G.R. No.
L-33580 February 6, 1931 section 123 of the Code of Civil Procedure, and the decision of this court in the case
SANCHO vs. LIZARRAGA
The plaintiff brought an action for the rescission of a partnership contract between
himself and the defendant, entered into on October 15, 1920, the reimbursement by the
latter of his 50,000 peso investment therein, with interest at 12 per cent per annum form
October 15, 1920, with costs, and any other just and equitable remedy against said
defendant.
The defendant denies generally and specifically all the allegations of the complaint which
are incompatible with his special defenses, cross-complaint and counterclaim, setting up
the latter and asking for the dissolution of the partnership, and the payment to him as its
manager and administrator of P500 monthly from October 15, 1920, until the final
dissolution, with interest, one-half of said amount to be charged to the plaintiff. He also
prays for any other just and equitable remedy.
The Court of First Instance of Manila, having heard the cause, and finding it duly proved
that the defendant had not contributed all the capital he had bound himself to invest, and
that the plaintiff had demanded that the defendant liquidate the partnership, declared it
dissolved on account of the expiration of the period for which it was constituted, and
ordered the defendant, as managing partner, to proceed without delay to liquidate it,
submitting to the court the result of the liquidation together with the accounts and
vouchers within the period of thirty days from receipt of notice of said judgment, without
costs.
The plaintiff appealed from said decision making the following assignments of error:
1. In holding that the plaintiff and appellant is not entitled to the rescission of the
partnership contract, Exhibit A, and that article 1124 of the Civil Code is not
applicable to the present case.
2. In failing to order the defendant to return the sum of P50,000 to the plaintiff
with interest from October 15, 1920, until fully paid.
3. In denying the motion for a new trial.
In the brief filed by counsel for the appellee, a preliminary question is raised purporting to
show that this appeal is premature and therefore will not lie. The point is based on the
contention that inasmuch as the liquidation ordered by the trial court, and the consequent
accounts, have not been made and submitted, the case cannot be deemed terminated in
said court and its ruling is not yet appealable. In support of this contention counsel cites
1
of Natividad vs. Villarica (31 Phil., 172).
This contention is well founded. Until the accounts have been rendered as ordered by
the trial court, and until they have been either approved or disapproved, the litigation
involved in this action cannot be considered as completely decided; and, as it was held in
said case of Natividad vs .Villarica, also with reference to an appeal taken from a
decision ordering the rendition of accounts following the dissolution of partnership, the
appeal in the instant case must be deemed premature.
But even going into the merits of the case, the affirmation of the judgment appealed from
is inevitable. In view of the lower court's findings referred to above, which we cannot
revise because the parol evidence has not been forwarded to this court, articles 1681
and 1682 of the Civil Code have been properly applied. Owing to the defendant's failure
to pay to the partnership the whole amount which he bound himself to pay, he became
indebted to it for the remainder, with interest and any damages occasioned thereby, but
the plaintiff did not thereby acquire the right to demand rescission of the partnership
contract according to article 1124 of the Code. This article cannot be applied to the case
in question, because it refers to the resolution of obligations in general, whereas article
1681 and 1682 specifically refer to the contract of partnership in particular. And it is a
well known principle that special provisions prevail over general provisions.
By virtue of the foregoing, this appeal is hereby dismissed, leaving the decision appealed
from in full force, without special pronouncement of costs. So ordered.
G.R. No. 109248 July 3, 1995
ORTEGA vs. CA
The instant petition seeks a review of the decision rendered by the Court of Appeals,
dated 26 February 1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in toto that
of the Securities and Exchange Commission ("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by respondent Commission and quoted
at length by the appellate court in its decision, are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly
registered in the Mercantile Registry on 4 January 1937 and reconstituted with
the Securities and Exchange Commission on 4 August 1948. The SEC records
show that there were several subsequent amendments to the articles of
partnership on 18 September 1958, to change the firm [name] to ROSS, SELPH
and CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL
ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO, BITO,
 MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL ROSARIO, BITO,
MISA & LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, MISA & LOZADA;
on 7 June 1977 to BITO, MISA & LOZADA; on 19 December 1980, [Joaquin L.
Misa] appellees Jesus B. Bito and Mariano M. Lozada associated themselves
together, as senior partners with respondents-appellees Gregorio F. Ortega,
Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.
On February 17, 1988, petitioner-appellant wrote the respondents-appellees a
letter stating:
I am withdrawing and retiring from the firm of Bito, Misa and
Lozada, effective at the end of this month.
"I trust that the accountants will be instructed to make the proper
liquidation of my participation in the firm."
On the same day, petitioner-appellant wrote respondents-appellees another letter
stating:
"Further to my letter to you today, I would like to have a meeting
with all of you with regard to the mechanics of liquidation, and
more particularly, my interest in the two floors of this building. I
would like to have this resolved soon because it has to do with
my own plans."
On 19 February 1988, petitioner-appellant wrote respondents-appellees another
letter stating:
"The partnership has ceased to be mutually satisfactory because
of the working conditions of our employees including the assistant
attorneys. All my efforts to ameliorate the below subsistence level
of the pay scale of our employees have been thwarted by the
other partners. Not only have they refused to give meaningful
increases to the employees, even attorneys, are dressed down
publicly in a loud voice in a manner that deprived them of their
self-respect. The result of such policies is the formation of the
union, including the assistant attorneys."
On 30 June 1988, petitioner filed with this Commission's Securities Investigation
and Clearing Department (SICD) a petition for dissolution and liquidation of
partnership, docketed as SEC Case No. 3384 praying that the Commission:
2
"1. Decree the formal dissolution and order the immediate
liquidation of (the partnership of) Bito, Misa & Lozada;
"2. Order the respondents to deliver or pay for petitioner's share
in the partnership assets plus the profits, rent or interest
attributable to the use of his right in the assets of the dissolved
partnership;
"3. Enjoin respondents from using the firm name of Bito, Misa &
Lozada in any of their correspondence, checks and pleadings and
to pay petitioners damages for the use thereof despite the
dissolution of the partnership in the amount of at least
P50,000.00;
"4. Order respondents jointly and severally to pay petitioner
attorney's fees and expense of litigation in such amounts as
maybe proven during the trial and which the Commission may
deem just and equitable under the premises but in no case less
than ten (10%) per cent of the value of the shares of petitioner or
P100,000.00;
"5. Order the respondents to pay petitioner moral damages with
the amount of P500,000.00 and exemplary damages in the
amount of P200,000.00.
"Petitioner likewise prayed for such other and further reliefs that
the Commission may deem just and equitable under the
premises."
On 13 July 1988, respondents-appellees filed their opposition to the petition.
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada
did not dissolve the said law partnership. Accordingly, the
petitioner and respondents are hereby enjoined to abide by the
provisions of the Agreement relative to the matter governing the
liquidation of the shares of any retiring or withdrawing partner in
the partnership interest." 1
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that
the withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa &
Lozada." The Commission ruled that, being a partnership at will, the law firm could be
dissolved by any partner at anytime, such as by his withdrawal therefrom, regardless of
good faith or bad faith, since no partner can be forced to continue in the partnership
against his will. In its decision, dated 17 January 1990, the SEC held:
WHEREFORE, premises considered the appealed order of 31 March 1989 is
hereby REVERSED insofar as it concludes that the partnership of Bito, Misa &
Lozada has not been dissolved. The case is hereby REMANDED to the Hearing
Officer for determination of the respective rights and obligations of the parties. 2
The parties sought a reconsideration of the above decision. Attorney Misa, in addition,
asked for an appointment of a receiver to take over the assets of the dissolved
partnership and to take charge of the winding up of its affairs. On 4 April 1991,
respondent SEC issued an order denying reconsideration, as well as rejecting the
petition for receivership, and reiterating the remand of the case to the Hearing Officer.
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No.
24638 and CA-G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and
Attorney Mariano Lozada both died on, respectively, 05 September 1991 and 21
December 1991. The death of the two partners, as well as the admission of new
partners, in the law firm prompted Attorney Misa to renew his application for receivership
(in CA G.R. SP No. 24648). He expressed concern over the need to preserve and care
for the partnership assets. The other partners opposed the prayer.
