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CA133 SCRA 98
In February 1971, Isabelo Moran and Mariano Pecson entered into a partnership
agreement where they agreed to contribute P15k each for the purpose of printing 95k
posters of the delegates to the then 1971 Constitutional Commission. Moran shall be in
charge in managing the printing of the posters. It was further agreed that Pecson will
receive a commission of P1k a month starting from April 1971 to December 1971; that
the partnership is to be liquidated on December 15, 1971.
Pecson partially fulfilled his obligation to the partnership when he issued P10k in favor
of the partnership. He gave the P10k to Moran as the managing partner. Moran
however did not add anything and, instead, he only used P4k out of the P10k in printing
2,000 posters. He only printed 2,000 posters because he felt that printing all 95k posters
is a losing venture because of the delay by the COMELEC in announcing the full
delegates. All the posters were sold for a total of P10k.
Pecson sued Moran. The trial court ordered Moran to pay Pecson damages. The Court
of Appeals affirmed the decision of the trial court but modified the same as it ordered
Moran to pay P47.5k for unrealized profit; P8k for Pecsons monthly commissions; P7k
as return of investment because the venture never took off; plus interest.

ISSUE: Whether or not the CA judgment is correct.

HELD: No. The award of P47.5k for unrealized profit is speculative. There is no
evidence whatsoever that the partnership between the Moran and Pecson would have
been a profitable venture (because base on the circumstances then i.e. the delay of the
COMELEC in proclaiming the candidates, profit is highly unlikely). In fact, it was a
failure doomed from the start. There is therefore no basis for the award of speculative
damages in favor of Pecson. Further, there is mutual breach in this case, Pecson only
gave P10k instead of P15k while Moran gave nothing at all.

As for the P8k monthly commission, this is without basis. The agreement does not state
the basis of the commission. The payment of the commission could only have been
predicated on relatively extravagant profits. The parties could not have intended the
giving of a commission inspite of loss or failure of the venture. Since the venture was a
failure, Pecson is not entitled to the P8k commission.

As for the P7k award as return for Pecsons investment, the CA erred in his ruling too.
Though the venture failed, it did took off the ground as evidenced by the 2,000 posters
printed. Hence, return of investment is not proper in this case. There are risks in any
business venture and the failure of the undertaking cannot entirely be blamed on the
managing partner alone, especially if the latter exercised his best business judgment,
which seems to be true in this case.

Moran must however return the unused P6k of Pecsons contribution to the partnership
plus P3k representing Pecsons profit share in the sale of the printed posters.
Computation of P3k profit share is as follows: (P10k profit from the sale of the 2,000
posters printed) (P4k expense in printing the 2k posters) = (P6k profit); Profit 2 =
P3k each.
1. Partner who promises to contribute to partnership becomes promissory debtor
of latter.
2. Essence of partnership is that partners share in profits and losses.
3. Partner entitled to recover shares of profits and losses realized by venture.
4. Where partnership venture is a failure, a partner is not entitled to any commission
promised by co-partner where agreement doesnt state basis of commission.
An equipment which was contributed by one of the partners to the partnership becomes
the property of the partnership and as such cannot be disposed of by the party
contributing the same without the consent of the partnership or the other partner

On October 9, 1954 a co-partnership was formed under the name of "Evangelista &
Co." On June 7, 1955 the Articles of Co-partnership was amended as to include herein
respondent, Estrella Abad Santos, as industrial partner, with herein petitioners Domingo
C. Evangelista, Jr., Leonardo Atienza Abad Santos and Conchita P. Navarro, the
original capitalist partners, remaining in that capacity, with a contribution of P17,500
each. The amended Articles provided, inter alia, that "the contribution of Estrella Abad
Santos consists of her industry being an industrial partner", and that the profits and
losses "shall be divided and distributed among the partners ... in the proportion of 70%
for the first three partners, Domingo C. Evangelista, Jr., Conchita P. Navarro and
Leonardo Atienza Abad Santos to be divided among them equally; and 30% for the
fourth partner Estrella Abad Santos." On December 17, 1963 herein respondent filed
suit against the three other partners, alleging that the partnership, which was also made
a party-defendant, had been paying dividends to the partners except to her; and that
notwithstanding her demands the defendants had refused and continued to refuse and
let her examine the partnership books or to give her information regarding the
partnership affairs to pay her any share in the dividends declared by the partnership.
She therefore prayed that the defendants be ordered to render accounting to her of the
partnership business and to pay her corresponding share in the partnership profits after
such accounting, plus attorney's fees and costs.
Whether or not Abad Santos is an industrial partner and is entitled to the shares of the
It is not disputed that the prohibition against an industrial partner engaging in business
for himself seeks to prevent any conflict in interest between the industrial partner and
the partnership, and to insure faithful compliance by said partner with his pretention.

