Tacao vs CA (2000)

Private respondent Nenita A. Anay, as marketing adviser of

Technolux in Bangkok, Thailand met petitioner William T.
Belo, then the vice-president for operations of Ultra Clean
Water Purifier, through her former employer in Bangkok.
Belo introduced Anay to petitioner Marjorie Tocao, who
conveyed her desire to enter into a joint venture with her for
the importation and local distribution of kitchen cookwares.
Belo volunteered to finance the joint venture and assigned to
Anay the job of marketing the product considering her
experience and established relationship with West Bend
Company, a manufacturer of kitchen wares in Wisconsin,
U.S.A.
Under the joint venture, Belo acted as capitalist, Tocao as
president and general manager, and Anay as head of the
marketing department and later, vice-president for sales.
Anay organized the administrative staff and sales force while
Tocao hired and fired employees, determined commissions
and/or salaries of the employees, and assigned them to
different branches.
The parties agreed that Belos name should not appear in any
documents relating to their transactions with West Bend
Company.
Instead, they agreed to use Anays name in securing
distributorship of cookware from that company.
The parties agreed further that Anay would be entitled to: (1)
ten percent (10%) of the annual net profits of the business;
(2) overriding commission of six percent (6%) of the overall
weekly production; (3) thirty percent (30%) of the sales she
would make; and (4) two percent (2%) for her demonstration
services.
The agreement was not reduced to writing on the strength of
Belos assurances that he was sincere, dependable and
honest when it came to financial commitments.
The cookware business took off successfully.
They operated under the name of Geminesse Enterprise, a
sole proprietorship registered in Marjorie Tocaos name
Anay arrived from the U.S.A. and immediately undertook the
task of saving the business on account of the unsatisfactory
sales record in the Makati and Cubao offices.
On August 31, 1987, she received a plaque of appreciation
from the administrative and sales people through Marjorie
Tocao for her excellent job performance.
On October 7, 1987, in the presence of Anay, Belo signed a
memo entitling her to a (37%) commission for her personal
sales "up Dec 31/87.
Belo explained to her that said commission was apart from
her (10%) share in the profits.
On October 9, 1987, Anay learned that Marjorie Tocao had
signed a letter addressed to the Cubao sales office to the
effect that she was no longer the vice-president of Geminesse
Enterprise.
The following day, she received a note from Lina T. Cruz,
marketing manager, that Marjorie Tocao had barred her
from holding office and conducting demonstrations in both
Makati and Cubao offices.
Anay attempted to contact Belo.
She wrote him twice to demand her overriding commission
for the period of January 8, 1988 to February 5, 1988 and the
audit of the company to determine her share in the net
profits.
Anay still received her five percent (5%) overriding
commission up to December 1987.
The following year, 1988, she did not receive the same
commission although the company netted a gross sales of
P13,300,360.00.

