereb$ D8NI8D for lac= of !erit. The assess!ent in ,uestion, vi;6 90S1-1C31CC155/5>B for deficienc$ inco!e ta% in the a!ount of P>3,C--,->-./. is hereb$ 099IRM8D. 0&&ORDIN2IO, petitioner Phile% Minin" &orporation is hereb$ ORD8R8D to P0O respondent &o!!issioner of Internal Revenue the a!ount of P>3,C--,->-./., plus, 35F delin,uenc$ interest due co!puted fro! 9ebruar$ -5, -..4, #hich is the date after the 351 da$ "race period "iven b$ the respondent #ithin #hich petitioner has to pa$ the deficienc$ a!ount % % % up to actual date of pa$!ent. SO ORD8R8D.--

The &T0 reKected petitionerRs assertion that the advances it !ade for the Sto. Nino !ine #ere in the nature of a loan. It instead characteri;ed the advances as petitionerRs invest!ent in a partnership #ith <a"uio 2old for the develop!ent and e%ploitation of the Sto. Nino !ine. The &T0 held that the Po#er of 0ttorne$ e%ecuted b$ petitioner and <a"uio 2old #as actuall$ a partnership a"ree!ent. Since the advanced a!ount partoo= of the nature of an invest!ent, it could not be deducted as a bad debt fro! petitionerRs "ross inco!e. The &T0 li=e#ise held that the a!ount paid b$ petitioner for the lon"1ter! loan obli"ations of <a"uio 2old could not be allo#ed as a bad debt deduction. 0t the ti!e the pa$!ents #ere !ade, <a"uio 2old #as not in default since its loans #ere not $et due and de!andable. 7hat petitioner did #as to pre1pa$ the loans as evidenced b$ the notice sent b$ <an= of 0!erica sho#in" that it #as !erel$ de!andin" pa$!ent of the install!ent and interests due. Moreover, &itiban= i!posed and collected a pre1ter!ination penalt$ for the pre1pa$!ent. The &ourt of 0ppeals affir!ed the decision of the &T0. -3 Hence, upon denial of its !otion for reconsideration, -/ petitioner too= this recourse under Rule :4 of the Rules of &ourt, alle"in" that6 I. The &ourt of 0ppeals erred in construin" that the advances !ade b$ Phile% in the !ana"e!ent of the Sto. Nino Mine pursuant to the Po#er of 0ttorne$ partoo= of the nature of an invest!ent rather than a loan. II. The &ourt of 0ppeals erred in rulin" that the 45F145F sharin" in the net profits of the Sto. Nino Mine indicates that Phile% is a partner of <a"uio 2old in the develop!ent of the Sto. Nino Mine not#ithstandin" the clear absence of an$ intent on the part of Phile% and <a"uio 2old to for! a partnership. III.

The &ourt of 0ppeals erred in rel$in" onl$ on the Po#er of 0ttorne$ and in co!pletel$ disre"ardin" the &o!pro!ise 0"ree!ent and the 0!ended &o!pro!ise 0"ree!ent #hen it construed the nature of the advances !ade b$ Phile%. IV. The &ourt of 0ppeals erred in refusin" to delve upon the issue of the propriet$ of the bad debts #rite1off.-: Petitioner insists that in deter!inin" the nature of its business relationship #ith <a"uio 2old, #e should not onl$ rel$ on the Po#er of 0ttorne$ , but also on the subse,uent &o!pro!ise #ith Dation in Pa$!ent and 0!ended &o!pro!ise #ith Dation in Pa$!ent that the parties e%ecuted in -.C3. These docu!ents, alle"edl$ evinced the partiesR intent to treat the advances and pa$!ents as a loan and establish a creditor1debtor relationship bet#een the!. The petition lac=s !erit. The lo#er courts correctl$ held that the Po#er of 0ttorne$ is the instru!ent that is !aterial in deter!inin" the true nature of the business relationship bet#een petitioner and <a"uio 2old. <efore resort !a$ be had to the t#o co!pro!ise a"ree!ents, the partiesR contractual intent !ust first be discovered fro! the e%pressed lan"ua"e of the pri!ar$ contract under #hich the partiesR business relations #ere founded. It should be noted that the co!pro!ise a"ree!ents #ere !ere collateral docu!ents e%ecuted b$ the parties pursuant to the ter!ination of their business relationship created under the Po#er of 0ttorne$ . On the other hand, it is the latter #hich established the Kuridical relation of the parties and defined the para!eters of their dealin"s #ith one another. The e%ecution of the t#o co!pro!ise a"ree!ents can hardl$ be considered as a subse,uent or conte!poraneous act that is reflective of the partiesR true intent. The co!pro!ise a"ree!ents #ere e%ecuted eleven $ears after the Po#er of 0ttorne$ and !erel$ laid out a plan or procedure b$ #hich petitioner could recover the advances and pa$!ents it !ade under the Po#er of 0ttorne$ . The parties entered into the co!pro!ise a"ree!ents as

a conse,uence of the dissolution of their business relationship. It did not define that relationship or indicate its real character. 0n e%a!ination of the Po#er of 0ttorne$ reveals that a partnership or Koint venture #as indeed intended b$ the parties. +nder a contract of partnership, t#o or !ore persons bind the!selves to contribute !one$, propert$, or industr$ to a co!!on fund, #ith the intention of dividin" the profits a!on" the!selves. -4 7hile a corporation, li=e petitioner, cannot "enerall$ enter into a contract of partnership unless authori;ed b$ la# or its charter, it has been held that it !a$ enter into a Koint venture #hich is a=in to a particular partnership6 The le"al concept of a Koint venture is of co!!on la# ori"in. It has no precise le"al definition, but it has been "enerall$ understood to !ean an or"ani;ation for!ed for so!e te!porar$ purpose. % % % It is in fact hardl$ distin"uishable fro! the partnership, since their ele!ents are si!ilar T co!!unit$ of interest in the business, sharin" of profits and losses, and a !utual ri"ht of control. % % % The !ain distinction cited b$ !ost opinions in co!!on la# Kurisdictions is that the partnership conte!plates a "eneral business #ith so!e de"ree of continuit$, #hile the Koint venture is for!ed for the e%ecution of a sin"le transaction, and is thus of a te!porar$ nature. % % % This observation is not entirel$ accurate in this Kurisdiction, since under the &ivil &ode, a partnership !a$ be particular or universal, and a particular partnership !a$ have for its obKect a specific underta=in". % % % It #ould see! therefore that under Philippine la#, a Koint venture is a for! of partnership and should be "overned b$ the la# of partnerships. The Supre!e &ourt has ho#ever reco"ni;ed a distinction bet#een these t#o business for!s, and has held that althou"h a corporation cannot enter into a partnership contract, it !a$ ho#ever en"a"e in a Koint venture #ith others. % % % '&itations o!itted( -> Perusal of the a"ree!ent deno!inated as the Po#er of 0ttorne$ indicates that the parties had intended to create a partnership and establish a co!!on fund for the purpose. The$ also had a Koint interest in the profits of the business as sho#n b$ a 45145 sharin" in the inco!e of the !ine.

+nder the Po#er of 0ttorne$ , petitioner and <a"uio 2old undertoo= to contribute !one$, propert$ and industr$ to the co!!on fund =no#n as the Sto. NiMo !ine.-B In this re"ard, #e note that there is a substantive e,uivalence in the respective contributions of the parties to the develop!ent and operation of the !ine. Pursuant to para"raphs : and 4 of the a"ree!ent, petitioner and <a"uio 2old #ere to contribute e,uall$ to the Koint venture assets under their respective accounts. <a"uio 2old #ould contribute P11M under its o#nerRs account plus an$ of its inco!e that is left in the proKect, in addition to its a?8ua- :=n=n@ ?-a=:. Mean#hile, petitionerRs contribution #ould consist of its /A</r8=./ in the !ana"e!ent and operation of !ines, as #ell as the !ana"erRs account #hich is co!prised of P11M in funds and propert$ and petitionerRs 1?o:</n.a8=on1 as !ana"er that cannot be paid in cash. Ho#ever, petitioner asserts that it could not have entered into a partnership a"ree!ent #ith <a"uio 2old because it did not bind itself to contribute !one$ or propert$ to the proKectL that under para"raph 4 of the a"ree!ent, it #as onl$ optional for petitioner to transfer funds or propert$ to the Sto. NiMo proKect '#(henever the M0N028RS shall dee! it necessar$ and convenient in connection #ith the M0N028M8NT of the STO. NIUO MIN8. -C The #ordin" of the partiesR a"ree!ent as to petitionerRs contribution to the co!!on fund does not detract fro! the fact that petitioner transferred its funds and propert$ to the proKect as specified in para"raph 4, thus renderin" effective the other stipulations of the contract, particularl$ para"raph 4'c( #hich prohibits petitioner fro! #ithdra#in" the advances until ter!ination of the partiesR business relations. 0s can be seen, petitioner beca!e bound b$ its contributions once the transfers #ere !ade. The contributions ac,uired an obli"ator$ nature as soon as petitioner had chosen to e%ercise its option under para"raph 4. There is no !erit to petitionerRs clai! that the prohibition in para"raph 4'c( a"ainst #ithdra#al of advances should not be ta=en as an indication that it had entered into a partnership #ith <a"uio 2oldL that the stipulation onl$ sho#ed that #hat the parties entered into #as actuall$ a contract of a"enc$ coupled #ith an interest #hich is not revocable at #ill and not a partnership.

In an a"enc$ coupled #ith interest, it is the a@/n?y that cannot be revo=ed or #ithdra#n ;y 8B/ <r=n?=<a- due to an interest of a third part$ that depends upon it, or the !utual interest of both principal and a"ent.-. In this case, the non1revocation or non1#ithdra#al under para"raph 4'c( applies to the a09an?/. !ade b$ petitioner #ho is supposedl$ the a@/n8 and not the principal under the contract. Thus, it cannot be inferred fro! the stipulation that the partiesR relation under the a"ree!ent is one of a"enc$ coupled #ith an interest and not a partnership. Neither can para"raph -> of the a"ree!ent be ta=en as an indication that the relationship of the parties #as one of a"enc$ and not a partnership. 0lthou"h the said provision states that this 0"enc$ shall be irrevocable #hile an$ obli"ation of the PRIN&IP0I in favor of the M0N028RS is outstandin", inclusive of the M0N028RSR account, it does not necessaril$ follo# that the parties entered into an a"enc$ contract coupled #ith an interest that cannot be #ithdra#n b$ <a"uio 2old. It should be stressed that the !ain obKect of the Po#er of 0ttorne$ #as not to confer a po#er in favor of petitioner to contract #ith third persons on behalf of <a"uio 2old but to create a business relationship bet#een petitioner and <a"uio 2old, in #hich the for!er #as to !ana"e and operate the latterRs !ine throu"h the partiesR !utual contribution of !aterial resources and industr$. The essence of an a"enc$, even one that is coupled #ith interest, is the a"entRs abilit$ to represent his principal and brin" about business relations bet#een the latter and third persons. 35 7here representation for and in behalf of the principal is !erel$ incidental or necessar$ for the proper dischar"e of oneRs para!ount underta=in" under a contract, the latter !a$ not necessaril$ be a contract of a"enc$, but so!e other a"ree!ent dependin" on the ulti!ate underta=in" of the parties.3In this case, the totalit$ of the circu!stances and the stipulations in the partiesR a"ree!ent indubitabl$ lead to the conclusion that a partnership #as for!ed bet#een petitioner and <a"uio 2old. 9irst, it does not appear that <a"uio 2old #as unconditionall$ obli"ated to return the advances !ade b$ petitioner under the a"ree!ent. Para"raph 4 'd( thereof provides that upon ter!ination

of the partiesR business relations, the ratio #hich the M0N028RRS account has to the o#nerRs account #ill be deter!ined, and the correspondin" proportion of the entire assets of the STO. NINO MIN8, e%cludin" the clai!s shall be transferred to petitioner. 33 0s pointed out b$ the &ourt of Ta% 0ppeals, petitioner #as !erel$ entitled to a proportionate return of the !ineRs assets upon dissolution of the partiesR business relations. There #as nothin" in the a"ree!ent that #ould re,uire <a"uio 2old to !a=e pa$!ents of the advances to petitioner as #ould be reco"ni;ed as an ite! of obli"ation or accounts pa$able for <a"uio 2old. Thus, the ta% court correctl$ concluded that the a"ree!ent provided for a distribution of assets of the Sto. NiMo !ine upon ter!ination, a provision that is !ore consistent #ith a partnership than a creditor1 debtor relationship. It should be pointed out that in a contract of loan, a person #ho receives a loan or !one$ or an$ fun"ible thin" ac,uires o#nership thereof and is ;oun0 to pa$ the creditor an e,ual a!ount of the sa!e =ind and ,ualit$. 3/ In this case, ho#ever, there #as no stipulation for <a"uio 2old to actuall$ repa$ petitioner the cash and propert$ that it had advanced, but onl$ the return of an a!ount pe""ed at a ratio #hich the !ana"erRs account had to the o#nerRs account. In this connection, #e find no contractual basis for the e%ecution of the t#o co!pro!ise a"ree!ents in #hich <a"uio 2old reco"ni;ed a debt in favor of petitioner, #hich supposedl$ arose fro! the ter!ination of their business relations over the Sto. Nino !ine. The Po#er of 0ttorne$ clearl$ provides that petitioner #ould onl$ be entitled to the return of a proportionate share of the !ine assets to be co!puted at a ratio that the !ana"erRs account had to the o#nerRs account. 8%cept to provide a basis for clai!in" the advances as a bad debt deduction, there is no reason for <a"uio 2old to hold itself liable to petitioner under the co!pro!ise a"ree!ents, for an$ a!ount over and above the proportion a"reed upon in the Po#er of 0ttorne$ . Ne%t, the ta% court correctl$ observed that it #as unli=el$ for a business corporation to lend hundreds of !illions of pesos to another corporation #ith neither securit$, or collateral, nor a specific deed evidencin" the ter!s and conditions of such loans. The parties also did not provide a specific !aturit$ date for the

advances to beco!e due and de!andable, and the !anner of pa$!ent #as unclear. 0ll these point to the inevitable conclusion that the advances #ere not loans but capital contributions to a partnership. The stron"est indication that petitioner #as a partner in the Sto NiMo !ine is the fact that it #ould receive 45F of the net profits as co!pensation under para"raph -3 of the a"ree!ent. The entiret$ of the partiesR contractual stipulations si!pl$ leads to no other conclusion than that petitionerRs co!pensation is actuall$ its share in the inco!e of the Koint venture. 0rticle -B>. ':( of the &ivil &ode e%plicitl$ provides that the receipt b$ a person of a share in the profits of a business is prima acie evidence that he is a partner in the business. Petitioner asserts, ho#ever, that no such inference can be dra#n a"ainst it since its share in the profits of the Sto NiMo proKect #as in the nature of co!pensation or #a"es of an e!plo$ee , under the e%ception provided in 0rticle -B>. ':( 'b(.3: On this score, the ta% court correctl$ noted that petitioner #as not an e!plo$ee of <a"uio 2old #ho #ill be paid #a"es pursuant to an e!plo$er1e!plo$ee relationship. To be"in #ith, petitioner #as the !ana"er of the proKect and had put substantial su!s into the venture in order to ensure its viabilit$ and profitabilit$. <$ pe""in" its co!pensation to profits, petitioner also stood not to be re!unerated in case the !ine had no inco!e. It is hard to believe that petitioner #ould ta=e the ris= of not bein" paid at all for its services, if it #ere trul$ Kust an ordinar$ e!plo$ee. &onse,uentl$, #e find that petitionerRs co!pensation under para"raph -3 of the a"ree!ent actuall$ constitutes its share in the net profits of the partnership. Indeed, petitioner #ould not be entitled to an e,ual share in the inco!e of the !ine if it #ere Kust an e!plo$ee of <a"uio 2old.34 It is not surprisin" that petitioner #as to receive a 45F share in the net profits, considerin" that the Po#er of 0ttorne$ also provided for an al!ost e,ual contribution of the parties to the St. Nino !ine. The co!pensation a"reed upon onl$ serves to reinforce the notion that the partiesR relations #ere indeed of partners and not e!plo$er1e!plo$ee.

0ll told, the lo#er courts did not err in treatin" petitionerRs advances as invest!ents in a partnership =no#n as the Sto. Nino !ine. The advances #ere not debts of <a"uio 2old to petitioner inas!uch as the latter #as under no unconditional obli"ation to return the sa!e to the for!er under the Po#er of 0ttorne$ . 0s for the a!ounts that petitioner paid as "uarantor to <a"uio 2oldRs creditors, #e find no reason to depart fro! the ta% courtRs factual findin" that <a"uio 2oldRs debts #ere not $et due and de!andable at the ti!e that petitioner paid the sa!e. Veril$, petitioner pre1paid <a"uio 2oldRs outstandin" loans to its ban= creditors and this conclusion is supported b$ the evidence on record. 3> In su!, petitioner cannot clai! the advances as a bad debt deduction fro! its "ross inco!e. Deductions for inco!e ta% purposes parta=e of the nature of ta% e%e!ptions and are strictl$ construed a"ainst the ta%pa$er, #ho !ust prove b$ convincin" evidence that he is entitled to the deduction clai!ed. 3B In this case, petitioner failed to substantiate its assertion that the advances #ere subsistin" debts of <a"uio 2old that could be deducted fro! its "ross inco!e. &onse,uentl$, it could not clai! the advances as a valid bad debt deduction. # EREFORE, the petition is %ENIE%. The decision of the &ourt of 0ppeals in &012.R. SP No. :./C4 dated Dune /5, 3555, #hich affir!ed the decision of the &ourt of Ta% 0ppeals in &.T.0. &ase No. 4355 is AFFIRME%. Petitioner Phile% Minin" &orporation is OR%ERE% 8o PA$ the deficienc$ ta% on its -.C3 inco!e in the a!ount of P>3,C--,->-./-, #ith 35F delin,uenc$ interest co!puted fro! 9ebruar$ -5, -..4, #hich is the due date "iven for the pa$!ent of the deficienc$ inco!e ta%, up to the actual date of pa$!ent. SO OR%ERE%. CONSUE"O $NARES+SANTIAGO0ssociate Dustice

78 &ON&+R6
V

CONC ITA CARPIO MORA"ES0ssociate Dustice

MINITA &. C ICO+NA*ARIO 0ssociate Dustice

ANTONIO E%UAR%O !. NAC URA 0ssociate Dustice

RU!EN T. RE$ES0ssociate Dustice

ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case #as assi"ned to the #riter of the opinion of the &ourtRs Division. CONSUE"O $NARES+SANTIAGO0ssociate Dustice&hairperson, Third Division

CERTIFICATION Pursuant to Section -/, 0rticle VIII of the &onstitution and the Division &hairpersonRs 0ttestation, I certif$ that the conclusions in the above Decision had been reached in consultation before the case #as assi"ned to the #riter of the opinion of the &ourtRs Division. RE$NATO S. PUNO&hief Dustice

Foo8no8/.
V -

In lieu of 0ssociate Dustice Ma. 0licia 0ustria1Martine;.

Rollo, pp. :>14BL penned b$ 0ssociate Dustice Portia 0liMo1 Hor!achuelos and concurred in b$ 0ssociate Dustices Ma. 0licia 0ustria1Martine; 'no# an 0ssociate Dustice of the Supre!e &ourt( and 8lvi Dohn S. 0suncion.
3

Id. at ->.1-.>L penned b$ Dustice 0!ancio ?. Sa"a.

/

Id. at 4..

: 4

Id. at >51>..

Id. at >31>/, >> J >C.

> B C

Id. at -3:.

Id. at C.1.B.

Id. at .C1-5>.
.

Id. at -3..

-5

Id. at -:C1-:..
--

Id. at -.4.

-3

Id. at :>14B.
-/ -:

Id. at 4.. Id. at -C.

-4 ->

&IVII &OD8, 0rt. -B>B.

0urbach v. Sanitar$ 7ares Manufacturin" &orporation, 2.R. No. B4CB4, Dece!ber -4, -.C., -C5 S&R0 -/5, -:>1-:B.
-B

Po#er of 0ttorne$, para"raph 3'a(, rollo, p. >-.

-C

Rollo, p. >3.

&IVII &OD8, 0rt. -.3B. 0n a"enc$ cannot be revo=ed if a bilateral contract depends upon it, or if it is the !eans of fulfillin" an obli"ation alread$ contracted, or if a partner is appointed !ana"er of a partnership in the contract of partnership and his re!oval fro! the !ana"e!ent is unKustifiable.
35

-.

Partnership, 0"enc$ and Trusts, -..> 8d., De Ieon and De Ieon, Dr., p. //5.

3-

See Nielson J &o!pan$, Inc. v. Iepanto &onsolidated Minin" &o!pan$, -/4 Phil. 4/3, 4:3 '-.>C(.

33 3/ 3:

Rollo, p. >/.

&IVII &OD8, 0rt. -.4/.

0rticle -B>. ':( 'b( of the &ivil &ode states6

0rt. -B>.. In deter!inin" #hether a partnership e%ists, these rules shall appl$6 %%%% ':( The receipt b$ a person of a share of the profits of a business is pri!a facie evidence that he is a partner in the business, but no such inference shall be dra#n if such profits #ere received in pa$!ent6 %%%% 'b( 0s #a"es of an e!plo$ee or rent to a landlordL %%%%
34

See Tocao v. &ourt of 0ppeals, /.> Phil. ->>, -C51-C3 '3555(.

3>

Rollo, pp. C-1CC.

3B

See Ia# of <asic Ta%ation in the Philippines, 355- Revised 8d., <enKa!in <. 0ban, p. --.. Republic of the PhilippinesSUPREME COURTManila 8N <0N& G.R. No. "+45425 A<r=- 29, 1939

JOSE GATC A"IAN, ET A"., plaintiffs1appellants, vs.T E CO""ECTOR OF INTERNA" RE&ENUE, defendant1appellee. Guillermo 1. Re+es or appellants.5 ice o the "olicitor*General Tuason or appellee. IMPERIA", J.:

The plaintiff brou"ht this action to recover fro! the defendant &ollector of Internal Revenue the su! of P-,C>/.::, #ith le"al interest thereon, #hich the$ paid under protest b$ #a$ of inco!e ta%. The$ appealed fro! the decision rendered in the case on October 3/, -./> b$ the &ourt of 9irst Instance of the &it$ of Manila, #hich dis!issed the action #ith the costs a"ainst the!. The case #as sub!itted for decision upon the follo#in" stipulation of facts6 &o!e no# the parties to the above1!entioned case, throu"h their respective undersi"ned attorne$s, and hereb$ a"ree to respectfull$ sub!it to this Honorable &ourt the case upon the follo#in" state!ent of facts6 -. That plaintiff are all residents of the !unicipalit$ of Pulilan, <ulacan, and that defendant is the &ollector of Internal Revenue of the PhilippinesL 3. That prior to Dece!ber -4, -./: plaintiffs, in order to enable the! to purchase one s#eepsta=es tic=et valued at t#o pesos 'P3(, subscribed and paid therefor the a!ounts as follo#s6 -. Dose 2atchalian .................................................................................................... 3. 2re"oria &ristobal ............................................................................................... /. Saturnina Silva .................................................................................................... :. 2uiller!o Tapia ................................................................................................... 4. Desus Ie"aspi ...................................................................................................... >. Dose Silva ............................................................................................................. B. To!asa Mercado ................................................................................................

C. Dulio 2atchalian ................................................................................................... .. 8!iliana Santia"o ................................................................................................ -5. Maria &. Ie"aspi ............................................................................................... --. 9rancisco &abral ............................................................................................... -3. 2on;alo Davier .................................................................................................... -/. Maria Santia"o ................................................................................................... -:. <uenaventura 2u;!an ...................................................................................... -4. Mariano Santos .................................................................................................

Total ........................................................................................................ /. That i!!ediatel$ thereafter but prior to Dece!ber -4, -./:, plaintiffs purchased, in the ordinar$ course of business, fro! one of the dul$ authori;ed a"ents of the National &harit$ S#eepsta=es Office one tic=et bearin" No. -BC>/B for the su! of t#o pesos 'P3( and that the said tic=et #as re"istered in the na!e of Dose 2atchalian and &o!pan$L :. That as a result of the dra#in" of the s#eepsta=es on Dece!ber -4, -./:, the above1!entioned tic=et bearin" No. -BC>/B #on one of the third pri;es in the a!ount of P45,555 and that the correspondin" chec= coverin" the above1!entioned pri;e of P45,555 #as dra#n b$ the National &harit$ S#eepsta=es Office in favor of Dose 2atchalian J &o!pan$ a"ainst the Philippine National <an=, #hich chec= #as cashed durin" the latter part of Dece!ber, -./: b$ Dose 2atchalian J &o!pan$L

4. That on Dece!ber 3., -./:, Dose 2atchalian #as re,uired b$ inco!e ta% e%a!iner 0lfredo David to file the correspondin" inco!e ta% return coverin" the pri;e #on b$ Dose 2atchalian J &o!pan$ and that on Dece!ber 3., -./:, the said return #as si"ned b$ Dose 2atchalian, a cop$ of #hich return is enclosed as 8%hibit 0 and !ade a part hereofL >. That on Danuar$ C, -./4, the defendant !ade an assess!ent a"ainst Dose 2atchalian J &o!pan$ re,uestin" the pa$!ent of the su! of P-,:....: to the deput$ provincial treasurer of Pulilan, <ulacan, "ivin" to said Dose 2atchalian J &o!pan$ until Danuar$ 35, -./4 #ithin #hich to pa$ the said a!ount of P-,:....:, a cop$ of #hich letter !ar=ed 8%hibit < is enclosed and !ade a part hereofL B. That on Danuar$ 35, -./4, the plaintiffs, throu"h their attorne$, sent to defendant a repl$, a cop$ of #hich !ar=ed 8%hibit & is attached and !ade a part hereof, re,uestin" e%e!ption fro! pa$!ent of the inco!e ta% to #hich repl$ there #ere enclosed fifteen '-4( separate individual inco!e ta% returns filed separatel$ b$ each one of the plaintiffs, copies of #hich returns are attached and !ar=ed 8%hibit D1- to D1-4, respectivel$, in order of their na!es listed in the caption of this case and !ade parts hereofL a state!ent of sale si"ned b$ Dose 2atchalian sho#in" the a!ount put up b$ each of the plaintiffs to cover up the attached and !ar=ed as 8%hibit 8 and !ade a part hereofL and a cop$ of the affidavit si"ned b$ Dose 2atchalian dated Dece!ber 3., -./: is attached and !ar=ed 8%hibit 9 and !ade part thereofL C. That the defendant in his letter dated Danuar$ 3C, -./4, a cop$ of #hich !ar=ed 8%hibit 2 is enclosed, denied plaintiffs* re,uest of Danuar$ 35, -./4, for e%e!ption fro! the pa$!ent of ta% and reiterated his de!and for the pa$!ent of the su! of P-,:....: as inco!e ta% and "ave plaintiffs until 9ebruar$ -5, -./4 #ithin #hich to pa$ the said ta%L .. That in vie# of the failure of the plaintiffs to pa$ the a!ount of ta% de!anded b$ the defendant, not#ithstandin" subse,uent de!and !ade b$ defendant upon the plaintiffs throu"h their attorne$ on March 3/, -./4, a cop$ of #hich !ar=ed 8%hibit H is enclosed, defendant on Ma$ -/, -./4 issued a #arrant of distraint and lev$

a"ainst the propert$ of the plaintiffs, a cop$ of #hich #arrant !ar=ed 8%hibit I is enclosed and !ade a part hereofL -5. That to avoid e!barrass!ent arisin" fro! the e!bar"o of the propert$ of the plaintiffs, the said plaintiffs on Dune -4, -./4, throu"h 2re"oria &ristobal, Maria &. Ie"aspi and Desus Ie"aspi, paid under protest the su! of P>5-.4- as part of the ta% and penalties to the !unicipal treasurer of Pulilan, <ulacan, as evidenced b$ official receipt No. B:4:CB. #hich is attached and !ar=ed 8%hibit D and !ade a part hereof, and re,uested defendant that plaintiffs be allo#ed to pa$ under protest the balance of the ta% and penalties b$ !onthl$ install!entsL --. That plaintiff*s re,uest to pa$ the balance of the ta% and penalties #as "ranted b$ defendant subKect to the condition that plaintiffs file the usual bond secured b$ t#o solvent persons to "uarantee pro!pt pa$!ent of each install!ents as it beco!es dueL -3. That on Dul$ ->, -./4, plaintiff filed a bond, a cop$ of #hich !ar=ed 8%hibit N is enclosed and !ade a part hereof, to "uarantee the pa$!ent of the balance of the alle"ed ta% liabilit$ b$ !onthl$ install!ents at the rate of P--C.B5 a !onth, the first pa$!ent under protest to be effected on or before Dul$ /-, -./4L -/. That on Dul$ ->, -./4 the said plaintiffs for!all$ protested a"ainst the pa$!ent of the su! of P>53.4-, a cop$ of #hich protest is attached and !ar=ed 8%hibit I, but that defendant in his letter dated 0u"ust -, -./4 overruled the protest and denied the re,uest for refund of the plaintiffsL -:. That, in vie# of the failure of the plaintiffs to pa$ the !onthl$ install!ents in accordance #ith the ter!s and conditions of bond filed b$ the!, the defendant in his letter dated Dul$ 3/, -./4, cop$ of #hich is attached and !ar=ed 8%hibit M, ordered the !unicipal treasurer of Pulilan, <ulacan to e%ecute #ithin five da$s the #arrant of distraint and lev$ issued a"ainst the plaintiffs on Ma$ -/, -./4L -4. That in order to avoid anno$ance and e!barrass!ent arisin" fro! the lev$ of their propert$, the plaintiffs on 0u"ust 3C, -./>, throu"h Dose 2atchalian, 2uiller!o Tapia, Maria Santia"o and 8!iliano Santia"o, paid under protest to the !unicipal treasurer of

Pulilan, <ulacan the su! of P-,3>5../ representin" the unpaid balance of the inco!e ta% and penalties de!anded b$ defendant as evidenced b$ inco!e ta% receipt No. /4C-- #hich is attached and !ar=ed 8%hibit N and !ade a part hereofL and that on Septe!ber /, -./>, the plaintiffs for!all$ protested to the defendant a"ainst the pa$!ent of said a!ount and re,uested the refund thereof, cop$ of #hich is attached and !ar=ed 8%hibit O and !ade part hereofL but that on Septe!ber :, -./>, the defendant overruled the protest and denied the refund thereofL cop$ of #hich is attached and !ar=ed 8%hibit P and !ade a part hereofL and ->. That plaintiffs de!anded upon defendant the refund of the total su! of one thousand ei"ht hundred and si%t$ three pesos and fort$1 four centavos 'P-,C>/.::( paid under protest b$ the! but that defendant refused and still refuses to refund the said a!ount not#ithstandin" the plaintiffs* de!ands. -B. The parties hereto reserve the ri"ht to present other and additional evidence if necessar$. 8%hibit 8 referred to in the stipulation is of the follo#in" tenor6 To &hom it ma+ concern6 I, Dose 2atchalian, a resident of Pulilan, <ulacan, !arried, of a"e, hereb$ certif$, that on the --th da$ of 0u"ust, -./:, I sold parts of !$ shares on tic=et No. -BC>/B to the persons and for the a!ount indicated belo# and the part of !a$ share re!ainin" is also sho#n to #it6 Purchaser -. Mariano Santos ........................................... 3. <uenaventura 2u;!an ............................... /. Maria Santia"o ............................................ /moun t P5.-: .-/ .-B /ddress Pulilan, <ulacan. 1 Do 1 1 Do 1

:. 2on;alo Davier .............................................. 4. 9rancisco &abral .......................................... >. Maria &. Ie"aspi .......................................... B. 8!iliana Santia"o ......................................... C. Dulio 2atchalian ............................................ .. Dose Silva ...................................................... -5. To!asa Mercado ....................................... --. Desus Ie"aspi ............................................. -3. 2uiller!o Tapia ........................................... -/. Saturnina Silva ............................................ -:. 2re"oria &ristobal ....................................... -4. Dose 2atchalian ............................................

.-: .-/ .-> .-/ .-/ .5B .5C .-4 .-/ .5C .-C .-C

1 Do 1 1 Do 1 1 Do 1 1 Do 1 1 Do 1 1 Do 1 1 Do 1 1 Do 1 1 Do 1 1 Do 1 1 Do 1 1 Do 1 Total cost of said

3.55

tic=etL and that, therefore, the persons na!ed above are entitled to the parts of #hatever pri;e that !i"ht be #on b$ said tic=et. Pulilan, <ulacan, P.I.

'S"d.( DOS8 20T&H0II0N 0nd a su!!ar$ of 8%hibits D1- to D1-4 is inserted in the bill of e%ceptions as follo#s6 R8&0PIT+I0TIONS O9 -4 INDIVID+0I IN&OM8 T0P R8T+RNS 9OR -./: 0II D0T8D D0N+0RO -., -./4 S+<MITT8D TO TH8 &OII8&TOR O9 INT8RN0I R8V8N+8. .ame -. Dose 2atchalian ................................. ......... 3. 2re"oria &ristobal .................................... .. /. Saturnina Silva ........................................... .. :. 2uiller!o Tapia .......................................... 4. Desus Ie"aspi b$ Maria &ristobal ......... >. Dose Silva ........................................... ......... B. To!asa Mercado ..................................... .. C. Dulio 2atchalian b$ <eatri; 2u;!an ....... .. 8!iliana Santia"o .................................... Exhibit .o. D1Purchase Price P5.-C Price 4on P:,:34 Expenses

P :C5

D13

.-C

:,4B4

3,555

D1/ D1: D14 D1>

.5C .-/ .-4 .5C

-,CB4 /,/34 /,C34 -,CB4

/>5 />5 B35 />5

D1B D1C D1.

.5B .-/ .-/

-,CB4 /,-45 /,/34

/>5 3:5 />5

.. -5. Maria &. Ie"aspi ...................................... --. 9rancisco &abral ...................................... -3. 2on;alo Davier ......................................... . -/. Maria Santia"o .................................... ...... -:. <uenaventura 2u;!an ........................... -4. Mariano Santos ....................................... . D1-5 D1-D1-3 .-> .-/ .-: :,-55 /,/34 /,/34 .>5 />5 />5

D1-/ D1-: D1-4

.-B .-/ .-:

:,/45 /,/34 /,/34

/>5 />5 />5

3.55 45,555 The le"al ,uestions raised in plaintiffs1appellants* five assi"ned errors !a$ properl$ be reduced to the t#o follo#in"6 '-( 7hether the plaintiffs for!ed a partnership, or !erel$ a co!!unit$ of propert$ #ithout a personalit$ of its o#nL in the first case it is ad!itted that the partnership thus for!ed is liable for the pa$!ent of inco!e ta%, #hereas if there #as !erel$ a co!!unit$ of propert$, the$ are e%e!pt fro! such pa$!entL and '3( #hether the$ should pa$ the ta% collectivel$ or #hether the latter should be prorated a!on" the! and paid individuall$. The &ollector of Internal Revenue collected the ta% under section -5 of 0ct No. 3C//, as last a!ended b$ section 3 of 0ct No. /B>-, readin" as follo#s6 S8&. -5. 'a( There shall be levied, assessed, collected, and paid annuall$ upon the total net inco!e received in the precedin"

calendar $ear fro! all sources b$ ever$ corporation, Koint1stoc= co!pan$, partnership, Koint account 'cuenta en participacion(, association or insurance co!pan$, or"ani;ed in the Philippine Islands, no !atter ho# created or or"ani;ed, but not includin" dul$ re"istered "eneral copartnership 'co!paMias colectivas(, a ta% of three per centu! upon such inco!eL and a li=e ta% shall be levied, assessed, collected, and paid annuall$ upon the total net inco!e received in the precedin" calendar $ear fro! all sources #ithin the Philippine Islands b$ ever$ corporation, Koint1stoc= co!pan$, partnership, Koint account 'cuenta en participacion(, association, or insurance co!pan$ or"ani;ed, authori;ed, or e%istin" under the la#s of an$ forei"n countr$, includin" interest on bonds, notes, or other interest1bearin" obli"ations of residents, corporate or other#ise6 Provided! ho&ever! That nothin" in this section shall be construed as per!ittin" the ta%ation of the inco!e derived fro! dividends or net profits on #hich the nor!al ta% has been paid. The "ain derived or loss sustained fro! the sale or other disposition b$ a corporation, Koint1stoc= co!pan$, partnership, Koint account 'cuenta en participacion(, association, or insurance co!pan$, or propert$, real, personal, or !i%ed, shall be ascertained in accordance #ith subsections 'c( and 'd( of section t#o of 0ct Nu!bered T#o thousand ei"ht hundred and thirt$1three, as a!ended b$ 0ct Nu!bered T#ent$1nine hundred and t#ent$1si%. The fore"oin" ta% rate shall appl$ to the net inco!e received b$ ever$ ta%able corporation, Koint1stoc= co!pan$, partnership, Koint account 'cuenta en participacion(, association, or insurance co!pan$ in the calendar $ear nineteen hundred and t#ent$ and in each $ear thereafter. There is no doubt that if the plaintiffs !erel$ for!ed a co!!unit$ of propert$ the latter is e%e!pt fro! the pa$!ent of inco!e ta% under the la#. <ut accordin" to the stipulation facts the plaintiffs or"ani;ed a partnership of a civil nature because each of the! put up !one$ to bu$ a s#eepsta=es tic=et for the sole purpose of dividin" e,uall$ the pri;e #hich the$ !a$ #in, as the$ did in fact in the a!ount of P45,555 'article ->>4, &ivil &ode(. The partnership #as not onl$ for!ed, but upon the or"ani;ation thereof and the #innin" of the pri;e, Dose 2atchalian personall$ appeared in the office of the Philippines &harit$ S#eepsta=es, in his capacit$ as co1partner, as

such collection the pri;e, the office issued the chec= for P45,555 in favor of Dose 2atchalian and co!pan$, and the said partner, in the sa!e capacit$, collected the said chec=. 0ll these circu!stances repel the idea that the plaintiffs or"ani;ed and for!ed a co!!unit$ of propert$ onl$. Havin" or"ani;ed and constituted a partnership of a civil nature, the said entit$ is the one bound to pa$ the inco!e ta% #hich the defendant collected under the aforesaid section -5 'a( of 0ct No. 3C//, as a!ended b$ section 3 of 0ct No. /B>-. There is no !erit in plaintiff*s contention that the ta% should be prorated a!on" the! and paid individuall$, resultin" in their e%e!ption fro! the ta%. In vie# of the fore"oin", the appealed decision is affir!ed, #ith the costs of this instance to the plaintiffs appellants. So ordered. /vance7a! C.,.! (illa*Real! 8ia)! -aurel! Concepcion and 2oran! ,,.! concur. SEC O<=n=on CM.. R/y/.D October -B, -.C. Ms. &. 0. Re$es Santos 0ssistant Director <ureau of Trade Re"ulation and &onsu!er Protection Depart!ent of Trade J Industr$ />- Sen. 2il Pu$at 0ve. Ma=ati, Metro Manila

Mada!e6 This has reference to $our letter dated Septe!ber >, -.C. re,uestin" the opinion of this &o!!ission on the proposed

partnership bet#een a certain Mr. S!ith of Surre$, 8n"land and a 9ilipino.

It appears that the partnership shall advertise in the local ne#spapers and !a"a;ines for 9ilipino #o!en interested in #ritin" to and eventuall$ !eetin" 8n"lish "entle!en of their choice. 0lthou"h not e%plicitl$ stated, the partnership intends to establish the so1called !ail1to1order brides service recentl$ advertised in ne#spapers.

Different civic or"ani;ations have alread$ voiced their concern and obKection to this business since it !erel$ turns the brides into do!estic helpers, not to !ention its adverse effect to the i!a"e of 9ilipino #o!en. 7hile the purpose of the partnership !a$ see! innocuous, its !odus operandi and actual obKective !a$ be dee!ed i!!oral. Moreover, so!e ,uarters clai! that si!ilar businesses are operated to circu!vent labor la#s on overseas recruit!ent.

Hence, this &o!!ission is of the vie# that the re"istration of the proposed business should be denied on the follo#in" "rounds6 a( If the$ shall for! a partnership, it shall be a violation of 0rticle -BB5 of the &ivil &ode #hich provides as follo#s6

0 partnership !ust have a la#ful obKect or purpose and !ust be established for co!!on benefit or interest of the partners . &dpr b( If a corporation, Sec. -B of the &orporation &ode should be co!plied #ith #hich includes the follo#in" provision as one of the "rounds for disapproval of 0rticles of Incorporation6 That the purpose or purposes of the corporation are patentl$ unconstitutional, ille"al, i!!oral or contrar$ to "overn!ent rules and re"ulations. Incidentall$, !a$ #e su""est that proper verification be !ade on #hether Mr. S!ith !a$ have alread$

launched his proposed activities here in the Philippines considerin" that there are infor!ation that certain entities are presentl$ en"a"ed in this activit$.

Please be advised accordin"l$. cda Ver$ trul$ $ours, 'S2D.( RODOI9O I. S0M0RIST0 0ssociate &o!!issioner

Republic of the PhilippinesSUPREME COURTManila 8N <0N& G.R. No. 31657 S/<8/:;/r 7, 1929

A%RIANO AR!ES, ET A"., plaintiffs1appellees, vs.&ICENTE PO"ISTICO, ET A"., defendants1appellants. 2arcelino -onto9 and 2anuel dela Rosa or appellants."umulong : -avides or appellees. &I""AMOR, J.: This is an action to brin" about li,uidation of the funds and propert$ of the association called Turnuhan Polistico J &o. The plaintiffs #ere !e!bers or shareholders, and the defendants #ere desi"nated as president1treasurer, directors and secretar$ of said association. It is #ell to re!e!ber that this case is no# brou"ht before the consideration of this court for the second ti!e. The first one #as #hen the sa!e plaintiffs appeared fro! the order of the court belo# sustainin" the defendant*s de!urrer, and re,uirin" the for!er to a!end their co!plaint #ithin a period, so as to include all the !e!bers of Turnuhan Polistico J &o., either as plaintiffs or as a defendants. This court held then that in an action a"ainst the

officers of a voluntar$ association to #ind up its affairs and enforce an accountin" for !one$ and propert$ in their possessions, it is not necessar$ that all !e!bers of the association be !ade parties to the action. '<orlasa vs. Polistico, :B Phil., /:4.( The case havin" been re!anded to the court of ori"in, both parties a!end, respectivel$, their co!plaint and their ans#er, and b$ a"ree!ent of the parties, the court appointed 0!adeo R. ?uintos, of the Insular 0uditor*s Office, co!!issioner to e%a!ine all the boo=s, docu!ents, and accounts of Turnuhan Polistico J &o., and to receive #hatever evidence the parties !i"ht desire to present. The co!!issioner rendered his report, #hich is attached to the record, #ith the follo#in" resu!e6 Inco!e6 Me!ber*s shares............................ &redits paid................................ Interest received........................... Miscellaneous............................... -,C.-.55 P-5.,>35.B5 8%penses6 Pre!iu!s to !e!bers....................... Ioans on real1estate....................... Ioans on pro!issor$ notes.............. Salaries.................................... Miscellaneous............................... -,>C>.-5 C4,5-3..5 &ash on hand........................................ 3:,>5B.C5 >C,-:>.34 .,C3B.55 :,34C.44 -,5.4.55 .B,3>/.B5 >,-.>.44 :,4>..:4

The defendants obKected to the co!!issioner*s report, but the trial court, havin" e%a!ined the reasons for the obKection, found the sa!e sufficientl$ e%plained in the report and the evidence, and acceptin" it, rendered Kud"!ent, holdin" that the association Turnuhan Polistico J &o. is unla#ful, and sentencin" the defendants Kointl$ and severall$ to return the a!ount of P3:,>5B.C5, as #ell as the docu!ents sho#in" the uncollected credits of the association, to the plaintiffs in this case, and to the rest of the !e!bers of the said association represented b$ said plaintiffs, #ith costs a"ainst the defendants. The defendants assi"ned several errors as "rounds for their appeal, but #e believe the$ can all be reduced to t#o points, to #it6 '-( That not all persons havin" an interest in this association are included as plaintiffs or defendantsL '3( that the obKection to the co!!issioner*s report should have been ad!itted b$ the court belo#. 0s to the first point, the decision on the case of <orlasa vs. Polistico, supra! !ust be follo#ed. 7ith re"ard to the second point, despite the praise#orth$ efforts of the attorne$ of the defendants, #e are of opinion that, the trial court havin" e%a!ined all the evidence touchin" the "rounds for the obKection and havin" found that the$ had been e%plained a#a$ in the co!!issioner*s report, the conclusion reached b$ the court belo#, acceptin" and adoptin" the findin"s of fact contained in said report, and especiall$ those referrin" to the disposition of the association*s !one$, should not be disturbed. In Tan Diansen" Tan Siu Pic vs. 8chau; Tan Siuco '4 Phil., 4->(, it #as held that the findin"s of facts !ade b$ a referee appointed under the provisions of section -/4 of the &ode of &ivil Procedure stand upon the sa!e basis, #hen approved b$ the &ourt, as findin"s !ade b$ the Kud"e hi!self. 0nd in Nriedt vs. 8. &. Mc&ullo"h J &o.'/B Phil., :B:(, the court held6 +nder section -:5 of the &ode of &ivil Procedure it is !ade the dut$ of the court to render Kud"!ent in accordance #ith the report of the referee unless the court shall unless for cause sho#n set aside the report or reco!!it it to the referee. This provision places upon the liti"ant parties of the dut$ of discoverin" and e%hibitin" to the court an$ error that !a$ be contained therein. The appellants stated the

"rounds for their obKection. The trial e%a!ined the evidence and the co!!issioner*s report, and accepted the findin"s of fact !ade in the report. 7e find no convincin" ar"u!ents on the appellant*s brief to Kustif$ a reversal of the trial court*s conclusion ad!ittin" the co!!issioner*s findin"s. There is no ,uestion that Turnuhan Polistico J &o. is an unla#ful partnership '+.S. vs. <a"uio, /. Phil., .>3(, but the appellants alle"e that because it is so, so!e charitable institution to #ho! the partnership funds !a$ be ordered to be turned over, should be included, as a part$ defendant. The appellants refer to article ->>> of the &ivil &ode, #hich provides6 0 partnership !ust have a la#ful obKect, and !ust be established for the co!!on benefit of the partners. 7hen the dissolution of an unla#ful partnership is decreed, the profits shall be "iven to charitable institutions of the do!icile of the partnership, or, in default of such, to those of the province. 0ppellant*s contention on this point is untenable. 0ccordin" to said article, no charitable institution is a necessar$ part$ in the present case of deter!ination of the ri"hts of the parties. The action #hich !a$ arise fro! said article, in the case of unla#ful partnership, is that for the recover$ of the a!ounts paid b$ the !e!ber fro! those in char"e of the ad!inistration of said partnership, and it is not necessar$ for the said parties to base their action to the e%istence of the partnership, but on the fact that of havin" contributed so!e !one$ to the partnership capital. 0nd hence, the charitable institution of the do!icile of the partnership, and in the default thereof, those of the province are not necessar$ parties in this case. The article cited above per!its no action for the purpose of obtainin" the earnin"s !ade b$ the unla#ful partnership, durin" its e%istence as result of the business in #hich it #as en"a"ed, because for the purpose, as Manresa re!ar=s, the partner #ill have to base his action upon the partnership contract, #hich is to annul and #ithout le"al e%istence b$ reason of its unla#ful obKectL and it is self evident that #hat does not e%ist cannot be a cause of action. Hence, para"raph 3 of the sa!e article provides that #hen the dissolution of the unla#ful partnership is decreed, the profits cannot

inure to the benefit of the partners, but !ust be "iven to so!e charitable institution. 7e dee! in pertinent to ,uote Manresa*s co!!entaries on article ->>> at len"th, as a clear e%planation of the scope and spirit of the provision of the &ivil &ode #hich #e are concerned. &o!!entin" on said article Manresa, a!on" other thin"s sa$s6 7hen the subscriptions of the !e!bers have been paid to the !ana"e!ent of the partnership, and e!plo$ed b$ the latter in transactions consistent #ith the purposes of the partnership !a$ the for!er de!and the return of the rei!burse!ent thereof fro! the !ana"er or ad!inistrator #ithholdin" the!) 0propos of this, it is asserted6 If the partnership has no valid e%istence, if it is considered Kuridicall$ non1e%istent, the contract entered into can have no le"al effectL and in that case, ho# can it "ive rise to an action in favor of the partners to Kudiciall$ de!and fro! the !ana"er or the ad!inistrator of the partnership capital, each one*s contribution) The authors discuss this point at "reat len"th, but Ricci decides the !atter ,uite clearl$, dispellin" all doubts thereon. He holds that the partner #ho li!its hi!self to de!andin" onl$ the a!ount contributed b$ hi! need not resort to the partnership contract on #hich to base his action. 0nd he adds in e%planation that the partner !a=es his contribution, #hich passes to the !ana"in" partner for the purpose of carr$in" on the business or industr$ #hich is the obKect of the partnershipL or in other #ords, to breathe the breath of life into a partnership contract #ith an obKection forbidden b$ la#. 0nd as said contrast does not e%ist in the e$es of the la#, the purpose fro! #hich the contribution #as !ade has not co!e into e%istence, and the ad!inistrator of the partnership holdin" said contribution retains #hat belon"s to others, &ithout an+ considerationL for #hich reason he is not bound to return it and he #ho has paid in his share is entitled to recover it. <ut this is not the case #ith re"ard to profits earned in the course of the partnership, because the$ do not constitute or represent the partner*s contribution but are the result of the industr$, business or speculation #hich is the obKect of the partnership, and therefor, in

order to de!and the proportional part of the said profits, the partner #ould have to base his action on the contract #hich is null and void, since this partition or distribution of the profits is one of the Kuridical effects thereof. 7herefore considerin" this contract as non*existent, b$ reason of its illicit obKect, it cannot "ive rise to the necessar$ action, #hich !ust be the basis of the Kudicial co!plaint. 9urther!ore, it #ould be i!!oral and unKust for the la# to per!it a profit fro! an industr$ prohibited b$ it. Hence the distinction !ade in the second para"raph of this article of this &ode, providin" that the profits obtained b$ unla#ful !eans shall not enrich the partners, but shall upon the dissolution of the partnership, be "iven to the charitable institutions of the do!icile of the partnership, or, in default of such, to those of the province. This is a ne# rule, unprecedented b$ our la#, introduced to suppl$ an obvious deficienc$ of the for!er la#, #hich did not describe the purpose to #hich those profits denied the partners #ere to be applied, nor state #hat to be done #ith the!. The profits are so applied, and not the contributions, because this #ould be an e%cessive and unKust sanction for, as #e have seen, there is no reason, in such a case, for deprivin" the partner of the portion of the capital that he contributed, the circu!stances of the t#o cases bein" entirel$ different. Our &ode does not state #hether, upon the dissolution of the unla#ful partnership, the a!ounts contributed are to be returned b$ the partners, because it onl$ deals #ith the disposition of the profitsL but the fact that said contributions are not included in the disposal prescribed profits, sho#s that in conse,uences of said e%clusion, the "eneral la# !ust be follo#ed, and hence the partners should rei!burse the a!ount of their respective contributions. 0n$ other solution is i!!oral, and the la# #ill not consent to the latter re!ainin" in the possession of the !ana"er or ad!inistrator #ho has refused to return the!, b$ den$in" to the partners the action to de!and the!. 'Manresa, &o!!entaries on the Spanish &ivil &ode, vol. PI, pp. 3>313>:( The Kud"!ent appealed fro!, bein" in accordance #ith la#, should be, as it is hereb$, affir!ed #ith costs a"ainst the appellantsL

provided, ho#ever, the defendants shall pa$ the le"al interest on the su! of P3:,>5B.C5 fro! the date of the decision of the court, and provided, further, that the defendants shall deposit this su! of !one$ and other docu!ents evidencin" uncollected credits in the office of the cler= of the trial court, in order that said court !a$ distribute the! a!on" the !e!bers of said association, upon bein" dul$ identified in the !anner that it !a$ dee! proper. So ordered. /vance7a! C.,.! ,ohnson! "treet! ,ohns! Romualde)! and (illa* Real! ,,.! concur. Republic of the PhilippinesSUPREME COURTManila 8N <0N& 2.R. No. I1...> October -4, -.4B

8+98MI0 8V0N28IIST0, M0N+8I0 8V0N28IIST0, and 9R0N&IS&0 8V0N28IIST0, petitioners, vs.T E CO""ECTOR OF INTERNA" RE&ENUE an0 T E COURT OF TA2 APPEA"S, respondents. "antiago F. /lidio and /ngel ". 8a9ila! ,r.! or petitioner.5 ice o the "olicitor General /mbrosio Padilla! /ssistant "olicitor General Esmeraldo ;mali and "olicitor Felicisimo R. Rosete or Respondents. CONCEPCION, J.> This is a petition filed b$ 8ufe!ia 8van"elista, Manuela 8van"elista and 9rancisca 8van"elista, for revie# of a decision of the &ourt of Ta% 0ppeals, the dispositive part of #hich reads6 9OR 0II TH8 9OR82OIN2, #e hold that the petitioners are liable for the inco!e ta%, real estate dealer*s ta% and the residence ta% for the $ears -.:4 to -.:., inclusive, in accordance #ith the respondent*s assess!ent for the sa!e in the total a!ount of P>,CBC./:, #hich is hereb$ affir!ed and the petition for revie# filed b$ petitioner is hereb$ dis!issed #ith costs a"ainst petitioners. It appears fro! the stipulation sub!itted b$ the parties6

-. That the petitioners borro#ed fro! their father the su! of P4.,-:55.55 #hich a!ount to"ether #ith their personal !onies #as used b$ the! for the purpose of bu$in" real properties,. 3. That on 9ebruar$ 3, -.:/, the$ bou"ht fro! Mrs. Dosefina 9lorentino a lot #ith an area of /,B-/.:5 s,. !. includin" i!prove!ents thereon fro! the su! of P-55,555.55L this propert$ has an assessed value of P4B,4-B.55 as of -.:CL /. That on 0pril /, -.:: the$ purchased fro! Mrs. Dosefa Oppus 3parcels of land #ith an a""re"ate area of /,B-C.:5 s,. !. includin" i!prove!ents thereon for P-/5,555.55L this propert$ has an assessed value of PC3,344.55 as of -.:CL :. That on 0pril 3C, -.:: the$ purchased fro! the Insular Invest!ents Inc., a lot of :,/4/ s,. !. includin" i!prove!ents thereon for P-5C,C34.55. This propert$ has an assessed value of P:,.C/.55 as of -.:CL 4. That on 0pril 3C, -.:: the$ bou"ht for! Mrs. Valentina 0fable a lot of C,/B- s,. !. includin" i!prove!ents thereon for P3/B,3/:./:. This propert$ has an assessed value of P4.,-:5.55 as of -.:CL >. That in a docu!ent dated 0u"ust ->, -.:4, the$ appointed their brother Si!eon 8van"elista to *!ana"e their properties #ith full po#er to leaseL to collect and receive rentsL to issue receipts thereforL in default of such pa$!ent, to brin" suits a"ainst the defaultin" tenantsL to si"n all letters, contracts, etc., for and in their behalf, and to endorse and deposit all notes and chec=s for the!L B. That after havin" bou"ht the above1!entioned real properties the petitioners had the sa!e rented or leases to various tenantsL C. That fro! the !onth of March, -.:4 up to an includin" Dece!ber, -.:4, the total a!ount collected as rents on their real properties #as P.,4...55 #hile the e%penses a!ounted to P/,>45.55 thereb$ leavin" the! a net rental inco!e of P4,.:C.//L .. That on -.:>, the$ reali;ed a "ross rental inco!e of in the su! of P3:,BC>./5, out of #hich a!ount #as deducted in the su! of

P->,3CC.3B for e%penses thereb$ leavin" the! a net rental inco!e of PB,:.C.-/L -5. That in -.:C, the$ reali;ed a "ross rental inco!e of P-B,:4/.55 out of the #hich a!ount #as deducted the su! of P:,C/B.>4 as e%penses, thereb$ leavin" the! a net rental inco!e of P-3,>-4./4. It further appears that on Septe!ber 3:, -.4: respondent &ollector of Internal Revenue de!anded the pa$!ent of inco!e ta% on corporations, real estate dealer*s fi%ed ta% and corporation residence ta% for the $ears -.:41-.:., co!puted, accordin" to assess!ent !ade b$ said officer, as follo#s6 IN&OM8 T0P8S -.:4 -.:> -.:B -.:C -.:. Total includin" surchar"e and co!pro!ise -:.C: -,-::.B-5./: -,.-3./5 -,4B4..5 P>,-4B.5.

R80I 8ST0T8 D80I8R*S 9IP8D T0P -.:> -.:B -.:C -.:. Total includin" penalt$ P/B.45 -45.55 -45.55 -45.55 P43B.55

R8SID8N&8 T0P8S O9 &ORPOR0TION -.:4 -.:> P/C.B4 /C.B4

-.:B -.:C -.:. Total includin" surchar"e TOT0I T0P8S D+8

/C.B4 /C.B4 /C.B4 P-./.B4 P>,CBC./:.

Said letter of de!and and correspondin" assess!ents #ere delivered to petitioners on Dece!ber /, -.4:, #hereupon the$ instituted the present case in the &ourt of Ta% 0ppeals, #ith a pra$er that the decision of the respondent contained in his letter of de!and dated Septe!ber 3:, -.4: be reversed, and that the$ be absolved fro! the pa$!ent of the ta%es in ,uestion, #ith costs a"ainst the respondent. 0fter appropriate proceedin"s, the &ourt of Ta% 0ppeals the above1 !entioned decision for the respondent, and a petition for reconsideration and ne# trial havin" been subse,uentl$ denied, the case is no# before +s for revie# at the instance of the petitioners. The issue in this case #hether petitioners are subKect to the ta% on corporations provided for in section 3: of &o!!on#ealth 0ct. No. :>>, other#ise =no#n as the National Internal Revenue &ode, as #ell as to the residence ta% for corporations and the real estate dealers fi%ed ta%. 7ith respect to the ta% on corporations, the issue hin"es on the !eanin" of the ter!s corporation and partnership, as used in section 3: and C: of said &ode, the pertinent parts of #hich read6 S8&. 3:. Rate o tax on corporations.HThere shall be levied, assessed, collected, and paid annuall$ upon the total net inco!e received in the precedin" ta%able $ear fro! all sources b$ ever$ corporation or"ani;ed in, or e%istin" under the la#s of the Philippines, no !atter ho# created or or"ani;ed but not includin" dul$ re"istered "eneral co1partnerships 'compa7ias colectivas(, a ta% upon such inco!e e,ual to the su! of the follo#in"6 . . . S8&. C: 'b(. The ter! *corporation* includes partnerships, no !atter ho# created or or"ani;ed, Koint1stoc= co!panies, Koint accounts

'cuentas en participacion(, associations or insurance co!panies, but does not include dul$ re"istered "eneral copartnerships. 'compa7ias colectivas(. 0rticle -B>B of the &ivil &ode of the Philippines provides6 <$ the contract of partnership t#o or !ore persons bind the!selves to contribute !one$, properl$, or industr$ to a co!!on fund, #ith the intention of dividin" the profits a!on" the!selves. Pursuant to the article, the essential ele!ents of a partnership are t#o, na!el$6 'a( an a"ree!ent to contribute !one$, propert$ or industr$ to a co!!on fundL and 'b( intent to divide the profits a!on" the contractin" parties. The first ele!ent is undoubtedl$ present in the case at bar, for, ad!ittedl$, petitioners have a"reed to, and did, contribute !one$ and propert$ to a co!!on fund. Hence, the issue narro#s do#n to their intent in actin" as the$ did. +pon consideration of all the facts and circu!stances surroundin" the case, #e are full$ satisfied that their purpose #as to en"a"e in real estate transactions for !onetar$ "ain and then divide the sa!e a!on" the!selves, because6 -. Said co!!on fund #as not so!ethin" the$ found alread$ in e%istence. It #as not propert$ inherited b$ the! pro indiviso. The$ created it purposel$. 7hat is !ore the$ #ointl+ borro&ed a substantial portion thereof in order to establish said co!!on fund. 3. The$ invested the sa!e, not !erel$ not !erel$ in one transaction, but in a series of transactions. On 9ebruar$ 3, -.:/, the$ bou"ht a lot for P-55,555.55. On 0pril /, -.::, the$ purchased 3- lots for P-C,555.55. This #as soon follo#ed on 0pril 3/, -.::, b$ the ac,uisition of another real estate for P-5C,C34.55. 9ive '4( da$s later '0pril 3C, -.::(, the$ "ot a fourth lot for P3/B,3/:.-:. The nu!ber of lots '3:( ac,uired and transactions underta=en, as #ell as the brief interre"nu! bet#een each, particularl$ the last three purchases, is stron"l$ indicative of a pattern or co!!on desi"n that #as not li!ited to the conservation and preservation of the afore!entioned co!!on fund or even of the propert$ ac,uired b$ the petitioners in 9ebruar$, -.:/. In other #ords, one cannot but perceive a character of habituall$ peculiar to business transactions en"a"ed in the purpose of "ain.

/. The aforesaid lots #ere not devoted to residential purposes, or to other personal uses, of petitioners herein. The properties #ere leased separatel$ to several persons, #ho, fro! -.:4 to -.:C inclusive, paid the total su! of PB5,5>C./5 b$ #a$ of rentals. See!in"l$, the lots are still bein" so let, for petitioners do not even su""est that there has been an$ chan"e in the utili;ation thereof. :. Since 0u"ust, -.:4, the properties have been under the !ana"e!ent of one person, na!el$ Si!eon 8van"elista, #ith full po#er to lease, to collect rents, to issue receipts, to brin" suits, to si"n letters and contracts, and to indorse and deposit notes and chec=s. Thus, the affairs relative to said properties have been handled as if the sa!e belon"ed to a corporation or business and enterprise operated for profit. 4. The fore"oin" conditions have e%isted for !ore than ten '-5( $ears, or, to be e%act, over fifteen '-4( $ears, since the first propert$ #as ac,uired, and over t#elve '-3( $ears, since Si!eon 8van"elista beca!e the !ana"er. >. Petitioners have not testified or introduced an$ evidence, either on their purpose in creatin" the set up alread$ adverted to, or on the causes for its continued e%istence. The$ did not even tr$ to offer an e%planation therefor. 0lthou"h, ta=en sin"l$, the$ !i"ht not suffice to establish the intent necessar$ to constitute a partnership, the collective effect of these circu!stances is such as to leave no roo! for doubt on the e%istence of said intent in petitioners herein. Onl$ one or t#o of the afore!entioned circu!stances #ere present in the cases cited b$ petitioners herein, and, hence, those cases are not in point. Petitioners insist, ho#ever, that the$ are !ere co1o#ners, not copartners, for, in conse,uence of the acts perfor!ed b$ the!, a le"al entit$, #ith a personalit$ independent of that of its !e!bers, did not co!e into e%istence, and so!e of the characteristics of partnerships are lac=in" in the case at bar. This pretense #as correctl$ reKected b$ the &ourt of Ta% 0ppeals. To be"in #ith, the ta% in ,uestion is one i!posed upon corporations , #hich, strictl$ spea=in", are distinct and different

fro! partnerships . 7hen our Internal Revenue &ode includes partnerships a!on" the entities subKect to the ta% on corporations , said &ode !ust allude, therefore, to or"ani;ations #hich are not necessaril$ partnerships , in the technical sense of the ter!. Thus, for instance, section 3: of said &ode e%e!pts fro! the afore!entioned ta% dul$ re"istered "eneral partnerships #hich constitute precisel$ one of the !ost t$pical for!s of partnerships in this Kurisdiction. Ii=e#ise, as defined in section C:'b( of said &ode, the ter! corporation includes partnerships, no matter ho& created or organi)ed. This ,ualif$in" e%pression clearl$ indicates that a Koint venture need not be underta=en in an$ of the standard for!s, or in confor!it$ #ith the usual re,uire!ents of the la# on partnerships, in order that one could be dee!ed constituted for purposes of the ta% on corporations. 0"ain, pursuant to said section C:'b(, the ter! corporation includes, a!on" other, Koint accounts, 'cuentas en participation( and associations, none o &hich has a legal personalit+ o its o&n! independent o that o its members . 0ccordin"l$, the la#!a=er could not have re"arded that personalit$ as a condition essential to the e%istence of the partnerships therein referred to. In fact, as above stated, dul$ re"istered "eneral copartnerships H &hich are possessed o the a orementioned personalit+ H have been e%pressl$ e%cluded b$ la# 'sections 3: and C: @bA fro! the connotation of the ter! corporation It !a$ not be a!iss to add that petitioners* alle"ation to the effect that their liabilit$ in connection #ith the leasin" of the lots above referred to, under the !ana"e!ent of one person H even if true, on #hich #e e%press no opinion H tends to increase the si!ilarit$ bet#een the nature of their venture and that corporations, and is, therefore, an additional ar"u!ent in avor of the i!position of said ta% on corporations. +nder the Internal Revenue Ia#s of the +nited States, corporations are ta%ed differentl$ fro! partnerships . <$ specific provisions of said la#s, such corporations include associations, Koint1stoc= co!panies and insurance co!panies. Ho#ever, the ter! association is not used in the afore!entioned la#s. . . . in an$ narro# or technical sense. It includes an$ or"ani;ation, created for the transaction of desi"ned affairs, or the attain!ent of so!e obKect, #hich li=e a corporation, continues not#ithstandin"

that its !e!bers or participants chan"e, and the affairs of #hich, li=e corporate affairs, are conducted b$ a sin"le individual, a co!!ittee, a board, or so!e other "roup, actin" in a representative capacit$. It is i!!aterial #hether such or"ani;ation is created b$ an a"ree!ent, a declaration of trust, a statute, or other#ise. It includes a voluntar$ association, a Koint1stoc= corporation or co!pan$, a *business* trusts a *Massachusetts* trust, a *co!!on la#* trust, and *invest!ent* trust '#hether of the fi%ed or the !ana"e!ent t$pe(, an interinsuarance e%chan"e operatin" throu"h an attorne$ in fact, a partnership association, and an$ other t$pe of or"ani;ation 'b$ #hatever na!e =no#n( #hich is not, #ithin the !eanin" of the &ode, a trust or an estate, or a partnership. 'B0 Mertens Ia# of 9ederal Inco!e Ta%ation, p. BCCL e!phasis supplied.(. Si!ilarl$, the 0!erican Ia#. . . . provides its o&n concept of a partnership, under the ter! *partnership *it includes not onl$ a partnership as =no#n at co!!on la# but, as #ell, a s$ndicate, "roup, pool, #oint venture or other unincorporated organi)ations &hich carries on an+ business inancial operation! or venture, and #hich is not, #ithin the !eanin" of the &ode, a trust, estate, or a corporation. . . 'B0 Merten*s Ia# of 9ederal Inco!e ta%ation, p. BC.L e!phasis supplied.( The ter! *partnership* includes a s$ndicate, "roup, pool, #oint venture or other unincorporated organi)ation! through or b+ means o &hich an+ business! inancial operation! or venture is carried on , . . .. ' C Merten*s Ia# of 9ederal Inco!e Ta%ation, p. 4>3 Note >/L e!phasis supplied.( . 9or purposes of the ta% on corporations, our .ational Internal Revenue Code! includes these partnerships H #ith the e%ception onl$ of dul$ re"istered "eneral copartnerships H &ithin the purvie& o the term <corporation.< It is, therefore, clear to our !ind that petitioners herein constitute a partnership, insofar as said &ode is concerned and are subKect to the inco!e ta% for corporations. 0s re"ards the residence of ta% for corporations, section 3 of &o!!on#ealth 0ct No. :>4 provides in part6

8ntities liable to residence ta%.18ver$ corporation, no !atter ho# created or or"ani;ed, #hether do!estic or resident forei"n, en"a"ed in or doin" business in the Philippines shall pa$ an annual residence ta% of five pesos and an annual additional ta% #hich in no case, shall e%ceed one thousand pesos, in accordance #ith the follo#in" schedule6 . . . The ter! *corporation* as used in this 0ct includes Koint1stoc= co!pan$, partnership, Koint account 'cuentas en participacion(, association or insurance co!pan$, no matter ho& created or organi)ed. 'e!phasis supplied.( &onsiderin" that the pertinent part of this provision is analo"ous to that of section 3: and C: 'b( of our National Internal Revenue &ode 'co!!on#ealth 0ct No. :>>(, and that the latter #as approved on Dune -4, -./., the da$ i!!ediatel$ after the approval of said &o!!on#ealth 0ct No. :>4 'Dune -:, -./.(, it is apparent that the ter!s corporation and partnership are used in both statutes #ith substantiall$ the sa!e !eanin". &onse,uentl$, petitioners are subKect, also, to the residence ta% for corporations. Iastl$, the records sho# that petitioners have habituall$ en"a"ed in leasin" the properties above !entioned for a period of over t#elve $ears, and that the $earl$ "ross rentals of said properties fro! Dune -.:4 to -.:C ran"ed fro! P.,4.. to P-B,:4/. Thus, the$ are subKect to the ta% provided in section -./ ',( of our National Internal Revenue &ode, for real estate dealers, inas!uch as, pursuant to section -.: 's( thereof6 *Real estate dealer* includes an$ person en"a"ed in the business of bu$in", sellin", e%chan"in", leasing! or renting propert+ or his o&n account as principal and holdin" hi!self out as a full or part ti!e dealer in real estate or as an o#ner of rental propert$ or properties rented or offered to rent for an a""re"ate a!ount of three thousand pesos or !ore a $ear. . . 'e!phasis supplied.( 7herefore, the appealed decision of the &ourt of Ta% appeals is hereb$ affir!ed #ith costs a"ainst the petitioners herein. It is so ordered.

1eng)on! Paras! C.,.! Padilla! Re+es! /.! Re+es! ,.1.-.! Endencia and Felix! ,,.! concur.

!AUTISTA ANGE"O, J., concurrin"6 I a"ree #ith the opinion that petitioners have actuall$ contributed !one$ to a co!!on fund #ith e%press purpose of en"a"in" in real estate business for profit. The series of transactions #hich the$ had underta=en attest to this. This appears in the follo#in" portion of the decision6 3. The$ invested the sa!e, not !erel$ in one transaction, but in a series of transactions. On 9ebruar$ 3, -.:/, the$ bou"ht a lot for P-55,555. On 0pril /, -.::, the$ purchase 3- lots for P-C,555. This #as soon follo#ed on 0pril 3/, -.::, b$ the ac,uisition of another real state for P-5C,C34. 9ive '4( da$s later '0pril 3C, -.::(, the$ "ot a fourth lot for P3/B,3/:.-:. The nu!ber of lots '3:( ac,uired and transactions underta=en, as #ell as the brief interre"nu! bet#een each, particularl$ the last three purchases, is stron"l$ indicative of a pattern or co!!on desi"n that #as not li!ited to the conservation and preservation of the afore!entioned co!!on fund or even of the propert$ ac,uired b$ the petitioner in 9ebruar$, -.:/, In other #ords, #e cannot but perceive a character of habituall+ peculiar to business transactions en"a"ed in for purposes of "ain. I #ish ho#ever to !a=e to !a=e the follo#in" observation6 0rticle -B>. of the ne# &ivil &ode la$s do#n the rule for deter!inin" #hen a transaction should be dee!ed a partnership or a co1o#nership. Said article para"raphs 3 and /, provides6 '3( &o1o#nership or co1possession does not of itself establish a partnership, #hether such co1o#ners or co1possessors do or do not share an$ profits !ade b$ the use of the propert$L '/( The sharin" of "ross returns does not of itself establish partnership, #hether or not the person sharin" the! have a Koint or co!!on ri"ht or interest in an$ propert$ fro! #hich the returns are derivedL

9ro! the above it appears that the fact that those #ho a"ree to for! a co1o#nership shared or do not share an$ profits !ade b$ the use of propert$ held in co!!on does not convert their venture into a partnership. Or the sharin" of the "ross returns does not of itself establish a partnership #hether or not the persons sharin" therein have a Koint or co!!on ri"ht or interest in the propert$. This onl$ !eans that, aside fro! the circu!stance of profit, the presence of other ele!ents constitutin" partnership is necessar$, such as the clear intent to for! a partnership, the e%istence of a Kudicial personalit$ different fro! that of the individual partners, and the freedo! to transfer or assi"n an$ interest in the propert$ b$ one #ith the consent of the others 'Padilla, &ivil &ode of the Philippines 0nnotated, Vol. I, -.4/ ed., pp. >/41 >/>(. It is evident that an isolated transaction #hereb$ t#o or !ore persons contribute funds to bu$ certain real estate for profit in the absence of other circu!stances sho#in" a contrar$ intention cannot be considered a partnership. Persons #ho contribute propert$ or funds for a co!!on enterprise and a"ree to share the "ross returns of that enterprise in proportion to their contribution, but #ho severall$ retain the title to their respective contribution, are not thereb$ rendered partners. The$ have no co!!on stoc= or capital, and no co!!unit$ of interest as principal proprietors in the business itself #hich the proceeds derived. '8le!ents of the la# of Partnership b$ 9lo$d R. Meche!, 3n 8d., section C/, p. B:.( 0 Koint venture purchase of land, b$ t#o, does not constitute a copartnership in respect theretoL nor does not a"ree!ent to share the profits and loses on the sale of land create a partnershipL the parties are onl$ tenants in co!!on. '&lar= vs. Side#a$, -:3 +.S. >C3, -3 S &t. /3B, /4 I. 8d., --4B.( 7here plaintiff, his brother, and another a"reed to beco!e o#ners of a sin"le tract of realit$, holdin" as tenants in co!!on, and to divide the profits of disposin" of it, the brother and the other not bein" entitled to share in plaintiff*s co!!issions, no partnership e%isted as bet#een the parties, #hatever relation !a$ have been as to third parties. 'Ma"ee vs. Ma"ee, -3/ N. 8. >B>/, 3// Mass. /:-.(

In order to constitute a partnership inter sese there !ust be6 'a( 0n intent to for! the sa!eL 'b( "enerall$ a participatin" in both profits and lossesL 'c( and such a co!!unit$ of interest, as far as third persons are concerned as enables each part$ to !a=e contract, !ana"e the business, and dispose of the #hole propert$. 'Municipal Pavin" &o. vs Herrin", -45 P. -5>B, 45 Ill. :B5.( The co!!on o#nership of propert$ does not itself create a partnership bet#een the o#ners, thou"h the$ !a$ use it for purpose of !a=in" "ainsL and the$ !a$, #ithout beco!in" partners, a"ree a!on" the!selves as to the !ana"e!ent and use of such propert$ and the application of the proceeds therefro!. 'Spurloc= vs. 7ilson, -:3 S. 7. />/, ->5 No. 0pp. -:.( This is i!pliedl$ reco"ni;ed in the follo#in" portion of the decision6 0lthou"h, ta=en sin"l$, the$ !i"ht not suffice to establish the intent necessar$ to constitute a partnership, the collective effect of these circu!stances 'referrin" to the series of transactions( such as to leave no roo! for doubt on the e%istence of said intent in petitioners herein. Republic of the PhilippinesSUPREME COURTManila 8N <0N& G.R. No. "+5576 F/;ruary 11, 1915 ANG

&ARGAS an0 COMPAN$, plaintiff1appellee, vs.C AN C IU, ET A"., defendants1appellants.

Rohde and 4right or appellants. Escaler and "alas or appellee. MORE"AN%, J.> This is an action brou"ht to set aside a Kud"!ent of the Kustice*s court of Manila on the "round that the plaintiff here, the defendant in the action in #hich the Kud"!ent #as secured, #as not served #ith su!!ons and that, therefore, the Kustice*s court ac,uired no Kurisdiction to render the Kud"!ent #as that the sa!e is null and void. Dud"!ent #as entered in favor of plaintiff declarin" the Kud"!ent in controvers$ void and settin" it aside. This appeal is fro! that Kud"!ent.

It appears fro! the record that the plaintiff is a !erchantile association dul$ or"ani;ed under the la#s of the Philippine Islands and presu!abl$ re"istered as re,uired b$ la#. On the -.th da$ of 0u"ust, -.--, an action #as be"un b$ &han Han" &hiu a"ainst the plaintiff in this case to recover a su! of !one$. The su!!ons and co!plaint #ere placed in the hands of the sheriff, #ho certified that on the -.th da$ of 0u"ust, -.--, he served the sa!e on Var"as J &o. b$ deliverin" to and leavin" #ith one Dose Macapinlac personall$ true copies thereof, he bein" the !ana"in" a"ent of said Var"as J &o. at the ti!e of such service. On Dul$ 3. -.-3, the Kustice*s court rendered Kud"!ent a"ainst Var"as J &o. for the su! of /B3.3C. Thereafter e%ecution #as dul$ issued and the propert$ of Var"as J &o. levied on for the pa$!ent thereof. Thereupon Var"as J &o. paid the a!ount of the Kud"!ent and costs under protest, #ith notice that it #ould sue to recover the a!ount paid. The e%ecution #as returned satisfied and there the !atter rested until the present action #as brou"ht. The contention of plaintiff is, and that contention is supported b$ the decision of the court belo#, that Var"as J &o. bein" a partnership, it is necessar$, in brin"in" an action a"ainst it, to serve the su!!ons on all of the partners, deliverin" to each one of the! personall$ a cop$ thereofL and that the su!!ons in this case havin" been served on the !ana"in" a"ent of the co!pan$ onl$, the service #as of no effect as a"ainst the co!pan$ and the !e!bers thereof and the Kud"!ent entered b$ virtue of such a service #as void. Plaintiff also contends, and this contention is li=e#ise supported b$ the court belo#, that, even ad!ittin" that service on the !ana"in" a"ent of the plaintiff is sufficient service, as a !atter of fact no service #as reall$ !ade on the !ana"in" a"ent of the co!pan$ but, rather, on an e!plo$ee or sales!an of the co!pan$, #ho had no po#ers of !ana"e!ent or supervision and #ho #as not co!petent to receive service on behalf of the co!pan$ #ithin the provisions of section /.> of the &ode of &ivil Procedure. 7e are of the opinion that neither of these contentions can be sustained. 0s to the first, #e !a$ sa$ that it has been the universal practice in the Philippine Islands since 0!erican occupation, and #as the practice prior to that ti!e, to treat co!panies of the class to

#hich the plaintiff belon"s as le"al or Kuridicial entities and to per!it the! to sue and be sued in the na!e of the co!pan$, the su!!ons bein" served solel$ on the !ana"in" a"ent or other official of the co!pan$ specified b$ the section of the &ode of &ivil Procedure referred to. This ver$ action is an illustration of the practice in vo"ue in the Philippine Islands. The plaintiff brin"s this action in the co!pan$ na!e and not in the na!e of the !e!bers of the fir!. 0ctions a"ainst co!panies of the class to #hich plaintiff belon"s are brou"ht, accordin" to the uninterrupted practice, a"ainst such co!panies in their co!pan$ na!es and not a"ainst the individual partners constitutin" the fir!. In the States, in #hich the individual !e!bers of the fir! !ust be separatel$ served #ith process, the rule also prevails that the$ !ust be parties to the action, either plaintiffs or defendant, and that the action cannot be brou"ht in the na!e of or a"ainst the co!pan$ itself. This follo#s naturall$ for the reason that, if it is necessar$ to serve the partners individuall$, the$ are entitled to be heard individuall$ in the action and the$ !ust, therefore, be !ade parties thereto so that the$ can be heard. It #ould be idle to serve process on individual !e!bers of a partnership if the liti"ation #ere to be conducted in the na!e of the partnership itself and b$ the dul$ constituted officials of the partnership e%clusivel$. 9ro! #hat has been said it is apparent that the plaintiff in this action is actin" contrar$ to its o#n contention b$ brin"in" the action in the na!e of the co!pan$ be served #ith process, then the action should be brou"ht in the individual na!es of the partners and not in the na!e of the co!pan$ itself. 0rticle /4 of the &ivil &ode provides6 The follo#in" are Kudicial persons6 -. The corporation, associations, and institutions of public interest reco"ni;ed b$ la#. 3. The associations of private interest, be the$ civil, co!!ercial, or industrial, to #hich the la# "rants proper personalit$, independent of that of each !e!ber thereof.

0rticle /C provides6 Dudicial persons !a$ ac,uire and possess propert$ of all =inds, as #ell as contract obli"ations and institute civil or cri!inal actions in accordance #ith the la#s and rules of their establish!ent. 0rticle --> of the &ode of &o!!erce provides in part6 0fter a co!!ercial association has been established, it shall have le"al representation in all its acts and contracts. These provisions have been the foundation of the practice follo#ed #ithout interruption for !an$ $ears that association of the class to #hich plaintiff belon"s have an independent and separate le"al entit$ sufficient to per!it the! to sue and be sued in the co!pan$ na!e and to be served #ith process throu"h the chief officer or !ana"in" a"ent thereof or an$ other official of the co!pan$ specified b$ la#. 0s to the second contention, #e !a$ sa$ that the presu!ption is that a Kud"!ent rendered b$ a Kustice*s court is a valid and enforceable Kud"!ent #here the record discloses that all of the steps necessar$ to confer Kurisdiction on the court have been ta=en. In the case before us it affir!ativel$ appears that the service of process #as !ade on the person the sheriff certified #as the !ana"in" a"ent of the defendant co!pan$. The sheriff*s certificate serves as prima acie evidence of the e%istence of the facts stated therein. The record, therefore, discloses, so far as the fact of service is concerned, that it #as dul$ !ade on the !ana"in" a"ent of the co!pan$ as re,uired b$ section /.>, para"raph -, of the &ode of &ivil Procedure. In attac=in" the Kud"e!ent on the "round that service #as not !ade on the !ana"in" a"ent of the co!pan$, it is incu!bent on the plaintiff to overco!e the presu!ption arisin" fro! the sheriff*s certificate before the attac= #ill succeed. 8ndeavorin" to overco!e the presu!ption referred to, plaintiff offered as a #itness one To!as O. Se"ovia, an e!plo$ee of the plaintiff co!pan$. He testified that he #as a boo==eeper and that as such he #as #ell ac,uainted #ith the business of the co!pan$ and that the person Macapinlac referred to in the sheriff*s certificate as !ana"in" a"ent of the plaintiff co!pan$ #as an a"ent for the sale of plo#s, of #hich the plaintiff co!pan$ #as a !anufacturerL and that he had no other relations #ith the co!pan$ than that stated.

Durin" the course of the e%a!ination this ,uestion #as put to and ans#er elicited fro! this #itness6 Ho# do $ou =no# that the$ #ere not su!!oned, or that the$ did not =no# of this case brou"ht before the Kustice of the peace of the cit$ of Manila) I bein" the boo==eeper and the "eneral attorne$1in1fact to Var"as J &o., in Iloilo, ou"ht to =no# #hether the$ have been notified or su!!oned, but I onl$ =ne# about it #hen the sheriff appeared in our office to !a=e the lev$. This is the onl$ #itness #ho testified in the case. It does not appear #hen he beca!e the boo==eeper of the co!pan$, or that he #as in such a position that he could =no# or did =no# personall$ the acts of the co!pan$ and its relations to Macapinlac. He does not testif$ of his o#n =no#led"e to the essential facts necessar$ to controvert the state!ents contained it the sheriff*s certificate of service. His testi!on$ is rather ne"ative than positive, it bein" at all ti!es possible, in spite of his evidence, indeed, in strict accord there#ith, that Var"as J &o., of #hich the #itness #as neither official nor !ana"er, could have appointed a !ana"in" a"ent for the co!pan$ or could have re!oved hi! #ithout the personal =no#led"e of the #itness. The #itness had no personal =no#led"e of the relation bet#een the co!pan$ and Macapinlac. He never sa# the contract e%istin" bet#een the!. He did not hear the a"ree!ent bet#een the! nor did he =no# of his o#n =no#led"e #hat the relations bet#een the co!pan$ and Macapinlac #ere. His testi!on$ besides bein" ne"ative in character has in it !an$ of the ele!ents of hearsa$ and is not at all satisfactor$. It #ould have been ver$ eas$ to present one of the !e!bers of the co!pan$, or all of the!, #ho en"a"ed Macapinlac, #ho =no# the relations bet#een hi! and the co!pan$, to testif$ as to #hat those relations #ere and to den$, if that #ere the fact, that Macapinlac #as such an a"ent or official of the co!pan$ as is #ithin the purvie# of section /.> above referred to. The facts stated in the certificate of the sheriff #ill not be considered as overco!e and rebutted e%cept on clear evidence sho#in" the contrar$. The evidence of the boo==eeper, #ho is the onl$ #itness for the co!pan$, is not satisfactor$ in an$ sense and is ,uite insufficient to overco!e the presu!ption established b$ the sheriff*s certificate.

In vie# of these considerations it is not necessar$ to consider the ,uestion presented b$ the pa$!ent b$ the plaintiff co!pan$ of the Kud"!ent. The Kud"!ent appealed fro! is reversed and the co!plaint dis!issed on the !erits, #ithout costs in this instance. So ordered. /rellano! C.,.! Torres! ,ohnson and /raullo! ,,.! concur. Carson! ,.! dissents. Republic of the PhilippinesSUPREME COURTManila S8&OND DIVISION

G.R. No. 127347 No9/:;/r 25, 1999 A"FRE%O N. AGUI"A, JR., petitioner, vs. ONORA!"E COURT OF APPEA"S an0 FE"ICI%A% S. &%A. %E A!ROGAR, respondents.

MEN%O*A, J.: This is a petition for revie# on certiorari of the decision 1 of the &ourt of 0ppeals, dated Nove!ber 3., -..5, #hich reversed the decision of the Re"ional Trial &ourt, <ranch 3B/, Mari=ina, Metro Manila, dated 0pril --, -..4. The trial court dis!issed the petition for declaration of nullit$ of a deed of sale filed b$ private respondent 9elicidad S. Vda. de 0bro"ar a"ainst petitioner 0lfredo N. 0"uila, Dr. The facts are as follo#s6 Petitioner is the !ana"er of 0.&. 0"uila J Sons, &o., a partnership en"a"ed in lendin" activities. Private respondent and her late husband, Ruben M. 0bro"ar, #ere the re"istered o#ners of a house and lot, covered b$ Transfer &ertificate of Title No. -.4-5-, in Mari=ina, Metro Manila. On 0pril -C, -..-, private respondent, #ith the consent of her late husband, and 0.&. 0"uila J Sons, &o.,

represented b$ petitioner, entered into a Me!orandu! of 0"ree!ent, #hich provided6 '-( That the S8&OND P0RTO @0.&. 0"uila J Sons, &o.A shall bu$ the above1described propert$ fro! the 9IRST P0RTO @9elicidad S. Vda. de 0bro"arA, and pursuant to this a"ree!ent, a Deed of 0bsolute Sale shall be e%ecuted b$ the 9IRST P0RTO conve$in" the propert$ to the S8&OND P0RTO for and in consideration of the su! of T#o Hundred Thousand Pesos 'P355,555.55(, Philippine &urrenc$L '3( The 9IRST P0RTO is hereb$ "iven b$ the S8&OND P0RTO the option to repurchase the said propert$ #ithin a period of ninet$ '.5( da$s fro! the e%ecution of this !e!orandu! of a"ree!ent effective 0pril -C, -..-, for the a!ount of T7O H+NDR8D THIRTO THO+S0ND P8SOS 'P3/5,555.55(L '/( In the event that the 9IRST P0RTO fail to e%ercise her option to repurchase the said propert$ #ithin a period of ninet$ '.5( da$s, the 9IRST P0RTO is obli"ed to deliver peacefull$ the possession of the propert$ to the S8&OND P0RTO #ithin fifteen '-4( da$s after the e%piration of the said .5 da$ "race periodL ':( Durin" the said "race period, the 9IRST P0RTO obli"es herself not to file an$ lis pendens or #hatever clai!s on the propert$ nor shall be cause the annotation of sa$ clai! at the bac= of the title to the said propert$L '4( 7ith the e%ecution of the deed of absolute sale, the 9IRST P0RTO #arrants her o#nership of the propert$ and shall defend the ri"hts of the S8&OND P0RTO a"ainst an$ part$ #ho! !a$ have an$ interests over the propert$L '>( 0ll e%penses for docu!entation and other incidental e%penses shall be for the account of the 9IRST P0RTOL 'B( Should the 9IRST P0RTO fail to deliver peaceful possession of the propert$ to the S8&OND P0RTO after the e%piration of the -41 da$ "race period "iven in para"raph / above, the 9IRST P0RTO shall pa$ an a!ount e,uivalent to 9ive Percent of the principal

a!ount of T7O H+NDR8D P8SOS 'P355.55( or P-5,555.55 per !onth of dela$ as and for rentals and li,uidated da!a"esL 'C( Should the 9IRST P0RTO fail to e%ercise her option to repurchase the propert$ #ithin ninet$ '.5( da$s period above1 !entioned, this !e!orandu! of a"ree!ent shall be dee!ed cancelled and the Deed of 0bsolute Sale, e%ecuted b$ the parties shall be the final contract considered as entered bet#een the parties and the S8&OND P0RTO shall proceed to transfer o#nership of the propert$ above described to its na!e free fro! lines and encu!brances. 2 On the sa!e da$, 0pril -C, -..-, the parties li=e#ise e%ecuted a deed of absolute sale, 3 dated Dune --, -..-, #herein private respondent, #ith the consent of her late husband, sold the subKect propert$ to 0.&. 0"uila J Sons, &o., represented b$ petitioner, for P355,555,55. In a special po#er of attorne$ dated the sa!e da$, 0pril -C, -..-, private respondent authori;ed petitioner to cause the cancellation of T&T No. -.4-5- and the issuance of a ne# certificate of title in the na!e of 0.&. 0"uila and Sons, &o., in the event she failed to redee! the subKect propert$ as provided in the Me!orandu! of 0"ree!ent. 4 Private respondent failed to redee! the propert$ #ithin the .51da$ period as provided in the Me!orandu! of 0"ree!ent. Hence, pursuant to the special po#er of attorne$ !entioned above, petitioner caused the cancellation of T&T No. -.4-5- and the issuance of a ne# certificate of title in the na!e of 0.&. 0"uila and Sons, &o. 5 Private respondent then received a letter dated 0u"ust -5, -..fro! 0tt$. Ia!berto &. Nan,uil, counsel for 0.&. 0"uila J Sons, &o., de!andin" that she vacate the pre!ises #ithin -4 da$s after receipt of the letter and surrender its possession peacefull$ to 0.&. 0"uila J Sons, &o. Other#ise, the latter #ould brin" the appropriate action in court. 6 +pon the refusal of private respondent to vacate the subKect pre!ises, 0.&. 0"uila J Sons, &o. filed an eKect!ent case a"ainst her in the Metropolitan Trial &ourt, <ranch B>, Mari=ina, Metro Manila. In a decision, dated 0pril /, -..3, the Metropolitan Trial

&ourt ruled in favor of 0.&. 0"uila J Sons, &o. on the "round that private respondent did not redee! the subKect propert$ before the e%piration of the .51da$ period provided in the Me!orandu! of 0"ree!ent. Private respondent appealed first to the Re"ional Trial &ourt, <ranch ->/, Pasi", Metro Manila, then to the &ourt of 0ppeals, and later to this &ourt, but she lost in all the cases. Private respondent then filed a petition for declaration of nullit$ of a deed of sale #ith the Re"ional Trial &ourt, <ranch 3B/, Mari=ina, Metro Manila on Dece!ber :, -../. She alle"ed that the si"nature of her husband on the deed of sale #as a for"er$ because he #as alread$ dead #hen the deed #as supposed to have been e%ecuted on Dune --, -..-. It appears, ho#ever, that private respondent had filed a cri!inal co!plaint for falsification a"ainst petitioner #ith the Office of the Prosecutor of ?ue;on &it$ #hich #as dis!issed in a resolution, dated 9ebruar$ -:, -..:. On 0pril --, -..4, <ranch 3B/ of RT&1Mari=ina rendered its decision6 Plaintiff*s clai! therefore that the Deed of 0bsolute Sale is a for"er$ because the$ could not personall$ appear before Notar$ Public Ia!berto &. Nan,uil on Dune --, -..- because her husband, Ruben 0bro"ar, died on Ma$ C, -..- or one !onth and 3 da$s before the e%ecution of the Deed of 0bsolute Sale, #hile the plaintiff #as still in the ?ue;on &it$ Medical &enter recuperatin" fro! #ounds #hich she suffered at the sa!e vehicular accident on Ma$ C, -..-, cannot be sustained. The &ourt is convinced that the three re,uired docu!ents, to #it6 the Me!orandu! of 0"ree!ent, the Special Po#er of 0ttorne$, and the Deed of 0bsolute Sale #ere all si"ned b$ the parties on the sa!e date on 0pril -C, -..-. It is a co!!on and accepted business practice of those en"a"ed in !one$ lendin" to prepare an undated absolute deed of sale in loans of !one$ secured b$ real estate for various reasons, fore!ost of #hich is the evasion of ta%es and surchar"es. The plaintiff never ,uestioned receivin" the su! of P355,555.55 representin" her loan fro! the defendant. &o!!on sense dictates that an established lendin" and realt$ fir! li=e the 0"uila J Sons, &o. #ould not part #ith P355,555.55 to the 0bro"ar spouses, #ho

are virtual stran"ers to it, #ithout the si!ultaneous acco!plish!ent and si"nin" of all the re,uired docu!ents, !ore particularl$ the Deed of 0bsolute Sale, to protect its interest. %%% %%% %%% 7H8R89OR8, fore"oin" pre!ises considered, the case in caption is hereb$ ORD8R8D DISMISS8D, #ith costs a"ainst the plaintiff. On appeal, the &ourt of 0ppeals reversed. It held6 The facts and evidence sho# that the transaction bet#een plaintiff1 appellant and defendant1appellee is indubitabl$ an e,uitable !ort"a"e. 0rticle ->53 of the Ne# &ivil &ode finds stron" application in the case at bar in the li"ht of the follo#in" circu!stances. First6 The purchase price for the alle"ed sale #ith ri"ht to repurchase is unusuall$ inade,uate. The propert$ is a t#o hundred fort$ '3:5( s,. !. lot. On said lot, the residential house of plaintiff1 appellant stands. The propert$ is inside a subdivisionGvilla"e. The propert$ is situated in Mari=ina #hich is alread$ part of Metro Manila. The alle"ed sale too= place in -..- #hen the value of the land had considerabl$ increased. 9or this propert$, defendant1appellee pa$s onl$ a !easl$ P355,555.55 or PC//.// per s,uare !eter for both the land and for the house. "econd6 The disputed Me!orandu! of 0"ree!ent specificall$ provides that plaintiff1appellant is obli"ed to deliver peacefull$ the possession of the propert$ to the S8&OND P0RTO #ithin fifteen '-4( da$s after the e%piration of the said ninet$ '.5( da$ "race period. Other#ise stated, plaintiff1appellant is to retain ph$sical possession of the thin" alle"edl$ sold. In fact, plaintiff1appellant retained possession of the propert$ sold as if the$ #ere still the absolute o#ners. There #as no provision for !aintenance or e%penses, !uch less for pa$!ent of rent. Third6 The apparent vendor, plaintiff1appellant herein, continued to pa$ ta%es on the propert$ sold . It is #ell1=no#n that pa$!ent of

ta%es acco!panied b$ actual possession of the land covered b$ the ta% declaration, constitute evidence of "reat #ei"ht that a person under #hose na!e the real ta%es #ere declared has a clai! of ri"ht over the land. It is #ell1settled that the presence of even one of the circu!stances in 0rticle ->53 of the Ne# &ivil &ode is sufficient to declare a contract of sale #ith ri"ht to repurchase an e,uitable !ort"a"e. &onsiderin" that plaintiff1appellant, as vendor, #as paid a price #hich is unusuall$ inade,uate, has retained possession of the subKect propert$ and has continued pa$in" the realt$ ta%es over the subKect propert$, 'circu!stances !entioned in par. '-( '3( and '4( of 0rticle ->53 of the Ne# &ivil &ode(, it !ust be conclusivel$ presu!ed that the transaction the parties actuall$ entered into is an e,uitable !ort"a"e, not a sale #ith ri"ht to repurchase. The factors cited are in support to the findin" that the Deed of SaleGMe!orandu! of 0"ree!ent #ith ri"ht to repurchase is in actualit$ an e,uitable !ort"a"e. Moreover, it is undisputed that the deed of sale #ith ri"ht of repurchase #as e%ecuted b$ reason of the loan e%tended b$ defendant1appellee to plaintiff1appellant. The a!ount of loan bein" the sa!e #ith the a!ount of the purchase price. %%% %%% %%% Since the real intention of the part$ is to secure the pa$!ent of debt, no# dee!ed to be repurchase price6 the transaction shall then be considered to be an e,uitable !ort"a"e. <ein" a !ort"a"e, the transaction entered into b$ the parties is in the nature of a pactum commissorium #hich is clearl$ prohibited b$ 0rticle 35CC of the Ne# &ivil &ode. 0rticle 35CC of the Ne# &ivil &ode reads6 0rt. 35CC. The creditor cannot appropriate the thin"s "iven b$ #a$ of pled"e or !ort"a"e, or dispose of the!. 0n$ stipulation to the contrar$ is null and void.

The afore,uoted provision furnishes the t#o ele!ents for pactum commissorium to e%ist6 '-( that there should be a pled"e or !ort"a"e #herein a propert$ is pled"ed or !ort"a"ed b$ #a$ of securit$ for the pa$!ent of principal obli"ationL and '3( that there should be a stipulation for an auto!atic appropriation b$ the creditor of the thin" pled"ed and !ort"a"ed in the event of non1 pa$!ent of the principal obli"ation #ithin the stipulated period. In this case, defendant1appellee in realit$ e%tended a P355,555.55 loan to plaintiff1appellant secured b$ a !ort"a"e on the propert$ of plaintiff1appellant. The loan #as pa$able #ithin ninet$ '.5( da$s, the period #ithin #hich plaintiff1appellant can repurchase the propert$. Plaintiff1appellant #ill pa$ P3/5,555.55 and not P355,555.55, the P/5,555.55 e%cess is the interest for the loan e%tended. 9ailure of plaintiff1appellee to pa$ the P3/5,555.55 #ithin the ninet$ '.5( da$s period, the propert$ shall auto!aticall$ belon" to defendant1 appellee b$ virtue of the deed of sale e%ecuted. &learl$, the a"ree!ent entered into b$ the parties is in the nature of pactum commissorium. Therefore, the deed of sale should be declared void as #e hereb$ so declare to be invalid, for bein" violative of la#. %%% %%% %%% 7H8R89OR8, fore"oin" considered, the appealed decision is hereb$ R8V8RS8D and S8T 0SID8. The ,uestioned Deed of Sale and the cancellation of the T&T No. -.4-5- issued in favor of plaintiff1appellant and the issuance of T&T No. 3>B5B/ issued in favor of defendant1appellee pursuant to the ,uestioned Deed of Sale is hereb$ declared VOID and is hereb$ 0NN+II8D. Transfer &ertificate of Title No. -.4-5- of the Re"istr$ of Mari=ina is hereb$ ordered R8INST0T8D. The loan in the a!ount of P3/5,555.55 shall be paid #ithin ninet$ '.5( da$s fro! the finalit$ of this decision. In case of failure to pa$ the a!ount of P3/5,555.55 fro! the period therein stated, the propert$ shall be sold at public auction to satisf$ the !ort"a"e debt and costs and if there is an e%cess, the sa!e is to be "iven to the o#ner. Petitioner no# contends that6 '-( he is not the real part$ in interest but 0.&. 0"uila J &o., a"ainst #hich this case should have been

brou"htL '3( the Kud"!ent in the eKect!ent case is a bar to the filin" of the co!plaint for declaration of nullit$ of a deed of sale in this caseL and '/( the contract bet#een 0.&. 0"uila J Sons, &o. and private respondent is a pacto de retro sale and not an e,uitable !ort"a"e as held b$ the appellate court. The petition is !eritorious. Rule /, W3 of the Rules of &ourt of -.>:, under #hich the co!plaint in this case #as filed, provided that ever$ action !ust be prosecuted and defended in the na!e of the real part$ in interest. 0 real part$ in interest is one #ho #ould be benefited or inKured b$ the Kud"!ent, or #ho is entitled to the avails of the suit. 7 This rulin" is no# e!bodied in Rule /, W3 of the -..B Revised Rules of &ivil Procedure. 0n$ decision rendered a"ainst a person #ho is not a real part$ in interest in the case cannot be e%ecuted. 5 Hence, a co!plaint filed a"ainst such a person should be dis!issed for failure to state a cause of action. 9 +nder 0rt. -B>C of the &ivil &ode, a partnership has a Kuridical personalit$ separate and distinct fro! that of each of the partners. The partners cannot be held liable for the obli"ations of the partnership unless it is sho#n that the le"al fiction of a different Kuridical personalit$ is bein" used for fraudulent, unfair, or ille"al purposes. 16 In this case, private respondent has not sho#n that 0.&. 0"uila J Sons, &o., as a separate Kuridical entit$, is bein" used for fraudulent, unfair, or ille"al purposes. Moreover, the title to the subKect propert$ is in the na!e of 0.&. 0"uila J Sons, &o. and the Me!orandu! of 0"ree!ent #as e%ecuted bet#een private respondent, #ith the consent of her late husband, and 0.&. 0"uila J Sons, &o., represented b$ petitioner. Hence, it is the partnership, not its officers or a"ents, #hich should be i!pleaded in an$ liti"ation involvin" propert$ re"istered in its na!e. 0 violation of this rule #ill result in the dis!issal of the co!plaint. 11 7e cannot understand #h$ both the Re"ional Trial &ourt and the &ourt of 0ppeals sidestepped this issue #hen it #as s,uarel$ raised before the! b$ petitioner. Our conclusion that petitioner is not the real part$ in interest a"ainst #ho! this action should be prosecuted !a=es it unnecessar$ to discuss the other issues raised b$ hi! in this appeal.

7H8R89OR8, the decision of the &ourt of 0ppeals is hereb$ R8V8RS8D and the co!plaint a"ainst petitioner is DISMISS8D. SO ORD8R8D. 1ellosillo! =uisumbing! 1uena and 8e -eon! ,r.! ,,.! concur. Foo8no8/. - Per Dustice 8u"enio S. Iabitoria and concurred in b$ Dustices &ancio &. 2arcia and O!ar +. 0!in. 3 8%h. 0, 9older of 8%hibits for the Plaintiff, pp. -13. / 8%h. H, id., pp. -31-/. : 8%h. /, 9older of 8%hibits for the Defendant, p. /. 4 Petition, Rollo, p. B. > 8%h. :, 9older of 8%hibits for the Defendant, pp. -41->. B Salon"a v. 7arner <arnes J &o., Itd., CC Phil. -34 '-.4-(. C S!ith, <ell J &o., Inc. v. &ourt of 0ppeals, 3>B S&R0 4/5 '-..B(. . &olu!bia Pictures, Inc. v. &ourt of 0ppeals, 3>- S&R0 -:: '-..>(. -5 "ee Mc&onnel v. &ourt of 0ppeals, --- Phil. /-5 '-.>-(. -- "ee &it$ of <acolod v. 2ruet, --> Phil. -554 '-.>3(. Republic of the PhilippinesSUPREME COURTManila 8N <0N& G.R. No. "+15763 Au@u.8 25, 1922

IN&O"UNTAR$ INSO"&ENC$ OF CAMPOS RUE%A ' CO., S. /n C., appellee, vs.PACIFIC COMMERCIA" CO., ASIATIC PETRO"EUM CO., an0 INTERNATIONA" !ANEING CORPORATION, petitioners1appellants.

,ose 3ulo! Ross and -a&rence and ,. /. 4ol son or appellants. /ntonio "an) or appellee. ROMUA"%E*, J.: The record of this proceedin" havin" been trans!itted to this court b$ virtue of an appeal ta=en herein, a !otion #as presented b$ the appellants pra$in" this court that this case be considered purel$ a !oot ,uestion no#, for the reason that subse,uent to the decision appealed fro!, the partnership &a!pos Rueda J &o., voluntaril$ filed an application for a Kudicial decree adKud"in" itself insolvent, #hich is Kust #hat the herein petitioners and appellants tried to obtain fro! the lo#er court in this proceedin". The !otion no# before us !ust be, and is hereb$, denied even under the facts stated b$ the appellants in their !otion aforesaid. The ,uestion raised in this case is not purel$ !oot oneL the fact that a !an #as insolvent on a certain da$ does not Kustif$ an inference that he #as so!e ti!e prior thereto. Proof that a !an #as insolvent on a certain da$ does not Kustif$ an inference that he #as on a da$ so!e ti!e prior thereto. Man$ contin"encies, such as un#ise invest!ents, losin" contracts, !isfortune, or accident, !i"ht happen to reduce a person fro! a state of solvenc$ #ithin a short space of ti!e. 'Ni!ball vs. Dresser, .C Me., 4-.L 4B 0tl. Rep., B>B.( 0 decree of insolvenc$ be"ins to operate on the date it is issued. It is one thin" to adKud"e &a!pos Rueda J &o. insolvent in Dece!ber, -.3-, as pra$ed for in this case, and another to declare it insolvent in Dul$, -.33, as stated in the !otion. Turnin" to the !erits of this appeal, #e find that this li!ited partnership #as, and is, indebted to the appellants in various su!s a!ountin" to not less than P-,555, pa$able in the Philippines, #hich #ere not paid !ore than thirt$ da$s prior to the date of the filin" b$ the petitioners of the application for involuntar$ insolvenc$ no# before us. These facts #ere sufficient established b$ the evidence.

The trial court denied the petition on the "round that it #as not proven, nor alle"ed, that the !e!bers of the aforesaid fir! #ere insolvent at the ti!e the application #as filedL and that #as said partners are personall$ and solidaril$ liable for the conse,uence of the transactions of the partnership, it cannot be adKud"ed insolvent so lon" as the partners are not alle"ed and proven to be insolvent. 9ro! this Kud"!ent the petitioners appeal to this court, on the "round that this findin" of the lo#er court is erroneous. The funda!ental ,uestion that presents itself for decision is #hether or not a li!ited partnership, such as the appellee, #hich has failed to pa$ its obli"ation #ith three creditors for !ore than thirt$ da$s, !a$ be held to have co!!itted an act of insolvenc$, and thereb$ be adKud"ed insolvent a"ainst its #ill. +nli=e the co!!on la#, the Philippine statutes consider a li!ited partnership as a Kuridical entit$ for all intents and purposes, #hich personalit$ is reco"ni;ed in all its acts and contracts 'art. -->, &ode of &o!!erce(. This bein" so and the Kuridical personalit$ of a li!ited partnership bein" different fro! that of its !e!bers, it !ust, on "eneral principle, ans#er for, and suffer, the conse,uence of its acts as such an entit$ capable of bein" the subKect of ri"hts and obli"ations. If, as in the instant case, the li!ited partnership of &a!pos Rueda J &o. 9ailed to pa$ its obli"ations #ith three creditors for a period of !ore than thirt$ da$s, #hich failure constitutes, under our Insolvenc$ Ia#, one of the acts of ban=ruptc$ upon #hich an adKudication of involuntar$ insolvenc$ can be predicated, this partnership !ust suffer the conse,uences of such a failure, and !ust be adKud"ed insolvent. 7e are not un!indful of the fact that so!e courts of the +nited States have held that a partnership !a$ not be adKud"ed insolvent in an involuntar$ insolvenc$ proceedin" unless all of its !e!bers are insolvent, #hile others have !aintained a contrar$ vie#. <ut it !ust be borne in !ind that under the 0!erican co!!on la#, partnerships have no Kuridical personalit$ independent fro! that of its !e!bersL and if no# the$ have such personalit$ for the purpose of the insolvenc$ la#, it is onl$ b$ virtue of "eneral la# enacted b$ the &on"ress of the +nited States on Dul$ -, -C.C, section 4, para"raph 'h(, of #hich reads thus6

In the event of one or !ore but not all of the !e!bers of a partnership bein" adKud"ed ban=rupt, the partnership propert$ shall not be ad!inistered in ban=ruptc$, unless b$ consent of the partner or partners not adKud"ed ban=ruptL but such partner or partners not adKud"ed ban=rupt shall settle the partnership business as e%peditiousl$ as its nature #ill per!it, and account for the interest of the partner or partners adKud"ed ban=rupt. The "eneral consideration that these partnership had no Kuridical personalit$ and the li!itations prescribed in subsection 'h( above set forth "ave rise to the conflict noted in 0!erican decisions, as stated in the case of In re Sa!uels '3-4 9ed., C:4(, #hich !entions the t#o apparentl$ conflictin" doctrines, citin" one fro! In re <ertensha# '-4B 9ed., />/(, and the other fro! 9rancis vs. McNeal '-C> 9ed., :C-(. <ut there bein" in our insolvenc$ la# no such provision as that contained in section 4 of said 0ct of &on"ress of Dul$ -, -C.C, nor an$ rule si!ilar thereto, and the Kuridical personalit$ of li!ited partnership bein" reco"ni;ed b$ our statutes fro! their for!ation in all their acts and contracts the decision of 0!erican courts on this point can have no application in this Kurisdiction, nor #e see an$ reason #h$ these partnerships cannot be adKud"ed ban=rupt irrespective of the solvenc$ or insolvenc$ of their !e!bers, provided the partnership has, as such, co!!itted so!e of the acts of insolvenc$ provided in our la#. +nder this vie# it is unnecessar$ to discuss the other points raised b$ the parties, althou"h in the particular case under consideration it can be added that the liabilit$ of the li!ited partners for the obli"ations and losses of the partnership is li!ited to the a!ounts paid or pro!ised to be paid into the co!!on fund e%cept #hen a li!ited partner should have included his na!e or consented to its inclusion in the fir! na!e 'arts. -:B and -:C, &ode of &o!!erce(. Therefore, it havin" been proven that the partnership &a!pos Rueda J &o. failed for !ore than thirt$ da$s to pa$ its obli"ations to the petitioners the Pacific &o!!ercial &o. the 0siatic Petroleu! &o. and the International <an=in" &orporation, the case co!es under para"raph -- of section 35 of 0ct No. -.4>, and conse,uentl$ the petitioners have the ri"ht to a Kudicial decree declarin" the involuntar$ insolvenc$ of said partnership.

7herefore, the Kud"!ent appealed fro! is reversed, and it is adKud"ed that the li!ited partnership &a!pos Rueda J &o. is and #as on Dece!ber 3C, -.3-, insolvent and liable for havin" failed for !ore than thirt$ da$s to !eet its obli"ations #ith the three petitioners herein, and it is ordered that this proceedin" be re!anded to the &ourt of 9irst Instance of Manila #ith instruction to said court to issue the proper decrees under section 3: of 0ct No. -.4>, and proceed there#ith until its final disposition. It is so ordered #ithout special findin" as to costs. /raullo! C. ,.! ,ohnson! "treet! 2alcolm! /vance7a! (illamor! 5strand! and ,ohns! ,,.! concur.

Republic of the Philippines SUPREME COURT Manila 8N <0N& 2.R. No. I1...> October -4, -.4B

8+98MI0 8V0N28IIST0, M0N+8I0 8V0N28IIST0, and 9R0N&IS&0 8V0N28IIST0, petitioners, vs. T E CO""ECTOR OF INTERNA" RE&ENUE an0 T E COURT OF TA2 APPEA"S, respondents. "antiago F. /lidio and /ngel ". 8a9ila! ,r.! or petitioner. 5 ice o the "olicitor General /mbrosio Padilla! /ssistant "olicitor General Esmeraldo ;mali and "olicitor Felicisimo R. Rosete or Respondents. CONCEPCION, J.> This is a petition filed b$ 8ufe!ia 8van"elista, Manuela 8van"elista and 9rancisca 8van"elista, for revie# of a decision of the &ourt of Ta% 0ppeals, the dispositive part of #hich reads6

9OR 0II TH8 9OR82OIN2, #e hold that the petitioners are liable for the inco!e ta%, real estate dealer*s ta% and the residence ta% for the $ears -.:4 to -.:., inclusive, in accordance #ith the respondent*s assess!ent for the sa!e in the total a!ount of P>,CBC./:, #hich is hereb$ affir!ed and the petition for revie# filed b$ petitioner is hereb$ dis!issed #ith costs a"ainst petitioners. It appears fro! the stipulation sub!itted b$ the parties6 -. That the petitioners borro#ed fro! their father the su! of P4.,-:55.55 #hich a!ount to"ether #ith their personal !onies #as used b$ the! for the purpose of bu$in" real properties,. 3. That on 9ebruar$ 3, -.:/, the$ bou"ht fro! Mrs. Dosefina 9lorentino a lot #ith an area of /,B-/.:5 s,. !. includin" i!prove!ents thereon fro! the su! of P-55,555.55L this propert$ has an assessed value of P4B,4-B.55 as of -.:CL /. That on 0pril /, -.:: the$ purchased fro! Mrs. Dosefa Oppus 3- parcels of land #ith an a""re"ate area of /,B-C.:5 s,. !. includin" i!prove!ents thereon for P-/5,555.55L this propert$ has an assessed value of PC3,344.55 as of -.:CL :. That on 0pril 3C, -.:: the$ purchased fro! the Insular Invest!ents Inc., a lot of :,/4/ s,. !. includin" i!prove!ents thereon for P-5C,C34.55. This propert$ has an assessed value of P:,.C/.55 as of -.:CL 4. That on 0pril 3C, -.:: the$ bou"ht for! Mrs. Valentina 0fable a lot of C,/B- s,. !. includin" i!prove!ents thereon for P3/B,3/:./:. This propert$ has an assessed value of P4.,-:5.55 as of -.:CL >. That in a docu!ent dated 0u"ust ->, -.:4, the$ appointed their brother Si!eon 8van"elista to *!ana"e their properties #ith full po#er to leaseL to collect and receive rentsL to issue receipts thereforL in default of such pa$!ent, to brin" suits a"ainst the defaultin" tenantsL to si"n all letters, contracts,

etc., for and in their behalf, and to endorse and deposit all notes and chec=s for the!L B. That after havin" bou"ht the above1!entioned real properties the petitioners had the sa!e rented or leases to various tenantsL C. That fro! the !onth of March, -.:4 up to an includin" Dece!ber, -.:4, the total a!ount collected as rents on their real properties #as P.,4...55 #hile the e%penses a!ounted to P/,>45.55 thereb$ leavin" the! a net rental inco!e of P4,.:C.//L .. That on -.:>, the$ reali;ed a "ross rental inco!e of in the su! of P3:,BC>./5, out of #hich a!ount #as deducted in the su! of P->,3CC.3B for e%penses thereb$ leavin" the! a net rental inco!e of PB,:.C.-/L -5. That in -.:C, the$ reali;ed a "ross rental inco!e of P-B,:4/.55 out of the #hich a!ount #as deducted the su! of P:,C/B.>4 as e%penses, thereb$ leavin" the! a net rental inco!e of P-3,>-4./4. It further appears that on Septe!ber 3:, -.4: respondent &ollector of Internal Revenue de!anded the pa$!ent of inco!e ta% on corporations, real estate dealer*s fi%ed ta% and corporation residence ta% for the $ears -.:41-.:., co!puted, accordin" to assess!ent !ade b$ said officer, as follo#s6 IN&OM8 T0P8S -.:4 -.:> -.:B -.:C -.:. Total includin" surchar"e and -:.C: -,-::.B-5./: -,.-3./5 -,4B4..5 P>,-4B.5.

co!pro!ise R80I 8ST0T8 D80I8R*S 9IP8D T0P -.:> -.:B -.:C -.:. Total includin" penalt$ P/B.45 -45.55 -45.55 -45.55 P43B.55

R8SID8N&8 T0P8S O9 &ORPOR0TION -.:4 -.:> -.:B -.:C -.:. Total includin" surchar"e TOT0I T0P8S D+8 P/C.B4 /C.B4 /C.B4 /C.B4 /C.B4 P-./.B4 P>,CBC./:.

