Agency, Partnerships & Trust
 As compensation, Jacinto would receive a managers fee
3rd set of Cases – Meeting No. 1 – 08/30/18
Topic: Articles 1771 – 1783
THIRD DIVISION
[G.R. No. 143340. August 15, 2001]
LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners, vs.  LAMBERTO
T. CHUA, respondent.
DECISION
GONZAGA-REYES, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of
Court of the Decision[1] of the Court of Appeals dated January 31, 2000 in the
case entitled Lamberto T. Chua vs.
Lilibeth Sunga Chan and Cecilia Sunga and of the Resolution dated May
23, 2000 denying the motion for reconsideration of herein petitioners Lilibeth
Sunga Chan and Cecilia Sunga (hereafter collectively referred to as petitioners).
The pertinent facts of this case are as follows:
On June 22, 1992, Lamberto T. Chua (hereafter respondent) filed a
complaint against Lilibeth Sunga Chan (hereafter petitioner Lilibeth) and Cecilia
Sunga (hereafter petitioner Cecilia), daughter and wife, 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 the Regional Trial Court, Branch 11, Sindangan,
Zamboanga del Norte.
Respondent alleged that in 1977, he verbally entered into a partnership with
Jacinto in the distribution 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 (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 them. The partnership allegedly had Jacinto as manager,
assisted by Josephine Sy (hereafter Josephine), a sister of the wife of
respondent, Erlinda Sy.
or remuneration of 10% of the gross profit and Josephine would receive 10% of
the net profits, in addition to her wages and other remuneration from the
business.
Allegedly, from the time that Shellite opened for business on July 8, 1977,
its business operation went quite well and was profitable. Respondent claimed
that he could attest to the success of their business because of the volume of
orders and deliveries of filled Shellane cylinder tanks supplied by Pilipinas Shell
Petroleum Corporation. While Jacinto furnished respondent with the merchandise
inventories, balance sheets and net worth of Shellite from 1977 to 1989,
respondent however suspected that the amount indicated in these documents
were understated and undervalued by Jacinto and Josephine for their own selfish
reasons and for tax avoidance.
Upon Jacintos death in the later part of 1989, his surviving wife, petitioner
Cecilia and particularly his daughter, petitioner Lilibeth, took over the operations,
control, custody, disposition and management of Shellite without respondents
consent.
Despite respondents repeated demands upon petitioners for accounting,
inventory, appraisal, winding up and restitution of his net shares in the
partnership, petitioners failed to comply. Petitioner Lilibeth allegedly continued
the operations of Shellite, converting to her own use and advantage its
properties.
On March 31, 1991, respondent claimed that after petitioner Lilibeth ran out
of alibis and reasons to evade respondents demands, she disbursed out of the
partnership funds the amount of P200,000.00 and partially paid the same to
respondent. Petitioner Lilibeth allegedly informed respondent that the
P200,000.00 represented partial payment of the latters share in the partnership,
with a promise that the former would make the complete inventory and winding
up of the properties of the business establishment. Despite such commitment,
petitioners allegedly failed to comply with their duty to account, and continued to
benefit from the assets and income of Shellite to the damage and prejudice of
respondent.
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 Zambaonga del Norte had jurisdiction over the action. Respondent
opposed the motion to dismiss.
On January 12, 1993, the trial court finding the complaint sufficient in form
and substance denied the motion to dismiss.
On January 30, 1993, petitioners filed their Answer with Compulsory
Counterclaims, contending that they are not liable for partnership shares,
unreceived income/profits, interests, damages and attorneys fees, that
respondent does not have a cause of action against them, and that the trial court
has no jurisdiction over the nature of the action, the SEC being the agency that
has original and exclusive jurisdiction over the case. As counterclaim, petitioner
sought attorneys fees and expenses of litigation.
 On August 2, 1993, petitioner filed a second Motion to Dismiss this time on
the ground that the claim 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 against the
estate of deceased Jacinto in a probate or intestate proceeding.
On August 16, 1993, the trial court denied the second motion to dismiss for
lack of merit.
On November 26, 1993, petitioners filed their Petition for Certiorari,
Prohibition and Mandamus with the Court of Appeals docketed as CA-G.R. SP
No. 32499 questioning the denial of the motion to dismiss.
On November 29, 1993, petitioners filed with the trial court a Motion to
Suspend Pre-trial Conference.
On December 13, 1993, the trial court granted the motion to suspend pre-
trial conference.
On November 15, 1994, the Court of Appeals denied the petition for lack of
merit.
On January 16, 1995, this Court denied the petition for review on certiorari
filed by petitioner, as petitioners failed to show that a reversible error was
committed by the appellate court."[2]
On February 20, 1995, entry of judgment was made by the Clerk of Court
and the case was remanded to the trial court on April 26, 1995.
On September 25, 1995, the trial court terminated the pre-trial conference
and set the hearing of the case on January 17, 1996. Respondent presented his
evidence while petitioners were considered to have waived their right to present
evidence for their failure to attend the scheduled date for reception of evidence
despite notice.
On October 7, 1997, the trial court rendered its Decision ruling for
respondent. The dispositive portion of the Decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against
the defendants, as follows:
(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 Gas Appliance Center since the time of death of Jacinto L.
Sunga, from whom they continued the business operations including all
businesses derived from the Shellite Gas Appliance Center; submit an inventory,
and appraisal of all these properties, assets, income, profits, etc. to the Court and
to plaintiff for approval or disapproval;
(2) ORDERING them to return and restitute to the partnership any and all
properties, assets, income and profits they misapplied and converted to their own
use and advantage that 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) DIRECTING them to restitute and pay to the plaintiff shares and interest of
the 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;
(4) ORDERING them to pay the plaintiff earned but unreceived income and
profits from the partnership from 1988 to may 30, 1992, when the plaintiff learned
of the closure of the store the sum of P35,000.00 per month, with legal rate of
interest until fully paid;
(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 interest,
shares, participation and equity in the partnership, or the value thereof in money
or moneys worth, if the properties are not physically divisible;
(6) FINDING them especially Lilibeth Sunga-Chan guilty of breach of trust and in
bad faith and hold them liable to the plaintiff the sum of P50,000.00 as moral and
exemplary damages; and,
(7) DIRECTING them to reimburse and pay the sum of P25,000.00 as attorneys
(sic) and P25,00.00 as litigation expenses.
