Servicewide Specialists, Inc. vs. Court of Appeals

An appellate court may review an unassigned error when it is closely related to the error properly assigned or necessary to a just decision. Solidary liability, however, cannot be affirmed on pleadings and evidence not formally offered, rendered ineffective by dismissal, or insufficient to identify the same vehicle, and a compromise is not an admission of liability.

Servicewide Specialists, Inc. is the entity that acquired the rights and interests under a promissory note and chattel mortgage originally executed by the Tolosa spouses in favor of Amante Motor Works and successively assigned through Filinvest Finance and Leasing Corporation and Filinvest Credit Corporation. Eduardo Garcia is the president and general manager of Binan Motor Sales Corporation, from which the Tolosa spouses ordered a jeepney unit. The dispute requires applying the rules on appellate review of unassigned errors, the effect of dismissal or nonsuit on prior pleadings and proceedings, the formal-offer requirement for evidence, and the rule that a compromise is not an admission of liability.

Servicewide Specialists, Inc. sued the Tolosa spouses and John Doe for replevin and/or sum of money with damages before the then Court of First Instance of Manila, Branch V, on December 15, 1981. Servicewide alleged that on January 15, 1981, the Tolosa spouses purchased from Amante Motor Works one Isuzu passenger-type jeepney with Motor No. C240-317331 and Serial No. CMCI-81063-C for P48,432.00, payable in 24 monthly installments; that the spouses executed a promissory note and drew a deed of chattel mortgage over the vehicle in favor of Amante Motor Works; that on the same day, Amante Motor Works, with notice to the Tolosas, assigned the promissory note and chattel mortgage to Filinvest Finance and Leasing Corporation; that Filinvest Finance and Leasing Corporation assigned its rights and interest to Filinvest Credit Corporation; that Servicewide later acquired the rights and interests of Filinvest Credit Corporation over the note and mortgage; and that the Tolosa spouses failed to pay the installments due despite several demands. Servicewide prayed for the return of the vehicle or payment of the balance of P34,224.78 and damages. On January 13, 1982, the trial court issued an order for the seizure of the vehicle.

The Tolosa spouses filed their Answer on March 22, 1982. They claimed that they purchased one jeepney unit from Binan Motor Sales Corporation, not Amante Motor Works; that in January 1981 they ordered another unit from Binan Motors through the proddings of its President and General Manager, Eduardo Garcia; that Garcia informed them that the additional unit would be “house financed” by Binan Motors; that Eduardo Tolosa noticed that the vendor indicated in the deed of sale was not Binan Motors but Amante Motor Works; that Garcia explained that he would make full payment on the jeepney to Amante Motor Works and that Tolosa would pay Garcia the monthly installments; that Tolosa never received any notice from Binan Motors about the jeepney unit he ordered; that on December 17, 1981, Tolosa received a receipt from Filinvest Finance and Leasing Corporation about the payment he allegedly made on a jeepney unit he purchased from Amante Motor Works; that Garcia informed him that he was in possession of the jeepney, had made the initial payment, and would pay its monthly amortization; and that Garcia prepared and executed a “Deed of Sale with Assumption of Mortgage” where Tolosa sold and transferred the jeepney to Garcia. On June 10, 1982, Servicewide amended its complaint by adding Eduardo Garcia as defendant in place of John Doe, alleging that the Tolosa spouses, without Servicewide’s knowledge and consent, executed and delivered to Garcia a “Deed of Sale with Assumption of Mortgage” over the jeepney sought to be recovered. On June 16, 1982, the trial court admitted the amended complaint and ordered the issuance of summons on Garcia as additional defendant. On October 28, 1982, the Tolosa spouses filed an “Amended Answer with Third-Party Complaint” impleading Binan Motors and Eduardo Garcia as third-party defendants; the trial court ordered service of summons on the third-party defendants.

