Jarantilla, Jr. vs. Jarantilla

A partner's share is limited to the assets of the partnership as stipulated in the governing agreement, and a claim of co-ownership over properties titled in another's name — unsupported by documentary evidence that such properties were acquired with partnership funds — cannot prevail over the conclusiveness of Torrens titles and constitutes a prohibited collateral attack.

The spouses Andres Jarantilla and Felisa Jaleco were survived by eight children, whose heirs extrajudicially partitioned their parents' real properties in 1948. Among the heirs, the spouses Rosita Jarantilla and Vivencio Deocampo entered into a joint business arrangement with the spouses Buenaventura Remotigue and Conchita Jarantilla, establishing manufacturing and trading businesses and acquiring real properties; this arrangement was voluntarily dissolved in 1973. On April 29, 1957, the Remotigue spouses executed an "Acknowledgement of Participating Capital" identifying the co-owners and their respective capital contributions in three business establishments — Manila Athletic Supply, Remotigue Trading (Iloilo City), and Remotigue Trading (Cotabato City). Petitioner Federico Jarantilla, Jr., a grandchild of the original Jarantilla spouses through their son Federico Jarantilla, Sr., was listed therein with a ₱5,000.00 contribution.

The spouses Andres Jarantilla and Felisa Jaleco were survived by eight children: Federico, Delfin, Benjamin, Conchita, Rosita, Pacita, Rafael, and Antonieta. In 1948, the heirs extrajudicially partitioned among themselves the real properties of their deceased parents, agreeing — with the exception of the property adjudicated to Pacita — to allot the produce of the properties for the years 1947–1949 for the studies of Rafael and Antonieta. That same year, the spouses Rosita Jarantilla and Vivencio Deocampo entered into a joint business arrangement with the spouses Buenaventura Remotigue and Conchita Jarantilla to provide mutual financial support for commercial and agricultural activities. The venture proved successful, enabling them to establish manufacturing and trading businesses, acquire real properties, and construct buildings. The partnership was voluntarily dissolved in 1973 through a written agreement.

On April 29, 1957, the Remotigue spouses executed an "Acknowledgement of Participating Capital" acknowledging that Buenaventura Remotigue was merely the registered owner of three business establishments — Manila Athletic Supply (712 Raon Street, Manila), Remotigue Trading (Calle Real, Iloilo City), and Remotigue Trading (Cotabato City) — and identifying the other co-owners and their capital contributions as of 1952. The listed contributors were Buenaventura Remotigue (₱25,000.00), Conchita Jarantilla de Remotigue (₱25,000.00), Vicencio Deocampo (₱15,000.00), Rosita J. Deocampo (₱15,000.00), Antonieta Jarantilla (₱8,000.00), Rafael Jarantilla (₱6,000.00), Federico Jarantilla, Jr. (₱5,000.00), and Quintin Vismanos (₱2,000.00). The document expressly stated that no other person had any interest in the three establishments.

Petitioner Federico Jarantilla, Jr. is a grandchild of the late Jarantilla spouses through their son Federico Jarantilla, Sr. and his wife Leda Jamili, and has two brothers, Doroteo and Tomas. On April 22, 1987, Antonieta Jarantilla filed an amended complaint against Buenaventura Remotigue, Cynthia Remotigue, Federico Jarantilla, Jr., Doroteo Jarantilla, and Tomas Jarantilla, seeking accounting of the assets and income of a co-ownership, its partition, delivery of her 8% share, and damages. Antonieta alleged that in 1946 she had entered into an agreement with Conchita and Buenaventura Remotigue, Rafael Jarantilla, and Rosita and Vivencio Deocampo to engage in business, contributing inherited property and annual investments of ₱7,500.00 from her farm proceeds, and that from 1946 to 1969 she helped manage the business without salary, her compensation being rolled back as additional investments. She claimed co-ownership of certain real properties registered in the defendants' names, asserting that the defendants could have purchased them only through partnership income as they had no other source of funds.

