Navarro vs. Escobido

The registered owner of a sole proprietorship is the real party-in-interest in actions based on contracts executed in the trade name's behalf, since a sole proprietorship has no juridical personality separate from its owner. When the sole proprietorship is presumptively conjugal property, either spouse may bring an action for recovery of co-owned property without the other being an indispensable party, and the non-joinder of parties — indispensable or otherwise — is not a ground for dismissal of an action.

Karen T. Go is a resident of Cagayan de Oro City doing business under the trade name Kargo Enterprises, a sole proprietorship engaged in buying and selling motor vehicles, including hauling trucks and heavy equipment. She is married to Glenn O. Go, who acted as manager of Kargo Enterprises and signed lease agreements with Roger Navarro on its behalf. The propriety of Karen Go's standing to sue in her own name, rather than her husband's, and the conjugal or paraphernal character of the business, became the central legal questions in the proceedings below.

On September 12, 1998, Karen T. Go, doing business under the trade name Kargo Enterprises, filed two complaints before the RTC of Misamis Oriental, Cagayan de Oro City, for replevin and/or sum of money with damages against Roger V. Navarro. The complaints sought the issuance of writs of replevin for the seizure of two motor vehicles in Navarro's possession. Kargo Enterprises was engaged in buying and selling motor vehicles, including hauling trucks and heavy equipment, and was registered solely in Karen Go's name. The first complaint alleged that on August 8, 1997, Navarro leased a Fuso truck with mounted crane (Plate No. GHK-378) pursuant to a Lease Agreement with Option to Purchase executed between Glenn O. Go, representing Kargo Enterprises as its manager, and Navarro. Under the agreement, Navarro delivered six post-dated checks of ₱66,333.33 each as rental payments; however, the fifth and sixth checks, dated January 8, 1998 and February 8, 1998, were dishonored for insufficient funds, leaving an unpaid balance of ₱132,666.66. The second complaint involved a similar lease agreement dated October 1, 1997 for another Fuso truck with mounted crane, under which Navarro issued three post-dated checks of ₱100,000.00 each, the third of which was dishonored upon presentment.

On October 12 and 14, 1998, the RTC issued writs of replevin for both cases, and the Sheriff seized the two vehicles and delivered them to Karen Go. In his Answers, Navarro raised as a special affirmative defense that the complaints stated no cause of action because Karen Go was not a party to the lease agreements — the actionable documents on which the complaints were based — since these were signed by Glenn Go. Both cases were consolidated on December 13, 1999 on Navarro's motion.

On May 8, 2000, the RTC dismissed the case on the ground that the complaints did not state a cause of action. Upon Karen Go's motion for reconsideration, however, the RTC issued its July 26, 2000 order setting aside the dismissal. Acting on the presumption that Glenn Go's leasing business was conjugal property, the RTC held that Karen Go had sufficient interest to file the action but should have included her husband as co-plaintiff under Section 4, Rule 3 of the Rules of Court. The RTC denied Navarro's motion for reconsideration on March 7, 2001. Navarro then elevated the matter to the CA via petition for certiorari, contending that the RTC committed grave abuse of discretion in reconsidering the dismissal and directing the amendment to include Glenn Go. The CA denied the petition on October 16, 2001 and the motion for reconsideration on May 29, 2002, prompting the present petition. Notably, Navarro admitted in his Answers that he had received demand letters from Karen Go requiring him to either pay his unpaid obligations or return the leased vehicles.

• Real Party-in-Interest: Navarro argued that because Kargo Enterprises, as a sole proprietorship, lacked juridical personality to sue, the actual parties to the lease agreements were himself and Glenn Go, who signed the agreements. Since Karen Go filed the complaints and not Glenn Go, she was not a real party-in-interest and the complaints failed to state a cause of action.
• Amendment Cannot Cure Lack of Cause of Action: Navarro maintained that the RTC erred in ordering the amendment of the complaint to include Glenn Go as co-plaintiff instead of dismissing outright, because a complaint that does not state a cause of action cannot be converted into one with a cause of action by mere amendment or supplemental pleading.
• Conjugal vs. Paraphernal Property: Navarro contended that since Karen Go was the registered owner of Kargo Enterprises, the vehicles subject of the complaint were her paraphernal properties, and the RTC gravely abused its discretion in assuming they were conjugal property and ordering the inclusion of Glenn Go as co-plaintiff.
• Violation of Rule 10: Navarro faulted the lower court for setting the trial of the case in the same order that required Karen Go to amend her complaints, claiming this violated Rule 10 of the Rules of Court.
• Premature Filing: Navarro maintained that even assuming the complaints stated a cause of action, they were premature because no prior demand was made on him to comply with the lease agreements before the replevin complaints were filed.
• Illegal Seizure: Navarro posited that since the writs of replevin were issued based on flawed complaints, the vehicles were illegally seized from his possession and should be returned immediately.