The Court of Appeals, finding no reversible error on the part of respondent Commission,
AFFIRMED in toto the SEC decision and order appealed from. In fine, the appellate court
held, per its decision of 26 February 1993, (a) that Atty. Misa's withdrawal from the
partnership had changed the relation of the parties and inevitably caused the dissolution
of the partnership; (b) that such withdrawal was not in bad faith; (c) that the liquidation
should be to the extent of Attorney Misa's interest or participation in the partnership
which could be computed and paid in the manner stipulated in the partnership
agreement; (d) that the case should be remanded to the SEC Hearing Officer for the
corresponding determination of the value of Attorney Misa's share in the partnership
assets; and (e) that the appointment of a receiver was unnecessary as no sufficient proof
had been shown to indicate that the partnership assets were in any such danger of being
lost, removed or materially impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners confine
themselves to the following issues:
3
1. Whether or not the Court of Appeals has erred in holding that the partnership
of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at
will;
2. Whether or not the Court of Appeals has erred in holding that the withdrawal of
private respondent dissolved the partnership regardless of his good or bad faith;
and
3. Whether or not the Court of Appeals has erred in holding that private
respondent's demand for the dissolution of the partnership so that he can get a
physical partition of partnership was not made in bad faith;
to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will. That the law firm "Bito,
Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a
partnership need not be unduly belabored. We quote, with approval, like did the
appellate court, the findings and disquisition of respondent SEC on this matter; viz:
The partnership agreement (amended articles of 19 August 1948) does not
provide for a specified period or undertaking. The "DURATION" clause simply
states:
"5. DURATION. The partnership shall continue so long as
mutually satisfactory and upon the death or legal incapacity of
one of the partners, shall be continued by the surviving partners."
The hearing officer however opined that the partnership is one for a specific
undertaking and hence not a partnership at will, citing paragraph 2 of the
Amended Articles of Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is formed, is
to act as legal adviser and representative of any individual, firm
and corporation engaged in commercial, industrial or other lawful
businesses and occupations; to counsel and advise such persons
and entities with respect to their legal and other affairs; and to
appear for and represent their principals and client in all courts of
justice and government departments and offices in the
Philippines, and elsewhere when legally authorized to do so."
The "purpose" of the partnership is not the specific undertaking referred to in the
law. Otherwise, all partnerships, which necessarily must have a purpose, would
 all be considered as partnerships for a definite undertaking. There would
therefore be no need to provide for articles on partnership at will as none would
so exist. Apparently what the law contemplates, is a specific undertaking or
"project" which has a definite or definable period of completion. 3
The birth and life of a partnership at will is predicated on the mutual desire and consent
of the partners. The right to choose with whom a person wishes to associate himself is
the very foundation and essence of that partnership. Its continued existence is, in turn,
dependent on the constancy of that mutual resolve, along with each partner's capability
to give it, and the absence of a cause for dissolution provided by the law itself. Verily,
any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership
at will. He must, however, act in good faith, not that the attendance of bad faith can
prevent the dissolution of the partnership 4 but that it can result in a liability for damages. 5
In passing, neither would the presence of a period for its specific duration or the
statement of a particular purpose for its creation prevent the dissolution of any
partnership by an act or will of a partner. 6 Among partners, 7 mutual agency arises and the
doctrine of delectus personae allows them to have the power, although not necessarily
the right, to dissolve the partnership. An unjustified dissolution by the partner can subject him
to a possible action for damages.
The dissolution of a partnership is the change in the relation of the parties caused by any
partner ceasing to be associated in the carrying on, as might be distinguished from the
winding up of, the business. 8 Upon its dissolution, the partnership continues and its legal
personality is retained until the complete winding up of its business culminating in its
termination. 9
The liquidation of the assets of the partnership following its dissolution is governed by
various provisions of the Civil Code; 10 however, an agreement of the partners, like any
other contract, is binding among them and normally takes precedence to the extent
applicable over the Code's general provisions. We here take note of paragraph 8 of the
"Amendment to Articles of Partnership" reading thusly:
. . . In the event of the death or retirement of any partner, his interest in the
partnership shall be liquidated and paid in accordance with the existing
agreements and his partnership participation shall revert to the Senior Partners
for allocation as the Senior Partners may determine; provided, however, that with
respect to the two (2) floors of office condominium which the partnership is now
acquiring, consisting of the 5th and the 6th floors of the Alpap Building, 140
Alfaro Street, Salcedo Village, Makati, Metro Manila, their true value at the time
of such death or retirement shall be determined by two (2) independent
appraisers, one to be appointed (by the partnership and the other by the) retiring
partner or the heirs of a deceased partner, as the case may be. In the event of
4
any disagreement between the said appraisers a third appraiser will be appointed
by them whose decision shall be final. The share of the retiring or deceased
partner in the aforementioned two (2) floor office condominium shall be
determined upon the basis of the valuation above mentioned which shall be paid
monthly within the first ten (10) days of every month in installments of not less
than P20,000.00 for the Senior Partners, P10,000.00 in the case of two (2)
existing Junior Partners and P5,000.00 in the case of the new Junior Partner. 11
The term "retirement" must have been used in the articles, as we so hold, in a generic
sense to mean the dissociation by a partner, inclusive of resignation or withdrawal, from
the partnership that thereby dissolves it.
On the third and final issue, we accord due respect to the appellate court and respondent
Commission on their common factual finding, i.e., that Attorney Misa did not act in bad
faith. Public respondents viewed his withdrawal to have been spurred by "interpersonal
conflict" among the partners. It would not be right, we agree, to let any of the partners
remain in the partnership under such an atmosphere of animosity; certainly, not against
their will. 12Indeed, for as long as the reason for withdrawal of a partner is not contrary to the
dictates of justice and fairness, nor for the purpose of unduly visiting harm and damage upon
the partnership, bad faith cannot be said to characterize the act. Bad faith, in the context here
used, is no different from its normal concept of a conscious and intentional design to do a
wrongful act for a dishonest purpose or moral obliquity.
WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.
SO ORDERED.
G.R. No. L-5953 February 24, 1912
PABALAN vs. VELEZ
This case was appealed by counsel for the plaintiff, from the judgment rendered by the
Honorable Judge A. S. Crossfield.
On January 20, 1908, counsel for the plaintiff filed a written complaint against the
defendant, the administrator of the intestate estate of Walter A. Fitton, now deceased.
The said administrator was appointed by an order issued on December 21, 1907, by the
aforementioned judge in case No. 5103, heard in the Court of First Instance of this city.
