Commissioner of Customs vs. Cloribel

A third-party complaint cannot be filed in a special civil action for declaratory relief because declaratory relief is confined to the adjudication of legal rights without the need of injunction, execution, or other material relief, and a third-party complaint must seek contribution, indemnity, subrogation, or other relief in respect of the plaintiff’s claim — a requirement that cannot be satisfied where the main action seeks nothing more than an interpretation of rights. Further, leave to file a third-party complaint after the defendant has served an answer must be on notice to the plaintiff; an ex parte grant after trial is a grave abuse of discretion.

A reparations allocation for consumer goods was granted to the World War II Veterans Enterprises, Inc. (Warvets). A minority stockholders’ suit (Civil Case No. 34998) alleging mismanagement resulted in the appointment of receivers, first Ramon E. Saura and later Macario M. Ofilada as second receiver. Ofilada, in his capacity as receiver, filed Special Civil Action No. 52318 for declaratory relief against the Reparations Commission and the spouses Jose and Susana Cochingyan, seeking a judicial determination whether the conversion of the dollar prices of the reparations goods into pesos should be at the rate of two pesos to one dollar or at the prevailing market rate. The Cochingyans had a pre-existing contract with Warvets concerning those goods and were defendants in that declaratory relief case. In the related receivership case, an order dated October 9, 1962 had directed Ofilada to release a second shipment of goods to the Cochingyans, but a motion for reconsideration remained unresolved. On February 9, 1963, the presiding judge in the receivership case held all pending incidents in abeyance to await possible amicable settlement. Shortly thereafter, the Cochingyans moved in the declaratory relief case for leave to file a third-party complaint to compel customs officials to deliver the withheld portion of the shipment.

• Nature of the Main Case: Civil Case No. 52318 was a special civil action for declaratory relief under Rule 66 of the 1940 Rules of Court. Macario M. Ofilada, the second receiver of Warvets in Civil Case No. 34998, sought a judicial declaration whether the contract between the Reparations Commission and Warvets required conversion of the dollar prices of reparations goods at two pesos to one dollar or at the prevailing market rate. No positive or affirmative relief was prayed for; the action was confined to the construction of legal rights.

• The Related Receivership and the Unresolved Release Orders: In the receivership case (Civil Case No. 34998), an order dated October 9, 1962 directed Ofilada to deliver the second shipment of reparations goods to the Cochingyans. A motion for reconsideration of that order was filed. On February 9, 1963, Judge Francisco Arca issued an order holding in abeyance all pending incidents — including the motion for reconsideration of the release order and motions for the release of third, fourth, and fifth shipments — until the result of ongoing settlement negotiations was known.

• Filing of the Third-Party Complaint: On February 13, 1963 (the decision notes that Judge Cloribel had earlier sought leave starting February 12, 1963, but changed it to February 13, and the orders bore the date February 12, 1963), the Cochingyans, as defendants in the declaratory relief case, filed an ex parte motion for leave to file a third-party complaint. The motion was granted ex parte the same day. The third-party complaint named the Commissioner of Customs, the Collector of Customs, the Reparations Commission, their own co-defendant, and the plaintiff Ofilada as third-party defendants. The principal relief sought was a writ of preliminary mandatory injunction, ex parte, ordering the release of the balance of 202 packages of rayon cloth from the shipment that arrived on September 10, 1962.

• The Ex Parte Injunction: Still on the same day, Respondent Judge Cloribel issued an order granting the writ of preliminary mandatory injunction ex parte upon the filing of a P5,000 bond. The order recited the allegations of the third-party complaint: that the goods had been fully paid for, the release had been authorized in the receivership case, the customs officials had inspected the goods and were withholding 202 packages to secure payment of an advance sales tax, despite a tender of payment being refused and deposit made in court, and that the goods were reparations goods exempt from customs duties and not subject to seizure. The writ was served on the Law Division of the Bureau of Customs at 4:55 p.m. on the same day.

• Attempts to Enforce and the House Committee’s Intervention: Compliance with the writ did not materialize. A motion to lift the writ was filed. The Chairman of the House Committee on Reparations, which was then investigating the Warvets allocation, asserted jurisdiction over the goods and ordered the Collector of Customs to deliver them to the Sergeant-at-Arms. Respondent court denied the motion to lift the injunction and threatened the committee’s agents, herein co-petitioners, with contempt. Successive orders issued on February 25, 26, 27, 28 and March 1, 1963 tending to enforce the injunction. The goods remained unreleased.

