[No. 26937. October 5, 1927] 1. 4.ID. ; ID. ; ID.
—All the members of a general partnership, be they
PHILIPPINE NATIONAL BANK, plaintiff and
appellee, vs. SEVERO EUGENIO Lo ET AL., defendants.
SEVERO EuGENIO Lo, NG KHEY LING and YEP SENG,
appellants.
1.ASSOCIATIONS; GENERAL PARTNERSHIPS; LIABILITY.
—The anomalous adoption of a firm name by the defendant
partners cannot be set up by them as a defense so as to evade a
liability contracted by them, inasmuch as such anomaly does not
affect the liability of the general partners to third persons under
article 127 of the Code of Commerce. (See Hung-Man-
Yoc vs. KiengChiong-Seng, 6 Phil., 498.)
1. 2.ID.; ID.; ID.—The object of article 126 of the Code of Commerce
in requiring a general partnership to transact business under the
name of all its members, of several of them, or of one only, is to
protect the public from imposition and fraud. The provision of said
article 126 is for the protection of the creditors rather than of the
partners themselves. The doctrine formerly enunciated by this court
is that the law must be 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 of
depriving innocent parties of their rights, who may have dealt with
the guilty parties in ignorance of the latter's having violated the law;
and that contracts entered into by 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.)
1. 3.ID. ; ID. ; ID.—Appellants' contention that such parts of their
property as are not 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.
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.
VlLLAMOR, J.:
On September 29, 1916, the appellants Severo Eugenio Lo and Ng
Khey Ling, together with J. A. Say Lian Ping, Ko Tiao Hun, On Yem
Ke Lam and Co Sieng Peng formed a commercial partnership under
the name of "Tai Sing & Co.," with a capital of P40,000 contributed by
said partners. In the articles of copartnership, Exhibit A, it appears that
the partnership was to last for five years from and after the date of its
organization, and that its purpose was to do business in the City of
Iloilo, Province of Iloilo, or in any other part of the Philippine Islands
the partners might desire, under the name of "Tai Sing & Co.," for the
purchase and sale of merchandise, goods, and native, as well as
Chinese and Japanese, products, and to carry on such business and
speculations as they might consider profitable. One of the partners, J.
A. Say Lian Ping was appointed general manager of the partnership,
with the powers specified in said articles of copartnership.
On June 4, 1917, general manager A. Say Lian Ping executed a
power of attorney (Exhibit C-1) in favor of A. Y. Kelam, authorizing
him to act in his stead as manager and administrator of "Tai Sing &
Co." On July 26, 1918, A. Y. Kelam, acting under such power of
attorney, applied for, and obtained a loan of P8,000 in current account
from the plaintiff bank (Exhibit C). As security for said loan, he
mortgaged certain personal property of Tai Sing & Co. (Exhibit C.)
This credit was renewed several times and on March 25, 1919, A.
Y. Kelam, as attorney-in-fact of Tai Sing & Co., executed a chattel
mortgage in favor of plaintiff bank as security for a loan of P20,000
with interest (Exhibit D). This mortgage was again renewed on April
16, 1920, and A. Y. Kelam, as attorney-in-fact of Tai Sing & Co.,
executed another chattel mortgage for the said sum of P20,000 in favor
of the plaintiff bank. (Exhibit E.) According to this mortgage contract,
the P20,000 loan was to earn 9 per cent interest per annum.
On April 20, 1920, Yap Seng, Severo Eugenio Lo, A. Y. Kelam
and Ng Khey Ling, the latter represented by M. Pineda Tayenko,
executed a power of attorney in favor of Sy Tit by virtue of which Sy
Tit, representing Tai Sing & Co. obtained a credit of P20,000 from
plaintiff bank on January 7, 1921, executing a chattel mortgage on
certain personal property belonging to Tai Sing & Co.
Defendants had been using this commercial credit in a current account
with the plaintiff bank, from the year 1918 to May 22,1921, and the
debit balance of this account, with interest to December 31, 1924, is as
follows:
TAI SING & Co.
To your outstanding account (C. O. D.) with us on June
     30,
1922 .........................................................................................
..................
Interest on same from June 30, 1922 to December 31, 1924,
     at 9 per cent per
annum ......................................................................................
.....................
          Total ..............................................................................
.............................
This total is the sum claimed in the complaint, together with interest on
the P16,518.74 debt, at 9 per cent per annum from January 1, 1925
until fully paid, with the costs of the trial.
Defendant Eugenio Lo sets up, as a general defense, that Tai Sing
& Co., was not a general partnership, and that the commercial credit in
current account which Tai Sing & Co. obtained from the plaintiff bank
had not been authorized by the board of directors of the company, nor
was the person who subscribed said contract authorized to make the
same, under the articles of copartnership. The other defendants, Yap
Sing and Ng Khey Ling, answered the complaint denying each and
every one of the allegations contained therein.
After the hearing, the court found:
(1)That defendants Severo Eugenio Lo, Ng Khey Ling and Yap
Seng & Co., Sieng Peng are indebted to plaintiff Philippine
National Bank in the sum of P22,595.26 to July 29, 1926, with a
daily interest of P4.14 on the balance on account of the partnership
Tai Sing & Co. for the sum of P16,518.74 until September 9, 1922;
(2)Said defendants are ordered jointly and severally to pay the
Philippine National Bank the sum of P22,727.74 up to August 31,
1926, and from that date, P4.14 daily interest on the principal; and
(3)The defendants are furthermore ordered to pay the costs of the
action.
Defendants appealed, making the following assignments of error:
P16,518.7
"I.The trial court erred in finding that article 126 of the Code of
Commerce at present in force is not mandatory.
3,720.86 "II.The trial court erred in finding that the partnership agreement of
Tai Sing & Co. (Exhibit A), is in accordance with the requirements
of article 125 of the Code of Commerce for the organization of a
regular partnership.
20,239.60 "III.The trial court erred in not admitting J. A. Sai Lian Ping's
death in China in November, 1917, as a proven fact.
"IV.The trial court erred in finding that the death of J. A. Sai Lian
Ping cannot extinguish the defendants' obligation to the plaintiff
bank, because the last debt incurred by the commercial partnership
Tai Sing & Co. was that evidenced by Exhibit F, signed by Sy Tit
as attorneyin-fact of the members of Tai Sing & Co., by virtue of
Exhibit G.
"V.The trial court erred in not finding that plaintiff bank was not
able to collect its credit from the goods of Tai Sing & Co. given as
security therefor through its own fault and negligence; and that the
action brought by plaintiff is a manifest violation of article 237 of
the present Code of Commerce.
 "VI.The trial court erred in finding that the current account of Tai
Sing & Co. with plaintiff bank shows a debit balance of
P16,518.74, which in addition to interest at 9 per cent per annum
from July 29, 1926, amounts to P16,595.26, with a daily interest of
P4.14 on the sum of P16,518.74.
"VII.The trial court erred in ordering the defendantsappellants to
pay jointly and severally to the Philippine National Bank the sum
of P22,727.74 up to August 31, 1926, and interest on P16,518.74
from that date until fully paid, with the costs of the action.
"VIII.The trial court erred in denying the motion for a new trial
filed by defendants-appellants."
Appellants admit, and it appears from the context of Exhibit A, that the
defendant association formed by the defendants is a general
partnership, as defined in article 126 of the Code of Commerce. This
partnership was registered in the mercantile register of the Province of
Iloilo. The only anomaly noted in its organization is that instead of
adopting for their firm name the names of all of the partners, of several
of them, or only one of them, to be followed in the last two cases, by
the words "and company," the partners agreed upon "Tai Sing & Co."
as the firm name.
In the case of Hung-Man-Yoc, under the name of KwongWo-
Sing vs. Kieng-Chiong-Seng (6 Phil., 498), cited by appellants, this
court held that, as the company formed by defendants had existed in
fact, though not in law due to the fact that it was not recorded in the
register, and having operated and contracted debts in favor of the
plaintiff, the same must be paid by someone. This applies more
strongly to the obligations contracted by the defendants, for they
formed a partnership which was registered in the mercantile register,
and carried on business contracting debts with the plaintiff bank. The
anomalous adoption of the firm name above noted does not affect the
liability of the general partners to third parties under article 127 of the
Code of Commerce. And the Supreme Court so held in the case of Jo
Chung Cang vs. Pacific Commercial Co. (45 Phil., 142), in which it
said that the object of article 126 of the Code of Commerce in
requiring a general partnership to transact business under the name of
all its members, of several of them, or of one only, is to protect the
public from imposition and fraud; and that the provision of said article
126 is f or the protection of the creditors rather than of the partners
themselves. And consequently the doctrine was enunciated that the law
must be construed as rendering contracts made in violation of it
unlawful and unenforceable only as between the partners and at the
instance of the violating party, but not in the sense of depriving
innocent parties of their rights who may have dealt with the offenders
in ignorance of the latter having violated the law; and that contracts
entered into by commercial associations defectively organized are
valid when voluntarily executed by the parties, and the only question is
whether or not they complied with the agreement. Therefore, the
defendants cannot invoke in their defense the anomaly in the firm
name which they themselves adopted.
As to the alleged death of the manager of the company, Say Lian
Ping, before the 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 an error would not justify
the reversal of the judgment, for two reasons at least: (1) 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 the partnership property has
been exhausted. The court found that the partnership property
described in the mortgage Exhibit F no longer existed at the time of the
filing of the herein complaint nor has its existence been proven, nor
was it offered to the plaintiff for sale. We find no just reason to reverse
this conclusion of the trial court, and this being so, it follows that
article 237 of the Code of Commerce, invoked by the appellants, can
in no way have any application here.
Appellants also assign error to the action of the trial court in ordering
them to pay plaintiff, jointly and severally, the sums claimed with 9
per cent interest on P16,518.74, owing from them.
 The judgment against the appellants is in accordance with article
127 of the Code of Commerce which provides that all the members of
a general partnership, be they managing partners thereof or not, shall
be personally and solidarily liable with all their property, for the
results of the transactions made in the name and for the account of the
partnership, under the signature of the latter, and by a person
authorized to use it.
As to the amount of the interest suffice it to remember that the
credit in current account sued on in this case has been renewed by the
parties in such a way that while it appears in the mortgage Exhibit D
executed on March 25, 1919 by the attorney-in-fact Ou Yong Kelam,
that the P20,000 credit would earn 8 per cent interest annually, yet
from that executed on April 16, 1920, Exhibit E, it appears that the
P20,000 would earn 9 per cent interest per annum. The credit was
renewed in January, 1921, and in the deed of pledge, Exhibit F,
executed by "Tai Sing & Co." represented by the attorney-in-fact Sy
Tit, it appears that this security is for the payment of the sums received
by the partnership, not to exceed P20,000 with interest and collection
fees. There can be no doubt that the parties agreed upon the rate of
interest fixed in the document Exhibit E, namely, 9 per cent per
annum.
The judgment appealed from is in accordance with the law, and
must therefore be, as it is hereby, affirmed with costs against the
appellants. So ordered.
Avanceña, C.
J., Johnson,  Street, Malcolm, Johns, and Romualdez, JJ., concur.
Judgment affirmed.
No. L-39780. November 11, 1985. *
ELMO MUÑASQUE, petitioner, vs. COURT OF APPEALS,
CELESTINO GALAN, TROPICAL COMMERCIAL COMPANY
and RAMON PONS, respondents.
Civil Law; Partnership; Fact that there was a misunderstanding
between the partners does not convert the partnership into a sham
organization.—There is nothing in the records to indicate that the partnership
organized by the two men was not a genuine one. If there was a falling out or
misunderstanding between the partners, such does not convert the partnership
into a sham organization.
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 Muñasque received the first payment of
Tropical in the amount of P7,000.00 with a check made out in his name, he
indorsed the check in favor of Galan. Respondent Tropical therefore, had
every right to presume that the petitioner and Galan were true partners. If
they were not partners as petitioner claims, then he has only himself to blame
for making the relationship appear otherwise, not only to Tropical but to their
other creditors as well. The payments made to the partnership were,
therefore, valid payments.
Same; Same; Liability of partners to third persons who extended credit
to the partnership.—No error was committed by the appellate court in
holding that the payment made by Tropical to Galan was a good payment
which binds both Galan and the petitioner. Since the two were partners when
the debts were incurred, they are also both liable to third persons who
extended credit to their partnership.
Same; Same, Remedial Law; Civil Procedure; Pre-trial; Delimitation
of issues during the pre-trial agreed upon by one party binds said party to
the delimitation.—The petitioner, therefore, should be bound by the
delimitation of the issues during the pre-trial because he himself agreed to the
same.
Same; Same; Liability of partners to third persons for contracts
executed in connection with the partnership business is pro- rata.—We,
however, take exception to the ruling of the appellate court that the
trial court's ordering petitioner and Galan to pay the credits of Blue
Diamond and Cebu Southern Hardware "jointly and severally" is plain
error since the liability of partners under the law to third persons for
contracts executed in connection with partnership business is only pro
rata under Art. 1816, of the Civil Code.
Same; Same; Same; While the liability of partners are merely
joint in transactions 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 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 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 contracts which
may be entered into the name and for the account of the partnership,
under its signature and by a person authorized to act for the
partnership. x x x", this provision should be construed together with
Article 1824 which provides that: "All partners are liable solidarily
with the partnership for everything chargeable to the partnership under
Articles 1822 and 1823." In short, while the liability of the partners are
merely joint in transactions entered into by the partnership, a third
person who transacted with said partnership can hold the partners
solidarily liable for the whole obligation if the case of the third person
falls under Articles 1822 or 1823.
Same;  Same; Same: Same; Solidary obligation of partners to
third persons; Rationale.—The obligation is solidary because the law
protects him, who in good faith relied upon the authority of a partner,
whether such authority is real or apparent. That is why under Article
1824 of the Civil Code all partners, whether innocent or guilty, as well
as the legal entity which is the partnership, are solidarily liable.
Same; Same; Same; Same; Solidary liability of all partners and the
partnership as a whole for the consequences of any wrongful act committed
by any of the partners.—ln the case at bar the respondent Tropical had every
reason to believe that a partnership existed between the petitioner and Galan
and no fault or error can be imputed against it for making payments to
"Galan and Associates" and delivering the same to Galan because as far as it
was concerned, Galan was a true partner with real authority to transact on
behalf of the partnership with which it was dealing. This is even more true in
the cases of Cebu Southern Hardware and Blue Diamond Glass Palace who
supplied materials on credit to the partnership. Thus, it is but fair that the
consequences of any wrongful act committed by any of the partners therein
should be answered solidarily by all the partners and the partnership as a
whole.
PETITION for certiorari to review the decision of the Court of
Appeals.
The f acts are stated in the opinion of the Court.
     John T. Borromeo for petitioner.
     Juan D, Astete for respondent C. Galan.
     Paul Gornes for respondent R. Pons.
     Viu Montecillo for respondent Tropical.
     Paterno P. Natinga for Intervenor Blue Diamond Glass Palace.
GUTIERREZ, JR., J.:
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 intervenors which
