G.R. No.
134559 December 9, 1999 building of sixty low-cost housing units and actually even set up a model house on one of
TORRES vs. CA
Courts may not extricate parties from the necessary consequences of their acts. That the
terms of a contract turn out to be financially disadvantageous to them will not relieve
them of their obligations therein. The lack of an inventory of real property will not ipso
facto release the contracting partners from their respective obligations to each other
arising from acts executed in accordance with their agreement.
The Case
The Petition for Review on Certiorari before us assails the March 5, 1998 Decision 1 of
the Court of Appeals 2 (CA) in CA-GR CV No. 42378 and its June 25, 1998 Resolution
denying reconsideration. The assailed Decision affirmed the ruling of the Regional Trial Court
(RTC) of Cebu City in Civil Case No. R-21208, which disposed as follows:
WHEREFORE, for all the foregoing considerations, the Court, finding for the
defendant and against the plaintiffs, orders the dismissal of the plaintiffs
complaint. The counterclaims of the defendant are likewise ordered dismissed.
No pronouncement as to costs. 3
The Facts
Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint
venture agreement" with Respondent Manuel Torres for the development of a parcel of
land into a subdivision. Pursuant to the contract, they executed a Deed of Sale covering
the said parcel of land in favor of respondent, who then had it registered in his name. By
mortgaging the property, respondent obtained from Equitable Bank a loan of P40,000
which, under the Joint Venture Agreement, was to be used for the development of the
subdivision. 4 All three of them also agreed to share the proceeds from the sale of the
subdivided lots.
The project did not push through, and the land was subsequently foreclosed by the bank.
According to petitioners, the project failed because of "respondent's lack of funds or
means and skills." They add that respondent used the loan not for the development of
the subdivision, but in furtherance of his own company, Universal Umbrella Company.
On the other hand, respondent alleged that he used the loan to implement the
Agreement. With the said amount, he was able to effect the survey and the subdivision of
the lots. He secured the LapuLapu City Council's approval of the subdivision project
which he advertised in a local newspaper. He also caused the construction of roads,
curbs and gutters. Likewise, he entered into a contract with an engineering firm for the
the subdivision lots. He did all of these for a total expense of P85,000.
Respondent claimed that the subdivision project failed, however, because petitioners and
their relatives had separately caused the annotations of adverse claims on the title to the
land, which eventually scared away prospective buyers. Despite his requests, petitioners
refused to cause the clearing of the claims, thereby forcing him to give up on the
project. 5
Subsequently, petitioners filed a criminal case for estafa against respondent and his wife,
who were however acquitted. Thereafter, they filed the present civil case which, upon
respondent's motion, was later dismissed by the trial court in an Order dated September
6, 1982. On appeal, however, the appellate court remanded the case for further
proceedings. Thereafter, the RTC issued its assailed Decision, which, as earlier stated,
was affirmed by the CA.
Hence, this Petition. 6
Ruling of the Court of Appeals
In affirming the trial court, the Court of Appeals held that petitioners and respondent had
formed a partnership for the development of the subdivision. Thus, they must bear the
loss suffered by the partnership in the same proportion as their share in the profits
stipulated in the contract. Disagreeing with the trial court's pronouncement that losses as
well as profits in a joint venture should be distributed equally, 7 the CA invoked Article
1797 of the Civil Code which provides:
Art. 1797 — The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been agreed upon,
the share of each in the losses shall be in the same proportion.
The CA elucidated further:
In the absence of stipulation, the share of each partner in the profits and losses
shall be in proportion to what he may have contributed, but the industrial partner
shall not be liable for the losses. As for the profits, the industrial partner shall
receive such share as may be just and equitable under the circumstances. If
besides his services he has contributed capital, he shall also receive a share in
the profits in proportion to his capital.
The Issue
Petitioners impute to the Court of Appeals the following error:
 . . . [The] Court of Appeals erred in concluding that the transaction
. . . between the petitioners and respondent was that of a joint
venture/partnership, ignoring outright the provision of Article 1769, and
other related provisions of the Civil Code of the Philippines. 8
The Court's Ruling
The Petition is bereft of merit.
Main Issue:
Existence of a Partnership
Petitioners deny having formed a partnership with respondent. They contend that the
Joint Venture Agreement and the earlier Deed of Sale, both of which were the bases of
the appellate court's finding of a partnership, were void.
In the same breath, however, they assert that under those very same contracts,
respondent is liable for his failure to implement the project. Because the agreement
entitled them to receive 60 percent of the proceeds from the sale of the subdivision lots,
they pray that respondent pay them damages equivalent to 60 percent of the value of the
property. 9
The pertinent portions of the Joint Venture Agreement read as follows:
KNOW ALL MEN BY THESE PRESENTS:
This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th
day of March, 1969, by and between MR. MANUEL R. TORRES, . . . the FIRST
PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS EMETERIA BARING,
. . . the SECOND PARTY:
WITNESSETH:
That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this
property located at Lapu-Lapu City, Island of Mactan, under Lot No. 1368
covering TCT No. T-0184 with a total area of 17,009 square meters, to be sub-
divided by the FIRST PARTY;
Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of:
TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency upon the
execution of this contract for the property entrusted by the SECOND PARTY, for
sub-division projects and development purposes;
NOW THEREFORE, for and in consideration of the above covenants and
promises herein contained the respective parties hereto do hereby stipulate and
agree as follows:
ONE: That the SECOND PARTY signed an absolute Deed of Sale . . . dated
March 5, 1969, in the amount of TWENTY FIVE THOUSAND FIVE HUNDRED
THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine Currency, for 1,700 square
meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in favor of
the FIRST PARTY, but the SECOND PARTY did not actually receive the
payment.
SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the
necessary amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine
currency, for their personal obligations and this particular amount will serve as an
advance payment from the FIRST PARTY for the property mentioned to be sub-
divided and to be deducted from the sales.
THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the
interest and the principal amount involving the amount of TWENTY THOUSAND
(P20,000.00) Pesos, Philippine Currency, until the sub-division project is
terminated and ready for sale to any interested parties, and the amount of
TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, will be deducted
accordingly.
FOURTH: That all general expense[s] and all cost[s] involved in the sub-division
project should be paid by the FIRST PARTY, exclusively and all the expenses
will not be deducted from the sales after the development of the sub-division
project.
FIFTH: That the sales of the sub-divided lots will be divided into SIXTY
PERCENTUM 60% for the SECOND PARTY and FORTY PERCENTUM 40% for
the FIRST PARTY, and additional profits or whatever income deriving from the
sales will be divided equally according to the . . . percentage [agreed upon] by
both parties.
SIXTH: That the intended sub-division project of the property involved will start
the work and all improvements upon the adjacent lots will be negotiated in both
parties['] favor and all sales shall [be] decided by both parties.
 SEVENTH: That the SECOND PARTIES, should be given an option to get back
the property mentioned provided the amount of TWENTY THOUSAND
(P20,000.00) Pesos, Philippine Currency, borrowed by the SECOND PARTY, will
be paid in full to the FIRST PARTY, including all necessary improvements spent
by the FIRST PARTY, and-the FIRST PARTY will be given a grace period to
turnover the property mentioned above.
That this AGREEMENT shall be binding and obligatory to the parties who
executed same freely and voluntarily for the uses and purposes therein stated. 10
A reading of the terms embodied in the Agreement indubitably shows the existence of a
partnership pursuant to Article 1767 of the Civil Code, which provides:
Art. 1767. By the contract of partnership two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.
Under the above-quoted Agreement, petitioners would contribute property to the
partnership in the form of land which was to be developed into a subdivision; while
respondent would give, in addition to his industry, the amount needed for general
expenses and other costs. Furthermore, the income from the said project would be
divided according to the stipulated percentage. Clearly, the contract manifested the
intention of the parties to form a partnership. 11
It should be stressed that the parties implemented the contract. Thus, petitioners
transferred the title to the land to facilitate its use in the name of the respondent. On the
other hand, respondent caused the subject land to be mortgaged, the proceeds of which
were used for the survey and the subdivision of the land. As noted earlier, he developed
the roads, the curbs and the gutters of the subdivision and entered into a contract to
construct low-cost housing units on the property.
Respondent's actions clearly belie petitioners' contention that he made no contribution to
the partnership. Under Article 1767 of the Civil Code, a partner may contribute not only
money or property, but also industry.
Petitioners Bound by
Terms of Contract
Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been
expressly stipulated, but also to all necessary consequences thereof, as follows:
Art. 1315. Contracts are perfected by mere consent, and from that moment the
parties are bound not only to the fulfillment of what has been expressly stipulated
but also to all the consequences which, according to their nature, may be in
keeping with good faith, usage and law.
It is undisputed that petitioners are educated and are thus presumed to have understood
the terms of the contract they voluntarily signed. If it was not in consonance with their
expectations, they should have objected to it and insisted on the provisions they wanted.
Courts are not authorized to extricate parties from the necessary consequences of their
acts, and the fact that the contractual stipulations may turn out to be financially
disadvantageous will not relieve parties thereto of their obligations. They cannot now
disavow the relationship formed from such agreement due to their supposed
misunderstanding of its terms.
Alleged Nullity of the
Partnership Agreement
Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil
Code, which provides:
Art. 1773. A contract of partnership is void, whenever immovable property is
contributed thereto, if an inventory of said property is not made, signed by the
parties, and attached to the public instrument.
They contend that since the parties did not make, sign or attach to the public instrument
an inventory of the real property contributed, the partnership is void.
We clarify. First, Article 1773 was intended primarily to protect third persons. Thus, the
eminent Arturo M. Tolentino states that under the aforecited provision which is a
complement of Article 1771, 12 "The execution of a public instrument would be useless if
there is no inventory of the property contributed, because without its designation and
description, they cannot be subject to inscription in the Registry of Property, and their
contribution cannot prejudice third persons. This will result in fraud to those who contract with
the partnership in the belief [in] the efficacy of the guaranty in which the immovables may
consist. Thus, the contract is declared void by the law when no such inventory is made." The
case at bar does not involve third parties who may be prejudiced.
Second, petitioners themselves invoke the allegedly void contract as basis for their claim
that respondent should pay them 60 percent of the value of the property. 13 They cannot
in one breath deny the contract and in another recognize it, depending on what momentarily
suits their purpose. Parties cannot adopt inconsistent positions in regard to a contract and
courts will not tolerate, much less approve, such practice.
In short, the alleged nullity of the partnership will not prevent courts from considering the
Joint Venture Agreement an ordinary contract from which the parties' rights and
obligations to each other may be inferred and enforced.
Partnership Agreement Not the Result
of an Earlier Illegal Contract
Petitioners also contend that the Joint Venture Agreement is void under Article 1422 14 of
the Civil Code, because it is the direct result of an earlier illegal contract, which was for the
sale of the land without valid consideration.
This argument is puerile. The Joint Venture Agreement clearly states that the
consideration for the sale was the expectation of profits from the subdivision project. Its
first stipulation states that petitioners did not actually receive payment for the parcel of
land sold to respondent. Consideration, more properly denominated as cause, can take
different forms, such as the prestation or promise of a thing or service by another. 15
In this case, the cause of the contract of sale consisted not in the stated peso value of
the land, but in the expectation of profits from the subdivision project, for which the land
was intended to be used. As explained by the trial court, "the land was in effect given to
the partnership as [petitioner's] participation therein. . . . There was therefore a
consideration for the sale, the [petitioners] acting in the expectation that, should the
venture come into fruition, they [would] get sixty percent of the net profits."
Liability of the Parties
Claiming that rerpondent was solely responsible for the failure of the subdivision project,
petitioners maintain that he should be made to pay damages equivalent to 60 percent of
the value of the property, which was their share in the profits under the Joint Venture
Agreement.
We are not persuaded. True, the Court of Appeals held that petitioners' acts were not the
cause of the failure of the project. 16 But it also ruled that neither was respondent
responsible therefor. 17 In imputing the blame solely to him, petitioners failed to give any
reason why we should disregard the factual findings of the appellate court relieving him of
fault. Verily, factual issues cannot be resolved in a petition for review under Rule 45, as in this
case. Petitioners have not alleged, not to say shown, that their Petition constitutes one of the
exceptions to this doctrine. 18 Accordingly, we find no reversible error in the CA's ruling that
petitioners are not entitled to damages.