• Real Party-in-Interest: Karen Go countered that it was misleading for Navarro to claim she had no real interest in the subject of the complaint, as she was the owner of Kargo Enterprises and Glenn Go signed the lease agreements merely as its manager.
• Conjugal Property Presumption: Karen Go maintained that Navarro's insistence that Kargo Enterprises was her paraphernal property was without basis, since all property acquired during the marriage is presumed to be conjugal property under law and jurisprudence.
• Sufficiency of Cause of Action: Karen Go insisted that her complaints sufficiently established a cause of action against Navarro, and the RTC's order to include her husband as co-plaintiff was merely to comply with the rule that spouses should sue jointly, not to cure any lack of cause of action.

• Real Party-in-Interest: Whether Karen Go, as the registered owner of the sole proprietorship Kargo Enterprises, is a real party-in-interest in actions based on lease agreements signed by her husband Glenn Go as manager of Kargo Enterprises.
• Conjugal Property Character: Whether Kargo Enterprises and the properties registered under its name are conjugal or paraphernal property, and whether either spouse may independently bring an action for recovery of such property.
• Non-Joinder of Parties: Whether the non-joinder of Glenn Go as co-plaintiff is a ground for dismissal of the action, or whether the RTC properly ordered his inclusion.
• Prior Demand for Replevin: Whether prior demand is a condition precedent to the filing of an action for a writ of replevin.

• Real Party-in-Interest: Yes. As the registered owner of Kargo Enterprises, a sole proprietorship without juridical personality, Karen Go is the party who stands to be benefited or injured by the judgment and is therefore the real party-in-interest under Section 2, Rule 3 of the Rules of Court.
• Conjugal Property Character: Kargo Enterprises is presumptively conjugal property, and either spouse may bring an action for recovery of co-owned property. The presumption of conjugality under Article 116 of the Family Code applies, and under Article 1811 of the Civil Code applied suppletorily, both spouses are co-owners with equal right to seek possession.
• Non-Joinder of Parties: No, non-joinder is not a ground for dismissal. Glenn Go is not an indispensable party but at most a pro-forma party under Section 4, Rule 3; even if he were indispensable, non-joinder of indispensable parties is not a ground for dismissal under Section 11, Rule 3.
• Prior Demand for Replevin: No. Prior demand is not a condition precedent to an action for a writ of replevin under Section 2, Rule 60 of the Rules of Court; moreover, Navarro admitted in his Answers that he had received demand letters from Karen Go.

• Real Party-in-Interest: A sole proprietorship is neither a natural person nor a juridical person under Article 44 of the Civil Code and therefore cannot be a party to a civil action under Section 1, Rule 3. Following Juasing Hardware vs. Mendoza, the proper party to file an action based on a contract in the name of a sole proprietorship is the owner thereof. The lease agreements expressly identified Glenn Go as signing "representing Kargo Enterprises as its Manager," making Kargo Enterprises — and by extension its registered owner, Karen Go — the principal. Since Karen Go is the registered owner, she is the party who will directly benefit from or be injured by judgment, satisfying the real party-in-interest requirement under Section 2, Rule 3. The absence of her name from the lease agreements does not negate her standing, because Glenn Go signed only in a representative capacity.

• Conjugal Property Character: The registration of the trade name in Karen Go's name alone does not conclusively establish paraphernal ownership. Under Article 116 of the Family Code and Article 160 of the Civil Code, all property acquired during the marriage is presumed conjugal unless the contrary is proved. The records contained no proof that Kargo Enterprises was paraphernal — only Navarro's bare allegation. Under Article 124 of the Family Code, administration and enjoyment of conjugal property belong to both spouses jointly, allowing either to act in matters of administration without the other's consent. Article 108 of the Family Code directs that the conjugal partnership be governed suppletorily by the rules on partnership; Article 1811 of the Civil Code therefor makes the spouses co-owners of specific partnership property with equal rights to possess it. Applying Article 487 of the Civil Code, as interpreted in Carandang vs. Heirs of De Guzman, any co-owner may bring an action for recovery of co-owned property without joining all other co-owners, since the suit is presumed filed for the benefit of all. Thus, either spouse Go may sue Navarro to recover possession of the leased vehicles.

