Fernando Santos vs Spouses Reyes

Business Organization Partnership, Agency, Trust Shares in Liquidation Net Profit vs Gross Income
In June 1986, Fernando Santos (70%), Nieves Reyes (15%), and Melton Zabat (15%) orally instituted a partnership
with them as partners. Their venture is to set up a lending business where it was agreed that Santos shall be
financier and that Nieves and Zabat shall contribute their industry. **The percentages after their names denote
their share in the profit.
Later, Nieves introduced Cesar Gragera to Santos. Gragera was the chairman of a corporation. It was agreed that
the partnership shall provide loans to the employees of Grageras corporation and Gragera shall earn commission
from loan payments.
In August 1986, the three partners put into writing their verbal agreement to form the partnership. As earlier
agreed, Santos shall finance and Nieves shall do the daily cash flow more particularly from their dealings with
Gragera, Zabat on the other hand shall be a loan investigator. But then later, Nieves and Santos found out that
Zabat was engaged in another lending business which competes with their partnership hence Zabat was expelled.
The two continued with the partnership and they took with them Nieves husband, Arsenio, who became their loan
investigator.
Later, Santos accused the spouses of not remitting Grageras commissions to the latter. He sued them for collection
of sum of money. The spouses countered that Santos merely filed the complaint because he did not want the
spouses to get their shares in the profits. Santos argued that the spouses, insofar as the dealing with Gragera is
concerned, are merely his employees. Santos alleged that there is a distinct partnership between him and Gragera
which is separate from the partnership formed between him, Zabat and Nieves.
The trial court as well as the Court of Appeals ruled against Santos and ordered the latter to pay the shares of the
spouses.
ISSUE: Whether or not the spouses are partners.
HELD: Yes. Though it is true that the original partnership between Zabat, Santos and Nieves was terminated when
Zabat was expelled, the said partnership was however considered continued when Nieves and Santos continued
engaging as usual in the lending business even getting Nieves husband, who resigned from the Asian Development
Bank, to be their loan investigator who, in effect, substituted Zabat.
There is no separate partnership between Santos and Gragera. The latter being merely a commission agent of the
partnership. This is even though the partnership was formalized shortly after Gragera met with Santos (Note that
Nieves was even the one who introduced Gragera to Santos exactly for the purpose of setting up a lending
agreement between the corporation and the partnership).
HOWEVER, the order of the Court of Appeals directing Santos to give the spouses their shares in the profit is
premature. The accounting made by the trial court is based on the total income of the partnership. Such total
income calculated by the trial court did not consider the expenses sustained by the partnership. All expenses
incurred by the money-lending enterprise of the parties must first be deducted from the total income in order to
arrive at the net profit of the partnership. The share of each one of them should be based on this net profit and
not from the gross income or total income.
Pascual and Dragon v. CIR, G.R. No. 78133, October 18, 1988

[GANCAYCO, J.]
FACTS:
Petitioners bought two (2) parcels of land and a year after, they bought another three (3) parcels of land.
Petitioners subsequently sold the said lots in 1968 and 1970, and realized net profits. The corresponding capital
gains taxes were paid by petitioners in 1973 and 1974 by availing of the tax amnesties granted in the said years.
However, the Acting BIR Commissioner assessed and required Petitioners to pay a total amount of P107,101.70 as
alleged deficiency corporate income taxes for the years 1968 and 1970. Petitioners protested the said assessment
asserting that they had availed of tax amnesties way back in 1974. In a reply, respondent Commissioner informed
petitioners that in the years 1968 and 1970, petitioners as co-owners in the real estate transactions formed an
unregistered partnership or joint venture taxable as a corporation under Section 20(b) and its income was subject
to the taxes prescribed under Section 24, both of the National Internal Revenue Code that the unregistered
partnership was subject to corporate income tax as distinguished from profits derived from the partnership by them
which is subject to individual income tax; and that the availment of tax amnesty under P.D. No. 23, as amended, by
petitioners relieved petitioners of their individual income tax liabilities but did not relieve them from the tax liability
of the unregistered partnership. Hence, the petitioners were required to pay the deficiency income tax assessed.

