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G.R. No.

L-19819 October 26, 1977


WILLIAM
UY, plaintiff-appellee,
vs.
BARTOLOME PUZON, substituted by FRANCO PUZON, defendantappellant.
CONCEPCION JR., J.:

t.hqw

Appeal from the decision of the Court of First Instanre of Manila,


dissolving the "U.P. Construction Company" and ordering the defendant
Bartolome Puzon to pay the plaintiff the amounts of: (1) P115,102.13, with
legal interest thereon from the date of the filing of the complaint until fully
paid; (2) P200,000.00, as plaintiffs share in the unrealized profits of the
"U.P. Construction Company" and (3) P5,000.00, as and for attorney's
fees.
It is of record that the defendant Bartolome Puzon had a contract with the
Republic of the Philippines for the construction of the Ganyangan Bato
Section of the Pagadian Zamboanga City Road, province of Zamboanga
del Sur 1 and of five (5) bridges in the Malangas-Ganyangan Road. 2 Finding
difficulty in accomplishing both projects, Bartolome Puzon sought the
financial assistance of the plaintiff, William Uy. As an inducement, Puzon
proposed the creation of a partnership between them which would be the
sub-contractor of the projects and the profits to be divided equally between
them. William Uy inspected the projects in question and, expecting to derive
considerable profits therefrom, agreed to the proposition, thus resulting in the
formation of the "U.P. Construction Company" 3 which was subsequently
engaged as subcontractor of the construction projects. 4
The partners agreed that the capital of the partnership would be
P100,000.00 of which each partner shall contribute the amount of
P50,000.00 in cash. 5 But, as heretofore stated, Puzon was short of cash
and he promised to contribute his share in the partnership capital as soon as
his application for a loan with the Philippine National Bank in the amount of
P150,000.00 shall have been approved. However, before his loan application
could be acted upon, he had to clear his collaterals of its incumbrances first.
For this purpose, on October 24, 1956, Wilham Uy gave Bartolome Puzon the
amount of P10,000.00 as advance contribution of his share in the partnership
to be organized between them under the firm name U.P. CONSTRUCTION
COMPANY which amount mentioned above will be used by Puzon to pay his
obligations with the Philippine National Bank to effect the release of his
mortgages with the said Bank. 6 On October 29, 1956, William Uy again gave
Puzon the amount of P30,000.00 as his partial contribution to the proposed

partnership and which the said Puzon was to use in payment of his obligation
to the Rehabilitation Finance Corporation. 7 Puzon promised William Uy that
the amount of P150,000.00 would be given to the partnership to be applied
thusly: P40,000.00, as reimbursement of the capital contribution of William Uy
which the said Uy had advanced to clear the title of Puzon's property;
P50,000.00, as Puzon's contribution to the partnership; and the balance of
P60,000.00 as Puzon's personal loan to the partnership. 8

Although the partnership agreement was signed by the parties on


January 18, 1957,9 work on the projects was started by the partnership on
October 1, 1956 in view of the insistence of the Bureau of Public Highways to
complete the project right away. 10 Since Puzon was busy with his other
projects, William Uy was entrusted with the management of the projects and
whatever expense the latter might incur, would be considered as part of his
contribution. 11 At the end of December, 1957, William Uy had contributed to
the partnership the amount of P115,453.39, including his capital. 12
The loan of Puzon was approved by the Philippine National Bank in
November, 1956 and he gave to William Uy the amount of P60,000.00. Of
this amount, P40,000.00 was for the reimbursement of Uy's contribution
to the partnership which was used to clear the title to Puzon's property,
and the P20,000.00 as Puzon's contribution to the partnership capital. 13
To guarantee the repayment of the above-mentioned loan, Bartolome
Puzon, without the knowledge and consent of William Uy, 14 assigned to
the Philippine National Bank all the payments to be received on account of
the contracts with the Bureau of Public Highways for the construction of the
afore-mentioned projects. 15 By virtue of said assignment, the Bureau of
Public Highways paid the money due on the partial accomplishments on the
government projects in question to the Philippine National Bank which, in
turn, applied portions of it in payment of Puzon's loan. Of the amount of
P1,047,181.07, released by the Bureau of Public Highways in payment of the
partial work completed by the partnership on the projects, the amount of
P332,539.60 was applied in payment of Puzon's loan and only the amount of
P27,820.80 was deposited in the partnership funds, 16 which, for all practical
purposes, was also under Puzon's account since Puzon was the custodian of
the common funds.
As time passed and the financial demands of the projects increased,
William Uy, who supervised the said projects, found difficulty in obtaining
the necessary funds with which to pursue the construction projects.
William Uy correspondingly called on Bartolome Puzon to comply with his
obligations under the terms of their partnership agreement and to place,
at lest, his capital contribution at the disposal of the partnership. Despite
several promises, Puzon, however, failed to do so. 17 Realizing that his

verbal demands were to no avail, William Uy consequently wrote Bartolome


Puzon pormal letters of demand, 18 to which Puzon replied that he is unable to
put in additional capital to continue with the projects. 19

Failing to reach an agreement with William Uy, Bartolome Puzon, as


prime contractor of the construction projects, wrote the subcontractor,
U.P. Construction Company, on November 20, 1957, advising the
partnership, of which he is also a partner, that unless they presented an
immediate solution and capacity to prosecute the work effectively, he
would be constrained to consider the sub-contract terminated and,
thereafter, to assume all responsibilities in the construction of the projects
in accordance with his original contract with the Bureau of Public
Highways. 20 On November 27, 1957, Bartolome Puzon again wrote the
U.P.Construction Company finally terminating their subcontract agreement as
of December 1, 1957. 21
Thereafter, William Uy was not allowed to hold office in the U.P.
Construction Company and his authority to deal with the Bureau of Public
Highways in behalf of the partnership was revoked by Bartolome Puzon
who continued with the construction projects alone. 22
On May 20, 1958, William Uy, claiming that Bartolome Puzon had violated
the terms of their partnership agreement, instituted an action in court,
seeking, inter alia, the dissolution of the partnership and payment of
damages.
Answering, Bartolome Puzon denied that he violated the terms of their
agreement claiming that it was the plaintiff, William Uy, who violated the
terms thereof. He, likewise, prayed for the dissolution of the partnership
and for the payment by the plaintiff of his, share in the losses suffered by
the partnership.
After appropriate proceedings, the trial court found that the defendant,
contrary to the terms of their partnership agreement, failed to contribute
his share in the capital of the partnership applied partnership funds to his
personal use; ousted the plaintiff from the management of the firm, and
caused the failure of the partnership to realize the expected profits of at
least P400,000.00. As a consequence, the trial court dismissed the
defendant's counterclaim and ordered the dissolution of the partnership.
The trial court further ordered the defendant to pay the plaintiff the sum of
P320,103.13.
Hence, the instant appeal by the defendant Bartolome Puzon during the
pendency of the appeal before this Court, the said Bartolome Puzon died,
and was substituted by Franco Puzon.

The appellant makes in his brief nineteen (19) assignment of errors,


involving questions of fact, which relates to the following points:
(1) That the appellant is not guilty of breach of contract; and
(2) That the amounts of money the appellant has been order to pay the
appellee is not supported by the evidence and the law.
After going over the record, we find no reason for rejecting the findings of
fact below, justifying the reversal of the decision appealed from.
The findings of the trial court that the appellant failed to contribute his
share in the capital of the partnership is clear incontrovertible. The record
shows that after the appellant's loan the amount of P150,000.00 was
approved by the Philippin National Bank in November, 1956, he gave the
amount P60,000.00 to the appellee who was then managing the
construction projects. Of this amount, P40,000.00 was to be applied a
reimbursement of the appellee's contribution to the partnership which was
used to clear the title to the appellant's property, and th balance of
P20,000.00, as Puzon's contribution to the partnership. 23 Thereafter, the
appellant failed to make any further contributions the partnership funds as
shown in his letters to the appellee wherein he confessed his inability to put in
additional capital to continue with the projects. 24
Parenthetically, the claim of the appellant that the appellee is equally
guilty of not contributing his share in the partnership capital inasmuch as
the amount of P40,000.00, allegedly given to him in October, 1956 as
partial contribution of the appellee is merely a personal loan of the
appellant which he had paid to the appellee, is plainly untenable. The
terms of the receipts signed by the appellant are clear and unequivocal
that the sums of money given by the appellee are appellee's partial
contributions to the partnership capital. Thus, in the receipt for
P10,000.00 dated October 24, 1956, 25 the appellant stated:
+.wph!1

Received from Mr. William Uy the sum of TEN


THOUSAND PESOS (P10,000.00) in Check No. SC
423285 Equitable Banking Corporation, dated October 24,
1956, as advance contribution of the share of said William
Uy in the partnership to be organized between us under
the firm name U.P. CONSTRUCTION COMPANY which
amount mentioned above will be used by the undersigned
to pay his obligations with the Philippine National Bank to
effect the release of his mortgages with the said bank.
(Emphasis supplied)

In the receipt for the amount of P30,000.00 dated October 29, 1956,
appellant also said:

26

the

+.wph!1

Received from William Uy the sum of THIRTY


THOUSAND PESOS (P30,000.00) in Check No.
SC423287, of the Equitable Banking Corporation, as
partial contribution of the share of the said William Uy to
the U.P. CONSTRUCTION COMPANY for which the
undersigned will use the said amount in payment of his
obligation to the Rehabilitation Finance Corporation.
(Emphasis supplied)
The findings of the trial court that the appellant misapplied partnership
funds is, likewise, sustained by competent evidence. It is of record that
the appellant assigned to the Philippine National Bank all the payments to
be received on account of the contracts with the Bureau of Public
Highways for the construction of the aforementioned projects to
guarantee the repayment of the bank. 27 By virtue of the said appeflant's
personal loan with the said bank assignment, the Bureau of Public Highways
paid the money due on the partial accomplishments on the construction
projects in question to the Philippine National Bank who, in turn, applied
portions of it in payment of the appellant's loan. 28
The appellant claims, however, that the said assignment was made with
the consent of the appellee and that the assignment not prejudice the
partnership as it was reimbursed by the appellant.
But, the appellee categorically stated that the assignment to the
Philippine National Bank was made without his prior knowledge and
consent and that when he learned of said assignment, he cal the attention
of the appellant who assured him that the assignment was only temporary
as he would transfer the loan to the Rehabilitation Finance Corporation
within three (3) months time. 29
The question of whom to believe being a matter large dependent on the
trier's discretion, the findings of the trial court who had the better
opportunity to examine and appraise the fact issue, certainly deserve
respect.
That the assignment to the Philippine National Bank prejudicial to the
partnership cannot be denied. The record show that during the period
from March, 1957 to September, 1959, the appellant Bartolome Puzon
received from the Bureau of Public highways, in payment of the work
accomplished on the construction projects, the amount of P1,047,181.01,
which amount rightfully and legally belongs to the partnership by virtue of

the subcontract agreements between the appellant and the U.P.


