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G.R. No.

L-19819 October 26, 1977


WILLIAM UY, plaintiff-appellee,
vs.
BARTOLOME PUZON, substituted by FRANCO PUZON, defendant-appellant.
R.P. Sarandi for appellant.
Jose L. Uy & Andres P. Salvador for appellee.

CONCEPCION JR., J.:

t.hq w

Appeal from the decision of the Court of First Instanre of Manila, dissolving the "U.P.
Construction Company" and ordering the defendant Bartolome Puzon to pay the plaintiff the
amounts of: (1) P115,102.13, with legal interest thereon from the date of the filing of the
complaint until fully paid; (2) P200,000.00, as plaintiffs share in the unrealized profits of the
"U.P. Construction Company" and (3) P5,000.00, as and for attorney's fees.
It is of record that the defendant Bartolome Puzon had a contract with the Republic of the
Philippines for the construction of the Ganyangan Bato Section of the Pagadian Zamboanga
City Road, province of Zamboanga del Sur 1 and of five (5) bridges in the MalangasGanyangan Road. 2 Finding difficulty in accomplishing both projects, Bartolome Puzon sought the
financial assistance of the plaintiff, William Uy. As an inducement, Puzon proposed the creation of
a partnership between them which would be the sub-contractor of the projects and the profits to
be divided equally between them. William Uy inspected the projects in question and, expecting to
derive considerable profits therefrom, agreed to the proposition, thus resulting in the formation of
the "U.P. Construction Company" 3 which was subsequently engaged as subcontractor of the
construction projects. 4

The partners agreed that the capital of the partnership would be P100,000.00 of which each
partner shall contribute the amount of P50,000.00 in cash. 5 But, as heretofore stated, Puzon
was short of cash and he promised to contribute his share in the partnership capital as soon as
his application for a loan with the Philippine National Bank in the amount of P150,000.00 shall
have been approved. However, before his loan application could be acted upon, he had to clear
his collaterals of its incumbrances first. For this purpose, on October 24, 1956, Wilham Uy gave
Bartolome Puzon the amount of P10,000.00 as advance contribution of his share in the
partnership to be organized between them under the firm name U.P. CONSTRUCTION
COMPANY which amount mentioned above will be used by Puzon to pay his obligations with the
Philippine National Bank to effect the release of his mortgages with the said Bank. 6 On October
29, 1956, William Uy again gave Puzon the amount of P30,000.00 as his partial contribution to
the proposed partnership and which the said Puzon was to use in payment of his obligation to the
Rehabilitation Finance Corporation. 7 Puzon promised William Uy that the amount of P150,000.00
would be given to the partnership to be applied thusly: P40,000.00, as reimbursement of the
capital contribution of William Uy which the said Uy had advanced to clear the title of Puzon's
property; P50,000.00, as Puzon's contribution to the partnership; and the balance of P60,000.00
as Puzon's personal loan to the partnership. 8

Although the partnership agreement was signed by the parties on January 18, 1957,9 work on
the projects was started by the partnership on October 1, 1956 in view of the insistence of the
Bureau of Public Highways to complete the project right away. 10 Since Puzon was busy with his
other projects, William Uy was entrusted with the management of the projects and whatever

expense the latter might incur, would be considered as part of his contribution. 11 At the end of
December, 1957, William Uy had contributed to the partnership the amount of P115,453.39,
including his capital. 12

The loan of Puzon was approved by the Philippine National Bank in November, 1956 and he
gave to William Uy the amount of P60,000.00. Of this amount, P40,000.00 was for the
reimbursement of Uy's contribution to the partnership which was used to clear the title to
Puzon's property, and the P20,000.00 as Puzon's contribution to the partnership capital. 13
To guarantee the repayment of the above-mentioned loan, Bartolome Puzon, without the
knowledge and consent of William Uy, 14 assigned to the Philippine National Bank all the
payments to be received on account of the contracts with the Bureau of Public Highways for the
construction of the afore-mentioned projects. 15 By virtue of said assignment, the Bureau of Public
Highways paid the money due on the partial accomplishments on the government projects in
question to the Philippine National Bank which, in turn, applied portions of it in payment of
Puzon's loan. Of the amount of P1,047,181.07, released by the Bureau of Public Highways in
payment of the partial work completed by the partnership on the projects, the amount of
P332,539.60 was applied in payment of Puzon's loan and only the amount of P27,820.80 was
deposited in the partnership funds, 16 which, for all practical purposes, was also under Puzon's
account since Puzon was the custodian of the common funds.

