G.R. No. 59956 - Moran, Jr. vs. Court of Appeals

Case Summary (G.R. No. 59956)

Petitioner

Isabelo C. Moran, Jr. — managing partner who supervised printing, admitted signing a P20,000 promissory note and receiving certain manager’s checks, but who did not complete the agreed printing of 95,000 posters and used only part of Pecson’s funds for printing 2,000 copies.

Respondent

Mariano E. Pecson — alleged partner who contributed money (claimed P15,000 promised, actually gave P10,000 toward the poster venture and P6,000 toward the "Voice of the Veterans" book project, later accepting partial repayments), claimed commission payments and return of investments and profits.

Key Dates

Partnership and related transactions occurred in 1971 (manager’s checks and promissory notes dated March–May 1971).
Complaint filed June 19, 1972 (interest in prior judgments calculated from this date).
Supreme Court decision rendered October 31, 1984. Applicable constitutional framework: 1973 Constitution (decision predates the 1987 Constitution).

Applicable Law

Partnership law under the Civil Code: Articles invoked and applied include Article 1385 (effect of rescission and reciprocal obligations), Article 1786 (partner who fails to contribute becomes debtor to the partnership), Article 1788 (interest and damages for failure to comply), and Article 1797 (distribution of losses and profits in conformity with agreement; if only profit shares are agreed, losses follow same proportion). Governing legal principles concerning speculative damages and standards for reviewing factual findings of lower courts were also applied.

Facts Established by the Record

Parties agreed each would contribute P15,000 and print 95,000 posters; Pecson was to receive P1,000 monthly commission from April 15 to December 15, 1971; liquidation scheduled December 15, 1971.
Pecson gave Moran P10,000 for the poster project (receipt issued). Only a few posters were printed; Moran executed a P20,000 promissory note on or about May 28, 1971, payable in two equal installments, accelerating on default.
Moran printed only 2,000 posters (cost P2.00 each). These 2,000 copies were sold at P5.00 each, producing gross receipts of P10,000. The printing cost was P4,000; no evidence of distribution costs was presented.
Separate "Voice of the Veterans" project: Pecson presented a PNB manager’s check and promissory notes; evidence showed Pecson initially invested P6,000, received P3,000 returned, obtained a P7,000 promissory note (of which Moran paid P4,000), and a balance was rolled into the P20,000 note. The book project was produced (Exhibit L), but failed to yield the promised profits.

Lower Courts’ Decisions

Court of First Instance (trial court) found mutual breach, rescission implied, and ordered Moran to return P17,000 to Pecson with legal interest from filing (June 19, 1972). The counterclaim was dismissed for insufficiency of evidence.
Court of Appeals set aside the trial court decision and rendered judgment for Pecson in the amounts of P47,500 (expected profits), P8,000 (commission for eight months), and P7,000 (return of investment in the Veterans project), plus legal interest from filing.

Issues Presented to the Supreme Court

Whether the Court of Appeals erred in awarding P47,500 as speculative expected profits.
Whether the award of P8,000 as commissions was justified.
Whether the award of P7,000 as return of investment in the magazine/ book venture was supported by the record.
Whether amounts admitted received by Pecson should have been offset.
Whether petitioner’s compulsory counterclaim for damages should have been granted.

Legal Analysis — Speculative Profits and Partnership Obligations

The Court reaffirmed partnership principles: a partner who promised to contribute and failed is a debtor to the partnership (Art. 1786) and may be liable for interest and damages (Art. 1788). Distribution of gains and losses follows the agreement or, if only profit shares were agreed, losses follow the same proportion (Art. 1797).
The award of P47,500 by the Court of Appeals was characterized as speculative. The Supreme Court distinguished Uy v. Puzon (where compensatory damages were awarded because the partnership/contracting business actually produced profits on large government contracts) from the present case: unlike Uy, the instant venture produced no reliable evidence that it would have been profitable; the venture largely failed and was susceptible to substantial business risk (e.g., delays in proclamation of candidates by COMELEC diminished the project’s viability). Where profits are mere conjecture, an award of speculative future profits cannot stand.

Legal Analysis — Commission Claim

The agreed P1,000 monthly commission from April 15 to December 15, 1971 (eight months) had no stated basis tied to successful earning. The Court held that the parties could not have intended guaranteed commission payments in the face of a failed venture; commissions predicated on expected extravagant profits cannot be awarded when the venture failed. Thus the P8,000 commission award was overturned.

Legal Analysis — "Voice of the Veterans" Investment and Promissory Notes

The Court scrutinized the documentary and testimonial record regarding the separate book project. Pecson’s exhibits and testimony showed an original P6,000 investment that was later partially returned: Moran returned P3,000 in cash; a promissory note for P7,000 was executed to cover the balance (comprised of P3,000 capital and P4,000 purported profit), Moran paid P4,000 on that note (covering P3,000 capital + P1,000 of profit), and the remaining P3,000 was applied toward the P20,000 note.
The Court of Appeals erred in characterizing the book project as having “never left the ground.” The record established that the book existed (Exhibit L), so the venture was undertaken but failed; the remaining documentary evidence and receipts showed actual amounts invested and partial repayments. The Court of Appeals misapprehended facts in awarding P7,000 as full return of investment. Because the evidence established actual payments and partial recoveries, an award based on an incorrect factual premise was reversed.