NO special pronouncements as to COSTS.
SO ORDERED.[3]
On October 28, 1997, petitioners filed a Notice of Appeal with the trial court,
appealing the case to the Court of Appeals.
On January 31, 2000, the Court of Appeals dismissed the appeal. The
dispositive portion of the Decision reads:
WHEREFORE, the instant appeal is dismissed. The appealed decision is
AFFIRMED in all respects.[4]
On May 23, 2000, the Court of Appeals denied the motion for
reconsideration filed by petitioner.
Hence, this petition wherein petitioner relies upon the following grounds:
1. The Court of Appeals erred in making a legal conclusion that there
existed a partnership between respondent Lamberto T. Chua and
the late Jacinto L. Sunga upon the latters invitation and offer and
that upon his death the partnership assets and business were
taken over by petitioners.
2. The Court of Appeals erred in making the legal conclusion that
laches and/or prescription did not apply in the instant case.
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 assets and profits.[5]
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 Jacintos death. In the absence of any written document to show such
partnership between respondent and Jacinto, petitioners argue that these courts
were proscribed from hearing the testimonies of respondent and his witness,
Josephine, to prove the alleged partnership three years after Jacintos death. To
support this argument, petitioners invoke the Dead Mans Statute or Survivorship
Rule under Section 23, Rule 130 of the Rules of Court that provides:
SEC. 23. Disqualification by reason of death or insanity of adverse
party.-- Parties or assignors of parties to a case, or persons in whose behalf a
case is prosecuted, against an executor or administrator or other representative
of a deceased person, or against a person of unsound mind, upon a claim or
demand against the estate of such deceased person, or against such person of
unsound mind, cannot testify as to any matter of fact occurring before the death
of such deceased person or before such person became of unsound mind.
Petitioners thus implore this Court to rule that the testimonies of respondent and
his alter ego, Josephine, should not have been admitted to prove certain claims
against a deceased person (Jacinto), now represented by petitioners.
We are not persuaded.
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.[6] Hence, based on the intention of the parties, as gathered
from the facts and ascertained from their language and conduct, a verbal
contract of partnership may arise.[7] The essential points that must be proven to
show that a partnership was agreed upon are (1) mutual contribution to a
common stock, and (2) a joint interest in the profits. [8] Understandably so, in view
of the absence of a written contract of partnership between respondent and
Jacinto, respondent resorted to the introduction of documentary and testimonial
evidence to prove said partnership. The crucial issue to settle then is whether or
not the Dead Mans Statute applies to this case so as to render inadmissible
respondents testimony and that of his witness, Josephine.
The Dead Mans Statute provides that if one party to the alleged transaction
is precluded from 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:
1. The witness is a party or assignor of a party to a case or persons in
whose behalf a case is prosecuted.
2. The action is against an executor or administrator or other
representative of a deceased person or a person of unsound mind;
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;
4. His testimony refers to any matter of fact which occurred before the
death of such deceased person or before such person became of
unsound mind.[10]
Two reasons forestall the application of the Dead Mans Statute to this case.
First, petitioners filed a compulsory counterclaim [11] against respondent in
their answer before the trial court, and with the filing of their counterclaim,
petitioners themselves effectively removed this case from the ambit of the Dead
Mans Statute.[12] Well entrenched is the rule that when it is the executor or
administrator or representatives of the estate that sets up the counterclaim, the
plaintiff, herein respondent, may testify to occurrences before the death of the
deceased to defeat the counterclaim.[13] Moreover, as defendant in the
counterclaim, respondent is not disqualified from testifying as to matters of fact
occurring before the death of the deceased, said action not having been brought
against but by the estate or representatives of the deceased.[14]
Second, the testimony of Josephine is not covered by the Dead Mans
Statute for the simple reason that she is not a party or assignor of a party to a
case or persons in whose behalf a case is prosecuted.Records show that
respondent offered the testimony of Josephine to establish the existence of the
partnership between respondent and Jacinto. Petitioners insistence that
Josephine is the alter ego of respondent does not make her an assignor because
the term assignor of a party means assignor of a cause of action which has
arisen, and not the assignor of a right assigned before any cause of action has
arisen.[15] Plainly then, Josephine is merely a witness of respondent, the latter
being the party plaintiff.
We are not convinced by petitioners allegation that Josephines testimony
lacks probative value because she was allegedly 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 requested to do
so she would not have testified. We fail to see how we can conclude from this
candid admission that Josephines testimony is involuntary when she did not in
any way categorically say that she was forced to be a witness of
respondent. 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]
Petitioners reliance alone on the Dead Mans Statute to defeat respondents
claim cannot prevail over 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 sufficient to prove the formation of a partnership,
albeit an informal one.
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 the
proofs presented by the parties and analyze, assess and weigh them to ascertain
if the trial court 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 evidence of
respondent. Petitioners cannot now turn to this Court to question the admissibility
and 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]
With regard to petitioners insistence that laches and/or prescription should
have extinguished respondents claim, we agree with the trial court and the Court
of Appeals that the action for accounting filed by respondent three (3) years after
Jacintos death was well within the prescribed period. The Civil Code provides
that an action to enforce an oral contract prescribes in six (6) years [20] while the
right to demand an accounting for a partners 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 partner results in the
dissolution of the partnership[22], in this case, it was after Jacintos death that
respondent as the surviving partner had the right to an account of his interest as
against petitioners. It bears stressing that while Jacintos death dissolved the
partnership, the dissolution did not immediately terminate the partnership. The
Civil Code[23] expressly provides that upon dissolution, the partnership continues
and its legal personality is retained until the complete winding up of its business,
culminating in its termination.[24]
In a desperate bid to cast doubt on the validity of the oral partnership
between respondent and Jacinto, petitioners maintain that said partnership that
had an initial capital of P200,000.00 should have been 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 more must register with the SEC, however, this
registration requirement is not mandatory. Article 1768 of the Civil
Code[25] explicitly provides that the partnership retains its juridical personality
even if it fails to register. The failure to register the contract of partnership does
not invalidate the same as among the partners, so long as the contract has the
essential requisites, because the main purpose of registration is to give notice to
third parties, and it can be assumed that the members themselves knew of the
contents of their contract.[26] In the case at bar, non-compliance with this directory
provision of the law will not invalidate the partnership considering that the totality
of the evidence proves that respondent and Jacinto indeed forged the
partnership in question.
