Republic of the Philippines​

SUPREME COURT​
Manila

EN BANC

G.R. No. 31057 September 7, 1929

ADRIANO ARBES, ET AL., plaintiffs-appellees,​

vs.​
VICENTE POLISTICO, ET AL., defendants-appellants.

Marcelino Lontok and Manuel dela Rosa for appellants.​

Sumulong & Lavides for appellees.

VILLAMOR, J.:

This is an action to bring about liquidation of the funds and property of the association called
"Turnuhan Polistico & Co." The plaintiffs were members or shareholders, and the defendants were
designated as president-treasurer, directors and secretary of said association.

It is well to remember that this case is now brought before the consideration of this court for the
second time. The first one was when the same plaintiffs appeared from the order of the court below
sustaining the defendant's demurrer, and requiring the former to amend their complaint within a
period, so as to include all the members of "Turnuhan Polistico & Co.," either as plaintiffs or as a
defendants. This court held then that in an action against the officers of a voluntary association to
wind up its affairs and enforce an accounting for money and property in their possessions, it is not
necessary that all members of the association be made parties to the action. (Borlasa vs. Polistico,
47 Phil., 345.) The case having been remanded to the court of origin, both parties amend,
respectively, their complaint and their answer, and by agreement of the parties, the court appointed
Amadeo R. Quintos, of the Insular Auditor's Office, commissioner to examine all the books,
documents, and accounts of "Turnuhan Polistico & Co.," and to receive whatever evidence the
parties might desire to present.

The commissioner rendered his report, which is attached to the record, with the following resume:

Income:

Member's shares............................ 97,263.70

Credits paid................................ 6,196.55

 Interest received........................... 4,569.45

Miscellaneous............................... 1,891.00

P109,620.70

Expenses:

Premiums to members....................... 68,146.25

Loans on real-estate....................... 9,827.00

Loans on promissory notes.............. 4,258.55

Salaries.................................... 1,095.00

Miscellaneous............................... 1,686.10

85,012.90

Cash on hand........................................ 24,607.80

The defendants objected to the commissioner's report, but the trial court, having examined the
reasons for the objection, found the same sufficiently explained in the report and the evidence, and
accepting it, rendered judgment, holding that the association "Turnuhan Polistico & Co." is unlawful,
and sentencing the defendants jointly and severally to return the amount of P24,607.80, as well as
the documents showing the uncollected credits of the association, to the plaintiffs in this case, and to
the rest of the members of the said association represented by said plaintiffs, with costs against the
defendants.
The defendants assigned several errors as grounds for their appeal, but we believe they can all be
reduced to two points, to wit: (1) That not all persons having an interest in this association are
included as plaintiffs or defendants; (2) that the objection to the commissioner's report should have
been admitted by the court below.

As to the first point, the decision on the case of Borlasa vs. Polistico, supra, must be followed.

With regard to the second point, despite the praiseworthy efforts of the attorney of the defendants,
we are of opinion that, the trial court having examined all the evidence touching the grounds for the
objection and having found that they had been explained away in the commissioner's report, the
conclusion reached by the court below, accepting and adopting the findings of fact contained in said
report, and especially those referring to the disposition of the association's money, should not be
disturbed.

In Tan Dianseng Tan Siu Pic vs. Echauz Tan Siuco (5 Phil., 516), it was held that the findings of facts
made by a referee appointed under the provisions of section 135 of the Code of Civil Procedure
stand upon the same basis, when approved by the Court, as findings made by the judge himself.
And in Kriedt vs. E. C. McCullogh & Co.(37 Phil., 474), the court held: "Under section 140 of the
Code of Civil Procedure it is made the duty of the court to render judgment in accordance with the
report of the referee unless the court shall unless for cause shown set aside the report or recommit it
to the referee. This provision places upon the litigant parties of the duty of discovering and exhibiting
to the court any error that may be contained therein." The appellants stated the grounds for their
objection. The trial examined the evidence and the commissioner's report, and accepted the findings
of fact made in the report. We find no convincing arguments on the appellant's brief to justify a
reversal of the trial court's conclusion admitting the commissioner's findings.

There is no question that "Turnuhan Polistico & Co." is an unlawful partnership (U.S. vs. Baguio, 39
Phil., 962), but the appellants allege that because it is so, some charitable institution to whom the
partnership funds may be ordered to be turned over, should be included, as a party defendant. The
appellants refer to article 1666 of the Civil Code, which provides:

A partnership must have a lawful object, and must be established for the common benefit of the
partners.

When the dissolution of an unlawful partnership is decreed, the profits shall be given to charitable
institutions of the domicile of the partnership, or, in default of such, to those of the province.

Appellant's contention on this point is untenable. According to said article, no charitable institution is
a necessary party in the present case of determination of the rights of the parties. The action which
may arise from said article, in the case of unlawful partnership, is that for the recovery of the
amounts paid by the member from those in charge of the administration of said partnership, and it is
not necessary for the said parties to base their action to the existence of the partnership, but on the
fact that of having contributed some money to the partnership capital. And hence, the charitable
institution of the domicile of the partnership, and in the default thereof, those of the province are not
necessary parties in this case. The article cited above permits no action for the purpose of obtaining
the earnings made by the unlawful partnership, during its existence as result of the business in
which it was engaged, because for the purpose, as Manresa remarks, the partner will have to base
his action upon the partnership contract, which is to annul and without legal existence by reason of
its unlawful object; and it is self evident that what does not exist cannot be a cause of action. Hence,
paragraph 2 of the same article provides that when the dissolution of the unlawful partnership is
decreed, the profits cannot inure to the benefit of the partners, but must be given to some charitable
institution.

We deem in pertinent to quote Manresa's commentaries on article 1666 at length, as a clear

explanation of the scope and spirit of the provision of the Civil Code which we are concerned.
Commenting on said article Manresa, among other things says:

When the subscriptions of the members have been paid to the management of the partnership, and
employed by the latter in transactions consistent with the purposes of the partnership may the former
demand the return of the reimbursement thereof from the manager or administrator withholding
them?

Apropos of this, it is asserted: If the partnership has no valid existence, if it is considered juridically
non-existent, the contract entered into can have no legal effect; and in that case, how can it give rise
to an action in favor of the partners to judicially demand from the manager or the administrator of the
partnership capital, each one's contribution?

The authors discuss this point at great length, but Ricci decides the matter quite clearly, dispelling all
doubts thereon. He holds that the partner who limits himself to demanding only the amount
contributed by him need not resort to the partnership contract on which to base his action. And he
adds in explanation that the partner makes his contribution, which passes to the managing partner
for the purpose of carrying on the business or industry which is the object of the partnership; or in
other words, to breathe the breath of life into a partnership contract with an objection forbidden by
law. And as said contrast does not exist in the eyes of the law, the purpose from which the
contribution was made has not come into existence, and the administrator of the partnership holding
said contribution retains what belongs to others, without any consideration; for which reason he is
not bound to return it and he who has paid in his share is entitled to recover it.

But this is not the case with regard to profits earned in the course of the partnership, because they
do not constitute or represent the partner's contribution but are the result of the industry, business or
speculation which is the object of the partnership, and therefor, in order to demand the proportional
part of the said profits, the partner would have to base his action on the contract which is null and
void, since this partition or distribution of the profits is one of the juridical effects thereof. Wherefore
considering this contract as non-existent, by reason of its illicit object, it cannot give rise to the
necessary action, which must be the basis of the judicial complaint. Furthermore, it would be
immoral and unjust for the law to permit a profit from an industry prohibited by it.

Hence the distinction made in the second paragraph of this article of this Code, providing that the
profits obtained by unlawful means shall not enrich the partners, but shall upon the dissolution of the
partnership, be given to the charitable institutions of the domicile of the partnership, or, in default of
such, to those of the province.

This is a new rule, unprecedented by our law, introduced to supply an obvious deficiency of the
former law, which did not describe the purpose to which those profits denied the partners were to be
applied, nor state what to be done with them.
The profits are so applied, and not the contributions, because this would be an excessive and unjust
sanction for, as we have seen, there is no reason, in such a case, for depriving the partner of the
portion of the capital that he contributed, the circumstances of the two cases being entirely different.

Our Code does not state whether, upon the dissolution of the unlawful partnership, the amounts
contributed are to be returned by the partners, because it only deals with the disposition of the
profits; but the fact that said contributions are not included in the disposal prescribed profits, shows
that in consequences of said exclusion, the general law must be followed, and hence the partners
should reimburse the amount of their respective contributions. Any other solution is immoral, and the
law will not consent to the latter remaining in the possession of the manager or administrator who
has refused to return them, by denying to the partners the action to demand them. (Manresa,
Commentaries on the Spanish Civil Code, vol. XI, pp. 262-264)

The judgment appealed from, being in accordance with law, should be, as it is hereby, affirmed with
costs against the appellants; provided, however, the defendants shall pay the legal interest on the
sum of P24,607.80 from the date of the decision of the court, and provided, further, that the
defendants shall deposit this sum of money and other documents evidencing uncollected credits in
the office of the clerk of the trial court, in order that said court may distribute them among the
members of said association, upon being duly identified in the manner that it may deem proper. So
ordered.

