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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 the subdivision lots. He did all of these for a total expense of P85,000.

Courts may not extricate parties from the necessary consequences of their acts. That the Respondent claimed that the subdivision project failed, however, because petitioners and
terms of a contract turn out to be financially disadvantageous to them will not relieve their relatives had separately caused the annotations of adverse claims on the title to the
them of their obligations therein. The lack of an inventory of real property will not ipso land, which eventually scared away prospective buyers. Despite his requests, petitioners
facto release the contracting partners from their respective obligations to each other refused to cause the clearing of the claims, thereby forcing him to give up on the
arising from acts executed in accordance with their agreement. project. 5

The Case 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
The Petition for Review on Certiorari before us assails the March 5, 1998 Decision 1 of respondent's motion, was later dismissed by the trial court in an Order dated September
the Court of Appeals 2 (CA) in CA-GR CV No. 42378 and its June 25, 1998 Resolution 6, 1982. On appeal, however, the appellate court remanded the case for further
denying reconsideration. The assailed Decision affirmed the ruling of the Regional Trial Court proceedings. Thereafter, the RTC issued its assailed Decision, which, as earlier stated,
(RTC) of Cebu City in Civil Case No. R-21208, which disposed as follows: was affirmed by the CA.

WHEREFORE, for all the foregoing considerations, the Court, finding for the Hence, this Petition. 6
defendant and against the plaintiffs, orders the dismissal of the plaintiffs
complaint. The counterclaims of the defendant are likewise ordered dismissed. Ruling of the Court of Appeals
No pronouncement as to costs. 3
In affirming the trial court, the Court of Appeals held that petitioners and respondent had
The Facts 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
Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint stipulated in the contract. Disagreeing with the trial court's pronouncement that losses as
venture agreement" with Respondent Manuel Torres for the development of a parcel of well as profits in a joint venture should be distributed equally, 7 the CA invoked Article
land into a subdivision. Pursuant to the contract, they executed a Deed of Sale covering 1797 of the Civil Code which provides:
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 Art. 1797 — The losses and profits shall be distributed in conformity with the
which, under the Joint Venture Agreement, was to be used for the development of the agreement. If only the share of each partner in the profits has been agreed upon,
subdivision. 4 All three of them also agreed to share the proceeds from the sale of the the share of each in the losses shall be in the same proportion.
subdivided lots.
The CA elucidated further:
The project did not push through, and the land was subsequently foreclosed by the bank.
In the absence of stipulation, the share of each partner in the profits and losses
According to petitioners, the project failed because of "respondent's lack of funds or shall be in proportion to what he may have contributed, but the industrial partner
means and skills." They add that respondent used the loan not for the development of shall not be liable for the losses. As for the profits, the industrial partner shall
the subdivision, but in furtherance of his own company, Universal Umbrella Company. 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
On the other hand, respondent alleged that he used the loan to implement the the profits in proportion to his capital.
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 The Issue
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 Petitioners impute to the Court of Appeals the following error:
. . . [The] Court of Appeals erred in concluding that the transaction execution of this contract for the property entrusted by the SECOND PARTY, for
. . . between the petitioners and respondent was that of a joint sub-division projects and development purposes;
venture/partnership, ignoring outright the provision of Article 1769, and
other related provisions of the Civil Code of the Philippines. 8 NOW THEREFORE, for and in consideration of the above covenants and
promises herein contained the respective parties hereto do hereby stipulate and
The Court's Ruling agree as follows:

The Petition is bereft of merit. ONE: That the SECOND PARTY signed an absolute Deed of Sale . . . dated
March 5, 1969, in the amount of TWENTY FIVE THOUSAND FIVE HUNDRED
Main Issue: 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
Existence of a Partnership the FIRST PARTY, but the SECOND PARTY did not actually receive the
payment.
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 SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the
the appellate court's finding of a partnership, were void. 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-
In the same breath, however, they assert that under those very same contracts,
divided and to be deducted from the sales.
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 THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the
property. 9 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
The pertinent portions of the Joint Venture Agreement read as follows:
TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, will be deducted
accordingly.
KNOW ALL MEN BY THESE PRESENTS:
FOURTH: That all general expense[s] and all cost[s] involved in the sub-division
This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th project should be paid by the FIRST PARTY, exclusively and all the expenses
day of March, 1969, by and between MR. MANUEL R. TORRES, . . . the FIRST will not be deducted from the sales after the development of the sub-division
PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS EMETERIA BARING, project.
. . . the SECOND PARTY:
FIFTH: That the sales of the sub-divided lots will be divided into SIXTY
WITNESSETH: PERCENTUM 60% for the SECOND PARTY and FORTY PERCENTUM 40% for
the FIRST PARTY, and additional profits or whatever income deriving from the
That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this sales will be divided equally according to the . . . percentage [agreed upon] by
property located at Lapu-Lapu City, Island of Mactan, under Lot No. 1368 both parties.
covering TCT No. T-0184 with a total area of 17,009 square meters, to be sub-
divided by the FIRST PARTY; 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
Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of: parties['] favor and all sales shall [be] decided by both parties.
TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency upon the
SEVENTH: That the SECOND PARTIES, should be given an option to get back Art. 1315. Contracts are perfected by mere consent, and from that moment the
the property mentioned provided the amount of TWENTY THOUSAND parties are bound not only to the fulfillment of what has been expressly stipulated
(P20,000.00) Pesos, Philippine Currency, borrowed by the SECOND PARTY, will but also to all the consequences which, according to their nature, may be in
be paid in full to the FIRST PARTY, including all necessary improvements spent keeping with good faith, usage and law.
by the FIRST PARTY, and-the FIRST PARTY will be given a grace period to
turnover the property mentioned above. 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
That this AGREEMENT shall be binding and obligatory to the parties who expectations, they should have objected to it and insisted on the provisions they wanted.
executed same freely and voluntarily for the uses and purposes therein stated. 10
Courts are not authorized to extricate parties from the necessary consequences of their
A reading of the terms embodied in the Agreement indubitably shows the existence of a acts, and the fact that the contractual stipulations may turn out to be financially
partnership pursuant to Article 1767 of the Civil Code, which provides: disadvantageous will not relieve parties thereto of their obligations. They cannot now
disavow the relationship formed from such agreement due to their supposed
Art. 1767. By the contract of partnership two or more persons bind themselves to misunderstanding of its terms.
contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves. Alleged Nullity of the

Under the above-quoted Agreement, petitioners would contribute property to the Partnership Agreement
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 Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil
expenses and other costs. Furthermore, the income from the said project would be Code, which provides:
divided according to the stipulated percentage. Clearly, the contract manifested the
intention of the parties to form a partnership. 11 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
It should be stressed that the parties implemented the contract. Thus, petitioners parties, and attached to the public instrument.
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 They contend that since the parties did not make, sign or attach to the public instrument
were used for the survey and the subdivision of the land. As noted earlier, he developed an inventory of the real property contributed, the partnership is void.
the roads, the curbs and the gutters of the subdivision and entered into a contract to
construct low-cost housing units on the property.
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
Respondent's actions clearly belie petitioners' contention that he made no contribution to complement of Article 1771, 12 "The execution of a public instrument would be useless if
the partnership. Under Article 1767 of the Civil Code, a partner may contribute not only there is no inventory of the property contributed, because without its designation and
money or property, but also industry. 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
Petitioners Bound by 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
Terms of Contract case at bar does not involve third parties who may be prejudiced.

Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been Second, petitioners themselves invoke the allegedly void contract as basis for their claim
expressly stipulated, but also to all necessary consequences thereof, as follows: 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 WHEREFORE, the Perition is hereby DENIED and the challenged Decision AFFIRMED.
courts will not tolerate, much less approve, such practice. Costs against petitioners.

