THE DE LA RAMA STEAMSHIP COMPANY, INC., PLAINTIFF AND APPELLEE, VS. NATIONAL DEVELOPMENT COMPANY, DEFENDANT AND APPELLANT.

This case is a sequel to G. R. No. L-8784, promulgated on May 21, 1956. Both
this ease and the previous one are the outcome of an agreement entered into
between the De la Rama Steamship Co., Inc. (hereafter known as De la Rama) and
the National Development Company (hereafter referred to as NDC), dated October
26, 1949, whereby De la Rama undertook the management of four “Doña” vessels
purchased by the Philippine Government from japan, with and through the advice
and help of De La Rama. De La Rama agreed to buy and the NDC agreed to sell, at
the formers option, each and all of the vessels purchased on the fifth year
following the date of purchase and delivery of each and every vessel, at a
purchase price which is to consist of the cast price of each vessel, plus such
expenses as De La Rama may have incurred in connection with the construction,
outfitting, provisioning and operation thereof. Should De La Rama fail to
exercise the right of option, paragraphs 3 and 4 grant De La Rama the right to
reimbursement for its expenses in manning, equipping, fueling, overhauling,
repairing the vessels and a loading commission, a discharging commission and an
overriding commission, sub-agent’s commission, etc.

In the previous case, G. R. No. L-3784, the principal question arose out of
the right granted by the management agreement to NDC to cancel upon one year’s
notice, the general agreement agency granted De La Rama. NDC decided to cancel
the contract but was opposed by De La Rama, which alleged that it had been
granted the option to purchase the vessels and in 1952 exercised the said right
of option to buy. In our decision We held that the NDC had the right to exercise
the right to cancel the agreement. So the option of De La Rama to purchase the
vessels was declared ineffective.

The right of De La Rama to exercise the option to purchase the vessels having
been denied, De La Rama filed on August 21, 1986 a “Supplemental
Pleading” which initiates this second case) (1) demanding that the NDG cease
to use the names of “Doña Aurora”, “Doña Nati” and “Doña Alicia” on the three
vessels subject of the original action, (2) seeking to recover P1,505,603.82 as
reimbursement for supposed advances made to the vessels while the same were
under the management contract under De La Rama, as well as for earned
commissions as agents of NDC, and (3) P1,100,000.00 as damages. The government
corporate counsel, representing the NDC, opposed the admission of the
“supplemental pleading” on the following grounds: that the De La Rama had been
held to be without any right of action and a party may not file a supplemental
amended pleading if it has no valid and subsisting cause; that the present
causes of action are only remotely connected with and are not material to the
first action. Over this opposition the court below admitted the supplement
pleading in an order dated October 15, 1956; so NDC had to file an answer.

Against the first cause of action the NDC alleged in its answer and by way of
defense, that the names of the vessels in question cannot be appropriated by a
private firm like plaintiff, because the names represent the names of wives of
former presidents of the Philippines. NDC also denied the material allegations
contained in the second cause of action of plaintiff’s complaint and alleged
that the alleged advance expenses and commissions claimed in the supplemental
pleading, were never alleged or claimed in the previous suit and the same should
be deemed dismissed together with the principal action. Answering the
allegations of the third cause of action, NBC stated that the plaintiff’s
demands are unreasonable, plaintiff retaining the benefits from the operation of
the vessels and shifting to the defendant the liabilities and obligations. By
way of special defenses, NBC alleged that the plaintiff is estopped from denying
to the defendant the use of the names of the vessels, etc., etc., that the
additional claims should be deemed dismissed together with the principal action,
etc., etc. By way of counterclaim the NDC alleged that the NDC had remitted the
sum of P2,417,376.92 up to December 31, 1956 but the plaintiff has not remitted
the amount due it from January 1, 1954 to the time that said vessels were
returned; that De La Rama had been charging excessive commissions and it should
render an accounting to NDC for the excess commission actually received.

The answer is dated March 5, 1957 and hearing on the supplemental complaint
was begun on March 6, 1957.