Said letter of de!and and correspondin" assess!ents #ere delivered to petitioners on Dece!ber /, -.4:, #hereupon the$ instituted the present case in the &ourt of Ta% 0ppeals, #ith a pra$er that the decision of the respondent contained in his letter of de!and dated Septe!ber 3:, -.4: be reversed, and that the$ be absolved fro! the pa$!ent of the ta%es in ,uestion, #ith costs a"ainst the respondent. 0fter appropriate proceedin"s, the &ourt of Ta% 0ppeals the above1 !entioned decision for the respondent, and a petition for reconsideration and ne# trial havin" been subse,uentl$ denied, the case is no# before +s for revie# at the instance of the petitioners.

The issue in this case #hether petitioners are subKect to the ta% on corporations provided for in section 3: of &o!!on#ealth 0ct. No. :>>, other#ise =no#n as the National Internal Revenue &ode, as #ell as to the residence ta% for corporations and the real estate dealers fi%ed ta%. 7ith respect to the ta% on corporations, the issue hin"es on the !eanin" of the ter!s corporation and partnership, as used in section 3: and C: of said &ode, the pertinent parts of #hich read6 S8&. 3:. Rate o tax on corporations.HThere shall be levied, assessed, collected, and paid annuall$ upon the total net inco!e received in the precedin" ta%able $ear fro! all sources b$ ever$ corporation or"ani;ed in, or e%istin" under the la#s of the Philippines, no !atter ho# created or or"ani;ed but not includin" dul$ re"istered "eneral co1 partnerships 'compa7ias colectivas(, a ta% upon such inco!e e,ual to the su! of the follo#in"6 . . . S8&. C: 'b(. The ter! *corporation* includes partnerships, no !atter ho# created or or"ani;ed, Koint1stoc= co!panies, Koint accounts 'cuentas en participacion(, associations or insurance co!panies, but does not include dul$ re"istered "eneral copartnerships. 'compa7ias colectivas(. 0rticle -B>B of the &ivil &ode of the Philippines provides6 <$ the contract of partnership t#o or !ore persons bind the!selves to contribute !one$, properl$, or industr$ to a co!!on fund, #ith the intention of dividin" the profits a!on" the!selves. Pursuant to the article, the essential ele!ents of a partnership are t#o, na!el$6 'a( an a"ree!ent to contribute !one$, propert$ or industr$ to a co!!on fundL and 'b( intent to divide the profits a!on" the contractin" parties. The first ele!ent is undoubtedl$ present in the case at bar, for, ad!ittedl$, petitioners have a"reed to, and did, contribute !one$ and propert$ to a co!!on fund. Hence, the issue narro#s do#n to their intent in actin" as the$ did. +pon consideration of all the facts and circu!stances surroundin" the case, #e are full$ satisfied that their purpose #as to en"a"e in

real estate transactions for !onetar$ "ain and then divide the sa!e a!on" the!selves, because6 -. Said co!!on fund #as not so!ethin" the$ found alread$ in e%istence. It #as not propert$ inherited b$ the!pro indiviso. The$ created it purposel$. 7hat is !ore the$ #ointl+ borro&ed a substantial portion thereof in orderto establish said co!!on fund. 3. The$ invested the sa!e, not !erel$ not !erel$ in one transaction, but in a series of transactions. On 9ebruar$ 3, -.:/, the$ bou"ht a lot for P-55,555.55. On 0pril /, -.::, the$ purchased 3- lots for P-C,555.55. This #as soon follo#ed on 0pril 3/, -.::, b$ the ac,uisition of another real estate for P-5C,C34.55. 9ive '4( da$s later '0pril 3C, -.::(, the$ "ot a fourth lot for P3/B,3/:.-:. The nu!ber of lots '3:( ac,uired and transactions underta=en, as #ell as the brief interre"nu! bet#een each, particularl$ the last three purchases, is stron"l$ indicative of a pattern or co!!on desi"n that #as not li!ited to the conservation and preservation of the afore!entioned co!!on fund or even of the propert$ ac,uired b$ the petitioners in 9ebruar$, -.:/. In other #ords, one cannot but perceive a character of habituall$ peculiar to business transactions en"a"ed in the purpose of "ain. /. The aforesaid lots #ere not devoted to residential purposes, or to other personal uses, of petitioners herein. The properties #ere leased separatel$ to several persons, #ho, fro! -.:4 to -.:C inclusive, paid the total su! of PB5,5>C./5 b$ #a$ of rentals. See!in"l$, the lots are still bein" so let, for petitioners do not even su""est that there has been an$ chan"e in the utili;ation thereof. :. Since 0u"ust, -.:4, the properties have been under the !ana"e!ent of one person, na!el$ Si!eon 8van"elista, #ith full po#er to lease, to collect rents, to issue receipts, to brin" suits, to si"n letters and contracts, and to indorse and deposit notes and chec=s. Thus, the affairs relative to said properties have been handled as if the sa!e belon"ed to a corporation or business and enterprise operated for profit.

4. The fore"oin" conditions have e%isted for !ore than ten '-5( $ears, or, to be e%act, over fifteen '-4( $ears, since the first propert$ #as ac,uired, and over t#elve '-3( $ears, since Si!eon 8van"elista beca!e the !ana"er. >. Petitioners have not testified or introduced an$ evidence, either on their purpose in creatin" the set up alread$ adverted to, or on the causes for its continued e%istence. The$ did not even tr$ to offer an e%planation therefor. 0lthou"h, ta=en sin"l$, the$ !i"ht not suffice to establish the intent necessar$ to constitute a partnership, the collective effect of these circu!stances is such as to leave no roo! for doubt on the e%istence of said intent in petitioners herein. Onl$ one or t#o of the afore!entioned circu!stances #ere present in the cases cited b$ petitioners herein, and, hence, those cases are not in point. Petitioners insist, ho#ever, that the$ are !ere co1o#ners, not copartners, for, in conse,uence of the acts perfor!ed b$ the!, a le"al entit$, #ith a personalit$ independent of that of its !e!bers, did not co!e into e%istence, and so!e of the characteristics of partnerships are lac=in" in the case at bar. This pretense #as correctl$ reKected b$ the &ourt of Ta% 0ppeals. To be"in #ith, the ta% in ,uestion is one i!posed upon corporations , #hich, strictl$ spea=in", are distinct and different fro! partnerships . 7hen our Internal Revenue &ode includes partnerships a!on" the entities subKect to the ta% on corporations , said &ode !ust allude, therefore, to or"ani;ations #hich are not necessaril$ partnerships , in the technical sense of the ter!. Thus, for instance, section 3: of said &ode e%e!pts fro! the afore!entioned ta% dul$ re"istered "eneral partnerships #hich constitute precisel$ one of the !ost t$pical for!s of partnerships in this Kurisdiction. Ii=e#ise, as defined in section C:'b( of said &ode, the ter! corporation includes partnerships, no matter ho& created or organi)ed. This ,ualif$in" e%pression clearl$ indicates that a Koint venture need not be underta=en in an$ of the standard for!s, or in confor!it$ #ith the usual re,uire!ents of the la# on partnerships, in order that one could be dee!ed constituted for purposes of the ta% on corporations. 0"ain, pursuant to said section C:'b(, the ter! corporation includes, a!on" other, Koint accounts,

'cuentas en participation( and associations, none o &hich has a legal personalit+ o its o&n! independent o that o its members . 0ccordin"l$, the la#!a=er could not have re"arded that personalit$ as a condition essential to the e%istence of the partnerships therein referred to. In fact, as above stated, dul$ re"istered "eneral copartnerships H &hich are possessed o the a orementioned personalit+ H have been e%pressl$ e%cluded b$ la# 'sections 3: and C: @bA fro! the connotation of the ter! corporation It !a$ not be a!iss to add that petitioners* alle"ation to the effect that their liabilit$ in connection #ith the leasin" of the lots above referred to, under the !ana"e!ent of one person H even if true, on #hich #e e%press no opinion H tends to increasethe si!ilarit$ bet#een the nature of their venture and that corporations, and is, therefore, an additional ar"u!ent in avor of the i!position of said ta% on corporations. +nder the Internal Revenue Ia#s of the +nited States, corporations are ta%ed differentl$ fro! partnerships . <$ specific provisions of said la#s, such corporations include associations, Koint1stoc= co!panies and insurance co!panies. Ho#ever, the ter! association is not used in the afore!entioned la#s. . . . in an$ narro# or technical sense. It includes an$ or"ani;ation, created for the transaction of desi"ned affairs, or the attain!ent of so!e obKect, #hich li=e a corporation, continues not#ithstandin" that its !e!bers or participants chan"e, and the affairs of #hich, li=e corporate affairs, are conducted b$ a sin"le individual, a co!!ittee, a board, or so!e other "roup, actin" in a representative capacit$. It is i!!aterial #hether such or"ani;ation is created b$ an a"ree!ent, a declaration of trust, a statute, or other#ise. It includes a voluntar$ association, a Koint1stoc= corporation or co!pan$, a *business* trusts a *Massachusetts* trust, a *co!!on la#* trust, and *invest!ent* trust '#hether of the fi%ed or the !ana"e!ent t$pe(, an interinsuarance e%chan"e operatin" throu"h an attorne$ in fact, a partnership association, and an$ other t$pe of or"ani;ation 'b$ #hatever na!e =no#n( #hich is not, #ithin the !eanin" of the &ode, a trust or an estate, or a partnership. 'B0 Mertens Ia# of 9ederal Inco!e Ta%ation, p. BCCL e!phasis supplied.(.

Si!ilarl$, the 0!erican Ia#. . . . provides its o&n concept of a partnership, under the ter! *partnership *it includes not onl$ a partnership as =no#n at co!!on la# but, as #ell, a s$ndicate, "roup, pool, #oint venture or other unincorporated organi)ations &hich carries on an+ business inancial operation! or venture, and #hich is not, #ithin the !eanin" of the &ode, a trust, estate, or a corporation. . . 'B0 Merten*s Ia# of 9ederal Inco!e ta%ation, p. BC.L e!phasis supplied.( The ter! *partnership* includes a s$ndicate, "roup, pool, #oint venture or other unincorporated organi)ation! through or b+ means o &hich an+ business! inancial operation! or venture is carried on, . . .. ' C Merten*s Ia# of 9ederal Inco!e Ta%ation, p. 4>3 Note >/L e!phasis supplied.( . 9or purposes of the ta% on corporations, our .ational Internal Revenue Code! includes these partnerships H #ith the e%ception onl$ of dul$ re"istered "eneral copartnerships H &ithin the purvie& o the term <corporation.< It is, therefore, clear to our !ind that petitioners herein constitute a partnership, insofar as said &ode is concerned and are subKect to the inco!e ta% for corporations. 0s re"ards the residence of ta% for corporations, section 3 of &o!!on#ealth 0ct No. :>4 provides in part6 8ntities liable to residence ta%.18ver$ corporation, no !atter ho# created or or"ani;ed, #hether do!estic or resident forei"n, en"a"ed in or doin" business in the Philippines shall pa$ an annual residence ta% of five pesos and an annual additional ta% #hich in no case, shall e%ceed one thousand pesos, in accordance #ith the follo#in" schedule6 . . . The ter! *corporation* as used in this 0ct includes Koint1stoc= co!pan$, partnership, Koint account 'cuentas en participacion(, association or insurance co!pan$, no matter ho& created or organi)ed. 'e!phasis supplied.( &onsiderin" that the pertinent part of this provision is analo"ous to that of section 3: and C: 'b( of our National Internal Revenue &ode

'co!!on#ealth 0ct No. :>>(, and that the latter #as approved on Dune -4, -./., the da$ i!!ediatel$ after the approval of said &o!!on#ealth 0ct No. :>4 'Dune -:, -./.(, it is apparent that the ter!s corporation and partnership are used in both statutes #ith substantiall$ the sa!e !eanin". &onse,uentl$, petitioners are subKect, also, to the residence ta% for corporations. Iastl$, the records sho# that petitioners have habituall$ en"a"ed in leasin" the properties above !entioned for a period of over t#elve $ears, and that the $earl$ "ross rentals of said properties fro! Dune -.:4 to -.:C ran"ed fro! P.,4.. to P-B,:4/. Thus, the$ are subKect to the ta% provided in section -./ ',( of our National Internal Revenue &ode, for real estate dealers, inas!uch as, pursuant to section -.: 's( thereof6 *Real estate dealer* includes an$ person en"a"ed in the business of bu$in", sellin", e%chan"in", leasing! or renting propert+ or his o&n account as principal and holdin" hi!self out as a full or part ti!e dealer in real estate or as an o#ner of rental propert$ or properties rented or offered to rent for an a""re"ate a!ount of three thousand pesos or !ore a $ear. . . 'e!phasis supplied.( 7herefore, the appealed decision of the &ourt of Ta% appeals is hereb$ affir!ed #ith costs a"ainst the petitioners herein. It is so ordered. 1eng)on! Paras! C.,.! Padilla! Re+es! /.! Re+es! ,.1.-.! Endencia and Felix! ,,.! concur.

!AUTISTA ANGE"O, J., concurrin"6 I a"ree #ith the opinion that petitioners have actuall$ contributed !one$ to a co!!on fund #ith e%press purpose of en"a"in" in real estate business for profit. The series of transactions #hich the$ had underta=en attest to this. This appears in the follo#in" portion of the decision6

3. The$ invested the sa!e, not !erel$ in one transaction, but in a series of transactions. On 9ebruar$ 3, -.:/, the$ bou"ht a lot for P-55,555. On 0pril /, -.::, the$ purchase 3- lots for P-C,555. This #as soon follo#ed on 0pril 3/, -.::, b$ the ac,uisition of another real state for P-5C,C34. 9ive '4( da$s later '0pril 3C, -.::(, the$ "ot a fourth lot for P3/B,3/:.-:. The nu!ber of lots '3:( ac,uired and transactions underta=en, as #ell as the brief interre"nu! bet#een each, particularl$ the last three purchases, is stron"l$ indicative of a pattern or co!!on desi"n that #as not li!ited to the conservation and preservation of the afore!entioned co!!on fund or even of the propert$ ac,uired b$ the petitioner in 9ebruar$, -.:/, In other #ords, #e cannot but perceive a character of habituall+ peculiar to business transactions en"a"ed in for purposes of "ain. I #ish ho#ever to !a=e to !a=e the follo#in" observation6 0rticle -B>. of the ne# &ivil &ode la$s do#n the rule for deter!inin" #hen a transaction should be dee!ed a partnership or a co1o#nership. Said article para"raphs 3 and /, provides6 '3( &o1o#nership or co1possession does not of itself establish a partnership, #hether such co1o#ners or co1possessors do or do not share an$ profits !ade b$ the use of the propert$L '/( The sharin" of "ross returns does not of itself establish partnership, #hether or not the person sharin" the! have a Koint or co!!on ri"ht or interest in an$ propert$ fro! #hich the returns are derivedL 9ro! the above it appears that the fact that those #ho a"ree to for! a co1o#nership shared or do not share an$ profits !ade b$ the use of propert$ held in co!!on does not convert their venture into a partnership. Or the sharin" of the "ross returns does not of itself establish a partnership #hether or not the persons sharin" therein have a Koint or co!!on ri"ht or interest in the propert$. This onl$ !eans that, aside fro! the circu!stance of profit, the presence of other ele!ents constitutin" partnership is necessar$, such as the clear intent to for! a partnership, the e%istence of a Kudicial personalit$ different fro! that of the individual partners, and the

freedo! to transfer or assi"n an$ interest in the propert$ b$ one #ith the consent of the others 'Padilla, &ivil &ode of the Philippines 0nnotated, Vol. I, -.4/ ed., pp. >/41 >/>(. It is evident that an isolated transaction #hereb$ t#o or !ore persons contribute funds to bu$ certain real estate for profit in the absence of other circu!stances sho#in" a contrar$ intention cannot be considered a partnership. Persons #ho contribute propert$ or funds for a co!!on enterprise and a"ree to share the "ross returns of that enterprise in proportion to their contribution, but #ho severall$ retain the title to their respective contribution, are not thereb$ rendered partners. The$ have no co!!on stoc= or capital, and no co!!unit$ of interest as principal proprietors in the business itself #hich the proceeds derived. '8le!ents of the la# of Partnership b$ 9lo$d R. Meche!, 3n 8d., section C/, p. B:.( 0 Koint venture purchase of land, b$ t#o, does not constitute a copartnership in respect theretoL nor does not a"ree!ent to share the profits and loses on the sale of land create a partnershipL the parties are onl$ tenants in co!!on. '&lar= vs. Side#a$, -:3 +.S. >C3, -3 S &t. /3B, /4 I. 8d., --4B.( 7here plaintiff, his brother, and another a"reed to beco!e o#ners of a sin"le tract of realit$, holdin" as tenants in co!!on, and to divide the profits of disposin" of it, the brother and the other not bein" entitled to share in plaintiff*s co!!issions, no partnership e%isted as bet#een the parties, #hatever relation !a$ have been as to third parties. 'Ma"ee vs. Ma"ee, -3/ N. 8. >B>/, 3// Mass. /:-.( In order to constitute a partnership inter sese there !ust be6 'a( 0n intent to for! the sa!eL 'b( "enerall$ a participatin" in both profits and lossesL 'c( and such a co!!unit$ of interest, as far as third persons are concerned as enables each part$ to !a=e contract, !ana"e the business, and dispose of the #hole propert$. 'Municipal Pavin" &o. vs Herrin", -45 P. -5>B, 45 Ill. :B5.(

The co!!on o#nership of propert$ does not itself create a partnership bet#een the o#ners, thou"h the$ !a$ use it for purpose of !a=in" "ainsL and the$ !a$, #ithout beco!in" partners, a"ree a!on" the!selves as to the !ana"e!ent and use of such propert$ and the application of the proceeds therefro!. 'Spurloc= vs. 7ilson, -:3 S. 7. />/, ->5 No. 0pp. -:.( This is i!pliedl$ reco"ni;ed in the follo#in" portion of the decision6 0lthou"h, ta=en sin"l$, the$ !i"ht not suffice to establish the intent necessar$ to constitute a partnership, the collective effect of these circu!stances 'referrin" to the series of transactions( such as to leave no roo! for doubt on the e%istence of said intent in petitioners herein. Republic of the Philippines SUPREME COURT Manila 8N <0N& G.R. No. "+5576 F/;ruary 11, 1915

&ARGAS an0 COMPAN$, plaintiff1appellee, vs. C AN ANG C IU, ET A"., defendants1appellants. Rohde and 4right or appellants. Escaler and "alas or appellee. MORE"AN%, J.> This is an action brou"ht to set aside a Kud"!ent of the Kustice*s court of Manila on the "round that the plaintiff here, the defendant in the action in #hich the Kud"!ent #as secured, #as not served #ith su!!ons and that, therefore, the Kustice*s court ac,uired no Kurisdiction to render the Kud"!ent #as that the sa!e is null and void. Dud"!ent #as entered in favor of plaintiff declarin" the Kud"!ent in controvers$ void and settin" it aside. This appeal is fro! that Kud"!ent.

It appears fro! the record that the plaintiff is a !erchantile association dul$ or"ani;ed under the la#s of the Philippine Islands and presu!abl$ re"istered as re,uired b$ la#. On the -.th da$ of 0u"ust, -.--, an action #as be"un b$ &han Han" &hiu a"ainst the plaintiff in this case to recover a su! of !one$. The su!!ons and co!plaint #ere placed in the hands of the sheriff, #ho certified that on the -.th da$ of 0u"ust, -.--, he served the sa!e on Var"as J &o. b$ deliverin" to and leavin" #ith one Dose Macapinlac personall$ true copies thereof, he bein" the !ana"in" a"ent of said Var"as J &o. at the ti!e of such service. On Dul$ 3. -.-3, the Kustice*s court rendered Kud"!ent a"ainst Var"as J &o. for the su! of /B3.3C. Thereafter e%ecution #as dul$ issued and the propert$ of Var"as J &o. levied on for the pa$!ent thereof. Thereupon Var"as J &o. paid the a!ount of the Kud"!ent and costs under protest, #ith notice that it #ould sue to recover the a!ount paid. The e%ecution #as returned satisfied and there the !atter rested until the present action #as brou"ht. The contention of plaintiff is, and that contention is supported b$ the decision of the court belo#, that Var"as J &o. bein" a partnership, it is necessar$, in brin"in" an action a"ainst it, to serve the su!!ons on all of the partners, deliverin" to each one of the! personall$ a cop$ thereofL and that the su!!ons in this case havin" been served on the !ana"in" a"ent of the co!pan$ onl$, the service #as of no effect as a"ainst the co!pan$ and the !e!bers thereof and the Kud"!ent entered b$ virtue of such a service #as void. Plaintiff also contends, and this contention is li=e#ise supported b$ the court belo#, that, even ad!ittin" that service on the !ana"in" a"ent of the plaintiff is sufficient service, as a !atter of fact no service #as reall$ !ade on the !ana"in" a"ent of the co!pan$ but, rather, on an e!plo$ee or sales!an of the co!pan$, #ho had no po#ers of !ana"e!ent or supervision and #ho #as not co!petent to receive service on behalf of the co!pan$ #ithin the provisions of section /.> of the &ode of &ivil Procedure. 7e are of the opinion that neither of these contentions can be sustained. 0s to the first, #e !a$ sa$ that it has been the universal practice in the Philippine Islands since 0!erican occupation, and #as the practice prior to that ti!e, to treat co!panies of the class to

#hich the plaintiff belon"s as le"al or Kuridicial entities and to per!it the! to sue and be sued in the na!e of the co!pan$, the su!!ons bein" served solel$ on the !ana"in" a"ent or other official of the co!pan$ specified b$ the section of the &ode of &ivil Procedure referred to. This ver$ action is an illustration of the practice in vo"ue in the Philippine Islands. The plaintiff brin"s this action in the co!pan$ na!e and not in the na!e of the !e!bers of the fir!. 0ctions a"ainst co!panies of the class to #hich plaintiff belon"s are brou"ht, accordin" to the uninterrupted practice, a"ainst such co!panies in their co!pan$ na!es and not a"ainst the individual partners constitutin" the fir!. In the States, in #hich the individual !e!bers of the fir! !ust be separatel$ served #ith process, the rule also prevails that the$ !ust be parties to the action, either plaintiffs or defendant, and that the action cannot be brou"ht in the na!e of or a"ainst the co!pan$ itself. This follo#s naturall$ for the reason that, if it is necessar$ to serve the partners individuall$, the$ are entitled to be heard individuall$ in the action and the$ !ust, therefore, be !ade parties thereto so that the$ can be heard. It #ould be idle to serve process on individual !e!bers of a partnership if the liti"ation #ere to be conducted in the na!e of the partnership itself and b$ the dul$ constituted officials of the partnership e%clusivel$. 9ro! #hat has been said it is apparent that the plaintiff in this action is actin" contrar$ to its o#n contention b$ brin"in" the action in the na!e of the co!pan$ be served #ith process, then the action should be brou"ht in the individual na!es of the partners and not in the na!e of the co!pan$ itself. 0rticle /4 of the &ivil &ode provides6 The follo#in" are Kudicial persons6 -. The corporation, associations, and institutions of public interest reco"ni;ed b$ la#. 3. The associations of private interest, be the$ civil, co!!ercial, or industrial, to #hich the la# "rants proper personalit$, independent of that of each !e!ber thereof.

0rticle /C provides6 Dudicial persons !a$ ac,uire and possess propert$ of all =inds, as #ell as contract obli"ations and institute civil or cri!inal actions in accordance #ith the la#s and rules of their establish!ent. 0rticle --> of the &ode of &o!!erce provides in part6 0fter a co!!ercial association has been established, it shall have le"al representation in all its acts and contracts. These provisions have been the foundation of the practice follo#ed #ithout interruption for !an$ $ears that association of the class to #hich plaintiff belon"s have an independent and separate le"al entit$ sufficient to per!it the! to sue and be sued in the co!pan$ na!e and to be served #ith process throu"h the chief officer or !ana"in" a"ent thereof or an$ other official of the co!pan$ specified b$ la#. 0s to the second contention, #e !a$ sa$ that the presu!ption is that a Kud"!ent rendered b$ a Kustice*s court is a valid and enforceable Kud"!ent #here the record discloses that all of the steps necessar$ to confer Kurisdiction on the court have been ta=en. In the case before us it affir!ativel$ appears that the service of process #as !ade on the person the sheriff certified #as the !ana"in" a"ent of the defendant co!pan$. The sheriff*s certificate serves as prima acieevidence of the e%istence of the facts stated therein. The record, therefore, discloses, so far as the fact of service is concerned, that it #as dul$ !ade on the !ana"in" a"ent of the co!pan$ as re,uired b$ section /.>, para"raph -, of the &ode of &ivil Procedure. In attac=in" the Kud"e!ent on the "round that service #as not !ade on the !ana"in" a"ent of the co!pan$, it is incu!bent on the plaintiff to overco!e the presu!ption arisin" fro! the sheriff*s certificate before the attac= #ill succeed. 8ndeavorin" to overco!e the presu!ption referred to, plaintiff offered as a #itness one To!as O. Se"ovia, an e!plo$ee of the plaintiff co!pan$. He testified that he #as a boo==eeper and that as such he #as #ell ac,uainted #ith the business of the co!pan$ and that the person Macapinlac referred to in the sheriff*s certificate as !ana"in" a"ent of the plaintiff co!pan$ #as an a"ent for the sale of plo#s, of #hich the plaintiff co!pan$ #as a !anufacturerL and that he had no other relations #ith the co!pan$ than that stated.

Durin" the course of the e%a!ination this ,uestion #as put to and ans#er elicited fro! this #itness6 Ho# do $ou =no# that the$ #ere not su!!oned, or that the$ did not =no# of this case brou"ht before the Kustice of the peace of the cit$ of Manila) I bein" the boo==eeper and the "eneral attorne$1in1fact to Var"as J &o., in Iloilo, ou"ht to =no# #hether the$ have been notified or su!!oned, but I onl$ =ne# about it #hen the sheriff appeared in our office to !a=e the lev$. This is the onl$ #itness #ho testified in the case. It does not appear #hen he beca!e the boo==eeper of the co!pan$, or that he #as in such a position that he could =no# or did =no# personall$ the acts of the co!pan$ and its relations to Macapinlac. He does not testif$ of his o#n =no#led"e to the essential facts necessar$ to controvert the state!ents contained it the sheriff*s certificate of service. His testi!on$ is rather ne"ative than positive, it bein" at all ti!es possible, in spite of his evidence, indeed, in strict accord there#ith, that Var"as J &o., of #hich the #itness #as neither official nor !ana"er, could have appointed a !ana"in" a"ent for the co!pan$ or could have re!oved hi! #ithout the personal =no#led"e of the #itness. The #itness had no personal =no#led"e of the relation bet#een the co!pan$ and Macapinlac. He never sa# the contract e%istin" bet#een the!. He did not hear the a"ree!ent bet#een the! nor did he =no# of his o#n =no#led"e #hat the relations bet#een the co!pan$ and Macapinlac #ere. His testi!on$ besides bein" ne"ative in character has in it !an$ of the ele!ents of hearsa$ and is not at all satisfactor$. It #ould have been ver$ eas$ to present one of the !e!bers of the co!pan$, or all of the!, #ho en"a"ed Macapinlac, #ho =no# the relations bet#een hi! and the co!pan$, to testif$ as to #hat those relations #ere and to den$, if that #ere the fact, that Macapinlac #as such an a"ent or official of the co!pan$ as is #ithin the purvie# of section /.> above referred to. The facts stated in the certificate of the sheriff #ill not be considered as overco!e and rebutted e%cept on clear evidence sho#in" the contrar$. The evidence of the boo==eeper, #ho is the onl$ #itness for the co!pan$, is not satisfactor$ in an$ sense and is ,uite insufficient to overco!e the presu!ption established b$ the sheriff*s certificate.

In vie# of these considerations it is not necessar$ to consider the ,uestion presented b$ the pa$!ent b$ the plaintiff co!pan$ of the Kud"!ent. The Kud"!ent appealed fro! is reversed and the co!plaint dis!issed on the !erits, #ithout costs in this instance. So ordered. /rellano! C.,.! Torres! ,ohnson and /raullo! ,,.! concur. Carson! ,.! dissents. Republic of the Philippines SUPREME COURT Manila S8&OND DIVISION

G.R. No. 127347 No9/:;/r 25, 1999 A"FRE%O N. AGUI"A, JR., petitioner, vs. ONORA!"E COURT OF APPEA"S an0 FE"ICI%A% S. &%A. %E A!ROGAR, respondents.

MEN%O*A, J.: This is a petition for revie# on certiorari of the decision 1 of the &ourt of 0ppeals, dated Nove!ber 3., -..5, #hich reversed the decision of the Re"ional Trial &ourt, <ranch 3B/, Mari=ina, Metro Manila, dated 0pril --, -..4. The trial court dis!issed the petition for declaration of nullit$ of a deed of sale filed b$ private respondent 9elicidad S. Vda. de 0bro"ar a"ainst petitioner 0lfredo N. 0"uila, Dr. The facts are as follo#s6 Petitioner is the !ana"er of 0.&. 0"uila J Sons, &o., a partnership en"a"ed in lendin" activities. Private respondent and her late husband, Ruben M. 0bro"ar, #ere the re"istered o#ners of a

house and lot, covered b$ Transfer &ertificate of Title No. -.4-5-, in Mari=ina, Metro Manila. On 0pril -C, -..-, private respondent, #ith the consent of her late husband, and 0.&. 0"uila J Sons, &o., represented b$ petitioner, entered into a Me!orandu! of 0"ree!ent, #hich provided6 '-( That the S8&OND P0RTO @0.&. 0"uila J Sons, &o.A shall bu$ the above1described propert$ fro! the 9IRST P0RTO @9elicidad S. Vda. de 0bro"arA, and pursuant to this a"ree!ent, a Deed of 0bsolute Sale shall be e%ecuted b$ the 9IRST P0RTO conve$in" the propert$ to the S8&OND P0RTO for and in consideration of the su! of T#o Hundred Thousand Pesos 'P355,555.55(, Philippine &urrenc$L '3( The 9IRST P0RTO is hereb$ "iven b$ the S8&OND P0RTO the option to repurchase the said propert$ #ithin a period of ninet$ '.5( da$s fro! the e%ecution of this !e!orandu! of a"ree!ent effective 0pril -C, -..-, for the a!ount of T7O H+NDR8D THIRTO THO+S0ND P8SOS 'P3/5,555.55(L '/( In the event that the 9IRST P0RTO fail to e%ercise her option to repurchase the said propert$ #ithin a period of ninet$ '.5( da$s, the 9IRST P0RTO is obli"ed to deliver peacefull$ the possession of the propert$ to the S8&OND P0RTO #ithin fifteen '-4( da$s after the e%piration of the said .5 da$ "race periodL ':( Durin" the said "race period, the 9IRST P0RTO obli"es herself not to file an$ lis pendens or #hatever clai!s on the propert$ nor shall be cause the annotation of sa$ clai! at the bac= of the title to the said propert$L '4( 7ith the e%ecution of the deed of absolute sale, the 9IRST P0RTO #arrants her o#nership of the propert$ and shall defend the ri"hts of the S8&OND P0RTO a"ainst an$ part$ #ho! !a$ have an$ interests over the propert$L

'>( 0ll e%penses for docu!entation and other incidental e%penses shall be for the account of the 9IRST P0RTOL 'B( Should the 9IRST P0RTO fail to deliver peaceful possession of the propert$ to the S8&OND P0RTO after the e%piration of the -41da$ "race period "iven in para"raph / above, the 9IRST P0RTO shall pa$ an a!ount e,uivalent to 9ive Percent of the principal a!ount of T7O H+NDR8D P8SOS 'P355.55( or P-5,555.55 per !onth of dela$ as and for rentals and li,uidated da!a"esL 'C( Should the 9IRST P0RTO fail to e%ercise her option to repurchase the propert$ #ithin ninet$ '.5( da$s period above1!entioned, this !e!orandu! of a"ree!ent shall be dee!ed cancelled and the Deed of 0bsolute Sale, e%ecuted b$ the parties shall be the final contract considered as entered bet#een the parties and the S8&OND P0RTO shall proceed to transfer o#nership of the propert$ above described to its na!e free fro! lines and encu!brances. 2 On the sa!e da$, 0pril -C, -..-, the parties li=e#ise e%ecuted a deed of absolute sale, 3 dated Dune --, -..-, #herein private respondent, #ith the consent of her late husband, sold the subKect propert$ to 0.&. 0"uila J Sons, &o., represented b$ petitioner, for P355,555,55. In a special po#er of attorne$ dated the sa!e da$, 0pril -C, -..-, private respondent authori;ed petitioner to cause the cancellation of T&T No. -.4-5- and the issuance of a ne# certificate of title in the na!e of 0.&. 0"uila and Sons, &o., in the event she failed to redee! the subKect propert$ as provided in the Me!orandu! of 0"ree!ent. 4 Private respondent failed to redee! the propert$ #ithin the .51da$ period as provided in the Me!orandu! of 0"ree!ent. Hence, pursuant to the special po#er of attorne$ !entioned above, petitioner caused the cancellation of T&T No. -.4-5- and the issuance of a ne# certificate of title in the na!e of 0.&. 0"uila and Sons, &o. 5

Private respondent then received a letter dated 0u"ust -5, -..fro! 0tt$. Ia!berto &. Nan,uil, counsel for 0.&. 0"uila J Sons, &o., de!andin" that she vacate the pre!ises #ithin -4 da$s after receipt of the letter and surrender its possession peacefull$ to 0.&. 0"uila J Sons, &o. Other#ise, the latter #ould brin" the appropriate action in court. 6 +pon the refusal of private respondent to vacate the subKect pre!ises, 0.&. 0"uila J Sons, &o. filed an eKect!ent case a"ainst her in the Metropolitan Trial &ourt, <ranch B>, Mari=ina, Metro Manila. In a decision, dated 0pril /, -..3, the Metropolitan Trial &ourt ruled in favor of 0.&. 0"uila J Sons, &o. on the "round that private respondent did not redee! the subKect propert$ before the e%piration of the .51da$ period provided in the Me!orandu! of 0"ree!ent. Private respondent appealed first to the Re"ional Trial &ourt, <ranch ->/, Pasi", Metro Manila, then to the &ourt of 0ppeals, and later to this &ourt, but she lost in all the cases. Private respondent then filed a petition for declaration of nullit$ of a deed of sale #ith the Re"ional Trial &ourt, <ranch 3B/, Mari=ina, Metro Manila on Dece!ber :, -../. She alle"ed that the si"nature of her husband on the deed of sale #as a for"er$ because he #as alread$ dead #hen the deed #as supposed to have been e%ecuted on Dune --, -..-. It appears, ho#ever, that private respondent had filed a cri!inal co!plaint for falsification a"ainst petitioner #ith the Office of the Prosecutor of ?ue;on &it$ #hich #as dis!issed in a resolution, dated 9ebruar$ -:, -..:. On 0pril --, -..4, <ranch 3B/ of RT&1Mari=ina rendered its decision6 Plaintiff*s clai! therefore that the Deed of 0bsolute Sale is a for"er$ because the$ could not personall$ appear before Notar$ Public Ia!berto &. Nan,uil on Dune --, -..- because her husband, Ruben 0bro"ar, died on Ma$ C, -..- or one !onth and 3 da$s before the e%ecution of the Deed of 0bsolute Sale, #hile the plaintiff #as still in the ?ue;on &it$ Medical &enter recuperatin" fro! #ounds #hich she suffered at the sa!e vehicular

accident on Ma$ C, -..-, cannot be sustained. The &ourt is convinced that the three re,uired docu!ents, to #it6 the Me!orandu! of 0"ree!ent, the Special Po#er of 0ttorne$, and the Deed of 0bsolute Sale #ere all si"ned b$ the parties on the sa!e date on 0pril -C, -..-. It is a co!!on and accepted business practice of those en"a"ed in !one$ lendin" to prepare an undated absolute deed of sale in loans of !one$ secured b$ real estate for various reasons, fore!ost of #hich is the evasion of ta%es and surchar"es. The plaintiff never ,uestioned receivin" the su! of P355,555.55 representin" her loan fro! the defendant. &o!!on sense dictates that an established lendin" and realt$ fir! li=e the 0"uila J Sons, &o. #ould not part #ith P355,555.55 to the 0bro"ar spouses, #ho are virtual stran"ers to it, #ithout the si!ultaneous acco!plish!ent and si"nin" of all the re,uired docu!ents, !ore particularl$ the Deed of 0bsolute Sale, to protect its interest. %%% %%% %%% 7H8R89OR8, fore"oin" pre!ises considered, the case in caption is hereb$ ORD8R8D DISMISS8D, #ith costs a"ainst the plaintiff. On appeal, the &ourt of 0ppeals reversed. It held6 The facts and evidence sho# that the transaction bet#een plaintiff1appellant and defendant1appellee is indubitabl$ an e,uitable !ort"a"e. 0rticle ->53 of the Ne# &ivil &ode finds stron" application in the case at bar in the li"ht of the follo#in" circu!stances. First6 The purchase price for the alle"ed sale #ith ri"ht to repurchase is unusuall$ inade,uate. The propert$ is a t#o hundred fort$ '3:5( s,. !. lot. On said lot, the residential house of plaintiff1appellant stands. The propert$ is inside a subdivisionGvilla"e. The propert$ is situated in Mari=ina #hich is alread$ part of Metro

Manila. The alle"ed sale too= place in -..- #hen the value of the land had considerabl$ increased. 9or this propert$, defendant1appellee pa$s onl$ a !easl$ P355,555.55 or PC//.// per s,uare !eter for both the land and for the house. "econd6 The disputed Me!orandu! of 0"ree!ent specificall$ provides that plaintiff1appellant is obli"ed to deliver peacefull$ the possession of the propert$ to the S8&OND P0RTO #ithin fifteen '-4( da$s after the e%piration of the said ninet$ '.5( da$ "race period. Other#ise stated, plaintiff1appellant is to retain ph$sical possession of the thin" alle"edl$ sold. In fact, plaintiff1appellant retained possession of the propert$ sold as if the$ #ere still the absolute o#ners. There #as no provision for !aintenance or e%penses, !uch less for pa$!ent of rent. Third6 The apparent vendor, plaintiff1appellant herein, continued to pa$ ta%es on the propert$ sold . It is #ell1 =no#n that pa$!ent of ta%es acco!panied b$ actual possession of the land covered b$ the ta% declaration, constitute evidence of "reat #ei"ht that a person under #hose na!e the real ta%es #ere declared has a clai! of ri"ht over the land. It is #ell1settled that the presence of even one of the circu!stances in 0rticle ->53 of the Ne# &ivil &ode is sufficient to declare a contract of sale #ith ri"ht to repurchase an e,uitable !ort"a"e. &onsiderin" that plaintiff1appellant, as vendor, #as paid a price #hich is unusuall$ inade,uate, has retained possession of the subKect propert$ and has continued pa$in" the realt$ ta%es over the subKect propert$, 'circu!stances !entioned in par. '-( '3( and '4( of 0rticle ->53 of the Ne# &ivil &ode(, it !ust be conclusivel$ presu!ed that the transaction the parties actuall$ entered into is an e,uitable !ort"a"e, not a sale

#ith ri"ht to repurchase. The factors cited are in support to the findin" that the Deed of SaleGMe!orandu! of 0"ree!ent #ith ri"ht to repurchase is in actualit$ an e,uitable !ort"a"e. Moreover, it is undisputed that the deed of sale #ith ri"ht of repurchase #as e%ecuted b$ reason of the loan e%tended b$ defendant1appellee to plaintiff1appellant. The a!ount of loan bein" the sa!e #ith the a!ount of the purchase price. %%% %%% %%% Since the real intention of the part$ is to secure the pa$!ent of debt, no# dee!ed to be repurchase price6 the transaction shall then be considered to be an e,uitable !ort"a"e. <ein" a !ort"a"e, the transaction entered into b$ the parties is in the nature of a pactum commissorium#hich is clearl$ prohibited b$ 0rticle 35CC of the Ne# &ivil &ode. 0rticle 35CC of the Ne# &ivil &ode reads6 0rt. 35CC. The creditor cannot appropriate the thin"s "iven b$ #a$ of pled"e or !ort"a"e, or dispose of the!. 0n$ stipulation to the contrar$ is null and void. The afore,uoted provision furnishes the t#o ele!ents for pactum commissorium to e%ist6 '-( that there should be a pled"e or !ort"a"e #herein a propert$ is pled"ed or !ort"a"ed b$ #a$ of securit$ for the pa$!ent of principal obli"ationL and '3( that there should be a stipulation for an auto!atic appropriation b$ the creditor of the thin" pled"ed and !ort"a"ed in the event of non1 pa$!ent of the principal obli"ation #ithin the stipulated period. In this case, defendant1appellee in realit$ e%tended a P355,555.55 loan to plaintiff1appellant secured b$ a !ort"a"e on the propert$ of plaintiff1appellant. The loan

#as pa$able #ithin ninet$ '.5( da$s, the period #ithin #hich plaintiff1appellant can repurchase the propert$. Plaintiff1appellant #ill pa$ P3/5,555.55 and not P355,555.55, the P/5,555.55 e%cess is the interest for the loan e%tended. 9ailure of plaintiff1appellee to pa$ the P3/5,555.55 #ithin the ninet$ '.5( da$s period, the propert$ shall auto!aticall$ belon" to defendant1 appellee b$ virtue of the deed of sale e%ecuted. &learl$, the a"ree!ent entered into b$ the parties is in the nature of pactum commissorium. Therefore, the deed of sale should be declared void as #e hereb$ so declare to be invalid, for bein" violative of la#. %%% %%% %%% 7H8R89OR8, fore"oin" considered, the appealed decision is hereb$ R8V8RS8D and S8T 0SID8. The ,uestioned Deed of Sale and the cancellation of the T&T No. -.4-5- issued in favor of plaintiff1appellant and the issuance of T&T No. 3>B5B/ issued in favor of defendant1appellee pursuant to the ,uestioned Deed of Sale is hereb$ declared VOID and is hereb$ 0NN+II8D. Transfer &ertificate of Title No. -.4-5- of the Re"istr$ of Mari=ina is hereb$ ordered R8INST0T8D. The loan in the a!ount of P3/5,555.55 shall be paid #ithin ninet$ '.5( da$s fro! the finalit$ of this decision. In case of failure to pa$ the a!ount of P3/5,555.55 fro! the period therein stated, the propert$ shall be sold at public auction to satisf$ the !ort"a"e debt and costs and if there is an e%cess, the sa!e is to be "iven to the o#ner. Petitioner no# contends that6 '-( he is not the real part$ in interest but 0.&. 0"uila J &o., a"ainst #hich this case should have been brou"htL '3( the Kud"!ent in the eKect!ent case is a bar to the filin" of the co!plaint for declaration of nullit$ of a deed of sale in this caseL and '/( the contract bet#een 0.&. 0"uila J Sons, &o. and private respondent is a pacto de retro sale and not an e,uitable !ort"a"e as held b$ the appellate court.

The petition is !eritorious. Rule /, W3 of the Rules of &ourt of -.>:, under #hich the co!plaint in this case #as filed, provided that ever$ action !ust be prosecuted and defended in the na!e of the real part$ in interest. 0 real part$ in interest is one #ho #ould be benefited or inKured b$ the Kud"!ent, or #ho is entitled to the avails of the suit. 7 This rulin" is no# e!bodied in Rule /, W3 of the -..B Revised Rules of &ivil Procedure. 0n$ decision rendered a"ainst a person #ho is not a real part$ in interest in the case cannot be e%ecuted. 5 Hence, a co!plaint filed a"ainst such a person should be dis!issed for failure to state a cause of action. 9 +nder 0rt. -B>C of the &ivil &ode, a partnership has a Kuridical personalit$ separate and distinct fro! that of each of the partners. The partners cannot be held liable for the obli"ations of the partnership unless it is sho#n that the le"al fiction of a different Kuridical personalit$ is bein" used for fraudulent, unfair, or ille"al purposes. 16 In this case, private respondent has not sho#n that 0.&. 0"uila J Sons, &o., as a separate Kuridical entit$, is bein" used for fraudulent, unfair, or ille"al purposes. Moreover, the title to the subKect propert$ is in the na!e of 0.&. 0"uila J Sons, &o. and the Me!orandu! of 0"ree!ent #as e%ecuted bet#een private respondent, #ith the consent of her late husband, and 0.&. 0"uila J Sons, &o., represented b$ petitioner. Hence, it is the partnership, not its officers or a"ents, #hich should be i!pleaded in an$ liti"ation involvin" propert$ re"istered in its na!e. 0 violation of this rule #ill result in the dis!issal of the co!plaint. 11 7e cannot understand #h$ both the Re"ional Trial &ourt and the &ourt of 0ppeals sidestepped this issue #hen it #as s,uarel$ raised before the! b$ petitioner. Our conclusion that petitioner is not the real part$ in interest a"ainst #ho! this action should be prosecuted !a=es it unnecessar$ to discuss the other issues raised b$ hi! in this appeal. 7H8R89OR8, the decision of the &ourt of 0ppeals is hereb$ R8V8RS8D and the co!plaint a"ainst petitioner is DISMISS8D. SO ORD8R8D.

1ellosillo! =uisumbing! 1uena and 8e -eon! ,r.! ,,.! concur. Foo8no8/. - Per Dustice 8u"enio S. Iabitoria and concurred in b$ Dustices &ancio &. 2arcia and O!ar +. 0!in. 3 8%h. 0, 9older of 8%hibits for the Plaintiff, pp. -13. / 8%h. H, id., pp. -31-/. : 8%h. /, 9older of 8%hibits for the Defendant, p. /. 4 Petition, Rollo, p. B. > 8%h. :, 9older of 8%hibits for the Defendant, pp. -41->. B Salon"a v. 7arner <arnes J &o., Itd., CC Phil. -34 '-.4-(. C S!ith, <ell J &o., Inc. v. &ourt of 0ppeals, 3>B S&R0 4/5 '-..B(. . &olu!bia Pictures, Inc. v. &ourt of 0ppeals, 3>- S&R0 -:: '-..>(. -5 "ee Mc&onnel v. &ourt of 0ppeals, --- Phil. /-5 '-.>-(. -- "ee &it$ of <acolod v. 2ruet, --> Phil. -554 '-.>3(. Republic of the Philippines SUPREME COURT Manila 8N <0N& G.R. No. "+15763 Au@u.8 25, 1922

IN&O"UNTAR$ INSO"&ENC$ OF CAMPOS RUE%A ' CO., S. /n C., appellee, vs. PACIFIC COMMERCIA" CO., ASIATIC PETRO"EUM CO., an0 INTERNATIONA" !ANEING CORPORATION,petitioners1 appellants.

,ose 3ulo! Ross and -a&rence and ,. /. 4ol son or appellants. /ntonio "an) or appellee. ROMUA"%E*, J.: The record of this proceedin" havin" been trans!itted to this court b$ virtue of an appeal ta=en herein, a !otion #as presented b$ the appellants pra$in" this court that this case be considered purel$ a !oot ,uestion no#, for the reason that subse,uent to the decision appealed fro!, the partnership &a!pos Rueda J &o., voluntaril$ filed an application for a Kudicial decree adKud"in" itself insolvent, #hich is Kust #hat the herein petitioners and appellants tried to obtain fro! the lo#er court in this proceedin". The !otion no# before us !ust be, and is hereb$, denied even under the facts stated b$ the appellants in their !otion aforesaid. The ,uestion raised in this case is not purel$ !oot oneL the fact that a !an #as insolvent on a certain da$ does not Kustif$ an inference that he #as so!e ti!e prior thereto. Proof that a !an #as insolvent on a certain da$ does not Kustif$ an inference that he #as on a da$ so!e ti!e prior thereto. Man$ contin"encies, such as un#ise invest!ents, losin" contracts, !isfortune, or accident, !i"ht happen to reduce a person fro! a state of solvenc$ #ithin a short space of ti!e. 'Ni!ball vs. Dresser, .C Me., 4-.L 4B 0tl. Rep., B>B.( 0 decree of insolvenc$ be"ins to operate on the date it is issued. It is one thin" to adKud"e &a!pos Rueda J &o. insolvent in Dece!ber, -.3-, as pra$ed for in this case, and another to declare it insolvent in Dul$, -.33, as stated in the !otion. Turnin" to the !erits of this appeal, #e find that this li!ited partnership #as, and is, indebted to the appellants in various su!s a!ountin" to not less than P-,555, pa$able in the Philippines, #hich #ere not paid !ore than thirt$ da$s prior to the date of the filin" b$ the petitioners of the application for involuntar$ insolvenc$ no# before us. These facts #ere sufficient established b$ the evidence.

The trial court denied the petition on the "round that it #as not proven, nor alle"ed, that the !e!bers of the aforesaid fir! #ere insolvent at the ti!e the application #as filedL and that #as said partners are personall$ and solidaril$ liable for the conse,uence of the transactions of the partnership, it cannot be adKud"ed insolvent so lon" as the partners are not alle"ed and proven to be insolvent. 9ro! this Kud"!ent the petitioners appeal to this court, on the "round that this findin" of the lo#er court is erroneous. The funda!ental ,uestion that presents itself for decision is #hether or not a li!ited partnership, such as the appellee, #hich has failed to pa$ its obli"ation #ith three creditors for !ore than thirt$ da$s, !a$ be held to have co!!itted an act of insolvenc$, and thereb$ be adKud"ed insolvent a"ainst its #ill. +nli=e the co!!on la#, the Philippine statutes consider a li!ited partnership as a Kuridical entit$ for all intents and purposes, #hich personalit$ is reco"ni;ed in all its acts and contracts 'art. -->, &ode of &o!!erce(. This bein" so and the Kuridical personalit$ of a li!ited partnership bein" different fro! that of its !e!bers, it !ust, on "eneral principle, ans#er for, and suffer, the conse,uence of its acts as such an entit$ capable of bein" the subKect of ri"hts and obli"ations. If, as in the instant case, the li!ited partnership of &a!pos Rueda J &o. 9ailed to pa$ its obli"ations #ith three creditors for a period of !ore than thirt$ da$s, #hich failure constitutes, under our Insolvenc$ Ia#, one of the acts of ban=ruptc$ upon #hich an adKudication of involuntar$ insolvenc$ can be predicated, this partnership !ust suffer the conse,uences of such a failure, and !ust be adKud"ed insolvent. 7e are not un!indful of the fact that so!e courts of the +nited States have held that a partnership !a$ not be adKud"ed insolvent in an involuntar$ insolvenc$ proceedin" unless all of its !e!bers are insolvent, #hile others have !aintained a contrar$ vie#. <ut it !ust be borne in !ind that under the 0!erican co!!on la#, partnerships have no Kuridical personalit$ independent fro! that of its !e!bersL and if no# the$ have such personalit$ for the purpose of the insolvenc$ la#, it is onl$ b$ virtue of "eneral la# enacted b$ the &on"ress of the +nited States on Dul$ -, -C.C, section 4, para"raph 'h(, of #hich reads thus6

In the event of one or !ore but not all of the !e!bers of a partnership bein" adKud"ed ban=rupt, the partnership propert$ shall not be ad!inistered in ban=ruptc$, unless b$ consent of the partner or partners not adKud"ed ban=ruptL but such partner or partners not adKud"ed ban=rupt shall settle the partnership business as e%peditiousl$ as its nature #ill per!it, and account for the interest of the partner or partners adKud"ed ban=rupt. The "eneral consideration that these partnership had no Kuridical personalit$ and the li!itations prescribed in subsection 'h( above set forth "ave rise to the conflict noted in 0!erican decisions, as stated in the case of In reSa!uels '3-4 9ed., C:4(, #hich !entions the t#o apparentl$ conflictin" doctrines, citin" one fro! In re <ertensha# '-4B 9ed., />/(, and the other fro! 9rancis vs. McNeal '-C> 9ed., :C-(. <ut there bein" in our insolvenc$ la# no such provision as that contained in section 4 of said 0ct of &on"ress of Dul$ -, -C.C, nor an$ rule si!ilar thereto, and the Kuridical personalit$ of li!ited partnership bein" reco"ni;ed b$ our statutes fro! their for!ation in all their acts and contracts the decision of 0!erican courts on this point can have no application in this Kurisdiction, nor #e see an$ reason #h$ these partnerships cannot be adKud"ed ban=rupt irrespective of the solvenc$ or insolvenc$ of their !e!bers, provided the partnership has, as such, co!!itted so!e of the acts of insolvenc$ provided in our la#. +nder this vie# it is unnecessar$ to discuss the other points raised b$ the parties, althou"h in the particular case under consideration it can be added that the liabilit$ of the li!ited partners for the obli"ations and losses of the partnership is li!ited to the a!ounts paid or pro!ised to be paid into the co!!on fund e%cept #hen a li!ited partner should have included his na!e or consented to its inclusion in the fir! na!e 'arts. -:B and -:C, &ode of &o!!erce(. Therefore, it havin" been proven that the partnership &a!pos Rueda J &o. failed for !ore than thirt$ da$s to pa$ its obli"ations to the petitioners the Pacific &o!!ercial &o. the 0siatic Petroleu! &o. and the International <an=in" &orporation, the case co!es under para"raph -- of section 35 of 0ct No. -.4>, and

conse,uentl$ the petitioners have the ri"ht to a Kudicial decree declarin" the involuntar$ insolvenc$ of said partnership. 7herefore, the Kud"!ent appealed fro! is reversed, and it is adKud"ed that the li!ited partnership &a!pos Rueda J &o. is and #as on Dece!ber 3C, -.3-, insolvent and liable for havin" failed for !ore than thirt$ da$s to !eet its obli"ations #ith the three petitioners herein, and it is ordered that this proceedin" be re!anded to the &ourt of 9irst Instance of Manila #ith instruction to said court to issue the proper decrees under section 3: of 0ct No. -.4>, and proceed there#ith until its final disposition. It is so ordered #ithout special findin" as to costs. /raullo! C. ,.! ,ohnson! "treet! 2alcolm! /vance7a! (illamor! 5strand! and ,ohns! ,,.! concur. Republic of the Philippines SUPREME COURT Manila 8N <0N& 2.R. No. I1...> October -4, -.4B

8+98MI0 8V0N28IIST0, M0N+8I0 8V0N28IIST0, and 9R0N&IS&0 8V0N28IIST0, petitioners, vs. T E CO""ECTOR OF INTERNA" RE&ENUE an0 T E COURT OF TA2 APPEA"S, respondents. "antiago F. /lidio and /ngel ". 8a9ila! ,r.! or petitioner. 5 ice o the "olicitor General /mbrosio Padilla! /ssistant "olicitor General Esmeraldo ;mali and "olicitor Felicisimo R. Rosete or Respondents. CONCEPCION, J.> This is a petition filed b$ 8ufe!ia 8van"elista, Manuela 8van"elista and 9rancisca 8van"elista, for revie# of a decision of the &ourt of Ta% 0ppeals, the dispositive part of #hich reads6

9OR 0II TH8 9OR82OIN2, #e hold that the petitioners are liable for the inco!e ta%, real estate dealer*s ta% and the residence ta% for the $ears -.:4 to -.:., inclusive, in accordance #ith the respondent*s assess!ent for the sa!e in the total a!ount of P>,CBC./:, #hich is hereb$ affir!ed and the petition for revie# filed b$ petitioner is hereb$ dis!issed #ith costs a"ainst petitioners. It appears fro! the stipulation sub!itted b$ the parties6 -. That the petitioners borro#ed fro! their father the su! of P4.,-:55.55 #hich a!ount to"ether #ith their personal !onies #as used b$ the! for the purpose of bu$in" real properties,. 3. That on 9ebruar$ 3, -.:/, the$ bou"ht fro! Mrs. Dosefina 9lorentino a lot #ith an area of /,B-/.:5 s,. !. includin" i!prove!ents thereon fro! the su! of P-55,555.55L this propert$ has an assessed value of P4B,4-B.55 as of -.:CL /. That on 0pril /, -.:: the$ purchased fro! Mrs. Dosefa Oppus 3- parcels of land #ith an a""re"ate area of /,B-C.:5 s,. !. includin" i!prove!ents thereon for P-/5,555.55L this propert$ has an assessed value of PC3,344.55 as of -.:CL :. That on 0pril 3C, -.:: the$ purchased fro! the Insular Invest!ents Inc., a lot of :,/4/ s,. !. includin" i!prove!ents thereon for P-5C,C34.55. This propert$ has an assessed value of P:,.C/.55 as of -.:CL 4. That on 0pril 3C, -.:: the$ bou"ht for! Mrs. Valentina 0fable a lot of C,/B- s,. !. includin" i!prove!ents thereon for P3/B,3/:./:. This propert$ has an assessed value of P4.,-:5.55 as of -.:CL >. That in a docu!ent dated 0u"ust ->, -.:4, the$ appointed their brother Si!eon 8van"elista to *!ana"e their properties #ith full po#er to leaseL to collect and receive rentsL to issue receipts thereforL in default of such pa$!ent, to brin" suits a"ainst the defaultin" tenantsL to si"n all letters, contracts,

etc., for and in their behalf, and to endorse and deposit all notes and chec=s for the!L B. That after havin" bou"ht the above1!entioned real properties the petitioners had the sa!e rented or leases to various tenantsL C. That fro! the !onth of March, -.:4 up to an includin" Dece!ber, -.:4, the total a!ount collected as rents on their real properties #as P.,4...55 #hile the e%penses a!ounted to P/,>45.55 thereb$ leavin" the! a net rental inco!e of P4,.:C.//L .. That on -.:>, the$ reali;ed a "ross rental inco!e of in the su! of P3:,BC>./5, out of #hich a!ount #as deducted in the su! of P->,3CC.3B for e%penses thereb$ leavin" the! a net rental inco!e of PB,:.C.-/L -5. That in -.:C, the$ reali;ed a "ross rental inco!e of P-B,:4/.55 out of the #hich a!ount #as deducted the su! of P:,C/B.>4 as e%penses, thereb$ leavin" the! a net rental inco!e of P-3,>-4./4. It further appears that on Septe!ber 3:, -.4: respondent &ollector of Internal Revenue de!anded the pa$!ent of inco!e ta% on corporations, real estate dealer*s fi%ed ta% and corporation residence ta% for the $ears -.:41-.:., co!puted, accordin" to assess!ent !ade b$ said officer, as follo#s6 IN&OM8 T0P8S -.:4 -.:> -.:B -.:C -.:. Total includin" surchar"e and -:.C: -,-::.B-5./: -,.-3./5 -,4B4..5 P>,-4B.5.

co!pro!ise R80I 8ST0T8 D80I8R*S 9IP8D T0P -.:> -.:B -.:C -.:. Total includin" penalt$ P/B.45 -45.55 -45.55 -45.55 P43B.55

R8SID8N&8 T0P8S O9 &ORPOR0TION -.:4 -.:> -.:B -.:C -.:. Total includin" surchar"e TOT0I T0P8S D+8 P/C.B4 /C.B4 /C.B4 /C.B4 /C.B4 P-./.B4 P>,CBC./:.

Said letter of de!and and correspondin" assess!ents #ere delivered to petitioners on Dece!ber /, -.4:, #hereupon the$ instituted the present case in the &ourt of Ta% 0ppeals, #ith a pra$er that the decision of the respondent contained in his letter of de!and dated Septe!ber 3:, -.4: be reversed, and that the$ be absolved fro! the pa$!ent of the ta%es in ,uestion, #ith costs a"ainst the respondent. 0fter appropriate proceedin"s, the &ourt of Ta% 0ppeals the above1 !entioned decision for the respondent, and a petition for reconsideration and ne# trial havin" been subse,uentl$ denied, the case is no# before +s for revie# at the instance of the petitioners.

The issue in this case #hether petitioners are subKect to the ta% on corporations provided for in section 3: of &o!!on#ealth 0ct. No. :>>, other#ise =no#n as the National Internal Revenue &ode, as #ell as to the residence ta% for corporations and the real estate dealers fi%ed ta%. 7ith respect to the ta% on corporations, the issue hin"es on the !eanin" of the ter!s corporation and partnership, as used in section 3: and C: of said &ode, the pertinent parts of #hich read6 S8&. 3:. Rate o tax on corporations.HThere shall be levied, assessed, collected, and paid annuall$ upon the total net inco!e received in the precedin" ta%able $ear fro! all sources b$ ever$ corporation or"ani;ed in, or e%istin" under the la#s of the Philippines, no !atter ho# created or or"ani;ed but not includin" dul$ re"istered "eneral co1 partnerships 'compa7ias colectivas(, a ta% upon such inco!e e,ual to the su! of the follo#in"6 . . . S8&. C: 'b(. The ter! *corporation* includes partnerships, no !atter ho# created or or"ani;ed, Koint1stoc= co!panies, Koint accounts 'cuentas en participacion(, associations or insurance co!panies, but does not include dul$ re"istered "eneral copartnerships. 'compa7ias colectivas(. 0rticle -B>B of the &ivil &ode of the Philippines provides6 <$ the contract of partnership t#o or !ore persons bind the!selves to contribute !one$, properl$, or industr$ to a co!!on fund, #ith the intention of dividin" the profits a!on" the!selves. Pursuant to the article, the essential ele!ents of a partnership are t#o, na!el$6 'a( an a"ree!ent to contribute !one$, propert$ or industr$ to a co!!on fundL and 'b( intent to divide the profits a!on" the contractin" parties. The first ele!ent is undoubtedl$ present in the case at bar, for, ad!ittedl$, petitioners have a"reed to, and did, contribute !one$ and propert$ to a co!!on fund. Hence, the issue narro#s do#n to their intent in actin" as the$ did. +pon consideration of all the facts and circu!stances surroundin" the case, #e are full$ satisfied that their purpose #as to en"a"e in

real estate transactions for !onetar$ "ain and then divide the sa!e a!on" the!selves, because6 -. Said co!!on fund #as not so!ethin" the$ found alread$ in e%istence. It #as not propert$ inherited b$ the!pro indiviso. The$ created it purposel$. 7hat is !ore the$ #ointl+ borro&ed a substantial portion thereof in orderto establish said co!!on fund. 3. The$ invested the sa!e, not !erel$ not !erel$ in one transaction, but in a series of transactions. On 9ebruar$ 3, -.:/, the$ bou"ht a lot for P-55,555.55. On 0pril /, -.::, the$ purchased 3- lots for P-C,555.55. This #as soon follo#ed on 0pril 3/, -.::, b$ the ac,uisition of another real estate for P-5C,C34.55. 9ive '4( da$s later '0pril 3C, -.::(, the$ "ot a fourth lot for P3/B,3/:.-:. The nu!ber of lots '3:( ac,uired and transactions underta=en, as #ell as the brief interre"nu! bet#een each, particularl$ the last three purchases, is stron"l$ indicative of a pattern or co!!on desi"n that #as not li!ited to the conservation and preservation of the afore!entioned co!!on fund or even of the propert$ ac,uired b$ the petitioners in 9ebruar$, -.:/. In other #ords, one cannot but perceive a character of habituall$ peculiar to business transactions en"a"ed in the purpose of "ain. /. The aforesaid lots #ere not devoted to residential purposes, or to other personal uses, of petitioners herein. The properties #ere leased separatel$ to several persons, #ho, fro! -.:4 to -.:C inclusive, paid the total su! of PB5,5>C./5 b$ #a$ of rentals. See!in"l$, the lots are still bein" so let, for petitioners do not even su""est that there has been an$ chan"e in the utili;ation thereof. :. Since 0u"ust, -.:4, the properties have been under the !ana"e!ent of one person, na!el$ Si!eon 8van"elista, #ith full po#er to lease, to collect rents, to issue receipts, to brin" suits, to si"n letters and contracts, and to indorse and deposit notes and chec=s. Thus, the affairs relative to said properties have been handled as if the sa!e belon"ed to a corporation or business and enterprise operated for profit.

4. The fore"oin" conditions have e%isted for !ore than ten '-5( $ears, or, to be e%act, over fifteen '-4( $ears, since the first propert$ #as ac,uired, and over t#elve '-3( $ears, since Si!eon 8van"elista beca!e the !ana"er. >. Petitioners have not testified or introduced an$ evidence, either on their purpose in creatin" the set up alread$ adverted to, or on the causes for its continued e%istence. The$ did not even tr$ to offer an e%planation therefor. 0lthou"h, ta=en sin"l$, the$ !i"ht not suffice to establish the intent necessar$ to constitute a partnership, the collective effect of these circu!stances is such as to leave no roo! for doubt on the e%istence of said intent in petitioners herein. Onl$ one or t#o of the afore!entioned circu!stances #ere present in the cases cited b$ petitioners herein, and, hence, those cases are not in point. Petitioners insist, ho#ever, that the$ are !ere co1o#ners, not copartners, for, in conse,uence of the acts perfor!ed b$ the!, a le"al entit$, #ith a personalit$ independent of that of its !e!bers, did not co!e into e%istence, and so!e of the characteristics of partnerships are lac=in" in the case at bar. This pretense #as correctl$ reKected b$ the &ourt of Ta% 0ppeals. To be"in #ith, the ta% in ,uestion is one i!posed upon corporations , #hich, strictl$ spea=in", are distinct and different fro! partnerships . 7hen our Internal Revenue &ode includes partnerships a!on" the entities subKect to the ta% on corporations , said &ode !ust allude, therefore, to or"ani;ations #hich are not necessaril$ partnerships , in the technical sense of the ter!. Thus, for instance, section 3: of said &ode e%e!pts fro! the afore!entioned ta% dul$ re"istered "eneral partnerships #hich constitute precisel$ one of the !ost t$pical for!s of partnerships in this Kurisdiction. Ii=e#ise, as defined in section C:'b( of said &ode, the ter! corporation includes partnerships, no matter ho& created or organi)ed. This ,ualif$in" e%pression clearl$ indicates that a Koint venture need not be underta=en in an$ of the standard for!s, or in confor!it$ #ith the usual re,uire!ents of the la# on partnerships, in order that one could be dee!ed constituted for purposes of the ta% on corporations. 0"ain, pursuant to said section C:'b(, the ter! corporation includes, a!on" other, Koint accounts,

'cuentas en participation( and associations, none o &hich has a legal personalit+ o its o&n! independent o that o its members . 0ccordin"l$, the la#!a=er could not have re"arded that personalit$ as a condition essential to the e%istence of the partnerships therein referred to. In fact, as above stated, dul$ re"istered "eneral copartnerships H &hich are possessed o the a orementioned personalit+ H have been e%pressl$ e%cluded b$ la# 'sections 3: and C: @bA fro! the connotation of the ter! corporation It !a$ not be a!iss to add that petitioners* alle"ation to the effect that their liabilit$ in connection #ith the leasin" of the lots above referred to, under the !ana"e!ent of one person H even if true, on #hich #e e%press no opinion H tends to increasethe si!ilarit$ bet#een the nature of their venture and that corporations, and is, therefore, an additional ar"u!ent in avor of the i!position of said ta% on corporations. +nder the Internal Revenue Ia#s of the +nited States, corporations are ta%ed differentl$ fro! partnerships . <$ specific provisions of said la#s, such corporations include associations, Koint1stoc= co!panies and insurance co!panies. Ho#ever, the ter! association is not used in the afore!entioned la#s. . . . in an$ narro# or technical sense. It includes an$ or"ani;ation, created for the transaction of desi"ned affairs, or the attain!ent of so!e obKect, #hich li=e a corporation, continues not#ithstandin" that its !e!bers or participants chan"e, and the affairs of #hich, li=e corporate affairs, are conducted b$ a sin"le individual, a co!!ittee, a board, or so!e other "roup, actin" in a representative capacit$. It is i!!aterial #hether such or"ani;ation is created b$ an a"ree!ent, a declaration of trust, a statute, or other#ise. It includes a voluntar$ association, a Koint1stoc= corporation or co!pan$, a *business* trusts a *Massachusetts* trust, a *co!!on la#* trust, and *invest!ent* trust '#hether of the fi%ed or the !ana"e!ent t$pe(, an interinsuarance e%chan"e operatin" throu"h an attorne$ in fact, a partnership association, and an$ other t$pe of or"ani;ation 'b$ #hatever na!e =no#n( #hich is not, #ithin the !eanin" of the &ode, a trust or an estate, or a partnership. 'B0 Mertens Ia# of 9ederal Inco!e Ta%ation, p. BCCL e!phasis supplied.(.

Si!ilarl$, the 0!erican Ia#. . . . provides its o&n concept of a partnership, under the ter! *partnership *it includes not onl$ a partnership as =no#n at co!!on la# but, as #ell, a s$ndicate, "roup, pool, #oint venture or other unincorporated organi)ations &hich carries on an+ business inancial operation! or venture, and #hich is not, #ithin the !eanin" of the &ode, a trust, estate, or a corporation. . . 'B0 Merten*s Ia# of 9ederal Inco!e ta%ation, p. BC.L e!phasis supplied.( The ter! *partnership* includes a s$ndicate, "roup, pool, #oint venture or other unincorporated organi)ation! through or b+ means o &hich an+ business! inancial operation! or venture is carried on, . . .. ' C Merten*s Ia# of 9ederal Inco!e Ta%ation, p. 4>3 Note >/L e!phasis supplied.( . 9or purposes of the ta% on corporations, our .ational Internal Revenue Code! includes these partnerships H #ith the e%ception onl$ of dul$ re"istered "eneral copartnerships H &ithin the purvie& o the term <corporation.< It is, therefore, clear to our !ind that petitioners herein constitute a partnership, insofar as said &ode is concerned and are subKect to the inco!e ta% for corporations. 0s re"ards the residence of ta% for corporations, section 3 of &o!!on#ealth 0ct No. :>4 provides in part6 8ntities liable to residence ta%.18ver$ corporation, no !atter ho# created or or"ani;ed, #hether do!estic or resident forei"n, en"a"ed in or doin" business in the Philippines shall pa$ an annual residence ta% of five pesos and an annual additional ta% #hich in no case, shall e%ceed one thousand pesos, in accordance #ith the follo#in" schedule6 . . . The ter! *corporation* as used in this 0ct includes Koint1stoc= co!pan$, partnership, Koint account 'cuentas en participacion(, association or insurance co!pan$, no matter ho& created or organi)ed. 'e!phasis supplied.( &onsiderin" that the pertinent part of this provision is analo"ous to that of section 3: and C: 'b( of our National Internal Revenue &ode

'co!!on#ealth 0ct No. :>>(, and that the latter #as approved on Dune -4, -./., the da$ i!!ediatel$ after the approval of said &o!!on#ealth 0ct No. :>4 'Dune -:, -./.(, it is apparent that the ter!s corporation and partnership are used in both statutes #ith substantiall$ the sa!e !eanin". &onse,uentl$, petitioners are subKect, also, to the residence ta% for corporations. Iastl$, the records sho# that petitioners have habituall$ en"a"ed in leasin" the properties above !entioned for a period of over t#elve $ears, and that the $earl$ "ross rentals of said properties fro! Dune -.:4 to -.:C ran"ed fro! P.,4.. to P-B,:4/. Thus, the$ are subKect to the ta% provided in section -./ ',( of our National Internal Revenue &ode, for real estate dealers, inas!uch as, pursuant to section -.: 's( thereof6 *Real estate dealer* includes an$ person en"a"ed in the business of bu$in", sellin", e%chan"in", leasing! or renting propert+ or his o&n account as principal and holdin" hi!self out as a full or part ti!e dealer in real estate or as an o#ner of rental propert$ or properties rented or offered to rent for an a""re"ate a!ount of three thousand pesos or !ore a $ear. . . 'e!phasis supplied.( 7herefore, the appealed decision of the &ourt of Ta% appeals is hereb$ affir!ed #ith costs a"ainst the petitioners herein. It is so ordered. 1eng)on! Paras! C.,.! Padilla! Re+es! /.! Re+es! ,.1.-.! Endencia and Felix! ,,.! concur.

!AUTISTA ANGE"O, J., concurrin"6 I a"ree #ith the opinion that petitioners have actuall$ contributed !one$ to a co!!on fund #ith e%press purpose of en"a"in" in real estate business for profit. The series of transactions #hich the$ had underta=en attest to this. This appears in the follo#in" portion of the decision6

3. The$ invested the sa!e, not !erel$ in one transaction, but in a series of transactions. On 9ebruar$ 3, -.:/, the$ bou"ht a lot for P-55,555. On 0pril /, -.::, the$ purchase 3- lots for P-C,555. This #as soon follo#ed on 0pril 3/, -.::, b$ the ac,uisition of another real state for P-5C,C34. 9ive '4( da$s later '0pril 3C, -.::(, the$ "ot a fourth lot for P3/B,3/:.-:. The nu!ber of lots '3:( ac,uired and transactions underta=en, as #ell as the brief interre"nu! bet#een each, particularl$ the last three purchases, is stron"l$ indicative of a pattern or co!!on desi"n that #as not li!ited to the conservation and preservation of the afore!entioned co!!on fund or even of the propert$ ac,uired b$ the petitioner in 9ebruar$, -.:/, In other #ords, #e cannot but perceive a character of habituall+ peculiar to business transactions en"a"ed in for purposes of "ain. I #ish ho#ever to !a=e to !a=e the follo#in" observation6 0rticle -B>. of the ne# &ivil &ode la$s do#n the rule for deter!inin" #hen a transaction should be dee!ed a partnership or a co1o#nership. Said article para"raphs 3 and /, provides6 '3( &o1o#nership or co1possession does not of itself establish a partnership, #hether such co1o#ners or co1possessors do or do not share an$ profits !ade b$ the use of the propert$L '/( The sharin" of "ross returns does not of itself establish partnership, #hether or not the person sharin" the! have a Koint or co!!on ri"ht or interest in an$ propert$ fro! #hich the returns are derivedL 9ro! the above it appears that the fact that those #ho a"ree to for! a co1o#nership shared or do not share an$ profits !ade b$ the use of propert$ held in co!!on does not convert their venture into a partnership. Or the sharin" of the "ross returns does not of itself establish a partnership #hether or not the persons sharin" therein have a Koint or co!!on ri"ht or interest in the propert$. This onl$ !eans that, aside fro! the circu!stance of profit, the presence of other ele!ents constitutin" partnership is necessar$, such as the clear intent to for! a partnership, the e%istence of a Kudicial personalit$ different fro! that of the individual partners, and the

freedo! to transfer or assi"n an$ interest in the propert$ b$ one #ith the consent of the others 'Padilla, &ivil &ode of the Philippines 0nnotated, Vol. I, -.4/ ed., pp. >/41 >/>(. It is evident that an isolated transaction #hereb$ t#o or !ore persons contribute funds to bu$ certain real estate for profit in the absence of other circu!stances sho#in" a contrar$ intention cannot be considered a partnership. Persons #ho contribute propert$ or funds for a co!!on enterprise and a"ree to share the "ross returns of that enterprise in proportion to their contribution, but #ho severall$ retain the title to their respective contribution, are not thereb$ rendered partners. The$ have no co!!on stoc= or capital, and no co!!unit$ of interest as principal proprietors in the business itself #hich the proceeds derived. '8le!ents of the la# of Partnership b$ 9lo$d R. Meche!, 3n 8d., section C/, p. B:.( 0 Koint venture purchase of land, b$ t#o, does not constitute a copartnership in respect theretoL nor does not a"ree!ent to share the profits and loses on the sale of land create a partnershipL the parties are onl$ tenants in co!!on. '&lar= vs. Side#a$, -:3 +.S. >C3, -3 S &t. /3B, /4 I. 8d., --4B.( 7here plaintiff, his brother, and another a"reed to beco!e o#ners of a sin"le tract of realit$, holdin" as tenants in co!!on, and to divide the profits of disposin" of it, the brother and the other not bein" entitled to share in plaintiff*s co!!issions, no partnership e%isted as bet#een the parties, #hatever relation !a$ have been as to third parties. 'Ma"ee vs. Ma"ee, -3/ N. 8. >B>/, 3// Mass. /:-.( In order to constitute a partnership inter sese there !ust be6 'a( 0n intent to for! the sa!eL 'b( "enerall$ a participatin" in both profits and lossesL 'c( and such a co!!unit$ of interest, as far as third persons are concerned as enables each part$ to !a=e contract, !ana"e the business, and dispose of the #hole propert$. 'Municipal Pavin" &o. vs Herrin", -45 P. -5>B, 45 Ill. :B5.(

The co!!on o#nership of propert$ does not itself create a partnership bet#een the o#ners, thou"h the$ !a$ use it for purpose of !a=in" "ainsL and the$ !a$, #ithout beco!in" partners, a"ree a!on" the!selves as to the !ana"e!ent and use of such propert$ and the application of the proceeds therefro!. 'Spurloc= vs. 7ilson, -:3 S. 7. />/, ->5 No. 0pp. -:.( This is i!pliedl$ reco"ni;ed in the follo#in" portion of the decision6 0lthou"h, ta=en sin"l$, the$ !i"ht not suffice to establish the intent necessar$ to constitute a partnership, the collective effect of these circu!stances 'referrin" to the series of transactions( such as to leave no roo! for doubt on the e%istence of said intent in petitioners herein. 559 P.20 1619 C1977D P ' M CATT"E COMPAN$, A<</--an8 CP-a=n8=FF ;/-oGD, 9. Ru.8y O""ER, A<</--// C%/F/n0an8 ;/-oGD. No. :>4B. Su<r/:/ Cour8 oF #yo:=n@. 9ebruar$ /, 1977. -535V-535 Michael 8. 7arren, Sa#$er, Sa#$er J 7arren, Torrin"ton, si"ned the brief and appeared in oral ar"u!ent on behalf of appellant. Morris R. Masse$, <ro#n, Dre#, 0postolos, <arton J Masse$, &asper, si"ned the brief and appeared in oral ar"u!ent on behalf of appellee. <efore 2+THRI8, &.D., and Mc&IINTO&N, R0P8R, THOM0S and ROS8, DD. R0P8R, Dustice. In the district court, the plaintiff1appellant, a partnership, sou"ht and #as denied recover$ for losses incurred in -.B: under an alle"ed

oral Koint venture a"ree!ent to purchase, lease and sell livestoc=. Defendant1appellee, an individual, #as "iven Kud"!ent for S3,3-..:5 on a counterclai!. 7e #ill affir!. 7hile the plaintiff sets out the issues as !ultiple, @-A it appears that the onl$ real issue -53-V-53- is #hether the parties to this appeal #ere parties to a Koint venture or partnership a"ree!ent to share losses as #ell as profits fro! a ?a88-/ purchase, feed and sell operation. In -.B-, the defendant #as loo=in" for so!eone to pasture ?a88-/ on the defendant*s land at S/.55 per head per !onth. One of t#o partners in the plaintiff partnership e%pressed an interest and invited defendant to tal=. 0s a result, the follo#in" #ritten a"ree!ent #as entered into6 313/1-.B&ontract H Rust$ o--/r '>5 <ar Ranch( H I.7. Ma%field and <ill Poa"e Rust$ to furnish "rass for est -555 $r st and 3- heifers H Ma%field J Poa"e to furnish !one$ for ?a88-/ plus truc=in" J salt H and !a% of S/55.55 per !onth for labor Rust$ to ta=e ?a88-/ around Ma$ -st and ?a88-/ to be sold at a ti!e this fall a"reed upon b$ all parties involved &ost of ?a88-/ plus frei"ht H salt and labor to be first cost Net !one$ fro! sale of ?a88-/ less first cost to be split 45145 bet#een Rust$ '-G3( and Ma%field and Poa"e '-G3( 'death loss to be part of first cost( GsG I.7. Ma%field GsG <ill Poa"e IM GsG Rust$ o--/r The -.B- a"ree!ent #as orall$ rene#ed for the $ears -.B3, -.B/ and -.B:. Plaintiff and defendant each reali;ed substantial returns in the first three $ears but in -.B: there #as not enou"h reali;ed fro! the sale of ?a88-/ to pa$ first costs and a loss resulted. Plaintiff insists that the defendant is bound to pa$ it S::,455.55 representin" one1half of the total cash loss in the su! of SC.,555.55. The defendant personall$ e%pended first costs for e%penses 'salt( over and above the a!ount received fro! sale of ?a88-/ in the su! of S/,.>B.B>. Throu"h an ad!itted error of defendant*s counsel, alon"

#ith a !isunderstandin" b$ defendant, onl$ one1half of those e%penses #ere clai!ed b$ defendant. 7hen the error beca!e apparent at or near the close of evidence, the$ elected not to a!end the defendant*s clai! first !ade. The contract clearl$ states that plaintiff #as to furnish !one$ for V V V salt. @3A The parties never discussed nor is there an$ !ention in the contract of #hat #ould happen if the ?a88-/ sold at a loss. Nor #as an$ !ention !ade of rei!burse!ent or credit to the defendant for the value of his services and pasture or "rass he contributed, in the event ?a88-/sold at a loss. 0 broad overvie# of the entire record su""ests that this case involves onl$ a contract in #hich plaintiff a"reed to put up the !one$ and defendant a"reed to put up "ra;in" land and "rass, alon" #ith services, #ith a vie# to profit to both, each to bear their o#n losses. <efore confir!in" that position, #e !ust e%a!ine the la# of Koint ventures. In 7$o!in", a Koint adventure parta=es of the nature of a partnership and is "overned substantiall$ b$ the sa!e rules of la#, the principal distinction bein" that a Koint adventure usuall$ relates to a sin"le transaction, thou"h it !a$ be continued over a period of $ears. Eblen v. Eblen! -.4-, >C 7$o. /4/, 3/: P.3d :/:. 8ven thou"h a Koint adventure and a partnership are not identical, the relationship of ?o1adventurers is controlled lar"el$ b$ the la# of partnership. Goldberg v. 2iller! -./., 4: 7$o. :C4, ./ P.3d .:B, reh. den., .> P.3d 4B5L >oge v. George! -.3-, 3B 7$o. :3/, 355 P. .>, -C 0.I.R. :>.L 4ood v. 4estern 1ee Factor+! Inc.!-5 &ir.-.>B, /BC 9.3d .>. 0 concise distinction bet#een Koint venture -533V-533 and partnership is dra#n in - &avitch, <usiness Or"ani;ations, W -/.54@3A, pp. >BB1>BC6 It is apparent that the co!parativel$ !odern le"al concept of Koint adventure is intended to identif$ business ventures #hich, but for their li!ited scope and duration, #ould be partnerships. To date, ho#ever, there is no discernible le"al difference bet#een the t#o t$pes of associations. 0s a result, the courts have held that the Koint adventure is subKect to the sa!e rules of la# #hich are applied to partnerships, especiall$ #hen deter!inin" the ri"hts of the parties inter se.

The e%cerpt is e%cellentl$ footnoted. Since Koint adventures, also fre,uentl$ referred to as Koint ventures, are a species of and "overned b$ the la# of partnerships, #e !ust "o to the +nifor! Partnership 0ct, W -B1-.4, et se,., 7.S. -.4B, &. -.>4, adopted b$ the 7$o!in" State Ie"islature in -.-B. Section -B1355'-(, 7.S. -.4B, &. -.>4, defines a partnership as follo#s6 0 partnership is an association of t#o or !ore persons to carr$ on as co*o&ners a business for profit. '8!phasis added.( Section -B1 35-, 7.S. -.4B, &. -.>4, la$s out the criteria for resolvin" the ,uestion as to #hether a partnership obtains6 In deter!inin" #hether a partnership e%ists, these rules shall appl$6 '-( 8%cept as provided b$ section -> @W -B13-5A persons #ho are not partners as to each other are not partners as to third personsL '3( Doint tenanc$, tenanc$ in co!!on, tenanc$ b$ the entireties, Koint propert$, co!!on propert$, or part o#nership does not of itself establish a partnership, #hether such ?o1o#ners do or do not share an$ profits !ade b$ the use of the propert$L '/( The sharin" of "ross returns does not of itself establish a partnership, #hether or not the person sharin" the! have a Koint or co!!on ri"ht or interest in an$ propert$ fro! #hich the returns are derivedL ':( The receipt b$ a person of a share of the profits of a business is pri!a facie evidence that he is a partner in the business, but no such inference shall be dra#n if such profits #ere received in pa$!ent6 'a( 0s a debt b$ install!ents or other&ise! 'b( 0s &ages of an e!plo$ee or rent to a landlord, 'c( 0s an annuit$ to a #ido# or representative of a deceased partner, 'd( 0s an interest on a loan, thou"h the a!ount of pa$!ent var$ #ith the profits of the business, 'e( 0s the consideration for the sale of the "ood1#ill of a business or otherpropert+ b$ install!ents or other&ise. '8!phasis added.(

0s can be seen fro! W -B135-, an a"ree!ent to share profits is far fro! decisive that a partnership is intended. 0s in an$ contractual relationship, the intent of the parties is controllin". The parties !ust intend to create the relationship of Koint adventure or partnership. .ational "uppl+ Co.*2id&est v. 4eaver! -.3>, /4 7$o. 33:, 3:C P. /4/. Superi!posed upon the rule of intent, it is fre,uentl$ held that #here there is no e%press a"ree!ent to for! a partnership, the ,uestion of #hether such a relation e%ists !ust be "athered fro! the conduct, surroundin" circu!stances and the transactions bet#een the parties. Presutti v. Presutti! -.B/, 3B5 Md. -./, /-5 0.3d B.-L >olman v. 8o&! Te%.&iv.0pp. -.B-, :>B S.7.3d 4:BL Freese v. ;nited "tates! -5 &ir.-.B3, :44 9.3d --:>, cert. den., :5. +.S. CB., ./ S.&t. C4, /: I.8d.3d -/:. There is no auto!atic solution to the ,uestion of the e%istence of a partnership but it turns upon the facts and circu!stances of association bet#een the parties, 1ernstein! 1ernstein! 4ile : Gordon v. Ross! -.B5, 33 Mich. 0pp. --B, -BB N.7.3d -./. No sin"le fact !a$ be stated as the co!plete and final test of a partnership. ,en9ins v. 1rodnax 4hite Truc9 Compan+!Te%.&iv.0pp. -.>., :/B S.7.3d .33. 8ven a #ritten a"ree!ent, desi"natin" the parties as partners and providin" for a sharin" of the profits, is onl$ evidential and not conclusive of the e%istence of a partnership. Fen&ic9 v. ;nemplo+ment Compensation -53/V-53/ Commission! -.:4, -// N.D.I. 3.4, :: 0.3d -B3. In the case before us there #as no e%press a"ree!ent to for! a partnership. True, there #as an a"ree!ent but no#here in that docu!ent is there an$#here !entioned the ter! partnership. Nor is there an$#here !entioned an$ sharin" of losses, #hich is nor!all$ conco!itant #ith a sharin" of profits in a partnership. @/A 7hile W -B1 35-':( creates an inference, that inference is not conclusive. See the !an$ cases annotated in > +.I.0. 'Master 8dit. -.>. #ith poc=etpart(, +nifor! Partnership 0ct, W B, note :B. 7e find in 7$o!in" t#o cases #hich reflect the usual holdin"s that division of profits has little si"nificance b$ itself. In 8unn v. Gilbert! -.3B, /> 7$o. 3:., 34: P. -3-, it #as held that the use of the e%pression fift$1fift$ and an understandin" to split the profits do not necessaril$ !ean a Koint adventure but such e%pression

!ust be construed in the li"ht of surroundin" facts and circu!stances. In "tate v. 1emis! -.3>, /: 7$o. 3-C, 3:-, 3:3 P. C53, C5., the principal #itness put up the !one$ to bu$ and pa$ shippin" costs of a carload of apples. The defendant #as to share in the profits b$ arran"in" their sale. The$ sold at a loss and defendant =ept all the !one$. In a prosecution for e!be;;le!ent, the defendant clai!ed a ri"ht to retain the funds b$ reason of a partnership. This court spo=e approvin"l$ of the principle that #hen a business is li!ited to a sin"le venture, there !ust be prett$ clear evidence of an intent to create a partnership relationship and an understandin" for division of profits !a$ onl$ be considered in connection #ith the #hole transaction. Since #e cannot loo= at the face of the instru!ent here and deter!ine #hether there is a partnership, it is necessar$ that #e e%a!ine into the co!plete relationship bet#een plaintiff and defendant. 7e can in such a circu!stance "o outside its four corners to test the clai! of a #ould1be partner and loo= at #hat the parties did and ho# the$ treated the arran"e!ent bet#een the!. The conte!porar$ construction of a contract b$ acts of the parties is entitled to serious consideration b$ the court #hose dut$ it beco!es to deter!ine its !eanin". First .at. 1an9 o Green River v. Ennis! -./3, :: 7$o. :.B, -: P.3d 35-, reh. den., :4 7$o. ->4, -4 P.3d ----, 7est*s 7$o!in" Di"est &ontracts. The reason for that vie# rests in the fact that the parties are less liable to have been !ista=en as to the !eanin" of their contract #hile har!onious relations e%isted and durin" that period a practical and real construction #ould be in effect reflective of their true intentions and not interpretations ventured durin" the heat of liti"ation. 8enio 2illing Co. v. 2alin! -.-B, 34 7$o. -:/, ->4 P. ---/. In the first place, the a"ree!ent is not labeled a partnership a"ree!ent nor is the ter! partnership an$#here !entioned #ithin its ter!s. The plaintiff #as itself a partnership !ade up of t#o ranchers #ell ac,uainted #ith that arran"e!ent, one of #ho! dre# the contract. 9ro! its inception, then, none of the parties ever identified it as such. The pact #as conceived in an at!osphere created b$ defendant*s desire to sell "rass. The division of losses #as never discussed bet#een the parties until the plaintiff delivered the bad ne#s to the defendant follo#in" fall ?a88-/ sales in -.B:. No

partnership federal inco!e ta% return in an$ of the $ears -.B-1B: #as prepared and sub!itted to the Internal Revenue Service of the +nited States. On-53:V-53: the inco!e ta% returns !ade b$ the plaintiff durin" the period in ,uestion, the part of profits paid to the defendant #as carried as a business e%pense listed as contract feedin". The defendant included such pa$!ents on his individual inco!e ta% return as a sale of crops, nor #ere the ?a88-/ "ra;ed on his place b$ the defendant carried on defendant*s inco!e ta% return livestoc= inventor$. The livestoc= #ere carried on plaintiff*s partnership inco!e ta% returns. On the chec= "iven b$ plaintiff to defendant in -.B/, for defendant*s share of profits at the end of the season, it #as sho#n as bein" for pasture. 7ithin the fra!e#or= of the +nifor! Partnership 0ct, #e find rules available to the trial Kud"e to deter!ine that there #as no partnership. The division of profits #as onl$ a !easure H a standard of pa$!ent b$ plaintiff to defendant in dischar"e of a debt for services and "rass under W -B135-':('a( or in pa$!ent to defendant for #a"es of an e!plo$ee in carin" for the ?a88-/#hile on his ranch and rent to hi! as landlord for his pasture under W -B1 35-':('b( or sale of "rass as personal propert$ under W -B135-':( 'e( or throu"h a co!bination of those lettered subsections for #a"es and rent or sale of propert$. 7e need not deter!ine precisel$ #hat it #as as lon" as outside the pale of partnership. 7e are satisfied that no partnership #as intended. The a"ree!ent #as onl$ an apparatus to pa$ defendant for his "rass and services and #e return to its ter!s after reconnoiterin" the outer re"ions. 7hether or not there is a Koint venture is a ,uestion of fact and pree!inentl$ one for the finder of fact. Robinson Transportation Compan+ v. >a&9e+e*"ecurit+ Insurance Compan+! 7$o. -.>/, /C4 P.3d 35/L >oge v. George! supra. The trial Kud"e found for the defendant and #e see substantial evidence to support that result. The trial Kud"e could not fro! the facts before hi!, nor can #e, put to"ether a Koint adventure or partnership a"ree!ent for the plaintiff. Since the issue as to #hether or not there #as a Koint venture or partnership is a ,uestion of fact for the trial Kud"e, #e have e%a!ined the evidence in a li"ht !ost favorable to the prevailin" part$, as #e !ust, and have resolved all conflicts in testi!on$ and e%hibits for the appellee.Croc9ett v. -o&ther! 7$o. -.B>, 4:. P.3d

/5/L 7est*s 7$o!in" Di"est, 0ppeal and 8rror. The trial Kud"e*s findin" #as "enerall$ for the defendant. In the absence of special findin"s of fact, this revie#in" court !ust consider that the trial court*s Kud"!ent carries #ith it ever$ findin" of fact supported b$ the evidence. >endric9son v. >ein)e! 7$o. -.B4, 4:- P.3d --//L 7est*s 7$o!in" Di"est, 0ppeal and 8rror. 0 Kud"!ent #ill be affir!ed on an$ le"al "round appearin" fro! the record. ?itter9op v. Roussalis! 7$o. -.B>, 4:> P.3d :/>L 7est*s 7$o!in" Di"est, 0ppeal and 8rror. 7e use a lot of publication space repeatin" these appeal basics but the$ !ust be constantl$ =ept in !ind in that the$ have appreciable effect in di!inishin" an appellant*s fortunes in this court. 0ffir!ed. @-A The plaintiff visuali;es the issues to be as follo#s6 -. 7as the business transaction entered into b$ the above1na!ed parties a Koint venture as clai!ed b$ Plaintiff10ppellant or !erel$ a contract for the lease or sale of "rass as clai!ed b$ Defendant1 0ppellee) 3. If the transaction entered into b$ the parties #as a Koint venture, should the 0ppellee1Defendant be liable for one1half '-G3( of the losses suffered as a result of the transaction) /. If, at the end of the trial, Defendant*s Kudicial ad!issions as to liabilit$ stand uncontradicted, should his testi!on$ be conclusive a"ainst hi!) @3A The court*s Kud"!ent for defendant on the counterclai! in the su! of S3,3-..:5 represents one1half of S/,.>B.B> 'salt( plus S3/4.43 for a calf personall$ o#ned b$ defendant and sold b$ plaintiff for defendant*s account. @/A Section -B13-3, 7.S. -.4B, &. -.>4, sets out a rule allo#in" for contribution to pa$ losses6 The ri"hts and duties of the partners in relation to the partnership shall be deter!ined, sub#ect to an+ agreement bet&een them! b$ the follo#in" rules6

'a( 8ach partner shall be repaid his contributions, #hether b$ #a$ of capital or advances to the partnership propert$ and share e,uall$ in the profits and @surplusA re!ainin" after all liabilities, includin" those to partners, are satisfiedL and !ust contribute to#ards the losses, #hether of capital or other#ise, sustained b$ the partnership accordin" to his share in the profits. VVV 645 P.20 52 C1952D #.J. MURP $, A<</--an8 CP-a=n8=FFD, 9. Eu@/n/ STE&ENS, A<</--// C%/F/n0an8D. Eu@/n/ STE&ENS, A<</--an8 C%/F/n0an8D, 9. #.J. MURP $, A<</--// CP-a=n8=FFD. Nos. 44>4, 44>>. Su<r/:/ Cour8 oF #yo:=n@. 0pril 3/, -.C3. Rehearin" Denied Dune -, -.C3. C:VC: Dohn <ur=, &asper, for 7.D. Mur<By. 7illia! T. Sch#art; and &a!eron S. 7al=er of Sch#art;, <on, Mc&rar$ J 7al=er, &asper, for 8u"ene S8/9/n.. <efore ROS8, &.D., and R0P8R, THOM0S, ROON8O and <RO7N, DD. <RO7N, Dustice. This case arose out of an action b$ 7.D. Mur<By 'Mur<By( a"ainst 8u"ene S8/9/n.'S8/9/n.( for a deter!ination that a partnership e%isted and that an accountin" should be had. The trial court ruled that6

-. Mur<By, S8/9/n., and Ralph Schauss 'Schauss( #ere en"a"ed in a partnership and that all properties in contention #ere partnership propertiesL 3. Proceeds fro! the Mc&o$ Mountain proKect had alread$ been distributed to the partners and need not be included in the accountin"L /. S8/9/n.* !otion for a ne# trial based on ne#l$ discovered evidence be deniedL :. Proceeds fro! the Penbar Mine proKect had alread$ been distributed to the partners and need not be included in the accountin"L C4VC4 4. Mur<By #as estopped b$ laches fro! assertin" an interest in coal per!its, even thou"h the$ #ere deter!ined to be partnership assetsL and >. Mur<By had also #aived his ri"ht to assert an$ ri"hts in the coal per!its. Schauss settled #ith Mur<By and #as, therefore, not a part of the suit for accountin". S8/9/n.appeals fro! the first four rulin"s set out above. 7e affir! '-( that a partnership e%istedL '3( that proceeds fro! the Mc&o$ Mountain proKect had alread$ been distributed to the partnersL and '/( that S8/9/n.* !otion for a ne# trial #as properl$ denied. 7e #ill reverse the deter!ination ':( that proceeds fro! the Penbar Mine proKect had alread$ been distributed to the partners. Mur<By appeals fro! the findin"s set out in '4( and '>( above that laches and #aiver appl$. 7e #ill reverse these findin"s. I S8/9/n. contests the findin" that a partnership e%isted. He specificall$ contests the findin" that the Qi" and Poe uraniu! clai!s #ere partnership propert$, and that the Me%ican copper proKect #as partnership propert$. 0t oral ar"u!ent, S8/9/n.* counsel also indicated thatS8/9/n. #as appealin" fro! the findin" that the coal per!its #ere partnership assets.

There is no auto!atic solution to the ,uestion of the e%istence of a partnership. P : 2 Cattle Compan+ v. >oller! 7$o., 44. P.3d -5-. '-.BB(. Section -B1-/135-, 7.S. -.BB, defines a partnership as an association of t#o or !ore persons to carr$ on as co1o#ners a business for profit. Section -B1-/1353'a('iv(, 7.S. -.BB, sa$s that the receipt b$ a person of a share of the profits of a business is pri!a facie evidence that he is a partner in the business. The pri!a facie evidence can be rebutted b$ a sho#in" that there #as no intent to create a partnership, since intent of the parties is controllin". P : 2 Cattle Compan+ v. >oller! supra. That intent, ho#ever, is the intent to do the thin"s #hich deter!ine #hether a partnership relation e%ists..elson v. "eaboard "uret+ Compan+! 3>. 9.3d CC3 'Cth &ir.-.4.(. Persons #ho intend to do the thin"s that constitute a partnership are partners #hether their e%pressed purpose #as to create or avoid the relationship. Ta+lor v. -e&is! Te%.&iv.0pp., 44/ S.7.3d -4/ '-.BB(L and4+att v. 1ro&n! /. Tenn. 0pp. 3C, 3C- S.7.3d >: '-.44(. On conflictin" evidence, the ,uestion of #hether a partnership e%ists is one for the trier of fact.Paci ic General Contractors v. "late Const. Co.! -.> Or. >5C, 34- P.3d :4: '-.43(. 0 specific factual findin" #ill not be disturbed unless the findin" is clearl$ erroneous or a"ainst the "reat #ei"ht of the evidence. "hores v. -indse+! 7$o., 4.- P.3d C.4 '-.B.(. In -.>B, the parties orall$ a"reed to enter into a business relationship. Mur<By contended that the arran"e!ent #as a partnershipL S8/9/n. contended that the arran"e!ent #as for a Koint venture, to be follo#ed b$ other Koint ventures if the arran"e!ent #or=ed out satisfactoril$. Mur<By testified that the$ a"reed to Koin each other in !ineral e%ploration and develop!ent. 0n$ consideration the$ received #ould be split e,uall$ three #a$s. The$ #ere also to split the e%penses e,uall$ at an accountin" each $ear, althou"h the e%penditures #ere initiall$ to be carried separatel$. 8ach partner #as to clai! separate inco!e ta% deductions for his e%penses. Schauss testified that the a"ree!ent #as to share one1third, one1 third, and one1third of profits and e%penses on #hatever properties #ere ac,uired, and that the partners "enerall$ had a !eetin" of !inds before "oin" in on ne# proKects, althou"h not al#a$s. He

also testified that the$ discussed proKects at their irre"ularl$ ti!ed, infor!al !eetin"s, and that durin" the association he felt he #ould have had an obli"ation to discuss proposed proKects #ith Mur<Byand S8/9/n. before he ac,uired an$thin" in his o#n na!e. S8/9/n. testified that he had never been in a partnership #ith an$one in his life. S8/9/n. contends that Mur<By and Schauss and he onl$ a"reed to a"ree on proKects concernin" uraniu! e%ploration and !inin". There #as sufficient evidence C>VC> for the trial court to find that a partnership e%isted. 7e #ill refer to the !en as partners and to the business as a partnership in the rest of this opinion. -A0lthou"h S8/9/n. conceded that he en"a"ed in Koint ventures #ith Mur<By and Schauss on other uraniu! clai!s, he ar"ued that the Qi" and Poe clai!s #ere sta=ed after the three had a"reed not to associate further on an$ proKects. 0ccordin" to Schauss and Mur<By, the partnership a"reed to stop associatin" on an$ ne# proKects after Septe!ber 3:, -.>.. The clai!s #ere ac,uired on Septe!ber -/, -.>., and Dece!ber 3>, -.>., respectivel$, b$ Schauss and S8/9/n. #or=in" throu"h a "roup of no!inees. The Qi" and Poe clai!s #ere, ho#ever, a part of a Red Desert proKect, a continuous proKect that lasted over three $ears of sta=in" uraniu! clai!s. The$ #ere in the sa!e for!ation as the other Red Desert clai!s sta=ed b$ the partnership. The$ #ere also in a "eolo"ic trend of uraniu! deposits, and #ere a continuation of previous sta=in"s that Schauss #as tr$in" to establish in the Red Desert. Mur<By testified that althou"h the clai!s #ere sta=ed in Dece!ber, the$ #ere an e%tension of an earlier clai!L Schauss testified that the$ a"reed that proKects still in pro"ress #ould be co!pleted if possible. There #as a!ple evidence for the trial court to find that the Qi" and Poe clai!s belon"ed to the partnership. S8/9/n. ar"ues that if this court upholds the findin"s on the Qi" and Poe clai!s, #e should nevertheless reverse the trial court*s a#ard to Mur<By of one1third of the nu!ber of shares of stoc= received b$ S8/9/n. for the Qi" and Poe clai!s. 7e #ill not address the ar"u!ent, as it is unsupported b$ authorit$ and #ithout !erit.

-BS8/9/n. contends that since the Me%ican copper proKect did not involve uraniu!, there #as never an$ a"ree!ent a!on" the three of the! to participate in it. The evidence that #e have alread$ set out concernin" the e%istence of this partnership and its ter!s also applies to the Me%ican copper proKect. In addition, Mur<By testified that before he #ent to Me%ico he tal=ed the proKect over #ith S8/9/n.. Schauss testified that all three of the! consulted on the Me%ican copper proKect, and that S8/9/n. #as consulted at least t#ice and #as in favor of the proKect. -CS8/9/n. ne%t disputes the trial court*s findin" that certain coal e%ploration per!its #ere partnership propert$. 8arl$ in -.>C, accordin" to both Mur<By). and Schauss* testi!onies,S8/9/n. su""ested that the partnership should ac,uire so!e coal prospectin" per!its.Mur<By testified that the three of the! had a do;en or so conversations about the coal per!its. S8/9/n. actuall$ prepared per!it applications in each of the partner*s na!es, to"ether #ith a coal per!it in Nuclear Reserves* na!e, so that the partnership could ac,uire an entire area #hich #ould be four ti!es as lar"e as the area for #hich one individual could appl$. The applications that S8/9/n. prepared #ere both for Mur<By in the na!e of Nuclear Reserves and in Mur<By). na!e individuall$. S8/9/n. then su""ested that it #ould be futile to file the applications because the <ureau of Iand Mana"e!ent #as dela$in" issuance of prospectin" per!its. <oth Mur<By and Schauss testified that the$ did not file their per!it applications because of S8/9/n.* advice. So!eti!e durin" the sa!e $ear, S8/9/n. filed coal per!it applications in his o#n na!e for the sa!e area. He said that he had prepared the per!its for Nuclear Reserves, but had never prepared an$ applications for Mur<By or Schauss. His testi!on$ directl$ contradictedMur<By). and Schauss*. The ,uestion of the credibilit$ of the #itnesses is for the deter!ination of the trial court #hich can best observe their de!eanors. "hores v. -indse+! supra.

The trial court deter!ined in this instance that Mur<By and Schauss #ere to be believed, #hileS8/9/n. #as not. CBVCB 7e have considered that the parties here and Schauss !a$ have entered into a sche!e to defraud the "overn!ent, and that perhaps @enned+ v. -onabaugh! -. 7$o. /43, --B P. -5B. '-.--(, !andates that this court should not enforce such a contract. This #ould leave the parties #here the$ placed the!selvesL that is, the coal interests #ould be left in S8/9/n.. The facts of @enned+ v. -onabaugh! supra, #ere different and can be conceptuall$ distin"uished fro! this case. In @enned+ v. -onabaugh! supra, the partnership #as for!ed for the ille"al purpose of defraudin" the +nited States of title to its coal land. 9or that reason, the court #ould not "rant an accountin". The partnership here, ho#ever, #as not for!ed for the purpose of carr$in" on an ille"al business, nor #as it for!ed for the purpose of conductin" a la#ful business in an unla#ful !anner. It is true that the sche!e proposed b$ S8/9/n. #as ille"al. Ho#ever, the sche!e, #hich #as onl$ one of nu!erous partnership proKects, #as never carried out. 7hen S8/9/n. did finall$ appl$ for the coal per!its, he applied for the! in his o#n na!e. Mur<By and Schauss did not even =no# that S8/9/n. had applied for the!, #hich #as #h$ the$ beca!e disputed partnership propert$. 9urther!ore, the ille"al contract #as never perfor!edL the partners did not !a=e the atte!pt to defraud the "overn!ent. The coal per!its #hich #ere applied for #ere applied for le"all$ b$S8/9/n. in his o#n na!e, so that he could not have ac,uired leases on an$ !ore acres than those allo#ed to a sin"le person. If S8/9/n. had "one ahead and filed per!its in the na!es ofMur<By, S8/9/n., Schauss and Nuclear Reserves, then the$ !i"ht have been as=in" the trial court and this court to enforce an ille"al contract. 7e are tal=in" about t#o separate a"ree!ents in this case. One of the! #as a le"al a"ree!ent to for! a partnership to carr$ on a le"al business. The other #as a proposed a"ree!ent to subvert "overn!ent re"ulations, but that a"ree!ent #as never carried out.Mur<By as=ed the trial court to enforce the onl$ a"ree!ent still

in e%istence, #hich #as the le"al a"ree!ent to for! and carr$ on a partnership. <ecause there #as no atte!pt to defraud the "overn!ent and because the partnership contract #hich this court is enforcin" #as a le"al one, #e fail to see the applicabilit$ of @enned+ v. -onabaugh! supra, to this case. That is not to sa$ that #e approve of the business !ethods of an$ of these !en. The$ have been less than fastidious in their dealin"s #ith third parties and #ith each other. Nevertheless, their partnership a"ree!ent is a le"al one #hich !a$ be enforced b$ the courts. The testi!on$ and the facts brou"ht into evidence and the histor$ of the dealin"s stron"l$ su""est that ever$ transaction contested at trial #as a part of a partnership. There #as sufficient evidence for the trial court to find that a partnership e%isted and that the Qi" and Poe clai!s, the Me%ican copper proKect and the coal per!its #ere partnership propert$. II S8/9/n. also appeals the trial court*s findin" that funds fro! certain proKects had alread$ been distributed to the partners and #ere not to be considered in the final accountin" b$ the special !aster. @-A Specificall$, he alle"es that the findin"s that the proceeds fro! the Penbar Mine venture and fro! the Mc&o$ Mountain proKect had alread$ been distributed #ere unsupported b$ the evidence. 7hen revie#in" a sufficienc$ of the evidence ,uestion, the revie#in" court #ill assu!e that the evidence in favor of the successful part$ is true, and #ill leave out of consideration an$ conflictin" evidence presented b$ the unsuccessful part$. 2adrid v. .orton!7$o., 4.> P.3d --5C '-.B.(. The trial court*s Kud"!ent !ust be sustained unless it is clearl$ erroneous or a"ainst the "reat #ei"ht of the evidence. CCVCC 7e hold here that evidence #as sufficient for the trial court*s findin" on the Mc&o$ Mountain proceeds, but that it #as not sufficient to sustain the findin" on the Penbar Mine proceeds. @3A The evidence sho#ed that the partnership had or"ani;ed its business to achieve the best ta% advanta"e, #hich involved havin" one of the partners individuall$ sta=e the clai!s. 8ach partner #ould clai! his individual e%penses as deductions. The$ #ould

then sell the propert$ to Nuclear Reserves, the close corporation #hich the three of the! controlled durin" !ost of the dealin"s and #hich #as essentiall$ a paper corporation. The corporation #ould usuall$ issue its stoc= to all of the partners individuall$ as consideration for the clai!s, re"ardless of #ho had sta=ed the clai!s. The partners nor!all$ reserved individual ro$alties on each of the clai!s the$ sold to Nuclear Reserves. <efore an$ e%tensive develop!ent could ta=e place, an outside co!pan$ #ith ade,uate capital #ould have to be able to #or= the clai!s. The partners planned eventuall$ to have a ta%1free e%chan"e of their Nuclear Reserves stoc= for stoc= of another such co!pan$. The outside co!pan$ that #as to do the developin" #ould then o#n the clai!s, but the partners #ould o#n stoc= in that co!pan$. In this case, Petro1Nuclear, Itd. 'Petro(, a publicl$1o#ned co!pan$ #hich had ori"inall$ been o#ned b$ Mur<By and later sold to &onsolidated Oil, !ade an offer to Nuclear Reserves. 0s part of the offer, Petro insisted that it ac,uire #hat Mur<By aptl$ called the loose1ends of the partnership and of the individual !e!bers of the partnership before it #ould ac,uire the Nuclear Reserves stoc=. The partners received :55,555 shares of Petro stoc= in e%chan"e for the propert$ included in the loose1ends transaction. The$ divided these shares une,uall$ to account for ro$alties the$ had reserved on uraniu! clai!s, and to account for other properties the$ had ac,uired.@/A The partners then received !ore Petro stoc= #hen the tender offer transaction #as co!pleted. 8ach partner received Petro shares based on the nu!ber of Nuclear Reserves shares he o#ned at the ti!e of the tender offer. The loose1ends transaction #as, then, a condition precedent to a tender offer b$ Petro to bu$ Nuclear Reserves stoc= and eventuall$ to !er"e Nuclear Reserves into Petro. 0 letter of intent bet#een Petro and Schauss, Mur<By, and S8/9/n., as president of several corporations, said that the interests of the individuals #hich Petro #as to ac,uire as a condition of the tender offer #ere the interests described in an attach!ent to the letter, called 8%hibit 0 b$ Petro. @:A 8%hibit 0 listed ro$alties the partners had reserved on clai!s the$ had alread$ sold to Nuclear Reserves. It also listed properties that the partners had not sold to Nuclear Reserves. 0pparentl$, Petro #anted to be sure that it bou"ht an$ !ineral assets related to the

Nuclear Reserves assets, but #hich #ere still o#ned b$ the partners in their individual na!es. Onl$ after Petro had ac,uired all these loose ends #ould it co!plete the tender offer to ac,uire Nuclear Reserves. 8%hibit < of Plaintiff*s 8%hibit -C stated6 :. V V V Such tender offer @to Nuclear ReservesA shall also be subKect to Petro*s bein" able to ac,uire outstandin" ro$alt$ interests and additional unpatented !inin" clai!s in accordance #ith the ter!s of para"raph 4 belo#. 4. In addition to the proposed tender offer and as a condition thereof, Petro shall have consu!!ated the ac,uisition b$ Petro fro! certain individuals of ro+alt+ C.VC.interests and other interests o&ned b+ them in the properties #hich have been discussed b$ the parties, #hich ne"otiations shall be conducted on the basis of Petro issuin" to such individuals :55,555 shares V V V of Petro. '8!phasis added.( The Mc&o$ Mountain proKect #as listed b$ Petro on 8%hibit 0 of Plaintiff*s 8%hibit -C as one of the loose1ends properties. Mur<By testified une,uivocall$ that the Mc&o$ Mountain propert$ had been included in the loose1ends transaction and that the partners had received Petro shares in e%chan"e for the Mc&o$ Mountain propert$. The Mc&o$ Mountain clai!s had never been deeded to Nuclear ReservesL the$ #ent directl$ into Petro Nuclear. The evidence, then, does support the trial court*s conclusion that the Mc&o$ Mountain propert$ #as distributed in the loose1ends transaction. The Penbar Mine clai!s are, ho#ever, a different stor$. Mur<By had alread$ deeded the clai!s to Nuclear Reserves. 7ith the approval of Schauss and S8/9/n. as Nuclear Reserves directors actin" at a board !eetin", Mur<By had received C4,555 shares of Nuclear Reserves as consideration for the Penbar shares. Mur<By). testi!on$ on Penbar, unli=e his testi!on$ on Mc&o$ Mountain, #as e,uivocal. He first stated that he did not thin= the Penbar stoc= had $et been distributed. He then said that he thou"ht it had been distributed in the loose1ends transaction

because he too= less stoc= there than did Schauss or S8/9/n.. He also said that he #ould leave the !atter open and that it #as available for the accountin". The partners as shareholders of Nuclear Reserves received Petro stoc= fro! the tender offer in proportion to their shareholdin"s in Nuclear Reserves, in addition to the shares #hich the$ had received in the loose1ends transaction. Mur<By testified that it #as i!possible in the loose1ends transaction to tr$ to attribute specific shares to specific properties, but that he had not shared the Petro stoc= #hich he had received in the tender offer fro! Petro. He later contradicted hi!self and testified that S8/9/n. had alread$ received his consideration for the Penbar Mine as it accrued to Nuclear Reserves and Petro. Opposin" counsel then as=ed hi!6 ?. 0nd, of course, as those shares of stoc= #ent to $ou in $our na!e alone. 0. +nless, of course, the accountin" sho#s that #e evened that up in the loose ends transaction. Petro had apparentl$ tried to use a ratio to divide the shares of its stoc= a!on" Mur<By,S8/9/n., and Schauss, as a #a$ to settle the loose1ends transaction and as a #a$ to have so!ethin" to sho# in its records. Mur<By said several ti!es that all three partners obKected to Petro*s allocation of a certain nu!ber of shares to each person for each propert$ listed in 8%hibit 0, because it didn*t de!onstrate the truth of the transactions or the e,uities involved. He also a"reed #ith his counsel that it could possibl$ affect #hatever had been done #ith e%ploration costs on his personal inco!e ta% returns. He asserted that Petro*s proposed ratio of share division #as not bindin" on the partnership, as su""ested b$ S8/9/n.* counsel on cross1e%a!ination. The record does sho#, ho#ever, that the ratio of share division eventuall$ arrived at b$ Mur<By, S8/9/n., and Schauss for the stoc=s received in the loose1ends transaction is e%actl$ the ratio #hich #as proposed b$ Petro. In the face of conflictin" evidence, this court !ust re"ard onl$ the evidence !ost favorable to the successful part$ on appeal, to"ether #ith all fair inferences #hich !a$ reasonabl$ be "iven it. 2adrid v.