ISSUE:
Whether the Petitioners should be treated as an unregistered partnership or a co-ownership for the purposes of
income tax.

RULING:
The Petitioners are simply under the regime of co-ownership and not under unregistered partnership.
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 (Art. 1767, Civil Code of the Philippines).
In the present case, there is no evidence that petitioners entered into an agreement to contribute money, property
or industry to a common fund, and that they intended to divide the profits among themselves. The sharing of
returns does not in itself establish a partnership whether or not the persons sharing therein have a joint or common
right or interest in the property. There must be a clear intent to form a partnership, the existence of a juridical
personality different from the individual partners, and the freedom of each party to transfer or assign the whole
property. Hence, there is no adequate basis to support the proposition that they thereby formed an unregistered
partnership. The two isolated transactions whereby they purchased properties and sold the same a few years
thereafter did not thereby make them partners. They shared in the gross profits as co- owners and paid their capital
gains taxes on their net profits and availed of the tax amnesty thereby. Under the circumstances, they cannot be
considered to have formed an unregistered partnership which is thereby liable for corporate income tax, as the
respondent commissioner proposes.
Philex Mining Corporation vs. CIR [G.R. No. 148187 (April 16, 2008)]

Facts: Petitioner Philex entered into an agreement with Baguio Gold Mining Corporation for the former to manage
the latters mining claim know as the Sto. Mine. The parties agreement was denominated as Power of Attorney.
The mine suffered continuing losses over the years, which resulted in petitioners withdrawal as manager of the
mine. The parties executed a Compromise Dation in Payment, wherein the debt of Baguio amounted to Php.
112,136,000.00. Petitioner deducted said amount from its gross income in its annual tax income return as loss on
the settlement of receivables from Baguio Gold against reserves and allowances. BIR disallowed the amount
as deduction for bad debt. Petitioner claims that it entered a contract of agency evidenced by the power of
attorney executed by them and the advances made by petitioners is in the nature of a loan and thus can
be deducted from its gross income. Court of Tax Appeals (CTA) rejected the claim and held that it is a partnership
rather than an agency. CA affirmed CTA

Issue: Whether or not it is an agency.

Held: No. The lower courts correctly held that the Power of Attorney (PA) is the instrument material that is
material in determining the true nature of the business relationship between petitioner and Baguio. An examination
of the said PA reveals that a partnership or joint venture was indeed intended by the parties. While a corporation
like the petitioner cannot generally enter into a contract of partnership unless authorized by law or its charter, it has
been held that it may enter into a joint venture, which is akin to a particular partnership. The PA indicates that the
parties had intended to create a PAT and establish a common fund for the purpose. They also had a joint interest in
the profits of the business as shown by the 50-50 sharing of income of the mine.

Moreover, in an agency coupled with interest, it is the agency that cannot be revoked or withdrawn by the principal
due to an interest of a third party that depends upon it or the mutual interest of both principal and agent. In this
case the non-revocation or non-withdrawal under the PA applies to the advances made by the petitioner who is the
agent and not the principal under the contract. Thus, it cannot be inferred from the stipulation that it is an agency.
DELUAO v. CASTEEL

G.R. No. L-21906; December 24, 1968

Ponente: J. Castro

FACTS:

In 1940 Nicanor Casteel unsuccessfully registered a fishpond in a big tract of swampy land, 178.76 hectares, in the
then sitio of Malalag, municipality of Padada, Davao for 3 consecutive times because the Bureau of Fisheries did not
act upon his previous applications.
Despite the said rejection, Casteel did not lose interest. Because of the threat poised upon his position by the
other applicants who entered upon and spread themselves within the area, Casteel realized the urgent necessity of
expanding his occupation thereof by constructing dikes and cultivating marketable fishes. But lacking financial
resources at that time, he sought financial aid from his uncle Felipe Deluao.
Moreover, upon learning that portions of the area applied for by him were already occupied by rival applicants,
Casteel immediately filed a protest. Consequently, two administrative cases ensued involving the area in question.