WHEREFORE, in view of the foregoing, the petition is DENIED and the
appealed decision is AFFIRMED.
SO ORDERED.
Melo, (Chairman), Vitug, Panganiban, and Sandoval-Gutierrez, JJ.,  concur.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-24193           June 28, 1968
MAURICIO AGAD, plaintiff-appellant,  Articles 1771 and 1773 of said Code provide:
vs.
SEVERINO MABATO and MABATO and AGAD COMPANY, defendants-
appellees.
Angeles, Maskarino and Associates for plaintiff-appellant.
Victorio S. Advincula for defendants-appellees.
CONCEPCION, C.J.:
In this appeal, taken by plaintiff Mauricio Agad, from an order of dismissal of the
Court of First Instance of Davao, we are called upon to determine the
applicability of Article 1773 of our Civil Code to the contract of partnership on
which the complaint herein is based.
Alleging that he and defendant Severino Mabato are — pursuant to a public
instrument dated August 29, 1952, copy of which is attached to the complaint as
Annex "A" — partners in a fishpond business, to the capital of which Agad
contributed P1,000, with the right to receive 50% of the profits; that from 1952 up
to and including 1956, Mabato who handled the partnership funds, had yearly
rendered accounts of the operations of the partnership; and that, despite
repeated demands, Mabato had failed and refused to render accounts for the
years 1957 to 1963, Agad prayed in his complaint against Mabato and Mabato &
Agad Company, filed on June 9, 1964, that judgment be rendered sentencing
Mabato to pay him (Agad) the sum of P14,000, as his share in the profits of the
partnership for the period from 1957 to 1963, in addition to P1,000 as attorney's
fees, and ordering the dissolution of the partnership, as well as the winding up of
its affairs by a receiver to be appointed therefor.
In his answer, Mabato admitted the formal allegations of the complaint and
denied the existence of said partnership, upon the ground that the contract
therefor had not been perfected, despite the execution of Annex "A", because
Agad had allegedly failed to give his P1,000 contribution to the partnership
capital. Mabato prayed, therefore, that the complaint be dismissed; that Annex
"A" be declared void ab initio; and that Agad be sentenced to pay actual, moral
and exemplary damages, as well as attorney's fees.
Subsequently, Mabato filed a motion to dismiss, upon the ground that the
complaint states no cause of action and that the lower court had no jurisdiction
over the subject matter of the case, because it involves principally the
determination of rights over public lands. After due hearing, the court issued the
order appealed from, granting the motion to dismiss the complaint for failure to
state a cause of action. This conclusion was predicated upon the theory that the
contract of partnership, Annex "A", is null and void, pursuant to Art. 1773 of our
Civil Code, because an inventory of the fishpond referred in said instrument had
not been attached thereto. A reconsideration of this order having been denied,
Agad brought the matter to us for review by record on appeal.
Art. 1771. A partnership may be constituted in any form, except where
immovable property or real rights are contributed thereto, in which case
a public instrument shall be necessary.
Art. 1773. A contract of partnership is void, whenever immovable
property is contributed thereto, if inventory of said property is not made,
signed by the parties; and attached to the public instrument.
The issue before us hinges on whether or not "immovable property or real rights"
have been contributed to the partnership under consideration. Mabato alleged
and the lower court held that the answer should be in the affirmative, because "it
is really inconceivable how a partnership engaged in the fishpond
business could exist without said fishpond property (being) contributed to the
partnership." It should be noted, however, that, as stated in Annex "A" the
partnership was established "to operate a fishpond", not to "engage in a fishpond
business". Moreover, none of the partners contributed either a fishpond or a real
right to any fishpond. Their contributions were limited to the sum of P1,000 each.
Indeed, Paragraph 4 of Annex "A" provides:
That the capital of the said partnership is Two Thousand (P2,000.00)
Pesos Philippine Currency, of which One Thousand (P1,000.00) pesos
has been contributed by Severino Mabato and One Thousand
(P1,000.00) Pesos has been contributed by Mauricio Agad.
xxx     xxx     xxx
The operation of the fishpond mentioned in Annex "A" was the purpose of the
partnership. Neither said fishpond nor a real right thereto was contributed to the
partnership or became part of the capital thereof, even if a fishpond or a real right
thereto could become part of its assets.
WHEREFORE, we find that said Article 1773 of the Civil Code is not in point and
that, the order appealed from should be, as it is hereby set aside and the case
remanded to the lower court for further proceedings, with the costs of this
instance against defendant-appellee, Severino Mabato. It is so ordered.
Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and
Fernando, JJ., concur.
 THIRD DIVISION
[G.R. No. 134559. December 9, 1999]
ANTONIA TORRES, assisted by her husband, ANGELO TORRES; and
EMETERIA BARING, petitioners, vs. COURT OF APPEALS and
MANUEL TORRES, respondents.
DECISION
PANGANIBAN, J.:
Courts may not extricate parties from the necessary consequences of their
acts. That the terms of a contract turn out to be financially disadvantageous to
them will not relieve them of their obligations therein. The lack of an inventory of
real property will not ipso facto  release the contracting partners from their
respective obligations to each other  arising from acts executed in accordance
with their agreement.
The Case
The Petition for Review on Certiorari before us assails the March 5, 1998
Decision[1] Second Division of the Court of Appeals[2] (CA) in CA-GR CV No.
42378 and its June 25, 1998 Resolution denying reconsideration. The assailed
Decision affirmed the ruling of the Regional Trial Court (RTC) of Cebu City in
Civil Case No. R-21208, which disposed as follows:
WHEREFORE, for all the foregoing considerations, the Court, finding for the
defendant and against the plaintiffs, orders the dismissal of the plaintiffs
complaint. The counterclaims of the defendant are likewise ordered
dismissed. No pronouncement as to costs.[3]
The Facts
Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into
a "joint venture agreement" with Respondent Manuel Torres for the development
of a parcel of land into a subdivision.Pursuant to the contract, they executed a
Deed of Sale covering the said parcel of land in favor of respondent, who then
had it registered in his name. By mortgaging the property, respondent obtained
from Equitable Bank a loan of P40,000 which, under the Joint Venture
Agreement, was to be used for the development of the subdivision. [4] All three of
them also agreed to share the proceeds from the sale of the subdivided lots.
