Beruflich Dokumente
Kultur Dokumente
3. to pay the plaintiffs their lawful shares and participation in the net
profits of the business in an amount of no less than P l50,000.00 with
interest at the rate of 1% per month from date of demand until full
payment thereof for the entire duration of the business; and
GANCAYCO, J.:
By this petition for certiorari the Court is asked to determine if a partnership exists between
members of the same family arising from their joint ownership of certain properties.
Petitioner and private respondents are brothers and sisters who are co-owners of certain lots at
the corner of Annapolis and Aurora Blvd., QuezonCity which were then being leased to the
Shell Company of the Philippines Limited (SHELL). They agreed to open and operate a gas
station thereat to be known as Estanislao Shell Service Station with an initial investment of P
15,000.00 to be taken from the advance rentals due to them from SHELL for the occupancy of
the said lots owned in common by them. A joint affidavit was executed by them on April 11,
1966 which was prepared byAtty. Democrito Angeles 1 They agreed to help their brother,
petitioner herein, by allowing him to operate and manage the gasoline service station of the
family. They negotiated with SHELL. For practical purposes and in order not to run counter to
the company's policy of appointing only one dealer, it was agreed that petitioner would apply
for the dealership. Respondent Remedios helped in managing the bussiness with petitioner
from May 3, 1966 up to February 16, 1967.
After trial on the merits, on October 15, 1975, Hon. Lino Anover who was then the temporary
presiding judge of Branch IV of the trial court, rendered judgment dismissing the complaint
and counterclaim and ordering private respondents to pay petitioner P 3,000.00 attorney's fee
and costs. Private respondent filed a motion for reconsideration of the decision. On December
10, 1975, Hon. Ricardo Tensuan who was the newly appointed presiding judge of the same
branch, set aside the aforesaid derision and rendered another decision in favor of said
respondents.
The dispositive part thereof reads as follows:
WHEREFORE, the Decision of this Court dated October 14, 1975 is
hereby reconsidered and a new judgment is hereby rendered in favor of the
plaintiffs and as against the defendant:
On May 26, 1966, the parties herein entered into an Additional Cash Pledge Agreement with
SHELL wherein it was reiterated that the P 15,000.00 advance rental shall be deposited with
SHELL to cover advances of fuel to petitioner as dealer with a proviso that said agreement
"cancels and supersedes the Joint Affidavit dated 11 April 1966 executed by the co-owners." 2
For sometime, the petitioner submitted financial statements regarding the operation of the
business to private respondents, but therafter petitioner failed to render subsequent accounting.
Hence through Atty. Angeles, a demand was made on petitioner to render an accounting of the
profits.
The financial report of December 31, 1968 shows that the business was able to make a profit
of P 87,293.79 and that by the year ending 1969, a profit of P 150,000.00 was realized. 3
Thus, on August 25, 1970 private respondents filed a complaint in the Court of First Instance
of Rizal against petitioner praying among others that the latter be ordered:
(3) Ordering the defendant to pay plaintiffs their lawful shares and
participation in the net profits of the business in the amount of P
150,000.00, with interest thereon at the rate of One (1%) Per Cent per
month from date of demand until full payment thereof;
(4) Ordering the defendant to pay the plaintiffs the sum of P 5,000.00 by
way of attorney's fees of plaintiffs' counsel; as well as the costs of suit.
(pp. 161-162. Record on Appeal).
Petitioner then interposed an appeal to the Court of Appeals enumerating seven (7) errors
allegedly committed by the trial court. In due course, a decision was rendered by the Court of
Appeals on November 28,1978 affirming in toto the decision of the lower court with costs
against petitioner. *
A motion for reconsideration of said decision filed by petitioner was denied on January 30,
1979. Not satisfied therewith, the petitioner now comes to this court by way of this petition for
certiorari alleging that the respondent court erred:
1. In interpreting the legal import of the Joint Affidavit (Exh. 'A') vis-a-vis
the Additional Cash Pledge Agreement (Exhs. "B-2","6", and "L"); and
our estimate and one-half months from May 25, 1966 or until the 10th of
October, 1966 more or less;
(5) That we have likewise agreed among ourselves that the SHELL
COMPANY OF THE PHILIPPINES LIMITED execute an instrument for
us to sign embodying our conformity that the said amount that it will
generously grant us as requested be applied as ADVANCED RENTALS;
and
(6) FURTHER AFFIANTS SAYETH NOT.,
(b) The Additional Cash Pledge Agreement of May 20,1966, Exhibit 6, is as follows:
ARSENIO
T.