However, despite the finding made in the investigation of the above administrative cases, the Director of Fisheries
nevertheless rejected Casteel's application on October 25, 1949, required him to remove all the improvements
which he had introduced on the land, and ordered that the land be leased through public auction

On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the first part, and Nicanor Casteel as
party of the second part, executed a contract denominated a "contract of service". On the same date the above
contract was entered into, Inocencia Deluao executed a special power of attorney in favor of Jesus Donesa

On November 29, 1949 the Director of Fisheries rejected the application filed by Felipe Deluao on November 17,
1948. Unfazed by this rejection, Deluao reiterated his claim over the same area in the two administrative cases and
asked for reinvestigation of the application of Nicanor Casteel over the subject fishpond.

The Secretary of Agriculture and Natural Resources rendered a decision ordering Casteel to be reinstated in the
area and that he shall pay for the improvement made thereupon.
Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further administering the fishpond, and
ejected the latter's representative (encargado), Jesus Donesa, from the premises.

ISSUE:
Whether the reinstatement of Casteel over the subject land constitute a dissolution of the partnership between him
and Deluao

HELD:

Yes, the reinstatement of Casteel dissolved his partnership with Deluao.

The Supreme Court ruled that the arrangement under the so-called "contract of service" continued until the decision
both dated Sept. 15, 1950 were issued by the Secretary of Agriculture and Natural Resources in DANR Cases 353
and 353-B.

This development, by itself, brought about the dissolution of the partnership. 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 unlawful for the members to carry it on in partnership. Moreover,
subsequent events likewise reveal the intent of both parties to terminate the partnership because each refused to
share the fishpond with the other.

B1: Deluao VS Casteel (Property Rights of Partners)

- Casteel was the original occupant and applicant of a fishpond area since before the last World War. He
wanted to preclude subsequent applicants from entering and spreading themselves within the area by
expanding his occupation thereof by the construction of dikes and the cultivation of marketable fishes.

- Thus, he borrowed P27, 000 from the Deluaos to finance needed improvements for the fishpond, and was
compelled by force of this circumstance to enter into the contract of partnership, with an agreement to
divide the fishpond after the award. Eventually, Casteel administered the said property and single-handedly
opposed rival applicants who occupied portions of the fishpond area. He relentlessly pursued his claim to
the said area up to the Office of the DANR Secretary, until it was finally awarded to him.

Issue: WON the parties can now validly divide the said fishpond as agreed upon by them? NO.

Ruling:

- Spouses Deluaos statement that the beneficial right over the fishpond in question is the "specific
partnership property" contemplated by art. 1811 of the Civil Code is incorrect. A reading of the said
provision will show that what is meant is tangible property, such as a car, truck or a piece of land, but not
an intangible thing such as the beneficial right to a fishpond. If what they have in mind is the fishpond itself,
they are grossly in error. A fishpond of the public domain can never be considered a specific partnership
property because only its use and enjoyment never its title or ownership is granted to specific private
persons.

- Since we held as illegal the second part of the contract of partnership between the parties to divide the
fishpond between them after the award, a fortiori, no rights or obligations could have arisen therefrom.
Inescapably, no trust could have resulted because trust is founded on equity and can never result from an
act violative of the law. Art. 1452 of the Civil Code does not support the appellees' stand because it
contemplates an agreement between two or more persons to purchase property capable of private
ownership the legal title of which is to be taken in the name of one of them for the benefit of all. In the
case at bar, the parties did not agree to purchase the fishpond, and even if they did, such is prohibited by
law, a fishpond of the public domain not being susceptible of private ownership.

- It must be observed that, despite the decisions of the DANR Secretary in DANR cases 353 and 353-B
awarding the area to Casteel, and despite the latter's proposal that they divide the fishpond between them,
the Deluaos unequivocally expressed in their aforequoted letter their decision not to share the fishpond with
Casteel. This produced the dissolution of the entire contract of partnership (to jointly administer and to
divide the fishpond after the award) between the parties, not to mention its automatic dissolution for being
contrary to law.

- Pettioners final proposition that only by giving effect to the confirmed intention of the parties may the
cause of equity and justice be served, we must state that since the contract of service is contrary to law
and, therefore, null and void, it is not and can never be considered as the law between the parties.