As time passed and the financial demands of the projects increased, William Uy, who
supervised the said projects, found difficulty in obtaining the necessary funds with which to
pursue the construction projects. William Uy correspondingly called on Bartolome Puzon to
comply with his obligations under the terms of their partnership agreement and to place, at
lest, his capital contribution at the disposal of the partnership. Despite several promises,
Puzon, however, failed to do so. 17 Realizing that his verbal demands were to no avail, William
Uy consequently wrote Bartolome Puzon pormal letters of demand, 18 to which Puzon replied that
he is unable to put in additional capital to continue with the projects. 19

Failing to reach an agreement with William Uy, Bartolome Puzon, as prime contractor of the
construction projects, wrote the subcontractor, U.P. Construction Company, on November
20, 1957, advising the partnership, of which he is also a partner, that unless they presented
an immediate solution and capacity to prosecute the work effectively, he would be
constrained to consider the sub-contract terminated and, thereafter, to assume all
responsibilities in the construction of the projects in accordance with his original contract with
the Bureau of Public Highways. 20 On November 27, 1957, Bartolome Puzon again wrote the
U.P.Construction Company finally terminating their subcontract agreement as of December 1,
1957. 21

Thereafter, William Uy was not allowed to hold office in the U.P. Construction Company and
his authority to deal with the Bureau of Public Highways in behalf of the partnership was
revoked by Bartolome Puzon who continued with the construction projects alone. 22
On May 20, 1958, William Uy, claiming that Bartolome Puzon had violated the terms of their
partnership agreement, instituted an action in court, seeking, inter alia, the dissolution of the
partnership and payment of damages.
Answering, Bartolome Puzon denied that he violated the terms of their agreement claiming
that it was the plaintiff, William Uy, who violated the terms thereof. He, likewise, prayed for
the dissolution of the partnership and for the payment by the plaintiff of his, share in the
losses suffered by the partnership.

After appropriate proceedings, the trial court found that the defendant, contrary to the terms
of their partnership agreement, failed to contribute his share in the capital of the partnership
applied partnership funds to his personal use; ousted the plaintiff from the management of
the firm, and caused the failure of the partnership to realize the expected profits of at least
P400,000.00. As a consequence, the trial court dismissed the defendant's counterclaim and
ordered the dissolution of the partnership. The trial court further ordered the defendant to pay
the plaintiff the sum of P320,103.13.
Hence, the instant appeal by the defendant Bartolome Puzon during the pendency of the
appeal before this Court, the said Bartolome Puzon died, and was substituted by Franco
Puzon.
The appellant makes in his brief nineteen (19) assignment of errors, involving questions of
fact, which relates to the following points:
(1) That the appellant is not guilty of breach of contract; and
(2) That the amounts of money the appellant has been order to pay the appellee is not
supported by the evidence and the law.
After going over the record, we find no reason for rejecting the findings of fact below,
justifying the reversal of the decision appealed from.
The findings of the trial court that the appellant failed to contribute his share in the capital of
the partnership is clear incontrovertible. The record shows that after the appellant's loan the
amount of P150,000.00 was approved by the Philippin National Bank in November, 1956, he
gave the amount P60,000.00 to the appellee who was then managing the construction
projects. Of this amount, P40,000.00 was to be applied a reimbursement of the appellee's
contribution to the partnership which was used to clear the title to the appellant's property,
and th balance of P20,000.00, as Puzon's contribution to the partnership. 23 Thereafter, the
appellant failed to make any further contributions the partnership funds as shown in his letters to
the appellee wherein he confessed his inability to put in additional capital to continue with the
projects. 24

Parenthetically, the claim of the appellant that the appellee is equally guilty of not
contributing his share in the partnership capital inasmuch as the amount of P40,000.00,
allegedly given to him in October, 1956 as partial contribution of the appellee is merely a
personal loan of the appellant which he had paid to the appellee, is plainly untenable. The
terms of the receipts signed by the appellant are clear and unequivocal that the sums of
money given by the appellee are appellee's partial contributions to the partnership capital.
Thus, in the receipt for P10,000.00 dated October 24, 1956, 25 the appellant stated:
+.wph!1

Received from Mr. William Uy the sum of TEN THOUSAND PESOS


(P10,000.00) in Check No. SC 423285 Equitable Banking Corporation, dated
October 24, 1956, as advance contribution of the share of said William Uy in
the partnership to be organized between us under the firm name U.P.
CONSTRUCTION COMPANY which amount mentioned above will be used
by the undersigned to pay his obligations with the Philippine National Bank to
effect the release of his mortgages with the said bank. (Emphasis supplied)
In the receipt for the amount of P30,000.00 dated October 29, 1956, 26 the appellant also
said:

+.w ph!1

Received from William Uy the sum of THIRTY THOUSAND PESOS


(P30,000.00) in Check No. SC423287, of the Equitable Banking
Corporation, as partial contribution of the share of the said William Uy to the
U.P. CONSTRUCTION COMPANY for which the undersigned will use the
said amount in payment of his obligation to the Rehabilitation Finance
Corporation. (Emphasis supplied)
The findings of the trial court that the appellant misapplied partnership funds is, likewise,
sustained by competent evidence. It is of record that the appellant assigned to the Philippine
National Bank all the payments to be received on account of the contracts with the Bureau of
Public Highways for the construction of the aforementioned projects to guarantee the
repayment of the bank. 27 By virtue of the said appeflant's personal loan with the said bank
assignment, the Bureau of Public Highways paid the money due on the partial accomplishments
on the construction projects in question to the Philippine National Bank who, in turn, applied
portions of it in payment of the appellant's loan. 28

The appellant claims, however, that the said assignment was made with the consent of the
appellee and that the assignment not prejudice the partnership as it was reimbursed by the
appellant.
But, the appellee categorically stated that the assignment to the Philippine National Bank
was made without his prior knowledge and consent and that when he learned of said
assignment, he cal the attention of the appellant who assured him that the assignment was
only temporary as he would transfer the loan to the Rehabilitation Finance Corporation within
three (3) months time. 29
The question of whom to believe being a matter large dependent on the trier's discretion, the
findings of the trial court who had the better opportunity to examine and appraise the fact
issue, certainly deserve respect.
That the assignment to the Philippine National Bank prejudicial to the partnership cannot be
denied. The record show that during the period from March, 1957 to September, 1959, the
appellant Bartolome Puzon received from the Bureau of Public highways, in payment of the
work accomplished on the construction projects, the amount of P1,047,181.01, which
amount rightfully and legally belongs to the partnership by virtue of the subcontract
agreements between the appellant and the U.P. Construction Company. In view of the
assignemt made by Puzon to the Philippine National Bank, the latter withheld and applied
the amount of P332,539,60 in payment of the appellant's personal loan with the said bank.
The balance was deposited in Puzon's current account and only the amount of P27,820.80
was deposited in the current account of the partnership. 30 For sure, if the appellant gave to the
partnership all that were eamed and due it under the subcontract agreements, the money would
have been used as a safe reserve for the discharge of all obligations of the firm and the
partnership would have been able to successfully and profitably prosecute the projects it
subcontracted.

When did the appellant make the reimbursement claimed by him?


For the same period, the appellant actually disbursed for the partnership, in connection with
the construction projects, the amount of P952,839.77. 31 Since the appellant received from the
Bureau of Public Highways the sum of P1,047,181.01, the appellant has a deficit balance of
P94,342.24. The appellant, therefore, did not make complete restitution.

The findings of the trial court that the appellee has been ousted from the management of the
partnership is also based upon persuasive evidence. The appellee testified that after he had
demanded from the appellant payment of the latter's contribution to the partnership capital,
the said appellant did not allow him to hold office in the U.P. Construction Company and his
authority to deal with the Bureau of Public Highways was revoked by the appellant. 32
As the record stands, We cannot say, therefore, that the decis of the trial court is not
sustained by the evidence of record as warrant its reverw.
Since the defendantappellant was at fauh, the tral court properly ordered him to reimburse
the plaintiff-appellee whatever amount latter had invested in or spent for the partnership on
account of construction projects.
How much did the appellee spend in the construction projects question?
It appears that although the partnership agreement stated the capital of the partnership is
P100,000.00 of which each part shall contribute to the partnership the amount of P50,000.00
cash 33 the partners of the U.P. Construction Company did contribute their agreed share in the
capitalization of the enterprise in lump sums of P50,000.00 each. Aside from the initial amount
P40,000.00 put up by the appellee in October, 1956, 34 the partners' investments took, the form of
cash advances coveting expenses of the construction projects as they were incurred. Since the
determination of the amount of the disbursements which each of them had made for the
construction projects require an examination of the books of account, the trial court appointed two
commissioners, designated by the parties, "to examine the books of account of the defendant
regarding the U.P. Construction Company and his personal account with particular reference to
the Public Works contract for the construction of the Ganyangan-Bato Section, PagadianZamboanga City Road and five (5) Bridges in Malangas-Ganyangan Road, including the
payments received by defendant from the Bureau of Public Highways by virtue of the two projects
above mentioned, the disbursements or disposition made by defendant of the portion thereof
released to him by the Philippine National Bank and in whose account these funds are deposited
. 35

In due time, the loners so appointed, 36 submitted their report 37 they indicated the items wherein
they are in agreement, as well as their points of disagreement.

In the commissioners' report, the appellant's advances are listed under Credits; the money
received from the firm, under Debits; and the resulting monthly investment standings of the
partners, under Balances. The commissioners are agreed that at the end of December,
1957, the appellee had a balance of P8,242.39. 38 It is in their respective adjustments of the
capital account of the appellee that the commissioners had disagreed.

