Otto Gmur, Inc. vs. Revilla

An assignee of the subject matter of litigation is a real party in interest and is entitled to intervene or be substituted in the case; refusal to permit intervention, where the applicant shows an interest in the subject matter such that intervention is necessary for its reasonable protection, is an abuse of judicial discretion correctible by mandamus. Where several actions involve identical questions and one is litigated as a test case, the value in controversy in all such actions should bear an appropriate proportion of the attorney's fees.

Lim Cuan Sy & Co., a Manila partnership doing business as Lim Cuan Sy, obtained fire insurance coverage from several insurance companies. Jose P. Laurel acted as its attorney in the claims against those insurers, while F. E. Zuellig, Inc. and Otto Gmur, Inc. held interests in the insurance policies by assignment. The dispute implicated Section 121 of the Code of Civil Procedure on intervention and the procedural rule that litigation must be conducted in the name of the real party in interest.

Lim Cuan Sy & Co., a Manila partnership doing business as Lim Cuan Sy, took out six fire insurance policies in November 1926, aggregating P70,000, covering its stock of merchandise at No. 62 Calle Urbiztondo, Manila. On December 26, 1926, while the policies were in full force and effect, a fire destroyed the insured merchandise. The insurance companies refused to pay the policies on the ground of fraud on the part of the insured in submitting its claims of loss.

To recover under the policies, Lim Cuan Sy & Co. commenced six civil actions in the Court of First Instance of Manila, docketed as Nos. 31715, 31735, 31745, 31765, 31775, and 31785. Because the issues in all the actions were identical, the parties agreed on September 28, 1927, in five of the cases—Nos. 31735, 31745, 31765, 31775, and 31785—to suspend all proceedings until final determination of case No. 31715, Lim Cuan Sy vs. Northern Assurance Company, Limited. Under the stipulation, the decisions in the five cases would abide the result of the test case: if judgment were rendered for the plaintiff in No. 31715, each defendant would be condemned to pay its pro rata share of the total loss, calculated by the ratio of its policy to the total insurance, plus 6% interest from filing and costs; if judgment were for the defendant, judgment would likewise be entered for the defendant in each case.

Case No. 31715 proceeded to trial. On May 7, 1929, the Court of First Instance rendered judgment for the plaintiff against the Northern Insurance Co., Ltd. for P10,000, with interest and costs; on appeal under record No. 31952, the Supreme Court affirmed on November 13, 1930. Meanwhile, Lim Cuan Sy & Co. assigned the policies underlying the other cases: on December 22, 1926, it assigned to F. E. Zuellig, Inc. the policy in case No. 31735, with an indorsement making loss payable to F. E. Zuellig, Inc. as its interest might appear; on December 27, 1929, it assigned by public document to F. E. Zuellig, Inc. the policy in case No. 31745; on August 5, 1929, it assigned by public document to Otto Gmur, Inc. the policies in cases Nos. 31775 and 31785; and on December 27, 1929, it assigned by public document to Otto Gmur, Inc. the policy in case No. 31765.

Jose P. Laurel served as attorney for Lim Cuan Sy in the actions against the insurance companies. He apparently conducted the cases on a contingent basis, expecting to receive 25% of the amount of the judgments plus expenses, and on November 13, 1930, he filed a lien on the judgments for such amounts. On June 19, 1930, a petition for involuntary insolvency of the partnership Lim Cuan Sy & Co. was filed in the Court of First Instance of Manila; on October 17, 1930, the partnership was declared insolvent, and Trinidad Jurado Te Kim Juan was appointed assignee.

After the record was returned to the lower court, the parties agreed as of December 15, 1930, to deposit in court the amounts due in the six cases, totaling P84,062.14. Cases Nos. 31735, 31745, 31785, 31775, and 31765 were set for hearing on December 18, 1930. On November 19, 1930, F. E. Zuellig, Inc. and Otto Gmur, Inc. filed verified motions in those five cases for permission to intervene. Jose P. Laurel and the assignee of the insolvent estate opposed the motions. The respondent judge denied the motions, and the assignee was thereafter permitted to substitute the plaintiff in the insurance cases. The petitioners then filed the present applications for mandamus to compel the respondent judge to permit them to intervene so that they could be heard on the question of the fees earned by Laurel as attorney.

• Relief Sought: Petitioners asked that writs of mandamus issue to compel the respondent judge to permit Otto Gmur, Inc. and F. E. Zuellig, Inc. to intervene in the cases for the purpose of being heard on the question of the fees earned by Jose P. Laurel as attorney.
• Capacity as Assignees: The applications were brought by petitioners as assignees of the insurance policies held by them.

• Concurrent Remedies: Respondents defended on the ground that the movants had available concurrent remedies.
• Remedy by Appeal: Respondents further defended on the specific ground that the movants had a remedy by appeal.
• Discretionary Intervention: Respondents argued that under Section 121 of the Code of Civil Procedure, intervention is permissive and requires leave of court, so granting or refusing it is a matter of judicial discretion not controllable by mandamus.
• Laches and Timeliness: Respondents argued that the motions to intervene were tardily interposed; the period of trial had expired, and when the parties stipulated that the five cases would abide the test case, the stipulation had the effect of a judgment by consent, so it was too late to intervene.
• Insolvency Proceedings: Respondents maintained that denial of mandamus would not leave the parties unprotected because all debatable questions, including the validity of the assignments and the amounts due, could be resolved in the insolvency proceedings.

