Torres vs. Court of Appeals

Parties who voluntarily enter into a contract are bound by its terms and cannot disavow the legal relationship formed thereby simply because the stipulations turn out to be financially disadvantageous. The lack of an inventory of real property contributed to a partnership, as required by Article 1773 of the Civil Code, will not ipso facto release the contracting partners from their respective obligations to each other arising from acts executed in accordance with their agreement, especially where no third persons are prejudiced and where the parties themselves invoke the contract as the basis of their claims.

The petitioners, sisters Antonia Torres and Emeteria Baring, owned a parcel of land in Lapu-Lapu City covered by TCT No. T-0184 with a total area of 17,009 square meters. They entered into a "joint venture agreement" with Respondent Manuel Torres, who was not related to them by blood but shared the same surname, for the development of the land into a subdivision. The agreement was executed on March 5, 1969, in Cebu City, and was governed by the Civil Code provisions on partnership and contracts.

Sisters Antonia Torres and Emeteria Baring, the petitioners, entered into a "joint venture agreement" with Respondent Manuel Torres on March 5, 1969, for the development of a parcel of land in Lapu-Lapu City into a subdivision. Pursuant to the contract, they executed a Deed of Sale covering the said parcel of land in favor of the respondent, who then had it registered in his name. By mortgaging the property, the respondent obtained from Equitable Bank a loan of P40,000, which, under the Joint Venture Agreement, was to be used for the development of the subdivision. All three of them also agreed to share the proceeds from the sale of the subdivided lots.

The Joint Venture Agreement contained several key stipulations. The second party (petitioners) signed an absolute Deed of Sale dated March 5, 1969, in the amount of P25,513.50 for 1,700 square meters at P1.50 per square meter, in favor of the first party (respondent), but the second party did not actually receive the payment. The second party received P20,000 from the first party for their personal obligations, which amount would serve as an advance payment from the first party for the property to be subdivided and would be deducted from the sales. The first party would not collect the interest and principal of the P20,000 until the subdivision project was terminated and ready for sale, and the amount would be deducted accordingly. All general expenses and costs involved in the subdivision project would be paid by the first party exclusively and would not be deducted from the sales after the development of the project. The sales of the subdivided lots would be divided 60% for the second party and 40% for the first party, with additional profits or income from the sales divided equally according to the percentage agreed upon. The second parties were given an option to get back the property provided the P20,000 borrowed amount was paid in full to the first party, including all necessary improvements spent by the first party, with a grace period for the turnover of the property.

The project did not push through, and the land was subsequently foreclosed by the bank. According to the petitioners, the project failed because of the respondent's lack of funds or means and skills, and they added that the respondent used the loan not for the development of the subdivision but in furtherance of his own company, Universal Umbrella Company. On the other hand, the respondent alleged that he used the loan to implement the agreement, effecting the survey and subdivision of the lots, securing the Lapu-Lapu City Council's approval of the subdivision project which he advertised in a local newspaper, causing the construction of roads, curbs and gutters, entering into a contract with an engineering firm for the building of sixty low-cost housing units, and actually setting up a model house on one of the subdivision lots, all for a total expense of P85,000. The respondent claimed that the subdivision project failed because the petitioners and their relatives had separately caused the annotations of adverse claims on the title to the land, which scared away prospective buyers, and despite his requests, the petitioners refused to cause the clearing of the claims, forcing him to give up on the project.

Subsequently, the petitioners filed a criminal case for estafa against the respondent and his wife, who were however acquitted. Thereafter, they filed the present civil case, which upon the respondent's motion was later dismissed by the trial court in an Order dated September 6, 1982. On appeal, however, the appellate court remanded the case for further proceedings. Thereafter, the RTC issued its assailed Decision, which was affirmed by the CA.

• Existence of Partnership: Petitioners denied having formed a partnership with the respondent, contending that the Joint Venture Agreement and the earlier Deed of Sale, both of which were the bases of the appellate court's finding of a partnership, were void. They argued that the Court of Appeals erred in concluding that the transaction between the petitioners and respondent was that of a joint venture/partnership, ignoring outright the provision of Article 1769 and other related provisions of the Civil Code.

• Inconsistent Positions: In the same breath, however, the petitioners asserted that under those very same contracts, the respondent was liable for his failure to implement the project. Because the agreement entitled them to receive 60 percent of the proceeds from the sale of the subdivision lots, they prayed that the respondent pay them damages equivalent to 60 percent of the value of the property.

• Nullity under Article 1773: Petitioners argued that the Joint Venture Agreement was void under Article 1773 of the Civil Code, which 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. They contended that since the parties did not make, sign or attach to the public instrument an inventory of the real property contributed, the partnership was void.

• Nullity under Article 1422: Petitioners also contended that the Joint Venture Agreement was void under Article 1422 of the Civil Code, because it was the direct result of an earlier illegal contract, which was for the sale of the land without valid consideration.

• Liability of Respondent: Claiming that the respondent was solely responsible for the failure of the subdivision project, the petitioners maintained that he should be made to pay damages equivalent to 60 percent of the value of the property, which was their share in the profits under the Joint Venture Agreement.

