SUPREME INVESTMENT CORPORATION, PLAINTIFF-APPELLANT, VS. ENGINEERING EQUIPMENT, INC., DEFENDANT-APPELLEE.

Supreme Investment versus Engineering Equipment

The Case

This is a civil action for rescission of contract and damages, brought by Supreme Investment Corporation against Engineering Equipment, Incorporated. The parties had entered into a contract for the construction and installation of an airconditioning system in the plaintiff's building, and the relationship soured when the building project was abandoned. The case matters because it is the classic illustration of the rule against forum shopping through the device of a second action, and of the bar against splitting a cause of action. It teaches when the pendency of another action between the same parties for the same cause will justify dismissal, and why a litigant who fails to set up a compulsory counterclaim or cross-claim in the first case cannot later bring a separate action for it.

Procedural History

The plaintiff, Supreme Investment Corporation, filed a complaint for rescission of contract and damages before the Court of First Instance of Manila. The defendant, Engineering Equipment, Incorporated, moved to dismiss on the ground that there is another action pending between the same parties for the same cause, referring to an earlier complaint it had filed against the plaintiff in the same court. The trial court granted the motion to dismiss in an order dated January 8, 1966, and denied the plaintiff's motion for reconsideration on January 28, 1966. The plaintiff then gave notice of its intention to elevate the matter to the Supreme Court on appeal, the issue involved being purely of law. The case reached the Supreme Court by appeal from the two orders of dismissal.

Facts

On July 31, 1963, Supreme Investment Corporation and Engineering Equipment, Incorporated entered into a contract whereby the defendant agreed to furnish the materials, equipment, and labor necessary for the construction and installation of an airconditioning system from the ground floor to the sixth floor of the plaintiff's building at Buendia Avenue, Makati, Rizal. The plaintiff bound itself to pay the aggregate sum of 222,000 pesos in four installments: ten percent upon signing, thirty percent upon delivery of the equipment at the job site, thirty percent upon completion of the project, and thirty percent thirty days after starting the system. Upon perfection of the contract, the plaintiff paid the first installment of 22,200 pesos, and later received from the defendant the additional sum of 20,000 pesos in partial satisfaction of the second installment.

The defendant maintained that it had fully complied with its obligations, but that sometime in November 1964 the plaintiff suddenly stopped the construction of its building and abandoned the same, resulting in the non-commencement of the test-running of the completed and installed airconditioning system. To minimize further damages due to possible losses or pilferages, the defendant removed some parts of its equipment from the abandoned job site, keeping them for safekeeping but ready to be re-installed at a moment's notice upon the plaintiff's compliance with its obligations.

On November 10, 1965, the defendant wrote the plaintiff asserting that the total value of work completed as of October 30, 1965 amounted to 203,476.89 pesos, and demanding payment as a condition for agreeing to a rescission of the contract or the resumption of work. On December 7, 1965, counsel for the plaintiff replied, taking exception to the defendant's averments and advising the defendant to consider the contract rescinded if delivery of the undelivered items was not made within ten days. Before the expiration of that period, on December 17, 1965, the defendant filed a complaint for specific performance and damages against the plaintiff. About a week later, on December 23, 1965, the plaintiff filed its own complaint for rescission of the contract and damages against the defendant.

Issues

• Whether or not the trial court erred in proceeding with the consideration and resolution of the defendant's motion to dismiss on January 8, 1966, despite the alleged lack of three days' previous notice.
• Whether or not the trial court erred in dismissing the complaint on the ground of pendency of another action between the same parties for the same cause.
• Whether or not the trial court erred in refusing to reconsider the order of dismissal and in not ordering the consolidation of this case with the earlier case.

Applicable Provisions

Section 4 of Rule 15 of the Revised Rules of Court provides:

Section 4. Notice. Notice of a motion shall be served by the applicant to all parties concerned, at least three (3) days before the hearing thereof, together with a copy of the motion, and of any affidavits and other papers accompanying it. The court, however, for good cause may hear a motion on shorter notice, specially on matters which the court may dispose of on its own motion.