Hence, Nenita A. Anay filed a complaint for sum of money

with damages against Marjorie D. Tocao and William Belo
before the RTC of Makati
In her complaint, Anay prayed that defendants be ordered
to pay her, jointly and severally, the following: (1)
P32,00.00 as unpaid overriding commission from January
8, 1988 to February 5, 1988
The plaintiff also prayed for an audit of the finances of
Geminesse Enterprise from the inception of its business
operation until she was illegally dismissed to determine
her (10%) share in the net profits.
She further prayed that she be paid the five percent (5%)
overriding commission on the remaining 150 West Bend
cookware sets before her dismissal.
In their answer, Marjorie Tocao and Belo asserted that the
alleged agreement with Anay that was neither reduced
in writing, nor ratified, was either unenforceable or void
or inexistent.
As far as Belo was concerned, his only role was to
introduce Anay to Marjorie Tocao.
There could not have been a partnership because, as Anay
herself admitted, Geminesse Enterprise was the sole
proprietorship of Marjorie Tocao.
Because Anay merely acted as marketing demonstrator of
Geminesse Enterprise for an agreed remuneration, and
her complaint referred to either her compensation or
dismissal, such complaint should have been lodged with
the Department of Labor and not with the regular court.
Petitioners (defendants therein) further alleged that Anay
filed the complaint on account of ill-will and resentment
because Marjorie Tocao did not allow her to lord it over in
the Geminesse Enterprise.
Anay had acted like she owned the enterprise because of
her experience and expertise.
In their defense, Belo denied that Anay was supposed to
receive a share in the profit of the business.
He, however, admitted that the two had agreed that Anay
would receive a (3-4%) share in the gross sales of the
cookware.
He denied contributing capital to the business or receiving
a share in its profits as he merely served as a guarantor of
Marjorie Tocao, who was new in the business.
He attended and/or presided over business meetings of
the venture in his capacity as a guarantor but he never
participated in decision-making.
He claimed that he wrote the memo granting the plaintiff
(37%) commission upon her dismissal from the business
venture at the request of Tocao, because Anay had no
other income.
For her part, Marjorie Tocao denied having entered into
an oral partnership agreement with Anay.
However, she admitted that Anay was an expert in the
cookware business and hence, they agreed to grant her the
following commissions: (37%) on personal sales; (5%) on
gross sales; (2%) on product demonstrations, and (2%) for
recruitment of personnel.
Marjorie denied that they agreed on a (10%) commission
on the net profits.
The trial court held that there was indeed an oral
partnership agreement between the plaintiff and the
defendants
Petitioners Tocao and Belo contend that the Court of
Appeals erroneously held that a partnership existed
between them and private respondent Anay because
Geminesse Enterprise came into being exactly a year

before the alleged partnership was formed, and that it was

very unlikely that petitioner Belo would invest the sum of
P2,500,000.00 with petitioner Tocao contributing nothing,
without any memorandum whatsoever regarding the
alleged partnership.
W/N the plaintiff was an employee or partner of
Marjorie Tocao and Belo

To be considered a juridical personality, a partnership must

fulfill these requisites:
(1) two or more persons bind themselves to contribute
money, property or industry to a common fund; and
(2) intention on the part of the partners to divide the
profits among themselves.

It may be constituted in any form; a public instrument is

necessary only where immovable property or real rights are
contributed thereto.

This implies that since a contract of partnership is

consensual, an oral contract of partnership is as good
as a written one.

Where no immovable property or real rights are involved,

what matters is that the parties have complied with the
requisites of a partnership.

The fact that there appears to be no record in the Securities

and Exchange Commission of a public instrument
embodying the partnership agreement pursuant to Article
1772 of the Civil Code did not cause the nullification of the
partnership.

The pertinent provision of the Civil Code on the matter

states:
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.

Petitioners admit that private respondent had the expertise

to engage in the business of distributorship of cookware.

Private respondent contributed such expertise to the

partnership and hence, under the law, she was the
industrial or managing partner.

It was through her reputation with the West Bend Company

that the partnership was able to open the business of
distributorship of that companys cookware products; it was
through the same efforts that the business was propelled to
financial success.

Petitioner Tocao herself admitted private respondents

indispensable role in putting up the business

On the other hand, petitioner Belos denial that he financed

the partnership rings hollow in the face of the established
fact that he presided over meetings regarding matters
affecting the operation of the business.
Moreover, his having authorized in writing on October 7,
1987, on a stationery of his own business firm, Wilcon
Builders Supply, that private respondent should receive
(37%) of the proceeds of her personal sales, could not be
interpreted otherwise than that he had a proprietary interest
in the business.
His claim that he was merely a guarantor is belied by that
personal act of proprietorship in the business.
Moreover, if he was indeed a guarantor of future debts of
petitioner Tocao under Article 2053 of the Civil Code, he
should have presented documentary evidence therefor.
While Article 2055 of the Civil Code simply provides that
guaranty must be express, Article 1403, the Statute
of Frauds, requires that a special promise to answer for the
debt, default or miscarriage of another be in writing.

