Partnership Cases Batch 2
Partnership Cases Batch 2
This is an appeal interposed by the defendant Benjamin C. Having failed to receive the installment due on July 22, 1961,
Daco from the decision of the Court of First Instance of the plaintiff sued the defendant company for the unpaid
Manila, Branch XVI, in Civil Case No. 50682, the dispositive balance amounting to P7,119.07. Benjamin C. Daco, Daniel A.
portion of which reads: Guizona, Noel C. Sim, Romulo B. Lumauig, and Augusto
Palisoc were included as co-defendants in their capacity as
WHEREFORE, the Court sentences defendant general partners of the defendant company.
United Pioneer General Construction Company
to pay plaintiff the sum of P7,119.07 with interest Daniel A. Guizona failed to file an answer and was
at the rate of 12% per annum until it is fully paid, consequently declared in default.1
plus attorney's fees which the Court fixes in the
sum of Eight Hundred Pesos (P800.00) and Subsequently, on motion of the plaintiff, the complaint was
costs. dismissed insofar as the defendant Romulo B. Lumauig is
concerned.2
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When the case was called for hearing, the defendants and Being a civil partnership, by the express
their counsels failed to appear notwithstanding the notices provisions of articles l698 and 1137 of the Civil
sent to them. Consequently, the trial court authorized the Code, the partners are not liable each for the
plaintiff to present its evidence ex-parte3 , after which the trial whole debt of the partnership. The liability is pro
court rendered the decision appealed from. rata and in this case Pedro Yulo is responsible
to plaintiff for only one-half of the debt. The fact
The defendants Benjamin C. Daco and Noel C. Sim moved to that the other partner, Jaime Palacios, had left
reconsider the decision claiming that since there are five (5) the country cannot increase the liability of Pedro
general partners, the joint and subsidiary liability of each Yulo.
partner should not exceed one-fifth (1/5 ) of the obligations of
the defendant company. But the trial court denied the said In the instant case, there were five (5) general partners when
motion notwithstanding the conformity of the plaintiff to limit the promissory note in question was executed for and in
the liability of the defendants Daco and Sim to only one-fifth behalf of the partnership. Since the liability of the partners is
(1/5 ) of the obligations of the defendant company.4 Hence, this pro rata, the liability of the appellant Benjamin C. Daco shall
appeal. be limited to only one-fifth (1/5 ) of the obligations of the
defendant company. The fact that the complaint against the
The only issue for resolution is whether or not the dismissal of defendant Romulo B. Lumauig was dismissed, upon motion of
the complaint to favor one of the general partners of a the plaintiff, does not unmake the said Lumauig as a general
partnership increases the joint and subsidiary liability of each partner in the defendant company. In so moving to dismiss the
of the remaining partners for the obligations of the partnership. complaint, the plaintiff merely condoned Lumauig's individual
liability to the plaintiff.
Article 1816 of the Civil Code provides:
WHEREFORE, the appealed decision as thus clarified is
Art. 1816. All partners including industrial ones, hereby AFFIRMED, without pronouncement as to costs.
shall be liable pro rata with all their property and
after all the partnership assets have been SO ORDERED.
exhausted, for the contracts which may be
entered into in the name and for the account of Makalintal, C.J., Fernando (Chairman), Barredo and Aquino,
the partnership, under its signature and by a JJ., concur.
person authorized to act for the partnership.
However, any partner may enter into a separate
obligation to perform a partnership contract.
In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held:
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The respondents answered the complaint by denying some The petitioner and intervenor Cebu Southern Company and its
and admitting some of the material averments and setting up proprietor, Tan Siu filed motions for reconsideration.
counterclaims.
On January 15, 197 1, the trial court issued 'another order
During the pre-trial conference, the petitioners and amending its judgment to make it read as follows:
respondents agreed that the issues to be resolved are:
IN VIEW WHEREOF, Judgment is hereby
(1) Whether or not there existed a partners rendered:
between Celestino Galan and Elmo Muñasque;
and (1) ordering plaintiff Muñasque and defendant
Galan to pay jointly and severally the intervenors
(2) Whether or not there existed a justifiable Cebu Southern Hardware Company and Blue
cause on the part of respondent Tropical to Diamond Glass Palace the amount of P6,229.34
disburse money to respondent Galan. and P2,213.51, respectively,
The business firms Cebu Southern Hardware Company and (2) ordering plaintiff and defendant Galan to pay
Blue Diamond Glass Palace were allowed to intervene, both Intervenor Cebu Southern Hardware Company
having legal interest in the matter in litigation. and Tan Siu jointly and severally interest at 12%
per annum of the sum of P6,229.34 until the
After trial, the court rendered judgment, the dispositive portion amount is fully paid;
of which states:
(3) ordering plaintiff and defendant Galan to pay
IN VIEW WHEREOF, Judgment is hereby P500.00 representing attorney's fees jointly and
rendered: severally to Intervenor Cebu Southern Hardware
Company:
(1) ordering plaintiff Muñasque and defendant
Galan to pay jointly and severally the intervenors (4) absolving the defendants Tropical
Cebu and Southern Hardware Company and Commercial Company and Ramon Pons from
Blue Diamond Glass Palace the amount of any liability,
P6,229.34 and P2,213.51, respectively;
No damages awarded whatsoever.
