LA SUERTE CIGAR & CIGARETTE FACTORY, PLAINTIFF, VS. CENTRAL AZUCARERA DEL DANAO, ET AL., DEFENDANTS. CENTRAL AZUCARERA DEL DANAO, THIRD-PARTY PLAINTIFF-APPELLANT, VS. TALISAY-SI…

This appeal from an order of the Court of First Instance of Negros Occidental dismissing a third-party complaint was
certified to us by the Court of Appeals.

The basic question tendered for resolution is whether the
third-party complaint states a cause of action.

A concise narration of the essential antecedent events is
contained in the resolution of the Court of Appeals of May 19, 1984, as follows:

“On January 23, 1962, the La Suerte
Cigar and Cigarette Factory filed an action for a sum of money, allegedly
representing the value of cigarettes purchased on credit from it, before the of
Court First Instance of Negros Occidental against the
Central Azucarera del Danao,
the Talisay-Silay Milling Company, Inc. and J. Amado Araneta.  Upon
motion by the defendants J. Amado Araneta
and Talisay-Silay Milling Company, Inc., the
complaint was dismissed against them, thereby leaving the Central Azucarera del Danao the sole
defendant.

“On June 15, 1962, the Central Azucarera
del Danao turned against the two discharged
defendants by filing a third-party complaint against them.  Upon motion of the two third-party defendants
the third-party complaint was also dismissed for lack of a sufficient cause of
action.  Hence, this
appeal.”

Liability for payment of the amount claimed by the plaintiff La Suerte Cigar and Cigarette Factory from the Central Azucarera del Danao (hereinafter
referred to as the Central) is sought to be shifted by the latter to the
third-party defendants Talisay-Silay Milling Co.,
Inc. and J. Amado Araneta
by the following allegations of the third-party complaint

“4.  That a complaint
was filed in this case by plaintiff La Suerte Cigar
& Cigarette Factory where­in it is prayed, among other thing that the defendant
be to pay said plaintiff the sum of P8,164.00, plus 12% thereof per annum as
interest from August 10, 1954, allegedly representing the value of several
kinds of cigarettes delivered to the defendant during the period from August
10, 1954, to November 25, 1955; it is also prayed in the complaint that said
defendant be ordered to pay the same plaintiff the amount of P2,000.00 as
damages, another P2,000.00 as attorney’s fees and costs.  A copy of this complaint is hereto marked
Annex ‘A’ thereof;

“5.  That when the cigarettes
referred to in the complaint Annex ‘A’ were allegedly delivered to the
third-party plaintiff, about 95% of the shares of stock of said central were
owned by the third-party defendant Talisay-Silay
Milling Co., Inc., and the majority of stock of the latter corporation was in
turn owned by the third-party de­fendant J. Amado Araneta;

“6.  That
on March 3, 1960 an agreement was entered into by and among the Philippine
National Bank, the Talisay-Silay Milling Co. Inc. and
the Central Azucarera del Danao
by virtue of which and in consideration of the sums of money mentioned in the
agreement, the Philippine National Bank acquired from the herein third-party defendant
Talisay-Silay all its shares of stock in the Central Azucarera del Danao.  Copy of this agreement is hereto attached
marked Annex ‘B’;

“7.  That
among other things, it was agreed in the agreement Annex ‘B’ [paragraph 9]:

‘That all obligations of Central Azucarera
del Danao incurred before the date of this Agreement but
not those incurred by the BANK during the period when the Central Azucarers del Danao was under the
Management of the Bank, in favor of trade creditors for supplies, equipment,
fuel and spare parts, outstanding in the books of Danao
shall be listed and itemized, and only such items as are approved and
acknowledged by the BANK shall be considered as legitimately incurred and due
for payment by Danao.’

“8. 
That in paragraph 10 of the same agreement Annex ‘B’, it was
further stipulated:

‘That any or all obligations purporting to be [those of] Central Azucarera del Danao but not
appearing [in] the books thereof nor acknowledge as in paragraph 9 above
[shall] be borne and paid for by Talisay-Silay
Central and/or Mr. J. Amado Araneta.’

“9.  That the sum of P8,164,00
claimed in the complaint Annex ‘A’ has never been approved nor acknowledged for
payment by the Philippine National Bank nor by the third-party plaintiff in
accordance with the above-copied provisions of the agreement Annex ‘B’ hereof,
so payment of said amount, and of the other sums of money claimed in the
complaint Annex ‘A’ remained to be the obligation of the third-party
defendants, Talisay-Silay Milling Co., Inc. and/or Amado Araneta;

“10.  That inspite of repeated demand’s made by the plaintiff and
third-party plaintiff upon the third-party defendants, the latter have re­fused
and until now refuse to pay said amounts claimed in the complaint; * * *”

Attacking the sufficiency of the third-party complaint the
third-party defendants maintain that under the above-cited paragraph 9 of the
agreement (annex B), their liability for the obligations incurred by the
Central prior to the date of the said agreement that is, before March 3, 1960,
attach only when it appears that the said obligations are outstanding in the
books of the Central and the same have been listed and itemized but have not
been approved and acknowledged by the Philippine National Bank.  Rebutting this argument, the Central argues
that all that is necessary to hold the third-party defendants liable is the
allegation that the said ac­counts have not been acknowledged and approved by
the Philippine National Bank.  It further
posits that the foregoing contention of the third-party defendants is a matter
of defense which need not be alleged nor anticipated in the third-party
complaint.  Curiously, both parties
anchored their respective positions only on paragraph 9 of the agreement.

