CHAPTER 2

Obligations of the Partners

SECTION 1

Obligations of the Partners Among Themselves

ARTICLE 1784. A partnership begins from the moment of the execution of the
contract, unless it is otherwise stipulated. (1679)

ARTICLE 1785. When a partnership for a fixed term or particular undertaking is

continued after the termination of such term or particular undertaking without any
express agreement, the rights and duties of the partners remain the same as they
were at such termination, so far as is consistent with a partnership at will.

A continuation of the business by the partners or such of them as habitually acted

therein during the term, without any settlement or liquidation of the partnership
affairs, is prima facie evidence of a continuation of the partnership. (n)

ARTICLE 1786. Every partner is a debtor of the partnership for whatever he may
have promised to contribute thereto.

He shall also be bound for warranty in case of eviction with regard to specific and
determinate things which he may have contributed to the partnership, in the same
cases and in the same manner as the vendor is bound with respect to the vendee.
He shall also be liable for the fruits thereof from the time they should have been
delivered, without the need of any demand. (1681a)

ARTICLE 1787. When the capital or a part thereof which a partner is bound to
contribute consists of goods, their appraisal must be made in the manner
prescribed in the contract of partnership, and in the absence of stipulation, it shall
be made by experts chosen by the partners, and according to current prices, the
subsequent changes thereof being for the account of the partnership. (n)

ARTICLE 1788. A partner who has undertaken to contribute a sum of money and
fails to do so becomes a debtor for the interest and damages from the time he
should have complied with his obligation.

The same rule applies to any amount he may have taken from the partnership
coffers, and his liability shall begin from the time he converted the amount to his
own use. (1682)

ARTICLE 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. (n)
ARTICLE 1790. Unless there is a stipulation to the contrary, the partners
shall contribute equal shares to the capital of the partnership. (n)

ARTICLE 1791. If there is no agreement to the contrary, in case of an

imminent loss of the business of the partnership, any partner who refuses
to contribute an additional share to the capital, except an industrial
partner, to save the venture, shall be obliged to sell his interest to the
other partners. (n)

ARTICLE 1792. If a partner authorized to manage collects a demandable

sum, which was owed to him in his own name, from a person who owed
the partnership another sum also demandable, the sum thus collected shall
be applied to the two credits in proportion to their amounts, even though
he may have given a receipt for his own credit only; but should he have
given it for the account of the partnership credit, the amount shall be fully
applied to the latter.

The provisions of this article are understood to be without prejudice to the

right granted to the debtor by article 1252, but only if the personal credit
of the partner should be more onerous to him. (1684)

ARTICLE 1793. A partner who has received, in whole or in part, his share of
a partnership credit, when the other partners have not collected theirs,
shall be obliged, if the debtor should thereafter become insolvent, to bring
to the partnership capital what he received even though he may have given
receipt for his share only. (1685a)

ARTICLE 1794. Every partner is responsible to the partnership for damages

suffered by it through his fault, and he cannot compensate them with the
profits and benefits which he may have earned for the partnership by his
industry. However, the courts may equitably lessen this responsibility if
through the partner’s extraordinary efforts in other activities of the
partnership, unusual profits have been realized. (1686a)

ARTICLE 1795. The risk of specific and determinate things, which are not
fungible, contributed to the partnership so that only their use and fruits
may be for the common benefit, shall be borne by the partner who owns
them.

If the things contribute are fungible, or cannot be kept without

deteriorating, or if they were contributed to be sold, the risk shall be borne
by the partnership. In the absence of stipulation, the risk of things brought
and appraised in the inventory, shall also be borne by the partnership, and
in such case the claim shall be limited to the value at which they were
appraised. (1687)

ARTICLE 1796. The partnership shall be responsible to every partner for

the amounts he may have disbursed on behalf of the partnership and for
the corresponding interest, from the time the expenses are made; it shall
also answer to each partner for the obligations he may have contracted in
good faith in the interest of the partnership business, and for risks in
consequence of its management. (1688a)

ARTICLE 1797. 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.

