G.R. No.

L-25532 February 28, 1969

COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete and
Special Attorneys B. Gatdula, Jr. and T. Temprosa Jr. for petitioner.
A. S. Monzon, Gutierrez, Farrales and Ong for respondents.
REYES, J.B.L., J.:
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30 September 1947 by
herein respondent William J. Suter as the general partner, and Julia Spirig and Gustav Carlson, as the
limited partners. The partners contributed, respectively, P20,000.00, P18,000.00 and P2,000.00 to the
partnership. On 1 October 1947, the limited partnership was registered with the Securities and Exchange
Commission. The firm engaged, among other activities, in the importation, marketing, distribution and
operation of automatic phonographs, radios, television sets and amusement machines, their parts and
accessories. It had an office and held itself out as a limited partnership, handling and carrying
merchandise, using invoices, bills and letterheads bearing its trade-name, maintaining its own books of
accounts and bank accounts, and had a quota allocation with the Central Bank.
In 1948, however, general partner Suter and limited partner Spirig got married and, thereafter, on 18
December 1948, limited partner Carlson sold his share in the partnership to Suter and his wife. The sale
was duly recorded with the Securities and Exchange Commission on 20 December 1948.
The limited partnership had been filing its income tax returns as a corporation, without objection by the
herein petitioner, Commissioner of Internal Revenue, until in 1959 when the latter, in an assessment,
consolidated the income of the firm and the individual incomes of the partners-spouses Suter and Spirig
resulting in a determination of a deficiency income tax against respondent Suter in the amount of
P2,678.06 for 1954 and P4,567.00 for 1955.
Respondent Suter protested the assessment, and requested its cancellation and withdrawal, as not in
accordance with law, but his request was denied. Unable to secure a reconsideration, he appealed to the
Court of Tax Appeals, which court, after trial, rendered a decision, on 11 November 1965, reversing that
of the Commissioner of Internal Revenue.
The present case is a petition for review, filed by the Commissioner of Internal Revenue, of the tax court's
aforesaid decision. It raises these issues:
(a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co., Ltd. should be
disregarded for income tax purposes, considering that respondent William J. Suter and his wife, Julia
Spirig Suter actually formed a single taxable unit; and
(b) Whether or not the partnership was dissolved after the marriage of the partners, respondent William J.
Suter and Julia Spirig Suter and the subsequent sale to them by the remaining partner, Gustav Carlson, of
his participation of P2,000.00 in the partnership for a nominal amount of P1.00.
The theory of the petitioner, Commissioner of Internal Revenue, is that the marriage of Suter and Spirig
and their subsequent acquisition of the interests of remaining partner Carlson in the partnership dissolved
the limited partnership, and if they did not, the fiction of juridical personality of the partnership should be
disregarded for income tax purposes because the spouses have exclusive ownership and control of the
business; consequently the income tax return of respondent Suter for the years in question should have
included his and his wife's individual incomes and that of the limited partnership, in accordance with
Section 45 (d) of the National Internal Revenue Code, which provides as follows:
(d) Husband and wife. In the case of married persons, whether citizens, residents or non-
residents, only one consolidated return for the taxable year shall be filed by either spouse to cover
the income of both spouses; ....
In refutation of the foregoing, respondent Suter maintains, as the Court of Tax Appeals held, that his
marriage with limited partner Spirig and their acquisition of Carlson's interests in the partnership in 1948
is not a ground for dissolution of the partnership, either in the Code of Commerce or in the New Civil
Code, and that since its juridical personality had not been affected and since, as a limited partnership, as
contra distinguished from a duly registered general partnership, it is taxable on its income similarly with
corporations, Suter was not bound to include in his individual return the income of the limited partnership.
We find the Commissioner's appeal unmeritorious.
The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has been dissolved by
operation of law because of the marriage of the only general partner, William J. Suter to the originally
limited partner, Julia Spirig one year after the partnership was organized is rested by the appellant upon
the opinion of now Senator Tolentino in Commentaries and Jurisprudence on Commercial Laws of the
Philippines, Vol. 1, 4th Ed., page 58, that reads as follows:
 A husband and a wife may not enter into a contract of general copartnership, because under the
Civil Code, which applies in the absence of express provision in the Code of Commerce, persons
prohibited from making donations to each other are prohibited from entering
into universal partnerships. (2 Echaverri 196) It follows that the marriage of partners necessarily
brings about the dissolution of a pre-existing partnership. (1 Guy de Montella 58)
The petitioner-appellant has evidently failed to observe the fact that William J. Suter "Morcoin" Co., Ltd.
was not a universal partnership, but a particular one. As appears from Articles 1674 and 1675 of the
Spanish Civil Code, of 1889 (which was the law in force when the subject firm was organized in 1947),
a universal partnership requires either that the object of the association be all the present property of the
partners, as contributed by them to the common fund, or else "all that the partners may acquire by
their industry or work during the existence of the partnership". William J. Suter "Morcoin" Co., Ltd. was
not such a universal partnership, since the contributions of the partners were fixed sums of money,
P20,000.00 by William Suter and P18,000.00 by Julia Spirig and neither one of them was an industrial
partner. It follows that William J. Suter "Morcoin" Co., Ltd. was not a partnership that spouses were
forbidden to enter by Article 1677 of the Civil Code of 1889.
The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his Derecho Civil, 7th Edition,
1952, Volume 4, page 546, footnote 1, says with regard to the prohibition contained in the aforesaid
Article 1677:
Los conyuges, segun esto, no pueden celebrar entre si el contrato de sociedad universal, pero o
podran constituir sociedad particular? Aunque el punto ha sido muy debatido, nos inclinamos a la
tesis permisiva de los contratos de sociedad particular entre esposos, ya que ningun precepto de
nuestro Codigo los prohibe, y hay que estar a la norma general segun la que toda persona es capaz
para contratar mientras no sea declarado incapaz por la ley. La jurisprudencia de la Direccion de
los Registros fue favorable a esta misma tesis en su resolution de 3 de febrero de 1936, mas
parece cambiar de rumbo en la de 9 de marzo de 1943.
Nor could the subsequent marriage of the partners operate to dissolve it, such marriage not being one of
the causes provided for that purpose either by the Spanish Civil Code or the Code of Commerce.
The appellant's view, that by the marriage of both partners the company became a single proprietorship,
is equally erroneous. The capital contributions of partners William J. Suter and Julia Spirig were separately
owned and contributed by them before their marriage; and after they were joined in wedlock, such
contributions remained their respective separate property under the Spanish Civil Code (Article 1396):
The following shall be the exclusive property of each spouse:
(a) That which is brought to the marriage as his or her own; ....
Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did not become
common property of both after their marriage in 1948.
It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical personality of
its own, distinct and separate from that of its partners (unlike American and English law that does not
recognize such separate juridical personality), the bypassing of the existence of the limited partnership as
a taxpayer can only be done by ignoring or disregarding clear statutory mandates and basic principles of
our law. The limited partnership's separate individuality makes it impossible to equate its income with that
of the component members. True, section 24 of the Internal Revenue Code merges registered general co-
partnerships (compaias colectivas) with the personality of the individual partners for income tax
purposes. But this rule is exceptional in its disregard of a cardinal tenet of our partnership laws, and can
not be extended by mere implication to limited partnerships.
The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the Visayas, L-13554,
Resolution of 30 October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for
disregarding the fiction of legal personality of the corporations involved therein are not applicable to the
present case. In the cited cases, the corporations were already subject to tax when the fiction of their
corporate personality was pierced; in the present case, to do so would exempt the limited partnership
from income taxation but would throw the tax burden upon the partners-spouses in their individual
capacities. The corporations, in the cases cited, merely served as business conduits or alter egos of the
stockholders, a factor that justified a disregard of their corporate personalities for tax purposes. This is not
true in the present case. Here, the limited partnership is not a mere business conduit of the partner-
spouses; it was organized for legitimate business purposes; it conducted its own dealings with its
customers prior to appellee's marriage, and had been filing its own income tax returns as such
independent entity. The change in its membership, brought about by the marriage of the partners and
their subsequent acquisition of all interest therein, is no ground for withdrawing the partnership from the
coverage of Section 24 of the tax code, requiring it to pay income tax. As far as the records show, the
partners did not enter into matrimony and thereafter buy the interests of the remaining partner with the
premeditated scheme or design to use the partnership as a business conduit to dodge the tax laws.
Regularity, not otherwise, is presumed.
As the limited partnership under consideration is taxable on its income, to require that income to be
included in the individual tax return of respondent Suter is to overstretch the letter and intent of the law.
In fact, it would even conflict with what it specifically provides in its Section 24: for the appellant
Commissioner's stand results in equal treatment, tax wise, of a general copartnership (compaia
colectiva) and a limited partnership, when the code plainly differentiates the two. Thus, the code taxes the
latter on its income, but not the former, because it is in the case ofcompaias colectivas that the
members, and not the firm, are taxable in their individual capacities for any dividend or share of the profit
derived from the duly registered general partnership (Section 26, N.I.R.C.; Araas, Anno. & Juris. on the
N.I.R.C., As Amended, Vol. 1, pp. 88-89).lawphi1.nt
But it is argued that the income of the limited partnership is actually or constructively the income of the
spouses and forms part of the conjugal partnership of gains. This is not wholly correct. As pointed out in
Agapito vs. Molo 50 Phil. 779, and People's Bank vs. Register of Deeds of Manila, 60 Phil. 167, the fruits of
the wife's parapherna become conjugal only when no longer needed to defray the expenses for the
administration and preservation of the paraphernal capital of the wife. Then again, the appellant's
argument erroneously confines itself to the question of the legal personality of the limited partnership,
which is not essential to the income taxability of the partnership since the law taxes the income of even
joint accounts that have no personality of their own. 1 Appellant is, likewise, mistaken in that it assumes
that the conjugal partnership of gains is a taxable unit, which it is not. What is taxable is the "income of
both spouses" (Section 45 [d] in their individual capacities. Though the amount of income (income of the
conjugal partnership vis-a-vis the joint income of husband and wife) may be the same for a given taxable
year, their consequences would be different, as their contributions in the business partnership are not the
same.
The difference in tax rates between the income of the limited partnership being consolidated with, and
when split from the income of the spouses, is not a justification for requiring consolidation; the revenue
code, as it presently stands, does not authorize it, and even bars it by requiring the limited partnership to
pay tax on its own income.
FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No costs.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando, Capistrano and Teehankee, JJ.,
concur.
Barredo, J., took no part.
Footnotes
1
V. Evangelists vs. Collector of Internal Revenue, 102 Phil 140; Collector vs. Batangas
Transportation Co., 102 Phil. 822.