Petitioner Tocao, a former ramp model, was also a

capitalist in the partnership.
She claimed that she herself financed the business.
Her and petitioner Belos roles as both capitalists to the
partnership with private respondent are buttressed by
petitioner Tocaos admissions that petitioner Belo was her
boyfriend and that the partnership was not their only
business venture together.
The special relationship between them dovetails with
petitioner Belos claim that he was acting in behalf of
petitioner Tocao.
Significantly, in the early stage of the business operation,
petitioners requested West Bend Company to allow them
to utilize their banking and trading facilities in Singapore
in the matter of importation and payment of the cookware
products.
The inevitable conclusion, therefore, was that petitioners
merged their respective capital and infused the amount
into the partnership of distributing cookware with private
respondent as the managing partner.
The business venture operated under Geminesse
Enterprise did not result in an employer-employee
relationship between petitioners and private respondent.
While it is true that the receipt of a percentage of net
profits constitutes only prima facie evidence that the
recipient is a partner in the business, the evidence in the
case at bar controverts an employer-employee relationship
between the parties.
In the first place, private respondent had a voice in the
management of the affairs of the cookware distributorship,
including selection of people who would constitute the
administrative staff and the sales force.
Secondly, petitioner Tocaos admissions militate against
an employer-employee relationship.
She admitted that, like her who owned Geminesse
Enterprise, private respondent received only commissions
and transportation and representation allowances and not
a fixed salary.
If indeed petitioner Tocao was private respondents
employer, it is difficult to believe that they shall receive the
same income in the business.
In a partnership, each partner must share in the profits
and losses of the venture, except that the industrial
partner shall not be liable for the losses.
As an industrial partner, private respondent had the right
to demand for a formal accounting of the business and to
receive her share in the net profit.
Undoubtedly, petitioner Tocao unilaterally excluded
private respondent from the partnership to reap for herself
and/or for petitioner Belo financial gains resulting from
private respondents efforts to make the business venture a
success.

Tacao vs CA (2001)

Lim Tong Lim vs Phil. Fishing

On November 14, 2001, petitioners Marjorie Tocao and

William T. Belo filed a Motion for Reconsideration of SC
Decision dated October 4, 2000.
They maintain that there was no partnership between
petitioner Belo, on the one hand, and respondent Nenita A.
Anay, on the other hand; and that the latter being merely an
employee of petitioner Tocao.
After a careful review of the evidence presented, we are
convinced that, indeed, petitioner Belo acted merely as
guarantor of Geminesse Enterprise.
This was categorically affirmed by respondents own witness,
Elizabeth Bantilan, during her cross-examination.
Furthermore, Bantilan testified that it was Peter Lo who was
the companys financier
Peter Lo is based in Singapore and he is the one fixing our
orders that open the L/C.

A partnership may be deemed to exist among parties who

agree to borrow money to pursue a business and to divide the
profits or losses that may arise therefrom, even if it is shown
that they have not contributed any capital of their own to a
"common fund." Their contribution may be in the form of
credit or industry, not necessarily cash or fixed assets. Being
partners, they are all liable for debts incurred by or on behalf
of the partnership. The liability for a contract entered into on
behalf of an unincorporated association or ostensible
corporation may lie in a person who may not have directly
transacted on its behalf, but reaped benefits from that
contract.

It should be recalled that the business relationship created

between petitioner Tocao and respondent Anay was an
informal partnership, which was not even recorded with
the Securities and Exchange Commission.
As such, it was understandable that Belo, who was after all
petitioner Tocaos good friend and confidante, would
occasionally participate in the affairs of the business,
although never in a formal or official capacity.
Again, respondents witness, Elizabeth Bantilan, confirmed
that petitioner Belos presence in Geminesse Enterprises
meetings was merely as guarantor of the company and to
help petitioner Tocao.

