Sancho vs. Lizarraga

A partner's failure to contribute his full agreed capital does not give the other partner a right to demand rescission of the partnership contract under Article 1124 of the Civil Code, because that article is a general provision on the resolution of obligations, whereas Articles 1681 and 1682 specifically govern partnership contracts and prevail under the principle that special provisions control over general ones.

Maximiliano Sancho and Severiano Lizarraga were parties to a partnership contract executed on October 15, 1920. Sancho contributed P50,000 to the partnership, while Lizarraga served as its manager and administrator. The partnership was constituted for a fixed period, which had expired by the time of the litigation. The dispute arose from Lizarraga's alleged failure to contribute the full amount of capital he had bound himself to invest, prompting Sancho to seek rescission of the contract and reimbursement.

Maximiliano Sancho and Severiano Lizarraga entered into a partnership contract on October 15, 1920. Sancho invested P50,000 in the partnership, while Lizarraga undertook to contribute capital and serve as the partnership's manager and administrator. The partnership was constituted for a fixed period.

Sancho subsequently brought an action for rescission of the partnership contract, seeking reimbursement of his P50,000 investment with interest at 12 per cent per annum from October 15, 1920, plus costs. He predicated his claim for rescission on Lizarraga's failure to contribute all the capital he had bound himself to invest. Lizarraga denied the allegations, filed a cross-complaint and counterclaim, and sought dissolution of the partnership and payment to himself of P500 monthly from October 15, 1920 until final dissolution, with interest, charging one-half of that amount to Sancho.

The Court of First Instance of Manila found it duly proved that Lizarraga had not contributed all the capital he had bound himself to invest and that Sancho had demanded that Lizarraga liquidate the partnership. The trial court declared the partnership dissolved on account of the expiration of the period for which it was constituted and ordered Lizarraga, as managing partner, to proceed without delay to liquidate it, submitting the result of the liquidation together with accounts and vouchers within thirty days from receipt of notice of the judgment, without costs. Sancho appealed, assigning as errors the trial court's refusal to order rescission under Article 1124 of the Civil Code, its failure to order return of the P50,000, and its denial of the motion for a new trial. The liquidation and accounting ordered by the trial court had not yet been completed or submitted at the time of the appeal.

• Rescission Under Article 1124: Petitioner argued that the trial court erred in holding that he was not entitled to rescission of the partnership contract and that Article 1124 of the Civil Code was not applicable, contending that the defendant's failure to contribute his full agreed capital justified rescission of the contract.
• Return of Investment: Petitioner maintained that the trial court erred in failing to order the defendant to return the sum of P50,000 with interest from October 15, 1920 until fully paid.
• Motion for New Trial: Petitioner argued that the trial court erred in denying his motion for a new trial.

• Prematurity of Appeal: Respondent countered that the appeal was premature and therefore would not lie, because the liquidation ordered by the trial court and the consequent accounts had not yet been made and submitted, so the case could not be deemed terminated in the lower court and its ruling was not yet appealable, citing Section 123 of the Code of Civil Procedure and Natividad vs. Villarica (31 Phil., 172).

• Prematurity of Appeal: Whether the appeal is premature because the liquidation and accounting ordered by the trial court have not yet been completed.
• Applicability of Article 1124 vs. Articles 1681 and 1682: Whether Article 1124 of the Civil Code, a general provision on the resolution of obligations, applies to a partnership contract, or whether the special provisions of Articles 1681 and 1682 governing partnership contracts prevail.

• Prematurity of Appeal: Yes. The appeal is premature because the accounts ordered by the trial court have not been rendered, approved, or disapproved, and the litigation cannot be considered completely decided, pursuant to Section 123 of the Code of Civil Procedure and Natividad vs. Villarica.
• Applicability of Article 1124 vs. Articles 1681 and 1682: No. Article 1124 does not apply to partnership contracts; Articles 1681 and 1682, which specifically refer to partnership, prevail under the principle that special provisions control over general provisions.

