FIRST DIVISION

[G.R. No. 10040. January 31, 1916.]

EUGENIA LICHAUCO ET AL., plaintiffs-appellants, vs. FAUSTINO

LICHAUCO, defendant-appellant.

Haussermann, Cohn & Fisher for plaintiffs.

Gibbs, McDonough & Blanco for defendant.

SYLLABUS

1. PARTNERSHIP; DISSOLUTION AND SETTLEMENT. — A provision of

articles of partnership, which prohibits the dissolution of the partnership
except by the consent and agreement of two-thirds of the partners, denies
the right of a less number of the partners to effect a dissolution of the
partnership through judicial intervention or otherwise; but it in no wise limits
or restricts the rights of the individual partners in the event that the
dissolution of the partnership is effected, not by any act of theirs, but by the
express mandate of law.
2. ID.; ID. — It would be absurd and unreasonable to hold that the
partnership could never be dissolved and liquidated without the consent of
two-thirds of its partners notwithstanding that it had lost all its capital, or
had become bankrupt, or that the enterprise for which it had been organized
had been concluded or utterly abandoned.
3. ID.; DUTY OF MANAGER. — The business association described in
the opinion having been dissolved by the termination and abandonment of
the enterprise for which it was organized, the manager (gestor) was bound
to liquidate the partnership and account to all and each of his associates,
and upon his failure so to do, all or any of them had a clear legal right to
institute the appropriate judicial proceedings to secure relief.
4. ID.; ID.; ACTION BY OR AGAINST PARTNERS; PARTIES. — In order
to avoid a multiplicity of actions, the defendant in such an action could
require all the associates to be made parties, but the right of an individual
member of the association to recover his share in the enterprise and to
assert his individual claim for redress, wholly independent of the action or
attitude of his associates, could be in no wise affected thereby. The other
associates would be proper, but not necessary parties to an action of this
kind, and when, as in the case at bar, the defendant proceeds to trial without
objection on the express ground that all the associates in the enterprise
have not been made parties to the action, he cannot thereafter be heard to
raise such an objection for the purpose of challenging any judgment which
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 may be rendered therein.
5. ID.; UNREGISTERED COMMERCIAL PARTNERSHIPS; CODE
PROVISIONS APPLICABLE TO RELATIONS OF MEMBERS.--Under the provisions
of article 1670 of the Civil Code, if it be found that an unregistered
commercial partnership is clothed with the forms of any of the commercial
associations or partnerships recognized in the Commercial Code, the
provisions of that Code, in so far as they are not in conflict with those of the
Civil Code, may be relied upon in an attempt to define the legal relations of
the association and its members.