Furthermore, no evidence was presented to show that

petitioner Belo participated in the profits of the business
enterprise.
Respondent herself professed lack of knowledge that
petitioner Belo received any share in the net income of the
partnership.
On the other hand, petitioner Tocao declared that petitioner
Belo was not entitled to any share in the profits of Geminesse
Enterprise.
With no participation in the profits, petitioner Belo
cannot be deemed a partner since the essence of a
partnership is that the partners share in the profits
and losses
Consequently, inasmuch as petitioner Belo was not a partner
in Geminesse Enterprise, respondent had no cause of action
against him and her complaint against him should
accordingly be dismissed.
As regards the award of damages, petitioners argue that
respondent should be deemed in bad faith for failing to
account for stocks of Geminesse Enterprise amounting to
P208,250.00 and that, accordingly, her claim for damages
should be barred to that extent. We do not agree.
Given the circumstances surrounding private respondents
sudden ouster from the partnership by petitioner Tocao, her
act of withholding whatever stocks were in her possession
and control was justified, if only to serve as security for her
claims against the partnership. However, while we do not
agree that the same renders private respondent in bad faith
and should bar her claim for damages, we find that the said
sum of P208,250.00 should be deducted from whatever
amount is finally adjudged in her favor on the basis of the
formal account of the partnership affairs to be submitted to
the Regional Trial Court.

On behalf of "Ocean Quest Fishing Corporation," Antonio

Chua and Peter Yao entered into a Contract for the
purchase of fishing nets of various sizes from the
Philippine Fishing Gear Industries, Inc. (herein
respondent).
They claimed that they were engaged in a business venture
with Petitioner Lim Tong Lim, who however was not a
signatory to the agreement.
The total price of the nets amounted to P532,045.
Four hundred pieces of floats worth P68,000 were also
sold to the Corporation.
The buyers, however, failed to pay for the fishing nets and
the floats; hence, private respondent filed a collection suit
against Chua, Yao and Petitioner Lim Tong Lim
The suit was brought against the three in their capacities
as general partners, on the allegation that Ocean Quest
Fishing Corporation was a nonexistent corporation as
shown by a Certification from the Securities and Exchange
Commission.
Instead of answering the Complaint, Chua filed a
Manifestation admitting his liability and requesting a
reasonable time within which to pay.
He also turned over to respondent some of the nets which
were in his possession.
Peter Yao filed an Answer, after which he was deemed to
have waived his right to cross-examine witnesses and to
present evidence on his behalf, because of his failure to
appear in subsequent hearings.
Lim Tong Lim, on the other hand, filed an Answer with
Counterclaim and Crossclaim and moved for the lifting of
the Writ of Attachment.
The trial court maintained the Writ, and upon motion of
private respondent, ordered the sale of the fishing nets at a
public auction.
Philippine Fishing Gear Industries won the bidding and
deposited with the said court the sales proceeds of
P900,000.
the trial court rendered its Decision, ruling that Philippine
Fishing Gear Industries was entitled to the Writ of
Attachment and that Chua, Yao and Lim, as general
partners, were jointly liable to pay respondent
The trial court ruled that a partnership among Lim, Chua
and Yao existed based (1) on the testimonies of the
witnesses presented and (2) on a Compromise Agreement
executed by the three in Civil Case which Chua and Yao
had brought against Lim for (a) a declaration of nullity of
commercial documents; (b) a reformation of contracts; (c)
a declaration of ownership of fishing boats; (d) an
injunction and (e) damages.
The trial court noted that the Compromise Agreement was
silent as to the nature of their obligations, but that joint
liability could be presumed from the equal distribution of
the profit and loss

Whether by their acts, Lim, Chua and Yao could be

deemed to have entered into a partnership.
First and Second Issues: Existence of a Partnership
and Petitioner's Liability

In arguing that he should not be held liable for the

equipment purchased from respondent, petitioner
controverts the CA finding that a partnership existed
between him, Peter Yao and Antonio Chua.

He asserts that the CA based its finding on the Compromise

Agreement alone.