In the absence of stipulation, the share of each partner in the profits and
losses shall be in proportion to what he may have contributed, but the
industrial partner shall not be liable for the losses. As for the profits, the
industrial partner shall receive such share as may be just and equitable
under the circumstances. If besides his services he has contributed capital,
he shall also receive a share in the profits in proportion to his capital.
(1689a)

ARTICLE 1798. If the partners have agreed to intrust to a third person the
designation of the share of each one in the profits and losses, such
designation may be impugned only when it is manifestly inequitable. In no
case may a partner who has begun to execute the decision of the third
person, or who has not impugned the same within a period of three
months from the time he had knowledge thereof, complain of such
decision.

The designation of losses and profits cannot be intrusted to one of the

partners. (1690)

ARTICLE 1799. A stipulation which excludes one or more partners from any
share in the profits or losses is void. (1691)

ARTICLE 1800. The partner who has been appointed manager in the
articles of partnership may execute all acts of administration despite the
opposition of his partners, unless he should act in bad faith; and his power
is irrevocable without just or lawful cause.

The vote of the partners representing the controlling interest shall be

necessary for such revocation of power.

A power granted after the partnership has been constituted may be

revoked at any time. (1692a)

ARTICLE 1801. If two or more partners have been intrusted with the
management of the partnership without specification of their respective
duties, or without a stipulation that one of them shall not act without the
consent of all the others, each one may separately execute all acts of
administration, but if any of them should oppose the acts of the others, the
decision of the majority shall prevail. In case of a tie, the matter shall be
decided by the partners owning the controlling interest. (1693a)

ARTICLE 1802. In case it should have been stipulated that none of the
managing partners shall act without the consent of the others, the
concurrence of all shall be necessary for the validity of the acts, and the
absence or disability of any one of them cannot be alleged, unless there is
imminent danger of grave or irreparable injury to the partnership. (1694)

ARTICLE 1803. When the manner of management has not been agreed
upon, the following rules shall be observed:

(1) All the partners shall be considered agents and whatever any one of
them may do alone

shall bind the partnership, without prejudice to the provisions of article

1801.

(2) None of the partners may, without the consent of the others, make any
important alteration in the immovable property of the partnership, even if
it may be useful to the partnership. But if the refusal of consent by the
other partners is manifestly prejudicial to the interest of the partnership,
the court’s intervention may be sought. (1695a)

ARTICLE 1804. Every partner may associate another person with him in his
share, but the associate shall not be admitted into the partnership without
the consent of all the other partners, even if the partner having an
associate should be a manager. (1696)

ARTICLE 1805. The partnership books shall be kept, subject to any

agreement between the partners, at the principal place of business of the
partnership, and every partner shall at any reasonable hour have access to
and may inspect and copy any of them. (n)

ARTICLE 1806. Partners shall render on demand true and full information
of all things affecting the partnership to any partner or the legal
representative of any deceased partner or of any partner under legal
disability. (n)

ARTICLE 1807. Every partner must account to the partnership for any
benefit, and hold as trustee for it any profits derived by him without the
consent of the other partners from any transaction connected with the
formation, conduct, or liquidation of the partnership or from any use by
him of its property. (n)

ARTICLE 1808. The capitalist partners cannot engage for their own account
in any operation which is of the kind of business in which the partnership
is engaged, unless there is a stipulation to the contrary.
Any capitalist partner violating this prohibition shall bring to the common
funds any profits accruing to him from his transactions, and shall
personally bear all the losses. (n)

ARTICLE 1809. 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 circumstances render it just and reasonable. (n)

#1

Ortega v. CA
Facts:
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:
- 18 September 1958 - ROSS, SELPH and CARRASCOSO
- 6 July 1965 - ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO & MISA
- 18 April 1972 - SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA
- 4 December 1972 - SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA
- 11 March 1977 - DEL ROSARIO, BITO, MISA & LOZADA
- 7 June 1977 - BITO, MISA & LOZADA
- 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 a letter to the
respondents-appellees stating that he was withdrawing and retiring from
the firm of Bito, Misa and Lozada, effective at the end of the month. He also
trust the accountants to do a proper liquidation based on his participation in
the firm. On the same day, petitioner-appellant brought up that he wanted
to have a meeting regarding the mechanics of liquidation, more particularly,
the two floors of the firm’s building because he had plans for it.

On 19 February 1988, petitioner-appellant wrote respondents-

appellees another letter stating that the partnership ceased to be
mutually satisfactory despite his effort to ameliorate the level of pay scale
of their employees due to disagreements with the other partners.

