1. CONCEPT OF PARTNERSHIP EE.M.
DELACRUZ, DMD
AND ITS CLASSIFICATION
ART. 1770
1. Deluao v. Casteel
G.R. No. L-21906
December 24, 1968
Facts:
Petitioner Nicanor Casteel filed fishpond applications for a big tract of
swampy land situated in Malalag, Davao in the Bureau of Forestry.
Casteel subsequently filed other applications for the same purpose,
after his first application was denied. The Bureau of Forestry then
suggested that he file a new fishpond application, after Casteel's
motion for reconsideration was also denied. While Casteel's new
fishpond application was pending, other people also filed their permit
applications covering the tract of land applied for by Casteel, and one of
those people is respondent Felipe Deluao.
In order for Casteel to defend his claim over the land subject of his
fishpond permit application, he filed two administrative cases disputing
other applicants' claims with the Director of Fisheries . In the
meantime, pending the resolution of those administrative cases,
Casteel executed an alleged contract of service with Inocencia Deluao,
wife of respondent Deluao. In the said contract, Casteel will act as the
manager and producer of the fishpond in case Casteel or Deluao's
applications are approved. The parties executed the contract since
Casteel states that he won't agree to being a caretaker of the fishpond
being paid on a wage basis, but rather, he insisted on becoming a
partner instead. Due to this contract Felipe Deluao withdrew his own
fishpond application, thinking that even if Casteel's application is
approved, he would still be benefited by it. Pending the two
administrative cases, both Casteel and Deluao worked on the fishpond
in the meantime, introducing improvements thereon.
The Director of Fisheries ruled against Casteel, prompting him to appeal
to the Secretary of Fisheries. The Secretary of Fisheries granted his
appeal, and bequeathed to him the fishpond permit. Once Casteel
received the permit from the fishpond application, he forbade
Inocencia Deluao from managing the fishpond and even ejected her
representative. In response, respondents Deluao filed a case of specific
performance and damages, basing their claim on the contract of service
executed earlier by the parties. The lower court ruled in favor of the
respondents Deluao. Petitioner Casteel then appeals and argues that
the case against him be dismissed, stating that the contract executed is
a contract of partnership, which ceased to become valid the moment
he was granted his fishpond permit.
Issues:
1) Whether or not the contract of service is a contract of partnership.
2) Whether or not the contract of partnership is unlawful
3) Whether or not the action of specific performance and damages,
based on the alleged contract of service, should be dismissed.
Ruling:
First issue:
The contract of service is a contract of partnership.
1. CONCEPT OF PARTNERSHIP EE.M.DELACRUZ, DMD
AND ITS CLASSIFICATION
ART. 1770
The Court states that one evidence supporting the claim that the an event that makes the continuance of the partnership unlawful will
contract is a contract of partnership is the intention of the parties in cause its dissolution. The Fisheries Act prohibition is an instance of that
forming the contract. Deluao and Casteel agreed in a letter that Casteel event contemplated by the article which calls for the dissolution of said
intends to become a partner, not just a caretaker employed and paid on partnership. In relation to Article 1770, a partnership must be
a wage basis. Casteel even insisted that he would leave if he is not established for the common benefit of the partners, but since the
recognized as such. Also, the Court further states that the "ultimate partnership between Deluao and Casteel is null and void for being
undertaking of both parties was to divide into two equal parts such unlawful, Deluao has no right in obtaining any benefit or earnings from
portion of the fishpond as might have been developed by the amount Casteel's fishpond.
extended by the plaintiffs-appellees, with the further provision that
Casteel should reimburse the expenses incurred by the appellees over Third Issue
one-half of the fishpond that would pertain to him." The action for specific performance and damages must be dismissed.
Second issue: It must be dismissed since ,one, the contract of service is in reality a
The contract of partnership is unlawful. contract of partnership, and two, the contract of partnership is
unlawful.
Both Casteel and Deluao, prior to the resolution of the administrative
cases, had a contract of partnership when they worked on the tract of
land and introduced improvements on it. In this regard, their contract
of partnership was lawful having no laws prohibiting them from
carrying out such act.

However, the alleged contract of service, which in reality is a contract of

partnership, is unlawful. It is unlawful since the approval of the
fishpond permit in favor of Casteel carries with it certain prohibitions.
According to the Fisheries Act, the permit holder is prohibited from
granting a portion of the fishpond, whether in the manner of subletting
or transfer, to another person unless there is express permission
granted by the Secretary of Agriculture. Since the intention of the
contract of partnership is to divide half of the fishpond to Deluao,
which is expressly prohibited by the Fisheries Act, the contract of
partnership loses its validity. Article 1830 of the Civil Code states that