[No. 31057.

September 7, 1929]

ADRIANO ARBES ET AL., plaintiffs and appellees, vs.

VICENTE POLISTICO ET AL., defendants and appellants.

1. UNLAWFUL PARTNERSHIPS ; "TURNUHAN

POLISTICO & Co.;" CHARITABLE INSTITUTIONS.—
The partnership "Turnuhan Polistico & Co." is an
unlawful partnership (U. S. vs. Baguio, 39 Phil., 962).
According to paragraph 2 of article 1666 of the Civil Code,
when an unlawful partnership is judicially dissolved, the
earnings shall not be disposed of as profits, but shall be
given to charitable institutions. But in a case like the one
at bar, whose object is to determine the rights of the
parties, and to liquidate the unlawful partnership, no
charitable institution should be included as defendant, as
the appellants contend, because it is not a necessary party
to the case.

2. ID. ; ACTION TO OBTAIN PROFITS OF UNLAWFUL

PARTNERSHIP.—Said article 1666 of the Civil Code
allows no action for the purpose of obtaining the earnings
made by the unlawful partnership, during its existence, as
a result of the business in which it was

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490 PHILIPPINE REPORTS ANNOTATED

Arbes vs. Polistico

engaged; because for that purpose the partner will have to

base his action on the partnership contract which is null
and without ilegal existence by reason of its unlawful
object, and it is self-evident that what does not exist
cannot be a cause of action.

APPEAL from a judgment of the Court of First Instance of

Laguna. Jugo, J.
The facts are stated in the opinion of the court.
Marcelino Lontok and Manuel de la Rosa for appellants.
 Sumulong & Lavides for appellees.

VILLAMOR, J.:

This is an action to bring about a liquidation of the funds

and property of the association called "Turnuhan Polistico
& Co." The plaintiffs were members or shareholders, and
the defendants were designated as president-treasurer,
directors and secretary of said association.
It is well to remember that this case is now brought
before the consideration of this court for the second time.
The first time was when the same plaintiffs appealed from
the order of the court below sustaining the defendants'
demurrer, and requiring the former to amend their
complaint within a certain period, so as to include all the
members of "Turnuhan Polistico & Co.," either as plaintiffs
or as defendants. This court held then that in an action
against the officers of a voluntary association to wind up its
affairs and to enforce an accounting for money and
property in their possession, it is not necessary that all
members of the association be made parties to the action.
(Borlasa vs. Polistico, 47 Phil., 345.) The case having been
remanded to the court of origin, both parties amended,
respectively, their complaint and their answer, and by
agreement of the parties, the court appointed Amadeo R.
Quintos, of the Insular Auditor's Office, commissioner to
examine all the books, documents and accounts of
"Turnuhan Polistico & Co.," and to receive whatever
evidence the parties might desire to present.
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VOL. 53, SEPTEMBER 7, 1929 491

Arbes vs. Polistico

The commissioner rendered his report, which is attached to

the record, with the following résumé:

Income:
          Members' shares P97,263.70  
.........................................................
          Credits paid 6,196.55  
................................................................
          Interest received 4,569.45  
........................................................
          Miscellaneous 1,891.00  
.............................................................
  ——————— P109,620.70
Expenses:
          Premiums to members 68,146.25  
................................................
          Loans on real-estate security 9,827.00  
......................................
          Loans on promissory notes 4,258.55  
.........................................
          Salaries 1,095.00  
........................................................................
          Miscellaneous 1,686.10  
..............................................................
  ——————— 85,012.90
———————
               Cash on hand 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 said association represented by said
plaintiffs, with costs against the defendants.
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)
that the objection to the commissioner's report should have
been admitted by the court below.
As to the first point, the decision in the case of Borlasa
vs. Polistico, supra, must be followed.

With regard to the second point, despite the praiseworthy efforts

of the attorney for the def endants, we are of opinion that, the
trial court having examined all the evidence touch

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492 PHILIPPINE REPORTS ANNOTATED

Arbes vs. Polistico
ing 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, accepting and adopting the findings of
fact contained in said report, and especially those referring to the
disposition of the association's money, should not be disturbed.

In Tan Diangseng Tan Siu Pic vs. Echauz Tan Siuco (5

Phil., 516), it was held that the findings of fact made by a
referee appointed under the provisions of section 135 of the
Code of Civil Procedure stand upon the same basis, when
approved by the court, as findings made by the judge
himself. And in Kriedt vs. E. C. McCullough & Co. (37
Phil., 474), the court held: "Under section 140 of the Code
of Civil Procedure it is made the duty of the court to render
judgment in accordance with the report of the referee
unless the court shall for cause shown set aside the report
or recommit it to the referee. This provision places upon
the litigant parties 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
court examined the evidence and the commissioner's
report, and accepted the findings of fact made in the report.
We find no convincing argument in the appellants' brief to
justify a reversal of the trial court's conclusion admitting
the commissioner's findings.
There is no question that "Turnuhan Polistico & Co." is
an unlawful partnership (U. S. vs. Baguio, 39 Phil., 962),
but the appellants allege that because it is so, some
charitable institution to whom the partnership funds may
be ordered to be turned over, should be included as a party
defendant. The appellants refer to article 1666 of the Civil
Code, which provides:

"A partnership must have a lawful object, and must be

established for the common benefit of the partners.
"When the dissolution of an unlawful partnership is decreed,
the profits shall be given to the charitable institutions of the
domicile of the partnership, or, in default of such, to those of the
province."