• Prematurity of Appeal: The Court found respondent's contention well founded. Until the accounts have been rendered as ordered by the trial court and either approved or disapproved, the litigation cannot be considered completely decided. The Court relied on Natividad vs. Villarica (31 Phil., 172), which similarly held that an appeal taken from a decision ordering the rendition of accounts following the dissolution of a partnership was premature. Section 123 of the Code of Civil Procedure was cited in support. Accordingly, the appeal was deemed premature and could not lie.

• Applicability of Article 1124 vs. Articles 1681 and 1682: Even assuming the appeal were proper, the Court affirmed the lower court's decision on the merits. The trial court's findings — that the defendant had not contributed all the capital he had bound himself to invest — could not be revised because the parol evidence had not been forwarded to the Supreme Court. Under Articles 1681 and 1682 of the Civil Code, which specifically govern partnership contracts, the defendant's failure to pay the full amount he had bound himself to pay made him indebted to the partnership for the remainder, with interest and any damages occasioned thereby. However, this did not give the plaintiff the right to demand rescission of the partnership contract under Article 1124, because that article refers to the resolution of obligations in general, whereas Articles 1681 and 1682 specifically refer to the contract of partnership in particular. Applying the well-known principle that special provisions prevail over general provisions, Article 1124 was held inapplicable, and the lower court's application of Articles 1681 and 1682 was sustained.

• Special Provisions Prevail Over General Provisions — When a general statutory provision and a specific statutory provision both potentially apply to a situation, the specific provision controls. In this case, Article 1124 of the Civil Code, which addresses the resolution of obligations in general, could not override Articles 1681 and 1682, which specifically govern partnership contracts. The managing partner's failure to contribute his full agreed capital creates a debt to the partnership with interest and damages under the special partnership provisions, but does not confer a right of rescission on the other partner under the general provision.

• Prematurity of Appeal in Partnership Liquidation Cases — An appeal taken from a decision ordering the dissolution of a partnership and the rendition of accounts is premature if the liquidation and accounting have not yet been completed, submitted, and approved or disapproved by the trial court. The case is not deemed terminated until those steps occur, following Natividad vs. Villarica and Section 123 of the Code of Civil Procedure.

• "This article cannot be applied to the case in question, because it refers to the resolution of obligations in general, whereas article 1681 and 1682 specifically refer to the contract of partnership in particular. And it is a well known principle that special provisions prevail over general provisions." — This passage states the ratio decidendi on the merits: the reason Article 1124 does not apply to partnership contracts and why the special provisions of Articles 1681 and 1682 control.

• "Until the accounts have been rendered as ordered by the trial court, and until they have been either approved or disapproved, the litigation involved in this action cannot be considered as completely decided; and, as it was held in said case of Natividad vs. Villarica, also with reference to an appeal taken from a decision ordering the rendition of accounts following the dissolution of partnership, the appeal in the instant case must be deemed premature." — This passage articulates the procedural basis for dismissing the appeal, defining when a partnership liquidation case is deemed terminated for purposes of appeal.

• Natividad vs. Villarica, 31 Phil. 172 — Followed. The Court applied this precedent, which held that an appeal from a decision ordering the rendition of accounts following the dissolution of a partnership is premature, to dismiss the present appeal on the same ground.

• Article 1124, Civil Code — A general provision on the resolution of obligations. The Court held it inapplicable to partnership contracts because it is general in nature and must yield to the special provisions specifically governing partnership.
• Articles 1681 and 1682, Civil Code — Special provisions specifically governing partnership contracts. The Court held these provisions properly applied by the trial court: a partner's failure to contribute his full agreed capital makes him indebted to the partnership for the remainder, with interest and damages, but does not give the other partner a right to rescind the partnership contract.
• Section 123, Code of Civil Procedure — Cited by appellee's counsel in support of the contention that the appeal was premature because the liquidation and accounting had not been completed. The Court found the contention well founded.

Avanceña, C.J., Johnson, Street, Malcolm, Villamor, Ostrand, Johns, and Villa-Real, JJ., concurred.