In short, the alleged nullity of the partnership will not prevent courts from considering the SO ORDERED
Joint Venture Agreement an ordinary contract from which the parties' rights and
obligations to each other may be inferred and enforced. G.R. No. L-21906 December 24, 1968
DELUAO vs. CASTEEL
Partnership Agreement Not the Result
This is an appeal from the order of May 2, 1956, the decision of May 4, 1956 and the
of an Earlier Illegal Contract 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
Petitioners also contend that the Joint Venture Agreement is void under Article 1422 14 of of contract.
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. 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.
This argument is puerile. The Joint Venture Agreement clearly states that the No action was taken thereon by the authorities concerned. During the Japanese
consideration for the sale was the expectation of profits from the subdivision project. Its occupation, he filed another fishpond application for the same area, but because of the
first stipulation states that petitioners did not actually receive payment for the parcel of conditions then prevailing, it was not acted upon either. On December 12, 1945 he filed a
land sold to respondent. Consideration, more properly denominated as cause, can take third fishpond application for the same area, which, after a survey, was found to contain
different forms, such as the prestation or promise of a thing or service by another. 15 178.76 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
In this case, the cause of the contract of sale consisted not in the stated peso value of production. Hence on May 13, 1946 this third application was disapproved.
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 Despite the said rejection, Casteel did not lose interest. He filed a motion for
the partnership as [petitioner's] participation therein. . . . There was therefore a reconsideration. While this motion was pending resolution, he was advised by the district
consideration for the sale, the [petitioners] acting in the expectation that, should the forester of Davao City that no further action would be taken on his motion, unless he filed
venture come into fruition, they [would] get sixty percent of the net profits." a new application for the area concerned. So he filed on May 27, 1947 his fishpond
application 1717.
Liability of the Parties
Meanwhile, several applications were submitted by other persons for portions of the area
Claiming that rerpondent was solely responsible for the failure of the subdivision project, covered by Casteel's application.
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 On May 20, 1946 LeoncioAradillos filed his fishpond application 1202 covering 10
Agreement. 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
We are not persuaded. True, the Court of Appeals held that petitioners' acts were not the purposes by the Bureau of Forestry.
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 Victor D. Carpio filed on August 8, 1946 his fishpond application 762 over a portion of the
reason why we should disregard the factual findings of the appellate court relieving him of land applied for by Casteel. Alejandro Cacam's fishpond application 1276, filed on
fault. Verily, factual issues cannot be resolved in a petition for review under Rule 45, as in this December 26, 1946, was given due course on December 9, 1947 with the issuance to
case. Petitioners have not alleged, not to say shown, that their Petition constitutes one of the him of fishpond permit F-539-C to develop 30 hectares of land comprising a portion of
exceptions to this doctrine. 18 Accordingly, we find no reversible error in the CA's ruling that the area applied for by Casteel, upon certification of the Bureau of Forestry that the area
petitioners are not entitled to damages.
was likewise available for fishpond purposes. On November 17, 1948 Felipe Deluao filed the Party of the Second Part who renders only his services for the construction
his own fishpond application for the area covered by Casteel's application. and improvements of a fishpond at Barrio Malalag, Municipality of Padada,
Province of Davao, Philippines;
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 That the Party of the Second Part will be the Manager and sole buyer of all the
expanding his occupation thereof by constructing dikes and cultivating marketable fishes, produce of the fish that will be produced from said fishpond;
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 That the Party of the First Part will be the administrator of the same she having
extended loans totalling more or less P27,000 with which to finance the needed financed the construction and improvement of said fishpond;
improvements on the fishpond. Hence, a wide productive fishpond was built.
That this contract was the result of a verbal agreement entered into between the
Moreover, upon learning that portions of the area applied for by him were already Parties sometime in the month of November, 1947, with all the above-mentioned
occupied by rival applicants, Casteel immediately filed the corresponding protests. conditions enumerated; ...
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, On the same date the above contract was entered into, InocenciaDeluao executed a
applicant-appellant versus Fp. A. No. 763, Victorio D. Carpio, applicant-appellant"; and special power of attorney in favor of Jesus Donesa, extending to the latter the authority
DANR Case 353-B, entitled "Fp. A. No. 661 (now Fp. A. No. 1717), Nicanor Casteel, "To represent me in the administration of the fishpond at Malalag, Municipality of
applicant-protestant versus Fp. Permit No. 289-C, LeoncioAradillos, Fp. Permit No. 539- Padada, Province of Davao, Philippines, which has been applied for fishpond permit by
C, Alejandro Cacam, Permittees-Respondents." 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...."
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 On November 29, 1949 the Director of Fisheries rejected the application filed by Felipe
him in the form of dikes, fishpond gates, clearings, etc., the Director of Fisheries Deluao on November 17, 1948. Unfazed by this rejection, Deluao reiterated his claim
nevertheless rejected Casteel's application on October 25, 1949, required him to remove over the same area in the two administrative cases (DANR Cases 353 and 353-B) and
all the improvements which he had introduced on the land, and ordered that the land be asked for reinvestigation of the application of Nicanor Casteel over the subject fishpond.
leased through public auction. Failing to secure a favorable resolution of his motion for However, by letter dated March 15, 1950 sent to the Secretary of Commerce and
reconsideration of the Director's order, Casteel appealed to the Secretary of Agriculture Agriculture and Natural Resources (now Secretary of Agriculture and Natural
and Natural Resources. Resources), Deluao withdrew his petition for reinvestigation.

In the interregnum, some more incidents occurred. To avoid repetition, they will be taken On September 15, 1950 the Secretary of Agriculture and Natural Resources issued a
up in our discussion of the appellant's third assignment of error. decision in DANR Case 353, the dispositive portion of which reads as follows:

On November 25, 1949 InocenciaDeluao (wife of Felipe Deluao) as party of the first part, In view of all the foregoing considerations, Fp. A. No. 661 (now Fp. A. No. 1717)
and Nicanor Casteel as party of the second part, executed a contract — denominated a of Nicanor Casteel should be, as hereby it is, reinstated and given due course for
"contract of service" — the salient provisions of which are as follows: 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.
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 On the same date, the same official issued a decision in DANR Case 353-B, the
contract of service, whereby the Party of the First Part hires and employs the dispositive portion stating as follows:
Party of the Second Part on the following terms and conditions, to wit:
WHEREFORE, Fishpond Permit No. F-289-C of LeoncioAradillos and Fishpond
That the Party of the First Part will finance as she has hereby financed the sum Permit No. F-539-C of Alejandro Cacam, should be, as they are hereby cancelled
of TWENTY SEVEN THOUSAND PESOS (P27,000.00), Philippine Currency, to and revoked; Nicanor Casteel is required to pay the improvements introduced
thereon by said permittees in accordance with the terms and dispositions The defendant Juan Depra moved on May 22, 1951 to dismiss the complaint as to him.
contained elsewhere in this decision.... On June 4, 1951 the plaintiffs opposed his motion.

Sometime in January 1951 Nicanor Casteel forbade InocenciaDeluao from further The defendants filed on October 3, 1951 a joint motion to dismiss on the ground that the
administering the fishpond, and ejected the latter's representative (encargado), Jesus plaintiffs' complaint failed to state a claim upon which relief may be granted. The motion,
Donesa, from the premises. 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
Alleging violation of the contract of service (exhibit A) entered into between October 31, 1951 suffered the same fate when it was likewise denied by the lower court
InocenciaDeluao and Nicanor Casteel, Felipe Deluao and InocenciaDeluao on April 3, in its order of November 12, 1951.
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 After the issues were joined, the case was set for trial. Then came a series of
to violate his contract), praying inter alia, (a) that Casteel be ordered to respect and postponements. The lower court (Branch I, presided by Judge Enrique A. Fernandez)
abide by the terms and conditions of said contract and that InocenciaDeluao be allowed finally issued on March 21, 1956 an order in open court, reading as follows: .
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 Upon petition of plaintiffs, without any objection on the part of defendants, the
and severally to plaintiffs the sum of P20,000 in damages. hearing of this case is hereby transferred to May 2 and 3, 1956 at 8:30 o'clock in
the morning.
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 This case was filed on April 3, 1951 and under any circumstance this Court will
their filling the requisite bond as may be fixed by the court, a preliminary injunction be not entertain any other transfer of hearing of this case and if the parties will not
issued to restrain Casteel from doing the acts complained of, and that after trial the said be ready on that day set for hearing, the court will take the necessary steps for
injunction be made permanent. The lower court on April 26, 1951 granted the motion, the final determination of this case. (emphasis supplied)
and, two days later, it issued a preliminary mandatory injunction addressed to Casteel,
the dispositive portion of which reads as follows: 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
POR EL PRESENTE, quedaustedordenado que, hasta nuevaorden, usted, el the Court of First Instance of Davao, setting the hearing of the case for May 2 and 3,
demandado y todosusuabogados, agentes, mandatarios y demas personas que 1956 before Judge Amador Gomez of Branch II. The defendants, thru counsel, on April
obrenensuayuda, desista de impedir a la demandanteInocencia R. Deluao que 26, 1956 filed a motion for postponement. Acting on this motion, the lower court (Branch
continue administrandopersonalmente la pesqueriaobjeto de esta causa y que la II, presided by Judge Gomez) issued an order dated April 27, 1956, quoted as follows:
misma continue recibiendolosproductos de la venta de lospescadosprovenientes
de dichapesqueria, y que, asimismo, se prohibe a dichodemandadoNicanor This is a motion for postponement of the hearing of this case set for May 2 and 3,
Casteel a desahuciarmediantefuerza al encargado de losdemandantesllamado 1956. The motion is filed by the counsel for the defendants and has the
Jesus Donesa de la pesqueriaobjeto de la demanda de autos. conformity of the counsel for the plaintiffs.

On May 10, 1951 Casteel filed a motion to dissolve the injunction, alleging among others, An examination of the records of this case shows that this case was initiated as
that he was the owner, lawful applicant and occupant of the fishpond in question. This early as April 1951 and that the same has been under advisement of the
motion, opposed by the plaintiffs on June 15, 1951, was denied by the lower court in its Honorable Enrique A. Fernandez, Presiding Judge of Branch No. I, since
order of June 26, 1961. September 24, 1953, and that various incidents have already been considered
and resolved by Judge Fernandez on various occasions. The last order issued by
The defendants on May 14, 1951 filed their answer with counterclaim, amended on Judge Fernandez on this case was issued on March 21, 1956, wherein he
January 8, 1952, denying the material averments of the plaintiffs' complaint. A reply to definitely states that the Court will not entertain any further postponement of the
the defendants' amended answer was filed by the plaintiffs on January 31, 1952. hearing of this case.
CONSIDERING ALL THE FOREGOING, the Court believes that the (h) Ordena el sobreseimiento de la reconvencion de losdemandadosporfalta de
consideration and termination of any incident referring to this case should be pruebas;
referred back to Branch I, so that the same may be disposed of therein.
(emphasis supplied) (i) Con las costas contra deldemandado, Casteel.

A copy of the abovequoted order was served on the defendants' counsel on May 4, The defendant Casteel filed a petition for relief from the foregoing decision, alleging, inter
1956. 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
On the scheduled date of hearing, that is, on May 2, 1956, the lower court (Branch I, with pertinent portion of which reads as follows:
Judge Fernandez presiding), when informed about the defendants' motion for
postponement filed on April 26, 1956, issued an order reiterating its previous order The duty of Atty. Ruiz, was not to inquire from the Clerk of Court whether the trial
handed down in open court on March 21, 1956 and directing the plaintiffs to introduce of this case has been transferred or not, but to inquire from the presiding Judge,
their evidence ex parte, there being no appearance on the part of the defendants or their particularly because his motion asking the transfer of this case was not set for
counsel. On the basis of the plaintiffs' evidence, a decision was rendered on May 4, 1956 hearing and was not also acted upon.
the dispositive portion of which reads as follows:
Atty. Ruiz knows the nature of the order of this Court dated March 21, 1956,
EN SU VIRTUD, el Juzgado dicta de decision a favor de losdemandantes y en which reads as follows:
contra deldemandadoNicanor Casteel:
Upon petition of the plaintiff without any objection on the part of the
(a) Declarapermanente el interdictoprohibitorioexpedido contra el demandado; defendants, the hearing of this case is hereby transferred to May 2 and 3,
1956, at 8:30 o'clock in the morning.
(b) Ordena al demandadoentregue la demandante la posesion y administracion
de la mitad (½) del "fishpond" encuestion con todas las mejorasexistentesdentro This case was filed on April 3, 1951, and under any circumstance this
de la misma; 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
(c) Condena al demandado a pagar a la demandante la suma de P200.00 take necessary steps for the final disposition of this case.
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 In view of the order above-quoted, the Court will not accede to any transfer of
administracion de la porcion del "fishpond" enconflicto; 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
(d) Condena al demandado a pagar a la demandante la suma de P2,000.00 transfer.
valor de lospescadobeneficiados, mas losintereseslegales de la fecha de la
incoacion de la demanda de autos hasta el completopago de la obligacion Petition for relief from judgment filed by Atty. Ruiz in behalf of the defendant, not
principal; well taken, the same is hereby denied.

