Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-22493 July 31, 1975
ISLAND SALES, INC., plaintiff-appellee,
vs.
UNITED PIONEERS GENERAL CONSTRUCTION
COMPANY, ET. AL defendants. BENJAMIN C.
DACO, defendant-appellant.
Grey, Buenaventura and Santiago for plaintiff-appellee.
Anacleto D. Badoy, Jr. for defendant-appellant.
CONCEPCION JR., J.:
This is an appeal interposed by the defendant Benjamin C.
Daco from the decision of the Court of First Instance of
Manila, Branch XVI, in Civil Case No. 50682, the dispositive
portion of which reads:
WHEREFORE, the Court sentences defendant
United Pioneer General Construction Company
to pay plaintiff the sum of P7,119.07 with interest
at the rate of 12% per annum until it is fully paid,
plus attorney's fees which the Court fixes in the
sum of Eight Hundred Pesos (P800.00) and
costs.
1|Page
The defendants Benjamin C. Daco, Daniel A.
Guizona, Noel C. Sim and Augusto Palisoc are
sentenced to pay the plaintiff in this case with
the understanding that the judgment against
these individual defendants shall be enforced
only if the defendant company has no more
leviable properties with which to satisfy the
judgment against it. .
The individual defendants shall also pay the
costs.
On April 22, 1961, the defendant company, a general
partnership duly registered under the laws of the Philippines,
purchased from the plaintiff a motor vehicle on the installment
basis and for this purpose executed a promissory note for
P9,440.00, payable in twelve (12) equal monthly installments
of P786.63, the first installment payable on or before May 22,
1961 and the subsequent installments on the 22nd day of
every month thereafter, until fully paid, with the condition that
failure to pay any of said installments as they fall due would
render the whole unpaid balance immediately due and
demandable.
Having failed to receive the installment due on July 22, 1961,
the plaintiff sued the defendant company for the unpaid
balance amounting to P7,119.07. Benjamin C. Daco, Daniel A.
Guizona, Noel C. Sim, Romulo B. Lumauig, and Augusto
Palisoc were included as co-defendants in their capacity as
general partners of the defendant company.
Daniel A. Guizona failed to file an answer and was
consequently declared in default.1
Subsequently, on motion of the plaintiff, the complaint was
dismissed insofar as the defendant Romulo B. Lumauig is
concerned.2
When the case was called for hearing, the defendants and
their counsels failed to appear notwithstanding the notices
sent to them. Consequently, the trial court authorized the
plaintiff to present its evidence ex-parte3 , after which the trial
court rendered the decision appealed from.
The defendants Benjamin C. Daco and Noel C. Sim moved to
reconsider the decision claiming that since there are five (5)
general partners, the joint and subsidiary liability of each
partner should not exceed one-fifth (1/5 ) of the obligations of
the defendant company. But the trial court denied the said
motion notwithstanding the conformity of the plaintiff to limit
the liability of the defendants Daco and Sim to only one-fifth
(1/5 ) of the obligations of the defendant company.4 Hence, this
appeal.
The only issue for resolution is whether or not the dismissal of
the complaint to favor one of the general partners of a
partnership increases the joint and subsidiary liability of each
of the remaining partners for the obligations of the partnership.
Article 1816 of the Civil Code provides:
Art. 1816. All partners including industrial ones,
shall be liable pro rata with all their property and
after all the partnership assets have been
exhausted, for the contracts which may be
entered into in the name and for the account of
the partnership, under its signature and by a
person authorized to act for the partnership.
However, any partner may enter into a separate
obligation to perform a partnership contract.
In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held:
The partnership of Yulo and Palacios was
engaged in the operation of a sugar estate in
Negros. It was, therefore, a civil partnership as
distinguished from a mercantile partnership.
2|Page
Being a civil partnership, by the express
provisions of articles l698 and 1137 of the Civil
Code, the partners are not liable each for the
whole debt of the partnership. The liability is pro
rata and in this case Pedro Yulo is responsible
to plaintiff for only one-half of the debt. The fact
that the other partner, Jaime Palacios, had left
the country cannot increase the liability of Pedro
Yulo.
In the instant case, there were five (5) general partners when
the promissory note in question was executed for and in
behalf of the partnership. Since the liability of the partners is
pro rata, the liability of the appellant Benjamin C. Daco shall
be limited to only one-fifth (1/5 ) of the obligations of the
defendant company. The fact that the complaint against the
defendant Romulo B. Lumauig was dismissed, upon motion of
the plaintiff, does not unmake the said Lumauig as a general
partner in the defendant company. In so moving to dismiss the
complaint, the plaintiff merely condoned Lumauig's individual
liability to the plaintiff.
WHEREFORE, the appealed decision as thus clarified is
hereby AFFIRMED, without pronouncement as to costs.
SO ORDERED.
Makalintal, C.J., Fernando (Chairman), Barredo and Aquino,
JJ., concur.
 Republic of the Philippines Petitioner Elmo Muñasque filed a complaint for payment of
SUPREME COURT sum of money and damages against respondents Celestino
Manila Galan, Tropical Commercial, Co., Inc. (Tropical) and Ramon
Pons, alleging that the petitioner entered into a contract with
FIRST DIVISION respondent Tropical through its Cebu Branch Manager Pons
for remodelling a portion of its building without exchanging or
G.R. No. L-39780 November 11, 1985 expecting any consideration from Galan although the latter
was casually named as partner in the contract; that by virtue
ELMO MUÑASQUE, petitioner, of his having introduced the petitioner to the employing
vs. company (Tropical). Galan would receive some kind of
COURT OF APPEALS,CELESTINO GALAN TROPICAL compensation in the form of some percentages or
COMMERCIAL COMPANY and RAMON commission; that Tropical, under the terms of the contract,
PONS, respondents. agreed to give petitioner the amount of P7,000.00 soon after
the construction began and thereafter, the amount of
John T. Borromeo for petitioner. P6,000.00 every fifteen (15) days during the construction to
make a total sum of P25,000.00; that on January 9, 1967,
Juan D. Astete for respondent C. Galan. Tropical and/or Pons delivered a check for P7,000.00 not to
the plaintiff but to a stranger to the contract, Galan, who
Paul Gornes for respondent R. Pons. succeeded in getting petitioner's indorsement on the same
check persuading the latter that the same be deposited in a
Viu Montecillo for respondent Tropical. joint account; that on January 26, 1967 when the second
check for P6,000.00 was due, petitioner refused to indorse
Paterno P. Natinga for Intervenor Blue Diamond Glass said cheek presented to him by Galan but through later
Palace. manipulations, respondent Pons succeeded in changing the
payee's name from Elmo Muñasque to Galan and Associates,
thus enabling Galan to cash the same at the Cebu Branch of
the Philippine Commercial and Industrial Bank (PCIB) placing
GUTTIERREZ, JR., J.: the petitioner in great financial difficulty in his construction
business and subjecting him to demands of creditors to pay'
In this petition for certiorari, the petitioner seeks to annul and for construction materials, the payment of which should have
set added the decision of the Court of Appeals affirming the been made from the P13,000.00 received by Galan; that
existence of a partnership between petitioner and one of the petitioner undertook the construction at his own expense
respondents, Celestino Galan and holding both of them liable completing it prior to the March 16, 1967 deadline;that
to the two intervenors which extended credit to their because of the unauthorized disbursement by respondents
partnership. The petitioner wants to be excluded from the Tropical and Pons of the sum of P13,000.00 to Galan
liabilities of the partnership. petitioner demanded that said amount be paid to him by
respondents under the terms of the written contract between
the petitioner and respondent company.