Construction Company. In view of the assignemt made by Puzon to the
Philippine National Bank, the latter withheld and applied the amount of
P332,539,60 in payment of the appellant's personal loan with the said
bank. The balance was deposited in Puzon's current account and only the
amount of P27,820.80 was deposited in the current account of the
partnership. 30 For sure, if the appellant gave to the partnership all that were
eamed and due it under the subcontract agreements, the money would have
been used as a safe reserve for the discharge of all obligations of the firm
and the partnership would have been able to successfully and profitably
prosecute the projects it subcontracted.
When did the appellant make the reimbursement claimed by him?
For the same period, the appellant actually disbursed for the partnership,
in connection with the construction projects, the amount of
P952,839.77. 31 Since the appellant received from the Bureau of Public
Highways the sum of P1,047,181.01, the appellant has a deficit balance of
P94,342.24. The appellant, therefore, did not make complete restitution.
The findings of the trial court that the appellee has been ousted from the
management of the partnership is also based upon persuasive evidence.
The appellee testified that after he had demanded from the appellant
payment of the latter's contribution to the partnership capital, the said
appellant did not allow him to hold office in the U.P. Construction
Company and his authority to deal with the Bureau of Public Highways
was revoked by the appellant. 32
As the record stands, We cannot say, therefore, that the decis of the trial
court is not sustained by the evidence of record as warrant its reverw.
Since the defendantappellant was at fauh, the tral court properly ordered
him to reimburse the plaintiff-appellee whatever amount latter had
invested in or spent for the partnership on account of construction
projects.
How much did the appellee spend in the construction projects question?
It appears that although the partnership agreement stated the capital of
the partnership is P100,000.00 of which each part shall contribute to the
partnership the amount of P50,000.00 cash 33 the partners of the U.P.
Construction Company did contribute their agreed share in the capitalization
of the enterprise in lump sums of P50,000.00 each. Aside from the initial
amount P40,000.00 put up by the appellee in October, 1956, 34 the partners'
investments took, the form of cash advances coveting expenses of the

construction projects as they were incurred. Since the determination of the


amount of the disbursements which each of them had made for the
construction projects require an examination of the books of account, the trial
court appointed two commissioners, designated by the parties, "to examine
the books of account of the defendant regarding the U.P. Construction
Company and his personal account with particular reference to the Public
Works contract for the construction of the Ganyangan-Bato Section,
Pagadian-Zamboanga City Road and five (5) Bridges in MalangasGanyangan Road, including the payments received by defendant from the
Bureau of Public Highways by virtue of the two projects above mentioned, the
disbursements or disposition made by defendant of the portion thereof
released to him by the Philippine National Bank and in whose account these
funds are deposited . 35

In due time, the loners so appointed, 36 submitted their report 37 they


indicated the items wherein they are in agreement, as well as their points of
disagreement.
In the commissioners' report, the appellant's advances are listed under
Credits; the money received from the firm, under Debits; and the resulting
monthly investment standings of the partners, under Balances. The
commissioners are agreed that at the end of December, 1957, the
appellee had a balance of P8,242.39. 38 It is in their respective adjustments
of the capital account of the appellee that the commissioners had disagreed.
Mr. Ablaza, designated by the appellant, would want to charge the
appellee with the sum of P24,239.48, representing the checks isssued by
the appellant, 39 and encashed by the appellee or his brother, Uy Han so that
the appellee would owe the partnership the amount of P15,997.09.
Mr. Tayag, designated by the appellee, upon the other hand, would credit
the appellee the following additional amounts:
(1) P7,497.80 items omitted from the books of partnership but
recognized and charged to Miscellaneous Expenses by Mr. Ablaza;
(2) P65,103.77 payrolls paid by the appellee in the amount
P128,103.77 less payroll remittances from the appellant in amount of
P63,000.00; and
(3) P26,027.04 other expeses incurred by the appellee at construction
site.

With respect to the amount of P24,239.48, claimed by appellant, we are


hereunder adopting the findings of the trial which we find to be in accord
with the evidence:
To enhance defendant's theory that he should be credited P24,239.48, he
presented checks allegedly given to plaintiff and the latter's brother, Uy
Han, marked as Exhibits 2 to 11. However, defendant admitted that said
cheeks were not entered nor record their books of account, as expenses
for and in behalf of partnership or its affairs. On the other hand, Uy Han
testified that of the cheeks he received were exchange for cash, while
other used in the purchase of spare parts requisitioned by defendant. This
testimony was not refuted to the satisfaction of the Court, considering that
Han's explanation thereof is the more plausible because if they were
employed in the prosecution of the partners projects, the corresponding
disbursements would have certainly been recorded in its books, which is
not the case. Taking into account defendant is the custodian of the books
of account, his failure to so enter therein the alleged disbursements,
accentuates the falsity of his claim on this point. 40
Besides, as further noted by the trial court, the report Commissioner
Ablaza is unreliable in view of his proclivity to favor the appellant and
because of the inaccurate accounting procedure adopted by him in
auditing the books of account of the partnership unlike Mr. Tayag's report
which inspires faith and credence. 41
As explained by Mr. Tayag, the amount of P7,497.80 represen expenses
paid by the appellee out of his personal funds which not been entered in
the books of the partnership but which been recognized and conceded to
by the auditor designated by the appellant who included the said amount
under Expenses. 42
The explanation of Mr. Tayag on the inclusion of the amount of
P65,103.77 is likewise clear and convincing. 43
As for the sum of of P26,027.04, the same represents the expenses
which the appelle paid in connection withe the projects and not entered in
the books of the partnership since all vouchers and receipts were sent to
the Manila office which were under the control of the appellant. However,
officer which were under the control of the appellant. However, a list of
these expenses are incorporated in Exhibits ZZ, ZZ-1 to ZZ-4.
In resume', the appelllee's credit balance would be as follows:

site (Exhs, ZZ,


ZZ-1 to ZZ-4)

+.wph!1

Undisputed balance as of Dec.


1967

26,027.04

TOTAL
Add: Items omitted from the
books but

P106,871.

P 8,242.
At the trial, the appellee presented a claim for the amounts of P3,917.39
and P4,665.00 which he also advanced for the construction projects but
which were not included in the Commissioner's Report. 44

recognized and
Miscellaneous

charged

to

Expenses by Mr. Ablaza

Appellee's total credits

P106,871.00

Add: unrecorded balances


for the month of Dec. 1957
(Exhs. KKK, KK-1 to
KKK_19, KKK-22)

3,917,39

Add: Payments to Munoz,


as subcontractor of five,(5)
Bridges (p. 264 tsn; Exhs.
KKK-20, KKK-21)

4,665.00

Total Investments

Pl 15,453.39

7,497.80

Add: Payrolls paid by


the appellee

P128,103.77

Less:
Payroll
remittances
received

63,000.00

Add:
Other
expenses
incurred at the

Appellee's total investments in the partnership would, therefore, be:

65,103.77

Regarding the award of P200,000.00 as his share in the unrealized profits


of the partnership, the appellant contends that the findings of the trial
court that the amount of P400,000.00 as reasonable profits of the

partnership venture is without any basis and is not supported by the


evidence. The appemnt maintains that the lower court, in making its
determination, did not take into consideration the great risks involved in
business operations involving as it does the completion of the projects
within a definite period of time, in the face of adverse and often
unpredictable circumstances, as well as the fact that the appellee, who
was in charge of the projects in the field, contributed in a large measure
to the failure of the partnership to realize such profits by his field
management.
This argument must be overruled in the light of the law and evidence on
the matter. Under Article 2200 of the Civil Code, indemnification for
damages shall comprehend not only the value of the loss suffered, but
also that of the profits which the obligee failed to obtain. In other
words lucrum cessans is also a basis for indemnification.
Has the appellee failed to make profits because of appellant's breach of
contract?
There is no doubt that the contracting business is a profitable one and
that the U.P. Construction Company derived some profits from' co io oa
ects its sub ntracts in the construction of the road and bridges projects its
deficient working capital and the juggling of its funds by the appellant.
Contrary to the appellant's claim, the partnership showed some profits
during the period from July 2, 1956 to December 31, 1957. If the Profit
and Loss Statement 45 showed a net loss of P134,019.43, this was primarily
due to the confusing accounting method employed by the auditor who
intermixed h and accthe cas ruamethod of accounting and the erroneous
inclusion of certain items, like personal expenses of the appellant and afteged
extraordinary losses due to an accidental plane crash, in the operating
expenses of the partnership, Corrected, the Profit and Loss Statement would
indicate a net profit of P41,611.28.
For the period from January 1, 1958 to September 30, 1959, the
partnership admittedly made a net profit of P52,943.89. 46
Besides, as We have heretofore pointed out, the appellant received from
the Bureau of Public Highways, in payment of the zonstruction projects in
question, the amount of P1,047,181.01 47 and disbursed the amount of
P952,839.77, 48leaving an unaccounted balance of P94,342.24. Obviously,
this amount is also part of the profits of the partnership.
During the trial of this case, it was discovered that the appellant had
money and credits receivable froin the projects in question, in the custody

of the Bureau of Public Highways, in the amount of P128,669.75,


representing the 10% retention of said projects. 49 After the trial of this case,
it was shown that the total retentions Wucted from the appemnt amounted to
P145,358.00. 50 Surely, these retained amounts also form part of the profits of
the partnership.
Had the appellant not been remiss in his obligations as partner and as
prime contractor of the construction projects in question as he was bound
to perform pursuant to the partnership and subcontract agreements, and
considering the fact that the total contract amount of these two projects is
P2,327,335.76, it is reasonable to expect that the partnership would have
earned much more than the P334,255.61 We have hereinabove
indicated. The award, therefore, made by the trial court of the amount of
P200,000.00, as compensatory damages, is not speculative, but based
on reasonable estimate.
WHEREFORE, finding no error in the decision appealed from, the said
decision is hereby affirmed with costs against the appellant, it being
understood that the liability mentioned herein shall be home by the estate
of the deceased Bartolome Puzon, represented in this instance by the
administrator thereof, Franco Puzon.
SO ORDERED.

G.R. No. L-59956 October 31, 1984


ISABELO
vs.
THE
HON.
COURT
PECSON, respondents.
GUTIERREZ, JR., J.:

After the trial, the Court of First Instance held that:

MORAN,
OF

APPEALS

JR., petitioner,
and

MARIANO

E.

