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

De la Rama Steamship versus National Development Company

The Case

This is a civil action in which the De la Rama Steamship Company, as plaintiff, sought to compel the National Development Company, as defendant, to honor an option to purchase three vessels known as the Doña vessels, and later sought reimbursement of advances and commissions and an award of damages. The case matters to a reviewee because the Supreme Court uses it to draw two clean lines: the boundary between a supplemental pleading and an independent cause of action, and the absolute character of a party's right to be heard on a commissioner's report before judgment is rendered upon it.

Procedural History

The action began in the Court of First Instance, where De la Rama sued the National Development Company over its claimed option to purchase the vessels. While that case was pending, De la Rama filed a supplemental pleading adding new demands. Over the opposition of the National Development Company, the trial court admitted the supplemental pleading. The trial court then appointed a board of accountants to examine the accounts of both parties. The board's chairman submitted his report, and without notice to the National Development Company and without any hearing on that report, the trial court rendered its decision. The National Development Company appealed directly to the Supreme Court, assigning as errors the improper admission of the supplemental pleading and the rendition of judgment on the accountant's report without giving it an opportunity to object.

Facts

By an agreement dated October 26, 1949, De la Rama undertook the management of four Doña vessels that the Philippine Government had purchased from Japan, with and through the advice and help of De la Rama. Under the same agreement, De la Rama was given the option to buy each and all of the vessels on the fifth year following the purchase and delivery of each, at a price consisting of the cost of each vessel plus the expenses De la Rama had incurred in connection with the construction, outfitting, provisioning and operation thereof. Should De la Rama fail to exercise the option, the agreement granted it the right to reimbursement for its expenses in manning, equipping, fueling, overhauling and repairing the vessels, and to loading, discharging, overriding and sub-agent's commissions.

The National Development Company decided to cancel the general agency agreement upon one year's notice. De la Rama opposed the cancellation, claiming it had already exercised its option to purchase in 1952. In the earlier case, the Supreme Court held that the National Development Company had the right to cancel the agreement, and so the option of De la Rama to purchase the vessels was declared ineffective.

Its option having been denied, De la Rama filed a supplemental pleading demanding that the National Development Company cease using the names Doña Aurora, Doña Nati and Doña Alicia on the three vessels, seeking reimbursement of one million five hundred five thousand six hundred three pesos and eighty-two centavos for supposed advances and earned commissions, and claiming one million one hundred thousand pesos in damages. The trial court admitted the pleading over objection, appointed a board of accountants, and received the chairman's report on April 16, 1959. Thirteen days later, without notice of the report's submission and without hearing, the court rendered judgment based largely on that report.

Issues

• Whether or not the supplemental pleading was properly admitted, considering that its causes of action were not relevant and material to the original action to enforce the option to purchase.
• Whether or not the trial court violated the right of the National Development Company to be heard, and the due process clause of the Constitution, when it rendered judgment on the report of the board of accountants without notice and without hearing.
• Whether or not the failure of the National Development Company to file a motion for reconsideration amounted to a waiver of its right to be heard on the report.

Applicable Provisions

Section 10 of Rule 34, on the notice of the filing of a commissioner's report, provides:

Upon the filing of the report, the commissioner shall notify the parties of the fact of its filing, and the parties shall be allowed ten days from receipt of such notice within which to file objections to the report or to any part thereof.

This provision bears on the case because the trial court never gave the National Development Company notice of the filing of the chairman's report, and so the period to object never even began to run.

Section 11 of Rule 34, on the hearing on the report, provides:

Upon the expiration of the period of ten days referred to in the preceding section, the court may, in its discretion, require the parties to appear before it for the hearing of the report and of the objections thereto, and may in its discretion receive further evidence upon any of the matters referred to the commissioner.

This provision bears on the case because the trial court rendered its decision immediately upon submission of the report, without any hearing on the report or on the objections that the National Development Company was entitled to present.

Ruling

On the first issue, the Court held that the supplemental pleading was improperly admitted. A supplemental pleading is confined to new facts relevant to the action and material to the right or to the defense that arise after the suit is begun. Here, the causes of action in the supplemental pleading were not in any way relevant and material to the action to compel the sale of the vessels, and did not aid De la Rama's right to its option. They were, in truth, the consequences of the failure of De la Rama to enforce its option, and could have been alleged as an alternative cause of action in the first case. The right to enforce the option and the right to reimbursement cannot be joined, because the right to purchase excludes the right to demand reimbursement for expenses. Rather than order dismissal and delay the suit, however, the Court ordered that the supplemental pleading and all subsequent pleadings and papers be enrolled in the court below as a new action, with De la Rama obliged to pay the fees for registration based on the amounts demanded.

On the second issue, the Court sustained the appeal. The chairman of the board himself recommended that the National Development Company be given an opportunity to submit its objections to the report, but the court ignored that recommendation, violated Sections 10 and 11 of Rule 34, and disregarded the right of a party to be heard. The Court held that this was clearly a violation of the right to be heard and of the due process clause of the Constitution, and remanded the case with instructions to give the National Development Company the opportunity to submit its objections and to have a hearing on the report.

On the third issue, the Court refused to find a waiver. There was no conduct amounting to a waiver, because upon rendition of the decision the appeal was promptly perfected and the denial of the right to be heard was raised as an assigned error. The Court held that such a valuable right as that to be heard, guaranteed by the Constitution, cannot be considered as having been waived under the circumstances of the case.

Doctrine

A supplemental pleading may allege only new facts that occurred after the commencement of the action and that are relevant and material to the right or to the defense already pleaded. A cause of action that is merely a consequence of the failure of the original claim, and that could not have been joined with it because the two are mutually exclusive, is not a proper subject of a supplemental pleading and must be brought as a separate action.

The right to be heard on a commissioner's report is part of due process. Under Sections 10 and 11 of Rule 34, the parties must be notified of the filing of the report and given the opportunity to file objections and to be heard thereon before the court may render judgment based on it. This right is so valuable that it is not waived by the mere failure to file a motion for reconsideration where the party promptly appeals and assigns the denial as an error.

Disposition

The Supreme Court set aside the decision appealed from and remanded the case to the court below, with instructions to enroll the supplemental pleading and subsequent papers as a new action upon payment of the corresponding fees, and thereafter to give the National Development Company the opportunity to submit its objections to the report of the board of accountants and to have a hearing thereon, with costs against De la Rama.

Remember This

Memorize this line: a supplemental pleading carries only new facts material to the existing claim, and a judgment rendered on a commissioner's report without notice and hearing violates due process and is no waiver. Examiners use this case in remedial law and civil procedure, particularly on supplemental pleadings and on the notice and hearing requirements for commissioners' reports.