[1] WHEREFORE, judgment is hereby rendered in favor of the plaintiff, ordering

the defendants to jointly and severally pay plaintiff the

G.R. No. 206147, January 13, 2016 following:chanRoblesvirtualLawlibrary

MICHAEL C. GUY, Petitioner, v. ATTY. GLENN C. GACOTT, Respondent. 1. Purchase price plus 6% per annum from March 3,1997 up to and until fully
paid -------------------------------------------------------- P 18,000.00
2. Actual Damages ----------------------------------- 40,936.44
DECISION 3. Moral Damages ----------------------------------- 75,000.00
4. Corrective Damages ---------------------------- 100,000.00
MENDOZA, J.: 5. Attorney's Fees ------------------------------------ 60,000.00
6. Costs.
Before this Court is a petition for review on certiorari under Rule 45 of the
Rules of Court filed by petitioner Michael C. Guy (Guy), assailing the June SO ORDERED.
25, 2012 Decision1 and the March 5, 2013 Resolution2 of the Court of cralawlawlibrary
Appeals (CA) in CA-G.R. CV No. 94816, which affirmed the June 28,
20093 and February 19, 20104 Orders of the Regional Trial Court, Branch 52, The decision became final as QSC and Medestomas did not interpose an
Puerto Princesa City, Palawan (RTC), in Civil Case No. 3108, a case for appeal. Gacott then secured a Writ of Execution, 8 dated September 26,
damages. The assailed RTC orders denied Guy's Motion to Lift Attachment 2007.
Upon Personalty5 on the ground that he was not a judgment debtor.
During the execution stage, Gacott learned that QSC was not a corporation,
The Facts but was in fact a general partnership registered with the Securities and
Exchange Commission (SEC). In the articles of partnership,9 Guy was
It appears from the records that on March 3, 1997, Atty. Glenn Gacott appointed as General Manager of QSC.
(Gacott) from Palawan purchased two (2) brand new transreceivers from
Quantech Systems Corporation (QSC) in Manila through its employee Rey To execute the judgment, Branch Sheriff Ronnie L. Felizarte (Sheriff
Medestomas (Medestomas), amounting to a total of PI 8,000.00. On May 10, Felizarte) went to the main office of the Department of Transportation and
1997, due to major defects, Gacott personally returned the transreceivers to Communications, Land Transportation Office (DOTC-LTO), Quezon City, and
QSC and requested that they be replaced. Medestomas received the verified whether Medestomas, QSC and Guy had personal properties
returned transreceivers and promised to send him the replacement units registered therein.10 Upon learning that Guy had vehicles registered in his
within two (2) weeks from May 10, 1997. name, Gacott instructed the sheriff to proceed with the attachment of one of
the motor vehicles of Guy based on the certification issued by the DOTC-
Time passed and Gacott did not receive the replacement units as promised. LTO.11
QSC informed him that there were no available units and that it could not
refund the purchased price. Despite several demands, both oral and written, On March 3, 2009, Sheriff Felizarte attached Guy's vehicle by virtue of the
Gacott was never given a replacement or a refund. The demands caused Notice of Attachment/Levy upon Personalty12 served upon the record
Gacott to incur expenses in the total amount of P40,936.44. Thus, Gacott custodian of the DOTC-LTO of Mandaluyong City. A similar notice was
filed a complaint for damages. Summons was served upon QSC and served to Guy through his housemaid at his residence.
Medestomas, afterwhich they filed their Answer, verified by Medestomas
himself and a certain Elton Ong (Ong). QSC and Medestomas did not Thereafter, Guy filed his Motion to Lift Attachment Upon Personalty, arguing
present any evidence during the trial. 6 that he was not a judgment debtor and, therefore, his vehicle could not be
attached.13 Gacott filed an opposition to the motion.
In a Decision,7 dated March 16, 2007, the RTC found that the two (2)
transreceivers were defective and that QSC and Medestomas failed to The RTC Order
replace the same or return Gacott's money. The dispositive portion of the
decision reads:chanRoblesvirtualLawlibrary On June 28, 2009, the RTC issued an order denying Guy's motion. It
PARTNERSHIP—ARTICLES 1815-1827 A6 Page 1 of 22
explained that considering QSC was not a corporation, but a registered We hold that Michael Guy, being listed as a general partner of QSC during
partnership, Guy should be treated as a general partner pursuant to Section that time, cannot feign ignorance of the existence of the court summons. The
21 of the Corporation Code, and he may be held jointly and severally liable verified Answer filed by one of the partners, Elton Ong, binds him as a
with QSC and Medestomas. The trial court partner because the Rules of Court does not require that summons be
wrote:chanRoblesvirtualLawlibrary served on all the partners. It is sufficient that service be made on the
"president, managing partner, general manager, corporate secretary,
All persons who assume to act as a corporation knowing it to be without treasurer or in-house counsel." To Our mind, it is immaterial whether the
authority to do so shall be liable as general partners for all debts, liabilities summons to QSC was served on the theory that it was a corporation. What is
and damages incurred or arising as a result thereof x x x. Where, by any important is that the summons was served on QSC's authorized officer
wrongful act or omission of any partner acting in the ordinary course of the xxx.18ChanRoblesVirtualawlibrary
business of the partnership x x x, loss or injury is caused to any person, not cralawlawlibrary
being a partner in the partnership, or any penalty is incurred, the partnership
is liable therefore to the same extent as the partner so acting or omitting to The CA stressed that Guy, being a partner in QSC, was bound by the
act. All partners are liable solidarity with the partnership for everything summons served upon QSC based on Article 1821 of the Civil Code. The CA
chargeable to the partnership under Article 1822 and 1823. 14cralawlawlibrary further opined that the law did not require a partner to be actually involved in
a suit in order for him to be made liable. He remained "solidarity liable
Accordingly, it disposed:chanRoblesvirtualLawlibrary whether he participated or not, whether he ratified it or not, or whether he
had knowledge of the act or omission." 19
WHEREFORE, with the ample discussion of the matter, this Court finds and
so holds that the property of movant Michael Guy may be validly attached in Aggrieved, Guy filed a motion for reconsideration but it was denied by the CA
satisfaction of the liabilities adjudged by this Court against Quantech Co., the in its assailed resolution, dated March 5, 2013.
latter being an ostensible Corporation and the movant being considered by
this Court as a general partner therein in accordance with the order of this Hence, the present petition raising the following
court impressed in its decision to this case imposing joint and several liability
to the defendants. The Motion to Lift Attachment Upon Personalty submitted ISSUE
by the movant is therefore DENIED for lack of merit.
THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE
SO ORDERED.15cralawlawlibrary ERROR IN HOLDING THAT PETITIONER GUY IS SOLIDARILY LIABLE
WITH THE PARTNERSHIP FOR DAMAGES ARISING FROM THE
Not satisfied, Guy moved for reconsideration of the denial of his motion. He BREACH OF THE CONTRACT OF SALE WITH RESPONDENT
argued that he was neither impleaded as a defendant nor validly served with GACOTT.20ChanRoblesVirtualawlibrary
summons and, thus, the trial court did not acquire jurisdiction over his cralawlawlibrary
person; that under Article 1824 of the Civil Code, the partners were only
solidarily liable for the partnership liability under exceptional circumstances; Guy argues that he is not solidarity liable with the partnership because the
and that in order for a partner to be liable for the debts of the partnership, it solidary liability of the partners under Articles 1822, 1823 and 1824 of the
must be shown that all partnership assets had first been exhausted. 16 Civil Code only applies when it stemmed from the act of a partner. In this
case, the alleged lapses were not attributable to any of the partners. Guy
On February 19, 2010, the RTC issued an order17 denying his motion. further invokes Article 1816 of the Civil Code which states that the liability of
the partners to the partnership is merely joint and subsidiary in nature.
The denial prompted Guy to seek relief before the CA.
In his Comment,21 Gacott countered, among others, that because Guy was a
The CA Ruling general and managing partner of QSC, he could not feign ignorance of the
transactions undertaken by QSC. Gacott insisted that notice to one partner
On June 25, 2012, the CA rendered the assailed decision dismissing Guy's must be considered as notice to the whole partnership, which included the
appeal for the same reasons given by the trial court. In addition thereto, the pendency of the civil suit against it.
appellate court stated:chanRoblesvirtualLawlibrary
PARTNERSHIP—ARTICLES 1815-1827 A6 Page 2 of 22
In his Reply,22 Guy contended that jurisdiction over the person of the
partnership was not acquired because the summons was never served upon
it or through any of its authorized office. He also reiterated that a partner's
liability was joint and subsidiary, and not solidary.
The Court's Ruling
The petition is meritorious.
The service of summons was
flawed; voluntary appearance
cured the defect
Jurisdiction over the person, or jurisdiction in personam - the power of the
court to render a personal judgment or to subject the parties in a particular
action to the judgment and other rulings rendered in the action - is an
element of due process that is essential in all actions, civil as well as
criminal, except in actions in rem or quasi in rem.23 Jurisdiction over the
person of the plaintiff is acquired by the mere filing of the complaint in court.
As the initiating party, the plaintiff in a civil action voluntarily submits himself
to the jurisdiction of the court. As to the defendant, the court acquires
jurisdiction over his person either by the proper service of the summons, or
by his voluntary appearance in the action. 24
Under Section 11, Rule 14 of the 1997 Revised Rules of Civil Procedure,
when the defendant is a corporation, partnership or association organized
under the laws of the Philippines with a juridical personality, the service of
summons may be made on the president, managing partner, general
manager, corporate secretary, treasurer, or in-house counsel. Jurisprudence
is replete with pronouncements that such provision provides an exclusive
enumeration of the persons authorized to receive summons for juridical
entities.25cralawred
The records of this case reveal that QSC was never shown to have been
served with the summons through any of the enumerated authorized persons
to receive such, namely: president, managing partner, general manager,
corporate secretary, treasurer or in-house counsel. Service of summons
upon persons other than those officers enumerated in Section 11 is
invalid. Even substantial compliance is not sufficient service of summons.
The CA was obviously mistaken when it opined that it was immaterial
whether the summons to QSC was served on the theory that it was a
corporation.27
Nevertheless, while proper service of summons is necessary to vest the
court jurisdiction over the defendant, the same is merely procedural in nature
PARTNERSHIP—ARTICLES 1815-1827 A6
and the lack of or defect in the service of summons may be cured by the
defendant's subsequent voluntary submission to the court's jurisdiction
through his filing a responsive pleading such as an answer. In this case, it is
not disputed that QSC filed its Answer despite the defective summons. Thus,
jurisdiction over its person was acquired through voluntary appearance.
A partner must be separately
and distinctly impleaded before
he can be bound by a judgment
The next question posed is whether the trial court's jurisdiction over QSC
extended to the person of Guy insofar as holding him solidarity liable with the
partnership. After a thorough study of the relevant laws and jurisprudence,
the Court answers in the negative.
Although a partnership is based on delectus personae or mutual agency,
whereby any partner can generally represent the partnership in its business
affairs, it is non sequitur that a suit against the partnership is necessarily a
suit impleading each and every partner. It must be remembered that a
partnership is a juridical entity that has a distinct and separate personality
from the persons composing it. 28
In relation to the rules of civil procedure, it is elementary that a judgment of a
court is conclusive and binding only upon the parties and their successors-in-
interest after the commencement of the action in court. 29 A decision rendered
on a complaint in a civil action or proceeding does not bind or prejudice a
person not impleaded therein, for no person shall be adversely affected by
the outcome of a civil action or proceeding in which he is not a party. 30 The
principle that a person cannot be prejudiced by a ruling rendered in an action
or proceeding in which he has not been made a party conforms to the
constitutional guarantee of due process of law. 31
In Muñoz v. Yabut, Jr.,32 the Court declared that a person not impleaded and
given the opportunity to take part in the proceedings was not bound by the
decision declaring as null and void the title from which his title to the property
had been derived. The effect of a judgment could not be extended to non-
parties by simply issuing an alias writ of execution against them, for no man
should be prejudiced by any proceeding to which he was a stranger.
In Aguila v. Court of Appeals 33 the complainant had a cause of action against
the partnership. Nevertheless, it was the partners themselves that were
impleaded in the complaint. The Court dismissed the complaint and held that
it was the partnership, not its partners, officers or agents, which should be
impleaded for a cause of action against the partnership itself. The Court
added that the partners could not be held liable for the obligations of the
partnership unless it was shown that the legal fiction of a different juridical
Page 3 of 22
personality was being used for fraudulent, unfair, or illegal purposes. 34 which states that a partner is automatically charged in a complaint against
the partnership, the constitutional right to due process takes precedence and
Here, Guy was never made a party to the case. He did not have any a partner must first be impleaded before he can be considered as a judgment
participation in the entire proceeding until his vehicle was levied upon and he debtor. To rule otherwise would be a dangerous precedent, harping in favor
suddenly became QSC's "co-defendant debtor" during the judgment of the deprivation of property without ample notice and hearing, which the
execution stage. It is a basic principle of law that money judgments are Court certainly cannot countenance.
enforceable only against the property incontrovertibly belonging to the
judgment debtor.35 Indeed, the power of the court in executing judgments Partners' liability is subsidiary
extends only to properties unquestionably belonging to the judgment debtor and generally joint; immediate levy
alone. An execution can be issued only against a party and not against one upon the property of a partner
who did not have his day in court. The duty of the sheriff is to levy the cannot be made
property of the judgment debtor not that of a third person. For, as the saying
goes, one man's goods shall not be sold for another man's debts. 36 Granting that Guy was properly impleaded in the complaint, the execution of
judgment would be improper. Article 1816 of the Civil Code governs the
In the spirit of fair play, it is a better rule that a partner must first be liability of the partners to third persons, which states
impleaded before he could be prejudiced by the judgment against the that:chanRoblesvirtualLawlibrary
partnership. As will be discussed later, a partner may raise several defenses
during the trial to avoid or mitigate his obligation to the partnership liability. Article 1816. All partners, including industrial ones, shall be liable pro
Necessarily, before he could present evidence during the trial, he must first rata with all their property and after all the partnership assets have
be impleaded and informed of the case against him. It would be the height of been exhausted, for the contracts which may be entered into in the name
injustice to rob an innocent partner of his hard-earned personal belongings and for the account of the partnership, under its signature and by a person
without giving him an opportunity to be heard. Without any showing that Guy authorized to act for the partnership. However, any partner may enter into a
himself acted maliciously on behalf of the company, causing damage or separate obligation to perform a partnership contract.
injury to the complainant, then he and his personal properties cannot be
made directly and solely accountable for the liability of QSC, the judgment [Emphasis supplied]
debtor, because he was not a party to the case. cralawlawlibrary