3|Page
The respondents answered the complaint by denying some
and admitting some of the material averments and setting up
counterclaims.
During the pre-trial conference, the petitioners and
respondents agreed that the issues to be resolved are:
(1) Whether or not there existed a partners
between Celestino Galan and Elmo Muñasque;
and
(2) Whether or not there existed a justifiable
cause on the part of respondent Tropical to
disburse money to respondent Galan.
The business firms Cebu Southern Hardware Company and
Blue Diamond Glass Palace were allowed to intervene, both
having legal interest in the matter in litigation.
After trial, the court rendered judgment, the dispositive portion
of which states:
IN VIEW WHEREOF, Judgment is hereby
rendered:
(1) ordering plaintiff Muñasque and defendant
Galan to pay jointly and severally the intervenors
Cebu and Southern Hardware Company and
Blue Diamond Glass Palace the amount of
P6,229.34 and P2,213.51, respectively;
(2) absolving the defendants Tropical
Commercial Company and Ramon Pons from
any liability,
No damages awarded whatsoever.
4|Page
The petitioner and intervenor Cebu Southern Company and its
proprietor, Tan Siu filed motions for reconsideration.
On January 15, 197 1, the trial court issued 'another order
amending its judgment to make it read as follows:
IN VIEW WHEREOF, Judgment is hereby
rendered:
(1) ordering plaintiff Muñasque and defendant
Galan to pay jointly and severally the intervenors
Cebu Southern Hardware Company and Blue
Diamond Glass Palace the amount of P6,229.34
and P2,213.51, respectively,
(2) ordering plaintiff and defendant Galan to pay
Intervenor Cebu Southern Hardware Company
and Tan Siu jointly and severally interest at 12%
per annum of the sum of P6,229.34 until the
amount is fully paid;
(3) ordering plaintiff and defendant Galan to pay
P500.00 representing attorney's fees jointly and
severally to Intervenor Cebu Southern Hardware
Company:
(4) absolving the defendants Tropical
Commercial Company and Ramon Pons from
any liability,
No damages awarded whatsoever.
On appeal, the Court of Appeals affirmed the judgment of the
trial court with the sole modification that the liability imposed in
the dispositive part of the decision on the credit of Cebu
Southern Hardware and Blue Diamond Glass Palace was
changed from "jointly and severally" to "jointly."
Not satisfied, Mr. Muñasque filed this petition.
The present controversy began when petitioner Muñasque in
behalf of the partnership of "Galan and Muñasque" as
Contractor entered into a written contract with respondent
Tropical for remodelling the respondent's Cebu branch
building. A total amount of P25,000.00 was to be paid under
the contract for the entire services of the Contractor. The
terms of payment were as follows: thirty percent (30%) of the
whole amount upon the signing of the contract and the
balance thereof divided into three equal installments at the
lute of Six Thousand Pesos (P6,000.00) every fifteen (15)
working days.
The first payment made by respondent Tropical was in the
form of a check for P7,000.00 in the name of the
petitioner.Petitioner, however, indorsed the check in favor of
respondent Galan to enable the latter to deposit it in the bank
and pay for the materials and labor used in the project.
Petitioner alleged that Galan spent P6,183.37 out of the
P7,000.00 for his personal use so that when the second check
in the amount of P6,000.00 came and Galan asked the
petitioner to indorse it again, the petitioner refused.
The check was withheld from the petitioner. Since Galan
informed the Cebu branch of Tropical that there was
a"misunderstanding" between him and petitioner, respondent
Tropical changed the name of the payee in the second check
from Muñasque to "Galan and Associates" which was the duly
registered name of the partnership between Galan and
petitioner and under which name a permit to do construction
business was issued by the mayor of Cebu City. This enabled
Galan to encash the second check.
Meanwhile, as alleged by the petitioner, the construction
continued through his sole efforts. He stated that he borrowed
some P12,000.00 from his friend, Mr. Espina and although the
expenses had reached the amount of P29,000.00 because of
the failure of Galan to pay what was partly due the laborers
and partly due for the materials, the construction work was
5|Page
finished ahead of schedule with the total expenditure reaching
P34,000.00.
The two remaining checks, each in the amount of
P6,000.00,were subsequently given to the petitioner alone
with the last check being given pursuant to a court order.
As stated earlier, the petitioner filed a complaint for payment
of sum of money and damages against the
respondents,seeking to recover the following: the amounts
covered by the first and second checks which fell into the
hands of respondent Galan, the additional expenses that the
petitioner incurred in the construction, moral and exemplary
damages, and attorney's fees.
Both the trial and appellate courts not only absolved
respondents Tropical and its Cebu Manager, Pons, from any
liability but they also held the petitioner together with
respondent Galan, hable to the intervenors Cebu Southern
Hardware Company and Blue Diamond Glass Palace for the
credit which the intervenors extended to the partnership of
petitioner and Galan
In this petition the legal questions raised by the petitioner are
as follows: (1) Whether or not the appellate court erred in
holding that a partnership existed between petitioner and
respondent Galan. (2) Assuming that there was such a
partnership, whether or not the court erred in not finding Galan
guilty of malversing the P13,000.00 covered by the first and
second checks and therefore, accountable to the petitioner for
the said amount; and (3) Whether or not the court committed
grave abuse of discretion in holding that the payment made by
Tropical through its manager Pons to Galan was "good
payment, "
Petitioner contends that the appellate court erred in holding
that he and respondent Galan were partners, the truth being
that Galan was a sham and a perfidious partner who
misappropriated the amount of P13,000.00 due to the
petitioner.Petitioner also contends that the appellate court
committed grave abuse of discretion in holding that the
payment made by Tropical to Galan was "good" payment
when the same gave occasion for the latter to misappropriate
the proceeds of such payment.
The contentions are without merit.
The records will show that the petitioner entered into a con-
tract with Tropical for the renovation of the latter's building on
behalf of the partnership of "Galan and Muñasque." This is
readily seen in the first paragraph of the contract where it
states:
This agreement made this 20th day of
December in the year 1966 by Galan and
Muñasque hereinafter called the Contractor, and
Tropical Commercial Co., Inc., hereinafter called
the owner do hereby for and in consideration
agree on the following: ... .
There is nothing in the records to indicate that the partner-ship
organized by the two men was not a genuine one. If there was
a falling out or misunderstanding between the partners, such
does not convert the partnership into a sham organization.
Likewise, when Muñasque received the first payment of
Tropical in the amount of P7,000.00 with a check made out in
his name, he indorsed the check in favor of Galan.
Respondent Tropical therefore, had every right to presume
that the petitioner and Galan were true partners. If they were
not partners as petitioner claims, then he has only himself to
blame for making the relationship appear otherwise, not only
to Tropical but to their other creditors as well. The payments
made to the partnership were, therefore, valid payments.
In the case of Singsong v. Isabela Sawmill (88 SCRA 643),we
ruled:
6|Page
Although it may be presumed that Margarita G.