- Deluao vs. Casteel [ 26 SCRA 475]

- Facts:
- Nicanor Casteel filed a fishpond application for a big tract of swampy land in the sitio of Malalag in
Davao City three times. All the applications were disapproved for a variety of reasons. Casteel filed a motion
for reconsideration and while the motion was pending resolution, he was advised by the district forester of
Davao that no further action would be taken unless he filed a new application for the area concerned. So he
filed a new fishpond application. Meanwhile, several applications were submitted by other persons of the
area covered by Casteels application. Leoncio Aradillos filed his fishpond application covering 10 hectares of
land and was later granted a fishpond permit. Victor Carpio also filed his fishpond application. Alejandro
Cacams application was given due course and a fishpond permit was also issued to him. Felipe Deluao filed
his own fishpond application for the area covered by Casteels application. Because of the threat poised
upon his position by the above applicants, Casteel realized the urgent necessity of expanding his occupation
by constructing dikes and cultivating marketable fishes, in order to prevent squatters from usurping the
land. But lacking financial resources, he sought financial aid from his uncle Felipe Deluao who extended
loans to him. Casteel also filed corresponding protests. Despite the finding in the investigation that Casteel
had already introduced improvements on portions applied by him, the DIrector of Fisheries rejected
Casteels application requiring him to remove all the improvements which he had introduced in the land. In
1949, Inocencia Deluao and Nicanor Casteel executed a contract denominated as a contract of service
whereby Deluao hires and employes Casteel. Inocencia Deluao also executed an SPA in favour of Jessica
Donesa to represent her in the administration of the fishponds. The Director of Fisheries rejected the
application by Deluao but the latter reiterated his claim by filing two administrative cases. Subsequently,
Casteels application was given due course and the latter forbade Inocencia Deluao from further
administering the fishpond and ejected Jessica Donesa in the premises. Alleging violation of the contract of
service, spouses Deluao filed an action for specific performance and damages against Casteel.
- Issue:
- WON the contract of service created a contract of co-ownership and partnership between Deluao
and Casteel over the fishpond.
- Held:
- Too well-settled to require any citation of authority is the rule that everyone is conclusively
presumed to know the law. It must be assumed, conformably to such rule, that the parties entered into the
so-called "contract of service" cognizant of the mandatory and prohibitory laws governing the filing of
applications for fishpond permits. And since they were aware of the said laws, it must likewise be assumed
in fairness to the parties that they did not intend to violate them. This view must necessarily negate
the appellees' allegation that exhibit A created a contract of co-ownership between the parties over the
disputed fishpond. We shall therefore construe the contract as one of partnership, divided into two parts -
namely, a contract of partnership, to exploit the fishpond pending its award to either Felipe Deluao or
Nicanor Casteel, and a contract of partnership to divide the fishpond between them after such award. The
first is valid, the second illegal. It is well to note that when the appellee Inocencia Deluao and the appellant
entered into the so-called "contract of service", there were two pending applications over the fishpond. One
was Casteel's which was appealed by him to the Secretary of Agriculture and Natural Resources after it was
disallowed by the Director of Fisheries. The other was Felipe Deluao's application over the same area which
was likewise rejected by the Director of Fisheries. The evidence preponderates in favor of the view that the
initial intention of the parties was not to form a co-ownership but to establish a partnership Inocencia
Deluao as capitalist partner and Casteel as industrial partner the ultimate undertaking of which was to
divide into two equal parts such portion of the fishpond as might have been developed by the amount
extended by the plaintiffs-appellees, with the further provision that Casteel should reimburse the expenses
incurred by the appellees over one-half of the fishpond that would pertain to him. The arrangement under
the so-called "contract of service" continued until the decisions were issued by the Secretary of Agriculture
and Natural Resources in DANR Cases 353 and 353-B. This development, by itself, brought about the
dissolution of the partnership. Art. 1830(3) of the Civil Code enumerates, as one of the causes for the
dissolution of a partnership, ". . . 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." 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. Act
4003, known as the Fisheries 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. The Public Land Act also provides that "The lessee shall not assign,
encumber, or sublet his rights without the consent of the Secretary of Agriculture and Commerce, and the
violation of this condition shall avoid the contract. Finally, section 37 of Administrative Order No. 14 of the
Secretary of Agriculture and Natural Resources issued in August 1937, prohibits a transfer or sublease
unless first approved by the Director of Lands and under such terms and conditions as he may prescribe.
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
unlawful for the business of the partnership to be carried on or for the members to carry it on in
partnership.
Lilibeth Sunga-Chan vs Lamberto Chua
Business Organization Partnership, Agency, Trust Prescription Demand for an accounting Oral Partnership
In 1977, Chua and Jacinto Sunga verbally agreed to form a partnership for the sale and distribution of Shellane
LPGs. Their business was very profitable but in 1989 Jacinto died. Upon Jacintos death, his daughter Lilibeth took
over the business as well as the business assets. Chua then demanded for an accounting but Lilibeth kept on
evading him. In 1992 however, Lilibeth gave Chua P200k. She said that the same represents a partial payment; that
the rest will come after she finally made an accounting. She never made an accounting so in 1992, Chua filed a
complaint for Winding Up of Partnership Affairs, Accounting, Appraisal and Recovery of Shares and Damages with
Writ of Preliminary Attachment against Lilibeth.
Lilibeth in her defense argued among others that Chuas action has prescribed.
ISSUE: Whether or not Chuas claim is barred by prescription.
HELD: No. The action for accounting filed by Chua 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 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. Considering that the death of a
partner results in the dissolution of the partnership, in this case, it was after Jacintos death that Chua as the
surviving partner had the right to an account of his interest as against Lilibeth. It bears stressing that while
Jacintos death dissolved the partnership, the dissolution did not immediately terminate the partnership. The Civil
Code 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

