Agency, Trusts, and Partnerships Page |1
[No. 33580. February 6, 1931]
MAXIMILIANO SANCHO, plaintiff and appellant, vs. SEVERIANO
LIZARRAGA, defendant and appellee.
1.JUDGMENT; APPEAL FROM AN ORDER ON RENDITION OF ACCOUNTS.—In
accordance with the doctrine laid down in the case of Natividad vs. Villarica
(31 Phil., 172), it is held that an appeal taken from a decision ordering the
rendition of accounts is deemed premature.
2.PARTNERSHIP; FAILURE OF PARTNER TO PAY THE WHOLE AMOUNT
PROMISED; RESPONSIBILITY.—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 under article 1124 of the Civil
Code.
3.ID.; ID.; ID.; STATUTORY CONSTRUCTION.—Article 1124 of the Civil Code
cannot be applied to the case in question, because it refers to the resolution
of obligations in general, whereas articles 1681 and 1682 specifically refer to
the contract of partnership in particular. And it is a well known principle that
special provisions prevail over general provisions.
APPEAL from a judgment of the Court of First Instance of Manila. Revilla, J.
The facts are stated in the opinion of the court.
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 from 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 def
endant 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).
 Agency, Trusts, and Partnerships Page |2

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 a partnership, the appeal in
the instant case must be deemed premature.

But even going into the merits of the case, the affirmation of the judgment
appealed from is inevitable. In view of the lower court's findings referred to
above, which we cannot revise because the parol evidence has not been
forwarded to this court, articles 1681 and 1682 of the Civil Code have been
properly applied. Owing to the defendant's failure to pay to the partnership
the whole amount which he bound himself to pay, he became indebted to it
for the remainder, with interest and any damages occasioned thereby, but
the plaintiff did not thereby acquire the right to demand rescission of the
partnership contract according to article 1124 of the Code. This article
cannot be applied to the case in question, because it refers to the resolution
of obligations in general, whereas articles 1681 and 1682 specifically refer to
the contract of partnership in particular. And it is a well known principle that
special provisions prevail over general provisions.

By virtue of the f oregoing, this appeal is hereby dismissed, leaving the

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

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

Vitta-Real, JJ., concur.

Appeal dismissed. Sancho vs. Lizarraga, 55 Phil. 601, No. 33580 February 6,
1931

G.R. No. 109248. July 3, 1995.*
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.
Commercial Law; Partnership; A partnership that does not fix its term is a
partnership at will.—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.
Same; Same; The birth and life of a partnership at will is predicated on the
mutual desire and consent of the partners.—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.
Same; Same; 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.—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. 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. An
unjustified dissolution by the partner can subject him to a possible action for
damages.
Same; Same; Upon its dissolution, the partnership continues and its legal
personality is retained until the complete winding up of its business
Agency, Trusts, and Partnerships Page |3
culminating in its termination.—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. Upon its dissolution, the partnership continues and its legal
personality is retained until the complete winding up of its business
culminating in its termination.
Same; Same; The liquidation of the assets of the partnership following its
dissolution is governed by various provisions of the Civil Code.—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.
Same; Same; It would not be right to let any of the partners remain in the
partnership under such an atmosphere of animosity.—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.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Bito, Lozada, Ortega & Castillo for petitioners.
Misa Law Offices for private respondent.
Adrian Sison collaborating counsel for private respondent.

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 Au-gust 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 x x x 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 respon-dents-
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
Agency, Trusts, and Partnerships Page |4
interest in the two floors of this building. I would like to have this resolved
because it has to do with my own plans.’
“On 19 February 1988, petitioner-appellant wrote respondents-appellees
another letter stating:
“ ‘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 04 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).
Agency, Trusts, and Partnerships Page |5
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
Agency, Trusts, and Partnerships Page |6
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
“ART. 1837. When dissolution is caused in any way, except in contravention
of the partnership agreement, each partner, as against his co-partners and
all persons claiming through them in respect of their interests in the
partnership, unless otherwise agreed, may have the partnership property
applied to discharge its liabilities, and the surplus applied to pay in cash the
net amount owning to the respective partners. But if dissolution is caused by
expulsion of a partner, bona fide under the partnership agreement and if the
expelled partner is discharged from all 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:
“x x x 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,
 Agency, Trusts, and Partnerships Page |7

however, that with respect to the two (2) floors of office condominium which ———o0o——— Ortega vs. Court of Appeals, 245 SCRA 529, G.R. No.
the partnership is now acquiring, consisting of the 5th and the 6th floors of 109248 July 3, 1995
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 (Chairman), Romero, Melo and Francisco, JJ., concur.

