floors of this building.

I would like to have this resolved

G.R. No. 109248 July 3, 1995
soon because it has to do with my own plans."
GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T.
On 19 February 1988, petitioner-appellant wrote respondents-appellees
BACORRO, petitioners,
another letter stating:
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION "The partnership has ceased to be mutually satisfactory
and JOAQUIN L. MISA, respondents. 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
VITUG, J.: our employees have been thwarted by the other partners.
Not only have they refused to give meaningful increases
The instant petition seeks a review of the decision rendered by the Court of
to the employees, even attorneys, are dressed down
Appeals, dated 26 February 1993, in CA-G.R. SP No. 24638 and No. 24648
publicly in a loud voice in a manner that deprived them of
affirming in toto that of the Securities and Exchange Commission ("SEC") in SEC AC
their self-respect. The result of such policies is the
254.
formation of the union, including the assistant attorneys."
The antecedents of the controversy, summarized by respondent Commission and
On 30 June 1988, petitioner filed with this Commission's Securities
quoted at length by the appellate court in its decision, are hereunder restated.
Investigation and Clearing Department (SICD) a petition for dissolution and
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly liquidation of partnership, docketed as SEC Case No. 3384 praying that the
registered in the Mercantile Registry on 4 January 1937 and reconstituted Commission:
with the Securities and Exchange Commission on 4 August 1948. The SEC
"1. Decree the formal dissolution and order the immediate
records show that there were several subsequent amendments to the
liquidation of (the partnership of) Bito, Misa & Lozada;
articles of partnership on 18 September 1958, to change the firm [name]
to ROSS, SELPH and CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH, "2. Order the respondents to deliver or pay for petitioner's
SALCEDO, DEL ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, share in the partnership assets plus the profits, rent or
DEL ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, interest attributable to the use of his right in the assets of
DEL ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to DEL the dissolved partnership;
ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to BITO, MISA &
"3. Enjoin respondents from using the firm name of Bito,
LOZADA; on 19 December 1980, [Joaquin L. Misa] appellees Jesus B. Bito
Misa & Lozada in any of their correspondence, checks and
and Mariano M. Lozada associated themselves together, as senior partners
pleadings and to pay petitioners damages for the use
with respondents-appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr.,
thereof despite the dissolution of the partnership in the
and Benjamin Bacorro, as junior partners.
amount of at least P50,000.00;
On February 17, 1988, petitioner-appellant wrote the respondents-
"4. Order respondents jointly and severally to pay
appellees a letter stating:
petitioner attorney's fees and expense of litigation in such
I am withdrawing and retiring from the firm of Bito, Misa amounts as maybe proven during the trial and which the
and Lozada, effective at the end of this month. Commission may deem just and equitable under the
premises but in no case less than ten (10%) per cent of
"I trust that the accountants will be instructed to make
the value of the shares of petitioner or P100,000.00;
the proper liquidation of my participation in the firm."
"5. Order the respondents to pay petitioner moral
On the same day, petitioner-appellant wrote respondents-appellees
damages with the amount of P500,000.00 and exemplary
another letter stating:
damages in the amount of P200,000.00.
"Further to my letter to you today, I would like to have a
"Petitioner likewise prayed for such other and further
meeting with all of you with regard to the mechanics of
reliefs that the Commission may deem just and equitable
liquidation, and more particularly, my interest in the two
under the premises."
 On 13 July 1988, respondents-appellees filed their opposition to the inevitably caused the dissolution of the partnership; (b) that such withdrawal was
petition. 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
On 13 July 1988, petitioner filed his Reply to the Opposition.
manner stipulated in the partnership agreement; (d) that the case should be
On 31 March 1989, the hearing officer rendered a decision ruling that: 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
"[P]etitioner's withdrawal from the law firm Bito, Misa &
appointment of a receiver was unnecessary as no sufficient proof had been shown
Lozada did not dissolve the said law partnership.
to indicate that the partnership assets were in any such danger of being lost,
Accordingly, the petitioner and respondents are hereby
removed or materially impaired.
enjoined to abide by the provisions of the Agreement
relative to the matter governing the liquidation of the In this petition for review under Rule 45 of the Rules of Court, petitioners confine
shares of any retiring or withdrawing partner in the themselves to the following issues:
partnership interest."1
1. Whether or not the Court of Appeals has erred in holding that the
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is
that the withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of a partnership at will;
"Bito, Misa & Lozada." The Commission ruled that, being a partnership at will, the
2. Whether or not the Court of Appeals has erred in holding that the
law firm could be dissolved by any partner at anytime, such as by his withdrawal
withdrawal of private respondent dissolved the partnership regardless of
therefrom, regardless of good faith or bad faith, since no partner can be forced to
his good or bad faith; and
continue in the partnership against his will. In its decision, dated 17 January 1990,
the SEC held: 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
WHEREFORE, premises considered the appealed order of 31 March 1989 is
get a physical partition of partnership was not made in bad faith;
hereby REVERSED insofar as it concludes that the partnership of Bito, Misa
& Lozada has not been dissolved. The case is hereby REMANDED to the to which matters we shall, accordingly, likewise limit ourselves.
Hearing Officer for determination of the respective rights and obligations of
A partnership that does not fix its term is a partnership at will. That the law firm
the parties.2
"Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a
The parties sought a reconsideration of the above decision. Attorney Misa, in partnership need not be unduly belabored. We quote, with approval, like did the
addition, asked for an appointment of a receiver to take over the assets of the appellate court, the findings and disquisition of respondent SEC on this matter; viz:
dissolved partnership and to take charge of the winding up of its affairs. On 4 April
The partnership agreement (amended articles of 19 August 1948) does not
1991, respondent SEC issued an order denying reconsideration, as well as rejecting
provide for a specified period or undertaking. The "DURATION" clause
the petition for receivership, and reiterating the remand of the case to the Hearing
simply states:
Officer.
