Professional Documents
Culture Documents
Partnership Cases 1771-1783
Partnership Cases 1771-1783
and partially paid the same to respondent. Petitioner Lilibeth allegedly informed respondent that the
P200,000.00 represented partial payment of the latter's share in the partnership, with a promise that
the former would make the complete inventory and winding up of the properties of the business
LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners,
establishment. Despite such commitment, petitioners allegedly failed to comply with their duty to
vs.
account, and continued to benefit from the assets and income of Shellite to the damage and prejudice
LAMBERTO T. CHUA, respondent.
of respondent.
GONZAGA-REYES, J.:
On December 19, 1992, petitioners filed a Motion to Dismiss on the ground that the Securities and
Exchange Commission (SEC) in Manila, not the Regional Trial Court in Zamboanga del Norte had
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court of the Decision of 1
jurisdiction over the action. Respondent opposed the motion to dismiss.
the Court of Appeals dated January 31, 2000 in the case entitled "Lamberto T. Chua vs. Lilibeth Sunga
Chan and Cecilia Sunga" and of the Resolution dated May 23, 2000 denying the motion for
On January 12, 1993, the trial court finding the complaint sufficient in from and substance denied the
reconsideration of herein petitioners Lilibeth Sunga and Cecilia Sunga (hereafter collectively referred to
motion to dismiss.
as petitioners).
On January 30, 1993, petitioners filed their Answer with Compulsory Counter-claims, contending that
The pertinent facts of this case are as follows:
they are not liable for partnership shares, unreceived income/profits, interests, damages and attorney's
fees, that respondent does not have a cause of action against them, and that the trial court has no
On June 22, 1992, Lamberto T. Chua (hereafter respondent) filed a complaint against Lilibeth Sunga jurisdiction over the nature of the action, the SEC being the agency that has original and exclusive
Chan (hereafter petitioner Lilibeth) and Cecilia Sunga (hereafter petitioner Cecilia), daughter and wife, jurisdiction over the case. As counterclaim, petitioner sought attorney's fees and expenses of litigation.
respectively of the deceased Jacinto L. Sunga (hereafter Jacinto), for "Winding Up of Partnership Affairs,
Accounting, Appraisal and Recovery of Shares and Damages with Writ of Preliminary Attachment" with
On August 2, 1993, petitioner filed a second Motion to Dismiss this time on the ground that the claim
the Regional Trial Court, Branch 11, Sindangan, Zamboanga del Norte.
for winding up of partnership affairs, accounting and recovery of shares in partnership affairs,
accounting and recovery of shares in partnership assets/properties should be dismissed and prosecuted
Respondent alleged that in 1977, he verbally entered into a partnership with Jacinto in the distribution against the estate of deceased Jacinto in a probate or intestate proceeding.
of Shellane Liquefied Petroleum Gas (LPG) in Manila. For business convenience, respondent and Jacinto
allegedly agreed to register the business name of their partnership, SHELLITE GAS APPLIANCE CENTER
On August 16, 1993, the trial denied the second motion to dismiss for lack of merit.
(hereafter Shellite), under the name of Jacinto as a sole proprietorship. Respondent allegedly delivered
his initial capital contribution of P100,000.00 to Jacinto while the latter in turn produced P100,000.00
as his counterpart contribution, with the intention that the profits would be equally divided between On November 26, 1993, petitioners filed their Petition for Certiorari, Prohibition and Mandamus with the
them. The partnership allegedly had Jacinto as manager, assisted by Josephine Sy (hereafter Court of Appeals docketed as CA-G.R. SP No. 32499 questioning the denial of the motion to dismiss.
Josephine), a sister of the wife respondent, Erlinda Sy. As compensation, Jacinto would receive a
manager's fee or remuneration of 10% of the gross profit and Josephine would receive 10% of the net
On November 29, 1993, petitioners filed with the trial court a Motion to Suspend Pre-trial Conference.
profits, in addition to her wages and other remuneration from the business.
On December 13, 1993, the trial court granted the motion to suspend pre-trial conference.
Allegedly, from the time that Shellite opened for business on July 8, 1977, its business operation went
quite and was profitable. Respondent claimed that he could attest to success of their business because
of the volume of orders and deliveries of filled Shellane cylinder tanks supplied by Pilipinas Shell On November 15, 1994, the Court of Appeals denied the petition for lack of merit.
Petroleum Corporation. While Jacinto furnished respondent with the merchandise inventories, balance
sheets and net worth of Shellite from 1977 to 1989, respondent however suspected that the amount On January 16, 1995, this Court denied the petition for review on certiorari filed by petitioner, "as
indicated in these documents were understated and undervalued by Jacinto and Josephine for their own petitioners failed to show that a reversible error was committed by the appellate court."2
selfish reasons and for tax avoidance.
On February 20, 1995, entry of judgment was made by the Clerk of Court and the case was remanded
Upon Jacinto's death in the later part of 1989, his surviving wife, petitioner Cecilia and particularly his to the trial court on April 26, 1995.
daughter, petitioner Lilibeth, took over the operations, control, custody, disposition and management
of Shellite without respondent's consent. Despite respondent's repeated demands upon petitioners for
accounting, inventory, appraisal, winding up and restitution of his net shares in the partnership, On September 25, 1995, the trial court terminated the pre-trial conference and set the hearing of the
petitioners failed to comply. Petitioner Lilibeth allegedly continued the operations of Shellite, converting case of January 17, 1996. Respondent presented his evidence while petitioners were considered to have
to her own use and advantage its properties. waived their right to present evidence for their failure to attend the scheduled date for reception of
evidence despite notice.
On March 31, 1991, respondent claimed that after petitioner Lilibeth ran out the alibis and reasons to
evade respondent's demands, she disbursed out of the partnership funds the amount of P200,000.00
1
On October 7, 1997, the trial court rendered its Decision ruling for respondent. The dispositive of the "WHEREFORE, the instant appeal is dismissed. The appealed decision is AFFIRMED in all
Decision reads: respects."4
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, On May 23, 2000, the Court of Appeals denied the motion for reconsideration filed by petitioner.
as follows:
Hence, this petition wherein petitioner relies upon following grounds:
(1) DIRECTING them to render an accounting in acceptable form under accounting
procedures and standards of the properties, assets, income and profits of the Shellite
"1. The Court of Appeals erred in making a legal conclusion that there existed a partnership
Gas Appliance Center Since the time of death of Jacinto L. Sunga, from whom they
between respondent Lamberto T. Chua and the late Jacinto L. Sunga upon the latter'' invitation
continued the business operations including all businesses derived from Shellite Gas
and offer and that upon his death the partnership assets and business were taken over by
Appliance Center, submit an inventory, and appraisal of all these properties, assets,
petitioners.