Judgment affirmed.

[No. 5953. February 24, 1912.]
ANTONIO M. PABALAN, plaintiff and appellant, vs. FELICIANO VELEZ,
defendant and appellee.
1.CONTRACTS; FAILURE TO PERFORM; ALTERNATE REMEDIES.—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.
2.ID.; ID.; ID. ; CONTRACTS OF SALE.—A contract of sale may be rescinded
for the same causes as any other obligation, and the provisions of article
1124 of the Civil Code shall, in a proper case, be observed with reference
thereto.
3.PARTNERSHIP; FAILURE OF PARTNER TO PAY IN His SHARE.—If a partner
fails to bring into the company funds, within the time stipulated, the share of
the capital pledged by him, the company is entitled to proceed against his
property for the collection thereof or to rescind the agreement, with respect
to such delinquent partner, and to retain the portion of the company's funds
belonging to him.
4.ID.; PROFIT AND Loss.—The interest on the capital which a partner
obligated himself to turn into the company's funds, for the account and in
the name of another partner, and the losses and damages occasioned by the
former through his failure to comply with his stipulations, must be
considered as the company's losses and computed prorata to the extent that
each partner is interested in the concern and on the same basis as the
profits. (Arts. 140 and 141 of the Code of Commerce.)
5.ID.; PAYMENT OF TAXES BY ONE PARTNER OUT OF PRIVATE FUNDS.—It is
an obligation of the company to pay to the Government the land tax
assessed against the real property owned by it, and, therefore, the partner
who paid the said tax out of his private funds is only entitled to recover a
part of the sum by him paid, in proportion to the amount of the capital that
belongs to the other partner or partners who did not pay such tax.
APPEAL from a judgment of the Court of First Instance of Manila. Crossfield,
J.
Agency, Trusts, and Partnerships Page |8
The facts are stated in the opinion of the court.
Ariston Estrada, for appellant.
Luciano -de la Rosa, f or appellee.
TORRES, J.:
This case was appealed by counsel for the plaintiff, from the judgment
rendered by the Honorable Judge A. S. Crossfield.
On January 20, 1908, counsel for the plaintiff filed a written complaint
against the defendant, the administrator of the intestate estate of Walter A.
Fitton, now deceased. The said administrator was appointed by an order
issued on December 21, 1907, by the aforementioned judge in case No.
5103, heard in the Court of First Instance of this city.
The complaint alleged: That until June 27, 1900, the plaintiff, Antonio M.
Pabalan, was the owner in fee simple of a rural estate consisting- of an
hacienda known by the name of "Pantayani," which was devoted to
agricultural purposes, situated on the roads leading from Mariquina to
Antipolo, within the pueblos of Cainta and Antipolo, Province of Rizal, and
which covered an area of 1,978,822 square meters; also a parcel of land
consisting. of a building lot situated on Calle Real, of Cainta, measuring
371.30 square meters, the metes and bounds of which were specified in the
complaint; that, on the said date of June 27, 1900, the plaintiff, desiring to
make use of the two properties described, and lacking the required means
for the purpose, entered into an agreement with the said Walter A. Fitton
whereby they formed a regular mercantile partnership for the development
of the said properties and for the manufacture and sale of their products and
other business pertinent thereto; that the sum of 9,000 pesos Mexican
currency was fixed as the amount of the capital stock of the partnership, of
which 3,000 pesos, in cash, were to be contributed by the plaintiff and 6,000
pesos, in real property, by the said Fitton; that, for the purpose of obtaining
the said 3,000 pesos, the plaintiff sold his two af orementioned real
properties to the said Walter A. Fitton, the rural estate, shown in Exhibit A,
for 5,900 pesos, and the urban property, described in Exhibit B, for 100
pesos; that the plaintiff received from the purchaser the sum of 3,000 pesos