Avanceña, C.J., Johnson, Street, Johns, Romualdez, and Villa-Real, JJ., concur.

Republic of the Philippines​

SUPREME COURT​
Manila

EN BANC

G.R. No. L-24193 June 28, 1968

MAURICIO AGAD, plaintiff-appellant,​

vs.​
SEVERINO MABATO and MABATO and AGAD COMPANY, defendants-appellees.

Angeles, Maskarino and Associates for plaintiff-appellant.​

Victorio S. Advincula for defendants-appellees.

CONCEPCION, C.J.:

In this appeal, taken by plaintiff Mauricio Agad, from an order of dismissal of the Court of First
Instance of Davao, we are called upon to determine the applicability of Article 1773 of our Civil Code
to the contract of partnership on which the complaint herein is based.

Alleging that he and defendant Severino Mabato are — pursuant to a public instrument dated August
29, 1952, copy of which is attached to the complaint as Annex "A" — partners in a fishpond
business, to the capital of which Agad contributed P1,000, with the right to receive 50% of the
profits; that from 1952 up to and including 1956, Mabato who handled the partnership funds, had
yearly rendered accounts of the operations of the partnership; and that, despite repeated demands,
Mabato had failed and refused to render accounts for the years 1957 to 1963, Agad prayed in his
complaint against Mabato and Mabato & Agad Company, filed on June 9, 1964, that judgment be
rendered sentencing Mabato to pay him (Agad) the sum of P14,000, as his share in the profits of the
partnership for the period from 1957 to 1963, in addition to P1,000 as attorney's fees, and ordering
the dissolution of the partnership, as well as the winding up of its affairs by a receiver to be
appointed therefor.

In his answer, Mabato admitted the formal allegations of the complaint and denied the existence of
said partnership, upon the ground that the contract therefor had not been perfected, despite the
execution of Annex "A", because Agad had allegedly failed to give his P1,000 contribution to the
partnership capital. Mabato prayed, therefore, that the complaint be dismissed; that Annex "A" be
declared void ab initio; and that Agad be sentenced to pay actual, moral and exemplary damages,
as well as attorney's fees.

Subsequently, Mabato filed a motion to dismiss, upon the ground that the complaint states no cause
of action and that the lower court had no jurisdiction over the subject matter of the case, because it
involves principally the determination of rights over public lands. After due hearing, the court issued
the order appealed from, granting the motion to dismiss the complaint for failure to state a cause of
action. This conclusion was predicated upon the theory that the contract of partnership, Annex "A", is
null and void, pursuant to Art. 1773 of our Civil Code, because an inventory of the fishpond referred
in said instrument had not been attached thereto. A reconsideration of this order having been
denied, Agad brought the matter to us for review by record on appeal.

Articles 1771 and 1773 of said Code provide:

Art. 1771. A partnership may be constituted in any form, except where immovable property or real
rights are contributed thereto, in which case a public instrument shall be necessary.

Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if
inventory of said property is not made, signed by the parties; and attached to the public instrument.

The issue before us hinges on whether or not "immovable property or real rights" have been
contributed to the partnership under consideration. Mabato alleged and the lower court held that the
answer should be in the affirmative, because "it is really inconceivable how a partnership engaged in
the fishpond business could exist without said fishpond property (being) contributed to the
partnership." It should be noted, however, that, as stated in Annex "A" the partnership was
established "to operate a fishpond", not to "engage in a fishpond business". Moreover, none of the
partners contributed either a fishpond or a real right to any fishpond. Their contributions were limited
to the sum of P1,000 each. Indeed, Paragraph 4 of Annex "A" provides:

That the capital of the said partnership is Two Thousand (P2,000.00) Pesos Philippine Currency, of
which One Thousand (P1,000.00) pesos has been contributed by Severino Mabato and One
Thousand (P1,000.00) Pesos has been contributed by Mauricio Agad.

xxx xxx xxx

The operation of the fishpond mentioned in Annex "A" was the purpose of the partnership. Neither
said fishpond nor a real right thereto was contributed to the partnership or became part of the capital
thereof, even if a fishpond or a real right thereto could become part of its assets.

WHEREFORE, we find that said Article 1773 of the Civil Code is not in point and that, the order
appealed from should be, as it is hereby set aside and the case remanded to the lower court for
further proceedings, with the costs of this instance against defendant-appellee, Severino Mabato. It
is so ordered.

Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.

Republic of the Philippines​

SUPREME COURT​
Manila

EN BANC

G.R. No. 413 February 2, 1903

JOSE FERNANDEZ, plaintiff-appellant,​

vs.​
FRANCISCO DE LA ROSA, defendant-appellee.

Vicente Miranda, for appellant.​

Simplicio del Rosario, for appellee.

LADD, J.:

The object of this action is to obtain from the court a declaration that a partnership exists between
the parties, that the plaintiff has a consequent interested in certain cascoes which are alleged to be
partnership property, and that the defendant is bound to render an account of his administration of
the cascoes and the business carried on with them.

Judgment was rendered for the defendant in the court below and the plaintiff appealed.

The respective claims of the parties as to the facts, so far as it is necessary to state them in order to
indicate the point in dispute, may be briefly summarized. The plaintiff alleges that in January, 1900,
he entered into a verbal agreement with the defendant to form a partnership for the purchase of
cascoes and the carrying on of the business of letting the same for hire in Manila, the defendant to
buy the cascoes and each partner to furnish for that purpose such amount of money as he could, the
profits to be divided proportionately; that in the same January the plaintiff furnished the defendant
300 pesos to purchase a casco designated as No. 1515, which the defendant did purchase for 500
pesos of Doña Isabel Vales, taking the title in his own name; that the plaintiff furnished further sums
aggregating about 300 pesos for repairs on this casco; that on the fifth of the following March he
furnished the defendant 825 pesos to purchase another casco designated as No. 2089, which the
defendant did purchase for 1,000 pesos of Luis R. Yangco, taking the title to this casco also in his
own name; that in April the parties undertook to draw up articles of partnership for the purpose of
embodying the same in an authentic document, but that the defendant having proposed a draft of
such articles which differed materially from the terms of the earlier verbal agreement, and being
unwillingly to include casco No. 2089 in the partnership, they were unable to come to any
understanding and no written agreement was executed; that the defendant having in the meantime
had the control and management of the two cascoes, the plaintiff made a demand for an accounting
upon him, which the defendant refused to render, denying the existence of the partnership
altogether.

The defendant admits that the project of forming a partnership in the casco business in which he
was already engaged to some extent individually was discussed between himself and the plaintiff in
January, 1900, and earlier, one Marcos Angulo, who was a partner of the plaintiff in a bakery
business, being also a party to the negotiations, but he denies that any agreement was ever
consummated. He denies that the plaintiff furnished any money in January, 1900, for the purchase of
casco No. 1515, or for repairs on the same, but claims that he borrowed 300 pesos on his individual
account in January from the bakery firm, consisting of the plaintiff, Marcos Angulo, and Antonio
Angulo. The 825 pesos, which he admits he received from the plaintiff March 5, he claims was for
the purchase of casco No. 1515, which he alleged was bought March 12, and he alleges that he
never received anything from the defendant toward the purchase of casco No. 2089. He claims to
have paid, exclusive of repairs, 1,200 pesos for the first casco and 2,000 pesos for the second one.

The case comes to this court under the old procedure, and it is therefore necessary for us the review
the evidence and pass upon the facts. Our general conclusions may be stated as follows:

(1) Doña Isabel Vales, from whom the defendant bought casco No. 1515, testifies that the sale was
made and the casco delivered in January, although the public document of sale was not executed till
some time afterwards. This witness is apparently disinterested, and we think it is safe to rely upon
the truth of her testimony, especially as the defendant, while asserting that the sale was in March,
admits that he had the casco taken to the ways for repairs in January.

It is true that the public document of sale was executed March 10, and that the vendor declares
therein that she is the owner of the casco, but such declaration does not exclude proof as to the
actual date of the sale, at least as against the plaintiff, who was not a party to the instrument. (Civil
Code, sec. 1218.) It often happens, of course, in such cases, that the actual sale precedes by a
considerable time the execution of the formal instrument of transfer, and this is what we think
occurred here.

