G.R. No. 206147 - Guy vs. Gacott

Case Summary (G.R. No. 206147)

Factual Background

On March 3, 1997, Atty. Glenn C. Gacott purchased two transreceivers from Quantech Systems Corporation (QSC) through QSC’s employee Rey Medestomas. The units proved defective and were returned on May 10, 1997. QSC, through Medestomas, promised replacements but failed to deliver and refused refund. After demands and expenses totaling P40,936.44, Gacott filed a complaint for damages against QSC and Medestomas. QSC and Medestomas filed an Answer but presented no evidence at trial. The RTC found the transreceivers defective and rendered judgment in favor of Gacott on March 16, 2007, awarding purchase price with interest, actual, moral and corrective damages, attorney’s fees and costs. The decision became final for lack of appeal by QSC and Medestomas.

Execution and Attachment Proceedings

After issuance of a writ of execution dated September 26, 2007, Gacott learned that QSC was a registered general partnership and that petitioner Michael C. Guy was named general manager in the partnership articles. The sheriff verified registered motor vehicles at the DOTC-LTO and, upon learning that a vehicle was registered in Guy’s name, proceeded to attach that vehicle. On March 3, 2009 the sheriff served a Notice of Attachment/Levy upon Personalty on the DOTC-LTO record custodian and a similar notice was left with Guy’s housemaid at his residence.

Motion to Lift Attachment and RTC Orders

Petitioner Guy moved to lift the attachment on the ground that he was not a judgment debtor and therefore his vehicle could not be levied. The RTC denied the motion on June 28, 2009, reasoning that because QSC was an ostensible corporation or a registered partnership and Guy was listed as general manager, he should be treated as a general partner and held jointly and severally liable under Section 21, Corporation Code and Articles 1822 to 1824, Civil Code. Guy’s motion for reconsideration was denied on February 19, 2010. Guy then appealed to the Court of Appeals.

Court of Appeals Ruling

The Court of Appeals affirmed the RTC. It held that service of summons upon QSC’s authorized officer sufficed and that the verified Answer filed by partner Elton Ong bound the partnership and, by operation of partnership law, bound Guy. The CA treated Guy, as a listed general partner, as unable to feign ignorance of the suit and concluded that partners are solidarily liable by virtue of Article 1821 read with Articles 1822 to 1824.

Issues Presented in the Petition

Petitioner Guy contended that the CA erred in holding him solidarily liable with the partnership for the damages because (a) the solidary liability of partners under Articles 1822 to 1824 applies only where loss was caused by the act of a partner; (b) the claim here arose from breach of contract and not from any wrongful act of a partner; (c) Article 1816 makes partner liability joint and subsidiary; and (d) he was never properly impleaded and thus the RTC lacked jurisdiction over his person. Gacott countered that Guy, as general and managing partner, could not claim ignorance and that notice to one partner operated as notice to the partnership and its partners.

The Supreme Court’s Holding on Service and Jurisdiction

The Supreme Court concluded that service of summons upon QSC was flawed because the records did not show service on any of the officers enumerated in Section 11, Rule 14. The Court emphasized that the list of persons authorized to receive summons for juridical entities is exclusive and that service on other persons is invalid. The Court then reconciled this with the fact that QSC filed a verified Answer. It held that the defective service was cured by QSC’s voluntary appearance through filing a responsive pleading, thereby vesting the court with jurisdiction over the partnership.

The Supreme Court’s Holding on Impleading Partners and Due Process

The Court held that the court’s jurisdiction over the partnership did not automatically extend to the person of Guy. It reiterated the rule that a judgment binds only the parties impleaded. The Court invoked Article 1768 and constitutional due process principles to state that a person not made a party cannot be prejudiced by a judgment in which he did not have an opportunity to participate. The Court held that a partner must be separately and distinctly impleaded before he may be bound by a judgment against the partnership. The Court rejected the CA’s reliance on Article 1821 as support for extending the judgment to nonimpleaded partners because Article 1821 addresses notice to the partnership and does not, by its terms, dispense with the requirement of impleading partners.

