G.R. No.
109248 July 3, 1995 On 19 February 1988, petitioner-appellant wrote respondents-appellees another letter stating:
GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO,
petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L.
MISA, respondents.
VITUG, J.:
The instant petition seeks a review of the decision rendered by the Court of Appeals, dated 26 February
1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in toto that of the Securities and Exchange
Commission ("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by respondent Commission and quoted at length by
the appellate court in its decision, are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the
Mercantile Registry on 4 January 1937 and reconstituted with the Securities and Exchange
Commission on 4 August 1948. The SEC records show that there were several subsequent
amendments to the articles of partnership on 18 September 1958, to change the firm [name]
to ROSS, SELPH and CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL
ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO, BITO, MISA &
LOZADA; on 4 December 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 11
March 1977 to DEL ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to BITO, MISA &
LOZADA; on 19 December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M.
Lozada associated themselves together, as senior partners with respondents-appellees
Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.
On February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter stating:
I am withdrawing and retiring from the firm of Bito, Misa and Lozada,
effective at the end of this month.
"I trust that the accountants will be instructed to make the proper
liquidation of my participation in the firm."
On the same day, petitioner-appellant wrote respondents-appellees another letter stating:
"Further to my letter to you today, I would like to have a meeting with all of
you with regard to the mechanics of liquidation, and more particularly, my
interest in the two floors of this building. I would like to have this resolved
soon because it has to do with my own plans."
"The partnership has ceased to be mutually satisfactory because of the
working conditions of our employees including the assistant attorneys. All
my efforts to ameliorate the below subsistence level of the pay scale of our
employees have been thwarted by the other partners. Not only have they
refused to give meaningful increases to the employees, even attorneys, are
dressed down publicly in a loud voice in a manner that deprived them of
their self-respect. The result of such policies is the formation of the union,
including the assistant attorneys."
On 30 June 1988, petitioner filed with this Commission's Securities Investigation and Clearing
Department (SICD) a petition for dissolution and liquidation of partnership, docketed as SEC
Case No. 3384 praying that the Commission:
"1. Decree the formal dissolution and order the immediate liquidation of (the
partnership of) Bito, Misa & Lozada;
"2. Order the respondents to deliver or pay for petitioner's share in the
partnership assets plus the profits, rent or interest attributable to the use of
his right in the assets of the dissolved partnership;
"3. Enjoin respondents from using the firm name of Bito, Misa & Lozada in
any of their correspondence, checks and pleadings and to pay petitioners
damages for the use thereof despite the dissolution of the partnership in the
amount of at least P50,000.00;
"4. Order respondents jointly and severally to pay petitioner attorney's fees
and expense of litigation in such amounts as maybe proven during the trial
and which the Commission may deem just and equitable under the premises
but in no case less than ten (10%) per cent of the value of the shares of
petitioner or P100,000.00;
"5. Order the respondents to pay petitioner moral damages with the amount
of P500,000.00 and exemplary damages in the amount of P200,000.00.
"Petitioner likewise prayed for such other and further reliefs that the
Commission may deem just and equitable under the premises."
On 13 July 1988, respondents-appellees filed their opposition to the petition.
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling that:
 "[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not
dissolve the said law partnership. Accordingly, the petitioner and
respondents are hereby enjoined to abide by the provisions of the
Agreement relative to the matter governing the liquidation of the shares of
any retiring or withdrawing partner in the partnership interest."1
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the withdrawal
of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa & Lozada." The Commission
ruled that, being a partnership at will, the law firm could be dissolved by any partner at anytime, such
as by his withdrawal therefrom, regardless of good faith or bad faith, since no partner can be forced to
continue in the partnership against his will. In its decision, dated 17 January 1990, the SEC held:
WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby REVERSED
insofar as it concludes that the partnership of Bito, Misa & Lozada has not been dissolved. The
case is hereby REMANDED to the Hearing Officer for determination of the respective rights
and obligations of the parties.2
The parties sought a reconsideration of the above decision. Attorney Misa, in addition, asked for an
appointment of a receiver to take over the assets of the dissolved partnership and to take charge of the
winding up of its affairs. On 4 April 1991, respondent SEC issued an order denying reconsideration, as
well as rejecting the petition for receivership, and reiterating the remand of the case to the Hearing
Officer.
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No. 24638 and CA-
G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney Mariano
Lozada both died on, respectively, 05 September 1991 and 21 December 1991. The death of the two
partners, as well as the admission of new partners, in the law firm prompted Attorney Misa to renew his
application for receivership (in CA G.R. SP No. 24648). He expressed concern over the need to preserve
and care for the partnership assets. The other partners opposed the prayer.
The Court of Appeals, finding no reversible error on the part of respondent Commission, AFFIRMED in
toto the SEC decision and order appealed from. In fine, the appellate court held, per its decision of 26
February 1993, (a) that Atty. Misa's withdrawal from the partnership had changed the relation of the
parties and inevitably caused the dissolution of the partnership; (b) that such withdrawal was not in
bad faith; (c) that the liquidation should be to the extent of Attorney Misa's interest or participation in
the partnership which could be computed and paid in the manner stipulated in the partnership
agreement; (d) that the case should be remanded to the SEC Hearing Officer for the corresponding
determination of the value of Attorney Misa's share in the partnership assets; and (e) that the
appointment of a receiver was unnecessary as no sufficient proof had been shown to indicate that the
partnership assets were in any such danger of being lost, removed or materially impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners confine themselves to the
following issues:
1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa
& Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at will;
2. Whether or not the Court of Appeals has erred in holding that the withdrawal of private
respondent dissolved the partnership regardless of his good or bad faith; and
3. Whether or not the Court of Appeals has erred in holding that private respondent's demand
for the dissolution of the partnership so that he can get a physical partition of partnership was
not made in bad faith;
to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa & Lozada,"
and now "Bito, Lozada, Ortega and Castillo," is indeed such a partnership need not be unduly
belabored. We quote, with approval, like did the appellate court, the findings and disquisition of
respondent SEC on this matter; viz:
The partnership agreement (amended articles of 19 August 1948) does not provide for a
specified period or undertaking. The "DURATION" clause simply states:
"5. DURATION. The partnership shall continue so long as mutually
satisfactory and upon the death or legal incapacity of one of the partners,
shall be continued by the surviving partners."
