Fernandez vs. De la Rosa

A civil partnership may be constituted in any form, and a verbal agreement to purchase and operate personal property for profit creates a partnership once mutual contribution to a common stock and a joint interest in profits are established, even if the parties later fail to agree on minor details; acceptance of a partial return of capital with express reservation of partnership rights does not dissolve the partnership or waive the right to an accounting.

Jose Fernandez and Francisco de la Rosa were engaged in negotiations to form a partnership for the purchase and operation of cascoes in Manila. De la Rosa was already engaged to some extent individually in the casco business, and Marcos Angulo, Fernandez's partner in a bakery business, participated in the earlier negotiations. The dispute implicated the Civil Code's provisions on partnership, including the definition of partnership and the form required for its constitution. The case reached the Supreme Court under the old procedure, under which the Court reviewed the evidence and passed upon the facts.

Jose Fernandez and Francisco de la Rosa were parties to negotiations concerning the formation of a partnership for the purchase of cascoes and the business of letting them for hire in Manila. Fernandez alleged that in January 1900 he entered into a verbal agreement with de la Rosa to form such a partnership, under which de la Rosa would buy the cascoes, each partner would furnish as much money as he could, and profits would be divided proportionately. De la Rosa admitted that the project of forming a partnership in the casco business, in which he was already engaged to some extent individually, had been discussed between them in January 1900 and earlier, with Marcos Angulo, Fernandez's partner in a bakery business, also participating in the negotiations, but he denied that any agreement was ever consummated.

According to Fernandez, he furnished de la Rosa 300 pesos in January 1900 to purchase casco No. 1515, which de la Rosa bought for 500 pesos from Doña Isabel Vales and titled in his own name; Fernandez also furnished further sums aggregating about 300 pesos for repairs on that casco. On March 5, 1900, Fernandez furnished de la Rosa 825 pesos to purchase casco No. 2089, which de la Rosa bought for 1,000 pesos from Luis R. Yangco, again taking title in his own name. In April, the parties attempted to draw up articles of partnership, but de la Rosa proposed a draft that differed materially from the earlier verbal agreement and was unwilling to include casco No. 2089 in the partnership, so no written agreement was executed. De la Rosa thereafter had control and management of the two cascoes; when Fernandez demanded an accounting, de la Rosa refused and denied the existence of the partnership altogether.

De la Rosa denied that Fernandez furnished any money in January 1900 for casco No. 1515 or for its repairs. He claimed that he borrowed 300 pesos on his individual account in January from the bakery firm consisting of Fernandez, Marcos Angulo, and Antonio Angulo. He admitted receiving 825 pesos from Fernandez on March 5, but claimed that it was for the purchase of casco No. 1515, which he alleged was bought on March 12, and he alleged that he never received anything from Fernandez toward the purchase of casco No. 2089. He claimed to have paid, exclusive of repairs, 1,200 pesos for the first casco and 2,000 pesos for the second.

The Supreme Court made several findings. Doña Isabel Vales testified that the sale and delivery of casco No. 1515 occurred in January, although the public document of sale was not executed until later; the Court found her disinterested and reliable, especially since de la Rosa admitted that he had the casco taken to the ways for repairs in January. Although the public document was executed on March 10 and the vendor declared therein that she was the owner, that declaration did not exclude proof of the actual date of sale as against Fernandez, who was not a party to the instrument (Civil Code, sec. 1218). The Court also considered a receipt admitted by de la Rosa: "I have this day received from D. Jose Fernandez eight hundred and twenty-five pesos for the cost of a casco which we are to purchase in company. Manila, March 5, 1900. Francisco de la Rosa." Because casco No. 1515 was bought in January, the casco referred to in the receipt as one the parties were "to purchase in company" must have been casco No. 2089, which was bought on March 22; the Court found that Fernandez furnished and de la Rosa received 825 pesos toward its purchase with the understanding that it was to be purchased on joint account.