(2) The plaintiff presented in evidence the following receipt: "I have this day received from D. Jose
Fernandez eight hundred and twenty-five pesos for the cost of a casco which we are to purchase in
company. Manila, March 5, 1900. Francisco de la Rosa." The authenticity of this receipt is admitted
by the defendant. If casco No. 1515 was bought, as we think it was, in January, the casco referred to
in the receipt which the parties "are to purchase in company" must be casco No. 2089, which was
bought March 22. We find this to be the fact, and that the plaintiff furnished and the defendant
received 825 pesos toward the purchase of this casco, with the understanding that it was to be
purchased on joint account.

(3) Antonio Fernandez testifies that in the early part of January, 1900, he saw Antonio Angulo give
the defendant, in the name of the plaintiff, a sum of money, the amount of which he is unable to
state, for the purchase of a casco to be used in the plaintiff's and defendant's business. Antonio
Angulo also testifies, but the defendant claims that the fact that Angulo was a partner of the plaintiff
rendered him incompetent as a witness under the provisions of article 643 of the then Code of Civil
Procedure, and without deciding whether this point is well taken, we have discarded his testimony
altogether in considering the case. The defendant admits the receipt of 300 pesos from Antonio
Angulo in January, claiming, as has been stated, that it was a loan from the firm. Yet he sets up the
claim that the 825 pesos which he received from the plaintiff in March were furnished toward the
purchase of casco No. 1515, thereby virtually admitting that casco was purchased in company with
the plaintiff. We discover nothing in the evidence to support the claim that the 300 pesos received in
January was a loan, unless it may be the fact that the defendant had on previous occasions
borrowed money from the bakery firm. We think all the probabilities of the case point to the truth of
the evidence of Antonio Fernandez as to this transaction, and we find the fact to be that the sum in
question was furnished by the plaintiff toward the purchase for joint ownership of casco No. 1515,
and that the defendant received it with the understanding that it was to be used for this purposed.
We also find that the plaintiff furnished some further sums of money for the repair of casco.

(4) The balance of the purchase price of each of the two cascoes over and above the amount
contributed by the plaintiff was furnished by the defendant.

(5) We are unable to find upon the evidence before us that there was any specific verbal agreement
of partnership, except such as may be implied from the fact as to the purchase of the casco.

(6) Although the evidence is somewhat unsatisfactory upon this point, we think it more probable than
otherwise that no attempt was made to agree upon articles of partnership till about the middle of the
April following the purchase of the cascoes.

(7) At some time subsequently to the failure of the attempt to agree upon partnership articles and
after the defendant had been operating the cascoes for some time, the defendant returned to the
plaintiff 1,125 pesos, in two different sums, one of 300 and one of 825 pesos. The only evidence in
the record as to the circumstances under which the plaintiff received these sums is contained in his
answer to the interrogatories proposed to him by the defendant, and the whole of his statement on
this point may properly be considered in determining the fact as being in the nature of an indivisible
admission. He states that both sums were received with an express reservation on his part of all his
rights as a partner. We find this to be the fact.

Two questions of law are raised by the foregoing facts: (1) Did a partnership exist between the
parties? (2) If such partnership existed, was it terminated as a result of the act of the defendant in
receiving back the 1,125 pesos?

(1) "Partnership is a contract by which two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among themselves."
(Civil Code, art. 1665.)

The essential points upon which the minds of the parties must meet in a contract of partnership are,
therefore, (1) mutual contribution to a common stock, and (2) a joint interest in the profits. If the
contract contains these two elements the partnership relation results, and the law itself fixes the
incidents of this relation if the parties fail to do so. (Civil Code, secs. 1689, 1695.)
We have found as a fact that money was furnished by the plaintiff and received by the defendant
with the understanding that it was to be used for the purchase of the cascoes in question. This
establishes the first element of the contract, namely, mutual contribution to a common stock. The
second element, namely, the intention to share profits, appears to be an unavoidable deduction from
the fact of the purchase of the cascoes in common, in the absence of any other explanation of the
object of the parties in making the purchase in that form, and, it may be added, in view of the
admitted fact that prior to the purchase of the first casco the formation of a partnership had been a
subject of negotiation between them.

Under other circumstances the relation of joint ownership, a relation distinct though perhaps not
essentially different in its practical consequence from that of partnership, might have been the result
of the joint purchase. If, for instance, it were shown that the object of the parties in purchasing in
company had been to make a more favorable bargain for the two cascoes that they could have done
by purchasing them separately, and that they had no ulterior object except to effect a division of the
common property when once they had acquired it, the affectio societatis would be lacking and the
parties would have become joint tenants only; but, as nothing of this sort appears in the case, we
must assume that the object of the purchase was active use and profit and not mere passive
ownership in common.

It is thus apparent that a complete and perfect contract of partnership was entered into by the
parties. This contract, it is true, might have been subject to a suspensive condition, postponing its
operation until an agreement was reached as to the respective participation of the partners in the
profits, the character of the partnership as collective or en comandita, and other details, but although
it is asserted by counsel for the defendant that such was the case, there is little or nothing in the
record to support this claim, and that fact that the defendant did actually go on and purchase the
boat, as it would seem, before any attempt had been made to formulate partnership articles, strongly
discountenances the theory.

The execution of a written agreement was not necessary in order to give efficacy to the verbal
contract of partnership as a civil contract, the contributions of the partners not having been in the
form of immovables or rights in immovables. (Civil Code, art. 1667.) The special provision cited,
requiring the execution of a public writing in the single case mentioned and dispensing with all formal
requirements in other cases, renders inapplicable to this species of contract the general provisions
of article 1280 of the Civil Code.

(2) The remaining question is as to the legal effect of the acceptance by the plaintiff of the money
returned to him by the defendant after the definitive failure of the attempt to agree upon partnership
articles. The amount returned fell short, in our view of the facts, of that which the plaintiff had
contributed to the capital of the partnership, since it did not include the sum which he had furnished
for the repairs of casco No. 1515. Moreover, it is quite possible, as claimed by the plaintiff, that a
profit may have been realized from the business during the period in which the defendant have been
administering it prior to the return of the money, and if so he still retained that sum in his hands. For
these reasons the acceptance of the money by the plaintiff did not have the effect of terminating the
legal existence of the partnership by converting it into a societas leonina, as claimed by counsel for
the defendant.
Did the defendant waive his right to such interest as remained to him in the partnership property by
receiving the money? Did he by so doing waive his right to an accounting of the profits already
realized, if any, and a participation in them in proportion to the amount he had originally contributed
to the common fund? Was the partnership dissolved by the "will or withdrawal of one of the partners"
under article 1705 of the Civil Code? We think these questions must be answered in the negative.

There was no intention on the part of the plaintiff in accepting the money to relinquish his rights as a
partner, nor is there any evidence that by anything that he said or by anything that he omitted to say
he gave the defendant any ground whatever to believe that he intended to relinquish them. On the
contrary he notified the defendant that he waived none of his rights in the partnership. Nor was the
acceptance of the money an act which was in itself inconsistent with the continuance of the
partnership relation, as would have been the case had the plaintiff withdrawn his entire interest in the
partnership. There is, therefore, nothing upon which a waiver, either express or implied, can be
predicated. The defendant might have himself terminated the partnership relation at any time, if he
had chosen to do so, by recognizing the plaintiff's right in the partnership property and in the profits.
Having failed to do this he can not be permitted to force a dissolution upon his co-partner upon terms
which the latter is unwilling to accept. We see nothing in the case which can give the transaction in
question any other aspect than that of the withdrawal by one partner with the consent of the other of
a portion of the common capital.

The result is that we hold and declare that a partnership was formed between the parties in January,
1900, the existence of which the defendant is bound to recognize; that cascoes No. 1515 and 2089
constitute partnership property, and that the plaintiff is entitled to an accounting of the defendant's
administration of such property, and of the profits derived therefrom. This declaration does not
involve an adjudication as to any disputed items of the partnership account.

The judgment of the court below will be reversed without costs, and the record returned for the
execution of the judgment now rendered. So ordered.

Arellano, C.J., Torres, Cooper, and Mapa, JJ., concur.​

Willard, J., dissenting.

ON MOTION FOR A REHEARING.

MAPA, J.:

This case has been decided on appeal in favor of the plaintiff, and the defendant has moved for a
rehearing upon the following grounds:

1. Because that part of the decision which refers to the existence of the partnership which is the
object of the complaint is not based upon clear and decisive legal grounds; and

2. Because, upon the supposition of the existence of the partnership, the decision does not clearly
determine whether the juridical relation between the partners suffered any modification in
consequence of the withdrawal by the plaintiff of the sum of 1,125 pesos from the funds of the
partnership, or if it continued as before, the parties being thereby deprived, he alleges, of one of the
principal bases for determining with exactness the amount due to each.

With respect to the first point, the appellant cites the fifth conclusion of the decision, which is as
follows: "We are unable to find from the evidence before us that there was any specific verbal
agreement of partnership, except such as may be implied from the facts as to the purchase of the
cascoes."