DECISION

CARSON, J : p

This action was brought by two of the partners of an enterprise of

which the defendant was manager (gestor), to secure an accounting of its
affairs, and the payment to the plaintiffs of their respective shares of capital
and profits.
The defendant admitted the allegations of the complaint as to the
organization of the enterprise and the participation of the plaintiffs therein,
but he contended that the plaintiffs could not maintain this action under the
terms of the written contract by virtue of which the enterprise was
organized. This contention having been overruled an account of the affairs of
the enterprise was submitted, and the parties having been given an
opportunity to offer evidence for and against certain disputed items of the
account, judgment was rendered for the balance shown to be due the
plaintiffs, after allowing some of these disputed items and disallowing the
rest. To this judgment, both plaintiffs and defendant excepted, and the
record is now before us on their respective bills of exceptions.
In October, 1901, a notarial instrument was executed in Manila, by the
terms of which a partnership was duly organized for the purpose of carrying
on a rice-cleaning business at Dagupan, and for the purchase and sale of
"palay" and rice. The articles of association, which were not recorded in the
mercantile registry, contain, among others, the following provisions:
"2. The association will be named F. Lichauco Hermanos and
will be domiciled in the center of its operations, that is, in the pueblo of
Dagupan, Province of Pangasinan.
"3. The association cannot be dissolved except by the
consent and agreement of two-thirds of its partners and in the event of
the death of any of the latter, the heirs of the deceased, if they be
minors or otherwise incapacitated, shall be represented in the
association by their legal representatives or if two-thirds of the
surviving partners agree thereto, the participation of the deceased
partner may be liquidated.
"5. The management and direction of the association shall be
in charge of Don Faustino Lichauco y Santos, who shall be domiciled in
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 this city of Manila, with ample powers to direct and manage the
business; to carry out all manner of purchases and sales of 'palay,' rice,
chattels, machinery and whatsoever may be necessary and proper for
the business of the association; to make all contracts of every kind
related to said business, either orally, in private documents or in public
instruments, as he deems fit: to appoint subordinates and other
employees such as may be necessary; and finally to perform whatever
acts and things he may deem suitable to the interest of the
association; and to appear before the courts of justice and other
authorities and public offices in such matters as may concern the
association and to appoint agents for those matters to which he cannot
attend personally."
The articles disclose that the capital invested in the enterprise was
fixed at P100,000, of which amount P60,000 was contributed by the
defendant and his brothers in the form of machinery in a mill at Dagupan
and the good will of the milling business formerly conducted at the place, the
balance of the capital being contributed by the plaintiffs and others in cash,
in the following proportions: Eugenia Lichauco, P13,000; Catalino Arevalo,
P8,000; Mariano Nable Jose, P5,000; Tomas Roux, P4,000; Julita Lichauco,
P10,000.
The business thus organized was carried on until May, 1904, when it
was found to be unprofitable and discontinued by the defendant manager
(gestor); and, thereafter, the machinery of the rice mill was dismantled by
his orders, and offered for sale. No accounting ever was made to his
associates by the defendant until this action was instituted in October, 1912,
although it appears that in the year 1905, Mariano Limjap, one of the
participants in the venture, demanded a rendition of accounts; and that
Eugenia Lichauco, one of the plaintiffs in this action, made repeated
unsuccessful demands for the return of her share of the capital invested in
the enterprises. And yet it further appears that during all that time the
defendant manager of the defunct enterprise had in his possession not less
than P20,000, the cash balance on hand, over and above all claims of
indebtedness after suspending operations in 1904; and that since that time
he received or should have received substantial sums of money from the
sale of the machinery of the dismantled mill.
There is evidence in the record tending to show that the defendant
informed some of his associates, about the year 1906 or 1907, that the
whole enterprise was bankrupt; and it appears that some months prior to the
institution of this action, he rendered upon demand of counsel, a so-called
account showing a balance to the credit of the enterprise of only P634.64;
although at the trial, some six months afterwards, he expressly admitted the
existence of a cash balance of some P23,131.53, and the amount by the trial
judge as due by him on account of the venture was P29,549.99. The
defendant explained that the account rendered to counsel for the plaintiffs
showing a balance of P634.64 was mailed by one of his employees without
his knowledge, and that it was a stupid blunder which he greatly regretted;
and it would seem that his statements as to the bankruptcy of the enterprise
were not intended to be understood as an assertion that there was no
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 balance due the partners, but merely that the enterprise had not paid, and
that the losses of operation had exceeded the profits.
Giving the defendant the benefit of the doubt, we are inclined to accept
these explanations of these incidents, as it is hardly possible that he could
have hoped to escape indefinitely the necessity of accounting for his
management of the enterprise, and thus permanently retain in his own
possession the substantial balance due to his associates. But it is to be
observed that, viewed from any standpoint, these statements, made and
rendered by the defendant as to the affairs of the association, taken
together with the other evidence in the record, leave no room for doubt that
from the time he concluded the operations of the business in 1904 until the
date of the institution of this action in 1912 he made no attempt to account
to his associates or to turn over to them the amount due them on a proper
accounting.
The assignments of error made by counsel for the defendant, as
appellant, are as follows:
"Error No. 1. — The trial court erred in rendering judgment in
favor of the plaintiffs and against the defendant for any sum, without
first decreeing a dissolution of the association and final liquidation of its
assets in accordance with paragraph 10 of the articles of association,
and because such judgment is not within the issues joined.
"Error No. 2. — The trial court erred in charging the defendant
with P5,500, the price of certain boilers and machinery sold to one
Marciano Rivera by Crisanto Lichauco, which amount never came into
the possession of the defendant.