(2) absolving the defendants Tropical
Commercial Company and Ramon Pons from On appeal, the Court of Appeals affirmed the judgment of the
any liability, trial court with the sole modification that the liability imposed in
the dispositive part of the decision on the credit of Cebu
No damages awarded whatsoever. Southern Hardware and Blue Diamond Glass Palace was
changed from "jointly and severally" to "jointly."
The check was withheld from the petitioner. Since Galan In this petition the legal questions raised by the petitioner are
informed the Cebu branch of Tropical that there was as follows: (1) Whether or not the appellate court erred in
a"misunderstanding" between him and petitioner, respondent holding that a partnership existed between petitioner and
Tropical changed the name of the payee in the second check respondent Galan. (2) Assuming that there was such a
from Muñasque to "Galan and Associates" which was the duly partnership, whether or not the court erred in not finding Galan
registered name of the partnership between Galan and guilty of malversing the P13,000.00 covered by the first and
petitioner and under which name a permit to do construction second checks and therefore, accountable to the petitioner for
business was issued by the mayor of Cebu City. This enabled the said amount; and (3) Whether or not the court committed
Galan to encash the second check. grave abuse of discretion in holding that the payment made by
Tropical through its manager Pons to Galan was "good
Meanwhile, as alleged by the petitioner, the construction payment, "
continued through his sole efforts. He stated that he borrowed
some P12,000.00 from his friend, Mr. Espina and although the Petitioner contends that the appellate court erred in holding
expenses had reached the amount of P29,000.00 because of that he and respondent Galan were partners, the truth being
the failure of Galan to pay what was partly due the laborers that Galan was a sham and a perfidious partner who
and partly due for the materials, the construction work was misappropriated the amount of P13,000.00 due to the
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petitioner.Petitioner also contends that the appellate court Although it may be presumed that Margarita G.
committed grave abuse of discretion in holding that the Saldajeno had acted in good faith, the appellees
payment made by Tropical to Galan was "good" payment also acted in good faith in extending credit to the
when the same gave occasion for the latter to misappropriate partnership. Where one of two innocent persons
the proceeds of such payment. must suffer, that person who gave occasion for
the damages to be caused must bear the
The contentions are without merit. consequences.
The records will show that the petitioner entered into a con- No error was committed by the appellate court in holding that
tract with Tropical for the renovation of the latter's building on the payment made by Tropical to Galan was a good payment
behalf of the partnership of "Galan and Muñasque." This is which binds both Galan and the petitioner. Since the two were
readily seen in the first paragraph of the contract where it partners when the debts were incurred, they, are also both
states: liable to third persons who extended credit to their partnership.
In the case of George Litton v. Hill and Ceron, et al, (67 Phil.
This agreement made this 20th day of 513, 514), we ruled:
December in the year 1966 by Galan and
Muñasque hereinafter called the Contractor, and There is a general presumption that each
Tropical Commercial Co., Inc., hereinafter called individual partner is an authorized agent for the
the owner do hereby for and in consideration firm and that he has authority to bind the firm in
agree on the following: ... . carrying on the partnership transactions. (Mills
vs. Riggle,112 Pan, 617).
There is nothing in the records to indicate that the partner-ship
organized by the two men was not a genuine one. If there was The presumption is sufficient to permit third
a falling out or misunderstanding between the partners, such persons to hold the firm liable on transactions
does not convert the partnership into a sham organization. entered into by one of members of the firm
acting apparently in its behalf and within the
Likewise, when Muñasque received the first payment of scope of his authority. (Le Roy vs. Johnson, 7
Tropical in the amount of P7,000.00 with a check made out in U.S. (Law. ed.), 391.)
his name, he indorsed the check in favor of Galan.
Respondent Tropical therefore, had every right to presume Petitioner also maintains that the appellate court committed
that the petitioner and Galan were true partners. If they were grave abuse of discretion in not holding Galan liable for the
not partners as petitioner claims, then he has only himself to amounts which he "malversed" to the prejudice of the
blame for making the relationship appear otherwise, not only petitioner. He adds that although this was not one of the
to Tropical but to their other creditors as well. The payments issues agreed upon by the parties during the pretrial, he,
made to the partnership were, therefore, valid payments. nevertheless, alleged the same in his amended complaint
which was, duly admitted by the court.
In the case of Singsong v. Isabela Sawmill (88 SCRA 643),we
ruled: When the petitioner amended his complaint, it was only for the
purpose of impleading Ramon Pons in his personal capacity.
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Although the petitioner made allegations as to the alleged We, however, take exception to the ruling of the appellate
malversations of Galan, these were the same allegations in court that the trial court's ordering petitioner and Galan to pay
his original complaint. The malversation by one partner was the credits of Blue Diamond and Cebu Southern
not an issue actually raised in the amended complaint but the Hardware"jointly and severally" is plain error since the liability
alleged connivance of Pons with Galan as a means to serve of partners under the law to third persons for contracts
the latter's personal purposes. executed inconnection with partnership business is only pro
rata under Art. 1816, of the Civil Code.