RICHARD P. BROWN & another [Note 1] vs. BARRY H. GERSTEIN & another. [Note 2]
17 Mass. App. Ct. 558
December 14, 1983 - March 5, 1984
Essex County
Present: BROWN, GREANEY, & WARNER, JJ.
Plaintiffs seeking damages from their former attorney for negligently failing to bring an action to enjoin a
foreclosure proceeding against them presented no evidence tending to show that the foreclosure would
not have occurred if the action had been brought, and, thus, that the attorney's negligence caused them
injury. [565]
Plaintiffs seeking to recover damages for the negligence of the attorney they had engaged to bring suit
against a bank to enjoin mortgage foreclosure proceedings on a parcel of commercial real estate owned by
them could not prevail on the theory that the attorney was negligent in failing to advise them on other
actions they might take to avoid foreclosure on the mortgage, in the absence of expert testimony that an
attorney whose employment was thus limited would undertake to give advice on this subject. [565-566]
Evidence in an action by clients against their former attorney, whom they had retained to bring an action
to enjoin mortgage foreclosure proceedings against them, would have warranted the jury in finding that
the attorney knowingly made false representations of material fact to the effect that the foreclosure sale
would not take place, that the plaintiffs expressly relied on these representations, and that, had they been
told the truth, they would have sought to avoid a forced sale by pursuing other alternatives. [566-567]
Evidence in an action by clients against their former attorney would have warranted the jury in finding
that the plaintiffs had sufficient funds to discharge a mortgage on real property owned by them but that,
as a result of the attorney's deceit, they were prevented from doing so. [567-568]
Page 559
In the circumstances of an action by former clients alleging deceit by their attorney, the practice of law
constituted "trade or commerce" for purposes of the attorney's liability under G. L. c. 93A, the Consumer
Protection Act. [569-570]
Lessors of commercial property, who retained an attorney to commence an action to enjoin the
foreclosure of a mortgage on the property, were acting in a business context, and thus engaging in "trade
or commerce" within the meaning of G. L. c. 93A, Section 11. [570-571]
In a civil action by a former client against an attorney, derivative liability of a second attorney on the basis
of partnership by estoppel was not established either by the fact that the client had, some years earlier,
paid for legal services in an apparently unrelated matter by means of a check payable to both attorneys,
or by the second attorney's knowledge that both attorneys' names appeared together on the office
stationery. [571-572]
CIVIL ACTION commenced in the Superior Court on September 19, 1977.
The case was tried before O'Leary, J., a District Court judge sitting under statutory authority.
John D. Dwyer for the plaintiffs.
Erik Lund for the defendants.
GREANEY, J. The plaintiffs' amended complaint sought to recover damages from the defendants, both
lawyers, on allegations (1) that Gerstein had committed malpractice in representing them in connection
with a suit to restrain a mortgage foreclosure; (2) that his conduct also violated G. L. c. 93A; and (3) that
Weiner, who practiced law with Gerstein, was derivatively liable for Gerstein's actions as his "partner by
estoppel." The common law claims were tried to a jury; the c. 93A claim to the judge. See Nei v.
Burley, 388 Mass. 307 , 311-315 (1983). At the conclusion of the plaintiffs' case the judge allowed a
motion filed by the defendants on the c. 93A claim captioned "Motion for Directed Verdict." [Note 3] The
jury returned a verdict in the
Page 560
amount of $15,000 for the plaintiffs, which the judge set aside on the defendants' motion for judgment
notwithstanding the verdict. Mass.R.Civ.P. 50(b), 365 Mass. 814 -815 (1974). The plaintiffs have appealed
from the judgment entered for the defendants. We reverse the judgment for Gerstein and order a new
trial as hereinafter set out. We affirm the judgment for Weiner.
In deciding whether the judge acted properly in entering judgment notwithstanding the verdict on the
common law claims, we apply the standard applicable to a motion for directed verdict. D'Annolfo v.
Stoneham Housing Authy., 375 Mass. 650 , 657 (1978). Moran Travel Bureau, Inc. v. Clair, 12 Mass. App.
Ct. 864 (1981). This test focuses on whether "anywhere in the evidence, from whatever source derived,
any combination of circumstances could be found from which a reasonable inference could be drawn in
favor of the plaintiff." Raunela v. Hertz Corp., 361 Mass. 341 , 343 (1972), quoting from Kelly v. Railway
Exp. Agency, Inc., 315 Mass. 301 , 302 (1943). Miles v. Edward O. Tabor, M.D., Inc., 387 Mass. 783 ,
785-786 (1982).
Viewing the evidence in this light, we conclude that the jury could have found the following. [Note 4] In
1975, the plaintiffs owned a parcel of commercial property in Wenham which they had purchased in 1967.
The parcel contained a building, a major part of which was leased to Richdale Dairy Stores, Inc., for the
operation of a convenience store, and the balance of which was rented to a second store under a tenancy
at will. In the summer of 1974, the mortgagee on the property, Danvers Savings Bank (bank), claimed a
default in the mortgage, an assertion which the plaintiffs contested. They consulted Gerstein, and, at
Gerstein's request wrote a letter detailing to him their dispute with the bank. [Note 5] In January, 1975,
the plaintiffs formally retained
Page 561
Gerstein "to bring suit against the . . . bank for breach of contract" based on the bank's alleged
mishandling of their loan. [Note 6] Gerstein advised the plaintiffs "not to have anything to do with the
[bank because] . . . he would handle everything."
By letter dated April 18, 1975, the bank notified the plaintiffs that its board of investment had voted to
commence foreclosure, that future payments on the loan would not be accepted, and that the plaintiffs
would be liable for any deficiency resulting after foreclosure. Gerstein assured the plaintiffs "not to worry
about [the notice] . . . [t]hat he would take care of everything [a]nd that he was drawing up papers to file
against the bank."
Shortly after June 13, 1975, the plaintiffs received from the bank's attorneys a copy of the order of notice
issued by the Superior Court on the bank's complaint to foreclose the mortgage. Gerstein also received a
copy of this notice and again assured the plaintiffs "not to worry . . . that it [the foreclosure] wouldn't
happen [because] he would take care of everything."
On July 30, 1975, the plaintiffs received written notice advising them that a foreclosure sale would be held
on or after September 3, 1975, and that they would be liable for any resulting deficiency. The Browns
promptly brought this notice to Gerstein's attention. Gerstein advised them that an amended complaint
was being prepared, [Note 7] and made no mention of any problems.
Page 562
On August 1, 1975, the plaintiffs signed and swore to an amended complaint. This complaint alleged that
the bank was solely responsible for the mortgage default, and that it had improperly refused to allow the
plaintiffs to cure the default. The complaint sought preliminary injunctive relief to enjoin the foreclosure as
well as an accounting and damages. Gerstein told the plaintiffs that he would file the complaint in the
Superior Court. Shortly thereafter he advised the plaintiffs that he had in fact filed the complaint and that
"there would be no foreclosure." The plaintiffs relied on these assurances. Gerstein never filed the
complaint. He did not tell the plaintiffs that it had not been filed or that neither a temporary restraining
order nor an injunction would be applied for.
On August 15, 1975, the plaintiffs received a copy of the bank's legal advertisement of the foreclosure
sale which had been published in a local newspaper. This notice set the foreclosure sale at 2:00 P.M. on
September 3, 1975. The notice was immediately brought to Gerstein's attention. Gerstein advised the
Browns that "everything was being held in abeyance" and "that there would be no foreclosure." On August
28, 1975, Richard Brown met Gerstein. He again told Brown that "there wasn't going to be any auction
sale and that he (Gerstein) might . . . have a customer for the property." These representations were
false. [Note 8] The
Page 563
property was sold to a third party at foreclosure auction on September 3, 1975, for $62,000 without the
plaintiffs' knowledge.
When the plaintiffs discovered that the property had been sold they confronted Gerstein, who then told
them that he had had a "deal" with the bank's attorney, see note 8, supra, and that this lawyer had
"double-crossed him." Gerstein recommended that the plaintiffs file an immediate suit against the bank
and its counsel and assured the Browns that he would appear as a witness on their behalf at the trial. To
this end, Gerstein directed the plaintiffs to another lawyer in his office. This lawyer prepared yet another
complaint against the bank. This complaint, seeking damages, accused the bank of bad faith and repeated
the substance of the amended complaint with one difference; it contained an assertion that at the time of
the foreclosure sale "the plaintiffs were . . . financially unable to purchase the property." [Note 9] The
plaintiffs reviewed the complaint and swore to its contents. The attorney, however, declined to represent
the plaintiffs after receiving information from the bank's counsel which made it doubtful that the plaintiffs
could prevail at trial. As a result, the complaint was never filed and the lawyer terminated his relationship
with the plaintiffs after telling them that he had returned their file to Gerstein.
There was testimony that Gerstein never advised the plaintiffs of options to prevent foreclosure. [Note
10] The judge excluded testimony, preserved by a proper offer of proof, that had the Browns known that
Gerstein had not filed the complaint
Page 564
and that the foreclosure sale would take place, they would have sought to avoid the sale by: (1) engaging
another attorney to file suit and seek an injunction on a different theory of law, [Note 11] (2) curing the
default by paying the arrearage, [Note 12] (3) attempting to sell the property or to refinance the debt
with another lender, (4) attending the foreclosure sale with the required deposit either to purchase the
property or to bid it up to full market value, or (5) discharging the mortgage by paying the entire
indebtedness. There was further testimony that the plaintiffs had funds, independent of borrowing, which
could have been used for these purposes. These funds were contained in two trusts for the benefit of Ann
Brown. The first was a personal trust containing about $30,000, the terms of which permitted payments of
principal to Ann Brown in the sole discretion of the trustees. The second was a testamentary trust,
containing about $70,000. Ann Brown could obtain principal from the latter trust "as she deem[ed]
advisable." The annual income from the testamentary trust averaged $4,000. In addition to the assets of
the trusts, there was testimony that the plaintiffs had substantial equity in their home.
A few other facts are relevant to the discussion of the common law claims. The measure of damages was
stipulated to be the difference between the $62,000 paid by the
Page 565
buyer at the foreclosure sale and the fair market value of the premises. There was evidence which would
have warranted a finding that, on September 3, 1975, the premises had a fair market value of at least
$100,000. The judge considered the common law malpractice claims as solely limited to Gerstein's
negligence in failing to file the amended complaint. On this hypothesis, the judge instructed the jury that
the plaintiffs could recover only if they found that an injunction could have been obtained on the facts
alleged in the amended complaint, declining to put to the jury the question whether Gerstein was liable for
deceit.
1. We first consider the common law claims of malpractice. It is conceded that an attorney-client
relationship existed between Gerstein and the Browns and that Gerstein was negligent in failing to file the
amended complaint. We are satsified that the judge properly rejected the plaintiffs' claim that the
foreclosure would have been enjoined for the reasons stated in his memorandum on the motion for
judgment n.o.v. In that memorandum, the judge pointed out that the plaintiffs had to establish that they
"would have succeeded in the underlying litigation but for the attorney's negligence in not bringing suit."
See McLellan v. Fuller, 226 Mass. 374 , 378 (1917); Glidden v. Terranova, 12 Mass. App. Ct. 597 , 600
(1981). He correctly concluded that the plaintiffs had not presented any evidence from which the jury
could find that the various assertions of wrongdoing on the part of the bank were true and that the
plaintiffs would have succeeded in enjoining the foreclosure sale. As a consequence, there was no
evidence which would warrant a finding that Gerstein's failure to file the amended complaint proximately
caused the plaintiffs any damage.
The plaintiffs argue, however, that Gerstein was negligent because he failed to advise them of alternatives
to avoid foreclosure (and in the case of the remedy allegedly provided by G. L. c. 244, Section 22,
because he failed to find and plead that statute), and that Gerstein was liable for deceit. Because of this
conduct, the Browns claim they were unable to take action which would have saved their property. The
Page 566
defendants argue, on the other hand, that the judge properly kept these theories from the jury because
(1) Gerstein was hired only to prepare, file and try the amended complaint and not to give general advice
on other avenues that might prevent foreclosure, (2) in any event, expert testimony was necessary to
establish that a lawyer in Gerstein's position would have given advice about such alternatives, (3) deceit
was never pleaded and tried, and (4) there was insufficient proof that if any of the alternatives had been
pursued, the foreclosure could have been avoided.
We think the plaintiffs cannot prevail on their theory that Gerstein was negligent in failing to advise them
of the options to avoid foreclosure, see note 10, supra. The only evidence concerning the scope of
Gerstein's employment confined his representation to "bring[ing] suit against the . . . bank for breach of
contract." Whether a lawyer whose employment was so limited would undertake to give his client general
advice about ways to avoid foreclosure was a subject requiring expert testimony in accordance with the
rule that "expert testimony is generally necessary to establish the standard of care owed by an attorney in
the particular circumstances and the defendant's alleged departure from it." Glidden v. Terranova, 12
Mass. App. Ct. at 598. We also think the plaintiffs could not recover on the theory that Gerstein failed to
discover or plead G. L. c. 244, Section 22. That statute is beyond the understanding of lay people and
expert testimony was necessary to establish that a lawyer in Gerstein's position should have discovered
the statute and, if he had, that it could have been used to obtain an injunction. [Note 13] What has been
said so far eliminates the various negligence theories from the case.
This does not end the matter, however, because we must consider whether the evidence was sufficient to
hold Gerstein
Page 567
liable for deceit. [Note 14] "Fraud or deceit . . . is no more a necessary incident to the rendition of legal
services than dishonesty is to any other profession. The avoidance of fraudulent conduct requires no
special skill or knowledge, but only basic precepts of honesty and integrity. When committed by an
attorney, the tort of fraud or deceit is determined by essentially the same rules that apply to any
defendant, regardless of whether he is a professional." Mallen & Levit, Legal Malpractice Section 107 (2d
ed. 1981). See S.J.C. Rule 3:07, DR 1-102(A)(4), as appearing in 382 Mass. 769 , 770 (1981) ("A lawyer
shall not . . . [e]ngage in conduct involving dishonesty, fraud, deceit, or misrepresentation"). Here the
jury could have permissibly found that Gerstein had knowingly made false representations of material fact
to the effect that the foreclosure sale would not take place, that the Browns had expressly relied on these
representations, and that had the Browns been told the truth, they would have sought to avoid a forced
sale by pursuing other alternatives.
2. We then come to the question whether any damage resulted from the deceit. See Szpiro v. Corkin, 340
Mass. 260 , 262 (1960); Mallen & Levit, Legal Malpractice Section 107, at 185 (2d ed. 1981). We have
already concluded that the plaintiffs cannot prevail on the theory that they were denied recourse to G. L.
c. 244, Section 22. We also conclude that causation was not established with respect to payment of the
arrearages, [Note 15]
Page 568
sale, or remortgage of the property, [Note 16] and the possible purchase of the property by bidding at the
foreclosure sale. [Note 17] The plaintiffs' proof, however, was sufficient to warrant a jury in concluding
that they could have paid off the entire mortgage had they known that the sale was going to occur. On
this issue, the jury could have found that the plaintiffs had funds available to Ann Brown in a testamentary
trust which she could have withdrawn without restriction. The jury could have also found that the amount
of available money in that trust was sufficient to discharge the mortgage loan. [Note 18] We conclude that
the plaintiffs should have been allowed to go to the jury on the theory that Gerstein's deceit had caused
damage (the measure of which was stipulated) by preventing them from paying off the entire mortgage
indebtedness. [Note 19]
Page 569
3. We next take up the plaintiffs' assertion that the judge erred in the disposition of their claim under G. L.
c. 93A. The plaintiffs concede that they could not recover under Section 9 of c. 93A because no demand
letter was sent to the defendants. See Slaney v. Westwood Auto, Inc., 366 Mass. 688 , 704 (1975);
Entrialgo v. Twin City Dodge Inc., 368 Mass. 812 , 813 (1975). They argue, however, that the evidence of
deceit was sufficient to warrant findings that Gerstein had violated Section 2(a) of c. 93A, inserted by St.
1967, c. 813, Section 1, and that they could recover for the violation under Section 11 of c. 93A, inserted
by St. 1972, c. 614, Section 2. The judge appears, however, to have ruled, as matter of law, that such
Page 570
an action could not be maintained because the attorney-client relationship does not involve "trade or
commerce" within the meaning of those words in Sections 2(a) and 11. The defendants urge that this
ruling be upheld, relying principally on the line of cases decided under both Section 9 and Section 11 of c.
93A which exclude essentially private transactions from the statute's application. See Lantner v.
Carson, 374 Mass. 606 , 611 (1978); Manning v. Zuckerman, 388 Mass. 8 (1983); Weeks v. Harbor Natl.
Bank, 388 Mass. 141 (1983); Newton v. Moffie, 13 Mass. App. Ct. 462 (1982).
In deciding whether Gerstein's alleged wrongdoings occurred within the conduct of trade or commerce as
required by Section 2(a) of c. 93A, we find the decision of Guenard v. Burke, 387 Mass. 802 , 808-811
(1982), controlling. [Note 20] Guenard held that a claim against an attorney by his client for damages in
connection with the attorney's execution of an unlawful contingent fee agreement could be maintained
under G. L. c. 93A, Sections 2(a) and 9. The decision further held (at 809) that the attorney's reliance on
the illegal agreement for his fee constituted, as matter of law, an unfair or deceptive act prohibited by c.
93A, Section 2(a), and that the violation entitled the plaintiff to press her claims for multiple damages,
attorney's fees, and costs.
While the issue raised here is not expressly discussed in Guenard, that decision in straightforward fashion
applies c. 93A to the attorney-client relationship. We consider Guenard to be authority for the proposition
that in circumstances like those here present the practice of law constitutes "trade or commerce" for
purposes of liability under c. 93A. We, therefore, proceed no further to ponder the relevance of the private
action decisions to c. 93A claims arising out of the attorney-client relationship.
The question whether the plaintiffs were engaged in trade or commerce (a prerequisite to recovery under
Section 11), [Note 21]
Page 571
was one for the judge as the trier of fact. The evidence warranted a finding that the plaintiffs as lessors of
commercial property (and perhaps as commercial clients of Gerstein) were acting in a business context
and thus engaging in "trade or commerce." See Linthicum v. Archambault, 379 Mass. 381 , 387 (1979).
See also Begelfer v. Najarian, 381 Mass. 177 , 190-191 (1980); Lynn v. Nashawaty, 12 Mass. App. Ct.
310 , 313-314 (1981) (identifying and defining a "business context" test to determine whether a particular
transaction constitutes trade or commerce under Section 11). The evidence also warranted a finding that
Gerstein's deceit constituted unfair or deceptive conduct proscribed by the act. [Note 22] We conclude
that the c. 93A claim should have been considered on its merits.
4. We reach the plaintiffs' argument that, under the doctrine of partnership by estoppel, Weiner is liable to
the same extent as Gerstein. [Note 23]
The common law doctrine of partnership by estoppel is codified for the Commonwealth in G. L. c. 108A,
Section 16. See Standard Oil Co. v. Henderson, 265 Mass. 322 , 326 (1928). The Henderson case
establishes that to prevail under this doctrine a plaintiff must prove: (1) that the would-be partner has
held himself out as a partner; (2) that such holding out was done by the defendant directly or with his
consent; (3) that the plaintiff had knowledge of such holding out; and (4) that the plaintiff relied on the
ostensible partnership to his prejudice. Ibid. See also Reuschlein & Gregory, Agency and Partnership
Section 198 (1979); Crane & Bromberg, Partnership Section 36 (1968); Rowley on Partnership 423-436
(2d ed. 1960); Painter, Partnership by Estoppel 16 Vand. L. Rev. 327 (1963). Failure to establish any of
these requirements precludes recovery on an estoppel theory.
Page 572
In setting aside the verdict against Weiner, the judge concluded that the evidence was insufficient to
satisfy the second requirement, viz., that any holding out was done directly by Weiner or with his consent.
On this issue, there was evidence that on October 16, 1972, the Browns had made a check payable to
"Gerstein and Weiner" (apparently for legal services unrelated to the instant case) which was deposited in
"Gerstein and Weiner clients' account"; that in 1975, in connection with the pending foreclosure, the
plaintiffs made out a retainer check in the amount of $150 payable to Gerstein alone; that the plaintiffs
thereafter received letters from Gerstein on stationery bearing the legend "Gerstein and Weiner;" and that
Gerstein testified in his deposition that Weiner knew that he (Gerstein) was using Gerstein and Weiner
stationery. There was no evidence that the plaintiffs ever met Weiner or that Weiner rendered any legal
services on their behalf.
The judge's conclusion was correct. The evidence concerning the 1972 check and the account in which it
was deposited is irrelevant to establish consent in connection with the 1975 transactions before us. It is of
significance that the 1975 retainer check was made payable to Gerstein alone. Hence the plaintiffs' proof
on consent came down to Weiner's knowledge that his name was being used on the office stationery. The
Henderson decision (at 326) establishes, however, that the use of a person's name in a business, even
with that person's knowledge, is too slender a thread to warrant a favorable finding on the consent
element. See also Joseph v. Greater New Guide Baptist Church, Inc., 194 So.2d 127, 130 (La. App. 1966).
See generally Mallen & Levit, Legal Malpractice Section 33 (2d ed. 1981). Weiner was entitled to judgment
in his favor.
5. Two issues that may arise upon retrial may be disposed of summarily.
(a) Although the attorney-client relationship is essentially contractual in nature, the claims to be retried
(deceit and c. 93A) basically sound in tort. Consequently, if the plaintiffs prevail after retrial, interest on
any sum recovered should be computed in accordance with G. L. c. 231, Section 6B.
Page 573
(b) Retrial of the case will follow the usual judicial assignment procedures in the Superior Court.
6. To sum up: There is to be a new trial limited to (a) whether Gerstein's conduct constituted deceit which
prevented the plaintiffs from paying the bank's mortgage in full and (b) whether Gerstein's deceit violated
G. L. c. 93A, Sections 2(a) and 11. On the balance of the claims against Gerstein, the plaintiffs have failed
in their proof, as they also have on their claim of derivative liability on Weiner's part.
The judgment insofar as it disposes of the claims against the defendant Gerstein except those identified
above is affirmed. The balance of the judgment for Gerstein is reversed and a new trial ordered consistent
with this opinion. The judgment insofar as it relates to the defendant Weiner is affirmed.
So ordered.
FOOTNOTES
[Note 1] His wife, Ann E. Brown.
[Note 2] Robert E. Weiner.
[Note 3] The motion, despite its label, was a motion filed under Mass.R.Civ.P. 41(b)(2), 365 Mass. 804
(1974). The judge's allowance of the motion appears to have been based on a ruling that the attorney-
client relationship between the plaintiffs and Gerstein was not, as matter of law, within the scope of G. L.
c. 93A. This aspect of the case is discussed in part 3 of this opinion.
[Note 4] We recount here the facts that the jury could have found against Gerstein, leaving until later the
evidence pertinent to the claims against Weiner.
[Note 5] These difficulties stemmed principally from a disagreement with Richdale over the parties'
respective obligations under the lease. Richdale had paid a one-third share of the fuel bills owed by the
Browns and deducted that amount from rent due under the lease. Richdale also made extensive repairs to
the leased property and deducted the cost of the repairs from the rent, claiming that the plaintiffs had
wrongfully refused, after notice, to make the repairs. The rent had been assigned to the bank as collateral
security for the mortgage. The plaintiffs claimed that Richdale's diversion of the rent caused the default in
the mortgage payments.
[Note 6] At this time, the plaintiffs paid Gerstein a retainer by check and agreed with him that they would
be billed periodically at a stipulated hourly rate for his services.
[Note 7] On July 14, 1975, the plaintiffs had received a copy of an original complaint prepared by
Gerstein. After reviewing this complaint, the plaintiffs suggested some minor corrections and returned it to
Gerstein for redrafting.
[Note 8] On September 2, 1975, Gerstein telephoned the bank's attorney, who had previously stated to
Gerstein that the bank did not prefer to foreclose and that it would not have to do so if the plaintiffs were
able to sell the property and pay off the mortgage. Gerstein represented to the bank's counsel that a
purchase and sale agreement had been executed to sell the property for $85,000, that he was holding a
$5,000 deposit, and that a separate side agreement had been executed by the plaintiffs and the purchaser
for the sale of the fixtures. The bank's attorney told Gerstein to deliver a copy of the purchase and sale
agreement to him and indicated that he would consider postponing the next day's foreclosure sale if
everything appeared in order. On the morning of September 3, 1975, Gerstein delivered an unsigned
purchase and sale agreement to this lawyer's office and a hand-written note stating, "I am holding the
$5,000 deposit." On investigation, counsel for the bank learned that no purchase and sale agreement had
been signed and that Gerstein's representations were false. The foreclosure sale went forward as
scheduled.
[Note 9] The amended complaint prepared by Gerstein did not contain an express allegation that the
plaintiffs had the money to pay the mortgage but did aver that "[w]hen the [p]laintiffs finally ascertained
the status of their account and the amount of the deficiency, it became too late for them to pay the
amount due."
[Note 10] More specifically, Brown testified that Gerstein did not advise the plaintiffs that they could: (a)
refinance the debt with another bank, (b) discharge the mortgage by payment of the balance due on the
note, (c) reinstate the mortgage by payment of the arrearages, or (d) apply for an injunction on a theory
of law other than one of those stated in the amended complaint.
[Note 11] The alternate theory of law relied upon by the plaintiffs concerns the application of G. L. c. 244,
Section 22. They maintain that this statute permitted them to obtain an injunction stopping the
foreclosure as matter of right. They contend that Gerstein was negligent in not bringing this statute to
their attention or using it to enjoin the sale. They also claim that if they had discharged Gerstein and
retained another lawyer, their new counsel would have invoked the statute to obtain an injunction. The
judge refused to take judicial notice of the statute or to advise the jury of its provisions.
[Note 12] There was evidence that the arrearages as of April 18, 1975, totaled $1,636.85, and on the
date of the sale (September 3, 1975), totaled $5,127.35. The principal due on the mortgage on
September 3, 1975, was approximately $58,000. Over the plaintiffs' objection, the judge excluded
deposition testimony of the deceased chief mortgage officer of the bank that the bank would have
accepted payment of the arrearages and reinstated the mortgage.
[Note 13] Objections to questions by the plaintiffs' counsel which were aimed at eliciting such opinions
from the lawyer for the bank were properly sustained (if for no other reason) for lack of qualification of
this lawyer as an expert and because the questioning on the subject exceeded the limit of permissible
redirect examination.
[Note 14] There is no merit to the defendant's contention that the plaintiffs never pleaded or tried a deceit
claim. Paragraph 12 of the amended complaint bespeaks this claim, and the record leaves no doubt that
the plaintiffs' evidence raised the theory. Moreover, the plaintiffs requested jury instructions on deceit. It
was the judge's obligation to instruct the jury correctly on the general principles of law applicable to the
pleadings and evidence in the case. The parties' skirmishing over whether "fraud" was involved is beside
the point. In the context of this case, the concepts of fraud and deceit are interchangeable. See Nei v.
Burley, 388 Mass. 307 , 310 (1983).
[Note 15] There was no evidence that the bank's board of investment would have allowed the Browns to
cure the default and continue payments in the future. The testimony of the bank's chief mortgage officer,
see note 12, supra, that the bank would have accepted payment of the arrearages was properly excluded
since there was no evidence that he was authorized, either expressly or impliedly, to take action contrary
to the decisions of the board of investment. See Kanavos v. Hancock Bk. & Trust Co., 14 Mass. App. Ct.
326 , 331 (1982); Rubel v. Hayden, Harding & Buchanan, Inc., 15 Mass. App. Ct. 252 , 254-255 (1983).
[Note 16] There was no evidence that that it was probable that a sale or remortgage could have been
successfully consummated in the short period facing the plaintiffs. The fact that the plaintiffs had
negotiated a remortgage with the bank after they had defaulted on a previous mortgage with another
bank would not support an inference that sale or remortgage was a likely prospect. This is particularly so
in view of the plaintiffs' debts and other encumbrances on the property. The plaintiffs' evidence on the
issue thus assumed the success of their goals and did not warrant the several inferences they now urge
"based on probabilities rather than possibilites." Alholm v. Wareham, 371 Mass. 621 , 627 (1976). See
Poirier v. Plymouth, 374 Mass. 206 , 212 (1978).
[Note 17] In addition to the payment of a $3,500 deposit, the foreclosure sale was made subject to other
terms to be announced at the sale. The record contains no evidence as to what these terms were and no
evidence that the plaintiffs could have complied with them. Their proof on this issue is therefore subject to
the same infirmity discussed in note 16, supra.
[Note 18] The evidence was not sufficient to warrant a finding that the plaintiffs could have withdrawn