The complaint alleged: That until June 27, 1900, the plaintiff, Antonio M. Pabalan, was
the owner in fee simple of a rural estate consisting of an hacienda known by the name of
"Pantayani," which was devoted to agricultural purposes, situated on the roads leading
from Mariquina to Antipolo, within the pueblos of Cainta and Antipolo, Province of Rizal,
and which covered an area of 1,978,822 square meters; also a parcel of land consisting
of a building lot situated on Calle Real, of Cainta, measuring 371.30 square meters, the
metes and bounds of which were specified in the complaint; that, on the said date of
June 27, 1900, the plaintiff, desiring to make use of the two properties described, and
lacking the required means for the purpose, entered into an agreement with the said
Walter A. Fitton whereby they formed a regular mercantile partnership for the
development of the said properties and for the manufacture and sale of their products
and other business pertinent thereto; that the sum of 9,000 pesos Mexican currency was
fixed as the amount of the capital stock of the partnership, of which 3,000 pesos, in cash,
were to be contributed by the plaintiff and 6,000 pesos, in real property, by the said
Fitton; that, for the purpose of obtaining the said 3,000 pesos, the plaintiff sold his two
aforementioned real properties to the said Walter A. Fitton, the rural estate, shown in
Exhibit A, for 5,900 pesos, and the urban property, described in Exhibit B, for 100 pesos;
that the plaintiff received from the purchaser the sum of 3,000 pesos and the latter,
Walter A. Fitton, bound himself to pay into the funds of the said partnership, as the
plaintiff's capital, the remaining 3,000 pesos of the selling price; that it was furthermore
agreed that the two said real properties should constitute the capital of Walter A. Fitton in
the partnership, which would be known by the name of "A. M. Pabalan and Company"
and should be an equivalent for the aforesaid sum of 6,000 pesos; that all the foregoing
facts set forth in the complaint were recorded in the instrument of sale and organization
of the partnership, executed on June 27, 1900, before the notary public Rosado, a copy
of which was attached to and made an integral part of the complaint; that, from June 27,
1900, up to the date when the partner Fitton died, the latter failed to pay into the
partnership funds the said 3,000 pesos, the remainder of the price of the properties
purchased by him, or any part thereof, and did not pay the said sum or any part of the
same to the plaintiff; that, since Fitton's death, and up to the date of the filing of the
complaint, neither the administrator of the latter's estate nor any other person had turned
into the partnership or paid to the plaintiff the aforesaid 3,000 pesos; that, owing to the
failure of Fitton to comply with his obligation, the properties in question had been entirely
unproductive and losses and damages had been occasioned to the plaintiff in the sum of
2,000 pesos Philippine currency. The latter, therefore, prayed for the rescission of the
contract entered into, on June 27, 1900, by himself, the plaintiff, and Walter A. Fitton, the
dissolution of the partnership "A. M. Pabalan and Company," and the annulment of the
sale of the said properties, by returning to the defendant a sum in Philippine currency
equivalent to the 3,000 pesos in Mexican currency received from Walter A. Fitton, and
that the defendant be sentenced to pay to the plaintiff, as losses and damages, the sum
of 2,000 pesos, and to the payment of the cost of the suit, in addition to the other
remedies sought.
The instrument attached to the complaint and executed on June 27, 1900, before the
notary public Jose M.a Rosado y Calvo, by Antonio M. Pabalan y Santos, on the one
hand, and Walter A. Fitton, on the other, contains the following clauses:
5
First. That Don Antonio Maria Pabalan y Santos is the sole and exclusive owner
in fee-simple of the following landed properties, to wit: (a) A rural estate
consisting of an hacienda, known as Pantayaning or Pantaen, devoted to
agricultured and situated on the roads which lead from Mariquina to Antipolo,
within the pueblos of Cainta and Antipolo of the district of Morong, inscribed in
the property registry of this city as of the north district, with an area of 1,978,022
square meters and bounded on the north by the land of Victor Vargas and the
Sucabin River, by a part of the Tabang River, Mount Magpatong, the sitio of
Palenque and another part of the said Tabang River, as far as the foot of Mount
Cay-Alaring, Mount Sapang, and the road leading to the pueblo of Taytay; on the
south by the summit of Mount Matugalo, the Paglilingohan estero, the old Cainta
highway, and the land of Juan Santa Ana; and one on the west by the lands of
Doa Columba Suarez and Don Mariano Sumulong, the Bilao road, and the
lands of Perfecto Legaspi Miguel Gonzales, Zacarias Gonzales, Juan Adriano,
and that of the aforesaid Juan Santa Ana. And (b) an urban property consisting
of a building lot, with neither street nor district number, situated on Calle Real,
pueblo of Cainta, Morong District, and in the north district division of the property
registry of this city; it is bounded on its front, which faces the south, by the
aforesaid Calle Real; on its right, upon entering, or on the east, by the lot
belonging to Don Alejandro San Diego and his wife Doa Buenaventura Santos;
on its left, or the west, by the lot of Don Pablo Ordoez and his wife Dionisia
Salandanan; and on its rear, or the north, by the lot of Don Florencio San
Antonio, his wife and Doa Severina Santos, and has an area of 361 square
meters and 30 square centimeters. Second. That the properties hereinbefore
described belong to the aforementioned Don Antonio Maria Pabalan y Santos,
who purchased the same from their former owner, the firm of G. Buchanan and
Company, of the city of London, represented by its agent, Herbert Heiden Todd,
through a deed, serial number 852, drawn up in this city and attested before the
former notary public of the same, Don Jose Engracio Monroy y Torres, on the
twenty-ninth of November, 1894, as shown by the notarial instrument containing
the description of the said properties, written by the undersigned notary at the
request of their owner, Sr. Pabalan, on the twelfth of the present month of June,
which certificate, without number, on account of its notarial character, was
exhibited to me by the latter and I certify to the same. Third. That the properties
in question are free of all encumbrance, charge, and liability, and Don Antonio
Maria Pabalan y Santos and Mr. Walter A. Fitton having agreed to sell the same
and to form a regular mercantile partnership for the purpose of their improvement
and the utilization of their products, hereby execute the present instrument, in
order that all its contents may appear in an authenticated form, and solemnly
stipulated: That Don Antonio Maria Pabalan y Santos hereby sells absolutely and
finally to Mr. Walter A. Fitton, the property which, under the letters A and B, is
mentioned and described in the first paragraph of this instrument, together with
all the rights, actions, uses and easements thereto pertaining, for the price of
 5,900 pesos, for the property specified under letter A, and the price of 100 pesos,
for that described under letter B, that is, for the total price of 6,000 pesos, of
which the vendor received in the act, in my presence and in that of the witnesses
hereunto, which I, the notary, hereby attest, and from the hands of the vendee,
the sum of 3,000 pesos in coin, counted to his entire satisfaction, for which the
said Walter A. Fitton hereby acknowledges by a binding receipt which secures
the said Antonio M. Pabalan in all his rights and the vendor binds himself to
protect and defend the title to the properties hereby sold and guarantees them in
accordance with law; and the vendee shall retain the remaining 3,000 pesos for
the purpose of bringing them, as the vendor's capital, into the partnership which
is also a subject of this public instrument. Fourth. Walter A. Fitton, in his turn,
covenants: That he accepts this sale in the precise terms in which it is executed
by Antonio Maria Pabalan y Santos. Fifth. That, by virtue of the preinserted
stipulations, both parties to this contract, by this same public instrument, form a
regular mercantile partnership, upon the following bases and conditions: 1. The
company organized through the present public instrument shall operate under
the firm name of "A. M. Pabalan and Company" and shall have its domicile, for all
legal purposes, in this city of Manila. 2. The object and aim of the company is the
cultivation and improvement of the two properties described under letters A and
B of the first paragraph hereof, the manufacture and sale of their products, and
the conduct of all other business connected with, incidental or pertinent to the
said lands. 3. The management, direction and administration of the company
shall be in charge of the two partners who shall both be entitled to use the firm
name, it being thereof understood that they are authorized to carry on, jointly or
severally, all kinds of operations comprised within the purpose of this partnership,
with the sole limitation that neither of them may make the company a surety or
borrow money for the same, without its being necessary, with respect to this
latter prohibition, for Mr. Pabalan to state that it does not suit him to increase his
capital to an amount equal to that invested by Mr. Fitton. Both partners are
likewise authorized, for the purposes of management, to appoint general or
social attorneys-in-fact to represent the company, as well as attorneys to demand
and collect such credits and bring such suits before the courts as be proper. 4.
The management of agricultural matters pertaining to the rural and the urban
property described in the first paragraph of this instrument, shall be solely and
exclusively in charge of the partner Antonio Maria Pabalan or the person by him
designated for this purpose. 5. The capital stock is composed of the total sum of
9,000 pesos contributed by the partners in the following proportion and from:
Antonio Maria Pabalan, 3,000 pesos in cash, which shall be paid into the
partnership fund by Walter A. Fitton, who, for this purpose, has retained them in
his possession upon his paying the amount of the sale herein set forth; Walter A.
Fitton, 6,000 pesos, represented by the two properties described under letters A
and B in the first paragraph herein, and in which the said lands are by common
accord appraised. 6. The partners may not engage, in the Province of Morong, in
6
the same kinds of business engaged in by this company, but they mutually
authorize each other personally to carry on and conduct any such business at
any other place outside of the said province. 7. Any and all rural or city properties
which Mr. Pabalan may acquire to the west of the hacienda hereinabove
described under letter A, shall necessarily form a part of the hacienda itself. 8.