"5. DURATION. The partnership shall continue so long as
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP
mutually satisfactory and upon the death or legal
No. 24638 and CA-G.R. SP No. 24648).
incapacity of one of the partners, shall be continued by
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and the surviving partners."
Attorney Mariano Lozada both died on, respectively, 05 September 1991 and 21
The hearing officer however opined that the partnership is one for a
December 1991. The death of the two partners, as well as the admission of new
specific undertaking and hence not a partnership at will, citing paragraph 2
partners, in the law firm prompted Attorney Misa to renew his application for
of the Amended Articles of Partnership (19 August 1948):
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 "2. Purpose. The purpose for which the partnership is
prayer. formed, is to act as legal adviser and representative of
any individual, firm and corporation engaged in
The Court of Appeals, finding no reversible error on the part of respondent
commercial, industrial or other lawful businesses and
Commission, AFFIRMED in toto the SEC decision and order appealed from. In fine,
occupations; to counsel and advise such persons and
the appellate court held, per its decision of 26 February 1993, (a) that Atty. Misa's
entities with respect to their legal and other affairs; and
withdrawal from the partnership had changed the relation of the parties and
 to appear for and represent their principals and client in Metro Manila, their true value at the time of such death or retirement shall
all courts of justice and government departments and be determined by two (2) independent appraisers, one to be appointed (by
offices in the Philippines, and elsewhere when legally the partnership and the other by the) retiring partner or the heirs of a
authorized to do so." 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
The "purpose" of the partnership is not the specific undertaking referred to
whose decision shall be final. The share of the retiring or deceased partner
in the law. Otherwise, all partnerships, which necessarily must have a
in the aforementioned two (2) floor office condominium shall be
purpose, would all be considered as partnerships for a definite
determined upon the basis of the valuation above mentioned which shall
undertaking. There would therefore be no need to provide for articles on
be paid monthly within the first ten (10) days of every month in
partnership at will as none would so exist. Apparently what the law
installments of not less than P20,000.00 for the Senior Partners,
contemplates, is a specific undertaking or "project" which has a definite or
P10,000.00 in the case of two (2) existing Junior Partners and P5,000.00 in
definable period of completion.3
the case of the new Junior Partner. 11
The birth and life of a partnership at will is predicated on the mutual desire and
The term "retirement" must have been used in the articles, as we so hold, in a
consent of the partners. The right to choose with whom a person wishes to
generic sense to mean the dissociation by a partner, inclusive of resignation or
associate himself is the very foundation and essence of that partnership. Its
withdrawal, from the partnership that thereby dissolves it.
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 On the third and final issue, we accord due respect to the appellate court and
dissolution provided by the law itself. Verily, any one of the partners may, at his respondent Commission on their common factual finding, i.e., that Attorney Misa
sole pleasure, dictate a dissolution of the partnership at will. He must, however, act did not act in bad faith. Public respondents viewed his withdrawal to have been
in good faith, not that the attendance of bad faith can prevent the dissolution of spurred by "interpersonal conflict" among the partners. It would not be right, we
the partnership4 but that it can result in a liability for damages.5 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
In passing, neither would the presence of a period for its specific duration or the
the reason for withdrawal of a partner is not contrary to the dictates of justice and
statement of a particular purpose for its creation prevent the dissolution of any
fairness, nor for the purpose of unduly visiting harm and damage upon the
partnership by an act or will of a partner.6 Among partners,7 mutual agency arises
partnership, bad faith cannot be said to characterize the act. Bad faith, in the
and the doctrine of delectus personae allows them to have the power, although not
context here used, is no different from its normal concept of a conscious and
necessarily the right, to dissolve the partnership. An unjustified dissolution by the
intentional design to do a wrongful act for a dishonest purpose or moral obliquity.
partner can subject him to a possible action for damages.
WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on
The dissolution of a partnership is the change in the relation of the parties caused
costs.
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 SO ORDERED.
partnership continues and its legal personality is retained until the complete
Feliciano, Romero, Melo and Francisco, JJ., concur.
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,
G.R. No. L-13680 April 27, 1960
MAURO LOZANA, plaintiff-appellee,
vs.
SERAFIN DEPAKAKIBO, defendant-appellant.
Antonio T. Lozada for appellee.
Agustin T. Misola and Tomas D. Dominado for appellant.
LABRADOR, J.:
This is an appeal from a judgment of the Court of First Instance of Iloilo, certified
to us by the Court of Appeals, for the reason that only questions of law are involved
in said appeal.
The record discloses that on November 16, 1954 plaintiff Mauro Lozana entered
into a contract with defendant Serafin Depakakibo wherein they established a
partnership capitalized at the sum of P30,000, plaintiff furnishing 60% thereof and
the defendant, 40%, for the purpose of maintaining, operating and distributing
electric light and power in the Municipality of Dumangas, Province of Iloilo, under a
franchise issued to Mrs. Piadosa Buenaflor. However, the franchise or certificate of
public necessity and convenience in favor of the said Mrs. Piadosa Buenaflor was
cancelled and revoked by the Public Service Commission on May 15, 1955. But the
decision of the Public Service Commission was appealed to Us on October 21, 1955.
A temporary certificate of public convenience was issued in the name of Olimpia D.
Decolongon on December 22, 1955 (Exh. "B"). Evidently because of the
cancellation of the franchise in the name of Mrs. Piadosa Buenaflor, plaintiff herein
Mauro Lozana sold a generator, Buda (diesel), 75 hp. 30 KVA capacity, Serial No.