Antonio Fernandez testified that in early January 1900 he saw Antonio Angulo give de la Rosa, in Fernandez's name, a sum of money for the purchase of a casco to be used in Fernandez's and de la Rosa's business. Antonio Angulo also testified, but de la Rosa claimed that Angulo's partnership with Fernandez rendered him incompetent as a witness under article 643 of the then Code of Civil Procedure; without deciding that point, the Court discarded Angulo's testimony. De la Rosa admitted receiving 300 pesos from Antonio Angulo in January, claiming it was a loan from the firm, yet he also claimed that the 825 pesos received in March were for casco No. 1515, thereby virtually admitting that casco was purchased in company with Fernandez. The Court found nothing in the evidence to support the loan claim except that de la Rosa had previously borrowed money from the bakery firm; it found that the 300 pesos were furnished by Fernandez toward the purchase for joint ownership of casco No. 1515 and received by de la Rosa with that understanding, and that Fernandez also furnished further sums for repairs. The balance of the purchase price of each casco over Fernandez's contribution was furnished by de la Rosa. The Court was unable to find any specific verbal agreement of partnership except such as might be implied from the facts as to the purchase of the cascoes, and it found that no attempt was made to agree upon articles of partnership until about the middle of April following the purchases.

After the attempt to agree upon partnership articles failed and after de la Rosa had operated the cascoes for some time, de la Rosa returned to Fernandez 1,125 pesos in two sums, one of 300 pesos and one of 825 pesos. The only evidence on the circumstances was Fernandez's answer to interrogatories, which the Court treated as an indivisible admission; he stated that both sums were received with an express reservation of all his rights as a partner, and the Court found this to be the fact. When de la Rosa refused to render an accounting, Fernandez brought the action.

• Existence of Partnership: Fernandez maintained that in January 1900 he and de la Rosa entered into a verbal agreement to form a partnership for the purchase of cascoes and the business of letting them for hire in Manila, with each to furnish money and profits to be divided proportionately.
• Contributions to Partnership Capital: He claimed that he furnished 300 pesos toward casco No. 1515, further sums for repairs, and 825 pesos toward casco No. 2089, all with the understanding that the cascoes were purchased on joint account.
• Right to Accounting: Because de la Rosa controlled and managed the cascoes, Fernandez argued that a partnership existed and de la Rosa was bound to render an account of his administration and the business carried on with them.
• No Waiver by Partial Return: Fernandez asserted that he accepted the 1,125 pesos returned by de la Rosa with express reservation of all his rights as a partner, so no waiver or dissolution occurred.

• No Consummated Partnership: De la Rosa countered that although the project of forming a partnership was discussed, no agreement was ever consummated; any negotiations included Marcos Angulo.
• Nature of Funds Received: He argued that the 300 pesos received in January was a loan on his individual account from the bakery firm, not a partnership contribution, and that the 825 pesos received March 5 was for the purchase of casco No. 1515, which he alleged was bought March 12; he denied receiving anything toward casco No. 2089.
• Purchase Prices: He claimed to have paid 1,200 pesos for the first casco and 2,000 pesos for the second, exclusive of repairs.
• Rehearing Contentions: On motion for rehearing, de la Rosa contended that the decision on the existence of the partnership lacked clear and decisive legal grounds and that the decision failed to determine the effect of Fernandez's withdrawal of 1,125 pesos.

• Existence of Partnership: Whether a partnership existed between Jose Fernandez and Francisco de la Rosa.
• Effect of Return of 1,125 Pesos: Whether, if such partnership existed, it was terminated by the defendant's return and the plaintiff's acceptance of 1,125 pesos.
• Propriety of Rehearing: Whether the defendant's motion for rehearing should be granted on the grounds that the finding of partnership lacked clear legal basis and that the decision did not determine the effect of the withdrawal of 1,125 pesos.