(e) Condena al demandado a pagar a la demandante la suma de P2,000.00, Dissatisfied with the said ruling, Casteel appealed to the Court of Appeals which certified
porgastosincurridosporaquelladurante la pendencia de esta causa; the case to us for final determination on the ground that it involves only questions of law.

(f) Condena al demandado a pagar a la demandante, enconcepto de honorarios, Casteel raises the following issues:
la suma de P2,000.00;
(1) Whether the lower court committed gross abuse of discretion when it ordered
(g) Ordena el sobreseimiento de estademanda, porinsuficiencia de pruebas, reception of the appellees' evidence in the absence of the appellant at the trial on
entantoencuanto se refiere al demandado Juan Depra;
May 2, 1956, thus depriving the appellant of his day in court and of his property 21, 1956 intransferably setting the case for hearing for May 2 and 3, 1956, was sufficient
without due process of law; notice to all the appellant's eleven other counsel of record. This is a well-settled rule in
our jurisdiction.4
(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, It was the duty of Atty. Ruiz, or of the other lawyers of record, not excluding the appellant
1956 in accordance with Rule 38, Rules of Court; and 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
(3) Whether the lower court erred in ordering the issuance ex parte of a writ of granted.5 For indeed, the appellant and his 12 lawyers cannot pretend ignorance of the
preliminary injunction against defendant-appellant, and in not dismissing recorded fact that since September 24, 1953 until the trial held on May 2, 1956, the case
appellees' complaint. 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
1. The first and second issues must be resolved against the appellant. had exclusive control of said case, unless he was legally inhibited to try the case — and
he was not.
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 There is truth in the appellant's contention that it is the duty of the clerk of court — not of
morning and empathically stated that, since the case had been pending since April 3, the Court — to prepare the trial calendar. But the assignment or reassignment of cases
1951, it would not entertain any further motion for transfer of the scheduled hearing. 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.
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 The appellant does not deny the appellees' claim that on May 2 and 3, 1956, the office of
order of March 21, 1956, given in open court, was a valid notice to the parties, and the the clerk of court of the Court of First Instance of Davao was located directly below
notice of hearing dated April 21, 1956 or one month thereafter, was a superfluity. Branch I. If the appellant and his counsel had exercised due diligence, there was no
Moreover, as between the order of March 21, 1956, duly promulgated by the lower court, impediment to their going upstairs to the second storey of the Court of First Instance
thru Judge Fernandez, and the notice of hearing signed by a "special deputy clerk of building in Davao on May 2, 1956 and checking if the case was scheduled for hearing in
court" setting the hearing in another branch of the same court, the former's order was the the said sala. The appellant after all admits that on May 2, 1956 his counsel went to the
one legally binding. This is because the incidents of postponements and adjournments office of the clerk of court.
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. 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
Much less had the clerk of court the authority to interfere with the order of the court or to 21, 1956 that the case was definitely and intransferably set for hearing on May 2 and 3,
transfer the cage from one sala to another without authority or order from the court where 1956 before Branch I. He cannot argue that, pursuant to the doctrine in Siochi vs.
the case originated and was being tried. He had neither the duty nor prerogative to re- Tirona,6 his counsel was entitled to a timely notice of the denial of his motion for
assign the trial of the case to a different branch of the same court. His duty as such clerk postponement. In the cited case the motion for postponement was the first one filed by
of court, in so far as the incident in question was concerned, was simply to prepare the the defendant; in the case at bar, there had already been a series of postponements.
trial calendar. And this duty devolved upon the clerk of court and not upon the "special Unlike the case at bar, the Siochi case was not intransferably set for hearing. Finally,
deputy clerk of court" who purportedly signed the notice of hearing. 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.
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 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
The record further discloses that Casteel was represented by a total of 12 lawyers, none
appear at the trial and therefore he cannot be heard to complain that he has been
of whom had ever withdrawn as counsel. Notice to Atty. Ruiz of the order dated March
deprived of his property without due process of law.7 Verily, the constitutional regulation prohibited them from doing so. Thus, rather than let the fishpond remain idle
requirements of due process have been fulfilled in this case: the lower court is a they cultivated it.
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 The evidence preponderates in favor of the view that the initial intention of the parties
opportunity to be heard; and judgment was rendered upon lawful hearing.8 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
2. Finally, the appellant contends that the lower court incurred an error in ordering the was to divide into two equal parts such portion of the fishpond as might have been
issuance ex parte of a writ of preliminary injunction against him, and in not dismissing the developed by the amount extended by the plaintiffs-appellees, with the further provision
appellee's complaint. We find this contention meritorious. 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
Apparently, the court a quo relied on exhibit A — the so-called "contract of service" — letter of Casteel to Felipe Deluao on November 15, 1949, which states, inter alia:
and the appellees' contention that it created a contract of co-ownership and partnership
between InocenciaDeluao and the appellant over the fishpond in question. ... [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
Too well-settled to require any citation of authority is the rule that everyone is done so far, besides I did not insist on our being partners in my fishpond permit,
conclusively presumed to know the law. It must be assumed, conformably to such rule, but it was you "Tatay" Eping the one who wanted that we be partners and it so
that the parties entered into the so-called "contract of service" cognizant of the happened that we became partners because I am poor, but in the midst of my
mandatory and prohibitory laws governing the filing of applications for fishpond permits. poverty it never occurred to me to be unfair to you. Therefore so that each of us
And since they were aware of the said laws, it must likewise be assumed — in fairness to may be secured, let us have a document prepared to the effect that we are
the parties — that they did not intend to violate them. This view must perforce negate the partners in the fishpond that we caused to be made here in Balasinon, but it does
appellees' allegation that exhibit A created a contract of co-ownership between the not mean that you will treat me as one of your "Bantay" (caretaker) on wage
parties over the disputed fishpond. Were we to admit the establishment of a co- basis but not earning wages at all, while the truth is that we are partners. In the
ownership violative of the prohibitory laws which will hereafter be discussed, we shall be event that you are not amenable to my proposition and consider me as "Bantay"
compelled to declare altogether the nullity of the contract. This would certainly not serve (caretaker) instead, do not blame me if I withdraw all my cases and be left
the cause of equity and justice, considering that rights and obligations have already without even a little and you likewise.
arisen between the parties. We shall therefore construe the contract as one of (emphasis supplied)9
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 Pursuant to the foregoing suggestion of the appellant that a document be drawn
partnership to divide the fishpond between them after such award. The first is valid, the evidencing their partnership, the appellee InocenciaDeluao and the appellant executed
second illegal. 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
It is well to note that when the appellee InocenciaDeluao and the appellant entered into the appellant, was admitted by the appellees themselves in their letter10 to Casteel dated
the so-called "contract of service" on November 25, 1949, there were two pending December 19, 1949 wherein they stated that they did not employ him in his (Casteel's)
applications over the fishpond. One was Casteel's which was appealed by him to the claim but because he used their money in developing and improving the fishpond, his
Secretary of Agriculture and Natural Resources after it was disallowed by the Director of right must be divided between them. Of course, although exhibit A did not specify any
Fisheries on October 25, 1949. The other was Felipe Deluao's application over the same wage or share appertaining to the appellant as industrial partner, he was so entitled —
area which was likewise rejected by the Director of Fisheries on November 29, 1949, this being one of the conditions he specified for the execution of the document of
refiled by Deluao and later on withdrawn by him by letter dated March 15, 1950 to the partnership.11
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 Further exchanges of letters between the parties reveal the continuing intent to divide the
permit over the area. But be that as it may, they were not however precluded from fishpond. In a letter,12dated March 24, 1950, the appellant suggested that they divide the
exploiting the fishpond pending resolution of Casteel's appeal or the approval of Deluao's fishpond and the remaining capital, and offered to pay the Deluaos a yearly installment of
application over the same area — whichever event happened first. No law, rule or 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 The lessee shall not assign, encumber, or sublet his rights without the consent of
appellant's suggestion and advising the latter to ask for a reconsideration of the order of the Secretary of Agriculture and Commerce, and the violation of this condition
the Director of Fisheries disapproving his (appellant's) application, so that if a favorable shall avoid the contract; Provided, That assignment, encumbrance, or subletting
decision was secured, then they would divide the area. 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
Apparently relying on the partnership agreement, the appellee Felipe Deluao saw no the assignment, encumbrance, or subletting of lands leased under this Act, or
further need to maintain his petition for the reinvestigation of Casteel's application. Thus under any previous Act, to persons, corporations, or associations which under
by letter14 dated March 15, 1950 addressed to the Secretary of Agriculture and Natural this Act, are not authorized to lease public lands.
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 Finally, section 37 of Administrative Order No. 14 of the Secretary of Agriculture and
his capital to be reimbursed by the highest bidder. 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
The arrangement under the so-called "contract of service" continued until the decisions prescribe. Thus, it states:
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 When a transfer or sub-lease of area and improvement may be allowed. — If the
the dissolution of the partnership. Moreover, subsequent events likewise reveal the intent permittee or lessee had, unless otherwise specifically provided, held the permit
of both parties to terminate the partnership because each refused to share the fishpond or lease and actually operated and made improvements on the area for at least
with the other. one year, he/she may request permission to sub-lease or transfer the area and
improvements under certain conditions.
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 (a) Transfer subject to approval. — A sub-lease or transfer shall only be valid
be carried on or for the members to carry it on in partnership." The approval of the when first approved by the Director under such terms and conditions as may be
appellant's fishpond application by the decisions in DANR Cases 353 and 353-B brought prescribed, otherwise it shall be null and void. A transfer not previously approved
to the fore several provisions of law which made the continuation of the partnership or reported shall be considered sufficient cause for the cancellation of the permit
unlawful and therefore caused its ipso facto dissolution. 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.
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 Since the partnership had for its object the division into two equal parts of the fishpond
previous consent or approval of the Secretary of Agriculture and Natural Resources.15 To between the appellees and the appellant after it shall have been awarded to the latter,
the same effect is Condition No. 3 of the fishpond permit which states that "The permittee and therefore it envisaged the unauthorized transfer of one-half thereof to parties other
shall not transfer or sublet all or any area herein granted or any rights acquired therein than the applicant Casteel, it was dissolved by the approval of his application and the
without the previous consent and approval of this Office." Parenthetically, we must award to him of the fishpond. The approval was an event which made it unlawful for the
observe that in DANR Case 353-B, the permit granted to one of the parties therein, business of the partnership to be carried on or for the members to carry it on in
LeoncioAradillos, was cancelled not solely for the reason that his permit covered a partnership.
