1
Republic of the Philippines 3. In denying the motion for a new trial.
SUPREME COURT
Manila EN BANC
G.R. No. L-33580             February 6, 1931
MAXIMILIANO SANCHO, plaintiff-appellant,  said court and its ruling is not yet appealable. In support of this contention counsel cites
vs.
SEVERIANO LIZARRAGA, defendant-appellee.
Jose Perez Cardenas and Jose M. Casal for appellant.
Celso B. Jamora and Antonio Gonzalez for appellee.
ROMUALDEZ, J.:
The plaintiff brought an action for the rescission of a partnership contract between
himself and the defendant, entered into on October 15, 1920, the reimbursement by the
latter of his 50,000 peso investment therein, with interest at 12 per cent per annum form
October 15, 1920, with costs, and any other just and equitable remedy against said
defendant.
The defendant denies generally and specifically all the allegations of the complaint which
are incompatible with his special defenses, cross-complaint and counterclaim, setting up
the latter and asking for the dissolution of the partnership, and the payment to him as its
manager and administrator of P500 monthly from October 15, 1920, until the final
dissolution, with interest, one-half of said amount to be charged to the plaintiff. He also
prays for any other just and equitable remedy.
The Court of First Instance of Manila, having heard the cause, and finding it duly proved
that the defendant had not contributed all the capital he had bound himself to invest, and
that the plaintiff had demanded that the defendant liquidate the partnership, declared it
dissolved on account of the expiration of the period for which it was constituted, and
ordered the defendant, as managing partner, to proceed without delay to liquidate it,
submitting to the court the result of the liquidation together with the accounts and
vouchers within the period of thirty days from receipt of notice of said judgment, without
costs.
The plaintiff appealed from said decision making the following assignments of error:
1. In holding that the plaintiff and appellant is not entitled to the rescission of
the partnership contract, Exhibit A, and that article 1124 of the Civil Code is
not applicable to the present case.
2. In failing to order the defendant to return the sum of P50,000 to the plaintiff
with interest from October 15, 1920, until fully paid.
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
section 123 of the Code of Civil Procedure, and the decision of this court in the case
of Natividad vs. Villarica (31 Phil., 172).
This contention is well founded. Until the accounts have been rendered as ordered by the
trial court, and until they have been either approved or disapproved, the litigation
involved in this action cannot be considered as completely decided; and, as it was held in
said case of Natividad vs .Villarica, also with reference to an appeal taken from a
decision ordering the rendition of accounts following the dissolution of partnership, the
appeal in the instant case must be deemed premature.
But even going into the merits of the case, the affirmation of the judgment appealed from
is inevitable. In view of the lower court's findings referred to above, which we cannot
revise because the parol evidence has not been forwarded to this court, articles 1681 and
1682 of the Civil Code have been properly applied. Owing to the defendant's failure to
pay to the partnership the whole amount which he bound himself to pay, he became
indebted to it for the remainder, with interest and any damages occasioned thereby, but
the plaintiff did not thereby acquire the right to demand rescission of the partnership
contract according to article 1124 of the Code. This article cannot be applied to the case
in question, because it refers to the resolution of obligations in general, whereas article
1681 and 1682 specifically refer to the contract of partnership in particular. And it is a
well known principle that special provisions prevail over general provisions.
By virtue of the foregoing, this appeal is hereby dismissed, leaving the decision appealed
from in full force, without special pronouncement of costs. So ordered.
Avanceña, C.J., Johnson, Street, Malcolm, Villamor, Ostrand, Johns and Villa-Real, JJ.,
concur.
2
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
 