• Non-Joinder of Parties: Glenn Go is not strictly an indispensable party because either spouse may independently bring the recovery action. He need only be impleaded as a pro-forma party under Section 4, Rule 3, which requires husband and wife to sue or be sued jointly. Even assuming Glenn Go were indispensable, Section 11, Rule 3 provides that neither misjoinder nor non-joinder of parties is a ground for dismissal. Under Macababbad vs. Masirag and Domingo vs. Scheer, the proper remedy is to order the inclusion of the omitted party at any stage of the proceedings; dismissal follows only upon unjustified refusal to comply with such order. The RTC's July 26, 2000 order requiring Karen Go to join her husband was therefore fully proper.

• Prior Demand for Replevin: Section 2, Rule 60 of the Rules of Court requires only that the applicant file an affidavit and bond showing ownership or entitlement to possession, wrongful detention by the adverse party, that the property has not been seized under legal process, and the property's actual market value. Nothing in these requisites requires prior demand on the possessor before filing. Navarro's analogy to unlawful detainer was therefore misplaced. Furthermore, Navarro had already admitted in his Answers that he received Karen Go's demand letters requiring payment or return of the vehicles, rendering his demand argument wholly unmeritorious.

• Sole Proprietorship Lacks Juridical Personality — A sole proprietorship is neither a natural person nor a juridical person under Article 44 of the Civil Code and cannot sue or be sued in its own name. The proper party to an action based on a contract executed in the trade name's behalf is the registered owner of the sole proprietorship. The Court applied this rule by recognizing Karen Go, as the registered owner of Kargo Enterprises, as the real party-in-interest despite the lease agreements having been signed by her husband as manager.

• Presumption of Conjugal Property — All property acquired during the marriage is presumed conjugal unless the contrary is proved, regardless of whether the acquisition appears to have been made, contracted, or registered in the name of one or both spouses. The presumption applies even when the manner of acquisition does not appear. The Court applied this presumption to Kargo Enterprises, registered solely in Karen Go's name, in the absence of any proof of paraphernal character.

• Co-Owner's Right to Sue for Recovery of Co-Owned Property — Under Article 487 of the Civil Code and related jurisprudence, any co-owner may bring an action for recovery of co-owned property without the necessity of joining all other co-owners, because the suit is presumed to have been filed for the benefit of all co-owners. Only the co-owner who filed the suit is an indispensable party; the others are neither indispensable nor necessary parties. The Court applied this doctrine to hold that either spouse Go could independently sue Navarro for recovery of the leased vehicles.

• Non-Joinder of Parties Not Ground for Dismissal — Under Section 11, Rule 3 of the Rules of Court, neither misjoinder nor non-joinder of parties — including indispensable parties — is a ground for dismissal of an action. The proper remedy is to order the inclusion of the omitted party; dismissal follows only upon unjustified refusal to comply.

• Prior Demand Not Required for Replevin — Section 2, Rule 60 of the Rules of Court does not require prior demand on the possessor as a condition precedent to the filing of an action for a writ of replevin. The requisites are limited to the applicant's affidavit and bond showing ownership or entitlement to possession, wrongful detention, absence of prior legal seizure, and the property's market value.

• "As the registered owner of Kargo Enterprises, Karen Go is the party who will directly benefit from or be injured by a judgment in this case. Thus, contrary to Navarro's contention, Karen Go is the real party-in-interest, and it is legally incorrect to say that her Complaint does not state a cause of action because her name did not appear in the Lease Agreement that her husband signed in behalf of Kargo Enterprises." — This passage articulates the ratio decidendi on the real party-in-interest issue, establishing that the owner of a sole proprietorship has standing to sue on contracts executed in the trade name's behalf even though she did not personally sign them.

• "In sum, in suits to recover properties, all co-owners are real parties in interest. However, pursuant to Article 487 of the Civil Code and relevant jurisprudence, any one of them may bring an action, any kind of action, for the recovery of co-owned properties. Therefore, only one of the co-owners, namely the co-owner who filed the suit for the recovery of the co-owned property, is an indispensable party thereto." — This quotation, drawn from the Court's citation of Carandang vs. Heirs of De Guzman, defines the canonical formulation of the co-owner's right to sue independently for recovery of co-owned property.

