ATP Session 6

Agency, Trusts, and Partnerships Session 6 Page |1
G.R. No. 206147. January 13, 2016.* 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. A
MICHAEL C. GUY, petitioner, vs. ATTY. GLENN C. GACOTT, respondent. decision rendered on a complaint in a civil action or proceeding does not bind or
Remedial Law; Civil Procedure; Service of Summons; Under Section 11, Rule 14 of the prejudice a person not impleaded therein, for no person shall be adversely affected by
1997 Revised Rules of Civil Procedure, when the defendant is a corporation, partnership the outcome of a civil action or proceeding in which he is not a party. The principle that
or association organized under the laws of the Philippines with a juridical personality, a person cannot be prejudiced by a ruling rendered in an action or proceeding in which
the service of summons may be made on the president, managing partner, general he has not been made a party conforms to the constitutional guarantee of due process
manager, corporate secretary, treasurer, or in-house counsel.—Jurisdiction over the of law.
person, or jurisdiction in personam — the power of the court to render a personal Same; Same; Same; Same; In the spirit of fair play, it is a better rule that a partner
judgment or to subject the parties in a particular action to the judgment and other must first be impleaded before he could be prejudiced by the judgment against the
rulings rendered in the action — is an element of due process that is essential in all partnership.—In the spirit of fair play, it is a better rule that a partner must first be
actions, civil as well as criminal, except in actions in rem or quasi in rem. Jurisdiction impleaded before he could be prejudiced by the judgment against the partnership. As
over the person of the plaintiff is acquired by the mere filing of the complaint in court. will be discussed later, a partner may raise several defenses during the trial to avoid or
As the initiating party, the plaintiff in a civil action voluntarily submits himself to the mitigate his obligation to the partnership liability. Necessarily, before he could present
jurisdiction of the court. As to the defendant, the court acquires jurisdiction over his evidence during the trial, he must first be impleaded and informed of the case against
person either by the proper service of the summons, or by his voluntary appearance in him. It would be the height of injustice to rob an innocent partner of his hard-earned
the action. Under Section 11, Rule 14 of the 1997 Revised Rules of Civil Procedure, personal belongings without giving him an opportunity to be heard. Without any
when the defendant is a corporation, partnership or association organized under the showing that Guy himself acted maliciously on behalf of the company, causing damage
laws of the Philippines with a juridical personality, the service of summons may be or injury to the complainant, then he and his personal properties cannot be made
made on the president, managing partner, general manager, corporate secretary, directly and solely accountable for the liability of QSC, the judgment debtor, because
treasurer, or in-house counsel. Jurisprudence is replete with pronouncements that such he was not a party to the case.
provision provides an exclusive enumeration of the persons authorized to receive
summons for juridical entities.
Same; Same; Same; While proper service of summons is necessary to vest the court Same; Same; Same; Same; Resort to the properties of a partner may be made only
jurisdiction over the defendant, the same is merely procedural in nature and the lack after efforts in exhausting partnership assets have failed or that such partnership assets
of or defect in the service of summons may be cured by the defendant’s subsequent are insufficient to cover the entire obligation.—The partners’ obligation with respect to
voluntary submission to the court’s jurisdiction through his filing a responsive pleading the partnership liabilities is subsidiary in nature. It provides that the partners shall only
such as an answer.—While proper service of summons is necessary to vest the court be liable with their property after all the partnership assets have been exhausted. To
jurisdiction over the defendant, the same is merely procedural in nature and the lack say that one’s liability is subsidiary means that it merely becomes secondary and only
of or defect in the service of summons may be cured by the defendant’s subsequent arises if the one primarily liable fails to sufficiently satisfy the obligation. Resort to the
voluntary submission to the court’s jurisdiction through his filing a responsive pleading properties of a partner may be made only after efforts in exhausting partnership assets
such as an answer. In this case, it is not disputed that QSC filed its Answer despite the have failed or that such partnership assets are insufficient to cover the entire obligation.
defective summons. Thus, jurisdiction over its person was acquired through voluntary The subsidiary nature of the partners’ liability with the partnership is one of the valid
appearance. defenses against a premature execution of judgment directed to a partner.
Same; Same; Judgments; Parties; The principle that a person cannot be prejudiced by Civil Law; Obligations; Joint Obligations; Partnerships; Article 1816 provides that the
a ruling rendered in an action or proceeding in which he has not been made a party partners’ obligation to third persons with respect to the partnership liability is pro rata
conforms to the constitutional guarantee of due process of law.—Although a or joint.—Article 1816 provides that the partners’ obligation to third persons with
partnership is based on delectus personae or mutual agency, whereby any partner can respect to the partnership liability is pro rata or joint. Liability is joint when a debtor is
generally represent the partnership in its business affairs, it is non sequitur that a suit liable only for the payment of only a proportionate part of the debt. In contrast, a
against the partnership is necessarily a suit impleading each and every partner. It must solidary liability makes a debtor liable for the payment of the entire debt. In the same
be remembered that a partnership is a juridical entity that has a distinct and separate vein, Article 1207 does not presume solidary liability unless: 1) the obligation expressly
personality from the persons composing it. In relation to the rules of civil procedure, it so states; or 2) the law or nature requires solidarity. With regard to partnerships,
ordinarily, the liability of the partners is not solidary. The joint liability of the partners The decision became final as QSC and Medestomas did not interpose an appeal. Gacott
is a defense that can be raised by a partner impleaded in a complaint against the then secured a Writ of Execution,8 dated September 26, 2007.
partnership.
During the execution stage, Gacott learned that QSC was not a corporation, but was in
PETITION for review on certiorari of the decision and resolution of the Court of Appeals. fact a general partnership registered with the Securities and Exchange Commission
(SEC).
The facts are stated in the opinion of the Court.
In the articles of partnership,9 Guy was appointed as General Manager of QSC.
Andres, Padernal & Paras Law Offices for petitioner.
To execute the judgment, Branch Sheriff Ronnie L. Felizarte (Sheriff Felizarte) went to
MENDOZA, J.: the main office of the Department of Transportation and Communications-Land
Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Transportation Office (DOTC-LTO), Quezon City, and verified whether Medestomas,
Court filed by petitioner Michael C. Guy (Guy), assailing the June 25, 2012 Decision1 QSC and Guy had personal properties registered therein.10 Upon learning that Guy had
and the March 5, 2013 Resolution2 of the Court of Appeals (CA) in C.A.-G.R. CV No. vehicles registered in his name, Gacott instructed the sheriff to proceed with the
94816, which affirmed the June 28, 20093 and February 19, 20104 Orders of the attachment of one of the motor vehicles of Guy based on the certification issued by the
Regional Trial Court, Branch 52, Puerto Princesa City, Palawan (RTC), in Civil Case No. DOTC-LTO.11
3108, a case for damages. The assailed RTC orders denied Guy’s Motion to Lift On March 3, 2009, Sheriff Felizarte attached Guy’s vehicle by virtue of the Notice of
Attachment Upon Personalty5 on the ground that he was not a judgment debtor. Attachment/Levy upon Personalty12 served upon the record custodian of the DOTC-
The Facts LTO of Mandaluyong City. A similar notice was served to Guy through his housemaid
at his residence.
It appears from the records that on March 3, 1997, Atty. Glenn Gacott (Gacott) from
Palawan purchased two (2) brand new transreceivers from Quantech Systems Thereafter, Guy filed his Motion to Lift Attachment Upon Personalty, arguing that he
Corporation (QSC) in Manila through its employee Rey Medestomas (Medestomas), was not a judgment debtor and, therefore, his vehicle could not be attached.13 Gacott
amounting to a total of P18,000.00. On May 10, 1997, due to major defects, Gacott filed an opposition to the motion.
personally returned the transreceivers to QSC and requested that they be replaced. The RTC’s Order
Medestomas received the returned transreceivers and promised to send him the
replacement units within two (2) weeks from May 10, 1997. On June 28, 2009, the RTC issued an order denying Guy’s motion. It explained that
considering QSC was not a corporation, but a registered partnership, Guy should be
Time passed and Gacott did not receive the replacement units as promised. QSC treated as a general partner pursuant to Section 21 of the Corporation Code, and he
informed him that there were no available units and that it could not refund the may be held jointly and severally liable with QSC and Medestomas. The trial court
purchased price. Despite several demands, both oral and written, Gacott was never wrote:
given a replacement or a refund. The demands caused Gacott to incur expenses in the
total amount of P40,936.44. Thus, Gacott filed a complaint for damages. Summons was All persons who assume to act as a corporation knowing it to be without authority to
served upon QSC and Medestomas, after which they filed their Answer, verified by do so shall be liable as general partners for all debts, liabilities and damages incurred
Medestomas himself and a certain Elton Ong (Ong). QSC and Medestomas did not or arising as a result thereof x x x. Where, by any wrongful act or omission of any
present any evidence during the trial.6 partner acting in the ordinary course of the business of the partnership x x x, loss or
injury is caused to any person, not being a partner in the partnership, or any penalty
In a Decision,7 dated March 16, 2007, the RTC found that the two (2) transreceivers is incurred, the partnership is liable therefore to the same extent as the partner so
were defective and that QSC and Medestomas failed to replace the same or return acting or omitting to act. All partners are liable solidarily with the partnership for
Gacott’s money. The dispositive portion of the decision reads: everything chargeable to the partnership under Articles 1822 and 1823.14
WHEREFORE, judgment is hereby rendered in favor of the plaintiff, ordering the Accordingly, it disposed:
defendants to jointly and
severally pay plaintiff the following:

WHEREFORE, with the ample discussion of the matter, this Court finds and so holds Hence, the present petition raising the following:
that the property of movant Michael Guy may be validly attached in satisfaction of the
liabilities adjudged by this Court against Quantech Co., the latter being an ostensible Issue
Corporation and the movant being considered by this Court as a general partner therein THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN HOLDING
in accordance with the order of this court impressed in its decision to this case imposing THAT PETITIONER GUY IS SOLIDARILY LIABLE WITH THE PARTNERSHIP FOR
joint and several liability to the defendants. The Motion to Lift Attachment Upon DAMAGES ARISING FROM THE BREACH OF THE CONTRACT OF SALE WITH
Personalty submitted by the movant is therefore DENIED for lack of merit. RESPONDENT GACOTT.20
SO ORDERED.15 Guy argues that he is not solidarily liable with the partnership because the solidary
Not satisfied, Guy moved for reconsideration of the denial of his motion. He argued liability of the partners under Articles 1822, 1823 and 1824 of the Civil Code only applies
that he was neither impleaded as a defendant nor validly served with summons and, when it stemmed from the act of a partner. In this case, the alleged lapses were not
thus, the trial court did not acquire jurisdiction over his person; that under Article 1824 attributable to any of the partners. Guy further invokes Article 1816 of the Civil Code
of the Civil Code, the partners were only solidarily liable for the partnership liability which states that the liability of the partners to the partnership is merely joint and
under exceptional circumstances; and that in order for a partner to be liable for the subsidiary in nature.
debts of the partnership, it must be shown that all partnership assets had first been In his Comment,21 Gacott countered, among others, that because Guy was a general
exhausted.16 and managing partner of QSC, he could not feign ignorance of the transactions
On February 19, 2010, the RTC issued an order17 denying his motion. undertaken by QSC. Gacott insisted that notice to one partner must be considered as
notice to the whole partnership, which included the pendency of the civil suit against
The denial prompted Guy to seek relief before the CA. it.
The CA’s Ruling 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
On June 25, 2012, the CA rendered the assailed decision dismissing Guy’s appeal for authorized office. He also reiterated that a partner’s liability was joint and subsidiary,
the same reasons given by the trial court. In addition thereto, the appellate court and not solidary.
stated:
The Court’s Ruling
We hold that Michael Guy, being listed as a general partner of QSC during that time,
cannot feign ignorance of the existence of the court summons. The verified Answer The petition is meritorious.
filed by one of the partners, Elton Ong, binds him as a partner because the Rules of
Court does not require that summons be served on all the partners. It is sufficient that The service of summons was
service be made on the “president, managing partner, general manager, corporate flawed; voluntary appearance
secretary, treasurer or in-house counsel.” To Our mind, it is immaterial whether the
summons to QSC was served on the theory that it was a corporation. What is important cured the defect
is that the summons was served on QSC’s authorized officer x x x.18
Jurisdiction over the person, or jurisdiction in personam — the power of the court to
The CA stressed that Guy, being a partner in QSC, was bound by the summons served render a personal judgment or to subject the parties in a particular action to the
upon QSC based on Article 1821 of the Civil Code. The CA further opined that the law judgment and other rulings rendered in the action — is an element of due process that
did not require a partner to be actually involved in a suit in order for him to be made is essential in all actions, civil as well as criminal, except in actions in rem or quasi in
liable. He remained “solidarily liable whether he participated or not, whether he ratified rem.23 Jurisdiction over the person of the plaintiff is acquired by the mere filing of the
it or not, or whether he had knowledge of the act or omission.”19 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
Aggrieved, Guy filed a motion for reconsideration but it was denied by the CA in its jurisdiction over his person either by the proper service of the summons, or by his
assailed resolution, dated March 5, 2013. voluntary appearance in the action.24
Under Section 11, Rule 14 of the 1997 Revised Rules of Civil Procedure, when the action or proceeding does not bind or prejudice a person not impleaded therein, for no
defendant is a corporation, partnership or association organized under the laws of the person shall be adversely affected by the outcome of a civil action or proceeding in
Philippines with a juridical personality, the service of summons may be made on the which he is not a party.30 The principle that a person cannot be prejudiced by a ruling
president, managing partner, general manager, corporate secretary, treasurer, or in- rendered in an action or proceeding in which he has not been made a party conforms
house counsel. Jurisprudence is replete with pronouncements that such provision to the constitutional guarantee of due process of law.31
provides an exclusive enumeration of the persons authorized to receive summons for
juridical entities.25 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
The records of this case reveal that QSC was never shown to have been served with as null and void the title from which his title to the property had been derived. The
the summons through any of the enumerated authorized persons to receive such, effect of a judgment could not be extended to nonparties by simply issuing an alias
namely: president, managing partner, general manager, corporate secretary, treasurer writ of execution against them, for no man should be prejudiced by any proceeding to
or in-house counsel. Service of summons upon persons other than those officers which he was a stranger.
enumerated in Section 11 is invalid. Even substantial compliance is not sufficient service
of summons.26 The CA was obviously mistaken when it opined that it was immaterial In Aguila, Jr. v. Court of Appeals,33 the complainant had a cause of action against the
whether the summons to QSC was served on the theory that it was a corporation.27 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
Nevertheless, while proper service of summons is necessary to vest the court its partners, officers or agents, which should be impleaded for a cause of action against
jurisdiction over the defendant, the same is merely procedural in nature and the lack the partnership itself. The Court added that the partners could not be held liable for
of or defect in the service of summons may be cured by the defendant’s subsequent the obligations of the partnership unless it was shown that the legal fiction of a different
voluntary submission to the court’s jurisdiction through his filing a responsive pleading juridical personality was being used for fraudulent, unfair, or illegal purposes.34
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 Here, Guy was never made a party to the case. He did not have any participation in
appearance. the entire proceeding until his vehicle was levied upon and he suddenly became QSC’s
“codefendant debtor” during the judgment execution stage. It is a basic principle of
A partner must be separately law that money judgments are enforceable only against the property incontrovertibly
belonging to the judgment debtor.35 Indeed, the power of the court in executing
and distinctly impleaded judgments extends only to properties unquestionably belonging to the judgment debtor
before he can be bound by a alone. An execution can be issued only against a party and not against one who did
not have his day in court. The duty of the sheriff is to levy the property of the judgment
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
The next question posed is whether the trial court’s jurisdiction over QSC extended to
the person of Guy insofar as holding him solidarily liable with the partnership. After a In the spirit of fair play, it is a better rule that a partner must first be impleaded before
thorough study of the relevant laws and jurisprudence, the Court answers in the he could be prejudiced by the judgment against the partnership. As will be discussed
negative. later, a partner may raise several defenses during the trial to avoid or mitigate his
obligation to the partnership liability. Necessarily, before he could present evidence
Although a partnership is based on delectus personae or mutual agency, whereby any during the trial, he must first be impleaded and informed of the case against him. It
partner can generally represent the partnership in its business affairs, it is non sequitur would be the height of injustice to rob an innocent partner of his hard-earned personal
that a suit against the partnership is necessarily a suit impleading each and every belongings without giving him an opportunity to be heard. Without any showing that
partner. It must be remembered that a partnership is a juridical entity that has a distinct Guy himself acted maliciously on behalf of the company, causing damage or injury to
and separate personality from the persons composing it.28 the complainant, then he and his personal properties cannot be made directly and
solely accountable for the liability of QSC, the judgment debtor, because he was not a
In relation to the rules of civil procedure, it is elementary that a judgment of a court is
party to the case.
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
Further, Article 1821 of the Civil Code does not state that there is no need to implead properties of a partner may be made only after efforts in exhausting partnership assets
a partner in order to be bound by the partnership liability. It provides that: 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
Notice to any partner of any matter relating to partnership affairs, and the knowledge defenses against a premature execution of judgment directed to a partner.
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 In this case, had he been properly impleaded, Guy’s liability would only arise after the
have communicated it to the acting partner, operate as notice to or knowledge of the properties of QSC would have been exhausted. The records, however, miserably failed
partnership, except in the case of fraud on the partnership, committed by or with the to show that the partnership’s properties were exhausted. The report37 of the sheriff
consent of that partner. 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.
[Emphases and underscoring supplied] Gacott then instructed the sheriff to proceed with the attachment of one of the motor
A careful reading of the provision shows that notice to any partner, under certain vehicles of Guy.38 The sheriff then served the Notice of Attachment/Levy upon
circumstances, operates as notice to or knowledge to the partnership only. Evidently, Personalty to the record custodian of the DOTC-LTO of Mandaluyong City. A similar
it does not provide for the reverse situation, or that notice to the partnership is notice notice was served to Guy through his housemaid at his residence.
to the partners. Unless there is an unequivocal law which states that a partner is Clearly, no genuine efforts were made to locate the properties of QSC that could have
automatically charged in a complaint against the partnership, the constitutional right been attached to satisfy the judgment — contrary to the clear mandate of Article 1816.
to due process takes precedence and a partner must first be impleaded before he can Being subsidiarily liable, Guy could only be held personally liable if properly impleaded
be considered as a judgment debtor. To rule otherwise would be a dangerous and after all partnership assets had been exhausted.
precedent, harping in favor of the deprivation of property without ample notice and
hearing, which the Court certainly cannot countenance. 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
Partners’ liability is subsidiary only for the payment of only a proportionate part of the debt. In contrast, a solidary
and generally joint; immediate 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
levy upon the property of a 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
partner cannot be made is a defense that can be raised by a partner impleaded in a complaint against the
partnership.
Granting that Guy was properly impleaded in the complaint, the execution of judgment
would be improper. Article 1816 of the Civil Code governs the liability of the partners In other words, only in exceptional circumstances shall the partners’ liability be solidary
to third persons, which states that: in nature. Articles 1822, 1823 and 1824 of the Civil Code provide for these exceptional
conditions, to wit:
Article 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 Article 1822. Where, by any wrongful act or omission of any partner acting in the
contracts which may be entered into in the name and for the account of the partnership, ordinary course of the business of the partnership or with the authority of his
under its signature and by a person authorized to act for the partnership. However, copartners, loss or injury is caused to any person, not being a partner in the
any partner may enter into a separate obligation to perform a partnership contract. partnership, or any penalty is incurred, the partnership is liable therefor to the same
extent as the partner so acting or omitting to act.
[Emphasis supplied]
Article 1823. The partnership is bound to make good the loss:
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 (1) Where one partner acting within the scope of his apparent authority receives
liable with their property after all the partnership assets have been exhausted. To say money or property of a third person and misapplies it; and
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
(2) Where the partnership in the course of its business receives money or property of Princesa City, is ORDERED TO RELEASE Michael C. Guy’s Suzuki Grand Vitara subject
a third person and the money or property so received is misapplied by any partner of the Notice of Levy/Attachment upon Personalty.
while it is in the custody of the partnership.
SO ORDERED.
Article 1824. All partners are liable solidarily with the partnership for everything
chargeable to the partnership under Articles 1822 and 1823. Carpio (Chairperson), Brion, Del Castillo and Leonen, JJ., concur.
[Emphases supplied] Petition granted, judgment and resolution reversed and set aside.
In essence, these provisions articulate that it is the act of a partner which caused loss Notes.—Personal service of summons should and always be the first option, and it is
or injury to a third person that makes all other partners solidarily liable with the only when the said summons cannot be served within a reasonable time can the
partnership because of the words “any wrongful act or omission of any partner acting process server resort to substituted service. (Planters Development Bank vs.
in the ordinary course of the business,” “one partner acting within the scope of his Chandumal, 680 SCRA 269 [2012])
apparent authority” and “misapplied by any partner while it is in the custody of the Service of summons is not required in a habeas corpus petition, be it under Rule 102
partnership.” The obligation is solidary because the law protects the third person, who of the Rules of Court or A.M. No. 03-04-04-SC. (Tujan-Militante vs. Cada-Deapera, 731
