October 31, 1984

ISABELO MORAN, JR., petitioner,

vs.
The HON. COURT OF APPEALS and MARIANO E. PECSON, respondents.

Gutierrez, Jr., J.:

NATURE: Petition for review on certiorari of a CA decision. (Original action for recovery of a
sum of money)

SUMMARY: Moran and Pecson entered into a partnership for printing and publishing venture.
They agreed to contribute P15,000 each, but Pecson was only able to give P10,000 and Moran
contributed no money at all. Of the 95,000 posters of ConCon delegates they agreed to print,
only 2,000 were printed; but the book Voice of the Veterans was published. Moran executed a
promissory note in favor of Pecson, in recognition of his obligations. Pecson sued Moran on their
agreement and promissory note. CFI ordered the return of the P15,000 investment plus interest to
Pecson. CA awarded unrealized profits, commission, and investment refund to Pecson. SC held
that unrealized profits were unavailing absent proof of actual unrealized profits; that Pecson was
not entitled to commission because the printing venture failed; and that the investment on the
book publishing project cannot be refunded since the book was published and Pecson had to
share in the losses, because it is essential in a partnership contract that the partners share in both
profits and losses.

DOCTRINE: “[W]hen 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
(NCC 1786) and for interests and damages from the time he should have complied with his
obligation (NCC 1788), but the amount of unrealized profits must be sufficiently proven.
NCC 1797: The losses and profits shall be distributed in conformity with the agreement. If only
the share of each partner in the profits has been agreed upon, the share of each in the losses shall
be in the same proportion. Sharing of profits and of losses is essential in a partnership.

FACTS

- Feb 22, 1971 - Isabelo MORAN, Jr. and Mariano PECSON entered into an agreement to
contribute funds for the printing of 95,000 posters of the delegates to the 1971 ConCon. As
alleged in Pecson’s complaint, the terms of the agreement were:
1. That the partnership will print colored posters of the delegates to the Constitutional
Convention;
2. That they will invest the amount of P15,000 each;
3. That they will print 95,000 copies of the said posters;
4. That [Pecson] will receive a commission of P1,000 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.
 Moran supervised the printing work.
- Both parties admit that this was a contract of partnership.

- Pecson gave Moran P10,000 as part of his contribution; Moran issued a receipt for the amount.
Pecson also gave Moran money as investment in the publication of a magazine (actually a book)
called Voice of the Veterans.

- Out of the planned 95,000 only a few posters (2,000 according to the CFI) were printed and
sold for 5 pesos each.

- On or about May 28, 1971 – Moran executed a promissory note in favor of Pecson:
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 will fall due upon default in the payment of the first installment on the
date due, plus costs of collection.

- Pecson filed a case for recovery of sum of money against Moran, alleging 3 causes of action:
(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.

- CFI decision:
- Only 2,000 out of 95,000 posters were printed; and the Voice of the Veterans project
never got off the ground.
- Ordered Moran to return P17,000 plus interest from filing of complaint, to Pecson.
- Both Pecson and Moran appealed to the CA.

- CA decision:
- Ordered Moran to pay to Pecson:
- P47,500 for unrealized expected profits under the partnership agreement
- P8,000 as commission for 8 months
- P7,000 representing Pecson’s investment for the Voice of the Veterans project
- Legal interest on the 3 items above from date of filing of complaint
- Moran appealed to the SC

ISSUES (HELD)
1) W/N the award of P47,500 in expected profits is proper (NO, amount is speculative)
2) W/N the award of P8,000 in commissions is proper (NO, since the venture failed)
3) W/N the award of P7,000 in connection with the book/magazine project is proper (NO, it was
wrong to return the investment since the project was finished)
4) W/N the amounts paid by Moran to Pecson should have been offset from the awards (NOT
PASSED UPON)
5) W/N Moran’s counterclaim for damages was proper (NOT PASSED UPON, has no basis)
RATIO
1) There is no basis for the award of actual damages in the form of unrealized or expected
profits.
- “[W]hen 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 (NCC
1786) and for interests and damages from the time he should have complied with his obligation
(NCC 1788).”
- SC contrasted the case with Uy v. Puzon, where P200,000 compensatory damages was
awarded.