Discussing this part of the decision, the defendant says that, in the judgment of the court, if on the
one hand there is no direct evidence of a contract, on the other its existence can only be inferred
from certain facts, and the defendant adds that the possibility of an inference is not sufficient ground
upon which to consider as existing what may be inferred to exist, and still less as sufficient ground
for declaring its efficacy to produce legal effects.

This reasoning rests upon a false basis. We have not taken into consideration the mere possibility of
an inference, as the appellant gratuitously stated, for the purpose of arriving at a conclusion that a
contract of partnership was entered into between him and the plaintiff, but have considered the proof
which is derived from the facts connected with the purchase of the cascoes. It is stated in the
decision that with the exception of this evidence we find no other which shows the making of the
contract. But this does not mean (for it says exactly the contrary) that this fact is not absolutely
proven, as the defendant erroneously appears to think. From this data we infer a fact which to our
mind is certain and positive, and not a mere possibility; we infer not that it is possible that the
contract may have existed, but that it actually did exist. The proofs constituted by the facts referred
to, although it is the only evidence, and in spite of the fact that it is not direct, we consider, however,
sufficient to produce such a conviction, which may certainly be founded upon any of the various
classes of evidence which the law admits. There is all the more reason for its being so in this case,
because a civil partnership may be constituted in any form, according to article 1667 of the Civil
Code, unless real property or real rights are contributed to it — the only case of exception in which it
is necessary that the agreement be recorded in a public instrument.

It is of no importance that the parties have failed to reach an agreement with respect to the minor
details of contract. These details pertain to the accidental and not to the essential part of the
contract. We have already stated in the opinion what are the essential requisites of a contract of
partnership, according to the definition of article 1665. Considering as a whole the probatory facts
which appears from the record, we have reached the conclusion that the plaintiff and the defendant
agreed to the essential parts of that contract, and did in fact constitute a partnership, with the funds
of which were purchased the cascoes with which this litigation deals, although it is true that they did
not take the precaution to precisely establish and determine from the beginning the conditions with
respect to the participation of each partner in the profits or losses of the partnership. The
disagreements subsequently arising between them, when endeavoring to fix these conditions,
should not and can not produce the effect of destroying that which has been done, to the prejudice of
one of the partners, nor could it divest his rights under the partnership which had accrued by the
actual contribution of capital which followed the agreement to enter into a partnership, together with
the transactions effected with partnership funds. The law has foreseen the possibility of the
constitution of a partnership without an express stipulation by the partners upon those conditions,
and has established rules which may serve as a basis for the distribution of profits and losses
among the partners. (Art. 1689 of the Civil Code. ) We consider that the partnership entered into by
the plaintiff and the defendant falls within the provisions of this article.

With respect to the second point, it is obvious that upon declaring the existence of a partnership and
the right of the plaintiff to demand from the defendant an itemized accounting of his management
thereof, it was impossible at the same time to determine the effects which might have been produced
with respect to the interest of the partnership by the withdrawal by the plaintiff of the sum of 1,125
pesos. This could only be determined after a liquidation of the partnership. Then, and only then, can
it be known if this sum is to be charged to the capital contributed by the plaintiff, or to his share of the
profits, or to both. It might well be that the partnership has earned profits, and that the plaintiff's
participation therein is equivalent to or exceeds the sum mentioned. In this case it is evident that,
notwithstanding that payment, his interest in the partnership would still continue. This is one case. It
would be easy to imagine many others, as the possible results of a liquidation are innumerable. The
liquidation will finally determine the condition of the legal relations of the partners inter se at the time
of the withdrawal of the sum mentioned. It was not, nor is it possible to determine this status a priori
without prejudging the result, as yet unknown, of the litigation. Therefore it is that in the decision no
direct statement has been made upon this point. It is for the same reason that it was expressly
stated in the decision that it "does not involve an adjudication as to any disputed item of the
partnership account."

The contentions advanced by the moving party are so evidently unfounded that we can not see the
necessity or convenience of granting the rehearing prayed for, and the motion is therefore denied.

Arellano, C.J., Torres, Cooper, and Ladd, JJ., concur.​

Willard and McDonough, JJ., did not sit in this case.

Republic of the Philippines​

SUPREME COURT​
Manila

EN BANC

G.R. No. 413 February 2, 1903

JOSE FERNANDEZ, plaintiff-appellant,​

vs.​
FRANCISCO DE LA ROSA, defendant-appellee.

Vicente Miranda, for appellant.​

Simplicio del Rosario, for appellee.

LADD, J.:

The object of this action is to obtain from the court a declaration that a partnership exists between
the parties, that the plaintiff has a consequent interested in certain cascoes which are alleged to be
partnership property, and that the defendant is bound to render an account of his administration of
the cascoes and the business carried on with them.

Judgment was rendered for the defendant in the court below and the plaintiff appealed.
The respective claims of the parties as to the facts, so far as it is necessary to state them in order to
indicate the point in dispute, may be briefly summarized. The plaintiff alleges that in January, 1900,
he entered into a verbal agreement with the defendant to form a partnership for the purchase of
cascoes and the carrying on of the business of letting the same for hire in Manila, the defendant to
buy the cascoes and each partner to furnish for that purpose such amount of money as he could, the
profits to be divided proportionately; that in the same January the plaintiff furnished the defendant
300 pesos to purchase a casco designated as No. 1515, which the defendant did purchase for 500
pesos of Doña Isabel Vales, taking the title in his own name; that the plaintiff furnished further sums
aggregating about 300 pesos for repairs on this casco; that on the fifth of the following March he
furnished the defendant 825 pesos to purchase another casco designated as No. 2089, which the
defendant did purchase for 1,000 pesos of Luis R. Yangco, taking the title to this casco also in his
own name; that in April the parties undertook to draw up articles of partnership for the purpose of
embodying the same in an authentic document, but that the defendant having proposed a draft of
such articles which differed materially from the terms of the earlier verbal agreement, and being
unwillingly to include casco No. 2089 in the partnership, they were unable to come to any
understanding and no written agreement was executed; that the defendant having in the meantime
had the control and management of the two cascoes, the plaintiff made a demand for an accounting
upon him, which the defendant refused to render, denying the existence of the partnership
altogether.

The defendant admits that the project of forming a partnership in the casco business in which he
was already engaged to some extent individually was discussed between himself and the plaintiff in
January, 1900, and earlier, one Marcos Angulo, who was a partner of the plaintiff in a bakery
business, being also a party to the negotiations, but he denies that any agreement was ever
consummated. He denies that the plaintiff furnished any money in January, 1900, for the purchase of
casco No. 1515, or for repairs on the same, but claims that he borrowed 300 pesos on his individual
account in January from the bakery firm, consisting of the plaintiff, Marcos Angulo, and Antonio
Angulo. The 825 pesos, which he admits he received from the plaintiff March 5, he claims was for
the purchase of casco No. 1515, which he alleged was bought March 12, and he alleges that he
never received anything from the defendant toward the purchase of casco No. 2089. He claims to
have paid, exclusive of repairs, 1,200 pesos for the first casco and 2,000 pesos for the second one.

The case comes to this court under the old procedure, and it is therefore necessary for us the review
the evidence and pass upon the facts. Our general conclusions may be stated as follows:

(1) Doña Isabel Vales, from whom the defendant bought casco No. 1515, testifies that the sale was
made and the casco delivered in January, although the public document of sale was not executed till
some time afterwards. This witness is apparently disinterested, and we think it is safe to rely upon
the truth of her testimony, especially as the defendant, while asserting that the sale was in March,
admits that he had the casco taken to the ways for repairs in January.

It is true that the public document of sale was executed March 10, and that the vendor declares
therein that she is the owner of the casco, but such declaration does not exclude proof as to the
actual date of the sale, at least as against the plaintiff, who was not a party to the instrument. (Civil
Code, sec. 1218.) It often happens, of course, in such cases, that the actual sale precedes by a
considerable time the execution of the formal instrument of transfer, and this is what we think
occurred here.
(2) The plaintiff presented in evidence the following receipt: "I have this day received from D. Jose
Fernandez eight hundred and twenty-five pesos for the cost of a casco which we are to purchase in
company. Manila, March 5, 1900. Francisco de la Rosa." The authenticity of this receipt is admitted
by the defendant. If casco No. 1515 was bought, as we think it was, in January, the casco referred to
in the receipt which the parties "are to purchase in company" must be casco No. 2089, which was
bought March 22. We find this to be the fact, and that the plaintiff furnished and the defendant
received 825 pesos toward the purchase of this casco, with the understanding that it was to be
purchased on joint account.