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VOL. 53, SEPTEMBER 7, 1929 493

Arbes vs. Polistico

Appellants' contention on this point is untenable. According

to said article, no charitable institution is a necessary party
in the present case f or the determination of the rights of
the parties. The action which may arise from said article,
in the case of an unlawful partnership, is that for the
recovery of the amounts paid in by the members from those
in charge of the administration of said partnership, and it
is not necessary for the said partners to base their action
on the existence of the partnership, but on the fact of
having contributed some money to the partnership capital.
And hence, the charitable institutions of the domicile of the
partnership, and in default thereof, those of the province
are not necessary parties in this case. The article cited
above permits no action for the purpose of obtaining the
earnings made by the unlawful partnership, during its
existence as a result of the business in which it was
engaged, because, for that purpose, as Manresa remarks,
the partner will have to base his action upon the
partnership contract, which is null and without legal
existence by reason of its unlawful object; and it is self-
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 an unlawful partnership is
decreed, the profits cannot inure to the benefit of the
partners, but must be given to some charitable institution.
We deem. it pertinent to quote Manresa's commentaries
on article 1666 at length, as a clear explanation of the
scope and spirit of the provision of the Civil Code with
which we are concerned. Commenting on said article,
Manresa, among other things says:

"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 demand the return or reimbursement thereof from the
manager or administrator withholding them?
"Apropos of this, it is asserted: If the partnership has had no
valid existence, if it is considered juridically non

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494 PHILIPPINE REPORTS ANNOTATED

Arbes vs. Polistico

existent, the contract entered into can have no legal effect; and in
that case, how can it give rise to an action in favor of the partners
to judicially demand from the manager or administrator of the
partnership capital, each one's contribution ?
"The authors discuss this point at great length; but Ricci
decides the matter quite clearly, dispelling all doubts thereon. He
holds that the partner who limits himself to demanding only the
amount contributed by him need not resort to the partnership
contract on which to base his claim or action. And, he adds in
explanation, that the partner makes his contribution, which
passes to the managing partner for the purpose of carrying on the
business or industry which is the object of the partnership; or, in
other words, to breathe the breath of life into a partnership
contract with an object forbidden by the law. And as said contract
does not exist in the eyes of the law, the purpose for which the
contribution was made has not come into existence, and the
administrator of the partnership holding said contribution retains
what belongs to others, without any consideration; for which
reason he is bound to return it, and he who has paid in his share
is entitled to recover it.
"But this is not the case with regard to profits earned In the
course of the partnership, because they do not constitute or
represent the partner's contribution but are the result of the
industry, business, or speculation, which is the object of the
partnership; and, therefore, in order to demand the proportional
part of said profits, the partner would have to base his action on
the contract, which is null and void, since this partition or
distribution of the profits is one of the juridical effects thereof.
Wherefore. considering this contract as non-existent, 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 from an
industry prohibited by it.

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Arbes vs. Polistico

"Hence, the distinction made in the second paragraph of this

article of our Code, providing that the profits obtained by unlawf
ul means shall not enrich the partners, but shall, upon the
dissolution of the partnership, be given to the charitable
institutions of the domicile of the partnership, or, in default of
such, to those of the province.
"This is a new rule, unprecedented in our law, introduced to
supply an obvious deficiency of the former law, which did not
prescribe the purpose to which those profits denied to the
partners were to be applied, nor state what was to be done with
them.
"The profits are so applied, and not the individual
contributions, because this would be an excessive and unjust
sanction for, as we have seen, there is no reason, in such a case,
for depriving the partner of the portion of the capital that he
 contributed, the circumstances of the two cases being entirely
different.
"Our Code does not state whether, upon the dissolution of the
unlawful partnership, the amounts contributed are to be returned
to the partners, because it only deals with the disposition of the
profits; but the fact that said contributions are not included in the
disposal prescribed for said profits, shows that in consequence of
said exclusion, the general rules of law must be followed, and
hence, the partners must be reimbursed the amount of their
respective contributions. Any other solution would be immoral,
and the law will not consent to the latter remaining in the
possession of the manager or administrator who has refused to
return them, by denying to the partners the action to demand
them." (Manresa, Commentaries on the Spanish Civil Code, vol.
XI, pp. 262-264.)

The judgment appealed from, being in accordance with law,

should be, as it is hereby, affirmed with costs against the
appellants; provided, however, that the defendants shall
pay the legal interest on the sum of P24,607.80 from the
date of the decision of the court, and provided, further, that
the defendants shall deposit these sums of money and
other

496

496 PHILIPPINE REPORTS ANNOTATED

Mabalacat Sugar Co. vs. Ramirez

documents evidencing uncollected credits in the office of

the clerk of the trial court, in order that said court may
distribute them among the members of said association,
upon being duly identified in the manner it may deem
proper. So ordered.

Avanceña, C. J., Johnson, Street, Johns, Romualdez,

and Villa-Real, JJ., concur.

Judgment modified.

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