Agency, Trusts, and Partnerships Page |1

[No. 33580. February 6, 1931] partnership, and the payment to him as its manager and administrator of
P500 monthly from October 15, 1920, until the final dissolution, with
MAXIMILIANO SANCHO, plaintiff and appellant, vs. SEVERIANO interest, one-half of said amount to be charged to the plaintiff. He also prays
LIZARRAGA, defendant and appellee.
for any other just and equitable remedy.
1.JUDGMENT; APPEAL FROM AN ORDER ON RENDITION OF ACCOUNTS.—In The Court of First Instance of Manila, having heard the cause, and finding it
accordance with the doctrine laid down in the case of Natividad vs. Villarica
duly proved that the defendant had not contributed all the capital he had
(31 Phil., 172), it is held that an appeal taken from a decision ordering the bound himself to invest, and that the plaintiff had demanded that the def
rendition of accounts is deemed premature.
endant liquidate the partnership, declared it dissolved on account of the
2.PARTNERSHIP; FAILURE OF PARTNER TO PAY THE WHOLE AMOUNT expiration of the period for which it was constituted, and ordered the
PROMISED; RESPONSIBILITY.—Owing to the defendant's failure to pay to defendant, as managing partner, to proceed without delay to liquidate it,
the partnership the whole amount which he bound himself to pay, he submitting to the court the result of the liquidation together with the
became indebted to it' for the remainder, with interest and any damages accounts and vouchers within the period of thirty days from receipt of notice
occasioned thereby, but the plaintiff did not thereby acquire the right to of said judgment, without costs.
demand rescission "of the partnership contract under article 1124 of the Civil
The plaintiff appealed from said decision making the following assignments
Code. of error:
3.ID.; ID.; ID.; STATUTORY CONSTRUCTION.—Article 1124 of the Civil Code
"1. In holding that the plaintiff and appellant is not entitled to the rescission
cannot be applied to the case in question, because it refers to the resolution of the partnership contract, Exhibit A, and that article 1124 of the Civil Code
of obligations in general, whereas articles 1681 and 1682 specifically refer to
is not applicable to the present case.
the contract of partnership in particular. And it is a well known principle that
special provisions prevail over general provisions. "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.
APPEAL from a judgment of the Court of First Instance of Manila. Revilla, J.
"3. In denying the motion for a new trial."
The facts are stated in the opinion of the court.
In the brief filed by counsel for the appellee, a preliminary question is raised
Jose Perez Cardenas and Jose M. Casal for appellant. purporting to show that this appeal is premature and therefore will not lie.
Celso B. Jamora and Antonio Gonzalez for appellee. The point is based on the contention that inasmuch as the liquidation
ordered by the trial court, and the consequent accounts, have not been
ROMUALDEZ, J.; 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
The plaintiff brought an action for the rescission of a partnership contract
cites section 123 of the Code of Civil Procedure, and the decision of this
between himself and the defendant, entered into on October 15, 1920, the
court in the case of Natividad vs. Villarica (31 Phil., 172).
reimbursement by the latter of his 50,000 peso investment therein, with
interest at 12 per cent per annum from October 15, 1920, with costs, and This contention is well founded. Until the accounts have been rendered as
any other just and equitable remedy against said defendant. ordered by the trial court, and until they have been either approved or
disapproved, the litigation involved in this action cannot be considered as
The defendant denies generally and specifically all the allegations of the
completely decided; and, as it was held in said case of Natividad vs. Villarica,
complaint which are incompatible with his special defenses, cross-complaint
also with reference to an appeal taken from a decision ordering the rendition
and counterclaim, setting up the latter and asking for the dissolution of the
 Agency, Trusts, and Partnerships Page |2

of accounts following the dissolution of a 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 articles 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 f oregoing, this appeal is hereby dismissed, leaving the

decision appealed from in full force, wihtout special pronouncement of costs.
So ordered.

Avanceña, C. J., Johnson, Street, Malcolm, Villamor, Ostrand, Johns, and

Vitta-Real, JJ., concur.

Appeal dismissed. Sancho vs. Lizarraga, 55 Phil. 601, No. 33580 February 6,
1931
 Agency, Trusts, and Partnerships Page |3

G.R. No. 109248. July 3, 1995.* 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
GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and of, the business. Upon its dissolution, the partnership continues and its legal
BENJAMIN T. BACORRO, petitioners, vs. HON. COURT OF APPEALS,
personality is retained until the complete winding up of its business
SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L. MISA, culminating in its termination.
respondents.
Same; Same; The liquidation of the assets of the partnership following its
Commercial Law; Partnership; A partnership that does not fix its term is a dissolution is governed by various provisions of the Civil Code.—The
partnership at will.—A partnership that does not fix its term is a partnership
liquidation of the assets of the partnership following its dissolution is
at will. That the law firm “Bito, Misa & Lozada,” and now “Bito, Lozada, governed by various provisions of the Civil Code; however, an agreement of
Ortega and Castillo,” is indeed such a partnership need not be unduly
the partners, like any other contract, is binding among them and normally
belabored. We quote, with approval, like did the appellate court, the findings takes precedence to the extent applicable over the Code’s general provisions.
and disquisition of respondent SEC on this matter.
Same; Same; It would not be right to let any of the partners remain in the
Same; Same; The birth and life of a partnership at will is predicated on the partnership under such an atmosphere of animosity.—On the third and final
mutual desire and consent of the partners.—The birth and life of a
issue, we accord due respect to the appellate court and respondent
partnership at will is predicated on the mutual desire and consent of the Commission on their common factual finding, i.e., that Attorney Misa did not
partners. The right to choose with whom a person wishes to associate
act in bad faith. Public respondents viewed his withdrawal to have been
himself is the very foundation and essence of that partnership. Its continued spurred by “interpersonal conflict” among the partners. It would not be right,
existence is, in turn, dependent on the constancy of that mutual resolve,
we agree, to let any of the partners remain in the partnership under such an
along with each partner’s capability to give it, and the absence of a cause for atmosphere of animosity; certainly, not against their will. Indeed, for as long
dissolution provided by the law itself. Verily, any one of the partners may, at
as the reason for withdrawal of a partner is not contrary to the dictates of
his sole pleasure, dictate a dissolution of the partnership at will. He must, justice and fairness, nor for the purpose of unduly visiting harm and damage
however, act in good faith, not that the attendance of bad faith can prevent
upon the partnership, bad faith cannot be said to characterize the act. Bad
the dissolution of the partnership but that it can result in a liability for faith, in the context here used, is no different from its normal concept of a
damages.
conscious and intentional design to do a wrongful act for a dishonest
Same; Same; Neither would the presence of a period for its specific duration purpose or moral obliquity.
or the statement of a particular purpose for its creation prevent the
PETITION for review on certiorari of a decision of the Court of Appeals.
dissolution of any partnership by an act or will of a partner.—In passing,
neither would the presence of a period for its specific duration or the The facts are stated in the opinion of the Court.
statement of a particular purpose for its creation prevent the dissolution of
     Bito, Lozada, Ortega & Castillo for petitioners.
any partnership by an act or will of a partner. Among partners, mutual
agency arises and the doctrine of delectus personae allows them to have the      Misa Law Offices for private respondent.
power, although not necessarily the right, to dissolve the partnership. An
unjustified dissolution by the partner can subject him to a possible action for      Adrian Sison collaborating counsel for private respondent.
damages.
VITUG, J.:
Same; Same; Upon its dissolution, the partnership continues and its legal
The instant petition seeks a review of the decision rendered by the Court of
personality is retained until the complete winding up of its business
Appeals, dated 26 February 1993, in CA-G.R. SP No. 24638 and No. 24648
culminating in its termination.—The dissolution of a partnership is the
 Agency, Trusts, and Partnerships Page |4

