Madrigal Transport, Inc. vs. Lapanday Holdings Corporation

An order of dismissal is a final order whose proper remedy is ordinary appeal, not certiorari under Rule 65; certiorari and appeal are mutually exclusive remedies, and certiorari will not lie as a substitute for a lapsed appeal, even if the ground invoked is grave abuse of discretion.

Madrigal Transport, Inc. entered into a joint venture agreement with Lapanday Holdings Corporation for the primary purpose of operating vessels to service the shipping requirements of Del Monte Philippines, Inc., relying on representations made by Luis P. Lorenzo Jr. in his capacity as chairman or president of Del Monte, Lapanday, and Macondray and Company, Inc. The dispute arose from allegations that Lapanday and Lorenzo failed to deliver promised Del Monte charter hire contracts despite Madrigal having purchased a vessel through a ₱10,000,000 bank loan pursuant to the joint venture. The Insolvency Law (Act No. 1956), particularly Sections 32 and 33, forms the statutory backdrop, as those provisions govern the effect of a declaration of insolvency on a debtor's right to prosecute actions.

On February 9, 1998, Madrigal Transport, Inc. filed a Petition for Voluntary Insolvency before the Regional Trial Court of Manila, Branch 49. Two days later, on February 21, 1998, Madrigal filed a Complaint for damages against Lapanday Holdings Corporation, Macondray and Company, Inc., and Luis P. Lorenzo Jr. before the RTC of Manila, Branch 36. In that complaint, Madrigal alleged that it had entered into a joint venture agreement with Lapanday for the primary purpose of operating vessels to service the shipping requirements of Del Monte Philippines, Inc., relying on representations made by Lorenzo in his capacity as chairman of the board or president of Del Monte, Lapanday, and Macondray. Madrigal further alleged that Macondray had been appointed—upon Lapanday's insistence—as broker to secure charter hire contracts from Del Monte, and that pursuant to the joint venture agreement, Madrigal had purchased a vessel by obtaining a ₱10,000,000 bank loan. Despite demands, Lapanday and Lorenzo allegedly failed to deliver the promised Del Monte charter hire contracts.

On February 23, 1998, the insolvency court (RTC Branch 49) declared Madrigal insolvent. Thereafter, on March 30, 1998 and April 6, 1998, respondents Lapanday, Lorenzo, and Macondray filed their respective Motions to Dismiss the damages complaint pending before RTC Branch 36. On December 16, 1998, Branch 36 granted the motions, dismissing the complaint for failure to state a cause of action. The trial court applied Sections 32 and 33 of the Insolvency Law, ruling that upon filing of the Petition for Voluntary Insolvency, Madrigal lost the right to institute the complaint for damages and that the exclusive right to prosecute actions belonged to the court-appointed assignee.

Madrigal filed a Motion for Reconsideration on January 26, 1999, which was denied on July 26, 1999. Instead of appealing the dismissal order, Madrigal filed a Petition for Certiorari with the Court of Appeals, seeking to set aside the trial court's December 16, 1998 and July 26, 1999 orders. The CA initially entertained the petition on January 10, 2000, treating it as a petition for review since the issue was purely legal. Respondents Lapanday and Lorenzo moved for reconsideration, and on February 28, 2002, the CA granted the motion, dismissed the certiorari petition, and held that the proper remedy was appeal and that pure questions of law should be elevated to the Supreme Court. The CA denied reconsideration on November 5, 2002, prompting Madrigal to file the present Petition for Review before the Supreme Court.

• Proper Remedy is Certiorari: Petitioner contended that Section 5 of Rule 16 did not apply because the grounds for dismissal were lack of capacity to sue and failure to state a cause of action, not res judicata, extinction of the claim, or the Statute of Frauds. It argued that Section 1 of Rule 41 expressly proscribes appeal from an order denying a motion for reconsideration or one dismissing an action without prejudice, making certiorari under Rule 65 the correct remedy.
• Grave Abuse of Discretion: Petitioner maintained that certiorari was properly resorted to because the lower court's dismissal order was issued with grave abuse of discretion amounting to lack of jurisdiction.
• CA Jurisdiction: Petitioner argued that Section 2 of Rule 50 and Section 2(c) of Rule 41 did not apply because those provisions contemplate cases where appeal is the proper remedy, not where certiorari is appropriate and questions of both fact and law may be reviewed.
• Exception to the General Rule: Petitioner cited recognized exceptions where certiorari was granted despite the availability of appeal, arguing these exceptions justified its chosen remedy.

• Proper Remedy is Appeal: Respondents insisted that an ordinary appeal was the proper remedy from the trial court's order of dismissal, which was a final order, and that certiorari was not a substitute for a lapsed appeal.