G.R. No. 109248 July 3, 1995
GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T.
BACORRO, petitioners,  liquidation, and more particularly, my interest in the two
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION
and JOAQUIN L. MISA, respondents.
VITUG, J.:
The instant petition seeks a review of the decision rendered by the Court of Appeals,
dated 26 February 1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in toto that
of the Securities and Exchange Commission ("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by respondent Commission and quoted
at length by the appellate court in its decision, are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly
registered in the Mercantile Registry on 4 January 1937 and reconstituted with
the Securities and Exchange Commission on 4 August 1948. The SEC records
show that there were several subsequent amendments to the articles of
partnership on 18 September 1958, to change the firm [name] to ROSS, SELPH
and CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL
ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO,
BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL
ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to DEL ROSARIO,
BITO, MISA & LOZADA; on 7 June 1977 to BITO, MISA & LOZADA; on
19 December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M.
Lozada associated themselves together, as senior partners with respondents-
appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin
Bacorro, as junior partners.
On February 17, 1988, petitioner-appellant wrote the respondents-appellees a
letter stating:
I am withdrawing and retiring from the firm of Bito, Misa
and Lozada, effective at the end of this month.
"I trust that the accountants will be instructed to make the
proper liquidation of my participation in the firm."
On the same day, petitioner-appellant wrote respondents-appellees another
letter stating:
"Further to my letter to you today, I would like to have a
meeting with all of you with regard to the mechanics of
floors of this building. I would like to have this resolved
soon 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
3
thereof despite the dissolution of the partnership in the
amount of at least P50,000.00;
"4. Order respondents jointly and severally to pay petitioner
attorney's fees and expense of litigation in such amounts as
maybe proven during the trial and which the Commission
may deem just and equitable under the premises but in no
case less than ten (10%) per cent of the value of the shares
of petitioner or P100,000.00;
"5. Order the respondents to pay petitioner moral damages
with the amount of P500,000.00 and exemplary damages in
the amount of P200,000.00.
"Petitioner likewise prayed for such other and further
reliefs that the Commission may deem just and equitable
under the premises."
On 13 July 1988, respondents-appellees filed their opposition to the petition.
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa &
Lozada did not dissolve the said law partnership.
Accordingly, the petitioner and respondents are hereby
enjoined to abide by the provisions of the Agreement
relative to the matter governing the liquidation of the shares
of any retiring or withdrawing partner in the partnership
interest."1
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that
the withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa
& Lozada." The Commission ruled that, being a partnership at will, the law firm could be
dissolved by any partner at anytime, such as by his withdrawal therefrom, regardless of
good faith or bad faith, since no partner can be forced to continue in the partnership
against his will. In its decision, dated 17 January 1990, the SEC held:
WHEREFORE, premises considered the appealed order of 31 March 1989 is
hereby REVERSED insofar as it concludes that the partnership of Bito, Misa &
Lozada has not been dissolved. The case is hereby REMANDED to the
Hearing Officer for determination of the respective rights and obligations of the
parties.2
The parties sought a reconsideration of the above decision. Attorney Misa, in addition,
asked for an appointment of a receiver to take over the assets of the dissolved partnership
and to take charge of the winding up of its affairs. On 4 April 1991, respondent SEC
issued an order denying reconsideration, as well as rejecting the petition for receivership,
and reiterating the remand of the case to the Hearing Officer.
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No.
24638 and CA-G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and
Attorney Mariano Lozada both died on, respectively, 05 September 1991 and 21
December 1991. The death of the two partners, as well as the admission of new partners,
in the law firm prompted Attorney Misa to renew his application for receivership (in CA
G.R. SP No. 24648). He expressed concern over the need to preserve and care for the
partnership assets. The other partners opposed the prayer.
The Court of Appeals, finding no reversible error on the part of respondent Commission,
AFFIRMED in toto the SEC decision and order appealed from. In fine, the appellate
court held, per its decision of 26 February 1993, (a) that Atty. Misa's withdrawal from the
partnership had changed the relation of the parties and inevitably caused the dissolution
of the partnership; (b) that such withdrawal was not in bad faith; (c) that the liquidation
should be to the extent of Attorney Misa's interest or participation in the partnership
which could be computed and paid in the manner stipulated in the partnership agreement;
(d) that the case should be remanded to the SEC Hearing Officer for the corresponding
determination of the value of Attorney Misa's share in the partnership assets; and (e) that
the appointment of a receiver was unnecessary as no sufficient proof had been shown to
indicate that the partnership assets were in any such danger of being lost, removed or
materially impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners confine
themselves to the following issues:
1. Whether or not the Court of Appeals has erred in holding that the partnership
of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership
at will;
2. Whether or not the Court of Appeals has erred in holding that the withdrawal
of private respondent dissolved the partnership regardless of his good or bad
faith; and
3. Whether or not the Court of Appeals has erred in holding that private
respondent's demand for the dissolution of the partnership so that he can get a
physical partition of partnership was not made in bad faith;
to which matters we shall, accordingly, likewise limit ourselves.
4
A partnership that does not fix its term is a partnership at will. That the law firm "Bito,
Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a
partnership need not be unduly belabored. We quote, with approval, like did the appellate
court, the findings and disquisition of respondent SEC on this matter; viz:
The partnership agreement (amended articles of 19 August 1948) does not
provide for a specified period or undertaking. The "DURATION" clause simply
states:
"5. DURATION. The partnership shall continue so long as
mutually satisfactory and upon the death or legal incapacity
of one of the partners, shall be continued by the surviving
partners."
The hearing officer however opined that the partnership is one for a specific
undertaking and hence not a partnership at will, citing paragraph 2 of the
Amended Articles of Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is
formed, is to act as legal adviser and representative of any
individual, firm and corporation engaged in commercial,
industrial or other lawful businesses and occupations; to
counsel and advise such persons and entities with respect to
their legal and other affairs; and to appear for and represent
their principals and client in all courts of justice and
government departments and offices in the Philippines, and
elsewhere when legally authorized to do so."
The "purpose" of the partnership is not the specific undertaking referred to in
the law. Otherwise, all partnerships, which necessarily must have a purpose,
would all be considered as partnerships for a definite undertaking. There would
therefore be no need to provide for articles on partnership at will as none would
so exist. Apparently what the law contemplates, is a specific undertaking or
"project" which has a definite or definable period of completion. 3
The birth and life of a partnership at will is predicated on the mutual desire and consent
of the partners. The right to choose with whom a person wishes to associate himself is the
very foundation and essence of that partnership. Its continued existence is, in turn,
dependent on the constancy of that mutual resolve, along with each partner's capability to
give it, and the absence of a cause for dissolution provided by the law itself. Verily, any
one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at
will. He must, however, act in good faith, not that the attendance of bad faith can prevent
the dissolution of the partnership4 but that it can result in a liability for damages. 5
In passing, neither would the presence of a period for its specific duration or the
statement of a particular purpose for its creation prevent the dissolution of any
partnership by an act or will of a partner.6 Among partners,7 mutual agency arises and the
doctrine of delectus personae allows them to have the power, although not necessarily
theright, to dissolve the partnership. An unjustified dissolution by the partner can subject
him to a possible action for damages.
The dissolution of a partnership is the change in the relation of the parties caused by any
partner ceasing to be associated in the carrying on, as might be distinguished from the
winding up of, the business.8 Upon its dissolution, the partnership continues and its legal
personality is retained until the complete winding up of its business culminating in its
termination.9
The liquidation of the assets of the partnership following its dissolution is governed by
various provisions of the Civil Code; 10 however, an agreement of the partners, like any
other contract, is binding among them and normally takes precedence to the extent
applicable over the Code's general provisions. We here take note of paragraph 8 of the
"Amendment to Articles of Partnership" reading thusly:
. . . In the event of the death or retirement of any partner, his interest in the
partnership shall be liquidated and paid in accordance with the existing
agreements and his partnership participation shall revert to the Senior Partners
for allocation as the Senior Partners may determine; provided, however, that
with respect to the two (2) floors of office condominium which the partnership
is now acquiring, consisting of the 5th and the 6th floors of the Alpap Building,
140 Alfaro Street, Salcedo Village, Makati, Metro Manila, their true value at
the time of such death or retirement shall be determined by two (2) independent
appraisers, one to be appointed (by the partnership and the other by the) retiring
partner or the heirs of a deceased partner, as the case may be. In the event of
any disagreement between the said appraisers a third appraiser will be
appointed by them whose decision shall be final. The share of the retiring or
deceased partner in the aforementioned two (2) floor office condominium shall
be determined upon the basis of the valuation above mentioned which shall be
paid monthly within the first ten (10) days of every month in installments of not
less than P20,000.00 for the Senior Partners, P10,000.00 in the case of two (2)
existing Junior Partners and P5,000.00 in the case of the new Junior Partner. 11
The term "retirement" must have been used in the articles, as we so hold, in a generic
sense to mean the dissociation by a partner, inclusive of resignation or withdrawal, from
the partnership that thereby dissolves it.
On the third and final issue, we accord due respect to the appellate court and respondent
Commission on their common factual finding, i.e., that Attorney Misa did not act in bad
faith. Public respondents viewed his withdrawal to have been spurred by "interpersonal
conflict" among the partners. It would not be right, we agree, to let any of the partners
remain in the partnership under such an atmosphere of animosity; certainly, not against
their will. 12 Indeed, for as long as the reason for withdrawal of a partner is not contrary to
the dictates of justice and fairness, nor for the purpose of unduly visiting harm and
damage upon the partnership, bad faith cannot be said to characterize the act. Bad faith,
5

