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WILLIAM UY vs. BARTOLOME PUZON, substituted by FRANCO PUZON G.R. No.

L-19819,
October 26, 1977 Facts: 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 and of five (5) bridges in the Malangas-Ganyangan Road.
Finding difficulty in accomplishing both projects, he 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 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. 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,
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. 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. 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. 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. To guarantee the repayment of the above-mentioned loan, Bartolome
Puzon, without the knowledge and consent of William Uy, 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. 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, 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. Realizing that his verbal demands were to no avail, William
Uy consequently wrote Bartolome Puzon formal letters of demand, to which Puzon replied that
he is unable to put in additional capital to continue with the projects. Failing to reach an
agreement with William Uy, Bartolome Puzon, as prime contractor of the construction
projects, wrote the subcontractor, U.P. Construction Company, 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. Puzon again wrote
the U.P.Construction Company finally terminating their subcontract agreement. 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. Uy now claims that
Puzon had violated the terms of their partnership agreement, instituted an action in court,
seeking the dissolution of the partnership and payment of damages. Puzon denied that he
violated the terms of their agreement claiming that it was the plaintiff, William Uy, who
violated the terms thereof. The trial court ordered Puzon to pay the Uy the sum of
P320,103.13. Bartolome died during the pendency of appeal thus was substituted by Franco.
Issue: WON Puzon caused the failure of the partnership to realize its profits and also failed to
contribute his share in the capital of the partnership.

Ruling: Yes

Rationale: 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.
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. 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. 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.
Since Puzon was at fault, the trial court properly ordered him to reimburse Uy whatever
amount latter had invested in or spent for the partnership on account of construction projects.
A partnership in a construction venture who failed to stand by his commitment to the
partnership will be ordered to reimburse to his co-partner whatever the latter invested and
spent for the projects of the venture.

ISABELO MORAN, JR. vs. THE HON. COURT OF APPEALS and MARIANO E. PECSON G.R. No. L-
59956 October 31, 1984 Facts: 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. Also it was agreed upon 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. 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. Pecson
filed with the Court of First Instance of Manila an action for the recovery of a sum of money.
CFI of Manila ruled that: From the evidence presented it is clear in the mind of the court that
by virtue of the partnership agreement entered into by the parties-plaintiff and defendant the
plaintiff did contribute P10,000.00, and another sum of P7,000.00 for the Voice of the Veteran
or Delegate Magazine. Of the expected 95,000 copies of the posters, the defendant was able
to print 2,000 copies only 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 Both parties appealed to the Court of Appeals
ruled in favor of Pecson and awarded P47,500.00 as share in the unrealized profits of the
partnership.

Issue: WON Pecson is entitled to the P47,500 share awarded by the C.A as unrealized profit of
the partnership

Ruling: No.

Rationale: 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). 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. In
this case, there was mutual breach. Pecson failed to give his entire contribution in the amount
of P15,000.00. He contributed only P10,000.00. The Moran 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. 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 does not follow however that Pecson is not entitled to
recover any amount from the Moran. The records show that the Pecson gave P10,000.00 to
the Moran. Moran 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 Pecson and the Moran. 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 Pecson.