affirming in toto that of the Securities and Exchange Commission (“SEC”) in “ ‘The partnership has ceased to be mutually satisfactory because of the
SEC AC 254. working conditions of our employees including the assistant attorneys. All my
efforts to ameliorate the below subsistence level of the pay scale of our
The antecedents of the controversy, summarized by respondent Commission
employees have been thwarted by the other partners. Not only have they
and quoted at length by the appellate court in its decision, are hereunder refused to give meaningful increases to the employees, even attorneys, are
restated.
dressed down publicly in a loud voice in a manner that deprived them of
“The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly their self-respect. The result of such policies is the formation of the union,
registered in the Mercantile Registry on 4 January 1937 and reconstituted including the assistant attorneys.’
with the Securities and Exchange Commission on 4 Au-gust 1948. The SEC “On 30 June 1988, petitioner filed with this Commission’s Securities
records show that there were several subsequent amendments to the articles
Investigation and Clearing Department (SICD) a petition for dissolution and
of partnership on 18 September 1958, to change the firm [name] to ROSS, liquidation of partnership, docketed as SEC Case No. 3384 praying that the
SELPH and CARRASCOSO; on 6 July 1965 x x x to ROSS, SELPH, SALCEDO,
Commission:
DEL ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO,
BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL ROSARIO, “‘1. Decree the formal dissolution and order the immediate liquidation of (the
BITO, MISA & LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, MISA & partnership of) Bito, Misa & Lozada;
LOZADA; on 7 June 1977 to BITO, MISA & LOZADA; on 19 December 1980,
‘2. Order the respondents to deliver or pay for petitioner’s share in the
[Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada associated
partnership assets plus the profits, rent or interest attributable to the use of
themselves together, as senior partners with respondents-appellees Gregorio
his right in the assets of the dissolved partnership;
F. Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior
partners. ‘3. Enjoin respondents from using the firm name of Bito, Misa & Lozada in
any of their correspondence, checks and pleadings and to pay petitioners
“On February 17, 1988, petitioner-appellant wrote the respon-dents-
damages for the use thereof despite the dissolution of the partnership in the
appellees a letter stating:
amount of at least P50,000.00;
“ ‘I am withdrawing and retiring from the firm of Bito, Misa and Lozada,
‘4. Order respondents jointly and severally to pay petitioner attorney’s fees
effective at the end of this month.
and expense of litigation in such amounts as maybe proven during the trial
‘I trust that the accountants will be instructed to make the proper liquidation and which the Commission may deem just and equitable under the premises
of my participation in the firm.’ but in no case less than ten (10%) per cent of the value of the shares of
petitioner or P100,000.00;
“On the same day, petitioner-appellant wrote respondents-appellees another
letter stating: ‘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.
“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 ‘Petitioner likewise prayed for such other and further reliefs that the
interest in the two floors of this building. I would like to have this resolved Commission may deem just and equitable under the premises.’
because it has to do with my own plans.’
“On 13 July 1988, respondents-appellees filed their opposition to the
“On 19 February 1988, petitioner-appellant wrote respondents-appellees petition.
another letter stating:
“On 13 July 1988, petitioner filed his Reply to the Opposition.
 Agency, Trusts, and Partnerships Page |5

“On 31 March 1989, the hearing officer rendered a decision ruling that: 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
“ ‘[P]etitioner’s withdrawal from the law firm Bito, Misa & Lozada did not parties and inevitably caused the dissolution of the partnership; (b) that such
dissolve the said law partnership. Accordingly, the petitioner and
withdrawal was not in bad faith; (c) that the liquidation should be to the
respondents are hereby enjoined to abide by the provisions of the extent of Attorney Misa’s interest or participation in the partnership which
Agreement relative to the matter governing the liquidation of the shares of
could be computed and paid in the manner stipulated in the partnership
any retiring or withdrawing partner in the partnership interest.’ ”1 agreement; (d) that the case should be remanded to the SEC Hearing Officer
On appeal, the SEC en banc reversed the decision of the Hearing Officer and for the corresponding determination of the value of Attorney Misa’s share in
held that the withdrawal of Attorney Joaquin L. Misa had dissolved the the partnership assets; and (e) that the appointment of a receiver was
partnership of “Bito, Misa & Lozada.” The Commission ruled that, being a unnecessary as no sufficient proof had been shown to indicate that the
partnership at will, the law firm could be dissolved by any partner at partnership assets were in any such danger of being lost, removed or
anytime, such as by his withdrawal therefrom, regardless of good faith or materially impaired.
bad faith, since no partner can be forced to continue in the partnership In this petition for review under Rule 45 of the Rules of Court, petitioners
against his will. In its decision, dated 17 January 1990, the SEC held:
confine themselves to the following issues:
“WHEREFORE, premises considered the appealed order of 31 March 1989 is 1. Whether or not the Court of Appeals has erred in holding that the
hereby REVERSED insofar as it concludes that the partnership of Bito, Misa &
partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a
Lozada has not been dissolved. The case is hereby REMANDED to the partnership at will;
Hearing Officer for determination of the respective rights and obligations of
the parties.”2 2. Whether or not the Court of Appeals has erred in holding that the
withdrawal of private respondent dissolved the partnership regardless of his
The parties sought a reconsideration of the above decision. Attorney Misa, in
good or bad faith; and
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. 3. Whether or not the Court of Appeals has erred in holding that private
On 04 April 1991, respondent SEC issued an order denying reconsideration, respondent’s demand for the dissolution of the partnership so that he can
as well as rejecting the petition for receivership, and reiterating the remand get a physical partition of partnership was not made in bad faith; to which
of the case to the Hearing Officer. matters we shall, accordingly, likewise limit ourselves.

The parties filed with the appellate court separate appeals (docketed CA-G.R. A partnership that does not fix its term is a partnership at will. That the law
SP No. 24638 and CA-G.R. SP No. 24648). firm “Bito, Misa & Lozada,” and now “Bito, Lozada, Ortega and Castillo,” is
indeed such a partnership need not be unduly belabored. We quote, with
During the pendency of the case with the Court of Appeals, Attorney Jesus
approval, like did the appellate court, the findings and disquisition of
Bito and Attorney Mariano Lozada both died on, respectively, 05 September respondent SEC on this matter; viz:
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 “The partnership agreement (amended articles of 19 August 1948) does not
his application for receivership (in CA-G.R. SP No. 24648). He expressed provide for a specified period or undertaking. The ‘DURATION’ clause simply
concern over the need to preserve and care for the partnership assets. The states:
other partners opposed the prayer.
“ ‘5. DURATION. The partnership shall continue so long as mutually
The Court of Appeals, finding no reversible error on the part of respondent satisfactory and upon the death or legal incapacity of one of the partners,
Commission, AFFIRMED in toto the SEC decision and order appealed from. In shall be continued by the surviving partners.’
 Agency, Trusts, and Partnerships Page |6

“The hearing officer however opined that the partnership is one for a specific be distinguished from the winding up of, the business.8 Upon its dissolution,
undertaking and hence not a partnership at will, citing paragraph 2 of the the partnership continues and its legal personality is retained until the
Amended Articles of Partnership (19 August 1948): complete winding up of its business culminating in its termination.9

“‘2. Purpose. The purpose for which the partnership is formed, is to act as The liquidation of the assets of the partnership following its dissolution is
legal adviser and representative of any individual, firm and corporation governed by various provisions of the Civil Code;10
engaged in commercial, industrial or other lawful businesses and
“ART. 1837. When dissolution is caused in any way, except in contravention
occupations; to counsel and advise such persons and entities with respect to
of the partnership agreement, each partner, as against his co-partners and
their legal and other affairs; and to appear for and represent their principals
all persons claiming through them in respect of their interests in the
and client in all courts of justice and government departments and offices in
partnership, unless otherwise agreed, may have the partnership property
the Philippines, and elsewhere when legally authorized to do so.’
applied to discharge its liabilities, and the surplus applied to pay in cash the
“The ‘purpose’ of the partnership is not the specific undertaking referred to net amount owning to the respective partners. But if dissolution is caused by
in the law. Otherwise, all partnerships, which necessarily must have a expulsion of a partner, bona fide under the partnership agreement and if the
purpose, would all be considered as partnerships for a definite undertaking. expelled partner is discharged from all however, an agreement of the
There would therefore be no need to provide for articles on partnership at partners, like any other contract, is binding among them and normally takes
will as none would so exist. Apparently what the law contemplates, is a precedence to the extent applicable over the Code’s general provisions. We
specific undertaking or ‘project’ which has a definite or definable period of here take note of paragraph 8 of the “Amendment to Articles of Partnership”
completion.”3 reading thusly:

The birth and life of a partnership at will is predicated on the mutual desire “x x x In the event of the death or retirement of any partner, his interest in
and consent of the partners. The right to choose with whom a person wishes the partnership shall be liquidated and paid in accordance with the existing
to associate himself is the very foundation and essence of that partnership. agreements and his partnership participation shall revert to the Senior
Its continued existence is, in turn, dependent on the constancy of that Partners for allocation as the Senior Partners may determine; provided,
mutual resolve, along with each partner’s capability to give it, and the however, that with respect to the two (2) floors of office condominium which
absence of a cause for dissolution provided by the law itself. Verily, any one the partnership is now acquiring, consisting of the 5th and the 6th floors of
of the partners may, at his sole pleasure, dictate a dissolution of the the Alpap Building, 140 Alfaro Street, Salcedo Village, Makati, Metro Manila,
partnership at will. He must, however, act in good faith, not that the their true value at the time of such death or retirement shall be determined
attendance of bad faith can prevent the dissolution of the partnership4 but by two (2) independent appraisers, one to be appointed (by the partnership
that it can result in a liability for damages.5 and the other by the) retiring partner or the heirs of a deceased partner, as
the case may be. In the event of any disagreement between the said
In passing, neither would the presence of a period for its specific duration or appraisers a third appraiser will be appointed by them whose decision shall
the statement of a particular purpose for its creation prevent the dissolution
be final. The share of the retiring or deceased partner in the aforementioned
of any partnership by an act or will of a partner.6 Among partners,7 mutual two (2) floor office condominium shall be determined upon the basis of the
agency arises and the doctrine of delectus personae allows them to have the
valuation above mentioned which shall be paid monthly within the first ten
power, although not necessarily the right, to dissolve the partnership. An (10) days of every month in installments of not less than P20,000.00 for the
unjustified dissolution by the partner can subject him to a possible action for
Senior Partners, P10,000.00 in the case of two (2) existing Junior Partners
damages. and P5,000.00 in the case of the new Junior Partner.”11
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
 Agency, Trusts, and Partnerships Page |7

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.12 Indeed, 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.

