THE CITY OF BACOLOD, ETC., PLAINTIFF AND APPELLEE, VS. LEANDRO GRUET, ETC., DEFENDANT AND APPELLANT.

City of Bacolod versus Gruet

The Case

This is an appeal by Leandro Gruet from a decision of the Court of First Instance of Negros Occidental ordering San Miguel Brewery, Incorporated, as employer and principal of Gruet, to pay the City of Bacolod a sum of money representing a tax levied under two city ordinances. The City of Bacolod sued Gruet in his capacity as manager of the Bacolod Coca Cola Plant to collect a tax at three centavos per case. The case matters far beyond its tax arithmetic: it is a clean, memorable illustration of the rule that every action must be prosecuted in the name of the real party in interest, and that a judgment rendered against a corporation that was never impleaded and never served with summons is void as to that corporation.

Procedural History

The City of Bacolod filed a complaint in the Court of First Instance of Negros Occidental against Leandro Gruet alone, describing him as manager of the San Miguel Brewery, Bacolod Coca Cola Plant, Bacolod Branch. Gruet answered and raised as his first affirmative defense that he was not the proper party defendant, because the plant was owned and operated by San Miguel Brewery, Incorporated, a domestic corporation with its principal office in Manila. The complaint was never amended, and the corporation was never impleaded. The case went to trial on a stipulation of facts and was decided on the merits. The trial court ruled that the real party defendant was San Miguel Brewery, Incorporated, treated that corporation as the defendant, considered the pleadings correspondingly amended, and ordered it to pay the City of Bacolod the sum of 26,306 pesos and 54 centavos, plus the tax at three centavos per case from March 1960 and thereafter, with costs. Gruet appealed to the Supreme Court, assigning as his fourth error that the trial court should instead have dismissed the action.

Facts

The City of Bacolod enacted Ordinance Number 66 in 1949, imposing a tax of one centavo per case of coca cola. The Coca Cola Plant managed by Gruet paid that tax. In 1959, Ordinance Number 150 amended the earlier ordinance, effective the first of July 1959, adding a further levy of two centavos per case. Gruet refused to pay the additional amount and wrote a letter of protest to the City Mayor, furnishing a copy to the City Treasurer. Neither the Mayor nor the Treasurer replied.

The plant had also been paying the City of Bacolod one hundred pesos per annum as a manufacturer of aerated water under Ordinance Number 48, from the beginning of its operations in 1948. The parties stipulated these facts, and the case was submitted for decision.

The complaint, however, named only Gruet as defendant, describing him as manager of the plant. It made no reference to San Miguel Brewery, Incorporated, the corporation with office in Manila, and no summons was served on that corporation. Nothing in the complaint connected the corporation to the cause of action. Gruet's answer expressly alleged that the plant was owned and operated by the corporation, yet the complaint was never amended and the corporation was never made a party.

Issues

• Whether or not the action was prosecuted in the name of the real party in interest, as the Rules of Court require.
• Whether or not the trial court could validly treat San Miguel Brewery, Incorporated as the defendant and consider the pleadings amended, when that corporation was never impleaded and never served with summons.
• Whether or not the judgment of the trial court is of any effect against San Miguel Brewery, Incorporated.

Applicable Provisions

Section 2 of Rule 3 of the Rules of Court provides:

Every action must be prosecuted in the name of the real party in interest.

This is the express and mandatory provision the Court applies, and its violation is what the Court calls fatal to the action.

Ruling

On the first issue, the Court held that the action was prosecuted not in the name of the real party in interest, which was admittedly San Miguel Brewery, Incorporated, but in the name of Gruet as manager of its plant. This defect is fatal, because it violates the express and mandatory requirement that every action be prosecuted in the name of the real party in interest.

On the second issue, the Court refused to sustain the trial court's shortcut of treating the corporation as the defendant and deeming the pleadings amended. The corporation was never named in the process or the pleadings, and no summons reached it. The Court relied on its earlier ruling in Salmon and Pacific Commercial Company versus Tan Cueco, where a judgment against a company neither served with summons nor named as a party was declared void, and where it was said that the making of an attorney-in-fact a party defendant does not make the company a party defendant. The Court quoted the governing principle:

Section 114 of the Code of Civil Procedure requires an action to be brought in the name of the real party in interest; and a corrollary proposition requires that an action shall be brought against the persons or entities which are to be bound by the judgment obtained therein.

On the third issue, conformably with the Rules and that precedent, the Court held that the judgment of the trial court is of no effect against San Miguel Brewery, Incorporated. The Court explained that it took this step to avoid any useless judgment and to prevent throwing all the proceedings to naught to the ultimate prejudice of all parties concerned.

Doctrine

Every action must be prosecuted in the name of the real party in interest, and as a corollary, it must be brought against the persons or entities that are to be bound by the judgment. A person who acts merely as manager or attorney-in-fact of a corporation is not the real party in interest, and suing him does not make the corporation a party. A judgment rendered against a corporation that was never named in the pleadings and never served with summons is void as to that corporation, and the trial court cannot cure the defect by merely declaring the corporation the real defendant and considering the pleadings amended. The proper course is to set aside the judgment and remand the case so that the real party in interest may be impleaded and given its day in court.

Disposition

The Supreme Court set aside the decision appealed from and remanded the case to the trial court for further proceedings, giving San Miguel Brewery, Incorporated, the real party in interest, an opportunity to be heard by making it a party defendant, without costs.

Remember This

Memorize the line: a judgment against a corporation never impleaded and never served with summons is void, because every action must be prosecuted in the name of, and against, the real party in interest. Examiners use this case to test the real party in interest rule, the effect of suing a mere manager, and the nullity of judgments against parties never brought into court.