.orton! supra. In this case, ho#ever, the evidence #hich #ould nor!all$ be favorable to the successful part$ is refuted b$ the ver$ #itness offerin" it to such an e%tent that #e cannot characteri;e it as favorable, and the onl$ fair inference #hich !a$ be reasonabl$ dra#n is that the partnership #as satisfied #ith Petro*s proposed ratio, but that the partners Kust did not #ant an$ #ritten record of ho# the division #as !ade or #hat properties #ere to be included in the division. The rule relatin" to conflictin" evidence does not6 .5V.5 X V V V relieve an appellate court of its dut$ of anal$;in" the evidence in the li"ht of reason and hu!an e%perience and "ivin" consideration to the !otives and propensities #hich tend to influence or pro!pt hu!an action, in an effort to solve the ,uestion as to #hether the Kud"!ent is reasonabl$ and substantiall$ sustained b$ the evidence. V V V * "teadman v. Topham! C5 7$o. >/, //C P.3d C35, C34 '-.4.(. If Mur<By #as to succeed in provin" that Penbar had been included in the loose1ends transaction, he should at least have "iven testi!on$ #hich #as !uch less e,uivocal, both durin" his direct testi!on$ and durin" his cross1e%a!ination. He never definitel$ stated that Penbar had been included in the loose1ends transactionL he t#ice indicated that if it had not alread$ been ta=en care of, then S8/9/n. #as entitled to a share. He presented no docu!entar$ evidence of the loose1ends transaction other than 8%hibit 0 of his 8%hibit -C, #hich had been prepared b$ Petro. He testified that 8%hibit 0 "enerall$ sho#ed the properties that Petro #as to ac,uire in the loose1ends transaction. 8%hibit 0 did not list the Penbar propert$, and Mur<By never said that 8%hibit 0 #as an inco!plete list of the loose1ends properties. The Penbar properties had alread$ been deeded to Nuclear Reserves, #hile none of the properties listed on 8%hibit 0 had been. 7e conclude that the findin" that Penbar Mine proceeds had been divided up in the loose1ends transaction #as a"ainst the "reat #ei"ht of the evidence. III 0fter rulin" that the coal per!its #ere partnership propert$, the trial court found that S8/9/n.had been i!paired in his abilit$ to defend

the la#suit and that the doctrine of laches should appl$. Mur<By, therefore, #as not to receive an$ of the value of the coal per!its. The facts leadin" to this rulin" are rather co!plicated. @4A See 0ppendi% < for our understandin" of the relationship involved in the part of this liti"ation pertainin" to the coal per!its. The partners decided the$ #ould ter!inate the partnership #hen the Nuclear Reserves !er"er #ith Petro beca!e final, #hich #as on Septe!ber 3:, -.>.. Mur<By anticipated that he #ould beco!e the president of Petro until it #as !er"ed #ith $et another lar"er co!pan$ to allo# still !ore develop!ent.@>A S8/9/n. and Schauss #ere to beco!e !aKor shareholders in Petro and perhaps also beco!e directors. Mur<By felt that continuin" the partnership #ould pose a potential for conflict of interest, since Petro #as a public co!pan$ and could not be treated li=e Kust another ar! of the partnership as Nuclear Reserves had been. In -.B-, Mur<By #as indeed president of PetroL Schauss and S8/9/n. #ere on the board. Petro sold so!e of its uraniu! clai!s to a co!pan$ called Pollution &ontrol and 8n"ineerin", Inc., 'Pollution &ontrol( in e%chan"e for Pollution &ontrol stoc=. Pollution &ontrol had been for!ed b$ S8/9/n. and Schauss after the partnership had decided to #ind up. 0pparentl$ no one thou"ht there #as an$ self1dealin" involved, althou"h the relationship of these !en and their close corporations and the public corporation !i"ht see! indiscreetl$ and perhaps ille"all$ inti!ate to a !inorit$ shareholder. In connection #ith the Petro sale of its uraniu! clai!s to Pollution &ontrol, Schauss !ade a financial presentation to Petro that included references to S8/9/n.* coal per!its. S8/9/n. in -.B5 had entered .-V.- into an option a"ree!ent #ith Pollution &ontrol to sell the coal per!its to the co!pan$, and Pollution &ontrol 'basicall$ S8/9/n. and Schauss( loo=ed upon the coal per!its as an asset of the co!pan$. Mur<By testified that at the ti!e of the presentation in -.B-, he reco"ni;ed the per!its as the ones #hich S8/9/n. had ori"inall$ offered to the partnership. So!eti!e later, Petro1Nuclear !er"ed #ith Silverbell Industries, a no#1public co!pan$ #hichS8/9/n. and Schauss had ori"inall$

o#ned before their partnership #ith Mur<By.@BA Mur<By#as once !ore a president #ithout a co!pan$, but not for lon". In -.B:, he beca!e president of Pollution &ontrol. Schauss testified that he had felt that Mur<By could do a better Kob of runnin" the co!pan$ because there #as a lot of internal dissension, apparentl$ bet#een Schauss and S8/9/n.. S8/9/n. #as refusin" to perfor! the option a"ree!ent #ith Pollution &ontrol, and Mur<By). first !aKor dut$ as president of Pollution &ontrol #as to force S8/9/n.to co!pl$. He had Pollution &ontrol start a la#suit to that end. <oth sides of the la#suit #ere eventuall$ bou"ht out b$ 7estern 9uel Reserves, #hich see!s to be the onl$ co!pan$ !entioned in this suit that neither Mur<By, S8/9/n. nor Schauss #as involved in at so!e ti!e.@CA Mur<By participated in the ne"otiations to settle the suit on behalf of Pollution &ontrol. That suit #as settled, and in -.B4 Mur<By started this action a"ainst S8/9/n.. Mur<By never !entioned for the record at an$ shareholder or board !eetin" of Pollution &ontrol that he felt he had a personal interest in the coal per!its. He #aited nearl$ four $ears after he had =no#led"e that S8/9/n. #as clai!in" the coal per!its to file an action for an accountin", b$ #hich ti!e the coal per!its had beco!e ver$ valuable. Iaches is a for! of e,uitable estoppel based on an unreasonable dela$ b$ a part$ in assertin" a ri"ht. The part$ assertin" e,uitable estoppel as a defense !ust sho# that he lac=ed =no#led"e of the facts or #as #ithout the !eans of discoverin" the!. The part$ assertin" laches or e,uitable estoppel !ust also sho# that he relied upon the plaintiff*s actions and chan"ed his position in reliance thereon to his preKudice. XV V V +nless the dela$ has #or=ed inKur$, preKudice or disadvanta"e to the defendants or others adversel$ interested, it is not of itself laches. V V V* >artnett v. ,ones! 7$o., >3. P.3d -/4B, -/>: '-.C-(. The burden is on the one #ho asserts laches to prove preKudice. Pic9ett v. /ssociates 8iscount Corporation o 4+oming! 7$o., :/4 P.3d ::4 '-.>B(. Here, S8/9/n. introduced no testi!on$ and never indicated in an$ #a$ that he #as preKudiced in his inabilit$ to defend this suit because of Mur<By). dela$. If the facts #hich supposedl$ establish the estoppel are uncontested, the

decision #hether e,uitable estoppel should appl$ is a ,uestion of la#. ;nited "tates v. 2illsap! 35C 9. Supp. 4-- 'D.&. 7$o. -.>3(. Here, the testi!on$ #as uncontradicted that S8/9/n. #as the boo==eeper for the partnership. The coal per!it applications #ere still in e%istence and #ere ad!itted into evidence. The record also sho#s that S8/9/n. deposed out1of1state #itnesses and cross1 e%a!ined Mur<By).#itnesses e%tensivel$. S8/9/n. testified ada!antl$ to his version of the facts. Indeed, the rulin" as to laches is incon"ruous. One #ould assu!e that if S8/9/n. #ere preKudiced in his.3V.3 abilit$ to defend a"ainst Mur<By). assertion of ri"hts in the coal per!its, then he #ould also have been preKudiced in his abilit$ to defend all other aspects of the suit. S8/9/n. did alle"e affir!ativel$ in his ans#er that laches should appl$ because he had been preKudiced b$ the fact that Mur<By #aited until the coal per!its had dra!aticall$ increased in value before he asserted an$ ri"ht in the!. He i!plied on appeal that he had ta=en the ris= of developin" the coal per!its #hile Mur<By sat idl$ b$ #aitin" to "rab the benefits #ithout havin" subKected hi!self to an$ possibilit$ of loss. &ourts loo= upon such actions #ith disfavor6 V V V There is an inherent inKustice in one purportedl$ holdin" a ri"ht to assert an o#nership in propert$ to voluntaril$ a#ait the propitious event and then decide, #hen the dan"er #hich has been at the ris= of another is over, to co!e in and clai! a share of the profits. @&itation.A 2adrid v. .orton! supra, at --35. That, ho#ever, is not #hat happened here. The standard procedure for coal e%ploration b$ individuals is that a person applies for a prospectin" per!it, as S8/9/n. did. If the per!it is "ranted, the person !a=in" the application also "ets a license to carr$ out an e%ploration pro"ra! to deter!ine if co!!ercial ,uantities of coal e%ist. 0fter sub!ission of a "eolo"ic report b$ the prospector, the +nited States 2eolo"ical Service '+.S.2.S.( deter!ines if there are co!!ercial ,uantities of coal. If so, then the prospector is entitled to a preference1ri"ht lease.

The per!its here #ere "ranted to S8/9/n. in -.B5. He then entered into an option a"ree!ent to sell the! to Pollution &ontrol. Schauss arran"ed a personal line of credit to raise the !one$ for Pollution &ontrol to pa$ S8/9/n. the re!ainder of #hat it o#ed hi!. Pollution &ontrol carried out the e%ploration on the propert$, even thou"h the per!its #ere still in S8/9/n.* na!e. Pollution &ontrol had alread$ for#arded the "eolo"ic report to the +.S.2.S. before the la#suit bet#een Pollution &ontrol and S8/9/n. started. <efore 7estern 9uels #ould bu$ out the la#suit, Pollution &ontrol had to !a=e certain that the +.S.2.S. had deter!ined that co!!ercial ,uantities of coal had been discovered. Mur<By too= care of that b$ !a=in" !an$ personal visits to the "overn!ent people involved. It appears that he #as lar"el$ responsible for seein" that the +.S.2.S. approved the "eolo"ic report. S8/9/n. #as never at an$ personal !onetar$ ris=. He contested none of the facts here, and presented no evidence that he had or #ould have received a better offer fro! 7estern 9uels had it not been for the la#suit. It is ,uestionable #hether S8/9/n. could even have le"all$ sold the per!its to 7estern 9uels. 7hether Mur<By first handled the la#suit b$ Pollution &ontrol or #hether he had instead started a suit for a partnership accountin", 7estern 9uels #ould have been on notice either #a$ that the o#nership of the coal per!its #as contested. If #e a"reed #ith the trial court that Mur<By #as estopped to assert his interests in the coal per!its, #e #ould be sa$in" that the onl$ t#o people #ho #ould receive an$ benefit fro! the approval of the report b$ the +.S.2.S. and the sale of the la#suit to 7estern 9uels #ould be Schauss andS8/9/n., #ho #ere both !aKor stoc=holders in Pollution &ontrol. One cannot reasonabl$ infer that Mur<By #ould #or= so steadfastl$ and dili"entl$ to dero"ate his o#n interests. In addition, Mur<By). testi!on$ is also uncontradicted that he !ade several efforts before the Pollution &ontrol la#suit to settle his accounts #ith S8/9/n., and that these efforts included his clai! to ri"hts in the coal propert$. S8/9/n. had the burden of proof here. The proof offered to sho# laches !ust be certain in ever$ particular #ith nothin" left to inference. 9ailure to prove an$ one of the ele!ents is fatal. 1ar ield v. >o&ard 2. "mith Compan+ o /marillo! Te%., :3> S.7.3d C/: '-.>C(. <$ not presentin" an$

conflictin" evidence, ./V./ S8/9/n. failed to prove he lac=ed the =no#led"e that Mur<By #ould be assertin" a ri"ht to the coal per!its, the proof of #hich #as essential to his affir!ative alle"ation of laches. S8/9/n. #as not preKudiced in his defense of the suit, nor did he put his !one$ at ris= in a speculative venture #hile Mur<By #aited to see if there reall$ #ere an$ co!!ercial ,uantities of coal. He also failed to prove lac= of =no#led"e. 7e find as a !atter of la# that the doctrine of laches does not appl$. IV The trial court also found, based on Mur<By). actions as president of Pollution &ontrol, that he had #aived his ri"ht to assert an$ interest in the coal per!its. The ele!ents of #aiver are that plaintiff has an e%istin" ri"ht, =no#led"e of that ri"ht, and an intent to surrender or relin,uish the ri"ht. In Re Estate o 1o+d! 7$o., >5> P.3d -3:/ '-.C5(. 7aiver differs pri!aril$ fro! laches in that laches re,uires a sho#in" of preKudice to the part$ clai!in" itL #aiver does not. The burden of provin" #aiver, an affir!ative defense, is on the part$ assertin" it. S8/9/n. had to sho# that Mur<By intended to relin,uish a ri"ht, althou"h the intent !a$ be i!plied. Mur<By).testi!on$ #as that he !ade several efforts before the Pollution &ontrol la#suit to settle his accounts #ith S8/9/n., and that those efforts included an assertion to ri"hts in the coal propert$. That testi!on$, standin" uncontradicted, does not sho# an intent to #aive a ri"ht. 7hile the necessar$ intent for #aiver !a$ be i!plied fro! conduct, the conduct should spea= the intent clearl$. 1an9ers Trust Compan+ v. Paci ic Emplo+ers Insurance Compan+! 3C3 9.3d -5> '.th &ir.-.>5(, cert. den. />C +.S. C33, C3 S.&t. :-, B I.8d.3d 3B '-.>-(. 7aiver !ust be !anifested in so!e une,uivocal !anner. Ranger Insurance Compan+ v. Cates! 7$o., 45- P.3d -344 '-.B3(. 7e thin= that the nonconflictin" evidence here ad!its of onl$ one conclusion, and a contrar$ conclusion cannot stand. 4+oming Farm 1ureau 2utual Insurance Compan+ v. 2a+! 7$o., :/: P.3d 45B '-.>B(. 8ven if the evidence here did Kustif$ either of t#o

reasonable inferences, this court #ill reverse the findin" if it can sa$, as a !atter of la#, that the inference in favor of the part$ #hich did not have the burden of proof #as !ore, or at least e,uall$, probable. 1oce9 v. Cit+ o "heridan! 7$o., :/3 P.3d C./ '-.>B(. 7e find that the inference in favor of Mur<Bythat he did not intend to #aive his interests in the coal per!its is at least e,uall$ as probable as the inference that he did intend to #aive his interests, and therefore reverse the findin" of #aiver. V S8/9/n. also appeals fro! the denial of a !otion for a ne# trial based on ne#l$ discovered evidence. The trial court had ori"inall$ found that the &lear &ree= !inin" proKect #as part of the partnership. S8/9/n. #anted a ne# trial because a docu!ent si"ned b$ Mur<By #hich had been in Mur<By). possession until the accountin" proceedin"s b$ a special !aster represented that Mur<By o#ned &lear &ree= stoc= in his o#n na!e and did not intend to divide his participation #ith others. It also said that Mur<By #as not ac,uirin" the stoc= in connection #ith an$ offerin" or distribution. S8/9/n. based his !otion for a ne# trial on that docu!ent. It is #ithin the sound discretion of the trial court to "rant or refuse a !otion for a ne# trial based on the discover$ of ne# evidence, and the trial court cannot be challen"ed e%cept for an abuse of discretion. The part$ #ho as=s for a ne# trial on the "round of ne#l$ discovered evidence !ust satisf$ the court that the evidence has co!e to his =no#led"e since the trial and could not #ith due dili"ence have been found sooner. He !ust also prove that the evidence does not spea= to facts related to .:V.: evidence alread$ presented at trial, and that the evidence is so !aterial that it #ould probabl$ produce a different verdict if the ne# evidence #ere "ranted. 5pie v. "tate! 7$o., :33 P.3d C: '-.>B(. The evidence here #as related to evidence alread$ presented at trial. Mur<By stated in his deposition that he held the shares in his o#n na!e, althou"h he held the! for the benefit of the partnership. He also said that the shares of stoc= did not state that he held the! for the benefit of the partnership.

The evidence #as also not so !aterial that it #ould produce a different Kud"!ent. Schauss testified that all three of the! a"reed to "o in on the proKect, that he too= a trip to &olorado to loo= at the propert$, and then ca!e bac= and told S8/9/n. about it. These !en de!onstrated several ti!es that #hat the$ put on for!s to satisf$ re"ulator$ a"encies and fulfill the letter of the la# had no bearin" on ho# the$ actuall$ conducted their business. 7e therefore affir! the trial court*s denial of a !otion for a ne# trial. 7e also affir! the findin"s that a partnership e%isted and that the proceeds fro! the Mc&o$ Mountain proKect had alread$ been distributed. 7e reverse the trial court*s findin" that the proceeds fro! the Penbar Mine proKect had been distributed, to"ether #ith the findin"s that laches and #aiver appl$ to bar Mur<By fro! assertin" and receivin" an$ interest in the coal per!it proceeds. This case is affir!ed in part, reversed in part, and re!anded to the district court for further proceedin"s consistent #ith this opinion. .4V.4 .>V.> .BV.B THOM0S, Dustice, speciall$ concurrin" and dissentin". I concur in the holdin"s of the !aKorit$ opinion #ith respect to &ase No. 44>>, #hich is the appeal b$ 8u"ene S8/9/n.. Those holdin"s are that the deter!inations b$ the district court are correct e%cept for its deter!ination that the proceeds fro! the Penbar Mine proKect alread$ had been distributed to the partners. I !ust dissent, ho#ever, fro! the disposition !ade b$ the !aKorit$ opinion #ith respect to &ase No. 44>4, the appeal b$ 7.D. Mur<By. I have no real ,uarrel #ith the recitations !ade in the !aKorit$ opinion as to the la# #ith respect to #aiver and laches. Reco"ni;in" that the district court !a$ have pre!ised his rulin" upon an erroneous "round, #e still can affir! his Kud"!ent upon an$ proper "round appearin" in the record. /gar v. @+sar! 7$o., >3C P.3d -/45 '-.C-(L 4ightman v. /merican .ational 1an9 o Riverton! 7$o., >-5 P.3d -55- '-.C5(, and cases therein cited. In !$ opinion the disposition !ade b$ the district court represents a sound sense of propriet$ and should be affir!ed.

7ith respect to these coal per!its, the !aKorit$ opinion states as follo#s6 V V V 8arl$ in -.>C, accordin" to both Mur<By). and Schauss* testi!onies,S8/9/n. su""ested that the partnership should ac,uire so!e coal prospectin" per!its. Mur<By testified that the three of the! had Xa do;en or so* conversations about the coal per!its. S8/9/n. actuall$ prepared per!it applications in each of the partner*s na!es, to"ether #ith a coal per!it in Nuclear Reserves* na!e, so that the partnership could ac,uire an entire area #hich #ould be four ti!es as lar"e as the area for #hich one individual could appl$. V V V This lan"ua"e in the !aKorit$ opinion describes a sche!e to evade the acrea"e li!itations set forth in the &ode of 9ederal Re"ulationsL the re"ulations relatin" to ,ualifications of applicantsL and the re"ulations relatin" to applications for per!its. :/ &.9.R., &h. II, WW /-/-.-, /-/-.3, /-/3.3'a('-(, '3(, '4(, and 'b(, and /-//./ 'Dan. -, -.>B Rev.(. It #ould appear that such per!its #ould be subKect to cancellation b$ the +nited States of 0!erica because of these violations. :/ &.9.R., &h. II, W /-//.4'c( 'Dan. -, -.>B Rev.(L 1oesche v. ;dall! /B/ +.S. :B3, C/ S.&t. -/B/, -5 I.8d.3d :.- '-.>/(. The record discloses the e%pertise of the parties #ith respect to the !ineral leasin" rules and re"ulations of the +nited States, and that the sche!e of the evasion #as purposeful. I cannot a"ree #ith the conclusions in the !aKorit$ opinion as to the le"alit$ of this arran"e!ent. Mur<By described the sche!e in his testi!on$ and stated that he =ne# thatS8/9/n. had applied for a coal per!it in his o#n na!e. The ad!itted purpose of appl$in" in the several na!es #as to avoid the acrea"e li!itations. The !aKorit$ position has to assu!e thatS8/9/n.* application #as on behalf of the partnership. One applicable re,uire!ent of the &ode of 9ederal Re"ulations reads as follo#s6 'a( No specific for! is re,uired, but the application should cover the follo#in" points6

'-( The applicant's name and address. '8!phasis added.( :/ &.9.R., &h. II, W /-/3.3 'Dan. -, -.>B Rev.(. If the per!it #as intended to be partnership propert$ then the re"ulation re,uired that it be applied for in the na!e of the partnership, and in other parts it re,uired a disclosure of the partnership. Since it did not do that the application #as false. 0nother applicable re"ulation reads as follo#s6 'e( 8ver$ applicant for lease or per!it !ust sub!it at the ti!e of filin" a si"ned state!ent that he is the sole part$ in interest in the application and the lease or per!it, if issuedL if not, he shall set forth the na!es of the other interested parties. If there are other interested parties in the application, a separate or Koint state!ent !ust be si"ned b$ the! and b$ the applicant settin" forth the nature and e%tent of the interest of each in the application, the nature of the a"ree!ent bet#een the!, if oral, and a .CV.C cop$ of such a"ree!ent if #ritten. Such separate or Koint state!ent of interest and #ritten a"ree!ent, if an$, or a state!ent of the nature of such a"ree!ent, if oral, !ust acco!pan$ the application. Si!ultaneousl$, all interested parties !ust furnish evidence of their ,ualifications to hold such lease interest or per!it. :/ &.9.R., &h. II, W /-/-.3'e( 'Dan. -, -.>B Rev.(. In its failure to co!pl$ #ith the re,uire!ents of this re"ulation S8/9/n.* application also #as false. Still another applicable re"ulation reads as follo#s6 -C +.S.&. -55- !a=es it a cri!e for an$ person =no#in"l$ and #ilfull$ to sub!it or cause to be sub!itted to an$ a"enc$ of the +nited States an$ false or fraudulent state!ents as to an$ !atter #ithin its Kurisdiction. :/ &.9.R., &h. II, W /55-.51B 'Dan. -, -.>B Rev.(

This record discloses b$ the testi!on$ of the parties not onl$ an a"ree!ent to conduct their business unla#full$, but specific ille"al acts in an effort to acco!plish that purpose. The parties* sche!e constituted a conspirac$ to defraud the +nited States of the title to its coal land and an$ act in furtherance of such conspirac$ #ould constitute a cri!inal conspirac$ and a cri!e. @enned+ v. -onabaugh! -. 7$o. /43, --B P. -5B., -5C-, 0nn.&as. -.-/8, -// '-.--(. In @enned+ v. -onabaugh! supra, this court held that a court of e,uit$ has a dut$ to deter!ine the character of the contract #hich it is called upon to enforce or the profits of #hich it is as=ed to distribute as disclosed b$ the evidence, even thou"h the ille"alit$ or its validit$ as bein" in violation of the la# is not raised b$ the pleadin"s. The court further held that a court of e,uit$ #ill not lend its aid to enforce the perfor!ance of a contract #hich is contrar$ to public polic$ or contrar$ to the la# of the land, but #ill leave the parties in the pli"ht in #hich their o#n ille"al action has placed the!. Su!!ari;in" the !atter, this court said at -. 7$o. /B>, --B P. -5CB1-5CC6 It is a principle #hich controls courts of e,uit$ in the ad!inistration of Kustice that he #ho see=s their aid !ust do so #ith clean hands H that he cannot !a=e his ini,uitous act the basis of e,uitable relief. To decree a division of the profits of this contract #ould be in substance to enforce an ille"al contract. 2c2ullen v. >o man! supra @-B: +.S. >/., -. S.&t. C/., :/ I.8d. ---B '-C..(A . The lo#er court properl$ left the parties #here the$ had placed the!selves. 7hile the facts are different, @enned+ v. -onabaugh! supra, cannot conceptuall$ be distin"uished fro! this case. I a! unable to discern an$ polic$ factors #hich #ould Kustif$ the different result. 0 court still should not allo# itself to be used in aid of an$ of the parties to an ille"al a"ree!ent. 4illiams v. 4eber 2esa 8itch Extension Compan+! Inc.! 7$o., 4B3 P.3d :-3, :-: '-.BB(. See also 5&ens v. Capri! >4 7$o. /34, 353 P.3d -B: '-.:.(L Claus v. Farmers : "toc9gro&ers "tate 1an9! 4- 7$o. :4, >/ P.3d BC- '-./>(L and >oge v. George!3B 7$o. :3/, 355 P. .> '-.3-(.

I #ould, albeit on a different "round, affir! the Kud"!ent of the trial court in refusin" to "rant an accountin" for these coal per!its. @-A The parties a"reed and the Kud"e entered an order to bifurcate the trial. The issue of liabilit$ #as decided at the first part of the trialL the ,uestions of contribution and accountin" #ere decided b$ a special !aster durin" the second part of the trial. @3A See 0ppendi% 0 for #hat #e understand fro! our readin" of the record to be the or"ani;ation of the businesses involved, especiall$ as pertains to the loose1ends transaction. @/A Since Petro #as "oin" to ac,uire Nuclear Reserves after it ac,uired the loose1ends propert$, the clai!s and propert$ fro! proKects #hich had alread$ been deeded into Nuclear Reserves #ere not a part of the loose1ends transaction. @:A Petro #rote a letter to the partners, #hich Mur<By introduced as Plaintiff*s 8%hibit -C. The letter b$ Petro had t#o attach!ents, one #hich Petro called 8%hibit 0 and one #hich Petro called 8%hibit <. 7e #ill call the! the sa!e. @4A Mur<By, S8/9/n., and Schauss need never #orr$ about une!plo$!ent. If the$ tire of bein" entrepreneurs and presidents of nu!erous co!panies, the$ could al#a$s beco!e script #riters for 8allas! in char"e of a division creatin" D.R.*s latest business !achinations. @>A 0s the develop!ent e%panded, lar"er and !ore ade,uatel$ financed co!panies #ere needed. The sa!e sort of arran"e!ent #ould be #or=ed out bet#een Petro and a lar"er co!pan$ as had been arran"ed bet#een Nuclear Reserves and Petro. @BA This is the t$pe of transaction referred to in fn. >. @CA Once a"ain, #e are re!inded of the intri"ue of 8allas. Sue 8llen is !arried to D.R., but is seein" &liff <arnes, her sister1in1la#*s brother. Then, Sue 8llen stops seein" &liff <arnes and starts seein" an old friend #ho had been a colle"e s#eetheart in the pre1D.R. era. His e%istence on the pro"ra! #as so short that his fictional na!e eludes us, !uch li=e so!e of these co!panies. 0fter that liaison,

Sue 8llen for!s $et another, #hile still bein" officiall$ associated #ith D.R., et cetera, et cetera. 0n$ further delineation of the facts here or in 8allas #ould Kust add to the confusion. Republic of the Philippines SUPREME COURT Manila 8N <0N& G.R. No. "+19342 May 25, 1972 "OREN*O T. OHA an0 EIRS OF JU"IA !UHA"ES, na:/-y> RO%O"FO !. OHA, MARIANO !. OHA, "U* !. OHA, &IRGINIA !. OHA an0 "OREN*O !. OHA, JR., petitioners, vs. T E COMMISSIONER OF INTERNA" RE&ENUE, respondent. 5rlando (elasco or petitioners. 5 ice o the "olicitor General /rturo /. /la ri)! /ssistant "olicitor General Felicisimo R. Rosete! and "pecial /ttorne+ Puri icacion ;reta or respondent.

!ARRE%O, J.:p Petition for revie# of the decision of the &ourt of Ta% 0ppeals in &T0 &ase No. >-B, si!ilarl$ entitled as above, holdin" that petitioners have constituted an unre"istered partnership and are, therefore, subKect to the pa$!ent of the deficienc$ corporate inco!e ta%es assessed a"ainst the! b$ respondent &o!!issioner of Internal Revenue for the $ears -.44 and -.4> in the total su! of P3-,C.-.55, plus 4F surchar"e and -F !onthl$ interest fro! Dece!ber -4, -.4C, subKect to the provisions of Section 4- 'e( '3( of the Internal Revenue &ode, as a!ended b$ Section C of Republic 0ct No. 3/:/ and the costs of the suit, 1 as #ell as the resolution of said court den$in" petitioners* !otion for reconsideration of said decision. The facts are stated in the decision of the Ta% &ourt as follo#s6

Dulia <uMales died on March 3/, -.::, leavin" as heirs her survivin" spouse, Ioren;o T. OMa and her five children. In -.:C, &ivil &ase No. :4-. #as instituted in the &ourt of 9irst Instance of Manila for the settle!ent of her estate. Iater, Ioren;o T. OMa the survivin" spouse #as appointed ad!inistrator of the estate of said deceased '8%hibit /, pp. /:1:-, <IR rec.(. On 0pril -:, -.:., the ad!inistrator sub!itted the proKect of partition, #hich #as approved b$ the &ourt on Ma$ ->, -.:. 'See 8%hibit N(. <ecause three of the heirs, na!el$ Iu;, Vir"inia and Ioren;o, Dr., all surna!ed OMa, #ere still !inors #hen the proKect of partition #as approved, Ioren;o T. OMa, their father and ad!inistrator of the estate, filed a petition in &ivil &ase No. .>/B of the &ourt of 9irst Instance of Manila for appoint!ent as "uardian of said !inors. On Nove!ber -:, -.:., the &ourt appointed hi! "uardian of the persons and propert$ of the aforena!ed !inors 'See p. /, <IR rec.(. The proKect of partition '8%hibit NL see also pp. BB1B5, <IR rec.( sho#s that the heirs have undivided one1half '-G3( interest in ten parcels of land #ith a total assessed value of PCB,C>5.55, si% houses #ith a total assessed value of P-B,4.5.55 and an undeter!ined a!ount to be collected fro! the 7ar Da!a"e &o!!ission. Iater, the$ received fro! said &o!!ission the a!ount of P45,555.55, !ore or less. This a!ount #as not divided a!on" the! but #as used in the rehabilitation of properties o#ned b$ the! in co!!on 't.s.n., p. :>(. Of the ten parcels of land afore!entioned, t#o #ere ac,uired after the death of the decedent #ith !one$ borro#ed fro! the Philippine Trust &o!pan$ in the a!ount of PB3,-B/.55 't.s.n., p. 3:L 8%hibit /, pp. /-1/: <IR rec.(. The proKect of partition also sho#s that the estate shares e,uall$ #ith Ioren;o T. OMa, the ad!inistrator thereof, in the obli"ation of P.:,.B/.55, consistin" of loans contracted b$ the latter #ith the approval of the &ourt 'see p. / of 8%hibit NL or see p. B:, <IR rec.(.

0lthou"h the proKect of partition #as approved b$ the &ourt on Ma$ ->, -.:., no atte!pt #as !ade to divide the properties therein listed. Instead, the properties re!ained under the !ana"e!ent of Ioren;o T. OMa #ho used said properties in business b$ leasin" or sellin" the! and investin" the inco!e derived therefro! and the proceeds fro! the sales thereof in real properties and securities. 0s a result, petitioners* properties and invest!ents "raduall$ increased fro! P-54,:45.55 in -.:. to P:C5,554.35 in -.4> as can be "leaned fro! the follo#in" $ear1end balances6 O e ar Invest !ent 0ccou nt -.:. -.45 -.4-.43 -.4/ -.4: -.44 -.4> H P3:,>4B.>4 4-,/5-./>B,.3B.43 >-,34C.3B >/,>3/./B -55,BC>.55 -B4,53C.>C Iand <uild in" 0cco unt P-B,4.5.55 .>,5B>.3> --5,>54.--43,>B:./. ->-,:>/.C/ ->B,.>3.5: ->.,3>3.43 ->.,3>3.43

0cco unt PCB,C>5.55 -3C,4>>.B3 -35,/:..3C CB,5>4.3C C:,.34.>C ..,55-.35 -35,3:..BC -/4,B-:.>C

'See 8%hibits / J N t.s.n., pp. 33, 3413>, :5, 45, -531 -5:( 9ro! said invest!ents and properties petitioners derived such inco!es as profits fro! install!ent sales of subdivided lots, profits fro! sales of stoc=s, dividends, rentals and interests 'see p. / of 8%hibit /L p. /3, <IR rec.L t.s.n., pp. /B1/C(. The said inco!es are recorded in

the boo=s of account =ept b$ Ioren;o T. OMa #here the correspondin" shares of the petitioners in the net inco!e for the $ear are also =no#n. 8ver$ $ear, petitioners returned for inco!e ta% purposes their shares in the net inco!e derived fro! said properties and securities andGor fro! transactions involvin" the! '8%hibit /, supraL t.s.n., pp. 3413>(. Ho#ever, petitioners did not actuall$ receive their shares in the $earl$ inco!e. 't.s.n., pp. 341 3>, :5, .C, -55(. The inco!e #as al#a$s left in the hands of Ioren;o T. OMa #ho, as heretofore pointed out, invested the! in real properties and securities. 'See 8%hibit /, t.s.n., pp. 45, -531-5:(. On the basis of the fore"oin" facts, respondent '&o!!issioner of Internal Revenue( decided that petitioners for!ed an unre"istered partnership and therefore, subKect to the corporate inco!e ta%, pursuant to Section 3:, in relation to Section C:'b(, of the Ta% &ode. 0ccordin"l$, he assessed a"ainst the petitioners the a!ounts of PC,5.3.55 and P-/,C...55 as corporate inco!e ta%es for -.44 and -.4>, respectivel$. 'See 8%hibit 4, a!ended b$ 8%hibit -B, pp. 45 and C>, <IR rec.(. Petitioners protested a"ainst the assess!ent and as=ed for reconsideration of the rulin" of respondent that the$ have for!ed an unre"istered partnership. 9indin" no !erit in petitioners* re,uest, respondent denied it 'See 8%hibit -B, p. C>, <IR rec.(. 'See pp. -1:, Me!orandu! for Respondent, Dune -3, -.>-(. The ori"inal assess!ent #as as follo#s6 $ABB Net inco!e as per investi"ation ................ P:5,35..C. Inco!e ta% due thereon ............................... C,5:3.55 34F surchar"e .............................................. 3,5-5.45 &o!pro!ise for non1filin" .......................... 45.55 Total ............................................................... P-5,-53.45

$ABC Net inco!e as per investi"ation ................ P>.,3:4.3/ Inco!e ta% due thereon ............................... -/,C:..55 34F surchar"e .............................................. /,:>3.34 &o!pro!ise for non1filin" .......................... 45.55 Total ............................................................... P-B,/>-.34 'See 8%hibit -/, pa"e 45, <IR records( +pon further consideration of the case, the 34F surchar"e #as eli!inated in line #ith the rulin" of the Supre!e &ourt in Collector v. 1atangas Transportation Co., 2.R. No. I1.>.3, Dan. >, -.4C, so that the ,uestioned assess!ent refers solel$ to the inco!e ta% proper for the $ears -.44 and -.4> and the &o!pro!ise for non1filin", the latter ite! obviousl$ referrin" to the co!pro!ise in lieu of the cri!inal liabilit$ for failure of petitioners to file the corporate inco!e ta% returns for said $ears. 'See 8%h. -B, pa"e C>, <IR records(. 'Pp. -1/, 0nne% & to Petition( Petitioners have assi"ned the follo#in" as alle"ed errors of the Ta% &ourt6 I. TH8 &O+RT O9 T0P 0PP80IS 8RR8D IN HOIDIN2 TH0T TH8 P8TITION8RS 9ORM8D 0N +NR82IST8R8D P0RTN8RSHIPL II. TH8 &O+RT O9 T0P 0PP80IS 8RR8D IN NOT HOIDIN2 TH0T TH8 P8TITION8RS 78R8 &O1 O7N8RS O9 TH8 PROP8RTI8S INH8RIT8D 0ND 'TH8( PRO9ITS D8RIV8D 9ROM TR0NS0&TIONS TH8R89ROM 'sic(L III.

TH8 &O+RT O9 T0P 0PP80IS 8RR8D IN HOIDIN2 TH0T P8TITION8RS 78R8 II0<I8 9OR &ORPOR0T8 IN&OM8 T0P8S 9OR -.44 0ND -.4> 0S 0N +NR82IST8R8D P0RTN8RSHIPL IV. ON TH8 0SS+MPTION TH0T TH8 P8TITION8RS &ONSTIT+T8D 0N +NR82IST8R8D P0RTN8RSHIP, TH8 &O+RT O9 T0P 0PP80IS 8RR8D IN NOT HOIDIN2 TH0T TH8 P8TITION8RS 78R8 0N +NR82IST8R8D P0RTN8RSHIP TO TH8 8PT8NT ONIO TH0T TH8O INV8ST8D TH8 PRO9ITS 9ROM TH8 PROP8RTI8S O7N8D IN &OMMON 0ND TH8 IO0NS R8&8IV8D +SIN2 TH8 INH8RIT8D PROP8RTI8S 0S &OII0T8R0ISL V. ON TH8 0SS+MPTION TH0T TH8R8 70S 0N +NR82IST8R8D P0RTN8RSHIP, TH8 &O+RT O9 T0P 0PP80IS 8RR8D IN NOT D8D+&TIN2 TH8 V0RIO+S 0MO+NTS P0ID <O TH8 P8TITION8RS 0S INDIVID+0I IN&OM8 T0P ON TH8IR R8SP8&TIV8 SH0R8S O9 TH8 PRO9ITS 0&&R+IN2 9ROM TH8 PROP8RTI8S O7N8D IN &OMMON, 9ROM TH8 D89I&I8N&O T0P O9 TH8 +NR82IST8R8D P0RTN8RSHIP. In other #ords, petitioners pose for our resolution the follo#in" ,uestions6 '-( +nder the facts found b$ the &ourt of Ta% 0ppeals, should petitioners be considered as co1o#ners of the properties inherited b$ the! fro! the deceased Dulia <uMales and the profits derived fro! transactions involvin" the sa!e, or, !ust the$ be dee!ed to have for!ed an unre"istered partnership subKect to ta% under Sections 3: and C:'b( of the National Internal Revenue &ode) '3( 0ssu!in" the$ have for!ed an unre"istered partnership, should this not be onl$ in the sense that the$ invested as a co!!on fund the profits earned b$ the properties o#ned b$ the! in co!!on and the loans "ranted to the! upon the securit$ of the said properties, #ith the result that as far as their respective shares in

the inheritance are concerned, the total inco!e thereof should be considered as that of co1o#ners and not of the unre"istered partnership) 0nd '/( assu!in" a"ain that the$ are ta%able as an unre"istered partnership, should not the various a!ounts alread$ paid b$ the! for the sa!e $ears -.44 and -.4> as individual inco!e ta%es on their respective shares of the profits accruin" fro! the properties the$ o#ned in co!!on be deducted fro! the deficienc$ corporate ta%es, herein involved, assessed a"ainst such unre"istered partnership b$ the respondent &o!!issioner) Ponderin" on these ,uestions, the first thin" that has struc= the &ourt is that #hereas petitioners* predecessor in interest died #a$ bac= on March 3/, -.:: and the proKect of partition of her estate #as Kudiciall$ approved as earl$ as Ma$ ->, -.:., and presu!abl$ petitioners have been holdin" their respective shares in their inheritance since those dates ad!ittedl$ under the ad!inistration or !ana"e!ent of the head of the fa!il$, the #ido#er and father Ioren;o T. OMa, the assess!ent in ,uestion refers to the later $ears -.44 and -.4>. 7e believe this point to be i!portant because, apparentl$, at the start, or in the $ears -.:: to -.4:, the respondent &o!!issioner of Internal Revenue did treat petitioners as co1o#ners, not liable to corporate ta%, and it #as onl$ fro! -.44 that he considered the! as havin" for!ed an unre"istered partnership. 0t least, there is nothin" in the record indicatin" that an earlier assess!ent had alread$ been !ade. Such bein" the case, and 7e see no reason ho# it could be other#ise, it is easil$ understandable #h$ petitioners* position that the$ are co1o#ners and not unre"istered co1partners, for the purposes of the i!pu"ned assess!ent, cannot be upheld. Truth to tell, petitioners should find co!fort in the fact that the$ #ere not si!ilarl$ assessed earlier b$ the <ureau of Internal Revenue. The Ta% &ourt found that instead of actuall$ distributin" the estate of the deceased a!on" the!selves pursuant to the proKect of partition approved in -.:., the properties re!ained under the !ana"e!ent of Ioren;o T. OMa #ho used said properties in business b$ leasin" or sellin" the! and investin" the inco!e derived therefro! and the proceed fro! the sales thereof in real properties and securities, as a result of #hich said properties and invest!ents steadil$ increased $earl$ fro! PCB,C>5.55 in land

account and P-B,4.5.55 in buildin" account in -.:. to P-B4,53C.>C in invest!ent account, P-/4.B-:.>C in land account and P->.,3>3.43 in buildin" account in -.4>. 0nd all these beca!e possible because, ad!ittedl$, petitioners never actuall$ received an$ share of the inco!e or profits fro! Ioren;o T. OMa and instead, the$ allo#ed hi! to continue usin" said shares as part of the co!!on fund for their ventures, even as the$ paid the correspondin" inco!e ta%es on the basis of their respective shares of the profits of their co!!on business as reported b$ the said Ioren;o T. OMa. It is thus incontrovertible that petitioners did not, contrar$ to their contention, !erel$ li!it the!selves to holdin" the properties inherited b$ the!. Indeed, it is ad!itted that durin" the !aterial $ears herein involved, so!e of the said properties #ere sold at considerable profit, and that #ith said profit, petitioners en"a"ed, thru Ioren;o T. OMa, in the purchase and sale of corporate securities. It is li=e#ise ad!itted that all the profits fro! these ventures #ere divided a!on" petitioners proportionatel$ in accordance #ith their respective shares in the inheritance. In these circu!stances, it is Our considered vie# that fro! the !o!ent petitioners allo#ed not onl$ the inco!es fro! their respective shares of the inheritance but even the inherited properties the!selves to be used b$ Ioren;o T. OMa as a co!!on fund in underta=in" several transactions or in business, #ith the intention of derivin" profit to be shared b$ the! proportionall$, such act #as tanta!onut to actuall$ contributin" such inco!es to a co!!on fund and, in effect, the$ thereb$ for!ed an unre"istered partnership #ithin the purvie# of the above1!entioned provisions of the Ta% &ode. It is but lo"ical that in cases of inheritance, there should be a period #hen the heirs can be considered as co1o#ners rather than unre"istered co1partners #ithin the conte!plation of our corporate ta% la#s afore!entioned. <efore the partition and distribution of the estate of the deceased, all the inco!e thereof does belon" co!!onl$ to all the heirs, obviousl$, #ithout the! beco!in" thereb$ unre"istered co1partners, but it does not necessaril$ follo# that such status as co1o#ners continues until the inheritance is actuall$ and ph$sicall$ distributed a!on" the heirs, for it is easil$

conceivable that after =no#in" their respective shares in the partition, the$ !i"ht decide to continue holdin" said shares under the co!!on !ana"e!ent of the ad!inistrator or e%ecutor or of an$one chosen b$ the! and en"a"e in business on that basis. 7ithal, if this #ere to be allo#ed, it #ould be the easiest thin" for heirs in an$ inheritance to circu!vent and render !eanin"less Sections 3: and C:'b( of the National Internal Revenue &ode. It is true that in Evangelista vs. Collector, -53 Phil. -:5, it #as stated, a!on" the reasons for holdin" the appellants therein to be unre"istered co1partners for ta% purposes, that their co!!on fund #as not so!ethin" the$ found alread$ in e%istence and that it #as not a propert$ inherited b$ the! pro indiviso, but it is certainl$ far fetched to ar"ue therefro!, as petitioners are doin" here, that ergo, in all instances #here an inheritance is not actuall$ divided, there can be no unre"istered co1partnership. 0s alread$ indicated, for ta% purposes, the co1o#nership of inherited properties is auto!aticall$ converted into an unre"istered partnership the !o!ent the said co!!on properties andGor the inco!es derived therefro! are used as a co!!on fund #ith intent to produce profits for the heirs in proportion to their respective shares in the inheritance as deter!ined in a proKect partition either dul$ e%ecuted in an e%traKudicial settle!ent or approved b$ the court in the correspondin" testate or intestate proceedin". The reason for this is si!ple. 9ro! the !o!ent of such partition, the heirs are entitled alread$ to their respective definite shares of the estate and the inco!es thereof, for each of the! to !ana"e and dispose of as e%clusivel$ his o#n #ithout the intervention of the other heirs, and, accordin"l$ he beco!es liable individuall$ for all ta%es in connection there#ith. If after such partition, he allo#s his share to be held in co!!on #ith his co1heirs under a sin"le !ana"e!ent to be used #ith the intent of !a=in" profit thereb$ in proportion to his share, there can be no doubt that, even if no docu!ent or instru!ent #ere e%ecuted for the purpose, for ta% purposes, at least, an unre"istered partnership is for!ed. This is e%actl$ #hat happened to petitioners in this case. In this connection, petitioners* reliance on 0rticle -B>., para"raph '/(, of the &ivil &ode, providin" that6 The sharin" of "ross returns does not of itself establish a partnership, #hether or not the persons

sharin" the! have a Koint or co!!on ri"ht or interest in an$ propert$ fro! #hich the returns are derived, and, for that !atter, on an$ other provision of said code on partnerships is unavailin". In Evangelista, supra, this &ourt clearl$ differentiated the concept of partnerships under the &ivil &ode fro! that of unre"istered partnerships #hich are considered as corporations under Sections 3: and C:'b( of the National Internal Revenue &ode. Mr. Dustice Roberto &oncepcion, no# &hief Dustice, elucidated on this point thus6 To be"in #ith, the ta% in ,uestion is one i!posed upon corporations , #hich, strictl$ spea=in", are distinct and different fro! partnerships . 7hen our Internal Revenue &ode includes partnerships a!on" the entities subKect to the ta% on corporations , said &ode !ust allude, therefore, to or"ani;ations #hich are not necessaril+ partnerships , in the technical sense of the ter!. Thus, for instance, section 3: of said &ode exempts fro! the afore!entioned ta% dul$ re"istered "eneral partnerships, #hich constitute precisel$ one of the !ost t$pical for!s of partnerships in this Kurisdiction. Ii=e#ise, as defined in section C:'b( of said &ode, the ter! corporation includes partnerships, no matter ho& created or organi)ed. This ,ualif$in" e%pression clearl$ indicates that a Koint venture need not be underta=en in an$ of the standard for!s, or in confir!it$ #ith the usual re,uire!ents of the la# on partnerships, in order that one could be dee!ed constituted for purposes of the ta% on corporation. 0"ain, pursuant to said section C:'b(,the ter! corporation includes, a!on" others, Koint accounts,'cuentas en participacion( and associations , none of #hich has a le"al personalit$ of its o#n, independent of that of its !e!bers. 0ccordin"l$, the la#!a=er could not have re"arded that personalit$ as a condition essential to the e%istence of the partnerships therein referred to. In fact, as above stated, dul$ re"istered "eneral co1 partnerships H #hich are possessed of the afore!entioned personalit$ H have been e%pressl$

e%cluded b$ la# 'sections 3: and C:@bA( fro! the connotation of the ter! corporation. .... %%% %%% %%% Si!ilarl$, the 0!erican Ia# ... provides its o&n concept of a partnership. +nder the ter! partnership it includes not onl$ a partnership as =no#n in co!!on la# but, as #ell, a s$ndicate, "roup, pool, #oint venture! or other unincorporated organi)ation &hich carries on an+ business! inancial operation! or venture, and #hich is not, #ithin the !eanin" of the &ode, a trust, estate, or a corporation. ... . 'B0 Merten*s Ia# of 9ederal Inco!e Ta%ation, p. BC.L e!phasis ours.( The ter! partnership includes a s$ndicate, "roup, pool, #oint venture or other unincorporated organi)ation! through or b+ means o &hich an+ business! inancial operation! or venture is carried on. ... . 'C Merten*s Ia# of 9ederal Inco!e Ta%ation, p. 4>3 Note >/L e!phasis ours.( 9or purposes of the ta% on corporations, our .ational Internal Revenue Code includes these partnerships H #ith the e%ception onl$ of dul$ re"istered "eneral copartnerships H &ithin the purvie& o the term <corporation.< It is, therefore, clear to our !ind that petitioners herein constitute a partnership, insofar as said &ode is concerned, and are subKect to the inco!e ta% for corporations. 7e reiterated this vie#, thru Mr. Dustice 9ernando, in Re+es vs. Commissioner o Internal Revenue, 2. R. Nos. I13:53513-, Dul$ 3., -.>C, 3: S&R0 -.C, #herein the &ourt ruled a"ainst a theor$ of co1 o#nership pursued b$ appellants therein.

0s re"ards the second ,uestion raised b$ petitioners about the se"re"ation, for the purposes of the corporate ta%es in ,uestion, of their inherited properties fro! those ac,uired b$ the! subse,uentl$, 7e consider as Kustified the follo#in" ratiocination of the Ta% &ourt in den$in" their !otion for reconsideration6 In connection #ith the second "round, it is alle"ed that, if there #as an unre"istered partnership, the holdin" should be li!ited to the business en"a"ed in apart fro! the properties inherited b$ petitioners. In other #ords, the ta%able inco!e of the partnership should be li!ited to the inco!e derived fro! the ac,uisition and sale of real properties and corporate securities and should not include the inco!e derived fro! the inherited properties. It is ad!itted that the inherited properties and the inco!e derived therefro! #ere used in the business of bu$in" and sellin" other real properties and corporate securities. 0ccordin"l$, the partnership inco!e !ust include not onl$ the inco!e derived fro! the purchase and sale of other properties but also the inco!e of the inherited properties. <esides, as alread$ observed earlier, the inco!e derived fro! inherited properties !a$ be considered as individual inco!e of the respective heirs onl$ so lon" as the inheritance or estate is not distributed or, at least, partitioned, but the !o!ent their respective =no#n shares are used as part of the co!!on assets of the heirs to be used in !a=in" profits, it is but proper that the inco!e of such shares should be considered as the part of the ta%able inco!e of an unre"istered partnership. This, 7e hold, is the clear intent of the la#. Ii=e#ise, the third ,uestion of petitioners appears to have been ade,uatel$ resolved b$ the Ta% &ourt in the afore!entioned resolution den$in" petitioners* !otion for reconsideration of the decision of said court. Pertinentl$, the court ruled this #ise6 In support of the third "round, counsel for petitioners alle"es6

8ven if #e #ere to $ield to the decision of this Honorable &ourt that the herein petitioners have for!ed an unre"istered partnership and, therefore, have to be ta%ed as such, it !i"ht be recalled that the petitioners in their individual inco!e ta% returns reported their shares of the profits of the unre"istered partnership. 7e thin= it onl$ fair and e,uitable that the various a!ounts paid b$ the individual petitioners as inco!e ta% on their respective shares of the unre"istered partnership should be deducted fro! the deficienc$ inco!e ta% found b$ this Honorable &ourt a"ainst the unre"istered partnership. 'pa"e B, Me!orandu! for the Petitioner in Support of Their Motion for Reconsideration, Oct. 3C, -.>-.( In other #ords, it is the position of petitioners that the ta%able inco!e of the partnership !ust be reduced b$ the a!ounts of inco!e ta% paid b$ each petitioner on his share of partnership profits. This is not correctL rather, it should be the other #a$ around. The partnership profits distributable to the partners 'petitioners herein( should be reduced b$ the a!ounts of inco!e ta% assessed a"ainst the partnership. &onse,uentl$, each of the petitioners in his individual capacit$ overpaid his inco!e ta% for the $ears in ,uestion, but the inco!e ta% due fro! the partnership has been correctl$ assessed. Since the individual inco!e ta% liabilities of petitioners are not in issue in this proceedin", it is not proper for the &ourt to pass upon the sa!e. Petitioners insist that it #as error for the Ta% &ourt to so rule that #hatever e%cess the$ !i"ht have paid as individual inco!e ta% cannot be credited as part pa$!ent of the ta%es herein in ,uestion. It is ar"ued that to sanction the vie# of the Ta% &ourt is to obli"e petitioners to pa$ double inco!e ta% on the sa!e inco!e, and, #orse, considerin" the ti!e that has lapsed since the$ paid their individual inco!e ta%es, the$ !a$ alread$ be barred b$ prescription

fro! recoverin" their overpa$!ents in a separate action. 7e do not a"ree. 0s 7e see it, the case of petitioners as re"ards the point under discussion is si!pl$ that of a ta%pa$er #ho has paid the #ron" ta%, assu!in" that the failure to pa$ the corporate ta%es in ,uestion #as not deliberate. Of course, such ta%pa$er has the ri"ht to be rei!bursed #hat he has erroneousl$ paid, but the la# is ver$ clear that the clai! and action for such rei!burse!ent are subKect to the bar of prescription. 0nd since the period for the recover$ of the e%cess inco!e ta%es in the case of herein petitioners has alread$ lapsed, it #ould not see! ri"ht to virtuall$ disre"ard prescription !erel$ upon the "round that the reason for the dela$ is precisel$ because the ta%pa$ers failed to !a=e the proper return and pa$!ent of the corporate ta%es le"all$ due fro! the!. In principle, it is but proper not to allo# an$ rela%ation of the ta% la#s in favor of persons #ho are not e%actl$ above suspicion in their conduct vis1a1vis their ta% obli"ation to the State. IN VI87 O9 0II TH8 9OR82OIN2, the Kud"!ent of the &ourt of Ta% 0ppeals appealed fro! is affir! #ith costs a"ainst petitioners. 2a9alintal! ?aldivar! Fernando! 2a9asiar and /ntonio! ,,.! concur. Re+es! ,.1.-. and Teehan9ee! ,,.! concur in the result. Castro! ,.! too9 no part. Concepcion! C.,.! is on leave.

Foo8no8/. - In other #ords, the assess!ent #as affir!ed e%cept for the su! of P-55.55 #hich #as the total of t#o P451 ite!s purportedl$ for &o!pro!ise for non1filin" #hich the Ta% &ourt held to be unKustified, since there #as no co!pro!ise a"ree!ent to spea= of.

Republic of the Philippines SUPREME COURT Manila S8&OND DIVISION G.R. No. "+65115 O?8o;/r 29, 1955 JOSE P. O!I""OS, JR., SARA P. O!I""OS, ROMEO P. O!I""OS an0 REME%IOS P. O!I""OS, ;ro8B/r. an0 .=.8/r., petitioners vs. COMMISSIONER OF INTERNA" RE&ENUE an0 COURT OF TA2 APPEA"S, respondents. 8emosthenes 1. Gadioma or petitioners.

A(UINO, J.: This case is about the inco!e ta% liabilit$ of four brothers and sisters #ho sold t#o parcels of land #hich the$ had ac,uired fro! their father. On March 3, -.B/ Dose Obillos, Sr. co!pleted pa$!ent to Orti"as J &o., Itd. on t#o lots #ith areas of -,-3: and .>/ s,uare !eters located at 2reenhills, San Duan, Ri;al. The ne%t da$ he transferred his ri"hts to his four children, the petitioners, to enable the! to build their residences. The co!pan$ sold the t#o lots to petitioners for P-BC,B5C.-3 on March -/ '8%h. 0 and <, p. ::, Rollo(. Presu!abl$, the Torrens titles issued to the! #ould sho# that the$ #ere co1 o#ners of the t#o lots. In -.B:, or after havin" held the t#o lots for !ore than a $ear, the petitioners resold the! to the 7alled &it$ Securities &orporation and Ol"a &ru; &anda for the total su! of P/-/,545 '8%h. & and D(. The$ derived fro! the sale a total profit of P-/:,/:-.CC or P//,4C: for each of the!. The$ treated the profit as a capital "ain and paid an inco!e ta% on one1half thereof or of P->,B.3.

In 0pril, -.C5, or one da$ before the e%piration of the five1$ear prescriptive period, the &o!!issioner of Internal Revenue re,uired the four petitioners to pa$ corporate income tax on the total profit of P-/:,//> in addition to individual inco!e ta% on their shares thereof He assessed P/B,5-C as corporate inco!e ta%, P-C,45. as 45F fraud surchar"e and P-4,4:B.4> as :3F accu!ulated interest, or a total of PD$!EDF.BC. Not onl$ that. He considered the share of the profits of each petitioner in the su! of P//,4C: as a ta%able in full 'not a !ere capital "ain of #hich Y is ta%able( and re,uired the! to pa$ deficienc$ inco!e ta%es a""re"atin" P4>,B5B.35 includin" the 45F fraud surchar"e and the accu!ulated interest. Thus, the petitioners are bein" held liable for deficienc$ inco!e ta%es and penalties totallin" P-3B,BC-.B> on their profit of P-/:,//>, in addition to the ta% on capital "ains alread$ paid b$ the!. The &o!!issioner acted on the theor$ that the four petitioners had for!ed an unre"istered partnership or Koint venture #ithin the !eanin" of sections 3:'a( and C:'b( of the Ta% &ode '&ollector of Internal Revenue vs. <atan"as Trans. &o., -53 Phil. C33(. The petitioners contested the assess!ents. T#o Dud"es of the Ta% &ourt sustained the sa!e. Dud"e Roa,uin dissented. Hence, the instant appeal. 7e hold that it is error to consider the petitioners as havin" for!ed a partnership under article -B>B of the &ivil &ode si!pl$ because the$ alle"edl$ contributed P-BC,B5C.-3 to bu$ the t#o lots, resold the sa!e and divided the profit a!on" the!selves. To re"ard the petitioners as havin" for!ed a ta%able unre"istered partnership #ould result in oppressive ta%ation and confir! the dictu! that the po#er to ta% involves the po#er to destro$. That eventualit$ should be obviated. 0s testified b$ Dose Obillos, Dr., the$ had no such intention. The$ #ere co1o#ners pure and si!ple. To consider the! as partners #ould obliterate the distinction bet#een a co1o#nership and a

partnership. The petitioners #ere not en"a"ed in an$ Koint venture b$ reason of that isolated transaction. Their ori"inal purpose #as to divide the lots for residential purposes. If later on the$ found it not feasible to build their residences on the lots because of the hi"h cost of construction, then the$ had no choice but to resell the sa!e to dissolve the co1 o#nership. The division of the profit #as !erel$ incidental to the dissolution of the co1o#nership #hich #as in the nature of thin"s a te!porar$ state. It had to be ter!inated sooner or later. &astan TobeMas sa$s6 &o!o establecer el deslinde entre la co!unidad ordinaria o copropiedad $ la sociedad) 8l criterio diferencial1se"un la doctrina !as "enerali;ada1esta6 por ra;on del ori"en, en ,ue la sociedad presupone necesaria!ente la convencion, !entras ,ue la co!unidad puede e%istir $ e%iste ordinaria!ente sin elaL $ por ra;on del fin obKecto, en ,ue el obKeto de la sociedad es obtener lucro, !ientras ,ue el de la indivision es solo !antener en su inte"ridad la cosa co!un $ favorecer su conservacion. RefleKo de este criterio es la sentencia de -4 de Octubre de -.:5, en la ,ue se dice ,ue si en nuestro Derecho positive se ofrecen a veces dificultades al tratar de fiKar la linea divisoria entre co!unidad de bienes $ contrato de sociedad, la !oderna orientacion de la doctrina cientifica seMala co!o nota funda!ental de diferenciacion aparte del ori"en de fuente de ,ue sur"en, no sie!pre unifor!e, la finalidad perse"uida por los interesados6 lucro comun partible en la sociedad, $ mera conservacion $ aprovecha!iento en la co!unidad. 'Derecho &ivil 8spanol, Vol. 3, Part -, -5 8d., -.B-, /3C1 /3.(. 0rticle -B>.'/( of the &ivil &ode provides that the sharin" of "ross returns does not of itself establish a partnership, #hether or not the persons sharin" the! have a Koint or co!!on ri"ht or interest in

an$ propert$ fro! #hich the returns are derived . There !ust be an un!ista=able intention to for! a partnership or Koint venture. 7 Such intent #as present in 2atchalian vs. &ollector of Internal Revenue, >B Phil. >>>, #here -4 persons contributed s!all a!ounts to purchase a t#o1peso s#eepsta=es tic=et #ith the a"ree!ent that the$ #ould divide the pri;e The tic=et #on the third pri;e of P45,555. The -4 persons #ere held liable for inco!e ta% as an unre"istered partnership. The instant case is distin"uishable fro! the cases #here the parties en"a"ed in Koint ventures for profit. Thus, in OMa vs. VV This vie# is supported b$ the follo#in" rulin"s of respondent &o!!issioner6 Co*o&ership distinguished rom partnership.H7e find that the case at bar is funda!entall$ si!ilar to the De Ieon case. Thus, li=e the De Ieon heirs, the Ion"a heirs inherited the *hacienda* in ,uestion pro*indiviso fro! their deceased parentsL the$ did not contribute or invest additional * capital to increase or e%pand the inherited propertiesL the$ !erel$ continued dedicatin" the propert$ to the use to #hich it had been put b$ their forebearsL the$ individuall$ reported in their ta% returns their correspondin" shares in the inco!e and e%penses of the *hacienda*, and the$ continued for !an$ $ears the status of co1o#nership in order, as conceded b$ respondent, *to preserve its 'the *hacienda*( value and to continue the e%istin" contractual relations #ith the &entral 0;ucarera de <ais for !illin" purposes. Ion"a vs. 0ranas, &T0 &ase No. >4/, Dul$ /-, -.>/(. /ll co*o&nerships are not deemed unregistered pratnership.&o1O#nership #ho o#n properties #hich produce inco!e should not auto!aticall$ be considered partners of an unre"istered partnership, or a corporation, #ithin the purvie# of the inco!e ta% la#. To hold other#ise, #ould be to subKect the inco!e ofall co*o&nerships of inherited properties to the ta% on corporations, inas!uch as if a propert$ does not produce

an inco!e at all, it is not subKect to an$ =ind of inco!e ta%, #hether the inco!e ta% on individuals or the inco!e ta% on corporation. 'De Ieon vs. &I R, &T0 &ase No. B/C, Septe!ber --, -.>-, cited in 0raMas, -.BB Ta% &ode 0nnotated, Vol. -, -.B. 8d., pp. BB1BC(. &o!!issioner of Internal Revenue, I1-./:3, Ma$ 34, -.B3, :4 S&R0 B:, #here after an e%traKudicial settle!ent the co1heirs used the inheritance or the inco!es derived therefro! as a co!!on fund to produce profits for the!selves, it #as held that the$ #ere ta%able as an unre"istered partnership. It is li=e#ise different fro! Re$es vs. &o!!issioner of Internal Revenue, 3: S&R0 -.C, #here father and son purchased a lot and buildin", entrusted the ad!inistration of the buildin" to an ad!inistrator and divided e,uall$ the net inco!e, and fro! 8van"elista vs. &ollector of Internal Revenue, -53 Phil. -:5, #here the three 8van"elista sisters bou"ht four pieces of real propert$ #hich the$ leased to various tenants and derived rentals therefro!. &learl$, the petitioners in these t#o cases had for!ed an unre"istered partnership. In the instant case, #hat the &o!!issioner should have investi"ated #as #hether the father donated the t#o lots to the petitioners and #hether he paid the donor*s ta% 'See 0rt. -::C, &ivil &ode(. 7e are not preKud"in" this !atter. It !i"ht have alread$ prescribed. 7H8R89OR8, the Kud"!ent of the Ta% &ourt is reversed and set aside. The assess!ents are cancelled. No costs. SO ORD8R8D. /bad "antos! Escolin! Cuevas and /lampa+! ,,.! concur. Concepcion! ,r.! is on leave. Republic of the Philippines SUPREME COURT Manila 9IRST DIVISION

G.R. No. 75133 O?8o;/r 15, 1955 MARIANO P. PASCUA" an0 RENATO P. %RAGON, petitioners, vs. T E COMMISSIONER OF INTERNA" RE&ENUE an0 COURT OF TA2 APPEA"S, respondents. 8e la Cuesta! 8e las /las and Callanta -a& 5 ices or petitioners. The "olicitor General or respondents

GANCA$CO, J.: The distinction bet#een co1o#nership and an unre"istered partnership or Koint venture for inco!e ta% purposes is the issue in this petition. On Dune 33, -.>4, petitioners bou"ht t#o '3( parcels of land fro! Santia"o <ernardino, et al. and on Ma$ 3C, -.>>, the$ bou"ht another three '/( parcels of land fro! Duan Ro,ue. The first t#o parcels of land #ere sold b$ petitioners in -.>C toMarenir Develop!ent &orporation, #hile the three parcels of land #ere sold b$ petitioners to 8rlinda Re$es and Maria Sa!son on March -.,-.B5. Petitioners reali;ed a net profit in the sale !ade in -.>C in the a!ount of P->4,33:.B5, #hile the$ reali;ed a net profit of P>5,555.55 in the sale !ade in -.B5. The correspondin" capital "ains ta%es #ere paid b$ petitioners in -.B/ and -.B: b$ availin" of the ta% a!nesties "ranted in the said $ears. Ho#ever, in a letter dated March /-, -.B. of then 0ctin" <IR &o!!issioner 8fren I. Plana, petitioners #ere assessed and re,uired to pa$ a total a!ount of P-5B,-5-.B5 as alle"ed deficienc$ corporate inco!e ta%es for the $ears -.>C and -.B5. Petitioners protested the said assess!ent in a letter of Dune 3>, -.B. assertin" that the$ had availed of ta% a!nesties #a$ bac= in -.B:. In a repl$ of 0u"ust 33, -.B., respondent &o!!issioner infor!ed petitioners that in the $ears -.>C and -.B5, petitioners as co1

o#ners in the real estate transactions for!ed an unre"istered partnership or Koint venture ta%able as a corporation under Section 35'b( and its inco!e #as subKect to the ta%es prescribed under Section 3:, both of the National Internal Revenue &ode 1 that the unre"istered partnership #as subKect to corporate inco!e ta% as distin"uished fro! profits derived fro! the partnership b$ the! #hich is subKect to individual inco!e ta%L and that the avail!ent of ta% a!nest$ under P.D. No. 3/, as a!ended, b$ petitioners relieved petitioners of their individual inco!e ta% liabilities but did not relieve the! fro! the ta% liabilit$ of the unre"istered partnership. Hence, the petitioners #ere re,uired to pa$ the deficienc$ inco!e ta% assessed. Petitioners filed a petition for revie# #ith the respondent &ourt of Ta% 0ppeals doc=eted as &T0 &ase No. /5:4. In due course, the respondent court b$ a !aKorit$ decision of March /5, -.CB, 2 affir!ed the decision and action ta=en b$ respondent co!!issioner #ith costs a"ainst petitioners. It ruled that on the basis of the principle enunciated in Evangelista 3 an unre"istered partnership #as in fact for!ed b$ petitioners #hich li=e a corporation #as subKect to corporate inco!e ta% distinct fro! that i!posed on the partners. In a separate dissentin" opinion, 0ssociate Dud"e &onstante Roa,uin stated that considerin" the circu!stances of this case, althou"h there !i"ht in fact be a co1o#nership bet#een the petitioners, there #as no ade,uate basis for the conclusion that the$ thereb$ for!ed an unre"istered partnership #hich !ade he! liable for corporate inco!e ta% under the Ta% &ode. Hence, this petition #herein petitioners invo=e as basis thereof the follo#in" alle"ed errors of the respondent court6 0. IN HOIDIN2 0S PR8S+MPTIV8IO &ORR8&T TH8 D8T8RMIN0TION O9 TH8 R8SPOND8NT &OMMISSION8R, TO TH8 8998&T TH0T P8TITION8RS 9ORM8D 0N +NR82IST8R8D P0RTN8RSHIP S+<D8&T TO &ORPOR0T8 IN&OM8 T0P, 0ND TH0T TH8 <+RD8N O9 O998RIN2

8VID8N&8 IN OPPOSITION TH8R8TO R8STS +PON TH8 P8TITION8RS. <. IN M0NIN2 0 9INDIN2, SOI8IO ON TH8 <0SIS O9 ISOI0T8D S0I8 TR0NS0&TIONS, TH0T 0N +NR82IST8R8D P0RTN8RSHIP 8PIST8D TH+S I2NORIN2 TH8 R8?+IR8M8NTS I0ID DO7N <O I07 TH0T 7O+ID 70RR0NT TH8 PR8S+MPTIONG&ON&I+SION TH0T 0 P0RTN8RSHIP 8PISTS. &. IN 9INDIN2 TH0T TH8 INST0NT &0S8 IS SIMII0R TO TH8 8V0N28IIST0 &0S8 0ND TH8R89OR8 SHO+ID <8 D8&ID8D 0ION2SID8 TH8 8V0N28IIST0 &0S8. D. IN R+IIN2 TH0T TH8 T0P 0MN8STO DID NOT R8II8V8 TH8 P8TITION8RS 9ROM P0OM8NT O9 OTH8R T0P8S 9OR TH8 P8RIOD &OV8R8D <O S+&H 0MN8STO. 'pp. -31-/, Rollo.( The petition is !eritorious. The basis of the subKect decision of the respondent court is the rulin" of this &ourt in Evangelista. 4 In the said case, petitioners borro#ed a su! of !one$ fro! their father #hich to"ether #ith their o#n personal funds the$ used in bu$in" several real properties. The$ appointed their brother to !ana"e their properties #ith full po#er to lease, collect, rent, issue receipts, etc. The$ had the real properties rented or leased to various tenants for several $ears and the$ "ained net profits fro! the rental inco!e. Thus, the &ollector of Internal Revenue de!anded the pa$!ent of inco!e ta% on a corporation, a!on" others, fro! the!. In resolvin" the issue, this &ourt held as follo#s6 The issue in this case is #hether petitioners are subKect to the ta% on corporations provided for in section 3: of &o!!on#ealth 0ct No. :>>, other#ise =no#n as the

National Internal Revenue &ode, as #ell as to the residence ta% for corporations and the real estate dealers* fi%ed ta%. 7ith respect to the ta% on corporations, the issue hin"es on the !eanin" of the ter!s corporation and partnership as used in sections 3: and C: of said &ode, the pertinent parts of #hich read6 Sec. 3:. Rate o the tax on corporations.HThere shall be levied, assessed, collected, and paid annuall$ upon the total net inco!e received in the precedin" ta%able $ear fro! all sources b$ ever$ corporation or"ani;ed in, or e%istin" under the la#s of the Philippines, no !atter ho# created or or"ani;ed but not includin" dul$ re"istered "eneral co1partnerships 'co!panies collectives(, a ta% upon such inco!e e,ual to the su! of the follo#in"6 ... Sec. C:'b(. The ter! corporation includes partnerships, no !atter ho# created or or"ani;ed, Koint1stoc= co!panies, Koint accounts 'cuentas en participation(, associations or insurance co!panies, but does not include dul$ re"istered "eneral co1partnerships 'co!panies colectivas(. 0rticle -B>B of the &ivil &ode of the Philippines provides6 <$ the contract of partnership t#o or !ore persons bind the!selves to contribute !one$, propert$, or industr$ to a co!!on fund, #ith the intention of dividin" the profits a!on" the!selves. Pursuant to this article, the essential elements o a partnership are t&o! namel+6 GaH an agreement to contribute mone+! propert+ or industr+ to a common undI and GbH intent to divide the pro its among the contracting parties. The first ele!ent is undoubtedl$ present in the case at bar, for, ad!ittedl$, petitioners have a"reed to, and did, contribute !one$ and propert$ to a co!!on fund. >ence! the issue narro&s do&n to their intent in acting as the+ did. +pon consideration of all the facts and circu!stances surroundin" the case, &e are ull+ satis ied that their purpose &as to engage in

real estate transactions or monetar+ gain and then divide the same among themselves, because6 -. "aid common und &as not something the+ ound alread+ in existence. It #as not a propert$ inherited b$ the! pro indiviso. The$ created it purposel+. 7hat is !ore the$ Kointl$ borro#ed a substantial portion thereof in order to establish said co!!on fund. 3. The$ invested the same! not merel+ in one transaction! but in a series o transactions. On 9ebruar$ 3, -.:/, the$ bou"ht a lot for P-55,555.55. On 0pril /, -.::, the$ purchased 3- lots for P-C,555.55. This #as soon follo#ed, on 0pril 3/, -.::, b$ the ac,uisition of another real estate for P-5C,C34.55. 9ive '4( da$s later '0pril 3C, -.::(, the$ "ot a fourth lot for P3/B,3/:.-:. The number o lots GJFH acKuired and transcations underta9en! as &ell as the brie interregnum bet&een each! particularl+ the last three purchases! is strongl+ indicative o a pattern or common design that &as not limited to the conservation and preservation o the a orementioned common und or even o the propert+ acKuired b+ petitioners in Februar+! $AFL. In other &ords! one cannot but perceive a character o habitualit+ peculiar to business transactions engaged in or purposes o gain. /. The a oresaid lots &ere not devoted to residential purposes or to other personal uses! o petitioners herein . The properties #ere leased separatel$ to several persons, #ho, fro! -.:4 to -.:C inclusive, paid the total su! of PB5,5>C./5 b$ #a$ of rentals. See!in"l$, the lots are still bein" so let, for petitioners do not even su""est that there has been an$ chan"e in the utili;ation thereof. :. Since 0u"ust, -.:4, the properties have been under the management o one person, na!el$, Si!eon 8van"elists, #ith full po#er to lease, to collect rents, to issue receipts, to brin" suits, to si"n letters and contracts, and to indorse and deposit notes and chec=s. Thus! the a airs relative to said properties have

been handled as i the same belonged to a corporation or business enterprise operated or pro it. 4. The oregoing conditions have existed or more than ten G$EH +ears, or, to be e%act, over fifteen '-4( $ears, since the first propert$ #as ac,uired, and over t#elve '-3( $ears, since Si!eon 8van"elists beca!e the !ana"er. >. Petitioners have not testified or introduced an$ evidence, either on their purpose in creatin" the set up alread$ adverted to, or on the causes for its continued e%istence. The$ did not even tr$ to offer an e%planation therefor. 0lthou"h, ta=en sin"l$, the$ !i"ht not suffice to establish the intent necessar$ to constitute a partnership, the collective e ect o these circumstances is such as to leave no room or doubt on the existence o said intent in petitioners herein. 5nl+ one or t&o o the a orementioned circumstances &ere present in the cases cited b+ petitioners herein! and! hence! those cases are not in point. 5 In the present case, there is no evidence that petitioners entered into an a"ree!ent to contribute !one$, propert$ or industr$ to a co!!on fund, and that the$ intended to divide the profits a!on" the!selves. Respondent co!!issioner andG or his representative Kust assu!ed these conditions to be present on the basis of the fact that petitioners purchased certain parcels of land and beca!e co1 o#ners thereof. In 8van"elists, there &as a series o transactions &here petitioners purchased t&ent+* our GJFH lots sho#in" that the purpose #as not li!ited to the conservation or preservation of the co!!on fund or even the properties ac,uired b$ the!. The character o habitualit+ peculiar to business transactions engaged in or the purpose o gain &as present. In the instant case, petitioners bou"ht t#o '3( parcels of land in -.>4. The$ did not sell the sa!e nor !a=e an$ i!prove!ents

thereon. In -.>>, the$ bou"ht another three '/( parcels of land fro! one seller. It #as onl$ -.>C #hen the$ sold the t#o '3( parcels of land after #hich the$ did not !a=e an$ additional or ne# purchase. The re!ainin" three '/( parcels #ere sold b$ the! in -.B5. The transactions #ere isolated. The character of habitualit$ peculiar to business transactions for the purpose of "ain #as not present. In Evangelista, the properties #ere leased out to tenants for several $ears. The business #as under the !ana"e!ent of one of the partners. Such condition e%isted for over fifteen '-4( $ears. None of the circu!stances are present in the case at bar. The co1o#nership started onl$ in -.>4 and ended in -.B5. Thus, in the concurrin" opinion of Mr. Dustice 0n"elo <autista in Evangelista he said6 I #ish ho#ever to !a=e the follo#in" observation 0rticle -B>. of the ne# &ivil &ode la$s do#n the rule for deter!inin" #hen a transaction should be dee!ed a partnership or a co1o#nership. Said article para"raphs 3 and /, providesL '3( &o1o#nership or co1possession does not itself establish a partnership, #hether such co1o#ners or co1 possessors do or do not share an$ profits !ade b$ the use of the propert$L '/( The sharin" of "ross returns does not of itself establish a partnership, #hether or not the persons sharin" the! have a Koint or co!!on ri"ht or interest in an$ propert$ fro! #hich the returns are derivedL From the above it appears that the act that those &ho agree to orm a co* o&nership share or do not share an+ pro its made b+ the use o the propert+ held in common does not convert their venture into a partnership. 5r the sharing o the gross returns does not o itsel establish a partnership &hether or not the persons sharing therein have a #oint or common right or interest in the propert+. This onl+ means that! aside rom the circumstance o pro it! the presence o other elements constituting

partnership is necessar+! such as the clear intent to orm a partnership! the existence o a #uridical personalit+ di erent rom that o the individual partners! and the reedom to trans er or assign an+ interest in the propert+ b+ one &ith the consent o the others 'Padilla, &ivil &ode of the Philippines 0nnotated, Vol. I, -.4/ ed., pp. >/41 >/>( It is evident that an isolated transaction &hereb+ t&o or more persons contribute unds to bu+ certain real estate or pro it in the absence o other circumstances sho&ing a contrar+ intention cannot be considered a partnership. Persons #ho contribute propert$ or funds for a co!!on enterprise and a"ree to share the "ross returns of that enterprise in proportion to their contribution, but #ho severall$ retain the title to their respective contribution, are not thereb$ rendered partners. The$ have no co!!on stoc= or capital, and no co!!unit$ of interest as principal proprietors in the business itself #hich the proceeds derived. '8le!ents of the Ia# of Partnership b$ 9lord D. Meche! 3nd 8d., section C/, p. B:.( 0 Koint purchase of land, b$ t#o, does not constitute a co1partnership in respect theretoL nor does an a"ree!ent to share the profits and losses on the sale of land create a partnershipL the parties are onl$ tenants in co!!on. '&lar= vs. Side#a$, -:3 +.S. >C3,-3 &t. /3B, /4 I. 8d., --4B.( 7here plaintiff, his brother, and another a"reed to beco!e o#ners of a sin"le tract of realt$, holdin" as tenants in co!!on, and to divide the profits of disposin" of it, the brother and the other not bein" entitled to share in plaintiffs co!!ission, no partnership e%isted as bet#een the three parties, #hatever their relation !a$ have been as to third parties. 'Ma"ee vs. Ma"ee -3/ N.8. >B/, 3// Mass. /:-.( In order to constitute a partnership inter sese there must be6 GaH /n intent to orm the sameI GbH generall+

participating in both pro its and lossesI GcH and such a communit+ o interest! as ar as third persons are concerned as enables each part+ to ma9e contract! manage the business! and dispose o the &hole propert+.*2unicipal Paving Co. vs. >erring $BE P. $ECD! BE III FDE.H The co!!on o#nership of propert$ does not itself create a partnership bet#een the o#ners, thou"h the$ !a$ use it for the purpose of !a=in" "ainsL and the$ !a$, #ithout beco!in" partners, a"ree a!on" the!selves as to the !ana"e!ent, and use of such propert$ and the application of the proceeds therefro!. 'Spurloc= vs. 7ilson, -:3 S.7. />/,->5 No. 0pp. -:.( 6 The sharin" of returns does not in itself establish a partnership #hether or not the persons sharin" therein have a Koint or co!!on ri"ht or interest in the propert$. There !ust be a clear intent to for! a partnership, the e%istence of a Kuridical personalit$ different fro! the individual partners, and the freedo! of each part$ to transfer or assi"n the #hole propert$. In the present case, there is clear evidence of co1o#nership bet#een the petitioners. There is no ade,uate basis to support the proposition that the$ thereb$ for!ed an unre"istered partnership. The t#o isolated transactions #hereb$ the$ purchased properties and sold the sa!e a fe# $ears thereafter did not thereb$ !a=e the! partners. The$ shared in the "ross profits as co1 o#ners and paid their capital "ains ta%es on their net profits and availed of the ta% a!nest$ thereb$. +nder the circu!stances, the$ cannot be considered to have for!ed an unre"istered partnership #hich is thereb$ liable for corporate inco!e ta%, as the respondent co!!issioner proposes. 0nd even assu!in" for the sa=e of ar"u!ent that such unre"istered partnership appears to have been for!ed, since there is no such e%istin" unre"istered partnership #ith a distinct personalit$ nor #ith assets that can be held liable for said deficienc$ corporate inco!e ta%, then petitioners can be held individuall$ liable as partners for this unpaid obli"ation of the partnership p. 7 Ho#ever, as petitioners have availed of the benefits of ta% a!nest$ as individual ta%pa$ers

in these transactions, the$ are thereb$ relieved of an$ further ta% liabilit$ arisin" therefro!. 7H8R89ROM, the petition is hereb$ 2R0NT8D and the decision of the respondent &ourt of Ta% 0ppeals of March /5, -.CB is hereb$ R8V8RS8D and S8T 0SID8 and another decision is hereb$ rendered relievin" petitioners of the corporate inco!e ta% liabilit$ in this case, #ithout pronounce!ent as to costs. SO ORD8R8D. Cru)! Gri7o*/Kuino and 2edialdea! ,,.! concur. .arvasa! ,.! too9 no part.

Foo8no8/. - 0nne% & of the Petition, citin" 8van"elista v. &ollector, 2.R. No. ...>, Oct. -4,-.4B,-53 Phil. -:5. 3 Penned b$ Presidin" Dud"e 0!ante 9iller, concurred in b$ 0ssociate Dud"e 0le% Q. Re$es, 0ssociate Dud"e Roa,uin dissented in a separate opinion. / "upra. : "upra. 4 "upra, pp. -::1-:>L italics supplied. > "upra, pp. -451-4-L italics supplied. B 0rticle -C->. 0ll partners, includin" industrial ones, shall be liable pro rata #ith all their propert$ and after all the partnership assets have been e%hausted, for the contracts #hich !a$ be entered into in the na!e and for the account of the partnership, under its si"nature and b$ a person authori;ed to act for the partnership. Ho#ever, an$ partner !a$ enter into a separate

obli"ation to perfor! a partnership contract. '&ivil &ode of the Philippines( See also 0rticles -C-B and -C-C, "upra. 63 #=..20 566 C1974D 217 N.#.20 326 STERN, R/.<on0/n8, 9. %EPARTMENT OF RE&ENUE, A<</--an8.I7J No. //-. Su<r/:/ Cour8 oF #=.?on.=n. Sub!itted 0pril /, -.B:. Decided Ma$ B, -.B:. 45.V45. The cause #as sub!itted for the appellant on the briefs of Robert 4. 4arren! attorne$ "eneral, and E. 4eston 4ood and /llan P. >ubbard! assistant attorne$s "eneral, and for the respondent on the brief of 5'2elia! @a+e : 2elb+! ". C.! attorne$s, and Clarence ,. "imon of counsel, all of Rhinelander. Sub!itted under sec. 'Rule( 34-.4: 0pril /, -.B:. <8II9+SS, D. The facts and le"al issues of this case are stri=in"l$ si!ilar to those in our recent decision in"9aar v. 8epartment o Revenue '-.B/(, >- 7is. 3d ./, 3-- N. 7. 3d >:3, certiorari denied, .: Sup. &t. ->--, :5 I. 8d. 3d ---. 0lthou"h the #riter of this opinion and Mr. Dustice RO<8RT 7. H0NS8N dissented, the !aKorit$ opinion is the la# of the case, controls here, and co!pels a reversal of the Kud"!ent of the trial court. The onl$ si"nificant differences bet#een the t#o cases are that the present action involves an interior decoratin" business

and "9aar involved a far!in" operation, and that here respondent clai!s reliance on his accountant and in "9aar reliance #as on the attorne$. In both cases6 The sole issue is #hether the 7isconsin ta% appeals co!!ission erred in affir!in" the Depart!ent of R/9/nu/). denial of the ta%pa$er*s application for abate!ent of the additional inco!e ta% assess!ent b$ concludin" that, as a !atter of la#, no bona fide partnership e%isted. "9aar! supra! pa"e .B. In "9aar! this court stated at pa"es .C, ..6 Since 7isconsin has adopted the +nifor! Partnership 0ct, #e !ust initiall$ loo= there for "uidance. Sec. -BC.5/ '-(, Stats., defines a partnership as an Xassociation of 3 or !ore persons to carr$ on as co1o#ners a business for profit.* More specificall$, it is reco"ni;ed 4-5V4-5that four ele!ents need be !et so as to ,ualif$ as a partnership. Initiall$, the contractin" parties !ust intend to for! a bona fide partnership and accept the le"al re,uire!ents and duties e!anatin" therefro!. Secondl$, there !ust e%ist a co!!unit$ of interest in the capital e!plo$ed. Thirdl$, there !ust be an e,ual voice in the !ana"e!ent of the partnership. 9inall$, there !ust be a sharin" and distribution of profits and losses. 0ppl$in" these ele!ents to the case at bar, #e hold that a bona fide partnership #as not created. 7hile the ta%pa$ers !a$ have desired to create a !arital financial relationship si!ilar to a partnership, it is clear the$ did not intend to create a bona fide partnership. Si!ilarl$, appl$in" the facts in the present case, #e are forced to reach the sa!e conclusion. The record sho#s that respondent and his #ife had a ver$ close relationship and that the$ carried over this relationship, into the business operation. This relationship ho#ever, ste!s fro! their !arria"e and their desire to hold all propert$ Kointl$ and not fro! an$ business !otive. This is not sufficient to satisf$ the la#, as this court held in "9aar! supra.

In /nderson v. /nderson '-.B3(, 4: 7is. 3d >>>, >>., -.> N. 7. 3d B3B, this court stated6 The burden of provin" the e%istence of a partnership rests #ith respondent. 2orris v. Resnic9'-.44(, 3>C 7is. :-5, :-4, >B N. 7. 3d C:C. Sec. -BC.5/ '-(, Stats., defines the ter! partnership as Xan association of 3 or !ore persons to carr$ on as co1o#ners a business for profit.* The receipt of a share of those profits is dee!ed pri!a facie evidence that a person is a partner in the business. Sec. -BC.5: ':(. Ho#ever, under sec. -BC.5: '3(, a partnership #ill not be i!plied !erel$ because of co!!on o#nership of propert$, #hether or not profits are shared b$ the co1 o#ners. "chleic9er v. @rier '-./4(, 3-C 7is. /B>, /B., 3>- N. 7. :-/. 0s stated in >C &. D. S., Partnership! p. :/4, sec. 35 c '3(6 X0 !ere co!!unit$ of interest in propert$, such as e%ists bet#een tenants in co!!on or Koint tenants of real or personal propert$, does not !a=e such o#ners partners 4--V4-- or raise a presu!ption that a partnership e%ists, and this is so even thou"h the$ cooperate in !a=in" i!prove!ents on their propert$ and in reali;in" and sharin" the profits or the losses and e%penses arisin" therefro!. XThe adoption of an assu!ed na!e, as a convenient !ode of desi"natin" all the Koint o#ners, in transactions relatin" to the co!!on propert$, does not chan"e the le"al relationship of the several o#ners, #ith respect to the co!!on propert$, fro! a tenanc$ in co!!on to one of partnership....* 1+ the Court.HDud"!ent reversed. @VA Motion for rehearin" denied, #ith costs, on Dune 3C, -.B:. Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 172696

Mar?B 3, 2616

EIRS OF JOSE "IM, r/<r/./n8/0 ;y E"ENITO "IM, Petitioners, vs. JU"IET &I""A "IM, Respondent. D8&ISION NAC URA, J.: <efore this &ourt is a Petition for Revie# on &ertiorari - under Rule :4 of the Rules of &ivil Procedure, assailin" the &ourt of 0ppeals '&0( Decision3 dated Dune 3., 3554, #hich reversed and set aside the decision/ of the Re"ional Trial &ourt 'RT&( of Iucena &it$, dated 0pril -3, 355:. The facts of the case are as follo#s6 Petitioners are the heirs of the late Dose Ii! 'Dose(, na!el$6 Dose*s #ido# &resencia Palad '&resencia(L and their children 8lenito, 8velia, I!elda, 8del$na and 8dison, all surna!ed Ii! 'petitioners(, represented b$ 8lenito Ii! '8lenito(. The$ filed a &o!plaint : for Partition, 0ccountin" and Da!a"es a"ainst respondent Duliet Villa Ii! 'respondent(, #ido# of the late 8lfledo Ii! '8lfledo(, #ho #as the eldest son of Dose and &resencia. Petitioners alle"ed that Dose #as the liaison officer of Inter#ood Sa#!ill in &a"sia$, Mauban, ?ue;on. So!eti!e in -.C5, Dose, to"ether #ith his friends Di!!$ Ou 'Di!!$( and Norberto +$ 'Norberto(, for!ed a partnership to en"a"e in the truc=in" business. Initiall$, #ith a contribution of P45,555.55 each, the$ purchased a truc= to be used in the haulin" and transport of lu!ber of the sa#!ill. Dose !ana"ed the operations of this truc=in" business until his death on 0u"ust -4, -.C-. Thereafter, Dose*s heirs, includin" 8lfledo, and partners a"reed to continue the business under the !ana"e!ent of 8lfledo. The shares in the partnership profits and inco!e that for!ed part of the estate of Dose #ere held in trust b$ 8lfledo, #ith petitioners* authorit$ for 8lfledo to use, purchase or ac,uire properties usin" said funds.

Petitioners also alle"ed that, at that ti!e, 8lfledo #as a fresh co!!erce "raduate servin" as his fatherRs driver in the truc=in" business. He #as never a partner or an investor in the business and !erel$ supervised the purchase of additional truc=s usin" the inco!e fro! the truc=in" business of the partners. <$ the ti!e the partnership ceased, it had nine truc=s, #hich #ere all re"istered in 8lfledo*s na!e. Petitioners asseverated that it #as also throu"h 8lfledoRs !ana"e!ent of the partnership that he #as able to purchase nu!erous real properties b$ usin" the profits derived therefro!, all of #hich #ere re"istered in his na!e and that of respondent. In addition to the nine truc=s, 8lfledo also ac,uired five other !otor vehicles. On Ma$ -C, -..4, 8lfledo died, leavin" respondent as his sole survivin" heir. Petitioners clai!ed that respondent too= over the ad!inistration of the afore!entioned properties, #hich belon"ed to the estate of Dose, #ithout their consent and approval. &lai!in" that the$ are co1o#ners of the properties, petitioners re,uired respondent to sub!it an accountin" of all inco!e, profits and rentals received fro! the estate of 8lfledo, and to surrender the ad!inistration thereof. Respondent refusedL thus, the filin" of this case. Respondent traversed petitioners* alle"ations and clai!ed that 8lfledo #as hi!self a partner of Norberto and Di!!$. Respondent also clai!ed that per testi!on$ of &resencia, so!eti!e in -.C5, Dose "ave 8lfledo P45,555.55 as the latter*s capital in an infor!al partnership #ith Di!!$ and Norberto. 7hen 8lfledo and respondent "ot !arried in -.C-, the partnership onl$ had one truc=L but throu"h the efforts of 8lfledo, the business flourished. Other than this truc=in" business, 8lfledo, to"ether #ith respondent, en"a"ed in other business ventures. Thus, the$ #ere able to bu$ real properties and to put up their o#n car asse!bl$ and repair business. 7hen Norberto #as a!bushed and =illed on Dul$ ->, -../, the truc=in" business started to falter. 7hen 8lfledo died on Ma$ -C, -..4 due to a heart attac=, respondent tal=ed to Di!!$ and to the heirs of Norberto, as she could no lon"er run the business. Di!!$ su""ested that three out of the nine truc=s be "iven to hi! as his share, #hile the other three truc=s be "iven to the heirs of Norberto. Ho#ever, Norberto*s #ife, Pa,uita +$, #as

not interested in the vehicles. Thus, she sold the sa!e to respondent, #ho paid for the! in install!ents. Respondent also alle"ed that #hen Dose died in -.C-, he left no =no#n assets, and the partnership #ith Di!!$ and Norberto ceased upon his de!ise. Respondent also stressed that Dose left no properties that 8lfledo could have held in trust. Respondent !aintained that all the properties involved in this case #ere purchased and ac,uired throu"h her and her husbandRs Koint efforts and hard #or=, and #ithout an$ participation or contribution fro! petitioners or fro! Dose. Respondent sub!itted that these are conKu"al partnership propertiesL and thus, she had the ri"ht to refuse to render an accountin" for the inco!e or profits of their o#n business. Trial on the !erits ensued. On 0pril -3, 355:, the RT& rendered its decision in favor of petitioners, thus6 7H8R89OR8, pre!ises considered, Kud"!ent is hereb$ rendered6 -( Orderin" the partition of the above1!entioned properties e,uall$ bet#een the plaintiffs and heirs of Dose Ii! and the defendant Duliet Villa1Ii!L and 3( Orderin" the defendant to sub!it an accountin" of all inco!es, profits and rentals received b$ her fro! said properties. SO ORD8R8D. 0""rieved, respondent appealed to the &0. On Dune 3., 3554, the &0 reversed and set aside the RT&*s decision, dis!issin" petitioners* co!plaint for lac= of !erit. +ndaunted, petitioners filed their Motion for Reconsideration, 4 #hich the &0, ho#ever, denied in its Resolution>dated Ma$ C, 355>. Hence, this Petition, raisin" the sole ,uestion, vi;.6 IN TH8 0PPR8&I0TION <O TH8 &O+RT O9 TH8 8VID8N&8 S+<MITT8D <O TH8 P0RTI8S, &0N TH8 T8STIMONO O9 ON8 O9 TH8 P8TITION8RS <8 2IV8N 2R80T8R 78I2HT TH0N

TH0T <O 0 9ORM8R P0RTN8R ON TH8 ISS+8 O9 TH8 ID8NTITO O9 TH8 OTH8R P0RTN8RS IN TH8 P0RTN8RSHIP) B In essence, petitioners ar"ue that accordin" to the testi!on$ of Di!!$, the sole survivin" partner, 8lfledo #as not a partnerL and that he and Norberto entered into a partnership #ith Dose. Thus, the &0 erred in not "ivin" that testi!on$ "reater #ei"ht than that of &resencia, #ho #as !erel$ the spouse of Dose and not a part$ to the partnership.C Respondent counters that the issue raised b$ petitioners is not proper in a petition for revie# on certiorari under Rule :4 of the Rules of &ivil Procedure, as it #ould entail the revie#, evaluation, calibration, and re1#ei"hin" of the factual findin"s of the &0. Moreover, respondent invo=es the rationale of the &0 decision that, in li"ht of the ad!issions of &resencia and 8dison and the testi!on$ of respondent, the testi!on$ of Di!!$ #as effectivel$ refutedL accordin"l$, the &0*s reversal of the RT&*s findin"s #as full$ Kustified.. 7e resolve first the procedural !atter re"ardin" the propriet$ of the instant Petition. Veril$, the evaluation and calibration of the evidence necessaril$ involves consideration of factual issues H an e%ercise that is not appropriate for a petition for revie# on certiorari under Rule :4. This rule provides that the parties !a$ raise onl$ ,uestions of la#, because the Supre!e &ourt is not a trier of facts. 2enerall$, #e are not dut$1bound to anal$;e a"ain and #ei"h the evidence introduced in and considered b$ the tribunals belo#.-5 7hen supported b$ substantial evidence, the findin"s of fact of the &0 are conclusive and bindin" on the parties and are not revie#able b$ this &ourt, unless the case falls under an$ of the follo#in" reco"ni;ed e%ceptions6 '-( 7hen the conclusion is a findin" "rounded entirel$ on speculation, sur!ises and conKecturesL '3( 7hen the inference !ade is !anifestl$ !ista=en, absurd or i!possibleL

'/( 7here there is a "rave abuse of discretionL ':( 7hen the Kud"!ent is based on a !isapprehension of factsL '4( 7hen the findin"s of fact are conflictin"L '>( 7hen the &ourt of 0ppeals, in !a=in" its findin"s, #ent be$ond the issues of the case and the sa!e is contrar$ to the ad!issions of both appellant and appelleeL 'B( 7hen the findin"s are contrar$ to those of the trial courtL 'C( 7hen the findin"s of fact are conclusions #ithout citation of specific evidence on #hich the$ are basedL '.( 7hen the facts set forth in the petition as #ell as in the petitioners* !ain and repl$ briefs are not disputed b$ the respondentsL and '-5( 7hen the findin"s of fact of the &ourt of 0ppeals are pre!ised on the supposed absence of evidence and contradicted b$ the evidence on record.-7e note, ho#ever, that the findin"s of fact of the RT& are contrar$ to those of the &0. Thus, our revie# of such findin"s is #arranted. On the !erits of the case, #e find that the instant Petition is bereft of !erit. 0 partnership e%ists #hen t#o or !ore persons a"ree to place their !one$, effects, labor, and s=ill in la#ful co!!erce or business, #ith the understandin" that there shall be a proportionate sharin" of the profits and losses a!on" the!. 0 contract of partnership is defined b$ the &ivil &ode as one #here t#o or !ore persons bind the!selves to contribute !one$, propert$, or industr$ to a co!!on fund, #ith the intention of dividin" the profits a!on" the!selves. -3 +ndoubtedl$, the best evidence #ould have been the contract of partnership or the articles of partnership. +nfortunatel$, there is none in this case, because the alle"ed partnership #as never for!all$ or"ani;ed. Nonetheless, #e are as=ed to deter!ine #ho

bet#een Dose and 8lfledo #as the partner in the truc=in" business. 0 careful revie# of the records persuades us to affir! the &0 decision. The evidence presented b$ petitioners falls short of the ,uantu! of proof re,uired to establish that6 '-( Dose #as the partner and not 8lfledoL and '3( all the properties ac,uired b$ 8lfledo and respondent for! part of the estate of Dose, havin" been derived fro! the alle"ed partnership. Petitioners heavil$ rel$ on Di!!$*s testi!on$. <ut that testi!on$ is Kust one piece of evidence a"ainst respondent. It !ust be considered and #ei"hed alon" #ith petitioners* other evidence vis1 Z1vis respondent*s contrar$ evidence. In civil cases, the part$ havin" the burden of proof !ust establish his case b$ a preponderance of evidence. Preponderance of evidence is the #ei"ht, credit, and value of the a""re"ate evidence on either side and is usuall$ considered s$non$!ous #ith the ter! "reater #ei"ht of the evidence or "reater #ei"ht of the credible evidence. Preponderance of evidence is a phrase that, in the last anal$sis, !eans probabilit$ of the truth. It is evidence that is !ore convincin" to the court as #orth$ of belief than that #hich is offered in opposition thereto.-/ Rule -//, Section - of the Rules of &ourt provides the "uidelines in deter!inin" preponderance of evidence, thus6 S8&TION I. Preponderance of evidence, ho# deter!ined. In civil cases, the part$ havin" burden of proof !ust establish his case b$ a preponderance of evidence. In deter!inin" #here the preponderance or superior #ei"ht of evidence on the issues involved lies, the court !a$ consider all the facts and circu!stances of the case, the #itnesses* !anner of testif$in", their intelli"ence, their !eans and opportunit$ of =no#in" the facts to #hich the$ are testif$in", the nature of the facts to #hich the$ testif$, the probabilit$ or i!probabilit$ of their testi!on$, their interest or #ant of interest, and also their personal credibilit$ so far as the sa!e !a$ le"iti!atel$ appear upon the trial. The court !a$ also consider the nu!ber of #itnesses, thou"h the preponderance is not necessaril$ #ith the "reater nu!ber.

0t this Kuncture, our rulin" in Heirs of Tan 8n" Nee v. &ourt of 0ppeals-: is enli"htenin". Therein, #e cited 0rticle -B>. of the &ivil &ode, #hich provides6 0rt. -B>.. In deter!inin" #hether a partnership e%ists, these rules shall appl$6 '-( 8%cept as provided b$ 0rticle -C34, persons #ho are not partners as to each other are not partners as to third personsL '3( &o1o#nership or co1possession does not of itself establish a partnership, #hether such co1o#ners or co1possessors do or do not share an$ profits !ade b$ the use of the propert$L '/( The sharin" of "ross returns does not of itself establish a partnership, #hether or not the persons sharin" the! have a Koint or co!!on ri"ht or interest in an$ propert$ fro! #hich the returns are derivedL ':( The receipt b$ a person of a share of the profits of a business is a pri!a facie evidence that he is a partner in the business, but no such inference shall be dra#n if such profits #ere received in pa$!ent6 'a( 0s a debt b$ install!ents or other#iseL 'b( 0s #a"es of an e!plo$ee or rent to a landlordL 'c( 0s an annuit$ to a #ido# or representative of a deceased partnerL 'd( 0s interest on a loan, thou"h the a!ount of pa$!ent var$ #ith the profits of the businessL 'e( 0s the consideration for the sale of a "ood#ill of a business or other propert$ b$ install!ents or other#ise. 0ppl$in" the le"al provision to the facts of this case, the follo#in" circu!stances tend to prove that 8lfledo #as hi!self the partner of Di!!$ and Norberto6 -( &resencia testified that Dose "ave 8lfledo P45,555.55, as share in the partnership, on a date that coincided #ith the pa$!ent of the initial capital in the

partnershipL-4 '3( 8lfledo ran the affairs of the partnership, #ieldin" absolute control, po#er and authorit$, #ithout an$ intervention or opposition #hatsoever fro! an$ of petitioners hereinL -> '/( all of the properties, particularl$ the nine truc=s of the partnership, #ere re"istered in the na!e of 8lfledoL ':( Di!!$ testified that 8lfledo did not receive #a"es or salaries fro! the partnership, indicatin" that #hat he actuall$ received #ere shares of the profits of the businessL-B and '4( none of the petitioners, as heirs of Dose, the alle"ed partner, de!anded periodic accountin" fro! 8lfledo durin" his lifeti!e. 0s repeatedl$ stressed in Heirs of Tan 8n" Nee, -C a de!and for periodic accountin" is evidence of a partnership. 9urther!ore, petitioners failed to adduce an$ evidence to sho# that the real and personal properties ac,uired and re"istered in the na!es of 8lfledo and respondent for!ed part of the estate of Dose, havin" been derived fro! Dose*s alle"ed partnership #ith Di!!$ and Norberto. The$ failed to refute respondent*s clai! that 8lfledo and respondent en"a"ed in other businesses. 8dison even ad!itted that 8lfledo also sold Inter#ood lu!ber as a sideline.-. Petitioners could not offer an$ credible evidence other than their bare assertions. Thus, #e appl$ the basic rule of evidence that bet#een docu!entar$ and oral evidence, the for!er carries !ore #ei"ht.35 9inall$, #e a"ree #ith the Kudicious findin"s of the &0, to #it6 The above testi!onies prove that 8lfledo #as not Kust a hired help but one of the partners in the truc=in" business, active and visible in the runnin" of its affairs fro! da$ one until this ceased operations upon his de!ise. The e%tent of his control, ad!inistration and !ana"e!ent of the partnership and its business, the fact that its properties #ere placed in his na!e, and that he #as not paid salar$ or other co!pensation b$ the partners, are indicative of the fact that 8lfledo #as a partner and a controllin" one at that. It is apparent that the other partners onl$ contributed in the initial capital but had no sa$ thereafter on ho# the business #as ran. 8videntl$ it #as throu"h 8lfredoRs efforts and hard #or= that the partnership #as able to ac,uire !ore truc=s and other#ise prosper. 8ven the appellant participated in the affairs of the partnership b$ actin" as the boo==eeper sans salar$.$avvphi$

It is notable too that Dose Ii! died #hen the partnership #as barel$ a $ear old, and the partnership and its business not onl$ continued but also flourished. If it #ere true that it #as Dose Ii! and not 8lfledo #ho #as the partner, then upon his death the partnership should have been dissolved and its assets li,uidated. On the contrar$, these #ere not done but instead its operation continued under the hel! of 8lfledo and #ithout an$ participation fro! the heirs of Dose Ii!. 7hatever properties appellant and her husband had ac,uired, this #as throu"h their o#n concerted efforts and hard #or=. 8lfledo did not li!it hi!self to the business of their partnership but en"a"ed in other lines of businesses as #ell. In su!, #e find no co"ent reason to disturb the findin"s and the rulin" of the &0 as the$ are a!pl$ supported b$ the la# and b$ the evidence on record. 7H8R89OR8, the instant Petition is D8NI8D. The assailed &ourt of 0ppeals Decision dated Dune 3., 3554 is 099IRM8D. &osts a"ainst petitioners. SO ORD8R8D. ANTONIO E%UAR%O !. NAC URA 0ssociate Dustice 78 &ON&+R6 RENATO C. CORONA 0ssociate Dustice &hairperson PRES!ITERO J. &E"ASCO, JR. 0ssociate Dustice MARIANO C. %E" CASTI""OV 0ssociate Dustice

JOSE CATRA" MEN%O*A 0ssociate Dustice 0TT8ST0TION

I attest that the conclusions in the above Decision had been reached in consultation before the case #as assi"ned to the #riter of the opinion of the &ourtRs Division. RENATO C. CORONA 0ssociate Dustice &hairperson, Third Division &8RTI9I&0TION Pursuant to Section -/, 0rticle VIII of the &onstitution and the Division &hairperson*s 0ttestation, I certif$ that the conclusions in the above Decision had been reached in consultation before the case #as assi"ned to the #riter of the opinion of the &ourtRs Division. RE$NATO S. PUNO &hief Dustice

Foo8no8/.
V

0dditional !e!ber in lieu of 0ssociate Dustice Diosdado M. Peralta per Special Order No. C3: dated 9ebruar$ -3, 35-5.
3

Rollo, pp. .1/-.

Particularl$ doc=eted as &012.R. &V No. C///-L penned b$ 0ssociate Dustice Roberto 0. <arrios 'deceased(, #ith 0ssociate Dustices 0!elita 2. Tolentino and Vicente S.8. Veloso, concurrin"L id. at 4B1>..
/

Particularl$ doc=eted as &ivil &ase No. .B1>5L rollo, pp. :.1 44.
: 4 >

Records, pp. -1.. &0 rollo, pp. -->1-3C. Id. at -4B1-4C.

B C .

Petitioners* Me!orandu!L rollo, pp. 3B-13.4, at 3C4. Id. Respondent*s Me!orandu!L id. at 35:13/:.

-5

9rancisco Madrid and 8d"ardo <ernardo v. Spouses <onifacio Mapo$ and 9elicidad Martine;, 2.R. No. -45CCB, 0u"ust -:, 355.. '&itations o!itted.(
--

Onti!are, Dr. v. 8lep, 2.R. No. -4.33:, Danuar$ 35, 355>, :B. S&R0 34B, 3>4.
-3

IitonKua, Dr. v. IitonKua, Sr., 2.R. Nos. ->>3..1/55, Dece!ber -/, 3554, :BB S&R0 4B>, 4C:.
-/

Perfecta &avile, Dose de la &ru; and Rural <an= of <a$a#an, Inc. v. Dustina Iitania1Hon", acco!panied and Koined b$ her husband, Ieopoldo Hon" and 2enoveva Iitania, 2.R. No. -B.4:5, March -/, 355., citin" 2o v. &ourt of 0ppeals, :5/ Phil. CC/, C.51C.- '355-(.
-: -4 -> -B -C

/.> Phil. >C '3555(. TSN, Dune C, -..., pp. :, C and .1-5. TSN, Ma$ 3, 3555, p. -B. Id. at -41->.

Supra note -:, at C/, citin" 8stanislao, Dr. v. &ourt of 0ppeals, ->5 S&R0 C/5, C/B '-.CC(.
-. 35

TSN, Septe!ber -4, -..., p. C.

SPO3 Oap v. Dud"e Inopi,ue;, Dr., :4- Phil. -C3, -.3 '355/(, citin" Ro!a"o 8lectric &o., Inc. v. &ourt of 0ppeals, /// S&R0 3.-, /53 '3555(, further citin" 8reMeta v. <e;ore, 4: S&R0 -/ '-.B/( and Soriano v. &o!paMia 2eneral de Tabacos de 9ilipinas, -C S&R0 ... '-.>>(L and 2overn!ent Service Insurance S$ste! v. &ourt of 0ppeals, 333 S&R0

>C4, >.> '-../(, further citin" Marvel <uildin" &orporation, et al. v. David, .: Phil. /B> '-.4:(. Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 143346 Au@u.8 15, 2661

"I"I!ET SUNGA+C AN an0 CECI"IA SUNGA, petitioners, vs. "AM!ERTO T. C UA, respondent. GON*AGA+RE$ES, J.> <efore us is a petition for revie# on certiorari under Rule :4 of the Rules of &ourt of the Decision- of the &ourt of 0ppeals dated Danuar$ /-, 3555 in the case entitled Ia!berto T. &hua vs. Iilibeth Sun"a &han and &ecilia Sun"a and of the Resolution dated Ma$ 3/, 3555 den$in" the !otion for reconsideration of herein petitioners Iilibeth Sun"a and &ecilia Sun"a 'hereafter collectivel$ referred to as petitioners(. The pertinent facts of this case are as follo#s6 On Dune 33, -..3, Ia!berto T. &hua 'hereafter respondent( filed a co!plaint a"ainst Iilibeth Sun"a &han 'hereafter petitioner Iilibeth( and &ecilia Sun"a 'hereafter petitioner &ecilia(, dau"hter and #ife, respectivel$ of the deceased Dacinto I. Sun"a 'hereafter Dacinto(, for 7indin" +p of Partnership 0ffairs, 0ccountin", 0ppraisal and Recover$ of Shares and Da!a"es #ith 7rit of Preli!inar$ 0ttach!ent #ith the Re"ional Trial &ourt, <ranch --, Sindan"an, Qa!boan"a del Norte. Respondent alle"ed that in -.BB, he verball$ entered into a partnership #ith Dacinto in the distribution of Shellane Ii,uefied Petroleu! 2as 'IP2( in Manila. 9or business convenience, respondent and Dacinto alle"edl$ a"reed to re"ister the business na!e of their partnership, SH8IIIT8 20S 0PPII0N&8 &8NT8R 'hereafter Shellite(, under the na!e of Dacinto as a sole

proprietorship. Respondent alle"edl$ delivered his initial capital contribution of P-55,555.55 to Dacinto #hile the latter in turn produced P-55,555.55 as his counterpart contribution, #ith the intention that the profits #ould be e,uall$ divided bet#een the!. The partnership alle"edl$ had Dacinto as !ana"er, assisted b$ Dosephine S$ 'hereafter Dosephine(, a sister of the #ife respondent, 8rlinda S$. 0s co!pensation, Dacinto #ould receive a !ana"er*s fee or re!uneration of -5F of the "ross profit and Dosephine #ould receive -5F of the net profits, in addition to her #a"es and other re!uneration fro! the business. 0lle"edl$, fro! the ti!e that Shellite opened for business on Dul$ C, -.BB, its business operation #ent ,uite and #as profitable. Respondent clai!ed that he could attest to success of their business because of the volu!e of orders and deliveries of filled Shellane c$linder tan=s supplied b$ Pilipinas Shell Petroleu! &orporation. 7hile Dacinto furnished respondent #ith the !erchandise inventories, balance sheets and net #orth of Shellite fro! -.BB to -.C., respondent ho#ever suspected that the a!ount indicated in these docu!ents #ere understated and undervalued b$ Dacinto and Dosephine for their o#n selfish reasons and for ta% avoidance. +pon Dacinto*s death in the later part of -.C., his survivin" #ife, petitioner &ecilia and particularl$ his dau"hter, petitioner Iilibeth, too= over the operations, control, custod$, disposition and !ana"e!ent of Shellite #ithout respondent*s consent. Despite respondent*s repeated de!ands upon petitioners for accountin", inventor$, appraisal, #indin" up and restitution of his net shares in the partnership, petitioners failed to co!pl$. Petitioner Iilibeth alle"edl$ continued the operations of Shellite, convertin" to her o#n use and advanta"e its properties. On March /-, -..-, respondent clai!ed that after petitioner Iilibeth ran out the alibis and reasons to evade respondent*s de!ands, she disbursed out of the partnership funds the a!ount of P355,555.55 and partiall$ paid the sa!e to respondent. Petitioner Iilibeth alle"edl$ infor!ed respondent that the P355,555.55 represented partial pa$!ent of the latter*s share in the partnership, #ith a pro!ise that the for!er #ould !a=e the co!plete inventor$ and #indin" up of the properties of the business establish!ent. Despite

such co!!it!ent, petitioners alle"edl$ failed to co!pl$ #ith their dut$ to account, and continued to benefit fro! the assets and inco!e of Shellite to the da!a"e and preKudice of respondent. On Dece!ber -., -..3, petitioners filed a Motion to Dis!iss on the "round that the Securities and 8%chan"e &o!!ission 'S8&( in Manila, not the Re"ional Trial &ourt in Qa!boan"a del Norte had Kurisdiction over the action. Respondent opposed the !otion to dis!iss. On Danuar$ -3, -../, the trial court findin" the co!plaint sufficient in fro! and substance denied the !otion to dis!iss. On Danuar$ /5, -../, petitioners filed their 0ns#er #ith &o!pulsor$ &ounter1clai!s, contendin" that the$ are not liable for partnership shares, unreceived inco!eGprofits, interests, da!a"es and attorne$*s fees, that respondent does not have a cause of action a"ainst the!, and that the trial court has no Kurisdiction over the nature of the action, the S8& bein" the a"enc$ that has ori"inal and e%clusive Kurisdiction over the case. 0s counterclai!, petitioner sou"ht attorne$*s fees and e%penses of liti"ation. On 0u"ust 3, -../, petitioner filed a second Motion to Dis!iss this ti!e on the "round that the clai! for #indin" up of partnership affairs, accountin" and recover$ of shares in partnership affairs, accountin" and recover$ of shares in partnership assetsGproperties should be dis!issed and prosecuted a"ainst the estate of deceased Dacinto in a probate or intestate proceedin". On 0u"ust ->, -../, the trial denied the second !otion to dis!iss for lac= of !erit. On Nove!ber 3>, -../, petitioners filed their Petition for &ertiorari, Prohibition and Manda!us #ith the &ourt of 0ppeals doc=eted as &012.R. SP No. /3:.. ,uestionin" the denial of the !otion to dis!iss. On Nove!ber 3., -../, petitioners filed #ith the trial court a Motion to Suspend Pre1trial &onference.