(3) Antonio Fernandez testifies that in the early part of January, 1900, he saw Antonio Angulo give
the defendant, in the name of the plaintiff, a sum of money, the amount of which he is unable to
state, for the purchase of a casco to be used in the plaintiff's and defendant's business. Antonio
Angulo also testifies, but the defendant claims that the fact that Angulo was a partner of the plaintiff
rendered him incompetent as a witness under the provisions of article 643 of the then Code of Civil
Procedure, and without deciding whether this point is well taken, we have discarded his testimony
altogether in considering the case. The defendant admits the receipt of 300 pesos from Antonio
Angulo in January, claiming, as has been stated, that it was a loan from the firm. Yet he sets up the
claim that the 825 pesos which he received from the plaintiff in March were furnished toward the
purchase of casco No. 1515, thereby virtually admitting that casco was purchased in company with
the plaintiff. We discover nothing in the evidence to support the claim that the 300 pesos received in
January was a loan, unless it may be the fact that the defendant had on previous occasions
borrowed money from the bakery firm. We think all the probabilities of the case point to the truth of
the evidence of Antonio Fernandez as to this transaction, and we find the fact to be that the sum in
question was furnished by the plaintiff toward the purchase for joint ownership of casco No. 1515,
and that the defendant received it with the understanding that it was to be used for this purposed.
We also find that the plaintiff furnished some further sums of money for the repair of casco.

(4) The balance of the purchase price of each of the two cascoes over and above the amount
contributed by the plaintiff was furnished by the defendant.

(5) We are unable to find upon the evidence before us that there was any specific verbal agreement
of partnership, except such as may be implied from the fact as to the purchase of the casco.

(6) Although the evidence is somewhat unsatisfactory upon this point, we think it more probable than
otherwise that no attempt was made to agree upon articles of partnership till about the middle of the
April following the purchase of the cascoes.

(7) At some time subsequently to the failure of the attempt to agree upon partnership articles and
after the defendant had been operating the cascoes for some time, the defendant returned to the
plaintiff 1,125 pesos, in two different sums, one of 300 and one of 825 pesos. The only evidence in
the record as to the circumstances under which the plaintiff received these sums is contained in his
answer to the interrogatories proposed to him by the defendant, and the whole of his statement on
this point may properly be considered in determining the fact as being in the nature of an indivisible
admission. He states that both sums were received with an express reservation on his part of all his
rights as a partner. We find this to be the fact.
Two questions of law are raised by the foregoing facts: (1) Did a partnership exist between the
parties? (2) If such partnership existed, was it terminated as a result of the act of the defendant in
receiving back the 1,125 pesos?

(1) "Partnership is a contract by which two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among themselves."
(Civil Code, art. 1665.)

The essential points upon which the minds of the parties must meet in a contract of partnership are,
therefore, (1) mutual contribution to a common stock, and (2) a joint interest in the profits. If the
contract contains these two elements the partnership relation results, and the law itself fixes the
incidents of this relation if the parties fail to do so. (Civil Code, secs. 1689, 1695.)

We have found as a fact that money was furnished by the plaintiff and received by the defendant
with the understanding that it was to be used for the purchase of the cascoes in question. This
establishes the first element of the contract, namely, mutual contribution to a common stock. The
second element, namely, the intention to share profits, appears to be an unavoidable deduction from
the fact of the purchase of the cascoes in common, in the absence of any other explanation of the
object of the parties in making the purchase in that form, and, it may be added, in view of the
admitted fact that prior to the purchase of the first casco the formation of a partnership had been a
subject of negotiation between them.

Under other circumstances the relation of joint ownership, a relation distinct though perhaps not
essentially different in its practical consequence from that of partnership, might have been the result
of the joint purchase. If, for instance, it were shown that the object of the parties in purchasing in
company had been to make a more favorable bargain for the two cascoes that they could have done
by purchasing them separately, and that they had no ulterior object except to effect a division of the
common property when once they had acquired it, the affectio societatis would be lacking and the
parties would have become joint tenants only; but, as nothing of this sort appears in the case, we
must assume that the object of the purchase was active use and profit and not mere passive
ownership in common.

It is thus apparent that a complete and perfect contract of partnership was entered into by the
parties. This contract, it is true, might have been subject to a suspensive condition, postponing its
operation until an agreement was reached as to the respective participation of the partners in the
profits, the character of the partnership as collective or en comandita, and other details, but although
it is asserted by counsel for the defendant that such was the case, there is little or nothing in the
record to support this claim, and that fact that the defendant did actually go on and purchase the
boat, as it would seem, before any attempt had been made to formulate partnership articles, strongly
discountenances the theory.

The execution of a written agreement was not necessary in order to give efficacy to the verbal
contract of partnership as a civil contract, the contributions of the partners not having been in the
form of immovables or rights in immovables. (Civil Code, art. 1667.) The special provision cited,
requiring the execution of a public writing in the single case mentioned and dispensing with all formal
requirements in other cases, renders inapplicable to this species of contract the general provisions
of article 1280 of the Civil Code.
(2) The remaining question is as to the legal effect of the acceptance by the plaintiff of the money
returned to him by the defendant after the definitive failure of the attempt to agree upon partnership
articles. The amount returned fell short, in our view of the facts, of that which the plaintiff had
contributed to the capital of the partnership, since it did not include the sum which he had furnished
for the repairs of casco No. 1515. Moreover, it is quite possible, as claimed by the plaintiff, that a
profit may have been realized from the business during the period in which the defendant have been
administering it prior to the return of the money, and if so he still retained that sum in his hands. For
these reasons the acceptance of the money by the plaintiff did not have the effect of terminating the
legal existence of the partnership by converting it into a societas leonina, as claimed by counsel for
the defendant.

Did the defendant waive his right to such interest as remained to him in the partnership property by
receiving the money? Did he by so doing waive his right to an accounting of the profits already
realized, if any, and a participation in them in proportion to the amount he had originally contributed
to the common fund? Was the partnership dissolved by the "will or withdrawal of one of the partners"
under article 1705 of the Civil Code? We think these questions must be answered in the negative.

There was no intention on the part of the plaintiff in accepting the money to relinquish his rights as a
partner, nor is there any evidence that by anything that he said or by anything that he omitted to say
he gave the defendant any ground whatever to believe that he intended to relinquish them. On the
contrary he notified the defendant that he waived none of his rights in the partnership. Nor was the
acceptance of the money an act which was in itself inconsistent with the continuance of the
partnership relation, as would have been the case had the plaintiff withdrawn his entire interest in the
partnership. There is, therefore, nothing upon which a waiver, either express or implied, can be
predicated. The defendant might have himself terminated the partnership relation at any time, if he
had chosen to do so, by recognizing the plaintiff's right in the partnership property and in the profits.
Having failed to do this he can not be permitted to force a dissolution upon his co-partner upon terms
which the latter is unwilling to accept. We see nothing in the case which can give the transaction in
question any other aspect than that of the withdrawal by one partner with the consent of the other of
a portion of the common capital.

The result is that we hold and declare that a partnership was formed between the parties in January,
1900, the existence of which the defendant is bound to recognize; that cascoes No. 1515 and 2089
constitute partnership property, and that the plaintiff is entitled to an accounting of the defendant's
administration of such property, and of the profits derived therefrom. This declaration does not
involve an adjudication as to any disputed items of the partnership account.

The judgment of the court below will be reversed without costs, and the record returned for the
execution of the judgment now rendered. So ordered.

Arellano, C.J., Torres, Cooper, and Mapa, JJ., concur.​

Willard, J., dissenting.

ON MOTION FOR A REHEARING.

MAPA, J.:
This case has been decided on appeal in favor of the plaintiff, and the defendant has moved for a
rehearing upon the following grounds:

1. Because that part of the decision which refers to the existence of the partnership which is the
object of the complaint is not based upon clear and decisive legal grounds; and

2. Because, upon the supposition of the existence of the partnership, the decision does not clearly
determine whether the juridical relation between the partners suffered any modification in
consequence of the withdrawal by the plaintiff of the sum of 1,125 pesos from the funds of the
partnership, or if it continued as before, the parties being thereby deprived, he alleges, of one of the
principal bases for determining with exactness the amount due to each.

With respect to the first point, the appellant cites the fifth conclusion of the decision, which is as
follows: "We are unable to find from the evidence before us that there was any specific verbal
agreement of partnership, except such as may be implied from the facts as to the purchase of the
cascoes."

Discussing this part of the decision, the defendant says that, in the judgment of the court, if on the
one hand there is no direct evidence of a contract, on the other its existence can only be inferred
from certain facts, and the defendant adds that the possibility of an inference is not sufficient ground
upon which to consider as existing what may be inferred to exist, and still less as sufficient ground
for declaring its efficacy to produce legal effects.