The project did not push through, and the land was subsequently foreclosed
by the bank.
According to petitioners, the project failed because of respondents lack of
funds or means and skills. They add that respondent used the loan not for the
development of the subdivision, but in furtherance of his own company, Universal
Umbrella Company.
On the other hand, respondent alleged that he used the loan to implement
the Agreement. With the said amount, he was able to effect the survey and the
subdivision of the lots. He secured the Lapu Lapu City Councils approval of the
subdivision project which he advertised in a local newspaper. He also caused the
construction of roads, curbs and gutters. Likewise, he entered into a contract with
an engineering firm for the building of sixty low-cost housing units and actually
even set up a model house on one of the subdivision lots. He did all of these for
a total expense of P85,000.
Respondent claimed that the subdivision project failed, however, because
petitioners and their relatives had separately caused the annotations of adverse
claims on the title to the land, which eventually scared away prospective
buyers. Despite his requests, petitioners refused to cause the 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 however acquitted. Thereafter, they filed the present civil
case which, upon respondent's motion, was later dismissed by the trial court in
an Order dated September 6, 1982. On appeal, however, the appellate court
remanded the case for further proceedings. Thereafter, the RTC issued its
assailed Decision, which, as earlier stated, was affirmed by the CA.
Hence, this Petition.[6]
Ruling of the Court of Appeals
In affirming the trial court, the Court of Appeals held that petitioners and
respondent had formed a partnership for the development of the
subdivision. Thus, they must bear the loss suffered by the partnership in the
same proportion as their share in the profits stipulated in the
contract. Disagreeing with the trial courts pronouncement that losses as well as
profits in a joint venture should be distributed equally,[7] the CA invoked Article
1797 of the Civil Code which provides:
Article 1797 - The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been agreed upon,
the share of each in the losses shall be in the same proportion.
The CA elucidated further:
In the absence of stipulation, the share of each partner in the profits and losses
shall be in proportion to what he may have contributed, but the industrial partner
shall not be liable for the losses. As for the profits, the industrial partner shall
receive such share as may be just and equitable under the circumstances. If
besides his services he has contributed capital, he shall also receive a share in
the profits in proportion to his capital.
The Issue
Petitioners impute to the Court of Appeals the following error:
x x x [The] Court of Appeals erred in concluding that the transaction x x x
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]
The Courts Ruling
The Petition is bereft of merit.
Main Issue: Existence of a Partnership
Petitioners deny having formed a partnership with respondent. They
contend that the Joint Venture Agreement and the earlier Deed of Sale, both of
which were the bases of the appellate courts finding of a partnership, were void.
In the same breath, however, they assert that under those very same
contracts, respondent is liable for his failure to implement the project. Because
the agreement entitled them to receive 60 percent of the proceeds from the sale
of the subdivision lots, they pray that respondent pay them damages equivalent
to 60 percent of the value of the property.[9]
The pertinent portions of the Joint Venture Agreement read as follows:
KNOW ALL MEN BY THESE PRESENTS:
This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th
day of March, 1969, by and between MR. MANUEL R. TORRES, x x x the FIRST
PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS EMETERIA BARING,
x x x the SECOND PARTY:
W I T N E S S E T H:
That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this
property located at Lapu-Lapu City, Island of Mactan, under Lot No. 1368
covering TCT No. T-0184 with a total area of 17,009 square meters, to be sub-
divided by the FIRST PARTY;
Whereas, the FIRST PARTY had given the SECOND PARTY, the sum
of: TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, upon the
execution of this contract for the property entrusted by the SECOND PARTY, for
sub-division projects and development purposes;
NOW THEREFORE, for and in consideration of the above covenants and
promises herein contained the respective parties hereto do hereby stipulate and
agree as follows:
ONE: That the SECOND PARTY signed an absolute Deed of Sale x x x dated
March 5, 1969, in the amount of TWENTY FIVE THOUSAND FIVE HUNDRED
THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine Currency, for 1,700 square
meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in favor of
the FIRST PARTY, but the SECOND PARTY did not actually receive the
payment.
SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the
necessary amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine
currency, for their personal obligations and this particular amount will serve as an
advance payment from the FIRST PARTY for the property mentioned to be sub-
divided and to be deducted from the sales.
THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the
interest and the principal amount involving the amount of TWENTY THOUSAND
(P20,000.00) Pesos, Philippine Currency, until the sub-division project is
terminated and ready for sale to any interested parties, and the amount of
TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, will be deducted
accordingly.
FOURTH: That all general expense[s] and all cost[s] involved in the sub-division
project should be paid by the FIRST PARTY, exclusively and all the expenses
will not be deducted from the sales after the development of the sub-division
project.
FIFTH: That the sales of the sub-divided lots will be divided into SIXTY
PERCENTUM 60% for the SECOND PARTY and FORTY PERCENTUM 40% for
the FIRST PARTY, and additional profits or whatever income deriving from the
sales will be divided equally according to the x x x percentage [agreed upon] by
both parties.
SIXTH: That the intended sub-division project of the property involved will start
the work and all improvements upon the adjacent lots will be negotiated in both
parties['] favor and all sales shall [be] decided by both parties.
SEVENTH: That the SECOND PARTIES, should be given an option to get back
the property mentioned provided the amount of TWENTY THOUSAND
(P20,000.00) Pesos, Philippine Currency, borrowed by the SECOND PARTY, will
be paid in full to the FIRST PARTY, including all necessary improvements spent
by the FIRST PARTY, and the FIRST PARTY will be given a grace period to
turnover the property mentioned above.
That this AGREEMENT shall be binding and obligatory to the parties who
executed same freely and voluntarily for the uses and purposes therein stated.[10]
A reading of the terms embodied in the Agreement indubitably shows the
existence of a partnership pursuant to Article 1767 of the Civil Code, which
provides:
ART. 1767. By the contract of partnership two or more persons bind themselves
to contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.