"Error No. 3. — The trial court erred in disallowing the credit of

P60.36, taken by defendant for that amount expended in an attempt to
make good the sale and delivery to Marciano Rivera of the boilers and
machinery mentioned in the second assignment of error.
"Error No. 4. — The court erred in charging the defendant with
the P1,820, covered by stipulation of December 10, 1913, for the
reason that the defendant's liability under that stipulation can only
accrue on the final dissolution and liquidation of the association.
"Error No. 5. — The court erred in rendering judgment against
the defendant for the costs of the action."
The assignments of error made by counsel for the plaintiffs, as
appellants, are as follows:
"Error No. 1. — The court erred in refusing to condemn the
defendant to the payment of interest at the legal rate of 6 per cent
upon the credit balance of the joint venture from May 30, 1904, to date
of payment.
"Error No. 2. — The court erred in refusing to allow interest at the
legal rate of 6 per cent upon the sum of P1,147.44 from May 30, 1904,
to date of payment, said sum being the amount by which the said
credit balance of the joint venture was unduly diminished by error in
the conversion of gold currency.
"Error No. 3. — The court erred in refusing to allow the joint
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 venture account the sum of P17,746, being the value of 3,736 cavanes
of rice at P4.75 per cavan, for which the defendant has wholly failed to
account.
"Error No. 4. — The court erred in declining to allow the joint
venture account the sum of P8,943.98 as interest upon said last-
mentioned sum at the legal rate.
"Error No. 5. — The court erred in declining to allow the joint
venture account the sum of P564.34, as interest at the legal rate upon
the sum of P5,500, for which the defendant has failed and refused to
account.
"Error No. 6. — The court erred in declining to credit the joint
venture account with the sum of P2,498.46 as the amount due said
account from Mariano Nable Jose, together with interest thereon at the
legal rate, amounting to P1,259.22."
We shall first examine the contentions of counsel for the defendant in
support of his principal assignment of error, as a ruling in this regard is
necessary to the proper disposition of all the other assignments of error by
both plaintiffs and defendant.
Counsel for defendant says in his brief:
"It is our contention, and we believe it to be unanswerable, that
the dissolution and liquidation, either in whole or in part, of the
association is absolutely prohibited by paragraph 10 of the articles of
association, except by and with the conformity and agreement of two
thirds of the partners, and that as a consequence thereof the court,
without allegations or proof of compliance with that paragraph and
without making the other partners parties to the action, had no power
to decree a distribution either in whole or in part of the capital or
assets of the association.
"It certainly cannot be seriously contended that part of the
capital and assets of this association can be lawfully returned to and
distributed between the plaintiffs who constitute one-fifth of the total
number of partners, as required by paragraph 10 of the articles of
association.
"It is elementary that no lawful liquidation and distribution of
capital and assets of any company or association can ever take place
except upon dissolution thereof."
These contentions of counsels for the defendant take no account of the
provisions of both the Civil and Commercial Codes for the dissolution and
liquidation of the different classes of partnerships and mercantile
associations upon the occurrence of certain contingencies not within the
control of the partners. The provisions of paragraph 10 of the articles of
partnership prohibiting the dissolution of the association under review,
except by the consent and agreement of two-thirds of its partners, denied
the right to a less number of the partners to effect a dissolution of the
partnership through judicial intervention or otherwise; but it in no wise
limited or restricted the rights of the individual partners in the event the
dissolution of the association was effected, not by any act of theirs, but by
the express mandate of statutory law. It would be absurd and unreasonable
to hold that such an association could never be dissolved and liquidated
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 without the consent and agreement of two-thirds of its partners,
notwithstanding that it had lost all its capital, or had become bankrupt, or
that the enterprise for which it had been organized had been concluded or
utterly abandoned.
Chapter 3 of Title VIII [Book IV,] of the Civil Code prescribes the means
by which partnership (sociedades), as defined in that code, may be
terminated. The first article of that chapter is as follows:
"1700. Partnership is extinguished:
"(1) When the term for which it was constituted expires.
"(2) When the thing is lost, or the business for which it was
constituted ends.
"(3) By the natural death, civil interdiction, or insolvency of
any of the partners, and in the case provided for in article 1699.