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 The appellees, however, argue that in approving the appellant's application, the
that due to lack of capital, he allowed one Lino Estepa to develop with the latter's capital Secretary of Agriculture and Natural Resources likewise recognized and/or confirmed
the area covered by his fishpond permit F-289-C with the understanding that he their property right to one-half of the fishpond by virtue of the contract of service, exhibit
(Aradillos) would be given a share in the produce thereof.16 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
Sec. 40 of Commonwealth Act 141, otherwise known as the Public Land Act, likewise that he does not possess the authority to violate the aforementioned prohibitory laws nor
provides that to exempt anyone from their operation.
However, assuming in gratia argumenti that the approval of Casteel's application, cancelling applications, or deciding conflicting applications, are all executive and
coupled with the foregoing prohibitory laws, was not enough to cause the dissolution ipso administrative in nature. It is a well-recognized principle that purely administrative
facto of their partnership, succeeding events reveal the intent of both parties to terminate and discretionary functions may not be interfered with by the courts (Coloso v.
the partnership by refusing to share the fishpond with the other. 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
On December 27, 1950 Casteel wrote17 the appellee InocenciaDeluao, expressing his departments of the government. This is generally true with respect to acts
desire to divide the fishpond so that he could administer his own share, such division to involving the exercise of judgment or discretion, and findings of fact. (54 Am. Jur.
be subject to the approval of the Secretary of Agriculture and Natural Resources. By 558-559) Findings of fact by an administrative board or official, following a
letter dated December 29, 1950,18 the appellee Felipe Deluao demurred to Casteel's hearing, are binding upon the courts and will not be disturbed except where the
proposition because there were allegedly no appropriate grounds to support the same board or official has gone beyond his statutory authority, exercised
and, moreover, the conflict over the fishpond had not been finally resolved. unconstitutional powers or clearly acted arbitrarily and without regard to his duty
or with grave abuse of discretion... (emphasis supplied)
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 In the case at bar, the Secretary of Agriculture and Natural Resources gave due course
because the decision of the Government was in his favor and the only reason why to the appellant's fishpond application 1717 and awarded to him the possession of the
administration had been granted to the Deluaos was because he was indebted to them. area in question. In view of the finality of the Secretary's decision in DANR Cases 353
In the same letter, the appellant forbade Felipe Deluao from sending the and 353-B, and considering the absence of any proof that the said official exceeded his
couple's encargado, Jesus Donesa, to the fishpond. In reply thereto, Felipe Deluao wrote statutory authority, exercised unconstitutional powers, or acted with arbitrariness and in
a letter20 dated January 5, 1951 in which he reiterated his refusal to grant the disregard of his duty, or with grave abuse of discretion, we can do no less than respect
administration of the fishpond to the appellant, stating as a ground his belief "that only and maintain unfettered his official acts in the premises. It is a salutary rule that the
the competent agencies of the government are in a better position to render any judicial department should not dictate to the executive department what to do with regard
equitable arrangement relative to the present case; hence, any action we may privately to the administration and disposition of the public domain which the law has entrusted to
take may not meet the procedure of legal order." 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
Inasmuch as the erstwhile partners articulated in the aforecited letters their respective judgment and discretion.22
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 Therefore, with the view that we take of this case, and even assuming that the injunction
to have expressly withdrawn from the partnership, thereby causing its dissolution was properly issued because present all the requisite grounds for its issuance, its
pursuant to art. 1830(2) of the Civil Code which provides, inter alia, that dissolution is continuation, and, worse, its declaration as permanent, was improper in the face of the
caused "by the express will of any partner at any time." 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
In this jurisdiction, the Secretary of Agriculture and Natural Resources possesses Resources approved the appellant's application, he became to all intents and purposes
executive and administrative powers with regard to the survey, classification, lease, sale the legal permittee of the area with the corresponding right to possess, occupy and enjoy
or any other form of concession or disposition and management of the lands of the public the same. Consequently, the lower court erred in issuing the preliminary mandatory
domain, and, more specifically, with regard to the grant or withholding of licenses, injunction. We cannot overemphasize that an injunction should not be granted to take
permits, leases and contracts over portions of the public domain to be utilized as property out of the possession and control of one party and place it in the hands of
fishponds.21, Thus, we held in Pajo, et al. vs. Ago, et al. (L-15414, June 30, 1960), and another whose title has not been clearly established by law.23
reiterated in Ganitano vs. Secretary of Agriculture and Natural Resources, et al.
(L-21167, March 31, 1966), that 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
... [T]he powers granted to the Secretary of Agriculture and Commerce (Natural remanded to the lower court for the reception of evidence relative to an accounting from
Resources) by law regarding the disposition of public lands such as granting of November 25, 1949 to September 15, 1950, in order for the court to determine (a) the
licenses, permits, leases, and contracts, or approving, rejecting, reinstating, or 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 capital contribution of P100,000.00 to Jacinto while the latter in turn produced
and improvement of the fishpond have already been liquidated. Besides, since the P100,000.00 as his counterpart contribution, with the intention that the profits would be
appellee InocenciaDeluao continued in possession and enjoyment of the fishpond even equally divided between them. The partnership allegedly had Jacinto as manager,
after it was awarded to Casteel, she did so no longer in the concept of a capitalist partner assisted by Josephine Sy (hereafter Josephine), a sister of the wife respondent,
but merely as creditor of the appellant, and therefore, she must likewise submit in the ErlindaSy. As compensation, Jacinto would receive a manager's fee or remuneration of
lower court an accounting of the proceeds of the sales of all the fishes harvested from 10% of the gross profit and Josephine would receive 10% of the net profits, in addition to
the fishpond from September 16, 1950 until Casteel shall have been finally given the her wages and other remuneration from the business.
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 Allegedly, from the time that Shellite opened for business on July 8, 1977, its business
advanced to Casteel), plus 6% interest thereon per annum, then she should reimburse operation went quite and was profitable. Respondent claimed that he could attest to
the excess to the appellant. 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
ACCORDINGLY, the judgment of the lower court is set aside. Another judgment is furnished respondent with the merchandise inventories, balance sheets and net worth of
hereby rendered: (1) dissolving the injunction issued against the appellant, (2) placing Shellite from 1977 to 1989, respondent however suspected that the amount indicated in
the latter back in possession of the fishpond in litigation, and (3) remanding this case to these documents were understated and undervalued by Jacinto and Josephine for their
the court of origin for the reception of evidence relative to the accounting that the parties own selfish reasons and for tax avoidance.
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 Upon Jacinto's death in the later part of 1989, his surviving wife, petitioner Cecilia and
to costs. particularly his daughter, petitioner Lilibeth, took over the operations, control, custody,
disposition and management of Shellite without respondent's consent. Despite
G.R. No. 143340 August 15, 2001 respondent's repeated demands upon petitioners for accounting, inventory, appraisal,
SUNGA-CHAN vs. CHUA 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
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court of the her own use and advantage its properties.
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 On March 31, 1991, respondent claimed that after petitioner Lilibeth ran out the alibis
23, 2000 denying the motion for reconsideration of herein petitioners Lilibeth Sunga and and reasons to evade respondent's demands, she disbursed out of the partnership funds
Cecilia Sunga (hereafter collectively referred to as petitioners). 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
The pertinent facts of this case are as follows: 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
On June 22, 1992, Lamberto T. Chua (hereafter respondent) filed a complaint against commitment, petitioners allegedly failed to comply with their duty to account, and
Lilibeth Sunga Chan (hereafter petitioner Lilibeth) and Cecilia Sunga (hereafter petitioner continued to benefit from the assets and income of Shellite to the damage and prejudice
Cecilia), daughter and wife, respectively of the deceased Jacinto L. Sunga (hereafter of respondent.
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, On December 19, 1992, petitioners filed a Motion to Dismiss on the ground that the
Branch 11, Sindangan, Zamboanga del Norte. 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
Respondent alleged that in 1977, he verbally entered into a partnership with Jacinto in to dismiss.
the distribution of Shellane Liquefied Petroleum Gas (LPG) in Manila. For business
convenience, respondent and Jacinto allegedly agreed to register the business name of On January 12, 1993, the trial court finding the complaint sufficient in from and
their partnership, SHELLITE GAS APPLIANCE CENTER (hereafter Shellite), under the substance denied the motion to dismiss.
name of Jacinto as a sole proprietorship. Respondent allegedly delivered his initial
On January 30, 1993, petitioners filed their Answer with Compulsory Counter-claims, "WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against
contending that they are not liable for partnership shares, unreceived income/profits, the defendants, as follows:
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 (1) DIRECTING them to render an accounting in acceptable form under
SEC being the agency that has original and exclusive jurisdiction over the case. As accounting procedures and standards of the properties, assets, income
counterclaim, petitioner sought attorney's fees and expenses of litigation. and profits of the Shellite Gas Appliance Center Since the time of death
of Jacinto L. Sunga, from whom they continued the business operations
On August 2, 1993, petitioner filed a second Motion to Dismiss this time on the ground including all businesses derived from Shellite Gas Appliance Center,
that the claim for winding up of partnership affairs, accounting and recovery of shares in submit an inventory, and appraisal of all these properties, assets, income,
partnership affairs, accounting and recovery of shares in partnership assets/properties profits etc. to the Court and to plaintiff for approval or disapproval;
should be dismissed and prosecuted against the estate of deceased Jacinto in a probate
or intestate proceeding. (2) ORDERING them to return and restitute to the partnership any and all
properties, assets, income and profits they misapplied and converted to
On August 16, 1993, the trial denied the second motion to dismiss for lack of merit. 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
On November 26, 1993, petitioners filed their Petition for Certiorari, Prohibition and this petition as basis;
Mandamus with the Court of Appeals docketed as CA-G.R. SP No. 32499 questioning
the denial of the motion to dismiss. (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
On November 29, 1993, petitioners filed with the trial court a Motion to Suspend Pre-trial and good will (sic) in schedules A, B and C, on pages 4-5 of the petition;
Conference.
(4) ORDERING them to pay the plaintiff earned but unreceived income
On December 13, 1993, the trial court granted the motion to suspend pre-trial and profits from the partnership from 1988 to May 30, 1992, when the
conference. plaintiff learned of the closure of the store the sum of P35,000.00 per
month, with legal rate of interest until fully paid;
On November 15, 1994, the Court of Appeals denied the petition for lack of merit.
(5) ORDERING them to wind up the affairs of the partnership and
On January 16, 1995, this Court denied the petition for review on certiorari filed by terminate its business activities pursuant to law, after delivering to the
petitioner, "as petitioners failed to show that a reversible error was committed by the plaintiff all the ½ interest, shares, participation and equity in the
appellate court."2 partnership, or the value thereof in money or money's worth, if the
properties are not physically divisible;
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. (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,
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 (7) DIRECTING them to reimburse and pay the sum of P25,000.00 as
to attend the scheduled date for reception of evidence despite notice. attorney's (sic) and P25,000.00 as litigation expenses.