Under the above-quoted Agreement, petitioners would contribute property
to the partnership in the form of land which was to be developed into a
subdivision; while respondent would give, in addition to his industry, the amount
needed for general expenses and other costs. Furthermore, the income from the
said project would be divided according to the stipulated percentage. Clearly, the
contract manifested the intention of the parties to form a partnership.[11]
It should be stressed that the parties implemented the
contract. Thus, petitioners transferred the title to the land to facilitate its use in
the name of the respondent. On the other hand, respondent caused the subject
land to be mortgaged, the proceeds of which were used for the survey and the
subdivision of the land. As noted earlier, he developed the roads, the curbs and
the gutters of the subdivision and entered into a contract to construct low-cost
housing units on the property.
Respondents actions clearly belie petitioners contention that he made no
contribution to the partnership. Under Article 1767 of the Civil Code, a partner
may contribute not only money or property, but also industry.
Petitioners Bound by Terms of Contract
Under Article 1315 of the Civil Code, contracts bind the parties not only to
what has been expressly stipulated, but also to all necessary consequences
thereof, as follows:
ART. 1315. Contracts are perfected by mere consent, and from that moment the
parties are bound not only to the fulfillment of what has been expressly stipulated
but also to all the consequences which, according to their nature, may be in
keeping with good faith, usage and law.
It is undisputed that petitioners are educated and are thus presumed to
have understood the terms of the contract they voluntarily signed. If it was not in
consonance with their expectations, they should have objected to it and insisted
on the provisions they wanted.
Courts are not authorized to extricate parties from the necessary
consequences of their acts, and the fact that the contractual stipulations may turn
out to be financially disadvantageous will not relieve parties thereto of their
obligations. They cannot now disavow the relationship formed from such
agreement due to their supposed misunderstanding of its terms.
Alleged Nullity of the Partnership Agreement
Petitioners argue that the Joint Venture Agreement is void under Article
1773 of the Civil Code, which provides:
ART. 1773. A contract of partnership is void, whenever immovable property is
contributed thereto, if an inventory of said property is not made, signed by the
parties, and attached to the public instrument.
They contend that since the parties did not make, sign or attach to the
public instrument an inventory of the real property contributed, the partnership is
void.
We clarify. First, Article 1773 was intended primarily to protect third
persons. Thus, the eminent Arturo M. Tolentino states that under the aforecited
provision which is a complement of Article 1771, [12]the execution of a public
instrument would be useless if there is no inventory of the property contributed,
because without its designation and description, they cannot be subject to
inscription in the Registry of Property, and their contribution cannot prejudice
third persons. This will result in fraud to those who contract with the partnership
in the belief [in] the efficacy of the guaranty in which the immovables may
consist. Thus, the contract is declared void by the law when no such inventory is
made. The case at bar does not involve third parties who may be prejudiced.
Second, petitioners themselves invoke the allegedly void contract as basis
for their claim that respondent should pay them 60 percent of the value of the
property.[13] They cannot in one breath deny the contract and in another
recognize it, depending on what momentarily suits their purpose. Parties cannot
adopt inconsistent positions in regard to a contract and courts will not tolerate,
much less approve, such practice.
 In short, the alleged nullity of the partnership will not prevent courts from
considering the Joint Venture Agreement an ordinary contract from which the
parties rights and obligations to each other may be inferred and enforced.

Partnership Agreement Not the Result of an Earlier Illegal Contract

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.
This argument is puerile. The Joint Venture Agreement clearly states that
the consideration for the sale was the expectation of profits from the subdivision
project. Its first stipulation states that petitioners did not actually receive payment
for the parcel of land sold to respondent. Consideration, more properly
denominated as cause, can take different forms, such as the prestation or
promise of a thing or service by another.[15]
In this case, the cause of the contract of sale consisted not in the stated
peso value of the land, but in the expectation of profits from the subdivision
project, for which the land was intended to be used. As explained by the trial
court, the land was in effect given to the partnership as [petitioners] participation
therein. x x x There was therefore a consideration for the sale, the [petitioners]
acting in the expectation that, should the venture come into fruition, they [would]
get sixty percent of the net profits.

Liability of the Parties

Claiming that respondent was solely responsible for the failure of the
subdivision project, petitioners maintain that he should be made to pay damages
equivalent to 60 percent of the value of the property, which was their share in the
profits under the Joint Venture Agreement.
We are not persuaded. True, the Court of Appeals held that petitioners acts
were not the cause of the failure of the project. [16] But it also ruled that neither was
respondent responsible therefor.[17] In imputing the blame solely to him,
petitioners failed to give any reason why we should disregard the factual findings
of the appellate court relieving him of fault. Verily, factual issues cannot be
resolved in a petition for review under Rule 45, as in this case. Petitioners have
not alleged, not to say shown, that their Petition constitutes one of the exceptions
to this doctrine.[18] Accordingly, we find no reversible error in the CA's ruling that
petitioners are not entitled to damages.
WHEREFORE, the Petition is hereby DENIED and the challenged
Decision AFFIRMED. Costs against petitioners.
SO ORDERED.
Melo, (Chairman), Vitug, Purisima,  and  Gonzaga-Reyes, JJ.,  concur.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-25532             February 28, 1969
COMMISSIONER OF INTERNAL REVENUE, petitioner,  respondent William J. Suter and his wife, Julia Spirig Suter actually formed a
vs.
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.
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.  P2,000.00 in the partnership for a nominal amount of P1.00.
A. S. Monzon, Gutierrez, Farrales and Ong for respondents.
REYES, J.B.L., J.:
A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed
on 30 September 1947 by herein respondent William J. Suter as the general
partner, and Julia Spirig and Gustav Carlson, as the limited partners. The
partners contributed, respectively, P20,000.00, P18,000.00 and P2,000.00 to the
partnership. On 1 October 1947, the limited partnership was registered with the
Securities and Exchange Commission. The firm engaged, among other activities,
in the importation, marketing, distribution and operation of automatic
phonographs, radios, television sets and amusement machines, 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 books of accounts and bank accounts, and had a
quota allocation with the Central Bank.