in the context here used, is no different from its normal concept of a conscious and
intentional design to do a wrongful act for a dishonest purpose or moral obliquity.

WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.

SO ORDERED.

Feliciano, Romero, Melo and Francisco, JJ., concur.

6
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-13680             April 27, 1960
MAURO LOZANA, plaintiff-appellee,  the generator and the defendant, the wires for the purpose of installing the main and
vs.
SERAFIN DEPAKAKIBO, defendant-appellant.
Antonio T. Lozada for appellee.
Agustin T. Misola and Tomas D. Dominado for appellant.
LABRADOR, J.:
This is an appeal from a judgment of the Court of First Instance of Iloilo, certified to us
by the Court of Appeals, for the reason that only questions of law are involved in said
appeal.
The record discloses that on November 16, 1954 plaintiff Mauro Lozana entered into a
contract with defendant Serafin Depakakibo wherein they established a partnership
capitalized at the sum of P30,000, plaintiff furnishing 60% thereof and the defendant,
40%, for the purpose of maintaining, operating and distributing electric light and power
in the Municipality of Dumangas, Province of Iloilo, under a franchise issued to Mrs.
Piadosa Buenaflor. However, the franchise or certificate of public necessity and
convenience in favor of the said Mrs. Piadosa Buenaflor was cancelled and revoked by
the Public Service Commission on May 15, 1955. But the decision of the Public Service
Commission was appealed to Us on October 21, 1955. A temporary certificate of public
convenience was issued in the name of Olimpia D. Decolongon on December 22, 1955
(Exh. "B"). Evidently because of the cancellation of the franchise in the name of Mrs.
Piadosa Buenaflor, plaintiff herein Mauro Lozana sold a generator, Buda (diesel), 75 hp.
30 KVA capacity, Serial No. 479, to the new grantee Olimpia D. Decolongon, by a deed
dated October 30, 1955 (Exhibit "C"). Defendant Serafin Depakakibo, on the other hand,
sold one Crossly Diesel Engine, 25 h. p., Serial No. 141758, to the spouses Felix Jimenea
and Felina Harder, by a deed dated July 10, 1956.
On November 15, 1955, plaintiff Mauro Lozana brought an action against the defendant,
alleging that he is the owner of the Generator Buda (Diesel), valued at P8,000 and 70
wooden posts with the wires connecting the generator to the different houses supplied by
electric current in the Municipality of Dumangas, and that he is entitled to the possession
thereof, but that the defendant has wrongfully detained them as a consequence of which
plaintiff suffered damages. Plaintiff prayed that said properties be delivered back to him.
Three days after the filing of the complaint, that is on November 18, 1955, Judge
Pantaleon A. Pelayo issued an order in said case authorizing the sheriff to take possession
of the generator and 70 wooden posts, upon plaintiff's filing of a bond in the amount of
P16,000 in favor of the defendant (for subsequent delivery to the plaintiff). On December
5, 1955, defendant filed an answer, denying that the generator and the equipment
mentioned in the complaint belong to the plaintiff and alleging that the same had been
contributed by the plaintiff to the partnership entered into between them in the same
manner that defendant had contributed equipments also, and therefore that he is not
unlawfully detaining them. By way of counterclaim, defendant alleged that under the
partnership agreement the parties were to contribute equipments, plaintiff contributing
delivery lines; that the plaintiff sold his contribution to the partnership, in violation of the
terms of their agreement. He, therefore, prayed that the complaint against him be
dismissed; that plaintiff be adjudged guilty of violating the partnership contract and be
ordered to pay the defendant the sum of P3,000, as actual damages, P600.00 as attorney's
fees and P2,600 annually as actual damages; that the court order dissolution of the
partnership, after the accounting and liquidation of the same.
On September 27, 1956, the defendant filed a motion to declare plaintiff in default on his
counterclaim, but this was denied by the court. Hearings on the case were conducted on
October 25, 1956 and November 5, 1956, and on the latter date the judge entered a
decision declaring plaintiff owner of the equipment and entitled to the possession thereof,
with costs against defendant. It is against this judgment that the defendant has appealed.
The above judgment of the court was rendered on a stipulation of facts, which is as
follows:
1. That on November 16, 1954, in the City of Iloilo, the aforementioned
plaintiff, and the defendant entered into a contract of Partnership, a copy of
which is attached as Annex "A" of defendant's answer and counterclaim, for the
purpose set forth therein and under the national franchise granted to Mrs.
Piadosa Buenaflor;
2. That according to the aforementioned Partnership Contract, the plaintiff Mr.
Mauro Lozana, contributed the amount of Eighteen Thousand Pesos
(P18,000.00); said contributions of both parties being the appraised values of
their respective properties brought into the partnership;
3. That the said Certificate of Public Convenience and Necessity was revoked
and cancelled by order of the Public Service Commission dated March 15,
1955, promulgated in case No. 58188, entitled, "Piadosa Buenaflor, applicant",
which order has been appealed to the Supreme Court by Mrs. Buenaflor;
4. That on October 30, 1955, the plaintiff sold properties brought into by him to
the said partnership in favor of Olimpia Decolongon in the amount of
P10,000.00 as per Deed of Sale dated October 30, 1955 executed and ratified
before Notary Public, Delfin Demaisip, in and for the Municipality of
7