     Feliciano (Chairman), Romero, Melo and Francisco, JJ., concur.

Judgment affirmed.

———o0o——— Ortega vs. Court of Appeals, 245 SCRA 529, G.R. No.
109248 July 3, 1995
 Agency, Trusts, and Partnerships Page |8

[No. 5953. February 24, 1912.] Ariston Estrada, for appellant.

ANTONIO M. PABALAN, plaintiff and appellant, vs. FELICIANO Luciano -de la Rosa, f or appellee.
VELEZ, defendant and appellee.
TORRES, J.:
1.CONTRACTS; FAILURE TO PERFORM; ALTERNATE REMEDIES.—In bilateral
This case was appealed by counsel for the plaintiff, from the judgment
contracts, when one of the parties fails to comply with his engagements, the
rendered by the Honorable Judge A. S. Crossfield.
party prejudiced is entitled to choose between enforcement of the obligation
or a rescission of the contract, with the payment of damages and interest in
either case.
On January 20, 1908, counsel for the plaintiff filed a written complaint
2.ID.; ID.; ID. ; CONTRACTS OF SALE.—A contract of sale may be rescinded against the defendant, the administrator of the intestate estate of Walter A.
for the same causes as any other obligation, and the provisions of article Fitton, now deceased. The said administrator was appointed by an order
1124 of the Civil Code shall, in a proper case, be observed with reference issued on December 21, 1907, by the aforementioned judge in case No.
thereto. 5103, heard in the Court of First Instance of this city.
3.PARTNERSHIP; FAILURE OF PARTNER TO PAY IN His SHARE.—If a partner The complaint alleged: That until June 27, 1900, the plaintiff, Antonio M.
fails to bring into the company funds, within the time stipulated, the share of Pabalan, was the owner in fee simple of a rural estate consisting- of an
the capital pledged by him, the company is entitled to proceed against his hacienda known by the name of "Pantayani," which was devoted to
property for the collection thereof or to rescind the agreement, with respect agricultural purposes, situated on the roads leading from Mariquina to
to such delinquent partner, and to retain the portion of the company's funds Antipolo, within the pueblos of Cainta and Antipolo, Province of Rizal, and
belonging to him. 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
4.ID.; PROFIT AND Loss.—The interest on the capital which a partner
371.30 square meters, the metes and bounds of which were specified in the
obligated himself to turn into the company's funds, for the account and in
complaint; that, on the said date of June 27, 1900, the plaintiff, desiring to
the name of another partner, and the losses and damages occasioned by the
make use of the two properties described, and lacking the required means
former through his failure to comply with his stipulations, must be considered
for the purpose, entered into an agreement with the said Walter A. Fitton
as the company's losses and computed prorata to the extent that each
whereby they formed a regular mercantile partnership for the development
partner is interested in the concern and on the same basis as the profits.
of the said properties and for the manufacture and sale of their products and
(Arts. 140 and 141 of the Code of Commerce.)
other business pertinent thereto; that the sum of 9,000 pesos Mexican
5.ID.; PAYMENT OF TAXES BY ONE PARTNER OUT OF PRIVATE FUNDS.—It currency was fixed as the amount of the capital stock of the partnership, of
is an obligation of the company to pay to the Government the land tax which 3,000 pesos, in cash, were to be contributed by the plaintiff and 6,000
assessed against the real property owned by it, and, therefore, the partner pesos, in real property, by the said Fitton; that, for the purpose of obtaining
who paid the said tax out of his private funds is only entitled to recover a the said 3,000 pesos, the plaintiff sold his two af orementioned real
part of the sum by him paid, in proportion to the amount of the capital that properties to the said Walter A. Fitton, the rural estate, shown in Exhibit A,
belongs to the other partner or partners who did not pay such tax. 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
APPEAL from a judgment of the Court of First Instance of Manila. Crossfield, and the latter, Walter A. Fitton, bound himself to pay into the funds of the
J.
said partnership, as the plaintiff's capital, the remaining 3,000 pesos of the
The facts are stated in the opinion of the court. selling price; that it was furthermore agreed that the two said real properties
 Agency, Trusts, and Partnerships Page |9

should constitute the capital of Walter A. Fitton in the partnership, which as far as the f oot of Mount Cay-Alaring, Mount Sapang, and the road leading
would be known by the name of "A. M. Pabalan and Company" and should to the pueblo of Taytay; on the south by the summit of Mount Matugalo, the
be an equivalent for the aforesaid sum of 6,000 pesos; that all the foregoing Paglilingohan estero, the old Cainta highway, and the land of Juan Santa
facts set forth in the complaint were recorded in the instrument of sale and Ana; and one on the west by the lands of Doña Columba Suarez and Don
organization of the partnership, executed on June 27, 1900, before the Mariano Sumulong, the Bilao road, and the lands of Perfecto Legaspi, Miguel
notary public Rosado, a copy of which was attached to and made an integral Gonzalez, Zacarias Gonzalez, Juan Adriano, and that of the aforesaid Juan
part of the complaint; that, from June 27, 1900, up to the date when the Santa Ana. And (b) an urban property consisting of a building lot, with
partner Fitton died, the latter failed to pay into the partnership funds the said neither street nor district number, situated on Calle Real, pueblo of Cainta,
3,000 pesos, the remainder of the price of the properties purchased by him, Morong District, and in the north district division of the property registry of
or any part thereof, and did not pay the said sum or any part of the same to this city; it is bounded on its front, which faces the south, by the aforesaid
the plaintiff; that, since Fitton's death, and up to the date of the filing of the Calle Real; on its right, upon entering, or on the east, by the lot belonging to
complaint, neither the administrator of the latter's estate nor any other Don Alejandro San Diego and his wife Doña Buenaventura Santos; on its left,
person had turned into the partnership or paid to the plaintiff the af oresaid or the west, by the lot of Don Pablo Ordoñez and his wife Dionisia
3,000 pesos; that, owing to the failure of Fitton to comply with his obligation, Salandanan; and on its rear, or the north, by the lot of Don Florencio San
the properties in question had been entirely unproductive and losses and Antonio, his wife and Doña Severina Santos, and has an area of 361 square
damages had been occasioned to the plaintiff in the sum of 2,000 pesos meters and 30 square centimeters. Second. That the properties hereinbefore
Philippine currency. The latter, therefore, prayed for the rescission of the described belong to the aforementioned Don Antonio Maria Pabalan y
contract entered into, on June 27, 1900, by himself, the plaintiff, and Walter Santos, who purchased the same from their former owner, the firm of G.
A. Fitton, the dissolution of the partnership "A. M. Pabalan and Company," Buchanan and Company, of the city of London, represented by its agent,
and the annulment of the sale of the said properties, by returning to the Herbert Heiden Todd, through a deed, serial number 852, drawn up in this
defendant a sum in Philippine currency equivalent to the 3,000 pesos in city and attested before the former notary public of the same, Don José
Mexican currency received from Walter A. Fitton, and that the defendant be Engracio Monroy y Torres, on the twenty-ninth of November, 1894, as shown
sentenced to pay to the plaintiff, as losses and damages, the sum of 2,000 by the notarial instrument containing the description of the said properties,
pesos, and to the payment of the cost of the suit, in addition to the other written by the undersigned notary at the request of their owner, Sr. Pabalan,
remedies sought. 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
The instrument attached to the complaint and executed on June 27, 1900, latter and I certify to the same. Third. That the properties in question are
before the notary public José M.a Rosado y Calvo, by Antonio M. Pabalan y
free of all encumbrance, charge, and liability, and Don Antonio Maria Pabalan
Santos, on the one hand, and Walter A. Fitton, on the other, contains the y Santos and Mr. Walter A. Fitton having agreed to sell the same and to form
following clauses:
a regular mercantile partnership for the purpose of their improvement and
"First. That Don Antonio Maria Pabalan y Santos is the sole and exclusive the utilization of their products, hereby execute the present instrument, in
owner in fee-simple of the following landed properties, to wit: (a) A rural order that all its contents may appear' in an authenticated form, and
estate consisting of an hacienda, known as Pantayaning or Pantaen, devoted solemnly stipulate: That Don Antonio Maria Pabalan y Santos hereby sells
to agriculture and situated on the roads which lead from Mariquina to absolutely and finally to Mr. Walter A. Fitton, the property which. under the
Antipolo, within the pueblos of Cainta and Antipolo of the district of Morong, letters A and B, is mentioned and described in the first paragraph of this
inscribed in the property registry of this city as of the north district, with an instrument, together with all the rights, actions, uses and easements thereto
area of 1,978,022 square meters and bounded on the north by the land of pertaining, for the price of 5,900 pesos, for the property specified under
Victor Vargas and the Sucabin River, by a part of the Tabang River, Mount letter A, and the price of 100 pesos, f or that described under letter B, that
Magpatong, the sitio of Palenque and another part of the said Tabang River, is, for the total price of 6,000 pesos, of which the vendor received in the act,
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 10