The hearing officer however opined that the partnership is one for a specific undertaking and
hence not a partnership at will, citing paragraph 2 of the Amended Articles of Partnership (19
August 1948):
"2. Purpose. The purpose for which the partnership is formed, is to act as
legal adviser and representative of any individual, firm and corporation
engaged in commercial, industrial or other lawful businesses and
occupations; to counsel and advise such persons and entities with respect to
their legal and other affairs; and to appear for and represent their principals
and client in all courts of justice and government departments and offices in
the Philippines, and elsewhere when legally authorized to do so."
The "purpose" of the partnership is not the specific undertaking referred to in the law.
Otherwise, all partnerships, which necessarily must have a purpose, would all be considered as
partnerships for a definite undertaking. There would therefore be no need to provide for
articles on partnership at will as none would so exist. Apparently what the law contemplates, is
a specific undertaking or "project" which has a definite or definable period of completion.3
The birth and life of a partnership at will is predicated on the mutual desire and consent of the
partners. The right to choose with whom a person wishes to associate himself is the very foundation
and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that
mutual resolve, along with each partner's capability to give it, and the absence of a cause for
dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a
dissolution of the partnership at will. He must, however, act in good faith, not that the attendance of
bad faith can prevent the dissolution of the partnership4 but that it can result in a liability for
damages.5
In passing, neither would the presence of a period for its specific duration or the statement of a
particular purpose for its creation prevent the dissolution of any partnership by an act or will of a
partner.6 Among partners,7 mutual agency arises and the doctrine of delectus personae allows them to
have the power, although not necessarily the right, to dissolve the partnership. An unjustified
dissolution by the partner can subject him to a possible action for damages.
The dissolution of a partnership is the change in the relation of the parties caused by any partner
ceasing to be associated in the carrying on, as might be distinguished from the winding up of, the
business.8 Upon its dissolution, the partnership continues and its legal personality is retained until the
complete winding up of its business culminating in its termination.9
The liquidation of the assets of the partnership following its dissolution is governed by various
provisions of the Civil Code; 10 however, an agreement of the partners, like any other contract, is
binding among them and normally takes precedence to the extent applicable over the Code's general
provisions. We here take note of paragraph 8 of the "Amendment to Articles of Partnership" reading
thusly:
. . . In the event of the death or retirement of any partner, his interest in the partnership shall
be liquidated and paid in accordance with the existing agreements and his partnership
participation shall revert to the Senior Partners for allocation as the Senior Partners may
determine; provided, however, that with respect to the two (2) floors of office condominium
which the partnership is now acquiring, consisting of the 5th and the 6th floors of the Alpap
Building, 140 Alfaro Street, Salcedo Village, Makati, Metro Manila, their true value at the time
of such death or retirement shall be determined by two (2) independent appraisers, one to be
appointed (by the partnership and the other by the) retiring partner or the heirs of a deceased
partner, as the case may be. In the event of any disagreement between the said appraisers a
third appraiser will be appointed by them whose decision shall be final. The share of the
retiring or deceased partner in the aforementioned two (2) floor office condominium shall be
determined upon the basis of the valuation above mentioned which shall be paid monthly
within the first ten (10) days of every month in installments of not less than P20,000.00 for
the Senior Partners, P10,000.00 in the case of two (2) existing Junior Partners and P5,000.00
in the case of the new Junior Partner. 11
The term "retirement" must have been used in the articles, as we so hold, in a generic sense to mean
the dissociation by a partner, inclusive of resignation or withdrawal, from the partnership that thereby
dissolves it.
On the third and final issue, we accord due respect to the appellate court and respondent Commission
on their common factual finding, i.e., that Attorney Misa did not act in bad faith. Public respondents
viewed his withdrawal to have been spurred by "interpersonal conflict" among the partners. It would
not be right, we agree, to let any of the partners remain in the partnership under such an atmosphere
of animosity; certainly, not against their will. 12 Indeed, for as long as the reason for withdrawal of a
partner is not contrary to the dictates of justice and fairness, nor for the purpose of unduly visiting
harm and damage upon the partnership, bad faith cannot be said to characterize the act. Bad faith, in
the context here used, is no different from its normal concept of a conscious and intentional design to
do a wrongful act for a dishonest purpose or moral obliquity.
WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.
SO ORDERED.
Feliciano, Romero, Melo and Francisco, JJ., concur.
G.R. No. L-13680 April 27, 1960
MAURO LOZANA, plaintiff-appellee,
vs.
SERAFIN DEPAKAKIBO, defendant-appellant.
Antonio T. Lozada for appellee.
Agustin T. Misola and Tomas D. Dominado for appellant.
LABRADOR, J.:
This is an appeal from a judgment of the Court of First Instance of Iloilo, certified to us by the Court of
Appeals, for the reason that only questions of law are involved in said appeal.
The record discloses that on November 16, 1954 plaintiff Mauro Lozana entered into a contract with
defendant Serafin Depakakibo wherein they established a partnership capitalized at the sum of
P30,000, plaintiff furnishing 60% thereof and the defendant, 40%, for the purpose of maintaining,
operating and distributing electric light and power in the Municipality of Dumangas, Province of Iloilo,
under a franchise issued to Mrs. Piadosa Buenaflor. However, the franchise or certificate of public
necessity and convenience in favor of the said Mrs. Piadosa Buenaflor was cancelled and revoked by
the Public Service Commission on May 15, 1955. But the decision of the Public Service Commission was
appealed to Us on October 21, 1955. A temporary certificate of public convenience was issued in the
name of Olimpia D. Decolongon on December 22, 1955 (Exh. "B"). Evidently because of the
cancellation of the franchise in the name of Mrs. Piadosa Buenaflor, plaintiff herein Mauro Lozana sold a
generator, Buda (diesel), 75 hp. 30 KVA capacity, Serial No. 479, to the new grantee Olimpia D.
Decolongon, by a deed dated October 30, 1955 (Exhibit "C"). Defendant Serafin Depakakibo, on the
other hand, sold one Crossly Diesel Engine, 25 h. p., Serial No. 141758, to the spouses Felix Jimenea
and Felina Harder, by a deed dated July 10, 1956.