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).
contrary to law and public policy such as to make the contract of partnership, null and
void ab initio. The agreement could have been submitted to the Public Service
Commission if the rules of the latter require them to be so presented. But the fact of
furnishing the current to the holder of the franchise alone, without the previous approval
of the Public Service Commission, does not per se make the contract of partnership null
and void from the beginning and render the partnership entered into by the parties for the
purpose also void and non-existent. Under the circumstances, therefore, the court erred in
declaring that the contract was illegal from the beginning and that parties to the
partnership are not bound therefor, such that the contribution of the plaintiff to the
partnership did not pass to it as its property. It also follows that the claim of the defendant
in his counterclaim that the partnership be dissolved and its assets liquidated is the proper
remedy, not for each contributing partner to claim back what he had contributed.
For the foregoing considerations, the judgment appealed from as well as the order of the
court for the taking of the property into custody by the sheriff must be, as they hereby are
set aside and the case remanded to the court below for further proceedings in accordance
with law.
Paras, C.J., Bengzon, Montemayor, Bautista Angelo, Concepcion, Endencia, Barrera
and Gutierrez David, JJ.,concur.

As it appears from the above stipulation of facts that the plaintiff and the defendant
entered into the contract of partnership, plaintiff contributing the amount of P18,000, and
as it is not stated therein that there bas been a liquidation of the partnership assets at the
time plaintiff sold the Buda Diesel Engine on October 15, 1955, and since the court
below had found that the plaintiff had actually contributed one engine and 70 posts to the
partnership, it necessarily follows that the Buda diesel engine contributed by the plaintiff
had become the property of the partnership. As properties of the partnership, the same
could not be disposed of by the party contributing the same without the consent or
approval of the partnership or of the other partner. (Clemente vs. Galvan, 67 Phil., 565).

The lower court declared that the contract of partnership was null and void, because by
the contract of partnership, the parties thereto have become dummies of the owner of the
franchise. The reason for this holding was the admission by defendant when being cross-
examined by the court that he and the plaintiff are dummies. We find that this admission
by the defendant is an error of law, not a statement of a fact. The Anti-Dummy law has
not been violated as parties plaintiff and defendant are not aliens but Filipinos. The Anti-
Dummy law refers to aliens only (Commonwealth Act 108 as amended).