income, profits etc. to the Court and to plaintiff for approval or disapproval;
2. The Court of Appeals erred in making the legal conclusion that laches and/or prescription
(2) ORDERING them to return and restitute to the partnership any and all properties,
did not apply in the instant case.
assets, income and profits they misapplied and converted to their own use and
advantage the legally pertain to the plaintiff and account for the properties mentioned
in pars. A and B on pages 4-5 of this petition as basis; 3. The Court of Appeals erred in making the legal conclusion that there was competent and
credible evidence to warrant the finding of a partnership, and assuming arguendo that indeed
there was a partnership, the finding of highly exaggerated amounts or values in the partnership
(3) DIRECTING them to restitute and pay to the plaintiff ½ shares and interest of the
assets and profits."5
plaintiff in the partnership of the listed properties, assets and good will (sic) in
schedules A, B and C, on pages 4-5 of the petition;
Petitioners question the correctness of the finding of the trial court and the Court of Appeals that a
partnership existed between respondent and Jacinto from 1977 until Jacinto's death. In the absence of
(4) ORDERING them to pay the plaintiff earned but unreceived income and profits
any written document to show such partnership between respondent and Jacinto, petitioners argues
from the partnership from 1988 to May 30, 1992, when the plaintiff learned of the
that these courts were proscribes from hearing the testimonies of respondent and his witness,
closure of the store the sum of P35,000.00 per month, with legal rate of interest until
Josephine, to prove the alleged partnership three years after Jacinto's death. To support this argument,
fully paid;
petitioners invoke the "Dead Man's Statute' or "Survivorship Rule" under Section 23, Rule 130 of the
Rules of Court that provides:
(5) ORDERING them to wind up the affairs of the partnership and terminate its
business activities pursuant to law, after delivering to the plaintiff all the ½ interest,
"SEC. 23. Disqualification by reason of death or insanity of adverse party. – Parties or
shares, participation and equity in the partnership, or the value thereof in money or
assignors of parties to a case, or persons in whose behalf a case is prosecuted, against an
money's worth, if the properties are not physically divisible;
executor or administrator or other representative of a deceased person, or against a person of
unsound mind, upon a claim or demand against the estate of such deceased person, or against
(6) FINDING them especially Lilibeth Sunga-Chan guilty of breach of trust and in bad such person of unsound mind, cannot testify as to any matter of fact occurring before the
faith and hold them liable to the plaintiff the sum of P50,000.00 as moral and death of such deceased person or before such person became of unsound mind."
exemplary damages; and,
Petitioners thus implore this Court to rule that the testimonies of respondent and his alter ego,
(7) DIRECTING them to reimburse and pay the sum of P25,000.00 as attorney's (sic) Josephine, should not have been admitted to prove certain claims against a deceased person (Jacinto),
and P25,000.00 as litigation expenses. now represented by petitioners.
SO ORDERED."3 A partnership may be constituted in any form, except where immovable property of real rights are
contributed thereto, in which case a public instrument shall necessary.6 Hence, based on the intention
of the parties, as gathered from the facts and ascertained from their language and conduct, a verbal
On October 28, 1997, petitioners filed a Notice of Appeal with the trial court, appealing the case to the
contract of partnership may arise.7 The essential profits that must be proven to that a partnership was
Court of Appeals.
agreed upon are (1) mutual contribution to a common stock, and (2) a joint interest in the
profits.8 Understandably so, in view of the absence of the written contract of partnership between
On January 31, 2000, the Court of Appeals dismissed the appeal. The dispositive portion of the Decision respondent and Jacinto, respondent resorted to the introduction of documentary and testimonial
reads: evidence to prove said partnership. The crucial issue to settle then is to whether or not the "Dead Man's
2
Statute" applies to this case so as to render inadmissible respondent's testimony and that of his witness, Petitioners' reliance alone on the "Dead Man's Statute" to defeat respondent's claim cannot prevail over
Josephine. the factual findings of the trial court and the Court of Appeals that a partnership was established
between respondent and Jacinto. Based not only on the testimonial evidence, but the documentary
evidence as well, the trial court and the Court of Appeals considered the evidence for respondent as
The "Dead Man's Statute" provides that if one party to the alleged transaction is precluded from
sufficient to prove the formation of partnership, albeit an informal one.
testifying by death, insanity, or other mental disabilities, the surviving party is not entitled to the undue
advantage of giving his own uncontradicted and unexplained account of the transaction.9 But before this
rule can be successfully invoked to bar the introduction of testimonial evidence, it is necessary that: Notably, petitioners did not present any evidence in their favor during trial. By the weight of judicial
precedents, a factual matter like the finding of the existence of a partnership between respondent and
Jacinto cannot be inquired into by this Court on review.17 This Court can no longer be tasked to go over
"1. The witness is a party or assignor of a party to case or persons in whose behalf a case in
the proofs presented by the parties and analyze, assess and weigh them to ascertain if the trial court
prosecuted.
