Leah W.

Pinkihan

EUGENIA LICHAUCO ET AL., PLAINTIFFS AND APPELLANTS, VS. FAUSTINO

LICHAUCO, DEFENDANT AND APPELLANT

33 Phil. 350, January 31, 1916

DOCTRINE: "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."

FACTS:

A partnership was duly organized by a notarial instrument on October 1901 to do a

business of rice cleaning through a buy and sell scheme of “palay” and rice. The rice mill was
installed in Dagupan, Pangasinan. The partnership was named “F. Lichauco Hermanos”.

The provisions in the article of the association though not recorded in the mercantile
registry are as follows:

1. It is required that as to dissolution there has to be consent and agreement of two-thirds

(2/3) of the partners; that incase a partner dies, the minor or incapacitated heirs shall be
represented by their legal representative or the shares of the deceased partner can be liquidated if
two-thirds of the surviving partners agree;

2. that Don Faustino Lichauco, herein defendant will manage and direct the business and
shall be domiciled in Manila;

The business started with a capital of Php 100,000 consisting of Php 60,000 as
contribution from the defendant through the machinery in the mill and the rest of the capital by
the plaintiffs.

The business lasted until 1904. It was called off by the defendant when it was no longer
profitable thereby dismantling and selling the machinery which he contributed without any
accounting to his associates. Thus, this action was instituted eight (8) years later since 1905
when plaintiffs, Mariano Limjap and Eugenia Lichauco had been demanding rendition of
accounts and return of share from their investments. Since the time the business did not operate,
defendant Faustino Lichauco had in his possession Php 20,000, a cash balance on hand over and
above all claims of indebtedness including income from the sales of his machineries.
 Sometime around 1906 or 1907, as shown by record, Faustino informed some of his
associates of the bankruptcy of the business. An account was demanded from him by counsel
showing an amount of Php 634.64 as the balance to the credit of the enterprise. Six (6) months
later at the trial, he admitted that there exists a balance of Php 23,131.53 and that the amount by
the trial judge as due by him on account of the venture was P29,549.99. For his defense, he
explained that the balance of Php 634. 64 was communicated to the plaintiffs by mail without his
knowledge. On this matter, the court has given the defendant the benefit of doubt. The court
interprets his statement as to the bankruptcy of the enterprise as not intended to be understood as
an assertion that there was no balance due the partners, but merely that the enterprise had not
paid, and that the losses of operation had exceeded the profits.

The defendant also contends that the trial court erred in applying the provision of the
contract particularly on the required vote of two-thirds of the partners.

The plaintiffs, on the otherhand alleged in their complaint and the defendant admitted in
his answer that the contract was one of a "sociedad de cuentas en participaci6n" (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 privileges secured
to those interested in cuentas en participacion under the provisions of the Commercial Code.

Hence, this complaint was filed to effect a proper accounting of the partner’s shares from
their investments.

ISSUE:

1. Whether the voting requirement of two-thirds of the partners a valid stipulation for the
dissolution of the partnership?

2. Whether the adoption in the articles of partnership of a firm name deprived the parties of the
rights and privileges?

RULING:

1. No. 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 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
 It cannot be said, as contended by the defendant, that the court had no power to decree a
distribution either in whole or in part of the capital or assests of the association before dissolution
can be effected, being contrary to the stipulation of the contract.

The Commercial Code cannot be contradicted. It expressly prescribes that the duty of the
defendant to liquidate the affairs of the enterprise and to account to his associates promptly upon
the dissolution of the association in the year 1904.

2. No. The inclusion of a firm name is immaterial. 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, the court is of opinion that as between the associates themselves, their
mutual rights, duties and obligations may properly be determined upon the authority of article
1670 of the Civil Code by the provisions of the Commercial Code touching partnerships, the
form of which in all other respects, the partners have adopted in their articles of partnership.