and the latter, Walter A. Fitton, bound himself to pay into the funds of the
said partnership, as the plaintiff's capital, the remaining 3,000 pesos of the
selling price; that it was furthermore agreed that the two said real properties
should constitute the capital of Walter A. Fitton in the partnership, which
would be known by the name of "A. M. Pabalan and Company" and should
be an equivalent for the aforesaid sum of 6,000 pesos; that all the foregoing
facts set forth in the complaint were recorded in the instrument of sale and
organization of the partnership, executed on June 27, 1900, before the
notary public Rosado, a copy of which was attached to and made an integral
part of the complaint; that, from June 27, 1900, up to the date when the
partner Fitton died, the latter failed to pay into the partnership funds the
said 3,000 pesos, the remainder of the price of the properties purchased by
him, or any part thereof, and did not pay the said sum or any part of the
same to the plaintiff; that, since Fitton's death, and up to the date of the
filing of the complaint, neither the administrator of the latter's estate nor
any other person had turned into the partnership or paid to the plaintiff the
af oresaid 3,000 pesos; that, owing to the failure of Fitton to comply with his
obligation, the properties in question had been entirely unproductive and
losses and damages had been occasioned to the plaintiff in the sum of 2,000
pesos Philippine currency. The latter, therefore, prayed for the rescission of
the contract entered into, on June 27, 1900, by himself, the plaintiff, and
Walter A. Fitton, the dissolution of the partnership "A. M. Pabalan and
Company," and the annulment of the sale of the said properties, by
returning to the defendant a sum in Philippine currency equivalent to the
3,000 pesos in Mexican currency received from Walter A. Fitton, and that the
defendant be sentenced to pay to the plaintiff, as losses and damages, the
sum of 2,000 pesos, and to the payment of the cost of the suit, in addition
to the other remedies sought.
The instrument attached to the complaint and executed on June 27, 1900,
before the notary public José M.a Rosado y Calvo, by Antonio M. Pabalan y
Santos, on the one hand, and Walter A. Fitton, on the other, contains the
following clauses:
"First. That Don Antonio Maria Pabalan y Santos is the sole and exclusive
owner in fee-simple of the following landed properties, to wit: (a) A rural
estate consisting of an hacienda, known as Pantayaning or Pantaen, devoted
to agriculture and situated on the roads which lead from Mariquina to
Agency, Trusts, and Partnerships Page |9
Antipolo, within the pueblos of Cainta and Antipolo of the district of Morong,
inscribed in the property registry of this city as of the north district, with an
area of 1,978,022 square meters and bounded on the north by the land of
Victor Vargas and the Sucabin River, 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 f oot 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 one on the west by the lands of Doña Columba Suarez
and Don Mariano Sumulong, the Bilao road, and the lands of Perfecto
Legaspi, Miguel Gonzalez, Zacarias Gonzalez, Juan Adriano, and that of the
aforesaid Juan Santa Ana. And (b) an urban property consisting of a building
lot, with neither street nor district number, situated on Calle Real, pueblo of
Cainta, Morong District, and in the north district division of the property
registry of this city; it is 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 Don Alejandro San Diego and his wife Doña Buenaventura
Santos; on its left, or the west, by the lot of Don Pablo Ordoñez and his wife
Dionisia Salandanan; and on its rear, or the north, by the lot of Don
Florencio San Antonio, his wife and Doña Severina Santos, and has an area
of 361 square meters and 30 square centimeters. Second. That the
properties hereinbefore described belong to the aforementioned Don Antonio
Maria Pabalan y Santos, who purchased the same from their former owner,
the firm of G. Buchanan and Company, of the city of London, represented by
its agent, Herbert Heiden Todd, through a deed, serial number 852, drawn
up in this city and attested before the former notary public of the same, Don
José Engracio Monroy y Torres, on the twenty-ninth of November, 1894, as
shown by the notarial instrument containing the description of the said
properties, written by the undersigned notary at the request of their owner,
Sr. Pabalan, on the twelfth of the present month of June, which certificate,
without number, on account of its notarial character, was exhibited to me by
the latter and I certify to the same. Third. That the properties in question
are free of all encumbrance, charge, and liability, and Don Antonio Maria
Pabalan y Santos and Mr. Walter A. Fitton having agreed to sell the same
and to form a regular mercantile partnership for the purpose of their
improvement and the utilization of their products, hereby execute the
present instrument, in order that all its contents may appear' in an
authenticated form, and solemnly stipulate: That Don Antonio Maria Pabalan