The term of the existence of this partnership shall be twenty-five years, which
shall begin to run from this date and may be extended at the will of the
contracting parties. 9. In order that a regular and orderly course be pursued in
the management of the company, and the losses and profits of the latter
ascertained, an annual balance of accounts shall be struck in the month of June
of each year, in addition to such other balances as the partners may, by mutual
accord, determine. 10. If, during the term of this contract, either of the partners
should die, the company shall not, on such account, be considered as dissolved,
but shall be continued by the surviving partner and the heirs of the deceased
partner, unless it should suit the former to be separated from the latter, in which
case he shall deliver to such heirs the part of the capital that belonged to the
deceased, together with all the latter's vested rights. 11. The profits obtained and
losses suffered by the company shall be shared by the partners in proportion to
the capital invested by each respectively. 12. The partners may, by agreement,
change the company hereby organized into a joint stock company, in which case
they shall observe and comply with the formalities provided and prescribed by
the existing Code of Commerce in respect to companies of this kind. 13. All
questions, controversies, doubts or differences which may arise between the
partners, by reason of this company or from any acts performed by them on
account of the same, shall be determined by the decision of friendly arbitrators
appointed one by each party, such appointees so designated to choose a third
arbitrator in case of disagreement.
The demurrer interposed to the complaint having been overruled by an order of April 1,
1908, and exception thereto taken by the defendant, the latter, on the 11th of the same
month, filed a written answer wherein he set forth that he admitted the allegations
contained in paragraphs 1, 2, and 4 of the complaint and denied, generally and
specifically, each and all of those contained in paragraphs 3, 5, 6, 7, 8, and 9.
As a special defense the defendant alleged that the action prosecuted by the plaintiff had
prescribed; that the fact that the properties of the company known as "A. M. Pabalan and
Company" had been unproductive was exclusively due to the great negligence of the
plaintiff, since he had had more than sufficient time, from June 27, 1900, to the date of
the death of Fitton, to have demanded from his copartner the sum offered by the latter
and which he was to contribute to the common assets, and that, notwithstanding all the
time that had elapsed since the execution of the articles of partnership, up to the date of
the presentation of the complaint the plaintiff had never required his copartner to turn into
the partnership funds the capital pledged.
The defendant, in his cross-complaint and counterclaim, set forth: That, according to the
said articles of partnership, the plaintiff had the management of agricultural matters
pertaining to the properties, rural and urban, described therein, and, consequently, was
alone responsible for the successful management of the company; that, also, according
to the articles of partnership, either of the two partners had charge of the management,
direction, and administration of the company; that, some months after the execution of
the said instrument of partnership, Walter A. Fitton was obliged, for reasons of health, to
go abroad, where he resided until his death, and during his absence from this city the
plaintiff, Antonio M. Pabalan, with notable negligence and abandonment of the interests
of the company, failed to attend to the administration of its affairs and did not employ on
his part any means to maintain in a productive condition the two properties brought into
the partnership by the partner Fitton, and that, through the negligence, abandonment,
and carelessness of the plaintiff Pabalan, the defendant suffered losses and damages in
the sum of P3,000 Philippine currency; the latter, therefore, prayed that the complaint be
dismissed and that, by reason of his cross-complaint and counterclaim, an award be
made in his behalf, and against the plaintiff, for losses and damages, in the sum of
P3,000 Philippine currency, with the costs.
By a written motion of March 19, 1909, Antonio Vasquez represented: That, owing to the
death of the plaintiff, the hearing of the case had to be suspended until, on the 4th of
March, as aforesaid, letters of administration were issued in his behalf, relative to the
estate of the plaintiff Pabalan; and he therefore prayed that he be admitted as a party in
the capacity of administrator of the estate of the deceased Antonio M. Pabalan.
The case having come to trial on April 29, 1909, with the introduction of oral evidence by
counsel for the plaintiff, the court, on July 9 of the same year, pronounced judgment and
found that the defendant had not proved any of the damages alleged in his answer, and
was not entitled to any recovery therefore, nor the plaintiff for the taxes that he had paid.
The court ordered a dissolution of the partnership formed between the plaintiff and the
deceased Walter A. Fitton and a recission of the sale and contract of partnership
executed between them on July 27, 1900, and further ordered that the defendant, as the
administrator of the estate of the said deceased Walter A. Fitton, deliver to the plaintiff,
upon the latter's paying to the defendant, out of the property which belonged to the
aforesaid deceased, the sum of P3,000 Mexican currency, equivalent to P2,700
Philippine currency, the following real properties:
A. A rural estate consisting of an hacienda, known as Pantayani or Pantaen,
devoted to agriculture and situated on the roads from Mariquina to Antipolo,
within the pueblos of Cainta and Antipolo of the old district of Morong, now
Province of Rizal, having an area of 1,978,822 square meters, bounded on the
north by the land of Victor Vargas and the Sucabin River; on the east by a part of
the said Sucabin River, a part of the Tabang River, Mount Nagtapong, the sitio of
Palenque, and by another part of the Tabang River toward the base of Mount
7
Cay-Alaring, Mount Sapang, and the road leading to the pueblo of Taytay; on the
south by the summit of Mount Matugalo, the Paglilingohan estero, the old Cainta
highway, and the land of Juan Santa Ana; and on the east by the lands of
Columba Suarez and Mariano Sumulong, the Bulao Road, the lands of Perfecto
Legaspi, Miguel Gonzales, Zacarias Gonzales, Juan Adriano, and of the
aforementioned Juan Santa Ana.
B. An urban property consisting of a building lot, without either street or district
number, situated on Calle Real in Cainta, a municipality of the Province of Rizal;
bounded on its front, which faces the south, by the aforesaid Calle Real; on its
right, upon entering, or on the east, by the lot belonging to Alejandro San Diego
and his wife Buenaventura Santos; on its left, or the west, by the lot of Pablo
Ordoez and his wife Dionisia Salandanan; and on its rear, or the north, by the
lot of Florencio San Antonio and his wife Severina Santos, with an area of 361
square meters and 30 square centimeters.
This litigation concerns the dissolution of a regular mercantile partnership and the
rescission of the sale of certain real properties, the contracts with respect to which were
entered into between Antonio M. Pabalan y Santos, on one hand, and Walter A. Fitton,
on the other, according to a notarial instrument executed by the contracting parties on
July 27, 1900.
The plaintiff's claim is founded on the alleged fact that the said Walter A. Fitton failed to
comply with his obligations as stipulated in the said double contract, inasmuch as he did
not pay into the funds of the company entitled "A. M. Pabalan and Company," as the
capital of the partner Pabalan, the sum of P3,000, or the remainder of P6,000, the price
of the properties which he had purchased from the plaintiff, did not pay to the latter the
said amount, nor any part thereof, nor was such payment made, after the said Fitton's
death, by the administrator of the latter's estate.
Article 1506 of the Civil Code prescribes:
The sale shall be rescinded for the same causes as all other obligations, etc.
Article 1124 provides:
The right to rescind the obligations is considered as implied in mutual ones, in
case one of the obligated persons does not comply with what is incumbent upon
him.
The person prejudiced may choose between exacting the fulfillment of the
obligation or its rescission, with indemnity for damages and the payment of
 interest in either case. He may also demand the rescission, even after having
requested its fulfillment, should the latter appear impossible.
The court shall order the rescission demanded, unless there are sufficient causes
authorizing it to fix a period.
This is understood without prejudice to the rights of third acquirers, in accordance
with articles 1295 and 1298, and with the provisions of the Mortgage Law.
Article 116 of the Code of Commerce prescribes:
Articles of association by which two or more persons obligate themselves to
place in a common fund any property, industry, or any of these things, in order to
obtain profit, shall be commercial, no matter what its class may be, provided it
has been established in accordance with the provisions of this code.