On Dece!ber -/, -../, the trial court "ranted the !otion to suspend pre1trial conference. On Nove!ber -4, -..:, the &ourt of 0ppeals denied the petition for lac= of !erit. On Danuar$ ->, -..4, this &ourt denied the petition for revie# on certiorari filed b$ petitioner, as petitioners failed to sho# that a reversible error #as co!!itted b$ the appellate court. 3 On 9ebruar$ 35, -..4, entr$ of Kud"!ent #as !ade b$ the &ler= of &ourt and the case #as re!anded to the trial court on 0pril 3>, -..4. On Septe!ber 34, -..4, the trial court ter!inated the pre1trial conference and set the hearin" of the case of Danuar$ -B, -..>. Respondent presented his evidence #hile petitioners #ere considered to have #aived their ri"ht to present evidence for their failure to attend the scheduled date for reception of evidence despite notice. On October B, -..B, the trial court rendered its Decision rulin" for respondent. The dispositive of the Decision reads6 7H8R89OR8, Kud"!ent is hereb$ rendered in favor of the plaintiff and a"ainst the defendants, as follo#s6 '-( DIR8&TIN2 the! to render an accountin" in acceptable for! under accountin" procedures and standards of the properties, assets, inco!e and profits of the Shellite 2as 0ppliance &enter Since the ti!e of death of Dacinto I. Sun"a, fro! #ho! the$ continued the business operations includin" all businesses derived fro! Shellite 2as 0ppliance &enter, sub!it an inventor$, and appraisal of all these properties, assets, inco!e, profits etc. to the &ourt and to plaintiff for approval or disapprovalL '3( ORD8RIN2 the! to return and restitute to the partnership an$ and all properties, assets, inco!e and profits the$ !isapplied and converted to their o#n use

and advanta"e the le"all$ pertain to the plaintiff and account for the properties !entioned in pars. 0 and < on pa"es :14 of this petition as basisL '/( DIR8&TIN2 the! to restitute and pa$ to the plaintiff Y shares and interest of the plaintiff in the partnership of the listed properties, assets and "ood #ill 'sic( in schedules 0, < and &, on pa"es :14 of the petitionL ':( ORD8RIN2 the! to pa$ the plaintiff earned but unreceived inco!e and profits fro! the partnership fro! -.CC to Ma$ /5, -..3, #hen the plaintiff learned of the closure of the store the su! of P/4,555.55 per !onth, #ith le"al rate of interest until full$ paidL '4( ORD8RIN2 the! to #ind up the affairs of the partnership and ter!inate its business activities pursuant to la#, after deliverin" to the plaintiff all the Y interest, shares, participation and e,uit$ in the partnership, or the value thereof in !one$ or !one$*s #orth, if the properties are not ph$sicall$ divisibleL '>( 9INDIN2 the! especiall$ Iilibeth Sun"a1&han "uilt$ of breach of trust and in bad faith and hold the! liable to the plaintiff the su! of P45,555.55 as !oral and e%e!plar$ da!a"esL and, 'B( DIR8&TIN2 the! to rei!burse and pa$ the su! of P34,555.55 as attorne$*s 'sic( and P34,555.55 as liti"ation e%penses. NO special pronounce!ents as to &OSTS. SO ORD8R8D.
/

On October 3C, -..B, petitioners filed a Notice of 0ppeal #ith the trial court, appealin" the case to the &ourt of 0ppeals. On Danuar$ /-, 3555, the &ourt of 0ppeals dis!issed the appeal. The dispositive portion of the Decision reads6

7H8R89OR8, the instant appeal is dis!issed. The appealed decision is 099IRM8D in all respects. : On Ma$ 3/, 3555, the &ourt of 0ppeals denied the !otion for reconsideration filed b$ petitioner. Hence, this petition #herein petitioner relies upon follo#in" "rounds6 -. The &ourt of 0ppeals erred in !a=in" a le"al conclusion that there e%isted a partnership bet#een respondent Ia!berto T. &hua and the late Dacinto I. Sun"a upon the latter** invitation and offer and that upon his death the partnership assets and business #ere ta=en over b$ petitioners. 3. The &ourt of 0ppeals erred in !a=in" the le"al conclusion that laches andGor prescription did not appl$ in the instant case. /. The &ourt of 0ppeals erred in !a=in" the le"al conclusion that there #as co!petent and credible evidence to #arrant the findin" of a partnership, and assu!in" arguendo that indeed there #as a partnership, the findin" of hi"hl$ e%a""erated a!ounts or values in the partnership assets and profits. 4 Petitioners ,uestion the correctness of the findin" of the trial court and the &ourt of 0ppeals that a partnership e%isted bet#een respondent and Dacinto fro! -.BB until Dacinto*s death. In the absence of an$ #ritten docu!ent to sho# such partnership bet#een respondent and Dacinto, petitioners ar"ues that these courts #ere proscribes fro! hearin" the testi!onies of respondent and his #itness, Dosephine, to prove the alle"ed partnership three $ears after Dacinto*s death. To support this ar"u!ent, petitioners invo=e the Dead Man*s Statute* or Survivorship Rule under Section 3/, Rule -/5 of the Rules of &ourt that provides6 SEC. 23. 8isKuali ication b+ reason o death or insanit+ o adverse part+. T Parties or assi"nors of parties to a case, or persons in #hose behalf a case is prosecuted, a"ainst an e%ecutor or ad!inistrator or other representative of a deceased person, or a"ainst a person of unsound !ind, upon

a clai! or de!and a"ainst the estate of such deceased person, or a"ainst such person of unsound !ind, cannot testif$ as to an$ !atter of fact occurrin" before the death of such deceased person or before such person beca!e of unsound !ind. Petitioners thus i!plore this &ourt to rule that the testi!onies of respondent and his alter e"o, Dosephine, should not have been ad!itted to prove certain clai!s a"ainst a deceased person 'Dacinto(, no# represented b$ petitioners. 7e are not persuaded. 0 partnership !a$ be constituted in an$ for!, e%cept #here i!!ovable propert$ of real ri"hts are contributed thereto, in #hich case a public instru!ent shall necessar$.> Hence, based on the intention of the parties, as "athered fro! the facts and ascertained fro! their lan"ua"e and conduct, a verbal contract of partnership !a$ arise.B The essential profits that !ust be proven to that a partnership #as a"reed upon are '-( !utual contribution to a co!!on stoc=, and '3( a Koint interest in the profits.C +nderstandabl$ so, in vie# of the absence of the #ritten contract of partnership bet#een respondent and Dacinto, respondent resorted to the introduction of docu!entar$ and testi!onial evidence to prove said partnership. The crucial issue to settle then is to #hether or not the Dead Man*s Statute applies to this case so as to render inad!issible respondent*s testi!on$ and that of his #itness, Dosephine. The Dead Man*s Statute provides that if one part$ to the alle"ed transaction is precluded fro! testif$in" b$ death, insanit$, or other !ental disabilities, the survivin" part$ is not entitled to the undue advanta"e of "ivin" his o#n uncontradicted and une%plained account of the transaction.. <ut before this rule can be successfull$ invo=ed to bar the introduction of testi!onial evidence, it is necessar$ that6 -. The #itness is a part$ or assi"nor of a part$ to case or persons in #hose behalf a case in prosecuted.

3. The action is a"ainst an e%ecutor or ad!inistrator or other representative of a deceased person or a person of unsound !indL /. The subKect1!atter of the action is a clai! or de!and a"ainst the estate of such deceased person or a"ainst person of unsound !indL :. His testi!on$ refers to an$ !atter of fact of #hich occurred before the death of such deceased person or before such person beca!e of unsound !ind. -5 T#o reasons forestall the application of the Dead Man*s Statute to this case. 9irst, petitioners filed a co!pulsor$ counterclai! -- a"ainst respondents in their ans#er before the trial court, and #ith the filin" of their counterclai!, petitioners the!selves effectivel$ re!oved this case fro! the a!bit of the Dead Man*s Statute . -3 7ell entrenched is the rule that #hen it is the e%ecutor or ad!inistrator or representatives of the estates that sets up the counterclai!, the plaintiff, herein respondent, !a$ testif$ to occurrences before the death of the deceased to defeat the counterclai!. -/ Moreover, as defendant in the counterclai!, respondent is not dis,ualified fro! testif$in" as to !atters of facts occurrin" before the death of the deceased, said action not havin" been brou"ht a"ainst but b$ the estate or representatives of the deceased. -: Second, the testi!on$ of Dosephine is not covered b$ the Dead Man*s Statute for the si!ple reason that she is not a part$ or assi"nor of a part$ to a case or persons in #hose behalf a case is prosecuted. Records sho# that respondent offered the testi!on$ of Dosephine to establish the e%istence of the partnership bet#een respondent and Dacinto. Petitioners* insistence that Dosephine is the alter e"o of respondent does not !a=e her an assi"nor because the ter! assi"nor of a part$ !eans assi"nor of a cause of action #hich has arisen, and not the assi"nor of a ri"ht assi"ned before an$ cause of action has arisen. -4 Plainl$ then, Dosephine is !erel$ a #itness of respondent, the latter bein" the part$ plaintiff.

7e are not convinced b$ petitioners* alle"ation that Dosephine*s testi!on$ lac=s probative value because she #as alle"edl$ coerced coerced b$ respondent, her brother1in1la#, to testif$ in his favor, Dosephine !erel$ declared in court that she #as re,uested b$ respondent to testif$ and that if she #ere not re,uested to do so she #ould not have testified. 7e fail to see ho# #e can conclude fro! this candid ad!ission that Dosephine*s testi!on$ is involuntar$ #hen she did not in an$ #a$ cate"oricall$ sa$ that she #as forced to be a #itness of respondent. 0lso, the fact that Dosephine is the sister of the #ife of respondent does not di!inish the value of her testi!on$ since relationship per se, #ithout !ore, does not affect the credibilit$ of #itnesses. -> Petitioners* reliance alone on the Dead Man*s Statute to defeat respondent*s clai! cannot prevail over the factual findin"s of the trial court and the &ourt of 0ppeals that a partnership #as established bet#een respondent and Dacinto. <ased not onl$ on the testi!onial evidence, but the docu!entar$ evidence as #ell, the trial court and the &ourt of 0ppeals considered the evidence for respondent as sufficient to prove the for!ation of partnership, albeit an infor!al one. Notabl$, petitioners did not present an$ evidence in their favor durin" trial. <$ the #ei"ht of Kudicial precedents, a factual !atter li=e the findin" of the e%istence of a partnership bet#een respondent and Dacinto cannot be in,uired into b$ this &ourt on revie#.-B This &ourt can no lon"er be tas=ed to "o over the proofs presented b$ the parties and anal$;e, assess and #ei"h the! to ascertain if the trial court and the appellate court #ere correct in accordin" superior credit to this or that piece of evidence of one part$ or the other.-C It !ust be also pointed out that petitioners failed to attend the presentation of evidence of respondent. Petitioners cannot no# turn to this &ourt to ,uestion the ad!issibilit$ and authenticit$ of the docu!entar$ evidence of respondent #hen petitioners failed to obKect to the ad!issibilit$ of the evidence at the ti!e that such evidence #as offered.-. 7ith re"ard to petitioners* insistence that laches andGor prescription should have e%tin"uished respondent*s clai!, #e a"ree #ith the trial court and the &ourt of 0ppeals that the action for accountin"

filed b$ respondents three '/( $ears after Dacinto*s death #as #ell #ithin the prescribed period. The &ivil &ode provides that an action to enforce an oral contract prescribes in si% '>( $ears 35 #hile the ri"ht to de!and an accountin" for a partner*s interest as a"ainst the person continuin" the business accrues at the date of dissolution, in the absence of an$ contrar$ a"ree!ent.3-&onsiderin" that the death of a partner results in the dissolution of the partnership 33, in this case, it #as Dacinto*s death that respondent as the survivin" partner had the ri"ht to an account of his interest as a"ainst petitioners. It bears stressin" that #hile Dacinto*s death dissolved the partnership, the dissolution did not i!!ediatel$ ter!inate the partnership. The &ivil &ode3/ e%pressl$ provides that upon dissolution, the partnership continues and its le"al personalit$ is retained until the co!plete #indin" up of its business, cul!inatin" in its ter!ination. 3: In a desperate bid to cast doubt on the validit$ of the oral partnership bet#een respondent and Dacinto, petitioners !aintain that said partnership that had initial capital of P355,555.55 should have been re"istered #ith the Securities and 8%chan"e &o!!ission 'S8&( since re"istration is !andated b$ the &ivil &ode, True, 0rticle -BB3 of the &ivil &ode re,uires that partnerships #ith a capital of P/,555.55 or !ore !ust re"ister #ith the S8&, ho#ever, this re"istration re,uire!ent is not !andator$. 0rticle -B>C of the &ivil &ode34 e%plicitl$ provides that the partnership retains its Kuridical personalit$ even if it fails to re"ister. The failure to re"ister the contract of partnership does not invalidate the sa!e as a!on" the partners, so lon" as the contract has the essential re,uisites, because the !ain purpose of re"istration is to "ive notice to third parties, and it can be assu!ed that the !e!bers the!selves =ne# of the contents of their contract.3> In the case at bar, non1co!pliance #ith this director$ provision of the la# #ill not invalidate the partnership considerin" that the totalit$ of the evidence proves that respondent and Dacinto indeed for"ed the partnership in ,uestion. 7H8R89OR8, in vie# of the fore"oin", the petition is D8NI8D and the appealed decision is 099IRM8D. SO ORD8R8D.$%&phi$.n't 2elo! (itug! Panganiban! and "andoval*Gutierre)! ,,.! concur.

Foo8no8/.>
- Per 0ssociate Dustice Delilah Vidallon1Ma"tolis and concurred in b$ 0ssociate Dustices <ernardo P. 0besa!is and Mercedes 2o;o1Dadole, &ourt of 0ppeals, 9ourteenth Division. 3 Rollo, p. -C4. / Records, pp. B41B>L Decision, pp. 3413>. : Rollo, p. :>L Decision, p. --. 4 Rollo, pp. -/1-:L Petition, pp. >1B. > DOS8 &. VIT+2, &OMP8NDI+M O9 &IVII I07 0ND D+RISPR+D8N&8, R8V. 8D. '-../(, p. B-3. B R0MON &. 0?+INO 0ND &0ROIIN0 &. 2RIUO10?+INO, TH8 &IVII &OD8 O9 TH8 PHIIIPPIN8S, VOI. / '-..5(, p. 3.4. C 0RT+RO M. TOI8NTINO, &OMM8NT0RI8S 0ND D+RISPR+D8N&8 ON TH8 &IVII &OD8 O9 TH8 PHIIIPPIN8S, VOI+M8 4 '-..B(, p. /35. . Tan vs. Court o /ppeals, 3.4 S&R0 3:B '-..C(, p. 34C. -5 OS&0R M. H8RR8R0, R8M8DI0I I07, R8VIS8D R+I8S ON 8VID8N&8, VOI. V '-...(, pp. /5C1 /5.. -- Records, pp. :B14-. -3 See Goni vs. Court o /ppeals, -:: S&R0 333 '-.C>(. -/ H8RR8R0! supra, p. /-5. -: Goni vs. Court o /ppeals, supra, p. 3//. -4 RI&0RDO D. 9R0N&IS&O, 8VID8N&8, THIRD 8DITION '-..>(, p. -/4. -> People vs. .ang, 3C. S&R0 -> '-..C(, p. /3. -B /licbusan vs. Court o /ppeals, 3>. S&R0 //>, p. /:-. -C Ibid.

-. See Chua vs. Court o /ppeals, /5- S&R0 /4> '-...(. 35 The follo#in" actions !ust be co!!enced #ithin si% $ears6 '-( +pon an oral contractL and '3( +pon a ,uasi1contract. 3- 0rt. -C:3, &ivil &ode6 The ri"ht to an account of his interest shall accrue to an$ partner, or his le"al representative as a"ainst the #indin" up partners or the survivin" partners or the person or partnership continuin" the business, at the date of dissolution, in the absence of an$ a"ree!ent to the contrar$. 33 0rticle -C/5, &ivil &ode. 3/ 0rt. -C3C. The dissolution of a partnership is the chan"e in the relation of the partnership is the chan"e in the relation of the partners caused b$ an$ partner ceasin" to be associated in the carr$in" on as distinguished rom the &inding up o the business. 0rt. -C3.. On dissolution the partnership is not ter!inated, but continues until the #indin" up of partnership affairs is co!pleted. 3: "+ vs. Court o /ppeals, /-/ S&R0 /3C '-...(, p. /:B. 34 The partnership has a Kuridical personalit$ separate and distinct fro! that of each of the partners, even in case of failure to co!pl$ #ith the re,uire!ents of article -BB3, first para"raph. 3> TOI8NTINO, supra, p. /34.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 134559 %/?/:;/r 9, 1999 ANTONIA TORRES a..=.8/0 ;y B/r Bu.;an0, ANGE"O TORRES; an0 EMETERIA !ARING, petitioners,

vs. COURT OF APPEA"S an0 MANUE" TORRES, respondents.

PANGANI!AN, J.: &ourts !a$ not e%tricate parties fro! the necessar$ conse,uences of their acts. That the ter!s of a contract turn out to be financiall$ disadvanta"eous to the! #ill not relieve the! of their obli"ations therein. The lac= of an inventor$ of real propert$ #ill not ipso acto release the contractin" partners fro! their respective obli"ations to each other arisin" fro! acts e%ecuted in accordance #ith their a"ree!ent. The Case The Petition for Revie# on Certiorari before us assails the March 4, -..C Decision 1 of the &ourt of 0ppeals 2 '&0( in &012R &V No. :3/BC and its Dune 34, -..C Resolution den$in" reconsideration. The assailed Decision affir!ed the rulin" of the Re"ional Trial &ourt 'RT&( of &ebu &it$ in &ivil &ase No. R13-35C, #hich disposed as follo#s6 7H8R89OR8, for all the fore"oin" considerations, the &ourt, findin" for the defendant and a"ainst the plaintiffs, orders the dis!issal of the plaintiffs co!plaint. The counterclai!s of the defendant are li=e#ise ordered dis!issed. No pronounce!ent as to costs. 3 The Facts Sisters 0ntonia Torres and 8!eteria <arin", herein petitioners, entered into a Koint venture a"ree!ent #ith Respondent Manuel Torres for the develop!ent of a parcel of land into a subdivision. Pursuant to the contract, the$ e%ecuted a Deed of Sale coverin" the said parcel of land in favor of respondent, #ho then had it re"istered in his na!e. <$ !ort"a"in" the propert$, respondent obtained fro! 8,uitable <an= a loan of P:5,555 #hich, under the Doint Venture 0"ree!ent, #as to be used for the develop!ent of

the subdivision. 4 0ll three of the! also a"reed to share the proceeds fro! the sale of the subdivided lots. The proKect did not push throu"h, and the land #as subse,uentl$ foreclosed b$ the ban=. 0ccordin" to petitioners, the proKect failed because of respondent*s lac= of funds or !eans and s=ills. The$ add that respondent used the loan not for the develop!ent of the subdivision, but in furtherance of his o#n co!pan$, +niversal +!brella &o!pan$. On the other hand, respondent alle"ed that he used the loan to i!ple!ent the 0"ree!ent. 7ith the said a!ount, he #as able to effect the surve$ and the subdivision of the lots. He secured the Iapu Iapu &it$ &ouncil*s approval of the subdivision proKect #hich he advertised in a local ne#spaper. He also caused the construction of roads, curbs and "utters. Ii=e#ise, he entered into a contract #ith an en"ineerin" fir! for the buildin" of si%t$ lo#1cost housin" units and actuall$ even set up a !odel house on one of the subdivision lots. He did all of these for a total e%pense of PC4,555. Respondent clai!ed that the subdivision proKect failed, ho#ever, because petitioners and their relatives had separatel$ caused the annotations of adverse clai!s on the title to the land, #hich eventuall$ scared a#a$ prospective bu$ers. Despite his re,uests, petitioners refused to cause the clearin" of the clai!s, thereb$ forcin" hi! to "ive up on the proKect. 5 Subse,uentl$, petitioners filed a cri!inal case for estafa a"ainst respondent and his #ife, #ho #ere ho#ever ac,uitted. Thereafter, the$ filed the present civil case #hich, upon respondent*s !otion, #as later dis!issed b$ the trial court in an Order dated Septe!ber >, -.C3. On appeal, ho#ever, the appellate court re!anded the case for further proceedin"s. Thereafter, the RT& issued its assailed Decision, #hich, as earlier stated, #as affir!ed b$ the &0. Hence, this Petition. 6 Ruling o the Court o /ppeals

In affir!in" the trial court, the &ourt of 0ppeals held that petitioners and respondent had for!ed a partnership for the develop!ent of the subdivision. Thus, the$ !ust bear the loss suffered b$ the partnership in the sa!e proportion as their share in the profits stipulated in the contract. Disa"reein" #ith the trial court*s pronounce!ent that losses as #ell as profits in a Koint venture should be distributed e,uall$, 7 the &0 invo=ed 0rticle -B.B of the &ivil &ode #hich provides6 0rt. -B.B H The losses and profits shall be distributed in confor!it$ #ith the a"ree!ent. If onl$ the share of each partner in the profits has been a"reed upon, the share of each in the losses shall be in the sa!e proportion. The &0 elucidated further6 In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to #hat he !a$ have contributed, but the industrial partner shall not be liable for the losses. 0s for the profits, the industrial partner shall receive such share as !a$ be Kust and e,uitable under the circu!stances. If besides his services he has contributed capital, he shall also receive a share in the profits in proportion to his capital. The Issue Petitioners i!pute to the &ourt of 0ppeals the follo#in" error6 . . . @TheA &ourt of 0ppeals erred in concludin" that the transaction . . . bet#een the petitioners and respondent #as that of a Koint ventureGpartnership, i"norin" outri"ht the provision of 0rticle -B>., and other related provisions of the &ivil &ode of the Philippines. 5 The Court's Ruling The Petition is bereft of !erit. 2ain Issue6

Existence o a Partnership Petitioners den$ havin" for!ed a partnership #ith respondent. The$ contend that the Doint Venture 0"ree!ent and the earlier Deed of Sale, both of #hich #ere the bases of the appellate court*s findin" of a partnership, #ere void. In the sa!e breath, ho#ever, the$ assert that under those ver$ sa!e contracts, respondent is liable for his failure to i!ple!ent the proKect. <ecause the a"ree!ent entitled the! to receive >5 percent of the proceeds fro! the sale of the subdivision lots, the$ pra$ that respondent pa$ the! da!a"es e,uivalent to >5 percent of the value of the propert$. 9 The pertinent portions of the Doint Venture 0"ree!ent read as follo#s6 NNO7 0II M8N <O TH8S8 PR8S8NTS6 This 02R88M8NT, is !ade and entered into at &ebu &it$, Philippines, this 4th da$ of March, -.>., b$ and bet#een MR. M0N+8I R. TORR8S, . . . the 9IRST P0RTO, li=e#ise, MRS. 0NTONI0 <. TORR8S, and MISS 8M8T8RI0 <0RIN2, . . . the S8&OND P0RTO6 7ITN8SS8TH6 That, #hereas, the S8&OND P0RTO, voluntaril$ offered the 9IRST P0RTO, this propert$ located at Iapu1Iapu &it$, Island of Mactan, under Iot No. -/>C coverin" T&T No. T15-C: #ith a total area of -B,55. s,uare !eters, to be sub1divided b$ the 9IRST P0RTOL 7hereas, the 9IRST P0RTO had "iven the S8&OND P0RTO, the su! of6 T78NTO THO+S0ND 'P35,555.55( Pesos, Philippine &urrenc$ upon the e%ecution of this contract for the propert$ entrusted b$ the S8&OND P0RTO, for sub1division proKects and develop!ent purposesL NO7 TH8R89OR8, for and in consideration of the above covenants and pro!ises herein contained the

respective parties hereto do hereb$ stipulate and a"ree as follo#s6 ON86 That the S8&OND P0RTO si"ned an absolute Deed of Sale . . . dated March 4, -.>., in the a!ount of T78NTO 9IV8 THO+S0ND 9IV8 H+NDR8D THIRT88N J 9I9TO &TVS. 'P34,4-/.45( Philippine &urrenc$, for -,B55 s,uare !eters at ON8 @P8SOA J 9I9TO &TVS. 'P-.45( Philippine &urrenc$, in favor of the 9IRST P0RTO, but the S8&OND P0RTO did not actuall$ receive the pa$!ent. S8&OND6 That the S8&OND P0RTO, had received fro! the 9IRST P0RTO, the necessar$ a!ount of T78NTO THO+S0ND 'P35,555.55( pesos, Philippine currenc$, for their personal obli"ations and this particular a!ount #ill serve as an advance pa$!ent fro! the 9IRST P0RTO for the propert$ !entioned to be sub1divided and to be deducted fro! the sales. THIRD6 That the 9IRST P0RTO, #ill not collect fro! the S8&OND P0RTO, the interest and the principal a!ount involvin" the a!ount of T78NTO THO+S0ND 'P35,555.55( Pesos, Philippine &urrenc$, until the sub1 division proKect is ter!inated and read$ for sale to an$ interested parties, and the a!ount of T78NTO THO+S0ND 'P35,555.55( pesos, Philippine currenc$, #ill be deducted accordin"l$. 9O+RTH6 That all "eneral e%pense@sA and all cost@sA involved in the sub1division proKect should be paid b$ the 9IRST P0RTO, e%clusivel$ and all the e%penses #ill not be deducted fro! the sales after the develop!ent of the sub1division proKect. 9I9TH6 That the sales of the sub1divided lots #ill be divided into SIPTO P8R&8NT+M >5F for the S8&OND P0RTO and 9ORTO P8R&8NT+M :5F for the 9IRST P0RTO, and additional profits or #hatever inco!e derivin" fro! the sales #ill be divided e,uall$ accordin" to the . . . percenta"e @a"reed uponA b$ both parties.

SIPTH6 That the intended sub1division proKect of the propert$ involved #ill start the #or= and all i!prove!ents upon the adKacent lots #ill be ne"otiated in both parties@*A favor and all sales shall @beA decided b$ both parties. S8V8NTH6 That the S8&OND P0RTI8S, should be "iven an option to "et bac= the propert$ !entioned provided the a!ount of T78NTO THO+S0ND 'P35,555.55( Pesos, Philippine &urrenc$, borro#ed b$ the S8&OND P0RTO, #ill be paid in full to the 9IRST P0RTO, includin" all necessar$ i!prove!ents spent b$ the 9IRST P0RTO, and1the 9IRST P0RTO #ill be "iven a "race period to turnover the propert$ !entioned above. That this 02R88M8NT shall be bindin" and obli"ator$ to the parties #ho e%ecuted sa!e freel$ and voluntaril$ for the uses and purposes therein stated. 16 0 readin" of the ter!s e!bodied in the 0"ree!ent indubitabl$ sho#s the e%istence of a partnership pursuant to 0rticle -B>B of the &ivil &ode, #hich provides6 0rt. -B>B. <$ the contract of partnership t#o or !ore persons bind the!selves to contribute !one$, propert$, or industr$ to a co!!on fund, #ith the intention of dividin" the profits a!on" the!selves. +nder the above1,uoted 0"ree!ent, petitioners #ould contribute propert$ to the partnership in the for! of land #hich #as to be developed into a subdivisionL #hile respondent #ould "ive, in addition to his industr$, the a!ount needed for "eneral e%penses and other costs. 9urther!ore, the inco!e fro! the said proKect #ould be divided accordin" to the stipulated percenta"e. &learl$, the contract !anifested the intention of the parties to for! a partnership. 11 It should be stressed that the parties i!ple!ented the contract. Thus, petitioners transferred the title to the land to facilitate its use in the na!e of the respondent. On the other hand, respondent

caused the subKect land to be !ort"a"ed, the proceeds of #hich #ere used for the surve$ and the subdivision of the land. 0s noted earlier, he developed the roads, the curbs and the "utters of the subdivision and entered into a contract to construct lo#1cost housin" units on the propert$. Respondent*s actions clearl$ belie petitioners* contention that he !ade no contribution to the partnership. +nder 0rticle -B>B of the &ivil &ode, a partner !a$ contribute not onl$ !one$ or propert$, but also industr$. Petitioners 1ound b+ Terms o Contract +nder 0rticle -/-4 of the &ivil &ode, contracts bind the parties not onl$ to #hat has been e%pressl$ stipulated, but also to all necessar$ conse,uences thereof, as follo#s6 0rt. -/-4. &ontracts are perfected b$ !ere consent, and fro! that !o!ent the parties are bound not onl$ to the fulfill!ent of #hat has been e%pressl$ stipulated but also to all the conse,uences #hich, accordin" to their nature, !a$ be in =eepin" #ith "ood faith, usa"e and la#. It is undisputed that petitioners are educated and are thus presu!ed to have understood the ter!s of the contract the$ voluntaril$ si"ned. If it #as not in consonance #ith their e%pectations, the$ should have obKected to it and insisted on the provisions the$ #anted. &ourts are not authori;ed to e%tricate parties fro! the necessar$ conse,uences of their acts, and the fact that the contractual stipulations !a$ turn out to be financiall$ disadvanta"eous #ill not relieve parties thereto of their obli"ations. The$ cannot no# disavo# the relationship for!ed fro! such a"ree!ent due to their supposed !isunderstandin" of its ter!s. /lleged .ullit+ o the Partnership /greement

Petitioners ar"ue that the Doint Venture 0"ree!ent is void under 0rticle -BB/ of the &ivil &ode, #hich provides6 0rt. -BB/. 0 contract of partnership is void, #henever i!!ovable propert$ is contributed thereto, if an inventor$ of said propert$ is not !ade, si"ned b$ the parties, and attached to the public instru!ent. The$ contend that since the parties did not !a=e, si"n or attach to the public instru!ent an inventor$ of the real propert$ contributed, the partnership is void. 7e clarif$. First, 0rticle -BB/ #as intended pri!aril$ to protect third persons. Thus, the e!inent 0rturo M. Tolentino states that under the aforecited provision #hich is a co!ple!ent of 0rticle -BB-, 12 The e%ecution of a public instru!ent #ould be useless if there is no inventor$ of the propert$ contributed, because #ithout its desi"nation and description, the$ cannot be subKect to inscription in the Re"istr$ of Propert$, and their contribution cannot preKudice third persons. This #ill result in fraud to those #ho contract #ith the partnership in the belief @inA the efficac$ of the "uarant$ in #hich the i!!ovables !a$ consist. Thus, the contract is declared void b$ the la# #hen no such inventor$ is !ade. The case at bar does not involve third parties #ho !a$ be preKudiced. "econd, petitioners the!selves invo=e the alle"edl$ void contract as basis for their clai! that respondent should pa$ the! >5 percent of the value of the propert$. 13 The$ cannot in one breath den$ the contract and in another reco"ni;e it, dependin" on #hat !o!entaril$ suits their purpose. Parties cannot adopt inconsistent positions in re"ard to a contract and courts #ill not tolerate, !uch less approve, such practice. In short, the alle"ed nullit$ of the partnership #ill not prevent courts fro! considerin" the Doint Venture 0"ree!ent an ordinar$ contract fro! #hich the parties* ri"hts and obli"ations to each other !a$ be inferred and enforced. Partnership /greement .ot the Result o an Earlier Illegal Contract

Petitioners also contend that the Doint Venture 0"ree!ent is void under 0rticle -:33 14 of the &ivil &ode, because it is the direct result of an earlier ille"al contract, #hich #as for the sale of the land #ithout valid consideration. This ar"u!ent is puerile. The Doint Venture 0"ree!ent clearl$ states that the consideration for the sale #as the e%pectation of profits fro! the subdivision proKect. Its first stipulation states that petitioners did not actuall$ receive pa$!ent for the parcel of land sold to respondent. &onsideration, !ore properl$ deno!inated as cause, can ta=e different for!s, such as the prestation or pro!ise of a thin" or service b$ another. 15 In this case, the cause of the contract of sale consisted not in the stated peso value of the land, but in the e%pectation of profits fro! the subdivision proKect, for #hich the land #as intended to be used. 0s e%plained b$ the trial court, the land #as in effect "iven to the partnership as @petitioner*sA participation therein. . . . There #as therefore a consideration for the sale, the @petitionersA actin" in the e%pectation that, should the venture co!e into fruition, the$ @#ouldA "et si%t$ percent of the net profits. -iabilit+ o the Parties &lai!in" that rerpondent #as solel$ responsible for the failure of the subdivision proKect, petitioners !aintain that he should be !ade to pa$ da!a"es e,uivalent to >5 percent of the value of the propert$, #hich #as their share in the profits under the Doint Venture 0"ree!ent. 7e are not persuaded. True, the &ourt of 0ppeals held that petitioners* acts #ere not the cause of the failure of the proKect. 16 <ut it also ruled that neither #as respondent responsible therefor. 17 In i!putin" the bla!e solel$ to hi!, petitioners failed to "ive an$ reason #h$ #e should disre"ard the factual findin"s of the appellate court relievin" hi! of fault. Veril$, factual issues cannot be resolved in a petition for revie# under Rule :4, as in this case. Petitioners have not alle"ed, not to sa$ sho#n, that their Petition constitutes one of the e%ceptions to this doctrine. 15 0ccordin"l$, #e find no reversible error in the &0*s rulin" that petitioners are not entitled to da!a"es.

7H8R89OR8, the Perition is hereb$ D8NI8D and the challen"ed Decision 099IRM8D. &osts a"ainst petitioners. SO ORD8R8D 2elo! (itug! Purisima and Gon)aga*Re+es! ,,.! concur. Foo8no8/. - Penned b$ Dustice Ra!on +. Mabutas Dr.L concurred in b$ Dustices 8!eterio &. &ui, Division chair!an, and Hilarion I. 0,uino, !e!ber. 3 Second Division. / &0 Decision, p. -L rollo, p. -4. : &0 Decision, p. 3L rollo, p. ->. 4 &0 Decision, p. /L rollo, p. -B. > The case #as dee!ed sub!itted for resolution on Septe!ber -4, -..., upon receipt b$ the &ourt of the respective Me!oranda of the respondent and the petitioners. B &0 Decision, p. /3L rollo, p. :>. C Petition, p. 3L rollo, p. -5. . Petitioners* Me!orandu!, pp. >1BL rollo, pp. C31C/. -5 &0 Decision, pp. 41>L rollo, pp. -.135. -- Do &hun" &an" v. Pacific &o!!ercial &o., :4 Phil. -:3, Septe!ber >, -.3/. -3 0rt. -BB-. 0 partnership !a$ be constituted in an$ for!, e%cept #here i!!ovable propert$ or real ri"hts are contributed thereto, in #hich case a public instru!ent shall be necessar$. -/ Petitioners* Me!orandu!, pp. >1BL rollo, pp. C31C/.

-: 0rt. -:33. 0 contract #hich is the direct result of a previous ille"al contract, is also void and ine%istent. -4 0rt. -/45. In onerous contracts the cause is understood to be, for each contractin" part$, the prestation or pro!ise of a thin" or service b$ the otherL in re!unerator$ ones, the service or benefit #hich is re!uneratedL and in contracts of pure beneficence, the !ere liberalit$ of the benefactor. -> &0 Decision, p. 35L rollo, p. /:. -B Ibid., p. 3CL rollo, p. :3. -C "ee 9uentes v. &ourt of 0ppeals, 3>C S&R0 B5/, 9ebruar$ 3>, -..B. Republic of the Philippines SUPREME COURT THIRD DIVISION G.R. NOS. 166299+366 %/?/:;/r 13, 2665 AURE"IO E. "ITONJUA, JR., Petitioner, vs. E%UAR%O E. "ITONJUA, SR., RO!ERT T. $ANG, ANG"O P I"S. MARITIME, INC., CINEP"E2, INC., %%M GARMENTS, INC., E%%IE E. "ITONJUA S IPPING AGENC$, INC., E%%IE E. "ITONJUA S IPPING CO., INC., "ITONJUA SECURITIES, INC. CFor:/r-y E. E. "=8onKua S/?D, "UNETA T EATER, INC., E ' " REA"T$, CFor:/r-y E ' " INTL" S IPPING CORP.D, FNP CO., INC., OME ENTERPRISES, INC., !EAUMONT %E&. REA"T$ CO., INC., G"OE% "AN% CORP., E(UIT$ TRA%ING CO., INC., 3% CORP., 1"1 %E&. CORP, "CM T EATRICA" ENTERPRISES, INC., "ITONJUA S IPPING CO. INC., MACOI" INC., O%EON REA"T$ CORP., SARATOGA REA"T$, INC., ACT T EATER INC. CFor:/r-y G/n/ra- TB/a8r=?a- ' F=-: EA?Ban@/, INC.D, A&ENUE REA"T$, INC., A&ENUE T EATER, INC. an0 "&F P I"IPPINES, INC., CFor:/r-y &F P I"IPPINESD, Respondents. D8&ISION

GARCIA, J.: In this petition for revie# under Rule :4 of the Rules of &ourt, petitioner 0urelio N. IitonKua, Dr. see=s to nullif$ and set aside the Decision of the &ourt of 0ppeals '&0( dated March /-, 355: - in consolidated cases C./. G.R. "p. .o. DCAMD and C./. G.R. "P. .o DMDDF and its Resolution dated Dece!ber 5B, 355:,3 den$in" petitionerRs !otion for reconsideration. The recourse is cast a"ainst the follo#in" factual bac=drop6 Petitioner 0urelio N. IitonKua, Dr. '0urelio( and herein respondent 8duardo N. IitonKua, Sr. '8duardo( are brothers. The le"al dispute bet#een the! started #hen, on Dece!ber :, 3553, in the Re"ional Trial &ourt 'RT&( at Pasi" &it$, 0urelio filed a suit a"ainst his brother 8duardo and herein respondent Robert T. Oan" 'Oan"( and several corporations for specific perfor!ance and accountin". In his co!plaint,/ doc=eted as &ivil &ase No. >.3/4 and eventuall$ raffled to <ranch >C of the court,: 0urelio alle"ed that, since Dune -.B/, he and 8duardo are into a Koint ventureGpartnership arran"e!ent in the Odeon Theater business #hich had e%panded thru invest!ent in &ineple%, Inc., I&M Theatrical 8nterprises, Odeon Realt$ &orporation 'operator of Odeon I and II theatres(, 0venue Realt$, Inc., o#ner of lands and buildin"s, a!on" other corporations. Oan" is described in the co!plaint as petitionerRs and 8duardoRs partner in their Odeon Theater invest!ent.4 The sa!e co!plaint also contained the follo#in" !aterial aver!ents6 /.5- On or about 33 Dune -.B/, @0urelioA and 8duardo entered into a Koint ventureGpartnership for the continuation of their fa!il$ business and co!!on fa!il$ funds [. /.5-.- This Koint ventureG@partnershipA a"ree!ent #as contained in a !e!orandu! addressed b$ 8duardo to his siblin"s, parents and other relatives. &op$ of this !e!orandu! is attached hereto and !ade an inte"ral part as Ann/A1A1 and the portion referrin" to @0urelioA sub!ar=ed as Ann/A 1A+1 . /.53 It #as then a"reed upon bet#een @0urelioA and 8duardo that in consideration of @0urelioRsA retainin" his share in the re!ainin" fa!il$ businesses '!ostl$, !ovie theaters, shippin" and land

develop!ent( and contributin" his industr$ to the continued operation of these businesses, @0urelioA #ill be "iven P- Million or -5F e,uit$ in all these businesses and those to be subse,uentl$ ac,uired b$ the! #hichever is "reater. . . . :.5- [ fro! 33 Dune -.B/ to about 0u"ust 355-, or @inA a span of 3C $ears, @0urelioA and 8duardo had accu!ulated in their Koint ventureGpartnership various assets includin" but not li!ited to the corporate defendants and @theirA respective assets. :.53 In addition . . . the Koint ventureGpartnership [ had also ac,uired @various other assetsA, but 8duardo caused to be re"istered in the na!es of other parties[. %%% %%% %%% :.5: The substantial assets of !ost of the corporate defendants consist of real properties [. 0 list of so!e of these real properties is attached hereto and !ade an inte"ral part as Ann/A 1! . %%% %%% %%% 4.53 So!eti!e in -..3, the relations bet#een @0urelioA and 8duardo beca!e sour so that @0urelioA re,uested for an accountin" and li,uidation of his share in the Koint ventureGpartnership @but these de!ands for co!plete accountin" and li,uidation #ere not heededA. %%% %%% %%% 4.54 7hat is #orse, @0urelioA has reasonable cause to believe that 8duardo andGor the corporate defendants as #ell as <obb$ @Oan"A, are transferrin" . . . various real properties of the corporations belon"in" to the Koint ventureGpartnership to other parties in fraud of @0urelioA. In conse,uence, @0urelioA is therefore causin" at this ti!e the annotation on the titles of these real properties[ a notice of lis pendens M. '8!phasis in the ori"inalL underscorin" and #ords in brac=et added.( 9or ease of reference, 0nne% "A-1" of the co!plaint, #hich petitioner asserts to have been !eant for hi! b$ his brother 8duardo, pertinentl$ reads6

-5( DR. '0NI( @Referrin" to petitioner 0urelio N. IitonKuaA6 Oou have no# $our o#n life to live after havin" been !arried. [. I a! tr$in" !$ best to !old $ou the #a$ I #or= so $ou can follo# the pattern [. Oou #ill be the onl$ one left #ith the co!pan$, a!on" us brothers and I #ill as= $ou to sta$ as I #ant $ou to run this office ever$ ti!e I a! a#a$. I #ant $ou to run it the #a$ I a! tr$in" to run it because I #ill be all alone and I #ill depend entirel$ to $ou 'sic(. M$ sons #ill not be read$ to help !e $et until about !a$be -4G35 $ears fro! no#. 7hatever is left in the corporation, I #ill !a=e sure that $ou "et ON8 MIIIION P8SOS 'P-,555,555.55( or ten percent '-5F( e,uit$, #hichever is "reater. 7e t#o #ill "a!ble the #hole thin" of #hat I have and #hat $ou are entitled to. [. It #ill be $ou and !e alone on this. If ever I pass a#a$, I #ant $ou to ta=e care of all of this. Oou =eep !$ share for !$ t#o sons are read$ ta=e over but "ive the! the chance to run the co!pan$ #hich I have built. %%% %%% %%% <ecause $ou #ill need a place to sta$, I #ill arran"e to "ive $ou first ON8 H+NDR8D THO+S0NDS P8SOS6 'P-55, 555.55( in cash or asset, li=e It. 0rtia"a so $ou can live better there. The rest I #ill "ive $ou in for! of stoc=s #hich $ou can =eep. This stoc= I assure $ou is "ood and saleable. I #ill also "ladl$ "ive $ou the share of 7ac=17ac= [and Valle$ 2olf [ because $ou have been "ood. The rest #ill be in stoc=s fro! all the corporations #hich I repeat, ten percent '-5F( e,uit$. > On Dece!ber 35, 3553, 8duardo and the corporate respondents, as defendants a Kuo! filed a Koint /."4ER 4ith Compulsor+ Counterclaim den$in" under oath the !aterial alle"ations of the co!plaint, !ore particularl$ that portion thereof depictin" petitioner and 8duardo as havin" entered into a contract of partnership. 0s affir!ative defenses, 8duardo, et al., apart fro! raisin" a Kurisdictional !atter, alle"ed that the co!plaint states no cause of action, since no cause of action !a$ be derived fro! the actionable docu!ent, i.e., 0nne% "A-1", bein" void under the ter!s of 0rticle -B>B in relation to 0rticle -BB/ of the &ivil &ode, in ra. It is further alle"ed that #hatever underta=in" 8duardo a"reed to do, if an$,

under 0nne% "A-1", are unenforceable under the provisions of the Statute of 9rauds.B 9or his part, Oan" 1 #ho #as served #ith su!!ons lon" after the other defendants sub!itted their ans#er T !oved to dis!iss on the "round, inter alia, that, as to hi!, petitioner has no cause of action and the co!plaint does not state an$.C Petitioner opposed this !otion to dis!iss. On Danuar$ -5, 355/, 8duardo, et al., filed a 2otion to Resolve / irmative 8e enses.. To this !otion, petitioner interposed an 5pposition &ith ex*Parte 2otion to "et the Case or Pre*trial. -5 0ctin" on the separate !otions i!!ediatel$ adverted to above, the trial court, in an O!nibus Order dated March 4, 355/, denied the affir!ative defenses and, e%cept for Oan", set the case for pre1trial on 0pril -5, 355/.-In another O!nibus Order of 0pril 3, 355/, the sa!e court denied the !otion of 8duardo, et al., for reconsideration-3and Oan"Rs !otion to dis!iss. The follo#in" then transpired insofar as Oan" is concerned6 -. On 0pril -:, 355/, Oan" filed his /."4ER! but e%pressl$ reserved the ri"ht to see= reconsideration of the 0pril 3, 355/ O!nibus Order and to pursue his failed !otion to dis!iss -/ to its full resolution. 3. On 0pril 3:, 355/, he !oved for reconsideration of the O!nibus Order of 0pril 3, 355/, but his !otion #as denied in an Order of Dul$ :, 355/.-: /. On 0u"ust 3>, 355/, Oan" #ent to the &ourt of 0ppeals '&0( in a petition for certiorari under Rule >4 of the Rules of &ourt, doc=eted as CA-G.R. SP No. 78774,-4 to nullif$ the separate orders of the trial court, the first den$in" his !otion to dis!iss the basic co!plaint and, the second, den$in" his !otion for reconsideration. 8arlier, 8duardo and the corporate defendants, on the contention that "rave abuse of discretion and inKudicious haste attended the issuance of the trial courtRs afore!entioned O!nibus Orders dated

March 4, and 0pril 3, 355/, sou"ht relief fro! the &0 via si!ilar recourse. Their petition for certiorari #as doc=eted as CA G.R. SP No. 7 !87. Per its resolution dated October 3, 355/, -> the &0Rs -:th Division ordered the consolidation of C/ G.R. "P .o. DMDDF#ith C/ G.R. "P .o. DCAMD. 9ollo#in" the sub!ission b$ the parties of their respective Me!oranda of 0uthorities, the appellate court ca!e out #ith the herein assailed %/?=.=on 0a8/0 Mar?B 31, 2664, findin" for 8duardo and Oan", as lead petitioners therein, disposin" as follo#s6 7H8R89OR8, Kud"!ent is hereb$ rendered "rantin" the issuance of the #rit of certiorari in these consolidated cases annullin", reversin" and settin" aside the assailed orders of the court a ,uo dated March 4, 355/, 0pril 3, 355/ and Dul$ :, 355/ and the co!plaint filed b$ private respondent @no# petitioner 0urelioA a"ainst all the petitioners @no# herein respondents 8duardo, et al.A #ith the court a ,uo is hereb$ d"#$"##ed. SO ORD8R8D.-B '8!phasis in the ori"inalL #ords in brac=et added.( 8%plainin" its case disposition, the appellate court stated, inter alia! that the alle"ed partnership, as evidenced b$ the actionable docu!ents, 0nne% "A" and "A-1" attached to the co!plaint, and upon #hich petitioner solel$ predicates his ri"htGs alle"edl$ violated b$ 8duardo, Oan" and the corporate defendants a Kuo is void or legall+ inexistent . In ti!e, petitioner !oved for reconsideration but his !otion #as denied b$ the &0 in its e,uall$ assailed R/.o-u8=on oF %/?/:;/r 7, 2664.-C . Hence, petitionerRs present recourse, on the contention that the &0 erred6 0. 7hen it ruled that there #as no partnership created b$ the actionable docu!ent because this #as not a public instru!ent and i!!ovable properties #ere contributed to the partnership.

<. 7hen it ruled that the actionable docu!ent did not create a de!andable ri"ht in favor of petitioner. &. 7hen it ruled that the co!plaint stated no cause of action a"ainst @respondentA Robert Oan"L and D. 7hen it ruled that petitioner has chan"ed his theor$ on appeal #hen all that Petitioner had done #as to support his pleaded cause of action b$ another le"al perspectiveGar"u!ent. The petition lac=s !erit. PetitionerRs de!and, as defined in the petitor$ portion of his co!plaint in the trial court, is for deliver$ or pa$!ent to hi!, as 8duardoRs and Oan"Rs partner, of his partnershipGKoint venture share, after an accountin" has been dul$ conducted of #hat he dee!s to be partnershipGKoint venture propert$. -. 0 partnership e%ists #hen t#o or !ore persons a"ree to place their !one$, effects, labor, and s=ill in la#ful co!!erce or business, #ith the understandin" that there shall be a proportionate sharin" of the profits and losses bet#een the!.35 0 contract of partnership is defined b$ the &ivil &ode as one #here t#o or !ore persons bound the!selves to contribute !one$, propert$, or industr$ to a co!!on fund #ith the intention of dividin" the profits a!on" the!selves. 3-0 Koint venture, on the other hand, is hardl$ distin"uishable fro!, and !a$ be li=ened to, a partnership since their ele!ents are si!ilar, i.e., co!!unit$ of interests in the business and sharin" of profits and losses. <ein" a for! of partnership, a Koint venture is "enerall$ "overned b$ the la# on partnership. 33 The underl$in" issue that necessaril$ co!es to !ind in this proceedin"s is #hether or not petitioner and respondent 8duardo are partners in the theatre, shippin" and realt$ business, as one clai!s but #hich the other denies. 0nd the issue bearin" on the first assi"ned error relates to the ,uestion of #hat le"al provision is applicable under the pre!ises, petitioner see=in", as it #ere, to enforce the actionable docu!ent 1 0nne% A-1 1 #hich he depicts in his co!plaint to be the contract of partnershipGKoint venture bet#een hi!self and 8duardo. &learl$, then, a loo= at the le"al provisions deter!inative of the e%istence, or definin" the for!al

re,uisites, of a partnership is indicated. 9ore!ost of these are the follo#in" provisions of the &ivil &ode6 0rt. -BB-. 0 partnership !a$ be constituted in an$ for!, e%cept #here i!!ovable propert$ or real ri"hts are contributed thereto, in #hich case a public instru!ent shall be necessar$. 0rt. -BB3. 8ver$ contract of partnership havin" a capital of three thousand pesos or !ore, in !one$ or propert$, shall appear in a public instru!ent, #hich !ust be recorded in the Office of the Securities and 8%chan"e &o!!ission. 9ailure to co!pl$ #ith the re,uire!ent of the precedin" para"raph shall not affect the liabilit$ of the partnership and the !e!bers thereof to third persons. 0rt. -BB/. 0 contract of partnership is void, #henever i!!ovable propert$ is contributed thereto, if an inventor$ of said propert$ is not !ade, si"ned b$ the parties, and attached to the public instru!ent. 0nne% A-1 , on its face, contains t$pe#ritten entries, personal in tone, but is unsi"ned and undated. 0s an unsi"ned docu!ent, there can be no ,uibblin" that 0nne% A-1 does not !eet the public instru!entation re,uire!ents e%acted under 0rticle -BB- of the &ivil &ode. Moreover, bein" unsi"ned and doubtless referrin" to a partnership involvin" !ore than P/,555.55 in !one$ or propert$, 0nne% 1A-11 cannot be presented for notari;ation, let alone re"istered #ith the Securities and 8%chan"e &o!!ission 'S8&(, as called for under the 0rticle -BB3 of the &ode. 0nd inas!uch as the inventor$ re,uire!ent under the succeedin" 0rticle -BB/ "oes into the !atter of validit$ #hen i!!ovable propert$ is contributed to the partnership, the ne%t lo"ical point of in,uir$ turns on the nature of petitionerRs contribution, if an$, to the supposed partnership. The &0, addressin" the fore"oin" ,uer$, correctl$ stated that petitionerRs contribution consisted of i!!ovables and real ri"hts. 7rote that court6 0 further e%a!ination of the alle"ations in the co!plaint #ould sho# that @petitionerRsA contribution to the so1called partnershipGKoint venture #as his supposed share in the fa!il$

business that is consistin" of !ovie theaters, shippin" and land develop!ent under para"raph /.53 of the co!plaint. In other #ords, his contribution as a partner in the alle"ed partnershipGKoint venture consisted of i!!ovable properties and real ri"hts. [.3/ Si"nificantl$ enou"h, petitioner !atter1of1factl$ concurred #ith the appellate courtRs observation that, prescindin" fro! #hat he hi!self alle"ed in his basic co!plaint, his contribution to the partnership consisted of his share in the IitonKua fa!il$ businesses #hich o#ned variable i!!ovable properties. PetitionerRs assertion in his !otion for reconsideration3: of the &0Rs decision, that &hat &as to be contributed to the business No the partnershipO &as NpetitionerPsO industr+ and his share in the amil+ Ntheatre and land developmentO business< leaves no roo! for speculation as to #hat petitioner contributed to the perceived partnership. Iest it be overloo=ed, the contract1validatin" inventor$ re,uire!ent under 0rticle -BB/ of the &ivil &ode applies as lon" real propert$ or real ri"hts are initiall$ brou"ht into the partnership. In short, it is reall$ of no !o!ent #hich of the partners, or, in this case, #ho bet#een petitioner and his brother 8duardo, contributed i!!ovables. In conte%t, the !ore i!portant consideration is that real propert$ #as contributed, in #hich case an inventor$ of the contributed propert$ dul$ si"ned b$ the parties should be attached to the public instru!ent, else there is le"all$ no partnership to spea= of. Petitioner, in an obvious bid to evade the application of 0rticle -BB/, ar"ues that the i!!ovables in ,uestion #ere not contributed, but #ere ac,uired after the for!ation of the supposed partnership. Needless to stress, the &ourt cannot accord co"enc$ to this specious ar"u!ent. 9or, as earlier stated, petitioner hi!self ad!itted contributin" his share in the supposed shippin", !ovie theatres and realt$ develop!ent fa!il$ businesses #hich alread$ o#ned i!!ovables even before 0nne% "A-1" #as alle"edl$ e%ecuted. &onsiderin" thus the value and nature of petitionerRs alle"ed contribution to the purported partnership, the &ourt, even if so disposed, cannot plausibl$ e%tend 0nne% A-1 the le"al effects that petitioner so desires and pleads to be "iven. 0nne% "A-1", in fine,

cannot support the e%istence of the partnership sued upon and sou"ht to be enforced. The le"al and factual !ilieu of the case calls for this disposition. 0 partnership !a$ be constituted in an$ for!, save #hen i!!ovable propert$ or real ri"hts are contributed thereto or #hen the partnership has a capital of at least P/,555.55, in #hich case a public instru!ent shall be necessar$.34 0nd if onl$ to stress #hat has repeatedl$ been articulated, an inventor$ to be si"ned b$ the parties and attached to the public instru!ent is also indispensable to the validit$ of the partnership #henever i!!ovable propert$ is contributed to it. 2iven the fore"oin" perspective, #hat the appellate court #rote in its assailed Decision3> about the probative value and le"al effect of 0nne% "A-1" co!!ends itself for concurrence6 &onsiderin" that the alle"ations in the co!plaint sho#ed that @petitionerA contributed i!!ovable properties to the alle"ed partnership, the Me!orandu! '0nne% 0 of the co!plaint( #hich purports to establish the said partnershipGKoint venture is NOT a public instru!ent and there #as NO inventor$ of the i!!ovable propert$ dul$ si"ned b$ the parties. 0s such, the said Me!orandu! [ is null and void for purposes of establishin" the e%istence of a valid contract of partnership. Indeed, because of the failure to co!pl$ #ith the essential for!alities of a valid contract, the purported partnershipGKoint venture is le"all$ ine%istent and it produces no effect #hatsoever. Necessaril$, a void or le"all$ ine%istent contract cannot be the source of an$ contractual or le"al ri"ht. 0ccordin"l$, the alle"ations in the co!plaint, includin" the actionable docu!ent attached thereto, clearl$ de!onstrates that @petitionerA has NO valid contractual or le"al ri"ht #hich could be violated b$ the @individual respondentsA herein. 0s a conse,uence, @petitionerRsA co!plaint does NOT state a valid cause of action because NOT all the essential ele!ents of a cause of action are present. '+nderscorin" and #ords in brac=et added.( Ii=e#ise #ell1ta=en are the follo#in" co!ple!entar$ e%cerpts fro! the &0Rs e,uall$ assailed Resolution of Dece!ber B, 355:3B den$in" petitionerRs !otion for reconsideration6 9urther, 7e conclude that despite "larin" defects in the alle"ations in the co!plaint as #ell as the actionable docu!ent attached

thereto 'Rollo, p. -.-(, the @trialA court did not appreciate and appl$ the le"al provisions #hich #ere brou"ht to its attention b$ herein @respondentsA in the their pleadin"s. In our evaluation of @petitionerRsA co!plaint, the latter alle"ed inter alia to have contributed i!!ovable properties to the alle"ed partnership but the actionable docu!ent is not a public docu!ent and there #as no inventor$ of i!!ovable properties si"ned b$ the parties. <oth the alle"ations in the co!plaint and the actionable docu!ents considered, it is cr$stal clear that @petitionerA has no valid or le"al ri"ht #hich could be violated b$ @respondentsA. '7ords in brac=et added.( +nder the second assi"ned error, it is petitionerRs posture that 0nne% A-1 , assu!in" its inefficac$ or nullit$ as a partnership docu!ent, nevertheless created de!andable ri"hts in his favor. 0s petitioner succinctl$ puts it in this petition6 :/. &ontrari#ise, this actionable docu!ent, especiall$ its above1 ,uoted provisions, established an actionable contract even thou"h it !a$ not be a partnership. This actionable contract is #hat is =no#n as an inno!inate contract '&ivil &ode, 0rticle -/5B(. ::. It !a$ not be a contract of loan, or a !ort"a"e or #hatever, but surel$ the contract does create ri"hts and obli"ations of the parties and #hich ri"hts and obli"ations !a$ be enforceable and de!andable. Dust because the relationship created b$ the a"ree!ent cannot be specificall$ labeled or pi"eonholed into a cate"or$ of no!inate contract does not !ean it is void or unenforceable. Petitioner has thus thrusted the notion of an inno!inate contract on this &ourt 1 and earlier on the &0 after he e%perienced a reversal of fortune thereat 1 as an afterthou"ht. The appellate court, ho#ever, cannot reall$ be faulted for not $ieldin" to petitionerRs dubious strata"e! of alterin" his theor$ of Koint ventureGpartnership to an inno!inate contract. 9or, at botto!, the appellate courtRs certiorari Kurisdiction #as circu!scribed b$ #hat #as alle"ed to have been the orderGs issued b$ the trial court in "rave abuse of discretion. 0s respondent Oan" pointedl$ observed,3Csince the partiesR basic position had been #ell1defined, that of petitioner bein" that the actionable docu!ent established a partnershipGKoint venture, it is on

those positions that the appellate court e%ercised its certiorari Kurisdiction. PetitionerRs act of chan"in" his ori"inal theor$ is an i!per!issible practice and constitutes, as the &0 aptl$ declared, an ad!ission of the untenabilit$ of such theor$ in the first place. @PetitionerA is no# hu!!in" a different tune . . . . In a sudden t#ist of stance, he has no# contended that the actionable instru!ent !a$ be considered an "nno$"na%e con%rac%. %%% Veril$, this no# chan"es @petitionerRsA theor$ of the case #hich is not onl$ prohibited b$ the Rules but also is an i!plied ad!ission that the ver$ theor$ he hi!self [ has adopted, filed and prosecuted before the respondent court is erroneous. <e that as it !a$ . [. 7e hold that this ne# theor$ contravenes @petitionerRsA theor$ of the actionable docu!ent bein" a partnership docu!ent. If an$thin", it is so obvious #e do have to test the sufficienc$ of the cause of action on the basis of partnership la# %%%.3. '8!phasis in the ori"inalL 7ords in brac=et added(. <ut even assu!in" in gratia argumenti that 0nne% A-1 parta=es of a perfected inno!inate contract, petitionerRs co!plaint #ould still be dis!issible as a"ainst 8duardo and, !ore so, a"ainst Oan". It cannot be over1e!phasi;ed that petitioner points to 8duardo as the author of 0nne% A-1 . 7ithal, even on this consideration alone, petitionerRs clai! a"ainst Oan" is doo!ed fro! the ver$ start. 0s it #ere, the onl$ portion of 0nne% A-1 #hich could perhaps be re!otel$ re"arded as vestin" petitioner #ith a ri"ht to de!and fro! respondent 8duardo the observance of a deter!inate conduct, reads6 %%% Oou #ill be the onl$ one left #ith the co!pan$, a!on" us brothers and I #ill as= $ou to sta$ as I #ant $ou to run this office ever$ti!e I a! a#a$. I #ant $ou to run it the #a$ I a! tr$in" to run it because I #ill be alone and I #ill depend entirel$ to $ou, M$ sons #ill not be read$ to help !e $et until about !a$be -4G35 $ears fro! no#. 7hatever is left in the corporation, I #ill !a=e sure that $ou "et ON8 MIIIION P8SOS 'P-,555,555.55( or ten percent '-5F( e,uit$, #hichever is "reater. '+nderscorin" added(

It is at once apparent that #hat respondent 8duardo i!posed upon hi!self under the above passa"e, if he indeed #rote 0nne% A-1 , is a pro!ise #hich is not to be perfor!ed #ithin one $ear fro! contract e%ecution on Dune 33, -.B/. 0ccordin"l$, the a"ree!ent e!bodied in 0nne% A-1 is covered b$ the Statute of 9rauds and ergounenforceable for non1co!pliance there#ith./5 <$ force of the statute of frauds, an a"ree!ent that b$ its ter!s is not to be perfor!ed #ithin a $ear fro! the !a=in" thereof shall be unenforceable b$ action, unless the sa!e, or so!e note or !e!orandu! thereof, be in #ritin" and subscribed b$ the part$ char"ed. &orollaril$, no action can be proved unless the re,uire!ent e%acted b$ the statute of frauds is co!plied #ith. /Iest it be overloo=ed, petitioner is the intended beneficiar$ of the PMillion or -5F e,uit$ of the fa!il$ businesses supposedl$ pro!ised b$ 8duardo to "ive in the near future. 0n$ su""estion that the stated a!ount or the e,uit$ co!ponent of the pro!ise #as intended to "o to a co!!on fund #ould be to read so!ethin" not #ritten in Ann/A 1A-11. Thus, even this an"le alone ar"ues a"ainst the ver$ idea of a partnership, the creation of #hich re,uires t#o or !ore contractin" !inds !utuall$ a"reein" to contribute !one$, propert$ or industr$ to a co!!on fund #ith the intention of dividin" the profits bet#een or a!on" the!selves./3 In su! then, the &ourt rules, as did the &0, that petitionerRs co!plaint for specific perfor!ance anchored on an actionable docu!ent of partnership #hich is le"all$ ine%istent or void or, at best, unenforceable does not state a cause of action as a"ainst respondent 8duardo and the corporate defendants. 0nd if no of action can successfull$ be !aintained a"ainst respondent 8duardo because no valid partnership e%isted bet#een hi! and petitioner, the &ourt cannot see its #a$ clear on ho# the sa!e action could plausibl$ prosper a"ainst Oan". Surel$, Oan" could not have beco!e a partner in, or could not have had an$ for! of business relationship #ith, an ine%istent partnership. 0s !a$ be noted, petitioner has not, in his co!plaint, provide the lo"ical ne%us that #ould tie Oan" to hi! as his partner. In fact, attendant circu!stances #ould indicate the contrar$. &onsider6

-. Petitioner asserted in his co!plaint that his so1called Koint ventureGpartnership #ith 8duardo #as for the continuation of their fa!il$ business and co!!on fa!il$ funds #hich #ere theretofore bein" !ainl$ !ana"ed b$ 8duardo. // <ut Oan" denies =inship #ith the IitonKua fa!il$ and petitioner has not disputed the disclai!er. 3. In so!e detail, petitioner !entioned #hat he had contributed to the Koint ventureGpartnership #ith 8duardo and #hat his share in the businesses #ill be. No alle"ation is !ade #hatsoever about #hat Oan" contributed, if an$, let alone his proportional share in the profits. <ut such alle"ation cannot, ho#ever, be !ade because, as aptl$ observed b$ the &0, the actionable docu!ent did not contain such provision, let alone !ention the na!e of Oan". Ho#, indeed, could a person be considered a partner #hen the docu!ent purportin" to establish the partnership contract did not even !ention his na!e. /. Petitioner states in par. 3.5- of the co!plaint that @heA and 8duardo are business partners in the @respondentA corporations, #hile <obb$ is his and 8duardoRs partner in their Odeon Theater invest!entR 'par. 3.5/(. This !eans that the partnership bet#een petitioner and 8duardo ca!e firstL Oan" beca!e their partner in their Odeon Theater invest!ent thereafter. Several para"raphs later, ho#ever, petitioner #ould contradict hi!self b$ alle"in" that his invest!ent and that of 8duardo and Oan" in the Odeon theater business has e%panded throu"h a reinvest!ent of profit inco!e and direct invest!ents in several corporation includin" but not li!ited to @si%A corporate respondents This si!pl$ !eans that the Odeon Theatre business ca!e before the corporate respondents. Si"nificantl$ enou"h, petitioner refers to the corporate respondents as pro"en$ of the Odeon Theatre business. /: Needless to stress, petitioner has not sufficientl$ established in his co!plaint the le"al vinculum #hence he sourced his ri"ht to dra" Oan" into the fra$. The &ourt of 0ppeals, in its assailed decision, captured and for!ulated the le"al situation in the follo#in" #ise6 @RespondentA Oan", [ is i!pleaded because, as alle"ed in the co!plaint, he is a partner of @8duardoA and the @petitionerA in the Odeon Theater Invest!ent #hich e%panded throu"h reinvest!ents of profits and direct invest!ents in several corporations, thus6

%%% %%% %%% &learl$, @petitionerRsA clai! a"ainst [ Oan" arose fro! his alle"ed partnership #ith petitioner and the [respondent. Ho#ever, there #as NO alle"ation in the co!plaint #hich directl$ alle"ed ho# the supposed contractual relation #as created bet#een @petitionerA and [Oan". More i!portantl$, ho#ever, the fore"oin" rulin" of this &ourt that the purported partnership bet#een @8duardoA is void and le"all$ ine%istent directl$ affects said clai! a"ainst [Oan". Since @petitionerA is tr$in" to establish his clai! a"ainst [ Oan" b$ lin=in" hi! to the le"all$ ine%istent partnership . . . such atte!pt had beco!e futile because there #as NOTHIN2 that #ould contractuall$ connect @petitionerA and [ Oan". To establish a valid cause of action, the co!plaint should have a state!ent of fact upon #hich to connect @respondentA Oan" to the alle"ed partnership bet#een @petitionerA and respondent @8duardoA, includin" their alle"ed invest!ent in the Odeon Theater. 0 state!ent of facts on those !atters is pivotal to the co!plaint as the$ #ould constitute the ulti!ate facts necessar$ to establish the ele!ents of a cause of action a"ainst [ Oan". /4 Pressin" its point, the &0 later stated in its resolution den$in" petitionerRs !otion for reconsideration the follo#in"6 %%% 7hatever the co!plaint calls it, it is the actionable docu!ent attached to the co!plaint that is controllin". Suffice it to state, 7e have not i"nored the actionable docu!ent [ 0s a !atter of fact, 7e e!phasi;ed in our decision [ that insofar as @Oan"A is concerned, he is not even !entioned in the said actionable docu!ent. 7e are therefore pu;;led ho# a person not !entioned in a docu!ent purportin" to establish a partnership could be considered a partner./>'7ords in brac=et ours(. The last issue raised b$ petitioner, referrin" to #hether or not he chan"ed his theor$ of the case, as pere!ptoril$ deter!ined b$ the &0, has been discussed at len"th earlier and need not detain us lon". Suffice it to sa$ that after the &0 has ruled that the alle"ed partnership is ine%istent, petitioner too= a different tac=. Thus, fro! a Koint ventureGpartnership theor$ #hich he adopted and consistentl$ pursued in his co!plaint, petitioner e!braced the inno!inate contract theor$. Illustrative of this shift is petitionerRs

state!ent in par. \C of his !otion for reconsideration of the &0Rs decision co!bined #ith #hat he said in par. \ :/ of this petition, as follo#s6 C. 7hether or not the actionable docu!ent creates a partnership, Koint venture, or #hatever, is a le"al !atter. 7hat is deter!inative for purposes of sufficienc$ of the co!plainantRs alle"ations, is #hether the actionable docu!ent bears out an actionable contract T be it a partnership, a Koint venture or #hatever or so!e inno!inate contract [ It !a$ be noted that one =ind of inno!inate contract is #hat is =no#n as du ut acias 'I "ive that $ou !a$ do(./B :/. &ontrari#ise, this actionable docu!ent, especiall$ its above1 ,uoted provisions, established an actionable contract even thou"h it !a$ not be a partnership. This actionable contract is #hat is =no#n as an inno!inate contract '&ivil &ode, 0rticle -/5B(. /C Sprin"in" surprises on the opposin" part$ is offensive to the sportin" idea of fair pla$, Kustice and due processL hence, the proscription a"ainst a part$ shiftin" fro! one theor$ at the trial court to a ne# and different theor$ in the appellate court. /. On the sa!e rationale, an issue #hich #as neither averred in the co!plaint cannot be raised for the first ti!e on appeal. :5 It is not difficult, therefore, to a"ree #ith the &0 #hen it !ade short shrift of petitionerRs inno!inate contract theor$ on the basis of the fore"oin" basic reasons. PetitionerRs protestation that his act of introducin" the concept of inno!inate contract #as not a case of chan"in" theories but of supportin" his pleaded cause of action T that of the e%istence of a partnership 1 b$ another le"al perspectiveGar"u!ent, stri=es the &ourt as a strained atte!pt to rationali;e an untenable position. Para"raph -3 of his !otion for reconsideration of the &0Rs decision virtuall$ rele"ates partnership as a fall1bac= theor$. T#o para"raphs later, in the sa!e notion, petitioner faults the appellate court for readin", #ith !$opic e$es, the actionable docu!ent solel$ as establishin" a partnershipGKoint venture. Veril$, the cited para"raphs are a stud$ of a part$ hed"in" on #hether or not to pursue the ori"inal cause of action or alto"ether abandonin" the sa!e, thus6

-3. Incidentall$, assu!in" that the actionable docu!ent created a partnership bet#een @respondentA 8duardo, Sr. and @petitionerA, no i!!ovables #ere contributed to this partnership. %%% -:. 0ll told, the Decision ta=es off fro! a false pre!ise that the actionable docu!ent attached to the co!plaint does not establish a contractual relationship bet#een @petitionerA and [ 8duardo, Sr. and Roberto T Oan" si!pl$ because his docu!ent does not create a partnership or a Koint venture. This is [ a !$opic readin" of the actionable docu!ent. Per the &ourtRs o#n count, petitioner used in his co!plaint the !i%ed #ords #oint venture0partnership nineteen '-.( ti!es and the ter! partner four ':( ti!es. He !ade reference to the la& o #oint venture0partnership Nbeing applicableO to the business relationship Q bet&een NhimO! Eduardo and 1obb+ N3angO< and to his <rights in all speci ic properties o their #oint venture0partnership . 2iven this consideration, petitionerRs ri"ht of action a"ainst respondents 8duardo and Oan" doubtless pivots on the e%istence of the partnership bet#een the three of the!, as purportedl$ evidenced b$ the undated and unsi"ned 0nne% "A-1 . 0 void 0nne% 01- , as an actionable docu!ent of partnership, #ould strip petitioner of a cause of action under the pre!ises. 0 co!plaint for deliver$ and accountin" of partnership propert$ based on such void or le"all$ non1e%istent actionable docu!ent is dis!issible for failure to state of action. So, in "ist, said the &ourt of 0ppeals. The &ourt a"rees. # EREFORE, the instant petition is %ENIE% and the i!pu"ned Decision and Resolution of the &ourt of 0ppeals AFFIRME%. &ost a"ainst the petitioner. SO OR%ERE%. CANCIO C. GARCIA 0ssociate Dustice 78 &ON&+R6 ARTEMIO &. PANGANI!AN

0ssociate Dustice ANGE"INA SAN%O&A"+GUTIERRE* 0ssociate Dustice RENATO C. CORONA 0ssociate Dustice

CONC ITA CARPIO MORA"ES 0ssociate Dustice ATTESTATION I attest that the conclusions in the above decision #ere reached in consultation before the case #as assi"ned to the #riter of the opinion of the &ourtRs Division. ARTEMIO &. PANGANI!AN 0ssociate Dustice &hair!an, Third Division CERTIFICATION Pursuant to 0rticle VIII, Section -/ of the &onstitution, and the Division &hair!an*s 0ttestation, it is hereb$ certified that the conclusions in the above decision #ere reached in consultation before the case #as assi"ned to the #riter of the opinion of the &ourt. I"ARIO G. %A&I%E, JR. &hief Dustice

Foo8no8/.
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Penned b$ 0ssociate Dustice <ienvenido I. Re$es, concurred in b$ 0ssociate Dustices &onrado M. Vas,ue;, Dr. and 0rsenio D. Ma"paleL Rollo, pp. 3B et seK.

3 / : 4 > B C .

Rollo, pp. 4C et seK. Ibid, pp. >/ et seK. Presided b$ Hon. Santia"o 2. 8strella. Par. 3.5/ of the &o!plaint. Rollo, p. 443. Id., pp. B5 et seK. Id.! pp. .. et seK. Id., pp.CB et seK. Id., pp. ./ et seK. Id., pp. .B1.C. Id., pp. -/4 et seK. See Note No. C! supra. Rollo, p. ->-. Ibid, pp. 35> et se,. Id., p. 34/.

-5 --3 -/ -: -4 -> -B

0s corrected per &0 Resolution dated Dul$ -:, 355: to confor! to the actual dates of the assailed ordersL Rollo, pp. /3> et seK. The correction consisted of chan"in" the dates March 4, 3553, 0pril 3, 3553 and Dul$ 3, 355/ appearin" in the ori"inal &0 decision to March 4, 355/, 0pril 3, 355/ and Dul$ :, 355/ , respectivel$.
-C -. 35 3-

See Note \3! supra. &o!plaint, p. >L Rollo, p. >C. <lac=Rs Ia# Dictionar$, >th ed., p. --35. 0rt. -B>B.

33

Heirs of Tan 8n" Nee vs. &0, /:- S&R0 B:5 @3555A, citin" 0urbach vs. Sanitar$ 7ares Manufacturin" &orp. , -C5 S&R0 -/5 @-.C.A.
3/ 3: 34

0t. p. > of the Decision, Rollo, p. :3. 0t p. > of the !otion for reconsiderationL Rollo, p. 44.

Vitu", &OMP8NDI+M of &IVII I07 and D+RISPR+D8N&8, Rev. ed., '-../(, p. B-3.
3> 3B 3C 3. /5 /-

See Note \-! supra. See Note \3, supra. Pa"e 3> of Oan"Rs Me!orandu!L Rollo, p. :.:. Pa"e : of the &0Rs assailed ResolutionL Rollo, p. >-. \3 'a( of 0rt. -:5/ of the &ivil &ode.

Tolentino, &IVII &OD8 O9 TH8 PHIIIPPIN8S, Vol. IV, -..- ed., p. >-B.
/3 // /: /4 /> /B /C /.

Heirs of Tan 8n" Nee vs. &0, supra. Par. /.5- of the &o!plaintL Rollo, p. >:. Petition, p. -CL Rollo, p. 35. Rollo, p. :4. Ibid, p. >-. Rollo, p. 4/L &itations o!itted. Ibid, p. -..

San 0"ustin vs. <arrios, >C Phil. :B4 @-./.A citin" other cases.
:5

+nion <an= vs. &0, /4. S&R0 :C5 @355-A.

Republic of the Philippines SUPREME COURT Manila 8N <0N& G.R. No. "+4935 May 25, 1954

J. M. TUASON ' CO., INC., r/<r/./n8/0 ;y =8 Mana@=n@ PARTNER, GREGORIA ARANETA, INC., plaintiff1appellee, vs. (UIRINO !O"AHOS, defendant1appellant. /raneta and /raneta or appellee. ,ose /. 1uendia or appellant. RE$ES, J.> This is an action ori"inall$ brou"ht in the &ourt of 9irst Instance of Ri;al, ?ue;on &it$ <ranch, to recover possesion of re"istered land situated in barrio Tatalon, ?ue;on &it$. Plaintiff*s co!plaint #as a!ended three ti!es #ith respect to the e%tent and description of the land sou"ht to be recovered. The ori"inal co!plaint described the land as a portion of a lot re"istered in plaintiff*s na!e under Transfer &ertificate of Title No. /B>C> of the land record of Ri;al Province and as containin" an area of -/ hectares !ore or less. <ut the co!plaint #as a!ended b$ reducin" the area of > hectares, !ore or less, after the defendant had indicated the plaintiff*s surve$ors the portion of land clai!ed and occupied b$ hi!. The second a!end!ent beca!e necessar$ and #as allo#ed follo#in" the testi!on$ of plaintiff*s surve$ors that a portion of the area #as e!braced in another certificate of title, #hich #as plaintiff*s Transfer &ertificate of Title No. /B>BB. 0nd still later, in the course of trial, after defendant*s surve$or and #itness, ?uirino 9eria, had testified that the area occupied and clai!ed b$ defendant #as about -/ hectares, as sho#n in his 8%hibit -, plaintiff a"ain, #ith the leave of court, a!ended its co!plaint to !a=e its alle"ations confor! to the evidence.

Defendant, in his ans#er, sets up prescription and title in hi!self thru open, continuous, e%clusive and public and notorious possession 'of land in dispute( under clai! of o#nership, adverse to the entire #orld b$ defendant and his predecessor in interest fro! ti!e in1!e!orial . The ans#er further alle"es that re"istration of the land in dispute #as obtained b$ plaintiff or its predecessors in interest thru fraud or error and #ithout =no#led"e 'of( or interest either personal or thru publication to defendant andGor predecessors in interest. The ans#er therefore pra$s that the co!plaint be dis!issed #ith costs and plaintiff re,uired to reconve$ the land to defendant or pa$ its value. 0fter trial, the lo#er court rendered Kud"!ent for plaintiff, declarin" defendant to be #ithout an$ ri"ht to the land in ,uestion and orderin" hi! to restore possession thereof to plaintiff and to pa$ the latter a !onthl$ rent of P-/3.>3 fro! Danuar$, -.:5, until he vacates the land, and also to pa$ the costs. 0ppealin" directl$ to this court because of the value of the propert$ involved, defendant !a=es the follo#in" assi"n!ent or errors6 I. The trial court erred in not dis!issin" the case on the "round that the case #as not brou"ht b$ the real propert$ in interest. II. The trial court erred in ad!ittin" the third a!ended co!plaint. III. The trial court erred in den$in" defendant*s !otion to stri=e. IV. The trial court erred in includin" in its decision land not involved in the liti"ation. V. The trial court erred in holdin" that the land in dispute is covered b$ transfer certificates of Title Nos. /B>C> and /B>BB. Vl. The trial court erred in not findin" that the defendant is the true and la#ful o#ner of the land.

VII. The trial court erred in findin" that the defendant is liable to pa$ the plaintiff the a!ount of P-/3.>3 !onthl$ fro! Danuar$, -.:5, until he vacates the pre!ises. VIII. The trial court erred in not orderin" the plaintiff to reconve$ the land in liti"ation to the defendant. 0s to the first assi"ned error, there is nothin" to the contention that the present action is not brou"ht b$ the real part$ in interest, that is, b$ D. M. Tuason and &o., Inc. 7hat the Rules of &ourt re,uire is that an action be brou"ht in the name o ! but not necessaril$ b+, the real part$ in interest. 'Section 3, Rule 3.( In fact the practice is for an attorne$1at1la# to brin" the action, that is to file the co!plaint, in the na!e of the plaintiff. That practice appears to have been follo#ed in this case, since the co!plaint is si"ned b$ the la# fir! of 0raneta and 0raneta, counsel for plaintiff and co!!ences #ith the state!ent co!es no# plaintiff, throu"h its undersi"ned counsel. It is true that the co!plaint also states that the plaintiff is represented herein b$ its Mana"in" Partner 2re"orio 0raneta, Inc. , another corporation, but there is nothin" a"ainst one corporation bein" represented b$ another person, natural or Kuridical, in a suit in court. The contention that 2re"orio 0raneta, Inc. can not act as !ana"in" partner for plaintiff on the theor$ that it is ille"al for t#o corporations to enter into a partnership is #ithout !erit, for the true rule is that thou"h a corporation has no po#er to enter into a partnership, it !a$ nevertheless enter into a Koint venture #ith another #here the nature of that venture is in line #ith the business authori;ed b$ its charter. '7$o!in"1Indiana Oil 2as &o. vs. 7eston, C5 0. I. R., -5:/, citin" 3 9letcher &$c. of &orp., -5C3.( There is nothin" in the record to indicate that the venture in #hich plaintiff is represented b$ 2re"orio 0raneta, Inc. as its !ana"in" partner is not in line #ith the corporate business of either of the!. 8rrors II, III, and IV, referrin" to the ad!ission of the third a!ended co!plaint, !a$ be ans#ered b$ !ere reference to section : of Rule -B, Rules of &ourt, #hich sanctions such a!end!ent. It reads6 Sec. :. /mendment to con orm to evidence. H 7hen issues not raised b$ the pleadin"s are tried b$ e%press or i!plied consent of the parties, the$ shall be treated in all respects, as

if the$ had been raised in the pleadin"s. Such a!end!ent of the pleadin"s as !a$ be necessar$ to cause the! to confor! to the evidence and to raise these issues !a$ be !ade upon !otion of an$ part$ at !$ ti!e, even of the trial of these issues. If evidence is obKected to at the trial on the "round that it is not #ithin the issues !ade b$ the pleadin"s, the court !a$ allo# the pleadin"s to be a!ended and shall be so freel$ #hen the presentation of the !erits of the action #ill be subserved thereb$ and the obKectin" part$ fails to satisf$ the court that the ad!ission of such evidence #ould preKudice hi! in !aintainin" his action or defense upon the !erits. The court !a$ "rant a continuance to enable the obKectin" part$ to !eet such evidence. +nder this provision a!end!ent is not even necessar$ for the purpose of renderin" Kud"!ent on issues proved thou"h not alle"ed. Thus, co!!entin" on the provision, &hief Dustice Moran sa$s in this Rules of &ourt6 +nder this section, 0!erican courts have, under the Ne# 9ederal Rules of &ivil Procedure, ruled that #here the facts sho#n entitled plaintiff to relief other than that as=ed for, no a!end!ent to the co!plaint is necessar$, especiall$ #here defendant has hi!self raised the point on #hich recover$ is based, and that the appellate court treat the pleadin"s as a!ended to confor! to the evidence, althou"h the pleadin"s #ere not actuall$ a!ended. 'I Moran, Rules of &ourt, -.43 ed., /C.1/.5.( Our conclusion therefore is that specification of error II, III, and IV are #ithout !erit.. Iet us no# pass on the errors V and VI. 0d!ittin", thou"h his attorne$, at the earl$ sta"e of the trial, that the land in dispute is that described or represented in 8%hibit 0 and in 8%hibit < enclosed in red pencil #ith the na!e ?uirino <olaMos, defendant later chan"ed his la#$er and also his theor$ and tried to prove that the land in dispute #as not covered b$ plaintiff*s certificate of title. The evidence, ho#ever, is a"ainst defendant, for it clearl$ establishes that plaintiff is the re"istered o#ner of lot No. :1<1/1&, situate in barrio Tatalon, ?ue;on &it$, #ith an area of 4,3.B,:3../ s,uare

!eters, !ore or less, covered b$ transfer certificate of title No. /B>C> of the land records of Ri;al province, and of lot No. :1<1:, situated in the sa!e barrio, havin" an area of B:,BC. s,uare !eters, !ore or less, covered b$ transfer certificate of title No. /B>BB of the land records of the sa!e province, both lots havin" been ori"inall$ re"istered on Dul$ C, -.-: under ori"inal certificate of title No. B/4. The identit$ of the lots #as established b$ the testi!on$ of 0ntonio Manahan and Ma"no 9austino, #itnesses for plaintiff, and the identit$ of the portion thereof clai!ed b$ defendant #as established b$ the testi!on$ of his o#n #itness, ?uirico 9eria. The co!bined testi!on$ of these three #itnesses clearl$ sho#s that the portion clai!ed b$ defendant is !ade up of a part of lot :1 <1/1& and !aKor on portion of lot :1<1:, and is #ell #ithin the area covered b$ the t#o transfer certificates of title alread$ !entioned. This fact also appears ad!itted in defendant*s ans#er to the third a!ended co!plaint. 0s the land in dispute is covered b$ plaintiff*s Torrens certificate of title and #as re"istered in -.-:, the decree of re"istration can no lon"er be i!pu"ned on the "round of fraud, error or lac= of notice to defendant, as !ore than one $ear has alread$ elapsed fro! the issuance and entr$ of the decree. Neither court the decree be collaterall$ attac=ed b$ an$ person clai!in" title to, or interest in, the land prior to the re"istration proceedin"s. 'SoroM"on vs. Ma=alintal,-:4 Off. 2a;., /C-..( Nor could title to that land in dero"ation of that of plaintiff, the re"istered o#ner, be ac,uired b$ prescription or adverse possession. 'Section :>, 0ct No. :.>.( 0dverse, notorious and continuous possession under clai! of o#nership for the period fi%ed b$ la# is ineffective a"ainst a Torrens title. 'Valiente vs. Dud"e of &9I of Tarlac,3 etc., :4 Off. 2a;., Supp. ., p. :/.( 0nd it is li=e#ise settled that the ri"ht to secure possession under a decree of re"istration does not prescribed. '9rancisco vs. &ru;, :/ Off. 2a;., 4-54, 4-5.14--5.( 0 recent decision of this &ourt on this point is that rendered in the case of ,ose /lcantara et al.! vs. 2ariano et al., .3 Phil., B.>. This disposes of the alle"ed errors V and VI. 0s to error VII, it is clai!ed that Xthere #as no evidence to sustain the findin" that defendant should be sentenced to pa$ plaintiff P-/3.>3 !onthl$ fro! Danuar$, -.:5, until he vacates the

pre!ises.* <ut it appears fro! the record that that reasonable co!pensation for the use and occupation of the pre!ises, as stipulated at the hearin" #as P-5 a !onth for each hectare and that the area occupied b$ defendant #as -/.3>-. hectares. The total rent to be paid for the area occupied should therefore be P-/3.>3 a !onth. It is appears fro! the testi!on$ of D. 0. 0raneta and #itness 8!i"dio TanKuatco that as earl$ as -./. an action of eKect!ent had alread$ been filed a"ainst defendant. 0nd it cannot be supposed that defendant has been pa$in" rents, for he has been assertin" all alon" that the pre!ises in ,uestion *have al#a$s been since ti!e i!!e!orial in open, continuous, e%clusive and public and notorious possession and under clai! of o#nership adverse to the entire #orld b$ defendant and his predecessors in interest.* This assi"n!ent of error is thus clearl$ #ithout !erit. 8rror No. VIII is but a conse,uence of the other errors alle"ed and needs for further consideration. Durin" the pendenc$ of this case in this &ourt appellant, thru other counsel, has filed a !otion to dis!iss alle"in" that there is pendin" before the &ourt of 9irst Instance of Ri;al another action bet#een the sa!e parties and for the sa!e cause and see=in" to sustain that alle"ation #ith a cop$ of the co!plaint filed in said action. <ut an e%a!ination of that co!plaint reveals that appellant*s alle"ation is not correct, for the pretended identit$ of parties and cause of action in the t#o suits does not appear. That other case is one for recover$ of o#nership, #hile the present one is for recover$ of possession. 0nd #hile appellant clai!s that he is also involved in that order action because it is a class suit, the co!plaint does not sho# that such is reall$ the case. On the contrar$, it appears that the action see=s relief for each individual plaintiff and not relief for and on behalf of others. The !otion for dis!issal is clearl$ #ithout !erit. 7herefore, the Kud"!ent appealed fro! is affir!ed, #ith costs a"ainst the plaintiff. Paras! C.,.! Pablo! 1eng)on! 2ontema+or! ,ugo! 1autista /ngelo! -abrador! and Concepcion! ,,.! concur.

Foo8no8/.
-

C5 Phil., 34..

3 C5 Phil., :-4. Republic of the Philippines SUPREME COURT Manila S8&OND DIVISION G.R. No. 159333 Ju-y 31, 2666

ARSENIO T. MEN%IO"A, petitioner, vs. COURT OF APPEA"S, NATIONA" "A!OR RE"ATIONS COMMISSION, PACIFIC FOREST RESOURCES, P I"S., INC. an0Nor CE""MARE A!, respondents. D8&ISION PUNO, J.> On appeal are the Decision- and Resolution3 of the &ourt of 0ppeals, dated Danuar$ /5, 355/ and Dul$ /5, 355/, respectivel$, in &012.R. SP No. B-53C, affir!in" the rulin" / of the National Iabor Relations &o!!ission 'NIR&(, #hich in turn set aside the Dul$ /5, 355- Decision: of the labor arbiter. The labor arbiter declared ille"al the dis!issal of petitioner fro! e!plo$!ent and a#arded separation pa$, !oral and e%e!plar$ da!a"es, and attorne$*s fees. The facts are as follo#s6 Private respondent Pacific 9orest Resources, Phils., Inc. 'Pacfor( is a corporation or"ani;ed and e%istin" under the la#s of &alifornia, +S0. It is a subsidiar$ of &ellulose Mar=etin" International, a

corporation dul$ or"ani;ed under the la#s of S#eden, #ith principal office in 2othenbur", S#eden. Private respondent Pacfor entered into a Side 0"ree!ent on Representative Office =no#n as Pacific 9orest Resources 'Phils.(, Inc. 4 #ith petitioner 0rsenio T. Mendiola '0TM(, effective Ma$ -, -..4, assu!in" that Pacfor1Phils. is alread$ approved b$ the Securities and 8%chan"e &o!!ission @S8&A on the said date. > The Side 0"ree!ent outlines the business relationship of the parties #ith re"ard to the Philippine operations of Pacfor. Private respondent #ill establish a Pacfor representative office in the Philippines, to be =no#n as Pacfor Phils, and petitioner 0TM #ill be its President. Petitioner*s base salar$ and the overhead e%penditures of the co!pan$ shall be borne b$ the representative office and funded b$ PacforG0TM, since Pacfor Phils. is e,uall$ o#ned on a 45145 e,uit$ b$ 0TM and Pacfor1usa. On Dul$ -:, -..4, the S8& "ranted the application of private respondent Pacfor for a license to transact business in the Philippines under the na!e of Pacfor or Pacfor Phils. B In its application, private respondent Pacfor proposed to establish its representative office in the Philippines #ith the purpose of !onitorin" and coordinatin" the !ar=et activities for paper products. It also desi"nated petitioner as its resident a"ent in the Philippines, authori;ed to accept su!!ons and processes in all le"al proceedin"s, and all notices affectin" the corporation. C In March -..B, the Side 0"ree!ent #as a!ended throu"h a Revised Operatin" and Profit Sharin" 0"ree!ent for the Representative Office Nno#n as Pacific 9orest Resources 'Philippines(, . #here the salar$ of petitioner #as increased to SBC,555 per annu!. <oth a"ree!ents sho# that the operational e%penses #ill be borne b$ the representative office and funded b$ all parties as e,ual partners, #hile the profits and co!!issions #ill be shared a!on" the!. In Dul$ 3555, petitioner #rote Nevin Dale$, Vice President for 0sia of Pacfor, see=in" confir!ation of his 45F e,uit$ of Pacfor Phils.-5 Private respondent Pacfor, throu"h 7illia! 2leason, its President, replied that petitioner is not a part1o#ner of Pacfor Phils. because the latter is !erel$ Pacfor1+S0*s representative office and

not an entit$ separate and distinct fro! Pacfor1+S0. It*s si!pl$ a *theoretical co!pan$* #ith the purpose of dividin" the inco!e 451 45. --Petitioner presu!abl$ =ne# of this arran"e!ent fro! the start, havin" been the one to propose to private respondent Pacfor the settin" up of a representative office, and not a branch office in the Philippines to save on ta%es.-3 Petitioner clai!ed that he #as all alon" !ade to believe that he #as in a Koint venture #ith the!. He alle"ed he #ould have been better off re!ainin" as an independent a"ent or representative of Pacfor1 +S0 as 0TM Mar=etin" &orp.-/Had he =no#n that no Koint venture e%isted, he #ould not have allo#ed Pacfor to ta=e the profitable business of his o#n co!pan$, 0TM Mar=etin" &orp. -: Petitioner raised other issues, such as the rentals of office furniture, salar$ of the e!plo$ees, co!pan$ car, as #ell as co!!issions alle"edl$ due hi!. The issues #ere not resolved, hence, in October 3555, petitioner #rote Pacfor1+S0 de!andin" pa$!ent of unpaid co!!issions and office furniture and e,uip!ent rentals, a!ountin" to !ore than one !illion dollars.-4 On Nove!ber 3B, 3555, private respondent Pacfor, throu"h counsel, ordered petitioner to turn over to it all papers, docu!ents, files, records, and other !aterials in his or 0TM Mar=etin" &orporation*s possession that belon" to Pacfor or Pacfor Phils. -> On Dece!ber -C, 3555, private respondent Pacfor also re,uired petitioner to re!it !ore than three hundred thousand1peso &hrist!as "ivea#a$ fund for clients of Pacfor Phils. -B Iastl$, private respondent Pacfor #ithdre# all its offers of settle!ent and ordered petitioner to transfer title and turn over to it possession of the service car.-C Private respondent Pacfor li=e#ise sent letters to its clients in the Philippines, advisin" the! not to deal #ith Pacfor Phils. In its letter to Intercontinental Paper Industries, Inc., dated Nove!ber 3-, 3555, private respondent Pacfor stated6 +ntil further notice, please course all in,uiries and co!!unications for Pacific 9orest Resources 'Philippines( to6 Pacific 9orest Resources 355 Ta!al Pla;a, Suite 355

&orte Madera, &0, +S0 .:.34 ':-4( .3B -B55 phone ':-4( /C- :/4C fa% Please do not send an$ co!!unication to Mr. 0rsenio <o$ T. Mendiola or to the offices of 0TM Mar=etin" &orporation at Roo! 45:, &oncorde <uildin", Ie"aspi Villa"e, Ma=ati &it$, Philippines.-. In another letter addressed to Davao &orru"ated &arton &orp. 'D0V&OR(, dated Dece!ber 3555, private respondent directed said client to please co!!unicate directl$ #ith us on an$ further ,uestions associated #ith these pa$!ents or an$ future business. Do not co!!unicate #ith @PacforA andGor @0TMA. 35 Petitioner construed these directives as a severance of the unre"istered partnership bet#een hi! and Pacfor, and the ter!ination of his e!plo$!ent as resident !ana"er of Pacfor Phils.3- In a !e!orandu! to the e!plo$ees of Pacfor Phils., dated Danuar$ 3., 355-, he stated6 I received a letter fro! Pacific 9orest Resources, Inc. de!andin" the turnover of all records to the! effective Dece!ber -., 3555. The co!pan$ records #ere turned over onl$ on Danuar$ 3>, 355-. This !eans our Kobs #ith Pacific 9orest #ere ter!inated effective Dece!ber -., 3555. I a! concerned about $our #elfare. I #ould li=e to help $ou b$ offerin" $ou to #or= #ith 0TM Mar=etin" &orporation. Please let !e =no# if $ou are interested.33 On the basis of the Side 0"ree!ent, petitioner insisted that he and Pacfor e,uall$ o#n Pacfor Phils. Thus, it follo#s that he and Pacfor li=e#ise o#n, on a 45G45 basis, Pacfor Phils.* office furniture and e,uip!ent and the service car. He also reiterated his de!and for unpaid co!!issions, and proposed to offset these #ith the re!ainin" &hrist!as "ivea#a$ fund in his possession.3/ 9urther!ore, he did not rene# the lease contract #ith Pulp and Paper, Inc., the lessor of the office pre!ises of Pacfor Phils., #herein he #as the si"nator$ to the lease a"ree!ent. 3:

On 9ebruar$ 3, 355-, private respondent Pacfor placed petitioner on preventive suspension and ordered hi! to sho# cause #h$ no disciplinar$ action should be ta=en a"ainst hi!. Private respondent Pacfor char"ed petitioner #ith #illful disobedience and serious !isconduct for his refusal to turn over the service car and the &hrist!as "ivea#a$ fund #hich he applied to his alle"ed unpaid co!!issions. Private respondent also alle"ed loss of confidence and "ross ne"lect of dut$ on the part of petitioner for alle"edl$ allo#in" another corporation o#ned b$ petitioner*s relatives, Hi"h 8nd Products, Inc. 'H8PI(, to use the sa!e telephone and facsi!ile nu!bers of Pacfor, to possibl$ steal and divert the sales and business of private respondent for H8PI*s principal, International 9orest Products, a co!petitor of private respondent. 34 Petitioner denied the char"es. He reiterated that he considered the i!port of Pacfor President 7illia! 2leason*s letters as a cessation of his position and of the e%istence of Pacfor Phils. He li=e#ise infor!ed private respondent Pacfor that 0TM Mar=etin" &orp. no# occupies Pacfor Phils.* office pre!ises, 3> and de!anded pa$!ent of his separation pa$.3B On 9ebruar$ -4, 355-, petitioner filed his co!plaint for ille"al dis!issal, recover$ of separation pa$, and pa$!ent of attorne$*s fees #ith the NIR&. 3C In the !eanti!e, private respondent Pacfor lod"ed fresh char"es a"ainst petitioner. In a !e!orandu! dated March 4, 355-, private respondent directed petitioner to e%plain #h$ he should not be disciplined for serious !isconduct and conflict of interest. Private respondent char"ed petitioner ane# #ith serious !isconduct for the latter*s alle"ed act of fraud and !isrepresentation in authori;in" the release of an additional peso salar$ for hi!self, besides the dollar salar$ a"reed upon b$ the parties. Private respondent also accused petitioner of dislo$alt$ and representation of conflictin" interests for havin" continued usin" the Pacfor Phils.* office for operations of H8PI. In addition, petitioner alle"edl$ solicited business for H8PI fro! a co!petitor co!pan$ of private respondent Pacfor. 3. Iabor 0rbiter 9elipe Pati ruled in favor of petitioner, findin" there #as constructive dis!issal. <$ directin" petitioner to turn over all office records and !aterials, re"ardless of #hether he !a$ have retained copies, private respondent Pacfor virtuall$ deprived petitioner of his Kob b$ the "radual di!inution of his authorit$ as

resident !ana"er. Petitioner*s position as resident !ana"er #hose dut$, a!on" others, #as to !aintain the securit$ of its business transactions and co!!unications #as rendered !eanin"less. The dispositive portion of the decision of the Iabor 0rbiter reads6 7H8R89OR8, pre!ises considered, Kud"!ent is hereb$ rendered orderin" herein respondents &ell!ar= 0< and Pacific 9orest Resources, Inc., Kointl$ and severall$ to co!pensate co!plainant 0rsenio T. Mendiola separation pa$ e,uivalent to at least one !onth for ever$ $ear of service, #hichever is hi"her GsicH, as reinstate!ent is no lon"er feasible b$ reason of the strained relations of the parties e,uivalent to five '4( !onths in the a!ount of S/3,555.55 plus the su! of P345,555.55L pa$ co!plainant the su! of P455,555.55 as !oral and e%e!plar$ da!a"es and ten percent '-5F( of the a!ounts a#arded as and for attorne$*s fees. 0ll other clai!s are dis!issed for lac= of basis. SO ORD8R8D./5 Private respondent Pacfor appealed to the NIR& #hich ruled in its favor. On Dece!ber 35, 355-, the NIR& set aside the Dul$ /5, 355- decision of the labor arbiter, for lac= of Kurisdiction and lac= of !erit./- It held there #as no e!plo$er1e!plo$ee relationship bet#een the parties. <ased on the t#o a"ree!ents bet#een the parties, it concluded that petitioner is not an e!plo$ee of private respondent Pacfor, but a full co1o#ner '45G45 e,uit$(. The NIR& denied petitioner*s Motion for Reconsideration. /3 Petitioner #as not successful on his appeal to the &ourt of 0ppeals. The appellate court upheld the rulin" of the NIR&. Petitioner*s Motion for Reconsideration// of the decision of the &ourt of 0ppeals #as denied. Hence, this appeal./: Petitioner assi"ns the follo#in" errors6

0. The Respondent &ourt of 0ppeals co!!itted reversible error and abused its discretion in renderin" Kud"!ent a"ainst petitioner since Kurisdiction has been ac,uired over the subKect !atter of the case as there e%ists e!plo$er1e!plo$ee relationship bet#een the parties. <. The Respondent &ourt of 0ppeals co!!itted reversible error and abused its discretion in rulin" that Kurisdiction over the subKect !atter cannot be #aived and !a$ be alle"ed even for the first ti!e on appeal or considered b$ the court !otu prop@rAio./4 The first issue is #hether an e!plo$er1e!plo$ee relationship e%ists bet#een petitioner and private respondent Pacfor. Petitioner ar"ues that he is an industrial partner of the partnership he for!ed #ith private respondent Pacfor, and also an e!plo$ee of the partnership. Petitioner insists that an industrial partner !a$ at the sa!e ti!e be an e!plo$ee of the partnership, provided there is such an a"ree!ent, #hich, in this case, is the Side 0"ree!ent and the Revised Operatin" and Profit Sharin" 0"ree!ent. The &ourt of 0ppeals denied the appeal of petitioner, holdin" that the le"al basis of the co!plaint is not e!plo$!ent but perhaps partnership, co1o#nership, or independent contractorship. Hence, the Iabor &ode cannot appl$. 7e hold that petitioner is an e!plo$ee of private respondent Pacfor and that no partnership or co1o#nership e%ists bet#een the parties. In a partnership, the !e!bers beco!e co1o#ners of #hat is contributed to the fir! capital and of all propert$ that !a$ be ac,uired thereb$ and throu"h the efforts of the !e!bers. /> The propert$ or stoc= of the partnership for!s a co!!unit$ of "oods, a co!!on fund, in #hich each part$ has a proprietar$ interest. /B In fact, the Ne# &ivil &ode re"ards a partner as a co1o#ner of specific partnership propert$./C 8ach partner possesses a Koint interest in the #hole of partnership propert$. If the relation does not have this feature, it is not one of partnership./. This essential ele!ent, the co!!unit$ of interest, or co1o#nership of, or Koint interest in partnership propert$ is absent in the relations bet#een petitioner and private respondent Pacfor. Petitioner is not a part1o#ner of

Pacfor Phils. 7illia! 2leason, private respondent Pacfor*s President established this fact #hen he said that Pacfor Phils. is si!pl$ a theoretical co!pan$ for the purpose of dividin" the inco!e 45145. He stressed that petitioner =ne# of this arran"e!ent fro! the ver$ start, havin" been the one to propose to private respondent Pacfor the settin" up of a representative office, and not a branch office in the Philippines to save on ta%es. Thus, the parties in this case, !erel$ shared profits. This alone does not !a=e a partnership.:5 <esides, a corporation cannot beco!e a !e!ber of a partnership in the absence of e%press authori;ation b$ statute or charter. :- This doctrine is based on the follo#in" considerations6 '-( that the !utual a"enc$ bet#een the partners, #hereb$ the corporation #ould be bound b$ the acts of persons #ho are not its dul$ appointed and authori;ed a"ents and officers, #ould be inconsistent #ith the polic$ of the la# that the corporation shall !ana"e its o#n affairs separatel$ and e%clusivel$L and, '3( that such an arran"e!ent #ould i!properl$ allo# corporate propert$ to beco!e subKect to ris=s not conte!plated b$ the stoc=holders #hen the$ ori"inall$ invested in the corporation.:3 No such authori;ation has been proved in the case at bar. <e that as it !a$, #e hold that on the basis of the evidence, an e!plo$er1e!plo$ee relationship is present in the case at bar. The ele!ents to deter!ine the e%istence of an e!plo$!ent relationship are6 'a( the selection and en"a"e!ent of the e!plo$eeL 'b( the pa$!ent of #a"esL 'c( the po#er of dis!issalL and 'd( the e!plo$er*s po#er to control the e!plo$ee*s conduct. The !ost i!portant ele!ent is the e!plo$er*s control of the e!plo$ee*s conduct, not onl$ as to the result of the #or= to be done, but also as to the !eans and !ethods to acco!plish it.:/ In the instant case, all the fore"oin" ele!ents are present. 9irst, it #as private respondent Pacfor #hich selected and en"a"ed the services of petitioner as its resident a"ent in the Philippines. Second, as stipulated in their Side 0"ree!ent, private respondent Pacfor pa$s petitioner his salar$ a!ountin" to S>4,555 per annu! #hich #as later increased to SBC,555. Third, private respondent Pacfor holds the po#er of dis!issal, as !a$ be "leaned throu"h the various !e!oranda it issued a"ainst petitioner, placin" the latter on

preventive suspension #hile char"in" hi! #ith various offenses, includin" #illful disobedience, serious !isconduct, and "ross ne"lect of dut$, and orderin" hi! to sho# cause #h$ no disciplinar$ action should be ta=en a"ainst hi!. Iastl$ and !ost i!portant, private respondent Pacfor has the po#er of control over the !eans and !ethod of petitioner in acco!plishin" his #or=. The po#er of control refers !erel$ to the e%istence of the po#er, and not to the actual e%ercise thereof. The principal consideration is #hether the e!plo$er has the ri"ht to control the !anner of doin" the #or=, and it is not the actual e%ercise of the ri"ht b$ interferin" #ith the #or=, but the ri"ht to control, #hich constitutes the test of the e%istence of an e!plo$er1e!plo$ee relationship. :: In the case at bar, private respondent Pacfor, as e!plo$er, clearl$ possesses such ri"ht of control. Petitioner, as private respondent Pacfor*s resident a"ent in the Philippines, is, e%actl$ so, onl$ an a"ent of the corporation, a representative of Pacfor, #ho transacts business, and accepts service on its behalf. This ri"ht of control #as e%ercised b$ private respondent Pacfor durin" the period of Nove!ber to Dece!ber 3555, #hen it directed petitioner to turn over to it all records of Pacfor Phils.L #hen it ordered petitioner to re!it the &hrist!as "ivea#a$ fund intended for clients of Pacfor Phils.L and, #hen it #ithdre# all its offers of settle!ent and ordered petitioner to transfer title and turn over to it the possession of the service car. It #as also durin" this period #hen private respondent Pacfor sent letters to its clients in the Philippines, particularl$ Intercontinental Paper Industries, Inc. and D0V&OR, advisin" the! not to deal #ith petitioner andGor Pacfor Phils. In its letter to D0V&OR, private respondent Pacfor replied to the client*s re,uest for an invoice pa$!ent e%tension, and for!ulated a revised pa$!ent pro"ra! for D0V&OR. This is one un!ista=able proof that private respondent Pacfor e%ercises control over the petitioner. Ne%t, #e shall deter!ine if petitioner #as constructivel$ dis!issed fro! e!plo$!ent.

The evidence sho#s that #hen petitioner insisted on his 45F e,uit$ in Pacfor Phils., and #ould not ,uit ho#ever, private respondent Pacfor be"an to s$ste!aticall$ deprive petitioner of his duties and benefits to !a=e hi! feel that his presence in the co!pan$ #as no lon"er #anted. 9irst, private respondent Pacfor directed petitioner to turn over to it all records of Pacfor Phils. This #ould certainl$ !a=e the #or= of petitioner ver$ difficult, if not i!possible. Second, private respondent Pacfor ordered petitioner to re!it the &hrist!as "ivea#a$ 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, particularl$ Intercontinental Paper Industries, Inc. and D0V&OR, not to deal #ith petitioner andGor Pacfor Phils. Iastl$, private respondent Pacfor appointed a ne# resident a"ent for Pacfor Phils. :4 0lthou"h there is no reduction of the salar$ of petitioner, constructive dis!issal is still present because continued e!plo$!ent of petitioner is rendered, at the ver$ least, unreasonable.:> There is an act of clear discri!ination, insensibilit$ or disdain b$ the e!plo$er that continued e!plo$!ent !a$ beco!e so unbearable on the part of the e!plo$ee so as to foreclose an$ choice on his part e%cept to resi"n fro! such e!plo$!ent. :B The harassin" acts of the private respondent are unKustified. The$ #ere underta=en #hen petitioner sou"ht clarification fro! the private respondent about his supposed 45F e,uit$ on Pacfor Phils. Private respondent Pacfor invo=es its ri"hts as an o#ner. 0lle"edl$, its issuance of the fore"oin" directives a"ainst petitioner #as a valid e%ercise of !ana"e!ent prero"ative. 7e re!ind private respondent Pacfor that the e%ercise of !ana"e!ent prero"ative is not absolute. <$ its ver$ nature, enco!passin" as it could be, !ana"e!ent prero"ative !ust be e%ercised in "ood faith and #ith due re"ard to the ri"hts of labor T veril$, #ith the principles of fair pla$ at heart and Kustice in !ind. The e%ercise of !ana"e!ent prero"ative cannot be utili;ed as an i!ple!ent to circu!vent our la#s and oppress e!plo$ees.:C 0s resident a"ent of private respondent corporation, petitioner occupied a position involvin" trust and confidence. In the li"ht of the strained relations bet#een the parties, the full restoration of an e!plo$!ent relationship based on trust and confidence is no lon"er

possible. He should be a#arded separation pa$, in lieu of reinstate!ent. IN &IE# # EREOF, the petition is GRANTE%. The &ourt of 0ppeals* Danuar$ /5, 355/ Decision in &012.R. SP No. B-53C and Dul$ /5, 355/ Resolution, affir!in" the Dece!ber 35, 355Decision of the National Iabor Relations &o!!ission, are ANNU"E% and SET ASI%E. The Dul$ /5, 355- Decision of the Iabor 0rbiter is REINSTATE% #ith the MO%IFICATION that the a!ount of P345,555.55 representin" an alle"ed increase in petitioner*s salar$ shall be deducted fro! the "rant of separation pa$ for lac= of evidence. SO OR%ERE%. "andoval*Gutierre)! Corona! /)cuna! Garcia! ,.,.! concur.

Foo8no8/.
3 / : 4 > B C .

&0 rollo, pp. -54C1-5B3. Id. at --54. Id. at 3C1/B. Id. at --C1-/.. Id. at >C31>C/. Id. at >C/. Rollo, p. >/. Id. at >:.

&0 rollo, p. >C:. Other ter!s of the revised a"ree!ent include6 a( 0TM and Pacfor1+S0 shall Kointl$ !ana"e Pacfor Phils.

b( Pacfor1Phils. #ill earn co!!issions at -.4F of 9.O.<. value, the co!putation of #hich shall be sho#n in a credit !e!o issued b$ &ell!ar=GPacfor. c( Iosses, if an$, #ill be rei!bursed b$ &ell!ar=GPacfor to 0TM for 0TM*s share of the loss, for t#o consecutive $ears be"innin" #ith the first $ear of loss. d( The revised a"ree!ent shall ta=e effect on Danuar$ -, -..B. e( &ash paid to the representative office b$ Pacific Paper belon"s to Pacfor and #ill be held in trust b$ 0TM.
-5 --3 -/ -: -4 -> -B -C -. 35 333 3/ 3:

Id. at >C4. Rollo, p. 43C. Id. at 43B. Ibid. Id. at 4/3. Id. at 4/.. Id. at 4:-. Id. at 4::. Id. at 4:4. &0 rollo, p. C3.. Id. at C3C. Rollo, pp. 4:>1445. Id. at 44/. Id. at 4:>1445. Id. at 4>5.

34 3> 3B 3C 3. /5 //3 // /: /4 />

Id. at 44:144C. Id. at 4>5. Id. at 4>-. &0 rollo, p. >43. Rollo, pp. 4>314>/. Id. at -45. Id. at 3/-13:5. &0 rollo, pp. ///1//4. Id. at C:1C>. Rollo, pp. -:1/>. Id. at 3B.

8steban <. <autista, Treatise on Philippine Partnership Ia#, -.BC ed., citing Nelson v. 0braha!, -BB P.3d ./- '-.:B(L Henr$ v. Darnall, 3:> Ill.0pp. 345 '-.3B(, cited in Notes of Decisions, B +.I.0. -4 '-.:.(.
/B

8steban <. <autista, Treatise on Philippine Partnership Ia#, -.BC ed., citing Darden v. &o%, -3/ So.3d >C '-.>5(.
/C /.

0rt. -C-- '-st par.(.

8steban <. <autista, Treatise on Philippine Partnership Ia#, -.BC ed.

:5 :-

Fortis v. Gutierre) >ermanos, > Phil. -55 '-.5>(.

,.2. Tuason v. 1olanos, .4 Phil. -5> '-.4:(L 8steban <. <autista, Treatise on Philippine Partnership Ia#, -.BC ed., citing >5 0.I.R.3d .-BL > 9letcher, &$clopedia of &orporations, Sec. 3435 '-.45(.