MENDIOLA, petitioner,
vs.
COURT OF APPEALS, NATIONAL LABOR RELATIONS COMMISSION, PACIFIC
FOREST RESOURCES, PHILS., INC. and/or CELLMARK AB, respondents.
DECISION
PUNO, J.:
On appeal are the Decision 1 and Resolution2 of the Court of Appeals, dated January 30, 2003
and July 30, 2003, respectively, in CA-G.R. SP No. 71028, affirming the ruling 3 of the
National Labor Relations Commission (NLRC), which in turn set aside the July 30, 2001
Decision4 of the labor arbiter. The labor arbiter declared illegal the dismissal of petitioner from
employment and awarded separation pay, moral and exemplary damages, and attorney's fees.
In July 2000, petitioner wrote Kevin Daley, Vice President for Asia of Pacfor, seeking
confirmation of his 50% equity of Pacfor Phils. 10 Private respondent Pacfor, through William
Gleason, its President, replied that petitioner is not a part-owner of Pacfor Phils. because the
latter is merely Pacfor-USA's representative office and not an entity separate and distinct from
Pacfor-USA. "It's simply a 'theoretical company' with the purpose of dividing the income 5050."11 Petitioner presumably knew of this arrangement from the start, having been the one to
propose to private respondent Pacfor the setting up of a representative office, and "not a
branch office" in the Philippines to save on taxes. 12
Petitioner claimed that he was all along made to believe that he was in a joint venture with
them. He alleged he would have been better off remaining as an independent agent or
representative of Pacfor-USA as ATM Marketing Corp. 13 Had he known that no joint venture
existed, he would not have allowed Pacfor to take the profitable business of his own company,
ATM Marketing Corp.14 Petitioner raised other issues, such as the rentals of office furniture,
salary of the employees, company car, as well as commissions allegedly due him. The issues
were not resolved, hence, in October 2000, petitioner wrote Pacfor-USA demanding payment
of unpaid commissions and office furniture and equipment rentals, amounting to more than
one million dollars.15
On November 27, 2000, private respondent Pacfor, through counsel, ordered petitioner to turn
over to it all papers, documents, files, records, and other materials in his or ATM Marketing
Corporation's possession that belong to Pacfor or Pacfor Phils. 16 On December 18, 2000,
private respondent Pacfor also required petitioner to remit more than three hundred thousandpeso Christmas giveaway fund for clients of Pacfor Phils. 17 Lastly, private respondent Pacfor
withdrew all its offers of settlement and ordered petitioner to transfer title and turn over to it
possession of the service car.18
Private respondent Pacfor likewise sent letters to its clients in the Philippines, advising them
not to deal with Pacfor Phils. In its letter to Intercontinental Paper Industries, Inc., dated
November 21, 2000, private respondent Pacfor stated:
Until further notice, please course all inquiries and communications for Pacific
Forest Resources (Philippines) to:
Pacific
200
Tamal
Corte
Madera,
(415)
927
(415) 381 4358 fax
Forest
Plaza,
CA,
Suite
USA
1700
Resources
200
94925
phone
Please do not send any communication to Mr. Arsenio "Boy" T. Mendiola or to the
offices of ATM Marketing Corporation at Room 504, Concorde Building, Legaspi
Village, Makati City, Philippines.19
In another letter addressed to Davao Corrugated Carton Corp. (DAVCOR), dated December
2000, private respondent directed said client "to please communicate directly with us on any
further questions associated with these payments or any future business. Do not communicate
with [Pacfor] and/or [ATM]."20
Labor Arbiter Felipe Pati ruled in favor of petitioner, finding there was constructive dismissal.