The respondents denied having formed a partnership with Antonieta in 1946, contending that she was still in school at the time and that the partition proceeds were devoted to her studies. They acknowledged the validity of the Acknowledgement of Participating Capital but used it to argue that Antonieta's 8% share was limited to the businesses enumerated therein. They denied using partnership income to purchase the subject real properties and maintained that the certificates of title should be binding. During the trial, petitioner entered into a compromise agreement with Antonieta, supporting her claims and asserting his own entitlement to 6% of the supposed partnership. The RTC approved the compromise on March 25, 1992, and on December 18, 1992, rendered judgment in favor of Antonieta, ordering the delivery of her 8% share in the enumerated real properties and businesses, accounting, ₱50,000.00 moral damages, ₱50,000.00 attorney's fees, and costs. Both parties appealed to the Court of Appeals, which on July 30, 2002 set aside the RTC decision and limited both Antonieta's 8% and petitioner's 6% shares to the three businesses listed in the Acknowledgement of Participating Capital, while declaring Antonieta a stockholder in certain corporations only to the extent stated in their Articles of Incorporation.

• Partnership Share in Real Properties: Petitioner asserted that he was in a partnership with the Remotigue spouses, the Deocampo spouses, Rosita Jarantilla, Rafael Jarantilla, Antonieta Jarantilla, and Quintin Vismanos, as evidenced by the Acknowledgement of Participating Capital, and that from this partnership several corporations and real properties were acquired. He contended he was entitled to a 6% share in the subject real properties, relying on the Acknowledgement, his own testimony, and Antonieta Jarantilla's testimony.
• Trust Doctrine: Petitioner claimed that since the subject real properties were purchased using partnership funds in which he had a 6% share, law and equity mandate that he should be considered a co-owner of those properties in such proportion.

• No Partnership with Antonieta: Respondents denied having formed a partnership with Antonieta in 1946, contending she was still in school at the time and that the partition proceeds were devoted to her studies.
• Limited Share per Acknowledgement: Respondents argued that Antonieta's 8% share was limited to the businesses enumerated in the Acknowledgement of Participating Capital, and that her claims in other corporations should be limited to the number of her shares as specified in the respective articles of incorporation.
• Certificates of Title Binding: Respondents denied using partnership income to purchase the subject real properties and maintained that the certificates of title should be binding on Antonieta.

• Scope of Partnership Share: Whether petitioner is entitled to a 6% share in the real properties acquired by the respondents, or whether his share is limited to the three businesses enumerated in the Acknowledgement of Participating Capital.
• Existence of Trust: Whether a trust exists over the subject real properties in favor of the petitioner by virtue of their alleged acquisition using partnership funds.
• Collateral Attack on Titles: Whether petitioner's claim over the subject real properties constitutes a prohibited collateral attack on the respondents' Torrens titles.

• Scope of Partnership Share: No. Petitioner's 6% share is limited to the assets and profits of the three businesses enumerated in the Acknowledgement of Participating Capital, there being no evidence that the subject real properties were partnership assets.
• Existence of Trust: No. Petitioner failed to prove by clear and satisfactory evidence that a trust existed over the subject real properties, having presented only bare allegations and self-serving testimony insufficient to overcome respondents' documentary evidence.
• Collateral Attack on Titles: Yes. Petitioner's claim amounts to a prohibited collateral attack on the respondents' Torrens titles under Section 48 of P.D. No. 1529, as the action was never truly for partition of a co-ownership.

• Scope of Partnership Share: The Acknowledgement of Participating Capital, a duly notarized document voluntarily executed in 1957, specifically enumerated the three businesses covered by the partnership: Manila Athletic Supply, Remotigue Trading in Iloilo City, and Remotigue Trading in Cotabato City. Since the partners agreed that their capital contributions went to these three businesses, there was no reason to deviate from the stipulations in the document. Under Article 1797 of the Civil Code, a partner is entitled only to his share as agreed upon, or in the absence of stipulation, in proportion to his contribution. The petitioner himself claimed a 6% share as stated in the document. There was no evidence that the subject real properties were assets of the partnership. In Villareal vs. Ramirez, the Court held that since a partnership is a separate and distinct juridical entity, the amount to be refunded to partners is necessarily limited to its total resources, and creditors must first be compensated before partners can be paid. The Court of Appeals therefore did not err in limiting petitioner's share to the assets of the businesses enumerated in the Acknowledgement.

