TRAVEL WIDE ASSOCIATED SALES (PHILS.), INC., AND TRANS WORLD AIRLINES, INC., PETITIONERS, VS. COURT OF APPEALS, DECISION SYSTEMS CORPORATION AND MANUEL A. ALCUAZ, JR., RESPONDENTS.

Travel Wide Associated Sales versus Court of Appeals

The Case

This is a petition for review brought by Travel Wide Associated Sales (Phils.), Inc. and Trans World Airlines, Inc. against the Court of Appeals, Decision Systems Corporation, and Manuel A. Alcuaz, Jr. What began as an ordinary complaint for damages grew into a controversy on procedure — specifically, on the proper treatment of the defense that a defendant is not a real party in interest. The case matters to every bar candidate because it clarifies the meaning of a real party in interest, the operation of the omnibus motion rule, and the limits of a preliminary hearing on affirmative defenses.

Procedural History

Decision Systems Corporation and its President, Manuel A. Alcuaz, Jr., filed a complaint for damages in the Regional Trial Court of Manila against Travel Wide and Trans World Airlines. On motion of Trans World Airlines, the trial court ordered the plaintiffs to amend their complaint to particularize their averments. The plaintiffs complied. Both defendants then moved separately to dismiss the amended complaint for failure to state a cause of action, but the trial court denied both motions, holding the allegations sufficiently particular.

The defendants filed a joint answer pleading the special defense that they were not the real parties in interest because they had acted only as agents of a disclosed principal. Over the plaintiffs' opposition, the trial court granted a joint motion for a preliminary hearing on that special defense. After the hearing, the trial court, through Judge Bernardo P. Fernandez, issued an order dismissing the complaint on the ground that neither defendant was a real party in interest. The plaintiffs' motion for reconsideration was denied.

The order was elevated to the then Intermediate Appellate Court, which reversed the trial court. The appellate court held that the defendants should have pleaded the special defense in their motion to dismiss under the omnibus motion rule, and having failed to do so, they were deemed to have waived it. The petitioners then came to the Supreme Court, asking for reversal of the appellate court and reinstatement of the trial court's order of dismissal.

Facts

Sometime in March 1975, Decision Systems Corporation and Manuel A. Alcuaz, Jr. filed a complaint in the Regional Trial Court of Manila. They alleged that Travel Wide and Trans World Airlines had failed to comply with their obligations under Travel Pass '73 U.S.A., a package deal consisting of a Trans World Airlines ticket to Los Angeles, New York, and Boston, together with hotel accommodations, for which the plaintiffs had made the corresponding payment in Manila.

The defendants answered, raising the special defense that they were not the real parties in interest because they had acted only as agents of a disclosed principal. They reiterated this at pre-trial and then sought a preliminary hearing on the special defense. The trial court granted the hearing and, after receiving evidence, dismissed the complaint, finding that Travel Wide was the general agent of Trans World Airlines and that the latter was only an agent of a disclosed principal, Tour Services, Inc.

On appeal, the Intermediate Appellate Court reversed, holding that the defense had been waived under the omnibus motion rule. The Supreme Court sustained the reversal but disagreed with the appellate court's reasoning, finding instead that the petitioners were real parties in interest and that the trial court should not have dismissed the complaint.

Issues

• Whether or not the defense that a defendant is not a real party in interest is deemed waived under the omnibus motion rule if not raised in a motion to dismiss.
• Whether or not the trial court erred in conducting a preliminary hearing and receiving evidence on the affirmative defense of lack of cause of action.
• Whether or not the petitioners were mere agents of a disclosed principal and therefore not liable on the complaint.

Applicable Provisions

Rule 15, Section 8 of the Rules of Court, the omnibus motion rule, provides:

Sec. 8. Omnibus motion. - A motion attacking a pleading or a proceeding shall include all objections then available, and all objections not so included shall be deemed waived.