By directing petitioner to turn over all office records and materials, regardless of whether he
may have retained copies, private respondent Pacfor virtually deprived petitioner of his job by
the gradual diminution of his authority as resident manager. Petitioner's position as resident
manager whose duty, among others, was to maintain the security of its business transactions
and communications was rendered meaningless. The dispositive portion of the decision of the
Labor Arbiter reads:
WHEREFORE, premises considered, judgment is hereby rendered ordering herein
respondents Cellmark AB and Pacific Forest Resources, Inc., jointly and severally to
compensate complainant Arsenio T. Mendiola separation pay equivalent to at least
one month for every year of service, whichever is higher (sic), as reinstatement is no
longer feasible by reason of the strained relations of the parties equivalent to five (5)
months in the amount of $32,000.00 plus the sum of P250,000.00; pay complainant
the sum of P500,000.00 as moral and exemplary damages and ten percent (10%) of
the amounts awarded as and for attorney's fees.
All other claims are dismissed for lack of basis.
SO ORDERED.30
Private respondent Pacfor appealed to the NLRC which ruled in its favor. On December 20,
2001, the NLRC set aside the July 30, 2001 decision of the labor arbiter, for lack of
jurisdiction and lack of merit. 31 It held there was no employer-employee relationship between
the parties. Based on the two agreements between the parties, it concluded that petitioner is
not an employee of private respondent Pacfor, but a full co-owner (50/50 equity).
The NLRC denied petitioner's Motion for Reconsideration. 32
Petitioner was not successful on his appeal to the Court of Appeals. The appellate court upheld
the ruling of the NLRC.
Petitioner's Motion for Reconsideration33 of the decision of the Court of Appeals was denied.
Hence, this appeal.34
Petitioner assigns the following errors:
In the meantime, private respondent Pacfor lodged fresh charges against petitioner. In a
memorandum dated March 5, 2001, private respondent directed petitioner to explain why he
should not be disciplined for serious misconduct and conflict of interest. Private respondent
charged petitioner anew with serious misconduct for the latter's alleged act of fraud and
misrepresentation in authorizing the release of an additional peso salary for himself, besides
the dollar salary agreed upon by the parties. Private respondent also accused petitioner of
disloyalty and representation of conflicting interests for having continued using the Pacfor
Phils.' office for operations of HEPI. In addition, petitioner allegedly solicited business for
HEPI from a competitor company of private respondent Pacfor.29
A. The Respondent Court of Appeals committed reversible error and abused its
discretion in rendering judgment against petitioner since jurisdiction has been
acquired over the subject matter of the case as there exists employer-employee
relationship between the parties.
B. The Respondent Court of Appeals committed reversible error and abused its
discretion in ruling that jurisdiction over the subject matter cannot be waived and
may be alleged even for the first time on appeal or considered by the court motu
prop[r]io.35
The first issue is whether an employer-employee relationship exists between petitioner and
private respondent Pacfor.
Petitioner argues that he is an industrial partner of the partnership he formed with private
respondent Pacfor, and also an employee of the partnership. Petitioner insists that an industrial
partner may at the same time be an employee of the partnership, provided there is such an
agreement, which, in this case, is the "Side Agreement" and the "Revised Operating and Profit
Sharing Agreement." The Court of Appeals denied the appeal of petitioner, holding that "the
legal basis of the complaint is not employment but perhaps partnership, co-ownership, or
independent contractorship." Hence, the Labor Code cannot apply.
We hold that petitioner is an employee of private respondent Pacfor and that no partnership or
co-ownership exists between the parties.
In a partnership, the members become co-owners of what is contributed to the firm capital and
of all property that may be acquired thereby and through the efforts of the members. 36 The
property or stock of the partnership forms a community of goods, a common fund, in which
each party has a proprietary interest. 37 In fact, the New Civil Code regards a partner as a coowner of specific partnership property.38 Each partner possesses a joint interest in the whole of
partnership property. If the relation does not have this feature, it is not one of
partnership.39 This essential element, the community of interest, or co-ownership of, or joint
interest in partnership property is absent in the relations between petitioner and private
respondent Pacfor. Petitioner is not a part-owner of Pacfor Phils. William Gleason, private
respondent Pacfor's President established this fact when he said that Pacfor Phils. is simply a
"theoretical company" for the purpose of dividing the income 50-50. He stressed that
petitioner knew of this arrangement from the very start, having been the one to propose to
private respondent Pacfor the setting up of a representative office, and "not a branch office" in
the Philippines to save on taxes. Thus, the parties in this case, merely shared profits. This
alone does not make a partnership.40
Besides, a corporation cannot become a member of a partnership in the absence of express
authorization by statute or charter.41 This doctrine is based on the following considerations: (1)
that the mutual agency between the partners, whereby the corporation would be bound by the
acts of persons who are not its duly appointed and authorized agents and officers, would be
inconsistent with the policy of the law that the corporation shall manage its own affairs
separately and exclusively; and, (2) that such an arrangement would improperly allow
corporate property to become subject to risks not contemplated by the stockholders when they
originally invested in the corporation.42 No such authorization has been proved in the case at
bar.