:3

8steban <. <autista, Treatise on Philippine Partnership Ia#, -.BC ed., citing -/ 0!.Dur. C/5L >5 0.I.R.3d .-/.
:/

"+ v. Court o /ppeals, 2.R. No. -:33./, 9ebruar$ 3B, 355/, /.C S&R0 /5-, citin" &aurdanetaan Piece 7or=ers +nion v. Ia"ues!a, 3C> S&R0 :5-, :35 '-..C(L 2araguinot! ,r. v. .-RC, 3C: S&R0 4/., 443 '-..C(L /PP 2utual 1ene it /ssociation! Inc. v. .-RC, 3>B S&R0 :B, 4B '-..B(L /urora -and Pro#ects Corp. v. .-RC, 3>> S&R0 :C, 4. '-..B(L Enc+clopedia 1ritannica GPhils.H! Inc. v. .-RC , 3>: S&R0 -, >1B '-..>(.
::

Feati ;niversit+ v. 1autista, 2.R. No. I13-3BC, Dece!ber 3B, -.>>, -C S&R0 --.-, -3-B, citing0!al"a!ated Roofin" &o. v. Travelers* Ins. &o., -// N.8. 34., 3>-L /55 Ill. :CB.
:4 :>

&0 rollo, pp. B3:1B//.

Philippine ,apan /ctive Carbon Corp. v. .-RC, 2.R. No. C/3/., March C, -.C., -B- S&R0 ->:.
:B

;nicorn "a et+ Glass! Inv. v. 1asarte, 2.R. No. -4:>C., Nove!ber 34, 355:, ::: S&R0 3CB.
:C

Ibid. Republic of the Philippines SUPREME COURT Manila 8N <0N&

G.R. No. "+25532

F/;ruary 25, 1969

COMMISSIONER OF INTERNA" RE&ENUE, petitioner, vs. #I""IAM J. SUTER an0 T E COURT OF TA2 APPEA"S, respondents. 5 ice o the "olicitor General /ntonio P. 1arredo! /ssistant "olicitor General Felicisimo R. Rosete and "pecial /ttorne+s 1.

Gatdula! ,r. and T. Temprosa ,r. or petitioner. /. ". 2on)on! Gutierre)! Farrales and 5ng or respondents. RE$ES, J.!."., J.: 0 li!ited partnership, na!ed 7illia! D. Suter *Morcoin* &o., Itd., #as for!ed on /5 Septe!ber -.:B b$ herein respondent 7illia! D. Suter as the "eneral partner, and Dulia Spiri" and 2ustav &arlson, as the li!ited partners. The partners contributed, respectivel$, P35,555.55, P-C,555.55 and P3,555.55 to the partnership. On - October -.:B, the li!ited partnership #as re"istered #ith the Securities and 8%chan"e &o!!ission. The fir! en"a"ed, a!on" other activities, in the i!portation, !ar=etin", distribution and operation of auto!atic phono"raphs, radios, television sets and a!use!ent !achines, their parts and accessories. It had an office and held itself out as a li!ited partnership, handlin" and carr$in" !erchandise, usin" invoices, bills and letterheads bearin" its trade1na!e, !aintainin" its o#n boo=s of accounts and ban= accounts, and had a ,uota allocation #ith the &entral <an=. In -.:C, ho#ever, "eneral partner Suter and li!ited partner Spiri" "ot !arried and, thereafter, on -C Dece!ber -.:C, li!ited partner &arlson sold his share in the partnership to Suter and his #ife. The sale #as dul$ recorded #ith the Securities and 8%chan"e &o!!ission on 35 Dece!ber -.:C. The li!ited partnership had been filin" its inco!e ta% returns as a corporation, #ithout obKection b$ the herein petitioner, &o!!issioner of Internal Revenue, until in -.4. #hen the latter, in an assess!ent, consolidated the inco!e of the fir! and the individual inco!es of the partners1spouses Suter and Spiri" resultin" in a deter!ination of a deficienc$ inco!e ta% a"ainst respondent Suter in the a!ount of P3,>BC.5> for -.4: and P:,4>B.55 for -.44. Respondent Suter protested the assess!ent, and re,uested its cancellation and #ithdra#al, as not in accordance #ith la#, but his re,uest #as denied. +nable to secure a reconsideration, he appealed to the &ourt of Ta% 0ppeals, #hich court, after trial,

rendered a decision, on -- Nove!ber -.>4, reversin" that of the &o!!issioner of Internal Revenue. The present case is a petition for revie#, filed b$ the &o!!issioner of Internal Revenue, of the ta% court*s aforesaid decision. It raises these issues6 'a( 7hether or not the corporate personalit$ of the 7illia! D. Suter Morcoin &o., Itd. should be disre"arded for inco!e ta% purposes, considerin" that respondent 7illia! D. Suter and his #ife, Dulia Spiri" Suter actuall$ for!ed a sin"le ta%able unitL and 'b( 7hether or not the partnership #as dissolved after the !arria"e of the partners, respondent 7illia! D. Suter and Dulia Spiri" Suter and the subse,uent sale to the! b$ the re!ainin" partner, 2ustav &arlson, of his participation of P3,555.55 in the partnership for a no!inal a!ount of P-.55. The theor$ of the petitioner, &o!!issioner of Internal Revenue, is that the !arria"e of Suter and Spiri" and their subse,uent ac,uisition of the interests of re!ainin" partner &arlson in the partnership dissolved the li!ited partnership, and if the$ did not, the fiction of Kuridical personalit$ of the partnership should be disre"arded for inco!e ta% purposes because the spouses have e%clusive o#nership and control of the businessL conse,uentl$ the inco!e ta% return of respondent Suter for the $ears in ,uestion should have included his and his #ife*s individual inco!es and that of the li!ited partnership, in accordance #ith Section :4 'd( of the National Internal Revenue &ode, #hich provides as follo#s6 'd( >usband and &i e. H In the case of !arried persons, #hether citi;ens, residents or non1residents, onl$ one consolidated return for the ta%able $ear shall be filed b$ either spouse to cover the inco!e of both spousesL .... In refutation of the fore"oin", respondent Suter !aintains, as the &ourt of Ta% 0ppeals held, that his !arria"e #ith li!ited partner Spiri" and their ac,uisition of &arlson*s interests in the partnership in -.:C is not a "round for dissolution of the partnership, either in the &ode of &o!!erce or in the Ne# &ivil &ode, and that since its Kuridical personalit$ had not been affected and since, as a li!ited

partnership, as contra distin"uished fro! a dul$ re"istered "eneral partnership, it is ta%able on its inco!e si!ilarl$ #ith corporations, Suter #as not bound to include in his individual return the inco!e of the li!ited partnership. 7e find the &o!!issioner*s appeal un!eritorious. The thesis that the li!ited partnership, 7illia! D. Suter Morcoin &o., Itd., has been dissolved b$ operation of la# because of the !arria"e of the onl$ "eneral partner, 7illia! D. Suter to the ori"inall$ li!ited partner, Dulia Spiri" one $ear after the partnership #as or"ani;ed is rested b$ the appellant upon the opinion of no# Senator Tolentino in &o!!entaries and Durisprudence on &o!!ercial Ia#s of the Philippines, Vol. -, :th 8d., pa"e 4C, that reads as follo#s6 0 husband and a #ife !a$ not enter into a contract of general copartnership, because under the &ivil &ode, #hich applies in the absence of e%press provision in the &ode of &o!!erce, persons prohibited fro! !a=in" donations to each other are prohibited fro! enterin" into universal partnerships. '3 8chaverri -.>( It follo#s that the !arria"e of partners necessaril$ brin"s about the dissolution of a pre1e%istin" partnership. '- 2u$ de Montella 4C( The petitioner1appellant has evidentl$ failed to observe the fact that 7illia! D. Suter Morcoin &o., Itd. #as not a universal partnership, but a particular one. 0s appears fro! 0rticles ->B: and ->B4 of the Spanish &ivil &ode, of -CC. '#hich #as the la# in force #hen the subKect fir! #as or"ani;ed in -.:B(, a universal partnership re,uires either that the obKect of the association be all the present propert+ of the partners, as contributed b$ the! to the co!!on fund, or else all that the partners !a$ ac,uire b$ their industr+ or &or9 durin" the e%istence of the partnership . 7illia! D. Suter Morcoin &o., Itd. #as not such a universal partnership, since the contributions of the partners #ere fi%ed su!s of !one$, P35,555.55 b$ 7illia! Suter and P-C,555.55 b$ Dulia Spiri" and neither one of the! #as an industrial partner. It follo#s that 7illia! D. Suter Morcoin &o., Itd. #as not a partnership that spouses #ere forbidden to enter b$ 0rticle ->BB of the &ivil &ode of -CC..

The for!er &hief Dustice of the Spanish Supre!e &ourt, D. Dose &asan, in his Derecho &ivil, Bth 8dition, -.43, Volu!e :, pa"e 4:>, footnote -, sa$s #ith re"ard to the prohibition contained in the aforesaid 0rticle ->BB6 Ios con$u"es, se"un esto, no pueden celebrar entre si el contrato de sociedad universal, pero o podran constituir sociedad particular) 0un,ue el punto ha sido !u$ debatido, nos inclina!os a la tesis per!isiva de los contratos de sociedad particular entre esposos, $a ,ue nin"un precepto de nuestro &odi"o los prohibe, $ ha$ ,ue estar a la nor!a "eneral se"un la ,ue toda persona es capa; para contratar !ientras no sea declarado incapa; por la le$. Ia Kurisprudencia de la Direccion de los Re"istros fue favorable a esta !is!a tesis en su resolution de / de febrero de -./>, !as parece ca!biar de ru!bo en la de . de !ar;o de -.:/. Nor could the subse,uent !arria"e of the partners operate to dissolve it, such !arria"e not bein" one of the causes provided for that purpose either b$ the Spanish &ivil &ode or the &ode of &o!!erce. The appellant*s vie#, that b$ the !arria"e of both partners the co!pan$ beca!e a sin"le proprietorship, is e,uall$ erroneous. The capital contributions of partners 7illia! D. Suter and Dulia Spiri" #ere separatel$ o#ned and contributed b$ the! be ore their !arria"eL and after the$ #ere Koined in #edloc=, such contributions re!ained their respective separate propert$ under the Spanish &ivil &ode '0rticle -/.>(6 The follo#in" shall be the exclusive propert$ of each spouse6 'a( That #hich is brou"ht to the !arria"e as his or her o#nL .... Thus, the individual interest of each consort in 7illia! D. Suter Morcoin &o., Itd. did not beco!e co!!on propert$ of both after their !arria"e in -.:C.

It bein" a basic tenet of the Spanish and Philippine la# that the partnership has a Kuridical personalit$ of its o#n, distinct and separate fro! that of its partners 'unli=e 0!erican and 8n"lish la# that does not reco"ni;e such separate Kuridical personalit$(, the b$passin" of the e%istence of the li!ited partnership as a ta%pa$er can onl$ be done b$ i"norin" or disre"ardin" clear statutor$ !andates and basic principles of our la#. The li!ited partnership*s separate individualit$ !a=es it i!possible to e,uate its inco!e #ith that of the co!ponent !e!bers. True, section 3: of the Internal Revenue &ode !er"es re"istered "eneral co1partnerships 'compa7ias colectivas( #ith the personalit$ of the individual partners for inco!e ta% purposes. <ut this rule is e%ceptional in its disre"ard of a cardinal tenet of our partnership la#s, and can not be e%tended b$ !ere i!plication to li!ited partnerships. The rulin"s cited b$ the petitioner '&ollector of Internal Revenue vs. +niversit$ of the Visa$as, I1-/44:, Resolution of /5 October -.>:, and Noppel @Phil.A, Inc. vs. Oatco, BB Phil. 45:( as authorit$ for disre"ardin" the fiction of le"al personalit$ of the corporations involved therein are not applicable to the present case. In the cited cases, the corporations #ere alread$ sub#ect to ta% #hen the fiction of their corporate personalit$ #as piercedL in the present case, to do so #ould exempt the li!ited partnership fro! inco!e ta%ation but #ould thro# the ta% burden upon the partners1 spouses in their individual capacities. The corporations, in the cases cited, !erel$ served as business conduits or alter egos of the stoc=holders, a factor that Kustified a disre"ard of their corporate personalities for ta% purposes. This is not true in the present case. Here, the li!ited partnership is not a !ere business conduit of the partner1spousesL it #as or"ani;ed for le"iti!ate business purposesL it conducted its o#n dealin"s #ith its custo!ers prior to appellee*s !arria"e, and had been filin" its o#n inco!e ta% returns as such independent entit$. The chan"e in its !e!bership, brou"ht about b$ the !arria"e of the partners and their subse,uent ac,uisition of all interest therein, is no "round for #ithdra#in" the partnership fro! the covera"e of Section 3: of the ta% code, re,uirin" it to pa$ inco!e ta%. 0s far as the records sho#, the partners did not enter into !atri!on$ and thereafter bu$ the interests of the re!ainin" partner #ith the pre!editated sche!e or desi"n to use the

partnership as a business conduit to dod"e the ta% la#s. Re"ularit$, not other#ise, is presu!ed. 0s the li!ited partnership under consideration is ta%able on its inco!e, to re,uire that inco!e to be included in the individual ta% return of respondent Suter is to overstretch the letter and intent of the la#. In fact, it #ould even conflict #ith #hat it specificall$ provides in its Section 3:6 for the appellant &o!!issioner*s stand results in e,ual treat!ent, ta% #ise, of a "eneral copartnership 'compa7ia colectiva( and a li!ited partnership, #hen the code plainl$ differentiates the t#o. Thus, the code ta%es the latter on its inco!e, but not the for!er, because it is in the case of compa7ias colectivas that the !e!bers, and not the fir!, are ta%able in their individual capacities for an$ dividend or share of the profit derived fro! the dul$ re"istered "eneral partnership 'Section 3>, N.I.R.&.L 0raMas, 0nno. J Duris. on the N.I.R.&., 0s 0!ended, Vol. -, pp. CC1 C.(.la&phi$.n't <ut it is ar"ued that the inco!e of the li!ited partnership is actuall$ or constructivel$ the inco!e of the spouses and for!s part of the conKu"al partnership of "ains. This is not #holl$ correct. 0s pointed out in 0"apito vs. Molo 45 Phil. BB., and People*s <an= vs. Re"ister of Deeds of Manila, >5 Phil. ->B, the fruits of the #ife*s parapherna beco!e conKu"al onl$ #hen no lon"er needed to defra$ the e%penses for the ad!inistration and preservation of the paraphernal capital of the #ife. Then a"ain, the appellant*s ar"u!ent erroneousl$ confines itself to the ,uestion of the le"al personalit$ of the li!ited partnership, #hich is not essential to the inco!e ta%abilit$ of the partnership since the la# ta%es the inco!e of even Koint accounts that have no personalit$ of their o#n. - 0ppellant is, li=e#ise, !ista=en in that it assu!es that the conKu"al partnership of "ains is a ta%able unit, #hich it is not. 7hat is ta%able is the inco!e of both spouses 'Section :4 @dA in their individual capacities. Thou"h the a!ount of inco!e 'inco!e of the conKu"al partnership vis*a*vis the Koint inco!e of husband and #ife( !a$ be the sa!e for a "iven ta%able $ear, their conse,uences #ould be different, as their contributions in the business partnership are not the sa!e. The difference in ta% rates bet#een the inco!e of the li!ited partnership bein" consolidated #ith, and #hen split fro! the inco!e

of the spouses, is not a Kustification for re,uirin" consolidationL the revenue code, as it presentl$ stands, does not authori;e it, and even bars it b$ re,uirin" the li!ited partnership to pa$ ta% on its o#n inco!e. 9OR TH8 9OR82OIN2 R80SONS, the decision under revie# is hereb$ affir!ed. No costs. Concepcion! C.,.! 8i)on! 2a9alintal! ?aldivar! "anche)! Castro! Fernando! Capistrano and Teehan9ee! ,,.! concur. 1arredo! ,.! too9 no part. Foo8no8/.
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V. 8van"elists vs. &ollector of Internal Revenue, -53 Phil -:5L &ollector vs. <atan"as Transportation &o., -53 Phil. C33. 17 Ma... A<<. C8. 555 C1954D 466 N.E.20 1643 RIC AR% P. !RO#N ' ano8B/rI1J 9.. !ARR$ . GERSTEIN ' ano8B/r.I2J. A<</a-. Cour8 oF Ma..a?Bu./88., E../A. Dece!ber -:, -.C/. March 4, -.C:. Present6 !RO#N, 2R80N8O, J 70RN8R, DD. ,ohn 8. 8&+er for the plaintiffs. Eri9 -und for the defendants. 2R80N8O, D. The plaintiffs* a!ended co!plaint sou"ht to recover da!a"es fro! the defendants, both la#$ers, on alle"ations '-( that 2erstein had co!!itted !alpractice in representin" the! in connection #ith a suit to restrain a !ort"a"e foreclosureL '3( that his conduct also violated 2.I.c. ./0L and '/( that 7einer, #ho practiced la# #ith

2erstein, #as derivativel$ liable for 2erstein*s actions as his partner b$ estoppel. The co!!on la# clai!s #ere tried to a Kur$L the c. ./0 clai! to the Kud"e. See .ei v. 1urle+! /CC Mass. /5B, /--1/-4 '-.C/(. 0t the conclusion of the plaintiffs* case the Kud"e allo#ed a !otion filed b$ the defendants on the c. ./0 clai! captioned Motion for Directed Verdict. @/A The Kur$ returned a verdict in the 4>5V4>5a!ount of S-4,555 for the plaintiffs, #hich the Kud"e set aside on the defendants* !otion for Kud"!ent not#ithstandin" the verdict. Mass.R.&iv.P. 45'b(, />4 Mass. C-:1C-4 '-.B:(. The plaintiffs have appealed fro! the Kud"!ent entered for the defendants. 7e reverse the Kud"!ent for 2erstein and order a ne# trial as hereinafter set out. 7e affir! the Kud"!ent for 7einer. In decidin" #hether the Kud"e acted properl$ in enterin" Kud"!ent not#ithstandin" the verdict on the co!!on la# clai!s, #e appl$ the standard applicable to a !otion for directed verdict.8'/nnol o v. "toneham >ousing /uth+.! /B4 Mass. >45, >4B '-.BC(. 2oran Travel 1ureau! Inc.v. Clair! -3 Mass. 0pp. &t. C>: '-.C-(. This test focuses on #hether an$#here in the evidence, fro! #hatever source derived, an$ co!bination of circu!stances could be found fro! #hich a reasonable inference could be dra#n in favor of the plaintiff. Raunela v. >ert) Corp.! />- Mass. /:-, /:/ '-.B3(, ,uotin" fro! @ell+ v. Rail&a+ Exp. /genc+! Inc.! /-4 Mass. /5-, /53 '-.:/(.2iles v. Ed&ard 5. Tabor! 2.8.! Inc.! /CB Mass. BC/, BC41BC> '-.C3(. Vie#in" the evidence in this li"ht, #e conclude that the Kur$ could have found the follo#in".@:A In -.B4, the plaintiffs o#ned a parcel of co!!ercial propert$ in 7enha! #hich the$ had purchased in -.>B. The parcel contained a buildin", a !aKor part of #hich #as leased to Richdale Dair$ Stores, Inc., for the operation of a convenience store, and the balance of #hich #as rented to a second store under a tenanc$ at #ill. In the su!!er of -.B:, the !ort"a"ee on the propert$, Danvers Savin"s <an= 'ban=(, clai!ed a default in the !ort"a"e, an assertion #hich the plaintiffs contested. The$ consulted 2erstein, and, at 2erstein*s re,uest #rote a letter detailin" to hi! their dispute #ith the ban=. @4A In Danuar$, -.B4, the plaintiffs for!all$ retained 4>-V4>- 2erstein to brin" suit a"ainst the ... ban= for breach of contract based on the ban=*s alle"ed !ishandlin" of their loan.@>A 2erstein advised the

plaintiffs not to have an$thin" to do #ith the @ban= becauseA ... he #ould handle ever$thin". <$ letter dated 0pril -C, -.B4, the ban= notified the plaintiffs that its board of invest!ent had voted to co!!ence foreclosure, that future pa$!ents on the loan #ould not be accepted, and that the plaintiffs #ould be liable for an$ deficienc$ resultin" after foreclosure. 2erstein assured the plaintiffs not to #orr$ about @the noticeA ... @tAhat he #ould ta=e care of ever$thin" @aAnd that he #as dra#in" up papers to file a"ainst the ban=. Shortl$ after Dune -/, -.B4, the plaintiffs received fro! the ban=*s attorne$s a cop$ of the order of notice issued b$ the Superior &ourt on the ban=*s co!plaint to foreclose the !ort"a"e. 2erstein also received a cop$ of this notice and a"ain assured the plaintiffs not to #orr$ ... that it @the foreclosureA #ouldn*t happen @becauseA he #ould ta=e care of ever$thin". On Dul$ /5, -.B4, the plaintiffs received #ritten notice advisin" the! that a foreclosure sale #ould be held on or after Septe!ber /, -.B4, and that the$ #ould be liable for an$ resultin" deficienc$. The <ro#ns pro!ptl$ brou"ht this notice to 2erstein*s attention. 2erstein advised the! that an a!ended co!plaint #as bein" prepared,@BA and !ade no !ention of an$ proble!s. 4>3V4>3 On 0u"ust -, -.B4, the plaintiffs si"ned and s#ore to an a!ended co!plaint. This co!plaint alle"ed that the ban= #as solel$ responsible for the !ort"a"e default, and that it had i!properl$ refused to allo# the plaintiffs to cure the default. The co!plaint sou"ht preli!inar$ inKunctive relief to enKoin the foreclosure as #ell as an accountin" and da!a"es. 2erstein told the plaintiffs that he #ould file the co!plaint in the Superior &ourt. Shortl$ thereafter he advised the plaintiffs that he had in fact filed the co!plaint and that there #ould be no foreclosure. The plaintiffs relied on these assurances. 2erstein never filed the co!plaint. He did not tell the plaintiffs that it had not been filed or that neither a te!porar$ restrainin" order nor an inKunction #ould be applied for. On 0u"ust -4, -.B4, the plaintiffs received a cop$ of the ban=*s le"al advertise!ent of the foreclosure sale #hich had been

published in a local ne#spaper. This notice set the foreclosure sale at 3655 P.M. on Septe!ber /, -.B4. The notice #as i!!ediatel$ brou"ht to 2erstein*s attention. 2erstein advised the <ro#ns that ever$thin" #as bein" held in abe$ance and that there #ould be no foreclosure. On 0u"ust 3C, -.B4, Richard !roGn !et 2erstein. He a"ain told !roGn that there #asn*t "oin" to be an$ auction sale and that he '2erstein( !i"ht ... have a custo!er for the propert$. These representations #ere false.@CA The 4>/V4>/ propert$ #as sold to a third part$ at foreclosure auction on Septe!ber /, -.B4, for S>3,555 #ithout the plaintiffs* =no#led"e. 7hen the plaintiffs discovered that the propert$ had been sold the$ confronted 2erstein, #ho then told the! that he had had a deal #ith the ban=*s attorne$, see note C, supra! and that this la#$er had double1crossed hi!. 2erstein reco!!ended that the plaintiffs file an i!!ediate suit a"ainst the ban= and its counsel and assured the <ro#ns that he #ould appear as a #itness on their behalf at the trial. To this end, 2erstein directed the plaintiffs to another la#$er in his office. This la#$er prepared $et another co!plaint a"ainst the ban=. This co!plaint, see=in" da!a"es, accused the ban= of bad faith and repeated the substance of the a!ended co!plaint #ith one differenceL it contained an assertion that at the ti!e of the foreclosure sale the plaintiffs #ere ... financiall$ unable to purchase the propert$. @.A The plaintiffs revie#ed the co!plaint and s#ore to its contents. The attorne$, ho#ever, declined to represent the plaintiffs after receivin" infor!ation fro! the ban=*s counsel #hich !ade it doubtful that the plaintiffs could prevail at trial. 0s a result, the co!plaint #as never filed and the la#$er ter!inated his relationship #ith the plaintiffs after tellin" the! that he had returned their file to 2erstein. There #as testi!on$ that 2erstein never advised the plaintiffs of options to prevent foreclosure.@-5A The Kud"e e%cluded testi!on$, preserved b$ a proper offer of proof, that had the <ro#ns =no#n that 2erstein had not filed the co!plaint 4>:V4>: and that the foreclosure sale #ould ta=e place, the$ #ould have sou"ht to avoid the sale b$6 '-( en"a"in" another attorne$ to file suit and see= an inKunction on a different theor$ of la#,@--A '3( curin" the default b$ pa$in" the arreara"e,@-3A '/( atte!ptin" to sell the propert$ or to refinance the debt #ith another lender, ':( attendin" the foreclosure

sale #ith the re,uired deposit either to purchase the propert$ or to bid it up to full !ar=et value, or '4( dischar"in" the !ort"a"e b$ pa$in" the entire indebtedness. There #as further testi!on$ that the plaintiffs had funds, independent of borro#in", #hich could have been used for these purposes. These funds #ere contained in t#o trusts for the benefit of 0nn !roGn. The first #as a personal trust containin" about S/5,555, the ter!s of #hich per!itted pa$!ents of principal to 0nn !roGn in the sole discretion of the trustees. The second #as a testa!entar$ trust, containin" about SB5,555. 0nn !roGn could obtain principal fro! the latter trust as the dee!@edA advisable. The annual inco!e fro! the testa!entar$ trust avera"ed S:,555. In addition to the assets of the trusts, there #as testi!on$ that the plaintiffs had substantial e,uit$ in their ho!e. 0 fe# other facts are relevant to the discussion of the co!!on la# clai!s. The !easure of da!a"es #as stipulated to be the difference bet#een the S>3,555 paid b$ the 4>4V4>4 bu$er at the foreclosure sale and the fair !ar=et value of the pre!ises. There #as evidence #hich #ould have #arranted a findin" that, on Septe!ber /, -.B4, the pre!ises had a fair !ar=et value of at least S-55,555. The Kud"e considered the co!!on la# !alpractice clai!s as solel$ li!ited to 2erstein*s ne"li"ence in failin" to file the a!ended co!plaint. On this h$pothesis, the Kud"e instructed the Kur$ that the plaintiffs could recover onl+ if the$ found that an inKunction could have been obtained on the facts alle"ed in the a!ended co!plaint, declinin" to put to the Kur$ the ,uestion #hether 2erstein #as liable for deceit. -. 7e first consider the co!!on la# clai!s of !alpractice. It is conceded that an attorne$1client relationship e%isted bet#een 2erstein and the <ro#ns and that 2erstein #as ne"li"ent in failin" to file the a!ended co!plaint. 7e are satisfied that the Kud"e properl$ reKected the plaintiffs* clai! that the foreclosure #ould have been enKoined for the reasons stated in his !e!orandu! on the !otion for Kud"!ent n.o.v. In that !e!orandu!, the Kud"e pointed out that the plaintiffs had to establish that the$ #ould have succeeded in the underl$in" liti"ation but for the attorne$*s ne"li"ence in not brin"in" suit. See 2c-ellan v. Fuller! 33> Mass. /B:, /BC '-.-B(L Glidden v. Terranova! -3 Mass. 0pp. &t. 4.B, >55

'-.C-(. He correctl$ concluded that the plaintiffs had not presented an$ evidence fro! #hich the Kur$ could find that the various assertions of #ron"doin" on the part of the ban= #ere true and that the plaintiffs #ould have succeeded in enKoinin" the foreclosure sale. 0s a conse,uence, there #as no evidence #hich #ould #arrant a findin" that 2erstein*s failure to file the a!ended co!plaint pro%i!atel$ caused the plaintiffs an$ da!a"e. The plaintiffs ar"ue, ho#ever, that 2erstein #as ne"li"ent because he failed to advise the! of alternatives to avoid foreclosure 'and in the case of the re!ed$ alle"edl$ provided b$ 2.I.c. 3::, W 33, because he failed to find and plead that statute(, and that 2erstein #as liable for deceit. <ecause of this conduct, the <ro#ns clai! the$ #ere unable to ta=e action #hich #ould have saved their propert$. The 4>>V4>> defendants ar"ue, on the other hand, that the Kud"e properl$ =ept these theories fro! the Kur$ because '-( 2erstein #as hired onl$ to prepare, file and tr$ the a!ended co!plaint and not to "ive "eneral advice on other avenues that !i"ht prevent foreclosure, '3( in an$ event, e%pert testi!on$ #as necessar$ to establish that a la#$er in 2erstein*s position #ould have "iven advice about such alternatives, '/( deceit #as never pleaded and tried, and ':( there #as insufficient proof that if an$ of the alternatives had been pursued, the foreclosure could have been avoided. 7e thin= the plaintiffs cannot prevail on their theor$ that 2erstein #as ne"li"ent in failin" to advise the! of the options to avoid foreclosure, see note -5, supra. The onl$ evidence concernin" the scope of 2erstein*s e!plo$!ent confined his representation to brin"@in"A suit a"ainst the ... ban= for breach of contract. 7hether a la#$er #hose e!plo$!ent #as so li!ited #ould underta=e to "ive his client "eneral advice about #a$s to avoid foreclosure #as a subKect re,uirin" e%pert testi!on$ in accordance #ith the rule that e%pert testi!on$ is "enerall$ necessar$ to establish the standard of care o#ed b$ an attorne$ in the particular circu!stances and the defendant*s alle"ed departure fro! it. Glidden v. Terranova! -3 Mass. 0pp. &t. at 4.C. 7e also thin= the plaintiffs could not recover on the theor$ that 2erstein failed to discover or plead 2.I.c. 3::, W 33. That statute is be$ond the understandin" of la$ people and e%pert testi!on$ #as necessar$ to establish that a la#$er in

2erstein*s position should have discovered the statute and, if he had, that it could have been used to obtain an inKunction. @-/A 7hat has been said so far eli!inates the various ne"li"ence theories fro! the case. This does not end the !atter, ho#ever, because #e !ust consider #hether the evidence #as sufficient to hold 2erstein 4>BV4>B liable for deceit.@-:A 9raud or deceit ... is no !ore a necessar$ incident to the rendition of le"al services than dishonest$ is to an$ other profession. The avoidance of fraudulent conduct re,uires no special s=ill or =no#led"e, but onl$ basic precepts of honest$ and inte"rit$. 7hen co!!itted b$ an attorne$, the tort of fraud or deceit is deter!ined b$ essentiall$ the sa!e rules that appl$ to an$ defendant, re"ardless of #hether he is a professional. Mallen J Ievit, Ie"al Malpractice W -5B '3d ed. -.C-(. See S.D.&. Rule /65B, DR -1-53'0(':(, as appearin" in /C3 Mass. B>., BB5 '-.C-( ' 0 la#$er shall not ... @eAn"a"e in conduct involvin" dishonest$, fraud, deceit, or !isrepresentation (. Here the Kur$ could have per!issibl$ found that 2erstein had =no#in"l$ !ade false representations of !aterial fact to the effect that the foreclosure sale #ould not ta=e place, that the <ro#ns had e%pressl$ relied on these representations, and that had the <ro#ns been told the truth, the$ #ould have sou"ht to avoid a forced sale b$ pursuin" other alternatives. 3. 7e then co!e to the ,uestion #hether an$ da!a"e resulted fro! the deceit. See ")piro v.Cor9in! /:5 Mass. 3>5, 3>3 '-.>5(L Mallen J Ievit, Ie"al Malpractice W -5B, at -C4 '3d ed. -.C-(. 7e have alread$ concluded that the plaintiffs cannot prevail on the theor$ that the$ #ere denied recourse to 2.I.c. 3::, W 33. 7e also conclude that causation #as not established #ith respect to pa$!ent of the arreara"es,@-4A 4>CV4>C sale, or re!ort"a"e of the propert$,@->A and the possible purchase of the propert$ b$ biddin" at the foreclosure sale.@-BA The plaintiff*s proof, ho#ever, #as sufficient to #arrant a Kur$ in concludin" that the$ could have paid off the entire !ort"a"e had the$ =no#n that the sale #as "oin" to occur. On this issue, the Kur$ could have found that the plaintiffs had funds available to 0nn !roGn in a testa!entar$ trust #hich she could have #ithdra#n #ithout restriction. The Kur$ could have also found that the a!ount of available !one$ in that trust #as sufficient to

dischar"e the !ort"a"e loan.@-CA 7e conclude that the plaintiffs should have been allo#ed to "o to the Kur$ on the theor$ that 2erstein*s deceit had caused da!a"e 'the !easure of #hich #as stipulated( b$ preventin" the! fro! pa$in" off the entire !ort"a"e indebtedness.@-.A 4>.V4>. /. 7e ne%t ta=e up the plaintiffs* assertion that the Kud"e erred in the disposition of their clai! under 2.I.c. ./0. The plaintiffs concede that the$ could not recover under W . of c. ./0 because no de!and letter #as sent to the defendants. See "lane+ v. 4est&ood /uto! Inc.!/>> Mass. >CC, B5: '-.B4(L Entrialgo v. T&in Cit+ 8odge Inc.! />C Mass. C-3, C-/ '-.B4(. The$ ar"ue, ho#ever, that the evidence of deceit #as sufficient to #arrant findin"s that 2erstein had violated W 3' a( of c. ./0, inserted b$ St. -.>B, c. C-/, W -, and that the$ could recover for the violation under W -- of c. ./0, inserted b$ St. -.B3, c. >-:, W 3. The Kud"e appears, ho#ever, to have ruled, as !atter of la#, that such 4B5V4B5 an action could not be !aintained because the attorne$1client relationship does not involve trade or co!!erce #ithin the !eanin" of those #ords in WW 3'a( and --. The defendants ur"e that this rulin" be upheld, rel$in" principall$ on the line of cases decided under both W . and W -- of c. ./0 #hich e%clude essentiall$ private transactions fro! the statute*s application. See -antner v. Carson! /B: Mass. >5>, >-'-.BC(L2anning v. ?uc9erman! /CC Mass. C '-.C/(L 4ee9s v. >arbor .atl. 1an9! /CC Mass. -:'-.C/(L .e&ton v. 2o ie! -/ Mass. 0pp. &t. :>3 '-.C3(. In decidin" #hether 2erstein*s alle"ed #ron"doin"s occurred #ithin the conduct of trade or co!!erce as re,uired b$ W 3'a( of c. ./0, #e find the decision of Guenard v. 1ur9e! /CB Mass. C53, C5C1C-'-.C3(, controllin".@35A Guenard held that a clai! a"ainst an attorne$ b$ his client for da!a"es in connection #ith the attorne$*s e%ecution of an unla#ful contin"ent fee a"ree!ent could be !aintained under 2.I.c. ./0, WW 3'a( and .. The decision further held 'at C5.( that the attorne$*s reliance on the ille"al a"ree!ent for his fee constituted, as !atter of la#, an unfair or deceptive act prohibited b$ c. ./0, W 3'a(, and that the violation entitled the plaintiff to press her clai!s for !ultiple da!a"es, attorne$*s fees, and costs.

7hile the issue raised here is not e%pressl$ discussed in Guenard! that decision in strai"htfor#ard fashion applies c. ./0 to the attorne$1client relationship. 7e consider Guenardto be authorit$ for the proposition that in circu!stances li=e those here present the practice of la# constitutes trade or co!!erce for purposes of liabilit$ under c. ./0. 7e, therefore, proceed no further to ponder the relevance of the private action decisions to c. ./0 clai!s arisin" out of the attorne$1client relationship. The ,uestion #hether the plaintiffs #ere en"a"ed in trade or co!!erce 'a prere,uisite to recover$ under W --(, @3-A 4B-V4B- #as one for the Kud"e as the trier of fact. The evidence #arranted a findin" that the plaintiffs as lessors of co!!ercial propert$ 'and perhaps as co!!ercial clients of 2erstein( #ere actin" in a business conte%t and thus en"a"in" in trade or co!!erce. See -inthicum v. /rchambault! /B. Mass. /C-, /CB '-.B.(. See also 1egel er v..a#arian! /C- Mass. -BB, -.51-.'-.C5(L -+nn v. .asha&at+! -3 Mass. 0pp. &t. /-5, /-/1/-: '-.C-( 'identif$in" and definin" a business conte%t test to deter!ine #hether a particular transaction constitutes trade or co!!erce under W --(. The evidence also #arranted a findin" that 2erstein*s deceit constituted unfair or deceptive conduct proscribed b$ the act,@33A 7e conclude that the c. ./0 clai! should have been considered on its !erits. :. 7e reach the plaintiffs* ar"u!ent that, under the doctrine of partnership b$ estoppel, 7einer is liable to the sa!e e%tent as 2erstein.@3/A The co!!on la# doctrine of partnership b$ estoppel is codified for the &o!!on#ealth in 2.I.c. -5C0, W ->. See "tandard 5il Co. v. >enderson! 3>4 Mass. /33, /3> '-.3C(. The >endersoncase establishes that to prevail under this doctrine a plaintiff !ust prove6 '-( that the #ould1be partner has held hi!self out as a partnerL '3( that such holdin" out #as done b$ the defendant directl$ or #ith his consentL '/( that the plaintiff had =no#led"e of such holdin" outL and ':( that the plaintiff relied on the ostensible partnership to his preKudice. Ibid. See also Reuschlein J 2re"or$, 0"enc$ and Partnership W -.C '-.B.(L &rane J <ro!ber", Partnership W /> '-.>C(L Ro#le$ on Partnership :3/1:/> '3d ed. -.>5(L Painter, Partnership b$ 8stoppel -> V and. I. Rev. /3B '-.>/(. 9ailure to

establish an$ of these re,uire!ents precludes recover$ on an estoppel theor$. 4B3V4B3 In settin" aside the verdict a"ainst 7einer, the Kud"e concluded that the evidence #as insufficient to satisf$ the second re,uire!ent, vi;., that an$ holdin" out #as done directl$ b$ 7einer or #ith his consent. On this issue, there #as evidence that on October ->, -.B3, the <ro#ns had !ade a chec= pa$able to 2erstein and 7einer 'apparentl$ for le"al services unrelated to the instant case( #hich #as deposited in 2erstein and 7einer clients* account L that in -.B4, in connection #ith the pendin" foreclosure, the plaintiffs !ade out a retainer chec= in the a!ount of S-45 pa$able to 2erstein aloneL that the plaintiffs thereafter received letters fro! 2erstein on stationer$ bearin" the le"end 2erstein and 7einerL and that 2erstein testified in his deposition that 7einer =ne# that he '2erstein( #as usin" 2erstein and 7einer stationer$. There #as no evidence that the plaintiffs ever !et 7einer or that 7einer rendered an$ le"al services on their behalf. The Kud"e*s conclusion #as correct. The evidence concernin" the -.B3 chec= and the account in #hich it #as deposited is irrelevant to establish consent in connection #ith the -.B4 transactions before us. It is of si"nificance that the -.B4 retainer chec= #as !ade pa$able to 2erstein alone. Hence the plaintiffs* proof on consent ca!e do#n to 7einer*s =no#led"e that his na!e #as bein" used on the office stationer$. The >enderson decision 'at /3>( establishes, ho#ever, that the use of a person*s na!e in a business, even #ith that person*s =no#led"e, is too slender a thread to #arrant a favorable findin" on the consent ele!ent. See also ,oseph v. Greater .e& Guide 1aptist Church! Inc.! -.: So.3d -3B, -/5 'Ia. 0pp. -.>>(. See "enerall$ Mallen J Ievit, Ie"al Malpractice W // '3d ed. -.C-(. 7einer #as entitled to Kud"!ent in his favor. 4. T#o issues that !a$ arise upon retrial !a$ be disposed of su!!aril$. 'a( 0lthou"h the attorne$1client relationship is essentiall$ contractual in nature, the clai!s to be retried 'deceit and c. ./0( basicall$ sound in tort. &onse,uentl$, if the plaintiffs prevail after

retrial, interest on an$ su! recovered should be co!puted in accordance #ith 2.I.c. 3/-, W ><. 4B/V4B/ 'b( Retail of the case #ill follo# the usual Kudicial assi"n!ent procedures in the Superior &ourt. >. To su! up6 There is to be a ne# trial li!ited to 'a( #hether 2erstein*s conduct constituted deceit #hich prevented the plaintiffs fro! pa$in" the ban=*s !ort"a"e in full and 'b( #hether 2erstein*s deceit violated 2.I.c. ./0, WW 3'a( and --. On the balance of the clai!s a"ainst 2erstein, the plaintiffs have failed in their proof, as the$ also have on their clai! of derivative liabilit$ on 7einer*s part. The Kud"!ent insofar as it disposes of the clai!s a"ainst the defendant 2erstein e%cept those identified above is affir!ed. The balance of the Kud"!ent for 2erstein is reversed and a ne# trial ordered consistent #ith this opinion. The Kud"!ent insofar as it relates to the defendant 7einer is affir!ed. "o ordered. @-A His #ife, 0nn 8. !roGn. @3A Robert 8. 7einer. @/A The !otion, despite its label, #as a !otion filed under Mass.R.&iv.P. :-'b('3(, />4 Mass. C5: '-.B:(. The Kud"e*s allo#ance of the !otion appears to have been based on a rulin" that the attorne$1client relationship bet#een the plaintiffs and 2erstein #as not, as !atter of la#, #ithin the scope of 2.I.c. ./0. This aspect of the case is discussed in part / of this opinion. @:A 7e recount here the facts that the Kur$ could have found a"ainst 2erstein, leavin" until later the evidence pertinent to the clai!s a"ainst 7einer. @4A These difficulties ste!!ed principall$ fro! a disa"ree!ent #ith Richdale over the parties* respective obli"ations under the lease. Richdale had paid a one1third share of the fuel bills o#ed b$ the <ro#ns and deducted that a!ount fro! rent due under the lease. Richdale also !ade e%tensive repairs to the leased propert$ and deducted the cost of the repairs fro! the rent, clai!in" that the

plaintiffs had #ron"full$ refused, after notice, to !a=e the repairs. The rent had been assi"ned to the ban= as collateral securit$ for the !ort"a"e. The plaintiffs clai!ed that Richdale*s diversion of the rent caused the default in the !ort"a"e pa$!ents. @>A 0t this ti!e, the plaintiffs paid 2erstein a retainer b$ chec= and a"reed #ith hi! that the$ #ould be billed periodicall$ at a stipulated hourl$ rate for his services. @BA On Dul$ -:, -.B4, the plaintiffs had received a cop$ of an ori"inal co!plaint prepared b$ 2erstein. 0fter revie#in" this co!plaint, the plaintiffs su""ested so!e !inor corrections and returned it to 2erstein for redraftin". @CA On Septe!ber 3, -.B4, 2erstein telephoned the ban=*s attorne$, #ho had previousl$ stated to 2erstein that the ban= did not prefer to foreclose and that it #ould not have to do so if the plaintiffs #ere able to sell the propert$ and pa$ off the !ort"a"e. 2erstein represented to the ban=*s counsel that a purchase and sale a"ree!ent had been e%ecuted to sell the propert$ for SC4,555, that he #as holdin" a S4,555 deposit, and that a separate side a"ree!ent had been e%ecuted b$ the plaintiffs and the purchaser for the sale of the fi%tures. The ban=*s attorne$ told 2erstein to deliver a cop$ of the purchase and sale a"ree!ent to hi! and indicated that he #ould consider postponin" the ne%t da$*s foreclosure sale if ever$thin" appeared in order. On the !ornin" of Septe!ber /, -.B4, 2erstein delivered an unsi"ned purchase and sale a"ree!ent to this la#$er*s office and a hand1#ritten note statin", I a! holdin" the S4,555 deposit. On investi"ation, counsel for the ban= learned that no purchase and sale a"ree!ent had been si"ned and that 2erstein*s representations #ere false. The foreclosure sale #ent for#ard as scheduled. @.A The a!ended co!plaint prepared b$ 2erstein did not contain an e%press alle"ation that the plaintiffs had the !one$ to pa$ the !ort"a"e but did aver that @#Ahen the @pAlaintiffs finall$ ascertained the status of their account and the a!ount of the deficienc$, it beca!e too late for the! to pa$ the a!ount due. @-5A More specificall$, !roGn testified that 2erstein did not advise the plaintiffs that the$ could6 'a( refinance the debt #ith another

ban=, 'b( dischar"e the !ort"a"e b$ pa$!ent of the balance due on the note, 'c( reinstate the !ort"a"e b$ pa$!ent of the arreara"es, or 'd( appl$ for an inKunction on a theor$ of la# other than one of those stated in the a!ended co!plaint. @--A The alternate theor$ of la# relied upon b$ the plaintiffs concerns the application of 2.I.c. 3::, W 33. The$ !aintain that this statute per!itted the! to obtain an inKunction stoppin" the foreclosure as !atter of ri"ht. The$ contend that 2erstein #as ne"li"ent in not brin"in" this statute to their attention or usin" it to enKoin the sale. The$ also clai! that if the$ had dischar"ed 2erstein and retained another la#$er, their ne# counsel #ould have invo=ed the statute to obtain an inKunction. The Kud"e refused to ta=e Kudicial notice of the statute or to advise the Kur$ of its provisions. @-3A There #as evidence that the arreara"es as of 0pril -C, -.B4, totaled S-,>/>.C4, and on the date of the sale 'Septe!ber /, -.B4(, totaled S4,-3B./4. The principal due on the !ort"a"e on Septe!ber /, -.B4, #as appro%i!atel$ S4C,555. Over the plaintiffs* obKection, the Kud"e e%cluded deposition testi!on$ of the deceased chief !ort"a"e officer of the ban= that the ban= #ould have accepted pa$!ent of the arreara"es and reinstated the !ort"a"e. @-/A ObKections to ,uestions b$ the plaintiffs* counsel #hich #ere ai!ed at elicitin" such opinions fro! the la#$er for the ban= #ere properl$ sustained 'if for no other reason( for lac= of ,ualification of this la#$er as an e%pert and because the ,uestionin" on the subKect e%ceeded the li!it of per!issible redirect e%a!ination. @-:A There is no !erit to the defendant*s contention that the plaintiffs never pleaded or tried a deceit clai!. Para"raph -3 of the a!ended co!plaint bespea=s this clai!, and the record leaves no doubt that the plaintiffs* evidence raised the theor$. Moreover, the plaintiffs re,uested Kur$ instructions on deceit. It #as the Kud"e*s obli"ation to instruct the Kur$ correctl$ on the "eneral principles of la# applicable to the pleadin"s and evidence in the case. The parties* s=ir!ishin" over #hether fraud #as involved is beside the point. In the conte%t of this case, the concepts of fraud and deceit are interchan"eable. See .ei v. 1urle+! /CC Mass. /5B, /-5 '-.C/(.

@-4A There #as no evidence that the ban=*s board of invest!ent #ould have allo#ed the <ro#ns to cure the default and continue pa$!ents in the future. The testi!on$ of the ban=*s chief !ort"a"e officer, see note -3,supra! that the ban= #ould have accepted pa$!ent of the arreara"es #as properl$ e%cluded since there #as no evidence that he #as authori;ed, either e%pressl$ or i!pliedl$, to ta=e action contrar$ to the decisions of the board of invest!ent. See @anavos v. >ancoc9 19. : Trust Co.! -: Mass. 0pp. &t. /3>, //- '-.C3(L Rubel v.>a+den! >arding : 1uchanan! Inc.! -4 Mass. 0pp. &t. 343, 34:1344 '-.C/(. @->A There #as no evidence that that it #as probable that a sale or re!ort"a"e could have been successfull$ consu!!ated in the short period facin" the plaintiffs. The fact that the plaintiffs had ne"otiated a re!ort"a"e #ith the ban= after the$ had defaulted on a previous !ort"a"e #ith another ban= #ould not support an inference that sale or re!ort"a"e #as a li=el$ prospect. This is particularl$ so in vie# of the plaintiffs* debts and other encu!brances on the propert$. The plaintiffs* evidence on the issue thus assu!ed the success of their "oals and did not #arrant the several inferences the$ no# ur"e based on probabilities rather than possibilities. /lholm v.4areham! /B- Mass. >3-, >3B '-.B>(. See Poirier v. Pl+mouth! /B: Mass. 35>, 3-3 '-.BC(. @-BA In addition to the pa$!ent of a S/,455 deposit, the foreclosure sale #as !ade subKect to other ter!s to be announced at the sale. The record contains no evidence as to #hat these ter!s #ere and no evidence that the plaintiffs could have co!plied #ith the!. Their proof on this issue is therefore subKect to the sa!e infir!it$ discussed in note ->, supra. @-CA The evidence #as not sufficient to #arrant a findin" that the plaintiffs could have #ithdra#n funds fro! the s!aller personal trust to pa$ the indebtedness in full since there #as no evidence that the trustees of that trust #ould have e%ercised their discretion to per!it the #ithdra#al of principal #hich #as not enou"h in an$ event to satisf$ the #hole indebtedness. There also #as no evidence that the plaintiffs could have successfull$ re!ort"a"ed their ho!e #ithin the applicable ti!e constraints.

@-.A The defendants ar"ue that the <ro#ns cannot recover for deceit because of the doctrine of Kudicial estoppel . This ar"u!ent is based on the assertion that the plaintiffs s#ore to a co!plaint, prepared b$ 2erstein*s associate after the foreclosure sale, #hich states that the plaintiffs #ere, at the ti!e of the sale, financiall$ unable to purchase the ... propert$ L an assertion at odds #ith their trial testi!on$. 7e are not persuaded b$ the ar"u!ent. 7hile the doctrine of Kudicial estoppel has been reco"ni;ed in various conte%ts b$ the 9ederal courts, see@e+stone 8riller Co. v. General Excavator Co.! 3.5 +.S. 3:5 '-.//(L >a)el*/tlas Co. v. >art ord Empire Co.! /33 +.S. 3/C '-.::(L 3eo v. Cohen! > 9.3d :-- 'D. Mass. -.34(L >urd v. 8i2ento : "ullivan! ::5 9.3d -/33 '-st &ir.(,cert. denied, :5: +.S. C>3 '-.B-(L 8uplan Corp. v. 8eering 2illi9en Inc.! /.B 9. Supp. --:> 'D.S.&. -.B:(L see "enerall$ -< Moore*s 9ederal Practice par. 5.:54@CA '3d ed. -.C/(, it has not $et been e%pressl$ reco"ni;ed or defined b$ the courts of this &o!!on#ealth. &o!pare 2.I.c. 3/-, W CB '#hich renders alle"ations of fact !ade in pleadin"s actuall$ filed in court Kudicial ad!issions of the part$ !a=in" the!(. 8ven if #e #ere to reco"ni;e the doctrine, its application #ould be inappropriate here. The co!plaint #hich is intended to serve as the foundation for an estoppel #as never filed in court or other#ise !ade a part of an$ court proceedin"s. 7e conclude that the state!ent asserted to create an estoppel constitutes no !ore than an evidentiar$ ad!ission b$ the plaintiffs, the #ei"ht of #hich !a$ be affected b$ testi!on$ e%plainin" the circu!stances under #hich it #as !ade or contradictin" the fact sou"ht to be established. See "toc9bridge v. 2ixer! 33B Mass. 45-, 4-3 '-.-B(L ,ordan v.2ac2elville! /:3 Mass. :BC, :C5 '-.>-(. 7e note testi!on$ b$ Richard !roGn that he did not instruct an$one to insert the para"raph in the co!plaint, that he had nothin" to do #ith the state!ent, and that it #as inserted at 2erstein*s behest. The defendants also !a=e a va"ue ar"u!ent that the plaintiffs are precluded because the$ never advised 2erstein that the$ had the financial abilit$ to pa$ off the !ort"a"e. 0ssu!in" the point #ould have relevance, there #as no testi!on$ to support the alle"ed fact. @35A The Guenard case #as decided after the trial of this case.

@3-A Section -- of c. ./0, unli=e W ., re,uires that the plaintiff also be a person #ho en"a"es in ... trade or co!!erce. Section -does not re,uire a de!and letter as a prere,uisite to suit. @33A 7e reKect the defendants* contention that the Guenard case should be distin"uished on the basis that it involves a violation of ethical rules, hence a !ore serious infraction than the deceit co!plained of here. 0s previousl$ noted, deceit also violates a la#$er*s ethical dut$. @3/A There #as no evidence that 2erstein and 7einer #ere !e!bers of an actual partnership. 169 Ca-.A<<.20 367 C1959D 337 P.20 174 OMER UNTER /8 a-., P-a=n8=FF. an0 A<</--an8., 9. EEIT !. CRO$S%I"" /8 a-., %/F/n0an8.; MARE C. CRA#FOR%, %/F/n0an8 an0 A<</--an8. Doc=et No. 3//3:. Cour8 oF A<</a-. oF Ca-=Forn=a, S/?on0 %=.8r=?8, %=9=.=on TGo. 0pril -, -.4.. /5.V/5. Stone J Moran, Hu"h 0. Moran III, Robert 7. 0nderson and 7illard D. Stone for Plaintiffs and 0ppellants. Ieslie &. Tupper, Ieo D. Pircher and Ia#ler, 9eli% J Hall for Defendant and 0ppellant. 9OP, P.D. Defendant Mar= &. &ra#ford@-A appeals fro! a Kud"!ent entered in plaintiffs* favor in their action to recover !one$ due for credit e%tended to an ostensible partnership. The plaintiffs appeal on the issue of the e%tent of the defendant*s liabilit$.

CRA&'(R)*S APP+A, The plaintiffs are partners in the fir! of ?uinco Tool Products and !anufacture, in Detroit, Michi"an, a line of cuttin" tools #hich are sold to distributors or dealers. 9or so!e si% $ears defendant had been the sole o#ner of M.&. &ra#ford /-5V/-5 &o!pan$, a tool co!ponent suppl$ business in Ios 0n"eles, &alifornia. One Neith <. &ro$sdill #as e!plo$ed b$ the &oast Tool &o!pan$, #hich distributed the plaintiffs* line in the Ios 0n"eles area. &ro$sdill #ished to beco!e the #est coast distributor for plaintiffs* products and told Ho!er un8/r, one of the partners of ?uinco, that defendant #ould be his partner and financial bac=er. &ro$sdill also told un8/r that defendant #ould send hi! a letter of verification. On Dune -, -.44, &ra#ford sent a letter to ?uinco Tool Products, the pertinent portions of #hich are as follo#s6 I have been as=ed to #rite and outline to $ou Kust ho# the association of Neith &ro$sdill and M.&. &ra#ford #ould #or= to $our advanta"e in &alifornia, 0ri;ona, and Nevada. .... .... .... . <oth Mr. &ro$sdill and !$self have !an$ $ears bac="round in toolin", and not onl$ in sellin" but in the use of the tools the!selves. Mr. &ro$sdill is not onl$ thorou"hl$ fa!iliar #ith the Kobbin" trade but the present users of ?uinco products and in al!ost all cases can ta=e the! #ith hi!. I !i"ht add that Mr. &ro$sdill has a fine reputation for his abilit$ and inte"rit$. The M.&. &ra#ford &o. has been in business for a nu!ber of $ears sellin" toolin" specialties and on ever$ line handled has the e%clusive sellin" ri"hts in &alifornia and the states !entioned in the first para"raph. The Kobbin" distributorship #ill be set up #ith a separate identit$ but #ith the bac=in" of the financial and other resources of M.&. &ra#ford &o. Mr. &ro$sdill #ill be in char"e of pro!otion and sales. <usiness and financial "uidance #ill be in !$ hands. The necessar$ !echanics of the invoicin", accountin", shippin" and receivin", are alread$ functionin", and all !atters #ill be handled in a businessli=e !anner. I a! sure #e can do an e%cellent Kob for $ou out here as #e have the necessar$ e%perience and =no#ho# to do the Kob properl$. In

fact #e can pro!ise an al!ost i!!ediate increase in $our present volu!e. 7e are read$ to start functionin" as soon as $ou can furnish the necessar$ stoc=, so an$ chan"e of distributors can be done #ithout an$ lost ti!e or sales. 7e can and #ill furnish $ou #ith a co!plete detailed report on all our financial and business connections so that $ou can satisf$ $ourselves as to our business and financial inte"rit$. /--V/-- I #ould appreciate =no#in" $our thin=in" on the !atter discussed also an$ ,uestions $ou !i"ht #ant ans#ered. It is sincerel$ hoped that the above #ill be considered b$ $ou and lead to our !utual profit. Subse,uentl$, on Dune 35, -.44, defendant and &ro$sdill fle# to Detroit for five da$s and !et #ith the plaintiffs there for a portion of each of the five da$s. un8/r testified that Mr. &ra#ford said that he #ould finance this representation of the 7est &oast and be the financial bac=er #ith the financial and other resources of the M.&. &ra#ford &o!pan$, both #hen he #as #ith &harles 7arren @a ?uinco partnerA, Neith &ro$sdill and !$self and hi!self and to !e personall$ #hen Mr. 7arren #as spea=in" #ith Mr. &ra#ford. un8/r further testified that Mr. &ra#ford stated that he #ould be the financial bac=er and Mr. &ro$sdill #ould be the sales !ana"er and ta=e care of orderin" and #e #ere infor!ed to ship the tools to 0ssociated Tool Suppl$ at the Slauson address of the M.&. &ra#ford &o!pan$. 7hen as=ed b$ #ho! this instruction #as "iven, un8/r ans#ered Mr. &ra#ford and Mr. &ro$sdill. The court as=ed un8/r #hether either &ra#ford or &ro$sdill !ade an$ state!ent as to #hat 0ssociated Tool &o!pan$ #as, and un8/r ans#ered as follo#s6 Oes, sir. That #as to be the co!pan$ na!e that both of the! had pic=ed out previousl$ to co!in" to Detroit, to be their co!pan$ na!e to represent the ?uinco Tool Products. un8/r, #hen as=ed b$ both the court and defendant*s counsel as to #ho !ade the above state!ent, replied that it #as both Mr. &ra#ford and Mr. &ro$sdill. 7ith reference to a stoc=in" order "iven b$ &ro$sdill, un8/r testified that Mr. &ra#ford stated that Mr. &ro$sdill #ould be in char"e of orderin" and he "ave Mr. ]]]] he told ]]]] or Mr. &ra#ford told Mr.

&ro$sdill to sit do#n #ith ?uinco and decide on the ori"inal stoc=in" order.... Subse,uentl$, on Dune /5, -.44, &ro$sdill #rote t#o letters to plaintiffs. The first #as on his o#n stationer$ and stated that 0ssociated Tool Suppl$ #ould be on Slauson 0venue, te!poraril$L that principals #ould be defendant and hi!selfL that financin" and accountin" #as to be b$ defendant and sales and inventor$ b$ hi!self. The second letter #as on defendant*s stationer$ and as=ed for verification of ... an appoint!ent as a"ents for ?uinco Tool in &alifornia and 0ri;ona. These t#o letters #ere introduced into evidence, over the obKections b$ the defendant, as plaintiffs* 8%hibits 4 and >. /-3V/-3 un8/r testified as follo#s as to his investi"ation durin" Dune, -.44, into defendant*s financial status6 0. Mr. &ra#ford stated, #hile in Detroit, to !e, that he #ould use the assets or the financial and other resources of M.&. &ra#ford &o!pan$ to !a=e pa$!ent on these tools. ?. Did $our conversation "o to the ,uestion of #hat the resources of the M.&. &ra#ford &o!pan$ #ere) 0. Onl$ throu"h people that =ne# hi! that I as=ed, not on paper #or=. ?. 7ho #ere so!e of the people $ou as=ed) 0. I can*t recall the na!e in Detroit at the !inute. He #as sellin" @toA Mr. &ra#ford. ?. 7hat did $ou learn fro! that investi"ation) 0. That he paid his invoice to this account. ?. <esides in,uiries as to that account, did $ou !a=e an$ other in,uiries as to his financial condition) 0. 7ith people I =ne# in Ios 0n"eles, throu"h for!er $ears association sellin" tools. ?. 7hat did $ou learn throu"h investi"ation fro! these Ios 0n"eles sources) 0. I #as Kust onl$ infor!ed that he could pa$ all his obli"ations. I did not have a dollar set a!ount hi"h to "o on. On Dul$ C, -.44, &ro$sdill filed a certificate of fictitious fir! na!e #ith the count$ cler= of Ios 0n"eles sho#in" hi! to be the sole

proprietor of 0ssociated Tool Suppl$. This certificate #as published on Dul$ -4, 33, 3., and on 0u"ust 4, -.44. The trial court found that defendant, be"innin" on or about Dune -, -.44, until Danuar$ -C, -.4>, represented hi!self to plaintiffs as a partner #ith &ro$sdill in 0ssociated Tool Suppl$L that said representation #as !ade for the purpose and #ith the intent that plaintiffs #ould rel$ thereon and to induce plaintiffs, in reliance thereon, to "ive credit to such apparent partnershipL that plaintiffs did in fact rel$ on these representations and on the faith thereof e%tended credit, co!!encin" on Dul$ ., -.44, until Danuar$ -C, -.4>, to such apparent partnership. The trial court also found that, as of Danuar$ -C, -.4>, the date plaintiffs beca!e char"eable #ith notice that defendant #as not in fact a partner in 0ssociated Tool Suppl$, defendant and &ro$sdill #ere indebted to the plaintiffs in the net a!ount of S-:,B5-.35 for cuttin" tools sold and delivered b$ plaintiffs bet#een Dune -, -.44, and Danuar$ -C, -.4>, to the apparent partnership e%istin" bet#een defendant and &ro$sdill. /-/V/-/ Defendant attac=s the Kud"!ent on the follo#in" "rounds6 '-( The findin" that defendant represented hi!self to be a partner #ith &ro$sdill is not supported b$ an$ evidenceL '3( the evidence does not sho# an$ reliance b$ plaintiffs on an$ representation b$ defendant that he #as a partner #ith &ro$sdillL '/( error to ad!it plaintiffs* 8%hibits 4 and > and testi!on$ as to a telephone conversation bet#een un8/r and &ro$sdillL and ':( the filin" b$ &ro$sdill of the certificate of doin" business under the fictitious na!e prior to the ti!e plaintiffs* boo=s sho# actual credit "iven put plaintiffs on notice that the$ could not thereafter place reliance on asserted representations !ade b$ defendant. Section -45->, subdivision '-( of the &orporation &ode, provides in part as follo#s6 7hen a person, b$ #ords spo=en or #ritten or b$ conduct, represents hi!self ... as a partner in an e%istin" partnership or #ith one or !ore persons not actual partners, he is liable to an$ such person to #ho! such representation has been !ade, #ho has, on the faith of such representation, "iven credit to the ... apparent partnership.... @-aA 0s previousl$ noted, the trial court found that defendant*s conduct placed hi! #ithin the operation of section -45->,

subdivision '-(, and defendant attac=s the sufficienc$ of the evidence to support such a findin". @3A It is #ell settled that #hen a findin" of fact is attac=ed on the "round that there is not an$ substantial evidence to sustain it, the po#er of an appellate court begins and ends #ith the deter!ination as to #hether there is an$ substantial evidence, contradicted or uncontradicted, #hich #ill support the findin" of fact. '&itation.( 'Grainger v./nto+an! :C &al.3d C54, C5B @/-/ P.3d C:CAL 2artin "chool o /viation v. 1an9 o /merica! :C &al.3d >C., >.3 @/-3 P.3d 34-A.( @-bA 9irst, #ith reference to the letter of Dune -, -.44, #hich defendant sent to plaintiffs, and his personal conferences #ith the! #hile he #as in Detroit, defendant ar"ues that his declarations #ere never that he #as or #ould beco!e a partner #ith &ro$sdill, but that the for! of business or"ani;ation #hich #as to be established bet#een &ro$sdill and hi!self #as indefinite and, therefore, such declarations #ere insufficient to "ive rise to an ostensible partnership. 0 partnership is !erel$ ... an association of t#o or !ore persons to carr$ on as co1o#ners a business for profit. '&orp. &ode, W -455>, subd. '-(.( The evidence full$ #arrants the /-:V/-: trial court*s deter!ination that this #as the t$pe of business relationship to #hich defendant*s representations referred. His letter of Dune -, -.44, referred to the association of Neith &ro$sdill and M.&. &ra#ford. 0lso, the respective parts to be pla$ed b$ &ro$sdill and defendant in the business #ere outlined, i.e., Mr. &ro$sdill #ill be in char"e of pro!otion and sales. <usiness and financial "uidance #ill be in !$ hands. 7hen in Detroit, defendant substantiall$ repeated his prior #ritten representations. 7hile it is true he did not use the #ord partnership, the "eneral business for! su""ested b$ #hat he did sa$ certainl$ falls #ithin section -455>, subdivision '-(, supra. There #as an association of t#o persons to carr$ on a business presu!abl$ for profit. 0s to the issue of coo#nership, defendant spo=e of a division of responsibilit$ bet#een hi!self and &ro$sdill #hich did not indicate that he #as !erel$ financin" &ro$sdill or actin" as a "uarantor, for he #as to ta=e an active part in the business. Moreover, nothin" #as said or #ritten #hich indicated a corporate structure #as conte!plated.

Defendant ne%t ar"ues that an$ representations !ade referred to a future rather than to a past or present business or"ani;ation, and that an estoppel cannot be invo=ed #here the representations relate to future intentions. It is un,uestionabl$ true that the perfor!ance of 0ssociated Tool Suppl$ #as to be in the future for it #ould have no obli"ation to plaintiffs until it #as a#arded the distributorship. Ho#ever, the crucial point is #hether defendant represented that there #as a then e%istin" partnership bet#een &ro$sdill and hi!self. Defendant*s letter of Dune -, -.44, states6 7e are read$ to start functionin" as soon as $ou can furnish the necessar$ stoc=, so an$ chan"e of distributors can be done #ithout an$ lost ti!e or sales. 7hen in Detroit, defendant and &ro$sdill had alread$ selected a na!e for their business, had decided #here the tools #ere to be shipped, and defendant told &ro$sdill, #hile in Detroit, to decide on the ori"inal stoc=in" order. Such circu!stances stron"l$ su""est that, prior to the ti!e credit #as actuall$ e%tended to 0ssociated Tool Suppl$, defendant had conve$ed the idea that his relationship #ith &ro$sdill had !atured and #as not !erel$ a representation to associate in the future. 7hile #e reco"ni;e that portions of the Dune - letter are not as clear in this re"ard as the$ could have been, #e are of the opinion that there #as substantial evidence Kustif$in" the inference that defendant represented he #as currentl$ a partner #ith /-4V/-4&ro$sdill, and @#Ahen t#o or !ore inferences can reasonabl$ be deduced fro! the facts, a revie#in" court is #ithout po#er to substitute its deductions for those of the trial court. 'Grainger v. /nto+an! supra.( The above a!pl$ de!onstrates the substantialit$ of the evidence in support of the trial court*s findin" that the defendant represented hi!self as &ro$sdill*s partner. @/A 0ttention #ill no# be focused on defendant*s contention that there #as no substantial evidence sho#in" that plaintiffs, in e%tendin" credit to 0ssociated Tool Suppl$, relied on the fact that defendant #as ostensibl$ a partner thereof. In this re"ard, there #as testi!on$ b$ un8/r that &ro$sdill #as infor!ed that it #ould ta=e considerable capital to act as plaintiffs* #est coast representative, to #hich &ro$sdill replied that he onl$ had a s!all a!ount of !one$ but could obtain financial bac=in" throu"h partners or interested parties. un8/r told &ro$sdill to have these parties or partners #rite and infor! hi! ' un8/r( of their #illin"ness

and financial status. Defendant*s letter of Dune -, -.44, #as a result of this conversation. Defendant*s letter plus the state!ents !ade b$ hi! in Detroit that he #ould be the financial bac=er, ta=en in conKunction #ith un8/r). testi!on$ to the effect that &ro$sdill*s financial status #as insufficient to #arrant a distributorship, reasonabl$ Kustifies an inference that plaintiffs e%tended credit because the$ believed defendant #as a partner. @:A Defendant ta=es the position that as plaintiffs did not !a=e e%haustive in,uiries into his financial status, the$ could not have relied thereon. There is no re,uire!ent that credit be "iven in reliance upon the financial status of the apparent partner, but onl$ that the part$ clai!in" the benefit of section -45->, subdivision '-(, relied on the existence of the partnership. 8ven assu!in", arguendo! that plaintiffs had to sho# the$ relied not onl$ upon the fact that defendant #as a partner, but also upon the fact he #as a safe ris=, the evidence sho#s that the$ !ade in,uiries H both in Detroit and Ios 0n"eles H re"ardin" defendant*s abilit$ to !eet his obli"ations. The trial court i!pliedl$ found this investi"ation evidenced a sufficient sho#in" of reliance and the evidence clearl$ supports such a findin". @4aA 7e no# turn to defendant*s contentions that the trial court erred in allo#in" in evidence testi!on$ b$ un8/r that &ro$sdill, in a telephone conversation, said defendant #ould /->V/-> be his partner, and plaintiffs* 8%hibits 4 and > 'letters of Dune /5, -.44( to #hich reference has been !ade in the state!ent of facts. It is clear that the unauthori;ed declarations of &ro$sdill that he and defendant #ere partners could not bind defendant, for he is onl$ responsible as an ostensible partner #hen he represents hi!self as a partner. '&orp. &ode, W -45->, subdivision '-(.( Defendant concedes, ho#ever, that if pri!a facie proof of a partnership is sho#n, then evidence of an e%traKudicial state!ent of one partner that other persons #ere his partners is ad!issible. @>A Declarations of an alle"ed partner that another is his partner are corroborative of the other*s representations and therefore ad!issible on the issue of reliance once the fact of the other*s representations has been independentl$ established. 'C . (anderhurst! "anborn : Co. v. 8e 4itt! .4 &al. 4B, >31>/ @/5 P. .:, 35 I.R.0. 4.4AL 2ilstein v. "artain! 4> &al. 0pp.3d .3:, ./3 @-// P.3d C/>A.(

@4bA In the instant case, there #as a sufficient independent sho#in" of representations !ade b$ defendant hi!self to #arrant the ad!issibilit$ of the ,uestioned evidence on the issue of reliance. @BA Defendant*s final ar"u!ent is that plaintiffs #ere put on notice that &ro$sdill #as the sole o#ner of 0ssociated Tool Suppl$ b$ virtue of his havin" filed on Dul$ C, -.44, a certificate of fictitious fir! na!e pursuant to &ivil &ode, section 3:>>, sho#in" hi! to be the sole proprietor thereof. 7e are of the vie#, ho#ever, that the filin" and publishin" of this certificate in Ios 0n"eles did not ne"ate the effect of defendant*s prior representations or in an$ !anner put plaintiffs on notice that defendant #as not a partner in 0ssociated Tool Suppl$ as far as his liabilit$ is concerned. @CA Section 3:>> #as desi"ned to "ive public notice of the true na!es of individuals doin" business under a fictitious na!e or na!es of all !e!bers of a partnership #here the fir! na!e does not disclose the na!es of all the partners, but it #as not desi"ned to protect a person #ho has !ade prior representations as to his relationship #ith one #ho subse,uentl$ files and publishes a certificate apparentl$ at variance #ith those prior representations. In vie# of the fore"oin", #e believe &ra#ford*s appeal is #ithout !erit. P,AIN-I''S* APP+A, The trial court found that on Danuar$ -C, -.4>, the date plaintiffs beca!e char"eable #ith =no#led"e that defendant /-BV/-B #as not a partner, he #as indebted to plaintiffs in the a!ount of S-:,B5-.35. 0"ainst this su!, ho#ever, the court allo#ed defendant a SB,CBB.5: credit, !a=in" the a!ount of the Kud"!ent a"ainst hi!, e%clusive of interest, S>,C3:.->. The court apparentl$ arrived at this fi"ure in the follo#in" !anner6 '-( SB, 433.CB '0ssociated Tool Suppl$ inventor$ of tools as of Danuar$ -C, -.4>, purchased fro! plaintiffs( plus '3( S/4:.-B 'credit allocated b$ plaintiffs to the pre1 Danuar$ -C indebtedness( #hich e,uals SB,CBB.5:. 0lthou"h &ro$sdill had this SB,433.CB inventor$ on hand in Danuar$, #hen it #as relin,uished to plaintiffs on Dune -, -.4>, it onl$ a!ounted to S4,3C4.>-. 0lso, &ro$sdill increased his net indebtedness b$ S/5..:. after Danuar$ -C b$ additional purchases.

It is plaintiffs* position that as the inventor$ #as not returned in Danuar$ but in Dune, defendant should onl$ be credited #ith S4,3C4.>-, and not SB,CBB.5:. 9urther!ore, ar"ue plaintiffs, the su! of S/5..:. should be subtracted fro! the a!ount of the Dune inventor$ and applied a"ainst &ro$sdill*s increased indebtedness alone. Plaintiffs are #illin" to "ive defendant an additional credit of S-,-34 'a!ount applied a"ainst &ro$sdill*s indebtedness for reasonable value of his services rendered to plaintiffs fro! Dune to 0u"ust -4, -.4>(. Therefore, the plaintiffs contend their Kud"!ent a"ainst defendant should have been in the principal a!ount of SC,3:4..-,@3Arather than S>,C3:.->. The cru% of plaintiffs* ar"u!ent is that as title to the "oods in ,uestion passed to &ro$sdill upon deliver$ '&iv. &ode, W -B/., rule :'3((, the onl$ credit in this respect available to either &ro$sdill or defendant depended upon the value of the propert$ actuall$ returned to and accepted b$ plaintiffs and not on the value of the inventor$ on Danuar$ -C, -.4>, for no "oods #ere returned to plaintiffs before Dune -, -.4>. In opposition to plaintiffs* contentions, defendant Kustifies fi%in" Danuar$ -C as the proper date to calculate the value of the inventor$ for credit purposes upon three "rounds, na!el$6 '-( plaintiffs* o#n ne"li"ence in not actin" sooner #as the pro%i!ate cause of the inventor$ dissipationL '3( plaintiffs are estopped to hold hi! responsible for the dissipation in the inventor$ b$ their failure to infor! defendant /-CV/-C the$ intended to hold hi! liable after the$ learned he #as not a partnerL and '/( laches. In response to this ar"u!ent, plaintiffs dra# attention to the fact that defendant*s ans#er contained onl$ a "eneral denial and the above three defenses are su""ested on appeal for the first ti!e, that no evidence #as tendered on these issues nor an$ findin"s !ade thereon. Plaintiffs assert that these are special defenses #hich are #aived if not specificall$ pleaded, and further ,uestion these defenses on their !erits. @.A Defendant !a$ not rel$ on laches or estoppel. These #ere not placed in issue b$ his ans#er, #hich contained onl$ a "eneral denialL the$ #ere not su""ested b$ a readin" of the co!plaintL nor #ere these defenses liti"ated. '1alestrieri v. "ullivan! -:3 &al.

0pp.3d //3, /:/ @3.C P.3d >CCAL 2edeiros v. Cotta! -/: &al. 0pp.3d :43, :4B @3C> P.3d 4:>AL see also Paci ic Finance Corp. v. Foust! :: &al.3d C4/, C4C @3C4 P.3d >/3A.( @-5aA Ho#ever, his contention that plaintiffs* o#n conduct #as the responsible cause for the inventor$ dissipation calls for a consideration of the avoidable conse,uences doctrine. @--A 2enerall$, @aA person inKured b$ the #ron"ful act of another is bound ... to e%ercise reasonable care and dili"ence to avoid loss or !ini!i;e the resultin" da!a"es and cannot recover for losses #hich !i"ht have been prevented b$ reasonable efforts and e%penditures on his part. '(alencia v. "hell 5il Co.! 3/ &al.3d C:5, C:: @-:B P.3d 44CA.( @-3A The burden of provin" facts in !iti"ation of da!a"es rests upon the defendant. '(itagraph! Inc. v. -ibert+ Theatres Co.! -.B &al. >.:, >.. @3:3 P. B5.AL Gra+ v. /merican "uret+ Co.! -3. &al. 0pp.3d :B-, :B> @3BB P.3d :/>A.( @-5bA 7e are of the opinion that defendant has not sustained this burden. Moreover, inas!uch as ... @defendantA pleaded no facts in !iti"ation of da!a"es ... @he isA in no position to rel$ upon this affir!ative defense. '&itations.( '8anelian v. 2c-one+! -3: &al. 0pp.3d :/4, ::/ @3>C P.3d BB4A.( On the record before us, there is no sufficient basis for allo#in" as a credit to defendant the value of the inventor$ as of Danuar$ -C. 0"ainst the S-:,B5-.35 obli"ation due on Danuar$ -C, defendant is entitled to the follo#in" credits6 '-( S/4:.-B '&iv. &ode, W -:B. 'T#o( conceded b$ plaintiffs(L '3( S-,-34 'conceded b$ plaintiffs(L and '/( S4,3C4.>- 'Dune inventor$(, for a total of S>,B>:.BC. Therefore, his liabilit$ e%clusive of interest, after deductin" the above credits, is /-.V/-.SB,./>.:3. The inventor$ returned on Dune - is to be applied in full a"ainst defendant*s indebtedness and, contrar$ to plaintiffs* contention, is not to be applied, first, to the indebtedness of S/5..:. incurred b$ &ro$sdill subse,uent to Danuar$ -C. '&iv. &ode, W -:B. 'Three @/A(.( The principal su! a#arded plaintiffs havin" been altered, interest #ill necessaril$ have to be recalculated. Since defendant*s liabilit$ #as fi%ed as of Danuar$ -C, -.4> 'S-:,B5-.35(, interest co!!ences as of that date and continues until the entr$ of the Kud"!ent herein directed, credit of course bein" "iven to defendant as follo#s6 '-( Danuar$ -C, -.4>, S/4:.-B 'a!ount allotted to pre1Danuar$ -C

indebtedness(L '3( Dune -, -.4>, S4,3C4.>- 'returned inventor$(L '/( Dul$ -, -.4>, S:45 'salar$ credited to &ro$sdill(L ':( 0u"ust -, -.4>, S:45 'salar$ credited to &ro$sdill(L and '4( 0u"ust -4, -.4>, S334 'salar$ credited to &ro$sdill(. That portion of the Kud"!ent fro! #hich defendant appeals is affir!ed. That portion fro! #hich plaintiffs appeal is reversed #ith directions to !a=e ne# findin"s of fact and conclusions of la# and to enter a ne# Kud"!ent thereon not inconsistent #ith the vie#s herein e%pressed. 0shburn, D., and Herndon, D., concurred. @-A Neith <. &ro$sdill and Mar$ 7. &ro$sdill, also defendants, are not involved in this appeal and reference in the opinion to defendant is li!ited to Mar= &. &ra#ford. @3A This fi"ure is arrived at b$ subtractin" the follo#in" credits fro! S-:,B5-.356 '-( S/4:.-B 'conceded b$ plaintiffs(, '3( S--34 'conceded b$ plaintiffs(, and '/( S:,.B>.-3 'Dune - inventor$ less &ro$sdill*s post1Danuar$ -C increase in indebtedness in the a!ount of S/5..:.(. 274 #=.. 331 C1957D #ISCONSIN TE"EP ONE COMPAN$, R/.<on0/n8, 9.. "E MANN, 0N;Na #. R. "E MANN ' SON, A<</--an8.I7J Su<r/:/ Cour8 oF #=.?on.=n. Nove!ber ., -.4>. Danuar$ B, -.4B. ///V/// 9or the appellant there #as a brief and oral ar"u!ent b$ 1ernard ,. Traeger of 7aterto#n. 9or the respondent there #as a brief b$ Cli ord : Fit)patric9 of 7aterto#n, and oral ar"u!ent b$ ,ames /. Fit)patric9. 7IN28RT, D.

7hile the case #as tried on the theor$ of ostensible a"enc$, plaintiff*s actual proof #as that its e!plo$ees havin" to do #ith the !atter believed that defendant //:V//: and 7a$ne #ere partners as 7. R. Ieh!ann J Son. 7e !a$ assu!e for present purposes that the evidence #arranted the Kur$ in findin" that there #as reasonable "round for that belief, and that defendant #as responsible for the !isleadin" appearances. Nevertheless, plaintiff failed to offer an$ evidence that it chan"ed its position to its detri!ent in reliance on that belief, and hence defendant*s !otion for a nonsuit should have been "ranted. The "eneral principle applicable to cases of this =ind is stated b$ a leadin" authorit$ as follo#s6 0 person #ho is not actuall$ a partner !a$ render hi!self liable as thou"h he #ere one, b$ so conductin" hi!self as to reasonabl$ induce third persons to believe that he is a partner and to act upon that belief. This rule is based upon the sa!e principle as that #hich has been discovered in the la# of 0"enc$,Hthat a person !a$ beco!e liable for the acts of another #ho #as not reall$ his a"ent, if he has so conducted hi!self as to lead others reasonabl$ to believe that such person #as his a"ent. It is a case in #hich the principle of estoppel applies. Meche!, 8le!ents of Partnership '3d ed.(, p. .5, sec. ... See also :5 0!. Dur., Partnership, p. -C5, sec. B/. The principle has been codified in the +nifor! Partnership 0ct, under the headin" Partnership b$ 8stoppel. Sec. -3/.-/, Stats., provides6 '-( 7hen a person, b$ #ords spo=en or #ritten or b$ conduct, represents hi!self, or consents to another representin" hi! to an$ one, as a partner in an e%istin" partnership or #ith one or !ore persons not actual partners, he is liable to an$ such person to #ho! such representation has been !ade, #ho has, on the aith o such representation! given credit to the actual or apparent partnership! and if he has !ade such representation or consented to its bein" !ade in a public !anner he is liable to such person, #hether the representation has or has not been !ade or co!!unicated to such person so "ivin" credit. . . .

//4V//4 '3( 7hen a person has been thus represented to be a partner in an e%istin" partnership . . . he is an a"ent of the persons consentin" to such representation to bind the! . . . #ith respect to persons #ho rel+ upon the representation. . . . The liabilit$ of the nonpartner bein" based on estoppel, it is essential to the cause of action that the part$ assertin" liabilit$ !ust have been induced b$ the !isleadin" appearance to chan"e his position to his detri!ent. It @partnership b$ estoppelA involves so!e e%press or i!plied representation b$ the person in ,uestion that he is a partner, in reasonable and bona ide reliance upon #hich the person no# see=in" to hold hi! liable as such has e%tended a credit, or other#ise chan"ed his position, in such a !anner that he #ill no# be preKudiced if the representation be denied. ... The part$ see=in" to hold hi! liable as a partner !ust, in the e%ercise of reasonable prudence and "ood faith, have relied upon such condition or thin" and been !isled b$ it. Meche!, 8le!ents of Partnership '3d ed.(, pp. .5, .-, sec. -55. See also -. 0!. Dur., 8stoppel, pp. B//, B/>, secs. C:, C4L :5 0!. Dur., Partnership, pp. -C3, -C/, sec. BC. 8stoppel in pais is an e,uitable doctrine, and in "eneral does not operate a"ainst one unless his conduct has induced another to chan"e his position to his preKudice. Calla&a+ v. Evanson!3B3 7is. 34-, 34:, B4 N. 7. '3d( :4>L Cavene+ v. Cavene+! 3/: 7is. >/B, >45, 3.- N. 7. C-CL 8ixon v. 8avidson! 353 7is. -., 3:, 3/- N. 7. 3B>. 0pplication of this principle to the evidence in the present case leads to the conclusion that there #as no basis on #hich the Kur$ could find for the plaintiff. There is no evidence in the record that plaintiff did an$thin" it #ould not have done or refrained fro! doin" an$thin" that it other#ise #ould have done, had it =no#n the true facts relative to the relationship bet#een defendant and 7a$ne. There is no //>V//> evidence that plaintiff #ould not have furnished the service to 8/-/<Bon/ No. -.>7 or #ould have cut it off sooner if

it had =no#n that 7a$ne Ieh!ann #as not a partner or authori;ed a"ent of the defendant. The service had theretofore been rendered #hen the 8/-/<Bon/ #as listed in 7a$ne*s na!e, and there is no sho#in" that plaintiff #ould not have continued to render the service as lon" as the bills #ere paid, had it =no#n that onl$ 7a$ne #ould be responsible for pa$!ent. There is nothin" to sho# that in chan"in" the listin" fro! 7a$ne*s na!e to that of 7. R. Ieh!ann J Son, plaintiff relied in an$ #a$ on defendant*s credit. Since plaintiff #as see=in" to hold defendant liable b$ estoppel, it had the burden of provin" the ele!ents of estoppel. Havin" failed to offer an$ proof of chan"e of position to its preKudice in reliance on the !isleadin" appearance, plaintiff failed to !a=e a prima acie case for the Kur$. Therefore, defendant*s !otion for nonsuit should have been "ranted. 1+ the Court.HDud"!ent reversed, #ith directions to enter Kud"!ent dis!issin" the co!plaint. @VA Motion for rehearin" denied, #ith S34 costs, on March 4. -.4B. Republic of the Philippines SUPREME COURT Manila 9IRST DIVISION G.R. No. 167379 Jun/ 27, 2666

PRIME"INE PROPERTIES AN% %E&E"OPMENT CORPORATION an0 RAFAE"ITO #. "OPE*, Petitioners, vs. MA. C"ARITA T. "A*ATIN+MAGAT, JOSE SERAFIN T. "A*ATIN, JAIME TEO%ORO T. "A*ATIN an0 JOSE MARCOS T. "A*ATIN, Respondents. D8&ISION CA""EJO, SR., J.: <efore us is a Petition for Revie# on &ertiorari under Rule :4 of the -..B Rules of &ivil Procedure of the Decision- of the &ourt of

0ppeals '&0( in &012.R. &V No. >.355 and its Resolution 3 den$in" petitionersR !otion for reconsideration thereof. The factual and procedural antecedents are as follo#s6 Pri!elin= Properties and Develop!ent &orporation 'Pri!elin= for brevit$( is a do!estic corporation en"a"ed in real estate develop!ent. Rafaelito 7. Iope; is its President and &hief 8%ecutive Officer./ Ma. &lara T. Ia;atin1Ma"at and her brothers, Dose Serafin T. Ia;atin, Dai!e T. Ia;atin and Dose Marcos T. Ia;atin 'the Ia;atins for brevit$(, are co1o#ners of t#o '3( adKoinin" parcels of land, #ith a co!bined area of /5,555 s,uare !eters, located in Ta"a$ta$ &it$ and covered b$ Transfer &ertificate of Title 'T&T( No. T1-5C:C : of the Re"ister of Deeds of Ta"a$ta$ &it$. On March -5, -..:, the Ia;atins and Pri!elin=, represented b$ Iope;, in his capacit$ as President, entered into a Doint Venture 0"ree!ent4 'DV0( for the develop!ent of the afore!entioned propert$ into a residential subdivision to be =no#n as Ta"a$ta$ 2arden Villas. +nder the DV0, the Ia;atin siblin"s obli"ed the!selves to contribute the t#o parcels of land as their share in the Koint venture. 9or its part, Pri!elin= undertoo= to contribute !one$, labor, personnel, !achineries, e,uip!ent, contractorRs pool, !ar=etin" activities, !ana"erial e%pertise and other needed resources to develop the propert$ and construct therein the units for sale to the public. Specificall$, Pri!elin= bound itself to acco!plish the follo#in", upon the e%ecution of the deed6 a.( Surve$ the land, and prepare the proKects !aster plans, en"ineerin" desi"ns, structural and architectural plans, site develop!ent plans, and such other need plans in accordance #ith e%istin" la#s and the rules and re"ulations of appropriate "overn!ent institutions, fir!s or a"enciesL b.( Secure and pa$ for all the licenses, per!its and clearances needed for the proKectsL c.( 9urnish all !aterials, e,uip!ent, labor and services for the develop!ent of the land in preparation for the construction

and sale of the different t$pes of units 'sin"le1detached, duple%Gt#in, cluster and ro# house(L d.( 2uarantee co!pletion of the land develop!ent #or= if not prevented b$ force !aKeure or fortuitous event or b$ co!petent authorit$, or other unavoidable circu!stances be$ond the D8V8IOP8RRS control, not to e%ceed three $ears fro! the date of the si"nin" of this Doint Venture 0"ree!ent, e%cept the installation of the electrical facilities #hich is solel$ M8R0I&ORS responsibilit$L e.( Provide necessar$ !anpo#er resources, li=e e%ecutive and !ana"erial officers, support personnel and !ar=etin" staff, to handle all services related to land and housin" develop!ent 'ad!inistrative and construction( and !ar=etin" 'sales, advertisin" and pro!otions(.> The Ia;atins and Pri!elin= covenanted that the$ shall be entitled to dra# allo#ancesGadvances as follo#s6 -. Durin" the first t#o $ears of the ProKect, the D8V8IOP8R and the I0NDO7N8R can dra# allo#ances or !a=e advances not e%ceedin" a total of t#ent$ percent '35F( of the net revenue for that period, on the basis of si%t$ percent '>5F( for the D8V8IOP8R and fort$ percent ':5F( for the I0NDO7N8RS. The dra#in" allo#ancesGadvances are li!ited to t#ent$ percent '35F( of the net revenue for the first t#o $ears, in order to have sufficient reserves or funds to protect andGor "uarantee the construction and co!pletion of the different t$pes of units !entioned above. 3. 0fter t#o $ears, the D8V8IOP8R and the I0NDO7N8RS shall be entitled to dra#in" allo#ances andGor advances e,uivalent to si%t$ percent '>5F( and fort$ percent ':5F(, respectivel$, of the total net revenue or inco!e of the sale of the units.B The$ also a"reed to share in the profits fro! the Koint venture, thus6

-. The D8V8IOP8R shall be entitled to si%t$ percent '>5F( of the net revenue or inco!e of the Doint Venture proKect, after deductin" all e%penses incurred in connection #ith the land develop!ent 'such as ad!inistrative !ana"e!ent and construction e%penses(, and !ar=etin" 'such as sales, advertisin" and pro!otions(, and 3. The I0NDO7N8RS shall be entitled to fort$ percent ':5F( of the net revenue or inco!e of the Doint Venture proKect, after deductin" all the above1!entioned e%penses.C Pri!elin= sub!itted to the Ia;atins its ProKection of the Sales1 Inco!e1&ost of the proKect6 S0I8S1IN&OM81&OST PROD8&TION la&phil.net S8IIIN2 PRI&8 &I+ST8R6 0-,.:5,555 /,355,55 1 03 -,3>5,555 E % 3: 5 T7IN6 <3,455,55 1 <3 .>5,555 5 SIN2I86 &&3 /,455,55 1 -,:55,555 5 D-,>55,55 1 D3 B55,555 5 E 3,-55,555 % -> E //,>55,555.55 E -,4:5,555 % 3: E />,.>5,555.55 E P :>,4>5,555.55 &OST PRI&8 DI998R8N& 8 IN&OM8

RO71TOP8 TO7NHOM8S6 E .55,555 % 3: E 3-,>55,555.55 P-/C,B35,555.55

'2ROSS Total &ash Price ( '0-^<-^&-^D-( Total <uildin" 8%pense '03^<3^&3^D3( T&P % E P >.,/>5,555 /5F DGP <alance E B5F E ->-,C:5,555

E P3/-,355,555.55 E .3,:C5,555.55

&OMP+T0TION O9 0DDRI. IN&OM8 ON INT8R8ST P >.,/>5,555.55

% .5/5>. P3/C,:5.,B: E % :C 5 Total 0!ount 'T&P ^ int. earn.( 8PP8NS8S6 less6 0 < & D 8 <uildin" e%penses &o!!ission 'CF of T&P( 0d!in. J M"!t. e%penses '3F of T&P(

3/C,:5.,B:5.55 P/5B,B>.,B:5.55 P .3,:C5,555.55 -C,:.>,555.55 :,>3:,555.55

0dvertisin" J Pro!o e%p. '3F of :,>3:,555.55 T&P( <uildin" e%penses for the open spaces and 0!enities 'Develop!ent cost not incl. Housin"( :55 % /5,555 s,!s.

-3,555,555.55 P-/3,33:,555.55 P/5B,B>.,B:5.55 -/3,33:,555.55 P-B4,4:4,B:5.55

.

TOT0I 8PP8NS8S '0^<^&^D^8( Total ProKected Inco!e 'incl. inco!e fro! interest earn.( less6 Total 8%penses

R8&ON&III0TION O9 IN&OM8 VS. 8PP8NS8S

The parties a"reed that an$ unsettled or unresolved !isunderstandin" or conflictin" opinions bet#een the parties relative to the interpretation, scope and reach, and the enforce!entGi!ple!entation of an$ provision of the a"ree!ent shall be referred to Voluntar$ 0rbitration in accordance #ith the 0rbitration Ia#.-5 The Ia;atins a"reed to subKect the title over the subKect propert$ to an escro# a"ree!ent. &onfor!abl$ #ith the escro# a"ree!ent, the o#nerRs duplicate of the title #as deposited #ith the &hina <an=in" &orporation.-- Ho#ever, Pri!elin= failed to i!!ediatel$ secure a Develop!ent Per!it fro! Ta"a$ta$ &it$, and applied the per!it onl$ on 0u"ust /5, -..4. On October -3, -..4, the &it$ issued a Develop!ent Per!it to Pri!elin=.-3 In a Ietter-/ dated 0pril -5, -..B, the Ia;atins, throu"h counsel, de!anded that Pri!elin= co!pl$ #ith its obli"ations under the DV0, other#ise the appropriate action #ould be filed a"ainst it to protect their ri"hts and interests. This i!pelled the officers of Pri!elin= to !eet #ith the Ia;atins and enabled the latter to revie# its business recordsGpapers. In another Ietter-: dated October 33, -..B, the Ia;atins infor!ed Pri!elin= that the$ had decided to rescind the DV0 effective upon its receipt of the said letter. The Ia;atins de!anded that Pri!elin= cease and desist fro! further developin" the propert$. Subse,uentl$, on Danuar$ -., -..C, the Ia;atins filed, #ith the Re"ional Trial &ourt 'RT&( of Ta"a$ta$ &it$, <ranch -C, a co!plaint for rescission accountin" and da!a"es, #ith pra$er for te!porar$ restrainin" order andGor preli!inar$ inKunction a"ainst Pri!elin= and Iope;. The case #as doc=eted as &ivil &ase No. T21 -BB>. Plaintiffs alle"ed, a!on" others, that, despite the lapse of al!ost four ':( $ears fro! the e%ecution of the DV0 and the deliver$ of the title and possession of the land to defendants, the land develop!ent aspect of the proKect had not $et been co!pleted, and the construction of the housin" units had not $et !ade an$ head#a$, based on the follo#in" facts, na!el$6 'a( of the 45 housin" units pro"ra!!ed for Phase I, onl$ the follo#in" t$pes of houses appear on the site in these condition6 'aa( sin"le detached, one co!pleted and t#o units unco!pletedL 'bb( cluster houses, one unit nearin" co!pletionL 'cc( duple%, t#o units co!pleted and t#o

units unfinishedL and 'dd( ro# houses, t#o units, co!pletedL 'b( in Phase II thereof, all that #as done b$ the defendants #as to "rade the areaL the units so far constructed had been the obKect of nu!erous co!plaints b$ their o#nersGpurchasers for poor #or=!anship and the use of sub1standard !aterials in their construction, thus, under!inin" the proKectRs !ar=etabilit$. Plaintiffs also alle"ed that defendants had, #ithout Kustifiable reason, co!pletel$ disre"arded previousl$ a"reed accountin" and auditin" procedures, chec=s and balances s$ste! installed for the !utual protection of both parties, and the scheduled re"ular !eetin"s #ere seldo! held to the detri!ent and disadvanta"e of plaintiffs. The$ averred that the$ sent a letter throu"h counsel, de!andin" co!pliance of #hat #as a"reed upon under the a"ree!ent but defendants refused to heed said de!and. 0fter a succession of letters #ith still no action fro! defendants, plaintiffs sent a letter on October 33, -..B, a letter for!all$ rescindin" the DV0. Plaintiffs also clai!ed that in a sales1inco!e1costs proKection prepared and sub!itted b$ defendants, the$ 'plaintiffs( stood to receive the a!ount of PB5,3-C,3.>.55 as their net share in the Koint venture proKectL to date, ho#ever, after al!ost four ':( $ears and despite the underta=in" in the DV0 that plaintiffs shall initiall$ "et 35F of the a"reed net revenue durin" the first t#o '3( $ears 'on the basis of the >5F1:5F sharin"( and their full :5F share thereafter, defendants had $et to deliver these shares to plaintiffs #hich b$ conservative esti!ates #ould a!ount to no less thanP:5,555,555.55.-4 Plaintiffs pra$ed that, after due proceedin"s, Kud"!ent be rendered in their favor, thus6 7H8R89OR8, it is respectfull$ pra$ed of this Honorable &ourt that a te!porar$ restrainin" order be forth#ith issued enKoinin" the defendants to i!!ediatel$ stop their land develop!ent, construction and !ar=etin" of the housin" units in the aforesaid proKectL after due proceedin"s, to issue a #rit of preli!inar$ inKunction enKoinin" and prohibitin" said land develop!ent, construction and !ar=etin" of housin" units, pendin" the disposition of the instant case. 0fter trial, a decision be rendered6

-. Rescindin" the Doint Venture 0"ree!ent e%ecuted bet#een the plaintiffs and the defendantsL 3. I!!ediatel$ restorin" to the plaintiffs possession of the subKect parcels of landL /. Orderin" the defendants to render an accountin" of all inco!e "enerated as #ell as e%penses incurred and disburse!ent !ade in connection #ith the proKectL :. Ma=in" the 7rit of Preli!inar$ InKunction per!anentL 4. Orderin" the defendants, Kointl$ and severall$, to pa$ the plaintiffs the a!ount 9ort$ Million Pesos 'P:5,555,555.55( in actual andGor co!pensator$ da!a"esL >. Orderin" the defendants, Kointl$ and severall$, to pa$ the plaintiffs the a!ount of T#o Million Pesos 'P3,555,555.55( in e%e!plar$ da!a"esL B. Orderin" the defendants, Kointl$ and severall$, to pa$ the plaintiffs the a!ount e,uivalent to ten percent '-5F( of the total a!ount due as and for attorne$Rs feesL and C. To pa$ the costs of this suit. Other reliefs and re!edies as are Kust and e,uitable are li=e#ise bein" pra$ed for.-> Defendants opposed plaintiffsR plea for a #rit of preli!inar$ inKunction on the "round that plaintiffsR co!plaint #as pre!ature, due to their failure to refer their co!plaint to a Voluntar$ 0rbitrator pursuant to the DV0 in relation to Section 3 of Republic 0ct No. CB> before filin" their co!plaint in the RT&. The$ pra$ed for the dis!issal of the co!plaint under Section -'K(, Rule -> of the Rules of &ourt6 7H8R89OR8, it is respectfull$ pra$ed that an Order be issued6 a( dis!issin" the &o!plaint on the basis of Section -'K(, Rule -> of the aforecited Rules of &ourt, or, in the alternative,

b( re,uirin" the plaintiffs to !a=e initiator$ step for arbitration b$ filin" the de!and to arbitrate, and then as=in" the parties to resolve their controversies, pursuant to the 0rbitration Ia#, or in the alternativeL c( sta$in" or suspendin" the proceedin"s in captioned case until the co!pletion of the arbitration, and d( den$in" the plaintiffsR pra$er for the issuance of a te!porar$ restrainin" order or #rit of preli!inar$ inKunction. Other reliefs and re!edies Kust and e,uitable in the pre!ises are pra$ed for.-B In the !eanti!e, before the e%piration of the re"le!entar$ period to ans#er the co!plaint, defendants, invo=in" their counselRs heav$ #or=load, pra$ed for a -41da$ e%tension-C #ithin #hich to file their ans#er. The additional ti!e pra$ed for #as "ranted b$ the RT&.-. Ho#ever, instead of filin" their ans#er, defendants pra$ed for a series of -41da$ e%tensions in ei"ht 'C( successive !otions for e%tensions on the sa!e Kustification.35 The RT& a"ain "ranted the additional ti!e pra$ed for, but in "rantin" the last e%tension, it #arned a"ainst further e%tension.3- Despite the ad!onition, defendants a"ain !oved for another -41da$ e%tension, 33 #hich, this ti!e, the RT& denied. No ans#er havin" been filed, plaintiffs !oved to declare the defendants in default, 3/ #hich the RT& "ranted in its Order3: dated Dune 3:, -..C. On Dune 34, -..C, defendants filed, via re"istered !ail, their 0ns#er #ith &ounterclai! and Opposition to the Pra$er for the Issuance of a 7rit of Preli!inar$ InKunction. 34 On Dul$ C, -..C, defendants filed a Motion to Set 0side the Order of Default. 3> This #as opposed b$ plaintiffs.3B In an Order3C dated Dul$ -:, -..C, the RT& denied defendantsR !otion to set aside the order of default and ordered the reception of plaintiffsR evidence e% parte. Defendants filed a !otion for reconsideration3. of the Dul$ -:, -..C Order, #hich the RT& denied in its Order/5 dated October 3-, -..C. Defendants thereafter interposed an appeal to the &0 assailin" the Order declarin" the! in default, as #ell as the Order den$in" their !otion to set aside the order of default, alle"in" that these #ere

contrar$ to facts of the case, the la# and Kurisprudence. /- On Septe!ber ->, -..., the appellate court issued a Resolution/3 dis!issin" the appeal on the "round that the Orders appealed fro! #ere interlocutor$ in character and, therefore, not appealable. No !otion for reconsideration of the Order of the dis!issal #as filed b$ defendants. In the !eanti!e, plaintiffs adduced e% parte their testi!onial and docu!entar$ evidence. On 0pril -B, 3555, the RT& rendered a Decision, the dispositive part of #hich reads6 7H8R89OR8, Kud"!ent is hereb$ rendered in favor of the plaintiffs and a"ainst the defendants as follo#s6 -. Orderin" the rescission of the Doint Venture 0"ree!ent as of the date of filin" of this co!plaintL 3. Orderin" the defendants to return possession, includin" all i!prove!ents therein, of the real estate propert$ belon"in" to the plaintiffs #hich is described in, and covered b$ Transfer &ertificate of Title No. T1-5C:C of the Re"ister of Deeds of Ta"a$ta$ &it$, and located in <aran"a$ 0nulin, &it$ of Ta"a$ta$L /. Orderin" the defendants to turn over all docu!ents, records or papers that have been e%ecuted, prepared and retained in connection #ith an$ contract to sell or deed of sale of all lotsGunits sold durin" the effectivit$ of the Koint venture a"ree!entL :. Orderin" the defendants to pa$ the plaintiffs the su! of P-,5:-,43:.3> representin" their share of the net inco!e of the P3,>5/,C-5.>: as of Septe!ber /5, -..4, as stipulated in the Koint venture a"ree!entL 4. Orderin" the defendants to pa$ the plaintiffsR attorne$Rs fees in the a!ount of P-5:,-43.:5L >. Orderin" the defendants to pa$ the costs. SO ORD8R8D.//

The trial court anchored its decision on the follo#in" findin"s6 % % % 8vidence on record have sho#n patent violations b$ the defendants of the stipulations particularl$ para"raph II coverin" DeveloperRs 'defendant( underta=in"s, as #ell as para"raph III and para"raph V of the DV0. These violations are not li!ited to those !ade a"ainst the plaintiffs alone as it appears that so!e of the unit bu$ers the!selves have their o#n separate "ripes a"ainst the defendants as t$pified b$ the letters '8%hibits 2 and H ( of Mr. 8!!anuel 8nciso. %%%% Ru!!a"in" throu"h the evidence presented in the course of the testi!on$ of Mrs. Ma!inta on 0u"ust >, -..C '8%hibits N, O, P, ? and R as #ell as sub!ar=in"s, pp. >5 to >3, TSN 0u"ust >, -..C( this court has observed, and is thus convinced, that a pattern of #hat appears to be a sche!e or plot to reduce and eventuall$ blot out the net inco!e "enerated fro! sales of housin" units b$ defendants, has been established. 8%hibit P13 is e%plicit in declarin" that, as of Septe!ber /5, -..4, the Koint venture proKect earned a net inco!e of about P3,>5/,C-5.>:. This a!ount, ho#ever, #as drasticall$ reduced in a subse,uent financial report sub!itted b$ the defendants to P-,.4:,3->./.. Shortl$ thereafter, and to the dis!a$ of the plaintiffs, the defendants sub!itted an inco!e state!ent and a balance sheet '8%hibits R and R1- ( indicatin" a net loss of P4,-33,.5>./. as of Dune /5, -..B. Of the reported net inco!e of P3,>5/,C-5.>: '8%hibit P13 ( the plaintiffs should have received the su! ofP-,5:-,43:.3> representin" their :5F share under para"raph II and V of the DV0. <ut this #as not to be so. 8ven before the plaintiffs could "et hold of their share as indicated above, the defendants closed the chance alto"ether b$ declarin" a net loss. The court perceives this to be one calculated coup1de1"race that #ould put to thin air plaintiffsR hope of "ettin" their share in the profit under the DV0. That this !atter had reached the court is no lon"er a cause for speculation. The #a$ the defendants treated the DV0 and the !anner b$ #hich the$ handled the proKect itself vis1Z1vis their

partners, the plaintiffs herein, there is bound to be certain conflict as the latter repeatedl$ #ould received the losin" end of the bar"ain. +nder the intolerable circu!stances, the plaintiffs could not have opted for so!e other recourse but to file the present action to enforce their ri"hts. % % %/: On Ma$ -4, 3555, plaintiffs filed a Motion for 8%ecution Pendin" 0ppeal/4 alle"in" defendantsR dilator$ tactics for its allo#ance. This #as opposed b$ defendants./> On Ma$ 33, 3555, the RT& resolved the !otion for e%ecution pendin" appeal in favor of plaintiffs./B +pon postin" a bond of P-,555,555.55 b$ plaintiffs, a #rit of e%ecution pendin" appeal #as issued on Dune 35, 3555./C Defendants appealed the decision to the &0 on the follo#in" assi"n!ent of errors6 I TH8 TRI0I &O+RT 8RR8D IN D8&IDIN2 TH8 &0S8 7ITHO+T 9IRST R898RRIN2 TH8 &OMPI0INT 9OR VOI+NT0RO 0R<ITR0TION 'R0 NO. CB>(, &ONTR0RO TO TH8 M0ND0T8D VOI+NT0RO 0R<ITR0TION &I0+S8 +ND8R TH8 DOINT V8NT+R8 02R88M8NT, 0ND TH8 DO&TRIN8 IN MIND0N0O PORTI0ND &8M8NT &ORPOR0TION V. M&DONO+2H &ONSTR+&TION &OMP0NO O9 9IORID0 '-. S&R0 C-:1C-4(. II TH8 TRI0I &O+RT 8RR8D IN ISS+IN2 0 7RIT O9 8P8&+TION P8NDIN2 0PP80I 8V8N IN TH8 0<S8N&8 O9 2OOD 0ND &OMP8IIIN2 R80SONS TO D+STI9O S0ID ISS+0N&8, 0ND D8SPIT8 PRIM8IINNRS STRON2 OPPOSITION TH8R8TO. III TH8 TRI0I &O+RT 8RR8D IN R89+SIN2 TO D8&ID8 PRIM8IINNRS MOTION TO ?+0SH TH8 7RIT O9 8P8&+TION P8NDIN2 0PP80I 0ND TH8 MOTION 9OR R8&ONSID8R0TION, 0ITHO+2H TH8 &O+RT H0S R8T0IN8D

ITS D+RISDI&TION TO R+I8 ON 0II ?+8STIONS R8I0T8D TO 8P8&+TION. IV TH8 TRI0I &O+RT 8RR8D IN R8S&INDIN2 TH8 DOINT V8NT+R8 02R88M8NT 0ITHO+2H PRIM8IINN H0S S+<ST0NTI0IIO D8V8IOP8D TH8 PROD8&T 0ND H0S SP8NT MOR8 OR I8SS 9ORTO MIIIION P8SOS, 0ND D8SPIT8 0PP8II88SR 90II+R8 TO PR8S8NT S+99I&I8NT 8VID8N&8 D+STI9OIN2 TH8 S0ID R8S&ISSION. V TH8 TRI0I &O+RT 8RR8D IN D8&IDIN2 TH0T TH8 0PP8II88S H0V8 TH8 RI2HT TO T0N8 OV8R TH8 S+<DIVISION 0ND TO 0PPROPRI0T8 9OR TH8MS8IV8S 0II TH8 8PISTIN2 IMPROV8M8NTS INTROD+&8D TH8R8IN <O PRIM8IINN, 0ITHO+2H S0ID RI2HT 70S N8ITH8R 0II828D NOR PR0O8D 9OR IN TH8 &OMPI0INT, M+&H I8SS PROV8N D+RIN2 TH8 8P P0RT8 H80RIN2, 0ND 8V8N 7ITHO+T ORD8RIN2 0PP8II88S TO 9IRST R8IM<+RS8 PRIM8IINN O9 TH8 S+<ST0NTI0I DI998R8N&8 <8T788N TH8 M0RN8T V0I+8 O9 0PP8II88SR R07, +ND8V8IOP8D 0ND +NPROD+&TIV8 I0ND '&ONTRI<+T8D TO TH8 PROD8&T( 0ND TH8 S+M O9 MOR8 OR I8SS 9ORTO MIIIION P8SOS 7HI&H PRIM8IINN H0D SP8NT 9OR TH8 HORIQONT0I 0ND V8RTI&0I D8V8IOPM8NT O9 TH8 PROD8&T, TH8R8<O 0IIO7IN2 0PP8II88S TO +ND+STIO 8NRI&H TH8MS8IV8S 0T TH8 8PP8NS8 O9 PRIM8IINN./. The appeal #as doc=eted in the &0 as &012.R. &V No. >.355. On 0u"ust ., 355:, the appellate court rendered a decision affir!in", #ith !odification, the appealed decision. The fallo of the decision reads6 7H8R89OR8, in vie# of the fore"oin", the assailed decision of the Re"ional Trial &ourt of Ta"a$ta$ &it$, <ranch -C, pro!ul"ated on 0pril -B, 3555 in &ivil &ase No. T21-BB>, is hereb$ 099IRM8D. 0ccordin"l$, Transfer &ertificate of Title No. T1-5C:C held for

safe=eepin" b$ &hinaban= pursuant to the 8scro# 0"ree!ent is ordered released for return to the plaintiffs1appellees and confor!abl$ #ith the affir!ed decision, the cancellation b$ the Re"ister of Deeds of Ta"a$ta$ &it$ of #hatever annotation in T&T No. -5C:C b$ virtue of the Doint Venture 0"ree!ent, is no# proper. SO ORD8R8D.:5 &itin" the rulin" of this &ourt in 0urbach v. Sanitar$ 7ares Manufacturin" &orporation,:- the appellate court ruled that, under Philippine la#, a Koint venture is a for! of partnership and is to be "overned b$ the la#s of partnership. The a""rieved parties filed a !otion for reconsideration,:3 #hich the &0 denied in its Resolution:/ dated March B, 3554. Petitioners thus filed the instant Petition for Revie# on &ertiorari, alle"in" that6 -( DID TH8 HONOR0<I8 &O+RT O9 0PP80IS &OMMIT 0 90T0I 0ND R8V8RSI<I8 I820I 8RROR 0NDGOR 2R0V8 0<+S8 O9 DIS&R8TION IN ORD8RIN2 TH8 R8T+RN TO TH8 R8SPOND8NTS O9 TH8 PROP8RTO 7ITH 0II IMPROV8M8NTS TH8R8ON, 8V8N 7ITHO+T ORD8RIN2GR8?+IRIN2 TH8 R8SPOND8NTS TO 9IRST P0O OR R8IM<+RS8 PRIM8IINN O9 0II 8PP8NS8S IN&+RR8D IN D8V8IOPIN2 0ND M0RN8TIN2 TH8 PROD8&T, I8SS TH8 ORI2IN0I V0I+8 O9 TH8 PROP8RTO, 0ND TH8 SH0R8 D+8 R8SPOND8NTS 9ROM TH8 PRO9ITS 'I9 0NO( O9 TH8 DOINT V8NT+R8 PROD8&T) 3( IS TH8 09OR8S0ID ORD8R III820I 0ND &ON9IS&0TORO, OPPR8SSIV8 0ND +N&ONS&ION0<I8, &ONTR0RO TO TH8 T8N8TS O9 2OOD H+M0N R8I0TIONS 0ND VIOI0TIV8 O9 8PISTIN2 I07S 0ND D+RISPR+D8N&8 ON D+DI&I0I NOTI&8, D890+IT, +ND+ST 8NRI&HM8NT 0ND R8S&ISSION O9 &ONTR0&T 7HI&H R8?+IR8S M+T+0I R8STIT+TION, NOT +NII0T8R0I 0PPROPRI0TION, O9 PROP8RTO <8ION2IN2 TO 0NOTH8R)::

Petitioners !aintain that the aforesaid portion of the decision #hich unconditionall$ a#ards to respondents all i!prove!ents on the proKect #ithout re,uirin" the! to pa$ the value thereof or to rei!burse Pri!elin= for all e%penses incurred therefore is inherentl$ and essentiall$ ille"al and confiscator$, oppressive and unconscionable, contrar$ to the tenets of "ood hu!an relations, and #ill allo# respondents to unKustl$ enrich the!selves at Pri!elin=Rs e%pense. 0t the ti!e respondents contributed the t#o parcels of land, consistin" of /5,555 s,uare !eters to the Koint venture proKect #hen the DV0 #as si"ned on March -5, -..:, the said properties #ere #orth not !ore than P455.55 per s,uare !eter, the price ta" a"reed upon the parties for the purpose of the DV0. Moreover, before respondents rescinded the DV0 so!eti!e in OctoberGNove!ber -..B, the propert$ had alread$ been substantiall$ developed as i!prove!ents had alread$ been introduced thereonL petitioners had li=e#ise incurred ad!inistrative and !ar=etin" e%penses, a!on" others, a!ountin" to !ore or less P:5,555,555.55.:4 Petitioners point out that respondents did not pra$ in their co!plaint that the$ be declared the o#ners and entitled to the possession of the i!prove!ents !ade b$ petitioner Pri!elin= on the propert$L neither did the$ adduce evidence to prove their entitle!ent to said i!prove!ents. It follo#s, petitioners ar"ue, that respondents #ere not entitled to the i!prove!ents althou"h petitioner Pri!elin= #as declared in default. The$ also aver that, under 0rticle -/C: of the Ne# &ivil &ode, rescission shall be onl$ to the e%tent necessar$ to cover the da!a"es caused and that, under 0rticle -/C4 of the sa!e &ode, rescission creates the obli"ation to return the thin"s #hich #ere not obKect of the contract, to"ether #ith their fruits, and the price #ith its interestL conse,uentl$, it can be effected onl$ #hen respondents can return #hatever the$ !a$ be obli"ed to return. Respondents #ho sou"ht the rescission of the DV0 !ust place petitioner Pri!elin= in the status ,uo. The$ insist that respondents cannot rescind and, at the sa!e ti!e, retain the consideration, or part of the consideration received under the DV0. The$ cannot have the benefits of rescission #ithout assu!in" its burden. 0ll parties !ust be restored to their ori"inal positions as nearl$ as possible upon the

rescission of a contract. In the event that restoration to the status ,uo is i!possible, rescission !a$ be "ranted if the &ourt can balance the e,uities and fashion an appropriate re!ed$ that #ould be e,uitable to both parties and afford co!plete relief. Petitioners insist that bein" defaulted in the court a ,uo #ould in no #a$ defeat their clai! for rei!burse!ent because @#Ahat !atters is that the i!prove!ents e%ist and the$ cannot be denied. :> Moreover, the$ point out, the rulin" of this &ourt in 0urbach v. Sanitar$ 7ares Manufacturin" &orporation :B cited b$ the &0 is not in point. On the other hand, the &0 ruled that althou"h respondents therein 'plaintiffs belo#( did not specificall$ pra$ for their ta=eover of the propert$ and for the possession of the i!prove!ents on the parcels of land, nevertheless, respondents #ere entitled to said relief as a necessar$ conse,uence of the rulin" of the trial court orderin" the rescission of the DV0. The appellate court cited the rulin" of this &ourt in the 0urbach case and 0rticle -C/C of the Ne# &ivil &ode, to #it6 0s a "eneral rule, the relation of the parties in Koint ventures is "overned b$ their a"ree!ent. 7hen the a"ree!ent is silent on an$ particular issue, the "eneral principles of partnership !a$ be resorted to.:C Respondents, for their part, assert that 0rticles -/C5 to -/C. of the Ne# &ivil &ode deal #ith rescissible contracts. 7hat applies is 0rticle --.- of the Ne# &ivil &ode, #hich reads6 0RT. --.-. The po#er to rescind obli"ations is i!plied in reciprocal ones, in case one of the obli"ors should not co!pl$ #ith #hat is incu!bent upon hi!. The inKured part$ !a$ choose bet#een the fulfill!ent and the rescission of the obli"ation, #ith the pa$!ent of da!a"es in either case. He !a$ also see= rescission, even after he has chosen fulfill!ent, if the latter should beco!e i!possible. The court shall decree the rescission clai!ed, unless there be Kust cause authori;in" the fi%in" of a period.