in my presence and in that of the witnesses hereunto, which I, the notary, purpose, has retained them in his possession upon his paying the amount of
hereby attest, and from the hands of the vendee, the sum of 3,000 pesos in the sale herein set forth; Walter A. Fitton, 6,000 pesos, represented by the
coin, counted to his entire satisfaction, for which the said Walter A. Fitton two properties described under letters A and B in the first paragraph herein,
hereby acknowledges by a binding receipt which secures the said Antonio M. and in which the said lands are by common accord appraised. 6. The
Pabalan in all his rights and the vendor binds himself to protect and defend partners may not engage, in the Province of Mo-rong, in the same kinds of
the title to the properties hereby sold and guarantees them in accordance business engaged in by this company, but they mutually authorize each
with law; and the vendee shall retain the remaining 3,000 pesos for the other personally to carry on and conduct any such business at any other
purpose of bringing them, as the vendor's capital, into the partnership which place outside of the said province. 7. Any and all rural or city properties
is also a subject of this public instrument. Fourth. Walter A. Fitton, in his which Mr. Pabalan may acquire to the west of the hacienda hereinabove
turn, covenants: That he accepts this sale in the precise terms in which it is described under letter A, shall necessarily form a part of the hacienda itself.
executed by Antonio Maria Pabalan y Santos. Fifth. That, by virtue of the 8. The term of the existence of this partnership shall be twenty-five years,
preinserted stipulations, both parties to this contract, by this same public which shall begin to run from this date and may be extended at the will of
instrument, form a regular mercantile partnership, upon the f ollowing bases the contracting parties. 9. In order that a regular and orderly course be
and conditions: 1. The company organized through the present public pursued in the management of the company, and the losses and profits of
instrument shall operate under the firm name of 'A. M. Pabalan and the latter ascertained, an annual balance of accounts shall be struck in the
Company' and shall have its domicile, for all legal purposes, in this city of month of June of each year, in addition to such other balances as the
Manila. 2. The object and aim of the company is the cultivation and partners may, by mutual accord, determine. 10. If, during the term of this
improvement of the two properties described under letters A and B of the contract, either of the partners should die, the company shall not, on such
first paragraph hereof, the manufacture and sale of their products, and the account, be considered as dissolved, but shall be continued by the surviving
conduct of all other business connected with, incidental or pertinent to the partner and the heirs of the deceased partner, unless it should suit the
said lands. 3. The management, direction and administration of the company former to be separated from the latter, in which case he shall deliver to such
shall be in charge of the two partners who shall both be entitled to use the heirs the part of the capital that belonged to the deceased, together with all
firm name, it being therefore understood that they are authorized to carry the latter's vested rights. 11. The profits obtained and losses suffered by the
on, jointly or severally, all kinds of operations comprised within the purposes company shall be shared by the partners in proportion to the capital invested
of this partnership, with the sole limitation that neither of them may make by each respectively. 12. The partners may, by agreement, change the
the company a surety or borrow money f or the same, without its being company hereby organized into a joint stock company, in which case they
necessary, with respect to this latter prohibition, for Mr. Pabalan to state that shall observe and comply with the formalities provided and prescribed by the
it does not suit him to increase his capital to an amount equal to that existing Code of Commerce in respect to companies of this kind. 13. All
invested by Mr. Fitton. Both partners are likewise authorized, for the questions, controversies, doubts or differences which may arise between the
purposes of management, to appoint general or special attorneys-in-fact to partners, by reason of this company or from any acts performed by them on
represent the company, as well as attorneys to demand and collect such account of the same, shall be determined by the decision of friendly
credits and bring such suits before the courts as be proper. 4. The arbitrators appointed one by each party, such appointees so designated to
management of agricultural matters pertaining to the rural and the urban choose a third arbitrator in case of disagreement."
property described in the first paragraph of this instrument, shall be solely
The demurrer interposed to the complaint having been overruled by an order
and exclusively in charge of the partner Antonio Maria Pabalan or of the
of April 1,1908, and exception thereto taken by the defendant, the latter, on
person by him designated f or this purpose. 5. The capital stock is composed
the 11th of the same month, filed a written answer wherein he set forth that
of the total sum of 9,000 pesos contributed by the partners. in the following
he admitted the allegations contained in paragraphs 1, 2, and 4 of the
proportion and form: Antonio Maria Pa-balan, 3,000 pesos in cash, which
shall be paid into the partnership fund by Walter A. Fitton, who, for this
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 11

complaint and denied, generally and specifically, each and all of those he therefore prayed that he be admitted as a party in the capacity of
contained in paragraphs 3, 5, 6, 7, 8, and 9. administrator of the estate of the deceased Antonio M. Pabalan.

As a special defense the defendant alleged that the action prosecuted by the The case having come to trial on April 29, 1909, with the introduction of oral
plaintiff had prescribed; that the fact that the properties of the company evidence by counsel for the plaintiff, the court, on July 9 of the same year,
known as "A. M. Pabalan and Company" had been unproductive was pronounced judgment and found that the defendant had not proved any of
exclusively due to the great negligence of the plaintiff, since he had had the damages alleged in his answer, and was not entitled to any recovery
more than sufficient time, from June 27, 1900, to the date of the death of therefor, nor the plaintiff for the taxes that he had paid. The court ordered a
Fitton, to have demanded from his copartner the sum offered by the latter dissolution of the partnership formed between the plaintiff and the deceased
and which he was to contribute to the common assets, and that, Walter A. Fitton and a rescission of the sale and contract of partnership
notwithstanding all the time that had elapsed since the execution of the executed between them on July 27, 1900, and further ordered that the
articles of partnership, up to the date of the presentation of the complaint defendant, as the administrator of the estate of the said deceased Walter A.
the plaintiff had never required his copartner to turn into the partnership Fitton, deliver to the plaintiff, upon the latter's paying to the defendant, out
funds the capital pledged. of the property which belonged to the af oresaid deceased, the sum of
P3,000 Mexican currency, equivalent to P2,700 Philippine currency, the
The defendant, in his cross-complaint and counterclaim, set forth: That, following real properties:
according to the said articles of partnership, the plaintiff had the
management of agricultural matters pertaining to the properties, rural and "A. A rural estate consisting of an hacienda, known as Pantayani or Pantaen,
urban, described therein, and, consequently, was alone responsible for the devoted to agriculture and situated on the roads from Mariquina to Antipolo,
successful management of the company; that, also, according to the articles within the pueblos of Cainta and Antipolo of the old district of Morong, now
of partnership, either of the two partners had charge of the management, Province of Rizal, having an area of 1,978,822 square meters, bounded on
direction, and administration of the company; that, some months after the the north by the land of Victor Vargas and the Sucabin River; on the east by
execution of the said instrument of partnership, Walter A, Fitton was obliged, a part of the said Sucabin River, a part of the Tabang River, Mount Nag-
for reasons of health, to go abroad, where he resided until his death, and tapong, the sitio of Palenque, and by another part of the Tabang River
during his absence from this city the plaintiff, Antonio M. Pabalan, with toward the base of Mount Cay-Alaring, Mount Sapang, and the road leading
notable negligence and abandonment of the interests of the company, failed to the pueblo of Taytay; on the south by the summit of Mount Matugalo, the
to attend to the administration of its affairs and did not employ on his part Paglilingohan estero, the old Cainta highway, and the land of Juan Santa
any means to maintain in a productive condition the two properties brought Ana; and on the east by the lands of Columba Suarez and Mariano
into the partnership by the partner Fitton, and that, through the negligence, Sumulong, the Bulao Road, and the lands of Perfecto Legaspi, Miguel
abandonment, and carelessness of the plaintiff Pabalan, the defendant Gonzalez, Zacarias Gonzalez, Juan Adriano, and of the aforementioned Juan
suffered losses and damages in the sum of P3,000 Philippine currency; the Santa Ana.
latter, therefore, prayed that the complaint be dismissed and that, by reason
"B. An urban property consisting of a building lot, without either street or
of his cross-complaint and counterclaim, an award be made in his behalf,
district number, situated on Calle Real in Cainta, a municipality of the
and against the plaintiff, for losses and damages, in the sum of P3,000
Province of Rizal; bounded on its front, which faces the south, by the
Philippine currency, with the costs.
aforesaid Calle Real; on its right, upon entering, or on the east, by the lot
By a written motion of March 19, 1909, Antonio Vasquez represented: That, belonging to Alejandro San Diego and his wife Buenaventura Santos; on its
owing to the death of the plaintiff, the hearing of the case had to be left, or the west, by the lot of Pablo Ordoñez and his wife Dionisia
suspended until, on the 4th of March, as aforesaid, letters of administration Salandanan; and on its rear, or the north, by the lot of Florencio San Antonio
were issued in his behalf, relative to the estate of the plaintiff Pabalan; and
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 12