The Supreme Court’s Analysis of Partners’ Liability under the Civil Code

The Court analyzed Article 1816, Civil Code, and concluded that the partners’ liability to third persons for partnership contracts is pro rata, joint and subsidiary, and arises only after partnership assets have been exhausted. The Court explained that solidary liability of partners is the exception and arises under Articles 1822 and 1823 when loss results from a wrongful act or misapplication by a partner acting within apparent authority; Article 1824 then makes partners solidarily liable for obligations arising under Articles 1822 and 1823. The Court found no showing that any partner acted wrongfully or misapplied funds; rather, the claim arose from a contractual breach by QSC through its employee. Consequently, Article 1816 governed and partner liability remained joint and subsidiary.

Application of Law to the Facts and the Court’s Reasoning on Levy

Applying the foregoing principles, the Court held that Guy’s vehicle could not be levied. First, Guy was not impleaded and had no opportunity to litigate or present defenses; the levy therefore violated due process. Secon

Case Syllabus (G.R. No. 206147)

Parties and Procedural Posture

Michael C. Guy filed a petition for review on certiorari under Rule 45, Rules of Court from the decision of the Court of Appeals in CA-G.R. CV No. 94816.
Atty. Glenn C. Gacott was the judgment creditor and appellee in the trial court and respondent in this petition.
The petition assailed the Court of Appeals' June 25, 2012 Decision and March 5, 2013 Resolution affirming the Regional Trial Court, Branch 52, Puerto Princesa City, orders denying petitioner’s Motion to Lift Attachment Upon Personalty.
The issue presented was whether the Court of Appeals erred in holding that Guy was solidarily liable with Quantech Systems Corporation (QSC) for damages awarded to Gacott.

Key Factual Allegations

Gacott purchased two defective transreceivers from QSC through its employee Rey Medestomas on March 3, 1997.
Gacott returned the transreceivers on May 10, 1997 and demanded replacements or refund, but QSC did not replace the units or refund the purchase price.
Gacott incurred expenses totaling P40,936.44 and filed a complaint for damages against QSC and Medestomas.
The RTC found the transreceivers defective and rendered judgment on March 16, 2007 awarding P 18,000.00, P40,936.44 actual damages, P75,000.00 moral damages, P100,000.00 corrective damages, P60,000.00 attorney’s fees, and costs.
Execution issued and, during execution, it was discovered that QSC was a registered partnership and that Guy was listed as General Manager in the articles of partnership.
A sheriff verified vehicle registrations at the DOTC-LTO and on March 3, 2009 attached Guy’s vehicle by serving a Notice of Attachment/Levy upon Personalty on DOTC-LTO records and by a notice left at Guy’s residence.
Guy filed a Motion to Lift Attachment Upon Personalty asserting that he was not a judgment debtor and that his vehicle could not be attached.

Lower Court Rulings

The RTC issued a decision on March 16, 2007 in favor of Gacott and a Writ of Execution dated September 26, 2007 issued in favor of Gacott.
The RTC denied Guy’s Motion to Lift Attachment Upon Personalty on June 28, 2009 on the ground that QSC was an ostensible corporation and Guy was a general partner liable under Section 21, Corporation Code.
The RTC denied reconsideration on February 19, 2010.
The Court of Appeals affirmed the RTC in its June 25, 2012 Decision and denied reconsideration in its March 5, 2013 Resolution.

Issue Presented

The sole issue in the petition was whether the Court of Appeals committed reversible error in holding that Guy was solidarily liable with the partnership for damages arising from the contract of sale with Gacott.

Parties' Contentions

Guy contended that he was not solidarily liable because partners’ liability under Article 1816, Civil Code is joint and subsidiary and because Articles 1822, 1823 and 1824, Civil Code render partners solidarily liable only for wrongful acts of a partner, which were not shown.
Guy further contended that he was not impleaded and that service of summons was not validly made upon him or an authorized officer of the partnership.
Gacott argued that Guy, being a general and managing partner, could not feign ignorance of QSC’s transactions and that notice to one partner was notice to the partnership which bound Guy.

Statutory Framework

Section 11, Rule 14, 1997 Revised Rules of Civil Procedure prescribes the exclusive persons authorized to receive summons on a juridical entity.
Article 1816, Civil Code governs partners’ liability to third persons as pro rata and subsidiary after