On November 15, 1955, plaintiff Mauro Lozana brought an action against the defendant, alleging that
he is the owner of the Generator Buda (Diesel), valued at P8,000 and 70 wooden posts with the wires
connecting the generator to the different houses supplied by electric current in the Municipality of
Dumangas, and that he is entitled to the possession thereof, but that the defendant has wrongfully
detained them as a consequence of which plaintiff suffered damages. Plaintiff prayed that said
properties be delivered back to him. Three days after the filing of the complaint, that is on November
18, 1955, Judge Pantaleon A. Pelayo issued an order in said case authorizing the sheriff to take
possession of the generator and 70 wooden posts, upon plaintiff's filing of a bond in the amount of
P16,000 in favor of the defendant (for subsequent delivery to the plaintiff). On December 5, 1955,
defendant filed an answer, denying that the generator and the equipment mentioned in the complaint
belong to the plaintiff and alleging that the same had been contributed by the plaintiff to the
partnership entered into between them in the same manner that defendant had contributed
equipments also, and therefore that he is not unlawfully detaining them. By way of counterclaim,
defendant alleged that under the partnership agreement the parties were to contribute equipments,
plaintiff contributing the generator and the defendant, the wires for the purpose of installing the main
and delivery lines; that the plaintiff sold his contribution to the partnership, in violation of the terms of
their agreement. He, therefore, prayed that the complaint against him be dismissed; that plaintiff be
adjudged guilty of violating the partnership contract and be ordered to pay the defendant the sum of
P3,000, as actual damages, P600.00 as attorney's fees and P2,600 annually as actual damages; that
the court order dissolution of the partnership, after the accounting and liquidation of the same.
On September 27, 1956, the defendant filed a motion to declare plaintiff in default on his counterclaim,
but this was denied by the court. Hearings on the case were conducted on October 25, 1956 and
November 5, 1956, and on the latter date the judge entered a decision declaring plaintiff owner of the
equipment and entitled to the possession thereof, with costs against defendant. It is against this
judgment that the defendant has appealed.
The above judgment of the court was rendered on a stipulation of facts, which is as follows:
1. That on November 16, 1954, in the City of Iloilo, the aforementioned plaintiff, and the
defendant entered into a contract of Partnership, a copy of which is attached as Annex "A" of
defendant's answer and counterclaim, for the purpose set forth therein and under the national
franchise granted to Mrs. Piadosa Buenaflor;
2. That according to the aforementioned Partnership Contract, the plaintiff Mr. Mauro Lozana,
contributed the amount of Eighteen Thousand Pesos (P18,000.00); said contributions of both
parties being the appraised values of their respective properties brought into the partnership;
3. That the said Certificate of Public Convenience and Necessity was revoked and cancelled by
order of the Public Service Commission dated March 15, 1955, promulgated in case No. 58188,
entitled, "Piadosa Buenaflor, applicant", which order has been appealed to the Supreme Court
by Mrs. Buenaflor;
4. That on October 30, 1955, the plaintiff sold properties brought into by him to the said
partnership in favor of Olimpia Decolongon in the amount of P10,000.00 as per Deed of Sale
dated October 30, 1955 executed and ratified before Notary Public, Delfin Demaisip, in and for
the Municipality of Dumangas, Iloilo and entered in his Notarial Registry as Doc. No. 832; Page
No. 6; Book No. XIII; and Series of 1955, a copy thereof is made as Annex "B" of defendant's
answer and counterclaim;
5. That there was no liquidation of partnership and that at the time of said Sale on October
30, 1955, defendant was the manager thereof;
6. That by virtue of the Order of this Honorable Court dated November 18, 1955, those
properties sold were taken by the Provincial Sheriff on November 20, 1955 and delivered to
the plaintiff on November 25, 1955 upon the latter posting the required bond executed by
himself and the Luzon Surety Co., dated November 17, 1955 and ratified before the Notary
Public, Eleuterio del Rosario in and for the province of Iloilo known as Doc. No. 200; Page 90;
Book No. VII; and Series of 1955; of said Notary Public;
7. That the said properties sold are now in the possession of Olimpia Decolongon, the
purchaser, who is presently operating an electric light plant in Dumangas, Iloilo;
8. That the defendant sold certain properties in favor of the spouses, Felix Jimenea and Felisa
Harder contributed by him to the partnership for P3,500.00 as per Deed of Sale executed and
ratified before the Notary Public Rodrigo J. Harder in and for the Province of Iloilo, known as
Doc. No. 76; Page 94; Book No. V; and Series of 1955, a certified copy of which is hereto
attached marked as Annex "A", and made an integral part hereof; (pp, 27-29 ROA).
As it appears from the above stipulation of facts that the plaintiff and the defendant entered into the
contract of partnership, plaintiff contributing the amount of P18,000, and as it is not stated therein that
there bas been a liquidation of the partnership assets at the time plaintiff sold the Buda Diesel Engine
on October 15, 1955, and since the court below had found that the plaintiff had actually contributed
one engine and 70 posts to the partnership, it necessarily follows that the Buda diesel engine
contributed by the plaintiff had become the property of the partnership. As properties of the
partnership, the same could not be disposed of by the party contributing the same without the consent
or approval of the partnership or of the other partner. (Clemente vs. Galvan, 67 Phil., 565).
The lower court declared that the contract of partnership was null and void, because by the contract of
partnership, the parties thereto have become dummies of the owner of the franchise. The reason for
this holding was the admission by defendant when being cross-examined by the court that he and the
plaintiff are dummies. We find that this admission by the defendant is an error of law, not a statement
of a fact. The Anti-Dummy law has not been violated as parties plaintiff and defendant are not aliens
but Filipinos. The Anti-Dummy law refers to aliens only (Commonwealth Act 108 as amended).
Upon examining the contract of partnership, especially the provision thereon wherein the parties agreed
to maintain, operate and distribute electric light and power under the franchise belonging to Mrs.
Buenaflor, we do not find the agreement to be illegal, or contrary to law and public policy such as to
make the contract of partnership, null and void ab initio. The agreement could have been submitted to
the Public Service Commission if the rules of the latter require them to be so presented. But the fact of
furnishing the current to the holder of the franchise alone, without the previous approval of the Public
Service Commission, does not per se make the contract of partnership null and void from the beginning
and render the partnership entered into by the parties for the purpose also void and non-existent.
Under the circumstances, therefore, the court erred in declaring that the contract was illegal from the
beginning and that parties to the partnership are not bound therefor, such that the contribution of the
plaintiff to the partnership did not pass to it as its property. It also follows that the claim of the
defendant in his counterclaim that the partnership be dissolved and its assets liquidated is the proper
remedy, not for each contributing partner to claim back what he had contributed.
For the foregoing considerations, the judgment appealed from as well as the order of the court for the
taking of the property into custody by the sheriff must be, as they hereby are set aside and the case
remanded to the court below for further proceedings in accordance with law.