• Implementation of the Agreement: Respondent alleged that he used the loan to implement the agreement, effecting the survey and subdivision of the lots, securing the Lapu-Lapu City Council's approval of the subdivision project which he advertised in a local newspaper, causing the construction of roads, curbs and gutters, entering into a contract with an engineering firm for the building of sixty low-cost housing units, and actually setting up a model house on one of the subdivision lots, all for a total expense of P85,000.

• Cause of Project Failure: Respondent claimed that the subdivision project failed because the petitioners and their relatives had separately caused the annotations of adverse claims on the title to the land, which eventually scared away prospective buyers, and despite his requests, the petitioners refused to cause the clearing of the claims, thereby forcing him to give up on the project.

• Existence of Partnership: Whether the Joint Venture Agreement between the petitioners and the respondent constituted a partnership under Article 1767 of the Civil Code.

• Nullity under Article 1773: Whether the alleged absence of an inventory of the real property contributed, as required by Article 1773 of the Civil Code, rendered the partnership void and relieved the petitioners of their obligations.

• Nullity under Article 1422: Whether the Joint Venture Agreement was void under Article 1422 of the Civil Code as the direct result of an earlier illegal contract for the sale of the land without valid consideration.

• Liability of the Parties: Whether the respondent should be made to pay damages equivalent to 60 percent of the value of the property for the failure of the subdivision project.

• Existence of Partnership: Yes. A partnership existed under Article 1767 of the Civil Code, as the petitioners contributed property to the partnership in the form of land, while the respondent gave, in addition to his industry, the amount needed for general expenses and other costs, with the income from the project to be divided according to the stipulated percentage.

• Nullity under Article 1773: No. The alleged nullity of the partnership will not prevent courts from considering the Joint Venture Agreement an ordinary contract from which the parties' rights and obligations to each other may be inferred and enforced, especially where no third persons are prejudiced and where the petitioners themselves invoke the allegedly void contract as the basis of their claim.

• Nullity under Article 1422: No. The Joint Venture Agreement clearly stated that the consideration for the sale was the expectation of profits from the subdivision project, and the cause of the contract of sale consisted not in the stated peso value of the land, but in the expectation of profits from the subdivision project.

• Liability of the Parties: No. The petitioners failed to give any reason why the factual findings of the appellate court relieving the respondent of fault should be disregarded, and factual issues cannot be resolved in a petition for review under Rule 45.

• Existence of Partnership: A reading of the terms embodied in the Agreement indubitably shows the existence of a partnership pursuant to Article 1767 of the Civil Code, which provides that by the contract of partnership 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. Under the Agreement, the petitioners would contribute property to the partnership in the form of land which was to be developed into a subdivision, while the respondent would give, in addition to his industry, the amount needed for general expenses and other costs. Furthermore, the income from the said project would be divided according to the stipulated percentage. Clearly, the contract manifested the intention of the parties to form a partnership. The parties implemented the contract: the petitioners transferred the title to the land to facilitate its use in the name of the respondent, and the respondent caused the subject land to be mortgaged, the proceeds of which were used for the survey and the subdivision of the land, developed the roads, the curbs and the gutters of the subdivision, and entered into a contract to construct low-cost housing units on the property. The respondent's actions clearly belie the petitioners' contention that he made no contribution to the partnership, as under Article 1767, a partner may contribute not only money or property, but also industry.

• Nullity under Article 1773: The Court clarified that Article 1773 was intended primarily to protect third persons. Citing the eminent Arturo M. Tolentino, the Court noted that the execution of a public instrument would be useless if there is no inventory of the property contributed, because without its designation and description, they cannot be subject to inscription in the Registry of Property, and their contribution cannot prejudice third persons, resulting in fraud to those who contract with the partnership. The case at bar did not involve third parties who may be prejudiced. Furthermore, the petitioners themselves invoked the allegedly void contract as the basis for their claim that the respondent should pay them 60 percent of the value of the property. They cannot in one breath deny the contract and in another recognize it, depending on what momentarily suits their purpose. Parties cannot adopt inconsistent positions in regard to a contract, and courts will not tolerate, much less approve, such practice. In short, the alleged nullity of the partnership will not prevent courts from considering the Joint Venture Agreement an ordinary contract from which the parties' rights and obligations to each other may be inferred and enforced.

• Nullity under Article 1422: The Court found the petitioners' argument puerile. The Joint Venture Agreement clearly stated that the consideration for the sale was the expectation of profits from the subdivision project, and its first stipulation stated that the petitioners did not actually receive payment for the parcel of land sold to the respondent. Consideration, more properly denominated as cause, can take different forms, such as the prestation or promise of a thing or service by another, under Article 1350 of the Civil Code. In this case, the cause of the contract of sale consisted not in the stated peso value of the land, but in the expectation of profits from the subdivision project, for which the land was intended to be used. As explained by the trial court, the land was in effect given to the partnership as the petitioners' participation therein, and there was therefore a consideration for the sale, the petitioners acting in the expectation that, should the venture come into fruition, they would get sixty percent of the net profits.