Upon examining the contract of partnership, especially the provision thereon wherein the
parties agreed to maintain, operate and distribute electric light and power under the
franchise belonging to Mrs. Buenaflor, we do not find the agreement to be illegal, or
8
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-5953             February 24, 1912
ANTONIO M. PABALAN, plaintiff-appellant,  same to the plaintiff; that, since Fitton's death, and up to the date of the filing of the
vs.
FELICIANO VELEZ, defendant-appellee.
Ariston Estrada for appellant.  entirely unproductive and losses and damages had been occasioned to the plaintiff in the
Luciano de la Rosa for 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
aforementioned 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
complaint, neither the administrator of the latter's estate nor any other person had turned
into the partnership or paid to the plaintiff the aforesaid 3,000 pesos; that, owing to the
failure of Fitton to comply with his obligation, the properties in question had been
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 Jose 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
agricultured and situated on the roads which lead from Mariquina to 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
foot of Mount Cay-Alaring, Mount Sapang, and the road leading to the pueblo
of Taytay; on the south by the summit of Mount Matugalo, the
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 Gonzales,
Zacarias Gonzales, 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
9
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 Jose 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 stipulated: 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, for 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 following bases and conditions: 1. The company
organized through the present public instrument shall operate under the firm
name of "A. M. Pabalan and Company" and shall have its domicile, for all legal
purposes, in this city of Manila. 2. The object and aim of the company is the
cultivation and improvement of the two properties described under letters A
and B of the first paragraph hereof, the manufacture and sale of their products,
and the conduct of all other business connected with, incidental or pertinent to
the said lands. 3. The management, direction and administration of the
company shall be in charge of the two partners who shall both be entitled to use
the firm name, it being thereof understood that they are authorized to carry on,
jointly or severally, all kinds of operations comprised within the purpose of this
partnership, with the sole limitation that neither of them may make the
company a surety or borrow money for the same, without its being necessary,
with respect to this latter prohibition, for Mr. Pabalan to state that it does not
suit him to increase his capital to an amount equal to that invested by Mr.
Fitton. Both partners are likewise authorized, for the purposes of management,
to appoint general or social attorneys-in-fact to represent the company, as well
as attorneys to demand and collect such credits and bring such suits before the
courts as be proper. 4. The management of agricultural matters pertaining to the
rural and the urban property described in the first paragraph of this instrument,
shall be solely and exclusively in charge of the partner Antonio Maria Pabalan
or the person by him designated for this purpose. 5. The capital stock is
composed of the total sum of 9,000 pesos contributed by the partners in the
following proportion and from: Antonio Maria Pabalan, 3,000 pesos in cash,
which shall be paid into the partnership fund by Walter A. Fitton, who, for this
purpose, has retained them in his possession upon his paying the amount of the
sale herein set forth; Walter A. Fitton, 6,000 pesos, represented by the two
properties described under letters A and B in the first paragraph herein, and in
which the said lands are by common accord appraised. 6. The partners may not
engage, in the Province of Morong, in the same kinds of business engaged in by
this company, but they mutually authorize each other personally to carry on and
conduct any such business at any other place outside of the said province. 7.
Any and all rural or city properties which Mr. Pabalan may acquire to the west
of the hacienda hereinabove described under letter A, shall necessarily form a
part of the hacienda itself. 8. The term of the existence of this partnership shall
be twenty-five years, which shall begin to run from this date and may be
extended at the will of the contracting parties. 9. In order that a regular and
orderly course be pursued in the management of the company, and the losses
and profits of the latter ascertained, an annual balance of accounts shall be
struck in the month of June of each year, in addition to such other balances as
the partners may, by mutual accord, determine. 10. If, during the term of this
contract, either of the partners should die, the company shall not, on such
account, be considered as dissolved, but shall be continued by the surviving
partner and the heirs of the deceased partner, unless it should suit the former to
be separated from the latter, in which case he shall deliver to such heirs the part
of the capital that belonged to the deceased, together with all the latter's vested
rights. 11. The profits obtained and losses suffered by the company shall be
shared by the partners in proportion to the capital invested by each respectively.
12. The partners may, by agreement, change the company hereby organized
into a joint stock company, in which case they shall observe and comply with
the formalities provided and prescribed by the existing Code of Commerce in
respect to companies of this kind. 13. All questions, controversies, doubts or
differences which may arise between the partners, by reason of this company or
from any acts performed by them on account of the same, shall be determined
by the decision of friendly arbitrators appointed one by each party, such
appointees so designated to choose a third arbitrator in case of disagreement.
The demurrer interposed to the complaint having been overruled by an order of April 1,
1908, and exception thereto taken by the defendant, the latter, on the 11th of the same
10
month, filed a written answer wherein he set forth that he admitted the allegations
contained in paragraphs 1, 2, and 4 of the complaint and denied, generally and
specifically, each and all of those contained in paragraphs 3, 5, 6, 7, 8, and 9.
As a special defense the defendant alleged that the action prosecuted by the plaintiff had
prescribed; that the fact that the properties of the company known as "A. M. Pabalan and
Company" had been unproductive was exclusively due to the great negligence of the
plaintiff, since he had had more than sufficient time, from June 27, 1900, to the date of
the death of Fitton, to have demanded from his copartner the sum offered by the latter
and which he was to contribute to the common assets, and that, notwithstanding all the
time that had elapsed since the execution of the articles of partnership, up to the date of
the presentation of the complaint the plaintiff had never required his copartner to turn into
the partnership funds the capital pledged.
The defendant, in his cross-complaint and counterclaim, set forth: That, according to the
said articles of partnership, the plaintiff had the management of agricultural matters
pertaining to the properties, rural and urban, described therein, and, consequently, was
alone responsible for the successful management of the company; that, also, according to
the articles of partnership, either of the two partners had charge of the management,
direction, and administration of the company; that, some months after the execution of
the said instrument of partnership, Walter A. Fitton was obliged, for reasons of health, to
go abroad, where he resided until his death, and during his absence from this city the
plaintiff, Antonio M. Pabalan, with notable negligence and abandonment of the interests
of the company, failed to attend to the administration of its affairs and did not employ on
his part any means to maintain in a productive condition the two properties brought into
the partnership by the partner Fitton, and that, through the negligence, abandonment, and
carelessness of the plaintiff Pabalan, the defendant suffered losses and damages in the
sum of P3,000 Philippine currency; the latter, therefore, prayed that the complaint be
dismissed and that, by reason of his cross-complaint and counterclaim, an award be made
in his behalf, and against the plaintiff, for losses and damages, in the sum of P3,000
Philippine currency, with the costs.
By a written motion of March 19, 1909, Antonio Vasquez represented: That, owing to the
death of the plaintiff, the hearing of the case had to be suspended until, on the 4th of
March, as aforesaid, letters of administration were issued in his behalf, relative to the
estate of the plaintiff Pabalan; and he therefore prayed that he be admitted as a party in
the capacity of administrator of the estate of the deceased Antonio M. Pabalan.
The case having come to trial on April 29, 1909, with the introduction of oral evidence by
counsel for the plaintiff, the court, on July 9 of the same year, pronounced judgment and
found that the defendant had not proved any of the damages alleged in his answer, and
was not entitled to any recovery therefore, nor the plaintiff for the taxes that he had paid.
The court ordered a dissolution of the partnership formed between the plaintiff and the
deceased Walter A. Fitton and a recission of the sale and contract of partnership executed
between them on July 27, 1900, and further ordered that the defendant, as the
administrator of the estate of the said deceased Walter A. Fitton, deliver to the plaintiff,
upon the latter's paying to the defendant, out of the property which belonged to the
aforesaid deceased, the sum of P3,000 Mexican currency, equivalent to P2,700 Philippine
currency, the following real properties:
A. A rural estate consisting of an hacienda, known as Pantayani or Pantaen,
devoted to agriculture and situated on the roads from Mariquina to Antipolo,
within the pueblos of Cainta and Antipolo of the old district of Morong, now
Province of Rizal, having an area of 1,978,822 square meters, bounded on the
north by the land of Victor Vargas and the Sucabin River; on the east by a part
of the said Sucabin River, a part of the Tabang River, Mount Nagtapong,
the sitio of Palenque, and by another part of the Tabang River toward the base
of Mount Cay-Alaring, Mount Sapang, and the road leading to the pueblo of
Taytay; on the south by the summit of Mount Matugalo, the
Paglilingohan estero, the old Cainta highway, and the land of Juan Santa Ana;
and on the east by the lands of Columba Suarez and Mariano Sumulong, the
Bulao Road, the lands of Perfecto Legaspi, Miguel Gonzales, Zacarias
Gonzales, Juan Adriano, and of the aforementioned Juan Santa Ana.
B. An urban property consisting of a building lot, without either street or
district number, situated on Calle Real in Cainta, a municipality of the Province
of Rizal; bounded on its front, which faces the south, by the aforesaid Calle
Real; on its right, upon entering, or on the east, by the lot belonging to
Alejandro San Diego and his wife Buenaventura Santos; on its left, or the west,
by the lot of Pablo 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 failed to
comply with his obligations as stipulated in the said double contract, inasmuch as he did
not pay into the funds of the company entitled "A. M. Pabalan and Company," as the
capital of the partner Pabalan, the sum of P3,000, or the remainder of P6,000, the price of
the properties which he had purchased from the plaintiff, did not pay to the latter the said
amount, nor any part thereof, nor was such payment made, after the said Fitton's death,
by the administrator of the latter's estate.
Article 1506 of the Civil Code prescribes:
The sale shall be rescinded for the same causes as all other obligations, etc.
Article 1124 provides:
11
The right to rescind the obligations is considered as implied in mutual ones, in
case one of the obligated persons does not comply with what is incumbent upon