funds from the smaller personal trust to pay the indebtedness in full since there was no evidence that the
trustees of that trust would have exercised their discretion to permit the withdrawal of principal which was
not enough in any event to satisfy the whole indebtedness. There also was no evidence that the plaintiffs
could have successfully remortgaged their home within the applicable time constraints.
[Note 19] The defendants argue that the Browns cannot recover for deceit because of the doctrine of
"judicial estoppel". This argument is based on the assertion that the plaintiffs swore to a complaint,
prepared by Gerstein's associate after the foreclosure sale, which states that the plaintiffs were, at the
time of the sale, "financially unable to purchase the . . . property"; an assertion at odds with their trial
testimony. We are not persuaded by the argument.
While the doctrine of judicial estoppel has been recognized in various contexts by the Federal courts, see
Keystone Driller Co. v. General Excavator Co., 290 U.S. 240 (1933); Hazel-Atlas Co. v. Hartford Empire
Co., 322 U.S. 238 (1944); Yeo v. Cohen, 6 F.2d 411 (D. Mass. 1925); Hurd v. DiMento & Sullivan, 440
F.2d 1322 (1st Cir.), cert. denied, 404 U.S. 862 (1971); Duplan Corp. v. Deering Milliken Inc., 397 F.
Supp. 1146 (D.S.C. 1974); see generally 1B Moore's Federal Practice par. 0.405[8] (2d ed. 1983), it has
not yet been expressly recognized or defined by the courts of this Commonwealth. Compare G. L. c. 231,
Section 87 (which renders allegations of fact made in pleadings actually filed in court judicial admissions of
the party making them). Even if we were to recognize the doctrine, its application would be inappropriate
here. The complaint which is intended to serve as the foundation for an estoppel was never filed in court
or otherwise made a part of any court proceedings. We conclude that the statement asserted to create an
estoppel constitutes no more than an evidentiary admission by the plaintiffs, the weight of which may be
affected by testimony explaining the circumstances under which it was made or contradicting the fact
sought to be established. See Stockbridge v. Mixer, 227 Mass. 501 , 512 (1917); Jordan v.
MacMelville, 342 Mass. 478 , 480 (1961). We note testimony by Richard Brown that he did not instruct
anyone to insert the paragraph in the complaint, that he had nothing to do with the statement, and that it
was inserted at Gerstein's behest.
The defendants also make a vague argument that the plaintiffs are precluded because they never advised
Gerstein that they had the financial ability to pay off the mortgage. Assuming the point would have
relevance, there was no testimony to support the alleged fact.
[Note 20] The Guenard case was decided after the trial of this case.
[Note 21] Section 11 of c. 93A, unlike Section 9, requires that the plaintiff also be a "person who engages
in . . . trade or commerce." Section 11 does not require a demand letter as a prerequisite to suit.
[Note 22] We reject the defendants' contention that the Guenard case should be distinguished on the
basis that it involves a violation of ethical rules, hence a more serious infraction than the deceit
complained of here. As previously noted, deceit also violates a lawyer's ethical duty.
[Note 23] There was no evidence that Gerstein and Weiner were members of an actual partnership.
Hunter v. Croysdill
Annotate this Case
[Civ. No. 23324. Second Dist., Div. Two. Apr. 1, 1959.]
HOMER HUNTER et al., Plaintiffs and Appellants, v. KEITH B. CROYSDILL et al., Defendants; MARK C.
CRAWFORD, Defendant and Appellant.
COUNSEL
Stone & Moran, Hugh A. Moran III, Robert W. Anderson and Willard J. Stone for Plaintiffs and Appellants.
Leslie C. Tupper, Leo J. Pircher and Lawler, Felix & Hall for Defendant and Appellant.
OPINION
FOX, P. J.
Defendant Mark C. Crawford fn. 1 appeals from a judgment entered in plaintiffs' favor in their action to
recover money due for credit extended to an ostensible partnership. The plaintiffs appeal on the issue of
the extent of the defendant's liability.
Crawford's Appeal
The plaintiffs are partners in the firm of Quinco Tool Products and manufacture, in Detroit, Michigan, a line
of cutting tools which are sold to distributors or dealers. For some six years defendant had been the sole
owner of M. C. Crawford[169 Cal. App. 2d 310] Company, a tool component supply business in Los
Angeles, California. One Keith B. Croysdill was employed by the Coast Tool Company, which distributed
the plaintiffs' line in the Los Angeles area. Croysdill wished to become the west coast distributor for
plaintiffs' products and told Homer Hunter, one of the partners of Quinco, that defendant would be his
partner and financial backer. Croysdill also told Hunter that defendant would send him a letter of
verification. On June 1, 1955, Crawford sent a letter to Quinco Tool Products, the pertinent portions of
which are as follows:
"I have been asked to write and outline to you just how the association of Keith Croysdill and M. C.
Crawford would work to your advantage in California, Arizona, and Nevada.
"* * *
"Both Mr. Croysdill and myself have many years background in tooling, and not only in selling but in the
use of the tools themselves. Mr. Croysdill is not only thoroughly familiar with the jobbing trade but the
present users of Quinco products and in almost all cases can take them with him. I might add that Mr.
Croysdill has a fine reputation for his ability and integrity. The M. C. Crawford Co. has been in business for
a number of years selling tooling specialties and on every line handled has the exclusive selling rights in
California and the states mentioned in the first paragraph. The jobbing distributorship will be set up with a
separate identity but with the backing of the financial and other resources of M. C. Crawford Co. Mr.
Croysdill will be in charge of promotion and sales.. Business and financial guidance will be in my hands.
The necessary mechanics of the invoicing, accounting, shipping and receiving, are already functioning, and
all matters will be handled in a businesslike manner.
"I am sure we can do an excellent job for you out here as we have the necessary experience and
knowhow to do the job properly. In fact we can promise an almost immediate increase in your present
volume.
"We are ready to start functioning as soon as you can furnish the necessary stock, so any change of
distributors can be done without any lost time or sales.
"We can and will furnish you with a complete detailed report on all our financial and business connections
so that you can satisfy yourselves as to our business and financial integrity. [169 Cal. App. 2d 311]
"I would appreciate knowing your thinking on the matter discussed also any questions you might want
answered. It is sincerely hoped that the above will be considered by you and lead to our mutual profit."
Subsequently, on June 20, 1955, defendant and Croysdill flew to Detroit for five days and met with the
plaintiffs there for a portion of each of the five days. Hunter testified that "Mr. Crawford said that he would
finance this representation of the West Coast and be the financial backer with the financial and other
resources of the M. C. Crawford Company, both when he was with Charles Warren [a Quinco partner],
Keith Croysdill and myself and himself and to me personally when Mr. Warren was speaking with Mr.
Crawford." Hunter further testified that "Mr. Crawford stated that he would be the financial backer and Mr.
Croysdill would be the sales manager and take care of ordering" and "we were informed to ship the tools
to Associated Tool Supply at the Slauson address of the M. C. Crawford Company." When asked by whom
this instruction was given, Hunter answered "Mr. Crawford and Mr. Croysdill." The court asked Hunter
whether either Crawford or Croysdill made any statement as to what Associated Tool Company was, and
Hunter answered as follows: "Yes, sir. That was to be the company name that both of them had picked
out previously to coming to Detroit, to be their company name to represent the Quinco Tool Products."
Hunter, when asked by both the court and defendant's counsel as to who made the above statement,
replied that it was "both Mr. Crawford and Mr. Croysdill." With reference to a "stocking" order given by
Croysdill, Hunter testified that "Mr. Crawford stated that Mr. Croysdill would be in charge of ordering and
he gave Mr.___ he told ___ or Mr. Crawford told Mr. Croysdill to sit down with Quinco and decide on the
original stocking order. ..."
Subsequently, on June 30, 1955, Croysdill wrote two letters to plaintiffs. The first was on his own
stationery and stated that Associated Tool Supply would be on Slauson Avenue, temporarily; that
principals would be defendant and himself; that financing and accounting was to be by defendant and
sales and inventory by himself. The second letter was on defendant's stationery and asked for verification
of "... an appointment as agents for Quinco Tool in California and Arizona." These two letters were
introduced into evidence, over the objections by the defendant, as plaintiffs' Exhibits 5 and 6. [169 Cal.
App. 2d 312]
Hunter testified as follows as to his investigation during June, 1955, into defendant's financial status:
"A. Mr. Crawford stated, while in Detroit, to me, that he would use the assets or the financial and other
resources of M. C. Crawford Company to make payment on these tools.
"Q. Did your conversation go to the question of what the resources of the M. C. Crawford Company were?
A. Only through people that knew him that I asked, not on paper work.
"Q. Who were some of the people you asked? A. I can't recall the name in Detroit at the minute. He was
selling [to] Mr. Crawford.
"Q. What did you learn from that investigation? A. That he paid his invoice to this account.
"Q. Besides inquiries as to that account, did you make any other inquiries as to his financial condition? A.
With people I knew in Los Angeles, through former years association selling tools.
"Q. What did you learn through investigation from these Los Angeles sources? A. I was just only informed
that he could pay all his obligations. I did not have a dollar set amount high to go on."
On July 8, 1955, Croysdill filed a certificate of fictitious firm name with the county clerk of Los Angeles
showing him to be the sole proprietor of Associated Tool Supply. This certificate was published on July 15,
22, 29, and on August 5, 1955.
The trial court found that defendant, beginning on or about June 1, 1955, until January 18, 1956,
represented himself to plaintiffs as a partner with Croysdill in Associated Tool Supply; that said
representation was made for the purpose and with the intent that plaintiffs would rely thereon and to
induce plaintiffs, in reliance thereon, to give credit to such apparent partnership; that plaintiffs did in fact
rely on these representations and on the faith thereof extended credit, commencing on July 9, 1955, until
January 18, 1956, to such apparent partnership. The trial court also found that, as of January 18, 1956,
the date plaintiffs became chargeable with notice that defendant was not in fact a partner in Associated
Tool Supply, defendant and Croysdill were indebted to the plaintiffs in the net amount of $14,701.20 for
cutting tools sold and delivered by plaintiffs between June 1, 1955, and January 18, 1956, to the apparent
partnership existing between defendant and Croysdill. [169 Cal. App. 2d 313]
Defendant attacks the judgment on the following grounds: (1) The finding that defendant represented
himself to be a partner with Croysdill is not supported by any evidence; (2) the evidence does not show
any reliance by plaintiffs on any representation by defendant that he was a partner with Croysdill; (3)
error to admit plaintiffs' Exhibits 5 and 6 and testimony as to a telephone conversation between Hunter
and Croysdill; and (4) the filing by Croysdill of the certificate of doing business under the fictitious name
prior to the time plaintiffs' books show actual credit given put plaintiffs on notice that they could not
thereafter place reliance on asserted representations made by defendant.
Section 15016, subdivision (1) of the Corporation Code, provides in part as follows: "When a person, by
words spoken or written or by conduct, represents himself ... as a partner in an existing partnership or
with one or more persons not actual partners, he is liable to any such person to whom such representation
has been made, who has, on the faith of such representation, given credit to the ... apparent partnership.
..."
[1a] As previously noted, the trial court found that defendant's conduct placed him within the operation of
section 15016, subdivision (1), and defendant attacks the sufficiency of the evidence to support such a
finding. [2] It is well settled that "when a finding of fact is attacked on the ground that there is not any
substantial evidence to sustain it, the power of an appellate court begins and ends with the determination
as to whether there is any substantial evidence, contradicted or uncontradicted, which will support the
finding of fact. (Citation.)" (Grainger v. Antoyan, 48 Cal. 2d 805, 807 [313 P.2d 848]; Martin School of
Aviation v. Bank of America, 48 Cal. 2d 689, 692 [312 P.2d 251].)
[1b] First, with reference to the letter of June 1, 1955, which defendant sent to plaintiffs, and his personal
conferences with them while he was in Detroit, defendant argues that his declarations were never that he
was or would become a partner with Croysdill, but that the form of business organization which was to be
established between Croysdill and himself was indefinite and, therefore, such declarations were insufficient
to give rise to an ostensible partnership.
A partnership is merely "... an association of two or more persons to carry on as co-owners a business for
profit." (Corp. Code, 15006, subd. (1).) The evidence fully warrants the [169 Cal. App. 2d 314] trial
court's determination that this was the type of business relationship to which defendant's representations
referred. His letter of June 1, 1955, referred to "the association of Keith Croysdill and M. C. Crawford."
Also, the respective parts to be played by Croysdill and defendant in the business were outlined, i.e., "Mr.
Croysdill will be in charge of promotion and sales. Business and financial guidance will be in my hands."
When in Detroit, defendant substantially repeated his prior written representations. While it is true he did
not use the word "partnership," the general business form suggested by what he did say certainly falls
within section 15006, subdivision (1), supra. There was an association of two persons to carry on a
business presumably for profit. As to the issue of coownership, defendant spoke of a division of
responsibility between himself and Croysdill which did not indicate that he was merely financing Croysdill
or acting as a guarantor, for he was to take an active part in the business. Moreover, nothing was said or
written which indicated a corporate structure was contemplated.
Defendant next argues that any representations made referred to a future rather than to a past or present
business organization, and that an estoppel cannot be invoked where the representations relate to future
intentions. It is unquestionably true that the performance of Associated Tool Supply was to be in the
future for it would have no obligation to plaintiffs until it was awarded the distributorship. However, the
crucial point is whether defendant represented that there was a then existing partnership between
Croysdill and himself. Defendant's letter of June 1, 1955, states: "We are ready to start functioning as
soon as you can furnish the necessary stock, so any change of distributors can be done without any lost
time or sales." When in Detroit, defendant and Croysdill had already selected a name for their business,
had decided where the tools were to be shipped, and defendant told Croysdill, while in Detroit, to decide
on the original stocking order. Such circumstances strongly suggest that, prior to the time credit was
actually extended to Associated Tool Supply, defendant had conveyed the idea that his relationship with
Croysdill had matured and was not merely a representation to associate in the future. While we recognize
that portions of the June 1 letter are not as clear in this regard as they could have been, we are of the
opinion that there was substantial evidence justifying the inference that defendant represented he was
currently a partner with [169 Cal. App. 2d 315] Croysdill, and "[w]hen two or more inferences can
reasonably be deduced from the facts, a reviewing court is without power to substitute its deductions for
those of the trial court." (Grainger v. Antoyan, supra.) The above amply demonstrates the substantiality of
the evidence in support of the trial court's finding that the defendant represented himself as Croysdill's
partner.
[3] Attention will now be focused on defendant's contention that there was no substantial evidence
showing that plaintiffs, in extending credit to Associated Tool Supply, relied on the fact that defendant was
ostensibly a partner thereof. In this regard, there was testimony by Hunter that Croysdill was informed
that it would take considerable capital to act as plaintiffs' west coast representative, to which Croysdill
replied that he only had a small amount of money but could obtain financial backing through partners or
interested parties. Hunter told Croysdill to have these parties or partners write and inform him (Hunter) of
their willingness and financial status. Defendant's letter of June 1, 1955, was a result of this conversation.
Defendant's letter plus the statements made by him in Detroit that he would be the financial backer, taken
in conjunction with Hunter's testimony to the effect that Croysdill's financial status was insufficient to
warrant a distributorship, reasonably justifies an inference that plaintiffs extended credit because they
believed defendant was a partner.
[4] Defendant takes the position that as plaintiffs did not make exhaustive inquiries into his financial
status, they could not have relied thereon. There is no requirement that credit be given in reliance upon
the financial status of the apparent partner, but only that the party claiming the benefit of section 15016,
subdivision (1), relied on the existence of the partnership. Even assuming, arguendo, that plaintiffs had to
show they relied not only upon the fact that defendant was a partner, but also upon the fact he was a
"safe risk," the evidence shows that they made inquiries--both in Detroit and Los Angeles--regarding
defendant's ability to meet his obligations. The trial court impliedly found this investigation evidenced a
sufficient showing of reliance and the evidence clearly supports such a finding.
[5a] We now turn to defendant's contentions that the trial court erred in allowing in evidence testimony by
Hunter that Croysdill, in a telephone conversation, said defendant would [169 Cal. App. 2d 316] be his
partner, and plaintiffs' Exhibits 5 and 6 (letters of June 30, 1955) to which reference has been made in the
statement of facts.
It is clear that the unauthorized declarations of Croysdill that he and defendant were partners could not
bind defendant, for he is only responsible as an ostensible partner when he represents himself as a
partner. (Corp. Code, 15016, subdivision (1).) Defendant concedes, however, that if prima facie proof of
a partnership is shown, then evidence of an extrajudicial statement of one partner that other persons
were his partners is admissible. [6] Declarations of an alleged partner that another is his partner are
corroborative of the other's representations and therefore admissible on the issue of reliance once the fact
of the other's representations has been independently established. (Cf. Vanderhurst, Sanborn & Co. v. De
Witt, 95 Cal. 57, 62-63 [30 P. 94, 20 L.R.A. 595]; Milstein v. Sartain, 56 Cal. App. 2d 924, 932 [133 P.2d
836].) [5b] In the instant case, there was a sufficient independent showing of representations made by
defendant himself to warrant the admissibility of the questioned evidence on the issue of reliance.
[7] Defendant's final argument is that plaintiffs were put on notice that Croysdill was the sole owner of
Associated Tool Supply by virtue of his having filed on July 8, 1955, a certificate of fictitious firm name
pursuant to Civil Code, section 2466, showing him to be the sole proprietor thereof. We are of the view,
however, that the filing and publishing of this certificate in Los Angeles did not negate the effect of
defendant's prior representations or in any manner put plaintiffs on notice that defendant was not a
partner in Associated Tool Supply as far as his liability is concerned. [8] Section 2466 was designed to
give public notice of the true names of individuals doing business under a fictitious name or names of all
members of a partnership where the firm name does not disclose the names of all the partners, but it was
not designed to protect a person who has made prior representations as to his relationship with one who
subsequently files and publishes a certificate apparently at variance with those prior representations.
In view of the foregoing, we believe Crawford's appeal is without merit.
Plaintiffs' Appeal
The trial court found that on January 18, 1956, the date plaintiffs became chargeable with knowledge that
defendant [169 Cal. App. 2d 317] was not a partner, he was indebted to plaintiffs in the amount of
$14,701.20. Against this sum, however, the court allowed defendant a $7,877.04 credit, making the
amount of the judgment against him, exclusive of interest, $6,824.16. The court apparently arrived at this
figure in the following manner: (1) $7,522.87 (Associated Tool Supply inventory of tools as of January 18,
1956, purchased from plaintiffs) plus (2) $354.17 (credit allocated by plaintiffs to the pre-January 18
indebtedness) which equals $7,877.04. Although Croysdill had this $7,522.87 inventory on hand in
January, when it was relinquished to plaintiffs on June 1, 1956, it only amounted to $5,285.61. Also,
Croysdill increased his net indebtedness by $309.49 after January 18 by additional purchases.
It is plaintiffs' position that as the inventory was not returned in January but in June, defendant should
only be credited with $5,285.61, and not $7,877.04. Furthermore, argue plaintiffs, the sum of $309.49
should be subtracted from the amount of the June inventory and applied against Croysdill's increased
indebtedness alone. Plaintiffs are willing to give defendant an additional credit of $1,125 (amount applied
against Croysdill's indebtedness for reasonable value of his services rendered to plaintiffs from June 1 to
August 15, 1956). Therefore, the plaintiffs contend their judgment against defendant should have been in
the principal amount of $8,245.91, fn. 2 rather than $6,824.16.
The crux of plaintiffs' argument is that as title to the goods in question passed to Croysdill upon delivery
(Civ. Code, 1739, rule 4(2)), the only credit in this respect available to either Croysdill or defendant
depended upon the value of the property actually returned to and accepted by plaintiffs and not on the
value of the inventory on January 18, 1956, for no goods were returned to plaintiffs before June 1, 1956.
In opposition to plaintiffs' contentions, defendant justifies fixing January 18 as the proper date to calculate
the value of the inventory for credit purposes upon three grounds, namely: (1) plaintiffs' own negligence
in not acting sooner was the proximate cause of the inventory dissipation; (2) plaintiffs are estopped to
hold him responsible for the dissipation in the inventory by their failure to inform defendant [169 Cal.
App. 2d 318] they intended to hold him liable after they learned he was not a partner; and (3) laches.
In response to this argument, plaintiffs draw attention to the fact that defendant's answer contained only
a general denial and the above three defenses are suggested on appeal for the first time, that no evidence
was tendered on these issues nor any findings made thereon. Plaintiffs assert that these are special
defenses which are waived if not specifically pleaded, and further question these defenses on their merits.
[9] Defendant may not rely on laches or estoppel. These were not placed in issue by his answer, which
contained only a general denial; they were not suggested by a reading of the complaint; nor were these
defenses litigated. (Balestrieri v. Sullivan, 142 Cal. App. 2d 332, 343 [298 P.2d 688]; Medeiros v.
Cotta, 134 Cal. App. 2d 452, 457 [286 P.2d 546]; see also Pacific Finance Corp. v. Foust, 44 Cal. 2d 853,
858 [285 P.2d 632].)
[10a] However, his contention that plaintiffs' own conduct was the responsible cause for the inventory
dissipation calls for a consideration of the "avoidable consequences" doctrine. [11] Generally, "[a] person
injured by the wrongful act of another is bound ... to exercise reasonable care and diligence to avoid loss
or minimize the resulting damages and cannot recover for losses which might have been prevented by
reasonable efforts and expenditures on his part." (Valencia v. Shell Oil Co., 23 Cal. 2d 840, 844 [147 P.2d
558].) [12] The burden of proving facts in mitigation of damages rests upon the defendant. (Vitagraph,
Inc. v. Liberty Theatres Co., 197 Cal. 694, 699 [242 P. 709]; Gray v. American Surety Co., 129 Cal. App.
2d 471, 476 [277 P.2d 436].) [10b] We are of the opinion that defendant has not sustained this burden.
"Moreover, inasmuch as ... [defendant] pleaded no facts in mitigation of damages ... [he is] in no position
to rely upon this affirmative defense. (Citations.)" (Danelian v. McLoney, 124 Cal. App. 2d 435, 443 [268
P.2d 775].)
On the record before us, there is no sufficient basis for allowing as a credit to defendant the value of the
inventory as of January 18. Against the $14,701.20 obligation due on January 18, defendant is entitled to
the following credits: (1) $354.17 (Civ. Code, 1479 (Two) conceded by plaintiffs); (2) $1,125 (conceded
by plaintiffs); and (3) $5,285.61 (June inventory), for a total of $6,764.78. Therefore, his liability
exclusive of interest, after deducting the above credits, is [169 Cal. App. 2d 319]$7,936.42. The
inventory returned on June 1 is to be applied in full against defendant's indebtedness and, contrary to
plaintiffs' contention, is not to be applied, first, to the indebtedness of $309.49 incurred by Croysdill
subsequent to January 18. (Civ. Code, 1479 (Three [3]).)
The principal sum awarded plaintiffs having been altered, interest will necessarily have to be recalculated.
Since defendant's liability was fixed as of January 18, 1956 ($14,701.20), interest commences as of that
date and continues until the entry of the judgment herein directed, credit of course being given to
defendant as follows: (1) January 18, 1956, $354.17 (amount allotted to pre-January 18 indebtedness);
(2) June 1, 1956, $5,285.61 (returned inventory); (3) July 1, 1956, $450 (salary credited to Croysdill);
(4) August 1, 1956, $450 (salary credited to Croysdill); and (5) August 15, 1956, $225 (salary credited to
Croysdill).
That portion of the judgment from which defendant appeals is affirmed. That portion from which plaintiffs
appeal is reversed with directions to make new findings of fact and conclusions of law and to enter a new
judgment thereon not inconsistent with the views herein expressed.
Ashburn, J., and Herndon, J., concurred.
FN 1. Keith B. Croysdill and Mary W. Croysdill, also defendants, are not involved in this appeal and
reference in the opinion to "defendant" is limited to Mark C. Crawford.
FN 2. This figure is arrived at by subtracting the following credits from $14,701.20: (1) $354.17
(conceded by plaintiffs), (2) $1125 (conceded by plaintiffs), and (3) $4,976.12 (June 1 inventory less
Croysdill's post-January 18 increase in indebtedness in the amount of $309.49).
G.R. No. 167379 June 27, 2006
PRIMELINK PROPERTIES AND DEVELOPMENT CORPORATION and RAFAELITO W.
LOPEZ, Petitioners,
vs.
MA. CLARITA T. LAZATIN-MAGAT, JOSE SERAFIN T. LAZATIN, JAIME TEODORO T. LAZATIN and
JOSE MARCOS T. LAZATIN, Respondents.
DECISION
CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure of the
Decision1of the Court of Appeals (CA) in CA-G.R. CV No. 69200 and its Resolution2 denying petitioners
motion for reconsideration thereof.
The factual and procedural antecedents are as follows:
Primelink Properties and Development Corporation (Primelink for brevity) is a domestic corporation
engaged in real estate development. Rafaelito W. Lopez is its President and Chief Executive Officer. 3
Ma. Clara T. Lazatin-Magat and her brothers, Jose Serafin T. Lazatin, Jaime T. Lazatin and Jose Marcos T.
Lazatin (the Lazatins for brevity), are co-owners of two (2) adjoining parcels of land, with a combined area
of 30,000 square meters, located in Tagaytay City and covered by Transfer Certificate of Title (TCT) No. T-
108484 of the Register of Deeds of Tagaytay City.
On March 10, 1994, the Lazatins and Primelink, represented by Lopez, in his capacity as President,
entered into a Joint Venture Agreement5 (JVA) for the development of the aforementioned property into a
residential subdivision to be known as "Tagaytay Garden Villas." Under the JVA, the Lazatin siblings
obliged themselves to contribute the two parcels of land as their share in the joint venture. For its part,
Primelink undertook to contribute money, labor, personnel, machineries, equipment, contractors pool,
marketing activities, managerial expertise and other needed resources to develop the property and
construct therein the units for sale to the public. Specifically, Primelink bound itself to accomplish the
following, upon the execution of the deed:
a.) Survey the land, and prepare the projects master plans, engineering designs, structural and
architectural plans, site development plans, and such other need plans in accordance with existing
laws and the rules and regulations of appropriate government institutions, firms or agencies;
b.) Secure and pay for all the licenses, permits and clearances needed for the projects;
c.) Furnish all materials, equipment, labor and services for the development of the land in
preparation for the construction and sale of the different types of units (single-detached,
duplex/twin, cluster and row house);
d.) Guarantee completion of the land development work if not prevented by force majeure or
fortuitous event or by competent authority, or other unavoidable circumstances beyond the
DEVELOPERS control, not to exceed three years from the date of the signing of this Joint Venture
Agreement, except the installation of the electrical facilities which is solely MERALCOS
responsibility;
e.) Provide necessary manpower resources, like executive and managerial officers, support
personnel and marketing staff, to handle all services related to land and housing development
(administrative and construction) and marketing (sales, advertising and promotions). 6
The Lazatins and Primelink covenanted that they shall be entitled to draw allowances/advances as follows:
1. During the first two years of the Project, the DEVELOPER and the LANDOWNER can draw
allowances or make advances not exceeding a total of twenty percent (20%) of the net revenue for
that period, on the basis of sixty percent (60%) for the DEVELOPER and forty percent (40%) for
the LANDOWNERS.
The drawing allowances/advances are limited to twenty percent (20%) of the net revenue for the
first two years, in order to have sufficient reserves or funds to protect and/or guarantee the
construction and completion of the different types of units mentioned above.
 2. After two years, the DEVELOPER and the LANDOWNERS shall be entitled to drawing allowances
and/or advances equivalent to sixty percent (60%) and forty percent (40%), respectively, of the
total net revenue or income of the sale of the units.7
They also agreed to share in the profits from the joint venture, thus:
1. The DEVELOPER shall be entitled to sixty percent (60%) of the net revenue or income of the
Joint Venture project, after deducting all expenses incurred in connection with the land
development (such as administrative management and construction expenses), and marketing
(such as sales, advertising and promotions), and
2. The LANDOWNERS shall be entitled to forty percent (40%) of the net revenue or income of the
Joint Venture project, after deducting all the above-mentioned expenses.8
Primelink submitted to the Lazatins its Projection of the Sales-Income-Cost of the project:
SALES-INCOME-COST PROJECTION
lawphil.net
SELLING PRICE COST PRICE DIFFERENCE INCOME
CLUSTER:
A1 3,200,000 - A2 1,260,000 = 1,940,000 x 24 = P 46,560,000.00
TWIN:
B1 2,500,000 - B2 960,000 = 1,540,000 x 24 = 36,960,000.00
SINGLE:
C1 3,500,000 - C2 1,400,000 = 2,100,000 x 16 = 33,600,000.00
ROW-TYPE TOWNHOMES:
D1 1,600,000 - D2 700,000 = 900,000 x 24 = 21,600,000.00