• Proper Remedy: Whether certiorari under Rule 65, rather than ordinary appeal, is the proper remedy to challenge an RTC order granting a motion to dismiss on the ground of failure to state a cause of action.
• CA Jurisdiction: Whether the Court of Appeals had jurisdiction to entertain the Petition for Certiorari filed by petitioner, or whether the appeal should have been brought directly to the Supreme Court as it involved pure questions of law.

• Proper Remedy: No. An order of dismissal is a final order, and the proper remedy is ordinary appeal, not certiorari under Rule 65. Certiorari and appeal are mutually exclusive remedies; certiorari will not prosper where appeal is available, even if the ground is grave abuse of discretion.
• CA Jurisdiction: No. The issues raised by petitioner involved pure questions of law—specifically, the trial court's interpretation of the Insolvency Law—which should have been brought to the Supreme Court by petition for review on certiorari under Rule 45, pursuant to Section 2(c) of Rule 41 and Section 2 of Rule 50.

• Proper Remedy: An order of dismissal, whether correct or not, is a final order because it terminates the proceedings and leaves nothing more to be done by the lower court. As a final order, it is appealable under Rule 41. Petitioner's reliance on Section 5 of Rule 16 was found to be misplaced: that provision merely distinguishes dismissals that bar refiling (those based on res judicata, prescription, extinguishment, or the Statute of Frauds) from those that do not, but it confirms that all dismissals are subject to a timely appeal. Petitioner's invocation of Section 1(a) and 1(h) of Rule 41 was likewise rejected: Section 1(a) prohibits appeal from an order denying a motion for reconsideration because the remedy is to appeal the main judgment itself, and Section 1(h) was inapplicable because the trial court's order dismissed the action with prejudice, not without prejudice. The errors petitioner ascribed to the trial court—erroneous dismissal or failure to allow substitution of the assignee—were errors of judgment, not errors of jurisdiction, and thus were not correctable by certiorari. An error of judgment committed by a court in the exercise of its legitimate jurisdiction does not equate to grave abuse of discretion. The recognized exceptions to the rule that certiorari cannot substitute for appeal—where ordinary appeal would be inadequate and a failure of justice might result—were found inapplicable to the present facts. Petitioner availed of certiorari simply because the 15-day period for appeal had lapsed, which is precisely the situation the rule against substituting certiorari for a lapsed appeal addresses.

• CA Jurisdiction: Because the issue raised by petitioner was the trial court's interpretation of Sections 32 and 33 of the Insolvency Law—a pure question of law—the appeal should have been filed with the Supreme Court, not the Court of Appeals. Under Section 2(c) of Rule 41, where only questions of law are raised or involved, the appeal shall be to the Supreme Court by petition for review on certiorari in accordance with Rule 45. Section 2 of Rule 50 further provides that an appeal under Rule 41 taken from the RTC to the CA raising only questions of law shall be dismissed. The case was squarely governed by Barangay Blue Ridge "A" of QC vs. Court of Appeals, where the trial court granted a motion to dismiss for failure to state a cause of action, the CA denied the subsequent certiorari petition holding that appeal was the proper remedy, and the Supreme Court upheld the CA's ruling.

• Certiorari vs. Appeal; Mutual Exclusivity — Certiorari under Rule 65 and appeal are mutually exclusive remedies, not alternative or successive. Where appeal is available, certiorari will not prosper, even if the ground therefor is grave abuse of discretion. Certiorari is not and cannot be a substitute for a lapsed appeal, especially where the loss of the appeal period was occasioned by the party's own negligence or error in the choice of remedy. The requisites for certiorari are: (1) the writ is directed against a tribunal, board, or officer exercising judicial or quasi-judicial functions; (2) such tribunal, board, or officer has acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction; and (3) there is no appeal or any plain, speedy, and adequate remedy in the ordinary course of law.

• Final Order vs. Interlocutory Order — An order or judgment is final when it finally disposes of a pending action so that nothing more can be done with it in the trial court, ending the litigation in the lower court. An interlocutory order does not dispose of the case completely but leaves something to be done as regards the merits. An order of dismissal is a final order because it terminates the proceedings; the remedy of the aggrieved party is to appeal.

• Errors of Judgment vs. Errors of Jurisdiction — An error committed by a court while exercising its jurisdiction does not deprive it of that jurisdiction. Errors of judgment—mistakes in the application of law or appreciation of facts—are correctable by appeal, not by certiorari. Certiorari is confined to correction of errors of jurisdiction or grave abuse of discretion amounting to lack or excess of jurisdiction. Grave abuse of discretion implies capricious and whimsical exercise of judgment equivalent to lack or excess of jurisdiction, exercised in an arbitrary or despotic manner by reason of passion, prejudice, or personal hostility.

