Alfredo N. Aguila vs. Court of Appeals, G.R. No.

127347, November 25, 1999

In April 1991, the spouses Ruben and Felicidad Abrogar entered into a loan agreement with a lending firm
called A.C. Aguila & Sons, Co., a partnership. The loan was for P200k. To secure the loan, the spouses
mortgaged their house and lot located in a subdivision. The terms of the loan further stipulates that in case
of non-payment, the property shall be automatically appropriated to the partnership and a deed of sale be
readily executed in favor of the partnership. She does have a 90 day redemption period.
Ruben died, and Felicidad failed to make payment. She refused to turn over the property and so the firm
filed an ejectment case against her (wherein she lost). She also failed to redeem the property within the
period stipulated. She then filed a civil case against Alfredo Aguila, manager of the firm, seeking for the
declaration of nullity of the deed of sale. The RTC retained the validity of the deed of sale. The Court of
Appeals reversed the RTC. The CA ruled that the sale is void for it is a pactum commissorium  sale which
is prohibited under Art. 2088 of the Civil Code (note the disparity of the purchase price, which is the loan
amount, with the actual value of the property which is after all located in a subdivision).
ISSUE: Whether or not the case filed by Felicidad shall prosper.
HELD: No. Unfortunately, the civil case was filed not against the real party in interest. As pointed out by
Aguila, he is not the real party in interest but rather it was the partnership A.C. Aguila & Sons, Co. The
Rules of Court provide 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. 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, as in the case at bar.
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, Felicidad 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. 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.

Aguila v. CA
Facts:

Aguila is the manager of A.C. Aguila & Sons, Co., a partnership engaged in
lending activities. Abrogar and her husband are the registered owners of a
particular house and lot. Aguila and Abrogar entered into a Memorandum of
Agreement.
The MoA stated that A.C. Aguila shall buy the said house and lot from
Abrogar for and in consideration of the sum of P200, 000. Abrogar is given
the option to repurchase the said property within a period of 90 days for
the amount of P230, 000. In the event that Abrogar fails to exercise her
option to repurchase, she is obliged to deliver peacefully the possession of
the property within 15 days after the expiration of the 90 day grace period.

The parties executed a deed of absolute sale on June 11, 1991. Abrogar
failed to redeem the property within the 90 day period. Aguila then caused
the cancellation of the TCT of Abrogar and caused the issuance of a new
certificate of title in the name of A.C. Aguila & Sons, Co.
Abrogar received a letter demanding her to vacate the premises within 15
days after receipt of the letter. Abrogar refused to vacate so A.C. Aguila &
Sons, Co. filed an ejectment case against her.
MTC – ruled in favor of A.C. Aguila & Sons, Co. that Abrogar did not redeem
the property within the 90 day grace period
RTC - Abrogar filed a petition for declaration of nullity of a deed of sale with
the RTC alleging 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. (RTC ruling) Common sense dictates
that an established lending and realty firm like the Aguila & Sons, Co.
would not part with P200,000.00 to the Abrogar spouses, who are virtual
strangers to it, without the simultaneous accomplishment and signing of all
the required documents, more particularly the Deed of Absolute Sale, to
protect its interest.
CA – reversed RTC – the transaction was not a sale but an equitable
mortgage and was in the nature of pactum commissorium and is therefore
void.

Aguila contends that he is not the real party in interest but A.C. Aguila &
Co., against which this case should have been brought

Issue: Whether or not the case should be dismissed because the petitioner
is not the real party in interest

Held: Yes, the case should be dismissed.

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. 

Abrogar 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 Abrogar, with
the consent of her late husband, and A.C. Aguila & Sons, Co., represented
by Aguila.

Hence, it is the partnership, not its officers or agents, which should be

impleaded in any litigation involving property registered in its name. A
violation of this rule will result in the dismissal of the complaint. We cannot
understand why both the Regional Trial Court and the Court of Appeals
sidestepped this issue when it was squarely raised before them by
petitioner.
Our conclusion that petitioner is not the real party in interest against whom
this action should be prosecuted makes it unnecessary to discuss the other
issues raised by him in this appeal.

Recitation: AGUILA Jr. v. CA

1. How did the SC rule on the matter that the contract was not one of sale but of pactum commissorium? What’s the
ruling of SC on that issue?
2. What is pactum commissorium?
3. What was the ruling of the SC here? Was the sale valid?
4. Who is the party here? Aguila Jr.; he is the manager
5. If you have a decision in favor of the complainant originally in the case against Aguila, could you enforce it? NO.

ATTY. ANGOS: It was raised in the court a quo and the CA that Aguila Jr. has been saying that he is not the real party in
interest here. Even if there is a judgment, how would you enforce that against Aguila Jr. when he is not the real party in
interest? Go back to article 1768. The partnership has a juridical personality separate and distinct from that of each of the
partners. It appears here, that there is no mention whether Aguila Jr. was a partner or whether he was sued as partner
representing the partnership. The one who represents the partnership in the MOA was Aguila Jr. in fact, he was just acting
as the agent. It took 10 years for all these legal process to be completed and in the end, the SC said you are suing the
wrong person!

As a juridical person, a partnership can enter into contracts, can acquire or posses property, can acquire obligations, file
case, civil or criminal.
Villareal vs Ramirez 406 SCRA 145

Villareal, C. Jose and J. Jose formed a partnership for the operation of a restaurant and
catering business under the name “Aquarius Food House and Catering Services, each
contributing 250K. Ramirez was later added, contributing 250K as well. After some time,
one of them (J. Jose) withdrew from the partnership; his capital contribution was
refunded to him in cash by agreement of the partners.

