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ARCADIO v. HEIRS OF QUIRINO A. DE GUZMAN

FACTS:

The case involves a dispute between Arcadio and Maria Luisa Carandang (spouses Carandang) and the heirs of Quirino A. de Guzman (heirs of de Guzman) regarding a loan made by the spouses Carandang to de Guzman. The spouses Carandang are stockholders and corporate officers of Mabuhay Broadcasting System (MBS), owning 46% of the equity. In November 1983, the capital stock of MBS was increased and the spouses Carandang subscribed to a portion of the increase. In March 1989, MBS again increased its capital stock and the spouses Carandang subscribed to the increase. De Guzman claimed that he paid part of the payment for these subscriptions, amounting to a total of P336,375. De Guzman sent a demand letter for the payment to the spouses Carandang, who refused to pay, claiming that there was a pre-incorporation agreement wherein de Guzman promised to pay for the subscriptions. De Guzman filed a complaint seeking to recover the loan. The trial court ruled in favor of de Guzman, ordering the spouses Carandang to pay the loan amount plus interest and damages. The spouses Carandang appealed to the Court of Appeals, but their appeal was denied. They then filed a Petition for Review on Certiorari before the Supreme Court, raising several issues. The first issue raised is whether or not the RTC Decision is void for failing to comply with Section 16, Rule 3 of the Rules of Court, which requires the counsel to inform the court of the death of a party to an action.

The case involves the failure to comply with Section 16, Rule 3 of the Rules of Court which requires the substitution of a deceased party by his or her legal representative or heirs. The spouses Carandang argue that the failure to comply with this rule renders the decision of the Regional Trial Court (RTC) void. They cite previous cases where it was held that a trial held without the appearance of the legal representative or heirs of a deceased party is null and void. In this case, there was no court order for the appearance of the legal representative and no valid substitution was made. However, the Court notes that jurisdiction over the person of the parties can be waived, either expressly or impliedly. In this case, the heirs of the deceased party did not object to the jurisdiction of the court and actually claimed and embraced such jurisdiction. Thus, lack of jurisdiction over the person can only be asserted by the party who can waive it by silence. The Court also explains that the requirement for formal substitution of heirs is not strictly jurisdictional but is intended to protect the right to due process of those who are substantially affected by the decision. In this case, the heirs themselves waived their right to object to the decision. The Court also addresses another procedural issue raised by the spouses Carandang regarding the non-inclusion of an indispensable party in the complaint. The Court agrees with the Court of Appeals' ruling that the husband alone may institute an action for the recovery or protection of conjugal property. Therefore, the failure to include the wife as a party-plaintiff does not cause the dismissal of the action.

Quirino and Milagros de Guzman were married before the effectivity of the Family Code on August 3, 1988. They did not execute any marriage settlement, so the regime of conjugal partnership of gains governs their property relations.

The spouses Carandang filed an action for the recovery or protection of conjugal property against Quirino and Milagros de Guzman. They argued that the four checks created a debt for which the spouses Carandang were liable. They claimed that the credits from the loan were presumed to be conjugal property since they were acquired during the marriage. Therefore, Quirino de Guzman, being a co-owner of specific partnership property, is considered a real party in interest.

The Court of Appeals held that the spouses Carandang erroneously interchanged the terms "real party in interest" and "indispensable party." It clarified that a real party in interest is the party who stands to be benefited or injured by the judgment of the suit, while an indispensable party is a party without whom no final determination can be had of an action. The court also stated that the non-joinder of necessary parties does not result in the dismissal of the case; instead, the court may order the inclusion of the omitted necessary party if jurisdiction over their person may be obtained. Non-compliance with the order for inclusion of a necessary party would not warrant dismissal of the complaint.

ISSUES:

  1. Whether zman, as a co-owner of specific partnership property, is a real party in interest.

  2. Whether the non-joinder of a necessary party warrants the dismissal of the case.

  3. Whether Milagros de Guzman is an indispensable party in the action for the recovery of the allegedly loaned money

  4. Whether the de Guzmans were able to prove the alleged loan sought to be collected from the spouses Carandang

  5. Whether or not the spouses Carandang have proven the existence of the pre-incorporation agreement.

  6. Whether there was a pre-incorporation agreement between the parties.

  7. Whether the liability of the spouses Carandang is joint and solidary.

RULING:

  1. zman, being a co-owner of specific partnership property, is a real party in interest. Dismissal on the ground of failure to state a cause of action, by reason that the suit was allegedly not brought by a real party in interest, is therefore unwarranted.