Sunga Chan v. Chua

Facts:

On June 22, 1992, respondent Lamberto T. Chua filed a complaint against petitioners, Lilibeth Sunga Sunga Chan
and Cecilia Sunga, daughter and wife, respectively of the deceased Jacinto L. Sunga, 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, 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 with initial capital contribution of Php100,000.00 each, with the intention
that the profits would be equally divided between them. For business convenience, respondent and Jacinto agreed
to register the business name of their partnership SHELLITE GAS APPLIANCE CENTER under the name of Jacinto as
sole proprietorship.

Petitioners question the correctness of the finding of the Trial Court and the Court of Appeals that a partnership
existed in the absence of any written document to show partnership between respondent and Jacinto from 1977
until Jacintos death.

Issue:

Whether or not respondent Lamberto Chua and Jacinto L. Sunga has entered into a partnership?

Held:

Yes. The court ruled that 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. Also, Article 1772 of the Civil
Code requires that partnership with a capital of Php3,000.00 or more must register with the Securities and
Exchange Commission, however this registration requirement is not mandatory. Article 1768 of the Civil Code
explicitly provides that the partnership retains its juridical personality even if it fails 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.
Agad vs Mabato

Facts: Petitioner Mauricio Agad claims that he and defendant Severino Mabato are partners in a fishpond business
to which they contributed P1000 each. As managing partner, Mabato yearly rendered the accounts of the operations
of the partnership. However, for the years 1957-1963, defendant failed to render the accounts despite repeated
demands. Petitioner filed a complaint against Mabato to which a copy of the public instrument evidencing their
partnership is attached. Aside from the share of profits (P14,000) and attorneys fees (P1000), petitioner prayed for
the dissolution of the partnership and winding up of its affairs.

Mabato denied the existence of the partnership alleging that Agad failed to pay hisP1000 contribution. He then filed
a motion to dismiss on the ground of lack of cause of action. The lower court dismissed the complaint finding a
failure to state a cause of action predicated upon the theory that the contract of partnership 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.

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.

Issue: Whether or not immovable property or real rights have been contributed to the partnership.

Held: Based on the copy of the public instrument attached in the complaint, the partnership was established
to operate a fishpond", and not to "engage in a fishpond business. Thus, Mabatos contention that it is really
inconceivable how a partnership engaged in the fishpond business could exist without said fishpond property
(being) contributed to the partnership is without merit. Their contributions were limited to P1000 each and neither
a fishpond nor a real right thereto was contributed to the partnership.