On March 8, while the case was being heard, the court entered an order
appointing a Board of Accountants to examine the claims of De La Rama. The said
order was given in open court and reads as follows:

“In view of the fact that these are questions of accounting, the Court will
appoint a committee, one member to be suggested by the plaintiff, another by the
defendant, and the third member by the Court. All these questions of accounts
will be indorsed to the Committee who is hereby ordered to make its report,
giving details as to what amount is due to the plaintiff and as to what amount
is due to the defendant, and to make, such recommendations as, in its opinion,
is proper; and the parties are given three days within which to submit the names
of their respective representatives. Immediately after their appointment, they
shall hold office and submit their report within thirty days after they shall
have examined these accounts. The expenses of the representative of the
plaintiff shall be borne by the plaintiff; the expenses of the representative of
the defendant shall be borne by the defendant; and the expenses of the third
member to be appointed by this Court shall be considered as part of the
costs.”

The hearings were terminated on April 15, 1959. At that time the board of
accountants appointed by the court had not yet submitted their report. The
report of the chairman of the board was submitted to the court on April 16,
1959. The procedure adopted by the board is described in the said report of the
board chairman as follows:

“1. In pursuance of agreement among the Chairman and Members of the Board of
Accountants created by the Honorable Court in an Order promulgated in March 20,
1957, the NDC Auditor, representing the defendant NDC, made an exhaustive audit
of the accounts of RAMA as General Agent, under the NDC-RAMA Management Contract
of October 26, 1949, covering all transactions from October 26, 1950 to November
9, 1956. The NDC Auditor submitted his ‘Audit Report dated March 31, 1958 on the
Operations and Management of Doña vessels under title De la Rama Steamship
Company, Inc. Re-Civil Case No. 25161’; original of which is enclosed as Annex
‘A’ “. (Page 76, Report)

The report states that the De La Rama representative to the board of
accountants has submitted his comments and suggestions and so did the NDC
representative. But the latter did not submit any comment because it asked for
three weeks to wind up its work and another three weeks to consolidate them
(comment) and to submit its report which would be the basis of the chairman’s
comment, but said final comment was never submitted. At the last part of the
report the chairman stated that the draft of the report contains the report of
the two members of the board of accountants as well as the chairman’s comment on
each item and issue, thus:

“8. Both the NDC representative and the RAMA representative have been
furnished copies of this BA Chairman’s report so that if they have any further
comments, and the Honorable Court will approve, they may submit their views
direct to the Honorable Court.” (Page 78, Report)

But as the report of the chairman of the board was submitted on April 16,
1959, and the judge rendered the decision on April 29, 1959, the NDC member of
the board had no opportunity to submit his comments.

It is to be noted that contrary to the provisions of Rule 34 of the Rules,
requiring that parties be notified of the submission of the commissioner’s
report (Sec. 10) and hearing thereon (Sec. 11), no such notice of the submission
of the Board Chairman’s report was given NDC and no hearing was had by the court
on said report. Immediately after the submission of the report the court,
without the notice and hearing required, rendered its decision, thus violating
not only the above-mentioned provisions of the rules, but contrary to what was
recommended by the chairman of the board of accountants.

Upon the rendition of the judgment the defendant NDC immediately perfected
its appeal from the decision. No reasons were given why it did not present a
motion for reconsideration for failure of the court to give it opportunity to
submit its objections to the report.

In the appeal two important questions were raised, the first is the claim of
the appellant NDC that the “supplemental pleading” was improperly admitted, and
the second, that the judge rendered a decision on the matter contained in the
report of the chairman of the board of accountants without opportunity on the
part of the NDC to register its objections thereto.

The first claim of the appellant NDC appears to be well-founded. The nature
of a supplemental pleading has been described in Phillips Code Pleading,
thus:

“SEC. 479. Nature and Purpose of Supplemental Pleadings.—The
pleadings, original and amended, are confined to facts existing at the
commencement of the action. New facts relevant to the action, and material to
the right or to the defense, may arise after the suit is begun. In order that
the parties may have the benefit of such new facts, and that the court may
render its judgment upon the facts as they exist at the time of rendition, it is
provided that on such terms as to notice and costs as the court may prescribe,
the parties may be allowed to file a supplemental complaint, answer, or reply
alleging material facts which occur subsequent to VUie coauneaicement of the
action. * * *”

Instances where supplemental pleadings are allowed are given by said author
in section 480, as follows:

“SEC. 480. Supplemental Pleadings—Illustrations. In replevin for
sheep, a supplemental complaint may ask damages for increase in lambs, and for
wool shorn, these being in the nature of special damages; a supplemental
complaint may allege the further circulation of the libel complained of; and if,
pending suit, a third person assume the liability of the defendant in respect to
the matter in litigation, he may be made a party by supplemental complaint.