On October 7, 1997, the trial court rendered its Decision ruling for respondent. The NO special pronouncements as to COSTS.
dispositive of the Decision reads:
SO ORDERED."3
On October 28, 1997, petitioners filed a Notice of Appeal with the trial court, appealing Petitioners thus implore this Court to rule that the testimonies of respondent and his alter
the case to the Court of Appeals. ego, Josephine, should not have been admitted to prove certain claims against a
deceased person (Jacinto), now represented by petitioners.
On January 31, 2000, the Court of Appeals dismissed the appeal. The dispositive portion
of the Decision reads: We are not persuaded.

"WHEREFORE, the instant appeal is dismissed. The appealed decision is A partnership may be constituted in any form, except where immovable property of real
AFFIRMED in all respects."4 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
On May 23, 2000, the Court of Appeals denied the motion for reconsideration filed by their language and conduct, a verbal contract of partnership may arise.7 The essential
petitioner. 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,
Hence, this petition wherein petitioner relies upon following grounds: 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
"1. The Court of Appeals erred in making a legal conclusion that there existed a
Man's Statute" applies to this case so as to render inadmissible respondent's testimony
partnership between respondent Lamberto T. Chua and the late Jacinto L. Sunga
and that of his witness, Josephine.
upon the latter'' invitation and offer and that upon his death the partnership
assets and business were taken over by petitioners.
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
2. The Court of Appeals erred in making the legal conclusion that laches and/or
party is not entitled to the undue advantage of giving his own uncontradicted and
prescription did not apply in the instant case.
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:
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
"1. The witness is a party or assignor of a party to case or persons in whose
assuming arguendo that indeed there was a partnership, the finding of highly
behalf a case in prosecuted.
exaggerated amounts or values in the partnership assets and profits."5
2. The action is against an executor or administrator or other representative of a
Petitioners question the correctness of the finding of the trial court and the Court of
deceased person or a person of unsound mind;
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 3. The subject-matter of the action is a claim or demand against the estate of
from hearing the testimonies of respondent and his witness, Josephine, to prove the such deceased person or against person of unsound mind;
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, 4. His testimony refers to any matter of fact of which occurred before the death of
Rule 130 of the Rules of Court that provides: such deceased person or before such person became of unsound mind."10

"SEC. 23. Disqualification by reason of death or insanity of adverse party. – Two reasons forestall the application of the "Dead Man's Statute" to this case.
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 First, petitioners filed a compulsory counterclaim11 against respondents in their answer
deceased person, or against a person of unsound mind, upon a claim or demand before the trial court, and with the filing of their counterclaim, petitioners themselves
against the estate of such deceased person, or against such person of unsound effectively removed this case from the ambit of the "Dead Man's Statute".12 Well
mind, cannot testify as to any matter of fact occurring before the death of such entrenched is the rule that when it is the executor or administrator or representatives of
deceased person or before such person became of unsound mind." 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 petitioners failed to object to the admissibility of the evidence at the time that such
defendant in the counterclaim, respondent is not disqualified from testifying as to matters evidence was offered.19
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 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
Second, the testimony of Josephine is not covered by the "Dead Man's Statute" for the that the action for accounting filed by respondents three (3) years after Jacinto's death
simple reason that she is not "a party or assignor of a party to a case or persons in was well within the prescribed period. The Civil Code provides that an action to enforce
whose behalf a case is prosecuted." Records show that respondent offered the testimony an oral contract prescribes in six (6) years20 while the right to demand an accounting for a
of Josephine to establish the existence of the partnership between respondent and partner's interest as against the person continuing the business accrues at the date of
Jacinto. Petitioners' insistence that Josephine is the alter ego of respondent does not dissolution, in the absence of any contrary agreement.21 Considering that the death of a
make her an assignor because the term "assignor" of a party means "assignor of a cause partner results in the dissolution of the partnership22, in this case, it was Jacinto's death
of action which has arisen, and not the assignor of a right assigned before any cause of that respondent as the surviving partner had the right to an account of his interest as
action has arisen."15 Plainly then, Josephine is merely a witness of respondent, the latter against petitioners. It bears stressing that while Jacinto's death dissolved the partnership,
being the party plaintiff. the dissolution did not immediately terminate the partnership. The Civil Code23 expressly
provides that upon dissolution, the partnership continues and its legal personality is
We are not convinced by petitioners' allegation that Josephine's testimony lacks retained until the complete winding up of its business, culminating in its termination.24
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 In a desperate bid to cast doubt on the validity of the oral partnership between
by respondent to testify and that if she were not requested to do so she would not have respondent and Jacinto, petitioners maintain that said partnership that had initial capital
testified. We fail to see how we can conclude from this candid admission that of P200,000.00 should have been registered with the Securities and Exchange
Josephine's testimony is involuntary when she did not in any way categorically say that Commission (SEC) since registration is mandated by the Civil Code, True, Article 1772
she was forced to be a witness of respondent. 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
Also, the fact that Josephine is the sister of the wife of respondent does not diminish the 1768 of the Civil Code25 explicitly provides that the partnership retains its juridical
value of her testimony since relationship per se, without more, does not affect the personality even if it fails to register. The failure to register the contract of partnership
credibility of witnesses.16 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
Petitioners' reliance alone on the "Dead Man's Statute" to defeat respondent's claim parties, and it can be assumed that the members themselves knew of the contents of
cannot prevail over the factual findings of the trial court and the Court of Appeals that a their contract.26 In the case at bar, non-compliance with this directory provision of the law
partnership was established between respondent and Jacinto. Based not only on the will not invalidate the partnership considering that the totality of the evidence proves that
testimonial evidence, but the documentary evidence as well, the trial court and the Court respondent and Jacinto indeed forged the partnership in question.
of Appeals considered the evidence for respondent as sufficient to prove the formation of
partnership, albeit an informal one. WHEREFORE, in view of the foregoing, the petition is DENIED and the appealed
decision is AFFIRMED.
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 SO ORDERED. 1âw phi 1.nêt

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 G.R. No. L-25532 February 28, 1969
analyze, assess and weigh them to ascertain if the trial court and the appellate court CIR vs. SUTER
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 A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30
evidence of respondent. Petitioners cannot now turn to this Court to question the September 1947 by herein respondent William J. Suter as the general partner, and Julia
admissibility and authenticity of the documentary evidence of respondent when 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 because the spouses have exclusive ownership and control of the business;
1947, the limited partnership was registered with the Securities and Exchange consequently the income tax return of respondent Suter for the years in question should
Commission. The firm engaged, among other activities, in the importation, marketing, have included his and his wife's individual incomes and that of the limited partnership, in
distribution and operation of automatic phonographs, radios, television sets and accordance with Section 45 (d) of the National Internal Revenue Code, which provides
amusement machines, their parts and accessories. It had an office and held itself out as as follows:
a limited partnership, handling and carrying merchandise, using invoices, bills and
letterheads bearing its trade-name, maintaining its own books of accounts and bank (d) Husband and wife. — In the case of married persons, whether citizens,
accounts, and had a quota allocation with the Central Bank. 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 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 In refutation of the foregoing, respondent Suter maintains, as the Court of Tax Appeals
partnership to Suter and his wife. The sale was duly recorded with the Securities and held, that his marriage with limited partner Spirig and their acquisition of Carlson's
Exchange Commission on 20 December 1948. 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
The limited partnership had been filing its income tax returns as a corporation, without personality had not been affected and since, as a limited partnership, as contra
objection by the herein petitioner, Commissioner of Internal Revenue, until in 1959 when distinguished from a duly registered general partnership, it is taxable on its income
the latter, in an assessment, consolidated the income of the firm and the individual similarly with corporations, Suter was not bound to include in his individual return the
incomes of the partners-spouses Suter and Spirig resulting in a determination of a income of the limited partnership.
deficiency income tax against respondent Suter in the amount of P2,678.06 for 1954 and
P4,567.00 for 1955. We find the Commissioner's appeal unmeritorious.