Therefore, Article 1773 of the Civil Code finds no application in the case at bar. Case remanded to the lower court
for further proceedings.
 ANGELES v. SECRETARY OF JUSTICE

(July 29, 2005)

Oscar Angeles and Emerita Angeles, petitioners, v. The Hon. Secretary of Justice and Felino Mercado, respondents

DOCTRINE: The purpose of registration of the contract of partnership with the SEC is to give notice to third
parties. Failure to register the contract of partnership does not affect the liability of the partnership and of the
partners to third persons, nor does it affect the partnerships juridical personality. A partnership may exist even if
the partners do not use the words partner or partnership.

NATURE: Special civil action. Certiorari.

PONENTE: Carpio, J.

FACTS:

Angeles spouses filed a criminal complaint for estafa against Mercado, their brother-in-law
o Claimed that Mercado convinced them to enter into a contract of antichresis, to last for 5 years, covering 8
parcels of land planted with fruit-bearing lanzones trees in Nagcarlan, Laguna and owned by Juan Sanzo
o The parties agreed that Mercado would administer the ands and complete the necessary paperwork
o After 3 years, the Angeles spouses asked for an accounting from Mercado, and they claim that only after this
demand for an accounting did thy discover that Mercado had put the contract of antichresis over the subject
land under Mercado and his spouses names
Mercado denied the Angeles spouses allegations
o Claimed that there exists an industrial partnership, colloquially known as sosyo industrial, between him
and his spouse as industrial partners and the Angeles spouses as financiers, and that this had existed since
1991, before the contract of antichresis over the subject land
o Mercado used his and his spouses earnings as part of the capital in the business transactions which he
entered into in behalf of the Angeles spouses. It was their practice to enter into business transactions with
other people under the name of Mercado because the Angeles spouses did not want to be identified as the
financiers
o Attached bank receipts showing deposits in behalf of Emerita Angeles and contracts under his name for the
Angeles spouses
During the barangay conciliation proceedings, Oscar Angeles stated that there was a written sosyo industrial
agreement: capital would come from the Angeles spouses while the profit would be divided evenly between
Mercado and the Angeles spouses
Provincial Prosecution Office: first recommended the filing of a criminal information for estafa, but after
Mercado filed his counter-affidavit and moved for reconsideration, issued an amended resolution dismissing the
complaint
Angeles spouses appealed to Sec. of Justice, saying that the document evidencing the contract of antichresis
executed in the name of the Mercado spouses, instead of the Angeles spouses, and that such document alone
proves Mercados misappropriation of their P210, 000
Sec. of Justice: dismissed the appeal
o Angeles spouses failed to show sufficient proof that Mercado deliberately deceived them in the transaction
o Mercado satisfactorily explained that the Angeles spouses do not want to be revealed as the financiers
o Under the circumstances, it was more likely that the Angeles spouses knew from the very start that the
questioned document was not really in their names
o A partnership truly existed between the Angeles spouses and Mercado, which was clear from the fact that
they contributed money to a common fund and divided the profits among themselves.
o Angeles spouses acknowledged their joint business venture in the barangay conciliation proceedings although
they assailed the manner the business was conducted
o Although the legal formalities for the formation were not adhered to, the partnership relationship was evident.
 o There is no estafa where money is delivered by a partner to his co-partner on the latters representation that
the amount shall be applied to the business of their partnership. In case of the money received, the co-
partners liability is civil in nature

ISSUES/HELD:

1. W/N the Sec. of Justice committed grave abuse of discretion in dismissing the appeal - No
2. W/N a partnership existed between Mercado and the Angeles spouses - Yes
3. W/N there was misappropriation by Mercado No

RATIO/RULING:

1. Angeles spouses fail to convince that the Secretary of Justice committed grave abuse of discretion when he
dismissed their appeal. Moreover, they committed a procedural error when they failed to file a motion for
reconsideration of the Sec. of Justices resolution, which is already enough reason to dismiss the case.