WHEREFORE, the Perition is hereby DENIED and the challenged Decision AFFIRMED.
Costs against petitioners.
SO ORDERED
G.R. No. L-21906 December 24, 1968
DELUAO vs. CASTEEL
This is an appeal from the order of May 2, 1956, the decision of May 4, 1956 and the
order of May 21, 1956, all of the Court of First Instance of Davao, in civil case 629. The
basic action is for specific performance, and damages resulting from an alleged breach
of contract.
In 1940 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.
No action was taken thereon by the authorities concerned. During the Japanese
occupation, he filed another fishpond application for the same area, but because of the
conditions then prevailing, it was not acted upon either. On December 12, 1945 he filed a
third fishpond application for the same area, which, after a survey, was found to contain
178.76 hectares. Upon investigation conducted by a representative of the Bureau of
Forestry, it was discovered that the area applied for was still needed for firewood
production. Hence on May 13, 1946 this third application was disapproved.
Despite the said rejection, Casteel did not lose interest. He filed a motion for
reconsideration. While this motion was pending resolution, he was advised by the district
forester of Davao City that no further action would be taken on his motion, unless he filed
a new application for the area concerned. So he filed on May 27, 1947 his fishpond
application 1717.
Meanwhile, several applications were submitted by other persons for portions of the area
covered by Casteel's application.
On May 20, 1946 LeoncioAradillos filed his fishpond application 1202 covering 10
hectares of land found inside the area applied for by Casteel; he was later granted
fishpond permit F-289-C covering 9.3 hectares certified as available for fishpond
purposes by the Bureau of Forestry.
Victor D. Carpio filed on August 8, 1946 his fishpond application 762 over a portion of the
land applied for by Casteel. Alejandro Cacam's fishpond application 1276, filed on
December 26, 1946, was given due course on December 9, 1947 with the issuance to
him of fishpond permit F-539-C to develop 30 hectares of land comprising a portion of
the area applied for by Casteel, upon certification of the Bureau of Forestry that the area
was likewise available for fishpond purposes. On November 17, 1948 Felipe Deluao filed
his own fishpond application for the area covered by Casteel's application.
Because of the threat poised upon his position by the above applicants who entered
upon and spread themselves within the area, Casteel realized the urgent necessity of
expanding his occupation thereof by constructing dikes and cultivating marketable fishes,
in order to prevent old and new squatters from usurping the land. But lacking financial
resources at that time, he sought financial aid from his uncle Felipe Deluao who then
extended loans totalling more or less P27,000 with which to finance the needed
improvements on the fishpond. Hence, a wide productive fishpond was built.
Moreover, upon learning that portions of the area applied for by him were already
occupied by rival applicants, Casteel immediately filed the corresponding protests.
Consequently, two administrative cases ensued involving the area in question, to wit:
DANR Case 353, entitled "Fp. Ap. No. 661 (now Fp. A. No. 1717), Nicanor Casteel,
applicant-appellant versus Fp. A. No. 763, Victorio D. Carpio, applicant-appellant"; and
DANR Case 353-B, entitled "Fp. A. No. 661 (now Fp. A. No. 1717), Nicanor Casteel,
applicant-protestant versus Fp. Permit No. 289-C, LeoncioAradillos, Fp. Permit No. 539-
C, Alejandro Cacam, Permittees-Respondents."
However, despite the finding made in the investigation of the above administrative cases
that Casteel had already introduced improvements on portions of the area applied for by
him in the form of dikes, fishpond gates, clearings, etc., the Director of Fisheries
nevertheless rejected Casteel's application on October 25, 1949, required him to remove
all the improvements which he had introduced on the land, and ordered that the land be
leased through public auction. Failing to secure a favorable resolution of his motion for
reconsideration of the Director's order, Casteel appealed to the Secretary of Agriculture
and Natural Resources.
In the interregnum, some more incidents occurred. To avoid repetition, they will be taken
up in our discussion of the appellant's third assignment of error.
On November 25, 1949 InocenciaDeluao (wife of Felipe Deluao) as party of the first part,
and Nicanor Casteel as party of the second part, executed a contract — denominated a
"contract of service" — the salient provisions of which are as follows:
That the Party of the First Part in consideration of the mutual covenants and
agreements made herein to the Party of the Second Part, hereby enter into a
contract of service, whereby the Party of the First Part hires and employs the
Party of the Second Part on the following terms and conditions, to wit:
That the Party of the First Part will finance as she has hereby financed the sum
of TWENTY SEVEN THOUSAND PESOS (P27,000.00), Philippine Currency, to
the Party of the Second Part who renders only his services for the construction
and improvements of a fishpond at Barrio Malalag, Municipality of Padada,
Province of Davao, Philippines;
That the Party of the Second Part will be the Manager and sole buyer of all the
produce of the fish that will be produced from said fishpond;
That the Party of the First Part will be the administrator of the same she having
financed the construction and improvement of said fishpond;
That this contract was the result of a verbal agreement entered into between the
Parties sometime in the month of November, 1947, with all the above-mentioned
conditions enumerated; ...
On the same date the above contract was entered into, InocenciaDeluao executed a
special power of attorney in favor of Jesus Donesa, extending to the latter the authority
"To represent me in the administration of the fishpond at Malalag, Municipality of
Padada, Province of Davao, Philippines, which has been applied for fishpond permit by
Nicanor Casteel, but rejected by the Bureau of Fisheries, and to supervise, demand,
receive, and collect the value of the fish that is being periodically realized from it...."
On November 29, 1949 the Director of Fisheries rejected the application filed by Felipe
Deluao on November 17, 1948. Unfazed by this rejection, Deluao reiterated his claim
over the same area in the two administrative cases (DANR Cases 353 and 353-B) and
asked for reinvestigation of the application of Nicanor Casteel over the subject fishpond.
However, by letter dated March 15, 1950 sent to the Secretary of Commerce and
Agriculture and Natural Resources (now Secretary of Agriculture and Natural
Resources), Deluao withdrew his petition for reinvestigation.
On September 15, 1950 the Secretary of Agriculture and Natural Resources issued a
decision in DANR Case 353, the dispositive portion of which reads as follows:
In view of all the foregoing considerations, Fp. A. No. 661 (now Fp. A. No. 1717)
of Nicanor Casteel should be, as hereby it is, reinstated and given due course for
the area indicated in the sketch drawn at the back of the last page hereof; and
Fp. A. No. 762 of Victorio D. Carpio shall remain rejected.
On the same date, the same official issued a decision in DANR Case 353-B, the
dispositive portion stating as follows:
WHEREFORE, Fishpond Permit No. F-289-C of LeoncioAradillos and Fishpond
Permit No. F-539-C of Alejandro Cacam, should be, as they are hereby cancelled
and revoked; Nicanor Casteel is required to pay the improvements introduced
 thereon by said permittees in accordance with the terms and dispositions
contained elsewhere in this decision....
Sometime in January 1951 Nicanor Casteel forbade InocenciaDeluao from further
administering the fishpond, and ejected the latter's representative (encargado), Jesus
Donesa, from the premises.
Alleging violation of the contract of service (exhibit A) entered into between
InocenciaDeluao and Nicanor Casteel, Felipe Deluao and InocenciaDeluao on April 3,
1951 filed an action in the Court of First Instance of Davao for specific performance and
damages against Nicanor Casteel and Juan Depra (who, they alleged, instigated Casteel
to violate his contract), praying inter alia, (a) that Casteel be ordered to respect and
abide by the terms and conditions of said contract and that InocenciaDeluao be allowed
to continue administering the said fishpond and collecting the proceeds from the sale of
the fishes caught from time to time; and (b) that the defendants be ordered to pay jointly
and severally to plaintiffs the sum of P20,000 in damages.
On April 18, 1951 the plaintiffs filed an ex parte motion for the issuance of a preliminary
injunction, praying among other things, that during the pendency of the case and upon
their filling the requisite bond as may be fixed by the court, a preliminary injunction be
issued to restrain Casteel from doing the acts complained of, and that after trial the said
injunction be made permanent. The lower court on April 26, 1951 granted the motion,
and, two days later, it issued a preliminary mandatory injunction addressed to Casteel,
the dispositive portion of which reads as follows:
POR EL PRESENTE, quedaustedordenado que, hasta nuevaorden, usted, el
demandado y todosusuabogados, agentes, mandatarios y demas personas que
obrenensuayuda, desista de impedir a la demandanteInocencia R. Deluao que
continue administrandopersonalmente la pesqueriaobjeto de esta causa y que la
misma continue recibiendolosproductos de la venta de lospescadosprovenientes
de dichapesqueria, y que, asimismo, se prohibe a dichodemandadoNicanor
Casteel a desahuciarmediantefuerza al encargado de losdemandantesllamado
Jesus Donesa de la pesqueriaobjeto de la demanda de autos.
On May 10, 1951 Casteel filed a motion to dissolve the injunction, alleging among others,
that he was the owner, lawful applicant and occupant of the fishpond in question. This
motion, opposed by the plaintiffs on June 15, 1951, was denied by the lower court in its
order of June 26, 1961.
The defendants on May 14, 1951 filed their answer with counterclaim, amended on
January 8, 1952, denying the material averments of the plaintiffs' complaint. A reply to
the defendants' amended answer was filed by the plaintiffs on January 31, 1952.
The defendant Juan Depra moved on May 22, 1951 to dismiss the complaint as to him.
On June 4, 1951 the plaintiffs opposed his motion.
The defendants filed on October 3, 1951 a joint motion to dismiss on the ground that the
plaintiffs' complaint failed to state a claim upon which relief may be granted. The motion,
opposed by the plaintiffs on October 12, 1951, was denied for lack of merit by the lower
court in its order of October 22, 1951. The defendants' motion for reconsideration filed on
October 31, 1951 suffered the same fate when it was likewise denied by the lower court
in its order of November 12, 1951.
After the issues were joined, the case was set for trial. Then came a series of
postponements. The lower court (Branch I, presided by Judge Enrique A. Fernandez)
finally issued on March 21, 1956 an order in open court, reading as follows: .
Upon petition of plaintiffs, without any objection on the part of defendants, the
hearing of this case is hereby transferred to May 2 and 3, 1956 at 8:30 o'clock in
the morning.
This case was filed on April 3, 1951 and under any circumstance this Court will
not entertain any other transfer of hearing of this case and if the parties will not
be ready on that day set for hearing, the court will take the necessary steps for
the final determination of this case. (emphasis supplied)
On April 25, 1956 the defendants' counsel received a notice of hearing dated April 21,
1956, issued by the office of the Clerk of Court (thru the special deputy Clerk of Court) of
the Court of First Instance of Davao, setting the hearing of the case for May 2 and 3,
1956 before Judge Amador Gomez of Branch II. The defendants, thru counsel, on April
26, 1956 filed a motion for postponement. Acting on this motion, the lower court (Branch
II, presided by Judge Gomez) issued an order dated April 27, 1956, quoted as follows:
This is a motion for postponement of the hearing of this case set for May 2 and 3,
1956. The motion is filed by the counsel for the defendants and has the
conformity of the counsel for the plaintiffs.
An examination of the records of this case shows that this case was initiated as
early as April 1951 and that the same has been under advisement of the
Honorable Enrique A. Fernandez, Presiding Judge of Branch No. I, since
September 24, 1953, and that various incidents have already been considered
and resolved by Judge Fernandez on various occasions. The last order issued by
Judge Fernandez on this case was issued on March 21, 1956, wherein he
definitely states that the Court will not entertain any further postponement of the
hearing of this case.
 CONSIDERING ALL THE FOREGOING, the Court believes that the
consideration and termination of any incident referring to this case should be
referred back to Branch I, so that the same may be disposed of therein.
(emphasis supplied)
A copy of the abovequoted order was served on the defendants' counsel on May 4,
1956.