Respondent Suter protested the assessment, and requested its cancellation and The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has been
withdrawal, as not in accordance with law, but his request was denied. Unable to secure dissolved by operation of law because of the marriage of the only general partner,
a reconsideration, he appealed to the Court of Tax Appeals, which court, after trial, William J. Suter to the originally limited partner, Julia Spirig one year after the partnership
rendered a decision, on 11 November 1965, reversing that of the Commissioner of was organized is rested by the appellant upon the opinion of now Senator Tolentino in
Internal Revenue. Commentaries and Jurisprudence on Commercial Laws of the Philippines, Vol. 1, 4th
Ed., page 58, that reads as follows:
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 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
(a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co., Ltd. in the Code of Commerce, persons prohibited from making donations to each
should be disregarded for income tax purposes, considering that respondent William J. other are prohibited from entering into universal partnerships. (2 Echaverri 196) It
Suter and his wife, Julia Spirig Suter actually formed a single taxable unit; and follows that the marriage of partners necessarily brings about the dissolution of a
pre-existing partnership. (1 Guy de Montella 58)
(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 petitioner-appellant has evidently failed to observe the fact that William J. Suter
the remaining partner, Gustav Carlson, of his participation of P2,000.00 in the "Morcoin" Co., Ltd. was not a universal partnership, but a particular one. As appears
partnership for a nominal amount of P1.00. 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
The theory of the petitioner, Commissioner of Internal Revenue, is that the marriage of either that the object of the association be all the present property of the partners, as
Suter and Spirig and their subsequent acquisition of the interests of remaining partner contributed by them to the common fund, or else "all that the partners may acquire by
Carlson in the partnership dissolved the limited partnership, and if they did not, the fiction their industry or work during the existence of the partnership". William J. Suter "Morcoin"
of juridical personality of the partnership should be disregarded for income tax purposes 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 individual partners for income tax purposes. But this rule is exceptional in its disregard of
and neither one of them was an industrial partner. It follows that William J. Suter a cardinal tenet of our partnership laws, and can not be extended by mere implication to
"Morcoin" Co., Ltd. was not a partnership that spouses were forbidden to enter by Article limited partnerships.
1677 of the Civil Code of 1889.
The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the
The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his Derecho Visayas, L-13554, Resolution of 30 October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77
Civil, 7th Edition, 1952, Volume 4, page 546, footnote 1, says with regard to the Phil. 504) as authority for disregarding the fiction of legal personality of the corporations
prohibition contained in the aforesaid Article 1677: 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
Los conyuges, segunesto, no puedencelebrar entre si el contrato de sociedad was pierced; in the present case, to do so would exempt the limited partnership from
universal, pero o podranconstituirsociedad particular? Aunque el punto ha income taxation but would throw the tax burden upon the partners-spouses in their
sidomuydebatido, nosinclinamos a la tesispermisiva de loscontratos de sociedad individual capacities. The corporations, in the cases cited, merely served as business
particular entre esposos, ya que ningunprecepto de nuestroCodigolosprohibe, y conduits or alter egos of the stockholders, a factor that justified a disregard of their
hay que estar a la norma general segun la que toda persona escapaz para corporate personalities for tax purposes. This is not true in the present case. Here, the
contratarmientras no sea declaradoincapazpor la ley. La jurisprudencia de la limited partnership is not a mere business conduit of the partner-spouses; it was
Direccion de losRegistrosfue favorable aestamismatesisensu resolution de 3 de organized for legitimate business purposes; it conducted its own dealings with its
febrero de 1936, mas parececambiar de rumboen la de 9 de marzo de 1943. 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
Nor could the subsequent marriage of the partners operate to dissolve it, such marriage of the partners and their subsequent acquisition of all interest therein, is no ground for
not being one of the causes provided for that purpose either by the Spanish Civil Code or withdrawing the partnership from the coverage of Section 24 of the tax code, requiring it
the Code of Commerce. 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,
The appellant's view, that by the marriage of both partners the company became a single
not otherwise, is presumed.
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 As the limited partnership under consideration is taxable on its income, to require that
separate property under the Spanish Civil Code (Article 1396): 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
The following shall be the exclusive property of each spouse:
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
(a) That which is brought to the marriage as his or her own; .... 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
Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did or share of the profit derived from the duly registered general partnership (Section 26,
not become common property of both after their marriage in 1948. N.I.R.C.; Arañas, Anno. & Juris. on the N.I.R.C., As Amended, Vol. 1, pp. 88-89). lawphi1.nêt

It being a basic tenet of the Spanish and Philippine law that the partnership has a But it is argued that the income of the limited partnership is actually or constructively the
juridical personality of its own, distinct and separate from that of its partners (unlike income of the spouses and forms part of the conjugal partnership of gains. This is not
American and English law that does not recognize such separate juridical personality), wholly correct. As pointed out in Agapito vs. Molo 50 Phil. 779, and People's Bank vs.
the bypassing of the existence of the limited partnership as a taxpayer can only be done Register of Deeds of Manila, 60 Phil. 167, the fruits of the wife's parapherna become
by ignoring or disregarding clear statutory mandates and basic principles of our law. The conjugal only when no longer needed to defray the expenses for the administration and
limited partnership's separate individuality makes it impossible to equate its income with preservation of the paraphernal capital of the wife. Then again, the appellant's argument
that of the component members. True, section 24 of the Internal Revenue Code merges erroneously confines itself to the question of the legal personality of the limited
registered general co-partnerships (compañiascolectivas) with the personality of the 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 Subsequently, Mabato filed a motion to dismiss, upon the ground that the complaint
own. 1Appellant is, likewise, mistaken in that it assumes that the conjugal partnership of states no cause of action and that the lower court had no jurisdiction over the subject
gains is a taxable unit, which it is not. What is taxable is the "income of both spouses" matter of the case, because it involves principally the determination of rights over public
(Section 45 [d] in their individual capacities. Though the amount of income (income of the lands. After due hearing, the court issued the order appealed from, granting the motion to
conjugal partnership vis-a-vis the joint income of husband and wife) may be the same for dismiss the complaint for failure to state a cause of action. This conclusion was
a given taxable year, their consequences would be different, as their contributions in the predicated upon the theory that the contract of partnership, Annex "A", is null and void,
business partnership are not the same. 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
The difference in tax rates between the income of the limited partnership being been denied, Agad brought the matter to us for review by record on appeal.
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, Articles 1771 and 1773 of said Code provide:
and even bars it by requiring the limited partnership to pay tax on its own income.
Art. 1771. A partnership may be constituted in any form, except where
FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No immovable property or real rights are contributed thereto, in which case a public
costs. instrument shall be necessary.

G.R. No. L-24193 June 28, 1968 Art. 1773. A contract of partnership is void, whenever immovable property is
AGAD vs. MABATO contributed thereto, if inventory of said property is not made, signed by the
parties; and attached to the public instrument.
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 The issue before us hinges on whether or not "immovable property or real rights" have
of our Civil Code to the contract of partnership on which the complaint herein is based. 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
Alleging that he and defendant SeverinoMabato are — pursuant to a public instrument how a partnership engaged in the fishpond business could exist without said fishpond
dated August 29, 1952, copy of which is attached to the complaint as Annex "A" — property (being) contributed to the partnership." It should be noted, however, that, as
partners in a fishpond business, to the capital of which Agad contributed P1,000, with the stated in Annex "A" the partnership was established "to operate a fishpond", not to
right to receive 50% of the profits; that from 1952 up to and including 1956, Mabato who "engage in a fishpond business". Moreover, none of the partners contributed either a
handled the partnership funds, had yearly rendered accounts of the operations of the fishpond or a real right to any fishpond. Their contributions were limited to the sum of
partnership; and that, despite repeated demands, Mabato had failed and refused to P1,000 each. Indeed, Paragraph 4 of Annex "A" provides:
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 That the capital of the said partnership is Two Thousand (P2,000.00) Pesos
sentencing Mabato to pay him (Agad) the sum of P14,000, as his share in the profits of Philippine Currency, of which One Thousand (P1,000.00) pesos has been
the partnership for the period from 1957 to 1963, in addition to P1,000 as attorney's fees, contributed by SeverinoMabato and One Thousand (P1,000.00) Pesos has been
and ordering the dissolution of the partnership, as well as the winding up of its affairs by contributed by Mauricio Agad.
a receiver to be appointed therefor.
x xx x xx x xx
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 The operation of the fishpond mentioned in Annex "A" was the purpose of the
perfected, despite the execution of Annex "A", because Agad had allegedly failed to give partnership. Neither said fishpond nor a real right thereto was contributed to the
his P1,000 contribution to the partnership capital. Mabato prayed, therefore, that the partnership or became part of the capital thereof, even if a fishpond or a real right thereto
complaint be dismissed; that Annex "A" be declared void ab initio; and that Agad be could become part of its assets.
sentenced to pay actual, moral and exemplary damages, as well as attorney's fees.
WHEREFORE, we find that said Article 1773 of the Civil Code is not in point and that, own funds. In the end he was able from his own means, and with the assistance which
the order appealed from should be, as it is hereby set aside and the case remanded to he obtained from others, to acquire said estate. The amount required for the first
the lower court for further proceedings, with the costs of this instance against defendant- payment was P150,000, and as Elser had available only about P120,000, including the
appellee, SeverinoMabato. It is so ordered. 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
G.R. No. L-35469 March 17, 1932 named UySiuliong. This loan was secured through Uy Cho Yee, a son of the lender; and
LYONS vs. ROSENSTOCK 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
This action was institute in the Court of First Instance of the City of Manila, by E. S. Fidelity & Surety Company. The money thus raised was delivered to Elser by UySiuliong
Lyons against C. W. Rosenstock, as executor of the estate of H. W. Elser, deceased, on June 24, 1920. With this money and what he already had in bank Elser purchased the
consequent upon the taking of an appeal by the executor from the allowance of the claim San Juan Estate on or about June 28, 1920. For the purpose of the further development
sued upon by the committee on claims in said estate. The purpose of the action is to of the property a limited partnership had, about this time, been organized by Elser and
recover four hundred forty-six and two thirds shares of the stock of J. K. Pickering & Co., three associates, under the name of J. K. Pickering & Company; and when the transfer
Ltd., together with the sum of about P125,000, representing the dividends which accrued of the property was effected the deed was made directly to this company. As Elser was
on said stock prior to October 21, 1926, with lawful interest. Upon hearing the cause the the principal capitalist in the enterprise he received by far the greater number of the
trial court absolved the defendant executor from the complaint, and the plaintiff appealed. shares issued, his portion amount in the beginning to 3,290 shares.

