G.R. No. L-10029; July 15, 1918
FAUSTINO LICHAUCO, plaintiff-appellee, vs. JOSE DE GUZMAN, TOMAS DEL RIO, JUAN OLABARRIETA, RAMON SORIANO, and GREGORIO OLEGARIO, defendants-appellees.

FACTS:
Three civil cases were consolidated into a single action by agreement of the parties. In the original complaint (Case No. 8883), Faustino Lichauco alleged that Jose de Guzman was his agent for the sale of imported cattle and owed him a balance of P90,000 from the proceeds. Guzman, in his answer and counterclaim, asserted that the parties had instead formed a joint account partnership (cuentas en participación) on April 15, 1909. Under this alleged agreement, Lichauco would manage the combined cattle importation business, and profits would be shared according to fixed percentages among Lichauco and the five defendants. Guzman claimed his 23% share of the profits amounted to P116,005.85, which Lichauco refused to pay.

Lichauco subsequently amended his complaint, changing his theory. He alleged the true contract was a simple commission agency, where the defendants jointly and severally agreed to sell his cattle for a commission of P1.50 per head and were liable for the sale price minus expenses. He claimed a balance of P48,838.64 was due from them.

The other defendants (Olegario, Soriano, Del Rio, and Olabarrieta) filed their answers, aligning with Guzman’s claim of a joint account partnership. They filed counterclaims for their respective shares of the alleged profits. The evidence, including testimony from the defendants, revealed that the purpose of the arrangement was to eliminate competition among themselves and to unite against other major competitors (Barretto & Co. and Lack & Davis) in the cattle importation market.

ISSUE:
Whether the contract or agreement between the parties, as proven by the evidence, is a lawful partnership/joint account or an illegal contract in restraint of trade.

RULING:
The Supreme Court, in an En Banc decision, ruled that the agreement was an illegal contract in unreasonable restraint of trade and therefore void.

The Court examined the evidence and found that the true nature of the agreement, as admitted by the parties themselves, was a combination or pool of formerly competing cattle dealers. Its express purpose was to eliminate competition among the members and to present a united front against their remaining competitors. This combination sought to monopolize or control the cattle importation trade, a vital commodity.

Applying fundamental legal principles, the Court held that contracts whose object is contrary to law, morals, or public policy are void. An agreement that unreasonably restrains trade, tends to create a monopoly, and is injurious to the public interest is illegal. The law will not lend its aid to enforce such an agreement. The maxim in pari delicto potior est conditio defendentis (where both parties are at fault, the condition of the defendant is stronger) applies. Consequently, the courts will leave the parties where it finds them and will not assist either party to recover alleged profits or balances from an illegal transaction.

Therefore, the Court reversed the judgment of the lower court. It entered a new judgment dismissing both the plaintiff’s complaint and the defendants’ counterclaims, without pronouncement as to costs.