y Santos hereby sells absolutely and finally to Mr. Walter A. Fitton, the
property which. under the letters A and B, is mentioned and described in the
first paragraph of this instrument, together with all the rights, actions, uses
and easements thereto pertaining, for the price of 5,900 pesos, for the
property specified under letter A, and the price of 100 pesos, f or that
described under letter B, that is, for the total price of 6,000 pesos, of which
the vendor received in the act, in my presence and in that of the witnesses
hereunto, which I, the notary, hereby attest, and from the hands of the
vendee, the sum of 3,000 pesos in coin, counted to his entire satisfaction,
for which the said Walter A. Fitton hereby acknowledges by a binding receipt
which secures the said Antonio M. Pabalan in all his rights and the vendor
binds himself to protect and defend the title to the properties hereby sold
and guarantees them in accordance 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 instrument.
Fourth. Walter A. Fitton, in his turn, covenants: That he accepts this sale in
the precise terms in which it is executed by Antonio Maria Pabalan y Santos.
Fifth. That, by virtue of the preinserted stipulations, both parties to this
contract, by this same public instrument, form a regular mercantile
partnership, upon the f ollowing 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 therefore understood
that they are authorized to carry on, jointly or severally, all kinds of
operations comprised within the purposes of this partnership, with the sole
limitation that neither of them may make the company a surety or borrow
money f or 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
special 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
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 10
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 of the person by him designated f or 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 form: Antonio Maria Pa-balan,
3,000 pesos in cash, which shall be paid into the partnership fund by Walter
A. Fitton, who, for this 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 Mo-
rong, 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
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 11
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
therefor, 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 rescission 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 af oresaid 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 Nag-
tapong, 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, and the lands of Perfecto Legaspi, Miguel

Gonzalez, Zacarias Gonzalez, 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 Ordoñez 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 f ailed 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.
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 12
"The person prejudiced may choose between exacting the fulfillment of the
obligation or its rescission, with indemnity for damages and 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
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 13

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 and 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.)
have paid the said tax to the Government, and the same being paid by the
partner Pabalan out of his private funds and not of those of the company, he
was solely entitled to be reimbursed for two-thirds of the said sum paid, in
proportion to the amount of the respective capital. brought in, which
twothirds of the sum of P522.30, that is, P348.20, may be deducted from
the sum of P2,700 Philippine currency, equivalent to P3,000 Mexican
currency, which the estate of Antonio M. Pabalan must restore to the testate
or intestate estate of Walter A. Fitton, upon the defendant's returning to the
plaintiff the two aforesaid parcels of land.
For the reasons hereinbefore stated, we are of opinion that the judgment
appealed from should be and is hereby affirmed, with no special finding as to
the costs; provided, however, that the administrator of the estate of the
deceased Fitton shall deliver to the administrator of the estate of Pabalan
the 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 3,000 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.
Judgment modified. Pabalan vs. Velez., 22 Phil. 29, No. 5953 February 24,
1912

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

[No. L-13680. April 27, 1960]
MAURO LOZANA, plaintiff and appellee, vs. SERAFIN DEPAKAKIBO,
defendant and appellant.
1.PARTNERSHIP; CONTRIBUTION IN KIND; DISPOSAL BY CONTRIBUTING
PARTIES NOT ALLOWED.—An equipment which was contributed by one of
the partners to the partnership becomes the property of the partnership and
as such cannot be disposed of by the party contributing the same without
the consent or approval of the partnership or of the other partner (Clemente
vs. Galvan, 67 Phil., 565).
2.ID.; ANTI-DUMMY LAW; REFERS TO ALIENS ONLY.—The admission by the
defendant that he and the plaintiff, who are both Filipinos, are dummies of
another person, is an error of law, and not a statement of fact. Since both
parties are not aliens but Filipinos, the Anti-Dummy law has not been
violated. The said law refers to aliens only (Commonwealth Act 1080 as
amended).
3.ID.; FURNISHING CURRENT TO FRANCHISE HOLDER WlTHOUT APPROVAL
OF PUBLIC SERVICE COMMISSION; PARTNERSHIP NOT VOID AB INITIO.—
The act of the partnership in furnishing electric current to the franchise
holder without the previous approval of the Public Service Commission, does
not per se make the contract of partnership null and void' from the
beginning.
APPEAL from a judgment of the Court of First Instance of Iloilo. Pelayo, J.
The facts are stated in the opinion of the Court.
Antonio T. Lozada for appellee.
Agustín 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.
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 14
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. 80 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 wrongf ully 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 plain-tiff
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
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 15
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 has 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
 A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 16

