Ferrer vs. St. Mary's Publishing

A petition for declaratory relief cannot be entertained when the subject contract has already been breached or violated prior to the filing of the action, and conversion into an ordinary action under Rule 63, Section 6 is unavailable where the breach occurred before the petition was filed and the petitioner fails to indicate the ordinary action chosen.

Fujian New Technology Color Marking and Printing Company is a China-based printing company represented in the Philippines by its local agent, M.Y. Intercontinental Trading Corporation, with Tedwin T. Uy as Senior Executive Vice-President. In 2008, St. Mary's Publishing engaged Fujian New Technology through M.Y. Intercontinental for the exclusive printing and distribution of various local textbooks under a Contract, pursuant to which St. Mary's Publishing issued Authorities to Print Textbooks, a December 7, 2009 Purchase Order, and Sub-Purchase Orders.

Fujian New Technology Color Marking and Printing Company is a printing company based in China, represented in the Philippines by its local agent, M.Y. Intercontinental Trading Corporation, with Tedwin T. Uy as its Senior Executive Vice-President. In 2008, St. Mary's Publishing and Fujian New Technology, represented by M.Y. Intercontinental, executed a Contract under which St. Mary's Publishing engaged Fujian New Technology for the exclusive printing and distribution of various local textbooks. Pursuant to the Contract, St. Mary's Publishing issued Authorities to Print Textbooks, a December 7, 2009 Purchase Order, and Sub-Purchase Orders in favor of Fujian New Technology.

In compliance with the December 7, 2009 Purchase Order, Fujian New Technology printed 91,000 copies of Pagpapaunlad ng Kasanayan sa Pagbasa and 210,000 copies of Developing Reading Power textbooks, at a total cost of PHP 11,347,781.08. St. Mary's Publishing defaulted in paying for the printed textbooks. Consequently, M.Y. Intercontinental issued a notice to rescind the December 7, 2009 Purchase Order.

To protect its interest, M.Y. Intercontinental and Uy, through their representative, Marie Ann Carmen F. Ferrer, filed a Petition for Declaratory Relief against St. Mary's Publishing and its Senior Executive Vice President, Jerry Vicente S. Catabijan. Ferrer sought the determination and clarification of M.Y. Intercontinental's rights under the Contract and the December 7, 2009 Purchase Order, contending that the transaction was a contract of sale and that, upon St. Mary's Publishing's failure to pay, Fujian New Technology and M.Y. Intercontinental became unpaid sellers entitled to the special remedies under the Civil Code, including possessory lien, right to resell, and right to rescind. St. Mary's Publishing and Catabijan admitted the non-payment but contended that the contract was one for printing, not sale, and disclosed an ongoing negotiation for settlement of the unpaid contract price.

After due proceedings, the RTC rendered a Decision granting the Petition for Declaratory Relief, declaring the agreement a contract of sale and M.Y. Intercontinental an unpaid seller entitled to remedies under Articles 1525, 1526, and 1533 of the Civil Code. St. Mary's Publishing and Catabijan appealed to the Court of Appeals, which reversed the RTC, holding that declaratory relief was no longer available because the Contract had already been breached. M.Y. Intercontinental and Uy elevated the case to the Supreme Court via a Petition for Review on Certiorari.

• Propriety of Declaratory Relief: Petitioner contended that they sought a declaration of their rights under the Contract and the purchase orders, which is a proper subject of a petition for declaratory relief.
• Conversion into Ordinary Action: Petitioner argued that, assuming declaratory relief was improper, the better recourse would be to convert the petition for declaratory relief into an ordinary action to enforce M.Y. Intercontinental's rights as an unpaid seller, rather than letting respondents go scot-free on their obligations.

• Impropriety of Declaratory Relief: Respondents asserted that a petition for declaratory relief is not proper because there was already a breach or violation of the Contract before the filing of the Petition.
• Bar to Conversion: Respondents argued that the breach or violation occurred even before the filing of the Petition, thus it cannot be converted into an ordinary civil action under Rule 63, Section 6 of the Revised Rules of Court.

• Propriety of Declaratory Relief: Whether a petition for declaratory relief is the proper recourse of the parties in this case.
• Conversion into Ordinary Action: Whether the petition for declaratory relief may be converted into an ordinary action under Rule 63, Section 6 of the Rules of Court.

• Propriety of Declaratory Relief: No. The petition for declaratory relief cannot be entertained because the Contract and the December 7, 2009 Purchase Order had already been breached prior to the filing of the action, and adequate remedies are available through other means.
• Conversion into Ordinary Action: No. Conversion under Rule 63, Section 6 is unavailable because the breach occurred before the filing of the petition, and the petitioner failed to indicate the ordinary action it wished to pursue.

• Propriety of Declaratory Relief: Rule 63, Section 1 of the Rules of Court requires that an action for declaratory relief be filed before breach or violation of the subject instrument. The purpose is to secure an authoritative statement of the rights and obligations of the parties for their guidance in enforcement or compliance, not to settle issues arising from an alleged breach. Here, St. Mary's Publishing admitted it failed to pay for the printed textbooks and disclosed ongoing settlement negotiations, establishing that the breach occurred before the petition was filed. Once the subject instrument has been infringed, a cause of action has already accrued and there is nothing for the court to explain or clarify short of a judgment. Allowing declaratory relief after breach would also result in multiplicity of suits, as a subsequent action for breach of contract would still lie. Furthermore, adequate remedies are available to Fujian New Technology and M.Y. Intercontinental, such as an action for breach of contract against St. Mary's Publishing.