The petitioner, therefore, should be bound by the delimitation
of the issues during the pre-trial because he himself agreed to While it is true that under Article 1816 of the Civil Code,"All
the same. In Permanent Concrete Products, Inc. v. Teodoro, partners, including industrial ones, shall be liable prorate with
(26 SCRA 336), we ruled: all their property and after all the partnership assets have
been exhausted, for the contracts which may be entered into
xxx xxx xxx the name and fm the account cd the partnership, under its
signature and by a person authorized to act for the partner-
... The appellant is bound by the delimitation of ship. ...". this provision should be construed together with
the issues contained in the trial court's order Article 1824 which provides that: "All partners are liable
issued on the very day the pre-trial conference solidarily with the partnership for everything chargeable to the
was held. Such an order controls the partnership under Articles 1822 and 1823." In short, while the
subsequent course of the action, unless liability of the partners are merely joint in transactions entered
modified before trial to prevent manifest into by the partnership, a third person who transacted with
injustice.In the case at bar, modification of the said partnership can hold the partners solidarily liable for the
pre-trial order was never sought at the instance whole obligation if the case of the third person falls under
of any party. Articles 1822 or 1823.
Petitioner could have asked at least for a modification of the Articles 1822 and 1823 of the Civil Code provide:
issues if he really wanted to include the determination of
Galan's personal liability to their partnership but he chose not Art. 1822. Where, by any wrongful act or
to do so, as he vehemently denied the existence of the omission of any partner acting in the ordinary
partnership. At any rate, the issue raised in this petition is the course of the business of the partner-ship or with
contention of Muñasque that the amounts payable to the the authority of his co-partners, loss or injury is
intervenors should be shouldered exclusively by Galan. We caused to any person, not being a partner in the
note that the petitioner is not solely burdened by the partnership or any penalty is incurred, the
obligations of their illstarred partnership. The records show partnership is liable therefor to the same extent
that there is an existing judgment against respondent Galan, as the partner so acting or omitting to act.
holding him liable for the total amount of P7,000.00 in favor of
Eden Hardware which extended credit to the partnership aside Art. 1823. The partnership is bound to make
from the P2, 000. 00 he already paid to Universal Lumber. good:
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(1) Where one partner acting within the scope of WHEREFORE, the decision appealed from is hereby
his apparent authority receives money or AFFIRMED with the MODIFICATION that the liability of
property of a third person and misapplies it; and petitioner and respondent Galan to intervenors Blue Diamond
Glass and Cebu Southern Hardware is declared to be joint
(2) Where the partnership in the course of its and solidary. Petitioner may recover from respondent Galan
business receives money or property of a third any amount that he pays, in his capacity as a partner, to the
person and t he money or property so received above intervenors,
is misapplied by any partner while it is in the
custody of the partnership. SO ORDERED.
The obligation is solidary, because the law protects him, who Teehankee (Chairman), Melencio-Herrera, De la Fuente and
in good faith relied upon the authority of a partner, whether Patajo, JJ., concur.
such authority is real or apparent. That is why under Article
1824 of the Civil Code all partners, whether innocent or guilty, Plana, J., took no part.
as well as the legal entity which is the partnership, are
solidarily liable. Relova, J., is on leave.
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Republic of the Philippines Despite the said rejection, Casteel did not lose interest. He
SUPREME COURT filed a motion for reconsideration. While this motion was
Manila pending resolution, he was advised by the district forester of
Davao City that no further action would be taken on his
EN BANC motion, unless he filed a new application for the area
concerned. So he filed on May 27, 1947 his fishpond
G.R. No. L-21906 December 24, 1968 application 1717.
INOCENCIA DELUAO and FELIPE DELUAO plaintiffs- Meanwhile, several applications were submitted by other
appellees, persons for portions of the area covered by Casteel's
vs. application.
NICANOR CASTEEL and JUAN DEPRA, defendants,
NICANOR CASTEEL, defendant-appellant. On May 20, 1946 Leoncio Aradillos filed his fishpond
application 1202 covering 10 hectares of land found inside the
Aportadera and Palabrica and Pelaez, Jalandoni and Jamir area applied for by Casteel; he was later granted fishpond
plaintiffs-appellees. permit F-289-C covering 9.3 hectares certified as available for
Ruiz Law Offices for defendant-appellant. fishpond purposes by the Bureau of Forestry.
Alleging violation of the contract of service (exhibit A) entered On May 10, 1951 Casteel filed a motion to dissolve the
into between Inocencia Deluao and Nicanor Casteel, Felipe injunction, alleging among others, that he was the owner,
Deluao and Inocencia Deluao on April 3, 1951 filed an action lawful applicant and occupant of the fishpond in question. This
in the Court of First Instance of Davao for specific
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motion, opposed by the plaintiffs on June 15, 1951, was On April 25, 1956 the defendants' counsel received a notice of
denied by the lower court in its order of June 26, 1961. hearing dated April 21, 1956, issued by the office of the Clerk
of Court (thru the special deputy Clerk of Court) of the Court of
The defendants on May 14, 1951 filed their answer with First Instance of Davao, setting the hearing of the case for
counterclaim, amended on January 8, 1952, denying the May 2 and 3, 1956 before Judge Amador Gomez of Branch II.
