Obligations of the Parties

Lozana v. Depakakibo (G.R. L-13680)

CASE SUMMARY
Plaintiff Mauro Lozana entered into a contract of partnership with defendant Serafin Depakakibo, capitalized at the sum of
PHP 30,000 with the former furnishing 60% thereof and the defendant 40% for the purpose of maintaining, operating and
distributing electric light and power in the Municipality of Dumangas, Iloilo, under a franchise issued to Mrs. Piadosa
Buenaflor. This franchise was cancelled, and thus a temporary certificate of public convenience was issued to Olimpia
Decolongon. Because of the cancellation of Buenaflor’s franchise, Lozana sold a generator to the new grantee Decolongon.
Depakakibo on the other hand, sold a diesel engine to spouses Felix Jimena and Felina Harder. The Lozana subsequently
brought an action against Depakakibo (I think it was time to hand the generator over to Decolongon) alleging that he
(Lozana) is the owner of the generator plus 70 wooden posts with wires and that he is entitled possession thereof but
Depakakibo is allegedly detaining them. As a consequence, Lozana claims he suffered damages and prays that the said
properties be delivered back to him. The defendant denied that the generator and equipment belonged to the plaintiff as
these were contributed by the latter to the partnership entered into and thus Lozana actually violated the terms of their
agreement by selling his (Lozana’s) contribution to the partnership. The lower court ruled in favor of Lozana and adjudged
him to be the owner of the generator. Depakakibo appealed and the CA certified the same to the Supreme Court as only
questions of law are involved in the said appeal. The SC reversed the decision of the CFI and remanded the same to the
lower court holding that the partnership agreement is valid and the partners bound therefore, thus, the equipment are the
property of the partnership and not of Lozana.

DOCTRINES

 An equipment which was contributed by one of the partners to the partnership becomes the property of the
partnership and as such cannot be disposed of by the party contributing the same without the consent or
approval of the partnership or of the other partner. (Clemente v. Galvan)

 The defendant, while being cross-examined, admitted that he and the plaintiff who are both Filipinos, are mere
dummies of another person (the person holding the franchise). According to the Court this is an error of law and not
a statement of fact since both parties are Filipinos and NOT aliens. The Anti-Dummy Law only applies to aliens and
thus has not been violated in this case. Ergo, the lower court was erroneous in declaring the contract of partnership
null and void on this admission.

 The act of the partnership of furnishing electric current to the franchise holder WITHOUT previous approval of the
Public Service Commission, does not per se make the contract of partnership ‘null and void’ from the
beginning.
IMPORTANT PEOPLE
Mauro Lozana - petitioner (partner 1)
Serafin Depakakibo - defendant (partner 2)
Piadosa Buenaflor - owner of the franchise that was subsequently cancelled by the PSC
Olimpia Decolongon - owner of the temporary certificate of public convenience issued when Buenaflor appealed the PSC
decision to the SC

FACTS
1. 16 November 1954 - plaintiff Lozana and defendant Depakakibo entered into a contract of Partnership for the
purpose of maintaining, operating and distributing electric light and power in the Municipality of Dumangas, Iloilo,
under a franchise issued to Mrs. Piadosa Buenaflor.
a. Lozana contributed the amount of PHP 18,000
b. Contributions of both parties are the appraised values of their respective properties
c. Included in Lozana’s contributions is a generator, Buda (diesel) 70 HP 80 KVA capacity
2. 15 May 1955 - The Certificate of Public Convenience and Necessity of Buenaflor was revoked and cancelled by
the Public Service Commission (PSC).
3. 21 October 1955 - Buenaflor appealed this to the SC.
4. 30 October 1955 - (deed date) Due to the cancellation, Lozana sold properties brought by him (into the partnership)
in favor of Olimpia Decolongon in the amount of PHP 10,000.
5. There was no liquidation of partnership and at the time of the sale, Depakakibo was the manager of their partnership.
6. 15 November 1955 - Lozana brought an action against defendant, alleging that he is the owner of the Generator
Buda valued at PHP 8,000 and 70 wooden posts with the wires connecting the generator to the different houses
supplied by electric current, and that he is entitled to the possession thereof, but Depakakibo was wrongfully
detaining them and as a consequence, Lozana suffered damages.
 7. Plaintiff prayed that said properties be delivered back to him.
8. Judge Pantaleon Pelayo subsequently issued an order authorizing the sheriff to take possession of the generator
and 70 wooden posts, upon Lozana’s filing of a bond in the amount of PHP 16,000 in favor of Depakakibo (for
subsequent delivery to Lozana).
9. 5 December, 1955 - respondent filed an answer denying that the generator and equipment belonged to Lozana
and alleged that the same has been contributed by the plaintiff to the partnership and therefore, he was not
unlawfully detaining them.
10. Depakakibo also filed a counterclaim, alleging that under the partnership agreement, the parties were to contribute
equipment and Lozana, by selling his contribution, violated the terms of the agreement. The respondent also prayed
that the complaint against him be dismissed and that Lozana be adjudged guilty of violating the partnership contract
and that the court dissolve the partnership after the accounting and liquidation of the same.
11. 22 December 1955 - a temporary certificate was issued to Olimpia Decolongon
12. 10 July 1956 - (deed date) Depakakibo sold one Crossly Diesel Engine 25HP to spouses Felix Jimenea and Felina
Harder.
13. During cross-examination, Depakakibo admitted that he and Lozana were merely dummies for the holder of the
franchise.
14. 5 November 1956 - judge entered a decision declaring Lozana the owner of the equipment and entitled to
possession thereof
15. Depakakibo appealed the decision to the Court of Appeals, and the latter certified the same to the Supreme Court
as there were only questions of law in the case.

ISSUES AND RULING

 It was not stated that there has been a liquidation of the partnership.
 As properties of the partnership, the same could not be disposed of by the party contributing the same without the
consent or approval of the partnership or of the other partner (Clemente v. Galvan).
WHETHER OR NOT THE DECLARATION OF THE LOWER COURT THAT THE CONTRACT OF PARTNERRSHIP WAS
NULL AND VOID IS CORRECT.
NO. The admission by Depakakibo that by the contract of partnership, the parties have become mere dummies of the owner
of the franchise is merely an error of law and not a fact. In addition, upon examining the contract, the Court held that the
agreement was illegal or contrary to law or public policy.

 The Anti-Dummy law is only applicable to aliens, and in this case, plaintiff and respondent are both Filipinos.
 Thus, the Anti-Dummy law has not been violated, therefore, the partnership is not null and void.
 The agreement could have been submitted to the PSC if the rules of the latter require them to be presented, but
the fact of furnishing the current holder of the franchise alone, without previous approval of the PSC, does not per
se make the contract of partnership null and void from the beginning and render the partnership entered into
void and non-existent.
The lower court thus erred in declaring that the contract was illegal and that the parties are not bound by the partnership
such that the contribution of Lozana did not pass to the partnership as property.
The proper remedy now therefore, as correctly pleaded by the defendant in his counterclaim, is to dissolve the partnership
and its assets liquidated, not for each contributing partner to claim back what he had contributed.

DISPOSITIVE
FOR THE FOREGOING CONSIDERATIONS, the judgement appealed from as well as the order of the court for the taking
of the property into custody by the sheriff must be, as they hereby are SET ASIDE and the case REMANDED to the court
below for further proceedings in accordance with law.

Digester: Kim