The United States vs. Eusebio Clarin

Money received for a partnership is not covered by estafa under article 535, No. 5, of the Penal Code; the partner who furnished capital must seek recovery through a civil action for liquidation of the partnership, not a criminal action for estafa.

Pedro Larin, Pedro Tarug, Eusebio Clarin, and Carlos de Guzman entered an arrangement to buy and sell mangoes for profit. The decision turned on article 1665 of the Civil Code, defining a partnership as an agreement by two or more persons to contribute money, property, or industry to a common fund with the intention of dividing profits, and article 535, No. 5, of the Penal Code, defining estafa for property received under an obligation to deliver or return the same.

Pedro Larin delivered P172 to Pedro Tarug so that Tarug, in company with Eusebio Clarin and Carlos de Guzman, could buy and sell mangoes. Believing that he could make money in the business, Larin agreed with the three men that the profits would be divided equally between him and them.

Tarug, Clarin, and Guzman thereafter traded in mangoes and obtained P203 from the business. They did not comply with the terms of the contract by delivering Larin his half of the profits, nor did they render him any account of the capital. According to the evidence, Tarug was the person who received the P172 directly from Larin.

Larin charged them with the crime of estafa, but the provincial fiscal filed an information only against Eusebio Clarin. The information accused Clarin of appropriating to himself not only the P172 but also the share of the profits that belonged to Larin, amounting to P15.50. Tarug and Guzman appeared in the case as witnesses and assumed that the facts presented concerned the defendant and themselves together.

• Nature of the Agreement: Whether the arrangement among Larin, Tarug, Clarin, and Guzman to buy and sell mangoes and divide profits constituted a partnership under article 1665 of the Civil Code.
• Estafa Coverage: Whether money received for a partnership falls within article 535, No. 5, of the Penal Code, which penalizes estafa for money or property received under an obligation to deliver or return the same.
• Proper Remedy: Whether the partner who furnished capital may recover it through a criminal action for estafa or only through a civil action for liquidation of the partnership.
• Criminal Liability: Whether Eusebio Clarin may be convicted of estafa for appropriating the P172 and Larin's share of the profits.

• Nature of the Agreement: Yes. The agreement constituted a partnership under article 1665 of the Civil Code, which defines partnership as a contract by two or more persons to contribute money, property, or industry to a common fund with the intention of dividing profits.
• Estafa Coverage: No. Article 535, No. 5, of the Penal Code does not include money received for a partnership; it covers money received as a deposit on commission for administration or in another character producing an obligation to deliver or return the same thing.
• Proper Remedy: Civil action. The action for recovery of capital contributed to a partnership is civil, arising from the partnership contract for liquidation and levy on assets, not criminal estafa.
• Criminal Liability: No. Clarin was acquitted, with costs de oficio, and the complaint was dismissed without prejudice to a civil action.

• Nature of the Agreement: Article 1665 of the Civil Code provides that when 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, a contract called partnership is formed. Larin put P172 into the partnership he formed with Tarug, Clarin, and Guzman, thereby investing his capital in the risks or benefits of the mango business. Even if he had reserved the capital and conveyed only the usufruct of his money, the return of the capital would not devolve upon the three partners but upon the partnership; if it were to be done by one of the three specifically, it would be Tarug, who according to the evidence received the money directly from Larin. The arrangement was therefore a partnership.

• Estafa Coverage: Article 535, No. 5, of the Penal Code penalizes those who, to the prejudice of another, appropriate or misapply money, goods, or personal property received as a deposit on commission for administration or in any other character producing the obligation to deliver or return the same, such as commodatum, precarium, and other unilateral contracts requiring the return of the same thing received. That provision does not include money received for a partnership. Otherwise, if the partnership, instead of obtaining profits, suffered losses, and could not be held civilly liable for the share of the capitalist partner who reserved ownership of the money he brought in, it would have to answer the charge of estafa merely because the partnership had received the money under an obligation to return it. The money contributed by Larin was not received under such a unilateral obligation to return the same thing.