E. M. BACHRACH, vs."LA PROTECTORA", ET AL


G.R. No. L-11624 January 21, 1918

Facts: In the year 1913, the individuals named as defendants in this action formed a civil
partnership, called "La Protectora," for the purpose of engaging in the business of
transporting passengers and freight at Laoag, Ilocos Norte. In order to provide the enterprise
with means of transportation, Marcelo Barba, acting as manager, came to Manila and
negotiated the purchase of two automobile trucks from the plaintiff, E. M. Bachrach, for the
agree price of P16,500. Barba paid the sum of 3,000 in cash, and for the balance executed
promissory notes representing the deferred payments. These notes provided for the payment
of interest from June 23, 1913, the date of the notes, at the rate of 10 per cent per annum.
Provision was also made in the notes for the payment of 25 per cent of the amount due if it
should be necessary to place the notes in the hands of an attorney for collection. Three of
these notes, for the sum of P3,375 each, have been made the subject of the present action,
and there are exhibited with the complaint in the cause. One was signed by Marcelo Barba in
the following manner: P. P. La Protectora By Marcelo Barba Marcelo Barba. The other two notes
are signed in the same way with the word "By" omitted before the name of Marcelo Barba in
the second line of the signature. It is obvious that in thus signing the notes Marcelo Barba
intended to bind both the partnership and himself. In the body of the note the word "I" (yo)
instead of "we" (nosotros) is used before the words "promise to pay" (prometemos) used in
the printed form. It is plain that the singular pronoun here has all the force of the plural. As
preliminary to the purchase of these trucks, the defendants Nicolas Segundo, Antonio Adiarte,
Ignacio Flores, and Modesto Serrano, upon June 12, 1913, executed in due form a document
in which they declared that they were members of the firm "La Protectora" and that they had
granted to its president full authority "in the name and representation of said partnership to
contract for the purchase of two automobiles" (en nombre y representacion de la mencionada
sociedad contratante la compra de dos automoviles). This document was apparently executed
in obedience to the requirements of subsection 2 of article 1697 of the Civil Code, for the
purpose of evidencing the authority of Marcelo Barba to bind the partnership by the purchase.
The document in question was delivered by him to Bachrach at the time the automobiles were
purchased. From time to time after this purchase was made, Marcelo Barba purchased of the
plaintiff various automobile effects and accessories to be used in the business of "La
Protectora." Upon May 21, 1914, the indebtedness resulting from these additional purchases
amounted to the sum of P2,916.57. In May, 1914, Bachrach foreclosed a chattel mortgage
which he had retained on the trucks in order to secure the purchase price. The amount
realized from this sale was P1,000. This was credited unpaid. To recover this balance, together
with the sum due for additional purchases, the present action was instituted in the Court of
First Instance of the city of Manila, upon May 29, 1914, against "La Protectora" and the five
individuals Marcelo Barba, Nicolas Segundo, Antonio Adiarte, Ignacio Flores, and Modesto
Serrano. No question has been made as to the propriety of impleading "La Protectora" as if it
were a legal entity. At the hearing, judgment was rendered against all of the defendants. From
this judgment no appeal was taken in behalf either of "La Protectora" or Marcelo Barba; and
their liability is not here under consideration. The four individuals who signed the document to
which reference has been made, authorizing Barba to purchase the two trucks have, however,
appealed and assigned errors alleging they are not liable for the firm s debts.

Issue: WON the said individuals are not liable for the partnership s debt.

Ruling: They are still liable.

Rationale: The business conducted under the name of "La Protectora" was evidently that of a
civil partnership; and the liability of the partners to this association must be determined under
the provisions of the Civil Code. The authority of Marcelo Barba to bind the partnership, in the
purchase of the trucks, is fully established by the document executed by the four appellants
upon June 12, 1913. The transaction by which Barba secured these trucks was in conformity
with the tenor of this document. The promissory notes constitute the obligation exclusively of
"La Protectora" and of Marcelo Barba; and they do not in any sense constitute an obligation
directly binding on the four appellants. Their liability is based on the fact that they are
members of the civil partnership and as such are liable for its debts. It is true that article 1698
of the Civil Code declares that a member of a civil partnership is not liable in solidum
(solidariamente) with his fellows for its entire indebtedness; but it results from this article, in
connection with article 1137 of the Civil Code, that each is liable with the others
(mancomunadamente) for his aliquot part of such indebtedness. And so it has been held by
this court. It is obvious that the contract which Barba in fact executed in pursuance of that
authority did not by its terms profess to bind the appellants personally at all, but only the
partnership and himself. It follows that the four appellants cannot be held to have been
personally obligated by that instrument; but, as we have already seen, their liability rests
upon the general principles underlying partnership liability. As to so much of the indebtedness
as is based upon the claim for automobile supplies and accessories, it is obvious that the
document of June 12, 1913, affords no authority for holding the appellants liable. Their liability
upon this account is, however, no less obvious than upon the debt incurred by the purchase of
the trucks; and such liability is derived from the fact that the debt was lawfully incurred in the
prosecution of the partnership enterprise. There is no proof in the record showing what the
agreement, if any, was made with regard to the form of management. Under these
circumstances it is declared in article 1695 of the Civil Code that all the partners are
considered agents of the partnership. Barba therefore must be held to have had authority to
incur these expenses. But in addition to this he is shown to have been in fact the president or
manager, and there can be no doubt that he had actual authority to incur this obligation.

EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B. NAVARRO and LEONARDA
ATIENZA ABAD SABTOS, vs. ESTRELLA ABAD SANTOS
G.R. No. L-31684 June 28, 1973

Facts: 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 Estrella filed suit against the three other partners in the Court of First
Instance of Manila, alleging that the partnership, which was also made a party-defendant, 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. Evangelista et.al
denied ever having declared dividends or distributed profits of the partnership. They also aver
that Estrella did not ever demanded that she be allowed to examine the partnership books.
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. And moreover they also
allege that Estrella 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.

Issue: WON Estrella is an industrial partner and is entitled to the share of the partnership.

Ruling: yes.

Rationale: 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 Estrella 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 Estrella
has faithfully complied with her prestation with respect to Evangelista et. Al. 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 Evangelista et.al' answer to the complaint, Evangelista
et.al reached an agreement whereby Estrella 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 Estrella 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 known Estrella as a City judge
even before she joined appellant company on June 7, 1955 as an industrial partner, why did it
take appellants many years 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.

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