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G.R. Nos. 166299-300. December 13, 2005.*
AURELIO K. LITONJUA, JR., petitioner, vs. EDUARDO K. LITONJUA,
SR., ROBERT T. YANG, ANGLO PHILS. MARITIME, INC., CINEPLEX,
INC., DDM GARMENTS, INC., EDDIE K. LITONJUA SHIPPING
AGENCY, INC., EDDIE K. LITONJUA SHIPPING CO., INC., LITONJUA
SECURITIES, INC. (formerly E. K. Litonjua Sec), LUNETA THEATER,
INC., E & L REALTY, (formerly E & L INT’L SHIPPING CORP.), FNP
CO., INC., HOME ENTERPRISES, INC., BEAUMONT DEV. REALTY CO.,
INC., GLOED LAND CORP., EQUITY TRADING CO., INC., 3D CORP.,
“L” DEV. CORP, LCM THEATRICAL ENTERPRISES, INC., LITONJUA
SHIPPING CO. INC., MACOIL INC., ODEON REALTY CORP.,
SARATOGA REALTY, INC., ACT THEATER INC. (formerly General
Theatrical & Film Exchange, INC.), AVENUE REALTY, INC., AVENUE
THEATER, INC. and LVF PHILIPPINES, INC., (Formerly VF
PHILIPPINES), respondents.
Actions; Civil Law; Partnership; Words and Phrases; A contract of
partnership is defined by the Civil Code as one where two or more persons
bound themselves to contribute money, property, or industry to a common
fund with the intention of dividing the profits among themselves.—A
partnership exists when two or more persons agree to place their money,
effects, labor, and skill in lawful commerce or business, with the
understanding that there shall be a proportionate sharing of the profits and
losses between them. A contract of partnership is defined by the Civil Code
as one where two or more persons bound themselves to contribute money,
property, or industry to a common fund with the intention of dividing the
profits among themselves. A joint venture, on the other hand, is hardly
distinguishable from, and may be likened to, a partnership since their
elements are similar, i.e., community of interests in the business and
sharing of profits and losses. Being a form of partnership, a joint venture is
generally governed by the law on partnership.
Same; Same; Same; Petitioner’s complaint does not state a valid cause of
action because not all the essential elements of a cause of action are
present.—Given the foregoing perspective, what the appellate court wrote in
its assailed Decision about the probative value and legal effect of Annex “A-
1” commends itself for concurrence: “Considering that the allegations in the
complaint showed that [petitioner] contributed immovable properties to the
alleged partnership, the “Memorandum” (Annex “A” of the complaint) which
purports to establish the said “partnership/joint venture” is NOT a public
instrument and there was NO inventory of the immovable property duly
signed by the parties. As such, the said “Memorandum” . . . is null and void
for purposes of establishing the existence of a valid contract of partnership.
Indeed, because of the failure to comply with the essential formalities of a
valid contract, the purported “partnership/joint venture” is legally inexistent
and it produces no effect whatsoever. Necessarily, a void or legally
inexistent contract cannot be the source of any contractual or legal right.
Accordingly, the allegations in the complaint, including the actionable
document attached thereto, clearly demonstrates that [petitioner] has NO
valid contractual or legal right which could be violated by the [individual
respondents] herein. As a consequence, [petitioner’s] complaint does NOT
state a valid cause of action because NOT all the essential elements of a
cause of action are present.”
Same; Same; Same; Statute of Frauds; By force of the statute of frauds, an
agreement that by its terms is not to be performed within a year from the
making thereof shall be unenforceable by action, unless the same, or some
note or memorandum thereof, be in writing and subscribed by the party
charged.—It is at once apparent that what respondent Eduardo imposed
upon himself under the above passage, if he indeed wrote Annex “A-1,” is a
promise which is not to be performed within one year from “contract”
execution on June 22, 1973. Accordingly, the agreement embodied in Annex
“A-1” is covered by the Statute of Frauds and ergo unenforceable for non-
compliance therewith. By force of the statute of frauds, an agreement that
by its terms is not to be performed within a year from the making thereof
shall be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing and subscribed by the party charged.
Corollarily, no action can be proved unless the requirement exacted by the
statute of frauds is complied with.
Same; Same; Same; Same; A complaint for delivery and accounting of
partnership property based on such void or legally non-existent actionable
document is dismissible for failure to state a cause of action.—Per the
Court’s own count, petitioner used in his complaint the mixed words “joint
venture/partnership” nineteen (19) times and the term “partner” four (4)
times. He made reference to the “law of joint venture/partnership [being
applicable] to the business relationship . . . between [him], Eduardo and
Bobby [Yang]” and to his “rights in all specific properties of their joint
venture/partnership.” Given this consideration, petitioner’s right of action