P138,720,000.00
(GROSS) Total Cash Price (A1+B1+C1+D1) = P231,200,000.00
Total Building Expense (A2+B2+C2+D2) = 92,480,000.00
COMPUTATION OF ADDL. INCOME ON INTEREST
TCP x 30% D/P = P 69,360,000 P 69,360,000.00
Balance = 70% = 161,840,000
x .03069 x 48 = P238,409,740 238,409,740.00
Total Amount (TCP + int. earn.) P307,769,740.00
EXPENSES:
less: A Building expenses P 92,480,000.00
B Commission (8% of TCP) 18,496,000.00
C Admin. & Mgmt. expenses (2% of TCP) 4,624,000.00
D Advertising & Promo exp. (2% of TCP) 4,624,000.00
E Building expenses for the open
spaces and Amenities (Development
cost not incl. Housing) 400 x 30,000 sqms. 12,000,000.00

TOTAL EXPENSES (A+B+C+D+E) P132,224,000.00

RECONCILIATION OF INCOME VS. EXPENSES
Total Projected Income (incl. income from interest earn.) P307,769,740.00
 less: 132,224,000.00
Total Expenses P175,545,740.009
The parties agreed that any unsettled or unresolved misunderstanding or conflicting opinions between the
parties relative to the interpretation, scope and reach, and the enforcement/implementation of any
provision of the agreement shall be referred to Voluntary Arbitration in accordance with the Arbitration
Law.10
The Lazatins agreed to subject the title over the subject property to an escrow agreement. Conformably
with the escrow agreement, the owners duplicate of the title was deposited with the China Banking
Corporation.11 However, Primelink failed to immediately secure a Development Permit from Tagaytay City,
and applied the permit only on August 30, 1995. On October 12, 1995, the City issued a Development
Permit to Primelink.12
In a Letter13 dated April 10, 1997, the Lazatins, through counsel, demanded that Primelink comply with its
obligations under the JVA, otherwise the appropriate action would be filed against it to protect their rights
and interests. This impelled the officers of Primelink to meet with the Lazatins and enabled the latter to
review its business records/papers. In another Letter14 dated October 22, 1997, the Lazatins informed
Primelink that they had decided to rescind the JVA effective upon its receipt of the said letter. The Lazatins
demanded that Primelink cease and desist from further developing the property.
Subsequently, on January 19, 1998, the Lazatins filed, with the Regional Trial Court (RTC) of Tagaytay
City, Branch 18, a complaint for rescission accounting and damages, with prayer for temporary restraining
order and/or preliminary injunction against Primelink and Lopez. The case was docketed as Civil Case No.
TG-1776. Plaintiffs alleged, among others, that, despite the lapse of almost four (4) years from the
execution of the JVA and the delivery of the title and possession of the land to defendants, the land
development aspect of the project had not yet been completed, and the construction of the housing units
had not yet made any headway, based on the following facts, namely: (a) of the 50 housing units
programmed for Phase I, only the following types of houses appear on the site in these condition: (aa)
single detached, one completed and two units uncompleted; (bb) cluster houses, one unit nearing
completion; (cc) duplex, two units completed and two units unfinished; and (dd) row houses, two units,
completed; (b) in Phase II thereof, all that was done by the defendants was to grade the area; the units
so far constructed had been the object of numerous complaints by their owners/purchasers for poor
workmanship and the use of sub-standard materials in their construction, thus, undermining the projects
marketability. Plaintiffs also alleged that defendants had, without justifiable reason, completely
disregarded previously agreed accounting and auditing procedures, checks and balances system installed
for the mutual protection of both parties, and the scheduled regular meetings were seldom held to the
detriment and disadvantage of plaintiffs. They averred that they sent a letter through counsel, demanding
compliance of what was agreed upon under the agreement but defendants refused to heed said demand.
After a succession of letters with still no action from defendants, plaintiffs sent a letter on October 22,
1997, a letter formally rescinding the JVA.
Plaintiffs also claimed that in a sales-income-costs projection prepared and submitted by defendants, they
(plaintiffs) stood to receive the amount of P70,218,296.00 as their net share in the joint venture project;
to date, however, after almost four (4) years and despite the undertaking in the JVA that plaintiffs shall
initially get 20% of the agreed net revenue during the first two (2) years (on the basis of the 60%-40%
sharing) and their full 40% share thereafter, defendants had yet to deliver these shares to plaintiffs which
by conservative estimates would amount to no less than P40,000,000.00.15
Plaintiffs prayed that, after due proceedings, judgment be rendered in their favor, thus:
WHEREFORE, it is respectfully prayed of this Honorable Court that a temporary restraining order be
forthwith issued enjoining the defendants to immediately stop their land development, construction and
marketing of the housing units in the aforesaid project; after due proceedings, to issue a writ of
preliminary injunction enjoining and prohibiting said land development, construction and marketing of
housing units, pending the disposition of the instant case.
After trial, a decision be rendered:
1. Rescinding the Joint Venture Agreement executed between the plaintiffs and the defendants;
2. Immediately restoring to the plaintiffs possession of the subject parcels of land;
3. Ordering the defendants to render an accounting of all income generated as well as expenses
incurred and disbursement made in connection with the project;
4. Making the Writ of Preliminary Injunction permanent;
5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount Forty Million
Pesos (P40,000,000.00) in actual and/or compensatory damages;
 6. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of Two Million
Pesos (P2,000,000.00) in exemplary damages;
7. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount equivalent to ten
percent (10%) of the total amount due as and for attorneys fees; and
8. To pay the costs of this suit.
Other reliefs and remedies as are just and equitable are likewise being prayed for. 16
Defendants opposed plaintiffs plea for a writ of preliminary injunction on the ground that plaintiffs
complaint was premature, due to their failure to refer their complaint to a Voluntary Arbitrator pursuant to
the JVA in relation to Section 2 of Republic Act No. 876 before filing their complaint in the RTC. They
prayed for the dismissal of the complaint under Section 1(j), Rule 16 of the Rules of Court:
WHEREFORE, it is respectfully prayed that an Order be issued:
a) dismissing the Complaint on the basis of Section 1(j), Rule 16 of the aforecited Rules of Court,
or, in the alternative,
b) requiring the plaintiffs to make initiatory step for arbitration by filing the demand to arbitrate,
and then asking the parties to resolve their controversies, pursuant to the Arbitration Law, or in the
alternative;
c) staying or suspending the proceedings in captioned case until the completion of the arbitration,
and
d) denying the plaintiffs prayer for the issuance of a temporary restraining order or writ of
preliminary injunction.
Other reliefs and remedies just and equitable in the premises are prayed for. 17
In the meantime, before the expiration of the reglementary period to answer the complaint, defendants,
invoking their counsels heavy workload, prayed for a 15-day extension18 within which to file their answer.
The additional time prayed for was granted by the RTC.19 However, instead of filing their answer,
defendants prayed for a series of 15-day extensions in eight (8) successive motions for extensions on the
same justification.20 The RTC again granted the additional time prayed for, but in granting the last
extension, it warned against further extension.21 Despite the admonition, defendants again moved for
another 15-day extension,22 which, this time, the RTC denied. No answer having been filed, plaintiffs
moved to declare the defendants in default,23 which the RTC granted in its Order24dated June 24, 1998.
On June 25, 1998, defendants filed, via registered mail, their "Answer with Counterclaim and Opposition
to the Prayer for the Issuance of a Writ of Preliminary Injunction."25 On July 8, 1998, defendants filed a
Motion to Set Aside the Order of Default.26 This was opposed by plaintiffs.27 In an Order28 dated July 14,
1998, the RTC denied defendants motion to set aside the order of default and ordered the reception of
plaintiffs evidence ex parte. Defendants filed a motion for reconsideration 29 of the July 14, 1998 Order,
which the RTC denied in its Order30dated October 21, 1998.
Defendants thereafter interposed an appeal to the CA assailing the Order declaring them in default, as
well as the Order denying their motion to set aside the order of default, alleging that these were contrary
to facts of the case, the law and jurisprudence.31 On September 16, 1999, the appellate court issued a
Resolution32 dismissing the appeal on the ground that the Orders appealed from were interlocutory in
character and, therefore, not appealable. No motion for reconsideration of the Order of the dismissal was
filed by defendants.
In the meantime, plaintiffs adduced ex parte their testimonial and documentary evidence. On April 17,
2000, the RTC rendered a Decision, the dispositive part of which reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants as follows:
1. Ordering the rescission of the Joint Venture Agreement as of the date of filing of this complaint;
2. Ordering the defendants to return possession, including all improvements therein, of the real
estate property belonging to the plaintiffs which is described in, and covered by Transfer Certificate
of Title No. T-10848 of the Register of Deeds of Tagaytay City, and located in Barangay Anulin, City
of Tagaytay;
3. Ordering the defendants to turn over all documents, records or papers that have been executed,
prepared and retained in connection with any contract to sell or deed of sale of all lots/units sold
during the effectivity of the joint venture agreement;
4. Ordering the defendants to pay the plaintiffs the sum of P1,041,524.26 representing their share
of the net income of the P2,603,810.64 as of September 30, 1995, as stipulated in the joint
venture agreement;
5. Ordering the defendants to pay the plaintiffs attorneys fees in the amount of P104,152.40;
6. Ordering the defendants to pay the costs.
SO ORDERED.33
The trial court anchored its decision on the following findings:
x x x Evidence on record have shown patent violations by the defendants of the stipulations particularly
paragraph II covering Developers (defendant) undertakings, as well as paragraph III and paragraph V of
the JVA. These violations are not limited to those made against the plaintiffs alone as it appears that some
of the unit buyers themselves have their own separate gripes against the defendants as typified by the
letters (Exhibits "G" and "H") of Mr. Emmanuel Enciso.
xxxx
Rummaging through the evidence presented in the course of the testimony of Mrs. Maminta on August 6,
1998 (Exhibits "N," "O," "P," "Q" and "R" as well as submarkings, pp. 60 to 62, TSN August 6, 1998) this
court has observed, and is thus convinced, that a pattern of what appears to be a scheme or plot to
reduce and eventually blot out the net income generated from sales of housing units by defendants, has
been established. Exhibit "P-2" is explicit in declaring that, as of September 30, 1995, the joint venture
project earned a net income of aboutP2,603,810.64. This amount, however, was drastically reduced in a
subsequent financial report submitted by the defendants to P1,954,216.39. Shortly thereafter, and to the
dismay of the plaintiffs, the defendants submitted an income statement and a balance sheet (Exhibits "R"
and "R-1") indicating a net loss of P5,122,906.39 as of June 30, 1997.
Of the reported net income of P2,603,810.64 (Exhibit "P-2") the plaintiffs should have received the sum
ofP1,041,524.26 representing their 40% share under paragraph II and V of the JVA. But this was not to
be so. Even before the plaintiffs could get hold of their share as indicated above, the defendants closed
the chance altogether by declaring a net loss. The court perceives this to be one calculated coup-de-grace
that would put to thin air plaintiffs hope of getting their share in the profit under the JVA.
That this matter had reached the court is no longer a cause for speculation. The way the defendants
treated the JVA and the manner by which they handled the project itself vis--vis their partners, the
plaintiffs herein, there is bound to be certain conflict as the latter repeatedly would received the losing end
of the bargain.
Under the intolerable circumstances, the plaintiffs could not have opted for some other recourse but to file
the present action to enforce their rights. x x x34
On May 15, 2000, plaintiffs filed a Motion for Execution Pending Appeal 35 alleging defendants dilatory
tactics for its allowance. This was opposed by defendants.36
On May 22, 2000, the RTC resolved the motion for execution pending appeal in favor of plaintiffs.37 Upon
posting a bond of P1,000,000.00 by plaintiffs, a writ of execution pending appeal was issued on June 20,
2000.38
Defendants appealed the decision to the CA on the following assignment of errors:
I
THE TRIAL COURT ERRED IN DECIDING THE CASE WITHOUT FIRST REFERRING THE COMPLAINT FOR
VOLUNTARY ARBITRATION (RA NO. 876), CONTRARY TO THE MANDATED VOLUNTARY ARBITRATION
CLAUSE UNDER THE JOINT VENTURE AGREEMENT, AND THE DOCTRINE IN "MINDANAO PORTLAND
CEMENT CORPORATION V. MCDONOUGH CONSTRUCTION COMPANY OF FLORIDA" (19 SCRA 814-815).
II
THE TRIAL COURT ERRED IN ISSUING A WRIT OF EXECUTION PENDING APPEAL EVEN IN THE ABSENCE
OF GOOD AND COMPELLING REASONS TO JUSTIFY SAID ISSUANCE, AND DESPITE PRIMELINKS STRONG
OPPOSITION THERETO.
III
THE TRIAL COURT ERRED IN REFUSING TO DECIDE PRIMELINKS MOTION TO QUASH THE WRIT OF
EXECUTION PENDING APPEAL AND THE MOTION FOR RECONSIDERATION, ALTHOUGH THE COURT HAS
RETAINED ITS JURISDICTION TO RULE ON ALL QUESTIONS RELATED TO EXECUTION.
IV
THE TRIAL COURT ERRED IN RESCINDING THE JOINT VENTURE AGREEMENT ALTHOUGH PRIMELINK HAS
SUBSTANTIALLY DEVELOPED THE PROJECT AND HAS SPENT MORE OR LESS FORTY MILLION PESOS, AND
DESPITE APPELLEES FAILURE TO PRESENT SUFFICIENT EVIDENCE JUSTIFYING THE SAID RESCISSION.
V
THE TRIAL COURT ERRED IN DECIDING THAT THE APPELLEES HAVE THE RIGHT TO TAKE OVER THE
SUBDIVISION AND TO APPROPRIATE FOR THEMSELVES ALL THE EXISTING IMPROVEMENTS INTRODUCED
THEREIN BY PRIMELINK, ALTHOUGH SAID RIGHT WAS NEITHER ALLEGED NOR PRAYED FOR IN THE
COMPLAINT, MUCH LESS PROVEN DURING THE EX PARTE HEARING, AND EVEN WITHOUT ORDERING
APPELLEES TO FIRST REIMBURSE PRIMELINK OF THE SUBSTANTIAL DIFFERENCE BETWEEN THE MARKET
VALUE OF APPELLEES RAW, UNDEVELOPED AND UNPRODUCTIVE LAND (CONTRIBUTED TO THE PROJECT)
AND THE SUM OF MORE OR LESS FORTY MILLION PESOS WHICH PRIMELINK HAD SPENT FOR THE
HORIZONTAL AND VERTICAL DEVELOPMENT OF THE PROJECT, THEREBY ALLOWING APPELLEES TO
UNJUSTLY ENRICH THEMSELVES AT THE EXPENSE OF PRIMELINK. 39
The appeal was docketed in the CA as CA-G.R. CV No. 69200.
On August 9, 2004, the appellate court rendered a decision affirming, with modification, the appealed
decision. The fallo of the decision reads:
WHEREFORE, in view of the foregoing, the assailed decision of the Regional Trial Court of Tagaytay City,
Branch 18, promulgated on April 17, 2000 in Civil Case No. TG-1776, is hereby AFFIRMED. Accordingly,
Transfer Certificate of Title No. T-10848 held for safekeeping by Chinabank pursuant to the Escrow
Agreement is ordered released for return to the plaintiffs-appellees and conformably with the affirmed
decision, the cancellation by the Register of Deeds of Tagaytay City of whatever annotation in TCT No.
10848 by virtue of the Joint Venture Agreement, is now proper.
SO ORDERED.40
Citing the ruling of this Court in Aurbach v. Sanitary Wares Manufacturing Corporation, 41 the appellate
court ruled that, under Philippine law, a joint venture is a form of partnership and is to be governed by the
laws of partnership. The aggrieved parties filed a motion for reconsideration,42 which the CA denied in its
Resolution43 dated March 7, 2005.
Petitioners thus filed the instant Petition for Review on Certiorari, alleging that:
1) DID THE HONORABLE COURT OF APPEALS COMMIT A FATAL AND REVERSIBLE LEGAL ERROR
AND/OR GRAVE ABUSE OF DISCRETION IN ORDERING THE RETURN TO THE RESPONDENTS OF
THE PROPERTY WITH ALL IMPROVEMENTS THEREON, EVEN WITHOUT ORDERING/REQUIRING THE
RESPONDENTS TO FIRST PAY OR REIMBURSE PRIMELINK OF ALL EXPENSES INCURRED IN
DEVELOPING AND MARKETING THE PROJECT, LESS THE ORIGINAL VALUE OF THE PROPERTY, AND
THE SHARE DUE RESPONDENTS FROM THE PROFITS (IF ANY) OF THE JOINT VENTURE PROJECT?
2) IS THE AFORESAID ORDER ILLEGAL AND CONFISCATORY, OPPRESSIVE AND
UNCONSCIONABLE, CONTRARY TO THE TENETS OF GOOD HUMAN RELATIONS AND VIOLATIVE OF
EXISTING LAWS AND JURISPRUDENCE ON JUDICIAL NOTICE, DEFAULT, UNJUST ENRICHMENT
AND RESCISSION OF CONTRACT WHICH REQUIRES MUTUAL RESTITUTION, NOT UNILATERAL
APPROPRIATION, OF PROPERTY BELONGING TO ANOTHER? 44
Petitioners maintain that the aforesaid portion of the decision which unconditionally awards to respondents
"all improvements" on the project without requiring them to pay the value thereof or to reimburse
Primelink for all expenses incurred therefore is inherently and essentially illegal and confiscatory,
oppressive and unconscionable, contrary to the tenets of good human relations, and will allow respondents
to unjustly enrich themselves at Primelinks expense. At the time respondents contributed the two parcels
of land, consisting of 30,000 square meters to the joint venture project when the JVA was signed on
March 10, 1994, the said properties were worth not more than P500.00 per square meter, the "price tag"
agreed upon the parties for the purpose of the JVA. Moreover, before respondents rescinded the JVA
sometime in October/November 1997, the property had already been substantially developed as
improvements had already been introduced thereon; petitioners had likewise incurred administrative and
marketing expenses, among others, amounting to more or less P40,000,000.00.45
Petitioners point out that respondents did not pray in their complaint that they be declared the owners and
entitled to the possession of the improvements made by petitioner Primelink on the property; neither did
they adduce evidence to prove their entitlement to said improvements. It follows, petitioners argue, that
respondents were not entitled to the improvements although petitioner Primelink was declared in default.
They also aver that, under Article 1384 of the New Civil Code, rescission shall be only to the extent
necessary to cover the damages caused and that, under Article 1385 of the same Code, rescission creates
the obligation to return the things which were not object of the contract, together with their fruits, and the
price with its interest; consequently, it can be effected only when respondents can return whatever they
may be obliged to return. Respondents who sought the rescission of the JVA must place petitioner
Primelink in the status quo. They insist that respondents cannot rescind and, at the same time, retain the
consideration, or part of the consideration received under the JVA. They cannot have the benefits of
rescission without assuming its burden. All parties must be restored to their original positions as nearly as
possible upon the rescission of a contract. In the event that restoration to the status quo is impossible,
rescission may be granted if the Court can balance the equities and fashion an appropriate remedy that
would be equitable to both parties and afford complete relief.
Petitioners insist that being defaulted in the court a quo would in no way defeat their claim for
reimbursement because "[w]hat matters is that the improvements exist and they cannot be
denied."46 Moreover, they point out, the ruling of this Court in Aurbach v. Sanitary Wares Manufacturing
Corporation47 cited by the CA is not in point.
On the other hand, the CA ruled that although respondents therein (plaintiffs below) did not specifically
pray for their takeover of the property and for the possession of the improvements on the parcels of land,
nevertheless, respondents were entitled to said relief as a necessary consequence of the ruling of the trial
court ordering the rescission of the JVA. The appellate court cited the ruling of this Court in the Aurbach
case and Article 1838 of the New Civil Code, to wit:
As a general rule, the relation of the parties in joint ventures is governed by their agreement. When the
agreement is silent on any particular issue, the general principles of partnership may be resorted to. 48
Respondents, for their part, assert that Articles 1380 to 1389 of the New Civil Code deal with rescissible
contracts. What applies is Article 1191 of the New Civil Code, which reads:
ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if
the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in
accordance with articles 1385 and 1388 and the Mortgage Law.
They insist that petitioners are not entitled to rescission for the improvements because, as found by the
RTC and the CA, it was petitioner Primelink that enriched itself at the expense of respondents.
Respondents reiterate the ruling of the CA, and argue as follows:
PRIMELINK argued that the LAZATINs in their complaint did not allege, did not prove and did not pray that
they are and should be entitled to take over the development of the project, and that the improvements
and existing structures which were introduced by PRIMELINK after spending more or less Forty Million
Pesos be awarded to them. They merely asked in the complaint that the joint venture agreement be
rescinded, and that the parcels of land they contributed to the project be returned to them.
PRIMELINKs argument lacks merit. The order of the court for PRIMELINK to return possession of the real
estate property belonging to the LAZATINs including all improvements thereon was not a judgment that
was different in kind than what was prayed for by the LAZATINs. The order to return the property with all
the improvements thereon is just a necessary consequence to the order of rescission.
As a general rule, the relation of the parties in joint ventures is governed by their agreement. When the
agreement is silent on any particular issue, the general principles of partnership may be resorted to. In
Aurbach v. Sanitary Wares Manufacturing Corporation, the Supreme Court discussed the following points
regarding joint ventures and partnership:
The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has
been generally understood to mean an organization formed for some temporary purpose. (Gates v.
Megargel, 266 Fed. 811 [1920]) It is, in fact, hardly distinguishable from the partnership, since elements
are similar community of interest in the business, sharing of profits and losses, and a mutual right of
control. (Blackner v. McDermott, 176 F.2d 498 [1949]; Carboneau v. Peterson, 95 P.2d 1043 [1939];
Buckley v. Chadwick, 45 Cal.2d 183, 288 P.2d 12, 289 P.2d 242 [1955]) The main distinction cited by
most opinions in common law jurisdictions is that the partnership contemplates a general business with
some degree of continuity, while the joint venture is formed for the execution of a single transaction, and
is thus of a temporary nature. (Tuffs v. Mann, 116 Cal.App. 170, 2 P.2d 500 [1931]; Harmon v. Martin,
395 III. 595, 71 N.E.2d 74 [1947]; Gates v. Megargel, 266 Fed. 811 [1920]) This observation is not
entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be particular or
universal, and a particular partnership may have for its object a specific undertaking. (Art. 1783, Civil
Code). It would seem therefore that, under Philippine law, a joint venture is a form of partnership and
should thus be governed by the laws of partnership. The Supreme Court has, however, recognized a
distinction between these two business forms, and has held that although a corporation cannot enter into
a partnership contract, it may, however, engage in a joint venture with others. (At p. 12, Tuazon v.
Bolanos, 95 Phil. 906 [1954]; Campos and Lopez Campos Comments, Notes and Selected Cases,
Corporation Code 1981) (Emphasis Supplied)
The LAZATINs were able to establish fraud on the part of PRIMELINK which, in the words of the court a
quo, was a pattern of what appears to be a scheme or plot to reduce and eventually blot out the net
incomes generated from sales of housing units by the defendants. Under Article 1838 of the Civil Code,
where the partnership contract is rescinded on the ground of the fraud or misrepresentation of one of the
parties thereto, the party entitled to rescind is, without prejudice to any other right is entitled to a lien on,
or right of retention of, the surplus of the partnership property after satisfying the partnership liabilities to
third persons for any sum of money paid by him for the purchase of an interest in the partnership and for
any capital or advance contributed by him. In the instant case, the joint venture still has outstanding
liabilities to third parties or the buyers of the property.
It is not amiss to state that title to the land or TCT No. T-10848 which is now held by Chinabank for
safekeeping pursuant to the Escrow Agreement executed between Primelink Properties and Development
Corporation and Ma. Clara T. Lazatin-Magat should also be returned to the LAZATINs as a necessary
consequence of the order of rescission of contract. The reason for the existence of the Escrow Agreement
has ceased to exist when the joint venture agreement was rescinded.49
Respondents stress that petitioners must bear any damages or losses they may have suffered. They
likewise stress that they did not enrich themselves at the expense of petitioners.
In reply, petitioners assert that it is unjust and inequitable for respondents to retain the improvements
even if their share in the P1,041,524.26 of the net income of the property and the sale of the land were to
be deducted from the value of the improvements, plus administrative and marketing expenses in the total
amount of P40,000,000.00. Petitioners will still be entitled to an accounting from respondents.
Respondents cannot deny the existence and nature of said improvements as they are visible to the naked
eye.
The threshold issues are the following: (1) whether respondents are entitled to the possession of the
parcels of land covered by the JVA and the improvements thereon introduced by petitioners as their
contribution to the JVA; (2) whether petitioners are entitled to reimbursement for the value of the
improvements on the parcels of land.
The petition has no merit.
On the first issue, we agree with petitioners that respondents did not specifically pray in their complaint
below that possession of the improvements on the parcels of land which they contributed to the JVA be
transferred to them. Respondents made a specific prayer in their complaint that, upon the rescission of
the JVA, they be placed in possession of the parcels of land subject of the agreement, and for other
"reliefs and such other remedies as are just and equitable in the premises." However, the trial court was
not precluded from awarding possession of the improvements on the parcels of land to respondents in its
decision. Section 2(c), Rule 7 of the Rules of Court provides that a pleading shall specify the relief sought
but it may add as general prayer for such further or other relief as may be deemed just and equitable.
Even without the prayer for a specific remedy, proper relief may be granted by the court if the facts
alleged in the complaint and the evidence introduced so warrant. 50 The court shall grant relief warranted
by the allegations and the proof even if no such relief is prayed for. 51 The prayer in the complaint for other
reliefs equitable and just in the premises justifies the grant of a relief not otherwise specifically prayed
for.52
The trial court was not proscribed from placing respondents in possession of the parcels of land and the
improvements on the said parcels of land. It bears stressing that the parcels of land, as well as the
improvements made thereon, were contributed by the parties to the joint venture under the JVA, hence,
formed part of the assets of the joint venture.53 The trial court declared that respondents were entitled to
the possession not only of the parcels of land but also of the improvements thereon as a consequence of
its finding that petitioners breached their agreement and defrauded respondents of the net income under
the JVA.
On the second issue, we agree with the CA ruling that petitioner Primelink and respondents entered into a
joint venture as evidenced by their JVA which, under the Courts ruling in Aurbach, is a form of
partnership, and as such is to be governed by the laws on partnership.
When the RTC rescinded the JVA on complaint of respondents based on the evidence on record that
petitioners willfully and persistently committed a breach of the JVA, the court thereby dissolved/cancelled
the partnership.54With the rescission of the JVA on account of petitioners fraudulent acts, all authority of
any partner to act for the partnership is terminated except so far as may be necessary to wind up the
partnership affairs or to complete transactions begun but not yet finished. 55 On dissolution, the
partnership is not terminated but continues until the winding up of partnership affairs is
completed.56 Winding up means the administration of the assets of the partnership for the purpose of
terminating the business and discharging the obligations of the partnership.
The transfer of the possession of the parcels of land and the improvements thereon to respondents was
only for a specific purpose: the winding up of partnership affairs, and the partition and distribution of the
net partnership assets as provided by law.57 After all, Article 1836 of the New Civil Code provides that
unless otherwise agreed by the parties in their JVA, respondents have the right to wind up the partnership
affairs:
Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the partnership or the
legal representative of the last surviving partner, not insolvent, has the right to wind up the partnership
affairs, provided, however, that any partner, his legal representative or his assignee, upon cause shown,
may obtain winding up by the court.
It must be stressed, too, that although respondents acquired possession of the lands and the
improvements thereon, the said lands and improvements remained partnership property, subject to the
rights and obligations of the parties, inter se, of the creditors and of third parties under Articles 1837 and
1838 of the New Civil Code, and subject to the outcome of the settlement of the accounts between the
parties as provided in Article 1839 of the New Civil Code, absent any agreement of the parties in their JVA
to the contrary.58 Until the partnership accounts are determined, it cannot be ascertained how much any
of the parties is entitled to, if at all.
It was thus premature for petitioner Primelink to be demanding that it be indemnified for the value of the
improvements on the parcels of land owned by the joint venture/partnership. Notably, the JVA of the
parties does not contain any provision designating any party to wind up the affairs of the partnership.
Thus, under Article 1837 of the New Civil Code, the rights of the parties when dissolution is caused in
contravention of the partnership agreement are as follows:
(1) Each partner who has not caused dissolution wrongfully shall have:
(a) All the rights specified in the first paragraph of this article, and
(b) The right, as against each partner who has caused the dissolution wrongfully, to
damages for breach of the agreement.
(2) The partners who have not caused the dissolution wrongfully, if they all desire to continue the
business in the same name either by themselves or jointly with others, may do so, during the
agreed term for the partnership and for that purpose may possess the partnership property,
provided they secure the payment by bond approved by the court, or pay to any partner who has
caused the dissolution wrongfully, the value of his interest in the partnership at the dissolution,
less any damages recoverable under the second paragraph, No. 1(b) of this article, and in like
manner indemnify him against all present or future partnership liabilities.
(3) A partner who has caused the dissolution wrongfully shall have:
(a) If the business is not continued under the provisions of the second paragraph, No. 2, all
the rights of a partner under the first paragraph, subject to liability for damages in the
second paragraph, No. 1(b), of this article.
(b) If the business is continued under the second paragraph, No. 2, of this article, the right
as against his co-partners and all claiming through them in respect of their interests in the
partnership, to have the value of his interest in the partnership, less any damage caused to
his co-partners by the dissolution, ascertained and paid to him in cash, or the payment
secured by a bond approved by the court, and to be released from all existing liabilities of
the partnership; but in ascertaining the value of the partners interest the value of the good-
will of the business shall not be considered.
And under Article 1838 of the New Civil Code, the party entitled to rescind is, without prejudice to any
other right, entitled:
(1) To a lien on, or right of retention of, the surplus of the partnership property after satisfying the
partnership liabilities to third persons for any sum of money paid by him for the purchase of an
interest in the partnership and for any capital or advances contributed by him;
(2) To stand, after all liabilities to third persons have been satisfied, in the place of the creditors of
the partnership for any payments made by him in respect of the partnership liabilities; and
(3) To be indemnified by the person guilty of the fraud or making the representation against all
debts and liabilities of the partnership.
The accounts between the parties after dissolution have to be settled as provided in Article 1839 of the
New Civil Code:
Art. 1839. In settling accounts between the partners after dissolution, the following rules shall be
observed, subject to any agreement to the contrary:
(1) The assets of the partnership are:
(a) The partnership property,
(b) The contributions of the partners necessary for the payment of all the liabilities specified
in No. 2.
(2) The liabilities of the partnership shall rank in order of payment, as follows:
(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for capital and profits,
(c) Those owing to partners in respect of capital,
(d) Those owing to partners in respect of profits.
(3) The assets shall be applied in the order of their declaration in No. 1 of this article to the
satisfaction of the liabilities.
(4) The partners shall contribute, as provided by article 1797, the amount necessary to satisfy the
liabilities.
(5) An assignee for the benefit of creditors or any person appointed by the court shall have the
right to enforce the contributions specified in the preceding number.
 (6) Any partner or his legal representative shall have the right to enforce the contributions
specified in No. 4, to the extent of the amount which he has paid in excess of his share of the
liability.
(7) The individual property of a deceased partner shall be liable for the contributions specified in
No. 4.
(8) When partnership property and the individual properties of the partners are in possession of a
court for distribution, partnership creditors shall have priority on partnership property and separate
creditors on individual property, saving the rights of lien or secured creditors.
(9) Where a partner has become insolvent or his estate is insolvent, the claims against his separate
property shall rank in the following order:
(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
(c) Those owing to partners by way of contribution.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The assailed Decision and Resolution of the
Court of Appeals in CA-G.R. CV No. 69200 are AFFIRMED insofar as they conform to this Decision of the
Court.
Costs against petitioners.
SO ORDERED.