On January 18, 1983, the sheriff seized the subject vehicle from the possession of one Lourdes Bartina. Three days later, Bartina filed a “Third Party Claim” and “Urgent Motion for Release” alleging ownership of the jeepney; she claimed that she purchased the vehicle from Binan Motors and regularly paid its subsequent installments to the Commercial Credit Corporation of Las Pinas. On February 21, 1983, the trial court released the vehicle to Bartina on an indemnity bond of P34,000.00, finding that the documents supporting Bartina’s ownership were in due form and executed prior to the documents of the Tolosa spouses. On March 2, 1983, Binan Motors and Eduardo Garcia filed their “Answer to Third-Party Complaint” claiming that the Tolosa spouses had no cause of action against them because it was Amante Motor Works that invoiced the vehicle; that the Tolosa spouses purchased a jeepney unit from them but their check for downpayment bounced; that they initiated a complaint for violation of the Bouncing Checks Law against Eduardo Tolosa for which an information was filed on December 2, 1982; and that if the Tolosa spouses were prejudiced, it was because of their unreasonable neglect to make good their initial payment. A reply was filed by the Tolosa spouses. Despite the February 21, 1983 order, the subject jeepney was not released to Bartina, so on June 14, 1984, Bartina filed her “Complaint in Intervention.” Garcia and Binan Motors filed their “Answer to Complaint in Intervention,” claiming that they acquired the subject vehicle from the Tolosas “in consideration of the value of one Celeste jeepney in the amount of P56,000.00” but that the Tolosas failed to pay the downpayment; they claimed they came to court with clean hands and were actually the victims of the Tolosas. Servicewide manifested that it was adopting its complaint in the principal case as its comment or answer to the complaint-in-intervention.

At the pre-trial conference of November 7, 1984, the trial court noted that summons and copy of the amended complaint had not been served on Eduardo Garcia as additional defendant, and it deferred the pre-trial until such service shall have been effected. On January 10, 1985, the trial court ordered Servicewide to turn over possession of the subject jeepney to Bartina upon filing of the increased bond of P55,000.00. Pre-trial was scheduled on February 27, 1985 but was postponed several times until October 7, 1985. On October 7, 1985, all parties, through their respective counsels, appeared except the Tolosas and their counsel. The trial court declared the Tolosas in default with respect to the principal complaint and scheduled the reception of evidence for Servicewide; it likewise declared the Tolosas nonsuited with respect to their third-party complaint against Binan Motors and Garcia, and reset the pre-trial on the complaint-in-intervention. At the February 4, 1986 hearing for reception of Servicewide’s evidence, the Tolosas again failed to appear despite due notice. Servicewide presented its legal accounts analyst, Ms. Nannette Navea, who testified on the outstanding obligation of the Tolosas and Garcia, and presented documents consisting of the promissory note, deed of chattel mortgage, deed of assignment of the Tolosas’ credit by Filinvest Finance and Leasing Corporation, and the notice and demand letter to the Tolosas. Servicewide then submitted the case for decision.

Pre-trial for the complaint-in-intervention, originally scheduled on November 7, 1985, was postponed several times until March 1, 1988. The Tolosas were notified but again failed to appear. The trial court declared them to have waived their right to present evidence as against the complaint and dismissed with prejudice their third-party complaint against Garcia and Binan Motors; it also declared them in default with respect to Bartina’s complaint-in-intervention and scheduled the reception of Bartina’s evidence. On April 27, 1988, the Tolosas again did not appear despite due notice. Bartina testified that the vehicle subject of the complaint was sold to her by Binan Motors owned by Eduardo Garcia and that the vehicle was in her possession when it was seized by the sheriff and thereafter turned over to Servicewide; she identified and offered various documents proving her ownership. On May 23, 1988, Bartina and the defendants-in-intervention Eduardo Garcia and Binan Motors moved to dismiss the complaint-in-intervention, alleging that they had “arrived at an amicable settlement of their claims”; the court granted the motion on May 24, 1988. The records showed that no summons on the amended complaint was served on Garcia. Garcia and Binan Motors filed an Answer to Third-Party Complaint and an Answer to Complaint in Intervention, but no Answer to the complaint. The CA found that no summons on the amended complaint had been served on Garcia, but that he filed several pleadings as a third-party defendant, and that there was no sufficient evidence to hold him solidarily liable with the Tolosa spouses on the principal complaint.