Furthermore, he disclaims any direct participation in the

purchase of the nets, alleging that the negotiations were
conducted by Chua and Yao only, and that he has not even
met the representatives of the respondent company.

Petitioner further argues that he was a lessor, not a partner,

of Chua and Yao, for the "Contract of Lease" dated February
1, 1990, showed that he had merely leased to the two the
main asset of the purported partnership -- the fishing boat
F/B Lourdes.

The lease was for six months, with a monthly rental of

P37,500 plus 25 percent of the gross catch of the boat.

The facts as found by the two lower courts clearly showed

that there existed a partnership among Chua, Yao and him,
pursuant to Article 1767 of the Civil Code which provides:
Article 1767 - By the 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.
Specifically, both lower courts ruled that a partnership
among the three existed based on the following factual
findings:
(1) That Petitioner Lim Tong Lim requested Peter Yao who
was engaged in commercial fishing to join him, while
Antonio Chua was already Yaos partner;
(2) That after convening for a few times, Lim Chua, and Yao
verbally agreed to acquire two fishing boats, the FB Lourdes
and the FB Nelson for the sum of P3.35 million;
(3) That they borrowed P3.25 million from Jesus Lim,
brother of Petitioner Lim Tong Lim, to finance the venture.
(4) That they bought the boats from CMF Fishing
Corporation, which executed a Deed of Sale over these two
(2) boats in favor of Petitioner Lim Tong Lim only to serve as
security for the loan extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing ,
re-equipping, repairing, dry docking and other expenses for
the boats would be shouldered by Chua and Yao;
(6) That because of the unavailability of funds, Jesus Lim
again extended a loan to the partnership in the amount of P1
million secured by a check, because of which, Yao and Chua
entrusted the ownership papers of two other boats, Chuas
FB Lady Anne Mel and Yaos FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao
and Antonio Chua bought nets from Respondent Philippine
Fishing Gear, in behalf of "Ocean Quest Fishing
Corporation," their purported business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in
the Malabon RTC, Branch 72 by Antonio Chua and Peter Yao
against Lim Tong Lim for (a) declaration of nullity of

commercial documents; (b) reformation of contracts; (c)

declaration of ownership of fishing boats; (4) injunction;
and (e) damages.
(9) That the case was amicably settled through a
Compromise Agreement executed between the partieslitigants the terms of which are already enumerated above.

From the factual findings of both lower courts, it is clear

that Chua, Yao and Lim had decided to engage in a fishing
business, which they started by buying boats worth P3.35
million, financed by a loan secured from Jesus Lim who
was petitioners brother.
In their Compromise Agreement, they subsequently
revealed their intention to pay the loan with the proceeds
of the sale of the boats, and to divide equally among them
the excess or loss.
These boats, the purchase and the repair of which were
financed with borrowed money, fell under the term
common fund under Article 1767.
The contribution to such fund need not be cash or fixed
assets; it could be an intangible like credit or industry.
That the parties agreed that any loss or profit from the sale
and operation of the boats would be divided equally
among them also shows that they had indeed formed a
partnership.
Moreover, it is clear that the partnership extended not
only to the purchase of the boat, but also to that of the nets
and the floats.
The fishing nets and the floats, both essential to fishing,
were obviously acquired in furtherance of their business.
It would have been inconceivable for Lim to involve
himself so much in buying the boat but not in the
acquisition of the aforesaid equipment, without which the
business could not have proceeded.
Given the preceding facts, it is clear that there was, among
petitioner, Chua and Yao, a partnership engaged in the
fishing business.
They purchased the boats, which constituted the main
assets of the partnership, and they agreed that the
proceeds from the sales and operations thereof would be
divided among them.

Compromise Agreement Not the Sole Basis of

Partnership

Petitioner argues that the appellate courts sole basis for

assuming the existence of a partnership was the
Compromise Agreement.

He also claims that the settlement was entered into only to

end the dispute among them, but not to adjudicate their
preexisting rights and obligations.

His arguments are baseless.

The Agreement was but an embodiment of the
relationship extant among the parties prior to its
execution.

