Tuesday, July 13, 2004

Victronics Computers vs. RTC Br 63, Panorama Enterprises, Et. Al

The Professor assigned this case by mistake since it deals more with procedural law than substantive law. That's why it took awhile before I understood the gist of the case. Turns out that the main issue was just to determine which case should be tried instead of determining on who's guilty or what. Nevertheless, the presenting group did a good report on this one. They're the first group to get a 4.0 (we only got a 3.5)


I. CASE FACTS AND LOWER COURT DECISIONS

· Parties Involved:
ü Victronics Computers, Inc. is a domestic corporation in the business of selling computer systems and peripherals with Victor Mariano as General Manager.
ü Karl C. Velhagen and Archimedes R. King, alleged operators of a business under the names Victoria Court, GMT Consolidated Company and Victoria Group of Companies.
· Plaintiff submitted quotation for office systems to service the networking requirements of various Victoria Court branches to the defendants.
· Private respondents placed an order under the name of GMT CONSOLIDATED, with the petitioner in a Purchase Order form where the defendants ordered six sets of 80 DATA 386 computer system with peripherals for the net consideration of PHP767,000.00 subject to the following terms:
(a) Payment – 50% down payment, 50% COD upon delivery;
(b) Delivery – within 30 calendar days upon receipt of Purchase Order and 50% downpayment
(c) Penalty – 1% of total Purchase Order amount per day of delay.
· The computer hardware were to be delivered to the different Victoria Court drive-in branches.
· May 22, 1991: After the plaintiffs received the 50% downpayment, petitioner delivered three of the six sets to Victoria Court North EDSA, Victoria Court Adriatico, Victoria Court Cuneta respectively.
· June 20, 1991: The remaining three sets were delivered to Victoria Court Hillcrest, Victoria Court Panorama and Victoria Court McArthur.
· 1986: The six aforementioned motels decided “to band together for their mutual interest and benefit, under the trade name and style of the Victoria Group of Companies”. These companies operate under a management team wherein defendants Velhagen and King are the General Manager and Chief Executive Officer, respectively.
· July 26, 1991: Petitioner filed with the RTC of Makati a Complaint vs. ”Karl C. Velhagen and Archie R. King, who operate business under the names of Victoria Court, GMT Consolidated Company, and Victoria Group of Companies”, after their demands for the outstanding balance were ignored by the defendants. Case was logged under Civil Case 91-2069 and was raffled off to Branch 63 presided over by Judge Julio R. Logarta.
· August 8, 1991: Defendants Velhagen and King were each served with a summons and a copy of the complaint.
· August 9, 1991: The six defendant corporations1 included in the case filed with the Makati RTC their own Complaint dated August 7, 1991 docketed as Civil Case No. 91-2192 and raffled off to Branch 150 of the said court. In this case, they requested that the abovementioned Purchase Order be declared as null and void. Moreover, they asked for damages against the petitioner of Case 91-2069 and on a certain Teodoro Kabigting. They appealed for the following:
(a) The sum of PHP383,500.00 plus reasonable interest of at least 2% per month from the month of May 1991 until the amount is fully paid, as compensatory of actual damages. The corporations claim that Kabigting, then the Manager of the Management Information Services of the Victoria Court Group of Companies, connived with Victor Mariano, the General Manager of Victronics Computers who happens to be the latter’s old and close friend. Kabigting and Mariano agreed to falsify the price survey report with the promise of a substantial commission for both parties once the purchase has been made. An audit check made on the transaction revealed that there was an overprice of PHP200,000.00 and the goods delivered were considered to be surplus stock of the supplier.
(b) The sum of PHP500,000.00 as exemplary damages. When the Victoria Group learned about the price padding, they informed Mariano of their discovery seeking for an amicable settlement of the case. Mariano then failed to respond and even referring the case to his lawyer who in turn wrote a letter of demand asking for the 50% balance. The Victoria Group then countered by referring the matter to their attorney ho wrote the petitioner a letter informing them that the contract was being voided due to fraud and undue influence and even demanding the 50% downpayment that was given to them earlier. All computer equipment earlier delivered will be returned to the supplier in the same condition that it was purchased.
(c) The sum of PHP100,000.00 and a per appearance fee of PHP1,000.00 as and by way of attorney’s fees. The sued for exemplary damages stating that there was bad faith and a fraudulent intent on the part of the defendants.
(d) The cost of the suit. For attorney’s and appearance fees.
· August 22, 1991: Private respondents Velhagen and King together with their lawyers filed for a Motion To Dismiss and/or To Suspend Proceedings on Civil Case No. 91-2069 stating that:
(a) Victronics corporation or the petitioner, failed to verify the complaint.
(b) The petitioner failed to sue the proper parties.
(c) There is another case pending in another court
Supporting these arguments, they claim that:
(a) Verification is a formal requirement in the Rules of Court
(b) The parties involved in the transaction represented corporations and not their own personal interest. Moreover, “Victoria Court, GMT Consolidated Company and Victoria Group of Companies” are only tradenames and not real corporations.
(c) There has been a request filed for the nullification of subject Purchase Order. At the very least, Branch 63 of the trial court should momentarily cease proceedings in case 91-2069 because of the pending incident before another court.