After the organization of the general mercantile partnership denominated "A. M. Pabalan
and Company," through the aforesaid instrument of June 27, 1900, the partner Fitton did
not turn into the company funds the sum of P3,000, in the name and to the credit of
Pabalan, as the latter's capital, which sum was a part of the price of the sale of the two
real properties purchased from the said Pabalan by his partner Fitton who, in turn,
brought the said two parcels of land, as his capital, into the common fund, without having
paid the said sum up to the time when he absented himself from these Islands, a few
months after the establishment of the partnership, and died in a foreign country.
It was duly proved at the trial of this case, that the partner Walter A. Fitton failed to
observe the stipulations of the two aforesaid contracts; that he did not pay any part of the
price of the sale of the two parcels of land which he had purchased from his partner,
Antonio M. Pabalan, and, consequently, did not turn into the company funds, as capital
of the said Pabalan, the sum of which the said price consisted; it is therefore
unquestionable that he did not comply with his two principal obligations, assumed in the
said double contract wherein he expressly agreed that the said P3,000, a part of the
price of the two pieces of land that he purchased from Pabalan, would be by him turned
into the fund of the general partnership which they had formed, as capital of the partner
Pabalan.
In case one of the parties to a contract does not fulfill his obligation as stipulated therein,
the other contracting party, by the provisions of the above-quoted article 1124 of the Civil
Code, is entitled to demand the rescission of the contract, as such obligations are
mutual, and the court must order the rescission demanded. The partner, Walter A. Fitton,
came within such a case, since he failed to pay any part of the price of the two properties
which he had acquired and did not turn into the company fund, as capital of the vendor
8
partner, the sum representing such sale, and therefore justice requires the dissolution of
the aforementioned company and the rescission of the said sale, in conformity with the
finding contained in the judgment appealed from the prayer rightfully and lawfully made
by the partner who did not violate his obligations as set forth in the said contract.
During the course of this suit in the Court of First Instance, the plaintiff, Antonio M.
Pabalan, also died; and if the latter, while living, was not obliged, according to clause 10
of the articles of partnership, to continue in the company after the decease of his
copartner, and had a right to withdraw therefrom or from the heirs of the deceased
Walter A. Fitton, after the death of the partner Pabalan, neither are the latter's
successors in interest obliged to continue in the company, and, therefore, under this
circumstance, the propriety of the judgment appealed from is still more evident. With
respect to the interest on the capital which belonged to Pabalan, and which Fitton failed
to turn into the company fund in conformity with the agreement made, and in regard to
the amount of the losses and damages occasioned by the noncompliance, on the part of
the partner Fitton, with the stipulated provisions, both such amounts should be
considered as the company's losses and computed pro rata, in proportion to the extent
that each partner is interested in the company and on the same basis as the profits.
(Arts. 140 and 141 of the Code of Commerce.)
As regards the amount of the land tax, which the partner Pabalan had to pay, amounting
to P522.30, under the assessment levied upon the two real properties owned by the
company, inasmuch as the latter is the owner of the said two parcels of land, which form
the assets of the company known as "A. M. Pabalan and Company," it is unquestionable
that this company should have paid the said tax to the Government, and the same being
paid by the partner Pabalan out of his private funds and not of those of the company, he
was solely entitled to be reimbursed for two-thirds of the said sum paid, in proportion to
the amount of the respective capital brought in, which two-thirds of the sum of P522.30,
that is, P348.20, may be deducted from the sum of P2,700 Philippine currency,
equivalent to P3,000 Mexican currency, which the estate of Antonio M. Pabalan must
restore to the testate or intestate estate of Walter A. Fitton, upon the defendant's
returning to the plaintiff the two aforesaid parcels of land.
For the reasons hereinbefore stated, we are of opinion that the judgment appealed from
should be and is hereby affirmed, with no special finding as to the costs; provided,
however, that the administrator of the estate of the deceased Fitton shall deliver to the
administrator of the estate of Pabalan the two parcels of land, the sale of which was
rescinded, upon payment by the last named administrator to that of the estate of Fitton,
of the sum of P2,700, equivalent to P3,000 Mexican pesos, the said administrator of the
Pabalan estate being entitled to deduct from the said sum that of P348.20, which is two-
thirds of the amount paid as land tax on the properties concerned. So ordered.
G.R. No. L-59956 October 31, 1984
MORAN vs. CA
This is a petition for review on certiorari of the decision of the respondent Court of
Appeals which ordered petitioner Isabelo Moran, Jr. to pay damages to respondent
Mariano E, Pecson.
As found by the respondent Court of Appeals, the undisputed facts indicate that: t.hqw
xxx xxx xxx
... on February 22, 1971 Pecson and Moran entered into an agreement
whereby both would contribute P15,000 each for the purpose of printing
95,000 posters (featuring the delegates to the 1971 Constitutional
Convention), with Moran actually supervising the work; that Pecson
would receive a commission of P l,000 a month starting on April 15, 1971
up to December 15, 1971; that on December 15, 1971, a liquidation of
the accounts in the distribution and printing of the 95,000 posters would
be made, that Pecson gave Moran P10,000 for which the latter issued a
receipt; that only a few posters were printed; that on or about May 28,
1971, Moran executed in favor of Pecson a promissory note in the
amount of P20,000 payable in two equal installments (P10,000 payable
on or before June 15, 1971 and P10,000 payable on or before June 30,
1971), the whole sum becoming due upon default in the payment of the
first installment on the date due, complete with the costs of collection.
Private respondent Pecson filed with the Court of First Instance of Manila an action for
the recovery of a sum of money and alleged in his complaint three (3) causes of action,
namely: (1) on the alleged partnership agreement, the return of his contribution of
P10,000.00, payment of his share in the profits that the partnership would have earned,
and, payment of unpaid commission; (2) on the alleged promissory note, payment of the
sum of P20,000.00; and, (3) moral and exemplary damages and attorney's fees.
After the trial, the Court of First Instance held that:
t.hqw
From the evidence presented it is clear in the mind of the court that by
virtue of the partnership agreement entered into by the parties-plaintiff
and defendant the plaintiff did contribute P10,000.00, and another sum of
P7,000.00 for the Voice of the Veteran or Delegate Magazine. Of the
expected 95,000 copies of the posters, the defendant was able to print
2,000 copies only authorized of which, however, were sold at P5.00 each.
Nothing more was done after this and it can be said that the venture did
9
not really get off the ground. On the other hand, the plaintiff failed to give
his full contribution of P15,000.00. Thus, each party is entitled to rescind
the contract which right is implied in reciprocal obligations under Article
1385 of the Civil Code whereunder 'rescission creates the obligation to
return the things which were the object of the contract ...
WHEREFORE, the court hereby renders judgment ordering defendant
Isabelo C. Moran, Jr. to return to plaintiff Mariano E. Pecson the sum of
P17,000.00, with interest at the legal rate from the filing of the complaint
on June 19, 1972, and the costs of the suit.
For insufficiency of evidence, the counterclaim is hereby dismissed.
From this decision, both parties appealed to the respondent Court of Appeals. The latter
likewise rendered a decision against the petitioner. The dispositive portion of the decision
reads: t.hqw
PREMISES CONSIDERED, the decision appealed from is hereby SET
ASIDE, and a new one is hereby rendered, ordering defendant-appellant
Isabelo C. Moran, Jr. to pay plaintiff- appellant Mariano E. Pecson:
(a) Forty-seven thousand five hundred (P47,500) (the amount that could
have accrued to Pecson under their agreement);
(b) Eight thousand (P8,000), (the commission for eight months);
(c) Seven thousand (P7,000) (as a return of Pecson's investment for the
Veteran's Project);
(d) Legal interest on (a), (b) and (c) from the date the complaint was filed
(up to the time payment is made)
The petitioner contends that the respondent Court of Appeals decided questions of
substance in a way not in accord with law and with Supreme Court decisions when it
committed the following errors:
I
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING
PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E.
PECSON IN THE SUM OF P47,500 AS THE SUPPOSED EXPECTED PROFITS DUE
HIM.
II
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING
PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E.