and the appellate court were correct in according superior credit to this or that piece of evidence of one
party or the other.18 It must be also pointed out that petitioners failed to attend the presentation of
2. The action is against an executor or administrator or other representative of a deceased evidence of respondent. Petitioners cannot now turn to this Court to question the admissibility and
person or a person of unsound mind; authenticity of the documentary evidence of respondent when petitioners failed to object to the
admissibility of the evidence at the time that such evidence was offered.19
3. The subject-matter of the action is a claim or demand against the estate of such deceased
person or against person of unsound mind; With regard to petitioners' insistence that laches and/or prescription should have extinguished
respondent's claim, we agree with the trial court and the Court of Appeals that the action for accounting
4. His testimony refers to any matter of fact of which occurred before the death of such filed by respondents three (3) years after Jacinto's death was well within the prescribed period. The
deceased person or before such person became of unsound mind." 10 Civil Code provides that an action to enforce an oral contract prescribes in six (6) years20 while the right
to demand an accounting for a partner's interest as against the person continuing the business accrues
at the date of dissolution, in the absence of any contrary agreement.21 Considering that the death of a
Two reasons forestall the application of the "Dead Man's Statute" to this case. partner results in the dissolution of the partnership22 , in this case, it was Jacinto's death that respondent
as the surviving partner had the right to an account of his interest as against petitioners. It bears
First, petitioners filed a compulsory counterclaim11 against respondents in their answer before the trial stressing that while Jacinto's death dissolved the partnership, the dissolution did not immediately
court, and with the filing of their counterclaim, petitioners themselves effectively removed this case terminate the partnership. The Civil Code23 expressly provides that upon dissolution, the partnership
from the ambit of the "Dead Man's Statute".12 Well entrenched is the rule that when it is the executor continues and its legal personality is retained until the complete winding up of its business, culminating
or administrator or representatives of the estates that sets up the counterclaim, the plaintiff, herein in its termination.24
respondent, may testify to occurrences before the death of the deceased to defeat the
counterclaim.13 Moreover, as defendant in the counterclaim, respondent is not disqualified from In a desperate bid to cast doubt on the validity of the oral partnership between respondent and Jacinto,
testifying as to matters of facts occurring before the death of the deceased, said action not having been petitioners maintain that said partnership that had initial capital of P200,000.00 should have been
brought against but by the estate or representatives of the deceased.14 registered with the Securities and Exchange Commission (SEC) since registration is mandated by the
Civil Code, True, Article 1772 of the Civil Code requires that partnerships with a capital of P3,000.00 or
Second, the testimony of Josephine is not covered by the "Dead Man's Statute" for the simple reason more must register with the SEC, however, this registration requirement is not mandatory. Article 1768
that she is not "a party or assignor of a party to a case or persons in whose behalf a case is prosecuted." of the Civil Code25 explicitly provides that the partnership retains its juridical personality even if it fails
Records show that respondent offered the testimony of Josephine to establish the existence of the to register. The failure to register the contract of partnership does not invalidate the same as among
partnership between respondent and Jacinto. Petitioners' insistence that Josephine is the alter ego of the partners, so long as the contract has the essential requisites, because the main purpose of
respondent does not make her an assignor because the term "assignor" of a party means "assignor of registration is to give notice to third parties, and it can be assumed that the members themselves knew
a cause of action which has arisen, and not the assignor of a right assigned before any cause of action of the contents of their contract.26 In the case at bar, non-compliance with this directory provision of
has arisen."15 Plainly then, Josephine is merely a witness of respondent, the latter being the party the law will not invalidate the partnership considering that the totality of the evidence proves that
plaintiff. respondent and Jacinto indeed forged the partnership in question.
We are not convinced by petitioners' allegation that Josephine's testimony lacks probative value because WHEREFORE, in view of the foregoing, the petition is DENIED and the appealed decision is AFFIRMED.
she was allegedly coerced coerced by respondent, her brother-in-law, to testify in his favor, Josephine
merely declared in court that she was requested by respondent to testify and that if she were not SO ORDERED.1âwphi1.nêt
requested to do so she would not have testified. We fail to see how we can conclude from this candid
admission that Josephine's testimony is involuntary when she did not in any way categorically say that
she was forced to be a witness of respondent. Melo, Vitug, Panganiban, and Sandoval-Gutierrez, JJ., concur.
Also, the fact that Josephine is the sister of the wife of respondent does not diminish the value of her
testimony since relationship per se, without more, does not affect the credibility of witnesses.16
3
G.R. No. L-24193 June 28, 1968 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.
MAURICIO AGAD, plaintiff-appellant,
vs.
SEVERINO MABATO and MABATO and AGAD COMPANY, defendants-appellees. 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
Angeles, Maskarino and Associates for plaintiff-appellant.
in the fishpond business could exist without said fishpond property (being) contributed to the
Victorio S. Advincula for defendants-appellees.
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
CONCEPCION, C.J.: 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:
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 That the capital of the said partnership is Two Thousand (P2,000.00) Pesos Philippine Currency,
contract of partnership on which the complaint herein is based. 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.
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, xxx xxx xxx
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
The operation of the fishpond mentioned in Annex "A" was the purpose of the partnership. Neither said
accounts of the operations of the partnership; and that, despite repeated demands, Mabato had failed
fishpond nor a real right thereto was contributed to the partnership or became part of the capital thereof,
and refused to render accounts for the years 1957 to 1963, Agad prayed in his complaint against Mabato
even if a fishpond or a real right thereto could become part of its assets.
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, WHEREFORE, we find that said Article 1773 of the Civil Code is not in point and that, the order appealed
as well as the winding up of its affairs by a receiver to be appointed therefor. 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.
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.
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.
4
G.R. No. 134559 December 9, 1999 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.
ANTONIA TORRES assisted by her husband, ANGELO TORRES; and EMETERIA
BARING, petitioners,
vs. Respondent claimed that the subdivision project failed, however, because petitioners and their relatives
COURT OF APPEALS and MANUEL TORRES, respondents. had separately caused the annotations of adverse claims on the title to the land, which eventually
scared away prospective buyers. Despite his requests, petitioners refused to cause the clearing of the
claims, thereby forcing him to give up on the project. 5
Subsequently, petitioners filed a criminal case for estafa against respondent and his wife, who were
PANGANIBAN, J.:
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
Courts may not extricate parties from the necessary consequences of their acts. That the terms of a appellate court remanded the case for further proceedings. Thereafter, the RTC issued its assailed
contract turn out to be financially disadvantageous to them will not relieve them of their obligations Decision, which, as earlier stated, was affirmed by the CA.
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
Hence, this Petition. 6
agreement.
In affirming the trial court, the Court of Appeals held that petitioners and respondent had formed a
The Petition for Review on Certiorari before us assails the March 5, 1998 Decision 1 of the Court of
partnership for the development of the subdivision. Thus, they must bear the loss suffered by the
Appeals 2 (CA) in CA-GR CV No. 42378 and its June 25, 1998 Resolution denying reconsideration. The
partnership in the same proportion as their share in the profits stipulated in the contract. Disagreeing
assailed Decision affirmed the ruling of the Regional Trial Court (RTC) of Cebu City in Civil Case No. R-
with the trial court's pronouncement that losses as well as profits in a joint venture should be distributed
21208, which disposed as follows:
equally, 7 the CA invoked Article 1797 of the Civil Code which provides:
WHEREFORE, for all the foregoing considerations, the Court, finding for the defendant
Art. 1797 — The losses and profits shall be distributed in conformity with the
and against the plaintiffs, orders the dismissal of the plaintiffs complaint. The
agreement. If only the share of each partner in the profits has been agreed upon, the
counterclaims of the defendant are likewise ordered dismissed. No pronouncement as
share of each in the losses shall be in the same proportion.
to costs. 3
In the absence of stipulation, the share of each partner in the profits and losses shall
Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint venture agreement"
be in proportion to what he may have contributed, but the industrial partner shall not
with Respondent Manuel Torres for the development of a parcel of land into a subdivision. Pursuant to
be liable for the losses. As for the profits, the industrial partner shall receive such
the contract, they executed a Deed of Sale covering the said parcel of land in favor of respondent, who
share as may be just and equitable under the circumstances. If besides his services
then had it registered in his name. By mortgaging the property, respondent obtained from Equitable
he has contributed capital, he shall also receive a share in the profits in proportion to
Bank a loan of P40,000 which, under the Joint Venture Agreement, was to be used for the development
his capital.
of the subdivision. 4 All three of them also agreed to share the proceeds from the sale of the subdivided
lots.