against respondents Eduardo and Yang doubtless pivots on the existence of
the partnership between the three of them, as purportedly evidenced by the
undated and unsigned Annex “A-1.” A void Annex “A-1,” as an actionable
document of partnership, would strip petitioner of a cause of action under
the premises. A complaint for delivery and accounting of partnership
property based on such void or legally non-existent actionable document is
dismissible for failure to state of action. So, in gist, said the Court of
Appeals. The Court agrees.
PETITION for review on certiorari of the decision and resolution of the Court
of Appeals.
The facts are stated in the opinion of the Court.
Antonio R. Bautista & Partners for petitioner.
Emmanuel P.J. Tamase for respondent Robert T. Yang.
Ferrer & Balayan Law Offices for private respondent except Robert T.
Yang.
GARCIA, J.:
In this petition for review under Rule 45 of the Rules of Court, petitioner
Aurelio K. Litonjua, Jr. seeks to nullify and set aside the Decision of the
Court of Appeals (CA) dated March 31, 20041 in consolidated cases C.A.
G.R. Sp. No. 76987 and C.A. G.R. SP. No 78774 and its Resolution dated
December 07, 2004,2 denying petitioner’s motion for reconsideration.
The recourse is cast against the following factual backdrop:
Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo
K. Litonjua, Sr. (Eduardo) are brothers. The legal dispute between them
started when, on December 4, 2002, in the Regional Trial Court (RTC) at
Pasig City, Aurelio filed a suit against his brother Eduardo and herein
respondent Robert T. Yang (Yang) and several corporations for specific
performance and accounting. In his complaint,3 docketed as Civil Case No.
69235 and eventually raffled to Branch 68 of the court,4 Aurelio alleged
that, since June 1973, he and Eduardo are into a joint venture/partnership
arrangement in the Odeon Theater business which had expanded thru
investment in Cineplex, Inc., LCM Theatrical Enterprises, Odeon Realty
Corporation (operator of Odeon I and II theatres), Avenue Realty, Inc.,
owner of lands and buildings, among other corporations. Yang is described
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in the complaint as petitioner’s and Eduardo’s partner in their Odeon
Theater investment.5 The same complaint also contained the following
material averments:
“3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a joint
venture/partnership for the continuation of their family business and
common family funds . . . .
3.01.1This joint venture/[partnership] agreement was contained in a
memorandum addressed by Eduardo to his siblings, parents and other
relatives. Copy of this memorandum is attached hereto and made an
integral part as Annex “A” and the portion referring to [Aurelio] submarked
as Annex “A-1.”
3.02 It was then agreed upon between [Aurelio] and Eduardo that in
consideration of [Aurelio’s] retaining his share in the remaining family
businesses (mostly, movie theaters, shipping and land development) and
contributing his industry to the continued operation of these businesses,
[Aurelio] will be given P1 Million or 10% equity in all these businesses and
those to be subsequently acquired by them whichever is greater. . . .
4.01 . . . from 22 June 1973 to about August 2001, or [in] a span of 28
years, [Aurelio] and Eduardo had accumulated in their joint
venture/partnership various assets including but not limited to the corporate
defendants and [their] respective assets.
4.02 In addition . . . the joint venture/partnership . . . had also acquired
[various other assets], but Eduardo caused to be registered in the names of
other parties….
4.04 The substantial assets of most of the corporate defendants consist of
real properties . . . . A list of some of these real properties is attached
hereto and made an integral part as Annex “B.”
xxx xxx xxx
5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo
became sour so that [Aurelio] requested for an accounting and liquidation of
his share in the joint venture/partnership [but these demands for complete
accounting and liquidation were not heeded].
xxx xxx xxx

5.05 What is worse, [Aurelio] has reasonable cause to believe that Eduardo
and/or the corporate defendants as well as Bobby [Yang], are transferring .
. . various real properties of the corporations belonging to the joint
venture/partnership to other parties in fraud of [Aurelio]. In consequence,
[Aurelio] is therefore causing at this time the annotation on the titles of
these real properties. . . a notice of lis pendens . . . .” (Emphasis in the
original; italics and words in bracket added.)
For ease of reference, Annex “A-1” of the complaint, which petitioner
asserts to have been meant for him by his brother Eduardo, pertinently
reads:
10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:
You have now your own life to live after having been married. . . . .
I am trying my best to mold you the way I work so you can follow the
pattern . . . . You will be the only one left with the company, among us
brothers and I will ask you to stay as I want you to run this office every
time I am away. I want you to run it the way I am trying to run it because I
will be all alone and I will depend entirely to you (sic). My sons will not be
ready to help me yet until about maybe 15/20 years from now. Whatever is
left in the corporation, I will make sure that you get ONE MILLION PESOS
(P1,000,000.00) or ten percent (10%) equity, whichever is greater. We two
will gamble the whole thing of what I have and what you are entitled to. . .
. . It will be you and me alone on this. If ever I pass away, I want you to
take care of all of this. You keep my share for my two sons are ready take
over but give them the chance to run the company which I have built.
xxx xxx x x x.
Because you will need a place to stay, I will arrange to give you first ONE
HUNDRED THOUSANDS PESOS: (P100,000.00) in cash or asset, like Lt.
Artiaga so you can live better there. The rest I will give you in form of
stocks which you can keep. This stock I assure you is good and saleable. I
will also gladly give you the share of Wack-Wack . . . and Valley Golf . . .
because you have been good. The rest will be in stocks from all the
corporations which I repeat, ten percent (10%) equity.”6
On December 20, 2002, Eduardo and the corporate respondents, as
defendants a quo, filed a joint ANSWER With Compulsory Counterclaim
denying under oath the material allegations of the complaint, more
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particularly that portion thereof depicting petitioner and Eduardo as having
entered into a contract of partnership. As affirmative defenses, Eduardo, et
al., apart from raising a jurisdictional matter, alleged that the complaint
states no cause of action, since no cause of action may be derived from the
actionable document, i.e., Annex “A-1,” being void under the terms of
Article 1767 in relation to Article 1773 of the Civil Code, infra. It is further
alleged that whatever undertaking Eduardo agreed to do, if any, under
Annex “A-1,” are unenforceable under the provisions of the Statute of
Frauds.7
For his part, Yang—who was served with summons long after the other
defendants submitted their answer—moved to dismiss on the ground, inter
alia, that, as to him, petitioner has no cause of action and the complaint
does not state any.8 Petitioner opposed this motion to dismiss.
On January 10, 2003, Eduardo, et al., filed a Motion to Resolve Affirmative
Defenses.9 To this motion, petitioner interposed an Opposition with ex-
Parte Motion to Set the Case for Pre-trial.10
Acting on the separate motions immediately adverted to above, the trial
court, in an Omnibus Order dated March 5, 2003, denied the affirmative
defenses and, except for Yang, set the case for pre-trial on April 10,
2003.11
In another Omnibus Order of April 2, 2003, the same court denied the
motion of Eduardo, et al., for reconsideration12 and Yang’s motion to
dismiss. The following then transpired insofar as Yang is concerned:
“1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved the
right to seek reconsideration of the April 2, 2003 Omnibus Order and to
pursue his failed motion to dismiss13 to its full resolution.
2. On April 24, 2003, he moved for reconsideration of the Omnibus Order of
April 2, 2003, but his motion was denied in an Order of July 4, 2003.14
3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a petition
for certiorari under Rule 65 of the Rules of Court, docketed as CA-G.R. SP
No. 78774,15 to nullify the separate orders of the trial court, the first
denying his motion to dismiss the basic complaint and, the second, denying
his motion for reconsideration.”