in good faith relied upon the authority of a partner, whether such authority is real or SCRA 194 [2014])
apparent.40
——o0o—— Guy vs. Gacott, 780 SCRA 579, G.R. No. 206147 January 13, 2016
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 solidarily 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 solidarily 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 C.A.--G.R. CV No. 94816 are hereby
REVERSED and SET ASIDE. Accordingly, the Regional Trial Court, Branch 52, Puerto
FIRST DIVISION 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.
G.R. No. 193138, August 20, 2018 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
ANICETO G. SALUDO, JR., Petitioner, v. PHILIPPINE NATIONAL
its commitment to endorse or refer cases to SAFA Law Office under the intended terms
BANK, Respondent.
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
DECISION 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
JARDELEZA, J.: 2002, which included the accelerated rates of 10% per annum beginning August 1999
until July 2003.
In this petition, we emphasize that a partnership for the practice of law, constituted in
In February 2005, SAFA Law Office vacated the leased premises.13 PNB sent a demand
accordance with the Civil Code provisions on partnership, acquires juridical personality
letter14 dated July 7, 2005 requiring the firm to pay its rental arrears in the total amount
by operation of law. Having a juridical personality distinct and separate from its
of P10,951,948.32. In response, SAFA Law Office sent a letter dated June 8, 2006,
partners, such partnership is the real party-in-interest in a suit brought in connection
proposing a settlement by providing a range of suggested computations of its
with a contract entered into in its name and by a person authorized to act on its behalf.
outstanding rental obligations, with deductions for the value of improvements it
introduced in the premises, professional fees due from Macroasia Corporation, and the
Petitioner Aniceto G. Saludo, Jr. (Saludo) filed this petition for review
50% discount allegedly promised by Dr. Lucio Tan.15 PNB, however, declined the
on certiorari1 assailing the February 8, 2010 Decision 2 and August 2, 2010
settlement proposal in a letter16 dated July 17, 2006, stating that it was not amenable
Resolution3 issued by the Court of Appeals (CA) in CA-G.R. SP No. 98898. The CA
to the settlement's terms. Besides, PNB also claimed that it cannot assume the liabilities
affirmed with modification the January 11, 2007 Omnibus Order4 issued by Branch 58
of Macroasia Corporation to SAFA Law Office as Macroasia Corporation has a
of the Regional Trial Court (RTC) of Makati City in Civil Case No. 06-678, and ruled that
personality distinct and separate from the bank. PNB then made a final demand for
respondent Philippine National Bank's (PNB) counterclaims against Saludo and the
SAFA Law Office to pay its outstanding rental obligations in the amount of
Saludo Agpalo Fernandez and Aquino Law Office (SAFA Law Office) should be
P25,587,838.09.
reinstated in its answer.
On September 1, 2006, Saludo, in his capacity as managing partner of SAFA Law Office,
Records show that on June 11, 1998, SAFA Law Office entered into a Contract of
filed an amended complaint17 for accounting and/or recomputation of unpaid rentals
Lease5 with PNB, whereby the latter agreed to lease 632 square meters of the second
and damages against PNB in relation to the Contract of Lease.
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
On October 4, 2006, PNB filed a motion to include an indispensable party as
escalation rate of 10%.6 SAFA Law Office then occupied the leased premises and paid
plaintiff,18 praying that Saludo be ordered to amend anew his complaint to include SAFA
advance rental fees and security deposit in the total amount of P1,137,600.00. 7
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
On August 1, 2001, the Contract of Lease expired.8 According to PNB, SAFA Law Office
as the managing partner of the law firm. Thus, SAFA Law Office must be joined as a
continued to occupy the leased premises until February 2005, but discontinued paying
plaintiff in the complaint because it is considered an indispensable party under Section
its monthly rental obligations after December 2002.9 Consequently, PNB sent a demand
7, Rule 3 of the Rules of Court.19
letter10 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
On October 13, 2006, PNB filed its answer.20 By way of compulsory counterclaim, it
unpaid rents in the amount of P5,856,803.53 which was received by SAFA Law Office
sought payment from SAFA Law Office in the sum of P25,587,838.09, representing
on November 10, 2003.
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
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 management of PNB into renting
On October 23, 2006, Saludo filed his motion to dismiss counterclaims,23 mainly arguing
the leased premises by promising to: (1) give it a special rate due to the large area of
that SAFA Law Office is neither a legal entity nor party litigant. As it is only a relationship
the place; (2) endorse PNB's cases to the firm with rents to be paid out of attorney's
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 contract as the firm's managing partner. The alleged Memorandum of
against it.24 Understanding33 (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
On January 11, 2007, the RTC issued an Omnibus Order denying PNB's motion to the letter of Saludo to PNB confirming that SAFA Law Office is his single proprietorship
include an indispensable party as plaintiff and granting Saludo's motion to dismiss did not convert the firm to a single proprietorship. Moreover, SAFA Law Office sent a
counterclaims in this wise: 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
The Court DENIES the motion of PNB to include the SAFA Law Offices. Plaintiff Commission (SEC).34
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 On the question of whether SAFA Law Office is an indispensable party, the CA held that
importantly, plaintiff has admitted and shown sole responsibility in the affairs entered it is not. As a partnership, it may sue or be sued in its name or by its duly authorized
into by the SAFA Law Office. PNB has even admitted that the SAFA Law Office, being representative. Saludo, as managing partner, may execute all acts of administration,
a partnership in the practice of law, is a non-legal entity. Being a non-legal entity, it including the right to sue. Furthermore, the CA found that SAFA Law Office is not a
cannot be a proper party, and therefore, it cannot sue or be sued. 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
Consequently, plaintiff's Motion to Dismiss Counterclaims (claimed by an action in court. Based on these premises, the CA held that the RTC did not gravely
defendant PNB) should be GRANTED. The counterclaims prayed for to the effect abuse its discretion in denying PNB's motion to include an indispensable party as
that the SAFA Law Offices be made to pay in solidum with plaintiff the amounts stated plaintiff.35
in defendant's Answer is disallowed since no counterclaims can be raised against a non-
legal entity.25 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
PNB filed its motion for reconsideration26 dated February 5, 2007, alleging that SAFA Section 15,36 Rule 3 of the Rules of Court considering that it entered into the Contract
Law Office should be included as a co-plaintiff because it is the principal party to the of Lease with PNB.37
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 The CA further ruled that while it is true that SAFA Law Office's liability is not in
of the contract. Hence, it is the real party-in-interest.27 The RTC, however, denied the solidum with Saludo as PNB asserts, it does not necessarily follow that both of them
motion for reconsideration in an Order28 dated March 8, 2007. 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
Consequently, PNB filed a petition for certiorari29 with the CA. On February 8, 2010, the CA, the presence ofSAFA Law Office is required for the granting of complete relief
the CA rendered its assailed Decision,30 the dispositive portion of which reads: in the determination of PNB's counterclaim. The court must, therefore, order it to be
WHEREFORE, the petition is PARTIALLY GRANTED. The assailed Omnibus Order brought in as defendant since jurisdiction over it can be obtained pursuant to Section
dated 11 January 2007 and Order dated 8 March 2007, issued by respondent Court in 12,38 Rule 6 of the Rules of Court.39
Civil Case No. 06-678, respectively, are AFFIRMED with MODIFICATION in that
petitioner's counterclaims should be reinstated in its Answer. 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
SO ORDERED.31 but should be asserted in the same suit involving the same transaction. Thus, the
The CA ruled that an order granting Saludo's motion to dismiss counterclaim, being Presiding Judge of the RTC gravely abused his discretion in dismissing PNB's
interlocutory in nature, is not appealable until after judgment shall have been rendered counterclaims as the latter may forever be barred from collecting overdue rental fees
on Saludo's complaint. Since the Omnibus Order is interlocutory, and there was an if its counterclaims were not allowed.40
allegation of grave abuse of discretion, a petition for certiorari is the proper remedy.32
Saludo and PNB filed their respective motions for partial reconsideration dated February
On the merits, the CA held that Saludo is estopped from claiming that SAFA Law Office 25, 201041 and February 26, 2010.42 In a Resolution dated August 2, 2010, the CA
is his single proprietorship. Under the doctrine of estoppel, an admission or denied both motions on the ground that no new or substantial matters had been raised
representation is rendered conclusive upon the person making it, and cannot be denied therein. Nonetheless, the CA addressed the issue on the joining of SAFA Law Office as
or disproved as against the person relying thereon. Here, SAFA Law Office was the one a defendant in PNB's compulsory counterclaim. Pertinent portions of the CA Resolution
that entered into the lease contract and not Saludo. In fact, the latter signed the read:
The Private Respondent claims that a compulsory counterclaim is one directed against Article 1767 of the Civil Code provides that by a contract of partnership, two or more
an opposing party. The SAFA Law Office is not a party to the case below and to require persons bind themselves to contribute money, property, or industry to a common fund,
it to be brought in as a defendant to the compulsory counterclaim would entail making with the intention of dividing the profits among themselves. Two or more persons may
it a co-plaintiff. Otherwise, the compulsory counterclaim would be changed into a third- also form a partnership for the exercise of a profession. Under Article 1771, a
party complaint. The Private Respondent also argues that Section 15, Rule 3 of the partnership may be constituted in any form, except where immovable property or real
Rules of Court (on entities without juridical personality) is only applicable to initiatory rights are contributed thereto, in which case a public instrument shall be necessary.
pleadings and not to compulsory counterclaims. Lastly, it is claimed that since the Article 1784, on the other hand, provides that a partnership begins from the moment
alleged obligations of the SAFA Law Office is solidary with the Private Respondent, of the execution of the contract, unless it is otherwise stipulated.
there is no need to make the former a defendant to the counterclaim.
Here, absent evidence of an earlier agreement, SAFA Law Office was constituted as a
We disagree with the reasoning of the Private Respondent. That a compulsory partnership at the time its partners signed the Articles of Partnership 45 wherein they
counterclaim can only be brought against an opposing party is belied by considering bound themselves to establish a partnership for the practice of law, contribute capital
one of the requisites of a compulsory counterclaim it does not require for its and industry for the purpose, and receive compensation and benefits in the course of
adjudication the presence of third parties of whom the court cannot acquire jurisdiction. its operation. The opening paragraph of the Articles of Partnership reveals the
This shows that non-parties to a suit may be brought in as defendants to such a unequivocal intention of its signatories to form a partnership, to wit:
counterclaim. x x x 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
xxxx 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
In the case at bench, the trial court below can acquire jurisdiction over the SAFA Law terms and conditions hereafter set forth, and subject to the provisions of existing
Office considering the amount and the nature of the counterclaim. Furthermore, the laws[.]46
inclusion of the SAFA Law Office as a defendant to the counterclaim will enable the The subsequent registration of the Articles of Partnership with the SEC, on the other
granting of complete relief in view [of] the liability of a partner to the partnership's hand, was made in compliance with Article 1772 of the Civil Code, since the initial
creditors under the law.43 capital of the partnership was P500,000.00.47 Said provision states:
Hence, this petition, where Saludo raises the following issues for our resolution: Art. 1772. Every contract of partnership having a capital ofThree thousand pesos or
(1) more, in money or property, shall appear in a public instrument, which must be
Whether the CA erred in including SAFA Law Office as defendant to PNB's counterclaim recorded in the Office of the Securities and Exchange Commission.
despite its holding that SAFA Law Office is neither an indispensable party nor a legal
entity; xxxx
(2)
The other provisions of the Articles of Partnership also positively identify SAFA Law
Whether the CA went beyond the issues in the petition for certiorari and prematurely
Office as a partnership. It constantly used the words "partners" and "partnership." It
dealt with the merits of PNB's counterclaim; and
designated petitioner Saludo as managing partner,48 and Attys. Ruben E. Agpalo,
(3)
Filemon L. Fernandez, and Amado D. Aquino as industrial partners.49 It also provided
Whether the CA erred when it gave due course to PNB's petition for certiorari to annul
for the term of the partnership,50 distribution of net profits and losses, and
and set aside the RTC's Omnibus Order dated January 11, 2007.44
management of the firm in which "the partners shall have equal interest in the conduct
The petition is bereft of merit. 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
We hold that SAFA Law Office is a juridical entity and the real party-in-interest in the established was a sole proprietorship. Indeed, it may only be concluded from the
suit filed with the RTC by Saludo against PNB. Hence, it should be joined as plaintiff in circumstances that, for all intents and purposes, SAFA Law Office is a partnership
that case. created and organized in accordance with the Civil Code provisions on partnership.
I. Saludo asserts that SAFA Law Office is a sole proprietorship on the basis of the MOU
executed by the partners of the firm. The MOU states in full:53
Contrary to Saludo's submission, SAFA Law Office is a partnership and not a single MEMORANDUM OF UNDERSTANDING
proprietorship.
WHEREAS, the undersigned executed and filed with the SEC the Articles of
A g e n c y , T r u s t s , a n d P a r t n e r s h i p s S e s s i o n 6 P a g e | 10
Incorporation of SALUDO, AGPALO, FERNANDEZ and AQUINO on March 13, 1997;