479, to the new grantee Olimpia D. Decolongon, by a deed dated October 30, 1955
(Exhibit "C"). Defendant Serafin Depakakibo, on the other hand, sold one Crossly
Diesel Engine, 25 h. p., Serial No. 141758, to the spouses Felix Jimenea and Felina
Harder, by a deed dated July 10, 1956.
On November 15, 1955, plaintiff Mauro Lozana brought an action against the
defendant, alleging that he is the owner of the Generator Buda (Diesel), valued at
P8,000 and 70 wooden posts with the wires connecting the generator to the
different houses supplied by electric current in the Municipality of Dumangas, and
that he is entitled to the possession thereof, but that the defendant has wrongfully
detained them as a consequence of which plaintiff suffered damages. Plaintiff
prayed that said properties be delivered back to him. Three days after the filing of
the complaint, that is on November 18, 1955, Judge Pantaleon A. Pelayo issued an
order in said case authorizing the sheriff to take possession of the generator and 70
wooden posts, upon plaintiff's filing of a bond in the amount of P16,000 in favor of
the defendant (for subsequent delivery to the plaintiff). On December 5, 1955,
defendant filed an answer, denying that the generator and the equipment
mentioned in the complaint belong to the plaintiff and alleging that the same had
been contributed by the plaintiff to the partnership entered into between them in
the same manner that defendant had contributed equipments also, and therefore
that he is not unlawfully detaining them. By way of counterclaim, defendant alleged
that under the partnership agreement the parties were to contribute equipments,
plaintiff contributing the generator and the defendant, the wires for the purpose of
installing the main and delivery lines; that the plaintiff sold his contribution to the
partnership, in violation of the terms of their agreement. He, therefore, prayed that
the complaint against him be dismissed; that plaintiff be adjudged guilty of violating
the partnership contract and be ordered to pay the defendant the sum of P3,000,
as actual damages, P600.00 as attorney's fees and P2,600 annually as actual
damages; that the court order dissolution of the partnership, after the accounting
and liquidation of the same.
On September 27, 1956, the defendant filed a motion to declare plaintiff in default
on his counterclaim, but this was denied by the court. Hearings on the case were
conducted on October 25, 1956 and November 5, 1956, and on the latter date the
judge entered a decision declaring plaintiff owner of the equipment and entitled to
the possession thereof, with costs against defendant. It is against this judgment
that the defendant has appealed.
The above judgment of the court was rendered on a stipulation of facts, which is as
follows:
1. That on November 16, 1954, in the City of Iloilo, the aforementioned
plaintiff, and the defendant entered into a contract of Partnership, a copy
of which is attached as Annex "A" of defendant's answer and counterclaim,
for the purpose set forth therein and under the national franchise granted
to Mrs. Piadosa Buenaflor;
2. That according to the aforementioned Partnership Contract, the plaintiff
Mr. Mauro Lozana, contributed the amount of Eighteen Thousand Pesos
(P18,000.00); said contributions of both parties being the appraised values
of their respective properties brought into the partnership;
3. That the said Certificate of Public Convenience and Necessity was
revoked and cancelled by order of the Public Service Commission dated
March 15, 1955, promulgated in case No. 58188, entitled, "Piadosa
Buenaflor, applicant", which order has been appealed to the Supreme
Court by Mrs. Buenaflor;
4. That on October 30, 1955, the plaintiff sold properties brought into by
him to the said partnership in favor of Olimpia Decolongon in the amount
of P10,000.00 as per Deed of Sale dated October 30, 1955 executed and
ratified before Notary Public, Delfin Demaisip, in and for the Municipality of
Dumangas, Iloilo and entered in his Notarial Registry as Doc. No. 832;
Page No. 6; Book No. XIII; and Series of 1955, a copy thereof is made as
Annex "B" of defendant's answer and counterclaim;
5. That there was no liquidation of partnership and that at the time of said
Sale on October 30, 1955, defendant was the manager thereof;
6. That by virtue of the Order of this Honorable Court dated November 18,
1955, those properties sold were taken by the Provincial Sheriff on
 November 20, 1955 and delivered to the plaintiff on November 25, 1955 the contract was illegal from the beginning and that parties to the partnership are
upon the latter posting the required bond executed by himself and the not bound therefor, such that the contribution of the plaintiff to the partnership did
Luzon Surety Co., dated November 17, 1955 and ratified before the Notary not pass to it as its property. It also follows that the claim of the defendant in his
Public, Eleuterio del Rosario in and for the province of Iloilo known as Doc. counterclaim that the partnership be dissolved and its assets liquidated is the
No. 200; Page 90; Book No. VII; and Series of 1955; of said Notary Public; proper remedy, not for each contributing partner to claim back what he had
contributed.
7. That the said properties sold are now in the possession of Olimpia
Decolongon, the purchaser, who is presently operating an electric light For the foregoing considerations, the judgment appealed from as well as the order
plant in Dumangas, Iloilo; 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
8. That the defendant sold certain properties in favor of the spouses, Felix
proceedings in accordance with law.
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 Paras, C.J., Bengzon, Montemayor, Bautista Angelo, Concepcion, Endencia, Barrera
Public Rodrigo J. Harder in and for the Province of Iloilo, known as Doc. and Gutierrez David, JJ., concur.
No. 76; Page 94; Book No. V; and Series of 1955, a certified copy of which
is hereto attached marked as Annex "A", and made an integral part hereof;
(pp, 27-29 ROA).