Paras, C.J., Bengzon, Montemayor, Bautista Angelo, Concepcion, Endencia, Barrera and Gutierrez
David, JJ., concur.
G.R. No. L-33580 February 6, 1931
MAXIMILIANO SANCHO, plaintiff-appellant,
vs.
SEVERIANO LIZARRAGA, defendant-appellee.
Jose Perez Cardenas and Jose M. Casal for appellant.
Celso B. Jamora and Antonio Gonzalez for appellee.
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, cross-complaint and counterclaim, setting up the latter and
asking for the dissolution of the partnership, and the payment to him as its manager and administrator
of P500 monthly from October 15, 1920, until the final dissolution, with interest, one-half of said
amount to be charged to the plaintiff. He also prays for any other just and equitable remedy.
The Court of First Instance of Manila, having heard the cause, and finding it duly proved that the
defendant had not contributed all the capital he had bound himself to invest, and that the plaintiff had
demanded that the defendant liquidate the partnership, declared it dissolved on account of the
expiration of the period for which it was constituted, and ordered the defendant, as managing partner,
to proceed without delay to liquidate it, submitting to the court the result of the liquidation together
with the accounts and vouchers within the period of thirty days from receipt of notice of said judgment,
without costs.
The plaintiff appealed from said decision making the following assignments of error:
1. In holding that the plaintiff and appellant is not entitled to the rescission of the partnership
contract, Exhibit A, and that article 1124 of the Civil Code is not applicable to the present case.
2. In failing to order the defendant to return the sum of P50,000 to the plaintiff with interest
from October 15, 1920, until fully paid.
3. In denying the motion for a new trial.
In the brief filed by counsel for the appellee, a preliminary question is raised purporting to show that
this appeal is premature and therefore will not lie. The point is based on the contention that inasmuch
as the liquidation ordered by the trial court, and the consequent accounts, have not been made and
submitted, the case cannot be deemed terminated in said court and its ruling is not yet appealable. In
support of this contention counsel cites 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.
Avancea, C.J., Johnson, Street, Malcolm, Villamor, Ostrand, Johns and Villa-Real, JJ., concur.
G.R. No. L-5953 February 24, 1912
ANTONIO M. PABALAN, plaintiff-appellant,
vs.
FELICIANO VELEZ, defendant-appellee.
Ariston Estrada for appellant.
Luciano de la Rosa for appellee.
TORRES, J.:
This case was appealed by counsel for the plaintiff, from the judgment rendered by the Honorable First. That Don Antonio Maria Pabalan y Santos is the sole and exclusive owner in fee-simple
Judge A. S. Crossfield. of the following landed properties, to wit: (a) A rural estate consisting of an hacienda, known
as Pantayaning or Pantaen, devoted to agricultured and situated on the roads which lead from
On January 20, 1908, counsel for the plaintiff filed a written complaint against the defendant, the Mariquina to Antipolo, within the pueblos of Cainta and Antipolo of the district of Morong,
administrator of the intestate estate of Walter A. Fitton, now deceased. The said administrator was inscribed in the property registry of this city as of the north district, with an area of 1,978,022
appointed by an order issued on December 21, 1907, by the aforementioned judge in case No. 5103, square meters and bounded on the north by the land of Victor Vargas and the Sucabin River,
heard in the Court of First Instance of this city. by a part of the Tabang River, Mount Magpatong, the sitio of Palenque and another part of the
said Tabang River, as far as the foot of Mount Cay-Alaring, Mount Sapang, and the road
leading to the pueblo of Taytay; on the south by the summit of Mount Matugalo, the
The complaint alleged: That until June 27, 1900, the plaintiff, Antonio M. Pabalan, was the owner in fee
Paglilingohan estero, the old Cainta highway, and the land of Juan Santa Ana; and one on the
simple of a rural estate consisting of an hacienda known by the name of "Pantayani," which was
west by the lands of Doa Columba Suarez and Don Mariano Sumulong, the Bilao road, and
devoted to agricultural purposes, situated on the roads leading from Mariquina to Antipolo, within the
the lands of Perfecto Legaspi Miguel Gonzales, Zacarias Gonzales, Juan Adriano, and that of
pueblos of Cainta and Antipolo, Province of Rizal, and which covered an area of 1,978,822 square
the aforesaid Juan Santa Ana. And (b) an urban property consisting of a building lot, with
meters; also a parcel of land consisting of a building lot situated on Calle Real, of Cainta, measuring
neither street nor district number, situated on Calle Real, pueblo of Cainta, Morong District,
371.30 square meters, the metes and bounds of which were specified in the complaint; that, on the
and in the north district division of the property registry of this city; it is bounded on its front,
said date of June 27, 1900, the plaintiff, desiring to make use of the two properties described, and
which faces the south, by the aforesaid Calle Real; on its right, upon entering, or on the east,
lacking the required means for the purpose, entered into an agreement with the said Walter A. Fitton
by the lot belonging to Don Alejandro San Diego and his wife Doa Buenaventura Santos; on
whereby they formed a regular mercantile partnership for the development of the said properties and
its left, or the west, by the lot of Don Pablo Ordoez and his wife Dionisia Salandanan; and on
for the manufacture and sale of their products and other business pertinent thereto; that the sum of
its rear, or the north, by the lot of Don Florencio San Antonio, his wife and Doa Severina
9,000 pesos Mexican currency was fixed as the amount of the capital stock of the partnership, of which
Santos, and has an area of 361 square meters and 30 square centimeters. Second. That the
3,000 pesos, in cash, were to be contributed by the plaintiff and 6,000 pesos, in real property, by the
properties hereinbefore described belong to the aforementioned Don Antonio Maria Pabalan y
said Fitton; that, for the purpose of obtaining the said 3,000 pesos, the plaintiff sold his two
Santos, who purchased the same from their former owner, the firm of G. Buchanan and
aforementioned real properties to the said Walter A. Fitton, the rural estate, shown in Exhibit A, for
Company, of the city of London, represented by its agent, Herbert Heiden Todd, through a
5,900 pesos, and the urban property, described in Exhibit B, for 100 pesos; that the plaintiff received
deed, serial number 852, drawn up in this city and attested before the former notary public of
from the purchaser the sum of 3,000 pesos and the latter, Walter A. Fitton, bound himself to pay into
the same, Don Jose Engracio Monroy y Torres, on the twenty-ninth of November, 1894, as
the funds of the said partnership, as the plaintiff's capital, the remaining 3,000 pesos of the selling
shown by the notarial instrument containing the description of the said properties, written by
price; that it was furthermore agreed that the two said real properties should constitute the capital of
the undersigned notary at the request of their owner, Sr. Pabalan, on the twelfth of the
Walter A. Fitton in the partnership, which would be known by the name of "A. M. Pabalan and
present month of June, which certificate, without number, on account of its notarial character,
Company" and should be an equivalent for the aforesaid sum of 6,000 pesos; that all the foregoing
was exhibited to me by the latter and I certify to the same. Third. That the properties in
facts set forth in the complaint were recorded in the instrument of sale and organization of the
question are free of all encumbrance, charge, and liability, and Don Antonio Maria Pabalan y