extended credit to their partnership. The petitioner wants to be
excluded from the liabilities of the partnership.
Petitioner Elmo Muñasque filed a complaint for payment of sum of
money and damages against respondents Celestino Galan, Tropical
Commercial, Co., Inc. (Tropical) and Ramon Pons, alleging that the
petitioner entered into a contract with respondent Tropical through its
Cebu Branch Manager Pons for remodelling a portion of its building
without exchanging or expecting any consideration from Galan
although the latter was casually named as partner in the contract; that
by virtue of his having introduced the 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 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 during the construction to make a
total sum of P25,000.00; that on January 9, 1967, Tropical and/or Pons
delivered a check for P7,000.00 not to the plaintiff but to a stranger to
the contract, Galan, who succeeded in getting petitioner's indorsement
on the same check persuading the latter that the same be deposited in a
joint account; that on January 26, 1967, when the second check for
P6,000.00 was due, petitioner refused to indorse said check presented
to him by Galan but through later manipulations, respondent Pons
succeeded in changing the payee's name from Elmo Muñasque to
Galan and Associates, thus enabling Galan to cash the same at the
Cebu Branch of the Philippine Commercial and Industrial Bank
(PCIB) placing the petitioner in great financial difficulty in his
construction business and subjecting him to demands of creditors to
pay for construction materials, the payment of which should have been
made from the P13,000.00 received by Galan; that petitioner
undertook the construction at his own expense completing it prior to
the March 16, 1967 deadline; that because of the unauthorized
disbursement by respondents Tropical and Pons of the sum of
P13,000.00 to Galan, petitioner demanded that said amount be paid to
him by respondents under the terms of the written contract between the
petitioner and respondent company.
The respondents answered the complaint by denying some and
admitting some of the material averments and setting up
counterclaims.
During the pre-trial conference, the petitioners and respondents
agreed that the issues to be resolved are:
(1)Whether or not there existed a partnership between Celestino
Galan and Elmo Muñasque; and
(2)Whether or not there existed a justifiable cause on the part of
respondent Tropical to disburse money to respondent Galan.
The business firms Cebu Southern Hardware Company and Blue
Diamond Glass Palace were allowed to intervene, both having legal
interest in the matter in litigation.
After trial, the court rendered judgment, the dispositive portion of
which states:
"IN VIEW WHEREOF, Judgment is hereby rendered:
1. "(1)ordering plaintiff Muñasque and defendant Galan to pay jointly
and severally the intervenors Cebu and Southern Hardware
Company and Blue Diamond Glass Palace the amount of P6,229.34
and P2,213.51, respectively;
2. "(2)absolving the defendants Tropical Commercial Company and
Ramon Pons from any liability.
"No damages awarded whatsoever."
The petitioner and intervenor Cebu Southern Company and its
proprietor, Tan Siu filed motions for reconsideration.
On January 15, 1971, the trial court issued another order amending
its judgment to make it read as follows:
"IN VIEW WHEREOF, Judgment is hereby rendered:
1. "(1)ordering plaintiff Muñasque and defendant Galan to pay jointly
and severally the intervenors Cebu Southern Hardware Company
and Blue Diamond Glass Palace the amount of P6,229.34 and
P2,213.51, respectively,
2. "(2)ordering plaintiff and defendant Galan to pay Intervenor Cebu
Southern Hardware Company and Tan Siu jointly and severally
interest at 12% per annum of the sum of P6,229.34 until the amount
is fully paid;
3. "(3)ordering plaintiff and defendant Galan to pay P500.00
representing attorney's fees jointly and severally to Intervenor Cebu
Southern Hardware Company;
4. "(4)absolving the defendants Tropical Commercial Company and
Ramon Pons from any liability.
"No damages awarded whatsoever."
On appeal, the Court of Appeals affirmed the judgment of the trial
court with the sole modification that the liability imposed in the
dispositive part of the decision on the credit of Cebu Southern
Hardware and Blue Diamond Glass Palace was changed from "jointly
and severally" to "jointly."
Not satisfied, Mr. Muñasque filed this petition.
The present controversy began when petitioner Muñasque in behalf of
the partnership of "Galan and Muñasque" as Contractor entered into a
written contract with respondent Tropical for remodelling the
respondent's Cebu branch building. A total amount of P25,000.00 was
to be paid under the contract for the entire services of the Contractor.
The terms of payment were as follows: thirty percent (30%) of the
whole amount upon the signing of the contract and the balance thereof
divided into three equal installments at the rate of Six Thousand Pesos
(P6,000.00) every fifteen (15) working days.
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 favor of respondent Galan to enable
the latter to deposit it in the bank and pay for the materials and labor
used in the project.
 Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00
for his personal use so that when the second check in the amount of
P6,000.00 came and Galan asked the petitioner to indorse it again, the
petitioner refused.
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 Tropical changed the name of
the payee in the second check from Muñasque to "Galan and
Associates'' which was the duly registered name of the partnership
between Galan 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.
Meanwhile, as alleged by the petitioner, the construction continued
through his sole efforts. He stated that he borrowed some P12,000.00
from his friend, Mr. Espina and 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
construction work was finished ahead of schedule with the total
expenditure reaching P34,000.00.
The two remaining checks, each in the amount of P6,000.00, were
subsequently given to the petitioner alone with the last check being
given pursuant to a court order.
As stated earlier, the petitioner filed a complaint for payment of sum of
money and damages against the respondents, seeking to recover the
following: the amounts covered by the first and second checks which
fell into the hands of respondent Galan, the additional expenses that
the petitioner incurred in the construction, moral and exemplary
damages, and attorney's fees.
Both the trial and appellate courts not only absolved respondents
Tropical and its Cebu Manager, Pons, from any liability but they also
held the petitioner together with respondent Galan, liable to the
intervenors Cebu Southern Hardware Company and Blue Diamond
Glass Palace for the credit which the intervenors extended to the
partnership of petitioner and Galan,
In this petition, the legal questions raised by the petitioner are as
follows: (1) Whether or not the appellate court erred in holding that a
partnership existed between petitioner and respondent Galan. (2)
Assuming that there was such a partnership, whether or not the court
erred in not finding Galan guilty of malversing the P13,000.00 covered
by the first and second checks and therefore, accountable to the
petitioner for the said amount; and (3) Whether or not the court
committed grave abuse of discretion in holding that the payment made
by Tropical through its manager Pons to Galan was' "good payment."
Petitioner contends that the appellate court erred in holding that he
and respondent Galan were partners, the truth being that Galan was a
sham and a perfidious partner 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 the
payment made by Tropical to Galan was "good" payment when the
same gave occasion for the latter to misappropriate the proceeds of
such payment.
The contentions are without merit.
The records will show that the petitioner entered into a contract with
Tropical for the renovation of the latter's building on behalf of the
partnership of "Galan and Muñasque." This is readily seen in the first
paragraph of the contract where it states:
'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., hereinafter called the owner do hereby for and in consideration
agree on the following: x x x."
There is nothing in the records to indicate that the partnership
organized by the two men was not a genuine one. If there was a falling
out or misunderstanding between the partners, such does not convert
the partnership into a sham organization.
Likewise, when Muñasque received the first payment of Tropical in
the amount of P7,000.00 with a check made out in his name, he
indorsed the check in favor of Galan. Respondent Tropical therefore,
had every right to presume that the petitioner and Galan were true
partners. If they were not partners as petitioner claims, then he has
only himself to blame for making the relationship appear otherwise,
not only to Tropical but to their other creditors as well. The payments
made to the partnership were, therefore, valid payments.
In the case of Singsong v. Isabela Sawmill (88 SCRA 643), we
ruled:
" Although it may be presumed that Margarita G. Saldajeno had acted in
good faith, the appellees also acted in good faith in extending credit to the
partnership. Where one of two innocent persons must suffer. that person who
gave occasion for the damages to be caused must bear the consequences,''
No error was committed by the appellate court in holding that the
payment made by Tropical to Galan was a good payment which binds
both Galan and the petitioner. Since the two were partners when the
debts were incurred, they are also both liable to third persons who
extended credit to their partnership. In the case of George Litton v.
Hill and Ceron, et al., (67 Phil. 513, 514), we ruled:
"There is a general presumption that each individual partner is an authorized
agent for the f irm and that he has authority to bind the firm in carrying on
the partnership transactions." (Mills vs. Riggle, 112 Pac., 617).
"The presumption is sufficient to permit third persons to hold the firm
liable on transactions entered into by one of members of the firm acting
apparently in its behalf and within the scope of his authority." (Le Roy vs.
Johnson, 7 U.S. (Law. ed.), 391.)
Petitioner also maintains that the appellate court committed grave
abuse of discretion in not holding Galan liable f or the amounts which
he "malversed'' to the prejudice of the petitioner. He adds that although
this was not one of the issues agreed upon by the parties during the
pre-trial, he, nevertheless, alleged the same in his amended complaint
which was duly admitted by the court.
When the petitioner amended his complaint, it was only for the
purpose of impleading Ramon Pons in his personal capacity. Although
the petitioner made allegations as to the alleged malversations of
Galan. these were the same allegations in his original complaint. The
malversation by one partner was not an issue actually raised in the
amended complaint but the alleged connivance of Pons with Galan as a
means to serve the latter's personal purposes.
The petitioner, therefore, should be bound by the delimitation of the
issues during the pre-trial because he himself agreed to the same. In
Permanent Concrete Products, Inc. v. Teodoro, (26 SCRA 336), we
ruled:
x x x                x x x                x x x
"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 controls the subsequent course of the action, unless
modified before trial to prevent manifest injustice. In the case at bar,
modification of the pre-trial order was never sought at the instance of any
party.''
Petitioner could have asked at least for a modification of the issues if
he really wanted to include the determination of Galan's personal
liability to their partnership but he chose not to do so, as he
vehemently denied the existence of the partnership. At any rate, the
issue raised in this petition is the contention of Muñasque that the
amounts payable to the intervenors should be shouldered exclusively
by Galan. We note that the petitioner is not solely burdened by the
obligations of their illstarred partnership. The records show that there
is an existing judgment against respondent Galan, holding him liable
for the total amount of P7,000.00 in favor of Eden Hardware which
extended credit to the partnership aside from the P2,000.00 he already
paid to Universal Lumber.
We, however, take exception to the ruling of the appellate court
that the trial court's ordering petitioner and Galan to pay the credits of
Blue Diamond and Cebu Southern Hardware "jointly and severally" is
plain error since the liability of partners under the law to third persons
for contracts executed in connection with partnership business is
only pro rata under Art. 1816, of the Civil Code.
While it is true that under Article 1816 of the Civil Code, "All
partners, including industrial ones, shall be liable pro rata with all their
property and after all the partnership assets have been exhausted, for
the contracts which may be entered into the name and for the account
of the partnership, under its signature and by a person authorized to act
for the partnership. x x x", this provision should be construed together
with Article 1824 which provides that: "All partners are liable
solidarily with the partnership for everything chargeable to the
partnership under Articles 1822 and 1823." In short, while the liability
of the partners are merely joint in transactions entered into by the
partnership, a third person who transacted with said partnership can
hold the partners solidarily liable for the whole obligation if the case of
the third person falls under Articles 1822 or 1823.
Articles 1822 and 1823 of the Civil Code provide:
"Art. 1822. Where, by any wrongful act or omission of any partner acting in
the ordinary course of the business of the partnership or with the authority of
his co-partners, loss or injury is caused to any person, not being a partner in
the partnership or any penalty is incurred, the partnership is liable therefor to
the same extent as the partner so acting or omitting to act."
'' Art. 1823. The partnership is bound to make good the loss:
 "(1)Where one partner acting within the scope of his apparent      Teehankee (Chairman),  Melencio-Herrera,  De la
authority receives money or property of a third person and Fuente and Patajo, JJ., concur.
misapplies it; and      Plana, J., no part.
     Relova, J., on leave.
"(2)Where the partnership in the course of its business receives Decision affirmed with modification.
money or property of a third person and the money or property so Notes.—In order that a contract of partnership may exist, the
received is misapplied by any partner while it is in the custody of
parties must bind themselves to contribute money, property, or
the partnership."
industry to a common fund. Without such a common fund or a
reciprocal undertaking by the parties to constitute the same, there can
The obligation is solidary because the law protects him, who in good
be no partnership. Thus, Manresa cited a case where the parties had
faith relied upon the authority of a partner, whether such authority is
contributed nothing of a realizable value but a mere obligation, that of
real or apparent. That is why under Article 1824 of the Civil Code all
responding up to a certain amount for the losses which the supposed
partners, whether innocent or guilty, as well as the legal entity which is
partnership might incur, none of the parties having contributed to a
the partnership, are solidarily liable.
common fund any money, or any other kind of property, or any
In the case at bar the respondent Tropical had every reason to
existing industry or service. When the juridical existence of the
believe that a partnership existed between the petitioner and Galan and
supposed partnership was questioned, the French Court decided that
no fault or error can be imputed against it for making payments to
there was no partnership for lack of common fund. (Caguioa,
"Galan and Associates" and delivering the same to Galan because as
Comments and Cases on Civil Law, Vol VI, p. 3, First Edition.)
far as it was concerned, Galan was a true partner with real authority to
In order to become a partner, a party must have capacity to enter
transact on behalf of the partnership with which it was dealing. This is
into contract. An emancipated minor, therefore, may become a partner
even more true in the cases of Cebu Southern Hardware and Blue
but the consent of his parents or guardian is necessary in order to
Diamond Glass Palace who supplied materials on credit to the
contribute real or immovable property. A married woman may become
partnership, Thus, it is but fair that the consequences of any wrongful
a partner without the consent of her husband. Both natural and
act committed by any of the partners therein should be answered
juridical persons can become partners; hence, a partnership can enter
solidarily by all the partners and the partnership as a whole.
into a partnership with other partnerships or with private individuals.
However, as between the partners Muñasque and Galan, justice
However, the majority view is that a corporation cannot become a
also dictates that Muñasque be reimbursed by Galan for the payments
partner on grounds of public policy, since otherwise parties other that
made by the former representing the liability of their partnership to
its officers may be able to bind it. (Idem, p. 5.)
herein intervenors, as it was satisfactorily established that Galan acted
in bad faith in his dealings with Muñasque as a partner. ———o0o———
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.
 [No. L-7991. May 21, 1956]
PAUL MACDONALD, ET AL., petitioners, vs. THE NATIONAL
CITY BANK OF NEW YORK, respondent.