As it appears from the above stipulation of facts that the plaintiff and the defendant
entered into the contract of partnership, plaintiff contributing the amount of
P18,000, and as it is not stated therein that there bas been a liquidation of the
partnership assets at the time plaintiff sold the Buda Diesel Engine on October 15,
1955, and since the court below had found that the plaintiff had actually
contributed one engine and 70 posts to the partnership, it necessarily follows that
the Buda diesel engine contributed by the plaintiff had become the property of the
partnership. As properties of the partnership, the same could not be disposed of by
the party contributing the same without the consent or approval of the partnership
or of the other partner. (Clemente vs. Galvan, 67 Phil., 565).
The lower court declared that the contract of partnership was null and void,
because by the contract of partnership, the parties thereto have become dummies
of the owner of the franchise. The reason for this holding was the admission by
defendant when being cross-examined by the court that he and the plaintiff are
dummies. We find that this admission by the defendant is an error of law, not a
statement of a fact. The Anti-Dummy law has not been violated as parties plaintiff
and defendant are not aliens but Filipinos. The Anti-Dummy law refers to aliens
only (Commonwealth Act 108 as amended).
Upon examining the contract of partnership, especially the provision thereon
wherein the parties agreed to maintain, operate and distribute electric light and
power under the franchise belonging to Mrs. Buenaflor, we do not find the
agreement to be illegal, or contrary to law and public policy such as to make the
contract of partnership, null and void ab initio. The agreement could have been
submitted to the Public Service Commission if the rules of the latter require them to
be so presented. But the fact of furnishing the current to the holder of the franchise
alone, without the previous approval of the Public Service Commission, does not
per se make the contract of partnership null and void from the beginning and
render the partnership entered into by the parties for the purpose also void and
non-existent. Under the circumstances, therefore, the court erred in declaring that
G.R. No. L-33580 February 6, 1931 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
MAXIMILIANO SANCHO, plaintiff-appellant,
litigation involved in this action cannot be considered as completely decided; and,
vs.
as it was held in said case of Natividad vs .Villarica, also with reference to an
SEVERIANO LIZARRAGA, defendant-appellee.
appeal taken from a decision ordering the rendition of accounts following the
Jose Perez Cardenas and Jose M. Casal for appellant. dissolution of partnership, the appeal in the instant case must be deemed
Celso B. Jamora and Antonio Gonzalez for appellee. premature.
ROMUALDEZ, J.: 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,
The plaintiff brought an action for the rescission of a partnership contract between
which we cannot revise because the parol evidence has not been forwarded to this
himself and the defendant, entered into on October 15, 1920, the reimbursement
court, articles 1681 and 1682 of the Civil Code have been properly applied. Owing
by the latter of his 50,000 peso investment therein, with interest at 12 per cent per
to the defendant's failure to pay to the partnership the whole amount which he
annum form October 15, 1920, with costs, and any other just and equitable remedy
bound himself to pay, he became indebted to it for the remainder, with interest and
against said defendant.
any damages occasioned thereby, but the plaintiff did not thereby acquire the right
The defendant denies generally and specifically all the allegations of the complaint to demand rescission of the partnership contract according to article 1124 of the
which are incompatible with his special defenses, cross-complaint and counterclaim, Code. This article cannot be applied to the case in question, because it refers to the
setting up the latter and asking for the dissolution of the partnership, and the resolution of obligations in general, whereas article 1681 and 1682 specifically refer
payment to him as its manager and administrator of P500 monthly from October to the contract of partnership in particular. And it is a well known principle that
15, 1920, until the final dissolution, with interest, one-half of said amount to be special provisions prevail over general provisions.
charged to the plaintiff. He also prays for any other just and equitable remedy.
By virtue of the foregoing, this appeal is hereby dismissed, leaving the decision
The Court of First Instance of Manila, having heard the cause, and finding it duly appealed from in full force, without special pronouncement of costs. So ordered.
proved that the defendant had not contributed all the capital he had bound himself
Avancea, C.J., Johnson, Street, Malcolm, Villamor, Ostrand, Johns and Villa-Real,
to invest, and that the plaintiff had demanded that the defendant liquidate the
JJ., concur.
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).
G.R. No. L-5953 February 24, 1912
ANTONIO M. PABALAN, plaintiff-appellant,
vs.
FELICIANO VELEZ, defendant-appellee.
Ariston Estrada for appellant.
Luciano de la Rosa for appellee.
TORRES, J.:
This case was appealed by counsel for the plaintiff, from the judgment rendered by
the Honorable 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 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 aforesaid 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 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 Doa 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 and his wife Doa Buenaventura Santos; on its left, or the west, by
the lot of Don Pablo Ordoez and his wife Dionisia Salandanan; and on its
rear, or the north, by the lot of Don Florencio San Antonio, his wife and
Doa 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 month, filed a written answer wherein he set forth that he admitted
the allegations contained in paragraphs 1, 2, and 4 of the complaint and denied,
generally and specifically, each and all of those contained in paragraphs 3, 5, 6, 7,
8, and 9.
As a special defense the defendant alleged that the action prosecuted by the
plaintiff had prescribed; that the fact that the properties of the company known as
"A. M. Pabalan and Company" had been unproductive was exclusively due to the
great negligence of the plaintiff, since he had had more than sufficient time, from
June 27, 1900, to the date of the death of Fitton, to have demanded from his
copartner the sum offered by the latter and which he was to contribute to the
common assets, and that, notwithstanding all the time that had elapsed since the
execution of the articles of partnership, up to the date of the presentation of the
complaint the plaintiff had never required his copartner to turn into the partnership
funds the capital pledged.