The Issue
The project did not push through, and the land was subsequently foreclosed by the bank.
Petitioners impute to the Court of Appeals the following error:
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 . . . [The] Court of Appeals erred in concluding that the transaction
of his own company, Universal Umbrella Company. . . . between the petitioners and respondent was that of a joint venture/partnership,
ignoring outright the provision of Article 1769, and other related provisions of the
Civil Code of the Philippines. 8
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 The Court's Ruling
5
The Petition is bereft of merit. 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.
Main Issue:
THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the interest
Existence of a Partnership
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
Petitioners deny having formed a partnership with respondent. They contend that the Joint Venture sale to any interested parties, and the amount of TWENTY THOUSAND (P20,000.00)
Agreement and the earlier Deed of Sale, both of which were the bases of the appellate court's finding pesos, Philippine currency, will be deducted accordingly.
of a partnership, were void.
FOURTH: That all general expense[s] and all cost[s] involved in the sub-division
In the same breath, however, they assert that under those very same contracts, respondent is liable project should be paid by the FIRST PARTY, exclusively and all the expenses will not
for his failure to implement the project. Because the agreement entitled them to receive 60 percent of be deducted from the sales after the development of the sub-division project.
the proceeds from the sale of the subdivision lots, they pray that respondent pay them damages
equivalent to 60 percent of the value of the property. 9
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
The pertinent portions of the Joint Venture Agreement read as follows: additional profits or whatever income deriving from the sales will be divided equally
according to the . . . percentage [agreed upon] by both parties.
KNOW ALL MEN BY THESE PRESENTS:
SIXTH: That the intended sub-division project of the property involved will start the
This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th day of work and all improvements upon the adjacent lots will be negotiated in both parties[']
March, 1969, by and between MR. MANUEL R. TORRES, . . . the FIRST PARTY, favor and all sales shall [be] decided by both parties.
likewise, MRS. ANTONIA B. TORRES, and MISS EMETERIA BARING, . . . the SECOND
PARTY: 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,
WITNESSETH: 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, 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 That this AGREEMENT shall be binding and obligatory to the parties who executed
PARTY; same freely and voluntarily for the uses and purposes therein stated. 10
Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of: TWENTY A reading of the terms embodied in the Agreement indubitably shows the existence of a partnership
THOUSAND (P20,000.00) Pesos, Philippine Currency upon the execution of this pursuant to Article 1767 of the Civil Code, which provides:
contract for the property entrusted by the SECOND PARTY, for sub-division projects
and development purposes; 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
NOW THEREFORE, for and in consideration of the above covenants and promises dividing the profits among themselves.
herein contained the respective parties hereto do hereby stipulate and agree as
follows: 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
ONE: That the SECOND PARTY signed an absolute Deed of Sale . . . dated March 5, his industry, the amount needed for general expenses and other costs. Furthermore, the income from
1969, in the amount of TWENTY FIVE THOUSAND FIVE HUNDRED THIRTEEN & FIFTY the said project would be divided according to the stipulated percentage. Clearly, the contract
CTVS. (P25,513.50) Philippine Currency, for 1,700 square meters at ONE [PESO] & manifested the intention of the parties to form a partnership. 11
FIFTY CTVS. (P1.50) Philippine Currency, in favor of the FIRST PARTY, but the
SECOND PARTY did not actually receive the payment. 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
SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the the subject land to be mortgaged, the proceeds of which were used for the survey and the subdivision
necessary amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency,
6
of the land. As noted earlier, he developed the roads, the curbs and the gutters of the subdivision and may consist. Thus, the contract is declared void by the law when no such inventory is made." The case
entered into a contract to construct low-cost housing units on the property. at bar does not involve third parties who may be prejudiced.
Respondent's actions clearly belie petitioners' contention that he made no contribution to the Second, petitioners themselves invoke the allegedly void contract as basis for their claim that
partnership. Under Article 1767 of the Civil Code, a partner may contribute not only money or property, respondent should pay them 60 percent of the value of the property. 13 They cannot in one breath deny
but also industry. 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.
Petitioners Bound by
In short, the alleged nullity of the partnership will not prevent courts from considering the Joint Venture
Terms of Contract
Agreement an ordinary contract from which the parties' rights and obligations to each other may be
inferred and enforced.
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:
Partnership Agreement Not the Result
Art. 1315. Contracts are perfected by mere consent, and from that moment the
of an Earlier Illegal Contract
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. Petitioners also contend that the Joint Venture Agreement is void under Article 1422 14 of the Civil Code,
because it is the direct result of an earlier illegal contract, which was for the sale of the land without
valid consideration.
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. 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
Courts are not authorized to extricate parties from the necessary consequences of their acts, and the
denominated as cause, can take different forms, such as the prestation or promise of a thing or service
fact that the contractual stipulations may turn out to be financially disadvantageous will not relieve
by another. 15
parties thereto of their obligations. They cannot now disavow the relationship formed from such
agreement due to their supposed misunderstanding of its terms.
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
Alleged Nullity of the
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
Partnership Agreement that, should the venture come into fruition, they [would] get sixty percent of the net profits."
Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil Code, which Liability of the Parties
provides:
Claiming that rerpondent was solely responsible for the failure of the subdivision project, petitioners
Art. 1773. A contract of partnership is void, whenever immovable property is maintain that he should be made to pay damages equivalent to 60 percent of the value of the property,
contributed thereto, if an inventory of said property is not made, signed by the which was their share in the profits under the Joint Venture Agreement.
parties, and attached to the public instrument.
We are not persuaded. True, the Court of Appeals held that petitioners' acts were not the cause of the
They contend that since the parties did not make, sign or attach to the public instrument an inventory failure of the project. 16 But it also ruled that neither was respondent responsible therefor. 17 In imputing
of the real property contributed, the partnership is void. 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
We clarify. First, Article 1773 was intended primarily to protect third persons. Thus, the eminent Arturo for review under Rule 45, as in this case. Petitioners have not alleged, not to say shown, that their
M. Tolentino states that under the aforecited provision which is a complement of Article 1771, 12 "The Petition constitutes one of the exceptions to this doctrine. 18Accordingly, we find no reversible error in
execution of a public instrument would be useless if there is no inventory of the property contributed, the CA's ruling that petitioners are not entitled to damages.