Saldajeno had acted in good faith, the appellees
also acted in good faith in extending credit to the
partnership. Where one of two innocent persons
must suffer, that person who gave occasion for
the damages to be caused must bear the
consequences.
No error was committed by the appellate court in holding that
the payment made by Tropical to Galan was a good payment
which binds both Galan and the petitioner. Since the two were
partners when the debts were incurred, they, are also both
liable to third persons who extended credit to their partnership.
In the case of George Litton v. Hill and Ceron, et al, (67 Phil.
513, 514), we ruled:
There is a general presumption that each
individual partner is an authorized agent for the
firm and that he has authority to bind the firm in
carrying on the partnership transactions. (Mills
vs. Riggle,112 Pan, 617).
The presumption is sufficient to permit third
persons to hold the firm liable on transactions
entered into by one of members of the firm
acting apparently in its behalf and within the
scope of his authority. (Le Roy vs. Johnson, 7
U.S. (Law. ed.), 391.)
Petitioner also maintains that the appellate court committed
grave abuse of discretion in not holding Galan liable for the
amounts which he "malversed" to the prejudice of the
petitioner. He adds that although this was not one of the
issues agreed upon by the parties during the pretrial, he,
nevertheless, alleged the same in his amended complaint
which was, duly admitted by the court.
When the petitioner amended his complaint, it was only for the
purpose of impleading Ramon Pons in his personal capacity.
Although the petitioner made allegations as to the alleged
malversations of Galan, these were the same allegations in
his original complaint. The malversation by one partner was
not an issue actually raised in the amended complaint but the
alleged connivance of Pons with Galan as a means to serve
the latter's personal purposes.
The petitioner, therefore, should be bound by the delimitation
of the issues during the pre-trial because he himself agreed to
the same. In Permanent Concrete Products, Inc. v. Teodoro,
(26 SCRA 336), we ruled:
xxx xxx xxx
... The appellant is bound by the delimitation of
the issues contained in the trial court's order
issued on the very day the pre-trial conference
was held. Such an order controls the
subsequent course of the action, unless
modified before trial to prevent manifest
injustice.In the case at bar, modification of the
pre-trial order was never sought at the instance
of any party.
Petitioner could have asked at least for a modification of the
issues if he really wanted to include the determination of
Galan's personal liability to their partnership but he chose not
to do so, as he vehemently denied the existence of the
partnership. At any rate, the issue raised in this petition is the
contention of Muñasque that the amounts payable to the
intervenors should be shouldered exclusively by Galan. We
note that the petitioner is not solely burdened by the
obligations of their illstarred partnership. The records show
that there is an existing judgment against respondent Galan,
holding him liable for the total amount of P7,000.00 in favor of
Eden Hardware which extended credit to the partnership aside
from the P2, 000. 00 he already paid to Universal Lumber.
7|Page
We, however, take exception to the ruling of the appellate
court that the trial court's ordering petitioner and Galan to pay
the credits of Blue Diamond and Cebu Southern
Hardware"jointly and severally" is plain error since the liability
of partners under the law to third persons for contracts
executed inconnection with partnership business is only pro
rata under Art. 1816, of the Civil Code.
While it is true that under Article 1816 of the Civil Code,"All
partners, including industrial ones, shall be liable prorate with
all their property and after all the partnership assets have
been exhausted, for the contracts which may be entered into
the name and fm the account cd the partnership, under its
signature and by a person authorized to act for the partner-
ship. ...". this provision should be construed together with
Article 1824 which provides that: "All partners are liable
solidarily with the partnership for everything chargeable to the
partnership under Articles 1822 and 1823." In short, while the
liability of the partners are merely joint in transactions entered
into by the partnership, a third person who transacted with
said partnership can hold the partners solidarily liable for the
whole obligation if the case of the third person falls under
Articles 1822 or 1823.
Articles 1822 and 1823 of the Civil Code provide:
Art. 1822. Where, by any wrongful act or
omission of any partner acting in the ordinary
course of the business of the partner-ship or with
the authority of his co-partners, loss or injury is
caused to any person, not being a partner in the
partnership or any penalty is incurred, the
partnership is liable therefor to the same extent
as the partner so acting or omitting to act.
Art. 1823. The partnership is bound to make
good:
 (1) Where one partner acting within the scope of
his apparent authority receives money or
property of a third person and misapplies it; and
(2) Where the partnership in the course of its
business receives money or property of a third
person and t he money or property so received
is misapplied by any partner while it is in the
custody of the partnership.
WHEREFORE, the decision appealed from is hereby
AFFIRMED with the MODIFICATION that the liability of
petitioner and respondent Galan to intervenors Blue Diamond
Glass and Cebu Southern Hardware is declared to be joint
and solidary. Petitioner may recover from respondent Galan
any amount that he pays, in his capacity as a partner, to the
above intervenors,
SO ORDERED.

The obligation is solidary, because the law protects him, who Teehankee (Chairman), Melencio-Herrera, De la Fuente and
in good faith relied upon the authority of a partner, whether Patajo, JJ., concur.
such authority is real or apparent. That is why under Article
1824 of the Civil Code all partners, whether innocent or guilty, Plana, J., took no part.
as well as the legal entity which is the partnership, are
solidarily liable. Relova, J., is on leave.

In the case at bar the respondent Tropical had every reason to

believe that a partnership existed between the petitioner and
Galan and no fault or error can be imputed against it for
making payments to "Galan and Associates" and delivering
the same to Galan because as far as it was concerned, Galan
was a true partner with real authority to transact on behalf of
the partnership with which it was dealing. This is even more
true in the cases of Cebu Southern Hardware and Blue
Diamond Glass Palace who supplied materials on credit to the
partnership. Thus, it is but fair that the consequences of any
wrongful act committed by any of the partners therein should
be answered solidarily by all the partners and the partnership
as a whole

However. as between the partners Muñasque and

Galan,justice also dictates that Muñasque be reimbursed by
Galan for the payments made by the former representing the
liability of their partnership to herein intervenors, as it was
satisfactorily established that Galan acted in bad faith in his
dealings with Muñasque as a partner.

8|Page
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-21906 December 24, 1968
INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-
appellees,
vs.
NICANOR CASTEEL and JUAN DEPRA, defendants,
NICANOR CASTEEL, defendant-appellant.
Aportadera and Palabrica and Pelaez, Jalandoni and Jamir
plaintiffs-appellees.
Ruiz Law Offices for defendant-appellant.
CASTRO, J.:
This is an appeal from the order of May 2, 1956, the decision
of May 4, 1956 and the order of May 21, 1956, all of the Court
of First Instance of Davao, in civil case 629. The basic action
is for specific performance, and damages resulting from an
alleged breach of contract.
In 1940 Nicanor Casteel filed a fishpond application for a big
tract of swampy land in the then Sitio of Malalag (now the
Municipality of Malalag), Municipality of Padada, Davao. No
action was taken thereon by the authorities concerned. During
the Japanese occupation, he filed another fishpond
application for the same area, but because of the conditions
then prevailing, it was not acted upon either. On December
12, 1945 he filed a third fishpond application for the same
area, which, after a survey, was found to contain 178.76
hectares. Upon investigation conducted by a representative of
the Bureau of Forestry, it was discovered that the area applied
for was still needed for firewood production. Hence on May
13, 1946 this third application was disapproved.