This is understood to be #ithout preKudice to the ri"hts of third persons #ho have ac,uired the thin", in accordance #ith articles -/C4 and -/CC and the Mort"a"e Ia#. The$ insist that petitioners are not entitled to rescission for the i!prove!ents because, as found b$ the RT& and the &0, it #as petitioner Pri!elin= that enriched itself at the e%pense of respondents. Respondents reiterate the rulin" of the &0, and ar"ue as follo#s6 PRIM8IINN ar"ued that the I0Q0TINs in their co!plaint did not alle"e, did not prove and did not pra$ that the$ are and should be entitled to ta=e over the develop!ent of the proKect, and that the i!prove!ents and e%istin" structures #hich #ere introduced b$ PRIM8IINN after spendin" !ore or less 9ort$ Million Pesos T be a#arded to the!. The$ !erel$ as=ed in the co!plaint that the Koint venture a"ree!ent be rescinded, and that the parcels of land the$ contributed to the proKect be returned to the!. PRIM8IINNRs ar"u!ent lac=s !erit. The order of the court for PRIM8IINN to return possession of the real estate propert$ belon"in" to the I0Q0TINs includin" all i!prove!ents thereon #as not a Kud"!ent that #as different in =ind than #hat #as pra$ed for b$ the I0Q0TINs. The order to return the propert$ #ith all the i!prove!ents thereon is Kust a necessar$ conse,uence to the order of rescission. 0s a "eneral rule, the relation of the parties in Koint ventures is "overned b$ their a"ree!ent. 7hen the a"ree!ent is silent on an$ particular issue, the "eneral principles of partnership !a$ be resorted to. In 0urbach v. Sanitar$ 7ares Manufacturin" &orporation, the Supre!e &ourt discussed the follo#in" points re"ardin" Koint ventures and partnership6 The le"al concept of a Koint venture is of co!!on la# ori"in. It has no precise le"al definition, but it has been "enerall$ understood to !ean an or"ani;ation for!ed for so!e te!porar$ purpose. '2ates v. Me"ar"el, 3>> 9ed. C-- @-.35A( It is, in fact, hardl$ distin"uishable fro! the partnership, since ele!ents are si!ilar T co!!unit$ of interest in the business, sharin" of profits and losses, and a !utual ri"ht of control. '<lac=ner v. McDer!ott, -B> 9.3d :.C

@-.:.AL &arboneau v. Peterson, .4 P.3d -5:/ @-./.AL <uc=le$ v. &had#ic=, :4 &al.3d -C/, 3CC P.3d -3, 3C. P.3d 3:3 @-.44A( The !ain distinction cited b$ !ost opinions in co!!on la# Kurisdictions is that the partnership conte!plates a "eneral business #ith so!e de"ree of continuit$, #hile the Koint venture is for!ed for the e%ecution of a sin"le transaction, and is thus of a te!porar$ nature. 'Tuffs v. Mann, --> &al.0pp. -B5, 3 P.3d 455 @-./-AL Har!on v. Martin, /.4 III. 4.4, B- N.8.3d B: @-.:BAL 2ates v. Me"ar"el, 3>> 9ed. C-- @-.35A( This observation is not entirel$ accurate in this Kurisdiction, since under the &ivil &ode, a partnership !a$ be particular or universal, and a particular partnership !a$ have for its obKect a specific underta=in". '0rt. -BC/, &ivil &ode(. It #ould see! therefore that, under Philippine la#, a Koint venture is a for! of partnership and should thus be "overned b$ the la#s of partnership. The Supre!e &ourt has, ho#ever, reco"ni;ed a distinction bet#een these t#o business for!s, and has held that althou"h a corporation cannot enter into a partnership contract, it !a$, ho#ever, en"a"e in a Koint venture #ith others. '0t p. -3, Tua;on v. <olanos, .4 Phil. .5> @-.4:AL &a!pos and Iope; T &a!pos &o!!ents, Notes and Selected &ases, &orporation &ode -.C-( '8!phasis Supplied( The I0Q0TINs #ere able to establish fraud on the part of PRIM8IINN #hich, in the #ords of the court a ,uo, #as a pattern of #hat appears to be a sche!e or plot to reduce and eventuall$ blot out the net inco!es "enerated fro! sales of housin" units b$ the defendants. +nder 0rticle -C/C of the &ivil &ode, #here the partnership contract is rescinded on the "round of the fraud or !isrepresentation of one of the parties thereto, the part$ entitled to rescind is, #ithout preKudice to an$ other ri"ht is entitled to a lien on, or ri"ht of retention of, the surplus of the partnership propert$ after satisf$in" the partnership liabilities to third persons for an$ su! of !one$ paid b$ hi! for the purchase of an interest in the partnership and for an$ capital or advance contributed b$ hi!. In the instant case, the Koint venture still has outstandin" liabilities to third parties or the bu$ers of the propert$. It is not a!iss to state that title to the land or T&T No. T1-5C:C #hich is no# held b$ &hinaban= for safe=eepin" pursuant to the 8scro# 0"ree!ent e%ecuted bet#een Pri!elin= Properties and

Develop!ent &orporation and Ma. &lara T. Ia;atin1Ma"at should also be returned to the I0Q0TINs as a necessar$ conse,uence of the order of rescission of contract. The reason for the e%istence of the 8scro# 0"ree!ent has ceased to e%ist #hen the Koint venture a"ree!ent #as rescinded.:. Respondents stress that petitioners !ust bear an$ da!a"es or losses the$ !a$ have suffered. The$ li=e#ise stress that the$ did not enrich the!selves at the e%pense of petitioners. In repl$, petitioners assert that it is unKust and ine,uitable for respondents to retain the i!prove!ents even if their share in the P-,5:-,43:.3> of the net inco!e of the propert$ and the sale of the land #ere to be deducted fro! the value of the i!prove!ents, plus ad!inistrative and !ar=etin" e%penses in the total a!ount of P:5,555,555.55. Petitioners #ill still be entitled to an accountin" fro! respondents. Respondents cannot den$ the e%istence and nature of said i!prove!ents as the$ are visible to the na=ed e$e. The threshold issues are the follo#in"6 '-( #hether respondents are entitled to the possession of the parcels of land covered b$ the DV0 and the i!prove!ents thereon introduced b$ petitioners as their contribution to the DV0L '3( #hether petitioners are entitled to rei!burse!ent for the value of the i!prove!ents on the parcels of land. The petition has no !erit. On the first issue, #e a"ree #ith petitioners that respondents did not specificall$ pra$ in their co!plaint belo# that possession of the i!prove!ents on the parcels of land #hich the$ contributed to the DV0 be transferred to the!. Respondents !ade a specific pra$er in their co!plaint that, upon the rescission of the DV0, the$ be placed in possession of the parcels of land subKect of the a"ree!ent, and for other reliefs and such other re!edies as are Kust and e,uitable in the pre!ises. Ho#ever, the trial court #as not precluded fro! a#ardin" possession of the i!prove!ents on the parcels of land to respondents in its decision. Section 3'c(, Rule B of the Rules of &ourt provides that a pleadin" shall specif$ the relief sou"ht but it !a$ add as "eneral pra$er for such further or other relief as !a$ be dee!ed Kust and e,uitable. 8ven #ithout the pra$er for a specific

re!ed$, proper relief !a$ be "ranted b$ the court if the facts alle"ed in the co!plaint and the evidence introduced so #arrant.45 The court shall "rant relief #arranted b$ the alle"ations and the proof even if no such relief is pra$ed for.4- The pra$er in the co!plaint for other reliefs e,uitable and Kust in the pre!ises Kustifies the "rant of a relief not other#ise specificall$ pra$ed for.43 The trial court #as not proscribed fro! placin" respondents in possession of the parcels of land and the i!prove!ents on the said parcels of land. It bears stressin" that the parcels of land, as #ell as the i!prove!ents !ade thereon, #ere contributed b$ the parties to the Koint venture under the DV0, hence, for!ed part of the assets of the Koint venture.4/The trial court declared that respondents #ere entitled to the possession not onl$ of the parcels of land but also of the i!prove!ents thereon as a conse,uence of its findin" that petitioners breached their a"ree!ent and defrauded respondents of the net inco!e under the DV0. On the second issue, #e a"ree #ith the &0 rulin" that petitioner Pri!elin= and respondents entered into a Koint venture as evidenced b$ their DV0 #hich, under the &ourtRs rulin" in 0urbach, is a for! of partnership, and as such is to be "overned b$ the la#s on partnership. 7hen the RT& rescinded the DV0 on co!plaint of respondents based on the evidence on record that petitioners #illfull$ and persistentl$ co!!itted a breach of the DV0, the court thereb$ dissolvedGcancelled the partnership.4: 7ith the rescission of the DV0 on account of petitionersR fraudulent acts, all authorit$ of an$ partner to act for the partnership is ter!inated e%cept so far as !a$ be necessar$ to #ind up the partnership affairs or to co!plete transactions be"un but not $et finished.44 On dissolution, the partnership is not ter!inated but continues until the #indin" up of partnership affairs is co!pleted.4> 7indin" up !eans the ad!inistration of the assets of the partnership for the purpose of ter!inatin" the business and dischar"in" the obli"ations of the partnership. The transfer of the possession of the parcels of land and the i!prove!ents thereon to respondents #as onl$ for a specific purpose6 the #indin" up of partnership affairs, and the partition and

distribution of the net partnership assets as provided b$ la#.4B 0fter all, 0rticle -C/> of the Ne# &ivil &ode provides that unless other#ise a"reed b$ the parties in their DV0, respondents have the ri"ht to #ind up the partnership affairs6 0rt. -C/>. +nless other#ise a"reed, the partners #ho have not #ron"full$ dissolved the partnership or the le"al representative of the last survivin" partner, not insolvent, has the ri"ht to #ind up the partnership affairs, provided, ho#ever, that an$ partner, his le"al representative or his assi"nee, upon cause sho#n, !a$ obtain #indin" up b$ the court. It !ust be stressed, too, that althou"h respondents ac,uired possession of the lands and the i!prove!ents thereon, the said lands and i!prove!ents re!ained partnership propert$, subKect to the ri"hts and obli"ations of the parties, inter se, of the creditors and of third parties under 0rticles -C/B and -C/C of the Ne# &ivil &ode, and subKect to the outco!e of the settle!ent of the accounts bet#een the parties as provided in 0rticle -C/. of the Ne# &ivil &ode, absent an$ a"ree!ent of the parties in their DV0 to the contrar$.4C +ntil the partnership accounts are deter!ined, it cannot be ascertained ho# !uch an$ of the parties is entitled to, if at all. It #as thus pre!ature for petitioner Pri!elin= to be de!andin" that it be inde!nified for the value of the i!prove!ents on the parcels of land o#ned b$ the Koint ventureGpartnership. Notabl$, the DV0 of the parties does not contain an$ provision desi"natin" an$ part$ to #ind up the affairs of the partnership. Thus, under 0rticle -C/B of the Ne# &ivil &ode, the ri"hts of the parties #hen dissolution is caused in contravention of the partnership a"ree!ent are as follo#s6 '-( 8ach partner #ho has not caused dissolution #ron"full$ shall have6 'a( 0ll the ri"hts specified in the first para"raph of this article, and

'b( The ri"ht, as a"ainst each partner #ho has caused the dissolution #ron"full$, to da!a"es for breach of the a"ree!ent. '3( The partners #ho have not caused the dissolution #ron"full$, if the$ all desire to continue the business in the sa!e na!e either b$ the!selves or Kointl$ #ith others, !a$ do so, durin" the a"reed ter! for the partnership and for that purpose !a$ possess the partnership propert$, provided the$ secure the pa$!ent b$ bond approved b$ the court, or pa$ to an$ partner #ho has caused the dissolution #ron"full$, the value of his interest in the partnership at the dissolution, less an$ da!a"es recoverable under the second para"raph, No. -'b( of this article, and in li=e !anner inde!nif$ hi! a"ainst all present or future partnership liabilities. '/( 0 partner #ho has caused the dissolution #ron"full$ shall have6 'a( If the business is not continued under the provisions of the second para"raph, No. 3, all the ri"hts of a partner under the first para"raph, subKect to liabilit$ for da!a"es in the second para"raph, No. -'b(, of this article. 'b( If the business is continued under the second para"raph, No. 3, of this article, the ri"ht as a"ainst his co1partners and all clai!in" throu"h the! in respect of their interests in the partnership, to have the value of his interest in the partnership, less an$ da!a"e caused to his co1partners b$ the dissolution, ascertained and paid to hi! in cash, or the pa$!ent secured b$ a bond approved b$ the court, and to be released fro! all e%istin" liabilities of the partnershipL but in ascertainin" the value of the partnerRs interest the value of the "ood1 #ill of the business shall not be considered. 0nd under 0rticle -C/C of the Ne# &ivil &ode, the part$ entitled to rescind is, #ithout preKudice to an$ other ri"ht, entitled6 '-( To a lien on, or ri"ht of retention of, the surplus of the partnership propert$ after satisf$in" the partnership liabilities

to third persons for an$ su! of !one$ paid b$ hi! for the purchase of an interest in the partnership and for an$ capital or advances contributed b$ hi!L '3( To stand, after all liabilities to third persons have been satisfied, in the place of the creditors of the partnership for an$ pa$!ents !ade b$ hi! in respect of the partnership liabilitiesL and '/( To be inde!nified b$ the person "uilt$ of the fraud or !a=in" the representation a"ainst all debts and liabilities of the partnership. The accounts bet#een the parties after dissolution have to be settled as provided in 0rticle -C/. of the Ne# &ivil &ode6 0rt. -C/.. In settlin" accounts bet#een the partners after dissolution, the follo#in" rules shall be observed, subKect to an$ a"ree!ent to the contrar$6 '-( The assets of the partnership are6 'a( The partnership propert$, 'b( The contributions of the partners necessar$ for the pa$!ent of all the liabilities specified in No. 3. '3( The liabilities of the partnership shall ran= in order of pa$!ent, as follo#s6 'a( Those o#in" to creditors other than partners, 'b( Those o#in" to partners other than for capital and profits, 'c( Those o#in" to partners in respect of capital, 'd( Those o#in" to partners in respect of profits. '/( The assets shall be applied in the order of their declaration in No. - of this article to the satisfaction of the liabilities.

':( The partners shall contribute, as provided b$ article -B.B, the a!ount necessar$ to satisf$ the liabilities. '4( 0n assi"nee for the benefit of creditors or an$ person appointed b$ the court shall have the ri"ht to enforce the contributions specified in the precedin" nu!ber. '>( 0n$ partner or his le"al representative shall have the ri"ht to enforce the contributions specified in No. :, to the e%tent of the a!ount #hich he has paid in e%cess of his share of the liabilit$. 'B( The individual propert$ of a deceased partner shall be liable for the contributions specified in No. :. 'C( 7hen partnership propert$ and the individual properties of the partners are in possession of a court for distribution, partnership creditors shall have priorit$ on partnership propert$ and separate creditors on individual propert$, savin" the ri"hts of lien or secured creditors. '.( 7here a partner has beco!e insolvent or his estate is insolvent, the clai!s a"ainst his separate propert$ shall ran= in the follo#in" order6 'a( Those o#in" to separate creditorsL 'b( Those o#in" to partnership creditorsL 'c( Those o#in" to partners b$ #a$ of contribution. IN II2HT O9 0II TH8 9OR82OIN2, the petition is D8NI8D. The assailed Decision and Resolution of the &ourt of 0ppeals in &01 2.R. &V No. >.355 are 099IRM8D insofar as the$ confor! to this Decision of the &ourt. &osts a"ainst petitioners. SO ORD8R8D. ROMEO J. CA""EJO, SR. 0ssociate Dustice

78 &ON&+R6 ARTEMIO &. PANGANI!AN &hief Dustice &hairperson CONSUE"O $NARES+ SANTIAGO 0ssociate Dustice MA. A"ICIA AUSTRIA+ MARTINE* 0sscociate Dustice

MINITA &. C ICO+NA*ARIO 0ssociate Dustice &8RTI9I&0TION Pursuant to Section -/, 0rticle VIII of the &onstitution, it is hereb$ certified that the conclusions in the above Decision #ere reached in consultation before the case #as assi"ned to the #riter of the opinion of the &ourtRs Division. ARTEMIO &. PANGANI!AN &hief Dustice

Foo8no8/.
-

Penned b$ 0ssociate Dustice Re"alado 8. Maa!bon", #ith 0ssociate Dustices 8lo$ R. <ello, Dr. and Iucenito N. Ta"le, concurrin"L rollo, pp. //14/.
3 / : 4 > B

Rollo, pp. B31B:. Id. at -3. Records, pp. -31-/. Id. at -:. Id. at -4. Id. at ->.

C .

Id. Id. at 3/. Id. at ->. Id. at -4. Id. at B5. Id. at 35. Id. at 33. Id. at >. Id. at >. Id. at /:. Id. at /B. Id. at /C.

-5 --3 -/ -: -4 -> -B -C -. 35

March /, -..CL March -B, -..CL March /-, -..CL 0pril -4, -..CL 0pril 3., -..CL Ma$ -:, -..CL Ma$ 3C, -..CL Dune --, -..C. Records, pp. /., 44, .5, -5:, -5B, --5, --4 and --B, respectivel$.
333 3/ 3: 34 3> 3B 3C

Records, p. --.. Id. at -35. Id. at -33. Id. at -34. Id. at -3>. Id. at -/:. Id. at -/.. Id. at -:/.

3. /5 //3 // /: /4 /> /B /C /. :5 :-

Id. at -:>. Id. at ->:. Id. at ->4. Id. at 35:1354. Id. at 3-4. Id. at 3-313-:. Id. at 3->1335. Id. at 33-133C. Id. at 3/-13/3. Id. at 3/>. &0 rollo, pp. >/1>4. Rollo, p. 4/.

2.R. Nos. B4CB4, B4.4- and B4.B41B>, Dece!ber -4, -.C., -C5 S&R0 -/5, -:B.
:3 :/ :: :4 :> :B :C :.

Rollo, p. 44. Id. at B31B:. Id. at -:. Id. at 3-133. Id. at 3>. Supra note :-. Rollo, pp. 4514-. Id. at 45143.

45

8u"enio v. Vele;, 2.R. No. C4-:5, Ma$ -B, -..5, -C4 S&R0 :34, :/31://.
4-

<anco 9ilipino Savin"s and Mort"a"e <an= v. &ourt of 0ppeals, /CC Phil. 3B, :- '3555(.
43

0rro$o, Dr. v. Taduran, 2.R. No. -:B5-3, Danuar$ 3., 355:, :3- S&R0 :3/, :3B.
4/ 4: 44 4> 4B 4C

Iipsco!b v. 0ulenbac=er, 3B3 S.7. />/, ->C 0r=. -5>>. 0rticle -C/- in relation to 0rticle -C/-':('b(, Ne# &ivil &ode. 0rticle -C/3 in relation to 0rticle -C/:, Ne# &ivil &ode. 0rticle -C3., Ne# &ivil &ode. S$ v. &ourt of 0ppeals, /B3 Phil. 35B, 3.. '-...(. Orte"a v. &ourt of 0ppeals, /-4 Phil. 4B/, 4C-14C3 '-..4(. Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 75575 %/?/:;/r 15, 1959 #O"RGANG AUR!AC , JO N GRIFFIN, %A&I% P. # ITTING AM an0 C AR"ES C AMSA$, petitioners, vs. SANITAR$ #ARES MANUFACTURING CORPORATOIN, ERNESTO &. "AG%AMEO, ERNESTO R. "AG%AMEO, JR., ENRI(UE R. "AG%AMEO, GEORGE F. "EE, RAU" A. !ONCAN, !A"%#IN $OUNG an0 A&E"INO &. CRU*, respondents. G.R. No. 75951 %/?/:;/r 15, 1959 SANITAR$ #ARES MANUFACTURING CORPORATION, ERNESTO R. "AG%AMEO, ENRI(UE !. "AG%AMEO, GEORGE F" .EE RAU" A. !ONCAN, !A"%#IN $OUNG an0 A&E"INO &. CRU2, petitioners,

vs. T E COURT OF APPEA"S, #O"FGANG AUR!AC , JO N GRIFFIN, %A&I% P. # ITTING AM, C AR"ES C AMSA$ an0 "UCIANO SA"A*AR, respondents. G.R. No.. 75975+76 %/?/:;/r 15, 1959 "UCIANO E. SA"A*AR, petitioner, vs. SANITAR$ #ARES MANUFACTURING CORPORATION, ERNESTO &. "AG%AMEO, ERNESTO R. "AG%AMEO, JR., ENRI(UE R. "AG%AMEO, GEORGE F. "EE, RAU" A. !ONCAN, !A"%#IN $OUNG, A&E"INO &. CRU* an0 8B/ COURT OF APPEA"S, respondents. 1elo! /biera : /ssociates or petitioners in DBMDB. "+cip! "ala)ar! >ernande) : Gatmaitan or -uciano E. "ala)ar.

GUTIERRE*, JR., J.: These consolidated petitions see= the revie# of the a!ended decision of the &ourt of 0ppeals in &012.R. SP Nos. 54>5: and 54>-B #hich set aside the earlier decision dated Dune 4, -.C>, of the then Inter!ediate 0ppellate &ourt and directed that in all subse,uent elections for directors of Sanitar$ 7ares Manufacturin" &orporation 'Sani#ares(, 0!erican Standard Inc. '0SI( cannot no!inate !ore than three '/( directorsL that the 9ilipino stoc=holders shall not interfere in 0SI*s choice of its three '/( no!ineesL that, on the other hand, the 9ilipino stoc=holders can no!inate onl$ si% '>( candidates and in the event the$ cannot a"ree on the si% '>( no!inees, the$ shall vote onl$ a!on" the!selves to deter!ine #ho the si% '>( no!inees #ill be, #ith cu!ulative votin" to be allo#ed but #ithout interference fro! 0SI. The antecedent facts can be su!!ari;ed as follo#s6 In -.>-, Sani#ares, a do!estic corporation #as incorporated for the pri!ar$ purpose of !anufacturin" and !ar=etin" sanitar$ #ares. One of the incorporators, Mr. <ald#in Ooun" #ent abroad to

loo= for forei"n partners, 8uropean or 0!erican #ho could help in its e%pansion plans. On 0u"ust -4, -.>3, 0SI, a forei"n corporation do!iciled in Dela#are, +nited States entered into an 0"ree!ent #ith Sani#ares and so!e 9ilipino investors #hereb$ 0SI and the 9ilipino investors a"reed to participate in the o#nership of an enterprise #hich #ould en"a"e pri!aril$ in the business of !anufacturin" in the Philippines and sellin" here and abroad vitreous china and sanitar$ #ares. The parties a"reed that the business operations in the Philippines shall be carried on b$ an incorporated enterprise and that the na!e of the corporation shall initiall$ be Sanitar$ 7ares Manufacturin" &orporation. The 0"ree!ent has the follo#in" provisions relevant to the issues in these cases on the no!ination and election of the directors of the corporation6 /. /rticles o Incorporation 'a( The 0rticles of Incorporation of the &orporation shall be substantiall$ in the for! anne%ed hereto as 8%hibit 0 and, insofar as per!itted under Philippine la#, shall specificall$ provide for '-( &u!ulative votin" for directors6 %%% %%% %%% 4. 2anagement 'a( The !ana"e!ent of the &orporation shall be vested in a <oard of Directors, #hich shall consist of nine individuals. 0s lon" as 0!erican1Standard shall o#n at least /5F of the outstandin" stoc= of the &orporation, three of the nine directors shall be desi"nated b$ 0!erican1Standard, and the other si% shall be desi"nated b$ the other stoc=holders of the &orporation. 'pp. 4- J 4/, Rollo of B4CB4( 0t the re,uest of 0SI, the a"ree!ent contained provisions desi"ned to protect it as a !inorit$ "roup, includin" the "rant of veto po#ers over a nu!ber of corporate acts and the ri"ht to desi"nate certain

officers, such as a !e!ber of the 8%ecutive &o!!ittee #hose vote #as re,uired for i!portant corporate transactions. Iater, the /5F capital stoc= of 0SI #as increased to :5F. The corporation #as also re"istered #ith the <oard of Invest!ents for avail!ent of incentives #ith the condition that at least >5F of the capital stoc= of the corporation shall be o#ned b$ Philippine nationals. The Koint enterprise thus entered into b$ the 9ilipino investors and the 0!erican corporation prospered. +nfortunatel$, #ith the business successes, there ca!e a deterioration of the initiall$ har!onious relations bet#een the t#o "roups. 0ccordin" to the 9ilipino "roup, a basic disa"ree!ent #as due to their desire to e%pand the e%port operations of the co!pan$ to #hich 0SI obKected as it apparentl$ had other subsidiaries of Koint Koint venture "roups in the countries #here Philippine e%ports #ere conte!plated. On March C, -.C/, the annual stoc=holders* !eetin" #as held. The !eetin" #as presided b$ <ald#in Ooun". The !inutes #ere ta=en b$ the Secretar$, 0velino &ru;. 0fter disposin" of the preli!inar$ ite!s in the a"enda, the stoc=holders then proceeded to the election of the !e!bers of the board of directors. The 0SI "roup no!inated three persons na!el$L 7olf"an" 0urbach, Dohn 2riffin and David P. 7hittin"ha!. The Philippine investors no!inated si%, na!el$L 8rnesto Ia"da!eo, Sr., Raul 0. <oncan, 8rnesto R. Ia"da!eo, Dr., 2eor"e 9. Iee, and <ald#in Ooun". Mr. 8duardo R, &eni;a then no!inated Mr. Iuciano 8. Sala;ar, #ho in turn no!inated Mr. &harles &ha!sa$. The chair!an, <ald#in Ooun" ruled the last t#o no!inations out of order on the basis of section 4 'a( of the 0"ree!ent, the consistent practice of the parties durin" the past annual stoc=holders* !eetin"s to no!inate onl$ nine persons as no!inees for the nine1!e!ber board of directors, and the le"al advice of Sani#ares* le"al counsel. The follo#in" events then, transpired6 ... There #ere protests a"ainst the action of the &hair!an and heated ar"u!ents ensued. 0n appeal #as !ade b$ the 0SI representative to the bod$ of stoc=holders present that a vote be ta=en on the rulin" of the &hair!an. The &hair!an, <ald#in Ooun", declared the appeal out of order and no vote on the rulin" #as

ta=en. The &hair!an then instructed the &orporate Secretar$ to cast all the votes present and represented b$ pro%$ e,uall$ for the > no!inees of the Philippine Investors and the / no!inees of 0SI, thus effectivel$ e%cludin" the 3 additional persons no!inated, na!el$, Iuciano 8. Sala;ar and &harles &ha!sa$. The 0SI representative, Mr. Da,ua protested the decision of the &hair!an and announced that all votes accruin" to 0SI shares, a total of -,/3.,>.4 'p. 3B, Rollo, 0&12.R. SP No. 54>-B( #ere bein" cu!ulativel$ voted for the three 0SI no!inees and &harles &ha!sa$, and instructed the Secretar$ to so vote. Iuciano 8. Sala;ar and other pro%$ holders announced that all the votes o#ned b$ and or represented b$ the! :>B,-.B shares 'p. 3B, Rollo, 0&1 2.R. SP No. 54>-B( #ere bein" voted cu!ulativel$ in favor of Iuciano 8. Sala;ar. The &hair!an, <ald#in Ooun", nevertheless instructed the Secretar$ to cast all votes e,uall$ in favor of the three 0SI no!inees, na!el$, 7olf"an" 0urbach, Dohn 2riffin and David 7hittin"ha! and the si% ori"inall$ no!inated b$ Ro"elio Vinluan, na!el$, 8rnesto Ia"da!eo, Sr., Raul <oncan, 8rnesto Ia"da!eo, Dr., 8nri,ue Ia"da!eo, 2eor"e 9. Iee, and <ald#in Ooun". The Secretar$ then certified for the election of the follo#in" 7olf"an" 0urbach, Dohn 2riffin, David 7hittin"ha! 8rnesto Ia"da!eo, Sr., 8rnesto Ia"da!eo, Dr., 8nri,ue Ia"da!eo, 2eor"e 9. Iee, Raul 0. <oncan, <ald#in Ooun". The representative of 0SI then !oved to recess the !eetin" #hich #as dul$ seconded. There #as also a !otion to adKourn 'p. 3C, Rollo, 0&12.R. SP No. 54>-B(. This !otion to adKourn #as accepted b$ the &hair!an, <ald#in Ooun", #ho announced that the !otion #as carried and declared the !eetin" adKourned. Protests a"ainst the adKourn!ent #ere re"istered and havin" been i"nored, Mr. Da,ua the 0SI representative, stated that the !eetin" #as not adKourned but onl$ recessed and that the !eetin" #ould be reconvened in the ne%t roo!. The &hair!an then threatened to have the stoc=holders #ho did not a"ree to the decision of the &hair!an on the castin" of votes bodil$ thro#n out. The

0SI 2roup, Iuciano 8. Sala;ar and other stoc=holders, alle"edl$ representin" 4/ or 4:F of the shares of Sani#ares, decided to continue the !eetin" at the elevator lobb$ of the 0!erican Standard <uildin". The continued !eetin" #as presided b$ Iuciano 8. Sala;ar, #hile 0ndres 2at!aitan acted as Secretar$. On the basis of the cu!ulative votes cast earlier in the !eetin", the 0SI 2roup no!inated its four no!ineesL 7olf"an" 0urbach, Dohn 2riffin, David 7hittin"ha! and &harles &ha!sa$. Iuciano 8. Sala;ar voted for hi!self, thus the said five directors #ere certified as elected directors b$ the 0ctin" Secretar$, 0ndres 2at!aitan, #ith the e%planation that there #as a tie a!on" the other si% '>( no!inees for the four ':( re!ainin" positions of directors and that the bod$ decided not to brea= the tie. 'pp. /B1 /., Rollo of B4.B41B>( These incidents tri""ered off the filin" of separate petitions b$ the parties #ith the Securities and 8%chan"e &o!!ission 'S8&(. The first petition filed #as for preli!inar$ inKunction b$ Sani#ares, 8!esto V. Ia"da!eo, <ald#in Ooun", Raul 0. <onean 8rnesto R. Ia"da!eo, Dr., 8nri,ue Ia"da!eo and 2eor"e 9. Iee a"ainst Iuciano Sala;ar and &harles &ha!sa$. The case #as deno!inated as S8& &ase No. 3:-B. The second petition #as for ,uo #arranto and application for receivership b$ 7olf"an" 0urbach, Dohn 2riffin, David 7hittin"ha!, Iuciano 8. Sala;ar and &harles &ha!sa$ a"ainst the "roup of Ooun" and Ia"da!eo 'petitioners in S8& &ase No. 3:-B( and 0velino 9. &ru;. The case #as doc=eted as S8& &ase No. 3B-C. <oth sets of parties e%cept for 0velino &ru; clai!ed to be the le"iti!ate directors of the corporation. The t#o petitions #ere consolidated and tried Kointl$ b$ a hearin" officer #ho rendered a decision upholdin" the election of the Ia"da!eo 2roup and dis!issin" the ,uo #arranto petition of Sala;ar and &ha!sa$. The 0SI 2roup and Sala;ar appealed the decision to the S8& en banc #hich affir!ed the hearin" officer*s decision. The S8& decision led to the filin" of t#o separate appeals #ith the Inter!ediate 0ppellate &ourt b$ 7olf"an" 0urbach, Dohn 2riffin, David 7hittin"ha! and &harles &ha!sa$ 'doc=eted as 0&12.R.

SP No. 54>5:( and b$ Iuciano 8. Sala;ar 'doc=eted as 0&12.R. SP No. 54>-B(. The petitions #ere consolidated and the appellate court in its decision ordered the re!and of the case to the Securities and 8%chan"e &o!!ission #ith the directive that a ne# stoc=holders* !eetin" of Sani#ares be ordered convo=ed as soon as possible, under the supervision of the &o!!ission. +pon a !otion for reconsideration filed b$ the appellees Ia"da!eo 2roup( the appellate court '&ourt of 0ppeals( rendered the ,uestioned a!ended decision. Petitioners 7olf"an" 0urbach, Dohn 2riffin, David P. 7hittin"ha! and &harles &ha!sa$ in 2.R. No. B4CB4 assi"n the follo#in" errors6 I. TH8 &O+RT O9 0PP80IS, IN 8998&T, +PH8ID TH8 0II828D 8I8&TION O9 PRIV0T8 R8SPOND8NTS 0S M8M<8RS O9 TH8 <O0RD O9 DIR8&TORS O9 S0NI70R8S 7H8N IN 90&T TH8R8 70S NO 8I8&TION 0T 0II. II. TH8 &O+RT O9 0PP80IS PROHI<ITS TH8 STO&NHOID8RS 9ROM 8P8R&ISIN2 TH8IR 9+II VOTIN2 RI2HTS R8PR8S8NT8D <O TH8 N+M<8R O9 SH0R8S IN S0NI70R8S, TH+S D8PRIVIN2 P8TITION8RS 0ND TH8 &ORPOR0TION TH8O R8PR8S8NT O9 TH8IR PROP8RTO RI2HTS 7ITHO+T D+8 PRO&8SS O9 I07. III. TH8 &O+RT O9 0PP80IS IMPOS8S &ONDITIONS 0ND R80DS PROVISIONS INTO TH8 02R88M8NT O9 TH8 P0RTI8S 7HI&H 78R8 NOT TH8R8, 7HI&H 0&TION IT &0NNOT I820IIO DO. 'p. -B, Rollo1 B4CB4( Petitioner Iuciano 8. Sala;ar in 2.R. Nos. B4.B41B> assails the a!ended decision on the follo#in" "rounds6 --.-. That0!endedDecision#ouldsanctionthe&0*sdisre"ard of bindin" contractual a"ree!ents entered into b$ stoc=holders and the replace!ent of the conditions of

such a"ree!ents #ith ter!s never conte!plated b$ the stoc=holders but !erel$ dictated b$ the &0 . --.3. The 0!ended decision #ould li=e#ise sanction the deprivation of the propert$ ri"hts of stoc=holders #ithout due process of la# in order that a favored "roup of stoc=holders !a$ be ille"all$ benefitted and "uaranteed a continuin" !onopol$ of the control of a corporation. 'pp. -:1-4, Rollo1B4.B41B>( On the other hand, the petitioners in 2.R. No. B4.4- contend that6 I TH8 0M8ND8D D8&ISION O9 TH8 R8SPOND8NT &O+RT, 7HII8 R8&O2NIQIN2 TH0T TH8 STO&NHOID8RS O9 S0NI70R8S 0R8 DIVID8D INTO T7O <IO&NS, 90IIS TO 9+IIO 8N9OR&8 TH8 <0SI& INT8NT O9 TH8 02R88M8NT 0ND TH8 I07. II TH8 0M8ND8D D8&ISION DO8S NOT &0T82ORI&0IIO R+I8 TH0T PRIV0T8 P8TITION8RS H8R8IN 78R8 TH8 D+IO 8I8&T8D DIR8&TORS D+RIN2 TH8 C M0R&H -.C/ 0NN+0I STO&NHOID8RS M88TIN2 O9 S0NT70R8S. 'P. 3:, Rollo1B4.4-( The issues raised in the petitions are interrelated, hence, the$ are discussed Kointl$. The !ain issue hin"es on #ho #ere the dul$ elected directors of Sani#ares for the $ear -.C/ durin" its annual stoc=holders* !eetin" held on March C, -.C/. To ans#er this ,uestion the follo#in" factors should be deter!ined6 '-( the nature of the business established b$ the parties #hether it #as a Koint venture or a corporation and '3( #hether or not the 0SI 2roup !a$ vote their additional -5F e,uit$ durin" elections of Sani#ares* board of directors.

The rule is that #hether the parties to a particular contract have thereb$ established a!on" the!selves a Koint venture or so!e other relation depends upon their actual intention #hich is deter!ined in accordance #ith the rules "overnin" the interpretation and construction of contracts. 'Ter!inal Shares, Inc. v. &hica"o, <. and ?.R. &o. 'D& MO( >4 9 Supp >BCL +niversal Sales &orp. v. &alifornia Press Mf". &o. 35 &al. 3nd B4-, -3C P 3nd >>C( The 0SI 2roup and petitioner Sala;ar '2.R. Nos. B4.B41B>( contend that the actual intention of the parties should be vie#ed strictl$ on the 0"ree!ent dated 0u"ust -4,-.>3 #herein it is clearl$ stated that the parties* intention #as to for! a corporation and not a Koint venture. The$ specificall$ !ention nu!ber -> under 2iscellaneous Provisions #hich states6 %%% %%% %%% c( nothin" herein contained shall be construed to constitute an$ of the parties hereto partners or Koint venturers in respect of an$ transaction hereunder. '0t P. >>, Rollo12R No. B4CB4( The$ obKect to the ad!ission of other evidence #hich tends to sho# that the parties* a"ree!ent #as to establish a Koint venture presented b$ the Ia"da!eo and Ooun" 2roup on the "round that it contravenes the parol evidence rule under section B, Rule -/5 of the Revised Rules of &ourt. 0ccordin" to the!, the Ia"da!eo and Ooun" 2roup never pleaded in their pleadin" that the 0"ree!ent failed to e%press the true intent of the parties. The parol evidence Rule under Rule -/5 provides6 8vidence of #ritten a"ree!ents17hen the ter!s of an a"ree!ent have been reduced to #ritin", it is to be considered as containin" all such ter!s, and therefore, there can be, bet#een the parties and their successors in interest, no evidence of the ter!s of the a"ree!ent

other than the contents of the #ritin", e%cept in the follo#in" cases6 'a( 7here a !ista=e or i!perfection of the #ritin", or its failure to e%press the true intent and a"ree!ent of the parties or the validit$ of the a"ree!ent is put in issue b$ the pleadin"s. 'b( 7hen there is an intrinsic a!bi"uit$ in the #ritin". &ontrar$ to 0SI 2roup*s stand, the Ia"da!eo and Ooun" 2roup pleaded in their Repl$ and 0ns#er to &ounterclai! in S8& &ase No. 3:-B that the 0"ree!ent failed to e%press the true intent of the parties, to #it6 %%% %%% %%% :. 7hile certain provisions of the 0"ree!ent #ould !a=e it appear that the parties thereto disclai! bein" partners or Koint venturers such disclai!er is directed at third parties and is not inconsistent #ith, and does not preclude, the e%istence of t#o distinct "roups of stoc=holders in Sani#ares one of #hich 'the Philippine Investors( shall constitute the !aKorit$, and the other 0SI shall constitute the !inorit$ stoc=holder. In an$ event, the evident intention of the Philippine Investors and 0SI in enterin" into the 0"ree!ent is to enter into aKoint venture enterprise, and if so!e #ords in the 0"ree!ent appear to be contrar$ to the evident intention of the parties, the latter shall prevail over the for!er '0rt. -/B5, Ne# &ivil &ode(. The various stipulations of a contract shall be interpreted to"ether attributin" to the doubtful ones that sense #hich !a$ result fro! all of the! ta=en Kointl$ '0rt. -/B:, Ne# &ivil &ode(. Moreover, in order to Kud"e the intention of the contractin" parties, their conte!poraneous and subse,uent acts shall be principall$ considered. '0rt. -/B-, Ne# &ivil &ode(. 'Part I, Ori"inal Records, S8& &ase No. 3:-B( It has been ruled6

In an action at la#, #here there is evidence tendin" to prove that the parties Koined their efforts in furtherance of an enterprise for their Koint profit, the ,uestion #hether the$ intended b$ their a"ree!ent to create a Koint adventure, or to assu!e so!e other relation is a ,uestion of fact for the Kur$. '<inder v. Nessler v 355 0pp. Div. :5,-.3 N O S >4/L P$roa v. <ro#nfield 'Te%. &iv. 0.( 3/C S7 B34L Ho"e v. 2eor"e, 3B 7$o, :3/, 355 P .> // &.D. p. CB-( In the instant cases, our e%a!ination of i!portant provisions of the 0"ree!ent as #ell as the testi!onial evidence presented b$ the Ia"da!eo and Ooun" 2roup sho#s that the parties a"reed to establish a Koint venture and not a corporation. The histor$ of the or"ani;ation of Sani#ares and the unusual arran"e!ents #hich "overn its polic$ !a=in" bod$ are all consistent #ith a Koint venture and not #ith an ordinar$ corporation. 0s stated b$ the S8&6 0ccordin" to the unrebutted testi!on$ of Mr. <ald#in Ooun", he ne"otiated the 0"ree!ent #ith 0SI in behalf of the Philippine nationals. He testified that 0SI a"reed to accept the role of !inorit$ vis1a1vis the Philippine National "roup of investors, on the condition that the 0"ree!ent should contain provisions to protect 0SI as the !inorit$. 0n e%a!ination of the 0"ree!ent sho#s that certain provisions #ere included to protect the interests of 0SI as the !inorit$. 9or e%a!ple, the vote of B out of . directors is re,uired in certain enu!erated corporate acts @Sec. / 'b( 'ii( 'a( of the 0"ree!entA. 0SI is contractuall$ entitled to desi"nate a !e!ber of the 8%ecutive &o!!ittee and the vote of this !e!ber is re,uired for certain transactions @Sec. / 'b( 'i(A. The 0"ree!ent also re,uires a B4F super1!aKorit$ vote for the a!end!ent of the articles and b$1la#s of Sani#ares @Sec. / 'a( 'iv( and 'b( 'iii(A. 0SI is also "iven the ri"ht to desi"nate the president and plant !ana"er @Sec. 4 '>(A. The 0"ree!ent further provides that the sales polic$ of Sani#ares shall be that #hich is nor!all$

follo#ed b$ 0SI @Sec. -/ 'a(A and that Sani#ares should not e%port Standard products other#ise than throu"h 0SI*s 8%port Mar=etin" Services @Sec. -/ '>(A. +nder the 0"ree!ent, 0SI a"reed to provide technolo"$ and =no#1 ho# to Sani#ares and the latter paid ro$alties for the sa!e. '0t p. 3(. %%% %%% %%% It is pertinent to note that the provisions of the 0"ree!ent re,uirin" a B out of . votes of the board of directors for certain actions, in effect "ave 0SI '#hich desi"nates / directors under the 0"ree!ent( an effective veto po#er. 9urther!ore, the "rant to 0SI of the ri"ht to desi"nate certain officers of the corporationL the super1 !aKorit$ votin" re,uire!ents for a!end!ents of the articles and b$1la#sL and !ost si"nificantl$ to the issues of t!s case, the provision that 0SI shall desi"nate / out of the . directors and the other stoc=holders shall desi"nate the other >, clearl$ indicate that there are t#o distinct "roups in Sani#ares, na!el$ 0SI, #hich o#ns :5F of the capital stoc= and the Philippine National stoc=holders #ho o#n the balance of >5F, and that 3( 0SI is "iven certain protections as the !inorit$ stoc=holder. Pre!ises considered, #e believe that under the 0"ree!ent there are t#o "roups of stoc=holders #ho established a corporation #ith provisions for a special contractual relationship bet#een the parties, i.e., 0SI and the other stoc=holders. 'pp. :14( Section 4 'a( of the a"ree!ent uses the #ord desi"nated and not no!inated or elected in the selection of the nine directors on a si% to three ratio. 8ach "roup is assured of a fi%ed nu!ber of directors in the board. Moreover, 0SI in its co!!unications referred to the enterprise as Koint venture. <ald#in Ooun" also testified that Section ->'c( of the 0"ree!ent that Nothin" herein contained shall be construed to constitute an$ of the parties hereto partners or Koint venturers in

respect of an$ transaction hereunder #as !erel$ to obviate the possibilit$ of the enterprise bein" treated as partnership for ta% purposes and liabilities to third parties. ?uite often, 9ilipino entrepreneurs in their desire to develop the industrial and !anufacturin" capacities of a local fir! are constrained to see= the technolo"$ and !ar=etin" assistance of hu"e !ultinational corporations of the developed #orld. 0rran"e!ents are for!ali;ed #here a forei"n "roup beco!es a !inorit$ o#ner of a fir! in e%chan"e for its !anufacturin" e%pertise, use of its brand na!es, and other such assistance. Ho#ever, there is al#a$s a dan"er fro! such arran"e!ents. The forei"n "roup !a$, fro! the start, intend to establish its o#n sole or !onopolistic operations and !erel$ uses the Koint venture arran"e!ent to "ain a foothold or test the Philippine #aters, so to spea=. Or the covetousness !a$ co!e later. 0s the Philippine fir! enlar"es its operations and beco!es profitable, the forei"n "roup under!ines the local !aKorit$ o#nership and activel$ tries to co!pletel$ or predo!inantl$ ta=e over the entire co!pan$. This under!inin" of Koint ventures is not consistent #ith fair dealin" to sa$ the least. To the e%tent that such subversive actions can be la#full$ prevented, the courts should e%tend protection especiall$ in industries #here constitutional and le"al re,uire!ents reserve controllin" o#nership to 9ilipino citi;ens. The Ia"da!eo 2roup stated in their appellees* brief in the &ourt of 0ppeal In fact, the Philippine &orporation &ode itself reco"ni;es the ri"ht of stoc=holders to enter into a"ree!ents re"ardin" the e%ercise of their votin" ri"hts. Sec. -55. 0"ree!ents b$ stoc=holders.1 %%% %%% %%% 3. 0n a"ree!ent bet#een t#o or !ore stoc=holders, if in #ritin" and si"ned b$ the parties thereto, !a$ provide that in e%ercisin" an$ votin" ri"hts, the shares held b$ the! shall be voted as therein provided, or as the$ !a$

a"ree, or as deter!ined in accordance #ith a procedure a"reed upon b$ the!. 0ppellants contend that the above provision is included in the &orporation &ode*s chapter on close corporations and Sani#ares cannot be a close corporation because it has .4 stoc=holders. 9irstl$, althou"h Sani#ares had .4 stoc=holders at the ti!e of the disputed stoc=holders !eetin", these .4 stoc=holders are not separate fro! each other but are divisible into "roups representin" a sin"le Identifiable interest. 9or e%a!ple, 0SI, its no!inees and la#$ers count for -/ of the .4 stoc=holders. The Ooun"Outivo fa!il$ count for another -/ stoc=holders, the &ha!sa$ fa!il$ for C stoc=holders, the Santos fa!il$ for . stoc=holders, the D$ fa!il$ for B stoc=holders, etc. If the !e!bers of one fa!il$ andGor business or interest "roup are considered as one '#hich, it is respectfull$ sub!itted, the$ should be for purposes of deter!inin" ho# closel$ held Sani#ares is there #ere as of C March -.C/, practicall$ onl$ -B stoc=holders of Sani#ares. 'Please refer to discussion in pp. 4 to > of appellees* ReKoinder Me!orandu! dated -- Dece!ber -.C: and 0nne% 0 thereof(. Secondl$, even assu!in" that Sani#ares is technicall$ not a close corporation because it has !ore than 35 stoc=holders, the undeniable fact is that it is a close* held corporation. Surel$, appellants cannot honestl$ clai! that Sani#ares is a public issue or a #idel$ held corporation. In the +nited States, !an$ courts have ta=en a realistic approach to Koint venture corporations and have not ri"idl$ applied principles of corporation la# desi"ned pri!aril$ for public issue corporations. These courts have indicated that e%press arran"e!ents bet#een corporate Koint ventures should be construed #ith less e!phasis on the ordinar$ rules of la# usuall$ applied to corporate entities and #ith !ore consideration "iven to the nature of the a"ree!ent bet#een the Koint venturers 'Please see 7abash R$ v. 0!erican Refri"erator Transit &o., B

9 3d //4L &hica"o, M J St. P. R$ v. Des Moines +nion R$L 34: 0ss*n. 3:B +S. :.5*L Seaboard 0irline R$ v. 0tlantic &oast Iine R$L 3:5 N.&. :.4,.C3 S.8. 3d BB-L Debo$ v. Harris, 35B Md., 3-3,--/ 0 3d .5/L Hath#a$ v. Porter Ro$alt$ Pool, Inc., 3.> Mich. .5, .5, 3.4 N.7. 4B-L <eardsle$ v. <eardsle$, -/C +.S. 3>3L The Ie"al Status of Doint Venture &orporations , -- Vand Ia# Rev. p. >C5,-.4C(. These 0!erican cases dealt #ith le"al ,uestions as to the e%tent to #hich the re,uire!ents arisin" fro! the corporate for! of Koint venture corporations should control, and the courts ruled that substantial Kustice la$ #ith those liti"ants #ho relied on the Koint venture a"ree!ent rather than the liti"ants #ho relied on the orthodo% principles of corporation la#. 0s correctl$ held b$ the S8& Hearin" Officer6 It is said that participants in a Koint venture, in or"ani;in" the Koint venture deviate fro! the traditional pattern of corporation !ana"e!ent. 0 noted authorit$ has pointed out that Kust as in close corporations, shareholders* a"ree!ents in Koint venture corporations often contain provisions #hich do one or !ore of the follo#in"6 '-( re,uire "reater than !aKorit$ vote for shareholder and director actionL '3( "ive certain shareholders or "roups of shareholders po#er to select a specified nu!ber of directorsL '/( "ive to the shareholders control over the selection and retention of e!plo$eesL and ':( set up a procedure for the settle!ent of disputes b$ arbitration 'See I O* Neal, &lose &orporations, -.B- ed., Section -.5>a, pp. -41->( 'Decision of S8& Hearin" Officer, P. ->( Thirdl$ para"raph 3 of Sec. -55 of the &orporation &ode does not necessaril$ i!pl$ that a"ree!ents re"ardin" the e%ercise of votin" ri"hts are allo#ed onl$ in close corporations. 0s &a!pos and Iope;1&a!pos e%plain6 Para"raph 3 refers to poolin" and votin" a"ree!ents in particular. Does this provision necessaril$ i!pl$ that these a"ree!ents can be valid onl$ in close corporations

as defined b$ the &ode) Suppose that a corporation has t#ent$ five stoc=holders, and therefore cannot ,ualif$ as a close corporation under section .>, can so!e of the! enter into an a"ree!ent to vote as a unit in the election of directors) It is sub!itted that there is no reason for den$in" stoc=holders of corporations other than close ones the ri"ht to enter into not votin" or poolin" a"ree!ents to protect their interests, as lon" as the$ do not intend to co!!it an$ #ron", or fraud on the other stoc=holders not parties to the a"ree!ent. Of course, votin" or poolin" a"ree!ents are perhaps !ore useful and !ore often resorted to in close corporations. <ut the$ !a$ also be found necessar$ even in #idel$ held corporations. Moreover, since the &ode li!its the le"al !eanin" of close corporations to those #hich co!pl$ #ith the re,uisites laid do#n b$ section .>, it is entirel$ possible that a corporation #hich is in fact a close corporation #ill not co!e #ithin the definition. In such case, its stoc=holders should not be precluded fro! enterin" into contracts li=e votin" a"ree!ents if these are other#ise valid. '&a!pos J Iope;1&a!pos, op cit, p. :54( In short, even assu!in" that sec. 4'a( of the 0"ree!ent relatin" to the desi"nation or no!ination of directors restricts the ri"ht of the 0"ree!ent*s si"natories to vote for directors, such contractual provision, as correctl$ held b$ the S8&, is valid and bindin" upon the si"natories thereto, #hich include appellants. 'Rollo No. B4.4-, pp. .51.:( In re"ard to the ,uestion as to #hether or not the 0SI "roup !a$ vote their additional e,uit$ durin" elections of Sani#ares* board of directors, the &ourt of 0ppeals correctl$ stated6 0s in other Koint venture co!panies, the e%tent of 0SI*s participation in the !ana"e!ent of the corporation is spelled out in the 0"ree!ent. Section 4'a( hereof sa$s that three of the nine directors shall be desi"nated b$ 0SI and the re!ainin" si% b$ the other stoc=holders, i.e., the 9ilipino stoc=holders. This allocation of board seats

is obviousl$ in consonance #ith the !inorit$ position of 0SI. Havin" entered into a #ell1defined contractual relationship, it is i!perative that the parties should honor and adhere to their respective ri"hts and obli"ations thereunder. 0ppellants see! to contend that an$ allocation of board seats, even in Koint venture corporations, are null and void to the e%tent that such !a$ interfere #ith the stoc=holder*s ri"hts to cu!ulative votin" as provided in Section 3: of the &orporation &ode. This &ourt should not be prepared to hold that an$ a"ree!ent #hich curtails in an$ #a$ cu!ulative votin" should be struc= do#n, even if such a"ree!ent has been freel$ entered into b$ e%perienced business!en and do not preKudice those #ho are not parties thereto. It !a$ #ell be that it #ould be !ore co"ent to hold, as the Securities and 8%chan"e &o!!ission has held in the decision appealed fro!, that cu!ulative votin" ri"hts !a$ be voluntaril$ #aived b$ stoc=holders #ho enter into special relationships #ith each other to pursue and i!ple!ent specific purposes, as in Koint venture relationships bet#een forei"n and local stoc=holders, so lon" as such a"ree!ents do not adversel$ affect third parties. In an$ event, it is believed that #e are not here called upon to !a=e a "eneral rule on this ,uestion. Rather, all that needs to be done is to "ive life and effect to the particular contractual ri"hts and obli"ations #hich the parties have assu!ed for the!selves. On the one hand, the clearl$ established !inorit$ position of 0SI and the contractual allocation of board seats &annot be disre"arded. On the other hand, the ri"hts of the stoc=holders to cu!ulative votin" should also be protected. In our decision sou"ht to be reconsidered, #e opted to uphold the second over the first. +pon further reflection, #e feel that the proper and Kust solution to "ive due

consideration to both factors su""ests itself ,uite clearl$. This &ourt should reco"ni;e and uphold the division of the stoc=holders into t#o "roups, and at the sa!e ti!e uphold the ri"ht of the stoc=holders #ithin each "roup to cu!ulative votin" in the process of deter!inin" #ho the "roup*s no!inees #ould be. In practical ter!s, as su""ested b$ appellant Iuciano 8. Sala;ar hi!self, this !eans that if the 9ilipino stoc=holders cannot a"ree #ho their si% no!inees #ill be, a vote #ould have to be ta=en a!on" the 9ilipino stoc=holders onl$. Durin" this votin", each 9ilipino stoc=holder can cu!ulate his votes. 0SI, ho#ever, should not be allo#ed to interfere in the votin" #ithin the 9ilipino "roup. Other#ise, 0SI #ould be able to desi"nate !ore than the three directors it is allo#ed to desi"nate under the 0"ree!ent, and !a$ even be able to "et a !aKorit$ of the board seats, a result #hich is clearl$ contrar$ to the contractual intent of the parties. Such a rulin" #ill "ive effect to both the allocation of the board seats and the stoc=holder*s ri"ht to cu!ulative votin". Moreover, this rulin" #ill also "ive due consideration to the issue raised b$ the appellees on possible violation or circu!vention of the 0nti1Du!!$ Ia# '&o!. 0ct No. -5C, as a!ended( and the nationali;ation re,uire!ents of the &onstitution and the la#s if 0SI is allo#ed to no!inate !ore than three directors. 'Rollo1B4CB4, pp. /C1/.( The 0SI 2roup and petitioner Sala;ar, no# reiterate their theor$ that the 0SI 2roup has the ri"ht to vote their additional e,uit$ pursuant to Section 3: of the &orporation &ode #hich "ives the stoc=holders of a corporation the ri"ht to cu!ulate their votes in electin" directors. Petitioner Sala;ar adds that this ri"ht if "ranted to the 0SI 2roup #ould not necessaril$ !ean a violation of the 0nti1 Du!!$ 0ct '&o!!on#ealth 0ct -5C, as a!ended(. He cites section 31a thereof #hich provides6 0nd provided finall$ that the election of aliens as !e!bers of the board of directors or "overnin" bod$ of corporations or associations en"a"in" in partiall$ nationali;ed activities shall be allo#ed in proportion to

their allo#able participation or share in the capital of such entities. 'a!end!ents introduced b$ Presidential Decree B-4, section -, pro!ul"ated Ma$ 3C, -.B4( The 0SI 2roup*s ar"u!ent is correct #ithin the conte%t of Section 3: of the &orporation &ode. The point of ,uer$, ho#ever, is #hether or not that provision is applicable to a Koint venture #ith clearl$ defined a"ree!ents6 The le"al concept of aKoint venture is of co!!on la# ori"in. It has no precise le"al definition but it has been "enerall$ understood to !ean an or"ani;ation for!ed for so!e te!porar$ purpose. '2ates v. Me"ar"el, 3>> 9ed. C-- @-.35A( It is in fact hardl$ distin"uishable fro! the partnership, since their ele!ents are si!ilar co!!unit$ of interest in the business, sharin" of profits and losses, and a !utual ri"ht of control. <lac=ner v. Mc Der!ott, -B> 9. 3d. :.C, @-.:.AL &arboneau v. Peterson, .4 P. 3d., -5:/ @-./.AL <uc=le$ v. &had#ic=, :4 &al. 3d. -C/, 3CC P. 3d. -3 3C. P. 3d. 3:3 @-.44A(. The !ain distinction cited b$ !ost opinions in co!!on la# Kurisdictions is that the partnership conte!plates a "eneral business #ith so!e de"ree of continuit$, #hile the Koint venture is for!ed for the e%ecution of a sin"le transaction, and is thus of a te!porar$ nature. 'Tufts v. Mann --> &al. 0pp. -B5, 3 P. 3d. 455 @-./-AL Har!on v. Martin, /.4 ---. 4.4, B- N8 3d. B: @-.:BAL 2ates v. Me"ar"el 3>> 9ed. C-- @-.35A(. This observation is not entirel$ accurate in this Kurisdiction, since under the &ivil &ode, a partnership !a$ be particular or universal, and a particular partnership !a$ have for its obKect a specific underta=in". '0rt. -BC/, &ivil &ode(. It #ould see! therefore that under Philippine la#, a Koint venture is a for! of partnership and should thus be "overned b$ the la# of partnerships. The Supre!e &ourt has ho#ever reco"ni;ed a distinction bet#een these t#o business for!s, and has held that althou"h a corporation cannot enter into a partnership contract, it !a$ ho#ever en"a"e in a Koint venture #ith others. '0t p. -3, Tua;on v. <olanos, .4 Phil. .5> @-.4:A( '&a!pos and Iope;1

&a!pos &o!!ents, Notes and Selected &ases, &orporation &ode -.C-( Moreover, the usual rules as re"ards the construction and operations of contracts "enerall$ appl$ to a contract of Koint venture. 'O* Hara v. Har!an -: 0pp. Dev. '->B( :/ NOS 44>(. <earin" these principles in !ind, the correct vie# #ould be that the resolution of the ,uestion of #hether or not the 0SI 2roup !a$ vote their additional e,uit$ lies in the a"ree!ent of the parties. Necessaril$, the appellate court #as correct in upholdin" the a"ree!ent of the parties as re"ards the allocation of director seats under Section 4 'a( of the 0"ree!ent, and the ri"ht of each "roup of stoc=holders to cu!ulative votin" in the process of deter!inin" #ho the "roup*s no!inees #ould be under Section / 'a( '-( of the 0"ree!ent. 0s pointed out b$ S8&, Section 4 'a( of the 0"ree!ent relates to the !anner of no!inatin" the !e!bers of the board of directors #hile Section / 'a( '-( relates to the !anner of votin" for these no!inees. This is the proper interpretation of the 0"ree!ent of the parties as re"ards the election of !e!bers of the board of directors. To allo# the 0SI 2roup to vote their additional e,uit$ to help elect even a 9ilipino director #ho #ould be beholden to the! #ould obliterate their !inorit$ status as a"reed upon b$ the parties. 0s aptl$ stated b$ the appellate court6 ... 0SI, ho#ever, should not be allo#ed to interfere in the votin" #ithin the 9ilipino "roup. Other#ise, 0SI #ould be able to desi"nate !ore than the three directors it is allo#ed to desi"nate under the 0"ree!ent, and !a$ even be able to "et a !aKorit$ of the board seats, a result #hich is clearl$ contrar$ to the contractual intent of the parties. Such a rulin" #ill "ive effect to both the allocation of the board seats and the stoc=holder*s ri"ht to cu!ulative votin". Moreover, this rulin" #ill also "ive due consideration to the issue raised b$ the appellees on

possible violation or circu!vention of the 0nti1Du!!$ Ia# '&o!. 0ct No. -5C, as a!ended( and the nationali;ation re,uire!ents of the &onstitution and the la#s if 0SI is allo#ed to no!inate !ore than three directors. '0t p. /., Rollo, B4CB4( 8,uall$ i!portant as the consideration of the contractual intent of the parties is the consideration as re"ards the possible do!ination b$ the forei"n investors of the enterprise in violation of the nationali;ation re,uire!ents enshrined in the &onstitution and circu!vention of the 0nti1Du!!$ 0ct. In this re"ard, petitioner Sala;ar*s position is that the 0nti1Du!!$ 0ct allo#s the 0SI "roup to elect board directors in proportion to their share in the capital o the entit+. It is to be noted, ho#ever, that the sa!e la# also li!its the election of aliens as !e!bers of the board of directors inproportion to their allo&ance participation of said entit$. In the instant case, the forei"n 2roup 0SI #as li!ited to desi"nate three directors. This is the allo#able participation of the 0SI 2roup. Hence, in future dealin"s, this li!itation of si% to three board seats should al#a$s be !aintained as lon" as the Koint venture a"ree!ent e%ists considerin" that in li!itin" / board seats in the .1 !an board of directors there are provisions alread$ a"reed upon and e!bodied in the parties* 0"ree!ent to protect the interests arisin" fro! the !inorit$ status of the forei"n investors. 7ith these findin"s, #e the decisions of the S8& Hearin" Officer and S8& #hich #ere i!pliedl$ affir!ed b$ the appellate court declarin" Messrs. 7olf"an" 0urbach, Dohn 2riffin, David P 7hittin"ha!, 8!esto V. Ia"da!eo, <ald#in $oun", Raul 0. <oncan, 8!esto V. Ia"da!eo, Dr., 8nri,ue Ia"da!eo, and 2eor"e 9. Iee as the dul$ elected directors of Sani#ares at the March C,-.C/ annual stoc=holders* !eetin". On the other hand, the Ia"da!eo and Ooun" 2roup 'petitioners in 2.R. No. B4.4-( obKect to a cu!ulative votin" durin" the election of the board of directors of the enterprise as ruled b$ the appellate court and sub!its that the si% '>( directors allotted the 9ilipino stoc=holders should be selected b$ consensus pursuant to section 4 'a( of the 0"ree!ent #hich uses the #ord desi"nate !eanin" nominate! delegate or appoint.

The$ also stress the possibilit$ that the 0SI 2roup !i"ht ta=e control of the enterprise if the 9ilipino stoc=holders are allo#ed to select their no!inees separatel$ and not as a co!!on slot deter!ined b$ the !aKorit$ of their "roup. Section 4 'a( of the 0"ree!ent #hich uses the #ord desi"nates in the allocation of board directors should not be interpreted in isolation. This should be construed in relation to section / 'a( '-( of the 0"ree!ent. 0s #e stated earlier, section /'a( '-( relates to the manner o voting for these no!inees #hich is cumulative voting #hile section 4'a( relates to the !anner of nominating the members of the board of directors. The petitioners in 2.R. No. B4.4- a"reed to this procedure, hence, the$ cannot no# i!pu"n its le"alit$. The insinuation that the 0SI 2roup !a$ be able to control the enterprise under the cu!ulative votin" procedure cannot, ho#ever, be i"nored. The validit$ of the cu!ulative votin" procedure is dependent on the directors thus elected bein" "enuine !e!bers of the 9ilipino "roup, not voters #hose interest is to increase the 0SI share in the !ana"e!ent of Sani#ares. The Koint venture character of the enterprise !ust al#a$s be ta=en into account, so lon" as the co!pan$ e%ists under its ori"inal a"ree!ent. &u!ulative votin" !a$ not be used as a device to enable 0SI to achieve stealthil$ or indirectl$ #hat the$ cannot acco!plish openl$. There are substantial safe"uards in the 0"ree!ent #hich are intended to preserve the !aKorit$ status of the 9ilipino investors as #ell as to !aintain the !inorit$ status of the forei"n investors "roup as earlier discussed. The$ should be !aintained. 7H8R89OR8, the petitions in 2.R. Nos. B4.B41B> and 2.R. No. B4CB4 are DISMISS8D and the petition in 2.R. No. B4.4- is partl$ 2R0NT8D. The a!ended decision of the &ourt of 0ppeals is MODI9I8D in that Messrs. 7olf"an" 0urbach Dohn 2riffin, David 7hittin"ha! 8!esto V. Ia"da!eo, <ald#in Ooun", Raul 0. <oncan, 8rnesto R. Ia"da!eo, Dr., 8nri,ue Ia"da!eo, and 2eor"e 9. Iee are declared as the dul$ elected directors of Sani#ares at the March C,-.C/ annual stoc=holders* !eetin". In all other respects, the ,uestioned decision is 099IRM8D. &osts a"ainst the petitioners in 2.R. Nos. B4.B41B> and 2.R. No. B4CB4.

SO ORD8R8D. Fernan! C.,.! GChairmanH! 1idin and Cortes! ,,.! concur. Feliciano! ,.! too9 no part. Republic of the Philippines SUPREME COURT Manila S8&OND DIVISION G.R. No. 159333 Ju-y 31, 2666

ARSENIO T. MEN%IO"A, petitioner, vs. COURT OF APPEA"S, NATIONA" "A!OR RE"ATIONS COMMISSION, PACIFIC FOREST RESOURCES, P I"S., INC. an0Nor CE""MARE A!, respondents. D8&ISION PUNO, J.> On appeal are the Decision- and Resolution3 of the &ourt of 0ppeals, dated Danuar$ /5, 355/ and Dul$ /5, 355/, respectivel$, in &012.R. SP No. B-53C, affir!in" the rulin" / of the National Iabor Relations &o!!ission 'NIR&(, #hich in turn set aside the Dul$ /5, 355- Decision: of the labor arbiter. The labor arbiter declared ille"al the dis!issal of petitioner fro! e!plo$!ent and a#arded separation pa$, !oral and e%e!plar$ da!a"es, and attorne$*s fees. The facts are as follo#s6 Private respondent Pacific 9orest Resources, Phils., Inc. 'Pacfor( is a corporation or"ani;ed and e%istin" under the la#s of &alifornia, +S0. It is a subsidiar$ of &ellulose Mar=etin" International, a corporation dul$ or"ani;ed under the la#s of S#eden, #ith principal office in 2othenbur", S#eden.

Private respondent Pacfor entered into a Side 0"ree!ent on Representative Office =no#n as Pacific 9orest Resources 'Phils.(, Inc. 4 #ith petitioner 0rsenio T. Mendiola '0TM(, effective Ma$ -, -..4, assu!in" that Pacfor1Phils. is alread$ approved b$ the Securities and 8%chan"e &o!!ission @S8&A on the said date. > The Side 0"ree!ent outlines the business relationship of the parties #ith re"ard to the Philippine operations of Pacfor. Private respondent #ill establish a Pacfor representative office in the Philippines, to be =no#n as Pacfor Phils, and petitioner 0TM #ill be its President. Petitioner*s base salar$ and the overhead e%penditures of the co!pan$ shall be borne b$ the representative office and funded b$ PacforG0TM, since Pacfor Phils. is e,uall$ o#ned on a 45145 e,uit$ b$ 0TM and Pacfor1usa. On Dul$ -:, -..4, the S8& "ranted the application of private respondent Pacfor for a license to transact business in the Philippines under the na!e of Pacfor or Pacfor Phils. B In its application, private respondent Pacfor proposed to establish its representative office in the Philippines #ith the purpose of !onitorin" and coordinatin" the !ar=et activities for paper products. It also desi"nated petitioner as its resident a"ent in the Philippines, authori;ed to accept su!!ons and processes in all le"al proceedin"s, and all notices affectin" the corporation. C In March -..B, the Side 0"ree!ent #as a!ended throu"h a Revised Operatin" and Profit Sharin" 0"ree!ent for the Representative Office Nno#n as Pacific 9orest Resources 'Philippines(, . #here the salar$ of petitioner #as increased to SBC,555 per annu!. <oth a"ree!ents sho# that the operational e%penses #ill be borne b$ the representative office and funded b$ all parties as e,ual partners, #hile the profits and co!!issions #ill be shared a!on" the!. In Dul$ 3555, petitioner #rote Nevin Dale$, Vice President for 0sia of Pacfor, see=in" confir!ation of his 45F e,uit$ of Pacfor Phils.-5 Private respondent Pacfor, throu"h 7illia! 2leason, its President, replied that petitioner is not a part1o#ner of Pacfor Phils. because the latter is !erel$ Pacfor1+S0*s representative office and not an entit$ separate and distinct fro! Pacfor1+S0. It*s si!pl$ a *theoretical co!pan$* #ith the purpose of dividin" the inco!e 451 45. --Petitioner presu!abl$ =ne# of this arran"e!ent fro! the start,

havin" been the one to propose to private respondent Pacfor the settin" up of a representative office, and not a branch office in the Philippines to save on ta%es.-3 Petitioner clai!ed that he #as all alon" !ade to believe that he #as in a Koint venture #ith the!. He alle"ed he #ould have been better off re!ainin" as an independent a"ent or representative of Pacfor1 +S0 as 0TM Mar=etin" &orp.-/Had he =no#n that no Koint venture e%isted, he #ould not have allo#ed Pacfor to ta=e the profitable business of his o#n co!pan$, 0TM Mar=etin" &orp. -: Petitioner raised other issues, such as the rentals of office furniture, salar$ of the e!plo$ees, co!pan$ car, as #ell as co!!issions alle"edl$ due hi!. The issues #ere not resolved, hence, in October 3555, petitioner #rote Pacfor1+S0 de!andin" pa$!ent of unpaid co!!issions and office furniture and e,uip!ent rentals, a!ountin" to !ore than one !illion dollars.-4 On Nove!ber 3B, 3555, private respondent Pacfor, throu"h counsel, ordered petitioner to turn over to it all papers, docu!ents, files, records, and other !aterials in his or 0TM Mar=etin" &orporation*s possession that belon" to Pacfor or Pacfor Phils. -> On Dece!ber -C, 3555, private respondent Pacfor also re,uired petitioner to re!it !ore than three hundred thousand1peso &hrist!as "ivea#a$ fund for clients of Pacfor Phils. -B Iastl$, private respondent Pacfor #ithdre# all its offers of settle!ent and ordered petitioner to transfer title and turn over to it possession of the service car.-C Private respondent Pacfor li=e#ise sent letters to its clients in the Philippines, advisin" the! not to deal #ith Pacfor Phils. In its letter to Intercontinental Paper Industries, Inc., dated Nove!ber 3-, 3555, private respondent Pacfor stated6 +ntil further notice, please course all in,uiries and co!!unications for Pacific 9orest Resources 'Philippines( to6 Pacific 9orest Resources 355 Ta!al Pla;a, Suite 355 &orte Madera, &0, +S0 .:.34 ':-4( .3B -B55 phone ':-4( /C- :/4C fa%

Please do not send an$ co!!unication to Mr. 0rsenio <o$ T. Mendiola or to the offices of 0TM Mar=etin" &orporation at Roo! 45:, &oncorde <uildin", Ie"aspi Villa"e, Ma=ati &it$, Philippines.-. In another letter addressed to Davao &orru"ated &arton &orp. 'D0V&OR(, dated Dece!ber 3555, private respondent directed said client to please co!!unicate directl$ #ith us on an$ further ,uestions associated #ith these pa$!ents or an$ future business. Do not co!!unicate #ith @PacforA andGor @0TMA. 35 Petitioner construed these directives as a severance of the unre"istered partnership bet#een hi! and Pacfor, and the ter!ination of his e!plo$!ent as resident !ana"er of Pacfor Phils.3- In a !e!orandu! to the e!plo$ees of Pacfor Phils., dated Danuar$ 3., 355-, he stated6 I received a letter fro! Pacific 9orest Resources, Inc. de!andin" the turnover of all records to the! effective Dece!ber -., 3555. The co!pan$ records #ere turned over onl$ on Danuar$ 3>, 355-. This !eans our Kobs #ith Pacific 9orest #ere ter!inated effective Dece!ber -., 3555. I a! concerned about $our #elfare. I #ould li=e to help $ou b$ offerin" $ou to #or= #ith 0TM Mar=etin" &orporation. Please let !e =no# if $ou are interested.33 On the basis of the Side 0"ree!ent, petitioner insisted that he and Pacfor e,uall$ o#n Pacfor Phils. Thus, it follo#s that he and Pacfor li=e#ise o#n, on a 45G45 basis, Pacfor Phils.* office furniture and e,uip!ent and the service car. He also reiterated his de!and for unpaid co!!issions, and proposed to offset these #ith the re!ainin" &hrist!as "ivea#a$ fund in his possession.3/ 9urther!ore, he did not rene# the lease contract #ith Pulp and Paper, Inc., the lessor of the office pre!ises of Pacfor Phils., #herein he #as the si"nator$ to the lease a"ree!ent. 3: On 9ebruar$ 3, 355-, private respondent Pacfor placed petitioner on preventive suspension and ordered hi! to sho# cause #h$ no disciplinar$ action should be ta=en a"ainst hi!. Private respondent Pacfor char"ed petitioner #ith #illful disobedience and serious

!isconduct for his refusal to turn over the service car and the &hrist!as "ivea#a$ fund #hich he applied to his alle"ed unpaid co!!issions. Private respondent also alle"ed loss of confidence and "ross ne"lect of dut$ on the part of petitioner for alle"edl$ allo#in" another corporation o#ned b$ petitioner*s relatives, Hi"h 8nd Products, Inc. 'H8PI(, to use the sa!e telephone and facsi!ile nu!bers of Pacfor, to possibl$ steal and divert the sales and business of private respondent for H8PI*s principal, International 9orest Products, a co!petitor of private respondent. 34 Petitioner denied the char"es. He reiterated that he considered the i!port of Pacfor President 7illia! 2leason*s letters as a cessation of his position and of the e%istence of Pacfor Phils. He li=e#ise infor!ed private respondent Pacfor that 0TM Mar=etin" &orp. no# occupies Pacfor Phils.* office pre!ises, 3> and de!anded pa$!ent of his separation pa$.3B On 9ebruar$ -4, 355-, petitioner filed his co!plaint for ille"al dis!issal, recover$ of separation pa$, and pa$!ent of attorne$*s fees #ith the NIR&. 3C In the !eanti!e, private respondent Pacfor lod"ed fresh char"es a"ainst petitioner. In a !e!orandu! dated March 4, 355-, private respondent directed petitioner to e%plain #h$ he should not be disciplined for serious !isconduct and conflict of interest. Private respondent char"ed petitioner ane# #ith serious !isconduct for the latter*s alle"ed act of fraud and !isrepresentation in authori;in" the release of an additional peso salar$ for hi!self, besides the dollar salar$ a"reed upon b$ the parties. Private respondent also accused petitioner of dislo$alt$ and representation of conflictin" interests for havin" continued usin" the Pacfor Phils.* office for operations of H8PI. In addition, petitioner alle"edl$ solicited business for H8PI fro! a co!petitor co!pan$ of private respondent Pacfor. 3. Iabor 0rbiter 9elipe Pati ruled in favor of petitioner, findin" there #as constructive dis!issal. <$ directin" petitioner to turn over all office records and !aterials, re"ardless of #hether he !a$ have retained copies, private respondent Pacfor virtuall$ deprived petitioner of his Kob b$ the "radual di!inution of his authorit$ as resident !ana"er. Petitioner*s position as resident !ana"er #hose dut$, a!on" others, #as to !aintain the securit$ of its business transactions and co!!unications #as rendered !eanin"less. The dispositive portion of the decision of the Iabor 0rbiter reads6

7H8R89OR8, pre!ises considered, Kud"!ent is hereb$ rendered orderin" herein respondents &ell!ar= 0< and Pacific 9orest Resources, Inc., Kointl$ and severall$ to co!pensate co!plainant 0rsenio T. Mendiola separation pa$ e,uivalent to at least one !onth for ever$ $ear of service, #hichever is hi"her GsicH, as reinstate!ent is no lon"er feasible b$ reason of the strained relations of the parties e,uivalent to five '4( !onths in the a!ount of S/3,555.55 plus the su! of P345,555.55L pa$ co!plainant the su! of P455,555.55 as !oral and e%e!plar$ da!a"es and ten percent '-5F( of the a!ounts a#arded as and for attorne$*s fees. 0ll other clai!s are dis!issed for lac= of basis. SO ORD8R8D./5 Private respondent Pacfor appealed to the NIR& #hich ruled in its favor. On Dece!ber 35, 355-, the NIR& set aside the Dul$ /5, 355- decision of the labor arbiter, for lac= of Kurisdiction and lac= of !erit./- It held there #as no e!plo$er1e!plo$ee relationship bet#een the parties. <ased on the t#o a"ree!ents bet#een the parties, it concluded that petitioner is not an e!plo$ee of private respondent Pacfor, but a full co1o#ner '45G45 e,uit$(. The NIR& denied petitioner*s Motion for Reconsideration. /3 Petitioner #as not successful on his appeal to the &ourt of 0ppeals. The appellate court upheld the rulin" of the NIR&. Petitioner*s Motion for Reconsideration// of the decision of the &ourt of 0ppeals #as denied. Hence, this appeal./: Petitioner assi"ns the follo#in" errors6 0. The Respondent &ourt of 0ppeals co!!itted reversible error and abused its discretion in renderin" Kud"!ent a"ainst petitioner since Kurisdiction has been ac,uired over the subKect !atter of the case as there e%ists e!plo$er1e!plo$ee relationship bet#een the parties.

<. The Respondent &ourt of 0ppeals co!!itted reversible error and abused its discretion in rulin" that Kurisdiction over the subKect !atter cannot be #aived and !a$ be alle"ed even for the first ti!e on appeal or considered b$ the court !otu prop@rAio./4 The first issue is #hether an e!plo$er1e!plo$ee relationship e%ists bet#een petitioner and private respondent Pacfor. Petitioner ar"ues that he is an industrial partner of the partnership he for!ed #ith private respondent Pacfor, and also an e!plo$ee of the partnership. Petitioner insists that an industrial partner !a$ at the sa!e ti!e be an e!plo$ee of the partnership, provided there is such an a"ree!ent, #hich, in this case, is the Side 0"ree!ent and the Revised Operatin" and Profit Sharin" 0"ree!ent. The &ourt of 0ppeals denied the appeal of petitioner, holdin" that the le"al basis of the co!plaint is not e!plo$!ent but perhaps partnership, co1o#nership, or independent contractorship. Hence, the Iabor &ode cannot appl$. 7e hold that petitioner is an e!plo$ee of private respondent Pacfor and that no partnership or co1o#nership e%ists bet#een the parties. In a partnership, the !e!bers beco!e co1o#ners of #hat is contributed to the fir! capital and of all propert$ that !a$ be ac,uired thereb$ and throu"h the efforts of the !e!bers. /> The propert$ or stoc= of the partnership for!s a co!!unit$ of "oods, a co!!on fund, in #hich each part$ has a proprietar$ interest. /B In fact, the Ne# &ivil &ode re"ards a partner as a co1o#ner of specific partnership propert$./C 8ach partner possesses a Koint interest in the #hole of partnership propert$. If the relation does not have this feature, it is not one of partnership./. This essential ele!ent, the co!!unit$ of interest, or co1o#nership of, or Koint interest in partnership propert$ is absent in the relations bet#een petitioner and private respondent Pacfor. Petitioner is not a part1o#ner of Pacfor Phils. 7illia! 2leason, private respondent Pacfor*s President established this fact #hen he said that Pacfor Phils. is si!pl$ a theoretical co!pan$ for the purpose of dividin" the inco!e 45145. He stressed that petitioner =ne# of this arran"e!ent fro! the ver$ start, havin" been the one to propose to private respondent Pacfor the settin" up of a representative office, and not

a branch office in the Philippines to save on ta%es. Thus, the parties in this case, !erel$ shared profits. This alone does not !a=e a partnership.:5 <esides, a corporation cannot beco!e a !e!ber of a partnership in the absence of e%press authori;ation b$ statute or charter. :- This doctrine is based on the follo#in" considerations6 '-( that the !utual a"enc$ bet#een the partners, #hereb$ the corporation #ould be bound b$ the acts of persons #ho are not its dul$ appointed and authori;ed a"ents and officers, #ould be inconsistent #ith the polic$ of the la# that the corporation shall !ana"e its o#n affairs separatel$ and e%clusivel$L and, '3( that such an arran"e!ent #ould i!properl$ allo# corporate propert$ to beco!e subKect to ris=s not conte!plated b$ the stoc=holders #hen the$ ori"inall$ invested in the corporation.:3 No such authori;ation has been proved in the case at bar. <e that as it !a$, #e hold that on the basis of the evidence, an e!plo$er1e!plo$ee relationship is present in the case at bar. The ele!ents to deter!ine the e%istence of an e!plo$!ent relationship are6 'a( the selection and en"a"e!ent of the e!plo$eeL 'b( the pa$!ent of #a"esL 'c( the po#er of dis!issalL and 'd( the e!plo$er*s po#er to control the e!plo$ee*s conduct. The !ost i!portant ele!ent is the e!plo$er*s control of the e!plo$ee*s conduct, not onl$ as to the result of the #or= to be done, but also as to the !eans and !ethods to acco!plish it.:/ In the instant case, all the fore"oin" ele!ents are present. 9irst, it #as private respondent Pacfor #hich selected and en"a"ed the services of petitioner as its resident a"ent in the Philippines. Second, as stipulated in their Side 0"ree!ent, private respondent Pacfor pa$s petitioner his salar$ a!ountin" to S>4,555 per annu! #hich #as later increased to SBC,555. Third, private respondent Pacfor holds the po#er of dis!issal, as !a$ be "leaned throu"h the various !e!oranda it issued a"ainst petitioner, placin" the latter on preventive suspension #hile char"in" hi! #ith various offenses, includin" #illful disobedience, serious !isconduct, and "ross ne"lect of dut$, and orderin" hi! to sho# cause #h$ no disciplinar$ action should be ta=en a"ainst hi!.

Iastl$ and !ost i!portant, private respondent Pacfor has the po#er of control over the !eans and !ethod of petitioner in acco!plishin" his #or=. The po#er of control refers !erel$ to the e%istence of the po#er, and not to the actual e%ercise thereof. The principal consideration is #hether the e!plo$er has the ri"ht to control the !anner of doin" the #or=, and it is not the actual e%ercise of the ri"ht b$ interferin" #ith the #or=, but the ri"ht to control, #hich constitutes the test of the e%istence of an e!plo$er1e!plo$ee relationship. :: In the case at bar, private respondent Pacfor, as e!plo$er, clearl$ possesses such ri"ht of control. Petitioner, as private respondent Pacfor*s resident a"ent in the Philippines, is, e%actl$ so, onl$ an a"ent of the corporation, a representative of Pacfor, #ho transacts business, and accepts service on its behalf. This ri"ht of control #as e%ercised b$ private respondent Pacfor durin" the period of Nove!ber to Dece!ber 3555, #hen it directed petitioner to turn over to it all records of Pacfor Phils.L #hen it ordered petitioner to re!it the &hrist!as "ivea#a$ fund intended for clients of Pacfor Phils.L and, #hen it #ithdre# all its offers of settle!ent and ordered petitioner to transfer title and turn over to it the possession of the service car. It #as also durin" this period #hen private respondent Pacfor sent letters to its clients in the Philippines, particularl$ Intercontinental Paper Industries, Inc. and D0V&OR, advisin" the! not to deal #ith petitioner andGor Pacfor Phils. In its letter to D0V&OR, private respondent Pacfor replied to the client*s re,uest for an invoice pa$!ent e%tension, and for!ulated a revised pa$!ent pro"ra! for D0V&OR. This is one un!ista=able proof that private respondent Pacfor e%ercises control over the petitioner. Ne%t, #e shall deter!ine if petitioner #as constructivel$ dis!issed fro! e!plo$!ent. The evidence sho#s that #hen petitioner insisted on his 45F e,uit$ in Pacfor Phils., and #ould not ,uit ho#ever, private respondent Pacfor be"an to s$ste!aticall$ deprive petitioner of his duties and benefits to !a=e hi! feel that his presence in the co!pan$ #as no lon"er #anted. 9irst, private respondent Pacfor directed petitioner to turn over to it all records of Pacfor Phils. This #ould certainl$

!a=e the #or= of petitioner ver$ difficult, if not i!possible. Second, private respondent Pacfor ordered petitioner to re!it the &hrist!as "ivea#a$ 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, particularl$ Intercontinental Paper Industries, Inc. and D0V&OR, not to deal #ith petitioner andGor Pacfor Phils. Iastl$, private respondent Pacfor appointed a ne# resident a"ent for Pacfor Phils. :4 0lthou"h there is no reduction of the salar$ of petitioner, constructive dis!issal is still present because continued e!plo$!ent of petitioner is rendered, at the ver$ least, unreasonable.:> There is an act of clear discri!ination, insensibilit$ or disdain b$ the e!plo$er that continued e!plo$!ent !a$ beco!e so unbearable on the part of the e!plo$ee so as to foreclose an$ choice on his part e%cept to resi"n fro! such e!plo$!ent. :B The harassin" acts of the private respondent are unKustified. The$ #ere underta=en #hen petitioner sou"ht clarification fro! the private respondent about his supposed 45F e,uit$ on Pacfor Phils. Private respondent Pacfor invo=es its ri"hts as an o#ner. 0lle"edl$, its issuance of the fore"oin" directives a"ainst petitioner #as a valid e%ercise of !ana"e!ent prero"ative. 7e re!ind private respondent Pacfor that the e%ercise of !ana"e!ent prero"ative is not absolute. <$ its ver$ nature, enco!passin" as it could be, !ana"e!ent prero"ative !ust be e%ercised in "ood faith and #ith due re"ard to the ri"hts of labor T veril$, #ith the principles of fair pla$ at heart and Kustice in !ind. The e%ercise of !ana"e!ent prero"ative cannot be utili;ed as an i!ple!ent to circu!vent our la#s and oppress e!plo$ees.:C 0s resident a"ent of private respondent corporation, petitioner occupied a position involvin" trust and confidence. In the li"ht of the strained relations bet#een the parties, the full restoration of an e!plo$!ent relationship based on trust and confidence is no lon"er possible. He should be a#arded separation pa$, in lieu of reinstate!ent. IN &IE# # EREOF, the petition is GRANTE%. The &ourt of 0ppeals* Danuar$ /5, 355/ Decision in &012.R. SP No. B-53C and Dul$ /5, 355/ Resolution, affir!in" the Dece!ber 35, 355-

Decision of the National Iabor Relations &o!!ission, are ANNU"E% and SET ASI%E. The Dul$ /5, 355- Decision of the Iabor 0rbiter is REINSTATE% #ith the MO%IFICATION that the a!ount of P345,555.55 representin" an alle"ed increase in petitioner*s salar$ shall be deducted fro! the "rant of separation pa$ for lac= of evidence. SO OR%ERE%. "andoval*Gutierre)! Corona! /)cuna! Garcia! ,.,.! concur.

Foo8no8/.
3 / : 4 > B C .

&0 rollo, pp. -54C1-5B3. Id. at --54. Id. at 3C1/B. Id. at --C1-/.. Id. at >C31>C/. Id. at >C/. Rollo, p. >/. Id. at >:.

&0 rollo, p. >C:. Other ter!s of the revised a"ree!ent include6 a( 0TM and Pacfor1+S0 shall Kointl$ !ana"e Pacfor Phils. b( Pacfor1Phils. #ill earn co!!issions at -.4F of 9.O.<. value, the co!putation of #hich shall be sho#n in a credit !e!o issued b$ &ell!ar=GPacfor.

c( Iosses, if an$, #ill be rei!bursed b$ &ell!ar=GPacfor to 0TM for 0TM*s share of the loss, for t#o consecutive $ears be"innin" #ith the first $ear of loss. d( The revised a"ree!ent shall ta=e effect on Danuar$ -, -..B. e( &ash paid to the representative office b$ Pacific Paper belon"s to Pacfor and #ill be held in trust b$ 0TM.
-5 --3 -/ -: -4 -> -B -C -. 35 333 3/ 3: 34 3>

Id. at >C4. Rollo, p. 43C. Id. at 43B. Ibid. Id. at 4/3. Id. at 4/.. Id. at 4:-. Id. at 4::. Id. at 4:4. &0 rollo, p. C3.. Id. at C3C. Rollo, pp. 4:>1445. Id. at 44/. Id. at 4:>1445. Id. at 4>5. Id. at 44:144C. Id. at 4>5.

3B 3C 3. /5 //3 // /: /4 />

Id. at 4>-. &0 rollo, p. >43. Rollo, pp. 4>314>/. Id. at -45. Id. at 3/-13:5. &0 rollo, pp. ///1//4. Id. at C:1C>. Rollo, pp. -:1/>. Id. at 3B.

8steban <. <autista, Treatise on Philippine Partnership Ia#, -.BC ed., citing Nelson v. 0braha!, -BB P.3d ./- '-.:B(L Henr$ v. Darnall, 3:> Ill.0pp. 345 '-.3B(, cited in Notes of Decisions, B +.I.0. -4 '-.:.(.
/B

8steban <. <autista, Treatise on Philippine Partnership Ia#, -.BC ed., citing Darden v. &o%, -3/ So.3d >C '-.>5(.
/C /.

0rt. -C-- '-st par.(.

8steban <. <autista, Treatise on Philippine Partnership Ia#, -.BC ed.

:5 :-

Fortis v. Gutierre) >ermanos, > Phil. -55 '-.5>(.

,.2. Tuason v. 1olanos, .4 Phil. -5> '-.4:(L 8steban <. <autista, Treatise on Philippine Partnership Ia#, -.BC ed., citing >5 0.I.R.3d .-BL > 9letcher, &$clopedia of &orporations, Sec. 3435 '-.45(.
:3

8steban <. <autista, Treatise on Philippine Partnership Ia#, -.BC ed., citing -/ 0!.Dur. C/5L >5 0.I.R.3d .-/.
:/

"+ v. Court o /ppeals, 2.R. No. -:33./, 9ebruar$ 3B, 355/, /.C S&R0 /5-, citin" &aurdanetaan Piece 7or=ers

+nion v. Ia"ues!a, 3C> S&R0 :5-, :35 '-..C(L 2araguinot! ,r. v. .-RC, 3C: S&R0 4/., 443 '-..C(L /PP 2utual 1ene it /ssociation! Inc. v. .-RC, 3>B S&R0 :B, 4B '-..B(L /urora -and Pro#ects Corp. v. .-RC, 3>> S&R0 :C, 4. '-..B(L Enc+clopedia 1ritannica GPhils.H! Inc. v. .-RC , 3>: S&R0 -, >1B '-..>(.
::

Feati ;niversit+ v. 1autista, 2.R. No. I13-3BC, Dece!ber 3B, -.>>, -C S&R0 --.-, -3-B, citing0!al"a!ated Roofin" &o. v. Travelers* Ins. &o., -// N.8. 34., 3>-L /55 Ill. :CB.
:4 :>

&0 rollo, pp. B3:1B//.

Philippine ,apan /ctive Carbon Corp. v. .-RC, 2.R. No. C/3/., March C, -.C., -B- S&R0 ->:.
:B

;nicorn "a et+ Glass! Inv. v. 1asarte, 2.R. No. -4:>C., Nove!ber 34, 355:, ::: S&R0 3CB.
:C

Ibid.

FIRST %I&ISION

J. TIOSEJO IN&ESTMENT CORP., Petitioner,

G.R. No. 174149

Present6

&ORON0, C.,., &hairperson, 1 versus 1 V8I0S&O, DR.,

I8ON0RDO1D8 &0STRO, P8R8Q, and M8NDOQ0,V ,,.

SPOUSES !ENJAMIN AN% E"EANOR ANG, Respondents.

Pro!ul"ated6

Septe!ber C, 35-5

A +++++++++++++++++++++++++++++++++++++++++++++++ +++A

%ECISION

PERE*, J.>

9iled pursuant to Rule :4 of the $AAD Rules o Civil Procedure, the petition for revie# at bench see=s the reversal of the Resolutions dated 3/ Ma$ 355> and . 0u"ust 355> issued b$ the Third Division of the &ourt of 0ppeals '&0( in &012.R. SP No. ./C:- #hich, respectivel$, dis!issed the petition for revie# of petitioner D. TioseKo Invest!ent &orp. 'DTI&( for havin" been filed out of ti!e@-A and denied the !otion for reconsideration of said dis!issal.@3A

-.e 'ac%#

On 3C Dece!ber -..4 petitioner entered into a ,oint (enture /greement 'DV0( #ith Pri!eto#n Propert$ 2roup, Inc. 'PP2I( for the develop!ent of a residential condo!iniu! proKect to be =no#n as The 2editel on the for!erRs .,453 s,uare !eter propert$ alon" Sa!at St., Hi"h#a$ Hills, Mandalu$on" &it$.@/A 7ith petitioner contributin" the sa!e propert$ to the Koint venture and PP2I underta=in" to develop the condo!iniu!, the DV0 provided, a!on" other ter!s and conditions, that the developed units shall be shared b$ the for!er and the latter at a ratio of -BF1C/F, respectivel$.@:A 7hile both parties #ere allo#ed, at their o#n individual responsibilit$, to pre1sell the units pertainin" to the!, @4A PP2I further undertoo= to use all proceeds fro! the pre1sellin" of its saleable units for the co!pletion of the &ondo!iniu! ProKect._ @>A

On -B Dune -..>, the Housin" and Iand +se Re"ulator$ <oard 'HI+R<( issued Iicense to Sell No. .>15>13C4: in favor of petitioner and PP2I as proKect o#ners.@BA <$ virtue of said license, PP2I e%ecuted Contract to "ell .o. EJ$J #ith Spouses <enKa!in and 8leanor 0n" on 4 9ebruar$ -..B, over the /4.:41s,uare !eter condo!iniu! unit deno!inated as +nit 01-55>, for the a"reed contract price of P43,4.B.CC per s,uare !eter or a total P3,5BB,//:.34.@CA On the sa!e date PP2I and respondents also e%ecuted Contract to "ell .o. EJ$F over the -3.45 s,uare !eter par=in" space identified as Par=in" Slot No. 5:54, for the stipulated consideration of P3>,:55.55 s,uare !eters or a total of P/-/,455.55.@.A

On 3- Dul$ -..., respondents filed a"ainst petitioner and PP2I the co!plaint for the rescission of the aforesaid &ontracts to Sell doc=eted before the HI+R< as HI+R< &ase No. R8M 5B3-..1-54>B. &ontendin" that the$ #ere assured b$ petitioner

and PP2I that the subKect condo!iniu! unit and par=in" space #ould be available for turn1over and occupanc$ in Dece!ber -..C, respondents averred, a!on" other !atters, that in vie# of the non1 co!pletion of the proKect accordin" to said representation, respondents instructed petitioner and PP2I to stop depositin" the post1dated chec=s the$ issued and to cancel said &ontracts to SellL and, that despite several de!ands, petitioner and PP2I have failed and refused to refund the P>--,4-..43 the$ alread$ paid under the circu!stances. To"ether #ith the refund of said a!ount and interests thereon at the rate of -3F per annu!, respondents pra$ed for the "rant of their clai!s for !oral and e%e!plar$ da!a"es as #ell as attorne$Rs fees and the costs.@-5A

Specificall$ den$in" the !aterial alle"ations of the fore"oin" co!plaint, PP2I filed its B Septe!ber -... ans#er alle"in" that the dela$ in the co!pletion of the proKect #as attributable to the econo!ic crisis #hich affected the countr$ at the ti!eL that the une%pected and unforeseen inflation as #ell as increase in interest rates and cost of buildin" !aterials constitute orce ma#eure and #ere be$ond its controlL that a#are of its responsibilities, it offered several alternatives to its bu$ers li=e respondents for a transfer of their invest!ent to its other feasible proKects and for the a!ounts the$ alread$ paid to be considered as partial pa$!ent for the replace!ent unitGsL and, that the co!plaint #as pre!aturel$ filed in vie# of the on1"oin" ne"otiations it is underta=in" #ith its bu$ers and prospective Koint venture partners. 0side fro! the dis!issal of the co!plaint, PP2I sou"ht the readKust!ent of the contract price and the "rant of its counterclai!s for attorne$Rs fees and liti"ation e%penses.@--A

Petitioner also specificall$ denied the !aterial alle"ations of the co!plaint in separate ans#er dated 4 9ebruar$ 3553@-3A #hich it a!ended on 35 Ma$ 3553. &allin" attention to the fact that its

prestation under the DV0 consisted in contributin" the propert$ on #hich The 2editel #as to be constructed, petitioner asseverated that, b$ the ter!s of the DV0, each part$ #as individuall$ responsible for the !ar=etin" and sale of the units pertainin" to its shareL that not bein" priv$ to the &ontracts to Sell e%ecuted b$ PP2I and respondents, it did not receive an$ portion of the pa$!ents !ade b$ the latterL and, that #ithout an$ contributor$ fault and ne"li"ence on its part, PP2I breached its underta=in"s under the DV0 b$ failin" to co!plete the condo!iniu! proKect. In addition to the dis!issal of the co!plaint and the "rant of its counterclai!s for e%e!plar$ da!a"es, attorne$Rs fees, liti"ation e%penses and the costs, petitioner interposed a cross1clai! a"ainst PP2I for full rei!burse!ent of an$ su! it !a$ be adKud"ed liable to pa$ respondents.@-/A

0ctin" on the position papers and draft decisions subse,uentl$ sub!itted b$ the parties,@-:A Housin" and Iand +se 'HI+( 0rbiter Dunstan T. San Vicente #ent on to render the /5 Dul$ 355/ decision declarin" the subKect &ontracts to Sell cancelled and rescinded on account of the non1co!pletion of the condo!iniu! proKect. On the "round that the DV0 created a partnership liabilit$ on their part, petitioner and PP2I, as co1o#ners of the condo!iniu! proKect, #ere ordered to pa$6 'a( respondentsR clai! for refund of the P>--,4-..43 the$ paid, #ith interest at the rate of -3F per annu! fro! 4 9ebruar$ -..BL 'b( da!a"es in the su! ofPB4,555.55L 'c( attorne$Rs fees in the su! of P/5,555.55L 'd( the costsL and, 'e( an ad!inistrative fine in the su! of P-5,555.55 for violation of Sec. 35 in relation to Sec. /C of Presidential Decree No. .4B. @-4A 8levated to the HI+R< <oard of &o!!issioners via the petition for revie# filed b$ petitioner,@->A the fore"oin" decision #as !odified to "rant the latterRs cross1clai! in the -: Septe!ber 355: decision rendered b$ said ad!inistrative bod$Rs Second Division in HI+R< &ase No. R8M1015/-55B153:5,@-BAto #it6

7herefore, the petition for revie# of the respondent &orporation is dis!issed. Ho#ever, the decision of the Office belo# dated Dul$ /5, 355/ is !odified, hence, its dispositive portion shall read6

-. Declarin" the contracts to sell, both dated 9ebruar$ 4, -..B, as cancelled and rescinded, and orderin" the respondents to i!!ediatel$ pa$ the co!plainants the follo#in"6

a. The a!ount of P>--,4-..43, #ith interest at the le"al rate rec=oned fro! 9ebruar$ 4, -..B until full$ paidL b. c. d. Da!a"es of PB4,555.55L 0ttorne$Rs fees e,uivalent to P/5,555.55L and The &ost of suitL

3. Orderin" respondents to pa$ this Office ad!inistrative fine of P-5,555.55 for violation of Section 35 in relation to Section /C of P.D. .4BL and

/. Orderin" respondent Pri!eto#n to rei!burse the entire a!ount #hich the respondent &orporation #ill be constrained to pa$ the co!plainants.

So ordered.@-CA

7ith the denial of its !otion for reconsideration of the fore"oin" decision,@-.A petitioner filed a Notice of 0ppeal dated 3C 9ebruar$ 3554 #hich #as doc=eted before the Office of the President 'OP( as O.P. &ase No. 541<15B3. @35A On / March 3554, the OP issued an order directin" petitioner to sub!it its appeal !e!orandu! #ithin -4 da$s fro! receipt thereof.@3-A 0ctin" on the !otion therefor filed, the OP also issued another order on the sa!e date, "rantin" petitioner a period of -4 da$s fro! 3C 9ebruar$ 3554 or until -4 March 3554 #ithin #hich to file its appeal !e!orandu!. @33A In vie# of petitionerRs filin" of a second !otion for e%tension dated -4 March 3554,@3/A the OP issued the -C March 3554 order "rantin" the for!er an additional -5 da$s fro! -4 March 3554 or until 34 March 3554 #ithin #hich to file its appeal !e!orandu!, `provided no further e%tension shall be allo#ed._@3:A &lai!in" to have received the aforesaid / March 3554 order onl$ on -> March 3554, ho#ever, petitioner filed its /- March 3554 !otion see=in" $et another e%tension of -5 da$s or until -5 0pril 3554 #ithin #hich to file its appeal !e!orandu!.@34A

On B 0pril 3554, respondents filed their opposition to the /March 3554 !otion for e%tension of petitioner@3>A #hich eventuall$ filed its appeal !e!orandu! b$ re"istered !ail on -- 0pril 3554 in vie# of the fact that -5 0pril 3554 fell on a Sunda$. @3BA On 34 October 3554, the OP rendered a decision dis!issin" petitionerRs appeal on the "round that the latterRs appeal !e!orandu! #as filed out of ti!e and that the HI+R< <oard co!!itted no "rave abuse of discretion in renderin" the appealed decision. @3CA 0""rieved b$ the denial of its !otion for reconsideration of the fore"oin" decision in the / March 355> order issued b$ the OP, @3.A petitioner filed before the &0 its 3. March 355> !otion for an e%tension of -4 da$s fro! /- March 355> or until -4 0pril 355> #ithin #hich to file its petition for revie#. @/5A 0ccordin"l$, a non1 e%tendible period of -4 da$s to file its petition for revie# #as

"ranted petitioner in the /- March 355> resolution issued b$ the &0 Third Division in &012.R, SP No. ./C:-.@/-A

Maintainin" that -4 0pril 355> fell on a Saturda$ and that pressures of #or= prevented its counsel fro! finali;in" its petition for revie#, petitioner filed a !otion on -B 0pril 355>, see=in" for an additional ti!e of -5 da$s or until 3B 0pril 355> #ithin #hich to file said pleadin".@/3A 0lthou"h petitioner filed b$ re"istered !ail a !otion to ad!it its attached petition for revie# on -. 0pril 355>, @//A the &0 issued the herein assailed 3/ Ma$ 355> resolution, @/:A disposin" of the for!erRs pendin" !otion for e%tension as #ell as the petition itself in the follo#in" #ise6

7e resolve to D8NO the second e%tension !otion and rule to DISMISS the petition for bein" filed late.

Settled is that heav$ #or=load is b$ no !eans e%cusable '-and 1an9 o the Philippines vs. .atividad! FBM "CR/ FF$ NJEEBO(. If the failure of the petitionersR counsel to cope up #ith heav$ #or=load should be considered a valid Kustification to sidestep the re"le!entar$ period, there #ould be no end to liti"ations so lon" as counsel had not been sufficientl$ dili"ent or e%perienced '-T" Philippine Corporation vs. 2ali&at! FFM "CR/ JBF! JBA*JCE NJEEBO! citing "ubla+ vs. .ational -abor Relations Commission! LJF "CR/ $MM NJEEEO(.

Moreover, la#$ers should not assu!e that their !otion for e%tension or postpone!ent #ill be "ranted the len"th of ti!e the$ pra$ for 'Ramos vs. 8a#o+ag! LDM "CR/ JJA NJEEJO(.

SO ORD8R8D.@/4A

PetitionerRs !otion for reconsideration of the fore"oin" resolution@/>A #as denied for lac= of !erit in the &0Rs second assailed . 0u"ust 355> resolution,@/BA hence, this petition. -.e I##ue#

Petitioner see=s the reversal of the assailed resolutions on the follo#in" "rounds, to #it6

I. T E COURT OF APPEA"S ERRE% IN %ISMISSING T E PETITION ON MERE TEC NICA"IT$;

II. T E COURT OF APPEA"S ERRE% IN REFUSING TO RESO"&E T E PETITION ON T E MERITS T ERE!$ AFFIRMING T E OFFICE OF T E PRESI%ENTLS %ECISION CAD %ISMISSING JTICLS APPEA" ON A MERE TEC NICA"IT$; C!D AFFIRMING T E "UR! !OAR%LS %ECISION INSOFAR AS IT FOUN% JTIC SO"I%ARI"$ "IA!"E #IT PRIMETO#N TO PA$ SPOUSES ANG %AMAGES, ATTORNE$LS FEES AN% T E COST OF T E SUIT; AN% CCD AFFIRMING T E "UR! !OAR%LS %ECISION INSOFAR AS IT FAI"E% TO A#AR% JITC ITS COUNTERC"AIMS AGAINST SPOUSES ANG.I35J

-.e Cour%/# Ru0"ng

7e find the petition bereft of !erit.

7hile the dis!issal of an appeal on purel$ technical "rounds is concededl$ fro#ned upon,@/.A it bears e!phasi;in" that the procedural re,uire!ents of the rules on appeal are not har!less and trivial technicalities that liti"ants can Kust discard and disre"ard at #ill.@:5A Neither bein" a natural ri"ht nor a part of due process, the rule is settled that the ri"ht to appeal is !erel$ a statutor$ privile"e #hich !a$ be e%ercised onl$ in the !anner and in accordance #ith the provisions of the la#. @:-A The perfection of an appeal in the !anner and #ithin the period prescribed b$ la# is, in fact, not onl$ !andator$ but Kurisdictional.@:3A &onsiderin" that the$ are re,uire!ents #hich cannot be trifled #ith as !ere technicalit$ to suit the interest of a part$,@:/A failure to perfect an appeal in the prescribed !anner has the effect of renderin" the Kud"!ent final and e%ecutor$.@::A

9ealt$ to the fore"oin" principles i!pels us to discount the error petitioner i!putes a"ainst the &0 for den$in" its second !otion for e%tension of ti!e for lac= of !erit and dis!issin" its petition for revie# for havin" been filed out of ti!e. 0ctin" on the3. March 355> !otion filed for the purpose, after all, the &0 had alread$ "ranted petitioner an ine%tendible period of -4 da$s fro! /March 355> or until -4 0pril 355> #ithin #hich to file its petition for revie#. Sec. :, Rule :/ of the $AAD Rules o Civil Procedure provides as follo#s6

Sec. :. Period o appeal. T The appeal shall be ta=en #ithin fifteen '-4( da$s fro! notice of the a#ard, Kud"!ent, final order or resolution, or fro! the date of its last publication, if publication is re,uired b$ la# for its effectivit$, or of the denial of petitionerRs !otion for ne# trial or reconsideration dul$ filed in accordance #ith the "overnin" la# of the court or a"enc$ a Kuo. Onl$ one '-( !otion for reconsideration shall be allo#ed. +pon proper !otion and pa$!ent of the full a!ount of the doc=et fee before the

e%piration of the re"le!entar$ period, the &ourt of 0ppeals !a$ "rant an additional period of fifteen '-4( da$s onl$ #ithin #hich to file the petition for revie#. No further e%tension shall be "ranted e%cept for the !ost co!pellin" reason and in no case to e%ceed fifteen '-4( da$s._ '+nderscorin" supplied(

The record sho#s that, havin" been "ranted the -41da$ e%tension sou"ht in its first !otion, petitioner filed a second !otion for e%tension pra$in" for an additional -5 da$s fro! -B 0pril 355> #ithin #hich to file its petition for revie#, on the "round that pressures of #or= and the de!ands posed b$ e,uall$ i!portant cases prevented its counsel fro! finali;in" the sa!e. 0s correctl$ ruled b$ the &0, ho#ever, heav$ #or=load cannot be considered as a valid Kustification to sidestep the re"le!entar$ period@:4A since to do so #ould onl$ serve to encoura"e needless dela$s and inter!inable liti"ations. Indeed, rules prescribin" the ti!e for doin" specific acts or for ta=in" certain proceedin"s are considered absolutel$ indispensable to prevent needless dela$s and to orderl$ and pro!ptl$ dischar"e Kudicial business.@:>A &orollar$ to the principle that the allo#ance or denial of a !otion for e%tension of ti!e is addressed to the sound discretion of the court,@:BA !oreover, la#$ers cannot e%pect that their !otions for e%tension or postpone!ent #ill be "ranted@:CA as a !atter of course.

0lthou"h technical rules of procedure are not ends in the!selves, the$ are necessar$ for an effective and e%peditious ad!inistration of Kustice and cannot, for said reason, be discarded #ith the !ere e%pedienc$ of clai!in" substantial !erit.@:.A This holds particularl$ true in the case at bench #here, prior to the filin" of its petition for revie# before the &0, petitionerRs appeal before the OP #as li=e#ise dis!issed in vie# of its failure to file its appeal

!e!orandu! #ithin the e%tensions of ti!e it had been "ranted b$ said office. 0fter bein" "ranted an initial e%tension of -4 da$s to do the sa!e, the records disclose that petitioner #as "ranted b$ the OP a second e%tension of -5 da$s fro! -4 March 3554 or until 34 March 3554 #ithin #hich to file its appeal !e!orandu!, on the condition that no further e%tensions shall be allo#ed. 0side fro! not heedin" said proviso, petitioner had, conse,uentl$, no !ore ti!e to e%tend #hen it filed its /- March 3554 !otion see=in" $et another e%tension of -5 da$s or until -5 0pril 3554 #ithin #hich to file its appeal !e!orandu!.

7ith the fore"oin" procedural antecedents, the initial -41da$ e%tension "ranted b$ the &0 and the inKunction under Sec. :, Rule :/ of the $AAD Rules o Civil Procedure a"ainst further e%tensions `e%cept for the !ost co!pellin" reason_, it #as clearl$ ine%cusable for petitioner to e%pedientl$ plead its counselRs heav$ #or=load as "round for see=in" an additional e%tension of -5 da$s #ithin #hich to file its petition for revie#. To our !ind, petitioner #ould do #ell to re!e!ber that, rather than the lo# "ate to #hich parties are unreasonabl$ re,uired to stoop, procedural rules are desi"ned for the orderl$ conduct of proceedin"s and e%peditious settle!ent of cases in the courts of la#. Ii=e all rules, the$ are re,uired to be follo#ed@45A and utter disre"ard of the sa!e cannot be e%pedientl$ rationali;ed b$ harpin" on the polic$ of liberal construction @4-A #hich #as never intended as an unfettered license to disre"ard the letter of the la# or, for that !atter, a convenient e%cuse to substitute substantial co!pliance for re"ular adherence thereto. 7hen it co!es to co!pliance #ith ti!e rules, the &ourt cannot afford ine%cusable dela$.@43A

8ven prescindin" fro! the fore"oin" procedural considerations, #e also find that the HI+R< 0rbiter and <oard correctl$ held petitioner liable alon"side PP2I for respondentsR

clai!s and the P-5,555.55 ad!inistrative fine i!posed pursuant to Section 35 in relation to Section /C of P.D. .4B. <$ the e%press ter!s of the DV0, it appears that petitioner not onl$ retained o#nership of the propert$ pendin" co!pletion of the condo!iniu! proKect@4/A but had also bound itself to ans#er liabilities proceedin" fro! contracts entered into b$ PP2I #ith third parties. 0rticle VIII, Section - of the DV0 distinctl$ provides as follo#s6

`Sec. -. Rescission and damages. Non1perfor!ance b$ either part$ of its obli"ations under this 0"ree!ent shall be e%cused #hen the sa!e is due to 9orce MaKeure. In such cases, the defaultin" part$ !ust e%ercise due dili"ence to !ini!i;e the breach and to re!ed$ the sa!e at the soonest possible ti!e. In the event that either part$ defaults or breaches an$ of the provisions of this 0"ree!ent other than b$ reason of 9orce MaKeure, the other part$ shall have the ri"ht to ter!inate this 0"ree!ent b$ "ivin" notice to the defaultin" part$, #ithout preKudice to the filin" of a civil case for da!a"es arisin" fro! the breach of the defaultin" part$.

In the event that the Developer shall be rendered unable to co!plete the &ondo!iniu! ProKect, and such failure is directl$ and solel$ attributable to the Developer, the O#ner shall send #ritten notice to the Developer to cause the co!pletion of the &ondo!iniu! ProKect. If the developer fails to co!pl$ #ithin One Hundred 8i"ht$ '-C5( da$s fro! such notice or, #ithin such ti!e, indicates its incapacit$ to co!plete the ProKect, the O#ner shall have the ri"ht to ta=e over the construction and cause the co!pletion thereof. If the O#ner e%ercises its ri"ht to co!plete the &ondo!iniu! ProKect under these circu!stances, this 0"ree!ent shall be auto!aticall$ rescinded upon #ritten notice to the Developer and the latter shall hold the for!er free and har!less fro! an$ and all liabilities to third persons arisin" fro! such rescission. In an$ case, the O#ner shall respect and strictl$ co!pl$

#ith an$ covenant entered into b$ the Developer and third parties #ith respect to an$ of its units in the &ondo!iniu! ProKect. To enable the o#ner to co!pl$ #ith this contin"ent liabilit$, the Developer shall furnish the O#ner #ith a cop$ of its contracts #ith the said bu$ers on a !onth1to1!onth basis. 9inall$, in case the O#ner #ould be constrained to assu!e the obli"ations of the Developer to its o#n bu$ers, the Developer shall lose its ri"ht to as= for inde!nit$ for #hatever it !a$ have spent in the Develop!ent of the ProKect.