· September 16, 1991: Branch 63 of the Makati RTC through respondent Judge Julio Logarta issued an order dismissing Civil Case No. 91-2069 due to litis pendentia.

According to Remedial Law, the concurrence of the following requisites should be observed if one is to invoke Litis Pendentia as grounds for dismissal of action:

(a) identity of parties, or at least such as representing the same interest in both actions;
(b) identity of rights asserted and relief prayed for, the relief being founded on the same facts; and
(c) the identity in the two (2) cases should be such that the judgment that may be rendered in the pending case would, regardless of which party is successful, amount to res judicata in the other.

· September 19, 1991: Petitioner in Civil Case 91-2069 filed a contempt charge vs. respondents Velhagen and King for forum shopping claiming citing that the respondents did not file an answer with compulsory counterclaim upon receipt of their respective summons.

· September 25, 1991: Judge Zeus Abrogar , acting on the petitioner’s motion to dismiss Civil Case NO. 91-2192, handed an order to reserve summons on the petitioner.

· October 4, 1991: Petitioner of Civil Case No. 91-2069 requested and thereafter obtained, a photocopy of order of dismissal of abovementioned case, after accidentally learning of the dismissal. Apparently, the petitioner’s counsel has not yet received the dismissal.

· October 9, 1991: Victronics filed an Ex Abundante Cautela Motion To Refer Forum-Shopping Charge to Executive Judge. Petitioner also filed a Motion for Reconsideration on the said order of dismissal.

· October 14, 1991: Petitioner filed for a Motion to Dismiss Civil Case No. 91-2192 on the ground of litis pendentia and forum shopping.

· December 11, 1991: Petitioner filed in Civil Case 91-2069 for a motion for the consolidation of the two cases before Branch 63.

· January 6, 1992: Petitioner filed again a Manifestation Pro Hac Vice wherein it stated that there was “technically no pending action before Branch 150 as it had not yet acquired jurisdiction over the person of the petitioner due to the improper service of summons”.

· January 20, 1992: Petitioner in Civil Case No. 91-2192 filed an Answer with Compulsory Counterclaim. Also on that day, petitioner filed in Civil Case No. 91-2069 filed an Amended Complaint including therein, as additional defendants, the six corporations which sued the plaintiffs in Civil Case No. 91-2192.

· February 7, 1992: Clerk of Court of Branch 63 sent petitioner of Civil Case No. 91-2069 the resolution dated January 22, 1992, which resolved the various motions filed:

(a) Motion for Consolidation filed by plaintiff on December 11, 1991 was denied for being doubtful and academic.
(b) All other motions (Motion for Reconsideration dated October 7, 1991; Contempt Charge for Forum-shopping; The Motion to Refer the Contempt Charge to the Executive Judge; and Manifestation Pro Hac Vice) were denied and the order handed down last September 16, 1991 dismissing abovementioned case was REITERATED.

· February 20, 1992: Respondent Court in Civil Case 91-2069 issued another order denying the petitioner’s motion for the issuance of an alias summons2.

II. SUPREME COURT DECISION

The Supreme Court focused on two aspects on the instant petition filed the petitioner:

1. Whether or not the respondent Court erred in dismissing, on the ground of litis pendentia, Civil Case No. 91-2069 which has priority in respect to the time of filing.
2. Whether or not the private respondents are guilty of forum-shopping.

Noting again the rules of litis pendentia:

(a) identity of parties, or at least such as representing the same interest in both actions;
(b) identity of rights asserted and relief prayed for, the relief being founded on the same facts; and
(c) the identity in the two (2) cases should be such that the judgment that may be rendered in the pending case would, regardless of which party is successful, amount to res judicata3 in the other.