+.wph!1

This is a petition for review on certiorari of the decision of the respondent


Court of Appeals which ordered petitioner Isabelo Moran, Jr. to pay
damages to respondent Mariano E, Pecson.
As found by the respondent Court of Appeals, the undisputed facts
indicate that:
t.hqw

xxx xxx xxx


... on February 22, 1971 Pecson and Moran entered into an
agreement whereby both would contribute P15,000 each for the
purpose of printing 95,000 posters (featuring the delegates to
the 1971 Constitutional Convention), with Moran actually
supervising the work; that Pecson would receive a commission
of P l,000 a month starting on April 15, 1971 up to December 15,
1971; that on December 15, 1971, a liquidation of the accounts
in the distribution and printing of the 95,000 posters would be
made, that Pecson gave Moran P10,000 for which the latter
issued a receipt; that only a few posters were printed; that on or
about May 28, 1971, Moran executed in favor of Pecson a
promissory note in the amount of P20,000 payable in two equal
installments (P10,000 payable on or before June 15, 1971 and
P10,000 payable on or before June 30, 1971), the whole sum
becoming due upon default in the payment of the first installment
on the date due, complete with the costs of collection.
Private respondent Pecson filed with the Court of First Instance of Manila
an action for the recovery of a sum of money and alleged in his complaint
three (3) causes of action, namely: (1) on the alleged partnership
agreement, the return of his contribution of P10,000.00, payment of his
share in the profits that the partnership would have earned, and, payment
of unpaid commission; (2) on the alleged promissory note, payment of the
sum of P20,000.00; and, (3) moral and exemplary damages and
attorney's fees.

t.hqw

From the evidence presented it is clear in the mind of the court


that by virtue of the partnership agreement entered into by the
parties-plaintiff and defendant the plaintiff did contribute
P10,000.00, and another sum of P7,000.00 for the Voice of the
Veteran or Delegate Magazine. Of the expected 95,000 copies
of the posters, the defendant was able to print 2,000 copies only
authorized of which, however, were sold at P5.00 each. Nothing
more was done after this and it can be said that the venture did
not really get off the ground. On the other hand, the plaintiff
failed to give his full contribution of P15,000.00. Thus, each party
is entitled to rescind the contract which right is implied in
reciprocal obligations under Article 1385 of the Civil Code
whereunder 'rescission creates the obligation to return the things
which were the object of the contract ...
WHEREFORE, the court hereby renders judgment ordering
defendant Isabelo C. Moran, Jr. to return to plaintiff Mariano E.
Pecson the sum of P17,000.00, with interest at the legal rate
from the filing of the complaint on June 19, 1972, and the costs
of the suit.
For insufficiency of evidence, the counterclaim is hereby
dismissed.
From this decision, both parties appealed to the respondent Court of
Appeals. The latter likewise rendered a decision against the petitioner.
The dispositive portion of the decision reads:
t.hqw

PREMISES CONSIDERED, the decision appealed from is


hereby SET ASIDE, and a new one is hereby rendered, ordering
defendant-appellant Isabelo C. Moran, Jr. to pay plaintiffappellant Mariano E. Pecson:
(a) Forty-seven thousand five hundred (P47,500) (the amount
that could have accrued to Pecson under their agreement);
(b) Eight thousand (P8,000), (the commission for eight months);
(c) Seven thousand (P7,000) (as a return of Pecson's
investment for the Veteran's Project);

(d) Legal interest on (a), (b) and (c) from the date the
complaint was filed (up to the time payment is made)
The petitioner contends that the respondent Court of Appeals decided
questions of substance in a way not in accord with law and with Supreme
Court decisions when it committed the following errors:
I
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN
HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE SUM OF P47,500 AS
THE SUPPOSED EXPECTED PROFITS DUE HIM.
II

partnership. The petitioner contends that the award is highly speculative.


The petitioner maintains that the respondent court did not take into
account the great risks involved in the business undertaking.
We agree with the petitioner that the award of speculative damages has
no basis in fact and law.
There is no dispute over the nature of the agreement between the
petitioner and the private respondent. It is a contract of partnership. The
latter in his complaint alleged that he was induced by the petitioner to
enter into a partnership with him under the following terms and
conditions:
t.hqw

1. That the partnership will print colored posters of the


delegates to the Constitutional Convention;

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN


HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE SUM OF P8,000, AS
SUPPOSED COMMISSION IN THE PARTNERSHIP ARISING OUT OF
PECSON'S INVESTMENT.

2. That they will invest the amount of Fifteen Thousand


Pesos (P15,000.00) each;

III

4. That plaintiff will receive a commission of One


Thousand Pesos (P1,000.00) a month starting April 15,
1971 up to December 15, 1971;

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN


HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO
RESPONDENT MARIANO E. PECSON IN THE SUM OF P7,000 AS A
SUPPOSED RETURN OF INVESTMENT IN A MAGAZINE VENTURE.
IV
ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL
LIABLE FOR ANY AMOUNT, THE HONORABLE COURT OF APPEALS
DID NOT EVEN OFFSET PAYMENTS ADMITTEDLY RECEIVED BY
PECSON FROM MORAN.
V
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN
NOT GRANTING THE PETITIONER'S COMPULSORY COUNTERCLAIM
FOR DAMAGES.
The first question raised in this petition refers to the award of P47,500.00
as the private respondent's share in the unrealized profits of the

3. That they will print Ninety Five Thousand (95,000)


copies of the said posters;

5. That upon the termination of the partnership on


December 15, 1971, a liquidation of the account
pertaining to the distribution and printing of the said
95,000 posters shall be made.
The petitioner on the other hand admitted in his answer the existence of
the partnership.
The rule is, when a partner who has undertaken to contribute a sum of
money fails to do so, he becomes a debtor of the partnership for whatever
he may have promised to contribute (Art. 1786, Civil Code) and for
interests and damages from the time he should have complied with his
obligation (Art. 1788, Civil Code). Thus in Uy v. Puzon (79 SCRA 598),
which interpreted Art. 2200 of the Civil Code of the Philippines, we
allowed a total of P200,000.00 compensatory damages in favor of the
appellee because the appellant therein was remiss in his obligations as a
partner and as prime contractor of the construction projects in question.
This case was decided on a particular set of facts. We awarded

compensatory damages in the Uy case because there was a finding that


the constructing business is a profitable one and that the UP construction
company derived some profits from its contractors in the construction of
roads and bridges despite its deficient capital." Besides, there was
evidence to show that the partnership made some profits during the
periods from July 2, 1956 to December 31, 1957 and from January 1,
1958 up to September 30, 1959. The profits on two government contracts
worth P2,327,335.76 were not speculative. In the instant case, there is no
evidence whatsoever that the partnership between the petitioner and the
private respondent would have been a profitable venture. In fact, it was a
failure doomed from the start. There is therefore no basis for the award of
speculative damages in favor of the private respondent.
Furthermore, in the Uy case, only Puzon failed to give his full contribution
while Uy contributed much more than what was expected of him. In this
case, however, there was mutual breach. Private respondent failed to
give his entire contribution in the amount of P15,000.00. He contributed
only P10,000.00. The petitioner likewise failed to give any of the amount
expected of him. He further failed to comply with the agreement to print
95,000 copies of the posters. Instead, he printed only 2,000 copies.
Article 1797 of the Civil Code provides:

t.hqw

The losses and profits shall be distributed in conformity


with the agreement. If only the share of each partner in
the profits has been agreed upon, the share of each in the
losses shall be in the same proportion.
Being a contract of partnership, each partner must share in the profits and
losses of the venture. That is the essence of a partnership. And even with
an assurance made by one of the partners that they would earn a huge
amount of profits, in the absence of fraud, the other partner cannot claim
a right to recover the highly speculative profits. It is a rare business
venture guaranteed to give 100% profits. In this case, on an investment of
P15,000.00, the respondent was supposed to earn a guaranteed
P1,000.00 a month for eight months and around P142,500.00 on 95,000
posters costing P2.00 each but 2,000 of which were sold at P5.00 each.
The fantastic nature of expected profits is obvious. We have to take
various factors into account. The failure of the Commission on Elections
to proclaim all the 320 candidates of the Constitutional Convention on
time was a major factor. The petitioner undesirable his best business
judgment and felt that it would be a losing venture to go on with the
printing of the agreed 95,000 copies of the posters. Hidden risks in any
business venture have to be considered.

It does not follow however that the private respondent is not entitled to
recover any amount from the petitioner. The records show that the private
respondent gave P10,000.00 to the petitioner. The latter used this amount
for the printing of 2,000 posters at a cost of P2.00 per poster or a total
printing cost of P4,000.00. The records further show that the 2,000 copies
were sold at P5.00 each. The gross income therefore was P10,000.00.
Deducting the printing costs of P4,000.00 from the gross income of
P10,000.00 and with no evidence on the cost of distribution, the net
profits amount to only P6,000.00. This net profit of P6,000.00 should be
divided between the petitioner and the private respondent. And since only
P4,000.00 was undesirable by the petitioner in printing the 2,000 copies,
the remaining P6,000.00 should therefore be returned to the private
respondent.
Relative to the second alleged error, the petitioner submits that the award
of P8,000.00 as Pecson's supposed commission has no justifiable basis
in law.
Again, we agree with the petitioner.
The partnership agreement stipulated that the petitioner would give the
private respondent a monthly commission of Pl,000.00 from April 15,
1971 to December 15, 1971 for a total of eight (8) monthly commissions.
The agreement does not state the basis of the commission. The payment
of the commission could only have been predicated on relatively
extravagant profits. The parties could not have intended the giving of a
commission inspite of loss or failure of the venture. Since the venture was
a failure, the private respondent is not entitled to the P8,000.00
commission.
Anent the third assigned error, the petitioner maintains that the
respondent Court of Appeals erred in holding him liable to the private
respondent in the sum of P7,000.00 as a supposed return of investment
in a magazine venture.
In awarding P7,000.00 to the private respondent as his supposed return
of investment in the "Voice of the Veterans" magazine venture, the
respondent court ruled that:
t.hqw

xxx xxx xxx


... Moran admittedly signed the promissory note of
P20,000 in favor of Pecson. Moran does not question the
due execution of said note. Must Moran therefore pay the

amount of P20,000? The evidence indicates that the


P20,000 was assigned by Moran to cover the following:
t.hqw

(a) P 7,000 the amount of the PNB


check given by Pecson to Moran
representing Pecson's investment in
Moran's other project (the publication and
printing of the 'Voice of the Veterans');
(b) P10,000 to cover the return of
Pecson's contribution in the project of the
Posters;
(c) P3,000 representing Pecson's
commission for three months (April, May,
June, 1971).
Of said P20,000 Moran has to pay P7,000 (as a return of
Pecson's investment for the Veterans' project, for this
project never left the ground) ...
As a rule, the findings of facts of the Court of Appeals are final and
conclusive and cannot be reviewed on appeal to this Court (Amigo v.
Teves, 96 Phil. 252), provided they are borne out by the record or are
based on substantial evidence (Alsua-Betts v. Court of Appeals, 92 SCRA
332). However, this rule admits of certain exceptions. Thus, in Carolina
Industries Inc. v. CMS Stock Brokerage, Inc., et al., (97 SCRA 734), we
held that this Court retains the power to review and rectify the findings of
fact of the Court of Appeals when (1) the conclusion is a finding grounded
entirely on speculation, surmises and conjectures; (2) when the inference
made is manifestly mistaken absurd and impossible; (3) where there is
grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; and (5) when the court, in making its findings,
went beyond the issues of the case and the same are contrary to the
admissions of both the appellant and the appellee.
In this case, there is misapprehension of facts. The evidence of the
private respondent himself shows that his investment in the "Voice of
Veterans" project amounted to only P3,000.00. The remaining P4,000.00
was the amount of profit that the private respondent expected to receive.
The records show the following exhibits-