material averments of the plaintiffs' complaint. A reply to the The defendants, thru counsel, on April 26, 1956 filed a motion
defendants' amended answer was filed by the plaintiffs on for postponement. Acting on this motion, the lower court
January 31, 1952. (Branch II, presided by Judge Gomez) issued an order dated
April 27, 1956, quoted as follows:
The defendant Juan Depra moved on May 22, 1951 to dismiss
the complaint as to him. On June 4, 1951 the plaintiffs This is a motion for postponement of the hearing of this
opposed his motion. case set for May 2 and 3, 1956. The motion is filed by
the counsel for the defendants and has the conformity
The defendants filed on October 3, 1951 a joint motion to of the counsel for the plaintiffs.
dismiss on the ground that the plaintiffs' complaint failed to
state a claim upon which relief may be granted. The motion, An examination of the records of this case shows that
opposed by the plaintiffs on October 12, 1951, was denied for this case was initiated as early as April 1951 and that
lack of merit by the lower court in its order of October 22, the same has been under advisement of the Honorable
1951. The defendants' motion for reconsideration filed on Enrique A. Fernandez, Presiding Judge of Branch No.
October 31, 1951 suffered the same fate when it was likewise I, since September 24, 1953, and that various incidents
denied by the lower court in its order of November 12, 1951. have already been considered and resolved by Judge
Fernandez on various occasions. The last order issued
After the issues were joined, the case was set for trial. Then by Judge Fernandez on this case was issued on March
came a series of postponements. The lower court (Branch I, 21, 1956, wherein he definitely states that the Court will
presided by Judge Enrique A. Fernandez) finally issued on not entertain any further postponement of the hearing
March 21, 1956 an order in open court, reading as follows: . of this case.
Upon petition of plaintiffs, without any objection on the CONSIDERING ALL THE FOREGOING, the Court
part of defendants, the hearing of this case is hereby believes that the consideration and termination of any
transferred to May 2 and 3, 1956 at 8:30 o'clock in the incident referring to this case should be referred back
morning. to Branch I, so that the same may be disposed of
therein. (emphasis supplied)
This case was filed on April 3, 1951 and under any
circumstance this Court will not entertain any other A copy of the abovequoted order was served on the
transfer of hearing of this case and if the parties will not defendants' counsel on May 4, 1956.
be ready on that day set for hearing, the court will take
the necessary steps for the final determination of this On the scheduled date of hearing, that is, on May 2, 1956, the
case. (emphasis supplied) lower court (Branch I, with Judge Fernandez presiding), when
informed about the defendants' motion for postponement filed
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on April 26, 1956, issued an order reiterating its previous (g) Ordena el sobreseimiento de esta demanda, por
order handed down in open court on March 21, 1956 and insuficiencia de pruebas, en tanto en cuanto se refiere
directing the plaintiffs to introduce their evidence ex parte, al demandado Juan Depra;
there being no appearance on the part of the defendants or
their counsel. On the basis of the plaintiffs' evidence, a (h) Ordena el sobreseimiento de la reconvencion de los
decision was rendered on May 4, 1956 the dispositive portion demandados por falta de pruebas;
of which reads as follows:
(i) Con las costas contra del demandado, Casteel.
EN SU VIRTUD, el Juzgado dicta de decision a favor
de los demandantes y en contra del demandado The defendant Casteel filed a petition for relief from the
Nicanor Casteel: foregoing decision, alleging, inter alia, lack of knowledge of
the order of the court a quo setting the case for trial. The
(a) Declara permanente el interdicto prohibitorio petition, however, was denied by the lower court in its order of
expedido contra el demandado; May 21, 1956, the pertinent portion of which reads as follows:
(b) Ordena al demandado entregue la demandante la The duty of Atty. Ruiz, was not to inquire from the Clerk
posesion y administracion de la mitad (½) del of Court whether the trial of this case has been
"fishpond" en cuestion con todas las mejoras transferred or not, but to inquire from the presiding
existentes dentro de la misma; Judge, particularly because his motion asking the
transfer of this case was not set for hearing and was
(c) Condena al demandado a pagar a la demandante la not also acted upon.
suma de P200.00 mensualmente en concepto de
danos a contar de la fecha de la expiracion de los 30 Atty. Ruiz knows the nature of the order of this Court
dias de la promulgacion de esta decision hasta que dated March 21, 1956, which reads as follows:
entregue la posesion y administracion de la porcion del
"fishpond" en conflicto; Upon petition of the plaintiff without any
objection on the part of the defendants, the
(d) Condena al demandado a pagar a la demandante la hearing of this case is hereby transferred to May
suma de P2,000.00 valor de los pescado beneficiados, 2 and 3, 1956, at 8:30 o'clock in the morning.
mas los intereses legales de la fecha de la incoacion
de la demanda de autos hasta el completo pago de la This case was filed on April 3, 1951, and under
obligacion principal; any circumstance this Court will not entertain
any other transfer of the hearing of this case,
(e) Condena al demandado a pagar a la demandante la and if the parties will not be ready on the day set
suma de P2,000.00, por gastos incurridos por aquella for hearing, the Court will take necessary steps
durante la pendencia de esta causa; for the final disposition of this case.