Be that as it may, we hold that on the basis of the evidence, an employer-employee
relationship is present in the case at bar. The elements to determine the existence of an
employment relationship are: (a) the selection and engagement of the employee; (b) the
payment of wages; (c) the power of dismissal; and (d) the employer's power to control the
employee's conduct. The most important element is the employer's control of the employee's
conduct, not only as to the result of the work to be done, but also as to the means and methods
to accomplish it.43
In the instant case, all the foregoing elements are present. First, it was private respondent
Pacfor which selected and engaged the services of petitioner as its resident agent in the
Philippines. Second, as stipulated in their Side Agreement, private respondent Pacfor pays
petitioner his salary amounting to $65,000 per annum which was later increased to $78,000.
Third, private respondent Pacfor holds the power of dismissal, as may be gleaned through the
various memoranda it issued against petitioner, placing the latter on preventive suspension
while charging him with various offenses, including willful disobedience, serious misconduct,
and gross neglect of duty, and ordering him to show cause why no disciplinary action should
be taken against him.
Lastly and most important, private respondent Pacfor has the power of control over the means
and method of petitioner in accomplishing his work.
The power of control refers merely to the existence of the power, and not to the actual exercise
thereof. The principal consideration is whether the employer has the right to control the
manner of doing the work, and it is not the actual exercise of the right by interfering with the
work, but the right to control, which constitutes the test of the existence of an employeremployee relationship.44 In the case at bar, private respondent Pacfor, as employer, clearly
possesses such right of control. Petitioner, as private respondent Pacfor's resident agent in the
Philippines, is, exactly so, only an agent of the corporation, a representative of Pacfor, who
transacts business, and accepts service on its behalf.
This right of control was exercised by private respondent Pacfor during the period of
November to December 2000, when it directed petitioner to turn over to it all records of
Pacfor Phils.; when it ordered petitioner to remit the Christmas giveaway fund intended for
clients of Pacfor Phils.; and, when it withdrew all its offers of settlement and ordered
petitioner to transfer title and turn over to it the possession of the service car. It was also
during this period when private respondent Pacfor sent letters to its clients in the Philippines,
particularly Intercontinental Paper Industries, Inc. and DAVCOR, advising them not to deal
with petitioner and/or Pacfor Phils. In its letter to DAVCOR, private respondent Pacfor replied
to the client's request for an invoice payment extension, and formulated a revised payment
program for DAVCOR. This is one unmistakable proof that private respondent Pacfor
exercises control over the petitioner.
Next, we shall determine if petitioner was constructively dismissed from employment.
The evidence shows that when petitioner insisted on his 50% equity in Pacfor Phils., and
would not quit however, private respondent Pacfor began to systematically deprive petitioner
of his duties and benefits to make him feel that his presence in the company was no longer
wanted. First, private respondent Pacfor directed petitioner to turn over to it all records of
Pacfor Phils. This would certainly make the work of petitioner very difficult, if not impossible.
Second, private respondent Pacfor ordered petitioner to remit the Christmas giveaway fund
intended for clients of Pacfor Phils. Then it ordered petitioner to transfer title and turn over to
it the possession of the service car. It also advised its clients in the Philippines, particularly
Intercontinental Paper Industries, Inc. and DAVCOR, not to deal with petitioner and/or Pacfor
Phils. Lastly, private respondent Pacfor appointed a new resident agent for Pacfor Phils. 45
Although there is no reduction of the salary of petitioner, constructive dismissal is still present
because continued employment of petitioner is rendered, at the very least,
In June , 1946, they executed a supplementary agreement, extending the partnership for a
period of three years beginning January 1, 1948 to December 31, 1950. The benefits are to be
divided between them at the rate of 50-50 and after December 31, 1950, the showhouse
building
shall
belong
exclusively
to
the
second
party,
Mrs.