Further, Article 1821 of the Civil Code does not state that there is no need
to implead a partner in order to be bound by the partnership liability. It
provides that:chanRoblesvirtualLawlibrary
Notice to any partner of any matter relating to partnership affairs, and
the knowledge of the partner acting in the particular matter, acquired
while a partner or then present to his mind, and the knowledge of any other
partner who reasonably could and should have communicated it to the acting
partner, operate as notice to or knowledge of the partnership, except in
the case of fraud on the partnership, committed by or with the consent of that
partner.
This provision clearly states that, first, the partners' obligation with respect to
the partnership liabilities is subsidiary in nature. It provides that the partners
shall only be liable with their property after all the partnership assets have
been exhausted. To say that one's liability is subsidiary means that it merely
becomes secondary and only arises if the one primarily liable fails to
sufficiently satisfy the obligation. Resort to the properties of a partner may be
made only after efforts in exhausting partnership assets have failed or that
such partnership assets are insufficient to cover the entire obligation. The
subsidiary nature of the partners' liability with the partnership is one of the
valid defenses against a premature execution of judgment directed to a
partner.

[Emphases and Underscoring Supplied]
cralawlawlibrary
A careful reading of the provision shows that notice to any partner, under
certain circumstances, operates as notice to or knowledge to the partnership
only. Evidently, it does not provide for the reverse situation, or that notice to
the partnership is notice to the partners. Unless there is an unequivocal law
PARTNERSHIP—ARTICLES 1815-1827 A6
In this case, had he been properly impleaded, Guy's liability would only arise
after the properties of QSC would have been exhausted. The records,
however, miserably failed to show that the partnership's properties were
exhausted. The report37 of the sheriff showed that the latter went to the main
office of the DOTC-LTO in Quezon City and verified whether Medestomas,
QSC and Guy had personal properties registered therein. Gaeott then
instructed the sheriff to proceed with the attachment of one of the motor
Page 4 of 22
vehicles of Guy.38 The sheriff then served the Notice of Attachment/Levy
upon Personalty to the record custodian of the DOTC-LTO of Mandaluyong
City. A similar notice was served to Guy through his housemaid at his
residence.
Clearly, no genuine efforts were made to locate the properties of QSC that
could have been attached to satisfy the judgment - contrary to the clear
mandate of Article 1816. Being subsidiarily liable, Guy could only be held
personally liable if properly impleaded and after all partnership assets had
been exhausted.
Second, Article 1816 provides that the partners' obligation to third persons
with respect to the partnership liability is pro rata or joint. Liability
is joint when a debtor is liable only for the payment of only a proportionate
part of the debt. In contrast, a solidary liability makes a debtor liable for the
payment of the entire debt. In the same vein, Article 1207 does not presume
solidary liability unless: 1) the obligation expressly so states; or 2) the law
or nature requires solidarity. With regard to partnerships, ordinarily, the
liability of the partners is not solidary. 39 The joint liability of the partners is a
defense that can be raised by a partner impleaded in a complaint against the
partnership.
In other words, only in exceptional circumstances shall the partners' liability
be solidary in nature. Articles 1822, 1823 and 1824 of the Civil Code provide
for these exceptional conditions, to wit:chanRoblesvirtualLawlibrary
Article 1822. Where, by any wrongful act or omission of any partner acting in
the ordinary course of the business of the partnership or with the authority of
his co-partners, loss or injury is caused to any person, not being a partner in
the partnership, or any penalty is incurred, the partnership is liable therefor to
the same extent as the partner so acting or omitting to act.
Article 1823. The partnership is bound to make good the
loss:chanRoblesvirtualLawlibrary
(1) Where one partner acting within the scope of his apparent authority
receives money or property of a third person and misapplies it; and
(2) Where the partnership in the course of its business receives money or
property of a third person and the money or property so received is
misapplied by any partner while it is in the custody of the partnership.
Article 1824. All partners are liable solidarity with the partnership for
everything chargeable to the partnership under Articles 1822 and 1823.
[Emphases Supplied]
PARTNERSHIP—ARTICLES 1815-1827 A6
cralawlawlibrary
In essence, these provisions articulate that it is the act of a partner which
caused loss or injury to a third person that makes all other partners solidarity
liable with the partnership because of the words "any wrongful act or
omission of any partner acting in the ordinary course of the business, " "one
partner acting within the scope of his apparent authority" and "misapplied by
any partner while it is in the custody of the partnership." The obligation is
solidary because the law protects the third person, who in good faith relied
upon the authority of a partner, whether such authority is real or apparent. 40
In the case at bench, it was not shown that Guy or the other partners did a
wrongful act or misapplied the money or property he or the partnership
received from Gacott. A third person who transacted with said partnership
can hold the partners solidarity liable for the whole obligation if the case of
the third person falls under Articles 1822 or 1823.41 Gacott's claim
stemmed from the alleged defective transreceivers he bought from QSC,
through the latter's employee, Medestomas. It was for a breach of warranty in
a contractual obligation entered into in the name and for the account of QSC,
not due to the acts of any of the partners. For said reason, it is the general
rule under Article 1816 that governs the joint liability of such breach, and not
the exceptions under Articles 1822 to 1824. Thus, it was improper to hold
Guy solidarity liable for the obligation of the partnership.
Finally, Section 21 of the Corporation Code,42 as invoked by the RTC, cannot
be applied to sustain Guy's liability. The said provision states that a general
partner shall be liable for all debts, liabilities and damages incurred by an
ostensible corporation. It must be read, however, in conjunction with Article
1816 of the Civil Code, which governs the liabilities of partners against third
persons. Accordingly, whether QSC was an alleged ostensible corporation or
a duly registered partnership, the liability of Guy, if any, would remain to be
joint and subsidiary because, as previously stated, all partners shall be
liable pro rata with all their property and after all the partnership assets have
been exhausted for the contracts which may be entered into in the name and
for the account of the partnership.
WHEREFORE, the petition is GRANTED. The June 25, 2012 Decision and
the March 5, 2013 Resolution of the Court of Appeals in CA-G.R. CV No.
94816 are hereby REVERSED and SET ASIDE. Accordingly, the Regional
Trial Court, Branch 52, Puerto Princesa City, is ORDERED TO
RELEASE Michael C. Guy's Suzuki Grand Vitara subject of the Notice of
Levy/Attachment upon Personalty.
SO ORDERED.chanroblesvirtuallawlibrary
Page 5 of 22
[2]
G.R. No. 193138, August 20, 2018
ANICETO G. SALUDO, JR., Petitioner, v. PHILIPPINE NATIONAL
BANK, Respondent.
DECISION JARDELEZA, J.:
In this petition, we emphasize that a partnership for the practice of law,
constituted in accordance with the Civil Code provisions on partnership,
acquires juridical personality by operation of law. Having a juridical
personality distinct and separate from its partners, such partnership is the
real party-in-interest in a suit brought in connection with a contract entered
into in its name and by a person authorized to act on its behalf.
Petitioner Aniceto G. Saludo, Jr. (Saludo) filed this petition for review
on certiorari1 assailing the February 8, 2010 Decision 2 and August 2, 2010
Resolution3 issued by the Court of Appeals (CA) in CA-G.R. SP No. 98898.
The CA affirmed with modification the January 11, 2007 Omnibus
Order4 issued by Branch 58 of the Regional Trial Court (RTC) of Makati City
in Civil Case No. 06-678, and ruled that respondent Philippine National
Bank's (PNB) counterclaims against Saludo and the Saludo Agpalo
Fernandez and Aquino Law Office (SAFA Law Office) should be reinstated in
its answer.
Records show that on June 11, 1998, SAFA Law Office entered into a
Contract of Lease5 with PNB, whereby the latter agreed to lease 632 square
meters of the second floor of the PNB Financial Center Building in Quezon
City for a period of three years and for a monthly rental fee of P189,600.00.
The rental fee is subject to a yearly escalation rate of 10%. 6 SAFA Law Office
then occupied the leased premises and paid advance rental fees and
security deposit in the total amount of P1,137,600.00. 7
On August 1, 2001, the Contract of Lease expired. 8 According to PNB, SAFA
Law Office continued to occupy the leased premises until February 2005, but
discontinued paying its monthly rental obligations after December
2002.9 Consequently, PNB sent a demand letter 10 dated July 17, 2003 for
SAFA Law Office to pay its outstanding unpaid rents in the amount of
P4,648,086.34. PNB sent another letter11 demanding the payment of unpaid
rents in the amount of P5,856,803.53 which was received by SAFA Law
Office on November 10, 2003.
In a letter12 to PNB dated June 9, 2004, SAFA Law Office expressed its
intention to negotiate. It claimed that it was enticed by the former
PARTNERSHIP—ARTICLES 1815-1827 A6
management of PNB into renting the leased premises by promising to: (1)
give it a special rate due to the large area of the place; (2) endorse PNB's
cases to the firm with rents to be paid out of attorney's fees; and (3) retain
the firm as one of PNB's external counsels. When new management took
over, it allegedly agreed to uphold this agreement to facilitate rental
payments. However, not a single case of significance was referred to the
firm. SAFA Law Office then asked PNB to review and discuss its billings,
evaluate the improvements in the area and agree on a compensatory sum to
be applied to the unpaid rents, make good its commitment to endorse or refer
cases to SAFA Law Office under the intended terms and conditions, and
book the rental payments due as receivables payable every time attorney's
fees are due from the bank on the cases it referred. The firm also asked PNB
to give a 50% discount on its unpaid rents, noting that while it was waiting for
case referrals, it had paid a total amount of P13,457,622.56 from January
1999 to December 2002, which included the accelerated rates of 10% per
annum beginning August 1999 until July 2003.
In February 2005, SAFA Law Office vacated the leased premises. 13 PNB sent
a demand letter14 dated July 7, 2005 requiring the firm to pay its rental
arrears in the total amount of P10,951,948.32. In response, SAFA Law Office
sent a letter dated June 8, 2006, proposing a settlement by providing a range
of suggested computations of its outstanding rental obligations, with
deductions for the value of improvements it introduced in the premises,
professional fees due from Macroasia Corporation, and the 50% discount
allegedly promised by Dr. Lucio Tan.15 PNB, however, declined the settlement
proposal in a letter16 dated July 17, 2006, stating that it was not amenable to
the settlement's terms. Besides, PNB also claimed that it cannot assume the
liabilities of Macroasia Corporation to SAFA Law Office as Macroasia
Corporation has a personality distinct and separate from the bank. PNB then
made a final demand for SAFA Law Office to pay its outstanding rental
obligations in the amount of P25,587,838.09.
On September 1, 2006, Saludo, in his capacity as managing partner of SAFA
Law Office, filed an amended complaint17 for accounting and/or
recomputation of unpaid rentals and damages against PNB in relation to the
Contract of Lease.
On October 4, 2006, PNB filed a motion to include an indispensable party as
plaintiff,18 praying that Saludo be ordered to amend anew his complaint to
include SAFA Law Office as principal plaintiff. PNB argued that the lessee in
the Contract of Lease is not Saludo but SAFA Law Office, and that Saludo
merely signed the Contract of Lease as the managing partner of the law firm.
Thus, SAFA Law Office must be joined as a plaintiff in the complaint because
it is considered an indispensable party under Section 7, Rule 3 of the Rules
of Court.19
Page 6 of 22
On October 13, 2006, PNB filed its answer. 20 By way of compulsory
counterclaim, it sought payment from SAFA Law Office in the sum of
P25,587,838.09, representing overdue rentals. 21 PNB argued that as a
matter of right and equity, it can claim that amount from SAFA Law Office in
solidum with Saludo.22
On October 23, 2006, Saludo filed his motion to dismiss
counterclaims,23 mainly arguing that SAFA Law Office is neither a legal entity
nor party litigant. As it is only a relationship or association of lawyers in the
practice of law and a single proprietorship which may only be sued through
its owner or proprietor, no valid counterclaims may be asserted against it. 24
On January 11, 2007, the RTC issued an Omnibus Order denying PNB's
motion to include an indispensable party as plaintiff and granting Saludo's
motion to dismiss counterclaims in this wise:
The Court DENIES the motion of PNB to include the SAFA Law Offices.
Plaintiff has shown by documents attached to his pleadings that indeed SAFA
Law Offices is a mere single proprietorship and not a commercial and
business partnership. More importantly, plaintiff has admitted and shown sole
responsibility in the affairs entered into by the SAFA Law Office. PNB has
even admitted that the SAFA Law Office, being a partnership in the practice
of law, is a non-legal entity. Being a non-legal entity, it cannot be a proper
party, and therefore, it cannot sue or be sued.
Consequently, plaintiff's Motion to Dismiss Counterclaims (claimed by
defendant PNB) should be GRANTED. The counterclaims prayed for to the
effect that the SAFA Law Offices be made to pay in solidum with plaintiff the
amounts stated in defendant's Answer is disallowed since no counterclaims
can be raised against a non-legal entity.25
PNB filed its motion for reconsideration 26 dated February 5, 2007, alleging
that SAFA Law Office should be included as a co-plaintiff because it is the
principal party to the contract of lease, the one that occupied the leased
premises, and paid the monthly rentals and security deposit. In other words,
it was the main actor and direct beneficiary of the contract. Hence, it is the
real party-in-interest.27 The RTC, however, denied the motion for
reconsideration in an Order28 dated March 8, 2007.
Consequently, PNB filed a petition for certiorari29 with the CA. On February 8,
2010, the CA rendered its assailed Decision, 30 the dispositive portion of
which reads:
WHEREFORE, the petition is PARTIALLY GRANTED. The assailed
Omnibus Order dated 11 January 2007 and Order dated 8 March 2007,
issued by respondent Court in Civil Case No. 06-678, respectively,
are AFFIRMED with MODIFICATION in that petitioner's counterclaims
PARTNERSHIP—ARTICLES 1815-1827 A6
should be reinstated in its Answer.
SO ORDERED.31
The CA ruled that an order granting Saludo's motion to dismiss counterclaim,
being interlocutory in nature, is not appealable until after judgment shall have
been rendered on Saludo's complaint. Since the Omnibus Order is
interlocutory, and there was an allegation of grave abuse of discretion, a
petition for certiorari is the proper remedy.32
On the merits, the CA held that Saludo is estopped from claiming that SAFA
Law Office is his single proprietorship. Under the doctrine of estoppel, an
admission or representation is rendered conclusive upon the person making
it, and cannot be denied or disproved as against the person relying thereon.
Here, SAFA Law Office was the one that entered into the lease contract and
not Saludo. In fact, the latter signed the contract as the firm's managing
partner. The alleged Memorandum of Understanding 33 (MOU) executed by
the partners of SAFA Law Office, .which states, among others, that Saludo
alone would be liable for the firm's losses and liabilities, and the letter of
Saludo to PNB confirming that SAFA Law Office is his single proprietorship
did not convert the firm to a single proprietorship. Moreover, SAFA Law Office
sent a letter to PNB regarding its unpaid rentals which Saludo signed as a
managing partner. The firm is also registered as a partnership with the
Securities and Exchange Commission (SEC). 34
On the question of whether SAFA Law Office is an indispensable party, the
CA held that it is not. As a partnership, it may sue or be sued in its name or
by its duly authorized representative. Saludo, as managing partner, may
execute all acts of administration, including the right to sue. Furthermore, the
CA found that SAFA Law Office is not a legal entity. A partnership for the
practice of law is not a legal entity but a mere relationship or association for a
particular purpose. Thus, SAFA Law Office cannot file an action in court.
Based on these premises, the CA held that the RTC did not gravely abuse its
discretion in denying PNB's motion to include an indispensable party as
plaintiff.35
Nonetheless, the CA ruled that PNB's counterclaims against SAFA Law
Office should not be dismissed. While SAFA Law Office is not a legal entity, it
can still be sued under Section 15, 36 Rule 3 of the Rules of Court considering
that it entered into the Contract of Lease with PNB. 37
The CA further ruled that while it is true that SAFA Law Office's liability is
not in solidum with Saludo as PNB asserts, it does not necessarily follow that
both of them cannot be made parties to PNB's counterclaims. Neither should
the counterclaims be dismissed on the ground that the nature of the alleged
liability is solidary. According to the CA, the presence ofSAFA Law Office is
required for the granting of complete relief in the determination of PNB's
Page 7 of 22
counterclaim. The court must, therefore, order it to be brought in as
defendant since jurisdiction over it can be obtained pursuant to Section
12,38 Rule 6 of the Rules of Court.39
Finally, the CA emphasized that PNB's counterclaims are compulsory, as
they arose from the filing of Saludo's complaint. It cannot be made subject of
a separate action but should be asserted in the same suit involving the same
transaction. Thus, the Presiding Judge of the RTC gravely abused his
discretion in dismissing PNB's counterclaims as the latter may forever be
barred from collecting overdue rental fees if its counterclaims were not
allowed.40
Saludo and PNB filed their respective motions for partial reconsideration
dated February 25, 201041 and February 26, 2010.42 In a Resolution dated
August 2, 2010, the CA denied both motions on the ground that no new or
substantial matters had been raised therein. Nonetheless, the CA addressed
the issue on the joining of SAFA Law Office as a defendant in PNB's
compulsory counterclaim. Pertinent portions of the CA Resolution read:
The Private Respondent claims that a compulsory counterclaim is one
directed against an opposing party. The SAFA Law Office is not a party to the
case below and to require it to be brought in as a defendant to the
compulsory counterclaim would entail making it a co-plaintiff. Otherwise, the
compulsory counterclaim would be changed into a third-party complaint. The
Private Respondent also argues that Section 15, Rule 3 of the Rules of Court
(on entities without juridical personality) is only applicable to initiatory
pleadings and not to compulsory counterclaims. Lastly, it is claimed that
since the alleged obligations of the SAFA Law Office is solidary with the
Private Respondent, there is no need to make the former a defendant to the
counterclaim.
We disagree with the reasoning of the Private Respondent. That a
compulsory counterclaim can only be brought against an opposing party is
belied by considering one of the requisites of a compulsory counterclaim it
does not require for its adjudication the presence of third parties of whom the
court cannot acquire jurisdiction. This shows that non-parties to a suit may be
brought in as defendants to such a counterclaim. x x x
xxxx
In the case at bench, the trial court below can acquire jurisdiction over the
SAFA Law Office considering the amount and the nature of the counterclaim.
Furthermore, the inclusion of the SAFA Law Office as a defendant to the
counterclaim will enable the granting of complete relief in view [of] the liability
of a partner to the partnership's creditors under the law. 43
Hence, this petition, where Saludo raises the following issues for our
resolution:
PARTNERSHIP—ARTICLES 1815-1827 A6
(1)
Whether the CA erred in including SAFA Law Office as defendant to PNB's
counterclaim despite its holding that SAFA Law Office is neither an
indispensable party nor a legal entity;
(2)
Whether the CA went beyond the issues in the petition for certiorari and
prematurely dealt with the merits of PNB's counterclaim; and
(3)
Whether the CA erred when it gave due course to PNB's petition
for certiorari to annul and set aside the RTC's Omnibus Order dated January
11, 2007.44
The petition is bereft of merit.
We hold that SAFA Law Office is a juridical entity and the real party-in-
interest in the suit filed with the RTC by Saludo against PNB. Hence, it
should be joined as plaintiff in that case.
I.
Contrary to Saludo's submission, SAFA Law Office is a partnership and not a
single proprietorship.
Article 1767 of the Civil Code provides that by a contract of partnership, two
or more persons bind themselves to contribute money, property, or industry
to a common fund, with the intention of dividing the profits among
themselves. Two or more persons may also form a partnership for the
exercise of a profession. Under Article 1771, a partnership may be
constituted in any form, except where immovable property or real rights are
contributed thereto, in which case a public instrument shall be necessary.
Article 1784, on the other hand, provides that a partnership begins from the
moment of the execution of the contract, unless it is otherwise stipulated.
Here, absent evidence of an earlier agreement, SAFA Law Office was
constituted as a partnership at the time its partners signed the Articles of
Partnership45 wherein they bound themselves to establish a partnership for
the practice of law, contribute capital and industry for the purpose, and
receive compensation and benefits in the course of its operation. The
opening paragraph of the Articles of Partnership reveals the unequivocal
intention of its signatories to form a partnership, to wit:
WE, the undersigned ANICETO G. SALUDO, JR., RUBEN E. AGPALO,
FILEMON L. FERNANDEZ, AND AMADO D. AQUINO, all of legal age,
Filipino citizens and members of the Philippine Bar, have this day voluntarily
associated ourselves for the purpose of forming a partnership engaged in the
practice of law, effective this date, under the terms and conditions hereafter
set forth, and subject to the provisions of existing laws[.] 46
Page 8 of 22
The subsequent registration of the Articles of Partnership with the SEC, on
the other hand, was made in compliance with Article 1772 of the Civil Code,
since the initial capital of the partnership was P500,000.00. 47 Said provision
states:
Art. 1772. Every contract of partnership having a capital ofThree thousand
pesos or more, in money or property, shall appear in a public instrument,
which must be recorded in the Office of the Securities and Exchange
Commission.
xxxx
The other provisions of the Articles of Partnership also positively identify
SAFA Law Office as a partnership. It constantly used the words "partners"
and "partnership." It designated petitioner Saludo as managing partner, 48 and
Attys. Ruben E. Agpalo, Filemon L. Fernandez, and Amado D. Aquino as
industrial partners.49 It also provided for the term of the
50
partnership, distribution of net profits and losses, and management of the
firm in which "the partners shall have equal interest in the conduct of [its]
affairs."51 Moreover, it provided for the cause and manner of dissolution of the
partnership.52 These provisions would not have been necessary if what had
been established was a sole proprietorship. Indeed, it may only be concluded
from the circumstances that, for all intents and purposes, SAFA Law Office is
a partnership created and organized in accordance with the Civil Code
provisions on partnership.
WHEREAS, the SEC has not approved the registration of the Articles of
Incorporation and its Examiner required that the phrase "shall not in any way
be liable for any loss or liability that may be incurred by the law firm in the
course of its operation" in Article VII be deleted;
WHEREAS, the SEC Examiner likewise required that the sentence "All
remaining assets upon dissolution shall accrue exclusively to A. G. Saludo,
Jr. and all liabilities shall be solely for his account" in Article X be likewise
deleted;
WHEREAS, in order to meet the objections of said Examiner, the
objectionable provisions have been deleted and new Articles of Incorporation
deleting said objectionable provisions have been executed by the parties and
filed with the SEC.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenant of the parties, the parties hereby agree as follows:
1. Notwithstanding the deletion of the portions objected to by the said
Examiner, by reason of which entirely new Articles of Incorporation have
been executed by the parties removing the objected portions, the actual and
real intent of the parties is still as originally envisioned, namely:

Saludo asserts that SAFA Law Office is a sole proprietorship on the basis of a) That partners R. E. Agpalo, F. L. Fernandez and A. D. Aquino shall not in
the MOU executed by the partners of the firm. The MOU states in full: 53 any way be liable for any loss or liability that may be incurred by the law firm
MEMORANDUM OF UNDERSTANDING in the course of its operation;

WHEREAS, the undersigned executed and filed with the SEC the Articles of b) That all remaining assets upon dissolution shall accrue exclusively to A.
Incorporation of SALUDO, AGPALO, FERNANDEZ and AQUINO on March G. Saludo, Jr. and all liabilities shall be solely for his account.
13, 1997;
2. That the parties hereof hereby bind and obligate themselves to adhere
WHEREAS, among the provisions of said Articles of Incorporation are the and observe the real intent of the parties as above-stated, any provisions in
following: the Articles of Incorporation as filed to meet the objections of the SEC
Examiner to the contrary notwithstanding.
1. That partners R. E. Agpalo, F. L. Fernandez and A. D. Aquino shall be
industrial partners, and they shall not contribute capital to the partnership IN WITNESS WHEREOF, we have set our hands this _____ day of May,
and shall not in any way be liable for any loss or liability that may be incurred 1997 at Makati City, Philippines.
by the law firm in the course of its operation.
[Sgd.]
2. That the partnership shall be dissolved by agreement of the partners or for A.G. SALUDO, JR.
any cause as and in accordance with the manner provided by law, in which [Sgd.]
event the Articles of Dissolution of said partnership shall be filed with the [Sgd.]
Securities and Exchange Commission. All remaining assets upon dissolution [Sgd.]
shall accrue exclusively to A. G. Saludo, Jr. and all liabilities shall be solely RUBEN E. AGPALO
for his account. FILEMON L. FERNANDEZ
PARTNERSHIP—ARTICLES 1815-1827 A6 Page 9 of 22
AMADO D. AQUINO
The foregoing evinces the parties' intention to entirely shift any liability that
may be incurred by SAFA Law Office in the course of its operation to Saludo,
who shall also receive all the remaining assets of the firm upon its
dissolution. This MOU, however, does not serve to convert SAFA Law Office
into a sole proprietorship. As discussed, SAFA Law Office was manifestly
established as a partnership based on the Articles of Partnership. The MOU,
from its tenor, reinforces this fact. It did not change the nature of the
organization of SAFA Law Office but only excused the industrial partners
from liability.
The law, in its wisdom, recognized the possibility that partners in a
partnership may decide to place a limit on their individual accountability.
Consequently, to protect third persons dealing with the partnership, the law
provides a rule, embodied in Article 1816 of the Civil Code, which states:
Art. 1816. All partners, including industrial ones, shall be liable pro rata with
all their property and after all the partnership assets have been exhausted,
for the contract which may be entered into in the name and for the account of
the partnership, under its signature and by a person authorized to act for the
partnership. However, any partner may enter into a separate obligation to
perform a partnership contract.
The foregoing provision does not prevent partners from agreeing to limit their
liability, but such agreement may only be valid as among them. Thus, Article
1817 of the Civil Code provides:
Art. 1817. Any stipulation against the liability laid down in the preceding
article shall be void, except as among the partners.
The MOU is an agreement forged under the foregoing provision.
Consequently, the sole liability being undertaken by Saludo serves to bind
only the parties to the MOU, but never third persons like PNB.
Considering that the MOU is sanctioned by the law on partnership, it cannot
change the nature of a duly-constituted partnership. Hence, we cannot
sustain Saludo's position that SAFA Law Office is a sole proprietorship.
II.
Having settled that SAFA Law Office is a partnership, we hold that it acquired
juridical personality by operation of law. The perfection and validity of a
contract of partnership brings about the creation of a juridical person
separate and distinct from the individuals comprising the partnership. Thus,
Article 1768 of the Civil Code provides:
Art. 1768. The partnership has a juridical personality separate and distinct
from that of each of the partners, even in case of failure to comply with the
requirements of Article 1772, first paragraph.
Article 44 of the Civil Code likewise provides that partnerships are juridical
persons, to wit:
PARTNERSHIP—ARTICLES 1815-1827 A6
Art. 44. The following are juridical persons:
(1)
The State and its political subdivisions;
(2)
Other corporations, institutions and entities for public interest or purpose,
created by law; their personality begins as soon as they have been
constituted according to law;
(3)
Corporations, partnerships and associations for private interest or purpose
to which the law grants a juridical personality, separate and distinct from that
of each shareholder, partner or member. 54
It is this juridical personality that allows a partnership to enter into business
transactions to fulfill its purposes. Article 46 of the Civil Code provides that
"[j]uridical persons may acquire and possess property of all kinds, as well as
incur obligations and bring civil or criminal actions, in conformity with the laws
and regulations of their organization."
SAFA Law Office entered into a contract of lease with PNB as a juridical
person to pursue the objectives of the partnership. The terms of the contract
and the manner in which the parties implemented it are a glaring recognition
of SAFA Law Office's juridical personality. Thus, the contract stated that it is
being executed by PNB as the lessor and "SALUDO AGPALO FERNANDEZ
& AQUINO, a partnership organized and existing under the laws of the
Republic of the Philippines," as the lessee.55 It also provided that the lessee,
i.e., SAFA Law Office, shall be liable in case of default. 56
Furthermore, subsequent communications between the parties have always
been made for or on behalf ofPNB and SAFA Law Office, respectively. 57
In view of the above, we see nothing to support the position of the RTC and
the CA, as well as Saludo, that SAFA Law Office is not a partnership and a
legal entity. Saludo's claims that SAFA Law Office is his sole proprietorship
and not a legal entity fail in light of the clear provisions of the law on
partnership. To reiterate, SAFA Law Office was created as a partnership, and
as such, acquired juridical personality by operation of law. Hence, its rights
and obligations, as well as those of its partners, are determined by law and
not by what the partners purport them to be.
III.
In holding that SAFA Law Office, a partnership for the practice of law, is not a
legal entity, the CA cited58 the case of Petition for Authority to Continue Use
of the Firm Name "Sycip, Salazar, Feliciano, Hernandez &
Castillo"59 (Sycip case) wherein the Court held that "[a] partnership for the
practice of law is not a legal entity. It is a mere relationship or association for
Page 10 of 22
a particular purpose. x x x It is not a partnership formed for the purpose of
carrying on trade or business or of holding property." 60 These are direct
quotes from the US case of In re Crawford's Estate.61 We hold, however, that
our reference to this US case is an obiter dictum which cannot serve as a
binding precedent.62
An obiter dictum is an opinion of the court upon a question which was not
necessary to the decision of the case before it. It is an opinion uttered by the
way, not upon the point or question pending, as if turning aside from the main
topic of the case to collateral subjects, or an opinion that does not embody
the court's determination and is made without argument or full consideration
of the point. It is not a professed deliberate determination of the judge
himself.63
The main issue raised for the court's determination in the Sycip case is
whether the two petitioner law firms may continue using the names of their
deceased partners in their respective firm names. The court decided the
issue in the negative on the basis of "legal and ethical impediments." 64 To be
sure, the pronouncement that a partnership for the practice of law is not a
legal entity does not bear on either the legal or ethical obstacle for the
continued use of a deceased partner's name, inasmuch as it merely
describes the nature of a law firm. The pronouncement is not determinative
of the main issue. As a matter of fact, if deleted from the judgment, the
rationale of the decision is neither affected nor altered.
Moreover, reference of the Sycip case to the In re Crawford's Estate case
was made without a full consideration of the nature of a law firm as a
partnership possessed with legal personality under our Civil Code. First, we
note that while the Court mentioned that a partnership for the practice of law
is not a legal entity, it also identified petitioner law firms as partnerships over
whom Civil Code provisions on partnership apply. 65 The Court thus cannot
hold that a partnership for the practice of law is not a legal entity without
running into conflict with Articles 44 and 1768 of the Civil Code which provide
that a partnership has a juridical personality separate and distinct from that of
each of the partners.
Second, our law on partnership does not exclude partnerships for the
practice of law from its coverage. Article 1767 of the Civil Code provides that
"[t]wo or more persons may also form a partnership for the exercise of a
profession." Article 1783, on the other hand, states that "[a] particular
partnership has for its object determinate things, their use or fruits, or a
specific undertaking, or the exercise of a profession or vocation." Since the
law uses the word "profession" in the general sense, and does not
distinguish which professional partnerships are covered by its provisions and
which are not, then no valid distinction may be made.
PARTNERSHIP—ARTICLES 1815-1827 A6
Finally, we stress that unlike Philippine law, American law does not treat of
partnerships as forming a separate juridical personality for all purposes. In
the case of Bellis v. United States,66 the US Supreme Court stated that law
firms, as a form of partnership, are generally regarded as distinct entities for
specific purposes, such as employment, capacity to be sued, capacity to hold
title to property, and more. 67 State and federal laws, however, do not treat
partnerships as distinct entities for all purposes. 68
Our jurisprudence has long recognized that American common law does not
treat of partnerships as a separate juridical entity unlike Philippine law.
Hence, in the case of Campos Rueda & Co. v. Pacific Commercial
Co.,69 which was decided under the old Civil Code, we held:
Unlike the common law, the Philippine statutes consider a limited partnership
as a juridical entity for all intents and purposes, which personality is
recognized in all its acts and contracts (art. 116, Code of Commerce). This
being so and the juridical personality of a limited partnership being different
from that of its members, it must, on general principle, answer for, and suffer,
the consequence of its acts as such an entity capable of being the subject of
rights and obligations.70 x x x
On the other hand, in the case of Commissioner of Internal Revenue v.
Suter.71 which was decided under the new Civil Code, we held:
It being a basic tenet of the Spanish and Philippine law that the partnership
has a juridical personality of its own, distinct and separate from that of its
partners (unlike American and English law that does not recognize such
separate juridical personality), the bypassing of the existence of the limited
partnership as a taxpayer can only be done by ignoring or disregarding clear
statutory mandates and basic principles of our law. 72 x x x
Indeed, under the old and new Civil Codes, Philippine law has consistently
treated partnerships as having a juridical personality separate from its
partners. In view of the clear provisions of the law on partnership, as
enriched by jurisprudence, we hold that our reference to In re Crawford's
Estate in the Sycip case is an obiter dictum.
IV.
Having settled that SAFA Law Office is a juridical person, we hold that it is
also the real party-in-interest in the case filed by Saludo against PNB.
Section 2, Rule 3 of the Rules of Court defines a real party-in-interest as the
one "who stands to be benefited or injured by the judgment in the suit, or the
party entitled to the avails of the suit." In Lee v. Romillo, Jr.,73 we held that the
"real [party-in-interest]-plaintiffis one who has a legal right[,] while a
real [party-in-interest]-defendant is one who has a correlative legal obligation
whose act or omission violates the legal rights of the former." 74
SAFA Law Office is the party that would be benefited or injured by the
Page 11 of 22
judgment in the suit before the RTC. Particularly, it is the party interested in
the accounting and/or recomputation of unpaid rentals and damages in
relation to the contract of lease. It is also the party that would be liable for
payment to PNB of overdue rentals, if that claim would be proven. This is
because it is the one that entered into the contract of lease with PNB. As an
entity possessed of a juridical personality, it has concomitant rights and
obligations with respect to the transactions it enters into. Equally important,
the general rule under Article 1816 of the Civil Code is that partnership
assets are primarily liable for the contracts entered into in the name of the
partnership and by a person authorized to act on its behalf. All partners,
including industrial ones, are only liable pro rata with all their property after all
the partnership assets have been exhausted.
In Guy v. Gacott,75 we held that under Article 1816 of the Civil Code, the
partners' obligation with respect to the partnership liabilities is subsidiary in
nature. It is merely secondary and only arises if the one primarily liable fails
to sufficiently satisfy the obligation. Resort to the properties of a partner may
be made only after efforts in exhausting partnership assets have failed or if
such partnership assets are insufficient to cover the entire
obligation.76 Consequently, considering that SAFA Law Office is primarily
liable under the contract of lease, it is the real party-in-interest that should be
joined as plaintiff in the RTC case.
Section 2, Rule 3 of the Rules of Court requires that every action must be
prosecuted or defended in the name of the real party-in-interest. As the one
primarily affected by the outcome of the suit, SAFA Law Office should have
filed the complaint with the RTC and should be made to respond to any
counterclaims that may be brought in the course of the proceeding.
In Aguila, Jr. v. Court of Appeals,77 a case for declaration of nullity of a deed
of sale was filed against a partner of A.C. Aguila & Sons, Co. We dismissed
the complaint and held that it was the partnership, not its partners, which
should be impleaded for a cause of action against the partnership itself.
Moreover, the partners could not be held liable for the obligations of the
partnership unless it was shown that the legal fiction of a different juridical
personality was being used for fraudulent, unfair, or illegal purposes. We
held:
Rule 3, §2 of the Rules of Court of 1964, under which the complaint in this
case was filed, provided that "every action must be prosecuted and defended
in the name of the real party in interest." A real party in interest is one who
would be benefited or injured by the judgment, or who is entitled to the avails
of the suit. This ruling is now embodied in Rule 3, §2 of the 1997 Revised
Rules of Civil Procedure. Any decision rendered against a person who is not
a real party in interest in the case cannot be executed. Hence, a complaint
filed against such a person should be dismissed for failure to state a cause of
action.
PARTNERSHIP—ARTICLES 1815-1827 A6
Under Art. 1768 of the Civil Code, a partnership "has a juridical personality
separate and distinct from that of each of the partners." The partners cannot
be held liable for the obligations of the partnership unless it is shown that the
legal fiction of a different juridical personality is being used for fraudulent,
unfair, or illegal purposes. In this case, private respondent has not shown
that A.C. Aguila & Sons, Co., as a separate juridical entity, is being used for
fraudulent, unfair, or illegal purposes. Moreover, the title to the subject
property is in the name of A.C. Aguila & Sons, Co. and the Memorandum of
Agreement was executed between private respondent, with the consent of
her late husband, and A.C. Aguila & Sons, Co., represented by petitioner.
Hence, it is the partnership, not its officers or agents, which should be
impleaded in any litigation involving property registered in its name. A
violation of this rule will result in the dismissal of the complaint. 78
In this case, there is likewise no showing that SAFA Law Office, as a
separate juridical entity, is being used for fraudulent, unfair, or illegal
purposes. Hence, its partners cannot be held primarily liable for the
obligations of the partnership. As it was SAFA Law Office that entered into a
contract of lease with respondent PNB, it should also be impleaded in any
litigation concerning that contract.
Accordingly, the complaint filed by Saludo should be amended to include
SAFA Law Office as plaintiff. Section 11, 79 Rule 3 of the Rules of Court gives
power to the court to add a party to the case on its own initiative at any stage
of the action and on such tenns as are just. We have also held in several
cases80 that the court has full powers, apart from that power and authority
which are inherent, to amend processes, pleadings, proceedings, and
decisions by substituting as party-plaintiff the real party-in-interest.
In view of the above discussion, we find it unnecessary to discuss the other
issues raised in the petition. It is unfortunate that the case has dragged on for
more than 10 years even if it involves an issue that may be resolved by a
simple application of Civil Code provisions on partnership. It is time for trial to
proceed so that the parties' substantial rights may be adjudicated without
further unnecessary delay.
WHEREFORE, the petition is DENIED. Petitioner is hereby ordered to
amend his complaint to include SAFA Law Office as plaintiff in Civil Case No.
06-678 pending before Branch 58 of the Regional Trial Court of Makati City, it
being the real party-in-interest.
SO ORDERED.
Page 12 of 22
[3] January 26, 1967, when the second check for P6,000.00 was due, petitioner
refused to indorse said check presented to him by Galan but through later
[G.R. No. L-39780. November 11, 1985.] manipulations, respondent Pons succeeded in changing the payee’s name
from Elmo Muñasque to Galan and Associates, thus enabling Galan to cash
ELMO MUÑASQUE, Petitioner, v. COURT OF APPEALS, CELESTINO the same at the Cebu Branch of the Philippine Commercial and Industrial
GALAN, TROPICAL COMMERCIAL COMPANY and RAMON Bank (PCIB) placing the petitioner in great financial difficulty in his
PONS, Respondents. construction business and subjecting him to demands of creditors to pay for
construction materials, the payment of which should have been made from
John T. Borromeo for Petitioner. the P13,000.00 received by Galan; that petitioner undertook the construction
at his own expense completing it prior to the March 16, 1967 deadline; that
Juan D. Astete for respondent C. Galan. because of the unauthorized disbursement by respondents Tropical and
Pons of the sum of P13,000.00 to Galan, petitioner demanded that said
Paul Gornes for respondent R. Pons. amount be paid to him by respondents under the terms of the written contract
between the petitioner and respondent company.chanrobles.com : virtual law
Viu Montecillo for respondent Tropical. library