2. Angeles spouses allege that they had no partnership with Mercado, relying on Arts. 1771 to 1773 of the Civil
Code.

The Angeles spouses position that there is no partnership because of the lack of a public instrument indicating
the same and a lack of registration with the SEC holds no water
o The Angeles spouses contributed money to the partnership and not immovable property
o Mere failure to register the contract of partnership with the SEC does not invalidate a contract that has the
essential requisites of a partnership. The purpose of registration is to give notice to third parties.
Failure to register does not affect the liability of the partnership and of the partners to third persons, nor does it
affect the partnerships juridical personality
The Angeles spouses admit to facts that prove the existence of a partnership
o A contract showing a sosyo industrial or industrial partnership
o Contribution of money & industry to a common fund
o Division of profits between the Angeles spouses and Mercado

3. Mercado satisfactorily explained that the Angeles spouses do not want to be revealed as the financiers, thus the
document which was in the name of Mercado and his spouse fail to convince that there was deceit or false
representation that induced the Angeles spouses to part with their money

Even the RTC of Sta. Cruz, Laguna, which handled the civil case filed by the Angeles spouses against Mercado
and Leo Cerayban stated that it was the practice to have the contracts secured in Mercados name as the
Angeles spouses fear being kidnapped by the NPA or being questioned by the BIR as Oscar Angeles was working
with the government.

Accounting of the proceeds is not a proper subject for the present case.

DISPOSITION: Petition for certiorari dismissed. Decision of Sec. of Justice affirmed.

VOTE: 1st Division, all concur.

 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.

Facts:
Petitioners Torres and Baring entered into a joint venture agreement with Respondent Torres for the development
of a parcel of land into a subdivision. They executed a Deed of Sale covering the said parcel of land in favor of
respondent Manual Torres, who then had it registered in his name. By mortgaging the property, respondent Manuel
Torres obtained from Equitable Bank a loan of P40,000, which was supposed to be used for the development of
subdivision as per the JVA. However, the project did not push through and the land was subsequently foreclosed by
the bank.

Petitioners Antonia Torres alleged that it was due to respondents lack of funds/skills that caused the project to fail,
and that respondent use the loan in the furtherance of his own company. On the otherhand, respondent Manuel
Torres alleged that he used the loan to implement the JVA surveying and subdivision of lots, approval of the
project, advertisement, and construction of roads and the likes, and that he did all of these for a total of P85,000.

Petitioners filed a case for estafa against respondent but failed. They then instituted a civil case. CA held that the
two parties formed a partnership for the development of subdivision and as such, they must bear the loss suffered
by the partnership in the same proportion as their share in profits. Hence, the petition.

Issue #1:
Whether or not the transaction between petitioner and respondent was that of joint venture/partnership.

Held:
Yes. There formed a partnership between the two on the basis of joint-venture agreement and deed of sale. A
reading of the terms of agreement shows the existence of partnership pursuant to Art 1767 of Civil Code, which
states 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. In the 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.

Issue #2:
Whether or not the deed of sale between the two was valid.

Held:
No. Petitioners were wrong in contending that the JVA 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.

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.

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. 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.
G.R. No. L-35469 March 17, 1932
E. S. LYONS vs. C. W. ROSENSTOCK, Executor of the Estate of Henry W. Elser, deceased

FACTS:

Henry W. Elser was engaged in buying, selling, and administering real estate. E. S. Lyons joined with him, the profits being
shared by the two in equal parts.

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. Elser made 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.

The attention of Elser was drawn to a piece of land, referred to as the San Juan Estate. He obtained the loan of P50,000
to complete the amount needed for the first payment on the San Juan Estate. The lender insisted that he should procure
the signature of the Fidelity & Surety Co. on the note to be given for said loan. Elser mortgaged to the Fidelity & Surety
Co. the equity of redemption in the property owned by himself and Lyons on Carriedo Street to secure the liability thus
assumed by it.

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.

ISSUE: Whether there was a general relation of partnership. NO

RULING:

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 different; 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.
G.R. No. L-35469 March 17, 1932

E. S. LYONS, plaintiff-appellant,
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 funds. In the end he was able from his own means, and with the
assistance 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.

Avancea, C.J., Johnson, Malcolm, Villamor, Villa-Real and Imperial, JJ., concur.