On the scheduled date of hearing, that is, on May 2, 1956, the lower court (Branch I, with
Judge Fernandez presiding), when informed about the defendants' motion for
postponement filed on April 26, 1956, issued an order reiterating its previous order
handed down in open court on March 21, 1956 and directing the plaintiffs to introduce
their evidence ex parte, there being no appearance on the part of the defendants or their
counsel. On the basis of the plaintiffs' evidence, a decision was rendered on May 4, 1956
the dispositive portion of which reads as follows:
EN SU VIRTUD, el Juzgado dicta de decision a favor de losdemandantes y en
contra deldemandadoNicanor Casteel:
(a) Declarapermanente el interdictoprohibitorioexpedido contra el demandado;
(b) Ordena al demandadoentregue la demandante la posesion y administracion
de la mitad (½) del "fishpond" encuestion con todas las mejorasexistentesdentro
de la misma;
(c) Condena al demandado a pagar a la demandante la suma de P200.00
mensualmenteenconcepto de danos a contar de la fecha de la expiracion de los
30 dias de la promulgacion de esta decision hasta que entregue la posesion y
administracion de la porcion del "fishpond" enconflicto;
(d) Condena al demandado a pagar a la demandante la suma de P2,000.00
valor de lospescadobeneficiados, mas losintereseslegales de la fecha de la
incoacion de la demanda de autos hasta el completopago de la obligacion
principal;
(e) Condena al demandado a pagar a la demandante la suma de P2,000.00,
porgastosincurridosporaquelladurante la pendencia de esta causa;
(f) Condena al demandado a pagar a la demandante, enconcepto de honorarios,
la suma de P2,000.00;
(g) Ordena el sobreseimiento de estademanda, porinsuficiencia de pruebas,
entantoencuanto se refiere al demandado Juan Depra;
(h) Ordena el sobreseimiento de la reconvencion de losdemandadosporfalta de
pruebas;
(i) Con las costas contra deldemandado, Casteel.
The defendant Casteel filed a petition for relief from the foregoing decision, alleging, inter
alia, lack of knowledge of the order of the court a quo setting the case for trial. The
petition, however, was denied by the lower court in its order of May 21, 1956, the
pertinent portion of which reads as follows:
The duty of Atty. Ruiz, was not to inquire from the Clerk of Court whether the trial
of this case has been transferred or not, but to inquire from the presiding Judge,
particularly because his motion asking the transfer of this case was not set for
hearing and was not also acted upon.
Atty. Ruiz knows the nature of the order of this Court dated March 21, 1956,
which reads as follows:
Upon petition of the plaintiff without any objection on the part of the
defendants, the hearing of this case is hereby transferred to May 2 and 3,
1956, at 8:30 o'clock in the morning.
This case was filed on April 3, 1951, and under any circumstance this
Court will not entertain any other transfer of the hearing of this case, and
if the parties will not be ready on the day set for hearing, the Court will
take necessary steps for the final disposition of this case.
In view of the order above-quoted, the Court will not accede to any transfer of
this case and the duty of Atty. Ruiz is no other than to be present in the Sala of
this Court and to call the attention of the same to the existence of his motion for
transfer.
Petition for relief from judgment filed by Atty. Ruiz in behalf of the defendant, not
well taken, the same is hereby denied.
Dissatisfied with the said ruling, Casteel appealed to the Court of Appeals which certified
the case to us for final determination on the ground that it involves only questions of law.
Casteel raises the following issues:
(1) Whether the lower court committed gross abuse of discretion when it ordered
reception of the appellees' evidence in the absence of the appellant at the trial on
 May 2, 1956, thus depriving the appellant of his day in court and of his property
without due process of law;
(2) Whether the lower court committed grave abuse of discretion when it denied
the verified petition for relief from judgment filed by the appellant on May 11,
1956 in accordance with Rule 38, Rules of Court; and
(3) Whether the lower court erred in ordering the issuance ex parte of a writ of
preliminary injunction against defendant-appellant, and in not dismissing
appellees' complaint.
1. The first and second issues must be resolved against the appellant.
The record indisputably shows that in the order given in open court on March 21, 1956,
the lower court set the case for hearing on May 2 and 3, 1956 at 8:30 o'clock in the
morning and empathically stated that, since the case had been pending since April 3,
1951, it would not entertain any further motion for transfer of the scheduled hearing.
An order given in open court is presumed received by the parties on the very date and
time of promulgation,1 and amounts to a legal notification for all legal purposes.2 The
order of March 21, 1956, given in open court, was a valid notice to the parties, and the
notice of hearing dated April 21, 1956 or one month thereafter, was a superfluity.
Moreover, as between the order of March 21, 1956, duly promulgated by the lower court,
thru Judge Fernandez, and the notice of hearing signed by a "special deputy clerk of
court" setting the hearing in another branch of the same court, the former's order was the
one legally binding. This is because the incidents of postponements and adjournments
are controlled by the court and not by the clerk of court, pursuant to section 4, Rule 31
(now sec. 3, Rule 22) of the Rules of Court.
Much less had the clerk of court the authority to interfere with the order of the court or to
transfer the cage from one sala to another without authority or order from the court where
the case originated and was being tried. He had neither the duty nor prerogative to re-
assign the trial of the case to a different branch of the same court. His duty as such clerk
of court, in so far as the incident in question was concerned, was simply to prepare the
trial calendar. And this duty devolved upon the clerk of court and not upon the "special
deputy clerk of court" who purportedly signed the notice of hearing.
It is of no moment that the motion for postponement had the conformity of the appellees'
counsel. The postponement of hearings does not depend upon agreement of the parties,
but upon the court's discretion.3
The record further discloses that Casteel was represented by a total of 12 lawyers, none
of whom had ever withdrawn as counsel. Notice to Atty. Ruiz of the order dated March
21, 1956 intransferably setting the case for hearing for May 2 and 3, 1956, was sufficient
notice to all the appellant's eleven other counsel of record. This is a well-settled rule in
our jurisdiction.4
It was the duty of Atty. Ruiz, or of the other lawyers of record, not excluding the appellant
himself, to appear before Judge Fernandez on the scheduled dates of hearing Parties
and their lawyers have no right to presume that their motions for postponement will be
granted.5 For indeed, the appellant and his 12 lawyers cannot pretend ignorance of the
recorded fact that since September 24, 1953 until the trial held on May 2, 1956, the case
was under the advisement of Judge Fernandez who presided over Branch I. There was,
therefore, no necessity to "re-assign" the same to Branch II because Judge Fernandez
had exclusive control of said case, unless he was legally inhibited to try the case — and
he was not.
There is truth in the appellant's contention that it is the duty of the clerk of court — not of
the Court — to prepare the trial calendar. But the assignment or reassignment of cases
already pending in one sala to another sala, and the setting of the date of trial after the
trial calendar has been prepared, fall within the exclusive control of the presiding judge.
The appellant does not deny the appellees' claim that on May 2 and 3, 1956, the office of
the clerk of court of the Court of First Instance of Davao was located directly below
Branch I. If the appellant and his counsel had exercised due diligence, there was no
impediment to their going upstairs to the second storey of the Court of First Instance
building in Davao on May 2, 1956 and checking if the case was scheduled for hearing in
the said sala. The appellant after all admits that on May 2, 1956 his counsel went to the
office of the clerk of court.
The appellant's statement that parties as a matter of right are entitled to notice of trial, is
correct. But he was properly accorded this right. He was notified in open court on March
21, 1956 that the case was definitely and intransferably set for hearing on May 2 and 3,
1956 before Branch I. He cannot argue that, pursuant to the doctrine in Siochi vs.
Tirona,6 his counsel was entitled to a timely notice of the denial of his motion for
postponement. In the cited case the motion for postponement was the first one filed by
the defendant; in the case at bar, there had already been a series of postponements.
Unlike the case at bar, the Siochi case was not intransferably set for hearing. Finally,
whereas the cited case did not spend for a long time, the case at bar was only finally and
intransferably set for hearing on March 21, 1956 — after almost five years had elapsed
from the filing of the complaint on April 3, 1951.
The pretension of the appellant and his 12 counsel of record that they lacked ample time
to prepare for trial is unacceptable because between March 21, 1956 and May 2, 1956,
they had one month and ten days to do so. In effect, the appellant had waived his right to
appear at the trial and therefore he cannot be heard to complain that he has been
deprived of his property without due process of law.7 Verily, the constitutional
requirements of due process have been fulfilled in this case: the lower court is a
competent court; it lawfully acquired jurisdiction over the person of the defendant
(appellant) and the subject matter of the action; the defendant (appellant) was given an
opportunity to be heard; and judgment was rendered upon lawful hearing.8
2. Finally, the appellant contends that the lower court incurred an error in ordering the
issuance ex parte of a writ of preliminary injunction against him, and in not dismissing the
appellee's complaint. We find this contention meritorious.
Apparently, the court a quo relied on exhibit A — the so-called "contract of service" —
and the appellees' contention that it created a contract of co-ownership and partnership
between InocenciaDeluao and the appellant over the fishpond in question.
Too well-settled to require any citation of authority is the rule that everyone is
conclusively presumed to know the law. It must be assumed, conformably to such rule,
that the parties entered into the so-called "contract of service" cognizant of the
mandatory and prohibitory laws governing the filing of applications for fishpond permits.
And since they were aware of the said laws, it must likewise be assumed — in fairness to
the parties — that they did not intend to violate them. This view must perforce negate the
appellees' allegation that exhibit A created a contract of co-ownership between the
parties over the disputed fishpond. Were we to admit the establishment of a co-
ownership violative of the prohibitory laws which will hereafter be discussed, we shall be
compelled to declare altogether the nullity of the contract. This would certainly not serve
the cause of equity and justice, considering that rights and obligations have already
arisen between the parties. We shall therefore construe the contract as one of
partnership, divided into two parts — namely, a contract of partnership to exploit the
fishpond pending its award to either Felipe Deluao or Nicanor Casteel, and a contract of
partnership to divide the fishpond between them after such award. The first is valid, the
second illegal.
It is well to note that when the appellee InocenciaDeluao and the appellant entered into
the so-called "contract of service" on November 25, 1949, there were two pending
applications over the fishpond. One was Casteel's which was appealed by him to the
Secretary of Agriculture and Natural Resources after it was disallowed by the Director of
Fisheries on October 25, 1949. The other was Felipe Deluao's application over the same
area which was likewise rejected by the Director of Fisheries on November 29, 1949,
refiled by Deluao and later on withdrawn by him by letter dated March 15, 1950 to the
Secretary of Agriculture and Natural Resources. Clearly, although the fishpond was then
in the possession of Casteel, neither he nor, Felipe Deluao was the holder of a fishpond
permit over the area. But be that as it may, they were not however precluded from
exploiting the fishpond pending resolution of Casteel's appeal or the approval of Deluao's
application over the same area — whichever event happened first. No law, rule or
regulation prohibited them from doing so. Thus, rather than let the fishpond remain idle
they cultivated it.
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 — InocenciaDeluao 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 on November 15, 1949, which states, inter alia:
... [W]ith respect to your allowing me to use your money, same will redound to
your benefit because you are the ones interested in half of the work we have
done so far, besides I did not insist on our being partners in my fishpond permit,
but it was you "Tatay" Eping the one who wanted that we be partners and it so
happened that we became partners because I am poor, but in the midst of my
poverty it never occurred to me to be unfair to you. Therefore so that each of us
may be secured, let us have a document prepared to the effect that we are
partners in the fishpond that we caused to be made here in Balasinon, but it does
not mean that you will treat me as one of your "Bantay" (caretaker) on wage
basis but not earning wages at all, while the truth is that we are partners. In the
event that you are not amenable to my proposition and consider me as "Bantay"
(caretaker) instead, do not blame me if I withdraw all my cases and be left
without even a little and you likewise.