Mauricio Agad and defendant Severino Mabato are partners in a fishpond business.
From 1952up to and including 1956, Mabato who handled the partnership funds, had
yearly renderedaccounts of the operations of the partnership, that despite repeated
demands, Mabato failedand refused to render accounts for the years 1957 to 1963.
Consequently Agad filed acomplaint in the CIF of Davao. In his answer, Mabato
admitted the formal allegations of thecomplaint and denied the existence of said
partnership, upon the ground that the contracttherefor had not been perfected, despite
the execution of Annex "A", because Agad hadallegedly failed to give his P1,000
contribution to the partnership capital. Subsequently, Mabatofiled a motion to dismiss,
upon the ground that the complaint states no cause of action and thatthe lower court
had no jurisdiction over the subject matter of the case, because it involvesprincipally the
determination of rights over public lands. After due hearing, the court issued theorder
appealed from, granting the motion to dismiss the complaint for failure to state a cause
of action. This conclusion was predicated upon the theory that the contract of
partnership, Annex"A", is null and void, pursuant to Art. 1773 of our Civil Code, because
an inventory of thefishpond referred in said instrument had not been attached thereto. A
reconsideration of thisorder having been denied, Agad brought the matter to the
Supreme Court for review by recordon appeal.
Whether Art. 1773 of the Civil Code is applicable in this case.
We find that said Article 1773 of the Civil Code is not in point.

Art. 1771. A partnership may be constituted in any form, except where immovable
property or real rights are contributed thereto, in which case a public instrument shall be
Art. 1773. A contract of partnership is void, whenever immovable property is contributed
thereto, if inventory of said property is not made, signed by the parties; and attached to
the public instrument.
The issue before us hinges on whether or not "immovable property or real rights" have
been contributed to the partnership under consideration. Mabato alleged and the lower
court held that the answer should be in the affirmative, because "it is really
inconceivable how a partnership engaged in the fishpond business could exist without
said fishpond property (being)contributed to the partnership." It should be noted,
however, that, as stated in Annex "A" the partnership was established "to operate a
fishpond", not to "engage in a fishpond business. Moreover, none of the partners
contributed either a fishpond or a real right to any fishpond. Their contributions were
limited to the sum of P1,000 each. Indeed, Paragraph 4 of Annex "A provides:
That the capital of the said partnership is Two Thousand (P2,000.00) Pesos Philippine
Currency, of which One Thousand(P1,000.00) pesos has been contributed by Severino
Mabato and One Thousand (P1,000.00) Pesos has been contributed by Mauricio
Agad.x x x x x x x x x
The operation of the fishpond mentioned in Annex "A" was the purpose of the
partnership. Neither said fishpond nor a real right thereto was contributed to the
partnership or became part of the capital thereof, even if a fishpond or a real right
thereto could become part of its assets.
A corporation cannot enter into a partnership contract but may engage in a joint venture
with others.
There is nothing against one corporation being represented by another person, natural
or juridical, in a suit in court. The contention that Gregorio Araneta Inc. cannot act as
managing partner for plaintiff on the theory that it is illegal for two corporations to enter
into a partnership is without merit, for the true rule is that though a corporation has no
power into a partnership, it may nevertheless enter into a joint venture with another
where the nature of that venture is in line with the business authorized by its charter.

The essential elements of a partnership are the following:
1. An agreement to contribute money, property, or industry to a common fund
2. Intent to divide the profits among the contracting parties.
The first element is admittedly present in this case. The petitioners have agreed to and
did contribute money and property to a common fund.
On the second element, considering the facts and circumstances of the case, it is
shown that the purpose was to engage in real estate transactions for monetary gain and
then divide the same among themselves because:
1. They created the fund purposely
2. They invested the same not only in one transaction but in a series of transactions
3. The properties were not used for personal consumption or residential use but were
leased separately to several persons
4. The properties were under the management of one person Although, taken singly,
they might not suffice to establish the intent necessary to constitute a partnership, the
collective effect of these circumstances is such as to leave no room for doubt of the
existence of said intent in petitioners herein.*For purposes of the tax on corporations,
our NIRC includes these partnershipswith the exception only of general co-
partnershipswithin the purview of the term corporation. It thus clear to our mind that
petitioners herein constitute a partnership, insofar as the Code is concerned, and are
subject to the income tax for corporations.
While it is true that a corporation once formed is conferred a juridical personality
separate and distinct from the persons composing it, it is but of legal fiction introduced
for the purposes of convenience and to subverve the ends of justice. The
concept cannot be extended to a point beyond its reasons and policy, and when
invoked in support of an end subversive of this policy, will be disregarded by the courts.
A contract to form a partnership cannot be executed. It entails an obligation to do. The
law recognizes the individuals freedom to do an act he has promised to do, or not to do
it, as he pleases. This is a very personal act of which courts may not compel
compliance, as it is considered as an act of violence to do so.

The sharing of returns doesnt in itself establish a partnership. In order to constitute
a partnership inter sese, there must be: an intent to form the same; generally
participating in both profits and losses; and such a community of interest, as far as third
persons are concerned as enables each party to make contract, manage the business,
and dispose of the whole property.