9|Page
Despite the said rejection, Casteel did not lose interest. He
filed a motion for reconsideration. While this motion was
pending resolution, he was advised by the district forester of
Davao City that no further action would be taken on his
motion, unless he filed a new application for the area
concerned. So he filed on May 27, 1947 his fishpond
application 1717.
Meanwhile, several applications were submitted by other
persons for portions of the area covered by Casteel's
application.
On May 20, 1946 Leoncio Aradillos filed his fishpond
application 1202 covering 10 hectares of land found inside the
area applied for by Casteel; he was later granted fishpond
permit F-289-C covering 9.3 hectares certified as available for
fishpond purposes by the Bureau of Forestry.
Victor D. Carpio filed on August 8, 1946 his fishpond
application 762 over a portion of the land applied for by
Casteel. Alejandro Cacam's fishpond application 1276, filed
on December 26, 1946, was given due course on December
9, 1947 with the issuance to him of fishpond permit F-539-C to
develop 30 hectares of land comprising a portion of the area
applied for by Casteel, upon certification of the Bureau of
Forestry that the area was likewise available for fishpond
purposes. On November 17, 1948 Felipe Deluao filed his own
fishpond application for the area covered by Casteel's
application.
Because of the threat poised upon his position by the above
applicants who entered upon and spread themselves within
the area, Casteel realized the urgent necessity of expanding
his occupation thereof by constructing dikes and cultivating
marketable fishes, in order to prevent old and new squatters
from usurping the land. But lacking financial resources at that
time, he sought financial aid from his uncle Felipe Deluao who
then extended loans totalling more or less P27,000 with which
to finance the needed improvements on the fishpond. Hence,
a wide productive fishpond was built.
Moreover, upon learning that portions of the area applied for
by him were already occupied by rival applicants, Casteel
immediately filed the corresponding protests. Consequently,
two administrative cases ensued involving the area in
question, to wit: DANR Case 353, entitled "Fp. Ap. No. 661
(now Fp. A. No. 1717), Nicanor Casteel, applicant-appellant
versus Fp. A. No. 763, Victorio D. Carpio, applicant-appellant";
and DANR Case 353-B, entitled "Fp. A. No. 661 (now Fp. A.
No. 1717), Nicanor Casteel, applicant-protestant versus Fp.
Permit No. 289-C, Leoncio Aradillos, Fp. Permit No. 539-C,
Alejandro Cacam, Permittees-Respondents."
However, despite the finding made in the investigation of the
above administrative cases that Casteel had already
introduced improvements on portions of the area applied for
by him in the form of dikes, fishpond gates, clearings, etc., the
Director of Fisheries nevertheless rejected Casteel's
application on October 25, 1949, required him to remove all
the improvements which he had introduced on the land, and
ordered that the land be leased through public auction. Failing
to secure a favorable resolution of his motion for
reconsideration of the Director's order, Casteel appealed to
the Secretary of Agriculture and Natural Resources.
In the interregnum, some more incidents occurred. To avoid
repetition, they will be taken up in our discussion of the
appellant's third assignment of error.
On November 25, 1949 Inocencia Deluao (wife of Felipe
Deluao) as party of the first part, and Nicanor Casteel as party
of the second part, executed a contract — denominated a
"contract of service" — the salient provisions of which are as
follows:
That the Party of the First Part in consideration of the
mutual covenants and agreements made herein to the
10 | P a g e
Party of the Second Part, hereby enter into a contract
of service, whereby the Party of the First Part hires and
employs the Party of the Second Part on the following
terms and conditions, to wit:
That the Party of the First Part will finance as she has
hereby financed the sum of TWENTY SEVEN
THOUSAND PESOS (P27,000.00), Philippine
Currency, to the Party of the Second Part who renders
only his services for the construction and improvements
of a fishpond at Barrio Malalag, Municipality of Padada,
Province of Davao, Philippines;
That the Party of the Second Part will be the Manager
and sole buyer of all the produce of the fish that will be
produced from said fishpond;
That the Party of the First Part will be the administrator
of the same she having financed the construction and
improvement of said fishpond;
That this contract was the result of a verbal agreement
entered into between the Parties sometime in the
month of November, 1947, with all the above-
mentioned conditions enumerated; ...
On the same date the above contract was entered into,
Inocencia Deluao executed a special power of attorney in
favor of Jesus Donesa, extending to the latter the authority
"To represent me in the administration of the fishpond at
Malalag, Municipality of Padada, Province of Davao,
Philippines, which has been applied for fishpond permit by
Nicanor Casteel, but rejected by the Bureau of Fisheries, and
to supervise, demand, receive, and collect the value of the fish
that is being periodically realized from it...."
On November 29, 1949 the Director of Fisheries rejected the
application filed by Felipe Deluao on November 17, 1948.
Unfazed by this rejection, Deluao reiterated his claim over the
same area in the two administrative cases (DANR Cases 353
and 353-B) and asked for reinvestigation of the application of
Nicanor Casteel over the subject fishpond. However, by letter
dated March 15, 1950 sent to the Secretary of Commerce and
Agriculture and Natural Resources (now Secretary of
Agriculture and Natural Resources), Deluao withdrew his
petition for reinvestigation.
On September 15, 1950 the Secretary of Agriculture and
Natural Resources issued a decision in DANR Case 353, the
dispositive portion of which reads as follows:
In view of all the foregoing considerations, Fp. A. No.
661 (now Fp. A. No. 1717) of Nicanor Casteel should
be, as hereby it is, reinstated and given due course for
the area indicated in the sketch drawn at the back of
the last page hereof; and Fp. A. No. 762 of Victorio D.
Carpio shall remain rejected.
On the same date, the same official issued a decision in
DANR Case 353-B, the dispositive portion stating as follows:
WHEREFORE, Fishpond Permit No. F-289-C of
Leoncio Aradillos and Fishpond Permit No. F-539-C of
Alejandro Cacam, should be, as they are hereby
cancelled and revoked; Nicanor Casteel is required to
pay the improvements introduced thereon by said
permittees in accordance with the terms and
dispositions contained elsewhere in this decision....
Sometime in January 1951 Nicanor Casteel forbade Inocencia
Deluao from further administering the fishpond, and ejected
the latter's representative (encargado), Jesus Donesa, from
the premises.
Alleging violation of the contract of service (exhibit A) entered
into between Inocencia Deluao and Nicanor Casteel, Felipe
Deluao and Inocencia Deluao on April 3, 1951 filed an action
in the Court of First Instance of Davao for specific
11 | P a g e
performance and damages against Nicanor Casteel and Juan
Depra (who, they alleged, instigated Casteel to violate his
contract), praying inter alia, (a) that Casteel be ordered to
respect and abide by the terms and conditions of said contract
and that Inocencia Deluao be allowed to continue
administering the said fishpond and collecting the proceeds
from the sale of the fishes caught from time to time; and (b)
that the defendants be ordered to pay jointly and severally to
plaintiffs the sum of P20,000 in damages.
