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September 10, 2016

Uy vs. Puzon

Facts:
  • Bartolome Puzon had two contracts with the government for the construction of roads and bridges. (Bureau of Public Highways)
  • He sought the financial assistance of William Uy, so he proposed that they create a partnership which would be the sub-contractor of the projects.
  • They also agreed that the profits will be divided among themselves.
  • William Uy agreed to the formation of the partnership "U.P. Construction Company". They agreed to contribute P50,000 each.  (Note: P40,000 was advanced by William Uy while Puzon was waiting for the approval of his P150,000 PNB Loan. Upon release of the loan, he promised to reimburse William Uy of the P40,000; pay his share of P50,000 and loan P60,000 to the partnership).
  • Loan was approved by November 1956. Note: At the end of 1957, Uy contributed a total of P115,
  • The partnership agreement was signed in 1957 (January 18) although the work for the projects began as early as 1956 (October 1).
  • Since Puzon was busy with other projects, Uy was the one who managed the partnership.
  • In order to guarantee the PNB Loan, Puzon, without the knowledge of Uy, assigned the payments to the payments to be received from the projects to PNB.
  • Due to the financial demands of the projects, Uy demanded that Puzon comply with his obligation to place his capital contribution in the company.
  • However, Puzon failed to comply even after formal demand letters were sent to him.
  • Thereafter, Puzon (as the primary contractor of the projects) wrote terminated the subcontract agreement with the partnership to which he is also a partner. (November 27, 1957)
  • Thereafter, Uy was not allowed to hold office in the UP Construction Company and his authority to negotiate with the Bureau was revoked by Puzon.
  • Uy clamied that Puzon had violated the terms of their partnership agreement. He sought for the dissolution of the partnership with damages.
  • The lower court ruled in favor of Uy.

Issue: WON Puzon failed to comply with his obligation of paying the capital contribution to the company. YES

Ruling: YES

According to the court, there was failure on the part of Puzon to contribute capital to the partnership. When his load with PNB was approved, he only gave P60,000 to Uy; P40,000 was for reimbursement to the payments made by Uy and the other P20,000 was for the capital contribution. Thereafter, Puzon never made additional contribution.

Also, it was found by the SC that Puzon misapplied partnership funds by assigning all payments for the projects to PNB. 

Such assignment was prejudicial to the partnership since the partnership only received a small share from the total payments made by the Bureau of Public Highways. As a result, the partnership was unable to discharge its obligations.

Here, the Court ordered Puzon to reimburse whatever amount Uy had invested in or spent for the partnership on account of construction projects. The amount P200,000 as compensatory damages was also awarded in favor of Uy.

RULING:

Had the appellant not been remiss in his obligations as partner and as prime contractor of the construction projects in question as he was bound to perform pursuant to the partnership and subcontract agreements, and considering the fact that the total contract amount of these two projects is P2,327,335.76, it is reasonable to expect that the partnership would have earned much more than the P334,255.61 We have hereinabove indicated. The award, therefore, made by the trial court of the amount of P200,000.00, as compensatory damages, is not speculative, but based on reasonable estimate. 

WHEREFORE, finding no error in the decision appealed from, the said decision is hereby affirmed with costs against the appellant, it being understood that the liability mentioned herein shall be home by the estate of the deceased Bartolome Puzon, represented in this instance by the administrator thereof, Franco Puzon.

Citation:
  • G.R. No. L-19819 
  • October 26, 1977
  • WILLIAM UY, plaintiff-appellee, vs.BARTOLOME PUZON, substituted by FRANCO PUZON, defendant-appellant.

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