Aguila vs. Court of Appeals

A suit concerning property registered in the name of a partnership must be prosecuted against the partnership itself, which has a juridical personality separate and distinct from its partners, officers, or agents, and not against its manager personally absent proof that the separate personality is being used for fraudulent, unfair, or illegal purposes.

Petitioner Alfredo N. Aguila, Jr. is the manager of A.C. Aguila & Sons, Co., a partnership engaged in lending activities. Private respondent Felicidad S. Vda. de Abrogar and her late husband Ruben M. Abrogar were the registered owners of a house and lot covered by Transfer Certificate of Title No. 195101 in Marikina, Metro Manila. The governing framework invoked was Rule 3, Sec. 2 of the Rules of Court requiring suit in the name of the real party in interest, and Article 1768 of the Civil Code recognizing the separate juridical personality of a partnership.

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 under which the partnership would buy the Marikina house and lot for P200,000.00 pursuant to a deed of absolute sale, with private respondent given the option to repurchase within ninety days from April 18, 1991 for P230,000.00. The agreement further required delivery of peaceful possession within fifteen days after expiration of the 90-day period if the option was not exercised, barred annotation of claims during the grace period, imposed P10,000.00 per month as rentals and liquidated damages for delay in delivery, and provided that non-exercise of the option would render the deed of absolute sale the final contract and allow transfer of ownership to the partnership free from liens and encumbrances.

On the same day, April 18, 1991, the parties likewise executed a deed of absolute sale dated June 11, 1991 selling the property to A.C. Aguila & Sons, Co. for P200,000.00, and private respondent executed a special power of attorney authorizing petitioner to cause cancellation of TCT No. 195101 and issuance of a new title in the partnership's name in the event of failure to redeem as provided in the Memorandum of Agreement. Private respondent failed to redeem within the 90-day period, whereupon petitioner caused cancellation of TCT No. 195101 and issuance of a new certificate in the name of A.C. Aguila & Sons, Co. Thereafter, counsel for the partnership demanded in a letter dated August 10, 1991 that private respondent vacate within fifteen days, and upon refusal the partnership filed an ejectment case in which it prevailed.

On December 4, 1993, private respondent filed a petition for declaration of nullity of the deed of sale with the Regional Trial Court, Branch 273, Marikina, alleging her husband's signature was forged because he had already died when the deed was supposedly executed on June 11, 1991. According to her, her husband Ruben Abrogar died on May 8, 1991 and she was then recuperating at the Quezon City Medical Center from wounds suffered in the same vehicular accident, so they could not have appeared before Notary Public Lamberto C. Nanquil on June 11, 1991. The trial court found, however, that the Memorandum of Agreement, Special Power of Attorney, and Deed of Absolute Sale were all signed on April 18, 1991 as a common lending practice of securing loans with undated deeds of sale, and that private respondent never denied receiving the P200,000.00 loan.

• Real Party in Interest: Petitioner argued that he is not the real party in interest but A.C. Aguila & Sons, Co. is, against which the case should have been brought, since title is in the partnership's name and the Memorandum of Agreement was executed with the partnership represented by him.
• Bar by Prior Ejectment Judgment: Petitioner argued that the judgment in the ejectment case bars the filing of the complaint for declaration of nullity of deed of sale in this case.
• Nature of Contract as Pacto de Retro: Petitioner argued that 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.

• Real Party in Interest: Whether petitioner, as manager of A.C. Aguila & Sons, Co., is the real party in interest against whom the action for declaration of nullity of deed of sale involving partnership property should be prosecuted.
• Bar by Ejectment Judgment: Whether the judgment in the ejectment case bars the subsequent complaint for declaration of nullity of the deed of sale.
• Nature of Contract: Whether the contract between A.C. Aguila & Sons, Co. and private respondent is a pacto de retro sale or an equitable mortgage constituting pactum commissorium.

• Real Party in Interest: No. Petitioner is not the real party in interest, the partnership having a separate juridical personality and being the registered owner and contracting party, so the complaint against petitioner must be dismissed.
• Bar by Ejectment Judgment: Unresolved. Resolution was deemed unnecessary and was expressly pretermitted upon dismissal for lack of real party in interest.
• Nature of Contract: Unresolved. Resolution was deemed unnecessary and was expressly pretermitted upon dismissal for lack of real party in interest.