1. 1.PARTNERSHIP; UNREGISTERED PARTNERSHIP; PERSONS
COMPOSING IT ARE PARTNERS; ASSOCIATION is
PARTNERSHIP.—While an uregistered commercial partnership
has no juridical personality, nevertheless, where two or more
persons, attempt to create a partnership failing to comply with all
the legal formalities, the law considers them as partners and the
association is a partnership in so far as it is favorable to third
persons, by reason of the equitable principle of estoppel.

1. 2.ID.; ID.; ID.; "De Facto" EXISTENCE; DOMICILE AS TO

THIRD PERSONS.—If the law recognizes a defectively organized
partnership as de facto as far as third persons are concerned, for
purposes of its de facto existence it should have such attribute of a
partnership as domicile. Although it has no legal standing, it is a
partnership de facto and the general provisions of the code
applicable to all partnership apply to it.
 1. 3.CHATTEL MORTGAGE; VALIDITY
GENERALLY; AFFIDAVIT IN GOOD FAITH; CANNOT BE
DESTROYED BY BIASED TESTIMONY.—The chattel mortgage
in question is in the form required by law, and there is therefore the
presumption of its due execution which cannot be easily destroyed
by the biased testimony of the one who executed it. The interested
version that the affidavit of good faith appearing in the chattel
mortgage was executed in Quezon City before a notary public for
and in the city of Manila was correctly rejected by the trial court
and the Court of Appeals. Indeed, cumbersome legal formalities are
imposed to prevent fraud. If the biased and interested testimony of a
grantor and the vague and uncertain testimony of his son are
deemed sufficient to overcome a public instrument drawn up with
all the formalities prescribed by law then there will have been
established a very dangerous doctrine which would throw wide
open the doors to fraud.
PETITION for review by certiorari of a decision of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Jose W. Diokno for petitioners.
Ross, Selph, Carrascoso & Janda for respondent
PARÁS, C. J.:
This is an appeal by certiorari from the decision of the Court of
Appeals from which we are reproducing the following basic findings
of fact:
"STASIKINOCEY is a partnership doing business at No. 58, Aurora
Boulevard, San Juan, Rizal, and formed by Alan W. Gorcey, Louis F. da
Costa, Jr., William Kusik and Emma Badong Gavino. This partnership was
denied registration in the Securities and Exchange 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 which defendants Gorcey and da Costa are considered general partners, we
are satisfied that, as alleged in various instruments appearing of record, said
Cardinal Rattan is merely the business name or style used by the partnership
Stasikinocey.
"Prior to June 3, 1949, defendant Stasikinocey had an overdraft account
with The National City Bank of New York, a foreign banking association
duly licensed to do business in the Philippines. On June 3, 1949, the
overdraft showed a balance of P6,134.92 against the defendant Stasikinocey
or the Cardinal Rattan (Exhibit D), which account, due to the failure of the
partnership to make the required payment, was converted into an ordinary
loan for which the corresponding promissory 'joint note—non-negotiable'
was executed on June 3, 1949, by Louis F. da Costa for and in the name of
the Cardinal Rattan, Louis F. da Costa and Alan Gorcey (Exhibit D). This
promissory note was secured on June 7, 1949, by a chattel mortgage executed
by Louis 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 Cardinal Rattan, with principal office at
69 Riverside, San Juan, Rizal (Exhibit A). The chattels mortgaged were the
following motor vehicles:
"(a)Fargo truck with motor No. T-1 18-202839, Serial No.
81410206 and with plate No. T-7333 (1949);
"(b)Plymouth Sedan automobile motor No. T-5638876, Serial No.
11872718 and with plate No. 10372; and
"(c)Fargo Pick-up FKI-16, with motor No. T-112800032,
Serial No. 8869225 and with plate No. T-7222 (1949). The mortgage deed
was fully 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 the following:
" '(a)That the mortgagor shall not sell or otherwise dispose of the
said chattels without the mortgagee's written consent; and
" '(b)That the mortgagee may foreclose the mortgage at any time,
after breach of any condition thereof, the mortgagor waiving the
30-day notice of foreclosure.'
"On June 7, 1949, the same day of the execution of the chattel mortgage
aforementioned, Gorcey and Da Costa executed an agreement purporting to
convey 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 them and defendant partnership to the
latter (Exhibit J), which transaction is said to be in violation of the Bulk Sales
Law (Act No. 3952 of the Philippine Legislature).
 "While the said loan was still unpaid and the chattel mortgage subsisting,
defendant partnership, through defendants Gorcey and Da Costa, transferred
to defendant McDonald the Fargo truck and Plymouth sedan on June 24,
1949 (Exhibit L). The Fargo pickup was also sold on June 28, 1949., by
William Shaeffer to Paul McDonald.
"On or about July 19, 1944, Paul McDonald, notwithstanding plaintiff's
existing mortgage lien, in turn transferred the Fargo truck and the Plymouth
sedan to Benjamin Gonzales."
The National City Bank of New York, respondent herein, upon
learning of the transfers made by the partnership Stasikinocey to
William Shaeffer, from the latter to Paul McDonald, and from Paul
McDonald to Benjamin Gonzales, of the vehicles previously pledged
by Stasikinocey to the respondent, filed an action against Stasikinocey
and its 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. McDonald and
Gonzales were made defendants because they claimed to have a better
right over the pledged vehicle.
After trial the Court of First Instance of Manila rendered judgment in
favor of the respondent, annulling the sale of the vehicles in question
to Benjamin Gonzales; sentencing Da Costa and Gorcey to pay to the
respondent jointly and severally the sum of P6,134.92, with legal
interest from the debt of the promissory note involved; 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; and sentencing Da Costa, Gorcey and
Shaeffers to pay to the respondent jointly and severally any deficiency
that may remain unpaid should the proceeds of the sale not be
sufficient; and sentencing Gorcey, Da Costa, McDonald and Shaeffer
to pay the costs. Only Paul McDonald and Benjamin Gonzales
appealed to the Court of Appeals which rendered a decision the
dispositive part of which reads as follows:
"WHEREFORE,, the decision appealed from is hereby modified, relieving
appellant William Shaeffer of the obligation of paying, jointly and severally,
together with Alan W. Gorcey and Louis F. da Costa, Jr., any deficiency that
may remain unpaid after applying the proceeds of the sale of the said motor
vehicles which shall be undertaken upon the lapse of 90 days from the date
this decision becomes final, if by then defendants Louis F. da Costa, Jr., and
Alan W. Gorcey had not paid the amount of the judgment debt. With this
modification the decision appealed from is in all other respects affirmed, with
costs against appellants. This decision is without prejudice to whatever action
Louis F. da Costa, Jr., and Alan W. Gorcey may take against their co-partners
in the Stasikinocey unregistered partnership."
This appeal by certiorari was taken by Paul McDonald and Benjamin
Gonzales, petitioners herein, who have assigned the following errors:
"I
"IN RULING THAT AN UNREGISTERED COMMERCIAL CO-
PARTNERSHIP WHICH HAS NO INDEPENDENT JURIDICAL
PERSONALITY CAN HAVE A 'DOMICILE' SO THAT A CHATTEL
MORTGAGE REGISTERED IN THAT 'DOMICILE' WOULD BIND
THIRD PERSONS WHO ARE INNOCENT PURCHASERS FOR VALUE.
"II
"IN RULING THAT, WHEN A CHATTEL MORTGAGE IS EXECUTED
BY ONE OF THE MEMBERS OF AN UNREGISTERED COMMERCIAL
CO-PARTNERSHIP WITHOUT JURIDICAL PERSONALITY
INDEPENDENT OF ITS MEMBERS, IT NEED NOT BE REGISTERED
IN THE ACTUAL RESIDENCE OF THE MEMBERS WHO EXECUTED
SAME; AND, AS A CONSEQUENCE THEREOF, IN NOT MAKING
ANY FINDING OF FACT AS TO THE ACTUAL RESIDENCE OF SAID
CHATTEL MORTGAGOR, DESPITE APPELLANTS' RAISING THAT
QUESTION PROPERLY BEFORE IT AND REQUESTING A RULING
THEREON.
"III
"IN NOT RULING THAT, WHEN A CHATTEL MORTGAGOR
EXECUTES AN AFFIDAVIT OF GOOD FAITH BEFORE A NOTARY
PUBLIC OUTSIDE OF THE TERRITORIAL JURISDICTION OF THE
LATTER, THE AFFIDAVIT IS VOID AND THE CHATTEL,
MORTGAGE IS NOT BINDING ON THIRD PERSONS WHO ARE
INNOCENT PURCHASERS FOR VALUE; AND, AS A CONSEQUENCE
THEREOF, IN NOT MAKING ANY FINDING OF FACT AS TO WHERE
THE DEED WAS IN FACT EXECUTED, DESPITE APPELLANTS'
RAISING THAT QUESTION PROPERLY BEFORE IT AND
EXPRESSLY REQUESTING A RULING THEREON.
"IV
 "IN RULING THAT A LETTER AUTHORIZING ONE MEMBER OF
AN UNREGISTERED COMMERCIAL CO-PARTNERSHIP 'TO MAKE
ALL OFFICIAL, AND BUSINESS ARRANGEMENTS . . . WITH THE
NATIONAL CITY BANK OF NEW YORK' IN ORDER 'TO SIMPLIFY
ALL MATTERS RELATIVE TO LCS CABLE TRANSFERS. DRAFTS,
OR OTHER BANKING MEDIUMS,' WAS SUFFICIENT AUTHORITY
FOR THE SAID MEMBER TO EXECUTE A CHATTEL MORTGAGE IN
ORDER TO GIVE THE BANK SECURITY FOR A PRE-EXISTING
OVERDRAFT, GRANTED WITHOUT SECURITY, WHICH THE BANK
HAD CONVERTED INTO A DEMAND LOAN UPON FAILURE TO PAY
SAME AND BEFORE THE CHATTEL MORTGAGE WAS EXECUTED."
This is the first question propounded by the petitioners: "Since an
unregistered commercial partnership unquestionably has no juridical
personality, can it have a domicile so that the registration of a chattel
mortgage therein is notice to the world?"
While an unregistered commercial partnership has no juridical
personality, nevertheless, where two or more persons attempt to create
a partnership failing to comply with all the legal formalities, the law
considers them as partners and the association is a partnership in so far
as it is a favorable to third persons, by reason of the equitable principle
of estoppel. In Jo Chung Chang vs. Pacific Commercial Co., 45 Phil.,
145, it was held "that although the partnership with the firm name of
'Teck Seing and Co. Ltd./ could not be regarded as a partnership de
jure, yet with respect to third persons it will be considered a
partnership with all the consequent obligations for the purpose of
enforcing the rights of such third persons." Da Costa and Gorcey
cannot deny that they are partners of the partnership Stasikinocey,
because in all their transactions with the respondent they represented
themselves as such. Petitioner McDonald cannot disclaim knowledge
of the partnership Stasikinocey because he dealt with said entity in
purchasing two of the vehicles in question through Gorcey and Da
Costa. As was held in Behn Meyer & Co. vs. Rosatzin, 5 Phil., 660,
where a partnership not duly organized has been recognized as such in
its dealings with certain persons, it shall be considered as "partnership
by estoppel" and the persons dealing with it are estopped from denying
its partnership existence. The sale of the vehicles in question being
void as to petitioner McDonald, the transfer from the latter to
petitioner Benjamin Gonzales is also void, as the buyer cannot have a
better right than the seller.
It results that if the law recognizes a defectively organized
partnership as de facto as far as third persons are concerned, for
purposes of its de facto existence it should have such attribute of a
partnership as domicile. In Hung-Man Yoc vs. Kieng-Chiong-Seng, 6
Phil., 498, it was held that although "it has no legal standing, it is a
partnership de facto and the general provisions of the Code applicable
to all partnerships apply to it." The registration of the chattel mortgage
in question with the Office of the Register of Deeds of Rizal, the
residence or place of business of the partnership Stasikinocey being
San Juan, Rizal, was therefore in accordance with section 4 of the