This provision bears on the first issue, because it expressly authorizes the court, for good cause, to hear a motion on shorter notice.

Section 6 of Rule 15 of the Revised Rules of Court provides:

Section 6. Proof of service, to be filed with motion. No motion shall be acted upon by the court, without proof of service of the notice thereof, except when the court is satisfied that the rights of the adverse party or parties are not affected.

This provision bears on the first issue as well, since the adverse party had actual notice and appeared at the hearing.

Section 49 of Rule 39 of the Revised Rules of Court provides:

A judgment is conclusive between the parties and their successors in interest, with respect to the matter directly adjudged, and as to any other matter that could have been raised in relation thereto.

This provision bears on the second issue, because it forecloses in the second case any relief that could have been raised in the first.

Section 4 of Rule 9 of the Revised Rules of Court provides:

A counterclaim or cross-claim not set up shall be barred if it arises out of or is necessarily connected with, the transaction or occurrence that is the subject-matter of the opposing party's or co-party's claim.

This provision bears on the second issue, because the plaintiff's claim for rescission and damages arose out of the same transaction as the defendant's complaint.

Ruling

On the first issue, the Court held that no reversible error was committed. Although the three-day notice rule was invoked, the Court noted that under Section 4 the court for good cause may hear a motion on shorter notice, and that the plaintiff had admittedly received previous notice of the motion and of the date of its hearing. Counsel for the plaintiff was present in court on that date, and there was no question about the pendency of the earlier case or about the contents of the complaint therein. It was clear in the mind of the trial judge that the earlier case was between the same parties and for the same cause, and in considering this as good cause to hear and act on the motion on shorter notice, the lower court committed no reversible error.

On the second issue, the Court held that the pretense of lack of identity of rights and reliefs was manifestly devoid of merit. The plaintiff alleged in its complaint that the defendant was guilty of breach of contract, for which the same should be rescinded, and identical averments were made as affirmative defenses in the plaintiff's answer in the earlier case. The issue in both cases was one and the same: who among the parties violated the contract. The Court held that the parties in this case would be bound by the decision in the earlier case, which would bar any other adjudication. Even if the earlier case should merely dismiss the complaint without granting the plaintiff any affirmative relief, that decision would still foreclose the grant of such relief in this case, for a judgment is conclusive not only with respect to the matter directly adjudged but also as to any other matter that could have been raised in relation thereto. Moreover, a counterclaim or cross-claim not set up is barred if it arises out of or is necessarily connected with the transaction or occurrence that is the subject-matter of the opposing party's claim. The Court distinguished the case cited by the plaintiff, which involved one ordinary action and a special civil action, the latter in a municipal court beyond the jurisdiction of the court of first instance, whereas here both actions are ordinary actions pending in the same court of first instance.

On the third issue, the Court held that although the lower court could have ordered consolidation in the exercise of its discretion, it was not prepared to hold that the court had abused its discretion or committed a reversible error in ordering the dismissal, since discretion is the authority to choose between several alternatives and be right whichever alternative is chosen.

Doctrine

The pendency of another action between the same parties for the same cause is a ground for dismissal, and the test of identity of cause is whether the same issue is presented, namely who among the parties violated the contract. A judgment is conclusive between the parties not only with respect to the matter directly adjudged but also as to any other matter that could have been raised in relation thereto. A counterclaim or cross-claim not set up is barred if it arises out of or is necessarily connected with the transaction or occurrence that is the subject-matter of the opposing party's claim. The court may, for good cause, hear a motion on shorter notice, especially where the adverse party had actual notice and appeared at the hearing.

Disposition

The Supreme Court affirmed the orders appealed from, with costs against the plaintiff-appellant, Supreme Investment Corporation.

Remember This

The single line worth memorizing is that a judgment is conclusive not only as to the matter directly adjudged but also as to any other matter that could have been raised in relation thereto, and a counterclaim or cross-claim not set up is barred. Examiners like to use this case to test the rule against splitting a cause of action and the bar against a second action that raises matters which should have been set up as a compulsory counterclaim or cross-claim in the first case.