DELUAO v.

CASTEEL

INOCENCIA DELUAO and FELIPE DELUAO, plaintiffsappellees,

vs.
NICANOR CASTEEL and JUAN DEPRA, defendants, NICANOR CASTEEL, defendant-
appellant.

No. L-21906. December 24, 1968.

Appeal from orders and decisions of the CFI.
CASTRO, J.
DOCTRINE: A contract of partnership which has for its subject an act violative of the laws shall
not be valid, and shall likewise be a cause for its dissolution.
I. FACTS

1. Nicanor Casteel filed a fishpond application for a tract of land, three times. All were
disapproved. He still filed motion for reconsideration.
2. During the pendency of Casteel’s MR, the following application for fishpond permit
were made:
a. Leoncio Aradillos,covering 10 ha of the land applied for by Casteel (granted);
b. Victor D. Carpio, covers also portion of land applied for by Casteel;
c. Alejandro Cacam, covers 30 ha of land applied for by Casteel (granted);
d. Felipe Deluao, applied for the area covered by Casteel’s application.
3. Feeling threatened by the applications (to expand his operations), Casteel built dikes,
cultivated fishes to prevent usurpation of the land. His uncle, Felipe Deluao
furnished the funds.
4. Casteel filed protests and administrative cases. But his application was still denied
and he was ordered to remove the improvements he introduced upon the land. He
appealed to the Secretary of Agriculture and Natural Resources.
5. Then, Inocencia Deluao (wife of Felipe) and Casteel executed a “contract of
service”, whereby:
a. Inocencia employed Casteel to construct improvements on the fishpond in
exchange of the funding;
b. For Casteel to be the manager and sole buyer of all the fishes to be produced;
c. Inocencia will be the administrator;
d. It is also provided that the contract was a result of the verbal agreement of the
parties.
6. Innocencia executed a special power of attorney in favor of Jesus Donesa to:
a. Represent her in the administration of the pond;
b. Supervise, demand, receive and collect value of the fish periodically produced.
7. Deluao’s application was disapproved. A reinvestigation was conducted and the
fishpond permit was granted to Casteel. Accordingly, the permits issued to Aradillos
and Cacam were revoked.
 8. Casteel then forbade Inocencia from administering the pond and ejected her
representative.
9. Felipe and Inocencia filed a case for specific performance and damages before
Davao CFI for alleged violation of Casteel of the “contract of service”, they also
prayed for the issuance of an injunction order. Casteel on the other hand, argued that
he was the owner of the fishpond in question.
10. The case moved to trial but postponed several times (there are procedural issues
surrounding the case).
11. CFI Ruling – issued an ex parte writ of preliminary injunction. The case was
eventually raised to CA which certified the case to the SC.

II. RELEVANT ISSUE

Did the “contract of service” between Inocencia and Deluao created a contract of co-
ownership and partnership over the fishpond in question?

III. HELD

Partly. The court construed the agreement between the parties as constituting two
contracts of partnership:
1. a contract of partnership to exploit the fishpond pending its award to either Felipe
Deluao or Nicanor Casteel, and - VALID
2. a contract of partnership to divide the fishpond between them after such award –
VOID

IV. RATIO

A contract of partnership to exploit a fishpond pending its award to any qualified

party or applicant is valid, but a contract of partnership to divide the fishpond
after such award is illegal. Act 4003, known as the Fishery Act, prohibits the
holder of a fishpond permit (,the permittee) from transferring or subletting the
fishpond granted to him without the previous consent or approval of the Secretary
of Agriculture and Natural Resources.

a. During the execution of the questioned agreement, two applications for the fishpond
permit were pending: that of Casteel, and that of Deluao;
b. Even if neither of them were yet granted the permit, they are not prohibited from
exploiting the same. No law, rule or regulation prohibited them from doing so.

Any event which makes it unlawful for the business of the partnership to be
carried on or for the members to carry it on in partnership is a ground for the
dissolution of the partnership (Art. 1830[3], CC).
 a. The approval of the appellant's fishpond application by the decisions in DANR
Cases 353 and 353-B brought to the fore several provisions of law which made the
continuation of the partnership unlawful and therefore caused its ipso facto
dissolution.
b. Since the partnership had for its object the division into two equal parts of the
fishpond between the appellees and the appellant after it shall have been awarded to
the latter, and therefore it envisaged the unauthorized transfer of one-half
thereof to parties other than the applicant Casteel, it was dissolved by the
approval of his application and the award to him of the fishpond. The approval was
an event which made it unlawf ul f or the business of the partnership to be carried
on or for the members to carry it on in partnership.
c. As the partners indicated in the letters their respective resolutions not to share the
fishpond with each other—in direct violation of the undertaking for which they have
established their partnership—each must be deemed to have expressly withdrawn
from the partnership, thereby causing its dissolution pursuant to Art. 1830(2) of the
Civil Code which provides, inter alia, that dissolution is caused "by the express will
of any partner at any time.

V. DISPOSITIVE

ACCORDINGLY, the judgment of the lower court is set aside. Another judgment is
hereby rendered: (1) dissolving the injunction issued against the appellant, (2) placing the
latter back in possession of the fishpond in litigation, and (3) remanding this case to the
court of origin for the reception of evidence relative to the accounting that the parties
must perforce render in the premises, at the termination of which the court shall render
judginent accordingly. The appellant's counterclaim is dismissed. No pronouncement as
to costs.