Arbes v. Polistico
REITERATIONFacts
The Antecedents: Plaintiffs, members or shareholders of the association "Turnuhan Polistico & Co.," filed an action against the defendants, who were the president-treasurer, directors, and secretary of the association, seeking the liquidation of the association's funds and property. Procedural History: The case was previously before the Supreme Court, which held that not all members of the association need to be parties to the action. Upon remand, the parties amended their pleadings, and a commissioner was appointed to examine the association's accounts. The commissioner's report showed income, expenses, and cash on hand. The defendants objected to the report, but the trial court accepted it, declared the association unlawful, and ordered the defendants to jointly and severally return P24,607.80 and uncollected credits to the plaintiffs for distribution among the members. The Petition: The defendants appealed, assigning two main errors: (1) that not all interested parties were included in the suit, and (2) that their objections to the commissioner's report should have been admitted.
Issue(s)
Whether all members of the association are necessary parties to the action for liquidation. Whether the trial court erred in admitting the commissioner's report despite the defendants' objections. Whether the profits of an unlawful partnership should be returned to the members or given to charitable institutions.
Ruling
The Supreme Court affirmed the decision of the trial court, holding that the association "Turnuhan Polistico & Co." is unlawful and ordering the defendants to return the amount of P24,607.80 and documents showing uncollected credits to the plaintiffs for distribution among the members. The Court also ordered the defendants to pay legal interest on the sum from the date of the decision and to deposit the money and documents with the clerk of court for proper distribution.
Ratio Decidendi
On the issue of necessary parties: The Court reiterated its previous ruling in Borlasa vs. Polistico (47 Phil., 345), holding that in an action against the officers of a voluntary association to wind up its affairs and enforce an accounting, it is not necessary that all members of the association be made parties to the action. This principle ensures that the liquidation process can proceed without undue delay caused by the joinder of numerous parties. On the admission of the commissioner's report: The Court found no reversible error in the trial court's acceptance of the commissioner's report. It emphasized that findings of fact made by a referee or commissioner, when approved by the court, stand on the same basis as findings made by the judge himself. The trial court had examined the objections and found them sufficiently explained in the report and evidence, and the appellants failed to present convincing arguments to justify disturbing the trial court's conclusion. On the disposition of profits from an unlawful partnership: The Court clarified the application of Article 1666 of the Civil Code. It held that while an unlawful partnership is dissolved, members are entitled to recover the amounts they contributed. However, profits earned by the unlawful partnership cannot inure to the benefit of the partners. Instead, these profits must be given to charitable institutions of the domicile of the partnership, or in default thereof, to those of the province. The Court distinguished between the return of contributions, which is based on the principle of unjust enrichment of the administrator, and the disposition of profits, which arises from the void partnership contract and thus cannot be claimed by the partners.
Main Doctrine
In an action for the liquidation of an unlawful partnership, members may recover their contributions, but profits earned shall be given to charitable institutions as provided by law.