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 WHEREFORE, the Perition is hereby DENIED and the challenged Decision AFFIRMED. Costs against
contract with the partnership in the belief [in] the efficacy of the guaranty in which the immovables petitioners.
7
G.R. No. L-25532 February 28, 1969 The theory of the petitioner, Commissioner of Internal Revenue, is that the marriage of Suter and Spirig
and their subsequent acquisition of the interests of remaining partner Carlson in the partnership
dissolved the limited partnership, and if they did not, the fiction of juridical personality of the partnership
COMMISSIONER OF INTERNAL REVENUE, petitioner,
should be disregarded for income tax purposes because the spouses have exclusive ownership and
vs.
control of the business; consequently the income tax return of respondent Suter for the years in
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.
question should have included his and his wife's individual incomes and that of the limited partnership,
in accordance with Section 45 (d) of the National Internal Revenue Code, which provides as follows:
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete and
Special Attorneys B. Gatdula, Jr. and T. Temprosa Jr. for petitioner.
(d) Husband and wife. — In the case of married persons, whether citizens, residents or non-
A. S. Monzon, Gutierrez, Farrales and Ong for respondents.
residents, only one consolidated return for the taxable year shall be filed by either spouse to
cover the income of both spouses; ....
REYES, J.B.L., J.:
In refutation of the foregoing, respondent Suter maintains, as the Court of Tax Appeals held, that his
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30 September 1947 marriage with limited partner Spirig and their acquisition of Carlson's interests in the partnership in
by herein respondent William J. Suter as the general partner, and Julia Spirig and Gustav Carlson, as 1948 is not a ground for dissolution of the partnership, either in the Code of Commerce or in the New
the limited partners. The partners contributed, respectively, P20,000.00, P18,000.00 and P2,000.00 to Civil Code, and that since its juridical personality had not been affected and since, as a limited
the partnership. On 1 October 1947, the limited partnership was registered with the Securities and partnership, as contra distinguished from a duly registered general partnership, it is taxable on its
Exchange Commission. The firm engaged, among other activities, in the importation, marketing, income similarly with corporations, Suter was not bound to include in his individual return the income
distribution and operation of automatic phonographs, radios, television sets and amusement machines, of the limited partnership.
their parts and accessories. It had an office and held itself out as a limited partnership, handling and
carrying merchandise, using invoices, bills and letterheads bearing its trade-name, maintaining its own
We find the Commissioner's appeal unmeritorious.
books of accounts and bank accounts, and had a quota allocation with the Central Bank.
The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has been dissolved by
In 1948, however, general partner Suter and limited partner Spirig got married and, thereafter, on 18
operation of law because of the marriage of the only general partner, William J. Suter to the originally
December 1948, limited partner Carlson sold his share in the partnership to Suter and his wife. The
limited partner, Julia Spirig one year after the partnership was organized is rested by the appellant
sale was duly recorded with the Securities and Exchange Commission on 20 December 1948.
upon the opinion of now Senator Tolentino in Commentaries and Jurisprudence on Commercial Laws of
the Philippines, Vol. 1, 4th Ed., page 58, that reads as follows:
The limited partnership had been filing its income tax returns as a corporation, without objection by the
herein petitioner, Commissioner of Internal Revenue, until in 1959 when the latter, in an assessment,
A husband and a wife may not enter into a contract of general copartnership, because under
consolidated the income of the firm and the individual incomes of the partners-spouses Suter and Spirig
the Civil Code, which applies in the absence of express provision in the Code of Commerce,
resulting in a determination of a deficiency income tax against respondent Suter in the amount of
persons prohibited from making donations to each other are prohibited from entering
P2,678.06 for 1954 and P4,567.00 for 1955.
into universal partnerships. (2 Echaverri 196) It follows that the marriage of partners
necessarily brings about the dissolution of a pre-existing partnership. (1 Guy de Montella 58)
Respondent Suter protested the assessment, and requested its cancellation and withdrawal, as not in
accordance with law, but his request was denied. Unable to secure a reconsideration, he appealed to
The petitioner-appellant has evidently failed to observe the fact that William J. Suter "Morcoin" Co., Ltd.
the Court of Tax Appeals, which court, after trial, rendered a decision, on 11 November 1965, reversing
was not a universal partnership, but a particular one. As appears from Articles 1674 and 1675 of the
that of the Commissioner of Internal Revenue.
Spanish Civil Code, of 1889 (which was the law in force when the subject firm was organized in 1947),
a universal partnership requires either that the object of the association be all the present property of
The present case is a petition for review, filed by the Commissioner of Internal Revenue, of the tax the partners, as contributed by them to the common fund, or else "all that the partners may acquire by
court's aforesaid decision. It raises these issues: their industry or work during the existence of the partnership". William J. Suter "Morcoin" Co., Ltd. was
not such a universal partnership, since the contributions of the partners were fixed sums of money,
(a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co., Ltd. should be P20,000.00 by William Suter and P18,000.00 by Julia Spirig and neither one of them was an industrial
disregarded for income tax purposes, considering that respondent William J. Suter and his wife, Julia partner. It follows that William J. Suter "Morcoin" Co., Ltd. was not a partnership that spouses were
Spirig Suter actually formed a single taxable unit; and forbidden to enter by Article 1677 of the Civil Code of 1889.
(b) Whether or not the partnership was dissolved after the marriage of the partners, respondent William The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his Derecho Civil, 7th Edition,
J. Suter and Julia Spirig Suter and the subsequent sale to them by the remaining partner, Gustav 1952, Volume 4, page 546, footnote 1, says with regard to the prohibition contained in the aforesaid
Carlson, of his participation of P2,000.00 in the partnership for a nominal amount of P1.00. Article 1677:
8
Los conyuges, segun esto, no pueden celebrar entre si el contrato de sociedad universal, pero As the limited partnership under consideration is taxable on its income, to require that income to be
o podran constituir sociedad particular? Aunque el punto ha sido muy debatido, nos inclinamos included in the individual tax return of respondent Suter is to overstretch the letter and intent of the
a la tesis permisiva de los contratos de sociedad particular entre esposos, ya que ningun law. In fact, it would even conflict with what it specifically provides in its Section 24: for the appellant
precepto de nuestro Codigo los prohibe, y hay que estar a la norma general segun la que toda Commissioner's stand results in equal treatment, tax wise, of a general copartnership (compañia
persona es capaz para contratar mientras no sea declarado incapaz por la ley. La jurisprudencia colectiva) and a limited partnership, when the code plainly differentiates the two. Thus, the code taxes
de la Direccion de los Registros fue favorable a esta misma tesis en su resolution de 3 de the latter on its income, but not the former, because it is in the case of compañias colectivas that the
febrero de 1936, mas parece cambiar de rumbo en la de 9 de marzo de 1943. members, and not the firm, are taxable in their individual capacities for any dividend or share of the
profit derived from the duly registered general partnership (Section 26, N.I.R.C.; Arañas, Anno. & Juris.
on the N.I.R.C., As Amended, Vol. 1, pp. 88-89).lawphi1.nêt
Nor could the subsequent marriage of the partners operate to dissolve it, such marriage not being one
of the causes provided for that purpose either by the Spanish Civil Code or the Code of Commerce.