• Existence of Trust: Petitioner asserted a trust over the subject real properties based on the alleged use of partnership funds for their acquisition. However, he failed to present clear and satisfactory evidence of the trust's existence, offering only bare allegations and self-serving testimony. Even assuming arguendo that partnership income was used, petitioner did not show that the funds came from his share in the partnership profits. The burden of proving a trust rests on the party asserting its existence, and such proof must be trustworthy, as oral evidence can easily be fabricated. Petitioner's testimonial evidence could not prevail over the documentary evidence presented by respondents, including tax receipts and tax declarations, which constitute strong evidence of ownership when accompanied by possession. In Ocampo vs. Ocampo, the Court held that a claim of ownership cannot be based simply on the testimonies of interested parties, self-serving as they are.

• Collateral Attack on Titles: The subject real properties were covered by certificates of title, which are generally conclusive evidence of ownership. A Torrens title is incontrovertible against titles not annotated thereon, and persons dealing with property covered by a Torrens certificate are not required to go beyond what appears on its face. Since the action was never truly for partition of a co-ownership, permitting petitioner's claim would allow a collateral, indirect attack on the respondents' titles, which is prohibited under Section 48 of P.D. No. 1529. As distinguished in Aguilar vs. Alfaro, a collateral attack transpires when, in another action to obtain different relief, an attack is made against the judgment granting the title. Petitioner's only documentary evidence — the Acknowledgement of Participating Capital — failed to prove that the real properties he claimed were acquired out of the proceeds of the businesses covered by that document.

• Partnership vs. Co-ownership — Co-ownership exists when an undivided thing or right belongs to different persons (Art. 484, Civil Code); a partnership exists when two or more persons bind themselves to contribute money, property, or industry to a common fund with the intention of dividing profits (Art. 1767, Civil Code). Co-ownership or co-possession does not itself establish a partnership, whether or not the co-owners share profits; the sharing of gross returns does not of itself establish a partnership. The essential elements of a partnership are: (a) an agreement to contribute money, property, or industry to a common fund; and (b) intent to divide the profits among the contracting parties. Additional elements necessary to constitute a partnership inter sese include: (a) intent to form the same; (b) generally participating in both profits and losses; and (c) a community of interest enabling each party to make contracts, manage the business, and dispose of the whole property. The Court applied these distinctions to confirm that the parties' arrangement, as evidenced by the Acknowledgement of Participating Capital, constituted a partnership limited to the three enumerated businesses.

• Partner's Share Limited to Partnership Assets — Under Article 1797 of the Civil Code, losses and profits are distributed in conformity with the agreement; if only the profit share is agreed upon, the loss share is in the same proportion; in the absence of stipulation, shares are in proportion to contributions. Since a partnership is a separate juridical entity, shares payable to partners are limited to the partnership's total resources after creditors are compensated. The Court applied this doctrine to confine petitioner's 6% share to the three businesses enumerated in the Acknowledgement, there being no evidence that the subject real properties were partnership assets.

• Burden of Proving Trust — The burden of proving the existence of a trust is on the party asserting its existence, and such proof must be clear and satisfactory. While implied trusts may be proved by oral evidence, the evidence must be trustworthy and received by the courts with extreme caution, and should not be made to rest on loose, equivocal, or indefinite declarations. The Court applied this standard to reject petitioner's trust claim, which rested solely on bare allegations and self-serving testimony.

• Torrens Title Conclusiveness and Prohibition on Collateral Attack — A Torrens title is generally conclusive evidence of ownership, and a strong presumption exists that it was regularly issued and valid; it is incontrovertible against any title existing prior to its issuance not annotated thereon. Under Section 48 of P.D. No. 1529, a certificate of title shall not be subject to collateral attack and cannot be altered, modified, or cancelled except in a direct proceeding in accordance with law. A collateral attack transpires when, in another action to obtain different relief, an attack is made against the judgment granting the title. The Court applied this doctrine to bar petitioner's claim, which sought to nullify the respondents' titles indirectly through an action ostensibly for partition.