Yulo.chanroblesvirtualawlibrary chanrobles virtual law library
EN BANC
G.R. No. L-12541 August 28, 1959
ROSARIO U. YULO, assisted by her husband JOSE C. YULO, Plaintiffs-Appellants,
vs.YANG CHIAO SENG, Defendant-Appellee.
Punzalan,
Yabut,
Eusebio
&
Tiburcio
Augusto Francisco and Julian T. Ocampo for appellee.
for
appellants.
The land on which the theatre was constructed was leased by plaintiff Mrs. Yulo from Emilia
Carrion Santa Marina and Maria Carrion Santa Marina. In the contract of lease it was
stipulated that the lease shall continue for an indefinite period of time, but that after one year
the lease may be cancelled by either party by written notice to the other party at least 90 days
before the date of cancellation. The last contract was executed between the owners and Mrs.
Yulo on April 5, 1948. But on April 12, 1949, the attorney for the owners notified Mrs. Yulo of
the owner's desire to cancel the contract of lease on July 31, 1949. In view of the above notice,
Mrs. Yulo and her husband brought a civil action to the Court of First Instance of Manila on
July 3, 1949 to declare the lease of the premises. On February 9, 1950, the Municipal Court of
Manila rendered judgment ordering the ejectment of Mrs. Yulo and Mr. Yang. The judgment
was appealed. In the Court of First Instance, the two cases were afterwards heard jointly, and
judgment was rendered dismissing the complaint of Mrs. Yulo and her husband, and declaring
the contract of lease of the premises terminated as of July 31, 1949, and fixing the reasonable
monthly rentals of said premises at P100. Both parties appealed from said decision and the
Court
of
Appeals,
on
April
30,
1955,
affirmed
the
judgment.chanroblesvirtualawlibrary chanrobles virtual law library
On October 27, 1950, Mrs. Yulo demanded from Yang Chiao Seng her share in the profits of
the business. Yang answered the letter saying that upon the advice of his counsel he had to
suspend the payment (of the rentals) because of the pendency of the ejectment suit by the
owners of the land against Mrs. Yulo. In this letter Yang alleges that inasmuch as he is a
sublessee and inasmuch as Mrs. Yulo has not paid to the lessors the rentals from August, 1949,
he was retaining the rentals to make good to the landowners the rentals due from Mrs. Yulo in
arrears (Exh. "E").chanroblesvirtualawlibrary chanrobles virtual law library
In view of the refusal of Yang to pay her the amount agreed upon, Mrs. Yulo instituted this
action on May 26, 1954, alleging the existence of a partnership between them and that the
defendant Yang Chiao Seng has refused to pay her share from December, 1949 to December,
1950; that after December 31, 1950 the partnership between Mrs. Yulo and Yang terminated,
as a result of which, plaintiff became the absolute owner of the building occupied by the Cine
Astor; that the reasonable rental that the defendant should pay therefor from January, 1951 is
P5,000; that the defendant has acted maliciously and refuses to pay the participation of the
plaintiff in the profits of the business amounting to P35,000 from November, 1949 to October,
1950, and that as a result of such bad faith and malice on the part of the defendant, Mrs. Yulo
has suffered damages in the amount of P160,000 and exemplary damages to the extent of
P5,000. The prayer includes a demand for the payment of the above sums plus the sum of
P10,000 for the attorney's fees.chanroblesvirtualawlibrary chanrobles virtual law library
In answer to the complaint, defendant alleges that the real agreement between the plaintiff and
the defendant was one of lease and not of partnership; that the partnership was adopted as a
subterfuge to get around the prohibition contained in the contract of lease between the owners
and the plaintiff against the sublease of the said property. As to the other claims, he denies the
same and alleges that the fair rental value of the land is only P1,100. By way of counterclaim
he alleges that by reason of an attachment issued against the properties of the defendant the
The most important issue raised in the appeal is that contained in the fourth assignment of
error, to the effect that the lower court erred in holding that the written contracts, Exhs. "A",
"B", and "C, between plaintiff and defendant, are one of lease and not of partnership. We have
gone over the evidence and we fully agree with the conclusion of the trial court that the
agreement was a sublease, not a partnership. The following are the requisites of partnership:
(1) two or more persons who bind themselves to contribute money, property, or industry to a
common fund; (2) intention on the part of the partners to divide the profits among themselves.