(f) Condena al demandado a pagar a la demandante, In view of the order above-quoted, the Court will not
en concepto de honorarios, la suma de P2,000.00; accede to any transfer of this case and the duty of Atty.
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Ruiz is no other than to be present in the Sala of this pending since April 3, 1951, it would not entertain any further
Court and to call the attention of the same to the motion for transfer of the scheduled hearing.
existence of his motion for transfer.
An order given in open court is presumed received by the
Petition for relief from judgment filed by Atty. Ruiz in parties on the very date and time of promulgation,1 and
behalf of the defendant, not well taken, the same is amounts to a legal notification for all legal purposes.2 The
hereby denied. order of March 21, 1956, given in open court, was a valid
notice to the parties, and the notice of hearing dated April 21,
Dissatisfied with the said ruling, Casteel appealed to the Court 1956 or one month thereafter, was a superfluity. Moreover, as
of Appeals which certified the case to us for final between the order of March 21, 1956, duly promulgated by the
determination on the ground that it involves only questions of lower court, thru Judge Fernandez, and the notice of hearing
law. signed by a "special deputy clerk of court" setting the hearing
in another branch of the same court, the former's order was
Casteel raises the following issues: the one legally binding. This is because the incidents of
postponements and adjournments are controlled by the court
(1) Whether the lower court committed gross abuse of and not by the clerk of court, pursuant to section 4, Rule 31
discretion when it ordered reception of the appellees' (now sec. 3, Rule 22) of the Rules of Court.
evidence in the absence of the appellant at the trial on
May 2, 1956, thus depriving the appellant of his day in Much less had the clerk of court the authority to interfere with
court and of his property without due process of law; the order of the court or to transfer the cage from one sala to
another without authority or order from the court where the
(2) Whether the lower court committed grave abuse of case originated and was being tried. He had neither the duty
discretion when it denied the verified petition for relief nor prerogative to re-assign the trial of the case to a different
from judgment filed by the appellant on May 11, 1956 in branch of the same court. His duty as such clerk of court, in so
accordance with Rule 38, Rules of Court; and far as the incident in question was concerned, was simply to
prepare the trial calendar. And this duty devolved upon the
(3) Whether the lower court erred in ordering the clerk of court and not upon the "special deputy clerk of court"
issuance ex parte of a writ of preliminary injunction who purportedly signed the notice of hearing.
against defendant-appellant, and in not dismissing
appellees' complaint. It is of no moment that the motion for postponement had the
conformity of the appellees' counsel. The postponement of
1. The first and second issues must be resolved against the hearings does not depend upon agreement of the parties, but
appellant. upon the court's discretion.3
The record indisputably shows that in the order given in open The record further discloses that Casteel was represented by
court on March 21, 1956, the lower court set the case for a total of 12 lawyers, none of whom had ever withdrawn as
hearing on May 2 and 3, 1956 at 8:30 o'clock in the morning counsel. Notice to Atty. Ruiz of the order dated March 21,
and empathically stated that, since the case had been 1956 intransferably setting the case for hearing for May 2 and
3, 1956, was sufficient notice to all the appellant's eleven
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other counsel of record. This is a well-settled rule in our counsel was entitled to a timely notice of the denial of his
jurisdiction.4 motion for postponement. In the cited case the motion for
postponement was the first one filed by the defendant; in the
It was the duty of Atty. Ruiz, or of the other lawyers of record, case at bar, there had already been a series of
not excluding the appellant himself, to appear before Judge postponements. Unlike the case at bar, the Siochi case was
Fernandez on the scheduled dates of hearing Parties and not intransferably set for hearing. Finally, whereas the cited
their lawyers have no right to presume that their motions for case did not spend for a long time, the case at bar was only
postponement will be granted.5 For indeed, the appellant and finally and intransferably set for hearing on March 21, 1956 —
his 12 lawyers cannot pretend ignorance of the recorded fact after almost five years had elapsed from the filing of the
that since September 24, 1953 until the trial held on May 2, complaint on April 3, 1951.
1956, the case was under the advisement of Judge
Fernandez who presided over Branch I. There was, therefore, The pretension of the appellant and his 12 counsel of record
no necessity to "re-assign" the same to Branch II because that they lacked ample time to prepare for trial is unacceptable
Judge Fernandez had exclusive control of said case, unless because between March 21, 1956 and May 2, 1956, they had
he was legally inhibited to try the case — and he was not. one month and ten days to do so. In effect, the appellant had
waived his right to appear at the trial and therefore he cannot
There is truth in the appellant's contention that it is the duty of be heard to complain that he has been deprived of his
the clerk of court — not of the Court — to prepare the trial property without due process of law.7 Verily, the constitutional
calendar. But the assignment or reassignment of cases requirements of due process have been fulfilled in this case:
already pending in one sala to another sala, and the setting of the lower court is a competent court; it lawfully acquired
the date of trial after the trial calendar has been prepared, fall jurisdiction over the person of the defendant (appellant) and
within the exclusive control of the presiding judge. the subject matter of the action; the defendant (appellant) was
given an opportunity to be heard; and judgment was rendered
The appellant does not deny the appellees' claim that on May upon lawful hearing.8
2 and 3, 1956, the office of the clerk of court of the Court of
First Instance of Davao was located directly below Branch I. If 2. Finally, the appellant contends that the lower court incurred
the appellant and his counsel had exercised due diligence, an error in ordering the issuance ex parte of a writ of
there was no impediment to their going upstairs to the second preliminary injunction against him, and in not dismissing the
storey of the Court of First Instance building in Davao on May appellee's complaint. We find this contention meritorious.