• Unassigned Error: Petitioner argued that the CA seriously erred in dwelling on questions not raised as an error on appeal by Garcia; on appeal, Garcia only contended that the trial court erred in finding him one of the defendants referred to in the dispositive portion because he was not a defendant in the principal complaint and jurisdiction had not been acquired over him, and the CA should have confined itself to the sole issue of jurisdiction over Garcia’s person.
• Sufficiency of Evidence Against Garcia: Petitioner maintained that the CA palpably erred in holding that there is no evidence adduced to hold Eduardo Garcia liable, citing Garcia and Binan Motors’ pleadings, Bartina’s testimony, and Garcia’s subsequent compromise with Bartina.
• Bartina’s Evidence: Petitioner argued that the CA palpably erred in disregarding the evidence adduced by intervenor Lourdes Bartina in deciding the case.

• Jurisdiction Over Garcia’s Person: Respondent Eduardo Garcia contended on appeal that the trial court erred in finding him one of the defendants referred to in the dispositive portion because he was not a defendant in the principal complaint and jurisdiction had not been acquired over him, no summons having been served on the amended complaint.

• Appellate Review of Unassigned Errors: Whether the CA may dwell on questions not raised as errors on appeal by the appellant.
• Sufficiency of Evidence Against Garcia: Whether there is sufficient evidence on record to hold Eduardo Garcia solidarily liable with the Tolosa spouses for the return of the subject motor vehicle or payment of its equivalent value in money.
• Bartina’s Evidence: Whether the CA erred in disregarding the evidence adduced by intervenor Lourdes Bartina in deciding the case.

• Appellate Review of Unassigned Errors: Yes. An appellate court has ample authority to review rulings not assigned as errors if necessary for a just decision; an unassigned error closely related to the assigned error or upon which its determination depends may be considered.
• Sufficiency of Evidence Against Garcia: No. The evidence did not sufficiently prove Garcia’s solidary liability; the pleadings relied upon were rendered ineffective by dismissal and described a different vehicle, and the promissory note and chattel mortgage were signed by the Tolosa spouses.
• Bartina’s Evidence: No. Bartina’s evidence was not formally offered by petitioner and, in any event, did not show that Garcia sold to Bartina the same vehicle previously sold to the Tolosas; the compromise was not an admission of liability.

• Appellate Review of Unassigned Errors: The SC rejected petitioner’s submission. It held that an appellate court is clothed with ample authority to review rulings even if they are not assigned as errors, especially if their consideration is necessary in arriving at a just decision. An unassigned error closely related to an error properly assigned, or upon which determination of the question raised by the assigned error depends, will be considered notwithstanding the failure to assign it as an error. In ruling on Garcia’s liability, the CA did not treat an issue unrelated to those litigated before the trial court. The CA found that Garcia had submitted himself voluntarily to the trial court’s jurisdiction; to avoid dispensing piecemeal justice, it proceeded to determine whether Garcia was indeed liable on the obligation. This procedure was in accord with the desideratum of a complete adjudication of a case to speed up the dispensation of justice. The SC cited Espina vs. Court of Appeals, Hydro Resources Contractors Corporation vs. Court of Appeals, Ortigas, Jr. vs. Lufthansa German Airlines, and Rule 51, Section 7.