In 1948, however, general partner Suter and limited partner Spirig got married
and, thereafter, on 18 December 1948, limited partner Carlson sold his share in
the partnership to Suter and his wife. The sale was duly recorded with the
Securities and Exchange Commission on 20 December 1948.
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, consolidated the income of the
firm and the individual incomes of the partners-spouses Suter and Spirig
resulting in a determination of a deficiency income tax against respondent Suter
in the amount of P2,678.06 for 1954 and P4,567.00 for 1955.
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 Court of Tax Appeals, which court,
after trial, rendered a decision, on 11 November 1965, reversing that of the
Commissioner of Internal Revenue.
The present case is a petition for review, filed by the Commissioner of Internal
Revenue, of the tax court's aforesaid decision. It raises these issues:
(a) Whether or not the corporate personality of the William J. Suter "Morcoin"
Co., Ltd. should be disregarded for income tax purposes, considering that
single taxable unit; and
(b) Whether or not the partnership was dissolved after the marriage of the
partners, respondent William J. Suter and Julia Spirig Suter and the subsequent
sale to them by the remaining partner, Gustav Carlson, of his participation of
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 should be
disregarded for income tax purposes because the spouses have exclusive
ownership and control of the business; consequently the income tax return of
respondent Suter for the years in 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:
(d) Husband and wife. — In the case of married persons, whether
citizens, residents or non-residents, only one consolidated return for the
taxable year shall be filed by either spouse to cover the income of both
spouses; ....
In refutation of the foregoing, respondent Suter maintains, as the Court of Tax
Appeals held, that his marriage with limited partner Spirig and their acquisition of
Carlson's interests in the partnership in 1948 is not a ground for dissolution of the
partnership, either in the Code of Commerce or in the New Civil Code, and that
since its juridical personality had not been affected and since, as a limited
partnership, as contra distinguished from a duly registered general partnership, it
is taxable on its income similarly with corporations, Suter was not bound to
include in his individual return the income of the limited partnership.
We find the Commissioner's appeal unmeritorious.
The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has
been dissolved by operation of law because of the marriage of the only general
partner, William J. Suter to the originally limited partner, Julia Spirig one year
after the partnership was organized is rested by the appellant 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:
 A husband and a wife may not enter into a contract
of general copartnership, because under the Civil Code, which applies
in the absence of express provision in the Code of Commerce, persons
prohibited from making donations to each other are prohibited from
entering 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)
The petitioner-appellant has evidently failed to observe the fact that William J.
Suter "Morcoin" Co., Ltd. was not a universal partnership, but a  particular one.
As appears from Articles 1674 and 1675 of the Spanish Civil Code, of 1889
(which was the law in force when the subject firm was organized in 1947),
a universal partnership requires either that the object of the association be all the
present property of the partners, as contributed by them to the common fund, or
else "all  that the partners may acquire by 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, P20,000.00 by William Suter and P18,000.00 by Julia Spirig and neither
one of them was an industrial partner. It follows that William J. Suter "Morcoin"
Co., Ltd. was not a partnership that spouses were forbidden to enter by Article
1677 of the Civil Code of 1889.
The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his
Derecho Civil, 7th Edition, 1952, Volume 4, page 546, footnote 1, says with
regard to the prohibition contained in the aforesaid Article 1677:
Los conyuges, segun esto, no pueden celebrar entre si el contrato de
sociedad universal, pero o podran constituir sociedad particular?
Aunque el punto ha sido muy debatido, nos inclinamos a la tesis
permisiva de los contratos de sociedad particular entre esposos, ya que
ningun precepto de nuestro Codigo los prohibe, y hay que estar a la
norma general segun la que toda persona es capaz para contratar
mientras no sea declarado incapaz por la ley. La jurisprudencia de la
Direccion de los Registros fue favorable a esta misma tesis en su
resolution de 3 de febrero de 1936, mas parece cambiar de rumbo en la
de 9 de marzo de 1943.
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.
The appellant's view, that by the marriage of both partners the company became
a single proprietorship, is equally erroneous. The capital contributions of partners
William J. Suter and Julia Spirig were separately owned and contributed by
them before their marriage; and after they were joined in wedlock, such
contributions remained their respective separate property under the Spanish Civil
Code (Article 1396):
The following shall be the exclusive property of each spouse:
(a) That which is brought to the marriage as his or her own; ....
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.
It being a basic tenet of the Spanish and Philippine law that the partnership has a
juridical personality of its own, distinct and separate from that of its partners
(unlike American and English law that does 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 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
for income tax purposes. But this rule is exceptional in its disregard of a cardinal
tenet of our partnership laws, and can not be extended by mere implication to
limited partnerships.
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.
As the limited partnership under consideration is taxable on its income, to require
that income to be included in the individual tax return of respondent Suter is to
overstretch the letter and intent of the law. In fact, it would even conflict with what
it specifically provides in its Section 24: for the appellant Commissioner's stand
results in equal treatment, tax wise, of a general copartnership (compañia
colectiva) and a limited partnership, when the code plainly differentiates the two.
Thus, the code taxes the latter on its income, but not the former, because it is in
the case of compañias colectivas that the 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

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 out in Agapito vs. Molo
50 Phil. 779, and People's Bank vs. Register of Deeds of Manila, 60 Phil. 167,
the fruits of the wife's parapherna become conjugal only when no longer needed
to defray the expenses for the administration and preservation of the paraphernal
capital of the wife. Then again, the appellant's argument erroneously confines
itself to the question of the legal personality of the limited 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 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 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.

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 code, as it presently stands,
does not authorize it, and even bars it by requiring the limited partnership to pay
tax on its own income.

FOR THE FOREGOING REASONS, the decision under review is hereby

affirmed. No costs.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando,

Capistrano and Teehankee, JJ., concur.
Barredo, J., took no part.

Footnotes
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-35469             March 17, 1932
E. S. LYONS, plaintiff-appellant,  funds. In the end he was able from his own means, and with the assistance
vs.
C. W. ROSENSTOCK, Executor of the Estate of Henry W. Elser,
deceased, defendant-appellee.
Harvey & O'Brien for appellant.
