[No. 26937. October 5, 1927]
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.)
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.)
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.
4.ID. ; ID. ; ID.—All the members of a general partnership, be they
managing partners of the same or not, shall be personally and solidarily
liable with all their property for the results of the transactions made in the
name and for the account of the partnership, under the signature of the
latter and by a person authorized to use it. (Sec. 127, Code of Commerce.)
APPEAL from a judgment of the Court of First Instance of Iloilo. Salas, J.
The facts are stated in the opinion of the court.
Jose Lopez Vito for appellants.
Roman Lacson for appellee.
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
...............................................................................................P16,518.74
Interest on same from June 30, 1922 to December 31, 1924, at 9 per cent
per annum..................................................................................3,720.86
Total .................................................................................20,239.60
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:
"I.The trial court erred in finding that article 126 of the Code of Commerce at
present in force is not mandatory.
"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.
"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.
National Bank vs. Lo, 50 Phil. 802, No. 26937 October 5, 1927
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)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)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)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)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)ordering plaintiff and defendant Galan to pay P500.00 representing
attorney's fees jointly and severally to Intervenor Cebu Southern Hardware
Company;
"(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 firm 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 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."
The obligation is solidary because the law protects him, who in good faith
relied upon the authority of a partner, whether such authority is real or
apparent. That is why under Article 1824 of the Civil Code all partners,
whether innocent or guilty, as well as the legal entity which is the
partnership, are solidarily liable.
In the case at bar the respondent Tropical had every reason to believe that a
partnership existed between the petitioner and Galan and no fault or error
can be imputed against it for making payments to "Galan and Associates"
and delivering the same to Galan because as far as it was concerned, Galan
was a true partner with real authority to transact on behalf of the
partnership with which it was dealing. This is even more true in the cases of
Cebu Southern Hardware and Blue Diamond Glass Palace who supplied
materials on credit to the partnership, Thus, it is but fair that the
consequences of any wrongful act committed by any of the partners therein
should be answered solidarily by all the partners and the partnership as a
whole.
However, as between the partners Muñasque and Galan, justice also dictates
that Muñasque be reimbursed by Galan for the payments made by the
former representing the liability of their partnership to herein intervenors, as
it was satisfactorily established that Galan acted in bad faith in his dealings
with Muñasque as a partner.
WHEREFORE, the decision appealed from is hereby AFFIRMED with the
MODIFICATION that the liability of petitioner and respondent Galan to
intervenors Blue Diamond Glass and Cebu Southern Hardware is declared to
be joint and solidary. Petitioner may recover from respondent Galan any
amount that he pays, in his capacity as a partner, to the above intervenors.
SO ORDERED.
     Teehankee (Chairman), Melencio-Herrera, De la Fuente and Patajo, JJ.,
concur.
     Plana, J., no part.
     Relova, J., on leave.
Decision affirmed with modification.
Notes.—In order that a contract of partnership may exist, the parties must
bind themselves to contribute money, property, or industry to a common
fund. Without such a common fund or a reciprocal undertaking by the parties
to constitute the same, there can be no partnership. Thus, Manresa cited a
case where the parties had contributed nothing of a realizable value but a
mere obligation, that of responding up to a certain amount for the losses
which the supposed partnership might incur, none of the parties having
contributed to a common fund any money, or any other kind of property, or
any existing industry or service. When the juridical existence of the supposed
partnership was questioned, the French Court decided that there was no
partnership for lack of common fund. (Caguioa, Comments and Cases on
Civil Law, Vol VI, p. 3, First Edition.)

In order to become a partner, a party must have capacity to enter into

contract. An emancipated minor, therefore, may become a partner but the
consent of his parents or guardian is necessary in order to contribute real or
immovable property. A married woman may become a partner without the
consent of her husband. Both natural and juridical persons can become
partners; hence, a partnership can enter into a partnership with other
partnerships or with private individuals. However, the majority view is that a
corporation cannot become a partner on grounds of public policy, since
otherwise parties other that its officers may be able to bind it. (Idem, p. 5.)