same without the consent or approval of the partnership or of the other Judgment set aside. Lozana vs. Depakakibo, 107 Phil. 728, No. L-13680
partner. (Clemente vs. Galvan, 67 Phil., 565). April 27, 1960

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 f urnishing the
current to the holder of the f ranchise alone, without the previous approval
of the Public Service Commission, does not per se make the contract of
partnership null and void from the beginning and render the partnership
entered into by the parties for the purpose also void and non-existent. Under
the circumstances, therefore, the court erred in declaring that the contract
was illegal from the beginning and that parties to the partnership are not
bound therefor, such that the contribution of the plaintiff to the partnership
did not pass to it as its property. It also follows that the claim of the
defendant in his counterclaim that the partnership be dissolved and its
assets liquidated is the proper remedy, not for each contributing partner to
claim back what he had contributed.

For the foregoing considerations, the judgment appealed from as well as the
order of the court for the taking of the property into custody by the sheriff
must be, as they hereby are set aside and the case remanded to the court
below for further proceedings in accordance with law.

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

Barrera, and Gutiérrez David, JJ., concur.

No. L-59956. October 31, 1984.*
ISABELO MORAN, JR., petitioner, vs. THE HON. COURT OF APPEALS
and MARIANO E. PECSON, respondents.
Damages; Partnership; There is no factual or legal basis for award of
speculative damages for likely partnership profits.—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.
Same; Same; Partner who promises to contribute to partnership becomes
promissory debtor of latter.—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).
Same; Same; Essence of partnership is that partners share in profits and
losses.—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
used 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.
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 17
Same; Same; Partner entitled to recover share of profits actually realized by
venture.—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 used by the petitioner in printing the 2,000 copies, the remaining
P6,000.00 should therefore be returned to the private respondent.
Same; Same; Agency; Where partnership venture is a failure, a partner is
not entitled to any commission promised by co-partner where agreement
does not state basis of commission.—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
(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.
Appeal; When Supreme Court will review factual findings of Court of
Appeals.—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.
Same; C.A. erred in its factual finding in the case at bar.—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.
Same; Partnership; Damages; Factual finding of C.A. that venture never left
the ground and on this basis decreed full return of respondent’s investment
is erroneous.—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.
PETITION for certiorari to review the decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
GUTIERREZ, JR., J.:
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:
xxx xxx xxx
“x x x 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 P1,000 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
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 18
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:
“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 all 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 x x x.
“WHEREFORE, the court hereby renders judgment ordering defendant
Isabelo C. Moran, Jr. to return to plaintiff Mariano E. Pecson the sum of
P17,000.00, with interest at the legal rate from the filing of the complaint on
June 19, 1972, and the costs of the suit.
“For insufficiency of evidence, the counterclaim is hereby dismissed.”

From this decision, both parties appealed to the respondent Court of
Appeals. The latter likewise rendered a decision against the petitioner. The
dispositive portion of the decision reads:
“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.
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 19
V THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT
GRANTING THE PETITIONER’S COMPULSORY COUNTERCLAIM FOR
DAMAGES.
The first question raised in this petition refers to the award of P47,500.00 as
the private respondent’s share in the unrealized profits of the 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:
“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, 1973, a
liquidation of the account pertaining to the distribution and printing of the
said 95,000 posters shall be made.”
The petitioner on the other hand admitted in his answer the existence of the
partnership.
The rule is, when a partner who has undertaken to contribute a sum of
money fails to do so, he becomes a debtor of the partnership for whatever
he may have promised to contribute (Art. 1786, Civil Code) and for interests
and damages from the time he should have complied with his obligation