• "We see nothing in these provisions which requires the applicant to make a prior demand on the possessor of the property before he can file an action for a writ of replevin. Thus, prior demand is not a condition precedent to an action for a writ of replevin." — This passage establishes the rule that prior demand is not a statutory prerequisite for replevin under Rule 60, distinguishing it from ejectment actions where demand is required.

• Juasing Hardware vs. Mendoza, 201 Phil. 369 (1982) — Followed. Established that a sole proprietorship cannot sue in court and that the complaint must be filed in the name of the owner, with the descriptive words "doing business as" added to the title. The Court applied this rule to identify Karen Go as the proper party.

• Carandang vs. Heirs of De Guzman, G.R. No. 160347, November 29, 2006, 508 SCRA 469 — Followed. Held that co-owners of conjugal property may separately bring actions for recovery thereof without joining all other co-owners, since the suit is presumed filed for the benefit of all. The Court applied this ruling to hold that either spouse Go could sue Navarro independently.

• Castro vs. Miat, 445 Phil. 284 (2003) — Followed. Reiterated the presumption of conjugality under Article 160 of the Civil Code, which applies even when the manner of property acquisition does not appear. The Court relied on this to presume Kargo Enterprises was conjugal property.

• Macababbad vs. Masirag, G.R. No. 161237, January 14, 2009 — Followed. Held that non-joinder or misjoinder of parties is not a ground for dismissal under Section 11, Rule 3, and that the proper remedy is to order inclusion of the omitted party. The Court applied this to uphold the RTC's order requiring Glenn Go's inclusion.

• Domingo vs. Scheer, 466 Phil. 235 (2004) — Followed. Held that the court may order inclusion of an indispensable party at any stage of the action, and that dismissal follows only upon unjustified refusal to comply. The Court cited this to support the propriety of the RTC's amendment order.

• Section 2, Rule 3, Rules of Court — Defines a real party-in-interest as the party who stands to be benefited or injured by the judgment, and requires every action to be prosecuted or defended in the name of the real party-in-interest. Applied to identify Karen Go as the proper plaintiff.

• Section 1, Rule 3, Rules of Court — Provides that only natural or juridical persons or entities authorized by law may be parties in a civil action. Applied to establish that Kargo Enterprises, as a sole proprietorship, cannot be a party to a civil action.

• Section 4, Rule 3, Rules of Court — Requires husband and wife to sue or be sued jointly, except as provided by law. Applied to justify the RTC's order to include Glenn Go as co-plaintiff, though as a pro-forma rather than indispensable party.

• Section 11, Rule 3, Rules of Court — Provides that neither misjoinder nor non-joinder of parties is a ground for dismissal of an action. Applied to hold that even if Glenn Go were indispensable, the action could not be dismissed for his non-joinder.

• Section 2, Rule 60, Rules of Court — Sets forth the requisites for issuance of a writ of replevin: an affidavit showing ownership or entitlement to possession, wrongful detention, absence of prior legal seizure, and market value, plus a bond in double the property's value. Applied to hold that prior demand is not among the requisites.

• Article 44, Civil Code — Enumerates juridical persons (the State and political subdivisions, public corporations and entities, and private corporations, partnerships, and associations). Applied to confirm that a sole proprietorship is not a juridical person.

• Article 116, Family Code — Presumes all property acquired during the marriage to be conjugal unless the contrary is proved. Applied to presume Kargo Enterprises was conjugal property.

• Article 124, Family Code — Provides that administration and enjoyment of conjugal partnership property belong to both spouses jointly, allowing either spouse to act in matters of administration without the other's consent. Applied to support either spouse's authority to bring the recovery action.

• Article 108, Family Code — Provides that the conjugal partnership is governed by the rules on partnership in all matters not in conflict with the Family Code or marriage settlements. Applied suppletorily to bring partnership rules to bear on the spouses' property relations.

• Article 1811, Civil Code — Provides that a partner is a co-owner with other partners of specific partnership property, with equal right to possess such property for partnership purposes. Applied to make the spouses Go co-owners of Kargo Enterprises and its properties.

• Article 487, Civil Code — Allows any co-owner to bring an action in ejectment for recovery of co-owned property. Applied, following jurisprudence, to extend to all kinds of actions for recovery of possession, supporting either spouse's independent standing to sue.

Antonio T. Carpio (Chairperson), Teresita J. Leonardo-De Castro, Mariano C. Del Castillo, and Roberto A. Abad concurred in the decision. No separate concurring opinions were written.