G.R. No. 75875 December 15, 1989

WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLES
CHAMSAY, petitioners,
vs.
SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V. LAGDAMEO, ERNESTO R.
LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG
and AVELINO V. CRUZ, respondents.
G.R. No. 75951 December 15, 1989
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO R. LAGDAMEO, ENRIQUE B.
LAGDAMEO, GEORGE FL .EE RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V.
CRUX, petitioners,
vs.
THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM,
CHARLES CHAMSAY and LUCIANO SALAZAR, respondents.
G.R. Nos. 75975-76 December 15, 1989
LUCIANO E. SALAZAR, petitioner,
vs.
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO V. LAGDAMEO, ERNESTO R.
LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG,
AVELINO V. CRUZ and the COURT OF APPEALS, respondents.
Belo, Abiera & Associates for petitioners in 75875.
Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar.

GUTIERREZ, JR., J.:

These consolidated petitions seek the review of the amended decision of the Court of Appeals in CA-G.R.
SP Nos. 05604 and 05617 which set aside the earlier decision dated June 5, 1986, of the then
Intermediate Appellate Court and directed that in all subsequent elections for directors of Sanitary Wares
Manufacturing Corporation (Saniwares), American Standard Inc. (ASI) cannot nominate more than three
(3) directors; that the Filipino stockholders shall not interfere in ASI's choice of its three (3) nominees;
that, on the other hand, the Filipino stockholders can nominate only six (6) candidates and in the event
they cannot agree on the six (6) nominees, they shall vote only among themselves to determine who the
six (6) nominees will be, with cumulative voting to be allowed but without interference from ASI.
The antecedent facts can be summarized as follows:
In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose of manufacturing
and marketing sanitary wares. One of the incorporators, Mr. Baldwin Young went abroad to look for
foreign partners, European or American who could help in its expansion plans. On August 15, 1962, ASI, a
foreign corporation domiciled in Delaware, United States entered into an Agreement with Saniwares and
some Filipino investors whereby ASI and the Filipino investors agreed to participate in the ownership of an
enterprise which would engage primarily in the business of manufacturing in the Philippines and selling
here and abroad vitreous china and sanitary wares. The parties agreed that the business operations in the
Philippines shall be carried on by an incorporated enterprise and that the name of the corporation shall
initially be "Sanitary Wares Manufacturing Corporation."
The Agreement has the following provisions relevant to the issues in these cases on the nomination and
election of the directors of the corporation:
3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation shall be substantially in the form
annexed hereto as Exhibit A and, insofar as permitted under Philippine law, shall specifically
provide for
(1) Cumulative voting for directors:
xxx xxx xxx
5. Management
(a) The management of the Corporation shall be vested in a Board of Directors, which shall
consist of nine individuals. As long as American-Standard shall own at least 30% of the
outstanding stock of the Corporation, three of the nine directors shall be designated by
American-Standard, and the other six shall be designated by the other stockholders of the
Corporation. (pp. 51 & 53, Rollo of 75875)
At the request of ASI, the agreement contained provisions designed to protect it as a minority group,
including the grant of veto powers over a number of corporate acts and the right to designate certain
officers, such as a member of the Executive Committee whose vote was required for important corporate
transactions.
Later, the 30% capital stock of ASI was increased to 40%. The corporation was also registered with the
Board of Investments for availment of incentives with the condition that at least 60% of the capital stock
of the corporation shall be owned by Philippine nationals.
The joint enterprise thus entered into by the Filipino investors and the American corporation prospered.
Unfortunately, with the business successes, there came a deterioration of the initially harmonious relations
between the two groups. According to the Filipino group, a basic disagreement was due to their desire to
expand the export operations of the company to which ASI objected as it apparently had other
subsidiaries of joint joint venture groups in the countries where Philippine exports were contemplated. On
March 8, 1983, the annual stockholders' meeting was held. The meeting was presided by Baldwin Young.
The minutes were taken by the Secretary, Avelino Cruz. After disposing of the preliminary items in the
agenda, the stockholders then proceeded to the election of the members of the board of directors. The
ASI group nominated three persons namely; Wolfgang Aurbach, John Griffin and David P. Whittingham.
The Philippine investors nominated six, namely; Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R.
Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr. Luciano E.
Salazar, who in turn nominated Mr. Charles Chamsay. The chairman, Baldwin Young ruled the last two
nominations out of order on the basis of section 5 (a) of the Agreement, the consistent practice of the
parties during the past annual stockholders' meetings to nominate only nine persons as nominees for the
nine-member board of directors, and the legal advice of Saniwares' legal counsel. The following events
then, transpired:
... There were protests against the action of the Chairman and heated arguments ensued.
An appeal was made by the ASI representative to the body of stockholders present that a
vote be taken on the ruling of the Chairman. The Chairman, Baldwin Young, declared the
appeal out of order and no vote on the ruling was taken. The Chairman then instructed the
Corporate Secretary to cast all the votes present and represented by proxy equally for the 6
nominees of the Philippine Investors and the 3 nominees of ASI, thus effectively excluding
the 2 additional persons nominated, namely, Luciano E. Salazar and Charles Chamsay. The
ASI representative, Mr. Jaqua protested the decision of the Chairman and announced that
all votes accruing to ASI shares, a total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No. 05617)
were being cumulatively voted for the three ASI nominees and Charles Chamsay, and
instructed the Secretary to so vote. Luciano E. Salazar and other proxy holders announced
that all the votes owned by and or represented by them 467,197 shares (p. 27, Rollo, AC-
G.R. SP No. 05617) were being voted cumulatively in favor of Luciano E. Salazar. The
Chairman, Baldwin Young, nevertheless instructed the Secretary to cast all votes equally in
favor of the three ASI nominees, namely, Wolfgang Aurbach, John Griffin and David
Whittingham and the six originally nominated by Rogelio Vinluan, namely, Ernesto
Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, and
Baldwin Young. The Secretary then certified for the election of the following Wolfgang
Aurbach, John Griffin, David Whittingham Ernesto Lagdameo, Sr., Ernesto Lagdameo, Jr.,
Enrique Lagdameo, George F. Lee, Raul A. Boncan, Baldwin Young. The representative of
 ASI then moved to recess the meeting which was duly seconded. There was also a motion
to adjourn (p. 28, Rollo, AC-G.R. SP No. 05617). This motion to adjourn was accepted by
the Chairman, Baldwin Young, who announced that the motion was carried and declared the
meeting adjourned. Protests against the adjournment were registered and having been
ignored, Mr. Jaqua the ASI representative, stated that the meeting was not adjourned but
only recessed and that the meeting would be reconvened in the next room. The Chairman
then threatened to have the stockholders who did not agree to the decision of the Chairman
on the casting of votes bodily thrown out. The ASI Group, Luciano E. Salazar and other
stockholders, allegedly representing 53 or 54% of the shares of Saniwares, decided to
continue the meeting at the elevator lobby of the American Standard Building. The
continued meeting was presided by Luciano E. Salazar, while Andres Gatmaitan acted as
Secretary. On the basis of the cumulative votes cast earlier in the meeting, the ASI Group
nominated its four nominees; Wolfgang Aurbach, John Griffin, David Whittingham and
Charles Chamsay. Luciano E. Salazar voted for himself, thus the said five directors were
certified as elected directors by the Acting Secretary, Andres Gatmaitan, with the
explanation that there was a tie among the other six (6) nominees for the four (4)
remaining positions of directors and that the body decided not to break the tie. (pp. 37-39,
Rollo of 75975-76)
These incidents triggered off the filing of separate petitions by the parties with the Securities and
Exchange Commission (SEC). The first petition filed was for preliminary injunction by Saniwares, Emesto
V. Lagdameo, Baldwin Young, Raul A. Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F.
Lee against Luciano Salazar and Charles Chamsay. The case was denominated as SEC Case No. 2417. The
second petition was for quo warranto and application for receivership by Wolfgang Aurbach, John Griffin,
David Whittingham, Luciano E. Salazar and Charles Chamsay against the group of Young and Lagdameo
(petitioners in SEC Case No. 2417) and Avelino F. Cruz. The case was docketed as SEC Case No. 2718.
Both sets of parties except for Avelino Cruz claimed to be the legitimate directors of the corporation.
The two petitions were consolidated and tried jointly by a hearing officer who rendered a decision
upholding the election of the Lagdameo Group and dismissing the quo warranto petition of Salazar and
Chamsay. The ASI Group and Salazar appealed the decision to the SEC en banc which affirmed the
hearing officer's decision.
The SEC decision led to the filing of two separate appeals with the Intermediate Appellate Court by
Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay (docketed as AC-G.R. SP No.
05604) and by Luciano E. Salazar (docketed as AC-G.R. SP No. 05617). The petitions were consolidated
and the appellate court in its decision ordered the remand of the case to the Securities and Exchange
Commission with the directive that a new stockholders' meeting of Saniwares be ordered convoked as
soon as possible, under the supervision of the Commission.
Upon a motion for reconsideration filed by the appellees Lagdameo Group) the appellate court (Court of
Appeals) rendered the questioned amended decision. Petitioners Wolfgang Aurbach, John Griffin, David P.
Whittingham and Charles Chamsay in G.R. No. 75875 assign the following errors:
I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF PRIVATE
RESPONDENTS AS MEMBERS OF THE BOARD OF DIRECTORS OF SANIWARES WHEN IN
FACT THERE WAS NO ELECTION AT ALL.
II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM EXERCISING THEIR
FULL VOTING RIGHTS REPRESENTED BY THE NUMBER OF SHARES IN SANIWARES, THUS
DEPRIVING PETITIONERS AND THE CORPORATION THEY REPRESENT OF THEIR PROPERTY
RIGHTS WITHOUT DUE PROCESS OF LAW.
III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS PROVISIONS INTO THE
AGREEMENT OF THE PARTIES WHICH WERE NOT THERE, WHICH ACTION IT CANNOT
LEGALLY DO. (p. 17, Rollo-75875)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on the following
grounds:
11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding contractual
agreements entered into by stockholders and the replacement of the conditions of such
agreements with terms never contemplated by the stockholders but merely dictated by the
CA .
11.2. The Amended decision would likewise sanction the deprivation of the property rights
of stockholders without due process of law in order that a favored group of stockholders
may be illegally benefitted and guaranteed a continuing monopoly of the control of a
corporation. (pp. 14-15, Rollo-75975-76)
On the other hand, the petitioners in G.R. No. 75951 contend that:
I
THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE RECOGNIZING THAT THE
STOCKHOLDERS OF SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO FULLY
ENFORCE THE BASIC INTENT OF THE AGREEMENT AND THE LAW.
II
THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATE PETITIONERS
HEREIN WERE THE DULY ELECTED DIRECTORS DURING THE 8 MARCH 1983 ANNUAL
STOCKHOLDERS MEETING OF SANTWARES. (P. 24, Rollo-75951)
The issues raised in the petitions are interrelated, hence, they are discussed jointly.
The main issue hinges on who were the duly elected directors of Saniwares for the year 1983 during its
annual stockholders' meeting held on March 8, 1983. To answer this question the following factors should
be determined: (1) the nature of the business established by the parties whether it was a joint venture or
a corporation and (2) whether or not the ASI Group may vote their additional 10% equity during elections
of Saniwares' board of directors.
The rule is that whether the parties to a particular contract have thereby established among themselves a
joint venture or some other relation depends upon their actual intention which is determined in
accordance with the rules governing the interpretation and construction of contracts. (Terminal Shares,
Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v. California Press Mfg.
Co. 20 Cal. 2nd 751, 128 P 2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual intention of the
parties should be viewed strictly on the "Agreement" dated August 15,1962 wherein it is clearly stated
that the parties' intention was to form a corporation and not a joint venture.
They specifically mention number 16 under Miscellaneous Provisions which states:
xxx xxx xxx
c) nothing herein contained shall be construed to constitute any of the parties hereto
partners or joint venturers in respect of any transaction hereunder. (At P. 66, Rollo-GR No.
75875)
They object to the admission of other evidence which tends to show that the parties' agreement was to
establish a joint venture presented by the Lagdameo and Young Group on the ground that it contravenes
the parol evidence rule under section 7, Rule 130 of the Revised Rules of Court. According to them, the
Lagdameo and Young Group never pleaded in their pleading that the "Agreement" failed to express the
true intent of the parties.
The parol evidence Rule under Rule 130 provides:
Evidence of written agreements-When the terms of an agreement have been reduced to
writing, it is to be considered as containing all such terms, and therefore, there can be,
between the parties and their successors in interest, no evidence of the terms of the
agreement other than the contents of the writing, except in the following cases:
(a) Where a mistake or imperfection of the writing, or its failure to express the true intent
and agreement of the parties or the validity of the agreement is put in issue by the
pleadings.
(b) When there is an intrinsic ambiguity in the writing.
Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their Reply and Answer to
Counterclaim in SEC Case No. 2417 that the Agreement failed to express the true intent of the parties, to
wit:
xxx xxx xxx
4. While certain provisions of the Agreement would make it appear that the parties thereto
disclaim being partners or joint venturers such disclaimer is directed at third parties and is
not inconsistent with, and does not preclude, the existence of two distinct groups of
stockholders in Saniwares one of which (the Philippine Investors) shall constitute the
majority, and the other ASI shall constitute the minority stockholder. In any event, the
evident intention of the Philippine Investors and ASI in entering into the Agreement is to
enter into ajoint venture enterprise, and if some words in the Agreement appear to be
contrary to the evident intention of the parties, the latter shall prevail over the former (Art.
1370, New Civil Code). The various stipulations of a contract shall be interpreted together
attributing to the doubtful ones that sense which may result from all of them taken jointly
(Art. 1374, New Civil Code). Moreover, in order to judge the intention of the contracting
parties, their contemporaneous and subsequent acts shall be principally considered. (Art.
1371, New Civil Code). (Part I, Original Records, SEC Case No. 2417)
It has been ruled:
In an action at law, where there is evidence tending to prove that the parties joined their
efforts in furtherance of an enterprise for their joint profit, the question whether they
intended by their agreement to create a joint adventure, or to assume some other relation
is a question of fact for the jury. (Binder v. Kessler v 200 App. Div. 40,192 N Y S 653; Pyroa
v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George, 27 Wyo, 423, 200 P 96 33 C.J. p.
871)
In the instant cases, our examination of important provisions of the Agreement as well as the testimonial
evidence presented by the Lagdameo and Young Group shows that the parties agreed to establish a joint
venture and not a corporation. The history of the organization of Saniwares and the unusual arrangements
which govern its policy making body are all consistent with a joint venture and not with an ordinary
corporation. As stated by the SEC:
According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the Agreement
with ASI in behalf of the Philippine nationals. He testified that ASI agreed to accept the role
of minority vis-a-vis the Philippine National group of investors, on the condition that the
Agreement should contain provisions to protect ASI as the minority.
An examination of the Agreement shows that certain provisions were included to protect the
interests of ASI as the minority. For example, the vote of 7 out of 9 directors is required in
certain enumerated corporate acts [Sec. 3 (b) (ii) (a) of the Agreement]. ASI is
contractually entitled to designate a member of the Executive Committee and the vote of
this member is required for certain transactions [Sec. 3 (b) (i)].
The Agreement also requires a 75% super-majority vote for the amendment of the articles
and by-laws of Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the right to
designate the president and plant manager [Sec. 5 (6)]. The Agreement further provides
that the sales policy of Saniwares shall be that which is normally followed by ASI [Sec. 13
(a)] and that Saniwares should not export "Standard" products otherwise than through
ASI's Export Marketing Services [Sec. 13 (6)]. Under the Agreement, ASI agreed to provide
technology and know-how to Saniwares and the latter paid royalties for the same. (At p. 2).
xxx xxx xxx
It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9 votes of
the board of directors for certain actions, in effect gave ASI (which designates 3 directors
under the Agreement) an effective veto power. Furthermore, the grant to ASI of the right to
designate certain officers of the corporation; the super-majority voting requirements for
amendments of the articles and by-laws; and most significantly to the issues of tms case,
the provision that ASI shall designate 3 out of the 9 directors and the other stockholders
shall designate the other 6, clearly indicate that there are two distinct groups in Saniwares,
namely ASI, which owns 40% of the capital stock and the Philippine National stockholders
who own the balance of 60%, and that 2) ASI is given certain protections as the minority
stockholder.
Premises considered, we believe that under the Agreement there are two groups of
stockholders who established a corporation with provisions for a special contractual
relationship between the parties, i.e., ASI and the other stockholders. (pp. 4-5)
Section 5 (a) of the agreement uses the word "designated" and not "nominated" or "elected" in the
selection of the nine directors on a six to three ratio. Each group is assured of a fixed number of directors
in the board.
Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin Young also
testified that Section 16(c) of the Agreement that "Nothing herein contained shall be construed to
constitute any of the parties hereto partners or joint venturers in respect of any transaction hereunder"
was merely to obviate the possibility of the enterprise being treated as partnership for tax purposes and
liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the industrial and manufacturing capacities of
a local firm are constrained to seek the technology and marketing assistance of huge multinational
corporations of the developed world. Arrangements are formalized where a foreign group becomes a
minority owner of a firm in exchange for its manufacturing expertise, use of its brand names, and other
such assistance. However, there is always a danger from such arrangements. The foreign group may,
from the start, intend to establish its own sole or monopolistic operations and merely uses the joint
venture arrangement to gain a foothold or test the Philippine waters, so to speak. Or the covetousness
may come later. As the Philippine firm enlarges its operations and becomes profitable, the foreign group
undermines the local majority ownership and actively tries to completely or predominantly take over the
entire company. This undermining of joint ventures is not consistent with fair dealing to say the least. To
the extent that such subversive actions can be lawfully prevented, the courts should extend protection
especially in industries where constitutional and legal requirements reserve controlling ownership to
Filipino citizens.
The Lagdameo Group stated in their appellees' brief in the Court of Appeal
In fact, the Philippine Corporation Code itself recognizes the right of stockholders to enter
into agreements regarding the exercise of their voting rights.
Sec. 100. Agreements by stockholders.-
xxx xxx xxx
2. An agreement between two or more stockholders, if in writing and signed by the parties
thereto, may provide that in exercising any voting rights, the shares held by them shall be
voted as therein provided, or as they may agree, or as determined in accordance with a
procedure agreed upon by them.
Appellants contend that the above provision is included in the Corporation Code's chapter on
close corporations and Saniwares cannot be a close corporation because it has 95
stockholders. Firstly, although Saniwares had 95 stockholders at the time of the disputed
stockholders meeting, these 95 stockholders are not separate from each other but are
divisible into groups representing a single Identifiable interest. For example, ASI, its
nominees and lawyers count for 13 of the 95 stockholders. The YoungYutivo family count for
another 13 stockholders, the Chamsay family for 8 stockholders, the Santos family for 9
stockholders, the Dy family for 7 stockholders, etc. If the members of one family and/or
business or interest group are considered as one (which, it is respectfully submitted, they
should be for purposes of determining how closely held Saniwares is there were as of 8
March 1983, practically only 17 stockholders of Saniwares. (Please refer to discussion in pp.
5 to 6 of appellees' Rejoinder Memorandum dated 11 December 1984 and Annex "A"
thereof).
Secondly, even assuming that Saniwares is technically not a close corporation because it
has more than 20 stockholders, the undeniable fact is that it is a close-held corporation.
Surely, appellants cannot honestly claim that Saniwares is a public issue or a widely held
corporation.
In the United States, many courts have taken a realistic approach to joint venture
corporations and have not rigidly applied principles of corporation law designed primarily for
public issue corporations. These courts have indicated that express arrangements between
corporate joint ventures should be construed with less emphasis on the ordinary rules of law
usually applied to corporate entities and with more consideration given to the nature of the
agreement between the joint venturers (Please see Wabash Ry v. American Refrigerator
Transit Co., 7 F 2d 335; Chicago, M & St. P. Ry v. Des Moines Union Ry; 254 Ass'n. 247 US.
490'; Seaboard Airline Ry v. Atlantic Coast Line Ry; 240 N.C. 495,.82 S.E. 2d 771; Deboy v.
Harris, 207 Md., 212,113 A 2d 903; Hathway v. Porter Royalty Pool, Inc., 296 Mich. 90, 90,
295 N.W. 571; Beardsley v. Beardsley, 138 U.S. 262; "The Legal Status of Joint Venture
Corporations", 11 Vand Law Rev. p. 680,1958). These American cases dealt with legal
questions as to the extent to which the requirements arising from the corporate form of
joint venture corporations should control, and the courts ruled that substantial justice lay
with those litigants who relied on the joint venture agreement rather than the litigants who
relied on the orthodox principles of corporation law.
As correctly held by the SEC Hearing Officer:
It is said that participants in a joint venture, in organizing the joint venture deviate from the
traditional pattern of corporation management. A noted authority has pointed out that just
as in close corporations, shareholders' agreements in joint venture corporations often
contain provisions which do one or more of the following: (1) require greater than majority
vote for shareholder and director action; (2) give certain shareholders or groups of
shareholders power to select a specified number of directors; (3) give to the shareholders
control over the selection and retention of employees; and (4) set up a procedure for the
settlement of disputes by arbitration (See I O' Neal, Close Corporations, 1971 ed., Section
1.06a, pp. 15-16) (Decision of SEC Hearing Officer, P. 16)
Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply that
agreements regarding the exercise of voting rights are allowed only in close corporations.
As Campos and Lopez-Campos explain:
 Paragraph 2 refers to pooling and voting agreements in particular. Does this provision
necessarily imply that these agreements can be valid only in close corporations as defined
by the Code? Suppose that a corporation has twenty five stockholders, and therefore cannot
qualify as a close corporation under section 96, can some of them enter into an agreement
to vote as a unit in the election of directors? It is submitted that there is no reason for
denying stockholders of corporations other than close ones the right to enter into not voting
or pooling agreements to protect their interests, as long as they do not intend to commit
any wrong, or fraud on the other stockholders not parties to the agreement. Of course,
voting or pooling agreements are perhaps more useful and more often resorted to in close
corporations. But they may also be found necessary even in widely held corporations.
Moreover, since the Code limits the legal meaning of close corporations to those which
comply with the requisites laid down by section 96, it is entirely possible that a corporation
which is in fact a close corporation will not come within the definition. In such case, its
stockholders should not be precluded from entering into contracts like voting agreements if
these are otherwise valid. (Campos & Lopez-Campos, op cit, p. 405)
In short, even assuming that sec. 5(a) of the Agreement relating to the designation or
nomination of directors restricts the right of the Agreement's signatories to vote for
directors, such contractual provision, as correctly held by the SEC, is valid and binding upon
the signatories thereto, which include appellants. (Rollo No. 75951, pp. 90-94)
In regard to the question as to whether or not the ASI group may vote their additional equity during
elections of Saniwares' board of directors, the Court of Appeals correctly stated:
As in other joint venture companies, the extent of ASI's participation in the management of
the corporation is spelled out in the Agreement. Section 5(a) hereof says that three of the
nine directors shall be designated by ASI and the remaining six by the other stockholders,
i.e., the Filipino stockholders. This allocation of board seats is obviously in consonance with
the minority position of ASI.
Having entered into a well-defined contractual relationship, it is imperative that the parties
should honor and adhere to their respective rights and obligations thereunder. Appellants
seem to contend that any allocation of board seats, even in joint venture corporations, are
null and void to the extent that such may interfere with the stockholder's rights to
cumulative voting as provided in Section 24 of the Corporation Code. This Court should not
be prepared to hold that any agreement which curtails in any way cumulative voting should
be struck down, even if such agreement has been freely entered into by experienced
businessmen and do not prejudice those who are not parties thereto. It may well be that it
would be more cogent to hold, as the Securities and Exchange Commission has held in the
decision appealed from, that cumulative voting rights may be voluntarily waived by
stockholders who enter into special relationships with each other to pursue and implement
specific purposes, as in joint venture relationships between foreign and local stockholders,
so long as such agreements do not adversely affect third parties.
In any event, it is believed that we are not here called upon to make a general rule on this
question. Rather, all that needs to be done is to give life and effect to the particular
contractual rights and obligations which the parties have assumed for themselves.
On the one hand, the clearly established minority position of ASI and the contractual
allocation of board seats Cannot be disregarded. On the other hand, the rights of the
stockholders to cumulative voting should also be protected.
In our decision sought to be reconsidered, we opted to uphold the second over the first.
Upon further reflection, we feel that the proper and just solution to give due consideration
to both factors suggests itself quite clearly. This Court should recognize and uphold the
division of the stockholders into two groups, and at the same time uphold the right of the
stockholders within each group to cumulative voting in the process of determining who the
group's nominees would be. In practical terms, as suggested by appellant Luciano E.
Salazar himself, this means that if the Filipino stockholders cannot agree who their six
nominees will be, a vote would have to be taken among the Filipino stockholders only.
During this voting, each Filipino stockholder can cumulate his votes. ASI, however, should
not be allowed to interfere in the voting within the Filipino group. Otherwise, ASI would be
able to designate more than the three directors it is allowed to designate under the
Agreement, and may even be able to get a majority of the board seats, a result which is
clearly contrary to the contractual intent of the parties.
 Such a ruling will give effect to both the allocation of the board seats and the stockholder's
right to cumulative voting. Moreover, this ruling will also give due consideration to the issue
raised by the appellees on possible violation or circumvention of the Anti-Dummy Law
(Com. Act No. 108, as amended) and the nationalization requirements of the Constitution
and the laws if ASI is allowed to nominate more than three directors. (Rollo-75875, pp. 38-
39)
The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group has the right to vote
their additional equity pursuant to Section 24 of the Corporation Code which gives the stockholders of a
corporation the right to cumulate their votes in electing directors. Petitioner Salazar adds that this right if
granted to the ASI Group would not necessarily mean a violation of the Anti-Dummy Act (Commonwealth
Act 108, as amended). He cites section 2-a thereof which provides:
And provided finally that the election of aliens as members of the board of directors or
governing body of corporations or associations engaging in partially nationalized activities
shall be allowed in proportion to their allowable participation or share in the capital of such
entities. (amendments introduced by Presidential Decree 715, section 1, promulgated May
28, 1975)
The ASI Group's argument is correct within the context of Section 24 of the Corporation Code. The point
of query, however, is whether or not that provision is applicable to a joint venture with clearly defined
agreements:
The legal concept of ajoint venture is of common law origin. It has no precise legal definition
but it has been generally understood to mean an organization formed for some temporary
purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is in fact hardly distinguishable from
the partnership, since their elements are similar community of interest in the business,
sharing of profits and losses, and a mutual right of control. Blackner v. Mc Dermott, 176 F.
2d. 498, [1949]; Carboneau v. Peterson, 95 P. 2d., 1043 [1939]; Buckley v. Chadwick, 45
Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d. 242 [1955]). The main distinction cited by most
opinions in common law jurisdictions is that the partnership contemplates a general
business with some degree of continuity, while the joint venture is formed for the execution
of a single transaction, and is thus of a temporary nature. (Tufts v. Mann 116 Cal. App. 170,
2 P. 2d. 500 [1931]; Harmon v. Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v.
Megargel 266 Fed. 811 [1920]). This observation is not entirely accurate in this jurisdiction,
since under the Civil Code, a partnership may be particular or universal, and a particular
partnership may have for its object a specific undertaking. (Art. 1783, Civil Code). It would
seem therefore that under Philippine law, a joint venture is a form of partnership and should
thus be governed by the law of partnerships. The Supreme Court has however recognized a
distinction between these two business forms, and has held that although a corporation
cannot enter into a partnership contract, it may however engage in a joint venture with
others. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954]) (Campos and Lopez-Campos
Comments, Notes and Selected Cases, Corporation Code 1981)
Moreover, the usual rules as regards the construction and operations of contracts generally apply to a
contract of joint venture. (O' Hara v. Harman 14 App. Dev. (167) 43 NYS 556).
Bearing these principles in mind, the correct view would be that the resolution of the question of whether
or not the ASI Group may vote their additional equity lies in the agreement of the parties.
Necessarily, the appellate court was correct in upholding the agreement of the parties as regards the
allocation of director seats under Section 5 (a) of the "Agreement," and the right of each group of
stockholders to cumulative voting in the process of determining who the group's nominees would be under
Section 3 (a) (1) of the "Agreement." As pointed out by SEC, Section 5 (a) of the Agreement relates to the
manner of nominating the members of the board of directors while Section 3 (a) (1) relates to the manner
of voting for these nominees.
This is the proper interpretation of the Agreement of the parties as regards the election of members of the
board of directors.
To allow the ASI Group to vote their additional equity to help elect even a Filipino director who would be
beholden to them would obliterate their minority status as agreed upon by the parties. As aptly stated by
the appellate court:
... ASI, however, should not be allowed to interfere in the voting within the Filipino group.
Otherwise, ASI would be able to designate more than the three directors it is allowed to
designate under the Agreement, and may even be able to get a majority of the board seats,
a result which is clearly contrary to the contractual intent of the parties.
 Such a ruling will give effect to both the allocation of the board seats and the stockholder's
right to cumulative voting. Moreover, this ruling will also give due consideration to the issue
raised by the appellees on possible violation or circumvention of the Anti-Dummy Law
(Com. Act No. 108, as amended) and the nationalization requirements of the Constitution
and the laws if ASI is allowed to nominate more than three directors. (At p. 39, Rollo,
75875)
Equally important as the consideration of the contractual intent of the parties is the consideration as
regards the possible domination by the foreign investors of the enterprise in violation of the
nationalization requirements enshrined in the Constitution and circumvention of the Anti-Dummy Act. In
this regard, petitioner Salazar's position is that the Anti-Dummy Act allows the ASI group to elect board
directors in proportion to their share in the capital of the entity. It is to be noted, however, that the same
law also limits the election of aliens as members of the board of directors in proportion to their allowance
participation of said entity. In the instant case, the foreign Group ASI was limited to designate three
directors. This is the allowable participation of the ASI Group. Hence, in future dealings, this limitation of
six to three board seats should always be maintained as long as the joint venture agreement exists
considering that in limiting 3 board seats in the 9-man board of directors there are provisions already
agreed upon and embodied in the parties' Agreement to protect the interests arising from the minority
status of the foreign investors.
With these findings, we the decisions of the SEC Hearing Officer and SEC which were impliedly affirmed by
the appellate court declaring Messrs. Wolfgang Aurbach, John Griffin, David P Whittingham, Emesto V.
Lagdameo, Baldwin young, Raul A. Boncan, Emesto V. Lagdameo, Jr., Enrique Lagdameo, and George F.
Lee as the duly elected directors of Saniwares at the March 8,1983 annual stockholders' meeting.
On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951) object to a cumulative
voting during the election of the board of directors of the enterprise as ruled by the appellate court and
submits that the six (6) directors allotted the Filipino stockholders should be selected by consensus
pursuant to section 5 (a) of the Agreement which uses the word "designate" meaning "nominate, delegate
or appoint."
They also stress the possibility that the ASI Group might take control of the enterprise if the Filipino
stockholders are allowed to select their nominees separately and not as a common slot determined by the
majority of their group.
Section 5 (a) of the Agreement which uses the word designates in the allocation of board directors should
not be interpreted in isolation. This should be construed in relation to section 3 (a) (1) of the Agreement.
As we stated earlier, section 3(a) (1) relates to the manner of voting for these nominees which
is cumulative voting while section 5(a) relates to the manner of nominating the members of the board of
directors. The petitioners in G.R. No. 75951 agreed to this procedure, hence, they cannot now impugn its
legality.
The insinuation that the ASI Group may be able to control the enterprise under the cumulative voting
procedure cannot, however, be ignored. The validity of the cumulative voting procedure is dependent on
the directors thus elected being genuine members of the Filipino group, not voters whose interest is to
increase the ASI share in the management of Saniwares. The joint venture character of the enterprise
must always be taken into account, so long as the company exists under its original agreement.
Cumulative voting may not be used as a device to enable ASI to achieve stealthily or indirectly what they
cannot accomplish openly. There are substantial safeguards in the Agreement which are intended to
preserve the majority status of the Filipino investors as well as to maintain the minority status of the
foreign investors group as earlier discussed. They should be maintained.
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are DISMISSED and the petition in
G.R. No. 75951 is partly GRANTED. The amended decision of the Court of Appeals is MODIFIED in that
Messrs. Wolfgang Aurbach John Griffin, David Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A.
Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee are declared as the duly elected
directors of Saniwares at the March 8,1983 annual stockholders' meeting. In all other respects, the
questioned decision is AFFIRMED. Costs against the petitioners in G.R. Nos. 75975-76 and G.R. No.
75875.
SO ORDERED.
G.R. No. 159333 July 31, 2006
ARSENIO T. MENDIOLA, petitioner,
vs.
COURT OF APPEALS, NATIONAL LABOR RELATIONS COMMISSION, PACIFIC FOREST
RESOURCES, PHILS., INC. and/or CELLMARK AB, respondents.
DECISION
PUNO, J.:
On appeal are the Decision1 and Resolution2 of the Court of Appeals, dated January 30, 2003 and July 30,
2003, respectively, in CA-G.R. SP No. 71028, affirming the ruling3 of the National Labor Relations
Commission (NLRC), which in turn set aside the July 30, 2001 Decision 4 of the labor arbiter. The labor
arbiter declared illegal the dismissal of petitioner from employment and awarded separation pay, moral
and exemplary damages, and attorney's fees.
The facts are as follows:
Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a corporation organized and existing
under the laws of California, USA. It is a subsidiary of Cellulose Marketing International, a corporation duly
organized under the laws of Sweden, with principal office in Gothenburg, Sweden.
Private respondent Pacfor entered into a "Side Agreement on Representative Office known as Pacific
Forest Resources (Phils.), Inc."5 with petitioner Arsenio T. Mendiola (ATM), effective May 1, 1995,
"assuming that Pacfor-Phils. is already approved by the Securities and Exchange Commission [SEC] on the
said date."6 The Side Agreement outlines the business relationship of the parties with regard to the
Philippine operations of Pacfor. Private respondent will establish a Pacfor representative office in the
Philippines, to be known as Pacfor Phils, and petitioner ATM will be its President. Petitioner's base salary
and the overhead expenditures of the company shall be borne by the representative office and funded by
Pacfor/ATM, since Pacfor Phils. is equally owned on a 50-50 equity by ATM and Pacfor-usa.
On July 14, 1995, the SEC granted the application of private respondent Pacfor for a license to transact
business in the Philippines under the name of Pacfor or Pacfor Phils. 7 In its application, private respondent
Pacfor proposed to establish its representative office in the Philippines with the purpose of monitoring and
coordinating the market activities for paper products. It also designated petitioner as its resident agent in
the Philippines, authorized to accept summons and processes in all legal proceedings, and all notices
affecting the corporation.8
In March 1997, the Side Agreement was amended through a "Revised Operating and Profit Sharing
Agreement for the Representative Office Known as Pacific Forest Resources (Philippines)," 9 where the
salary of petitioner was increased to $78,000 per annum. Both agreements show that the operational
expenses will be borne by the representative office and funded by all parties "as equal partners," while the
profits and commissions will be shared among them.
In July 2000, petitioner wrote Kevin Daley, Vice President for Asia of Pacfor, seeking confirmation of his
50% equity of Pacfor Phils.10 Private respondent Pacfor, through William Gleason, its President, replied
that petitioner is not a part-owner of Pacfor Phils. because the latter is merely Pacfor-USA's representative
office and not an entity separate and distinct from Pacfor-USA. "It's simply a 'theoretical company' with
the purpose of dividing the income 50-50."11 Petitioner presumably knew of this arrangement from the
start, having been the one to propose to private respondent Pacfor the setting up of a representative
office, and "not a branch office" in the Philippines to save on taxes.12
Petitioner claimed that he was all along made to believe that he was in a joint venture with them. He
alleged he would have been better off remaining as an independent agent or representative of Pacfor-USA
as ATM Marketing Corp.13 Had he known that no joint venture existed, he would not have allowed Pacfor
to take the profitable business of his own company, ATM Marketing Corp. 14 Petitioner raised other issues,
such as the rentals of office furniture, salary of the employees, company car, as well as commissions
allegedly due him. The issues were not resolved, hence, in October 2000, petitioner wrote Pacfor-USA
demanding payment of unpaid commissions and office furniture and equipment rentals, amounting to
more than one million dollars.15
On November 27, 2000, private respondent Pacfor, through counsel, ordered petitioner to turn over to it
all papers, documents, files, records, and other materials in his or ATM Marketing Corporation's possession
that belong to Pacfor or Pacfor Phils.16 On December 18, 2000, private respondent Pacfor also required
petitioner to remit more than three hundred thousand-peso Christmas giveaway fund for clients of Pacfor
Phils.17 Lastly, private respondent Pacfor withdrew all its offers of settlement and ordered petitioner to
transfer title and turn over to it possession of the service car. 18
Private respondent Pacfor likewise sent letters to its clients in the Philippines, advising them not to deal
with Pacfor Phils. In its letter to Intercontinental Paper Industries, Inc., dated November 21, 2000, private
respondent Pacfor stated:
Until further notice, please course all inquiries and communications for Pacific Forest Resources
(Philippines) to:
Pacific Forest Resources
200 Tamal Plaza, Suite 200
Corte Madera, CA, USA 94925
 (415) 927 1700 phone
(415) 381 4358 fax
Please do not send any communication to Mr. Arsenio "Boy" T. Mendiola or to the offices of ATM
Marketing Corporation at Room 504, Concorde Building, Legaspi Village, Makati City, Philippines. 19
In another letter addressed to Davao Corrugated Carton Corp. (DAVCOR), dated December 2000, private
respondent directed said client "to please communicate directly with us on any further questions
associated with these payments or any future business. Do not communicate with [Pacfor] and/or
[ATM]."20
Petitioner construed these directives as a severance of the "unregistered partnership" between him and
Pacfor, and the termination of his employment as resident manager of Pacfor Phils. 21 In a memorandum to
the employees of Pacfor Phils., dated January 29, 2001, he stated:
I received a letter from Pacific Forest Resources, Inc. demanding the turnover of all records to
them effective December 19, 2000. The company records were turned over only on January 26,
2001. This means our jobs with Pacific Forest were terminated effective December 19, 2000. I am
concerned about your welfare. I would like to help you by offering you to work with ATM Marketing
Corporation.
Please let me know if you are interested.22
On the basis of the "Side Agreement," petitioner insisted that he and Pacfor equally own Pacfor Phils.
Thus, it follows that he and Pacfor likewise own, on a 50/50 basis, Pacfor Phils.' office furniture and
equipment and the service car. He also reiterated his demand for unpaid commissions, and proposed to
offset these with the remaining Christmas giveaway fund in his possession. 23 Furthermore, he did not
renew the lease contract with Pulp and Paper, Inc., the lessor of the office premises of Pacfor Phils.,
wherein he was the signatory to the lease agreement.24
On February 2, 2001, private respondent Pacfor placed petitioner on preventive suspension and ordered
him to show cause why no disciplinary action should be taken against him. Private respondent Pacfor
charged petitioner with willful disobedience and serious misconduct for his refusal to turn over the service
car and the Christmas giveaway fund which he applied to his alleged unpaid commissions. Private
respondent also alleged loss of confidence and gross neglect of duty on the part of petitioner for allegedly
allowing another corporation owned by petitioner's relatives, High End Products, Inc. (HEPI), to use the
same telephone and facsimile numbers of Pacfor, to possibly steal and divert the sales and business of
private respondent for HEPI's principal, International Forest Products, a competitor of private
respondent.25
Petitioner denied the charges. He reiterated that he considered the import of Pacfor President William
Gleason's letters as a "cessation of his position and of the existence of Pacfor Phils." He likewise informed
private respondent Pacfor that ATM Marketing Corp. now occupies Pacfor Phils.' office premises,26 and
demanded payment of his separation pay. 27 On February 15, 2001, petitioner filed his complaint for illegal
dismissal, recovery of separation pay, and payment of attorney's fees with the NLRC. 28
In the meantime, private respondent Pacfor lodged fresh charges against petitioner. In a memorandum
dated March 5, 2001, private respondent directed petitioner to explain why he should not be disciplined
for serious misconduct and conflict of interest. Private respondent charged petitioner anew with serious
misconduct for the latter's alleged act of fraud and misrepresentation in authorizing the release of an
additional peso salary for himself, besides the dollar salary agreed upon by the parties. Private respondent
also accused petitioner of disloyalty and representation of conflicting interests for having continued using
the Pacfor Phils.' office for operations of HEPI. In addition, petitioner allegedly solicited business for HEPI
from a competitor company of private respondent Pacfor.29
Labor Arbiter Felipe Pati ruled in favor of petitioner, finding there was constructive dismissal. By directing
petitioner to turn over all office records and materials, regardless of whether he may have retained copies,
private respondent Pacfor virtually deprived petitioner of his job by the gradual diminution of his authority
as resident manager. Petitioner's position as resident manager whose duty, among others, was to
maintain the security of its business transactions and communications was rendered meaningless. The
dispositive portion of the decision of the Labor Arbiter reads:
WHEREFORE, premises considered, judgment is hereby rendered ordering herein respondents
Cellmark AB and Pacific Forest Resources, Inc., jointly and severally to compensate complainant
Arsenio T. Mendiola separation pay equivalent to at least one month for every year of service,
whichever is higher (sic), as reinstatement is no longer feasible by reason of the strained relations
of the parties equivalent to five (5) months in the amount of $32,000.00 plus the sum
of P250,000.00; pay complainant the sum of P500,000.00 as moral and exemplary damages and
ten percent (10%) of the amounts awarded as and for attorney's fees.
All other claims are dismissed for lack of basis.
 SO ORDERED.30
Private respondent Pacfor appealed to the NLRC which ruled in its favor. On December 20, 2001, the NLRC
set aside the July 30, 2001 decision of the labor arbiter, for lack of jurisdiction and lack of merit. 31 It held
there was no employer-employee relationship between the parties. Based on the two agreements between
the parties, it concluded that petitioner is not an employee of private respondent Pacfor, but a full co-
owner (50/50 equity).
The NLRC denied petitioner's Motion for Reconsideration. 32
Petitioner was not successful on his appeal to the Court of Appeals. The appellate court upheld the ruling
of the NLRC.
Petitioner's Motion for Reconsideration33 of the decision of the Court of Appeals was denied.
Hence, this appeal.34
Petitioner assigns the following errors:
A. The Respondent Court of Appeals committed reversible error and abused its discretion in
rendering judgment against petitioner since jurisdiction has been acquired over the subject matter
of the case as there exists employer-employee relationship between the parties.
B. The Respondent Court of Appeals committed reversible error and abused its discretion in ruling
that jurisdiction over the subject matter cannot be waived and may be alleged even for the first
time on appeal or considered by the court motu prop[r]io.35
The first issue is whether an employer-employee relationship exists between petitioner and private
respondent Pacfor.
Petitioner argues that he is an industrial partner of the partnership he formed with private respondent
Pacfor, and also an employee of the partnership. Petitioner insists that an industrial partner may at the
same time be an employee of the partnership, provided there is such an agreement, which, in this case, is
the "Side Agreement" and the "Revised Operating and Profit Sharing Agreement." The Court of Appeals
denied the appeal of petitioner, holding that "the legal basis of the complaint is not employment but
perhaps partnership, co-ownership, or independent contractorship." Hence, the Labor Code cannot apply.
We hold that petitioner is an employee of private respondent Pacfor and that no partnership or co-
ownership exists between the parties.
In a partnership, the members become co-owners of what is contributed to the firm capital and of all
property that may be acquired thereby and through the efforts of the members. 36 The property or stock of
the partnership forms a community of goods, a common fund, in which each party has a proprietary
interest.37 In fact, the New Civil Code regards a partner as a co-owner of specific partnership
property.38 Each partner possesses a joint interest in the whole of partnership property. If the relation
does not have this feature, it is not one of partnership.39 This essential element, the community of
interest, or co-ownership of, or joint interest in partnership property is absent in the relations between
petitioner and private respondent Pacfor. Petitioner is not a part-owner of Pacfor Phils. William Gleason,
private respondent Pacfor's President established this fact when he said that Pacfor Phils. is simply a
"theoretical company" for the purpose of dividing the income 50-50. He stressed that petitioner knew of
this arrangement from the very start, having been the one to propose to private respondent Pacfor the
setting up of a representative office, and "not a branch office" in the Philippines to save on taxes. Thus,
the parties in this case, merely shared profits. This alone does not make a partnership. 40
Besides, a corporation cannot become a member of a partnership in the absence of express authorization
by statute or charter.41 This doctrine is based on the following considerations: (1) that the mutual agency
between the partners, whereby the corporation would be bound by the acts of persons who are not its
duly appointed and authorized agents and officers, would be inconsistent with the policy of the law that
the corporation shall manage its own affairs separately and exclusively; and, (2) that such an
arrangement would improperly allow corporate property to become subject to risks not contemplated by
the stockholders when they originally invested in the corporation. 42No such authorization has been proved
in the case at bar.
Be that as it may, we hold that on the basis of the evidence, an employer-employee relationship is present
in the case at bar. The elements to determine the existence of an employment relationship are: (a) the
selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and
(d) the employer's power to control the employee's conduct. The most important element is the
employer's control of the employee's conduct, not only as to the result of the work to be done, but also as
to the means and methods to accomplish it.43
In the instant case, all the foregoing elements are present. First, it was private respondent Pacfor which
selected and engaged the services of petitioner as its resident agent in the Philippines. Second, as
stipulated in their Side Agreement, private respondent Pacfor pays petitioner his salary amounting to
$65,000 per annum which was later increased to $78,000. Third, private respondent Pacfor holds the
power of dismissal, as may be gleaned through the various memoranda it issued against petitioner,
placing the latter on preventive suspension while charging him with various offenses, including willful
disobedience, serious misconduct, and gross neglect of duty, and ordering him to show cause why no
disciplinary action should be taken against him.
Lastly and most important, private respondent Pacfor has the power of control over the means and
method of petitioner in accomplishing his work.
The power of control refers merely to the existence of the power, and not to the actual exercise thereof.
The principal consideration is whether the employer has the right to control the manner of doing the work,
and it is not the actual exercise of the right by interfering with the work, but the right to control, which
constitutes the test of the existence of an employer-employee relationship.44 In the case at bar, private
respondent Pacfor, as employer, clearly possesses such right of control. Petitioner, as private respondent
Pacfor's resident agent in the Philippines, is, exactly so, only an agent of the corporation, a representative
of Pacfor, who transacts business, and accepts service on its behalf.
This right of control was exercised by private respondent Pacfor during the period of November to
December 2000, when it directed petitioner to turn over to it all records of Pacfor Phils.; when it ordered
petitioner to remit the Christmas giveaway fund intended for clients of Pacfor Phils.; and, when it
withdrew all its offers of settlement and ordered petitioner to transfer title and turn over to it the
possession of the service car. It was also during this period when private respondent Pacfor sent letters to
its clients in the Philippines, particularly Intercontinental Paper Industries, Inc. and DAVCOR, advising
them not to deal with petitioner and/or Pacfor Phils. In its letter to DAVCOR, private respondent Pacfor
replied to the client's request for an invoice payment extension, and formulated a revised payment
program for DAVCOR. This is one unmistakable proof that private respondent Pacfor exercises control over
the petitioner.
Next, we shall determine if petitioner was constructively dismissed from employment.
The evidence shows that when petitioner insisted on his 50% equity in Pacfor Phils., and would not quit
however, private respondent Pacfor began to systematically deprive petitioner of his duties and benefits to
make him feel that his presence in the company was no longer wanted. First, private respondent Pacfor
directed petitioner to turn over to it all records of Pacfor Phils. This would certainly make the work of
petitioner very difficult, if not impossible. Second, private respondent Pacfor ordered petitioner to remit
the Christmas giveaway fund intended for clients of Pacfor Phils. Then it ordered petitioner to transfer title
and turn over to it the possession of the service car. It also advised its clients in the Philippines,
particularly Intercontinental Paper Industries, Inc. and DAVCOR, not to deal with petitioner and/or Pacfor
Phils. Lastly, private respondent Pacfor appointed a new resident agent for Pacfor Phils.45
Although there is no reduction of the salary of petitioner, constructive dismissal is still present because
continued employment of petitioner is rendered, at the very least, unreasonable.46 There is an act of clear
discrimination, insensibility or disdain by the employer that continued employment may become so
unbearable on the part of the employee so as to foreclose any choice on his part except to resign from
such employment.47
The harassing acts of the private respondent are unjustified. They were undertaken when petitioner
sought clarification from the private respondent about his supposed 50% equity on Pacfor Phils. Private
respondent Pacfor invokes its rights as an owner. Allegedly, its issuance of the foregoing directives against
petitioner was a valid exercise of management prerogative. We remind private respondent Pacfor that the
exercise of management prerogative is not absolute. "By its very nature, encompassing as it could be,
management prerogative must be exercised in good faith and with due regard to the rights of labor
verily, with the principles of fair play at heart and justice in mind." The exercise of management
prerogative cannot be utilized as an implement to circumvent our laws and oppress employees.48
As resident agent of private respondent corporation, petitioner occupied a position involving trust and
confidence. In the light of the strained relations between the parties, the full restoration of an employment
relationship based on trust and confidence is no longer possible. He should be awarded separation pay, in
lieu of reinstatement.
IN VIEW WHEREOF, the petition is GRANTED. The Court of Appeals' January 30, 2003 Decision in CA-
G.R. SP No. 71028 and July 30, 2003 Resolution, affirming the December 20, 2001 Decision of the
National Labor Relations Commission, are ANNULED and SET ASIDE. The July 30, 2001 Decision of the
Labor Arbiter is REINSTATED with the MODIFICATION that the amount of P250,000.00 representing an
alleged increase in petitioner's salary shall be deducted from the grant of separation pay for lack of
evidence.
SO ORDERED.

FIRST DIVISION
J. TIOSEJO INVESTMENT CORP., G.R. No. 174149
Petitioner,
Present:

CORONA, C.J.,
Chairperson,
VELASCO, JR.,
- versus - LEONARDO-DE CASTRO,
PEREZ, and
MENDOZA,* JJ.