DeWitt, Perkins & Brandy for appellee.
STREET, J.:
This action was institute in the Court of First Instance of the City of Manila, by E.
S. Lyons against C. W. Rosenstock, as executor of the estate of H. W. Elser,
deceased, consequent upon the taking of an appeal by the executor from the
allowance of the claim sued upon by the committee on claims in said estate. The
purpose of the action is to recover four hundred forty-six and two thirds shares of
the stock of J. K. Pickering & Co., Ltd., together with the sum of about P125,000,
representing the dividends which accrued on said stock prior to October 21,
1926, with lawful interest. Upon hearing the cause the trial court absolved the
defendant executor from the complaint, and the plaintiff appealed.
Prior to his death on June 18, 1923, Henry W. Elser had been a resident of the
City of Manila where he was engaged during the years with which we are here
concerned in buying, selling, and administering real estate. In several ventures
which he had made in buying and selling property of this kind the plaintiff, E. S.
Lyons, had joined with him, the profits being shared by the two in equal parts. In
April, 1919, Lyons, whose regular vocation was that of a missionary, or
missionary agent, of the Methodist Episcopal Church, went on leave to the
United States and was gone for nearly a year and a half, 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. Concurrently with this act Lyons execute in favor of Elser a general
power of attorney empowering him to manage and dispose of said properties at
will and to represent Lyons fully and amply, to the mutual advantage of both.
During the absence of Lyons two of the pieces of property above referred to were
sold by Elser, leaving in his hands a single piece of property located at 616-618
Carried Street, in the City of Manila, containing about 282 square meters of land,
with the improvements thereon.
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 and development of a
suburban improvement. This property, which will be herein referred to as the San
Juan Estate, was offered by its owners for P570,000. To afford a little time for
maturing his plans, Elser purchased an option on this property for P5,000, and
when this option was about to expire without his having been able to raise the
necessary funds, he paid P15,000 more for an extension of the option, with the
understanding in both cases that, in case the option should be exercised, the
amounts thus paid should be credited as part of the first payment. The amounts
paid for this option and its extension were supplied by Elser entirely from his own
which he obtained from others, to acquire said estate. The amount required for
the first payment was P150,000, and as Elser had available only about
P120,000, including the P20,000 advanced upon the option, it was necessary to
raise the remainder by obtaining a loan for P50,000. This amount was finally
obtained from a Chinese merchant of the city named Uy Siuliong. This loan was
secured through Uy Cho Yee, a son of the lender; and in order to get the money
it was necessary for Elser not only to give a personal note signed by himself and
his two associates in the projected enterprise, but also by the Fidelity & Surety
Company. The money thus raised was delivered to Elser 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 the name of J. K. Pickering &
Company; and when the transfer of the property was effected the deed was
made directly to this company. As Elser was the principal capitalist in the
enterprise he received by far the greater number of the shares issued, his portion
amount in the beginning to 3,290 shares.
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 had made an
offer for a big subdivision and that, if it should be acquired and Lyons would
come in, the two would be well fixed. (Exhibit M-5.) On June 3, 1920, eight days
before the first option expired, Elser 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
same date he wrote Lyons a letter explaining some details of the purchase, and
added "have advised in my cable that you resign and I hope you can do so
immediately and will come and join me on the lines we have so often spoken
about. . . . There is plenty of business for us all now and I believe we have
started something that will keep us going for some time." In one or more
communications prior to this, Elser had sought to impress Lyons with the idea
that he should raise all the money he could for the purpose of giving the
necessary assistance in future deals in real estate.
The enthusiasm of Elser did not communicate itself in any marked degree to
Lyons, and found him averse from joining in the purchase of the San Juan
Estate. In fact upon this visit of Lyons to the United States a grave doubt had
arisen as to whether he would ever return to Manila, and it was only in the
summer of 1920 that the board of missions of his church prevailed upon him to
return to Manila and resume his position as managing treasurer and one of its
trustees. Accordingly, on June 21, 1920, Lyons wrote a letter from New York
thanking Elser for his offer to take Lyons into his new project and adding that
from the standpoint of making money, he had passed up a good thing.
One source of embarrassment which had operated on Lyson to bring him to the
resolution to stay out of this venture, was that the board of mission was averse to
his engaging in business activities other than those in which the church was
concerned; and some of Lyons' missionary associates had apparently been
criticizing his independent commercial activities. This fact was dwelt upon in the
letter above-mentioned. Upon receipt of this letter Elser was of course informed
that it would be out of the question to expect assistance from Lyons in carrying
out the San Juan project. No further efforts to this end were therefore made by
Elser.
When Elser was concluding the transaction for the purchase of the San Juan
Estate, his book showed that he was indebted to Lyons to the extent of, possibly,
P11,669.72, which had accrued to Lyons from profits and earnings derived from
other properties; and when the J. K. Pickering & Company was organized and
stock issued, Elser indorsed to Lyons 200 of the shares allocated to himself, as
he then believed that Lyons would be one of his associates in the deal. It will be
noted that the par value of these 200 shares was more than P8,000 in excess of
the amount which Elser in fact owed to Lyons; and when the latter returned to the
Philippine Islands, he accepted these shares and sold them for his own benefit. It
seems to be supposed in the appellant's brief that the transfer of these shares to
Lyons by Elser supplies some sort of basis for the present action, or at least
strengthens the considerations involved in a feature of the case to be presently
explained. This view is manifestly untenable, since the ratification of the
transaction by Lyons and the appropriation by him of the shares which were
issued to him leaves no ground whatever for treating the transaction as a source
of further equitable rights in Lyons. We should perhaps add that after Lyons'
return to the Philippine Islands he acted for a time as one of the members of the
board of directors of the J. K. Pickering & Company, his qualification for this
office being derived precisely from the ownership of these shares.