It was noted by the Supreme Court that the identity of the parties in both cases were clearly established although in different personalities and that there is not doubt that the defendants in the first case and the plaintiffs in the second case are one in the same. Moreover, there is a common fact that both cases are vying for and that is the validity of the Purchase Order. The first case filed (Civil Case No. 91-2069) involves the performance of the contract whereas the second case (Civil Case No. 91-2192) seeks for the nullification of said contract.

Noting that there is no hard and fast rule that determines which of the actions should be declined, the high court ruled that the second case be abated citing that the priority in time gives preference in law (Qui prior est tempore, potior est jure4). The court mentioned previously decided cases5 regarding litis pedentia which reinforced this ruling. They mentioned the rule’s limitations noting that the second action should not be brought to annoy the defendant for if it could be proven that the second action is not vexatious, the high court can allow the second action to stand and the first one to be discontinued.

They further ruled that the second case was filed not in due faith or to seek justice over a genuine wrong committed, but to be a nuisance and to harass the plaintiff of the first case in another forum. They particularly observed the haste in the preparation of Complaint filed by the defendants of the first case. Moreover, the defendants did not follow the Section 7, Rule 8 of the Rules of Court, which expressly states:

Sec. 7. Action or defense based on document.
— Whenever an action or defense is based upon a written instrument or document, the substance of such instrument or document shall be set forth in the pleading, and the original or a copy thereof shall be attached to the pleading as an exhibit, which shall be deemed to be a part of the pleading, or said copy may with like effect be set forth in the pleading. (7)

No compliance was made since the defendants were not able to submit or attach a copy of the Purchase Order in their complaint. It was apparent that the defendants wanted to file their petition ahead of the summons from Civil Case 91-2069.

Regarding the issue of forum-shopping, the high court defined in the case, forum shopping as such:

In People vs. Court of Appeals,6 We noted that forum-shopping has its roots in the rule that a party should not be allowed to pursue simultaneous remedies in two (2) different forums for it does havoc to the rule on orderly procedure. Later, in E. Razon Inc. vs. Philippine Port Authority,7 We specifically declared that forum-shopping is an act of malpractice that is proscribed and condemned as trifling with the courts and abusing their processes; it is improper conduct that tends to degrade the administration of justice. Thus, the said rule has been formalized in Section 17 of the Interim Rules and Guidelines issued by this Court on 11 January 1983 in connection with the implementation of the Judiciary Reorganization Act (Batas Pambansa Blg. 129).

The court ruled that there was no forum-shopping. It was mentioned that instead of filing a new case, they should have filed a responsive pleading.

Therefore, the Supreme Court granted the instant petition of the petitioner and dismissing Civil Case No. 91-2192 instead of 91-2069 on grounds of litis pendentia and ordering the defendants to pay the cost of the case. They also modified the ruling of the respondent court dated last January 22, 1992 in Civil Case 91-2069 setting aside the portion denying the motion to reconsider its Order of September 16, 1991 and declared the portion denying the motion as moot and academic.


III. ANALYSIS

This is a difficult case to understand even with the simplified timeline. It would have indeed been easier if the plaintiffs and defendants just filed charges and counter-charges against each other instead of changing personalities in different cases.

To simplify the case, the plaintiff (Victronics) delivered goods to the defendant (Victoria Court et al) but only received 50% downpayment. When they tried to demand the balance, the defendant refused to honor the contract citing that the purchase order was null and void due to fraud. The plaintiff then filed a complaint asking for what is due to them and the defendant filed another case in another forum asking for the nullification of the contract. Numerous claims, counter-claims and motions for reconsideration were filed days after each other. (It should be noted that this is the fastest case to be resolved out of the cases studied in the course with the Supreme Court deciding on the case less than 3 years after the first complaint was filed).

I noticed that the case itself has not been decided or tried yet (no wonder resolution with the high court was quickly decided). The matter in argument is which case should take effect or should be tried. The Supreme Court ruled that the first case should be tried and the second one be dismissed or abated. I concur with the high court’s ruling in this issue. The adage “the early bird catches the worm” surely is in effect here.

The defendants of the first case requested for the dismissal of Case 91-2069 on grounds of litis pendentia which was granted by the RTC of Makati. The Supreme Court, however, interpreted the law in a different light. They also mentioned that the defendants of the first case filed the second case to cause to vex the other party. It somehow reminded me of two children fighting, albeit with higher stakes and at a more expensive arena. Instead of telling on their respective mothers, they have the law and the courts to settle their issues. The issue of good faith was brought up and apparently, Victoria Court et. al. did not follow this when they filed the second case with the Supreme Court noting how fast the defendants filed the succeeding case and motions.