Promulgated:

SPOUSES BENJAMIN AND ELEANOR September 8, 2010

ANG,
Respondents.

x--------------------------------------------------x

DECISION

PEREZ, J.:

Filed pursuant to Rule 45 of the 1997 Rules of Civil Procedure, the petition for review at bench seeks the
reversal of the Resolutions dated 23 May 2006 and 9 August 2006 issued by the Third Division of the
Court of Appeals (CA) in CA-G.R. SP No. 93841 which, respectively, dismissed the petition for review of
petitioner J. Tiosejo Investment Corp. (JTIC) for having been filed out of time[1] and denied the motion for
reconsideration of said dismissal.[2]

The Facts

On 28 December 1995 petitioner entered into a Joint Venture Agreement (JVA) with Primetown Property
Group, Inc. (PPGI) for the development of a residential condominium project to be known as The
Meditel on the formers 9,502 square meter property along Samat St., Highway
Hills, Mandaluyong City.[3] With petitioner contributing the same property to the joint venture and PPGI
undertaking to develop the condominium, the JVA provided, among other terms and conditions, that the
developed units shall be shared by the former and the latter at a ratio of 17%-83%, respectively.[4] While
both parties were allowed, at their own individual responsibility, to pre-sell the units pertaining to
them,[5]PPGI further undertook to use all proceeds from the pre-selling of its saleable units for the
completion of the Condominium Project. [6]

On 17 June 1996, the Housing and Land Use Regulatory Board (HLURB) issued License to Sell No. 96-06-
2854 in favor of petitioner and PPGI as project owners. [7] By virtue of said license, PPGI executed Contract
to Sell No. 0212 with Spouses Benjamin and Eleanor Ang on 5 February 1997, over the 35.45-square
meter condominium unit denominated as Unit A-1006, for the agreed contract price of P52,597.88 per
square meter or a total P2,077,334.25.[8] On the same date PPGI and respondents also executedContract
to Sell No. 0214 over the 12.50 square meter parking space identified as Parking Slot No. 0405, for the
stipulated consideration of P26,400.00 square meters or a total ofP313,500.00.[9]

On 21 July 1999, respondents filed against petitioner and PPGI the complaint for the rescission of the
aforesaid Contracts to Sell docketed before the HLURB as HLURB Case No. REM 072199-
10567. Contending that they were assured by petitioner and PPGI that the subject condominium unit and
parking space would be available for turn-over and occupancy in December 1998, respondents averred,
among other matters, that in view of the non-completion of the project according to said representation,
respondents instructed petitioner and PPGI to stop depositing the post-dated checks they issued and to
cancel said Contracts to Sell; and, that despite several demands, petitioner and PPGI have failed and
refused to refund the P611,519.52 they already paid under the circumstances. Together with the refund of
said amount and interests thereon at the rate of 12% per annum, respondents prayed for the grant of
their claims for moral and exemplary damages as well as attorneys fees and the costs. [10]

Specifically denying the material allegations of the foregoing complaint, PPGI filed its 7 September 1999
answer alleging that the delay in the completion of the project was attributable to the economic crisis
which affected the country at the time; that the unexpected and unforeseen inflation as well as increase in
interest rates and cost of building materials constitute force majeure and were beyond its control; that
aware of its responsibilities, it offered several alternatives to its buyers like respondents for a transfer of
their investment to its other feasible projects and for the amounts they already paid to be considered as
partial payment for the replacement unit/s; and, that the complaint was prematurely filed in view of the
on-going negotiations it is undertaking with its buyers and prospective joint venture partners. Aside from
the dismissal of the complaint, PPGI sought the readjustment of the contract price and the grant of its
counterclaims for attorneys fees and litigation expenses.[11]

Petitioner also specifically denied the material allegations of the complaint in separate answer dated 5
February 2002[12] which it amended on 20 May 2002. Calling attention to the fact that its prestation under
the JVA consisted in contributing the property on which The Meditel was to be constructed, petitioner
asseverated that, by the terms of the JVA, each party was individually responsible for the marketing and
sale of the units pertaining to its share; that not being privy to the Contracts to Sell executed by PPGI and
respondents, it did not receive any portion of the payments made by the latter; and, that without any
contributory fault and negligence on its part, PPGI breached its undertakings under the JVA by failing to
complete the condominium project. In addition to the dismissal of the complaint and the grant of its
counterclaims for exemplary damages, attorneys fees, litigation expenses and the costs, petitioner
interposed a cross-claim against PPGI for full reimbursement of any sum it may be adjudged liable to pay
respondents.[13]

Acting on the position papers and draft decisions subsequently submitted by the parties,[14] Housing and
Land Use (HLU) Arbiter Dunstan T. San Vicente went on to render the 30 July 2003 decision declaring the
subject Contracts to Sell cancelled and rescinded on account of the non-completion of the condominium
project. On the ground that the JVA created a partnership liability on their part, petitioner and PPGI, as
co-owners of the condominium project, were ordered to pay: (a) respondents claim for refund of
theP611,519.52 they paid, with interest at the rate of 12% per annum from 5 February 1997; (b)
damages in the sum of P75,000.00; (c) attorneys fees in the sum of P30,000.00; (d) the costs; and, (e)
an administrative fine in the sum of P10,000.00 for violation of Sec. 20 in relation to Sec. 38 of
Presidential Decree No. 957. [15] Elevated to the HLURB Board of Commissioners via the petition for review
filed by petitioner,[16] the foregoing decision was modified to grant the latters cross-claim in the 14
September 2004 decision rendered by said administrative bodys Second Division in HLURB Case No. REM-
A-031007-0240,[17] to wit:

Wherefore, the petition for review of the respondent Corporation is dismissed. However, the
decision of the Office below dated July 30, 2003 is modified, hence, its dispositive portion
shall read:

1. Declaring the contracts to sell, both dated February 5, 1997, as cancelled

and rescinded, and ordering the respondents to immediately pay the
complainants the following:

a. The amount of P611,519.52, with interest at the legal rate

reckoned from February 5, 1997 until fully paid;
b. Damages of P75,000.00;
c. Attorneys fees equivalent to P30,000.00; and
d. The Cost of suit;

2. Ordering respondents to pay this Office administrative fine of P10,000.00

for violation of Section 20 in relation to Section 38 of P.D. 957; and
3. Ordering respondent Primetown to reimburse the entire amount which the
respondent Corporation will be constrained to pay the complainants.

So ordered.[18]
With the denial of its motion for reconsideration of the foregoing decision, [19] petitioner filed a Notice of
Appeal dated 28 February 2005 which was docketed before the Office of the President (OP) as O.P. Case
No. 05-B-072.[20] On 3 March 2005, the OP issued an order directing petitioner to submit its appeal
memorandum within 15 days from receipt thereof.[21] Acting on the motion therefor filed, the OP also
issued another order on the same date, granting petitioner a period of 15 days from 28 February 2005 or
until 15 March 2005 within which to file its appeal memorandum. [22] In view of petitioners filing of a
second motion for extension dated 15 March 2005, [23] the OP issued the 18 March 2005 order granting the
former an additional 10 days from 15 March 2005 or until 25 March 2005 within which to file its appeal
memorandum, provided no further extension shall be allowed.[24] Claiming to have received the aforesaid
3 March 2005 order only on 16 March 2005, however, petitioner filed its 31 March 2005 motion seeking
yet another extension of 10 days or until 10 April 2005 within which to file its appeal memorandum. [25]

On 7 April 2005, respondents filed their opposition to the 31 March 2005 motion for extension of
petitioner[26] which eventually filed its appeal memorandum by registered mail on 11 April 2005 in view of
the fact that 10 April 2005 fell on a Sunday.[27] On 25 October 2005, the OP rendered a decision
dismissing petitioners appeal on the ground that the latters appeal memorandum was filed out of time and
that the HLURB Board committed no grave abuse of discretion in rendering the appealed
decision.[28] Aggrieved by the denial of its motion for reconsideration of the foregoing decision in the 3
March 2006 order issued by the OP,[29] petitioner filed before the CA its 29 March 2006 motion for an
extension of 15 days from 31 March 2006 or until 15 April 2006 within which to file its petition for
review.[30] Accordingly, a non-extendible period of 15 days to file its petition for review was granted
petitioner in the 31 March 2006 resolution issued by the CA Third Division in CA-G.R, SP No. 93841.[31]

Maintaining that 15 April 2006 fell on a Saturday and that pressures of work prevented its counsel
from finalizing its petition for review, petitioner filed a motion on 17 April 2006, seeking for an additional
time of 10 days or until 27 April 2006 within which to file said pleading.[32] Although petitioner filed by
registered mail a motion to admit its attached petition for review on 19 April 2006, [33] the CA issued the
herein assailed 23 May 2006 resolution,[34] disposing of the formers pending motion for extension as well
as the petition itself in the following wise:

We resolve to DENY the second extension motion and rule to DISMISS the petition
for being filed late.

Settled is that heavy workload is by no means excusable (Land Bank of

the Philippines vs. Natividad, 458 SCRA 441 [2005]). If the failure of the petitioners counsel
to cope up with heavy workload should be considered a valid justification to sidestep the
reglementary period, there would be no end to litigations so long as counsel had not been
sufficiently diligent or experienced (LTS Philippine Corporation vs. Maliwat, 448 SCRA 254,
259-260 [2005], citing Sublay vs. National Labor Relations Commission, 324 SCRA 188
[2000]).

Moreover, lawyers should not assume that their motion for extension or
postponement will be granted the length of time they pray for (Ramos vs. Dajoyag, 378
SCRA 229 [2002]).

SO ORDERED.[35]

Petitioners motion for reconsideration of the foregoing resolution [36] was denied for lack of merit in
the CAs second assailed 9 August 2006 resolution,[37] hence, this petition.
The Issues

Petitioner seeks the reversal of the assailed resolutions on the following grounds, to wit:

I. THE COURT OF APPEALS ERRED IN DISMISSING THE PETITION ON MERE

TECHNICALITY;
 II. THE COURT OF APPEALS ERRED IN REFUSING TO RESOLVE THE PETITION ON
THE MERITS THEREBY AFFIRMING THE OFFICE OF THE PRESIDENTS
DECISION (A) DISMISSING JTICS APPEAL ON A MERE TECHNICALITY; (B)
AFFIRMING THE HLURB BOARDS DECISION INSOFAR AS IT FOUND JTIC
SOLIDARILY LIABLE WITH PRIMETOWN TO PAY SPOUSES ANG DAMAGES,
ATTORNEYS FEES AND THE COST OF THE SUIT; AND (C) AFFIRMING THE
HLURB BOARDS DECISION INSOFAR AS IT FAILED TO AWARD JITC ITS
COUNTERCLAIMS AGAINST SPOUSES ANG. [38]

The Courts Ruling

We find the petition bereft of merit.

While the dismissal of an appeal on purely technical grounds is concededly frowned upon, [39] it bears
emphasizing that the procedural requirements of the rules on appeal are not harmless and trivial
technicalities that litigants can just discard and disregard at will. [40] Neither being a natural right nor a part
of due process, the rule is settled that the right to appeal is merely a statutory privilege which may be
exercised only in the manner and in accordance with the provisions of the law. [41] The perfection of an
appeal in the manner and within the period prescribed by law is, in fact, not only mandatory but
jurisdictional.[42] Considering that they are requirements which cannot be trifled with as mere technicality
to suit the interest of a party,[43] failure to perfect an appeal in the prescribed manner has the effect of
rendering the judgment final and executory.[44]

Fealty to the foregoing principles impels us to discount the error petitioner imputes against the CA for
denying its second motion for extension of time for lack of merit and dismissing its petition for review for
having been filed out of time. Acting on the 29 March 2006 motion filed for the purpose, after all, the CA
had already granted petitioner an inextendible period of 15 days from 31 March 2006 or until 15 April
2006 within which to file its petition for review. Sec. 4, Rule 43 of the 1997 Rules of Civil
Procedureprovides as follows:

Sec. 4. Period of appeal. The appeal shall be taken within fifteen (15) days from notice of
the award, judgment, final order or resolution, or from the date of its last publication, if
publication is required by law for its effectivity, or of the denial of petitioners motion for new
trial or reconsideration duly filed in accordance with the governing law of the court or
agency a quo. Only one (1) motion for reconsideration shall be allowed. Upon proper motion
and payment of the full amount of the docket fee before the expiration of the reglementary
period, the Court of Appeals may grant an additional period of fifteen (15) days only within
which to file the petition for review. No further extension shall be granted except for the
most compelling reason and in no case to exceed fifteen (15) days. (Underscoring supplied)

The record shows that, having been granted the 15-day extension sought in its first motion, petitioner
filed a second motion for extension praying for an additional 10 days from 17 April 2006 within which to
file its petition for review, on the ground that pressures of work and the demands posed by equally
important cases prevented its counsel from finalizing the same. As correctly ruled by the CA, however,
heavy workload cannot be considered as a valid justification to sidestep the reglementary period [45] since
to do so would only serve to encourage needless delays and interminable litigations. Indeed, rules
prescribing the time for doing specific acts or for taking certain proceedings are considered absolutely
indispensable to prevent needless delays and to orderly and promptly discharge judicial
business.[46] Corollary to the principle that the allowance or denial of a motion for extension of time is
addressed to the sound discretion of the court, [47] moreover, lawyers cannot expect that their motions for
extension or postponement will be granted[48] as a matter of course.

Although technical rules of procedure are not ends in themselves, they are necessary for an effective and
expeditious administration of justice and cannot, for said reason, be discarded with the mere expediency
of claiming substantial merit.[49] This holds particularly true in the case at bench where, prior to the filing
of its petition for review before the CA, petitioners appeal before the OP was likewise dismissed in view of
its failure to file its appeal memorandum within the extensions of time it had been granted by said
office. After being granted an initial extension of 15 days to do the same, the records disclose that
petitioner was granted by the OP a second extension of 10 days from 15 March 2005 or until 25 March
2005 within which to file its appeal memorandum, on the condition that no further extensions shall be
allowed. Aside from not heeding said proviso, petitioner had, consequently, no more time to extend when
it filed its 31 March 2005 motion seeking yet another extension of 10 days or until 10 April 2005 within
which to file its appeal memorandum.

With the foregoing procedural antecedents, the initial 15-day extension granted by the CA and the
injunction under Sec. 4, Rule 43 of the 1997 Rules of Civil Procedure against further extensions except for
the most compelling reason, it was clearly inexcusable for petitioner to expediently plead its counsels
heavy workload as ground for seeking an additional extension of 10 days within which to file its petition
for review. To our mind, petitioner would do well to remember that, rather than the low gate to which
parties are unreasonably required to stoop, procedural rules are designed for the orderly conduct of
proceedings and expeditious settlement of cases in the courts of law. Like all rules, they are required to be
followed[50] and utter disregard of the same cannot be expediently rationalized by harping on the policy of
liberal construction[51] which was never intended as an unfettered license to disregard the letter of the law
or, for that matter, a convenient excuse to substitute substantial compliance for regular adherence
thereto. When it comes to compliance with time rules, the Court cannot afford inexcusable delay.[52]

Even prescinding from the foregoing procedural considerations, we also find that the HLURB Arbiter and
Board correctly held petitioner liable alongside PPGI for respondents claims and the P10,000.00
administrative fine imposed pursuant to Section 20 in relation to Section 38 of P.D. 957. By the express
terms of the JVA, it appears that petitioner not only retained ownership of the property pending
completion of the condominium project[53] but had also bound itself to answer liabilities proceeding from
contracts entered into by PPGI with third parties. Article VIII, Section 1 of the JVA distinctly provides as
follows:
Sec. 1. Rescission and damages. Non-performance by either party of its obligations under
this Agreement shall be excused when the same is due to Force Majeure. In such cases, the
defaulting party must exercise due diligence to minimize the breach and to remedy the
same at the soonest possible time. In the event that either party defaults or breaches any
of the provisions of this Agreement other than by reason of Force Majeure, the other party
shall have the right to terminate this Agreement by giving notice to the defaulting party,
without prejudice to the filing of a civil case for damages arising from the breach of the
defaulting party.

In the event that the Developer shall be rendered unable to complete the Condominium
Project, and such failure is directly and solely attributable to the Developer, the Owner shall
send written notice to the Developer to cause the completion of the Condominium Project. If
the developer fails to comply within One Hundred Eighty (180) days from such notice or,
within such time, indicates its incapacity to complete the Project, the Owner shall have the
right to take over the construction and cause the completion thereof. If the Owner exercises
its right to complete the Condominium Project under these circumstances, this Agreement
shall be automatically rescinded upon written notice to the Developer and the latter shall
hold the former free and harmless from any and all liabilities to third persons arising from
such rescission. In any case, the Owner shall respect and strictly comply with any covenant
entered into by the Developer and third parties with respect to any of its units in the
Condominium Project. To enable the owner to comply with this contingent liability, the
Developer shall furnish the Owner with a copy of its contracts with the said buyers on a
month-to-month basis. Finally, in case the Owner would be constrained to assume the
obligations of the Developer to its own buyers, the Developer shall lose its right to ask for
indemnity for whatever it may have spent in the Development of the Project.

Nevertheless, with respect to the buyers of the Developer for the First Phase, the area
intended for the Second Phase shall not be bound and/or subjected to the said covenants
and/or any other liability incurred by the Developer in connection with the development of
the first phase. (Underscoring supplied)

Viewed in the light of the foregoing provision of the JVA, petitioner cannot avoid liability by claiming that it
was not in any way privy to the Contracts to Sell executed by PPGI and respondents. As correctly argued
by the latter, moreover, a joint venture is considered in this jurisdiction as a form of partnership and is,
 accordingly, governed by the law of partnerships.[54] Under Article 1824 of the Civil Code of the
Philippines, all partners are solidarily liable with the partnership for everything chargeable to the
partnership, including loss or injury caused to a third person or penalties incurred due to any wrongful act
or omission of any partner acting in the ordinary course of the business of the partnership or with the
authority of his co-partners.[55] Whether innocent or guilty, all the partners are solidarily liable with the
partnership itself.[56]

WHEREFORE, premises considered, the petition for review is DENIED for lack of merit.

STRATEMEYER v. WEST
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No. 5-83-0639.
125 Ill. App.3d 597 (1984)
466 N.E.2d 306
EUGENE STRATEMEYER, Plaintiff-Appellee, v. LARRY WEST, Defendant-Appellant.
Appellate Court of Illinois Fifth District.
Opinion filed June 14, 1984.
View Case

Cited Cases
Citing Case
Attorney(s) appearing for the Case
William F. Meehan, P.C., of Cairo, for appellant.
Law Offices of Guy M. Lahr III and Associates, of Metropolis, for appellee.
Judgment affirmed.
JUSTICE KARNS delivered the opinion of the court:
Plaintiff, Eugene Stratemeyer, brought this action for breach of contract against defendant, Larry West, to
recover the amount allegedly owed on a contract to construct grain bins and related grain storage
equipment on two farms owned by A & L Farms, a partnership of which West and Alan Falconer were sole
members. The circuit court of Johnson County, sitting without a jury, entered judgment in favor of plaintiff
for all sums due on the contract, interest and costs.
A & L Farms, dissolved in December 1980, was a partnership that dealt in the purchase and resale of
farms in southern Illinois. West testified that he and Falconer entered into their business in 1978 or 1979.
The farms were purchased together, owned jointly as partnership property, "cleaned up," farmed for a
time, then resold for an even-split profit between the partners. West described himself as "landowner" and
Falconer as the tenant farmer and "general manager" of the various farms purchased. West testified that
Falconer managed the day-to-day activity of the farms but had no authority to incur "major expenses."
West described the operation as "[p]retty much how a farm is run, you plant the seed and harvest it and
sell it * * *."
In August 1980, plaintiff and Falconer consummated the contract whereby plaintiff would supply materials
and labor for grain bins on the Kayser Farms and the Prater Farm, both of which were owned by the
partnership at that time. The contract was signed by Alan Falconer. Stratemeyer testified that he dealt
exclusively with Falconer in this instance and did not talk to West about these grain bins until after they
were erected. Stratemeyer testified that it was his assumption at the time that Falconer was contracting
for A & L Farms: "I had sold these people a bin before, I had no reason to believe that it was any other
way. * * * Falconer had made the deal before and I got my money." Further, Stratemeyer testified that
he had no knowledge in August of Falconer's alleged want of authority nor any knowledge of the eventual
partnership dissolution.
Falconer testified that he contacted Stratemeyer to supply and build the bins on the Kayser and Prater
Farms as an incident of the partnership business. He stated that he spoke with West about the bins on
several occasions before making arrangements with Stratemeyer. Falconer testified that he and West had
made a decision that additional storage was needed, so they priced out grain bins and obtained
[125 Ill. App.3d 600]
quotes or estimates from other providers. "[W]e were going to take the best deal that was offered for the
quality of structure and for the type and [sic] would meet the operation." Falconer added, "Mr.
Stratemeyer had the best deal so Mr. Stratemeyer was the one that got the contract." Falconer further
testified that West did not specifically instruct him not to place the bins on the properties and that West
did nothing to indicate that Falconer had no authority to do so. In fact, Falconer testified that West knew
that the bins were ordered and were to be put on the properties. Finally, Falconer testified that the
agreement with Stratemeyer was made before negotiations for dissolution of the partnership commenced.
West testified that he had no reason to obtain the bins since in August he was in the process of dissolving
the partnership. He denied ever talking to Falconer about building the bins. He testified that the first time
he saw or heard about the bins was after they were erected. He stated that he considered the partnership
dissolved in April 1980, but it was not formally dissolved until December 1980. West further testified that
the partnership previously owned the farms in question but that he had acquired ownership following
Falconer's bankruptcy, which occurred after the bins had been built.
1 First, defendant contends that plaintiff's complaint failed to allege a necessary element of his cause of
action: performance of the contract pleaded. We do not agree. Count II of plaintiff's second amended
complaint recites the following:
3. On or about August 1, 1980, at the special instance and request of defendant, or defendant's agent,
plaintiff performed labor, to wit: Installation of grain bins and equipment incidental thereto and delivered
materials, to wit: Bins, metal, motors, wiring, sand, fill, concrete, on and at said premises; an account of
which labor and materials is attached * * *.
This averment specifically states that plaintiff performed labor, delivery and installation according to the
account attached to the complaint. Defendant answered the allegation with a general denial but not until
the close of plaintiff's case did he move for judgment on the pleadings. Even then, he asserted only
generally that there was no allegation of performance of conditions precedent. Nor in his post-trial motion
did he point out specifically the defects complained of. For the first time, on appeal, he argues specifically
that the complaint fails to allege compliance with the contractual term requiring "[a]ll work and delivery to
be completed in a workmanlike manner according to standard practices." We think that plaintiff's
allegation of performance and supporting facts was sufficient under Supreme Court Rule 133(c) (87
[125 Ill. App.3d 601]
Ill.2d R. 133(c)). Facts supporting defendant's general denial were not advanced in the answer nor upon
motion showing wherein there was a failure to perform, and we will not consider his novel argument on
appeal. Moreover, the record considered entirely establishes full performance on plaintiff's part.
2 Next, defendant contends that plaintiff's pleading and proof were at fatal variance since the complaint
alleged a contract with defendant and the proof related to a contract with either A & L Farms or Falconer.
Plaintiff sued defendant individually for a debt allegedly resulting from the "request of defendant, or
defendant's agent" to provide labor and materials. The evidence established a contract with Falconer, and
West admitted that a partnership with Falconer existed. Plaintiff's pleading of agency in this regard and of
a contract formed pursuant to the alleged agency is sufficient pleading of partnership upon which, if
established by the proof, West could be found liable as a joint debtor. (See Ill. Rev. Stat. 1983, ch. 110,
par. 2-410.) Thus, plaintiff's proof may have related to a contract with West, his agent or the partnership.
Since the partnership was dissolved at the time suit was commenced and since Falconer was declared
bankrupt, West was the only solvent debtor left and a proper party to sue for the dissolved partnership
obligation. We are not persuaded that plaintiff's pleading and proof were at fatal variance.
3 Next, defendant contends that the evidence is insufficient to sustain recovery on the theory of a
contract between plaintiff and the partnership. Defendant cites section 9 of the Uniform Partnership Act
(Ill. Rev. Stat. 1983, ch. 106 1/2, par. 9) for the proposition that absent proof of express authority,
contracts made by a partner are not binding on the firm unless the contract is made in the ordinary course
of partnership business. He concludes that since there is no evidence of Falconer's express authority to
contract with plaintiff and no evidence that he ever held Falconer out as having such authority, plaintiff's
claim must fail.
We do not accept this reasoning. Section 9 provides:
(1) Every partner is an agent of the partnership for the purpose of its business, and the act of every
partner, including the execution in the partnership name of any instrument, for apparently carrying on in
the usual way the business of the partnership of which he is a member binds the partnership, unless the
partner so acting has in fact no authority to act for the partnership in the particular matter, and the
person with whom he is dealing has knowledge of the fact that he has no such authority. (Ill. Rev. Stat.
1983, ch. 106 1/2, par. 9(1).)
[125 Ill. App.3d 602]
Thus, an act of a partner in apparently carrying on in the usual way the business of the partnership binds
the partnership unless he has no authority and the third party has knowledge that he has no authority.
The existence of the partnership having been admitted, proof of express authority was unnecessary.
Rather, it was defendant's burden to establish no authority and plaintiff's knowledge. Plaintiff, of course,
must have established that Falconer's act was apparently done in carrying on the business of the
partnership in the usual way.
Here the record establishes conflicting accounts of the extent of Falconer's partnership authority. West
testified that Falconer did not have authority to contract for "major expenses" and that he told Falconer
this long ago. Yet, Falconer did have authority to generally manage the farms purchased, and no other
evidence of restricted authority was offered. Falconer testified that West knew about the attempts to
procure bins and had discussed and participated in the matter several times himself. Stratemeyer testified
that based on past experience he assumed Falconer had authority and was unaware of his lack of
authority. Where the evidence is conflicting, we must defer to the trier of fact, who had a superior
opportunity to observe the witnesses and assess their testimony and credibility. (Schulenburg v. Signatrol,
Inc. (1967), 37 Ill.2d 352, 356, 226 N.E.2d 624, 626.) We will not upset the trial court's implicit finding
that Falconer was authorized to transact the instant business for and on behalf of the partnership, as it
does not appear contrary to the evidence and indeed has support in the record. West need not have been
aware of the contract to be held liable on it. See, e.g., Gardenhire v. Ray (1939), 302 Ill.App. 268, 23
N.E.2d 927.
4 Regarding defendant's contention that Falconer's act of contracting was not within the partnership's
ordinary course of business, there was no specific finding made by the trial court on this issue. The record,
however, contains sufficient indicia from which it may be reasonably concluded that, as general manager
of the farming aspect of the partnership, Falconer was responsible for planting, harvesting, storing and
selling the crops. As an incident of this farming business he contracted with Stratemeyer for the erection
of grain storage bins. We think this act was within the scope of the partnership business. Moreover,
Stratemeyer could rightfully assume that the contract was within the scope of the partnership's business.
Finally, it is important to note that West testified that he had grain stored in the bins. That he has
accepted a benefit from the contract makes his argument inappropriate.
5 Finally, defendant contends that the trial court improperly
[125 Ill. App.3d 603]
struck the evidence deposition testimony of defendant's former attorney. It was offered for purposes of
supporting defendant's own testimony regarding his prior testimony given in an ancillary action against
Falconer in a bankruptcy proceeding. Defendant had been called as an adverse witness in the instant case
and was impeached by prior inconsistent statements concerning the nature of the debt for which
Stratemeyer sued him. His prior testimony included statements admitting that Stratemeyer had liens on
the two subject farms, that the grain bins were purchased by the partnership and represented partnership
debts and that he would be personally liable for the obligations to Stratemeyer should Falconer default in
bankruptcy. Defendant was given ample opportunity to qualify his prior testimony and in fact, when called
by his own counsel, fully explained that he did not understand the meaning of "partnership debt" and
"lien." Defendant further explained that his prior testimony with reference to these terms was premised on
the assumption that he would pay the debts in question only if they were proven to be valid.
Defendant argues that his former attorney's testimony was proper evidence for corroborating defendant's
explanation of his prior testimony and for establishing the meaning he had ascribed to the legal
terminology used and the circumstances surrounding his prior testimony.
In striking the proffered testimony the trial court reasoned that the defendant was available to explain or
contradict his own former testimony. Since the court found that the proffered testimony established only
what his former attorney thought or what he thought West thought and what pretrial preparation had
been made in the former proceeding, the court further found the proffered testimony was irrelevant.
We find no reversible error in this regard. The trial court had previously admitted into evidence the
transcript of the former proceeding. The court indicated that it would weigh the import of defendant's prior
testimony and consider it for its worth. The court undoubtedly was aware of the nature of that proceeding
and the context of defendant's testimony therein. We do not view defendant's admissions in the prior
proceeding to be properly qualified or explained by his former attorney's interpretation of defendant's
knowledge and understanding. This is true especially since the former testimony was elicited from West by
his own attorney and it was motivated precisely for the contrary purpose then of establishing as true what
West now denies. The proffered testimony is not so much irrelevant as incompetent evidence. Inasmuch
as defendant testified to precisely the same issues as
[125 Ill. App.3d 604]
those for which the deposition was offered in corroboration, we cannot say he was prejudiced by its
exclusion.
For all of the foregoing reasons the judgment of the circuit court of Johnson County is affirmed.
Affirmed.
HARRISON and KASSERMAN, JJ., concur.
Bohonus v. Amerco
Annotate this Case
124 Ariz. 88 (1979)
602 P.2d 469
Jerry R. BOHONUS, Appellant, v. AMERCO, a Nevada Corporation; Amerco, Inc., an Oregon Corporation;
Ponderosa Insurance Agency, Inc., an Arizona Corporation; Oxford Life Insurance Co., an Arizona
Corporation; Republic Western Life Insurance Company, an Arizona Corporation, and Republic Western
Insurance Company, an Arizona Corporation, Appellees.
No. 14445.
Supreme Court of Arizona, En Banc.
October 5, 1979.
Rehearing Denied November 14, 1979.
Jerry R. Bohonus, in pro per.
Mariscal, Weeks, McIntyre & Friedlander by Richard A. Friedlander, Phoenix, for appellees.
HAYS, Justice.
Appellee Amerco, plaintiff below, secured a judgment against appellant Bohonus, defendant *89 below,
and sought to enforce that judgment by judicial sale of Bohonus' interest in a partnership. The initial
litigation involved numerous parties and was prolonged. At the time summary judgment was entered
against Bohonus, his attorney had withdrawn and he was acting as his own attorney. He attempted to
appeal from the summary judgment and from the judgment enforcement proceedings. Before the case
was transferred to this court pursuant to Rule 19(e) of the Rules of Civil Appellate Procedure, the Court of
Appeals ruled that his appeal from the initial summary judgment was not timely. We concur in this ruling.
The first issue before us is: May the trial court order the sale of partnership property to satisfy the
individual debt of a partner?
The appellee, Amerco, after it secured a judgment against the appellant, Bohonus, sought a charging
order from the court pursuant to A.R.S. 29-228, a provision embodied in the Uniform Partnership Act.
The court granted the request for a charging order and as a part of that order mandated the sale of
appellant's interest in the assets and property of the partnership business, including a spiritous liquor
license. The sheriff proceeded with the sale and filed his return.
We now look at the partnership statute. A.R.S. 29-225(B)(3) says:
"A partner's right in specific partnership property is not subject to attachment or execution, except on a
claim against the partnership...."
A.R.S. 29-224 sets forth the extent of the property rights of the partner:
"The property rights of a partner are: 1. His rights in specific partnership property. 2. His interest in the
partnership. 3. His right to participate in the management."
A.R.S. 29-226 defines "a partner's interest":
"A partner's interest in the partnership is his share of the profits and surplus, and the same is personal
property."
A.R.S. 29-228 reads, in pertinent part, as follows:
"A. On due application to a competent court by any judgment creditor of a partner, the court which
entered the judgment, order, or decree, or any other court, may charge the interest of the debtor partner
with payment of the unsatisfied amount of such judgment debt with interest thereon; and may then or
later appoint a receiver of his share of the profits, and of any other money due or to fall due to him in
respect of the partnership, and make all other orders, directions, accounts and inquiries which the debtor
partner might have made, or which the circumstances of the case may require."
With the foregoing statutes in mind, we note that it is only a partner's interest in the partnership which
may be charged and, in some jurisdictions, sold. It cannot be overemphasized that "interest in the
partnership" has a special limited meaning in the context of the Uniform Partnership Act and hence in the
Arizona statutes.
The appellee urges that somehow A.R.S. 29-228(A), supra, authorizes the sale of partnership assets and
property. We note that the record reflects that pursuant to the provisions of the same statute a receiver
was appointed in this case. The fact of the receivership provision enforces the conclusion that only the
"interest in the partnership" may be charged and we find no provision therein for sale of assets or
property of the partnership.
Appellee seeks aid and comfort in the language of A.R.S. 29-232(B) which provides for dissolution of the
partnership upon application of the purchaser of a partner's interest under 29-227 or 29-228. No
decree of dissolution however has been asked for here.
We concur with appellee's position that the charged interest of a debtor-partner can be sold, but further
enforcement of the creditor's rights must be pursuant to statute. See A.R.S. 29-232(B) and Tupper v.
Kroc, 88 Nev. 146, 494 P.2d 1275(1972). *90 However, this in nowise makes the sale of the partnership
assets valid.
Appellee next contends that even if partnership property is not subject to judicial sale, since appellant
never raised this issue at the trial level he may not now raise it for the first time on appeal.
Although appellee correctly states the generally accepted rule [Bible v. First National Bank of Rawlins, 21
Ariz. App. 54, 515 P.2d 351 (1973); National Car Rental v. Fox, 18 Ariz. App. 160, 500 P.2d 1148
(1972)], this court has previously held that "... to this rule there are many exceptions." Town of South
Tucson v. Board of Supervisors of Pima County, 52 Ariz. 575, 582, 84 P.2d 581, 584 (1938).
One of these exceptions was cited in Rubens v. Costello, 75 Ariz. 5, 9, 251 P.2d 306, 308 (1952), where
we held that,
"[A] legal principle, although not suggested by either party at the trial (and we include on appeal) should
be adopted in order to finally dispose of a cause on appeal if this impels the speedy enforcement of a
right, or redress of a wrong, and, as a correct exposition of the law, is appropriate to the facts involved."
See also Hormel v. Helvering, 312 U.S. 552, 61 S. Ct. 719, 85 L. Ed. 1037 (1941).
In the instant case, there is clearly a wrong to be redressed. The Uniform Partnership Act, which, as we
have stated, prohibits the sale of partnership property in order to satisfy the nonpartnership debts of
individual partners, has been contravened by the lower court's order. This error must be rectified.
Appellee's final contention requires a chronology of procedural events. Partial summary judgment was
entered against appellant on July 27, 1977. On September 22, 1977 the lower court issued one order (1)
denying appellant's motion for reconsideration, (2) garnishing appellant's bank account, and (3) ordering
the sale of appellant's "partnership interest" as well as a separate "Order for Sale of Partnership Interest."
A writ of execution was entered pursuant thereto one week later. On October 13, 1977, appellant filed a
notice of appeal "from the judgment entered in the above-entitled action on the 25th [sic] of July,
1977...." Appellant served appellee with a motion to quash the writ of execution on October 18, 1977 and
on November 18, 1977 filed an amended notice of appeal from the September 22 judgment "... and from
the whole thereof." At the November 28, 1977 hearing on appellant's Motion to Quash, appellee,
apparently concerned that the pending appeal deprived the trial court of jurisdiction, questioned the
appellant regarding precisely which judgment(s) were included in his appeals. Appellant responded:
"The notice of appeal was directed to the Court's decision to reaffirm the original judgment that was
entered into against me, which was reaffirmed on or about September 21st or 22nd, whatever."
Appellee contends that appellant thus represented that his appeal was directed not at the order for the
sale of his partnership interest, but instead at the July 27 summary judgment entered against him and
that appellant should thus be estopped from now asserting that the instant appeal concerns the Order of
Sale.
Appellee relies on the doctrine of judicial estoppel.
"Generally, the doctrine states that a party who has assumed a particular position in one judicial
proceeding will not be allowed to assume an inconsistent position in a subsequent proceeding." Standage
Ventures, Inc. v. State, 114 Ariz. 480, 483, 562 P.2d 360, 363 (1977).
Although the doctrine appears applicable, appellee's claim is without merit. As a general rule, it is
essential to the existence of an estoppel that the representation be relied upon and that such reliance be
justifiable. Joy Enterprises, Inc. v. Reppel, 112 Ariz. 42, 537 P.2d 591 (1975); Graham v. Asbury, 112
Ariz. 184, 540 P.2d 656 (1975). Reliance is not justified where knowledge to the contrary exists. See
Hobbs v. McLean, 117 U.S. 567, 6 S. Ct. 870, 29 L. Ed. 940 (1886). Here, appellant's Amended Notice of
Appeal, by its terms, *91 was from the September 22, 1977 judgment "... and from the whole thereof"
and was not limited merely to the denial of the reconsideration. Appellee clearly knew the appeal included
the sale of appellant's partnership interest and cannot now be heard to argue otherwise.
For the foregoing reasons, we reverse and remand to the trial court for proceedings consistent with this
opinion.
CAMERON, C.J., STRUCKMEYER, V.C.J., and HOLOHAN and GORDON, JJ., concurring.