Chattel Mortgage Law.
The second question propounded by the petitioners is: "If not, is a
chattel mortgage executed by only one of the 'partners' of an
unregistered commercial partnership validly registered so as to
constitute notice to the world if it is not registered at the place where
the aforesaid 'partner' actually resides but only in the place where the
deed states that he resides, which is not his real residence?" And the
third question is as follows: "If the actual residence of the chattel
mortgagor—not the residence stated in the deed of chattel mortgage—
is controlling, may the Court of Appeals refuse to make a finding of
fact as to where the mortgagor resided despite your petitioners' having
properly raised that question before it and expressly requested a ruling
thereon?"
These two questions have become academic by reason of the
answer to the first question, namely, that as a de facto partnership,
Stasikinocey had its domicile in San Juan, Rizal.
The fourth question asked by the petitioners is as follows: "Is a
chattel mortgage executed by only one of the 'partners' of an
unregistered commercial partnership valid as to third persons when
that 'partner' executed the affidavit of good faith in Quezon City before
a notary public whose appointment is only for the City of Manila? If
not, may the Court of Appeals refuse to make a finding of fact as to
where the deed was executed, despite your petitioners' having properly
raised that issue before it and expressly requested a ruling thereon?"
It is noteworthy that the chattel mortgage in question is in the form
required by law, and there is therefore the presumption of its due
execution which cannot be easily destroyed by the biased testimony of
the one who executed it. The interested version of Da Costa that the
affidavit of good faith appearing in the chattel mortgage was executed
in Quezon City before a notary public for and in the City of Manila Stasikinocey; and even assuming that the petitioners are purchasers in
was correctly rejected by the trial court and the Court of Appeals. good faith and for value, the respondent having transacted with
Indeed, cumbersome legal formalities are imposed to prevent fraud. As Stasikinocey earlier than the petitioners, it should enjoy and be given
aptly pointed out in El Hogar Filipino vs. Olviga, 60 Phil., 17, "If the priority.
biased and interested testimony of a grantor and the vague and Wherefore, the appealed decision of the Court of Appeals is
uncertain testimony of his son are deemed sufficient to overcome a affirmed with costs against the petitioners.
public instrument drawn up with all the formalities prescribed by the Bengzon, Montemayor, Reyes, A., Jugo, Bautista
law then there will have been established a very dangerous doctrine Angelo Labrador, Concepcion, Reyes, J. B. L., and Endencia,
which would throw wide open the doors to fraud." JJ., concur.
The last question raised by the petitioners is as follows: "Does only Decision affirmed.
one of several 'partners' of an unregistered commercial partnership
have authority, by himself alone, to execute a valid chattel mortgage
over property owned by the unregistered commercial partnership in
order to guarantee a pre-existing overdraft previously granted, without
guaranty, by the bank?"
In view of the conclusion that Stasikinocey is a de
facto partnership, and Da Costa appears as a co-manager in the letter
of Gorcey to the respondent and in the promissory note executed by
Da Costa, and that even the partners considered him as such, as stated
in the affidavit of April 21, 1948, to the effect that "That we as the
majority partners hereby agree to appoint Louis da Costa co-managing
partner of Alan W. Gorcey, duly approved managing partner of the
said firm," the "partner" who executed the chattel mortgage in question
must be deemed to be so fully authorized. Section 6 of the Chattel
Mortgage Law provides that when a partnership is a party to the
mortgage, the affidavit may be made and subscribed by one member
thereof. In this case the affidavit was executed and subscribed by Da
Costa, not only as a partner but as a managing partner.
There is no merit in petitioners' pretense that the motor vehicles in
question are the common property of Da Costa and Gorcey. Petitioners
invoke article 24 of the Code of Commerce in arguing that an
unregistered commercial partnership has no juridical personality and
cannot execute any act that would adversely affect innocent third
persons. Petitioners forget that the respondent is a third person with
respect to the partnership, and the chattel mortgage executed by Da
Costa cannot therefore be impugned by Gorcey on the ground that
there is no partnership between them and that the vehicles in question
belonged to them in common. As a matter of fact, the respondent and
the petitioners are all third persons as regards the partnership

G.R. No. 206147. January 13, 2016.*
 
MICHAEL C. GUY, petitioner, vs. ATTY. GLENN C. GACOTT,
respondent.
Remedial Law; Civil Procedure; Service of Summons; Under Section
11, Rule 14 of the 1997 Revised Rules of Civil Procedure, when the
defendant is a corporation, partnership or association organized under the
laws of the Philippines with a juridical personality, the service of summons
may be made on the president, managing partner, general manager,
corporate secretary, treasurer, or in-house counsel.—Jurisdiction over the
person, or jurisdiction in personam — the power of the court to render a
personal judgment or to subject the parties in a particular action to the
judgment and other rulings rendered in the action — is an element of due
process that is essential in all actions, civil as well as criminal, except in
actions in rem or quasi in rem. Jurisdiction over the person of the plaintiff is
acquired by the mere filing of the complaint in court. As the initiating party,
the plaintiff in a civil action voluntarily submits himself to the jurisdiction of
the court. As to the defendant, the court acquires jurisdiction over his person
either by the proper service of the summons, or by his voluntary appearance
in the action. Under Section 11, Rule 14 of the 1997 Revised Rules of Civil
Procedure, when the defendant is a corporation, partnership or association
organized under the laws of the Philippines with a juridical personality, the
service of summons may be made on the president, managing partner,
general manager, corporate secretary, treasurer, or in-house counsel.
Jurisprudence is replete with pronouncements that such provision provides
an exclusive enumeration of the persons authorized to receive summons for
juridical entities.
Same; Same; Same; While proper service of summons is necessary to
vest the court jurisdiction over the defendant, the same is merely procedural
in nature and the lack of or defect in the service of summons may be cured by
the defendant’s subsequent voluntary submission to the court’s jurisdiction
through his filing a responsive pleading such as an answer.—While proper
service of summons is necessary to vest the court jurisdiction over the
defendant, the same is merely procedural in nature and the lack of or defect
in the service of summons may be cured by the defendant’s subsequent
voluntary submission to the court’s jurisdiction through his filing a
responsive pleading such as an answer. In this case, it is not disputed that
QSC filed its Answer despite the defective summons. Thus, jurisdiction over
its person was acquired through voluntary appearance.
Same; Same; Judgments; Parties; The principle that a person cannot
be prejudiced by a ruling rendered in an action or proceeding in which he
has not been made a party conforms to the constitutional guarantee of due
process of law.—Although a partnership is based on delectus personae or
mutual agency, whereby any partner can generally represent the partnership
in its business affairs, it is non sequitur that a suit against the partnership is
necessarily a suit impleading each and every partner. It must be remembered
that a partnership is a juridical entity that has a distinct and separate
personality from the persons composing it. In relation to the rules of civil
procedure, it is elementary that a judgment of a court is conclusive and
binding only upon the parties and their successors-in-interest after the
commencement of the action in court. A decision rendered on a complaint in
a civil action or proceeding does not bind or prejudice a person not
impleaded therein, for no person shall be adversely affected by the outcome
of a civil action or proceeding in which he is not a party. The principle that a
person cannot be prejudiced by a ruling rendered in an action or proceeding
in which he has not been made a party conforms to the constitutional
guarantee of due process of law.
Same; Same; Same; Same; In the spirit of fair play, it is a better rule
that a partner must first be impleaded before he could be prejudiced by the
judgment against the partnership.—In the spirit of fair play, it is a better rule
that a partner must first be impleaded before he could be prejudiced by the
judgment against the partnership. As will be discussed later, a partner may
raise several defenses during the trial to avoid or mitigate his obligation to
the partnership liability. Necessarily, before he could present evidence during
the trial, he must first be impleaded and informed of the case against him. It
would be the height of injustice to rob an innocent partner of his hard-earned
personal belongings without giving him an opportunity to be heard. Without
any showing that Guy himself acted maliciously on behalf of the company,
causing damage or injury to 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 party to the case.
Same; Same; Same; Same; Resort to the properties of a partner may be
made only after efforts in exhausting partnership assets have failed or that
such partnership assets are insufficient to cover the entire obligation.—The
partners’ obligation with respect to the partnership liabilities is subsidiary in
nature. It provides that the partners shall only be liable with their property
after all the partnership assets have been exhausted. To say that one’s
liability is subsidiary means that it merely becomes secondary and only arises
if the one primarily liable fails to sufficiently satisfy the obligation. Resort to
the properties of a partner may be made only after efforts in exhausting
partnership assets have failed or that such partnership assets are insufficient
to cover the entire obligation. The subsidiary nature of the partners’ liability
with the partnership is one of the valid defenses against a premature
execution of judgment directed to a partner.
Civil Law; Obligations; Joint Obligations; Partnerships; Article 1816
provides that the partners’ obligation to third persons with respect to the
partnership liability is pro rata or joint.—Article 1816 provides that the
partners’ obligation to third persons with respect to the partnership liability
is pro rata or joint. Liability is joint when a debtor is liable only for the
payment of only a proportionate part of the debt. In contrast,
a solidary liability makes a debtor liable for the payment of the entire debt.
In the same vein, Article 1207 does not presume solidary liability unless: 1)
the obligation expressly so states; or 2) the law or nature
requires solidarity. With regard to partnerships, ordinarily, the liability of
the partners is not solidary. The joint liability of the partners is a defense that
can be raised by a partner impleaded in a complaint against the partnership.
PETITION for review on certiorari of the decision and resolution of
the Court of Appeals.
The facts are stated in the opinion of the Court.
  Andres, Padernal & Paras Law Offices for petitioner.
MENDOZA, J.:
 