Earlier, Eduardo and the corporate defendants, on the contention that grave
abuse of discretion and injudicious haste attended the issuance of the trial
court’s aforementioned Omnibus Orders dated March 5, and April 2, 2003,
sought relief from the CA via similar recourse. Their petition for certiorari
was docketed as CA G.R. SP No. 76987.
Per its resolution dated October 2, 2003,16 the CA’s 14th Division ordered
the consolidation of CA-G.R.-SP No. 78774 with CA-G.R. SP No. 76987.
Following the submission by the parties of their respective Memoranda of
Authorities, the appellate court came out with the herein assailed Decision
dated March 31, 2004, finding for Eduardo and Yang, as lead petitioners
therein, disposing as follows:
“WHEREFORE, judgment is hereby rendered granting the issuance of the
writ of certiorari in these consolidated cases annulling, reversing and setting
aside the assailed orders of the court a quo dated March 5, 2003, April 2,
2003 and July 4, 2003 and the complaint filed by private respondent [now
petitioner Aurelio] against all the petitioners [now herein respondents
Eduardo, et al.] with the court a quo is hereby dismissed.
SO ORDERED.”17 (Emphasis in the original; words in bracket added.)
Explaining its case disposition, the appellate court stated, inter alia, that the
alleged partnership, as evidenced by the actionable documents, Annex “A”
and “A-1” attached to the complaint, and upon which petitioner solely
predicates his right/s allegedly violated by Eduardo, Yang and the corporate
defendants a quo is “void or legally inexistent.”
In time, petitioner moved for reconsideration but his motion was denied by
the CA in its equally assailed Resolution of December 7, 2004.18
Hence, petitioner’s present recourse, on the contention that the CA erred:
“A. When it ruled that there was no partnership created by the actionable
document because this was not a public instrument and immovable
properties were contributed to the partnership.
B. When it ruled that the actionable document did not create a demandable
right in favor of petitioner.
C. When it ruled that the complaint stated no cause of action against
[respondent] Robert Yang; and
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D. When it ruled that petitioner has changed his theory on appeal when all
that Petitioner had done was to support his pleaded cause of action by
another legal perspective/argument.”
The petition lacks merit.
Petitioner’s demand, as defined in the petitory portion of his complaint in
the trial court, is for delivery or payment to him, as Eduardo’s and Yang’s
partner, of his partnership/joint venture share, after an accounting has
been duly conducted of what he deems to be partnership/joint venture
property.19
A partnership exists when two or more persons agree to place their money,
effects, labor, and skill in lawful commerce or business, with the
understanding that there shall be a proportionate sharing of the profits and
losses between them.20 A contract of partnership is defined by the Civil
Code as one where two or more persons bound themselves to contribute
money, property, or industry to a common fund with the intention of
dividing the profits among themselves.21 A joint venture, on the other
hand, is hardly distinguishable from, and may be likened to, a partnership
since their elements are similar, i.e., community of interests in the business
and sharing of profits and losses. Being a form of partnership, a joint
venture is generally governed by the law on partnership.22
The underlying issue that necessarily comes to mind in this proceedings is
whether or not petitioner and respondent Eduardo are partners in the
theatre, shipping and realty business, as one claims but which the other
denies. And the issue bearing on the first assigned error relates to the
question of what legal provision is applicable under the premises, petitioner
seeking, as it were, to enforce the actionable document—Annex “A-1”—
which he depicts in his complaint to be the contract of partnership/joint
venture between himself and Eduardo. Clearly, then, a look at the legal
provisions determinative of the existence, or defining the formal requisites,
of a partnership is indicated. Foremost of these are the following provisions
of the Civil Code:
“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. 1772. Every contract of partnership having a capital of three thousand
pesos or more, in money or property, shall appear in a public instrument,
which must be recorded in the Office of the Securities and Exchange
Commission.
Failure to comply with the requirement of the preceding paragraph shall not
affect the liability of the partnership and the members thereof to third
persons.
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.”
Annex “A-1,” on its face, contains typewritten entries, personal in tone, but
is unsigned and undated. As an unsigned document, there can be no
quibbling that Annex “A-1” does not meet the public instrumentation
requirements exacted under Article 1771 of the Civil Code. Moreover, being
unsigned and doubtless referring to a partnership involving more than
P3,000.00 in money or property, Annex “A-1” cannot be presented for
notarization, let alone registered with the Securities and Exchange
Commission (SEC), as called for under the Article 1772 of the Code. And
inasmuch as the inventory requirement under the succeeding Article 1773
goes into the matter of validity when immovable property is contributed to
the partnership, the next logical point of inquiry turns on the nature of
petitioner’s contribution, if any, to the supposed partnership.
The CA, addressing the foregoing query, correctly stated that petitioner’s
contribution consisted of immovables and real rights. Wrote that court:
“A further examination of the allegations in the complaint would show that
[petitioner’s] contribution to the so-called “partnership/joint venture” was
his supposed share in the family business that is consisting of movie
theaters, shipping and land development under paragraph 3.02 of the
complaint. In other words, his contribution as a partner in the alleged
partnership/joint venture consisted of immovable properties and real rights.
. . .”23
Significantly enough, petitioner matter-of-factly concurred with the
appellate court’s observation that, prescinding from what he himself alleged
in his basic complaint, his contribution to the partnership consisted of his
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share in the Litonjua family businesses which owned variable immovable
properties. Petitioner’s assertion in his motion for reconsideration24 of the
CA’s decision, that “what was to be contributed to the business [of the
partnership] was [petitioner’s] industry and his share in the family [theatre
and land development] business” leaves no room for speculation as to what
petitioner contributed to the perceived partnership.
Lest it be overlooked, the contract-validating inventory requirement under
Article 1773 of the Civil Code applies as long real property or real rights are
initially brought into the partnership. In short, it is really of no moment
which of the partners, or, in this case, who between petitioner and his
brother Eduardo, contributed immovables. In context, the more important
consideration is that real property was contributed, in which case an
inventory of the contributed property duly signed by the parties should be
attached to the public instrument, else there is legally no partnership to
speak of.
Petitioner, in an obvious bid to evade the application of Article 1773, argues
that the immovables in question were not contributed, but were acquired
after the formation of the supposed partnership. Needless to stress, the
Court cannot accord cogency to this specious argument. For, as earlier
stated, petitioner himself admitted contributing his share in the supposed
shipping, movie theatres and realty development family businesses which
already owned immovables even before Annex “A-1” was allegedly
executed.
Considering thus the value and nature of petitioner’s alleged contribution to
the purported partnership, the Court, even if so disposed, cannot plausibly
extend Annex “A-1” the legal effects that petitioner so desires and pleads to
be given. Annex “A-1,” in fine, cannot support the existence of the
partnership sued upon and sought to be enforced. The legal and factual
milieu of the case calls for this disposition. A partnership may be constituted
in any form, save when immovable property or real rights are contributed
thereto or when the partnership has a capital of at least P3,000.00, in which
case a public instrument shall be necessary.25 And if only to stress what
has repeatedly been articulated, an inventory to be signed by the parties
and attached to the public instrument is also indispensable to the validity of
the partnership whenever immovable property is contributed to it.