• Existence of Partnership: Yes. A partnership was formed in January 1900; mutual contribution to a common stock and joint interest in profits were established, and no written agreement was required because no immovables or real rights were contributed.
• Effect of Return of 1,125 Pesos: No. Acceptance of the partial return, made with express reservation of partnership rights, did not terminate the partnership, convert it into a societas leonina, or waive Fernandez's right to an accounting.
• Propriety of Rehearing: No. The motion was denied; the finding of partnership rested on proven facts, not mere inference, and the effect of the 1,125-peso withdrawal could only be determined after liquidation.

• Existence of Partnership: Civil Code art. 1665 defines partnership as a contract by which two or more persons bind themselves to contribute money, property, or industry to a common fund with the intention of dividing profits. The essential points are mutual contribution to a common stock and joint interest in profits. The Court found that money was furnished by Fernandez and received by de la Rosa with the understanding that it was to be used to purchase the cascoes, establishing mutual contribution. The intention to share profits was an unavoidable deduction from the purchase in common, absent any other explanation, especially given the prior partnership negotiations. Joint ownership might have resulted if the object had been a favorable bargain and later division, lacking affectio societatis, but nothing showed that; the object was active use and profit. A complete and perfect contract of partnership was therefore entered into. The claim that the contract was subject to a suspensive condition until agreement on details was rejected because little or nothing supported it and de la Rosa purchased the boat before any attempt to formulate articles. A written agreement was not necessary under Civil Code art. 1667 because the contributions were not immovables or rights in immovables; the general writing requirement of art. 1280 did not apply.
• Effect of Return of 1,125 Pesos: The amount returned fell short of Fernandez's contribution because it did not include the sums he furnished for repairs of casco No. 1515. It was also possible that profits had been realized and retained by de la Rosa. Acceptance of the money did not terminate the partnership by converting it into a societas leonina. No waiver could be predicated: Fernandez had no intention to relinquish his rights, there was no evidence de la Rosa believed he did, and Fernandez notified de la Rosa that he waived none of his rights. Acceptance was not inconsistent with continuance because Fernandez did not withdraw his entire interest. The partnership was not dissolved by the will or withdrawal of one partner under Civil Code art. 1705. De la Rosa could have terminated the partnership by recognizing Fernandez's rights in the partnership property and profits; having failed to do so, he could not force a dissolution on terms Fernandez was unwilling to accept. The transaction was a withdrawal by one partner, with the consent of the other, of a portion of the common capital.
• Propriety of Rehearing: De la Rosa argued that the finding of partnership was based on mere inference and lacked clear legal grounds, citing the fifth conclusion that no specific verbal agreement existed except as implied from the purchase facts. The Court rejected this: it did not rely on a mere possibility of inference but on proof derived from the facts connected with the purchase of the cascoes, and inferred actual existence of the contract. The evidence was sufficient. A civil partnership may be constituted in any form under Civil Code art. 1667 unless real property or real rights are contributed. Failure to agree on minor details did not matter because those details were accidental, not essential; the essential requisites under art. 1665 were met. Later disagreements could not destroy the partnership or divest rights accrued through actual contribution and transactions, and Civil Code art. 1689 supplied rules for distribution. On the second ground, the effect of the 1,125-peso withdrawal could not be determined before liquidation; only then could it be known whether the sum was chargeable to capital, profits, or both. The partnership may have earned profits, and Fernandez's share may equal or exceed the sum, leaving his interest intact. Liquidation would determine the partners' legal relations inter se at the time of withdrawal; this could not be done a priori without prejudging the result. The decision expressly did not adjudicate disputed items of the partnership account. The motion was denied.

