Case Summary (G.R. No. 33580)
Key Dates
Contract execution: October 15, 1920
Trial court decision: before February 6, 1931
Appellate decision: February 6, 1931
Applicable Constitutional and Legal Framework
At the time of decision, the Philippines was governed by the Organic Act of 1902 and the Jones Law of 1916. Substantive partnership rules arose under the Civil Code of 1901, specifically articles 1681 and 1682.
Procedural Posture
Sancho filed for:
• Rescission of the partnership contract (Art. 1124, Civil Code)
• Reimbursement of his ₱50,000 capital with 12% annual interest from October 15, 1920
• Costs and other equitable relief.
Lizarraga pleaded general denial, set up special defenses, and counterclaimed for:
• Dissolution of the partnership
• Manager’s compensation of ₱500 monthly from October 15, 1920 (one-half chargeable to Sancho)
• Interest and equitable relief.
Trial Court Findings and Ruling
The Court of First Instance of Manila found:
• Lizarraga failed to contribute his full capital obligation.
• Sancho properly demanded liquidation.
It declared the partnership dissolved upon expiration of its term and ordered Lizarraga, as managing partner, to liquidate and submit accounts within 30 days. No costs were imposed.
Issues on Appeal
Sancho assigned errors in the trial court’s refusal to:
- Apply Article 1124 (general rescission for non-performance of obligation).
- Order immediate return of ₱50,000 with interest.
- Grant a new trial.
Lizarraga raised a preliminary objection that the appeal was premature, since liquidation accounts had not been rendered or approved.
Preliminary Question: Prematurity of the Appeal
Under Section 123, Code of Civil Procedure, and this Court’s prior ruling in Natividad v. Villarica (31 Phil. 172), an order to render accounts is not final until the accounts are filed and approved or disapproved. Because Lizarraga’s liquidation accounts had not yet been submitted or resolved, the appeal did not lie at that stage.
Application of Partnership Law
Even on the merits, Articles 1681–1682 (specific to partnership contracts) govern a partner’s failure to pay agreed capital, creating a debt for the unpaid balance plus interest and damages. Article 1124 (gen
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Facts of the Case
- On October 15, 1920, plaintiff-appellant Maximiliano Sancho and defendant-appellee Severiano Lizarraga entered into a partnership contract.
- The partnership was to be capitalized by contributions from both parties, with Sancho investing ₱50,000.
- It was duly proved at trial that Lizarraga had failed to contribute the full capital he had bound himself to pay.
- Sancho demanded that Lizarraga liquidate the partnership in accordance with their agreement.
Trial Court Proceedings and Findings
- Sancho filed an action for:
• Rescission of the partnership contract (Exhibit A)
• Reimbursement of his ₱50,000 investment with interest at 12% per annum from October 15, 1920
• Costs and other equitable relief - Lizarraga filed a general and specific denial, plus a cross-complaint and counterclaim, praying for:
• Dissolution of the partnership
• Manager’s fees of ₱500 monthly from October 15, 1920 until final dissolution, with interest
• Charge half of these fees against Sancho - The Court of First Instance of Manila found:
• Lizarraga had not paid his full capital obligation to the partnership
• Sancho had properly demanded liquidation
• The partnership’s term had expired, warranting its dissolution - The trial court ordered Liz