Given the foregoing perspective, what the appellate court wrote in its
assailed Decision26 about the probative value and legal effect of Annex “A-
1” commends itself for concurrence:
“Considering that the allegations in the complaint showed that [petitioner]
contributed immovable properties to the alleged partnership, the
“Memorandum” (Annex “A” of the complaint) which purports to establish
the said “partnership/joint venture” is NOT a public instrument and there
was NO inventory of the immovable property duly signed by the parties. As
such, the said “Memorandum” . . . is null and void for purposes of
establishing the existence of a valid contract of partnership. Indeed,
because of the failure to comply with the essential formalities of a valid
contract, the purported “partnership/joint venture” is legally inexistent and
it produces no effect whatsoever. Necessarily, a void or legally inexistent
contract cannot be the source of any contractual or legal right. Accordingly,
the allegations in the complaint, including the actionable document attached
thereto, clearly demonstrates that [petitioner] has NO valid contractual or
legal right which could be violated by the [individual respondents] herein.
As a consequence, [petitioner’s] complaint does NOT state a valid cause of
action because NOT all the essential elements of a cause of action are
present.” (Italics and words in bracket added.)
Likewise well-taken are the following complementary excerpts from the CA’s
equally assailed Resolution of December 7, 200427 denying petitioner’s
motion for reconsideration:
“Further, We conclude that despite glaring defects in the allegations in the
complaint as well as the actionable document attached thereto (Rollo, p.
191), the [trial] court did not appreciate and apply the legal provisions
which were brought to its attention by herein [respondents] in the their
pleadings. In our evaluation of [petitioner’s] complaint, the latter alleged
inter alia to have contributed immovable properties to the alleged
partnership but the actionable document is not a public document and there
was no inventory of immovable properties signed by the parties. Both the
allegations in the complaint and the actionable documents considered, it is
crystal clear that [petitioner] has no valid or legal right which could be
violated by [respondents].” (Words in bracket added.)
Under the second assigned error, it is petitioner’s posture that Annex “A-1,”
assuming its inefficacy or nullity as a partnership document, nevertheless
Agency, Trusts, and Partnerships Page |6
created demandable rights in his favor. As petitioner succinctly puts it in
this petition:
“43. Contrariwise, this actionable document, especially its above-quoted
provisions, established an actionable contract even though it may not be a
partnership. This actionable contract is what is known as an innominate
contract (Civil Code, Article 1307).
44. It may not be a contract of loan, or a mortgage or whatever, but surely
the contract does create rights and obligations of the parties and which
rights and obligations may be enforceable and demandable. Just because
the relationship created by the agreement cannot be specifically labeled or
pigeonholed into a category of nominate contract does not mean it is void
or unenforceable.”
Petitioner has thus thrusted the notion of an innominate contract on this
Court—and earlier on the CA after he experienced a reversal of fortune
thereat—as an afterthought. The appellate court, however, cannot really be
faulted for not yielding to petitioner’s dubious stratagem of altering his
theory of joint venture/partnership to an innominate contract. For, at
bottom, the appellate court’s certiorari jurisdiction was circumscribed by
what was alleged to have been the order/s issued by the trial court in grave
abuse of discretion. As respondent Yang pointedly observed,28 since the
parties’ basic position had been well-defined, that of petitioner being that
the actionable document established a partnership/joint venture, it is on
those positions that the appellate court exercised its certiorari jurisdiction.
Petitioner’s act of changing his original theory is an impermissible practice
and constitutes, as the CA aptly declared, an admission of the untenability
of such theory in the first place.
“[Petitioner] is now humming a different tune . . . . In a sudden twist of
stance, he has now contended that the actionable instrument may be
considered an innominate contract. x x x Verily, this now changes
[petitioner’s] theory of the case which is not only prohibited by the Rules
but also is an implied admission that the very theory he himself . . . has
adopted, filed and prosecuted before the respondent court is erroneous.
Be that as it may . . . . . We hold that this new theory contravenes
[petitioner’s] theory of the actionable document being a partnership
document. If anything, it is so obvious we do have to test the sufficiency of