• Partnership (Civil Code, art. 1665) — A partnership is a contract by which two or more persons bind themselves to contribute money, property, or industry to a common fund with the intention of dividing profits. The essential points are mutual contribution to a common stock and joint interest in profits. If these are present, the partnership relation results, and the law fixes its incidents if the parties fail to stipulate. The Court applied this to find a partnership from Fernandez's contributions and the joint purchase of the cascoes.
• Form of partnership (Civil Code, art. 1667) — A civil partnership may be constituted in any form unless immovable property or real rights are contributed, in which case a public writing is required. The Court held that the verbal partnership for the purchase and operation of cascoes was valid because the contributions were not immovables or rights in immovables, and art. 1280's general writing requirement did not apply.
• Affectio societatis — The intention to create a partnership and share profits. A joint purchase may result only in joint ownership if the object was passive ownership or later division, lacking affectio societatis. Here, absent any other explanation and given prior partnership negotiations, the purchase in common implied an intention to share profits and use the property actively, so a partnership resulted.
• Accidental details and law-supplied terms — Failure to agree on minor or accidental details, such as respective profit participation or the character of the partnership, does not destroy a partnership already constituted on the essential requisites. The law supplies rules for distribution of profits and losses under Civil Code art. 1689.
• Partial return of capital and waiver — Acceptance of a partial return of capital, with express reservation of partnership rights, does not waive the partner's rights, dissolve the partnership, or convert it into a societas leonina. It is not inconsistent with continuance unless the partner withdraws his entire interest. A co-partner cannot force dissolution on terms the other is unwilling to accept.
• Accounting and liquidation — A partner is entitled to an accounting of the partnership's administration and profits. The effect of a partial withdrawal of capital on the partners' interests cannot be determined before liquidation, when the amount can be charged to capital, profits, or both.

• "Partnership is a contract by which 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." — This is the Court's quotation of Civil Code art. 1665 and supplies the canonical definition of partnership applied in the case.
• "The essential points upon which the minds of the parties must meet in a contract of partnership are, therefore, (1) mutual contribution to a common stock, and (2) a joint interest in the profits." — This states the ratio decidendi for finding that a verbal partnership existed despite the absence of written articles.
• "The execution of a written agreement was not necessary in order to give efficacy to the verbal contract of partnership as a civil contract, the contributions of the partners not having been in the form of immovables or rights in immovables." — This is the Court's key ruling on the form of partnership under Civil Code art. 1667.
• "We see nothing in the case which can give the transaction in question any other aspect than that of the withdrawal by one partner with the consent of the other of a portion of the common capital." — This characterizes the return and acceptance of the 1,125 pesos and supports the holding that the partnership was not dissolved.

• Civil Code, art. 1665 — Defines partnership as a contract by which two or more persons bind themselves to contribute money, property, or industry to a common fund with the intention of dividing profits. Applied to hold that the verbal agreement and contributions created a partnership.
• Civil Code, art. 1667 — Provides that a civil partnership may be constituted in any form unless immovable property or real rights are contributed. Applied to dispense with a written agreement for the casco partnership.
• Civil Code, art. 1280 — General provision requiring a public writing for certain contracts. The Court held it inapplicable because art. 1667 specifically governs partnership form.
• Civil Code, secs. 1689, 1695 — Cited as the law fixing the incidents of partnership if the parties fail to stipulate; art. 1689 is later cited as the basis for distribution of profits and losses.
• Civil Code, art. 1705 — Provides for dissolution of partnership by the will or withdrawal of one partner. The Court held it did not apply because Fernandez did not withdraw his entire interest or waive his rights.
• Civil Code, sec. 1218 — Provides that a declaration in a public document does not exclude proof of the actual date of sale as against a person who was not a party to the instrument. Applied to allow proof that casco No. 1515 was sold in January despite the March 10 public document.
• Code of Civil Procedure, art. 643 — De la Rosa invoked it to challenge Antonio Angulo's competence as a witness because Angulo was Fernandez's partner. The Court discarded Angulo's testimony without deciding the point.

Arellano, C.J., Torres, Cooper, and Mapa, JJ., concurred in the main decision. On the motion for rehearing, Arellano, C.J., Torres, Cooper, and Ladd, JJ., concurred; Willard and McDonough, JJ., did not sit in the case.

• Justice Willard — The text records that Willard, J., dissented from the main decision, but it does not state the grounds for the dissent.