Before this Court is a petition for review on certiorari under Rule
45 of the Rules of Court filed by petitioner Michael C. Guy
(Guy),  assailing the June 25, 2012 Decision1 and the March 5, 2013
Resolution2 of the Court of Appeals (CA) in C.A.-G.R. CV No. 94816,
which affirmed the June 28, 20093 and February 19, 20104 Orders of
the Regional Trial Court, Branch 52, Puerto Princesa City, Palawan
(RTC),  in Civil Case No. 3108, a case for damages. The assailed RTC
orders denied Guy’s Motion to Lift Attachment Upon Personalty5 on
the ground that he was not a judgment debtor.
The Facts
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 Corporation (QSC) in Manila
through its employee Rey Medestomas (Medestomas), amounting to a
total of P18,000.00. On May 10, 1997, due to major defects, Gacott
personally returned the transreceivers to QSC and requested that they
be replaced. Medestomas received the returned transreceivers and
promised to send him the replacement units within two (2) weeks from
May 10, 1997.
Time passed and Gacott did not receive the replacement units as
promised. QSC informed him that there were no available units and
that it could not refund the purchased price. Despite several demands,
both oral and written, Gacott was never 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 served upon QSC and Medestomas, after which they
filed their Answer, verified by Medestomas himself and a certain Elton
Ong (Ong). QSC and Medestomas did not present any evidence during
the trial.6
In a Decision,7 dated March 16, 2007, the RTC found that the two
(2) transreceivers were defective and that QSC and Medestomas failed
to replace the same or return Gacott’s money. The dispositive portion
of the decision reads:
 
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff, ordering the defendants to jointly and
severally pay plaintiff the following:
 
The decision became final as QSC and Medestomas did not
interpose an appeal. Gacott then secured a Writ of Execution, 8 dated
September 26, 2007.
During the execution stage, Gacott learned that QSC was not a
corporation, but was in fact a general partnership registered with the
Securities and Exchange Commission (SEC).
In the articles of partnership,9 Guy was appointed as General
Manager of QSC.  
To execute the judgment, Branch Sheriff Ronnie L. Felizarte
(Sheriff Felizarte) went to the main office of the Department of
Transportation and Communications-Land Transportation Office
(DOTC-LTO), Quezon City, and verified whether Medestomas, QSC
and Guy had personal properties registered therein. 10 Upon learning
that Guy had vehicles registered in his name, Gacott instructed the
sheriff to proceed with the attachment of one of the motor vehicles of
Guy based on the certification issued by the DOTC-LTO.11
On March 3, 2009, Sheriff Felizarte attached Guy’s vehicle by
virtue of the Notice of Attachment/Levy upon Personalty 12 served upon
the record custodian of the DOTC-LTO of Mandaluyong City. A
similar notice was served to Guy through his housemaid at his
residence.
Thereafter, Guy filed his Motion to Lift Attachment Upon
Personalty, arguing that he was not a judgment debtor and, therefore,
his vehicle could not be attached.13 Gacott filed an opposition to the
motion.
The RTC’s Order
 
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 treated as a general partner
pursuant to Section 21 of the Corporation Code, and he may be held
jointly and severally liable with QSC and Medestomas. The trial court
wrote:
All persons who assume to act as a corporation knowing it to
be without authority to do so shall be liable as general partners
for all debts, liabilities and damages incurred or arising as a
result thereof x x x. Where, by any wrongful act or omission of
any 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 is incurred, the
partnership is liable therefore to the same extent as the partner so
acting or omitting to act. All partners are liable solidarily with
the partnership for everything chargeable to the partnership
under Articles 1822 and 1823.14
 
Accordingly, it disposed:
 
WHEREFORE, with the ample discussion of the matter, this
Court finds and so holds that the property of movant Michael
Guy may be validly attached in satisfaction of the liabilities
adjudged by this Court against Quantech Co., the latter being an
ostensible Corporation and the movant being considered by this
Court as a general partner therein in accordance with the order
of this court impressed in its decision to this case imposing joint
and several liability to the defendants. The Motion to Lift
Attachment Upon Personalty submitted by the movant is
therefore DENIED for lack of merit.
 SO ORDERED.15
Not satisfied, Guy moved for reconsideration of the denial of his
motion. He argued that he was neither impleaded as a defendant nor
validly served with summons and, thus, the trial court did not acquire
jurisdiction over his person; that under Article 1824 of the Civil Code,
the partners were only solidarily liable for the partnership liability
under exceptional circumstances; and that in order for a partner to be
liable for the debts of the partnership, it must be shown that all
partnership assets had first been exhausted.16
On February 19, 2010, the RTC issued an order 17 denying his
motion.
The denial prompted Guy to seek relief before the CA.
The CA’s Ruling
 
On June 25, 2012, the CA rendered the assailed decision dismissing
Guy’s appeal for the same reasons given by the trial court. In addition
thereto, the appellate court stated:
 
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 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 service be made on the “president,
managing partner, general manager, corporate 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 is that the summons was
served on QSC’s authorized officer x x x.18
The CA stressed that Guy, being a partner in QSC, was bound by
the summons served upon QSC based on Article 1821 of the Civil
Code. The CA further opined that the law did not require a partner to
be actually involved in a suit in order for him to be made liable. He
remained “solidarily liable whether he participated or not, whether he
ratified it or not, or whether he had knowledge of the act or
omission.”19
Aggrieved, Guy filed a motion for reconsideration but it was denied
by the CA in its assailed resolution, dated March 5, 2013.   in the action — is an element of due process that is essential in all
Hence, the present petition raising the following:
Issue
THE HONORABLE COURT OF APPEALS COMMITTED
REVERSIBLE ERROR IN HOLDING THAT
PETITIONER GUY IS SOLIDARILY LIABLE WITH THE
PARTNERSHIP FOR DAMAGES ARISING FROM THE
BREACH OF THE CONTRACT OF SALE WITH
RESPONDENT GACOTT.20
 
Guy argues that he is not solidarily liable with the partnership
because the solidary liability of the partners under Articles 1822, 1823
and 1824 of the Civil Code only applies when it stemmed from the act
of a partner. In this case, the alleged lapses were not attributable to any
of the partners. Guy further invokes Article 1816 of the Civil Code
which states that the liability of the partners to the partnership is
merely joint and subsidiary in nature.
In his Comment,21 Gacott countered, among others, that because
Guy was a general and managing partner of QSC, he could not feign
ignorance of the transactions 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 it.
In his Reply,22 Guy contended that jurisdiction over the person of
the partnership was not acquired because the summons was never
served upon it or through any of its authorized office. He also
reiterated that a partner’s liability was joint and subsidiary, and not
solidary.
The Court’s Ruling
The petition is meritorious.
The service of summons was
flawed; voluntary appearance
cured the defect
 
Jurisdiction over the person, or jurisdiction in personam — the
power of the court to render a personal judgment or to subject the
parties in a particular action to the judgment and other rulings rendered
actions, civil as well as criminal, except in actions in rem  or quasi in
rem.23 Jurisdiction over the person of the plaintiff is acquired by the
mere filing of the complaint in court. As the initiating party, the
plaintiff in a civil action voluntarily submits himself to the jurisdiction
of the court. As to the defendant, the court acquires jurisdiction over
his person either by the proper service of the summons, or by his
voluntary appearance in the action.24
Under Section 11, Rule 14 of the 1997 Revised Rules of Civil
Procedure, when the defendant is a corporation, partnership or
association organized under the laws of the Philippines with a juridical
personality, the service of summons may be made on the president,
managing partner, general manager, corporate secretary, treasurer, or
in-house counsel. Jurisprudence is replete with pronouncements that
such provision provides an exclusive enumeration of the persons
authorized to receive summons for juridical entities.25
The records of this case reveal that QSC was never shown to have
been served with the summons through any of the enumerated
authorized persons to receive such, namely: president, managing
partner, general manager, corporate secretary, treasurer or in-house
counsel. Service of summons upon persons other than those officers
enumerated in Section 11 is invalid. Even substantial compliance is
not sufficient service of summons.26 The CA was obviously mistaken
when it opined that it was immaterial whether the summons to QSC
was served on the theory that it was a corporation.27
 Nevertheless, while proper service of summons is necessary to vest
the court jurisdiction over the defendant, the same is merely procedural
in nature and the lack of or defect in the service of summons may be
cured by the defendant’s subsequent voluntary submission to the
court’s jurisdiction through his filing a responsive pleading such as an
answer. In this case, it is not disputed that QSC filed its Answer
despite the defective summons. Thus, jurisdiction over its person was
acquired through voluntary appearance.   against the partnership itself. The Court added that the partners could
A partner must be separately
and distinctly impleaded
before he can be bound by a Here, Guy was never made a party to the case. He did not have any
judgment
 
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 thorough study of the
relevant laws and jurisprudence, the Court answers in the negative.
Although a partnership is based on delectus personae or mutual
agency, whereby any partner can generally represent the partnership in
its business affairs, it is non sequitur that a suit against the partnership
is necessarily a suit impleading each and every partner. It must be
remembered that a partnership is a juridical entity that has a distinct
and separate personality from the persons composing it.28
In relation to the rules of civil procedure, it is elementary that a
judgment of a court is conclusive and binding only upon the parties
and their successors-in-interest after the commencement of the action
in court.29 A decision rendered on a complaint in a civil action or
proceeding does not bind or prejudice a person not impleaded therein,
for no person shall be adversely affected by the outcome of a civil
action or proceeding in which he is not a party. 30 The principle that a
person cannot be prejudiced by a ruling rendered in an action or
proceeding in which he has not been made a party conforms to the
constitutional guarantee of due process of law.31
In Muñoz v. Yabut, Jr.,32 the Court declared that a person not
impleaded and given the opportunity to take part in the proceedings
was not bound by the decision declaring as null and void the title from
which his title to the property had been derived. The effect of a
judgment could not be extended to nonparties by simply issuing
an alias writ of execution against them, for no man should be
prejudiced by any proceeding to which he was a stranger.
In Aguila, Jr. v. Court of Appeals,33 the complainant had a cause of
action against the partnership. Nevertheless, it was the partners
themselves that were impleaded in the complaint. The Court dismissed
the complaint and held that it was the partnership, not its partners,
officers or agents, which should be impleaded for a cause of action
not be held liable for the obligations of the partnership unless it was
shown that the legal fiction of a different juridical personality was
being used for fraudulent, unfair, or illegal purposes.34
participation in 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 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 judgments extends only to properties unquestionably
belonging to the judgment debtor 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
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
In the spirit of fair play, it is a better rule that a partner must first be
impleaded before he could be prejudiced by the judgment against the
partnership. As will be discussed later, a partner may raise several
defenses during the trial to avoid or mitigate his obligation to the
partnership liability. Necessarily, before he could present evidence
during the trial, he must first be impleaded and informed of the case
against him. It would be the height of injustice to rob an innocent
partner of his hard-earned personal belongings without giving him an
opportunity to be heard. Without any showing that Guy himself acted
maliciously on behalf of the company, causing damage or injury to 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 party to the case.
Further, Article 1821 of the Civil Code does not state that there is
no need to implead a partner in order to be bound by the partnership
liability. It provides that:
  