PECSON IN THE SUM OF P8,000, AS SUPPOSED COMMISSION IN THE
PARTNERSHIP ARISING OUT OF PECSON'S INVESTMENT.
III
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING
PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E.
PECSON IN THE SUM OF P7,000 AS A SUPPOSED RETURN OF INVESTMENT IN A
MAGAZINE VENTURE.
IV
ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL LIABLE FOR ANY
AMOUNT, THE HONORABLE COURT OF APPEALS DID NOT EVEN OFFSET
PAYMENTS ADMITTEDLY RECEIVED BY PECSON FROM MORAN.
V of P200,000.00 compensatory damages in favor of the appellee because the appellant
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT GRANTING
THE PETITIONER'S COMPULSORY COUNTERCLAIM FOR DAMAGES.
The first question raised in this petition refers to the award of P47,500.00 as the private
respondent's share in the unrealized profits of the partnership. The petitioner contends
that the award is highly speculative. The petitioner maintains that the respondent court
did not take into account the great risks involved in the business undertaking.
We agree with the petitioner that the award of speculative damages has no basis in fact
and law.
There is no dispute over the nature of the agreement between the petitioner and the
private respondent. It is a contract of partnership. The latter in his complaint alleged that
he was induced by the petitioner to enter into a partnership with him under the following
terms and conditions: t.hqw
1. That the partnership will print colored posters of the delegates to the
Constitutional Convention;
10
2. That they will invest the amount of Fifteen Thousand Pesos
(P15,000.00) each;
3. That they will print Ninety Five Thousand (95,000) copies of the said
posters;
4. That plaintiff will receive a commission of One Thousand Pesos
(P1,000.00) a month starting April 15, 1971 up to December 15, 1971;
5. That upon the termination of the partnership on December 15, 1971, a
liquidation of the account pertaining to the distribution and printing of the
said 95,000 posters shall be made.
The petitioner on the other hand admitted in his answer the existence of the partnership.
The rule is, when a partner who has undertaken to contribute a sum of money fails to do
so, he becomes a debtor of the partnership for whatever he may have promised to
contribute (Art. 1786, Civil Code) and for interests and damages from the time he should
have complied with his obligation (Art. 1788, Civil Code). Thus in Uy v. Puzon (79 SCRA
598), which interpreted Art. 2200 of the Civil Code of the Philippines, we allowed a total
therein was remiss in his obligations as a partner and as prime contractor of the
construction projects in question. This case was decided on a particular set of facts. We
awarded compensatory damages in the Uy case because there was a finding that the
constructing business is a profitable one and that the UP construction company derived
some profits from its contractors in the construction of roads and bridges despite its
deficient capital." Besides, there was evidence to show that the partnership made some
profits during the periods from July 2, 1956 to December 31, 1957 and from January 1,
1958 up to September 30, 1959. The profits on two government contracts worth
P2,327,335.76 were not speculative. In the instant case, there is no evidence
whatsoever that the partnership between the petitioner and the private respondent would
have been a profitable venture. In fact, it was a failure doomed from the start. There is
therefore no basis for the award of speculative damages in favor of the private
respondent.
Furthermore, in the Uy case, only Puzon failed to give his full contribution while
Uy contributed much more than what was expected of him. In this case, however, there
was mutual breach. Private respondent failed to give his entire contribution in the amount
of P15,000.00. He contributed only P10,000.00. The petitioner likewise failed to give any
of the amount expected of him. He further failed to comply with the agreement to print
95,000 copies of the posters. Instead, he printed only 2,000 copies.
Article 1797 of the Civil Code provides: t.hqw
The losses and profits shall be distributed in conformity with the
agreement. 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.
Being a contract of partnership, each partner must share in the profits and losses of the
venture. That is the essence of a partnership. And even with an assurance made by one
of the partners that they would earn a huge amount of profits, in the absence of fraud,
the other partner cannot claim a right to recover the highly speculative profits. It is a rare
business venture guaranteed to give 100% profits. In this case, on an investment of
P15,000.00, the respondent was supposed to earn a guaranteed P1,000.00 a month for
eight months and around P142,500.00 on 95,000 posters costing P2.00 each but 2,000
of which were sold at P5.00 each. The fantastic nature of expected profits is obvious. We
have to take various factors into account. The failure of the Commission on Elections to
proclaim all the 320 candidates of the Constitutional Convention on time was a major
factor. The petitioner undesirable his best business judgment and felt that it would be a
losing venture to go on with the printing of the agreed 95,000 copies of the posters.
Hidden risks in any business venture have to be considered.
It does not follow however that the private respondent is not entitled to recover any
amount from the petitioner. The records show that the private respondent gave
P10,000.00 to the petitioner. The latter used this amount for the printing of 2,000 posters
at a cost of P2.00 per poster or a total printing cost of P4,000.00. The records further
show that the 2,000 copies were sold at P5.00 each. The gross income therefore was
P10,000.00. Deducting the printing costs of P4,000.00 from the gross income of
P10,000.00 and with no evidence on the cost of distribution, the net profits amount to
only P6,000.00. This net profit of P6,000.00 should be divided between the petitioner and
the private respondent. And since only P4,000.00 was undesirable by the petitioner in
printing the 2,000 copies, the remaining P6,000.00 should therefore be returned to the
private respondent.
Relative to the second alleged error, the petitioner submits that the award of P8,000.00
as Pecson's supposed commission has no justifiable basis in law.
Again, we agree with the petitioner.
The partnership agreement stipulated that the petitioner would give the private
respondent a monthly commission of Pl,000.00 from April 15, 1971 to December 15,
1971 for a total of eight (8) monthly commissions. The agreement does not state the
basis of the commission. The payment of the commission could only have been
predicated on relatively extravagant profits. The parties could not have intended the
11
giving of a commission inspite of loss or failure of the venture. Since the venture was a
failure, the private respondent is not entitled to the P8,000.00 commission.
Anent the third assigned error, the petitioner maintains that the respondent Court of
Appeals erred in holding him liable to the private respondent in the sum of P7,000.00 as
a supposed return of investment in a magazine venture.
In awarding P7,000.00 to the private respondent as his supposed return of investment in
the "Voice of the Veterans" magazine venture, the respondent court ruled that: t.hqw
xxx xxx xxx
... Moran admittedly signed the promissory note of P20,000 in favor of
Pecson. Moran does not question the due execution of said note. Must
Moran therefore pay the amount of P20,000? The evidence indicates that
the P20,000 was assigned by Moran to cover the following: t.hqw
(a) P 7,000 the amount of the PNB
check given by Pecson to Moran
representing Pecson's investment in
Moran's other project (the publication and
printing of the 'Voice of the Veterans');
(b) P10,000 to cover the return of
Pecson's contribution in the project of the
Posters;
(c) P3,000 representing Pecson's
commission for three months (April, May,
June, 1971).
Of said P20,000 Moran has to pay P7,000 (as a return of Pecson's
investment for the Veterans' project, for this project never left the ground)
...
As a rule, the findings of facts of the Court of Appeals are final and conclusive and
cannot be reviewed on appeal to this Court (Amigo v. Teves, 96 Phil. 252), provided they
are borne out by the record or are based on substantial evidence (Alsua-Betts v. Court of
Appeals, 92 SCRA 332). However, this rule admits of certain exceptions. Thus,
inCarolina Industries Inc. v. CMS Stock Brokerage, Inc., et al., (97 SCRA 734), we held
that this Court retains the power to review and rectify the findings of fact of the Court of
Appeals when (1) the conclusion is a finding grounded entirely on speculation, surmises
and conjectures; (2) when the inference made is manifestly mistaken absurd and
impossible; (3) where there is grave abuse of discretion; (4) when the judgment is based
on a misapprehension of facts; and (5) when the court, in making its findings, went
beyond the issues of the case and the same are contrary to the admissions of both the
appellant and the appellee.
In this case, there is misapprehension of facts. The evidence of the private respondent
himself shows that his investment in the "Voice of Veterans" project amounted to only
P3,000.00. The remaining P4,000.00 was the amount of profit that the private
respondent expected to receive.