• Liability of the Parties: The Court was not persuaded by the petitioners' claim that the respondent was solely responsible for the failure of the subdivision project. While the Court of Appeals held that the petitioners' acts were not the cause of the failure of the project, it also ruled that neither was the respondent responsible therefor. In imputing the blame solely to him, the petitioners failed to give any reason why the factual findings of the appellate court relieving him of fault should be disregarded. Verily, factual issues cannot be resolved in a petition for review under Rule 45, as in this case, and the petitioners have not alleged, not to say shown, that their Petition constitutes one of the exceptions to this doctrine.

• Partnership defined (Article 1767, Civil Code) — By the contract of partnership, 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 provision to find that a partnership existed where the petitioners contributed land and the respondent contributed money and industry, with profits to be divided according to a stipulated percentage.

• Contracts binding on parties (Article 1315, Civil Code) — Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. The Court applied this principle to hold that the petitioners, being educated and presumed to have understood the terms of the contract they voluntarily signed, could not disavow the relationship formed from such agreement due to their supposed misunderstanding of its terms.

• Nullity of partnership for lack of inventory (Article 1773, Civil Code) — 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 clarified that this provision was intended primarily to protect third persons, and where no third parties are prejudiced, the alleged nullity will not prevent courts from considering the agreement an ordinary contract from which the parties' rights and obligations to each other may be inferred and enforced.

• Doctrine of inconsistent positions — Parties cannot adopt inconsistent positions in regard to a contract, and courts will not tolerate, much less approve, such practice. The Court applied this doctrine where the petitioners denied the validity of the Joint Venture Agreement while simultaneously invoking it as the basis for their claim for damages.

• Cause of onerous contracts (Article 1350, Civil Code) — In onerous contracts, the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other. The Court applied this provision to find that the cause of the contract of sale consisted not in the stated peso value of the land, but in the expectation of profits from the subdivision project.

• "Courts may not extricate parties from the necessary consequences of their acts. That the terms of a contract turn out to be financially disadvantageous to them will not relieve them of their obligations therein. The lack of an inventory of real property will not ipso facto release the contracting partners from their respective obligations to each other arising from acts executed in accordance with their agreement." — This passage states the core ratio decidendi of the case, establishing that parties are bound by their contracts and that the lack of an inventory under Article 1773 does not automatically release partners from their obligations to each other.

• "A reading of the terms embodied in the Agreement indubitably shows the existence of a partnership pursuant to Article 1767 of the Civil Code, which provides: Art. 1767. By the contract of partnership 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 passage articulates the Court's finding that the Joint Venture Agreement constituted a partnership, applying the elements of Article 1767 to the facts of the case.

• "They cannot in one breath deny the contract and in another recognize it, depending on what momentarily suits their purpose. Parties cannot adopt inconsistent positions in regard to a contract and courts will not tolerate, much less approve, such practice." — This passage articulates the doctrine of inconsistent positions, which the Court applied to bar the petitioners from denying the validity of the contract while simultaneously invoking it as the basis for their claim.

• "In this case, the cause of the contract of sale consisted not in the stated peso value of the land, but in the expectation of profits from the subdivision project, for which the land was intended to be used." — This passage explains the Court's application of Article 1350 on the cause of onerous contracts, finding that the consideration for the sale was the expectation of profits rather than the stated peso value.

• Jo Chung Cang vs. Pacific Commercial Co., 45 Phil. 142, September 6, 1923 — Cited as authority for the proposition that the contract manifested the intention of the parties to form a partnership under Article 1767 of the Civil Code.

• Fuentes vs. Court of Appeals, 268 SCRA 703, February 26, 1997 — Cited in support of the doctrine that factual issues cannot be resolved in a petition for review under Rule 45, and that the petitioners had not shown that their Petition constituted one of the exceptions to this doctrine.

• Article 1767, Civil Code — Defines the contract of partnership, requiring two or more persons to 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 provision to find that a partnership existed between the parties.

• 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 clarified that this provision was intended primarily to protect third persons and did not apply to relieve the petitioners of their obligations in this case.

• 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 shall be necessary. The Court cited this provision as a complement of Article 1773.

• Article 1315, Civil Code — Provides that contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. The Court applied this provision to hold that the petitioners were bound by the terms of the contract they voluntarily signed.

• Article 1422, Civil Code — Provides that a contract which is the direct result of a previous illegal contract is also void and inexistent. The Court rejected the petitioners' argument that the Joint Venture Agreement was void under this provision, finding that the cause of the contract of sale consisted in the expectation of profits.

• Article 1350, Civil Code — Provides that in onerous contracts, the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other. The Court applied this provision to find that the cause of the contract of sale was the expectation of profits from the subdivision project.

• Article 1797, Civil Code — Provides that the losses and profits shall be distributed in conformity with the agreement, and if only the share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion. The Court of Appeals invoked this provision in affirming the trial court's ruling.

Justices Melo, Vitug, Purisima, and Gonzaga-Reyes concurred with the decision penned by Justice Panganiban.