"(4) By the will of any of the partners, subject to the
provisions of articles 1705 and 1707.
"Partnerships, to which article 1670 refers, are excepted from the
provisions of Nos. 3 and 4 of this article, in the cases in which they
should exist, according to the Code of Commerce."
"1670. Civil partnerships, on account of the objects for which
they are destined, may adopt all the forms accepted by the Code of
Commerce. In this case, the provisions of the same shall be applicable,
in so far as they are not in conflict with those of the present Code."
Articles 221 and 222 of the Code of Commerce are as follows:
"221. Associations of any kind whatsoever shall be
completely dissolved for the following reasons:
"(1) The termination of the period fixed in the articles of
association or the conclusion of the enterprise which constitutes its
purpose.
"(2) The entire loss of the capital.
"(3) The failure of the association.
"222. General and limited copartnership shall furthermore be
totally dissolved for the following reasons:
"(1) The death of one of the general partners if the articles of
copartnership do not contain an express agreement that the heirs of
the deceased partner are to continue in the copartnership, or an
agreement to the effect that said copartnership will continue between
the surviving partners.
"(2) The insanity of a managing partner or any other cause
which renders him incapable of administering his property.
"(3) The failure of any of the general partners."
It cannot be doubted that under these provisions of law the association
of which the defendant was nominated manager (gestor) was totally
dissolved in the year 1904, when the rice mill for the operation of which it
was organized was dismantled, the machinery offered for sale and the whole
enterprise concluded and abandoned.
Upon the dissolution of the association in 1904 it became the duty of
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 the defendant to liquidate its affairs and account to his associates for their
respective shares in the capital invested — this not merely from the very
nature of his relation to the enterprise and of his duties to those associated
with him as partners, but also by the express mandate of the law. The
association having been dissolved by the termination and abandonment of
the enterprise for which it was organized, he owed this duty to liquidate and
account to all and to each of his associates, and upon his failure to perform
that duty, all or any of them had a clear legal right to compel him to fulfill it.
Each of his associates had a perfect right to demand for himself a full,
complete and satisfactory accounting, and in the event that he conceived
himself aggrieved in this regard, to institute the appropriate judicial
proceedings to secure relief. Doubtless, in order to avoid a multiplicity of
actions, the defendant in such an action could require all the associates to
be made parties, but the right of an individual member of the association to
recover his share in the enterprise and to assert his individual claim for
redress, wholly independent of the action or attitude of his associates, could
be in no wise affected thereby. The other associates would be proper, but
not necessary, parties to an action of this kind; and when, as in the case at
bar, the defendant proceeds to trial without objection on the express ground
that all the associates in the enterprise have not been made parties to the
action, he cannot thereafter be heard to raise such an objection for the
purpose of challenging any judgment which may be rendered therein.
Although the enterprise was organized in the year 1901 for the purpose
of conducting mercantile operations, including the buying and selling of
"palay" and rice, the articles of partnership or association were not
registered in the mercantile registry in accordance with the provisions of
articles 17 and 119 of the Commercial Code. It was therefore a mere
unregistered commercial partnership, and the association never became in
the legal sense a juridical person, nor did it attain the dignity, rights or
privileges accorded the different classes of compañias mercantiles
(mercantile partnership) discussed in Title 1 of Book 2 of the Commercial
Code. Still, under the provisions of the above-cited article 1670 of the Civil
Code, if it be found that the association is clothed with the forms of any of
the commercial associations or partnerships recognized in the Commercial
Code, the provisions of that code, in so far as they are not in conflict with
those of the Civil Code, may be relied upon in an attempt to define the legal
relations of the association and its members. Though the unregistered
articles of partnership gave the association a form of organization closely
assimilated to that of a regular "compañia en comandita," as prescribed in
the Commercial code, except that the name designated in the articles did
not include the words "y compañia" (and company) and the additional words
"sociedad en comandita," it appears to have been organized and conducted
in substantially the manner and form prescribed for "cuentas en
participacion" (joint accounts) in articles 239-243 of that Code.