This reasoning rests upon a false basis. We have not taken into consideration the mere possibility of
an inference, as the appellant gratuitously stated, for the purpose of arriving at a conclusion that a
contract of partnership was entered into between him and the plaintiff, but have considered the proof
which is derived from the facts connected with the purchase of the cascoes. It is stated in the
decision that with the exception of this evidence we find no other which shows the making of the
contract. But this does not mean (for it says exactly the contrary) that this fact is not absolutely
proven, as the defendant erroneously appears to think. From this data we infer a fact which to our
mind is certain and positive, and not a mere possibility; we infer not that it is possible that the
contract may have existed, but that it actually did exist. The proofs constituted by the facts referred
to, although it is the only evidence, and in spite of the fact that it is not direct, we consider, however,
sufficient to produce such a conviction, which may certainly be founded upon any of the various
classes of evidence which the law admits. There is all the more reason for its being so in this case,
because a civil partnership may be constituted in any form, according to article 1667 of the Civil
Code, unless real property or real rights are contributed to it — the only case of exception in which it
is necessary that the agreement be recorded in a public instrument.

It is of no importance that the parties have failed to reach an agreement with respect to the minor
details of contract. These details pertain to the accidental and not to the essential part of the
contract. We have already stated in the opinion what are the essential requisites of a contract of
partnership, according to the definition of article 1665. Considering as a whole the probatory facts
which appears from the record, we have reached the conclusion that the plaintiff and the defendant
agreed to the essential parts of that contract, and did in fact constitute a partnership, with the funds
of which were purchased the cascoes with which this litigation deals, although it is true that they did
not take the precaution to precisely establish and determine from the beginning the conditions with
respect to the participation of each partner in the profits or losses of the partnership. The
disagreements subsequently arising between them, when endeavoring to fix these conditions,
should not and can not produce the effect of destroying that which has been done, to the prejudice of
one of the partners, nor could it divest his rights under the partnership which had accrued by the
actual contribution of capital which followed the agreement to enter into a partnership, together with
the transactions effected with partnership funds. The law has foreseen the possibility of the
constitution of a partnership without an express stipulation by the partners upon those conditions,
and has established rules which may serve as a basis for the distribution of profits and losses
among the partners. (Art. 1689 of the Civil Code. ) We consider that the partnership entered into by
the plaintiff and the defendant falls within the provisions of this article.

With respect to the second point, it is obvious that upon declaring the existence of a partnership and
the right of the plaintiff to demand from the defendant an itemized accounting of his management
thereof, it was impossible at the same time to determine the effects which might have been produced
with respect to the interest of the partnership by the withdrawal by the plaintiff of the sum of 1,125
pesos. This could only be determined after a liquidation of the partnership. Then, and only then, can
it be known if this sum is to be charged to the capital contributed by the plaintiff, or to his share of the
profits, or to both. It might well be that the partnership has earned profits, and that the plaintiff's
participation therein is equivalent to or exceeds the sum mentioned. In this case it is evident that,
notwithstanding that payment, his interest in the partnership would still continue. This is one case. It
would be easy to imagine many others, as the possible results of a liquidation are innumerable. The
liquidation will finally determine the condition of the legal relations of the partners inter se at the time
of the withdrawal of the sum mentioned. It was not, nor is it possible to determine this status a priori
without prejudging the result, as yet unknown, of the litigation. Therefore it is that in the decision no
direct statement has been made upon this point. It is for the same reason that it was expressly
stated in the decision that it "does not involve an adjudication as to any disputed item of the
partnership account."

The contentions advanced by the moving party are so evidently unfounded that we can not see the
necessity or convenience of granting the rehearing prayed for, and the motion is therefore denied.

Arellano, C.J., Torres, Cooper, and Ladd, JJ., concur.​

Willard and McDonough, JJ., did not sit in this case.

Republic of the Philippines​

SUPREME COURT​
Manila

EN BANC

G.R. No. L-4935 May 28, 1954

J. M. TUASON & CO., INC., represented by it Managing PARTNER, GREGORIA ARANETA,

INC., plaintiff-appellee,​
vs.​
QUIRINO BOLAÑOS, defendant-appellant.

Araneta and Araneta for appellee.​

Jose A. Buendia for appellant.
REYES, J.:

This is an action originally brought in the Court of First Instance of Rizal, Quezon City Branch, to
recover possesion of registered land situated in barrio Tatalon, Quezon City.

Plaintiff's complaint was amended three times with respect to the extent and description of the land
sought to be recovered. The original complaint described the land as a portion of a lot registered in
plaintiff's name under Transfer Certificate of Title No. 37686 of the land record of Rizal Province and
as containing an area of 13 hectares more or less. But the complaint was amended by reducing the
area of 6 hectares, more or less, after the defendant had indicated the plaintiff's surveyors the
portion of land claimed and occupied by him. The second amendment became necessary and was
allowed following the testimony of plaintiff's surveyors that a portion of the area was embraced in
another certificate of title, which was plaintiff's Transfer Certificate of Title No. 37677. And still later,
in the course of trial, after defendant's surveyor and witness, Quirino Feria, had testified that the area
occupied and claimed by defendant was about 13 hectares, as shown in his Exhibit 1, plaintiff again,
with the leave of court, amended its complaint to make its allegations conform to the evidence.

Defendant, in his answer, sets up prescription and title in himself thru "open, continuous, exclusive
and public and notorious possession (of land in dispute) under claim of ownership, adverse to the
entire world by defendant and his predecessor in interest" from "time in-memorial". The answer
further alleges that registration of the land in dispute was obtained by plaintiff or its predecessors in
interest thru "fraud or error and without knowledge (of) or interest either personal or thru publication
to defendant and/or predecessors in interest." The answer therefore prays that the complaint be
dismissed with costs and plaintiff required to reconvey the land to defendant or pay its value.

After trial, the lower court rendered judgment for plaintiff, declaring defendant to be without any right
to the land in question and ordering him to restore possession thereof to plaintiff and to pay the latter
a monthly rent of P132.62 from January, 1940, until he vacates the land, and also to pay the costs.

Appealing directly to this court because of the value of the property involved, defendant makes the
following assignment or errors:

I. The trial court erred in not dismissing the case on the ground that the case was not brought by the
real property in interest.

II. The trial court erred in admitting the third amended complaint.

III. The trial court erred in denying defendant's motion to strike.

IV. The trial court erred in including in its decision land not involved in the litigation.

V. The trial court erred in holding that the land in dispute is covered by transfer certificates of Title
Nos. 37686 and 37677.

Vl. The trial court erred in not finding that the defendant is the true and lawful owner of the land.

VII. The trial court erred in finding that the defendant is liable to pay the plaintiff the amount of
P132.62 monthly from January, 1940, until he vacates the premises.
VIII. The trial court erred in not ordering the plaintiff to reconvey the land in litigation to the
defendant.

As to the first assigned error, there is nothing to the contention that the present action is not brought
by the real party in interest, that is, by J. M. Tuason and Co., Inc. What the Rules of Court require is
that an action be brought in the name of, but not necessarily by, the real party in interest. (Section 2,
Rule 2.) In fact the practice is for an attorney-at-law to bring the action, that is to file the complaint, in
the name of the plaintiff. That practice appears to have been followed in this case, since the
complaint is signed by the law firm of Araneta and Araneta, "counsel for plaintiff" and commences
with the statement "comes now plaintiff, through its undersigned counsel." It is true that the
complaint also states that the plaintiff is "represented herein by its Managing Partner Gregorio
Araneta, Inc.", another corporation, but there is nothing against one corporation being represented
by another person, natural or juridical, in a suit in court. The contention that Gregorio Araneta, Inc.
can not act as managing partner for plaintiff on the theory that it is illegal for two corporations to
enter into a partnership is without merit, for the true rule is that "though a corporation has no power
to enter into a partnership, it may nevertheless enter into a joint venture with another where the
nature of that venture is in line with the business authorized by its charter." (Wyoming-Indiana Oil
Gas Co. vs. Weston, 80 A. L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.) There is nothing in the
record to indicate that the venture in which plaintiff is represented by Gregorio Araneta, Inc. as "its
managing partner" is not in line with the corporate business of either of them.

Errors II, III, and IV, referring to the admission of the third amended complaint, may be answered by
mere reference to section 4 of Rule 17, Rules of Court, which sanctions such amendment. It reads:

Sec. 4. Amendment to conform to evidence. — When issues not raised by the pleadings are tried by
express or implied consent of the parties, they shall be treated in all respects, as if they had been
raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to
conform to the evidence and to raise these issues may be made upon motion of any party at my
time, even of the trial of these issues. If evidence is objected to at the trial on the ground that it is not
within the issues made by the pleadings, the court may allow the pleadings to be amended and shall
be so freely when the presentation of the merits of the action will be subserved thereby and the
objecting party fails to satisfy the court that the admission of such evidence would prejudice him in
maintaining his action or defense upon the merits. The court may grant a continuance to enable the
objecting party to meet such evidence.