• Real Party in Interest: Every action must be prosecuted and defended in the name of the real party in interest, defined as one who would be benefited or injured by the judgment or entitled to the avails of the suit, and any decision against a non-real party cannot be executed so that a complaint against such person should be dismissed for failure to state a cause of action. Under Article 1768 of the Civil Code, a partnership has a juridical personality separate and distinct from each partner, and partners, officers, or agents cannot be held liable for partnership obligations absent proof the fiction is used for fraudulent, unfair, or illegal purposes. Applied here, title to the subject property is in the name of A.C. Aguila & Sons, Co., the Memorandum of Agreement was executed between private respondent and the partnership represented by petitioner, and no fraudulent, unfair, or illegal use of the separate personality was shown, making the partnership the proper defendant.
• Bar by Ejectment Judgment: No ratio was articulated because disposition on the real-party-in-interest ground was held dispositive, rendering discussion of the alleged preclusive effect of the ejectment judgment unnecessary.
• Nature of Contract: No ratio was articulated because disposition on the real-party-in-interest ground was held dispositive, rendering discussion of whether the transaction was a pacto de retro sale or an equitable mortgage and pactum commissorium unnecessary.

• 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, and every action must be prosecuted and defended in such party's name. Applied here, the manager sued personally was not the real party where the contract and title involved the partnership he merely represented.
• Unenforceability of judgment against non-real party; dismissal for failure to state a cause of action — A decision rendered against a person who is not a real party in interest cannot be executed, and a complaint filed against such person should be dismissed for failure to state a cause of action. Applied here, the complaint against the manager could not stand and was ordered dismissed.
• Separate juridical personality of partnership — Under Article 1768 of the Civil Code, a partnership has a juridical personality separate and distinct from that of each partner, and partners cannot be held liable for partnership obligations unless the fiction is shown to be used for fraudulent, unfair, or illegal purposes. Applied here, absent such showing, litigation over property registered in the name of A.C. Aguila & Sons, Co. had to be brought against the partnership, not its manager.

• "every action must be prosecuted and defended in the name of the real party in interest." — States the controlling procedural rule under Rule 3, Sec. 2 under which the complaint was tested for proper party.
• "has a juridical personality separate and distinct from that of each of the partners." — Defines the partnership status under Article 1768 that precluded personal liability of the manager absent fraud or misuse.
• "Any decision rendered against a person who is not a real party in interest in the case cannot be executed." — Explains why suit against the wrong defendant requires dismissal rather than adjudication on the merits.
• "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." — Limits the ratio decidendi to the procedural ground and pretermits the ejectment-bar and contract-characterization issues.

• Salonga vs. Warner Barnes & Co., Ltd., 88 Phil. 125 (1951) — Cited as authority for the definition of a real party in interest as one benefited or injured by the judgment or entitled to the avails of the suit.
• Smith, Bell & Co., Inc. vs. Court of Appeals, 267 SCRA 530 (1997) — Cited for the rule that a decision against one who is not a real party in interest cannot be executed.
• Columbia Pictures, Inc. vs. Court of Appeals, 261 SCRA 144 (1996) — Cited for the rule that a complaint against one who is not a real party in interest should be dismissed for failure to state a cause of action.
• McConnel vs. Court of Appeals, 111 Phil. 310 (1961) — Cited for the rule that partners cannot be held liable for partnership obligations unless the separate juridical fiction is used for fraudulent, unfair, or illegal purposes.
• City of Bacolod vs. Gruet, 116 Phil. 1005 (1962) — Cited for the consequence that failure to implead the partnership in litigation involving its registered property results in dismissal.

• Rule 3, Sec. 2, Rules of Court of 1964 (now Rule 3, Sec. 2, 1997 Revised Rules of Civil Procedure) — Requires every action to be prosecuted and defended in the name of the real party in interest; applied to hold that the manager was not the proper defendant and the complaint must be dismissed.
• Article 1768, Civil Code — Provides that a partnership has a juridical personality separate and distinct from each partner; applied to hold that A.C. Aguila & Sons, Co., as title holder and contracting party, and not its manager, should have been impleaded absent proof of fraudulent, unfair, or illegal use of the fiction.

Bellosillo, Quisumbing, Buena and De Leon, Jr., JJ., concurred, with no separate concurring reasoning recorded.