Calculation of Recoverable Amounts

The Court accepted undisputed figures: Pecson gave P10,000 to Moran; Moran used P4,000 to print 2,000 posters at P2.00 each; the 2,000 posters sold at P5.00 each producing gross receipts of P10,000; printing cost P4,000; net receipts (gross less printing cost) amounted to P6,000. With no evidence of distribution costs, the Court treated the P6,000 as net prof

Case Syllabus (G.R. No. 59956)

Procedural History

Petition for review on certiorari from the decision of the Court of Appeals (now Intermediate Appellate Court) which ordered petitioner Isabelo Moran, Jr. to pay damages to respondent Mariano E. Pecson.
Case originated as an action in the Court of First Instance of Manila for recovery of money, with three causes of action alleged by Pecson.
After trial the Court of First Instance rendered judgment ordering Moran to return P17,000 to Pecson with legal interest from filing of the complaint (June 19, 1972) and costs; counterclaim dismissed for insufficiency of evidence.
Both parties appealed to the Court of Appeals which set aside the trial court decision and ordered Moran to pay Pecson P47,500 (expected profits), P8,000 (commission), P7,000 (return of investment in “Voice of the Veterans”), plus legal interest on these amounts from date of complaint.
Petitioner (Moran) brought the case to the Supreme Court by petition for review on certiorari, assigning errors to the Court of Appeals’ disposition.
Supreme Court GRANTED the petition, SET ASIDE the Court of Appeals decision, and RENDERED judgment ordering Moran to pay Pecson P6,000 (unused contribution) and P3,000 (one-half of net profits from sale of 2,000 posters), with legal interest from date complaint was filed until full payment.

Undisputed Facts

On February 22, 1971 Moran and Pecson entered into an agreement to print 95,000 colored posters featuring Constitutional Convention delegates.
Each partner agreed to contribute P15,000; Moran was to supervise the work.
Pecson was to receive P1,000 per month commission from April 15, 1971 to December 15, 1971.
Liquidation of accounts pertaining to distribution and printing of the 95,000 posters was to be made on December 15, 1971.
Pecson gave Moran P10,000 and received a receipt.
Only a few posters were printed; Moran printed 2,000 copies which were sold at P5.00 each.
On or about May 28, 1971 Moran executed in favor of Pecson a promissory note for P20,000 payable in two equal installments of P10,000 due June 15 and June 30, 1971; entire sum became due upon default of first installment.

Terms of the Partnership Agreement (as alleged by Pecson and admitted by Moran)

Partnership to print colored posters of Constitutional Convention delegates.
Each partner to contribute P15,000.
Target print run: 95,000 copies.
Pecson to receive P1,000 monthly commission from April 15 to December 15, 1971 (eight months).
Final liquidation of partnership accounts on December 15, 1971.

Causes of Action Alleged by Pecson

First cause: On alleged partnership—return of his contribution of P10,000, payment of his share of profits the partnership would have earned, and payment of unpaid commission.
Second cause: On the promissory note—payment of P20,000.
Third cause: Claim for moral and exemplary damages and attorney’s fees.

Trial Court Findings and Judgment

Trial court found existence of partnership and that Pecson contributed P10,000 and another P7,000 for the Voice of the Veteran/Delegate Magazine.
Of the expected 95,000 copies, Moran printed only 2,000, all sold at P5 each; venture did not get off the ground.
Pecson failed to give his full contribution of P15,000 (gave only P10,000).
Court invoked rescission implied in reciprocal obligations (Article 1385 Civil Code) and ordered Moran to return P17,000 to Pecson with legal interest from filing of complaint (June 19, 1972) and costs.
Counterclaim by Moran dismissed for insufficiency of evidence.

Court of Appeals Decision and Relief Granted

Court of Appeals set aside the trial court decision and rendered a new judgment ordering Moran to pay Pecson:
- (a) P47,500 — amount that could have accrued to Pecson under their agreement (unrealized profits).
- (b) P8,000 — commission for eight months.
- (c) P7,000 — return of Pecson’s investment for the Veteran’s Project.
- (d) Legal interest on (a), (b), and (c) from date complaint filed until payment.
This decision formed the basis of Moran’s petition to the Supreme Court, asserting multiple errors by the Court of Appeals.

Petitioner’s Assigned Errors / Issues for Review (as framed in the petition)

I: Court of Appeals erred in holding Moran liable for P47,500 as supposed expected profits.
II: Court of Appeals erred in holding Moran liable for P8,000 as commission in the partnership.
III: Court of Appeals erred in holding Moran liable for P7,000 as return of investment in a magazine venture.
IV: Even if liable, Court of Appeals failed to offset payments admittedly received by Pecson from Moran.
V: Court of Appeals erred in not granting Moran’s compulsory counterclaim for damages.

Supreme Court Legal Standards and Authorities Cited

Nature of partnership obligations: Article 1786 Civil Code — partner who fails to contribute becomes debtor of partnership for promised contribution.
Article 1788 Civil Code — debtor partner liable for interest and damages from the time of non-compliance.
Article 1797 Civil Code — distribution of losses and profits conforms with agreement; if only profit shares agreed, losses distributed in same proportion.
Prior decisions referenced:
- Uy v. Puzon (79 SCRA 598) — compensatory damages for remiss partner where business profitability and actual profits were established.
- Amigo v. Teves (96 Phil. 252) and Alsua-Betts v. Court of Appeals (92 SCRA 332) — rule that findings of fact of the Court of Appeals are final when supported by record or substantial evidence.
- Carolina Industries Inc. v. CMS Stock