Prior to his death on June 18, 1923, Henry W. Elser had been a resident of the City of While these negotiations were coming to a head, Elser contemplated and hoped that
Manila where he was engaged during the years with which we are here concerned in Lyons might be induced to come in with him and supply part of the means necessary to
buying, selling, and administering real estate. In several ventures which he had made in carry the enterprise through. In this connection it appears that on May 20, 1920, Elser
buying and selling property of this kind the plaintiff, E. S. Lyons, had joined with him, the wrote Lyons a letter, informing him that he had made an offer for a big subdivision and
profits being shared by the two in equal parts. In April, 1919, Lyons, whose regular that, if it should be acquired and Lyons would come in, the two would be well fixed.
vocation was that of a missionary, or missionary agent, of the Methodist Episcopal (Exhibit M-5.) On June 3, 1920, eight days before the first option expired, Elser cabled
Church, went on leave to the United States and was gone for nearly a year and a half, Lyons that he had bought the San Juan Estate and thought it advisable for Lyons to
returning on September 21, 1920. On the eve of his departure Elser made a written resign (Exhibit M-13), meaning that he should resign his position with the mission board
statements showing that Lyons was, at that time, half owner with Elser of three particular in New York. On the same date he wrote Lyons a letter explaining some details of the
pieces of real property. Concurrently with this act Lyons execute in favor of Elser a purchase, and added "have advised in my cable that you resign and I hope you can do
general power of attorney empowering him to manage and dispose of said properties at so immediately and will come and join me on the lines we have so often spoken about. . .
will and to represent Lyons fully and amply, to the mutual advantage of both. During the . There is plenty of business for us all now and I believe we have started something that
absence of Lyons two of the pieces of property above referred to were sold by Elser, will keep us going for some time." In one or more communications prior to this, Elser had
leaving in his hands a single piece of property located at 616-618 Carried Street, in the sought to impress Lyons with the idea that he should raise all the money he could for the
City of Manila, containing about 282 square meters of land, with the improvements purpose of giving the necessary assistance in future deals in real estate.
thereon.
The enthusiasm of Elser did not communicate itself in any marked degree to Lyons, and
In the spring of 1920 the attention of Elser was drawn to a piece of land, containing about found him averse from joining in the purchase of the San Juan Estate. In fact upon this
1,500,000 square meters, near the City of Manila, and he discerned therein a fine visit of Lyons to the United States a grave doubt had arisen as to whether he would ever
opportunity for the promotion and development of a suburban improvement. This return to Manila, and it was only in the summer of 1920 that the board of missions of his
property, which will be herein referred to as the San Juan Estate, was offered by its church prevailed upon him to return to Manila and resume his position as managing
owners for P570,000. To afford a little time for maturing his plans, Elser purchased an treasurer and one of its trustees. Accordingly, on June 21, 1920, Lyons wrote a letter
option on this property for P5,000, and when this option was about to expire without his from New York thanking Elser for his offer to take Lyons into his new project and adding
having been able to raise the necessary funds, he paid P15,000 more for an extension of that from the standpoint of making money, he had passed up a good thing.
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 One source of embarrassment which had operated on Lyson to bring him to the
amounts paid for this option and its extension were supplied by Elser entirely from his 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 shares of J. K. Pickering & Company, to said company. The latter thereupon in turn
some of Lyons' missionary associates had apparently been criticizing his independent executed a cancellation of the mortgage on the Carriedo property and delivered it to
commercial activities. This fact was dwelt upon in the letter above-mentioned. Upon Elser. But notwithstanding the fact that these documents were executed and delivered,
receipt of this letter Elser was of course informed that it would be out of the question to the new mortgage and the release of the old were never registered; and on September
expect assistance from Lyons in carrying out the San Juan project. No further efforts to 25, 1920, thereafter, Elser returned the cancellation of the mortgage on the Carriedo
this end were therefore made by Elser. 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
When Elser was concluding the transaction for the purchase of the San Juan Estate, his had delivered to it.
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 explanation of this change of purpose is undoubtedly to be found in the fact that
the J. K. Pickering & Company was organized and stock issued, Elser indorsed to Lyons Lyons had arrived in Manila on September 21, 1920, and shortly thereafter, in the course
200 of the shares allocated to himself, as he then believed that Lyons would be one of of a conversation with Elser told him to let the Carriedo mortgage remain on the property
his associates in the deal. It will be noted that the par value of these 200 shares was ("Let the Carriedo mortgage ride"). Mrs. Elser testified to the conversation in which Lyons
more than P8,000 in excess of the amount which Elser in fact owed to Lyons; and when used the words above quoted, and as that conversation supplies the most reasonable
the latter returned to the Philippine Islands, he accepted these shares and sold them for explanation of Elser's recession from his purpose of relieving the Carriedo property, the
his own benefit. It seems to be supposed in the appellant's brief that the transfer of these trial court was, in our opinion, well justified in accepting as a proven fact the consent of
shares to Lyons by Elser supplies some sort of basis for the present action, or at least Lyons for the mortgage to remain on the Carriedo property. This concession was not only
strengthens the considerations involved in a feature of the case to be presently reasonable under the circumstances, in view of the abundant solvency of Elser, but in
explained. This view is manifestly untenable, since the ratification of the transaction by view of the further fact that Elser had given to Lyons 200 shares of the stock of the J. K.
Lyons and the appropriation by him of the shares which were issued to him leaves no Pickering & Co., having a value of nearly P8,000 in excess of the indebtedness which
ground whatever for treating the transaction as a source of further equitable rights in Elser had owed to Lyons upon statement of account. The trial court found in effect that
Lyons. We should perhaps add that after Lyons' return to the Philippine Islands he acted the excess value of these shares over Elser's actual indebtedness was conceded by
for a time as one of the members of the board of directors of the J. K. Pickering & Elser to Lyons in consideration of the assistance that had been derived from the
Company, his qualification for this office being derived precisely from the ownership of mortgage placed upon Lyon's interest in the Carriedo property. Whether the agreement
these shares. 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;
We now turn to the incident which supplies the main basis of this action. It will be and he could scarcely have failed to take account of the use he had made of the joint
remembered that, when Elser obtained the loan of P50,000 to complete the amount property of the two.
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 As the development of the San Juan Estate was a success from the start, Elser paid the
said loan. But before signing the note with Elser and his associates, the Fidelity & Surety note of P50,000 to UySiuliong on January 18, 1921, although it was not due until more
Co. insisted upon having security for the liability thus assumed by it. To meet this than five months later. It will thus be seen that the mortgaging of the Carriedo property
requirements Elser mortgaged to the Fidelity & Surety Co. the equity of redemption in the never resulted in damage to Lyons to the extent of a single cent; and although the court
property owned by himself and Lyons on Carriedo Street. This mortgage was executed refused to allow the defendant to prove the Elser was solvent at this time in an amount
on June 30, 1920, at which time Elser expected that Lyons would come in on the much greater than the entire encumbrance placed upon the property, it is evident that the
purchase of the San Juan Estate. But when he learned from the letter from Lyons of July risk imposed upon Lyons was negligible. It is also plain that no money actually deriving
21, 1920, that the latter had determined not to come into this deal, Elser began to cast from this mortgage was ever applied to the purchase of the San Juan Estate. What really
around for means to relieve the Carriedo property of the encumbrance which he had happened was the Elser merely subjected the property to a contingent liability, and no
placed upon it. For this purpose, on September 9, 1920, he addressed a letter to the actual liability ever resulted therefrom. The financing of the purchase of the San Juan
Fidelity & Surety Co., asking it to permit him to substitute a property owned by himself at Estate, apart from the modest financial participation of his three associates in the San
644 M. H. del Pilar Street, Manila, and 1,000 shares of the J. K. Pickering & Company, in Juan deal, was the work of Elser accomplished entirely upon his own account.
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 The case for the plaintiff supposes that, when Elser placed a mortgage for P50,000 upon
Co. a new mortgage on the M. H. del Pillar property and delivered the same, with 1,000 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 In the purely legal aspect of the case, the position of the appellant is, in our opinion,
acquired partly by that money; and it is insisted for him that, in consideration of this fact, untenable. If Elser had used any money actually belonging to Lyons in this deal, he
he is entitled to the four hundred forty-six and two-thirds shares of J. K. Pickering & would under article 1724 of the Civil Code and article 264 of the Code of Commerce, be
Company, with the earnings thereon, as claimed in his complaint. 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
Lyons tells us that he did not know until after Elser's death that the money obtained from acquired by a person who uses money belonging to another (Martinez vs. Martinez, 1
UySiuliong in the manner already explained had been used to held finance the purchase Phil., 647; Enriquez vs. Olaguer, 25 Phil., 641.). Of course, if an actual relation of
of the San Juan Estate. He seems to have supposed that the Carried property had been partnership had existed in the money used, the case might be difference; and much
mortgaged to aid in putting through another deal, namely, the purchase of a property emphasis is laid in the appellant's brief upon the relation of partnership which, it is
referred to in the correspondence as the "Ronquillo property"; and in this connection a claimed, existed. But there was clearly no general relation of partnership, under article
letter of Elser of the latter part of May, 1920, can be quoted in which he uses this 1678 of the Civil Code. It is clear that Elser, in buying the San Juan Estate, was not
language: 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
As stated in cablegram I have arranged for P50,000 loan on Carriedo property. his express determination.
Will use part of the money for Ronquillo buy (P60,000) if the owner comes
through. 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
Other correspondence shows that Elser had apparently been trying to buy the Ronquillo doctrines referred to operate, however, only where money belonging to one person is
property, and Lyons leads us to infer that he thought that the money obtained by used by another for the acquisition of property which should belong to both; and it takes
mortgaging the Carriedo property had been used in the purchase of this property. It but little discernment to see that the situation here involved is not one for the application
doubtedless appeared so to him in the retrospect, but certain consideration show that he of that doctrine, for no money belonging to Lyons or any partnership composed of Elser
was inattentive to the contents of the quotation from the letter above given. He had and Lyons was in fact used by Elser in the purchase of the San Juan Estate. Of course, if
already been informed that, although Elser was angling for the Ronquillo property, its any damage had been caused to Lyons by the placing of the mortgage upon the equity
price had gone up, thus introducing a doubt as to whether he could get it; and the of redemption in the Carriedo property, Elser's estate would be liable for such damage.
quotation above given shows that the intended use of the money obtained by mortgaging But it is evident that Lyons was not prejudice by that act.
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, The appellee insist that the trial court committed error in admitting the testimony of Lyons
1920, one of his first inquiries would have been, if he did not know before, what was the upon matters that passed between him and Elser while the latter was still alive. While the
status of the proposed trade for the Ronquillo property. 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
Elser's widow and one of his clerks testified that about June 15, 1920, Elser cabled necessary to this decision. We therefore pass the point without further discussion.
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 The judgment appealed from will be affirmed, and it is so ordered, with costs against the
Juan Subdivision. Borrow all money you can." Lyons says that no such cablegram was appellant.
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 G.R. No. 142612. July 29, 2005
Manila he consented for the mortgage to remain on the property until it was paid off, as ANGELES vs. SEC. OF JUSTICE
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 The Case
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. 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 manunumbaliksa akin, sa akin ay magmamana, kahalili at ibangdapatpagliwatan ng
Prosecution Office"). The Provincial Prosecution Office resolved to dismiss the complaint akingkarapatannaako ay walangibabaliknaano pa manghalaga, sa mag[-] asawanila G.
for estafa filed by petitioners Oscar and Emerita Angeles ("Angeles spouses") against AT GNG. FELINO MERCADO.
respondent Felino Mercado ("Mercado").
Na ako at angmag[-]asawanila G. AT GNG. FELINO MERCADO ay nagkasundonaako
Antecedent Facts ay bibigyannila ng LIMA (5) na [sic] kaingnalanzonestaon-taonsaloob ng LIMA (5) na
[sic] taon ng amingkasunduangito.
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 Na ako at angmag[-]asawanila G. AT GNG. FELINO MERCADO ay
Prosecution Office. Mercado is the brother-in-law of the Angeles spouses, being married nagkasundonasilangmag[-]asawanila G. AT GNG. FELINO MERCADO angmagpapaalis
to Emerita Angeles’ sister Laura. ng daposapuno ng lansonestaon-taon [sic] saloob ng LIMA (5) [sic] taonng [sic]
amingkasunduang ito.8
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- In his counter-affidavit, Mercado denied the Angeles spouses’ allegations. Mercado
perde, covering eight parcels of land ("subject land") planted with fruit-bearing lanzones claimed that there exists an industrial partnership, colloquially known as sosyo industrial,
trees located in Nagcarlan, Laguna and owned by Juana Suazo. The contract of between him and his spouse as industrial partners and the Angeles spouses as the
antichresis was to last for five years with P210,000 as consideration. As the Angeles financiers. This industrial partnership had existed since 1991, before the contract of
spouses stay in Manila during weekdays and go to Laguna only on weekends, the antichresis over the subject land. As the years passed, Mercado used his and his
parties agreed that Mercado would administer the lands and complete the necessary spouse’s earnings as part of the capital in the business transactions which he entered
paperwork.6 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
After three years, the Angeles spouses asked for an accounting from Mercado. Mercado spouses did not want to be identified as the financiers.
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 Mercado attached bank receipts showing deposits in behalf of Emerita Angeles and
no accounting for 1995. The Angeles spouses claim that only after this demand for an contracts under his name for the Angeles spouses. Mercado also attached the minutes
accounting did they discover that Mercado had put the contract of sanglaang-perde over of the barangay conciliation proceedings held on 7 September 1996. During the
the subject land under Mercado and his spouse’s names.7 The relevant portions of the barangay conciliation proceedings, Oscar Angeles stated that there was a written sosyo
contract of sanglaang-perde, signed by Juana Suazo alone, read: industrial agreement: capital would come from the Angeles spouses while the profit
would be divided evenly between Mercado and the Angeles spouses.9
xxx
The Ruling of the Provincial Prosecution Office
Na alang-alangsahalagang DALAWANG DAAN AT SAMPUNG LIBONG PISO
(P210,000), salapinggastahin, naakingtinanggapsa mag[-]asawanila G. AT GNG. On 3 January 1997, the Provincial Prosecution Office issued a resolution recommending
FELINO MERCADO, mganasahustonggulang, Filipino, tumitira at may the filing of criminal information for estafa against Mercado. This resolution, however,
pahatirangsulatsaBgy. Maravilla, bayan ng Nagcarlan, lalawigan ng Laguna, ay was issued without Mercado’s counter-affidavit.
akingipinagbili, iniliwat at isinalinsanaulitnahalaga, sanabanggitnamag[-] asawanila G. AT
GNG. FELINO MERCADO[,] sakanila ay magmamana, kahalili at ibangdapatpagliwatan Meanwhile, Mercado filed his counter-affidavit on 2 January 1997. On receiving the 3
ng kanilangkarapatan, anglahatnaibubunga ng lahatnapuno ng lanzones, January 1997 resolution, Mercado moved for its reconsideration. Hence, on 26 February
hindikasamaangibanghalamannanapapaloobannito, ng nabanggitna WALONG (8) 1997, the Provincial Prosecution Office issued an amended resolution dismissing the
LagaynaLupangCocal-Lanzonal, satakdang LIMA (5) NA [sic] TAON, Angeles spouses’ complaint for estafa against Mercado.
magpapasimulasataong 1993, at magtatapossataong 1997, kaya’tpagkatapos ng
lansonesansataong 1997, angpamomosision at pakikinabangsalahatnapuno ng The Provincial Prosecution Office stated thus:
lanzonessanabanggitna WALONG (8) LagaynaLupangCocal-Lanzonal ay
The subject of the complaint hinges on a partnership gone sour. The partnership was Records would show that [Mercado] was able to make deposits for the account of the
initially unsaddled [with] problems. Management became the source of misunderstanding [Angeles spouses]. These deposits represented their share in the profits of their business
including the accounting of profits, which led to further misunderstanding until it was venture. Although the [Angeles spouses] deny the existence of a partnership, they,
revealed that the contract with the orchard owner was only with the name of the however, never disputed that the deposits made by [Mercado] were indeed for their
respondent, without the names of the complainants. account.