Mr. Ablaza, designated by the appellant, would want to charge the appellee with the sum of
P24,239.48, representing the checks isssued by the appellant, 39 and encashed by the
appellee or his brother, Uy Han so that the appellee would owe the partnership the amount of
P15,997.09.

Mr. Tayag, designated by the appellee, upon the other hand, would credit the appellee the
following additional amounts:
(1) P7,497.80 items omitted from the books of partnership but recognized and charged to
Miscellaneous Expenses by Mr. Ablaza;

(2) P65,103.77 payrolls paid by the appellee in the amount P128,103.77 less payroll
remittances from the appellant in amount of P63,000.00; and
(3) P26,027.04 other expeses incurred by the appellee at construction site.
With respect to the amount of P24,239.48, claimed by appellant, we are hereunder adopting
the findings of the trial which we find to be in accord with the evidence:
To enhance defendant's theory that he should be credited P24,239.48, he presented checks
allegedly given to plaintiff and the latter's brother, Uy Han, marked as Exhibits 2 to 11.
However, defendant admitted that said cheeks were not entered nor record their books of
account, as expenses for and in behalf of partnership or its affairs. On the other hand, Uy
Han testified that of the cheeks he received were exchange for cash, while other used in the
purchase of spare parts requisitioned by defendant. This testimony was not refuted to the
satisfaction of the Court, considering that Han's explanation thereof is the more plausible
because if they were employed in the prosecution of the partners projects, the corresponding
disbursements would have certainly been recorded in its books, which is not the case.
Taking into account defendant is the custodian of the books of account, his failure to so enter
therein the alleged disbursements, accentuates the falsity of his claim on this point. 40
Besides, as further noted by the trial court, the report Commissioner Ablaza is unreliable in
view of his proclivity to favor the appellant and because of the inaccurate accounting
procedure adopted by him in auditing the books of account of the partnership unlike Mr.
Tayag's report which inspires faith and credence. 41
As explained by Mr. Tayag, the amount of P7,497.80 represen expenses paid by the
appellee out of his personal funds which not been entered in the books of the partnership but
which been recognized and conceded to by the auditor designated by the appellant who
included the said amount under Expenses. 42
The explanation of Mr. Tayag on the inclusion of the amount of P65,103.77 is likewise clear
and convincing. 43
As for the sum of of P26,027.04, the same represents the expenses which the appelle paid
in connection withe the projects and not entered in the books of the partnership since all
vouchers and receipts were sent to the Manila office which were under the control of the
appellant. However, officer which were under the control of the appellant. However, a list of
these expenses are incorporated in Exhibits ZZ, ZZ-1 to ZZ-4.
In resume', the appelllee's credit balance would be as follows:

+.wph!1

Undisputed balance as of Dec.


1967
Add: Items omitted from the
books but
recognized and charged to

P 8,242.

Miscellaneous
Expenses by Mr. Ablaza

7,497.80

Add: Payrolls paid by


the appellee

P128,103.77

Less: Payroll
remittances
received

63,000.00

65,103.77

Add: Other
expenses
incurred at the
site (Exhs, ZZ,
ZZ-1 to ZZ-4)

26,027.04

TOTAL

P106,871.00

At the trial, the appellee presented a claim for the amounts of P3,917.39 and P4,665.00
which he also advanced for the construction projects but which were not included in the
Commissioner's Report. 44
Appellee's total investments in the partnership would, therefore, be:
Appellee's total credits

P106,871.00

Add: unrecorded balances


for the month of Dec. 1957
(Exhs. KKK, KK-1 to
KKK_19, KKK-22)

3,917,39

Add: Payments to Munoz,


as subcontractor of five,(5)
Bridges (p. 264 tsn; Exhs.
KKK-20, KKK-21)

4,665.00

Total Investments

Pl 15,453.39

Regarding the award of P200,000.00 as his share in the unrealized profits of the partnership,
the appellant contends that the findings of the trial court that the amount of P400,000.00 as
reasonable profits of the partnership venture is without any basis and is not supported by the
evidence. The appemnt maintains that the lower court, in making its determination, did not
take into consideration the great risks involved in business operations involving as it does the
completion of the projects within a definite period of time, in the face of adverse and often
unpredictable circumstances, as well as the fact that the appellee, who was in charge of the
projects in the field, contributed in a large measure to the failure of the partnership to realize
such profits by his field management.