• "It is clear from the foregoing that a partner is entitled only to his share as agreed upon, or in the absence of any such stipulations, then to his share in proportion to his contribution to the partnership." — This passage states the ratio decidendi on the scope of a partner's share, anchoring the Court's limitation of petitioner's entitlement to the three enumerated businesses.

• "There is no evidence that the subject real properties were assets of the partnership referred to in the Acknowledgement of Participating Capital." — This is the decisive factual finding that defeats petitioner's claim over the respondents' real properties.

• "As a rule, the burden of proving the existence of a trust is on the party asserting its existence, and such proof must be clear and satisfactorily show the existence of the trust and its elements. While implied trusts may be proved by oral evidence, the evidence must be trustworthy and received by the courts with extreme caution, and should not be made to rest on loose, equivocal or indefinite declarations." — This articulates the canonical standard for proving trusts, frequently cited in subsequent jurisprudence on implied and constructive trusts.

• "A certificate of title shall not be subject to collateral attack. It cannot be altered, modified, or cancelled except in a direct proceeding in accordance with law." — This is the verbatim text of Section 48 of P.D. No. 1529 quoted by the Court, establishing the statutory basis for barring petitioner's indirect challenge to the respondents' Torrens titles.

• Pascual vs. Commissioner of Internal Revenue, 248 Phil. 788 (1988) — Followed. Quoted at length for the distinction between co-ownership and partnership, drawing from the concurring opinion in Evangelista vs. Collector of Internal Revenue (102 Phil. 140, 1957), to elucidate the elements and circumstances that distinguish a partnership from a co-ownership.
• Villareal vs. Ramirez, 453 Phil. 999 (2003) — Followed. Cited for the principle that a partnership, as a separate and distinct juridical entity, can only pay out what it has in its coffers, and that creditors must first be compensated before partners receive their shares.
• Pigao vs. Rabanillo, G.R. No. 150712, May 2, 2006, 488 SCRA 546 — Followed. Cited for the definitions and distinctions among express trusts, implied trusts, resulting trusts, and constructive trusts.
• Oco vs. Limbaring, G.R. No. 161298, January 31, 2006, 481 SCRA 348 — Followed. Cited for the standard of proof required to establish a trust — clear and satisfactory evidence, trustworthy and received with extreme caution.
• Ocampo vs. Ocampo, 471 Phil. 519 (2004) — Followed. Cited for the rule that testimonial evidence cannot prevail over documentary evidence, and that a claim of ownership cannot be based simply on the testimonies of interested parties.
• Republic of the Philippines vs. Orfinada, Sr., G.R. No. 141145, November 12, 2004, 442 SCRA 342 — Followed. Cited for the principle that a Torrens title is generally conclusive evidence of ownership and carries a strong presumption of regular issuance and validity.
• Aguilar vs. Alfaro, G.R. No. 164402, July 5, 2010 — Followed. Cited for the distinction between a direct and a collateral (indirect) attack on a Torrens title.

• Article 1767, Civil Code — Defines partnership as a contract where two or more persons bind themselves to contribute money, property, or industry to a common fund with the intention of dividing profits. Applied to identify the essential elements of the parties' arrangement.
• Article 1769, Civil Code — Provides that co-ownership or co-possession does not itself establish a partnership, and that the sharing of gross returns does not of itself establish a partnership. Applied to distinguish the parties' relationship from a co-ownership.
• Article 1797, Civil Code — Provides that losses and profits shall be distributed in conformity with the agreement, and in the absence of stipulation, in proportion to contribution. Applied to limit petitioner's share to the 6% stated in the Acknowledgement of Participating Capital and to the three businesses enumerated therein.
• Article 484, Civil Code — Defines co-ownership as existing when an undivided thing or right belongs to different persons. Applied to contrast co-ownership with partnership.
• Section 48, Presidential Decree No. 1529 (Property Registration Decree) — Provides that a certificate of title shall not be subject to collateral attack and cannot be altered, modified, or cancelled except in a direct proceeding in accordance with law. Applied to bar petitioner's claim as a prohibited collateral attack on respondents' Torrens titles.

Renato C. Corona (Chief Justice, Chairperson), Diosdado M. Peralta, Roberto A. Abad, Jose Portugal Perez.