6/10/2016

G.R.No.31057

TodayisFriday,June10,2016

RepublicofthePhilippines
SUPREMECOURT
Manila
ENBANC
G.R.No.31057September7,1929
ADRIANOARBES,ETAL.,plaintiffsappellees,
vs.
VICENTEPOLISTICO,ETAL.,defendantsappellants.
MarcelinoLontokandManueldelaRosaforappellants.
Sumulong&Lavidesforappellees.
VILLAMOR,J.:
Thisisanactiontobringaboutliquidationofthefundsandpropertyoftheassociationcalled"TurnuhanPolistico
&Co."Theplaintiffsweremembersorshareholders,andthedefendantsweredesignatedaspresidenttreasurer,
directorsandsecretaryofsaidassociation.
Itiswelltorememberthatthiscaseisnowbroughtbeforetheconsiderationofthiscourtforthesecondtime.The
first one was when the same plaintiffs appeared from the order of the court below sustaining the defendant's
demurrer,andrequiringtheformertoamendtheircomplaintwithinaperiod,soastoincludeallthemembersof
"TurnuhanPolistico&Co.,"eitherasplaintiffsorasadefendants.Thiscourtheldthenthatinanactionagainst
theofficersofavoluntaryassociationtowindupitsaffairsandenforceanaccountingformoneyandpropertyin
theirpossessions,itisnotnecessarythatallmembersoftheassociationbemadepartiestotheaction.(Borlasa
vs. Polistico, 47 Phil., 345.) The case having been remanded to the court of origin, both parties amend,
respectively,theircomplaintandtheiranswer,andbyagreementoftheparties,thecourtappointedAmadeoR.
Quintos, of the Insular Auditor's Office, commissioner to examine all the books, documents, and accounts of
"TurnuhanPolistico&Co.,"andtoreceivewhateverevidencethepartiesmightdesiretopresent.
Thecommissionerrenderedhisreport,whichisattachedtotherecord,withthefollowingresume:
Income:
Member'sshares............................

97,263.70

Creditspaid................................

6,196.55

Interestreceived...........................

4,569.45

Miscellaneous...............................

1,891.00
P109,620.70

Expenses:
Premiumstomembers.......................

68,146.25

Loansonrealestate.......................

9,827.00

Loansonpromissorynotes..............

4,258.55

Salaries....................................

1,095.00

Miscellaneous...............................

1,686.10
85,012.90

Cashonhand........................................

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24,607.80

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Cashonhand........................................