First Nat. Bank of Denver v. District Court

Annotate this Case
652 P.2d 613 (1982)
The FIRST NATIONAL BANK OF DENVER, a National Banking Association, Petitioner, v. The DISTRICT
COURT In and For the CITY AND COUNTY OF DENVER, State of Colorado, and the Honorable Roger
Cisneros, One of the Judges Thereof, Respondents.
No. 82SA65.
Supreme Court of Colorado, En Banc.
October 18, 1982.
*614 John Mason, Jr., Denver, for petitioner.
Norman D. Johnson, Cogswell & Wehrle, Bernard H. Thorn, Mellman & Thorn, Denver, for respondents.
LEE, Justice.
In this original proceeding the petitioner First National Bank of Denver (bank), plaintiff in the trial court,
claims that the district court has exceeded its jurisdiction and abused its discretion in refusing to allow the
petitioner to execute on its final judgment. The petitioner requests that we *615 issue a writ of prohibition
ordering the respondent court to vacate its stay of execution granted in Civil Action No. C-68753 in favor
of the defendants in the trial court, Robert Sanders, Paul L. Sanders, Lawrence Sanders, J.W. Skinner, and
Michael J. Bellamy. We issued our rule to show cause and we now discharge the rule.
The facts were as follows. In December of 1976, the bank brought suit on a demand promissory note
executed by the five defendants. In subsequent proceedings a judgment in the amount of $182,530.55
was rendered against the defendants, jointly and severally, including $91,000 principal, $91,405.55
interest, and $125 costs, based upon a stipulation and payment schedule into which the parties had
entered. Attorneys' fees were to be determined at a later date.
On September 21, 1979, after a hearing on the bank's motion, the district court entered orders charging
partnership interests of the judgment debtors in three partnerships with payment of the unsatisfied
portion of the judgment debt, costs, and interest. The orders charged the partnership interests of the
named defendants in Quadrangle, Ltd., and the partnership interests of Robert Sanders, Paul L. Sanders,
and Lawrence Sanders in the partnerships known as Saddleback, Ltd. and Grassroots Co.
The charging orders directed the partnerships to pay the bank all present and future shares of all
distributions, credits, drawings, or payments which would have been paid to the respective named
defendants for their interests in the partnerships, and further directed that such payments should continue
until the judgment, including interest and costs, was satisfied in full. Until that time, the partnerships were
ordered not to make capital acquisitions of property of the judgment debtors, not to loan money to nor
pay any creditor of the judgment debtors, and not to make a sale or modification of partnership interests
unless approval of the court or the judgment creditor was first obtained. In addition, all documents or
partnership reports were to be sent to the judgment creditor, and the partnerships were instructed to
make available a copy of the partnership agreements and amendments, income tax returns for the past
two years, any balance sheet and profit and loss statements, and all books and records. The order
charging the partnership property excluded property claimed to be exempt from execution. Section 13-54-
101 et seq., C.R. S.1973 (1981 Supp.).
The order provided that: "Upon due application, any party may apply to this Court for a further
modification of this Order, and the Court retains jurisdiction."
No payments were made by the partnerships, and after approximately two years the bank orally moved
the court, in an ex parte hearing, for execution and sale of the partnership interests charged in the
September 1979 orders, and asked in addition for an order restraining the judgment debtors from
alienating the property pending the sale. The court granted the motion and entered its order on December
1, 1981. The order provided in part as follows:
"The sheriff of the City and County of Denver, State of Colorado, is ordered to execute upon property of
Robert Sanders, Lawrence Sanders, Paul Sanders, J.W. Skinner, and Michael Bellamy, being all of said
Judgment Debtors' right, title and interest in and to the following Colorado partnership, to wit:
Saddleback, Ltd.: (Robert, Lawrence and Paul Sanders only) Grassroots Co.: (Robert, Lawrence and Paul
Sanders only) Quadrangle, Ltd.: (all Defendants) and to sell the interests of such Judgment Debtors in the
above-listed partnerships at public sale in accordance with Colorado Law pertaining to such sales and to
file with this Court a report of such sale within thirty (30) days after all sales are completed."
The partnerships were restrained from assigning, transferring, or encumbering their property until the
public sale was held.
On December 16, 1981, the defendants filed a motion for a stay of the execution, citing as grounds that
the bank had assigned *616 its judgment to a party-opponent in another lawsuit in which Quadrangle,
Ltd. was a defendant and a counterclaim plaintiff (Civil Action No. C-61262), and that the two actions
were so related that the execution on the present case should be stayed pending the outcome of the other
case.
On January 12, 1982, the court granted the motion and stayed execution, without hearing evidence or
making findings. The bank now seeks an order from this court prohibiting the district court from staying
execution against the defendants.
It is a general rule in Colorado that a court may not stay execution and thereby impair or destroy the
statutory right of a judgment creditor to enforce collection of its judgment against nonexempt property of
the judgment debtor. Jones v. District Court for the City and County of Denver, 135 Colo. 468, 312 P.2d
503 (1957). The petitioner argues that, since there is no allegation that the partnership interests are
exempt from execution, the district court was without power to impair the judgment creditor's rights,
regardless of circumstances claimed by the debtors.
The judgment debtors, on the other hand, argue that this case may be distinguished from Jones v. District
Court, supra, because sale of the partnership interests would affect the partnerships themselves as well as
other partners which are not parties to this action. Because the judge ordered the sale without first
providing notice and hearing to those who would be affected, they argue that the sale was void under the
notice requirements of the Uniform Partnership Law, section 7-60-128(1), C.R.S.1973, which provides:
"7-60-128. Interest subject to charging order. (1) On due application to a court of competent jurisdiction
by any judgment creditor of a partner, the court which entered the judgment, order, or decree, or any
other court, may charge the interest of the debtor partner with payment of the unsatisfied amount of the
judgment with interest thereon; and may then or later appoint a receiver of his share of the profits and of
any other money due or to fall due to him in respect of the partnership and make all other orders,
directions, accounts, and inquiries which the debtor partner might have made, or which the circumstances
of the case may require. "(2) The interest charged may be redeemed at any time before foreclosure or, in
case of a sale being directed by the court, may be purchased without thereby causing a dissolution: (a)
With separate property by any one or more of the partners; or (b) With partnership property by any one
or more of the partners with the consent of all the partners whose interests are not so charged or sold.
"(3) Nothing in this article shall be held to deprive a partner of his right, if any, under the exemption laws,
as regards his interest in the partnership."
The judgment debtors contend that "due application" must be made to the court upon adequate notice to
persons whose rights might be adversely affected by the granting of the relief sought. Phillips v. Phillips,
155 Colo. 538, 400 P.2d 450(1964).
I.
Once a judgment has been entered, a judgment creditor is entitled to have a writ of execution issued,
subject to: the statutory provisions creating an automatic stay for a period of 15 days, C.R.C.P. 62(a); the
provisions concerning stay during appeal, C.R.C.P. 62(b), (c), (d), (e), and (g); and other provisions
limiting the right to execute against the debtor's property. Section 13-52-102(1), C.R.S.1973, provides:
"All goods and chattels, lands, tenements, and real estate of every person against whom any judgment is
obtained in any court of record, either at law or in equity, for any debt, damages, costs or any other sum
of money are liable to be sold on execution to be issued upon such judgment...."
C.R.C.P. 69(a) in effect at the time judgment was rendered provided in pertinent part:
"Rule 69. Execution and Proceedings Subsequent to Judgment. *617 (a) In General. Process to enforce a
judgment for the payment of money shall be a writ of execution, unless the court directs otherwise."[1]
Issuance of a writ of execution however is not an exclusive remedy, and the plaintiff was therefore also
entitled to employ supplemental proceedings in aid of execution to collect the judgment from the
defendants' property. C.R.C.P. 69(f) provides that the court may order that certain nonexempt property of
the judgment debtor in the hands of the debtor or any other person be applied towards satisfaction of the
judgment. This was accomplished when the court, pursuant to the Uniform Partnership Law, section 7-60-
128, C.R.S. 1973, charged the partnership property of the defendants.
The order charging the partnership interests with the judgment and directing the payment of the partners'
shares of profits to the judgment creditor, was entered by the court after hearing and notice to all parties.
The order was subject to later modification "upon due application." This wording tracks the language of
section 7-60-128. We have interpreted that term to mean an application made to the court upon adequate
notice to the persons whose rights might be adversely affected by the grant of the relief sought. Phillips v.
Phillips, supra.
The defendants point out that they had no notice of either the oral motion for execution or the hearing,
and that the order for execution and sheriff's sale was entered without an opportunity for them to be
heard. The defendants argue that the lack of notice renders the judge's order void, and therefore the stay
of the sale proceedings was properly entered.
The plaintiffs argue that the issuance of the writ of execution was a ministerial act, that no notice to the
defendants was required before the issuance of the order, and that the execution order was valid as
issued. Furthermore, it is argued that once the valid execution had issued, it could not later be stayed by
the judge without allegation that the property to be sold was exempt, or without some other statutory
basis for the stay.[2]
We agree with the defendants that the ex parte order for execution and sheriff's sale was improperly
entered because it was issued without due application to modify the court's earlier order charging the
partnership interests. Because of the nature of partnership property and the possible adverse impact that
this sale could have upon the non-defendant partners, if any, the court should have conducted another
hearing under section 7-60-128 with proper notice to the affected parties, to determine the propriety of
allowing an execution sale of the partnership interests in lieu of payments of the debtor partners' share of
partnership profits to the judgment creditor.[3]
 Section 13-52-102, supra, states the rule that all property of the debtor is subject *618 to execution and
sale pursuant to a writ in order to satisfy the judgment debt. In Jones v. District Court, supra, that section
was broadly interpreted to mean that the district court was without power to limit the substantive right
granted by the legislature to a judgment creditor to collect the judgment by execution against property of
the judgment debtor. As that case held:
"The statute above quoted [the predecessor statute to section 13-52-102, supra] creates a substantive
right in a judgment creditor to enforce collection of his judgment against any and all property of the
debtor, not exempt from execution and attachment and not otherwise in custodia legis, as in bankruptcy,
receivership, or in the hands of a trustee under a general assignment for the benefit of creditors as
controlled by pertinent legislation." 135 Colo. at 471-472, 312 P.2d at 504.
Although we do not disagree with this statement, the substantive right of a judgment creditor to enforce
collection of the judgment may be statutorily limited, as in this case. Thus, partnership property may only
be charged with payment of the judgment debt after "due application" with notice and hearing pursuant to
section 7-60-128, supra. In this setting the charging order required payment of the partnership profits to
the judgment creditor. Further modification of the order as applied to the partnership interests was only
available upon due application to the trial court, which retained jurisdiction for that purpose. Due
application required notice and hearing pursuant to the directives of section 7-60-128. Thus, the order of
court entered on the ex parte motion for execution and sale of the partnership property was improper.[4]
Accordingly, we direct the district court to vacate its ex parte order authorizing the execution sale. Further
proceedings to enforce the collection of plaintiffs' judgment from the defendants' partnership interests
shall be conducted in accordance with the court's charging order and the provisions of the Uniform
Partnership Law.
Rule discharged.
NOTES
[1] C.R.C.P. 69(a) was amended effective July 1, 1981, and now provides as follows:
"Rule 69. Execution and Proceedings Subsequent to Judgment.
(a) In General. Except as provided in Rule 103 herein, process to enforce a judgment for the payment of
money shall be a writ of execution, unless the court directs otherwise."
[2] The plaintiffs also point out that the defendants have raised for the first time in this court the issue of
the validity of the writ of execution based upon lack of notice to them in the trial court. Instead, the
defendants asked the trial judge for a stay of the execution sale until another and allegedly related case
was resolved. The defect in the ex parte proceedings was violative of the court's charging order and
execution was properly stayed by the court.
[3] Although the court ordered the sale, it did not make the findings necessary to support a court ordered
dissolution of the partnership pursuant to sections 7-60-131 and 7-60-132, C.R.S.1973.
Section 7-60-128(2) specifies certain remedies to prevent the dissolution of a partnership when
partnership interests are to be sold or foreclosed pursuant to a charging order. Those remedies include the
right to redeem at any time before foreclosure, and the partners' right to purchase at the sale with their
separate property or, if all partners whose interests are not charged agree, to purchase the sale property
with other partnership property. That these remedies are available, however, does not excuse the failure
to provide notice of the subsequent charging proceeding.
[4] If the execution and sale were approved by the court following a valid procedure including notice and
hearing, the partnership would be entitled to protect its interests and avoid dissolution by the application
of the provisions in section 7-60-128(2). See supra. n. 3.

HODGE v. GARRETT
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No. 12964.
614 P.2d 420 (1980)
101 Idaho 397
Bill HODGE, Plaintiff-Respondent, v. Louise A. GARRETT, Rex E. Voeller, Stanley C. Voeller, Helen Voeller
Cronin, Lillian M. Voeller and Irvin G. Harris, aka I.G. Harris, individually and doing business as Pay-Ont
Drive-In Theatre, a partnership, Defendants-Appellants.
Supreme Court of Idaho.
July 24, 1980.
View Case

Cited Cases
 Citing Case
Attorney(s) appearing for the Case
John K. Gatchel of Gatchel & Batt, Payette, for defendant-appellant Rex E. Voeller.
Richard Smith of Parsons, Smith & Pedersen, Burley, for defendants-appellants Louise A. Garrett, Stanley
C. Voeller, Helen Voeller Cronin, Lillian M. Voeller and Irvin G. Harris.
Gerald L. Weston of Gigray, Miller, Downen & Weston, Caldwell, for plaintiff-respondent.
BISTLINE, Justice.
Following a non-jury trial the court below granted specific performance to the plaintiff-respondent Bill
Hodge.1 All defendants joined in a single notice of appeal, and all defendants joined in a single brief filed
in this Court. Only Mr. Gatchel argued.
Hodge and defendant-appellant Rex E. Voeller, the managing partner of the Pay-Ont Drive-In Theatre,
signed a contract for the sale of a small parcel of land belonging to the partnership. That parcel, although
adjacent to the theater, was not used in theater operations except insofar as the east 20 feet were
necessary for the operation of the theater's driveway. 2 The agreement for the sale of land stated that it
was between Hodge and the Pay-Ont Drive-In Theater, a partnership. Voeller signed the agreement for
the partnership, and written changes as to the footage and price were initialed by Voeller.
Voeller testified that he had told Hodge prior to signing that Hodge would have to present him with a plat
plan which would have to be approved by the partners before the property could be sold. Hodge denied
that a plat plan had ever been mentioned to him, and he testified that Voeller did not tell him that the
approval of the other partners was needed until after the contract was signed. Hodge also testified that he
offered to pay Voeller the full purchase price when he signed the contract, but Voeller told him that that
was not necessary.
The trial court found that Voeller had actual and apparent authority to execute the contract on behalf of
the partnership,
[614 P.2d 422]
and that the contract should be specifically enforced. The partners of the Pay-Ont Drive-In Theatre appeal,
arguing that Voeller did not have authority to sell the property 3 and that Hodge knew that he did not have
that authority.
At common law one partner could not, "without the concurrence of his copartners, convey away the real
estate of the partnership, bind his partners by a deed, or transfer the title and interest of his copartners in
the firm real estate." 60 Am.Jur.2dPartnership 149 (1972) (footnotes omitted). This rule was changed
by the adoption of the Uniform Partnership Act. The relevant provisions are currently embodied in I.C.
53-309(1) and 53-310(1) as follows:
I.C. 53-310(1): Where title to real property is in the partnership name, any partner may convey title to
such property by a conveyance executed in the partnership name; but the partnership may recover such
property unless the partner's act binds the partnership under the provisions of paragraph 1 of section 53-
309, unless such property has been conveyed by the grantee or a person claiming through such grantee
to a holder for value without knowledge that the partner, in making the conveyance, has exceeded his
authority.I.C. 53-309(1): Every partner is an agent of the partnership for the purpose of its business,
and the act of every partner, including the execution in the partnership name of any instrument, for
apparently carrying on in the usual way the business of the partnership of which he is a member binds the
partnership, unless the partner so acting has in fact no authority to act for the partnership in the
particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such
authority.
The meaning of these provisions was stated in one text as follows:
If record title is in the partnership and a partner conveys in the partnership name, legal title passes. But
the partnership may recover the property (except from a bona fide purchaser from the grantee) if it can
show (A) that the conveying partner was not apparently carrying on business in the usual way or (B) that
he had in fact no authority and the grantee had knowledge of that fact. The burden of proof with respect
to authority is thus on the partnership. Crane and Bromburg on Partnership 50A (1968) (footnotes
omitted).
Thus this contract is enforceable if Voeller had the actual authority to sell the property, or, even if Voeller
did not have such authority, the contract is still enforceable if the sale was in the usual way of carrying on
the business and Hodge did not know that Voeller did not have this authority.
As to the question of actual authority, such authority must affirmatively appear, "for the authority of one
partner to make and acknowledge a deed for the firm will not be presumed . . .." 60
Am.Jur.2d Partnership 151 (1972). Although such authority may be implied from the nature of the
business, id., or from similar past transactions,Smith v. Dixon, 386 S.W.2d 244 (Ark. 1965), nothing in
the record in this case indicates that Voeller had express or implied authority to sell real property
belonging to the partnership. There is no evidence that Voeller had sold property belonging to the
partnership in the past, and obviously the partnership was not engaged in the business of buying and
selling real estate.
The next question, since actual authority has not been shown, is whether Voeller was conducting the
partnership business in the
[614 P.2d 423]
usual way in selling this parcel of land 4 such that the contract is binding under I.C. 53-310(1) and
309(1), i.e., whether Voeller had apparent authority. Here the evidence showed, and the trial court found:
III.That the defendant, Rex E. Voeller, was one of the original partners of the Pay-Ont Drive-In Theatre;
that the other defendants obtained their partnership interest by inheritance upon the death of other
original partners; that upon the death of a partner the partnership affairs were not wound up, but instead,
the partnership merely continued as before, with the heirs of the deceased partner owning their
proportionate share of the partnership interest.IV.That at the inception of the partnership, and at all times
thereafter, Rex E. Voeller was the exclusive, managing partner of the partnership and had the full
authority to make all decisions pertaining to the partnership affairs, including paying the bills, preparing
profit and loss statements, income tax returns and the ordering of any goods or services necessary to the
operation of the business.
The court made no finding that it was customary for Voeller to sell real property, or even personal
property, belonging to the partnership. Nor was there any evidence to this effect. Nor did the court discuss
whether it was in the usual course of business for the managing partner of a theater to sell real property.
Yet the trial court found that Voeller had apparent authority to sell the property. From this it must be
inferred that the trial court believed it to be in the usual course of business for a partner who has
exclusive control of the partnership business to sell real property belonging to the partnership, where that
property is not being used in the partnership business. We cannot agree with this conclusion. For a
theater, "carrying on in the usual way the business of the partnership," I.C. 53-309(1), means running
the operations of the theater; it does not mean selling a parcel of property adjacent to the theater. Here
the contract of sale stated that the land belonged to the partnership, and, even if Hodge believed that
Voeller as the exclusive manager had authority to transact all business for the firm, Voeller still could not
bind the partnership through a unilateral act which was not in the usual business of the partnership. We
therefore hold that the trial court erred in holding that this contract was binding on the partnership.
Judgment reversed. Costs to appellant.
DONALDSON, C.J., and BAKES and McFADDEN, JJ., concur.
SHEPARD, Justice, dissenting.
The majority, and I am sure inadvertently, neglects to include certain uncontroverted facts. At the
execution of the contract in question here, $100.00 changed hands. It has not been returned and the
partnership evidently feels no compunction in retaining it. Some considerable time elapsed between the
signing of the instrument and the decision of Voeller not to honor the contract on behalf of the
partnership. During that period of time, Hodge was placed in possession of the property in question, made
extensive improvements thereon, including the placement of a commercial office structure thereon which
Hodge rented to a third party for the sum of $75.00 per month. While it is true that Hodge's count for
damages for breach of the contract was dismissed by the trial court, that action of the trial judge was, in
my judgment, undoubtedly the result of his decision to grant specific performance. The majority's reversal
with directions to enter judgment for the defendant effectively prevents Hodge
[614 P.2d 424]
from ever recovering any of his uncontroverted damages resulting from Voeller's breach of the contract.
It should be remembered that Voeller clearly admitted the execution of the contract of sale on behalf of
the partnership. Such was not denied by the other partners, who in fact counterclaimed against Voeller for
the damages the partnership might sustain by reason of the sale. It is uncontroverted that, as Hodge
stated, the property involved has undergone an enormous increase in value since the execution of the
contract. Undoubtedly, the trial court viewed the defense protestations of Voeller's lack of authority in that
light. Indeed, Voeller testified that the sole reason the transaction was not consummated was that he later
came to believe that such a sale would amount to a subdivision of the theatre property and hence result in
the partnership property being brought into the city limits with a resultant increase in taxes.
Although the trial court allowed the self-serving testimony of both Voeller and Harris regarding the scope
of Voeller's authority, the trial judge was careful to note that he did not consider such testimony to be
binding on him. In such ruling, I believe he was correct. Certainly, objection to Voeller's testimony could
have been sustained on the basis that he was estopped to deny the authority which he had asserted in
writing to the detriment of Hodge. The trial judge may very well have believed that the testimony of both
 Voeller and Harris was self-serving, improbable, and even perhaps violative of the parole evidence rule. It
should be noted that the question might have been resolved by reference to the articles of partnership.
The lack of the introduction of those articles or any reference to specific parts thereof may well have led
the trial judge to conclude that the defendants had failed to carry their burden of proof regarding the lack
of authority in Voeller.
Contrary to the assertions of the majority, the record reveals that the partnership had not too long before
the instant transaction sold real estate in Emmett, including the entire theatre business located thereon.
Further, one of the partners testified that the entire land owned by the partnership was not necessary to
the business and he might very well consider establishing a drive-in restaurant business thereon.
In my mind, I.C. 53-309(1) is controlling when it states, "every partner is an agent of the partnership *
* * unless the partner so acting has in fact no authority to act for the partnership in the particular
matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority."
(Emphasis added.) To me, the inclusion in the statute of the conjunctive "and" is contradicted by the
"authority" cited by the majority, which converts the conjunctive "and" into the disjunctive "or."
Here, Hodge's testimony, which the trial court was at liberty to believe, was that Hodge had no knowledge
but that Voeller had the authority to enter into the transaction on behalf of the partnership. Indeed,
Voeller so executed the instrument in the name of the partnership.
I am indeed startled at the following assertion of the majority: "* * * and obviously the partnership was
not engaged in the business of buying and selling real estate." The murky and complicated history of the
partnership clearly demonstrates to the contrary. As revealed in the record, what had been originally
partnership property (such as three theatres in Burley, Idaho) had been somehow converted into
corporate assets. The businesses in which Harris and Voeller were involved, in either partnership or
corporate form, at various times included theatres in Logan, Utah, Jerome, Idaho, Emmett, Idaho, Burley,
Idaho, Rupert, Idaho, Ontario, Oregon, Lovelock, Nevada, Evanston, Wyoming, Montpelier, Idaho, Buhl,
Idaho, Carson City, Nevada, Nyssa, Oregon; real estate businesses in Rupert, Idaho, Montpelier, Idaho,
Carson City, Nevada, Nyssa, Oregon; and hotel operations in Burley, Idaho and Evanston, Wyoming.
Exactly what real estate transactions were involved between the partnership and these various
corporations is unclear. However, the record is clear that the
[614 P.2d 425]
partnership did purchase real property, that the partnership did sell real property, and that Voeller
himself, on behalf of the partnership, engaged in the rental of property to other persons, including the
leasing of the theatre operation in Lovelock, Nevada. On the basis of the above, I cannot agree with the
majority's characterization of this partnership, but again would agree with the trial judge in his undoubted
conclusion, albeit unstated, that the partnership failed to carry its burden of proof that the transaction in
question here was outside the authority of Voeller and outside the usual and ordinary course of business
of the partnership.