  2. The non-joinder of necessary parties does not result in the dismissal of the case. Instead, the court may order the inclusion of the omitted necessary party if jurisdiction over his person may be obtained. The failure to comply with the order for inclusion, without justifiable cause, shall be deemed a waiver of the claim against such party. The non-inclusion of a necessary party does not prevent the court from proceeding in the action, and the judgment rendered therein shall be without prejudice to the rights of such necessary party. Non-compliance with the order for the inclusion of a necessary party would not warrant the dismissal of the complaint.

  3. Milagros de Guzman is not an indispensable party in the action for the recovery of the allegedly loaned money. Only one of the co-owners who filed the suit for the recovery of the co-owned property is an indispensable party. The other co-owners are not indispensable parties and dismissal of the suit is not warranted by their absence.

  4. The spouses Carandang failed to prove by preponderance of evidence the alleged loan or the non-payment thereof. The de Guzmans proved that they paid the stock subscriptions of the spouses Carandang and the payment created a debt in favor of the de Guzmans.

  5. No, the spouses Carandang failed to prove the existence of the pre-incorporation agreement. The only testimony that touched on the existence and substance of the pre-incorporation agreement was stricken off the record because the witness did not submit to cross-examination. The testimonies of other witnesses did not mention the existence of a pre-incorporation agreement. Furthermore, the testimonies of the spouses Carandang themselves contradicted the existence of a pre-incorporation agreement, as they admitted to already having paid for the shares. Therefore, there is no testimonial or documentary evidence to prove the existence of the alleged pre-incorporation agreement.

  6. The Supreme Court held that there was no pre-incorporation agreement between the parties. Although the plaintiff admitted certain allegations in the answer, the admission was not clear and unambiguous. The admission referred to the conversion of the plaintiff's single proprietorship into a corporation, but it did not admit the alleged pre-incorporation agreement. Therefore, the plaintiff was not liable for the spouses Carandang's stock subscription, and the payment made by the spouses de Guzman was considered as a loan.

  7. The Court held that the liability of the spouses Carandang is not joint and solidary. Since their marriage was governed by the conjugal partnership regime under the Civil Code, an obligation entered into by the spouses is chargeable against their conjugal partnership, and not against them as independent debtors. Thus, they may be sued for the whole amount, similar to a solidary liability, but the amount is chargeable against their conjugal partnership property. Therefore, either of the spouses may be sued for the entire obligation. The Court affirmed the ruling of the Court of Appeals on this matter.

PRINCIPLES:

  • The absence of an indispensable party renders all subsequent actuations of the court void.

  • The non-joinder of necessary parties does not result in the dismissal of the case. Non-compliance with the order for the inclusion of a necessary party does not warrant dismissal but may result in a waiver of the claim against such party.

  • Non-joinder of parties is not a ground for the dismissal of the action.

  • Pro-forma parties, who are required to be joined as co-parties, can either be indispensable, necessary, or neither indispensable nor necessary. Non-joinder of indispensable pro-forma parties warrants dismissal, while non-joinder of necessary pro-forma parties does not.

  • Pursuant to Article 487 of the Civil Code, any one of the co-owners may bring an action for the recovery of co-owned properties.

  • Preponderance of evidence means that the evidence as a whole adduced by one side is superior to that of the other. It means probability of truth.

  • Each party must prove their affirmative allegation.

  • In cases where a third person pays for the debtor, the presumption is that the debtor is indebted to the paying third person.

  • Mutual agreement must be adequately proven to excuse performance of presumed course of events.

  • Testimonies must be based on personal knowledge and directly address the issue at hand.

  • Admissions by the party against whom they are offered do not need to be proven.

  • Admissions should be clear and unambiguous.

  • Obligations entered into by spouses governed by conjugal partnership regime are chargeable against their conjugal partnership.