This rule is the basis of the appellate court's holding that the defense was waived, and the Court must determine whether the real party in interest defense falls within its reach.

Rule 9, Section 2 of the Rules of Court provides:

Sec. 2. Defenses and objections not pleaded deemed waived. - Defenses and objections not pleaded either in a motion to dismiss or in an answer are deemed waived, except the failure to state a cause of action which may be alleged in a latter pleading, if one is permitted, or by motion for judgment on the pleadings, or at the trial on the merits; but in the last instance, the motion shall be disposed of as provided in section 5, Rule 10 in the light of any evidence which may have been received. Whenever it appears that the court has no jurisdiction over the subject matter, it shall dismiss the action.

This provision supplies the two exceptions to the omnibus motion rule — lack of jurisdiction and failure to state a cause of action — which the Court uses to show that the defense was not waived.

Rule 16, Section 5 of the Rules of Court provides:

Section 5. Pleading grounds as affirmative defenses. - Any of the grounds for dismissal provided for in this rule, except improper venue, may be pleaded as an affirmative defense, and a preliminary hearing may be had thereon as if a motion to dismiss had been filed.

This provision explains the trial court's grant of a preliminary hearing, which the Court nonetheless finds was improperly conducted.

Article 1909 of the Civil Code provides:

The agent is responsible not only for fraud, but also for negligence, which shall be judged with more or less rigor by the courts, according to whether the agency was or was not for a compensation.

This provision bears on the alternative liability of the petitioners even if they acted as agents of the passengers.

Ruling

On the first issue, the Court held that the defense of not being a real party in interest is not waived even if not raised in a motion to dismiss. A real party in interest is the party who stands to be benefited or injured by the judgment, or the party entitled to the avails of the suit. The term applies to both plaintiff and defendant, and if the suit is not brought by or against the real party in interest, a motion to dismiss may be filed on the ground that the complaint states no cause of action. Since lack of a cause of action is one of the two exceptions to the omnibus motion rule, the defense may be raised even during the trial on the merits.

On the second issue, the Court held that the trial court erred in conducting a preliminary hearing and receiving evidence on the affirmative defense of lack of cause of action. Quoting The Heirs of Juliana Clavano versus Genato, the Court explained that in a motion to dismiss for failure to state a cause of action, the question is the sufficiency of the allegations in the complaint itself, and the truth of those allegations is hypothetically admitted. No extraneous matter may be considered, and facts not alleged, which would require evidence, must be raised as defenses and await the trial.

On the third issue, the Court declined to conclude that the petitioners were mere agents of a disclosed principal. It found that a more careful appraisal of the evidence was needed, particularly the terms of the brochure and the significance of the Miscellaneous Charges Order issued by Trans World Airlines. Even if the petitioners acted as agents of the passengers, they could still be liable under Article 1909 of the Civil Code for negligence. The Court thus sustained the appellate court's reversal, but on the ground that the petitioners are real parties in interest and the motion to dismiss should not have been granted.

Doctrine

A real party in interest is the party who stands to be benefited or injured by the judgment, or the party entitled to the avails of the suit; the term applies to both plaintiff and defendant. The defense that a party is not a real party in interest is equivalent to a failure to state a cause of action, which is an exception to the omnibus motion rule under Rule 9, Section 2, and may be raised even at the trial on the merits. A preliminary hearing on the affirmative defense of lack of cause of action is improper where it requires receiving evidence, because the sufficiency of the cause of action must appear on the face of the complaint, whose allegations are hypothetically admitted.

Disposition

The petition was denied, with costs against the petitioners, and the reversal by the appellate court was sustained, though on different grounds.

Remember This

Memorize this line: a real party in interest is the party who stands to be benefited or injured by the judgment, and the defense of not being one is a failure to state a cause of action that is never waived. Examiners use this case to test the omnibus motion rule, its exceptions, and the rule that sufficiency of the complaint is judged only on its face.