Under this provision amendment is not even necessary for the purpose of rendering judgment on
issues proved though not alleged. Thus, commenting on the provision, Chief Justice Moran says in
this Rules of Court:

Under this section, American courts have, under the New Federal Rules of Civil Procedure, ruled
that where the facts shown entitled plaintiff to relief other than that asked for, no amendment to the
complaint is necessary, especially where defendant has himself raised the point on which recovery is
based, and that the appellate court treat the pleadings as amended to conform to the evidence,
although the pleadings were not actually amended. (I Moran, Rules of Court, 1952 ed., 389-390.)

Our conclusion therefore is that specification of error II, III, and IV are without merit..
Let us now pass on the errors V and VI. Admitting, though his attorney, at the early stage of the trial,
that the land in dispute "is that described or represented in Exhibit A and in Exhibit B enclosed in red
pencil with the name Quirino Bolaños," defendant later changed his lawyer and also his theory and
tried to prove that the land in dispute was not covered by plaintiff's certificate of title. The evidence,
however, is against defendant, for it clearly establishes that plaintiff is the registered owner of lot No.
4-B-3-C, situate in barrio Tatalon, Quezon City, with an area of 5,297,429.3 square meters, more or
less, covered by transfer certificate of title No. 37686 of the land records of Rizal province, and of lot
No. 4-B-4, situated in the same barrio, having an area of 74,789 square meters, more or less,
covered by transfer certificate of title No. 37677 of the land records of the same province, both lots
having been originally registered on July 8, 1914 under original certificate of title No. 735. The
identity of the lots was established by the testimony of Antonio Manahan and Magno Faustino,
witnesses for plaintiff, and the identity of the portion thereof claimed by defendant was established
by the testimony of his own witness, Quirico Feria. The combined testimony of these three witnesses
clearly shows that the portion claimed by defendant is made up of a part of lot 4-B-3-C and major on
portion of lot 4-B-4, and is well within the area covered by the two transfer certificates of title already
mentioned. This fact also appears admitted in defendant's answer to the third amended complaint.

As the land in dispute is covered by plaintiff's Torrens certificate of title and was registered in 1914,
the decree of registration can no longer be impugned on the ground of fraud, error or lack of notice
to defendant, as more than one year has already elapsed from the issuance and entry of the decree.
Neither court the decree be collaterally attacked by any person claiming title to, or interest in, the
1
land prior to the registration proceedings. (Soroñgon vs. Makalintal, 45 Off. Gaz., 3819.) Nor could
title to that land in derogation of that of plaintiff, the registered owner, be acquired by prescription or
adverse possession. (Section 46, Act No. 496.) Adverse, notorious and continuous possession
under claim of ownership for the period fixed by law is ineffective against a Torrens title. (Valiente vs.
2
Judge of CFI of Tarlac, etc., 45 Off. Gaz., Supp. 9, p. 43.) And it is likewise settled that the right to
secure possession under a decree of registration does not prescribed. (Francisco vs. Cruz, 43 Off.
Gaz., 5105, 5109-5110.) A recent decision of this Court on this point is that rendered in the case of
Jose Alcantara et al., vs. Mariano et al., 92 Phil., 796. This disposes of the alleged errors V and VI.

As to error VII, it is claimed that `there was no evidence to sustain the finding that defendant should
be sentenced to pay plaintiff P132.62 monthly from January, 1940, until he vacates the premises.'
But it appears from the record that that reasonable compensation for the use and occupation of the
premises, as stipulated at the hearing was P10 a month for each hectare and that the area occupied
by defendant was 13.2619 hectares. The total rent to be paid for the area occupied should therefore
be P132.62 a month. It is appears from the testimony of J. A. Araneta and witness Emigdio
Tanjuatco that as early as 1939 an action of ejectment had already been filed against defendant.
And it cannot be supposed that defendant has been paying rents, for he has been asserting all along
that the premises in question 'have always been since time immemorial in open, continuous,
exclusive and public and notorious possession and under claim of ownership adverse to the entire
world by defendant and his predecessors in interest.' This assignment of error is thus clearly without
merit.

Error No. VIII is but a consequence of the other errors alleged and needs for further consideration.
During the pendency of this case in this Court appellant, thru other counsel, has filed a motion to
dismiss alleging that there is pending before the Court of First Instance of Rizal another action
between the same parties and for the same cause and seeking to sustain that allegation with a copy
of the complaint filed in said action. But an examination of that complaint reveals that appellant's
allegation is not correct, for the pretended identity of parties and cause of action in the two suits
does not appear. That other case is one for recovery of ownership, while the present one is for
recovery of possession. And while appellant claims that he is also involved in that order action
because it is a class suit, the complaint does not show that such is really the case. On the contrary, it
appears that the action seeks relief for each individual plaintiff and not relief for and on behalf of
others. The motion for dismissal is clearly without merit.

Wherefore, the judgment appealed from is affirmed, with costs against the plaintiff.

Paras, C.J., Pablo, Bengzon, Montemayor, Jugo, Bautista Angelo, Labrador, and Concepcion, JJ.,
concur.

Republic of the Philippines​

SUPREME COURT​
Manila

THIRD DIVISION

G.R. No. 134559 December 9, 1999

ANTONIA TORRES assisted by her husband, ANGELO TORRES; and EMETERIA BARING,
petitioners,​
vs.​
COURT OF APPEALS and MANUEL TORRES, respondents.

PANGANIBAN, J.:

Courts may not extricate parties from the necessary consequences of their acts. That the terms of a
contract turn out to be financially disadvantageous to them will not relieve them of their obligations
therein. The lack of an inventory of real property will not ipso facto release the contracting partners
from their respective obligations to each other arising from acts executed in accordance with their
agreement.

The Case

1
The Petition for Review on Certiorari before us assails the March 5, 1998 Decision of the Court of
2
Appeals (CA) in CA-GR CV No. 42378 and its June 25, 1998 Resolution denying reconsideration.
The assailed Decision affirmed the ruling of the Regional Trial Court (RTC) of Cebu City in Civil Case
No. R-21208, which disposed as follows:

WHEREFORE, for all the foregoing considerations, the Court, finding for the defendant and against
the plaintiffs, orders the dismissal of the plaintiffs complaint. The counterclaims of the defendant are
3
likewise ordered dismissed. No pronouncement as to costs.

The Facts

Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint venture
agreement" with Respondent Manuel Torres for the development of a parcel of land into a
subdivision. Pursuant to the contract, they executed a Deed of Sale covering the said parcel of land
in favor of respondent, who then had it registered in his name. By mortgaging the property,
respondent obtained from Equitable Bank a loan of P40,000 which, under the Joint Venture
4
Agreement, was to be used for the development of the subdivision. All three of them also agreed
to share the proceeds from the sale of the subdivided lots.

The project did not push through, and the land was subsequently foreclosed by the bank.

According to petitioners, the project failed because of "respondent's lack of funds or means and
skills." They add that respondent used the loan not for the development of the subdivision, but in
furtherance of his own company, Universal Umbrella Company.

On the other hand, respondent alleged that he used the loan to implement the Agreement. With the
said amount, he was able to effect the survey and the subdivision of the lots. He secured the Lapu
Lapu City Council's approval of the subdivision project which he advertised in a local newspaper. He
also caused the construction of roads, curbs and gutters. Likewise, he entered into a contract with
an engineering firm for the building of sixty low-cost housing units and actually even set up a model
house on one of the subdivision lots. He did all of these for a total expense of P85,000.

Respondent claimed that the subdivision project failed, however, because petitioners and their
relatives had separately caused the annotations of adverse claims on the title to the land, which
eventually scared away prospective buyers. Despite his requests, petitioners refused to cause the
5
clearing of the claims, thereby forcing him to give up on the project.

Subsequently, petitioners filed a criminal case for estafa against respondent and his wife, who were
however acquitted. Thereafter, they filed the present civil case which, upon respondent's motion,
was later dismissed by the trial court in an Order dated September 6, 1982. On appeal, however, the
appellate court remanded the case for further proceedings. Thereafter, the RTC issued its assailed
Decision, which, as earlier stated, was affirmed by the CA.

6
Hence, this Petition.

Ruling of the Court of Appeals

In affirming the trial court, the Court of Appeals held that petitioners and respondent had formed a
partnership for the development of the subdivision. Thus, they must bear the loss suffered by the
partnership in the same proportion as their share in the profits stipulated in the contract. Disagreeing
with the trial court's pronouncement that losses as well as profits in a joint venture should be
7
distributed equally, the CA invoked Article 1797 of the Civil Code which provides:

Art. 1797 — The losses and profits shall be distributed in conformity with the agreement. If only the
share of each partner in the profits has been agreed upon, the share of each in the losses shall be in
the same proportion.

