Case Digest (G.R. No. 110405)
Facts:
Eugenia Lichauco and other partners of an enterprise organized in October 1901 for a rice-cleaning and palay trading business brought an action in October 1912 against Faustino Lichauco (manager or gestor) to compel an accounting and payment of their respective capital and profits. The enterprise was discontinued in May 1904, its mill machinery was dismantled and offered for sale, and no proper accounting was rendered to the associates until after repeated demands; during the interval the manager had substantial cash and later admitted a large balance despite earlier statements of bankruptcy.The defendant invoked the articles of association to argue that dissolution and liquidation could only be done under their internal consent rule. The trial court nevertheless rendered judgment ordering payment based on the balance found due, allowing some disputed items and disallowing others; both sides appealed via bills of exceptions.
Issues:
- Whether the court could order distribution
Case Digest (G.R. No. 110405)
Facts:
- Nature and purpose of the action
- Two partners (plaintiffs and appellants) brought an action against Faustino Lichauco (defendant and appellant), who served as the manager (gestor) of an enterprise, to secure an accounting of the enterprise’s affairs.
- The plaintiffs sought payment of their respective shares of capital and profits.
- The defendant admitted the complaint’s allegations regarding the organization of the enterprise and the plaintiffs’ participation, but invoked the written contract to resist the action.
- The trial court overruled the defendant’s contention that the plaintiffs could not maintain the action under the contract.
- The trial court rendered judgment for the balance shown to be due the plaintiffs after allowing some disputed items and disallowing the rest.
- Both plaintiffs and defendant filed bills of exceptions; the record was before the Court on their respective exceptions.
- Organization and terms of the enterprise
- In October, 1901, a notarial instrument executed in Manila organized a partnership for a rice-cleaning business at Dagupan and for the purchase and sale of “palay” and rice.
- The articles of association were not recorded in the mercantile registry.
- The articles provided, among others:
- The association would be named F. Lichauco Hermanos and domiciled in Dagupan, Pangasinan.
- The association could not be dissolved except by consent and agreement of two-thirds of its partners; in the event of death of any partner, heirs who were minors or incapacitated would be represented by legal representatives, or, if two-thirds of surviving partners agreed, the participation of the deceased partner could be liquidated.
- Management and direction would be in charge of Don Faustino Lichauco y Santos, domiciled in Manila, with ample powers to conduct purchases and sales, make contracts “either orally, in private documents or in public instruments,” appoint subordinates and employees, perform acts deemed suitable to the interest of the association, appear in courts and public offices, and appoint agents for matters he could not attend personally.
- The capital was fixed at P100,000, composed of:
- P60,000 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 remaining capital contributed by plaintiffs and others in these proportions:
- Eugenia Lichauco — P13,000
- Catalino Arevalo — P8,000
- Mariano Nable Jose — P6,000
- Tomas Roux — P4,000
- Julita Lichauco — P10,000
- Conduct of the business and subsequent events
- The enterprise operated until May, 1904, when it was found to be unprofitable and was discontinued by the defendant manager.
- After discontinuance, the machinery of the rice mill was dismantled by the defendant’s orders and offered for sale.
- No accounting was made by the defendant to his associates until the action was instituted in October, 1912.
- The record showed that in 1905, Mariano Limjap, a participant in the venture, demanded rendition of accounts.
- Eugenia Lichauco made repeated unsuccessful demands for return of her share of the capital invested.
- During the period from 1904 onward, the defendant manager had in his possession not less than P20,000 as cash balance on hand over and above all claims of indebtedness after suspending operations in 1904.
- Since 1904, the defendant received or should have received substantial sums from the sale of the dismantled mill machinery.
- Evidence tended to show that around 1906 or 1907, the defendant informed some associates that the whole enterprise was bankrupt.
- Some months prior to institution of the action, the defendant rendered upon demand of counsel a so-called account showing a balance to the credit of the enterprise of only P634.64.
- At the trial, about six months after that incident, the defendant expressly admitted a cash balance of about P23,131.53.
- The trial judge found the amount due by the defendant on account of the venture as P29,549.99.
- The defendant explained that the P634.64 account had been mailed by an employee without his knowledge as a “stupid blunder” that he regretted.
- The Court gave the defendant the benefit of the doubt regarding the “bankruptcy” statements, concluding that it was unlikely he sought to evade accounting indefinitely and permanently retain substantial balances due the associates.
- Even accepting the explanations, the Court found no room for doubt that from the time operations ended in 1904 until the action was instituted in 1912, the defendant made no attempt to account to his associates or turn over the amounts due on proper accounting.
- Assignments of error on appeal
- Defendant’s assignments of error
- Error No. 1: The trial court allegedly erred in rendering judgment for sums due without first decreeing dissolution and final liquidation of the association’s assets in accordance with paragraph 10 of the articles, and because such judgment was allegedly outside the issues joined.
- Error No. 2: The trial court allegedly erred in charging P5,500 for certain boilers and machinery sold to Marciano Rivera by Crisanto Lichauco, which amount allegedly never came into the possession of the defendant.
- Error No. 3: The trial court allegedly erred in disallowing the defendant’s credit of P60.36 spent to attempt to make good the sale and delivery to Marciano Rivera of the boilers and machinery referred to in Error No. 2.
- Error No. 4: The trial court allegedly erred in charging P1,820 covered by a stipulation of December 10, 1913, because the defendant’s liability under that stipulation allegedly could accrue only on final dissolution and liquidation.
- Error No. 5: The trial court allegedly erred in rendering judgment against the defendant for the costs of the action.
- Plaintiffs’ assignments of error
- Error No. 1: The trial court alle...(Subscriber-Only)
Issues:
- Whether the trial court had authority to order an accounting and payment to the plaintiffs without first decreeing dissolution and final liquidation of the enterprise under paragraph 10 of the articles of association
- Whether paragraph 10’s consent requirement barred judicial dissolution or liquidation and, consequently, barred distribution through a judicial accounting action.
- Whether the trial court could grant judgment on accounting and payment without joining all other associates as parties.
- Whether the defendant should be charged with specified disputed items and related interest
- Whether the trial court properly charged the defendant with P5,500 for machinery and boilers sold to Marciano Rivera.
- Whether the trial court properly disallowed the defendant’s claimed credit of P60.36 for expenditures to attempt to make good the sale and delivery to Marciano Rivera.
- Whether the trial court properly charged P1,820 under a stipulation of December 10, 1913.
- Whether the trial court properly declined to allow the joint venture account certain other amounts for which the plaintiffs claimed credit.
- Whether the trial court correctly ruled on interest and damages for failure to account
- Whether interest at 6% per annum should be imposed on the credit balance of the joint venture from May 30, 1904 until payment.
- Whether interest at 6% per annum should be imposed on P1,147.44 re...(Subscriber-Only)
Ruling:
- (Subscriber-Only)