Magalona vs. Pesayco

A verbal partnership agreement is valid and enforceable between the parties even when more than 1,500 pesetas are involved, provided no real property or real rights are contributed to the partnership, pursuant to Article 1667 of the Civil Code, which controls Article 1280 of the same Code.

Encarnacion Magalona, Juan Sermeno, and Juan Pesayco entered into an arrangement to bid for the municipal privilege of catching "semillas de bañgus o aua" (milkfish fry) in the sea and rivers within the jurisdiction of the municipality of San Jose, Antique Province, for the year 1931. The municipality awarded the privilege to the highest bidder and required a deposit of one-fourth of the bid amount. The partnership arrangement was governed by the Civil Code of the Philippines and the Code of Commerce.

In September 1930, Encarnacion Magalona, Juan Sermeno, and Juan Pesayco formed a partnership for the purpose of catching "semillas de bañgus o aua" in the sea and rivers within the jurisdiction of the municipality of San Jose, Antique Province, for the year 1931. It was agreed that Pesayco would submit a bid for this privilege and that each partner would supply one-third of the capital if the bid was accepted. Pesayco, having had experience in this line, was to serve as manager. He offered P5,550.09 for the year ending December 31, 1931. Because a deposit of one-fourth of the bid amount was required, each partner put up one-third of that deposit. The bid being the highest, the municipality accepted it and awarded the privilege to Pesayco.

Pesayco entered upon his duties under the contract and gave an account of two sales of semillas de bañgus to Tiburcio Lutero as representative of Magalona. On April 21, 1931, Pesayco had on hand only P410 and wired Lutero for sufficient money to complete payment of the first quarter, which was due within the first twenty days of the second quarter of 1931. The telegram read: "Hemos conseguido plazo hasta esta tarde tenemos aqui cuatrocientos diez gira telegraficamente restante." Lutero immediately sent P1,000 to the municipal treasurer of San Jose, Antique.

Pesayco managed the business from January 1, 1931, but with the exception of the two sales already reported, never gave any account of his catches or sales to his partners. In view of this, the plaintiffs filed a complaint on April 21, 1931, praying for the appointment of a receiver to take charge of the partnership funds and management, that Pesayco be ordered to render an account and pay the plaintiffs their participation in profits, that he be required to turn over all partnership funds to the receiver, and that he be condemned to pay costs. The plaintiffs posted a bond of P5,000, a receiver was appointed who also posted a bond for the same amount, and the receiver took over management and possession of all devices and implements used in the operation.

At trial, it was proven that before April 20, 1931, Pesayco obtained and sold a total of 975,000 semillas de bañgus at a market value of P3 per thousand, realizing P2,925. He made no report of these sales and paid the plaintiffs no part of the proceeds — facts that were not denied. Pesayco, for his part, denied that a partnership existed, relying principally on the fact that the partnership agreement was not in writing, and filed two counter-complaints seeking P34,700 in damages. The partnership's existence was conclusively proven by the oral testimony of the plaintiffs and other witnesses, two of whom were Attorneys Lutero and Maza, and the defense made no objection to the questions asked regarding the formation of the partnership.

• No Partnership — Lack of Writing: Pesayco denied that a partnership existed, depending principally on the fact that the partnership agreement was not in writing.
• Damages: Pesayco prayed for damages in the sum of P34,700 through two counter-complaints.

• Validity of Verbal Partnership: Whether a verbal partnership agreement is valid and enforceable despite the defendant's contention that it should have been in writing.
• Accounting and Liability: Whether the defendant is liable to account for and turn over to the partnership the proceeds of unreported sales of semillas de bañgus.

• Validity of Verbal Partnership: Yes. Under Article 1667 of the Civil Code, civil partnerships may be established in any form unless real property or real rights are contributed, in which case a public instrument is necessary. No real property or real rights having been contributed, the verbal agreement was valid.
• Accounting and Liability: Yes. The defendant was properly held liable to the partnership for P2,925, representing the proceeds of 975,000 semillas de bañgus sold at P3 per thousand without accounting to his co-partners.