(emphasis supplied)9
Pursuant to the foregoing suggestion of the appellant that a document be drawn
evidencing their partnership, the appellee InocenciaDeluao and the appellant executed
exhibit A which, although denominated a "contract of service," was actually the
memorandum of their partnership agreement. That it was not a contract of the services of
the appellant, was admitted by the appellees themselves in their letter10 to Casteel dated
December 19, 1949 wherein they stated that they did not employ him in his (Casteel's)
claim but because he used their money in developing and improving the fishpond, his
right must be divided between them. Of course, although exhibit A did not specify any
wage or share appertaining to the appellant as industrial partner, he was so entitled —
this being one of the conditions he specified for the execution of the document of
partnership.11
Further exchanges of letters between the parties reveal the continuing intent to divide the
fishpond. In a letter,12dated March 24, 1950, the appellant suggested that they divide the
fishpond and the remaining capital, and offered to pay the Deluaos a yearly installment of
P3,000 — presumably as reimbursement for the expenses of the appellees for the
development and improvement of the one-half that would pertain to the appellant. Two
days later, the appellee Felipe Deluao replied,13expressing his concurrence in the
appellant's suggestion and advising the latter to ask for a reconsideration of the order of
the Director of Fisheries disapproving his (appellant's) application, so that if a favorable
decision was secured, then they would divide the area.
Apparently relying on the partnership agreement, the appellee Felipe Deluao saw no
further need to maintain his petition for the reinvestigation of Casteel's application. Thus
by letter14 dated March 15, 1950 addressed to the Secretary of Agriculture and Natural
Resources, he withdrew his petition on the alleged ground that he was no longer
interested in the area, but stated however that he wanted his interest to be protected and
his capital to be reimbursed by the highest bidder.
The arrangement under the so-called "contract of service" continued until the decisions
both dated September 15, 1950 were issued by the Secretary of Agriculture and Natural
Resources in DANR Cases 353 and 353-B. This development, by itself, brought about
the dissolution of the partnership. Moreover, subsequent events likewise reveal the intent
of both parties to terminate the partnership because each refused to share the fishpond
with the other.
Art. 1830(3) of the Civil Code enumerates, as one of the causes for the dissolution of a
partnership, "... any event which makes it unlawful for the business of the partnership to
be carried on or for the members to carry it on in partnership." The approval of the
appellant's fishpond application by the decisions in DANR Cases 353 and 353-B brought
to the fore several provisions of law which made the continuation of the partnership
unlawful and therefore caused its ipso facto dissolution.
Act 4003, known as the Fisheries Act, prohibits the holder of a fishpond permit (the
permittee) from transferring or subletting the fishpond granted to him, without the
previous consent or approval of the Secretary of Agriculture and Natural Resources.15 To
the same effect is Condition No. 3 of the fishpond permit which states that "The permittee
shall not transfer or sublet all or any area herein granted or any rights acquired therein
without the previous consent and approval of this Office." Parenthetically, we must
observe that in DANR Case 353-B, the permit granted to one of the parties therein,
LeoncioAradillos, was cancelled not solely for the reason that his permit covered a
portion of the area included in the appellant's prior fishpond application, but also
because, upon investigation, it was ascertained thru the admission of Aradillos himself
that due to lack of capital, he allowed one Lino Estepa to develop with the latter's capital
the area covered by his fishpond permit F-289-C with the understanding that he
(Aradillos) would be given a share in the produce thereof.16
Sec. 40 of Commonwealth Act 141, otherwise known as the Public Land Act, likewise
provides that
The lessee shall not assign, encumber, or sublet his rights without the consent of
the Secretary of Agriculture and Commerce, and the violation of this condition
shall avoid the contract; Provided, That assignment, encumbrance, or subletting
for purposes of speculation shall not be permitted in any case:Provided, further,
That nothing contained in this section shall be understood or construed to permit
the assignment, encumbrance, or subletting of lands leased under this Act, or
under any previous Act, to persons, corporations, or associations which under
this Act, are not authorized to lease public lands.
Finally, section 37 of Administrative Order No. 14 of the Secretary of Agriculture and
Natural Resources issued in August 1937, prohibits a transfer or sublease unless first
approved by the Director of Lands and under such terms and conditions as he may
prescribe. Thus, it states:
When a transfer or sub-lease of area and improvement may be allowed. — If the
permittee or lessee had, unless otherwise specifically provided, held the permit
or lease and actually operated and made improvements on the area for at least
one year, he/she may request permission to sub-lease or transfer the area and
improvements under certain conditions.
(a) Transfer subject to approval. — A sub-lease or transfer shall only be valid
when first approved by the Director under such terms and conditions as may be
prescribed, otherwise it shall be null and void. A transfer not previously approved
or reported shall be considered sufficient cause for the cancellation of the permit
or lease and forfeiture of the bond and for granting the area to a qualified
applicant or bidder, as provided in subsection (r) of Sec. 33 of this Order.
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. The approval was an event which made it unlawful for the
business of the partnership to be carried on or for the members to carry it on in
partnership.
The appellees, however, argue that in approving the appellant's application, the
Secretary of Agriculture and Natural Resources likewise recognized and/or confirmed
their property right to one-half of the fishpond by virtue of the contract of service, exhibit
A. But the untenability of this argument would readily surface if one were to consider that
the Secretary of Agriculture and Natural Resources did not do so for the simple reason
that he does not possess the authority to violate the aforementioned prohibitory laws nor
to exempt anyone from their operation.
However, assuming in gratia argumenti that the approval of Casteel's application,
coupled with the foregoing prohibitory laws, was not enough to cause the dissolution ipso
facto of their partnership, succeeding events reveal the intent of both parties to terminate
the partnership by refusing to share the fishpond with the other.
On December 27, 1950 Casteel wrote17 the appellee InocenciaDeluao, expressing his
desire to divide the fishpond so that he could administer his own share, such division to
be subject to the approval of the Secretary of Agriculture and Natural Resources. By
letter dated December 29, 1950,18 the appellee Felipe Deluao demurred to Casteel's
proposition because there were allegedly no appropriate grounds to support the same
and, moreover, the conflict over the fishpond had not been finally resolved.
The appellant wrote on January 4, 1951 a last letter19 to the appellee Felipe Deluao
wherein the former expressed his determination to administer the fishpond himself
because the decision of the Government was in his favor and the only reason why
administration had been granted to the Deluaos was because he was indebted to them.
In the same letter, the appellant forbade Felipe Deluao from sending the
couple's encargado, Jesus Donesa, to the fishpond. In reply thereto, Felipe Deluao wrote
a letter20 dated January 5, 1951 in which he reiterated his refusal to grant the
administration of the fishpond to the appellant, stating as a ground his belief "that only
the competent agencies of the government are in a better position to render any
equitable arrangement relative to the present case; hence, any action we may privately
take may not meet the procedure of legal order."
Inasmuch as the erstwhile partners articulated in the aforecited letters their respective
resolutions not to share the fishpond with each other — in direct violation of the
undertaking for which they have established their partnership — each must be deemed
to have expressly withdrawn from the partnership, thereby causing its dissolution
pursuant to art. 1830(2) of the Civil Code which provides, inter alia, that dissolution is
caused "by the express will of any partner at any time."
In this jurisdiction, the Secretary of Agriculture and Natural Resources possesses
executive and administrative powers with regard to the survey, classification, lease, sale
or any other form of concession or disposition and management of the lands of the public
domain, and, more specifically, with regard to the grant or withholding of licenses,
permits, leases and contracts over portions of the public domain to be utilized as
fishponds.21, Thus, we held in Pajo, et al. vs. Ago, et al. (L-15414, June 30, 1960), and
reiterated in Ganitano vs. Secretary of Agriculture and Natural Resources, et al.
(L-21167, March 31, 1966), that
... [T]he powers granted to the Secretary of Agriculture and Commerce (Natural
Resources) by law regarding the disposition of public lands such as granting of
licenses, permits, leases, and contracts, or approving, rejecting, reinstating, or
cancelling applications, or deciding conflicting applications, are all executive and
administrative in nature. It is a well-recognized principle that purely administrative
and discretionary functions may not be interfered with by the courts (Coloso v.
Board of Accountancy, G.R. No. L-5750, April 20, 1953). In general, courts have
no supervising power over the proceedings and action of the administrative
departments of the government. This is generally true with respect to acts
involving the exercise of judgment or discretion, and findings of fact. (54 Am. Jur.
558-559) Findings of fact by an administrative board or official, following a
hearing, are binding upon the courts and will not be disturbed except where the
board or official has gone beyond his statutory authority, exercised
unconstitutional powers or clearly acted arbitrarily and without regard to his duty
or with grave abuse of discretion... (emphasis supplied)
In the case at bar, the Secretary of Agriculture and Natural Resources gave due course
to the appellant's fishpond application 1717 and awarded to him the possession of the
area in question. In view of the finality of the Secretary's decision in DANR Cases 353
and 353-B, and considering the absence of any proof that the said official exceeded his
statutory authority, exercised unconstitutional powers, or acted with arbitrariness and in
disregard of his duty, or with grave abuse of discretion, we can do no less than respect
and maintain unfettered his official acts in the premises. It is a salutary rule that the
judicial department should not dictate to the executive department what to do with regard
to the administration and disposition of the public domain which the law has entrusted to
its care and administration. Indeed, courts cannot superimpose their discretion on that of
the land department and compel the latter to do an act which involves the exercise of
judgment and discretion.22
Therefore, with the view that we take of this case, and even assuming that the injunction
was properly issued because present all the requisite grounds for its issuance, its
continuation, and, worse, its declaration as permanent, was improper in the face of the
knowledge later acquired by the lower court that it was the appellant's application over
the fishpond which was given due course. After the Secretary of Agriculture and Natural
Resources approved the appellant's application, he became to all intents and purposes
the legal permittee of the area with the corresponding right to possess, occupy and enjoy
the same. Consequently, the lower court erred in issuing the preliminary mandatory
injunction. We cannot overemphasize that an injunction should not be granted to take
property out of the possession and control of one party and place it in the hands of
another whose title has not been clearly established by law.23
However, pursuant to our holding that there was a partnership between the parties for
the exploitation of the fishpond before it was awarded to Casteel, this case should be
remanded to the lower court for the reception of evidence relative to an accounting from
November 25, 1949 to September 15, 1950, in order for the court to determine (a) the
profits realized by the partnership, (b) the share (in the profits) of Casteel as industrial
partner, (e) the share (in the profits) of Deluao as capitalist partner, and (d) whether the
amounts totalling about P27,000 advanced by Deluao to Casteel for the development
and improvement of the fishpond have already been liquidated. Besides, since the
appellee InocenciaDeluao continued in possession and enjoyment of the fishpond even
after it was awarded to Casteel, she did so no longer in the concept of a capitalist partner
but merely as creditor of the appellant, and therefore, she must likewise submit in the
lower court an accounting of the proceeds of the sales of all the fishes harvested from
the fishpond from September 16, 1950 until Casteel shall have been finally given the
possession and enjoyment of the same. In the event that the appellee Deluao has
received more than her lawful credit of P27,000 (or whatever amounts have been
advanced to Casteel), plus 6% interest thereon per annum, then she should reimburse
the excess to the appellant.
ACCORDINGLY, the judgment of the lower court is set aside. Another judgment is
hereby rendered: (1) dissolving the injunction issued against the appellant, (2) placing
the latter back in possession of the fishpond in litigation, and (3) remanding this case to
the court of origin for the reception of evidence relative to the accounting that the parties
must perforce render in the premises, at the termination of which the court shall render
judgment accordingly. The appellant's counterclaim is dismissed. No pronouncement as
to costs.
G.R. No. 143340 August 15, 2001
SUNGA-CHAN vs. CHUA
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court of the
Decision1 of the Court of Appeals dated January 31, 2000 in the case entitled "Lamberto
T. Chua vs. Lilibeth Sunga Chan and Cecilia Sunga" and of the Resolution dated May
23, 2000 denying the motion for reconsideration of herein petitioners Lilibeth Sunga and
Cecilia Sunga (hereafter collectively referred to as petitioners).
The pertinent facts of this case are as follows:
On June 22, 1992, Lamberto T. Chua (hereafter respondent) filed a complaint against
Lilibeth Sunga Chan (hereafter petitioner Lilibeth) and Cecilia Sunga (hereafter petitioner
Cecilia), daughter and wife, respectively of the deceased Jacinto L. Sunga (hereafter
Jacinto), for "Winding Up of Partnership Affairs, Accounting, Appraisal and Recovery of
Shares and Damages with Writ of Preliminary Attachment" with the Regional Trial Court,
Branch 11, Sindangan, Zamboanga del Norte.