(Art. 1767, Civil Code.).chanroblesvirtualawlibrary chanrobles virtual law library
In the first place, plaintiff did not furnish the supposed P20,000 capital. In the second place,
she did not furnish any help or intervention in the management of the theatre. In the third
place, it does not appear that she has ever demanded from defendant any accounting of the
expenses and earnings of the business. Were she really a partner, her first concern should have
been to find out how the business was progressing, whether the expenses were legitimate,
whether the earnings were correct, etc. She was absolutely silent with respect to any of the acts
that a partner should have done; all that she did was to receive her share of P3,000 a month,
which can not be interpreted in any manner than a payment for the use of the premises which
she had leased from the owners. Clearly, plaintiff had always acted in accordance with the
original letter of defendant of June 17, 1945 (Exh. "A"), which shows that both parties
considered this offer as the real contract between them.chanroblesvirtualawlibrary chanrobles
virtual law library
Plaintiff claims the sum of P41,000 as representing her share or participation in the business
from December, 1949. But the original letter of the defendant, Exh. "A", expressly states that
the agreement between the plaintiff and the defendant was to end upon the termination of the
right of the plaintiff to the lease. Plaintiff's right having terminated in July, 1949 as found by
the Court of Appeals, the partnership agreement or the agreement for her to receive a
participation
of
P3,000
automatically
ceased
as
of
said
date.chanroblesvirtualawlibrary chanrobles virtual law library
We find no error in the judgment of the court below and we affirm it in toto, with costs against
plaintiff-appellant.chanroblesvirtualawlibrary chanrobles virtual law library
Paras C.J., Padilla, Bautista Angelo, Endencia, and Barrera, JJ., concur.
(4) During the said grace period, the FIRST PARTY obliges herself not to file any lis pendens
or whatever claims on the property nor shall be cause the annotation of say claim at the back
of the title to the said property;
(5) With the execution of the deed of absolute sale, the FIRST PARTY warrants her
ownership of the property and shall defend the rights of the SECOND PARTY against any
party whom may have any interests over the property;
[G.R. No. 127347. November 25, 1999]
(6) All expenses for documentation and other incidental expenses shall be for the account of
the FIRST PARTY;
(7) Should the FIRST PARTY fail to deliver peaceful possession of the property to the
SECOND PARTY after the expiration of the 15-day grace period given in paragraph 3 above,
the FIRST PARTY shall pay an amount equivalent to Five Percent of the principal amount of
TWO HUNDRED PESOS (P200.00) or P10,000.00 per month of delay as and for rentals and
liquidated damages;
(8) Should the FIRST PARTY fail to exercise her option to repurchase the property within
ninety (90) days period above-mentioned, this memorandum of agreement shall be deemed
cancelled and the Deed of Absolute Sale, executed by the parties shall be the final contract
considered as entered between the parties and the SECOND PARTY shall proceed to transfer
ownership of the property above described to its name free from lines and encumbrances. [2]
On the same day, April 18, 1991, the parties likewise executed a deed of absolute sale,
dated June 11, 1991, 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 dated the same day, April 18, 1991, private
respondent authorized petitioner to cause the cancellation of TCT No. 195101 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. [4]
[3]
Private respondent failed to redeem the property within the 90-day period as provided in
the Memorandum of Agreement. Hence, pursuant to the special power of attorney mentioned
above, petitioner caused the cancellation of TCT No. 195101 and the issuance of a new
certificate of title in the name of A.C. Aguila and Sons, Co. [5]
Private respondent then received a letter dated August 10, 1991 from Atty. Lamberto C.