On April 18, 1951 the plaintiffs filed an ex parte motion for the
issuance of a preliminary injunction, praying among other
things, that during the pendency of the case and upon their
filling the requisite bond as may be fixed by the court, a
preliminary injunction be issued to restrain Casteel from doing
the acts complained of, and that after trial the said injunction
be made permanent. The lower court on April 26, 1951
granted the motion, and, two days later, it issued a preliminary
mandatory injunction addressed to Casteel, the dispositive
portion of which reads as follows:
POR EL PRESENTE, queda usted ordenado que,
hasta nueva orden, usted, el demandado y todos usu
abogados, agentes, mandatarios y demas personas
que obren en su ayuda, desista de impedir a la
demandante Inocencia R. Deluao que continue
administrando personalmente la pesqueria objeto de
esta causa y que la misma continue recibiendo los
productos de la venta de los pescados provenientes de
dicha pesqueria, y que, asimismo, se prohibe a dicho
demandado Nicanor Casteel a desahuciar mediante
fuerza al encargado de los demandantes llamado
Jesus Donesa de la pesqueria objeto de la demanda
de autos.
On May 10, 1951 Casteel filed a motion to dissolve the
injunction, alleging among others, that he was the owner,
lawful applicant and occupant of the fishpond in question. This
motion, opposed by the plaintiffs on June 15, 1951, was
denied by the lower court in its order of June 26, 1961.
The defendants on May 14, 1951 filed their answer with
counterclaim, amended on January 8, 1952, denying the
material averments of the plaintiffs' complaint. A reply to the
defendants' amended answer was filed by the plaintiffs on
January 31, 1952.
The defendant Juan Depra moved on May 22, 1951 to dismiss
the complaint as to him. On June 4, 1951 the plaintiffs
opposed his motion.
The defendants filed on October 3, 1951 a joint motion to
dismiss on the ground that the plaintiffs' complaint failed to
state a claim upon which relief may be granted. The motion,
opposed by the plaintiffs on October 12, 1951, was denied for
lack of merit by the lower court in its order of October 22,
1951. The defendants' motion for reconsideration filed on
October 31, 1951 suffered the same fate when it was likewise
denied by the lower court in its order of November 12, 1951.
After the issues were joined, the case was set for trial. Then
came a series of postponements. The lower court (Branch I,
presided by Judge Enrique A. Fernandez) finally issued on
March 21, 1956 an order in open court, reading as follows: .
Upon petition of plaintiffs, without any objection on the
part of defendants, the hearing of this case is hereby
transferred to May 2 and 3, 1956 at 8:30 o'clock in the
morning.
This case was filed on April 3, 1951 and under any
circumstance this Court will not entertain any other
transfer of hearing of this case and if the parties will not
be ready on that day set for hearing, the court will take
the necessary steps for the final determination of this
case. (emphasis supplied)
12 | P a g e
On April 25, 1956 the defendants' counsel received a notice of
hearing dated April 21, 1956, issued by the office of the Clerk
of Court (thru the special deputy Clerk of Court) of the Court of
First Instance of Davao, setting the hearing of the case for
May 2 and 3, 1956 before Judge Amador Gomez of Branch II.
The defendants, thru counsel, on April 26, 1956 filed a motion
for postponement. Acting on this motion, the lower court
(Branch II, presided by Judge Gomez) issued an order dated
April 27, 1956, quoted as follows:
This is a motion for postponement of the hearing of this
case set for May 2 and 3, 1956. The motion is filed by
the counsel for the defendants and has the conformity
of the counsel for the plaintiffs.
An examination of the records of this case shows that
this case was initiated as early as April 1951 and that
the same has been under advisement of the Honorable
Enrique A. Fernandez, Presiding Judge of Branch No.
I, since September 24, 1953, and that various incidents
have already been considered and resolved by Judge
Fernandez on various occasions. The last order issued
by Judge Fernandez on this case was issued on March
21, 1956, wherein he definitely states that the Court will
not entertain any further postponement of the hearing
of this case.
CONSIDERING ALL THE FOREGOING, the Court
believes that the consideration and termination of any
incident referring to this case should be referred back
to Branch I, so that the same may be disposed of
therein. (emphasis supplied)
A copy of the abovequoted order was served on the
defendants' counsel on May 4, 1956.
On the scheduled date of hearing, that is, on May 2, 1956, the
lower court (Branch I, with Judge Fernandez presiding), when
informed about the defendants' motion for postponement filed
on April 26, 1956, issued an order reiterating its previous
order handed down in open court on March 21, 1956 and
directing the plaintiffs to introduce their evidence ex parte,
there being no appearance on the part of the defendants or
their counsel. On the basis of the plaintiffs' evidence, a
decision was rendered on May 4, 1956 the dispositive portion
of which reads as follows:
EN SU VIRTUD, el Juzgado dicta de decision a favor
de los demandantes y en contra del demandado
Nicanor Casteel:
(a) Declara permanente el interdicto prohibitorio
expedido contra el demandado;
(b) Ordena al demandado entregue la demandante la
posesion y administracion de la mitad (½) del
"fishpond" en cuestion con todas las mejoras
existentes dentro de la misma;
(c) Condena al demandado a pagar a la demandante la
suma de P200.00 mensualmente en concepto de
danos a contar de la fecha de la expiracion de los 30
dias de la promulgacion de esta decision hasta que
entregue la posesion y administracion de la porcion del
"fishpond" en conflicto;
(d) Condena al demandado a pagar a la demandante la
suma de P2,000.00 valor de los pescado beneficiados,
mas los intereses legales de la fecha de la incoacion
de la demanda de autos hasta el completo pago de la
obligacion principal;
(e) Condena al demandado a pagar a la demandante la
suma de P2,000.00, por gastos incurridos por aquella
durante la pendencia de esta causa;
(f) Condena al demandado a pagar a la demandante,
en concepto de honorarios, la suma de P2,000.00;
13 | P a g e
(g) Ordena el sobreseimiento de esta demanda, por
insuficiencia de pruebas, en tanto en cuanto se refiere
al demandado Juan Depra;
(h) Ordena el sobreseimiento de la reconvencion de los
demandados por falta de pruebas;
(i) Con las costas contra del demandado, Casteel.
The defendant Casteel filed a petition for relief from the
foregoing decision, alleging, inter alia, lack of knowledge of
the order of the court a quo setting the case for trial. The
petition, however, was denied by the lower court in its order of
May 21, 1956, the pertinent portion of which reads as follows:
The duty of Atty. Ruiz, was not to inquire from the Clerk
of Court whether the trial of this case has been
transferred or not, but to inquire from the presiding
Judge, particularly because his motion asking the
transfer of this case was not set for hearing and was
not also acted upon.
Atty. Ruiz knows the nature of the order of this Court
dated March 21, 1956, which reads as follows:
Upon petition of the plaintiff without any
objection on the part of the defendants, the
hearing of this case is hereby transferred to May
2 and 3, 1956, at 8:30 o'clock in the morning.
This case was filed on April 3, 1951, and under
any circumstance this Court will not entertain
any other transfer of the hearing of this case,
and if the parties will not be ready on the day set
for hearing, the Court will take necessary steps
for the final disposition of this case.
In view of the order above-quoted, the Court will not
accede to any transfer of this case and the duty of Atty.
 Ruiz is no other than to be present in the Sala of this
Court and to call the attention of the same to the
existence of his motion for transfer.
Petition for relief from judgment filed by Atty. Ruiz in
behalf of the defendant, not well taken, the same is
hereby denied.