The records show the following exhibits- t.hqw
E Xerox copy of PNB Manager's Check No. 234265 dated March 22,
1971 in favor of defendant. Defendant admitted the authenticity of this
check and of his receipt of the proceeds thereof (t.s.n., pp. 3-4, Nov. 29,
1972). This exhibit is being offered for the purpose of showing plaintiff's
capital investment in the printing of the "Voice of the Veterans" for which
he was promised a fixed profit of P8,000. This investment of P6,000.00
and the promised profit of P8,000 are covered by defendant's promissory
note for P14,000 dated March 31, 1971 marked by defendant as Exhibit 2
(t.s.n., pp. 20-21, Nov. 29, 1972), and by plaintiff as Exhibit P. Later,
defendant returned P3,000.00 of the P6,000.00 investment thereby
proportionately reducing the promised profit to P4,000. With the balance
of P3,000 (capital) and P4,000 (promised profit), defendant signed and
executed the promissory note for P7,000 marked Exhibit 3 for the
defendant and Exhibit M for plaintiff. Of this P7,000, defendant paid
P4,000 representing full return of the capital investment and P1,000
partial payment of the promised profit. The P3,000 balance of the
promised profit was made part consideration of the P20,000 promissory
note (t.s.n., pp. 22-24, Nov. 29, 1972). It is, therefore, being presented to
show the consideration for the P20,000 promissory note.
F Xerox copy of PNB Manager's check dated May 29, 1971 for P7,000
in favor of defendant. The authenticity of the check and his receipt of the
proceeds thereof were admitted by the defendant (t.s.n., pp. 3-4, Nov. 29,
1972). This P 7,000 is part consideration, and in cash, of the P20,000
promissory note (t.s.n., p. 25, Nov. 29, 1972), and it is being presented to
show the consideration for the P20,000 note and the existence and
validity of the obligation.
xxx xxx xxx
12
L-Book entitled "Voice of the Veterans" which is being offered for the
purpose of showing the subject matter of the other partnership agreement
and in which plaintiff invested the P6,000 (Exhibit E) which, together with
the promised profit of P8,000 made up for the consideration of the
P14,000 promissory note (Exhibit 2; Exhibit P). As explained in
connection with Exhibit E. the P3,000 balance of the promised profit was
later made part consideration of the P20,000 promissory note.
M-Promissory note for P7,000 dated March 30, 1971. This is also
defendant's Exhibit E. This document is being offered for the purpose of
further showing the transaction as explained in connection with Exhibits E
and L.
N-Receipt of plaintiff dated March 30, 1971 for the return of his P3,000
out of his capital investment of P6,000 (Exh. E) in the P14,000
promissory note (Exh. 2; P). This is also defendant's Exhibit 4. This
document is being offered in support of plaintiff's explanation in
connection with Exhibits E, L, and M to show the transaction mentioned
therein.
xxx xxx xxx
P-Promissory note for P14,000.00. This is also defendant's Exhibit 2. It is
being offered for the purpose of showing the transaction as explained in
connection with Exhibits E, L, M, and N above.
Explaining the above-quoted exhibits, respondent Pecson testified that: t.hqw
Q During the pre-trial of this case, Mr. Pecson, the defendant
presented a promissory note in the amount of P14,000.00 which
has been marked as Exhibit 2. Do you know this promissory
note?
A Yes, sir.
Q What is this promissory note, in connection with your
transaction with the defendant?
A This promissory note is for the printing of the "Voice of the
Veterans".
Q What is this "Voice of the Veterans", Mr. Pecson?
 A It is a book.
t.hqw
(T.S.N., p. 19, Nov. 29, 1972)
Q And what does the amount of P14,000.00 indicated in the
promissory note, Exhibit 2, represent?
A It represents the P6,000.00 cash which I gave to Mr. Moran, as
evidenced by the Philippine National Bank Manager's check and
the P8,000.00 profit assured me by Mr. Moran which I will derive
from the printing of this "Voice of the Veterans" book.
Q You said that the P6,000.00 of this P14,000.00 is covered by, a
Manager's check. I show you Exhibit E, is this the Manager's
check that mentioned?
A Yes, sir.
Q What happened to this promissory note of P14,000.00 which
you said represented P6,000.00 of your investment and
P8,000.00 promised profits?
A Latter, Mr. Moran returned to me P3,000.00 which represented
one-half (1/2) of the P6,000.00 capital I gave to him.
Q As a consequence of the return by Mr. Moran of one-half (1/2)
of the P6,000.00 capital you gave to him, what happened to the
promised profit of P8,000.00?
A It was reduced to one-half (1/2) which is P4,000.00.
Q Was there any document executed by Mr. Moran in connection
with the Balance of P3,000.00 of your capital investment and the
P4,000.00 promised profits?
A Yes, sir, he executed a promissory note.
Q I show you a promissory note in the amount of P7,000.00 dated
March 30, 1971 which for purposes of Identification I request the
same to be marked as Exhibit M. . .
13
Court t.hqw
Mark it as Exhibit M.
Q (continuing) is this the promissory note which you said was
executed by Mr. Moran in connection with your transaction
regarding the printing of the "Voice of the Veterans"?
A Yes, sir. (T.S.N., pp. 20-22, Nov. 29, 1972).
Q What happened to this promissory note executed by Mr.
Moran, Mr. Pecson?
A Mr. Moran paid me P4,000.00 out of the P7,000.00 as shown
by the promissory note.
Q Was there a receipt issued by you covering this payment of
P4,000.00 in favor of Mr. Moran?
A Yes, sir.
(T.S.N., p. 23, Nov. 29, 1972).
Q You stated that Mr. Moran paid the amount of P4,000.00 on
account of the P7,000.00 covered by the promissory note, Exhibit
M. What does this P4,000.00 covered by Exhibit N represent?
A This P4,000.00 represents the P3,000.00 which he has
returned of my P6,000.00 capital investment and the P1,000.00
represents partial payment of the P4,000.00 profit that was
promised to me by Mr. Moran.
Q And what happened to the balance of P3,000.00 under the
promissory note, Exhibit M?
A The balance of P3,000.00 and the rest of the profit was applied
as part of the consideration of the promissory note of P20,000.00.
(T.S.N., pp. 23-24, Nov. 29, 1972).
The respondent court erred when it concluded that the project never left the ground
because the project did take place. Only it failed. It was the private respondent himself
who presented a copy of the book entitled "Voice of the Veterans" in the lower court as
Exhibit "L". Therefore, it would be error to state that the project never took place and on
this basis decree the return of the private respondent's investment.
As already mentioned, there are risks in any business venture and the failure of the
undertaking cannot entirely be blamed on the managing partner alone, specially if the
latter exercised his best business judgment, which seems to be true in this case. In view
of the foregoing, there is no reason to pass upon the fourth and fifth assignments of
errors raised by the petitioner. We likewise find no valid basis for the grant of the
counterclaim.
WHEREFORE, the petition is GRANTED. The decision of the respondent Court of
Appeals (now Intermediate Appellate Court) is hereby SET ASIDE and a new one is
rendered ordering the petitioner Isabelo Moran, Jr., to pay private respondent Mariano
Pecson SIX THOUSAND (P6,000.00) PESOS representing the amount of the private
respondent's contribution to the partnership but which remained unused; and THREE
THOUSAND (P3,000.00) PESOS representing one half (1/2) of the net profits gained by
the partnership in the sale of the two thousand (2,000) copies of the posters, with
interests at the legal rate on both amounts from the date the complaint was filed until full
payment is made.
SO ORDERED. 1w ph1.t
G.R. No. L-13680 April 27, 1960
LOZANA vs. DEPAKAKIBO
This is an appeal from a judgment of the Court of First Instance of Iloilo, certified to us by
the Court of Appeals, for the reason that only questions of law are involved in said
appeal.
The record discloses that on November 16, 1954 plaintiff Mauro Lozana entered into a
contract with defendant Serafin Depakakibo wherein they established a partnership
capitalized at the sum of P30,000, plaintiff furnishing 60% thereof and the defendant,
40%, for the purpose of maintaining, operating and distributing electric light and power in
the Municipality of Dumangas, Province of Iloilo, under a franchise issued to Mrs.
