G.R. No. 210284 - JAV Corp. vs. Paula Foods Corp.

JAV Corporation (JAV) – engaged in the manufacturing of meat products using a factory leased from the Dejero spouses.
Paula Foods Corporation (PFC) – a corporation engaged in processed meat and food product business, with Steve F. Serranilla as its President and one of its incorporators.
Steve F. Serranilla – initially a supplier of raw meat to JAV; later involved in lease and business arrangement matters between JAV and PFC.
Spouses Rudillo and Bernita Dejero – owners of the leased premises where JAV’s factory was located.

In July 1995, during PFC’s incorporation, Serranilla proposed to rent JAV’s factory and be substituted by the corporation once registered.
An Agreement dated August 2, 1995, provided that Serranilla, as representative of the pending corporation, would be replaced by PFC after its registration.
A Memorandum of Agreement (MOA) dated August 5, 1995, outlined that Serranilla would supply and formulate raw meat materials to JAV, billing only for the manufacturing costs.

On September 19, 1995, Serranilla billed JAV without providing supporting documents and lacking a proper breakdown, which included raw material costs.
JAV raised objections in a September 21, 1995 letter regarding:

Halted the production and delivery of raw materials.
Reissued billings that included a 50% margin profit and later even a substantially higher amount.

As a consequence, JAV was deprived of its regular supply, resulting in lost business income, which eventually led to its inability to pay rental obligations.
Due to non-payment, JAV was ejected from the leased property, and its factory machinery, furniture, and equipment were sold on execution.
Unknown to JAV, Serranilla had, as early as 1996, bought the property from the Dejeros.

JAV filed a Complaint for rescission of the contract against Serranilla in Civil Case No. 95-039.
Serranilla later sought substitution by filing a Motion for Substitution to have PFC admitted as defendant; this was initially granted by the RTC on February 26, 1996.
JAV challenged the substitution by filing a Motion for Reconsideration on February 29, 1996, arguing that the substitution was part of a fraudulent maneuver by Serranilla to escape personal liability.
The RTC, in its Order dated April 19, 2000, set aside the earlier substitution, effectively denying the substitution of PFC.
Serranilla further pursued several remedial measures:

Filed a Motion for Reconsideration (later dated May 12, 2000) and an Urgent Motion to Inhibit the presiding judge, alleging bias and abuse of discretion.
These motions were denied by the RTC in subsequent Orders dated September 18, 2000 and October 23, 2000 respectively.

A petition for certiorari and prohibition (CA-G.R. SP No. 61784) challenged the RTC’s denial of the substitution, which the CA dismissed in its January 25, 2001 decision for lack of merit.
Subsequent motions for reconsideration before the CA were also denied.

The main case proceeded with the RTC Decision dated April 23, 2001 in Civil Case No. 95-039 ruling in favor of JAV, ordering Serranilla to pay:

Damages amounting to P13,827,629.79 for lost income.
P5,302,235.82 as compensation for lost machinery, furniture, and office equipment (though later partially deleted by the CA).
P100,000.00 for attorney’s fees.

Filing petitions for certiorari before the CA (CA-G.R. CV No. 73056) and a separate petition for review on certiorari (G.R. No. 175899), all of which were dismissed.
He additionally filed a petition for annulment of judgment (CA-G.R. SP No. 102675) to annul the RTC Decision on the ground that PFC, deemed an indispensable party, was not included.

The CA, in its Decision dated January 31, 2013, annulled the RTC Decision based on the non-joinder of PFC, later leading to further judicial proceedings.

Despite the CA’s earlier annulment of the RTC Decision, Serranilla continued to raise the issue of substitution and the absence of PFC as an indispensable party in various motions and petitions.
The Supreme Court eventually resolved that the RTC Decision, having become final and executory, could not be reopened, and that Serranilla had exhausted all available remedies.
The CA’s annulment was reversed, and the RTC Decision dated April 23, 2001 was reinstated.

Whether the CA erred in annulling the RTC Decision on the ground of non-joinder of PFC as an indispensable party.

The contention centered on whether absence of PFC, a purported indispensable party, could nullify a final judgment.
JAV argued that PFC’s absence did not affect the RTC’s exercise of jurisdiction over Serranilla.

Whether Serranilla’s repeated motions, including his Motion for Substitution and later motions for reconsideration, were proper or merely a means to evade personal responsibility for his wrongful acts.

The legitimacy of seeking substitution by naming PFC instead of Serranilla was questioned.
Whether Serranilla’s actions amounted to an abuse of the judicial remedy by attempting to shift liability.

Whether the doctrine of finality of judgments precluded Serranilla’s subsequent petition for annulment given his prior availment of other appellate remedies.

The case raised the issue of whether a final and executory judgment could be annulled.
The proper application of the rules governing extraordinary remedies such as annulment of judgment was in question.