partnership, executed on June 27, 1900, before the notary public Rosado, a copy of which was
Santos and Mr. Walter A. Fitton having agreed to sell the same and to form a regular
attached to and made an integral part of the complaint; that, from June 27, 1900, up to the date when
mercantile partnership for the purpose of their improvement and the utilization of their
the partner Fitton died, the latter failed to pay into the partnership funds the said 3,000 pesos, the
products, hereby execute the present instrument, in order that all its contents may appear in
remainder of the price of the properties purchased by him, or any part thereof, and did not pay the said
an authenticated form, and solemnly stipulated: That Don Antonio Maria Pabalan y Santos
sum or any part of the same to the plaintiff; that, since Fitton's death, and up to the date of the filing
hereby sells absolutely and finally to Mr. Walter A. Fitton, the property which, under the letters
of the complaint, neither the administrator of the latter's estate nor any other person had turned into
A and B, is mentioned and described in the first paragraph of this instrument, together with all
the partnership or paid to the plaintiff the aforesaid 3,000 pesos; that, owing to the failure of Fitton to
the rights, actions, uses and easements thereto pertaining, for the price of 5,900 pesos, for
comply with his obligation, the properties in question had been entirely unproductive and losses and
the property specified under letter A, and the price of 100 pesos, for that described under
damages had been occasioned to the plaintiff in the sum of 2,000 pesos Philippine currency. The latter,
letter B, that is, for the total price of 6,000 pesos, of which the vendor received in the act, in
therefore, prayed for the rescission of the contract entered into, on June 27, 1900, by himself, the
my presence and in that of the witnesses hereunto, which I, the notary, hereby attest, and
plaintiff, and Walter A. Fitton, the dissolution of the partnership "A. M. Pabalan and Company," and the
from the hands of the vendee, the sum of 3,000 pesos in coin, counted to his entire
annulment of the sale of the said properties, by returning to the defendant a sum in Philippine currency
satisfaction, for which the said Walter A. Fitton hereby acknowledges by a binding receipt
equivalent to the 3,000 pesos in Mexican currency received from Walter A. Fitton, and that the
which secures the said Antonio M. Pabalan in all his rights and the vendor binds himself to
defendant be sentenced to pay to the plaintiff, as losses and damages, the sum of 2,000 pesos, and to
protect and defend the title to the properties hereby sold and guarantees them in accordance
the payment of the cost of the suit, in addition to the other remedies sought.
with law; and the vendee shall retain the remaining 3,000 pesos for the purpose of bringing
them, as the vendor's capital, into the partnership which is also a subject of this public
The instrument attached to the complaint and executed on June 27, 1900, before the notary public instrument. Fourth. Walter A. Fitton, in his turn, covenants: That he accepts this sale in the
Jose M.a Rosado y Calvo, by Antonio M. Pabalan y Santos, on the one hand, and Walter A. Fitton, on precise terms in which it is executed by Antonio Maria Pabalan y Santos. Fifth. That, by virtue
the other, contains the following clauses: of the preinserted stipulations, both parties to this contract, by this same public instrument,
form a regular mercantile partnership, upon the following bases and conditions: 1. The
company organized through the present public instrument shall operate under the firm name
of "A. M. Pabalan and Company" and shall have its domicile, for all legal purposes, in this city
of Manila. 2. The object and aim of the company is the cultivation and improvement of the two
properties described under letters A and B of the first paragraph hereof, the manufacture and
sale of their products, and the conduct of all other business connected with, incidental or
pertinent to the said lands. 3. The management, direction and administration of the company
shall be in charge of the two partners who shall both be entitled to use the firm name, it being
thereof understood that they are authorized to carry on, jointly or severally, all kinds of
operations comprised within the purpose of this partnership, with the sole limitation that
neither of them may make the company a surety or borrow money for the same, without its
being necessary, with respect to this latter prohibition, for Mr. Pabalan to state that it does not
suit him to increase his capital to an amount equal to that invested by Mr. Fitton. Both
partners are likewise authorized, for the purposes of management, to appoint general or social
attorneys-in-fact to represent the company, as well as attorneys to demand and collect such
credits and bring such suits before the courts as be proper. 4. The management of agricultural
matters pertaining to the rural and the urban property described in the first paragraph of this
instrument, shall be solely and exclusively in charge of the partner Antonio Maria Pabalan or
the person by him designated for this purpose. 5. The capital stock is composed of the total
sum of 9,000 pesos contributed by the partners in the following proportion and from: Antonio
Maria Pabalan, 3,000 pesos in cash, which shall be paid into the partnership fund by Walter A.
Fitton, who, for this purpose, has retained them in his possession upon his paying the amount
of the sale herein set forth; Walter A. Fitton, 6,000 pesos, represented by the two properties
described under letters A and B in the first paragraph herein, and in which the said lands are
by common accord appraised. 6. The partners may not engage, in the Province of Morong, in
the same kinds of business engaged in by this company, but they mutually authorize each
other personally to carry on and conduct any such business at any other place outside of the
said province. 7. Any and all rural or city properties which Mr. Pabalan may acquire to the west
of the hacienda hereinabove described under letter A, shall necessarily form a part of the
hacienda itself. 8. The term of the existence of this partnership shall be twenty-five years,
which shall begin to run from this date and may be extended at the will of the contracting
parties. 9. In order that a regular and orderly course be pursued in the management of the
company, and the losses and profits of the latter ascertained, an annual balance of accounts
shall be struck in the month of June of each year, in addition to such other balances as the
partners may, by mutual accord, determine. 10. If, during the term of this contract, either of
the partners should die, the company shall not, on such account, be considered as dissolved,
but shall be continued by the surviving partner and the heirs of the deceased partner, unless it
should suit the former to be separated from the latter, in which case he shall deliver to such
heirs the part of the capital that belonged to the deceased, together with all the latter's vested
rights. 11. The profits obtained and losses suffered by the company shall be shared by the
partners in proportion to the capital invested by each respectively. 12. The partners may, by
agreement, change the company hereby organized into a joint stock company, in which case
they shall observe and comply with the formalities provided and prescribed by the existing
Code of Commerce in respect to companies of this kind. 13. All questions, controversies,
doubts or differences which may arise between the partners, by reason of this company or
from any acts performed by them on account of the same, shall be determined by the decision
of friendly arbitrators appointed one by each party, such appointees so designated to choose a
third arbitrator in case of disagreement.