As for the issue of forum shopping, both the RTC Branch and the Supreme Court ruled that no such thing existed although they cited different reasons. The RTC Branch said that the allegation of forum shopping was negated by their request for dismissal of the preceding case to give way to the second case. The Supreme Court did concur to the reason of the decision, however, they mentioned that no forum shopping happened the reasons of which, I simply could not comprehend. To quote the Supreme Court’s ruling on this case: In People vs. Court of Appeals, we noted that forum-shopping has its roots in the rule that a party should not be allowed to pursue simultaneous remedies in two (2) different forums for it does havoc to the rule on orderly procedure. Later, in E. Razon Inc. vs. Philippine Port Authority, we specifically declared that forum-shopping is an act of malpractice that is proscribed and condemned as trifling with the courts and abusing their processes; it is improper conduct that tends to degrade the administration of justice. Thus, the said rule has been formalized in Section 17 of the Interim Rules and Guidelines issued by this Court on 11 January 1983 in connection with the implementation of the Judiciary Reorganization Act (Batas Pambansa Blg. 129). A review of the cases on forum-shopping reveals, however, that they involve parties filing two (2) or more suits in different forums. The rule has not been extended to a defendant who, for reasons known only to him, commences a new action against the plaintiff — instead of filing a responsive pleading in the other case — setting forth therein, as causes of action, specific denials, special and affirmative defenses or even counterclaims. Thus, Velhagen's and King's motion to dismiss Civil Case No. 91-2069 by no means negates the charge of forum-shopping as such did not exist in the first place.

Based on my understanding of the aforementioned ruling, forum shopping happens when two parties experiencing dispute over a certain object, files their respective cases in different courts or forum wherein they seek simultaneous remedies to their dispute. In each case, both parties have different personalities.

I would very much agree with the ruling of the RTC in this, case since one requisite of forum shopping is that each case are seeking simultaneous remedies without any notice of dismissal. Seeing as Victoria Court et. al. asked for a dismissal, no forum shopping happened.

Nevertheless, I find that ruling quite vague. The point that both cases caused havoc and confusion would be basis enough for me to rule that forum shopping did happen. If the defendant of the first case did have something to say on the case, they should have filed a counter-claim instead of filing another case in another court. Requesting for negation of a succeeding or preceding case would still not hold for me. They already wasted court time by arguing and filing motions on which case will hold and be tried.

Even if it is not relevant to the case since the case itself was not yet tried, I would want to point out the issue of price padding. Price padding happens when the actual purchase price is increased to a certain level and the difference is pocketed by the purchaser and seller. It’s a very lucrative business since the purchase price can actually increase up to more than 100% without the owner’s knowledge. Price padding is still prevalent now especially in purchasing departments of companies. I have been a witness to this as it was one of the reasons which caused the downfall of my parents’ business. Price padding can be difficult to spot moreover when the business does not have any current spot or audit checks. It’s just the matter of trusting the right people who still practice proper business ethics.

To conclude, I concur with the high courts ruling of litis pendentia in noting that the first case shall uphold and deciding that the second case be abated. However, I disagree with their ruling regarding forum shopping since I believe that the cases already caused confusion by not correctly utilizing the correct forum in filing their complaints.


FOOTNOTES:
1 Panorama Enterprises, Inc., Pasig Tourist Development corp., Malate Tourist Development Corp., Caloocan Tourist Development Corp., Galactic Space Development Corp. and Barrientos & Co., Inc.
2Another summons when the original is not served on the defendant. www.divorcelawinfo.com/gloss.htm
3A rule of civil law that once a matter has been litigated and final judgment has been rendered by the trial court, the matter cannot be relitigated by the parties in the same court, or any other trial court.
www.montgomerycountymd.gov/mc/judicial/circuit/glossary/glossary.html
4He who is before in time is the better in right. Priority in time gives preference in law: Black's Law Dictionary, Fifth ed., 1125.
5Teodoro vs. Mirasol 99 Phil. 150, 153 [1956]; Roa-Magsaysay s. Magsaysay 98 SCRA 592, 605-606 [1980]; Ramos vs. Peralta 203 SCRA 412, 419 [1991].
6101 SCRA 450 [1980].
7G.R. No. 75197, Resolution of 31 July 1986, quoted in Buan vs. Lopez, Jr., 145 SCRA 34, 38-39 [1986].

