Title
Reynaldo Labayen and Teodoro Labayen vs. Talisay-Silay Milling Co.
Case
G.R. No. 45843
Decision Date
Jun 30, 1939
Plaintiffs alleged fraud by defendant in failing to construct a railway per contract, causing loss of sugar cane. Court dismissed claims, citing res judicata and vague allegations.
contract
damages
fraud
A

Case Summary (G.R. No. 45843)

Factual Background: The Milling Contract and the First Civil Case

The amended complaint alleged that the plaintiffs and the defendant entered into a milling contract on August 27, 1929. Under the contract, the defendant bound itself, at its own expense, to construct and operate a fixed railway for the plantation’s use, to receive the plaintiffs’ sugar cane that was properly cut and cleared, to transport the cane to the factory free of charge, and to grind and mill the cane, with specified guarantees as to yield and quality of centrifugal sugar. The contract likewise imposed a long-term obligation on the planter (the plaintiffs) to deliver all sugar cane planted, cultivated, and produced on the plantation, and it required delivery on the railway wagons at places and times agreed upon by the defendant’s manager and the committee of planters.

The plaintiffs further alleged that they planted sugar cane in agricultural years 1920-1921 and 1921-1922, to be milled by the defendant. They asserted that the defendant violated the contract because it did not construct the railway at a convenient place on the hacienda Dos Hermanos, so the sugar cane during those years was not brought and milled by the defendant’s central. They claimed losses totaling P 28,620 and therefore filed civil case No. 3789 in the Court of First Instance of Occidental Negros.

In that earlier case, judgment was rendered absolving the defendant and, upon the defendant’s counterclaim, sentencing the plaintiffs to pay P 12,114. The plaintiffs appealed. The Supreme Court later affirmed the judgment in Labayen vs. Talisay-Silay Milling Co., 52 Phil., 440 (referred to in the narrative as G. R. No. 29298).

Allegations in the Amended Complaint: Fraud and Attempted Nullification of Final Judgments

After the defendant’s ownership of the hacienda resulted from the execution and foreclosure of a mortgage, the amended complaint alleged that the plaintiffs learned of circumstances they characterized as fraudulent. The complaint stated that the sheriff sold the hacienda at public auction and adjudicated it to the defendant, and that immediately thereafter, the defendant constructed the railway. The plaintiffs alleged that the defendant had maintained in the first case that railway construction was impossible due to the hacienda’s curves and grades, which the plaintiffs characterized as false and fraudulent.

The plaintiffs asserted that the judgments of the Court of First Instance and the Supreme Court in the first case had been obtained through fraud consisting in perjured testimony. They alleged that witnesses for the defendant falsely testified that the railway could not be constructed on Dos Hermanos because the curves and grades made construction materially impossible, and that the witnesses knew such statements were untrue. As a result, the plaintiffs claimed they suffered damages of P 70,000.

As a second cause of action, the amended complaint alleged that, through false representations by the defendant’s officers, the defendant induced the plaintiffs to authorize it to obtain a loan from a bank and to secure that loan by mortgaging Dos Hermanos, with the promise of a bonus to be paid after repayment of the loan and release of the mortgage. The plaintiffs alleged that the defendant obtained the bank loan by mortgaging the hacienda using the power conferred, and that despite payment and release, the defendant refused to pay the promised bonus. The plaintiffs sought a declaration nullifying both the trial court judgment and the Supreme Court decision that affirmed it, an award of P 70,000, return of the hacienda to the plaintiffs without prejudice to payment of the indebtedness, and payment of the bonus plus costs.

Demurrer and the Core Trial Court Issue on Appeal

The defendant interposed a demurrer. With respect to the first cause of action, the defendant alleged that the allegations did not constitute a cause of action and, in particular, that the matter was already res judicata because it had been decided in the former case. Regarding the second cause of action, the defendant likewise alleged that the allegations failed to state a cause of action.

On appeal, the plaintiffs limited their assignment of error to the trial court’s ruling sustaining the demurrer. Their argument emphasized that there was no res judicata, that nullity of judgments should not be resolved by the general rule on fraud in procedure but rather by equity, and that perjury and other findings should not bar an action declaring the former decisions void. They also contended that the allegations in the second cause of action did state a cause of action.

The Parties’ Positions: Res Judicata and the Nature of Alleged Fraud

The Court treated the first cause of action as raising a single determinative question: whether the fraud invoked by the plaintiffs had been raised, controverted, and decided in the first case. The Court explained that, if it had, res judicata would attach and bar the attempt to annul both the trial court decision and the Supreme Court decision affirming it.

In analyzing the alleged fraud, the Court focused on the plaintiffs’ characterization of fraud as perjury committed by the defendant’s witnesses. The Court observed that the specific factual premise—statements that the railway could not be constructed on the hacienda because of curves and grades making construction materially impossible—was the special defense raised by the defendant in the first case, was submitted for resolution, and was resolved in favor of the defendant after the Court had heard the parties and concluded that the evidence was true and believable.

The Court then invoked established doctrine distinguishing between fraud that justifies annulment of a judgment and perjury as a basis to reopen what had become final. It held that an action to annul a judgment for fraud would not lie unless the fraud was extrinsic or collateral, and unless the facts on which the fraud was based had not been controverted or resolved in the case where the judgment sought to be annulled had been rendered. It further emphasized that false or perjured testimony is not a ground to attack a judgment except in circumstances where the fraud goes directly to jurisdiction.

Legal Basis and Reasoning: Why Collateral Attack Was Barred for the First Cause of Action

Applying these principles, the Court reasoned that the perjured testimony alleged by the plaintiffs had been considered in the first case. The trial and appellate rulings had treated the testimony as credible and had made it the basis for finding that the defendant did not construct the railway because the hacienda’s land was rugged and its curves and grades rendered construction impossible. After such a holding, the Court held it was not proper to question the veracity of that testimony in a collateral proceeding. Otherwise, the Court reasoned, there would be no end to controversies that had been submitted and resolved by courts.

The Court thus concluded that, unless fraud attacked the court’s jurisdiction, the facts constituting the fraud must be extrinsic or collateral to serve as a ground to annul a judgment that had already become final. Since the plaintiffs’ fraud theory rested on matters that had been raised and decided in the earlier case, the Court found the plaintiffs’ contentions on these questions unsound. Accordingly, the first cause of action did not avoid res judicata and could not support annulment of the prior final decisions.

The Second Cause of Action: Insufficiency and Lack of Specific, Valid Allegations

With respect to the second cause of action, the Court dealt with the bonus-related claim premised on the defendant’s promise after repayment and release of the mortgage. The Court noted that the amended complaint alleged that the plaintiffs had been informed that the defendant, using the power the plaintiffs had confer

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