Paterno P. Natinga for Intervenor Blue Diamond Glass Palace. The respondents answered the complaint by denying some and admitting
some of the material averments and setting up counterclaims.

DECISION During the pre-trial conference, the petitioners and respondents agreed that
GUTIERREZ, JR., J.: the issues to be resolved are:chanrob1es virtual 1aw library

(1) Whether or not there existed a partnership between Celestino Galan and
In this petition for certiorari, the petitioner seeks to annul and set aside the Elmo Muñasque; and
decision of the Court of Appeals affirming the existence of a partnership
between petitioner and one of the respondents, Celestino Galan and holding (2) Whether or not there existed a justifiable cause on the part of respondent
both of them liable to the two intervenors which extended credit to their Tropical to disburse money to respondent Galan.
partnership. The petitioner wants to be excluded from the liabilities of the
partnership. The business firms Cebu Southern Hardware Company and Blue Diamond
Glass Palace were allowed to intervene, both having legal interest in the
Petitioner Elmo Muñasque filed a complaint for payment of sum of money matter in litigation.
and damages against respondents Celestino Galan, Tropical Commercial,
Co., Inc. (Tropical) and Ramon Pons, alleging that the petitioner entered into After trial, the court rendered judgment, the dispositive portion of which
a contract with respondent Tropical through its Cebu Branch Manager Pons states:jgc:chanrobles.com.ph
for remodelling a portion of its building without exchanging or expecting any
consideration from Galan although the latter was casually named as partner "IN VIEW WHEREOF, Judgment is hereby rendered:red:chanrobles.com.ph
in the contract; that by virtue of his having introduced the petitioner to the
employing company (Tropical), Galan would receive some kind of "(1) ordering plaintiff Muñasque and defendant Galan to pay jointly and
compensation in the form of some percentages or commission; that Tropical, severally the intervenors Cebu and Southern Hardware Company and Blue
under the terms of the contract, agreed to give petitioner the amount of Diamond Glass Palace the amount of P6,229.34 and P2,213.51,
P7,000.00 soon after the construction began and thereafter the amount of respectively;
P6,000.00 every fifteen (15) days during the construction to make a total sum
of P25,000.00; that on January 9, 1967, Tropical and/or Pons delivered a "(2) absolving the defendants Tropical Commercial Company and Ramon
check for P7,000.00 not to the plaintiff but to a stranger to the contract, Pons from any liability.
Galan, who succeeded in getting petitioner’s indorsement on the same check
persuading the latter that the same be deposited in a joint account; that on "No damages awarded whatsoever."cralaw virtua1aw library
PARTNERSHIP—ARTICLES 1815-1827 A6 Page 13 of 22
 for P7,000.00 in the name of the petitioner. Petitioner, however, indorsed the
The petitioner and intervenor Cebu Southern Company and its proprietor, check in favor of respondent Galan to enable the latter to deposit it in the
Tan Siu filed motions for reconsideration. bank and pay for the materials and labor used in the project.

On January 15, 1971, the trial court issued another order amending its Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00 for his
judgment to make it read as follows:red:chanrobles.com.ph personal use so that when the second check in the amount of P6,000.00
came and Galan asked the petitioner to indorse it again, the petitioner
"IN VIEW WHEREOF, Judgment is hereby rendered:red:chanrobles.com.ph refused.

"(1) ordering plaintiff Muñasqez and defendant Galan to pay jointly and The check was withheld from the petitioner. Since Galan informed the Cebu
severally the intervenors Cebu Southern Hardware Company and Blue branch of Tropical that there was a "misunderstanding" between him and
Diamond Glass Palace the amount of P6,229.34 and P2,213.51, petitioner, respondent Tropical changed the name of the payee in the second
respectively, check from Muñasque to "Galan and Associates" which was the duly
registered name of the partnership between Galan and petitioner and under
"(2) ordering plaintiff and defendant Galan to pay Intervenor Cebu Southern which name a permit to do construction business was issued by the mayor of
Hardware Company and Tan Siu jointly and severally interest at 12% per Cebu City. This enabled Galan to encash the second check.
annum of the sum of P3,229.34 until the amount is fully paid;
Meanwhile, as alleged by the petitioner, the construction continued through
"(3) ordering plaintiff and defendant Galan to pay P500.00 representing his sole efforts. He stated that he borrowed some P12,000.00 from his friend,
attorney’s fees jointly and severally to Intervenor Cebu Southern Hardware Mr. Espina and although the expenses had reached the amount of
Company; P29,000.00 because of the failure of Galan to pay what was partly due the
laborers and partly due for the materials, the construction work was finished
"(4) absolving the defendants Tropical Commercial Company and Ramon ahead of schedule with the total expenditure reaching P34,000.00.
Pons from any liability.
The two remaining checks, each in the amount of P6,000.00, were
"No damages awarded whatsoever."cralaw virtua1aw library subsequently given to the petitioner alone with the last check being given
pursuant to a court order.
On appeal, the Court of Appeals affirmed the judgment of the trial court with
the sole modification that the liability imposed in the dispositive part of the As stated earlier, the petitioner filed a complaint for payment of sum of
decision on the credit of Cebu Southern Hardware and Blue Diamond Glass money and damages against the respondents, seeking to recover the
Palace was changed from "jointly and severally" to "jointly."cralaw virtua1aw following: the amounts covered by the first and second checks which fell into
library the hands of respondent Galan, the additional expenses that the petitioner
incurred in the construction, moral and exemplary damages, and attorney’s
Not satisfied, Mr. Muñasque filed this petition. fees.