the cause of action on the basis of partnership law x x x.”29 (Emphasis in
the original; Words in bracket added).
But even assuming in gratia argumenti that Annex “A-1” partakes of a
perfected innominate contract, petitioner’s complaint would still be
dismissible as against Eduardo and, more so, against Yang. It cannot be
over-emphasized that petitioner points to Eduardo as the author of Annex
“A-1.” Withal, even on this consideration alone, petitioner’s claim against
Yang is doomed from the very start.
As it were, the only portion of Annex “A-1” which could perhaps be remotely
regarded as vesting petitioner with a right to demand from respondent
Eduardo the observance of a determinate conduct, reads:
“x x x You will be the only one left with the company, among us brothers
and I will ask you to stay as I want you to run this office everytime I am
away. I want you to run it the way I am trying to run it because I will be
alone and I will depend entirely to you, My sons will not be ready to help
me yet until about maybe 15/20 years from now. Whatever is left in the
corporation, I will make sure that you get ONE MILLION PESOS
(P1,000,000.00) or ten percent (10%) equity, whichever is greater.” (Italics
added)
It is at once apparent that what respondent Eduardo imposed upon himself
under the above passage, if he indeed wrote Annex “A-1,” is a promise
which is not to be performed within one year from “contract” execution on
June 22, 1973. Accordingly, the agreement embodied in Annex “A-1” is
covered by the Statute of Frauds and ergo unenforceable for non-
compliance therewith.30 By force of the statute of frauds, an agreement
that by its terms is not to be performed within a year from the making
thereof shall be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing and subscribed by the party charged.
Corollarily, no action can be proved unless the requirement exacted by the
statute of frauds is complied with.31
Lest it be overlooked, petitioner is the intended beneficiary of the P1 Million
or 10% equity of the family businesses supposedly promised by Eduardo to
give in the near future. Any suggestion that the stated amount or the equity
component of the promise was intended to go to a common fund would be
to read something not written in Annex “A-1.” Thus, even this angle alone
argues against the very idea of a partnership, the creation of which requires
Agency, Trusts, and Partnerships Page |7
two or more contracting minds mutually agreeing to contribute money,
property or industry to a common fund with the intention of dividing the
profits between or among themselves.32
In sum then, the Court rules, as did the CA, that petitioner’s complaint for
specific performance anchored on an actionable document of partnership
which is legally inexistent or void or, at best, unenforceable does not state a
cause of action as against respondent Eduardo and the corporate
defendants. And if no of action can successfully be maintained against
respondent Eduardo because no valid partnership existed between him and
petitioner, the Court cannot see its way clear on how the same action could
plausibly prosper against Yang. Surely, Yang could not have become a
partner in, or could not have had any form of business relationship with, an
inexistent partnership.
As may be noted, petitioner has not, in his complaint, provide the logical
nexus that would tie Yang to him as his partner. In fact, attendant
circumstances would indicate the contrary. Consider:
“1. Petitioner asserted in his complaint that his so-called joint
venture/partnership with Eduardo was “for the continuation of their family
business and common family funds which were theretofore being mainly
managed by Eduardo.”33 But Yang denies kinship with the Litonjua family
and petitioner has not disputed the disclaimer.
2. In some detail, petitioner mentioned what he had contributed to the joint
venture/partnership with Eduardo and what his share in the businesses will
be. No allegation is made whatsoever about what Yang contributed, if any,
let alone his proportional share in the profits. But such allegation cannot,
however, be made because, as aptly observed by the CA, the actionable
document did not contain such provision, let alone mention the name of
Yang. How, indeed, could a person be considered a partner when the
document purporting to establish the partnership contract did not even
mention his name.
3. Petitioner states in par. 2.01 of the complaint that “[he] and Eduardo are
business partners in the [respondent] corporations,” while “Bobby is his and
Eduardo’s partner in their Odeon Theater investment’ (par. 2.03). This
means that the partnership between petitioner and Eduardo came first;
Yang became their partner in their Odeon Theater investment thereafter.
Several paragraphs later, however, petitioner would contradict himself by

alleging that his “investment and that of Eduardo and Yang in the Odeon
theater business has expanded through a reinvestment of profit income and
direct investments in several corporation including but not limited to [six]
corporate respondents” This simply means that the “Odeon Theatre
business” came before the corporate respondents. Significantly enough,
petitioner refers to the corporate respondents as “progeny” of the Odeon
Theatre business.”34
Needless to stress, petitioner has not sufficiently established in his
complaint the legal vinculum whence he sourced his right to drag Yang into
the fray. The Court of Appeals, in its assailed decision, captured and
formulated the legal situation in the following wise:
“[Respondent] Yang, . . . is impleaded because, as alleged in the complaint,
he is a “partner” of [Eduardo] and the [petitioner] in the Odeon Theater
Investment which expanded through reinvestments of profits and direct
investments in several corporations, thus:
xxx xxx xxx
Clearly, [petitioner’s] claim against . . . Yang arose from his alleged
partnership with petitioner and the …respondent. However, there was NO
allegation in the complaint which directly alleged how the supposed
contractual relation was created between [petitioner] and . . .Yang. More
importantly, however, the foregoing ruling of this Court that the purported
partnership between [Eduardo] is void and legally inexistent directly affects
said claim against . . . Yang. Since [petitioner] is trying to establish his
claim against . . . Yang by linking him to the legally inexistent partnership .
. . such attempt had become futile because there was NOTHING that would
contractually connect [petitioner] and . . . Yang. To establish a valid cause
of action, the complaint should have a statement of fact upon which to
connect [respondent] Yang to the alleged partnership between [petitioner]
and respondent [Eduardo], including their alleged investment in the Odeon
Theater. A statement of facts on those matters is pivotal to the complaint as
they would constitute the ultimate facts necessary to establish the elements
of a cause of action against . . . Yang.”35
Pressing its point, the CA later stated in its resolution denying petitioner’s
motion for reconsideration the following:
Agency, Trusts, and Partnerships Page |8
“x x x Whatever the complaint calls it, it is the actionable document
attached to the complaint that is controlling. Suffice it to state, We have not
ignored the actionable document . . . As a matter of fact, We emphasized in
our decision . . . that insofar as [Yang] is concerned, he is not even
mentioned in the said actionable document. We are therefore puzzled how a
person not mentioned in a document purporting to establish a partnership
could be considered a partner.”36 (Words in bracket ours).
The last issue raised by petitioner, referring to whether or not he changed
his theory of the case, as peremptorily determined by the CA, has been
discussed at length earlier and need not detain us long. Suffice it to say that
after the CA has ruled that the alleged partnership is inexistent, petitioner
took a different tack. Thus, from a joint venture/partnership theory which
he adopted and consistently pursued in his complaint, petitioner embraced
the innominate contract theory. Illustrative of this shift is petitioner’s
statement in par. #8 of his motion for reconsideration of the CA’s decision
combined with what he said in par. # 43 of this petition, as follows:
“8. Whether or not the actionable document creates a partnership, joint
venture, or whatever, is a legal matter. What is determinative for purposes
of sufficiency of the complainant’s allegations, is whether the actionable
document bears out an actionable contract—be it a partnership, a joint
venture or whatever or some innominate contract . . . It may be noted that
one kind of innominate contract is what is known as du ut facias (I give that
you may do).37
43. Contrariwise, this actionable document, especially its above-quoted
provisions, established an actionable contract even though it may not be a
partnership. This actionable contract is what is known as an innominate
contract (Civil Code, Article 1307).”38
Springing surprises on the opposing party is offensive to the sporting idea
of fair play, justice and due process; hence, the proscription against a party
shifting from one theory at the trial court to a new and different theory in
the appellate court.39 On the same rationale, an issue which was neither
averred in the complaint cannot be raised for the first time on appeal.40 It
is not difficult, therefore, to agree with the CA when it made short shrift of
petitioner’s innominate contract theory on the basis of the foregoing basic
reasons.
 Agency, Trusts, and Partnerships Page |9