24,607.80

The defendants objected to the commissioner's report, but the trial court, having examined the reasons for the
objection, found the same sufficiently explained in the report and the evidence, and accepting it, rendered
judgment, holding that the association "Turnuhan Polistico & Co." is unlawful, and sentencing the defendants
jointly and severally to return the amount of P24,607.80, as well as the documents showing the uncollected
credits of the association, to the plaintiffs in this case, and to the rest of the members of the said association
representedbysaidplaintiffs,withcostsagainstthedefendants.
The defendants assigned several errors as grounds for their appeal, but we believe they can all be reduced to
two points, to wit: (1) That not all persons having an interest in this association are included as plaintiffs or
defendants(2)thattheobjectiontothecommissioner'sreportshouldhavebeenadmittedbythecourtbelow.
Astothefirstpoint,thedecisiononthecaseofBorlasavs.Polistico,supra,mustbefollowed.
With regard to the second point, despite the praiseworthy efforts of the attorney of the defendants, we are of
opinion that, the trial court having examined all the evidence touching the grounds for the objection and having
found that they had been explained away in the commissioner's report, the conclusion reached by the court
below,acceptingandadoptingthefindingsoffactcontainedinsaidreport,andespeciallythosereferringtothe
dispositionoftheassociation'smoney,shouldnotbedisturbed.
InTanDiansengTanSiuPicvs.EchauzTanSiuco(5Phil.,516),itwasheldthatthefindingsoffactsmadebya
refereeappointedundertheprovisionsofsection135oftheCodeofCivilProcedurestanduponthesamebasis,
whenapprovedbytheCourt,asfindingsmadebythejudgehimself.AndinKriedtvs.E.C.McCullogh&Co.(37
Phil.,474),thecourtheld:"Undersection140oftheCodeofCivilProcedureitismadethedutyofthecourtto
renderjudgmentinaccordancewiththereportoftherefereeunlessthecourtshallunlessforcauseshownset
aside the report or recommit it to the referee. This provision places upon the litigant parties of the duty of
discovering and exhibiting to the court any error that may be contained therein." The appellants stated the
grounds for their objection. The trial examined the evidence and the commissioner's report, and accepted the
findingsoffactmadeinthereport.Wefindnoconvincingargumentsontheappellant'sbrieftojustifyareversalof
thetrialcourt'sconclusionadmittingthecommissioner'sfindings.
Thereisnoquestionthat"TurnuhanPolistico&Co."isanunlawfulpartnership(U.S.vs.Baguio,39Phil.,962),
buttheappellantsallegethatbecauseitisso,somecharitableinstitutiontowhomthepartnershipfundsmaybe
orderedtobeturnedover,shouldbeincluded,asapartydefendant.Theappellantsrefertoarticle1666ofthe
CivilCode,whichprovides:
Apartnershipmusthavealawfulobject,andmustbeestablishedforthecommonbenefitofthepartners.
When the dissolution of an unlawful partnership is decreed, the profits shall be given to charitable
institutionsofthedomicileofthepartnership,or,indefaultofsuch,tothoseoftheprovince.
Appellant'scontentiononthispointisuntenable.Accordingtosaidarticle,nocharitableinstitutionisanecessary
partyinthepresentcaseofdeterminationoftherightsoftheparties.Theactionwhichmayarisefromsaidarticle,
in the case of unlawful partnership, is that for the recovery of the amounts paid by the member from those in
chargeoftheadministrationofsaidpartnership,anditisnotnecessaryforthesaidpartiestobasetheiractionto
theexistenceofthepartnership,butonthefactthatofhavingcontributedsomemoneytothepartnershipcapital.
And hence, the charitable institution of the domicile of the partnership, and in the default thereof, those of the
province are not necessary parties in this case. The article cited above permits no action for the purpose of
obtainingtheearningsmadebytheunlawfulpartnership,duringitsexistenceasresultofthebusinessinwhichit
wasengaged,becauseforthepurpose,asManresaremarks,thepartnerwillhavetobasehisactionuponthe
partnershipcontract,whichistoannulandwithoutlegalexistencebyreasonofitsunlawfulobjectanditisself
evident that what does not exist cannot be a cause of action. Hence, paragraph 2 of the same article provides
that when the dissolution of the unlawful partnership is decreed, the profits cannot inure to the benefit of the
partners,butmustbegiventosomecharitableinstitution.
WedeeminpertinenttoquoteManresa'scommentariesonarticle1666atlength,asaclearexplanationofthe
scopeandspiritoftheprovisionoftheCivilCodewhichweareconcerned.CommentingonsaidarticleManresa,
amongotherthingssays:
When the subscriptions of the members have been paid to the management of the partnership, and
employed by the latter in transactions consistent with the purposes of the partnership may the former
demandthereturnofthereimbursementthereoffromthemanageroradministratorwithholdingthem?
Apropos of this, it is asserted: If the partnership has no valid existence, if it is considered juridically non
existent, the contract entered into can have no legal effect and in that case, how can it give rise to an
actioninfavorofthepartnerstojudiciallydemandfromthemanagerortheadministratorofthepartnership
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capital,eachone'scontribution?
Theauthorsdiscussthispointatgreatlength,butRiccidecidesthematterquiteclearly,dispellingalldoubts
thereon. He holds that the partner who limits himself to demanding only the amount contributed by him
neednotresorttothepartnershipcontractonwhichtobasehisaction.Andheaddsinexplanationthatthe
partner makes his contribution, which passes to the managing partner for the purpose of carrying on the
businessorindustrywhichistheobjectofthepartnershiporinotherwords,tobreathethebreathoflife
into a partnership contract with an objection forbidden by law. And as said contrast does not exist in the
eyesofthelaw,thepurposefromwhichthecontributionwasmadehasnotcomeintoexistence,andthe
administrator of the partnership holding said contribution retains what belongs to others, without any
considerationforwhichreasonheisnotboundtoreturnitandhewhohaspaidinhisshareisentitledto
recoverit.
Butthisisnotthecasewithregardtoprofitsearnedinthecourseofthepartnership,becausetheydonot
constituteorrepresentthepartner'scontributionbutaretheresultoftheindustry,businessorspeculation
which is the object of the partnership, and therefor, in order to demand the proportional part of the said
profits,thepartnerwouldhavetobasehisactiononthecontractwhichisnullandvoid,sincethispartition
or distribution of the profits is one of the juridical effects thereof. Wherefore considering this contract as
nonexistent, by reason of its illicit object, it cannot give rise to the necessary action, which must be the
basis of the judicial complaint. Furthermore, it would be immoral and unjust for the law to permit a profit
fromanindustryprohibitedbyit.
Hence the distinction made in the second paragraph of this article of this Code, providing that the profits
obtainedbyunlawfulmeansshallnotenrichthepartners,butshalluponthedissolutionofthepartnership,
begiventothecharitableinstitutionsofthedomicileofthepartnership,or,indefaultofsuch,tothoseofthe
province.
Thisisanewrule,unprecedentedbyourlaw,introducedtosupplyanobviousdeficiencyoftheformerlaw,
whichdidnotdescribethepurposetowhichthoseprofitsdeniedthepartnersweretobeapplied,norstate
whattobedonewiththem.
The profits are so applied, and not the contributions, because this would be an excessive and unjust
sanctionfor,aswehaveseen,thereisnoreason,insuchacase,fordeprivingthepartneroftheportionof
thecapitalthathecontributed,thecircumstancesofthetwocasesbeingentirelydifferent.
OurCodedoesnotstatewhether,uponthedissolutionoftheunlawfulpartnership,theamountscontributed
aretobereturnedbythepartners,becauseitonlydealswiththedispositionoftheprofitsbutthefactthat
said contributions are not included in the disposal prescribed profits, shows that in consequences of said
exclusion,thegenerallawmustbefollowed,andhencethepartnersshouldreimbursetheamountoftheir
respectivecontributions.Anyothersolutionisimmoral,andthelawwillnotconsenttothelatterremaining
in the possession of the manager or administrator who has refused to return them, by denying to the
partnerstheactiontodemandthem.(Manresa,CommentariesontheSpanishCivilCode,vol.XI,pp.262
264)
Thejudgmentappealedfrom,beinginaccordancewithlaw,shouldbe,asitishereby,affirmedwithcostsagainst
theappellantsprovided,however,thedefendantsshallpaythelegalinterestonthesumofP24,607.80fromthe
dateofthedecisionofthecourt,andprovided,further,thatthedefendantsshalldepositthissumofmoneyand
otherdocumentsevidencinguncollectedcreditsintheofficeoftheclerkofthetrialcourt,inorderthatsaidcourt
maydistributethemamongthemembersofsaidassociation,uponbeingdulyidentifiedinthemannerthatitmay
deemproper.Soordered.
Avancea,C.J.,Johnson,Street,Johns,Romualdez,andVillaReal,JJ.,concur.
TheLawphilProjectArellanoLawFoundation

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