The defendant, in his cross-complaint and counterclaim, set forth: That, according
to the said articles of partnership, the plaintiff had the management of agricultural
matters pertaining to the properties, rural and urban, described therein, and,
consequently, was alone responsible for the successful management of the
company; that, also, according to the articles of partnership, either of the two
partners had charge of the management, direction, and administration of the
company; that, some months after the execution of the said instrument of
partnership, Walter A. Fitton was obliged, for reasons of health, to go abroad,
where he resided until his death, and during his absence from this city the plaintiff,
Antonio M. Pabalan, with notable negligence and abandonment of the interests of
the company, failed to attend to the administration of its affairs and did not employ
on his part any means to maintain in a productive condition the two properties
brought into the partnership by the partner Fitton, and that, through the
negligence, abandonment, and carelessness of the plaintiff Pabalan, the defendant
suffered losses and damages in the sum of P3,000 Philippine currency; the latter,
therefore, prayed that the complaint be dismissed and that, by reason of his cross-
complaint and counterclaim, an award be made in his behalf, and against the
plaintiff, for losses and damages, in the sum of P3,000 Philippine currency, with the
costs.
By a written motion of March 19, 1909, Antonio Vasquez represented: That, owing
to the death of the plaintiff, the hearing of the case had to be suspended until, on
the 4th of March, as aforesaid, letters of administration were issued in his behalf,
relative to the estate of the plaintiff Pabalan; and he therefore prayed that he be
admitted as a party in the capacity of administrator of the estate of the deceased
Antonio M. Pabalan.
The case having come to trial on April 29, 1909, with the introduction of oral
evidence by counsel for the plaintiff, the court, on July 9 of the same year,
pronounced judgment and found that the defendant had not proved any of the
damages alleged in his answer, and was not entitled to any recovery therefore, nor
the plaintiff for the taxes that he had paid. The court ordered a dissolution of the
partnership formed between the plaintiff and the deceased Walter A. Fitton and a
recission of the sale and contract of partnership executed between them on July
27, 1900, and further ordered that the defendant, as the administrator of the
estate of the said deceased Walter A. Fitton, deliver to the plaintiff, upon the
latter's paying to the defendant, out of the property which belonged to the
aforesaid deceased, the sum of P3,000 Mexican currency, equivalent to P2,700
Philippine currency, the following real properties:
A. A rural estate consisting of an hacienda, known as Pantayani or
Pantaen, devoted to agriculture and situated on the roads from Mariquina
to Antipolo, within the pueblos of Cainta and Antipolo of the old district of
Morong, now Province of Rizal, having an area of 1,978,822 square
meters, bounded on the north by the land of Victor Vargas and the Sucabin
River; on the east by a part of the said Sucabin River, a part of the Tabang
River, Mount Nagtapong, the sitio of Palenque, and by another part of the
Tabang River toward the base of Mount Cay-Alaring, Mount Sapang, and
the road leading to the pueblo of Taytay; on the south by the summit of
Mount Matugalo, the Paglilingohan estero, the old Cainta highway, and the
land of Juan Santa Ana; and on the east by the lands of Columba Suarez
and Mariano Sumulong, the Bulao Road, the lands of Perfecto Legaspi,
Miguel Gonzales, Zacarias Gonzales, Juan Adriano, and of the
aforementioned Juan Santa Ana.
B. An urban property consisting of a building lot, without either street or
district number, situated on Calle Real in Cainta, a municipality of the
Province of Rizal; bounded on its front, which faces the south, by the
aforesaid Calle Real; on its right, upon entering, or on the east, by the lot
belonging to Alejandro San Diego and his wife Buenaventura Santos; on its
left, or the west, by the lot of Pablo Ordoez and his wife Dionisia
Salandanan; and on its rear, or the north, by the lot of Florencio San
Antonio and his wife Severina Santos, with an area of 361 square meters
and 30 square centimeters.
This litigation concerns the dissolution of a regular mercantile partnership and the
rescission of the sale of certain real properties, the contracts with respect to which
were entered into between Antonio M. Pabalan y Santos, on one hand, and Walter
A. Fitton, on the other, according to a notarial instrument executed by the
contracting parties on July 27, 1900.
The plaintiff's claim is founded on the alleged fact that the said Walter A. Fitton
failed to comply with his obligations as stipulated in the said double contract,
inasmuch as he did not pay into the funds of the company entitled "A. M. Pabalan
and Company," as the capital of the partner Pabalan, the sum of P3,000, or the
remainder of P6,000, the price of the properties which he had purchased from the
plaintiff, did not pay to the latter the said amount, nor any part thereof, nor was
such payment made, after the said Fitton's death, by the administrator of the
latter's estate.
Article 1506 of the Civil Code prescribes:
The sale shall be rescinded for the same causes as all other obligations,
etc.
Article 1124 provides:
The right to rescind the obligations is considered as implied in mutual
ones, in case one of the obligated persons does not comply with what is
incumbent upon him.
The person prejudiced may choose between exacting the fulfillment of the
obligation or its rescission, with indemnity for damages and the payment of
interest in either case. He may also demand the rescission, even after
having requested its fulfillment, should the latter appear impossible.
The court shall order the rescission demanded, unless there are sufficient
causes authorizing it to fix a period.
This is understood without prejudice to the rights of third acquirers, in
accordance with articles 1295 and 1298, and with the provisions of the
Mortgage Law.
Article 116 of the Code of Commerce prescribes:
Articles of association by which two or more persons obligate themselves
to place in a common fund any property, industry, or any of these things,
in order to obtain profit, shall be commercial, no matter what its class may
be, provided it has been established in accordance with the provisions of
this code.
After the organization of the general mercantile partnership denominated "A. M.