Petitioner’s protestation that his act of introducing the concept of SO ORDERED.

innominate contract was not a case of changing theories but of supporting
his pleaded cause of action—that of the existence of a partnership—by Panganiban (Chairman), Sandoval-Gutierrez, Corona and Carpio-
another legal perspective/argument, strikes the Court as a strained attempt Morales, JJ., concur.
to rationalize an untenable position. Paragraph 12 of his motion for Petition denied, impugned decision and resolution affirmed.
reconsideration of the CA’s decision virtually relegates partnership as a fall-
back theory. Two paragraphs later, in the same notion, petitioner faults the
appellate court for reading, with myopic eyes, the actionable document
Note.—The Statute of Frauds applies only to executory contracts and not to
solely as establishing a partnership/joint venture. Verily, the cited
contracts which are either partially or totally performed. (Averia vs. Averia,
paragraphs are a study of a party hedging on whether or not to pursue the
436 SCRA 459 [2004])
original cause of action or altogether abandoning the same, thus:
——o0o——
“12. Incidentally, assuming that the actionable document created a
partnership between [respondent] Eduardo, Sr. and [petitioner], no Litonjua, Jr. vs. Litonjua, Sr., 477 SCRA 576, G.R. Nos. 166299-300
immovables were contributed to this partnership. x x x December 13, 2005
14. All told, the Decision takes off from a false premise that the actionable
document attached to the complaint does not establish a contractual
relationship between [petitioner] and … Eduardo, Sr. and Roberto T Yang
simply because his document does not create a partnership or a joint
venture. This is . . . a myopic reading of the actionable document.”

Per the Court’s own count, petitioner used in his complaint the mixed words
“joint venture/partnership” nineteen (19) times and the term “partner” four
(4) times. He made reference to the “law of joint venture/partnership
[being applicable] to the business relationship . . . between [him], Eduardo
and Bobby [Yang]” and to his “rights in all specific properties of their joint
venture/partnership.” Given this consideration, petitioner’s right of action
against respondents Eduardo and Yang doubtless pivots on the existence of
the partnership between the three of them, as purportedly evidenced by the
undated and unsigned Annex “A-1.” A void Annex “A-1,” as an actionable
document of partnership, would strip petitioner of a cause of action under
the premises. A complaint for delivery and accounting of partnership
property based on such void or legally non-existent actionable document is
dismissible for failure to state of action. So, in gist, said the Court of
Appeals. The Court agrees.

WHEREFORE, the instant petition is DENIED and the impugned Decision and
Resolution of the Court of Appeals AFFIRMED.

Cost against the petitioner.


G.R. No. 143340. August 15, 2001.*
LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners, vs.
LAMBERTO T. CHUA, respondent.
Partnership; Contracts; 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.—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.
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. 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. 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 Man’s Statute” applies to this case so as to
render inadmissible respondent’s testimony and that of his witness,
Josephine.
Same; Evidence; Dead Man’s Statute; Requirements; The “Dead Man’s
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 undue advantage of giving his own uncontradicted
and unexplained account of the transaction.—The “Dead Man’s 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. 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.”
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 10
Same; Same; Same; Same; 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.—Two reasons forestall the application
of the “Dead Man’s Statute” to this case. First, petitioners filed a
compulsory counterclaim 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 Man’s Statute.”
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. 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.
Same; Same; Words and Phrases; “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.”—The testimony of Josephine is not
covered by the “Dead Man’s 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.” Plainly
then, Josephine is merely a witness of respondent, the latter being the
party plaintiff.
Same; Dissolution; 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.—With
regard to petitioners’ insistence that laches and/or prescription should have
extinguished respondent’s claim, we agree with the trial court and the Court
of Appeals that the action for accounting filed by respondent three (3) years
after Jacinto’s 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 partner’s 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 Jacinto’s death that respondent as the surviving partner had the
right to an account of his interest as against petitioners. It bears stressing
that while Jacinto’s 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.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Manuel T. Chan for petitioners.
Pacatang Law Office for respondent.
GONZAGA-REYES, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of
Court of the Decision1 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
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 11
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. As compensation, Jacinto would receive a
manager’s fee or remuneration of 10% of the gross profit and Josephine
would receive 10% of the net 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 Jacinto’s 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 respondent’s consent. Despite respondent’s repeated demands
upon petitioners for accounting, inventory, appraisal, winding up and
restitution of his net shares in the partnership, 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 respondent’s 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 latter’s share in the
partnership, with a promise that the former would make the complete
inventory and winding up of the properties of the business 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 Zamboanga 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 attorney’s 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 attorney’s 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.
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 12
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 1/2 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
1/2 interest, shares, participation and equity in the partnership, or the
value thereof in money or money’s 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
attorney’s (sic) and P25,000.00 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 latter’s 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. Petitioners question
the correctness of the finding of the trial court and the Court of Appeals that
a partnership existed between respondent and Jacinto from 1977 until
Jacinto’s death. In the absence of 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
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
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 13
Petitioners question the correctness of the finding of the trial court and the
Court of Appeals that a partnership existed between respondent and Jacinto
from 1977 until Jacinto’s death. In the ansence 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 Jacinto’s death. To support this argument, petitioners
invoke the “Dead Man’s 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
Man’s Statute” applies to this case so as to render inadmissible respondent’s
testimony and that of his witness, Josephine.