Respondent alleged that in 1977, he verbally entered into a partnership with Jacinto in
the distribution of Shellane Liquefied Petroleum Gas (LPG) in Manila. For business
convenience, respondent and Jacinto allegedly agreed to register the business name of
their partnership, SHELLITE GAS APPLIANCE CENTER (hereafter Shellite), under the
name of Jacinto as a sole proprietorship. Respondent allegedly delivered his initial
capital contribution of P100,000.00 to Jacinto while the latter in turn produced
P100,000.00 as his counterpart contribution, with the intention that the profits would be
equally divided between them. The partnership allegedly had Jacinto as manager,
assisted by Josephine Sy (hereafter Josephine), a sister of the wife respondent,
ErlindaSy. As compensation, Jacinto would receive a manager's fee or remuneration of
10% of the gross profit and Josephine would receive 10% of the net profits, in addition to
her wages and other remuneration from the business.
Allegedly, from the time that Shellite opened for business on July 8, 1977, its business
operation went quite and was profitable. Respondent claimed that he could attest to
success of their business because of the volume of orders and deliveries of filled
Shellane cylinder tanks supplied by Pilipinas Shell Petroleum Corporation. While Jacinto
furnished respondent with the merchandise inventories, balance sheets and net worth of
Shellite from 1977 to 1989, respondent however suspected that the amount indicated in
these documents were understated and undervalued by Jacinto and Josephine for their
own selfish reasons and for tax avoidance.
Upon Jacinto's death in the later part of 1989, his surviving wife, petitioner Cecilia and
particularly his daughter, petitioner Lilibeth, took over the operations, control, custody,
disposition and management of Shellite without respondent's consent. Despite
respondent's repeated demands upon petitioners for accounting, inventory, appraisal,
winding up and restitution of his net shares in the partnership, petitioners failed to
comply. Petitioner Lilibeth allegedly continued the operations of Shellite, converting to
her own use and advantage its properties.
On March 31, 1991, respondent claimed that after petitioner Lilibeth ran out the alibis
and reasons to evade respondent's demands, she disbursed out of the partnership funds
the amount of P200,000.00 and partially paid the same to respondent. Petitioner Lilibeth
allegedly informed respondent that the P200,000.00 represented partial payment of the
latter's share in the partnership, with a promise that the former would make the complete
inventory and winding up of the properties of the business establishment. Despite such
commitment, petitioners allegedly failed to comply with their duty to account, and
continued to benefit from the assets and income of Shellite to the damage and prejudice
of respondent.
On December 19, 1992, petitioners filed a Motion to Dismiss on the ground that the
Securities and Exchange Commission (SEC) in Manila, not the Regional Trial Court in
Zamboanga del Norte had jurisdiction over the action. Respondent opposed the motion
to dismiss.
On January 12, 1993, the trial court finding the complaint sufficient in from and
substance denied the motion to dismiss.
On January 30, 1993, petitioners filed their Answer with Compulsory Counter-claims,
contending that they are not liable for partnership shares, unreceived income/profits,
interests, damages and attorney's fees, that respondent does not have a cause of action
against them, and that the trial court has no jurisdiction over the nature of the action, the
SEC being the agency that has original and exclusive jurisdiction over the case. As
counterclaim, petitioner sought attorney's fees and expenses of litigation.
On August 2, 1993, petitioner filed a second Motion to Dismiss this time on the ground
that the claim for winding up of partnership affairs, accounting and recovery of shares in
partnership affairs, accounting and recovery of shares in partnership assets/properties
should be dismissed and prosecuted against the estate of deceased Jacinto in a probate
or intestate proceeding.
On August 16, 1993, the trial denied the second motion to dismiss for lack of merit.
On November 26, 1993, petitioners filed their Petition for Certiorari, Prohibition and
Mandamus with the Court of Appeals docketed as CA-G.R. SP No. 32499 questioning
the denial of the motion to dismiss.
On November 29, 1993, petitioners filed with the trial court a Motion to Suspend Pre-trial
Conference.
On December 13, 1993, the trial court granted the motion to suspend pre-trial
conference.
On November 15, 1994, the Court of Appeals denied the petition for lack of merit.
On January 16, 1995, this Court denied the petition for review on certiorari filed by
petitioner, "as petitioners failed to show that a reversible error was committed by the
appellate court."2
On February 20, 1995, entry of judgment was made by the Clerk of Court and the case
was remanded to the trial court on April 26, 1995.
On September 25, 1995, the trial court terminated the pre-trial conference and set the
hearing of the case of January 17, 1996. Respondent presented his evidence while
petitioners were considered to have waived their right to present evidence for their failure
to attend the scheduled date for reception of evidence despite notice.
On October 7, 1997, the trial court rendered its Decision ruling for respondent. The
dispositive of the Decision reads:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against
the defendants, as follows:
(1) DIRECTING them to render an accounting in acceptable form under
accounting procedures and standards of the properties, assets, income
and profits of the Shellite Gas Appliance Center Since the time of death
of Jacinto L. Sunga, from whom they continued the business operations
including all businesses derived from Shellite Gas Appliance Center,
submit an inventory, and appraisal of all these properties, assets, income,
profits etc. to the Court and to plaintiff for approval or disapproval;
(2) ORDERING them to return and restitute to the partnership any and all
properties, assets, income and profits they misapplied and converted to
their own use and advantage the legally pertain to the plaintiff and
account for the properties mentioned in pars. A and B on pages 4-5 of
this petition as basis;
(3) DIRECTING them to restitute and pay to the plaintiff ½ shares and
interest of the plaintiff in the partnership of the listed properties, assets
and good will (sic) in schedules A, B and C, on pages 4-5 of the petition;
(4) ORDERING them to pay the plaintiff earned but unreceived income
and profits from the partnership from 1988 to May 30, 1992, when the
plaintiff learned of the closure of the store the sum of P35,000.00 per
month, with legal rate of interest until fully paid;
(5) ORDERING them to wind up the affairs of the partnership and
terminate its business activities pursuant to law, after delivering to the
plaintiff all the ½ interest, shares, participation and equity in the
partnership, or the value thereof in money or money's worth, if the
properties are not physically divisible;
(6) FINDING them especially Lilibeth Sunga-Chan guilty of breach of trust
and in bad faith and hold them liable to the plaintiff the sum of
P50,000.00 as moral and exemplary damages; and,
(7) DIRECTING them to reimburse and pay the sum of P25,000.00 as
attorney's (sic) and P25,000.00 as litigation expenses.
NO special pronouncements as to COSTS.
SO ORDERED."3
On October 28, 1997, petitioners filed a Notice of Appeal with the trial court, appealing
the case to the Court of Appeals.
On January 31, 2000, the Court of Appeals dismissed the appeal. The dispositive portion
of the Decision reads:
"WHEREFORE, the instant appeal is dismissed. The appealed decision is
AFFIRMED in all respects."4
On May 23, 2000, the Court of Appeals denied the motion for reconsideration filed by
petitioner.
Hence, this petition wherein petitioner relies upon following grounds:
"1. The Court of Appeals erred in making a legal conclusion that there existed a
partnership between respondent Lamberto T. Chua and the late Jacinto L. Sunga
upon the latter'' invitation and offer and that upon his death the partnership
assets and business were taken over by petitioners.
2. The Court of Appeals erred in making the legal conclusion that laches and/or
prescription did not apply in the instant case.
3. The Court of Appeals erred in making the legal conclusion that there was
competent and credible evidence to warrant the finding of a partnership, and
assuming arguendo that indeed there was a partnership, the finding of highly
exaggerated amounts or values in the partnership assets and profits."5
Petitioners question the correctness of the finding of the trial court and the Court of
Appeals that a partnership existed between respondent and Jacinto from 1977 until
Jacinto's death. In the absence of any written document to show such partnership
between respondent and Jacinto, petitioners argues that these courts were proscribes
from hearing the testimonies of respondent and his witness, Josephine, to prove the
alleged partnership three years after Jacinto's death. To support this argument,
petitioners invoke the "Dead Man's Statute' or "Survivorship Rule" under Section 23,
Rule 130 of the Rules of Court that provides:
"SEC. 23. Disqualification by reason of death or insanity of adverse party. –
Parties or assignors of parties to a case, or persons in whose behalf a case is
prosecuted, against an executor or administrator or other representative of a
deceased person, or against a person of unsound mind, upon a claim or demand
against the estate of such deceased person, or against such person of unsound
mind, cannot testify as to any matter of fact occurring before the death of such
deceased person or before such person became of unsound mind."
Petitioners thus implore this Court to rule that the testimonies of respondent and his alter
ego, Josephine, should not have been admitted to prove certain claims against a
deceased person (Jacinto), now represented by petitioners.
We are not persuaded.
A partnership may be constituted in any form, except where immovable property of real
rights are contributed thereto, in which case a public instrument shall necessary.6 Hence,
based on the intention of the parties, as gathered from the facts and ascertained from
their language and conduct, a verbal contract of partnership may arise.7 The essential
profits that must be proven to that a partnership was agreed upon are (1) mutual
contribution to a common stock, and (2) a joint interest in the profits.8 Understandably so,
in view of the absence of the written contract of partnership between respondent and
Jacinto, respondent resorted to the introduction of documentary and testimonial evidence
to prove said partnership. The crucial issue to settle then is to whether or not the "Dead
Man's Statute" applies to this case so as to render inadmissible respondent's testimony
and that of his witness, Josephine.
The "Dead Man's Statute" provides that if one party to the alleged transaction is
precluded from testifying by death, insanity, or other mental disabilities, the surviving
party is not entitled to the undue advantage of giving his own uncontradicted and
unexplained account of the transaction.9 But before this rule can be successfully invoked
to bar the introduction of testimonial evidence, it is necessary that:
"1. The witness is a party or assignor of a party to case or persons in whose
behalf a case in prosecuted.
2. The action is against an executor or administrator or other representative of a
deceased person or a person of unsound mind;
3. The subject-matter of the action is a claim or demand against the estate of
such deceased person or against person of unsound mind;
4. His testimony refers to any matter of fact of which occurred before the death of
such deceased person or before such person became of unsound mind."10
Two reasons forestall the application of the "Dead Man's Statute" to this case.
First, petitioners filed a compulsory counterclaim11 against respondents in their answer
before the trial court, and with the filing of their counterclaim, petitioners themselves
effectively removed this case from the ambit of the "Dead Man's Statute".12 Well
entrenched is the rule that when it is the executor or administrator or representatives of
the estates that sets up the counterclaim, the plaintiff, herein respondent, may testify to
occurrences before the death of the deceased to defeat the counterclaim.13 Moreover, as
defendant in the counterclaim, respondent is not disqualified from testifying as to matters
of facts occurring before the death of the deceased, said action not having been brought
against but by the estate or representatives of the deceased.14
Second, the testimony of Josephine is not covered by the "Dead Man's Statute" for the
simple reason that she is not "a party or assignor of a party to a case or persons in
whose behalf a case is prosecuted." Records show that respondent offered the testimony
of Josephine to establish the existence of the partnership between respondent and
Jacinto. Petitioners' insistence that Josephine is the alter ego of respondent does not
make her an assignor because the term "assignor" of a party means "assignor of a cause
of action which has arisen, and not the assignor of a right assigned before any cause of
action has arisen."15 Plainly then, Josephine is merely a witness of respondent, the latter
being the party plaintiff.
We are not convinced by petitioners' allegation that Josephine's testimony lacks
probative value because she was allegedly coerced coerced by respondent, her brother-
in-law, to testify in his favor, Josephine merely declared in court that she was requested
by respondent to testify and that if she were not requested to do so she would not have
testified. We fail to see how we can conclude from this candid admission that
Josephine's testimony is involuntary when she did not in any way categorically say that
she was forced to be a witness of respondent.
Also, the fact that Josephine is the sister of the wife of respondent does not diminish the
value of her testimony since relationship per se, without more, does not affect the
credibility of witnesses.16
Petitioners' reliance alone on the "Dead Man's Statute" to defeat respondent's claim
cannot prevail over the factual findings of the trial court and the Court of Appeals that a
partnership was established between respondent and Jacinto. Based not only on the
testimonial evidence, but the documentary evidence as well, the trial court and the Court
of Appeals considered the evidence for respondent as sufficient to prove the formation of
partnership, albeit an informal one.