The present controversy began when petitioner Muñasque in behalf of the
partnership of "Galan and Muñasque" as Contractor entered into a written
contract with respondent Tropical for remodelling the respondent’s Cebu
branch building. A total amount of P25,000.00 was to be paid under the
contract for the entire services of the Contractor. The terms of payment were
as follows: thirty percent (30%) of the whole amount upon the signing of the
contract and the balance thereof divided into three equal installments at the
rate of Six Thousand Pesos (P6,000.00) every fifteen (15) working
days.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph
The first payment made by respondent Tropical was in the form of a check
PARTNERSHIP—ARTICLES 1815-1827 A6
Both the trial and appellate courts not only absolved respondents Tropical
and its Cebu Manager, Pons, from any liability but they also held the
petitioner together with respondent Galan, liable to the intervenors Cebu
Southern Hardware Company and Blue Diamond Glass Palace for the credit
which the intervenors extended to the partnership of petitioner and Galan.
In this petition, the legal questions raised by the petitioner are as follows: (1)
Whether or not the appellate court erred in holding that a partnership existed
between petitioner and respondent Galan. (2) Assuming that there was such
a partnership, whether or not the court erred in not finding Galan guilty of
malversing the P13,000.00 covered by the first and second checks and
Page 14 of 22
therefore, accountable to the petitioner for the said amount; and (3) Whether consequences."cralaw virtua1aw library
or not the court committed grave abuse of discretion in holding that the
payment made by Tropical through its manager Pons to Galan was "good No error was committed by the appellate court in holding that the payment
payment."cralaw virtua1aw library made by Tropical to Galan was a good payment which binds both Galan and
the petitioner. Since the two were partners when the debts were incurred,
Petitioner contends that the appellate court erred in holding that he and they are also both liable to third persons who extended credit to their
respondent Galan were partners, the truth being that Galan was a sham and partnership. In the case of George Litton v. Hill and Ceron, Et Al., (67 Phil.
a perfidious partner who misappropriated the amount of P13,000.00 due to 513, 514), we ruled:jgc:chanrobles.com.ph
the petitioner. Petitioner also contends that the appellate court committed
grave abuse of discretion in holding that the payment made by Tropical to "There is a general presumption that each individual partner is an authorized
Galan was "good" payment when the same gave occasion for the latter to agent for the firm and that he has authority to bind the firm in carrying on the
misappropriate the proceeds of such payment. partnership transactions." (Mills v. Riggle, 112 Pac., 617).

The contentions are without merit. "The presumption is sufficient to permit third persons to hold the firm liable on
transactions entered into by one of members of the firm acting apparently in
The records will show that the petitioner entered into a contract with Tropical its behalf and within the scope of his authority." (Le Roy v. Johnson, 7 U.S.
for the renovation of the latter’s building on behalf of the partnership of (Law. ed.), 391.).
"Galan and Muñasque." This is readily seen in the first paragraph of the
contract where it states:chanrobles law library Petitioner also maintains that the appellate court committed grave abuse of
discretion in not holding Galan liable for the amounts which he "malversed"
"This agreement made this 20th day of December in the year 1966 by Galan to the prejudice of the petitioner. He adds that although this was not one of
and Muñasque hereinafter called the Contractor, and Tropical Commercial the issues agreed upon by the parties during the pre-trial, he, nevertheless,
Co., Inc., hereinafter called the owner do hereby for and in consideration alleged the same in his amended complaint which was duly admitted by the
agree on the following: . . . ."cralaw virtua1aw library court.chanrobles virtual lawlibrary

There is nothing in the records to indicate that the partnership organized by
the two men was not a genuine one. If there was a falling out or
misunderstanding between the partners, such does not convert the
partnership into a sham organization.
Likewise, when Muñasque received the first payment of Tropical in the
amount of P7,000.00 with a check made out in his name, he indorsed the
check in favor of Galan. Respondent Tropical therefore, had every right to
presume that the petitioner and Galan were true partners. If they were not
partners as petitioner claims, then he has only himself to blame for making
the relationship appear otherwise, not only to Tropical but to their other
creditors as well. The payments made to the partnership were, therefore,
valid payments.
When the petitioner amended his complaint, it was only for the purpose of
impleading Ramon Pons in his personal capacity. Although the petitioner
made allegations as to the alleged malversations of Galan, these were the
same allegations in his original complaint. The malversation by one partner
was not an issue actually raised in the amended complaint but the alleged
connivance of Pons with Galan as a means to serve the latter’s personal
purposes.
The petitioner, therefore, should be bound by the delimitation of the issues
during the pre-trial because he himself agreed to the same. In Permanent
Concrete Products, Inc. v. Teodoro, (26 SCRA 336), we ruled:.
x x x

In the case of Singsong v. Isabela Sawmill (88 SCRA 643), we

ruled:jgc:chanrobles.com.ph
"Although it may be presumed that Margarita G. Saldajeno had acted in good
faith, the appellees also acted in good faith in extending credit to the
partnership. Where one of two innocent persons must suffer, that person who
gave occasion for the damages to be caused must bear the
PARTNERSHIP—ARTICLES 1815-1827 A6
". . . The appellant is bound by the delimitation of the issues contained in the
trial court’s order issued on the very day the pre-trial conference was held.
Such an order controls the subsequent course of the action, unless modified
before trial to prevent manifest injustice. In the case at bar, modification of
the pre-trial order was never sought at the instance of any party."cralaw
virtua1aw library
Page 15 of 22