IN WITNESS WHEREOF, we have set our hands this _____ day of May, 1997 at Makati
WHEREAS, among the provisions of said Articles of Incorporation are the following: City, Philippines.
1. That partners R. E. Agpalo, F. L. Fernandez and A. D. Aquino shall be industrial [Sgd.]

partners, and they shall not contribute capital to the partnership and shall not in any A.G. SALUDO, JR.
way be liable for any loss or liability that may be incurred by the law firm in the course [Sgd.]
of its operation. [Sgd.]
[Sgd.]
2. That the partnership shall be dissolved by agreement of the partners or for any cause RUBEN E. AGPALO
as and in accordance with the manner provided by law, in which event the Articles of FILEMON L. FERNANDEZ
Dissolution of said partnership shall be filed with the Securities and Exchange AMADO D. AQUINO
Commission. All remaining assets upon dissolution shall accrue exclusively to A. G.
The foregoing evinces the parties' intention to entirely shift any liability that may be
Saludo, Jr. and all liabilities shall be solely for his account.
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,
WHEREAS, the SEC has not approved the registration of the Articles of Incorporation
does not serve to convert SAFA Law Office into a sole proprietorship. As discussed,
and its Examiner required that the phrase "shall not in any way be liable for any loss
SAFA Law Office was manifestly established as a partnership based on the Articles of
or liability that may be incurred by the law firm in the course of its operation" in Article
Partnership. The MOU, from its tenor, reinforces this fact. It did not change the nature
VII be deleted;
of the organization of SAFA Law Office but only excused the industrial partners from
liability.
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
The law, in its wisdom, recognized the possibility that partners in a partnership may
solely for his account" in Article X be likewise deleted;
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
WHEREAS, in order to meet the objections of said Examiner, the objectionable
of the Civil Code, which states:
provisions have been deleted and new Articles of Incorporation deleting said
Art. 1816. All partners, including industrial ones, shall be liable pro rata with all their
objectionable provisions have been executed by the parties and filed with the SEC.
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
NOW, THEREFORE, for and in consideration of the premises and the mutual covenant
its signature and by a person authorized to act for the partnership. However, any
of the parties, the parties hereby agree as follows:
partner may enter into a separate obligation to perform a partnership contract.
1. Notwithstanding the deletion of the portions objected to by the said Examiner, by The foregoing provision does not prevent partners from agreeing to limit their liability,
reason of which entirely new Articles of Incorporation have been executed by the but such agreement may only be valid as among them. Thus, Article 1817 of the Civil
parties removing the objected portions, the actual and real intent of the parties is still Code provides:
as originally envisioned, namely: Art. 1817. Any stipulation against the liability laid down in the preceding article shall be
void, except as among the partners.
a) That partners R. E. Agpalo, F. L. Fernandez and A. D. Aquino shall not in any way The MOU is an agreement forged under the foregoing provision. Consequently, the sole
be liable for any loss or liability that may be incurred by the law firm in the course of liability being undertaken by Saludo serves to bind only the parties to the MOU, but
its operation; never third persons like PNB.
b) That all remaining assets upon dissolution shall accrue exclusively to A. G. Saludo, Considering that the MOU is sanctioned by the law on partnership, it cannot change
Jr. and all liabilities shall be solely for his account. the nature of a duly-constituted partnership. Hence, we cannot sustain Saludo's
position that SAFA Law Office is a sole proprietorship.
2. That the parties hereof hereby bind and obligate themselves to adhere and observe
the real intent of the parties as above-stated, any provisions in the Articles of
II.
Incorporation as filed to meet the objections of the SEC Examiner to the contrary
notwithstanding.
III.
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 In holding that SAFA Law Office, a partnership for the practice of law, is not a legal
brings about the creation of a juridical person separate and distinct from the individuals entity, the CA cited58 the case of Petition for Authority to Continue Use of the Firm
comprising the partnership. Thus, Article 1768 of the Civil Code provides: Name "Sycip, Salazar, Feliciano, Hernandez & Castillo"59 (Sycip case) wherein the Court
Art. 1768. The partnership has a juridical personality separate and distinct from that of held that "[a] partnership for the practice of law is not a legal entity. It is a mere
each of the partners, even in case of failure to comply with the requirements of Article relationship or association for a particular purpose. x x x It is not a partnership formed
1772, first paragraph. 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
Article 44 of the Civil Code likewise provides that partnerships are juridical persons, to
our reference to this US case is an obiter dictum which cannot serve as a binding
wit:
precedent.62
Art. 44. The following are juridical persons:
An obiter dictum is an opinion of the court upon a question which was not necessary
(1)
to the decision of the case before it. It is an opinion uttered by the way, not upon the
The State and its political subdivisions;
point or question pending, as if turning aside from the main topic of the case to
(2)
collateral subjects, or an opinion that does not embody the court's determination and
Other corporations, institutions and entities for public interest or purpose, created by
is made without argument or full consideration of the point. It is not a professed
law; their personality begins as soon as they have been constituted according to law;
deliberate determination of the judge himself. 63
(3)
Corporations, partnerships and associations for private interest or purpose to which
The main issue raised for the court's determination in the Sycip case is whether the
the law grants a juridical personality, separate and distinct from that of each
two petitioner law firms may continue using the names of their deceased partners in
shareholder, partner or member.54
their respective firm names. The court decided the issue in the negative on the basis
It is this juridical personality that allows a partnership to enter into business of "legal and ethical impediments."64 To be sure, the pronouncement that a partnership
transactions to fulfill its purposes. Article 46 of the Civil Code provides that "[j]uridical for the practice of law is not a legal entity does not bear on either the legal or ethical
persons may acquire and possess property of all kinds, as well as incur obligations and obstacle for the continued use of a deceased partner's name, inasmuch as it merely
bring civil or criminal actions, in conformity with the laws and regulations of their describes the nature of a law firm. The pronouncement is not determinative of the main
organization." issue. As a matter of fact, if deleted from the judgment, the rationale of the decision is
neither affected nor altered.
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 Moreover, reference of the Sycip case to the In re Crawford's Estate case was made
which the parties implemented it are a glaring recognition of SAFA Law Office's juridical without a full consideration of the nature of a law firm as a partnership possessed with
personality. Thus, the contract stated that it is being executed by PNB as the lessor legal personality under our Civil Code. First, we note that while the Court mentioned
and "SALUDO AGPALO FERNANDEZ & AQUINO, a partnership organized and existing that a partnership for the practice of law is not a legal entity, it also identified petitioner
under the laws of the Republic of the Philippines," as the lessee.55 It also provided that law firms as partnerships over whom Civil Code provisions on partnership apply.65 The
the lessee, i.e., SAFA Law Office, shall be liable in case of default.56 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
Furthermore, subsequent communications between the parties have always been made that a partnership has a juridical personality separate and distinct from that of each of
for or on behalf ofPNB and SAFA Law Office, respectively.57 the partners.
In view of the above, we see nothing to support the position of the RTC and the CA, Second, our law on partnership does not exclude partnerships for the practice of law
as well as Saludo, that SAFA Law Office is not a partnership and a legal entity. Saludo's from its coverage. Article 1767 of the Civil Code provides that "[t]wo or more persons
claims that SAFA Law Office is his sole proprietorship and not a legal entity fail in light may also form a partnership for the exercise of a profession." Article 1783, on the other
of the clear provisions of the law on partnership. To reiterate, SAFA Law Office was hand, states that "[a] particular partnership has for its object determinate things, their
created as a partnership, and as such, acquired juridical personality by operation of use or fruits, or a specific undertaking, or the exercise of a profession or vocation."
law. Hence, its rights and obligations, as well as those of its partners, are determined Since the law uses the word "profession" in the general sense, and does not distinguish
by law and not by what the partners purport them to be. which professional partnerships are covered by its provisions and which are not, then
no valid distinction may be made.
also the party that would be liable for payment to PNB of overdue rentals, if that claim
Finally, we stress that unlike Philippine law, American law does not treat of partnerships would be proven. This is because it is the one that entered into the contract of lease
as forming a separate juridical personality for all purposes. In the case of Bellis v. with PNB. As an entity possessed of a juridical personality, it has concomitant rights
United States,66 the US Supreme Court stated that law firms, as a form of partnership, and obligations with respect to the transactions it enters into. Equally important, the
are generally regarded as distinct entities for specific purposes, such as employment, general rule under Article 1816 of the Civil Code is that partnership assets are primarily
capacity to be sued, capacity to hold title to property, and more. 67 State and federal liable for the contracts entered into in the name of the partnership and by a person
laws, however, do not treat partnerships as distinct entities for all purposes. 68 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.
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 In Guy v. Gacott,75 we held that under Article 1816 of the Civil Code, the partners'
of Campos Rueda & Co. v. Pacific Commercial Co.,69 which was decided under the old obligation with respect to the partnership liabilities is subsidiary in nature. It is merely
Civil Code, we held: secondary and only arises if the one primarily liable fails to sufficiently satisfy the
Unlike the common law, the Philippine statutes consider a limited partnership as a obligation. Resort to the properties of a partner may be made only after efforts in
juridical entity for all intents and purposes, which personality is recognized in all its acts exhausting partnership assets have failed or if such partnership assets are insufficient
and contracts (art. 116, Code of Commerce). This being so and the juridical personality to cover the entire obligation.76 Consequently, considering that SAFA Law Office is
of a limited partnership being different from that of its members, it must, on general primarily liable under the contract of lease, it is the real party-in-interest that should
principle, answer for, and suffer, the consequence of its acts as such an entity capable be joined as plaintiff in the RTC case.
of being the subject of rights and obligations.70 x x x
Section 2, Rule 3 of the Rules of Court requires that every action must be prosecuted
On the other hand, in the case of Commissioner of Internal Revenue v. Suter.71 which
or defended in the name of the real party-in-interest. As the one primarily affected by
was decided under the new Civil Code, we held:
the outcome of the suit, SAFA Law Office should have filed the complaint with the RTC
It being a basic tenet of the Spanish and Philippine law that the partnership has a
and should be made to respond to any counterclaims that may be brought in the course
juridical personality of its own, distinct and separate from that of its partners (unlike
of the proceeding.
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
In Aguila, Jr. v. Court of Appeals,77 a case for declaration of nullity of a deed of sale
done by ignoring or disregarding clear statutory mandates and basic principles of our
was filed against a partner of A.C. Aguila & Sons, Co. We dismissed the complaint and
law.72 x x x
held that it was the partnership, not its partners, which should be impleaded for a
Indeed, under the old and new Civil Codes, Philippine law has consistently treated cause of action against the partnership itself. Moreover, the partners could not be held
partnerships as having a juridical personality separate from its partners. In view of the liable for the obligations of the partnership unless it was shown that the legal fiction of
clear provisions of the law on partnership, as enriched by jurisprudence, we hold that a different juridical personality was being used for fraudulent, unfair, or illegal
our reference to In re Crawford's Estate in the Sycip case is an obiter dictum. purposes. We held:
Rule 3, §2 of the Rules of Court of 1964, under which the complaint in this case was
IV. 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
Having settled that SAFA Law Office is a juridical person, we hold that it is also the real by the judgment, or who is entitled to the avails of the suit. This ruling is now embodied
party-in-interest in the case filed by Saludo against PNB. 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.
Section 2, Rule 3 of the Rules of Court defines a real party-in-interest as the one "who Hence, a complaint filed against such a person should be dismissed for failure to state
stands to be benefited or injured by the judgment in the suit, or the party entitled to a cause of action.
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 Under Art. 1768 of the Civil Code, a partnership "has a juridical personality separate
who has a correlative legal obligation whose act or omission violates the legal rights of and distinct from that of each of the partners." The partners cannot be held liable for
the former."74 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,
SAFA Law Office is the party that would be benefited or injured by the judgment in the private respondent has not shown that A.C. Aguila & Sons, Co., as a separate juridical
suit before the RTC. Particularly, it is the party interested in the accounting and/or entity, is being used for fraudulent, unfair, or illegal purposes. Moreover, the title to
recomputation of unpaid rentals and damages in relation to the contract of lease. It is 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 cases 80 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.
Peralta,*(Acting Chairperson), Del Castillo, Tijam, and Gesmundo,**JJ., concur.