We now turn to the incident which supplies the main basis of this action. It will be
remembered that, when Elser obtained the loan of P50,000 to complete the
amount needed for the first payment on the San Juan Estate, the lender, Uy
Siuliong, insisted that he should procure the signature of the Fidelity & 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 property owned by himself
and Lyons on Carriedo Street. This mortgage was executed on June 30, 1920, at
which time Elser expected that Lyons would come in on 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 come into this deal, Elser began to cast
around for means to relieve the Carriedo property of the encumbrance which he
had placed upon it. For this purpose, on September 9, 1920, he addressed a
letter to the Fidelity & Surety Co., asking it to permit him to substitute a property
owned by himself at 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 15, 1920, Elser
executed in favor of the Fidelity & Surety Co. a new mortgage on the M. H. del
Pillar 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, the
new mortgage and the release of the old were never registered; and on
September 25, 1920, thereafter, Elser returned the cancellation of the mortgage
on the Carriedo property and took back from the Fidelity & Surety Co. the new
mortgage on the M. H. del Pilar property, together with the 1,000 shares of the J.
K. Pickering & Company which he had delivered to it.
The explanation of this change of purpose is undoubtedly to be found in the fact
that Lyons had arrived in Manila on September 21, 1920, and shortly thereafter,
in the course of a conversation with Elser told him to let the Carriedo mortgage
remain on the property ("Let the Carriedo mortgage ride"). Mrs. Elser 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 Lyons for the mortgage
to remain on the Carriedo property. This concession was not only reasonable
under the circumstances, in view of the abundant solvency of Elser, but in view of
the further fact that Elser had given to Lyons 200 shares of the stock of the J. K.
Pickering & Co., having a value of nearly P8,000 in excess of the indebtedness
which Elser had owed to Lyons upon statement of account. The trial court found
in effect that the excess value of these shares over Elser's actual indebtedness
was conceded by Elser to Lyons in consideration of the assistance that had been
derived from the mortgage placed upon Lyon's interest in the Carriedo property.
Whether the agreement was reached exactly upon this precise line of thought is
of little moment, but the relations of the parties had been such that it was to be
expected that Elser would be generous; and he could scarcely have failed to take
account of the use he had made of the joint property of the two.
As the development of the San Juan Estate was a success from the start, Elser
paid the note of P50,000 to Uy Siuliong on January 18, 1921, although it was not
due until more than five months later. It will thus be seen that the mortgaging of
the Carriedo property never resulted in damage to Lyons to the extent of a single
cent; and although the court refused to allow the defendant to prove the Elser
was solvent at this time in an amount much greater than the entire encumbrance
placed upon the property, it is evident that the risk imposed upon Lyons was
negligible. It is also plain that no money actually deriving from this mortgage was
ever applied to the purchase of the San Juan Estate. What really happened was
the Elser merely subjected the property to a contingent liability, and no actual
liability ever resulted therefrom. The financing of the purchase of the San Juan
Estate, apart from the modest financial participation of his three associates in the
San Juan deal, was the work of Elser accomplished entirely upon his own
account.
The case for the plaintiff supposes that, when Elser placed a mortgage for
P50,000 upon the equity of redemption in the Carriedo property, Lyons, as half
owner of said property, became, as it were, involuntarily the owner of an
undivided interest in the property acquired partly by that money; and it is insisted
for him that, in consideration of this fact, he is entitled to the four hundred forty-
six and two-thirds shares of J. K. Pickering & Company, with the earnings
thereon, as claimed in his complaint.
Lyons tells us that he did not know until after Elser's death that the money
obtained from Uy Siuliong in the manner already explained had been used to
held finance the purchase of the San Juan Estate. He seems to have supposed
that the Carried property had been mortgaged to aid in putting through another
deal, namely, the purchase of a property referred to in the correspondence as the
"Ronquillo property"; and in this connection a letter of Elser of the latter part of
May, 1920, can be quoted in which he uses this language:
As stated in cablegram I have arranged for P50,000 loan on Carriedo
property. Will use part of the money for Ronquillo buy (P60,000) if the
owner comes through.
Other correspondence shows that Elser had apparently been trying to buy the
Ronquillo property, and Lyons leads us to infer that he thought that the money
obtained by mortgaging the Carriedo property had been used in the purchase of
this property. It doubtedless appeared so to him in the retrospect, but certain
consideration show that he was inattentive to the contents of the quotation from
the letter 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
that only part of the P50,000 thus obtained would be used in this way, if the deal
went through. Naturally, upon the arrival of Lyons in September, 1920, one of his
first inquiries would have been, if he did not know before, what was the status of
the proposed trade for the Ronquillo property.
Elser's widow and one of his clerks testified that about June 15, 1920, Elser
cabled Lyons something to this effect;: "I have mortgaged the property on
Carriedo Street, secured by my personal note. You are amply protected. I wish
you to join me in the San Juan Subdivision. Borrow all money you can." Lyons
says that no such cablegram was received by him, and we consider this point of
fact of little moment, since the proof shows that Lyons knew that the Carriedo
mortgage had been executed, and after his arrival in Manila he consented for the
mortgage to remain on the property until it was paid off, as shortly occurred. It
may well be that Lyons did not at first clearly understand all the ramifications of
the situation, but he knew enough, we think, to apprise him of the material factors
in the situation, and we concur in the conclusion of the trial court that Elser did
not act in bad faith and was guilty of no fraud.
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 Code and article 264 of the
Code of Commerce, be obligated to pay interest upon the money so applied to
his own use. Under the law prevailing in this jurisdiction a trust does not ordinarily
attach with respect to property acquired by a person who uses money belonging
to another (Martinez vs. Martinez, 1 Phil., 647; Enriquez vs. Olaguer, 25 Phil.,
641.). Of course, if an actual relation of partnership had existed in the money
used, the case might be difference; and much emphasis is laid in the appellant's
brief upon the relation of partnership which, it is claimed, existed. But there was
clearly no general relation of partnership, under article 1678 of the Civil Code. It
is clear that Elser, in buying the San Juan Estate, was not acting for any
partnership composed of himself and Lyons, and the law cannot be distorted into
a proposition which would make Lyons a participant in this deal contrary to his
express determination.
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, however, only where
money belonging to one person is used by another for the acquisition of property
which should belong to both; and it takes but little discernment to see that the
situation here involved is not one for the application of that doctrine, for no
money belonging to Lyons or any partnership composed of Elser and Lyons was
in fact used by Elser in the purchase of the San Juan Estate. Of course, if any
damage had been caused to Lyons by the placing of the mortgage upon the
equity of 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.