Alfredo AguilaJrvs Court of Appeals et al 329 SCRA 246

FACTS:

In April 1991, the spouses Ruben and FelicidadAbrogar 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 pactumcommissorium  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.
G.R. No. 127347 November 25, 1999
ALFREDO N. AGUILA, JR., petitioner,
vs.
HONORABLE COURT OF APPEALS and FELICIDAD S. VDA. DE ABROGAR, respondents.

MENDOZA, J.:
This is a petition for review on certiorari of the decision 1 of the Court of Appeals, dated November 29, 1990,
which reversed the decision of the Regional Trial Court, Branch 273, Marikina, Metro Manila, dated April 11,
1995. The trial court dismissed the petition for declaration of nullity of a deed of sale filed by private
respondent Felicidad S. Vda. de Abrogar against petitioner Alfredo N. Aguila, Jr.

The facts are as follows:

Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership engaged in lending activities. Private
respondent 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. 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, which provided:

(1) That the SECOND PARTY [A.C. Aguila & Sons, Co.] shall buy the above-described property
from the FIRST PARTY [Felicidad S. Vda. de Abrogar], and pursuant to this agreement, a Deed of
Absolute Sale shall be executed by the FIRST PARTY conveying the property to the SECOND
PARTY for and in consideration of the sum of Two Hundred Thousand Pesos (P200,000.00),
Philippine Currency;

(2) The FIRST PARTY is hereby given by the SECOND PARTY the option to repurchase the said
property within a period of ninety (90) days from the execution of this memorandum of
agreement effective April 18, 1991, for the amount of TWO HUNDRED THIRTY THOUSAND
PESOS (P230,000.00);

(3) In the event that the FIRST PARTY fail to exercise her option to repurchase the said property
within a period of ninety (90) days, the FIRST PARTY is obliged to deliver peacefully the
possession of the property to the SECOND PARTY within fifteen (15) days after the expiration of
the said 90 day grace period;

(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;

(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, 3 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

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.

On April 11, 1995, Branch 273 of RTC-Marikina rendered its decision:

Plaintiff's claim therefore that the Deed of Absolute Sale is a forgery because they could not
personally appear before Notary Public Lamberto C. Nanquil on June 11, 1991 because her
husband, Ruben Abrogar, died on May 8, 1991 or one month and 2 days before the execution of
the Deed of Absolute Sale, while the plaintiff was still in the Quezon City Medical Center
recuperating from wounds which she suffered at the same vehicular accident on May 8, 1991,
cannot be sustained. The Court is convinced that the three required documents, to wit: the
Memorandum of Agreement, the Special Power of Attorney, and the Deed of Absolute Sale were
all signed by the parties on the same date on April 18, 1991. It is a common and accepted
business practice of those engaged in money lending to prepare an undated absolute deed of
sale in loans of money secured by real estate for various reasons, foremost of which is the
evasion of taxes and surcharges. The plaintiff never questioned receiving the sum of
P200,000.00 representing her loan from the defendant. 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.

x x x           x x x          x x x

WHEREFORE, foregoing premises considered, the case in caption is hereby ORDERED

DISMISSED, with costs against the plaintiff.

On appeal, the Court of Appeals reversed. It held:

The facts and evidence show that the transaction between plaintiff-appellant and defendant-
appellee is indubitably an equitable mortgage. Article 1602 of the New Civil Code finds strong
application in the case at bar in the light of the following circumstances.
First: The purchase price for the alleged sale with right to repurchase is unusually inadequate.
The property is a two hundred forty (240) sq. m. lot. On said lot, the residential house of
plaintiff-appellant stands. The property is inside a subdivision/village. The property is situated
in Marikina which is already part of Metro Manila. The alleged sale took place in 1991 when the
value of the land had considerably increased.

For this property, defendant-appellee pays only a measly P200,000.00 or P833.33 per square
meter for both the land and for the house.

Second: The disputed Memorandum of Agreement specifically provides that plaintiff-appellant

is obliged to deliver peacefully the possession of the property to the SECOND PARTY within
fifteen (15) days after the expiration of the said ninety (90) day grace period. Otherwise stated,
plaintiff-appellant is to retain physical possession of the thing allegedly sold.

In fact, plaintiff-appellant retained possession of the property "sold" as if they were still the
absolute owners. There was no provision for maintenance or expenses, much less for payment
of rent.

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.

x x x           x x x          x x x

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.

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.

x x x           x x x          x x x

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 defendant-appellee
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 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.

WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and the complaint against petitioner is
DISMISSED.

SO ORDERED.

Bellosillo, Quisumbing, Buena and De Leon, Jr., JJ., concur.