Labayen v. Talisay-Silay Co.
REITERATIONFacts
The Antecedents: Plaintiffs Reynaldo and Teodoro Labayen owned the hacienda Dos Hermanos. They entered into a milling contract with defendant Talisay-Silay Co. The contract stipulated that the defendant would construct and maintain a railway for transporting sugar cane and other goods, and would mill the plaintiffs' sugar cane. The plaintiffs allege that the defendant breached this contract by failing to construct the railway to a convenient point on their hacienda, resulting in their inability to have their sugar cane milled and subsequent financial losses. Additionally, the plaintiffs claim the defendant induced them to grant a mortgage on their hacienda for a loan, promising a bonus upon repayment and release of the mortgage, which the defendant allegedly failed to provide. Procedural History: The plaintiffs filed an amended complaint in the Court of First Instance of Occidental Negros, detailing their claims of breach of contract and fraudulent misrepresentation. The defendant demurred to the amended complaint, arguing that the allegations did not constitute a cause of action and that the issues raised in the first cause of action were res judicata, having been decided in a prior case (Civil Case No. 3789). The prior case involved the same parties and a dispute over the milling contract, which resulted in a judgment against the plaintiffs and the subsequent foreclosure and sale of their hacienda to the defendant. The Court of First Instance sustained the demurrer, granting the plaintiffs ten days to amend their complaint, with dismissal as a consequence of failure to do so. The Petition: The plaintiffs-appellants appealed the order sustaining the demurrer. Their sole assignment of error contends that the court erred in sustaining the demurrer. They argue that the prior judgment was obtained through fraud, specifically perjury by the defendant's witnesses regarding the impossibility of constructing the railway on their hacienda, and that this fraud should not be subject to the res judicata doctrine. They also assert that the allegations in their second cause of action, concerning the promised bonus after the mortgage was secured and paid, constitute a valid cause of action. The appellants seek to have the prior judgments declared null and void, to recover damages, and to have their hacienda returned.
Issue(s)
Whether the fraud alleged by the plaintiffs is res judicata and therefore cannot serve as a ground to annul the prior judgments. Whether the alleged perjury of witnesses in the prior action is a sufficient ground to annul a final judgment. Whether the second cause of action, alleging that the defendant mortgaged the hacienda and later refused to pay a promised bonus, states a cause of action. Whether the trial court erred in sustaining the demurrer on grounds of vagueness and uncertainty and in granting leave to amend.
Ruling
The appealed order is affirmed. The demurrer to the amended complaint was properly sustained. The plaintiffs-appellants were given leave to amend their pleading by the trial court and the costs of this instance are charged to the plaintiffs-appellants.
Ratio Decidendi
On Whether the fraud alleged is res judicata: The Court held that the only question is whether the fraud invoked by the appellants was raised, controverted and decided in the prior case; if so, it is res judicata and cannot serve to annul the judgments. The amended complaint shows that the alleged fraud consists in perjury of witnesses who testified that the railway could not be constructed because of curves and grades; that issue was the special defense in the prior case and was submitted and resolved in favor of the defendant. Applying the doctrine in Anuran v. Aquino Ortiz (38 Phil., 29) and Javier v. Paredes and Gregorio (52 Phil., 910), the Court reaffirmed that an action to annul a judgment for fraud will not lie where the facts relied upon were litigated and decided in the prior action. The Court reasoned that permitting a collateral attack on testimony accepted by the court in the prior case would undermine finality and produce endless litigation. Therefore, the fraud allegations that were already controverted and resolved in the first case are barred by res judicata. On Whether perjury is a sufficient ground to annul a final judgment: The Court explained that the mere fact that testimony upon which a judgment was based was false or perjured is not a ground to assail the judgment unless the fraud relates to the court's jurisdiction or is extrinsic and collateral to the issues tried. Citing authorities including Scotten v. Rosenblum, U.S. v. Chung Shee, Giffen v. Christ's Church, and Pratt v. Griffin as persuasive authorities, the Court emphasized the rule that fraudulent or perjured testimony, having been considered by the court in the prior proceeding, does not authorize collateral attack on the judgment. The Court stated that unless the fraud goes to jurisdiction, the facts constituting the fraud must be extrinsic or collateral to justify annulling a final judgment. The Court thus rejected the plaintiffs' contention that perjury alone, when it merely concerns the merits and was adjudicated, suffices to set aside the earlier judgments. On Whether the second cause of action states a cause of action: The Court found the second cause of action defective because the allegations are based on information and not on personal knowledge, and they do not allege that the mortgage was formally executed and registered. The complaint fails to allege essential facts with sufficient particularity; as pleaded, the asserted mortgage is not shown to be valid as a matter of law. The Court held that the demurrer was properly sustained because the allegations are vague, uncertain and do not set forth a clear cause of action to which the defendant may plead specific defenses. The appropriate remedy was to require the plaintiffs to amend and make their allegations categorical and specific. On Whether the trial court erred in sustaining the demurrer for vagueness: The Court reasoned that the pleading rules entitle the defendant to demand that the plaintiffs' averments be intelligible and specific so that the defendant may respond. Because the second cause of action rested on hearsay and failed to allege crucial formalities respecting the mortgage and registration, the demurrer for vagueness was properly sustained. The Court affirmed the lower court's order granting leave to amend rather than outright dismissal, but upheld the demurrer to the extent that the complaint as pleaded did not state a cause of action.
Main Doctrine
An action to annul a judgment on the ground of fraud will not lie where the alleged fraud consists of perjured testimony or facts that were controverted and decided in the prior action; to annul a final judgment for fraud the fraud must be extrinsic or go to the jurisdiction.