• Sufficiency of Evidence Against Garcia: The SC disagreed with petitioner. Garcia and Binan Motors did not file an Answer to the complaint; the records do not show that both or either of them were served summons on the amended complaint, which is precisely why Garcia raised the issue of lack of jurisdiction. Garcia and Binan Motors, however, filed an Answer to Third-Party Complaint and an Answer to Complaint in Intervention. The third-party complaint filed by the Tolosas was dismissed twice by the trial court—first at the pre-trial of October 7, 1985 for the principal complaint and second at the pre-trial of March 1, 1988 for the complaint-in-intervention; the second dismissal was with prejudice. The complaint-in-intervention was, upon motion of the parties-in-intervention, also dismissed by the trial court on May 24, 1988. A dismissal or discontinuance of an action operates to annul orders, rulings, or judgments previously made in the case; it also annuls all proceedings had in connection therewith and renders all pleadings ineffective; it leaves the situation as though no suit had ever been brought; and it carries down with it previous proceedings and orders in the action, all pleadings of both parties, and all issues with respect to the plaintiff’s claim. The records do not show that petitioner adopted the Answer to Third-Party Complaint and the Answer to Complaint in Intervention filed by Binan Motors and Garcia as part of its evidence in the trial court; it cannot rely on them on appeal for evidence not formally offered before the trial court cannot be considered, and to consider them at that stage would deny the other parties their right to rebut them. Assuming arguendo that the said pleadings can be considered in favor of petitioner, they still do not sufficiently prove Garcia’s liability. The motor vehicle described in the Answer to Third-Party Complaint had different motor and serial numbers from the vehicle subject of the complaint: the subject vehicle was a galvanized silver jeepney with Motor No. C240-317331 and Serial No. CMCI-81063-C, while the vehicle in said pleading was a red stainless jeepney with Motor No. C-221-443144 and Serial No. CMCI-81795-C. What Garcia and Binan Motors admittedly sold to the Tolosas was not the subject vehicle. In the Answer to the Complaint in Intervention, Garcia and Binan Motors admitted that they acquired from the Tolosas the “vehicle subject of the complaint in consideration of one Celeste jeepney valued at P56,000.00,” but under the two pleadings, what Garcia and Binan Motors sold to the Tolosa spouses was a different vehicle from the one they acquired from said spouses and which they allegedly sold to Bartina; a double sale of the same jeepney could not arise because there appear to be two different jeepneys in the pleadings. Even in the “Deed of Sale with Assumption of Mortgage,” the vehicle described had different motor and chassis numbers: a red jeepney with Motor No. C240-32833 and Chassis No. CMCI-82062-C. On the whole, petitioner’s evidence consisted of the promissory note, the deed of chattel mortgage, the deed of assignment, and the notice and demand letter. The promissory note in favor of Amante Motor Works was signed by the Tolosa spouses and provided that any payment thereon shall be made “to the order of Filinvest Finance and Leasing Corporation.” Both spouses also signed as mortgagors the deed of chattel mortgage in favor of Amante Motor Works, which assigned all its rights over the chattel mortgage to Filinvest Finance and Leasing Corporation; Filinvest Finance and Leasing Corporation likewise assigned its rights and interest over the promissory note and deed of chattel mortgage to Filinvest Credit Corporation, which in turn assigned it to petitioner. The Tolosa spouses defaulted on the obligation and refused to pay the installments due despite notice to them. By no stretch of logic can they prove Garcia’s solidary liability.

• Bartina’s Evidence: The SC held that the CA did not err in disregarding Bartina’s evidence. The records do not show that petitioner adopted Bartina’s testimony as part of its evidence in the trial court; evidence not formally offered before the trial court cannot be considered on appeal, and considering it would deny the other parties their right to rebut it. Assuming arguendo that Bartina’s evidence can be considered, her documentary evidence merely shows that the jeepney subject of the complaint was indeed sold to her by Binan Motors represented by Juliet Garcia, Eduardo Garcia’s daughter; there is nothing to show that Eduardo Garcia sold to Bartina the same vehicle that he previously sold to the Tolosas. The compromise between Bartina and Garcia and Binan Motors cannot be taken as an admission of Garcia’s liability. In civil cases, an offer of compromise is not an admission of any liability; with more reason, a compromise agreement should not be treated as an admission of liability on the part of the parties vis-a-vis a third person. The compromise settlement of a claim or cause of action is not an admission that the claim is valid, but merely admits that there is a dispute, and that an amount is paid to be rid of the controversy; nor is a compromise with one person an admission of any liability to someone else. The policy of the law is to encourage compromises; when they are made, the rights of third parties are not in any way affected thereby.