Petitioner could have asked at least for a modification of the issues if he
really wanted to include the determination of Galan’s personal liability to their
partnership but he chose not to do so, as he vehemently denied the
existence of the partnership, At any rate, the issue raised in this petition is
the contention of Muñasque that the amounts payable to the intervenors
should be shouldered exclusively by Galan. We note that the petitioner is not
solely burdened by the obligations of their ill-starred partnership. The records
show that there is an existing judgment against respondent Galan, holding
him liable for the total amount of P7,000,00 in favor of Eden Hardware which
extended credit to the partnership aside from the P2,000.00 he already paid
to Universal Lumber.
We, however, take exception to the ruling of the appellate court that the trial
court’s ordering petitioner and Galan to pay the credits of Blue Diamond and
Cebu Southern Hardware "jointly and severally" is plain error since the
liability of partners under the law to third persons for contracts executed in
connection with partnership business is only pro rata under Art. 1816, of the
Civil Code.
While it is true that under Article 1816 of the Civil Code, "All partners,
including industrial ones, shall be liable pro rata with all their property and
after all the partnership assets have been exhausted, for the contracts which
may be entered into the name and for the account of the partnership, under
its signature and by a person authorized to act for the partnership. . . .", this
provision should be construed together with Article 1824 which provides that:
"All partners are liable solidarily with the partnership for everything
chargeable to the partnership under Articles 1822 and 1823." In short, while
the liability of the partners are merely joint in transactions entered into by the
partnership, a third person who transacted with said partnership can hold the
partners solidarily liable for the whole obligation if the case of the third person
falls under Articles 1822 or 1823.chanrobles law library : red
Articles 1822 and 1823 of the Civil Code provide:jgc:chanrobles.com.ph
"Art. 1822. Where, by any wrongful act or omission of any partner acting in
the ordinary course of the business of the partnership or with the authority of
his co-partners, loss or injury is caused to any person, not being a partner in
the partnership or any penalty is incurred, the partnership is liable therefor to
the same extent as the partner so acting or omitting to act."cralaw virtua1aw
library
"Art. 1823. The partnership is bound to make good the
loss:jgc:chanrobles.com.ph
"(1) Where one partner acting within the scope of his apparent authority
PARTNERSHIP—ARTICLES 1815-1827 A6
receives money or property of a third person and misapplies it; and
"(2) Where the partnership in the course of its business receives money or
property of a third person and the money or property so received is
misapplied by any partner while it is in the custody of the partnership."cralaw
virtua1aw library
The obligation is solidary because the law protects him, who in good faith
relied upon the authority of a partner, whether such authority is real or
apparent. That is why under Article 1824 of the Civil Code all partners,
whether innocent or guilty, as well as the legal entity which is the partnership,
are solidarily liable.
In the case at bar the respondent Tropical had every reason to believe that a
partnership existed between the petitioner and Galan and no fault or error
can be imputed against it for making payments to "Galan and Associates"
and delivering the same to Galan because as far as it was concerned, Galan
was a true partner with real authority to transact on behalf of the partnership
with which it was dealing. This is even more true in the cases of Cebu
Southern Hardware and Blue Diamond Glass Palace who supplied materials
on credit to the partnership. Thus, it is but fair that the consequences of any
wrongful act committed by any of the partners therein should be answered
solidarily by all the partners and the partnership as a whole.
However, as between the partners Muñasque and Galan, justice also
dictates that Muñasque be reimbursed by Galan for the payments made by
the former representing the liability of their partnership to herein intervenors,
as it was satisfactorily established that Galan acted in bad faith in his
dealings with Muñasque as a partner.chanrobles virtual lawlibrary
WHEREFORE, the decision appealed from is hereby AFFIRMED with the
MODIFICATION that the liability of petitioner and respondent Galan to
intervenors Blue Diamond Glass and Cebu Southern Hardware is declared to
be joint and solidary. Petitioner may recover from respondent Galan any
amount that he pays, in his capacity as a partner, to the above intervenors.
SO ORDERED.
Page 16 of 22
[4] “(c) Fargo Pick-Up FKI-16, with motor No. T-112800032,
Serial No. 8869225 and with plate No. T-7222 (1949).
[G.R. No. L-7991. May 21, 1956.]
The mortgage deed was fully registered by the mortgagee on June 11, 1949,
PAUL MACDONALD, ET AL., Petitioners, vs. THE NATIONAL CITY BANK
in the Office of the Register of Deeds for the province of Rizal, at Pasig,
OF NEW YORK, Respondent.
(Exhibit A), and among other provisions it contained the
following:chanroblesvirtuallawlibrary
DECISION “‘(a) That the mortgagor shall not sell or otherwise dispose of the said
chattels without the mortgagee’s written consent; chan
PARAS, J.:
roblesvirtualawlibraryand
This is an appeal by certiorari from the decision of the Court of Appeals from
“‘(b) That the mortgagee may foreclose the mortgage at any time, after
which we are reproducing the following basic findings of
breach of any condition thereof, the mortgagor waiving the 30- day notice of
fact:chanroblesvirtuallawlibrary
foreclosure.’
“STASIKINOCEY is a partnership doing business at No. 58, Aurora
“On June 7, 1949, the same day of the execution of the chattel mortgage
Boulevard, San Juan, Rizal, and formed by Alan W. Gorcey, Louis F. da
aforementioned, Gorcey and Da Costa executed an agreement purporting to
Costa, Jr., William Kusik and Emma Badong Gavino. This partnership was
convey and transfer all their rights, title and participation
denied registration in the Securities and Exchange Commission, and while it
in Defendant partnership to Shaeffer, allegedly in consideration of the
is confusing to see in this case that the CARDINAL RATTAN, sometimes
cancellation of an indebtedness of P25,000 owed by them
called the CARDINAL RATTAN FACTORY, is treated as a copartnership, of
and Defendant partnership to the latter (Exhibit J), which transaction is said
which Defendants Gorcey and da Costa are considered general partners, we
to be in violation of the Bulk Sales Law (Act No. 3952 of the Philippine
are satisfied that, as alleged in various instruments appearing of record, said
Legislature).
Cardinal Rattan is merely the business name or style used by the partnership
Stasikinocey. “While the said loan was still unpaid and the chattel mortgage
subsisting, Defendant partnership, through Defendants Gorcey and Da Costa
“Prior to June 3, 1949, Defendant Stasikinocey had an overdraft account with
transferred to Defendant McDonald the Fargo truck and Plymouth sedan on
The National City Bank of New York, a foreign banking association duly
June 24, 1949 (Exhibit L). The Fargo pickup was also sold on June 28, 1949,
licensed to do business in the Philippines. On June 3, 1949, the overdraft
by William Shaeffer to Paul McDonald.
showed a balance of P6,134.92 against the Defendant Stasikinocey or the
Cardinal Rattan (Exhibit D), which account, due to the failure of the “On or about July 19, 1944, Paul Mcdonald, notwithstanding Plaintiff’s
partnership to make the required payment, was converted into an ordinary existing mortgage lien, in turn transferred the Fargo truck and the Plymouth
loan for which the corresponding promissory ‘joint note non-negotiable’ was sedan to Benjamin Gonzales.”
executed on June 3, 1949, by Louis F. da Costa for and in the name of the
The National City Bank of New York, Respondent herein, upon learning of
Cardinal Rattan, Louis F. da Costa and Alan Gorcey (Exhibit D). This
the transfers made by the partnership Stasikinocey to William Shaeffer, from
promissory note was secured on June 7, 1949, by a chattel mortgage
the latter to Paul McDonald, and from Paul McDonald to Benjamin Gonzales,
executed by Louis F. da Costa, Jr., General Partner for and in the name of
of the vehicles previously pledged by Stasikinocey to the Respondent, filed
Stasikinocey, alleged to be a duly registered Philippine partnership, doing
an action against Stasikinocey and its alleged partners Gorcey and Da
business under the name and style of Cardinal Rattan, with principal office at
Costa, as well as Paul McDonald and Benjamin Gonzales, to recover its
69 Riverside, San Juan, Rizal (Exhibit A). The chattels mortgaged were the
credit and to foreclose the corresponding chattel mortgage. McDonald and
following motor vehicles:chanroblesvirtuallawlibrary
Gonzales were made Defendants because they claimed to have a better
“(a) Fargo truck with motor No. T-118-202839, Serial No. 81410206 and with right over the pledged vehicle.
plate No. T-7333 (1949);
After trial the Court of First Instance of Manila rendered judgment in favor of
“(b) Plymouth Sedan automobile motor No. T-5638876, Serial No. 11872718 the Respondent, annulling the sale of the vehicles in question to Benjamin
and with plate No. 10372; chan roblesvirtualawlibraryand Gonzales; chan roblesvirtualawlibrarysentencing Da Costa and Gorcey to
pay to the Respondent jointly and severally the sum of P6,134.92, with legal
PARTNERSHIP—ARTICLES 1815-1827 A6 Page 17 of 22
interest from the debt of the promissory note involved; chan
roblesvirtualawlibrarysentencing the Petitioner Gonzales to deliver the
vehicles in question to the Respondent for sale at public auction if Da Costa
and Gorcey should fail to pay the money judgment; chan
roblesvirtualawlibraryand sentencing Da Costa, Gorcey and Shaeffers to pay
to the Respondent jointly and severally any deficiency that may remain
unpaid should the proceeds of the sale not be sufficient; chan
roblesvirtualawlibraryand sentencing Gorcey, Da Costa, McDonald and
Shaeffer to pay the costs. Only Paul McDonald and Benjamin Gonzales
appealed to the Court of Appeals which rendered a decision the dispositive
part of which reads as follows:chanroblesvirtuallawlibrary
“WHEREFORE, the decision appealed from is hereby modified,
relieving Appellant William Shaeffer of the obligation of paying, jointly and
severally, together with Alan W. Gorcey and Louis F. da Costa, Jr., any
deficiency that may remain unpaid after applying the proceeds of the sale of
the said motor vehicles which shall be undertaken upon the lapse of 90 days
from the date this decision becomes final, if by then Defendants Louis F. da
Costa, Jr., and Alan W. Gorcey had not paid the amount of the judgment
debt. With this modification the decision appealed from is in all other respects
affirmed, with costs against Appellants. This decision is without prejudice to
whatever action Louis F. da Costa, Jr., and Alan W. Gorcey may take against
their co-partners in the Stasikinocey unregistered partnership.”
This appeal by certiorari was taken by Paul McDonald and Benjamin
Gonzales, Petitioners herein, who have assigned the following
errors:chanroblesvirtuallawlibrary
“I
“IN RULING THAT AN UNREGISTERED COMMERCIAL CO-PARTNERSHIP
WHICH HAS NO INDEPENDENT JURIDICAL PERSONALITY CAN HAVE A
‘DOMICILE SO THAT A CHATTEL MORTGAGE REGISTERED IN THAT
‘DOMICILE’ WOULD BIND THIRD PERSONS WHO ARE INNOCENT
PURCHASERS FOR VALUE.
“II
“IN RULING THAT WHEN A CHATTEL MORTGAGE IS EXECUTED BY ONE
OF THE MEMBERS OF AN UNREGISTERED COMMERCIAL CO-
PARTNERSHIP WITHOUT JURIDICAL PERSONALITY INDEPENDENT OF
ITS MEMBERS, IT NEED NOT BE REGISTERED IN THE ACTUAL
RESIDENCE OF THE MEMBERS WHO EXECUTED SAME; chan
roblesvirtualawlibraryAND, AS A CONSEQUENCE THEREOF, IN NOT
MAKING ANY FINDING OF FACT AS TO THE ACTUAL RESIDENCE OF
SAID CHATTEL MORTGAGOR, DESPITE APPELLANTS’ RAISING THAT
QUESTION PROPERLY BEFORE IT AND REQUESTING A RULING
THEREON.
PARTNERSHIP—ARTICLES 1815-1827 A6
“III
IN NOT RULING THAT, WHEN A CHATTEL MORTGAGOR EXECUTES AN
AFFIDAVIT OF GOOD FAITH BEFORE A NOTARY PUBLIC OUTSIDE OF
THE TERRITORIAL JURISDICTION OF THE LATTER, THE AFFIDAVIT IS
VOID AND THE CHATTEL MORTGAGE IS NOT BINDING ON THIRD
PERSONS WHO ARE INNOCENT PURCHASERS FOR VALUE; chan
roblesvirtualawlibraryAND, AS A CONSEQUENCE THEREOF, IN NOT
MAKING ANY FINDING OF FACT AS TO WHERE THE DEED WAS IN FACT
EXECUTED, DESPITE APPELLANTS’ RAISING THAT QUESTION
PROPERLY BEFORE IT AND EXPRESSLY REQUESTING A RULING
THEREON.
“IV
“IN RULING THAT A LETTER AUTHORIZING ONE MEMBER OF AN
UNREGISTERED COMMERCIAL CO-PARTNERSHIP ‘TO MAKE ALL
OFFICIAL AND BUSINESS ARRANGEMENTS .. WITH THE NATIONAL
CITY BANK OF NEW YORK IN ORDER TO SIMPLIFY ALL MATTERS
RELATIVE TO LCS CABLE TRANSFERS, DRAFTS, OR OTHER BANKING
MEDIUMS,’ WAS SUFFICIENT AUTHORITY FOR THE SAID MEMBER TO
EXECUTE A CHATTEL MORTGAGE IN ORDER TO GIVE THE BANK
SECURITY FOR A PRE-EXISTING OVERDRAFT, GRANTED WITHOUT
SECURITY. WHICH THE BANK HAD CONVERTED INTO A DEMAND LOAN
UPON FAILURE TO PAY SAME AND BEFORE THE CHATTEL MORTGAGE
WAS EXECUTED.’
This is the first question propounded by
the Petitioners:chanroblesvirtuallawlibrary “Since an unregistered commercial
partnership unquestionably has no juridical personality, can it have a domicile
so that the registration of a chattel mortgage therein is notice to the world?”.
While an unregistered commercial partnership has no juridical personality,
nevertheless, where two or more persons attempt to create a partnership
failing to comply with all the legal formalities, the law considers them as
partners and the association is a partnership in so far as it is a favorable to
third persons, by reason of the equitable principle of estoppel. In Jo Chung
Chang vs. Pacific Commercial Co., 45 Phil., 145, it was held “that although
the partnership with the firm name of ‘Teck Seing and Co. Ltd.,’ could not be
regarded as a partnership de jure, yet with respect to third persons it will be
considered a partnership with all the consequent obligations for the purpose
of enforcing the rights of such third persons.” Da Costa and Gorcey cannot
deny that they are partners of the partnership Stasikinocey, because in all
their transactions with the Respondent they represented themselves as
such. Petitioner McDonald cannot disclaim knowledge of the partnership
Stasikinocey because he dealt with said entity in purchasing two of the
vehicles in question through Gorcey and Da Costa. As was held in Behn
Meyer & Co. vs. Rosatzin, 5 Phil., 660, where a partnership not duly
Page 18 of 22
organized has been recognized as such in its dealings with certain persons,
it shall be considered as “partnership by estoppel” and the persons dealing
with it are estopped from denying its partnership existence. The sale of the
vehicles in question being void as to Petitioner McDonald, the transfer from
the latter to Petitioner Benjamin Gonzales is also void, as the buyer cannot
have a better right than the seller.
It results that if the law recognizes a defectively organized partnership as de
facto as far as third persons are concerned, for purposes of its de facto
existence it should have such attribute of a partnership as domicile. In Hung-
Man Yoc vs. Kieng-Chiong-Seng, 6 Phil., 498, it was held that although “it
has no legal standing, it is a partnership de facto and the general provisions
of the Code applicable to all partnerships apply to it.” The registration of the
chattel mortgage in question with the Office of the Register of Deeds of Rizal,
the residence or place of business of the partnership Stasikinocey being San