The demurrer interposed to the complaint having been overruled by an order of April 1, 1908, and
exception thereto taken by the defendant, the latter, on the 11th of the same month, filed a written
answer wherein he set forth that he admitted the allegations contained in paragraphs 1, 2, and 4 of the
complaint and denied, generally and specifically, each and all of those contained in paragraphs 3, 5, 6,
7, 8, and 9.
As a special defense the defendant alleged that the action prosecuted by the plaintiff had prescribed;
that the fact that the properties of the company known as "A. M. Pabalan and Company" had been
unproductive was exclusively due to the great negligence of the plaintiff, since he had had more than
sufficient time, from June 27, 1900, to the date of the death of Fitton, to have demanded from his
copartner the sum offered by the latter and which he was to contribute to the common assets, and
that, notwithstanding all the time that had elapsed since the execution of the articles of partnership, up
to the date of the presentation of the complaint the plaintiff had never required his copartner to turn
into the partnership funds the capital pledged.
The defendant, in his cross-complaint and counterclaim, set forth: That, according to the said articles of
partnership, the plaintiff had the management of agricultural matters pertaining to the properties, rural
and urban, described therein, and, consequently, was alone responsible for the successful management
of the company; that, also, according to the articles of partnership, either of the two partners had
charge of the management, direction, and administration of the company; that, some months after the
execution of the said instrument of partnership, Walter A. Fitton was obliged, for reasons of health, to
go abroad, where he resided until his death, and during his absence from this city the plaintiff, Antonio
M. Pabalan, with notable negligence and abandonment of the interests of the company, failed to attend
to the administration of its affairs and did not employ on his part any means to maintain in a productive
condition the two properties brought into the partnership by the partner Fitton, and that, through the
negligence, abandonment, and carelessness of the plaintiff Pabalan, the defendant suffered losses and
damages in the sum of P3,000 Philippine currency; the latter, therefore, prayed that the complaint be
dismissed and that, by reason of his cross-complaint and counterclaim, an award be made in his behalf,
and against the plaintiff, for losses and damages, in the sum of P3,000 Philippine currency, with the
costs.
By a written motion of March 19, 1909, Antonio Vasquez represented: That, owing to the death of the
plaintiff, the hearing of the case had to be suspended until, on the 4th of March, as aforesaid, letters of
administration were issued in his behalf, relative to the estate of the plaintiff Pabalan; and he therefore
prayed that he be admitted as a party in the capacity of administrator of the estate of the deceased
Antonio M. Pabalan.
The case having come to trial on April 29, 1909, with the introduction of oral evidence by counsel for
the plaintiff, the court, on July 9 of the same year, pronounced judgment and found that the defendant
had not proved any of the damages alleged in his answer, and was not entitled to any recovery
therefore, nor the plaintiff for the taxes that he had paid. The court ordered a dissolution of the
partnership formed between the plaintiff and the deceased Walter A. Fitton and a recission of the sale
and contract of partnership executed between them on July 27, 1900, and further ordered that the
defendant, as the administrator of the estate of the said deceased Walter A. Fitton, deliver to the
plaintiff, upon the latter's paying to the defendant, out of the property which belonged to the aforesaid
deceased, the sum of P3,000 Mexican currency, equivalent to P2,700 Philippine currency, the following
real properties:
 A. A rural estate consisting of an hacienda, known as Pantayani or Pantaen, devoted to
agriculture and situated on the roads from Mariquina to Antipolo, within the pueblos of Cainta
and Antipolo of the old district of Morong, now Province of Rizal, having an area of 1,978,822
square meters, bounded on the north by the land of Victor Vargas and the Sucabin River; on
the east by a part of the said Sucabin River, a part of the Tabang River, Mount Nagtapong, the
sitio of Palenque, and by another part of the Tabang River toward the base of Mount Cay-
Alaring, Mount Sapang, and the road leading to the pueblo of Taytay; on the south by the
summit of Mount Matugalo, the Paglilingohan estero, the old Cainta highway, and the land of
Juan Santa Ana; and on the east by the lands of Columba Suarez and Mariano Sumulong, the
Bulao Road, the lands of Perfecto Legaspi, Miguel Gonzales, Zacarias Gonzales, Juan Adriano,
and of the aforementioned Juan Santa Ana.
B. An urban property consisting of a building lot, without either street or district number,
situated on Calle Real in Cainta, a municipality of the Province of Rizal; bounded on its front,
which faces the south, by the aforesaid Calle Real; on its right, upon entering, or on the east,
by the lot belonging to Alejandro San Diego and his wife Buenaventura Santos; on its left, or
the west, by the lot of Pablo Ordoez and his wife Dionisia Salandanan; and on its rear, or the
north, by the lot of Florencio San Antonio and his wife Severina Santos, with an area of 361
square meters and 30 square centimeters.
This litigation concerns the dissolution of a regular mercantile partnership and the rescission of the sale
of certain real properties, the contracts with respect to which were entered into between Antonio M.
Pabalan y Santos, on one hand, and Walter A. Fitton, on the other, according to a notarial instrument
executed by the contracting parties on July 27, 1900.
The plaintiff's claim is founded on the alleged fact that the said Walter A. Fitton failed to comply with
his obligations as stipulated in the said double contract, inasmuch as he did not pay into the funds of
the company entitled "A. M. Pabalan and Company," as the capital of the partner Pabalan, the sum of
P3,000, or the remainder of P6,000, the price of the properties which he had purchased from the
plaintiff, did not pay to the latter the said amount, nor any part thereof, nor was such payment made,
after the said Fitton's death, by the administrator of the latter's estate.
Article 1506 of the Civil Code prescribes:
The sale shall be rescinded for the same causes as all other obligations, etc.