No. L-39780. November 11, 1985.* the Civil Code, "AII partners, including industrial ones, shall be liable pro rata with all
their property and after all the partnership assets have been exhausted, for the
ELMO MUÑASQUE, petitioner, vs. COURT OF APPEALS, CELESTINO GALAN, contracts which may be entered into the name and for the account of the partnership,
TROPICAL COMMERCIAL COMPANY and RAMON PONS, respondents. under its signature and by a person authorized to act for the partnership. x x x", this
Civil Law; Partnership; Fact that there was a misunderstanding between the partners provision should be construed together with Article 1824 which provides that: "All
does not convert the partnership into a sham organization.—There is nothing in the partners are liable solidarily with the partnership for everything chargeable to the
records to indicate that the partnership organized by the two men was not a genuine partnership under Articles 1822 and 1823." In short, while the liability of the partners
one. If there was a falling out or misunderstanding between the partners, such does are merely joint in transactions entered into by the partnership, a third person who
not convert the partnership into a sham organization. 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.
Same; Same; Payments made to the partnership, valid where the recipient made it
appear that he and another were true partners in the partnership.—Likewise, when Same; Same; Same: Same; Solidary obligation of partners to third persons;
Muñasque received the first payment of Tropical in the amount of P7,000.00 with a Rationale.—The obligation is solidary because the law protects him, who in good faith
check made out in his name, he indorsed the check in favor of Galan. Respondent relied upon the authority of a partner, whether such authority is real or apparent. That
Tropical therefore, had every right to presume that the petitioner and Galan were true is why under Article 1824 of the Civil Code all partners, whether innocent or guilty, as
partners. If they were not partners as petitioner claims, then he has only himself to well as the legal entity which is the partnership, are solidarily liable.
blame for making the relationship appear otherwise, not only to Tropical but to their Same; Same; Same; Same; Solidary liability of all partners and the partnership as a
other creditors as well. The payments made to the partnership were, therefore, valid whole for the consequences of any wrongful act committed by any of the partners.—
payments. ln the case at bar the respondent Tropical had every reason to believe that a
Same; Same; Liability of partners to third persons who extended credit to the partnership existed between the petitioner and Galan and no fault or error can be
partnership.—No error was committed by the appellate court in holding that the imputed against it for making payments to "Galan and Associates" and delivering the
payment made by Tropical to Galan was a good payment which binds both Galan and same to Galan because as far as it was concerned, Galan was a true partner with real
the petitioner. Since the two were partners when the debts were incurred, they are authority to transact on behalf of the partnership with which it was dealing. This is
also both liable to third persons who extended credit to their partnership. 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
Same; Same, Remedial Law; Civil Procedure; Pre-trial; Delimitation of issues during the consequences of any wrongful act committed by any of the partners therein should be
pre-trial agreed upon by one party binds said party to the delimitation.—The petitioner, answered solidarily by all the partners and the partnership as a whole.
therefore, should be bound by the delimitation of the issues during the pre-trial because
he himself agreed to the same. PETITION for certiorari to review the decision of the Court of Appeals.
Same; Same; Liability of partners to third persons for contracts executed in connection The f acts are stated in the opinion of the Court.
with the partnership business is pro-rata.—We, however, take exception to the ruling John T. Borromeo for petitioner.
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 Juan D, Astete for respondent C. Galan.
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 Paul Gornes for respondent R. Pons.
Code. Viu Montecillo for respondent Tropical.
Same; Same; Same; While the liability of partners are merely joint in transactions Paterno P. Natinga for Intervenor Blue Diamond Glass Palace.
entered into by the partnership, the partners are liable to third persons solidarily for
the whole obligation if the case involves loss or injury caused to any person not a GUTIERREZ, JR., J.:
partner in the partnership, and misapplication of money or property of a third person
received by a partner or the partnership.—While it is true that under Article 1816 of In this petition for certiorari, the petitioner seeks to annul and set aside the decision of
the Court of Appeals aff irming the existence of a partnership between petitioner and
one of the respondents, Celestino Galan and holding both of them liable to the two The business firms Cebu Southern Hardware Company and Blue Diamond Glass Palace
intervenors which extended credit to their partnership. The petitioner wants to be were allowed to intervene, both having legal interest in the matter in litigation.
excluded from the liabilities of the partnership.
After trial, the court rendered judgment, the dispositive portion of which states:
"IN VIEW WHEREOF, Judgment is hereby rendered:

Petitioner Elmo Muñasque filed a complaint for payment of sum of money and damages
against respondents Celestino Galan, Tropical Commercial, Co., Inc. (Tropical) and "(1)ordering plaintiff Muñasque and defendant Galan to pay jointly and severally the
Ramon Pons, alleging that the petitioner entered into a contract with respondent intervenors Cebu and Southern Hardware Company and Blue Diamond Glass Palace the
Tropical through its Cebu Branch Manager Pons for remodelling a portion of its building amount of P6,229.34 and P2,213.51, respectively;
without exchanging or expecting any consideration from Galan although the latter was "(2)absolving the defendants Tropical Commercial Company and Ramon Pons from any
casually named as partner in the contract; that by virtue of his having introduced the liability.
petitioner to the employing company (Tropical), Galan would receive some kind of
compensation in the form of some percentages or commission; that Tropical, under the "No damages awarded whatsoever."
terms of the contract, agreed to give petitioner the amount of P7,000.00 soon after the
construction began and thereafter the amount of P6,000.00 every fifteen (15) days The petitioner and intervenor Cebu Southern Company and its proprietor, Tan Siu filed
during the construction to make a total sum of P25,000.00; that on January 9, 1967, motions for reconsideration.
Tropical and/or Pons delivered a check for P7,000.00 not to the plaintiff but to a
On January 15, 1971, the trial court issued another order amending its judgment to
stranger to the contract, Galan, who succeeded in getting petitioner's indorsement on
make it read as follows:
the same check persuading the latter that the same be deposited in a joint account;
that on January 26, 1967, when the second check for P6,000.00 was due, petitioner "IN VIEW WHEREOF, Judgment is hereby rendered:
refused to indorse said check presented to him by Galan but through later
manipulations, respondent Pons succeeded in changing the payee's name from Elmo "(1)ordering plaintiff Muñasque and defendant Galan to pay jointly and severally the
Muñasque to Galan and Associates, thus enabling Galan to cash the same at the Cebu intervenors Cebu Southern Hardware Company and Blue Diamond Glass Palace the
Branch of the Philippine Commercial and Industrial Bank (PCIB) placing the petitioner amount of P6,229.34 and P2,213.51, respectively,
in great financial difficulty in his construction business and subjecting him to demands
"(2)ordering plaintiff and defendant Galan to pay Intervenor Cebu Southern Hardware
of creditors to pay for construction materials, the payment of which should have been
Company and Tan Siu jointly and severally interest at 12% per annum of the sum of
made from the P13,000.00 received by Galan; that petitioner undertook the
P6,229.34 until the amount is fully paid;
construction at his own expense completing it prior to the March 16, 1967 deadline;
that because of the unauthorized disbursement by respondents Tropical and Pons of "(3)ordering plaintiff and defendant Galan to pay P500.00 representing attorney's fees
the sum of P13,000.00 to Galan, petitioner demanded that said amount be paid to him jointly and severally to Intervenor Cebu Southern Hardware Company;
by respondents under the terms of the written contract between the petitioner and
respondent company. "(4)absolving the defendants Tropical Commercial Company and Ramon Pons from any
liability.
The respondents answered the complaint by denying some and admitting some of the
material averments and setting up counterclaims. "No damages awarded whatsoever."
During the pre-trial conference, the petitioners and respondents agreed that the issues On appeal, the Court of Appeals affirmed the judgment of the trial court with the sole
to be resolved are: modification that the liability imposed in the dispositive part of the decision on the
credit of Cebu Southern Hardware and Blue Diamond Glass Palace was changed from
(1)Whether or not there existed a partnership between Celestino Galan and Elmo "jointly and severally" to "jointly."
Muñasque; and
Not satisfied, Mr. Muñasque filed this petition.
(2)Whether or not there existed a justifiable cause on the part of respondent Tropical
to disburse money to respondent Galan.
The present controversy began when petitioner Muñasque in behalf of the partnership In this petition, the legal questions raised by the petitioner are as follows: (1) Whether
of "Galan and Muñasque" as Contractor entered into a written contract with respondent or not the appellate court erred in holding that a partnership existed between petitioner
Tropical for remodelling the respondent's Cebu branch building. A total amount of and respondent Galan. (2) Assuming that there was such a partnership, whether or not
P25,000.00 was to be paid under the contract for the entire services of the Contractor. the court erred in not finding Galan guilty of malversing the P13,000.00 covered by the
The terms of payment were as follows: thirty percent (30%) of the whole amount upon first and second checks and therefore, accountable to the petitioner for the said
the signing of the contract and the balance thereof divided into three equal installments amount; and (3) Whether or not the court committed grave abuse of discretion in
at the rate of Six Thousand Pesos (P6,000.00) every fifteen (15) working days. holding that the payment made by Tropical through its manager Pons to Galan was'
"good payment."
The first payment made by respondent Tropical was in the form of a check for
P7,000.00 in the name of the petitioner. Petitioner, however, indorsed the check in Petitioner contends that the appellate court erred in holding that he and respondent
favor of respondent Galan to enable the latter to deposit it in the bank and pay for the Galan were partners, the truth being that Galan was a sham and a perfidious partner
materials and labor used in the project. who misappropriated the amount of P1 3,000.00 due to the petitioner. Petitioner also
contends that the appellate court committed grave abuse of discretion in holding that
Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00 for his personal use the payment made by Tropical to Galan was "good" payment when the same gave
so that when the second check in the amount of P6,000.00 came and Galan asked the occasion for the latter to misappropriate the proceeds of such payment.
petitioner to indorse it again, the petitioner refused.
The contentions are without merit.
The check was withheld from the petitioner. Since Galan informed the Cebu branch of
Tropical that there was a "misunderstanding" between him and petitioner, respondent The records will show that the petitioner entered into a contract with Tropical for the
Tropical changed the name of the payee in the second check from Muñasque to "Galan renovation of the latter's building on behalf of the partnership of "Galan and
and Associates'' which was the duly registered name of the partnership between Galan Muñasque." This is readily seen in the first paragraph of the contract where it states:
and petitioner and under which name a permit to do construction business was issued
by the mayor of Cebu City, This enabled Galan to encash the second check. 'This agreement made this 20th day of December in the year 1966 by Galan and
Muñasque hereinafter called the Contractor, and Tropical Commercial Co., Inc.,
Meanwhile, as alleged by the petitioner, the construction continued through his sole hereinafter called the owner do hereby for and in consideration agree on the following:
efforts. He stated that he borrowed some P12,000.00 from his friend, Mr. Espina and x x x."
although the expenses had reached the amount of P29,000.00 because of the failure
of Galan to pay what was partly due the laborers and partly due for the materials, the There is nothing in the records to indicate that the partnership organized by the two
construction work was finished ahead of schedule with the total expenditure reaching men was not a genuine one. If there was a falling out or misunderstanding between
P34,000.00. the partners, such does not convert the partnership into a sham organization.
The two remaining checks, each in the amount of P6,000.00, were subsequently given Likewise, when Muñasque received the first payment of Tropical in the amount of
to the petitioner alone with the last check being given pursuant to a court order. 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
As stated earlier, the petitioner filed a complaint for payment of sum of money and Galan were true partners. If they were not partners as petitioner claims, then he has
damages against the respondents, seeking to recover the following: the amounts only himself to blame for making the relationship appear otherwise, not only to Tropical
covered by the first and second checks which fell into the hands of respondent Galan, but to their other creditors as well. The payments made to the partnership were,
the additional expenses that the petitioner incurred in the construction, moral and therefore, valid payments.
exemplary damages, and attorney's fees.
In the case of Singsong v. Isabela Sawmill (88 SCRA 643), we ruled:
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 " Although it may be presumed that Margarita G. Saldajeno had acted in good faith,
respondent Galan, liable to the intervenors Cebu Southern Hardware Company and the appellees also acted in good faith in extending credit to the partnership. Where one
Blue Diamond Glass Palace for the credit which the intervenors extended to the of two innocent persons must suffer. that person who gave occasion for the damages
partnership of petitioner and Galan, to be caused must bear the consequences,''
No error was committed by the appellate court in holding that the payment made by liable for the total amount of P7,000.00 in favor of Eden Hardware which extended
Tropical to Galan was a good payment which binds both Galan and the petitioner. Since credit to the partnership aside from the P2,000.00 he already paid to Universal Lumber.
the two were partners when the debts were incurred, they are also both liable to third
persons who extended credit to their partnership. In the case of George Litton v. Hill We, however, take exception to the ruling of the appellate court that the trial court's
and Ceron, et al., (67 Phil. 513, 514), we ruled: 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
"There is a general presumption that each individual partner is an authorized agent for law to third persons for contracts executed in connection with partnership business is
the firm and that he has authority to bind the firm in carrying on the partnership only pro rata under Art. 1816, of the Civil Code.
transactions." (Mills vs. Riggle, 112 Pac., 617).
While it is true that under Article 1816 of the Civil Code, "All partners, including
"The presumption is sufficient to permit third persons to hold the firm liable on industrial ones, shall be liable pro rata with all their property and after all the
transactions entered into by one of members of the firm acting apparently in its behalf partnership assets have been exhausted, for the contracts which may be entered into
and within the scope of his authority." (Le Roy vs. Johnson, 7 U.S. (Law. ed.), 391.) the name and for the account of the partnership, under its signature and by a person
authorized to act for the partnership. x x x", this provision should be construed together
Petitioner also maintains that the appellate court committed grave abuse of discretion with Article 1824 which provides that: "All partners are liable solidarily with the
in not holding Galan liable f or the amounts which he "malversed'' to the prejudice of partnership for everything chargeable to the partnership under Articles 1822 and 1823."
the petitioner. He adds that although this was not one of the issues agreed upon by In short, while the liability of the partners are merely joint in transactions entered into
the parties during the pre-trial, he, nevertheless, alleged the same in his amended by the partnership, a third person who transacted with said partnership can hold the
complaint which was duly admitted by the court. partners solidarily liable for the whole obligation if the case of the third person falls
When the petitioner amended his complaint, it was only for the purpose of impleading under Articles 1822 or 1823.
Ramon Pons in his personal capacity. Although the petitioner made allegations as to Articles 1822 and 1823 of the Civil Code provide:
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 "Art. 1822. Where, by any wrongful act or omission of any partner acting in the ordinary
amended complaint but the alleged connivance of Pons with Galan as a means to serve course of the business of the partnership or with the authority of his co-partners, loss
the latter's personal purposes. 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
The petitioner, therefore, should be bound by the delimitation of the issues during the or omitting to act."
pre-trial because he himself agreed to the same. In Permanent Concrete Products, Inc.
v. Teodoro, (26 SCRA 336), we ruled: '' Art. 1823. The partnership is bound to make good the loss:
xxx xxx xxx "(1)Where one partner acting within the scope of his apparent authority receives money
or property of a third person and misapplies it; and
"x x x 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 "(2)Where the partnership in the course of its business receives money or property of
controls the subsequent course of the action, unless modified before trial to prevent a third person and the money or property so received is misapplied by any partner
manifest injustice. In the case at bar, modification of the pre-trial order was never while it is in the custody of the partnership."
sought at the instance of any party.''
The obligation is solidary because the law protects him, who in good faith relied upon
Petitioner could have asked at least for a modification of the issues if he really wanted the authority of a partner, whether such authority is real or apparent. That is why under
to include the determination of Galan's personal liability to their partnership but he Article 1824 of the Civil Code all partners, whether innocent or guilty, as well as the
chose not to do so, as he vehemently denied the existence of the partnership. At any legal entity which is the partnership, are solidarily liable.
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 In the case at bar the respondent Tropical had every reason to believe that a
petitioner is not solely burdened by the obligations of their illstarred partnership. The partnership existed between the petitioner and Galan and no fault or error can be
records show that there is an existing judgment against respondent Galan, holding him 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 view is that a corporation cannot become a partner on grounds of public policy, since
authority to transact on behalf of the partnership with which it was dealing. This is otherwise parties other that its officers may be able to bind it. (Idem, p. 5.)
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 ———o0o——— Muñasque vs. Court of Appeals, 139 SCRA 533, No. L-39780 November
consequences of any wrongful act committed by any of the partners therein should be 11, 1985
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.
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.
Teehankee (Chairman), Melencio-Herrera, De la Fuente and Patajo, JJ., concur.
Plana, J., no part.
Relova, J., on leave.
Decision affirmed with modification.
Notes.—In order that a contract of partnership may exist, the parties must bind
themselves to contribute money, property, or industry to a common fund. Without such
a common fund or a reciprocal undertaking by the parties to constitute the same, there
can be no partnership. Thus, Manresa cited a case where the parties had contributed
nothing of a realizable value but a mere obligation, that of responding up to a certain
amount for the losses which the supposed partnership might incur, none of the parties
having contributed to a common fund any money, or any other kind of property, or any
existing industry or service. When the juridical existence of the supposed partnership
was questioned, the French Court decided that there was no partnership for lack of
common fund. (Caguioa, Comments and Cases on Civil Law, Vol VI, p. 3, First Edition.)
In order to become a partner, a party must have capacity to enter into contract. An
emancipated minor, therefore, may become a partner but the consent of his parents
or guardian is necessary in order to contribute real or immovable property. A married
woman may become a partner without the consent of her husband. Both natural and
juridical persons can become partners; hence, a partnership can enter into a
partnership with other partnerships or with private individuals. However, the majority
[No. L-7991. May 21, 1956] Commission, and while it is confusing to see in this case that the CARDINAL RATTAN,
sometimes called the CARDINAL RATTAN FACTORY, is treated as a copartnership, of
PAUL MACDONALD, ET AL., petitioners, vs. THE NATIONAL CITY BANK OF which defendants Gorcey and da Costa are considered general partners, we are
NEW YORK, respondent. satisfied that, as alleged in various instruments appearing of record, said Cardinal