Pabalan and Company," through the aforesaid instrument of June 27, 1900, the
partner Fitton did not turn into the company funds the sum of P3,000, in the name
and to the credit of Pabalan, as the latter's capital, which sum was a part of the
price of the sale of the two real properties purchased from the said Pabalan by his
partner Fitton who, in turn, brought the said two parcels of land, as his capital, into
the common fund, without having paid the said sum up to the time when he
absented himself from these Islands, a few months after the establishment of the
partnership, and died in a foreign country.
It was duly proved at the trial of this case, that the partner Walter A. Fitton failed
to observe the stipulations of the two aforesaid contracts; that he did not pay any
part of the price of the sale of the two parcels of land which he had purchased from
his partner, Antonio M. Pabalan, and, consequently, did not turn into the company
funds, as capital of the said Pabalan, the sum of which the said price consisted; it is
therefore unquestionable that he did not comply with his two principal obligations,
assumed in the said double contract wherein he expressly agreed that the said
P3,000, a part of the price of the two pieces of land that he purchased from
Pabalan, would be by him turned into the fund of the general partnership which
they had formed, as capital of the partner Pabalan.
In case one of the parties to a contract does not fulfill his obligation as stipulated
therein, the other contracting party, by the provisions of the above-quoted article
1124 of the Civil Code, is entitled to demand the rescission of the contract, as such
obligations are mutual, and the court must order the rescission demanded. The
partner, Walter A. Fitton, came within such a case, since he failed to pay any part
of the price of the two properties which he had acquired and did not turn into the
company fund, as capital of the vendor partner, the sum representing such sale,
and therefore justice requires the dissolution of the aforementioned company and
the rescission of the said sale, in conformity with the finding contained in the
judgment appealed from the prayer rightfully and lawfully made by the partner who
did not violate his obligations as set forth in the said contract.
During the course of this suit in the Court of First Instance, the plaintiff, Antonio M.
Pabalan, also died; and if the latter, while living, was not obliged, according to
clause 10 of the articles of partnership, to continue in the company after the
decease of his copartner, and had a right to withdraw therefrom or from the heirs
of the deceased Walter A. Fitton, after the death of the partner Pabalan, neither are
the latter's successors in interest obliged to continue in the company, and,
therefore, under this circumstance, the propriety of the judgment appealed from is
still more evident. With respect to the interest on the capital which belonged to
Pabalan, and which Fitton failed to turn into the company fund in conformity with
the agreement made, and in regard to the amount of the losses and damages
occasioned by the noncompliance, on the part of the partner Fitton, with the
stipulated provisions, both such amounts should be considered as the company's
losses and computed pro rata, in proportion to the extent that each partner is
interested in the company and on the same basis as the profits. (Arts. 140 and 141
of the Code of Commerce.)
As regards the amount of the land tax, which the partner Pabalan had to pay,
amounting to P522.30, under the assessment levied upon the two real properties
owned by the company, inasmuch as the latter is the owner of the said two parcels
of land, which form the assets of the company known as "A. M. Pabalan and
Company," it is unquestionable that this company should have paid the said tax to
the Government, and the same being paid by the partner Pabalan out of his private
funds and not of those of the company, he was solely entitled to be reimbursed for
two-thirds of the said sum paid, in proportion to the amount of the respective
capital brought in, which two-thirds of the sum of P522.30, that is, P348.20, may
be deducted from the sum of P2,700 Philippine currency, equivalent to P3,000
Mexican currency, which the estate of Antonio M. Pabalan must restore to the
testate or intestate estate of Walter A. Fitton, upon the defendant's returning to the
plaintiff the two aforesaid parcels of land.
For the reasons hereinbefore stated, we are of opinion that the judgment appealed
from should be and is hereby affirmed, with no special finding as to the costs;
provided, however, that the administrator of the estate of the deceased Fitton shall
deliver to the administrator of the estate of Pabalan the two parcels of land, the
sale of which was rescinded, upon payment by the last named administrator to that
of the estate of Fitton, of the sum of P2,700, equivalent to P3,000 Mexican pesos,
the said administrator of the Pabalan estate being entitled to deduct from the said
sum that of P348.20, which is two-thirds of the amount paid as land tax on the
properties concerned. So ordered.
Arellano, C.J., Mapa, Johnson, Carson and Trent, JJ., concur.
G.R. No. L-59956 October 31, 1984
ISABELO MORAN, JR., petitioner,
vs.
THE HON. COURT OF APPEALS and MARIANO E. PECSON, respondents.
GUTIERREZ, JR., J.:+.wph!1
This is a petition for review on certiorari of the decision of the respondent Court of
Appeals which ordered petitioner Isabelo Moran, Jr. to pay damages to respondent
Mariano E, Pecson.
As found by the respondent Court of Appeals, the undisputed facts indicate that:
t.hqw
xxx xxx xxx
... on February 22, 1971 Pecson and Moran entered into an
agreement whereby both would contribute P15,000 each for the
purpose of printing 95,000 posters (featuring the delegates to the
1971 Constitutional Convention), with Moran actually supervising
the work; that Pecson would receive a commission of P l,000 a
month starting on April 15, 1971 up to December 15, 1971; that
on December 15, 1971, a liquidation of the accounts in the
distribution and printing of the 95,000 posters would be made,
that Pecson gave Moran P10,000 for which the latter issued a
receipt; that only a few posters were printed; that on or about
May 28, 1971, Moran executed in favor of Pecson a promissory
note in the amount of P20,000 payable in two equal installments
(P10,000 payable on or before June 15, 1971 and P10,000
payable on or before June 30, 1971), the whole sum becoming
due upon default in the payment of the first installment on the
date due, complete with the costs of collection.