• Validity of Verbal Partnership: Article 1667 of the Civil Code provides that civil partnerships may be established in any form unless real property or real rights are contributed, in which case a public instrument is necessary. Since no real property or real rights were contributed to the partnership, the verbal agreement was valid. Articles of partnership are not required to be in writing except in the cases mentioned in Article 1667, which controls Article 1280 of the same Code (Fernandez vs. Dela Rosa, 1 Phil. 671). A verbal partnership agreement is valid between the parties even though more than 1,500 pesetas are involved and can be enforced without bringing an action under Article 1279 to compel execution of a written instrument (Thunga Chui vs. Que Bentec, 2 Phil. 561). Furthermore, even if a writing had been required, the defense made no objection to the oral testimony regarding the formation of the partnership, and the Court has held that if a party permits a contract which the law provides shall be in writing to be proved without objection as to the form of proof, it is just as binding as if the statute had been complied with.
• Accounting and Liability: It was proven at trial without contradiction that before April 20, 1931, Pesayco obtained and sold 975,000 semillas de bañgus at P3 per thousand, realizing P2,925, without reporting these sales or paying any part of the proceeds to his co-partners. As managing partner, Pesayco had a duty to account for all partnership transactions. The trial court correctly ordered him to deliver the P2,925 to the receiver as partnership funds and dismissed his counterclaims.

• Validity of Verbal Partnership Agreements — Under Article 1667 of the Civil Code, civil partnerships may be established in any form unless real property or real rights are contributed, in which case a public instrument is necessary. A verbal partnership agreement is valid and enforceable between the parties even when more than 1,500 pesetas are involved, and can be enforced without bringing an action under Article 1279 to compel execution of a written instrument. Article 1667 controls Article 1280 of the Civil Code in the context of partnership formation. The Court applied this doctrine to uphold the verbal partnership among Magalona, Sermeno, and Pesayco, since no real property or real rights were contributed.

• Waiver of Writing Requirement by Failure to Object — If a party permits a contract which the law provides shall be in writing to be proved without objection as to the form of proof, the contract is just as binding as if the statute had been complied with. The Court applied this principle as an alternative ground, noting that the defense raised no objection to the oral testimony establishing the partnership agreement.

• "Civil partnerships may be established in any form whatever, unless real property or real rights are contributed to the same, in which case a public instrument shall be necessary." — This is the Court's quotation of Article 1667 of the Civil Code, the controlling provision that establishes the validity of verbal partnership agreements and forms the textual basis of the ruling.

• "A verbal partnership agreement is valid between the parties even though more than 1,500 pesetas are involved and can be enforced without bringing action under article 1279, Civil Code, to compel execution of a written instrument." — This states the ratio decidendi on the enforceability of oral partnership agreements, synthesizing the Civil Code and Code of Commerce provisions cited.

• "if a party permits a contract, which the law provides shall be in writing, to be proved, without objection as to the form of the proof, it is just as binding as if the statute had been complied with." — This articulates the doctrine of waiver of the form requirement through failure to object to oral proof, serving as an independent ground for upholding the partnership's validity.

• Fernandez vs. Dela Rosa, 1 Phil. 671 — Followed as authority for the proposition that articles of partnership are not required to be in writing except in the cases mentioned in Article 1667 of the Civil Code, which controls Article 1280 of the same Code.

• Thunga Chui vs. Que Bentec, 2 Phil. 561 — Followed as authority that a verbal partnership agreement is valid between the parties even though more than 1,500 pesetas are involved and can be enforced without bringing an action under Article 1279 to compel execution of a written instrument.

• Article 1667, Civil Code — Provides that civil partnerships may be established in any form unless real property or real rights are contributed, in which case a public instrument is necessary. Applied to hold the verbal partnership agreement valid, since no real property or real rights were contributed.

• Article 1280, Civil Code — Relates to contracts that must appear in a public instrument. The Court held that Article 1667 controls this provision in the context of partnership agreements.

• Articles 1261, 1278–1279, Civil Code — Relate to the validity, perfection, and enforceability of contracts. Cited in support of the proposition that a verbal partnership agreement can be enforced without compelling execution of a written instrument.

• Articles 116–119, 51, Code of Commerce — Cited alongside the Civil Code provisions in support of the validity and enforceability of verbal partnership agreements.

Malcolm, Villa-Real, Hull, and Imperial, JJ., concurred.