On 30 June 1988, petitioner filed with this Commission’s Securities

Investigation and Clearing Department (SICD) a petition for dissolution
and liquidation of partnership.

SEC: held that Petitioner’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.

SEC En Banc (On Appeal): 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. Issue:

The parties filed with the appellate court separate appeals.

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.

CA: Affirmed the decision of SEC.

Issues:
1.Whether or not the partnership of Bito, Misa & Lozada (now Bito,
Lozada, Ortega & Castillo) is a partnership at will. YES
2.Whether or not the withdrawal of private respondent dissolved the
partnership regardless of his good or bad faith. YES
3. Whether or not CA 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. NO

Held:
1. Yes. The partnership agreement of the firm provides that ”[t]he
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.”
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.”

The birth and life of a partnership at will is predicated on the

mutual desire and consent of the partners. The right to choose with
whom a person wishes to associate himself is the very foundation and
essence of that partnership. Its continued existence is, in turn, dependent on
the constancy of that mutual resolve, along with each partner’s capability to
give it, and the absence of a cause for dissolution provided by the law itself.
Verily, any one of the partners may, at his sole pleasure, dictate a
dissolution of the partnership at will. He must, however, act in good faith,
not that the attendance of bad faith can prevent the dissolution of the
partnership but that it can result in a liability for damages.

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. Among partners, mutual
agency arises and the doctrine of delectus personae allows them to have the
power, although not necessarily the right, to dissolve the partnership.
 2. Yes. Any one of the partners may, at his sole pleasure, dictate a
dissolution of thepartnership at will (e.g. by way of withdrawal of a partner).
He must, however, act in goodfaith, not that the attendance of bad faith can
prevent the dissolution of the partnership butthat it can result in a liability
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; 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

3. No. 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. 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.

#2
Lozana vs. Depakakibo
FACTS:
Lozana and Depakakibo established a partnership for the purpose of
maintaining, operating, and distributing electric light and power in the
Municipality of Dumangas. The partnership is capitalized at the sum of
P30,000.00 where Lozana agreed to furnish 60% while Depakakibo, 40%.
 However, the franchise for venture in favor of Buenaflor was cancelled
and revoked by the Public Service Commission. Lozana thereafter sold
Generator Buda [Lozana’s contribution to the partnership; no liquidation
made] to Decolongon. When the decision was appealed, a temporary
certificate of public convenience was issued in the name of Decolongon.
Depakakibo sold one Crossly Diesel Engine [Depakakibo’s contribution to the
partnership] to Spouses Jimenea and Harder.

Lozana brought action against Depakakibo alleging the latter

wrongfully detained the Generator Buda and wooden posts to which he is
entitled to the possession of. Lozano prayed the properties be delivered back
to him.

CFI ordered sheriff to take possession of the properties and the

delivery thereof to Lozano. Depakakibo alleged properties have been
contributed to the partnership and therefor he is not unlawfully detaining
them. In addition, Lozano sold his contribution to partnership in violation of
terms of their agreement. CFI declared Lozano owner of and entitled to the
equipment. Depakakibo appealed decision to the Supreme Court.

ISSUE:
W/N partnership the act of the partnership in furnishing electric current to
the franchise holder without previous approval of Public Service Commission
render the partnership void? No.
W/N disposal of contribution of parties is allowed. No.

RULING:
1. NO. Partnership is valid. 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.
 Disposal of Contributed Property to the Partnership. Facts show that
parties entered into the contract of partnership, Lozana contributing the
amount of P18, 000, and there has not been liquidation prior to the sale of
the contributed properties: Buda Diesel Engine and 70 posts. 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)