t.hqw

E Xerox copy of PNB Manager's Check No. 234265


dated March 22, 1971 in favor of defendant. Defendant
admitted the authenticity of this check and of his receipt of
the proceeds thereof (t.s.n., pp. 3-4, Nov. 29, 1972). This
exhibit is being offered for the purpose of showing
plaintiff's capital investment in the printing of the "Voice of
the Veterans" for which he was promised a fixed profit of
P8,000. This investment of P6,000.00 and the promised
profit of P8,000 are covered by defendant's promissory
note for P14,000 dated March 31, 1971 marked by
defendant as Exhibit 2 (t.s.n., pp. 20-21, Nov. 29, 1972),
and by plaintiff as Exhibit P. Later, defendant returned
P3,000.00 of the P6,000.00 investment thereby
proportionately reducing the promised profit to P4,000.
With the balance of P3,000 (capital) and P4,000
(promised profit), defendant signed and executed the
promissory note for P7,000 marked Exhibit 3 for the
defendant and Exhibit M for plaintiff. Of this P7,000,
defendant paid P4,000 representing full return of the
capital investment and P1,000 partial payment of the
promised profit. The P3,000 balance of the promised profit
was made part consideration of the P20,000 promissory
note (t.s.n., pp. 22-24, Nov. 29, 1972). It is, therefore,
being presented to show the consideration for the
P20,000 promissory note.
F Xerox copy of PNB Manager's check dated May 29,
1971 for P7,000 in favor of defendant. The authenticity of
the check and his receipt of the proceeds thereof were
admitted by the defendant (t.s.n., pp. 3-4, Nov. 29, 1972).
This P 7,000 is part consideration, and in cash, of the
P20,000 promissory note (t.s.n., p. 25, Nov. 29, 1972),
and it is being presented to show the consideration for the
P20,000 note and the existence and validity of the
obligation.
xxx xxx xxx
L-Book entitled "Voice of the Veterans" which is being
offered for the purpose of showing the subject matter of
the other partnership agreement and in which plaintiff
invested the P6,000 (Exhibit E) which, together with the
promised profit of P8,000 made up for the consideration of
the P14,000 promissory note (Exhibit 2; Exhibit P). As
explained in connection with Exhibit E. the P3,000

balance of the promised profit was later made part


consideration of the P20,000 promissory note.

Q And what does the amount of P14,000.00 indicated in the


promissory note, Exhibit 2, represent?

M-Promissory note for P7,000 dated March 30, 1971. This


is also defendant's Exhibit E. This document is being
offered for the purpose of further showing the transaction
as explained in connection with Exhibits E and L.

A It represents the P6,000.00 cash which I gave to Mr. Moran, as


evidenced by the Philippine National Bank Manager's check and
the P8,000.00 profit assured me by Mr. Moran which I will derive
from the printing of this "Voice of the Veterans" book.

N-Receipt of plaintiff dated March 30, 1971 for the return


of his P3,000 out of his capital investment of P6,000 (Exh.
E) in the P14,000 promissory note (Exh. 2; P). This is also
defendant's Exhibit 4. This document is being offered in
support of plaintiff's explanation in connection with
Exhibits E, L, and M to show the transaction mentioned
therein.

Q You said that the P6,000.00 of this P14,000.00 is covered by,


a Manager's check. I show you Exhibit E, is this the Manager's
check that mentioned?

xxx xxx xxx


P-Promissory note for P14,000.00. This is also
defendant's Exhibit 2. It is being offered for the purpose of
showing the transaction as explained in connection with
Exhibits E, L, M, and N above.
Explaining the above-quoted exhibits, respondent Pecson testified that:

t.hqw

Q During the pre-trial of this case, Mr. Pecson, the defendant


presented a promissory note in the amount of P14,000.00 which
has been marked as Exhibit 2. Do you know this promissory
note?
A Yes, sir.
Q What is this promissory note, in connection with your
transaction with the defendant?
A This promissory note is for the printing of the "Voice of the
Veterans".
Q What is this "Voice of the Veterans", Mr. Pecson?
A It is a book.

A Yes, sir.
Q What happened to this promissory note of P14,000.00 which
you said represented P6,000.00 of your investment and
P8,000.00 promised profits?
A Latter, Mr. Moran returned to me P3,000.00 which represented
one-half (1/2) of the P6,000.00 capital I gave to him.
Q As a consequence of the return by Mr. Moran of one-half (1/2)
of the P6,000.00 capital you gave to him, what happened to the
promised profit of P8,000.00?
A It was reduced to one-half (1/2) which is P4,000.00.
Q Was there any document executed by Mr. Moran in
connection with the Balance of P3,000.00 of your capital
investment and the P4,000.00 promised profits?
A Yes, sir, he executed a promissory note.
Q I show you a promissory note in the amount of P7,000.00
dated March 30, 1971 which for purposes of Identification I
request the same to be marked as Exhibit M. . .
Court

t.hqw

Mark it as Exhibit M.
t.hqw

(T.S.N., p. 19, Nov. 29, 1972)

Q (continuing) is this the promissory note which you said was


executed by Mr. Moran in connection with your transaction
regarding the printing of the "Voice of the Veterans"?
A Yes, sir. (T.S.N., pp. 20-22, Nov. 29, 1972).
Q What happened to this promissory note executed by Mr.
Moran, Mr. Pecson?
A Mr. Moran paid me P4,000.00 out of the P7,000.00 as shown
by the promissory note.
Q Was there a receipt issued by you covering this payment of
P4,000.00 in favor of Mr. Moran?
A Yes, sir.
(T.S.N., p. 23, Nov. 29, 1972).
Q You stated that Mr. Moran paid the amount of P4,000.00 on
account of the P7,000.00 covered by the promissory note,
Exhibit M. What does this P4,000.00 covered by Exhibit N
represent?
A This P4,000.00 represents the P3,000.00 which he has
returned of my P6,000.00 capital investment and the P1,000.00
represents partial payment of the P4,000.00 profit that was
promised to me by Mr. Moran.
Q And what happened to the balance of P3,000.00 under the
promissory note, Exhibit M?
A The balance of P3,000.00 and the rest of the profit was
applied as part of the consideration of the promissory note of
P20,000.00.
(T.S.N., pp. 23-24, Nov. 29, 1972).
The respondent court erred when it concluded that the project never left
the ground because the project did take place. Only it failed. It was the
private respondent himself who presented a copy of the book entitled
"Voice of the Veterans" in the lower court as Exhibit "L". Therefore, it
would be error to state that the project never took place and on this basis
decree the return of the private respondent's investment.

As already mentioned, there are risks in any business venture and the
failure of the undertaking cannot entirely be blamed on the managing
partner alone, specially if the latter exercised his best business judgment,
which seems to be true in this case. In view of the foregoing, there is no
reason to pass upon the fourth and fifth assignments of errors raised by
the petitioner. We likewise find no valid basis for the grant of the
counterclaim.
WHEREFORE, the petition is GRANTED. The decision of the respondent
Court of Appeals (now Intermediate Appellate Court) is hereby SET
ASIDE and a new one is rendered ordering the petitioner Isabelo Moran,
Jr., to pay private respondent Mariano Pecson SIX THOUSAND
(P6,000.00) PESOS representing the amount of the private respondent's
contribution to the partnership but which remained unused; and THREE
THOUSAND (P3,000.00) PESOS representing one half (1/2) of the net
profits gained by the partnership in the sale of the two thousand (2,000)
copies of the posters, with interests at the legal rate on both amounts
from the date the complaint was filed until full payment is made.
SO ORDERED.

1wph1.t

G.R. No. 413

February 2, 1903

plaintiff made a demand for an accounting upon him, which the defendant
refused to render, denying the existence of the partnership altogether.

JOSE
FERNANDEZ, plaintiff-appellant,
vs.
FRANCISCO DE LA ROSA, defendant-appellee.
Vicente
Miranda,
Simplicio del Rosario, for appellee.

for

appellant.

LADD, J.:
The object of this action is to obtain from the court a declaration that a
partnership exists between the parties, that the plaintiff has a consequent
interested in certain cascoes which are alleged to be partnership property,
and that the defendant is bound to render an account of his administration
of the cascoes and the business carried on with them.
Judgment was rendered for the defendant in the court below and the
plaintiff appealed.
The respective claims of the parties as to the facts, so far as it is
necessary to state them in order to indicate the point in dispute, may be
briefly summarized. The plaintiff alleges that in January, 1900, he entered
into a verbal agreement with the defendant to form a partnership for the
purchase of cascoes and the carrying on of the business of letting the
same for hire in Manila, the defendant to buy the cascoes and each
partner to furnish for that purpose such amount of money as he could, the
profits to be divided proportionately; that in the same January the plaintiff
furnished the defendant 300 pesos to purchase a casco designated as
No. 1515, which the defendant did purchase for 500 pesos of Doa Isabel
Vales, taking the title in his own name; that the plaintiff furnished further
sums aggregating about 300 pesos for repairs on this casco; that on the
fifth of the following March he furnished the defendant 825 pesos to
purchase another casco designated as No. 2089, which the defendant did
purchase for 1,000 pesos of Luis R. Yangco, taking the title to this casco
also in his own name; that in April the parties undertook to draw up
articles of partnership for the purpose of embodying the same in an
authentic document, but that the defendant having proposed a draft of
such articles which differed materially from the terms of the earlier verbal
agreement, and being unwillingly to include casco No. 2089 in the
partnership, they were unable to come to any understanding and no
written agreement was executed; that the defendant having in the
meantime had the control and management of the two cascoes, the