The “Dead Man’s 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 Man’s Statute” to this
case.
First, petitioners filed a compulsory counterclaim11 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 Man’s 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 Man’s
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
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 14
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 Josephine’s 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 Josephine’s 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 Man’s Statute” to defeat
respondent’s 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 respondent’s claim, we agree with the trial court and the
Court of Appeals that the action for accounting filed by respondent three (3)
years after Jacinto’s death was well within the prescribed period. The Civil
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 15

Code provides that an action to enforce an oral contract prescribes in six (6)
years20 while the right to demand an accounting for a partner’s interest as
against the person continuing the business accrues at the date of
dissolution, in the absence of any contrary agreement.21 Considering that
the death of a partner results in the dissolution of the partnership,22 in this
case, it was after Jacinto’s death that respondent as the surviving partner
had the right to an account of his interest as against petitioners. It bears
stressing that while Jacinto’s death dissolved the partnership, the
dissolution did not immediately terminate the partnership. The Civil Code23
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
Notes.—Dissolution of a partnership is the change in the relation of the
parties caused by any partner ceasing to be associated in the carrying on,
as might be distinguished from the winding up, of its businesses. (Sy vs.
Court of Appeals, 313 SCRA 328 [1999])
The partnership although dissolved, continues to exist until its termination,
at which time the winding up of its affairs should have been completed and
the net partnership assets are partitioned and distributed to the partners.
(Sy vs. Court of Appeals, 313 SCRA 328 [1999])
——o0o—— Sunga-Chan vs. Chua, 363 SCRA 249, G.R. No. 143340 August
15, 2001

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 Code25 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, noncompliance 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.

Petition denied, judgment affirmed.


No. L-24193. June 28, 1968.
MAURICIO AGAD, plaintiff-appellant, vs. SEVERINO MABATO &
MABATO & AGAD COMPANY, defendants-appellees.
Civil law; Partnership; How partnership may be constituted.—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. 1771, Civil Code). 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 (Art. 1773, Id.).
APPEAL from an order of the Court of First Instance of Davao.
The facts are stated in the opinion of the Court.
Angeles, Maskariño & Associates for plaintiff-appeldant.
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.
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 16
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 and initio; and that Agad be
sentenced to pay actual, moral and exemplary damages, as well as
attorney’s fess.
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.
Articles 1771 and 1773 of said Code provide:
“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 f ishpond or a real right to any fishpond. Their contributions were
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 17

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.

x x x x”

The operation of the fishpond mentioned in Annex “A” was the purpose of
the partnership. Neither said f ishpond 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.

Order set aside and case remanded to lower court for further proceedings.

Note.—In the absence of a valid cause, a partner cannot withdraw from a

partnership agreement (before its expiration) for his own personal profit at
the expense of the partnership (Lichauco v. Soriano, 26 Phil. 593).

As to how partnership profits are determined, see De la Rosa v. Ortega

Gocotay, 48 Phil. 605. Agad vs. Mabato, 23 SCRA 1223, No. L-24193 June
28, 1968

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.
Civil Law; Contracts; Partnership; The contract manifested the intention of
the parties to form a partnership.—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.
Same; Same; Same; 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.—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. x x x 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.
Same; Same; Same; Parties cannot adopt inconsistent positions in regard
to a contract and courts will not tolerate, much less approve, such
practice.—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. 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.
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 18
Same; Same; Sale; Consideration, more properly denominated as cause,
can take different forms, such as the prestation or promise of a thing or
service by another.—Petitioners also contend that the Joint Venture
Agreement is void under Article 1422 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.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Delfin V. Nacua for petitioners.
Zosa & Quijano Law Offices for private respondent.
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
Decision1 of the Court of Appeals2 (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 plaintiff’s
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 “respondent’s lack of
funds or means and skills.” They add that respondent used the loan not for
the development of the subdivision, but in furtherance 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 Council’s 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,
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 19
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 court’s 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 Court’s 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 court’s 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, xxx 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 subdivided 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.
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 20
“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
subdivision 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.
Respondent’s 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
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 21
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
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 22

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 142214 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
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.
Petition denied, judgment affirmed.
Note.—The three final stages of a partnership are (1) dissolution; (2)
winding-up; and (3) termination. (Idos vs. Court of Appeals, 296 SCRA 194
[1998]) Torres vs. Court of Appeals, 320 SCRA 428, G.R. No. 134559
December 9, 1999

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 [petitioner’s]
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

No. L-25532. February 28, 1969.
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. WILLIAM J.
SUTER and THE COURT OF TAX APPEALS, respondents.
Partnership; Where respondent company in the case at bar is considered a
particular partnership and not universal.—The respondent company was not
a universal partnership, but a particular one. As appears f rom Articles 1674
and 1675 of the Spanish Civil Code of 1889 (law in force when firm
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.” Respondent
company was not such a universal partnership, since the contributions of
the partners were fixed sums of money and neither one of them was an
industrial partner. It follows that respondent company was not a partnership
that spouses were forbidden to enter by Article 1677 of the Civil Code of
1889. 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.
Same; Where marriage of partners does not make the company a single
proprietorship.—The capital contributions of respondents-partners 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.
Same; Partnership has distinct and separate personality from that of its
partners; Section 24 of Internal Revenue Code is exception to the rule.—
The basic tenet of ,the Spanish and Philippine law is that the partnership
has a juridical personality of its own, distinct and separate from that of its
partners, 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 copartnerships 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.
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 23
Same; Taxation; Change in membership does not remove partnership from
coverage of section 24.—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 to laws.
Regularity, not otherwise, is presumed. The limited partnership is taxable
on its income and to require that income to be included in the indiviual tax
return of respondent is to overstretch the letter and intent of the law.
Same; Same; Members and not firm are taxable in case of compañias
colectivas.—In fact, it would even conflict with what it specifically provides
in its Section 24: for the appellant’s stand results in equal treatment,
taxwise, of a general copartnership (compania 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).
Same; Same; Income of limited partnership forming part of the conjugal
partnership is not wholly correct.—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 is not wholly correct. The
fruits of the wife’s paraphernal 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 conf ines itself to the question of the legal personality of the
limited partnership since the law taxes the income of ‘even joint accounts
that have no personality of their own. (Agapito v. Molo, 59 Phil. 779;
People’s Bank v. Register of Deeds of Manila, 60 Phil. 167; V. Evangelista v.
Collector of Internal Revenue, 102 Phil. 140; Collector v. Batangas
Transportation Co., 102 Phil. 822.)