The plaintiffs alleged in their complaint and the defendant admitted in

his answer that the contract was one of a "sociedad de cuentas en
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 participacion" (joint account partnership) of which the defendant was gestor
(manager). In his brief on appeal, however, counsel for defendant intimates
that under article 241 of the Commercial Code, the adoption in the articles of
partnership of a firm name deprived the parties of the rights and priveleges
secured to those interested in cuentas en participacion under th provisions
of the Commercial Code.
But whatever effect the inclusion or omission of a firm name in the
articles of partnership may have had as to third persons dealing with the
partnership, we are of opinion that as between the associates themselves,
their mutual rights, duties and obligation may properly be determined upon
the authority of article 1670 of the Civil Code by the provisions of the
Commercial Code touching partnerships, the forms of which in all other
respects, the partners have adopted in their articles of partnership.
The duty of the defendant to liquidate the affairs of the enterprise and
to account to his associated promptly upon the dissolution of the association
in the year 1904 is expressly prescribed in the Commercial Code, whether
we regard the association, so far as it affects the mutual rights and
obligation of the partners, as clothed with the forms of a "sociedad de
cuentas en participacion" (joint account partnership), or a "sociedad en
comandita."
Article 243 of the Code of Commerce prescribes with reference to
"cuentas en participacion" (joint accounts) that:
"243. The liquidation shall be effected by the manager, and
after the transactions have been concluded he shall render a proper
account of its results."
Articles 229 and 230 of the same Code are as follows:
"229. In general or limited copartnerships, should there be no
opposition on the part of any of the partners, the persons who
managed the common funds shall continue in charge of the liquidation;
but should all the partners not agree thereto a general meeting shall
be called without delay, and the decision adopted at the same shall be
enforced with regard to the appointment of liquidators from among the
members of the association or not, as well as in all that refers to the
form and proceedings of the liquidation and the management of the
common funds.
"230. Under the penalty of removal the liquidators shall —
"(1) Draw up and communicate to the members, within the
period of twenty days, an inventory of the common property, with a
balance of the association in liquidation, according to its books.
"(2) Communicate in the same manner to the members every
month the condition of the liquidation."
We conclude that an express statutory obligation imposed upon the
defendant an imperative obligation to proceed without delay to the
liquidation of the association in the year 1904 and the further duty to
account to his associates for the result of that liquidation. While he appears
to have gone forward with the liquidation far enough to collect all the cash
resources of the association into his own hands, he utterly failed and
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 neglected to account therefor to his associates or to make any attempt so to
do, and we are of opinion that the plaintiffs were clearly entitled to bring this
action to compel an accounting, and the payment of their respective shares
of the capital invested, together with damages resulting from the failure of
the defendant to perform the duty expressly imposed upon him by statute.
The damages arising from the failure to account consisted of the loss of the
use of the money to which they would have been entitled upon a proper
accounting, from the date at which it should have been turned over by the
defendant until it is actually paid by him, that is to say, interest on that
amount at the rate of six per centum per annum until paid.
What has been said disposes adversely of the contentions of the
defendant in support of his assignments of errors Nos. 1 and 5; and sustains
the contentions of the plaintiffs in their assignments of errors Nos. 1 and 2,
to the extent that interest at the rate of six per centum per annum should
have been allowed upon the credit balance of the enterprise from May 30,
1904, the date when it should have been distributed among his associated
by the defendant had he performed his statutory duty in that regard. This
balance (including the item mentioned in plaintiff's assignment of error No.
2) we fix at P23,131.53, adopting as a basis for our finding in this regard, the
findings and conclusions of the trial judge, and disregarding the possibility
that had defendant accounted promptly to his associates, interest might not
have been chargeable on some of the smaller items included in the account
until some little time after the date just mentioned.
As to the other assignments of error it must suffice to say that we have
carefully examined the record and have arrived at the following conclusions:
With relation to the item of account referred to in defendant's
assignment of error No. 2 and plaintiff's assignment No. 5, we hold that the
defendant's account was properly charged by the trial judge with the sum of
P5,500, the purchase price of certain machinery sold by him and for which,
under all the circumstances, he must account, together with interest at the
rate of six per centum per annum from January 8, 1912, the date of sale to
Marciano Rivera.
With relation to the items mentioned in plaintiff's assignments of errors
Nos. 3 and 4, we hold that the trial judge properly declined to charge the
defendant's account with the amounts mentioned therein, the evidence of
record not being sufficient to establish his liability therefor as manager or
gestor of the enterprise.
We find no merit in defendant's assignment of error numbered 3.
Twenty days hereafter let judgment be entered reversing the judgment
of the lower court, without special condemnation of the costs in this
instance, and directing the return of the record to the trial court, wherein
judgment will be entered in accordance herewith, and ten days thereafter let
the record be remanded in conformity therewith. So ordered.
Arellano, C.J., Torres and Trent, JJ., concur.

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 Separate Opinions
Per MORELAND, J.:

Owing to the advisability of publishing this case as soon as possible I

refrain from giving my views at this time, reserving the right to do so later.

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