Nevertheless, #ith respect to the bu$ers of the Developer for the 9irst Phase, the area intended for the Second Phase shall not be bound andGor subKected to the said covenants andGor an$ other liabilit$ incurred b$ the Developer in connection #ith the develop!ent of the first phase._ '+nderscorin" supplied(

Vie#ed in the li"ht of the fore"oin" provision of the DV0, petitioner cannot avoid liabilit$ b$ clai!in" that it #as not in an$ #a$ priv$ to the &ontracts to Sell e%ecuted b$ PP2I and respondents. 0s correctl$ ar"ued b$ the latter, !oreover, a Koint venture is considered in this Kurisdiction as a for! of partnership and is, accordin"l$, "overned b$ the la# of partnerships. @4:A +nder 0rticle -C3: of the Civil Code o the Philippines, all partners are solidaril$ liable #ith the partnership for ever$thin" char"eable to the partnership, includin" loss or inKur$ caused to a third person or penalties incurred due to an$ #ron"ful act or o!ission of an$ partner actin" in the ordinar$ course of the business of the partnership or #ith the authorit$ of his co1partners. @44A 7hether innocent or "uilt$, all the partners are solidaril$ liable #ith the partnership itself.@4>A

# EREFORE, pre!ises considered, the petition for revie# is %ENIE% for lac= of !erit.

SO OR%ERE%.

JOSE PORTUGA" PER E* 0ssociate Dustice

#E CONCUR>

RENATO C. CORONA &hief Dustice &hairperson

PRES!ITERO J. &E"ASCO, JR. 0ssociate Dustice

TERESITA J. "EONAR%O+%E CASTRO 0ssociate Dustice

JOSE CATRA" MEN%O*A 0ssociate Dustice

CERTIFICATION

Pursuant to Section -/, 0rticle VIII of the &onstitution, I certif$ that the conclusions in the above Decision had been reached in consultation before the case #as assi"ned to the #riter of the opinion of the &ourtRs Division.

RENATO C. CORONA

&hief Dustice

V Per raffle dated - March 35-5, 0ssociate Dustice Dose &atral Mendo;a is desi"nated as additional !e!ber in place of 0ssociate Dustice Mariano &. Del &astillo, #ho #as a si"nator$ in the ,uestioned Resolution dated 3/ Ma$ 355>.
@-A @3A @/A

Record, &012.R. SP No. ./C:-, pp. C-C1C-.. Id. at C4.1C>5.

Record, HI+R< &ase No. R8M1015/-55B153:5GR8M1 5B3-..1-54>B, pp. 3:>1344.

@:A @4A @>A @BA @CA @.A @-5A @--A @-3A @-/A @-:A @-4A @->A @-BA

Id. at 34-1343. Id. at 3:.1345. Id. at 34/. Id. at 3. Id. at >1C. Id. at /14. Id. at .1-3. Id. at 3/13.. Id. at -5-1--5. Id. at -//1-:B. Id. at :-14:L 4>1BBL -4B1-B4L -BC13-5. Id. at 3--13-:. Id. at 3>/13B:. Id. at /.>1/...

@-CA @-.A @35A @3-A

Id. at /.>. Id. at :5-1:5CL :-/1:-:. Rollo, 3>/13>:.

Record, HI+R< &ase No. R8M1015/-55B153:5GR8M1 5B3-..1-54>B, at :3:1:34.

@33A @3/A @3:A @34A @3>A @3BA @3CA @3.A @/5A @/-A @/3A @//A @/:A @/4A @/>A @/BA @/CA @/.A

Id. at :3/. Rollo, pp. 3B513B-. Id. at 3B:. Id. at 3BC13B.. Id. at /BC1/C-. Id. at 3C313.>. Id. at :541:5.. Id. at :-51:->L :35. Record, &012.R. SP No. ./C:-, pp. 31/. Id. at B. Id. at C1-5. Id. at :-41:3-L :331:43. Id. at C-C1C-.. Id. at C-.. Id. at C351C:-. Id. at C4.1C>5. Rollo, pp. 3413>.

/ce .avigation Co.! Inc. v. Court o /ppeals! /.3 Phil. >5>, >-/ '3555(.

@:5A @:-A

Casim v. Flordeli)a! :34 Phil. 3-5, 335 '3553(.

ProducerPs 1an9 o the Philippines v. Court o /ppeals! :/5 Phil. C-3, C3C '3553(.
@:3A

8a+rit v. Philippine 1an9 o Communication! :/4 Phil. -35, -3C1-3. '3553(.

@:/A

Cuevas v. 1ais "teel Corporation! :/. Phil. B./, C5>

'3553(.
@::A

>eirs o Teo ilo Gaudiano v. 1enemerito! 2.R. No. -B:3:B, 3- 9ebruar$ 355B, 4-> S&R0 :->, :3:.
@:4A

-T" Philippines. Corp. v. 2ali&at! :C. Phil. 3/5, 3/4

'3554(.
@:>A

-aguna 2etts Corporation v. Court o /ppeals, 2.R. No. -C4335, Dul$ 3B, 355., 4.: S&R0 -/.,-:/.
@:BA

(ideogram Regulator+ 1oard v. Court o /ppeals, //3 Phil. C35, C/5 '-..>(.
@:CA

R. Transport Corporation v. Philhino "ales Corporation! 2.R. No. -:C-45, -3 Dul$ 355>, :.: S&R0 >/5, >/..
@:.A

"+ v. /-C Industries! Inc. 2.R. No. ->C//., -5 October 355C, 4>C S&R0 />B, /B4.
@45A

Republic v. @enric9 8evelopment Corporation! 2.R. No. -:.4B>, C 0u"ust 355>, :.C S&R0 335, 3/-.
@4-A

8igital 2icro&ave Corporation v. Court o /ppeals! /C: Phil. C:3, C:C '3555(.
@43A

2one+trend -ending Corporation v. Court o /ppeals! 2.R. No. ->44C5, 35 9ebruar$ 355>, :C3 S&R0 B54, B-/.
@4/A

0rt. I. Sec. >. Pendin" the co!pletion of the &ondo!iniu! ProKect, the o#nership of the Propert$ shall re!ain #ith the O#ner. +pon the or"ani;ation of the condo!iniu!

corporation for the &ondo!iniu! ProKect, the O#ner shall transfer the o#nership over the Propert$ to the said corporation, shall cause the re"istration of the transfer #ith the appropriate Re"istr$ of Deeds and issuance of a ne# torrens title in the na!e of the said corporation.

@4:A

Primelin9 Properties and 8evelopment Corporation v. -a)atin*2agat! 2.R. No. ->B/B., 3B Dune 355>, :./ S&R0 :::, :>BL /urbach v. "anitar+ 4ares 2anu acturing Corporation! 34. Phil. >5>, >3: '-.C.(.
@44A

0rt. -C33. 7here, b$ an$ #ron"ful act or o!ission of an$ partner actin" in the ordinar$ course of the business of the partnership or #ith authorit$ of his co1partners, loss or inKur$ is caused to an$ person, not bein" a partner in the partnership, or an$ penalt$ is incurred, the partnership is liable therefor to the sa!e e%tent as the partner so actin" or o!ittin" to act.
@4>A

2u7asKue vs. Court o /ppeals! 33: Phil. B., .5 '-.C4(. 136 I--. A<<.30 1695 C1955D 454 N.E.20 399 EUGENE STRATEME$ER, P-a=n8=FF+A<</--//, 9. "ARR$ #EST, %/F/n0an8+A<</--an8. No. 41C41553>. I--=no=. A<</--a8/ Cour8 , F=F8B %=.8r=?8. Opinion filed Septe!ber -C, -.C4. Rehearin" denied October 3., -.C4.

-5.>V-5.> 7illia! 9. Meehan, P.&., of &airo, for appellant. Ia# offices of 2u$ M. Iahr III J 0ssociates, of Metropolis, for appellee.

Dud"!ent affir!ed. D+STI&8 N0RNS delivered the opinion of the court6 This appeal concerns an action brou"ht in the circuit court of Massac &ount$ b$ plaintiff, 8u"ene S8ra8/:/y/r, to recover the value of labor and !aterials furnished to defendants, Iarr$ #/.8, pursuant to a contract for the construction of a "rain stora"e bin on defendant*s a"ricultural propert$. #/.8 confessed Kud"!ent subKect to this appeal, #hich challen"es the trial court*s orders stri=in" his affir!ative defenses. The first issue presented is #hether S8ra8/:/y/r). suit is barred b$ the doctrine of res #udicata. The instant contract #as part of a series of a"ree!ents e%ecuted in 0u"ust -.C5. S8ra8/:/y/r a"reed to install "rain bins on several far!s o#ned b$ #/.8). a"ricultural partnership, and located in Dohnson, Pope, and Massac &ounties. The a"ree!ents are !anifested b$ separate invoices describin" !aterial, labor, and price. 0dditionall$, invoice 3:C/ is a separate docu!ent #hich lists the several invoices b$ nu!ber and describes the ter!s and conditions of pa$!ent, callin" for an annual interest rate of -:F and re,uirin" pa$!ent on all invoices on or before Dece!ber /-, -.C5. In -.C/, S8ra8/:/y/r recovered a Kud"!ent a"ainst #/.8 in Dohnson &ount$ on the "rain bin contracts he perfor!ed there. In that suit, as in the action at bar, the invoices sued upon #ere attached to the initial co!plaint alon" #ith invoice No. 3:C/. a -, 3 The doctrine of res #udicata provides that a final Kud"!ent on the !erits is conclusive as to the ri"hts of the parties and their privies and, as to the!, precludes a subse,uent suit involvin" the sa!e clai!, de!and, or cause of action. '>ousing /uthorit+ v. 32C/ '-.C:(, -5- Ill.3d 3:>, 34-, :>- N.8.3d .4., .>-1 >3L Cravens v. >u '-.C4(, -/- Ill. 0pp./d BCB, :B> N.8.3d 4..( In order for a prior Kud"!ent to be raised as an absolute bar, there !ust e%ist bet#een the t#o actions an identit$ of parties, of subKect !atter and of cause of action. Rile+ v. "inger '-.B.(, B4 Ill. 0pp./d -5/>, -5:-, /.: N.8.3d B:>, B45. #/.8 insists that the debt involved in both the instant case and in the Dohnson &ount$ suit are based on the sa!e contract, that is,

invoice 3:C/, and that S8ra8/:/y/r is therefore barred fro! brin"in" a -5.BV-5.B subse,uent clai! b$ failin" to raise it in the first action. S8ra8/:/y/rasserts obversel$ that the proKects represented in each invoice involve different "rain bins, built in different counties at different ti!es, and as such co!prise the subKect of divisible contracts. He apparentl$ vie#s invoice 3:C/ as a separate docu!ent, e%planator$ of the ter!s and conditions of pa$!ent relatin" to each distinct and severable invoice. If the invoices are indeed divisible contracts, then res #udicata is inapplicable because no identit$ of subKect !atter and cause of action #ould e%ist in the t#o suits bet#een S8ra8/:/y/r and #/.8. a /14 The ,uestion of #hether a contract is severable depends on the intention of the parties as !anifested b$ the specific contract ter!s. '2ineral Resources! Inc. v. Classic Coal Corp.'-.C/(, --4 Ill. 0pp./d --:, -35, :45 N.8.3d /B., /C/.( 9actors #hich are helpful in findin" the intention of the parties are #hether perfor!ance b$ one part$ consists of distinct and separate ite!s and #hether the price paid b$ the other part$ is apportioned to each ite! bein" perfor!ed. '@aplan v. @eith '-.BC(, >5 Ill. 0pp./d C5:, C5C, /BB N.8.3d 3B., 3C-.( 7e thin= the series of invoices included in the record clearl$ describes nu!erous, se"re"ated obli"ations of perfor!ance callin" for varied a!ounts of pa$!ent. Invoice 3:C/ should be characteri;ed as a docu!ent #hich defines the ter!s of pa$!ent as to the several contracts, rather than a sin"le instru!ent inte"ratin" a "roup of invoices, as defendant #ould have us conclude. The a"ree!ents !anifested b$ the various invoices are independent of each other, andS8ra8/:/y/r is not barred fro! !aintainin" separate la#suits on the respective obli"ations. #/.8). second affir!ative defense averred a lac= of privit$ of contract bet#een hi! andS8ra8/:/y/r. 8ach of the contracts #as e%ecuted on the sa!e da$ b$ 0lan 9alconer, #/.8).!ana"in" partner in the a"ricultural business for #hich the "rain bins #ere built. In the Dohnson &ount$ suit, #/.8 defended on essentiall$ the sa!e "rounds. The court concluded that 9alconer*s e%ecution of the contract bound #/.8 on its obli"ations b$ virtue of their partnership a"ree!ent and the attendant a"enc$ relationship. That position #as affir!ed on appeal. 'S%ra%e$e1er v. &e#% '-.C:(, -34 Ill. 0pp./d 4.B, :>> N.8.3d /5>.( #/.8 advances the untenable

position that he has the ri"ht to reliti"ate the ,uestion of 9alconer*s authorit$ to obli"ate #/.8 on the Massac &ount$ "rain bin contract. a >, B &ollateral estoppel, or issue preclusion, is the second branch of res #udicata and is founded on the sa!e polic$, that is, to pro!ote Kudicial econo!$ and prevent repetitive liti"ation. To deter!ine #hether issue preclusion should be applied, the onl$ pertinent -5.CV-5.C,uestions are #hether the issue decided in the prior adKudication is the sa!e as the one presented in the suit in ,uestion, #hether there has been a final Kud"!ent on the !erits, and #hether the part$ a"ainst #ho! estoppel is asserted #as a part$ or in privit$ #ith a part$ to the prior adKudication. ' Illinois "tate Chamber o Commerce v. Pollution Control 1oard '-.B.(, BC Ill.3d -, /.C N.8.3d .L 1rumle+ v. Touche Ross : Co. '-.C:(, -3/ Ill. 0pp./d >/>, :>/ N.8.3d -.4.( It has also been stated that the doctrine applies onl$ to a controllin" fact or ,uestion !aterial to the deter!ination of both causes. 'Cit+ o .aperville v. 2organ '-.C:(, -3> Ill. 0pp./d .-, :>> N.8.3d -/:.L 5gle v. Fuiten '-.C/(, --3 Ill. 0pp./d -5:C, ::4 N.8.3d -/::,a 'd '-.C:(, -53 Ill.3d /4>, :>> N.8.3d 33:.( 8ach of these ele!ents has been established in the controvers$ bet#een S8ra8/:/y/r and #/.8. 9or the fore"oin" reasons, the Kud"!ent of the circuit court of Massac &ount$ is affir!ed. 0ffir!ed. 78I&H and N0SS8RM0N, DD., concur. 533 S.#.20 751 C1976D !/88y ". COOE /8 a-., P/8=8=on/r., 9. !RUN%I%GE, FOUNTAIN, E""IOTT ' C URC I"", a Par8n/r.B=< For 8B/ Pra?8=?/ oF "aG, R/.<on0/n8.. No. <14/B-. Su<r/:/ Cour8 oF T/Aa.. 9ebruar$ --, -.B>. Rehearin" Denied March 3:, -.B>.

Mar$ Neal Sis=, Dallas, for petitioners. Dac=son, 7al=er, 7instead, &ant#ell J Miller, Donald I. &ase and Dac= Pe#, Dr., Dallas, for respondents. ST80NI8O, Dustice. 0s this case reaches us, it is a suit b$ <ett$ I. CooO, et al, a"ainst !run0=0@/, B43VB439ountain, 8lliott J &hurchill, a partnership for the practice of la#.@-A The suit sou"ht to recover actual and e%e!plar$ da!a"es a"ainst the la# fir! arisin" fro! alle"ed breaches of fiduciar$ dut$ in the attorne$1client relationship, and fro! alle"ed fraudulent acts. The breaches and fraudulent acts #ere alle"ed to have been co!!itted b$ 7arren &. I$on, a partner in the fir! at the ti!es in ,uestion. The !otion of the la# fir! for su!!ar$ Kud"!ent #as "ranted b$ the trial court and this has been affir!ed b$ the &ourt of &ivil 0ppeals. 433 S.7.3d B:5. The ,uestion for decision is #hether the la# fir! established conclusivel$ that it is not liable for the acts of I$on. 7e hold that it did not and so reverse the Kud"!ents belo# and re!and the cause for trial. 7e learn the follo#in" fro! the su!!ar$ Kud"!ent record. !run0=0@/, 9ountain, 8lliott J &hurchill is a partnership en"a"ed in the practice of la# in Dallas, Te%as. 7arren &. I$on #as a partner of the la# fir! at the ti!es in ,uestion. 0s such, in -.>., he represented the plaintiff <ett$ I. CooO in a divorce proceedin"L he also prepared a #ill for her and for Isabelle 2riffin, another plaintiff. 9ees #ere char"ed b$ the la# fir! for these services and paid b$ <ett$ I.CooO and Isabelle 2riffin. I$on #as also en"a"ed in the real estate business and #as an officer and stoc=holder in Te%as Ou!!ers, a Te%as corporation. He also o#ned stoc= in a &alifornia co!pan$ =no#n as +nited States 9ranchise &orporation #hich assisted #ith the or"ani;ation of Te%as Ou!!ers. 9ees #ere also paid to the la# fir! b$ Te%as Ou!!ers. So!eti!e in -.>., durin" a conference #ith I$on concernin" her divorce, <ett$ I. CooOinfor!ed I$on that she, to"ether #ith her aunt, Mrs. Isabelle 2riffin, and her sister, 7inifred <a=er, #ere receivin" appro%i!atel$ S>5,555 fro! the sale of so!e propert$

#hich had co!e to the! fro! an estate in Illinois. <ett$ I. CooO as=ed I$on if he =ne# of so!eone #ith #ho! the$ could consult concernin" the invest!ent of this !one$ in so!e real estate in Te%as. I$on told her he #as a silent partner in a real estate fir! and !i"ht be able to help her. He su""ested several invest!ents and then told her about Ou!!ers, a fast1food franchise operation based in &alifornia, in #hich he had invested at, he said, substantial profit. I$on said he had obtained a Ou!!ers franchise and #as in the process of for!in" a Te%as corporation to handle it. <ett$ I. CooO, et al, decided to invest in Ou!!ers. The$ directed their attorne$ in Illinois to send I$on a chec= for the proceeds of the sale of the land in Illinois, #hich he did. The chec= #as dated Dul$ /, -.>., and #as in the su! of S>5,/:/.34L it #as !ade pa$able to 7arren I$on as 0ttorne$ for Isabelle M. 2riffin, 7inifred <a=er and <ett$ CooO. The chec= #as !ailed to and received b$ I$on at the office of the la# fir! but there is no sho#in" that the funds #ere deposited in or handled b$ or throu"h an$ account of the la# fir!. On Dul$ ., -.>., <ett$ I. CooO, et al, conferred #ith I$on in the la# fir!*s office. 0 contract #as e%ecuted #hereb$ the$ loaned to Te%as Ou!!ers &orporation a !ini!u! of S45,555 to be used in the construction of a Ou!!ers store in Dallas. I$on si"ned the contract as president of Te%as Ou!!ers. <ett$ I. CooO, et al, alle"ed under oath that I$on represented to Plaintiff CooO, Mrs. 2riffin and Mrs. <a=er that he had prepared the contract, that it #as a "ood and valid !ort"a"e contract and that as their attorne$ he could assure the! that their interests #ere #ell1protected. <ett$ I. CooO testified that I$on represented to the! that their funds had been placed in a trust account until it could be invested in the ne# store6 The !one$ #as B4/VB4/"oin" to be held until actuall$ the propert$ #as bou"ht and the buildin" be"un and the pa$ bac= started, #hich #as Septe!ber -4.... It #as to be paid bac= to us at one thousand dollars a !onth to be divided e,uall$ bet#een the three of us for fifteen $ears. The pa$!ent due Septe!ber -4, -.>., under the Dul$ . contract #as not !ade. On October ->, at <ett$ I. CooO). re,uest, I$on sent Isabelle 2riffin a chec= for S345 fro! Te%as Ou!!ers &orporation to cover her livin" e%penses.

Durin" October and Nove!ber of -.>., I$on persuaded <ett$ I. CooO, et al, to e%chan"e their ri"hts under the Dul$ . contract for stoc= in Te%as Ou!!ers. <ett$ I. CooO, et al, a"reed to ta=e -3,555 shares each, at S-.55 per share, plus a S-.,555 note fro! Te%as Ou!!ers. <ett$ I. CooO also "ave I$on S4,555 for 4,555 !ore shares on Nove!ber -:. On Dece!ber :, I$on and 7eaver e%ecuted and <ett$ I. CooO, et al, received the S-.,555 note fro! Te%as Ou!!ers. On Dece!ber 3/, <ett$ I. CooO si"ned an invest!ent letter pro!issin" to purchase -B,555 sharesL Isabelle 2riffin and 7inifred <a=er si"ned si!ilar letters for -3,555 shares each. In 9ebruar$ of -.B5, <ett$ I. CooO, et al, received #hat purported to be stoc= certificates for Te%as Ou!!ers. The facts re"ardin" Te%as Ou!!ers &orporation #ere these6 a Te%as Ou!!ers &orporation #as incorporated on 9ebruar$ 3B, -.>.L I$on #as desi"nated as an incorporator and director. The la# fir! #as retained b$ +nited States 9ranchise &orporation, a &alifornia corporation #hich o#ned and operated Ou!!ers stores in &alifornia, to set up this Te%as corporation. On March /, -.>., Te%as Ou!!ers paid the la# fir! S455 as a retainerL the chec= #as si"ned b$ I$on. S45,555 of the funds of <ett$ I. CooO, et al, #as deposited in an account of Te%as Ou!!ers. On Dece!ber 3, -.>., Te%as Ou!!ers #as dissolved, and a ne# Te%as Ou!!ers &orporation #as for!edL I$on #as a"ain an incorporator and director. On Dul$ 3-, -.B3, a Petition for Involuntar$ <an=ruptc$ of Te%as Ou!!ers #as filedL on 0u"ust --, the corporation #as adKud"ed ban=rupt. On Septe!ber -3, a !eetin" of the creditors of the corporation #as held. Soon thereafter, this suit #as instituted. 0s indicated in the forepart of this opinion, the severed proceedin" before us see=s the recover$ of da!a"es a"ainst the partnership la# fir! upon the theor$ of vicarious liabilit$ for the acts of I$on, a partner. 7e are concerned at this sta"e #ith the !otion of the la# fir! for su!!ar$ Kud"!ent that #as sustained b$ the trial court and upheld b$ the &ourt of &ivil 0ppeals upon the stated conclusion6 ... that the su!!ar$ Kud"!ent proof established as a !atter of la# that I$on had neither the actual authorit$ nor the apparent authorit$ to represent the la# fir! in the fraud perpetrated upon plaintiff.

Such proof sho#s the fraudulent acts b$ I$on #ere not consented to, authori;ed, ratified, or adopted b$ the other !e!bers of this la# fir!. 433 S.7.3d B:5, B:3. This holdin" of the &ourt of &ivil 0ppeals states the essential position of the la# fir!. It should also be stated that the proble! at hand does not involve in an$ respect the ,uestion of the personal liabilit$ of a la#$er #ho defrauds a client, #hatever the circu!stances. The !otion of the la# fir! for su!!ar$ Kud"!ent relied for support on its filed ans#er, on the affidavits of I$on, and of Ralph D. &hurchill, a senior !e!ber of the fir!L and upon the deposition testi!on$ of <ett$ I. CooO, a plaintiff, and &harles 0. 2irand, a licensed Te%as attorne$ en"a"ed in the practice of la# in Dallas. The ans#er of the la# fir! ad!itted that I$on #as a partner in the practice of la# but denied that he #as a partner, or that he #as actin" in the capacit$ of a partner, in "ivin" the advice, perfor!in" the services and doin" or o!ittin" to do the acts co!plained B4:VB4: of b$ plaintiffs. 0s to such, he #as, the la# fir! alle"ed, actin" in his individual capacit$. The affidavit of I$on #as to the sa!e effect, i. e., that in all transactions #ith <ett$ I. CooO, other than #ith respect to the divorce proceedin" and the preparation of a #ill for her, he #as actin" in his individual and personal capacit$, for #hich the la# fir! received no fee or pa$!ent fro! <ett$ I. CooO. The affidavit of &hurchill #as to the effect that the fir! is en"a"ed e%clusivel$ in the practice of la#L that I$on as a partner #as not authori;ed to act as an invest!ent counselor, securities bro=er or dealer, or to act as a real estate bro=er, dealer or a"ent, and that I$on #as not a partner in the perfor!ance of an$ such services perfor!ed for <ett$ I. CooOL that the onl$ service I$on perfor!ed as a partner #as the handlin" of a divorce for <ett$ I. CooO and the preparation of a #ill for her and perhaps a #ill for one of the other plaintiffsL that I$on #as actin" in his individual capacit$ #ith respect to his real estate business and as a stoc=holder in +nited States 9ranchise &orporation, and in the corporation =no#n as Ou!!ersL

and that this fir! received no fee, pa$!ent, co!!ission, or profit in an$ of such transactions. The deposition testi!on$ of 2irand #as directed to the reasons for the dissolution of the ori"inal incorporation of Ou!!ers and the for!ation of the second corporation. The deposition of <ett$ I. CooO, #ho #as deposed as a #itness on behalf of the defendants, I$on and 7eaver, dealt principall$ #ith the se,uence of events in her relationship #ith I$on. She also filed an affidavit in support of her response to the !otion of the la# fir! for su!!ar$ Kud"!ent. In this she stated6 0t no ti!e in !$ dealin"s #ith Defendant I$on did he indicate that he #as actin" in an$ capacit$ other than as !$ attorne$ at la# or separate fro! the la# fir! of #hich he #as a partner. Stuart I. Ma!er, an attorne$ of &ha!pai"n, Illinois had represented !e!bers of !$ fa!il$ and !e for several $ears and he acted as attorne$ for !e, Mrs. <a=er, Mrs. 2riffin and !$ father, Professor <. 9. Ti!!ons, #ith re"ard to the sale of the Illinois propert$. <ased on !$ conversations #ith Defendant I$on, Mr. Ma!er #as told b$ !e, Mrs. 2riffin and Mrs. <a=er that #e had retained Defendant la# fir! throu"h its partner, Defendant I$on, to represent us in Te%as, and had been accepted as clients b$ the Defendant la# fir! throu"h its partner, Defendant I$on. Mr. Ma!er !ade the chec= for S>5,/:/.34 pa$able to 7arren I$on, as 0ttorne$ for Isabelle M. 2riffin, 7inifred <a=er and <ett$ CooO because Defendant I$on had assured us that as our attorne$ he #ould protect and hold the funds for us pendin" their invest!ent. There #as also filed b$ <ett$ I. CooO, et al, the affidavit of Stuart M. Ma!er, their attorne$ in &ha!pai"n, Illinois. His activities, #ith particular reference to the la# fir! in Te%as, #ere described as follo#s6 In the Sprin" of -.>., I #as retained b$ Professor Ti!!ons and M!es. CooO, <a=er and 2riffin to represent the! in the sale of &ha!pai"n propert$ and #as infor!ed that M!es. CooO, <a=er and 2riffin desired to re1invest the proceeds in real estate in Dallas, Te%as. I #as infor!ed b$ telephone calls and correspondence fro! each of the three Plaintiffs herein that the$ #ere represented b$

counsel in Dallas, Te%as. The$ infor!ed !e that their attorne$ #as 7arren &. I$on, a !e!ber of the Dallas la# fir! of !run0=0@/, 9ountain, 8lliott J &hurchill. 0fter the sale of the Illinois propert$ #as consu!!ated, I deposited the proceeds therefro! in the separate Trust 0ccount !aintained b$ our la# fir! in the 9irst National <an= of &ha!pai"n, Illinois, for the purpose of se"re"atin" our clients* funds. On Dul$ /, -.>., I B44VB44 dre# a chec= on this Trust 0ccount to the order of 7arren I$on, as 0ttorne$ for Isabelle M. 2riffin, 7inifred <a=er and <ett$ CooO. I received a letter dated Dul$ -:, -.>., fro! the la# fir! of !run0=0@/, 9ountain, 8lliott J &hurchill bearin" the si"nature 7arren I$on. I received a letter dated 0u"ust -3, -.>., in the sa!e st$le. The first of these letters sho#ed that copies thereof had been sent to M!es.CooO, <a=er, and 2riffin. 0s re,uested in the la# fir!*s letter of Dul$ -:, -.>., I did indeed co!pute the capital "ains ta%es and prepared the necessar$ schedules for the -.>. inco!e ta% returns of M!es. CooO, <a=er, and 2riffin. The Dul$ /, -.>., chec= on our Trust 0ccount in the a!ount of Si%t$1Thousand Three Hundred 9ort$ Three and 34G-55 Dollars 'S>5,/:/.34( #as subse,uentl$ paid b$ our ban=. It #as endorsed 7arren I$on, 0ttorne$ for Isabelle 2riffin, 7inifred <a=er J <ett$ CooO. Vicarious liabilit$ of the la# fir! for the alle"ed da!a"es suffered b$ <ett$ I. CooO, et al, is not clai!ed on the basis of an$ ne"li"ence or breach of dut$ on the part of the other !e!bers of the la# fir!L nor is it clai!ed that the other !e!bers of the la# fir! beca!e co"ni;ant of the acts of I$on, or in an$#ise consented to or ratified his course of dealin"s #ith <ett$ I. CooO, et al. &f. @else+*"e+bold Clinic v. 2acla+! :>> S.7.3d B-> 'Te%.-.B-(. There is no clai!, on the other hand, that I$on or the la# fir! "ave notice to <ett$ I. CooO, et al, that I$on*s authorit$ as a partner #as li!ited in an$ respect, or, !ore specificall$, that an$ act of I$on for his individual profit, or in #hich he had a personal interest, #ould be outside his authorit$ as a !e!ber of the partnership.

The ,uestion of the liabilit$ of a professional partnership of attorne$s for the acts of a partner not strictl$ le"al in nature, but #hich occur durin" the e%istence of the attorne$1client relationship in reco"ni;ed le"al !atters, is of first i!pression in our Kurisdiction. Other Kurisdictions have dealt #ith the proble! of deter!inin" the scope of business of a professional partnership in various #a$s. In Rouse v. Pollard! -/5 N.D.8,. 35:, 3- 0.3d C5- '&t.8rr. J 0pp. -.:-(, the partner of a la# fir! persuaded a client #ho! he #as representin" in a divorce to entrust hi! #ith so!e of her !one$ for invest!ent #ith the fir!. The client sued the partner and the partnership to recover her funds, and the trial court dis!issed the suit as to the partnership on the "round that the partner*s actions #ere not #ithin the nor!al scope of business of a la# practice. 0ffir!in" the trial court*s dis!issal, the Ne# Derse$ &ourt of 8rrors and 0ppeals relied on a distinction developed in 8n"land6 The 8n"lish cases sustain the principle that #here !one$ is received b$ one !e!ber of a la# partnership for the e%pressed purpose of a special invest!ent,... there !a$ be liabilit$ b$ one partner for the !isconduct of another in the !isapplication of the fund, but that if one of the partners receives !one$ indefinitel$, to la$ out #hen a proper securit$ !a$ be found, he is not actin" #ithin the character of an attorne$ and does not thereb$ !a=e his partner liable.3- 0.3d at C5:. In 8ouglas Reservoirs 4ater ;sers /ss'n v. 2aurer : Garst! /.C P.3d B: '7$o.-.>4(, Maurer, a partner in the la# fir!, !isappropriated a S-5,555 chec= "iven to hi! b$ the 7ater +sers 0ssociation, of #hich he #as a !e!ber and the treasurerL the funds #ere supposed to be used to purchase a bond in the na!e of the association. The 7$o!in" Supre!e &ourt affir!ed a su!!ar$ Kud"!ent in favor of the la# partnership, holdin" that Maurer #as not actin" #ithin the ordinar$ scope of the partnership business as a !atter of la# #hen he !isappropriated the funds6 There is nothin" to indicate that le"al #or= had been involved in collectin" !one$ fro! the +nited States for Dou"las B4>VB4> Reservoirs 7ater +sers 0ssociation, or that the S-5,555 chec= had been entrusted to Maurer for a transaction ordinaril$ perfor!ed b$ la#$ers. /.C P.3d at BB.

In 1lac9mon v. >ale! - &al./d 4:C, C/ &al.Rptr. -.:, :>/ P.3d :-C '-.B5(, the plaintiff "ave an attorne$ a chec= pa$able to the attorne$*s partnership trust account, in order that funds #ould be available to the attorne$ in ne"otiations for plaintiff*s purchase of a note and !ort"a"e on so!e real propert$. The partner !isappropriated the funds, and plaintiff sued the partnership for their recover$. Reversin" the trial court*s Kud"!ent in favor of the partnership, the &alifornia Supre!e &ourt held that the partnership #as liable for the partner*s !alfeasance on the "round that the partner #as actin" #ithin the scope of his apparent authorit$ in acceptin" plaintiff*s funds. The &ourt stated, at C/ &al.Rptr. -.:, -.., :>/ P.3d :3/, :3:6 0lthou"h the fir!*s records indicate that 0da!s and Hale re"arded plaintiff as a client of 0da!s onl$, there is no evidence #hatever that either 0da!s or Hale ever infor!ed plaintiff that 0da!s #as not representin" plaintiff as a !e!ber of the fir!. Moreover, 0da!s and Hale held the!selves out to the public and to plaintiff as partners. The partnership displa$ed a si"n vie#able fro! the street readin" 0da!s and Hale, 0ttorne$s at Ia#. Such si"ns are co!!onl$ used b$ la# fir!s to indicate a partnership. 'See Fletcher v. Pullen '-CC.( B5 Md. 354, 3-/, -> 0. CCB, CCC .( Plaintiff testified that he =ne# that the fir! #as called 0da!s and Hale and that he dealt #ith 0da!s in the fir!*s offices. 9urther!ore, 0da!s instructed plaintiff to !a=e his chec= pa$able to the 0da!s and Hale Trust 0ccount. In the absence of other evidence these facts #ould Kustif$ a reasonable !an in believin" that he #as dealin" #ith a partnership. In ?immerman v. >ogg : /llen! P. /.! 3C> N.&. 3:, 35. S.8.3d B.4 '-.B:(, 2reene, #ho #as a principal shareholder in Ho"" J 0llen, a professional association for the practice of la#, represented Qi!!er!an, #ho #as an officer and e!plo$ee of a co!pan$ #hich had en"a"ed Ho"" J 0llen as its "eneral counsel, in so!e personal le"al !atters. Qi!!er!an sent 2reene S3:,555 to be used in the purchase of shares of Nentuc=$ 9ried &hic=en. Qi!!er!an sued 2reene and Ho"" J 0llen for !isappropriation of his !one$. Reversin" the trial court*s su!!ar$ Kud"!ent in favor of Ho"" J 0llen, the North &arolina Supre!e &ourt held that there #as a fact ,uestion #hether, in acceptin" Qi!!er!an*s !one$, 2reene #as

actin" #ithin the nor!al scope of business of the professional association. The court stated its conclusions as follo#s6 +nder these particular circu!stances, #e are of the opinion that plaintiff*s evidence #as sufficient to Kustif$ a reasonable and prudent belief b$ plaintiff Sa! Qi!!er!an that the Professional 0ssociation had conferred authorit$ upon 2reene to receive the funds fro! hi! for invest!ent #hile actin" as its a"ent. Thus plaintiff*s evidence raised a "enuine !aterial issue for trial as to #hether 2reene acted #ithin the scope of his authorit$ and as a"ent for the Professional 0ssociation at the ti!es co!plained of. The issue so raised #as !aterial because #ithout establishin" a"enc$, plaintiff could not recover .... 35. S.8.3d at C5:, C54. In Croisant v. 4atrud! 3:C Or. 3/:, :/3 P.3d B.. '-.>B(, plaintiff had en"a"ed an accountin" fir! to advise her on ta% !atters and to prepare ta% returns for her business enterprises. 0fter sellin" one of her businesses, she !ade arran"e!ents #ith a !e!ber of the accountin" fir!, #ho had handled the business of plaintiff for the fir! previousl$, to collect pa$!ents under the contract of sale, as #ell as so!e collection of rents fro! other propert$, and to !a=e various disburse!ents of the !one$. The funds collected #ere deposited in an B4BVB4B account of plaintiff, fro! #hich the accountant had authorit$ to !a=e #ithdra#als. The accountant !isapplied so!e of the funds, and plaintiff sued the accountant*s partnership to recover the loss. The Ore"on Supre!e &ourt, reversin" a Kud"!ent in favor of the partnership, held that the partnership #as liable for plaintiff*s loss, even thou"h the accountant*s services to plaintiff #ere not services ordinaril$ perfor!ed b$ accountin" fir!s6 If a third person reasonabl$ believes that the services he has re,uested of a !e!ber of an accountin" partnership is @sicA underta=en as a part of the partnership business, the partnership should be bound for a breach of trust incident to that e!plo$!ent even thou"h those en"a"ed in the practice of accountanc$ #ould re"ard as unusual the perfor!ance of such service b$ an accountin" fir!. The reasonableness of a third person*s belief that a partner is actin" #ithin the scope of the partnership should not be tested b$

the profession*s o#n description of the function of its !e!bers. Those #ho see= accountin" services !a$ not understand the refine!ents !ade b$ accountants in definin" the services the$ offer to the public. 7hether a third person*s belief is reasonable in assu!in" that the service he see=s is #ithin the do!ain of the profession is a ,uestion #hich !ust be ans#ered upon the basis of the facts in the particular case. :/3 P.3d at C5/. It is doubtful if the treat!ent of the proble! b$ these various Kurisdictions, and the rationale applied for solutions, can be har!oni;edL or that an accepted rule can be said to appear. 0 stricter vie# a"ainst the liabilit$ of a professional partnership for the !isdeeds of a partner #ith a client is indicated in Rouse and 8ouglas ReservoirsI a !ore liberal vie# is indicated in1lac9mon! ?immerman and Croisant. Surprisin"l$, also, onl$ t#o of the Kurisdictions, &alifornia and 7$o!in", considered the proble! in the li"ht of their respective unifor! partnership acts #hich, in our vie# are particularl$ relevant, if not controllin". Indeed, the conclusions #e reach, later stated, rest in "reat !easure upon the provisions of the Te%as +nifor! Partnership 0ct, Vernon*s 0nn.&iv.St. art. >-/3b. Prior to the enact!ent of the Te%as 0ct in -.>-, there did not e%ist a co!prehensive corpus of substantive la# "overnin" the partnership for! of business association. See Sher and <ro!ber", Texas Partnership -a& in the JEth Centur+! -3 S#.I.D. 3>/ '-.4C(. 0pplication of the 0ct to a professional partnership has not been invo=ed as $et althou"h the dissentin" opinion in @else+* "e+bold! supra, involvin" a !edical partnership, reco"ni;ed that the +nifor! Partnership 0ct, art. >-/3b, provides for liabilit$ of the partnership for #ron"ful acts of a partner Xactin" in the ordinar$ course of the business of the partnership.* In @else+*"e+bold! supra! ho#ever, it #as assu!ed in the #ritin" for the !aKorit$ that in en"a"in" in the acts in ,uestion the doctor1partner #as not actin" in the ordinar$ course of the business of the !edical partnershipL #hereas, this is the proble! no# at hand. There are, ad!ittedl$, co!pellin" and uni,ue considerations #ith respect to partners en"a"ed in the practice of la#. The fiducial obli"ations of a la# partnership set it apart fro! co!!ercial partnerships. 9or a discussion of the hi"h obli"ations of a fiduciar$

see @in)bach Tool Co. v. Corbett*4allace Corp.! -/C Te%. 4>4, ->5 S.7.3d 45. '-.:3(. These characteristics and obli"ations inherent in the practice of la# are universall$ understood and ac=no#led"ed b$ the le"al profession. Nevertheless, the provisions of art. >-/3b are e%pressl$ applicable to a professional partnership such as one of la#. Section > of the 0ct defines a partnership as an association of t#o or !ore persons to carr$ on as co1o#ners a business for profit. Section 3 defines business as includin" ever$ trade, occupation, or profession. 2overnin" the issue at hand, i. e., the conditions to liabilit$ of a partnership for the acts of a partner, Sections ., -/ and -: of the 0ct provide6 B4CVB4C Sec. .. '-( 8ver$ partner is an a"ent of the partnership for the purpose of its business, and the act of ever$ partner, includin" the e%ecution in the partnership na!e of an$ instru!ent, or apparentl+ carr+ing on in the usual &a+ the business o the partnership of #hich he is a !e!ber binds the partnership, unless the partner so actin" has in fact no authorit$ to act for the partnership in the particular !atter, and the person #ith #ho! he is dealin" has =no#led"e of the fact that he has no such authorit$. '8!phasis added( '3( 0n act of a partner #hich is not apparentl$ for the carr$in" on of the business of the partnership in the usual #a$ does not bind the partnership unless authori;ed b$ the other partners. Sec. -/. 7here, b$ an$ #ron"ful act or o!ission of an$ partner acting in the ordinar+ course o the business o the partnership or #ith the authorit$ of his co1partners, loss or inKur$ is cause@dA to an$ person, not bein" a partner in the partnership, or an$ penalt$ is incurred, the partnership is liable therefor to the sa!e e%tent as the partner so actin" or o!ittin" to act. '8!phasis added( Sec. -:. The partnership is bound to !a=e "ood the loss6 'a( 7here one partner actin" #ithin the scope of his apparent authorit$ receives !one$ or propert$ of a third person and !isapplies itL and 'b( 7here the partnership in the course of its business receives !one$ or propert$ of a third person and the !one$ or propert$ so received is !isapplied b$ an$ partner #hile it is in the custod$ of the partnership.

7e have recentl$ spo=en of apparent authorit$ in ter!s of estoppel, and have said that one see=in" to char"e a principal throu"h apparent authorit$ of an a"ent !ust prove such conduct on the part of the principal as #ould lead a reasonable prudent person to suppose that the a"ent had the authorit$ he purports to e%ercise. 8ouglass v. Panama! Inc.! 45: S.7.3d BB> 'Te%.-.B:(. The e%tent of authorit$ of a partner is deter!ined essentiall$ b$ the sa!e principles as those !easurin" the scope of the authorit$ of an a"ent. In Randall v. 2eredith! B> Te%. >>., -/ S.7. 4B> '-C.5(, this &ourt #rote of the i!plied po#ers possessed b$ a partner6 <et#een partners the!selves, and bet#een the fir! and persons dealin" #ith the fir!, it !ust be presu!ed that each partner is the a"ent of the fir!, e!po#ered to carr$ out its obKects, and to transact the business for #hich the partnership #as for!ed, in the usual and custo!ar$ #a$ pursued b$ other fir!s en"a"ed in a li=e businessL and, in the absence of restrictions on this po#er, ri"hts !ust be adKusted in vie# of its e%istence. Third persons dealin" #ith a !e!ber of a fir! in reference to partnership !atters, in the absence of po#er e%pressl$ conferred, !ust reco"ni;e the fact that the partner*s po#er to bind his fir! is restricted to the doin" of such thin"s as are #ithin the scope of the particular business. <et#een the partners the!selves, and bet#een the fir! and persons dealin" #ith it throu"h a partner, there is no doubt that the usa"es of fir!s en"a"ed in the sa!e character of business in the sa!e countr$, as #ell as the "eneral usa"e of the fir! in the conduct of its business, !a$ be loo=ed to to ascertain the i!plied po#ers possessed b$ a partner. If the po#er e%ercised in a "iven case be one usuall$ e%ercised b$ partners in a li=e business, all the !e!bers of the fir! !ust be supposed to have intended to confer a li=e po#er on each other. If the po#er be habituall$ e%ercised b$ a partner, and ac,uiesced in b$ the other !e!bers of the fir!, it is but fair to conclude that the !e!bers of the fir! intended it to be e%ercised. -/ S.7. at 4C-, 4C3. 0s stated before, it is not clai!ed either that I$on #as authori;ed b$ the partnership to act as he did in the Ou!!ers !atter or that <ett$ I. CooO, et al, had B4.VB4. notice or =no#led"e that I$on had no authorit$ to act for the partnership in #hat he did. 0ssu!in" !isapplication of the funds, the crucial consideration in deter!inin"

#hether the la# fir! is bound b$ the acts of I$on b$ force of the statutor$ provisions is #hether in receivin" the funds of <ett$ I. CooO, et al, in the su! of S>5,/:/.34, I$on #as apparentl$ carr$in" on in the usual #a$ the business of the partnership 'Sec. .(L or, as also e%pressed, #hether he #as actin" in the ordinar$ course of the business of the partnership 'Sec. -/(. If so, it #ould follo# that I$on #as actin" #ithin the scope of his apparent authorit$ #hen he received the !one$ and propert$ of <ett$ I.CooO, et alL and that the la# fir! is bound to !a=e "ood the loss fro! his !isapplication of the funds 'Sec. -:(. It #as the burden of the la# fir! as the defendant1!ovant for su!!ar$ Kud"!ent to establish as a !atter of la# that no fact issue stands in the #a$ of Kud"!ent in its favor. &f. 1urns v. Gon)ale)! :/. S.7.3d -3C 'Te%.&iv.0pp. H -.>., #rit ref*d n. r. e .( #ith respect to the burden in trial on the !erits. The su!!ar$ Kud"!ent burden #as that of establishin" the ne"ative of the statutor$ issues, na!el$, that I$on #as not apparentl$ carr$in" on in the usual #a$ the business of the la# fir!, i. e., #as not actin" in the ordinar$ course of its business and hence #as not actin" #ithin the scope of apparent authorit$ b$ force of statute. See Torres v. 4estern Casualt+ : "uret+ Co.! :4B S.7.3d 45 'Te%.-.B5(L Gibbs v. General 2otors Corp.!:45 S.7.3d C3B 'Te%.-.B5(. The defendant is re,uired to !eet the plaintiff*s case as pleaded and to de!onstrate that the plaintiff cannot prevail. Glenn v. Prestegord! :4> S.7.3d .5- 'Te%.-.B5(L Guidr+ v. .eches 1utane Products Co.! :B> S.7.3d >>> 'Te%.-.B3(. There can be no further burden upon the plaintiff if the re,uisite facts for su!!ar$ Kud"!ent are not established b$ the su!!ar$ Kud"!ent record. See Torres! supra! and 1ox v. 1ates! ->3 Te%. -C:, /:> S.7.3d /-B '-.>-( . 0s noted earlier, the thrust of the affidavits of &hurchill and I$on in support of the !otion for su!!ar$ Kud"!ent #as that the la# fir! is en"a"ed e%clusivel$ in the practice of la#, and that I$on #as not actin" for the partnership in perfor!in" the services in ,uestion. <ut at the least, the acceptance b$ I$on of the chec= of S>5,/:/.34 pa$able to 7arren I$on as 0ttorne$ for <ett$ I. CooO, et al, to"ether #ith the deposition testi!on$ of <ett$ I. CooO upon #hich the !otion of the la# fir! for su!!ar$ Kud"!ent also relied for support, and, further, the affidavit of <ett$ I. CooO and that of the

Illinois attorne$, de!onstrate the e%istence of fact issues #ith respect to the statutor$ conditions to liabilit$ of the partnership. This bein" so, the record does not establish conclusivel$ that the la# fir! is not accountable to <ett$ I. CooO, et al, for the acts of I$on. The Kud"!ents of the trial court and of the &ourt of &ivil 0ppeals are reversed and the cause is re!anded for trial. Dissentin" opinion b$ Mc288, D., in #hich 2R88NHIII, &. D., Koins. Mc288, Dustice. I respectfull$ dissent. I #ould hold that in this case the su!!ar$ Kud"!ent proof established as a !atter of la# that I$on had neither the actual nor the apparent authorit$ to represent the la# fir! in the fraud perpetrated upon the petitioners. 9urther, no liabilit$ should rest upon the la# fir! under an$ of the controllin" provisions of the Te%as +nifor! Partnership 0ct. Te%.Rev.&iv.Stat.0nn. art. >-/3b '-.B5(. The record clearl$ reveals that Mrs. CooO initiall$ as=ed I$on #hether he =ne# of so!eone to #ho! she could spea= concernin" the possible invest!ent of certain !onies in Te%as properties. Thus, aside fro! her le"al proble!s Mrs. CooO in,uired of I$on #hether he =ne# of so!eone she could discuss invest!ents #ith H apparentl$ reali;in" that an$ discussion relative to le"al !atters had ceased. She specificall$ B>5VB>5 in,uired as to #hether he =ne# of either an invest!ent counselor or a real estate person. I$on*s ans#er #as that he #as a silent partner in a different field H a real estate fir!, and that he could therefore he of so!e service to her in that separate capacit$. It is undisputed that no !e!ber of the la# fir! other than I$on pla$ed an$ part in, or received an$ benefit fro!, I$on*s alle"ed !isapplication of funds. The funds #ere not deposited in, nor handled b$, or throu"h an$ account of the la# fir!. Thus, it is clear that the invest!ent counselin" b$ I$on #as done #ithout the =no#led"e of an$one else in the la# fir! and that the fir! neither received a fee, nor profited in an$ #a$ b$ I$on*s actions. The end result is that the pleadin"s, affidavits and depositions reveal that the activities out of #hich the defalcations arose did not constitute a partnership endeavor.

In Randall v. 2eredith! B> Te%. >>., -/ S.7. 4B>, 4C- '-C.5(, the court stated6 Third persons dealin" #ith a !e!ber of a fir! in reference to partnership !atters, in the absence of po#er e%pressl$ conferred, !ust reco"ni;e the fact that the partner*s po#er to bind his fir! is restricted to the doin" of such thin"s as are #ithin the scope of the particular business. Nevertheless, the !aKorit$ has held that the liabilit$ of the la# fir! !a$ ulti!atel$ be established under the applicable provisions of the Te%as +nifor! Partnership 0ct. Section :'/( of the 0ct e%pressl$ states that @tAhe la# of a"enc$ shall appl$ under this 0ct. +pon reco"ni;in" this fact the !aKorit$ states that assu!in" !isapplication of the funds, the crucial ,uestions deter!inative of #hether the la# fir! is to be held liable for I$on*s !isdeeds are6 ... #hether in receivin" the funds of <ett$ I. CooO, et al, in the su! of S>5,/:/.34, I$on #as Xapparentl$ carr$in" on in the usual #a$ the business of the partnership,* 'Sec. .(L or, as also e%pressed, #hether he #as Xactin" in the ordinar$ course of the business of the partnership*. 'Sec. -/(. If so, it #ould follo# that I$on #as Xactin" #ithin the scope of his apparent authorit$* #hen he received the !one$ and propert$ of <ett$ I. CooO, et alL and that the la# fir! is Xbound to !a=e "ood the loss* fro! his !isapplication of the funds. 'Sec. -:(. Thus, as vie#ed b$ the !aKorit$, the =e$ is obviousl$ the receipt of the funds. Thou"h I #ould not li!it the construction of the 0ct si!pl$ to the !ere receipt of the funds, and aside fro! the confusion inherent in the !aKorit$*s state!ent, I !aintain that the liabilit$ provisions of the act are clear and #ell defined. In the present case, it is not clai!ed that I$on had been authori;ed b$ the partnership to act as he did #ith reference to the Ou!!ers invest!ent. Nor does an$one clai! that <ett$ CooO, et al, had notice or =no#led"e that I$on had no authorit$ to act as he did. Thus, the =e$ ,uestions that !ust be ans#ered in order to deter!ine #hether the la# fir! is to be held liable are #hether I$on #as actin" in the ordinar$ course of the business of the partnership. 'Sec. -/(L or, #hether he #as apparentl$ carr$in" on in the usual #a$ the business of the partnership. 'Sec. .(. 9urther,

liabilit$ !a$ also attach to the la# fir! if I$on #as actin" #ithin the scope of his apparent authorit$. 'Sec. -:(. <ased on !$ construction of the statutor$ liabilit$ provisions set out in the Te%as +nifor! Partnership 0ct as the$ appl$ to the present fact situation, I #ould uphold the su!!ar$ Kud"!ent entered in favor of the la# fir!. I #ould hold that the la# fir! !et its su!!ar$ Kud"!ent burden and established that I$on #as not actin" in the ordinar$ course of the partnership business. I #ould further hold that I$on #as not actin" #ithin the scope of his apparent authorit$, nor #as he apparentl$ carr$in" on in the usual #a$ the business of the partnership #ithin the !eanin" of the Te%as +nifor! Partnership 0ct. The authorit$ of a partner to act as an a"ent for his partnership is li!ited to such transactions as are #ithin the scope of the partnership businessL and neither the partnership nor the other partners are bound b$ the unauthori;ed B>-VB>- acts of one partner in a !atter not #ithin the usual or apparent scope of business of the partnership. Neither a partnership nor its innocent partners are liable for a conversion #hich is not effected in the course of the fir!*s business. Si!ilarl$, as #as revealed in the Randall case, supra, third persons dealin" #ith a !e!ber of a fir! !ust reco"ni;e that the partner*s po#er to bind his fir! is restricted to doin" thin"s that are #ithin the scope of the particular business. Perhaps the initial respect #hich Mrs. CooO entertained for I$on*s business sa"acit$ and invest!ent acu!en #as seeded in the fact that he #as a !e!ber of that particular la# fir!L but he #as a !e!ber of that fir! for the practice of la#, and that !e!bership did not per se create liabilit$ b$ his partners for his acts outside the "eneral scope of the practice of la#. Rouse v. Pollard! -/5 N.D.8,. 35:, 3- 0.3d C5- '-.:-(. Mrs. CooO). in,uir$ related to #hether I$on =ne# of an individual #ho could serve in the distinct capacit$ of an invest!ent counselor. I$on*s ans#er clearl$ indicated to her that he #ould be actin" in her behalf in a separate, nonle"al capacit$. It therefore !a$ not be said that I$on #as apparentl$ carr$in" on in the usual #a$ the business of the partnership. Such representations and financial failure arose out of I$on*s o#n private deal and not in the course of the partnership business. 7here a person deals #ith one of the partners in a !atter not #ithin the scope of the partnership, the

intend!ent of the la# is that he deals #ith hi! on his o#n private account. 7hen Mrs. CooO #ent to the offices of !run0=0@/, 9ountain, 8lliott J &hurchill in reliance upon their reputation as a la# fir! to obtain le"al advice and !et #ith I$on as a !e!ber of the fir! #ho #ould render the desired service, she had no Kustification therein for rel$in" upon the responsibilit$ of the partnership for an$ disconnected service assu!ed b$ I$on outside one that #as characteristicall$ #ithin the practice of la#. 7hen I$on volunteered hi!self as a real estate and invest!ent counselor in the present case due to Mrs. CooO). insti"atin" in,uir$ he #as not apparentl$ carr$in" on in the usual #a$ the business of the partnership, nor #as he actin" in the ordinar$ course of the business of the partnership #ithin the !eanin" of the Partnership 0ct. In this case I$on #as actin" in a private, nonle"al advisor$ capacit$, and he #as therefore entirel$ outside the scope of his authorit$ and #ithout the scope of the business carried on b$ this la# fir!. Such actions #ere not incidental to the business of a fir! en"a"ed e%clusivel$ in the practice of la#. <ecause of these conclusions, it is clear that I$on #as also not actin" #ithin the scope of his apparent authorit$ #hen he received the !onies of <ett$CooO, et al. This court described apparent authorit$ in 8ouglass v. Panama! Inc.! 45: S.7.3d BB>, BBC 'Te%.-.B:(, as follo#s6 0pparent authorit$ is based on estoppel, and one see=in" to char"e a principal throu"h apparent authorit$ of an a"ent to bind the principal !ust prove such conduct on the part o the principal as #ould lead a reasonabl$ prudent person to suppose that the a"ent had the authorit$ he purports to e%ercise. @8!phasis addedA. Since apparent authorit$ is based on estoppel, it cannot be established b$ the acts of the a"entL it !ust arise fro! #ords or conduct of the principal. Custom -easing! Inc. v. Texas 1an9 and Trust Compan+ o 8allas! 4-> S.7.3d -/C, -:: 'Te%.-.B:(L Rour9e v. Gar)a! -. Te%.Sup.&t.D. />, 4/5 S.7.3d B.: 'Te%.-.B4(. 9urther, apparent authorit$ in such cases e%ists onl$ as to those thin"s ordinaril$ entrusted to one occup$in" such a position. Rour9e! supra. In the instant case #e find no actions b$ the principal la# fir! that #ould induce Mrs. CooO to believe that

I$on #as authori;ed to act for the fir! as a real estate bro=er or invest!ent counselor. The fir! did nothin" to indicate to Mrs. CooO that I$on #as authori;ed to act in their behalf outside of the practice of la#. Mrs. CooO herself stated B>3VB>3 in her affidavit and deposition that she had no contact #ith an$ other !e!ber of the la# fir! be$ond "reetin" Mr. &hurchill briefl$ on a fe# occasions. The !ere fact that the la# fir! had conferred upon I$on the authorit$ to practice la# #ithin the scope of their partnership #ould not create the apparent authorit$ to en"a"e in invest!ent counselin" transactions as a service disconnected fro! the practice of la#. "ee! Great /merican Casualt+ Co. v. Eichelberger! /B S.7.3d -545 'Te%.&iv.0pp. H 7aco -./-, #rit ref*d(. 0s a final note, I !aintain that it is clearl$ evident that the !aKorit$ has failed in its dut$ to lend a "uidin" hand to the trial court belo#. 9or instance, in #hat fashion do the three statutor$ liabilit$ provisions interrelate so as to possibl$ affi% liabilit$ to the la# fir!) Since the ulti!ate outco!e is dependent upon these pertinent liabilit$ provisions, #hat are the special issues that should be sub!itted in such cases) 7hose vie#point or actions deter!ine the e%istence or none%istence of liabilit$) 7hat does apparentl$ carr$in" on in the usual #a$ the business of the partnership !ean) It is inevitable that the Kur$ #ill re,uire so!e for! of instruction as to these !atters. 0nd, since the ter! apparent authorit$ as set out in the statute has obviousl$ not received its traditional interpretation, that concept #ill also re,uire further specification and delineation. That proble!s and confusion are created is evident. The ,uestions #hich arise call for and deserve ans#ers. This case presents the initial instance in #hich the partnership liabilit$ provisions have been directl$ confronted and anal$;ed in such a fashion, and therefore, further "uidance is essential. Nevertheless, as I vie# the Te%as +nifor! Partnership 0ct, even under the petitioners* version of the facts there #as no "enuine issue as to an$ !aterial fact, and the !atters before the court failed to sho# an$ liabilit$ on the part of the la# fir!. 0ccordin"l$, su!!ar$ Kud"!ent #as properl$ entered and the Kud"!ent of the court of civil appeals should be affir!ed. 2R88NHIII, &. D., Koins in this dissent.

@-A 0s ori"inall$ filed, the suit co!plained also of 7arren &. I$on, Derr$ I. 7eaver and Ro"er MiltonL upon !otion of <ett$ I. CooO, et al, the trial court severed the cause of action a"ainst the other defendants, and this severed cause no# pends in the trial court. 124 Ar=P. 55 C1979D 662 P.20 469 J/rry R. !O ONUS, A<</--an8, 9. AMERCO, a N/9a0a Cor<ora8=on; A:/r?o, In?., an Or/@on Cor<ora8=on; Pon0/ro.a In.uran?/ A@/n?y, In?., an Ar=Pona Cor<ora8=on; OAFor0 "=F/ In.uran?/ Co., an Ar=Pona Cor<ora8=on; R/<u;-=? #/.8/rn "=F/ In.uran?/ Co:<any, an Ar=Pona Cor<ora8=on, an0 R/<u;-=? #/.8/rn In.uran?/ Co:<any, an Ar=Pona Cor<ora8=on, A<</--//.. No. -:::4. Su<r/:/ Cour8 oF Ar=Pona, En !an?. October 4, -.B.. Rehearin" Denied Nove!ber -:, -.B.. Derr$ R. !oBonu., in pro per. Mariscal, 7ee=s, McInt$re J 9riedlander b$ Richard 0. 9riedlander, Phoeni%, for appellees. H0OS, Dustice. 0ppellee A:/r?o, plaintiff belo#, secured a Kud"!ent a"ainst appellant !oBonu., defendantC.VC. belo#, and sou"ht to enforce that Kud"!ent b$ Kudicial sale of !oBonu.* interest in a partnership. The initial liti"ation involved nu!erous parties and #as prolon"ed. 0t the ti!e su!!ar$ Kud"!ent #as entered a"ainst !oBonu., his attorne$ had #ithdra#n and he #as actin" as his o#n attorne$. He atte!pted to appeal fro! the su!!ar$ Kud"!ent and fro! the Kud"!ent enforce!ent proceedin"s. <efore the case #as transferred to this court pursuant to Rule -.'e( of the Rules of &ivil 0ppellate Procedure, the &ourt of 0ppeals ruled that his appeal

fro! the initial su!!ar$ Kud"!ent #as not ti!el$. 7e concur in this rulin". The first issue before us is6 2a+ the trial court order the sale o partnership propert+ to satis + the individual debt o a partnerR The appellee, A:/r?o, after it secured a Kud"!ent a"ainst the appellant, !oBonu., sou"ht a char"in" order fro! the court pursuant to 0.R.S. W 3.133C, a provision e!bodied in the +nifor! Partnership 0ct. The court "ranted the re,uest for a char"in" order and as a part of that order !andated the sale of appellant*s interest in the assets and propert$ of the partnership business, includin" a spiritous li,uor license. The sheriff proceeded #ith the sale and filed his return. 7e no# loo= at the partnership statute. 0.R.S. W 3.1334'<('/( sa$s6 0 partner*s ri"ht in specific partnership propert$ is not subKect to attach!ent or e%ecution, e%cept on a clai! a"ainst the partnership.... 0.R.S. W 3.133: sets forth the e%tent of the propert$ ri"hts of the partner6 The propert$ ri"hts of a partner are6 -. His ri"hts in specific partnership propert$. 3. His interest in the partnership. /. His ri"ht to participate in the !ana"e!ent. 0.R.S. W 3.133> defines a partner*s interest 6 0 partner*s interest in the partnership is his share of the profits and surplus, and the sa!e is personal propert$. 0.R.S. W 3.133C reads, in pertinent part, as follo#s6 0. On due application to a co!petent court b$ an$ Kud"!ent creditor of a partner, the court #hich entered the Kud"!ent, order, or decree, or an$ other court, !a$ char"e the interest of the debtor partner #ith pa$!ent of the unsatisfied a!ount of such Kud"!ent debt #ith interest thereonL and !a$ then or later appoint a receiver

of his share of the profits, and of an$ other !one$ due or to fall due to hi! in respect of the partnership, and !a=e all other orders, directions, accounts and in,uiries #hich the debtor partner !i"ht have !ade, or #hich the circu!stances of the case !a$ re,uire. 7ith the fore"oin" statutes in !ind, #e note that it is onl$ a partner*s interest in the partnership #hich !a$ be char"ed and, in so!e Kurisdictions, sold. It cannot be overe!phasi;ed that interest in the partnership has a special li!ited !eanin" in the conte%t of the +nifor! Partnership 0ct and hence in the 0ri;ona statutes. The appellee ur"es that so!eho# 0.R.S. W 3.1 33C'0(, supra! authori;es the sale of partnership assets and propert$. 7e note that the record reflects that pursuant to the provisions of the sa!e statute a receiver #as appointed in this case. The fact of the receivership provision enforces the conclusion that onl$ the interest in the partnership !a$ be char"ed and #e find no provision therein for sale of assets or propert$ of the partnership. 0ppellee see=s aid and co!fort in the lan"ua"e of 0.R.S. W 3.1 3/3'<( #hich provides for dissolution of the partnership upon application of the purchaser of a partner*s interest under WW 3.133B or 3.133C. No decree of dissolution ho#ever has been as=ed for here. 7e concur #ith appellee*s position that the char"ed interest of a debtor1partner can be sold, but further enforce!ent of the creditor*s ri"hts !ust be pursuant to statute. "ee 0.R.S. W 3.13/3'<( and Tupper v. @roc! CC Nev. -:>, :.: P.3d -3B4 '-.B3(. .5V.5 Ho#ever, this in no#ise !a=es the sale of the partnership assets valid. 0ppellee ne%t contends that even if partnership propert$ is not subKect to Kudicial sale, since appellant never raised this issue at the trial level he !a$ not no# raise it for the first ti!e on appeal. 0lthou"h appellee correctl$ states the "enerall$ accepted rule @1ible v. First .ational 1an9 o Ra&lins! 3- 0ri;. 0pp. 4:, 4-4 P.3d /4- '-.B/(L .ational Car Rental v. Fox! -C 0ri;. 0pp. ->5, 455 P.3d --:C '-.B3(A, this court has previousl$ held that ... to this rule there

are !an$ e%ceptions. To&n o "outh Tucson v. 1oard o "upervisors o Pima Count+! 43 0ri;. 4B4, 4C3, C: P.3d 4C-, 4C: '-./C(. One of these e%ceptions #as cited in Rubens v. Costello! B4 0ri;. 4, ., 34- P.3d /5>, /5C '-.43(, #here #e held that, @0A le"al principle, althou"h not su""ested b$ either part$ at the trial 'and #e include on appeal( should be adopted in order to finall$ dispose of a cause on appeal if this i!pels the speed$ enforce!ent of a ri"ht, or redress of a #ron", and, as a correct e%position of the la#, is appropriate to the facts involved. "ee also >ormel v. >elvering! /-3 +.S. 443, >- S.&t. B-., C4 I.8d. -5/B '-.:-( . In the instant case, there is clearl$ a #ron" to be redressed. The +nifor! Partnership 0ct, #hich, as #e have stated, prohibits the sale of partnership propert$ in order to satisf$ the nonpartnership debts of individual partners, has been contravened b$ the lo#er court*s order. This error !ust be rectified. 0ppellee*s final contention re,uires a chronolo"$ of procedural events. Partial su!!ar$ Kud"!ent #as entered a"ainst appellant on Dul$ 3B, -.BB. On Septe!ber 33, -.BB the lo#er court issued one order '-( den$in" appellant*s !otion for reconsideration, '3( "arnishin" appellant*s ban= account, and '/( orderin" the sale of appellant*s partnership interest as #ell as a separate Order for Sale of Partnership Interest. 0 #rit of e%ecution #as entered pursuant thereto one #ee= later. On October -/, -.BB, appellant filed a notice of appeal fro! the Kud"!ent entered in the above1 entitled action on the 34th @sicA of Dul$, -.BB.... 0ppellant served appellee #ith a !otion to ,uash the #rit of e%ecution on October -C, -.BB and on Nove!ber -C, -.BB filed an a!ended notice of appeal fro! the Septe!ber 33 Kud"!ent ... and fro! the #hole thereof. 0t the Nove!ber 3C, -.BB hearin" on appellant*s Motion to ?uash, appellee, apparentl$ concerned that the pendin" appeal deprived the trial court of Kurisdiction, ,uestioned the appellant re"ardin" precisel$ #hich Kud"!ent's( #ere included in his appeals. 0ppellant responded6 The notice of appeal #as directed to the &ourt*s decision to reaffir! the ori"inal Kud"!ent that #as entered into a"ainst !e,

#hich #as reaffir!ed on or about Septe!ber 3-st or 33nd, #hatever. 0ppellee contends that appellant thus represented that his appeal #as directed not at the order for the sale of his partnership interest, but instead at the Dul$ 3B su!!ar$ Kud"!ent entered a"ainst hi! and that appellant should thus be estopped fro! no# assertin" that the instant appeal concerns the Order of Sale. 0ppellee relies on the doctrine of Kudicial estoppel. 2enerall$, the doctrine states that a part$ #ho has assu!ed a particular position in one Kudicial proceedin" #ill not be allo#ed to assu!e an inconsistent position in a subse,uent proceedin". "tandage (entures! Inc. v. "tate! --: 0ri;. :C5, :C/, 4>3 P.3d />5, />/ '-.BB(. 0lthou"h the doctrine appears applicable, appellee*s clai! is #ithout !erit. 0s a "eneral rule, it is essential to the e%istence of an estoppel that the representation be relied upon and that such reliance be Kustifiable. ,o+ Enterprises! Inc. v. Reppel! --3 0ri;. :3, 4/B P.3d 4.- '-.B4(LGraham v. /sbur+! --3 0ri;. -C:, 4:5 P.3d >4> '-.B4(. Reliance is not Kustified #here =no#led"e to the contrar$ e%ists. "ee >obbs v. 2c-ean! --B +.S. 4>B, > S.&t. CB5, 3. I.8d. .:5 '-CC>(. Here, appellant*s 0!ended Notice of 0ppeal, b$ its ter!s, .-V.- #as fro! the Septe!ber 33, -.BB Kud"!ent ... and fro! the #hole thereof and #as not li!ited !erel$ to the denial of the reconsideration. 0ppellee clearl$ =ne# the appeal included the sale of appellant*s partnership interest and cannot no# be heard to ar"ue other#ise. 9or the fore"oin" reasons, #e reverse and re!and to the trial court for proceedin"s consistent #ith this opinion. &0M8RON, &.D., STR+&NM8O8R, V.&.D., and HOIOH0N and 2ORDON, DD., concurrin". 652 P.20 613 C1952D TB/ FIRST NATIONA" !ANE OF %EN&ER, a Na8=ona- !anO=n@ A..o?=a8=on, P/8=8=on/r,

9. TB/ %ISTRICT COURT In an0 For 8B/ CIT$ AN% COUNT$ OF %EN&ER, S8a8/ oF Co-ora0o, an0 8B/ onora;-/ Ro@/r C=.n/ro., On/ oF 8B/ Ju0@/. TB/r/oF, R/.<on0/n8.. No. C3S0>4. Su<r/:/ Cour8 oF Co-ora0o, En !an?. October -C, -.C3. >-:V>-: Dohn Mason, Dr., Denver, for petitioner. Nor!an D. Dohnson, &o"s#ell J 7ehrle, <ernard H. Thorn, Mell!an J Thorn, Denver, for respondents. I88, Dustice. In this ori"inal proceedin" the petitioner 9irst National <an= of Denver 'ban=(, plaintiff in the trial court, clai!s that the district court has e%ceeded its Kurisdiction and abused its discretion in refusin" to allo# the petitioner to e%ecute on its final Kud"!ent. The petitioner re,uests that #e>-4V>-4 issue a #rit of prohibition orderin" the respondent court to vacate its sta$ of e%ecution "ranted in &ivil 0ction No. &1>CB4/ in favor of the defendants in the trial court, Robert Sanders, Paul I. Sanders, Ia#rence Sanders, D.7. S=inner, and Michael D. <ella!$. 7e issued our rule to sho# cause and #e no# dischar"e the rule. The facts #ere as follo#s. In Dece!ber of -.B>, the ban= brou"ht suit on a de!and pro!issor$ note e%ecuted b$ the five defendants. In subse,uent proceedin"s a Kud"!ent in the a!ount of S-C3,4/5.44 #as rendered a"ainst the defendants, Kointl$ and severall$, includin" S.-,555 principal, S.-,:54.44 interest, and S-34 costs, based upon a stipulation and pa$!ent schedule into #hich the parties had entered. 0ttorne$s* fees #ere to be deter!ined at a later date. On Septe!ber 3-, -.B., after a hearin" on the ban=*s !otion, the district court entered orders char"in" partnership interests of the Kud"!ent debtors in three partnerships #ith pa$!ent of the

unsatisfied portion of the Kud"!ent debt, costs, and interest. The orders char"ed the partnership interests of the na!ed defendants in ?uadran"le, Itd., and the partnership interests of Robert Sanders, Paul I. Sanders, and Ia#rence Sanders in the partnerships =no#n as Saddlebac=, Itd. and 2rassroots &o. The char"in" orders directed the partnerships to pa$ the ban= all present and future shares of all distributions, credits, dra#in"s, or pa$!ents #hich #ould have been paid to the respective na!ed defendants for their interests in the partnerships, and further directed that such pa$!ents should continue until the Kud"!ent, includin" interest and costs, #as satisfied in full. +ntil that ti!e, the partnerships #ere ordered not to !a=e capital ac,uisitions of propert$ of the Kud"!ent debtors, not to loan !one$ to nor pa$ an$ creditor of the Kud"!ent debtors, and not to !a=e a sale or !odification of partnership interests unless approval of the court or the Kud"!ent creditor #as first obtained. In addition, all docu!ents or partnership reports #ere to be sent to the Kud"!ent creditor, and the partnerships #ere instructed to !a=e available a cop$ of the partnership a"ree!ents and a!end!ents, inco!e ta% returns for the past t#o $ears, an$ balance sheet and profit and loss state!ents, and all boo=s and records. The order char"in" the partnership propert$ e%cluded propert$ clai!ed to be e%e!pt fro! e%ecution. Section -/14:1-5- et seK.! &.R. S.-.B/ '-.C- Supp.(. The order provided that6 +pon due application, an$ part$ !a$ appl$ to this &ourt for a further !odification of this Order, and the &ourt retains Kurisdiction. No pa$!ents #ere !ade b$ the partnerships, and after appro%i!atel$ t#o $ears the ban= orall$ !oved the court, in an ex parte hearin", for e%ecution and sale of the partnership interests char"ed in the Septe!ber -.B. orders, and as=ed in addition for an order restrainin" the Kud"!ent debtors fro! alienatin" the propert$ pendin" the sale. The court "ranted the !otion and entered its order on Dece!ber -, -.C-. The order provided in part as follo#s6 The sheriff of the &it$ and &ount$ of Denver, State of &olorado, is ordered to e%ecute upon propert$ of Robert Sanders, Ia#rence Sanders, Paul Sanders, D.7. S=inner, and Michael <ella!$, bein"

all of said Dud"!ent Debtors* ri"ht, title and interest in and to the follo#in" &olorado partnership, to #it6 "addlebac9! -td.6 'Robert, Ia#rence and Paul Sanders onl$( Grassroots Co.6 'Robert, Ia#rence and Paul Sanders onl$( =uadrangle! -td.6 'all Defendants( and to sell the interests of such Dud"!ent Debtors in the above1listed partnerships at public sale in accordance #ith &olorado Ia# pertainin" to such sales and to file #ith this &ourt a report of such sale #ithin thirt$ '/5( da$s after all sales are co!pleted. The partnerships #ere restrained fro! assi"nin", transferrin", or encu!berin" their propert$ until the public sale #as held. On Dece!ber ->, -.C-, the defendants filed a !otion for a sta$ of the e%ecution, citin" as "rounds that the ban= had assi"ned >->V>-> its Kud"!ent to a part$1opponent in another la#suit in #hich ?uadran"le, Itd. #as a defendant and a counterclai! plaintiff '&ivil 0ction No. &1>-3>3(, and that the t#o actions #ere so related that the e%ecution on the present case should be sta$ed pendin" the outco!e of the other case. On Danuar$ -3, -.C3, the court "ranted the !otion and sta$ed e%ecution, #ithout hearin" evidence or !a=in" findin"s. The ban= no# see=s an order fro! this court prohibitin" the district court fro! sta$in" e%ecution a"ainst the defendants. It is a "eneral rule in &olorado that a court !a$ not sta$ e%ecution and thereb$ i!pair or destro$ the statutor$ ri"ht of a Kud"!ent creditor to enforce collection of its Kud"!ent a"ainst none%e!pt propert$ of the Kud"!ent debtor. ,ones v. 8istrict Court or the Cit+ and Count+ o 8enver! -/4 &olo. :>C, /-3 P.3d 45/ '-.4B( . The petitioner ar"ues that, since there is no alle"ation that the partnership interests are e%e!pt fro! e%ecution, the district court #as #ithout po#er to i!pair the Kud"!ent creditor*s ri"hts, re"ardless of circu!stances clai!ed b$ the debtors. The Kud"!ent debtors, on the other hand, ar"ue that this case !a$ be distin"uished fro!,ones v. 8istrict Court! supra! because sale of

the partnership interests #ould affect the partnerships the!selves as #ell as other partners #hich are not parties to this action. <ecause the Kud"e ordered the sale #ithout first providin" notice and hearin" to those #ho #ould be affected, the$ ar"ue that the sale #as void under the notice re,uire!ents of the +nifor! Partnership Ia#, section B1>51-3C'-(, &.R.S.-.B/, #hich provides6 B1>51-3C. Interest subKect to char"in" order. '-( On due application to a court of co!petent Kurisdiction b$ an$ Kud"!ent creditor of a partner, the court #hich entered the Kud"!ent, order, or decree, or an$ other court, !a$ char"e the interest of the debtor partner #ith pa$!ent of the unsatisfied a!ount of the Kud"!ent #ith interest thereonL and !a$ then or later appoint a receiver of his share of the profits and of an$ other !one$ due or to fall due to hi! in respect of the partnership and !a=e all other orders, directions, accounts, and in,uiries #hich the debtor partner !i"ht have !ade, or #hich the circu!stances of the case !a$ re,uire. '3( The interest char"ed !a$ be redee!ed at an$ ti!e before foreclosure or, in case of a sale bein" directed b$ the court, !a$ be purchased #ithout thereb$ causin" a dissolution6 'a( 7ith separate propert$ b$ an$ one or !ore of the partnersL or 'b( 7ith partnership propert$ b$ an$ one or !ore of the partners #ith the consent of all the partners #hose interests are not so char"ed or sold. '/( Nothin" in this article shall be held to deprive a partner of his ri"ht, if an$, under the e%e!ption la#s, as re"ards his interest in the partnership. The Kud"!ent debtors contend that due application !ust be !ade to the court upon ade,uate notice to persons #hose ri"hts !i"ht be adversel$ affected b$ the "rantin" of the relief sou"ht. Phillips v. Phillips! -44 &olo. 4/C, :55 P.3d :45 '-.>:( .

I. Once a Kud"!ent has been entered, a Kud"!ent creditor is entitled to have a #rit of e%ecution issued, subKect to6 the statutor$ provisions creatin" an auto!atic sta$ for a period of -4 da$s, &.R.&.P. >3'a(L the provisions concernin" sta$ durin" appeal, &.R.&.P. >3'b(, 'c(, 'd(, 'e(, and '"(L and other provisions li!itin" the ri"ht to e%ecute a"ainst the debtor*s propert$. Section -/1431 -53'-(, &.R.S.-.B/, provides6 0ll "oods and chattels, lands, tene!ents, and real estate of ever$ person a"ainst #ho! an$ Kud"!ent is obtained in an$ court of record, either at la# or in e,uit$, for an$ debt, da!a"es, costs or an$ other su! of !one$ are liable to be sold on e%ecution to be issued upon such Kud"!ent.... &.R.&.P. >.'a( in effect at the ti!e Kud"!ent #as rendered provided in pertinent part6 Rule >.. 8%ecution and Proceedin"s Subse,uent to Dud"!ent. >-BV>-B 'a( In 2eneral. Process to enforce a Kud"!ent for the pa$!ent of !one$ shall be a #rit of e%ecution, unless the court directs other#ise. @-A Issuance of a #rit of e%ecution ho#ever is not an e%clusive re!ed$, and the plaintiff #as therefore also entitled to e!plo$ supple!ental proceedin"s in aid of e%ecution to collect the Kud"!ent fro! the defendants* propert$. &.R.&.P. >.'f( provides that the court !a$ order that certain none%e!pt propert$ of the Kud"!ent debtor in the hands of the debtor or an$ other person be applied to#ards satisfaction of the Kud"!ent. This #as acco!plished #hen the court, pursuant to the +nifor! Partnership Ia#, section B1>51-3C, &.R.S. -.B/, char"ed the partnership propert$ of the defendants. The order char"in" the partnership interests #ith the Kud"!ent and directin" the pa$!ent of the partners* shares of profits to the Kud"!ent creditor, #as entered b$ the court after hearin" and notice to all parties. The order #as subKect to later !odification upon due application. This #ordin" trac=s the lan"ua"e of section B1>51-3C.

7e have interpreted that ter! to !ean an application !ade to the court upon ade,uate notice to the persons #hose ri"hts !i"ht be adversel$ affected b$ the "rant of the relief sou"ht. Phillips v. Phillips! supra. The defendants point out that the$ had no notice of either the oral !otion for e%ecution or the hearin", and that the order for e%ecution and sheriff*s sale #as entered #ithout an opportunit$ for the! to be heard. The defendants ar"ue that the lac= of notice renders the Kud"e*s order void, and therefore the sta$ of the sale proceedin"s #as properl$ entered. The plaintiffs ar"ue that the issuance of the #rit of e%ecution #as a !inisterial act, that no notice to the defendants #as re,uired before the issuance of the order, and that the e%ecution order #as valid as issued. 9urther!ore, it is ar"ued that once the valid e%ecution had issued, it could not later be sta$ed b$ the Kud"e #ithout alle"ation that the propert$ to be sold #as e%e!pt, or #ithout so!e other statutor$ basis for the sta$.@3A 7e a"ree #ith the defendants that the ex parte order for e%ecution and sheriff*s sale #as i!properl$ entered because it #as issued #ithout due application to !odif$ the court*s earlier order char"in" the partnership interests. <ecause of the nature of partnership propert$ and the possible adverse i!pact that this sale could have upon the non1defendant partners, if an$, the court should have conducted another hearin" under section B1>51-3C #ith proper notice to the affected parties, to deter!ine the propriet$ of allo#in" an e%ecution sale of the partnership interests in lieu of pa$!ents of the debtor partners* share of partnership profits to the Kud"!ent creditor.@/A Section -/1431-53, supra! states the rule that all propert$ of the debtor is subKect >-CV>-C to e%ecution and sale pursuant to a #rit in order to satisf$ the Kud"!ent debt. In ,ones v. 8istrict Court! supra! that section #as broadl$ interpreted to !ean that the district court #as #ithout po#er to li!it the substantive ri"ht "ranted b$ the le"islature to a Kud"!ent creditor to collect the Kud"!ent b$ e%ecution a"ainst propert$ of the Kud"!ent debtor. 0s that case held6

The statute above ,uoted @the predecessor statute to section -/1 431-53, supraA creates a substantive ri"ht in a Kud"!ent creditor to enforce collection of his Kud"!ent a"ainst an$ and all propert$ of the debtor, not e%e!pt fro! e%ecution and attach!ent and not other#ise in custodia le"is, as in ban=ruptc$, receivership, or in the hands of a trustee under a "eneral assi"n!ent for the benefit of creditors as controlled b$ pertinent le"islation. -/4 &olo. at :B-1 :B3, /-3 P.3d at 45:. 0lthou"h #e do not disa"ree #ith this state!ent, the substantive ri"ht of a Kud"!ent creditor to enforce collection of the Kud"!ent !a$ be statutoril$ li!ited, as in this case. Thus, partnership propert$ !a$ onl$ be char"ed #ith pa$!ent of the Kud"!ent debt after due application #ith notice and hearin" pursuant to section B1>51-3C, supra. In this settin" the char"in" order re,uired pa$!ent of the partnership profits to the Kud"!ent creditor. 9urther !odification of the order as applied to the partnership interests #as onl$ available upon due application to the trial court, #hich retained Kurisdiction for that purpose. Due application re,uired notice and hearin" pursuant to the directives of section B1>51-3C. Thus, the order of court entered on the ex parte!otion for e%ecution and sale of the partnership propert$ #as i!proper.@:A 0ccordin"l$, #e direct the district court to vacate its ex parte order authori;in" the e%ecution sale. 9urther proceedin"s to enforce the collection of plaintiffs* Kud"!ent fro! the defendants* partnership interests shall be conducted in accordance #ith the court*s char"in" order and the provisions of the +nifor! Partnership Ia#. Rule dischar"ed. @-A &.R.&.P. >.'a( #as a!ended effective Dul$ -, -.C-, and no# provides as follo#s6 Rule >.. 8%ecution and Proceedin"s Subse,uent to Dud"!ent. 'a( In 2eneral. 8%cept as provided in Rule -5/ herein, process to enforce a Kud"!ent for the pa$!ent of !one$ shall be a #rit of e%ecution, unless the court directs other#ise.

@3A The plaintiffs also point out that the defendants have raised for the first ti!e in this court the issue of the validit$ of the #rit of e%ecution based upon lac= of notice to the! in the trial court. Instead, the defendants as=ed the trial Kud"e for a sta$ of the e%ecution sale until another and alle"edl$ related case #as resolved. The defect in the ex parte proceedin"s #as violative of the court*s char"in" order and e%ecution #as properl$ sta$ed b$ the court. @/A 0lthou"h the court ordered the sale, it did not !a=e the findin"s necessar$ to support a court ordered dissolution of the partnership pursuant to sections B1>51-/- and B1>51-/3, &.R.S.-.B/. Section B1>51-3C'3( specifies certain re!edies to prevent the dissolution of a partnership #hen partnership interests are to be sold or foreclosed pursuant to a char"in" order. Those re!edies include the ri"ht to redee! at an$ ti!e before foreclosure, and the partners* ri"ht to purchase at the sale #ith their separate propert$ or, if all partners #hose interests are not char"ed a"ree, to purchase the sale propert$ #ith other partnership propert$. That these re!edies are available, ho#ever, does not e%cuse the failure to provide notice of the subse,uent char"in" proceedin". @:A If the e%ecution and sale #ere approved b$ the court follo#in" a valid procedure includin" notice and hearin", the partnership #ould be entitled to protect its interests and avoid dissolution b$ the application of the provisions in section B1>51-3C'3(. "ee supra. n. /. 614 P.20 426 C1956D 161 I0aBo 397 O%GE, P-a=n8=FF+R/.<on0/n8, 9. "ou=./ A. GARRETT, R/A E. &o/--/r, S8an-/y C. &o/--/r, /-/n &o/--/r Cron=n, "=--=an M. &o/--/r an0 Ir9=n G. arr=., aOa I.G. arr=., =n0=9=0ua--y an0 0o=n@ ;u.=n/.. a. Pay+On8 %r=9/+In TB/a8r/, a <ar8n/r.B=<, %/F/n0an8.+A<</--an8.. No. -3.>:. Su<r/:/ Cour8 oF I0aBo. !=--

Dul$ 3:, -.C5. :3-V:3- Dohn N. 2atchel of 2atchel J <att, Pa$ette, for defendant1 appellant Re% 8. Voeller. Richard S!ith of Parsons, S!ith J Pedersen, <urle$, for defendants1appellants Iouise 0. 2arrett, Stanle$ &. Voeller, Helen Voeller &ronin, Iillian M. Voeller and Irvin 2. Harris. 2erald I. 7eston of 2i"ra$, Miller, Do#nen J 7eston, &ald#ell, for plaintiff1respondent. <ISTIIN8, Dustice. 9ollo#in" a non1Kur$ trial the court belo# "ranted specific perfor!ance to the plaintiff1respondent <ill o0@/.@-A 0ll defendants Koined in a sin"le notice of appeal, and all defendants Koined in a sin"le brief filed in this &ourt. Onl$ Mr. 2atchel ar"ued. o0@/ and defendant1appellant Re% 8. Voeller, the !ana"in" partner of the Pa$1Ont Drive1In Theatre, si"ned a contract for the sale of a s!all parcel of land belon"in" to the partnership. That parcel, althou"h adKacent to the theater, #as not used in theater operations e%cept insofar as the east 35 feet #ere necessar$ for the operation of the theater*s drive#a$.@3A The a"ree!ent for the sale of land stated that it #as bet#een o0@/ and the Pa$1Ont Drive1In Theater, a partnership. Voeller si"ned the a"ree!ent for the partnership, and #ritten chan"es as to the foota"e and price #ere initialed b$ Voeller. Voeller testified that he had told o0@/ prior to si"nin" that o0@/ #ould have to present hi! #ith a plat plan #hich #ould have to be approved b$ the partners before the propert$ could be sold. o0@/ denied that a plat plan had ever been !entioned to hi!, and he testified that Voeller did not tell hi! that the approval of the other partners #as needed until after the contract #as si"ned. o0@/ also testified that he offered to pa$ Voeller the full purchase price #hen he si"ned the contract, but Voeller told hi! that that #as not necessar$.

The trial court found that Voeller had actual and apparent authorit$ to e%ecute the contract on behalf of the partnership, :33V:33 and that the contract should be specificall$ enforced. The partners of the Pa$1Ont Drive1In Theatre appeal, ar"uin" that Voeller did not have authorit$ to sell the propert$@/A and that o0@/ =ne# that he did not have that authorit$. 0t co!!on la# one partner could not, #ithout the concurrence of his copartners, conve$ a#a$ the real estate of the partnership, bind his partners b$ a deed, or transfer the title and interest of his copartners in the fir! real estate. >5 0!.Dur.3d Partnership W -:. '-.B3( 'footnotes o!itted(. This rule #as chan"ed b$ the adoption of the +nifor! Partnership 0ct. The relevant provisions are currentl$ e!bodied in I.&. WW 4/1/5.'-( and 4/1/-5'-( as follo#s6 I.&. W 4/1/-5'-(6 7here title to real propert$ is in the partnership na!e, an$ partner !a$ conve$ title to such propert$ b$ a conve$ance e%ecuted in the partnership na!eL but the partnership !a$ recover such propert$ unless the partner*s act binds the partnership under the provisions of para"raph - of section 4/1/5., unless such propert$ has been conve$ed b$ the "rantee or a person clai!in" throu"h such "rantee to a holder for value #ithout =no#led"e that the partner, in !a=in" the conve$ance, has e%ceeded his authorit$. I.&. W 4/1/5.'-(6 8ver$ partner is an a"ent of the partnership for the purpose of its business, and the act of ever$ partner, includin" the e%ecution in the partnership na!e of an$ instru!ent, for apparentl$ carr$in" on in the usual #a$ the business of the partnership of #hich he is a !e!ber binds the partnership, unless the partner so actin" has in fact no authorit$ to act for the partnership in the particular !atter, and the person #ith #ho! he is dealin" has =no#led"e of the fact that he has no such authorit$. The !eanin" of these provisions #as stated in one te%t as follo#s6 If record title is in the partnership and a partner conve$s in the partnership na!e, le"al title passes. <ut the partnership !a$ recover the propert$ 'e%cept fro! a bona fide purchaser fro! the "rantee( if it can sho# '0( that the conve$in" partner #as not apparentl$ carr$in" on business in the usual #a$ or '<( that he had

in fact no authorit$ and the "rantee had =no#led"e of that fact. The burden of proof #ith respect to authorit$ is thus on the partnership. &rane and <ro!bur" on Partnership W 450 '-.>C( 'footnotes o!itted(. Thus this contract is enforceable if Voeller had the actual authorit$ to sell the propert$, or, even if Voeller did not have such authorit$, the contract is still enforceable if the sale #as in the usual #a$ of carr$in" on the business and o0@/ did not =no# that Voeller did not have this authorit$. 0s to the ,uestion of actual authorit$, such authorit$ !ust affir!ativel$ appear, for the authorit$ of one partner to !a=e and ac=no#led"e a deed for the fir! #ill not be presu!ed . . .. >5 0!.Dur.3d Partnership W -4- '-.B3(. 0lthou"h such authorit$ !a$ be i!plied fro! the nature of the business, id.! or fro! si!ilar past transactions, "mith v. 8ixon! /C> S.7.3d 3:: '0r=. -.>4(, nothin" in the record in this case indicates that Voeller had e%press or i!plied authorit$ to sell real propert$ belon"in" to the partnership. There is no evidence that Voeller had sold propert$ belon"in" to the partnership in the past, and obviousl$ the partnership #as not en"a"ed in the business of bu$in" and sellin" real estate. The ne%t ,uestion, since actual authorit$ has not been sho#n, is #hether Voeller #as conductin" the partnership business in the :3/V:3/ usual #a$ in sellin" this parcel of land@:A such that the contract is bindin" under I.&. WW 4/1/-5'-( and /5.'-(, i.e.! #hether Voeller had apparent authorit$. Here the evidence sho#ed, and the trial court found6 III. That the defendant, Re% 8. Voeller, #as one of the ori"inal partners of the Pa$1Ont Drive1In TheatreL that the other defendants obtained their partnership interest b$ inheritance upon the death of other ori"inal partnersL that upon the death of a partner the partnership affairs #ere not #ound up, but instead, the partnership !erel$ continued as before, #ith the heirs of the deceased partner o#nin" their proportionate share of the partnership interest. IV.

That at the inception of the partnership, and at all ti!es thereafter, Re% 8. Voeller #as the e%clusive, !ana"in" partner of the partnership and had the full authorit$ to !a=e all decisions pertainin" to the partnership affairs, includin" pa$in" the bills, preparin" profit and loss state!ents, inco!e ta% returns and the orderin" of an$ "oods or services necessar$ to the operation of the business. The court !ade no findin" that it #as custo!ar$ for Voeller to sell real propert$, or even personal propert$, belon"in" to the partnership. Nor #as there an$ evidence to this effect. Nor did the court discuss #hether it #as in the usual course of business for the !ana"in" partner of a theater to sell real propert$. Oet the trial court found that Voeller had apparent authorit$ to sell the propert$. 9ro! this it !ust be inferred that the trial court believed it to be in the usual course of business for a partner #ho has e%clusive control of the partnership business to sell real propert$ belon"in" to the partnership, #here that propert$ is not bein" used in the partnership business. 7e cannot a"ree #ith this conclusion. 9or a theater, carr$in" on in the usual #a$ the business of the partnership, I.&. W 4/1/5.'-(, !eans runnin" the operations of the theaterL it does not !ean sellin" a parcel of propert$ adKacent to the theater. Here the contract of sale stated that the land belon"ed to the partnership, and, even if o0@/ believed that Voeller as the e%clusive !ana"er had authorit$ to transact all business for the fir!, Voeller still could not bind the partnership throu"h a unilateral act #hich #as not in the usual business of the partnership. 7e therefore hold that the trial court erred in holdin" that this contract #as bindin" on the partnership. Dud"!ent reversed. &osts to appellant. DON0IDSON, &.D., and <0N8S and Mc90DD8N, DD., concur. SH8P0RD, Dustice, dissentin". The !aKorit$, and I a! sure inadvertentl$, ne"lects to include certain uncontroverted facts. 0t the e%ecution of the contract in ,uestion here, S-55.55 chan"ed hands. It has not been returned and the partnership evidentl$ feels no co!punction in retainin" it. So!e considerable ti!e elapsed bet#een the si"nin" of the

instru!ent and the decision of Voeller not to honor the contract on behalf of the partnership. Durin" that period of ti!e, o0@/ #as placed in possession of the propert$ in ,uestion, !ade e%tensive i!prove!ents thereon, includin" the place!ent of a co!!ercial office structure thereon #hich o0@/ rented to a third part$ for the su! of SB4.55 per !onth. 7hile it is true that o0@/). count for da!a"es for breach of the contract #as dis!issed b$ the trial court, that action of the trial Kud"e #as, in !$ Kud"!ent, undoubtedl$ the result of his decision to "rant specific perfor!ance. The !aKorit$*s reversal #ith directions to enter Kud"!ent for the defendant effectivel$ prevents o0@/ :3:V:3: fro! ever recoverin" an$ of his uncontroverted da!a"es resultin" fro! Voeller*s breach of the contract. It should be re!e!bered that Voeller clearl$ ad!itted the e%ecution of the contract of sale on behalf of the partnership. Such #as not denied b$ the other partners, #ho in fact counterclai!ed a"ainst Voeller for the da!a"es the partnership !i"ht sustain b$ reason of the sale. It is uncontroverted that, as o0@/ stated, the propert$ involved has under"one an enor!ous increase in value since the e%ecution of the contract. +ndoubtedl$, the trial court vie#ed the defense protestations of Voeller*s lac= of authorit$ in that li"ht. Indeed, Voeller testified that the sole reason the transaction #as not consu!!ated #as that he later ca!e to believe that such a sale #ould a!ount to a subdivision of the theatre propert$ and hence result in the partnership propert$ bein" brou"ht into the cit$ li!its #ith a resultant increase in ta%es. 0lthou"h the trial court allo#ed the self1servin" testi!on$ of both Voeller and Harris re"ardin" the scope of Voeller*s authorit$, the trial Kud"e #as careful to note that he did not consider such testi!on$ to be bindin" on hi!. In such rulin", I believe he #as correct. &ertainl$, obKection to Voeller*s testi!on$ could have been sustained on the basis that he #as estopped to den$ the authorit$ #hich he had asserted in #ritin" to the detri!ent of o0@/. The trial Kud"e !a$ ver$ #ell have believed that the testi!on$ of both Voeller and Harris #as self1servin", i!probable, and even perhaps violative of the parole evidence rule. It should be noted that the ,uestion !i"ht have been resolved b$ reference to the articles of partnership. The lac= of the introduction of those articles or an$

reference to specific parts thereof !a$ #ell have led the trial Kud"e to conclude that the defendants had failed to carr$ their burden of proof re"ardin" the lac= of authorit$ in Voeller. &ontrar$ to the assertions of the !aKorit$, the record reveals that the partnership had not too lon" before the instant transaction sold real estate in 8!!ett, includin" the entire theatre business located thereon. 9urther, one of the partners testified that the entire land o#ned b$ the partnership #as not necessar$ to the business and he !i"ht ver$ #ell consider establishin" a drive1in restaurant business thereon. In !$ !ind, I.&. W 4/1/5.'-( is controllin" #hen it states, ever$ partner is an a"ent of the partnership V V V unless the partner so actin" has in act no authorit$ to act for the partnership in the particular !atter, and the person #ith #ho! he is dealin" has =no#led"e of the fact that he has no such authorit$. '8!phasis added.( To !e, the inclusion in the statute of the conKunctive and is contradicted b$ the authorit$ cited b$ the !aKorit$, #hich converts the conKunctive and into the disKunctive or. Here, o0@/). testi!on$, #hich the trial court #as at libert$ to believe, #as that o0@/ had no =no#led"e but that Voeller had the authorit$ to enter into the transaction on behalf of the partnership. Indeed, Voeller so e%ecuted the instru!ent in the na!e of the partnership. I a! indeed startled at the follo#in" assertion of the !aKorit$6 V V V and obviousl$ the partnership #as not en"a"ed in the business of bu$in" and sellin" real estate. The !ur=$ and co!plicated histor$ of the partnership clearl$ de!onstrates to the contrar$. 0s revealed in the record, #hat had been ori"inall$ partnership propert$ 'such as three theatres in <urle$, Idaho( had been so!eho# converted into corporate assets. The businesses in #hich Harris and Voeller #ere involved, in either partnership or corporate for!, at various ti!es included theatres in Io"an, +tah, Dero!e, Idaho, 8!!ett, Idaho, <urle$, Idaho, Rupert, Idaho, Ontario, Ore"on, Ioveloc=, Nevada, 8vanston, 7$o!in", Montpelier, Idaho, <uhl, Idaho, &arson &it$, Nevada, N$ssa, Ore"onL real estate businesses in Rupert, Idaho, Montpelier, Idaho, &arson &it$, Nevada, N$ssa, Ore"onL and hotel operations in <urle$, Idaho and 8vanston,

7$o!in". 8%actl$ #hat real estate transactions #ere involved bet#een the partnership and these various corporations is unclear. Ho#ever, the record is clear that the :34V:34 partnership did purchase real propert$, that the partnership did sell real propert$, and that Voeller hi!self, on behalf of the partnership, en"a"ed in the rental of propert$ to other persons, includin" the leasin" of the theatre operation in Ioveloc=, Nevada. On the basis of the above, I cannot a"ree #ith the !aKorit$*s characteri;ation of this partnership, but a"ain #ould a"ree #ith the trial Kud"e in his undoubted conclusion, albeit unstated, that the partnership failed to carr$ its burden of proof that the transaction in ,uestion here #as outside the authorit$ of Voeller and outside the usual and ordinar$ course of business of the partnership. @-A o0@/ alle"ed an alternative count for da!a"es for breach of contract. 0t the close of o0@/). case in chief the court ordered that that count #as not sustained and #ould be dis!issed. 0 specific #ritten findin" that no da!a"es had been proved #as entered. On his appeal o0@/ has presented no contention that the trial court erred in rulin" out his alternative count, or in enterin" the specific findin" that no da!a"es #ere established. Presu!abl$ the plaintiff did not pursue that count at trial, and, no error bein" assi"ned here, that issue is "iven no consideration. @3A The trial court found that o0@/ and Voeller had orall$ a"reed that this 35 foot strip #ould be encu!bered b$ an ease!ent for in"ress and e"ress to the partnership lands. @/A The other partners have !aintained fro! the inception of this controvers$ that Voeller did not have authorit$ to sell this propert$. In their ans#er to the co!plaint, the other partners brou"ht a cross1 clai! a"ainst Voeller for an$ loss or da!a"e suffered b$ the! as a result of this suit, alle"in" that Voeller had no ri"ht or authorit$ to co!!it said real propert$ or deal #ith the sa!e on behalf of the other partners. The trial court concluded that this cross1clai! should be dis!issed. @:A Since #e hold that he #as not, #e do not need to consider #hether o0@/ =ne# that Voeller did not have authorit$. 112 M=?B. A<<. 461 C1952D

316 N.#.20 434 !ACEO#SEI 9. SO"ECEI. Doc=et No. :4345. M=?B=@an Cour8 oF A<</a-.. Decided Danuar$ -., -.C3. Ells&orth >anlon and ,oseph -lo+d 'of counsel(, for Stephen !a?OoG.O=. 2e+er 4. -eib and Gregor+ Gel and 'of counsel(, for <ill!a% Properties. <efore6 D.&. RII8O, P.D., and <0SH0R0 and &ON0R, DD. &ON0R, D. Plaintiff appeals as of ri"ht fro! an a!ended order of Kud"!ent, entered Dece!ber --, -.B., after a nonKur$ trial, #hich placed title to certain #arehouse propert$ in <ill!a% Properties, hereinafter desi"nated defendant, and a#arded plaintiff da!a"es in the a!ount of S-:,555. Defendant has filed a cross appeal. 7e re!and to the trial court for further findin"s of fact. H.S. J I. Invest!ent &o., hereinafter H.S. J I., is a Michi"an partnership. The ori"inal partners #ere Henr$ So-/?O=, o#nin" 35 percent, Iottie So-/?O=, Henr$*s !other, o#nin" :5 percent, and plaintiff, Stephen !a?OoG.O=, o#nin" :5 percent. Iottie So-/?O=). interest in the partnership #as :54V:54 subse,uentl$ transferred to Henr$ in -.B:, leavin" Henr$ #ith a >5 percent interest in the partnership. The business of H.S. J I. #as stated in the co!plaint to be the o#nership and leasin" of #arehouse space. The propert$ #hich is the subKect !atter of the dispute #as bou"ht in the partnership na!e b$ a land contract fro! --/54 State 9air Properties.

In Dece!ber of -.B:, plaintiff filed a co!plaint alle"in" that Henr$ So-/?O= had deprived plaintiff of partnership revenue and had refused to render an accountin". Plaintiff sou"ht to enKoinSo-/?O= fro! distributin" partnership assets and sou"ht an order for an accountin". In 0pril of -.B4, !ost, if not all, of the tenants had vacated the #arehouse. The buildin" #as in a state of disrepair. <$ Dece!ber of -.B4 the partnership #as five pa$!ents behind on the land contract, at S/,455 per pa$!ent, and #as S34,555 behind in ta%es on the propert$. The land contract vendor had served notice of forfeiture. On Dece!ber /-, -.B4, #ith the case bet#een So-/?O= and plaintiff still pendin", So-/?O=e%ecuted a ,uitclai! deed and an assi"n!ent of the land contract purportedl$ on behalf of H.S. J I. conve$in" H.S. J I.*s interest in the propert$ to defendant. 0t this ti!e So-/?O= also si"ned an affidavit #arrantin" his authorit$ to act on behalf of H.S. J I. in this !atter. <$ the ter!s of the purchase a"ree!ent defendant paid the delin,uent land contract pa$!ents and the bac= ta%es. In addition, So-/?O= received a chec= in the na!e of H.S. J I. for S-5,555. Plaintiff filed a !otion to add parties defendant on March 3/, -.B>, alle"in" that the assi"n!ent of the land contract and the ,uitclai! deed #ere e%ecuted #ithout his consent. The co!plaint:5>V:5> a"ainst the added defendants sou"ht da!a"es and to set aside the sale. Of those parties that #ere added, onl$ defendant <ill!a% re!ains in the suit.@-A Prior to co!!ence!ent of trial on Danuar$ --, -.B., Henr$ So-/?O= and Iottie So-/?O= #ere dis!issed fro! the suit, individuall$ and on behalf of H.S. J I. The order #as entered, over obKections b$ <ill!a%, pursuant to a settle!ent a"ree!ent b$ #hich plaintiff a"reed to the dis!issal in consideration of the Solec=is* transfer to plaintiff of an$ interest the$ !a$ have in the partnership of H.S. J I. The record indicates that plaintiff then proceeded individuall$ and on behalf of H.S. J I. 0fter a lon" trial #ith !uch conflictin" testi!on$ the trial Kud"e issued a #ritten opinion in #hich he held that title to the propert$

should re!ain in defendant, <ill!a%, and a#arded da!a"es to plaintiff in the a!ount of S-:,555. I Resolution of the dispute herein re,uires application of the +nifor! Partnership 0ct, M&I ::..-et seK.I MS0 35.- et seK. Section -5 of the act #ould see! to "overn the case at bar. It states in part6 '-( 7here title to real propert$ is in the partnership na!e, an$ partner !a$ conve$ a title to such propert$ :5BV:5B b$ a conve$ance e%ecuted in the partnership na!eL V V V. M&I ::..-5L MS0 35.-5. It is undisputed that the title to the propert$ involved herein #as in the partnership na!e and that So-/?O=, a partner, conve$ed title to such propert$ b$ a conve$ance e%ecuted in the partnership na!e. Section -5 states that these circu!stances constitute a proper transfer of title. Nonetheless, W -5 further indicates that the partnership !a$, at its option, recover the propert$ unless 'a( the partner*s act binds the partnership under W .'-( or 'b( the propert$ has been conve$ed to a bona fide purchaser. V V V but the partnership !a$ recover such propert$ unless the partner*s act binds the partnership under the provisions of para"raph one @-A of section nine @.A, or unless such propert$ has been conve$ed b$ the "rantee or a person clai!in" throu"h such "rantee to a holder for value #ithout =no#led"e that the partner, in !a=in" the conve$ance, has e%ceeded his authorit$L V V V. '9ootnote o!itted.( M&I ::..-5'-(L MS0 35.-5'-(. The second alternative has no application to the case at bar since <ill!a%, the "rantee, has not conve$ed the propert$. Therefore, #e turn to the ,uestion of #hether So-/?O=). act bound the partnership under W .'-(. That section provides as follo#s6 S8&. .. 'P0RTN8R 028NT O9 P0RTN8RSHIP 0S TO P0RTN8RSHIP <+SIN8SS(. '-( 8ver$ partner is an a"ent of the partnership for the purpose of its business, and the act of ever$ partner, includin" the e%ecution in

the partnership na!e of an$ instru!ent, for apparentl$ carr$in" on in the usual #a$ the business of the partnership of #hich he is a :5CV:5C !e!ber binds the partnership, unless the partner so actin" has in fact no authorit$ to act for the partnership in the particular !atter, and the person #ith #ho! he is dealin" has =no#led"e of the fact that he has no such authorit$L V V V. M&I ::...L MS0 35... +nder this section, So-/?O=). act of conve$in" title to the #arehouse propert$ binds the partnership if this act #as for apparentl$ carr$in" on in the usual #a$ the business of the partnership . If the conve$ance #as !ade in the usual course of business it !ust then be deter!ined #hether, 'a( So-/?O= had in fact no authorit$ to act for the partnership in the particular !atter , and 'b( <ill!a% had =no#led"e of the fact that @So-/?O=A ha@dA no such authorit$ . On the other hand, if it is found that the conve$ance #as not for apparentl$ carr$in" on in the usual #a$ the business of the partnership , then under W -5 the partnership !a$ recover the propert$ as pra$ed for. 8ven if this factual deter!ination is !ade there is an additional ,uestion of fact necessar$ to the resolution of this dispute. Section .'3( provides as follo#s6 '3( 0n act of a partner #hich is not apparentl$ for the carr$in" on of the business of the partnership in the usual #a$ does not bind the partnership unless authori;ed b$ the other partnersL V V V. M&I ::...L MS0 35... There #as testi!on$ tendin" to sho# that So-/?O= #as in fact authori;ed b$ plaintiff to sell the propert$. See 2ac+ v 5s&ald! -.C Pa Super :/4L -C3 03d .: '-.>3(. Should this be the case, the partnership is bound b$ the sale of the propert$ even if the sale #as not apparentl$ for the carr$in" :5.V:5. on of the business of the patnership in the usual #a$. 8ach one of these avenues to resolution of the dispute turns initiall$ on a factual deter!ination. The case #as tried belo# before the Kud"e. 2&R -.>/, 4-B.- re,uires the trial court to find the facts

speciall$ and state separatel$ its conclusions of la# . The rule conte!plates that level of specificit$ that #ill disclose to the revie#in" court the controllin" choices !ade as bet#een co!petin" factual assertions. >olbern v >olbern! .- Mich 0pp 4>>, 4>.L 3C/ N73d C55 '-.B.(. The conclusor$ state!ents contained in the #ritten opinion filed in this case do not reveal the course ta=en b$ the trial Kud"e in arrivin" at his decision. 7e are particularl$ concerned #ith ho# the trial Kud"e ca!e to conclude that title to the propert$ should re!ain in <ill!a% #hen it #as apparentl$ found that the sale of the propert$ b$ So-/?O= to <ill!a% #as #ithout le"al efficac$ . Despite the fact that our de novo revie# of this case enco!passes the po#er to !a=e findin"s based upon the record, #e decline to do so #here the credibilit$ of the #itnesses is critical to the outco!e. 8ehring v .orthern 2ichigan Exploration Co! Inc! -5: Mich 0pp /55, /-CL /5: N73d 4>5 '-.C-(. &redibilit$ of the #itnesses appears to be the deter!inin" factor in this case. So-/?O= at ti!es !ade state!ents #hich #ould provide direct support for defendant*s position on So-/?O=). authorit$. 0t other ti!es he !ade state!ents contradictin" this testi!on$. The credibilit$ of other #itnesses, includin" plaintiff and Mr. Sherr, is also an i!portant consideration in the resolution of this case. Therefore #e !ust re!and to the trial Kud"e so that he !a$ !a=e specific findin"s of fact and conclusions of la#. :-5V:-5 II In the pleadin"s belo# and at trial plaintiff sou"ht to have the sale of the #arehouse propert$ set aside and the propert$ returned to the partnership. Plaintiff no# clai!s on appeal that his suit does not see= to have the #arehouse returned to the partnership. Plaintiff ar"ues that <ill!a%, b$ its transaction #ith So-/?O=, succeeded to So-/?O=). interest and that the proper o#ner of the buildin" is no# a !a?OoG.O=1<ill!a% partnership. Plaintiff e!plo$s this ar"u!ent as a basis for clai!in" a ri"ht to an accountin" under W 33 of the +nifor! Partnership 0ct, hereinafter +P0, M&I ::..33L MS0 35.33. 7e reKect the ar"u!ent initiall$ because it #as not pled and the case #as not tried as a suit for an accountin". Secondl$, #e reKect the ar"u!ent because the +P0 precludes it.

+nder the +P0 each partner holds three propert$ ri"hts6 S8&. 3:. '8PT8NT O9 PROP8RTO RI2HTS O9 0 P0RTN8R(. The propert$ ri"hts of a partner are '-( his ri"hts in specific partnership propert$, '3( his interest in the partnership, and '/( his ri"ht to participate in the !ana"e!ent. M&I ::..3:L MS0 35.3:. Section 34, #hich addresses the incidents of a partner*s ri"hts in specific propert$, provides that a partner*s ri"ht in specific partnership propert$ is not assi"nable. M&I ::..34'3('b(L MS0 35.34'3('b(. Thus, to the e%tent that plaintiff see=s to enforce the conve$ance as an assi"n!ent of So-/?O=). ri"ht in the propert$, such assi"n!ent is prohibited. 9urther!ore, the conve$ance cannot be construed as an assi"n!ent of So-/?O=). second propert$ ri"ht, his interest in the partnership. Section :--V:-- 3> of the +P0 defines this propert$ ri"ht as follo#s6 S8&. 3>. 'N0T+R8 O9 P0RTN8R*S INT8R8ST IN TH8 P0RTN8RSHIP(. 0 partner*s interest in the partnership is his share of the profits and surplus, and the sa!e is personal propert$. M&I ::..3>L MS0 35.3>. +nli=e a partner*s ri"ht in specific propert$, a partner*s interest in the partnership is assi"nable. Ho#ever, such assi"n!ent !erel$ entitles the assi"nee to receive, in accordance #ith his contract, the profits to #hich the assi"nin" partner #ould other#ise be entitled. M&I ::..3BL MS0 35.3B. The transfer of a li!ited interest in partnership propert$ b$ one partner !a$, under certain circu!stances, be vie#ed as a transfer of that partner*s interest in the partnership itself, defined as his share in the profits and surplus. See "troebel*Polas9+ Co v "lachta! -5> Mich 0pp 4/CL /5C N73d 3B/ '-.C-(. Ho#ever, that avenue is not available here #here the instru!ent #as not intended to conve$ onl$ a li!ited interest in the partnership. 0ccordin"l$, So-/?O=).conve$ance of title to the #arehouse

propert$ cannot operate as a conve$ance of So-/?O=).interest in the partnership. III 7e ne%t address the alle"ations of error brou"ht before this &ourt b$ defendant on cross appeal. Defendant first clai!s that the trial Kud"e erred in den$in" its !otion to dis,ualif$ based on a reference to the title insurer !ade b$ the trial Kud"e durin" an in1cha!bers conference. :-3V:-3 0 trial Kud"e #ill not be dis,ualified absent a sho#in" of actual preKudice or bias. Emerson v /rnold G/ ter RemandH! .3 Mich 0pp /:4, /4/L 3C4 N73d :4 '-.B.(, Irish v Irish! 4. Mich 0pp >/4, >/.L 33. N73d CB: '-.B4(. Defendant clai!s the trial Kud"e*s re!ar= evinced a desire to see the case co!e out in such a #a$ as to ta=e advanta"e of the deep poc=et of insurance. 0 revie# of the record indicates that defendant has ta=en the re!ar= out of conte%t. The trial Kud"e #as apprised of the e%istence of title insurance b$ defendant durin" the course of settle!ent ne"otiations. The re!ar= #as !ade b$ #a$ of probin" the possibilities of settle!ent in this case. No preKudice or bias is evident in the re!ar=. Defendant*s clai! that plaintiff*s suit is barred b$ laches because plaintiff failed to file a notice of lis pendens on the propert$ is #holl$ unfounded. Plaintiff #as under no affir!ative dut$ to file a notice of lis pendens. 2enerall$, a lis pendens is desi"ned to #arn persons #ho deal #ith propert$ #hile it is in liti"ation that the$ are char"ed #ith notice of the ri"hts of their vendor*s anta"onist and ta=e subKect to the Kud"!ent rendered in the liti"ation. 4- 0! Dur 20, Iis Pendens, W -, p .:.. The failure to file a notice of lis pendens does not operate to preclude a suit over title to propert$. Durin" cross1e%a!ination of So-/?O=, defense counsel ,uestioned So-/?O= #ith re"ard to the dis!issal of the co!plaint a"ainst hi!. This ,uestionin" brou"ht out the follo#in" testi!on$ #hich defendant clai!s re,uires dis!issal of the suit6 =. G1+ 2r. -eibH6 Did $ou receive so!e t$pe of a"ree!ent fro! Mr. !a?OoG.O= #ith relationship to the dis!issal of the la#suit a"ainst $ou)

4123412 3 3 3 =. G1+ 2r. -eibH6 No#, Mr. So-/?O=, did $ou receive an$ t$pe of a"ree!ent #ith Mr.!a?OoG.O=) /. There #as no t$pe of #ritten a"ree!ent, no. =. 7hat #as the oral a"ree!ent) /. Oral a"ree!ent that #e !a=e6 that if Mr. !a?OoG.O= #on his case, that an$thin" up and above SB4,555, he #ould split fift$1fift$. 333 =. G1+ 2r. -eibH6 0nd so this #as the a"ree!ent then that $ou #ere to share, as $ou have indicated, and that*s #h$ $ou #ere let out of the case, ri"ht) /. I don*t =no# if that*s #h$ I #as let out of the case. =. That #as the oral a"ree!ent) /. &orrect. 2r. >anlon6 7ho told $ou that, sir) The 4itness6 It #as discussed. 2r. >anlon6 Oour attorne$ told $ou that) The 4itness6 Oes. 2r. >anlon6 ObKection, $our Honor, and have it be stric=en. It*s purel$ hearsa$. I thin= that*s a valid obKection, $our Honor. 2r. -eib6 Oour Honor, it Kust ca!e fro! the lips of this #itness. 2r. >anlon6 He said his attorne$ told hi!. 0nd I !ove that it be stric=en. The Court6 7ell, #h$ don*t $ou rephrase the ,uestion and #e #ill find out if this #itness has an$ =no#led"e of this on his o#n.