2, 1956 and checking if the case was scheduled for hearing in
the said sala. The appellant after all admits that on May 2, Apparently, the court a quo relied on exhibit A — the so-called
1956 his counsel went to the office of the clerk of court. "contract of service" — and the appellees' contention that it
created a contract of co-ownership and partnership between
The appellant's statement that parties as a matter of right are Inocencia Deluao and the appellant over the fishpond in
entitled to notice of trial, is correct. But he was properly question.
accorded this right. He was notified in open court on March
21, 1956 that the case was definitely and intransferably set for Too well-settled to require any citation of authority is the rule
hearing on May 2 and 3, 1956 before Branch I. He cannot that everyone is conclusively presumed to know the law. It
argue that, pursuant to the doctrine in Siochi vs. Tirona,6 his must be assumed, conformably to such rule, that the parties
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entered into the so-called "contract of service" cognizant of The evidence preponderates in favor of the view that the initial
the mandatory and prohibitory laws governing the filing of intention of the parties was not to form a co-ownership but to
applications for fishpond permits. And since they were aware establish a partnership — Inocencia Deluao as capitalist
of the said laws, it must likewise be assumed — in fairness to partner and Casteel as industrial partner — the ultimate
the parties — that they did not intend to violate them. This undertaking of which was to divide into two equal parts such
view must perforce negate the appellees' allegation that portion of the fishpond as might have been developed by the
exhibit A created a contract of co-ownership between the amount extended by the plaintiffs-appellees, with the further
parties over the disputed fishpond. Were we to admit the provision that Casteel should reimburse the expenses
establishment of a co-ownership violative of the prohibitory incurred by the appellees over one-half of the fishpond that
laws which will hereafter be discussed, we shall be compelled would pertain to him. This can be gleaned, among others,
to declare altogether the nullity of the contract. This would from the letter of Casteel to Felipe Deluao on November 15,
certainly not serve the cause of equity and justice, considering 1949, which states, inter alia:
that rights and obligations have already arisen between the
parties. We shall therefore construe the contract as one of ... [W]ith respect to your allowing me to use your
partnership, divided into two parts — namely, a contract of money, same will redound to your benefit because you
partnership to exploit the fishpond pending its award to either are the ones interested in half of the work we have
Felipe Deluao or Nicanor Casteel, and a contract of done so far, besides I did not insist on our being
partnership to divide the fishpond between them after such partners in my fishpond permit, but it was you "Tatay"
award. The first is valid, the second illegal. Eping the one who wanted that we be partners and it
so happened that we became partners because I am
It is well to note that when the appellee Inocencia Deluao and poor, but in the midst of my poverty it never occurred to
the appellant entered into the so-called "contract of service" me to be unfair to you. Therefore so that each of us
on November 25, 1949, there were two pending applications may be secured, let us have a document prepared to
over the fishpond. One was Casteel's which was appealed by the effect that we are partners in the fishpond that we
him to the Secretary of Agriculture and Natural Resources caused to be made here in Balasinon, but it does not
after it was disallowed by the Director of Fisheries on October mean that you will treat me as one of your "Bantay"
25, 1949. The other was Felipe Deluao's application over the (caretaker) on wage basis but not earning wages at all,
same area which was likewise rejected by the Director of while the truth is that we are partners. In the event that
Fisheries on November 29, 1949, refiled by Deluao and later you are not amenable to my proposition and consider
on withdrawn by him by letter dated March 15, 1950 to the me as "Bantay" (caretaker) instead, do not blame me if
Secretary of Agriculture and Natural Resources. Clearly, I withdraw all my cases and be left without even a little
although the fishpond was then in the possession of Casteel, and you likewise.
neither he nor, Felipe Deluao was the holder of a fishpond (emphasis supplied)9
permit over the area. But be that as it may, they were not
however precluded from exploiting the fishpond pending Pursuant to the foregoing suggestion of the appellant that a
resolution of Casteel's appeal or the approval of Deluao's document be drawn evidencing their partnership, the appellee
application over the same area — whichever event happened Inocencia Deluao and the appellant executed exhibit A which,
first. No law, rule or regulation prohibited them from doing so. although denominated a "contract of service," was actually the
Thus, rather than let the fishpond remain idle they cultivated it. memorandum of their partnership agreement. That it was not
16 | P a g e
a contract of the services of the appellant, was admitted by by itself, brought about the dissolution of the partnership.
the appellees themselves in their letter10 to Casteel dated Moreover, subsequent events likewise reveal the intent of
December 19, 1949 wherein they stated that they did not both parties to terminate the partnership because each
employ him in his (Casteel's) claim but because he used their refused to share the fishpond with the other.