———o0o——— Muñasque vs. Court of Appeals, 139 SCRA 533, No. L-39780
November 11, 1985
[No. L-7991. May 21, 1956]
PAUL MACDONALD, ET AL., petitioners, vs. THE NATIONAL CITY
BANK OF NEW YORK, respondent.
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.
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.
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 was correctly rejected by the trial
court and the Court of Appeals. Indeed, cumbersome legal formalities are
imposed to prevent fraud. As aptly pointed out in El Hogar Filipino vs. Olviga, Bengzon, Montemayor, Reyes, A., Jugo, Bautista Angelo Labrador,
60 Phil., 17, "If the biased and interested testimony of a grantor and the Concepcion, Reyes, J. B. L., and Endencia, JJ., concur.
vague and uncertain testimony of his son are deemed sufficient to overcome
Decision affirmed.
a public instrument drawn up with all the formalities prescribed by the law
then there will have been established a very dangerous doctrine which would
throw wide open the doors to fraud."
_____________ MacDonald, et al. vs. Nat. City Bank of N.Y., 99 Phil. 156,
The last question raised by the petitioners is as follows: "Does only one of No. L-7991 May 21, 1956
several 'partners' of an unregistered commercial partnership have authority,
by himself alone, to execute a valid chattel mortgage over property owned
by the unregistered commercial partnership in order to guarantee a pre-
existing overdraft previously granted, without guaranty, by the bank?"

In view of the conclusion that Stasikinocey is a de facto partnership, and Da

Costa appears as a co-manager in the letter of Gorcey to the respondent and
in the promissory note executed by Da Costa, and that even the partners
considered him as such, as stated in the affidavit of April 21, 1948, to the
effect that "That we as the majority partners hereby agree to appoint Louis
da Costa co-managing partner of Alan W. Gorcey, duly approved managing
partner of the said firm," the "partner" who executed the chattel mortgage in
question must be deemed to be so fully authorized. Section 6 of the Chattel
Mortgage Law provides that when a partnership is a party to the mortgage,
the affidavit may be made and subscribed by one member thereof. In this
case the affidavit was executed and subscribed by Da Costa, not only as a
partner but as a managing partner.

There is no merit in petitioners' pretense that the motor vehicles in question

are the common property of Da Costa and Gorcey. Petitioners invoke article
24 of the Code of Commerce in arguing that an unregistered commercial
partnership has no juridical personality and cannot execute any act that
would adversely affect innocent third persons. Petitioners forget that the
respondent is a third person with respect to the partnership, and the chattel
mortgage executed by Da Costa cannot therefore be impugned by Gorcey on
the ground that there is no partnership between them and that the vehicles
in question belonged to them in common. As a matter of fact, the
respondent and the petitioners are all third persons as regards the
partnership Stasikinocey; and even assuming that the petitioners are
purchasers in good faith and for value, the respondent having transacted
with Stasikinocey earlier than the petitioners, it should enjoy and be given
priority.

Wherefore, the appealed decision of the Court of Appeals is affirmed with

costs against the petitioners.