• Right of Assignees to Intervene: Whether the assignees of the insurance policies, as real parties in interest, are entitled to intervene in the pending cases for the purpose of being heard on the amount of attorney's fees.
• Timeliness of Intervention: Whether intervention may still be permitted after the test case has been decided and the insurance proceeds have been paid into court.
• Abuse of Discretion and Mandamus: Whether the respondent judge's refusal to permit intervention constitutes an abuse of discretion correctible by mandamus.
• Apportionment of Attorney's Fees: Whether, where several actions involve identical questions and one is litigated as a test case, the value in controversy in all such actions should bear an appropriate proportion of the attorney's fees.

• Right of Assignees to Intervene: Yes. The assignees became real parties in interest upon assignment; litigation must be conducted in the name of the real party in interest, and an assignee is a successor in interest entitled to intervene or be substituted.
• Timeliness of Intervention: Yes. An attorney's fee cannot be determined until after the main litigation is decided and the recovery is at the disposition of the court; the issue over the fee arises only when something has been recovered.
• Abuse of Discretion and Mandamus: Yes. Although intervention is generally discretionary, refusal is an abuse of discretion when the intervenor shows an interest in the subject matter such that intervention is necessary for its reasonable protection; mandamus lies to correct that abuse.
• Apportionment of Attorney's Fees: Yes. Where several actions involve identical questions and one is litigated as a test case, the value in controversy in all such actions should bear an appropriate proportion of the attorney's fees.

• Right of Assignees to Intervene: When the insurance policies now held by petitioners were assigned to them, they became the real parties in interest, and it is a statutory rule of procedure in this jurisdiction that litigation must be conducted in the name of the real party in interest. At common law, when an interest in litigation was transferred to a stranger, the action abated upon proof of that fact; now the assignee has a right to be substituted in the place of the original plaintiff. In such a case, the assignee, upon making his rights known and applying to the court to be allowed to intervene or to be substituted, is not in the position of an intervenor as he usually presents himself in litigation between others. The true intervenor is a stranger to the litigation and usually asserts rights adverse to the actual litigants, while a person substituted in the place of the original parties by assignment is not adverse to his predecessor; he is a true successor in interest and has a right to be substituted in the record. Where such an assignment is asserted in court, there can be no question as to the right of intervention or substitution. Even if the rights of petitioners were considered under the ordinary rules governing intervention by adverse parties, their right of intervention would be no less evident, because intervention is absolutely necessary to protect their supposed rights. If the fee of the attorney representing the insured were fixed at an excessive amount, petitioners, if not permitted to controvert the right to such fee in the proceeding to determine the amount due to the attorney, would have no remedy whatever. They are entitled to their day in court and have a right to be heard upon the question of the amount of the fee. The person who must pay a fee has a right to be heard upon the question of its amount. Joaquin vs. Herrera, 37 Phil. 705, is authority that it is an abuse of judicial discretion to refuse to allow intervention when the intervenor shows an interest in the subject matter of the litigation of such character that intervention is necessary for the reasonable protection thereof.

• Timeliness of Intervention: The suggestion that the right to intervene should be denied because the motion was not presented until after the test case was decided and the money recovered upon the insurance policies had been paid into court loses its force when it is considered that an attorney's fee cannot be determined until after the main litigation has been decided and the subject of the recovery is at the disposition of the court. The issue over the attorney's fee only arises when something has been recovered from which the fee is to be paid.

• Abuse of Discretion and Mandamus: As a general rule, the right of a stranger to intervene in an action as an active litigant is dependent upon the discretion of the court, but it is an abuse of judicial discretion to refuse to allow the intervention when the intervenor shows an interest in the subject matter of the litigation of such character that intervention is necessary for the reasonable protection thereof. In the case before the Court, if the fee of the attorney representing the insured were to be fixed at an excessive amount, the petitioners, if not permitted to controvert the right to such fee in the proceeding to determine the amount due to the attorney, would have no remedy whatever. They are entitled to their day in court and have a right to be heard upon the question of the amount of the fee. The refusal to permit intervention was therefore an abuse of discretion correctible by mandamus.

• Apportionment of Attorney's Fees: Where several actions are brought involving identical questions, and one case is litigated as a test case while the others are left pending under a stipulation making the issue in those actions dependent upon the issue in the test case, the value in controversy in such actions should bear its appropriate proportion of the amount due as fees to the attorney. It is a matter of common observation that where large sums in litigation are made to depend upon the result of a test case, such case is contested with an energy and diligence proportionate to the total interests involved. In such case it would be highly unjust to compel the parties interested in the test case to bear the entire expense of the professional talent engaged in the contest; and it would be no less unjust to the attorneys conducting the litigation to limit their compensation to a reasonable proportion of the amount involved in the test case. A tax case or an insurance case based upon a single policy of insurance may involve enormous value to the person or persons interested in the litigation, and the professional labor expended upon it may be out of all proportion to the amount technically involved.