and his wife Severina Santos, with an area of 361 square meters and 30 "Articles of association by which two or more persons obligate themselves to
square centimeters." 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,
This litigation concerns the dissolution of a regular mercantile partnership
provided it has been established in accordance with the provisions of this
and the rescission of the sale of certain real properties, the contracts with code."
'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 After the organization of the general mercantile partnership denominated "A.
instrument executed by the contracting parties on July 27, 1900. 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
The plaintiff's claim is founded on the alleged fact that the said Walter A. P3,000, in the name and to the credit of Pabalan, as the latter's capital,
Fitton f ailed to comply with his obligations as stipulated in the said double
which sum was a part of the price of the sale of the two real properties
contract, inasmuch as he did not pay into the funds of the company entitled purchased from the said Pabalan by his partner Fitton who, in turn, brought
"A. M. Pabalan and Company," as the capital of the partner Pabalan, the sum
the said two parcels of land, as his capital, into the common fund, without
of P3,000, or the remainder of P6,000, the price of the properties which he having paid the said sum up to the time when he absented himself from
had purchased from the plaintiff, did not pay to the latter the said amount,
these Islands, a few months after the establishment of the partnership, and
nor any part thereof, nor was such payment made, after the said Fitton's died in a foreign country.
death, by the' administrator of the latter's estate.
It was duly proved at the trial of this case, that the partner Walter A. Fitton
Article 1506 of the Civil Code prescribes: failed to observe the stipulations of the two aforesaid contracts; that he did
"The sale shall be rescinded for the same causes as all other obligations," not pay any part of the price of the sale of the two parcels of land which he
etc. 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
Article 1124 provides: . which the said price consisted; it is therefore unquestionable that he did not
comply with his two principal obligations, assumed in the said double
"The right to rescind the obligations is considered as implied in mutual ones,
contract wherein he expressly agreed that the said P3,000, a part of the
in case one of the obligated persons does not comply with what is incumbent
price of the two pieces of land that he purchased from Pabalan, would be by
upon him.
him turned into the fund of the general partnership which they had formed,
"The person prejudiced may choose between exacting the fulfillment of the as capital of the partner Pabalan.
obligation or its rescission, with indemnity for damages and payment of
In case one of the parties to a contract does not fulfill his obligation as
interest in either case. He may also demand the rescission, even after having
stipulated therein, the other contracting party, by the provisions of the
requested its fulfillment, should the latter appear impossible.
above-quoted article 1124 of the Civil Code, is entitled to demand the
"The court shall order the rescission demanded, unless there are sufficient rescission of the contract, as such obligations are mutual, and the court must
causes authorizing it to fix a period. 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
"This is understood without prejudice to the rights of third acquirers, in which he had acquired and did not turn into the company fund, as capital of
accordance with articles 1295 and 1298, and with the provisions of the the vendor partner, the sum representing such sale, and therefore justice
Mortgage Law." requires the dissolution of the aforementioned company and the rescission of
Article 116 of the Code of Commerce prescribes: the said sale, in conformity with the finding contained in the judgment
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 13

appealed from and the prayer rightfully and lawfully made by the partner two parcels of land, the sale of which was rescinded, upon payment by the
who did not violate his obligations as set forth in the said contract. last named administrator to that of the estate of Fitton, of the sum of
P2,700, equivalent to 3,000 Mexican pesos, the said administrator of the
During the course of this suit in the Court of First Instance, the plaintiff,
Pabalan estate being entitled to deduct from the said sum that of P348.20,
Antonio M. Pabalan, also died; and if the latter, while living, was not obliged, which is two-thirds of the amount paid as land tax on the properties
according to clause 10 of the articles of partnership, to continue in the
concerned. So ordered.
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 Arellano, C. J., Mapa, Johnson, Carson, and Trent, JJ., concur.
of the partner Pabalan, neither are the latter's successors in interest obliged
Judgment modified. Pabalan vs. Velez., 22 Phil. 29, No. 5953 February 24,
to continue in the company, and, therefore, under this circumstance, the
1912
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
twothirds 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
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 14

[No. L-13680. April 27, 1960] furnishing 60% thereof and the defendant, 40%, for the purpose of
maintaining, operating and distributing electric light and power in the
MAURO LOZANA, plaintiff and appellee, vs. SERAFIN DEPAKAKIBO, Municipality of Dumangas, Province of Iloilo, under a franchise issued to Mrs.
defendant and appellant.
Piadosa Buenaflor. However, the franchise or certificate of public necessity
1.PARTNERSHIP; CONTRIBUTION IN KIND; DISPOSAL BY CONTRIBUTING and convenience in favor of the said Mrs. Piadosa Buenaflor was cancelled
PARTIES NOT ALLOWED.—An equipment which was contributed by one of and revoked by the Public Service Commission on May 15, 1955. But the
the partners to the partnership becomes the property of the partnership and decision of the Public Service Commission was appealed to Us on October
as such cannot be disposed of by the party contributing the same without 21, 1955. A temporary certificate of public convenience was issued in the
the consent or approval of the partnership or of the other partner (Clemente name of Olimpia D. Decolongon on December 22, 1955 (Exh. "B"). Evidently
vs. Galvan, 67 Phil., 565). because of the cancellation of the franchise in the name of Mrs. Piadosa
Buenaflor, plaintiff herein Mauro Lozana sold a generator, Buda (diesel), 75
2.ID.; ANTI-DUMMY LAW; REFERS TO ALIENS ONLY.—The admission by the hp. 80 KVA capacity, Serial No. 479, to the new grantee Olimpia D.
defendant that he and the plaintiff, who are both Filipinos, are dummies of Decolongon, by a deed dated October 30, 1955 (Exhibit "C"). Defendant
another person, is an error of law, and not a statement of fact. Since both Serafin Depakakibo, on the other hand, sold one Crossly Diesel Engine, 25 h.
parties are not aliens but Filipinos, the Anti-Dummy law has not been p., Serial No. 141758, to the spouses Felix Jimenea and Felina Harder, by a
violated. The said law refers to aliens only (Commonwealth Act 1080 as deed dated July 10, 1956.
amended).
On November 15, 1955, plaintiff Mauro Lozana brought an action against the
3.ID.; FURNISHING CURRENT TO FRANCHISE HOLDER WlTHOUT APPROVAL defendant, alleging that he is the owner of the Generator Buda (Diesel),
OF PUBLIC SERVICE COMMISSION; PARTNERSHIP NOT VOID AB INITIO.— valued at P8,000 and 70 wooden posts with the wires connecting the
The act of the partnership in furnishing electric current to the franchise generator to the different houses supplied by electric current in the
holder without the previous approval of the Public Service Commission, does Municipality of Dumangas, and that he is entitled to the possession thereof,
not per se make the contract of partnership null and void' from the but that the defendant has wrongf ully detained them as a consequence of
beginning. 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
APPEAL from a judgment of the Court of First Instance of Iloilo. Pelayo, J.
November 18, 1955, Judge Pantaleon A. Pelayo issued an order in said case
The facts are stated in the opinion of the Court. 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
Antonio T. Lozada for appellee. the defendant (for subsequent delivery to the plaintiff). On December 5,
Agustín T. Misola and Tomas D. Dominado for appellant. 1955, defendant filed an answer, denying that the generator and the
equipment mentioned in the complaint belong to the plaintiff and alleging
LABRADOR, J.: that the same had been contributed by the plaintiff to the partnership
entered into between them in the same manner that defendant had
This is an appeal from a judgment of the Court of First Instance of Iloilo,
contributed equipments also, and therefore that he is not unlawfully
certified to us by the Court of Appeals, for the reason that only questions of
detaining them. By way of counterclaim, defendant alleged that under the
law are involved in said appeal.
partnership agreement the parties were to contribute equipments, plaintiff
The record discloses that on November 16, 1954 plaintiff Mauro Lozana contributing the generator and the defendant, the wires for the purpose of
entered into a contract with defendant Serafin Depakakibo wherein they installing the main and delivery lines; that the plaintiff sold his contribution to
established a partnership capitalized at the sum of P30,000, plaintiff the partnership, in violation of the terms of their agreement. He, therefore,
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 15