The defendant admits that the project of forming a partnership in the


casco business in which he was already engaged to some extent
individually was discussed between himself and the plaintiff in January,
1900, and earlier, one Marcos Angulo, who was a partner of the plaintiff in
a bakery business, being also a party to the negotiations, but he denies
that any agreement was ever consummated. He denies that the plaintiff
furnished any money in January, 1900, for the purchase of casco No.
1515, or for repairs on the same, but claims that he borrowed 300 pesos
on his individual account in January from the bakery firm, consisting of
the plaintiff, Marcos Angulo, and Antonio Angulo. The 825 pesos, which
he admits he received from the plaintiff March 5, he claims was for the
purchase of casco No. 1515, which he alleged was bought March 12, and
he alleges that he never received anything from the defendant toward the
purchase of casco No. 2089. He claims to have paid, exclusive of repairs,
1,200 pesos for the first casco and 2,000 pesos for the second one.
The case comes to this court under the old procedure, and it is therefore
necessary for us the review the evidence and pass upon the facts. Our
general conclusions may be stated as follows:
(1) Doa Isabel Vales, from whom the defendant bought casco No. 1515,
testifies that the sale was made and the casco delivered in January,
although the public document of sale was not executed till some time
afterwards. This witness is apparently disinterested, and we think it is safe
to rely upon the truth of her testimony, especially as the defendant, while
asserting that the sale was in March, admits that he had the casco taken
to the ways for repairs in January.
It is true that the public document of sale was executed March 10, and
that the vendor declares therein that she is the owner of the casco, but
such declaration does not exclude proof as to the actual date of the sale,
at least as against the plaintiff, who was not a party to the instrument.
(Civil Code, sec. 1218.) It often happens, of course, in such cases, that
the actual sale precedes by a considerable time the execution of the
formal instrument of transfer, and this is what we think occurred here.
(2) The plaintiff presented in evidence the following receipt: "I have this
day received from D. Jose Fernandez eight hundred and twenty-five
pesos for the cost of a casco which we are to purchase in company.
Manila, March 5, 1900. Francisco de la Rosa." The authenticity of this

receipt is admitted by the defendant. If casco No. 1515 was bought, as


we think it was, in January, the casco referred to in the receipt which the
parties "are to purchase in company" must be casco No. 2089, which was
bought March 22. We find this to be the fact, and that the plaintiff
furnished and the defendant received 825 pesos toward the purchase of
this casco, with the understanding that it was to be purchased on joint
account.
(3) Antonio Fernandez testifies that in the early part of January, 1900, he
saw Antonio Angulo give the defendant, in the name of the plaintiff, a sum
of money, the amount of which he is unable to state, for the purchase of a
casco to be used in the plaintiff's and defendant's business. Antonio
Angulo also testifies, but the defendant claims that the fact that Angulo
was a partner of the plaintiff rendered him incompetent as a witness
under the provisions of article 643 of the then Code of Civil Procedure,
and without deciding whether this point is well taken, we have discarded
his testimony altogether in considering the case. The defendant admits
the receipt of 300 pesos from Antonio Angulo in January, claiming, as has
been stated, that it was a loan from the firm. Yet he sets up the claim that
the 825 pesos which he received from the plaintiff in March were
furnished toward the purchase of casco No. 1515, thereby virtually
admitting that casco was purchased in company with the plaintiff. We
discover nothing in the evidence to support the claim that the 300 pesos
received in January was a loan, unless it may be the fact that the
defendant had on previous occasions borrowed money from the bakery
firm. We think all the probabilities of the case point to the truth of the
evidence of Antonio Fernandez as to this transaction, and we find the fact
to be that the sum in question was furnished by the plaintiff toward the
purchase for joint ownership of casco No. 1515, and that the defendant
received it with the understanding that it was to be used for this purposed.
We also find that the plaintiff furnished some further sums of money for
the repair of casco.

(7) At some time subsequently to the failure of the attempt to agree upon
partnership articles and after the defendant had been operating the
cascoes for some time, the defendant returned to the plaintiff 1,125
pesos, in two different sums, one of 300 and one of 825 pesos. The only
evidence in the record as to the circumstances under which the plaintiff
received these sums is contained in his answer to the interrogatories
proposed to him by the defendant, and the whole of his statement on this
point may properly be considered in determining the fact as being in the
nature of an indivisible admission. He states that both sums were
received with an express reservation on his part of all his rights as a
partner. We find this to be the fact.
Two questions of law are raised by the foregoing facts: (1) Did a
partnership exist between the parties? (2) If such partnership existed, was
it terminated as a result of the act of the defendant in receiving back the
1,125 pesos?
(1) "Partnership is a contract by which two or more persons bind
themselves to contribute money, property, or industry to a common fund,
with the intention of dividing the profits among themselves." (Civil Code,
art. 1665.)
The essential points upon which the minds of the parties must meet in a
contract of partnership are, therefore, (1) mutual contribution to a
common stock, and (2) a joint interest in the profits. If the contract
contains these two elements the partnership relation results, and the law
itself fixes the incidents of this relation if the parties fail to do so. (Civil
Code, secs. 1689, 1695.)

(5) We are unable to find upon the evidence before us that there was any
specific verbal agreement of partnership, except such as may be implied
from the fact as to the purchase of the casco.

We have found as a fact that money was furnished by the plaintiff and
received by the defendant with the understanding that it was to be used
for the purchase of the cascoes in question. This establishes the first
element of the contract, namely, mutual contribution to a common stock.
The second element, namely, the intention to share profits, appears to be
an unavoidable deduction from the fact of the purchase of the cascoes in
common, in the absence of any other explanation of the object of the
parties in making the purchase in that form, and, it may be added, in view
of the admitted fact that prior to the purchase of the first casco the
formation of a partnership had been a subject of negotiation between
them.

(6) Although the evidence is somewhat unsatisfactory upon this point, we


think it more probable than otherwise that no attempt was made to agree
upon articles of partnership till about the middle of the April following the
purchase of the cascoes.

Under other circumstances the relation of joint ownership, a relation


distinct though perhaps not essentially different in its practical
consequence from that of partnership, might have been the result of the
joint purchase. If, for instance, it were shown that the object of the parties

(4) The balance of the purchase price of each of the two cascoes over
and above the amount contributed by the plaintiff was furnished by the
defendant.

in purchasing in company had been to make a more favorable bargain for


the two cascoes that they could have done by purchasing them
separately, and that they had no ulterior object except to effect a division
of the common property when once they had acquired it, the affectio
societatiswould be lacking and the parties would have become joint
tenants only; but, as nothing of this sort appears in the case, we must
assume that the object of the purchase was active use and profit and not
mere passive ownership in common.
It is thus apparent that a complete and perfect contract of partnership was
entered into by the parties. This contract, it is true, might have been
subject to a suspensive condition, postponing its operation until an
agreement was reached as to the respective participation of the partners
in the profits, the character of the partnership as collective or en
comandita, and other details, but although it is asserted by counsel for the
defendant that such was the case, there is little or nothing in the record to
support this claim, and that fact that the defendant did actually go on and
purchase the boat, as it would seem, before any attempt had been made
to formulate partnership articles, strongly discountenances the theory.
The execution of a written agreement was not necessary in order to give
efficacy to the verbal contract of partnership as a civil contract, the
contributions of the partners not having been in the form of immovables or
rights in immovables. (Civil Code, art. 1667.) The special provision cited,
requiring the execution of a public writing in the single case mentioned
and dispensing with all formal requirements in other cases, renders
inapplicable to this species of contract the general provisions of article
1280 of the Civil Code.
(2) The remaining question is as to the legal effect of the acceptance by
the plaintiff of the money returned to him by the defendant after the
definitive failure of the attempt to agree upon partnership articles. The
amount returned fell short, in our view of the facts, of that which the
plaintiff had contributed to the capital of the partnership, since it did not
include the sum which he had furnished for the repairs of casco No. 1515.
Moreover, it is quite possible, as claimed by the plaintiff, that a profit may
have been realized from the business during the period in which the
defendant have been administering it prior to the return of the money, and
if so he still retained that sum in his hands. For these reasons the
acceptance of the money by the plaintiff did not have the effect of
terminating the legal existence of the partnership by converting it into
a societas leonina, as claimed by counsel for the defendant.
Did the defendant waive his right to such interest as remained to him in
the partnership property by receiving the money? Did he by so doing

waive his right to an accounting of the profits already realized, if any, and
a participation in them in proportion to the amount he had originally
contributed to the common fund? Was the partnership dissolved by the
"will or withdrawal of one of the partners" under article 1705 of the Civil
Code? We think these questions must be answered in the negative.
There was no intention on the part of the plaintiff in accepting the money
to relinquish his rights as a partner, nor is there any evidence that by
anything that he said or by anything that he omitted to say he gave the
defendant any ground whatever to believe that he intended to relinquish
them. On the contrary he notified the defendant that he waived none of
his rights in the partnership. Nor was the acceptance of the money an act
which was in itself inconsistent with the continuance of the partnership
relation, as would have been the case had the plaintiff withdrawn his
entire interest in the partnership. There is, therefore, nothing upon which
a waiver, either express or implied, can be predicated. The defendant
might have himself terminated the partnership relation at any time, if he
had chosen to do so, by recognizing the plaintiff's right in the partnership
property and in the profits. Having failed to do this he can not be
permitted to force a dissolution upon his co-partner upon terms which the
latter is unwilling to accept. We see nothing in the case which can give
the transaction in question any other aspect than that of the withdrawal by
one partner with the consent of the other of a portion of the common
capital.
The result is that we hold and declare that a partnership was formed
between the parties in January, 1900, the existence of which the
defendant is bound to recognize; that cascoes No. 1515 and 2089
constitute partnership property, and that the plaintiff is entitled to an
accounting of the defendant's administration of such property, and of the
profits derived therefrom. This declaration does not involve an
adjudication as to any disputed items of the partnership account.
The judgment of the court below will be reversed without costs, and the
record returned for the execution of the judgment now rendered. So
ordered.
Arellano,
C.J.,
Torres,
Willard, J., dissenting.

Cooper,

and

Mapa,

JJ., concur.

G.R. No. L-4281

March 30, 1908

JOSE
GARRIDO, plaintiff-appellant,
vs.
AGUSTIN ASENCIO, defendant-appellee.
CARSON, J.:
Plaintiff and defendant were members of a partnership doing business
under the firm name of Asencio y Cia. The business of the partnership did
not prosper and it was dissolved by mutual agreement of the members.
The plaintiff brings this action to recover from the defendant, who appears
to have been left in charge of the books and the funds of the firm, the
amount of the capital which he had invested in the business. The
defendant, alleging that there had been considerable losses in the
conduct of the business of the partnership, denied that there was
anything due the plaintiff as claimed, and filed a cross complaint wherein
he prayed for a judgment against the plaintiff for a certain amount which
he alleged to be due by the plaintiff under the articles of partnership on
account of plaintiff's share of these losses.
The trial court found that the evidence substantially sustains the claim of
the defendant as to the alleged losses in the business of the partnership
and gave judgment in his favor.
The only question submitted on appeal is the competency and sufficiently
of the evidence on which the trial court based its findings as to the status
of the accounts of the company.
Plaintiff and appellant makes the following assignment of errors:
First. The trial court erred in holding the estado de cuentas (statement of
account) of the partnership of Asencio y Cia. submitted by the defendant
as competent and sufficient evidence in this case.
Second. The trial court erred in holding that evidence of record proved the
existence of losses in the business of the said partnership.
Third. The trial court erred in refusing to give judgment in favor of the
plaintiff.
It appears from the record that by mutual agreement the defendant had
general charge and supervision of the books and funds of the firm, but it
appears that these books were at all times open to the inspection of the

plaintiff, and there is evidence which tends to show that the plaintiff
himself made entries in these books touching particular transactions in
which he happened to be interested; so that while it is clear that the
defendant was more especially burdened with the care of the books and
accounts of the partnership, it would appear that the plaintiff had equal
rights with the defendant in this regard, and that during the existence of
the partnership they were equally responsible for the mode in which the
books were kept and that the entries made by one had the same effect as
if they had been made by the other.
At the trial the principal question at issue was the amount of the profits or
losses of the business of the partnership during the period of its
operation. The plaintiff made no allegation as to profits, but denied
defendant's allegation as to the losses. The defendant in support of his
allegations offered in evidence the estado de cuentas (general statement
of accounts) of the partnership, supported by a number of vouchers, and
by his own testimony under oath as to the accuracy and correctness of
the items set out therein. The plaintiff assigns as error the admission of
this account on the ground that the books of the partnership were not kept
in accordance with the provisions of Title III, Book I, of the Code of
Commerce.
It is not necessary for us to consider this assignment of error as to the
inadmissibility of this account on the ground that the books were not kept
in accordance with the provisions of the Commercial Code, because no
objection was made to its admission in the court below; and further,
because in any event it was admissible under the provisions of section
338 of the Code of Civil Procedure as memorandum used to refresh the
memory of the witness. (Tan Machan vs. Gan Aya, 3 Phil. Rep., 684.) We
think further that in view of the testimony of record that the plaintiff jointly
with the defendant kept these books, made entries therein, and was
responsible with him therefor, the doctrine laid down in Behn, Meyer &
Co., vs. Rosatzin (5 Phil. Rep., 660) is applicable in this case, and the
correctness of the entries in these books must be taken to be admitted by
him, except so far as it is made to appear that they are erroneous as a
result of fraud or mistake.
It appears from the record that the statement of account, the vouchers,
and the books of the company were placed at the disposition of the
plaintiff for more than six weeks prior to the trial, and that during the trial
he was given every opportunity to indicate any erroneous or fraudulent
items appearing in the account, yet he was unable, or in any event he
declined to specify such items, contenting himself with a general
statement to the effect that there must be some mistake, as he did not
and could not believe that the business had been conducted at a loss.