• Real Party in Interest — The statutory rule of procedure requires that litigation be conducted in the name of the real party in interest. When the insurance policies were assigned to petitioners, they became the real parties in interest and were entitled to intervene or be substituted in the cases.
• Intervention by Assignee or Successor in Interest — An assignee of the subject matter of litigation is not an ordinary intervenor who asserts rights adverse to the litigants; he is a true successor in interest and, upon making his rights known, has a right to be substituted in the record. Where the assignment is asserted in court, the right of intervention or substitution is clear.
• Abuse of Discretion in Intervention — Although the right of a stranger to intervene as an active litigant is generally dependent upon the discretion of the court, it is an abuse of judicial discretion to refuse intervention when the intervenor shows an interest in the subject matter of such character that intervention is necessary for its reasonable protection.
• Attorney's Fees in Test Cases — Where several actions involve identical questions and one is litigated as a test case while the others await the result under stipulation, the value in controversy in all such actions should bear an appropriate proportion of the attorney's fees. It would be unjust to burden the parties in the test case with the entire expense and equally unjust to limit the attorney's compensation to the amount technically involved in the test case.
• Timeliness of Intervention on Attorney's Fees — An attorney's fee cannot be determined until after the main litigation has been decided and the subject of the recovery is at the disposition of the court. The issue over the attorney's fee arises only when something has been recovered from which the fee is to be paid.
• Mandamus to Correct Abuse of Discretion — Mandamus lies to compel a trial court to permit intervention where the refusal constitutes an abuse of discretion because the intervenor has shown an interest in the subject matter such that intervention is necessary for its reasonable protection.

• "when the insurance policies now held by these petitioners were assigned to them, they became the real parties in interest, and it is a statutory rule of procedure in this jurisdiction that litigation must be conducted in the name of the real party in interest." — This passage states the majority's core basis for recognizing the assignees' right to intervene or be substituted in the litigation.
• "it is an abuse of judicial discretion to refuse to allow the intervention when the intervenor shows an interest in the subject matter of the litigation of such character that intervention is necessary for the reasonable protection thereof." — This is the controlling standard for intervention and the ground for granting mandamus in this case.
• "And what could be more reasonable than to declare, as we now do, that the person who must pay a fee has a right to be heard upon the question of its amount?" — This formulation anchors the right of the party ultimately liable for attorney's fees to contest the amount in the fee-fixing proceeding.
• "The issue over the attorney's fee only arises when something has been recovered from which the fee is to be paid." — This passage rejects the objection that intervention came too late after the test case was decided and the insurance proceeds were deposited in court.

• Joaquin vs. Herrera, 37 Phil. 705 — Cited in the majority as authority that refusal to allow intervention is an abuse of discretion when the intervenor shows an interest in the subject matter such that intervention is necessary for its reasonable protection.
• Lim Cuan Sy vs. Northern Assurance Co., p. 248, ante — The test case whose affirmance on November 13, 1930, triggered the deposit of the insurance proceeds and the proceedings for attorney's fees.
• Felismino vs. Gloria, 47 Phil. 967 — Cited in the dissent for the proposition that "any period of a trial" under Section 121 means any time before rendition of judgment.
• In Re Engelhard, 231 U.S. 646 — Cited in the dissent; the U.S. Supreme Court refused mandamus to compel intervention where the lower court acted within its discretion.
• People vs. Sexton, 37 Cal. 532 — Cited in the dissent; a motion for leave to intervene presents a judicial question that cannot be controlled by mandamus.
• Gilmore vs. American Cent. Ins. Co., 65 Cal. 63 — Cited in the dissent; a motion for judgment pursuant to a stipulation is not a trial on the merits, and a motion for new trial is irregular.
• Henry, Lee & Co. vs. Cass County Mill and Elevator Company, 42 Iowa 33 — Cited in the dissent; when a verdict has been returned or the parties have agreed on the judgment, it is too late for a third party to intervene.

• Section 121, Code of Civil Procedure — Governs intervention. The dissent quoted it to show that intervention is permissive and requires leave of court, and that the trial court's discretion is not ordinarily controllable by mandamus. The majority's grant of mandamus rested on the exception that refusal is an abuse of discretion when intervention is necessary to protect the intervenor's interest.

Villamor, Ostrand, Johns, and Romualdez, JJ., concurred.

• Malcolm, J. — Dissented, joined by Avanceña, C.J., and Villa-Real, J. He argued that Section 121 of the Code of Civil Procedure makes intervention permissive and subject to the trial court's discretion; the period of trial had expired, and the stipulation in the five cases had the effect of a judgment by consent, so intervention came too late. He cited Iowa and California cases, as well as In Re Engelhard and People vs. Sexton, for the rule that mandamus will not control the grant or denial of intervention. He also maintained that denial of the writs would not leave the petitioners unprotected because their claims could be resolved in the insolvency proceedings. A subsequent resolution dated February 28, 1931, modified the decision, with Avanceña, C.J., Malcolm, and Villa-Real, JJ., dissenting from the order denying the motion for reconsideration.