Private respondent Pecson filed with the Court of First Instance of Manila an action
for the recovery of a sum of money and alleged in his complaint three (3) causes of
action, namely: (1) on the alleged partnership agreement, the return of his
contribution of P10,000.00, payment of his share in the profits that the partnership
would have earned, and, payment of unpaid commission; (2) on the alleged
promissory note, payment of the sum of P20,000.00; and, (3) moral and exemplary
damages and attorney's fees.
After the trial, the Court of First Instance held that: t.hqw THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING
From the evidence presented it is clear in the mind of the court
that by virtue of the partnership agreement entered into by the
parties-plaintiff and defendant the plaintiff did contribute
P10,000.00, and another sum of P7,000.00 for the Voice of the
Veteran or Delegate Magazine. Of the expected 95,000 copies of
the posters, the defendant was able to print 2,000 copies only
authorized of which, however, were sold at P5.00 each. Nothing
more was done after this and it can be said that the venture did
not really get off the ground. On the other hand, the plaintiff
failed to give his full contribution of P15,000.00. Thus, each party
is entitled to rescind the contract which right is implied in
reciprocal obligations under Article 1385 of the Civil Code
whereunder 'rescission creates the obligation to return the things
which were the object of the contract ...
WHEREFORE, the court hereby renders judgment ordering
defendant Isabelo C. Moran, Jr. to return to plaintiff Mariano E.
Pecson the sum of P17,000.00, with interest at the legal rate from
the filing of the complaint on June 19, 1972, and the costs of the
suit.
For insufficiency of evidence, the counterclaim is hereby
dismissed.
From this decision, both parties appealed to the respondent Court of Appeals. The
latter likewise rendered a decision against the petitioner. The dispositive portion of
the decision reads: t.hqw
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
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 from July 2, 1956 to December 31, 1957 and from January 1, 1958 up to
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT GRANTING
THE PETITIONER'S COMPULSORY COUNTERCLAIM FOR DAMAGES.
The first question raised in this petition refers to the award of P47,500.00 as the
private respondent's share in the unrealized profits of the partnership. The
petitioner contends that the award is highly speculative. The petitioner maintains
that the respondent court did not take into account the great risks involved in the
business undertaking.
We agree with the petitioner that the award of speculative damages has no basis in
fact and law.
There is no dispute over the nature of the agreement between the petitioner and
the private respondent. It is a contract of partnership. The latter in his complaint
alleged that he was induced by the petitioner to enter into a partnership with him
under the following terms and conditions: t.hqw Article 1797 of the Civil Code provides: t.hqw
1. That the partnership will print colored posters of the delegates
to the Constitutional Convention;
2. That they will invest the amount of Fifteen Thousand Pesos
(P15,000.00) each;
3. That they will print Ninety Five Thousand (95,000) copies of the
said posters;
4. That plaintiff will receive a commission of One Thousand Pesos
(P1,000.00) a month starting April 15, 1971 up to December 15,
1971;
5. That upon the termination of the partnership on December 15,
1971, a liquidation of the account pertaining to the distribution
and printing of the said 95,000 posters shall be made.
The petitioner on the other hand admitted in his answer the existence of the
partnership.
The rule is, when a partner who has undertaken to contribute a sum of money fails
to do so, he becomes a debtor of the partnership for whatever he may have
promised to contribute (Art. 1786, Civil Code) and for interests and damages from
the time he should have complied with his obligation (Art. 1788, Civil Code). Thus
in Uy v. Puzon (79 SCRA 598), which interpreted Art. 2200 of the Civil Code of the
Philippines, we allowed a total of P200,000.00 compensatory damages in favor of
the appellee because the appellant therein was remiss in his obligations as a
partner and as prime contractor of the construction projects in question. This case
was decided on a particular set of facts. We awarded compensatory damages in the
Uy case because there was a finding that the constructing business is a profitable
one and that the UP construction company derived some profits from its contractors
in the construction of roads and bridges despite its deficient capital." Besides, there
was evidence to show that the partnership made some profits during the periods
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.
The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has
been agreed upon, the share of each in the losses shall be in the
same proportion.
Being a contract of partnership, each partner must share in the profits and losses of
the venture. That is the essence of a partnership. And even with an assurance
made by one of the partners that they would earn a huge amount of profits, in the
absence of fraud, the other partner cannot claim a right to recover the highly
speculative profits. It is a rare business venture guaranteed to give 100% profits.
In this case, on an investment of P15,000.00, the respondent was supposed to earn
a guaranteed P1,000.00 a month for eight months and around P142,500.00 on
95,000 posters costing P2.00 each but 2,000 of which were sold at P5.00 each. The
fantastic nature of expected profits is obvious. We have to take various factors into
account. The failure of the Commission on Elections to proclaim all the 320
candidates of the Constitutional Convention on time was a major factor. The
petitioner undesirable his best business judgment and felt that it would be a losing
venture to go on with the printing of the agreed 95,000 copies of the posters.
Hidden risks in any business venture have to be considered.
It does not follow however that the private respondent is not entitled to recover
any amount from the petitioner. The records show that the private respondent gave
P10,000.00 to the petitioner. The latter used this amount for the printing of 2,000
posters at a cost of P2.00 per poster or a total printing cost of P4,000.00. The
records further show that the 2,000 copies were sold at P5.00 each. The gross
income therefore was P10,000.00. Deducting the printing costs of P4,000.00 from
the gross income of P10,000.00 and with no evidence on the cost of distribution,
the net profits amount to only P6,000.00. This net profit of P6,000.00 should be
divided between the petitioner and the private respondent. And since only
P4,000.00 was undesirable by the petitioner in printing the 2,000 copies, the
remaining P6,000.00 should therefore be returned to the private respondent.
