DELUAO VS.

CASTEEL 26 SCRA 475

FACTS: Nicanor Casteel filed a fishpond application for a big tract of swampy land in the then Sitio
of Malalag (now the Municipality of Malalag), Municipality of Padada, Davao for three times since
1940 but no action was taken thereon by the authorities concerned. Despite the said rejection,
Casteel did not lose interest. Meanwhile, several applications were submitted by other persons for
portions of the area covered by Casteel's application, one of them was Felipe Deluao, uncle of
Casteel. Because of the threat poised upon his position by the above applicants who entered upon
and spread themselves within the area, Casteel sought financial aid from his uncle Deluao with
which to finance the needed improvements on the fishpond. Hence, a wide productive fishpond was
built. But despite the improvements introduced, Casteels application was still rejected. He then
appealed the rejection made with the Secretary of Agriculture and Natural Resources. Pending
appeal, Inocencia Deluao (wife of Felipe Deluao) and Nicanor Casteel executed a contract
denominated as contract of service whereby Deluao hires and employs the Casteel. The
latter will be the Manager and sole buyer of all the produce of the fish that will be produced from said
fishpond while the former will be the administrator of the same she having financed the construction
and improvement of said fishpond. At the same time, Inocencia Deluao executed a special power of
attorney in favor of Jesus Donesa, extending to the latter the authority to represent her in the
administration of the fishpond. Meanwhile, the Secretary of Agriculture and Natural Resources
issued a decision stating that Nicanor Casteel should be, as hereby it is, reinstated and given due
course for the area applied for. Nicanor Casteel then forbade Inocencia Deluao from further
administering the fishpond, and ejected the latter's representative, Donesa, from the premises.
Alleging violation of the contract of service entered into between Deluao and Casteel, Deluao filed
an action in the CFI for specific performance and damages against Casteel and one Juan Depra
(who, they alleged, instigated Casteel to violate his contract).

ISSUES: 1) Whether the agreement made by the parties created a contract of co-ownership or
partnership.

2) Whether the reinstatement of Casteel over the subject land constitute a dissolution of the
partnership between him and Deluao.

HELD: The evidence preponderates in favor of the view that the initial intention of the parties was
not to form a co-ownership but to establish a partnership Inocencia Deluao as capitalist partner
and Casteel as industrial partner the ultimate undertaking of which was to divide into two equal
parts such portion of the fishpond as might have been developed by the amount extended by the
plaintiffs-appellees, with the further provision that Casteel should reimburse the expenses incurred
by the appellees over one-half of the fishpond that would pertain to him. This can be gleaned,
among others, from the letter of Casteel to Felipe Deluao showing the intention to divide the
fishpond. On the second issue, the Supreme Court ruled that the arrangement under the so-called
"contract of service" continued until the decision issued by the Secretary of Agriculture and Natural
Resources. This development, by itself, brought about the dissolution of the partnership. Since the
partnership had for its object the division into two equal parts of the fishpond between the appellees
and the appellant after it shall have been awarded to the latter, and therefore it envisaged the
unauthorized transfer of one half thereof to parties other than the applicant Casteel, it was dissolved
by the approval of his application and the award to him of the fishpond.