(Art. 1788, Civil Code), Thus in Uy v. Puzon (79 SCRA 598), which
interpreted Art. 2200 of the Civil Code of the Philippines, we allowed a total
of P200,000.00 compensatory damages in favor of the appellee because the
appellant therein was remiss in his obligations as a partner and as prime
contractor of the construction projects in question. This case was decided on
a particular set of facts. We awarded compensatory damages in the Uy case
because there was a finding that the “constructing business is a profitable
one and that the UP construction company derived some profits from its
contractors in the construction of roads and bridges despite its deficient
capital.” Besides, there was evidence to show that the partnership made
some profits during the periods from July 2, 1956 to December 31, 1957 and
from January 1, 1958 up to September 30, 1959. The profits on two
government contracts worth P2,327,335.76 were not speculative. In the
instant case, there is no evidence whatsoever that the partnership between
the petitioner and the private respondent would have been a profitable
venture. In fact, it was a failure doomed from the start. There is therefore
no basis for the award of speculative damages in favor of the private
respondent.
Furthermore, in the Uy case, only Puzon failed to give his full contribution
while Uy contributed much more than what was expected of him. In this
case, however, there was mutual breach. Private respondent failed to give
his entire contribution in the amount of P15,000.00. He contributed only
P10,000.00. The petitioner likewise failed to give any of the amount
expected of him. He further failed to comply with the agreement to print
95,000 copies of the posters. Instead, he printed only 2,000 copies.
Article 1797 of the Civil Code provides:
“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
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 20
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
used 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 used 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 P1,000.00 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:
xxx xxx xxx
“x x x 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:
“(a) P7,000—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).
x x x”
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 (AlsuaBetts 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
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 21
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—
“E—Xerox copy of PNB Manager’s Check No. 234265 dated March 22, 1971
in favor of defendant. Defendant admitted the authenticity of this check and
of his receipt of the proceeds thereof (t.s.n., pp. 3-4, Nov. 29, 1972). This
exhibit is being offered for the purpose of showing plaintiff’s capital
investment in the printing of the ‘Voice of the Veterans’ for which he was
promised a fixed profit of P8,000. This investment of P6,000.00 and the
promised profit of P8,000 are covered by defendant’s promissory note for
P14,000 dated March 31, 1971 marked by defendant as Exhibit 2 (t.s.n., pp.
20-21, Nov. 29, 1972), and by plaintiff as Exhibit P. Later, defendant
returned P3,000.00 of the P6,000.00 investment thereby proportionately
reducing the promised profit to P4,000. With the balance of P3,000 (capital)
and P4,000 (promised profit), defendant signed and executed the
promissory note for P7,000 marked Exhibit 3 for the defendant and Exhibit M
for plaintiff. Of this P7,000, defendant paid P4,000 representing full return of
the capital investment and P1,000 partial payment of the promised profit.
The P3,000 balance of the promised profit was made part consideration of
the P20,000 promissory note (t.s.n., pp. 22-24, Nov. 29, 1972). It is,
therefore, being presented to show the consideration for the P20,000
promissory note.
“F—Xerox copy of PNB Manager’s check dated May 29, 1971 for P7,000 in
favor of defendant. The authenticity of the check and his receipt of the
proceeds thereof were admitted by the defendant (t.s.n., pp. 3-4, Nov. 29,
1972). This P7,000 is part consideration, and in cash, of the P20,000
promissory note (t.s.n., p. 25, Nov. 29, 1972), and it is being presented to
show the consideration for the P20,000 note and the existence and validity
of the obligation.
xxx xxx xxx

