ADRIANO ARBES ET AL., PLAINTIFFS AND APPELLEES, VS. VICENTE POLISTICO ET AL., DEFENDANTS AND APPELLANTS.

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.

The commissioner rendered his report, which is attached to the record, with the following resume:

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 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,
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.”

Appellants’ contention on this point is untenable. According to said
article, no charitable institution is a necessary party in the present
case for 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 nonexistent, 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.

“Hence, the distinction made in
the second paragraph of this article of our Code, providing that the
profits obtained by unlawful 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 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.