The court a quo, as previously stated, sustained
the position of the third-party defendants and accordingly dismissed the
third-party complaint for failure to state a cause of action. 

Upon a careful analysis of the above-quoted paragraph 9 and 10 of
the agreement, it is our view that both parties are equally mistaken in so far
as they invoke only paragraph 9 in support of their respective contentions, and
that paragraph 10 of the agreement is likewise determinative of the issue in
this case.

Under paragraph 9, (1) all obligations of the Central incurred
before the date of the agreement in favor of trade creditors for supplies,
equipment, fuel and spare parts which are (a) outstanding in the books of the
Central, (b) listed and itemized, and (c) approved and acknowledged by the Philippine
National Bank, shall be paid by the Central; and (2) all obligations incurred
by the Central during the period when it was under management by the Philippine
National Bank shall be paid by the latter. 
Under paragraph 10, all obligations incurred before the date of the
agreement and purporting to be those of the Central but not appearing in the
book thereof nor acknowledged as in paragraph 9 above shall be borne and
paid for by the Talisay-Silay Milling Co., Inc.
and/or by J. Amado Araneta.

Verily, an allegation that the obligations are outstanding in the
books of the Central and the same are listed and itemized is necessary to
charge liability against the Central not against the third-party
defendants.  On the other hand, the absence
of the foregoing circumstances–appearance in the book listing and
itemization–shall cause the Talisay-Silay Co., Inc.
and/or J. Amado Araneta to
be liable.

It is to be assumed that the foregoing arrangement was made
because if the obligations incurred before the date of the agreement do not
appear in the books of the Central, then the Philippine National Bank, which
subsequently took over control of the said Central, could not be expected to
know and later approve and acknowledge such obligations.  Such obligations must be assumed by the Talisay-Silay Milling Co., Inc., the former owner of the
controlling interest in the Central, and/or J. Amado Araneta, president of the Central and the Talisay-Silay Milling Co., Inc., who represented the two
corporations in the agreement, unless of course, the Philippine National Bank
chose to approve and acknowledge such obligations.

Hence, the third-party complaint is not necessarily defective for
failure to allege that the obligation in question is outstanding in the books
of the Central and the same has been listed and itemized.  Such a positive allegation could in fact
negative the liability of the third-party defendants.

Nevertheless, the third-party complaint is fatally insufficient
for failure to aver that the obligation which is the subject of the plaintiff’s
claim does not appear in the books of the Central, even if it does
allege that the obligation in question “has never been approved nor
acknowledged for payment by the Philippine National Bank.” Because and on
the basis of this omission, we upheld the order of dismissal on the same ground
– failure to state a cause of action.

The test of the legal sufficiency of the facts alleged in the
complaint to constitute a cause of action, is whether
or not, admitting the facts alleged, the court could render a valid judgment
upon the same in accordance with the prayer of the complaint.^[1]
Obviously, the third-party complaint in dispute fails this test.  Even if the truth of the facts alleged in the
third-party complaint were admitted, the failure to allege that the obligation
in question does not appear in the books of the Central is a fatal
omission.  Liability of the third-party
defendants arises from and is defined by the above-mentioned agreement.  Consequently, the essential conditions stipulated
in the said agreement which would give rise to such liability must be alleged.  Otherwise, no cause of action would accrue
and no valid judgment could be rendered.

To recapitulate, the third-party complaint would have stated a
cause of action (1) if it had averred not only that the obligation in question
was not approved or acknowledged by the Philippine National Bank but as well
that it is outstanding in the books of the Central and is listed and itemized;
or, in the alternative, (2) if it had alleged that the obligation purports to be
one of the Central but does not appear in the books thereof.

ACCORDINGLY, the order of October 1, 1962 is affirmed, without prejudice to the
filing of another action in accordance with law.  No pronouncement as to costs.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, and
Angeles, JJ., concur.

^[1] Paminsan vs. Costales,
28 Phil. 487; Blay vs. Batangas Trans. Co., 80 Phil., 373; De
Jesus, et al. vs. Belarmino,
et al., 95 Phil. 365; Wise and Co. vs.
City of Manila, 101 Phil., 244; Valencia, et
al. vs. Layug, et al.,
103 Phil., 747