• Impropriety of the Third-Party Complaint: Petitioners maintained that a third-party complaint is legally impermissible in a special civil action for declaratory relief, because declaratory relief seeks no material or affirmative relief, and a third-party complaint must be grounded on a claim for contribution, indemnity, subrogation, or other relief in respect of the plaintiff’s claim — a relationship that cannot exist when the main action merely seeks an interpretation of a contract.

• Violation of Procedural Rules on Leave: Petitioners argued that the ex parte grant of leave to file the third-party complaint after the defendants had already answered and the trial had been concluded violated Section 2 of Rule 12 of the 1940 Rules of Court, which requires that after service of an answer, the motion for leave must be on notice to the plaintiff.

• Lack of Basis for the Injunction: Petitioners contended that since the third-party complaint was improperly admitted, the ex parte writ of preliminary mandatory injunction issued thereunder had no legal basis and was void ab initio, and all subsequent orders enforcing it were likewise null and void.

• Propriety of the Third-Party Complaint: Respondents Jose and Susana Cochingyan argued that the third-party complaint was a proper and necessary vehicle to vindicate their rights over the goods, which were the very subject of the underlying controversy, and that the trial court had ancillary jurisdiction to grant complete relief.

• Justification for Ex Parte Injunction: Respondents urged that the urgency of the situation and the irreparable damage they would suffer from continued withholding of the goods — which they claimed were fully paid for and wrongfully detained — justified the issuance of the writ of preliminary mandatory injunction ex parte.

• Validity of the Trial Court’s Orders: Respondents defended the trial court’s orders as valid exercises of judicial discretion, arguing that the circumstances warranted prompt and decisive action to prevent grave and irreparable injury.

• Third-Party Complaint in Declaratory Relief: Whether a third-party complaint may properly be filed and admitted in a special civil action for declaratory relief that seeks only the interpretation of a contractual provision and no affirmative relief.

• Ex Parte Leave After Trial: Whether the ex parte grant of leave to file the third-party complaint after the trial of the main case had been concluded constituted grave abuse of discretion.

• Validity of the Injunction: Whether the writ of preliminary mandatory injunction issued ex parte on the strength of the third-party complaint had any legal basis.

• Third-Party Complaint in Declaratory Relief: A third-party complaint is not proper in a special civil action for declaratory relief. The very nature of declaratory relief confines the court to an adjudication of legal rights without the need of injunction, execution, or other material relief. Under Section 1 of Rule 12 of the 1940 Rules, a third-party complaint is a defendant’s claim against a non-party for contribution, indemnity, subrogation, or any other relief “in respect of the plaintiff’s claim.” Because the plaintiff Ofilada’s claim in the declaratory relief action sought nothing more than an interpretation of the conversion rate — and prayed for no award or grant — there was no “plaintiff’s claim” against which the Cochingyans could seek contribution, indemnity, subrogation, or any other relief. The third-party complaint’s prayer for a mandatory injunction to release goods was entirely unrelated to the interpretation issue. It failed the settled tests of propriety: whether the third-party claim arises out of the same transaction or is connected with the plaintiff’s claim, whether the third-party defendant would be liable to the plaintiff or the defendant for the plaintiff’s claim, and whether the third-party defendant could assert defenses available against the plaintiff’s claim. The allowance of the third-party complaint thus completely disregarded the basic concepts of declaratory relief and third-party practice.

• Ex Parte Leave After Trial: The ex parte grant of leave to file the third-party complaint after trial was a grave abuse of discretion. Section 2 of Rule 12 of the 1940 Rules provides that before service of his answer, a defendant may move ex parte for leave to file a third-party complaint, but after service of the answer, the motion must be on notice to the plaintiff. In this case, the trial of the main action had already been terminated when the Cochingyans moved ex parte for leave. Granting leave without notice to the plaintiff under those circumstances was a clear violation of the rule and rendered the subsequent proceedings void.