Notice to any partner of any matter relating to
partnership affairs, and the knowledge of the partner acting
in the particular matter, acquired while a partner or then
present to his mind, and the knowledge of any other partner who
reasonably could and should have communicated it to the acting
partner, operate as notice to or knowledge of the partnership,
except in the case of fraud on the partnership, committed by or
with the consent of that partner.
[Emphases and underscoring supplied]
 
A careful reading of the provision shows that notice to any partner,
under certain circumstances, operates as notice to or knowledge to the
partnership only. Evidently, it does not provide for the reverse
situation, or that notice to the partnership is notice to the partners.
Unless there is an unequivocal law which states that a partner is
automatically charged in a complaint against the partnership, the
constitutional right to due process takes precedence and a partner must
first be impleaded before he can be considered as a judgment debtor.
To rule otherwise would be a dangerous precedent, harping in favor of
the deprivation of property without ample notice and hearing, which
the Court certainly cannot countenance.
Partners’ liability is subsidiary
and generally joint; immediate
levy upon the property of a was served to Guy through his housemaid at his residence.
partner cannot be made
 
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 to third persons, which states
that:
 
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 contracts
which may be entered into in the name and for the account of the
partnership, under its signature and by a person authorized to act
for the partnership. However, any partner may enter into a
separate obligation to perform a partnership contract.
 [Emphasis supplied]
 
This provision clearly states that, first,  the partners’ obligation with
respect to the partnership liabilities is subsidiary in nature. It provides
that the partners shall only be liable with their property after all the
partnership assets have been exhausted. To say that one’s liability is
subsidiary means that it merely becomes secondary and only arises if
the one primarily liable fails to sufficiently satisfy the obligation.
Resort to the properties of a partner may be made only after efforts in
exhausting partnership assets have failed or that such partnership
assets are insufficient to cover the entire obligation. The subsidiary
nature of the partners’ liability with the partnership is one of the valid
defenses against a premature execution of judgment directed to a
partner.
In this case, had he been properly impleaded, Guy’s liability would
only arise after the properties of QSC would have been exhausted. The
records, however, miserably failed to show that the partnership’s
properties were exhausted. The report37 of the sheriff showed that the
latter went to the main office of the DOTC-LTO in Quezon City and
verified whether Medestomas, QSC and Guy had personal properties
registered therein. Gacott then instructed the sheriff to proceed with
the attachment of one of the motor vehicles of Guy.38 The sheriff then
served the Notice of Attachment/Levy upon Personalty to the record
custodian of the DOTC-LTO of Mandaluyong City. A similar notice
Clearly, no genuine efforts were made to locate the properties of
QSC that could have been attached to satisfy the judgment — contrary
to the clear mandate of Article 1816. Being subsidiarily liable, Guy
could only be held personally liable if properly impleaded and after all
partnership assets had been exhausted.
Second, Article 1816 provides that the partners’ obligation to third
persons with respect to the partnership liability is pro rata or joint.
Liability is joint  when a debtor is liable only for the payment of only a
proportionate part of the debt. In contrast, a solidary  liability makes a
debtor liable for the payment of the entire debt. In the same vein,
Article 1207 does not presume solidary liability unless: 1)
the obligation expressly so states; or 2) the law or nature
requires solidarity. With regard to partnerships, ordinarily, the
liability of the partners is not solidary.39 The joint liability of the
partners is a defense that can be raised by a partner impleaded in a
complaint against the partnership.
In other words, only in exceptional circumstances shall the
partners’ liability be solidary in nature. Articles 1822, 1823 and 1824
of the Civil Code provide for these exceptional conditions, to wit:
Article 1822. Where, by any wrongful act or omission of
any partner acting in the ordinary course of the business of the
partnership or with the authority of his copartners, loss or injury
is caused to any person, not being a partner in the partnership, or
any penalty is incurred, the partnership is liable therefor to the
same extent as the partner so acting or omitting to act.
Article 1823. The partnership is bound to make good the
loss:
(1) Where one partner acting within the scope of his
apparent authority receives money or property of a third person
and misapplies it; and
(2) Where the partnership in the course of its business
receives money or property of a third person and the money or
property so received is misapplied by any partner while it is in
the custody of the partnership.
Article 1824. All partners are liable solidarily with the
partnership for everything chargeable to the partnership under
Articles 1822 and 1823.
 [Emphases supplied]
 
In essence, these provisions articulate that it is the act of a
partner which caused loss or injury to a third person that makes all
other partners solidarily liable with the partnership because of the
words “any wrongful act or omission of  any partner acting in the
ordinary course of the business,” “one partner acting within the scope
of his apparent authority” and “misapplied by any partner while it is
in the custody of the partnership.” The obligation is solidary because
the law protects the third person, who in good faith relied upon the
authority of a partner, whether such authority is real or apparent.40
In the case at bench, it was not shown that Guy or the other partners
did a wrongful act or misapplied the money or property he or the
partnership received from Gacott. A third person who transacted with
said partnership can hold the partners 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
Princesa City, is ORDERED TO RELEASE Michael C. Guy’s
Suzuki Grand Vitara subject of the Notice of Levy/Attachment upon
Personalty.
SO ORDERED.
Carpio (Chairperson), Brion, Del Castillo and Leonen, JJ.,
concur.
Petition granted, judgment and resolution reversed and set aside.
Notes.—Personal service of summons should and always be the
first option, and it is only when the said summons cannot be served
within a reasonable time can the process server resort to substituted
service. (Planters Development Bank vs. Chandumal, 680 SCRA  269
[2012])
 Service of summons is not required in a habeas corpus petition, be
it under Rule 102 of the Rules of Court or A.M. No. 03-04-04-SC.
(Tujan-Militante vs. Cada-Deapera, 731 SCRA 194 [2014])
 
 
——o0o——

 
 

G.R. No. 193138, August 20, 2018

ANICETO G. SALUDO, JR., Petitioner, v. PHILIPPINE

NATIONAL BANK, Respondent.

DECISION

JARDELEZA, J.:

In this petition, we emphasize that a partnership for the

practice of law, constituted in accordance with the Civil Code
provisions on partnership, acquires juridical personality by
operation of law. Having a juridical personality distinct and
separate from its partners, such partnership is the real party-in-
interest in a suit brought in connection with a contract entered
into in its name and by a person authorized to act on its behalf.
Petitioner Aniceto G. Saludo, Jr. (Saludo) filed this petition for
review on certiorari1 assailing the February 8, 2010
Decision2 and August 2, 2010 Resolution3 issued by the Court of
Appeals (CA) in CA-G.R. SP No. 98898. The CA affirmed with
modification the January 11, 2007 Omnibus Order4 issued by
Branch 58 of the Regional Trial Court (RTC) of Makati City in
Civil Case No. 06-678, and ruled that respondent Philippine
National Bank's (PNB) counterclaims against Saludo and the
Saludo Agpalo Fernandez and Aquino Law Office (SAFA Law
Office) should be reinstated in its answer.
Records show that on June 11, 1998, SAFA Law Office entered
into a Contract of Lease5 with PNB, whereby the latter agreed to
lease 632 square meters of the second floor of the PNB
Financial Center Building in Quezon City for a period of three
years and for a monthly rental fee of P189,600.00. The rental
fee is subject to a yearly escalation rate of 10%.6 SAFA Law
Office then occupied the leased premises and paid advance
rental fees and security deposit in the total amount of
P1,137,600.00.7
On August 1, 2001, the Contract of Lease expired.8 According to
PNB, SAFA Law Office continued to occupy the leased premises
until February 2005, but discontinued paying its monthly rental
obligations after December 2002.9 Consequently, PNB sent a
demand 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 unpaid
rents in the amount of P5,856,803.53 which was received by
SAFA Law Office on November 10, 2003.
In a letter12 to PNB dated June 9, 2004, SAFA Law Office
expressed its intention to negotiate. It claimed that it was
enticed by the former management of PNB into renting the
leased premises by promising to: (1) give it a special rate due
to the large area of the place; (2) endorse PNB's cases to the
firm with rents to be paid out of attorney's fees; and (3) retain
the firm as one of PNB's external counsels. When new
management took over, it allegedly agreed to uphold this
agreement to facilitate rental payments. However, not a single
case of significance was referred to the firm. SAFA Law Office
then asked PNB to review and discuss its billings, evaluate the
improvements in the area and agree on a compensatory sum to
be applied to the unpaid rents, make good its commitment to
endorse or refer cases to SAFA Law Office under the intended
terms and conditions, and book the rental payments due as
receivables payable every time attorney's fees are due from the
bank on the cases it referred. The firm also asked PNB to give a
50% discount on its unpaid rents, noting that while it was
waiting for case referrals, it had paid a total amount of
P13,457,622.56 from January 1999 to December 2002, which
included the accelerated rates of 10% per annum beginning
August 1999 until July 2003.
In February 2005, SAFA Law Office vacated the leased
premises.13 PNB sent a demand letter14 dated July 7, 2005
requiring the firm to pay its rental arrears in the total amount of
P10,951,948.32. In response, SAFA Law Office sent a letter
dated June 8, 2006, proposing a settlement by providing a
range of suggested computations of its outstanding rental
obligations, with deductions for the value of improvements it
introduced in the premises, professional fees due from
Macroasia Corporation, and the 50% discount allegedly
promised by Dr. Lucio Tan.15 PNB, however, declined the
settlement proposal in a letter16 dated July 17, 2006, stating
that it was not amenable to the settlement's terms. Besides,
PNB also claimed that it cannot assume the liabilities of
Macroasia Corporation to SAFA Law Office as Macroasia
Corporation has a personality distinct and separate from the
bank. PNB then made a final demand for SAFA Law Office to pay
its outstanding rental obligations in the amount of
P25,587,838.09.
On September 1, 2006, Saludo, in his capacity as managing
partner of SAFA Law Office, filed an amended complaint17 for
accounting and/or recomputation of unpaid rentals and
damages against PNB in relation to the Contract of Lease.
On October 4, 2006, PNB filed a motion to include an
indispensable party as plaintiff,18 praying that Saludo be ordered
to amend anew his complaint to include SAFA Law Office as
principal plaintiff. PNB argued that the lessee in the Contract of
Lease is not Saludo but SAFA Law Office, and that Saludo
merely signed the Contract of Lease as the managing partner of
the law firm. Thus, SAFA Law Office must be joined as a plaintiff
in the complaint because it is considered an indispensable party
under Section 7, Rule 3 of the Rules of Court.19
On October 13, 2006, PNB filed its answer.20 By way of
compulsory counterclaim, it sought payment from SAFA Law
Office in the sum of P25,587,838.09, representing overdue
rentals.21 PNB argued that as a matter of right and equity, it can
claim that amount from SAFA Law Office in solidum with
Saludo.22
On October 23, 2006, Saludo filed his motion to dismiss
counterclaims,23 mainly arguing that SAFA Law Office is neither
a legal entity nor party litigant. As it is only a relationship or
association of lawyers in the practice of law and a single
proprietorship which may only be sued through its owner or
proprietor, no valid counterclaims may be asserted against it.24
On January 11, 2007, the RTC issued an Omnibus Order
denying PNB's motion to include an indispensable party as
plaintiff and granting Saludo's motion to dismiss counterclaims
in this wise:
The Court DENIES the motion of PNB to include the SAFA
Law Offices. Plaintiff has shown by documents attached to his
pleadings that indeed SAFA Law Offices is a mere single
proprietorship and not a commercial and business partnership.
More importantly, plaintiff has admitted and shown sole
responsibility in the affairs entered into by the SAFA Law Office.
PNB has even admitted that the SAFA Law Office, being a
partnership in the practice of law, is a non-legal entity. Being a
non-legal entity, it cannot be a proper party, and therefore, it
cannot sue or be sued.
Consequently, plaintiff's Motion to Dismiss Counterclaims
(claimed by defendant PNB) should be GRANTED. The
counterclaims prayed for to the effect that the SAFA Law Offices
be made to pay in solidum with plaintiff the amounts stated in
defendant's Answer is disallowed since no counterclaims can be
raised against a non-legal entity.25
PNB filed its motion for reconsideration26 dated February 5,
2007, alleging that SAFA Law Office should be included as a co-
plaintiff because it is the principal party to the contract of lease,
the one that occupied the leased premises, and paid the
monthly rentals and security deposit. In other words, it was the
main actor and direct beneficiary of the contract. Hence, it is
the real party-in-interest.27 The RTC, however, denied the
motion for reconsideration in an Order28 dated March 8, 2007.
Consequently, PNB filed a petition for certiorari29 with the CA.
On February 8, 2010, the CA rendered its assailed
Decision,30 the dispositive portion of which reads:
WHEREFORE, the petition is PARTIALLY GRANTED. The
assailed Omnibus Order dated 11 January 2007 and Order
dated 8 March 2007, issued by respondent Court in Civil Case
No. 06-678, respectively,
are AFFIRMED with MODIFICATION in that petitioner's
counterclaims should be reinstated in its Answer.
SO ORDERED.31
The CA ruled that an order granting Saludo's motion to dismiss
counterclaim, being interlocutory in nature, is not appealable
until after judgment shall have been rendered on Saludo's
complaint. Since the Omnibus Order is interlocutory, and there
was an allegation of grave abuse of discretion, a petition
for certiorari is the proper remedy.32
On the merits, the CA held that Saludo is estopped from
claiming that SAFA Law Office is his single proprietorship. Under
the doctrine of estoppel, an admission or representation is
rendered conclusive upon the person making it, and cannot be
denied or disproved as against the person relying thereon.
Here, SAFA Law Office was the one that entered into the lease
contract and not Saludo. In fact, the latter signed the contract
as the firm's managing partner. The alleged Memorandum of
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 the letter of Saludo
to PNB confirming that SAFA Law Office is his single
proprietorship did not convert the firm to a single
proprietorship. Moreover, SAFA Law Office sent a letter to PNB
regarding its unpaid rentals which Saludo signed as a managing
partner. The firm is also registered as a partnership with the
Securities and Exchange Commission (SEC).34
On the question of whether SAFA Law Office is an indispensable
party, the CA held that it is not. As a partnership, it may sue or
be sued in its name or by its duly authorized representative.
Saludo, as managing partner, may execute all acts of
administration, including the right to sue. Furthermore, the CA
found that SAFA Law Office is not a legal entity. A partnership
for the practice of law is not a legal entity but a mere
relationship or association for a particular purpose. Thus, SAFA
Law Office cannot file an action in court. Based on these
premises, the CA held that the RTC did not gravely abuse its
discretion in denying PNB's motion to include an indispensable
party as plaintiff.35
Nonetheless, the CA ruled that PNB's counterclaims against
SAFA Law Office should not be dismissed. While SAFA Law
Office is not a legal entity, it can still be sued under Section
15,36 Rule 3 of the Rules of Court considering that it entered
into the Contract of Lease with PNB.37
The CA further ruled that while it is true that SAFA Law Office's
liability is not in solidum with Saludo as PNB asserts, it does not
necessarily follow that both of them cannot be made parties to
PNB's counterclaims. Neither should the counterclaims be
dismissed on the ground that the nature of the alleged liability
is solidary. According to the CA, the presence ofSAFA Law Office
is required for the granting of complete relief in the
determination of PNB's counterclaim. The court must, therefore,
order it to be brought in as defendant since jurisdiction over it
can be obtained pursuant to Section 12,38 Rule 6 of the Rules of
Court.39
Finally, the CA emphasized that PNB's counterclaims are
compulsory, as they arose from the filing of Saludo's complaint.
It cannot be made subject of a separate action but should be
asserted in the same suit involving the same transaction. Thus,
the Presiding Judge of the RTC gravely abused his discretion in
dismissing PNB's counterclaims as the latter may forever be
barred from collecting overdue rental fees if its counterclaims
were not allowed.40
Saludo and PNB filed their respective motions for partial
reconsideration dated February 25, 201041 and February 26,
2010.42 In a Resolution dated August 2, 2010, the CA denied
both motions on the ground that no new or substantial matters
had been raised therein. Nonetheless, the CA addressed the
issue on the joining of SAFA Law Office as a defendant in PNB's
compulsory counterclaim. Pertinent portions of the CA
Resolution read:
The Private Respondent claims that a compulsory counterclaim
is one directed against an opposing party. The SAFA Law Office
is not a party to the case below and to require it to be brought
in as a defendant to the compulsory counterclaim would entail
making it a co-plaintiff. Otherwise, the compulsory counterclaim
would be changed into a third-party complaint. The Private
Respondent also argues that Section 15, Rule 3 of the Rules of
Court (on entities without juridical personality) is only applicable
to initiatory pleadings and not to compulsory counterclaims.
Lastly, it is claimed that since the alleged obligations of the
SAFA Law Office is solidary with the Private Respondent, there
is no need to make the former a defendant to the counterclaim.
We disagree with the reasoning of the Private Respondent. That
a compulsory counterclaim can only be brought against an
opposing party is belied by considering one of the requisites of a
compulsory counterclaim it does not require for its adjudication
the presence of third parties of whom the court cannot acquire
jurisdiction. This shows that non-parties to a suit may be
brought in as defendants to such a counterclaim. x x x
xxxx
In the case at bench, the trial court below can acquire
jurisdiction over the SAFA Law Office considering the amount
and the nature of the counterclaim. Furthermore, the inclusion
of the SAFA Law Office as a defendant to the counterclaim will
enable the granting of complete relief in view [of] the liability of
a partner to the partnership's creditors under the law.43
Hence, this petition, where Saludo raises the following issues for
our resolution:
(1)
Whether the CA erred in including SAFA Law Office as defendant
to PNB's counterclaim despite its holding that SAFA Law Office is
neither an indispensable party nor a legal entity;
(2)
Whether the CA went beyond the issues in the petition
for certiorari and prematurely dealt with the merits of PNB's
counterclaim; and
(3)
Whether the CA erred when it gave due course to PNB's petition
for certiorari to annul and set aside the RTC's Omnibus Order
dated January 11, 2007.44
The petition is bereft of merit.
We hold that SAFA Law Office is a juridical entity and the real
party-in-interest in the suit filed with the RTC by Saludo against
PNB. Hence, it should be joined as plaintiff in that case.
I.
Contrary to Saludo's submission, SAFA Law Office is a
partnership and not a single proprietorship.
Article 1767 of the Civil Code provides that by a contract of
partnership, two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the
intention of dividing the profits among themselves. Two or more
persons may also form a partnership for the exercise of a
profession. Under Article 1771, a partnership may be
constituted in any form, except where immovable property or
real rights are contributed thereto, in which case a public
instrument shall be necessary. Article 1784, on the other hand,
provides that a partnership begins from the moment of the
execution of the contract, unless it is otherwise stipulated.
Here, absent evidence of an earlier agreement, SAFA Law Office
was constituted as a partnership at the time its partners signed
the Articles of Partnership45 wherein they bound themselves to
establish a partnership for the practice of law, contribute capital
and industry for the purpose, and receive compensation and
benefits in the course of its operation. The opening paragraph of
the Articles of Partnership reveals the unequivocal intention of
its signatories to form a partnership, to wit:
WE, the undersigned ANICETO G. SALUDO, JR., RUBEN E.
AGPALO, FILEMON L. FERNANDEZ, AND AMADO D. AQUINO, all
of legal age, Filipino citizens and members of the Philippine Bar,
have this day voluntarily associated ourselves for the purpose of
forming a partnership engaged in the practice of law, effective
this date, under the terms and conditions hereafter set forth,
and subject to the provisions of existing laws[.]46
The subsequent registration of the Articles of Partnership with
the SEC, on the other hand, was made in compliance with
Article 1772 of the Civil Code, since the initial capital of the
partnership was P500,000.00.47 Said provision states:
Art. 1772. Every contract of partnership having a capital
ofThree thousand pesos or more, in money or property, shall
appear in a public instrument, which must be recorded in the
Office of the Securities and Exchange Commission.
xxxx
The other provisions of the Articles of Partnership also positively
identify SAFA Law Office as a partnership. It constantly used the
words "partners" and "partnership." It designated petitioner
Saludo as managing partner,48 and Attys. Ruben E. Agpalo,
Filemon L. Fernandez, and Amado D. Aquino as industrial
partners.49 It also provided for the term of the
partnership,50 distribution of net profits and losses, and
management of the firm in which "the partners shall have equal
interest in the conduct of [its] affairs."51 Moreover, it provided
for the cause and manner of dissolution of the
partnership.52 These provisions would not have been necessary
if what had been established was a sole proprietorship. Indeed,
it may only be concluded from the circumstances that, for all
intents and purposes, SAFA Law Office is a partnership created
and organized in accordance with the Civil Code provisions on
partnership.
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
MEMORANDUM OF UNDERSTANDING

