FELIX A, YUBOCO, ET AL., PLAINTIFFS AND APPELLANTS, VS. JOSE L. MATIAS, ET AL., DEFENDANTS AND APPELLEES.

Yuboco versus Matias

The Case

This is a civil action in which Felix Yuboco and his co-plaintiffs sued Jose Matias and the Caiman Plantation Company to compel compliance with a preliminary contract for the sale of property, founded on a tender of earnest money. The trial court dismissed the complaint for failure to prosecute, and the plaintiffs appealed. The case matters to the reviewee for two reasons: it teaches the rule on dismissal for failure to prosecute, and it shows the Supreme Court affirming such a dismissal not on the bare one-year delay alone, but because the record disclosed facts that would very probably defeat the plaintiffs' cause of action anyway.

Procedural History

The complaint was filed in the Court of First Instance of Manila. The defendant Caiman Plantation Company answered and set up a counterclaim, to which the plaintiffs replied. The next pleading of record was the motion to dismiss filed by Caiman Plantation, to which the plaintiffs filed a written opposition. A reply and rejoinder followed. While the motion to dismiss was still pending, the plaintiffs sought and obtained a preliminary injunction, upon a bond, restraining Caiman Plantation from disposing of its properties. The court later denied the motion to dismiss. Caiman Plantation then moved to dissolve the preliminary injunction and to repeat its motion to dismiss, and the court decreed that the injunction may be dissolved if the defendants filed a counterbond.

Thereafter, in June 1962, the court on its own motion dismissed the case, upon finding that for one full year the plaintiffs did nothing to prosecute their claim. The plaintiffs failed to secure reinstatement of their case, and they appealed to the Supreme Court.

Facts

The plaintiffs sought to require the defendants to comply with a preliminary contract. Under its terms, the sum of 20,000 pesos was tendered and paid as earnest money; 80,000 pesos would be paid upon execution of the formal documents signed by all the parties concerned; and 110,000 pesos would be the amount assumed to pay the estate and inheritance taxes due the Bureau of Internal Revenue, if feasible, or any other party concerned, through the assurance and guarantee of Mr. Mariano Y. Santos.

The defendants answered that certain conditions in the agreement had failed to materialize, namely the condition about assuming responsibility for inheritance taxes. For that failure, the defendants had offered on September 1, 1959, to return the check for 20,000 pesos given as earnest money, and the plaintiffs themselves admitted that offer in their complaint.

It appeared from the pleadings that up to July 1962 the check for 20,000 pesos had not been cashed by the defendants. Indeed, in August 1962 they found from the drawee bank that the drawer, the plaintiffs, had no funds. The plaintiffs then had to admit before the court that they had withdrawn the funds from the bank after the case had been filed, because there was no sense in freezing the amount of 20,000 pesos during the pendency of the case.

Issues

• Whether or not the trial court properly dismissed the complaint for failure to prosecute, the period of the plaintiffs' inaction having lasted for only one year.
• Whether or not the dismissal should stand in the light of facts in the record which would very probably defeat the plaintiffs' cause of action.

Applicable Provisions

The decision does not quote any statutory provision. It applies the settled rule on dismissal for failure to prosecute, which the Court measured against the one-year period of inaction and against the presumption in favor of the correctness of the judge's ruling. The Court also weighed the terms of the preliminary contract itself, which it quoted in part:

That the sum of Twenty Thousand Pesos Phil. Trust Co. Check No. EB 394206 A, is hereby tendered and paid as earnest money, the receipt of which is hereby acknowledged.

That the sum of Eighty Thousand Pesos will be paid upon execution of the formal documents signed by all the parties concerned.

That the sum of One Hundred Ten Thousand Pesos will be the amount assumed to pay the estate and inheritance taxes due and Bureau of Internal Revenue if feasible or any other party concerned thru the assurance and guarantee of Mr. Mariano Y. Santos.

These terms bear on the case because the defendants asserted that the condition on assuming the inheritance taxes had failed to materialize, which the record tended to confirm.

Ruling

On the first issue, the Court observed that the period of the plaintiffs' inaction lasted for only one year, but it bore in mind the presumption in favor of the correctness of the judge's ruling. Its first impulse was to approve the dismissal with the proviso that it shall be without prejudice. The Court noted, too, that the existence of the preliminary injunction made prompt decision imperative.

On the second issue, the Court elected to affirm the order of dismissal, because the record exhibited facts which very probably would defeat the plaintiffs' cause of action. The defendants had offered on September 1, 1959, to return the 20,000-peso earnest money check, and the plaintiffs admitted that offer in their complaint. Up to July 1962 the check had not been cashed, and in August 1962 the defendants found from the drawee bank that the drawer had no funds. The plaintiffs admitted they had withdrawn the funds after the case was filed, saying there was no sense in freezing the amount during the pendency of the case. These circumstances furnished strong ground to suppose that the hitch asserted as a defense, the non-fulfillment of the condition on inheritance taxes, had actually occurred. The Court held that the subsequent withdrawal of the funds covering the earnest money check could properly be regarded as a valid defense to the action, or as a virtual rescission of the contract by the plaintiffs themselves.

Doctrine

A complaint may be dismissed for failure to prosecute, and the trial court's order of dismissal carries the presumption of correctness. Even where the period of inaction is short, the Supreme Court may affirm the dismissal where the record discloses facts that would very probably defeat the plaintiffs' cause of action, so that a remand would serve no purpose.

The withdrawal by the buyer of the funds covering an earnest money check, after the case has been filed, may be regarded as a valid defense to the action, or as a virtual rescission of the contract by the buyer himself. A party who tenders a check as earnest money and then renders it worthless cannot demand performance from the other side.

Disposition

The Supreme Court affirmed the order of dismissal, with costs against the plaintiffs.

Remember This

The line worth memorizing is that the withdrawal of the funds covering the earnest money check may be regarded as a valid defense, or as a virtual rescission of the contract by the plaintiffs themselves. Examiners use this case to test dismissal for failure to prosecute and the effect of a buyer's own act of stripping an earnest money check of value.