The court below seems to have scrutinized the account with painstaking
care, and to have been satisfied as to its accuracy, except as to some
unimportant items, which he corrected, but counsel for the appellant
reiterates in this court his general allegations as to the inaccuracy of the
account, and points out some instances wherein he alleges that items of
expenditure appear to have been charged against the partnership more
than once.
Upon the whole record as brought here by the appellant we are not able
to say that the weight of the evidence does not sustain the findings of the
trial court, and the judgment entered in that court should be, and is
hereby, affirmed with the costs of this instance against the appellant. So
ordered.
Arellano, C.J., Torres, Mapa Johnson, Willard, and Tracey, JJ., concur.

G.R. No. L-5236

January 10, 1910

PEDRO
vs.
ONG
PONG
CO
ONG PONG CO., appellant.

MARTINEZ, plaintiff-appellee,
and

ONG

LAY, defendant

1. For not having taken into consideration the fact that the reason
for the closing of the store was the ejectment from the premises
occupied by it.
2. For not having considered the fact that there were losses.
3. For holding that there should have been profits.

Fernando
de
la
O'Brien and DeWitt for appellee.

Cantera

for

appellant.

ARELLANO, C.J.:
On the 12th of December, 1900, the Martinez herein delivered P1,500 to
the Ong Pong Co who, in a private document, acknowledged that they
had received the same with the agreement, as stated by them, "that we
are to invest the amount in a store, the profits or losses of which we are to
divide with the former, in equal shares."
The Martinez filed a complaint on April 25, 1907, in order to compel the
Ong Pong Co to render him an accounting of the partnership as agreed
to, or else to refund him the P1,500 that he had given them for the said
purpose. Ong Pong Co alone appeared to answer the complaint; he
admitted the fact of the agreement and the delivery to him and to Ong Lay
of the P1,500 for the purpose aforesaid, but he alleged that Ong Lay, who
was then deceased, was the one who had managed the business, and
that nothing had resulted therefrom save the loss of the capital of P1,500,
to which loss the Martinez agreed.
The judge of the Court of First Instance of the city of Manila who tried the
case ordered Ong Pong Co to return to the Martinez one-half of the said
capital of P1,500 which, together with Ong Lay, he had received from the
Martinez, to wit, P750, plus P90 as one-half of the profits, calculated at
the rate of 12 per cent per annum for the six months that the store was
supposed to have been open, both sums in Philippine currency, making a
total of P840, with legal interest thereon at the rate of 6 per cent per
annum, from the 12th of June, 1901, when the business terminated and
on which date he ought to have returned the said amount to the Martinez,
until the full payment thereof with costs.
From this judgment Ong Pong Co appealed to this court, and assigned
the following errors:

4. For having applied article 1138 of the Civil Code.


5. and 6. For holding that the capital ought to have yielded profits,
and that the latter should be calculated 12 per cent per annum;
and
7. The findings of the ejectment.
As to the first assignment of error, the fact that the store was closed by
virtue of ejectment proceedings is of no importance for the effects of the
suit. The whole action is based upon the fact that the Ong Pong Co
received certain capital from the Martinez for the purpose of organizing a
company; they, according to the agreement, were to handle the said
money and invest it in a store which was the object of the association;
they, in the absence of a special agreement vesting in one sole person
the management of the business, were the actual administrators thereof;
as such administrators they were the agent of the company and incurred
the liabilities peculiar to every agent, among which is that of rendering
account to the principal of their transactions, and paying him everything
they may have received by virtue of the mandatum. (Arts. 1695 and 1720,
Civil Code.) Neither of them has rendered such account nor proven the
losses referred to by Ong Pong Co; they are therefore obliged to refund
the money that they received for the purpose of establishing the said
store the object of the association. This was the principal
pronouncement of the judgment.
With regard to the second and third assignments of error, this court, like
the court below, finds no evidence that the entire capital or any part
thereof was lost. It is no evidence of such loss to aver, without proof, that
the effects of the store were ejected. Even though this were proven, it
could not be inferred therefrom that the ejectment was due to the fact that
no rents were paid, and that the rent was not paid on account of the loss
of the capital belonging to the enterprise.
With regard to the possible profits, the finding of the court below are
based on the statements of the defendant Ong Pong Co, to the effect that

"there were some profits, but not large ones." This court, however, does
not find that the amount thereof has been proven, nor deem it possible to
estimate them to be a certain sum, and for a given period of time; hence,
it can not admit the estimate, made in the judgment, of 12 per cent per
annum for the period of six months.
Inasmuch as in this case nothing appears other than the failure to fulfill an
obligation on the part of a partner who acted as agent in receiving money
for a given purpose, for which he has rendered no accounting, such agent
is responsible only for the losses which, by a violation of the provisions of
the law, he incurred. This being an obligation to pay in cash, there are no
other losses than the legal interest, which interest is not due except from
the time of the judicial demand, or, in the present case, from the filing of
the complaint. (Arts. 1108 and 1100, Civil Code.) We do not consider that
article 1688 is applicable in this case, in so far as it provides "that the
partnership is liable to every partner for the amounts he may have
disbursed on account of the same and for the proper interest," for the
reason that no other money than that contributed as is involved.
As in the partnership there were two administrators or agents liable for
the above-named amount, article 1138 of the Civil Code has been
invoked; this latter deals with debts of a partnership where the obligation
is not a joint one, as is likewise provided by article 1723 of said code with
respect to the liability of two or more agents with respect to the return of
the money that they received from their principal. Therefore, the other
errors assigned have not been committed.
In view of the foregoing judgment appealed from is hereby affirmed,
provided, however, that the defendant Ong Pong Co shall only pay the
Martinez the sum of P750 with the legal interest thereon at the rate of 6
per cent per annum from the time of the filing of the complaint, and the
costs, without special ruling as to the costs of this instance. So ordered.

G.R. No. L-31684 June 28, 1973


EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA
B. NAVARRO and LEONARDA ATIENZA ABAD SABTOS, petitioners,
vs.
ESTRELLA ABAD SANTOS, respondent.
Leonardo Abola for petitioners.
Baisas, Alberto & Associates for respondent.
MAKALINTAL, J.:
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 in the Court of First Instance of Manila, 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.
The defendants, in their answer, denied ever having declared dividends
or distributed profits of the partnership; denied likewise that the plaintiff
ever demanded that she be allowed to examine the partnership books;
and byway of affirmative defense alleged that the amended Articles of Co-

partnership did not express the true agreement of the parties, which was
that the plaintiff was not an industrial partner; that she did not in fact
contribute industry to the partnership; and that her share of 30% was to
be based on the profits which might be realized by the partnership only
until full payment of the loan which it had obtained in December, 1955
from the Rehabilitation Finance Corporation in the sum of P30,000, for
which the plaintiff had signed a promisory note as co-maker and
mortgaged her property as security.
The parties are in agreement that the main issue in this case is "whether
the plaintiff-appellee (respondent here) is an industrial partner as claimed
by her or merely a profit sharer entitled to 30% of the net profits that may
be realized by the partnership from June 7, 1955 until the mortgage loan
from the Rehabilitation Finance Corporation shall be fully paid, as claimed
by appellants (herein petitioners)." On that issue the Court of First
Instance found for the plaintiff and rendered judgement "declaring her an
industrial partner of Evangelista & Co.; ordering the defendants to render
an accounting of the business operations of the (said) partnership ... from
June 7, 1955; to pay the plaintiff such amounts as may be due as her
share in the partnership profits and/or dividends after such an accounting
has been properly made; to pay plaintiff attorney's fees in the sum of
P2,000.00 and the costs of this suit."
The defendants appealed to the Court of Appeals, which thereafter
affirmed judgments of the court a quo.
In the petition before Us the petitioners have assigned the following
errors:
I. The Court of Appeals erred in the finding that the
respondent is an industrial partner of Evangelista & Co.,
notwithstanding the admitted fact that since 1954 and until
after promulgation of the decision of the appellate court
the said respondent was one of the judges of the City
Court of Manila, and despite its findings that respondent
had been paid for services allegedly contributed by her to
the partnership. In this connection the Court of Appeals
erred:
(A) In finding that the "amended Articles of
Co-partnership," Exhibit "A" is conclusive
evidence that respondent was in fact made
an industrial partner of Evangelista & Co.