Notably, petitioners did not present any evidence in their favor during trial. By the weight
of judicial precedents, a factual matter like the finding of the existence of a partnership
between respondent and Jacinto cannot be inquired into by this Court on review.17 This
Court can no longer be tasked to go over the proofs presented by the parties and
analyze, assess and weigh them to ascertain if the trial court and the appellate court
were correct in according superior credit to this or that piece of evidence of one party or
the other.18 It must be also pointed out that petitioners failed to attend the presentation of
evidence of respondent. Petitioners cannot now turn to this Court to question the
admissibility and authenticity of the documentary evidence of respondent when
petitioners failed to object to the admissibility of the evidence at the time that such
evidence was offered.19
With regard to petitioners' insistence that laches and/or prescription should have
extinguished respondent's claim, we agree with the trial court and the Court of Appeals
that the action for accounting filed by respondents three (3) years after Jacinto's death
was well within the prescribed period. The Civil Code provides that an action to enforce
an oral contract prescribes in six (6) years20 while the right to demand an accounting for a
partner's interest as against the person continuing the business accrues at the date of
dissolution, in the absence of any contrary agreement.21 Considering that the death of a
partner results in the dissolution of the partnership22, in this case, it was Jacinto's death
that respondent as the surviving partner had the right to an account of his interest as
against petitioners. It bears stressing that while Jacinto's death dissolved the partnership,
the dissolution did not immediately terminate the partnership. The Civil Code23 expressly
provides that upon dissolution, the partnership continues and its legal personality is
retained until the complete winding up of its business, culminating in its termination.24
In a desperate bid to cast doubt on the validity of the oral partnership between
respondent and Jacinto, petitioners maintain that said partnership that had initial capital
of P200,000.00 should have been registered with the Securities and Exchange
Commission (SEC) since registration is mandated by the Civil Code, True, Article 1772
of the Civil Code requires that partnerships with a capital of P3,000.00 or more must
register with the SEC, however, this registration requirement is not mandatory. Article
1768 of the Civil Code25 explicitly provides that the partnership retains its juridical
personality even if it fails to register. The failure to register the contract of partnership
does not invalidate the same as among the partners, so long as the contract has the
essential requisites, because the main purpose of registration is to give notice to third
parties, and it can be assumed that the members themselves knew of the contents of
their contract.26 In the case at bar, non-compliance with this directory provision of the law
will not invalidate the partnership considering that the totality of the evidence proves that
respondent and Jacinto indeed forged the partnership in question.
WHEREFORE, in view of the foregoing, the petition is DENIED and the appealed
decision is AFFIRMED.
SO ORDERED. 1âw phi 1.nêt
G.R. No. L-25532 February 28, 1969
CIR vs. SUTER
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, segunesto, no puedencelebrar entre si el contrato de sociedad
universal, pero o podranconstituirsociedad particular? Aunque el punto ha
sidomuydebatido, nosinclinamos a la tesispermisiva de loscontratos de sociedad
particular entre esposos, ya que ningunprecepto de nuestroCodigolosprohibe, y
hay que estar a la norma general segun la que toda persona escapaz para
contratarmientras no sea declaradoincapazpor la ley. La jurisprudencia de la
Direccion de losRegistrosfue favorable aestamismatesisensu resolution de 3 de
febrero de 1936, mas parececambiar de rumboen 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 (compañiascolectivas) 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 (compañiacolectiva) 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 of compañiascolectivas 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.; Arañas, Anno. & Juris. on the N.I.R.C., As Amended, Vol. 1, pp. 88-89). lawphi1.nêt
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. 1Appellant 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.
G.R. No. L-24193 June 28, 1968
AGAD vs. MABATO
In this appeal, taken by plaintiff Mauricio Agad, from an order of dismissal of the Court of
First Instance of Davao, we are called upon to determine the applicability of Article 1773
of our Civil Code to the contract of partnership on which the complaint herein is based.
Alleging that he and defendant SeverinoMabato are — pursuant to a public instrument
dated August 29, 1952, copy of which is attached to the complaint as Annex "A" —
partners in a fishpond business, to the capital of which Agad contributed P1,000, with the
right to receive 50% of the profits; that from 1952 up to and including 1956, Mabato who
handled the partnership funds, had yearly rendered accounts of the operations of the
partnership; and that, despite repeated demands, Mabato had failed and refused to
render accounts for the years 1957 to 1963, Agad prayed in his complaint against
Mabato and Mabato&Agad Company, filed on June 9, 1964, that judgment be rendered
sentencing Mabato to pay him (Agad) the sum of P14,000, as his share in the profits of
the partnership for the period from 1957 to 1963, in addition to P1,000 as attorney's fees,
and ordering the dissolution of the partnership, as well as the winding up of its affairs by
a receiver to be appointed therefor.
In his answer, Mabato admitted the formal allegations of the complaint and denied the
existence of said partnership, upon the ground that the contract therefor had not been
perfected, despite the execution of Annex "A", because Agad had allegedly failed to give
his P1,000 contribution to the partnership capital. Mabato prayed, therefore, that the
complaint be dismissed; that Annex "A" be declared void ab initio; and that Agad be
sentenced to pay actual, moral and exemplary damages, as well as attorney's fees.
Subsequently, Mabato filed a motion to dismiss, upon the ground that the complaint
states no cause of action and that the lower court had no jurisdiction over the subject
matter of the case, because it involves principally the determination of rights over public
lands. After due hearing, the court issued the order appealed from, granting the motion to
dismiss the complaint for failure to state a cause of action. This conclusion was
predicated upon the theory that the contract of partnership, Annex "A", is null and void,
pursuant to Art. 1773 of our Civil Code, because an inventory of the fishpond referred in
said instrument had not been attached thereto. A reconsideration of this order having
been denied, Agad brought the matter to us for review by record on appeal.
Articles 1771 and 1773 of said Code provide:
Art. 1771. A partnership may be constituted in any form, except where
immovable property or real rights are contributed thereto, in which case a public
instrument shall be necessary.
Art. 1773. A contract of partnership is void, whenever immovable property is
contributed thereto, if inventory of said property is not made, signed by the
parties; and attached to the public instrument.
The issue before us hinges on whether or not "immovable property or real rights" have
been contributed to the partnership under consideration. Mabato alleged and the lower
court held that the answer should be in the affirmative, because "it is really inconceivable
how a partnership engaged in the fishpond business could exist without said fishpond
property (being) contributed to the partnership." It should be noted, however, that, as
stated in Annex "A" the partnership was established "to operate a fishpond", not to
"engage in a fishpond business". Moreover, none of the partners contributed either a
fishpond or a real right to any fishpond. Their contributions were limited to the sum of
P1,000 each. Indeed, Paragraph 4 of Annex "A" provides:
That the capital of the said partnership is Two Thousand (P2,000.00) Pesos
Philippine Currency, of which One Thousand (P1,000.00) pesos has been
contributed by SeverinoMabato and One Thousand (P1,000.00) Pesos has been
contributed by Mauricio Agad.
x xx x xx x xx
The operation of the fishpond mentioned in Annex "A" was the purpose of the
partnership. Neither said fishpond nor a real right thereto was contributed to the
partnership or became part of the capital thereof, even if a fishpond or a real right thereto
could become part of its assets.
WHEREFORE, we find that said Article 1773 of the Civil Code is not in point and that,
the order appealed from should be, as it is hereby set aside and the case remanded to
the lower court for further proceedings, with the costs of this instance against defendant-
appellee, SeverinoMabato. It is so ordered.
G.R. No. L-35469 March 17, 1932
LYONS vs. ROSENSTOCK
This action was institute in the Court of First Instance of the City of Manila, by E. S.
Lyons against C. W. Rosenstock, as executor of the estate of H. W. Elser, deceased,
consequent upon the taking of an appeal by the executor from the allowance of the claim
sued upon by the committee on claims in said estate. The purpose of the action is to
recover four hundred forty-six and two thirds shares of the stock of J. K. Pickering & Co.,
Ltd., together with the sum of about P125,000, representing the dividends which accrued
on said stock prior to October 21, 1926, with lawful interest. Upon hearing the cause the
trial court absolved the defendant executor from the complaint, and the plaintiff appealed.
Prior to his death on June 18, 1923, Henry W. Elser had been a resident of the City of
Manila where he was engaged during the years with which we are here concerned in
buying, selling, and administering real estate. In several ventures which he had made in
buying and selling property of this kind the plaintiff, E. S. Lyons, had joined with him, the
profits being shared by the two in equal parts. In April, 1919, Lyons, whose regular
vocation was that of a missionary, or missionary agent, of the Methodist Episcopal
Church, went on leave to the United States and was gone for nearly a year and a half,
returning on September 21, 1920. On the eve of his departure Elser made a written
statements showing that Lyons was, at that time, half owner with Elser of three particular
pieces of real property. Concurrently with this act Lyons execute in favor of Elser a
general power of attorney empowering him to manage and dispose of said properties at
will and to represent Lyons fully and amply, to the mutual advantage of both. During the
absence of Lyons two of the pieces of property above referred to were sold by Elser,
leaving in his hands a single piece of property located at 616-618 Carried Street, in the
City of Manila, containing about 282 square meters of land, with the improvements
thereon.
In the spring of 1920 the attention of Elser was drawn to a piece of land, containing about
1,500,000 square meters, near the City of Manila, and he discerned therein a fine
opportunity for the promotion and development of a suburban improvement. This
property, which will be herein referred to as the San Juan Estate, was offered by its
owners for P570,000. To afford a little time for maturing his plans, Elser purchased an
option on this property for P5,000, and when this option was about to expire without his
having been able to raise the necessary funds, he paid P15,000 more for an extension of
the option, with the understanding in both cases that, in case the option should be
exercised, the amounts thus paid should be credited as part of the first payment. The
amounts paid for this option and its extension were supplied by Elser entirely from his
own funds. In the end he was able from his own means, and with the assistance which
he obtained from others, to acquire said estate. The amount required for the first
payment was P150,000, and as Elser had available only about P120,000, including the
P20,000 advanced upon the option, it was necessary to raise the remainder by obtaining
a loan for P50,000. This amount was finally obtained from a Chinese merchant of the city
named UySiuliong. This loan was secured through Uy Cho Yee, a son of the lender; and
in order to get the money it was necessary for Elser not only to give a personal note
signed by himself and his two associates in the projected enterprise, but also by the
Fidelity & Surety Company. The money thus raised was delivered to Elser by UySiuliong
on June 24, 1920. With this money and what he already had in bank Elser purchased the
San Juan Estate on or about June 28, 1920. For the purpose of the further development
of the property a limited partnership had, about this time, been organized by Elser and
three associates, under the name of J. K. Pickering & Company; and when the transfer
of the property was effected the deed was made directly to this company. As Elser was
the principal capitalist in the enterprise he received by far the greater number of the
shares issued, his portion amount in the beginning to 3,290 shares.
While these negotiations were coming to a head, Elser contemplated and hoped that
Lyons might be induced to come in with him and supply part of the means necessary to
carry the enterprise through. In this connection it appears that on May 20, 1920, Elser
wrote Lyons a letter, informing him that he had made an offer for a big subdivision and
that, if it should be acquired and Lyons would come in, the two would be well fixed.
(Exhibit M-5.) On June 3, 1920, eight days before the first option expired, Elser cabled
Lyons that he had bought the San Juan Estate and thought it advisable for Lyons to
resign (Exhibit M-13), meaning that he should resign his position with the mission board
in New York. On the same date he wrote Lyons a letter explaining some details of the
purchase, and added "have advised in my cable that you resign and I hope you can do
so immediately and will come and join me on the lines we have so often spoken about. . .
. There is plenty of business for us all now and I believe we have started something that
will keep us going for some time." In one or more communications prior to this, Elser had
sought to impress Lyons with the idea that he should raise all the money he could for the
purpose of giving the necessary assistance in future deals in real estate.