1.PARTNERSHIP; UNREGISTERED PARTNERSHIP; PERSONS COMPOSING IT ARE Rattan is merely the business name or style used by the partnership Stasikinocey.
PARTNERS; ASSOCIATION is PARTNERSHIP.—While an uregistered commercial "Prior to June 3, 1949, defendant Stasikinocey had an overdraft account with The
partnership has no juridical personality, nevertheless, where two or more persons, National City Bank of New York, a foreign banking association duly licensed to do
attempt to create a partnership failing to comply with all the legal formalities, the law business in the Philippines. On June 3, 1949, the overdraft showed a balance of
considers them as partners and the association is a partnership in so far as it is P6,134.92 against the defendant Stasikinocey or the Cardinal Rattan (Exhibit D), which
favorable to third persons, by reason of the equitable principle of estoppel. account, due to the failure of the partnership to make the required payment, was
2.ID.; ID.; ID.; "De Facto" EXISTENCE; DOMICILE AS TO THIRD PERSONS.—If the law converted into an ordinary loan for which the corresponding promissory 'joint note—
recognizes a defectively organized partnership as de facto as far as third persons are non-negotiable' was executed on June 3, 1949, by Louis F. da Costa for and in the
concerned, for purposes of its de facto existence it should have such attribute of a name of the Cardinal Rattan, Louis F. da Costa and Alan Gorcey (Exhibit D). This
partnership as domicile. Although it has no legal standing, it is a partnership de facto promissory note was secured on June 7, 1949, by a chattel mortgage executed by Louis
and the general provisions of the code applicable to all partnership apply to it. F. da Costa, Jr,, General Partner for and in the name of Stasikinocey, alleged to be a
duly registered Philippine partnership, doing business under the name and style of
3.CHATTEL MORTGAGE; VALIDITY GENERALLY; AFFIDAVIT IN GOOD FAITH; CANNOT Cardinal Rattan, with principal office at 69 Riverside, San Juan, Rizal (Exhibit A). The
BE DESTROYED BY BIASED TESTIMONY.—The chattel mortgage in question is in the chattels mortgaged were the following motor vehicles:
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 "(a)Fargo truck with motor No. T-1 18-202839, Serial No. 81410206 and with plate No.
interested version that the affidavit of good faith appearing in the chattel mortgage T-7333 (1949);
was executed in Quezon City before a notary public for and in the city of Manila was "(b)Plymouth Sedan automobile motor No. T-5638876, Serial No. 11872718 and with
correctly rejected by the trial court and the Court of Appeals. Indeed, cumbersome plate No. 10372; and
legal formalities are imposed to prevent fraud. If the biased and interested testimony
of a grantor and the vague and uncertain testimony of his son are deemed sufficient "(c)Fargo Pick-up FKI-16, with motor No. T-112800032,
to overcome a public instrument drawn up with all the formalities prescribed by law
then there will have been established a very dangerous doctrine which would throw Serial No. 8869225 and with plate No. T-7222 (1949). The mortgage deed was fully
wide open the doors to fraud. registered by the mortgagee on June 11, 1949, in the Office of the Register of Deeds
for the province of Rizal, at Pasig, (Exhibit A), and among other provisions it contained
PETITION for review by certiorari of a decision of the Court of Appeals. the following:
The facts are stated in the opinion of the Court. " '(a)That the mortgagor shall not sell or otherwise dispose of the said chattels without
the mortgagee's written consent; and
Jose W. Diokno for petitioners.
" '(b)That the mortgagee may foreclose the mortgage at any time, after breach of any
Ross, Selph, Carrascoso & Janda for respondent condition thereof, the mortgagor waiving the 30-day notice of foreclosure.'
PARÁS, C. J.: "On June 7, 1949, the same day of the execution of the chattel mortgage
This is an appeal by certiorari from the decision of the Court of Appeals from which we aforementioned, Gorcey and Da Costa executed an agreement purporting to convey
are reproducing the following basic findings of fact: and transfer all their rights, title and participation in defendant partnership to Shaeffer,
allegedly in consideration of the cancellation of an indebtedness of P25,000 owed by
"STASIKINOCEY is a partnership doing business at No. 58, Aurora Boulevard, San Juan, them and defendant partnership to the latter (Exhibit J), which transaction is said to
Rizal, and formed by Alan W. Gorcey, Louis F. da Costa, Jr., William Kusik and Emma be in violation of the Bulk Sales Law (Act No. 3952 of the Philippine Legislature).
Badong Gavino. This partnership was denied registration in the Securities and Exchange
"While the said loan was still unpaid and the chattel mortgage subsisting, defendant "I "IN RULING THAT AN UNREGISTERED COMMERCIAL CO-PARTNERSHIP WHICH HAS
partnership, through defendants Gorcey and Da Costa, transferred to defendant NO INDEPENDENT JURIDICAL PERSONALITY CAN HAVE A 'DOMICILE' SO THAT A
McDonald the Fargo truck and Plymouth sedan on June 24, 1949 (Exhibit L). The Fargo CHATTEL MORTGAGE REGISTERED IN THAT 'DOMICILE' WOULD BIND THIRD
pickup was also sold on June 28, 1949., by William Shaeffer to Paul McDonald. PERSONS WHO ARE INNOCENT PURCHASERS FOR VALUE.
"On or about July 19, 1944, Paul McDonald, notwithstanding plaintiff's existing "II"IN RULING THAT, WHEN A CHATTEL MORTGAGE IS EXECUTED BY ONE OF THE
mortgage lien, in turn transferred the Fargo truck and the Plymouth sedan to Benjamin MEMBERS OF AN UNREGISTERED COMMERCIAL CO-PARTNERSHIP WITHOUT
Gonzales." JURIDICAL PERSONALITY INDEPENDENT OF ITS MEMBERS, IT NEED NOT BE
REGISTERED IN THE ACTUAL RESIDENCE OF THE MEMBERS WHO EXECUTED SAME;
The National City Bank of New York, respondent herein, upon learning of the transfers AND, AS A CONSEQUENCE THEREOF, IN NOT MAKING ANY FINDING OF FACT AS TO
made by the partnership Stasikinocey to William Shaeffer, from the latter to Paul THE ACTUAL RESIDENCE OF SAID CHATTEL MORTGAGOR, DESPITE APPELLANTS'
McDonald, and from Paul McDonald to Benjamin Gonzales, of the vehicles previously RAISING THAT QUESTION PROPERLY BEFORE IT AND REQUESTING A RULING
pledged by Stasikinocey to the respondent, filed an action against Stasikinocey and its THEREON.
alleged partners Gorcey and Da Costa, as well as Paul McDonald and Benjamin
Gonzales, to recover its credit and to foreclose the corresponding' chattel mortgage. "III"IN NOT RULING THAT, WHEN A CHATTEL MORTGAGOR EXECUTES AN AFFIDAVIT
McDonald and Gonzales were made defendants because they claimed to have a better OF GOOD FAITH BEFORE A NOTARY PUBLIC OUTSIDE OF THE TERRITORIAL
right over the pledged vehicle. JURISDICTION OF THE LATTER, THE AFFIDAVIT IS VOID AND THE CHATTEL,
MORTGAGE IS NOT BINDING ON THIRD PERSONS WHO ARE INNOCENT PURCHASERS
After trial the Court of First Instance of Manila rendered judgment in favor of the FOR VALUE; AND, AS A CONSEQUENCE THEREOF, IN NOT MAKING ANY FINDING OF
respondent, annulling the sale of the vehicles in question to Benjamin Gonzales; FACT AS TO WHERE THE DEED WAS IN FACT EXECUTED, DESPITE APPELLANTS'
sentencing Da Costa and Gorcey to pay to the respondent jointly and severally the sum RAISING THAT QUESTION PROPERLY BEFORE IT AND EXPRESSLY REQUESTING A
of P6,134.92, with legal interest from the debt of the promissory note involved; RULING THEREON.
sentencing 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; "IV"IN RULING THAT A LETTER AUTHORIZING ONE MEMBER OF AN UNREGISTERED
and sentencing Da Costa, Gorcey and Shaeffers to pay to the respondent jointly and COMMERCIAL CO-PARTNERSHIP 'TO MAKE ALL OFFICIAL, AND BUSINESS
severally any deficiency that may remain unpaid should the proceeds of the sale not ARRANGEMENTS . . . WITH THE NATIONAL CITY BANK OF NEW YORK' IN ORDER 'TO
be sufficient; and sentencing Gorcey, Da Costa, McDonald and Shaeffer to pay the SIMPLIFY ALL MATTERS RELATIVE TO LCS CABLE TRANSFERS. DRAFTS, OR OTHER
costs. Only Paul McDonald and Benjamin Gonzales appealed to the Court of Appeals BANKING MEDIUMS,' WAS SUFFICIENT AUTHORITY FOR THE SAID MEMBER TO
which rendered a decision the dispositive part of which reads as follows: EXECUTE A CHATTEL MORTGAGE IN ORDER TO GIVE THE BANK SECURITY FOR A
PRE-EXISTING OVERDRAFT, GRANTED WITHOUT SECURITY, WHICH THE BANK HAD
"WHEREFORE,, the decision appealed from is hereby modified, relieving appellant CONVERTED INTO A DEMAND LOAN UPON FAILURE TO PAY SAME AND BEFORE THE
William Shaeffer of the obligation of paying, jointly and severally, together with Alan CHATTEL MORTGAGE WAS EXECUTED."
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 This is the first question propounded by the petitioners: "Since an unregistered
upon the lapse of 90 days from the date this decision becomes final, if by then commercial partnership unquestionably has no juridical personality, can it have a
defendants Louis F. da Costa, Jr., and Alan W. Gorcey had not paid the amount of the domicile so that the registration of a chattel mortgage therein is notice to the world?"
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 While an unregistered commercial partnership has no juridical personality,
action Louis F. da Costa, Jr., and Alan W. Gorcey may take against their co-partners in nevertheless, where two or more persons attempt to create a partnership failing to
the Stasikinocey unregistered partnership." 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
This appeal by certiorari was taken by Paul McDonald and Benjamin Gonzales, the equitable principle of estoppel. In Jo Chung Chang vs. Pacific Commercial Co., 45
petitioners herein, who have assigned the following errors: 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 It is noteworthy that the chattel mortgage in question is in the form required by law,
deny that they are partners of the partnership Stasikinocey, because in all their and there is therefore the presumption of its due execution which cannot be easily
transactions with the respondent they represented themselves as such. Petitioner destroyed by the biased testimony of the one who executed it. The interested version
McDonald cannot disclaim knowledge of the partnership Stasikinocey because he dealt of Da Costa that the affidavit of good faith appearing in the chattel mortgage was
with said entity in purchasing two of the vehicles in question through Gorcey and Da executed in Quezon City before a notary public for and in the City of Manila was
Costa. As was held in Behn Meyer & Co. vs. Rosatzin, 5 Phil., 660, where a partnership correctly rejected by the trial court and the Court of Appeals. Indeed, cumbersome
not duly organized has been recognized as such in its dealings with certain persons, it legal formalities are imposed to prevent fraud. As aptly pointed out in El Hogar Filipino
shall be considered as "partnership by estoppel" and the persons dealing with it are vs. Olviga, 60 Phil., 17, "If the biased and interested testimony of a grantor and the
estopped from denying its partnership existence. The sale of the vehicles in question vague and uncertain testimony of his son are deemed sufficient to overcome a public
being void as to petitioner McDonald, the transfer from the latter to petitioner Benjamin instrument drawn up with all the formalities prescribed by the law then there will have
Gonzales is also void, as the buyer cannot have a better right than the seller. been established a very dangerous doctrine which would throw wide open the doors to
fraud."
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 The last question raised by the petitioners is as follows: "Does only one of several
such attribute of a partnership as domicile. In Hung-Man Yoc vs. Kieng-Chiong-Seng, 'partners' of an unregistered commercial partnership have authority, by himself alone,
6 Phil., 498, it was held that although "it has no legal standing, it is a partnership de to execute a valid chattel mortgage over property owned by the unregistered
facto and the general provisions of the Code applicable to all partnerships apply to it." commercial partnership in order to guarantee a pre-existing overdraft previously
The registration of the chattel mortgage in question with the Office of the Register of granted, without guaranty, by the bank?"
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 In view of the conclusion that Stasikinocey is a de facto partnership, and Da Costa
Law. 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
The second question propounded by the petitioners is: "If not, is a chattel mortgage such, as stated in the affidavit of April 21, 1948, to the effect that "That we as the
executed by only one of the 'partners' of an unregistered commercial partnership validly majority partners hereby agree to appoint Louis da Costa co-managing partner of Alan
registered so as to constitute notice to the world if it is not registered at the place W. Gorcey, duly approved managing partner of the said firm," the "partner" who
where the aforesaid 'partner' actually resides but only in the place where the deed executed the chattel mortgage in question must be deemed to be so fully authorized.
states that he resides, which is not his real residence?" And the third question is as Section 6 of the Chattel Mortgage Law provides that when a partnership is a party to
follows: "If the actual residence of the chattel mortgagor—not the residence stated in the mortgage, the affidavit may be made and subscribed by one member thereof. In
the deed of chattel mortgage—is controlling, may the Court of Appeals refuse to make this case the affidavit was executed and subscribed by Da Costa, not only as a partner
a finding of fact as to where the mortgagor resided despite your petitioners' having but as a managing partner.
properly raised that question before it and expressly requested a ruling thereon?"
There is no merit in petitioners' pretense that the motor vehicles in question are the
These two questions have become academic by reason of the answer to the first common property of Da Costa and Gorcey. Petitioners invoke article 24 of the Code of
question, namely, that as a de facto partnership, Stasikinocey had its domicile in San Commerce in arguing that an unregistered commercial partnership has no juridical
Juan, Rizal. 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
The fourth question asked by the petitioners is as follows: "Is a chattel mortgage partnership, and the chattel mortgage executed by Da Costa cannot therefore be
executed by only one of the 'partners' of an unregistered commercial partnership valid impugned by Gorcey on the ground that there is no partnership between them and that
as to third persons when that 'partner' executed the affidavit of good faith in Quezon the vehicles in question belonged to them in common. As a matter of fact, the
City before a notary public whose appointment is only for the City of Manila? If not, respondent and the petitioners are all third persons as regards the partnership
may the Court of Appeals refuse to make a finding of fact as to where the deed was Stasikinocey; and even assuming that the petitioners are purchasers in good faith and
executed, despite your petitioners' having properly raised that issue before it and for value, the respondent having transacted with Stasikinocey earlier than the
expressly requested a ruling thereon?" petitioners, it should enjoy and be given priority.
Wherefore, the appealed decision of the Court of Appeals is affirmed with costs against themselves. The doctrine formerly enunciated by this court is that the law must be
the petitioners. construed as rendering contracts made in violation of it, unlawful and unenforceable
only as between the partners and at the instance of the infringer, but not in the sense
Bengzon, Montemayor, Reyes, A., Jugo, Bautista Angelo Labrador, Concepcion, Reyes, of depriving innocent parties of their rights, who may have dealt with the guilty parties
J. B. L., and Endencia, JJ., concur. in ignorance of the latter's having violated the law; and that contracts entered into by
Decision affirmed. mercantile associations defectively organized are valid when voluntarily executed by
the parties and the only question is whether or not they complied with the agreement.
(Jo Chung Cang vs. Pacific Commercial Co., 45 Phil., 142.)
_____________ MacDonald, et al. vs. Nat. City Bank of N.Y., 99 Phil. 156, No. L-7991 3.ID. ; ID. ; ID.—Appellants' contention that such parts of their property as are not
May 21, 1956 included in the partnership assets cannot be levied upon for the payment of the
partnership obligations, except after the partnership property has been exhausted is
untenable, for the partnership property described in the mortgage no longer existed at
the time of the filing of the herein complaint, nor has its existence been proved, nor
was it offered to the plaintiff for sale. Hence article 237 of the Code of Commerce
invoked by the appellants can in no way be applicable to this case.
4.ID. ; ID. ; ID.—All the members of a general partnership, be they managing partners
of the same 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. (Sec. 127, Code
of Commerce.)
APPEAL from a judgment of the Court of First Instance of Iloilo. Salas, J.
The facts are stated in the opinion of the court.
Jose Lopez Vito for appellants.
Roman Lacson for appellee.