Article 1124 provides:
The right to rescind the obligations is considered as implied in mutual ones, in case one of the
obligated persons does not comply with what is incumbent upon him.
The person prejudiced may choose between exacting the fulfillment of the obligation or its
rescission, with indemnity for damages and the payment of interest in either case. He may
also demand the rescission, even after having requested its fulfillment, should the latter
appear impossible.
The court shall order the rescission demanded, unless there are sufficient causes authorizing it
to fix a period.
This is understood without prejudice to the rights of third acquirers, in accordance with articles
1295 and 1298, and with the provisions of the Mortgage Law.
Article 116 of the Code of Commerce prescribes:
Articles of association by which two or more persons obligate themselves to place in a
common fund any property, industry, or any of these things, in order to obtain profit, shall be
commercial, no matter what its class may be, provided it has been established in accordance
with the provisions of this code.
After the organization of the general mercantile partnership denominated "A. M. Pabalan and
Company," through the aforesaid instrument of June 27, 1900, the partner Fitton did not turn into the
company funds the sum of P3,000, in the name and to the credit of Pabalan, as the latter's capital,
which sum was a part of the price of the sale of the two real properties purchased from the said
Pabalan by his partner Fitton who, in turn, brought the said two parcels of land, as his capital, into the
common fund, without having paid the said sum up to the time when he absented himself from these
Islands, a few months after the establishment of the partnership, and died in a foreign country.
It was duly proved at the trial of this case, that the partner Walter A. Fitton failed to observe the
stipulations of the two aforesaid contracts; that he did not pay any part of the price of the sale of the
two parcels of land which he had purchased from his partner, Antonio M. Pabalan, and, consequently,
did not turn into the company funds, as capital of the said Pabalan, the sum of which the said price
consisted; it is therefore unquestionable that he did not comply with his two principal obligations,
assumed in the said double contract wherein he expressly agreed that the said P3,000, a part of the
price of the two pieces of land that he purchased from Pabalan, would be by him turned into the fund
of the general partnership which they had formed, as capital of the partner Pabalan.
In case one of the parties to a contract does not fulfill his obligation as stipulated therein, the other
contracting party, by the provisions of the above-quoted article 1124 of the Civil Code, is entitled to
demand the rescission of the contract, as such obligations are mutual, and the court must order the
rescission demanded. The partner, Walter A. Fitton, came within such a case, since he failed to pay any
part of the price of the two properties which he had acquired and did not turn into the company fund,
as capital of the vendor partner, the sum representing such sale, and therefore justice requires the
dissolution of the aforementioned company and the rescission of the said sale, in conformity with the
finding contained in the judgment appealed from the prayer rightfully and lawfully made by the partner
who did not violate his obligations as set forth in the said contract.
During the course of this suit in the Court of First Instance, the plaintiff, Antonio M. Pabalan, also died;
and if the latter, while living, was not obliged, according to clause 10 of the articles of partnership, to
continue in the company after the decease of his copartner, and had a right to withdraw therefrom or
from the heirs of the deceased Walter A. Fitton, after the death of the partner Pabalan, neither are the
latter's successors in interest obliged to continue in the company, and, therefore, under this
circumstance, the propriety of the judgment appealed from is still more evident. With respect to the
interest on the capital which belonged to Pabalan, and which Fitton failed to turn into the company
fund in conformity with the agreement made, and in regard to the amount of the losses and damages
occasioned by the noncompliance, on the part of the partner Fitton, with the stipulated provisions, both
such amounts should be considered as the company's losses and computed pro rata, in proportion to
the extent that each partner is interested in the company and on the same basis as the profits. (Arts.
140 and 141 of the Code of Commerce.)
As regards the amount of the land tax, which the partner Pabalan had to pay, amounting to P522.30,
under the assessment levied upon the two real properties owned by the company, inasmuch as the
latter is the owner of the said two parcels of land, which form the assets of the company known as "A.
M. Pabalan and Company," it is unquestionable that this company should have paid the said tax to the
Government, and the same being paid by the partner Pabalan out of his private funds and not of those
of the company, he was solely entitled to be reimbursed for two-thirds of the said sum paid, in
proportion to the amount of the respective capital brought in, which two-thirds of the sum of P522.30,
that is, P348.20, may be deducted from the sum of P2,700 Philippine currency, equivalent to P3,000
Mexican currency, which the estate of Antonio M. Pabalan must restore to the testate or intestate
estate of Walter A. Fitton, upon the defendant's returning to the plaintiff the two aforesaid parcels of
land.
For the reasons hereinbefore stated, we are of opinion that the judgment appealed from should be and
is hereby affirmed, with no special finding as to the costs; provided, however, that the administrator of
the estate of the deceased Fitton shall deliver to the administrator of the estate of Pabalan the two
parcels of land, the sale of which was rescinded, upon payment by the last named administrator to that
of the estate of Fitton, of the sum of P2,700, equivalent to P3,000 Mexican pesos, the said
administrator of the Pabalan estate being entitled to deduct from the said sum that of P348.20, which is
two-thirds of the amount paid as land tax on the properties concerned. So ordered.
Arellano, C.J., Mapa, Johnson, Carson and Trent, JJ., concur.
G.R. No. L-59956 October 31, 1984
ISABELO MORAN, JR., petitioner,
vs.
THE HON. COURT OF APPEALS and MARIANO E. PECSON, respondents.
GUTIERREZ, JR., J.:+.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 rendered a decision against the petitioner. The dispositive portion of the decision reads: t.hqw
xxx xxx xxx
... on February 22, 1971 Pecson and Moran entered into an agreement whereby both
would contribute P15,000 each for the purpose of printing 95,000 posters (featuring
the delegates to the 1971 Constitutional Convention), with Moran actually supervising
the work; that Pecson would receive a commission of P l,000 a month starting on
April 15, 1971 up to December 15, 1971; that on December 15, 1971, a liquidation of
the accounts in the distribution and printing of the 95,000 posters would be made,
that Pecson gave Moran P10,000 for which the latter issued a receipt; that only a few
posters were printed; that on or about May 28, 1971, Moran executed in favor of
Pecson a promissory note in the amount of P20,000 payable in two equal installments
(P10,000 payable on or before June 15, 1971 and P10,000 payable on or before June
30, 1971), the whole sum becoming due upon default in the payment of the first
installment on the date due, complete with the costs of collection.