“In an action for divorce, a supplemental answer may allege the plaintiff’s
adultery pending suit; and settlement after action brought may be so, pleaded;
and so may payment, or release pending suit, or any agreement affecting the
action, as well as a judgment entered in another court between the parties to
the present action. If, pending the action, the defendant acquires title to
property in despute, to avail himself of it, he must plead it by supplemental
answer. Additional installments of an obligation, falling due pending the
action, cannot be recovered therein without amendment or supplemental pleading.
* * *” (Supra)

Referring to the present case, the causes of action mentioned in the
“supplemental pleading” are not in any way relevant and material to the action
of De La Rama to compel the NDC to sell three of the “Doña” vessels to it. They
did not, in any way, help or aid its defense or right to its option to purchase
the vessels. As a matter of fact the causes of action stated in the supplemental
pleading are the consequences of the failure of De La Rama to enforce its right
of option to purchase the vessels. The cause of action set forth in the
“supplemental pleading” could well have been alleged as an alternative cause of
action in the first case, but De La Rama did not choose to include this cause as
such alternative cause of action. The right to enforce the option to buy and the
right to reimbursement for expenses could not be joined together in the previous
suit, because the right to purchase excludes the right to demand reimbursement
for the expenses; the demand for reimbursement of the expenses and commissions
cannot be enforced if the De La Rama exercises the option to purchase the
vessels or is allowed to do so.

We do not, however, believe that it would serve the ends of a speedy
administration of justice or a prompt dispatch of cases to order the dismissal
of the “supplemental pleading” and cause a new pleading to be filed. This would
delay the termination of the suit. So, We have decided, in the interest of a
prompt termination of the case, to order that the supplemental pleading and all
the pleadings and papers subsequent thereto, be enrolled in the court below as a
new action, but with the obligation on the part of De La Rama to pay the fees
for the registration of the case taking into account the amount demanded in the
amended complaint, of P1,505,603.82, and the amount in the second cause of
action of P1,100,000.00, demanded as damages.

The second ground of appeal should also be sustained. The understanding was,
as suggested by the chairman of the board of accountants, for the court to give
opportunity to NDC to submit its objections to the amount stated in the report
of the chairman of the board. But the court, ignoring the recommendation and in
violation of sections 10 and 11 of Rule 34, and in disregard of the right of any
party to be heard, promptly rendered the decision, naturally based mostly on the
findings and recommendations of the chairman of the board. This action of the
judge is clearly a violation of the right of a party to be heard and of the due
process clause of the Constitution.

It is said, in defense of the action of the court, that because of the
failure of the defendant NDC to present a motion for reconsideration, it has
waived the right to be heard on this report of the chairman of the board of
accountants. We cannot sustain this contention, as there was no conduct
amounting to a waiver of the right because upon the rendition of the decision
the appeal was promptly presented, and the denial of the right to be heard on
the report of the board of accountants was raised as one of the errors assigned
in the appeal. Such a valuable right as that to be heard, which is guaranteed by
the Constitution, cannot be considered as having been waived under the
circumstances of the case. The case should be remanded to the court below with
instructions to give the defendant NDC the opportunity to submit its objections
to the report of the board of accountants and to have a hearing on this report
in accordance with the rules as above pointed out.

Wherefore, the decision appealed from is hereby set aside and the case
remanded to the court below with instructions to enroll the pleadings and
papers, starting with the “supplemental pleading,” registering the complaint,
collecting the corresponding fee based on the amounts demanded in the complaint
and entering the complaint and all the papers in the dockets of the court.
Thereafter the action shall proceed or continue in accordance with this
decision. Costs against plaintiff-appellee.

Padilla, Bautista Angelo, Concepcion, Reyes, J. B. L., Barrera, Paredes,
Dizon, Regala, and Makalintal, JJ., concur.