=. G1+ 2r. -eibH6 Mr. So-/?O=, #as that the a"ree!ent that $ou a"reed to be ta=en out of this la#suit) /. Oes. =. O=a$ H . Defense counsel later !oved to dis!iss the case on the basis of collusion and fraud evidenced b$ this testi!on$. The court too= the !otion under advise!ent. Plaintiff subse,uentl$ brou"ht a !otion :-:V:-: to stri=e the testi!on$ on the "round that it #as hearsa$ and that it constituted !atters subKect to the la#$er1client privile"e. The court "ranted plaintiff*s !otion on the basis of the hearsa$ obKection. The trial court erred in stri=in" the testi!on$ as hearsa$. The purpose of this testi!on$ #as to i!peach So-/?O=). credibilit$ b$ de!onstratin" his pecuniar$ interest in the outco!e. It #as not elicited for the purpose of provin" the truth of the !atter asserted. The interest or bias of a #itness "oes directl$ to the ,uestion of his credibilit$ and is never re"arded as irrelevant.People v 2acCullough! 3C- Mich -4, 3>L 3B: N# >./ '-./B(, People v 2eier! :B Mich 0pp -B.L 35. N73d /-- '-.B/(. The testi!on$ #as properl$ in the case, should not have been stric=en, and should have been considered b$ the trial court in assessin" the credibilit$ ofSo-/?O=. Ho#ever, #e do not believe the e%istence of the a"ree!ent #ould #arrant dis!issal of the case. IV 0s a final co!!ent, #e indicate that, on the record before us at this ti!e, the trial court appears to have reached an e,uitable result. Perhaps onl$ the parties the!selves, b$ co!pro!ise, could achieve a fairer result. 7e hereb$ re!and to the trial court for specific findin"s of fact on the issues raised in this opinion to be !ade b$ the trial court #ithin >5 da$s fro! the date of release of this opinion. 7e retain Kurisdiction.

@-A 0n order #as entered on 0pril 3, -.B>, addin" as defendants, --/54 State 9air Properties, 9ran=*s Nurser$ Sales, Inc., 9ran=*s Nurser$ Distributors, Inc., and <ill!a% Properties. On Ma$ -:, -.B>, an order #as entered "rantin" su!!ar$ Kud"!ent in favor of 9ran=*s Nurser$ Sales, Inc., and 9ran=*s Nurser$ Distributors, Inc., and den$in" su!!ar$ Kud"!ent to <ill!a%. 0pparentl$, State 9air never separatel$ ans#ered and no further action re"ardin" the! #as ta=en. Ia#$ers Title Insurance &o!pan$ #as also added as a defendant on Danuar$ -., -.B., but the court later "ranted a !otion to vacate the Koinder order. Republic of the Philippines SUPREME COURT Manila 9IRST DIVISION G.R. No. "+39756 No9/:;/r 11, 1955 E"MO MUHAS(UE, petitioner, vs. COURT OF APPEA"S,CE"ESTINO GA"AN TROPICA" COMMERCIA" COMPAN$ an0 RAMON PONS,respondents. ,ohn T. 1orromeo or petitioner. ,uan 8. /stete or respondent C. Galan. Paul Gornes or respondent R. Pons. (iu 2ontecillo or respondent Tropical. Paterno P. .atinga or Intervenor 1lue 8iamond Glass Palace.

GUTTIERRE*, JR., J.: In this petition for certiorari, the petitioner see=s to annul and set added the decision of the &ourt of 0ppeals affir!in" the e%istence of a partnership bet#een petitioner and one of the respondents, &elestino 2alan and holdin" both of the! liable to the t#o

intervenors #hich e%tended credit to their partnership. The petitioner #ants to be e%cluded fro! the liabilities of the partnership. Petitioner 8l!o MuMas,ue filed a co!plaint for pa$!ent of su! of !one$ and da!a"es a"ainst respondents &elestino 2alan, Tropical &o!!ercial, &o., Inc. 'Tropical( and Ra!on Pons, alle"in" that the petitioner entered into a contract #ith respondent Tropical throu"h its &ebu <ranch Mana"er Pons for re!odellin" a portion of its buildin" #ithout e%chan"in" or e%pectin" an$ consideration fro! 2alan althou"h the latter #as casuall$ na!ed as partner in the contractL that b$ virtue of his havin" introduced the petitioner to the e!plo$in" co!pan$ 'Tropical(. 2alan #ould receive so!e =ind of co!pensation in the for! of so!e percenta"es or co!!issionL that Tropical, under the ter!s of the contract, a"reed to "ive petitioner the a!ount of PB,555.55 soon after the construction be"an and thereafter, the a!ount of P>,555.55 ever$ fifteen '-4( da$s durin" the construction to !a=e a total su! of P34,555.55L that on Danuar$ ., -.>B, Tropical andGor Pons delivered a chec= for PB,555.55 not to the plaintiff but to a stran"er to the contract, 2alan, #ho succeeded in "ettin" petitioner*s indorse!ent on the sa!e chec= persuadin" the latter that the sa!e be deposited in a Koint accountL that on Danuar$ 3>, -.>B #hen the second chec= for P>,555.55 #as due, petitioner refused to indorse said chee= presented to hi! b$ 2alan but throu"h later !anipulations, respondent Pons succeeded in chan"in" the pa$ee*s na!e fro! 8l!o MuMas,ue to 2alan and 0ssociates, thus enablin" 2alan to cash the sa!e at the &ebu <ranch of the Philippine &o!!ercial and Industrial <an= 'P&I<( placin" the petitioner in "reat financial difficult$ in his construction business and subKectin" hi! to de!ands of creditors to pa$* for construction !aterials, the pa$!ent of #hich should have been !ade fro! the P-/,555.55 received b$ 2alanL that petitioner undertoo= the construction at his o#n e%pense co!pletin" it prior to the March ->, -.>B deadlineLthat because of the unauthori;ed disburse!ent b$ respondents Tropical and Pons of the su! of P-/,555.55 to 2alan petitioner de!anded that said a!ount be paid to hi! b$ respondents under the ter!s of the #ritten contract bet#een the petitioner and respondent co!pan$.

The respondents ans#ered the co!plaint b$ den$in" so!e and ad!ittin" so!e of the !aterial aver!ents and settin" up counterclai!s. Durin" the pre1trial conference, the petitioners and respondents a"reed that the issues to be resolved are6 '-( 7hether or not there e%isted a partners bet#een &elestino 2alan and 8l!o MuMas,ueL and '3( 7hether or not there e%isted a Kustifiable cause on the part of respondent Tropical to disburse !one$ to respondent 2alan. The business fir!s &ebu Southern Hard#are &o!pan$ and <lue Dia!ond 2lass Palace #ere allo#ed to intervene, both havin" le"al interest in the !atter in liti"ation. 0fter trial, the court rendered Kud"!ent, the dispositive portion of #hich states6 IN VI87 7H8R8O9, Dud"!ent is hereb$ rendered6 '-( orderin" plaintiff MuMas,ue and defendant 2alan to pa$ Kointl$ and severall$ the intervenors &ebu and Southern Hard#are &o!pan$ and <lue Dia!ond 2lass Palace the a!ount of P>,33../: and P3,3-/.4-, respectivel$L '3( absolvin" the defendants Tropical &o!!ercial &o!pan$ and Ra!on Pons fro! an$ liabilit$, No da!a"es a#arded #hatsoever. The petitioner and intervenor &ebu Southern &o!pan$ and its proprietor, Tan Siu filed !otions for reconsideration. On Danuar$ -4, -.B -, the trial court issued *another order a!endin" its Kud"!ent to !a=e it read as follo#s6 IN VI87 7H8R8O9, Dud"!ent is hereb$ rendered6

'-( orderin" plaintiff MuMas,ue and defendant 2alan to pa$ Kointl$ and severall$ the intervenors &ebu Southern Hard#are &o!pan$ and <lue Dia!ond 2lass Palace the a!ount of P>,33../: and P3,3-/.4-, respectivel$, '3( orderin" plaintiff and defendant 2alan to pa$ Intervenor &ebu Southern Hard#are &o!pan$ and Tan Siu Kointl$ and severall$ interest at -3F per annu! of the su! of P>,33../: until the a!ount is full$ paidL '/( orderin" plaintiff and defendant 2alan to pa$ P455.55 representin" attorne$*s fees Kointl$ and severall$ to Intervenor &ebu Southern Hard#are &o!pan$6 ':( absolvin" the defendants Tropical &o!!ercial &o!pan$ and Ra!on Pons fro! an$ liabilit$, No da!a"es a#arded #hatsoever. On appeal, the &ourt of 0ppeals affir!ed the Kud"!ent of the trial court #ith the sole !odification that the liabilit$ i!posed in the dispositive part of the decision on the credit of &ebu Southern Hard#are and <lue Dia!ond 2lass Palace #as chan"ed fro! Kointl$ and severall$ to Kointl$. Not satisfied, Mr. MuMas,ue filed this petition. The present controvers$ be"an #hen petitioner MuMas,ue in behalf of the partnership of 2alan and MuMas,ue as &ontractor entered into a #ritten contract #ith respondent Tropical for re!odellin" the respondent*s &ebu branch buildin". 0 total a!ount of P34,555.55 #as to be paid under the contract for the entire services of the &ontractor. The ter!s of pa$!ent #ere as follo#s6 thirt$ percent '/5F( of the #hole a!ount upon the si"nin" of the contract and the balance thereof divided into three e,ual install!ents at the lute of Si% Thousand Pesos 'P>,555.55( ever$ fifteen '-4( #or=in" da$s. The first pa$!ent !ade b$ respondent Tropical #as in the for! of a chec= for PB,555.55 in the na!e of the petitioner.Petitioner, ho#ever, indorsed the chec= in favor of respondent 2alan to enable

the latter to deposit it in the ban= and pa$ for the !aterials and labor used in the proKect. Petitioner alle"ed that 2alan spent P>,-C/./B out of the PB,555.55 for his personal use so that #hen the second chec= in the a!ount of P>,555.55 ca!e and 2alan as=ed the petitioner to indorse it a"ain, the petitioner refused. The chec= #as #ithheld fro! the petitioner. Since 2alan infor!ed the &ebu branch of Tropical that there #as a !isunderstandin" bet#een hi! and petitioner, respondent Tropical chan"ed the na!e of the pa$ee in the second chec= fro! MuMas,ue to 2alan and 0ssociates #hich #as the dul$ re"istered na!e of the partnership bet#een 2alan and petitioner and under #hich na!e a per!it to do construction business #as issued b$ the !a$or of &ebu &it$. This enabled 2alan to encash the second chec=. Mean#hile, as alle"ed b$ the petitioner, the construction continued throu"h his sole efforts. He stated that he borro#ed so!e P-3,555.55 fro! his friend, Mr. 8spina and althou"h the e%penses had reached the a!ount of P3.,555.55 because of the failure of 2alan to pa$ #hat #as partl$ due the laborers and partl$ due for the !aterials, the construction #or= #as finished ahead of schedule #ith the total e%penditure reachin" P/:,555.55. The t#o re!ainin" chec=s, each in the a!ount of P>,555.55,#ere subse,uentl$ "iven to the petitioner alone #ith the last chec= bein" "iven pursuant to a court order. 0s stated earlier, the petitioner filed a co!plaint for pa$!ent of su! of !one$ and da!a"es a"ainst the respondents,see=in" to recover the follo#in"6 the a!ounts covered b$ the first and second chec=s #hich fell into the hands of respondent 2alan, the additional e%penses that the petitioner incurred in the construction, !oral and e%e!plar$ da!a"es, and attorne$*s fees. <oth the trial and appellate courts not onl$ absolved respondents Tropical and its &ebu Mana"er, Pons, fro! an$ liabilit$ but the$ also held the petitioner to"ether #ith respondent 2alan, hable to the intervenors &ebu Southern Hard#are &o!pan$ and <lue Dia!ond

2lass Palace for the credit #hich the intervenors e%tended to the partnership of petitioner and 2alan In this petition the le"al ,uestions raised b$ the petitioner are as follo#s6 '-( 7hether or not the appellate court erred in holdin" that a partnership e%isted bet#een petitioner and respondent 2alan. '3( 0ssu!in" that there #as such a partnership, #hether or not the court erred in not findin" 2alan "uilt$ of !alversin" the P-/,555.55 covered b$ the first and second chec=s and therefore, accountable to the petitioner for the said a!ountL and '/( 7hether or not the court co!!itted "rave abuse of discretion in holdin" that the pa$!ent !ade b$ Tropical throu"h its !ana"er Pons to 2alan #as "ood pa$!ent, Petitioner contends that the appellate court erred in holdin" that he and respondent 2alan #ere partners, the truth bein" that 2alan #as a sha! and a perfidious partner #ho !isappropriated the a!ount of P-/,555.55 due to the petitioner.Petitioner also contends that the appellate court co!!itted "rave abuse of discretion in holdin" that the pa$!ent !ade b$ Tropical to 2alan #as "ood pa$!ent #hen the sa!e "ave occasion for the latter to !isappropriate the proceeds of such pa$!ent. The contentions are #ithout !erit. The records #ill sho# that the petitioner entered into a con1tract #ith Tropical for the renovation of the latter*s buildin" on behalf of the partnership of 2alan and MuMas,ue. This is readil$ seen in the first para"raph of the contract #here it states6 This a"ree!ent !ade this 35th da$ of Dece!ber in the $ear -.>> b$ 2alan and MuMas,ue hereinafter called the &ontractor, and Tropical &o!!ercial &o., Inc., hereinafter called the o#ner do hereb$ for and in consideration a"ree on the follo#in"6 ... . There is nothin" in the records to indicate that the partner1ship or"ani;ed b$ the t#o !en #as not a "enuine one. If there #as a fallin" out or !isunderstandin" bet#een the partners, such does not convert the partnership into a sha! or"ani;ation.

Ii=e#ise, #hen MuMas,ue received the first pa$!ent of Tropical in the a!ount of PB,555.55 #ith a chec= !ade out in his na!e, he indorsed the chec= in favor of 2alan. Respondent Tropical therefore, had ever$ ri"ht to presu!e that the petitioner and 2alan #ere true partners. If the$ #ere not partners as petitioner clai!s, then he has onl$ hi!self to bla!e for !a=in" the relationship appear other#ise, not onl$ to Tropical but to their other creditors as #ell. The pa$!ents !ade to the partnership #ere, therefore, valid pa$!ents. In the case of "ingsong v. Isabela "a&mill 'CC S&R0 >:/(,#e ruled6 0lthou"h it !a$ be presu!ed that Mar"arita 2. SaldaKeno had acted in "ood faith, the appellees also acted in "ood faith in e%tendin" credit to the partnership. 7here one of t#o innocent persons !ust suffer, that person #ho "ave occasion for the da!a"es to be caused !ust bear the conse,uences. No error #as co!!itted b$ the appellate court in holdin" that the pa$!ent !ade b$ Tropical to 2alan #as a "ood pa$!ent #hich binds both 2alan and the petitioner. Since the t#o #ere partners #hen the debts #ere incurred, the$, are also both liable to third persons #ho e%tended credit to their partnership. In the case of George -itton v. >ill and Ceron! et al, '>B Phil. 4-/, 4-:(, #e ruled6 There is a "eneral presu!ption that each individual partner is an authori;ed a"ent for the fir! and that he has authorit$ to bind the fir! in carr$in" on the partnership transactions. 'Mills vs. Ri""le,--3 Pan, >-B(. The presu!ption is sufficient to per!it third persons to hold the fir! liable on transactions entered into b$ one of !e!bers of the fir! actin" apparentl$ in its behalf and #ithin the scope of his authorit$. 'Ie Ro$ vs. Dohnson, B +.S. 'Ia#. ed.(, /.-.( Petitioner also !aintains that the appellate court co!!itted "rave abuse of discretion in not holdin" 2alan liable for the a!ounts

#hich he !alversed to the preKudice of the petitioner. He adds that althou"h this #as not one of the issues a"reed upon b$ the parties durin" the pretrial, he, nevertheless, alle"ed the sa!e in his a!ended co!plaint #hich #as, dul$ ad!itted b$ the court. 7hen the petitioner a!ended his co!plaint, it #as onl$ for the purpose of i!pleadin" Ra!on Pons in his personal capacit$. 0lthou"h the petitioner !ade alle"ations as to the alle"ed !alversations of 2alan, these #ere the sa!e alle"ations in his ori"inal co!plaint. The !alversation b$ one partner #as not an issue actuall$ raised in the a!ended co!plaint but the alle"ed connivance of Pons #ith 2alan as a !eans to serve the latter*s personal purposes. The petitioner, therefore, should be bound b$ the deli!itation of the issues durin" the pre1trial because he hi!self a"reed to the sa!e. In Permanent Concrete Products! Inc. v. Teodoro, '3> S&R0 //>(, #e ruled6 %%% %%% %%% ... The appellant is bound b$ the deli!itation of the issues contained in the trial court*s order issued on the ver$ da$ the pre1trial conference #as held. Such an order controls the subse,uent course of the action, unless !odified before trial to prevent !anifest inKustice.In the case at bar, !odification of the pre1trial order #as never sou"ht at the instance of an$ part$. Petitioner could have as=ed at least for a !odification of the issues if he reall$ #anted to include the deter!ination of 2alan*s personal liabilit$ to their partnership but he chose not to do so, as he vehe!entl$ denied the e%istence of the partnership. 0t an$ rate, the issue raised in this petition is the contention of MuMas,ue that the a!ounts pa$able to the intervenors should be shouldered e%clusivel$ b$ 2alan. 7e note that the petitioner is not solel$ burdened b$ the obli"ations of their illstarred partnership. The records sho# that there is an e%istin" Kud"!ent a"ainst respondent 2alan, holdin" hi! liable for the total a!ount of PB,555.55 in favor of 8den Hard#are #hich e%tended credit to the partnership aside fro! the P3, 555. 55 he alread$ paid to +niversal Iu!ber.

7e, ho#ever, ta=e e%ception to the rulin" of the appellate court that the trial court*s orderin" petitioner and 2alan to pa$ the credits of <lue Dia!ond and &ebu Southern Hard#are Kointl$ and severall$ is plain error since the liabilit$ of partners under the la# to third persons for contracts e%ecuted inconnection #ith partnership business is onl$ pro rata under 0rt. -C->, of the &ivil &ode. 7hile it is true that under 0rticle -C-> of the &ivil &ode, 0ll partners, includin" industrial ones, shall be liable prorate #ith all their propert$ and after all the partnership assets have been e%hausted, for the contracts #hich !a$ be entered into the na!e and f! the account cd the partnership, under its si"nature and b$ a person authori;ed to act for the partner1ship. ... . this provision should be construed to"ether #ith 0rticle -C3: #hich provides that6 0ll partners are liable solidaril$ #ith the partnership for ever$thin" char"eable to the partnership under 0rticles -C33 and -C3/. In short, #hile the liabilit$ of the partners are !erel$ Koint in transactions entered into b$ the partnership, a third person #ho transacted #ith said partnership can hold the partners solidaril$ liable for the #hole obli"ation if the case of the third person falls under 0rticles -C33 or -C3/. 0rticles -C33 and -C3/ of the &ivil &ode provide6 0rt. -C33. 7here, b$ an$ #ron"ful act or o!ission of an$ partner actin" in the ordinar$ course of the business of the partner1ship or #ith the authorit$ of his co1partners, loss or inKur$ is caused to an$ person, not bein" a partner in the partnership or an$ penalt$ is incurred, the partnership is liable therefor to the sa!e e%tent as the partner so actin" or o!ittin" to act. 0rt. -C3/. The partnership is bound to !a=e "ood6 '-( 7here one partner actin" #ithin the scope of his apparent authorit$ receives !one$ or propert$ of a third person and !isapplies itL and '3( 7here the partnership in the course of its business receives !one$ or propert$ of a third person and t he

!one$ or propert$ so received is !isapplied b$ an$ partner #hile it is in the custod$ of the partnership. The obli"ation is solidar$, because the la# protects hi!, #ho in "ood faith relied upon the authorit$ of a partner, #hether such authorit$ is real or apparent. That is #h$ under 0rticle -C3: of the &ivil &ode all partners, #hether innocent or "uilt$, as #ell as the le"al entit$ #hich is the partnership, are solidaril$ liable. In the case at bar the respondent Tropical had ever$ reason to believe that a partnership e%isted bet#een the petitioner and 2alan and no fault or error can be i!puted a"ainst it for !a=in" pa$!ents to 2alan and 0ssociates and deliverin" the sa!e to 2alan because as far as it #as concerned, 2alan #as a true partner #ith real authorit$ to transact on behalf of the partnership #ith #hich it #as dealin". This is even !ore true in the cases of &ebu Southern Hard#are and <lue Dia!ond 2lass Palace #ho supplied !aterials on credit to the partnership. Thus, it is but fair that the conse,uences of an$ #ron"ful act co!!itted b$ an$ of the partners therein should be ans#ered solidaril$ b$ all the partners and the partnership as a #hole Ho#ever. as bet#een the partners MuMas,ue and 2alan,Kustice also dictates that MuMas,ue be rei!bursed b$ 2alan for the pa$!ents !ade b$ the for!er representin" the liabilit$ of their partnership to herein intervenors, as it #as satisfactoril$ established that 2alan acted in bad faith in his dealin"s #ith MuMas,ue as a partner. 7H8R89OR8, the decision appealed fro! is hereb$ 099IRM8D #ith the MODI9I&0TION that the liabilit$ of petitioner and respondent 2alan to intervenors <lue Dia!ond 2lass and &ebu Southern Hard#are is declared to be Koint and solidar$. Petitioner !a$ recover fro! respondent 2alan an$ a!ount that he pa$s, in his capacit$ as a partner, to the above intervenors, SO ORD8R8D. Teehan9ee GChairmanH! 2elencio*>errera! 8e la Fuente and Pata#o! ,,.! concur.

Plana! ,.! too9 no part. Relova! ,.! is on leave. SECON% %I&ISION IG.R. No. 36616 > %/?/:;/r 16, 1996.J 192 SCRA 116 EUFRACIO %. ROJAS, P0a"n%"44-A55e00an%, 9.. CONSTANCIO !. MAG"ANA,)e4endan%-A55e00ee.

%ECISION

PARAS, J.:

This is a direct appeal to this &ourt fro! a decision VV of the then &ourt of 9irst Instance of Davao, Seventh Dudicial District, <ranch III, in &ivil &ase No. /4-C, dis!issin" appellant*s co!plaint. 0s found b$ the trial court, the antecedent facts of the case are as follo#s6 On Danuar$ -:, -.44, Ma"lana and RoKas e%ecuted their 0rticles of &o1Partnership '8%hibit 0 ( called 8astcoast Develop!ent 8nterprises '8D8( #ith onl$ the t#o of the! as partners. The partnership 8D8 #ith an indefinite ter! of e%istence #as dul$ re"istered on Danuar$ 3-, -.44 #ith the Securities and 8%chan"e &o!!ission. One of the purposes of the dul$1re"istered partnership #as to appl$ or secure ti!ber andGor !inor forests products licenses and concessions over public andGor private forest lands and to operate, develop and pro!ote such forests ri"hts and concessions. 'Rollo, p. --:(.

0 dul$ re"istered 0rticles of &o1Partnership #as filed to"ether #ith an application for a ti!ber concession coverin" the area located at &ateel and <a"an"a, Davao #ith the <ureau of 9orestr$ #hich #as approved and Ti!ber Iicense No. /414> #as dul$ issued and beca!e the basis of subse,uent rene#als !ade for and in behalf of the dul$ re"istered partnership 8D8. +nder the said 0rticles of &o1Partnership, appellee Ma"lana shall !ana"e the business affairs of the partnership, includin" !ar=etin" and handlin" of cash and is authori;ed to si"n all papers and instru!ents relatin" to the partnership, #hile appellant RoKas shall be the lo""in" superintendent and shall !ana"e the lo""in" operations of the partnership. It is also provided in the said articles of co1partnership that all profits and losses of the partnership shall be divided share and share ali=e bet#een the partners. Durin" the period fro! Danuar$ -:, -.44 to 0pril /5, -.4>, there #as no operation of said partnership 'Record on 0ppeal @R.0.A p. .:>(. <ecause of the difficulties encountered, RoKas and Ma"lana decided to avail of the services of Paha!otan" as industrial partner. On March :, -.4>, Ma"lana, RoKas and 0"ustin Paha!otan" e%ecuted their 0rticles of &o1Partnership '8%hibit < and 8%hibit & ( under the fir! na!e 80ST&O0ST D8V8IOPM8NT 8NT8RPRIS8S '8D8(. 0side fro! the sli"ht difference in the purpose of the second partnership #hich is to hold and secure rene#al of ti!ber license instead of to secure the license as in the first partnership and the ter! of the second partnership is fi%ed to thirt$ '/5( $ears, ever$thin" else is the sa!e. The partnership for!ed b$ Ma"lana, Paha!otan" and RoKas started operation on Ma$ -, -.4>, and #as able to ship lo"s and reali;e profits. 0n inco!e #as derived fro! the proceeds of the lo"s in the su! of P>:/,>//.5B 'Decision, R.0. .-.(.

On October 34, -.4>, Paha!otan", Ma"lana and RoKas e%ecuted a docu!ent entitled &ONDITION0I S0I8 O9 INT8R8ST IN TH8 P0RTN8RSHIP, 80ST&O0ST D8V8IOPM8NT 8NT8RPRIS8 '8%hibits & and D ( a"reein" a!on" the!selves that Ma"lana and RoKas shall purchase the interest, share and participation in the Partnership of Paha!otan" assessed in the a!ount of P/-,45-.-3. It #as also a"reed in the said instru!ent that after pa$!ent of the su! of P/-,45-.-3 to Paha!otan" includin" the a!ount of loan secured b$ Paha!otan" in favor of the partnership, the t#o 'Ma"lana and RoKas( shall beco!e the o#ners of all e,uip!ent contributed b$ Paha!otan" and the 80ST&O0ST D8V8IOPM8NT 8NT8RPRIS8S, the na!e also "iven to the second partnership, be dissolved. Paha!otan" #as paid in fun on 0u"ust /-, -.4B. No other ri"hts and obli"ations accrued in the na!e of the second partnership 'R.0. .3-(. 0fter the #ithdra#al of Paha!otan", the partnership #as continued b$ Ma"lana and RoKas #ithout the benefit of an$ #ritten a"ree!ent or reconstitution of their #ritten 0rticles of Partnership 'Decision, R.0. .:C(. On Danuar$ 3C, -.4B, RoKas entered into a !ana"e!ent contract #ith another lo""in" enterprise, the &MS 8state, Inc. He left and abandoned the partnership 'Decision, R.0. .:B(. On 9ebruar$ :, -.4B, RoKas #ithdre# his e,uip!ent fro! the partnership for use in the ne#l$ ac,uired area 'Decision, R.0. .:C(. The e,uip!ent #ithdra#n #ere his supposed contributions to the first partnership and #as transferred to &MS 8state, Inc. b$ #a$ of chattel !ort"a"e 'Decision, R.0. p. .:C(. On March -B, -.4B, Ma"lana #rote RoKas re!indin" the latter of his obli"ation to contribute, either in cash or in e,uip!ent, to the capital invest!ents of the partnership as #ell as his obli"ation to perfor! his duties as lo""in" superintendent.

T#o #ee=s after March -B, -.4B, RoKas told Ma"lana that he #ill not be able to co!pl$ #ith the pro!ised contributions and he #ill not #or= as lo""in" superintendent. Ma"lana then told RoKas that the latter*s share #ill Kust be 35F of the net profits. Such #as the sharin" fro! -.4B to -.4. #ithout co!plaint or dispute 'Decision, R.0. .:.(.6 nad Mean#hile, RoKas too= funds fro! the partnership !ore than his contribution. Thus, in a letter dated 9ebruar$ 3-, -.>- '8%hibit -5 ( Ma"lana notified RoKas that he dissolved the partnership 'R.0. .:.(. On 0pril B, -.>-, RoKas filed an action before the &ourt of 9irst Instance of Davao a"ainst Ma"lana for the recover$ of properties, accountin", receivership and da!a"es, doc=eted as &ivil &ase No. /4-C 'Record on 0ppeal, pp. -13>(. RoKas* petition for appoint!ent of a receiver #as denied 'R.0. C.:(. +pon !otion of RoKas on Ma$ 3/, -.>-, Dud"e Ro!ero appointed co!!issioners to e%a!ine the lon" and volu!inous accounts of the 8astcoast Develop!ent 8nterprises 'Ibid., pp. C.:1C.4(. The !otion to dis!iss the co!plaint filed b$ Ma"lana on Dune 3-, -.>- 'Ibid., pp. -531--:( #as denied b$ Dud"e Ro!ero for #ant of !erit 'Ibid., p. -34(. Dud"e Ro!ero also re,uired the inclusion of the entire $ear -.>- in the report to be sub!itted b$ the co!!issioners 'Ibid., pp. -/C1-:/(. 0ccordin"l$, the co!!issioners started e%a!inin" the records and supportin" papers of the partnership as #ell as the infor!ation furnished the! b$ the parties, #hich #ere co!piled in three '/( volu!es. On Ma$ --, -.>:, Ma"lana filed his !otion for leave of court to a!end his ans#er #ith counterclai!, attachin" thereto the a!ended ans#er 'Ibid., pp. 3>1//>(, #hich #as "ranted on Ma$ 33, -.>: 'Ibid., p. //>(. On Ma$ 3B, -.>:, Dud"e M.2. Re$es approved the sub!itted &o!!issioners* Report 'Ibid., p. //B(.

On Dune 3., -.>4, RoKas filed his !otion for reconsideration of the order dated Ma$ 3B, -.>: approvin" the report of the co!!issioners #hich #as opposed b$ the appellee. On Septe!ber -., -.>:, appellant*s !otion for reconsideration #as denied 'Ibid., pp. ::>1:4-(. 0 !andator$ pre1trial #as conducted on Septe!ber C and ., -.>: and the follo#in" issues #ere a"reed upon to be sub!itted to the trial court6 'a( The nature of partnership and the le"al relations of Ma"lana and RoKas after the dissolution of the second partnershipL 'b( Their sharin" basis6 #hether in proportion to their contribution or share and share ali=eL 'c( The o#nership of properties bou"ht b$ Ma"lana in his #ife*s na!eL 'd( The da!a"es suffered and #ho should be liable for the!L and 'e( The le"al effect of the letter dated 9ebruar$ 3/, -.>- of Ma"lana dissolvin" the partnership 'Decision, R.0. pp. C.41C.>(.1 nad 0fter trial, the lo#er court rendered its decision on March --, -.>C, the dispositive portion of #hich reads as follo#s6 7H8R89OR8, the above facts and issues dul$ considered, Kud"!ent is hereb$ rendered b$ the &ourt declarin" that6 -. The nature of the partnership and the le"al relations of Ma"lana and RoKas after Paha!otan" retired fro! the second partnership, that is, after 0u"ust /-, -.4B, #hen Paha!otan" #as finall$ paid his share H the partnership of the defendant and the plaintiff is one of a de facto and at #illL 3. 7hether the sharin" of partnership profits should be on the basis of co!putation, that is the ratio and proportion of their respective contributions, or on the basis of share and share ali=e H

this covered b$ actual contributions of the plaintiff and the defendant and b$ their verbal a"ree!entL that the sharin" of profits and losses is on the basis of actual contributionsL that fro! -.4B to -.4., the sharin" is on the basis of C5F for the defendant and 35F for the plaintiff of the profits, but fro! -.>5 to the date of dissolution, 9ebruar$ 3/, -.>-, the plaintiff*s share #ill be on the basis of his actual contribution and, considerin" his indebtedness to the partnership, the plaintiff is not entitled to an$ share in the profits of the said partnershipL /. 0s to #hether the properties #hich #ere bou"ht b$ the defendant and placed in his or in his #ife*s na!e #ere ac,uired #ith partnership funds or #ith funds of the defendant and H the &ourt declares that there is no evidence that these properties #ere ac,uired b$ the partnership funds, and therefore the sa!e should not belon" to the partnershipL :. 0s to #hether da!a"es #ere suffered and, if so, ho# !uch, and #ho caused the! and #ho should be liable for the! H the &ourt declares that neither parties is entitled to da!a"es, for as alread$ stated above it is not a #ise polic$ to place a price on the ri"ht of a person to liti"ate andGor to co!e to &ourt for the assertion of the ri"hts the$ believe the$ are entitled toL 4. 0s to #hat is the le"al effect of the letter of defendant to the plaintiff dated 9ebruar$ 3/, -.>-L did it dissolve the partnership or not H the &ourt declares that the letter of the defendant to the plaintiff dated 9ebruar$ 3/, -.>-, in effect dissolved the partnershipL >. 9urther, the &ourt relative to the canteen, #hich sells foodstuffs, supplies, and other !erchandise to the laborers and e!plo$ees of the 8astcoast Develop!ent 8nterprises, H the &O+RT D8&I0R8S TH8 S0M8 0S NOT <8ION2IN2 TO TH8 P0RTN8RSHIPL

B. That the alle"ed sale of forest concession 8%hibit .1<, e%ecuted b$ Pablo 0n"eles David H is V0IID 0ND <INDIN2 +PON TH8 P0RTI8S 0ND SHO+ID <8 &ONSID8R8D 0S P0RT O9 M02I0N0*S &ONTRI<+TION TO TH8 P0RTN8RSHIPL C. 9urther, the &ourt orders and directs plaintiff RoKas to pa$ or turn over to the partnership the a!ount of P>.,555.55 the profits he received fro! the &MS 8state, Inc. operated b$ hi!L .. The clai! that plaintiff RoKas should be ordered to pa$ the further su! of PC4,555.55 #hich accordin" to hi! he is still entitled to receive fro! the &MS 8state, Inc. is hereb$ denied considerin" that it has not $et been actuall$ received, and further the receipt is !erel$ based upon an e%pectanc$ andGor still speculativeL -5. The &ourt also directs and orders plaintiff RoKas to pa$ the su! of P>3,.CC.-. his personal account to the partnershipL --. The &ourt also credits the defendant the a!ount of PC4,555.55 the a!ount he should have received as lo""in" superintendent, and #hich #as not paid to hi!, and this should be considered as part of Ma"lana*s contribution li=e#ise to the partnershipL and -3. The co!plaint is hereb$ dis!issed #ith costs a"ainst the plaintiff.6 rd SO ORD8R8D. Decision, Record on 0ppeal, pp. .C41.C.(. RoKas interposed the instant appeal. The !ain issue in this case is the nature of the partnership and le"al relationship of the Ma"lana1RoKas after Paha!otan" retired fro! the second partnership. The lo#er court is of the vie# that the second partnership superseded the first, so that #hen the second partnership #as dissolved there #as no #ritten contract of co1partnershipL there #as no reconstitution as provided for in the Ma"lana, RoKas and Paha!otan" partnership contract. Hence, the partnership #hich

#as carried on b$ RoKas and Ma"lana after the dissolution of the second partnership #as a de facto partnership and at #ill. It #as considered as a partnership at #ill because there #as no ter!, e%press or i!pliedL no period #as fi%ed, e%pressl$ or i!pliedl$ 'Decision, R.0. pp. .>31.>/(. On the other hand, RoKas insists that the re"istered partnership under the fir! na!e of 8astcoast Develop!ent 8nterprises '8D8( evidenced b$ the 0rticles of &o1Partnership dated Danuar$ -:, -.44 '8%hibit 0 ( has not been novated, superseded andGor dissolved b$ the unre"istered articles of co1partnership a!on" appellant RoKas, appellee Ma"lana and 0"ustin Paha!otan", dated March :, -.4> '8%hibit & ( and accordin"l$, the ter!s and stipulations of said re"istered 0rticles of &o1Partnership '8%hibit 0 ( should "overn the relations bet#een hi! and Ma"lana. +pon #ithdra#al of 0"ustin Paha!otan" fro! the unre"istered partnership '8%hibit & (, the le"all$ constituted partnership 8D8 '8%hibit 0 ( continues to "overn the relations bet#een the! and it #as le"al error to consider a de facto partnership bet#een said t#o partners or a partnership at #ill. Hence, the letter of appellee Ma"lana dated 9ebruar$ 3/, -.>-, did not le"all$ dissolve the re"istered partnership bet#een the!, bein" in contravention of the partnership a"ree!ent a"reed upon and stipulated in their 0rticles of &o1Partnership '8%hibit 0 (. Rather, appellant is entitled to the ri"hts enu!erated in 0rticle -C/B of the &ivil &ode and to the sharin" profits bet#een the! of share and share ali=e as stipulated in the re"istered 0rticles of &o1 Partnership '8%hibit 0 (. 0fter a careful stud$ of the records as a"ainst the conflictin" clai!s of RoKas and Ma"lana, it appears evident that it #as not the intention of the partners to dissolve the first partnership, upon the constitution of the second one, #hich the$ un!ista=abl$ called an 0dditional 0"ree!ent '8%hibit .1< ( '<rief for Defendant1 0ppellee, pp. 3:134(. 8%cept for the fact that the$ too= in one industrial partnerL "ave hi! an e,ual share in the profits and fi%ed the ter! of the second partnership to thirt$ '/5( $ears, ever$thin"

else #as the sa!e. Thus, the$ adopted the sa!e na!e, 80ST&O0ST D8V8IOPM8NT 8NT8RPRIS8S, the$ pursued the sa!e purposes and the capital contributions of RoKas and Ma"lana as stipulated in both partnerships call for the sa!e a!ounts. Dust as i!portant is the fact that all subse,uent rene#als of Ti!ber Iicense No. /41/> #ere secured in favor of the 9irst Partnership, the ori"inal licensee. To all intents and purposes therefore, the 9irst 0rticles of Partnership #ere onl$ a!ended, in the for! of Supple!entar$ 0rticles of &o1Partnership '8%hibit & ( #hich #as never re"istered '<rief for Plaintiff10ppellant, p. 4(. Other#ise stated, even durin" the e%istence of the second partnership, all business transactions #ere carried out under the dul$ re"istered articles. 0s found b$ the trial court, it is an ad!itted fact that even up to no#, there are still subsistin" obli"ations and contracts of the latter 'Decision, R.0. pp. .451.4B(. No ri"hts and obli"ations accrued in the na!e of the second partnership e%cept in favor of Paha!otan" #hich #as full$ paid b$ the dul$ re"istered partnership 'Decision, R.0., pp. .-.1.3-(. On the other hand, there is no dispute that the second partnership #as dissolved b$ co!!on consent. Said dissolution did not affect the first partnership #hich continued to e%ist. Si"nificantl$, Ma"lana and RoKas a"reed to purchase the interest, share and participation in the second partnership of Paha!otan" and that thereafter, the t#o 'Ma"lana and RoKas( beca!e the o#ners of e,uip!ent contributed b$ Paha!otan". 8ven !ore convincin", is the fact that Ma"lana on March -B, -.4B, #rote RoKas, re!indin" the latter of his obli"ation to contribute either in cash or in e,uip!ent, to the capital invest!ent of the partnership as #ell as his obli"ation to perfor! his duties as lo""in" superintendent. This re!inder cannot refer to an$ other but to the provisions of the dul$ re"istered 0rticles of &o1 Partnership. 0s earlier stated, RoKas replied that he #ill not be able to co!pl$ #ith the pro!ised contributions and he #ill not #or= as lo""in" superintendent. <$ such state!ents, it is obvious that Ro%as understood #hat Ma"lana #as referrin" to and left no roo!

for doubt that both considered the!selves "overned b$ the articles of the dul$ re"istered partnership. +nder the circu!stances, the relationship of RoKas and Ma"lana after the #ithdra#al of Paha!otan" can neither be considered as a De 9acto Partnership, nor a Partnership at 7ill, for as stressed, there is an e%istin" partnership, dul$ re"istered. 0s to the ,uestion of #hether or not Ma"lana can unilaterall$ dissolve the partnership in the case at bar, the ans#er is in the affir!ative. Hence, as there are onl$ t#o parties #hen Ma"lana notified RoKas that he dissolved the partnership, it is in effect a notice of #ithdra#al. +nder 0rticle -C/5, par. 3 of the &ivil &ode, even if there is a specified ter!, one partner can cause its dissolution b$ e%pressl$ #ithdra#in" even before the e%piration of the period, #ith or #ithout Kustifiable cause. Of course, if the cause is not Kustified or no cause #as "iven, the #ithdra#in" partner is liable for da!a"es but in no case can he be co!pelled to re!ain in the fir!. 7ith his #ithdra#al, the nu!ber of !e!bers is decreased, hence, the dissolution. 0nd in #hatever #a$ he !a$ vie# the situation, the conclusion is inevitable that RoKas and Ma"lana shall be "uided in the li,uidation of the partnership b$ the provisions of its dul$ re"istered 0rticles of &o1PartnershipL that is, all profits and losses of the partnership shall be divided share and share ali=e bet#een the partners. <ut an accountin" !ust first be !ade and #hich in fact #as ordered b$ the trial court and acco!plished b$ the co!!issioners appointed for the purpose. On the basis of the &o!!issioners* Report, the correspondin" contribution of the partners fro! -.4>1-.>- are as follo#s6 8ufracio RoKas #ho should have contributed P-4C,-4C.55, contributed onl$ P-C,B45.55 #hile Ma"lana #ho should have contributed

P->5,.C:.55, contributed P3>B,4:-.:: 'Decision, R.0. p. .B>(. It is a settled rule that #hen a partner #ho has underta=en to contribute a su! of !one$ fails to do so, he beco!es a debtor of the partnership for #hatever he !a$ have pro!ised to contribute '0rticle -BC>, &ivil &ode( and for interests and da!a"es fro! the ti!e he should have co!plied #ith his obli"ation '0rticle -BCC, &ivil &ode( 'Moran, Dr. v. &ourt of 0ppeals, -// S&R0 .: @-.C:A(. <ein" a contract of partnership, each partner !ust share in the profits and losses of the venture. That is the essence of a partnership 'Ibid., p. .4(. Thus, as reported in the &o!!issioners* Report, RoKas is not entitled to an$ profits. In their volu!inous reports #hich #as approved b$ the trial court, the$ sho#ed that on 45145F basis, RoKas #ill be liable in the a!ount of P-/-,->>.55L on C5135F, he #ill be liable for P:5,5.3..> and finall$ on the basis of actual capital contribution, he #ill be liable for P43,5:5./-. &onse,uentl$, e%cept as to the le"al relationship of the partners after the #ithdra#al of Paha!otan" #hich is un,uestionabl$ a continuation of the dul$ re"istered partnership and the sharin" of profits and losses #hich should be on the basis of share and share ali=e as provided for in the dul$ re"istered 0rticles of &o1 Partnership, no plausible reason could be found to disturb the findin"s and conclusions of the trial court.6 nad 0s to #hether Ma"lana is liable for da!a"es because of such #ithdra#al, it #ill be recalled that after the #ithdra#al of Paha!otan", RoKas entered into a !ana"e!ent contract #ith another lo""in" enterprise, the &MS 8state, Inc., a co!pan$ en"a"ed in the sa!e business as the partnership. He #ithdre# his e,uip!ent, refused to contribute either in cash or in e,uip!ent to the capital invest!ent and to perfor! his duties as lo""in" superintendent, as stipulated in their partnership a"ree!ent. The records also sho# that RoKas not onl$ abandoned the partnership

but also too= funds in an a!ount !ore than his contribution 'Decision, R.0., p. .:.(. In the "iven situation Ma"lana cannot be said to be in bad faith nor can he be liable for da!a"es. PR8MIS8S &ONSID8R8D, the assailed decision of the &ourt of 9irst Instance of Davao, <ranch III, is hereb$ MODI9I8D in the sense that the dul$ re"istered partnership of 8astcoast Develop!ent 8nterprises continued to e%ist until li,uidated and that the sharin" basis of the partners should be on share and share ali=e as provided for in its 0rticles of Partnership, in accordance #ith the co!putation of the co!!issioners. 7e also hereb$ 099IRM the decision of the trial court in all other respects.6 nad SO ORD8R8D. M/-/n?=o+ /rr/ra, Sar:=/n8o an0 R/@a-a0o, JJ., ?on?ur. Pa0=--a, J., 8ooO no <ar8.

+ndno%e# VV Penned b$ Dud"e Manases 2. Re$es. 716 S.#.20 315 C1956D "EMA$ !ANE ' TRUST CO., A<</--an8, 9. M=-8on "A#RENCE, /8 a-., R/.<on0/n8.. No. :.B-3. M=..our= Cour8 oF A<</a-., Ea.8/rn %=.8r=?8, %=9=.=on TBr//. March 34, -.C>. /-.V/-. Marc Sandber", Dohn S. Me$er, Dr., <r$an, &ave, McPheeters J McRoberts, St. Iouis, for appellant.

2re"or$ O*Shea, St. Iouis, for respondents. 20RO M. 208RTN8R, Dud"e. Plaintiff, "/:ay !anO and Trust &o. '"/:ay !anO(, brou"ht this action for breach of contract a"ainst defendants, #ho had "uaranteed pa$!ent of certain loans issued b$ the ;anO. 0fter a trial to the court, Kud"!ent #as entered in favor of the defendant "uarantors. "/:ay !anOappeals fro! that Kud"!ent. 7e reverse and re!and. In -.B:, defendant 8!il Hei!os, Dr., 'Hei!os( and Milton D. "aGr/n?/ '"aGr/n?/( #ere en"a"ed in a business partnership =no#n as H J 2 8,uip!ent &o. 'H J 2(. On Dul$ 3>, -.B:, Hei!os and his #ife 'the Hei!oses( e%ecuted a continuin" "uarant$@-A #hereb$ the$ "uaranteed pa$!ent of an$ e%istin" or future debts o#ed b$ H J 2 to "/:ay !anO.@3A 0t that ti!e, H J 2 o#ed "/:ay !anO S-C,555 under a de!and /35V/35 line of credit and S-B,:3>.C4 on an install!ent loan. The install!ent loan #as secured b$ several pieces of heav$ e,uip!ent o#ned b$ H J 2.@/A 0t so!e point in -.B4, Hei!os and "aGr/n?/ dissolved their partnership b$ !utual a"ree!ent. 0t trial, "/:ay !anO). onl$ #itness #as 9ran= Qie"ler, a vice president of the;anO. Qie"ler supervised all of H J 2*s credit transactions #ith "/:ay !anO. He testified that Hei!os and "aGr/n?/ had indicated to hi! in -.B4 that the$ #ere havin" proble!s . He further testified, ho#ever, that he had no =no#led"e of H J 2*s dissolution until -.B., #hen this action #as filed. The defendants* onl$ #itness at trial #as Hei!os. He testified that in -.B4 he told Qie"ler he #anted to split and to "et out of his business #ith "aGr/n?/. He also testified that so!e ti!e in -.B4 or -.B> he told Qie"ler that he and "aGr/n?/ thou"ht the$ could ta=e over the business. In Ma$ -.BB, S-C,555 re!ained due on H J 2*s de!and line of credit, and an additional S/,C55 #as o#in" on the install!ent loans.

Qie"ler testified that at that ti!e Hei!os and "aGr/n?/indicated to hi! the$ could no lon"er !a=e the !onthl$ pa$!ents on the install!ent loans."/:ay !anO thus consolidated the install!ent loans into the de!and line of credit, for a total balance of S3-,C55. On Ma$ -B, -.BB, H J 2 e%ecuted a de!and note rene#in" its S3-,C55 debt under the consolidated line of credit. Three !ore rene#al notes #ere subse,uentl$ e%ecuted, the last one on Dece!ber 3, -.B.. 0lthou"h the si"natures of both "aGr/n?/ and Hei!os appear on each of the notes, Qie"ler testified that onl$ "aGr/n?/ si"ned the! in his presence at "/:ay!anO. 0fter each such si"nin", "aGr/n?/ #ould ta=e the note #ith hi! for the stated purpose of securin" Hei!os*s si"nature. 8ach of the notes #as subse,uentl$ returned to Qie"ler, bearin" #hat appeared to be Hei!os*s si"nature. 0t trial, Hei!os testified that he never si"ned an$ of the rene#al notes. He further testified that at so!e point in -.B> or -.BB Qie"ler called hi! to as= #hen he #as "oin" to si"n a note, #hereupon Hei!os told hi! that he had not si"ned an$ notes and #as una#are of an$ such notes. Defendants also introduced into evidence the #ritten report of a hand#ritin" e%pert #ho opined that Hei!os*s si"nature had been for"ed onto each of the rene#al notes. Qie"ler testified that he never had an$ reason to suspect that Hei!os*s si"nature had been for"ed. 7hen the last rene#al note beca!e due on 0u"ust 3, -.B., "/:ay !anO de!anded that the Hei!oses pa$ the S3-,C55 o#in" under the line of credit. The Hei!oses failed to !a=e this pa$!ent, and "/:ay !anO brou"ht this action to enforce the continuin" "uarant$ a"ainst the!. 0fter hearin" all the evidence, the court concluded that "/:ay !anO had effectivel$ released defendants fro! their obli"ation under the continuin" "uarant$. The court thus entered Kud"!ent in favor of defendants, and "/:ay !anO has appealed fro! that Kud"!ent.

9or the sa=e of clarit$, #e #ill not consider "/:ay !anO). points on appeal in the sa!e order that the$ are set forth in the ;anO). brief. 7e first consider points t#o and three, #herein the;anO alle"es that certain factual findin"s !ade b$ the trial court #ere not supported b$ the evidence before the court. Preli!inaril$, #e note that under Rule B/.5-, #e !ust sustain the trial court*s Kud"!ent unless there is no substantial evidence to support it, unless it is a"ainst the #ei"ht of the evidence, or unless the trial court has erroneousl$ declared or applied the la#. 2urph+ v. Carron! 4/> S.7.3d /5, /3 'Mo. banc -.B>(. Substantial evidence is evidence #hich, if true, has probative force upon the issues. Such evidence !ust be sufficientl$ substantial for /3-V/3- the trier of fact to reasonabl$ find those facts that the evidence #as introduced to prove. Reproductive >ealth "ervices! Inc. v. -ee! >>5 S.7.3d //5, //4 'Mo.0pp.-.C/(. In point t#o of its brief, "/:ay !anO challen"es the trial court*s findin" that the ;anO had reasonable notice as earl$ as -.B4 that H J 2 had been dissolved as a partnership. "/:ay!anO ar"ues that this findin" #as not supported b$ substantial evidence, and that the court !isapplied the le"al standard for notice of dissolution. It is #ell established that the appropriate standard for deter!inin" #hether notice of dissolution has been "iven to a partnership creditor is #hether such notice has been brou"ht ho!e to the creditor. Truc9 -easing Corp. v. "&ope! 3:C S.7.3d C:, C4 'Mo.0pp.-.43(. Such notice !ust be "iven directl$, or delivered throu"h so!e channels that the la# reco"ni;es as le"iti!ate !eans of co!!unication. Fenix v. Celebre))e! 3C. 9.Supp. B4C, B>> '7.D.Mo. -.>C(. In the case before us, the evidence does not support a findin" that notice of dissolution #as brou"ht ho!e to "/:ay !anO before -.B.. Qie"ler e%pressl$ denied receivin" such notice, and Hei!os, in his co!!unications #ith Qie"ler, never "ave an$ direct notice of dissolution. Defendants see!in"l$ su""est that Qie"ler should have

inferred fro! the circu!stances or discovered throu"h his o#n investi"ation that the partnership had been dissolved. The la#, ho#ever, places no such dut$ upon a partnership creditorL rather, it is the dut$ of the partners to brin" ho!e the notice of dissolution to the creditors. This Hei!os and "aGr/n?/ failed to do.@:A In li"ht of this record, #e !ust conclude that "/:ay !anO did not receive notice of dissolution before -.B.. None of the evidence presented at trial #as sufficientl$ substantial to support the trial court*s factual findin" that Hei!os notified Qie"ler of the dissolution in -.B4. Nor does the evidence support the le"al conclusion that notice of dissolution #as brou"ht ho!e to "/:ay!anO throu"h an$ le"iti!ate !eans of co!!unication. 0ccordin"l$, #e hold that the trial court erred in findin" that "/:ay !anO received notice of dissolution as earl$ as -.B4. In point three of its brief, "/:ay !anO challen"es t#o other findin"s of fact !ade b$ the trial court. The first of these is a findin" that the partnership*s debt totalled onl$ S-C,555. "/:ay!anO contends that the total debt, after consolidation, #as S3-,C55. The evidence supports the;anO). contention, and defendants concede this point in their brief. 7e thus hold that the trial court erred in !a=in" this findin". Secondl$, the ;anO challen"es the trial court*s findin" that Hei!os verball$ re,uested that the ;anO repossess the e,uip!ent bein" held as collateral. In note :, supra! #e e%plained that Hei!os*s testi!on$ does not support such a findin". The re!ainder of the record li=e#ise offers no support, and #e thus hold that the trial court also erred in !a=in" this findin". 7e ne%t consider "/:ay !anO). ar"u!ent that the trial court erred in findin" that the ;anOhad released defendants fro! their obli"ation under the continuin" "uarant$ b$ failin" to preserve the loan collateral. The ;anO contends that this findin" #as erroneous because, b$ the ter!s of the continuin" "uarant$, defendants /33V/33 consented to pa$in" H J 2*s debt re"ardless of the ;anO). failure to repossess or li,uidate the collateral. This

court recentl$ set forth the principles applicable in construin" "uarant$ contracts6 It is #ell settled that the liabilit$ of a "uarantor is to be strictl$ construed accordin" to the ter!s a"reed upon, and a "uarantor is bound onl$ b$ the precise #ords of his contract, and no stretchin" or e%tension of ter!s can be indul"ed in order to hold the "uarantor liable. Pelligreen v. Centur+ Furniture : /ppliance Co.!43: S.7.3d ->C, -B3 'Mo.0pp. -.B4(. Other #ords cannot be added b$ construction or i!plication, but the !eanin" of the #ords actuall$ used is to be ascertained in the sa!e !anner as the !eanin" of si!ilar #ords used in other contracts. The$ are to be understood in their plain and ordinar$ sense, #hen read in the li"ht of the surroundin" circu!stances and the obKect intended to be acco!plished. ?oglin v. -a+land! /3C S.7.3d B-C, B3'Mo.0pp.-.4.(. ;.". "u)u9i 2otor Corp. v. ,ohnson! >B/ S.7.3d -54, -5B 'Mo.0pp.-.C:(. 0n$ !aterial alteration of the "uarantor*s obli"ation under the "uarant$ contract #ill, therefore, dischar"e the "uarantor, unless the "uarantor has consented to such alteration. Citi)ens Ban6 o "mithville v. -air! >CB S.7.3d 3>C, 3B5 'Mo.0pp.-.C4(L 2issouri Farmers /ssociation! Inc. v. 4ol e 1rothers Farm! Inc.! >C- S.7.3d -4, 35 'Mo.0pp. -.C:( . In Commerce Ban6 o "t. -ouis v. 4right! >:4 S.7.3d -B 'Mo.0pp.-.C3(, a creditor ;anO of a ban=rupt corporation sued the "uarantors of the ban=rupt*s debt. The defendant "uarantors appealed fro! the trial court*s order "rantin" su!!ar$ Kud"!ent to the ;anO. On appeal, defendants ar"ued, inter alia! that their liabilit$ under the "uarant$ contract #as dischar"ed because the ;anO had failed to satisf$ the corporation*s debts out of the corporate assets, in #hich the ;anO held a securit$ interest. The ;anO, on the other hand, contended that defendants #ere not dischar"ed because the "uarant$ e%pressl$ provided that

the ;anO could proceed a"ainst the "uarantors before !a=in" an$ resort to the collateral.@4A The 4right court first observed that the +nifor! &o!!ercial &ode, W :55./1>5>'-('b( RSMo -.BC, provides that @tAhe holder @of an instru!entA dischar"es an$ part$ to the instru!ent to the e%tent that #ithout such part$*s consent the holder...unKustifiabl$ i!pairs an$ collateral for the instru!ent "iven b$...the part$...a"ainst #ho! he has a ri"ht of recourse. The +nifor! &o!!ercial &ode &o!!ent for that section e%plains6 &onsent !a$ be "iven in advance, and is co!!onl$ incorporated in the instru!entL or it !a$ be "iven after#ard. It re,uires no consideration, and operates as a #aiver of the consentin" part$*s ri"ht to clai! his o#n dischar"e. The 4right court then deter!ined that the "uarantors had a"reed, b$ the una!bi"uous ter!s of their "uarant$, to pa$ the corporation*s debt re"ardless of ho# the collateral #as used. The court thus held that the "uarantors had #aived their ri"ht to raise the defense of i!pair!ent of collateral.@>A /3/V/3/ The 4right decision applies directl$ to the instant case. The continuin" "uarant$ e%ecuted b$ the Hei!oses provided as follo#s6 @TAhe obli"ation of 2uarantor @the Hei!osesA hereunder is pri!ar$ and !a$ be enforced directl$ a"ainst 2uarantor independentl$ of and #ithout proceedin" a"ainst <orro#er @H J 2A or foreclosin" an$ collateral pled"ed to @"/:ayA!anOL... !anO !a$ sell, e%chan"e, release, andGor surrender or other#ise deal #ith all or an$ of the collateral pled"ed to !anO b$ <orro#er to secure said indebtedness or obli"ations...#ithout releasin" 2uarantor.... <$ the una!bi"uous ter!s of this a"ree!ent, #hich is substantiall$ the sa!e as the "uarant$ in 4right! defendants assu!ed pri!ar$ liabilit$ for the partnership*s debts. Defendants* obli"ation to repa$

those debts thus re!ained unaffected b$ an$ acts or o!issions of "/:ay!anO in relation to the loan collateral. The evidence does not, !oreover, support a conclusion that "/:ay !anO acted ne"li"entl$ or in bad faith in dealin" #ith the collateral. The ;anO #as never as=ed to repossess the collateral, nor #as it under an$ affir!ative obli"ation to do so. 0ccordin"l$, #e hold that the trial court erred in findin" that the ;anO). failure to repossess the collateral released defendants fro! their obli"ation under the continuin" "uarant$. 7e ne%t consider "/:ay !anO). ar"u!ent that the trial court erred in findin" that the ;anOhad released defendants fro! their obli"ation under the continuin" "uarant$ b$ acceptin" for"ed rene#al notes. The trial court e%plained that defendants did not consent to an$ for"er$ or to the replace!ent of e%istin" notes b$ for"ed notes. The ;anO ar"ues on appeal that the for"er$ of Hei!os*s si"nature #as i!!aterial because "aGr/n?/). si"nature on the rene#al notes #as sufficient to bind both partners. Missouri*s +nifor! Partnership Ia#, chapter /4C RSMo -.BC, provides that @aAfter dissolution a partner can bind the partnership ... @bA$ an$ transaction #hich #ould bind the partnership if dissolution had not ta=en place, provided the other part$ to the transaction... @hAad e%tended credit to the partnership prior to dissolution and had no =no#led"e or notice of the dissolution.... Section /4C./45.-'3('a( RSMo -.BC. Prior to Missouri*s adoption of the +nifor! Partnership 0ct, our Supre!e &ourt stated6 The rule is that the rene#al of a note b$ one partner of the fir! after dissolution #ithout notice of dissolution is bindin" on the other part$ #ho had no =no#led"e of its rene#al. "eu ert v. Gille! 3/5 Mo. :4/, :C3, -/- S.7. -53, --5 'Mo.-.-5(. "ee also "&ope! supra at C4L "tate ex rel. 2assman Construction Co. v. "hain! /:: Mo. -55/, -5-:, -/5 S.7.3d :.-,

:.> 'Mo.-./.(L Citi)ens' Trust Co. v. Tindle! -.: S.7. -5>>, -5>C 'Mo. 0pp.-.-B(. In the instant case, the Hei!oses consented, b$ the e%press ter!s of the continuin" "uarant$, to e%tensions and rene#als of H J 2*s debt #ith "/:ay !anO.@BA 7e have previousl$ deter!ined that "/:ay !anO had no notice of H J 2*s dissolution #hen "aGr/n?/ si"ned the rene#al notes. +nder W /4C./45.-'3('a( RSMo -.BC, "aGr/n?/ thus had the po#er to bind both hi!self and Hei!os to a rene#al of the partnership*s debt. Hei!os*s for"ed si"nature on the rene#al notes #as, therefore, irrelevant to H J 2*s liabilit$ on the notes. The record is devoid, !oreover, of an$ evidence indicatin" that "/:ay !anO #as a part$ to the for"eries or accepted the rene#al /3:V/3: notes in bad faith. 0ccordin"l$, the Hei!oses re!ained bound to repa$ H J 2*s debt under the ter!s of the continuin" "uarant$. 7e thus hold that the trial court erred in findin" that "/:ay !anO). acceptance of the for"ed notes released the Hei!oses fro! their obli"ation under the continuin" "uarant$. Havin" concluded that defendants are bound to repa$ H J 2*s debt re"ardless of "/:ay!anO). failure to li,uidate the collateral or its acceptance of the for"ed rene#al notes, #e hold that the trial court erred in enterin" Kud"!ent for defendants. "/:ay !anO clai!s that, under the ter!s of the current rene#al note, it is entitled to recover interest and attorne$*s fees in addition to the S3-,C55 o#in" on the note. 7e thus re!and this action to the trial court for entr$ of Kud"!ent in favor of the ;anO and for a deter!ination of the appropriate !easure of the;anO). da!a"es. Reversed and re!anded. N0ROHI, P.D., and SIMON, D., concur. @-A "aGr/n?/ and his #ife also e%ecuted a continuin" "uarant$, and the$ #ere ori"inall$ na!ed as defendants in this action, to"ether #ith the Hei!oses. On or about Dul$ -.C5, ho#ever, the Ia#rences

filed ban=ruptc$, thereb$ dischar"in" their obli"ation under the continuin" "uarant$. The case has since proceeded onl$ a"ainst the Hei!oses. 0s used herein, defendants refers e%clusivel$ to the Hei!oses. @3A The continuin" "uarant$ provided, in pertinent part6 The @"uarantorA hereb$ absolutel$ and unconditionall$ "uarantees to "/:ay !anO and Trust &o., a corporation '!anO(, the pro!pt pa$!ent #hen due, in accordance #ith the ter!s thereof, of an$ and all indebtedness or other obli"ations for the pa$!ent of !one$... in an$ !anner #hatsoever no# or hereafter e%istin" of H J 2 8,uip!ent &o. '<orro#er( to !anO, to"ether #ith an$ and all e%tensions or rene#als thereof. @/A This collateral included t#o tractors, t#o du!p truc=s, t#o bac=hoes, a floater trailer, a hi"h lift and a road "rader. Hei!os testified that the fair !ar=et value of this e,uip!ent #as in e%cess of S33,555. @:A Defendants contend that the trial court*s findin" #as buttressed b$ Hei!os*s purported testi!on$ to the effect that he told Qie"ler in -.B> or -.BB to sell the e,uip!ent bein" held as loan collateral. Our revie# of the record, ho#ever, indicates that Hei!os !ade no such state!ent to Qie"ler. On direct e%a!ination b$ his attorne$, Hei!os testified6 ? 7hen $ou stopped doin" business #ith Mr. "aGr/n?/, #hat co!!unications if an$ did $ou "ive to "/:ay!anO) 0 Sell the e,uip!ent and pa$ off the loan. ? Did $ou, in fact, "o to "/:ay !anO) 0 I told Dou" "aGr/n?/. This testi!on$ indicates that Hei!os told his partner to sell the e,uip!ent, but did not tell "/:ay !anO. +pon further ,uestionin",

!oreover, Hei!os testified une,uivocall$ that he never as=ed the ;anO to pic= up an$ of the e,uip!ent. @4A The opinion sets forth the follo#in" provisions fro! the "uarant$6 <efore proceedin" hereunder a"ainst an$ of the undersi"ned or a"ainst an$ of the &ollateral, resort need not be !ade b$ the !anO to an$ collateral or other securit$ pled"ed b$ Debtor or b$ an$ of the undersi"ned, nor need!anO e%haust an$ re!ed$ a"ainst Debtor, nor a"ainst an$ other endorser, suret$ or "uarantor of the Iiabilities. .... No substitution, release or surrender of an$ collateral or other securit$ held b$ !anO to secure an$ Iiabilities of Debtor, nor the substitution, release or death of an$ part$ liable for the pa$!ent of an$ liabilities of Debtor, #hether the sa!e b$ a si"ner to this "uarant$ or other#ise, shall affect the liabilit$ of the undersi"ned to ;anO. Id. at 35. @>A The court noted that its decision !i"ht have been different if the "uarantors had adduced evidence of bad faith or ne"li"ence on the part of the ;anO6 In its dealin"s #ith the corporate debtor and the collateral, the ;anO #as obli"ed to act in "ood faith and #ith a reasonable de"ree of careL defendant "uarantors did not consent to fraud or ne"li"ence or #aive their ri"ht to obKect thereto. Id. at 33. "ee also -air! supra at 3B-. @BA The continuin" "uarant$ provided that @"/:ayA !anO, in its discretion, @couldA e%tend the ti!e of pa$!ent, rene#, or chan"e the !anner, place, ti!e or ter!s of pa$!ent of all or an$ of @H J 2*sA indebtedness or obli"ations...#ithout releasin" 2uarantor.... 121 #=..20 599 C1954D

366 N.#.20 762 Ar8 "ANGE, P-a=n8=FF+A<</--an8, 9. !/r8 !ART"ETT an0 Poo- !oy., In?., %/F/n0an8.+R/.<on0/n8.. No. C:15.C. Cour8 oF A<</a-. oF #=.?on.=n. Sub!itted on briefs Septe!ber -B, -.C:. Decided Nove!ber 3-, -.C:. >55V>55 9or the plaintiff1appellant, the cause #as sub!itted on the brief of Reginald 2. >islop! ,r.!of 7est 0llis. 9or the defendants1respondents, the cause #as sub!itted on the brief of .i9ola @ostich of"t+ler! @ostich : 2elnic9! of Mil#au=ee. <efore Scott, &.D., <ro#n, P.D., and Netteshei!, D. <RO7N, P. D. This is an appeal involvin" the division of assets of the dissolved partnership Pool <o$s, a s#i!!in" pool installation business. 0rt "an@/, the retirin" partner, appeals an a#ard of half interest in the Koint assets of the dissolved partnership, clai!in" the trial court should have considered profits fro! dissolution to the final accountin" in deter!inin" the settle!ent. 7e a"ree and reverse. +p to a point, the facts are not in dispute. 0rt "an@/ and <ert !ar8-/88 #or=ed to"ether for several $ears on a part1ti!e basis installin" s#i!!in" pools. In -.B3, the$ verball$ a"reed to for! the partnership Pool <o$s and be"an operatin" the business full1ti!e. This arran"e!ent continued until 0pril of -.B4 #hen "an@/ >5-V>5- told !ar8-/88 that he no lon"er #anted to participate in the partnership. It is clear that "an@/ #as not e%pelled as a partnerL rather, he retired fro! the partnership. !ar8-/88 eventuall$ offered "an@/ S/,555 in pa$!ent for "an@/).share of the partnershipL "an@/ refused this offer. Subse,uentl$, in -.BC, "an@/ sued to recover his share of the partnership.

<efore discussin" the trial court*s decision after trial, it is i!portant for a clear understandin" of this case to revie# the basic tenets of partnership la#. In re Estate o "chae er! .- 7is. 3d />5, 3C/ N.7.3d :-5 '&t. 0pp. -.B.(, offers a startin" point in anal$;in" the statutes "overnin" the dissolution of a partnership. @-A 7hen a partner dies or retires, the partnership is dissolved. Sec. -BC.3>'-( 'b( and ':(, Stats. Ho#ever, the partnership is not ter!inated upon dissolutionL it continues until the #ind1up of the partnership affairs are co!pleted. "chae er at /B4, 3C/ N.7.3d at :-C. @3A It is at this Kuncture, the point of dissolution, that the retirin" partner !a=es an election. He can either force the business to #ind1up and ta=e his part of the proceeds, sharin" in profits and losses after dissolution, or he can per!it the business to continue and clai! as a creditor the value of his interest at dissolution. Id. at /C3, 3C/ N.7.3d at :3-, ,uotin" D. &rane and 0. <ro!ber", -a& o PartnershipW C>'c( '-.>C(. The deter!ination of #hether the retirin" partner consented to or ac,uiesced in the continuation of the business is a ,uestion of fact. "chae erat /BC, 3C/ N.7.3d at :35. @/A Thus, the first tas= for a trial court faced #ith !a=in" a settle!ent of a for!er partner*s account after dissolution is to deter!ine #hat election the retirin" partner !ade at the point of dissolution. 8ver$ partnership dissolution causes a #ind1up rather than a continuation >53V>53unless the out"oin" partner consents to a continuation. Distin"uishin" in the first instance #hether a #ind1up or a continuation is at hand is critical si!pl$ because the settle!ent of the for!er partner*s account differs dependin" on #hether it is a #ind1up or a continuation. 9or instance, if a trial court deter!ines that a business #as en"a"ed in a #ind1up, the for!er partner receives the value of his or her interest at the date of li,uidation or final settle!ent pursuant

to sec. -BC.// '-(, Stats. "ee "chae er at /B>, 3C/ N.7.3d at :-.. In other #ords, the out"oin" partner shares in both profits and losses until ter!ination. &rane and <ro!ber", supra, W C> 'c( at :.4. The for!er partner, therefore, does not ta=e as a creditor. The out"oin" partner "ets a share of the profits, if an$, onl$ after all of the other creditors have been paid and onl$ until ter!ination. "chae er at /C/, 3C/ N.7.3d at :33. Ter!ination is the point in ti!e #hen all of the partnership affairs are #ound up. 2c8onald v. 2c8onald! >C 7is. 3d 3.3, /5- n. /, 33C N.7.3d B3B, B/3 '-.B4(. &ontinuation, ho#ever, effects a totall$ different settle!ent of the for!er partner*s account. The out"oin" partner can a"ree, at the ti!e of dissolution, that the business #ill be continued. If the out"oin" partner elects to allo# the business to continued, then that partner has a second electionHto receive either interest or profits fro! the date of dissolutionHin addition to the value of his or her interest in the partnership. "chae er at /C3, 3C/ N.7.3d at :3-, ,uotin" &rane and <ro!ber", supra, W C> 'c( at :.>1.BL sec. -BC./B, Stats. This second election can be !ade onl$ b$ the for!er partnerL it cannot be !ade b$ either the continuin" partner or the trial court. The profits "arnered fro! continuation are different fro! the profits at #ind1up si!pl$ because, in a continuation, the out"oin" partner is not responsible for >5/V>5/ the debts of the continuin" partnership. The out"oin" partner, instead, ta=es as a creditor. 0lthou"h this election !a$ see! so!e#hat one1sided as the retirin" partner is no lon"er involved in the business, it serves as Xa species of co!pulsion . . . to those continuin" the business . . . to hasten its orderl$ #indin" up.* . . . The second election rests partl$ on the use of the out"oin" partner*s assets in the conduct of the business. &rane and <ro!ber", supra, W C> 'c( at :.B 'footnote o!itted(L see also Cauble v. >andler! 45/ S.7.3d />3, />> 'Te%. &iv. 0pp. -.B/(. The ri"ht to a share of the profits e%ists onl$ until the final accountin" has been !ade. "vihl v. Gress! 3-> N.7.3d --5, --B 'N.D. -.B:(L (anderplo& v. Fredric9s! /3 N.7.3d B-C, B3'Mich. -.:C(. Once Kud"!ent is entered, then the for!er partner "ets interest on the Kud"!ent, at the le"al rate, until paid. @-A >5:V>5: @:A

This election '#hether to ta=e the profits as described or to ta=e interest on the value of the partnership at the date of dissolution( need not be !ade until there has been a final accountin" of the partnership. The ri"ht of election #hich the retirin" partner has is one #hich he should be per!itted to e%ercise after an accountin" shall have been ta=en of the earnin"s subse,uent to dissolution. Other#ise, the ri"ht of election #ould be an illusor$ one. 2osele+ v. 2osele+! -.> 9.3d >>/, >>>1>B '.th &ir. -.43( . @4A Havin" anal$;ed the basic la#, #e no# turn to the trial court*s decision, #hich #e hold is inconsistent #ith these tenets. The trial court found that a #ind1up had ta=en place rather than a continuation. It then deter!ined the #orth of the assets at the date of dissolution and divided the value of those assets e,uall$ bet#een the t#o parties. Instead of deter!inin" the value of the assets at the ti!e of dissolution, it should have deter!ined profits and losses fro! the date of dissolution to the date of the hearin". This #ould assu!e that the assets have been sold as part of the #ind1up and the inco!e derived therefro! added to the a!ount to be divided or that the trial court place a !ar=et value on the assets as if sold. It did not, and this alone is error. Moreover, the trial court*s decision is inconsistent #ith an earlier decision it !ade follo#in" a pretrial !otion b$ "an@/. 0t the conclusion of that earlier hearin", the trial court held that a continuation had ta=en place, not a #ind1up. 7e believe both parties #ere under the i!pression that the issue of #ind1up vis1a1vis continuation had previousl$ >54V>54 been settled in favor of continuation. In fact, the trial court itself stated at the be"innin" of the trial6 The &ourt understands that #e are in a posture of trial before the &ourt in connection &ith the issues &hich have not been determined in accordance &ith the prior court &ritten decision in this matter. @8!phasis added.A The trial court later chan"ed its !ind. Rather than affir! the trial court*s later holdin" that a #ind1up had ta=en place, #e re!and in

the interests of Kustice. Sec. B43./4, Stats. The reason is that the real issue in controvers$ has not been tried. On re!and, a bifurcated trial should be held. 9ollo#in" testi!on$ as to #hether a #ind1up or a continuation occurred, the court should !a=e its findin"s of fact. If the trial court finds that a continuation has occurred, then the second part of the trial should focus on the value of the partnership assets on the date of dissolution plus an$ evidence sho#in" the profits !ade b$ the continuin" business fro! the ti!e of dissolution to the date of the hearin". Interest on the value of the for!er partner*s share of the partnership should also be deter!ined. 0t the conclusion of testi!on$, the trial court shall !a=e a findin" of the value of each. The for!er partner !ust !a=e the second election at this point. Dud"!ent should then be entered accordin"l$. If the trial court finds that a #ind1up occurred, then the evidence at the second part of the hearin" should focus on the profits re!ainin" after all of the creditors have been paid. The trial court then can !a=e its decision of the value of the for!er partner*s share and enter Kud"!ent in that a!ount. @>A 9inall$, #e reach a contention b$ !ar8-/88 #hich is found to be a co!!on co!plaint in partnership dissolution in our research of cases across the countr$. !ar8-/88 strenuousl$ ar"ues that the business has "reatl$ >5>V>5> e%panded since "an@/ left in -.B4. He clai!s it is not the intent of the statutes to allo# "an@/ to reap profits fro! aspects of the business #hich #ere not operatin" at the ti!e of the partnership dissolution. !ar8-/88 is incorrect. Section -BC./B, Stats., states that the retirin" partner !a$ opt, in lieu of interest, for profits attributableto the use o his right in the propert+ o the dissolved partnership . . . .< '8!phasis added.( This fi"ure !a$ differ fro! $ear to $ear dependin" upon !ar8-/88). use of partnership propert$."an@/). partnership propert$ includes not onl$ the tan"ible assets but also an$ "ood#ill in the Pool <o$s na!e and reputation prior to dissolution that #ould have contributed to the success of !ar8-/88). sauna, spa and hot tub business. @BA

Ho#ever, #e understand !ar8-/88). concerns, and the$ can be addressed b$ co!pensatin"!ar8-/88 for his efforts. 0lthou"h authorities are not in accord re"ardin" the proble! of co!pensation to continuin" partners in the absence of a specific a"ree!ent, #e feel the better reasoned vie# is that one #ho continues a partnership business after dissolution and contributes substantial labor and !ana"e!ent services is entitled to co!pensation for that effort. "ee Timmermann v. Timmermann! 4/C P.3d -34:, -3>31>/ 'Or. -.B4(L "choeller v. "choeller! :.B S.7.3d C>5, CB5 'Mo. &t. 0pp. -.B/(L Essa+ v. Essa+! -3/ N.7.3d >:C, >:. 'Neb. -.>/(. 1ut see contra 4i9strom v. 8avis! /-4 P.3d 4.B, >-5 'Or. -.4B(. @CA 7e conclude that re"ardless of the e%pended effort on behalf of !ar8-/88, "an@/ is still entitled to a share of the partnership profit fro! the da$ of dissolution. Ho#ever, a court can ta=e into account the substantial labor and !ana"e!ent services !ade b$ the continuin" partner and deduct that a!ount before arrivin" at the fi"ure of #hat profit is due the for!er partner. >5BV>5B 1+ the Court.HDud"!ent reversed and cause re!anded for a ne# trial. @-A The record indicates that !ar8-/88 offered "an@/ S/,555 for "an@/). share of the partnership in -.B4. Ho#ever, the ri"ht to share in profits does not ter!inate #hen an offer is tendered. "ee 2osele+ v. 2osele+! -.> 9.3d >>/, >>:, >>>, >>B '.th &ir. -.43(. It should be noted that &rane and <ro!ber", plus at least one other Kurisdiction, state that the ri"ht to profits does not end until it has been paid to the retirin" partner. D. &rane and 0. <ro!ber", -a& o Partnership W C>'c( at :.B '-.>C(. "ee also Cauble v. >andler! 45/ S.7.3d />3, />> 'Te%. &iv. 0pp. -.B/(. 0lthou"h unstated, it is apparentl$ the vie# of these authorities that until the retirin" partner has been paid, the continuin" partners are still usin" the retirin" partner*s propert$ to "ain their profit. 0lthou"h #e ac=no#led"e the !erit of this position, #e do not adopt it. 0 polic$ of Kudicial ad!inistration is that la#suits should

co!e to an end so!eti!e. Once the final accountin" has been deter!ined and a Kud"!ent is entered, it #ould be e%pensive and ti!e consu!in" for parties and #itnesses to co!e bac= into court to deter!ine the a!ount of profit fro! the date of Kud"!ent until pa$!ent. Pa$!ent, even if !ade #ithin a !onth, !i"ht be subKect to a ne# round of scrutin$ b$ e%perts on both sides as to the a!ount of profit accrued since the last court appearance, acceleratin" the costs of trial. That, added to the "reat #or=load of trial courts, co!pels us to conclude that the holdin" #e adopt is !ore appropriate. Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 97212 Jun/ 36, 1993 !ENJAMIN $U, petitioner, vs. NATIONA" "A!OR RE"ATIONS COMMISSION an0 JA%E MOUNTAIN PRO%UCTS COMPAN$ "IMITE%, #I""$ CO, R O%ORA %. !EN%A", "EA !EN%A", C IU S IAN JENG an0 C EN O+FU, respondents. ,ose C. Guico or petitioner. 4il redo Corte) or private respondents.

FE"ICIANO, J.: Petitioner <enKa!in Ou #as for!erl$ the 0ssistant 2eneral Mana"er of the !arble ,uarr$in" and e%port business operated b$ a re"istered partnership #ith the fir! na!e of Dade Mountain Products &o!pan$ Ii!ited ' Dade Mountain (. The partnership #as ori"inall$ or"ani;ed on 3C Dune -.C: #ith Iea <endal and Rhodora <endal as "eneral partners and &hin Shian Den", &hen

Ho19u and Ou &han", all citi;ens of the Republic of &hina 'Tai#an(, as li!ited partners. The partnership business consisted of e%ploitin" a !arble deposit found on land o#ned b$ the Sps. Ricardo and 2uiller!a &ru;, situated in <ulacan Province, under a Me!orandu! 0"ree!ent dated 3> Dune -.C: #ith the &ru; spouses. 1 The partnership had its !ain office in Ma=ati, Metropolitan Manila. <enKa!in Ou #as hired b$ virtue of a Partnership Resolution dated -: March -.C4, as 0ssistant 2eneral Mana"er #ith a !onthl$ salar$ of P:,555.55. 0ccordin" to petitioner Ou, ho#ever, he actuall$ received onl$ half of his stipulated !onthl$ salar$, since he had accepted the pro!ise of the partners that the balance #ould be paid #hen the fir! shall have secured additional operatin" funds fro! abroad. <enKa!in Ou actuall$ !ana"ed the operations and finances of the businessL he had overall supervision of the #or=ers at the !arble ,uarr$ in <ulacan and too= char"e of the preparation of papers relatin" to the e%portation of the fir!*s products. So!eti!e in -.CC, #ithout the =no#led"e of <enKa!in Ou, the "eneral partners Iea <endal and Rhodora <endal sold and transferred their interests in the partnership to private respondent 7ill$ &o and to one 8!!anuel Qapanta. Mr. Ou &han", a li!ited partner, also sold and transferred his interest in the partnership to 7ill$ &o. <et#een Mr. 8!!anuel Qapanta and hi!self, private respondent 7ill$ &o ac,uired the "reat bul= of the partnership interest. The partnership no# constituted solel$ b$ 7ill$ &o and 8!!anuel Qapanta continued to use the old fir! na!e of Dade Mountain, thou"h the$ !oved the fir!*s !ain office fro! Ma=ati to Mandalu$on", Metropolitan Manila. 0 Supple!ent to the Me!orandu! 0"ree!ent relatin" to the operation of the !arble ,uarr$ #as entered into #ith the &ru; spouses in 9ebruar$ of -.CC. 2 The actual operations of the business enterprise continued as before. 0ll the e!plo$ees of the partnership continued #or=in" in the business, all, save petitioner <enKa!in Ou as it turned out. On -> Nove!ber -.CB, havin" learned of the transfer of the fir!*s !ain office fro! Ma=ati to Mandalu$on", petitioner <enKa!in Ou reported to the Mandalu$on" office for #or= and there !et private respondent 7ill$ &o for the first ti!e. Petitioner #as infor!ed b$ 7ill$ &o that the latter had bou"ht the business fro! the ori"inal

partners and that it #as for hi! to decide #hether or not he #as responsible for the obli"ations of the old partnership, includin" petitioner*s unpaid salaries. Petitioner #as in fact not allo#ed to #or= an$!ore in the Dade Mountain business enterprise. His unpaid salaries re!ained unpaid. 3 On 3- Dece!ber -.CC. <enKa!in Ou filed a co!plaint for ille"al dis!issal and recover$ of unpaid salaries accruin" fro! Nove!ber -.C: to October -.CC, !oral and e%e!plar$ da!a"es and attorne$*s fees, a"ainst Dade Mountain, Mr. 7ill$ &o and the other private respondents. The partnership and 7ill$ &o denied petitioner*s char"es, contendin" in the !ain that <enKa!in Ou #as never hired as an e!plo$ee b$ the present or ne# partnership. 4 In due ti!e, Iabor 0rbiter Nieves Vivar1De &astro rendered a decision holdin" that petitioner had been ille"all$ dis!issed. The Iabor 0rbiter decreed his reinstate!ent and a#arded hi! his clai! for unpaid salaries, bac=#a"es and attorne$*s fees. 5 On appeal, the National Iabor Relations &o!!ission ' NIR& ( reversed the decision of the Iabor 0rbiter and dis!issed petitioner*s co!plaint in a Resolution dated 3. Nove!ber -..5. The NIR& held that a ne# partnership consistin" of Mr. 7ill$ &o and Mr. 8!!anuel Qapanta had bou"ht the Dade Mountain business, that the ne# partnership had not retained petitioner Ou in his ori"inal position as 0ssistant 2eneral Mana"er, and that there #as no la# re,uirin" the ne# partnership to absorb the e!plo$ees of the old partnership. <enKa!in Ou, therefore, had not been ille"all$ dis!issed b$ the ne# partnership #hich had si!pl$ declined to retain hi! in his for!er !ana"erial position or an$ other position. 9inall$, the NIR& held that <enKa!in Ou*s clai! for unpaid #a"es should be asserted a"ainst the ori"inal !e!bers of the precedin" partnership, but these thou"h i!pleaded had, apparentl$, not been served #ith su!!ons in the proceedin"s before the Iabor 0rbiter. 6 Petitioner <enKa!in Ou is no# before the &ourt on a Petition for Certiorari, as=in" us to set aside and annul the Resolution of the NIR& as a product of "rave abuse of discretion a!ountin" to lac= or e%cess of Kurisdiction.

The basic contention of petitioner is that the NIR& has overloo=ed the principle that a partnership has a Kuridical personalit$ separate and distinct fro! that of each of its !e!bers. Such independent le"al personalit$ subsists, petitioner clai!s, not#ithstandin" chan"es in the identities of the partners. &onse,uentl$, the e!plo$!ent contract bet#een <enKa!in Ou and the partnership Dade Mountain could not have been affected b$ chan"es in the latter*s !e!bership. 7 T#o '3( !ain issues are thus posed for our consideration in the case at bar6 '-( #hether the partnership #hich had hired petitioner Ou as 0ssistant 2eneral Mana"er had been e%tin"uished and replaced b$ a ne# partnerships co!posed of 7ill$ &o and 8!!anuel QapantaL and '3( if indeed a ne# partnership had co!e into e%istence, #hether petitioner Ou could nonetheless assert his ri"hts under his e!plo$!ent contract as a"ainst the ne# partnership. In respect of the first issue, #e a"ree #ith the result reached b$ the NIR&, that is, that the le"al effect of the chan"es in the !e!bership of the partnership #as the dissolution of the old partnership #hich had hired petitioner in -.C: and the e!er"ence of a ne# fir! co!posed of 7ill$ &o and 8!!anuel Qapanta in -.CB. The applicable la# in this connection H of #hich the NIR& see!ed ,uite una#are H is found in the &ivil &ode provisions relatin" to partnerships. 0rticle -C3C of the &ivil &ode provides as follo#s6 0rt. -C3C. The dissolution of a partnership is the chan"e in the relation of the partners caused b+ an+ partner ceasing to be associated in the carr+ing on as distin"uished fro! the #indin" up o the business. '8!phasis supplied( 0rticle -C/5 of the sa!e &ode !ust also be noted6 0rt. -C/5. Dissolution is caused6 '-( #ithout violation of the a"ree!ent bet#een the partnersL

%%% %%% %%% 'b( b+ the express &ill o an+ partner! &ho must act in good aith! &hen no de inite term or particular underta9ing is speci iedL %%% %%% %%% '3( in contravention of the a"ree!ent bet#een the partners, #here the circu!stances do not per!it a dissolution under an$ other provision of this article, b+ the express &ill o an+ partner at an+ timeL %%% %%% %%% '8!phasis supplied( In the case at bar, Kust about all of the partners had sold their partnership interests 'a!ountin" to C3F of the total partnership interest( to Mr. 7ill$ &o and 8!!anuel Qapanta. The record does not sho# #hat happened to the re!ainin" -CF of the ori"inal partnership interest. The ac,uisition of C3F of the partnership interest b$ ne# partners, coupled #ith the retire!ent or #ithdra#al of the partners #ho had ori"inall$ o#ned such C3F interest, #as enou"h to constitute a ne# partnership. The occurrence of events #hich precipitate the le"al conse,uence of dissolution of a partnership do not, ho#ever, auto!aticall$ result in the ter!ination of the le"al personalit$ of the old partnership. 0rticle -C3. of the &ivil &ode states that6 @oAn dissolution the partnership is not ter!inated, but continues until the #indin" up of partnership affairs is co!pleted. In the ordinar$ course of events, the le"al personalit$ of the e%pirin" partnership persists for the li!ited purpose of #indin" up and closin" of the affairs of the partnership. In the case at bar, it is

i!portant to underscore the fact that the business of the old partnership #as si!pl$ continued b$ the ne# partners, &ithout the old partnership under"oin" the procedures relatin" to dissolution and #indin" up of its business affairs. In other #ords, the ne# partnership si!pl$ too= over the business enterprise o#ned b$ the preceedin" partnership, and continued usin" the old na!e of Dade Mountain Products &o!pan$ Ii!ited, #ithout #indin" up the business affairs of the old partnership, pa$in" off its debts, li,uidatin" and distributin" its net assets, and then re1asse!blin" the said assets or !ost of the! and openin" a ne# business enterprise. There #ere, no doubt, po#erful ta% considerations #hich underla$ such an infor!al approach to business on the part of the retirin" and the inco!in" partners. It is not, ho#ever, necessar$ to in,uire into such !atters. 7hat is i!portant for present purposes is that, under the above described situation, not onl+ the retiring partners GRhodora 1endal! et al.H but also the ne& partnership itsel &hich continued the business of the old, dissolved, one, are liable for the debts of the precedin" partnership. In "ingson! et al. v. Isabela "a& 2ill! et al, 5 the &ourt held that under facts ver$ si!ilar to those in the case at bar, a #ithdra#in" partner re!ains liable to a third part$ creditor of the old partnership. 9 The liabilit$ of the ne# partnership, upon the other hand, in the set of circu!stances obtainin" in the case at bar, is established in 0rticle -C:5 of the &ivil &ode #hich reads as follo#s6 0rt. -C:5. In the follo#in" cases creditors o the dissolved partnership are also creditors o the person or partnership continuing the business6 '-( 7hen an$ ne# partner is ad!itted into an e%istin" partnership, or #hen an$ partner retires and assi"ns 'or the representative of the deceased partner assi"ns( his ri"hts in partnership propert$ to t#o or !ore of the partners, or to one or !ore of the partners and one or !ore third persons, i the business is continued &ithout liKuidation o the partnership a airsL '3( 7hen all but one partner retire and assi"n 'or the representative of a deceased partner assi"ns( their

ri"hts in partnership propert$ to the re!ainin" partner, #ho continues the business &ithout liKuidation o partnership a airs! either alone or &ith othersL '/( 4hen an+ Partner retires or dies and the business o the dissolved partnership is continued as set forth in Nos. - and 3 of this 0rticle, #ith the consent of the retired partners or the representative of the deceased partner, but #ithout an$ assi"n!ent of his ri"ht in partnership propert$L ':( 4hen all the partners or their representatives assign their rights in partnership propert+ to one or more third persons #ho pro!ise to pa$ the debts and &ho continue the business o the dissolved partnershipL '4( 4hen an+ partner &rong ull+ causes a dissolution and remaining partners continue the businessunder the provisions of article -C/B, second para"raph, No. 3, either alone or &ith others! and &ithout liKuidation o the partnership a airsL '>( 7hen a partner is e%pelled and the re!ainin" partners continue the business either alone or &ith others &ithout liKuidation o the partnership a airsL The liabilit$ of a third person beco!in" a partner in the partnership continuin" the business, under this article, to the creditors of the dissolved partnership shall be satisfied out of the partnership propert$ onl$, unless there is a stipulation to the contrar$. 7hen the business of a partnership after dissolution is continued under an$ conditions set forth in this article the creditors of the retirin" or deceased partner or the representative of the deceased partner, have a prior ri"ht to an$ clai! of the retired partner or the representative of the deceased partner a"ainst the person or partnership continuin" the business on account of the retired or deceased partner*s interest in the dissolved partnership

or on account of an$ consideration pro!ised for such interest or for his ri"ht in partnership propert$. .othing in this article shall be held to modi + an+ right o creditors to set assignment on the ground o raud. %%% %%% %%% '8!phasis supplied( +nder 0rticle -C:5 above, creditors of the old Dade Mountain are also creditors of the ne# Dade Mountain #hich continued the business of the old one #ithout li,uidation of the partnership affairs. Indeed, a creditor of the old Dade Mountain, li=e petitioner <enKa!in Ou in respect of his clai! for unpaid #a"es, is entitled to priorit$ vis*a*vis an$ clai! of an$ retired or previous partner insofar as such retired partner*s interest in the dissolved partnership is concerned. It is not necessar$ for the &ourt to deter!ine under #hich one or !are of the above si% '>( para"raphs, the case at bar #ould fall, if onl$ because the facts on record are not detailed #ith sufficient precision to per!it such deter!ination. It is, ho#ever, clear to the &ourt that under 0rticle -C:5 above, <enKa!in Ou is entitled to enforce his clai! for unpaid salaries, as #ell as other clai!s relatin" to his e!plo$!ent #ith the previous partnership, a"ainst the ne# Dade Mountain. It is at the sa!e ti!e also evident to the &ourt that the ne# partnership #as entitled to appoint and hire a ne# "eneral or assistant "eneral !ana"er to run the affairs of the business enterprise ta=e over. 0n assistant "eneral !ana"er belon"s to the !ost senior ran=s of !ana"e!ent and a ne# partnership is entitled to appoint a top !ana"er of its o#n choice and confidence. The non1retention of <enKa!in Ou as 0ssistant 2eneral Mana"er did not therefore constitute unla#ful ter!ination, or ter!ination #ithout Kust or authori;ed cause. 7e thin= that the precise authori;ed cause for ter!ination in the case at bar #as redundanc+. 16 The ne# partnership had its o#n ne# 2eneral Mana"er, apparentl$ Mr. 7ill$ &o, the principal ne# o#ner hi!self, #ho personall$ ran the business of Dade Mountain. <enKa!in Ou*s old position as 0ssistant 2eneral Mana"er thus beca!e superfluous or redundant. 11 It follo#s that petitioner <enKa!in Ou is entitled to separation pa$ at

the rate of one !onth*s pa$ for each $ear of service that he had rendered to the old partnership, a fraction of at least si% '>( !onths bein" considered as a #hole $ear. 7hile the ne# Dade Mountain #as entitled to decline to retain petitioner <enKa!in Ou in its e!plo$, #e consider that <enKa!in Ou #as ver$ shabbil$ treated b$ the ne# partnership. The old partnership certainl$ benefitted fro! the services of <enKa!in Ou #ho, as noted, previousl$ ran the #hole !arble ,uarr$in", processin" and e%portin" enterprise. His #or= constituted value1 added to the business itself and therefore, the ne# partnership si!ilarl$ benefitted fro! the labors of <enKa!in Ou. It is #orth$ of note that the ne# partnership did not tr$ to su""est that there #as an$ cause consistin" of so!e bla!e#orth$ act or o!ission on the part of Mr. Ou #hich co!pelled the ne# partnership to ter!inate his services. Nonetheless, the ne# Dade Mountain did not notif$ hi! of the chan"e in o#nership of the business, the relocation of the !ain office of Dade Mountain fro! Ma=ati to Mandalu$on" and the assu!ption b$ Mr. 7ill$ &o of control of operations. The treat!ent 'includin" the refusal to honor his clai! for unpaid #a"es( accorded to 0ssistant 2eneral Mana"er <enKa!in Ou #as so su!!ar$ and cavalier as to a!ount to arbitrar$, bad faith treat!ent, for #hich the ne# Dade Mountain !a$ le"iti!atel$ be re,uired to respond b$ pa$in" !oral da!a"es. This &ourt, e%ercisin" its discretion and in vie# of all the circu!stances of this case, believes that an inde!nit$ for !oral da!a"es in the a!ount of P35,555.55 is proper and reasonable. In addition, #e consider that petitioner <enKa!in Ou is entitled to interest at the le"al rate of si% percent '>F( per annum on the a!ount of unpaid #a"es, and of his separation pa$, co!puted fro! the date of pro!ul"ation of the a#ard of the Iabor 0rbiter. 9inall$, because the ne# Dade Mountain co!pelled <enKa!in Ou to resort to liti"ation to protect his ri"hts in the pre!ises, he is entitled to attorne$*s fees in the a!ount of ten percent '-5F( of the total a!ount due fro! private respondent Dade Mountain. 7H8R89OR8, for all the fore"oin", the Petition for Certiorari is 2R0NT8D D+8 &O+RS8, the &o!!ent filed b$ private respondents is treated as their 0ns#er to the Petition for Certiorari, and the Decision of the NIR& dated 3. Nove!ber -..5 is hereb$

N+III9I8D and S8T 0SID8. 0 ne# Decision is hereb$ 8NT8R8D re,uirin" private respondent Dade Mountain Products &o!pan$ Ii!ited to pa$ to petitioner <enKa!in Ou the follo#in" a!ounts6 'a( for unpaid #a"es #hich, as found b$ the Iabor 0rbiter, shall be co!puted at the rate of P3,555.55 per !onth !ultiplied b$ thirt$1si% '/>( !onths 'Nove!ber -.C: to Dece!ber -.CB( in the total a!ount of PB3,555.55L 'b( separation pa$ co!puted at the rate of P:,555.55 !onthl$ pa$ !ultiplied b$ three '/( $ears of service or a total of P-3,555.55L 'c( inde!nit$ for !oral da!a"es in the a!ount of P35,555.55L 'd( si% percent '>F( per annum le"al interest co!puted on ite!s 'a( and 'b( above, co!!encin" on 3> Dece!ber -.C. and until full$ paidL and 'e( ten percent '-5F( attorne$*s fees on the total a!ount due fro! private respondent Dade Mountain. &osts a"ainst private respondents. SO ORD8R8D. 1idin! 8avide! ,r.! Romero and 2elo! ,,.! concur.

Q Foo8no8/. - Rollo, pp. --, 3C, /-, /4 and :/. 3 Id.! pp. /-, :/ and >C. / Id.! pp. /> and ::. : Id.! pp. :51:-.

4 Id.! pp. />1/C. > Id.! pp. :41:>. B Id.! pp. .1-5. C CC S&R0 >3/ '-.B.(. . CC S&R0 >:31>:/. -5 0rt. 3C/. Closure o establishment and reduction o personnel. H The e!plo$er !a$ also ter!inate the e!plo$!ent of an$ e!plo$ee due to the installation of labor1savin" devices, redundanc+, retrench!ent to prevent losses or the closin" or cessation of operation of the establish!ent or underta=in" unless the closin" is for the purpose of circu!ventin" the provisions of this title, b$ servin" #ritten notice on the #or=ers and the Ministr$ of Iabor and 8!plo$!ent at least one '-( !onth before the intended date thereof. In case o termination due to the installation of labor1savin" devices orredundanc+, the #or=er affected thereb$ shall be entitled to a separation pa+ eKuivalent to at least his one G$H month pa+ or to at least one G$H month pa+ or ever+ +ear o service! &hichever is higher. In case of retrench!ent to prevent losses or in cases of closures or cessation of operations of establish!ent or underta=in" not due to serious business losses or financial reverses, the separation pa$ shall be e,uivalent to one '-( !onth pa$ or at least one1half 'Y( !onth pa$ for ever$ $ear of service, #hichever is hi"her. 0 fraction of at least si% '>( !onths shall be considered one '-( #hole $ear. 'This provision is identical #ith that e%istin" in -.CB, e%cept that the provision #as nu!ericall$ desi"nated in -.CB as 0rticle JMF (, Iabor &ode. -- "ee, in this connection, 7iltshire 9ile &o., Inc. v. National Iabor Relations &o!!ission, et al., -./ S&R0 >>4 '-..-(. 167 Ar=P. 517 C1971D

459 P.20 1197 /-/n Juan=8a MA AN, =n0=9=0ua--y an0 a. EA/?u8r=A oF 8B/ E.8a8/ oF T/rr/-- !. MaBan, %/?/a./0, A<</--an8, 9. T. Gor0on MA AN an0 %or=. I. MaBan, Bu.;an0 an0 G=F/, A<</--//.. No. -5::/. Su<r/:/ Cour8 oF Ar=Pona, In %=9=.=on. October 3., -.B-. Rehearin" Denied Nove!ber 3/, -.B-. 4-CV4-C Ioc=lear J 7olfin"er, b$ H.D. 7olfin"er, Prescott, for appellant. Me$ers J 2arbarino b$ 7illia! D. Me$ers, Stevenson, 7arden J S!ith b$ Robert 7. 7arden, 9la"staff, for appellees. &0M8RON, Dustice. Plaintiff brou"ht this action individuall$ and as e%ecutri% of the estate of her deceased husband. She sou"ht an accountin" and division of properties of a partnership in #hich her husband had been a partner. 9ro! a decision of the Superior &ourt of &oconino &ount$ "rantin" her #hat she considered inade,uate relief, she appeals. 7e are called upon to consider the follo#in" ,uestions6 -. Did the court err in deter!inin" that plaintiff*s husband*s partnership share should be !easured b$ his capital account) 3. Did the court err in acceptin" the boo= value as the proper valuation of the propert$) /. Did the court err in failin" to direct the li,uidation and sale of the re!ainin" partnership assets) Plaintiff is the #ido# of Terrell <. Mahan, #ho died -4 Dul$ -.>>, in Prescott, 0ri;ona. She is suin" 2ordon Mahan in her o#n ri"ht and

as e%ecutri% of Terrell Mahan*s estate, #hich is bein" probated in Oavapai &ount$, 0ri;ona. 7hen plaintiff !arried Terrell Mahan in -.:C, a construction and a"riculture partnership e%isted bet#een Terrell and his brothers, 2ordon and Mer#in. 'Mer#in #ithdre# fro! the partnership in -.>3 and is not involved in the la#suit.( The partnership #as an e,ual one in the sense that the profits #ere divided on an e,ual basis, first three #a$s, and then t#o. In -.>: the partnership traded one of the partnership properties for a ho!e into #hich Terrell and his #ife !oved. The propert$ #as ta=en in the na!e of Terrell and his #ife. The boo==eeper reduced the capital account of Terrell and his #ife b$ S3/,555. In short, Terrell and his #ife received a house #orth S3/,555, !ore or less, in e%chan"e for reducin" their capital account to S3/,555 less than 2ordon*s. 0t about this ti!e '-.>:1-.>4(, the partnership beca!e inactive, and it re!ained inactive throu"h Terrell*s death in -.>> and the brin"in" of the present la#suit in -.>.. 2ordon, the survivin" partner, did nothin" to#ard settlin" the affairs of the partnership and accountin" to the e%ecutri% until Terrell*s #ido# brou"ht this suit. The principal partnership asset at Terrell*s death and the ti!e of the la#suit #as the re!ainder of a bloc= of &oconino &ount$ land bou"ht in -.45 and =no#n as the Red Ia=e Ranch. In -.>5, the partnership sold a portion of the ranch for SC5,555, leavin" -,B43./: acres of patented land, plus -,C:/ acres of State leased land. In Dece!ber, -.>-, the partnership !ade an aborted sale of practicall$ the sa!e bloc= o#ned at Terrell*s death. The sale, for S3C:,355, fell throu"h in -.>/, and the Mahan brothers re"ained the land. In -.>/, an appraiser valued the land at S:/,C>C.::, and in -.>4 an accountant, for federal ta% purposes, lo#ered the value on the partnership boo=s to S-4,>33.>-. 4-.V4-. The balance sheet of the partnership as of /- Dece!ber -.>4 sho#ed S//,3B:.>- #orth of assets. The principal co!ponents of this a!ount #ere S-4,>33.>- for the Red Ia=e Ranch, t#o invest!ents #ith a total boo= value of S.,-45, but

!ar=et values of S.55 and S5 respectivel$, and an oil lease listed at S:,555 but actuall$ #orthless. P0RTN8RSHIP SH0R8 The defendant advanced, and the trial court accepted, the contention that since Terrell*s capital account #as reduced b$ S3/,555 to S:,554.:4 and #as one1ei"hth of the value of the total capital account 'S/-,/5C.5>(, Terrell*s #ido# should receive, in distribution, one1ei"hth of S//,3B:./- or S:,-4..3.. To illustrate, the a!ounts in controvers$ are as follo#s6 P0RTN8RSHIP 0SS8TS6 Red Ia=e Ranch S-4,>33.>-@VA Invest!ents .,-45.55@VVA Oil Iease :,555.55@VVVA Miscellaneous :,453.55@VVVVA ]]]]]]]]]] S//,3B:.>&0PIT0I 0&&O+NT6 Terrell 2ordon S :,554.:4 3B,/53.>]]]]]]]]]] S/-,/5C.5>

Plaintiff contends that after pa$!ent of the partnership debts, she should share #ith 2ordon on a 45145 basis. 7e a"ree #ith plaintiff as lon" as it is understood that the capital account, as used b$ the boo==eeper in this case, represents a debt of the partnership. +pon li,uidation, the rules of pa$!ent are "overned b$ W 3.13:5 0.R.S., #hich decrees that the liabilities of the partnership shall ran= in the follo#in" order of pa$!ent6 'a( Those o#in" to creditors other than partners. 'b( Those o#in" to partners other than for capital and profits. 'c( Those o#in" to partners in respect of capital.

'd( Those o#in" to partners in respect of profits. The capital of the partnership is the a!ount specified in the a"ree!ent of the partners, #hich is to be contributed b$ the partners for the purpose of initiatin" and operatin" the partnership business. <arrett J Sea"o, Partners and Partnerships, Ia# and Ta%ation, Vol. I, W /.-, p. ->.. Thus, ordinaril$ #e #ould loo= to the initial contributions for a deter!ination of the a!ounts o#in" to partners in respect of capital. 7hile the "eneral rule is that the a!ount of capital !a$ not be chan"ed absent consent of all the partners, the partners in this case have apparentl$ conceded to adKust!ents in their capital accounts. See <arrett, supra at -B5. Thus, #e accept, for purposes of this case, adKust!ents in plaintiff*s and defendant*s capital accounts to S:,554.:4 and S3B,/53.>respectivel$. The distribution of partnership assets in the course of #indin" up consists, first of all, in the pa$!ent of creditors other than partners. Then co!e the clai!s of partners other than those for repa$!ent of capital contributions or profits, such as clai!s for advance!ents !ade b$ partners. V V V 0fter this, partners are entitled to return o their respective 435V435 capital contributions. V V V 9inall$, an+ remaining balance o partnership propert+ is distributable as pro its.< Dudson 0. &rane, Handboo= on the Ia# of Partnership, 3nd ed., W .5, p. :BB. '8!phasis added( In accord, Ro#le$, Modern Ia# of Partnership, Vol. II, W >B/. These theories are supported b$ W 3.13-C 0.R.S., #hich provides as follo#s6 Rules deter!inin" ri"hts and duties of partners VVVVVV -. 8ach partner shall be repaid his contributions, #hether b$ #a$ of capital or advances to the partnership propert$ and share e,uall$ in the profits and surplus re!ainin" after all liabilities, includin" those to partners, are satisfied V V V. Therefore, #hether the !one$ left after satisfaction of creditor*s clai!s and recoup!ent of partnership capital is ter!ed profits or

surplus, the clear !andate of the authorities is that, absent a"ree!ent to the contrar$, it is divided e,uall$ as profits. 0s !entioned earlier, the defendant in this case has placed reliance on W 3.13:3 0.R.S., relatin" to continuation of the business #hen a partner dies. In the instant case, the business #as not continued b$ the survivin" partner. ?uite the contrar$. The partnership re!ained dor!ant and nothin" #as done until suit #as brou"ht b$ the plaintiff to co!pel an accountin". 7here the efforts of one partner in the production of profits in an active partnership cease, it is apparent that he no lon"er bears full entitle!ent to his respective share of the profits. In this case, ho#ever, #here the partnership has been and continues to be inactive, an$ appreciation of #orth is due to the nature of the partnership propert$ rather than the effort of the survivin" partner. Thus, #e hold that an$ profit or surplus resultin" shall be shared e,uall$. This conclusion is buttressed b$ the situation confrontin" plaintiff and her husband Terrell #hen the$ "ave up S3/,555 of their capital account for a S3/,555 ho!e. The$ =ne# that the partnership had fe# or no debts and o#ned a piece of propert$ that had sold for S3C:,355 a fe# $ears previous. If the value of the land had sta$ed reasonabl$ constant in the interi!, the partnership #ould have been #orth over S/55,555. It is hi"hl$ unli=el$ that the plaintiff and her husband intended, #hen the$ "ave up S3/,555 of their capital account for a S3/,555 house, that the$ #ere actuall$ "ivin" up not S3/,555 but #ell over S-55,555. DID TH8 &O+RT 8RR IN 0&&8PTIN2 TH8 <OON V0I+8 0S TH8 PROP8R V0I+0TION O9 TH8 PROP8RTO) The ans#er to the ,uestion of #hether the court erred in acceptin" the boo= value of the assets can be ans#ered b$ loo=in" at the fi"ures #e have reconstructed. 8ver$ sin"le co!ponent of the S//,3B:.>- boo= value has been stron"l$ contested. The Red Ia=e Ranch, for e%a!ple, #as sold in -.>- for over S3C5,555, but has an arbitrar$ boo= value of S-4,>33.>-. 0n invest!ent valued at S.,-45 is !ade up of t#o invest!ents, one #orthless and the other #orth onl$ S.55. In short, the boo= values are co!pletel$ arbitrar$ and should not have been used.

0 ver$ si!ilar situation confronted the &ourt of 0ppeals in Hurst v. Hurst, - 0ri;. 0pp. 33B, 3/3, :5- P.3d 3/3, 3/B '-.>4(. The court there stated, The boo= value@sA assi"ned to the tan"ible assets V V V are arbitrar$ valuations and cannot be applied. Defendant atte!pts to distin"uishHurst, supra, b$ ar"uin" that in Hurst no one stron"l$ pushed for usin" boo= value #hile defendant is pushin" for that solution here. Ho#ever, that distinction is not persuasive, for the &ourt of 0ppeals in Hurst #as faced #ith the proble! of the relative fairness of different !ethods of asset valuation of partnerships, and concluded that the boo= value #as arbitrar$. 43-V43- Our deter!ination that the trial court erred in acceptin" boo= value is in accord not onl$ #ith the 0ri;ona case of Hurst v. Hurst, supra, but #ith "eneral principles of partnership accountin". The nor!al rule is that boo= value is onl$ used in ascertainin" the respective shares #hen there is an e%plicit contractual provision to that effect, and even then is not used #here the facts of the case !a=e it ine,uitable to do so. See :B 0.I.R.3d -:34. Here there #as no contractual provision !andatin" the use of boo= value, and even if there #ere, the facts sho# boo= value in this case to be so disproportionate to possible real values that it #ould be ine,uitable for it to be used an$#a$. DID TH8 &O+RT 8RR IN 90IIIN2 TO DIR8&T TH8 II?+ID0TION 0ND S0I8 O9 TH8 R8M0ININ2 P0RTN8RSHIP 0SS8TS) Havin" decided that boo= value should not be used in valuin" the partnership assets, #e are forced to conclude that the trial court should have "ranted plaintiff*s #ish to have the assets li,uidated. Hurst v. Hurst, supraL &arrasco v. &arrasco, : 0ri;. 0pp. 4C5, :33 P.3d :-- '-.>B(L >C &.D.S. Partnership W /->1b, p. C3C. W -:14:- 0.R.S. also lends support to our position6 0. The survivin" partner of a decedent !a$ continue in possession of the partnership propert$ and settle its affairs, but the interest of decedent in the partnership shall be included in the inventor$ and appraised as other propert$. <. The survivin" partner shall settle the affairs of the partnership #ithout dela$, account to the e%ecutor or ad!inistrator and pa$ over

such balances as !a$ fro! ti!e to ti!e be pa$able to hi! as the personal representative of decedent. &. +pon application of the e%ecutor or ad!inistrator, the court !a$ order the survivin" partner to render an account and if he ne"lects or refuses !a$ co!pel such accountin" b$ attach!ent for conte!pt. The e%ecutor or ad!inistrator !a$ !aintain a"ainst the survivin" partner an$ action #hich decedent could have !aintained. &ON&I+SION 7e hold that the partnership assets !ust be li,uidated, and that the "eneral creditors be paid first. If the assets are insufficient for this purpose, the estate and 2ordon should be char"ed e,uall$ for the losses. If the assets are !ore than sufficient then the survivin" partner should be paid first up to the a!ount of S3/,3.B.-> to set off the #ithdra#al fro! the capital account b$ Terrell. 0n$ a!ount left over should be e,uall$ divided bet#een Terrell*s estate and the survivin" partner, 2ordon Mahan. Reversed and re!anded for further proceedin"s not inconsistent #ith this opinion. STR+&NM8O8R, &.D., and IO&N7OOD, D., concur. @VA Sold in -.>- for S3C:,355L appraised for S:/,C>C.:: in -.>/L the S-4,>33.>- #as a fi"ure allo#ed b$ the I.R.S. for ta% purposes after an aborted sale. @VVA Represents B,455 shares of +nita 9inance &o!pan$, #hich the plaintiff*s 'and partnership*s( accountant testified #as #orthless, and -C5 shares of 0ri;ona Iivestoc= Production &redit 0ssociation, #hich the accountant testified #as #orth S4.55 per share or S.55. @VVVA Valueless, accordin" to the accountant. @VVVVA SubKect to e%tre!e disa"ree!ent on several ite!s.