Riviera Golf Club, Inc. v. CCA Holdings, B.V.
REITERATIONFacts
The Antecedents: Riviera Golf Club, Inc. (Riviera Golf) and CCA Holdings, B.V. (CCA Holdings) entered into a five-year Management Agreement for the operation of a golf club, along with a co-terminous Royalty Agreement. Riviera Golf agreed to pay management and royalty fees. Riviera Golf began defaulting on payments in September 1997 and subsequently failed to pay monthly fees in June 1999. Riviera Golf then unilaterally pre-terminated both agreements in October 1999, citing financial difficulties of its developer, AFP-RSBS, and alleging violations by CCA Holdings. Procedural History: CCA Holdings initially filed a complaint for sum of money with damages (Civil Case No. 01-611) in April 2001. While this case was pending, the parties executed a Compromise Agreement, which the RTC approved on April 25, 2002. This agreement included a clause stating it was not a waiver of CCA Holdings' rights concerning the pre-termination of the agreements. Subsequently, on November 22, 2002, CCA Holdings demanded US$390,768.00 for projected net income for the unexpired term of the Management Agreement. When Riviera Golf did not comply, CCA Holdings filed a second complaint for sum of money and damages (Civil Case No. 03-399) in Makati City. Riviera Golf moved to dismiss this second complaint on grounds of res judicata and splitting of causes of action. The RTC granted the motion, finding identical causes of action and subject matter. CCA Holdings appealed, and the Court of Appeals (CA) reversed the RTC's dismissal, remanding the case for trial on the merits, holding that res judicata and splitting of causes of action were not committed. The Petition: Riviera Golf filed a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the CA's decision. Riviera Golf argues that the CA erred in not finding that the second complaint was barred by res judicata and constituted a prohibited splitting of a single cause of action. Riviera Golf contends that the same evidence would support both complaints, as both stem from the alleged breach of the Management and Royalty Agreements. It asserts that the breach was total when the first complaint was filed, making the second claim an impermissible division of a single cause of action. Riviera Golf also disputes the CA's interpretation of the non-waiver clause in the Compromise Agreement, arguing it did not legitimize the splitting of causes of action.
Issue(s)
Whether the filing of the second complaint for damages for unrealized profits violated the prohibitions against res judicata and splitting a single cause of action. Whether the Court of Appeals' interpretation of paragraph 4 of the compromise agreement was correct, and if so, whether parties may stipulate on an agreement violating the prohibitions against res judicata and splitting of causes of action.
Ruling
The petition is granted. The decision of the Court of Appeals is reversed and set aside. The decision of the Regional Trial Court, Branch 57, Makati City, in Civil Case No. 03-399, which dismissed the second complaint, is reinstated.
Ratio Decidendi
On the issue of res judicata and splitting of a single cause of action: The Supreme Court found that all elements of res judicata were present. The first complaint sought payment for unpaid fees, while the second sought damages for unrealized profits due to pre-termination. However, both cases were filed based on the same Management and Royalty Agreements, thus involving the same subject matter. The Court held that there was an identity of causes of action because both complaints imputed the same wrongful act: the alleged violations of the terms and conditions of the agreements. The first complaint was based on the failure to pay fees, while the second was based on damages from premature termination, but both were ultimately anchored on Riviera Golf's breach of contract. The Court emphasized that a single cause of action cannot be split into two or more suits, and the rule against splitting causes of action is clear under Section 4, Rule 2 of the Rules of Court. The Court further applied the "same evidence" test, finding that the documentary evidence submitted for both complaints were glaringly similar, aiming to establish the breach of the agreements. Specifically, the Management Agreement, Royalty Agreement, Fees Receivable Report, and the termination letter were presented in both actions. The Court concluded that the facts necessary to support the second complaint would have been sufficient to allow recovery in the first complaint, strongly suggesting the identity of their causes of action. Moreover, the Court noted that the breach of the agreements was already total and complete at the time the first complaint was filed in 2001, as the non-payment and pre-termination occurred in 1999. Therefore, allowing two separate claims based on the same breach constituted a disregard of the prohibition against res judicata and splitting of a single cause of action. The Court cited Blossom and Company, Inc. v. Manila Gas Corporation, stating that when a contract is entirely breached and the breach is total, there can only be one action, and all damages must be recovered therein. CCA Holdings should have included its claim for expected business profits as a second cause of action in the first complaint, as it constituted an indivisible demand. On the validity of the "non-waiver clause" in the compromise agreement: The Supreme Court declared paragraph 4 of the Compromise Agreement, which allowed for the filing of complaints based on the same cause of action, to be null and void. The Court reiterated that a compromise agreement, while binding between parties, must not be contrary to law, morals, good customs, and public policy. The provision in question, by allowing the splitting of causes of action and negating res judicata, was found to be repugnant to public policy. The Court explained that the principle of res judicata and the rule against splitting causes of action are applications of the public policy against multiplicity of suits, aimed at avoiding undue burden on court dockets and ensuring finality of judgments. The Court cited Aguila v. J.M. Tuason & Co., Inc., emphasizing that matters once settled by a court's final judgment should not be relitigated. Allowing such stipulations would legitimize the splitting of causes of action and negate the prohibition against res judicata, rendering the provision void under Article 1409 of the Civil Code as it is contrary to public policy.
Main Doctrine
The filing of a second complaint for damages arising from the premature termination of agreements, when a prior complaint for unpaid fees under the same agreements had already been filed and settled through a compromise agreement, is barred by res judicata and the rule against splitting of a single cause of action. A stipulation in a compromise agreement that allows for such splitting of causes of action is void as it contravenes public policy against multiplicity of suits.