This argument must be overruled in the light of the law and evidence on the matter. Under
Article 2200 of the Civil Code, indemnification for damages shall comprehend not only the
value of the loss suffered, but also that of the profits which the obligee failed to obtain. In
other words lucrum cessans is also a basis for indemnification.
Has the appellee failed to make profits because of appellant's breach of contract?
There is no doubt that the contracting business is a profitable one and that the U.P.
Construction Company derived some profits from' co io oa ects its sub ntracts in the
construction of the road and bridges projects its deficient working capital and the juggling of
its funds by the appellant.
Contrary to the appellant's claim, the partnership showed some profits during the period from
July 2, 1956 to December 31, 1957. If the Profit and Loss Statement 45 showed a net loss of
P134,019.43, this was primarily due to the confusing accounting method employed by the auditor
who intermixed h and accthe cas ruamethod of accounting and the erroneous inclusion of certain
items, like personal expenses of the appellant and afteged extraordinary losses due to an
accidental plane crash, in the operating expenses of the partnership, Corrected, the Profit and
Loss Statement would indicate a net profit of P41,611.28.

For the period from January 1, 1958 to September 30, 1959, the partnership admittedly
made a net profit of P52,943.89. 46
Besides, as We have heretofore pointed out, the appellant received from the Bureau of
Public Highways, in payment of the zonstruction projects in question, the amount of
P1,047,181.01 47 and disbursed the amount of P952,839.77, 48 leaving an unaccounted balance
of P94,342.24. Obviously, this amount is also part of the profits of the partnership.

During the trial of this case, it was discovered that the appellant had money and credits
receivable froin the projects in question, in the custody of the Bureau of Public Highways, in
the amount of P128,669.75, representing the 10% retention of said projects.49 After the trial of
this case, it was shown that the total retentions Wucted from the appemnt amounted to
P145,358.00. 50 Surely, these retained amounts also form part of the profits of the partnership.

Had the appellant not been remiss in his obligations as partner and as prime contractor of
the construction projects in question as he was bound to perform pursuant to the partnership
and subcontract agreements, and considering the fact that the total contract amount of these
two projects is P2,327,335.76, it is reasonable to expect that the partnership would have
earned much more than the P334,255.61 We have hereinabove indicated. The award,
therefore, made by the trial court of the amount of P200,000.00, as compensatory damages,
is not speculative, but based on reasonable estimate.
WHEREFORE, finding no error in the decision appealed from, the said decision is hereby
affirmed with costs against the appellant, it being understood that the liability mentioned
herein shall be home by the estate of the deceased Bartolome Puzon, represented in this
instance by the administrator thereof, Franco Puzon.
SO ORDERED.

MORAN vs. CA

Business Organization Partnership, Agency, Trust Profit and Loss Sharing Speculative
Damages
In February 1971, Isabelo Moran and Mariano Pecson entered into a partnership agreement
where they agreed to contribute P15k each for the purpose of printing 95k posters of the
delegates to the then 1971 Constitutional Commission. Moran shall be in charge in
managing the printing of the posters. It was further agreed that Pecson will receive a
commission of P1k a month starting from April 1971 to December 1971; that the partnership
is to be liquidated on December 15, 1971.
Pecson partially fulfilled his obligation to the partnership when he issued P10k in favor of the
partnership. He gave the P10k to Moran as the managing partner. Moran however did not
add anything and, instead, he only used P4k out of the P10k in printing 2,000 posters. He
only printed 2,000 posters because he felt that printing all 95k posters is a losing venture
because of the delay by the COMELEC in announcing the full delegates. All the posters were
sold for a total of P10k.
Pecson sued Moran. The trial court ordered Moran to pay Pecson damages. The Court of
Appeals affirmed the decision of the trial court but modified the same as it ordered Moran to
pay P47.5k for unrealized profit; P8k for Pecsons monthly commissions; P7k as return of
investment because the venture never took off; plus interest.
ISSUE: Whether or not the CA judgment is correct.
HELD: No. 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.
As for the P8k monthly commission, this is without basis. 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.
As for the P7k award as return for Pecsons investment, the CA erred in his ruling too.
Though the venture 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. 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.
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. Computation of P3k
profit share is as follows: (P10k profit from the sale of the 2,000 posters printed) (P4k
expense in printing the 2k posters) = (P6k profit); Profit 2 = P3k each.

Sancho vs. lizarraga


FACTS:
The plaintiff brought an action for the rescission of the partnership contract between
himself and the defendant and the reimbursement of his investment worth 50,000php

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 and asked for the dissolution of the
partnership, and the payment to him as its manager and administrator P500 monthly from
October 15, 1920 until the final dissolution with interest.
The CFI found that the defendant had not contributed all the capital he had bound himself
to invest hence it 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. The
plaintiff appealed from said decision praying for the rescission of the partnership contract
between him and the defendant in accordance with Art. 1124.
ISSUE:
WON plaintiff acquired the right to demand rescission of the partnership contract
according to article 1124 of the Civil Code.
HELD:
The SC ruled that owing to the defendants failure to pay to the partnership the whole
amount which he bound himself to pay, he became indebted to the partnership 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. Article 1124 cannot be applied to the case in question, because
it refers to the resolution of obligations in general, whereas articles 1681 and 1682
specifically refer to the contract of partnership in particular. And it is a well known
principle that special provisions prevail over general provisions. Hence, SC dismissed the
appeal left the decision appealed from in full force.