#3
Full Title: MAXIMILIANO SANCHO, vs. SEVERIANO LIZARRAGA
Topic: Rights and Obligations of Partners Among Themselves;
Contribution of property;
Ponente: ROMUALDEZ, J.:
Nature: Appeal from the decision of the CFI of Manila.
Doctrine: Failure of a partner to contribute what he promised to the
partnership capital gives rise not to
rescission but to a debt on his part. Rescission under Art. 1191 is
applicable to obligations in general, not
to the contract of partnership, which is subject to the special
provisions under Art. 1786 and 1788.
Facts: Maximiliano Sancho and Severino Lizarraga entered into a
partnership contract on October 15,
1920. Sancho brought the present action for its rescission,
reimbursement of his 50,000 peso investment
therein, with interest at 12 per cent per annum from October 15,
1920, with costs, and any other just and
equitable remedy against said defendant.
Lizarraga 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.
CFI of Manila – instead of granting the prayer for rescission, the CFI
(1) found that Lizarraga had not
contributed all the capital he had bound himself to invest, and
that Sancho had demanded that the
Lizarraga liquidate the partnership, (2) declared it dissolved on
account of the expiration of the period for
which it was constituted, and (3) ordered Lizarraga, as managing
partner, 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.
Sancho appealed the case to the SC. In his brief Lizarraga raised as
preliminary matter that the appeal is
premature and therefore will not lie, as the liquidation ordered by
the CFI, 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. While the SC agreed that the case is premature,
it nonetheless delved into the merits
of the case as it found its conclusion inevitable.
Issue: May Lizarraga ask the court for the rescission of the
partnership contract?
Held: No.
Ratio: “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 (now
1786 amended) and 1682 (now 1788)
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 (now 1191 amended) 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.”
MAXIMILIANO SANCHO, vs. SEVERIANO LIZARRAGA

Facts:
 Maximiliano Sancho and Severino Lizarraga entered into a partnership
contract on October 15,1920. Sancho brought the present action for its
rescission, reimbursement of his 50,000 peso investment therein, with
interest at 12 per cent per annum from October 15, 1920, with costs, and
any other just and equitable remedy against said defendant.

Lizarraga denies generally and specifically all the allegations of the

complaint, 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.
CFI of Manila – instead of granting the prayer for rescission, it:
(1) found that Lizarraga had not contributed all the capital he had
bound himself to invest, and that Sancho had demanded that the
Lizarraga liquidate the partnership,
(2) declared it dissolved on account of the expiration of the period for
which it was constituted, and
(3) ordered Lizarraga, as managing partner, 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.

Sancho appealed the case to the SC. In his brief Lizarraga raised as
preliminary matter that the appeal is premature and therefore will not lie, as
the liquidation ordered by the CFI, 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. While the SC agreed that the case
is premature, it nonetheless delved into the merits of the case as it found its
conclusion inevitable.

Issue: W/N Lizarraga ask the court for the rescission of the partnership
contract?

Held: No.
 “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 (now 1786 amended) and 1682 (now 1788)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 (now
1191 amended) 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.”

#4
Pabalan vs Velez

FACTS:
Pabalan owned two lots, a rural real estate devoted to agricultural
purposes and an urban lot. In his desire to put the two lots to productive
use, he agreed to enter into a regular mercantile partnership with Walter
Fitton.
The agreement stipulates that they form a partnership known by the
name of “AM Pabalan and Company” with a capital stock at P9,000; that
Pabalan would contribute P3,000 in cash while Fitton would contribute
P6,000 in real property; that Pabalan would sell his two lots to Fitton for
P6,000; that Pabalan would receive P3,000 of the purchase price while the
remaining will be his contribution to the capital; and that Fitton would
contribute the said two lots as his agreed capital contribution.
Pabalan received P3,000 of the purchase price. When Fitton died, he
failed to pay into the partnership funds the remaining P3,000. Owing to the
failure of Fitton to comply with his obligation, the properties in question had
been entirely unproductive, resulting in losses and damages to Pabalan.
Plaintiff prayed for the rescission of the double contract (partnership and
sale) entered into. Defendant Velez is the administrator of Fitton’s estate.

ISSUE: WON recission is the proper remedy.

RULING:
Yes, in bilateral contracts, when one of the parties fails to comply with
his engagements, the party prejudiced is entitled to choose between
enforcement of the obligation or a rescission of the contract, with the
payment of damages and interest in either case. In the case at bar,
enforcement cannot be had because the defaulting partner is already dead.
Justice requires the dissolution of the company and the rescission of the said
sale.

#5
Moran Jr. v. CA

Facts:
On February 22, 1971 Pecson and Moran entered into an agreement
whereby:
1. both would contribute P15,000 each for the purpose of printing
95,000 posters featuring the delegates to the 1971 Constitutional
Convention,
2. Moran actually supervising the work
3. Pecson would receive a commission of P1,000 a month starting on
April 15, 1971 up to December 15, 1971;
4. on December 15, 1971, a liquidation of the accounts in the
distribution and printing of the 95,000 posters would be made;
5. Pecson gave Moran P10,000 for which the latter issued a receipt;
6. only a few posters were printed;
7. 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."