But it is argued that the income of the limited partnership is actually or constructively the income of
the spouses and forms part of the conjugal partnership of gains. This is not wholly correct. As pointed
The appellant's view, that by the marriage of both partners the company became a single proprietorship,
out in Agapito vs. Molo 50 Phil. 779, and People's Bank vs. Register of Deeds of Manila, 60 Phil. 167,
is equally erroneous. The capital contributions of partners William J. Suter and Julia Spirig were
the fruits of the wife's parapherna become conjugal only when no longer needed to defray the expenses
separately owned and contributed by them before their marriage; and after they were joined in wedlock,
for the administration and preservation of the paraphernal capital of the wife. Then again, the
such contributions remained their respective separate property under the Spanish Civil Code (Article
appellant's argument erroneously confines itself to the question of the legal personality of the limited
1396):
partnership, which is not essential to the income taxability of the partnership since the law taxes the
income of even joint accounts that have no personality of their own. 1 Appellant is, likewise, mistaken
The following shall be the exclusive property of each spouse: in that it assumes that the conjugal partnership of gains is a taxable unit, which it is not. What is taxable
is the "income of both spouses" (Section 45 [d] in their individual capacities. Though the amount of
(a) That which is brought to the marriage as his or her own; .... income (income of the conjugal partnership vis-a-vis the joint income of husband and wife) may be the
same for a given taxable year, their consequences would be different, as their contributions in the
business partnership are not the same.
Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did not become
common property of both after their marriage in 1948.
The difference in tax rates between the income of the limited partnership being consolidated with, and
when split from the income of the spouses, is not a justification for requiring consolidation; the revenue
It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical personality code, as it presently stands, does not authorize it, and even bars it by requiring the limited partnership
of its own, distinct and separate from that of its partners (unlike American and English law that does to pay tax on its own income.
not recognize such separate juridical personality), the bypassing of the existence of the limited
partnership as a taxpayer can only be done by ignoring or disregarding clear statutory mandates and
basic principles of our law. The limited partnership's separate individuality makes it impossible to equate FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No costs.
its income with that of the component members. True, section 24 of the Internal Revenue Code merges
registered general co-partnerships (compañias colectivas) with the personality of the individual partners Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando, Capistrano and Teehankee,
for income tax purposes. But this rule is exceptional in its disregard of a cardinal tenet of our partnership JJ., concur.
laws, and can not be extended by mere implication to limited partnerships. Barredo, J., took no part.
The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the Visayas, L-13554,
Resolution of 30 October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for
disregarding the fiction of legal personality of the corporations involved therein are not applicable to
the present case. In the cited cases, the corporations were already subject to tax when the fiction of
their corporate personality was pierced; in the present case, to do so would exempt the limited
partnership from income taxation but would throw the tax burden upon the partners-spouses in their
individual capacities. The corporations, in the cases cited, merely served as business conduits or alter
egos of the stockholders, a factor that justified a disregard of their corporate personalities for tax
purposes. This is not true in the present case. Here, the limited partnership is not a mere business
conduit of the partner-spouses; it was organized for legitimate business purposes; it conducted its own
dealings with its customers prior to appellee's marriage, and had been filing its own income tax returns
as such independent entity. The change in its membership, brought about by the marriage of the
partners and their subsequent acquisition of all interest therein, is no ground for withdrawing the
partnership from the coverage of Section 24 of the tax code, requiring it to pay income tax. As far as
the records show, the partners did not enter into matrimony and thereafter buy the interests of the
remaining partner with the premeditated scheme or design to use the partnership as a business conduit
to dodge the tax laws. Regularity, not otherwise, is presumed.
9
G.R. No. L-35469 March 17, 1932 While these negotiations were coming to a head, Elser contemplated and hoped that Lyons might be
induced to come in with him and supply part of the means necessary to carry the enterprise through.
In this connection it appears that on May 20, 1920, Elser wrote Lyons a letter, informing him that he
E. S. LYONS, plaintiff-appellant,
had made an offer for a big subdivision and that, if it should be acquired and Lyons would come in, the
vs.
two would be well fixed. (Exhibit M-5.) On June 3, 1920, eight days before the first option expired, Elser
C. W. ROSENSTOCK, Executor of the Estate of Henry W. Elser, deceased, defendant-appellee.
cabled Lyons that he had bought the San Juan Estate and thought it advisable for Lyons to resign
(Exhibit M-13), meaning that he should resign his position with the mission board in New York. On the
This action was institute in the Court of First Instance of the City of Manila, by E. S. Lyons against C. same date he wrote Lyons a letter explaining some details of the purchase, and added "have advised
W. Rosenstock, as executor of the estate of H. W. Elser, deceased, consequent upon the taking of an in my cable that you resign and I hope you can do so immediately and will come and join me on the
appeal by the executor from the allowance of the claim sued upon by the committee on claims in said lines we have so often spoken about. . . . There is plenty of business for us all now and I believe we
estate. The purpose of the action is to recover four hundred forty-six and two thirds shares of the stock have started something that will keep us going for some time." In one or more communications prior
of J. K. Pickering & Co., Ltd., together with the sum of about P125,000, representing the dividends to this, Elser had sought to impress Lyons with the idea that he should raise all the money he could for
which accrued on said stock prior to October 21, 1926, with lawful interest. Upon hearing the cause the the purpose of giving the necessary assistance in future deals in real estate.
trial court absolved the defendant executor from the complaint, and the plaintiff appealed.