Relative to the second alleged error, the petitioner submits that the award of
P8,000.00 as Pecson's supposed commission has no justifiable basis in law.
Again, we agree with the petitioner.
The partnership agreement stipulated that the petitioner would give the private
respondent a monthly commission of Pl,000.00 from April 15, 1971 to December
15, 1971 for a total of eight (8) monthly commissions. The agreement does not
state the basis of the commission. The payment of the commission could only have
been predicated on relatively extravagant profits. The parties could not have
intended the giving of a commission inspite of loss or failure of the venture. Since
the venture was a failure, the private respondent is not entitled to the P8,000.00
commission.
Anent the third assigned error, the petitioner maintains that the respondent Court
of Appeals erred in holding him liable to the private respondent in the sum of
P7,000.00 as a supposed return of investment in a magazine venture.
In awarding P7,000.00 to the private respondent as his supposed return of
investment in the "Voice of the Veterans" magazine venture, the respondent court
ruled that: t.hqw
xxx xxx xxx
... Moran admittedly signed the promissory note of P20,000 in
favor of Pecson. Moran does not question the due execution of
said note. Must Moran therefore pay the amount of P20,000? The
evidence indicates that the P20,000 was assigned by Moran to
cover the following: t.hqw
(a) P 7,000 the amount of
the PNB check given by Pecson
to Moran representing Pecson's
investment in Moran's other
project (the publication and
printing of the 'Voice of the
Veterans');
(b) P10,000 to cover the
return of Pecson's contribution
in the project of the Posters;
(c) P3,000 representing
Pecson's commission for three
months (April, May, June,
1971).
Of said P20,000 Moran has to pay P7,000 (as a return of Pecson's
investment for the Veterans' project, for this project never left the
ground) ...
As a rule, the findings of facts of the Court of Appeals are final and conclusive and
cannot be reviewed on appeal to this Court ( Amigo v. Teves, 96 Phil. 252),
provided they are borne out by the record or are based on substantial evidence
(Alsua-Betts v. Court of Appeals, 92 SCRA 332). However, this rule admits of
certain exceptions. Thus, in Carolina Industries Inc. v. CMS Stock Brokerage, Inc.,
et al., (97 SCRA 734), we held that this Court retains the power to review and
rectify the findings of fact of the Court of Appeals when (1) the conclusion is a
finding grounded entirely on speculation, surmises and conjectures; (2) when the
inference made is manifestly mistaken absurd and impossible; (3) where there is
grave abuse of discretion; (4) when the judgment is based on a misapprehension of
facts; and (5) when the court, in making its findings, went beyond the issues of the
case and the same are contrary to the admissions of both the appellant and the
appellee.
In this case, there is misapprehension of facts. The evidence of the private
respondent himself shows that his investment in the "Voice of Veterans" project
amounted to only P3,000.00. The remaining P4,000.00 was the amount of profit
that the private respondent expected to receive.
The records show the following exhibits- t.hqw
E Xerox copy of PNB Manager's Check No. 234265 dated March
22, 1971 in favor of defendant. Defendant admitted the
authenticity of this check and of his receipt of the proceeds
thereof (t.s.n., pp. 3-4, Nov. 29, 1972). This exhibit is being
offered for the purpose of showing plaintiff's capital investment in
the printing of the "Voice of the Veterans" for which he was
promised a fixed profit of P8,000. This investment of 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:
t.hqw
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.t.hqw
(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 Q And what happened to the balance of
profit of P8,000.00? P3,000.00 under the promissory note, Exhibit M?
A It was reduced to one-half (1/2) which is A The balance of P3,000.00 and the rest of the
P4,000.00. profit was applied as part of the consideration of
the promissory note of P20,000.00.
Q Was there any document executed by Mr.
Moran in connection with the Balance of (T.S.N., pp. 23-24, Nov. 29, 1972).
P3,000.00 of your capital investment and the
The respondent court erred when it concluded that the project never left the
P4,000.00 promised profits?
ground because the project did take place. Only it failed. It was the private
A Yes, sir, he executed a promissory note. 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
Q I show you a promissory note in the amount of
that the project never took place and on this basis decree the return of the private
P7,000.00 dated March 30, 1971 which for
respondent's investment.
purposes of Identification I request the same to
be marked as Exhibit M. . . 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
Court t.hqw
the latter exercised his best business judgment, which seems to be true in this
Mark it as Exhibit M. 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
Q (continuing) is this the promissory note which
the grant of the counterclaim.
you said was executed by Mr. Moran in
connection with your transaction regarding the WHEREFORE, the petition is GRANTED. The decision of the respondent Court of
printing of the "Voice of the Veterans"? 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
A Yes, sir. (T.S.N., pp. 20-22, Nov. 29, 1972).
Mariano Pecson SIX THOUSAND (P6,000.00) PESOS representing the amount of the
Q What happened to this promissory note private respondent's contribution to the partnership but which remained unused;
executed by Mr. Moran, Mr. Pecson? 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
A Mr. Moran paid me P4,000.00 out of the the posters, with interests at the legal rate on both amounts from the date the
P7,000.00 as shown by the promissory note. complaint was filed until full payment is made.
Q Was there a receipt issued by you covering this SO ORDERED.1wph1.t
payment of P4,000.00 in favor of Mr. Moran?
Teehankee (Chairman), Melencio-Herrera, Plana and Relova, JJ., concur.
A Yes, sir.
De la Fuente J., took no part.
(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.