Pecson filed with the CFI of Manila alleging that:

(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.

CFI held that 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.
Parties appealed to the CA which rendered a decision against the
petitioner to pay: 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); and
(d) Legal interest on (a), (b) and (c) from the date the complaint was filed
(up to the time payment is made).

Issues:
Whether or not CA grievously erred in holding petitioner liable to
respondent in the sum of P47,500 as the supposed expected profits due
him;

Whether or not CA grievously erred in holding petitioner liable to

respondent in the sum of P8,000, as supposed commission in the
partnership arising out of Pecson's investment;
 Whether or not CA grievously erred in holding petitioner liable to
respondent in the sum of P7,000 as a supposed return of investment in a
magazine venture.

Held:
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 and for interests and damages from the
time he should have complied with his obligation. Thus in Uy v. Puzon (19
SCRA 598), which interpreted Art. 2200 of the Civil Code of the Philippines,
the Court 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.

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. 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 w as 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. 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. The partnership agreement
stipulated that the petitioner would give the private respondent a monthly
commission of P1,000.00 from April 15, 1971 to December 15, 1971 for a
total of eight 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.

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 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.

#6
Tai Tong Chuache & Co. v. Insurance Commission
G.R. No. L-55397, 29 February 1988

FACTS:
- Complainants Palomo acquired a parcel of land and a building located in
Davao City. They assumed the mortgage of the building in favor of SSS,
which building was insured with respondent SSS Accredited Group of
Insurers for P25K.
- On April 19, 1975, Azucena Palomo obtained a P100K loan from Tai Tong
Chuache Inc. (TTCC) and executed a mortgage over the land and the
building in favor of Tai Tong Chuache & Co. as security of payment. On April
25, 1975, Arsenio Chua, representative of TTCC insured the latter's interest
with Travellers Multi-Indemnity Corporation (Travellers) for P100K (P70K for
bldg and P30K for the contents thereof)
- On June 11, 1975, Pedro Palomo secured a Fire Insurance Policy, covering
the building for P50K with respondent Zenith Insurance Corporation (ZIC).
Another Fire Insurance Policy was later procured from respondent Philippine
British Assurance Company (PBAC), covering the same building for P50K and
contents thereof for P70K. On July 31, 1975, the building and the contents
were totally razed by fire.
- Based on the computation of the loss, including the Travellers,
respondents, ZIC, PBAC, and SSS paid their corresponding shares of the
loss. Complainants were paid the following: P41,546.79 by PBAC,
P11,877.14 by ZIC, and P5,936.57 by SSS. Demand was made from
respondent Travellers for its share in the loss but was refused. Hence,
complainants demanded from the other 3 respondents the balance of each
share in the loss based on the computation excluding Travellers Multi-
Indemnity in the amount of P30,894.31 (P5,732.79-ZIC: P22,294.62, PBAC:
and P2,866.90, SSS) but was refused, hence, this action.

ISSUE:
W/N the petitioner is allowed to recover indemnity?

RULING: Yes, it is.

Art. 1800. The partner who has been appointed manager in the
articles of partnership may execute all acts of administration despite the
opposition of his partners, unless he should act in bad faith; and his power is
irrevocable without just or lawful cause. The vote of the partners
representing the controlling interest shall be necessary for such revocation
of power.

A power granted after the partnership has been constituted may be

revoked at any time.

It should be borne in mind that petitioner being a partnership may sue

and be sued in its name or by its duly authorized representative.

The fact that Arsenio Lopez Chua is the representative of petitioner is

not questioned. Petitioner’s declaration that Arsenio Lopez Chua acts as the
managing partner of the partnership was corroborated by respondent
insurance company. Thus Chua as the managing partner of the partnership
may execute all acts of administration including the right to sue debtors of
the partnership in case of their failure to pay their obligations when it
became due and demandable. Or at the very least, Chua being a partner of
petitioner Tai Tong Chuache& Company is an agent of the partnership. Being
an agent, it is understood that he acted for and in behalf of the firm.