Piadosa Buenaflor. However, the franchise or certificate of public necessity and
convenience in favor of the said Mrs. Piadosa Buenaflor was cancelled and revoked by
the Public Service Commission on May 15, 1955. But the decision of the Public Service
Commission was appealed to Us on October 21, 1955. A temporary certificate of public
convenience was issued in the name of Olimpia D. Decolongon on December 22, 1955
(Exh. "B"). Evidently because of the cancellation of the franchise in the name of Mrs.
14
Piadosa Buenaflor, plaintiff herein Mauro Lozana sold a generator, Buda (diesel), 75 hp.
30 KVA capacity, Serial No. 479, to the new grantee Olimpia D. Decolongon, by a deed
dated October 30, 1955 (Exhibit "C"). Defendant Serafin Depakakibo, on the other hand,
sold one Crossly Diesel Engine, 25 h. p., Serial No. 141758, to the spouses Felix
Jimenea and Felina Harder, by a deed dated July 10, 1956.
On November 15, 1955, plaintiff Mauro Lozana brought an action against the defendant,
alleging that he is the owner of the Generator Buda (Diesel), valued at P8,000 and 70
wooden posts with the wires connecting the generator to the different houses supplied by
electric current in the Municipality of Dumangas, and that he is entitled to the possession
thereof, but that the defendant has wrongfully detained them as a consequence of which
plaintiff suffered damages. Plaintiff prayed that said properties be delivered back to him.
Three days after the filing of the complaint, that is on November 18, 1955, Judge
Pantaleon A. Pelayo issued an order in said case authorizing the sheriff to take
possession of the generator and 70 wooden posts, upon plaintiff's filing of a bond in the
amount of P16,000 in favor of the defendant (for subsequent delivery to the plaintiff). On
December 5, 1955, defendant filed an answer, denying that the generator and the
equipment mentioned in the complaint belong to the plaintiff and alleging that the same
had been contributed by the plaintiff to the partnership entered into between them in the
same manner that defendant had contributed equipments also, and therefore that he is
not unlawfully detaining them. By way of counterclaim, defendant alleged that under the
partnership agreement the parties were to contribute equipments, plaintiff contributing
the generator and the defendant, the wires for the purpose of installing the main and
delivery lines; that the plaintiff sold his contribution to the partnership, in violation of the
terms of their agreement. He, therefore, prayed that the complaint against him be
dismissed; that plaintiff be adjudged guilty of violating the partnership contract and be
ordered to pay the defendant the sum of P3,000, as actual damages, P600.00 as
attorney's fees and P2,600 annually as actual damages; that the court order dissolution
of the partnership, after the accounting and liquidation of the same.
On September 27, 1956, the defendant filed a motion to declare plaintiff in default on his
counterclaim, but this was denied by the court. Hearings on the case were conducted on
October 25, 1956 and November 5, 1956, and on the latter date the judge entered a
decision declaring plaintiff owner of the equipment and entitled to the possession thereof,
with costs against defendant. It is against this judgment that the defendant has appealed.
The above judgment of the court was rendered on a stipulation of facts, which is as
follows:
1. That on November 16, 1954, in the City of Iloilo, the aforementioned plaintiff,
and the defendant entered into a contract of Partnership, a copy of which is
attached as Annex "A" of defendant's answer and counterclaim, for the purpose
 set forth therein and under the national franchise granted to Mrs. Piadosa
Buenaflor;
2. That according to the aforementioned Partnership Contract, the plaintiff Mr.
Mauro Lozana, contributed the amount of Eighteen Thousand Pesos
(P18,000.00); said contributions of both parties being the appraised values of
their respective properties brought into the partnership;
3. That the said Certificate of Public Convenience and Necessity was revoked
and cancelled by order of the Public Service Commission dated March 15, 1955,
promulgated in case No. 58188, entitled, "Piadosa Buenaflor, applicant", which
order has been appealed to the Supreme Court by Mrs. Buenaflor;
4. That on October 30, 1955, the plaintiff sold properties brought into by him to
the said partnership in favor of Olimpia Decolongon in the amount of P10,000.00
as per Deed of Sale dated October 30, 1955 executed and ratified before Notary
Public, Delfin Demaisip, in and for the Municipality of Dumangas, Iloilo and
entered in his Notarial Registry as Doc. No. 832; Page No. 6; Book No. XIII; and
Series of 1955, a copy thereof is made as Annex "B" of defendant's answer and
counterclaim;
5. That there was no liquidation of partnership and that at the time of said Sale
on October 30, 1955, defendant was the manager thereof;
6. That by virtue of the Order of this Honorable Court dated November 18, 1955,
those properties sold were taken by the Provincial Sheriff on November 20, 1955
and delivered to the plaintiff on November 25, 1955 upon the latter posting the
required bond executed by himself and the Luzon Surety Co., dated November
17, 1955 and ratified before the Notary Public, Eleuterio del Rosario in and for
the province of Iloilo known as Doc. No. 200; Page 90; Book No. VII; and Series
of 1955; of said Notary Public;
7. That the said properties sold are now in the possession of Olimpia
Decolongon, the purchaser, who is presently operating an electric light plant in
Dumangas, Iloilo;
8. That the defendant sold certain properties in favor of the spouses, Felix
Jimenea and Felisa Harder contributed by him to the partnership for P3,500.00
as per Deed of Sale executed and ratified before the Notary Public Rodrigo J.
Harder in and for the Province of Iloilo, known as Doc. No. 76; Page 94; Book
No. V; and Series of 1955, a certified copy of which is hereto attached marked as
Annex "A", and made an integral part hereof; (pp, 27-29 ROA).
15
As it appears from the above stipulation of facts that the plaintiff and the defendant
entered into the contract of partnership, plaintiff contributing the amount of P18,000, and
as it is not stated therein that there bas been a liquidation of the partnership assets at the
time plaintiff sold the Buda Diesel Engine on October 15, 1955, and since the court
below had found that the plaintiff had actually contributed one engine and 70 posts to the
partnership, it necessarily follows that the Buda diesel engine contributed by the plaintiff
had become the property of the partnership. As properties of the partnership, the same
could not be disposed of by the party contributing the same without the consent or
approval of the partnership or of the other partner. (Clemente vs. Galvan, 67 Phil., 565).
The lower court declared that the contract of partnership was null and void, because by
the contract of partnership, the parties thereto have become dummies of the owner of the
franchise. The reason for this holding was the admission by defendant when being cross-
examined by the court that he and the plaintiff are dummies. We find that this admission
by the defendant is an error of law, not a statement of a fact. The Anti-Dummy law has
not been violated as parties plaintiff and defendant are not aliens but Filipinos. The Anti-
Dummy law refers to aliens only (Commonwealth Act 108 as amended).
Upon examining the contract of partnership, especially the provision thereon wherein the
parties agreed to maintain, operate and distribute electric light and power under the
franchise belonging to Mrs. Buenaflor, we do not find the agreement to be illegal, or
contrary to law and public policy such as to make the contract of partnership, null and
void ab initio. The agreement could have been submitted to the Public Service
Commission if the rules of the latter require them to be so presented. But the fact of
furnishing the current to the holder of the franchise alone, without the previous approval
of the Public Service Commission, does not per se make the contract of partnership null
and void from the beginning and render the partnership entered into by the parties for the
purpose also void and non-existent. Under the circumstances, therefore, the court erred
in declaring that the contract was illegal from the beginning and that parties to the
partnership are not bound therefor, such that the contribution of the plaintiff to the
partnership did not pass to it as its property. It also follows that the claim of the defendant
in his counterclaim that the partnership be dissolved and its assets liquidated is the
proper remedy, not for each contributing partner to claim back what he had contributed.
For the foregoing considerations, the judgment appealed from as well as the order of the
court for the taking of the property into custody by the sheriff must be, as they hereby are
set aside and the case remanded to the court below for further proceedings in
accordance with law.