The enthusiasm of Elser did not communicate itself in any marked degree to Lyons, and found him
Prior to his death on June 18, 1923, Henry W. Elser had been a resident of the City of Manila where he averse from joining in the purchase of the San Juan Estate. In fact upon this visit of Lyons to the United
was engaged during the years with which we are here concerned in buying, selling, and administering States a grave doubt had arisen as to whether he would ever return to Manila, and it was only in the
real estate. In several ventures which he had made in buying and selling property of this kind the summer of 1920 that the board of missions of his church prevailed upon him to return to Manila and
plaintiff, E. S. Lyons, had joined with him, the profits being shared by the two in equal parts. In April, resume his position as managing treasurer and one of its trustees. Accordingly, on June 21, 1920, Lyons
1919, Lyons, whose regular vocation was that of a missionary, or missionary agent, of the Methodist wrote a letter from New York thanking Elser for his offer to take Lyons into his new project and adding
Episcopal Church, went on leave to the United States and was gone for nearly a year and a half, that from the standpoint of making money, he had passed up a good thing.
returning on September 21, 1920. On the eve of his departure Elser made a written statements showing
that Lyons was, at that time, half owner with Elser of three particular pieces of real property.
One source of embarrassment which had operated on Lyson to bring him to the resolution to stay out
Concurrently with this act Lyons execute in favor of Elser a general power of attorney empowering him
of this venture, was that the board of mission was averse to his engaging in business activities other
to manage and dispose of said properties at will and to represent Lyons fully and amply, to the mutual
than those in which the church was concerned; and some of Lyons' missionary associates had apparently
advantage of both. During the absence of Lyons two of the pieces of property above referred to were
been criticizing his independent commercial activities. This fact was dwelt upon in the letter above-
sold by Elser, leaving in his hands a single piece of property located at 616-618 Carried Street, in the
mentioned. Upon receipt of this letter Elser was of course informed that it would be out of the question
City of Manila, containing about 282 square meters of land, with the improvements thereon.
to expect assistance from Lyons in carrying out the San Juan project. No further efforts to this end were
therefore made by Elser.
In the spring of 1920 the attention of Elser was drawn to a piece of land, containing about 1,500,000
square meters, near the City of Manila, and he discerned therein a fine opportunity for the promotion
When Elser was concluding the transaction for the purchase of the San Juan Estate, his book showed
and development of a suburban improvement. This property, which will be herein referred to as the
that he was indebted to Lyons to the extent of, possibly, P11,669.72, which had accrued to Lyons from
San Juan Estate, was offered by its owners for P570,000. To afford a little time for maturing his plans,
profits and earnings derived from other properties; and when the J. K. Pickering & Company was
Elser purchased an option on this property for P5,000, and when this option was about to expire without
organized and stock issued, Elser indorsed to Lyons 200 of the shares allocated to himself, as he then
his having been able to raise the necessary funds, he paid P15,000 more for an extension of the option,
believed that Lyons would be one of his associates in the deal. It will be noted that the par value of
with the understanding in both cases that, in case the option should be exercised, the amounts thus
these 200 shares was more than P8,000 in excess of the amount which Elser in fact owed to Lyons;
paid should be credited as part of the first payment. The amounts paid for this option and its extension
and when the latter returned to the Philippine Islands, he accepted these shares and sold them for his
were supplied by Elser entirely from his own funds. In the end he was able from his own means, and
own benefit. It seems to be supposed in the appellant's brief that the transfer of these shares to Lyons
with the assistance which he obtained from others, to acquire said estate. The amount required for the
by Elser supplies some sort of basis for the present action, or at least strengthens the considerations
first payment was P150,000, and as Elser had available only about P120,000, including the P20,000
involved in a feature of the case to be presently explained. This view is manifestly untenable, since the
advanced upon the option, it was necessary to raise the remainder by obtaining a loan for P50,000.
ratification of the transaction by Lyons and the appropriation by him of the shares which were issued
This amount was finally obtained from a Chinese merchant of the city named Uy Siuliong. This loan was
to him leaves no ground whatever for treating the transaction as a source of further equitable rights in
secured through Uy Cho Yee, a son of the lender; and in order to get the money it was necessary for
Lyons. We should perhaps add that after Lyons' return to the Philippine Islands he acted for a time as
Elser not only to give a personal note signed by himself and his two associates in the projected
one of the members of the board of directors of the J. K. Pickering & Company, his qualification for this
enterprise, but also by the Fidelity & Surety Company. The money thus raised was delivered to Elser
office being derived precisely from the ownership of these shares.
by Uy Siuliong on June 24, 1920. With this money and what he already had in bank Elser purchased
the San Juan Estate on or about June 28, 1920. For the purpose of the further development of the
property a limited partnership had, about this time, been organized by Elser and three associates, under We now turn to the incident which supplies the main basis of this action. It will be remembered that,
the name of J. K. Pickering & Company; and when the transfer of the property was effected the deed when Elser obtained the loan of P50,000 to complete the amount needed for the first payment on the
was made directly to this company. As Elser was the principal capitalist in the enterprise he received San Juan Estate, the lender, Uy Siuliong, insisted that he should procure the signature of the Fidelity &
by far the greater number of the shares issued, his portion amount in the beginning to 3,290 shares. Surety Co. on the note to be given for said loan. But before signing the note with Elser and his
associates, the Fidelity & Surety Co. insisted upon having security for the liability thus assumed by it.
To meet this requirements Elser mortgaged to the Fidelity & Surety Co. the equity of redemption in the
10
property owned by himself and Lyons on Carriedo Street. This mortgage was executed on June 30, Lyons tells us that he did not know until after Elser's death that the money obtained from Uy Siuliong
1920, at which time Elser expected that Lyons would come in on the purchase of the San Juan Estate. in the manner already explained had been used to held finance the purchase of the San Juan Estate.
But when he learned from the letter from Lyons of July 21, 1920, that the latter had determined not to He seems to have supposed that the Carried property had been mortgaged to aid in putting through
come into this deal, Elser began to cast around for means to relieve the Carriedo property of the another deal, namely, the purchase of a property referred to in the correspondence as the "Ronquillo
encumbrance which he had placed upon it. For this purpose, on September 9, 1920, he addressed a property"; and in this connection a letter of Elser of the latter part of May, 1920, can be quoted in which
letter to the Fidelity & Surety Co., asking it to permit him to substitute a property owned by himself at he uses this language:
644 M. H. del Pilar Street, Manila, and 1,000 shares of the J. K. Pickering & Company, in lieu of the
Carriedo property, as security. The Fidelity & Surety Co. agreed to the proposition; and on September
As stated in cablegram I have arranged for P50,000 loan on Carriedo property. Will use part
15, 1920, Elser executed in favor of the Fidelity & Surety Co. a new mortgage on the M. H. del Pillar
of the money for Ronquillo buy (P60,000) if the owner comes through.
property and delivered the same, with 1,000 shares of J. K. Pickering & Company, to said company.