The accusation of "estafa" here lacks enough credible evidentiary support to sustain a The transcript of notes on the dialogue between the [Angeles spouses] and [Mercado]
prima facie finding. during the hearing of their barangay conciliation case reveals that the [Angeles spouses]
acknowledged their joint business ventures with [Mercado] although they assailed the
Premises considered, it is respectfully recommended that the complaint for estafa be manner by which [Mercado] conducted the business and handled and distributed the
dismissed. 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
RESPECTFULLY SUBMITTED.10 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 Angeles spouses filed a motion for reconsideration, which the Provincial Prosecution
the business of their partnership. In case of misapplication or conversion of the money
Office denied in a resolution dated 4 August 1997.
received, the co-partner’s liability is civil in nature (People v. Clarin, 7 Phil. 504)
The Ruling of the Secretary of Justice
WHEREFORE, the appeal is hereby DISMISSED.11
On appeal to the Secretary of Justice, the Angeles spouses emphasized that the
Hence, this petition.
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 Issues
their P210,000.
The Angeles spouses ask us to consider the following issues:
The Secretary of Justice found otherwise. Thus:
1. Whether the Secretary of Justice committed grave abuse of discretion amounting to
Reviewing the records of the case, we are of the opinion that the indictment of [Mercado] lack of jurisdiction in dismissing the appeal of the Angeles spouses;
for the crime of estafa cannot be sustained. [The Angeles spouses] failed to show
sufficient proof that [Mercado] deliberately deceived them in the "sanglaangperde" 2. Whether a partnership existed between the Angeles spouses and Mercado even
transaction. The document alone, which was in the name of [Mercado and his spouse], without any documentary proof to sustain its existence;
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] 3. Assuming that there was a partnership, whether there was misappropriation by
satisfactorily explained that the [Angeles spouses] do not want to be revealed as the Mercado of the proceeds of the lanzones after the Angeles spouses demanded an
financiers. Indeed, it is difficult to believe that the [Angeles spouses] would readily part accounting from him of the income at the office of the barangay authorities on 7
with their money without holding on to some document to evidence the receipt of money, September 1996, and Mercado failed to do so and also failed to deliver the proceeds to
or at least to inspect the document involved in the said transaction. Under the the Angeles spouses;
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. 4. Whether the Secretary of Justice should order the filing of the information for estafa
against Mercado.12
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 The Ruling of the Court
contributed money to a common fund and divided the profits among themselves.
The petition has no merit. Exchange Commission ("SEC") holds no water. First, the Angeles spouses contributed
money to the partnership and not immovable property. Second, mere failure to register
Whether the Secretary of Justice CommittedGrave Abuse of Discretion 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
An act of a court or tribunal may constitute grave abuse of discretion when the same is partnership is to give notice to third parties. Failure to register the contract of partnership
performed in a capricious or whimsical exercise of judgment amounting to lack of does not affect the liability of the partnership and of the partners to third persons. Neither
jurisdiction. The abuse of discretion must be so patent and gross as to amount to an does such failure to register affect the partnership’s juridical personality. A partnership
evasion of positive duty, or to a virtual refusal to perform a duty enjoined by law, as may exist even if the partners do not use the words "partner" or "partnership."
where the power is exercised in an arbitrary and despotic manner because of passion or
personal hostility.13 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
The Angeles spouses fail to convince us that the Secretary of Justice committed grave industry to a common fund, and division of profits between the Angeles spouses and
abuse of discretion when he dismissed their appeal. Moreover, the Angeles spouses Mercado.
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 Whether there was Misappropriation by Mercado
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 The Secretary of Justice adequately explained the alleged misappropriation by Mercado:
squarely raised before and decided by the lower court; and (5) the order is a patent "The document alone, which was in the name of [Mercado and his spouse], failed to
nullity.14 The Angeles spouses failed to show that their case falls under any of the convince us that there was deceit or false representation on the part of [Mercado] that
exceptions. In fact, this present petition for certiorari is dismissible for this reason alone. 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
Whether a Partnership ExistedBetween Mercado and the Angeles Spouses
Even Branch 26 of the Regional Trial Court of Santa Cruz, Laguna which decided the
The Angeles spouses allege that they had no partnership with Mercado. The Angeles civil case for damages, injunction and restraining order filed by the Angeles spouses
spouses rely on Articles 1771 to 1773 of the Civil Code, which state that: against Mercado and Leo Cerayban, stated:

Art. 1771. A partnership may be constituted in any form, except where immovable xxx [I]t was the practice to have all the contracts of antichresis of their partnership
property or real rights are contributed thereto, in which case a public instrument shall be secured in [Mercado’s] name as [the Angeles spouses] are apprehensive that, if they
necessary. 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
Art. 1772. Every contract of partnership having a capital of three thousand pesos or Revenue or worse, their assets and unexplained income be sequestered, as xxx Oscar
more, in money or property, shall appear in a public instrument, which must be recorded Angeles was then working with the government.16
in the Office of the Securities and Exchange Commission.
Furthermore, accounting of the proceeds is not a proper subject for the present case.
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. For these reasons, we hold that the Secretary of Justice did not abuse his discretion in
dismissing the appeal of the Angeles spouses.
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 WHEREFORE, we AFFIRM the decision of the Secretary of Justice. The present petition
to the public instrument. for certiorari is DISMISSED.

The Angeles spouses’ position that there is no partnership because of the lack of a SO ORDERED.
public instrument indicating the same and a lack of registration with the Securities and