BACKOWSKI v. SOLECKI
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Docket No. 45250.
112 Mich. App. 401 (1982)
316 N.W.2d 434
BACKOWSKI v. SOLECKI.
Michigan Court of Appeals.
Decided January 19, 1982.
View Case

Cited Cases
Citing Case
Attorney(s) appearing for the Case
Ellsworth Hanlon and Joseph Lloyd (of counsel), for Stephen Backowski.
Meyer W. Leib and Gregory Gelfand (of counsel), for Billmax Properties.
Before: D.C. RILEY, P.J., and BASHARA and CYNAR, JJ.
CYNAR, J.
Plaintiff appeals as of right from an amended order of judgment, entered December 11, 1979, after a
nonjury trial, which placed title to certain warehouse property in Billmax Properties, hereinafter
designated defendant, and awarded plaintiff damages in the amount of $14,000. Defendant has filed a
cross appeal. We remand to the trial court for further findings of fact.
H.S. & L. Investment Co., hereinafter H.S. & L., is a Michigan partnership. The original partners were
Henry Solecki, owning 20 percent, Lottie Solecki, Henry's mother, owning 40 percent, and plaintiff,
Stephen Backowski, owning 40 percent. Lottie Solecki's interest in the partnership was
[112 Mich. App. 405]
subsequently transferred to Henry in 1974, leaving Henry with a 60 percent interest in the partnership.
The business of H.S. & L. was stated in the complaint to be the ownership and leasing of warehouse
space. The property which is the subject matter of the dispute was bought in the partnership name by a
land contract from 11305 State Fair Properties.
In December of 1974, plaintiff filed a complaint alleging that Henry Solecki had deprived plaintiff of
partnership revenue and had refused to render an accounting. Plaintiff sought to enjoin Solecki from
distributing partnership assets and sought an order for an accounting.
In April of 1975, most, if not all, of the tenants had vacated the warehouse. The building was in a state of
disrepair. By December of 1975 the partnership was five payments behind on the land contract, at $3,500
per payment, and was $25,000 behind in taxes on the property. The land contract vendor had served
notice of forfeiture.
On December 31, 1975, with the case between Solecki and plaintiff still pending, Solecki executed a
quitclaim deed and an assignment of the land contract purportedly on behalf of H.S. & L. conveying H.S. &
L.'s interest in the property to defendant. At this time Solecki also signed an affidavit warranting his
authority to act on behalf of H.S. & L. in this matter. By the terms of the purchase agreement defendant
paid the delinquent land contract payments and the back taxes. In addition, Solecki received a check in
the name of H.S. & L. for $10,000.
Plaintiff filed a motion to add parties defendant on March 23, 1976, alleging that the assignment of the
land contract and the quitclaim deed were executed without his consent. The complaint
[112 Mich. App. 406]
against the added defendants sought damages and to set aside the sale. Of those parties that were
added, only defendant Billmax remains in the suit.1
Prior to commencement of trial on January 11, 1979, Henry Solecki and Lottie Solecki were dismissed
from the suit, individually and on behalf of H.S. & L. The order was entered, over objections by Billmax,
pursuant to a settlement agreement by which plaintiff agreed to the dismissal in consideration of the
Soleckis' transfer to plaintiff of any interest they may have in the partnership of H.S. & L. The record
indicates that plaintiff then proceeded individually and on behalf of H.S. & L.
After a long trial with much conflicting testimony the trial judge issued a written opinion in which he held
that title to the property should remain in defendant, Billmax, and awarded damages to plaintiff in the
amount of $14,000.
I
Resolution of the dispute herein requires application of the Uniform Partnership Act, MCL 449.1 et
seq.; MSA 20.1 et seq. Section 10 of the act would seem to govern the case at bar. It states in part:
"(1) Where title to real property is in the partnership name, any partner may convey a title to such
property
[112 Mich. App. 407]
by a conveyance executed in the partnership name; * * *." MCL 449.10; MSA 20.10.
It is undisputed that the title to the property involved herein was in the partnership name and that
Solecki, a partner, conveyed title to such property by a conveyance executed in the partnership name.
Section 10 states that these circumstances constitute a proper transfer of title. Nonetheless, 10 further
indicates that the partnership may, at its option, recover the property unless (a) the partner's act binds
the partnership under 9(1) or (b) the property has been conveyed to a bona fide purchaser.
"* * * but the partnership may recover such property unless the partner's act binds the partnership under
the provisions of paragraph one [1] of section nine [9], or unless such property has been conveyed by the
grantee or a person claiming through such grantee to a holder for value without knowledge that the
partner, in making the conveyance, has exceeded his authority; * * *." (Footnote omitted.) MCL
449.10(1); MSA 20.10(1).
The second alternative has no application to the case at bar since Billmax, the grantee, has not conveyed
the property.
Therefore, we turn to the question of whether Solecki's act bound the partnership under 9(1). That
section provides as follows:
"SEC. 9. (PARTNER AGENT OF PARTNERSHIP AS TO PARTNERSHIP BUSINESS).
"(1) Every partner is an agent of the partnership for the purpose of its business, and the act of every
partner, including the execution in the partnership name of any instrument, for apparently carrying on in
the usual way the business of the partnership of which he is a
[112 Mich. App. 408]
member binds the partnership, unless the partner so acting has in fact no authority to act for the
partnership in the particular matter, and the person with whom he is dealing has knowledge of the fact
that he has no such authority; * * *." MCL 449.9; MSA 20.9.
Under this section, Solecki's act of conveying title to the warehouse property binds the partnership if this
act was for "apparently carrying on in the usual way the business of the partnership". If the conveyance
was made in the usual course of business it must then be determined whether, (a) Solecki had "in fact no
authority to act for the partnership in the particular matter", and (b) Billmax had "knowledge of the fact
that [Solecki] ha[d] no such authority".
On the other hand, if it is found that the conveyance was not for "apparently carrying on in the usual way
the business of the partnership", then under 10 the partnership may recover the property as prayed for.
Even if this factual determination is made there is an additional question of fact necessary to the
resolution of this dispute. Section 9(2) provides as follows:
"(2) An act of a partner which is not apparently for the carrying on of the business of the partnership in
the usual way does not bind the partnership unless authorized by the other partners; * * *." MCL 449.9;
MSA 20.9.
There was testimony tending to show that Solecki was in fact authorized by plaintiff to sell the property.
See Macy v Oswald, 198 Pa.Super. 435; 182 A.2d 94 (1962). Should this be the case, the partnership is
bound by the sale of the property even if the sale was not apparently for the carrying
[112 Mich. App. 409]
on of the business of the patnership in the usual way.
Each one of these avenues to resolution of the dispute turns initially on a factual determination. The case
was tried below before the judge. GCR 1963, 517.1 requires the trial court to "find the facts specially and
state separately its conclusions of law". "The rule contemplates that level of specificity that will disclose to
the reviewing court the controlling choices made as between competing factual assertions."Holbern v
Holbern, 91 Mich.App. 566, 569; 283 N.W.2d 800 (1979).
The conclusory statements contained in the written opinion filed in this case do not reveal the course
taken by the trial judge in arriving at his decision. We are particularly concerned with how the trial judge
came to conclude that title to the property should remain in Billmax when it was apparently found that the
sale of the property by Solecki to Billmax was "without legal efficacy". Despite the fact that ourde
novo review of this case encompasses the power to make findings based upon the record, we decline to do
so where the credibility of the witnesses is critical to the outcome. Dehring v Northern Michigan
Exploration Co, Inc, 104 Mich.App. 300, 318;304 N.W.2d 560 (1981). Credibility of the witnesses appears
to be the determining factor in this case. Solecki at times made statements which would provide direct
support for defendant's position on Solecki's authority. At other times he made statements contradicting
this testimony. The credibility of other witnesses, including plaintiff and Mr. Sherr, is also an important
consideration in the resolution of this case. Therefore we must remand to the trial judge so that he may
make specific findings of fact and conclusions of law.
[112 Mich. App. 410]
II
In the pleadings below and at trial plaintiff sought to have the sale of the warehouse property set aside
and the property returned to the partnership. Plaintiff now claims on appeal that his suit does not seek to
have the warehouse returned to the partnership. Plaintiff argues that Billmax, by its transaction with
Solecki, succeeded to Solecki's interest and that the proper owner of the building is now a Backowski-
Billmax partnership. Plaintiff employs this argument as a basis for claiming a right to an accounting under
22 of the Uniform Partnership Act, hereinafter UPA, MCL 449.22; MSA 20.22. We reject the argument
initially because it was not pled and the case was not tried as a suit for an accounting. Secondly, we reject
the argument because the UPA precludes it.
Under the UPA each partner holds three property rights:
"SEC. 24. (EXTENT OF PROPERTY RIGHTS OF A PARTNER). The property rights of a partner are (1) his
rights in specific partnership property, (2) his interest in the partnership, and (3) his right to participate in
the management." MCL 449.24; MSA 20.24.
Section 25, which addresses the incidents of a partner's rights in specific property, provides that a
partner's right in specific partnership property is not assignable. MCL 449.25(2)(b); MSA 20.25(2)(b).
Thus, to the extent that plaintiff seeks to enforce the conveyance as an assignment of Solecki's right in
the property, such assignment is prohibited.
Furthermore, the conveyance cannot be construed as an assignment of Solecki's second property right, his
interest in the partnership. Section
[112 Mich. App. 411]
26 of the UPA defines this property right as follows:
"SEC. 26. (NATURE OF PARTNER'S INTEREST IN THE PARTNERSHIP).
"A partner's interest in the partnership is his share of the profits and surplus, and the same is personal
property." MCL 449.26; MSA 20.26.
Unlike a partner's right in specific property, a partner's interest in the partnership is assignable. However,
such assignment merely entitles the assignee to receive, in accordance with his contract, the profits to
which the assigning partner would otherwise be entitled. MCL 449.27; MSA 20.27.
The transfer of a limited interest in partnership property by one partner may, under certain circumstances,
be viewed as a transfer of that partner's interest in the partnership itself, defined as his share in the
profits and surplus. See Stroebel-Polasky Co v Slachta, 106 Mich.App. 538; 308 N.W.2d 273 (1981).
However, that avenue is not available here where the instrument was not intended to convey only a
limited interest in the partnership. Accordingly, Solecki's conveyance of title to the warehouse property
cannot operate as a conveyance of Solecki's interest in the partnership.
III
We next address the allegations of error brought before this Court by defendant on cross appeal.
Defendant first claims that the trial judge erred in denying its motion to disqualify based on a reference to
the title insurer made by the trial judge during an in-chambers conference.
[112 Mich. App. 412]
A trial judge will not be disqualified absent a showing of actual prejudice or bias.Emerson v Arnold (After
Remand), 92 Mich.App. 345, 353; 285 N.W.2d 45 (1979),Irish v Irish, 59 Mich.App. 635, 639; 229
N.W.2d 874 (1975). Defendant claims the trial judge's remark evinced a desire to see the case come out
in such a way as to take advantage of the "deep pocket" of insurance. A review of the record indicates
that defendant has taken the remark out of context. The trial judge was apprised of the existence of title
insurance by defendant during the course of settlement negotiations. The remark was made by way of
probing the possibilities of settlement in this case. No prejudice or bias is evident in the remark.
Defendant's claim that plaintiff's suit is barred by laches because plaintiff failed to file a notice of lis
pendens on the property is wholly unfounded. Plaintiff was under no affirmative duty to file a notice of lis
pendens. Generally, a lis pendens is designed to warn persons who deal with property while it is in
litigation that they are charged with notice of the rights of their vendor's antagonist and take subject to
the judgment rendered in the litigation. 51 Am Jur 2d, Lis Pendens, 1, p 949. The failure to file a notice
of lis pendens does not operate to preclude a suit over title to property.
During cross-examination of Solecki, defense counsel questioned Solecki with regard to the dismissal of
the complaint against him. This questioning brought out the following testimony which defendant claims
requires dismissal of the suit:
"Q. (By Mr. Leib): Did you receive some type of agreement from Mr. Backowski with relationship to the
dismissal of the lawsuit against you?
[112 Mich. App. 413]
* * *
"Q. (By Mr. Leib): Now, Mr. Solecki, did you receive any type of agreement with Mr. Backowski?
"A. There was no type of written agreement, no.
"Q. What was the oral agreement?
"A. Oral agreement that we make: that if Mr. Backowski won his case, that anything up and above
$75,000, he would split fifty-fifty.
* * *
"Q. (By Mr. Leib): And so this was the agreement then that you were to share, as you have indicated, and
that's why you were let out of the case, right?
"A. I don't know if that's why I was let out of the case.
"Q. That was the oral agreement?
"A. Correct.
"Mr. Hanlon: Who told you that, sir?
"The Witness: It was discussed.
"Mr. Hanlon: Your attorney told you that?
"The Witness: Yes.
"Mr. Hanlon: Objection, your Honor, and have it be stricken. It's purely hearsay. I think that's a valid
objection, your Honor.
"Mr. Leib: Your Honor, it just came from the lips of this witness.
"Mr. Hanlon: He said his attorney told him. And I move that it be stricken.
"The Court: Well, why don't you rephrase the question and we will find out if this witness has any
knowledge of this on his own.
"Q. (By Mr. Leib): Mr. Solecki, was that the agreement that you agreed to be taken out of this lawsuit?
"A. Yes.
"Q. Okay ."
Defense counsel later moved to dismiss the case on the basis of collusion and fraud evidenced by this
testimony. The court took the motion under advisement. Plaintiff subsequently brought a motion
[112 Mich. App. 414]
to strike the testimony on the ground that it was hearsay and that it constituted matters subject to the
lawyer-client privilege. The court granted plaintiff's motion on the basis of the hearsay objection.
The trial court erred in striking the testimony as hearsay. The purpose of this testimony was to impeach
Solecki's credibility by demonstrating his pecuniary interest in the outcome. It was not elicited for the
purpose of proving the truth of the matter asserted. The interest or bias of a witness goes directly to the
question of his credibility and is never regarded as irrelevant. People v MacCullough, 281 Mich. 15, 26;
274 NW 693 (1937), People v Meier, 47 Mich.App. 179; 209 N.W.2d 311 (1973). The testimony was
properly in the case, should not have been stricken, and should have been considered by the trial court in
assessing the credibility of Solecki. However, we do not believe the existence of the agreement would
warrant dismissal of the case.
IV
As a final comment, we indicate that, on the record before us at this time, the trial court appears to have
reached an equitable result. Perhaps only the parties themselves, by compromise, could achieve a fairer
result.
We hereby remand to the trial court for specific findings of fact on the issues raised in this opinion to be
made by the trial court within 60 days from the date of release of this opinion. We retain jurisdiction.

G.R. No. L-39780 November 11, 1985

ELMO MUASQUE, petitioner,
vs.
COURT OF APPEALS,CELESTINO GALAN TROPICAL COMMERCIAL COMPANY and RAMON
PONS,respondents.
John T. Borromeo for petitioner.
Juan D. Astete for respondent C. Galan.
Paul Gornes for respondent R. Pons.
Viu Montecillo for respondent Tropical.
Paterno P. Natinga for Intervenor Blue Diamond Glass Palace.

GUTTIERREZ, JR., J.:

In this petition for certiorari, the petitioner seeks to annul and set added the decision of the Court of
Appeals affirming the existence of a partnership between petitioner and one of the respondents, Celestino
Galan and holding both of them liable to the two intervenors which extended credit to their partnership.
The petitioner wants to be excluded from the liabilities of the partnership.
Petitioner Elmo Muasque filed a complaint for payment of sum of money and damages against
respondents Celestino Galan, Tropical Commercial, Co., Inc. (Tropical) and Ramon Pons, alleging that the
petitioner entered into a contract with respondent Tropical through its Cebu Branch Manager Pons for
remodelling a portion of its building without exchanging or expecting any consideration from Galan
although the latter was casually named as partner in the contract; that by virtue of his having introduced
the petitioner to the employing company (Tropical). Galan would receive some kind of compensation in
the form of some percentages or commission; that Tropical, under the terms of the contract, agreed to
give petitioner the amount of P7,000.00 soon after the construction began and thereafter, the amount of
P6,000.00 every fifteen (15) days during the construction to make a total sum of P25,000.00; that on
January 9, 1967, Tropical and/or Pons delivered a check for P7,000.00 not to the plaintiff but to a stranger
to the contract, Galan, who succeeded in getting petitioner's indorsement on the same check persuading
the latter that the same be deposited in a joint account; that on January 26, 1967 when the second check
for P6,000.00 was due, petitioner refused to indorse said cheek presented to him by Galan but through
later manipulations, respondent Pons succeeded in changing the payee's name from Elmo Muasque to
Galan and Associates, thus enabling Galan to cash the same at the Cebu Branch of the Philippine
Commercial and Industrial Bank (PCIB) placing the petitioner in great financial difficulty in his construction
business and subjecting him to demands of creditors to pay' for construction materials, the payment of
which should have been made from the P13,000.00 received by Galan; that petitioner undertook the
construction at his own expense completing it prior to the March 16, 1967 deadline;that because of the
unauthorized disbursement by respondents Tropical and Pons of the sum of P13,000.00 to Galan
petitioner demanded that said amount be paid to him by respondents under the terms of the written
contract between the petitioner and respondent company.
The respondents answered the complaint by denying some and admitting some of the material averments
and setting up counterclaims.
During the pre-trial conference, the petitioners and respondents agreed that the issues to be resolved are:
(1) Whether or not there existed a partners between Celestino Galan and Elmo Muasque;
and
(2) Whether or not there existed a justifiable cause on the part of respondent Tropical to
disburse money to respondent Galan.
The business firms Cebu Southern Hardware Company and Blue Diamond Glass Palace were allowed to
intervene, both having legal interest in the matter in litigation.
After trial, the court rendered judgment, the dispositive portion of which states:
IN VIEW WHEREOF, Judgment is hereby rendered:
(1) ordering plaintiff Muasque and defendant Galan to pay jointly and severally the
intervenors Cebu and Southern Hardware Company and Blue Diamond Glass Palace the
amount of P6,229.34 and P2,213.51, respectively;
(2) absolving the defendants Tropical Commercial Company and Ramon Pons from any
liability,
No damages awarded whatsoever.
The petitioner and intervenor Cebu Southern Company and its proprietor, Tan Siu filed motions for
reconsideration.
On January 15, 197 1, the trial court issued 'another order amending its judgment to make it read as
follows:
IN VIEW WHEREOF, Judgment is hereby rendered:
(1) ordering plaintiff Muasque and defendant Galan to pay jointly and severally the
intervenors Cebu Southern Hardware Company and Blue Diamond Glass Palace the amount
of P6,229.34 and P2,213.51, respectively,
(2) ordering plaintiff and defendant Galan to pay Intervenor Cebu Southern Hardware
Company and Tan Siu jointly and severally interest at 12% per annum of the sum of
P6,229.34 until the amount is fully paid;
(3) ordering plaintiff and defendant Galan to pay P500.00 representing attorney's fees
jointly and severally to Intervenor Cebu Southern Hardware Company:
(4) absolving the defendants Tropical Commercial Company and Ramon Pons from any
liability,
No damages awarded whatsoever.
On appeal, the Court of Appeals affirmed the judgment of the trial court with the sole modification that the
liability imposed in the dispositive part of the decision on the credit of Cebu Southern Hardware and Blue
Diamond Glass Palace was changed from "jointly and severally" to "jointly."
Not satisfied, Mr. Muasque filed this petition.
The present controversy began when petitioner Muasque in behalf of the partnership of "Galan and
Muasque" as Contractor entered into a written contract with respondent Tropical for remodelling the
respondent's Cebu branch building. A total amount of P25,000.00 was to be paid under the contract for
the entire services of the Contractor. The terms of payment were as follows: thirty percent (30%) of the
whole amount upon the signing of the contract and the balance thereof divided into three equal
installments at the lute of Six Thousand Pesos (P6,000.00) every fifteen (15) working days.
The first payment made by respondent Tropical was in the form of a check for P7,000.00 in the name of
the petitioner.Petitioner, however, indorsed the check in favor of respondent Galan to enable the latter to
deposit it in the bank and pay for the materials and labor used in the project.
Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00 for his personal use so that when the
second check in the amount of P6,000.00 came and Galan asked the petitioner to indorse it again, the
petitioner refused.
The check was withheld from the petitioner. Since Galan informed the Cebu branch of Tropical that there
was a"misunderstanding" between him and petitioner, respondent Tropical changed the name of the
payee in the second check from Muasque to "Galan and Associates" which was the duly registered name
of the partnership between Galan and petitioner and under which name a permit to do construction
business was issued by the mayor of Cebu City. This enabled Galan to encash the second check.
Meanwhile, as alleged by the petitioner, the construction continued through his sole efforts. He stated that
he borrowed some P12,000.00 from his friend, Mr. Espina and although the expenses had reached the
amount of P29,000.00 because of the failure of Galan to pay what was partly due the laborers and partly
due for the materials, the construction work was finished ahead of schedule with the total expenditure
reaching P34,000.00.
The two remaining checks, each in the amount of P6,000.00,were subsequently given to the petitioner
alone with the last check being given pursuant to a court order.
As stated earlier, the petitioner filed a complaint for payment of sum of money and damages against the
respondents,seeking to recover the following: the amounts covered by the first and second checks which
fell into the hands of respondent Galan, the additional expenses that the petitioner incurred in the
construction, moral and exemplary damages, and attorney's fees.
Both the trial and appellate courts not only absolved respondents Tropical and its Cebu Manager, Pons,
from any liability but they also held the petitioner together with respondent Galan, hable to the
intervenors Cebu Southern Hardware Company and Blue Diamond Glass Palace for the credit which the
intervenors extended to the partnership of petitioner and Galan
In this petition the legal questions raised by the petitioner are as follows: (1) Whether or not the appellate
court erred in holding that a partnership existed between petitioner and respondent Galan. (2) Assuming
that there was such a partnership, whether or not the court erred in not finding Galan guilty of malversing
the P13,000.00 covered by the first and second checks and therefore, accountable to the petitioner for the
said amount; and (3) Whether or not the court committed grave abuse of discretion in holding that the
payment made by Tropical through its manager Pons to Galan was "good payment, "
Petitioner contends that the appellate court erred in holding that he and respondent Galan were partners,
the truth being that Galan was a sham and a perfidious partner who misappropriated the amount of
P13,000.00 due to the petitioner.Petitioner also contends that the appellate court committed grave abuse
of discretion in holding that the payment made by Tropical to Galan was "good" payment when the same
gave occasion for the latter to misappropriate the proceeds of such payment.
The contentions are without merit.
The records will show that the petitioner entered into a con-tract with Tropical for the renovation of the
latter's building on behalf of the partnership of "Galan and Muasque." This is readily seen in the first
paragraph of the contract where it states:
This agreement made this 20th day of December in the year 1966 by Galan and Muasque
hereinafter called the Contractor, and Tropical Commercial Co., Inc., hereinafter called the
owner do hereby for and in consideration agree on the following: ... .
There is nothing in the records to indicate that the partner-ship organized by the two men was not a
genuine one. If there was a falling out or misunderstanding between the partners, such does not convert
the partnership into a sham organization.
Likewise, when Muasque received the first payment of Tropical in the amount of P7,000.00 with a check
made out in his name, he indorsed the check in favor of Galan. Respondent Tropical therefore, had every
right to presume that the petitioner and Galan were true partners. If they were not partners as petitioner
claims, then he has only himself to blame for making the relationship appear otherwise, not only to
Tropical but to their other creditors as well. The payments made to the partnership were, therefore, valid
payments.
In the case of Singsong v. Isabela Sawmill (88 SCRA 643),we ruled:
Although it may be presumed that Margarita G. Saldajeno had acted in good faith, the
appellees also acted in good faith in extending credit to the partnership. Where one of two
innocent persons must suffer, that person who gave occasion for the damages to be caused
must bear the consequences.
No error was committed by the appellate court in holding that the payment made by Tropical to Galan was
a good payment which binds both Galan and the petitioner. Since the two were partners when the debts
were incurred, they, are also both liable to third persons who extended credit to their partnership. In the
case of George Litton v. Hill and Ceron, et al, (67 Phil. 513, 514), we ruled:
There is a general presumption that each individual partner is an authorized agent for the
firm and that he has authority to bind the firm in carrying on the partnership transactions.
(Mills vs. Riggle,112 Pan, 617).
The presumption is sufficient to permit third persons to hold the firm liable on transactions
entered into by one of members of the firm acting apparently in its behalf and within the
scope of his authority. (Le Roy vs. Johnson, 7 U.S. (Law. ed.), 391.)
Petitioner also maintains that the appellate court committed grave abuse of discretion in not holding Galan
liable for the amounts which he "malversed" to the prejudice of the petitioner. He adds that although this
was not one of the issues agreed upon by the parties during the pretrial, he, nevertheless, alleged the
same in his amended complaint which was, duly admitted by the court.
When the petitioner amended his complaint, it was only for the purpose of impleading Ramon Pons in his
personal capacity. Although the petitioner made allegations as to the alleged malversations of Galan,
these were the same allegations in his original complaint. The malversation by one partner was not an
issue actually raised in the amended complaint but the alleged connivance of Pons with Galan as a means
to serve the latter's personal purposes.
The petitioner, therefore, should be bound by the delimitation of the issues during the pre-trial because he
himself agreed to the same. In Permanent Concrete Products, Inc. v. Teodoro, (26 SCRA 336), we ruled:
xxx xxx xxx
... The appellant is bound by the delimitation of the issues contained in the trial court's
order issued on the very day the pre-trial conference was held. Such an order controls the
subsequent course of the action, unless modified before trial to prevent manifest injustice.In
the case at bar, modification of the pre-trial order was never sought at the instance of any
party.
Petitioner could have asked at least for a modification of the issues if he really wanted to include the
determination of Galan's personal liability to their partnership but he chose not to do so, as he vehemently
denied the existence of the partnership. At any rate, the issue raised in this petition is the contention of
Muasque that the amounts payable to the intervenors should be shouldered exclusively by Galan. We
note that the petitioner is not solely burdened by the obligations of their illstarred partnership. The
records show that there is an existing judgment against respondent Galan, holding him liable for the total
amount of P7,000.00 in favor of Eden Hardware which extended credit to the partnership aside from the
P2, 000. 00 he already paid to Universal Lumber.
We, however, take exception to the ruling of the appellate court that the trial court's ordering petitioner
and Galan to pay the credits of Blue Diamond and Cebu Southern Hardware"jointly and severally" is plain
error since the liability of partners under the law to third persons for contracts executed inconnection with
partnership business is only pro rata under Art. 1816, of the Civil Code.
While it is true that under Article 1816 of the Civil Code,"All partners, including industrial ones, shall be
liable prorate with all their property and after all the partnership assets have been exhausted, for the
contracts which may be entered into the name and fm the account cd the partnership, under its signature
and by a person authorized to act for the partner-ship. ...". this provision should be construed together
with Article 1824 which provides that: "All partners are liable solidarily with the partnership for everything
chargeable to the partnership under Articles 1822 and 1823." In short, while the liability of the partners
are merely joint in transactions entered into by the partnership, a third person who transacted with said
partnership can hold the partners solidarily liable for the whole obligation if the case of the third person
falls under Articles 1822 or 1823.
Articles 1822 and 1823 of the Civil Code provide:
Art. 1822. Where, by any wrongful act or omission of any partner acting in the ordinary
course of the business of the partner-ship or with the authority of his co-partners, loss or
injury is caused to any person, not being a partner in the partnership or any penalty is
incurred, the partnership is liable therefor to the same extent as the partner so acting or
omitting to act.
Art. 1823. The partnership is bound to make good:
(1) Where one partner acting within the scope of his apparent authority receives money or
property of a third person and misapplies it; and
(2) Where the partnership in the course of its business receives money or property of a
third person and t he money or property so received is misapplied by any partner while it is
in the custody of the partnership.
The obligation is solidary, because the law protects him, who in good faith relied upon the authority of a
partner, whether such authority is real or apparent. That is why under Article 1824 of the Civil Code all
partners, whether innocent or guilty, as well as the legal entity which is the partnership, are solidarily
liable.
In the case at bar the respondent Tropical had every reason to believe that a partnership existed between
the petitioner and Galan and no fault or error can be imputed against it for making payments to "Galan
and Associates" and delivering the same to Galan because as far as it was concerned, Galan was a true
partner with real authority to transact on behalf of the partnership with which it was dealing. This is even
more true in the cases of Cebu Southern Hardware and Blue Diamond Glass Palace who supplied materials
on credit to the partnership. Thus, it is but fair that the consequences of any wrongful act committed by
any of the partners therein should be answered solidarily by all the partners and the partnership as a
whole
However. as between the partners Muasque and Galan,justice also dictates that Muasque be reimbursed
by Galan for the payments made by the former representing the liability of their partnership to herein
intervenors, as it was satisfactorily established that Galan acted in bad faith in his dealings with Muasque
as a partner.
WHEREFORE, the decision appealed from is hereby AFFIRMED with the MODIFICATION that the liability of
petitioner and respondent Galan to intervenors Blue Diamond Glass and Cebu Southern Hardware is
declared to be joint and solidary. Petitioner may recover from respondent Galan any amount that he pays,
in his capacity as a partner, to the above intervenors,
SO ORDERED.