[No. 26937. October 5, 1927]
VlLLAMOR, J.:
PHILIPPINE NATIONAL BANK, plaintiff and appellee, vs. SEVERO EUGENIO
On September 29, 1916, the appellants Severo Eugenio Lo and Ng Khey Ling, together
Lo ET AL., defendants. SEVERO EuGENIO Lo, NG KHEY LING and YEP SENG,
with J. A. Say Lian Ping, Ko Tiao Hun, On Yem Ke Lam and Co Sieng Peng formed a
appellants.
commercial partnership under the name of "Tai Sing & Co.," with a capital of P40,000
1.ASSOCIATIONS; GENERAL PARTNERSHIPS; LIABILITY.—The anomalous adoption of contributed by said partners. In the articles of copartnership, Exhibit A, it appears that
a firm name by the defendant partners cannot be set up by them as a defense so as the partnership was to last for five years from and after the date of its organization,
to evade a liability contracted by them, inasmuch as such anomaly does not affect the and that its purpose was to do business in the City of Iloilo, Province of Iloilo, or in any
liability of the general partners to third persons under article 127 of the Code of other part of the Philippine Islands the partners might desire, under the name of "Tai
Commerce. (See Hung-Man-Yoc vs. KiengChiong-Seng, 6 Phil., 498.) 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
2.ID.; ID.; ID.—The object of article 126 of the Code of Commerce in requiring a they might consider profitable. One of the partners, J. A. Say Lian Ping was appointed
general partnership to transact business under the name of all its members, of several general manager of the partnership, with the powers specified in said articles of
of them, or of one only, is to protect the public from imposition and fraud. The provision copartnership.
of said article 126 is for the protection of the creditors rather than of the partners
On June 4, 1917, general manager A. Say Lian Ping executed a power of attorney After the hearing, the court found:
(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, A. Y. Kelam, acting under such (1)That defendants Severo Eugenio Lo, Ng Khey Ling and Yap Seng & Co., Sieng Peng
power of attorney, applied for, and obtained a loan of P8,000 in current account from are indebted to plaintiff Philippine National Bank in the sum of P22,595.26 to July 29,
the plaintiff bank (Exhibit C). As security for said loan, he mortgaged certain personal 1926, with a daily interest of P4.14 on the balance on account of the partnership Tai
property of Tai Sing & Co. (Exhibit C.) Sing & Co. for the sum of P16,518.74 until September 9, 1922;
This credit was renewed several times and on March 25, 1919, A. Y. Kelam, as attorney- (2)Said defendants are ordered jointly and severally to pay the Philippine National Bank
in-fact of Tai Sing & Co., executed a chattel mortgage in favor of plaintiff bank as the sum of P22,727.74 up to August 31, 1926, and from that date, P4.14 daily interest
security for a loan of P20,000 with interest (Exhibit D). This mortgage was again on the principal; and
renewed on April 16, 1920, and A. Y. Kelam, as attorney-in-fact of Tai Sing & Co., (3)The defendants are furthermore ordered to pay the costs of the action.
executed another chattel mortgage for the said sum of P20,000 in favor of the plaintiff
bank. (Exhibit E.) According to this mortgage contract, the P20,000 loan was to earn 9 Defendants appealed, making the following assignments of error:
per cent interest per annum.
"I.The trial court erred in finding that article 126 of the Code of Commerce at present
On April 20, 1920, Yap Seng, Severo Eugenio Lo, A. Y. Kelam and Ng Khey Ling, the in force is not mandatory.
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 "II.The trial court erred in finding that the partnership agreement of Tai Sing & Co.
from plaintiff bank on January 7, 1921, executing a chattel mortgage on certain (Exhibit A), is in accordance with the requirements of article 125 of the Code of
personal property belonging to Tai Sing & Co. Commerce for the organization of a regular partnership.
Defendants had been using this commercial credit in a current account with the plaintiff "III.The trial court erred in not admitting J. A. Sai Lian Ping's death in China in
bank, from the year 1918 to May 22,1921, and the debit balance of this account, with November, 1917, as a proven fact.
interest to December 31, 1924, is as follows:
"IV.The trial court erred in finding that the death of J. A. Sai Lian Ping cannot extinguish
TAI SING & Co. the defendants' obligation to the plaintiff bank, because the last debt incurred by the
commercial partnership Tai Sing & Co. was that evidenced by Exhibit F, signed by Sy
To your outstanding account (C. O. D.) with us on June 30, 1922 Tit as attorneyin-fact of the members of Tai Sing & Co., by virtue of Exhibit G.
...............................................................................................P16,518.74
"V.The trial court erred in not finding that plaintiff bank was not able to collect its credit
Interest on same from June 30, 1922 to December 31, 1924, at 9 per cent per from the goods of Tai Sing & Co. given as security therefor through its own fault and
annum..................................................................................3,720.86 negligence; and that the action brought by plaintiff is a manifest violation of article 237
of the present Code of Commerce.
Total .................................................................................20,239.60
"VI.The trial court erred in finding that the current account of Tai Sing & Co. with
This total is the sum claimed in the complaint, together with interest on the P16,518.74 plaintiff bank shows a debit balance of P16,518.74, which in addition to interest at 9
debt, at 9 per cent per annum from January 1, 1925 until fully paid, with the costs of per cent per annum from July 29, 1926, amounts to P16,595.26, with a daily interest
the trial. of P4.14 on the sum of P16,518.74.
Defendant Eugenio Lo sets up, as a general defense, that Tai Sing & Co., was not a "VII.The trial court erred in ordering the defendantsappellants to pay jointly and
general partnership, and that the commercial credit in current account which Tai Sing severally to the Philippine National Bank the sum of P22,727.74 up to August 31, 1926,
& Co. obtained from the plaintiff bank had not been authorized by the board of directors and interest on P16,518.74 from that date until fully paid, with the costs of the action.
of the company, nor was the person who subscribed said contract authorized to make
the same, under the articles of copartnership. The other defendants, Yap Sing and Ng "VIII.The trial court erred in denying the motion for a new trial filed by defendants-
Khey Ling, answered the complaint denying each and every one of the allegations appellants."
contained therein.
Appellants admit, and it appears from the context of Exhibit A, that the defendant the partnership property has been exhausted. The court found that the partnership
association formed by the defendants is a general partnership, as defined in article 126 property described in the mortgage Exhibit F no longer existed at the time of the filing
of the Code of Commerce. This partnership was registered in the mercantile register of of the herein complaint nor has its existence been proven, nor was it offered to the
the Province of Iloilo. The only anomaly noted in its organization is that instead of plaintiff for sale. We find no just reason to reverse this conclusion of the trial court,
adopting for their firm name the names of all of the partners, of several of them, or and this being so, it follows that article 237 of the Code of Commerce, invoked by the
only one of them, to be followed in the last two cases, by the words "and company," appellants, can in no way have any application here.
the partners agreed upon "Tai Sing & Co." as the firm name.
Appellants also assign error to the action of the trial court in ordering them to pay
In the case of Hung-Man-Yoc, under the name of KwongWo-Sing vs. Kieng-Chiong- plaintiff, jointly and severally, the sums claimed with 9 per cent interest on P16,518.74,
Seng (6 Phil., 498), cited by appellants, this court held that, as the company formed owing from them.
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 The judgment against the appellants is in accordance with article 127 of the Code of
plaintiff, the same must be paid by someone. This applies more strongly to the Commerce which provides that all the members of a general partnership, be they
obligations contracted by the defendants, for they formed a partnership which was managing partners thereof or not, shall be personally and solidarily liable with all their
registered in the mercantile register, and carried on business contracting debts with property, for the results of the transactions made in the name and for the account of
the plaintiff bank. The anomalous adoption of the firm name above noted does not the partnership, under the signature of the latter, and by a person authorized to use
affect the liability of the general partners to third parties under article 127 of the Code it.
of Commerce. And the Supreme Court so held in the case of Jo Chung Cang vs. Pacific As to the amount of the interest suffice it to remember that the credit in current account
Commercial Co. (45 Phil., 142), in which it said that the object of article 126 of the sued on in this case has been renewed by the parties in such a way that while it appears
Code of Commerce in requiring a general partnership to transact business under the in the mortgage Exhibit D executed on March 25, 1919 by the attorney-in-fact Ou Yong
name of all its members, of several of them, or of one only, is to protect the public Kelam, that the P20,000 credit would earn 8 per cent interest annually, yet from that
from imposition and fraud; and that the provision of said article 126 is f or the executed on April 16, 1920, Exhibit E, it appears that the P20,000 would earn 9 per
protection of the creditors rather than of the partners themselves. And consequently cent interest per annum. The credit was renewed in January, 1921, and in the deed of
the doctrine was enunciated that the law must be construed as rendering contracts pledge, Exhibit F, executed by "Tai Sing & Co." represented by the attorney-in-fact Sy
made in violation of it unlawful and unenforceable only as between the partners and Tit, it appears that this security is for the payment of the sums received by the
at the instance of the violating party, but not in the sense of depriving innocent parties partnership, not to exceed P20,000 with interest and collection fees. There can be no
of their rights who may have dealt with the offenders in ignorance of the latter having doubt that the parties agreed upon the rate of interest fixed in the document Exhibit
violated the law; and that contracts entered into by commercial associations defectively E, namely, 9 per cent per annum.
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 The judgment appealed from is in accordance with the law, and must therefore be, as
invoke in their defense the anomaly in the firm name which they themselves adopted. it is hereby, affirmed with costs against the appellants. So ordered.
As to the alleged death of the manager of the company, Say Lian Ping, before the Avanceña, C. J., Johnson, Street, Malcolm, Johns, and Romualdez, JJ., concur.
attorney-in-fact Ou Yong Kelam executed Exhibits C, D and E, the trial court did not
find this fact proven at the hearing. But even supposing that the court had erred, such Judgment affirmed.
an error would not justify the reversal of the judgment, for two reasons at least: (1)
National Bank vs. Lo, 50 Phil. 802, No. 26937 October 5, 1927
Because Ou Yong Kelam was a 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 appellant-partners Severo Eugenio Lo, Ng Khey Ling and Yap Seng, appointed
Sy Tit as manager, and he obtained from the plaintiff bank the credit in current account,
the debit balance of which is sought to be recovered in this action.
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

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Agency, Trusts, and Partnerships Session 6 Page |1

severally pay plaintiff the following:

Incorporation of SALUDO, AGPALO, FERNANDEZ and AQUINO on March 13, 1997;

1. That partners R. E. Agpalo, F. L. Fernandez and A. D. Aquino shall be industrial [Sgd.]

WHEREFORE, the petition is DENIED. Petitioner is hereby ordered to amend his

Peralta,*(Acting Chairperson), Del Castillo, Tijam, and Gesmundo,**JJ., concur.

"IN VIEW WHEREOF, Judgment is hereby rendered:

Teehankee (Chairman), Melencio-Herrera, De la Fuente and Patajo, JJ., concur.

Plana, J., no part.

Relova, J., on leave.

Decision affirmed with modification.

APPEAL from a judgment of the Court of First Instance of Iloilo. Salas, J.

The facts are stated in the opinion of the court.

Jose Lopez Vito for appellants.

Roman Lacson for appellee.

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