Title
Saludo, Jr. vs. Philippine National Bank
Case
G.R. No. 193138
Decision Date
Aug 20, 2018
SAFA Law Office, a law firm, leased office space from PNB, defaulted on rent, and disputed liability, claiming sole proprietorship. Courts ruled it as a juridical partnership, liable for unpaid rentals, requiring inclusion as plaintiff.
saludo
lease contract
rental fees

Case Summary (G.R. No. 193138)

Factual Background

On June 11, 1998, SAFA Law Office entered into a Contract of Lease with PNB for 632 square meters on the second floor of the PNB Financial Center Building in Quezon City for three years at a monthly rental of P189,600 subject to a yearly escalation of ten percent. SAFA immediately occupied the premises and paid advance rentals and a security deposit totaling P1,137,600. The contract expired on August 1, 2001. PNB alleged that SAFA continued to occupy the premises until February 2005 but ceased paying monthly rent after December 2002. Beginning July 17, 2003, PNB sent demand letters claiming successive and increasing unpaid rental balances. SAFA sought to negotiate and, by correspondence, asserted alleged promises by former bank management supporting favorable treatment and asked for various offsets and a fifty percent discount. SAFA vacated the premises in February 2005. Thereafter PNB continued to press claims for unpaid rentals and damages, asserting sums that rose to P25,587,838.09 by its final demand.

Trial Court Proceedings

On September 1, 2006, Saludo, in his capacity as managing partner, filed an amended complaint for accounting and/or recomputation of unpaid rentals and damages against PNB in Civil Case No. 06-678. PNB moved on October 4, 2006 to include SAFA as an indispensable plaintiff, contending that the lessee was SAFA and not Saludo. PNB filed its answer on October 13, 2006 and asserted a compulsory counterclaim for P25,587,838.09 against SAFA and Saludo. Saludo moved on October 23, 2006 to dismiss the counterclaims, maintaining that SAFA was not a legal entity but a single proprietorship and therefore could not be sued. On January 11, 2007, the RTC issued an Omnibus Order that denied PNB’s motion to include SAFA as plaintiff and granted Saludo’s motion to dismiss the counterclaims on the ground that SAFA was a non-legal entity. PNB’s motion for reconsideration was denied by order dated March 8, 2007.

Court of Appeals Proceedings

PNB filed a petition for certiorari with the Court of Appeals. On February 8, 2010, the CA partially granted the petition. The CA held that the RTC’s order dismissing counterclaims was interlocutory but subject to certiorari where grave abuse of discretion was alleged. The CA concluded that Saludo was estopped from characterizing SAFA as his single proprietorship because SAFA had entered into the lease and Saludo signed as its managing partner. The CA further held that SAFA was not an indispensable party that must be joined as plaintiff, and that a partnership for the practice of law is not a legal entity for some purposes. Nevertheless, the CA ruled that PNB’s compulsory counterclaims should be reinstated because SAFA, though said not to be a legal entity, could be made a defendant under Section 15, Rule 3 of the Rules of Court and under Section 12, Rule 6 where its presence was required for complete relief. The CA emphasized the compulsory nature of the counterclaims and the potential prejudice to PNB if they were forever barred.

Issues Presented to the Supreme Court

The petition to the Supreme Court raised, inter alia, these principal issues: (1) whether the CA erred in including SAFA as defendant to PNB’s counterclaim despite holding that SAFA was neither an indispensable party nor a legal entity; (2) whether the CA exceeded the scope of certiorari review and prematurely addressed the merits of PNB’s counterclaim; and (3) whether the CA erred in giving due course to PNB’s petition for certiorari to annul the RTC’s Omnibus Order dated January 11, 2007.

Supreme Court Ruling

The Supreme Court denied the petition. The Court ordered Saludo to amend his complaint to include SAFA Law Office as plaintiff in Civil Case No. 06-678 pending before Branch 58 of the RTC, Makati City, finding that SAFA was the real party-in-interest. The Court thus affirmed the necessity of joining SAFA as party plaintiff and rejected Saludo’s contention that SAFA was a sole proprietorship or otherwise lacked juridical personality.

Legal Basis and Reasoning

The Court first held that SAFA had been constituted as a partnership under the Civil Code. It relied on Article 1767, which permits two or more persons to form a partnership to exercise a profession, and on the Articles of Partnership executed by the four lawyers that expressly declared their intention to form a partnership, designated partners and industrial partners, provided for term, distribution of profits and losses, management, and dissolution. Because the partnership’s initial capital exceeded the threshold for public instrument recording, the registration with the SEC complied with Article 1772. The Court rejected Saludo’s reliance on a Memorandum of Understanding that purported to allocate all liabilities to Saludo and to exempt industrial partners, explaining that such stipulations bind only the partners inter se and do not affect third persons by reason of Article 1816 and Article 1817. The Court observed that Article 1816 makes partnership assets primarily liable for obligations entered into in the partnership’s name and that partners’ liability is subsidiary and pro rata only after partnership assets are exhausted.

The Court next held as a matter of law that a partnership acquires juridical personality by operation of law. It cited Article 1768 and Article 44 of the Civil Code, which recognize that a partnership has a juridical personality separate and distinct from each partner and that partnerships may acquire property, incur obligations, and bring actions. The Court relied on the lease itself, which described the lessee as “a partnership organized and existing under the laws of the Republic of the Philippines,” and on subsequent dealings between the parties, as evidence that SAFA operated as a juridical person.

The Court addressed the CA’s citation of the Sycip case and its reliance on the American decision in In re Crawford’s Estate. The Court characterized the Sycip court’s statement that a law partnership is not a legal entity as an obiter dictum that was not necessary to the Sycip disposition. The Court further distinguished American jurisprudence by noting that Philippine law, under both the old and new Civil Codes, treats partnerships as juridical persons for all intents and purposes, a principle the Court reaffirmed in prior cases such as Campos Rueda & Co. v. Pacific Commercial Co. and Commissioner of Internal Revenue v. Suter.

On the question of the real party-in-interest, the Court invoked Section 2, Rule 3 of the Rules of Court and the decision in Lee v. Romillo, Jr. It held that SAFA was the party that would be benefite

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