The enthusiasm of Elser did not communicate itself in any marked degree to Lyons, and
found him averse from joining in the purchase of the San Juan Estate. In fact upon this
visit of Lyons to the United States a grave doubt had arisen as to whether he would ever
return to Manila, and it was only in the summer of 1920 that the board of missions of his
church prevailed upon him to return to Manila and resume his position as managing
treasurer and one of its trustees. Accordingly, on June 21, 1920, Lyons wrote a letter
from New York thanking Elser for his offer to take Lyons into his new project and adding
that from the standpoint of making money, he had passed up a good thing.
One source of embarrassment which had operated on Lyson to bring him to the
resolution to stay out of this venture, was that the board of mission was averse to his
engaging in business activities other than those in which the church was concerned; and
some of Lyons' missionary associates had apparently been criticizing his independent
commercial activities. This fact was dwelt upon in the letter above-mentioned. Upon
receipt of this letter Elser was of course informed that it would be out of the question to
expect assistance from Lyons in carrying out the San Juan project. No further efforts to
this end were therefore made by Elser.
When Elser was concluding the transaction for the purchase of the San Juan Estate, his
book showed that he was indebted to Lyons to the extent of, possibly, P11,669.72, which
had accrued to Lyons from profits and earnings derived from other properties; and when
the J. K. Pickering & Company was organized and stock issued, Elser indorsed to Lyons
200 of the shares allocated to himself, as he then believed that Lyons would be one of
his associates in the deal. It will be noted that the par value of these 200 shares was
more than P8,000 in excess of the amount which Elser in fact owed to Lyons; and when
the latter returned to the Philippine Islands, he accepted these shares and sold them for
his own benefit. It seems to be supposed in the appellant's brief that the transfer of these
shares to Lyons by Elser supplies some sort of basis for the present action, or at least
strengthens the considerations involved in a feature of the case to be presently
explained. This view is manifestly untenable, since the ratification of the transaction by
Lyons and the appropriation by him of the shares which were issued to him leaves no
ground whatever for treating the transaction as a source of further equitable rights in
Lyons. We should perhaps add that after Lyons' return to the Philippine Islands he acted
for a time as one of the members of the board of directors of the J. K. Pickering &
Company, his qualification for this office being derived precisely from the ownership of
these shares.
We now turn to the incident which supplies the main basis of this action. It will be
remembered that, when Elser obtained the loan of P50,000 to complete the amount
needed for the first payment on the San Juan Estate, the lender, UySiuliong, insisted that
he should procure the signature of the Fidelity & Surety Co. on the note to be given for
said loan. But before signing the note with Elser and his associates, the Fidelity & Surety
Co. insisted upon having security for the liability thus assumed by it. To meet this
requirements Elser mortgaged to the Fidelity & Surety Co. the equity of redemption in the
property owned by himself and Lyons on Carriedo Street. This mortgage was executed
on June 30, 1920, at which time Elser expected that Lyons would come in on the
purchase of the San Juan Estate. But when he learned from the letter from Lyons of July
21, 1920, that the latter had determined not to come into this deal, Elser began to cast
around for means to relieve the Carriedo property of the encumbrance which he had
placed upon it. For this purpose, on September 9, 1920, he addressed a letter to the
Fidelity & Surety Co., asking it to permit him to substitute a property owned by himself at
644 M. H. del Pilar Street, Manila, and 1,000 shares of the J. K. Pickering & Company, in
lieu of the Carriedo property, as security. The Fidelity & Surety Co. agreed to the
proposition; and on September 15, 1920, Elser executed in favor of the Fidelity & Surety
Co. a new mortgage on the M. H. del Pillar property and delivered the same, with 1,000
shares of J. K. Pickering & Company, to said company. The latter thereupon in turn
executed a cancellation of the mortgage on the Carriedo property and delivered it to
Elser. But notwithstanding the fact that these documents were executed and delivered,
the new mortgage and the release of the old were never registered; and on September
25, 1920, thereafter, Elser returned the cancellation of the mortgage on the Carriedo
property and took back from the Fidelity & Surety Co. the new mortgage on the M. H. del
Pilar property, together with the 1,000 shares of the J. K. Pickering & Company which he
had delivered to it.
The explanation of this change of purpose is undoubtedly to be found in the fact that
Lyons had arrived in Manila on September 21, 1920, and shortly thereafter, in the course
of a conversation with Elser told him to let the Carriedo mortgage remain on the property
("Let the Carriedo mortgage ride"). Mrs. Elser testified to the conversation in which Lyons
used the words above quoted, and as that conversation supplies the most reasonable
explanation of Elser's recession from his purpose of relieving the Carriedo property, the
trial court was, in our opinion, well justified in accepting as a proven fact the consent of
Lyons for the mortgage to remain on the Carriedo property. This concession was not only
reasonable under the circumstances, in view of the abundant solvency of Elser, but in
view of the further fact that Elser had given to Lyons 200 shares of the stock of the J. K.
Pickering & Co., having a value of nearly P8,000 in excess of the indebtedness which
Elser had owed to Lyons upon statement of account. The trial court found in effect that
the excess value of these shares over Elser's actual indebtedness was conceded by
Elser to Lyons in consideration of the assistance that had been derived from the
mortgage placed upon Lyon's interest in the Carriedo property. Whether the agreement
was reached exactly upon this precise line of thought is of little moment, but the relations
of the parties had been such that it was to be expected that Elser would be generous;
and he could scarcely have failed to take account of the use he had made of the joint
property of the two.
As the development of the San Juan Estate was a success from the start, Elser paid the
note of P50,000 to UySiuliong on January 18, 1921, although it was not due until more
than five months later. It will thus be seen that the mortgaging of the Carriedo property
never resulted in damage to Lyons to the extent of a single cent; and although the court
refused to allow the defendant to prove the Elser was solvent at this time in an amount
much greater than the entire encumbrance placed upon the property, it is evident that the
risk imposed upon Lyons was negligible. It is also plain that no money actually deriving
from this mortgage was ever applied to the purchase of the San Juan Estate. What really
happened was the Elser merely subjected the property to a contingent liability, and no
actual liability ever resulted therefrom. The financing of the purchase of the San Juan
Estate, apart from the modest financial participation of his three associates in the San
Juan deal, was the work of Elser accomplished entirely upon his own account.
The case for the plaintiff supposes that, when Elser placed a mortgage for P50,000 upon
the equity of redemption in the Carriedo property, Lyons, as half owner of said property,
became, as it were, involuntarily the owner of an undivided interest in the property
acquired partly by that money; and it is insisted for him that, in consideration of this fact,
he is entitled to the four hundred forty-six and two-thirds shares of J. K. Pickering &
Company, with the earnings thereon, as claimed in his complaint.
Lyons tells us that he did not know until after Elser's death that the money obtained from
UySiuliong in the manner already explained had been used to held finance the purchase
of the San Juan Estate. He seems to have supposed that the Carried property had been
mortgaged to aid in putting through another deal, namely, the purchase of a property
referred to in the correspondence as the "Ronquillo property"; and in this connection a
letter of Elser of the latter part of May, 1920, can be quoted in which he uses this
language:
As stated in cablegram I have arranged for P50,000 loan on Carriedo property.
Will use part of the money for Ronquillo buy (P60,000) if the owner comes
through.
Other correspondence shows that Elser had apparently been trying to buy the Ronquillo
property, and Lyons leads us to infer that he thought that the money obtained by
mortgaging the Carriedo property had been used in the purchase of this property. It
doubtedless appeared so to him in the retrospect, but certain consideration show that he
was inattentive to the contents of the quotation from the letter above given. He had
already been informed that, although Elser was angling for the Ronquillo property, its
price had gone up, thus introducing a doubt as to whether he could get it; and the
quotation above given shows that the intended use of the money obtained by mortgaging
the Carriedo property was that only part of the P50,000 thus obtained would be used in
this way, if the deal went through. Naturally, upon the arrival of Lyons in September,
1920, one of his first inquiries would have been, if he did not know before, what was the
status of the proposed trade for the Ronquillo property.
Elser's widow and one of his clerks testified that about June 15, 1920, Elser cabled
Lyons something to this effect;: "I have mortgaged the property on Carriedo Street,
secured by my personal note. You are amply protected. I wish you to join me in the San
Juan Subdivision. Borrow all money you can." Lyons says that no such cablegram was
received by him, and we consider this point of fact of little moment, since the proof shows
that Lyons knew that the Carriedo mortgage had been executed, and after his arrival in
Manila he consented for the mortgage to remain on the property until it was paid off, as
shortly occurred. It may well be that Lyons did not at first clearly understand all the
ramifications of the situation, but he knew enough, we think, to apprise him of the
material factors in the situation, and we concur in the conclusion of the trial court that
Elser did not act in bad faith and was guilty of no fraud.
In the purely legal aspect of the case, the position of the appellant is, in our opinion,
untenable. If Elser had used any money actually belonging to Lyons in this deal, he
would under article 1724 of the Civil Code and article 264 of the Code of Commerce, be
obligated to pay interest upon the money so applied to his own use. Under the law
prevailing in this jurisdiction a trust does not ordinarily attach with respect to property
acquired by a person who uses money belonging to another (Martinez vs. Martinez, 1
Phil., 647; Enriquez vs. Olaguer, 25 Phil., 641.). Of course, if an actual relation of
partnership had existed in the money used, the case might be difference; and much
emphasis is laid in the appellant's brief upon the relation of partnership which, it is
claimed, existed. But there was clearly no general relation of partnership, under article
1678 of the Civil Code. It is clear that Elser, in buying the San Juan Estate, was not
acting for any partnership composed of himself and Lyons, and the law cannot be
distorted into a proposition which would make Lyons a participant in this deal contrary to
his express determination.
It seems to be supposed that the doctrines of equity worked out in the jurisprudence of
England and the United States with reference to trust supply a basis for this action. The
doctrines referred to operate, however, only where money belonging to one person is
used by another for the acquisition of property which should belong to both; and it takes
but little discernment to see that the situation here involved is not one for the application
of that doctrine, for no money belonging to Lyons or any partnership composed of Elser
and Lyons was in fact used by Elser in the purchase of the San Juan Estate. Of course, if
any damage had been caused to Lyons by the placing of the mortgage upon the equity
of redemption in the Carriedo property, Elser's estate would be liable for such damage.
But it is evident that Lyons was not prejudice by that act.
The appellee insist that the trial court committed error in admitting the testimony of Lyons
upon matters that passed between him and Elser while the latter was still alive. While the
admission of this testimony was of questionable propriety, any error made by the trial
court on this point was error without injury, and the determination of the question is not
necessary to this decision. We therefore pass the point without further discussion.
The judgment appealed from will be affirmed, and it is so ordered, with costs against the
appellant.
G.R. No. 142612. July 29, 2005
ANGELES vs. SEC. OF JUSTICE
The Case
This is a petition for certiorari1 to annul the letter-resolution2 dated 1 February 2000 of the
Secretary of Justice in Resolution No. 155.3 The Secretary of Justice affirmed the
resolution4 in I.S. No. 96-939 dated 28 February 1997 rendered by the Provincial
Prosecution Office of the Department of Justice in Santa Cruz, Laguna ("Provincial
Prosecution Office"). The Provincial Prosecution Office resolved to dismiss the complaint
for estafa filed by petitioners Oscar and Emerita Angeles ("Angeles spouses") against
respondent Felino Mercado ("Mercado").
Antecedent Facts
On 19 November 1996, the Angeles spouses filed a criminal complaint for estafa under
Article 315 of the Revised Penal Code against Mercado before the Provincial
Prosecution Office. Mercado is the brother-in-law of the Angeles spouses, being married
to Emerita Angeles’ sister Laura.