prayed that the complaint against him be dismissed; that plain-tiff be 5. That there was no liquidation of partnership and that at the time of said
adjudged guilty of violating the partnership contract and be ordered to pay Sale on October 30, 1955, defendant was the manager thereof;
the defendant the sum of P3,000, as actual damages, P600.00 as attorney's
6. That by virtue of the Order of this Honorable Court dated November 18,
fees and P2,600 annually as actual damages; that the court order dissolution
1955, those properties sold were taken by the Provincial Sheriff on
of the partnership, after the accounting and liquidation of the same.
November 20, 1955 and delivered to the plaintiff on November 25, 1955
On September 27, 1956, the defendant filed a motion to declare plaintiff in upon the latter posting the required bond executed by himself and the Luzon
default on his counterclaim, but this was denied by the court. Hearings on Surety Co., dated November 17, 1955 and ratified before the Notary Public,
the case were conducted on October 25, 1956 and November 5, 1956, and Eleuterio del Rosario in and for the province of Iloilo known as Doc. No. 200;
on the latter date the judge entered a decision declaring plaintiff owner of Page 90; Book No. VII; and Series of 1955; of said Notary Public;
the equipment and entitled to the possession thereof, with costs against
7. That the said properties sold are now in the possession of Olimpia
defendant. It is against this judgment that the defendant has appealed.
Decolongon, the purchaser, who is presently operating an electric light plant
The above judgment of the court was rendered on a stipulation of facts, in Dumangas, Iloilo;
which is as follows:
8. That the defendant sold certain properties in favor of the spouses, Felix
"1. That on November 16, 1954, in the City of Iloilo, the aforementioned Jimenea and Felisa Harder contributed by him to the partnership for
plaintiff, and the defendant entered into a contract of Partnership, a copy of P3,500.00 as per Deed of Sale executed and ratified before the Notary Public
which is attached as Annex "A" of defendant's answer and counterclaim, for Rodrigo J. Harder in and for the Province of Iloilo, known as Doc. No. 76;
the purpose set forth therein and under the national franchise granted to Page 94; Book No. V; and Series of 1955, a certified copy of which is hereto
Mrs. Piadosa Buenaflor; attached marked as Annex "A", and made an integral part hereof;" (pp. 27—
29 ROA).
2. That according to the aforementioned Partnership Contract, the plaintiff
Mr. Mauro Lozana, contributed the amount of Eighteen Thousand Pesos As it appears from the above stipulation of facts that the plaintiff and the
(P18,000.00); said contributions of both parties being the appraised values defendant entered into the contract of partnership, plaintiff contributing the
of their respective properties brought into the partnership; amount of P18,000, and as it is not stated therein that there has been a
liquidation of the partnership assets at the time plaintiff sold the Buda Diesel
3. That the said Certificate of Public Convenience and Necessity was revoked
Engine on October 15, 1955, and since the court below had found that the
and cancelled by order of the Public Service Commission dated March 15, plaintiff had actually contributed one engine and 70 posts to the partnership,
1955, promulgated in case No. 58188, entitled, "Piadosa Buenaflor,
it necessarily follows that the Buda diesel engine contributed by the plaintiff
applicant", which order has been appealed to the Supreme Court by Mrs. had become the property of the partnership. As properties of the
Buenaflor;
partnership, the same could not be disposed of by the party contributing the
4. That on October 30, 1955, the plaintiff sold properties brought into by him same without the consent or approval of the partnership or of the other
to the said partnership in favor of Olimpia Decolongon in the amount of partner. (Clemente vs. Galvan, 67 Phil., 565).
P10,000.00 as per Deed of Sale dated October 30, 1955 executed and The lower court declared that the contract of partnership was null and void,
ratified before Notary Public, Delfin Demaisip, in and for the Municipality of
because by the contract of partnership, the parties thereto have become
Dumangas, Iloilo and entered in his Notarial Registry as Doc. No. 832; Page dummies of the owner of the franchise. The reason for this holding was the
No. 6; Book No. XIII; and Series of 1955, a copy thereof is made as Annex
admission by defendant when being cross-examined by the court that he and
"B" of defendant's answer and counterclaim; 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
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 16

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 f urnishing the
current to the holder of the f ranchise 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.

Parás, C. J., Bengzon, Montemayor, Bautista Angelo, Concepción, Endencia,

Barrera, and Gutiérrez David, JJ., concur.

Judgment set aside. Lozana vs. Depakakibo, 107 Phil. 728, No. L-13680 April
27, 1960
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 17

No. L-59956. October 31, 1984.* 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
ISABELO MORAN, JR., petitioner, vs. THE HON. COURT OF APPEALS a total printing cost of P4,000.00. The records further show that the 2,000
and MARIANO E. PECSON, respondents.
copies were sold at P5.00 each. The gross income therefore was P10,000.00.
Damages; Partnership; There is no factual or legal basis for award of Deducting the printing costs of P4,000.00 from the gross income of
speculative damages for likely partnership profits.—The first question raised P10,000.00 and with no evidence on the cost of distribution, the net profits
in this petition refers to the award of P47,500.00 as the private respondent’s amount to only P6,000.00. This net profit of P6,000.00 should be divided
share in the unrealized profits of the partnership. The petitioner contends between the petitioner and the private respondent. And since only P4,000.00
that the award is highly speculative. The petitioner maintains that the was used by the petitioner in printing the 2,000 copies, the remaining
respondent court did not take into account the great risks involved in the P6,000.00 should therefore be returned to the private respondent.
business undertaking. We agree with the petitioner that the award of Same; Same; Agency; Where partnership venture is a failure, a partner is
speculative damages has no basis in fact and law.
not entitled to any commission promised by co-partner where agreement
Same; Same; Partner who promises to contribute to partnership becomes does not state basis of commission.—The partnership agreement stipulated
promissory debtor of latter.—The rule is, when a partner who has that the petitioner would give the private respondent a monthly commission
undertaken to contribute a sum of money fails to do so, he becomes a of P1,000.00 from April 15, 1971 to December 15, 1971 for a total of eight
debtor of the partnership for whatever he may have promised to contribute (8) monthly commissions.
(Art. 1786, Civil Code) and for interests and damages from the time he The agreement does not state the basis of the commission. The payment of
should have complied with his obligation (Art. 1788, Civil Code).
the commission could only have been predicated on relatively extravagant
Same; Same; Essence of partnership is that partners share in profits and profits. The parties could not have intended the giving of a commission
losses.—Being a contract of partnership, each partner must share in the inspite of loss or failure of the venture. Since the venture was a failure, the
profits and losses of the venture. That is the essence of a partnership. And private respondent is not entitled to the P8,000.00 commission.
even with an assurance made by one of the partners that they would earn a
Appeal; When Supreme Court will review factual findings of Court of Appeals.
huge amount of profits, in the absence of fraud, the other partner cannot —As a rule, the findings of facts of the Court of Appeals are final and
claim a right to recover the highly speculative profits. It is a rare business
conclusive and cannot be reviewed on appeal to this Court (Amigo v. Teves,
venture guaranteed to give 100% profits. In this case, on an investment of 96 Phil. 252), provided they are borne out by the record or are based on
P15,000.00, the respondent was supposed to earn a guaranteed P1,000.00 a
substantial evidence (Alsua-Betts v. Court of Appeals, 92 SCRA 332).
month for eight months and around P142,500.00 on 95,000 posters costing However, this rule admits of certain exceptions. Thus, in Carolina Industries
P2.00 each but 2,000 of which were sold at P5.00 each. The fantastic nature
Inc.v. CMS Stock Brokerage, Inc., et al, (97 SCRA 734), we held that this
of expected profits is obvious. We have to take various factors into account. Court retains the power to review and rectify the findings of fact of the Court
The failure of the Commission on Elections to proclaim all the 320 candidates
of Appeals when (1) the conclusion is a finding grounded entirely on
of the Constitutional Convention on time was a major factor. The petitioner speculation, surmises and conjectures; (2) when the inference made is
used his best business judgment and felt that it would be a losing venture to
manifestly mistaken, absurd and impossible; (3) where there is grave abuse
go on with the printing of the agreed 95,000 copies of the posters. Hidden of discretion; (4) when the judgment is based on a misapprehension of facts;
risks in any business venture have to be considered.
and (5) when the court, in making its findings, went beyond the issues of the
Same; Same; Partner entitled to recover share of profits actually realized by case and the same are contrary to the admissions of both the appellant and
venture.—It does not follow however that the private respondent is not the appellee.
entitled to recover any amount from the petitioner. The records show that
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 18