WHEREAS, the undersigned executed and filed with the SEC the
Articles of Incorporation of SALUDO, AGPALO, FERNANDEZ and
AQUINO on March 13, 1997;
WHEREAS, among the provisions of said Articles of
Incorporation are the following:
1. That partners R. E. Agpalo, F. L. Fernandez and A. D. Aquino
shall be industrial partners, and they shall not contribute capital
to the partnership and shall not in any way be liable for any loss
or liability that may be incurred by the law firm in the course of
its operation.
2. That the partnership shall be dissolved by agreement of the
partners or for any cause as and in accordance with the manner
provided by law, in which event the Articles of Dissolution of
said partnership shall be filed with the Securities and Exchange
Commission. All remaining assets upon dissolution shall accrue
exclusively to A. G. Saludo, Jr. and all liabilities shall be solely
for his account.
WHEREAS, the SEC has not approved the registration of the
Articles of Incorporation and its Examiner required that the
phrase "shall not in any way be liable for any loss or liability
that may be incurred by the law firm in the course of its
operation" in Article VII be deleted;
WHEREAS, the SEC Examiner likewise required that the
sentence "All remaining assets upon dissolution shall accrue
exclusively to A. G. Saludo, Jr. and all liabilities shall be solely
for his account" in Article X be likewise deleted;
WHEREAS, in order to meet the objections of said Examiner,
the objectionable provisions have been deleted and new Articles
of Incorporation deleting said objectionable provisions have
been executed by the parties and filed with the SEC.
NOW, THEREFORE, for and in consideration of the premises and
the mutual covenant of the parties, the parties hereby agree as
follows:
1. Notwithstanding the deletion of the portions objected to by
the said Examiner, by reason of which entirely new Articles of
Incorporation have been executed by the parties removing the
objected portions, the actual and real intent of the parties is still
as originally envisioned, namely:
a) That partners R. E. Agpalo, F. L. Fernandez and A. D. Aquino
shall not in any way be liable for any loss or liability that may
be incurred by the law firm in the course of its operation;
b) That all remaining assets upon dissolution shall accrue
exclusively to A. G. Saludo, Jr. and all liabilities shall be solely
for his account.
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 Incorporation as filed to
meet the objections of the SEC Examiner to the contrary
notwithstanding.
IN WITNESS WHEREOF, we have set our hands this _____ day
of May, 1997 at Makati City, Philippines.
[Sgd.]
A.G. SALUDO, JR.
[Sgd.]
[Sgd.]
[Sgd.]
RUBEN E. AGPALO
FILEMON L. FERNANDEZ
AMADO D. AQUINO
The foregoing evinces the parties' intention to entirely shift any
liability that may be incurred by SAFA Law Office in the course
of its operation to Saludo, who shall also receive all the
remaining assets of the firm upon its dissolution. This MOU,
however, does not serve to convert SAFA Law Office into a sole
proprietorship. As discussed, SAFA Law Office was manifestly
established as a partnership based on the Articles of
Partnership. The MOU, from its tenor, reinforces this fact. It did
not change the nature of the organization of SAFA Law Office
but only excused the industrial partners from liability.
The law, in its wisdom, recognized the possibility that partners
in a partnership may decide to place a limit on their individual
accountability. Consequently, to protect third persons dealing
with the partnership, the law provides a rule, embodied in
Article 1816 of the Civil Code, which states:
Art. 1816. All partners, including industrial ones, shall be
liable pro rata with all their property and after all the
partnership assets have been exhausted, for the contract which
may be entered into in the name and for the account of the
partnership, under its signature and by a person authorized to
act for the partnership. However, any partner may enter into a
separate obligation to perform a partnership contract.
The foregoing provision does not prevent partners from
agreeing to limit their liability, but such agreement may only be
valid as among them. Thus, Article 1817 of the Civil Code
provides:
Art. 1817. Any stipulation against the liability laid down in the
preceding article shall be void, except as among the partners.
The MOU is an agreement forged under the foregoing provision.
Consequently, the sole liability being undertaken by Saludo
serves to bind only the parties to the MOU, but never third
persons like PNB.
Considering that the MOU is sanctioned by the law on
partnership, it cannot change the nature of a duly-constituted
partnership. Hence, we cannot sustain Saludo's position that
SAFA Law Office is a sole proprietorship.
II.
Having settled that SAFA Law Office is a partnership, we hold
that it acquired juridical personality by operation of law. The
perfection and validity of a contract of partnership brings about
the creation of a juridical person separate and distinct from the
individuals comprising the partnership. Thus, Article 1768 of the
Civil Code provides:
Art. 1768. The partnership has a juridical personality separate
and distinct from that of each of the partners, even in case of
failure to comply with the requirements of Article 1772, first
paragraph.
Article 44 of the Civil Code likewise provides that partnerships
are juridical persons, to wit:
Art. 44. The following are juridical persons:
(1)
The State and its political subdivisions;
(2)
Other corporations, institutions and entities for public interest or
purpose, created by law; their personality begins as soon as
they have been constituted according to law;
(3)
Corporations, partnerships and associations for private
interest or purpose to which the law grants a juridical
personality, separate and distinct from that of each shareholder,
partner or member.54
It is this juridical personality that allows a partnership to enter
into business transactions to fulfill its purposes. Article 46 of the
Civil Code provides that "[j]uridical persons may acquire and
possess property of all kinds, as well as incur obligations and
bring civil or criminal actions, in conformity with the laws and
regulations of their organization."
SAFA Law Office entered into a contract of lease with PNB as a
juridical person to pursue the objectives of the partnership. The
terms of the contract and the manner in which the parties
implemented it are a glaring recognition of SAFA Law Office's
juridical personality. Thus, the contract stated that it is being
executed by PNB as the lessor and "SALUDO AGPALO
FERNANDEZ & AQUINO, a partnership organized and existing
under the laws of the Republic of the Philippines," as the
lessee.55 It also provided that the lessee, i.e., SAFA Law Office,
shall be liable in case of default.56
Furthermore, subsequent communications between the parties
have always been made for or on behalf ofPNB and SAFA Law
Office, respectively.57
In view of the above, we see nothing to support the position of
the RTC and the CA, as well as Saludo, that SAFA Law Office is
not a partnership and a legal entity. Saludo's claims that SAFA
Law Office is his sole proprietorship and not a legal entity fail in
light of the clear provisions of the law on partnership. To
reiterate, SAFA Law Office was created as a partnership, and as
such, acquired juridical personality by operation of law. Hence,
its rights and obligations, as well as those of its partners, are
determined by law and not by what the partners purport them
to be.
III.
In holding that SAFA Law Office, a partnership for the practice
of law, is not a legal entity, the CA cited58 the case of Petition
for Authority to Continue Use of the Firm Name "Sycip, Salazar,
Feliciano, Hernandez & Castillo"59 (Sycip case) wherein the
Court held that "[a] partnership for the practice of law is not a
legal entity. It is a mere relationship or association for a
particular purpose. x x x It is not a partnership formed for the
purpose of carrying on trade or business or of holding
property."60 These are direct quotes from the US case of In re
Crawford's Estate.61 We hold, however, that our reference to
this US case is an obiter dictum which cannot serve as a binding
precedent.62
An obiter dictum is an opinion of the court upon a question
which was not necessary to the decision of the case before it. It
is an opinion uttered by the way, not upon the point or question
pending, as if turning aside from the main topic of the case to
collateral subjects, or an opinion that does not embody the
court's determination and is made without argument or full
consideration of the point. It is not a professed deliberate
determination of the judge himself.63
The main issue raised for the court's determination in the Sycip
case is whether the two petitioner law firms may continue using
the names of their deceased partners in their respective firm
names. The court decided the issue in the negative on the basis
of "legal and ethical impediments."64 To be sure, the
pronouncement that a partnership for the practice of law is not
a legal entity does not bear on either the legal or ethical
obstacle for the continued use of a deceased partner's name,
inasmuch as it merely describes the nature of a law firm. The
pronouncement is not determinative of the main issue. As a
matter of fact, if deleted from the judgment, the rationale of the
decision is neither affected nor altered.
Moreover, reference of the Sycip case to the In re Crawford's
Estate case was made without a full consideration of the nature
of a law firm as a partnership possessed with legal personality
under our Civil Code. First, we note that while the Court
mentioned that a partnership for the practice of law is not a
legal entity, it also identified petitioner law firms as partnerships
over whom Civil Code provisions on partnership apply.65 The
Court thus cannot hold that a partnership for the practice of law
is not a legal entity without running into conflict with Articles 44
and 1768 of the Civil Code which provide that a partnership has
a juridical personality separate and distinct from that of each of
the partners.
Second, our law on partnership does not exclude partnerships
for the practice of law from its coverage. Article 1767 of the
Civil Code provides that "[t]wo or more persons may also form
a partnership for the exercise of a profession." Article 1783, on
the other hand, states that "[a] particular partnership has for its
object determinate things, their use or fruits, or a specific
undertaking, or the exercise of a profession or vocation." Since
the law uses the word "profession" in the general sense, and
does not distinguish which professional partnerships are
covered by its provisions and which are not, then no valid
distinction may be made.
Finally, we stress that unlike Philippine law, American law does
not treat of partnerships as forming a separate juridical
personality for all purposes. In the case of Bellis v. United
States,66 the US Supreme Court stated that law firms, as a form
of partnership, are generally regarded as distinct entities for
specific purposes, such as employment, capacity to be sued,
capacity to hold title to property, and more.67 State and federal
laws, however, do not treat partnerships as distinct entities for
all purposes.68
Our jurisprudence has long recognized that American common
law does not treat of partnerships as a separate juridical entity
unlike Philippine law. Hence, in the case of Campos Rueda & Co.
v. Pacific Commercial Co.,69 which was decided under the old
Civil Code, we held:
Unlike the common law, the Philippine statutes consider a
limited partnership as a juridical entity for all intents and
purposes, which personality is recognized in all its acts and
contracts (art. 116, Code of Commerce). This being so and the
juridical personality of a limited partnership being different from
that of its members, it must, on general principle, answer for,
and suffer, the consequence of its acts as such an entity
capable of being the subject of rights and obligations.70 x x x
On the other hand, in the case of Commissioner of Internal
Revenue v. Suter.71 which was decided under the new Civil
Code, we held:
It being a basic tenet of the Spanish and Philippine law that the
partnership has a juridical personality of its own, distinct and
separate from that of its partners (unlike American and English
law that does not recognize such separate juridical personality),
the bypassing of the existence of the limited partnership as a
taxpayer can only be done by ignoring or disregarding clear
statutory mandates and basic principles of our law.72 x x x
Indeed, under the old and new Civil Codes, Philippine law has
consistently treated partnerships as having a juridical
personality separate from its partners. In view of the clear
provisions of the law on partnership, as enriched by
jurisprudence, we hold that our reference to In re Crawford's
Estate in the Sycip case is an obiter dictum.
IV.
Having settled that SAFA Law Office is a juridical person, we
hold that it is also the real party-in-interest in the case filed by
Saludo against PNB.
Section 2, Rule 3 of the Rules of Court defines a real party-in-
interest as the one "who stands to be benefited or injured by
the judgment in the suit, or the party entitled to the avails of
the suit." In Lee v. Romillo, Jr.,73 we held that the "real [party-
in-interest]-plaintiffis one who has a legal right[,] while a
real [party-in-interest]-defendant is one who has a correlative
legal obligation whose act or omission violates the legal rights
of the former."74
SAFA Law Office is the party that would be benefited or injured
by the judgment in the suit before the RTC. Particularly, it is the
party interested in the accounting and/or recomputation of
unpaid rentals and damages in relation to the contract of lease.
It is also the party that would be liable for payment to PNB of
overdue rentals, if that claim would be proven. This is because
it is the one that entered into the contract of lease with PNB. As
an entity possessed of a juridical personality, it has concomitant
rights and obligations with respect to the transactions it enters
into. Equally important, the general rule under Article 1816 of
the Civil Code is that partnership assets are primarily liable for
the contracts entered into in the name of the partnership and
by a person authorized to act on its behalf. All partners,
including industrial ones, are only liable pro rata with all their
property after all the partnership assets have been exhausted.
In Guy v. Gacott,75 we held that under Article 1816 of the Civil
Code, the partners' obligation with respect to the partnership
liabilities is subsidiary in nature. It is merely secondary and only
arises if the one primarily liable fails to sufficiently satisfy the
obligation. Resort to the properties of a partner may be made
only after efforts in exhausting partnership assets have failed or
if such partnership assets are insufficient to cover the entire
obligation.76 Consequently, considering that SAFA Law Office is
primarily liable under the contract of lease, it is the real party-
in-interest that should be joined as plaintiff in the RTC case.
Section 2, Rule 3 of the Rules of Court requires that every
action must be prosecuted or defended in the name of the real
party-in-interest. As the one primarily affected by the outcome
of the suit, SAFA Law Office should have filed the complaint with
the RTC and should be made to respond to any counterclaims
that may be brought in the course of the proceeding.
In Aguila, Jr. v. Court of Appeals,77 a case for declaration of
nullity of a deed of sale was filed against a partner of A.C.
Aguila & Sons, Co. We dismissed the complaint and held that it
was the partnership, not its partners, which should be
impleaded for a cause of action against the partnership itself.
Moreover, the partners could not be held liable for the
obligations of the partnership unless it was shown that the legal
fiction of a different juridical personality was being used for
fraudulent, unfair, or illegal purposes. We held:
Rule 3, §2 of the Rules of Court of 1964, under which the
complaint in this case was filed, provided that "every action
must be prosecuted and defended in the name of the real party
in interest." A real party in interest is one who would be
benefited or injured by the judgment, or who is entitled to the
avails of the suit. This ruling is now embodied in Rule 3, §2 of
the 1997 Revised Rules of Civil Procedure. Any decision
rendered against a person who is not a real party in interest in
the case cannot be executed. Hence, a complaint filed against
such a person should be dismissed for failure to state a cause of
action.
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.

Under Art. 1768 of the Civil Code, a partnership "has a juridical WHEREFORE, the petition is DENIED. Petitioner is hereby
personality separate and distinct from that of each of the ordered to amend his complaint to include SAFA Law Office as
partners." The partners cannot be held liable for the obligations plaintiff in Civil Case No. 06-678 pending before Branch 58 of
of the partnership unless it is shown that the legal fiction of a the Regional Trial Court of Makati City, it being the real party-
different juridical personality is being used for fraudulent, in-interest.
unfair, or illegal purposes. In this case, private respondent has
not shown that A.C. Aguila & Sons, Co., as a separate juridical SO ORDERED.
entity, is being used for fraudulent, unfair, or illegal purposes.
Moreover, the title to the subject property is in the name of A.C. Peralta,*(Acting Chairperson), Del Castillo, Tijam,
Aguila & Sons, Co. and the Memorandum of Agreement was and Gesmundo,**JJ., concur.
executed between private respondent, with the consent of her
late husband, and A.C. Aguila & Sons, Co., represented by
petitioner. Hence, it is the partnership, not its officers or agents,
which should be impleaded in any litigation involving property
registered in its name. A violation of this rule will result in the
dismissal of the complaint.78
In this case, there is likewise no showing that SAFA Law Office,
as a separate juridical entity, is being used for fraudulent,
unfair, or illegal purposes. Hence, its partners cannot be held
primarily liable for the obligations of the partnership. As it was
SAFA Law Office that entered into a contract of lease with
respondent PNB, it should also be impleaded in any litigation
concerning that contract.

Accordingly, the complaint filed by Saludo should be amended

to include SAFA Law Office as plaintiff. Section 11,79 Rule 3 of
the Rules of Court gives power to the court to add a party to the
case on its own initiative at any stage of the action and on such
tenns as are just. We have also held in several cases80 that the
court has full powers, apart from that power and authority
which are inherent, to amend processes, pleadings,
proceedings, and decisions by substituting as party-plaintiff the
real party-in-interest.