him.
The person prejudiced may choose between exacting the fulfillment of the
obligation or its rescission, with indemnity for damages and the payment of
interest in either case. He may also demand the rescission, even after having
requested its fulfillment, should the latter appear impossible.
The court shall order the rescission demanded, unless there are sufficient causes
authorizing it to fix a period.
This is understood without prejudice to the rights of third acquirers, in
accordance with articles 1295 and 1298, and with the provisions of the
Mortgage Law.
Article 116 of the Code of Commerce prescribes:
Articles of association by which two or more persons obligate themselves to
place in a common fund any property, industry, or any of these things, in order
to obtain profit, shall be commercial, no matter what its class may be, provided
it has been established in accordance with the provisions of this code.
After the organization of the general mercantile partnership denominated "A. M. Pabalan
and Company," through the aforesaid instrument of June 27, 1900, the partner Fitton did
not turn into the company funds the sum of P3,000, in the name and to the credit of
Pabalan, as the latter's capital, which sum was a part of the price of the sale of the two
real properties purchased from the said Pabalan by his partner Fitton who, in turn,
brought the said two parcels of land, as his capital, into the common fund, without having
paid the said sum up to the time when he absented himself from these Islands, a few
months after the establishment of the partnership, and died in a foreign country.
It was duly proved at the trial of this case, that the partner Walter A. Fitton failed to
observe the stipulations of the two aforesaid contracts; that he did not pay any part of the
price of the sale of the two parcels of land which he had purchased from his partner,
Antonio M. Pabalan, and, consequently, did not turn into the company funds, as capital of
the said Pabalan, the sum of which the said price consisted; it is therefore unquestionable
that he did not comply with his two principal obligations, assumed in the said double
contract wherein he expressly agreed that the said P3,000, a part of the price of the two
pieces of land that he purchased from Pabalan, would be by him turned into the fund of
the general partnership which they had formed, as capital of the partner Pabalan.
In case one of the parties to a contract does not fulfill his obligation as stipulated therein,
the other contracting party, by the provisions of the above-quoted article 1124 of the
Civil Code, is entitled to demand the rescission of the contract, as such obligations are
mutual, and the court must order the rescission demanded. The partner, Walter A. Fitton,
came within such a case, since he failed to pay any part of the price of the two properties
which he had acquired and did not turn into the company fund, as capital of the vendor
partner, the sum representing such sale, and therefore justice requires the dissolution of
the aforementioned company and the rescission of the said sale, in conformity with the
finding contained in the judgment appealed from the prayer rightfully and lawfully made
by the partner who did not violate his obligations as set forth in the said contract.
During the course of this suit in the Court of First Instance, the plaintiff, Antonio M.
Pabalan, also died; and if the latter, while living, was not obliged, according to clause 10
of the articles of partnership, to continue in the company after the decease of his
copartner, and had a right to withdraw therefrom or from the heirs of the deceased Walter
A. Fitton, after the death of the partner Pabalan, neither are the latter's successors in
interest obliged to continue in the company, and, therefore, under this circumstance, the
propriety of the judgment appealed from is still more evident. With respect to the interest
on the capital which belonged to Pabalan, and which Fitton failed to turn into the
company fund in conformity with the agreement made, and in regard to the amount of the
losses and damages occasioned by the noncompliance, on the part of the partner Fitton,
with the stipulated provisions, both such amounts should be considered as the company's
losses and computed pro rata, in proportion to the extent that each partner is interested in
the company and on the same basis as the profits. (Arts. 140 and 141 of the Code of
Commerce.)
As regards the amount of the land tax, which the partner Pabalan had to pay, amounting
to P522.30, under the assessment levied upon the two real properties owned by the
company, inasmuch as the latter is the owner of the said two parcels of land, which form
the assets of the company known as "A. M. Pabalan and Company," it is unquestionable
that this company should have paid the said tax to the Government, and the same being
paid by the partner Pabalan out of his private funds and not of those of the company, he
was solely entitled to be reimbursed for two-thirds of the said sum paid, in proportion to
the amount of the respective capital brought in, which two-thirds of the sum of P522.30,
that is, P348.20, may be deducted from the sum of P2,700 Philippine currency, equivalent
to P3,000 Mexican currency, which the estate of Antonio M. Pabalan must restore to the
testate or intestate estate of Walter A. Fitton, upon the defendant's returning to the
plaintiff the two aforesaid parcels of land.
For the reasons hereinbefore stated, we are of opinion that the judgment appealed from
should be and is hereby affirmed, with no special finding as to the costs; provided,
however, that the administrator of the estate of the deceased Fitton shall deliver to the
administrator of the estate of Pabalan the two parcels of land, the sale of which was
rescinded, upon payment by the last named administrator to that of the estate of Fitton, of
the sum of P2,700, equivalent to P3,000 Mexican pesos, the said administrator of the
Pabalan estate being entitled to deduct from the said sum that of P348.20, which is two-
thirds of the amount paid as land tax on the properties concerned. So ordered.
Arellano, C.J., Mapa, Johnson, Carson and Trent, JJ., concur.
12
13
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-59956 October 31, 1984
ISABELO MORAN, JR., petitioner,  plaintiff and defendant the plaintiff did contribute P10,000.00, and
vs.
THE HON. COURT OF APPEALS and MARIANO E. PECSON, respondents.
GUTIERREZ, JR., J.:ñé+.£ªwph!1
This is a petition for review on certiorari of the decision of the respondent Court of
Appeals which ordered petitioner Isabelo Moran, Jr. to pay damages to respondent
Mariano E, Pecson.
As found by the respondent Court of Appeals, the undisputed facts indicate that: têñ.
£îhqwâ£
xxx xxx xxx
... on February 22, 1971 Pecson and Moran entered into an agreement
whereby both would contribute P15,000 each for the purpose of
printing 95,000 posters (featuring the delegates to the 1971
Constitutional Convention), with Moran actually supervising the
work; that Pecson would receive a commission of P l,000 a month
starting on April 15, 1971 up to December 15, 1971; that on
December 15, 1971, a liquidation of the accounts in the distribution
and printing of the 95,000 posters would be made, that Pecson gave
Moran P10,000 for which the latter issued a receipt; that only a few
posters were printed; that on or about May 28, 1971, Moran executed
in favor of Pecson a promissory note in the amount of P20,000
payable in two equal installments (P10,000 payable on or before June
15, 1971 and P10,000 payable on or before June 30, 1971), the whole
sum becoming due upon default in the payment of the first
installment on the date due, complete with the costs of collection.
Private respondent Pecson filed with the Court of First Instance of Manila an action for
the recovery of a sum of money and alleged in his complaint three (3) causes of action,
namely: (1) on the alleged partnership agreement, the return of his contribution of
P10,000.00, payment of his share in the profits that the partnership would have earned,
and, payment of unpaid commission; (2) on the alleged promissory note, payment of the
sum of P20,000.00; and, (3) moral and exemplary damages and attorney's fees.
After the trial, the Court of First Instance held that: têñ.£îhqwâ£
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-
another sum of P7,000.00 for the Voice of the Veteran or Delegate
Magazine. Of the expected 95,000 copies of the posters, the
defendant was able to print 2,000 copies only authorized of which,
however, were sold at P5.00 each. Nothing more was done after this
and it can be said that the venture did not really get off the ground.
On the other hand, the plaintiff failed to give his full contribution of
P15,000.00. Thus, each party is entitled to rescind the contract which
right is implied in reciprocal obligations under Article 1385 of the
Civil Code whereunder 'rescission creates the obligation to return the
things which were the object of the contract ...
WHEREFORE, the court hereby renders judgment ordering
defendant Isabelo C. Moran, Jr. to return to plaintiff Mariano E.
Pecson the sum of P17,000.00, with interest at the legal rate from the
filing of the complaint on June 19, 1972, and the costs of the suit.
For insufficiency of evidence, the counterclaim is hereby dismissed.
From this decision, both parties appealed to the respondent Court of Appeals. The latter
likewise rendered a decision against the petitioner. The dispositive portion of the decision
reads: têñ.£îhqwâ£
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);
14
(d) Legal interest on (a), (b) and (c) from the date the complaint was
filed (up to the time payment is made)
The petitioner contends that the respondent Court of Appeals decided questions of
substance in a way not in accord with law and with Supreme Court decisions when it
committed the following errors:
I
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING
PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E.
PECSON IN THE SUM OF P47,500 AS THE SUPPOSED EXPECTED PROFITS DUE
HIM.
II
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING
PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E.
PECSON IN THE SUM OF P8,000, AS SUPPOSED COMMISSION IN THE
PARTNERSHIP ARISING OUT OF PECSON'S INVESTMENT.
III
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING
PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E.
PECSON IN THE SUM OF P7,000 AS A SUPPOSED RETURN OF INVESTMENT IN
A MAGAZINE VENTURE.
IV
ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL LIABLE FOR
ANY AMOUNT, THE HONORABLE COURT OF APPEALS DID NOT EVEN
OFFSET PAYMENTS ADMITTEDLY RECEIVED BY PECSON FROM MORAN.
V awarded compensatory damages in the Uy case because there was a finding that the
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: têñ.£îhqwâ£
1. That the partnership will print colored posters of the delegates to
the Constitutional Convention;
2. That they will invest the amount of Fifteen Thousand Pesos
(P15,000.00) each;
3. That they will print Ninety Five Thousand (95,000) copies of the
said posters;
4. That plaintiff will receive a commission of One Thousand Pesos
(P1,000.00) a month starting April 15, 1971 up to December 15,
1971;
5. That upon the termination of the partnership on December 15,
1971, a liquidation of the account pertaining to the distribution and
printing of the said 95,000 posters shall be made.
The petitioner on the other hand admitted in his answer the existence of the partnership.
The rule is, when a partner who has undertaken to contribute a sum of money fails to do
so, he becomes a debtor of the partnership for whatever he may have promised to
contribute (Art. 1786, Civil Code) and for interests and damages from the time he should
have complied with his obligation (Art. 1788, Civil Code). Thus in Uy v. Puzon (79
SCRA 598), which interpreted Art. 2200 of the Civil Code of the Philippines, we allowed
a total of P200,000.00 compensatory damages in favor of the appellee because the
appellant therein was remiss in his obligations as a partner and as prime contractor of the
construction projects in question. This case was decided on a particular set of facts. We
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.
15