PNB vs. CA and BP Mata and Co.

This is a case wherein a well-known financial institution had an internal problem and they only realized and took action to regularize it, seven years too late

I. CASE FACTS


· A US company, Star Kist Foods, Inc. USA (Star Kist) engaged local B.P. Mata Co. Inc (Mata) in providing manning and crewing services for their company located in the United States. Payment is settled through telegraphic transfer involving several banks namely Security Pacific National Bank (SEPAC) of Los Angeles as the bank of Star Kist, Philippine National Bank (PNB) as the bank with the agency arrangement with Star Kist, and Insular Bank of Asia and America (IBAA) as the bank of Mata.
· February 24, 1975: PNB issued a Cashier’s Check amounting to $1,400 for the account of Mata representing payment for services rendered by Mata to Star Kist.
· March 11, 1975: PNB effected another payment amounting to $14,000, which was said to be another payment made by Star Kist. Prior February 24, the PNB International Department received notice for payment for $14,000 to Mata but they returned the missive to SEPAC Bank noting an error. It was cleared by SEPAC Bank that the notice should only be for $1,400 and NOT $14,000.
· May 31, 1981: PNB requested Mata for refund of $14,000, which was mistakenly paid to them.
· February 4, 1982: PNB filed a civil case for collection and refund of $14,000 against Mata using Article 14561 as basis for their argument.


II. DECISION OF THE COURTS


Regional Trial Court

The RTC dismissed the complaint stating that the case falls under Article 21542 instead of Article 1456. They ruled that the trust code does not apply in this case by using the technical definition of trust that is “a right of property, real or personal, held by one party for the benefit of another, that there is a fiduciary relation between a trustee and a cestui que trust as regards certain property, real, personal, money or chooses in action.”

Court of Appeals

PNB elevated the case to the Court of Appeals wherein said court affirmed the decision of the lower court. The appellate court also added that the case would not prosper due to the prescription provided in Article 1145 that states:
Art. 1145. The following actions must be commenced within six years:
(1) Upon an oral contract;
(2) Upon a quasi-contract. (n)

Supreme Court

The Supreme Court applied both Art. 1456 which is on constructive trust and Art. 2154 which is on solutio indebiti to the case.

They determined that there is constructive trust involved enforcing Art. 1456. A constructive trust is a form of implied trust. Implied trusts are “those which, without being expressed, are deducible from the nature of the transaction as matters of the intent or which are superinduced on the transaction by operation of the law as matters of equity, independently of the particular intention of the parties.” Constructive trusts occur when “there is neither a promise nor any fiduciary relation to speak of and the so-called trustee neither accepts any trust nor intends holding the property for the beneficiary.” Following the aforementioned definitions, there is trust involved. There was no expression or contract stipulating that Mata and PNB have a fiduciary relationship, however, the point that there was a transaction that would infer such an arrangement (payment), constructive trust has been established.

The Supreme Court also adapted Art. 2154 for the case clearly falls in this article. Mata received money, which had not right to demand it, and there was also a mistake of delivery.

. However, due to the prescription of Art. 2154, quasi-contract can no longer be an alternative leaving constructive trust as the applicable option.

As for the issue whether or not PNB can still claim the $14,000, the Supreme Court ruled that it couldn’t be possible. Even though the case is still within the prescription period, the petitioner cannot do so because they were proved to be negligent in exercising their legal right. It took them seven years to realize their error and for a big bank such as PNB, that is very remarkable. Banks are subject to audits and an error such as that should have been spotted within the year. The bank should, therefore, bear the cost of their own negligence.


III. ANALYSIS

It is becoming clear to me that the law does not tolerate negligence. It maybe argued that it is not just nor equitable for PNB not be able to claim the money that they mistakenly paid Mata, but they have to suffer the cost of their own negligence.

Working for a bank for the past 4 years, we have been taught to be meticulous and careful in every transaction that we undertake. Audit, spot checks and counter checkings have been established to prevent erroneous entries and mitigate possible mistakes. Fear motivates us actually. Fear that we’ll lose our jobs or that we’ll find ourselves defendants in a civil case.

That’s why I find it really unbelievable that a big bank, such as PNB, should only spot its error 7 years after the transaction.

There also is a thing, not only for banks, but also for companies, called a fiscal year. At the end of a fiscal year, everything and I mean EVERYTHING should be balanced. $14,000 is a big amount, which should have been easily traced.


Footnotes:
1 Art. 1456: If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes.

2Art. 2154: If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises.