FIRST DIVISION
G.R. No. 193138, August 20, 2018
ANICETO G. SALUDO, JR., Petitioner, v. PHILIPPINE NATIONAL BANK, Respondent.
D E C I S I O N
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.PNB filed its motion for reconsideration26 dated February 5, 2007, alleging that SAFA Law Office should be included as a co-plaintiff because it is the principal party to the contract of lease, the one that occupied the leased premises, and paid the monthly rentals and security deposit. In other words, it was the main actor and direct beneficiary of the contract. Hence, it is the real party-in-interest.27 The RTC, however, denied the motion for reconsideration in an Order28 dated March 8, 2007.
Consequently, 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
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.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
SO ORDERED.31
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.Hence, this petition, where Saludo raises the following issues for our resolution:
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 xx x x x
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
The petition is bereft of merit.(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
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[.]46The 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.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.x x x x
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.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. AGPALOFILEMON L. FERNANDEZAMADO D. AQUINO
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.
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: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."(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
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 xOn 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 xIndeed, 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.
Rule 3, §2 of the Rules of Court of 1964, under which the complaint in this case was filed, provided that "every action must be prosecuted and defended in the name of the real party in interest." A real party in interest is one who would be benefited or injured by the judgment, or who is entitled to the avails of the suit. This ruling is now embodied in Rule 3, §2 of the 1997 Revised Rules of Civil Procedure. Any decision rendered against a person who is not a real party in interest in the case cannot be executed. Hence, a complaint filed against such a person should be dismissed for failure to state a cause of action.In 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.
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
Endnotes:
* Designated as Acting Chairperson of the First Division per Special Order No. 2582 (Revised) dated August 8, 2018.
** Designated as Acting Member of the First Division per Special Order No. 2560 (Revised) dated May 11, 2018.
1Rollo, pp. 102-150.
2Id. at 152-165. Penned by Associate Justice Fiorito S. Macalino, with Associate Justices Hakim S. Abdulwahid and Normandie B. Pizarro, concurring.
3Id. at 167-169.
4Id. at 272-273. Issued by Presiding Judge Eugene C. Paras.
5 CA rollo, pp. 85-90.
6Id. at 85.
7Rollo, p. 216.
8Id. at 153; CA rollo, p. 100.
9Rollo, pp. 226-227.
10 CA rollo, p. 143.
11Id. at 144.
12Id. at 94-96.
13Id. at 101.
14Id. at 145.
15Rollo, pp. 227-228.
16 CA rollo, pp. 146-147.
17Rollo, pp. 194-211.
18 CA rollo, pp. 120-123.
19Id. at 121.
20Id. at 124-141.
21Id. at 138.
22Id. at 137-138.
23Rollo, pp. 237-271.
24Id. at 239.
25Id. at 272-273. Emphasis in the original.
26Id. at 274-279.
27Id. at 275-277.
28Id. at 300.
29Id. at 301-326.
30Supra note 2.
31Rollo, p. 164.
32Id. at 157.
33 CA rollo, pp. 103-105.
34Rollo, pp. 158-159.
35Id. at 160-161.
36 Sec. 15. Entity without juridical personality as defendant. - When two or more persons not organized as an entity with juridical personality enter into a transaction, they may be sued under the name by which they are generally or commonly known.
x x x x
37Rollo, p. 162.
38 Sec. 12. Bringing new parties. - When the presence of parties other than those to the original action is required for the granting of complete relief in the determination of a counterclaim or cross-claim, the court shall order them to be brought in as defendants, if jurisdiction over them can be obtained.
39Rollo, pp. 162-163.
40Id. at 163-164.
41Id. at 170-191.
42Id. at 449-454.
43Id. at 167-169. Citations omitted.
44Id. at 110-111.
45 CA rollo, pp. 202-213.
46Id. at 204.
47Id. at 206.
48Id. at 207.
49Id. at 206, 210.
50 Item V of the Articles of Partnership provides:
The term for which the partnership is to exist shall be for an indefinite period from date hereof, until dissolved for any cause recognized by law. Id. at 205.
51Id. at 207.
52 Item X of the Articles of Partnership provides:
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. Id. at 212.
53Id. at 103-105. Italics and emphasis in the original.
54 Emphasis supplied.
55 CA rollo, p. 85. Italics supplied.
56 The lease contract provides:SECTION 12. DEFAULT AND SURRENDER OF LEASED PREMISES57Id. at 91-102.x x x x
In addition[,] the Lessee shall pay the Lessor (i) all accrued and unpaid rents and penalty charges; (ii) all expenses incurred by the Lessor in repossessing and [clearing] the Leased Premises; and (iii) any other damages incurred by the Lessor due to the default of the Lessee. Id. at 88.
58Id. at 160-161.
59 July 30, 1979, 92 SCRA 1.
60Id. at 9.
61 Cited as 184 NE 2d 779, 783. Id.
62 See Republic v. Gingoyon, G.R. No. 166429, December 19, 2005, 478 SCRA 474.
63Advincula-Velasquez v. Court of Appeals, G.R. No. 111387, June 8, 2004, 431 SCRA 165, 188, citing Auyong Hian v. Court of Tax Appeals, G.R. No. L-28782, September 12, 1974, 59 SCRA 110, 120 and People v. Macadaeg, 91 Phil. 410, 413 (1952).
64Petition for Authority to Continue Use of the Firm Name "Sycip, Salazar, Feliciano, Hernandez & Castillo," supra at 59.
65Id. at 7.
66 417 U.S. 85 (1974).
67Id. at 97.
68Id. at 101.
69 44 Phil. 916 (1922).
70Id. at 918.
71 G.R. No. L-25532, February 28, 1969, 27 SCRA 152.
72Id. at 158.
73 G.R. No. L-60937, May 28, 1988, 161 SCRA 589.
74Id. at 595. Italics supplied.
75 G.R. No. 206147, January 13, 2016, 780 SCRA 579.
76Id. at 593.
77 G.R. No. 127347, November 25, 1999, 319 SCRA 246.
78Id. at 253-254. Citations omitted.
79 Sec. 11. Misjoinder and non-joinder of parties. - Neither misjoinder nor non-joinder of parties is ground for dismissal of an action. Parties may be dropped or added by order of the court on motion of any party or on its own initiative at any stage of the action and on such terms as are just. Any claim against a misjoined party may be severed and proceeded with separately.
80 See Salvador v. Court of Appeals, G.R. No. 109910, April 5, 1995, 243 SCRA 239, 257; Domingo v. Scheer, G.R. No. 154745, January 29, 2004, 421 SCRA 468, 484; and Pacaña Contreras v. Rovila Water Supply, Inc., G.R. No. 168979, December 2, 2013, 711 SCRA 219, 244.
*** Per Sec. 12 of Republic Act No. 296, The Judiciary Act of 1948, as amended.