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: têñ.£îhqwâ£
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.
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: têñ.
£îhqwâ£

Being a contract of partnership, each partner must share in the profits and losses of the xxx xxx xxx
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 ... Moran admittedly signed the promissory note of P20,000 in favor
other partner cannot claim a right to recover the highly speculative profits. It is a rare of Pecson. Moran does not question the due execution of said note.
business venture guaranteed to give 100% profits. In this case, on an investment of Must Moran therefore pay the amount of P20,000? The evidence
P15,000.00, the respondent was supposed to earn a guaranteed P1,000.00 a month for indicates that the P20,000 was assigned by Moran to cover the
eight months and around P142,500.00 on 95,000 posters costing P2.00 each but 2,000 of following: têñ.£îhqwâ£
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 (a) P 7,000 — the amount of
factor. The petitioner undesirable his best business judgment and felt that it would be a the PNB check given by
losing venture to go on with the printing of the agreed 95,000 copies of the posters. Pecson to Moran representing
Hidden risks in any business venture have to be considered. Pecson's investment in
Moran's other project (the
publication and printing of
It does not follow however that the private respondent is not entitled to recover any the 'Voice of the Veterans');
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 (b) P10,000 — to cover the
show that the 2,000 copies were sold at P5.00 each. The gross income therefore was return of Pecson's
P10,000.00. Deducting the printing costs of P4,000.00 from the gross income of contribution in the project of
P10,000.00 and with no evidence on the cost of distribution, the net profits amount to the Posters;
only P6,000.00. This net profit of P6,000.00 should be divided between the petitioner and
the private respondent. And since only P4,000.00 was undesirable by the petitioner in (c) P3,000 — representing
printing the 2,000 copies, the remaining P6,000.00 should therefore be returned to the Pecson's commission for
private respondent. three months (April, May,
June, 1971).
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. 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
Again, we agree with the petitioner. ground) ...