Private respondent Pecson filed with the Court of First Instance of Manila an action for the recovery of a
sum of money and alleged in his complaint three (3) causes of action, namely: (1) on the alleged
partnership agreement, the return of his contribution of P10,000.00, payment of his share in the profits
that the partnership would have earned, and, payment of unpaid commission; (2) on the alleged
promissory note, payment of the sum of P20,000.00; and, (3) moral and exemplary damages and
attorney's fees.
After the trial, the Court of First Instance held that: t.hqw
From the evidence presented it is clear in the mind of the court that by virtue of the
partnership agreement entered into by the parties-plaintiff and defendant the plaintiff
did contribute P10,000.00, and another sum of P7,000.00 for the Voice of the
Veteran or Delegate Magazine. Of the expected 95,000 copies of the posters, the
defendant was able to print 2,000 copies only authorized of which, however, were
sold at P5.00 each. Nothing more was done after this and it can be said that the
venture did 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
PREMISES CONSIDERED, the decision appealed from is hereby SET ASIDE, and a
new one is hereby rendered, ordering defendant-appellant Isabelo C. Moran, Jr. to
pay plaintiff- appellant Mariano E. Pecson:
 (a) Forty-seven thousand five hundred (P47,500) (the amount that could have
accrued to Pecson under their agreement);
(b) Eight thousand (P8,000), (the commission for eight months);
(c) Seven thousand (P7,000) (as a return of Pecson's investment for the Veteran's
Project);
(d) Legal interest on (a), (b) and (c) from the date the complaint was filed (up to the
time payment is made)
The petitioner contends that the respondent Court of Appeals decided questions of substance in a way
not in accord with law and with Supreme Court decisions when it committed the following errors:
I
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO C.
MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF P47,500 AS THE
SUPPOSED EXPECTED PROFITS DUE HIM.
II
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO C.
MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF P8,000, AS SUPPOSED
COMMISSION IN THE PARTNERSHIP ARISING OUT OF PECSON'S INVESTMENT.
III
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO C.
MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF P7,000 AS A SUPPOSED
RETURN OF INVESTMENT IN A MAGAZINE VENTURE.
IV
ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL LIABLE FOR ANY AMOUNT, THE
HONORABLE COURT OF APPEALS DID NOT EVEN OFFSET PAYMENTS ADMITTEDLY RECEIVED BY
PECSON FROM MORAN.
V partnership between the petitioner and the private respondent would have been a profitable venture. In
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT GRANTING THE PETITIONER'S
COMPULSORY COUNTERCLAIM FOR DAMAGES.
The first question raised in this petition refers to the award of P47,500.00 as the private respondent's
share in the unrealized profits of the partnership. The petitioner contends that the award is highly
speculative. The petitioner maintains that the respondent court did not take into account the great risks
involved in the business undertaking.
We agree with the petitioner that the award of speculative damages has no basis in fact and law.
There is no dispute over the nature of the agreement between the petitioner and the private
respondent. It is a contract of partnership. The latter in his complaint alleged that he was induced by
the petitioner to enter into a partnership with him under the following terms and conditions:
t.hqw
1. That the partnership will print colored posters of the delegates to the
Constitutional Convention;
2. That they will invest the amount of Fifteen Thousand Pesos (P15,000.00) each;
3. That they will print Ninety Five Thousand (95,000) copies of the said posters;
4. That plaintiff will receive a commission of One Thousand Pesos (P1,000.00) a
month starting April 15, 1971 up to December 15, 1971;
5. That upon the termination of the partnership on December 15, 1971, a liquidation
of the account pertaining to the distribution and printing of the said 95,000 posters
shall be made.
The petitioner on the other hand admitted in his answer the existence of the partnership.
The rule is, when a partner who has undertaken to contribute a sum of money fails to do so, he
becomes a debtor of the partnership for whatever he may have promised to contribute (Art. 1786, Civil
Code) and for interests and damages from the time he should have complied with his obligation (Art.
1788, Civil Code). Thus in Uy v. Puzon (79 SCRA 598), which interpreted Art. 2200 of the Civil Code of
the Philippines, we allowed a total 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
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 Q During the pre-trial of this case, Mr. Pecson, the defendant
P6,000.00 and the promised profit of P8,000 are covered by defendant's promissory presented a promissory note in the amount of P14,000.00 which
note for P14,000 dated March 31, 1971 marked by defendant as Exhibit 2 (t.s.n., pp. has been marked as Exhibit 2. Do you know this promissory note?
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 A Yes, sir.
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
Q What is this promissory note, in connection with your transaction
Exhibit 3 for the defendant and Exhibit M for plaintiff. Of this P7,000, defendant paid
with the defendant?
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, A This promissory note is for the printing of the "Voice of the
therefore, being presented to show the consideration for the P20,000 promissory Veterans".
note.
Q What is this "Voice of the Veterans", Mr. Pecson?
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 A It is a book.t.hqw
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,
(T.S.N., p. 19, Nov. 29, 1972)
1972), and it is being presented to show the consideration for the P20,000 note and
the existence and validity of the obligation.
Q And what does the amount of P14,000.00 indicated in the
promissory note, Exhibit 2, represent?
xxx xxx xxx

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

L-Book entitled "Voice of the Veterans" which is being offered for the purpose of
evidenced by the Philippine National Bank Manager's check and the
showing the subject matter of the other partnership agreement and in which plaintiff
P8,000.00 profit assured me by Mr. Moran which I will derive from
invested the P6,000 (Exhibit E) which, together with the promised profit of P8,000
the printing of this "Voice of the Veterans" book.
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 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?
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 Yes, sir.

N-Receipt of plaintiff dated March 30, 1971 for the return of his P3,000 out of his
capital investment of P6,000 (Exh. E) in the P14,000 promissory note (Exh. 2; P).
This is also defendant's Exhibit 4. This document is being offered in support of
plaintiff's explanation in connection with Exhibits E, L, and M to show the transaction
mentioned therein.
xxx xxx xxx
P-Promissory note for P14,000.00. This is also defendant's Exhibit 2. It is being
offered for the purpose of showing the transaction as explained in connection with
Exhibits E, L, M, and N above.
Explaining the above-quoted exhibits, respondent Pecson testified that: t.hqw
Q 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.
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.
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

Q Was there a receipt issued by you covering this payment of Teehankee (Chairman), Melencio-Herrera, Plana and Relova, JJ., concur.
P4,000.00 in favor of Mr. Moran?
De la Fuente J., took no part.
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?