The CA elucidated further:

In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion
to what he may have contributed, but the industrial partner shall not be liable for the losses. As for
the profits, the industrial partner shall receive such share as may be just and equitable under the
circumstances. If besides his services he has contributed capital, he shall also receive a share in the
profits in proportion to his capital.

The Issue

Petitioners impute to the Court of Appeals the following error:

. . . [The] Court of Appeals erred in concluding that the transaction​

. . . between the petitioners and respondent was that of a joint venture/partnership, ignoring outright
8
the provision of Article 1769, and other related provisions of the Civil Code of the Philippines.

The Court's Ruling

The Petition is bereft of merit.

Main Issue:

Existence of a Partnership

Petitioners deny having formed a partnership with respondent. They contend that the Joint Venture
Agreement and the earlier Deed of Sale, both of which were the bases of the appellate court's
finding of a partnership, were void.

In the same breath, however, they assert that under those very same contracts, respondent is liable
for his failure to implement the project. Because the agreement entitled them to receive 60 percent
of the proceeds from the sale of the subdivision lots, they pray that respondent pay them damages
9
equivalent to 60 percent of the value of the property.

The pertinent portions of the Joint Venture Agreement read as follows:

KNOW ALL MEN BY THESE PRESENTS:

This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th day of March, 1969,
by and between MR. MANUEL R. TORRES, . . . the FIRST PARTY, likewise, MRS. ANTONIA B.
TORRES, and MISS EMETERIA BARING, . . . the SECOND PARTY:

WITNESSETH:

That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this property located at
Lapu-Lapu City, Island of Mactan, under Lot No. 1368 covering TCT No. T-0184 with a total area of
17,009 square meters, to be sub-divided by the FIRST PARTY;

Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of: TWENTY THOUSAND
(P20,000.00) Pesos, Philippine Currency upon the execution of this contract for the property
entrusted by the SECOND PARTY, for sub-division projects and development purposes;

NOW THEREFORE, for and in consideration of the above covenants and promises herein contained
the respective parties hereto do hereby stipulate and agree as follows:

ONE: That the SECOND PARTY signed an absolute Deed of Sale . . . dated March 5, 1969, in the
amount of TWENTY FIVE THOUSAND FIVE HUNDRED THIRTEEN & FIFTY CTVS. (P25,513.50)
Philippine Currency, for 1,700 square meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine
Currency, in favor of the FIRST PARTY, but the SECOND PARTY did not actually receive the
payment.

SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the necessary amount
of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, for their personal obligations and
this particular amount will serve as an advance payment from the FIRST PARTY for the property
mentioned to be sub-divided and to be deducted from the sales.

THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the interest and the
principal amount involving the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine
Currency, until the sub-division project is terminated and ready for sale to any interested parties, and
the amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, will be deducted
accordingly.

FOURTH: That all general expense[s] and all cost[s] involved in the sub-division project should be
paid by the FIRST PARTY, exclusively and all the expenses will not be deducted from the sales after
the development of the sub-division project.

FIFTH: That the sales of the sub-divided lots will be divided into SIXTY PERCENTUM 60% for the
SECOND PARTY and FORTY PERCENTUM 40% for the FIRST PARTY, and additional profits or
whatever income deriving from the sales will be divided equally according to the . . . percentage
[agreed upon] by both parties.

SIXTH: That the intended sub-division project of the property involved will start the work and all
improvements upon the adjacent lots will be negotiated in both parties['] favor and all sales shall [be]
decided by both parties.

SEVENTH: That the SECOND PARTIES, should be given an option to get back the property
mentioned provided the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency,
borrowed by the SECOND PARTY, will be paid in full to the FIRST PARTY, including all necessary
improvements spent by the FIRST PARTY, and-the FIRST PARTY will be given a grace period to
turnover the property mentioned above.

That this AGREEMENT shall be binding and obligatory to the parties who executed same freely and
10
voluntarily for the uses and purposes therein stated.

A reading of the terms embodied in the Agreement indubitably shows the existence of a partnership
pursuant to Article 1767 of the Civil Code, which provides:

Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among themselves.

Under the above-quoted Agreement, petitioners would contribute property to the partnership in the
form of land which was to be developed into a subdivision; while respondent would give, in addition
to his industry, the amount needed for general expenses and other costs. Furthermore, the income
from the said project would be divided according to the stipulated percentage. Clearly, the contract
11
manifested the intention of the parties to form a partnership.

It should be stressed that the parties implemented the contract. Thus, petitioners transferred the title
to the land to facilitate its use in the name of the respondent. On the other hand, respondent caused
the subject land to be mortgaged, the proceeds of which were used for the survey and the
subdivision of the land. As noted earlier, he developed the roads, the curbs and the gutters of the
subdivision and entered into a contract to construct low-cost housing units on the property.

Respondent's actions clearly belie petitioners' contention that he made no contribution to the
partnership. Under Article 1767 of the Civil Code, a partner may contribute not only money or
property, but also industry.

Petitioners Bound by

Terms of Contract

Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been expressly
stipulated, but also to all necessary consequences thereof, as follows:

Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not
only to the fulfillment of what has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law.

It is undisputed that petitioners are educated and are thus presumed to have understood the terms
of the contract they voluntarily signed. If it was not in consonance with their expectations, they
should have objected to it and insisted on the provisions they wanted.

Courts are not authorized to extricate parties from the necessary consequences of their acts, and
the fact that the contractual stipulations may turn out to be financially disadvantageous will not
relieve parties thereto of their obligations. They cannot now disavow the relationship formed from
such agreement due to their supposed misunderstanding of its terms.

Alleged Nullity of the

Partnership Agreement

Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil Code,
which provides:

Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if
an inventory of said property is not made, signed by the parties, and attached to the public
instrument.

They contend that since the parties did not make, sign or attach to the public instrument an inventory
of the real property contributed, the partnership is void.

We clarify. First, Article 1773 was intended primarily to protect third persons. Thus, the eminent
Arturo M. Tolentino states that under the aforecited provision which is a complement of Article 1771,
12
"The execution of a public instrument would be useless if there is no inventory of the property
contributed, because without its designation and description, they cannot be subject to inscription in
the Registry of Property, and their contribution cannot prejudice third persons. This will result in fraud
to those who contract with the partnership in the belief [in] the efficacy of the guaranty in which the
immovables may consist. Thus, the contract is declared void by the law when no such inventory is
made." The case at bar does not involve third parties who may be prejudiced.

Second, petitioners themselves invoke the allegedly void contract as basis for their claim that
13
respondent should pay them 60 percent of the value of the property. They cannot in one breath
deny the contract and in another recognize it, depending on what momentarily suits their purpose.
Parties cannot adopt inconsistent positions in regard to a contract and courts will not tolerate, much
less approve, such practice.

In short, the alleged nullity of the partnership will not prevent courts from considering the Joint
Venture Agreement an ordinary contract from which the parties' rights and obligations to each other
may be inferred and enforced.

Partnership Agreement Not the Result

of an Earlier Illegal Contract

14
Petitioners also contend that the Joint Venture Agreement is void under Article 1422 of the Civil
Code, because it is the direct result of an earlier illegal contract, which was for the sale of the land
without valid consideration.

This argument is puerile. The Joint Venture Agreement clearly states that the consideration for the
sale was the expectation of profits from the subdivision project. Its first stipulation states that
petitioners did not actually receive payment for the parcel of land sold to respondent. Consideration,
more properly denominated as cause, can take different forms, such as the prestation or promise of
15
a thing or service by another.

In this case, the cause of the contract of sale consisted not in the stated peso value of the land, but
in the expectation of profits from the subdivision project, for which the land was intended to be used.
As explained by the trial court, "the land was in effect given to the partnership as [petitioner's]
participation therein. . . . There was therefore a consideration for the sale, the [petitioners] acting in
the expectation that, should the venture come into fruition, they [would] get sixty percent of the net
profits."

Liability of the Parties

Claiming that rerpondent was solely responsible for the failure of the subdivision project, petitioners
maintain that he should be made to pay damages equivalent to 60 percent of the value of the
property, which was their share in the profits under the Joint Venture Agreement.

We are not persuaded. True, the Court of Appeals held that petitioners' acts were not the cause of
16 17
the failure of the project. But it also ruled that neither was respondent responsible therefor. In
imputing the blame solely to him, petitioners failed to give any reason why we should disregard the
factual findings of the appellate court relieving him of fault. Verily, factual issues cannot be resolved
in a petition for review under Rule 45, as in this case. Petitioners have not alleged, not to say shown,
18
that their Petition constitutes one of the exceptions to this doctrine. Accordingly, we find no
reversible error in the CA's ruling that petitioners are not entitled to damages.

WHEREFORE, the Perition is hereby DENIED and the challenged Decision AFFIRMED. Costs
against petitioners.

SO ORDERED

Melo, Vitug, Purisima and Gonzaga-Reyes, JJ., concur.