Same; C.A. erred in its factual finding in the case at bar.—In this case, there becoming due upon default in the payment of the first installment on the
is misapprehension of facts. The evidence of the private respondent himself date due, complete with the costs of collection.”
shows that his investment in the “Voice of Veterans” project amounted to
Private respondent Pecson filed with the Court of First Instance of Manila an
only P3,000.00. The remaining P4,000.00 was the amount of profit that the
action for the recovery of a sum of money and alleged in his complaint three
private respondent expected to receive.
(3) causes of action, namely: (1) on the alleged partnership agreement, the
Same; Partnership; Damages; Factual finding of C.A. that venture never left return of his contribution of P10,000.00, payment of his share in the profits
the ground and on this basis decreed full return of respondent’s investment that the partnership would have earned, and, payment of unpaid
is erroneous.—The respondent court erred when it concluded that the commission; (2) on the alleged promissory note, payment of the sum of
project never left the ground because the project did take place. Only it P20,000.00; and, (3) moral and exemplary damages and attorney’s fees.
failed. It was the private respondent himself who presented a copy of the
After the trial, the Court of First Instance held that:
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 “From the evidence presented it is clear in the mind of the court that by
this basis decree the return of the private respondent’s investment. virtue of the partnership agreement entered into by the parties—plaintiff and
defendant—the plaintiff did contribute P10,000.00, and another sum of
PETITION for certiorari to review the decision of the Court of Appeals.
P7,000.00 for the Voice of the Veteran or Delegate Magazine. Of the
The facts are stated in the opinion of the Court. expected 95,000 copies of the posters, the defendant was able to print 2,000
copies only all of which, however, were sold at P5.00 each. Nothing more
GUTIERREZ, JR., J.: was done after this and it can be said that the venture did not really get off
This is a petition for review on certiorari of the decision of the respondent the ground. On the other hand, the plaintiff failed to give his full contribution
Court of Appeals which ordered petitioner Isabelo Moran, Jr. to pay damages of P15,000.00. Thus, each party is entitled to rescind the contract which
to respondent Mariano E. Pecson. right is implied in reciprocal obligations under Article 1385 of the Civil Code
whereunder ‘rescission creates the obligation to return the things which were
As found by the respondent Court of Appeals, the undisputed facts indicate the object of the contract x x x.
that:
“WHEREFORE, the court hereby renders judgment ordering defendant
x x x     x x x     x x x 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
“x x x on February 22, 1971 Pecson and Moran entered into an agreement
June 19, 1972, and the costs of the suit.
whereby both would contribute P15,000 each for the purpose of printing
95,000 posters (featuring the delegates to the 1971 Constitutional “For insufficiency of evidence, the counterclaim is hereby dismissed.”
Convention), with Moran actually supervising the work; that Pecson would
receive a commission of P1,000 a month starting on April 15, 1971 up to From this decision, both parties appealed to the respondent Court of
December 15, 1971; that on December 15, 1971, a liquidation of the Appeals. The latter likewise rendered a decision against the petitioner. The
accounts in the distribution and printing of the 95,000 posters would be dispositive portion of the decision reads:
made; that Pecson gave Moran P10,000 for which the latter issued a receipt; “PREMISES CONSIDERED, the decision appealed from is hereby SET ASIDE,
that only a few posters were printed; that on or about May 28, 1971, Moran
and a new one is hereby rendered, ordering defendant-appellant Isabelo C.
executed in favor of Pecson a promissory note in the amount of P20,000 Moran, Jr. to pay plaintiff-appellant Mariano E. Pecson:
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
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 19

“(a) Forty-seven thousand five hundred (P47,500) (the amount that could We agree with the petitioner that the award of speculative damages has no
have accrued to Pecson under their agreement); basis in fact and law.

“(b) Eight thousand (P8,000), (the commission for eight months); 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
“(c) Seven thousand (P7,000) (as a return of Pecson’s investment for the complaint alleged that he was induced by the petitioner to enter into a
Veteran’s Project);
partnership with him under the following terms and conditions:
“(d) Legal interest on (a), (b) and (c) from the date the complaint was filed “1. That the partnership will print colored posters of the delegates to the
(up to the time payment is made)”
Constitutional Convention;
The petitioner contends that the respondent Court of Appeals decided “2. That they will invest the amount of Fifteen Thousand Pesos (P15,000.00)
questions of substance in a way not in accord with law and with Supreme
each;
Court decisions when it committed the following errors:
“3. That they will print Ninety Five Thousand (95,000) copies of the said
I THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING
posters;
PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E.
PECSON IN THE SUM OF P47,500 AS THE SUPPOSED EXPECTED PROFITS “4. That plaintiff will receive a commission of One Thousand Pesos
DUE HIM. (P1,000.00) a month starting April 15, 1971 up to December 15, 1971;

II THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING “5. That upon the termination of the partnership on December 15, 1973, a
PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. liquidation of the account pertaining to the distribution and printing of the
PECSON IN THE SUM OF P8,000, AS SUPPOSED COMMISSION IN THE said 95,000 posters shall be made.”
PARTNERSHIP ARISING OUT OF PECSON’S INVESTMENT.
The petitioner on the other hand admitted in his answer the existence of the
III THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING partnership.
PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E.
The rule is, when a partner who has undertaken to contribute a sum of
PECSON IN THE SUM OF P7,000 AS A SUPPOSED RETURN OF INVESTMENT
money fails to do so, he becomes a debtor of the partnership for whatever
IN A MAGAZINE VENTURE.
he may have promised to contribute (Art. 1786, Civil Code) and for interests
IV ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL LIABLE and damages from the time he should have complied with his obligation (Art.
FOR ANY AMOUNT, THE HONORABLE COURT OF APPEALS DID NOT EVEN 1788, Civil Code), Thus in Uy v. Puzon (79 SCRA 598), which interpreted Art.
OFFSET PAYMENTS ADMITTEDLY RECEIVED BY PECSON FROM MORAN. 2200 of the Civil Code of the Philippines, we allowed a total of P200,000.00
compensatory damages in favor of the appellee because the appellant
V THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT therein was remiss in his obligations as a partner and as prime contractor of
GRANTING THE PETITIONER’S COMPULSORY COUNTERCLAIM FOR
the construction projects in question. This case was decided on a particular
DAMAGES. set of facts. We awarded compensatory damages in the Uy case because
The first question raised in this petition refers to the award of P47,500.00 as there was a finding that the “constructing business is a profitable one and
the private respondent’s share in the unrealized profits of the partnership. that the UP construction company derived some profits from its contractors
The petitioner contends that the award is highly speculative. The petitioner in the construction of roads and bridges despite its deficient capital.”
maintains that the respondent court did not take into account the great risks Besides, there was evidence to show that the partnership made some profits
involved in the business undertaking. during the periods from July 2, 1956 to December 31, 1957 and from
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 20

January 1, 1958 up to September 30, 1959. The profits on two government printing cost of P4,000.00. The records further show that the 2,000 copies
contracts worth P2,327,335.76 were not speculative. In the instant case, were sold at P5.00 each. The gross income therefore was P10,000.00.
there is no evidence whatsoever that the partnership between the petitioner Deducting the printing costs of P4,000.00 from the gross income of
and the private respondent would have been a profitable venture. In fact, it P10,000.00 and with no evidence on the cost of distribution, the net profits
was a failure doomed from the start. There is therefore no basis for the amount to only P6,000.00. This net profit of P6,000.00 should be divided
award of speculative damages in favor of the private respondent. between the petitioner and the private respondent. And since only P4,000.00
was used by the petitioner in printing the 2,000 copies, the remaining
Furthermore, in the Uy case, only Puzon failed to give his full contribution
P6,000.00 should therefore be returned to the private respondent.
while Uy contributed much more than what was expected of him. In this
case, however, there was mutual breach. Private respondent failed to give Relative to the second alleged error, the petitioner submits that the award of
his entire contribution in the amount of P15,000.00. He contributed only P8,000.00 as Pecson’s supposed commission has no justifiable basis in law.
P10,000.00. The petitioner likewise failed to give any of the amount
Again, we agree with the petitioner.
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. The partnership agreement stipulated that the petitioner would give the
private respondent a monthly commission of P1,000.00 from April 15, 1971
Article 1797 of the Civil Code provides:
to December 15, 1971 for a total of eight (8) monthly commissions. The
“The losses and profits shall be distributed in conformity with the agreement. agreement does not state the basis of the commission. The payment of the
If only the share of each partner in the profits has been agreed upon, the commission could only have been predicated on relatively extravagant
share of each in the losses shall be in the same proportion.” profits. The parties could not have intended the giving of a commission
inspite of loss or failure of the venture. Since the venture was a failure, the
Being a contract of partnership, each partner must share in the profits and private respondent is not entitled to the P8,000.00 commission.
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 Anent the third assigned error, the petitioner maintains that the respondent
of profits, in the absence of fraud, the other partner cannot claim a right to Court of Appeals erred in holding him liable to the private respondent in the
recover the highly speculative profits. It is a rare business venture sum of P7,000.00 as a supposed return of investment in a magazine venture.
guaranteed to give 100% profits. In this case, on an investment of In awarding P7,000.00 to the private respondent as his supposed return of
P15,000.00, the respondent was supposed to earn a guaranteed P1,000.00 a investment in the “Voice of the Veterans” magazine venture, the respondent
month for eight months and around P142,500.00 on 95,000 posters costing court ruled that:
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 x x x      x x x      x x x
of the Constitutional Convention on time was a major factor. The petitioner
used his best business judgment and felt that it would be a losing venture to “x x x Moran admittedly signed the promissory note of P20,000 in favor of
go on with the printing of the agreed 95,000 copies of the posters. Hidden Pecson. Moran does not question the due execution of said note. Must Moran
risks in any business venture have to be considered. therefore pay the amount of P20,000? The evidence indicates that the
P20,000 was assigned by Moran to cover the following:
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 “(a) P7,000—the amount of the PNB check given by Pecson to Moran
respondent gave P10,000.00 to the petitioner. The latter used this amount representing Pecson’s investment in Moran’s other project (the publication
for the printing of 2,000 posters at a cost of P2.00 per poster or a total and printing of the ‘Voice of the Veterans’);
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 21