(B) In not finding that a portion of


respondent's testimony quoted in the
decision proves that said respondent did
not bind herself to contribute her industry,
and she could not, and in fact did not,
because she was one of the judges of the
City Court of Manila since 1954.
(C) In finding that respondent did not in
fact contribute her industry, despite the
appellate court's own finding that she has
been paid for the services allegedly
rendered by her, as well as for the loans of
money made by her to the partnership.
II. The lower court erred in not finding that in any event the
respondent was lawfully excluded from, and deprived of,
her alleged share, interests and participation, as an
alleged industrial partner, in the partnership Evangelista &
Co., and its profits or net income.
III. The Court of Appeals erred in affirming in toto the
decision of the trial court whereby respondent was
declared an industrial partner of the petitioner, and
petitioners were ordered to render an accounting of the
business operation of the partnership from June 7, 1955,
and to pay the respondent her alleged share in the net
profits of the partnership plus the sum of P2,000.00 as
attorney's fees and the costs of the suit, instead of
dismissing respondent's complaint, with costs, against the
respondent.
It is quite obvious that the questions raised in the first assigned errors
refer to the facts as found by the Court of Appeals. The evidence
presented by the parties as the trial in support of their respective positions
on the issue of whether or not the respondent was an industrial partner
was thoroughly analyzed by the Court of Appeals on its decision, to the
extent of reproducing verbatim therein the lengthy testimony of the
witnesses.
It is not the function of the Supreme Court to analyze or weigh such
evidence all over again, its jurisdiction being limited to reviewing errors of
law that might have been commited by the lower court. It should be
observed, in this regard, that the Court of Appeals did not hold that the
Articles of Co-partnership, identified in the record as Exhibit "A", was

conclusive evidence that the respondent was an industrial partner of the


said company, but considered it together with other factors, consisting of
both testimonial and documentary evidences, in arriving at the factual
conclusion expressed in the decision.
The findings of the Court of Appeals on the various points raised in the
first assignment of error are hereunder reproduced if only to demonstrate
that the same were made after a through analysis of then evidence, and
hence are beyond this Court's power of review.
The aforequoted findings of the lower Court are assailed
under Appellants' first assigned error, wherein it is pointed
out that "Appellee's documentary evidence does not
conclusively prove that appellee was in fact admitted by
appellants as industrial partner of Evangelista & Co." and
that "The grounds relied upon by the lower Court are
untenable" (Pages 21 and 26, Appellant's Brief).
The first point refers to Exhibit A, B, C, K, K-1, J, N and S,
appellants' complaint being that "In finding that the
appellee is an industrial partner of appellant Evangelista &
Co., herein referred to as the partnership the lower
court relied mainly on the appellee's documentary
evidence, entirely disregarding facts and circumstances
established by appellants" evidence which contradict the
said finding' (Page 21, Appellants' Brief). The lower court
could not have done otherwise but rely on the exhibits just
mentioned, first, because appellants have admitted their
genuineness and due execution, hence they were
admitted without objection by the lower court when
appellee rested her case and, secondly the said exhibits
indubitably show the appellee is an industrial partner of
appellant company. Appellants are virtually estopped from
attempting to detract from the probative force of the said
exhibits because they all bear the imprint of their
knowledge and consent, and there is no credible showing
that they ever protested against or opposed their contents
prior of the filing of their answer to appellee's complaint.
As a matter of fact, all the appellant Evangelista, Jr.,
would have us believe as against the cumulative force
of appellee's aforesaid documentary evidence is the
appellee's Exhibit "A", as confirmed and corroborated by
the other exhibits already mentioned, does not express
the true intent and agreement of the parties thereto, the
real understanding between them being the appellee

would be merely a profit sharer entitled to 30% of the net


profits that may be realized between the partners from
June 7, 1955, until the mortgage loan of P30,000.00 to be
obtained from the RFC shall have been fully paid. This
version, however, is discredited not only by the aforesaid
documentary evidence brought forward by the appellee,
but also by the fact that from June 7, 1955 up to the filing
of their answer to the complaint on February 8, 1964 or
a period of over eight (8) years appellants did nothing
to correct the alleged false agreement of the parties
contained in Exhibit "A". It is thus reasonable to suppose
that, had appellee not filed the present action, appellants
would not have advanced this obvious afterthought that
Exhibit "A" does not express the true intent and
agreement of the parties thereto.
At pages 32-33 of appellants' brief, they also make much
of the argument that 'there is an overriding fact which
proves that the parties to the Amended Articles of
Partnership, Exhibit "A", did not contemplate to make the
appellee Estrella Abad Santos, an industrial partner of
Evangelista & Co. It is an admitted fact that since before
the execution of the amended articles of partnership,
Exhibit "A", the appellee Estrella Abad Santos has been,
and up to the present time still is, one of the judges of the
City Court of Manila, devoting all her time to the
performance of the duties of her public office. This fact
proves beyond peradventure that it was never
contemplated between the parties, for she could not
lawfully contribute her full time and industry which is the
obligation of an industrial partner pursuant to Art. 1789 of
the Civil Code.
The Court of Appeals then proceeded to consider appellee's testimony on
this point, quoting it in the decision, and then concluded as follows:
One cannot read appellee's testimony just quoted without
gaining the very definite impression that, even as she was
and still is a Judge of the City Court of Manila, she has
rendered services for appellants without which they would
not have had the wherewithal to operate the business for
which appellant company was organized. Article 1767 of
the New Civil Code which provides that "By contract of
partnership two or more persons bind themselves, to
contribute money, property, or industry to a common fund,

with the intention of dividing the profits among


themselves, 'does not specify the kind of industry that a
partner may thus contribute, hence the said services may
legitimately be considered as appellee's contribution to the
common fund. Another article of the same Code relied
upon appellants reads:
'ART. 1789. An industrial partner cannot
engage in business for himself, unless the
partnership expressly permits him to do
so; and if he should do so, the capitalist
partners may either exclude him from the
firm or avail themselves of the benefits
which he may have obtained in violation of
this provision, with a right to damages in
either case.'
It is not disputed that the provision against the industrial
partner engaging in business for himself seeks to prevent
any conflict of interest between the industrial partner and
the partnership, and to insure faithful compliance by said
partner with this prestation. There is no pretense,
however, even on the part of the appellee is engaged in
any business antagonistic to that of appellant company,
since being a Judge of one of the branches of the City
Court of Manila can hardly be characterized as a
business. That appellee has faithfully complied with her
prestation with respect to appellants is clearly shown by
the fact that it was only after filing of the complaint in this
case and the answer thereto appellants exercised their
right of exclusion under the codal art just mentioned by
alleging in their Supplemental Answer dated June 29,
1964 or after around nine (9) years from June 7, 1955
subsequent to the filing of defendants' answer to the
complaint, defendants reached an agreement whereby the
herein plaintiff been excluded from, and deprived of, her
alleged share, interests or participation, as an alleged
industrial partner, in the defendant partnership and/or in its
net profits or income, on the ground plaintiff has never
contributed her industry to the partnership, instead she
has been and still is a judge of the City Court (formerly
Municipal Court) of the City of Manila, devoting her time to
performance of her duties as such judge and enjoying the
privilege and emoluments appertaining to the said office,
aside from teaching in law school in Manila, without the

express consent of the herein defendants' (Record On


Appeal, pp. 24-25). Having always knows as a appellee
as a City judge even before she joined appellant company
on June 7, 1955 as an industrial partner, why did it take
appellants many yearn before excluding her from said
company as aforequoted allegations? And how can they
reconcile such exclusive with their main theory that
appellee has never been such a partner because "The
real agreement evidenced by Exhibit "A" was to grant the
appellee a share of 30% of the net profits which the
appellant partnership may realize from June 7, 1955, until
the mortgage of P30,000.00 obtained from the
Rehabilitation Finance Corporal shall have been fully
paid." (Appellants Brief, p. 38).
What has gone before persuades us to hold with the lower
Court that appellee is an industrial partner of appellant
company, with the right to demand for a formal accounting
and to receive her share in the net profit that may result
from such an accounting, which right appellants take
exception under their second assigned error. Our said
holding is based on the following article of the New Civil
Code:
'ART. 1899. Any partner shall have the
right to a formal account as to partnership
affairs:
(1) If he is wrongfully excluded from the partnership
business or possession of its property by his co-partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807;
(4) Whenever other circumstance render it just and
reasonable.
We find no reason in this case to depart from the rule which limits this
Court's appellate jurisdiction to reviewing only errors of law, accepting as
conclusive the factual findings of the lower court upon its own
assessment of the evidence.
The judgment appealed from is affirmed, with costs.

G.R. No. L-33580

February 6, 1931

3. In denying the motion for a new trial.

MAXIMILIANO
SANCHO, plaintiff-appellant,
vs.
SEVERIANO LIZARRAGA, defendant-appellee.
Jose Perez Cardenas and Jose M. Casal
Celso B. Jamora and Antonio Gonzalez for appellee.

for

appellant.

ROMUALDEZ, J.:
The plaintiff brought an action for the rescission of a partnership contract
between himself and the defendant, entered into on October 15, 1920,
the reimbursement by the latter of his 50,000 peso investment therein,
with interest at 12 per cent per annum form October 15, 1920, with costs,
and any other just and equitable remedy against said defendant.
The defendant denies generally and specifically all the allegations of the
complaint which are incompatible with his special defenses, crosscomplaint and counterclaim, setting up the latter and asking for the
dissolution of the partnership, and the payment to him as its manager and
administrator of P500 monthly from October 15, 1920, until the final
dissolution, with interest, one-half of said amount to be charged to the
plaintiff. He also prays for any other just and equitable remedy.
The Court of First Instance of Manila, having heard the cause, and finding
it duly proved that the defendant had not contributed all the capital he had
bound himself to invest, and that the plaintiff had demanded that the
defendant liquidate the partnership, declared it dissolved on account of
the expiration of the period for which it was constituted, and ordered the
defendant, as managing partner, to proceed without delay to liquidate it,
submitting to the court the result of the liquidation together with the
accounts and vouchers within the period of thirty days from receipt of
notice of said judgment, without costs.
The plaintiff appealed from said decision making the following
assignments of error:
1. In holding that the plaintiff and appellant is not entitled to the
rescission of the partnership contract, Exhibit A, and that article
1124 of the Civil Code is not applicable to the present case.
2. In failing to order the defendant to return the sum of P50,000 to
the plaintiff with interest from October 15, 1920, until fully paid.

In the brief filed by counsel for the appellee, a preliminary question is


raised purporting to show that this appeal is premature and therefore will
not lie. The point is based on the contention that inasmuch as the
liquidation ordered by the trial court, and the consequent accounts, have
not been made and submitted, the case cannot be deemed terminated in
said court and its ruling is not yet appealable. In support of this contention
counsel cites section 123 of the Code of Civil Procedure, and the decision
of this court in the case of Natividad vs. Villarica (31 Phil., 172).
This contention is well founded. Until the accounts have been rendered
as ordered by the trial court, and until they have been either approved or
disapproved, the litigation involved in this action cannot be considered as
completely decided; and, as it was held in said case of Natividad vs
.Villarica, also with reference to an appeal taken from a decision ordering
the rendition of accounts following the dissolution of partnership, the
appeal in the instant case must be deemed premature.
But even going into the merits of the case, the affirmation of the judgment
appealed from is inevitable. In view of the lower court's findings referred
to above, which we cannot revise because the parol evidence has not
been forwarded to this court, articles 1681 and 1682 of the Civil Code
have been properly applied. Owing to the defendant's failure to pay to the
partnership the whole amount which he bound himself to pay, he became
indebted to it for the remainder, with interest and any damages
occasioned thereby, but the plaintiff did not thereby acquire the right to
demand rescission of the partnership contract according to article 1124 of
the Code. This article cannot be applied to the case in question, because
it refers to the resolution of obligations in general, whereas article 1681
and 1682 specifically refer to the contract of partnership in particular. And
it is a well known principle that special provisions prevail over general
provisions.
By virtue of the foregoing, this appeal is hereby dismissed, leaving the
decision appealed from in full force, without special pronouncement of
costs. So ordered.