Juan, Rizal, was therefore in accordance with section 4 of the Chattel
Mortgage Law.
The second question propounded by
the Petitioners is:chanroblesvirtuallawlibrary “If not, is a chattel mortgage
executed by only one of the ‘partners’ of an unregistered commercial
partnership validly registered so as to constitute notice to the world if it is not
registered at the place where the aforesaid ‘partner’ actually resides but only
in the place where the deed states that he resides, which is not his real
residence?” And the third question is as follows:chanroblesvirtuallawlibrary “If
the actual residence of the chattel mortgagor — not the residence stated in
the deed of chattel mortgage — is controlling, may the Court of Appeals
refuse to make a finding of fact as to where the mortgagor resided despite
your Petitioners’ having properly raised that question before it and expressly
requested a ruling thereon?”
These two questions have become academic by reason of the answer to the
first question, namely, that as a de facto partnership, Stasikinocey had its
domicile in San Juan, Rizal.
The fourth question asked by the Petitioners is as
follows:chanroblesvirtuallawlibrary “Is a chattel mortgage executed by only
one of the ‘partners’ of an unregistered commercial partnership valid as to
third persons when that ‘partner’ executed the affidavit of good faith in
Quezon City before a notary public whose appointment is only for the City of
Manila? If not, may the Court of Appeals refuse to make a finding of fact as to
where the deed was executed, despite your Petitioners’ having properly
raised that issue before it and expressly requested a ruling thereon?”
It is noteworthy that the chattel mortgage in question is in the form required
by law, and there is therefore the presumption of its due execution which
cannot be easily destroyed by the biased testimony of the one who executed
it. The interested version of Da Costa that the affidavit of good faith
PARTNERSHIP—ARTICLES 1815-1827 A6
appearing in the chattel mortgage was executed in Quezon City before a
notary public for and in the City of Manila was correctly rejected by the trial
court and the Court of Appeals. Indeed, cumbersome legal formalities are
imposed to prevent fraud. As aptly pointed out in El Hogar Filipino vs. Olviga,
60 Phil., 17, “If the biased and interested testimony of a grantor and the
vague and uncertain testimony of his son are deemed sufficient to overcome
a public instrument drawn up with all the formalities prescribed by the law
then there will have been established a very dangerous doctrine which would
throw wide open the doors to fraud.”
The last question raised by the Petitioners is as
follows:chanroblesvirtuallawlibrary “Does only one of several ‘partners’ of an
unregistered commercial partnership have authority, by himself alone, to
execute a valid chattel mortgage over property owned by the unregistered
commercial partnership in order to guarantee a pre-existing overdraft
previously granted, without guaranty, by the bank?”
In view of the conclusion that Stasikinocey is a de facto partnership, and Da
Costa appears as a co-manager in the letter of Gorcey to
the Respondent and in the promissory note executed by Da Costa, and that
even the partners considered him as such, as stated in the affidavit of April
21, 1948, to the effect that “That we as the majority partners hereby agree to
appoint Louis da Costa co-managing partner of Alan W. Gorcey, duly
approved managing partner of the said firm,” the “partner” who executed the
chattel mortgage in question must be deemed to be so fully authorized.
Section 6 of the Chattel Mortgage Law provides that when a partnership is a
party to the mortgage, the affidavit may be made and subscribed by one
member thereof. In this case the affidavit was executed and subscribed by
Da Costa, not only as a partner but as a managing partner.
There is no merit in Petitioners’ pretense that the motor vehicles in question
are the common property of Da Costa and Gorcey. Petitioners invoke article
24 of the Code of Commerce in arguing that an unregistered commercial
partnership has no juridical personality and cannot execute any act that
would adversely affect innocent third persons. Petitioners forget that
the Respondent is a third person with respect to the partnership, and the
chattel mortgage executed by Da Costa cannot therefore be impugned by
Gorcey on the ground that there is no partnership between them and that the
vehicles in question belonged to them in common. As a matter of fact,
the Respondent and the Petitioners are all third persons as regards the
partnership Stasikinocey; chan roblesvirtualawlibraryand even assuming that
the Petitioners are purchasers in good faith and for value,
the Respondent having transacted with Stasikinocey earlier than
the Petitioners, it should enjoy and be given priority.
Wherefore, the appealed decision of the Court of Appeals is affirmed with
costs against the Petitioners.
Page 19 of 22
[5]
G.R. No. L-26937 October 5, 1927
PHILIPPINE NATIONAL BANK, Plaintiff-Appellee, vs. SEVERO EUGENIO
LO, ET AL., defendants.
SEVERIO EUGENIO LO, NG KHEY LING and YEP SENG, appellants.
Jose Lopez Vito for appellants.
Roman Lacson for appellee.
VILLAMOR, J.:
On September 29, 1916, the appellants Severo Eugenio Lo and Ng Khey
Ling, together with J. A. Say Lian Ping, Ko Tiao Hun, On Yem Ke Lam and
Co Sieng Peng formed a commercial partnership under the name of "Tai Sing
and Co.," with a capital of P40,000 contributed by said partners. In the
articles of copartnership, Exhibit A, it appears that the partnership was to last
for five years from after the date of its organization, and that its purpose was
to do business in the City of Iloilo, Province of Iloilo, or in any other part of
the Philippine Islands the partners might desire, under the name of "Tai Sing
& Co.," for the purchase and sale of merchandise, goods, and native, as well
as Chinese and Japanese, products, and to carry on such business and
speculations as they might consider profitable. One of the partners, J. A. Say
Lian Ping was appointed general manager of the partnership, with the
appointed general manager of the partnership, with the powers specified in
said articles of copartnership.chanroblesvirtualawlibrary chanrobles virtual
law library
On June 4, 1917, general manager A. Say Lian Ping executed a power of
attorney (Exhibit C-1) in favor of A. Y. Kelam, authorizing him to act in his
stead as manager and administrator of "Tai Sing & Co.," on July 26, 1918,
for, and obtained a loan of P8,000 in current account from the plaintiff bank.
(Exhibit C). As security for said loan, he mortgaged certain personal property
of "Tai Sing & Co., (Exhibit C.) chanrobles virtual law library
This credit was renew several times and on March 25, 1919, A. Y. Kelam, as
attorney-in-fact of "Tai Sing & Co., executed a chattel mortgage in favor of
plaintiff bank as security for a loan of P20,000 with interest (Exhibit D). This
mortgage was again renewed on April 16, 1920 and A. Y. Kelam, as attorney-
in-fact of "Tai Sing & Co., executed another chattel mortgage for the said sum
of P20,000 in favor of plaintiff bank. (Exhibit E.) According to this mortgage
contract, the P20,000 loan was to earn 9 per cent interest per
annum.chanroblesvirtualawlibrary chanrobles virtual law library
PARTNERSHIP—ARTICLES 1815-1827 A6
On April 20, 1920, Yap Seng, Severo Eugenio Lo, A. Y. Kelam and Ng Khey
Ling, the latter represented by M. Pineda Tayenko, executed a power of
attorney in favor of Sy Tit by virtue of which Sy Tit, representing "Tai Sing &
Co., obtained a credit of P20,000 from plaintiff bank on January 7, 1921,
executing a chattel mortgage on certain personal property belonging to "Tai
Sing & Co.chanroblesvirtualawlibrary chanrobles virtual law library
Defendants had been using this commercial credit in a current account with
the plaintiff bank, from the year 1918, to May 22, 1921, and the debit balance
of this account, with interest to December 31, 1924, is as follows:
TAI SING & CO.
To your outstanding account (C. O. D.) with us on June 30,
1922 P16,518.74
Interest on same from June 30, 1922 to December 31,1924,
at 9 per cent per annum 3,720.86
Total 20, 239.00
=========
This total is the sum claimed in the complaint, together with interest on the
P16,518.74 debt, at 9 per cent per annum from January 1, 1925 until fully
paid, with the costs of the trial.chanroblesvirtualawlibrary chanrobles virtual
law library
Defendant Eugenio Lo sets up, as a general defense, that "Tai Sing & Co.
was not a general partnership, and that the commercial credit in current
account which "Tai Sing & Co. obtained from the plaintiff bank had not been
authorized by the board of directors of the company, nor was the person who
subscribed said contract authorized to make the same, under the article of
copartnership. The other defendants, Yap Sing and Ng Khey Ling, answered
the complaint denying each and every one of the allegations contained
therein.chanroblesvirtualawlibrary chanrobles virtual law library
After the hearing, the court found:
(1) That defendants Eugenio Lo, Ng Khey Ling and Yap Seng Co., Sieng
Peng indebted to plaintiff Philippine National Bank in sum of P22,595.26 to
July 29, 1926, with a daily interest of P4.14 on the balance on account of the
partnership "Tai Sing & Co. for the sum of P16,518.74 until September 9,
1922; chanrobles virtual law library
Page 20 of 22
(2) Said defendants are ordered jointly and severally to pay the Philippine
National Bank the sum of P22,727.74 up to August 31, 1926, and from the
date, P4.14 daily interest on the principal; and chanrobles virtual law library
(3) The defendants are furthermore ordered to pay the costs of the action.
Defendants appealed, making the following assignments of error:
I. The trial court erred in finding that article 126 of the Code of Commerce at
present in force is not mandatory.chanroblesvirtualawlibrary chanrobles
virtual law library
II. The trial court erred in finding that the partnership agreement of "Tai Sing
& Co., (Exhibit A), is in accordance with the requirements of article 125 of the
Code of Commerce for the organization of a regular
partnership.chanroblesvirtualawlibrary chanrobles virtual law library
III. The trial court erred in not admitting J. A. Sai Lian Ping's death in China in
November, 1917, as a proven fact.chanroblesvirtualawlibrary chanrobles
virtual law library
IV. The trial court erred in finding that the death of J. A. Say Lian Ping cannot
extinguish the defendants' obligation to the plaintiff bank, because the last
debt incurred by the commercial partnership "Tai Sing & Co., was that
evidence by Exhibit F, signed by Sy Tit as attorney-in-fact of the members of
"Tai Sing & Co., by virtue of Exhibit G.chanroblesvirtualawlibrary chanrobles
virtual law library
V. The trial court erred in not finding that plaintiff bank was not able to collect
its credit from the goods of "Tai Sing & Co., given as security therefor through
its own fault and negligence; and that the action brought by plaintiff is a
manifest violation of article 237 of the present Code of
Commerce.chanroblesvirtualawlibrary chanrobles virtual law library
VI. The trial court erred in finding that the current account of "Tai Sing & Co.
with plaintiff bank shows a debit balance of P16,518.74, which in addition to
interest at 9 per cent per annum from July 29, 1926, amount to P16,595.26,
with a daily interest of P4.14 on the sum of
P16,518.74.chanroblesvirtualawlibrary chanrobles virtual law library
VII. The trial court erred in ordering the defendants appellants to pay jointly
and severally to the Philippine National Bank the sum of P22,727.74 up to
August 31, 1926, and interest on P16,518.74 from that date until fully paid,
PARTNERSHIP—ARTICLES 1815-1827 A6
with the costs of the action.chanroblesvirtualawlibrary chanrobles virtual law
library
VIII. The trial court erred in denying the motion for a new trial filed by
defendants-appellants.
Appellants admit, and it appears from the context of Exhibit A, that the
defendant association formed by the defendants is a general partnership, as
defined in article 126 of the Code Commerce. This partnership was
registered in the mercantile register of the Province of Iloilo. The only
anomaly noted in its organization is that instead of adopting for their firm
name the names of all of the partners, of several of them, or only one of
them, to be followed in the last two cases, by the words "and to be followed
in the last two cases, by the words "and company" the partners agreed upon
"Tai Sing & Co." as the firm name.chanroblesvirtualawlibrary chanrobles
virtual law library
In the case of Hung-Man-Yoc, under the name of Kwong-Wo-Sing vs. Kieng-
Chiong-Seng, cited by appellants, this court held that, as the company
formed by defendants had existed in fact, though not in law due to the fact
that it was not recorded in the register, and having operated and contracted
debts in favor of the plaintiff, the same must be paid by someone. This
applies more strongly to the obligations contracted by the defendants, for
they formed a partnership which was registered in the mercantile register,
and carried on business contracting debts with the plaintiff bank. The
anomalous adoption of the firm name above noted does not affect the liability
of the general partners to third parties under article 127 of the Code of
Commerce. And the Supreme Court so held in the case of Jo Chung Cang
vs. Pacific Commercial Co., (45 Phil., 142), in which it said that the object of
article 126 of the Code of Commerce in requiring a general partnership to
transact business under the name of all its members, of several of them, or
of one only, is to protect the public from imposition and fraud; and that the
provision of said article 126 is for the protection of the creditors rather than of
the partners themselves. And consequently the doctrine was enunciated that
the law must be unlawful and unenforceable only as between the partners
and at the instance of the violating party, but not in the sense of depriving
innocent parties of their rights who may have dealt with the offenders in
ignorance of the latter having violated the law; and that contracts entered into
by commercial associations defectively organized are valid when voluntarily
executed by the parties, and the only question is whether or not they
complied with the agreement. Therefore, the defendants cannot invoke in
their defense the anomaly in the firm name which they themselves
adopted.chanroblesvirtualawlibrary chanrobles virtual law library
Page 21 of 22
As to the alleged death of the manager of the company, Say Lian Ping, Tit, it appears that this security is for the payment of the sums received by
before the attorney-in-fact Ou Yong Kelam executed Exhibits C, D and E, the the partnership, not to exceed P20,000 with interest and collection fees.
trial court did not find this fact proven at the hearing. But even supposing that There can be no doubt that the parties agreed upon the rate of interest fixed
the court had erred, such an error would not justify the reversal of the in the document Exhibit E, namely 9 per cent per
judgment, for two reasons at least: (1) Because Ou Yong Kelam was a annum.chanroblesvirtualawlibrary chanrobles virtual law library
partner who contracted in the name of the partnership, without any objection
of the other partners; and (2) because it appears in the record that the The judgment appealed from is in accordance with the law, and must
appellant-partners Severo Eugenio Lo, Ng Khey Ling and Yap Seng, therefore be, as it is hereby, affirmed with costs against the appellants. So
appointed Sy Tit as manager, and he obtained from the plaintiff bank the ordered.chanrobles
credit in current account, the debit balance of which is sought to be
recovered in this action.chanroblesvirtualawlibrary chanrobles virtual law
library

