Arbes v. Polistico
An association called “Turnuhan Polistico & Co” was deemed by the court-appointed commissioner, to which the court declared as well, as an unlawful partnership. The defendants objected to the trial court’s report. Consequently, they filed a motion for a charitable institution to be included as a party defendant applying the provisions of Art. 1666 of the NCC 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 charitable institutions of the domicile of the partnership, or, in default of such, to those of the province.”
May a charitable institution be a party defendant based on the provisions of Art. 1666?
No. The Court held that the application for the said article is improper. An unlawful partnership is a void contract, and as such, no right or cause of action can flow from it.
The Court made reference to Manresa which propounded that the relevant logic that members of an unlawful partnership should not be able to recover profits since in the eyes of the law, the partnership had not come into existence and that no judicial action may flow from the contract.
However, such members may recover what they have contributed not on the basis of the contract, but on the basis of the mere contribution they have made on the capital and to disable them to do so would be an unjust sanction.