G.R. No. 114398 October 24, 1997


CARMEN
LIWANAG, petitioner,
vs.
THE HON. COURT OF APPEALS and THE PEOPLE OF THE
PHILIPPINES, represented by the Solicitor General, respondents.
ROMERO, J.:
Petitioner was charged with the crime of estafa before the Regional Trial
Court (RTC), Branch 93, Quezon City, in an information which reads as
follows.
That on or between the month of May 19, 1988 and August, 1988 in
Quezon City, Philippines and within the jurisdiction of this Honorable
Court, the said accused, with intent of gain, with unfaithfulness, and
abuse of confidence, did then and there, willfully, unlawfully and
feloniously defraud one ISIDORA ROSALES, in the following manner,
to wit: on the date and in the place aforementioned, said
accused received in trust from the offended party cash money
amounting to P536,650.00, Philippine Currency, with the express
obligation involving the duty to act as complainant's agent in
purchasing local cigarettes (Philip Morris and Marlboro cigarettes), to
resell them to several stores, to give her commission corresponding to
40% of the profits; and to return the aforesaid amount of offended
party, but said accused, far from complying her aforesaid obligation,
and once in possession thereof, misapplied, misappropriated and
converted the same to her personal use and benefit, despite repeated
demands made upon her, accused failed and refused and still fails and
refuses to deliver and/or return the same to the damage and prejudice
of the said ISIDORA ROSALES, in the aforementioned amount and in
such other amount as may be awarded under the provision of the Civil
Code.
CONTRARY TO LAW.
The antecedent facts are as follows:
Petitioner Carmen Liwanag (Liwanag) and a certain Thelma Tabligan
went to the house of complainant Isidora Rosales (Rosales) and asked
her to join them in the business of buying and selling cigarettes.
Convinced of the feasibility of the venture, Rosales readily agreed. Under
their agreement, Rosales would give the money needed to buy the
cigarettes while Liwanag and Tabligan would act as her agents, with a

corresponding 40% commission to her if the goods are sold; otherwise


the money would be returned to Rosales. Consequently, Rosales gave
several cash advances to Liwanag and Tabligan amounting to
P633,650.00.
During the first two months, Liwanag and Tabligan made periodic visits to
Rosales to report on the progress of the transactions. The visits, however,
suddenly stopped, and all efforts by Rosales to obtain information
regarding their business proved futile.
Alarmed by this development and believing that the amounts she
advanced were being misappropriated, Rosales filed a case of estafa
against Liwanag.
After trial on the merits, the trial court rendered a decision dated January
9, 1991, finding Liwanag guilty as charged. The dispositive portion of the
decision reads thus:
WHEREFORE, the Court holds, that the prosecution has
established the guilt of the accused, beyond reasonable doubt, and
therefore, imposes upon the accused, Carmen Liwanag, an
Indeterminate Penalty of SIX (6) YEARS, EIGHT (8) MONTHS AND
TWENTY ONE (21) DAYS OF PRISION CORRECCIONAL TO
FOURTEEN (14) YEARS AND EIGHT (8) MONTHS OF PRISION
MAYOR AS MAXIMUM, AND TO PAY THE COSTS.
The accused is likewise ordered to reimburse the private
complainant the sum of P526,650.00, without subsidiary
imprisonment, in case of insolvency.
SO ORDERED.
Said decision was affirmed with modification by the Court of Appeals in a
decision dated November 29, 1993, the decretal portion of which reads:
WHEREFORE, in view of the foregoing, the judgment appealed
from is hereby affirmed with the correction of the nomenclature of
the penalty which should be: SIX (6) YEARS, EIGHT (8) MONTHS
and TWENTY ONE (21) DAYS of prision mayor, as minimum, to
FOURTEEN (14) YEARS and EIGHT (8) MONTHS of reclusion
temporal, as maximum. In all other respects, the decision is
AFFIRMED.
SO ORDERED.

Her motion for reconsideration having been denied in the resolution of


March 16, 1994, Liwanag filed the instant petition, submitting the following
assignment of errors:
1. RESPONDENT APPELLATE COURT GRAVELY ERRED IN THE
AFFIRMING THE CONVICTION OF THE ACCUSED-PETITIONER
FOR THE CRIME OF ESTAFA, WHEN CLEARLY THE CONTRACT
THAT EXIST (sic) BETWEEN THE ACCUSED-PETITIONER AND
COMPLAINANT IS EITHER THAT OF A SIMPLE LOAN OR THAT
OF A PARTNERSHIP OR JOINT VENTURE HENCE THE NON
RETURN OF THE MONEY OF THE COMPLAINANT IS PURELY
CIVIL IN NATURE AND NOT CRIMINAL.

May 19, 1988 Quezon City


Received from Mrs. Isidora P. Rosales the sum of FIVE HUNDRED TWENTY
SIX THOUSAND AND SIX HUNDRED FIFTY PESOS (P526,650.00) Philippine
Currency, to purchase cigarrets (sic) (Philip & Marlboro) to be sold to
customers. In the event the said cigarrets (sic) are not sold, the proceeds of
the sale or the said products (shall) be returned to said Mrs. Isidora P. Rosales
the said amount of P526,650.00 or the said items on or before August 30,
1988.
Signed in the presence of:
(Sgd) Illegible (Sgd) Doming Z. Baligad

2. RESPONDENT APPELLATE COURT GRAVELY ERRED IN NOT


ACQUITTING THE ACCUSED-PETITIONER ON GROUNDS OF
REASONABLE DOUBT BY APPLYING THE "EQUIPOISE RULE".

The language of the receipt could not be any clearer. It indicates that the
money delivered to Liwanag was for a specific purpose, that is, for the
purchase of cigarettes, and in the event the cigarettes cannot be sold, the
money must be returned to Rosales.

Liwanag advances the theory that the intention of the parties was to enter
into a contract of partnership, wherein Rosales would contribute the funds
while she would buy and sell the cigarettes, and later divide the profits
between
them. 1 She also argues that the transaction can also be interpreted as a
simple loan, with Rosales lending to her the amount stated on an installment
basis. 2

Thus, even assuming that a contract of partnership was indeed entered


into by and between the parties, we have ruled that when money or
property have been received by a partner for a specific purpose (such as
that
obtaining
in the instant case) and he later misappropriated it, such partner is guilty
of estafa. 7

The Court of Appeals correctly rejected these pretenses.


While factual findings of the Court of Appeals are conclusive on the
parties and not reviewable by the Supreme Court, and carry more weight
when these affirm the factual findings of the trial court, 3 we deem it more
expedient to resolve the instant petition on its merits.
Estafa is a crime committed by a person who defrauds another causing
him to suffer damages, by means of unfaithfulness or abuse of
confidence, or of false pretenses of fraudulent acts. 4
From the foregoing, the elements of estafa are present, as follows: (1)
that the accused defrauded another by abuse of confidence or deceit; and
(2) that damage or prejudice capable of pecuniary estimation is caused to
the offended party or third party, 5 and it is essential that there be a fiduciary
relation between them either in the form of a trust, commission or
administration. 6
The receipt signed by Liwanag states thus:

Neither can the transaction be considered a loan, since in a contract of


loan once the money is received by the debtor, ownership over the same
is transferred. 8 Being the owner, the borrower can dispose of it for whatever
purpose he may deem proper.
In the instant petition, however, it is evident that Liwanag could not
dispose of the money as she pleased because it was only delivered to her
for a single purpose, namely, for the purchase of cigarettes, and if this
was not possible then to return the money to Rosales. Since in this case
there was no transfer of ownership of the money delivered, Liwanag is
liable for conversion under Art. 315, par. l(b) of the Revised Penal Code.
WHEREFORE, in view of the foregoing, the appealed decision of the
Court of Appeals dated November 29, 1993, is AFFIRMED. Costs against
petitioner.
SO ORDERED

G.R. No. 5840

September 17, 1910

profits among themselves, a contract is formed which is called


partnership. (Art. 1665, Civil Code.)

THE UNITED STATES, plaintiff-appellee,


vs.
EUSEBIO CLARIN, defendant-appellant.
Francisco
Dominguez,
Attorney-General Villamor, for appellee.

for

appellant.

ARELLANO, C.J.:
Pedro Larin delivered to Pedro Tarug P172, in order that the latter, in
company with Eusebio Clarin and Carlos de Guzman, might buy and sell
mangoes, and, believing that he could make some money in this
business, the said Larin made an agreement with the three men by which
the profits were to be divided equally between him and them.
Pedro Tarug, Eusebio Clarin, and Carlos de Guzman did in fact trade in
mangoes and obtained P203 from the business, but did not comply with
the terms of the contract by delivering to Larin his half of the profits;
neither did they render him any account of the capital.
Larin charged them with the crime of estafa, but the provincial fiscal filed
an information only against Eusebio Clarin in which he accused him of
appropriating to himself not only the P172 but also the share of the profits
that belonged to Larin, amounting to P15.50.
Pedro Tarug and Carlos de Guzman appeared in the case as witnesses
and assumed that the facts presented concerned the defendant and
themselves together.
The trial court, that of First Instance of Pampanga, sentenced the
defendant, Eusebio Clarin, to six months' arresto mayor, to suffer the
accessory penalties, and to return to Pedro Larin P172, besides P30.50
as his share of the profits, or to subsidiary imprisonment in case of
insolvency, and to pay the costs. The defendant appealed, and in
deciding his appeal we arrive at the following conclusions:
When two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the

When Larin put the P172 into the partnership which he formed with Tarug,
Clarin, and Guzman, he invested his capital in the risks or benefits of the
business of the purchase and sale of mangoes, and, even though he had
reserved the capital and conveyed only the usufruct of his money, it would
not devolve upon of his three partners to return his capital to him, but
upon the partnership of which he himself formed part, or if it were to be
done by one of the three specifically, it would be Tarug, who, according to
the evidence, was the person who received the money directly from Larin.
The P172 having been received by the partnership, the business
commenced and profits accrued, the action that lies with the partner who
furnished the capital for the recovery of his money is not a criminal action
for estafa, but a civil one arising from the partnership contract for a
liquidation of the partnership and a levy on its assets if there should be
any.
No. 5 of article 535 of the Penal Code, according to which those are guilty
of estafa "who, to the prejudice of another, shall appropriate or misapply
any money, goods, or any kind of personal property which they may have
received as a deposit on commission for administration or in any other
character producing the obligation to deliver or return the same," (as, for
example, in commodatum, precarium, and other unilateral contracts which
require the return of the same thing received) does not include money
received for a partnership; otherwise the result would be that, if the
partnership, instead of obtaining profits, suffered losses, as it could not be
held liable civilly for the share of the capitalist partner who reserved the
ownership of the money brought in by him, it would have to answer to the
charge of estafa, for which it would be sufficient to argue that the
partnership had received the money under obligation to return it.
We therefore freely acquit Eusebio Clarin, with the costs de oficio. The
complaint for estafa is dismissed without prejudice to the institution of a
civil action.