Dissatisfied with the said ruling, Casteel appealed to the Court
of Appeals which certified the case to us for final
determination on the ground that it involves only questions of
law.
Casteel raises the following issues:
(1) Whether the lower court committed gross abuse of
discretion when it ordered reception of the appellees'
evidence in the absence of the appellant at the trial on
May 2, 1956, thus depriving the appellant of his day in
court and of his property without due process of law;
(2) Whether the lower court committed grave abuse of
discretion when it denied the verified petition for relief
from judgment filed by the appellant on May 11, 1956 in
accordance with Rule 38, Rules of Court; and
(3) Whether the lower court erred in ordering the
issuance ex parte of a writ of preliminary injunction
against defendant-appellant, and in not dismissing
appellees' complaint.
1. The first and second issues must be resolved against the
appellant.
The record indisputably shows that in the order given in open
court on March 21, 1956, the lower court set the case for
hearing on May 2 and 3, 1956 at 8:30 o'clock in the morning
and empathically stated that, since the case had been
14 | P a g e
pending since April 3, 1951, it would not entertain any further
motion for transfer of the scheduled hearing.
An order given in open court is presumed received by the
parties on the very date and time of promulgation,1 and
amounts to a legal notification for all legal purposes.2 The
order of March 21, 1956, given in open court, was a valid
notice to the parties, and the notice of hearing dated April 21,
1956 or one month thereafter, was a superfluity. Moreover, as
between the order of March 21, 1956, duly promulgated by the
lower court, thru Judge Fernandez, and the notice of hearing
signed by a "special deputy clerk of court" setting the hearing
in another branch of the same court, the former's order was
the one legally binding. This is because the incidents of
postponements and adjournments are controlled by the court
and not by the clerk of court, pursuant to section 4, Rule 31
(now sec. 3, Rule 22) of the Rules of Court.
Much less had the clerk of court the authority to interfere with
the order of the court or to transfer the cage from one sala to
another without authority or order from the court where the
case originated and was being tried. He had neither the duty
nor prerogative to re-assign the trial of the case to a different
branch of the same court. His duty as such clerk of court, in so
far as the incident in question was concerned, was simply to
prepare the trial calendar. And this duty devolved upon the
clerk of court and not upon the "special deputy clerk of court"
who purportedly signed the notice of hearing.
It is of no moment that the motion for postponement had the
conformity of the appellees' counsel. The postponement of
hearings does not depend upon agreement of the parties, but
upon the court's discretion.3
The record further discloses that Casteel was represented by
a total of 12 lawyers, none of whom had ever withdrawn as
counsel. Notice to Atty. Ruiz of the order dated March 21,
1956 intransferably setting the case for hearing for May 2 and
3, 1956, was sufficient notice to all the appellant's eleven
other counsel of record. This is a well-settled rule in our
jurisdiction.4
It was the duty of Atty. Ruiz, or of the other lawyers of record,
not excluding the appellant himself, to appear before Judge
Fernandez on the scheduled dates of hearing Parties and
their lawyers have no right to presume that their motions for
postponement will be granted.5 For indeed, the appellant and
his 12 lawyers cannot pretend ignorance of the recorded fact
that since September 24, 1953 until the trial held on May 2,
1956, the case was under the advisement of Judge
Fernandez who presided over Branch I. There was, therefore,
no necessity to "re-assign" the same to Branch II because
Judge Fernandez had exclusive control of said case, unless
he was legally inhibited to try the case — and he was not.
There is truth in the appellant's contention that it is the duty of
the clerk of court — not of the Court — to prepare the trial
calendar. But the assignment or reassignment of cases
already pending in one sala to another sala, and the setting of
the date of trial after the trial calendar has been prepared, fall
within the exclusive control of the presiding judge.
The appellant does not deny the appellees' claim that on May
2 and 3, 1956, the office of the clerk of court of the Court of
First Instance of Davao was located directly below Branch I. If
the appellant and his counsel had exercised due diligence,
there was no impediment to their going upstairs to the second
storey of the Court of First Instance building in Davao on May
2, 1956 and checking if the case was scheduled for hearing in
the said sala. The appellant after all admits that on May 2,
1956 his counsel went to the office of the clerk of court.
The appellant's statement that parties as a matter of right are
entitled to notice of trial, is correct. But he was properly
accorded this right. He was notified in open court on March
21, 1956 that the case was definitely and intransferably set for
hearing on May 2 and 3, 1956 before Branch I. He cannot
argue that, pursuant to the doctrine in Siochi vs. Tirona,6 his
15 | P a g e
counsel was entitled to a timely notice of the denial of his
motion for postponement. In the cited case the motion for
postponement was the first one filed by the defendant; in the
case at bar, there had already been a series of
postponements. Unlike the case at bar, the Siochi case was
not intransferably set for hearing. Finally, whereas the cited
case did not spend for a long time, the case at bar was only
finally and intransferably set for hearing on March 21, 1956 —
after almost five years had elapsed from the filing of the
complaint on April 3, 1951.
The pretension of the appellant and his 12 counsel of record
that they lacked ample time to prepare for trial is unacceptable
because between March 21, 1956 and May 2, 1956, they had
one month and ten days to do so. In effect, the appellant had
waived his right to appear at the trial and therefore he cannot
be heard to complain that he has been deprived of his
property without due process of law.7 Verily, the constitutional
requirements of due process have been fulfilled in this case:
the lower court is a competent court; it lawfully acquired
jurisdiction over the person of the defendant (appellant) and
the subject matter of the action; the defendant (appellant) was
given an opportunity to be heard; and judgment was rendered
upon lawful hearing.8
2. Finally, the appellant contends that the lower court incurred
an error in ordering the issuance ex parte of a writ of
preliminary injunction against him, and in not dismissing the
appellee's complaint. We find this contention meritorious.
Apparently, the court a quo relied on exhibit A — the so-called
"contract of service" — and the appellees' contention that it
created a contract of co-ownership and partnership between
Inocencia Deluao and the appellant over the fishpond in
question.
Too well-settled to require any citation of authority is the rule
that everyone is conclusively presumed to know the law. It
must be assumed, conformably to such rule, that the parties
entered into the so-called "contract of service" cognizant of
the mandatory and prohibitory laws governing the filing of
applications for fishpond permits. And since they were aware
of the said laws, it must likewise be assumed — in fairness to
the parties — that they did not intend to violate them. This
view must perforce negate the appellees' allegation that
exhibit A created a contract of co-ownership between the
parties over the disputed fishpond. Were we to admit the
establishment of a co-ownership violative of the prohibitory
laws which will hereafter be discussed, we shall be compelled
to declare altogether the nullity of the contract. This would
certainly not serve the cause of equity and justice, considering
that rights and obligations have already arisen between the
parties. We shall therefore construe the contract as one of
partnership, divided into two parts — namely, a contract of
partnership to exploit the fishpond pending its award to either
Felipe Deluao or Nicanor Casteel, and a contract of
partnership to divide the fishpond between them after such
award. The first is valid, the second illegal.