Same; Same; What is taxable is income of both spouses, not the conjugal
partnership.—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
partnernership 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.
Same; Same; Revenue code does not authorize consolidation of income of
limited partnership and income of spouses.—The diff erence 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.
PETITION for review of a decision of the Court of Tax Appeals.
The facts are stated in the opinion of the Court.
Solicitor General Antonio P. Barredo, Assistant Solicitor General
Felicisimo R. Rosete and Special Attorneys B. Gatdula, Jr. and T. Temprosa,
Jr. for petitioner.
A.S. Monzon, Gutierrez, Farrales & 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.
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 24
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
partnersspouses 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 respondent William J. Suter and his wife, Julia Spirig Suter,
actually formed a 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 P2,000.00 in the partnership for a nominal amount of P1.00.
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; x x x.”
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 contradistinguished 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
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 25
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. José Casán, 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 cónyuges, según esto, no pueden celebrar entre sí el contrato de
sociedad universal, pero 6 podrán 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 según !a
que toda persona es capaz para contratar mientras no sea declarado
incapaz por la ley. La jurisprudencia de la Dirección de los Registros fue
favorable a esta misma tesis en su resolución 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 ate 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; x x x,”
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
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 26
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, taxwise, 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 f ormer, 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).
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.
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 27

Barredo, J., did not take part.

Decision affirmed.

Note.—See the annotation on “Piercing the Veil of Corporate Fiction” under

A.D. Santos vs. Vasquez, L-23586, March 20, 1968, 22 SCRA 1156, 1159–
1163. Commissioner of Internal Revenue vs. Suter, 27 SCRA 152, No. L-
25532 February 28, 1969

[No. 35469. March 17, 1932]
E. S. LYONS, plaintiff and appellant, vs. C. W. ROSENSTOCK,
Executor of the Estate of Henry W. Elser, deceased, defendant and
appellee.
1.PRINCIPAL AND AGENT; RATIFICATION OF ACT OF AGENT; RIGHTS
INCIDENT TO OWNERSHIP.—Where one of two individuals who had been
associated in certain real estate deals, owing a sum of money to his
associate, invested it in the shares of a new company promoted by himself,
and this action was ratified by the associate, to whom the shares were
accordingly issued, no legal or equitable rights, other than those ordinarily
incident to ownership, can be deduced from the transaction in favor of the
owner thus acquiring such shares.
2.ID.; AGENT'S LIABILITY FOR INTEREST ON, MONEY OF HIS
CONSTITUENT.—Under article 1724 of the Civil Code and article 264 of the
Code of Commerce, an agent is liable for interest on funds belonging to his
principal (constituent) which have been applied by the agent to
unauthorized uses.
3.EQUITY; TRUSTS; FOLLOWING TRUST FUNDS; WHEN CASE GOVERNED
BY ORDINARY RULE OF CIVIL LIABILITY.—The doctrine developed in the
courts of England and the United States relative to the pursuing of trust
funds is conversant with rights deducible from the application, by a person
in a trust relation with another, of specific property belonging to such other
person to some unauthorized purpose. The fact that one of two coöwners
subjects their joint property to a contingent liability which results in no
damage does not create a trust in favor of the other, and the liability
thereby incurred must be determined in conformity with the principles of
the civil law properly applicable to the case.
4.ID.; ID.; ID.; ID.; CASE AT BAR.—Where two individuals had been jointly
associated in various real estate deals, one of them, while the other was
away, bought a valuable piece of property with a view to the promotion of a
suburban development, and as he expected that his absent former associate
would come into this deal and contribute some capital to the purchase and
development of the property, he subjected a piece of mortgaged property
owned by them jointly to a second mortgage, to secure against loss a
surety company which had been induced to sign a note with the active
promoter to secure a loan necessary to complete the first payment on the
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 28
property purchased. After the second individual returned to Manila he
consented for this second mortgage (which had been executed under a
sufficient power of attorney) to remain upon the property until it was paid
off, as was presently done. Held, that the use to which the joint property
was thus subjected did not create a trust in favor of the second individual,
with the effect of making him a co-partner in the ownership of the property
purchased as aforesaid.
APPEAL from a judgment of the Court of First Instance of Manila.
Concepcion, J.
The facts are stated in the opinion of the court.
Harvey & O'Brien for appellant.
DeWitt, Perkins & Brady for appellee.
STREET, J.:
This action was instituted 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 statement showing that Lyons was, at that time, half
owner with Elser of three particular pieces of real property. Concurrently
with this act Lyons executed 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 Carriedo 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 amounting in the
beginning .to 3,290 shares.
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 29
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 f or 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 Lyons to bring him to
the resolution to stay out of this venture, was that the board of missions
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 books 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 f rom 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 requirement 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
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 30
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 Pilar 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
Lyons' 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 that 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 that 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 help finance the purchase of the San Juan Estate. He seems to have
supposed that the Carriedo 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 doubtless appeared so to him in the retrospect,
but certain considerations 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 would get it; and the
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 31
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
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 between the parties; and the most that can
be said is that Elser and Lyons had been coparticipants in various
transactions in real estate. No objection can be made to the use of the word
partnership as a term descriptive of the relation in those particular
transactions, but it must be remembered that it was in each case a
particular 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
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 32

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 trusts
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 prejudiced by that act.

The appellee insists 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.

Judgment affirmed. Lyons vs. Rosenstock, 56 Phil. 632, No. 35469 March
17, 1932