Petitioner Was a Partner, Not a Lessor

He would like this Court to believe that he consented to

the sale of his own boats to pay a debt of Chua and Yao,
with the excess of the proceeds to be divided among the
three of them.

No lessor would do what petitioner did.

Indeed, his consent to the sale proved that there was a

preexisting partnership among all three.

as found by the lower courts, petitioner entered into a

business agreement with Chua and Yao, in which debts were
undertaken in order to finance the acquisition and the
upgrading of the vessels which would be used in their fishing
business.
The sale of the boats, as well as the division among the three
of the balance remaining after the payment of their loans,
proves beyond cavil that F/B Lourdes, though registered in
his name, was not his own property but an asset of the
partnership.
It is not uncommon to register the properties acquired from
a loan in the name of the person the lender trusts, who in
this case is the petitioner himself.
After all, he is the brother of the creditor, Jesus Lim.
indeed, it is absurd -- for petitioner to sell his
property to pay a debt he did not incur, if the
relationship among the three of them was merely
that of lessor-lessee, instead of partners.

Corporation by Estoppel

Petitioner argues that under the doctrine of corporation by

estoppel, liability can be imputed only to Chua and Yao, and
not to him.

Section 21 of the Corporation Code of the Philippines

provides: 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: Provided however,
That when any such ostensible corporation is sued on any
transaction entered by it as a corporation or on any tort
committed by it as such, it shall not be allowed to use as a
defense its lack of corporate personality.
One who assumes an obligation to an ostensible
corporation as such, cannot resist performance thereof on
the ground that there was in fact no corporation.

Thus, even if the ostensible corporate entity is proven to be

legally nonexistent, a party may be estopped from
denying its corporate existence.

The reason behind this doctrine is obvious - an

unincorporated association has no personality and would be
incompetent to act and appropriate for itself the power and
attributes of a corporation as provided by law; it cannot
create agents or confer authority on another to act in its
behalf; thus, those who act or purport to act as its
representatives or agents do so without authority and at their
own risk.

And as it is an elementary principle of law that a person who

acts as an agent without authority or without a principal is
himself regarded as the principal, possessed of all the right
and subject to all the liabilities of a principal, a person acting
or purporting to act on behalf of a corporation which has no
valid existence assumes such privileges and obligations and
becomes personally liable for contracts entered into or for
other acts performed as such agent.

The doctrine of corporation by estoppel may apply to the

alleged corporation and to a third party.

In the first instance, an unincorporated association, which

represented itself to be a corporation, will be estopped from
denying its corporate capacity in a suit against it by a third
person who relied in good faith on such representation.

It cannot allege lack of personality to be sued to evade its

responsibility for a contract it entered into and by virtue of
which it received advantages and benefits.

On the other hand, a third party who, knowing an

association to be unincorporated, nonetheless treated it as a
corporation and received benefits from it, may be barred
from denying its corporate existence in a suit brought
against the alleged corporation.

In such case, all those who benefited from the transaction

made by the ostensible corporation, despite knowledge of
its legal defects, may be held liable for contracts they
impliedly assented to or took advantage of.
There is no dispute that the respondent, Philippine Fishing
Gear Industries, is entitled to be paid for the nets it sold.
The only question here is whether petitioner
should be held jointly liable with Chua and Yao.
Petitioner contests such liability, insisting that only those
who dealt in the name of the ostensible corporation should
be held liable.
Since his name does not appear on any of the contracts
and since he never directly transacted with the respondent
corporation, ergo, he cannot be held liable.
Unquestionably, petitioner benefited from the use of the
nets found inside F/B Lourdes, the boat which has earlier
been proven to be an asset of the partnership.
He in fact questions the attachment of the nets, because
the Writ has effectively stopped his use of the fishing
vessel.
It is difficult to disagree with the RTC and the CA that Lim,
Chua and Yao decided to form a corporation.
Although it was never legally formed for unknown reasons,
this fact alone does not preclude the liabilities of the three
as contracting parties in representation of it.
Clearly, under the law on estoppel, those acting on behalf
of a corporation and those benefited by it, knowing it to be
without valid existence, are held liable as general
partners.
Technically, it is true that petitioner did not directly act on
behalf of the corporation.
However, having reaped the benefits of the contract
entered into by persons with whom he previously had an
existing relationship, he is deemed to be part of said
association and is covered by the scope of the doctrine
of corporation by estoppel.

