Trust, Agency and

Partnership

OBLIGATIONS OF THE
PARTNERS AMONG
THEMSELVES

Articles Involved

Article 1786. Every partner is a debtor of the partnership for whatever he may
have promised to contribute thereto.
He shall also be bound for warranty in case of eviction with regard to specific
and determinate things which he may have contributed to the partnership, in
the same cases and in the same manner as the vendor is bound with respect to
the vendee. He shall also be liable for the fruits thereof from the time they
should have been delivered, without the need of any demand.

Article 1788. A partner who has undertaken to contribute a sum of money and
fails to do so becomes a debtor for the interest and damages from the time he
should have complied with his obligation.
The same rule applies to any amount he may have taken from the partnership
coffers, and his liability shall begin from the time he converted the amount to his
own use.

Article 1797. The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been agreed upon,
the share of each in the losses shall be in the same proportion.
In the absence of stipulation, the share of each partner in the profits and losses
shall be in proportion to what he may have contributed, but the industrial partner
shall not be liable for the losses. As for the profits, the industrial partner shall
receive such share as may be just and equitable under the circumstances. If
besides his services he has contributed capital, he shall also receive a share in the
profits in proportion to his capital.

CASE No. 27
ISABELO MORAN, JR.
vs.
THE HON. COURT OF APPEALS and
MARIANO E. PECSON
G.R. No. L-59956

FACTS
Pecson and Moran entered into an agreement whereby both would contribute
15K each for the purpose of printing 95,000 posters (featuring the delegates to the
1971 Constitutional Convention), with Moran actually supervising the work, that
Pecson would receive a commission of 1K a month starting on April 15, 1971 up to
December 15, 1971 and that on December 15, 1971, a liquidation of the accounts in
the distribution and printing of the 95,000 posters would be made.
Pecson partially gave Moran 10K as part of his obligation for which the latter
issued a receipt. However, only a few posters were printed. Sometime in May, 1971,
Moran executed in favor of Pecson a promissory note in the amount of 20K payable
in two equal installments (10K payable on or before June 15, 1971 and 10K payable
on or before June 30, 1971). However, the whole sum becoming due upon default in
the payment of the first installment on the date due, complete with the costs of
collection.

Pecson sued Moran whereby the CFI ruled in favor of Pecson and ordered
Moran to return to Pecson the sum of P17,000.00, with interest at the legal rate
from the filing of the complaint on June 19, 1972, and the costs of the suit. Upon
appeal the respondent CA, likewise rendered a decision against the petitioner and
ordered him to pay P47,500, which was the amount that could have accrued under
their agreement; P8,000, which was the commission for eight months; P7,000, as
a return of Pecson's investment for the Veteran's Project; and Legal interest.

ISSUE
Whether or not the respondent Court of Appeals is correct in finding
petitioner liable for his non-compliance in the existing partnership between
him and private respondent.

HELD
No. The rule is, when a partner who has undertaken to contribute a sum of money
fails to do so, he becomes a debtor of the partnership for whatever he may have
promised to contribute (Art. 1786, Civil Code) and for interests and damages from
the time he should have complied with his obligation (Art. 1788, Civil Code).
The award of P47.5k for unrealized profit is speculative. There is no evidence
whatsoever that the partnership between the Moran and Pecson would have been a
profitable venture (because base on the circumstances then i.e. the delay of the
COMELEC in proclaiming the candidates, profit is highly unlikely). In fact, it was a
failure doomed from the start. There is therefore no basis for the award of
speculative damages in favor of Pecson. Further, there is mutual breach in this
case, Pecson only gave P10k instead of P15k while Moran gave nothing at all.

Article 1797 of the Civil Code provides:

The losses and profits shall be distributed in conformity with the agreement. If
only the share of each partner in the profits has been agreed upon, the share
of each in the losses shall be in the same proportion.
Being a contract of partnership, each partner must share in the profits and losses
of the venture. That is the essence of a partnership. And even with an assurance
made by one of the partners that they would earn a huge amount of profits, in the
absence of fraud, the other partner cannot claim a right to recover the highly
speculative profits. It is a rare business venture guaranteed to give 100% profits.
The petitioner undesirable his best business judgment and felt that it would be a
losing venture to go on with the printing of the agreed 95,000 copies of the
posters. Hidden risks in any business venture have to be considered.

With regard to P8k monthly commission, this has no justifiable basis in law. The
agreement does not state the basis of the commission. The payment of the
commission could only have been predicated on relatively extravagant profits. The
parties could not have intended the giving of a commission inspite of loss or failure of
the venture. Since the venture was a failure, Pecson is not entitled to the P8k
commission.
With regard to P7k award as return for Pecsons investment, the respondent court
erred when it concluded that the project never left the ground because the project did
take place. Only it failed. It did took off the ground as evidenced by the 2,000 posters
printed. Hence, return of investment is not proper in this case. As mentioned, there are
risks in any business venture and the failure of the undertaking cannot entirely be
blamed on the managing partner alone, especially if the latter exercised his best
business judgment, which seems to be true in this case.
Moran must however return the unused P6k of Pecsons contribution to the partnership
plus P3k representing Pecsons profit share in the sale of the printed posters.

POSSIBLE BAR QUESTION

Beth Alpha, Johnny Bravo and Chaplin Charlie were friends. Johnny and Chaplin
learned that Beth is a smartphone dealer. Chaplin, who got interested to put up a buy
and sell business but having no money to start, induced Johnny to buy twenty (20)
pieces of smartphones from Beth worth 3, 000 pesos each with a total of 60, 000
pesos. Hence, on July 14, 2016, Johnny and Chaplin entered into a contract of
partnership. In their agreement, since it is Johnnys money that put up the business,
Johnny shall be the capitalist partner and Chaplin shall be the industrial partner who
shall do all the works. They further agreed that Chaplin shall only contribute 10,000
pesos out of the capital of 60,000 pesos since he will do all the work but the proceeds
of the sale shall be equally divided. Chaplin promised Johnny that he will pay the latter
before the end of July, 2016. However, until today, Chaplin failed to pay Johnny for his
contribution. May the partnership contract be rescinded?

ANSWER: NO. The reason is, rescission is not the proper remedy; the remedy should
be to collect what is owing, as well as damages. The general rule in obligations cannot
apply in the case of partnership.

- END THANK YOU!