In their affidavits, the Angeles spouses claimed that in November 1992, Mercado
convinced them to enter into a contract of antichresis,5 colloquially known as sanglaang-
perde, covering eight parcels of land ("subject land") planted with fruit-bearing lanzones
trees located in Nagcarlan, Laguna and owned by Juana Suazo. The contract of
antichresis was to last for five years with P210,000 as consideration. As the Angeles
spouses stay in Manila during weekdays and go to Laguna only on weekends, the
parties agreed that Mercado would administer the lands and complete the necessary
paperwork.6
After three years, the Angeles spouses asked for an accounting from Mercado. Mercado
explained that the subject land earned P46,210 in 1993, which he used to buy more
lanzones trees. Mercado also reported that the trees bore no fruit in 1994. Mercado gave
no accounting for 1995. The Angeles spouses claim that only after this demand for an
accounting did they discover that Mercado had put the contract of sanglaang-perde over
the subject land under Mercado and his spouse’s names.7 The relevant portions of the
contract of sanglaang-perde, signed by Juana Suazo alone, read:
xxx
Na alang-alangsahalagang DALAWANG DAAN AT SAMPUNG LIBONG PISO
(P210,000), salapinggastahin, naakingtinanggapsa mag[-]asawanila G. AT GNG.
FELINO MERCADO, mganasahustonggulang, Filipino, tumitira at may
pahatirangsulatsaBgy. Maravilla, bayan ng Nagcarlan, lalawigan ng Laguna, ay
akingipinagbili, iniliwat at isinalinsanaulitnahalaga, sanabanggitnamag[-] asawanila G. AT
GNG. FELINO MERCADO[,] sakanila ay magmamana, kahalili at ibangdapatpagliwatan
ng kanilangkarapatan, anglahatnaibubunga ng lahatnapuno ng lanzones,
hindikasamaangibanghalamannanapapaloobannito, ng nabanggitna WALONG (8)
LagaynaLupangCocal-Lanzonal, satakdang LIMA (5) NA [sic] TAON,
magpapasimulasataong 1993, at magtatapossataong 1997, kaya’tpagkatapos ng
lansonesansataong 1997, angpamomosision at pakikinabangsalahatnapuno ng
lanzonessanabanggitna WALONG (8) LagaynaLupangCocal-Lanzonal ay
manunumbaliksa akin, sa akin ay magmamana, kahalili at ibangdapatpagliwatan ng
akingkarapatannaako ay walangibabaliknaano pa manghalaga, sa mag[-] asawanila G.
AT GNG. FELINO MERCADO.
Na ako at angmag[-]asawanila G. AT GNG. FELINO MERCADO ay nagkasundonaako
ay bibigyannila ng LIMA (5) na [sic] kaingnalanzonestaon-taonsaloob ng LIMA (5) na
[sic] taon ng amingkasunduangito.
Na ako at angmag[-]asawanila G. AT GNG. FELINO MERCADO ay
nagkasundonasilangmag[-]asawanila G. AT GNG. FELINO MERCADO angmagpapaalis
ng daposapuno ng lansonestaon-taon [sic] saloob ng LIMA (5) [sic] taonng [sic]
amingkasunduang ito.8
In his counter-affidavit, Mercado denied the Angeles spouses’ allegations. Mercado
claimed that there exists an industrial partnership, colloquially known as sosyo industrial,
between him and his spouse as industrial partners and the Angeles spouses as the
financiers. This industrial partnership had existed since 1991, before the contract of
antichresis over the subject land. As the years passed, Mercado used his and his
spouse’s earnings as part of the capital in the business transactions which he entered
into in behalf of the Angeles spouses. It was their practice to enter into business
transactions with other people under the name of Mercado because the Angeles
spouses did not want to be identified as the financiers.
Mercado attached bank receipts showing deposits in behalf of Emerita Angeles and
contracts under his name for the Angeles spouses. Mercado also attached the minutes
of the barangay conciliation proceedings held on 7 September 1996. During the
barangay conciliation proceedings, Oscar Angeles stated that there was a written sosyo
industrial agreement: capital would come from the Angeles spouses while the profit
would be divided evenly between Mercado and the Angeles spouses.9
The Ruling of the Provincial Prosecution Office
On 3 January 1997, the Provincial Prosecution Office issued a resolution recommending
the filing of criminal information for estafa against Mercado. This resolution, however,
was issued without Mercado’s counter-affidavit.
Meanwhile, Mercado filed his counter-affidavit on 2 January 1997. On receiving the 3
January 1997 resolution, Mercado moved for its reconsideration. Hence, on 26 February
1997, the Provincial Prosecution Office issued an amended resolution dismissing the
Angeles spouses’ complaint for estafa against Mercado.
The Provincial Prosecution Office stated thus:
The subject of the complaint hinges on a partnership gone sour. The partnership was
initially unsaddled [with] problems. Management became the source of misunderstanding
including the accounting of profits, which led to further misunderstanding until it was
revealed that the contract with the orchard owner was only with the name of the
respondent, without the names of the complainants.
The accusation of "estafa" here lacks enough credible evidentiary support to sustain a
prima facie finding.
Premises considered, it is respectfully recommended that the complaint for estafa be
dismissed.
RESPECTFULLY SUBMITTED.10
The Angeles spouses filed a motion for reconsideration, which the Provincial Prosecution
Office denied in a resolution dated 4 August 1997.
The Ruling of the Secretary of Justice
On appeal to the Secretary of Justice, the Angeles spouses emphasized that the
document evidencing the contract of sanglaang-perde with Juana Suazo was executed
in the name of the Mercado spouses, instead of the Angeles spouses. The Angeles
spouses allege that this document alone proves Mercado’s misappropriation of
their P210,000.
The Secretary of Justice found otherwise. Thus:
Reviewing the records of the case, we are of the opinion that the indictment of [Mercado]
for the crime of estafa cannot be sustained. [The Angeles spouses] failed to show
sufficient proof that [Mercado] deliberately deceived them in the "sanglaangperde"
transaction. The document alone, which was in the name of [Mercado and his spouse],
failed to convince us that there was deceit or false representation on the part of
[Mercado] that induced the [Angeles spouses] to part with their money. [Mercado]
satisfactorily explained that the [Angeles spouses] do not want to be revealed as the
financiers. Indeed, it is difficult to believe that the [Angeles spouses] would readily part
with their money without holding on to some document to evidence the receipt of money,
or at least to inspect the document involved in the said transaction. Under the
circumstances, we are inclined to believe that [the Angeles spouses] knew from the very
start that the questioned document was not really in their names.
In addition, we are convinced that a partnership truly existed between the [Angeles
spouses] and [Mercado]. The formation of a partnership was clear from the fact that they
contributed money to a common fund and divided the profits among themselves.
Records would show that [Mercado] was able to make deposits for the account of the
[Angeles spouses]. These deposits represented their share in the profits of their business
venture. Although the [Angeles spouses] deny the existence of a partnership, they,
however, never disputed that the deposits made by [Mercado] were indeed for their
account.
The transcript of notes on the dialogue between the [Angeles spouses] and [Mercado]
during the hearing of their barangay conciliation case reveals that the [Angeles spouses]
acknowledged their joint business ventures with [Mercado] although they assailed the
manner by which [Mercado] conducted the business and handled and distributed the
funds. The veracity of this transcript was not raised in issued [sic] by [the Angeles
spouses]. Although the legal formalities for the formation of a partnership were not
adhered to, the partnership relationship of the [Angeles spouses] and [Mercado] is
evident in this case. Consequently, there is no estafa where money is delivered by a
partner to his co-partner on the latter’s representation that the amount shall be applied to
the business of their partnership. In case of misapplication or conversion of the money
received, the co-partner’s liability is civil in nature (People v. Clarin, 7 Phil. 504)
WHEREFORE, the appeal is hereby DISMISSED.11
Hence, this petition.
Issues
The Angeles spouses ask us to consider the following issues:
1. Whether the Secretary of Justice committed grave abuse of discretion amounting to
lack of jurisdiction in dismissing the appeal of the Angeles spouses;
2. Whether a partnership existed between the Angeles spouses and Mercado even
without any documentary proof to sustain its existence;
3. Assuming that there was a partnership, whether there was misappropriation by
Mercado of the proceeds of the lanzones after the Angeles spouses demanded an
accounting from him of the income at the office of the barangay authorities on 7
September 1996, and Mercado failed to do so and also failed to deliver the proceeds to
the Angeles spouses;
4. Whether the Secretary of Justice should order the filing of the information for estafa
against Mercado.12
The Ruling of the Court
The petition has no merit.
Whether the Secretary of Justice CommittedGrave Abuse of Discretion
An act of a court or tribunal may constitute grave abuse of discretion when the same is
performed in a capricious or whimsical exercise of judgment amounting to lack of
jurisdiction. The abuse of discretion must be so patent and gross as to amount to an
evasion of positive duty, or to a virtual refusal to perform a duty enjoined by law, as
where the power is exercised in an arbitrary and despotic manner because of passion or
personal hostility.13
The Angeles spouses fail to convince us that the Secretary of Justice committed grave
abuse of discretion when he dismissed their appeal. Moreover, the Angeles spouses
committed an error in procedure when they failed to file a motion for reconsideration of
the Secretary of Justice’s resolution. A previous motion for reconsideration before the
filing of a petition for certiorari is necessary unless: (1) the issue raised is one purely of
law; (2) public interest is involved; (3) there is urgency; (4) a question of jurisdiction is
squarely raised before and decided by the lower court; and (5) the order is a patent
nullity.14 The Angeles spouses failed to show that their case falls under any of the
exceptions. In fact, this present petition for certiorari is dismissible for this reason alone.
Whether a Partnership ExistedBetween Mercado and the Angeles Spouses
The Angeles spouses allege that they had no partnership with Mercado. The Angeles
spouses rely on Articles 1771 to 1773 of the Civil Code, which state that:
Art. 1771. A partnership may be constituted in any form, except where immovable
property or real rights are contributed thereto, in which case a public instrument shall be
necessary.
Art. 1772. Every contract of partnership having a capital of three thousand pesos or
more, in money or property, shall appear in a public instrument, which must be recorded
in the Office of the Securities and Exchange Commission.
Failure to comply with the requirements of the preceding paragraph shall not affect the
liability of the partnership and the members thereof to third persons.
Art. 1773. A contract of partnership is void, whenever immovable property is contributed
thereto, if an inventory of said property is not made, signed by the parties, and attached
to the public instrument.
The Angeles spouses’ position that there is no partnership because of the lack of a
public instrument indicating the same and a lack of registration with the Securities and
Exchange Commission ("SEC") holds no water. First, the Angeles spouses contributed
money to the partnership and not immovable property. Second, mere failure to register
the contract of partnership with the SEC does not invalidate a contract that has the
essential requisites of a partnership. The purpose of registration of the contract of
partnership is to give notice to third parties. Failure to register the contract of partnership
does not affect the liability of the partnership and of the partners to third persons. Neither
does such failure to register affect the partnership’s juridical personality. A partnership
may exist even if the partners do not use the words "partner" or "partnership."
Indeed, the Angeles spouses admit to facts that prove the existence of a partnership: a
contract showing a sosyo industrial or industrial partnership, contribution of money and
industry to a common fund, and division of profits between the Angeles spouses and
Mercado.
Whether there was Misappropriation by Mercado
The Secretary of Justice adequately explained the alleged misappropriation by Mercado:
"The document alone, which was in the name of [Mercado and his spouse], failed to
convince us that there was deceit or false representation on the part of [Mercado] that
induced the [Angeles spouses] to part with their money. [Mercado] satisfactorily
explained that the [Angeles spouses] do not want to be revealed as the financiers."15
Even Branch 26 of the Regional Trial Court of Santa Cruz, Laguna which decided the
civil case for damages, injunction and restraining order filed by the Angeles spouses
against Mercado and Leo Cerayban, stated:
xxx [I]t was the practice to have all the contracts of antichresis of their partnership
secured in [Mercado’s] name as [the Angeles spouses] are apprehensive that, if they
come out into the open as financiers of said contracts, they might be kidnapped by the
New People’s Army or their business deals be questioned by the Bureau of Internal
Revenue or worse, their assets and unexplained income be sequestered, as xxx Oscar
Angeles was then working with the government.16
Furthermore, accounting of the proceeds is not a proper subject for the present case.
For these reasons, we hold that the Secretary of Justice did not abuse his discretion in
dismissing the appeal of the Angeles spouses.
WHEREFORE, we AFFIRM the decision of the Secretary of Justice. The present petition
for certiorari is DISMISSED.
SO ORDERED.