LOZANA VS. DEPAKAKIBO


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 upon the latter posting the required
bond executed by himself and the Luzon Surety Co., dated November 17, 1955 and
ratified before the Notary Public, Eleuterio del Rosario in and for the province of Iloilo
known as Doc. No. 200; Page 90; Book No. VII; and Series of 1955; of said Notary
Public;
7. That the said properties sold are now in the possession of Olimpia Decolongon,
the purchaser, who is presently operating an electric light plant in Dumangas, Iloilo;

8. That the defendant sold certain properties in favor of the spouses, Felix Jimenea
and Felisa Harder contributed by him to the partnership for P3,500.00 as per Deed of
Sale executed and ratified before the Notary Public Rodrigo J. Harder in and for the
Province of Iloilo, known as Doc. No. 76; Page 94; Book No. V; and Series of 1955, a
certified copy of which is hereto attached marked as Annex "A", and made an
integral part hereof; (pp, 27-29 ROA).

As it appears from the above stipulation of facts that the plaintiff and the defendant
entered into the contract of partnership, plaintiff contributing the amount of P18,000, and
as it is not stated therein that there 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 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.

G.R. No. L-33580

February 6, 1931

MAXIMILIANO SANCHO, plaintiff-appellant,


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.
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).
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.
Avancea, C.J., Johnson, Street, Malcolm, Villamor, Ostrand, Johns and Villa-Real, JJ.,
concur.

G.R. No. L-31684 June 28, 1973


EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B. NAVARRO and
LEONARDA ATIENZA ABAD SABTOS, petitioners,
vs.
ESTRELLA ABAD SANTOS, respondent.
Leonardo Abola for petitioners.
Baisas, Alberto & Associates for respondent.

MAKALINTAL, J.:
On October 9, 1954 a co-partnership was formed under the name of "Evangelista & Co." On
June 7, 1955 the Articles of Co-partnership was amended as to include herein respondent,
Estrella Abad Santos, as industrial partner, with herein petitioners Domingo C. Evangelista,
Jr., Leonardo Atienza Abad Santos and Conchita P. Navarro, the original capitalist partners,
remaining in that capacity, with a contribution of P17,500 each. The amended Articles

provided, inter alia, that "the contribution of Estrella Abad Santos consists of her industry
being an industrial partner", and that the profits and losses "shall be divided and distributed
among the partners ... in the proportion of 70% for the first three partners, Domingo C.
Evangelista, Jr., Conchita P. Navarro and Leonardo Atienza Abad Santos to be divided
among them equally; and 30% for the fourth partner Estrella Abad Santos."
On December 17, 1963 herein respondent filed suit against the three other partners in the
Court of First Instance of Manila, alleging that the partnership, which was also made a partydefendant, had been paying dividends to the partners except to her; and that notwithstanding
her demands the defendants had refused and continued to refuse and let her examine the
partnership books or to give her information regarding the partnership affairs to pay her any
share in the dividends declared by the partnership. She therefore prayed that the defendants
be ordered to render accounting to her of the partnership business and to pay her
corresponding share in the partnership profits after such accounting, plus attorney's fees and
costs.
The defendants, in their answer, denied ever having declared dividends or distributed profits
of the partnership; denied likewise that the plaintiff ever demanded that she be allowed to
examine the partnership books; and byway of affirmative defense alleged that the amended
Articles of Co-partnership did not express the true agreement of the parties, which was that
the plaintiff was not an industrial partner; that she did not in fact contribute industry to the
partnership; and that her share of 30% was to be based on the profits which might be
realized by the partnership only until full payment of the loan which it had obtained in
December, 1955 from the Rehabilitation Finance Corporation in the sum of P30,000, for
which the plaintiff had signed a promisory note as co-maker and mortgaged her property as
security.
The parties are in agreement that the main issue in this case is "whether the plaintiffappellee (respondent here) is an industrial partner as claimed by her or merely a profit sharer
entitled to 30% of the net profits that may be realized by the partnership from June 7, 1955
until the mortgage loan from the Rehabilitation Finance Corporation shall be fully paid, as
claimed by appellants (herein petitioners)." On that issue the Court of First Instance found for
the plaintiff and rendered judgement "declaring her an industrial partner of Evangelista &
Co.; ordering the defendants to render an accounting of the business operations of the (said)
partnership ... from June 7, 1955; to pay the plaintiff such amounts as may be due as her
share in the partnership profits and/or dividends after such an accounting has been properly
made; to pay plaintiff attorney's fees in the sum of P2,000.00 and the costs of this suit."
The defendants appealed to the Court of Appeals, which thereafter affirmed judgments of the
court a quo.
In the petition before Us the petitioners have assigned the following errors:
I. The Court of Appeals erred in the finding that the respondent is an
industrial partner of Evangelista & Co., notwithstanding the admitted fact that
since 1954 and until after promulgation of the decision of the appellate court
the said respondent was one of the judges of the City Court of Manila, and
despite its findings that respondent had been paid for services allegedly
contributed by her to the partnership. In this connection the Court of Appeals
erred:

(A) In finding that the "amended Articles of Co-partnership,"


Exhibit "A" is conclusive evidence that respondent was in fact
made an industrial partner of Evangelista & Co.
(B) In not finding that a portion of respondent's testimony
quoted in the decision proves that said respondent did not
bind herself to contribute her industry, and she could not, and
in fact did not, because she was one of the judges of the City
Court of Manila since 1954.
(C) In finding that respondent did not in fact contribute her
industry, despite the appellate court's own finding that she
has been paid for the services allegedly rendered by her, as
well as for the loans of money made by her to the partnership.
II. The lower court erred in not finding that in any event the respondent was
lawfully excluded from, and deprived of, her alleged share, interests and
participation, as an alleged industrial partner, in the partnership Evangelista
& Co., and its profits or net income.
III. The Court of Appeals erred in affirming in toto the decision of the trial
court whereby respondent was declared an industrial partner of the
petitioner, and petitioners were ordered to render an accounting of the
business operation of the partnership from June 7, 1955, and to pay the
respondent her alleged share in the net profits of the partnership plus the
sum of P2,000.00 as attorney's fees and the costs of the suit, instead of
dismissing respondent's complaint, with costs, against the respondent.
It is quite obvious that the questions raised in the first assigned errors refer to the facts as
found by the Court of Appeals. The evidence presented by the parties as the trial in support
of their respective positions on the issue of whether or not the respondent was an industrial
partner was thoroughly analyzed by the Court of Appeals on its decision, to the extent of
reproducing verbatim therein the lengthy testimony of the witnesses.
It is not the function of the Supreme Court to analyze or weigh such evidence all over again,
its jurisdiction being limited to reviewing errors of law that might have been commited by the
lower court. It should be observed, in this regard, that the Court of Appeals did not hold that
the Articles of Co-partnership, identified in the record as Exhibit "A", was conclusive
evidence that the respondent was an industrial partner of the said company, but considered
it together with other factors, consisting of both testimonial and documentary evidences, in
arriving at the factual conclusion expressed in the decision.
The findings of the Court of Appeals on the various points raised in the first assignment of
error are hereunder reproduced if only to demonstrate that the same were made after a
through analysis of then evidence, and hence are beyond this Court's power of review.
The aforequoted findings of the lower Court are assailed under Appellants'
first assigned error, wherein it is pointed out that "Appellee's documentary
evidence does not conclusively prove that appellee was in fact admitted by
appellants as industrial partner of Evangelista & Co." and that "The grounds
relied upon by the lower Court are untenable" (Pages 21 and 26, Appellant's
Brief).

The first point refers to Exhibit A, B, C, K, K-1, J, N and S, appellants'


complaint being that "In finding that the appellee is an industrial partner of
appellant Evangelista & Co., herein referred to as the partnership the
lower court relied mainly on the appellee's documentary evidence, entirely
disregarding facts and circumstances established by appellants" evidence
which contradict the said finding' (Page 21, Appellants' Brief). The lower court
could not have done otherwise but rely on the exhibits just mentioned, first,
because appellants have admitted their genuineness and due execution,
hence they were admitted without objection by the lower court when appellee
rested her case and, secondly the said exhibits indubitably show the appellee
is an industrial partner of appellant company. Appellants are virtually
estopped from attempting to detract from the probative force of the said
exhibits because they all bear the imprint of their knowledge and consent,
and there is no credible showing that they ever protested against or opposed
their contents prior of the filing of their answer to appellee's complaint. As a
matter of fact, all the appellant Evangelista, Jr., would have us believe as
against the cumulative force of appellee's aforesaid documentary evidence
is the appellee's Exhibit "A", as confirmed and corroborated by the other
exhibits already mentioned, does not express the true intent and agreement
of the parties thereto, the real understanding between them being the
appellee would be merely a profit sharer entitled to 30% of the net profits that
may be realized between the partners from June 7, 1955, until the mortgage
loan of P30,000.00 to be obtained from the RFC shall have been fully paid.
This version, however, is discredited not only by the aforesaid documentary
evidence brought forward by the appellee, but also by the fact that from June
7, 1955 up to the filing of their answer to the complaint on February 8, 1964
or a period of over eight (8) years appellants did nothing to correct the
alleged false agreement of the parties contained in Exhibit "A". It is thus
reasonable to suppose that, had appellee not filed the present action,
appellants would not have advanced this obvious afterthought that Exhibit "A"
does not express the true intent and agreement of the parties thereto.
At pages 32-33 of appellants' brief, they also make much of the argument
that 'there is an overriding fact which proves that the parties to the Amended
Articles of Partnership, Exhibit "A", did not contemplate to make the appellee
Estrella Abad Santos, an industrial partner of Evangelista & Co. It is an
admitted fact that since before the execution of the amended articles of
partnership, Exhibit "A", the appellee Estrella Abad Santos has been, and up
to the present time still is, one of the judges of the City Court of Manila,
devoting all her time to the performance of the duties of her public office. This
fact proves beyond peradventure that it was never contemplated between the
parties, for she could not lawfully contribute her full time and industry which is
the obligation of an industrial partner pursuant to Art. 1789 of the Civil Code.
The Court of Appeals then proceeded to consider appellee's testimony on this point, quoting
it in the decision, and then concluded as follows:
One cannot read appellee's testimony just quoted without gaining the very
definite impression that, even as she was and still is a Judge of the City
Court of Manila, she has rendered services for appellants without which they
would not have had the wherewithal to operate the business for which
appellant company was organized. Article 1767 of the New Civil Code which
provides that "By contract of partnership two or more persons bind