“L—Book entitled ‘Voice of the Veterans’ which is being offered for the
purpose of showing the subject matter of the other partnership agreement
and in which plaintiff invested the P6,000 (Exhibit E) which, together with
the promised profit of P8,000 made up for the consideration of the P14,000
promissory note (Exhibit 2; Exhibit P). As explained in connection with
Exhibit E, the P3,000 balance of the promised profit was later made part
consideration of the P20,000 promissory note.
“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.
“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:
“Q During the pre-trial of this case. Mr. Pecson, the defendant presented a
promissory note in the amount of P14,000.00 which has been marked as
Exhibit 2. Do you know this promissory note?
“A Yes, sir.
“Q What is this promissory note, in connection with your transaction with the
defendant?
“A This promissory note is for the printing of the ‘Voice of the Veterans’.
“Q What is this ‘Voice of the Veterans’, Mr. Pecson?
“A It is a book.”
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 22
(T.S.N., p. 19, Nov. 29, 1972)
“Q And what does the amount of P14,000.00 indicated in the promissory
note, Exhibit 2, represent?
“A It represents the P6,000.00 cash which I gave to Mr. Moran, as evidenced
by the Philippine National Bank Manager’s check and the P8,000.00 profit
assured me by Mr. Moran which I will derive from the printing of this ‘Voice
of the Veterans’ book.
“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 you
mentioned?
“A Yes, sir.
“Q What happened to this promissory note of P14,000.00 which you said
represented P6,000.00 of your investment and P8,000.00 promised profits?
“A Latter, Mr. Moran returned to me P3,000.00 which represented one-half
(½) of the P6,000.00 capital I gave to him.
“Q As a consequence of the return by Mr. Moran of one-half (½) of the
P6,000.00 capital you gave to him, what happened to the promised profit of
P8,000.00?
“A It was reduced to one-half (½) 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
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.
“Q Was there a receipt issued by you covering this payment of P4,000.00 in
favor of Mr. Moran?
“A Yes, sir.”
(T.S.N., p. 23, Nov. 29, 1972).
“Q You stated that Mr. Moran paid the amount of P4,000.00 on account of
the P7,000.00 covered by the promissory note, Exhibit M. What does this
P4,000.00 covered by Exhibit N represent?
“A This P4,000.00 represents the P3,000.00 which he has returned of my
P6,000.00 capital investment and the P1,000.00 represents partial payment
of the P4,000.00 profit that was promised to me by Mr. Moran.
“Q And what happened to the balance of P3,000.00 under the promissory
note, Exhibit M?
“A The balance of P3,000.00 and the rest of the profit was applied as part of
the consideration of the promissory note of P20,000.00.”
(T.S.N., pp. 23-24, Nov. 29, 1972).
The respondent court erred when it concluded that the project never left the
ground because the project did take place. Only it failed. It was the private
respondent himself who presented a copy of the book entitled “Voice of the
Veterans” in the lower court as Exhibit “L”. Therefore, it would be error to
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s P a g e | 23
state that the project never took place and on this basis decree the return of
the private respondent’s investment.
As already mentioned, there are risks in any business venture and the
failure of the undertaking cannot entirely be blamed on the managing
partner alone, specially if the latter exercised his best business judgment,
which seems to be true in this case.
In view of the foregoing, there is no reason to pass upon the fourth and fifth
assignments of errors raised by the petitioner. We likewise find no valid
basis for the grant of the counter-claim.
WHEREFORE, the petition is GRANTED. The decision of the respondent Court
of Appeals (now Intermediate Appellate Court) is hereby SET ASIDE and a
new one is rendered ordering the petitioner Isabelo Moran, Jr., to pay
private respondent Mariano Pecson SIX THOUSAND (P6,000.00) PESOS
representing the amount of the private respondent’s contribution to the
partnership but which remained unused; and THREE THOUSAND (P3,000.00)
PESOS representing one-half (½) of the net profits gained by the
partnership in the sale of the two thousand (2,000) copies of the posters,
with interests at the legal rate on both amounts from the date the complaint
was filed until full payment is made.
Teehankee (Chairman), Melencio-Herrera, Plana and Relova, JJ., concur.
De la Fuente, J., no part.
Petition granted. Decision set aside.
Note.—In an action for damages resulting from a breach of contract to
supply logs, the exporter may not recover from the supplier the amount
damages for which it would be held liable under its contract with a buyer if
such damages have not been demanded from and paid by it and before it
actually pays the same, because under Article 2199 of the Civil Code
damages must be proved. (Basilan Lumber Company vs. Cagayan Timber
Export Co., 2 SCRA 766.)
——o0o—— Moran, Jr. vs. Court of Appeals, 133 SCRA 88, No. L-59956
October 31, 1984