Title
Air Ads, Inc. vs. Tagum Agricultural Development Corp.
Case
G.R. No. 160736
Decision Date
Mar 23, 2011
A dispute over third-party complaints in a damages case, involving forum shopping claims and the validity of substitute pleadings, ultimately upheld by the Supreme Court.
forum shopping
res judicata
indemnification
A

Case Summary (G.R. No. 250927)

Procedural Origin in the RTC and Formation of the Third-Party Proceedings

On April 6, 2000, TADECO, through counsel ACCRA Law Office, filed its answer with compulsory counterclaims and a motion for leave to file third-party complaint, impleading Air Ads and Pioneer as third-party defendants. The RTC admitted the third-party complaint on April 14, 2000. On June 16, 2000, ACCRA Law Office filed a notice of dismissal without prejudice to the third-party complaint only against Pioneer after realizing that Pioneer was a client of its Makati office. Ten days thereafter, TADECO—through another counsel, Dominguez Paderna & Tan Law Offices (Dominguez Law Office)—filed a motion to withdraw the notice of dismissal without prejudice only as to Pioneer, or a motion for reconsideration, alleging that the notice of dismissal had been made without TADECO’s consent. On June 29, 2000, the RTC granted the notice of dismissal without prejudice. Nearly a month later, the RTC granted TADECO’s motion to withdraw the notice of dismissal without prejudice as to Pioneer and set aside the dismissal of the third-party complaint against Pioneer.

Following that withdrawal, TADECO still through Dominguez Law Office filed a motion to admit a third-party complaint in substitution of the earlier third-party complaint filed by ACCRA Law Office. TADECO explained that the substitute complaint was intended to avoid placing ACCRA Law Office in an awkward situation and to prevent the appearance that Dominguez Law Office was merely adopting the prior pleading. The substitute third-party complaint contained allegations pertaining only to Pioneer, including the proposition that if TADECO were held liable to the plaintiffs, it would seek indemnification from Pioneer under the aircraft insurance policy.

RTC Denied Petitioner’s Motion to Dismiss; Certiorari and Prohibition in the CA

On August 28, 2000, the RTC granted TADECO’s motion to admit the substitute third-party complaint in substitution of the dismissed one. It described the effect in terms of granting admission because the dismissal had been filed by the former counsel of TADECO and Pioneer. Petitioner Air Ads then filed a motion to dismiss against the third-party complaint, asserting that it had been dropped as a third-party defendant under TADECO’s substitute third-party complaint and that the filing of the substitute complaint superseded the original third-party complaint, which should therefore be stricken out.

The RTC denied the motion to dismiss on July 25, 2002. It held that the notice of dismissal filed by ACCRA Law Office did not have the effect of dropping Air Ads as a third-party defendant because the notice was expressly restrictive: it dismissed only as to Pioneer. The RTC reasoned that there was no legal basis to remove the first third-party complaint from the records and treat Air Ads as no longer a party. It ordered Air Ads to file an answer within ten days. The RTC denied Air Ads’ motion for reconsideration on September 20, 2002.

After denial of reconsideration, Air Ads filed a petition for certiorari and prohibition in the CA docketed as C.A.-G.R. SP No. 73418. The CA dismissed it on November 13, 2002 for failure to attach the board resolution designating petitioner’s authorized representative to sign the verification and certification against forum shopping. Instead of seeking reconsideration, Air Ads filed a new petition for certiorari and prohibition in the CA on December 2, 2002, docketed as C.A.-G.R. SP No. 74152, this time including the proper board certificate. While C.A.-G.R. SP No. 74152 was pending, the dismissal of C.A.-G.R. SP No. 73418 became final and executory on December 10, 2002. On February 24, 2003, the CA issued the first assailed resolution in C.A.-G.R. SP No. 74152, denying Air Ads’ petition. The CA ruled that the notice of dismissal clearly pertained only to the third-party complaint against Pioneer and that the third-party complaint against Air Ads had never been dismissed; thus, TADECO’s new counsel had not revived a dismissed complaint against Air Ads. The CA also concluded that the trial court correctly denied the motion to dismiss.