The partnership agreement stipulated that the petitioner would give the private As a rule, the findings of facts of the Court of Appeals are final and conclusive and
respondent a monthly commission of Pl,000.00 from April 15, 1971 to December 15, cannot be reviewed on appeal to this Court (Amigo v. Teves, 96 Phil. 252), provided they
16
are borne out by the record or are based on substantial evidence (Alsua-Betts v. Court of
Appeals, 92 SCRA 332). However, this rule admits of certain exceptions. Thus,
in Carolina Industries Inc. v. CMS Stock Brokerage, Inc., et al., (97 SCRA 734), we held
that this Court retains the power to review and rectify the findings of fact of the Court of
Appeals when (1) the conclusion is a finding grounded entirely on speculation, surmises
and conjectures; (2) when the inference made is manifestly mistaken absurd and
impossible; (3) where there is grave abuse of discretion; (4) when the judgment is based
on a misapprehension of facts; and (5) when the court, in making its findings, went
beyond the issues of the case and the same are contrary to the admissions of both the
appellant and the appellee.
In this case, there is misapprehension of facts. The evidence of the private respondent
himself shows that his investment in the "Voice of Veterans" project amounted to only
P3,000.00. The remaining P4,000.00 was the amount of profit that the private respondent
expected to receive.
The records show the following exhibits- têñ.£îhqwâ£
E — Xerox copy of PNB Manager's Check No. 234265 dated March
22, 1971 in favor of defendant. Defendant admitted the authenticity
of this check and of his receipt of the proceeds thereof (t.s.n., pp. 3-4,
Nov. 29, 1972). This exhibit is being offered for the purpose of
showing plaintiff's capital investment in the printing of the "Voice of
the Veterans" for which he was promised a fixed profit of P8,000.
This investment of P6,000.00 and the promised profit of P8,000 are
covered by defendant's promissory note for P14,000 dated March 31,
1971 marked by defendant as Exhibit 2 (t.s.n., pp. 20-21, Nov. 29,
1972), and by plaintiff as Exhibit P. Later, defendant returned
P3,000.00 of the P6,000.00 investment thereby proportionately
reducing the promised profit to P4,000. With the balance of P3,000
(capital) and P4,000 (promised profit), defendant signed and executed
the promissory note for P7,000 marked Exhibit 3 for the defendant
and Exhibit M for plaintiff. Of this P7,000, defendant paid P4,000
representing full return of the capital investment and P1,000 partial
payment of the promised profit. The P3,000 balance of the promised
profit was made part consideration of the P20,000 promissory note
(t.s.n., pp. 22-24, Nov. 29, 1972). It is, therefore, being presented to
show the consideration for the P20,000 promissory note.
F — Xerox copy of PNB Manager's check dated May 29, 1971 for
P7,000 in favor of defendant. The authenticity of the check and his
receipt of the proceeds thereof were admitted by the defendant (t.s.n.,
pp. 3-4, Nov. 29, 1972). This P 7,000 is part consideration, and in
cash, of the P20,000 promissory note (t.s.n., p. 25, Nov. 29, 1972),
and it is being presented to show the consideration for the P20,000
note and the existence and validity of the obligation.
xxx xxx xxx
L-Book entitled "Voice of the Veterans" which is being offered for
the purpose of showing the subject matter of the other partnership
agreement and in which plaintiff invested the P6,000 (Exhibit E)
which, together with the promised profit of P8,000 made up for the
consideration of the P14,000 promissory note (Exhibit 2; Exhibit P).
As explained in connection with Exhibit E. the P3,000 balance of the
promised profit was later made part consideration of the P20,000
promissory note.
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: têñ.£îhqwâ£
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".
17
Q What is this "Voice of the Veterans", Mr.
Pecson?
A It is a book.têñ.£îhqwâ£
(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
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 (1/2) of the P6,000.00
capital I gave to him.
Q As a consequence of the return by Mr. Moran
of one-half (1/2) of the P6,000.00 capital you
gave to him, what happened to the promised
profit of P8,000.00?
A It was reduced to one-half (1/2) which is
P4,000.00.
Q Was there any document executed by Mr.
Moran in connection with the Balance of
P3,000.00 of your capital investment and the
P4,000.00 promised profits?
A Yes, sir, he executed a promissory note.
Q I show you a promissory note in the amount of
P7,000.00 dated March 30, 1971 which for
purposes of Identification I request the same to be
marked as Exhibit M. . .
Court têñ.£îhqwâ£
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.
18

Q And what happened to the balance of

P3,000.00 under the promissory note, Exhibit M?

A The balance of P3,000.00 and the rest of the

profit was applied as part of the consideration of
the promissory note of P20,000.00.

(T.S.N., pp. 23-24, Nov. 29, 1972).

The respondent court erred when it concluded that the project never left the ground
because the project did take place. Only it failed. It was the private respondent himself
who presented a copy of the book entitled "Voice of the Veterans" in the lower court as
Exhibit "L". Therefore, it would be error to state that the project never took place and on
this basis decree the return of the private respondent's investment.

As already mentioned, there are risks in any business venture and the failure of the
undertaking cannot entirely be blamed on the managing partner alone, specially if the
latter exercised his best business judgment, which seems to be true in this case. In view of
the foregoing, there is no reason to pass upon the fourth and fifth assignments of errors
raised by the petitioner. We likewise find no valid basis for the grant of the counterclaim.

WHEREFORE, the petition is GRANTED. The decision of the respondent Court of

Appeals (now Intermediate Appellate Court) is hereby SET ASIDE and a new one is
rendered ordering the petitioner Isabelo Moran, Jr., to pay private respondent Mariano
Pecson SIX THOUSAND (P6,000.00) PESOS representing the amount of the private
respondent's contribution to the partnership but which remained unused; and THREE
THOUSAND (P3,000.00) PESOS representing one half (1/2) of the net profits gained by
the partnership in the sale of the two thousand (2,000) copies of the posters, with interests
at the legal rate on both amounts from the date the complaint was filed until full payment
is made.

SO ORDERED.1äwphï1.ñët

Teehankee (Chairman), Melencio-Herrera, Plana and Relova, JJ., concur.

De la Fuente J., took no part.