money in developing and improving the fishpond, his right
must be divided between them. Of course, although exhibit A Art. 1830(3) of the Civil Code enumerates, as one of the
did not specify any wage or share appertaining to the causes for the dissolution of a partnership, "... any event
appellant as industrial partner, he was so entitled — this being which makes it unlawful for the business of the partnership to
one of the conditions he specified for the execution of the be carried on or for the members to carry it on in partnership."
document of partnership.11 The approval of the appellant's fishpond application by the
decisions in DANR Cases 353 and 353-B brought to the fore
Further exchanges of letters between the parties reveal the several provisions of law which made the continuation of the
continuing intent to divide the fishpond. In a letter,12dated partnership unlawful and therefore caused its ipso
March 24, 1950, the appellant suggested that they divide the facto dissolution.
fishpond and the remaining capital, and offered to pay the
Deluaos a yearly installment of P3,000 — presumably as Act 4003, known as the Fisheries Act, prohibits the holder of a
reimbursement for the expenses of the appellees for the fishpond permit (the permittee) from transferring or subletting
development and improvement of the one-half that would the fishpond granted to him, without the previous consent or
pertain to the appellant. Two days later, the appellee Felipe approval of the Secretary of Agriculture and Natural
Deluao replied,13expressing his concurrence in the appellant's Resources.15 To the same effect is Condition No. 3 of the
suggestion and advising the latter to ask for a reconsideration fishpond permit which states that "The permittee shall not
of the order of the Director of Fisheries disapproving his transfer or sublet all or any area herein granted or any rights
(appellant's) application, so that if a favorable decision was acquired therein without the previous consent and approval of
secured, then they would divide the area. this Office." Parenthetically, we must observe that in DANR
Case 353-B, the permit granted to one of the parties therein,
Apparently relying on the partnership agreement, the appellee Leoncio Aradillos, was cancelled not solely for the reason that
Felipe Deluao saw no further need to maintain his petition for his permit covered a portion of the area included in the
the reinvestigation of Casteel's application. Thus by appellant's prior fishpond application, but also because, upon
letter14 dated March 15, 1950 addressed to the Secretary of investigation, it was ascertained thru the admission of
Agriculture and Natural Resources, he withdrew his petition on Aradillos himself that due to lack of capital, he allowed one
the alleged ground that he was no longer interested in the Lino Estepa to develop with the latter's capital the area
area, but stated however that he wanted his interest to be covered by his fishpond permit F-289-C with the
protected and his capital to be reimbursed by the highest understanding that he (Aradillos) would be given a share in
bidder. the produce thereof.16
The arrangement under the so-called "contract of service" Sec. 40 of Commonwealth Act 141, otherwise known as the
continued until the decisions both dated September 15, 1950 Public Land Act, likewise provides that
were issued by the Secretary of Agriculture and Natural
Resources in DANR Cases 353 and 353-B. This development,
17 | P a g e
The lessee shall not assign, encumber, or sublet his appellant after it shall have been awarded to the latter, and
rights without the consent of the Secretary of therefore it envisaged the unauthorized transfer of one-half
Agriculture and Commerce, and the violation of this thereof to parties other than the applicant Casteel, it was
condition shall avoid the contract; Provided, That dissolved by the approval of his application and the award to
assignment, encumbrance, or subletting for purposes him of the fishpond. The approval was an event which made it
of speculation shall not be permitted in any unlawful for the business of the partnership to be carried on or
case: Provided, further, That nothing contained in this for the members to carry it on in partnership.
section shall be understood or construed to permit the
assignment, encumbrance, or subletting of lands The appellees, however, argue that in approving the
leased under this Act, or under any previous Act, to appellant's application, the Secretary of Agriculture and
persons, corporations, or associations which under this Natural Resources likewise recognized and/or confirmed their
Act, are not authorized to lease public lands. property right to one-half of the fishpond by virtue of the
contract of service, exhibit A. But the untenability of this
Finally, section 37 of Administrative Order No. 14 of the argument would readily surface if one were to consider that
Secretary of Agriculture and Natural Resources issued in the Secretary of Agriculture and Natural Resources did not do
August 1937, prohibits a transfer or sublease unless first so for the simple reason that he does not possess the
approved by the Director of Lands and under such terms and authority to violate the aforementioned prohibitory laws nor to
conditions as he may prescribe. Thus, it states: exempt anyone from their operation.
When a transfer or sub-lease of area and improvement However, assuming in gratia argumenti that the approval of
may be allowed. — If the permittee or lessee had, Casteel's application, coupled with the foregoing prohibitory
unless otherwise specifically provided, held the permit laws, was not enough to cause the dissolution ipso facto of
or lease and actually operated and made their partnership, succeeding events reveal the intent of both
improvements on the area for at least one year, he/she parties to terminate the partnership by refusing to share the
may request permission to sub-lease or transfer the fishpond with the other.
area and improvements under certain conditions.