Third Issue: Validity of Attachment

This issue is now moot and academic.

As discussed, F/B Lourdes was an asset of the partnership

and that it was placed in the name of petitioner, only to
assure payment of the debt he and his partners owed.

The nets and the floats were specifically manufactured and

tailor-made according to their own design, and were
bought and used in the fishing venture they agreed upon.

Hence, the issuance of the Writ to assure the payment of

the price stipulated in the invoices is proper.

Besides, by specific agreement, ownership of the nets

remained with Respondent Philippine Fishing Gear, until
full payment thereof.

Aguila vs Ca

Petitioner is the manager of A.C. Aguila & Sons, Co., a

partnership engaged in lending activities.
Private respondent and her late husband, Ruben M. Abrogar,
were the registered owners of a house and lot in Marikina,
Metro Manila.
On April 18, 1991, private respondent, with the consent of
her late husband, and A.C. Aguila & Sons, Co., represented
by petitioner, entered into a Memorandum of Agreement
the parties likewise executed a deed of absolute sale wherein
private respondent, with the consent of her late husband,
sold the subject property to A.C. Aguila & Sons, Co.,
represented by petitioner, for P200,000.00.
In a special power of attorney, private respondent authorized
petitioner to cause the cancellation of TCT and the issuance
of a new certificate of title in the name of A.C. Aguila and
Sons, Co., in the event she failed to redeem the subject
property as provided in the Memorandum of Agreement
Private respondent failed to redeem the property within the
90-day period as provided in the Memorandum of
Agreement.
Private respondent then received a letter demanding that she
vacate the premises within 15 days after receipt of the letter
and surrender its possession peacefully to A.C. Aguila &
Sons, Co.
Upon the refusal of private respondent to vacate the subject
premises, A.C. Aguila & Sons, Co. filed an ejectment case
against her
The CA reversed the decision of the lower court
The facts and evidence show that the transaction between
plaintiff-appellant and defendant-appellee is indubitably an
equitable mortgage.
Article 1602 of the New Civil Code finds strong application in
the case at bar in the light of the following circumstances.
It is well-settled that the presence of even one of the
circumstances in Article 1602 of the New Civil Code is
sufficient to declare a contract of sale with right to
repurchase an equitable mortgage.
Considering that plaintiff-appellant, as vendor, was paid a
price which is unusually inadequate, has retained possession
of the subject property and has continued paying the realty
taxes over the subject property, (circumstances mentioned in
par. (1) (2) and (5) of Article 1602 of the New Civil Code), it
must be conclusively presumed that the transaction the
parties actually entered into is an equitable mortgage, not a
sale with right to repurchase.
Being a mortgage, the transaction entered into by the parties
is in the nature of a pactum commissorium which is
clearly prohibited by Article 2088 of the New Civil Code.

Petitioner now contends that:

(1) He is not the real party in interest but A.C. Aguila & Co.,
against which this case should have been brought;
(2) The judgment in the ejectment case is a bar to the filing
of the complaint for declaration of nullity of a deed of sale in
this case; and
(3) the contract between A.C. Aguila & Sons, Co. and private
respondent is a pacto de retro sale and not an equitable
mortgage as held by the appellate court.

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.
We cannot understand why both the Regional Trial Court
and the Court of Appeals sidestepped this issue when it
was squarely raised before them by petitioner.
Our conclusion that petitioner is not the real party in
interest against whom this action should be prosecuted
makes it unnecessary to discuss the other issues raised by
him in this appeal.