Air Ads moved for reconsideration, but the CA denied it through a second assailed resolution dated November 13, 2003.

Issues Raised Before the Supreme Court

In its petition for review on certiorari, Air Ads framed two questions for resolution:

First, whether the filing of an identical petition following dismissal of the first petition due to defective and insufficient verification and certification constituted forum shopping, or was barred by res judicata.

Second, whether a substitute third-party complaint had the effect of superseding the original third-party complaint, such that petitioner would be dropped as a third-party defendant.

TADECO countered that Air Ads’ second petition violated the rule against forum shopping and was already barred by res judicata due to an adjudication on the merits in the first dismissal. TADECO also argued that Air Ads remained a third-party defendant because the original third-party complaint against Air Ads had not been withdrawn or dismissed.

Legal Reasoning on Forum Shopping and Res Judicata

The Court rejected TADECO’s contention that the refiling of Air Ads’ petition constituted forum shopping or that the second petition was barred by res judicata.

The Court focused on the exact terms of the CA’s dismissal of the first petition (C.A.-G.R. SP No. 73418), which stated that the petition was dismissed for defective and insufficient verification and certification against forum shopping. The Court considered the governing rules on the certification requirement. Under Section 5, Rule 7 of the 1997 Rules of Civil Procedure, failure to comply with the certification requirement “shall not be curable by mere amendment” and shall cause dismissal without prejudice, unless otherwise provided, upon motion and after hearing.

In the Court’s view, the CA’s dismissal of C.A.-G.R. SP No. 73418 was without any qualification indicating prejudice. Thus, under Section 5, Rule 7, Air Ads was not precluded from filing a similar petition to correct the defect in verification and certification where the dismissal was without prejudice.

TADECO relied on Denoso v. Court of Appeals, which had treated a prior dismissal for defective attachment of pleadings in a petition for certiorari as an adjudication upon the merits, based on the then-applicable Section 3, Rule 17 rule that noncompliance with rules could have the effect of an adjudication upon the merits. The Court distinguished the present controversy by emphasizing that Section 5, Rule 7—promulgated after Denoso—expressly provides that dismissal for failure to comply with the certification requirements is without prejudice unless otherwise provided. The Court adopted the approach in Heirs of Juan Valdez v. Court of Appeals, which held that, where the CA dismissed the first petition without prejudice due to insufficient certification against forum shopping, the petitioner’s refiling was not barred by forum shopping, litis pendentia, or res judicata. The Court further noted that the Court in Heirs of Juan Valdez considered moot the question of forum shopping because the second filing followed what the CA order allowed.

Applying that reasoning, the Court held that Air Ads’ options to correct its defective situation included refiling. It explained that the Rules of Court did not prohibit refiling of a similar petition after dismissal without qualification as to prejudice, and it found that Air Ads could not be blamed for the CA’s earlier procedural disposition.

Legal Reasoning on Whether the Substitute Third-Party Complaint Superseded the Original

The Court also rejected Air Ads’ position that admission of the substitute third-party complaint automatically expelled the original third-party complaint and thereby superseded the pleading such that Air Ads was effectively dropped.

The Court examined the record and found specific circumstances supporting the trial court’s ruling. It noted that both TADECO and Pioneer were clients of ACCRA Law Office. TADECO then engaged Dominguez Law Office in lieu of ACCRA Law Office, but only for the third-party complaint against Pioneer. It further noted that the RTC dismissed the third-party complaint only against Pioneer following the notice of withdrawal filed by TADECO through ACCRA Law Office. Most importantly, it held that the RTC admitted the substitute third-party complaint only against Pioneer. These circumstances showed that the substitute third-party complaint replaced the prior third-party complaint as to Pioneer, not as to Air Ads.

Air Ads relied on Section 8 of Rule 10, which provides that an amended pleading supersedes the pleading it amends. The Court answered that the substitution used in this case could not produce the same effect as an amendment that amends a

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