Agad vs. Mabato

Article 1773 of the Civil Code, which voids a partnership when immovable property is contributed without an inventory attached to the public instrument, applies only when immovable property or real rights are actually contributed to the partnership capital; where the partners' contributions are limited to cash and the immovable property is merely the purpose or object of the partnership's business, the article does not apply and the partnership is not void for lack of an inventory.

Mauricio Agad and Severino Mabato executed a public instrument dated August 29, 1952 establishing a partnership denominated "Mabato & Agad Company" for the purpose of operating a fishpond. Each partner contributed P1,000 to the capital, and Agad was entitled to fifty percent of the profits. Mabato handled the partnership funds and rendered yearly accounts of operations from 1952 through 1956, but despite repeated demands he failed and refused to render accounts for the years 1957 to 1963.

Mauricio Agad and Severino Mabato executed a public instrument dated August 29, 1952 — attached to the complaint as Annex "A" — establishing a partnership to operate a fishpond. Under the instrument, each partner contributed P1,000 to the partnership capital, for a total of P2,000, and Agad was entitled to fifty percent of the profits. Mabato handled the partnership funds.

From 1952 through 1956, Mabato rendered yearly accounts of the partnership's operations. Despite repeated demands, however, he failed and refused to render accounts for the years 1957 to 1963. On June 9, 1964, Agad filed a complaint against Mabato and Mabato & Agad Company, praying that Mabato be sentenced to pay P14,000 as Agad's share of the profits for 1957 to 1963, plus P1,000 as attorney's fees, and that the partnership be dissolved and its affairs wound up by a receiver.

In his answer, Mabato admitted the formal allegations of the complaint but denied the existence of the partnership, contending that the contract had not been perfected because Agad had allegedly failed to give his P1,000 contribution to the capital. Mabato prayed for dismissal of the complaint, a declaration that Annex "A" was void ab initio, and an award of actual, moral, and exemplary damages plus attorney's fees. He subsequently filed a motion to dismiss on the grounds that the complaint stated no cause of action and that the lower court lacked jurisdiction over the subject matter, it involving principally the determination of rights over public lands.

After due hearing, the Court of First Instance of Davao granted the motion to dismiss for failure to state a cause of action. The lower court predicated its conclusion on the theory that the partnership contract was null and void under Article 1773 of the Civil Code because an inventory of the fishpond referred to in the instrument had not been attached thereto. A motion for reconsideration was denied, prompting Agad to elevate the matter to the Supreme Court by record on appeal.

• Applicability of Article 1773: Agad, as plaintiff-appellant, maintained that the partnership contract was valid and that the lower court erred in dismissing the complaint on the basis of Article 1773, since the fishpond was not contributed to the partnership capital and the partners' contributions were limited to cash.

• No Cause of Action and Lack of Jurisdiction: Mabato argued that the complaint stated no cause of action and that the lower court lacked jurisdiction over the subject matter of the case because it involved principally the determination of rights over public lands.
• Nullity of the Partnership Contract: Mabato contended that the contract of partnership had not been perfected because Agad had allegedly failed to give his P1,000 contribution to the partnership capital, and that Annex "A" should be declared void ab initio.
• Void Under Article 1773: Mabato alleged, and the lower court agreed, that the partnership was void under Article 1773 because an inventory of the fishpond had not been made, signed by the parties, and attached to the public instrument.

• Applicability of Article 1773: Whether Article 1773 of the Civil Code applies to the partnership contract in question, i.e., whether immovable property or real rights were contributed to the partnership so as to require an inventory attached to the public instrument.

• Applicability of Article 1773: No. Article 1773 does not apply because neither the fishpond nor any real right thereto was contributed to the partnership capital; the partners' contributions were limited to P1,000 each in cash, and the fishpond was merely the object of the partnership's operations.

• Applicability of Article 1773: The issue hinges on whether "immovable property or real rights" have been contributed to the partnership. The lower court reasoned that it was "inconceivable how a partnership engaged in the fishpond business could exist without said fishpond property being contributed to the partnership." This reasoning was rejected. The partnership instrument (Annex "A") stated that the partnership was established "to operate a fishpond," not to "engage in a fishpond business." Paragraph 4 of Annex "A" expressly provided that the capital of the partnership was P2,000, of which P1,000 was contributed by Mabato and P1,000 by Agad. The operation of the fishpond was the purpose of the partnership; neither the fishpond nor a real right thereto was contributed to the partnership or became part of its capital. Because the condition triggering Article 1773 — contribution of immovable property — was absent, the article was not in point, and the order of dismissal could not stand.

• Scope of Article 1773, Civil Code — Article 1773 voids a contract of partnership 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. The provision applies only when immovable property or real rights are actually contributed to the partnership as part of its capital. Where the partners' contributions are limited to cash and the immovable property is merely the object or purpose of the partnership's business operations — not contributed to or made part of the capital — Article 1773 does not apply. The distinction between the purpose of a partnership and the contributions to its capital is decisive: the fact that a partnership's business involves immovable property does not, by itself, bring Article 1773 into operation.

• "The issue before us hinges on whether or not 'immovable property or real rights' have been contributed to the partnership under consideration." — This frames the sole legal question the Court resolved: whether the trigger condition of Article 1773 — contribution of immovable property — was present.

• "The operation of the fishpond mentioned in Annex 'A' was the purpose of the partnership. Neither said fishpond nor a real right thereto was contributed to the partnership or became part of the capital thereof, even if a fishpond or a real right thereto could become part of its assets." — This passage articulates the ratio decidendi, drawing the critical distinction between the purpose of a partnership and the contributions to its capital, and confirming that Article 1773 is inapplicable absent a contribution of immovable property.

• Article 1771, Civil Code — Provides that a partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument is necessary. The Court cited this provision alongside Article 1773 to contextualize the formal requirements for partnerships involving immovable property, but found neither provision applicable because no immovable property was contributed.

• Article 1773, Civil Code — Provides that 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. The Court held this provision inapplicable because the condition precedent — contribution of immovable property to the partnership capital — was not satisfied; the partners contributed only cash, and the fishpond was merely the object of the partnership's operations.

Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles, and Fernando, JJ., concurred.