• Conversion into Ordinary Action: Rule 63, Section 6 allows conversion of a petition for declaratory relief into an ordinary action when a breach occurs before the final termination of the case. Read in conjunction with Section 1, this provision refers to a situation where the petition was filed before the breach and the breach occurred during the pendency of the case. Three conditions must be satisfied: (1) the petition for declaratory relief was filed before the breach; (2) the breach occurred before final termination of the case; and (3) the interested party indicates the ordinary action chosen. Here, the breach preceded the filing, and the petitioner was silent on the specific ordinary action it wished to pursue, merely stating in general terms that the petition should be treated as an action to enforce its rights as an unpaid seller. Neither condition was met.

• Requisites for Declaratory Relief — For an action for declaratory relief to prosper, six requisites must concur: (1) the subject matter must be a deed, will, contract, or other written instrument, statute, executive order, regulation, or ordinance; (2) the terms and validity thereof are doubtful and require judicial construction; (3) there must have been no breach of the documents in question; (4) there must be an actual justiciable controversy or the "ripening seeds" of one between persons whose interests are adverse; (5) the issue must be ripe for judicial determination; and (6) adequate relief is not available through other means or other forms of action or proceeding. The Court applied these requisites and found the third and sixth absent because the contract had already been breached and adequate remedies were available.

• Conversion of Declaratory Relief into Ordinary Action — Under Rule 63, Section 6, a petition for declaratory relief may be converted into an ordinary action upon compliance with three conditions: (1) the interested party files the petition before breach of the subject instrument; (2) a breach occurs before the final termination of the case; and (3) the interested party indicates the ordinary action chosen. The Court denied conversion because the breach preceded the filing and the petitioner failed to specify the ordinary action desired.

• Multiplicity of Suits — Entertaining an action for declaratory relief after a breach of the subject contract is objectionable because it violates the rule against multiplicity of suits. The judgment in the declaratory relief action would prejudge the subsequent action for breach of contract, resulting in two cases instead of one.

• "It may be entertained only before the breach or violation of the statute, deed, contract, etc. to which it refers. Where the law or contract has already been contravened prior to the filing of an action for declaratory relief, the court can no longer assume jurisdiction over the action." — This passage, quoting Association of International Shipping Lines, Inc. vs. Secretary of Finance, states the fundamental jurisdictional limitation on declaratory relief and constitutes the ratio decidendi of the case.

• "When the subject has already been breached, there is nothing more for the court to explain or clarify. Therefore, 'a court has no more jurisdiction over an action for declaratory relief if its subject, i.e., the statute, deed, contract, etc., has already been infringed or transgressed before the institution of the action.'" — This passage reinforces the rule that declaratory relief is unavailable post-breach, explaining the rationale that no declaratory function remains once a cause of action has accrued.

• "If the case at bar were allowed for a declaratory relief, the judgment therein notwithstanding, another action would still lie against the importer respondent for violation of the barter law." — This passage, quoting Sarmiento vs. Hon. Capapas, illustrates the doctrine against multiplicity of suits that underlies the prohibition on declaratory relief after breach.

• Association of International Shipping Lines, Inc. vs. Secretary of Finance, G.R. No. 222239, January 15, 2020 — Controlling authority on the nature and jurisdictional limits of declaratory relief; cited for the rule that the action may be entertained only before breach or violation of the subject instrument.
• Commission on Audit vs. Pampilo, Jr., G.R. Nos. 188760, 189060 & 189333, June 30, 2020 — Cited for the principle that allowing declaratory relief after breach would prejudge the action for violation of the subject and result in multiplicity of suits.
• Sarmiento vs. Hon. Capapas, 114 Phil. 756 (1962) — Cited within Commission on Audit vs. Pampilo, Jr. for the doctrine that declaratory relief after breach is objectionable as it violates the rule on multiplicity of suits.
• Martelino vs. National Home Mortgage Finance Corporation, 579 Phil. 145 (2008) — Cited for the principle that conversion of declaratory relief into an ordinary action requires the parties to specify the ordinary action desired, among other conditions.
• Commissioner of Internal Revenue vs. Standard Insurance Co., Inc., G.R. No. 219340, April 28, 2021 — Cited for the enumeration of the six requisites for an action for declaratory relief to prosper.

• Rule 63, Section 1, Rules of Court — Provides that any person interested under a deed, will, contract, or other written instrument may, before breach or violation thereof, bring an action for declaratory relief. Applied to bar the petition because the contract had already been breached before filing.
• Rule 63, Section 6, Rules of Court — Allows conversion of a petition for declaratory relief into an ordinary action if a breach occurs before final termination of the case. Applied to deny conversion because the breach preceded the filing and the petitioner failed to indicate the ordinary action chosen.
• Article 1318, Civil Code — Defines a contract as a meeting of minds whereby one party binds himself to give something or render some service, requiring consent, object, and consideration. Applied to confirm the existence of a valid contract between the parties.
• Article 1526, Civil Code — Enumerates the rights of an unpaid seller of goods, including lien, stoppage in transitu, resale, and rescission. Discussed in the context of the RTC's ruling, which was ultimately reversed.

Senior Associate Justice Leonen (Chairperson), Justice Lazaro-Javier, Justice M. Lopez, and Justice Kho, Jr. concurred.