“(b) P10,000—to cover the return of Pecson’s contribution in the project of returned P3,000.00 of the P6,000.00 investment thereby proportionately
the Posters; 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
“(c) P3,000—representing Pecson’s commission for three months (April, May,
note for P7,000 marked Exhibit 3 for the defendant and Exhibit M for
June, 1971). plaintiff. Of this P7,000, defendant paid P4,000 representing full return of the
Of said P20,000 Moran has to pay P7,000 (as a return of Pecson’s capital investment and P1,000 partial payment of the promised profit. The
investment for the Veterans’ project, for this project never left the ground). x P3,000 balance of the promised profit was made part consideration of the
x x” 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.
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, “F—Xerox copy of PNB Manager’s check dated May 29, 1971 for P7,000 in
96 Phil. 252), provided they are borne out by the record or are based on favor of defendant. The authenticity of the check and his receipt of the
substantial evidence (AlsuaBetts v. Court of Appeals, 92 SCRA 332). proceeds thereof were admitted by the defendant (t.s.n., pp. 3-4, Nov. 29,
However, this rule admits of certain exceptions. Thus, in Carolina Industries 1972). This P7,000 is part consideration, and in cash, of the P20,000
Inc. v. CMS Stock Brokerage, Inc., et al., (97 SCRA 734), we held that this promissory note (t.s.n., p. 25, Nov. 29, 1972), and it is being presented to
Court retains the power to review and rectify the findings of fact of the Court show the consideration for the P20,000 note and the existence and validity
of Appeals when (1) the conclusion is a finding grounded entirely on of the obligation.
speculation, surmises and conjectures; (2) when the inference made is x x x     x x x     x x x
manifestly mistaken, absurd and impossible; (3) where there is grave abuse
of discretion; (4) when the judgment is based on a misapprehension of facts; “L—Book entitled ‘Voice of the Veterans’ which is being offered for the
and (5) when the court, in making its findings, went beyond the issues of the purpose of showing the subject matter of the other partnership agreement
case and the same are contrary to the admissions of both the appellant and and in which plaintiff invested the P6,000 (Exhibit E) which, together with
the appellee. 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
In this case, there is misapprehension of facts. The evidence of the private Exhibit E, the P3,000 balance of the promised profit was later made part
respondent himself shows that his investment in the “Voice of Veterans”
consideration of the P20,000 promissory note.
project amounted to only P3,000.00. The remaining P4,000.00 was the
amount of profit that the private respondent expected to receive. “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
The records show the following exhibits— further showing the transaction as explained in connection with Exhibits E
“E—Xerox copy of PNB Manager’s Check No. 234265 dated March 22, 1971 and L.
in favor of defendant. Defendant admitted the authenticity of this check and “N—Receipt of plaintiff dated March 30, 1971 for the return of his P3,000 out
of his receipt of the proceeds thereof (t.s.n., pp. 3-4, Nov. 29, 1972). This
of his capital investment of P6,000 (Exh. E) in the P14,000 promissory note
exhibit is being offered for the purpose of showing plaintiff’s capital (Exh. 2; P). This is also defendant’s Exhibit 4. This document is being offered
investment in the printing of the ‘Voice of the Veterans’ for which he was
in support of plaintiff’s explanation in connection with Exhibits E, L, and M to
promised a fixed profit of P8,000. This investment of P6,000.00 and the show the transaction mentioned therein.
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. x x x     x x x     x x x
20-21, Nov. 29, 1972), and by plaintiff as Exhibit P. Later, defendant
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 22

“P—Promissory note for P14,000.00. This is also defendant’s Exhibit 2. It is “A It was reduced to one-half (½) which is P4,000.00.
being offered for the purpose of showing the transaction as explained in
“Q Was there any document executed by Mr. Moran in connection with the
connection with Exhibits E, L, M, and N above.”
Balance of P3,000.00 of your capital investment and the P4,000.00 promised
Explaining the above-quoted exhibits, respondent Pecson testified that: profits?

“Q During the pre-trial of this case. Mr. Pecson, the defendant presented a “A Yes. sir, he executed a promissory note.
promissory note in the amount of P14,000.00 which has been marked as
“Q I show you a promissory note in the amount of P7,000.00 dated March
Exhibit 2. Do you know this promissory note?
30, 1971 which for purposes of identification I request the same to be
“A Yes, sir. marked as Exhibit M. . .Court

“Q What is this promissory note, in connection with your transaction with the Mark it as Exhibit M.
defendant?
“Q (continuing) is this the promissory note which you said was executed by
“A This promissory note is for the printing of the ‘Voice of the Veterans’. Mr. Moran in connection with your transaction regarding the printing of the
‘Voice of the Veterans’?
“Q What is this ‘Voice of the Veterans’, Mr. Pecson?
“A Yes, sir.
“A It is a book.”
(T.S.N., pp. 20-22, Nov. 29, 1972).
(T.S.N., p. 19, Nov. 29, 1972)
“Q What happened to this promissory note executed by Mr. Moran, Mr.
“Q And what does the amount of P14,000.00 indicated in the promissory
Pecson?
note, Exhibit 2, represent?
“A Mr. Moran paid me P4,000.00 out of the P7,000.00 as shown by the
“A It represents the P6,000.00 cash which I gave to Mr. Moran, as evidenced
promissory note.
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 “Q Was there a receipt issued by you covering this payment of P4,000.00 in
of the Veterans’ book. favor of Mr. Moran?

“Q You said that the P6,000.00 of this P14,000.00 is covered by a Manager’s “A Yes, sir.”
check. I show you Exhibit E, is this the Manager’s check that you mentioned?
(T.S.N., p. 23, Nov. 29, 1972).
“A Yes, sir.
“Q You stated that Mr. Moran paid the amount of P4,000.00 on account of
“Q What happened to this promissory note of P14,000.00 which you said the P7,000.00 covered by the promissory note, Exhibit M. What does this
represented P6,000.00 of your investment and P8,000.00 promised profits? P4,000.00 covered by Exhibit N represent?

“A Latter, Mr. Moran returned to me P3,000.00 which represented one-half “A This P4,000.00 represents the P3,000.00 which he has returned of my
(½) of the P6,000.00 capital I gave to him. 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 As a consequence of the return by Mr. Moran of one-half (½) of the
P6,000.00 capital you gave to him, what happened to the promised profit of “Q And what happened to the balance of P3,000.00 under the promissory
P8,000.00? note, Exhibit M?
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 23

“A The balance of P3,000.00 and the rest of the profit was applied as part of actually pays the same, because under Article 2199 of the Civil Code
the consideration of the promissory note of P20,000.00.” damages must be proved. (Basilan Lumber Company vs. Cagayan Timber
Export Co., 2 SCRA 766.)
(T.S.N., pp. 23-24, Nov. 29, 1972).
——o0o—— Moran, Jr. vs. Court of Appeals, 133 SCRA 88, No. L-59956
The respondent court erred when it concluded that the project never left the October 31, 1984
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 counter-claim.

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 (½) 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.

     Teehankee (Chairman), Melencio-Herrera, Plana and Relova, JJ., concur.

     De la Fuente, J., no part.

Petition granted. Decision set aside.

Note.—In an action for damages resulting from a breach of contract to

supply logs, the exporter may not recover from the supplier the amount
damages for which it would be held liable under its contract with a buyer if
such damages have not been demanded from and paid by it and before it