themselves, to contribute money, property, or industry to a common fund,


with the intention of dividing the profits among themselves, 'does not specify
the kind of industry that a partner may thus contribute, hence the said
services may legitimately be considered as appellee's contribution to the
common fund. Another article of the same Code relied upon appellants
reads:
'ART. 1789. An industrial partner cannot engage in business
for himself, unless the partnership expressly permits him to
do so; and if he should do so, the capitalist partners may
either exclude him from the firm or avail themselves of the
benefits which he may have obtained in violation of this
provision, with a right to damages in either case.'
It is not disputed that the provision against the industrial partner engaging in
business for himself seeks to prevent any conflict of interest between the
industrial partner and the partnership, and to insure faithful compliance by
said partner with this prestation. There is no pretense, however, even on the
part of the appellee is engaged in any business antagonistic to that of
appellant company, since being a Judge of one of the branches of the City
Court of Manila can hardly be characterized as a business. That appellee has
faithfully complied with her prestation with respect to appellants is clearly
shown by the fact that it was only after filing of the complaint in this case and
the answer thereto appellants exercised their right of exclusion under the
codal art just mentioned by alleging in their Supplemental Answer dated June
29, 1964 or after around nine (9) years from June 7, 1955 subsequent
to the filing of defendants' answer to the complaint, defendants reached an
agreement whereby the herein plaintiff been excluded from, and deprived of,
her alleged share, interests or participation, as an alleged industrial partner,
in the defendant partnership and/or in its net profits or income, on the ground
plaintiff has never contributed her industry to the partnership, instead she has
been and still is a judge of the City Court (formerly Municipal Court) of the
City of Manila, devoting her time to performance of her duties as such judge
and enjoying the privilege and emoluments appertaining to the said office,
aside from teaching in law school in Manila, without the express consent of
the herein defendants' (Record On Appeal, pp. 24-25). Having always knows
as a appellee as a City judge even before she joined appellant company on
June 7, 1955 as an industrial partner, why did it take appellants many yearn
before excluding her from said company as aforequoted allegations? And
how can they reconcile such exclusive with their main theory that appellee
has never been such a partner because "The real agreement evidenced by
Exhibit "A" was to grant the appellee a share of 30% of the net profits which
the appellant partnership may realize from June 7, 1955, until the mortgage
of P30,000.00 obtained from the Rehabilitation Finance Corporal shall have
been fully paid." (Appellants Brief, p. 38).
What has gone before persuades us to hold with the lower Court that
appellee is an industrial partner of appellant company, with the right to
demand for a formal accounting and to receive her share in the net profit that
may result from such an accounting, which right appellants take exception
under their second assigned error. Our said holding is based on the following
article of the New Civil Code:

'ART. 1899. Any partner shall have the right to a formal


account as to partnership affairs:
(1) If he is wrongfully excluded from the partnership business or possession
of its property by his co-partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807;
(4) Whenever other circumstance render it just and reasonable.
We find no reason in this case to depart from the rule which limits this Court's appellate
jurisdiction to reviewing only errors of law, accepting as conclusive the factual findings of the
lower court upon its own assessment of the evidence.
The judgment appealed from is affirmed, with costs.
Zaldivar, Castro, Fernando, Teehankee, Barredo, Makasiar, Antonio and Esguerra, JJ.,
concu