• Appellate review of unassigned errors — An appellate court may review rulings not assigned as errors when their consideration is necessary to a just decision; an unassigned error closely related to an error properly assigned, or upon which the determination of the assigned error depends, may be considered. The SC applied this to allow the CA to rule on Garcia’s liability after finding that he had voluntarily submitted to the trial court’s jurisdiction, to avoid piecemeal justice.
• Effect of dismissal or nonsuit — A dismissal or discontinuance of an action annuls orders, rulings, or judgments previously made; annuls all proceedings had in connection therewith; renders all pleadings ineffective; leaves the situation as though no suit had ever been brought; and carries down with it previous proceedings and orders, all pleadings of both parties, and all issues with respect to the plaintiff’s claim. The SC applied this to the third-party complaint, dismissed twice with the second dismissal with prejudice, and to the complaint-in-intervention, dismissed on motion, so the answers and evidence connected to them could not establish Garcia’s liability.
• Formal offer of evidence — Evidence not formally offered before the trial court cannot be considered on appeal; considering it would deny the other parties the right to rebut. The SC applied this because petitioner did not adopt the Garcia/Binan pleadings and Bartina’s testimony as its evidence.
• Compromise not an admission of liability — In civil cases, an offer of compromise is not an admission of any liability; a compromise agreement is not an admission of liability vis-a-vis a third person; a compromise settlement merely admits a dispute and that an amount is paid to be rid of the controversy; a compromise with one person is not an admission of liability to someone else; the law encourages compromises, and the rights of third parties are not affected. The SC applied this to the Bartina-Garcia/Binan compromise, which could not prove Garcia’s liability to Servicewide.
• Double sale requires the same subject matter — A double sale of the same jeepney cannot arise where the pleadings describe two different jeepneys. The SC applied this because the Answer to Third-Party Complaint, Answer to Complaint in Intervention, and Deed of Sale with Assumption of Mortgage described vehicles with motor and serial/chassis numbers different from the subject vehicle.

• “An appellate court is clothed with ample authority to review rulings even if they are not assigned as errors in the appeal. This is especially so if the court finds that their consideration is necessary in arriving at a just decision of the case before it.” — The SC used this to reject Servicewide’s claim that the CA should not have ruled on Garcia’s liability because it was not assigned as error.
• “A dismissal or discontinuance of an action operates to annul orders, rulings or judgments previously made in the case.” — The SC relied on this to treat the pleadings from the dismissed third-party complaint and complaint-in-intervention as ineffective.
• “In civil cases, an offer of compromise is not an admission of any liability.” — The SC used this to hold that the Bartina-Garcia/Binan compromise could not be taken as proof of Garcia’s liability to Servicewide.
• “It cannot rely on them on appeal for evidence not formally offered before the trial court cannot be considered.” — The SC used this to reject Servicewide’s reliance on the Garcia/Binan pleadings and Bartina’s testimony, which were not adopted as evidence in the trial court.

• Espina vs. Court of Appeals, 215 SCRA 484 [1992] — Cited for the rule that an appellate court may consider an unassigned error closely related to the assigned error or necessary to a just decision.
• Hydro Resources Contractors Corporation vs. Court of Appeals, 204 SCRA 309 [1991] — Cited for the same rule on appellate review of unassigned errors.
• Ortigas, Jr. vs. Lufthansa German Airlines, 64 SCRA 610 [1975] — Cited for the same rule on appellate review of unassigned errors.
• People vs. Peralta, 237 SCRA 218 [1994] — Cited for the rule that evidence not formally offered before the trial court cannot be considered.
• Vda. de Alvarez vs. Court of Appeals, 231 SCRA 309 [1994] — Cited for the same formal-offer requirement.
• Marr vs. A.B. Dick & Co., 197 F 2d 498, 97 L Ed 680 [1952] — Cited for the effect of dismissal or discontinuance in annulling prior orders, rulings, or judgments.
• Bryan vs. Smith, 174 F 2d 212, 11 ALR 2d 1402 [1949] — Cited for the rule that dismissal annuls proceedings and renders pleadings ineffective.
• Avery vs. Howell, 172 P 995, 103 Kan. 31 [1918] — Cited for the rule that a compromise with one person is not an admission of liability to someone else and does not affect third parties.

• Rule 51, Section 7, Revised Rules of Court — Cited as support for the appellate court’s authority to review unassigned errors; applied to allow the CA to pass on Garcia’s liability.
• Rule 132, Section 34, Revised Rules on Evidence — Provides that evidence not formally offered cannot be considered; applied to exclude the Garcia/Binan pleadings and Bartina’s testimony from Servicewide’s evidence.
• Rule 130, Section 27, Revised Rules on Evidence — Provides that an offer of compromise is not an admission of liability; applied to the Bartina-Garcia/Binan compromise.
• Article 2029, Civil Code of the Philippines — States the policy of encouraging compromises; applied to hold that the compromise did not affect third-party rights or prove Garcia’s liability.