TRUST, AGENCY AND PARTNERSHIP

G.R. No. L-59956

CASE No. 27

OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES

Articles Involved
Article 1786. Every partner is a debtor of the partnership for whatever he may have promised to
contribute thereto.
He shall also be bound for warranty in case of eviction with regard to specific and determinate things
which he may have contributed to the partnership, in the same cases and in the same manner as the
vendor is bound with respect to the vendee. He shall also be liable for the fruits thereof from the time
they should have been delivered, without the need of any demand.
Article 1787. When the capital or a part thereof which a partner is bound to contribute consists of goods,
their appraisal must be made in the manner prescribed in the contract of partnership, and in the absence
of stipulation, it shall be made by experts chosen by the partners, and according to current prices, the
subsequent changes thereof being for account of the partnership.
Article 1797. The losses and profits shall be distributed in conformity with the agreement. If only the
share of each partner in the profits has been agreed upon, the share of each in the losses shall be in
the same proportion.
In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to
what he may have contributed, but the industrial partner shall not be liable for the losses. As for the
profits, the industrial partner shall receive such share as may be just and equitable under the
circumstances. If besides his services he has contributed capital, he shall also receive a share in the
profits in proportion to his capital.

ISABELO MORAN, JR.

vs.
THE HON. COURT OF APPEALS and MARIANO E. PECSON
FACTS:
Pecson and Moran entered into an agreement whereby both would contribute
15K 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 1K a month starting on April 15, 1971 up to December 15,
1971 and that on December 15, 1971, a liquidation of the accounts in the distribution
and printing of the 95,000 posters would be made.
Pecson partially gave Moran 10K as part of his obligation for which the latter
issued a receipt. However, only a few posters were printed. Sometime in May, 1971,
Moran executed in favor of Pecson a promissory note in the amount of 20K payable in
two equal installments (10K payable on or before June 15, 1971 and 10K payable on or

before June 30, 1971). However, the whole sum becoming due upon default in the
payment of the first installment on the date due, complete with the costs of collection.
Pecson sued Moran whereby the CFI ruled in favor of Pecson and ordered
Moran to return to 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. Upon appeal the
respondent CA, likewise rendered a decision against the petitioner and ordered him to
pay P47,500, which was the amount that could have accrued under their agreement;
P8,000, which was the commission for eight months; P7,000, as a return of Pecson's
investment for the Veteran's Project; and Legal interest.

ISSUE:
Whether or not the respondent Court is correct in finding petitioner liable for his
non-compliance in the existing partnership between him and private respondent.
HELD:
No. 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).
The award of P47.5k for unrealized profit is speculative. There is no evidence
whatsoever that the partnership between the Moran and Pecson would have been a
profitable venture (because base on the circumstances then i.e. the delay of the
COMELEC in proclaiming the candidates, profit is highly unlikely). In fact, it was a
failure doomed from the start. There is therefore no basis for the award of speculative
damages in favor of Pecson. Further, there is mutual breach in this case, Pecson only
gave P10k instead of P15k while Moran gave nothing at all.

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. The petitioner undesirable his
best business judgment and felt that it would be a losing venture to go on with the
printing of the agreed 95,000 copies of the posters. Hidden risks in any business
venture have to be considered.
With regard to P8k monthly commission, this has no justifiable basis in law. 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, Pecson is not entitled to the P8k commission.
With regard to P7k award as return for Pecsons investment, the respondent
court erred when it concluded that the project never left the ground because the project
did take place. Only it failed. It did took off the ground as evidenced by the 2,000
posters printed. Hence, return of investment is not proper in this case. As mentioned,
there are risks in any business venture and the failure of the undertaking cannot entirely
be blamed on the managing partner alone, especially if the latter exercised his best
business judgment, which seems to be true in this case.
Moran must however return the unused P6k of Pecsons contribution to the
partnership plus P3k representing Pecsons profit share in the sale of the printed
posters.

(NOTE: This Digest is originally excerpted from the net and was only modified by the publisher)