• Proper Remedy: The P172 having been received by the partnership, the business commenced, and profits accrued, the action available to the partner who furnished the capital for the recovery of his money is not a criminal action for estafa but a civil one arising from the partnership contract for liquidation of the partnership and a levy on its assets if there should be any. The criminal complaint was accordingly dismissed without prejudice to the institution of a civil action.

• Criminal Liability: Because the transaction was a partnership and the money received for it was outside the coverage of estafa under article 535, No. 5, of the Penal Code, Eusebio Clarin could not be convicted of estafa. He was acquitted, with costs de oficio.

• Partnership under Article 1665 of the Civil Code — A partnership is formed when 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. The Court applied this definition to the mango-trading arrangement, holding that Larin’s contribution and equal profit-sharing created a partnership with Tarug, Clarin, and Guzman.
• Estafa under Article 535, No. 5, of the Penal Code does not cover partnership contributions — The provision penalizes misappropriation of money or property received as a deposit on commission for administration or in any other character producing an obligation to deliver or return the same thing, such as commodatum, precarium, and other unilateral contracts requiring return of the same thing. Money received for a partnership is not included, because the partnership is not obligated to return the same money as a unilateral return obligation.
• Civil liquidation as the remedy for a capitalist partner — When capital has been received by a partnership and the business has commenced and profits accrued, the partner who furnished capital must sue civilly for liquidation of the partnership and levy on its assets, not file a criminal action for estafa.
• Reservation of ownership or usufruct over contributed capital — Even if the capitalist partner reserves ownership of the money and conveys only its usufruct, the obligation to return the capital devolves on the partnership, or on the partner who directly received it if specifically liable, and this does not convert the transaction into estafa.

• "When 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, a contract is formed which is called partnership. (Art. 1665, Civil Code.)" — This is the Court's canonical statement of the partnership definition applied to the mango-trading arrangement.
• "The P172 having been received by the partnership, the business commenced and profits accrued, the action that lies with the partner who furnished the capital for the recovery of his money is not a criminal action for estafa, but a civil one arising from the partnership contract for a liquidation of the partnership and a levy on its assets if there should be any." — This is the ratio decidendi: it identifies the proper civil remedy and excludes estafa.
• "No. 5 of article 535 of the Penal Code, according to which those are guilty of estafa "who, to the prejudice of another, shall appropriate or misapply any money, goods, or any kind of personal property which they may have received as a deposit on commission for administration or in any other character producing the obligation to deliver or return the same," (as, for example, in commodatum, precarium, and other unilateral contracts which require the return of the same thing received) does not include money received for a partnership; otherwise the result would be that, if the partnership, instead of obtaining profits, suffered losses, as it could not be held liable civilly for the share of the capitalist partner who reserved the ownership of the money brought in by him, it would have to answer to the charge of estafa, for which it would be sufficient to argue that the partnership had received the money under obligation to return it." — This passage defines the scope of estafa and explains why partnership contributions are excluded.
• "We therefore freely acquit Eusebio Clarin, with the costs de oficio. The complaint for estafa is dismissed without prejudice to the institution of a civil action." — This is the dispositive ruling.

• Article 1665, Civil Code — Defines a partnership as a contract formed when two or more persons bind themselves to contribute money, property, or industry to a common fund with the intention of dividing profits among themselves. The Court applied this provision to hold that Larin's contribution and equal profit-sharing arrangement with Tarug, Clarin, and Guzman created a partnership.
• Article 535, No. 5, Penal Code — Penalizes estafa for appropriating or misapplying money, goods, or personal property received as a deposit on commission for administration or in any other character producing the obligation to deliver or return the same, such as commodatum, precarium, and other unilateral contracts requiring return of the same thing. The Court held that money received for a partnership is not included within this provision, so Clarin could not be convicted of estafa.

Torres, Johnson, Moreland, and Trent, JJ., concurred.