UY v. PUZON CASE AT BAR

It was proven that the construction business of There was no showing that the printing and
Uy was profitable despite its deficient capital. publishing venture was profitable. In fact the
The value of profits from government contracts venture ultimately failed.
was specifically established.

Only one of the partners (Puzon) failed to give There was mutual breach. Pecson contributed
his full contribution. only P10,000 out of the stipulated P15,000;
Moran did not contribute any amount, he also
failed to print the 95,000 copies.

- NCC 1797: The losses and profits shall be distributed in conformity with the agreement.
If only the share of each partner in the profits has been agreed upon, the share of each in the
losses shall be in the same proportion. Sharing of profits and of losses is essential in a
partnership.
- In the absence of fraud, the other partner cannot claim a right to highly speculative
profits. There are hidden risks in any business venture, which must be taken into account.
- CASE AT BAR: on an investment of P15,000.00, Pecson 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, but because of the delay in the proclamation of the winning candidates in the
ConCon election, Moran adjudged it best not to print 95,000 copies.
PECSON STILL ENTITLED TO RECOVERY:
- The records show that Pecson gave P10,000.00 to Moran, who 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.
- Gross income of P10,000.00 minus printing costs of P4,000.00 equals net profit of
P6,000.00 (There was no evidence on distribution costs). This net profit of P6,000.00 should be
divided between Moran and Pecson.
- Since Moran spent only P4,000.00 in printing the 2,000 copies, the remaining P6,000.00
should therefore be returned to Pecson.
- Pecson is thus entitled to recover P3,000 as his share in the profits; and P6,000 as the
balance of his original investment.

2) Pecson is not entitled to commission because the venture failed.

 - The agreement between Moran and Pecson 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.

3) SC reviewed the CA’s factual findings on the ground that CA misapprehended the facts.
- Carolina Industries Inc. v. CMS Stock Brokerage, Inc., et.al.: SC retains the power to
review and rectify the findings of fact of the Court of Appeals when: (5 instances pa lang)
(1) the conclusion is a finding grounded entirely on speculation, surmises and
conjectures;
(2) the inference made is manifestly mistaken, absurd and impossible;
(3) there is grave abuse of discretion;
(4) the judgment is based on a misapprehension of facts; and
(5) 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.
- CA held that Moran must return the P7,000 investment of Pecson in the Voice project,
because the “project never left the ground”
- SC reevaluated the following exhibits:
- Photocopy of PNB Manager’s checks dated March 22, 1971 and May 28, 1971:
- These checks were offered for the purpose of proving the amount of
Pecson’s investment in the Voice project and to show the consideration for
the P20,000 promissory note.
- It appears that Pecson was promised a profit of P8,000 on an investment
of P6,000. Moran later returned half of Pecson’s investment (P3,000) and
the promised profit was thus proportionately reduced to P4,000.
P3,000+P4,000=P7,000, of which Moran 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. It is, therefore, being
presented to show the consideration for the P20,000 promissory note.
- Book entitled Voice of the Veterans which is being offered to show the subject
matter of the publishing venture and in which Pecson invested the P6,000 which,
together with the promised profit of P8,000 made up for the consideration of the
P14,000 promissory note. The P3,000 balance of the promised profit was later
made part consideration of the P20,000 promissory note.
- Promissory note for P7,000 dated March 30, 1971. This document is being
offered for the purpose of further showing the transaction as explained in
connection with the manager’s checks and the book.
- Receipt of plaintiff dated March 30, 1971 for the return of his P3,000 out of his
capital investment of P6,000 in the P14,000 promissory note. This is also
defendant's Exhibit 4. This document is being offered in support of plaintiff's
explanation in connection with the manager’s checks, the book, and the
promissory note to show the transaction mentioned therein.
- Promissory note for P14,000.00. It is being offered for the purpose of showing
the transaction as explained in connection with the abovementioned evidence.
 - CA erred when it concluded that the project never left the ground because the project
did take place (It took off but failed). It was Moran himself who presented a copy of the book
entitled Voice of the Veterans in the lower court. Therefore, it would be error to state that the
project never took place and on this basis decree the return of Pecson's investment. As already
mentioned, there are risks in any business venture and the failure of the undertaking cannot
entirely be blamed on the managing partner alone, specially if the latter exercised his best
business judgment, which seems to be true in this case.