It is well to note that when the appellee Inocencia Deluao and
the appellant entered into the so-called "contract of service"
on November 25, 1949, there were two pending applications
over the fishpond. One was Casteel's which was appealed by
him to the Secretary of Agriculture and Natural Resources
after it was disallowed by the Director of Fisheries on October
25, 1949. The other was Felipe Deluao's application over the
same area which was likewise rejected by the Director of
Fisheries on November 29, 1949, refiled by Deluao and later
on withdrawn by him by letter dated March 15, 1950 to the
Secretary of Agriculture and Natural Resources. Clearly,
although the fishpond was then in the possession of Casteel,
neither he nor, Felipe Deluao was the holder of a fishpond
permit over the area. But be that as it may, they were not
however precluded from exploiting the fishpond pending
resolution of Casteel's appeal or the approval of Deluao's
application over the same area — whichever event happened
first. No law, rule or regulation prohibited them from doing so.
Thus, rather than let the fishpond remain idle they cultivated it.
16 | P a g e
The evidence preponderates in favor of the view that the initial
intention of the parties was not to form a co-ownership but to
establish a partnership — Inocencia Deluao as capitalist
partner and Casteel as industrial partner — the ultimate
undertaking of which was to divide into two equal parts such
portion of the fishpond as might have been developed by the
amount extended by the plaintiffs-appellees, with the further
provision that Casteel should reimburse the expenses
incurred by the appellees over one-half of the fishpond that
would pertain to him. This can be gleaned, among others,
from the letter of Casteel to Felipe Deluao on November 15,
1949, which states, inter alia:
... [W]ith respect to your allowing me to use your
money, same will redound to your benefit because you
are the ones interested in half of the work we have
done so far, besides I did not insist on our being
partners in my fishpond permit, but it was you "Tatay"
Eping the one who wanted that we be partners and it
so happened that we became partners because I am
poor, but in the midst of my poverty it never occurred to
me to be unfair to you. Therefore so that each of us
may be secured, let us have a document prepared to
the effect that we are partners in the fishpond that we
caused to be made here in Balasinon, but it does not
mean that you will treat me as one of your "Bantay"
(caretaker) on wage basis but not earning wages at all,
while the truth is that we are partners. In the event that
you are not amenable to my proposition and consider
me as "Bantay" (caretaker) instead, do not blame me if
I withdraw all my cases and be left without even a little
and you likewise.
(emphasis supplied)9
Pursuant to the foregoing suggestion of the appellant that a
document be drawn evidencing their partnership, the appellee
Inocencia Deluao and the appellant executed exhibit A which,
although denominated a "contract of service," was actually the
memorandum of their partnership agreement. That it was not
a contract of the services of the appellant, was admitted by
the appellees themselves in their letter10 to Casteel dated
December 19, 1949 wherein they stated that they did not
employ him in his (Casteel's) claim but because he used their
money in developing and improving the fishpond, his right
must be divided between them. Of course, although exhibit A
did not specify any wage or share appertaining to the
appellant as industrial partner, he was so entitled — this being
one of the conditions he specified for the execution of the
document of partnership.11
Further exchanges of letters between the parties reveal the
continuing intent to divide the fishpond. In a letter,12dated
March 24, 1950, the appellant suggested that they divide the
fishpond and the remaining capital, and offered to pay the
Deluaos a yearly installment of P3,000 — presumably as
reimbursement for the expenses of the appellees for the
development and improvement of the one-half that would
pertain to the appellant. Two days later, the appellee Felipe
Deluao replied,13expressing his concurrence in the appellant's
suggestion and advising the latter to ask for a reconsideration
of the order of the Director of Fisheries disapproving his
(appellant's) application, so that if a favorable decision was
secured, then they would divide the area.
Apparently relying on the partnership agreement, the appellee
Felipe Deluao saw no further need to maintain his petition for
the reinvestigation of Casteel's application. Thus by
letter14 dated March 15, 1950 addressed to the Secretary of
Agriculture and Natural Resources, he withdrew his petition on
the alleged ground that he was no longer interested in the
area, but stated however that he wanted his interest to be
protected and his capital to be reimbursed by the highest
bidder.
The arrangement under the so-called "contract of service"
continued until the decisions both dated September 15, 1950
were issued by the Secretary of Agriculture and Natural
Resources in DANR Cases 353 and 353-B. This development,
17 | P a g e
by itself, brought about the dissolution of the partnership.
Moreover, subsequent events likewise reveal the intent of
both parties to terminate the partnership because each
refused to share the fishpond with the other.
Art. 1830(3) of the Civil Code enumerates, as one of the
causes for the dissolution of a partnership, "... any event
which makes it unlawful for the business of the partnership to
be carried on or for the members to carry it on in partnership."
The approval of the appellant's fishpond application by the
decisions in DANR Cases 353 and 353-B brought to the fore
several provisions of law which made the continuation of the
partnership unlawful and therefore caused its ipso
facto dissolution.
Act 4003, known as the Fisheries Act, prohibits the holder of a
fishpond permit (the permittee) from transferring or subletting
the fishpond granted to him, without the previous consent or
approval of the Secretary of Agriculture and Natural
Resources.15 To the same effect is Condition No. 3 of the
fishpond permit which states that "The permittee shall not
transfer or sublet all or any area herein granted or any rights
acquired therein without the previous consent and approval of
this Office." Parenthetically, we must observe that in DANR
Case 353-B, the permit granted to one of the parties therein,
Leoncio Aradillos, was cancelled not solely for the reason that
his permit covered a portion of the area included in the
appellant's prior fishpond application, but also because, upon
investigation, it was ascertained thru the admission of
Aradillos himself that due to lack of capital, he allowed one
Lino Estepa to develop with the latter's capital the area
covered by his fishpond permit F-289-C with the
understanding that he (Aradillos) would be given a share in
the produce thereof.16
Sec. 40 of Commonwealth Act 141, otherwise known as the
Public Land Act, likewise provides that
 The lessee shall not assign, encumber, or sublet his
rights without the consent of the Secretary of
Agriculture and Commerce, and the violation of this
condition shall avoid the contract; Provided, That
assignment, encumbrance, or subletting for purposes
of speculation shall not be permitted in any
case: Provided, further, That nothing contained in this
section shall be understood or construed to permit the
assignment, encumbrance, or subletting of lands
leased under this Act, or under any previous Act, to
persons, corporations, or associations which under this
Act, are not authorized to lease public lands.
Finally, section 37 of Administrative Order No. 14 of the
Secretary of Agriculture and Natural Resources issued in
August 1937, prohibits a transfer or sublease unless first
approved by the Director of Lands and under such terms and
conditions as he may prescribe. Thus, it states:
When a transfer or sub-lease of area and improvement
may be allowed. — If the permittee or lessee had,
unless otherwise specifically provided, held the permit
or lease and actually operated and made
improvements on the area for at least one year, he/she
may request permission to sub-lease or transfer the
area and improvements under certain conditions.
(a) Transfer subject to approval. — A sub-lease or
transfer shall only be valid when first approved by the
Director under such terms and conditions as may be
prescribed, otherwise it shall be null and void. A
transfer not previously approved or reported shall be
considered sufficient cause for the cancellation of the
permit or lease and forfeiture of the bond and for
granting the area to a qualified applicant or bidder, as
provided in subsection (r) of Sec. 33 of this Order.