Appellants allege that such of their property as is not included in the

partnership assets cannot-be seized for the payment of the debts contracted
by the partnership until after the partnership property has been exhausted.
The court found that the partnership property described in the mortgage
Exhibit F no loner existed at the time of the filing of the herein complaint nor
has its existence been proven, nor was it offered to the plaintiff for sale. We
find no just reason to reverse this conclusion of the trial court, and this being
so, it follows that article 237 of the Code of Commerce, invoked by the
appellant, can in no way have any application
here.chanroblesvirtualawlibrary chanrobles virtual law library

Appellants also assign error to the action of the trial court in ordering them to
pay plaintiff, jointly and severally, the sums claimed with 9 per cent interest
on P16,518.74, owing from them.chanroblesvirtualawlibrary chanrobles
virtual law library

The judgment against the appellants is in accordance with article 127 of the
Code of Commerce which provides that all the members of a general
partnership, be they managing partners thereof or not, shall be personally
and solidarily liable with all their property, for the results of the transactions
made in the name and for the account of the partnership, under the signature
of the latter, and by a person authorized to use
it.chanroblesvirtualawlibrary chanrobles virtual law library

As to the amount of the interest suffice it to remember that the credit in

current account sued on in this case as been renewed by the parties in such
a way that while it appears in the mortgage Exhibit D executed on March 25,
1919 by the attorney-in-fact Ou Yong Kelam that the P20,000 credit would
earn 8 per cent interest annually, yet from that executed on April 16, 1920,
Exhibit E, it appears that the P20,000 would earn 9 per cent interest per
annum. The credit was renewed in January, 1921, and in the deed of pledge,
Exhibit F, executed by "Tai Sing & Co., represented by the attorney-in-fact Sy
PARTNERSHIP—ARTICLES 1815-1827 A6 Page 22 of 22