Nanquil, counsel for A.C. Aguila & Sons, Co., 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. Otherwise, the latter would bring the appropriate action in court. [6]
Upon the refusal of private respondent to vacate the subject premises, A.C. Aguila &
Sons, Co. filed an ejectment case against her in the Metropolitan Trial Court, Branch 76,
Marikina, Metro Manila. In a decision, dated April 3, 1992, the Metropolitan Trial Court ruled
in favor of A.C. Aguila & Sons, Co. on the ground that private respondent did not redeem the
subject property before the expiration of the 90-day period provided in the Memorandum of
Agreement. Private respondent appealed first to the Regional Trial Court, Branch 163, Pasig,
Metro Manila, then to the Court of Appeals, and later to this Court, but she lost in all the cases.
Private respondent then filed a petition for declaration of nullity of a deed of sale with
the Regional Trial Court, Branch 273, Marikina, Metro Manila on December 4, 1993. She
alleged that the signature of her husband on the deed of sale was a forgery because he was
already dead when the deed was supposed to have been executed on June 11, 1991.
It appears, however, that private respondent had filed a criminal complaint for
falsification against petitioner with the Office of the Prosecutor of Quezon City which was
dismissed in a resolution, dated February 14, 1994.
Third: The apparent vendor, plaintiff-appellant herein, continued to pay taxes on the property
sold. It is well-known that payment of taxes accompanied by actual possession of the land
covered by the tax declaration, constitute evidence of great weight that a person under whose
name the real taxes were declared has a claim of right over the land.
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. The factors cited are
in support to the finding that the Deed of Sale/Memorandum of Agreement with right to
repurchase is in actuality an equitable mortgage.
Moreover, it is undisputed that the deed of sale with right of repurchase was executed by
reason of the loan extended by defendant-appellee to plaintiff-appellant. The amount of loan
being the same with the amount of the purchase price.
....
Since the real intention of the party is to secure the payment of debt, now deemed to be
repurchase price: the transaction shall then be considered to be an equitable mortgage.
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. Article
2088 of the New Civil Code reads:
ART. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or
dispose of them. Any stipulation to the contrary is null and void.
The aforequoted provision furnishes the two elements for pactum commissorium to exist: (1)
that there should be a pledge or mortgage wherein a property is pledged or mortgaged by way
of security for the payment of principal obligation; and (2) that there should be a stipulation
for an automatic appropriation by the creditor of the thing pledged and mortgaged in the event
of non-payment of the principal obligation within the stipulated period.
In this case, defendant-appellee in reality extended a P200,000.00 loan to plaintiff-appellant
secured by a mortgage on the property of plaintiff-appellant. The loan was payable within
ninety (90) days, the period within which plaintiff-appellant can repurchase the
property. Plaintiff-appellant will pay P230,000.00 and not P200,000.00, the P30,000.00
excess is the interest for the loan extended. Failure of plaintiff-appellee to pay the
P230,000,00 within the ninety (90) days period, the property shall automatically belong to
defendant-appellee by virtue of the deed of sale executed.
Regional Trial Court and the Court of Appeals sidestepped this issue when it was squarely
raised before them by petitioner.
Clearly, the agreement entered into by the parties is in the nature of pactum
commissorium. Therefore, the deed of sale should be declared void as we hereby so declare to
be invalid, for being violative of law.
WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and the
complaint against petitioner is DISMISSED.
....
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.
SO ORDERED.
Bellosillo, (Chairman), Quisumbing, Buena, and De Leon, Jr., JJ., concur.
WHEREFORE, foregoing considered, the appealed decision is hereby REVERSED and SET
ASIDE. The questioned Deed of Sale and the cancellation of the TCT No. 195101 issued in
favor of plaintiff-appellant and the issuance of TCT No. 267073 issued in favor of defendantappellee pursuant to the questioned Deed of Sale is hereby declared VOID and is hereby
ANNULLED. Transfer Certificate of Title No. 195101 of the Registry of Marikina is hereby
ordered REINSTATED. The loan in the amount of P230,000.00 shall be paid within ninety
(90) days from the finality of this decision. In case of failure to pay the amount of
P230,000.00 from the period therein stated, the property shall be sold at public auction to
satisfy the mortgage debt and costs and if there is an excess, the same is to be given to the
owner.
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.
The petition is meritorious.
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. [7] 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. [8] Hence, a complaint filed against
such a person should be dismissed for failure to state a cause of action. [9]
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. [10] 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. [11] We cannot understand why both the