• Validity of the Injunction: Because the third-party complaint was improperly admitted, the writ of preliminary mandatory injunction issued thereon had no legal basis. Consequently, all subsequent orders of respondent court tending to enforce the injunction were also null and void.

• Nature of Declaratory Relief: A special civil action for declaratory relief is confined to cases of actual controversy within the court’s jurisdiction, without the need of injunction, execution, or other relief beyond the adjudication of the legal rights that are the subject of controversy between the parties. No positive or material relief may be sought or granted.

• Tests of Propriety for a Third-Party Complaint: To determine whether a third-party complaint for indemnity or other relief in respect of the plaintiff’s claim is proper, the following tests apply: (a) whether the third-party claim arises out of the same transaction on which the plaintiff’s claim is based, or is connected with the plaintiff’s claim; (b) whether the third-party defendant would be liable to the plaintiff or to the defendant for all or part of the plaintiff’s claim against the original defendant, even if such liability arises out of another transaction; or (c) whether the third-party defendant may assert any defense that the third-party plaintiff has or may have against the plaintiff’s claim. Failing these tests, the third-party complaint is improper.

• Leave to File Third-Party Complaint — Ex Parte vs. On Notice: Before the service of his answer, a defendant may move ex parte for leave to file a third-party complaint. After the service of the answer, the motion for leave must be on notice to the plaintiff. Granting leave ex parte after answer — and especially after trial — violates due process and constitutes grave abuse of discretion.

• “It is in the very nature of a declaratory relief special civil action that ‘the Relief is confined to a case of actual controversy within the Court’s jurisdiction, without the need of injunction, execution or other relief beyond the adjudication of the legal rights which are the subject of controversy between the parties.’” — This passage defines the limited scope of declaratory relief, which foreclosed the possibility of a third-party complaint seeking coercive relief.

• “It is obvious from this definition that a third-party complaint is inconceivable when the main case is one for nothing more than a declaratory relief. In a third-party complaint, the defendant or third-party plaintiff is supposed to seek contribution, indemnity, subrogation or any other relief from the third-party defendant in respect to the claim of the plaintiff against him.” — The Court stated the fundamental incompatibility between a purely declaratory main action and a derivative third-party complaint.

• “It is thus too evident to call for more elaborate discussion that respondent court’s action in allowing the filing of Cochingyans’ third-party complaint completely disregarded, due presumably to ignorance thereof, the basic concepts of the remedies of declaratory relief and third-party complaint.” — The Court characterized the trial judge’s orders as a basic failure of remedial law knowledge amounting to grave abuse of discretion.

• U.S. Commercial Co. v. Guevara, et al., 48 O.G. 612 — Cited as establishing the test that a third-party claim is proper if it arises out of the same transaction on which the plaintiff’s claim is based or is connected with it. Applied by the Court to show that the Cochingyans’ claim for release of goods bore no connection to the interpretation of a conversion rate.

• Capayas v. Court of First Instance, 77 Phil. 181 — Cited for the complementary tests: whether the third-party defendant would be liable for all or part of the plaintiff’s claim, and whether the third-party defendant may assert defenses available to the third-party plaintiff against the plaintiff’s claim. Applied to underscore the absence of any nexus between the main declaratory claim and the third-party complaint.

• Section 1, Rule 12, 1940 Rules of Court — Defines a third-party complaint as a claim against a non-party for contribution, indemnity, subrogation, or any other relief, in respect of the plaintiff’s claim. The Court held that no such claim could be framed against customs officials “in respect of” a plaintiff’s claim that sought only a legal interpretation.

• Section 2, Rule 12, 1940 Rules of Court — Prescribes that before service of his answer, a defendant may move ex parte for leave to file a third-party complaint; after service of the answer, the motion must be on notice to the plaintiff. The trial court’s ex parte grant after trial violated this provision.

• Rule 66, 1940 Rules of Court (Declaratory Relief) — The action was brought under this rule, which confines the remedy to the adjudication of legal rights without coercive relief. The Court relied on the nature of this remedy to hold the third-party complaint fundamentally improper.

Justices Antonio, Muñoz-Palma, Concepcion, Jr., and Martin concurred. Justices Fernando and Aquino took no part. Justices Muñoz Palma and Martin were designated to sit in the Second Division.