• "The special civil action for certiorari and appeal are two different remedies that are mutually exclusive; they are not alternative or successive. Where appeal is available, certiorari will not prosper, even if the ground therefor is grave abuse of discretion. Basic is the rule that certiorari is not a substitute for the lapsed remedy of appeal." — This is the opening pronouncement of the decision, stating the controlling doctrine in its canonical formulation.

• "An order of dismissal, whether correct or not, is a final order. It is not interlocutory because the proceedings are terminated; it leaves nothing more to be done by the lower court. Therefore the remedy of the plaintiff is to appeal the order." — This passage defines the character of a dismissal order and identifies the correct remedy, directly resolving the first issue.

• "When a court exercises its jurisdiction, an error committed while so engaged does not deprive it of the jurisdiction being exercised when the error is committed. If it did, every error committed by a court would deprive it of its jurisdiction and every erroneous judgment would be a void judgment. This cannot be allowed. The administration of justice would not survive such a rule." — Quoted from Pure Foods Corp. vs. NLRC, this passage articulates the foundational rationale distinguishing errors of judgment from errors of jurisdiction.

• Barangay Blue Ridge "A" of QC vs. Court of Appeals, 377 Phil. 49, November 24, 1999 — Controlling precedent. The trial court granted a motion to dismiss for failure to state a cause of action; after denial of reconsideration, the petitioner filed certiorari with the CA, which denied the petition holding that appeal was the proper remedy. The Supreme Court upheld the CA, holding that an error of judgment should be reviewed through ordinary appeal. The present case was found to fall squarely within this ruling.

• Pure Foods Corp. vs. NLRC, 171 SCRA 415, March 21, 1989 — Followed for the principle that an error of judgment committed by a court in the exercise of its jurisdiction is not correctable through certiorari, and that every erroneous judgment would be void if errors committed during the exercise of jurisdiction deprived the court of jurisdiction.

• Land Bank of the Philippines vs. Court of Appeals, G.R. No. 129368, August 25, 2003 — Followed for the proposition that certiorari and appeal are mutually exclusive remedies and that certiorari is not a substitute for a lapsed appeal.

• Section 1, Rule 41, Rules of Court — Defines the subject of appeal: an appeal may be taken from a judgment or final order that completely disposes of the case. Also enumerates orders from which no appeal may be taken, including orders denying a motion for new trial or reconsideration (Section 1(a)) and orders dismissing an action without prejudice (Section 1(h)). Applied to reject petitioner's argument that appeal was proscribed, since the dismissal was with prejudice and the remedy against denial of reconsideration is to appeal the main judgment.

• Section 2, Rule 41, Rules of Court — Provides the modes of appeal, including ordinary appeal to the CA from RTC decisions in the exercise of original jurisdiction, petition for review under Rule 42 from RTC appellate jurisdiction, and appeal by certiorari to the Supreme Court under Rule 45 where only questions of law are raised. Applied to determine that the proper mode was appeal by certiorari to the Supreme Court under Rule 45.

• Section 2(c), Rule 41 and Section 2, Rule 50, Rules of Court — Provide that where only questions of law are raised, the appeal shall be to the Supreme Court by petition for review on certiorari under Rule 45, and that an appeal to the CA raising only questions of law shall be dismissed. Applied to hold that the CA correctly dismissed the petition for lack of jurisdiction, as pure questions of law should have been brought to the Supreme Court.

• Section 1, Rule 65, Rules of Court — Governs petitions for certiorari, available when a tribunal has acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal or plain, speedy, and adequate remedy in the ordinary course of law. Applied to hold that certiorari was unavailable because appeal was the plain and adequate remedy.

• Section 5, Rule 16, Rules of Court — Provides the effect of dismissal: subject to the right of appeal, an order granting a motion to dismiss based on prior judgment, statute of limitations, extinguishment of claim, or the Statute of Frauds bars refiling. Applied to reject petitioner's argument that appeal was limited only to these grounds; the provision confirms that all dismissals are subject to timely appeal.

• Sections 32 and 33, Insolvency Law (Act No. 1956) — Applied by the trial court to hold that upon filing of a Petition for Voluntary Insolvency, the debtor lost the right to institute actions and that the exclusive right to prosecute actions belonged to the court-appointed assignee. The correctness of this interpretation was the substantive question of law that petitioner sought to review.

Corona, J., and Carpio-Morales, J., concurred. Sandoval-Gutierrez, J., was on leave.