Without prior knowledge of respondents, petitioners closed down the restaurant, allegedly
because of increased rental. On March 1, 1987, The respondent spouses wrote petitioners,
saying that they were no longer interested in continuing their partnership or in reopening
the restaurant, and that they were accepting the latter’s offer to return their capital
contribution. The repeated oral and written requests were, however, left unheeded

Before the RTC, respondents subsequently filed a Complaintfor the collection of a sum of
money from petitioners. the RTC ruled in favor of the respondents, ordering petitioners
to pay damages and AF and costs.

The CA sustained the lower court’s decision, and made a computation on the petitioners’
liability to respondents:

Capital, at dissolution: **P1,000,000.00

Less: liability to creditors 240,658.00

Amount to be distributed to partners 759,342.00

Over: Number of partners 3

Each partner’s share at dissolution 253,114.00

** which is erroneous, as this is the capital at the BEGINNING of the partnership

Hence this petition.

Ruling: Evidently, in the present case, the exact amount of refund equivalent to
respondents one-third share in the partnership cannot be determined until all the
partnership assets will have been liquidated -- in other words, sold and converted to cash
-- and all partnership creditors, if any, paid. The CAs computation of the amount to be
refunded to respondents as their share was thus erroneous.

First, it seems that the appellate court was under the misapprehension that the total
capital contribution was equivalent to the gross assets to be distributed to the partners at
the time of the dissolution of the partnership. We cannot sustain the underlying idea that
the capital contribution at the beginning of the partnership remains intact, unimpaired
and available for distribution or return to the partners. Such idea is speculative,
conjectural and totally without factual or legal support.

Generally, in the pursuit of a partnership business, its capital is either increased by profits
earned or decreased by losses sustained. It does not remain static and unaffected by the
changing fortunes of the business. In the present case, the financial statements presented
before the trial court showed that the business had made meager profits.[26] However,
notable therefrom is the omission of any provision for the depreciation[27] of the
furniture and the equipment. The amortization of the goodwill[28] (initially valued at
P500,000) is not reflected either. Properly taking these non-cash items into account will
show that the partnership was actually sustaining substantial losses, which consequently
decreased the capital of the partnership. Both the trial and the appellate courts in fact
recognized the decrease of the partnership assets to almost nil, but the latter failed to
recognize the consequent corresponding decrease of the capital.

Second, the CAs finding that the partnership had an outstanding obligation in the amount
of P240,658 was not supported by evidence. We sustain the contrary finding of the RTC,
which had rejected the contention that the obligation belonged to the partnership for the
following reason:

x x x [E]vidence on record failed to show the exact loan owed by the partnership to its
creditors. The balance sheet (Exh. 4) does not reveal the total loan. The Agreement (Exh.
A) par. 6 shows an outstanding obligation of P240,055.00 which the partnership owes to
different creditors, while the Certification issued by Mercator Finance (Exh. 8) shows that
it was Sps. Diogenes P. Villareal and Luzviminda J. Villareal, the former being the
nominal party defendant in the instant case, who obtained a loan of P355,000.00 on Oct.
1983, when the original partnership was not yet formed.

Third, the CA failed to reduce the capitalization by P250,000, which was the amount paid
by the partnership to Jesus Jose when he withdrew from the partnership.

Because of the above-mentioned transactions, the partnership capital was actually

reduced. When petitioners and respondents ventured into business together, they should
have prepared for the fact that their investment would either grow or shrink. In the
present case, the investment of respondents substantially dwindled. The original amount
of P250,000 which they had invested could no longer be returned to them, because one
third of the partnership properties at the time of dissolution did not amount to that much.

It is a long established doctrine that the law does not relieve parties from the effects of
unwise, foolish or disastrous contracts they have entered into with all the required
formalities and with full awareness of what they were doing. Courts have no power to
relieve them from obligations they have voluntarily assumed, simply because their
contracts turn out to be disastrous deals or unwise investments.[29]

Petitioners further argue that respondents acted negligently by permitting the

partnership assets in their custody to deteriorate to the point of being almost worthless.
Supposedly, the latter should have liquidated these sole tangible assets of the partnership
and considered the proceeds as payment of their net capital. Hence, petitioners argue that
the turnover of the remaining partnership assets to respondents was precisely the manner
of liquidating the partnership and fully settling the latters share in the partnership.

We disagree. The delivery of the store furniture and equipment to private respondents
was for the purpose of storage. They were unaware that the restaurant would no longer
be reopened by petitioners. Hence, the former cannot be faulted for not disposing of the
stored items to recover their capital investment.
Recitation: VILLAREAL V. RAMIREZ
1. Who must refund?

It must be the pARTnership andnot the partners. Except as managers of the partnership, the partners did not
personally hold its equity or assets. The partnership has a juridical personality separate and distinct from that of each
of the partners. Since the capital was contributed to the partnership and not directly to the partners, it is the
PARTNERSHIP that must refund the equity of the retiring partners.

2. What must be returned?

Partnership must refund only to the amount which is limited to its total resources which consists of all its assets.
However, before the partners can be paid their shares, the creditors of the partnership must first be compensated.
After all creditors have been paid, whatever is left to the partnership assets will be the one available for the payment
of the partner’s share

3. What is the process?

As held by the SC, the exact amount of refund equivalent to Ramirez’ 1/3 share in the partnership CANNOT be
determined until:
1. All partnership assets will have been liquidated—assets must be sold and converted to cash and
2. All partnership creditors, if any, be paid.

4. What was the case filed here?

The case filed was collection of sum of money. However, the SC said that the proper action should be a proper
proceeding for the ACCOUNTING, LIUQUIDATION and the DISTRIBUTION of the remaining partnership assets.