On December 27, 1950 Casteel wrote17 the appellee
(a) Transfer subject to approval. — A sub-lease or Inocencia Deluao, expressing his desire to divide the fishpond
transfer shall only be valid when first approved by the so that he could administer his own share, such division to be
Director under such terms and conditions as may be subject to the approval of the Secretary of Agriculture and
prescribed, otherwise it shall be null and void. A Natural Resources. By letter dated December 29, 1950,18 the
transfer not previously approved or reported shall be appellee Felipe Deluao demurred to Casteel's proposition
considered sufficient cause for the cancellation of the because there were allegedly no appropriate grounds to
permit or lease and forfeiture of the bond and for support the same and, moreover, the conflict over the
granting the area to a qualified applicant or bidder, as fishpond had not been finally resolved.
provided in subsection (r) of Sec. 33 of this Order.
The appellant wrote on January 4, 1951 a last letter19 to the
Since the partnership had for its object the division into two appellee Felipe Deluao wherein the former expressed his
equal parts of the fishpond between the appellees and the determination to administer the fishpond himself because the
18 | P a g e
decision of the Government was in his favor and the only rejecting, reinstating, or cancelling applications, or
reason why administration had been granted to the Deluaos deciding conflicting applications, are all executive and
was because he was indebted to them. In the same letter, the administrative in nature. It is a well-recognized principle
appellant forbade Felipe Deluao from sending the that purely administrative and discretionary functions
couple's encargado, Jesus Donesa, to the fishpond. In reply may not be interfered with by the courts (Coloso v.
thereto, Felipe Deluao wrote a letter20 dated January 5, 1951 Board of Accountancy, G.R. No. L-5750, April 20,
in which he reiterated his refusal to grant the administration of 1953). In general, courts have no supervising power
the fishpond to the appellant, stating as a ground his belief over the proceedings and action of the administrative
"that only the competent agencies of the government are in a departments of the government. This is generally true
better position to render any equitable arrangement relative to with respect to acts involving the exercise of judgment
the present case; hence, any action we may privately take or discretion, and findings of fact. (54 Am. Jur. 558-
may not meet the procedure of legal order." 559) Findings of fact by an administrative board or
official, following a hearing, are binding upon the courts
Inasmuch as the erstwhile partners articulated in the and will not be disturbed except where the board or
aforecited letters their respective resolutions not to share the official has gone beyond his statutory authority,
fishpond with each other — in direct violation of the exercised unconstitutional powers or clearly acted
undertaking for which they have established their partnership arbitrarily and without regard to his duty or with grave
— each must be deemed to have expressly withdrawn from abuse of discretion... (emphasis supplied)
the partnership, thereby causing its dissolution pursuant to art.
1830(2) of the Civil Code which provides, inter alia, that In the case at bar, the Secretary of Agriculture and Natural
dissolution is caused "by the express will of any partner at any Resources gave due course to the appellant's fishpond
time." application 1717 and awarded to him the possession of the
area in question. In view of the finality of the Secretary's
In this jurisdiction, the Secretary of Agriculture and Natural decision in DANR Cases 353 and 353-B, and considering the
Resources possesses executive and administrative powers absence of any proof that the said official exceeded his
with regard to the survey, classification, lease, sale or any statutory authority, exercised unconstitutional powers, or
other form of concession or disposition and management of acted with arbitrariness and in disregard of his duty, or with
the lands of the public domain, and, more specifically, with grave abuse of discretion, we can do no less than respect and
regard to the grant or withholding of licenses, permits, leases maintain unfettered his official acts in the premises. It is a
and contracts over portions of the public domain to be utilized salutary rule that the judicial department should not dictate to
as fishponds.21, Thus, we held in Pajo, et al. vs. Ago, et al. (L- the executive department what to do with regard to the
15414, June 30, 1960), and reiterated in Ganitano vs. administration and disposition of the public domain which the
Secretary of Agriculture and Natural Resources, et al. law has entrusted to its care and administration. Indeed,
(L-21167, March 31, 1966), that courts cannot superimpose their discretion on that of the land
department and compel the latter to do an act which involves
... [T]he powers granted to the Secretary of Agriculture the exercise of judgment and discretion.22
and Commerce (Natural Resources) by law regarding
the disposition of public lands such as granting of Therefore, with the view that we take of this case, and even
licenses, permits, leases, and contracts, or approving, assuming that the injunction was properly issued because
19 | P a g e
present all the requisite grounds for its issuance, its ACCORDINGLY, the judgment of the lower court is set aside.
continuation, and, worse, its declaration as permanent, was Another judgment is hereby rendered: (1) dissolving the
improper in the face of the knowledge later acquired by the injunction issued against the appellant, (2) placing the latter
lower court that it was the appellant's application over the back in possession of the fishpond in litigation, and (3)
fishpond which was given due course. After the Secretary of remanding this case to the court of origin for the reception of
Agriculture and Natural Resources approved the appellant's evidence relative to the accounting that the parties must
application, he became to all intents and purposes the legal perforce render in the premises, at the termination of which
permittee of the area with the corresponding right to possess, the court shall render judgment accordingly. The appellant's
occupy and enjoy the same. Consequently, the lower court counterclaim is dismissed. No pronouncement as to costs.
erred in issuing the preliminary mandatory injunction. We
cannot overemphasize that an injunction should not be Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar,
granted to take property out of the possession and control of Sanchez, Fernando and Capistrano, JJ., concur.
one party and place it in the hands of another whose title has
not been clearly established by law.23