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 Personalty12 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 order17 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.  
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 in the action — is an
element of due process that is essential in all actions, civil as well as
criminal, except in actions in rem or quasi in rem.23 Jurisdiction over the
person of the plaintiff is acquired by the mere filing of the complaint in court.
As the initiating party, the plaintiff in a civil action voluntarily submits himself
to the jurisdiction of the court. As to the defendant, the court acquires
jurisdiction over his person either by the proper service of the summons, or
by his voluntary appearance in the action.24
Under Section 11, Rule 14 of the 1997 Revised Rules of Civil Procedure,
when the defendant is a corporation, partnership or association organized
under the laws of the Philippines with a juridical personality, the service of
summons may be made on the president, managing partner, general
manager, corporate secretary, treasurer, or in-house counsel. Jurisprudence
is replete with pronouncements that such provision provides an exclusive
enumeration of the persons authorized to receive summons for juridical
entities.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.  
A partner must be separately
and distinctly impleaded
before he can be bound by a
judgment
The next question posed is whether the trial court’s jurisdiction over QSC
extended to the person of Guy insofar as holding him 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 against the partnership itself. The
Court added that the partners could not be held liable for the obligations of
the partnership unless it was shown that the legal fiction of a different
juridical personality was being used for fraudulent, unfair, or illegal
purposes.34
Here, Guy was never made a party to the case. He did not have any
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
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 was served to Guy through his
housemaid at his residence.
Clearly, no genuine efforts were made to locate the properties of QSC that
could have been attached to satisfy the judgment — contrary to the clear
mandate of Article 1816. Being subsidiarily liable, Guy could only be held
personally liable if properly impleaded and after all partnership assets had
been exhausted.
Second, Article 1816 provides that the partners’ obligation to third persons
with respect to the partnership liability is pro rata or joint. Liability is joint
when a debtor is liable only for the payment of only a proportionate part of
the debt. In contrast, a solidary liability makes a debtor liable for the
payment of the entire debt. In the same vein, Article 1207 does not presume
solidary liability unless: 1) the obligation expressly so states; or 2) the law or
nature requires solidarity. With regard to partnerships, ordinarily, the liability
of the partners is not solidary.39 The joint liability of the partners is a
defense that can be raised by a partner impleaded in a complaint against the
partnership.
In other words, only in exceptional circumstances shall the partners’ liability
be solidary in nature. Articles 1822, 1823 and 1824 of the Civil Code provide
for these exceptional conditions, to wit:
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 Service of summons is not required in a habeas corpus petition, be it under
wrongful act or misapplied the money or property he or the partnership Rule 102 of the Rules of Court or A.M. No. 03-04-04-SC. (Tujan-Militante vs.
received from Gacott. A third person who transacted with said partnership Cada-Deapera, 731 SCRA 194 [2014])
can hold the partners solidarily liable for the whole obligation if the case of
——o0o—— Guy vs. Gacott, 780 SCRA 579, G.R. No. 206147 January 13,
the third person falls under Articles 1822 or 1823.41 Gacott’s claim stemmed
2016
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])
 FIRST DIVISION
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 reconsideration 26 dated February 5, 2007, alleging
that SAFA Law Office should be included as a co-plaintiff because it is the
principal party to the contract of lease, the one that occupied the leased
premises, and paid the monthly rentals and security deposit. In other words,
it was the main actor and direct beneficiary of the contract. Hence, it is the
real party-in-interest.27 The RTC, however, denied the motion for
reconsideration in an Order28 dated March 8, 2007.
Consequently, PNB filed a petition for certiorari29 with the CA. On February 8,
2010, the CA rendered its assailed Decision, 30 the dispositive portion of which
reads:
WHEREFORE, the petition is PARTIALLY GRANTED. The assailed
Omnibus Order dated 11 January 2007 and Order dated 8 March 2007,
issued by respondent Court in Civil Case No. 06-678, respectively,
are AFFIRMED with MODIFICATION in that petitioner's counterclaims
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.
Under Art. 1768 of the Civil Code, a partnership "has a juridical personality
separate and distinct from that of each of the partners." The partners cannot
be held liable for the obligations of the partnership unless it is shown that
the legal fiction of a different juridical personality is being used for
fraudulent, unfair, or illegal purposes. In this case, private respondent has
not shown that A.C. Aguila & Sons, Co., as a separate juridical entity, is
being used for fraudulent, unfair, or illegal purposes. Moreover, the title to
the subject property is in the name of A.C. Aguila & Sons, Co. and the
Memorandum of Agreement was executed between private respondent, with
the consent of her late husband, and A.C. Aguila & Sons, Co., represented by
petitioner. Hence, it is the partnership, not its officers or agents, which
should be impleaded in any litigation involving property registered in its
name. A violation of this rule will result in the dismissal of the complaint. 78
In this case, there is likewise no showing that SAFA Law Office, as a
separate juridical entity, is being used for fraudulent, unfair, or illegal
purposes. Hence, its partners cannot be held primarily liable for the
obligations of the partnership. As it was SAFA Law Office that entered into a
contract of lease with respondent PNB, it should also be impleaded in any
litigation concerning that contract.

Accordingly, the complaint filed by Saludo should be amended to include

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

In view of the above discussion, we find it unnecessary to discuss the other

issues raised in the petition. It is unfortunate that the case has dragged on
for more than 10 years even if it involves an issue that may be resolved by a
simple application of Civil Code provisions on partnership. It is time for trial
to proceed so that the parties' substantial rights may be adjudicated without
further unnecessary delay.

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

amend his complaint to include SAFA Law Office as plaintiff in Civil Case No.
06-678 pending before Branch 58 of the Regional Trial Court of Makati City,
it being the real party-in-interest.

SO ORDERED.

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

concur.