Since the partnership had for its object the division into two
equal parts of the fishpond between the appellees and the
18 | P a g e
appellant after it shall have been awarded to the latter, and
therefore it envisaged the unauthorized transfer of one-half
thereof to parties other than the applicant Casteel, it was
dissolved by the approval of his application and the award to
him of the fishpond. The approval was an event which made it
unlawful for the business of the partnership to be carried on or
for the members to carry it on in partnership.
The appellees, however, argue that in approving the
appellant's application, the Secretary of Agriculture and
Natural Resources likewise recognized and/or confirmed their
property right to one-half of the fishpond by virtue of the
contract of service, exhibit A. But the untenability of this
argument would readily surface if one were to consider that
the Secretary of Agriculture and Natural Resources did not do
so for the simple reason that he does not possess the
authority to violate the aforementioned prohibitory laws nor to
exempt anyone from their operation.
However, assuming in gratia argumenti that the approval of
Casteel's application, coupled with the foregoing prohibitory
laws, was not enough to cause the dissolution ipso facto of
their partnership, succeeding events reveal the intent of both
parties to terminate the partnership by refusing to share the
fishpond with the other.
On December 27, 1950 Casteel wrote17 the appellee
Inocencia Deluao, expressing his desire to divide the fishpond
so that he could administer his own share, such division to be
subject to the approval of the Secretary of Agriculture and
Natural Resources. By letter dated December 29, 1950,18 the
appellee Felipe Deluao demurred to Casteel's proposition
because there were allegedly no appropriate grounds to
support the same and, moreover, the conflict over the
fishpond had not been finally resolved.
The appellant wrote on January 4, 1951 a last letter19 to the
appellee Felipe Deluao wherein the former expressed his
determination to administer the fishpond himself because the
decision of the Government was in his favor and the only
reason why administration had been granted to the Deluaos
was because he was indebted to them. In the same letter, the
appellant forbade Felipe Deluao from sending the
couple's encargado, Jesus Donesa, to the fishpond. In reply
thereto, Felipe Deluao wrote a letter20 dated January 5, 1951
in which he reiterated his refusal to grant the administration of
the fishpond to the appellant, stating as a ground his belief
"that only the competent agencies of the government are in a
better position to render any equitable arrangement relative to
the present case; hence, any action we may privately take
may not meet the procedure of legal order."
Inasmuch as the erstwhile partners articulated in the
aforecited letters their respective resolutions not to share the
fishpond with each other — in direct violation of the
undertaking for which they have established their partnership
— each must be deemed to have expressly withdrawn from
the partnership, thereby causing its dissolution pursuant to art.
1830(2) of the Civil Code which provides, inter alia, that
dissolution is caused "by the express will of any partner at any
time."
In this jurisdiction, the Secretary of Agriculture and Natural
Resources possesses executive and administrative powers
with regard to the survey, classification, lease, sale or any
other form of concession or disposition and management of
the lands of the public domain, and, more specifically, with
regard to the grant or withholding of licenses, permits, leases
and contracts over portions of the public domain to be utilized
as fishponds.21, Thus, we held in Pajo, et al. vs. Ago, et al. (L-
15414, June 30, 1960), and reiterated in Ganitano vs.
Secretary of Agriculture and Natural Resources, et al.
(L-21167, March 31, 1966), that
... [T]he powers granted to the Secretary of Agriculture
and Commerce (Natural Resources) by law regarding
the disposition of public lands such as granting of
licenses, permits, leases, and contracts, or approving,
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rejecting, reinstating, or cancelling applications, or
deciding conflicting applications, are all executive and
administrative in nature. It is a well-recognized principle
that purely administrative and discretionary functions
may not be interfered with by the courts (Coloso v.
Board of Accountancy, G.R. No. L-5750, April 20,
1953). In general, courts have no supervising power
over the proceedings and action of the administrative
departments of the government. This is generally true
with respect to acts involving the exercise of judgment
or discretion, and findings of fact. (54 Am. Jur. 558-
559) Findings of fact by an administrative board or
official, following a hearing, are binding upon the courts
and will not be disturbed except where the board or
official has gone beyond his statutory authority,
exercised unconstitutional powers or clearly acted
arbitrarily and without regard to his duty or with grave
abuse of discretion... (emphasis supplied)
In the case at bar, the Secretary of Agriculture and Natural
Resources gave due course to the appellant's fishpond
application 1717 and awarded to him the possession of the
area in question. In view of the finality of the Secretary's
decision in DANR Cases 353 and 353-B, and considering the
absence of any proof that the said official exceeded his
statutory authority, exercised unconstitutional powers, or
acted with arbitrariness and in disregard of his duty, or with
grave abuse of discretion, we can do no less than respect and
maintain unfettered his official acts in the premises. It is a
salutary rule that the judicial department should not dictate to
the executive department what to do with regard to the
administration and disposition of the public domain which the
law has entrusted to its care and administration. Indeed,
courts cannot superimpose their discretion on that of the land
department and compel the latter to do an act which involves
the exercise of judgment and discretion.22
Therefore, with the view that we take of this case, and even
assuming that the injunction was properly issued because
present all the requisite grounds for its issuance, its
continuation, and, worse, its declaration as permanent, was
improper in the face of the knowledge later acquired by the
lower court that it was the appellant's application over the
fishpond which was given due course. After the Secretary of
Agriculture and Natural Resources approved the appellant's
application, he became to all intents and purposes the legal
permittee of the area with the corresponding right to possess,
occupy and enjoy the same. Consequently, the lower court
erred in issuing the preliminary mandatory injunction. We
cannot overemphasize that an injunction should not be
granted to take property out of the possession and control of
one party and place it in the hands of another whose title has
not been clearly established by law.23
ACCORDINGLY, the judgment of the lower court is set aside.
Another judgment is hereby rendered: (1) dissolving the
injunction issued against the appellant, (2) placing the latter
back in possession of the fishpond in litigation, and (3)
remanding this case to the court of origin for the reception of
evidence relative to the accounting that the parties must
perforce render in the premises, at the termination of which
the court shall render judgment accordingly. The appellant's
counterclaim is dismissed. No pronouncement as to costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar,
Sanchez, Fernando and Capistrano, JJ., concur.

However, pursuant to our holding that there was a partnership

between the parties for the exploitation of the fishpond before
it was awarded to Casteel, this case should be remanded to
the lower court for the reception of evidence relative to an
accounting from November 25, 1949 to September 15, 1950,
in order for the court to determine (a) the profits realized by
the partnership, (b) the share (in the profits) of Casteel as
industrial partner, (e) the share (in the profits) of Deluao as
capitalist partner, and (d) whether the amounts totalling about
P27,000 advanced by Deluao to Casteel for the development
and improvement of the fishpond have already been
liquidated. Besides, since the appellee Inocencia Deluao
continued in possession and enjoyment of the fishpond even
after it was awarded to Casteel, she did so no longer in the
concept of a capitalist partner but merely as creditor of the
appellant, and therefore, she must likewise submit in the lower
court an accounting of the proceeds of the sales of all the
fishes harvested from the fishpond from September 16, 1950
until Casteel shall have been finally given the possession and
enjoyment of the same. In the event that the appellee Deluao
has received more than her lawful credit of P27,000 (or
whatever amounts have been advanced to Casteel), plus 6%
interest thereon per annum, then she should reimburse the
excess to the appellant.
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