The latter thereupon in turn executed a cancellation of the mortgage on the Carriedo property and
delivered it to Elser. But notwithstanding the fact that these documents were executed and delivered, Other correspondence shows that Elser had apparently been trying to buy the Ronquillo property, and
the new mortgage and the release of the old were never registered; and on September 25, 1920, Lyons leads us to infer that he thought that the money obtained by mortgaging the Carriedo property
thereafter, Elser returned the cancellation of the mortgage on the Carriedo property and took back from had been used in the purchase of this property. It doubtedless appeared so to him in the retrospect,
the Fidelity & Surety Co. the new mortgage on the M. H. del Pilar property, together with the 1,000 but certain consideration show that he was inattentive to the contents of the quotation from the letter
shares of the J. K. Pickering & Company which he had delivered to it. above given. He had already been informed that, although Elser was angling for the Ronquillo property,
its price had gone up, thus introducing a doubt as to whether he could get it; and the quotation above
given shows that the intended use of the money obtained by mortgaging the Carriedo property was
The explanation of this change of purpose is undoubtedly to be found in the fact that Lyons had arrived
that only part of the P50,000 thus obtained would be used in this way, if the deal went through.
in Manila on September 21, 1920, and shortly thereafter, in the course of a conversation with Elser told
Naturally, upon the arrival of Lyons in September, 1920, one of his first inquiries would have been, if
him to let the Carriedo mortgage remain on the property ("Let the Carriedo mortgage ride"). Mrs. Elser
he did not know before, what was the status of the proposed trade for the Ronquillo property.
testified to the conversation in which Lyons used the words above quoted, and as that conversation
supplies the most reasonable explanation of Elser's recession from his purpose of relieving the Carriedo
property, the trial court was, in our opinion, well justified in accepting as a proven fact the consent of Elser's widow and one of his clerks testified that about June 15, 1920, Elser cabled Lyons something to
Lyons for the mortgage to remain on the Carriedo property. This concession was not only reasonable this effect;: "I have mortgaged the property on Carriedo Street, secured by my personal note. You are
under the circumstances, in view of the abundant solvency of Elser, but in view of the further fact that amply protected. I wish you to join me in the San Juan Subdivision. Borrow all money you can." Lyons
Elser had given to Lyons 200 shares of the stock of the J. K. Pickering & Co., having a value of nearly says that no such cablegram was received by him, and we consider this point of fact of little moment,
P8,000 in excess of the indebtedness which Elser had owed to Lyons upon statement of account. The since the proof shows that Lyons knew that the Carriedo mortgage had been executed, and after his
trial court found in effect that the excess value of these shares over Elser's actual indebtedness was arrival in Manila he consented for the mortgage to remain on the property until it was paid off, as shortly
conceded by Elser to Lyons in consideration of the assistance that had been derived from the mortgage occurred. It may well be that Lyons did not at first clearly understand all the ramifications of the
placed upon Lyon's interest in the Carriedo property. Whether the agreement was reached exactly upon situation, but he knew enough, we think, to apprise him of the material factors in the situation, and we
this precise line of thought is of little moment, but the relations of the parties had been such that it was concur in the conclusion of the trial court that Elser did not act in bad faith and was guilty of no fraud.
to be expected that Elser would be generous; and he could scarcely have failed to take account of the
use he had made of the joint property of the two. In the purely legal aspect of the case, the position of the appellant is, in our opinion, untenable. If Elser
had used any money actually belonging to Lyons in this deal, he would under article 1724 of the Civil
As the development of the San Juan Estate was a success from the start, Elser paid the note of P50,000 Code and article 264 of the Code of Commerce, be obligated to pay interest upon the money so applied
to Uy Siuliong on January 18, 1921, although it was not due until more than five months later. It will to his own use. Under the law prevailing in this jurisdiction a trust does not ordinarily attach with respect
thus be seen that the mortgaging of the Carriedo property never resulted in damage to Lyons to the to property acquired by a person who uses money belonging to another (Martinez vs. Martinez, 1 Phil.,
extent of a single cent; and although the court refused to allow the defendant to prove the Elser was 647; Enriquez vs. Olaguer, 25 Phil., 641.). Of course, if an actual relation of partnership had existed in
solvent at this time in an amount much greater than the entire encumbrance placed upon the property, the money used, the case might be difference; and much emphasis is laid in the appellant's brief upon
it is evident that the risk imposed upon Lyons was negligible. It is also plain that no money actually the relation of partnership which, it is claimed, existed. But there was clearly no general relation of
deriving from this mortgage was ever applied to the purchase of the San Juan Estate. What really partnership, under article 1678 of the Civil Code. It is clear that Elser, in buying the San Juan Estate,
happened was the Elser merely subjected the property to a contingent liability, and no actual liability was not acting for any partnership composed of himself and Lyons, and the law cannot be distorted into
ever resulted therefrom. The financing of the purchase of the San Juan Estate, apart from the modest a proposition which would make Lyons a participant in this deal contrary to his express determination.
financial participation of his three associates in the San Juan deal, was the work of Elser accomplished
entirely upon his own account. It seems to be supposed that the doctrines of equity worked out in the jurisprudence of England and
the United States with reference to trust supply a basis for this action. The doctrines referred to operate,
The case for the plaintiff supposes that, when Elser placed a mortgage for P50,000 upon the equity of however, only where money belonging to one person is used by another for the acquisition of property
redemption in the Carriedo property, Lyons, as half owner of said property, became, as it were, which should belong to both; and it takes but little discernment to see that the situation here involved
involuntarily the owner of an undivided interest in the property acquired partly by that money; and it is not one for the application of that doctrine, for no money belonging to Lyons or any partnership
is insisted for him that, in consideration of this fact, he is entitled to the four hundred forty-six and two- composed of Elser and Lyons was in fact used by Elser in the purchase of the San Juan Estate. Of
thirds shares of J. K. Pickering & Company, with the earnings thereon, as claimed in his complaint. course, if any damage had been caused to Lyons by the placing of the mortgage upon the equity of
11
redemption in the Carriedo property, Elser's estate would be liable for such damage. But it is evident
that Lyons was not prejudice by that act.
The appellee insist that the trial court committed error in admitting the testimony of Lyons upon matters
that passed between him and Elser while the latter was still alive. While the admission of this testimony
was of questionable propriety, any error made by the trial court on this point was error without injury,
and the determination of the question is not necessary to this decision. We therefore pass the point
without further discussion.
The judgment appealed from will be affirmed, and it is so ordered, with costs against the appellant.
Avanceña, C.J., Johnson, Malcolm, Villamor, Villa-Real and Imperial, JJ., concur.
12